Takefuji becomes latest casualty of stricter Japanese regulations

Japanese consumer lender Takefuji has filed for bankruptcy under Japan’s corporate rehabilitation law, listing JPY433.6 billion ($5.1 billion) in liabilities in a statement to the Tokyo Stock Exchange today. The bank is Japan’s largest consumer lender to date to fail, and is another casualty of a major crackdown on lending to consumers by the Japanese authorities. The major reason for Takefuji entering bankruptcy is a lack of sufficient funds to pay refunds to customers on overcharged interest, as well as stricter lending regulations and tough competition from rivals in the marketplace.

A Japanese court ruling in 2006 had forced lenders to repay borrowers for excessive interest charges, and recent government moves have prohibited lenders from charging interest greater than 20% or giving loans that are more than a third of a borrower’s annual income. Several smaller Japanese lenders have already failed under the stricter regulatory environment, and Takefuji’s larger rivals may now fear a renewed surge in applications for refunds from fretful borrowers.

Standard and Poor’s today downgraded Takefuji to D, having yesterday lowered its rating to 'CCC-'amid rumours of an imminent bankruptcy. Standard and Poor’s also highlighted yesterday that Takefuji’s funding situation was likely to become even more severe in the near future as it has about JPY52 billion ($618 million) of corporate bonds due to mature in April next year.

The name has been widely traded in the credit default swaps market and was a constituent of the iTraxx Japan credit derivative index up to series 11.