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Shinsei Bank Ltd., the lender partly owned by J. Christopher Flowers, said it may expand lending by providing credit to people who reach their borrowing limits at consumer finance firms.

“We may provide loans to customers who exceeded the limit by conducting tighter screening,” Masayuki Nankouin, the head of the bank’s consumer finance business, said in an interview in Tokyo on Tuesday.

Shinsei will transfer its personal finance business to the bank from a subsidiary in October, the Tokyo-based bank said in June, avoiding regulations that only apply to consumer lenders. By making unsecured consumer loans directly, banks like Shinsei may create an additional ¥3 trillion in loan demand, according to Morgan Stanley MUFG Securities Ltd.

“As a bank, we will be able to cultivate new customers,” Nankouin said. “If we continue to operate the business through a subsidiary, we would only be able to tap into our existing consumer finance customers.”

A government crackdown on consumer financing since 2006 forced companies including Promise Co. and Acom Co. to cap loan charges and repay overcharged interest, shrinking the industry and sending Takefuji Corp. into bankruptcy last September. Legislation passed last year restricts lending by consumer finance firms to a third of a borrower’s annual income.

Shinsei is aiming to expand lending in a country where loans outstanding have shrunk for 19 straight months. Deflation has encouraged households and businesses to hoard cash rather than borrow, and banks have been reluctant to lend to people who previously relied on consumer lenders for credit.

To market the new service, Shinsei is considering airing TV commercials during the “golden time” from 7 to 10 p.m., a practice that consumer lenders are barred from pursuing under the money lending law, Nankouin said. It will also send direct mail to account holders aged 40 or younger.

The bank aims to boost the number of new consumer-loan customers to as much as 180,000 annually in four to five years from about 100,000 now, he said.

Shinsei, which has been running its consumer lending business through its Shinsei Financial Co. unit under the Lake brand, will be able to increase loans once it transfers the operations to the bank in October, according to Graeme Knowd, an analyst at Morgan Stanley MUFG in Tokyo.

“The probability that Shinsei will succeed in growing loans outstanding is high, as they have room to increase the approval rate,” Knowd wrote in a July 27 note, beginning coverage of the stock at “overweight.” His colleague, Hideyasu Ban, wrote on the same day that there’s a ¥3 trillion untapped consumer loan market up for grabs. The size of the entire market stood at ¥16.2 trillion as of March 2010 and may shrink to ¥12.5 trillion by March 2014 unless newcomers enter the market to create demand, according to Ban.

Shinsei shares have risen 21 percent since it announced the move on June 22. Net income climbed 31 percent to ¥18.2 billion in the three months that ended on June 30 from a year earlier as bad-loan costs declined, the bank said on July 28.

Nankouin said Shinsei will be careful to avoid borrowers’ debts piling up when it rolls out the lending service.

“The fact that there’s no regulation doesn’t mean we can do anything, given the significance of the banking license system,” he said. “The major premise is preventing customers from incurring multiple liabilities.”

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