TOKYO, Nov 29: The Japanese government announced a plan on Saturday to place collapsed regional banking group Ashikaga Financial Group under state control to help stabilize the nation’s financial system.

The government reportedly plans to use taxpayer funds of more than one trillion yen for the bailout.

The announcement came after the government held an emergency financial crisis meeting, chaired by Prime Minister Junichiro Koizumi, officials said.

“The government will continue securing stability in the financial system while keeping close cooperation with the Bank of Japan,” Koizumi said in a statement.

“And we are determined to make our utmost effort to maintain trust and order as well as protect depositors,” he said.

Under the plan, the government is to temporarily take over management of Ashikaga Financial Group by taking over all the shares in the banking group.

The bank’s debts exceeded its assets by 102.3 billion yen at the end of September this year, Jiji Press said, quoting officials of financial regulator, the Finance Services Agency.

The government would take over control and let the bank continue operation until its financial health is revived and a new management takes over, economic and fiscal policy minister Heizo Takenaka told a news conference.

The Bank of Japan separately held an emergency policy board meeting late Saturday to extend special loans to Ashikaga Bank, the core member of the banking group, officials said.

“We have decided to issue special loans whenever necessary,” Bank of Japan governor Toshihiko Fukui told a news conference.

“With this measure, the financial system will be secured in the area where Ashikaga Bank is operating,” Fukui said.

Earlier in the day, the regional banking group informed the government it intended to give up its own efforts to rebuild its financial health and to instead seek state support, officials said.

Koizumi forecast the impact of the bailout programme on financial markets would be limited.

“I will take firm action to avoid any confusion,” Koizumi told reporters after the meeting.

“All the deposits will be protected,” he said. “I presume that the market will react to the case calmly.”

While major Japanese banks are improving their balance sheets, regional banks are still hamstrung by deteriorating non-performing loans, financial analysts said.—AFP