However, if these institutions' financial soundness deteriorates further due to a fall in lending rates and an increase in credit costs, the smooth functioning of financial intermediation could be impaired, posing a risk that downward pressure will be exerted on the real economy.
On this point, financial institutions' lending rates have been at extremely low levels, partly reflecting intensified competition among institutions, in a situation where demand for new loans is limited due to declines in population and the number of firms across regions, and where the low interest rate environment is prolonged.