JAPANESE MINISTRY WANTS SIX BANKS TO FORGIVE LOANS TO CREDIT UNION

JAPANESE MINISTRY WANTS SIX BANKS TO FORGIVE LOANS TO CREDIT UNION

Japan's Finance Ministry has asked six big banks with close business ties to troubled credit union Cosmo Shinyo Kumiai to forgive multibillion-yen loans to the institution, a senior ministry official said on Thursday.

''We have been asking six banks to give up all of their loans to Cosmo as a step to help solve Cosmo's problems," the official said.He said institutional creditors would lose about 60 percent of their loans to Cosmo in any case, as about 60 percent of the lending now consists of bad loans. But he said the ministry asked these six banks to give up their remaining loans to Cosmo, too.

He did not name the six banks, but industry sources said they were Sanwa Bank Ltd., Sakura Bank Ltd., Fuji Bank Ltd., Tokai Bank Ltd., Chiba Bank Ltd. and Toyo Trust & Banking Co.

They are investors in Cosmo's affiliate SS Pharmaceutical Co. Ltd., the sources said.

"The Tokyo metropolitan government said it would protect depositors. But that should not include financial institutions which have the ability to assess debtors," the official said. "We don't think the request is unreasonable."

Last week, the Tokyo city government halted part of Cosmo's business after a run on deposits triggered by media reports about its bad-loan problems.

The step was needed to protect depositors and the stability of the Japanese financial system, Tokyo Governor Yukio Aoshima said. He said he would

draw up a plan to deal with Cosmo soon with support from the Finance Ministry and the Bank of Japan.

The Tokyo city government is willing to provide up to 20 billion yen ($217 million) to help solve the Cosmo problem, Mr. Aoshima said.

Financial-industry sources said it was still not known if the six big banks would accept the request.

"We have not had such a request from the Finance Ministry. But from the point of view of common sense, forgiving all loans would not be a reasonable plan," a Sanwa Bank spokesman said.

According to the financial daily Nihon Keizai Shimbun, the six banks' loans to Cosmo total 54.5 billion yen, with Sanwa the biggest creditor at 18.7 billion yen. The banks declined comment on the amounts.

If the six banks forgive all loans and other creditors give up about 60 percent of their loans to Cosmo, the total will amount to 80 billion to 85 billion yen, industry sources said.

The Finance Ministry official said the Tokyo government was asking SS Pharmaceutical to give up deposits of 3 billion yen at Cosmo. SS Pharmaceutical is the largest Cosmo member, having provided about 45 percent of its capitalization. At the same time, Cosmo is the biggest shareholder in SS Pharmaceutical.

An SS Pharmaceutical spokesman, contacted by telephone, said it had not been asked to give up deposits in Cosmo.