Japan's company failures set new record
Michiyo Nakamoto in Tokyo | Monday, 11 August 2008
JAPANESE corporate bankruptcies in July surged 24 per cent year-on-year to a record for a year of 1,131, a sign that the slowdown in economic activity and rising energy and materials costs are fast taking their toll upon businesses, a leading credit research company reckons.
Teikoku Databank said the number of bankruptcies last month was the highest in more than three years. It warned there was a strong possibility bankruptcies would continue to increase as banks tighten lending in advance of the closing of books for the first half of the year at September's end.
"The domestic economy is being affected by the concurrence of rising prices and slumping economic activity and it is expected that the revenue environment for companies will deteriorate," Teikoku Databank said. "It would not be surprising for a major bankruptcy to occur any day."
The depth of the downturn was highlighted by the scale of debt by bankrupt companies in July, which more than doubled from the same month last year to Y640bn ($5.8bn), and marked the second highest level this year, following the Y725.4bn recorded in April.
Teikoku said the main reasons for the bankruptcies were deteriorating profitability, higher costs and the credit crunch.
The government's clampdown on consumer finance companies, which has meant a sharp decline in lending, has also led to business failures, analysts say. The rise in bankruptcies comes as the Economy Watchers Index, which measures sentiment among consumer businesses such as taxi drivers, supermarkets and restaurants, dropped to 29.3, the lowest level since October 2001.
The Japanese government, which acknowledged last week that the economy might be in recession, is to compile an economic stimulus package intended to help small and medium-sized companies, in particular, to cope with rising prices.
Bankruptcies are at peak levels in construction and real estate. In these sectors, a drop in condominium sales has been aggravated by a credit squeeze that has stemmed partly from the US subprime crisis.
Bankruptcies in construction rose 20 per cent year-on-year in July to a high point since April 2005 of 324, while those in the real estate sector also attained the second highest level this year, at 43.
Another recent trend is that larger companies are going bankrupt. Five listed companies failed in July. That was the highest number in more than six years, Teikoku said.
Four of the five are in the real estate and construction sector and failed as the result of a downturn in condominium sales and lack of access to funds.
FT Syndication Service
Teikoku Databank said the number of bankruptcies last month was the highest in more than three years. It warned there was a strong possibility bankruptcies would continue to increase as banks tighten lending in advance of the closing of books for the first half of the year at September's end.
"The domestic economy is being affected by the concurrence of rising prices and slumping economic activity and it is expected that the revenue environment for companies will deteriorate," Teikoku Databank said. "It would not be surprising for a major bankruptcy to occur any day."
The depth of the downturn was highlighted by the scale of debt by bankrupt companies in July, which more than doubled from the same month last year to Y640bn ($5.8bn), and marked the second highest level this year, following the Y725.4bn recorded in April.
Teikoku said the main reasons for the bankruptcies were deteriorating profitability, higher costs and the credit crunch.
The government's clampdown on consumer finance companies, which has meant a sharp decline in lending, has also led to business failures, analysts say. The rise in bankruptcies comes as the Economy Watchers Index, which measures sentiment among consumer businesses such as taxi drivers, supermarkets and restaurants, dropped to 29.3, the lowest level since October 2001.
The Japanese government, which acknowledged last week that the economy might be in recession, is to compile an economic stimulus package intended to help small and medium-sized companies, in particular, to cope with rising prices.
Bankruptcies are at peak levels in construction and real estate. In these sectors, a drop in condominium sales has been aggravated by a credit squeeze that has stemmed partly from the US subprime crisis.
Bankruptcies in construction rose 20 per cent year-on-year in July to a high point since April 2005 of 324, while those in the real estate sector also attained the second highest level this year, at 43.
Another recent trend is that larger companies are going bankrupt. Five listed companies failed in July. That was the highest number in more than six years, Teikoku said.
Four of the five are in the real estate and construction sector and failed as the result of a downturn in condominium sales and lack of access to funds.
FT Syndication Service