The Financial Services Agency is said to be shifting the focus of its inspection of regional banks from checking the conditions of their assets — such as their moves to cut nonperforming loans — to examining how the banks are engaged in supporting local companies in their business turnaround efforts. It is a positive development that should encourage the banks to serve their foremost mission as financial institutions — to help fund promising business projects and revive struggling regional economies.
Since the inception of its predecessor in 1998 — in the middle of the post-bubble boom crisis that swept Japan's financial industry — the biggest concern of the FSA has been to restore health of financial institutions by reducing the massive load of nonperforming loans to their clients.
That has been manifested in the manual that FSA inspectors long cherished in their routine checkup of regional banks. In accordance with the manual that set a detailed check list of items to be examined under uniform standards, such as the ratio of nonperforming loans to each bank's overall lending, the inspectors reportedly focused on appraising the latest business performance of the bank's client firms and how much collateral the bank has secured against its lending to the firms. Any concern over a client's near-term prospects triggered calls on the bank to ask for repayment of the principal, and the banks are said to have responded by seizing the properties put up as collateral.