A senior Standard & Poor’s analyst in Japan has warned the
country’s consumer lending market could crash if Japan Post Bank,
the commercial bank being slowly spun out of Japan’s vast postal
service, is granted permission to offer consumer loans.
The unit currently offers basic retail banking services and
lends to the government. But it could soon be given permission by
Japanese regulators to lend to consumers and businesses. Standard
& Poor’s analyst Ryoji Yoshizawa said if the company did move
into the competitive Japanese consumer finance market the
implications could be serious.
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Yoshizawa told RBI: “[Japan Post Bank] is really huge –
its total size is bigger than MUFG [Japan’s biggest commercial
bank]. If it was to jump into a Japanese lending market, the market
will be skewed and may crash. It all depends on the
government.”
He said if the bank entered the domestic lending market, it would
create over-competition. Japan Post Bank, also known as Yucho Bank,
is the world’s largest bank by deposits, with ¥189 trillion ($1.7
trillion). At the end of fiscal 2005 its total assets of ¥247
trillion were more than the combined total of Japan’s 64 regional
banks, and also dwarfed MUFG’s ¥187 trillion.
A spokesman for the bank said the company had submitted a license
application to the government on 26 November to start a credit card
business and a housing loan business. It plans to start credit card
services early this year and move into housing loans through an
agency model with partner banks in the middle of 2008. “With our
agency business for the housing loan and credit card service, it
will be possible to respond to the various needs of our customers,
and it will contribute to the development of the loan market in
Japan, we believe.”
They said the bank was in discussions with one of Japan’s regional
banks “for agency of loan products to individuals”, which newswire
Bloomberg reported was Suruga Bank. The spokesman said
preparations were underway on both fronts, so the bank can enter
the market quickly after the Postal Privatisation Committee grants
it permission.
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By GlobalDataJapan Post Bank is an offshoot of Japan’s government-owned postal
service, which split into four entities in October 2007: Japan Post
Service, Japan Post Network, Japan Post Bank (Yucho) and Japan Post
insurance (Kampo). The four units will be privatised over a
seven-year period between 2010 and 2017, as Japan Post Holdings
sells its ownership of the businesses to the private sector
(see RBI 578).
Japan Post Bank’s prospective move into lending markets has been
opposed by Mitsubishi UFJ Financial Group (MUFG), Japan’s biggest
bank by assets, and others, while it remains under government
control. They fear the bank’s scale in assets and geographical
scope will create further competition in an already overbanked and
overburdened market.
Japanese banks have also been hit by a weakening consumer finance
market, restrictive legislation limiting interest charged to
consumers – and more recently the subprime crisis. While laws have
recently been relaxed in the insurance sector, they have been
tightened on the sale of investment trusts, meaning any potential
increase in insurance sales, which banks had planned to take
advantage of, would be largely cancelled out.
Their plight would not likely be helped by the entry into the
market of a 24,000-branch government-owned colossus. While big
banks like MUFG are opposed to Japan Post Bank offering private
loans before it has been fully privatised, it is the country’s
myriad of regional banks which have the most to lose.
A recent Standard & Poor’s report covering the issue said:
“Over the medium to long term, [Japan Post Bank’s] establishment
has the potential to impact regional players in a major way, and
will undoubtedly stimulate competition among them in the coming
years.”
In the few prefectures in Japan where the major banks have
established a foothold, the report found regional banks generally
had a much smaller market share. The report said this suggests
these banks would be forced to refine their business strategies,
focusing on niche markets and scale expansion, possibly through
integration with other institutions.
The report, titled Ominous Reach of Banking Giant Forces Hand
of Regional Players, said: “These regional contributions to
postal savings clearly outpace the major banks in terms of
deposits. In light of these facts, [Japan Post Bank] is likely to
become an entity with a strong presence in areas outside the
cities, and one that possesses merits of scale that all the major
banks combined cannot match.”
It has been reported Japan Post Bank may also team up with Deutsche
Postbank, an organisation which transformed itself from a
government-owned postal service to a fully-fledged bank. Wulf von
Schimmelmann, the German bank’s CEO, said a cross-shareholding
agreement might be beneficial. But Japan Post Bank said there are
no plans to enter into such an agreement at present. A spokesman
said: “The tie-up with foreign companies is not being considered at
this moment, but the opportunities to have talks with various
companies will not be eliminated.”
Deutsche Postbank’s transformation to a modern retail bank took 15
years. It is one of Germany’s most popular banks, partly because of
customer service initiatives, but also because its branches are
more numerous than any of its competitors. It has 9,000 outlets in
total, a legacy of the post office business from which the bank was
born.
But while there are comparisons between the two, there has never
been a post office privatisation on quite the same scale. Japan
Post Bank has a market share of 20 percent of the country’s bank
deposits, far more significant than Deutsche Postbank’s 7 percent
share.
Japan’s banking industry is moving into uncharted territory.
