I am Koji Fujiwara from Mizuho Bank. I have been appointed to succeed Mr. Hirano as chairman of the Japanese Bankers Association from April. I am committed to assume this important role for the next one year and would greatly appreciate your cooperation and support.
Before giving my inaugural message, I would like to take this opportunity to extend my appreciation to the former chairman Mr. Hirano. With his strong leadership, Mr. Hirano has led the industry and tackled a wide range of issues. I would like to express my sincere respect and gratitude toward him. Thank you very much.
Japanese economy after the bubble burst is often referred to by negative expressions, such as "the lost two decades." On the other hand, new trends have emerged in the last 20 years, including structural changes of the economy and society as well as advances in digital technology. If we can capitalize on these changes, we will be able to reinvigorate Japan in the coming 10 or 20 years, and I strongly believe that there is something that the banking sector can do now to contribute this.
Recognizing such signs of a coming new era, today, I would like to express my intentions as chairman.
Looking at domestic and global economic environments, U.S. economy has been strong as the tax reform stimulated consumption and investment while EU economy continues to be in a recovery phase owing to increased consumption attributable to an increase in employment. The current state of Chinese economy appears to be steady supported by external demand and consumption despite adjustments are expected to be made in response to regulatory enhancements. Japanese economy has been steady from macroeconomic perspectives, with the policies taking effects firmly.
On the other hand, we need to remain paying attention to our situation that we are facing various uncertainties, such as the risk of repercussions of the "Goldilocks market," U.S.’s commitment to protectionist trade, including restrictions on import of steel and aluminum, and continued geopolitical risks. And Japan may experience a prolonged negative interest rate policy.
In addition to these cyclical movements in the macroeconomic situation, major structural changes, sometimes referred to as crustal movements, are gradually occurring across the globe. I would like to raise three points as a trend of a new era.
The first point is the world population ageing. The percentage of elderly people in the world's total population will increase dramatically in the future. In developed countries in particular, it is said that the percentage will reach 27% in 2060 from 17% in 2015. Against this backdrop, new needs of elderly people are starting to develop in all areas, such as consumption, housing, services and finance.
The second point is irreversible changes in the society arising from digitization, namely, the development of the digital economy. With rapid digitization as symbolized by the expressions such as Industry 4.0 and Society 5.0, convenience has enhanced drastically and productivity is starting to improve as well. On the other hand, new issues have emerged, such as cybersecurity, information sovereignty and information disparity.
The third point is accelerated global movements in flow. As people, goods, capital and information move around the globe at an unprecedented scale and speed, cross-border cooperation and rule-making initiatives, such as TPP11 and Japan-Europe EPA, are underway.
At the other extreme, protectionist movements have been seen in recent years against the backdrop of trade imbalances, widening inequality and opposition to immigrant inflows.
In addition, as the society matures, its awareness of climate change, natural disasters, inequality and other issues is rising. Efforts to address these issues have expanded from the government level to involve all people, including the private sector, and there is a need for initiatives to "harmonize society, economy and the environment" on a global scale.
In light of these trends of a new era, Japan needs to work on structural and social challenges.
I would like to talk about two of such challenges.
The first challenge to address is declining birthrate, aging population and decreasing population.
There are four specific points to discuss in this respect. The first point is to extend the wealth span in line with increasing health span. While the average life expectancy of Japanese people is currently in the 80s, children who are now 10 years old are said to live until 107 years old on average. The fact that the life expectancy is increasing is, of course, something we should feel pleased about, but at the same time, it is becoming increasingly important to extend the wealth span as we enter into an era in which people live for 100 years.
The second point is succession measures of SMEs. SMEs are expected to be the driving force for Japan’s economy at a regional and national level. With the ageing of society, however, their succession measures are becoming a serious issue that requires an immediate action. In fact, survey results have revealed that around half of SMEs which exited the business due to the lack of successors had high productivity and were also profitable.
The third point is regional revitalization. While persistent efforts have been undertaken to revitalize the regional economy, it is required to establish a virtuous cycle in which "jobs" attract "people" and "people" invite "jobs" as well as to integrate and revitalize “cities” by utilizing vacant houses.
The last point is a need for seamless, high-quality education in order to realize a society in which all generations can play an active role.
The second challenge which Japan is facing is to improve productivity and enhance earning power. Unfortunately, Japan’s ranking in the World Economic Forum's global competitiveness report has dropped for three consecutive years. In addition, Japan ranks 20 out of 35 OECD member countries in terms of labor productivity measured as nominal value added per hour, which is not considered to be a high ranking.
Nonetheless, I strongly feel that Japan has potential for growth because feedback from companies indicates that business performance is in very good condition at the moment. Now is the time when we must further enhance the strengths of Japanese companies by investing in the future, reforming governance frameworks or taking other actions.
As mentioned so far, we are in a major transitional period in all aspects, from technological evolution to changes in social structures such as demographic trends and accompanying changes in needs and values.
Amid such a situation, expectations for banks are increasing and diversifying. Peter Drucker and Eiichi Shibusawa once defined "business" as "an entity that exists to undertake social challenges and provide benefits to society." As the world changes, I believe that responding to society's needs is in itself banks’ raison d'etre.
In this view, JBA will regard this fiscal year as "a year in which JBA contributes to providing solutions addressing social challenges in the transitional period." Through our efforts to solve a variety of issues, customers will firmly feel trust in, and presence of, banks; that is what we hope to achieve in this year.
More specifically, we will take actions in accordance with the three pillars which I am about to explain.
The first pillar is “proactively engaging in providing solutions to social challenges” by making the most of financial services.
Our initiatives should not be finance for the sake of finance. That is to say, we need to first provide financial services in order to solve customers' problems, and earnings as the financial business will follow as a result. That should be an appropriate order.
There are three primary points for the first pillar. The first is to support the asset formation and asset utilization for each and every citizen, particularly to expand investment activities by the younger generation in preparation for the future, or to enhance financial support for the elderly. In other words, we should aim for a customer-oriented business operation for all generations.
Specifically, we will broadly encourage the younger generation who are unfamiliar with investments to engage in asset formation by promoting the diffusion of the installment-type NISA and other initiatives, and at the same time will provide financial services suited to the needs of elderly customers. In addition, we will pay due attention to actions to be taken when the Civil Code is amended to lower the age of adults.
Furthermore, we will actively provide financial and economic education in order to improve the so-called financial literacy. From the perspective of providing financial services appropriate to customers’ situations, we will continue to thoroughly conduct customer-oriented business operations also with respect to banks’ credit card loans and apartment loans by utilizing, for example, credit information agencies and the program for voluntary restriction on borrowings.
The second point of the first pillar is the "revival of strong Japan" by improving productivity. The key to this is succession measures of SMEs and other small businesses. There are about 2.45 million proprietors of SMEs and microbusinesses reaching 70 years old by 2025, and it is said that about half of them have not determined their successors yet. We will accelerate support for smooth business succession by capitalizing on, among other things, the expansion of the business succession taxation. Also, providing the necessary funds in the form of "loans offered based on business valuation and do not rely on collateral/guarantees" under a thorough understanding of the business nature of companies is an area in which banks can demonstrate their strengths for regional revitalization and other purposes. We would like to tackle this issue in cooperation with external agencies, local governments and private-sector companies.
In addition, we will also encourage investments in the future by exercising a "complex financial intermediation function" that makes full use of the fund supplying and consulting function in accordance with the life cycle.
The third point of the first pillar is sustainable development of the economy and society after the challenges are solved. As awareness of the United Nation's sustainable development goals called SDGs is rising, the movement toward SDGs is spreading across various regions and businesses. For example, Shimokawa Town in Hokkaido is promoting a compact town project which is based on heat-supplying systems using biomass feedstocks. Last month, JBA published “Japanese Bankers Association’s framework and key initiatives for achieving the UN Sustainable Development Goals.” Each bank intends to proactively respond to society's requests, such as strengthening of disclosure relating to climate change.
With respect to recovery from earthquakes and other natural disasters, continuous efforts are necessary, and we intend to continue our full efforts to support the self-reliance of those people affected by the earthquakes and the disasters as well as business reconstruction.
The second pillar is "promoting the establishment of financial and digital infrastructure."
With a strong awareness that finance is an important element of the social system, we aim to build a platform that is “safe and secure” and convenient for all users. This is intended to ensure that, even if services change in form, the underlying "safety and security" remains unchanged, and also to pursue convenience for all users in the process of evolution of services.
I believe that providing continued “safety and security” is critical. As digitization is taking place in all kinds of fields, we will make constant efforts to strengthen cyber security and enhance our capabilities to respond to relevant incidents, and will also work to improve the effectiveness of BCPs. Addressing the increasing number of crimes arising from digitization and changes in their ways is also a major issue. With respect to anti-money laundering and counter financing of terrorism, the fourth round of mutual evaluations for Japan by the FATF is scheduled in 2019. The public and private sectors should respond to this firmly to ensure that Japan's framework will be internationally approved. In addition, we will also continue our efforts to thoroughly eradicate financial crimes and eliminate relations with anti-social forces.
Provided that "safety and security” are ensured in this way, we will then pursue convenience for all users by using innovative technologies as well. In addition to Fintech initiatives carried out by individual banks, JBA will further work on our initiative to enhance the payment system and promote cashless payment system. For example, the operating time of the Zengin System could be extended to run 24/365 to enable real-time payments even during the night and on holidays. I have heard that it is taking 140 hours per month for some companies to reconcile accounts receivables. With the initiation of the operation of the Zengin EDI System, we intend to improve efficiency of such settlement processes for business operators including SMEs.
So as to realize such enhanced services, we will rely not only on industry-level initiatives such as the use of the “JBA Collaborative Blockchain Platform,” but also count on cross-industry approaches such as the expansion of open innovation through promoting the use of open APIs. We will also consider digitalizing bills and checks, including promotion of the use of the Densai system, which is a means of settlement for electronically recorded monetary claims, improving the efficiency of tax and public money payments and utilizing settlement data and other data in the financial sector.
The third pillar is "establishing a sound and robust financial system."
In order to implement the first and second pillars, the financial system itself must remain sound and robust. To this end, we must steadily undertake initiatives to ensure compliance with relevant regulations and regimes and also have to transform our business models into a sustainable one.
As the direction of post-Lehman financial regulatory reforms has finally been determined, we will keep working on the establishment of necessary frameworks for the stability of the financial system.
From the viewpoint of pursuing total optimization of the financial system, I believe that the positioning of financing by public financial institutions, consideration for developing function-by-function and cross-sectional financial regulations as various types of companies are entering the financial business, the possibility of discontinuing LIBOR and interest rate benchmark reforms are extremely important issues. Banks will provide constructive opinions as a party concerned in these respects.
Furthermore, we will steadily work on the utilization of Individual Numbers so called “My Number” and dormant deposits and initiatives to ensure compliance with applicable laws and systems. With regard to corporate governance reforms, while discussions are underway to realize "evolution from form to substance," the banking sector will also take measures in light of actual practice of each bank.
Finally, the most important thing is for banks ourselves to change. Darwin once said: “It is not the strongest of the species that survives, nor the most intelligent that survives. It is the one that is most adaptable to change." In this rapidly changing era, banks must boldly take on the challenge of transforming our business models under which banks ourselves will drive changes toward sustainable growth. Otherwise, what we aim to achieve through the three pillars that I have just mentioned cannot be accomplished.
We want to be, and must be, the "best partner to solve challenges" for our customers and society. I believe that it is the "banks’ pride.”
I hope that all of us will join forces to open up a new era for the bright future of Japan and the rest of the world, and once again would appreciate your support and cooperation during this year. Thank you for your attention.