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Japanese Banks Set Up Firm To Assume Some Third World Loans

March 19, 1987

TOKYO (AP) _ A group of 28 Japanese commercial banks has set up a company to assume part of their outstanding loans to debtor nations, Fuji Bank Ltd. said Thursday.

Kiyoshi Nemoto of Fuji Bank said the new company, named JBA Investment Inc., actually was shell company aimed at clearing mounting overseas loans and uncollected interest from the books of the Japanese banks.

The company would buy Third World loans from the banks at a discount and then attempt to pool the loans and sell them to investors or hold the loans until maturity.

Japanese banks held outstanding loans to debtor nations of more than $35 billion as of September 1986.

Nemoto said a bank could sell its outstanding external loans to JBA Investment at a 40 percent discount to clear the debts from its books, meaning the bank would get back 60 percent of the outstanding debt in cash, he said.

JBA would buy the outstanding loans with investment money from the bank, and pay that money back to the bank as interest when it gets payment from the debtor nations, he said.

Nemoto noted that Japan banks’ uncollected interest had been mounting since Brazil announced Feb. 20 that it indefinitely was suspending interest payments to private banks that hold most of its $108 billion foreign debt. The moratorium was expected to last until Brazil and the banks renegotiated payment terms on the banks’ portion of the debt.

Nemoto said JBA Investment, which was set up in the Cayman Islands for tax reasons, is capitalized at $84,000 and is owned equally by the 28 banks.

The Wall Street Journal reported Wednesday that in addition to Fuji Bank, participating banks include Dai-Ichi Kangyo Bank Ltd., Sumitomo Bank Ltd., Bank of Tokyo Ltd. and Industrial Bank of Japan Ltd.

Japanese bankers have indicated the new company could help their balance sheets by allowing them to claim tax deductions for the losses incurred in selling the loans at a discount, the Journal said.

Although similar ventures have been proposed in the United States, U.S. bankers have expressed doubts such a program would work for them because of differing tax laws and regulations.

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