May saw 1,696 corporate bankruptcies, a drop of 1.6 percent from a year earlier and the first fall in five months, credit research agency Teikoku Databank Ltd. said Friday.

But the number of bankrupt firms increased 3.4 percent from the previous month, the agency said.

The number of insolvent companies has surpassed the 1,600 line for five months in a row and the May figure is the fifth-largest postwar monthly total, Teikoku Databank said.

Deflation in particular has dealt a harsh blow to corporate profits, the research agency noted.

Liabilities left by the bankrupt firms in May rose 6.2 percent from a year earlier to 1.085 trillion yen, exceeding 1 trillion yen for the ninth straight month, the third-highest postwar figure.

The data only cover bankruptcies that left debts of 10 million yen or more.

The agency attributed the high combined debt figure to a string of large company failures, including major paper manufacturer Nippon Kakoh Seishi Co. and the upscale Kawana Hotel.

With the failure of Nippon Kakoh Seishi, listed on the first section of the Tokyo Stock Exchange, listed companies have gone under every month since September.

A record 19 listed companies have folded since January, easily surpassing even the total of 14 for the whole of both 1997 and 2001, Teikoku Databank said.

Two companies fell victim to the commercial consequences of the outbreak of bovine spongiform encephalopathy, or mad cow disease. This brings the number of such companies to 62 since last October, a month after the first case of BSE was confirmed in Japan, it said.

Recession-induced failures — companies going bankrupt in the wake of poor sales and exports, difficulties collecting sales credits, and increased bad loans — totaled 1,310 cases, accounting for 77.2 percent of the total, the research agency said.

“There are a sea of possible causes of corporate failures amid a large number of companies on the verge of collapse in the wake of a prolonged deflationary recession, and growing upward pressures on bank lending rates,” Teikoku Databank said, adding that “Corporate failures are expected to remain at a postwar record level.”

There were 8,457 corporate bankruptcies in the January-May period of this year, the second-highest postwar total. The figure compared with the record 8,781 bankruptcies set in the same period in 1984.

Meanwhile, the number of companies that sought court protection from creditors under the fast-track Civil Rehabilitation Law in May reached 74, bringing the cumulative number to 2,010 since the law took effect in April 2000.

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