Firms fear end of debt moratorium

Despite assurances, lenders may get tough on small businesses


Struggling small firms can expect continued government support after the debt moratorium law expires at month’s end, although some borrowers are already getting warnings from banks.

Some 300,000 to 400,000 companies have seen their loan terms eased under the law, which took effect in December 2009 under an initiative started by then Financial Services Minister Shizuka Kamei.

But some 50,000 to 60,000 of the companies are believed to be in such dire financial straits that drastic action may be required, such as a shift to new business fields or outright closure.

“Banks will not become tough on borrowers (after the law expires) because the definition of bad loans will not change,” Financial Services Agency commissioner Ryutaro Hatanaka emphasized, hoping to ease concerns that banks might cut off lending or start collecting outstanding loans as soon as the moratorium runs out.

The Japanese Bankers Association and other bank industry groups have confirmed that attitudes toward borrowers are not expected to change after the law expires. The FSA meanwhile is working hard to ease borrowers’ fears by holding seminars.

But a recent survey by credit research firm Teikoku Databank Ltd. revealed that some banks are already issuing warnings to borrowers. A bookseller in Osaka Prefecture said in the survey that its creditor bank hinted it might stop extending loans to the firm unless it switches to a more profitable business.

On a Jiji Press questionnaire given to banks late last year, a second-tier regional lender in the Kanto region said that other banks are pressuring clients to hike their monthly payments.

Even after the law expires, the FSA will continue to let banks exempt borrowers whose bad-loan terms have been eased as long as revival looks possible.

The agency will also ask lenders to continue accepting changes in loan terms if so requested.

The law has helped prevent a sharp increase in corporate bankruptcies since the global economic downturn that started in September 2008, Yuri Okina, counselor at the Japan Research Institute, said.

But many borrowers have had their loan terms eased repeatedly despite lacking clear prospects for revival. This is inviting a moral hazard, Okina said.

“Easily changing loan terms have made many small companies less eager to overhaul their businesses,” an FSA executive said.

In addition, many firms continued to struggle after their loan terms were eased under the law. Teikoku Databank said 686 had collapsed by the end of February after receiving easier terms.