Many companies are in trouble due to the spread of infections with the new coronavirus. Both the public and private sectors must take all possible measures to provide support for their cash flow management.
The government has asked the financial community for cooperation. Financial institutions have been inundated with inquiries from companies about securing operating funds.
Consumption of services has plunged due to a sharp drop in the number of visitors to Japan and people exercising voluntary restraint over events. Restaurants, hotels and ryokan inns have seen sales fall sharply.
In the United States and Europe, where there have been conspicuous increases in the number of patients, economic activities have been noticeably sluggish. It is likely that exporters will also be hit hard.
To make matters worse, demand for funds will increase at the end of the fiscal year when there is a concentration of corporate account settlements. To prevent a chain reaction of bankruptcies and unemployment, financial institutions should respond promptly to the postponement of loan repayments and new loans.
Rather than making decisions based on mere formalities such as a company reporting a loss or a company's liabilities exceeding its assets and falling into a state of insolvency, financial institutions should carefully listen to the actual state of the business and corporate needs, and be flexible in dealing with such issues.
The government has established a special loan system worth 500 billion yen to provide loans to small and medium-sized enterprises through government-affiliated financial institutions with effectively no burdens of interest or collateral. Including the expansion of the credit guarantee system and other measures, the total amount of financial assistance to companies stands at about 1.6 trillion yen.
Support financial institutions
Local governments have taken their own measures. Companies are encouraged to actively make use of them. If the system is not easy to use, it is important to consider easing the conditions of use.
To take advantage of loans with credit guarantees, companies must obtain approval from the head of the municipality and they must also apply to a financial institution or their local credit guarantee corporation.
Some local governments are facing a surge in the number of applications for this approval, which may take some time to complete. Cash flow management is often a race against time. Procedures must be smoothly implemented through measures such as increasing the number of personnel.
The government and the Bank of Japan need to provide indirect support to prevent the financial system from becoming clogged.
This month, the Bank of Japan introduced a new system to lend money to financial institutions at an interest rate of zero as a measure to support corporate finance. The move is aimed at making it easier to secure funds for loans. If necessary, the Bank of Japan should take additional measures in a flexible manner.
It is also important for financial institutions to maintain a stable financial base.
Regional banks and shinkin banks currently have sufficient levels of capital. But they are likely to be forced to post a loss in the year ending in March due to a plunge in their stockholdings. The disposal of bad loans may also increase.
The Financial Services Agency should not hesitate to inject public funds into some financial institutions in the worst case scenario of an institution's capital adequacy ratio falling sharply.
-- The original Japanese article appeared in The Yomiuri Shimbun on March 25, 2020.
Read more from The Japan News at https://japannews.yomiuri.co.jp/
