Press Conference by Shozaburo Jimi, Minister for Financial Services

(Excerpt)

(Tuesday, September 28, 2010, from 11:18 a.m. to 11:52 a.m.)

[Opening Remarks by Minister Jimi]

Yesterday, I visited Nagoya to conduct fact-finding on the state of small and medium-sized enterprises (SMEs) in regional communities as well as their cash flows.

In Nagoya, there are management teams of financial institutions and four SME organizations such as the Federation of Aichi Prefecture Chamber of Commerce and Industry. Yesterday, I exchanged opinions with the four SME organizations about the state of regional communities. I had the opportunity to work on SME policies for one year and three months under Minister of International Trade and Industry Eiichi Nakao while I served as the Parliamentary Vice-Minister of International Trade and Industry 20 years ago, when the Parliamentary Vice-Minister appointed from the House of Representatives was required to take charge of SMEs.

I also gained the experience of serving as the chairman of the Chubu Regional Development Committee for about five years when I belonged to a ruling party, so in that sense, I have learned various things from the Chubu region. During the exchange of opinions, I found that, although business is recovering in some parts of the manufacturing sector, the situation surrounding SMEs remains harsh as exemplified by the uncertain outlook especially due to such factors as the impact of the strong yen on exporting companies. Aichi Prefecture and the Chubu region were highly advanced as Japan's manufacturing and production center until the Lehman Brothers shockwave struck two years ago.

The Financial Services Agency (FSA) will heed their opinions and continue making efforts to facilitate SME financing into the future. Especially with respect to financial institutions, I have heard various cries from SME organizations about the SME Financing Facilitation Act being helpful but there being no work, and even if there is work, dramatic cost cutting has led to the reduction of profits as many SMEs are contractors and subcontractors. That was the impression I got.

I have nothing further to add.

[Questions & Answers]

Q.

Consumer finance company Takefuji will file an application with Tokyo District Court today to have the Corporate Reorganization Act applied. Are you aware of the facts? What are your thoughts on this situation that Takefuji has fallen into?

A.

While I am aware of such reports in the press, I would like to refrain from making any comments as it is a matter related to the management decision of an individual company.

However, it is not true that Takefuji has made a decision to file an application under the Corporate Reorganization Act, according to its press release. I am aware that Takefuji has announced that if it does in fact make the decision to do so, it will disclose such information immediately.

Q.

In relation to this, the business climate is extremely tough not only for Takefuji but for moneylenders in general. In addition to claims for the reimbursement of overpayments, the amended Money Lending Act which came into force in full since June may have been an aggravating factor. What are your thoughts on this situation, where moneylenders including consumer finance companies are substantially decreasing in number?

A.

I understand.

As the multiple debtor problems had become a massive social problem at one time, the amended Money Lending Act was passed unanimously by the Diet. The amended Money Lending Act seeks to take drastic and comprehensive measures to resolve the multiple debtor problems by lowering the maximum interest rate and introducing restrictions on the total amount of credit that can be provided to a borrower by all moneylenders in aggregate. The FSA established the Amended Money Lending Business Act Follow-up Team in June in order to facilitate the enforcement of the amended Money Lending Act and promptly examine appropriate responses as necessary.

As we announced back then, the Amended Money Lending Business Act Follow-up Team takes three key institutional approaches, namely, making the system concerning the amended Money Lending Business Act widely known, identifying the actual enforcement status and impact of the Money Lending Act, and following up on and inspecting the system concerning the amended Money Lending Act. The FSA intends to follow up on the status of the amended Money Lending Act after full enforcement and examine the situation promptly as necessary.

As for the second question regarding what I currently think about such consumer finance companies, generally speaking, my understanding is that although the current business climate for consumer finance companies is harsh, there is still much healthy demand for funds in the consumer finance market. According to one theory I have heard, there are about 15 million users of consumer finance. As there are, of course, sound borrowers in that sense, some financial institutions in other industries such as banks are making aggressive efforts in the field of consumer finance, and in banks and other financial institutions in foreign countries, consumer finance has become a significant business segment. Bearing this in mind, Japan's consumer finance market is a promising market, and moneylenders are expected to take on a significant role in this market. Accordingly, the FSA hopes that moneylenders will become a significant player in the consumer finance market through their own management efforts, according to the objectives of the amended Money Lending Act.

Q.

Continued reduction in the number of moneylenders may have an impact on those “sound borrowers” just mentioned. You stated that the amended Money Lending Act would be reviewed as necessary; do you think it needs to be reviewed under the present circumstances?

A.

Although a follow-up team for business legislation is not usually created immediately after the establishment of the legislation, I believed it was necessary to create the Amended Money Lending Business Act Follow-up Team. Given that there are sound borrowers, in addition to the fact that there is a relatively large number of borrowers who tend to be in tough circumstances in society and in hardship, we decided to create a team to follow up on them. We are currently making efforts to raise awareness of the amended Money Lending Act, as well as conducting various surveys on the impact of the amended Money Lending Act. We are also considering conducting various interviews in the industry. At this stage, we believe it is necessary to properly follow up on them and take necessary and swift action in response to the findings. In general terms, my understanding is that the environment is extremely tough for consumers at this time, so we are committed to having the Team follow up on them properly.

Q.

In relation to your answer, does it mean that the Follow-up Team will be monitoring the situation properly, but there is no need to review the Act at this point in time?

A.

Rather than a review being unnecessary, it means that work is currently being performed steadily by the Follow-up Team.

Q.

You just mentioned that there are sound borrowers and a sound market. On the other hand, moneylenders including Takefuji are heavily burdened by claims for the reimbursement of past overpayments made by borrowers who have completed their repayments fully in the past. As Minister and politician, what are your thoughts on such claims putting pressure on their business?

A.

As there may be various viewpoints on this matter, we intend to discuss this thoroughly in the Follow-up Team. We will conduct thorough studies on this matter, considering that claims for the reimbursement of past overpayments are of course being dealt with pursuant to the Supreme Court's ruling and judicial precedents, and the ruling of the Supreme Court is indeed a top government decision given the separation of powers into three branches of government, that is, legislative, judicial and executive.

Q.

I am Namikawa from Toyo Keizai. From your position as Minister in charge of the supervisory authority for moneylenders, please explain that in the event of the bankruptcy of a moneylender, whether it would be desirable for some members of the top management to remain in office under the Corporate Reorganization Act in the form of debtor-in-possession (DIP). Given that there are various problems such as shareholders being pursued for shareholder responsibility and borrowers who are entitled to claim reimbursement of overpayments not being able to have the interest refunded, would it be desirable for DIP-style reorganization in which the existing management executives remain in office as a way of holding them responsible for management?

A.

I see.

Mr. Namikawa, as you know, the company itself stated in its press release that no decision had been made to file an application under the Corporate Reorganization Act despite the news reports, and that if it does in fact make the decision to do so, it will disclose such information to the public immediately. The question you just asked is based on assumptions and relates to an individual company, so I would like to refrain from making any comments. Generally speaking, there are various reorganization methods in the event of the bankruptcy of company, as has been stated.

Q.

I am Sonoda from Hoken Mainichi Shinbun.

How significant is the bill for revising the draft amendment of the Insurance Business Act relating to the regulations on mutual aid business (Kyosai) to be deliberated in the upcoming Diet session? Also, this question is unrelated to insurance, but what do you think about the money lending operations conducted by quite a few public corporations?

A.

I believe you are asking about the political outlook for the revision of the Insurance Business Act. The bill for revising the Insurance Business Act submitted in the recent ordinary Diet session enables organizations that have been engaged in mutual aid business since before the revision of the Insurance Business Act in 2005 to continue their business for a certain period of time subject to supervision according to its actual status, provided that certain criteria are met, by establishing exceptions in the provisions of the Insurance Business Act, while seeking to protect the management and so forth. As you know, the decision was made at the end of the recent extraordinary Diet session to continue deliberating the bill. The FSA will continue making efforts toward the enactment of the bill.

Especially given that the bill had been presented since the days of former Minister for Financial Services Shizuka Kamei, a great deal has been said about facilitating its enactment. I do understand what this legislation itself means, so I will continue to make efforts for the early enactment of the bill.

Q.

On the topic of money lending, the lending rates in Japan are often referred to as a “two-humped camel” due to the existence of high interest rates on one hand, and extremely low interest rates of banks on the other. Moneylenders who charge high interest rates on one hand are dramatically decreasing in number, as mentioned earlier. The “dip” between the “two-humps”-referred to as “middle risk”-was tapped by, say, the Incubator Bank of Japan, only to have the so-called “pay-off” scheme implemented.

Consequently, although there is demand for funds as you mentioned, only banks that charge extremely low interest rates are remaining under the current circumstances. Please describe the problems you are aware of in financial regulation and supervision in general in this context, and what you intend to do about these problems.

A.

In many consumer finance companies, there continue to be people with a healthy demand for funds, and in financial institutions in other industries such as banks, aggressive efforts are being made in the consumer finance sector. Leading banks are entering the consumer finance sector and, in major global financial institutions and banks, this sector has become a significant business segment. Basically, the consumer finance market is an extremely promising market, so it is hoped that consumer finance companies will play a significant role in that market.

However, I am aware of the current problems, which is why I created the Follow-up Team. It is because the problems affect the very core of financial businesses. I have repeatedly stated that in the financial sector, the soundness of banks is - that is, sound and robust banks are - required for the progress of sustainable companies and a sustainable economy from a global perspective as reflected in Basel III. At the same time, we are talking about politics here, so I believe it is necessary to have both a bird's-eye view as well as a bug's-eye view. While the soundness of global banks is important, a bug's-eye view of everyday life at the individual level is equally important. As I am from a town in Kitakyushu, which is home to many SMEs and microenterprises, I am well aware of and know first-hand how desperately emergency funds are needed when there is no income to pay for year-end bonuses due to the bankruptcy of a microenterprise. I believe it is extremely important for monetary policy to adopt such a bug's-eye view and fill the gap.

In this context, I do hope consumer finance companies will become a significant player in the financial sector. On the other hand, I intend to tackle the problems in consumer finance as a medium- and long-term issue as a politician.

I am sure you already have a good understanding of this. This is not only an extremely important challenge but also an extremely difficult one in the financial industry.

The question is, how should risks be managed? And of course, there are various needs in society: there is demand for funds among large companies, and as I just mentioned, there is demand for funds among microenterprises. In everyday life, there are times when an individual may not have enough money to pay for a doctor in the sudden event of a traffic accident. Including such matters, it is important to know the warmth, pain and sadness of each individual, based on my 40-years of experience as a doctor. Bearing this in mind, I shall give serious thought to this by taking all factors into consideration as a politician, by treating it as a crucial challenge in the medium and long run.

Q.

I am Kataoka from Hoken Ginko Nippo.

On the topic of insurance, the FSA approved the merger between Aioi Insurance and Nissay Dowa General Insurance yesterday. Do you have any messages to the new merged company, which will commence operations as Aioi Nissei Dowa Insurance on October 1?

A.

I presume you are asking about how we arrived at the decision to approve the merger between Aioi Insurance and Nissay Dowa General Insurance. As you just pointed out, we approved the merger between Aioi Insurance and Nissay Dowa General Insurance on September 27, pursuant to paragraph 1, Article 167 of the Insurance Business Act. As we are basically living in a liberal society, mergers and other such arrangements between insurance companies are up to the management decision of each company, as a matter of course. Generally speaking, however, I hope this kind of merger and arrangement will stabilize their management foundations and improve user convenience.

Q.

I am Yoshioka from Financial JAPAN. On the topic of the amended Money Lending Business Act mentioned earlier, it is slightly unclear exactly what the Follow-up Team is doing. This may again be generalizing, but was the collapse of a consumer finance company as in the present case expected to a certain degree? The impression is that the Team adopts the users' perspective. Could you please tell us what kind of measures are taken against the deterioration of business of such consumer finance companies?

A.

As I have stated earlier, obviously there is demand for consumer finance from sound borrowers but, on the other hand, moneylenders obviously have to make their business financially viable. Taking this into account, the amended Money Lending Act was unanimously adopted. As far as I know, various moneylenders have collaborated with banks by taking a medium- and long-term perspective. With this in mind, it is extremely important to improve the soundness of the management of moneylenders, so we firmly acknowledge this as a problem.

Q.

I am Iwakami, a freelance journalist.

Even if a few consumer finance companies go under, or even if the number of consumer finance companies decreases, demand from borrowers would not necessarily fall proportionately. There are still borrowers who have a history of falling into heavy debt to this day.

That being the case, the concern is that such borrowers might go to the likes of loan sharks. There is concern that some borrowers might fall into their hands and be driven into an extremely risky situation. This may not be a matter solely within the jurisdiction of the FSA, and may require working with the National Police Agency and other authorities. What are the possible actions against this, such as initiatives cutting across the boundaries of ministries and agencies?

A.

I see.

That is a very good point. The problem of borrowers being diverted to so-called loan sharks as a result of strict restrictions being imposed on interest rates have long been raised by each political party. Including raising awareness of this issue, we are already following up on this matter and we intend to continue doing so while working closely with the National Police Agency as you just mentioned.

Q.

Is the task of conducting fact-finding surveys included in the list of tasks to be performed by the Follow-up Team?

A.

We intend to perform such a task by looking at the overall picture.

(End)