Summary
Senior bureaucrats in Japan's Financial Services Agency allayed the worst fears of financial markets by unveiling draft legislation that bears little resemblance to the original pledge by Financial Affairs Minister to place a 3-year moratorium on repayment of small business loans. The draft legislation, which provides no blanket relief to borrowers and places no apparent financial burden on lenders, would be more appropriately described as an emergency bailout measure for SME borrowers.
Analysis
Investors snapped up shares banks and consumer credit companies Friday after the FSA unveiled details of a so-called moratorium on repayment of small business loans that places no ostensible financial burden on lenders. In spite of promises by new DPJ led coalition government to take control of the legislative process out of the hands of bureaucrats, the proposed draft legislation bears little resemblance to earlier comments by Financial Affairs Minister Hon. Shizuka Kamei that rattled financial markets and sent shares in banks and consumer lenders into a tailspin.
Details of the plan, which proposes government guarantees for loans to troubled small businesses, emerged on the same morning that Promise Corporation announced plans to replace its longstanding president with a former SMBC consumer lending executive and maintain its focus on core core consumer lending operations rather than shifting focus to small business loans. Taken together, the two announcements suggest a return to the concerted alignment between politicians, regulators and industry executives to which Japan had become accustomed over the past 55 years.
Plans to introduce the draft legislation in the Extraordinary Diet Session beginning October 26th are hopeless as the session will be too short to facilitate debate required under parliamentary rules and procedures and there legislation is unlikely to survive a budgetary means test anyway. As such, Friday's announcement should be viewed as a face-saving gesture to defuse conflict between stakeholders.
Daniel Lintz consults with leading institutions through GLG
Analyses are solely the work of the authors and have not been edited or endorsed by GLG.
