Press Conference by Shozaburo Jimi, Minister for Financial Services

(Excerpt)

(Friday, Sept. 9, 2011, from 10:21 a.m. to 10:46 a.m.)

[Questions & Answers]

Q.

Could you tell me what you expect of the G-7 meeting starting today, and what the points of attention should be?

A.

I believe that it is very important that the G-7 countries routinely have a close exchange of opinions on international financial and economic situations, and maintain appropriate cooperation with each other at various levels. The greatest difference between the situation of 1929 and the Lehman shock of three years ago is that after 1929, the world divided into economic blocs and this led eventually to World War II, as I said previously. Now, the economic globalization has proceeded. Amid the economic globalization, countries are implementing coordinated policies based on the lessons of 1929, despite their differences in the historical backgrounds, economic circumstances and political situations. The G-7 meeting starting today will discuss economic, currency and financial issues. After that, G-20 meetings are scheduled to be held in Washington and Paris, as you know. Under these circumstances, I believe that it is very important to maintain appropriate cooperation as much as possible. Among those meetings, I recognize that the meeting of the G-7 Finance Ministers and Central Bank Governors is particularly important, and I hope that a meaningful exchange of opinions will be held.

That meeting will start today in the French city of Marseille.

Q.

Regarding the Act concerning Temporary Measures to Facilitate Financing for SMEs, etc., some people point out that this law has failed to halt the wave of failures among regional small and medium-size enterprises (SMEs), as its effectiveness as a policy support measure has weakened. Could you tell me about new measures that you may have in mind if any?

A.

I presume that your question is based on recent media reports that the number of SMEs that failed after their loan repayment has been suspended under the SME Financing Facilitation Act exceeded 100 by August. While I am aware of such media reports, it is my understanding that the Japanese economy remains in a severe condition due to the yen's recent rapid appreciation and the impact of the Great East Japan Earthquake.

Under these circumstances, the Financial Services Agency (FSA) expects that the Act concerning Temporary Measures to Facilitate Financing for SMEs, etc. will lead to improvement in business management by promoting the modification of loan terms for SMEs which are temporarily facing difficulty making repayments but whose business is expected to improve in the future. We will continue to take every possible measure to ensure financing for SMEs.

Q.

It will soon be six months since the earthquake disaster took place. When will you start accepting applications for the use of the Revised Act on Special Measures for Strengthening Financial Functions? By now, three financial institutions have expressed willingness to make an application. How many companies do you think have potential needs for the use of this law?

A.

Regarding the Revised Act on Special Measures for Strengthening Financial Functions, the Chairman of the National Association of Shinkin Banks came to me yesterday, and he extended to me an invitation to the Shinkin Bank Act Enactment 60th Anniversary Commemoration National Conference. We enacted the Revised Act on Special Measures for Strengthening Financial Functions, which allows central organs to have significant involvement in Shinkin banks and credit cooperatives, and which stipulates that the Deposit Insurance Cooperation may provide assistance if after 10 years, Shinkin banks and credit cooperatives remain saddled with non-performing loans or their capital erodes, etc. This is an extraordinary financial law intended to deal with a once-in-a-millennium disaster.

I am frequently exchanging opinions with the Chairman of the National Association of Shinkin Banks. I have asked him to encourage financial institutions in the six prefectures of the Tohoku region to make full use of this law. While the decision is up to the managers of private financial institutions to make, I told him that I have created a favorable environment and sought his understanding.

Three financial institutions have expressed willingness to make an application. We are now drawing up a third supplementary budget, and from various information I have collected, I understand that SMEs and particularly financial institutions in the three disaster-stricken prefectures in the Tohoku region are waiting to see the substance and size of the third supplementary budget.

For example, although this is not under my jurisdiction, public financing schemes operated by the Ministry of Economy, Trade and Industry provides, in a sense, financial assistance measures with more favorable terms for disaster victims than from private financial institutions which are under our jurisdiction. Such financial assistance measures include debt forgiveness, interest-free loans and loans with a long grace period. The duration of grace periods has yet to be determined and, depending on circumstances, subsidies may be provided. Therefore, they are waiting to see the size of the supplementary budget. The third supplementary budget, which is now being drawn up, will be finalized soon, and there are expectations that if the supplementary budget is finalized, other financial institutions, including regional banks, Shinkin Banks and credit cooperatives, will drop their wait-and-see stance and apply for the use of the Revised Act on Special Measures for Strengthening Financial Functions, although I would not say they will do so all at once. From what I hear from various people, including the FSA staff and officials of financial institutions, I think that such expectations are reasonable, as attention is focusing on the size of the third supplementary budget. While a conclusion will be reached on matters like that soon, for my part, I hope that financial institutions in the Tohoku region will make full use of the Revised Act on Special Measures for Strengthening Financial Functions, which has been enacted as an extraordinary measure to deal with the impact of the earthquake, as I have repeatedly mentioned. This Act is intended to strengthen regional financial intermediary functions and reassure depositors, so we are considering measures that will promote quick restoration and reconstruction, and will help to ensure the safety of financial institutions and borrowing SMEs and give them reassurance.

Q.

Tomorrow, it will be 10 years since the J-REIT (Japanese real estate investment trust) market was opened. Could you comment on the role that J-REITs have played in the financial market?

A.

Regarding real estate investment, or the REIT market, this market provides a new investment tool. A little more than a decade ago, when Japan was in a deepening recession, I talked with an official of a Hong Kong-based financial institution, who was a son of the family controlling a major Asian conglomerate and was a clear headed man with degrees from Stanford University and with whom I am still friends. When he came to Japan around 15 years ago, I asked him what would get Japan out of the recession, and I clearly remember his reply advising Japan to create a market for real estate securities, or J-REITs.

Later, J-REITs were introduced, and the Bank of Japan announced an intention to purchase a certain amount of J-REITs as part of quantitative easing. I hear that the BOJ's announcement of an intention to purchase J-REITs accorded something like legitimacy to J-REITs and provided reassurance, leading to a substantial expansion of the J-REIT market. A little before the Lehman shock, trading in J-REITs became active due to investment from U.S. funds, leading to a rise in real estate prices. I hope that the J-REIT market will play a part in further invigorating investment by enhancing the liquidity of real estate, and that it will develop into a prosperous market.

Q.

Regarding the Act on Special Measures for Strengthening Financial Functions, you said that financial institutions are taking a wait-and-see stance concerning the third supplementary budget, and cited the expectation that they will apply for the use of that law after the supplementary budget is finalized. Should I take it that this is your expectation or someone else's?

A.

As you know, three financial institutions expressed willingness to apply for the use of the law at an early date. Under the Revised Act on Special Measures for Strengthening Financial Functions, the responsibility of managers of financial institutions will not be pursued. Many managers of Shinkin banks and credit cooperatives are strongly independent-minded, so frankly speaking, I had a bit of expectation that some of them would express willingness to apply for the use of the law after its enactment on June 22. Based on information obtained from various people, it seems that financial institutions are taking a wait-and-see stance, as the situation will change depending on the size and substance of the third supplementary budget.

I also think that they are waiting to see the financial results in the first half. As some newspaper or other has written, this is an unprecedented situation for bankers. In the disaster areas I visited, companies' facilities and individuals' houses have been utterly swept away. We Japanese have never had an experience like this, so the question is, what should be done to support companies that have lost everything, as some newspaper or other has pointed out. I presume that financial institutions are waiting to see the financial results in the first half.

While they are also paying attention to the size and substance of the budget, I presume that they are also waiting to see the financial results in the first half.

In any case, I hope that financial institutions in the Tohoku region will make full use of the Revised Act on Special Measures for Strengthening Financial Functions. Ultimately, we have no intention of forcing them, as I have repeatedly said. The decision is up the managers of private financial institutions. However, I would like to do everything possible to create an environment that encourages financial institutions to make use of the law. With that in mind, I instructed the new Director-General of the Supervisory Bureau immediately after his appointment to visit the disaster areas in the Tohoku region, so as to fully explain the contents of the Revised Act on Special Measures for Strengthening Financial Functions.

Q.

It will soon be one month since the application of the Guidelines of Workout for Restructuring Debt Owed by Individual Debtors started. What is the status of the application of the Guidelines over this period as reported to you? Has it been used more often or less than you expected, and what problems are there?

A.

As a way to deal with the double loan problem, the Guidelines of Workout for Restructuring Debt Owed by Individual Debtors was compiled by a study group comprised of private-sector officials under the leadership of the Japanese Bankers Association, and a general incorporated association is managing the application of the guideline. The application of the Guidelines started on August 22, and between the starting date and September 5, a total of around 820 requests for consultation were received at the call center, the Tokyo headquarters and five branches, in Aomori, Iwate, Miyagi, Fukushima and Ibaraki Prefectures, as reported to me. 495 requests were received at the call center and 221 were received at the branch in Miyagi Prefecture, which suffered the greatest damage, with the total number of requests received reaching 815. I hope that the application of the Guidelines will facilitate smooth debt workouts and help disaster victims make a fresh start toward recovery.

However, the fact that disaster victims apply for the application of the Guidelines of Workout for Restructuring Debt Owed by Individual Debtors indicates that they feel helpless, as I told the FSA staff. In times like this, the government act in a compassionate manner. For example, I have a private proposal to establish two or more contact points for consultation in each prefecture. In rural areas, municipal offices, offices of agricultural and fishery associations, branches of Shinkin banks and credit cooperatives and post offices, there are accessible facilities for local residents. Applying for the application of the Guidelines of Workout for Restructuring Debt Owed by Individual Debtors is not something that can be done with a light heart. Therefore, from the standpoint of disaster victims, I am proposing to use such accessible facilities as contact points for applications and mediation - although the actual administrative work may be done by a single general incorporated association in each prefecture - so that they can obtain relevant information there.

Although you media people know this matter well, it is difficult to raise public awareness. Therefore, I have issued a strong instruction for the airing of TV ad spots as part of government public relations. TV broadcasting has a large influence, so, although the Guidelines are managed by the Japanese Bankers Association and a general incorporated association (Management Committee of Individual Debtor Guidelines for Out-of-Court Workouts), I have instructed that it be advertised that such activity is underway under the government's initiative. I would like to raise public awareness about this, which is a depressing matter, as people in trouble tend to be absorbed in their worries without consulting other people.

Such people tend to suffer from insomnia and become narrow-minded although they may seem fine in the eyes of other people, and as I am a doctor by profession, I have the frequent experience of being consulted by people suffering from such problems. So, I have instructed that TV ad spots be used as part of government public relations. We will provide such carefully-thought-out support from the standpoint of people in the disaster areas.

Thank you very much.

(End)