How Did Financial Institutions Use Credit Guarantees under the Shared Responsibility System? : Analysis based on the Questionnaire Survey of Branch Managers of Regional Financial Institutions

A significant feature of the revision of the credit guarantee system that began in April 2018 is that financial institutions are strongly encouraged to lend money to customers that had not secured credit guarantees through credit guarantee organizations (to provide so-called "proper loans"). The underlying concern which necessitated this revision was that financial institutions might not thoroughly screen and sufficiently support borrowers if the credit guarantee corporations guaranteed the loan. This paper uses the "Survey on the Current Situation and Challenges of Regional Finance toward Regional Revitalization" conducted by the Research Institute of Economy, Trade and Industry (RIETI) in January 2017 to confirm the appropriateness of these concerns. According to the survey, while 60% of branch managers of regional financial institutions do not believe that credit-guaranteed lending is a barrier to improving staff ability to understand customers, 35% of respondents do. This result confirms that the use of the credit guarantee system was problematic, even after the introduction of the partial guarantee system. The introduction of the partial guarantee (or responsibility-sharing system) alone did not sufficiently change the behavior of financial institutions, and we can conclude that the 2018 revision that asks financial institutions to provide "proper loans" is appropriate.

Examining the characteristics of financial institutions that excused weak screening for firms with credit guarantees and that gave a higher personnel evaluation for providing loans with credit guarantees than for providing "proper loans," we found the following. (1) Their competitive environment is severe, and they are losing customers. (2) They prioritize securing loan amounts over the interest rate. (3) They are unattractive as a workplace. (4) They face difficulties in building relationships with customers in sales activities. (5) They fail to develop the employees' skills related to business feasibility assessments. (6) They have a weak relationship with customers' tax accountants. (7) They fail to improve the ability of sales representatives. (8) They do not endeavor to improve their ability to understand customers. (9) Their branch managers express significant dissatisfaction with headquarters. (10) Their internal human resources are insufficient. (11) They tend not to evaluate management support efforts for incumbent companies. (12) They have a penalty-based personnel evaluation system. (13) The commitment to corporate support is insufficient. (14) There is little interest in revitalizing local communities.