Comments on “Household and

Corporate Debt
in Japan”
Shin-ichi Fukuda
(University of Tokyo)

The views expressed in this presentation are the views of the author and do not necessarily reflect the views or policies of the Asian Development Bank Institute
(ADBI), the Asian Development Bank (ADB), its Board of Directors, or the governments they represent. ADBI does not guarantee the accuracy of the data included
in this paper and accepts no responsibility for any consequences of their use. Terminology used may not necessarily be consistent with ADB official terms.
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General comments
• Excellent overviews on household and corporate debt
in Japan
• International comparison clarified various important features of
Japanese household and corporate debt.
• A lot of useful implications for the other Asia economies
• But less focus on heterogeneous features of household and corporate
debt in Japan.

2
Heterogeneity in household debt in Japan
• Several types of household debt
- Housing loan
- Consumer loan
- Loan for retired elderly
• The degree of borrowing constraints differs depending on the type pf
household debt and on the types of borrowers.

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Comment on Housing loan in Japan
• The majority in household debt in Japan
• Very low lending rates.
- In Nov. 2017, the 10 year fixed rate is 1.2% for large banks and 0.97% for
internet banks.
• Partly because it is highly collateralized and likely to be guaranteed by the
others.
• Regular workers, especially those in large companies, tend to face little
borrowing constraint even if their current income is not high.
• But non-regular workers such as dispatched workers are likely to face
serious borrowing constraint even if their current income is high.
• Permanent income would be a factor that affects the degree of borrowing
constraint in Japan.

4
Comment on consumer loan, previously
called “sarakin”
• After bubble crash in the early 1990s, large consumer loan companies
increased their shares in the Japanese consumption loan market.
• It is likely that they reduced consumers’ borrowing constraints.
• But their lending rates were very high.
• Frequently caused their borrowers’ default.
• Institutional problem of consumer loans: Grey zone problem
• Until 2010, two ceilings of their lending rates:
- Interest Rate Restriction Act
- Act Regulating the Receipt of Contributions
• It was not which ceiling was valid.
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Institutional problem of consumer loan
• Interest Rate Restriction Act had lower ceilings than Act Regulating
the Receipt of Contributions.
• For example, when the amount of borrowings was more than 1
million yen, the former ceiling was 15% but the latter ceiling was
29.2%.
• Consumer loan companies set their lending rates exceeding the
ceiling of Interest Rate Restriction Act .
• Thus even risky consumers could borrow the money.
• But their default risk was high.

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Supreme court decision in January 2006
• The ceiling of their lending rate should follow Interest Rate Restriction Act,
that is, the lower ceiling.
• After the supreme court decision, their lending rate declined substantially.
• After 2010, the ceiling was strictly regulated by Interest Rate Restriction Act.
• Default risk declined substantially.
• At the same time, risky consumers came to face borrowing constraint.
• Many large consumer loan companies collapsed.
• A dramatic structural change in consumer loan market in 2010 (Figure 4).
• The structural change had nothing to do with the GFC.

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Comment on loan for retired elderly (new
topic)
• Because of growing population aging, loan for retired elderly should
be important in Japan.
• But the loan market for retired elderly is far from developed in Japan.
• Some elderly hold large amount of illiquid assets, especially real
estate, but limited amount of liquid assets. ⇒ They need to borrow.
• They tend to face serious borrowing constraints.
• “Reverse mortgage” is a type of mortgage in which a homeowner can
borrow money against the value of his or her home.
• Such mortgage is far from developed in Japan.

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Corporate debt in Japan
• Until the early 1980s, bank loans dominated corporate debt.
• But because of financial liberalization, promising firms increased
equity financing and reduced bank borrowing.
• Banks who had lost good customers expanded their loans to real
estate sector.
• Bubble crash ⇒ real estate dropped sharply ⇒ Huge NPLs!

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Liabilities of Corporate Businesses in the late
1980s in Japan (flow base)
trillion yen
15

10

0
1964
1966
1968
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
-5

-10

equity corporate bond CP

10
Growth rate of bank loans by industry in the
late 1980s in Japan
%
35
30
25
20
15
10
5
0
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
-5
-10

manufacruting construction wholesale/retail real estate

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Corporate debt in the 1990s, “the first lost
decade”
• Coexistence of credit crunch and evergreen lending
• Some promising companies faced borrowing constraints during the
banking crisis in 1997-1999. (BOJ’s Tankan survey)
• However, banks kept lending to insolvent firms, that is, zombie firms.
• A number of zombie firms among large companies in non-
manufacturing sectors, especially real estate, construction, and retail
sectors.
• “Too big to fail”
• NPLs kept increasing throughout the 1990s!

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 0

-30
-20
-10
10
20
30
40
Mar-95
Oct-95
May-96
Dec-96
Jul-97
Feb-98

large firms
Sep-98
Apr-99
Nov-99
Jun-00
Jan-01
medium firms

Aug-01
Mar-02
Oct-02
May-03
Dec-03
small firms

Jul-04
Feb-05
Lending attitude DI in “Tankan Survey”

Sep-05
13
The amount of outstanding loans
trillion yen
300

250

200

150

100

50

0
1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004
fiscal year

manufacturing non-manufacturing

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Corporate debt in the 2000s, “another lost
decade”
• Non-performing loans declined substantially.
• Zombie firms almost disappeared.
• Banking sector became sound and healthy.
• But the amount of loans declined in the 2000s.
• Corporate restructuring made non-financial corporations reluctant to
increase their borrowings.
• Non-financial corporations had been in financial deficit until the mid
1990s.
• But they have been in financial surplus since the late 1990s.
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 10
15
20
25
30
35
40
45

0
5
1992
1993
trillion yen

1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
都銀・旧長信銀・信託

2005
2006
2007
2008
全国銀行

2009
2010
2011
2012
2013
The amount of NPLs of Japanese banks

2014
2015
fiscal year
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 Financial surplus or deficit of nonfinancial
corporations in Japan
trillion yen
60
50
40
30 surplus
20
10
0
1963
1966
1969
1972
1975
1978
1981
1984
1987
1990
1993
1996
1999
2002
2005
2008
2011
2014
-10
-20
-30
-40 deficit
-50

68SNA 93SNA 08SNA

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Corporate debt in the 2000s
• In the 2000s, demand for loans has been weak except for the GFC period.
⇒ limited innovation!
• Cash rich companies increased throughout the 2000s.
• This was true not only for large firms but also for SMEs.
• Some SMEs were not cash rich and need to borrow.
• After the GFC, the SME Financing Facilitation Act started.
• Because of the strong government support, even the non-cash rich SMEs
tended to face little borrowing constraints.
• “Natural selection” was less likely to work under the SME Financing
Facilitation Act.

18
Currency and deposits of nonfinancial
corporations in Japan
trillion yen
20

15

10

0
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
-5

-10
Currency transfarable deposits time and saving deposits
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Comments on “Household Debt:
Thailand Experience”
Shin-ichi Fukuda
(University of Tokyo)

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General comments
• Excellent and informative overviews on household debt in Thailand.
• An increase of household debt in Thailand has been dramatic in the
2000s.
• Focusing on household debt is important especially in Thailand.
• An increase of NPLs in consumer loans is one of the major sources of
recent increases of NPLs in Thailand.
• But it is not everything.
• There are other concerns; NPLs in wholesale and retail sector have
also increased substantially recently.

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Commercial Banks' Credits Classified by Type of Business
Billion Baht
4,500
4,000
3,500
3,000
2,500
2,000
1,500
1,000
500
0

Production Construction
Wholesale and Retail Sale Hotels and Restaurants
Real Estate Activities Personal Consumption
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Gross NPLs Outstanding Classified by Sector
Gross NPLs Outstanding Classified by Sector
Billions of Baht Personal Consumptions
900
800 Services
700
600 Public Utilities &
500 Transportation
400 Real estate activities
300
Wholesale and retail trade
200
100 Construction
0
Manufacturing

Mining and Quarrying

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Comments (continued)
• In general, an increase of NPLs in consumer loans tends to be modest even
if the amount of consumer loans increased substantially.
• This is because mortgage loans tend to be collateralized.
• In several cases, consumer loans tend to be guaranteed by others.
• Limited liability is less relevant for consumer loans.
• When discussing macro-prudential policy, it is important to take into
account these features.
• It is also important to see what type of system risk would arise when NPLs
increase in consumer loans.
• It is likely that consumer loans would cause different types of system risks
than other loans.
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