Japan has been confronted with both limited demand for new loans, due to a decline in population and the number of firms across regions, and with prolonged low interest rates. In this situation, financial institutions' average contract interest rates on new loans and discounts have reached extremely low levels, owing in part to intensified competition among institutions.
As a result, there has been a narrowing of net profit margins -- calculated by deducting overhead cost ratios from the interest rates. 2  IMF, Global Financial Stability Report, April 2020.