by Noriyuki Morimoto
There is an old Japanese saying that means “not lending money is a form of kindness.” It implies that even when you are able to lend money, and even if lending would clearly satisfy your customer, there are times when it is better not to lend, for the customer’s true benefit. This is a customer-oriented view, even when the potential borrower is likely to think you are rude and nosy to refuse a loan when you are able to extend one.
Consider financing a speculative property acquisition: while the customer might be satisfied, it may ultimately destroy the customer. Therefore, taking a customer-oriented approach means that you should not extend that loan.
Even in less extreme cases, when you scrutinize a company’s loan application from a customer-oriented perspective, you might find ways to eliminate the need for a new loan, such as selling idle assets or streamlining management. In such a case, it is the bank’s social mission, and in the true interest of its customer, to refuse a loan and instead guide the company through management reforms. However, while it is easy to tell what satisfies the customer, it is difficult to know what is in the customer’s true interest. Herein lies the challenge of a customer-oriented approach.
In the case of financing, in order to determine creditworthiness for extending a loan, the bank needs to analyze the customer’s business condition, with a singular focus on whether or not the company is worth lending money to. Therefore, a contradiction arises: if the company is in good financial health, it is naturally worthy of a loan, but there is no necessity to lend; conversely, if the company is in temporary financial distress, its financial condition signals that the bank should not lend, but there is a great necessity for a loan.
This happens because in credit analysis, decisions are made from the lender’s perspective, not the borrower’s. In short, this is not customer-oriented in the slightest. However, when you take a customer-oriented approach and think from the borrower’s perspective, the question would be: if the company is creditworthy, what are ways to do without a loan? If the company is not, what are the management reforms needed to make it creditworthy? This is the customer-oriented attitude that considers the true interests of the customer.
[Category /Fiduciary Duty]
Chief Executive Officer, HC Asset Management Co.,Ltd. Noriyuki Morimoto founded HC Asset Management in November 2002. As a pioneer investment consultant in Japan, he established the investment consulting business of Watson Wyatt K.K. (now Willis Towers Watson) in 1990.