DP2018-17

How Can Regional Financial
Institutions Promote Regional
Revitalization in Japan?: Results ofthe 2017 Survey on Regional Finance
N ob u yo sh i Y A MO R I
K e i T O MI M UR A

July 6, 2018

July 2018

How Can Regional Financial Institutions
Promote Regional Revitalization in Japan?:
Results of the 2017 Survey on Regional
Finance#Nobuyoshi Yamori,
Professor, Research Institute for Economics and Business Administration,
Kobe University
andKei Tomimura
Associate Professor, Faculty of Management, Aichi University[Abstract]
The authors conducted “Survey of Current Conditions and Challenges of Regional
Finance in Relation to Regional Revitalization.” We sent a questionnaire to 520
financial institution headquarters throughout Japan during January and February
2017 with the aim of shedding light on the status of regional revitalization-related
measures by regional financial institutions and the challenges they face. Responses# This work was supported by JSPS KAKENHI Grant Numbers 15H03366, 16H02027,

17H02533. The authors received valuable comments from participants in a joint
research team supported by the Research Institute of Economics, Trade, and Industry(RIETI).
1

were collected from 280 companies (a response rate of 53.8%). In this paper, we report
the major results regarding challenges faced in regional revitalization, corporate
restructuring support, startup support, and business matching measures.

Key words: Regional Finance, Regional Revitalization, Startup Support, Business
Matching.

1. Introduction
The Financial Services Agency of Japan (FSA) claims that the exercise of active
financial intermediary functions is necessary to support the growth of regional economy
and industry and to stimulate their metabolism (“2014 Strategic Directions andPriorities”). Therefore, the exercise of active financial intermediary functions has been
positioned as an important supervisory issue with respect to FSA’s policy. However, as
the FSA points out in its 2016 Strategic Directions and Priorities, “Despite the fact thatmany financial institutions include within their management philosophies a policy of
exercising financial intermediary functions and providing financing and solutions basedon the needs of their client companies in order to contribute to corporate growth, aconsiderable number are not putting this stated philosophy into actual action withrespect to their customers.” Because of this, the Financial Services Agency has indicateda policy of “engaging in dialogue aimed at improving the quality of financial
intermediation, including governance conditions, business strategies and plans, branch
quotas, business result targets and evaluations, personnel development and financial
screening conditions, in order to achieve true customer-focused management.”
The authors, with the cooperation of the Japan Financial News Company, conducted aquestionnaire survey of 520 financial institution headquarters throughout Japan
during January and February 2017 with the aim of shedding light on the status ofregional revitalization-related measures by regional financial institutions and thechallenges they face. Responses to this “Survey of Current Conditions and Challenges of2

Regional Finance in Relation to Regional Revitalization” were collected from 280
companies (a response rate of 53.8%), as shown in Table 1.
This paper focuses on challenges faced in regional revitalization, corporate support,
startup support, and business matching measures12.
This paper consists of seven sections including this introduction. Section 2 discusses
the challenges faced in regional revitalization. Section 3 deal with challenges faced incorporate support measures. Section 4 takes up challenges faced in startup support
measures. Section 5 explains the results on business matching efforts. Section 6
discusses new employee retention. Finally, Section 7 concludes this paper.

Table 1. Business categories of responding financial institutions
Major commercialbank, etc.
Regional bank
Second-tier regionalbankCredit association(Shinkin Bank)
Credit cooperative(Shinkumi Bank)
Total

Responding
company

Companies
approached

Response
rate

2

6

33.3%

27

64

42.2%

16

41

39.0%

150

265

56.6%

85

144

59.0%

280

520

53.8%

2. Challenges faced in regional revitalization measures
2.1 Regional revitalization as a part of the management philosophy of financial
institutions
The authors believe that it stands to reason that regional financial institutions
engage in regional revitalization efforts, but whether regional financial institutions
1

Detailed analyses on the responses have already been developed in a paper written in

Japanese (Yamori, Tomimura, Ojima and Shu (2018)).
2

Yamori conducted an attitude survey of regional financial institution branch chiefs atroughly the same time as this survey. For details regarding the results, see Yamori, et al.
(2017).
3

believe so is never confirmed. Then, we asked survey participants “Does your company’s
credo, management philosophy, management vision, etc., include the concept of‘contribution to local companies and/or the regional economy’?” (Question 5) 3
Of the 280 responding financial institutions, 264 companies indicated that“contribution to local companies and/or the regional economy” was explicitly included.
Together with eight companies that indicated that it was implicitly or indirectly
included, 272 companies indicated that it was included. The only companies that
responded that it was “not included” were three credit cooperatives, or “Shinkumi banks”(likely occupational or industry credit cooperatives). The other five companies either
responded that they had no company credos or the like, or did not respond. Based on
this, we were able to confirm that almost all regional financial institutions havepositioned regional revitalization as important part of their management philosophy.

2.2 Attitude towards involvement in regional revitalization
Merely including regional revitalization in one’s management philosophy is not
sufficient to advance regional revitalization efforts. We therefore inquired into thestatus of involvement in regional revitalization efforts by responding financial
institutions (Question 39). The question permitted multiple answers. 28 companies
responded “We are in a position to lead municipalities (such as prefecture, city, town orvillage),” 134 responded, “We are actively collaborating with municipalities,” and 149
responded, “We handle requests from municipalities.”
All three of these answers can be considered to indicate their involvement in regional
revitalization. As this is multiple -answer question, 216 financial institutions wereconfirmed to have selected at least one of these answers. In other words, these 216
financial institutions were involved in regional revitalization. Conversely, 46 financial
institutions chose none of these answers. 4 Only six companies (one credit association
3“Question 5” refers to the number of the question on the survey form. Question

numbers are included below as necessary.
4

This does not include respondents that answered “I don’t know,” (13 companies), or

which did not answer (5 companies), so the number of companies with valid responses
4and five credit cooperatives) chose "We do not wish to become involved,”. Among theremaining 40 companies, 29 companies answered “We wish to become involved but have
not received requests from municipalities,” and 19 companies answered “We wish to
become involved but we do not have the capabilities/available resources.” 5 The majorityof financial institutions which are not currently involved do wish to be involved.
The management philosophies of almost all of the financial institutions tout regional
revitalization, and the institutions either are or, at least, would like to be, involved inregional revitalization. However, the most frequently chosen answer, “We handle
requests from municipalities,” implies a very passive stance with respect to involvement,
and it would be fair to state that the financial industry as a whole must take a more
active approach to regional revitalization.

2.3 How to convey the resolve of top management
Are the management personnel in financial institution resolved to engage in regional
revitalization efforts? The responses to this question (Question 40) were as follows:
67.5% of all respondents) answered “Management personnel are resolved to engage inregional revitalization efforts.” Focusing on differences among business categories,
91.7% of regional banks, 75.0% of second-tier regional banks, 74.5% of credit
associations (or “Shinkin bank”), and 45.0% of credit cooperatives answered so. Without
preceding research, it is difficult to know how to evaluate this response, but given thefact that almost all of the financial institutions include regional revitalization in their
management philosophies, and given the difficult conditions currently faced in regional
areas, it would not be feasible to conclude that roughly 30% of all management
personnel are not resolved to engage in regional revitalization. Even if top management
have strong resolve to contribute to regional revitalization, it would appear that thisresolve has not been conveyed even to the core departments of the headquarters thattook part in this survey. Conveying the resolve of top management to sales branches

was 262.
5

Some chose both of these answers.
5located far from headquarters would therefore be extremely difficult.
We considered this issue using a different question. This survey asked participants“Has the formulation of Regional Comprehensive Strategies led to your company
engaging in concrete actions aimed at regional revitalization?” (Question 39). The
results are summarized in Table 2. 88 respondents, or 32.7% of the 269 companies after
excluding those that did not answer or that selected “I don’t know,” answered “We havestarted or expanded personnel exchanges with municipalities”. “A new organization
within your company was created.” is the second. Unfortunately, we found that 73
respondents chose “No actions are taken,” in spite that almost all financial institutions
answered that regional revitalization is included in their corporate philosophy.
Now, we focused on the companies that answered “We have started or expanded
personnel exchanges with municipalities.” (abbreviated as “personnel exchanges withmunicipalities”). 43.4% of the financial institutions that answered “Management
personnel are resolved to engage in regional revitalization efforts” (79 of the 182
companies) are engaging in personnel exchanges with municipalities, while this figure
was just 9.6% for financial institutions that did not select this answer (8 of 83
companies). In other words, this indicates that for management personnel to thoroughly
convey their resolve towards regional revitalization throughout their companies, theymust create visible systems, implement rule changes, or the like.

6Major Banks

Regional Banks

Second-tier
Regional Banks

Shinkin Bank
(creditassociations)

Shinkumi Bank
(creditcooperatives)

Total

Table 2. Concrete actions aimed at regional revitalization

2

15

4

55

12

88

2

21

5

50

4

82

0

4

0

7

3

14

A loan menu was newly established.

0

15

4

38

15

72

Contribution to regional
revitalization is newly incorporated
in the internal personnel evaluation
system.

0

4

0

6

0

10

Other actions are taken.

0

5

6

41

11

63

No actions are taken.

0

0

3

26

44

73

I don't know.

0

2

0

0

5

7

No response.

0

1

0

0

3

4

Total

2

27

16

150

85

280

We have started or expanded
personnel exchanges withmunicipalities
A new organization within yourcompany was created.
We have dispatched people to neworganizations (such as public-private
funds) created for regional
revitalization.

3. Challenges faced in corporate support measures
3.1 Disparities in management improvement measures
Hopes are high for financial institutions’ “measures aimed at increasing customer
value through consulting and business turnaround support, etc., for companies
requiring sweeping business turnarounds, such as loan condition changes” (the FSA’s
2016 Strategic Directions and Priorities), but according to a study by the Financial
Services Agency, actual support implementation is lacking.4
4 For example, according to the Financial Services Agency’s “Challenges Faced by

Sweeping Business Turnarounds” (June 27, 2016), business improvement plans have7This survey asked participants “For what percentage of the companies for which, as amain bank, you have changed loan repayment conditions have you also provided
management improvement support?” (Question 10). We call this ratio as “management
improvement implementation rate” in this paper. The results (Table 3) show that evenfor companies for which the respondents changed loan repayment conditions as a mainbank, there was a great disparity in the rates of management improvement support.
While roughly 40% responded “30% or more,” over 20% responded “Less than 5%.”Differences were also evident between business categories. Of particular note, while
there was not a single regional bank that responded “Less than 5%,” roughly 40% of thecredit cooperatives chose this response.
To increase “management improvement implementation rate” is costly, but without
such supports, weak companies are not expected to revitalize. Top managers of regional
financial institutions should not say “it is costly and difficult.” but should consider how
they can do it.

not been formulated for roughly 40% of companies that have been under loan terms
changes for more than five years.

8

Table 3.

Percentage of the companies for which, as a main bank, respondents havechanged loan repayment conditions and have also provided management improvement
support (management improvement implementation rates)
Regional
bank

Second-tierregional bank

Creditassociation

Creditcooperative

Total

1.

Less than 5%

0.0%

15.4%

13.9%

39.7%

21.9%

2.

5% to 9%

25.0%

0.0%

7.4%

14.7%

10.4%

3.

10% to 19%

25.0%

30.8%

20.4%

8.8%

17.4%

4.

20% to 29%

8.3%

7.7%

12.0%

10.3%

10.9%

5.

30% or more

41.7%

46.2%

46.3%

26.5%

39.3%

No. of valid
responses

12

13

108

68

201

(Note) The column for major commercial banks, etc., from which responses werereceived for two banks, has been omitted from the table due to space considerations, but
the response figures are included in the total. The number of valid responses does notinclude financial institutions which left this question blank (did not select any
responses). This also applies to all later tables.

3.2 Problems faced in corporate turnaround measures
We found that management improvement implementation rates were not very highfor quite a number of financial institutions, but what problems do financial institutions
face in their corporate turnaround measures? Table

4 shows a summary of thoseresults (Question 21).
Only 3% answered “We haven’t encountered any notable problems,” showing that
almost all financial institutions face some problems. Of particular interest is the factthat “We have difficulty in changing the mentalities of management“ was selected bymore financial institutions (roughly 70%) than “The companies to which we provide
turnaround support are in harsh business environments.” Many respondents strongly
feel that management is reluctant to modify its mentality. The third most commonlychosen response was “Our staff have insufficient experience and capabilities inproviding support” (58.3%). Namely, roughly 60% of the financial institutions indicated9the existence of problems on their own ends.
Many financial institutions encountered the problems of “We have difficulty inchanging the mentalities of management” and “The companies to which we provide
turnaround support are in harsh business environments,” Looking at the results on an
individual business category basis, there were also prominent differences between
business categories. In particular, while 25% of regional banks and second-tier regionalbanks answered “Our staff have insufficient experience and capabilities in providing
support,” this answer was chosen by over 60% of credit associations and credit
cooperatives, indicating that they experienced severer problems with staff experienceand capabilities than regional banks. Regional banks also had higher rates of selecting“We would like to replace management, but cannot find appropriate management
personnel with which to replace them” than other business categories. When thecompanies the regional banks are trying to turn around are large, and turnaroundwould be possible by replacing management, the banks appear to have difficulty infinding suitable candidates. Therefore, it is necessary that they use the nationwide poolof management personnel5.
The number of companies selecting responses “There are few business turnaroundexperts with whom we can coordinate” and “The consulting tax accountants of thecompanies we provide support to do not cooperate with us” were low, but it is important
to note the fact that both were chosen by some respondents. Although it is evident that
improving coordination with outside experts and organizations is helpful, there are still
problems on the side of outside experts and organizations for the cooperation to beeffective.
123

5 For example, the use of government measures such as coordination with Japan

Human Resources, part of the Regional Economy Vitalization Corporation of Japan, andthe Cabinet Office’s Professional Personnel Project is believed to be effective.
10

Table 4. Problems faced by responding financial institutions in corporate turnaroundmeasures (multiple answers allowed)

1. The companies havemotivation problems
2. The companies lack sufficientcapabilities
3. We have difficulty in changing
the mentalities of management
4. We would like to replace
management, but cannot findappropriate management
personnel with which to replacethem
5. The companies to which we
provide turnaround support are
in harsh business environments
6. Our staff have insufficientexperience and capabilities inproviding support
9. There are few businessturnaround experts with whom
we can coordinate
10. The consulting tax
accountants of the companies weprovide support to do notcooperate with us
12. We haven’t encountered any
notable problems
No. of valid responses

Regional
bank

Second-tierregionalbank

Creditassociation

Creditcooperative

Total

25.0%

37.5%

50.3%

26.3%

39.9%

50.0%

25.0%

43.0%

27.5%

37.6%

70.8%

75.0%

77.9%

61.3%

71.6%

45.8%

25.0%

24.8%

13.8%

23.2%

66.7%

75.0%

62.4%

61.3%

62.7%

25.0%

25.0%

63.8%

66.3%

58.3%

8.3%

12.5%

14.8%

8.8%

12.2%

0.0%

0.0%

5.4%

3.8%

4.1%

4.2%

6.3%

0.7%

6.3%

3.0%

24

16

149

80

271

(Note) Due to space considerations some responses have been omitted.

3.3 Personnel evaluations affecting support stances
We investigated our hypothesis that personnel evaluation had an impact on financial
institutions’ corporate support stances. The survey asked respondents whether the
personnel evaluation systems in their workplaces were primarily demerit-based or
merit-based (Question 28). We also checked whether respondents selected “Our stanceis to provide support until the very end” as one of their financial institution’s strengths(Question 4).
We used these responses to investigate whether there were differences in stances
11towards providing support to the very end between demerit-based financial institutions
and merit-based financial institutions. For the 31 financial institutions that replied “We
are strongly demerit-based” the selection rate for “Our stance is to provide support untilthe very end” was 45.2%, while for the 75 financial institutions that replied “We arestrongly merit-based,” the selection rate was 58.7%. Furthermore, looking at the 18
demerit-based financial institutions that answered “This demerit-based tendency is
growing stronger” or “No change,” the selection rate for “Our stance is to provide
support until the very end” was low, at 27.8%.
These results indicate that it is difficult for a financial institution to have its
employees take a stance of offering support until the very end while at the same time
maintaining a demerit-based personnel evaluation system. A financial institution
wishing to make “the providing of support to weak customers until the very end” one ofits strengths must implement reforms to its personnel evaluation system thatencourages employees to conduct challenging tasks.

4. Challenges faced in startup support measures
4.1 Track record of financing startup companies with low credit worthiness
The Financial Services Agency released its “Financial Intermediary Function
Benchmarks” in September 2016. The Benchmark consists of “Common benchmark”
and “Selective benchmark.” As made clear by the inclusion of “Common benchmark: 3.
Number of startups and secondary startups in which financial institutions wereinvolved” and “Selective benchmark: 16. Number of companies receiving startup
support,” the Financial Services Agency is highly concerned, from a financial
supervisory standpoint, about startup support offered by financial institutions6.
The survey asked participants what percentage of their current viable clients were
6 In June 2017, revisions were made to laws such as the Small Business Credit

Insurance Act. The revised act expands the startup guarantee framework, showing thatthe government is concentrating on startup support from an SME policy perspective as
well. The new act is effective since April 2018.
12

started up within the past five years (Question 22). In this paper, we call this ratio as“startup company transaction rate.” Looking at the results in Table 5, almost 70% of
the responding financial institutions indicated startup company transaction rates ofless than 5% (i.e., answer choices 1, 2 and 3)
There are no official estimates of historical development of startup company
transaction rates regarding Japanese financial institutions, but according to the “2017
Small and Medium-Sized Enterprise White Paper” published by the Small and Medium
Enterprise Agency of Japan, the annual startup rate from 2012 to 2014 was 4.6%, so arough calculation would indicate that 20% or more of existing companies have been
started up within the past five years. Closure rates for new startup companies are high,so the 20% startup company transaction rate estimate is likely too high, but given thatthe majority of the financial institutions had startup company transaction rates of lessthan 5%, many regional financial institutions cannot avoid criticism for insufficient
efforts to finance startup companies.
Comparing the ratios of respondents answering “Less than 3%” by business category,
14.3% of regional banks and 8.3% of second-tier regional banks selected this answer,
while 40.8% of credit associations and 61.1% of credit cooperatives did, indicating low
startup company transaction rates among cooperative financial institutions. By rights,
these cooperative financial institutions are supposed to cultivate these fledgling
companies with low credit worthiness, but in reality they do little business withfledgling companies, and do not fulfill the function of cultivating them.

13

Table 5. Percentage of companies in business for five years or less (startup company
transaction rate)
1. Zero to lessthan 1%
2. 1% to lessthan 3%
3. 3% to lessthan 5%
4. 5% to lessthan 10%5.

10% or more

No. of valid
responses

Regionalbank
0.0%

Second-tierregional bank
8.3%

Creditassociation
13.6%

Creditcooperative
24.1%

14.3%

0.0%

27.2%

37.0%

28.6%

25.0%

26.2%

20.4%

57.1%

50.0%

29.1%

14.8%

0.0%

16.7%

3.9%

3.7%

14

12

103

54

Tota
l
15.3
%
27.3
%
24.6
%
28.4
%
4.4
%
183

4.2 Difficulties in providing funding to startup companies
As these results show, for many financial institutions, transactions with startup
companies have not expanded to the degree hoped for. The survey asked participants
what difficulties they had encountered in providing funding to startup companies(Question 23). Table 6 shows the results.
80% of financial institutions answered, “Evaluation of business contents,” showing
the difficulty involved in evaluating the business viability of startup companies. Therealso appears to be a great deal of difficulty with “Evaluation of the founder of thecompany.” On the other hand, although a lack of collateral is frequently pointed out as afactor making startup financing difficult, only a small number of responding financial
institutions answered “Insufficient collateral.” If this result is taken at face value then,provided that business feasibility evaluation is possible, a lack of collateral is not animpediment to startup financing.
This shows that developing personnel capable of evaluating business viability will bea priority issue in advancing startup financing.

14

Table 6. Difficulties in providing funding to startup companies (multiple answers
allowed)1. Evaluation of the founder of the company
2. Evaluation of business contents
3. Insufficient collateral
4. Insufficient public financial support, such as local government loans and credit
guarantees
5. Insufficient public support in non-financial areas, such as technology support
6. High rate of bankruptcy compared to existing companies
7. Insufficient screening expertise at the sales level
8. Sales takes a passive stance regarding transactions with startup companies
9. No notable problems
No. of valid responses

Total
54.2%
80.1%
14.0%
12.5%
15.9%
28.4%
37.6%
2.2%
6.6%
271

4.3 Support for would-be startup founders
The survey asked about the implementation status of support programs for would-be
startup founders, and found that roughly 90% of the responding financial institutions
were implementing some form of would-be startup founder support program (Question
24).
As we believed there was some likelihood of disparity in the effects of these support
programs, we calculated the startup company transaction rates of the financial
institutions with each type of support program. This is because if a support program iseffective, it is likely that there would be a large amount of transactions with startup
companies for financial institutions that employ that program.
Specifically, as the startup company transaction rates in the responses are notconcrete figures, such as 5.0%, but range answers such as “1% to less than 3%,” weconverted the responses to assumed numbers and calculated the average value7. Table
7 shows the results. The table lists the support program types in order of startup
7 Specifically, a value of 0.5% was used for “Zero to less than 1%” responses, 2% for “1%to less than 3%” responses, 4% for “3% to less than 5%” responses, 7.5% for “5% to lessthan 10%” responses, and “12.5%” for “10% or more” responses. “I don’t know” responses
were excluded from calculations.
15

company transaction rate, from high to low.
Only 11 financial institutions answered “6. We have support programs coordinatedwith tax accountants,” and the average startup company transaction rate for these 11
companies was high, at 6.45%. The next selected response was “4. We introduce
successful startup founders.” The average startup company transaction rate only
exceeded 6% for these two program types. These support program types may have amajor impact on support for would-be startup founders.
Needless to say, the average startup company transaction rate was extremely low, at
3.5%, for financial institutions that answered “10. We do not have any corresponding
support programs.” Apparently, in today’s economic environment, passive stances will
not produce a significant increase in the number of transactions with startup
companies.

Table 7. Startup company transaction rates by support program typeStartup company
transaction rate (%)
6. We have support programs coordinated with
tax accountants
4. We introduce successful startup founders
3. We invest in a fund for startup companies
2. We hold seminars such as entrepreneurial
seminars for would-be startup founders
1. We have financing options that are exclusively
available to would-be startup founders
9. We have other support programs
7. We have support programs coordinated withcredit guarantee associations
8. We have support programs coordinated with
the Japan Finance Corporation
5. We have support programs coordinated withlocal governments
10. We do not have any corresponding support
programs

Number of
selectingcompanies

6.45

11

6.04
5.36

24
28

5.07

75

4.97

104

4.90

36

4.75

63

4.74

99

4.52

83

3.53

16

Note) “Startup company transaction rates” were calculated based on the percentage of
respondents’ current viable clients that were started up within the past five years.

164.4 Business viability evaluation strength and startup support strength
In order to look at the characteristics of financial institutions with high startup
company transaction rates, we used the responses to the question that asked eachfinancial institution what its strengths were (Question 4). These organized results areshown in Table 8. In this table, there were few respondents with startup company
transaction rates of 10% or higher, so this category was combined with the “5% to lessthan 10%” category in the form of a “5% or more” category.
What stands out is that financial institutions with high startup company transaction
rates of 5% or more were more likely to choose “High staff morale” than financial
institutions with low startup company transaction rates. Financial institutions withhigh startup company transaction rates also had a high likelihood of answering “Ourstance is to provide support until the very end” and “Our closely community-tied
stance.”As discussed earlier, engaging in transactions with startup companies requires theability to gain a deep understanding of business viability, which was also necessary toprovide support to existing companies. Supporting startup companies, therefore, does
not involve neglecting existing companies, rather, the two are complementary.
Conversely, financial institutions unable to provide sufficient support to existing
companies are believed to encounter difficulty in producing achievements throughstartup financing.

17

Table8.

Recognition of strengths of respondents’ own financial institutions bystartup company transaction rate (multiple answers allowed)
1.
1. Brand strength
3. Financing decision
speed
6. Staff capabilities
7. Kindness of staff
8. High staff morale
9. Our stance is to provide
support until the very end
10. Our closely
community-tied stance
11. Financial soundness
12. Management teamcapabilities
No. of valid responses

Zero to lessthan 1%
7.1%

2.

1% to lessthan 3%4.0%

3.

3% to lessthan 5%
11.4%

4.

5% or
more
6.7%

42.9%

34.0%

20.5%

30.0%

3.6%
71.4%
10.7%

6.0%
86.0%
12.0%

6.8%
81.8%
6.8%

13.3%
75.0%
26.7%

46.4%

58.0%

52.3%

63.3%

85.7%

92.0%

93.2%

93.3%

46.4%

50.0%

47.7%

40.0%

10.7%

10.0%

6.8%

16.7%

28

50

44

60

Note) Due to space considerations, strengths with selection rates under 10% havebeen omitted.

5. Business matching efforts and issues
5.1 Business matching beneficial to both customers and financial institutions
If financial institutions are able to introduce customers to new sellers and suppliers(i.e., business matching), the customer companies should be able to increase sales, cut
expenses, and successfully develop new products. Because of these merits, manyfinancial institutions have positioned business matching as a key strategic area.
We asked how each financial institution evaluated business matching (Question 32).
Table

9 shows the results. As expected, many respondents evaluated businessmatching as producing positive results for client companies. Looking at answer choices
1 through 3 that are closely related to positive results for client companies, roughly 60%
of respondents selected “2. Management attitudes improved” and just under 50% of
respondents selected “1. Client company business results improved.” As management
mentality was often pointed out as one of the biggest obstacles to management
turnaround and smooth business succession, business matching can be evaluated as18

producing significant positive results.
On the other hand, there were also answers showing benefits for financial institutions
as well, with roughly 50% of respondents answering “7. Our staff ’s mentality changed”
and roughly 40% answering “6. Our consulting capabilities improved.”
In sum, business matching measures can therefore be said to be mutually beneficial
for both client companies and financial institutions. Financial institutions that are
lagging behind in this aspect should make efforts to build an ability to carry successful
business matching.

Table 9. Results of business matching (multiple answers allowed)
1. Business results of client companies improved
2. Management attitudes improved
3. Business succession was achieved
4. The amount of uncollectible debt fell
5. The regional economy was vitalized
6. Our consulting capabilities improved
7. Our staff’s mentality changed
8. We were able to provide reports to the Financial Services Agency/Bureau of
Financial Affairs
9. Nothing in particular/I don’t know
No. of valid responses

45.4%
59.7%
19.4%
5.5%
14.3%
39.9%
48.4%
23.8%
18.7%
273

5.2 Challenges faced in business matching efforts
This survey asked about what challenges were faced regarding business matchingefforts (Question 33). Table 10 shows the results. The most commonly chosen answer
was “4.

Staff do not possess the knowledge or know-how to engage in successful

business matching.” This also shows that staff capability development is an issue. The
second most commonly chosen answer was “3. We don’t have sufficient information
about clients.” Credit associations and credit cooperatives pride themselves on having
close relationships with customers, yet over 30% answered “3. We don’t have sufficient
information about clients.” We believe they should see this as a major problem thatthreatens the very basis of their existence.
These top two choices clearly show that financial institutions face issues in19

developing their internal systems. The third most commonly chosen answer was “2.
There are few clients with technologies or features that merit introduction.” This might
appear at first glance to be a company-side problem, but one must also note thepossibility that this is the result of financial institutions being unable to identify thestrengths and features of their clients.
Lastly, as the percentage of respondents selecting “Nothing in particular” shows,roughly 60% of regional banks responded that they do not face challenges in promoting
business matching, while, in contrast, over 80% of credit associations and credit
cooperatives stated that they face some challenges. Credit associations and credit
cooperatives appear to be improving their business matching capabilities, but, in manycases, not enough.

Table 10. Challenges faced when promoting business matching (multiple answers

Creditassociation

Creditcooperative

Total

0.0%

6.7%

21.6%

17.3%

17.3%

11.5%

20.0%

25.0%

34.6%

26.1%

15.4%

33.3%

35.1%

33.3%

32.4%

15.4%

46.7%

53.4%

58.0%

50.4%

15.4%

6.7%

25.0%

8.6%

18.0%

0.0%

6.7%

10.8%

17.3%

11.4%

7.7%

13.3%

4.1%

3.7%

4.8%

57.7%
26

33.3%
15

14.2%
148

18.5%
81

21.3%
272

Regional
bank

Second-tierregionalbankallowed)

1. We have no enthusiastic clients
2. There are few clients withtechnologies or features that merit
introduction
3. We don’t have sufficient
information about clients
4. Staff do not possess the knowledge
or know-how to engage in successful
business matching
5. Business matching does notproduce sufficient returns given theamount of effort it involves
6. We do not get enough effective
information from our head office
7. Local governments and otherrelated institutions have low
capabilities and/or are uncooperative
8. Nothing in particular/I don’t know
No. of valid responses

205.3 Personnel evaluation methods
The survey asked respondents about weight placed on successful business matching
within performance evaluations of general staff. It is possible that personnel
evaluations about business matching results may differ between financial institutions
that place importance on business matching and those that do not. Table 11 shows themain results.
For the 30 financial institutions for which business matching is “1. Extremely
important,” roughly 70% of evaluations were positive, such as “1. Client company
business results improved,” “6. Our consulting capabilities improved,” and “7. Our
staff's mentality changed.” Of the 54 financial institutions that indicated “4. Almost
zero weight was placed on business matching”, only roughly 20% positively evaluatedbusiness matchings.
Financial institutions that do not expect business matching to produce favorable
results cannot switch to personnel systems that emphasize business matching. However,continuing to place little weight on business matching in personnel evaluations will
prevent staff in bank branches from actively engaging in business matching, so they
will never develop corresponding capabilities.
The bottom of Table

11, on the other hand, shows the relationship between

recognition of business matching obstacles and personnel evaluations. There was aprominent difference in selection rates for “3. We don’t have sufficient information aboutclients,” which was often selected by financial institutions that emphasize businessmatching. This, we believe, is not because financial institutions which don’t emphasize
business matching have sufficient information, but because they have not even noticed
the problem. Financial institutions which do not emphasize business matching had highselection rates for “1. We have no enthusiastic clients,” but it is highly likely that this is
the result of their not being able to identify enthusiastic clients.
As the results show, there are major differences between financial institutions withrespect to the status of their business matching efforts. Financial institutions which
produce strong business matching results have adopted corresponding personnel
evaluation systems, resulting in the development of bank staffs and improvement in21their business matching capabilities. Conversely, there are many financial institutions
which have stalled without being capable of engaging in business matching.

Table 11. Evaluations of business matching results by weight placed on businessmatching within performance evaluations of general staff

Awareness of obstacles

Evaluation of
results

1. Client company
business results improved
6. Our consulting
capabilities improved
7. Our staff’s mentalitychanged9. Nothing in particular/I
don’t know
1. We have no enthusiasticclients
2. There are few clientswith technologies orfeatures that merit
introduction
3. We don’t have sufficient
information about clients
4. Staff do not possess theknowledge or know-how toengage in successful
business matching
No. of valid responses

Weight placed on business matching within performance
evaluations of general staff
1.
2.
3. Taken into4.
Extremely
Somewhatconsideration, but
Almostimportantimportant
only for reference
zero
76.7%

58.6%

37.8%

18.5%

70.0%

44.8%

33.8%

20.4%

70.0%

50.6%

54.1%

25.9%

0.0%

11.5%

14.9%

44.4%

13.3%

12.6%

17.8%

24.1%

23.3%

20.7%

34.2%

24.1%

43.3%

37.9%

30.1%

31.5%

53.3%

48.3%

53.4%

57.4%

30

87

74

54

(Note) Due to page width limitations, only the main items are displayed.

6. New employee retention and challenges
6.1 New employee retention
As we have seen, the fundamental cause of failures of regional revitalization andturnaround/startup support appears to be a lack of personnel development. The survey
asked participants, “What percentage of full-time staff hired by your company shortly
after graduating from university in April 2013 have since left your company?” (Question
14). The study was administered in January and February 2017, so responses would
22

indicate attrition rates within a four-year period after initial hiring.
This new hire attrition rate can serve as a proxy variable that elucidates personnel
development conditions. Table 12 shows a summary of new hire attrition rates. The
most common new hire attrition rate response was “10% to 24%,” followed by “25% to39%.” What is important to note is that while roughly 30% of the financial institutions
had low attrition rate (i.e., “0% to 4%” and “Almost zero”), or high retention rates, over
10% had high attrition rate of “40% or more” (or low retention rates). In other words,
there is a great deal of disparity in new hire retention rates between financial
institutions.

Table 12 New hire attrition rate within a four-year period
Total
1.
Almost 0
14.6%
2.
0% to 4%17.0%
3.
5% to 9%8.5%
4. 10% to 24%
28.3%
5. 25% to 39%
19.4%
6. 40% or more
12.1%
No. of valid responses
247

6.2 Personnel evaluation affecting new hire attrition rates
The results made it clear that there were major differences in new hire attrition rates
between financial institutions, but what were the deciding factors behind them? As
mentioned earlier, this survey asked respondents “How would you evaluate yourcompany’s conditions, from the perspective of merit-based or demerit-based approaches
to personnel evaluation?” (Question 28). We used the results to investigate what
differences there were in new hire attrition rates between demerit-based andmerit-based financial institutions.
Table

13 shows the results. Let’s look at new hire attrition rates of financial

institutions choosing “Almost zero.” 3.4% of financial institutions with demerit-based
systems chose “Almost zero”, while 16.9% of financial institutions with merit-based

23systems chose “Almost zero.” Surely, there is a significant gap between them. In otherwords, merit-based financial institutions had higher junior staff retention rates. Thissuggests that merit-based personnel evaluation tends to make bank staff work
comfortably.

Table

13.

New hire attrition rates at merit-based and demerit-based financial

institutions
Demerit-based Merit-based
3.4%
16.9%
1.
Almost 0
27.6%
16.9%
2.
0% to 4%
6.9%
8.5%
3.
5% to 9%
24.1%
29.6%
4. 10% to 24%
31.0%
21.1%
5. 25% to 39%
6.9%
7.0%
6. 40% or more
No. of valid responses
29
71

6.3 New hire attrition rates and insufficient corporate support personnel
We investigated our hypothesis that financial institutions with high new hire
attrition rates failed to develop personnel and faced serious personnel shortages.
Specifically, for each new hire attrition rate bracket we compared the ratios ofcompanies that selected “6. Our staff have insufficient experience and capabilities inproviding support” (referred to as “insufficient staff capabilities”) as a financial
institution-side problem faced in corporate turnarounds.
Of the 36 financial institutions that answered that their attrition rate was “Almost
zero,” 55.6% indicated insufficient staff capabilities, while of the 30 financial
institutions with high new hire attrition rates of “40% or more,” a notably high 80.0%
indicated insufficient staff capabilities. That is, the higher the new hire attrition rate of
the financial institution, the more severe personnel shortages it faces. There is a highlikelihood that the high attrition rates for junior staff is a reflection of the lack ofpersonnel development within the financial institutions.

24

6.4 Disparities in efforts to address attrition rates
The results of this survey show that new hire attrition rates are affected by personnel
evaluation systems, and that high new hire attrition rates accelerate personnel
shortages. Given this, we were interested in what kinds of personnel policies were being
implemented by the financial institutions with high new hire attrition rates.
The survey asked respondents about the contents of personnel evaluations conductedduring the past three years (Question 31). We then cross-tabulated answers to thisquestion and new hire attrition rates. Specifically, in Table 14, we organized the statusof changes in personnel evaluations and policies by new hire attrition rate. For example,
30% of the 33 financial institutions with “Almost zero” attrition rates answered“Evaluations were conducted by multiple evaluators.”
New hires leave companies in large numbers, resulting in the lack of personnel
development. Therefore, we expect that the higher the attrition rates in a financial
institution, the more the company can be expected to recognize this danger and revise
its personnel policies. However, according to Table 14, only 57.6% of the financial
institutions with attrition rates of “Almost zero” chose “There have been no majorchanges,” while 82.8% of financial institutions with “40% or more” attrition rate chose“There have been no major changes.” In other words, regrettably, we found that
financial institutions which should have a sense of crisis are not sufficiently addressing
the problem.

25

Table 14. Changes in personnel evaluations and policies by new hire attrition rate

6.

40% or more

5.

25% to 39%

4.

10% to 24%

3.

5% to 9%2.

1. More weight has been placed onprocess evaluation, rather thanresult evaluation (including additionof new evaluation)
2. More weight has been placed on
qualitative evaluation (including
addition of new evaluation)
3. Evaluations were conducted bymultiple evaluators
4. A system was introduced forreflecting customer evaluations
5. A system was introduced forevaluating long-term efforts insteadof short-term efforts
6. There have been no other majorchanges besides the above
7. There have been no major changes
No. of valid responses

1.

Almost 0

0% to 4%(multiple answers allowed)

12.1%

17.5%

33.3%

15.7%

23.9%

3.4%

15.2%

12.5%

28.6%

14.3%

8.7%

10.3%

30.3%

7.5%

19.0%

17.1%

17.4%

17.2%

0.0%

0.0%

4.8%

0.0%

0.0%

0.0%

0.0%

2.5%

19.0%

2.9%

6.5%

0.0%

3.0%

10.0%

0.0%

7.1%

6.5%

6.9%

57.6%
33

72.5%
40

61.9%
21

75.7%
70

67.4%
46

82.8%
29

7. Conclusions
This paper analyzed the current state of regional revitalization efforts by regional
financial institutions, and the challenges faced therein, based on the results of the“Survey of Current Conditions and Challenges of Regional Finance in Relation to
Regional Revitalization,” conducted in January and February 2017 with thecollaboration of the Japan Financial News Company.
Almost all of the financial institutions shared a desire to actively take on regional
revitalization, but in actuality some were implementing effective measures, while somewere not. Furthermore, the study showed that financial institutions that were
producing strong results had transitioned to appropriate personnel evaluation systems
and have established a positive feedback cycle that makes it even easier to produce26desirable results. Financial institutions which were not producing strong results, on theother hand, were merely issuing commands, without working on personnel evaluation
reforms, leading to no meaningful outcomes.
The success or failure of regional revitalization and turnaround/startup support
efforts is dependent on business viability evaluation capabilities. To improve theirbusiness viability evaluation capabilities, financial institutions must build personnel
systems which motivate staff to build their own ability. However, financial institutions
with lower capabilities also had a lower likelihood of revising their personnel systems,
creating a widening gap between the slogan of “regional revitalization” and the actual
situation.
This will lead to further gaps within the financial industry. This is an extremely
unfortunate situation for companies that work with financial institutions which remain
unable to perform business viability evaluation. In this regard, there are hopes for two
positive outcomes of the financial intermediary function benchmarks advocated by the
Financial Services Agency. The first is that they will provide an opportunity forstagnating financial institutions to recognize their own situations and make changes.
The second is that they will provide an opportunity for companies dealing with thesefinancial institutions to realize their problems and switch to other better financial
institutions. This pressure from customers will prompt underperforming financial
institutions to change of their own attitude, or to be pull out of the market if they refuse
to do so. We hope that an across-the-board rise in the quality of financial intermediationis realized soon.

<References>
Yamori, Nobuyoshi, Tomoko Aizawa, Shingo Umino, Hikaru Ogawa, Yasufumi Ozaki,
Kazumine Kondo, Kenya Takaku, Kei Tomimura, Kozo Harimaya, and Mitsuyoshi
Yanagihara (2017), “How Do Branch Managers of Regional Financial Institutions
Deal with Regional Revitalization: Results of the 2017 RIETI branch manager
questionnaire,” Research Institute of Economy, Trade and Industry (RIETI)
27

Discussion Paper Series 17-J-044, July. (in Japanese).
Yamori, Nobuyoshi, Kei Tomimura, and Kenya Takaku (2013), “Community-based
finance viewed from the field of regional finance: Reforming awareness developed,
but low profitability remains,“ Kinyu Journal, pp.46-59, July issue. (in Japanese).
Yamori, Nobuyoshi, Kei Tomimura, Masao Ojima, and Zhu Tong (2018) “Current status
and issues of regional finance on regional revitalization: based on the 2017 surveyof financial institution headquarters,” Research Institute for Economics andBusiness Administration (RIEB) Annual Report on Economics and Business
Administration, vol. 67, pp.19-166, March. (in Japanese).

28