Banking in Japan ( final edit)

Banking in JapanBanking in Japan

Japanese Main Banking

• Japanese banking characterized by long term relationship described as Main Banking.

• Companies in Keiretsu get financing from the bank and the bank owns much of the stock of member companies.

• Virtually all companies had a main bank which closely monitored borrowers for long periods.

Illustration of bubble economy in Japan

Rising problem of non-performing loans

NPL's as a share of Loans: Japan

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Mar

-98

Jul-9

8

Nov-98

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-99

Jul-9

9

Nov-99

Mar

-00

Jul-0

0

Nov-00

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-01

Jul-0

1

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-03

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-04

Types of Japanese Banking System1. City Banks: Large, national banks

A. Keiretsu Banks – Associated with large industrial groups (Fuji, Mitsubishi, Sumitomo etc.)

B. Secondary Banks - (Takugin, Sakura. Tokai..)

2. Regional Banks: Local Banks for small towns3. Long Term Banks – (NCB, IBJ, LTCB) Issue 5

year debentures and finance in industrial projects

4. Trust Banks – Take only large deposits (Mitsui, Mitsubishi, Yasuda…

5. Credit Co-operatives: Small banks that specializes in housing and agricultural lending.

6. Postal Savings Bank – Post office has a savings bank which directly finances Japanese Government Banks.

Table 4: Banking Groups and Consolidated Assets (Billions of yen)

New Groups Major Subsidiary Banks Former Banks

Consolidated Assets March 2003

End (a)

1. Mizuho Financial Group (MHFG) (Established in January 2003)

Mizuho Bank, Mizuho Corporate Bank, Mizuho Trust & Bankig

Industrial Bank of Japan, Daiichi Kangyo, Fuji, Yasuda Trust Banks

134,033

2. Sumitomo Mitsui Financial Group (SMFG) (Established in December 2002)

Sumitomo Mitsui Banking Corporation (SMBC)

Sumitomo Bank, Sakura Bank

102,395

3. Mitsubishi Tokyo Financial Group (MTFG) (Established in April 2001)

Bank of Tokyo-Mitsubishi (BTM), Mitsubishi Trust & Banking Corporation

Bank of Tokyo-Mitsubishi (BTM), Mitsubishi Trust Bank, Nippon Trust Bank

96,532

4. UFJ Holdings (Established in April 2001)

UFJ Bank, UFJ Trust Bank

Sanwa Bank, Tokai Bank, Toyo Trust & Banking

80,207

5. Resona Holdings

(Established in December 2001)

Resona, Saitama Resona, Kinki Osaka, Nara Banks, Resona Trust & Banking

Asahi Bank, Daiwa Bank 42,892

Source: Individual groups’ website.

Public Financial Institutions

Development Bank of Japan• a Japanese corporation incorporated on 1 October 2008

under the Development Bank of Japan Inc. Law  • According to its corporate philosophy of "applying financial

expertise to design the future," the new DBJ Mission is "to build customer trust and realize an affluent society by problem-solving through creative financial activities

 • Based on the New DBJ Law, the Bank will provide integrated

investment and loan services to domestic and international clients.

 • Total Asset : 14.0174 Trillion Yen (or 153.88 Billion USD)

Lending Balance : 12.0266 Trillion Yen (or 132.03 Billion USD)Capital Ratio (BIS) : 18.69%[Exchange Rate: 1 USD vs 91.09 Yen (on 18 September 2008)]

Japan Bank for International Cooperation (JBIC )

• JBIC is currently the international wing of Japan Finance Corporation (JFC)

• The bank is wholly owned by the Japanese government, and its budget and operations are regulated by the JBIC law. It is headquartered in Tokyo  and operates in 18 countries with 21 offices.

• The main purpose of the institution is to promote economic cooperation between Japan and oversea countries, by providing resources to foreign investments and by fostering international commerce. It also has a major role in promoting Japanese exports and imports, and the country's activities overseas.

• The new JBIC performs the following three functions to contribute to sound development of the international economy, including Japan

1. Promote overseas development of

strategically important natural resources 2. Support Japanese industry efforts to develop

international business operations 3. Respond to financial disorder in the

international economy

National Life Finance Corporation

was a governmental institution of Japan , which provided business loans to small enterprises that have difficulty obtaining loans from private financial institutions. On October 1, 2008, NLFC was dissolved and merged into  Japan Finance Corporation(JFC) Established: June 1, 1949 Branch Offices: 152 Capital:(100% funded by the government) ¥369 billion

Interbank Payment Systems

There are four major interbank payment systems in Japan:

1. Bill and cheque clearing systems(BCCSs);

2. The Zengin Data Telecommunication System (Zengin System);

3. The Foreign Exchange Yen Clearing System (FXYCS); and

4. The BOJ-NET Funds Transfer System

In January 2001, the Zengin System introduced a set of new risk management measures to accommodate the Bank of Japan’s introduction of a new RTGS system. Under the new scheme, the TBA acts as the central counterparty (CCP), and the obligations between participants are replaced with those between participants and the TBA.

Bills and cheques are cleared in the following manner:

1. bills and cheques are presented by payees at payees’ banks;

2. these items are passed on to clearing houses;

3. the net positions of participating banks are calculated at the clearing houses; and

4. payers’ banks bring back bills and cheques from the clearing houses.

According to the Bill Law and the Cheque Law, presentation of bills and cheques at designated clearing houses is deemed a means of presentation for payment.

The first clearing house in Japan was set up in Osaka in 1879; the Tokyo Clearing House was established in 1887. As of December 2001, there were 540 bill and cheque clearing houses throughout Japan, of which 173 were designated by the Minister of Justice.

In 2001, the average value per transaction for bills and cheques cleared by the Tokyo Clearing House was JPY 9 million (USD 74,000), for the Zengin System JPY 2 million (USD 16,000), for the FXYCS JPY 720 million (USD 6 million) and for the BOJ-NET Funds Transfer System JPY 3.8 billion (USD 31 million).

As of December 2001, 421 institutions participated in the Tokyo Clearing House, of which 121 were direct participants

BALANCE SHEET FEATURES AND PERFORMANCE

•The balance sheet and performance features of the Japanese banking system have been severely affected by the recession in the economy as well as the financial sector crises that occured in 1997and 1998.

• In 1995 when both Japanese monetory and fiscal policy turned expansionary. Despite the initially low levels of interest rates stock prices rise by fifty percent, the decline of land prices decelerated the general price level stopped falling and the yen depreciated.The result was an economic recovery with a growth in real GdP of over 3 percent in 1996.

The Japanese experience in the 1995-97 period suggest that macroeconomic policies by themselves will not do enough to restore balance sheets.

• In 1997 tax increase which was implemented to restore fiscal balance .Currency economic projection from organizations forecast real gdp as declining in 1998,with only moderate growth in 1999.

• The most important factor influencing Japanese bank performance has been their enormous levels of bad loans.According to official figures from Japan’s Financial Services Agency,the cumulative amount of loses by way of bad debts for all Japanese banks amounted to 100000billion yen in 2005.In fact around 8.8 per cent of total loans were considered non-performing by 2003 although this had fallen to 5.5 per cent by September 2004.

• Major Japanese banks’ capital ratios stiil remain below international standarts, although capital positions have improved slightly over 2004/05 and the large regional banks have higher capital ratios compared to their city banks competitors.

• After the fall of 2008 the Bank of Japan introduced new-funds supplying operations and expanded them,while continuing to provide substantial funds through existing operations.These developments were reflected in the Bank’s balance sheet.With the implementation of various measures,the balance sheet expanded through the end of fiscal 2008.

Banking Crisis in Japan

Three facts about Japan’s banking crisis

• Japanese banks remain the largest in the world.

• Japanese banks are amongst the least profitable in the world.

• It is not clear how or why the situation will improve.

Problems confronting Japanese banks

The banking problems are defined to be over once the banks：

Are well capitalized

Stop ever-greening non-performing loans

Are earning rate of return comparable to their global competitors

Regulations of Japan Banking

Who is the regulator?• The banking regulator in Japan is the

Financial Services Agency (FSA), which also regulates securities, insurance and other financial service industries.

• The Bank of Japan (BOJ) is the central bank and the lender of the last resort.

• The BOJ is not a regulator but its objectives include “contributing to the maintenance of an orderly financial system”.

Establishment of Financial Services Agency (FSA)

• The time was then more than ripe for a major overhaul and strengthening of the regulatory structure, and the regulatory power was placed with the newly established FSA.

FSA and the financial crisis

• The deflation of the late 1990s through the early 2000s added to the problem because the value of collateral real estate kept falling.

• The deflationary economic environment made the situation even worse.

• It is only natural that the crisis Japan experienced in the late 1990s and early 2000s was very Japanese in its nature, its cause and the way in which it was overcome.

Financial Regulation After The Crisis

• The blanket guarantee of deposits was removed in 2002 and 2005 in two steps.

• A majority of the capital injected into the major banks has been collected.

• A large regional bank with more than 4 trillion yen of deposits that was nationalized in 2003, was denationalized this year.

• Bank of Japan (Nippon Ginko in japanese) is the central bank of japan

• Headquarted in TOKIO• Was founded in 1882• Central bank governor is Masaaki Shirakawa• The bank of Japan has been established with

the following mission:• 1- Issuing the supply of banknotes in the

country• 2- Implementing the monetary policy

BANK OF JAPAN(NIPPON GINKO)

• 3-Compiling data,economic analysis

• 4-Treasury and government security related operations

• Bank of Japan firstly monetize in 1885

• Bank of Japan peg the interest rates until the 2013

Capitalized 100 million yen55% of the capital is subscribed by the government.

• There are 15 departments at the bank’s head office.The bank has 32 branches and 14 local offices in Japan ,7 overseas representative offices

ECONOMIC FIGURES(2005)

• GDP………………..4.167 trillion dollars• Current account balance..158.3 billion

dollars• Exports…………….550.5 billion dollars• Imports …………….451.1 billion dollars• Debt-external ……..1.545 trillion dollars• Unemployment…….%4.3

April 24, 2012 Bank of Japan

thousand yen

Assets Liabilities and Net Assets

Gold 441,253,409

Cash1 349,675,000

Japanese government securities

89,329,749,666

Commercial paper2 1,535,708,672

Corporate bonds3 2,068,181,383

Pecuniary trusts (stocks held as trust property)4

1,409,967,832

Pecuniary trusts (index-linked exchange-traded funds held as trust property)5

937,001,458

Pecuniary trusts (Japan real estate investment trusts held as trust property)6

76,138,346

Loans (excluding those to the Deposit Insurance Corporation)

38,582,410,000

Foreign currency assets7

5,053,745,147

Deposits with agents8

97,804,810

Others 553,490,014

Total 140,435,125,742

Banknotes 80,456,133,851

Current deposits 36,175,213,979

Other deposits9 766,532,509

Deposits of the government

1,600,837,787

Payables under repurchase agreements

14,824,459,684

Others10 689,216,386

Provisions 3,236,447,900

Capital 100,000

Legal and special reserves

2,686,183,641

Total 140,435,125,742

appreciate for your attention

• Ali Emir KÖSE (introcudtion, structure of the banking system)

• Kübra GÜLMEN (public financial institutions, changing structure of the financial system )

• Ece TAŞPOLATOĞLU (payment system)

• Merve ÖZALP ( balance sheet features and performance )

Speakers ( in order )

• Mehmet Orhan AVCI ( banking crisis in Japan )

• Enes DOĞRU ( regulation of Japanese banks )

• Şeyhmus ŞEŞEOĞULLARI ( central bank of Japan )

Sources• http://en.wikipedia.org/wiki/Main_Page• http://www.boj.or.jp/en/• http://www.zenginkyo.or.jp/en/• http://www.ft.com/cms/s/0/502a2ad4-d2ce-11de-af63-

00144feabdc0.html#axzz1uUWd4Pq9• http://www.bis.org/publ/bppdf/bispap06.htm• http://www.shinkin-central-bank.jp/index_e.html• http://en.wikipedia.org/wiki/List_of_banks_in_Japan• http://www.jp-bank.japanpost.jp/en_index.html• http://en.wikipedia.org/wiki/Bank_of_Japan• http://www2.lse.ac.uk/fmg/documents/specialPapers/2002/sp139.pdf• http://www.eaber.org/sites/default/files/documents/

PRI_Fujiwara_2006.pdf• http://www.mizuho-sc.com/english/ebond/institutions/chart.html

• http://www.irma-international.org/viewtitle/54704/• http://www.bis.org/cpss/paysys/JapanComp.pdf

• + Course book