Japan experienced a bubble economy in the latter half of the 1980s and the ensuing collapse of the bubble economy and prolonged economic recession in the 1990s. This process led to a rapid increase in the balance of non-performing loans resulting from a dramatic drop in the value of real estate and other assets, an increase in corporate bankruptcies and other developments.
The non-performing loan problem has proceeded to improve not only due to some policies, but also as a result of proactive measures to dispose of the non-performing loans of banks, focusing on major banks as well as economic recovery. As a results of various governmental approaches and the efforts of these banks, the objective of “halving the non-performing loan ratio at major banks by fiscal 2004” set in the Program for Financial Revival (October 2002) was achieved. (The non-performing loan ratio, which was approximately 8% then, fell to about 2.9% in fiscal 2004.)
Governmental Measures Taken to Tackle Non-performing Loans
|Acceleration of resolution of non-performing loans||・In April 1999, the Resolution and Collection Corporation was established. It purchased non-performing loans from financial institutions.|
・From 2001 through 2002, the Japanese government promoted rules for removing non-performing loans (debts of potentially bankrupt, substantially bankrupt and bankrupt borrowers) from balance sheet at major banks.
・In April 2003, the Industrial Revitalization Corporation of Japan was established (then liquidated in June 2007). It purchased recoverable debts from financial institutions.
|Capital strengthening of financial institutions||・In February 1998, the Act on Emergency Measures for Financial Functions Stabilization was enacted, followed by the Act on Emergency Measures for Early Strengthening of Financial Functions in October 1998. This legislation injected public funds (total of approx. \10 trillion) into financial institutions.|
・In May 2000, the Deposit Insurance Act was amended. It made permanent measures to inject public funds for the purpose of handling the financial crisis.
・In June 2004, the Act on Special Measures for Strengthening Financial Functions was enacted. It established a framework to inject public funds swiftly in response to requests from financial institutions.
|Safety net development||・In June 1996, the Act for Establishment etc. of Related Acts for Securing Sound Management of Financial Institutions etc. was enacted. It introduced prompt corrective actions and a temporary freeze of the ''pay-off'' scheme (completely removed in April 2005). |
・In October 1998, the Act on Emergency Measures Revitalization of the Financial Functions was enacted. It implemented measures such as temporary nationalization of financial institutions recognized as bankrupt.
・In May 2000, the Deposit Insurance Act was amended. It made permanent the resolution scheme for financial institutions.
|Enhancement on disclosure of non-performing loans||・In October 1998, based on the Act on Emergency Measures Revitalization of the Financial Functions, disclosure of non-performing loans was made mandatory. |
・In December 1998, the Banking Act was amended. Provisions relating to disclosure were implemented (prior to this, disclosure was based on standards stipulated by the industry).
Non-performing Loans of All Banks