Press Conference by Ikko Nakatsuka, Minister for Financial Services

(Excerpt)

(Tuesday, October 30, 2012, from 10:23 a.m. to 10:42 a.m.)

[Questions & Answers]

Q.

Yesterday, Japan Post presented its listing plan to the postal privatization committee. The listing plans of Japan Post Group's two financial institutions (Japan Post Bank and Japan Post Insurance) have not yet been presented. As the agency responsible for supervising the two institutions, what kind of governance does the Financial Services Agency (FSA) believe is desirable?

A.

Are you referring to corporate governance?

Q.

That is correct. Also, as it is not clear whether they will be listed, as the supervisor of the two financial institutions, what is your opinion on the basic issue of whether they should be kept under the wing of the holding company or should be listed?

A.

That is a governance issue concerning specific financial institutions, so I would like to refrain from making comments. Generally speaking, I hope that business managers of financial institutions exercise appropriate governance and establish proper internal control systems so that the institutions can perform their functions appropriately.

Q.

In relation to the postal privatization committee, yesterday, Chairman Nishimuro said at a press conference that he understands the difficulty of indicating at an early date when shares in the two financial institutions will be sold. He also suggested the possibility of starting examination as to whether to approve the new services before the timing of the share sale is indicated and making the decision by the end of the year. Meanwhile, you stressed that the timing of the sale of shares in the two financial institutions is important for the examination. How do you feel about Chairman Nishimuro's remarks? Also, how will the FSA proceed with its examination?

A.

First, as we are still hearing from the postal privatization committee, I would like to refrain from commenting on the chairman's remarks.

There is a legal provision concerning the percentage of the voting rights. While I understand that shares in the parent company, Japan Post Holdings, will be sold, a relevant law has a provision concerning the sale of shares of the two financial institutions, or I should say the percentage of the voting rights of the holding company to the two financial institutions. Moreover, selling shares of the two financial institutions to reduce the voting rights percentage is a necessary condition for the approval of new services, but not a sufficient condition. First, procedures based on the Postal Service Privatization Act should be followed. In addition, we also need to conduct examination in accordance with the Banking Act and the Insurance Business Act.

Therefore, as I have been saying, there is no change in our stance of making judgment as to whether to grant approval after examining the applications for a sufficient period of time.

Q.

You said that indicating the timing of the sale of shares of the two financial institutions is a necessary condition. Does that mean it will be difficult to examine the applications unless the timing is indicated?

A.

I mentioned what is stipulated in the Postal Service Privatization Act.

Q.

I am Namikawa from Toyo Keizai.

In response to the question from the press club representative, you declined to make comments on the grounds that this matter concerns specific financial institutions. However, these financial institutions are not merely financial institutions, but, those wholly owned by the government. The Postal Service Privatization Act sets a future path of the postal companies following their privatization, and the privatization has yet to be carried out. So, I assume that you should reply to that question more conscientiously.

A.

Japan Post Bank and Japan Post Insurance are already subject to the Banking Act and the Insurance Business Act, respectively. We gave our reply from our position as the agency in charge of financial administration.

Q.

I am afraid that you are missing the point. The press club representative was referring not merely to the management of the two financial institutions but to the governance of Japan Post Group as a whole, including the holding company. The two financial subsidiaries are subject to the Banking Act and the Insurance Business Act, to be sure, but I understand that the press club representative was asking about the governance of the group as a whole.

A.

My understanding is that the question concerned the two financial subsidiaries.

Q.

Let me sort this out. Governance is exercised by the parent company, or the holding company. I understand that the question concerns not the two financial companies governed by the parent but how the holding company governs the group as a whole. The two financial companies are operating based on approval granted under the Banking Act and the Insurance Business Act, to be sure. However, the government owns all shares in the holding company, so I would say you should not treat this as a matter concerning private companies.

A.

A holding company is also a company established based on the Companies Act. Primarily, the Minister of Finance is the shareholder of Japan Post Holdings. For my part, I talked about the two financial institutions from my position as the person in charge of financial administration. As a state minister, I hope that appropriate governance will be exercised in accordance with the Companies Act.

Q.

Although the companies are operating under approval granted under the Companies Act, the Banking Act and the Insurance Business Act, respectively, would it be appropriate to set similar conditions for them to those set for private companies?

A.

At the least, they should satisfy the conditions required of private companies.

Q.

When you mentioned “the conditions required of private companies,” were you referring to the development of internal control systems that you frequently mention?

A.

First of all, I would like to make this clear. I am not being especially strict with Japan Post Bank or Japan Post Insurance. For all financial institutions, we conduct examination in the same way. Roughly speaking, the main points of examination regarding the Banking Act and the Insurance Business Act include governance. As for financial soundness, the points of examination include financial fundamentals, the prospects for revenue-expenditure balance and risk management under the Banking Act, and the methods used to calculate insurance premium rates and policy reserves under the Insurance Business Act. As for the appropriateness of business operations, points of examinations include knowledge, experience and social credibility of the staff as well as legal compliance, user protection, system development under the Banking Act and protection of policyholders, suitability to demand from and convenience for policyholders, and appropriateness of the criteria for insurance claims payment under the Insurance Business Act. We conduct examination regarding these and many other points. We are not being strict with Japan Post Group alone. We do not treat private and public institutions differently regarding those points. As I already mentioned, the two financial subsidiaries are already subject to the Banking Act and the Insurance Business Act, so we conduct appropriate examination accordingly.

Q.

Yesterday, Chairman Nishimuro cited the Tokyo Stock Exchange's listing rule concerning subsidiaries when explaining the difficulty of indicating the timing of the sale of the two financial subsidiaries. But you mentioned various reasons why it is important to indicate the timing of the share sale first. What do you think of the reason that Chairman Nishimuro cited?

A.

As I already mentioned, we are hearing from the postal privatization committee, so I would like to refrain from commenting on the chairman's remarks.

Q.

The sale of shares of the two financial subsidiaries that you mentioned will not be conducted until much later, so I understand that it would be difficult to indicate a detailed schedule. But could you give me some idea of how specific the schedule should be?

A.

That is a matter to be considered by the two financial subsidiaries and Japan Post Group.

Q.

I would like to ask you about the joint surety system.

The joint surety system is very common in Japan. When companies and individual persons borrow money, financial institutions generally require guarantee by joint surety. As you know, such a system is rare globally. I am asking this question because you are also in charge of suicide reduction. Although I am not sure how deeply you can involve yourself in this issue in relation to financial administration, the burden of debts is causing various social problems. It would be difficult to change the joint surety system quickly, but don't you intend to hold some discussions on this matter?

A.

First, the joint surety system could be a social factor that may lead to suicide. With that in mind, we revised the comprehensive plan for suicide reduction this August. The plan includes the provision of consulting with business managers and measures to raise awareness about and promote loan programs that do not require guarantee by a third-party guarantor. There are already such loan programs. We will make efforts to raise awareness about them. The FSA believes it is important that financial institutions, when deciding whether to provide loans to small and medium-size enterprises in particular, take comprehensive account of the business conditions of the borrowers, how the borrowed funds will be used, and the loan recoverability. In the guidelines for supervision, it is stipulated that loan programs that do not overly depend on collateral or guarantee should be promoted. We will continue to encourage financial institutions to fully exercise their appraisal capability and implement loan programs that do not overly depend on collateral or guarantee. Also, there are various types of collateral. For example, there are ABL and movable collateral, so we would like to implement the measures that I mentioned by promoting the use of such collateral.

Q.

Your comments are very encouraging. However, the requirement for joint guarantee tends to be used as an excuse to decline requests for loans, as I know from my own experience as a business manager. Do you have any idea as to how to curb such a practice?

A.

I suppose that financial institutions want to secure collateral when providing loans. However, if they refuse to provide loans unless collateral is offered, they would be mere money lenders, rather than bankers, who should have an appraisal capability. I strongly hope that Japanese financial institutions will develop their appraisal capability.

Q.

Yesterday, Nomura Holdings reported its financial results for the July-September quarter, posting a profit of 2.8 billion yen. Abroad, Goldman Sachs and JP Morgan, for example, reported profits of 119 billion yen and 448 billion yen, respectively, for the same quarter. Japanese financial institutions' profits are much smaller than foreign rivals. Could you give me your frank opinion on the level of the profit earned by Nomura as Japan's leading securities company?

A.

As this is relating to economic developments and concerns the financial results of a specific company, I would like to refrain from making comments. In any case, I think that the economic condition is the primary factor. In addition, I would like individual companies to develop systems that enable them to secure profits.

Q.

Yesterday, Minister for Postal Service Privatization Shimoji met with U.S. Ambassador to Japan Roos, and the ambassador expressed strong concerns over the new services planned by Japan Post Group. I assume he is concerned that equal competitive conditions are not being ensured in relation to the GATS agreement under the WTO. Do you have a similar concern?

A.

I am not aware of the details of their meeting. It is stipulated in the Postal Service Privatization Act that care should be taken to ensure an appropriate competitive relationship with other financial institutions. Therefore, all I can say is that we will conduct examination in accordance with that law.

(End)