Japan’s FSA to Examine Credit Risk Management after Zentoshin Failure

Tokyo, July 23 (Jiji Press)–Japan’s Financial Services Agency plans to examine regional financial institutions’ credit risk management, following the bankruptcy of Zentoshin, a credit card payment processing service provider that received large amounts of loans from them. Zentoshin, based in Osaka, a city in western Japan, has 115.1 billion yen in debts owed to 63 financial institutions, according to Tokyo Shoko Research Ltd., a credit research firm. While major financial institutions reduced their exposure to Zentoshin, many regional banks, shinkin banks and credit unions kept providing loans to the company. As a result, many regional financial institutions have been forced to set aside loan-loss reserves after failing to secure their claims with collateral. Kinkisangyo Shinkumi Bank, an Osaka-based credit union that is Zentoshin’s largest creditor, said the lending did not mean that it has provided large amounts of credit to a single company but that it was effectively indirect financial support for small and midsize restaurants. But a person familiar with the situation said that many credit unions should regret the fact that they continued to provide loans without sufficient credit risk management. The FSA plans to check how financial institutions screen loan applications and manage borrowers in an effort to prevent similar large-scale loan losses. The list of Zentoshin’s creditors includes financial institutions outside Osaka Prefecture, such as Towa Bank, based in Gunma Prefecture, central Japan, and San ju San Bank, based in the western prefecture of Mie. Loans to borrowers in distant areas are generally considered more difficult to monitor. Of the 8 billion yen in loans that Towa extended to Zentoshin, the bank will write down 5.8 billion yen that is not secured by collateral in the year ending next March. END [Copyright The Jiji Press, Ltd.]