Photo/Illutration Documents required to apply for the special government COVID loan program (Asahi Shimbun file photo)

About 468.4 billion yen ($ 3.1 billion), or approximately 30 percent, of special government loans extended to households that were struggling financially during the COVID-19 pandemic, is uncollectible, the Board of Audit said.

Applications for loan forgiveness have increased, and the amount of uncollectible loans is expected to grow.

The special program was designed to provide interest-free loans of up to 2 million yen to households that lost income due to the prolonged pandemic.

The program offers loan forgiveness for borrowers who continue to face financial hardships after receiving the loan. These borrowers include households that are exempt from paying resident taxes.

This is the first time the total amount of uncollectible loans has been disclosed.

INSUFFICIENT RECOVERY SUPPORT

The BOA said “support for their financial recovery after the loans were granted has been insufficient.”

The welfare ministry runs a welfare fund loan program designed to provide low-interest loans to help low-income earners and elderly people maintain stable lives.

The program was expanded during the pandemic from 2020 to 2022.

Called the special COVID loan program, it provided 3.82 million interest-free loans totaling 1.44 trillion yen to households facing reduced income.

At the time, the focus was on speed, so borrowing conditions were relaxed, and requirements for interviews or preparing self-reliance plans were waived.

The audit of loan repayments that began in January 2023 revealed that as of the end of March 2024, 1.91 million loans totaling 661.4 billion yen were still being repaid, while 1.31 million loans worth 468.4 billion yen had been forgiven and were uncollectible.

The uncollectible loans account for 32 percent of the total amount.

Many borrowers appear to have yet to recover to their pre-pandemic income levels.

According to the ministry, an additional 140,000 applications for loan forgiveness had been submitted as of the end of August 2024.

The repayment period for loans totaling 313.3 billion yen will start in January 2025.

Even among the loans currently listed as “in repayment,” some are delayed or have been granted extensions.

The special COVID loan program included follow-up support, such as home visits, for borrowers who had their loans forgiven or were behind on their repayments.

According to the BOA, however, support was not adequately established for around 1.34 million cases totaling 302.1 billion yen that involved loan forgiveness or delinquency.

The board also found that 4,428 loans totaling 1.4 billion yen were issued to welfare recipients, who were ineligible for the program.

The BOA believes the loans were issued due to the simplification of the pre-screening process.

“We would like to urgently improve the support system for financial recovery,” a ministry official said.

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