Research and Studies

Home > Research and Studies > Bank of Japan Working Paper Series, Review Series, and Research Laboratory Series > Bank of Japan Working Paper Series 2003 > Designing New Financial Infrastructure for a New Lending Model

Designing New Financial Infrastructure for a New Lending Model*1

  • *1 This is the English translation of the article appeared in Nikkei Business, No. 1170 (December 19, 2002).

January 2003
Atsushi Miyauchi

Papers in the Bank Examination and Surveillance Department Discussion Paper Series are circulated in order to stimulate discussion and comments. Views expressed are those of authors and do not necessarily reflect those of the Bank of Japan or the Bank Examination and Surveillance Department.

If you have any comment or question on the Discussion Paper Series, please contact each author whose e-mail address is shown in the paper.

Click on bdp03e01.pdf (43KB) to download the full text.


Japan's non-performing loan (NPL) problem was, previously, regarded as stemming from the formation and bursting of asset price bubbles. In recent years, however, the problem has been increasingly linked with structural adjustment pressure in the economy. This article analyzes the continuing large amount of NPLs at Japanese banks against the background of structural adjustment from the viewpoint of their lending model, i.e. lending rules and practices. The article also discusses the need for a new lending model, which urges earlier corporate restructuring or liquidation, especially when structural changes can weed out non-competitive firms. In order to promote this scenario, new provisioning rules reflecting the decrease in economic value/benefits of NPLs are desirable.


  • I. Introduction
  • II. NPL Problem and the Profitability of Loan Assets
  • III. Economic Value of NPLs and Their Profitability
  • IV. Current Provisioning Rules and Defects
  • V. New Trends in Loan-Loss Provisioning
  • VI. Building an Infrastructure for the New Lending Model
  • (Chart1) Interest Rates on Bank Loans
  • (Chart2) Additional Loss to be Realized in Business Reconstruction or Loan Sales
  • (Chart3) Gross Margin and Credit Cost Ratio on Bank Loans