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Monday, May 3, 1999

Reforms mean more than a new name, banking leader says


Staff writer

Japan's bankers group, once labeled as secretive and cozy with the government, is changing.

When the group changed its name from the Federation of Bankers Associations of Japan to the Japanese Bankers Association on April 20, it also overhauled its structure to allow individual banks to directly belong to the group -- instead of solely through regional bank associations as in the past.

The direct membership, intended to better reflect the opinions of member banks, is only one feature of the reborn bank association. In another sign of change, the group has admitted 22 foreign banks into its membership.

The inclusion of foreign banks signals the group's efforts to boost transparency in its operations, said Katsuyuki Sugita, who on April 20 assumed the chairmanship of the the now 248-member JBA.

Speaking in a recent interview, Sugita, also president of Dai-Ichi Kangyo Bank, said, "Because we tout ourselves as an open banking industry group, we certainly welcome the addition of foreign banks."

Of the 22 foreign members, Citibank and Chase Manhattan Bank joined as voting members, paying a 10 million yen fee each. The other 20 banks, including State Street Bank & Trust Co., Royal Bank of Canada and Barclays Bank, are associate members, meaning they can participate in the group's debates but cannot vote.

But questions remain as to how much foreign banks can actually get involved in the JBA.

For example, it is uncertain if they can send representatives to any of the seven permanent committees or nonpermanent working groups, which discuss a wide range of issues varying from the tax system to bank loan-approval operations.

JBA rules only allow banks on the board of directors to participate in such internal discussions, and none of the foreign members is on the board at the moment.

Sugita said the association will consider letting foreign banks participate if such a request is made.

"We have just started operations under the new structure, so we can't say at this point which (working group or committee) we want them to participate in," he said.

Known in Japanese as Zenginkyo, the reborn banker group has also strengthened the role of its secretariat.

In the past, presidents of the nation's top six banks, including DKB, took turns in chairing the powerful industry group every year. As a result, much of the administrative burden -- and decision-making power -- has been placed on the lap of the chairing bank each year.

With the infusion of 7.46 trillion yen in public funds to replenish banks' capital bases, the government is now moving on to the problem of the debt-ridden business sector.

Introduction of the so-called debt-equity swap scheme is currently on the agenda for a government panel discussing ways to rejuvenate the nation's industries.

The scheme calls on creditor banks to give up their claims on trouble loans for newly issued shares in indebted firms, and some advocates have been promoting it as a means of setting heavily indebted firms free from their huge burdens.

Sugita calls such a debate "timely" but remains cautious about the introduction of the scheme.

Voicing concerns widely shared in the banking sector, Sugita said many legal hurdles, including those concerning taxation and accounting, need to be cleared for the scheme to work well in Japan.

Creditor banks, too, have long lists to consider before accepting the scheme, he said.

"We need to consider whether a firm on the verge of collapse is worthy of continued existence, whether the scheme makes business sense for us, whether it is agreeable from the viewpoint of depositors and shareholders, and whether a firm's restructuring plan (the prerequisite for a debt-equity swap) is viable," he said.

Also, the banks need to take into account how executives and shareholders of the debtor companies would take responsibility, and the social repercussions should the firms fail, he added.

On the current record-low interest rates in Japan, Sugita maintains the stance of his predecessor, Satoru Kishi, head of Bank of Tokyo-Mitsubishi, in calling the current interest rate level "inevitable."

In March, major banks slashed the interest rate for demand deposits from 0.1 percent to 0.05 percent per annum. Experts say the historically low interest rates have taken a toll on depositors, especially those who rely on interest as a source of income.

"I think it was inevitable for us to lower the rate, considering the entire situation," Sugita said. "But I know it is a troubling level for depositors."

Sugita said banks are trying to compensate for the interest rate cuts by providing customers with diversified product lines, including foreign currency deposits and investment trusts.

"At the same time, we are trying to make ourselves more serviceable through such means as the Internet and telephone banking."



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