Japanese bank Resona says inflation is boosting SME loan demand, pay hikes

Resona Holdings

02/12/2024 09:00

By Anton Bridge
       TOKYO, Dec 2 (Reuters) - The return of inflation in
Japan is pushing up loan demand from the country's small and
midsize firms for capital investment and digitalisation, the
chief executive of Japanese lender Resona Holdings  8308.T 
said.
    Eight months on from the Bank of Japan's move to end eight
years of negative interest rates, there are also signs that
smaller companies are increasingly able to pass on price rises
to their customers, Resona CEO Masahiro Minami said in an
interview with Reuters last month.
    SMEs make up the bulk of Resona's client base, giving the
bank insight into the state of firms that account for most of
the employment in the world’s fourth-largest economy. 
    Smaller firms have long lagged larger companies in raising
prices and wages - a central component of the Japanese
government and central bank's hopes to revitalise the economy,
but Minami sees signs of change.
    "SMEs are heading in the right direction, they are
responding to the economic environment to maintain and improve
their competitiveness," Minami said.
    Resona is Japan's fourth-largest banking group by assets. 
    Resona's loan balance for SMEs was up 4.9% by the end of
September from a year earlier. That compared with just 1.1%
growth in the 12 months through September 2023.
    These loans are being used for capital expenditure such as
for new equipment and digitalisation to offset a lack of staff
in an ever tightening labour market.
    The greater challenge for smaller firms has been to pass on
price rises caused by higher materials and personnel costs to
their customers.
    "Large companies are more confident about the value of their
products," Minami said. "After 30 years of deflation SMEs still
fear their customers will go elsewhere."
    But as expectations of moderate inflation take root this way
of thinking is changing, Minami said.
    The Japanese government is hoping this will lead to pay
rises, which new Prime Minister Shigeru Ishiba has made a top
priority.
    Last week Ishiba said he would ask companies to bring in
significant wage hikes at next year's labour negotiations and
has pledged to raise the average minimum wage by 42% by the end
of the decade.
    Minami said the broad trend is positive, even if some
smaller firms say they will struggle to pay up.
    "Even though real wages are trending downwards, little by
little SMEs are catching up," Minami said.
    

 (Reporting by Anton Bridge; Editing by Susan Fenton)
 ((Anton.Bridge@thomsonreuters.com;))