Full Year 2017 Shinsei Bank Ltd Earnings Presentation and Conference Call

8303.T - Shinsei Bank Ltd
Full Year 2017 Shinsei Bank Ltd Earnings Presentation and Conference Call
May 11, 2017 / 01:30AM GMT 

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Corporate Participants
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   *  Hideyuki Kudo
      Shinsei Bank, Limited - CEO, President and Representative Director
   *  Shouichi Hirano
      Shinsei Bank, Limited - Executive Officer, General Manager of Corporate Planning Division, General Manager of Office of Financing Facilitation Management and General Manager of Financial Research Division

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Conference Call Participants
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   *  Katsunori Tanaka
      Goldman Sachs Group Inc., Research Division - MD and Head of Tokyo Financials Research
   *  Ken Takamiya
      Nomura Securities Co. Ltd., Research Division - MD and Head of Asia-Pacific Banks and Other Financials Research
   *  Rie Nishihara
      JP Morgan Chase & Co, Research Division - Senior Analyst
   *  Shinichi Ina
      UBS Investment Bank, Research Division - Executive Director and Japan Bank Analyst
   *  Shinichiro Nakamura
      SMBC Nikko Securities Inc., Research Division - Senior Analyst
   *  Takashi Miura
      Crédit Suisse AG, Research Division - Research Analyst
   *  Toyoki Sameshima
      BNP Paribas Securities Services S.C.A., Research Division - Head of Banks, Japan
   *  Yoshinobu Yamada
      Deutsche Bank AG, Research Division - MD and Senior Analyst of Banking

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Presentation
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Operator   [1]
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 We would like to now begin the session. Before we begin the meeting, there are a few housekeeping announcements. First of all, this conference currently is being aired on the Internet on live basis, but this is only the audio. Japanese and English will be streamed online. And as you can see as we usually do, the video recording will, on a later date, be uploaded on Shinsei's website.

 President and CEO, Mr. Kudo, will deliver the initial presentation, and Mr. Hirano, Executive Director, will be delivering the presentation. He's become Director in charge of IR, and therefore, Hirano will take the floor to give you the business and financial highlights. Those of you who are listening in to English, we do have simultaneous interpretation receivers. Those who are in need of English translation, please raise your hands and the receiver will be brought to you.

 First let me call upon Mr. Kudo to give you the highlights of the fiscal year ended March 31, 2017. He will give you the outline. Mr. Kudo, the floor is yours.

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 Hideyuki Kudo,  Shinsei Bank, Limited - CEO, President and Representative Director   [2]
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 Good morning, ladies and gentlemen. Kudo speaking. Nice to meet you all. Let me give you the highlights of the fiscal year ended March 31, 2017. The slides have been distributed to you, but I will only give you the highlights if you could turn to Page 3. These are the key points. Today, we will be speaking about the results of fiscal year 2016 and the plan for 2017 and capital policy. First of all, in the year just ended in March 2017, net income was JPY 50.7 billion, negative interest rate policy was introduced and the risk/cost mindset was beyond our expectation, and this is a onetime off factor, but in group company, there was an additional provisioning of grey zone reserves. But despite those factors, we were able to record JPY 50.7 billion of profit, which is in line with the projections that we had made at the beginning of the year.

 To look at the substance, asset expansion in the growth area [12%] in unsecured loans and 6% structured finance asset growth have been achieved. And we have introduced the concept of recurring profits, which excludes the onetime off profits, and there has been increase in recurring profits in terms of amount as well as the ratio.

 Next on the forecast for this current year. JPY 51 billion is the net income we are forecasting on consolidated basis. In January 2016, we announced the midterm plan, and we gave you the number, JPY 61 billion. So what is this gap? There are factors that have not been embedded into the midterm management plan. First of all, the negative interest rate policy impact was nonexistent. Last year, it was immediately after introduction in terms of loans, the maturity as well as the timing will be factors that would be gradually impacting, but this year will be the first year when that impact will be felt on full year basis, which has been factored in and also real estate-related finance. We are continuing to [inject] efforts, but in a certain asset class, there is a sign of overheatedness. And therefore, in this context, we are going to be slightly more conservative. So rather than expecting that growth will slow down, the intention is to control the pace of growth. And another factor is the asset management mindset of the retail customers, those of you who are here, regarding fiscal year 2016 -- was not a brilliant year. It was a bad year. But in the fourth quarter, we began to see signs of recovery, and we are hopeful that the mindset will recover.

 And also, in terms of asset management by retail customers, this has become a major policy agenda of the government, and therefore, we are not generally pessimistic, but when we extract out this particular fiscal year and the positive impact, we have to be a bit conservative. And also this was mentioned when we announced the midterm plan, but the methodology of goal setting. We want to announce goals that are reasonably achievable through reasonable efforts and in order to ensure [best way to] effectively respond to external factors, we will be reviewing the strategy and also asset balance, as well as revenue plans will be adjusted flexibly, so if you could factor that in as you try to interpret the numbers we announce. The basic orientation is to focus on where we have competitive advantage, growth in growth area and reduce our dependency on onetime off profits and increase recurring profits. So this is the basic philosophy, and there has not been any change. This is the interest rate environment we are in, and therefore, productivity enhancement is the highest priority area.

 In the case of Shinsei, we are promoting the IT project, and therefore, there is a base strength that will be delivered and the increase of expenses, but we are trying to offset the increase in systems through productivity enhancement and part 1 was announced most recently, including the numbers, and we will be achieving part 1 hopefully, and we also began to plan for the part 2 of productivity enhancement project, which is also covered in the presentation.

 Last but not least, I'm sure that many of you are eager to ask questions on the final point, which is capital policy. Because of the nature of this subject, we can say what we can and we cannot disclose what we can't at this timing, but as it's explicitly written, this is, of course, needless to say, the highest management priority area. If I may add to this and mention what's not written here, why aren't we doing share buyback, which we did last year? Why aren't we doing it this year? That's a frequently asked question. But first of all, the P&L, JPY 50.7 billion net income for last year. Was that problematic? No. That's my first point. And secondly, if we look at the balance sheet, including the capital strength for certain asset class with migration to F-IRB, risk asset is going to increase, and therefore, the formula for calculating capital adequacy has changed. Is that a hurdle? No, it's not anything that hinders performance. So those are the 2 points I wanted to add, but other than that just read this total shareholder return ratio is in our minds as we draft the annual shareholder return plan. So that concludes my overview, and I now hand over the microphone to Hirano.

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 Shouichi Hirano,  Shinsei Bank, Limited - Executive Officer, General Manager of Corporate Planning Division, General Manager of Office of Financing Facilitation Management and General Manager of Financial Research Division   [3]
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 Nice to see you. So first, please go to Slide 4. Financial results, I would like to briefly touch upon them.

 First, net interest income. Because of the impact of the negative interest rate policy, there is (inaudible) deduction, and -- so the unsecured loans -- there is offset of the unsecured loan balance increase, so we achieved JPY 122.2 billion as similar as last year.

 For noninterest income, structured finance, there is a new originated loans, the revenue from those loans and the major security scheme from the structured finance was 13% increase from last year, which is JPY 106.2 billion. As a result, the revenue was JPY 228.5 billion, which is up 5%.

 Expenses. For system-related expenses and because of the tax code revision, the (inaudible) our numbers are expected to increase. So it's a 1% increase, which is JPY 142.4 billion. Net credit cost, unsecured loans and secured finance, there is a balance accumulation, so the general credit reserves of provision, so it was JPY 31.8 billion.

 The FY 2016, there was a disposal of NPLs and structured finance. There was JPY 20.2 billion for the credit recoveries. And for others, the grey zone reserves, JPY 5.1 billion, there was additional provisioning. But in the third quarter, there is a special profit recorded, and they will be offset each other, so the -- it was JPY 54.1 billion -- JPY 3.3 billion. And as a result, for 2016, the net income was JPY 50.7 billion.

 Please go to Slide 5. The Slide 5 and 6 will discuss the FY 2017 financial plan. First total revenue centered on unsecured loans that will accumulate balance and increase profits. However, in 2016, the securities sales gain, so our markets ready to profit are expected to decline, so we're expecting a flat increase.

 Expenses. In consumer finance, expenses increased, which is positive, and for through the -- and also the productivity enhancement project, we will reduce expenses. And in total, for the increase of the IT-related expenses are expected. For net credit cost, unsecured loan balance is likely to increase, so the general reserves will increase. There was some unexpected increase in [industries of business], but with the disappearance of them, we are setting a JPY 32 billion, which is similar to the last fiscal year. So at 2017, net income is expected to be JPY 51 billion according to our plan.

 Please go to the next slide, Slide 6. For left hand side, recurring profits. And the right hand side shows the operating assets. So what we have been explaining under third midterm management, we will reduce the onetime profits and instead, we'll increase recurring profits.

 Since 2015 to 2016, the onetime profit dependency was improved. For 2017, we will continue working on the increase in the recurring profit.

 Operating assets, still the asset for the growth area is targeted to increase; for the unsecured loans, 8% expected; and for structured finance, 10% is the target for the increase.

 Next, please go to Slide 7. The Slide 7 and 8 explains the productivity enhancement project. Slide 7, this is part 1 of productivity enhancement project. So we are targeting as the productivity improvement. In the third quarter, we announced this and based on that plan announced that we are working on the project. Expected effect compared to 2015, in 2018, on a single year basis, we are expecting expense benefit of JPY 5 billion.

 Next, please go to Page 8 -- Slide 8. This is regarding the part 2, so the further productivity enhancement is targeted. So we are optimizing branch networks, and we will rationalize the product portfolio in each business. And further, we would like to optimize the IT procurement costs. So these are the 3 initiatives will be taken in this part 2. So the part 1 -- in addition to part 1 effect, we will consider other initiatives for part 2.

 So I'd like to skip some pages, so please go to Slide 14. Asset quality, the left of chart shows the unconsolidated NPL ratio, which is 0.22%. On the right-hand side, the consolidated risk monitored loan ratio is 1.48%. So both are approaching the limit.

 Please move to Slide 15. So this slide explains the capital. Basel III international standard fully loaded basis CET1 ratio was 12.3%. So it's been maintained at sufficient level. Compared to March 2016, this declined. However, this is due to their structured finance new transactions or the Lake business was moved from the standard approach to F-IRB as explained earlier. So this is regarding FY 2016 financial results and forecast for FY 2017.

 Now we would like to open the floor for questions.

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Questions and Answers
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 Shinichiro Nakamura,  SMBC Nikko Securities Inc., Research Division - Senior Analyst   [1]
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 Nakamura of Nikko Securities. I have 2 questions. One is what the President explained regarding capital policy. CET1 ratio is not particularly a problem, but on the other hand, excluding public funds virtually, you are in the mid-6% and the net income is especially almost flat, and CET1 ratio is declining virtually, so I think it is a positive sign to show us shareholder return ratio, but the flat is the best. So I think it is very tough to increase the total shareholder return ratio, so as this is available, could you please elaborate on that? That's my first question. And the second question, it has been repeated many times. Regarding the recession on the bank's [card] loan business. So the annual income needs to be submitted for more than JPY 500,000 and that has become standard even for the banks. So based on the assumption, consumer finance business, what is the growth speed? Do you think that you -- it can grow as planned and net credit costs of the write-off -- or how do you see the possibility of the increase of the write-off ratio?

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 Hideyuki Kudo,  Shinsei Bank, Limited - CEO, President and Representative Director   [2]
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 Thank you very much for your questions. To the first question, actually, this is exactly what's written here as management, of course, the total shareholder return ratio, we try to maintain and even increase. So the minimum will be maintained, and we will try to increase it. So this is intention of the management, which is declared here, and of course, the specific amounts of value or the ratio itself will be depending on the environment of the economy or management and financial. So we will make the decision act considering all of those factors comprehensively. And regarding the consumer finance, our main product which is Lake business recently started from the money lending business, so in the line with the business -- we have been operating the business, of course, as a total industry -- the development is going to be the general response where we'll keep monitoring the development, but the -- our initiatives are solved. I do not think there will be a fundamental impact on our operation, rather the market will be more in the ordered or the more disciplined and going to be a more sound direction, and I'm taking the turned development positively, so -- and initiatives in the business. But rather, we'll -- we believe -- I think that we can demonstrate our advantage in this business. In terms of the growth of our business, I'm not having any fundamental doubt on it. And regarding the credit cost, it is true that for those that have been borrowed for others -- those may emerge, but the credit risk situation, of course, we are monitoring it. In our portfolio, for example, having multiple debtors and you'll see the increase of write-off, we have not seen such signs. The net credit costs themselves after increase slightly, but this is not the schedule -- rather than the -- this is -- rather, we are offering the credit guarantee to regional banks. So their business policy is based on their customers' policy, so such credit control will probably be strengthened a little more. That's all.

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 Ken Takamiya,  Nomura Securities Co. Ltd., Research Division - MD and Head of Asia-Pacific Banks and Other Financials Research   [3]
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 Ken Takamiya of Nomura Securities. I have 2 questions. First of all recurring profits and how do you self-assess the development? And second point is capital policy, but from a different perspective. On recurring profits, on the left of Page 6, you have a diagram on the changes of recurring profits. And what's your assessment of the development. Are you satisfied? Or not satisfied? Benchmarking against the midterm management plan. How do you judge the recurring profits? How many scores do you give? Secondly, on capital policy, is this a judgment as a result of the restraints to which you are exposed or is it just the timing issue? And if you just say, yes, it's just a timing issue, then I would say, you will be doing it again in the future and you may say, yes maybe. That's not the answer I'm asking for. Risk asset or profit, you don't have any profit-related problems or risk assets or capital-related profits -- capital-related problems. So I could imagine coordination with stakeholders or the business environment, in general, is something that you have skepticism or concerns over not in the short run in -- or more in the longer run, maybe risk asset is -- at the moment, is not problematic, but maybe you have some concerns with regards to the improvement of the quality of asset. So are there any significant constraints that you haven't touched upon that had led to this judgment. You said that at least you will maintain the same level as last year and that's a commitment as top management of Shinsei, but is there anything that you could give us as a negative factor that would constrain you from taking more aggressive shareholder return policy? Are there any factors that you haven't touched upon, which you can disclose at this juncture? Those are my 2 questions.

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 Hideyuki Kudo,  Shinsei Bank, Limited - CEO, President and Representative Director   [4]
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 Thank you very much for your question, Ken. On your first question on recurring profits and how I personally judge the development so far. As a self-assessment, there are areas where I positively assess and appreciate, but areas that I don't appreciate. The consumer finance, structured finance, these are growth areas where we are focusing on and the outcome is as we had expected, and we've seen development. On structured finance, real estate finance, slightly asset balance is different from our assumption, but as I touched upon, we take into consideration the market environment, and we are responding proactively. And in the previous cycle, we were hit hard and that's a painful lesson learned. So at this juncture, we don't think that it is an environment where we should be overaggressive on real estate finance. So we are in a way selective. And investors exit is frequently happening, and we are seeing prepayments. So we are injecting efforts, but asset balance is not increasing that significantly. It's just an outcome, but that outcome is delivered by and anchored by our philosophy, so we [are] dissatisfied. But what we are dissatisfied is other loans other than real estate finance. And candidly speaking, negative interest rate policy has been directly hitting such business areas in some ways. But to what extent can we make our own proprietary efforts to overcome that challenge? Yes, we are making those efforts, but in corporate finance, we weren't able to deliver outcome we had expected, so those -- that combination of factors led to the outcome you're seeing. And on your second question, with regards to shareholder return policy, are there any other restraints that we haven't talked about? I think it's a truly good question, but frankly speaking, I've already mentioned what I can say at this juncture. It's not a problem of our financial position. It's not the issue with regards to profit and loss statement or balance sheet. So there could be some factors related to asset quality indeed, so you can interpret at face value what I have explicitly mentioned, but I did try to explain to the extent possible what I can disclose, so nothing more to add to that.

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 Yoshinobu Yamada,  Deutsche Bank AG, Research Division - MD and Senior Analyst of Banking   [5]
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 Yoshi Yamada, Deutsche Securities. I have a question regarding Page 29. The business settlements, profit and loss, I have 2 questions. I think you have explained share item for many times, but for retail banking of the bank, the negative impact of the contributions be my concern, and it's because of the -- it's part of expenses for the fundraising. Of course, the interoffice rate or managerial accounting has changed, but still it has been negative. So taking a different concept, for example, if you [deserve] deposit fundraising offering you high interest rate on the Internet and make fundraising and to reduce the roles of the branches, do you have any such plans? And second question is based on these, any medium and longer term. The ratio of these segments have not changed much. So what is your ideal status? Or what is your target percentage of these segments if you have anything, please let me know?

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 Hideyuki Kudo,  Shinsei Bank, Limited - CEO, President and Representative Director   [6]
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 Well, Yamada very -- is familiar with our situation and that's why you're asking these questions. So that's why your questions are very good questions. Well, if I try to answer all questions, it's going to be a long story, including the medium- and longer-term perspective, but to summarize the sort of negative point is -- as there is a managerial accounting issue, we are grouping this as a retail banking, but actually this should be divided into several factors. In a sense, we have a sort of simple retail banking model, which has fundraising function and asset management function and housing loan function. So these are major parts and really we should consider for each function separately. For the fundraising, cost allocation should be allocated to the business to use in the funds. But actually, our managerial accounting is difficult to design that way. And redesigning the managerial accounting will need huge number of resources and/or as a major IT development. So in terms of the priority for us, that is not right for us to do such initiative, so that's why currently, it looks like this. As the entire commercial banking is becoming the commodity and, of course, the operational efficiency needs to be sought, that's natural and the productivity enhancement project, which is currently being implemented is focusing on the -- this retail area in broad sense, for example, for call centers, the productivity enhancement, improvement of call centers and the part 2 includes the brand rationalization or reviewing our product line up. So these are related to individual business, such focus is made to individual business. So there are a lot of things we can do, I think. So the expense ratio in this area, of course, is top priority for us, and we will work on it. At the end, maybe some investments needed, including robotics. There were lot of tools emerging. So if a net present value is positive, we will implement those initiatives.

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 Yoshinobu Yamada,  Deutsche Bank AG, Research Division - MD and Senior Analyst of Banking   [7]
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 So for the future status, the only one that it is continuing to grow is Lake business. So for example, on Page 30, 16% or 19%. So you think that this is the largest growth area, and it will become 30% in the future, is my understanding correct -- 30% or you mean the ratio?

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 Hideyuki Kudo,  Shinsei Bank, Limited - CEO, President and Representative Director   [8]
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 I do not have a clear image of the ratio, but this consumer finance business will become the high ratio. It is definitively for sure that this consumer finance business ratio will be higher than this, but the -- whether the domestic -- I think it is too optimistic to think that the domestic consumer finance business will continue to grow and several years probably due -- is likely to saturate. I think that is more sound to think that way. Accordingly, for this consumer finance business, now we are doing a higher priority on growth, and as a result, based on the balance growth, the initial -- because initial reserves are required, so that has become a burden. However -- but we -- because we think that we should take balance, but we do not think that such situation will continue. So the skills or the IT infrastructure that we obtain for the consumer finance business, we're seeing whether there is any market that we can apply this. For example, in overseas, there are several markets that we are considering, and also, even in Japan, none has the -- including their market which is none purely individual are -- we are considering such markets as well.

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 Katsunori Tanaka,  Goldman Sachs Group Inc., Research Division - MD and Head of Tokyo Financials Research   [9]
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 Tanaka of Goldman Sachs. I have 2 questions. First of all, on recurring profits, I want to confirm the concept. Last year, you announced the midterm plan, and I'm looking at 5 -- Page 5 of the midterm management plan. And there you say stable recurring profit at JPY 32 billion, JPY 34 billion, JPY 36 billion, and you say that stable recurring profit will increase during the course of the midterm management plan. That's a diagram on Page 5 of the midterm management plan. On Page 6 of this presentation, there is a gap between the midterm plan number versus the recurring profits number you show JPY 36 billion, if we look at that basis of the midterm plan, has this increased in the year ended March 2017 on the same basis as of one-on-one comparison. If we apply the same definition, has there been increase in recurring profits? So that's my first point. And in this year's plan, you factored in the decline of gains from sales of securities and that's factored into the flat projection. So that versus the recurring profits appearing to be increasing. So how does that influence each other? Is the definition of recurring profits consistent between your plan versus the midterm plan? Secondly, on shareholder return, you probably will say you have no further comments and we're being too persistent. But the midterm business plan has been revised downwards, but according to -- in comparison to the assumption you made last year, the 3-year profit level has changed. Is that because when you obtained approval of the stakeholders, they may say that the increase of profit is different from what you presented to us last year. Is that one of the reasons of downward revision?

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 Hideyuki Kudo,  Shinsei Bank, Limited - CEO, President and Representative Director   [10]
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 Thank you very much for your question. And the first question is with regards to the definition of recurring profits. So it may be better for the officer in charge to respond, but my interpretation is in the case of treasuries, there is volatility in the market, and it may be better to exclude those items out in order for analysts to gain better interpretation. That's my take, but is that a good answer? We used to use the phrase stable and recurring profits, and for 2016, there was increase in the gain from security sales. So in that sense, if we apply the recurring profits, it's more or less the same. So in the IR meetings, we've introduced that concept of recurring profits. The reason we began to introduce this concept and explain to is because there used to be bottom line volatility in Shinsei and many analysts told us that they cannot understand the factors behind. So we decided to give you some numbers by excluding the onetime volatile factors. That's the main reason. And it's quite sizable this year that it wasn't that sizeable in past years and there wasn't significant change, and we haven't introduced this because the numbers weren't so significant in historical years, but (inaudible) has thought about some positive impact, for example, gain on JGBs has emerged, so that has been taken out to show the recurring profit, so that's the background. And the response to your question on definition, so by excluding those onetime off numbers, the recurring profits will grow slightly. And on your second question, this, again, is a reasonable question, but at this juncture, you know that I am in no position to give you direct response. What's in the minds of the regulatory authorities, that's an area beyond my remit, so I'm not going to say anything about that. But in terms of share buyback, the judgment is made based upon the financial position at that timing and the external environment and the market environment and a comprehensive judgment is made. So what were in our minds when we drafted the midterm management plan? Regardless of what we thought back then, we would respond with agility to the current ongoing environment, and there is no profit and loss problem, and our balance sheet is strong with enough capital, so those aren't any hindrance. So I hope that gives you some kind of an answer.

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 Takashi Miura,  Crédit Suisse AG, Research Division - Research Analyst   [11]
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 Miura of Crédit Suisse. I have 3 questions. I do not quite understand the annual shareholder return plan. That is written on Page 3. Are you going to disclose this, the plan, or are you going to review this annually? The policy for the annual shareholder return is common, but for the annual shareholder return -- I have not seen this before. So what are you assuming here? So that is what I want to clarify. And the second question is the public funds. In this presentation, there is no particular description about it, so -- but in the midterm plan, you said that you're planning to draw the path for the (inaudible) [defaulter] payments, do you have any progress? And the third question is, financially, in many ways, meaning the cleanup, abnormally, in a sense, the NPL ratio declined. So in many ways, you have organized the balance sheet to make it more sound, so this will increase stability, but for the future, I think, it seems like the challenges are disappearing. Do you have any background for cleaning up it? Is there anything that we can consider? So like including public funds or stakeholders, is there any particular reason why for the management -- other than to] make the amendment to them], do you have any other factors that you have to clean up your financial spending?

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 Hideyuki Kudo,  Shinsei Bank, Limited - CEO, President and Representative Director   [12]
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 Well, first of all, for the shareholder return plan, I did not create this word myself. It does not necessarily mean any -- something deep. You do not have to interpret it. So frankly speaking, there is going to dividend or share buyback, so those are that what we are considering. And currently, we are under consideration how we are going to take those actions. That's the first answer. And public funds, every time, I'm saying as it is not appropriate to write (inaudible) so that's why we have not touched upon it in this, our material. But of course, we are operating the bank bearing that in mind for the past several times in communications with analysts a lot of those schemes were proposed, but anyway, first, we need to boost our share price and to increase our corporate value. And we have the bottom line issue, and this is model to do -- to boost our share price and boost our corporate value and this is how the multiple will be. So through this, we will increase our corporate value. And in addition, for shareholder return also needs to be considered, otherwise, our valuation or the rating will not increase. So it doesn't mean -- it's not that we have forgotten it, but currently, the focus has been made to those items, so that's why they are stated in this material. And to make the cleaning up and making the financial more sound, so in a sense, I think, we received a compliment, but actually we are not necessarily operating the bank as is. For example, for the nonperforming loans, long time ago, we created the nonperforming assets for the real estate finance, so they are categorized as nonperforming loans, but looking at the actual status, if we dispose them after we will record gains and the most of them are such assets. So effectively, we do not have so many nonperforming assets. And for the credits, consumer finance and structured finance, so we are reasonably taking the risks. So relaxing your credit -- so that's not we are considering. But that said, every year, we have been accumulating capital, so towards a repayment of a public funds are going to increase our corporate value. So of course, we -- I think we should consider more effective use of this capital, so -- including the shareholder return and another is inorganic growth, which I touched upon earlier, centered on consumer finance, the small finance, for example, developing such business in Asia, so including those, we are currently considering a lot of opportunities.

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 Rie Nishihara,  JP Morgan Chase & Co, Research Division - Senior Analyst   [13]
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 Nishihara of JP Morgan Chase. With [topics] being flat, your share price is minus 8%. Yesterday's results announcement was partially taken by the market. Some of the plans for 2016 was unachieved and many investors were expecting buybacks, which you didn't do, but the biggest challenge is the way you projected the guidance for the current fiscal year 2017, I have 3 questions on that point. In the guidance of fiscal year 2017, which is on Page 5, as part of the big picture, unsecured loans as part of the growth business model, top line revenue being flat, expenses going up and OBP going down and using unsecured loans, asset balance and structured asset balance are growing and even with asset growth, you're projecting decline in OBP, which is hard to interpret from the market. Of course, on Page 6, you are showing the recurrent profits are growing, but the market is concerned about the total top line and a total very bottom line. So how should we interpret the numbers and read between the lines -- line items on Page 5. And you don't know what the credit cost would be, so putting aside net income, let's talk about total revenue. Total revenue is predicted to be flat, and you say, you have not put in any onetime off factor, but each time we conduct discussions with top management and CFOs, they've been telling us the pool of onetime off profit is sizing down. But it hasn't gone down to 0 and they don't expect that it will go down to 0, that taken into consideration on top line basis JPY 10 billion recurring profits were achieved. But taking into consideration some of the volatile onetime off profits, last year, there was a top line growth of about 5%. Is it all right to expect some increasing revenues if we factor in those volatile items? That's point one. And second point is related to the point 1, but from the numbers on part 1, it's very difficult to imagine your profile as a growth company. So recurring profit like fiscal year 2017 will be around JPY 10 billion on the top line and JPY 2 billion at the bottom line in fiscal year 2018. And for '17, '18, you don't include the volatile factors. So do you think that the onetime off factors will increase at the same pace as recurring profits? Is that the right assumption? So that's my second question. I have been only talking about the top line, but again net credit costs will be there to deliver the net income on Page 8. Ratio of credit costs in unsecured loans. Unsecured loans grew by 12% and this was just outpaced the market in terms of growth in assets. If my recollection is correct, 2.3%, 2.7%, 4.5%, the ratio has gone up, but probably the normalized rate is about 4% and you are -- but you already reached 4.5%, which is beyond the normalized rate. Is this a result of your assets going up by 12% outpacing the market and that delivered higher credit cost ratio or NPL ratio? Do you think that you would be able to maintain the net credit cost ratio at around 4%?

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 Hideyuki Kudo,  Shinsei Bank, Limited - CEO, President and Representative Director   [14]
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 For fiscal year 2017 and the way we are projecting our plan, your comment is very true. Of course, putting us on the results of the past year, the market is interested on whether there is bottom line growth in 2017, and there is not. And share buyback was expected by many, which was not factored in, in our current year's plan, which was negatively taken by the market. We know that. We know that and we are sharing this plan. And talking about the 2017 plan, you specified the top line, but we're not running our business just thinking about the top line. So I will answer that question in a more comprehensive overall manner. Consumer finance is a typical example, but when there is growth, it doesn't impact the bottom line. In other words, at the entry point, there has to be provisioning. So during the asset growth period, the numbers don't show that profitability is rising in line with asset growth, similar in project finance as well. So in this business, is this the timing to grow asset or is it the timing to harvest? That's the judgment we have to make. Of course, if we want to impose makeup to short-term profits. If we slow down the asset growth, we will be able to generate profits and show higher growth on the bottom line. If we think about a few years horizon, the currently growing business slowing down. Do we try to slow down the asset growth just to ensure the profit for the current fiscal year? No, we don't make such a choice. And on 2018, how do we view 2018? So what would be the pace of growth for such businesses or will there be lack of growth? That will impact the final results at the bottom line, and as I touched upon, if we just look at the existing business, the impact would be heavier, but on top of the existing business in retail, housing loans will not grow as they did last year. But on the other hand, asset management-related business should grow somewhat. We don't think that asset management business will not grow at all. And also, we're contemplating some nonorganic growth but that cannot be factored in to our projection. And you said it's difficult to imagine that there will be nil or 0 onetime off profit. We wouldn't say that there would be 0 onetime off profit, but it's difficult, again, to factor in onetime off profit in our projections. If we had a crystal ball, of course, we would put that number in, but we don't and how do we interpret a onetime off number? We really don't know how that could be reflected in our projections. And finally, on the net credit cost of consumer finance business. Between 4% to 5% is the range in terms of comfortable control. But as you say as far as last year is concerned, there has been slight overshoot because guarantee-related business, recurrence business was well controlled, but the guarantee in the group company had overshot somewhat, but we revised the business model so that the good companies can also control the credit cost. It's the nature of this business where there is a PDCA cycle that is quite fast and quick and developing a model, apply and then verify the results and then reflect those results in the next business model. So this increase or deviation from the projection is within that range, and I don't think it's reached a level that we should be concerned of.

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 Rie Nishihara,  JP Morgan Chase & Co, Research Division - Senior Analyst   [15]
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 Coming back to the first point, structured finance. Credit cost is incurred in earlier year, as you said. That would hit the bottom line, but it doesn't hit the top line. So if asset goes up, then net interest margin remains constant then usually the top line should grow. So isn't there any onetime off factor that is inhibiting the growth in the top line, so that's important as we try to interpret the guidance of fiscal year 2017 and that's probably the area that you can't project and forecast at the beginning. Should we consider that gain from sales of securities would be 0? That is a volatile factor, but at the same time, I don't think the gains would be as low as 0. So I guess, it's just the way you show it to us because your overly conservative the top line or OBP is lackluster because that's the way you project yourself, but is that your true sense and if you break it down between recurring profits and nonrecurring profits, what would be your true strength? It's difficult for ourselves in the market to interpret that. So maybe that's worthy of thinking as you give us presentations.

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 Hideyuki Kudo,  Shinsei Bank, Limited - CEO, President and Representative Director   [16]
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 As a philosophy, I don't like putting in things that I don't really understand, and I can't forecast. I think people have different ideas, this is the level of probability, so maybe we can include this factor in our plan. That may be one way, but to create -- in creating the top line, of course, it's a mingle of many factors like onetime off and non-onetime off recurring, and it's something beyond our expectation will simply emerge out of the blue as we perceive within the year. So I think it's very difficult to give you any probability or projection. I'm not sure I'm answering your question, but yes, if we do this then there will be increasing profits, but we don't know when, so we have not factored in. Yes, there are those factors and those factors are increasing, but we're not able to factor that into our projections.

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 Toyoki Sameshima,  BNP Paribas Securities Services S.C.A., Research Division - Head of Banks, Japan   [17]
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 Sameshima, BNP Paribas. On Page 26, a question regarding the group governance and group headquarters. A virtual group headquarters was established in April. So at the previous IR meeting, the group strategy divisions or the group business strategy division was established, so group headquarters of these divisions. And in October, the fully implementation to the function-wide organization. Could you please elaborate on that?

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 Hideyuki Kudo,  Shinsei Bank, Limited - CEO, President and Representative Director   [18]
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 Well, broadly speaking, the existing businesses, it is in commercial banking -- centered on the commercial banking as in the becoming commodities will be further accelerated. So we need to accelerate productivity. So based on that sense of problem, we have implemented a lot of projects, including, for example, reduction of nonpersonnel expenses. And we have various group member companies. And in separate occasions, I think I mentioned this, major companies are the companies that we acquired. So we do not enjoy a lot of synergy effects because they have different background. So if we operate them in consolidated manner, it can increase productivity or enhance the efficiency, and also we can improve the functions to be more sophisticated. That's why we have established this virtual group headquarters. And the reason why we did not create a legal entity is because we did not wanted to make this quickly, and currently, this is in progress. And with the productivity enhancements centered on the leaders is group organization strategy division. With the productivity enhancement, it's rather focusing on the controlling expenses. And of course, based on the current financial environment, the changes of the business itself is likely to occur, and change in the organization are beyond the operating the back office functions, there will be the reorganization, including the reorganization of the group and also the alliance with third parties. So there are small ones and large ones. So there's a lot of possibilities. So this group business strategy division is considering such opportunities. [Isn't it] productivity enhancements, are they nonorganic, the growth issue? For example, whether we are going to have this, this fiscal year or not. Honestly speaking, I'm not sure. But in the several -- next several years, I believe that we are doing the right thing to the right direction. But for as discussed, as a guidance for the FY 2017, can we have the more appropriate or better expression. I think there is room for improvement, but anyway in medium term to -- by penalizing the growth, we don't have the concept to make the current fiscal year results look better.

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 Unidentified Analyst,    [19]
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 Just one quick point. [Oske of Anex]. Inorganic versus shareholder return policy, and how do you interpret credit rating? BBB+, I have upgraded you but overseas credit rating agencies or your overseas business is not contributing. So [H2], would that impact the capital policy or shareholder return policy?

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 Hideyuki Kudo,  Shinsei Bank, Limited - CEO, President and Representative Director   [20]
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 The current rating, is that a dragger? No. Credit rating psychologically, we want to aim for at least A. That is a broad orientation. And especially in the markets-related business, that should have positive impact to various businesses, especially the market-related business. But if we are to realize such rating, necessarily, there would be a variety of costs to be incurred. Our resources are finite. And how do we prioritize the purpose of resource in allocation? Do we place highest priority on increasing the credit rating? No. Our financial position is gradually becoming healthier. So that is appreciated by the rating agency. So putting aside pace, I think upwards is the overall direction. This time, but we think we can receive questions from another person. Yes, please.

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 Shinichi Ina,  UBS Investment Bank, Research Division - Executive Director and Japan Bank Analyst   [21]
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 So Ina from UBS Securities. I have 3 questions. One is related to the final year of the midterm plan, which is FY 2018. I think it was possible for you to change it, but you did not change it? Is there any reason for it? And second question is the productivity enhancement project Part 2. On Page 8, the optimization of the branch network. You don't have many offices in the first place. So where is the room for improvement there? And my last question is regarding on the last part of the material. Dividend maturity is arriving. Is there any intention to write this?

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 Hideyuki Kudo,  Shinsei Bank, Limited - CEO, President and Representative Director   [22]
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 Well, it's not that we made a decision to change it, nothing more than that. And for the productivity enhancement on Page 8, the group network optimization, it is true that the branch of the bank, we only have single-digit branch for institutions business. And even for retail, we only have 30 or slightly more, but we are going to review them. And in terms of the branch networks, Shinsei Financial also have branches. They have unmanned branches, several hundred or more. So this will also be put on table for discussion. And beyond the legal entities, the interim regime operation of the group concerned as well, concerned offering services to customers by thinking I think from customer perspective, the bank and Showa Leasing and APLUS, these 3 we do not have to conduct house activities separately with this, but that's what we meant here. So what is your third question? Yes, third question regarding the last carried over. We do not have any particular significant in the IR activity with the current and modified for the corporate tax. We receive a lot of questions and because sometimes we cannot deliver our message clearly where we explain verbally so with the taxable income, we thought it would be better to have better understanding if we show the passable income is negative. So for those who are familiar with, this may not be a material information. But for those that who have relatively new when you have questions we prepared this material to answer the questions. So attachments are those who are not very much familiar with Shinsei Bank Group.

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 Unidentified Company Representative,    [23]
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 Now we have exceeded the time scheduled. Thank you very much for your questions, but we would like to conclude the analyst meeting today. Thank you very much for attending.




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