TOKYO - A total of 161 Japanese financial institutions - many more than expected - will participate in a unit that will buy property-backed nonperforming loans, according to an official of Mitsubishi Bank Ltd.

The 161 financial institutions - including insurers and credit unions that said they would join the unit - will provide capital of $62.3 million, the official said.

Mitsubishi, which currently chairs the Federation of Bankers Associations of Japan, drew up a draft plan for the unit in October. It had projected that the unit would draw some 50 institutions and $48 million in capital, bank sources said.

"The number is much higher than I thought. I thought only the [21] major banks and several regional banks would join," said Nozomu Kunishige, an analyst at Kleinwort Benson International Inc.

"The cheap funds [a minimum of $40,000] needed to join the unit may have attracted a large number of financial institutions regardless of whether they will make use of the unit."

The unit is being set up to help financial institutions dispose of the crushing property-related loans that went sour when the economic bubble burst in the late 1980s.

A Catch-22

But concern remains that financially troubled small institutions may have a hard time disposing of their bad loans through the unit as they must first lend money to the unit to help it buy the bad loans, Mr. Kunishige said.

Banking industry sources said six major commercial banks and two long-term credit banks would invest $2.42 million to set up the unit.

Under the framework worked out by Mitsubishi, the unit will buy bad loans over the next five years and remain in operation for 10 years to help institutions dispose of bad loans.

The 161 investors include 11 nationwide commercial banks. three long-term credit banks, seven major trust banks, 58 regional banks, and 47 second-tier regional banks, the Mitsubishi official said.

Also joining are 18 life insurers, 14 non-life insurers, two central associations of credit unions, and the Norinchukin Bank - the central financial body for agricultural cooperatives.

Earlier hopes that public funds might be used to bail out the financial institutions were dismissed in Mitsubishi's draft plan for the unit after other industries expressed outrage.

Still Hope of Public Funding

Nonetheless, a bank official said, not all bankers have abandoned hope that public funds will eventually be forthcoming.

"Some institutions may see the participation as a kind of insurance," he said.

Mr. Kunishige said he believes the joint unit could change its framework if needed.

Earlier, major Japanese banks appointed Shinichiro Goto, managing director of Mitsubishi, as president of the unit.

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