Provisional translation

Press Conference by FSA Commissioner Katsunori Mikuniya

(Excerpt)

August 17, 2009

[Question Items]

  1. Financial market developments following the announcement of preliminary GDP data for the April-June quarter and an exit strategy
  2. Basic policy for Financial Inspection
  3. Outlook for the business performance of regional banks following the announcement of the financial results for the April-June quarter
  4. Promotion of the facilitation of financing through legislation
  5. Outlook for the balance of outstanding non-performing loans following the announcement of the balance at the end of FY2008

[Opening Remarks by FSA Commissioner Mikuniya]

I do not have any particular statements to make.

[Questions and Answers]

Q.

Preliminary GDP data for the April-June quarter were announced today. While GDP returned to positive growth, the growth rate was lower than the market's forecast, so stock prices fell. Could you tell us about your outlook for the future course of the economy, your assessment of the current condition of the financial markets and your thinking concerning an exit strategy?

A.

In the April-June quarter of 2009, real GDP posted positive growth of 0.9% on a quarter-to-quarter basis and positive growth of 3.7% on an annualized basis.

As you mentioned, the Nikkei stock average dropped 328.72 from the previous day to close at 10,268.61, falling below 13,000 for the first time since August 5.

As market movements depend on the investment activities of market players based on their own judgment, I would like to refrain from making any definitive comments with regard to the level of stock prices and the causes of and the backgrounds to the price movements from the standpoint of an administrative authority. I understand that market players have cited a variety of factors, including a drop in U.S. stock prices late last week, profit-taking triggered by the yen's uptrend and lower-than-expected GDP growth, and stock price movements in Asian markets. While we would like to refrain from making any definitive comments, we will keep a close watch on future stock market movements.

As for the outlook for the future course of the Japanese economy, the Cabinet Office's Monthly Economic Report states: “As for short-term prospects, with worsening employment situation, the economy is likely to remain severe for the time being. However, the economy is expected to pick up reflecting completion of inventory adjustment, effects of the policy packages and improvement of external economic conditions. On the other hand, there remains fear that the employment situation will worsen further due to extremely low level of production activities. Moreover, attention should be given to the risks that the economy is depressed by the influence of global financial crisis and concerns over slowdown in overseas economies.”

Regarding the condition of Japan's financial markets, the corporate bond market, for example, is growing, with the balance of outstanding bonds increasing. Therefore, although the condition remains difficult, I understand that it is continuing to improve. On the other hand, there are concerns about the impact of the factors I mentioned earlier, so it is necessary to keep a close watch on the condition of the markets with a high level of alertness.

As for the global economic and financial situation, real GDP in the euro zone posted negative growth of 0.1% on a quarter-to-quarter basis. In the United States, the FRB issued a statement to the effect that economic activity is bottoming out and that the condition of the financial markets has been recovering further over the past several weeks.

While paying attention to various opinions and indicators like these, the FSA will keep a close watch on and deal with the economic and financial situations in Japan and abroad.

Regarding the issue that you mentioned of an exit strategy, we need to consider when and how to end the various extraordinary temporary measures that we have taken since last autumn based on a close analysis of the current situation and the verification of the effects of each measure and giving due consideration to the need to ensure that our actions are in line with other countries' moves. In any case, we need to carefully judge the economic situation.

Q.

I would like to ask you about the basic policy for inspections. The FSA has announced its policy and basic plan regarding priority matters, including the implementation of inspections targeted at major banks' provision of credit to non-Japanese borrowers and the prevention of undue curbs on new loans to small and medium-size enterprises (SMEs) and the forcible collection of outstanding loans to such enterprises. Could you tell us about the purposes and notable features of the FSA's inspections in the current program year and the future policy for inspections?

A.

We have made clear our policy for the conduct of inspections in the current program year in the Basic Policy and Plan for Financial Inspections in Program Year 2009. The Japanese economy is showing signs of a recovery although the economic condition remains difficult. As for the outlook for the coming year, it should be kept in mind that as financial institutions--which support the foundation of economic activity--are required more than ever to exercise their financial intermediary function amid concerns over the impact of the global financial crisis and the possibility of a further global economic downturn, they could face increased risks.

Therefore, through inspections, we must encourage financial institutions to perform three tasks: fully exercise their financial intermediary function, introduce more robust and comprehensive risk management systems, and ensure more appropriate handling of customers, giving due consideration to the standpoint of users.

Based on this recognition, we set forth four priority inspection items: whether financial institutions have developed a governance system, whether they have developed risk management systems, whether they properly exercise their financial intermediary function, and whether they have improved customer protection and convenience.

The issue of major banks' loans to overseas borrowers, which you mentioned, has been taken up as part of our credit risk management policy, described in the section on the Basic Policy and Plan for Financial Inspections, which concerns the development of risk management systems, one of our four priority items. As the economic situation remains difficult abroad as well as in Japan, major banks' loans to overseas borrowers have been taken up as a priority inspection item because we regard such loans as a particularly important risk factor given that it is difficult to grasp the actual condition of the debtors in these cases compared with loans to Japanese companies or foreign affiliates of Japanese companies.

As for loans to SMEs, we made clear our stance regarding such loans in the section on the Basic Policy and Plan for Financial Inspections that concerns the exercising of the financial intermediary function. We have set forth three priority inspection items regarding loans to SMEs in light of the current difficult economic situation and based on our recognition that ensuring the smooth provision of funds to SMEs with sound business operations is one of the important roles that financial institutions should play. The first is whether financial institutions ensure smooth financing for SMEs and individuals, including housing loans, the second is whether they are providing financing arrangements suited to SMEs, and the third is whether they are making conscientious efforts to grasp the actual condition of SME borrowers and conducting appropriate risk management.

The FSA will conduct appropriate and effective inspections in accordance with the Basic Policy and Plan for Financial Inspections giving due consideration to the standpoint of users and the general public.

Q.

Previously, we asked you about the financial results of major banks. While regional bank's financial results for the April-June quarter show that their business performance is improving, some of them reported losses. Could you tell us about your view on the prospects of an improvement in the business performance of regional banks? Also, I would like you to tell us about your outlook for the use of public funds based on the Act for Special Measures for Strengthening Financial Functions, which has not become widespread.

A.

By August 12, all regional banks announced their financial results for the quarter that ended in June. For the business year that ended in March, 55 of the 109 regional banks reported losses. Although the number of banks that reported losses for the latest quarter decreased, eight banks remained in the red. However, most regional banks posted profits.

In the previous business year, regional banks' financial results were affected by evaluation losses on their securities holdings and write-downs of losses on such holdings. While the impact of these factors weakened in the first quarter of the current business year, I believe that the regional banks that reported losses were hit by an increase in the cost of disposing of non-performing loans compared with the same period of the previous year.

As for the future outlook, as I already mentioned, although the Japanese economy is showing signs of a recovery, the economic condition is still difficult. As there remains risks, including the risk of a further economic downturn, we will keep a watch on the financial condition of regional financial institutions and their risk management with a high level of vigilance.

Now, I will move on to your question concerning the use of public funds. Until now, three banks have received capital injections, and seven banks have announced plans to do so. While it is difficult for us to give you our outlook for the future use of public funds, we will aim to strengthen the financial intermediary function of financial institutions through the injection of public funds based on the Act on Special Measures for Strengthening Financial Functions. We hope that financial institutions will seriously consider applying for an injection of public funds based on this act once they decide to strengthen their capital base as part of their forward-looking management. We will continue to encourage them to apply for an injection of public funds based on this act.

Q.

I would like to ask you one more question about the facilitation of regional financing. The Democratic Party of Japan, the opposition party that aims to achieve a change of government, is planning to introduce a new bill for promoting smooth regional financing. According to the draft of the bill, which has already been made public, the new law would aim to pressure financial institutions to provide loans to local companies by requiring information disclosure. Could you tell us how you view the idea of using a new law to promote the facilitation of financing in addition to the FSA's inspection and supervision? You may answer my question on a generally speaking basis.

A.

I know that the policy manifestos of political parties contain various measures related to the facilitation of financing, including the measure that you mentioned. However, I would like to refrain from making comments, as this matter concerns the arguments being made by political parties in relation to the general election.

We recognize that the facilitation of financial functions in general is a very important task, so we have taken a variety of measures, including the revision of the Act on Special Measures for Strengthening Financial Functions and partial relaxation of the capital adequacy ratio requirement and we will continue efforts to facilitate financing.

Q.

Recently, the FSA announced the balance of outstanding non-performing loans. While the overall balance increased for the first time in seven years, the balance and the non-performing loan ratio for regional banks and other financial institutions excluding major banks decreased, apparently because of the relaxation of the criteria concerning restructured loans. Could you tell us about your view on the risk of non-performing loans increasing in the future?

A.

As you mentioned, the non-performing loan ratio for major banks in the business year that ended in March 2009 stood at 1.6% compared with 1.4% in the previous year, representing the first year-on-year increase in seven years. Meanwhile, the ratio for regional banks declined to 3.4% from 3.7%.

This is because the credit status of debtors deteriorated following a rapid downturn of the Japanese economy caused by the turmoil in the global financial and capital markets. However, moves--mainly by SMEs--to adopt new business rehabilitation plans and review existing plans, have increased.

As for the future outlook, whether non-performing loans will increase or not will depend on the future course of the entire economy. Although the economy is showing signs of a recovery, we have taken a variety of measures and have kept a watch on the level of the balance of non-performing loans. We will continue to keep a close eye on the financial conditions and risk management systems of financial institutions.

(End)

Site Map

top of page