Japanese banks' interest rates on loans should better reflect borrower creditworthiness to mitigate against the risk of borrowers going under, a powerful business lobby said in a report Wednesday.
The report on financial system reforms, compiled by the Japan Association of Corporate Executives (Keizai Doyukai), says corporate borrowers should also broaden their financial resources beyond bank borrowings.
Japan's unlimited guarantee on some bank deposits poses a moral hazard, preventing banks from reducing their risks and pursuing new businesses, the report says. The easy injection of public money into failed banks raises the same problems, it adds.
Junichi Ujiie, chairman of Nomura Holdings Inc. and head of the association's financial reform committee, pointed out during a news conference that Japanese firms rely too much on bank borrowings when they raise funds.
As of the end of fiscal 2002, borrowings from banks accounted for 71 percent of all debts created by Japanese firms.
Such a high bank-borrowing rate stems from the conventional business custom of banks building long and close relations with corporate clients and extending interest rates not in line with their credit risks.
Companies have few options for raising funds other than bank borrowings and the issuance of stock.
Keizai Doyukai said other fundraising means should be developed in Japan's financial markets, including large-scale loans extended by a group of banks, or syndicated loans; paper collateralized by assets, or asset-backed securities; and financial instruments to trade corporate credit risks, or credit derivatives, the report says.
The ABS market amounted at 334 trillion yen in the United States in 2002, while the scale of the Japanese market was only 5 trillion yen in the same year, it says.