Incubator Bank of Japan (IBJ), the Tokyo-based private bank has been ordered to stop operations and will file bankruptcy today, according to official source. The Incubator Bank of Japan has become failure in seven years so it is impact for Japan because it is first failure bank in seven years. Incubator Bank of Japan has been encouraging bankruptcy by using a cap on deposit insurance.
Government officials hassled that the bankruptcy would have slight shock on the Japanese financial system. The Financial Services Agency (FSA) has ordered the bank that it cannot do any business for at least three days and must make efforts to protect existing depositors, according to FSA statement. It is the first time that restrict on deposit insurance had been used in Japan. But officials emphasized that the failure would not have any wider financial effect.
Incubator Bank of Japan is specialist in providing banking services for small and medium-sized businesses; it is not related to Japan’s central bank.
The Nikkei business daily and other Japanese media said that the FSA is likely to let the bank go under and will only refund depositors a maximum of 10 million yen (120,000 dollars). The Nikkei reported, the Tokyo-based bank may report a negative net worth of 150 billion yen without citing sources.
The minister in charge of financial services, Shozaburo Jimi said in a statement that the IBJ will file for bankruptcy later Friday to the Tokyo District Court. He added, “It’s extremely regrettable that the situation occurred. I hope depositors remain cool-headed as up to 10 million yen in deposits will be protected.”
Since 2003, it would be the first bankruptcy in banking sector of Japan. The restriction on deposit insurance was passed during 2002 after a slew of banks went bankrupt following the exploding of the economic bubble in the 1990s.
State minister for fiscal and economic policy, Satoshi Arai said, “I’m confident that it will not threaten the stability of our country’s financial system.” He told to reporters on the economy, “There will be no big impact.”
In Tokyo trade, banking shares were mixed on Friday with Mitsubishi UFJ Financial group up 1.49 percent. Shinsei Bank was 3.03 percent lower. The benchmark Nikkei index was up 1.99 percent at noon.
Topix Banks Index of Japan fell 0.1 percent at the 3 p.m. close of Tokyo trading. Credit Organization of Small and Medium- Sized Enterprises Co., a Tokyo-based lender operating in southern Japan, which owns 8,075 shares of Incubator Bank, tumbled 11 percent on the Jasdaq exchange. The standard Topix index rose 0.8 percent.
The cave in of the closely held, small-business lender move toward following the former chairman and Japan Financial Services adviser Takeshi Kimura was charged in August for impeding a regulatory investigate. At a press conference today, Financial Services Minister Shozaburo Jimi said that the IBJ has about 3,300 depositors with accounts exceeding 10 million yen.
Senior Vice Minister Kohei Otsuka in charge of the FSA said that as of Aug. 31, 3,560 depositors had a total of 47.1 billion yen in excess of 10 million yen.
After break Japanese banking rules, Incubator Bank was ordered in May to delay some operations by the regulator. The failure is being first since Ashikaga Bank Ltd. filed for bankruptcy in 2003 after the government suspended deposit insurance caps to prevent turmoil amid multiple bank failures.
According to the Financial Services Agency, Incubator Bank held total deposits of 610 billion yen, assets of 494 billion yen and had lending of 448 billion yen and 829 employees as of June 30.
Yoshinobu Yamada, an analyst at Deutsche Bank AG, said in a report today, “The Incubator Bank is a special case and quite unlike failures of the past, which were very much cases of mopping up the messes left by the bubble collapse.”
At a press conference in Tokyo today, the bank’s president Haruki Kohata said that Incubator Bank had net liabilities of 180.4 billion yen as of Aug. 31. In a statement, Central bank Governor Masaaki Shirakawa said that the nation’s financial system remains stable after reports of the collapse. Finance Minister, Yoshihiko Noda said that there will not be any impact on the banking system.
What’s most important is that “the bank sincerely addresses issues facing depositors. I expect the Deposit Insurance Corporation of Japan to control that and I will be watching carefully,” said Noda at a press conference in Tokyo.
During the June, the Financial Services Agency filed a criminal protest against Incubator Bank for a series of alleged cover-ups of e-mails by bank officials in June 2009 and March of this year, when the regulator conducted an investigation. After the financial regulator suspended some Incubator Bank operations in May, the protest came.
During the Junichiro Koizumi administration, Kimura, a former Bank of Japan banker and adviser to the Financial Services Agency, resigned in May after his bank placed a net loss of 5.1 billion yen in the year ended March. Other three bank officials were also charged by the Tokyo District Prosecutors Office last month for breaching local bank laws.
Today the operations of lender have been suspended through Sept. 12 including its branch offices following the bankruptcy announcement.
A 32-year-old depositor of IBJ, Yuko Nakamura who has deposited 10 million yen in May at bank to get a 0.6 percent interest rate on a one-year fixed deposit. She said at standing outside a closed branch office in Tokyo’s Shinbashi district, “My husband is worried about our deposit money that’s why I came to visit the branch. From now on, we have to be more careful even if some banks offer better interest rates.”