Press Conference by Shozaburo Jimi, Minister for Financial Services

(Excerpt)

(Tuesday, December 13, 2011, from 11:07 a.m. to 11:28 a.m.)

[Opening Remarks by Minister Jimi]

Today, I do not have anything particular to announce.

[Questions & Answers]

Q.

I understand that last Friday, you exchanged opinions with financial institutions. What is your view on whether or not to extend the SME (Small and Medium-Size Enterprise) Financing Facilitation Act?

A.

At the meeting for an exchange of opinions on the facilitation of financing for SMEs that was held on December 9, financial institutions expressed willingness to do their utmost to facilitate financing for SMEs regardless of the presence or absence of the SME Financing Facilitation Act.

In any case, I will carefully make a decision on future actions, including whether or not to extend this act, while fully taking account of the conditions of the Japanese economy and fund-raising by SMEs as well as financial institutions' efforts toward the facilitation of financing.

Q.

Tomorrow is the deadline for Olympus to announce its financial results as a condition for avoiding delisting. The company is expected to announce financial results for the latest business term and revised financial results for the past five years. How do you feel about that and how do you view the possible delisting of the company?

A.

Tomorrow, Olympus will submit a securities report, and as I said at the previous press conference, I am keeping a careful watch on this case. I believe that the Tokyo Stock Exchange (TSE), on which Olympus is listed, will make an appropriate decision as to whether or not to delist the company in accordance with rules on the listing of securities.

Q.

As the minister responsible for overseeing the TSE, do you think that Olympus bears grave responsibility for causing turmoil in the market as a result of its cover-up of huge losses that lasted for such a long period of time? Or do you think that the company's responsibility is small?

A.

It is very regrettable that Olympus has rolled over its losses and I believe that it is important that the company accurately identify facts and quickly disclose information, and that the administrative authorities strictly deal with this case based on law and evidence.

Q.

What is your view on the company's responsibility? Do you think that the responsibility is grave?

A.

I believe that the important thing to do is to strictly deal with this case.

As I said at the beginning, it is not appropriate to assume that the Japanese market as a whole lacks discipline in light of an isolated case.

Q.

Ernst & Young ShinNihon LLC has established its own examination committee. An accounting expert who is a member of this committee has said that this case concerns the fundamentals of the Japanese securities market, accounting audit and disclosure systems. Could you offer your thoughts again on the importance of this case?

A.

The investigation report included references to the responsibility of the auditing firm, and I take it that you would like to know whether we will investigate the auditing firm. In cases that are problematic in light of the Certified Public Accountants Act, we conduct necessary investigation and take strict actions in accordance with laws and regulations, and we will appropriately deal with this case as well. Basically, I would like to refrain from commenting on the activities of an individual auditing firm. However, I understand that each auditing firm is making various efforts to control the quality of its audits and that the examination of past audits is one of those efforts.

Q.

Let me ask another question related to Olympus. While the auditing firm apparently bears some responsibility, what about the responsibility of banks with which Olympus is doing business? I would like you to reply to this question from the standpoint of your position as the supervisor of banks in particular. What are your thoughts especially on the responsibility of the main creditor bank?

A.

I understand the intent of your question well. However, as various organizations are conducting investigations, and facts have not yet been established or identified, it would not be appropriate for me to make comments as the head of the FSA.

Q.

I am Inoshita from Toyo Keizai.

My question concerns the SME Financing Facilitation Act. When this act was extended last year, increased priority was placed on the exercise of the consulting function, and my understanding is that that was also a priority issue of attention in financial inspections conducted this year. Following the inspections, what is your assessment of banks' efforts toward the facilitation of financing?

A.

In any case, the SME Financing Facilitation Act calls for financial institutions to modify the loan terms for debtors who temporarily face difficulty making repayment but whose condition is expected to improve in the future. Debtors who have no prospect for making repayment may be refused such modification. While modification is granted to nearly 95% of the applicant debtors, unfortunately, there are some cases in which debtors are refused modification because they are unlikely to make repayment even if the lender exercises the consulting function and the market condition improves. Modification of the loan terms is not granted unconditionally. As the lenders are private financial institutions, this act allows them to refuse to grant modification for companies that are unlikely to survive even if an additional loan is provided or the loan terms are modified. In that sense, I think that this act will work to reduce credit risk by contributing to the improvement of the business management of SME debtors. The act calls for financial institutions to actively exercise their consulting function, rather than merely modify the loan terms, while the burden of repayment on debtors is being eased, so that the debtors can carry out genuine business reforms.

As I have repeatedly mentioned, financial institutions have abundant knowhow on corporate management. Each ordinary regional bank is extending loans to tens of thousands of companies and so understands very well the status of corporate management in various industries, sectors and regions. In Kitakyushu City, my constituency, there is a large number of SMEs, and from my 26-year experience as a Diet member, financial institutions are knowledgeable as to which products will sell well and what should be done to meet unsatisfied needs. A large body of information converges at financial institutions. As financial institutions are entrusted with funds by depositors, they work hard to exercise their consulting function. It is important that they actively exercise this function, proposing the best possible business improvement measures for each debtor and supporting the drafting of business rehabilitation plans. While we have not decided whether or not to extend the SME Financing Facilitation Act again, I believe that exercising the consulting function should be an inherent capability of banks regardless of how the situation changes, whichever legal change may be made. I believe that it is always important for financial institutions to exercise the consulting function.

Q.

Following the revision of the supervisory policy in April, I was expecting that the number of cases in which modification is refused would increase somewhat, and yet the modification rate remains high. At the recent meeting for an exchange of opinions, the Regional Banks Association of Japan and the Japanese Bankers Association pointed out that an increasing number of borrowers are applying for modification again. That has given the impression that potential non-performing loans are accumulating as applications continue to come in. What is your view on that?

A.

What you mentioned is the issue of re-application for debt rescheduling. I have also heard about that. I would like to make a final decision while taking account of a comprehensive set of factors, including that issue.

(End)