InsideJapan News Network

The Incubator Bank of Japan has filed for bankruptcy after the failure of an ambitious expansion programme.

Papers were filed with the Tokyo district court at the end of last week and it is the first banking collapse in Japan for seven years.

It is also expected that the government will cap the current deposit guarantee scheme to ¥10 million, although the bank may have net liabilities in excess of ¥180.4 billion.

The bank's president, Haruki Kohata, explained: "We started our business with the purpose of supporting small and midsize companies. But at a certain point, we started to rush expansion, which resulted in a distorted business."

Trading at all of the bank's 114 branches was halted following a suspension order from the Financial Services Agency and the announcement of the deposit guarantee cap.

The agency claims the cap will be used in this case because the Incubator Bank does not have access to the interbank market and has a limited number of depositors – therefore its collapse is likely to have little impact on the country's financial system.

Ashikaga Bank was the last Japanese bank to face financial problems in 2003 and as a result was put under government control for over four years.

Written by Susan Ballion.