GROUP 2 REPORTERS

BANKING IN
JAPAN
DETAILED REPORT

MEMBERS:
GABAS,Roselle A.
GALA, Neva Kate Ann L.
GALENDEZ, Lady Bill P.
GAVIETA, Stiffany M.
GREGORIO, Jp Mike L.
ISADA, Rhegiah Kye T.
LABORES, Kristine Mse O.
LACIA, Melvi Jane R.
LEGADO, Leonor C.
LEYSIS, Frances Dee F.
LLORITO, Vince Harvey
MANALO, Ave Gail E.
MANGUERA, Sheryl Kate V.
MELLOGA, Lovely Rose N.
MUTOC, Kathrene Faith E.
NOYNAY, Gloriette Jane M.
OBUTA, Lynell Jean M.
INTENDED LEARNING
OUTCOMES
BANKING IN JAPAN:

- Distinguish different TASK DISTRIBUTION:

Leader(Report consolidator) :
types of financial
Gavieta,Stiffany
institutions operating in
Respective Assigned Topic:
Japan.

Introduction to Banking of

Japan : Llorito and Noynay

- Understand the

characteristics of the Japan Structure of the

Banking System : Gabas,

Japanese Payments
Gala and Galendez

Japanese Payment System:

-Understand the main Gregorio, Isada and

Labores
trends in the performance

of Japanese Banks and the Changing Structure and

Impact of 1998-1999 Banking

impact of 1998-1999
Crisis : Lacia, Leysis,
banking crisis. Manalo and Mutoc

Impact of 2007 - 2009 global

- Understand the financial crisis to Japanese

Banking System : Manguera,

relevance of the 2007 -
Melloga and Obuta
2009 global financial crisis
Conclusion to Banking of

for the Japanese banking. Japan : Gavieta and Legado

BANKING IN JAPAN
INTRODUCTION:

The main elements of Japan's financial

system are much the same as those of

other major industrialized nations but what

this nation stand out to other banking

system is that Japanese main bank system

is one of the very intensive relationships

FACTS between a large commercial bank – the

AND main bank – and its large industrial and

TRIVIA
commercial borrowers. More than that, to

mention Japan is the world’s second-

largest economy – larger than France and

Germany combined, with an advanced,

high tech industrial structure, relatively

equal income distribution but with wider

productivity differentials by sector than

any other advanced country.

REP. LLORITO, VINCE

HARVEY
 CONTINUATION . . .
Japan has a bank-based financial system,

where the banking system has traditionally

played a more important role than the stock

market. The system has undergone dramatic

changes over recent years, mainly because

of the major financial crisis that occurred in

1998–1999 and resulted in the failure of a

number of banks and a substantial build-up

BRIEF
of non-performing loans in the banking
HISTORY
OF system. The parlous state of the banking

JAPAN system in the late 1990s resulted in a wide

BANKING
SYSTEM range of reforms aimed at improving

banking and financial sector soundness, as

well as restructuring the banking system.

This chapter discusses these issues and also

highlights how Japanese banks have been

impacted and are dealing with the

outcomes of the 2007–2009 global

financial crisis.

REP. NOYNAY,
GLORIETTE JANE
BANKING IN JAPAN
STRUCTURE OF THE BANKING SYSTEM:
M ain Group of Financial Institutions:
Private Deposit - taking
Institutions
City Banks

Regional Banks

Second Tier Regional Banks

Trust Banks

Foreign Banks

Cooperative Financial

Institutions

Private Non- Deposit taking

Institutions
Securities Firms

Insurance Companies

Public Institutions
Government Financial

Institutions

Joint Corporation by Local

Governments

Development Bank of Japan

Inc.

The Shoko Chukin Bank Ltd.

Japan Post Bank Co.

Japan Post Insurance Co.

STRUCTURE OF BANKING SYSTEM:
CENTRAL BANK( 中央銀⾏ )
⽇本銀⾏ ō)
⽇銀
- The Bank of Japan ( , Nippon Gink is often

called as Nichigin ( ) for short, and has its

headquarters in Ch ūō, Tokyo and was founded in Meiji

15 (October 10, 1882), under the Bank of Japan Act 1882

on June 27, 1882. It was currently governed by Governor

Haruhiko Kuroda since March 20, 2013.

- The Bank of Japan are the Issuance and management

of banknotes, the implementation of monetary policy,

provides settlement services and ensuring the stability

of the financial system, treasury and government

securities-related operations, operates international

activities and the compilation of data, economic

analyses and research activities.

FACTS ABOUT JAPANESE BANKNOTE:

MADE AT NATIONAL PRINTING

BUREAU

CLEAN AND DON'T OFTEN SEE

WORN OR CRUMPLED (SHOPS

DO NOT ACCEPT CRUMPLED

YEN)

TO STOP CIRCULATION OF FAKE

MONEY

WORN OUT BANKNOTES ARE

SHREDDED AND RECYCLED TO

BUILD MATERIALS FOR

RESIDENTIIAL HOUSES

LIFE SPAN OF 1-2 YEARS

PRIVATE FINANCIAL INSTITUTIONS:
DEPOSITORY INSTITUTIONS
A. BANKS
City Banks
the largest banks in Japanese Banking System that offer

the full range of banking services (retail, corporate and

investment banking services) which aimed at bolstering

the financial strength and resulted in the creation of the

three "MEGA-BANKS" that now dominates the Japanese

banking landscape.

Mitsubishi UFJ Financial Group

This group has been founded in 1880, its main

operations are done through retail banking,

corporate banking, trust assets, and global business

groups. It has an asset of US$2901 billion and US$14

billion of income as of 2016. And it has an employee

strength of 140,000 and is present in 50 countries

across the world.

Mizuho Financial Group

This bank provides financial and banking services

through various business sectors like the retail and

business; corporate and institutional; global

markets, etc. It has an asset of US$400 billion and

US$5 billion of profit as of 2016.

CONTINUATION . . .
Sumitomo Mitsui Financial Group
Founded in 2002, Sumitomo Financial Group

operates as a cooperative financial institution.

Headquartered in Chiyoda, Tokyo, the bank provides

banking and financial services through 72 offices in

38 countries. The banking unit is divided into

Wholesale, Retail, International, Treasury, Sumitomo

Mitsui Finance and Leasing, SMBC Nikko Securities,

and consumer finance/ credit cards. It employs

around 70,000 workers.

In 2016, the bank reported total assets of US$1,656

billion and total income ofUS$8,749 million.

Regional banks ( 地⽅銀⾏)

Japan has 64 regional banks. These banks serve as

the diverse financial needs of local clients / SME's

such as individuals, companies, and local

governments, through a dense branch networks and

ATMs in their regions. It also support business

improvement and business expansion of client

companies by demonstrating their consulting services

in order to contribute in strengthen the industrial

competitiveness of their region.

Second -Tier Regional Banks (SOGO 齟齬)

It is a bank that provides financing for purchases that

require repayment on an installment plan. A bank that

provides financing to other banks of the region,

rather than to businesses or individuals.

CONTINUATION . . .
Trust Banks ( 信託銀⾏)
It is a corporation that acts as a fiduciary, trustee or

agent of trusts and agencies. A professional trust

company may be independently owned or owned by, for

example, a bank or a law firm, and which specializes in

being a trustee of various kinds of trusts. The "trust" name

refers to the ability to act as a trustee – someone who

administers financial assets on behalf of another. The

assets are typically held in the form of a trust, a legal

instrument that spells out who the beneficiaries are and

what the money can be spent for. A trustee then, manage

investments, keep records, manage assets, prepare court

accounting, pay bills (depending on the nature of the

trust), medical expenses, charitable gifts, inheritances or

other distributions of income and principal.

REP. GALENDEZ,
LADY BILL
Foreign Banks
Mainly engaged in corporate and investment banking

activity , although some undertake upscale retail (private

banking) business.

B. COOPERATIVE FINANCIAL INSTITUTIONS

Cooperatives and non-profit making financial institutions

are established for the benefit of SME's in certain

industries (such as fisheries and agriculture) and other

groups including residents in various areas that

undertakes mainly retail baking activity and SME services

that are typically restricted to small areas. It's main

feature is to act as strong competitors to regional banks

in local banking markets.

CONTINUATION . . .
Shinkin Central Bank
One of Japan's leading financial institutions which

serves as the central bank for Japan's 271 Shinkin

banks as well as being an independent institutions

with a total asset of 30 trillion yen that provides a

wide range of financial services to support the

Shinkin banking sector.

Norinchukin Banks
A cooperative bank serving agricultural, fishing and

forestry cooperatives were members includes

cooperative federations such as Japan Agricultural

, Japan Fishery Cooperatives and Japan Forestry

(JForest). one of the largest institutional investors

with a 72,262.80 billion yean on 2012 which is more

than double to the size of Shinkin Central Bank

NON-DEPOSITORY INSTITUTIONS
Securities Firms
Broking and investment banking type operation that

offer securities-related

Insurance Companies
transact life and non-life business as well ads a range

of other firms including finance leasing ,money, market

dealers and mortgage securities.

REP. GALA, NEVA

KATE ANN
PUBLIC FINANCIAL INSTITUTIONS
Development Bank of Japan
Long term financing for regional development

J apan Bank for International Cooperation

Lending and other financial operation for promotion

of Japanese exports,imports or Japanese economic

activities

National Life Finance Corporation

Lends to small businesses , students, and others

without access to traditional credit.

Japan Finance for SME's

Agriculture , fishery , Forestry Finance Corp.
Lending to firms involving respective industries to

maintain development of productivity as to

agriculture and fisheries as well as securing the

stability of food supply.

Government Housing Loan Corporation

Mortgage loans to individuals who have difficulty

obtaining residential property finance through

banks.

Japan Financial Corporation for Municipal

Enterprises
Subsidized lending to local authorities

Okinawa Development Finance

Subsidized loans for business development in

Okinawa
JAPAN POST BANK
The world's largest financial institutions in terms of

deposits which is an important element in Japanese

household savings. After the crisis the government privatize

Japan post bank under Postal service Privatization Act

which dissolved the Japan post Group consisting five

constituent companies: Japan Post , Holdings, Japan Post

Service,JApan Post Network, Japan Post Bank and Japan

Post Insurance.

REP. GABAS,
ROSELLE
BANKING IN JAPAN
PAYMENT SYSTEM

F OUR MAJOR PAYMENT SYSTEM

Clearing System in the Private Sector

Zengin Data Telecommunication System

Bill and Cheque Clearing System

Foreign Exchange Yen Clearing System

Fund Transfer System Operated by Banks of Japan

BOJ - NET (Bank of Japan Financial Network

System) Funds Transfer System

PAYMENT SYSTEM
CLEARING SYSTEM IN THE PRIVATE SECTOR
Zengin Data Telecommunication System (Zengin
System)
The main retail payments system in Japan and its

main task is to clear retail credit transfers. It is an

online network that links financial institutions

nationwide through computers and

telecommunication lines and processes transfer

messages arising from remittances and other

transactions.

Bill and Cheque Clearing Systems (BCCSs)

Clear bills and cheques collected at regional

clearing houses. The BCCSs provide clearing

services mostly for bills and cheques, which are

exchanged between financial institutions located

within the same geographical area. Payment

systems Clearing houses are established and

managed by their respective regional bankers’

association. Large and medium-sized financial

institutions, including banks and branches of

foreign banks in Japan, participate directly. Small

financial institutions participate indirectly through

direct participants. BCCSs predominantly handle

bills and cheques used for commercial transactions

REP. LABORES,
KRISTINE
CONTINUATION . . .
Foreign Exchange Yen Clearing System (FXYCS)
Clears mainly yen legs of wholesale foreign exchange

transactions. The FXYCS was established in 1980 to

facilitate clearing of yen payments for cross-border

financial transactions. Clearing is undertaken through

the BOJ-NET and the main participants are large banks

and branches of foreign banks.

FUND TRANSFER SYSTEM OPERATED BY

BANKS OF JAPAN
BOJ-NET (Bank of Japan Financial Network System)
Funds Transfer System is the central bank’s funds

transfer system used to settle wholesale interbank

obligations, including those arising from the clearing

systems. Most funds tranfers made through BOJ-NET

Funds Transfer System are credit transfer. The BOJ-

NET Funds Transfer System undertakes most of the

payment services provided by the Bank of Japan,

which are:

Funds transfer among financial institutions stemming

from interbank money market and securities

transactions.

Funds transfers between different accounts of the

same financial institution.

Settlement of net positions arising from privately

owned clearing systems.

Funds transfers between financial institutions and

the Bank of Japan, including those for monetary

policy operations.
REP. GREGORIO,
JP MIKE
CHARACTERISTICS OF JAPAN PAYMENT SYSTEM
Japanese system relates to the high proportion of cash
transactions compared with other developed countries.
Japan has a much higher level of cash in circulation

compared with the US, the UK and the euro area. Retail

payments in Japan differ from those in other major

economies because of Japanese citizens’ strong

preference for cash payment. The use of cheques did

not really develop in Japan and the large majority of

non-cash payments are dominated by credit transfers

(known as giro payments) and card payments.

What is GIRO? General Interbank Recurring

Order (GIRO) is an automated electronic

payment service which allows you to make

monthly payment to the billing organization (BO)

from your bank account directly. The amount will

be deducted from your DBS or POSB account

and paid to your BO every month, upon the BO's

request.

Credit transfers are widely used in Japan

One area where Japan leads the world is in the use of

smart card and mobile phone technology for retail

payments. A wide range of smart cards is in use to make

retail payments. Japanese households are the most avid

users of smart cards and these have been introduced in

a wide variety of applications, such as transport ticket

payments, access control, electronic money and credit

cards.
CONTINUATION . . .
Developed electronic payment means
Partly because of the lack of a check writing tradition

among consumers, credit transfers and direct debit

transfers have been used from early in the 1970s. Credit

transfers are widely used, for example, to pay wages,

pensions, dividends and tax refunds. Direct debiting is also

a dominant instrument for regular payments by individuals

such as the paying of rent, utilities, telephone bills, credit

card charges, taxes, insurance premiums, mortgages,

automobile loans or other installment payment plans.

High penetration of ATMs

Japanese banks has aggressively installed ATMs since the

mid-1970s. Currently Japan has a relatively high number of

ATMs on a unit basis in the world.

Expanding supply channels

Other than ATMs located in bank branches, banking

services are available through ATMs outside of banks such

as at retailers that are open 24 hours, through networked

personal computers, via mobile phones, etc.

REP. ISADA,
RHEGIAH KYE
BANKING IN JAPAN
BANKING CRISIS IN JAPAN (1998 - 1999)
CONSEQUENCE OF THREE MAIN CAUSES
Excessive Lending
Bank lending was secured against land and property

grew rapidly in 1980's. the activity was concentrated

in the wholesale and retail trade , real state,

finance and insurance , and construction sectors.

Early 1990's there was a fall in stock prices and

reversal in the performance of the economy where

indebted firms in these sectors are unable to repay

loans , due to collateral values , thus, creating a

large pool of bad loans.

Negative Impact of Asset Price Deflation

There was a rapid growth accompanied by doubling

of stock prices and a rapid rise in commercial estate

prices in 1990's. a sharp increase of interest rates

and introduction of credit ceiling related to real

estate activity led to bursting of the asset price

bubble which created substantial losses for firms

that held equities and had borrows from banks with

real state collateral. This resulted to price deflation

as it affects the conversion of a substantial portion

of banks loans to non-performing assets.

CONTINUATION . . .
Policy Failure to a Contain Problem
Throughout 1990's banks continue to lend on real

estate sectors despite perceived problems in their

loan books as well as deflationary pressures in the

economy and interest rates had fallen to low level. in

The government initial approach was to stimulate

demand through fiscal policy , assumedly it would

restore growth and could return banks to healthy

position, apparently fiscal stimulus had only a

marginal impact on the economy and that

international. Thus, leads to collapse of "CONVOY

SYSTEM" where stable banks were 'encouraged' by

the Ministry of Finance to acquire those in distress.

Moreover, while the Bank of Japan (the central bank)

provided the banking system with liquidity assistance,

this was not enough to stem the ensuing crisis.

REP. LEYSIS,
FRANCES DEE
MAJOR EVENT (1998-1999) CRISIS

Mid-1995 - Two large credit unions and a regional bank fail

as a result of bad loans.

1995 - A substantial number of housing loan companies,

known as Jusen, failed and were bailed out by a group of

banks and government funds. As a result of the Jusen

collapse and concerns about growing levels of non-

performing loans, bank stock prices declined relative to other

stocks around the end of 1995, and credit-rating agencies

began to downgrade the credit ratings of Japanese banks –

increasing their cost of funds.

November 1997 - On 3 November, Sanyo Securities defaulted

in the interbank loan market, delivering another shock to the

market.

November 1997 - Hokkaido Takushoku Bank and Yamaichi

Securities (one of the four large securities houses) failed,

leading to a further downgrading of bank credit ratings.

March 1998 - The Japanese government sought to deal with

the undercapitalisation of banks by injecting capital into the

banking sector in March 1998. A newly created Financial

Crisis Management Committee handled this capital injection,

which was successful in calming financial markets (until

May).
CONTINUATION . . .
Mid- to late 1998 - The government attempted to pass several

reform bills. One of these bills was the Financial Revitalisation

Act, which was designed to deal with failed financial

institutions. Under this law, a failed bank could either be

placed under Financial Reorganisation Administration (FRA) or

could be temporarily nationalised. This law formed the basis

for the government’s decision in late 1998 to nationalise two

major banks, the Long Term Credit Bank of Japan and Nippon

Credit Bank, both teetering on the verge of bankruptcy.

Late 1990s to early 2000s - The establishment of the

Financial Supervision Agency (FSA) in June 1998 shifted the

responsibility of financial supervision of private deposit

institutions from the Ministry of Finance to an independent

entity. The Agency changed its name to the Financial Services

Agency in 2001.

REP. MANALO,
AVE GAIL
BANKING IN JAPAN
IMPACT OF 2007 - 2009 FINANCIAL CRISIS
Japanese banks have been operating in a slow

growing and near deflationary environment since 1998-1999

crisis. The restructuring of activities and reduced level of

non-performing loans seems ineffective for the system for

the International Standards still post low profitability.

However, the country did not face real estate bubbles

funded by securitization and lending expenses . The

Japanese economy shrunk 3.3 percent in fiscal 2008

(between April 2008 and March 2009) . The trade deficit hit

¥223 billion in November 2008 and reached a record

¥952.6 billion in January 2009. In February 2009, the IMF
said that Japan was in “deep recession." But no Japanese

Banks failed as a consequence of financial crisis for the

following reasons:
REP. MANGUERA ,
SHERYL KATE

Japan did not have a high-risk segment of the

mortgage market (securitization and lending
excesses)
REP. OBUTA,
LYNELL JEAN

Japanese Banks did not hold significant amounts

of US subprime and other securitized securities.
Largest banking groups only hold less than 1
percent of their balance sheet.
CONTINUATION . . .
Although the country and Japanese banks are said to be

unaffected they still suffered as bank margins decrease, loan

growth stall and profitability. Hence, their loss -absorbing

capacity was higher ,asset quality was more stable and

reliance of wholesale funding was lower compare to US and

Euro banks. And that their major on going concern remains on

the domestic economy which is a greater risk to the

performance of the banks. Indeed, the prolonged recessionary

economic conditions triggered by the bursting of bubble in its

equity and real estate markets and an issuing bank crisis-

resulted a wide range of reforms aimed at improving banking

and financial sector soundness as well as restructuring the

banking system. Since the bank crisis, a wide range of

reforms has been put in place which:

Introduced a blanket of insurance scheme

To protect all depositors in the event of bank

failure

Extended emergency liquidity assistance to troubled

banks

Provided financial assistance to promote mergers

among troubled financial institution,

Injected capital into weak but viable banks and

allowed for the temporary nationalization of non-

viable bank.
CONTINUATION . . .
Increased their foreign presence, thereby increasing

their reliance on external funding.

Bank of japan injected trillions of yen into the money

market.

The financial crisis provided an opportunity for Japanese

banks and investment houses to snap up assets and stakes in

major Wall Street firm at fir-sale prices and improve their

position and stature abroad. Nomura Securities became the

world’s largest independent investment bank after it picked up

key Lehman Brother asset in Asia, the Middle East and Europe

at fire sale prices after Lehman collapsed in autumn 2008.

And that no Japanese Banks failed as a consequence of

financial crisis for the following reasons:

REP. MELLOGA ,
LOVELY ROSE
BANKING IN JAPAN
CHANGING STRUCTURE
Regulation of Japanese Banks
Bigbang
Traditionally supervised the banking system that

effectively introduce the universal banking which

leads the financial institutions in Japan to offer

a wide range of financial products and options

to customers that :

allowed the use of financial holding companies;

eliminated many barriers between banking and

other financial service sectors;

liberalized stock brokerage fees;

Allowed banks to sell investment trust products.

REP. MUTOC,
KATHRENE FAITH
Financial Service Agency
Responsible for the supervision and inspection of

all private banks in Japan. It monitors the

financial soundness of banks, including the

status and performance of their control systems.

The main functions of the agency are:

planning and policy making concerning the

financial system;
CONTINUATION . . .
inspection and supervision of private sector

financial institutions, including banks, securities

companies, insurance companies and market

participants including securities exchanges;

establishment of rules for trading in securities

markets; establishment of business accounting

standards and others concerning corporate

finance;

supervision of certified public accountants and

audit firms;

participation in activities on financial issues of

international organizations and bilateral and

multilateral forums to develop internationally

coordinated financial administration;

Surveillance of compliance of rules governing

securities markets.

REP. LACIA
MELVI JANE
BANKING IN JAPAN
CONCLUSION:
Banking in Japan has different types of

financial institutions namely Private Deposit -

taking institutions, Private non-Deposite

taking Institutions, and Public Institutions.

Also, Japan has four major payment system,

this includes Zengin Data Telecommunication

System, Bill and Cheque Clearing System,

Foreign Exchange Yen Clearing System and

BOJ- NET.
REP. LEGADO,
LEONOR
These structure and systems had a dramatic

shift of experiencing rapid growth during

1980's and the mid-1990's, followed by a

collapse between 1997and 1998 and an

ensuing long restructuring period thereafter ,

returning to respectable levels of

profitability in 2005. This become short-lived

as the Japanese banks profitability declined

in the mid-2000's and remained flat over

2009-2012 but in mid-2005 non-performing

loan levels have fallen but weak revenue

growth still hammers profitability.

CONTINUATION:
Capital levels have improved in recent years

but there is still an ongoing market pressure for

banks to strengthen the capital position.

However, during the global financial crisis 0f

2007-2008 unlike US and UK, Japan was less

affected for they did not heavily engage on

securitization and sub-prime assets of which no

Japanese banks failed or needed any form of

direct support due to global financial crisis and

the main threat to banking system is the

domestic economy which leads to structural

reform that will increase growth for the rebirth

of the economy.

Indeed, the banking system of Japan and

the economy brought by different

circumstances was a roller coaster ride yet

Japan’s banking system today is comparable to

those in other industrialized countries , it is

stable and well regulated, and offers many

options for business and personal accounts.

Japan is now the 6th most competitive nation in

the world out of 140 countries despite apparent

vulnerability. REP. GAVIETA,

STIFFANY