Banks Look Askance When Savings Mixes with Postage Stamps
Initially a Service to Small Town Savers, Burgeoning Post Office Accounts Draw Ire of Commercial Bankers in Japan
It stated as a simple, well-intentioned idea to help the small saver. It now has one-third of all the country's bank deposits, and Japanese bankers are calling it "a financial monster.'
"It' is the postal bank.
Originally, post offices were allowed to take deposits so that rural residents wouldn't have to hike miles to deposit money in city bank accounts. Farmers bought their stamps and saved their money over the same post office counter.
From those humble beginnings, post office banks have grown to number more than 23,000 nationwide, encompassing markets far beyond those they were intended to serve. Since the mid-1970s, the annual rate of increase in postal bank deposits has averaged nearly 21%, twice the rate of commercial bank deposits, according to a recent Daiwa Bank newsletter.
City bankers fear postal banks are snapping up business on the loan side as well. Though postal banks are not permitted to lend to private businesses or financial entities, they are allowed to make loans on a personal basis up to a legal limit of 700,000 yen (about $3000). As it turns out, many of those individual customers are managers and presidents of small to middle-sized companies.
Bankers are not the only ones with lending worries. The postal system also has threatened the business of small finance firms by launching new housing and educational loan programs.
Financial ministry officials have equal cause for concern. The postal system falls not under their jurisdiction, but that of the Posts and Telecommunications Ministry--the only institution allowed to set interest rates separate from those determined by the finance ministry and the Bank of Japan, the nation's central bank.
This separate interest rate privilege is the single biggest reason for the steady revenue growth that postal banks have experienced--and one that postal bankers, with their ever-in-creasing influence, hope to protect by impeding the process of deregulation as the pace of Japan's financial liberalization quickens.
Currently, the teigaku chokin, or fixed savings system, allows postal bank customers an interest rate that gradually increases, usually once every six months, during a one- to ten-year term. Interest rates on fixed deposits at commercial banks are higher than postal rates for the first two years, but after two years, on to 10 years, postal rates are more attractive. Postal bank customers may also withdraw their funds at any time and collect interest without paying a penalty fee, unlike commercial bank fixed-term deposits.
Privilege Dates to 1941
The interest rate privilege dates back to 1941 and World War II, when postal banks played a key role in financing Japan's military government. First the state urged citizens to buy government bonds at the post office, increasing deposits. Postal banks were then allowed to set lower lending rates.
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