Press Conference by Shozaburo Jimi, Minister for Financial Services

(Excerpt)

(Friday, May 27, 2011, from 9:23 a.m. to 9:45 a.m.)

[Opening Remarks by Minister Jimi]

Today, the bill to amend the Act on Special Measures for Strengthening Financial Functions was adopted upon a cabinet decision. I will read a statement concerning this.

Today, we made a cabinet decision on the submission to the Diet of the bill to amend the Act on Special Measures for Strengthening Financial Functions in order to deal with the impact of the Great East Japan Earthquake. In light of the risk that the Great East Japan Earthquake will have various effects on financial institutions in the future, this bill is intended to (1) maintain and strengthen regional financial functions in a comprehensive manner and (2) establish a solid framework that reassures depositors.

Specifically, the bill provides for special measures for disaster victims, such as (1) a special treatment concerning the criteria for eligibility for governmental capital injection and (2) enabling cooperative-type financial institutions whose future financial condition is uncertain to receive joint capital injection from the government and their central organizations. In addition, (3) the application period for governmental capital injection will be extended until March 2017.

Under the Act on Special Measures for Strengthening Financial Functions, there is one year left to the expiry of the application period, and this period will be extended for five years until March 2017.

I believe that those special measures will ensure the exercise of regional financial functions by financial institutions and the full protection of deposits. I hope that this bill will be quickly deliberated and enacted in the Diet.

[Questions & Answers]

Q.

I will ask you about Japan Post, specifically the postal reform. Yesterday, Japan Post announced its financial results. Although the management team of Japan Post called for the enactment of the postal reform bill, the special committee on this matter has not made any progress in its deliberations, with less than one month until the expiry of the current Diet session. As the Minister for Postal Reform, what do you think of this situation?

A.

As you mentioned in your question, Japan Post Group announced its financial results yesterday. The specifics of the financial results announced by Japan Post-this matter is basically a matter that is under the jurisdiction of the Ministry of Internal Affairs and Communications. However, as the Minister for Postal Reform, I think that the results strongly suggest the need to enact the postal reform bill quickly.

As for Japan Post Group's consolidated financial results in fiscal 2010, recurring revenues dropped 6.9%, recurring profit declined 5% and net profit fell 7.7%. Although I will not go into further details, both revenues and profits declined. As I have been telling you and stating in the Diet, since Japan Post was split into five companies, the financial foundation of each company has weakened considerably. In addition, the total volume of mail delivered, the amount of outstanding postal savings and the amount of postal insurance assets, which constitute the foundation of the postal businesses, have been declining over the past 10 years or so. Regrettably, the latest financial results indicate that the foundation of the postal businesses is weakening further.

As the business environment for Japan Post Group continues to be difficult, other countries have used the taxpayer's money to support their postal services, including the United Kingdom. If we are to require Japan Post Group to continue to provide universal services with regard to postal mail, savings and insurance in the future without the use of the tax-payer's money, the management team and all employees must make increased efforts. As I believe that the government should increase the flexibility of management for Japan Post Group in order to support such efforts, I will seek understanding on the need to enact the bill.

With less than one month left until the expiry of the current Diet session, the mass media have expressed doubt over the fate of the bill. The postal reform bill is intended to ensure that postal services will continue to be universally provided comprehensively by post offices from the standpoint of users and the general public by resolving various problems arising from the postal privatization. The important thing is this. I recently visited Ishinomaki in Sendai City, and as reported by national newspapers over the past few years, I talked with Japan Post employees there and was told that the division into five companies created a difficult situation after the earthquake. For example, at the Ishinomaki post office, the chain of command was split between the postmaster and the branch manager of Japan Post Service Co., as I related to you previously.

Major national newspapers have written about the growing prominence of problems arising from the division into five companies. In that sense, the shelving of the postal reform bill undermines the people's interests, and the size of post offices to be rebuilt in the disaster areas will depend on the fate of the bill. As was pointed out by some newspaper article or other, business sections such as the general affairs and planning sections can be unified into one if the three postal businesses are merged into one. However, if the five-way division is maintained, large post offices, such as the one in Ishinomaki, may need four separate office spaces to accommodate general affairs and accounting staff in some cases. You have written news articles about the struggle to plan for the future and rebuild post offices destroyed by the disaster, and I strongly hope that Diet deliberations will be quickly conducted.

Q.

Regarding Japan Post Group's financial results, the group achieved growth in both revenues and profits under former President Nishikawa. Although legislation may be important, aren't the poor financial results attributable to the change in the management team that was made under the leadership of former Minister for Postal Reform Kamei?

A.

I believe that the basic premise of the three postal businesses should be the provision of universal services. There are a total of 1,932 post offices in the six prefectures of the Tohoku region, as I said previously. Although the former Sumitomo Bank was a very large bank, it had only one branch in the Tohoku region, which was in Sendai.

The postal savings business and private financial institutions have their respective advantages. As they have their respective objectives, they have different types of operations. It is very problematic that there are regions where the provision of universal services by the two postal financial companies is not assured.

Q.

I am asking you to make explanations in relation to the financial results.

A.

I expect that the financial results will become worse, that is, if the division into five companies is maintained. Before the division, this was an organization that contributed as much as 2 trillion yen to the government coffers. After privatization was carried out under Mr. Nishikawa, the financial performance deteriorated slightly. If the status quo is maintained, the situation will become worse. For example, people in the disaster areas are assuming that mail carriers can handle matters related to postal savings and insurance. However, mail carriers, who are employees of Japan Post Service Company, cannot help but decline to handle such matters, which are related to the businesses of other companies. The mass media have written articles about this state of affairs.

Before the division into five companies, as Japan Post comprehensively undertook the three postal businesses, mail carriers could be entrusted with postal savings and be consulted about postal insurance. However, mail carriers are prohibited from handling such matters, so they invite the anger of people, as reported by the mass media. I saw that situation with my own eyes.

Q.

I am Namikawa from Toyo Keizai. I presume that in essence, the amendment of the Act on Special Measures for Strengthening Financial Functions is intended to protect depositors. Although it may strengthen the capital base and financial strength of financial institutions, it is quite unclear whether the financial functions will be exercised in the disaster areas. Have you issued specific instructions for the FSA staff as to what should be done to ensure that financial institutions properly exercise their financial functions, such as providing loans?

A.

We have the SME Financing Facilitation Act, as you know. In March and April, many financial institutions allowed loan repayment to be suspended. This act encourages financial institutions to proactively meet the request for the modification of the terms of loans.

Q.

That is modification of the terms of outstanding loans, which is quite different from the improvement of the credit provision capability.

A.

If the financial functions are strengthened, the range of options available for managers of private financial institutions will be expanded to include forgiving of debts, albeit on a case-by-case basis.

Q.

That is true. Although the terms of outstanding loans may be modified, that will not mean the improvement of the credit provision capability.

A.

As I have been saying, there are private and public financial institutions, and with regard to fiscal expenditures, the government as a whole is working hard. In the Diet, questions have been asked about disaster victims' double loan problem, and the Prime Minister has issued instructions, mainly through the Chief Cabinet Secretary. I believe that this act will help to facilitate financing for SMEs and invigorate local economies.

Strengthening the capital base of financial institutions will facilitate the provision of loans to SMEs and housing loans, and in some cases, it may expand the range of available options to include the forgiving of debts, so we are seeking to enact this bill.

However, public financial institutions receive interest subsidies using the taxpayer's money, so Japan Housing Finance Agency, for example, may provide loans with a five-year grace period of principal and interest payment as a special measure. Public and private financing should be used in combination.

(End)