banking in japan

7/28/2019 Banking in Japan

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Sapienza Universit di Roma

International Banking

Lecture Twelve

Banking in Japan

Prof. G. Vento


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Agenda

Introduction to Banking in the United States

Structure of the Banking and Financial System in the

US

Key issues of US Banking Industry

Banking Regulation in the US

April 2013 Internaional Banking - Prof. G. Vento


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Introduction to Banking in Japan

Japan has a bank-based financial system Banking system has traditionally played a more

important role than the stock market

Wide array of different types of banks

The largest public bank is the Postal Savings Bank

Major financial crisis in 1997-98

Wide range of reforms during the 90s.



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Structure of Japanese Banking System

The Japanese bankingsystem has experienced

difficult times in recent years

as a consequence of the

downturn in the domesticeconomy.

Property prices / bad debts

generated the crisis in 1997

98. Both public and private

financial institutions



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Bank Structure in Japan

Keiretsu system

A Keiretsu is a group of companieswith cross-shareholdings and shareddirectorships which normally includea bank, trust company, insurance firmand a major industrial concern (i.e.cars, steel)

The bank supplies services to theother keiretsu members, includingloans

The Ministry of Finance (MoF) was

the key regulator through threebureaux: Banking, Securities andInternational Finance



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Bank Regulation in Japan

MoFs responsibilities included all aspects of financial

institution supervision: examination of financialfirms, control of interest rates and products,supervision of the deposit protection scheme, settingthe rules on activities to be undertaken by financial

firms Bank of Japan was responsible for the

implementation of monetary policy, but under theinfluence of MoF

High protected market

Japanese companies largely dependant on banks

loans



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Japans Big Bang (1996)

1989: crash of Japan stock market

Big Bang based on:

- end of functional segmentation; integration ofbanking, insurance & securities; liberalisation offinancial products and prices; no restriction to

short/long-term operations; commission liberalised;disclosure

- restoring financial stability through FinancialSupervisory Agency and Financial Reconstruction

Commission, merged in 2001 in the Financial ServicesAgency

- more transparent rules



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Private deposit-taking institutions

City banks. The city banks are the largest banks inthe Japanese banking system and account for over

50% of total banking sector assets.

They are commercial banks that offer a full range ofbanking services.

Regional banks. Focused on retail financial services

and SMEs.

The majority of regional banks are publicly quoted



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Private deposit-taking institutions

Trust banks and long-term credit banks.

Trust banks perform commercial banking activity

but their main function is asset management for

retail and other customers. Japanese householdsplace funds to these banks, which they invest on

clients behalf.

Long-term credit banks provide medium- and long-

term finance to the corporate sector. Cooperative banks. They play a major role in the

Japanese banking system.



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Private non-deposit-taking institutions and public

financial institutions

Private non-deposit-taking institutions. They include a widevariety of securities, insurance and other firms.

public financial institutions. They perform a significant role in

financial system.

Post Office has over 24,000 branches. Japans postal savingsystem is the worlds largest financial institutions in terms of

deposits.

Development banks. They direct lend to certain sectors.



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Balance sheet features and performance

Between 1996 and 2005 bank lending portfolios havedeclined by around 30% reflecting the lack of demand and

the increasing number of bad loans that had to be written

off.

The decline in lending and the increase in liquid assets is an

indication of the weak state of the domestic economy.

Also deposit decreased.

ROE values are very low by international standards, mostlybecause bad loans



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Banking crisis in the 90s in Japan

Excessive lending (portfolio concentration).

Negative impact of asset price deflation

Policy failure to contain problem

April 2013


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Banking industry in Japan: Recent trends

According to the latest estimates, Japan recorded a sharp

expansion in GDP in the fourth quarter (3.8 per cent on an annual

basis, against a contraction of 0.6 per cent in the third quarter),

thanks mainly to the robust increase of 22 per cent in exports.

Private consumption performed well again, growing by 2.8 per

cent thanks partly to a series of incentives for purchases ofdurable goods. Non-residential private investment returned to

growth after a year and a half, expanding by 3.8 per cent, while

residential investment declined sharply again, contracting by 12.5

per cent. The latest cyclical indicators offer contradictory signals regarding

the strength of the current recovery.



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Banking industry in Japan: Recent trends

The deflationary trend shows no sign of receding. The rate of decline in

consumer prices moderated from 1.7 per cent in December to 1.1 percent in February, but excluding food and energy prices it remained

basically unchanged at 1.1 per cent.

According to the forecasts of the private analysts surveyed by

Consensus Economics, deflation will continue in 2010 at an averageannual rate of 1.1 per cent. The Bank of Japan has held its monetary

policy reference rate unchanged at 0.1 per cent.

In order to foster a fall in long-term interest rates, in mid-March it

decided to double to 20 trillion (about 4 per cent of GDP) the amount

of liquidity that will be provided to the market by means of three-month guaranteed loans under the facility introduced in December.



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