The government is considering measures to make it easier for companies and lenders to settle debts out of court, including relaxation of requirements for such settlements.
The government hopes that the measures will help facilitate economic recovery and efforts to improve productivity.
Meanwhile, the banking industry is concerned about a possible increase in pressure to waive debts.
The balance of loans extended to companies stood at ¥622 trillion at the end of 2020, up ¥52 trillion from a year earlier.
Despite the novel coronavirus crisis, Japanese corporate bankruptcies remain at low levels thanks to government-funded financial assistance to businesses, such as interest-free, unsecured loans.
As debts in the corporate sector expand, business bankruptcies and debt overhang at banks become bigger risks to the economy.
To deal with the problem, the government included measures to make it easier to use out-of-court debt settlement procedures in an action plan for its growth strategy adopted last week.
When resolving debts piling up at struggling companies, it is easier to maintain their corporate value and speedily move on to rehabilitation if the debts are settled out of court than through civil rehabilitation or other court-mediated procedures.
At present, only around 1,000 out-of-court debt settlement cases are processed annually through small and midsize enterprise revitalization support councils.
Once the COVID-19 crisis is over, moves to liquidate and rehabilitate ailing companies are expected to increase. Measures to facilitate debt consolidation will be even more important.
The government aims to devise drastic debt settlement facilitation measures mainly for large companies.
For small businesses, the government is considering having the banking industry revise its debt consolidation guidelines to ease requirements for out-of-court settlements, including an extension of a grace period for eliminating negative net worth to five years from the current three years.
The industry is concerned as an easing of the requirements is likely to lead to an increase in the amounts of loans lenders have to forgive.
Such a step “runs counter” to efforts to cut the impact of the coronavirus crisis on the economy, with which the industry cooperates by joining government-backed financial assistance programs, according to an industry source.
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