Nevertheless, such activity is still limited. Loans to small and medium-sized firms have remained sluggish. Although financial institutions have advanced their initiatives to facilitate financing in recent years, improvement in the quality of their loan assets has been slow.
The profitability of lending and interest rate margins on loans have remained on a long-term downtrend because of intense competition among many lenders to attract limited positive demand for funds and borrower firms that are top rated (Chart 7). Such a problem is basically a reflection of prolonged deflation, sluggish economic activity, and weak demand for funds.