Full Year 2016 Shinsei Bank Ltd Earnings Presentation

May 11, 2016 AM EDT
8303.T - Shinsei Bank Ltd
Full Year 2016 Shinsei Bank Ltd Earnings Presentation
May 12, 2016 / 01:30AM GMT 

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Corporate Participants
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   *  Hideyuki Kudo
      Shinsei Bank Ltd - Representative Director and President
   *  Masayuki Nankouin
      Shinsei Bank Ltd - CFO

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Presentation
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 Hideyuki Kudo,  Shinsei Bank Ltd - Representative Director and President   [1]
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 My name is Kudo of Shinsei Bank. Very nice to see you all and thank you for coming and allow me to be seated while I speak.

 I would like to give you the highlights of the fiscal year ended March 31, 2016. Mr. Nankouin, the CFO, will be giving you the details. But as far as fiscal year 2015 is concerned, I would like to give you a few key points. There are three key points.

 First of all, between fiscal year 2010 and 2015, during the first and second mid-term management plans for six years, profits have been recorded. Fiscal year 2015 was the final year of the second mid-term plan and full year net income was JPY60.9b and it was a 10% decline since fiscal year 2014 year on year.

 Recurring profit and one-time of profit was the categorization we have been using since the previous quarter. But, as far as 2015 is concerned, non-secured loans recurring profit increased. Recurring profit including non-secured loans increased by JPY4b. On the other hand, one-time of effect was both positive and negative, but in the previous term there was the significant increase in profits from investments which declined.

 According to the announcement we conducted on January 29 of expected profit of JPY62b, there has been an impact because of the introduction by BOJ of negative interest rate policy, but there hasn't been much difference.

 JPY55b was the forecast we announced in January. But BOJ's negative interest rate policy which we had not been factored in, in that forecast had been factored in, so 5% revision had been made. And stable income is to increase by JPY2b on year-on-year basis. The details will be given to you later.

 Finally, at the Board meeting, resolution was adopted for share buyback program with an upper limit of 100m shares, or JPY10b. One of the priorities is repayment of public funds. Taking into consideration that the current capital situation and the profit generating power under the objective of identifying the path to repayment of public funds and as part of measures to achieve that goal, we will be seeking the opportunity for share buyback in order to increase per share value through appropriate capital policy.

 Fiscal 2015 was the final year of the second mid-term plan, so let me try to take a long horizon in hindsight. As far as profitability is concerned, for the six successive years we recorded profits with six year cumulated basis of JPY270b. 2.4% improvement of net interest margin was seen. On the other hand, expense ratio targeted as 60% was not achieved.

 In terms of soundness, NPL has improved drastically to 0.79% and with optimization of risk asset, capital adequacy ratio continues to improve.

 So to summarize, in the past mid-term program we have increased our profit and increased capital as well as the quality of asset and therefore financial soundness is more robust.

 On the other hand, when the third mid-term management plan was announced, I touched upon these points slightly. Historically, resources may have been allocated optimally and therefore through selection and concentration we will be concentrating resources into recurring profits and also resources will be injected in order to improve the profitability of the Group in the third mid-term management plan which begins in the current ongoing fiscal year.

 Next page please.

 Now this is the full year financial summary for fiscal year 2015. There are three key points. First, January 29 announcement of full year forecast included JPY62b of profits. So in comparison to that forecast, as I already mentioned, because of the negative interest rate policy introduced by BOJ, there was volatility in the market which had impacted our performance and on year-on-year basis, the recurring profit was driven by unsecured loans and there has been an increase by JPY4b. Please take a look at the diagram on the right-hand side which explains that breakup.

 And NPL disposal proceeded and reversal of the reserves or one time of profit, there has been a decline by JPY12.4b year on year. There are some increases and reductions item by item, but an unexpected, unrealized loss was factored in and also in 2014 there was significant increase in investment gains which was non-existent in the reporting year.

 Next, full year forecast for the ongoing fiscal year. Third MTMP forecast had not factored in BOJ's negative interest rate policy and we factored in the assumed impact. Therefore, full year net income is revised to JPY52b. This is a decline from JPY55b by JPY3b since the forecast made public on January 29. But, frankly speaking, the external environment has been factored in, but there is much opaqueness still remaining. But this is the breakdown of the impact.

 Revenue, minus JP5b. As far as the items are concerned, net interest income, 15% base rate decline. And this is not directly coming from the negative interest rate policy, but rate timing due to landing competition intensification.

 And in the area of non-interest income, it's difficult to make assumptions or presumptions, but if we look at the most recent few months, there has been market volatility that had led to retail customers distancing themselves, or we do have derivative business vis-a-vis SMEs and the mindset of those customers had declined and the appetite has declined. So we are thinking that non-interest income will be reduced due to those factors.

 On the other hand, on the expense side, when the mid-term plan was announced, I mentioned that we will be implementing a few projects and we estimated the effects of those projects and therefore some additional items have been factored in on the expense side. And credit cost which is one of the details, have been adjusted as well as other detailed items.

 Generally, speaking, negative interest rate policy impacts the banking sector generally negatively. But the decrease of impact will defer bank by bank depending on the business portfolio. In the case of Shinsei, on the investment side, we have investments that are not directly linked to market interest rate such as consumer finance and absolute margin is high in structured finance which are the core business of Shinsei. So relatively speaking, we are less impacted than our peers. And in the third mid-term management plan, those areas are identified as growth areas which we'll be pursuing with resources.

 On the funding side, in comparison to our peers, funding cost at Shinsei used to be slightly high. But relatively, we will have significant impact through the initiatives on the efforts to reduce funding cost. So although negative interest rate policy is going to have negative impact, relatively speaking, we would be better off than our peers.

 And when I announced in the third mid-term management plan, in comparison to the second mid-term plan we are prioritizing the achievability. So pre-negative interest rate policy versus post-negative interest rate policy, we want to still maintain the same level of achievability and therefore, we revised our plans so that the achievability will remain neutral, pre- and post-negative interest rate policy announcement. But, at the same time, there is even more uncertainty as to what monetary policy the BOJ will be taking in future.

 In terms of recurring profit for this year, we are expecting the increase by JPY2b.

 And I will give the microphone to Mr. Nankouin, our Group CFO.

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 Masayuki Nankouin,  Shinsei Bank Ltd - CFO   [2]
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 This is Nankouin. So let me continue the explanation. So I'd like to go in some more details. First, please take a look on page 7. This is about the net interest income.

 Firstly, if you take a look at the total number, the bar chart on the left-hand side. This shows the breakdown by business and the message here is that unsecured loans, the interest income is growing steadily. In absolute value, the increase of JPY3.7b on year-end basis and represents 50% of the total interest income.

 Another increasing factor is -- this will be covered in the NIM -- the deposit and corporate bond funding cost declined and that the improvement to JPY3.7b. It's a one-time profit. So if it is excluded, we are seeing an increase compared to the last fiscal year.

 Please go to the next page. This is about the net interest margin, or NIM. First, overall, the NIM increased by 2.4%, or improved to 2.4%, because corporate bonds, especially for the redemption, the subordinated bonds and the deposit cost decreased.

 And FY 2014, the dividend income, there was a large income. And excluding that one-time factor, the securities yield or yield on securities showed on the chart in the middle is increased.

 Further, if you look at far right, this is the rate on deposit and corporate bonds. This shows a decline. Still, we have redemption to some extent of the corporate bonds for this fiscal year, but for deposits -- but gradually this decline is likely to be smaller.

 Please go to next page, page 9. This is about balance sheet, assets and the liabilities.

 First, the loan to deposit ratio. At the end of the March this year is 79%. However, showed in the left-hand side, the virtually for the placement type bonds and our non-recourse loan finance which are virtually considered as loans, if you consider these, then actually the loan to deposit ratio is 82%.

 And the bar chart on the far right shows that we have taken a good balance picking up in assets and ALM asset versus funding.

 In another point that I want to emphasize that in over the yield -- operating assets, the unsecured loans which are growing steadily and the structured finance, the percentage 26% of total operating assets. Traditionally, when we explain the third mid-term management plan in the selection and focus policy, this is our focus areas and we will like to further increase and grow these areas.

 Next, please go to page 10. This is about the non-interest income. So, as the CEO, I have mentioned in terms of the stable profit, the non-interest income, the relatively stable growth shown on the APLUS financial and Showa leasing. The non-interest income from these two businesses are relatively stable as you see by the chart on the left-hand side, the light green and the bottom orange show the stable growth.

 Next. Please go to the next slide, slide -- page 11. This is about expenses. From the FY 2014 this has declined slightly. But as the CEO gave the summary at the beginning, as the final year of the third MTMP we targeted less than 60%. However, the expense to revenue ratio was 64.9%. And going forward and during the period for the third MTMP, we will like to be selective in investment. And by enhancement of our productivity, we will like to improve this ratio.

 Next, slide 12. This covers the net credit costs. In order to avoid the explanation, it is difficult to understand I would like to do some breakdown.

 First, in total the net credit cost was JPY2.7b. And the details, if you take a look at the chart on the left-hand side, first in the institutional business, the blue bar, the NPL disposals and the reserves are reversed and there was recoveries. So there were the JPY20.2b recoveries.

 And the green bars, this is about the retail, the Lake business and APLUS. These are -- the balance grew in these areas and we recorded additional reserves.

 And on a net basis, in FY 2015, the credit cost was JPY3.7b.

 And regarding Lake, as shown on the third bullet point, the net credit cost is about approximately 4% of total balance. This is obviously on the normal operation on a normal cruising speed reserve ratio.

 Next, page 13, asset quality. As our CEO explained at the beginning, the NPL disposals is proceeded smoothly. As shown on the left-hand side, NPL ratio is now less than 1%. And on a consolidated basis, in terms of risk monitored loans, was more than 7% at the end of fiscal year 2013. This ratio is now hit the 2% level. So we saw a great improvement, so the asset quality improved significantly.

 Next, slide 14. This covers capital. So this is quite straightforward. Because of the stable accumulation of profits, the CET1 ratio on a fully loaded basis were 12.9%, so we are seeing the steady growth, or increase.

 Next, from slide 15, this is about the businesses. So I'd like to be selective and I'd like to cover main businesses from here.

 First, slide 15 is about the unsecured personal loans Lake business. Let me cover this business first.

 First, the customer acquisition, the number of applications did not grow much. This is because of advertisement. In industry, there is a tough competition over advertisement. So compared to our peers, we are slightly behind in terms of advertisements and for the branch network, for example [I4] has grown the number of branches. So in terms of the branch network, there is a room for review. And with these as factors, we do not see growth as we expected in terms of numbers of applications. And the web channel applications were at a reasonable level. And because of the increase of this ratio from here, the accounted rate, approval rate, because of the web channels has had a lower approval rate which just applies same as our peers. Accordingly, our total approval rate declined.

 On the other hand, per our customer, average balance as shown on the right-hand side, this is lower volume JPY500,000, exceeded 50% of total. So we are seeing a reasonable deepening of the transactions. However, going forward, we have to further develop customers and to acquire more customers in order to increase the average balance per customer that we have to further seek them.

 And for FY 2016, based on these conditions, one initiative is about advertisement, as I said at the beginning and also scrap and build of the branches. We need to do this in a selective manner and by doing so, we'd like to invest management resources in a proactive manner.

 And the process for application and the services to customers also need to be simplified and needs to be more customer friendly. So through these initiatives, we will like to increase the customer -- and we will like to improve approval rate.

 Next, please take a look at slide 16. This is about the balance of unsecured personal loans. First, please take a look at the bar chart on the left-hand side. This includes the Shinsei Financial Lake, Shinsei Bank Lake, Shinsei Financial, Shinki and the credit guarantee by Shinsei Financial. This shows the total balance of these four. The total balance as of the month is JPY428.5b. Compared to on a year-end basis, it increased by 9%.

 In the third and medium term management plan, Lake and NOLOAN offered by Shinki and the new brand by Shinsei Bank, the Smart Card Loan Plus, so we are going to implement -- develop the business using these three brands. And for Smart Card Loan Plus, it targets the customers who have accounts at Shinsei Bank. And further for this fiscal year, though for the non -- the Group member companies such as APLUS, we will like to develop or expand to those customers as well.

 And for the credit guarantee balance, with their leading provisional banks, the balance alliance proceeded smoothly. So the balance -- the credit in the balance increased JPY48.8b -- sorry, JPY24.2m.

 And slide 17, this is about structured finance. The real estate non-recourse loan and real estate finance in the structured finance, these two, this also we are seeing the spread of competition. But I would like to focus on the commercial or office -- logical facilities which we can show as strengths. As a result, on a year-end basis, the balance increased by 15%. This showed, and colored in the yellow, the 15% up.

 Next, the first finance, domestic project finance, still we are focusing on the domestic and mega solar of renewable energy origination. And in overseas, we are also focusing on renewable energy project, or infrastructure-related project and the syndication of those projects. So we are continuing our sales efforts and we saw it grew 33% on year-end basis in terms of balance.

 Next I'd like to give some more and please move to page 22. This is quite a different topic. This is about the interest rate payment. That's Grey Zone.

 For this fiscal year for APLUS Financial, based on their current conditions and the fourth quarter, the JPY2.7b additional Grey Zone reserves was provisioned. So far for the Group total, the Grey Zone -- let me give you the situation on Grey Zone first. The reserve balance was JPY136b [sic - see presentation page 22 "JPY133.6b"], which was in a sufficient level compared with our peers. And the number of the disclosure claims, as shown on the left-hand side in the past four years, this is a four-year trend, the downtrend is continuing. However, there is some active judicial scrivener offices, or law offices, so we have to -- we will continue watching the situation.

 Next, lastly, page 23. This is about the overseas exposure. The March 31, 2016, our total balance overseas exposure was JPY480b. To the total exposure, the ratio just represents about 10%. However, the high risk exposure is very small.

 Of this, first an energy-related exposure. This represents 7% and in terms of value is JPY35.2b. Of the JPY35.2b, as shown on the right-hand side in the box, project finance it is JPY25.1b. It is the -- there is the most of the energy-related exposure because of the crude oil. We often receive questions regarding the crude oil price (inaudible), but for the oil, even in the coal and other related projects, direct resource price decline or the risk based on volatility of this project is, we are not taking such a -- the risk. That's the basic policy. So through the transactions focusing on transaction with a guarantee, we believe that we will not be significantly impacted of the price volatility.

 Exposure to Russia and Latin America, JPY4.8b and exposure to China, or more specifically to Hong Kong, JPY19.8b. Both of these figures are quite limited in terms of amount.

 Sorry for the rush, but that concludes my presentation. I would be more than happy to respond to any questions you may have.

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Questions and Answers
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Unidentified Audience Member   [1]
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 I have two questions, first of all page 1, share buyback. If I read the sentence here, I get the impression that this will not be a one-time off initiative, but you will continue to seek opportunities. EPS increase is one of the efforts that you will be pursuing on a contiguous basis. Of course, it will depend on the macroeconomic trend, but is my understanding as such correct? That's my first question.

 Secondly, page 6, NIM, net interest margin. Yes, net interest margin has been increasing year after year in a steadfast manner. According to your explanation, will there be slight decline, 15 basis points decline this year? And on the funding side, will this -- we think that the reduction in funding cost will come to an end more or less. But negative interest rate policy may have an impact in reducing the funding cost. But what's your forecast with regards to net interest margin for the current ongoing year? Those are the two questions.

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 Hideyuki Kudo,  Shinsei Bank Ltd - Representative Director and President   [2]
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 Thank you very much. As far as your first question is concerned, we are seeking to design an avenue towards the payback of public funds, and that is the objective of the share buyback, but in the case of Shinsei, public funds are in the form of common shares, and therefore identifying the path means increase of value per share.

 The share price per se is beyond our control. So our benchmark would be net asset per share, or profit per share and earnings per share, or BPS. These would be the benchmark, and therefore, increase in per share values will be pursued, and that should lead to a higher market reputation, and these initiatives shall continue.

 Share buyback is one of the several means to do that. Because of the nature of the program, it would also depend on the profitability at that time, market environment at that time, as well as the status of capital of the bank. So there will be judgments rendered timing by timing, and therefore, it is not possible that we will continue to stick to this mean, which is one of the several means. But, at any rate, we will continue our efforts to increase per share values.

 The second question will be responded by Mr. Nankouin.

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 Masayuki Nankouin,  Shinsei Bank Ltd - CFO   [3]
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 On your second question, first of all, 15 basis points decline is the assumption that toward have set forth. First of all, investment gain has declined, but to what extent can we offset that by reduction in funding cost?

 Of course, we calculate by estimating the offset but we cannot avoid impact to the net interest margin. So in terms of basis points, 1 or 2 basis points, it's not that significant. But in the end, we think that there will be some impact. In other words, the impact will not be zero.

 Corporate bond, subordinated bond, will also have some impact, which will be factored in. And to what extent can we minimize finance cost? We are making reasonable assumptions, and we've concluded so far that the decline in net interest margin will be rather minimal.

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Unidentified Audience Member   [4]
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 I have two questions about the share buyback. First question is why now were you able to decide share buyback? After the announcement of the medium-term management plan, internal discussions, or based on the change of the market, if you have any more information regarding why did you decide the share buyback now?

 And my second question is the reason for the decision of the share buyback.

 And the last point, assuming sufficient capital, you're seeking the increase of the per share value. So what is the significance? How should I interpret this, or what is the precedent, the intention or the wish in here?

 In addition, what is your target for ROE and CET1? I think they were blank in your medium-term management plan. Is there anything that you can indicate to us? That would be appreciated. Thank you.

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Unidentified Company Representative   [5]
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 Well, first, regarding timing, why wasn't it announced at the time of the announcement of medium-term management, I think that is your question, or what in this fiscal year. I'm not very sure. But -- well, the decision on the acquisition the first year of share buyback is based on our situation of the capital and earnings, and after the financial result announcement, we were able to see their situation and based on the market condition. Since January, the negative interest rate policy has been implemented, there was some confusion. And also, the total, the stock rises of the national institutions declined overall. So based on such market condition, we concluded that it is appropriate to do the share buyback now.

 On -- in a longer perspective, the primary purpose is to develop the path for the public funds repayment in order to -- as I explained at the beginning, the several years we have accumulated earnings and have accumulated capital, and going forward, we need to increase per share values. And based on this, it is appropriate to do the share buyback now, so we have made such a decision.

 And to your second question, well, through this initiative, what target means, are you talking about the general targets or assuming share buyback? What is your purpose, the question?

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Unidentified Audience Member   [6]
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 The maintaining sufficient capital. What do you mean by maintaining sufficient capital? In the appropriate capital policy, what is your view on appropriate capital policy? And in that context, the ROE or CET1, if the higher figures are impossible to offer, then based on the current level, what's your view? Are you seeing the increase or decrease or flat?

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Unidentified Company Representative   [7]
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 Well, to answer that question, first, we're still a public funds injected bank, and we need to maintain or accumulate capital for the repayment of public funds. And our business portfolio, based on the portfolio, the risk amount is decided, and we would have to see whether the capital is sufficient to support the risk. And it depends on the situation of the profit, and based on this, the capital policy will be implemented in appropriate manner. It's not that we have any specific numerical target.

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Unidentified Audience Member   [8]
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 First of all, on capital policy. Increased per share value, what do you mean by this? You said that you'll be selecting the appropriate means from time to time. One means could be M&A, and increase of dividends could be yet another means, and you would be making judgments from time to time.

 M&A, dividend increase. You have various options, but in terms of options for increase per share values, how do you evaluate each option? And amongst all options, why are you focusing on share buyback this time around? That's my first question.

 And secondly, it's about the amount of share buyback. You're still a public fund injected bank, and therefore I know that you need to accumulate profit. But why the threshold at JPY10b? We think that you have more leeway to increase the threshold, but then there's a negative interest rate policy and your new mid-term plan has just begun. So have you tentatively set this threshold, and can we expect that this threshold will be raised in the months and years ahead? Thank you.

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Unidentified Company Representative   [9]
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 Thank you. Well, all I can say is the judgment will be rendered comprehensively by taking into consideration various factors. How do we use capital? How do we increase per share value? As you have rightly pointed out, the necessary measure would be change of business model or shifting of business model, and that may be done through M&A.

 On the other hand, a share buyback is yet another means, and depending on the prevailing circumstances, we will prioritize, because monetary resources are finite, and therefore we will think about the balance. And at this time, we think that share buyback at this size is appropriate, and that's the judgment that we had concluded.

 You say we can do more. Technically, maybe that's so, but at this timing, we believe that this will be the appropriate size at this stage. And as you have pointed out, we wish to identify the path to the repayment of public funds. And it's the first time we're announcing share buyback for that particular objective, so that's one factor as we delivered this comprehensive judgment.

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Unidentified Audience Member   [10]
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 First -- my first question is regarding the current Shinsei Bank's business model. CET1 ratio at 13%. Do you think that is sufficient or insufficient? How do you see the 13% CET1 ratio?

 And my second question is regarding the identify the path to repayment of public funds, and my question is regarding the method of repayment. This is related to my first question. The repayment of public funds, the resource of the repayment, assuming the repayment, the capital needs to be accumulated. Is that what you're thinking? Or in terms of identifying the path to the repayment of public funds, the target collection or the book value the government is one of the hurdles, and you hope to achieve this also is another path.

 So once the stock price reaches a certain amount, the offering could be also one of the measures for the public funds repayment. So, as long as you increase the stock price, if you have the offering that would be sufficient, is that also what you're thinking as identifying of the path to the public funds repayment?

 Actually, my second question overlaps somehow with my first question. Thank you.

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Unidentified Company Representative   [11]
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 As Mr. Tanaka pointed out, there are two questions linked to each other, so I think I'm going to give you one answer. When the -- taking the risk out of the business portfolio, the 13% is more than sufficient, I think. On the other hand, as a public funds injected bank, to repay public funds, also that's a big agenda.

 And in terms of the method of the repayment, we have to see the increasing stock price and offering. That is one of the measures, because that will not impact your capital. But as we explained, we are receiving various proposals. Internally, we are having discussions, and what scheme -- what impact on the capital, that cannot be said in one word. So the absolute amount of the public funds repayment is known, so how much should be deducted from the capital and what would be the impact? Based on that, the capital policy will be considered and the business will also be examined. Thank you.

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Unidentified Audience Member   [12]
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 So this share buyback, in order to implement, that was approved by the authorities. So what do you think about the reasons why the authorities gave the approval for this?

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Unidentified Company Representative   [13]
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 Well, sorry, but I cannot answer how the authorities are -- thought -- approved this share buyback.

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Unidentified Audience Member   [14]
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 I apologize for the repeatedly same question. Share buyback and negative interest rate policy, one question each. First question, if my understanding is incorrect, please correct me.

 Usually, when a company announces share buyback, MUFG has done that, Mitsui Sumitomo Trust has done that, but the timing of share buyback would be also announced like two months. So they would be immediately be beginning the share buyback and would be finishing within the term. But this time around, you're making available one year, and during this window, you will be doing share buyback within this threshold, or like usual, does this mean that you will immediately begin this share buyback? That was unclear, so if possible, from when will we launch the share buyback, or did you just decide that sometime in the future you will be doing this? That's my first question.

 Secondly, I want to take this -- take advantage of this opportunity. And there are very few banks that have announced how they would be impacted by the negative interest rate policy. JPY5b would be the impact assumed. But can you break that up? What in terms of investment gains, and what would be the impact from the funding side, and what would be the impact from the market environment? If possible, can you give us a breakdown?

 And also, I hope this doesn't happen, but even if there is even harsher negative interest rate policy introduced by BOJ, do you think that same level of impact will be felt by Shinsei in the second round of NIRP by BOJ?

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Unidentified Company Representative   [15]
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 Thank you very much. As far as your initial question is concerned, at what timing will we be doing the share buyback, it would be extremely inappropriate to make any such comments from my position, so please understand that I will refrain from making any such comment.

 And the second point was with regards to negative interest rate policy. Could you try to respond to that question?

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Unidentified Company Representative   [16]
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 Right. Rather than the actual amount, let me explain how we came up with this assumption. 10 basis to 20 basis is the range, and I mentioned 15. But if we assume the range of between 10 to 20, in the investment yield between 5 to 8 basis points decline, and then funding cost 3 to 4 basis points decline, and as a result, there would be a net impact of 2 to 4 basis points. And the amount, as indicated at the end, between JPY1.5b to JPY3b. That's how we came up with this estimate.

 It depends on the bank, because bank by bank, the portfolio mix is different. Construct is different. Low sensitive assets occupy quite a high proportion in our case, like consumer, so in a way, we think that our estimate of the impact is more towards the modest side.

 And your other question is what happens if negative interest rate further expands? It's difficult. This is just a general comment, but sensitivity is higher on the investment side. Anyone can understand that. So each time a negative interest policy expands, the degree of negative impact would increase. That's just a generalized comment. Nothing bank specific that we've done any estimates on that assumption.

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Unidentified Audience Member   [17]
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 I have one question regarding the unsecured loans. The loan interest rate, because you think that there will remain or the low sensitivity, and even the negative interest rate expands, there'll be no impact, or there is no room for reduction or decline because of the competition? I have the strong interest in this, so could you please answer it?

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Unidentified Company Representative   [18]
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 Well, in terms of the fact that we have observed, the virtually negative interest rate policy has no impact. But if the negative interest expands extremely, that we cannot tell. And this is a very attractive business area, and there are a lot of players focusing in this business.

 The scale to manage or operate this business in the domestic actually is quite dominated by several players. And if the default ratio is less than 10%, and the managing such business is quite difficult. So this is to some extent the disciplined business, so in that sense, the negative interest rate policy is likely to give smaller -- a very small impact compared with other businesses.

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Unidentified Audience Member   [19]
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 I have two questions. You have announced share buyback, and what about dividend increase? Historically, you've commented that you wish to pursue improvement in terms of dividend. Is this announcement of share buyback going to impact the bank's policy on dividend increase? That's my first question.

 Secondly, retail unsecured loans, the guarantee. You mentioned the credit guarantee business with primary regional banks. But all regional banks have agreements with non-banks in terms of credit guarantee. So how do you differentiate yourself? What's your [arsinary] -- ammunition in terms of your competitiveness vis-a-vis regional banks?

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Unidentified Company Representative   [20]
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 Thank you very much. I will respond to the first question. I don't think I've ever specifically said that we will increase dividend. Rather, we've being saying that we want to increase benefits returned to shareholders. And as a means to do that, one option is share buyback. Another option may be dividend increase. But as a fact, this will be increasing the benefits to shareholders in the end as an outcome, but the major objective is finding a path towards public fund repayment.

 And if we think about how we can increase the per share value this time around, we think that the option of share buyback was most appropriate this time.

 On the second question, as you have pointed out, credit guarantee. Already there's fixed relationship, and depending on the [Kaharitsu], certain groups are offering credit guarantee to regional banks. But I don't think that there are so many regional banks that are satisfied with their existing relationship. The reason I say so is because corporate loan margin is thin, so they want to increase the margin. So a simple guarantee is not competitive, and guarantee may not be so attractive.

 So what are we doing at Shinsei Financial? It's not just a simple vanilla guarantee. We tap on our expertise and advise them on the operational organization or advertising or promotional strategy. We go a step further and to offer in detail advice to the regional banks, and this has been very much appreciated by our clients.

 Shizuoka Bank appreciated us for offering such advice, and we've been able to make inroads into Shizuoka Bank. So we are trying to get more engagement. So rather than increase the number of clients, we want to deepen our relationship with each regional bank, and hopefully, with regional banks with whom assets can be increased, and then to a certain extent, I think there is the probability of victory.

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Unidentified Audience Member   [21]
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 So you have decided to do a share buyback. And regarding capital policy, could you please indicate comprehensive or general capital policy? For example, for the return, CET1 ratio of the total share return?

 And this, you have decided to do the share buyback. In contrast, does it mean that you did not have a destination for the capital allocation? So in the business you're considering, you cannot expand your business portfolio, so in order to be safe, so isn't it that you are too much risk averse?

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Unidentified Company Representative   [22]
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 Thank you for your question. Well, the comprehensive total capital policy was -- naturally, we should be able to explain it properly, but this overlaps with my earlier question. I will answer.

 We have the challenge as the repayment, public funds repayment, so there are uncertainties how to solve the agenda or challenge. So it is a little difficult for us to indicate in a quantitative manner, so indicating something, that is actually impossible today. But if we can deepen our discussion, the more detailed disclosure could be possible.

 And we hope that we would be able to offer it -- no destination for capital allocation, you could put it that way. And earlier, as I mentioned, the increasing per share value, there are a lot of ways to do that. It includes the organic business growth, M&A. We have not excluded that option, either, and shareholders return will also be an option.

 So we have to consider the balance of them. It's not that we did not have any other measures, that's why we have decided. So conducting a share buyback of this size was appropriate. That's why we have made that decision, but we have not excluded other options.

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Unidentified Company Representative   [23]
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 If not, then thank you for staying with us during this presentation. With this, we conclude the presentation on the financial highlights for Shinsei Bank. Thank you once again for coming.

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Unidentified Company Representative   [24]
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 Thank you for coming.

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Editor   [25]
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 Statements in English on this transcript were spoken by an interpreter present on the live call. The interpreter was provided by the Company sponsoring this Event.




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