Japan banks to offer loans backed by growth potential, not real estate
Japan is overhauling bank lending so that loans are backed by a company's future cash flow and growth potential rather than real estate collateral. The reform aims to ease financing access for small and medium-sized enterprises.
Under amendments to Japan's Banking Act, lenders will now base credit decisions on forward-looking criteria such as a company's cash flow, customer base and growth strategy. Whereas the previous system required real estate or equipment as collateral, the new model is called 'enterprise value lending'.
The Financial Services Agency (FSA) hopes the reform will lower borrowing costs for small and medium-sized enterprises (SMEs) and revive Japan's weakest investment cycle in a decade. SMEs employ around 70% of the workforce but have long struggled to access financing for growth investment.
Megabanks Mitsubishi UFJ, Sumitomo Mitsui and Mizuho will pilot the new model in Tokyo, Osaka and Fukuoka. AI-assisted risk assessment will be integrated into the underwriting process. Analysts say a successful rollout could inspire similar reforms across Asia in the coming years.
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