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Miki Shimogori
TOKYO, Aug 14: Japan's already high level of corporate bankruptcies will worsen later this year, with planned government bills to cure the sickly banking sector seen offering little relief, private credit researchers said Friday.
In July, the number of corporate bankruptcies grew 28.59percent from the same month last year to 1,673, the highest for any July in the postwar period, leading private research firm Tokyo Shoko Research said in a monthly report.
Total debt held by the firms which went bust was 21.56percent less than in July 1997 at 887.98 billion yen. But the debt figure was still the second-biggest ever for the month of July, with the year-on-year decline due to the large debts that two listed medium-sized general contractors had when they went under in July last year, it said.
Japanese firms were dealt painful blows from weak consumption at home and in Asia as well as increased difficulty in obtaining fresh lending from banks laden with bad loans. "Banks could become more cautious towards TOKYO, Aug 14: Japan's already high level of corporate bankruptcies will worsen later this year, with planned government bills to cure the sickly banking sector seen offering little relief, private credit researchers said Friday.
In July, the number of corporate bankruptcies grew 28.59percent from the same month last year to 1,673, the highest for any July in the postwar period, leading private research firm Tokyo Shoko Research said in a monthly report.
Total debt held by the firms which went bust was 21.56percent less than in July 1997 at 887.98 billion yen. But the debt figure was still the second-biggest ever for the month of July, with the year-on-year decline due to the large debts that two listed medium-sized general contractors had when they went under in July last year, it said.
Japanese firms were dealt painful blows from weak consumption at home and in Asia as well as increased difficulty in obtaining fresh lending from banks laden with bad loans. "Banks could become more cautious towardslending in the runup to their end-September interim Financial book closings, and this could put a damper on corporate restructuring efforts," Tokyo Shoko said.
It said the number of corporate bankruptcies would remain at a high level, with the nation's core cycles of production, personal income and spending all heading downward. Japan's parliament is expected to enact crucial bills to tackle the nation's banking woes next month and establish a bridge bank scheme to protect sound borrowers in the event of bank failures, but doubts linger over its effectiveness.
"Everything is still up in the air," said another credit research firm, Teikoku Databank, adding that crucial questions remained unanswered, such as whether the bridge bank scheme could be used in the case of a major bank failure or how the bills would be enacted and whether it would be effective.
"We cannot avoid seeing a rapid increase in corporate bankruptcies in the aftermath of banking failures," Teikoku said.
"An increasing number of firmsare on the verge of falling into a liquidity shortage, and we expect bankruptcies to grow at the highest pace in postwar history," it added. It was only last year, when the debt of bankrupt companies jumped to record levels, while the number of firms that went bankrupt in the year posted double-digit growth to 16,464. Fears of soaring corporate bankruptcies have heightened following news earlier this week that leading copier maker Mita Industrial Co Ltd had sought bankruptcy protection. A court appointed lawyer said it had padded business reports to hide losses since 1985.
There are also external concerns haunting companies, including a possible peaking of the US economy, possible devaluation of the Chinese yuan in connection with the yen's weakness, and a muddled outlook for an economic recovery in Asia. Tokyo Shoko said bankruptcies triggered by the weak economy, such as those prompted by sluggish sales, accumulated losses and difficulty in collecting accounts receivable, totalled 1,075 cases in July, or64.2 percent of the total. The number of jobs affected by bankruptcies stood at 16,979.
The number of bankruptcies in the construction sector, regarded as one of the most troubled sectors, rose 25.8 percent to total 491, a record for the month of July.
The construction sector, which accounted for nearly 30percent of the nation's total bankruptcy cases, may continue to suffer a high level of business failures due to a shortage of construction orders, Tokyo Shoko said. A 45.4 percent rise in bankruptcies of manufacturers, which have played a role in helping the economy out of past slumps, it said.
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
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