Japanese Commercial Banks

The Japanese banking system has undergone structural reform since 2001. Most state-owned financial institutions were privatized and a lot of bad loans were eliminated. The accounting requirements for assessing delayed tax assets have been tightened to prevent banks from listing them as equity capital. There has also been a government order, issued to banks benefitting from public finds, to increase earnings. However, there are a lot of problems with the financial institutions – their profitability rates are low and they are ridden with nonperforming loans. There are too many unsustainable institutions and this obstructs profitability. Lending is also not risk-averse. Commercial banking is not entirely private, since the government often bails-out the failing establishments. A new system has been under way, which will allow any Japanese financial institution to request injection of public funds.

One significant trend in Japanese commercial banking since 2007 has been towards widening of the fee-based business. Unlike what the customers would think, this step is not just means of responding to a larger variety of needs, but also a new profit channel. For the 2001-2005 financial period, the net fees and commissions amounted to 2.14 trillion yen. This type of profit, as opposed to traditional lending, has a definite influence on the variability of profitability and is therefore an important factor in the peculiarity of commercial banking in Japan. The reference point is the return on assets (ROA), which measures how well exploited assets are in terms of net profit. This is also a tool the Japanese banks successfully used to get rid of the bad loans, which were a big problem in the banking tradition of the country. Data analysis in the late 1990s signified a positive connection between the fee-based system and the banks’ profitability, which instigated an up in their ROA variability. Besides, the stability of their management remained the same. However, between 2001 and 2005, the correlation changed and no increase in the ROA variability was observed. At the same time, the increased profitability led to an increased management stability. A recent study, exploring these correlations, concluded that as soon as there is a positive link between the two types of incomes, ROA variability will go up.

Some commercial banks in Japan include Ashikaga Bank, Bank of Tokyo-Mitsubishi, Citibank Japan, Hokkaido Bank, Keiyo Bank, Miyazaki Bank, Mizuho Bank, Saga Bank, San-in Godo Bank, Sumitomo Mitsui Banking Corporation (SMBC), Sumitomo Trust & Banking, Yamagata Shiawase Bank, Shinsei Bank. A major retail and commercial bank is the Bank of Tokyo-Mitsubishi UFJ, which, evaluated in assets, ranks the second largest in the world. Mizuho Bank, also engaged in retail banking, is one of “the megabanks” the second-largest financial services business in the country.

Banking services in Japan have certain peculiarities, if compared to other countries. Banks in Japan usually work Monday through Friday, from 9 am to 3 pm. ATM’s, however, also have opening hours, closing at 5pm every day, or around 8pm if they are located in stores. Some are closed on holidays as well. A convenient compensation for the limited availability is that large withdrawals are allowed. Also, there is an option to buy airline tickets, for example, through the ATM. There is a fee for paying deposits or carrying out a transfer through an ATM. Japanese banks work primarily with cash, therefore cashing out checks is not as easy, featuring a substantial fee for depositing and more than three days of processing time. Overdraft services are not available for personal accounts, since the Japanese banking practice does not stipulate the covering of additional expenses on card payments. A convenient feature of the banking services in Japan is a regular update on the customer’s bankbook upon every ATM withdrawal. Most banks also offer telephone and on-line banking.

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