The Growing Presence of Japanese Non-Banks in Asia

Masaki Masuda

Summary

Japanese non-banks are becoming increasingly active in Asia as they expand their customer base beyond Japanese affiliates to local companies and consumers. The status of leasing markets in Asia varies depending on the implementation of laws and such， but further growth in demand is predicted against a backdrop of high economic growth rates as a means of procuring facilities. Local growth-oriented companies are particularly active in leasing due to a scarcity of collateral.
While definitions of leasing vary by country due to differences in tax and accounting practices， the most common form of leasing is finance leasing. In Thailand， tax reform in 1992 enhanced the advantages of leasing， lending to a seven-fold increase in the lease market in the two-year period from 1991 to 1993. Because Singapore provides no tax advantages for leasing， installment contracts are more common than leases. In Indonesia， leasing is a legal gray area. Not only is sales & lease back allowed (unlike Japan)， there are no prescribed payment methods for leasing fees， making it possible to increase tax deferrment. As users gradually become accustomed to these advantages， the nation's lease market is growing rapidly.
With the rapid growth of the middle income class in East Asia， more Japanese non-banks are extending personal loans， especially car loans. Whereas new car demand used to be limited to the corporate sector and an affluent class of customers， the market has spread further to the managerial and the salaried class. Since car prices remain high， car loans have spread and the consumer credit market is expanding. Most car loans in Asia take the form of "hire purchase，" where a credit company actually buys and then rents the desired car to the customer. In addition， since the creditor retains possession of the automobile inspection certificate， the car serves as movable collateral until the loan is fully repaid.
In rapidly motorizing Thailand， approximately half of new car buyers take out car loans. The automobile market in Indonesia increased by 2.3 times in the two-year period from 1992 to 1994. In Singapore， car ownership quotas have made the price of private passenger cars four times higher than in Japan and prompted the widespread use of car loans.
A comparison of Japanese and local non-banks in the car loan business reveals that:
(1) Japanese non-banks can obtain low-cost funds from Japanese banks， and are expanding their outstanding loans by offering lower interest rates;
(2) while local non-banks charge higher interest rates， they have a rich customer base and personal data due to long-established ties to the community.
Deficiencies in the regulatory framework for leasing and consumer finance are being rectified. While this may impede some business activities， it will on the whole promote the sound development of the market. With demand expected to increase for new financial services such as factoring and card businesses， the entry of both domestic and foreign companies into new growth areas will stimulate further competition.
The main goal for Japanese non-banks is to expand their local customer base. To do so while limiting bad loans， they will need to upgrade their sales system by expanding their sales base， and enhance their management of customer creditworthiness. Furthermore， they will need to diversify fund procurement methods as well as business lines， improve business efficiency and train personnel， and establish a stable business foundation. Japanese non-banks must not only seek to grow in size， but to develop a niche strategy that separates them from local companies to prosper in the long term.