COVID-19: US$6.6 Billion Loans Unrecoverable In Japan

COVID-19: US$6.6 Billion Loans Unrecoverable In Japan

The Japan audit office has pointed out that approximately one trillion yen (about US$6.6 Billion) of the “zero-zero loans,” which are interest-free and unsecured loans for small and medium-sized enterprises introduced during the COVID-19 pandemic, have become unrecoverable or difficult to collect.

This revelation comes from the audit conducted by the government’s audit office, and it’s the first time that the problematic situation of the government-related financial institutions’ zero-zero loans has been uncovered.

The audit office investigated the COVID-related lending by the Japan Policy Finance Corporation (Japankō) and the Central Federation of Societies of Commerce and Industry (Shōkō Chūkin), especially after March 2020, as loan repayments began to pick up. The total amount involved is around 19 trillion yen, with zero-zero loans making up the majority.

As of the end of the fiscal year 2022, the outstanding loan balance was 14.3 trillion yen (approximately 980,000 cases).

Out of this, there were 194.3 billion yen being processed as unrecoverable or difficult to collect, and 878.5 billion yen as “risk management receivables” (non-performing loans). In total, it amounts to 1.72 trillion yen, which is about 6% of the total.

1. Zero Interest: One of the primary characteristics of these loans is that they are interest-free, meaning that borrowers do not have to pay any interest on the borrowed amount. This helps reduce the financial burden on businesses that may be facing a decline in revenue.

2. Zero Collateral: Unlike traditional loans that often require borrowers to provide collateral or security, zero-zero loans are typically unsecured. This means that SMEs do not need to pledge assets or collateral to access the funds. The absence of collateral requirements makes it easier for businesses to qualify for these loans.

3. Government Backing: Zero-zero loans are typically provided by government-related financial institutions, such as the Japan Policy Finance Corporation (Japankō) and the Central Federation of Societies of Commerce and Industry (Shōkō Chūkin). These government-related institutions play a key role in disbursing and managing these loans, ensuring that they are used to support businesses facing pandemic-related challenges.

4. Targeted at SMEs: These loans are primarily aimed at small and medium-sized enterprises, which are often more vulnerable to economic shocks and may struggle to secure financing from traditional sources during crises like the COVID-19 pandemic.

5. Purpose: Zero-zero loans are intended to help businesses cover various pandemic-related expenses, such as payroll, rent, and other operational costs. The goal is to provide financial stability to SMEs and prevent job losses.

6. Loan Repayment: While these loans are interest-free, they are not necessarily forgivable. Borrowers are expected to repay the principal amount borrowed within a specified timeframe, although the repayment terms may be more favorable than those of regular loans.

7. Impact: The loans have been a part of the Japanese government’s economic stimulus and relief measures to mitigate the economic impact of the pandemic on businesses. However, as mentioned in the original news, there have been concerns about the recoverability of a significant portion of these loans.

Zero-zero loans have been a crucial tool in supporting SMEs and helping them weather the financial challenges caused by the pandemic. However, the effectiveness of such programs can vary, and it’s important for governments and financial institutions to closely monitor the loans to ensure that they are utilized effectively and to address any issues related to repayment and default.