Japanese Risk Management

Managing risk in a so-called risk-avoiding culture – sounds contradicting, erh?

It does not mean there aren’t any risks. Let’s say, they are hidden away, sweeped under the carpet, or crammed into somebody else’s stomach.

Japan is known as a “cash culture” despite several electronic payment methods which are used when people do not want to bother others, e.g. when switching from one transport line to another, the PASMO or SUICA card speeds up the process.

Credit cards are also common especially to show that you are a member of an affluent club. Especially the youth is a bit more open towards credit cards since they pay of the cost of a seniority system which commands comparatively lower wages for young people in exchange for a better paid management.

But if it comes to luxury, it’s the moment for special credit companies, called Shinpans like ORIX, ORICO, or JACCS, since commercial lending is legally strictly separated from commercial banking in Japan (although credit companies are finally backed by all the major banks).

BTW: even the expensive reports of Datamonitor do not tell the Shinpan-story. So much about pure data analysis.

And here … is the magic of credit risk in Japan, company offers credit sales which in turn is forwarded to a Shinpan for a fee. The Shinpan collects the installments on behalf of the company and guarantees the repayment of the full loan as soon as the debtor defaults.

But how can a Shinpan afford such a business model?

Do they “eat” all that defaulted debt? Do they resell it to the market as ABS before the house burns down? Do they cover the debt with the gains of reselling the repossessed underlying asset?

Wanted: somebody who can explain the backend of the Shinpan model, i.e. what are they doing with all this guaranteed debt? Repackaging and selling as ABS?

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