JAPAN'S regional banks evaded most of the fallout from the United States mortgage market implosion only to face a homespun credit crisis.
Sixteen regional lenders, including Kansai Urban Banking Corp and Yachiyo Bank Ltd, cut profit forecasts in the last two months as bankruptcies among condominium builders and commercial property companies forced them to set aside money for delinquent debt. Bad-loan cost ratios may rise by about 50 percent, HSBC Holdings Plc predicts.
"We have to be very, very cautious about regional banks," said Yuichi Chiguchi, who helps manage about US$8.6 billion in assets at DLIBJ Asset Management in Tokyo. "It's obvious that small and mid-size real estate firms are in trouble over funding."
Regional banks stepped in after the collapse of Japan's property bubble in the 1990s made larger, nationwide lenders such as Mizuho Financial Group Inc reluctant to lend to developers. Their shares tumbled up to 51 percent in the past three months as the highest number of bankruptcies in five years drove loan losses up 81 percent in the quarter that ended on June 30.
Takeo Higuchi, chairman of Daiwa House Industry Co, and Minoru Mori, chairman of Mori Building Co, Japan's biggest privately held developer, say the crisis will deepen as banks stop lending to property companies, causing more to go bust.
"We're in a vicious circle," said Nicholas Smith, director of equity sales at HSBC in Tokyo. "As banks pull in loans to real estate and construction, property values fall causing bankruptcies. Banks are forced to rein in lending when credit costs rise, causing further bankruptcies." New lending to the real estate industry tumbled 19 percent in the latest quarter. When real estate developer Sohken Homes Co filed for court protection on August 26 with 33.9 billion yen (US$310.8 million) in liabilities, it cited difficulty refinancing debts as the main reason.
Nine of the 12 bankruptcies among publicly traded companies this year were in the real estate or construction industries, listing a combined 553 billion yen of liabilities, according to data compiled by Bloomberg News.
Failures have involved mostly smaller and startup developers, which typically borrow from regional banks.