ShinGinko Tokyo, a heavily loss-making bank with what credit analysts have described as a “badly broken business model”, has blown a 100 billion yen (£400 million) hole in the accounts of the Tokyo Metropolitan Government (TMG).

The bank, which was established in 2004 by the fiercely nationalist Governor of Tokyo as a quick-response lender to small businesses, has accumulated a massive collection of nonperforming loans, and analysts believe that it is in imminent danger of collapse. One analysis of the company suggests that ShinGinko may run out of funds over the summer and needs an emergency cash injection, either from an outside investor or taxpayers, to avoid going bust. But Toru Morita, who took over as president of ShinGinko Tokyo this year, said that it was “unrealistic” to expect the TMG to supply additional funding.

Citing poor prospects and “severity of environment”, Standard & Poor’s has sharply downgraded its rating on the bank and revised its outlook from “stable” to “negative”. Fitch Ratings recently withdrew all analysis of ShinGinko, and the Japanese Bankers’ Association – the influencial industrial group that includes the “big four” city banks and Japan’s 80-odd listed regional players – recently barred ShinGinko from membership.

Shintaro Ishihara, the Tokyo Governor, conceived the ShinGinko project when Japan’s wider nonperforming loan crisis had created a credit crunch for businesses in the capital. Seizing political advantage from the turmoil that followed the collapse and state bailout of Resona Bank in 2003, Mr Ishihara set up ShinGinko to funnel taxpayers’ money into small and medium-sized Tokyo businesses via loans that they could not otherwise secure.

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