Abstract
This chapter highlights the significance of relationship lending in lenders’ decision-making process, especially concerning small and medium-sized enterprises (SMEs) in Japanese regional markets. Generally, relationship lending has been a common practice in credit financing for financial institutions of all sizes; it is in contrast to the term “main bank,” which is specifically used to describe the close bank–firm relationship for large firms in Japan. Although the main bank relationship has tended toward decline, relationship lending has particularly gained attention not only due to the Japanese Financial Services Agency introducing its 2003 action program, but also due to rather close ties between regional banks and SMEs owing to these small businesses’ opacity. Contemporary literature suggest that the firm-bank relationship produces an invaluable asset when it is long lasting by using proxies for relationship lending. Meanwhile, this article uses a questionnaire survey to identify the components of the information used in relationship lending. Further, it investigates soft information factors ’ influence on a lender’s performance, specifically in a competitive local market. Therefore, this chapter summarizes the characteristics of soft information, and the role and functions of these pieces of information in the lending decision process.
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Notes
- 1.
Thirteen city banks have been affected by a wave of financial reorganization since the late 1990s. Some have declared bankruptcy and since ceased to exist, while others integrated to form five new city banks. As an amalgamation of smaller city banks, these five existing banks are large in size, and therefore, are called “mega banks.”
- 2.
Shinkin banks are regulated by the Shinkin Bank Act , and credit unions are required to comply in accordance with both the Small and Medium-Sized Enterprise Cooperatives Act and the Act on Financial Businesses by Cooperative .
- 3.
In 1993, the FSA implemented a capital adequacy ratio requirement of 8% for banks engaging in international business and 4% for others, expecting that commercial banks would maintain sufficient bank capital to reduce their insolvency risk . The measure of adequacy used is a bank’s available capital as a percentage of the bank’s risk-weighted credit exposure.
- 4.
Small and medium-sized/regional financial institutions’ SME lending had declined by approximately 20% during the period of 2000 through 2002 (JSBRI 2004).
- 5.
Firm responsiveness is the degree to which a firm is willing to provide a thoughtful response to stakeholders and commit to continue working on the issue (Bundy et al. 2013).
- 6.
Financial statement lending is generally subject to financial covenants during the period of the loan in order to protect lenders’ rights.
- 7.
A borrower provides a lender with a security interest in their assets.
- 8.
As with asset-based lending, the underlying assets in fixed-asset lending are pledged to the lender as collateral. However, asset-based lending differs in its credit period, as the term loan based on fixed assets is typically a long-term contract.
- 9.
The option-pricing model estimates the credit default rate based on the movement of a firm’s enterprise value. Therefore, this model is appropriate for listed firms with observable equity prices. It is also suitable for listed firms because of the scarce occurrence of default , which makes it difficult to apply a statistical approach.
- 10.
Specifically, small business credit scoring is used for term loans and lines of credit for amounts up to one million dollars; this is primarily based on personal and business credit history and other financial information. Those pieces of information are collected by financial institutions, and often from commercial credit bureaus (Berger and Udell 2006).
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Yosano, T., Nakaoka, T. (2019). Introduction. In: Utilization of Soft Information on Bank Performance. SpringerBriefs in Economics(). Springer, Singapore. https://doi.org/10.1007/978-981-13-8472-1_1
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