Cost and Profit Structure of Consumer Finance Companies

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  • 消費者金融会社の収益・費用構造
  • ショウヒシャ キンユウ ガイシャ ノ シュウエキ ヒヨウ コウゾウ
  • 消費者金融会社の収益・費用構造
  • 〔第1回消費者金融サービス研究学会全国大会〕金融ビッグバンと消費者金融サービス
  • ダイ1カイ ショウヒシャ キンユウ サービス ケンキュウ ガッカイ ゼンコク タイカイ キンユウ ビッグバン ト ショウヒシャ キンユウ サービス

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Abstract

This paper explores the effect of the reduction of the maximum interest rates based on the cost and profit structure of the consumer finance companies (CFCs). The structure of cost and profit differs significantly between small and large CFCs. Small CFCs are relatively in the cost disadvantage and charge higher interest rates to their customers in order to maintain profit. Results indicated that most of small CFCs would be in the financial adversity under the reduced maximum interest rates. The maximum interest rates under the Capital Subscription Law have been reduced from 40.004% to 29.2% since July 1, 2000. Some important questions arise about this reduction: (1) how much CFCs' profitability is affected, (2) whether loans for riskier customers become unavailable, and (3) whether the number of illegal lenders increases. Based on the financial data corrected by the questionnaire research conducted by Consumer Finance Association of Japan, the cost and profit structure of CFCs can be described as a function of size. As for the profit structure, small CFCs gain interest income in the ratio against outstanding loans more than large CFCs. As for the cost structure, however, these CFCs' operating expenses are much higher than large CFCs. Consequently, small CFCs cannot be said to be profitable relative to large CFCs. ROE is calculated to conduct a sensitivity analysis. The estimated average ROE is around 20% among large CFCs and 3 to 10% among small CFCs. For about half of CFCs, ROE becomes negative under the assumption that the reduced maximum interest rates were applied. The effect is limited at large CFCs with the interest rates of already below 29.2%. Small CFCs, however, are severely affected since they have to reduce the amount of interest rates which are much above 30%.

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