Taxpayers may have to bear nearly 2 trillion yen to cover soured bank loans to small businesses that were guaranteed by the government under a 1998-2001 program, according to a tally compiled by Kyodo News.
The government has assumed responsibility for 1.86 trillion yen in loans for which original borrowers had failed to repay as of Oct. 31. The recovery rate is running at an estimated 9 percent, far below the 50 percent needed for the program to be viable.
The government is still guaranteeing 4.21 trillion yen in loans under the program to help small businesses weather the financial crisis in the late 1990s. Of this amount, the government may have to shoulder repayments of 200 billion yen to 300 billion yen.
Given the rate of loan recovery, the balance of loans that must be taken over by prefectural credit guarantee associations and the government's Japan Small and Medium Enterprise Corp. could rise to nearly 2 trillion yen by 2008, when recovery operations are scheduled for completion.
The government established the special debt guarantee coverage in October 1998 following pleas by small businesses that were often denied loans by banks fearing corporate insolvency amid the economic downturn.
Borrowers could get repayment guarantees for loans of up to 5 million yen without collateral after passing screenings by prefectural credit guarantee associations.
By March 2001, the program had covered 1.72 million loans totaling 29 trillion yen.
Critics say the screenings were too lax. One business owner who received a guarantee said there was practically no screening. Ninety-one percent of all applications for loans were approved.
The screenings involved simple checks, such as whether the borrower was already insolvent or had engaged in account window-dressing.