Japan's largest banks have buoyed earnings with high-interest cash advances over the last few years, but these loans are starting to take a toll as irrecoverable debt piles up.

Bad debt tied to the advances climbed 13% to a six-year high of roughly 140 billion yen ($1.27 billion) in fiscal 2017 .

Banks issue cash advances, known as card loans in Japan, to individuals at annual interest rates of 2% to 14%. The money is often able to be withdrawn from ATMs without collateral or specifying how it will be used. Lenders pay fees to guarantee companies that will repay the loan if a borrower cannot.

Take the example of one woman in Tokyo, an office worker, who has used such unsecured bank lending to make payments on her credit card. She has borrowed more than her yearly salary in cash advances, and the payments eat up 70% of her monthly paycheck. The woman is now seeing a lawyer, who suggested that she apply for personal bankruptcy to reduce her repayment obligations.

Such cases are growing across Japan as more of these cash loans turn sour.

Japan's three megabanks often carry nonbank institutions like guarantee companies within their groups, however, so that bad debt is reflected on their consolidated books as well.

Nonbanks Acom and SMBC Consumer Finance, formerly known as Promise, are consolidated subsidiaries of Mitsubishi UFJ Financial Group and Sumitomo Mitsui Financial Group respectively. Mizuho Bank has a 49% stake in Orient, making it an equity-method affiliate. Mizuho Bank is part of Mizuho Financial Group.

Although megabanks' credit-related costs have been low the past few years as the economy recovers and corporate earnings improve, the growth of expenses associated with irrecoverable loans is rising at each of their nonbank subsidiaries. These guarantee companies are not only being hurt by bad cash advance loans within their groups but also by ones they guaranteed for other financial institutions like regional banks.

The woman is now seeing a lawyer, who suggested that she apply for personal bankruptcy to reduce her repayment obligations.

Learn more about bankruptcy on your credit report here: https://www.crediful.com/bankruptcy-on-your-credit-report/