Nuclear Fear Snags Loan Push by Fukushima Banks as Clients Flee Radiation
Takao Suzuki was chairing a board meeting on the fourth floor of Daito Bank Ltd. (8563) headquarters when the earthquake struck. As windows shattered and the floor shook, he dashed for the door, opening it to secure an escape route.
Less than a month later, with radiation continuing to leak from the Fukushima Dai-Ichi plant 60 kilometers (38 miles) away, Suzuki drew on that sense of urgency by dispatching three bank directors around the region to lend cash as the worst nuclear accident in 25 years threatened to drive companies away.
Daito and larger rivals in the prefecture, Toho Bank Ltd. (8346) and Fukushima Bank Ltd., are three of the worst five performers on Japan’s 83-member Topix Banks Index (TPNBNK) since the March 11 quake and tsunami. They are struggling to keep customers and prevent loans from souring.
“We must avoid an exodus of people and businesses,” Suzuki, 57, the bank’s president, said in an interview at his office in Koriyama, where windows cracked by the quake are held together with tape.
Suzuki has sought to lend as much as 20 billion yen ($248 million) to help companies repair buildings and factories and stay afloat. One loan recipient, Toyo System Co., a maker of testers for rechargeable batteries, exemplifies Suzuki’s challenge: It’s using some of the money to build a plant outside the prefecture because of radiation concerns.
Younger ‘Should Go’
“Men like me in our late 40s can stay here, but my workers in their 20s, 30s and early 40s should go to the new factory,” said Hideki Shoji, president of the Iwaki-based firm whose products are sold to companies including Toyota Motor Corp. (7203), Panasonic Corp. and Honda Motor Co. for hybrid cars, cameras and mobile phones.
Regional bank lending rose 1.4 percent in April from a year earlier, the most in 17 months, the Bank of Japan said today. Corporate demand for loans climbed for the first time in two years after the magnitude-9 earthquake, according to a quarterly central bank survey released last month.
Suzuki isn’t optimistic that the resurgence will last in a prefecture that suffered three years of economic contraction even before the temblor.
“Loan demand will pick up only briefly for reconstruction needs,” Suzuki said in his office. “It’s hard to draw a scenario for the years ahead because it’s unclear what sort of impact radiation will have on our manufacturing and farming.”
Toyo System secured a 200 million yen credit line from Daito after meeting Takahiro Ono, one of the bank’s directors, following the record quake, Shoji said in an interview in Iwaki, about 50 kilometers south of Tokyo Electric Power Co.’s crippled nuclear plant. Part of the loan will cover building a factory in Sagamihara, a city in Kanagawa prefecture about 250 kilometers from the reactors, said Shoji, 49, who was Japan entrepreneur of the year in 2009.
Shoji is relocating about 20 staff to the Sagamihara site, which is scheduled to open in June. As well as worker safety, he said he had to consider demands from some customers at home and abroad that products come with certificates showing they are free of radioactive contamination or made outside the area.
“Radiation in Fukushima is making it so much harder for businesses and local banks, particularly those near the atomic power plant, to draw up future management plans,” said Ryoji Yoshizawa, a Tokyo-based director of financial institutions ratings at Standard & Poor’s. “That contrasts with businesses in other northern prefectures of Iwate and Miyagi, which might have seen lower radiation impacts.”
Some companies are being forced to relocate after the government set a 20-kilometer no-entry zone around the reactors and told residents of some villages outside the area to evacuate by the end of May because radiation reached dangerous levels.
Toto Ltd. (5332), a maker of plumbing fixtures and specialty ceramics, suspended operations at two factories inside the exclusion zone that produce parts used for fiber-optic cables, spokesman Yukinori Saijo said. For its part, Daito Bank has mothballed two branches inside the area.
Toho Bank, Fukushima prefecture’s biggest, is providing cheaper credit to lure borrowers. It unveiled a plan on April 19 to offer loans of as much as 300 million yen to local businesses at a 0.2 percentage point discount to its usual interest rate.
“Time is of the essence,” President Seishi Kitamura, 64, said in an interview at Toho’s headquarters in Fukushima city. “The longer it takes before reconstruction begins, the greater the risk that businesses will lose their appetite to rebuild.”
Takayuki Oshima, a Fukushima prefectural government official, said that while some businesses are planning to leave, it’s too early to determine how many. The local assembly is considering endorsing a supplementary budget, part of which is aimed at stemming the exit, Oshima, deputy director of the company-location division, said in a phone interview.
Prime Minister Naoto Kan has said Japan will need multiple spending programs to recover from damage that his government estimates at as much as 25 trillion yen. Parliament approved the first of those, a 4 trillion yen package, on May 2.
Fukushima prefecture incurred 3.1 trillion yen of wreckage to roads, buildings and factories, according to a study conducted by the state-run Development Bank of Japan Inc. That figure excludes the potential adverse economic impact from radioactive contamination.
The catastrophe destroyed more than 83,000 homes in Japan and left more than 24,000 dead or missing, according to the National Police Agency.
Along with 77 Bank Ltd. (8341) and Fidea Holdings Co., both from neighboring Miyagi prefecture, Daito, Toho and Fukushima Bank fell the most on the Topix Banks Index since the quake. Daito declined 27 percent since March 11, and was unchanged at 49 yen at the 3 p.m. close on the Tokyo Stock Exchange. Toho lost 20 percent, and dropped 0.5 percent to 204 yen today.
It’s too early for banks in northeast Japan to estimate potential bad loans as the disaster puts businesses and people out of work, said Yasuhide Yajima, an economist at NLI Research Institute in Tokyo. Some lenders may need bailing out, he said.
“Without a government rescue, banks in Iwate, Miyagi and Fukushima will find it tough to go it alone,” Yajima said.
77 Bank, based in Sendai, the closest major city to the epicenter, said on April 18 it is considering applying for taxpayers’ money. The bank posted a 30 billion yen loss in the year ended in March after setting aside 55 billion yen of provisions for bad loans related to the quake, according to a preliminary earnings report released last month.
Daito Bank has no plans to ask for public funds, Suzuki said. The bank posted a net loss of 900 million yen for the year ended in March, preliminary figures showed on May 10. Before the earthquake, it forecast net income of 1 billion yen.
The Bank of Japan unveiled a 1 trillion yen program on April 7 for banks to lend to companies in afflicted areas. Suzuki said Daito’s 20 billion yen loan program is separate from the central bank’s initiative, which is scheduled to be implemented from May 17.
Tokyo Electric set out a plan on April 17 to achieve a cold shutdown of the damaged reactors within six to nine months. For the region, recovery will take longer.
“This is such a tragedy for the people of Fukushima, particularly our youth,” said Toyo System’s Shoji, who has two children. “Radioactive contamination has literally jeopardized the seeds and soil of our future growth.”
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