12/16 07:52 Nine Korean Credit Unions in Japan Declared Insolvent (Update3) By Satoko Adachi, Mayumi Otsuma and Naoko Fujimura

Tokyo, Dec. 16 (Bloomberg) -- Japan's financial regulator tonight declared two of the largest ethnic-South Korean credit unions plus seven ethnic-North Korean institutions insolvent, alarming thousands of local community investors.

The Financial Reconstruction Commission will dispatch officials to investigate the financial condition of all nine, commission chief Hakuo Yanagisawa said.

The declaration came as the South Korean government was reportedly considering investing in Osaka-based Kansai Kogin Credit Cooperative and Tokyo Shogin, the two largest credit unions. As of June, Kansai Kogin's liabilities exceeded assets by 51 billion yen ($453 million), the FRC said. Neither Kansai Kogin nor Tokyo Shogin is publicly traded.

The latest failures renewed concern about the extent of bad loans in Japan's financial system. Like other Japanese financial institutions, the credit unions are hurting because of loans made during economic expansion in the 1980s. In the next decade, real estate prices fell.

The Bank of Japan, in a special board meeting today, decided to extend emergency loans to Kansai Kogin to help it guarantee deposits, bank Governor Masaru Hayami said in a statement, adding that ``the Bank of Japan believes that protection of depositors and others, as well as the stability of the financial system, will be ensured.''

The bank is ready to provide as much money as needed, central bank officials said. They couldn't say how much might be needed.

This will be the third time the BOJ has extended emergency loans to failed credit cooperatives. Cosmo Credit Union failed in July 1997 followed by Kizu Credit Union the next month.

Japan's financial industry was rocked by large bank failures in 1997, including Yamaichi Securities Ltd. and Hokkaido Takushoku Bank Ltd. Since then, parliament has approved 60 trillion yen in rescue funds and spent taxpayers' money to help clean up bad debt left by collapsed lenders.

Bank analysts say the country's financial industry is still plagued with sour loans at some banks and insurance companies.

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-- Carl Jenkins (somewherepress@aol.com), December 16, 2000