Next month, Japan Post, the country’s postal service,
starts its long transformation into four separate entities.
Accounting for 28 percent of all Japanese household savings, the
banking unit of Japan Post is already one of the world’s largest
banks, according to a new report from VRL*.

The privatisation of Japan’s vast postal service operation –
which begins in October 2007 and is scheduled to finish by 2017 –
will create the country’s largest savings bank and a significant
player in retail insurance.

The first phase involves Japan Post being broken into four separate
businesses: an insurance company, a savings bank, a traditional
mail courier and a post office management company. The Japanese
government will initially retain ownership of the businesses
through a state-owned holding company, and gradually sell off
stakes in each and the holding company over a ten-year

It could be argued that Japan Post is not a postal system that
provides banking services; it is rather a bank that also provides
postal services. To four million Japanese, Japan Post is their only
financial services provider.

The number of branches peaked at the end of March 2001 at 24,774.
The number at the end of March 2006 was 24,631, consisting of 1,304
ordinary post offices, 18,917 special post offices and 4,410 postal

Japan Post’s substantial postal savings operation, which operates
under the Yucho brand, offers a wide range of savings accounts and
certificates. The most popular accounts are the Ordinary Savings,
Teigaku Savings (including its many variations) and Time Savings

Decreasing level of

Japan Post’s postal savings unit reported loans to depositors of
about ¥481 billion ($4.2 billion) by March 2005, decreasing to ¥409
billion by March 2006.

For Japan Post as a whole, postal service operating revenues
(comprising external revenues from stamp sales, sales of postcards,
parcels and express mail, mail with deferred payment of fees and
mail with non-affixed postage fees) have declined steadily – from
¥2.05 trillion in fiscal year 2000 to ¥1.91 trillion in fiscal
2003. The decline was driven by a 26 percent drop in stamp

In fiscal 2004, postal service operation revenues were ¥1.86
trillion, down 2.7 percent or ¥50.7 billion. In fiscal 2005,
revenues were ¥1.86 trillion, unchanged from the previous year.
Japan Post’s postal savings balance declined for the eighth
straight year in fiscal 2006. By the end of March 2005, the postal
savings balance was down overall to ¥264.8 trillion; it dropped
again by the end of March 2006, to ¥247.7 trillion. By the end of
March 2005, Postal giro account balances increased up to ¥5.19
trillion, and reached ¥5.80 trillion by the end of March

In fiscal 2005, the most recent period with published figures,
interest income accounted for 69 percent of revenues, of which
¥1.94 trillion was earned from trust funds and ¥1.15 trillion was
earned from securities. Income from service transactions totalled
¥102.9 billion.

Boosting financial services

To boost its financial services business, Japan Post began to forge
alliances with other financial institutions in 2003. The agreements
focused on enabling mutual remittance services between postal
savings and bank accounts and sharing access to ATM networks.

More than 30 institutions have mutual remittance agreements with
Japan Post, while 1,870 institutions have ATM/ cash dispenser
sharing tie-ups with the postal corporation, including agreements
with IY Bank and Sumitomo Mitsui Banking Corporation giving postal
savings cardholders access to ATMs in major convenience store
chains such as Seven-Eleven, am/pm, Lawson and Family Mart.

The privatisation of the postal life insurance company, Kampo, has
prompted considerable attention and unease in Japan and abroad. The
Life Insurance Association of Japan (LIAJ) published a statement
back in February 2004, for instance, arguing that the Kampo
business was “no longer relevant” and “potentially detrimental to
the development of a sound life insurance market”.

The current plan envisages the privatised postal life insurance
company operating on an equal footing with private sector
operators. It will operate under the terms of the Insurance
Business Law with over-the-counter and money collection services
commissioned to the post office network operator. It will pay tax,
government guarantees on postal life insurance will be abolished
and the company must join the Life Insurance Policyholders
Protection Corporation of Japan.

*The above is a brief, edited extract from a new report from
VRL KnowledgeBank called Post Office Financial Services. Written by
Joe Divanna, the report looks in detail at the current state of
play in post office financial services around the world, including
in China, Japan, the US, Europe and India. Contact Shouvik Sen
for more information