Press Conference by Shozaburo Jimi, Minister for Financial Services

(Excerpt)

(Tuesday, November 30, 2010, from 10:43 a.m. to 11:03 a.m.)

[Questions & Answers]

Q.

Today marks one year since the SME (Small and Medium-sized Enterprises) Financing Facilitation Act was enacted, for which you have been saying that you will "examine it with the possibility of extension in mind."  How are you considering this matter now?

A.

The SME Financing Facilitation Act bill was developed in the midst of severe economic and financial conditions last fall to serve as a temporary measure to ensure smooth financing for SMEs over two calendar yearends and two fiscal yearends.  It was at the end of November last year, when former Minister (for Financial Services) Shizuka Kamei was incumbent, that the bill passed the Diet to be enacted as temporary legislation.  My answer to the question as to whether or not to extend the duration of the SME Financing Facilitation Act is that I would like to examine it with the possibility of extension in mind as I watch carefully things like the state of the Japanese economy and financing for SMEs, or the progress in any initiatives taken by financial institutions to facilitate financing, which is what I have stated twice or so during the current Diet session as well.  I am aware that there are various reports appearing in newspapers.  On a related note, it was announced at the Cabinet meeting today that Japan's unemployment rate is 5.1%.  As it was, if I remember right, 5.0% last month, which means that there are approximately 3.3 million unemployed people, it is obvious that the economy, particularly employment, is in a situation not to be complacent about.  Excuse me for repeatedly saying this but I, as part of my effort to determine how to deal with this Act, met with four SME business groups in Nagoya and Osaka and groups of small- and medium-size regional banks as well as shinkin banks, credit associations, etc. in the Nagoya and Osaka regions to listen firsthand to them frankly voice what they had to say.  As I heard that SMEs are particularly in a grim business condition due to the high yen and other factors, we are in the process of examining the matter with the extension of the Act in mind as well.

Q.

The jusen account is slated to be ended by the end of the next year but, during a press interview the other day, the Japanese Bankers Association Chairman made a comment to the effect of saying that "the principle of fifty-fifty public-private burden sharing" should be adhered to.  What is your thought?

A.

I know from press coverage that Japanese Bankers Association Chairman Oku did make such a statement, but it is currently up in the air how to dispose of the secondary losses from the jusen loan claims.  Accordingly, we would like to proceed as we discuss the matter fully with stakeholders  The Resolution and Collection Corporation (RCC) is, in accordance with statutory requirements, in the process of drawing up a disposal plan designed to complete the collection and other actions regarding the jusen loan claims by December 2011, which reflects the RCC's ongoing effort to collect debts so as to minimize the burden on taxpayers and also in consideration of the circumstances on the part of debtors.  The Financial Services Agency (FSA) is also examining various issues, including how and when to close the RCC's jusen account eventually.  While I cannot make any definite statement at this point in time about the prospect of determining, among other things, a method for disposing of those secondary losses from the jusen loan claims, we would like to proceed with the work of examination as we adequately discuss the matter with stakeholders along the way.

Q.

You have just mentioned that you will make a judgment on the SME Financing Facilitation Act in consideration of the shape of the economy, etc.  I do understand your intention to take actual circumstances into account, but can you please tell us if you have any idea on the timing by which to make a decision?

A.

Such timing is restricted by the nature of the Act as temporary legislation with its expiration date set for March 31 of the next year, and we are currently examining both possibilities, namely, whether the Act should be extended or not, by reflecting on a variety of factors, including making any revisions.  Given the yen's further appreciation and severe employment conditions, with the unemployment rate increased, albeit by a mere 0.1%, from last month to mark 5.1%, we are conducting an extensive analysis to look into the overall economic circumstances surrounding SMEs and intending to take appropriate actions at appropriate times to ensure smooth financing for SMEs in consideration of various factors, including the above.

Q.

I am Sonoda from Hokenmainichi Shimbun.

Now that the financial results of life and non-life insurers for the period ending September 2010 are all out, please give us your view on them.

A.

The final results of the major life insurance companies for the period ending in September are now out and my understanding is that all 12 major life insurance companies were in the black for that period and a good portion of them recorded increased profits.  Factors that are said to be behind those results include the fact that while year-on-year increases in the amounts of their reserves for guaranteed minimum variable pension plan payments brought their basic earnings downwards to 81.4 billion yen, their securities balance turned into the black, recording, for example, 246.2 billion yen in capital gains.  I believe that I received a similar question about banks and my observation remains that one of the main factors contributing to their positive figures was the improvement in their securities balance that I have just mentioned, partly due to the fact that government bond prices are up as a result of lower interest rates.

In any case, the FSA is intent on continuing to keep a close watch on the financial condition of each insurance company.

As for my thought on the final results of the major non-life insurers for the interim period ending in September that have just been announced, I understand that the three major non-life insurance groups announced their September 2010 financial results on November 19, which show that one group recorded increased profits and the profits of the other two dropped, while all of them achieved a surplus.  The main reason for the year-on-year decreases in profits in the two groups was their mergers.  One of them is MS&AD Insurance Group Holdings, which developed from the Mitsui Sumitomo group of marine and fire insurers.  The other one is NKSJ Holdings, which developed from Sompo Japan Insurance, or formerly Yasuda Fire & Marine Insurance.  Their profits dropped because they posted merger-related costs.  The group with increased profits is Tokyo Marine Holdings.  Non-life insurers in the respective groups generally saw their profits from the insurance business drop due to increased insurance benefit payments resulting from a rise in car insurance policies, but they turned to profitability, thanks again to, above all, their securities dealing results as securities sales profit and impairment loss figures had a contributing effect on the surplus.

In any case, the FSA is intent on continuing to keep a close watch on the financial condition of each insurance company.

Q.

Yesterday, President Watabe of Nomura Holdings made a comment implying his conjecture that "the definition of a systematically important financial institution would not apply to or cover Nomura Securities."  Given that this is a matter yet to be determined, how do you find the fact that someone in a top management position has made this type of comment?

A.

The issue of systematically important financial institutions, or SIFIs, was also left over by the recent Seoul Summit meeting for future consideration, and my understanding is that the work will continue in accordance with the policy framework, future work processes and timelines set by the Financial Stability Board (FSB).

It was also yesterday that I had a visit from the governor of the central bank of France and spoke with him in my office and, at night, I also attended a welcome reception at the French Embassy.  France, Japan and Germany have a relatively similar position in relation to Basel III.  Given that background, the "too big to fail" nature of U.K. and U.S. financial institutions generated a level of concern and some argue for the need to address the issue of SIFIs, as you surely know.  In any case, the schedule for addressing the issue of determination of global SIFIs is that the Basel Committee will, by the end of this year, put together a draft approach for determining the degree of systematic importance of a financial institution, which is to be finalized by the beginning of the next year, and then the FSB and the authorities from the respective nations will identify global SIFIs (i.e., systematically important financial institutions that are highly global) by roughly the middle of the next year.  How Japanese financial institutions will be treated in this regard will likely be determined in the course of those actions.  On the subject of the issue of determination of global SIFIs, I believe that although the standardized size criterion is indeed one of the important factors, it will be vital to determine the degree of systematic importance of a financial institution from a broad perspective encompassing, among other things, its importance in markets and international interconnectedness, and not just the size factor.  I am intending to base our argument on this viewpoint in the Basel Committee and other forums.

As for the story of Nomura Holdings that you have asked about, I am aware of such press coverage but would like to refrain from making any comment regarding discussion with individual financial institutions held on a daily basis.

In any event, I am committed to continuing to take appropriate steps to ensure the stability of markets in Japan.

Q.

Sorry about effectively repeating the same question, but can I take it that, at this point in time, there is no policy decision actually having been made in favor of the extension of the SME Financing Facilitation Act?

A.

We are in the process of examining the matter in an appropriate fashion.

Q.

Do you mean that no policy decision has been made yet?

A.

I understand that various press reports are out, but the fact is that we are examining the matter appropriately, with the possibility of extension in mind.

(End)