Relatively High Interest Rates for Okinawa Companies: A quantitative analysis by means of a nationwide comparison

Loan interest rates in Okinawa remain approximately 1 percentage point above than the national average. In this paper, I use large quantities of corporate financial data derived nationwide (500,000-900,000 samples per year) to examine the background of this situation. First, by aggregating companies' borrowing interest rates region by region, it was possible to identify major regional disparities over the six-year period that was examined. These disparities could not be explained by considering individual corporate financial situations (e.g., credit risk, funds demand), leading me to conclude that the loan market is segmented regionally and that the economic and financial environment in Okinawa affects interest rates. With regard to specific environmental factors, variables that show what the economic and financial environment is - for example, the number of banks operating in each region (the larger the number, the lower the interest rates) and the proportion of lending within a region that is accounted for by city banks (the larger the share, the lower the interest rates) - have an impact throughout Japan, and in Okinawa there is a general tendency for lenders to react to financial data and other factors that increase credit risk in a way that raises interest rates to a greater extent than in Japan as a whole.



The high interest rates in Okinawa can largely be explained by these environmental factors (Okinawa has the smallest number of banks in the country and the third lowest proportion of lending by city banks) and by Okinawa's distinctive characteristics.