“If you’d asked anyone six months ago what the chances were of Hokkaido Takoshoku or Yamaichi going down the drain they would have assigned a very low probability to both events,” says Masaru Kakutani, the representative director of Moody’s Japan. “The mindset was they were too big to fail. When the mindset is violated people come out with a new model. The paradigm is evolving into something else.”
The failures in November of Yamaichi Securities and city bank Hokkaido Takoshoku were indeed a serious shock to the financial system. Last month the government gave its most honest appraisal thus far of the scale of the banking sector’s bad debts. At ¥76 trillion ($600 billion), the number was a massive advance on the ¥27 trillion put forward in September by the Japanese Federation of Bankers’ Associations.
There appears to be a welcome outbreak of honesty and action. Accompanying the November bankruptcies was a statement from the ministry of finance (MoF) that “it is desirable that markets are moving in such a way as to redress irrational businesses”.
“There are very rapid and radical changes going on,” says Shuzo Aoki, formerly at the Bank of Japan and now advising the president of Tokai Bank. “There is obviously much turbulence as we move from the Japanese model of protection and regulation to the Anglo-Saxon model. Japanese financial institutions need to respect the shareholders as well as the customers.”
These are radical thoughts. Japan’s banking system has traditionally been relatively free from concerns about profit, and shareholders have never entered into the thinking much at all. The last time a Japanese bank made a return on equity that even approached the levels now being achieved by UK bank Lloyds TSB was in 1953.
But many of the banks are at least starting to talk about these concepts. Bank of Tokyo-Mitsubishi plans to quadruple its return on equity by 2000 to 8%. Chairman Tasuku Takagaki says: “We are becoming more profitable so we can clear our bad debts more substantially. But our profits disappear into provisions. I am looking forward to next April [1999] when we have profits to put into a more positive strategy perhaps buying a foreign institution.”
Other banks are singing the same tune. “Profit and return on equity are central goals, obviously,” says Takashi Uehara, a senior managing director of Long-Term Credit Bank (LTCB). Asked about share buy-backs, Uehara replies: “I think the market is rapidly changing and that notion is in the minds of many top banks.”
At present, however, this question is rather theoretical. LTCB is attempting to raise capital rather than give it back. Its tier-one capital ratio is very exposed to the vagaries of the stock market because of its ¥1.8 trillion equity portfolio. This, as with all Japanese banks, is used to buttress its BIS ratio. Analysts reckon that its portfolio would take a ¥386 billion hit were the Nikkei to finish the financial year (March 31) at 14,000. This would have a very negative impact on its BIS ratio.
Every Japanese bank faces this problem to a greater or lesser degree. Goldman Sachs estimates that if the Nikkei stock index is at 14,000 on March 31, and the yen is at 135 to the dollar, the 19 major banks will (on average) see their tier-one capital ratios touch the 4.00% minimum. Anything below that figure and they would be banned from foreign business.
No wonder Japanese banks have reluctantly started to give the impression of undertaking cultural overhaul. Some of the changes are cosmetic. For example, bank presidents made presentations to bank analysts after interim results in November the first time that most had done so.
More concrete are the staffing changes going on. Sanwa Bank is to revise its personnel policy from April and create an “experts programme” where a select group of staff perhaps 40 or 50 initially, mainly in capital markets will have their salaries tied to performance. “For ordinary staff the bonus is very small,” says Sanwa’s senior managing director of the international department, Kaneo Muromachi. “In the expert course the bonus can be 200% of salary or nothing. And on the expert course someone can have an employment contract with the bank for three to five years, rather than a lifetime. If they don’t like it or are not performing they can go back to the ordinary course. So we have some safety net.”
Sanwa is not alone in its approach. Many banks are discussing the need to attract derivative specialists. Others are proclaiming a new ruthless approach to customers. One analyst was informed by Sakura Bank that it had relinquished its old role as a last-resort bank for key borrowers after it was saddled with ¥140 billion of bad debt when food-trading company Toshoku went bankrupt at the end of last year and other banks had bailed out.
International institutions reacted badly to the news. One of Sakura’s subordinated bonds was trading at 700 basis points over Libor last month. The analyst says that Sakura officials told her they would force borrowers into bankruptcy to get the bank’s money back. When she expressed surprise at their change of approach they replied: “Yes, but that’s the new consensus.”
Of course, some of the Japanese banks are simply learning what they need to say to please international investors. Another analyst received a call from a head of investor relations who asked him: “Do you think it would improve our share price if we announced a ‘casual Friday’ policy?”
Can’t change, won’t change
However, in spite of the banks’ manifest problems the bad loans, the record levels of corporate bankruptcy, the vulnerable equity portfolios, the $148 billion of exposure to collapsing Asia there is still reason to be cynical about sweeping cultural reform. Most analysts, in fact, believe nothing of the sort is happening.
Stephen Church, a former Lazard Frères banker who has lived and worked in Japan since 1975 and is a graduate of Waseda University, believes talk about change is nothing new. Church, who works for Analytica, has just published research on Japan’s Big Bang and concludes: “Japan is always at a crossroads. It will continue to be. Radical change is unlikely.”
Goldman Sachs’s Tokyo bank analyst, David Atkinson, shares this view. “I have spent eight years as a banking analyst in Tokyo,” he says. “Every single year there is a new argument why return on equity will go up or why banking is now different. And when you get to the end of 12 months you find it’s exactly the same.”
After making this point, Atkinson stands up and takes a marker pen: “Let me explain why. Here’s everything you need to know about a Japanese bank on one whiteboard.”
He pauses for effect: “The whole issue of whether Japanese banks will change comes down to this. Let’s assume I have lent ¥100,000 to a large Japanese corporate. Let’s assume the spread averages 40bp, which means making ¥400 out of the position. The cost is 40%, so the operating profit is ¥240. Tax is 50% so that leaves ¥120 of net profit. Tier-one capital is 4% so you need ¥4,000 of capital to support the loan. That means the maximum return on equity on this business is less than 3%. The problem is this type of large corporate lending represents 37.6% of what a Japanese bank does.”
So a Japanese bank’s return on equity is never going to be high while it continues doing this type of business. The problem is that its customers the large corporates own more than 50% of its shares. “If a lending institution is more than 50% owned by its customers it is in effect a listed credit cooperative,” says Atkinson. So it’s not in the bank’s interest to charge customers more for their loans because they are shareholders. By definition, if the bank makes more profit from a loan, its industrial customers, meaning shareholders, make less profit by paying more for the loan.
Therefore genuine institutional investors cannot expect Japanese banks to offer them shareholder value until they own more than 50% of a bank. Until then, the bank will give its shareholders cheap, undifferentiated loans. “But no-one would ever say that,” explains Atkinson. “So the Japanese bankers guff on about corporate governance and explain why a low return on equity is great in fine-sounding rhetoric.”
Bank of Tokyo-Mitsubishi has ¥3 trillion of capital. That’s why it can’t make a decent return on equity, points out Atkinson. It could have a share buy-back, and increase return on equity that way, but it trades on a price-to-book value of 2.5 times. “So its cost of equity capital is close to zero. It’s very difficult to imagine why anyone would give back free money.”
Atkinson says if he was president of Bank of Tokyo-Mitsubishi he certainly wouldn’t. “If I was in their shoes and had ¥3 trillion of capital I’d make the same excuses because I don’t want to give the capital back. . . All this stuff management is younger, a new president educated in the US it’s all rubbish. I was educated in the west and I wouldn’t run it any differently.”
What makes Atkinson’s analysis so interesting is that he states that Japanese banks have too much capital when the received wisdom is that they don’t have enough hence the pressure on their capital-adequacy ratios.
“If you continue with their inefficient asset mix, then they do have too little capital,” he agrees. The problem, he says, is that the Japanese banking model is a developing-country model. “In an environment where your country risk is very high and you have badly diversified corporates that you are simply lending to, you can justify this asset mix [slanted towards corporate lending]. The country risk and the corporate risk are very high so you earn a good spread. But when you are a triple- A country and your companies are some of the most diversified and best known in the world, lending on a 100% risk-weighted-assets basis means, by definition, you as a bank will not make money.”
Serving clients and industry
But many banks do not see their role as being just about making money. Yoh Kurosawa, chairman of Industrial Bank of Japan (IBJ) which back in the bubble heyday had a market capitalization of ¥15.9 trillion says: “Profit is very important. Our profit is too small. But profit is not 100% the purpose of IBJ it is not a pure commercial bank. Our philosophy is to serve clients and Japanese industry. There must be profit, but profit must be reasonable. If we make too much profit, we are eating the profits of our clients.”
“We don’t like to maximize our profits,” admits Kurosawa. He also concedes that because IBJ’s shareholders are also its customers, the traditional concept of shareholder value does not therefore apply.
In fact, IBJ typifies what a Japanese bank is meant to be in the Japanese economy: moderately profitable, but ultimately there to serve the needs of the whole economy. Each major bank is at the core of a large industrial group, called a keiretsu, whose whole purpose is to keep the group intact and growing. Akio Mikuni, the founder of rating agency Mikuni & Co, points out that for a long time the system was driven by the MoF, which directed cheap capital to industries with the sole purpose of helping them grow. When a cheap loan was made to a foreign company, the aim was to use the goodwill created to forge a link with relevant parts of the keiretsu and serve the country’s industrial interests abroad.
“The central control mechanism for the entire system lay in the net allocation of loans by the Bank of Japan,” says Mikuni. “Until the summer of 1991, explicitly each quarter, the Bank of Japan under the direction of the MoF decided on the net additional amount of lending permitted to each bank.”
The industrial purpose of the system was to build an export-oriented economy. The social purpose was to subsidize small and medium-size companies that would otherwise go bust, causing unemployment. Japan does not need a European-style welfare state. It has the world’s only banking sector dedicated to the cause of full employment.
As one strategist puts it: “Anything that smacks of large increases in unemployment is unpalatable. That’s why I call Japan the most efficiently run socialist economy in the world.”
Morgan Stanley bank analyst Elizabeth Daniels recalls that a senior Japanese banker asked her why analysts are so focused on margins and profitability. “Don’t you realize,” he said, “we’re doing Japan a service by lending at a good, affordable price to people who need it.” She adds that a former loan officer she knows told her that one of his tasks was to show prospective clients how to prepare a cashflow statement. “To the corporate borrower the bank is the cashflow,” says Daniels. That’s why when the bank pulls the loan, the company immediately goes bust. Last year the level of corporate bankruptcies exceeded 16,000 for the first time in 11 years and debts from reported bankruptcies hit ¥14 trillion up 75% on the year before.
Mobilizing resources
The government’s problem is a large one. If the Japanese banking sector falls apart so too does a large chunk of the economy.
“We estimate that between 25% and 30% of Japanese financial institutions will not exist in their current form in 2001,” says Jesper Koll, JP Morgan’s chief economist in Tokyo. “By definition,” he adds, “one in three or four companies will not exist either.”
The Japanese banking system is elaborately structured to serve the government’s goals, and the system has so many checks and balances that change is very difficult.
“Many banks are structured in almost the same way,” says Muromachi of Sanwa. “Japanese banks have been used as the conduit to achieve great amounts of funding from the public to industry. Most banks do not have unique characters. The personnel and corporate-planning departments are there to mobilize people and resources in different banks in the same way.”
Personnel and corporate planning are the two most powerful departments in a Japanese bank. Personnel acts as a check on individuals showing any kind of uncorporate behaviour. Someone who personnel wants to punish might be transferred into an administrative area such as the computer centre. Or they might get exiled to the Kushiro branch in Hokkaido, or the representative office on the island of Oshima. Both are remote from Tokyo, but those posted to Oshima are consoled by the excellent scuba-diving.
Aside from the limited moves to introduce “expert courses” and the like, the careers of the vast majority of Japanese bankers 99.9% is a low estimate are still governed by the seniority principle. An employee’s bonus is guaranteed and his rank and pay is virtually identical to other employees of the same age. A new graduate will be brought in at a salary of ¥3 million a year and look to become a general manager when he is 44 and earn between ¥12 million and ¥20 million. If he doesn’t make it into the senior management and is transferred to a subsidiary his pay will decrease by some 30%. The whole structure is conducive to risk-averse behaviour.
Seniority is very stratified. One Japanese bank has a system of seven broad grades from grade one for general managers to grade seven for new intake. Each grade is split into two or three subgrades. In addition, each staff member has a number such as 27 or 51. The staff member does not know the exact significance of this number but recognizes that the higher it is the better. No-one knows this number apart from the staff member and the personnel department.
Each staffer is also awarded a secret grade by the personnel department, which he never finds out. The grade could be S for Special (the highest grade) or a letter from A to D. Only the president ever gets to discover his secret grade, and in that case it’s more than likely to have been S. This grade is critical for a banker’s promotion prospects. Even if his department manager wants to promote him, if he doesn’t rank above a B the personnel department will veto it.
Staff are evaluated on personal qualities such as being cooperative, showing responsibility, tolerance and obeying company rules. There’s also a “proactiveness” category but Euromoney was not able to discover whether this was a positive or negative factor. One of the worst things you can do is be off sick. This is a particularly un-Japanese quality and is guaranteed to reduce your promotion prospects and sap even the supposedly guaranteed portion of your bonus.
Many bankers still live together in bank-owned dormitories which provide food although Takagaki of Tokyo-Mitsubishi insists this practice is now discouraged. He says that while he was head of personnel he made sure the dormitories were not too comfortable because ever concerned for the welfare of his staff otherwise why would the young men accept a difficult married life? The practical reason for the dormitories was to make it easier to transfer the bankers around Japan at a moment’s notice.
If anything, the corporate planning department is even more powerful than personnel (although the personnel department can transfer bankers out of the corporate-planning department). The corporate-planning bureaucracy is unlike anything found in a western bank. The banks’ corporate planners are more likely than not to have gone to Tokyo University, just like their counterparts in the MoF. This is no coincidence. The ministry has traditionally used the corporate-planning department to direct the activities of each bank. Corporate planning was designed to be a mini-MoF in each bank.
The bankers who make it into the 50-strong corporate-planning elite are earmarked to be future presidents. It is nigh impossible to be a bank president without having held the post of general manager of corporate planning or managing director of corporate planning.
Tasuku Takagaki of Tokyo-Mitsubishi had a typical career path: a bit of foreign experience in New York, general manager of corporate planning (October 1976 to June 1979), general manager of personnel (February 1980 to May 1982), managing director (1984), senior managing director (1986), deputy president (1989), president (1990), chairman of the board (1998). He also graduated from Tokyo University.
So too did Katsonubu Onogi, president of LTCB since 1995. He was made chief manager of the planning department in July 1979, general manager in 1987 and managing director of corporate planning in 1989. In fact, all the major city banks have presidents with an identikit background with the exception of Dai-Ichi Kangyo bank which was recently purged after a scandal involving pay-offs to gangsters (sokaiya).
Yoshinubu Yamada, Merrill Lynch’s bank analyst, is particularly unusual in that he left Fuji bank after a promising career in corporate planning. “As a bank employee I could not say anything, but when I became an analyst I thought I could be somewhat unique in the industry and give a different insight on Japanese banks to international investors.”
There are five departments in corporate planning: controller of budgets, corporate strategy, government liaison, research and accounts. The controller of budgets is the most important because it dictates to operational heads how much they can spend. At around 8 o’clock each morning the senior members of the corporate planning department visit the president with their proposals, which he approves. A division head in corporate planning earns between ¥15 million and ¥18 million a year. From entering the bank it will take approximately 23 years to reach this position. “A division head of a Japanese bank’s planning department de facto runs the bank,” says Yamada.
“In a financing transaction you’ll have to get the approval of the planning department as well as the capital-markets division,” says one US investment banker. “Some of them might be fairly sophisticated, but if it doesn’t fit the agenda of the corporate-planning department then it gets squashed.”
Clearly, no-one in corporate planning or personnel wants to see this status quo altered. Nor is it easy to see who would change it given that these departments hold so much power. And the present system, with a bureaucracy that does a tremendous job of obfuscating the individual’s responsibility for any appalling decision, suits many Japanese bankers in all departments.
Asked if Sanwa will need a corporate-planning department in 10 years’ time, Muromachi replies: “We may have a smaller one. But someone has to allocate capital. Maybe they become the president’s staff. But after the target is allocated and the capital is given, everything should be carried out by the division head. They can hire as many people as they want.” Currently such hiring decisions would have to go through corporate planning.
“When I was president I didn’t follow 100% the advice of corporate planning,” says Kurosawa of IBJ. However, this comment turns out to refer more to the international business than domestic activities. “In domestic business, for example how to deal with the jusen [housing-loan corporations] problem, I relied on what corporate planning said.”
Takagaki, former president of Tokyo-Mitsubishi, sees the role of corporate planning evolving but remaining important. “Perhaps corporate planning was strong in the past because of its relationship with the MoF. But I think as chairman I would need a very capable corporate-planning division, even without a special MoF role.”
Then he adds: “We don’t have corporate planning above other divisions. But they come from the side to give recommendations to the president and the recommendation goes to the management committee. In US and European banks who is doing this?”
Perhaps the operational heads? “I think you have a point,” says Takagaki. “Why do we need this large corporate-planning division? But is there enough corporate planning in western banks?”
Slimming down the board
One of the key issues facing Japanese banks is accountability, or rather the lack of it. Take Tokyo-Mitsubishi’s board of directors, for example, which is 60-strong. A head of department or the general manager of an important branch becomes a board member as a recognition of his service. Tokyo-Mitsubishi says this system is under review and it might change it to something closer to the practice in the US. This would mean a severe slim-down and the inclusion of non-executive directors.
But Japanese banks are finding it hard to change their structures. “Since we have such an established system, a change would require careful engineering,” says Takagaki. “If we decide suddenly [to alter it] and say you are dismissed from the board, are we saying now your recognition is dismissed? These are very experienced, highly qualified staff.”
But does the present structure work? Do the 60 members ask questions? “The item discussed by the board has been discussed so fully by the so-called concerned departments that for an outsider to cast doubt on the proposal, especially if it is a technical matter like a computer system, is very difficult. It’s a question of loss of face. An outsider could say that’s exactly where the problem is. You should be given the right to question. It doesn’t matter if the question is silly it’s a good stimulus.”
So if no questions are asked, doesn’t the board meeting serve absolutely no purpose whatsoever? “You are right. We are receiving that criticism not only from westerners.”
Leadership is obviously a quality that most Japanese bank presidents could be criticized for lacking. Asked if he thought he had been a good leader, Kurosawa of IBJ replies: “Leadership is not popular in Japan. There have been 30 prime ministers since the war and only two had leadership, and they weren’t popular.”
He continues: “In European society leaders are very popular like Churchill, Thatcher, Napoleon, Hitler, Bismarck. But we have no heroes in 3,000 years of the Japanese system. We cannot change the Japanese character.”
But would he describe himself as a leader? “I felt I had to differentiate my activities in the domestic and international businesses. In the domestic business too much leadership is not good. In the international, it is needed
because we are dealing with foreign clients who have leadership at the top. I think I have done this. But when I practise too much leadership in the domestic business all my staff might be embarassed because I am doing things in a different way.”
The trouble is, if a Japanese bank is going to change thoroughly, a strong leader is necessary someone like John Reed at Citibank or William Purves at HSBC. Given the bank’s radical hook-up with Swiss Bank Corp, Onogi of LTCB looks capable of dynamic decision-making. The joint venture is a 50-50 foray into investment banking and asset management, and it looks as if the bulk of management control will be given to the western partner.
This is not the only radical step LTCB has taken. Since he took the post of president in 1995, Onogi has sold foreign subsidiaries such as Greenwich Capital (to NatWest) and reduced the bank’s gargantuan equity portfolio by 25% in the space of a year and a half. “He aggressively communicates with the general managers,” says Uehara (who is in line to be a future LTCB president). “He tries to convince them that what we are going to do is the direction we should pursue.”
But most presidents have few incentives to challenge the existing order. “They have no stock options,” points out one analyst. “And they will retire with a princely bonus and become a lifelong adviser to the bank. Even when they retire they’ll have a car, an office, a secretary and will advise on senior appointments. What possible incentive do they have to make a difference? The answer is: they don’t.”
“To wield leadership is not good for your reputation in Japanese society,” says Takashi Hosomi, chairman of the NIL Research Institute and a former vice-minister at the MoF. “You become the target of strong criticism. But at the same time that is a very good excuse for ordinary performance.”
He continues: “Bankruptcy is necessary to find out the real leader. Actually, not necessary; but maybe inevitable.”
Shijuro Ogata, a former official at the Bank of Japan, believes it has not always been this way. “I am afraid the present leaders are less capable than they were in the 1960s. Soppei Nakayama, president of IBJ during the Yamaichi crisis in 1965, had a sense of leadership. His generation were appointed when the senior guys were purged after the war by the Americans. I think since then Japan has become a country of corporate bureaucrats. Now there are no leaders.”
He blames the educational system: “We have an egalitarian standard of education. It’s good for stability, but it’s not good for producing leaders. We have a much better rank and file than the US. But the average of the top people is not so high.”
“The topmost managers are not necessarily decision-makers,” says Masaru Kakutani at Moody’s. “When the market is rapidly changing like today, however, then it’s time for the role of senior management to be redefined. “
The blame lies with the system. Those who leave the system early enough can become good leaders. Ex-Citibank Tokyo chief Masamoto Yashiro was a very strong leader, having spent his career at Exxon, the US oil company. In fact he was so strong that he controlled both Citi’s Japanese retail banking and its corporate operations, the only man in Citi’s empire to control both retail and corporate banking simultaneously.
But Yashiro was unusual. Most of those who spend time abroad would not be welcomed back into the Japanese banking fold. Kurosawa at IBJ notes that only a small proportion of staff, no more than 20%, left his bank, and only a tiny proportion of them went to foreign firms. He says IBJ has only taken one of them back even though, he claims, many have begged to come back after great disillusionment. He laughs that the reason they do not allow them to return is to “discourage others from copying them”.
He says there was a big internal discussion over whether those who leave should be made to pay for the MBA courses IBJ had sent them on. Kurosawa, at this point, gestures as if to wash his hands and says: “If we make them pay, those guys think it’s purely a money matter and it’s okay because they’ve paid. They don’t feel guilty. I’ve paid my money. Goodbye.” Accordingly, IBJ does not make those who leave pay for the MBA. It wants guilt.
In Japan, people who have picked up western ways are referred to disparagingly as “smelling of butter”, a reference to the high fat content in western food. People tainted in this way might not be effective in promoting change when lined up against the unified ranks of a bank’s entrenched bureaucracy.
“Irrational optimism”
So can Japanese banks ever come to resemble the profit-oriented, individualistic western banks that Japanese bankers are telling the world they are trying to emulate? James Fiorillo, ING Barings’ bank analyst, thinks not: “I haven’t seen enough evidence from management I’ve met at Japanese banks that they will behave in a more proactive way.”
Some feel a purge of senior management is necessary but don’t think it will happen. Partly this is because there is no great sense of urgency in Japan. The country still generates over half the world’s savings and this cushion continues to breed calm and complacency. There is a feeling it will all work itself out in time.
“We don’t have irrational exuberance here,” says Daniels of Morgan Stanley. “We have irrational optimism.”
Government-sponsored accounting tricks will allow banks to skip through the year-end on March 31 even if their equity portfolio is under water. The government will allow the equity to be valued at cost rather than market value, thus hiding the problem for now. BIS ratios may actually improve if the government goes ahead with plans to allow banks to revalue their real-estate portfolios from book values. This one-off, tax-free gain would, according to Goldman Sachs, boost the tier-one capital levels of the top 19 banks to an average of 4.87% even if the Nikkei was at 14,000 and the yen was at ¥135 to the dollar. No-one would go below the 4% minimum till the Nikkei went below 12,500.
“One can’t help having a suspicion that if they got out of their bad-debt problem they’d go back to where they were before,” says HSBC James Capel head of research Jason James.
Kurosawa’s verdict on IBJ’s profitability supports this view. “We need a certain profit,” he says, in order to clean up bad loans. “But once we get back to a reasonable figure [for bad loans], then we’ll be in a normal situation and will ask for reasonable profit.”
But one thing has changed. The MoF has lost its ability to tell banks what to do. Letting Yamaichi go bankrupt marked the end of its near-mystical powers. Akio Mikuni of Mikuni & Co explains: “In the old days, the banks were franchises of the MoF just like McDonald’s. Now that’s changed. And if McHeadquarters can’t give franchisees a profitable business, they start to leave.”
This is exactly what is happening. “The big picture is that Japan is moving back to the pre-war system of universal banking,” says Stephen Church of Analytica. “There will be six keiretsu banks and, in addition, independent outfits like IBJ and Nomura.” But the move to a smaller number of big banks won’t necessarily involve a cultural shift.
So what will remain of the old Japanese banking culture in 10 years’ time? At Sanwa, one of the keiretsu banks, Muromachi agrees that a shift to “western systems” is likely. But asked if lifetime employment will remain, he gives a large sigh. “This is the most difficult part. Most Japanese want to keep it. But maybe there is a bit of a conflict. But if you ask most Japanese people, including me, we would say we want to keep it. But probably we can’t.”
The current emphasis on specialists in areas like derivatives may be no more than the usual Japanese strategy of borrowing technology, perfecting it and exporting it. And Japanese banks still have big international ambitions in spite of their current problems. “We are still aiming for a global operation,” says Takagaki of his bank’s overall strategy.
At home, in the retail market, the banks are finally responding to the intense competition from Citibank, which since 1994 has operated 24-hour ATMs free of charge. The Japanese city banks close theirs at midnight. They used to claim that it would be a terrible loss of face for the bank if anyone tried to use a machine and found it empty. They would have to man their ATMs with technicians 24 hours a day and therefore it wasn’t practicable.
Well now it is practicable. Sumitomo Bank will start operating 24-hour ATMs in 10 branches from this month. Later in the year Sanwa will follow suit.
But this is largely costless window-dressing. The most difficult thing for Japanese banks to change will be the widely held view that the Japanese system is unique and better than that in other countries. And that even if change is desirable it is not possible because Japan itself is different from the rest of the world.
For proof of this, Japanese often resort to the theories of Tadanobu Tsunoda. According to the doctor’s studies, Japanese people hear insect sounds, temple bells, humming and snoring with the left halves of their brains while westerners do so with the right half.
Real change to the world of Japanese banking is going to take some new thinking.
