I am Kanetsugu Mike of MUFG Bank. Today, at this Board of Directors meeting, I am honored to take over from former chairman, Mr. Takashima, and assume the position of chairman of the Japanese Bankers Association. Although we are expected to face unprecedented difficulties this year, I will strive to fulfill my important duties with everyone’s support.
First and foremost, I would like to convey my heartfelt condolences to the friends and families of those who lost their lives to the COVID-19 virus. My deepest sympathy also goes out to those who have been infected, their families, and to those who are suffering uncertainty and anxiety.
Before I move on, I would like to take this opportunity to express my sincere gratitude to former chairman Mr. Takashima.
Last fiscal year proved to be a very difficult time in which to steer the industry owing to the COVID-19 outbreak that occurred earlier this year, as well as continued uncertainty in the global economy.
Nevertheless, Mr. Takashima demonstrated superior leadership in response to the wide range of challenges facing the banking sector including, of course, the COVID-19 outbreak. Again, I would like to express my profound admiration and appreciation for his outstanding efforts.
With the outbreak of COVID-19, the world, including Japan, faces tough times. Addressing this situation will be our, the banking industry’s, most urgent issue.
As the effects of the COVID-19 outbreak spill over into the real economy, I believe the banking industry’s social responsibility is to fulfil its duty to the utmost, namely, continuing to provide solid support for our customers, business partners and society through our financial services.
As we agreed at the Board of Directors meeting held last month, first, we will take measures to ensure the health and safety of our customers, employees and their families, and to establish and maintain a business continuity framework in order to prevent the further infection and spread of infection. In addition, we endeavor to avoid any severe cash flow problems by providing business management consultation services to affected customers in a thoughtful and dedicated manner. We will respond promptly, appropriately, and with flexibility to their requests for financial support, as well as their applications for necessary funding by collaborating with government-sponsored financial institutions.
Now, let us consider the current business environment surrounding the banking sector in Japan in terms of the domestic and international economies, politics, and financial systems. This year, the global economy was initially forecast to gradually shift to an upward trend, reflecting the completion of inventory adjustments by the manufacturing industry and an easing of trade conflict between the U.S. and China. However, the unforeseen COVID-19 outbreak and following crisis have had significant contractionary effects on the economy, and the current situation is extremely severe.
In Japan, it was expected that the effects of the consumption tax hike would be offset by generous policy measures. The spread of COVID-19, however, has restricted economic activities considerably, and unprecedented impacts have been observed at every turn.
On the whole, the banking sector in Japan has remained sound. In terms of the economy, however, we must use this year to prepare ourselves for a severe economic landscape resulting from the COVID-19 outbreak. Looking ahead in the medium and long term, financial institutions’ profitability continues to decline, primarily in the domestic deposit-taking and lending businesses. The reasons for this include the decrease in demand for borrowing due to declines in the population and expected growth rate, as well as the prolonged low interest rate environment.
Our top priority, therefore, is to overcome the COVID-19 crisis. At the same time, it is important to plant seeds which will help to shape the future of the Japanese economy.
Therefore, I believe that the banking sector should make full use of its role and support the economy by contributing to Japan’s growth strategy and by providing solutions to social issues while also responding to social changes, including digitalization and the increased awareness of current environmental issues
Taking into account these issues, I would like to make this fiscal year “a year in which we engage in innovation and contribute to sustainable growth and solving social issues”.
Specifically, we will work towards achieving the following “three pillars.”
The first pillar is “working towards solving economic and social issues through the provision of financial services.”
To achieve sustainable economic growth and solve various social issues in Japan, it is critical for us to offer financial services to fully address the challenges our customers encounter.
First, we will work on encouraging customers to save and accumulate assets in a long-term and stable manner in keeping with the 100-Year Life Society.
In particular, we will provide firm support for the young and working generations when it comes to accumulating and investing their assets to enable a “shift from savings to asset accumulation.” By doing this, we can use our function as financial intermediators to facilitate economic growth. Furthermore, we will actively promote initiatives that support the long-term and stable accumulation of assets by, for example, spreading awareness about the new NISA and iDeCo.
To achieve this shift where households accumulate assets in a long-term and stable manner and where a flow of funds facilitates economic growth, it is essential for each bank to implement customer-oriented business management, taking into account their respective roles. While each bank needs to undertake efforts that consider its fiduciary duties, we will also tackle common issues by enhancing services for the elderly and responding sincerely to matters related to foreign currency-denominated insurance products.
Next, with regards to SDGs and ESG initiatives and an increased awareness of current environmental issues worldwide, we will establish an action plan for promoting initiatives in response to various issues, such as sustainable financing and TCFD-related matters . We will also engage in financial and economic education initiatives to further improve financial literacy.
When it comes to contributing to regional revitalization, while related efforts will be carried out primarily by individual banks, we will encourage financing based on business valuations, such as technological capabilities and future potential. In addition, we will carry out activities to further disseminate and promote “the Guidelines on Management Guarantees”. We will ensure that the concept behind the new special rules in the Guideline, which will be effective from April 1, 2020, will be fully implemented and will contribute to smooth business succession.
The second-pillar is “establishing ‘safe,’ ‘secure’ and ‘convenient’ financial and social infrastructure in the digital age.”
As part of the financial and social infrastructure, banks serve the role of supporting customers’ economic activities and have performed this function with a high degree of safety up until now. As digital technology becomes more advanced, a variety of players have entered the market one after another. We understand that maintaining a “safe,” “secure” and “convenient” trading environment is a major challenge, and that the banking sector is expected to step up and contribute to resolving this challenge.
With this in mind, the Financial System Council has been engaging in discussions on a number of topics, including the establishment of a function-based and cross-sector financial regulatory framework. We, the banking sector, will actively facilitate positive discussions in order to create a trading environment that is highly convenient for customers.
In concrete terms, we will consider a next-generation clearing system for the Zengin System, which will be interoperable with funds transfer service providers. We will also fully address ongoing challenges, such as open API connections, digitalization of bill and check functions, and improve the efficiency of tax and public money payments.
Japan’s “My Number” system, the system whereby each individual is assigned a unique number, is expected to be put to effective use as a piece of key infrastructure in the digital society. We, the banking sector, will respond to this development in a number of ways, including assigning customers’ “My Number”s to deposit accounts, and will cooperate with the activities carried out by the government and related ministries to ensure measures are widely implemented.
Furthermore, we will actively participate in discussions about new developments in technology, such as central bank digital currencies and payments of salaries in digital money.
Finally, the third-pillar is “further improving the soundness and reliability of the financial system.”
In order to contribute to Japan’s sustainable economic growth, financial institutions must fully perform their function as financial intermediators and support their customers’ activities. For this to occur, it is essential to ensure financial stability. The financial system established in Japan has remained sound and reliable. Nevertheless, we will take appropriate measures to further improve our system.
First, with regards to money laundering measures, which are becoming increasingly demanding year by year, the fourth round of mutual evaluation reports for Japan is scheduled to be published by the FATF this year. We aim to establish a system of public-private cooperation commensurate with the international standard. As for AML/CFT measures, we will raise the industry standard by enhancing services through participating in an AI demonstration test carried out by NEDO, amongst other activities. We will also carry out measures to prevent the spread of damages through awareness activities aimed at preventing financial crimes.
Another significant challenge is responding to financial benchmark reforms, including the discontinuation of LIBOR, which is schedule to take place at the end of 2021. Given that the impact on financial markets and market participants is likely to be considerable, we recognize that this year will be an important one for addressing customer needs fully and carrying out all necessary preparations.
In terms of compliance with international financial regulations, we will continue to carry out necessary actions despite the deadline for full implementation of Basel III being postponed. In addition, addressing the market fragmentation resulting from regulations that are jurisdiction-specific and addressing climate change have become global issues. Our response to this will be to follow discussions and provide constructive opinions.
On top of this, we will continue to address issues related to public financial reforms and the privatization of postal services. To this end, we are engaging in a periodic exchange of opinions with government-sponsored financial institutions and will deepen these discussions based on the current environment. We will appropriately convey our opinions regarding the privatization of the postal services based on the progress review conducted every three years.
Lastly, I previously mentioned that this will be: “a year in which we engage in innovation and contribute to sustainable growth and solving social issues.”
To achieve this, we will first take all possible measures to weather the COVID-19 pandemic.
Even amid this crisis, we, the banking sector, will promote the use of technology and provide highly convenient services, while keeping in mind our universal role of ensuring services are “safe” and “secure”.
I believe that our overarching mission for this year is to do our utmost to contribute to Japan’s sustainable economic growth and to solving social issues.
Although I have assumed the position of chairman of the Japanese Bankers Association today, going forwards, I would like to seek the opinions of various stakeholders as they are an important part of Japan’s financial system, and to ask for their support and cooperation.
I look forward to working with you all. Thank you.