Japan’s so-called Big Bang financial reform is a long time in coming, but foreign financial institutions are well prepared to meet the challenge, according to the head of the Tokyo office of ING Barings Securities Japan.
Branch manager Rike Wootten said in a recent interview that he expects the Big Bang — a sweeping effort to bring Tokyo’s financial and capital markets closer to global standards — to create a more competitive market for deposits in the years ahead. Wootten, who assumed his post in September, noted that while some additional reform measures could be taken, such as those that would enhance faster approval for new financial products, on the whole the Big Bang is “a very welcome event.”
“I think in the course of the next several years we are likely to see substantially more competition coming from foreign (brokerage) houses” in the Japanese market thanks to the deregulation thrust, he said. Foreign financial institutions have steadily expanded their business in Japan, especially over the past few years, despite infamously high costs for office space and personnel as well as strict regulations.
According to the Big Bang deregulation proposals outlined by three advisory panels to the finance minister in mid-June, various reforms will be undertaken in the coming years to erase the lines demarcating the three different business areas in the financial world, namely banking, insurance and securities. This Big Bang and the probable realignment of the domestic financial industry to follow it are seen by many observers as a huge chance for non-Japanese institutions to get a big slice of the pie.
London-based ING Barings was formed through the acquisition of the merchant bank Barings by the Dutch financial services conglomerate ING Group in March 1995. The firm has extensive operations in such emerging markets as those of Latin America and Central Europe.
Wootten explained that in a highly competitive market like the one expected to emerge after deregulation takes effect, the key is to be more creative and to offer products rivals cannot. “In terms of ourselves, I think we have a great deal of innovative products. Our specialty, which we’re known worldwide for, is our emerging market strength, and that is one thing you are going to find will be even more popular in Japan” in the future, he said.
The Big Bang, Finance Ministry officials say, will breathe new life into markets here and draw investors and foreign financial institutions back to the estimated 1.2 quadrillion yen in personal assets waiting to be tapped.
In Japan, roughly 88 percent of that figure is held in the form of indirect financial instruments, such as trusts, deposits, and life insurance. A contrasting example is the United States, which holds only about 57 percent of $18 trillion in personal financial assets in indirect financial products. The remaining 43 percent is bonds, securities, and investment trusts.
“Anytime you’re dealing with $10 trillion, $11 trillion in individual assets (as with Japan), the effort is definitely worth it,” Wootten said, adding that the range of products that could be offered after the Big Bang would be almost endless.
In May, ING Barings Securities became the first brokerage to receive authorization from the Finance Ministry to repackage nonperforming loans as a step to allow greater liquidity in that market. Wootten called the license a big step forward for a securities firm, adding that it could take advantage of the business opportunities that exist in Japan even now.