Q1 2018 Shinsei Bank Ltd Earnings Call

Aug 02, 2017 AM EDT
8303.T - Shinsei Bank Ltd
Q1 2018 Shinsei Bank Ltd Earnings Call
Aug 02, 2017 / 12:00PM GMT 

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Corporate Participants
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   *  Hiroshi Ishii
   *  Sanjeev Gupta
      Shinsei Bank, Limited - Senior Managing Executive Officer and Advisor to President & CEO

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Presentation
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Operator   [1]
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 Good day, and good evening, everyone, and welcome to Shinsei Bank's First Quarter 2017 Financial Results. Today's call is being recorded. At this time, I'd like to turn it over to your moderator, Mr. Hiroshi Ishii. Please go ahead.

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 Hiroshi Ishii,    [2]
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 Thank you. Hello. I'm Hiroshi Ishii, Head of IR of Shinsei Bank. Thank you for calling in our conference call regarding our first quarter financial results announcement.

 So we have as the main speaker of this conference call Mr. Sanjeev Gupta, Senior Managing Executive Officer of Shinsei Bank. Mr. Gupta, please go ahead.

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 Sanjeev Gupta,  Shinsei Bank, Limited - Senior Managing Executive Officer and Advisor to President & CEO   [3]
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 Thank you. This is Sanjeev Gupta. Please allow me to provide you with a brief overview of the first quarter fiscal year 2017 financial results.

 Slide 3. Key points: First point, net income totaled JPY 10.9 billion, representing 21% progress towards JPY 51 billion of full year forecast, and an increase of 35% compared to the same period of the last fiscal year. Ordinary business profit totaled JPY 21.9 billion, a 26% progress towards JPY 85 billion of full year forecast. We believe it's a good start as our core businesses showed good growth during the quarter. Second point, unsecured loan balance totaled JPY 495.4 billion, an increase of 12% compared to June 2016. Structured finance asset balance totaled JPY 1,326,000,000,000, increasing by 13% compared to June 2016. While growth business areas steadily increased, recovery in the asset management product sales in the Retail Banking business was slower than our initial expectation. Third point, shareholders' return remains one of our most important management issues, and we have been discussing how to maintain or improve the total payout ratio. We have no updates to announce at this point in time.

 Moving on to Slide 4, revenues totaled JPY 57.8 billion, increased 4% compared to the same period of the last fiscal year and 25% progression towards the annual plan. Net interest income increased 5% on a year-on-year basis to JPY 31.9 billion, mainly due to growth in unsecured loan balance. Noninterest income increased 3% on year-on-year basis to JPY 25.9 billion. Increase in principal transactions business was largely offset by decrease in bond-related income in treasury business. Expenses were largely flat compared to the same period of the last fiscal year. Net credit cost totaled JPY 9.1 billion, increased 14% compared to the same period of the last fiscal year. This was primarily due to regular updates of the resolve ratio during the first quarter and an increase in the operating assets. The progress rate of the net credit cost is in line with our original plan. It should be noted that this was not caused by the deterioration of asset quality in our portfolio. In Others, we recorded net cost of JPY 1.8 billion, declining from JPY 3.9 billion of cost in the same period of the last fiscal year. This big decline was mainly due to lower current and deferred tax amounts. As a result of these items, we reported JPY 10.9 billion of net income in first quarter of fiscal year 2017.

 Now on Slide 5, the recurring profits totaled JPY 5.9 billion, which were approximately 60% of the total profits, up from JPY 3.7 billion recorded in 1Q of fiscal year 2016. Operating assets in the growth areas have been growing steadily and reflect an increase of more than 10% compared to a year ago.

 Slide 6, net interest income increased 5% to JPY 31.9 billion from JPY 30.3 billion for the same period of last fiscal year. Out of this, JPY 16.8 billion came from unsecured loan business, which represented 53% of the total net interest income. The yield on interest-earning asset improved to 2.71%. This was due to changes in the asset portfolio mix. We decreased balance of JGBs under the negative interest rate policy and increased balances of unsecured loans. The rate on interest-bearing liabilities increased to 25 basis points. This was due to an increase in foreign currency funding in conjunction with foreign currency denominated operating assets and to adjust maturity gap through longer-term FX funding instruments. As a result, net interest margin improved to 2.46% in first quarter of fiscal year 2017 from 2.41% in full year 2016.

 Now on Slide 7, noninterest income totaled JPY 25.9 billion. The sale of asset management products in the Retail Banking is gradually recovering. However, its pace of recovery was slower than our original expectation. The total noninterest income increased by 3%. The increase in the principal transaction largely offset the decline of income related to bond sales in the treasury business.

 Slide 8, on this slide, as we mentioned, measurements such as consolidation and integration of operational functions and branch networks, as well as pursuing operational efficiencies have been progressing well. For the part 2 of the productivity enhancement project, we are currently doing a feasibility study as well as an impact analysis.

 Slide 9. As mentioned before, net credit costs increased to JPY 9.1 billion from JPY 8 billion in first quarter of fiscal year 2016. This increase reflects one, growth in operational assets in unsecured loans, as well as APLUS Financial; and two, change of reserve ratio for unsecured loans during the first quarter. As a result, net credit cost ratio of unsecured loan increased to 5.4%. Though it should be noted that it was not due to deterioration of its asset quality. We believe we will be able to control unsecured loans mid- to long-term net credit cost ratio between 4.5% and above 5%.

 Slide 10. As of June 30 2017, our common equity Tier 1 ratio stood at 12.2% on a fully loaded international basis. Increase in risk assets from March 2017 resulted from accumulation of operating assets centered around the growth business areas.

 Lastly on Slide 13, trends of Kabarai or excess interest repayments, the number of disclosure claims, a leading indicator of Kabarai repayments, decreased 40% to 9,200 claims from 15,200 claims in first quarter of fiscal year 2016. Actual Kabarai repayment of the group also significantly declined to JPY 7 billion compared to JPY 11 billion recorded in 1Q of fiscal year 2016. While we keep a close eye on this issue, we have JPY 94.6 billion of total grey-zone reserve, which we believe is sufficient from a group-wide perspective.

 This concludes my presentation, and I'm happy to take questions from you at this time. Thank you.

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Questions and Answers
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Operator   [1]
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 (Operator Instructions) There are no questions at this time. As there are no questions, I now turn the call back to your host for any additional or closing remarks.

 (Operator Instructions)

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 Sanjeev Gupta,  Shinsei Bank, Limited - Senior Managing Executive Officer and Advisor to President & CEO   [2]
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 Thank you, everyone, for participating in today's call. And if you have any questions at a later date, please do not hesitate to contact us. Thank you so much.

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Operator   [3]
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 Thank you. That concludes today's conference. Thank you for your participation, and you may now disconnect.




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