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ECONOMY-JAPAN: Small, Medium Firms Hit by Credit Crunch
By Catherine Makino
TOKYO, Mar 3 , 2009 (IPS) - He was left devastated and robbed of his dream to open a restaurant in Tokyo after two Japanese banks refused to give him a small loan.
"I was confident I would get one," said Hiro Tanaka. "I worked in the food industry for 17 years, opened three successful restaurants for my clients and had a data base of thousands of customers, which were considered assets."
Tanaka was refused a loan by two small loan institutions, Japan Finance Corporation and Shinyou Hoshou Kyokai, which are owned by the Japanese government. They were founded to help promote and encourage small and midsize businesses.
According to Tanaka’s lawyer, Shigenori Kawahara, there aren’t any other institutions Tanaka can turn to for a loan.
"Unfortunately, more and more of my clients are being denied loans, although, they are qualified to obtain one,'' Kawahara said.
Small and medium emterprises (SMEs) with empty order books have been hit hard by tightened credit and have difficulty obtaining loans.
According to Yoshihiro Nishi, president and chief executive of Tierra Financial Advisors, the impact of the financial downturn will be worse for Japanese SMEs, rather than larger corporations.
''For every major Japanese company suffering difficulties, there are 10,000 SMEs not making the headlines that are being hit much harder,'' Nishi said.
"The major reason,'' Nishi said, ''is that large banks are trying to preserve their relationships with their biggest companies, and are continuing to provide support. "But they are not extending new credit, and in many cases are recalling loans to SME’s."
There were a record number of complaints by SMEs regarding financial institutions calling in loans and being reluctant to extend new loans.
On Feb. 23 Japan’s leading provider of short-term loans to small and midsize companies, SFCG Co., filed for bankruptcy with debts totaling 328 billion yen (3.3 billion US dollars). The company had a hard time raising funds from financial institutions and the situation deteriorated after Lehman Brothers collapsed in September.
There is fear that its collapse could lead to more cuts in refunds, pending lawsuits and cash flows. The true impact is yet to be felt. Nishi predicts current prospects for SMEs are dire, and that the situation will get much worse.
"The current downturn is like a tsunami which is now starting to gather momentum," Nishi told IPS. "The average employee has yet to see a salary cut, but the message will really hit home in June/July, when summer bonuses typically paid by Japanese companies, are drastically reduced. The average household relies on these bonuses for holidays and big ticket household items."
Jeffrey Kingston, professor at Temple University in Japan and Japan expert, adds that SME companies are serving as the shock absorbers for blue chip Japan. These companies have more difficulty in getting loans and so have to pay higher interest rates.
"In the current implosion, these companies are seeing orders evaporate from their large customers and since they don't have much of a cushion to fall back on during lean times, they are cutting costs anyway they can, meaning layoffs, firing, early retirement, wage and bonus cuts, work sharing and wage cuts," Kingston says.
As severe as the crisis is for the name brand firms it is far worse for SME companies that typically rely on a much narrower customer base. When a large customer asks them to cut prices they can only answer, "How much?"
"At a macro-economic level this translates into higher unemployment in a nation with an insufficient safety net and also means the consumer demand is plunging as everyone prepares for the worst," Kingston told IPS.
The crisis is creating record suicides not seen since 1998 when more than 30,000 killed themselves, up from 24,000 the previous years. That number has stayed above 30,000 for the last decade, and if the economic crisis continues the numbers are expected to rise.
According to the World Health Organisation, Japan's suicide rate is 51 per 100,000 people, with men more than twice as likely as women to kill themselves.
In fact, Inochi No Denwa, the telephone lifeline reports that it is handling a record 700,000 calls a year. The hotline operates 50 centres across Japan, including three in Tokyo, and the average amount of time that a suicidal person spends on the phone is 40 minutes.
"The suicide rate in Japan reflects business cycles, a rapidly aging society and poor public health care for people suffering from depression," Kingston told IPS.
According to Stephen Church, an economist at securities researcher ‘JapanInvest’ in Tokyo, it is pointless for SME businessmen to expect anything from the prsent government.
The approval rating for Prime Minister Taro Aso’s Cabinet has dropped to 11 percent. That is an eight percent drop since January and is the third worst figure recorded since 1949, according to the Mainichi Newspaper.
‘’Nothing will happen as long as the current ruling Liberal Democratic Party is in place,’’ Church commented.
(END)
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