Financial regulators have called on lenders to grant a loan moratorium for businesses suffering from the March 11 earthquake, the crisis at the nuclear power plant in Fukushima Prefecture or rolling blackouts.
Financial regulators have called on lenders to grant a loan moratorium for businesses suffering from the March 11 earthquake, the crisis at the nuclear power plant in Fukushima Prefecture or rolling blackouts.
The Financial Services Agency on Thursday revised guidelines and allowed financial institutions to continue to classify these borrowers as "performing" even if they fall behind in debt repayments.
The FSA's revised financial inspection guidelines effectively urged banks and other lenders to postpone loan repayments and not to abruptly call back loans or demand additional collateral from these borrowers.
The financial inspection manual strongly influences how financial institutions categorize borrowers. Financial institutions normally categorize borrowers as "nonperforming" if they default on loan repayments or are at risk of going bankrupt.
Nonperforming borrowers are categorized into four groups ranging from "requiring monitoring" to "bankrupt."
A senior FSA official said the agency revised the manual because many businesses have suffered enormous damage from circumstances beyond their control.
Still, companies may eventually fail to pay back all the debt if the quake-hit region's economy remains in the doldrums.
"Even if the borrowers are given more time, it doesn't necessarily mean they can rebuild their businesses," a senior official of a major bank said.
The official also expressed concerns that lenders could be saddled with soured loans if the moratorium ends up simply prolonging the lifespan of ailing companies.
The guidelines apply to businesses hit by the Great East Japan Earthquake, the accident at the Fukushima No. 1 nuclear power plant and the rotating power outages caused by electricity shortages. Companies whose partners have been affected by these three factors are also covered.
Separately, the FSA made it easier for financial institutions to extend loan repayment deadlines or lower interest rates in accordance with borrowers' requests.
Previously, borrowers asking for extended deadlines were required to submit management rehabilitation plans within a year, but that period has now been extended to two years.
In addition, large companies may now request to postpone loan repayments. Previously, only small and midsize enterprises were eligible.
Critics say a broad moratorium covering the quake, the nuclear crisis and the blackouts may also allow borrowers struggling due to unrelated reasons to suspend loan repayments.
A debt moratorium and other measures introduced after the 1923 Great Kanto Earthquake was blamed for triggering a financial crisis in 1927.
Beyond the moratorium and other immediate support, drastic measures will be required to help businesses rebuild and overcome the impact of the disaster.
(This article was compiled from reports by Naoki Tsuzaka, Takuro Chiba and Toru Hatanaka.)