Press Conference by the Minister for Financial Services


March 28 , 2003

The Program for Financial Revival is intended for major banks. The Financial System Council was to consider what are essentially desired of ''Relationship Banking'', as studied by varied yardsticks and work out an ''Action Program'' by the end of this fiscal year.

Yesterday a report entitled ''Toward enhancing functions of Relationship Banking'' was released by the council. In this report, the council concludes that ''it is highly advisable to make intensive efforts to improve regional finance in the two years up until FY2004 and, at the same time, solve the non-performing loan (NPL) problem by enhancing functions of the relationship banking and taking steps to revitalize small- and medium-sized enterprises (SMEs) and activate regional economies''.

In response to this proposition, the Financial Services Agency disclosed its ''Action Program concerning enhancement of the Relationship Banking Functions'' today.

This action program is made up of two major components. One is measures to revitalize SMEs, and another is measures to ensure soundness and improve profitability.

With regard to the first component, ''measures to revitalize SMEs'', the report makes a remark to the effect that although a lot is expected of the role to be played by small- and medium-sized and regional financial institutions in pushing forward relationship banking, these financial institutions, in actuality, deviate in some respect from the essentialities of relationship banking. With this remark taken into consideration, the action program put together four major varieties of measures, aiming at helping the above financial institutions really perform the relationship banking functions. The first of these measures is support of the industrial cluster plan and other efforts to enhance the functions of individual small- and medium-sized and regional financial institutions to support creation and opening of new businesses. The second is aggressive efforts for prompt business revitalization, which will include full use of the Council for Support of Revival of Small and Medium Business Enterprises. The third is an attempt at such new SMEs financing which is not excessively dependent on mortgages or guarantees and features effective application of dead equity swap provisions and finance restriction provisions intended for regional SMEs. The fourth is steps to prescribe desired supervision of the preparations for explanation to borrowers.

The report makes an unrelenting remark regarding the second component of the action program, that is, measures to ensure soundness and improve profitability. The report points out that with the inadequacy of such managerial abilities on financial institutions' part as assessment ability and monitoring ability, the weakening of borrower-side businesses, etc. in the background, small- and medium-sized and regional financial institutions' cost of commitment to customers and local communities became manifest, with a resultant decline of their profitability and financial power. In response to this remark, various measures for supervision were taken to maintain the sustainability of relationship banking.

To be more specific, the first of these measures was introduction of an Early Warning System against credit risks related to the assessment of assets, such as the risk involved in the extension of large-scale credit. The second is the demand of an equivalent of the disclosure by corporations making public offers of their shares from those which have not made such offer yet, in an effort to strengthen governance, as well as various measures to strengthen governance over cooperative financial institutions. The third is the demand of the disclosure of actual contributions to local communities from financial institutions. To provide customers of regional and small- and medium-sized financial institutions with more information, the FSA hopes to survey major financial indices of individual financial institutions and publicize them in the form of a list.

Finally, the report makes a remark about NPLs. It states that it is not necessarily appropriate to set the same target figures for small- and medium-sized and regional financial institutions as those intended for major banks. But the need to prevent the setting of such targets from merely resulting in deferment of the settlement has been pointed out.

With regard to the ''measures to revitalize SMEs financing'', the action program demands semi-annual disclosure from financial institutions. As for the ''measures to ensure soundness, improve profitability'', the action program is to provide general supervision guidelines. In addition to them, it demands from financial institutions a report on a plan to strengthen functions of relationship banking during the two-year intensive improvement period, under Article 24 of the Bank Law. Under the program, follow-up will be carried every half term, and supervisory action, if necessary, will be taken.

The FSA hopes to urge small- and medium-sized and regional financial institutions to make the necessary efforts under the public pressure imposed by demanding disclosure and under stricter supervision.

After receiving this report from the Financial System Council, the FSA worked out the action program for the two years to solve the NPL problem by strengthening functions of the relationship banking of small- and medium-sized and regional financial institutions. What is more significant than the program itself is an understanding of the details of the report and the program by all those concerned across Japan including financial institutions and early execution of the program.

In view of this, the FSA hopes to demand its execution by financial institutions officially by the end of this year and explain the details of the report and the program to them through the Finance Bureau and varied bodies of the financial sector at an early date. The agency plans to hold workshops and others in various parts of Japan to give those concerned an opportunity to deepen their understanding of the matters involved.


About the reduction of NPLs, if no target figures are set, will it not result in a lag behind the major banks?


In the case of the major banks, we expect that reduction of the NPL ratio to half in the two-year period will lead to an end of the problem in a certain sense. As for small- and medium-sized and regional financial institutions, the solution to the problem, we think, will be brought about by their contributions to their local communities by strengthening relationship banking functions and their growth into more profitable enterprises firmly rooted in those communities. In that sense, even if the amounts of their NPLs are not reduced to the same extent as the major banks' amounts of NPLs, we expect that the small- and medium-sized and regional financial institutions will be able to function well as relationship banking institutions contributing to the communities through strengthening their functions.


When this action program is executed, successive bankruptcy of SMEs may be prevented. But half of the present NPLs in Japan are loans extended to such SMEs, oversupply by them may deteriorate the recession further, and some people may fear that such protection of those SMEs may not push forward but may even stop the structural reform in the end. What do you think of this?


If you read the report entitled ''Toward enhancing functions of Relationship Banking'' released yesterday, you will see that the report is definitely alien to any intention of preserving what are inefficient, as they are. On the contrary, it clearly demands disclosure of information and states that the relationship banking functions cannot be performed unless the financial basis is strengthened. So, the fear you just pointed out does not seem to be founded on a firm base.

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