Development Bank of Japan Prospects for the Development Banking System—DBJ’s Case At ALIDE Annual Conference 2001 Kazuyuki Mori International Cooperation Department Table of Contents Consensus Views on DFI Management Establishment of DBJ— Integration of JDB and NEF Government Reform— Background of the Integration Main Objectives and Function of DBJ Loan and Investment Budget for FY 2001 Changes in Major Areas of DBJ Loans Financial Sector Reform— Background of New Management Financial Institutions in Japan Policy-based Financial Institutions in Japan Former FILP System Current FILP System DBJ’s New Management Ensuring Operational Transparency and Accountability Maintenance of Financial Soundness Strengthening the Knowledge Bank Function Appropriate Action on Policy Issues 1 Consensus Views on DFI Management Development Mission • Not for profit maximization Financing Higher Risk Areas • Medium- to long-term finance • Inadequate credit supply from the market Financial Soundness • Sustainability of the institution • Low cost funds needed • Stringent credit analysis Autonomous Management • Financial judgement over policy judgement 2 Establishment of DBJ — Integration of JDB and NEF JDB NEF DBJ (as of March 1999) (as of March 1999) (as of March 2000) Establishment April 20, 1951 June 8,1956 October 1,1999 Law The Japan Development Bank Law North East Finance of Japan Law The Development Bank of Japan Law Mission National Economic & Regional Economic Vitality of Economy, Better Social Development Development Quality of Life, Autonomous Regional Economy Total Assets 17,951.3 billion yen 1,705.8 billion yen 19,581.2 billion yen Paid-in Capital 689.6 billion yen 134.1 billon yen 976.3 billion yen Number of Staff 1,100 287 1,387 3 Government Reform —Background of the Integration Continuous Government Reform • 1981 - continuing • 1996 Hashimoto • 1997 Cabinet Decision on government institution reform End of High Growth in Mid-1970s • Oil crisis triggered inflation, recession and low growth stage • Fiscal deficit New Conservatism in 1980s • Inflation, unemployment, fiscal deficit, trade deficit → Marketoriented approach by US & UK governments • Political priority in Japan → Fiscal reform and government reform 4 Main Objectives and Function of DBJ Main Objectives • Enhancement of the vitality and sustainable development of Japan’s economy and society • Creation of a better quality of life for the nation’s citizens • Development of self-reliant regional economies Functions • Money bank function • Provision of medium- to long-term funds • Knowledge bank function • Assistance to projects important to national policy • Dissemination of information and knowledge 5 Loan and Investment Budget for FY 2001 Planned amount of investment and loans: 1,600 billion yen New Development Policy for Rebirth of Japan: IT Promotion, Environmental Protection, Aging Society, Business Recovery, and New Business Development Creation of Selfreliant Regions Enhancement of Quality of Life Economic Revitalization (427.2 billion yen) (883.0 billion yen) (172.0 billion yen) Development of regional social infrastructure Promotion of regional industrial orientation Environmental protection, energy, disaster preparedness and welfare measures Support for regional tieups and self-reliance Transportation/distribution networks Economic structure reform Development of new technology and business Telecommunications networks 6 Changes in Major Areas of DBJ Loans (\billion) 1955 (56) 32 45 8 14 Coal Mining Ocean Shipping 1965 (237) 39 8 6 9 Development of Technology 13 17 1985 (1,240) 6 9 12 13 7 30 9 8 Resources and Energy 6 7 6 4 Resources and Energy 11 NEF’s Regional Development 29 2 11 Others 38 Development of Telecommunications and Technology Information Network Improvement of Living Standards 14 NEF’s Regional Development 10 Improvement of Living Standards Regional Development 1995 (1,986) 26 Urban Development Ocean Shipping Others 19 14 Regional Development 1975 (873) Others Electric Power Regional Development Coal Mining 1 8 6 Improvement of Key Internationalization Improvement of Development of Transportation System Regional of Japan Development Industrial Technology Social Capital 1999 (1,555) 15 Enhancement of Quality 53 of Life Economic Revitalization Creation of Self-reliant Regions 0% 20% 23 40% 60% 3 6 NEF’s Regional Development 80% 7 100% Financial Sector Reform —Background of New Management End of High Growth in Mid-1970s • Low investment demand • From ‘savings shortage’ to ‘savings surplus’ End of Specialized Bank System • Financial sector liberalization • Collapse of long-term bank system • Financial sector big bang Change of FILP System • Stable sources of funds for Japanese government institutions • Market-based operation 8 Financial Institutions in Japan Central Bank Bank of Japan Long-term Credit Banks (3) Trust Banks (30) Private Financial Institutions Ordinary Banks: City Banks (9) Regional Banks (64+57) Foreign Banks (84) Credit Associations (386) Credit Cooperatives (291) Agricultural & Fishery Cooperatives (1,537) Insurance Companies (46) Securities Companies (228) Policy-based Financial Institutions Banks (2) [DBJ & JBIC] Government Finance Corporations (7) Notes: Figures in parentheses denote the number of institutions as of the end of March 2000. 9 Policy-based Financial Institutions in Japan Institutions New Loans (100 million yen) Loans Outstanding (FY 2000 Budget) (as of March 1999) The Development Bank of Japan (DBJ) 22,300 191,831 Japan Bank for International Coorporation (JBIC) 27,490 218,482 The Export-Import Bank of Japan - 118,656 The Overseas Economic Cooperation Fund - 99,826 Japan Finance Corporation for Small Business 25,444 74,970 National Life Finance Corporation 47,860 107,540 120,392 721,450 4,300 42,056 20,601 214,188 2,434 17,546 270,821 1,588,063 Housing Loan Corporation Agriculture, Forestry and Fisheries Finance Corporation Japan Finance Corporation for Municipal Enterprises Okinawa Development Finance Corporation Total 10 Former FILP System Postal Savings Selfmanagement Compulsory Deposit Selfmanagement Pension Premium (Welfare/National) Surplus of Special Accounts Compulsory Deposit Trust Fund Bureau Loans Government Institutions Compulsory Deposit 11 Current FILP System Since April 2001 FILP Institution Bonds Postal Savings Selfmanagement Gov. Guaranteed Bonds Capital Market FILP Pension Premium Selfmanagement Surplus of Special Accounts Bonds Compulsory Deposit FILP Special Account Government Institutions Loans Industry Investment Account Investment 12 DBJ’s New Management Transparency and Accountability • Accountability to the national citizens Maintenance of Financial Soundness • Assurance of repayment • Cost recoverable operation New Financial Tools • Project finance, Asset finance, M&A Knowledge Bank Function • Money is a part of necessary resources 13 Ensuring Operational Transparency and Accountability ‘Medium-term Policy Principles’ and ‘Investment & Finance Guidelines’ • • Management Council • • Three priority areas Disclosure of loans, debt guarantees, and investment External experts and professionals (academia, private financial institutions, mass media, etc.) Review of the status of operational performance Disclosure of Operations and Financial Conditions • • • Disclosure of financial conditions on an equal basis with that of private financial institutions Information dissemination through the annual report and the Internet Evaluation of policy effectiveness 14 Maintenance of Financial Soundness Risk Management to Maintain Sound Operations Credit Risk • Internal rating system started in FY 1999 • Self asset appraisal started in FY 2000 • External audit by independent accounting firm Market Risk Liquidity Risk and Interest Rate Risk • ALM management • Portfolio management Foreign Exchange Risk • Forex swaps 15 Strengthening the Knowledge Bank Function Knowledge Bank Function as a Highly Developed Form of Fund Supply • Main areas : new financial measures, improvement of social capital, environmental protection Project Support Activities ・Planning and implementation of projects ・New partnership between the public and private sectors ・Risk sharing Technical Assistance: International Cooperation Activities Fostering Human Resources with High Expertise 16 Appropriate Action on Policy Issues Work Management Based on Policy Matters and with a Different Role than That of Private Finance Swift Response to Medium- and Long-term Issues in Japan • • • • • Promotion of regional industries, town planning Environmental protection Improvement of social capital Support for industrial activities(IT, development of new business) Response to an aging, or maturing, society with a decreasing birthrate Active Approach to New Financial Measures • Project finance, asset finance • M&A, utilization of debt guarantee function • Response to direct finance 17