The bankruptcy of Zentoshin Co., an Osaka-based credit card payment processor, threatens both the regional banks which funded it as well as the small and medium-sized restaurants that relied on its services.
Zentoshin filed for bankruptcy with the Osaka District Court on July 6, according to Teikoku Databank, Japan’s largest private corporate credit research firm. The company had total liabilities of approximately ¥115.2 billion ($710 million), at the time of the filing, making it Japan’s largest corporate bankruptcy of the year. Five listed regional banks and banking groups, including Towa Bank Ltd. and The San ju San Financial Group Inc., have said they will take writedowns because of the failure.
The company’s collapse was triggered by difficulty securing additional financing following allegations of employee misconduct two years ago. Zentoshin turned to crowd-funding to sustain its operations. Nevertheless, many of Zentoshin’s lending banks had classified their loans to the company as performing assets, meaning the impact on earnings will be significant, according to people familiar with the matter.
Towa Bank said it would write off the entire ¥5.9 billion portion of its ¥8 billion in loans that is not covered by collateral or loan-loss reserves during the fiscal year ending March 2027. The bank is currently forecasting net income of ¥5.5 billion for that fiscal year, implying the write-off would push it into a net loss. The bank said it is reviewing its full-year earnings forecast.
Zentoshin served about 200,000 shops, according to its website. Many of these merchants are small restaurants and retailers with limited cash-flow flexibility that depend on early payments, according to Osamu Naito, a manager at Teikoku Databank’s Osaka branch. If they do not receive sales proceeds that would otherwise have been remitted through Zentoshin, some businesses could face serious threats to their financial stability. In addition, merchants using Zentoshin’s card terminals will no longer be able to accept cashless payments until they secure alternative payment systems.
"We are concerned not only about the impact on financial institutions, but also about the risk of secondary bankruptcies among restaurants and retailers,” Naito said, warning that the failure could trigger a broader chain of business collapses.
Japan’s Financial Services Agency has identified the extent of lending to Zentoshin by financial institutions, according to an agency spokesperson. While the FSA does not currently believe there are serious concerns about the soundness of those institutions, it is continuing to monitor the situation closely, the spokesperson said. - Bloomberg
