Consumer credit in Japan
In their search for loan growth, foreign and domestic banks have begun to tap the largely ignored consumer credit market.
In the nation's high-growth era, city banks concentrated on lending to major corporations. With a shortage of capital anyway, consumer credit was not considered an attractive market. Consumer loans - excluding mortgages - presently make up only 3 percent of bank lending.
There was, however, a need for some consumer credit, and what amounted to loan sharks cropped up. There are about 40,000 of these so-called sarakin institutions. Recent reforms dropped maximum interest rates from 109 percent to 73 percent annually.
City banks, with their traditional clients obtaining funds elsewhere, are beginning to see more potential in consumer loans. However Japan doesn't have a tradition of revolving credit. Although Japan has had bank cards for years, consumers had to pay off card balances by the end of the month.
This changed when the Ministry of International Trade and Industry, which regulates consumer finance, allowed revolving credit in 1992. Visa and MasterCard have franchises in Japan, but the biggest credit card company is called JCB. This is run by Sanwa Bank with other banks participating.
Another form of consumer loans, home mortgages, is dominated by the government's Housing Loan Corporation. This company issues 35 percent of Japan's mortgages at favorable, subsidized rates. Funds come from the Postal Savings system. There are eight other home finance companies established by banks, but because of the drop in property values, almost all these firms are doing poorly.