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Banks (Finance)

Kiyo Bank to Seek Public Fund Injection Under Bank Recapitalization Program

Strategic Insights

— 1 min read

Kiyo Bank, a Wakayama Prefecture-based regional bank, is preparing to apply for a public fund injection of 20-30 billion yen (US$172-259 million) to shore up its capital, clean up bad loans, and boost lending to local businesses. The bank plans to merge with local competitor Wakayama Bank on October 10 and intends to use the public funds to bolster its operations. The Financial Services Agency (FSA) has indicated that it will approve the use of public funds as early as this year, as the merger meets the precondition set down by the law to revitalize the regional economy.

Key Takeaways:

  • Kiyo Bank plans to apply for a public fund injection of 20-30 billion yen (US$172-259 million) under the government's bank recapitalization program.
  • The bank will use the funds to shore up its capital, clean up bad loans, and boost lending to local businesses after its planned merger with Wakayama Bank on October 10.
  • As of March 31, the combined core capital of Kiyo Bank and Kiyo Holdings Inc. as a percentage of total assets was 8.64%, not far below the 9.8% average for regional and second-tier regional institutions.
  • The combined bad-loan ratio of the two banks was 7.39%, above the average 4.5% for regional and second-tier regional institutions.
  • The FSA believes the merger meets the precondition for the use of public funds, which is to help revitalize the regional economy.
  • Kiyo Bank and Kiyo Holdings Inc. will submit a plan to the FSA to bolster their operations, including earnings targets and ways to contribute to local communities.
  • The bank's capital ratio will decline if it writes off nonperforming debt, raising concerns that it may have to curtail lending to local businesses.

Statistics:

  • 20-30 billion yen (US$172-259 million): public fund injection Kiyo Bank plans to apply for
  • 8.64%: combined core capital of Kiyo Bank and Kiyo Holdings Inc. as a percentage of total assets as of March 31
  • 9.8%: average core capital for regional and second-tier regional institutions
  • 7.39%: combined bad-loan ratio of the two banks as of March 31
  • 4.5%: average bad-loan ratio for regional and second-tier regional institutions

Sources:

  • The Nihon Keizai Shimbun, Aug. 22
  • Nikkei

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