While public anger over the government’s use of 685 billion yen in taxpayers’ funds to liquidate seven “jusen” housing loan companies has subsided, this year may see the outbreak of yet another financial crisis that could eventually require the injection of public money.Analysts say the fuss over the jusen liquidations pales next to the seriousness of potential financial failures involving nonbanks, agricultural cooperatives and general contractors, all of which are faltering under the heavy weight of massive nonperforming loans believed to be in the neighborhood of 100 trillion yen. “The jusen dissolution was only the starting point. The core of the bad loan mess resides in nonbank lenders and construction companies,” says a financial analyst at a foreign brokerage. “Taxpayers should be aware of the possibility that their money could once again be called upon in the future.”Takakazu Nakamori, a researcher at Teikoku Databank, believes the debt problem could take years to resolve. “Although failures of financial institutions (due to bad loans held by nonbanks and construction companies) will probably occur intermittently this year, this will not mean the end of the bad debt plight,” Nakamori says. “The nation’s debt problem is now so entangled that it will take several years to unravel. That means uncertainty over Japan’s financial stability will continue for a while.”An Osaka District Court ruling in November declaring the bankruptcy of Sueno Kosan, a heavy borrower from the now-defunct jusen, is stirring concern among nonbank finance companies that those with large outstanding credits to the Osaka-based realtor will not be able to collect the debts. The fear is that the court decision may have triggered a trip wire that will eventually lead to a chain reaction of nonbanks and small banks going bankrupt, including second-tier regional banks and agricultural financial institutions, that loaned large sums to nonbanks.Nonbank finance institutions, which make commercial loans without accepting deposits, typically include such entities as leasing firms, card companies and consumer financing companies. There are currently about 33,000 nonbanks nationwide.Many firms set up nonbanks in the 1980s to increase profits by using surplus funds. Since commercial banks are banned from directly participating in leasing and consumer credit operations, they too established nonbank subsidiaries.Nonbanks rely on banks for fundraising because they are prohibited from using proceeds from commercial paper issues to pay off loans. Also, banks and nonbank subsidiaries, in the name of “cooperative financing,” worked together on many financing projects. Outstanding loans to nonbanks made by banks listed on the Tokyo Stock Exchange amounted to 54.3 trillion yen as of March 1995, according to Tokyo Shoko Research Ltd.Nonbanks used their massive cash reserves to play the financial markets — with disastrous results. As the asset-inflated bubble economy took off, nonbank lenders, including the jusen, lent trillions of yen to property speculators who bet that land prices would keep rising. About 40 percent, or 22.5 trillion yen, of total loans made by the top 278 nonbanks were directed to the construction and real estate industries as of March 1995, according to the Finance Ministry.When the ministry, in an attempt to slow the frantic expansion of the bubble, imposed restrictions on bank financing for speculative land acquisitions in 1990, grossly inflated land prices went into a tailspin. Consequently, speculators were unable to pay their debts, and the jusen failed.Other nonbanks also suffered. A large portion of business lending made by nonbanks was weighted heavily in real estate loans and is believed to have gone delinquent.Experts say sour loans held by bank-affiliated nonbank lenders are being handled slowly as founding institutions write off most of those loans by setting aside reserves. In contrast, independent nonbanks, which have no so-called parent banks, face enormous difficulties, with most lender banks refusing to abandon their loan claims. “Nonbanks do not have depositors, so there is no worry that their bankruptcies will unleash a run on funds. However, the negative impact of nonbank failures on bank operations will be far more serious than that of the jusen collapse,” says an official of a major city bank. A series of nonbank insolvencies could trigger a crisis by unleashing failures among small lender banks, the official predicts, adding that public money will be necessary to maintain order in the financial system if this happens.