Second, in the Asian region including Japan to some extent, the financial intermediation function has traditionally been served by indirect financing, mostly through banks (Chart 3). Although it has gradually declined in some jurisdictions in recent years, the reliance of firms on indirect financing is still structurally high.
Given this financing structure, when a large negative shock hits financial institutions, nonfinancial corporations are likely to find it hard to get smooth debt financing from these financial institutions, almost regardless of these nonfinancial corporations’ financial soundness. Third, from a wider perspective, there is still the issue of scant investment opportunities in Asian local currencies.