Japan's Financial Function Enhancement Review Board approved Kirayaka Bank's management enhancement plan built around an ¥18bn public-fund request in August 2023, the first time any lender had invoked the pandemic-relief clause of the Financial Function Enhancement Act, according to review board minutes the Financial Services Agency released this month under its three-year disclosure rule. The minister still had to decide separately whether to subscribe for the shares. It was Kirayaka Bank's third public-fund request since the 2011 earthquake recapitalization, and board members did not sign off without pushing back on the premise.
| Metric | Figure |
|---|---|
| Net loss, year to March 2023 (Kirayaka Bank) | ¥8.3bn |
| Unrealized securities losses | ¥17.6bn |
| SBI-related securities and investment trusts | ¥174bn of ¥237.1bn (about 74%) |
| Public funds requested (COVID special provision) | ¥18bn |
| Pandemic-specific credit costs (3-year actual + 10-year estimate) | ¥18.2bn |
| Additional SBI investment sought for Jimoto Holdings | About ¥2bn |
The Math Behind the ¥18bn Ask
Kirayaka Bank's president, who also chairs parent Jimoto Holdings, told the board the bank had booked ¥13.3bn in credit costs over the prior three years, ¥5.3bn of it tied to pandemic-hit borrowers, many of them hot-spring inns and restaurants in Yamagata prefecture. Projecting a decade forward, he estimated another ¥23.4bn in credit costs, ¥12.9bn of it pandemic-related. The two pandemic-specific figures add up to ¥18.2bn, almost exactly the ¥18bn requested. That arithmetic was the bank's answer to a harder question: its record ¥8.3bn net loss for the year to March 2023 also reflected lower securities interest and dividend income and a provision for one large borrower's sudden failure, on top of precautionary provisions for pandemic-hit borrowers. Committee members asked why the pandemic clause should cover a loss with those other components mixed in.
Whose Portfolio Is It, Anyway?
Committee members pressed harder on a second point. SBI-related securities and investment trusts made up roughly ¥174bn of Kirayaka Bank's ¥237.1bn securities book, about 74%, which Kirayaka Bank's president described to the board as largely low-credit-risk instruments such as US municipal bonds, Canadian provincial debt, Danish covered bonds and US-Australian yen-bond swaps. SBI also supplies an outside director who sits on Kirayaka Bank's board through Jimoto Holdings, and Jimoto Holdings said it was proceeding toward receiving roughly ¥2bn more in SBI investment. One committee member said the SBI name alone might make staff reluctant to challenge its products; Jimoto Holdings' president said individual security decisions are firewalled from the outside director and that some SBI-proposed products have in fact been turned down.
Approved, With Caveats
The board approved the new Kirayaka Bank plan and related changes to Sendai Bank's earlier enhancement plan unanimously, after flagging moral hazard and asking the FSA to monitor whether the bank's risk culture, not just its new loss limits, actually changes. As of March 2023, Kirayaka Bank employed 729 people and held a capital adequacy ratio of 7.66%. Its president also told the board that branch closures, from 59 in March 2021 to 47 by March 2023 with a further cut to 39 planned that September, had produced deposit outflows larger than expected. The bank has long participated in fee-free ATM-sharing arrangements with other Yamagata and Tohoku lenders. Tokyo Brief has separately covered the longer public-fund repayment timeline facing the group.