Bankruptcies in Japan Surge 17% in Latest Fiscal Year

The latest fiscal year stacked up as the worst for corporate bankruptcies in Japan since World War II, with the slump in the world’s second-largest economy claiming bigger companies with bigger debt loads, a leading credit agency said Tuesday.

The report could generate fresh concerns that Japan’s economic crisis is even worse than projected, especially since the report’s figures exclude two of the largest failures, Yamaichi Securities Co. and Hokkaido Takushoku Bank, which collapsed under an avalanche of bad loans.

It could also exacerbate concerns among the industrialized nations gathering at an economic summit today that Japan needs to do more to stimulate its limping economy beyond the $124-billion stimulus package unveiled last week by Prime Minister Ryutaro Hashimoto.

Because of a withering credit crunch and shrinking domestic spending, the number of Japanese businesses that declared bankruptcy in the year ending March 31 surged 17%, to 17,439, according to Teikoku Data Bank, which compiled the data. That was the highest figure in 12 years and represents about 1.6% of Japan’s registered businesses.

But the amount of debt the new bankruptcy-filers had amassed surged 65% to a postwar record 15.12 trillion yen, the agency said, or roughly $116 billion at today’s exchange rates.

“It’s dire,” said Gary Evans, a strategist at HSBC Securities Ltd. in Tokyo. “The banks have stopped lending and supporting small companies, and the economy’s in terrible shape.” Nevertheless, he noted that some of those firms should have been closed long ago and had been propped up by banks trying to beef up loan portfolios.

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But now banks are tightening the loan spigot amid growing competition, tighter regulatory requirements and a mountain of nonperforming loans.

About 380 firms blamed their bankruptcies on inability to obtain capital, including the unidentified president of a medical information-processing business interviewed by public television station NHK on Tuesday. The bank demanded he repay a $423,000 loan before being furnished with fresh credit to produce new products, he said. He paid back the money, but the bank still refused to honor its end of the bargain and furnish new loans, he said.

In the television report, International Trade and Industry Minister Mitsuo Horiuchi promised that the government will appropriate more loans for small businesses as part of the new stimulus package. Details of the package are to be unveiled at the end of the month.

As for the two firms excluded from the bankruptcy list, Yamaichi “went out of business voluntarily,” said Hiroyuki Shimizu, a data analyst at Teikoku. Although he acknowledged that Hokkaido Takushoku is bankrupt for all practical purposes, it isn’t technically “liquidated” because it is still paying back money to its depositors, Shimizu said.

Nevertheless, the fallout from Hokkaido Takushoku is contributing to the mounting failures of other firms that were either owned or dependent on the bank for business, the analyst said.

Bankruptcies have been escalating rapidly since last fall, he said, with no relief in sight. Among the most vulnerable companies are construction firms, which are expected to lay off about 690,000 workers, or about 10% of their work force, by 2000.