Press Conference by Ikko Nakatsuka, Minister for Financial Services

(Excerpt)

(Friday, October 12, 2012, from 11:15 a.m. to 11:36 a.m.)

[Opening Remarks by Minister Nakatsuka]

First, I went to Sendai on Tuesday (October 9) and spoke at the Sendai Dialogue on mainstreaming disaster risk management in national development strategies and international cooperation. The following day, I met and exchanged opinions with President Ikeda of Corporation for Revitalizing Earthquake-Affected Business about the progress in resolving the double loan problem.

Today, a cabinet meeting was held, followed by a meeting of relevant ministers in which a monthly economic report was made.

[Questions & Answers]

Q.

At a meeting of the Financial System Council (FSC) this week, discussion started on the restriction on banks' shares in non-financial companies, which is known as the 5% rule, with a view to deregulation. Could you comment on the deregulation?

A.

I hear that the working group of the FSC is discussing further enhancement of the functions of the financial industry, and active discussion is also ongoing regarding the possible revision of the 5% rule. As I understand that a report will be written by the end of the year, the Financial Services Agency (FSA) will also sort out the major points of debate in light of the opinions of all relevant people.

Q.

In relation to the scheduled expiration next March of the SME (Small and Medium-size Enterprises) Financing Facilitation Act, I suppose that it is necessary to increase loans to SMEs. How will the revision of the rule relate to that?

A.

For example, from the perspective of enterprise turnaround, how DDS (debt-for-debt swap) may be used was clarified last year in the guidelines for supervision and inspection. Regarding DES (debt-for-equity swap), acquisition and ownership of 5% or more of all voting rights may be allowed in exceptional cases. However, if a scheme like this can be used to strengthen the functions of the financial industry, it will be worth considering deregulation. As relevant people have various opinions, we will need to deal with this matter while carefully listening to them.

Q.

Regarding the 5% rule, there are several points of debate, one of which is that if banks provide equity out of funds accepted as deposits, their business risks will grow. What do you think of that?

A.

Risk management must be properly conducted. On the other hand, the revision of the 5% rule will be beneficial in that it will promote the provision of capital funds. Therefore, it will be necessary to weigh that benefit against problems that may arise.

Q.

I am Namikawa from Toyo Keizai.

When you visited the disaster area, did you feel a lack of progress in recovery?

A.

Do you mean reconstruction of physical infrastructure?

Q.

That is correct.

A.

I visited the central urban area of Sendai. This time, I did not go to areas directly damaged by the tsunami and earthquake.

At Corporation for Revitalizing Earthquake-Affected Business, I exchanged opinions about how to resolve the double loan problem. I also received a briefing from President Ikeda on the progress that has so far been made.

I am very pleased that there have been applications for turnaround support from small businesses such as small sushi restaurants and hair salons.

On the other hand, various new problems have arisen while efforts are made to resolve the double loan problem. We agreed to discuss how to deal with those problems.

Q.

It is taking more time than initially expected to resolve the double loan problem. In other words, debtors have been slow in applying for turnaround support. While many debtors are complaining that it is difficult to create demand and start new business in the absence of recovery, reconstruction-related budget funds have been used in regions other than the disaster areas. As the minister in charge of the double loan problem, what do you think of this situation?

A.

When I was a deputy minister, I visited the disaster areas and exchanged opinions with officials of financial institutions and associations of SMEs. As you mentioned now, the resolution of the double loan problem emerges as a challenge when disaster-struck companies need fresh funds for resuming their former business or starting new business.

When they start new business, they use temporary facilities provided by the Organization for Small & Medium Enterprises and Regional Innovation, Japan (SME Support, Japan) and receive subsidies. The number of companies that have resumed operation has increased significantly. However, in many cases, companies wait and see how reconstruction will proceed before starting operation in earnest. I heard from such companies first-hand. Therefore, in line with future progress in reconstruction, I expect that applications for support will increase with regard to companies' double loans and loans to individuals covered by the Guidelines of Workout for Restructuring Debt Owed by Individual Debtors.

As for the use of reconstruction-related budget funds for non-reconstruction purposes, I am not aware of the details as to which funds were used for what purposes. However, I understand that such cases have come to light as a result of the review of administrative programs, and I also doubt the appropriateness of such use of funds. However, I would like to point out that such cases have been revealed as a result of the review of administrative programs. Until a short while ago, I was a deputy minister in charge of the review.

Q.

I am Shimada, a freelance journalist.

In relation to the previous question, although local financial institutions have recently been providing loans to construction companies and other firms involved in reconstruction projects as a matter of course, I hear that individuals who are managing such businesses as musical instrument shops, bookstores, and hardware shops and need warehouses have difficulty taking out loans. Are there any measures to correct this situation?

A.

I suppose that the circumstances vary on a case-by-case basis.

From what I heard first hand when I visited the disaster areas and exchanged opinions with people there, there are many companies that see little need for fresh funds because financial institutions in the disaster areas have modified the terms of loans.

However, if companies are to start new business, they will need fresh funds. When fresh funds are needed, the double loan problem must be resolved. Therefore, reconstruction and the resolution of the double loan problem are closely related to each other.

Anyway, I am glad to say that as President Ikeda is working hard, cases of turnaround support are increasing. We will make efforts to raise awareness about this system so that more people can use it.

Q.

Today, a media report said that a company managing assets of a pension fund association in Nagano may be ordered to suspend business operation. Could you offer your thoughts on how such asset management companies should behave as a matter of general principle?

A.

Regarding discretionary investment managers or any other financial institutions, we routinely examine the appropriateness of business operation through inspection and supervision. If a legal violation is recognized, we will take strict actions.

Q.

The other day, you met with the chairman of the International Accounting Standards Board (IASB). Could you tell me about the contents of your meeting?

A.

The day before yesterday, Chairman Hans Hoogervorst visited me and talked about the application of IFRS (International Financial Reporting Standards). I told him about the current situation in Japan and Japan's position on this matter. The chairman told me that he well understands Japan is a society that respects consensus-based decision making.

Q.

Didn't he ask Japan to make an early decision as to the mandatory application of IFRS?

A.

I suppose, he didn't use a very word of “mandatory” or that kind of thing. Naturally, as the chairman of the IASB, he may have had some hopes about that. However, for my part, I explained Japan's position.

Q.

May I take it that “Japan's position” refers to your statement that the decision will be made by the end of the year?

A.

Japan's position is as I usually tell you at my press conferences.

Q.

I am Shinryo from Magazine X.

I always ask the same question, which concerns compulsory automobile liability insurance. As you know, the Compulsory Automobile Liability Insurance Council will hold a meeting next January. It is said that the insurance premium rate will be raised for the first time in two years. As agreed between former Finance Minister Noda and former Minister of Land, Infrastructure and Transport Mabuchi, premium reserves totaling more than 600 billion yen have been held in the general budget account, and the reserves will remain there. On the other hand, the insurance premium rate will be raised. Regarding this matter, what is the position of the FSA as the ministry responsible for overseeing compulsory automobile liability insurance?

A.

As discussions are still ongoing, I would like to refrain from making comments. Generally speaking, insurance products should be designed in light of such factors as the occurrence rate of insurance events and the status of reinsurance.

Q.

Reinsurance is not involved, is it?

A.

No, it isn't. I was talking about insurance products in general.

Q.

Don't you think it is unreasonable that the insurance premium rate will be raised while the premium reserves totaling 600 billion yen remain in the general account budget?

A.

As discussions are ongoing, I would like to refrain from making comments at this time.

Q.

This week, the Global Financial Stability Report pointed out a risk related to Japanese banks' holdings of government bonds, and some discussions have been held on that at the annual meetings of the IMF and the World Bank. Could you comment on the discussions? Also, do you think that there is a risk related to Japanese banks' holdings of government bonds?

A.

I am aware that such discussions have been held. However, I also understand it was mentioned that although such a risk exists, the Japanese financial system is stable enough to absorb it.

In any case, from the perspective of macro-prudence, risks related to asset holdings should be properly managed, and that has already been included in the guidelines for supervision.

(End)

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