Japanese Lenders Are In Sorry State

A Japanese lender called Jyuso Inc. has set what may be a record for upside-down perfection: Of its top 100 borrowers, 99 are in trouble.

The woes of Jyuso and Japan’s six other “jusen” non-bank lenders have been known for some time. But on Monday the government laid them out in documents that painted a stark picture of how awry the lenders had gone in the early 1990s.

The documents were demanded by opposition legislators seeking to exploit Japan’s political hot potato of 1996: the government’s unpopular plan to bail out the jusen with 685 billion yen ($6.5 billion) in public money.

For each jusen, the documents list the total bad debt, the 100 biggest borrowers and whether those borrowers are capable of paying back their loans.

All but 13 of the borrowers on Jyuso’s list are real estate firms with bright-sounding names like Macro Estate and Dynamic Action Club.

But there’s nothing bright about the state of the loans. Of the 100, 93 are considered bad loans, meaning the companies are unlikely to pay Jyuso back. In six cases, Jyuso will probably get its money back but not full interest.

Overall, the bad debts of Jyuso (pronounced joo-soh) total $15 billion, or about 80 percent of its outstanding loans. The figures are in the same ballpark for the other six jusen, making a total bad debt of $90 billion. That’s aside from the $400 billion plus in bad loans carried by banks.

The bad loans stem from Japan’s “bubble economy” of spiraling real estate and stock prices in the late 1980s and early 1990s.

The jusen - and the big banks that founded and funded them - felt safe in lending to real estate speculators, assuming that land prices would never go down.

“Loans that the banks couldn’t make themselves, they passed on to the jusen,” said Katsuhito Sasajima, a banking analyst at the Nikko Research Center.

“The jusen had very high trust in banks, and they thought that since the banks had done them the favor of introducing (borrowers), they could make the loans without investigation,” he said.