The weak state of the Japanese economy in the 1990s was to have a serious impact on the banking sector. GDP fell off dramatically averaging 1.4% and even experiencing negative GDP in 1998 and 1999, see Figure 1. Unemployment rose significantly to reach a post war high of 4.8% and the number of businesses filing for bankruptcy rose from under 1000 in 1990 to over 5000 in 1998. The effect of a retracting economy meant not only were the sources of funds for banks becoming limited but demand for their services and products was also waning. The large number of businesses failing and in difficulty meant that the banks were also faced with a rise in the number of nonperforming loans (NPLs) as well as having to write off and restructure a lot of their lending.
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Source: http://www.chiarastella.org/finance/credit-card-finance-worries/
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