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Saturday, Sept. 29, 2007
All eyes on Japan Post as privatization begins
Japan Post will be reorganized Monday, paving the way for it to become a private company for the first time in its more than 130-year history. The following are questions and answers on how the privatization will affect Japan's postal services.
Will the postal services be fully privatized on Monday?
No. It is only the first step in a 10-year privatization road map that was established in 2005 under the initiative of then Prime Minister Junichiro Koizumi.
On Monday, the public corporation will be divided into four private entities — Japan Post Service Co., Japan Post Network Co., Japan Post Bank Co. and Japan Post Insurance Co. — under holding company Japan Post Holdings Co.
Japan Post Service will manage the mail delivery services and Japan Post Network will control the post offices and their real estate.
At first, the government will own all of the shares of Japan Post Holdings, with the holding company owning 100 percent of each of the four companies. This means the four will still be funded by the government at first.
As early as fiscal 2010, however, Japan Post Bank and Japan Post Insurance are expected to go public. By October 2017, all shares of the two companies will be traded on the market, while the government reduces its stake in the holding company to about 33 percent.
The two remaining firms — Japan Post Service and Japan Post Network — will not be listed because of their public nature.
Will there be changes in each company's services?
Yes. Although savings accounts and insurance policies are fully guaranteed by the government, they will no longer enjoy such privileges after Monday. "Teigaku" installment savings, which comprise 65 percent of all postal savings, and time deposits made before Monday will continue to retain full government guarantees.
Government guarantees will also be ensured for insurance policies purchased before Monday.
Ordinary deposits, however, will lose their government guarantees but be insured by the Deposit Insurance Corp. of Japan for up to ¥10 million, as is the case with all private banks.
Other than that, there will not be much change for postal customers. Deposits and withdrawals will continue to be made at counters and ATMs using the same cash cards.
Will the new companies be able to engage in new fields of business?
Yes, but they need prior approval from the relevant ministries, such as the Internal Affairs and Communications Ministry, after consulting with the postal privatization panel, a government body made up of academics.
Starting Monday, Japan Post Bank, a behemoth with ¥188 trillion in deposits, will be allowed to start investing in riskier financial products instead of Japan's safe but staid government bonds. The bank is also hoping to offer mortgage loans and credit cards.
Japan Post Insurance, meanwhile, wants to start selling nonlife insurance, including medical insurance.
Japan Post Network, which oversees more than 24,000 post offices in Japan, is looking to expand international mail delivery services, especially in Asia.
Will the new businesses be subject to the same corporate compliance criteria as other financial institutions monitored by the Financial Services Agency?
Yes, but only the two financial institutions, Japan Post Bank and Japan Post Insurance. The FSA is expected to make sure the two companies have sufficient risk management and corporate compliance systems.
Until Monday, Japan Post will be under the supervision of the internal affairs ministry, which can only impose business-improvement orders. But starting Monday, the FSA will be able to monitor the company and impose stricter orders, such as business suspensions.
But there are still concerns whether the two companies will be able to live up to those criteria.
In July, the internal affairs ministry disclosed its corporate compliance evaluation report for the postal services. It gave the postal savings division a "C," which indicates its corporate compliance is lacking.
"The corporate compliance system is not sufficient given that cases of internal wrongdoing and inappropriate handling of personal information are on the increase," the report said.
In fiscal 2006, about 140 cases of wrongdoing by Japan Post officials had been reported, including 12 cases of embezzlement of postal savings funds.
Won't the privatization of what has effectively been the world's largest bank put pressure on city and regional banks?
That's what the banking industry says.
Speaking at a news conference on Sept. 19, Japan Post President Yoshifumi Nishikawa said Japan Post Bank wants to start selling housing loans offered by regional banks.
Nishikawa's plan, for now, is to merely become an agent for the regional banks, but the banking industry sees it as a first step in the postal bank's eventual plan to enter the business and sell similar products in the future.
"Our bank does not plan to accept the proposal," said Tadashi Ogawa, president of the Regional Banks Association of Japan and head of the Bank of Yokohama. "We don't want (Japan Post Bank) to start a new business when it is still funded by the government." Ten of the nation's 11 major regional banks reportedly rejected the postal bank's proposal the same day.
But analysts said that Japan Post Bank may offer a new business opportunity for the big city banks.
Since Japan Post Bank has no experience selling housing loans, it needs to train employees, hire new staff to do the time-consuming paperwork and install a new computer system, which will be costly, said Hironari Nozaki, managing director and a banking analyst at Nikko Citigroup.
"The quick way is to build an alliance with a partner company to outsource such functions," he said. "Though major banks haven't breathed a word about it, they are the likely target."
If Japan Post becomes a private company, won't its unprofitable post offices be shut down?
The government has vowed to maintain a universal network of post offices, stipulating in law that at least one post office is necessary in every city, town and village.
As of the end of September, there were about 1,800 cities, towns and villages in Japan, which means that, technically, the number of post offices could be reduced to less than a tenth of their present number. But that would be an extreme scenario.
The number of post offices in fact is already declining. In fiscal 2002 there were 24,752, but as of this March there were 24,574.