Syndicated loans

The increase in overseas investments and acquisitions by Japanese corporates has led to a significant increase in the need for syndicated loans in foreign currencies (primarily US Dollars) and to a challenge for Japanese banks to support this activity given their limited access to non-Yen currencies. Large Japanese banks are therefore advocating for a deregulation of the Money Lending Act (MLA) that would allow foreign banks without a presence or banking license in Japan to participate in non-Yen syndicated loans arranged in Japan, thereby adding liquidity to this market and facilitating the arrangement of such loans. This is currently prohibited under the MLA which only allows participation in such loans to foreign financial institutions with established branches and banking licenses in Japan. In summer 2024, the FSA launched a Working Group (WG) to discuss this request. The WG is scheduled to release an interim report in early 2025, based on which further discussions are expected. From the standpoint of foreign banks operating in Japan, while such deregulation may benefit those who are strong in the arrangement of syndicated loans by allowing access to a broader pool of potential lenders outside Japan, it may also threaten the level playing field for foreign banks focusing on participation who complied with existing regulations and established a domestic presence and banking licenses in Japan.