Chairman’s Inaugural Address

　I am TAKASHIMA Makoto of Sumitomo Mitsui Banking Corporation. I am honored to take over the chairmanship of the Japanese Bankers Association (the “JBA”) from the former Chairman, Mr. Mike. I will do my utmost to fulfil this crucial role.

　First, I would like to convey my heartfelt condolences to those who lost their lives to COVID-19 and to those individuals affected by the torrential rain that has wreaked havoc throughout the country since the beginning of July.

　Before I share my vision, I would like to take this opportunity to express my sincere gratitude to Mr. Mike.

　When I passed the JBA chairmanship to Mr. Mike last April, Japan was on the verge of a national COVID-19 outbreak. On April 7, immediately after he assumed the chairmanship, the government declared the first national state of emergency due to the COVID-19 pandemic. Our country’s society and economy swiftly moved into crisis mode and the government was repeatedly forced to place restrictions on economic activities as part of efforts to contain COVID-19.

　Mr. Mike devoted himself to responding to the crisis and worked tirelessly to support clients affected by the COVID-19 pandemic while striving to maintain the functions of Japan’s financial infrastructure which underpins our daily lives and economic activities.

　Mr. Mike also demonstrated superior leadership in driving the banking sector to address a wide-range of issues, including those related to payment services and financial infrastructure, social issues such as climate change and the aging society, and the review of regulations by the Financial System Council. I would like to express my deepest respect and appreciation to Mr. Mike for his dedication and energy.

　Now, I will touch on the environment surrounding Japan’s banking sector. Briefly speaking, the global economy has become increasingly polarized. The U.S. is experiencing a strong recovery thanks to the expanding vaccination rollout and the effect of multiple economic stimulus packages. China has also achieved a V-shaped recovery. The economic recovery of emerging markets however is taking more time, partly due to delays in vaccination rollouts. Looking ahead, while the global economy as a whole is expected to maintain its path of recovery, the pace of that recovery will differ by county and region. In other words, we will continue to witness a K-shaped recovery.

　In such a global backdrop, the recovery of Japan’s economy has been an inconsistent one. While production activities in the manufacturing sector have recovered as exports grew due to the global economy’s recovery,   consumer spending has been slow to recover due to prolonged activity-restrictions. As a result, the hospitality industry and other industries that are based on client facing services remain under a challenging business environment. Future projections are highly dependent on how well we are able to control COVID-19 and thus involves a high degree of uncertainty, as evidenced by the fact that a renewed state of emergency for Tokyo came into this week and that the majority of the Tokyo Olympic Games will be held without spectators.

　Nonetheless, with the progress in the vaccination rollout, the path towards the normalization of economic activities is becoming clearer, albeit gradually. Furthermore, a number of companies have announced robust business results by capturing opportunities arising from stay-at-home consumption.

　With such circumstances in mind, I would like to position this fiscal year　as “The year in which we support Japan to overcome the current crisis and establish a new, revitalized society and economy.”

　I believe that this fiscal year will prove to be a critical milestone for our society and economy. For example, the revitalization and restructuring of our customers’ businesses affected by the COVID-19 crisis is a critical challenge that must be addressed immediately. In anticipation of the “New Normal,” we also need to further accelerate our initiatives to address issues such as digitalization, business model transformation, and carbon neutrality. I believe that the shape of our society and economy in the post-COVID-19 world will in many aspects require discontinuous change.

　Given such an environment, the banking sector must take actions with a strong sense of urgency and responsibility in light of the next phase of transformation.

　To this end, the JBA will base its activities on the following three pillars this fiscal year.

　The first pillar is “Initiatives to solve economic and social issues.”

　The COVID-19 crisis has not only caused immediate issues, such as declining sales, liquidity concerns, the need for business revitalization, it has also shed light on the structural issues facing our country’s society and economy. For example, the delay in the digitalization of Japanese society has proved to be a major constraint on social and economic activities during the COVID-19 crisis. Companies whose productivity and profitability have declined due to Japan’s dwindling working-age population are now under pressure to undertake a drastic restructuring of their respective business models.

　At the same time, the COVID-19 crisis has prompted us to confront issues that have long been postponed, such as business succession and inheritance planning. COVID-19 also encouraged the global community to look ahead to a post-COVID-19 world and accelerate its efforts to address carbon neutrality and other climate change-related issues.

　Given that such social and economic issues have come to surface, the JBA will adopt an even more proactive and self-driven approach so that the banking sector can fulfil a key role in the resolution of these issues. Such efforts will include issuing opinions and holding discussions with the relevant authorities concerning the review of regulations or revitalization packages, and supporting member banks resolve issues which they are facing.

　The second pillar is “The development of financial infrastructure that meets the needs of the digital age.”

　The JBA has focused its efforts on initiatives which address the needs of society as financial services become digitized and support the digital transformation of its member banks. Now, the momentum towards digitalization is increasing even in areas where digitalization has traditionally had trouble gaining traction due to various constraints and issues, including existing business practices and a wide array of stakeholders. This momentum is being driven by changes in behavioral patterns and mindsets, as well as by governmental support, and targets issues such as the complete digitalization of bill and check functions, enhanced efficiency in tax and public utility payments, and the promotion of financial EDI (electronic data interchange) use.

　On the other hand, we also need to be fully aware that digitalization entails threats to “security and safety” (as we can see in the issues of fraudulent remittances, cybersecurity, and third-party risk), in addition to the necessity of extending proper care to aged persons and other so-called digitally vulnerable groups.

　Digitalization is a challenging task that requires a two-pronged approach. This is why we need to commit ourselves to establishing financial infrastructure that meets the needs of the digital age. The JBA will redouble its efforts to work on this challenge while closely coordinating with its member banks.

　The third pillar is “Building a sound and resilient financial system.”

　This fiscal year is a major milestone with respect to addressing issues facing the financial system. For example, the draft regulation concerning the full implementation of Basel III in Japan is scheduled to be released, and a new funding target of the deposit insurance system will be discussed as the actuarial reserve has almost reached its initial target of JPY five trillion.

　The discontinuation of LIBOR will finally take effect at the end of December 2021. In August, the FATF’s Fourth Mutual Evaluation Report on Japan is expected to be released.

　Furthermore, addressing new concepts and frameworks such as climate change risk and operational resilience are becoming significant themes.

　In an age where the environment surrounding the financial business is undergoing drastic and rapid change, it is inadequate for a financial system to merely be strong and sound. A financial system must also possess resilience that allows it to withstand the stress brought about those changes. In order to build a sound and resilient financial system, the banking sector cannot only undertake self-driven efforts to realize transformation and enhance resilience, it must also proactively communicate with relevant stakeholders and support the efforts of member banks.

　I stated earlier that I want to make this fiscal year “The year in which we support Japan to overcome the current crisis and establish a new, revitalized society and economy.” This fiscal year contains numerous important issues, but as the entire country enters a critical stage of its history, I will work with JBA member banks to drive forward efforts to help the banking sector fulfill its social responsibilities and support Japan’s society and economy.