Note 2-21

(21) A loan is a financial claim payable to a specific party and can be sold upon agreement between a seller and a buyer unless a special ban on the sale of the loan is specified in the lending contract (Article 466-1, Civil Code). The seller is required to notify the borrower of such sale, or such sale is required to be approved by the borrower. For the buyer or the third party, the notification or approval must be made in a written certificate specifying the sale date, or the sale must be registered (Article 467, Civil Code, and Article 2, Law on Special Civil Code Exemptions Regarding Requirements Involving Sales of Loans). As problems with the liquidation of loans, a report by the Loan Market Council in March 2003 cited 1) borrowers' approval on sales of loans, and 2) financial institutions' duty of confidentiality and disclosure of information to investors. As specific obstacles to the loan liquidation, the report pointed to 3) fears that loan sales could be interpreted by observers as indicating rising credit risks of borrowers, and 4) changes in rankings of trading partners and increased technical work accompanying changes in loan repayment destinations. As for approval on loan sales, the report called for preferential treatments regarding lending terms, upward revisions of financial institutions' assessments and ratings for borrowers, and other measures that could encourage borrowers to approve sales of loans. Regarding information disclosure, the report said public information for disclosure without borrowers' approval should be separated from private information that cannot be disclosed without borrower's approval.