Japan’s financial watchdog may punish banks that it finds guilty of unfairly withholding loans to smaller businesses, in order to avert a credit crunch among such firms, a report said yesterday.
Toward the end of the calendar and fiscal year when corporate funding needs increase, the Financial Services Agency (FSA) will interview bank officials over how they have responded to loan requests from small and medium firms, the Nikkei Shimbun reported, citing unnamed government sources.
The agency will carry out unannounced inspections and other measures to check whether banks have unfairly rejected loan requests or acted inappropriately when collecting money, the report said.
In serious cases, it may impose administrative penalties, it said.
The government in October launched a credit guarantee program that fully guarantees loans taken out by smaller businesses.
Despite the onset of the program, the government has received many complaints from firms about reluctance to lend and unreasonable collection practices among financial institutions, the report said.
The FSA has already begun investigating financial institutions over their lending track records and lending policies for small and medium businesses, it said.
Banks’ reluctance to extend new loans to small and medium companies were commonly seen during Japan’s economic crisis in the 1990s after a bubble of inflated real estate and stock prices burst.
Some banks at that time prioritized improving their balance sheets — which were badly hurt by nonperforming loans — over lending money to small companies, virtually forcing some of them into bankruptcy.