Half Year 2018 Shinsei Bank Ltd Earnings Call
Nov 01, 2017 AM EDT
8303.T - Shinsei Bank Ltd
Half Year 2018 Shinsei Bank Ltd Earnings Call
Nov 01, 2017 / 01:01PM 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 today's Shinsei Bank Fiscal Year 2017 Interim Financial Results. Today's call is being recorded.
At this time, I'd like to turn the call over to your moderator, Mr. Hiroshi Ishii. Please go ahead, sir.
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Hiroshi Ishii, [2]
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Thank you. So good morning, good afternoon, good evening. Thank you for everybody and for joining on our conference call for our fiscal year 2017 and first half results announcement.
We having a speaker of Mr. Sanjeev Gupta, Senior Management Executive Officer. He will walk through the financial year results. It's going to be about 10 minutes or something like that, and then we will take any questions from you.
I will, this mic, hand over -- hand the mic -- this mic over to Mr. Gupta. 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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Hello, everyone. This is Sanjeev Gupta. Today, I would like to briefly cover Slide 3 to Slide 14.
Slide 3. First point, net income totaled JPY 25.1 billion, up 1% compared to first half fiscal year 2016. It represents 49% progress towards JPY 51 billion of full year forecast. Ordinary business profit totaled JPY 44.2 billion, up 6% compared to first half fiscal year 2016, representing 52% progress toward JPY 85 billion of full year forecast. We believe it's a steady progress toward achievement of this fiscal year's net income forecast.
Second point. Unsecured card loan balance totaled JPY 508 billion, an increase of 12% compared to September 2016. The structured finance asset balance totaled almost JPY 1.4 trillion, increasing by 22% compared to September 2016. Our strategy of utilizing stable retail deposits for yield-enhancing unsecured card loan and structured finance has been working well.
Third point. Shareholders' return remains one of our most important management issues, and we have been discussing how to at least maintain or, preferably, improve the total payout ratio. We have no update to announce in public as yet.
Slide 4. Key points are: Expense to revenue ratio improved to 61.8%, through an increase in revenue as well as maintaining a strict expense discipline; net credit costs represent 62% progress towards full year forecast, reflecting robust asset growth; and we recorded JPY 3.9 billion for reversal of grey zone reserves in Shinsei Financial. I will touch upon this issue on Slide 10 as well.
Slide 5. The third medium-term management plan, which was announced in January 2016, had not incorporated the impact from external environment-related changes, including the introduction of the negative interest rate policy, or NIRP. The NIRP negatively impacted our fiscal year 2016 financial results by at least JPY 7.5 billion in total and we expect it will negatively impact our this fiscal year financial results by as much as JPY 10.5 billion. Accordingly, our fiscal year 2018 net income plan will be examined and revised to reflect changes in external factors such as NIRP as well as to incorporate the effect of the productivity enhancement projects currently being pursued.
Slide 6. Net interest income increased by 6% to JPY 64.1 billion. In particular, the net interest income from unsecured card loan business increased by 8% to JPY 34.1 billion, which represents 53% of the total net interest income. The yield on interest-earning assets slightly improved to 2.42%, and I'll also cover this in more detail later.
Slide 7. Noninterest income decreased by 2% to JPY 51.7 billion. Asset management products balance in the retail banking decreased year-on-year. Income associated with the asset management products remain below our initial expectations.
Slide 8. Net credit cost increased to JPY 19.8 billion. This increase was mainly caused by an increase in operational assets in unsecured card loan and APLUS FINANCIAL and also due to a change in reserve ratio for the unsecured card loan in 1Q of fiscal year 2017. We believe that the net credit cost ratio of the unsecured card loans can be controlled within 4.5% to 5% range on a normalized basis to maximize the bottom line profits.
Slide 9. Capital adequacy. We maintain ample level of common equity Tier 1 ratio at 12.2% on a fully loaded international basis.
On Slide 10, grey zone. The number of disclosure claims were down approximately 40% year-on-year, and the total actual repayments decreased by 50% year-on-year in 2Q of fiscal year 2017. We recorded grey zone reserve reversal of JPY 3.9 billion as of our recent overall grey zone reserve calculation depicts lower reserve requirement. Now total grey zone reserve is at JPY 85 billion, which we believe is of sufficient from a group-wide perspective.
Slide 12. Key points are: Increase in unsecured card loans contributed to increase in net interest income; decrease in noninterest income in treasury was offset by gains in principal transactions and the corporate businesses.
On Slide 13, interest-earning assets. Overall yield on interest -- overall yield on loans was flat as assets growth in the consumer finance businesses was offset by tightening of spread in other lending businesses. Yield on securities increased to 1.14%, mainly due to increase in dividends from securities. On the funding side, rate on interest-bearing liabilities increased as our foreign currency assets have been growing, hence, we are increasing foreign currency funding through currency swaps and by acquiring longer-term retail foreign currency deposits in order to bridge our maturity gap risk. As a result, net interest margin, or NIM, slightly improved to 2.42%.
Slide 14. Lastly, expense to revenue ratio improved to 61.8%. Productivity enhancement projects are progressing well. For example, we started consolidation of the head office functions of the group entities and consolidation of our offices to fewer locations as a result of business reorganization across the group.
This concludes my presentation on the first half fiscal year 2017 financial results. I'm happy to take questions from you at this point. Thank you very much.
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Questions and Answers
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Operator [1]
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(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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Since there are no questions, we would like to conclude today's call. And thank you very much for your participation this morning, this afternoon or this evening, as the case may be. 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. You may now disconnect.
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