When Hiroshige Nishizawa got a job at the now-defunct Industrial Bank of Japan more than 40 years ago, the new graduate was full of ambition.
He wanted to devote himself to the country’s promising industrial future, and IBJ — the biggest of the three long-term credit banks — appeared to be the right place to spend his life. It was a time when Japan’s rapid postwar revival was just beginning.
“What I thought at that time was, if I joined IBJ, I could work close to industries,” said Nishizawa, who liked to visit factories as a college student.
The country’s industrial landscape has changed drastically over the 60 years since World War II. And the banking industry and its role in the economy have changed as well.
In the early postwar era, banks helped spur Japan’s rapid economic growth by financing government-backed projects and industries. Today, however, they are being forced to review that focus on corporate financing and face up to the new challenges being posed by severe global competition, experts and industry insiders say.
IBJ’s fate is typical in the history of the banking industry. In 2002, the bank itself merged with two commercial banks — Dai-ichi Kangyo Bank and Fuji Bank — and became part of Mizuho Financial Group, one of the four megabanking groups.
“Long-term credit banks have finished their role of extending long-term loans. Their mission originated from the social demand at that time and the historical background,” said Nishizawa, who was a high-ranking executive at IBJ and is now chairman of Tokyo Tomin Bank.
The nation’s other two long-term credit banks also changed in the last decade. Long-Term Credit Bank of Japan failed in 1998 and was bought in 2000 by U.S. private equity fund Ripplewood Holdings LLC to become Shinsei Bank. Nippon Credit Bank failed in 1998 and was later reborn as Aozora Bank under U.S. investment fund Cerberus Group.
During the war, IBJ, established by the government in 1902 as a special-purpose bank to support heavy industries, served as a major financial resource for war-related industries, said Tetsuji Okazaki, an economics professor at the University of Tokyo.
The companies funded by IBJ included Nakajima Aircraft Co., which built combat aircraft and engines. Part of it later became transportation equipment maker Fuji Heavy Industries.
Immediately after Japan’s defeat and the ensuing dissolution of the zaibatsu created in the prewar period, no one except long-term credit banks had enough wealth to undertake long-term risks for corporate financing, Okazaki said.
Because the government allowed long-term credit banks to issue bank debentures to raise funds and extended long-term loans to firms, their funding was more stable than that of commercial banks, because the government and other banks bought such debentures.
At that time, the source of commercial bank finances was mainly bank savings.
“IBJ had knowhow, human resources, and a good judge of companies. The country expected much from us, and we did a good job. Things were in a good circle,” said Tokyo Tomin’s Nishizawa.
For example, IBJ financed Nippon Steel Corp.’s iron and steel complexes and the facilities of Nissan Motor Co., as well as projects that include a petroleum complex in Yotsukaichi, Mie Prefecture.
The banking sector, led by IBJ, provided ample funds for government-focused industries — electricity, coal, iron and steel, and shipping. The total amount of all banks’ financing for such industries accounted for almost 60 percent of all kinds of financing until the mid-1950s.
Meanwhile, commercial banks played a significant role in building “Japan Inc.” by providing funds to fledgling manufacturers in the early postwar period. Thanks to bank loans at that time, some firms have grown into world-leading companies.
The introduction of the Dodge Line, a series of financial measures designed to control the inflation that gripped Japan during the years immediately following the war, triggered a minor recession, and nearly 1,100 companies — mostly manufacturers — reportedly went bankrupt between 1949 and 1950.
Toyota Motor Corp., now the world’s No. 2 automaker, was also on the verge of bankruptcy at the time. Faced with a serious financial crisis, Toyota needed to secure 200 million yen in loans by the end of 1949.
That was the time when the Bank of Japan urged Teikoku Bank, which later became Mitsui Bank, now part of Sumitomo Mitsui Financial Group, and Tokai Bank, now part of the UFJ group, to organize a syndicated loan for Toyota.
Thanks to a syndicated loan provided by 24 financial institutions, the automaker managed to survive its darkest period.
“It’s the important part of the company’s history, and that story has been passed on till today,” a Toyota spokesman said.
Mitsui Bank also supported global entertainment firm Sony Corp., which was born in 1949.
Even after the zaibatsu were dissolved, banks created by those conglomerates continued to prioritize companies that used to belong to the same combines and gave loans to them.
“We were a startup firm at that time, and banks gave us the cold shoulder. Since we didn’t come from zaibatsu, we couldn’t get support from zaibatsu-related banks, either,” said Tamotsu Iba, a corporate adviser at Sony who joined the firm in 1959 and served as chief financial officer from 1995 to 1999.
Mitsui Bank took a different approach.
Trusting the late Masaru Ibuka, the legendary cofounder of Sony, and thinking the company had potential, the bank decided to lend to Sony, Iba said.
Since that time, the relationship between industry and the banking sector has changed greatly.
Unlike the old days, companies no longer rely heavily on bank loans because capital markets have grown rapidly to become a major source of fundraising, banking experts say.
According to Bank of Japan data, between 1951 and 1975, more than 30 percent of the major firms funds came from bank loans, but that ratio slipped to 8 percent between 1986 and 1990.
Meanwhile, banks were forced to learn some tough lessons from the collapse of the bubble economy in the late 1980s, and are only now reprising their original roles, Sony’s Iba said.
Before and during the bubble, banks relied too much on collateral to secure loans. But that practice was hit hard, he said. This has made it particularly tough on Japan’s entrepreneurs.
“Banks changed through the burst of the bubble. Up until then, the stance had been really tough for startup firms,” Iba said. “After experiencing the postbubble recession, they started to think it’s necessary to nurture startups.”
Banks have also started to focus on retail banking to lure more individual customers.
The Mitsubishi Tokyo Financial Group Inc. has opened eight new MTFG Plaza complexes in Tokyo and other major cities in Japan over the past year. The plazas combine banks, brokerages and other companies providing financial services into one place for customer convenience.
“Banks have their own role and it will remain as it is. It is to extend loans to small firms or business owners who are not able to raise funds in capital markets,” University of Tokyo’s Okazaki said. “I think those who have knowhow in financing them will survive in the future.”
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