Requests for FY2006 Tax Reform


On August 31, the Financial Services Agency submitted ''Requests for FY2006 Tax Reform'' to the Ministry of Finance and the Ministry of Internal Affairs and Communications. This year, we have made requests for tax reform mainly from three perspectives, namely:
1. Promoting market participation of a diverse range of investors
2. Enhancing the competitiveness of financial institutions
3. Creating a financial system that is internationally open

1.
Tax system for promoting market participation of a diverse range of investors
From a perspective of facilitating shifts ''from savings to investment'' and thereby promoting market participation of a diverse range of investors by setting in place an easy environment for investors to invest in risk-bearing assets, we have requested, among other requests, that:
 
(1)   The period of application of the currently-existing stock investment tax break should be extended, and the scope of application expanded; and
(2) As an action towards ''standardized financial product taxation,'' aggregation of dividend income from stock etc. and capital losses should be permitted.

2.
Tax system for enhancing the competitiveness of financial institutions
From a perspective of having the competitiveness of financial institutions enhanced by such actions as promoting strategic investment in IT by financial institutions, we have made, among other requests, the following requests:
 
(1)   Extending the currently-existing IT investment tax cuts, and creating taxation measures by which to support IT investment by financial institutions for information security purposes
(2) In relation to financial institutions: (a) extending the scope of tax-free write-offs for bad loans, from a perspective of preventing a recurrence of the non-performing loans problem, and; (b) lifting the freeze on the carry-back refund system and extending the eligible period, and extending the carry-over deduction period for losses, all in an attempt to solve the problem of instability of deferred tax assets as an asset class.

3.
Tax system for creating a financial system that is internationally open
From a perspective of creating a financial system that is internationally open by setting in place an environment in which it is easy for Japanese companies to borrow foreign currencies and for overseas investors to participate in Japanese markets, we have made requests for necessary taxation measures.

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Summary of FY2006 Budgeting Requests


1.
Introduction
The Financial Services Agency has made requests for organizational, staffing and budgeting matters that are necessary for the steady implementation of, among other actions, various measures listed in the ''Program for Further Financial Reform(PDF)'' (announced on December 24, 2004) and the ''Work Schedule(PDF)'' for the Program (announced on March 29, 2005), including emphasis on user needs and thorough implementation of user protection rules, enhancement of the competitiveness of financial institutions and financial market infrastructure development through the strategic use of IT etc., in order for us to continue fulfilling, in view of the phase transition of Japan's financial system, our given responsibilities in an appropriate fashion.

2.
Details of Organizational and Staffing Requests
In order to steadily implement the ''Program for Further Financial Reform(PDF),'' the Financial Services Agency sets four areas of emphasis, based on a particular focus on enhancing our market administration structure, in making requests for organizational and staffing matters for FY2006, namely: ''emphasis on user needs and thorough implementation of user protection rules,'' ''enhancement of the competitiveness of financial institutions and financial market infrastructure development through the strategic use of IT etc.,'' ''development of a financial system that is internationally open and the financial administration with an international perspective,'' and ''establishment of a reliable financial administration, etc.''
 
(1) Emphasis on user needs and thorough implementation of user protection rules
In order to enhance the framework for information supply and consultation etc. for user protection purposes, we are set to work on, among other plans, more extensive financial and economics education and enhanced financial service user support services, and to develop a structure necessary to enhance our market administration structure, including an enhanced structure for the establishment of investment service rules. In view of the partial amendments to the Insurance Business Law etc. in April of this year, we are also planning to develop a structure necessary for inspections of and supervision over small claims and short-term insurance businesses.
(2) Enhancement of the competitiveness of financial institutions and financial market infrastructure development through the strategic use of IT etc
In order to promote the strategic use of IT in the financial sector, we are set to develop a structure necessary to enhance our structure of planning and supervising policy programs in relation to IT applications in financial services. In view of the partial amendments to the Securities and Exchange Law in June of this year, we are also planning to work on the development of a structure associated with the penalty system against false descriptions in securities reports etc. and to develop a structure necessary to introduce a rating system in inspections.
(3) Development of a financial system that is internationally open and a financial administration with an international perspective
In order to address the growing importance of cross-industry supervision tasks as a result of, among other developments, further conglomeratization of financial services and the rapid increase in international supervision tasks, we are set to develop a structure necessary to strengthen our system of supervision over financial conglomerates and international supervision systems. For the purpose of preventing acts of terrorism, we are also planning to develop a structure necessary to strengthen our system of, among other actions, analyzing information on terrorism funding.
(4) Establishment of a reliable financial administration, etc.
We are set to develop a structure necessary to set in place a structure by which to, among other actions, enhance staff and strengthen the compliance in the Financial Services Agency, conduct inspections with a high degree of effectiveness and efficiency, and establish a more robust system of supervision over financial institutions.
We have requested increased staffing by 190 people in total for the purpose of developing those structures, consisting of 53 in the Planning and Coordination Bureau, 35 in the Inspection Bureau, 39 in the Supervision Bureau, 62 in the Securities and Exchange Surveillance Commission and 1 on the Certified Public Accounts and Auditing Oversight Board.
(Reference: Staffing request for FY2006)
(Reference: Staffing request for FY2006)

3.
Details of Budgeting Requests
In our budgeting requests for FY2006, we have asked for a total of approximately 22.8 billion yen, an amount we reached by estimating expenses for increased staffing intended to respond to new administrative demands, as well as expenses required for, among other actions, our voluntary efforts in the ''result-based projects,'' implementation of responsive inspections and supervision, enhanced collaboration with overseas regulatory authorities, development of an information system for higher user convenience and more efficient work execution, all in an attempt to steadily implement the ''Program for Further Financial Reform(PDF),'' while striving to narrow the gap between budget and performance.
As an additional note, we have requested 50.15 trillion yen for government guarantees earmarked for the Deposit Insurance Corporation, which we did on the basis of our conviction that such budgeting will serve as continued assurance for financial system stability.

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Establishing the ''Human Resources Network''


The ''Program for Further Financial Reform(PDF)'' released in December 2004, along with another policy package, listed as one of the discussion agenda items the establishment of a scheme for financial institutions to secure recruitment of financial experts. In response, the Financial Services Agency (FSA) and private-sector business associations worked in collaboration to formulate a basic scheme for the ''Human Resource Network,'' which was released to the public by the FSA on August 26 this year. A summary of the scheme is provided below.

1.
Background
The establishment of a scheme for financial institutions to secure recruitment of financial experts was listed as one of the discussion agenda items in the ''Program for Further Financial Reform(PDF),'' released last December, from a perspective of ''enhancing governance of financial institutions and promoting sound competition through highly-developed risk management.'' It was also included in the ''Action Program to Promote Further Enhancement of Region-based Relationship Banking Functions (FY2005-06),'' released in March this year, as part of the ''proactive efforts for business revitalization'' of small- and medium-sized enterprises by regional financial institutions.
Behind this initiative is the fact that it is currently not always easy for a financial institution to obtain information on potential candidates when it tries to proactively seek recruitment of external personnel with professional knowledge in the financial field in its attempt to take strategic actions based on its autonomous management decision. The establishment of such a scheme is intended to support such spontaneous efforts of financial institutions by providing a structure that may enable easier access to such information.
In order to address such an issue, the FSA and five business associations for deposit-taking institutions representing different sub-sectors of the industry (namely: Japanese Bankers Association, Regional Banks Association, Second Association of Regional Banks, National Association of Credit Associations, and National Association of Credit Unions) jointly held sessions of discussion on specific details of the planned scheme starting in March this year, in accordance with the ''Work Schedule for the Implementation of the Program for Further Financial Reform(PDF).'' As a result, the basic scheme was recently formulated as the ''Human Resource Network'' and was subsequently released to the public.

2.
Specific Details of the Scheme
As its name suggests, the ''Human Resource Network'' is a network connecting the five business associations listed above. If an individual financial institution intends to proactively seek recruitment of external personnel across different sub-sectors of the banking industry, that institution could make use of the network through the business association to which it belongs, and thus inquire to other sub-sectors about the availability of any candidates that may meet its needs. Meanwhile, the business associations would maintain the mutual network as infrastructure so that information can be communicated at any time according to the needs of their members.
Specifically, the scheme will work in the following fashion:
Take an example of a case where financial institution in sub-sector A needs to ''recruit an expert in the area of X from a financial institution in sub-sector C.'' (please refer to (Appendix) Basic Scheme of the ''Human Resource Network'' ).
 
(1) First, presents its recruitment needs to A, the business association to which it belongs. In so doing, is required to present a minimum list of information on its needs that specifies (i) area of expertise, (ii) age group, (iii) work location or hometown, (iv) desired starting date of work, (v) deadline for reply, and (vi) name of the desired personnel supplying financial institution or, if not that specific, desired regional location of the potential supplier, desired sub-sector of the potential supplier, etc.
(2) Having been presented with the needs information by , business association A communicates, via the network, the needs information to business association C, representing sub-sector C, which meets 's needs.
(3) Having received the needs information of , business association C communicates that information to , and , which are members of C that meet the needs (such as being a financial institution located in a specific region) (the involvement of the network ends when this procedure is completed).
(4) Among , and , that have received the needs information of , if becomes interested, it would directly contact and start specific negotiations.
Any of the five sub-sectors that make up the scheme (i.e., major banks, regional banks, regional banks II, credit associations, and credit unions) can be on the recruiting side, and those on the recruiting side can make inquiries on its member's needs without any restrictions on the number of sub-sectors to which it presents the information.

3.
Significance of the Scheme
As mentioned above, it is currently not always easy for a financial institution to obtain information on potential candidates when it tries to proactively seek recruitment of external personnel with professional knowledge in the financial field in its attempt to take strategic actions based on its autonomous management decision. Given this situation, we believe that this scheme could be useful in supporting such proactive efforts by financial institutions, as it enables the recruiting financial institution to check the availability of potential candidates in a relatively short time by using the network to provide information on requirement needs to financial institutions that could potentially supply personnel.
While it will be up to each individual financial institution's voluntary decision whether or not to actually use the scheme, we hope that it will serve as a new option for financial institutions in their attempt to take strategic actions based on their autonomous management decisions, whereby they seek recruitment of external financial experts.

Note: Following caveats may be noted with respect to this scheme:
 
(1) As the role of the scheme is limited to communicating information on recruitment needs of the financial institution on the recruiting side in one direction only, any financial institution contemplating responding to those needs should directly contact the recruiter and start specific negotiations outside the network. Accordingly, the network itself does not have a ''job placement'' function in such a sense as ''brokering the establishment of an employment relationship between a recruiter and a job seeker'' (Article 4, Employment Security Law).
(2) As needs information to be communicated under the scheme comprises a specific mix of conditions regarding the needs for external personnel (from (i) to (vi) above) presented by the recruiting financial institution, the scheme basically does not expect any sharing of information on a specific individual among participating parties via the network to take place. As the process in the actual use of the scheme begins with the recruiting side presenting needs information, formulating a list of available personnel in advance is not envisioned, either.
(3) As the scheme is set up to serve the purpose of developing a network between the five business associations for deposit-taking institutions, each representing respective sub-sector of the industry, its current framework is designed principally to address the recruitment needs among sub-sectors within the industry, while the scope of the financial institutions' needs for external financial experts may reach further out.
(4) While the FSA and the business associations jointly held deliberations in developing the scheme, the work of establishing an actual network rests with mutual cooperation by and between those associations with no further involvement of the FSA. Also, any use of the scheme is left entirely up to each individual financial institution's voluntary decision.

(Appendix)Basic Scheme of the ''Human Resources Network''(PDF)

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Revision of Business Revitalization Plans


The Early Strengthening Law prescribes that improvement of management of financial institutions that were recapitalized (hereinafter referred to as the ''Recapitalized Financial Institutions'') must be facilitated under public pressure by announcement of Business Revitalization Plans and the progress in the implementation of the plans. Business Revitalization Plans must be revised in principle two years after establishment of the plans by Recapitalized Financial Institutions.
On August 12, 2005, Business Revitalization Plans were revised by 10 out of the 18 Recapitalized Financial Institutions that were supposed to revise those in principle every two years.
On the other hand, the Financial Services Agency (hereinafter referred to as the ''FSA'') issued Business Improvement Orders to Sumitomo Mitsui Financial Group, Inc., Momiji Holdings, Inc. and Kyushu-Shinwa Holdings, Inc on July 22, 2005, because the actual figures of profits considerably underperformed the profit targets as of the end of March 2005, set in the Business Revitalization Plans, requiring them to, among other actions, establish and implement Business Improvement Plans including profitability improvement measures and facilitating them to strengthen their profitability.
These three Recapitalized Financial Institutions established new Business Revitalization Plans on September 6, 2005, into which those Business Improvement Plans were incorporated.
Recapitalized Financial Institution announced to the public new Business Revitalization Plans described above and FSA announced to the public those on an aggregated basis.
Note: Business Revitalization Plans are four year plans which financial institutions requesting to be recapitalized should be required to submit pursuant to Article 5.1 of the Early Strengthening Law, containing measures for management streamlining, etc.

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Progress Report on Business Revitalization Plans


The financial institutions that were recapitalized (hereinafter referred to as the ''Recapitalized Financial Institutions'') under the Early Strengthening Law are required to report to the government and announce to the public the progress in the implementation of their Business Revitalization Plans until they carry out the disposal, including retirement of the preferred shares, etc. held by the government.

On August 12, 2005, the Recapitalized Financial Institutions reported on the progress in the implementation of their plans to the FSA on the basis of their 2005 March financial statements, and announced that to the public.

Note: Business Revitalization Plans are four-year plans which financial institutions requesting to be recapitalized should be required to submit pursuant to Article 5.1 of the Early Strengthening Law, containing measures for management streamlining, etc.

 

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Public Release of the Summary of May 2005
''Small- and Medium-Sized Enterprise Financing Monitoring'' Results


1.
  Objectives and Background
The ''Small- and Medium-Sized Enterprise Financing Monitoring'' is performed on a quarterly basis by employees of the Local Finance Bureaus and Offices in the 47 prefectures nationwide with the help of Chambers of Commerce and Industry etc. for the purpose of accurately grasping specific issues concerning financial institutions viewed from the perspectives of small- and medium-sized enterprises, as part of efforts towards facilitating small- and medium-sized enterprise financing.
On August 12 of this year, we released to the public the results of the Monitoring performed in May 2005, which we did in accordance with the fact that releasing to the public the results of the ''Small- and Medium-Sized Enterprise Financing Monitoring'' was listed in the ''Action Program concerning enhancement of Region-Based Relationship Banking Functions (for FY2005 to 2006),'' which was released to the public on March 29, 2005, as one of the actions to be taken to make further use of the Monitoring.
The Financial Services Agency is poised to continue working on facilitating SME financing by, for instance, actively comprehending voices raised in real scenes of SME financing through the Monitoring and using the findings as important information in our conduct of inspections and supervision of financial institutions.
We are also planning to release the results on a continuous basis in the future.

2.
  Subjects of Monitoring
We conducted interviews with a total of 390 individuals from 171 organizations in the 47 prefectures nationwide, including Chambers of Commerce and Industry, Federations of Societies of Commerce and Industry, Societies of Commerce and Industry, Small Business Associations, Federations of Chambers of Commerce and Industry, and Small and Medium Entrepreneurs Associations.
　
 
Organization Category No. of Organizations
 (No. of Interviewees)
Chamber of Commerce and Industry 79 (170)
Society of Commerce and Industry 49 (57)
Federation of Societies of Commerce and Industry 22 (123)
Small Business Association 16 (31)
Federation of Chambers of Commerce and Industry 2 (3)
Small and Medium Entrepreneurs Associations 1 (1)
Others 2 (5)
Total 171 (390)

3.
  Inquiry Topics
The major topics of inquiry in the recent Small- and Medium-Sized Enterprise Financing Monitoring are as follows:
 
  • Trend in issues on SME financing over the most recent three months
  • Overview of problems that SMEs face in the area of financing (those commonly found in the cases of consultation in the most recent three months)
  • Case examples showing the penetration of the measures for facilitating SME financing
 
- Degree of awareness among SMEs, of the Supplementary Issue to the Financial Inspection Manual [for Small- and Medium-Sized Enterprise Financing] (revised version)
 
(Note 1 )As the Monitoring is not a fixed-point survey whereby inquiries are conducted with the same interviewees every time, the number or makeup of interviewees may not always be consistent.
(Note 2 )As one interviewee may provide multiple comments, the number of interviews and the number of replies do not match.

4.
  Answers to Inquiries
 
(1)   Trend in issues on SME financing over the most recent three months
The trend in lending attitude towards SMEs over the most recent three months is as follows:
 

An observation of this figure reveals that ''More positive'' and ''Somewhat more positive'' answers take up a majority in the Hokuriku and Kinki regions.
As well, the trend over the most recent three months by operation category has been summed up as follows:
 
Trend over the last 3 months Major banks Regional banks,
Second Association regional banks		 Shinkin banks,
Credit unions		 Government-affiliated financial institutions Total no. of answers
(Percentage)
1. Turned positive 8
(4.4)		 21
(6.5)		 28
(8.8)		 35
(10.7)		 92
(8.0)
2. Turned somewhat more positive 18
(9.9)		 91
(28.1)		 80
(25.2)		 81
(24.8)		 270
(23.5)
3. Unchanged 106
(58.6)		 177
(54.6)		 194
(61.2)		 183
(56.0)		 660
(57.4)
4. Turned somewhat more negative 3
(1.7)		 24
(7.4)		 11
(3.5)		 22
(6.7)		 60
(5.2)
5. Turned negative 6
(3.3)		 4
(1.2)		 1
(0.3)		 4
(1.2)		 15
(1.3)
6. Other answers 40
(22.1)		 7
(2.2)		 3
(0.9)		 2
(0.6)		 52
(4.5)
Total 181
(100.0)		 324
(100.0)		 317
(100.0)		 327
(100.0)		 1,149
(100.0)

The elaborated answers of those interviewees who selected 4 or 5 in the question of the ''Trend in lending attitude towards SMEs'' have been classified as follows:
 
Specified cause for finding SME financing to be negative (Elaboration of choices 4 and 5 above) Major banks Regional banks,
Second Association regional banks		 Shinkin banks,
Credit unions		 Government-affiliated financial institutions Total no. of answers
(Percentage)
Refusal of new loan requests 3
(25.0)		 14
(35.0)		 4
(25.0)		 9
(33.3)		 30
(31.6)
Collateral and guarantee 1
(8.3)		 12
(30.0)		 5
(31.3)		 7
(25.9)		 25
(26.3)
Loan assessment procedures 1
(8.3)		 6
(15.0)		 4
(25.0)		 7
(25.9)		 18
(18.9)
Lending terms 0
(0.0)		 3
(7.5)		 0
(0.0 )		 2
(7.4)		 5
(5.3)
Interest rates 0
(0.0)		 3
(7.5)		 0
(0.0)		 0
(0.0)		 3
(3.2)
Other causes 7
(58.3)		 2
(5.0)		 3
(18.8)		 2
(7.4)		 14
(14.7)
Total 12
(100.0)		 40
(100.0)		 16
(100.0)		 27
(100.0)		 95
(100.0)
Note 1: As the Monitoring is not a fixed-point survey whereby inquiries are conducted with the same interviewees every time, the number or makeup of interviewees may not always be consistent.
Note 2: As one interviewee may provide multiple comments, the number of interviews and the number of replies do not match.

(2)
  Overview of problems that SMEs face in the area of financing (those commonly found in the cases of consultation in the most recent three months)
Problems that SMEs face in the area of financing have been classified into the eight categories indicated as follows:
Problem Category No. of answers (Percentage)
Lending attitude 103(28.2)
Collateral and guarantee 86(23.6)
Management guidance and business startup or revival assistance 34( 9.3)
Attitude in providing explanation when lending 24( 6.6)
Quality and ability of financial institutions 18( 4.9)
Period of loan assessment 10( 2.7)
Interest rates 8( 2.2)
Other problems 82(22.5)
Total 365(100.0)
Note 1: As the Monitoring is not a fixed-point survey whereby inquiries are conducted with the same interviewees every time, the number or makeup of interviewees may not always be consistent.
Note 2: As one interviewee may provide multiple comments, the number of interviews and the number of replies do not match.
 

A.
  Comments made with respect to lending attitude
  -   No grievances on lending crunch or oppressive debt collection have been reported. (Hokkaido, Kanto, Kinki, Hokuriku and Tokai)
- Well-regarded borrowers seem to have frequent visits of multiple financial institutions and seem to be asked to borrow funds that are not necessarily needed. As, on the other hand, other borrowers receive few visits, the relationships between banks and those borrowers have become more distant and, as a consequence, banks have less comprehension of their situation. (Kanto, Kinki, Chugoku, Shikoku, Fukuoka and Kyushu)
- Financial institutions are becoming more selective about companies to lend to, resulting in the appearance of polarization in their lending attitude. (Hokkaido, Tohoku and Kanto)

B.
  Comments made with respect to collateral and guarantee
  -   Some active efforts have been observed, such as guaranteed loans making use of private credit guarantee companies (Kinki)
- Unsecured, unguaranteed loans for business startup have been provided. (Kanto, Fukuoka, Shikoku and Kyushu)
- There has been no change in the lending attitude of financial institutions, which rely heavily on collateral and guarantee. (Hokkaido, Kinki, Chugoku, Fukuoka and Okinawa)
- Collateral devaluation and deteriorating guarantee capability due to land price depreciation have emerged as problems. (Tohoku and Kyushu)
- Businesses are in need of financing that do not rely excessively on collateral and guarantee. (Kyushu)
- While cases of unsecured, unguaranteed loans and publicly-backed loans are increasing, loan approval has become harder. (Fukuoka)

C.
  Comments made with respect to management guidance and business startup or revival assistance
  -   For promising companies, banks appear to provide loans flexibly, guide them and help them grow. (Shikoku, Fukuoka and Hokuriku)
- For companies with poor performance, banks still appear to try to find some way to finance them by scrutinizing the company representative's quality, as well as assets and liabilities. (Shikoku, Kyushu and Hokuriku)
- Relationship banking efforts are in good progress, as seen from the fact, for instance, that some financial institutions are taking specific steps towards forming a partnership with Chambers of Commerce and Industries with a view to assisting SMEs. (Hokkaido, Tokai and Hokuriku)
- As managers of SMEs and micro enterprises are not in a state to design a long-term vision, it is desirable that financial institutions will put more efforts into management guidance. (Tohoku)
- Steps taken by financial institutions in the areas of management guidance and business revival assistance still remain insufficient, reflecting their lack of efforts in penetrating the measures targeting SMEs among their branches. (Hokkaido)

D.
  Comments made with respect to attitude in providing explanation when lending
  -   Customer service manners etc. have improved from the past. (Shikoku)
- Financial institutions are found to properly fulfill their accountability to borrower companies when lending. (Tokai)
- Explanations and advice on what should be improved are not sufficiently provided. (Hokkaido, Kinki, Shikoku and Kyushu)
- Further improvement is required as to explanations of financial institutions' views and standpoints etc. when they refuse a loan. (Kyushu)
- In the case of using an automatic credit check, lending restrictions that may apply are not explained sufficiently. (Chugoku)

E.
  Comments made with respect to quality or ability of financial institutions
  -   Banks are working responsively and patiently on management plan development. (Tokai and Shikoku)
- Given deteriorating financial conditions of applicant companies, it is probably understandably difficult for financial institutions to decide whether to lend or not. (Tohoku)
- In loan assessment procedures, a company's past business records (financial statements) and self-owned capital are weighed heavily, while growth potential etc. is not considered. (Hokkaido, Kyushu and Fukuoka)
- Businesses in arrears, due to their inability to repay excessive loans, are sometimes left without any effective assistance because there is no coordination between lending financial institutions. (Kanto)
- Due to the lack of a ''good eye'' for business plans in the case of business startup loan, it is hard to reach a financing decision. (Chugoku)

F.
  Comments made with respect to period of loan assessment
  -   Improvements have been made to the complexity formerly existing in document submission associated with assessment procedures. (Kyushu)
- Credit-scoring loan products that started to be sold under partnerships between financial institutions and credit guarantee corporations are popular due to their feature of a shortened assessment period. (Kanto)
- Recently, financial institutions are often found not to give a prompt answer to a loan application and to leave it unanswered for an extended period of time. (Kanto, Shikoku and Kyushu)
- With the Personal Information Protection Law in force, it now takes longer to go through management consulting. (Hokuriku)

G.
  Comments made with respect to interest rates
  -   As competition between financial institutions regarding preferred borrowers is becoming fiercer, interest rates are increasingly lowered. (Tokai)
- Companies sometimes are disadvantaged in terms of interest rates due to worsened business conditions etc. (Fukuoka and Okinawa)
- Unless borrowers complain about an interest rate offered by the bank at the time of borrowing, they end up borrowing with a high interest rate. (Kanto and Okinawa)
- Although a smooth supply of money is available to SMEs, it is difficult for them to borrow because of high interest rates applied by financial institutions. (Chugoku)

H.
  Others - region-specific comments
  -   In Sado, many businesses suffer from deteriorating financial conditions due to such problems as a decreased demand for financing due to a declining population and sluggish tourism, and generational shifts in business owners, as well as a decrease in major economic demand due to the municipal merger. Many businesses in the tourism industry have received emergency loans from the city of Sado as a remedy for the damage caused by rumors in the wake of the Chuetsu Earthquake, but they are still all in bad financial shape. (Kanto)

I.
  Comments made with respect to borrowers
  -   Companies increasingly refrain from borrowing. (Hokkaido)
- Sometimes a problem rests on the part of borrower businesses, such as financial statements with no credibility, business plans lacking in specifics, and the utter non-existence of self-owned capital. (Kinki and Kyushu)
- Although financial institutions are supposed to carry out assessment and provide management assistance primarily on the basis of a borrower's financial conditions, there are many SME managers who are unable to present their financial conditions. (Hokuriku)
- Loathing to prepare documents required by banks, businesses increasingly choose high-interest loans. (Hokuriku and Fukuoka)

5.
  Case examples showing the penetration of the measures for facilitating SME financing
In the Small- and Medium-Sized Enterprise Financing Monitoring, a specific theme concerning inspection and supervision is set each time for the purpose of inquiring about cases showing the penetration of the measures for facilitating SME financing. The following theme was set this time around:
 
Degree of awareness among SMEs, of the Supplementary Issue to the Financial Inspection Manual [for Small- and Medium-Sized Enterprise Financing] (revised version)
 
[ Comments Received]
 
- While the awareness of the existence of the Supplementary Issue to the Financial Inspection Manual itself is up, its contents are yet to be understood.
- It is far more effective to raise the awareness by using mass media such as newspapers, than distributing leaflets, etc.
- It is unrealistic to expect SME managers to read a lengthy and difficult document. It would be a good idea to develop a simple leaflet, etc. using, for instance, a manga-style illustration that can be comprehended in a minute or two.
- As we do recognize the government's efforts from the fact, for instance, that we frequently see publicity pamphlets, penetration among companies has also probably been achieved to a certain degree.

6.
  How the Financial Services Agency Uses the Results
 
(1)   Conducting Interviews
Making use of the information on specific financial institutions that was obtained through the Small- and Medium-Sized Enterprise Financing Monitoring, we conducted interviews with them as to their action policies and relevant structures etc.
(2)   Making Requests at Discussion Meetings
At discussion meetings (held every month) between top officials of the Financial Services Agency and business association representatives and on other occasions, we have presented cases learned through the Small- and Medium-Sized Enterprise Financing Monitoring and have requested participants to, for example: further facilitate a supply of funds to sound SMEs, including loan arrangements focusing on cash flows from business activities and not relying excessively on collateral and guarantee; provide sufficient explanation, sufficient enough for the customer to be able to reach an understanding and satisfaction, that takes into consideration the past relationship with and the knowledge, experience and asset conditions of the customer, and; work on making the Supplementary Issue to the Financial Inspection Manual further known.

7.
  How Local Finance Bureaus Use the Results
 
(1)   Conducting Interviews
Making use of the information on specific financial institutions that was obtained through the Small- and Medium-Sized Enterprise Financing Monitoring, Local Finance Bureaus conducted interviews with them as to their action policies and relevant structures, etc.
(2)   Presentation Opportunities at Conference for Regional Financing Facilitation
On various occasions, including the ''Conference for Regional Financing Facilitation,'' which has been established (with its membership consisting of financial authorities, small- and medium-sized and regional financial institutions and relevant business associations) in each prefecture and is organized on a bi-annual basis for the purpose of developing customer-targeting explanation structures and strengthening consultation and complaint handling functions, and meetings between top officials of Local Finance Bureaus and representatives from financial institutions, Local Finance Bureaus have raised the awareness of participants and requested them to work on facilitating SME financing.

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