Exhibit 1
Japan Finance Corporation
This description of Japan Finance Corporation is dated October 2, 2009 and appears as Exhibit 1 to Amendment No. 1 to its Annual Report on Form 18-K filed with the U.S. Securities and Exchange Commission.
THE DELIVERY OF THIS DOCUMENT AT ANY TIME DOES NOT IMPLY THAT THE INFORMATION IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE. THIS DOCUMENT (OTHERWISE THAN AS PART OF A PROSPECTUS CONTAINED IN A REGISTRATION STATEMENT FILED UNDER THE U.S. SECURITIES ACT OF 1933) DOES NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OF JAPAN FINANCE CORPORATION.
TABLE OF CONTENTS
FURTHER INFORMATION
This document appears as an exhibit to Amendment No. 1 to the Annual Report of Japan Finance Corporation (“JFC”) filed with the U.S. Securities and Exchange Commission (the “Commission”) on Form 18-K. Additional information with respect to JFC is available in such Amendment No. 1, in the other exhibits to such Amendment No. 1 and in other amendments to such Annual Report. Such Annual Report, Amendment No. 1, exhibits and other amendments may be inspected and copied at the public reference room maintained by the Commission at: 100F Street, N.E., Washington, D.C. 20549. Information regarding the operations of the public reference room can be obtained by calling the Commission at 1-800-SEC-0330 or, without charge, from JFC by telephoning 813-5218-3304. Such Annual Report, Amendment No. 1, exhibits and other amendments are also available through the Commission’s Internet website at http://www.sec.gov.
In this document, all amounts are expressed in Japanese Yen (“¥” or “yen”), except as otherwise specified. The spot buying rate quoted on the Tokyo Foreign Exchange Market on October 1, 2009 as reported by the Bank of Japan at 5:00 p.m., Tokyo time, was 89.98=$1.00, and the noon buying rate on September 25, 2009 for cable transfers in New York City payable in yen, as reported by the Federal Reserve Bank of New York, was 89.83 = $1.00.
References in this document to fiscal years of JFC are to the 12-month periods commencing on April 1 of the year indicated, except that references to the fiscal year ended March 31, 2009 refer to (1) the six-month fiscal period ended September 30, 2008 of Japan Bank for International Cooperation (the predecessor to JFC) (the “Predecessor”), which was its last fiscal period, and (2) the six-month fiscal period ended March 31, 2009 of JFC, which was its first fiscal period.
References in this document to “JBIC” are to “Japan Bank for International Cooperation, the international arm of JFC”, under which name JFC conducts its international financial operations.
Figures in tables included in this document may not add up to totals due to rounding.
2
JAPAN FINANCE CORPORATION
JFC is a joint stock corporation organized under the laws of Japan. JFC was established on October 1, 2008, and succeeded to the assets, and assumed the obligations, in each case other than those of the Overseas Economic Cooperation Operations and certain minor assets to which the Japanese government succeeded, of the Predecessor, and also succeeded to the assets, and assumed the obligations, in each case other than certain minor assets to which the Japanese government succeeded, of the National Life Finance Corporation, Japan Finance Corporation for Small and Medium Enterprise and the Agriculture, Forestry and Fisheries Finance Corporation (collectively, the “Other Predecessors”) pursuant to Japan Finance Corporation Law (Law No. 57 of 2007), as amended (the “JFC Law”). The assets and obligations of the Overseas Economic Cooperation Operations of the Predecessor were transferred to the Incorporated Administrative Agency—the Japan International Cooperation Agency. JFC established a separate international arm that is to solely and exclusively conduct the international financial operations of JFC, which continues to operate under the name of “Japan Bank for International Cooperation” or “JBIC” pursuant to the JFC Law. The Predecessor and the Other Predecessors were abolished as of October 1, 2008.
JFC carries out the operations provided in the JFC Law and other laws. Under Article 41 of the JFC Law, JFC is required to separate the accounting for each category of the operations as follows.
| | • | | Operations described in Item (1) under Article 41 of the JFC Law (the “Micro Business and Individual Operations”). |
| | • | | Operations described in Item (2) under Article 41 of the JFC Law (the “Agriculture, Forestry, Fisheries and Food Business Operations”) |
| | • | | Operations described in Item (3) under Article 41 of the JFC Law (the “SME Loan Programs and Securitization Support Programs (Guarantee-type Operation)”) |
| | • | | Operations described in Item (4) under Article 41 of the JFC Law (the “Securitization Support Programs (Purchase-type Operation)”) |
| | • | | Operations described in Item (5) under Article 41 of the JFC Law (the “Credit Insurance Programs”) |
| | • | | Operations described in Item (6) under Article 41 of the JFC Law (the “JBIC Operations”) |
| | • | | Operations described in Item (7) under Article 41 of the JFC Law (the “Crisis Response Operations”) |
JFC succeeded to the JBIC Operations from the Predecessor, and to the other operations except the Crisis Response Operations from the Other Predecessors. The Crisis Response Operations were added to JFC’s operations after its establishment. (JFC’s operations other than the JBIC Operations are referred to herein as the “Domestic Financial Operations”.)
JBIC Operations
As the international arm of JFC, JBIC conducts the JBIC Operations to fulfill the following three missions in order to contribute to the sound development of the international as well as Japanese economy: (a) promoting overseas development and securement of resources which are strategically important for Japan, (b) maintaining and improving the international competitiveness of Japanese industries; and (c) taking appropriate measures with respect to disruptions to international financial order.
In order to execute the above missions, JBIC provides multi-faceted support for the development of developing countries and Japan to meet their increasingly diverse financing needs through and integral combination of the following seven operations by way of financing instruments such as lending, guarantees, acquisition and securitization of public/corporate bonds, assignment and securitization of loan assets and equity participations.
Export loans provide funds to support exports of equipment by Japanese companies and overseas transfer of their technologies.
Import loans provide funds to support imports of oil, LNG, iron ore and other strategically important materials to Japan. Apart from resources, the guarantee facility supports imports of goods and services for which there are crucial domestic needs, such as aircraft.
| | • | | Overseas Investment Loans |
Investment loans provide funds to support overseas investment projects undertaken by Japanese companies for manufacturing, resource development, and other business ventures.
3
Untied loans provide funds to support improvements in the overseas business environment to facilitate Japanese trade, investments and other overseas business activities. Untied loans also support projects undertaken by foreign governments and government agencies.
Bridge loans provide short-term financing for developing country governments facing balance-of payments difficulties to enable them to ride out temporary strains in foreign currency management.
Equity participation is equity investment in overseas joint ventures involving Japanese companies, or funds in which Japanese companies participate.
| | • | | Studies and Research Activities |
JBIC conducts studies and research to support its operations
Domestic Financial Operations
Apart from the JBIC Operations, JFC conducts the Domestic Financial Operations aimed at micro business and individuals, agriculture, forestry, fisheries and food business, small and medium enterprises and to facilitate appropriate measures against crises.
| | • | | Micro Business and Individual Operations |
JFC provides a wide range of loans closely related to people’s lives, such as Business Loans to micro/small enterprises, Educational Loans for people who have to deal with education related-expenses, and Loans Secured by Pensions, etc.
| | • | | Agriculture, Forestry, Fisheries and Food Business Operations |
JFC provides loans for business funds at long-term and low interest rates, and helps those who are engaged in agriculture, forestry, fisheries and food industry develop their business operations through support services such as management consultations, matching services and provision of technical information. With these services, the business intends to promote the reinforcement of agriculture, forestry and fisheries in Japan, and support stable supply of safe and good-quality of foods.
| | • | | SME Loan Programs and Securitization Support Programs (Guarantee-type Operation), Securitization Support Programs (Purchase-type Operation), and Credit Insurance Programs |
JFC provides smooth supply of business funds for Small Medium Enterprises (SMEs) through “Loan Programs,” “Securitization Support Programs” and “Credit Insurance Programs,” to support growth and development of SMEs. Loan Programs supply stable, long-term funds that are essential for the promotion of SME business and yet found difficulties for private financial institutions to supply on a commercial basis. Securitization Support Programs support private financial institutions in their endeavors based on securitization methods. Credit Insurance Programs focus on the acceptance of insurance on CGC guaranteed liabilities associated with loans to SMEs.
| | • | | Crisis Response Operations |
JFC provides a certain credit to designated financial institutions at the time of occurrence of crises certified by competent ministers such as financial disorder, large-scale disasters and other similar events both at home and abroad.
4
CAPITALIZATION
The capitalization of JFC as of March 31, 2009 was as follows:
| | | | |
| | | As of
March 31, 2009 | |
| | | (millions of yen) | |
Borrowings | | ¥ | 15,990,564 | |
Short-term Bonds payable | | | 299,884 | |
Bonds payable | | | 5,772,629 | |
Total Borrowings (Note 1) | | | 22,063,079 | |
Capital and Reserves: | | | | |
Capital Stock | | | 2,452,167 | |
Capital Surplus | | | 1,472,638 | |
Special reserve for administrative improvement funds | | | 181,500 | |
Legal capital surplus | | | 1,291,138 | |
Retained earnings | | | (1,215,224 | ) |
Legal retained earnings | | | 715,389 | |
Other retained earnings | | | (1,930,613 | ) |
Shareholders’ equity | | | 2,709,581 | |
| | | | |
Total Capitalization | | ¥ | 24,772,660 | |
| | | | |
Notes:
| (1) | Includes current maturities |
The capitalization of JBIC as of March 31, 2009 was as follows:
| | | |
| | | As of
March 31, 2009 |
| | | (millions of yen) |
Borrowings | | ¥ | 4,019,847 |
Short-term Bonds payable | | | — |
Bonds payable | | | 2,093,214 |
Total Borrowings (Note 1) | | | 6,113,061 |
Capital and Reserves: | | | |
Capital Stock | | | 1,035,500 |
Capital Surplus | | | — |
Special reserve for administrative improvement funds | | | — |
Legal capital surplus | | | — |
Retained earnings | | | 739,430 |
Legal retained earnings | | | 712,592 |
Other retained earnings | | | 26,838 |
Shareholders’ equity | | | 1,774,930 |
| | | |
Total Capitalization | | ¥ | 7,887,991 |
| | | |
Notes:
| (1) | Includes current maturities |
5
OPERATING RESULTS FOR THE FISCAL YEAR ENDED MARCH 31, 2009
Overall Operations
Set forth below are the operating results of the JBIC Operations and the Other Domestic Financial Operations for the six months ended March 31, 2009:
| | | | | | | | | | | | | | | |
| | | (In millions of yen) | |
| | |
| | | JBIC
Operations | | Domestic Financial Operations | |
| | | Micro Business
and Individual
Operations | | | Agriculture,
Forestry,
Fisheries and
Food Business
Operations | | | SME Loan Programs
and Securitization
Support Programs
(Guarantee-type
Operation) | |
Ordinary Income | | ¥ | 97,740 | | ¥ | 87,283 | | | ¥ | 39,331 | | | ¥ | 64,522 | |
Ordinary profits/losses | | | 19,929 | | | (19,007 | ) | | | (1,362 | ) | | | (27,070 | ) |
Net income/losses | | | 26,838 | | | (18,750 | ) | | | — | | | | (26,934 | ) |
Total Assets | | | 9,756,961 | | | 7,291,149 | | | | 2,812,228 | | | | 5,452,322 | |
Loans and bills discounted | | | 7,243,068 | | | 7,190,817 | | | | 2,721,183 | | | | 5,419,813 | |
Acceptances and guarantees | | | 1,650,329 | | | — | | | | 59 | | | | 41,637 | |
| | | | | | | | | | | | | | | | | | | | |
| | | Domestic Financial Operations | | | Adjustment
among
accounts | | | JFC Total | |
| | Securitization
Support
Programs
(Purchase-type
Operation) | | | Credit
Insurance
Programs | | | Crisis
Response
Operations | | | |
Ordinary Income | | ¥ | 318 | | | ¥ | 91,873 | | | ¥ | 909 | | | ¥ | (253 | ) | | ¥ | 381,725 | |
Ordinary profits/losses | | | (259 | ) | | | (632,895 | ) | | | (3,431 | ) | | | — | | | | (664,096 | ) |
Net income/losses | | | (259 | ) | | | (632,876 | ) | | | (3,431 | ) | | | — | | | | (655,414 | ) |
Total Assets | | | 26,924 | | | | 1,200,900 | | | | 1,461,710 | | | | (96 | ) | | | 28,002,099 | |
Loans and bills discounted | | | — | | | | — | | | | 1,430,113 | | | | — | | | | 24,004,996 | |
Acceptances and guarantees | | | — | | | | — | | | | — | | | | — | | | | 1,692,026 | |
JFC’s ordinary income for the six months ended March 31, 2009 (its first fiscal period) was ¥381,725 million. Most of this was attributable to interest income, which amounted to ¥259,849 million. A significant portion of JFC’s interest income related to such income in the JBIC Operations (¥93,554 million) and in the operations aimed at small and medium enterprises (¥53,836 million).
JFC’s ordinary expenses for the six months ended March 31, 2009 was ¥1,045,821 million. Most of this was attributable to insurance claims, amounting to ¥717,264 million, relating to credit insurance provided in the operations aimed at small and medium enterprises.
For the six months ended March 31, 2009, JFC incurred net loss of ¥655,414 million, most of which was attributable to the operations aimed at small and medium enterprises.
JBIC Operations
The ordinary income of the JBIC Operations for the six months ended March 31, 2009 was ¥97,740 million. Most of this was attributable to interest income, which amounted to ¥93,554 million, reflecting measures undertaken in response to the global financial crisis, and financing and other assistance provided to large-scale natural resource and infrastructure projects. (The Predecessor recorded ¥120,386 million of interest income in its international financial account for the six months ended September 30, 2008, and such interest income was ¥340,867 million for the year ended March 31, 2008.)
The ordinary expenses of the JBIC Operations for the six months ended March 31, 2009 was ¥77,810 million. Most of this was attributable to interest expenses, amounting to ¥66,011 million, which mostly reflected interest expenses for JFC’s borrowings and outstanding debt securities. (The Predecessor recorded ¥88,863 million of interest expenses in its international financial account for the six months ended September 30, 2008, and such interest expenses amounted to ¥273,771 million for the year ended March 31, 2008.)
For the six months ended March 31, 2009, JFC recorded net income of ¥26,838 million for the JBIC Operations.
6
BUSINESS
Missions
The JFC Law provides that JFC’s purpose is to contribute to the sound development of Japan and the international economy and society and to the improvement of the quality of national life, by taking responsibility for (i) the financial function to provide fund procurement assistance to the general public, small and medium enterprises and those engaged in agriculture, forestry and fishery and (ii) the financial function to promote overseas development and securement of resources which are important for Japan and to maintain and improve the international competitiveness of Japanese industries, also providing (iii) the financial services which are necessary to take appropriate measures with respect to disruptions to domestic or international financial order or damages caused by large-scale natural disasters, acts of terrorism, medical epidemics, etc., and furthermore enabling financial institutions, such as banks, to provide such necessary financial services in a timely and smooth manner, while having the objective of supplementing the financial transactions implemented by ordinary financial institutions.
Government Control and Supervision
The JFC Law requires the Japanese Government, at all times, to hold the total number of outstanding shares of JFC. JFC’s operations, including appointment of directors, business plans and issuance of new debt securities, are subject to the supervision of the Minister of Finance, Minister of Health, Labor and Welfare, Minister of Economy, Trade and Industry, and Minister of Agriculture, Forestry and Fisheries in accordance with Article 64 of the JFC Law, and the Financial Operations for Facilitating Realignment of U.S. Forces in Japan are subject to the supervision of the Minister of Finance and the Minister of Defense. The Government Agencies Budget, which the Minister of Finance formulates and which is subject to approval by the Diet, includes JFC’s annual budget of revenues and expenditures.
Overview of JFC’s Operations
Under the JFC Law, JFC conducts the JBIC Operations and the Domestic Financial Operations separately from one another. For budget and accounting purposes, the JFC Law sets forth seven separate accounts, one of which relates to the JBIC Operations and the other six of which relate to the Domestic Financial Operations. The JFC Law contemplates that each of these seven accounts is to be administered separately from one another, and generally a transfer of funds from one account to another is not permitted. The JFC Law further provides that our capital and reserves as well as appropriation of earnings are to be separately accounted for each of the seven accounts.
In terms of financing activities, JFC makes borrowings and issue debt securities for specific account(s). Proceeds from such borrowings or debt securities issuances are applied only to the specified account(s). Likewise, funds for interest and principal payments for such indebtedness are provided only from the specified account(s), and funds from other accounts cannot, in principal, be applied to such payments.
The account for JBIC Operations is required to conduct sound and efficient operations based on the following two principles: that repayments from the loans and the performance of the obligations under the guarantees should be ascertained (“certainty of repayment”) and that expenditures should not exceed revenues (“sufficient revenues to cover expenditures”) according to the JFC Law.
According to the Structural Plan for Policy Based Finance Reform, dated June 27, 2006, which was decided by the Headquarters for the Promotion of Policy-Based Finance Reform and the Headquarters for the Promotion of Administrative Reform, both of which were established by Cabinet Decisions pursuant to Japanese law, there has been the recognition that the operations of the Other Predecessors, which now constitute the Domestic Financial Operations, (i) received certain amounts of financial assistance from the government and had levels of equity capital ratio that were relatively lower than that of the Predecessor’s operations (now the JBIC Operations), and (ii) procured nearly all of their funds from the domestic market and did not necessarily need to be recognized in the international market. With respect to the Domestic Financial Operations, when the JFC Law was enacted, the two houses of the Japanese Diet passed accompanying resolutions stating that such domestic operations needed to appropriately meet the financing needs of the general public, persons engaged in small and medium enterprises and persons engaged in agriculture, forestry and fishery, and that necessary and sufficient fiscal and other measures would be provided for that purpose.
7
Overview of JBIC’s Operations
Outstanding Loans in the JBIC Operations
JBIC’s total commitments for the year ended March 31, 2009 amounted to ¥2,170 billion, and the outstanding balance as of March 31, 2009 was ¥7,280 billion.
The following table sets forth, as of the dates indicated, the total amounts of loans outstanding provided by JBIC, by type of credit and geographical distribution:
Loans Outstanding by Type of Credit and Geographical Distribution of the JBIC Operations
| | | | | | |
| | | JBIC Operations | |
| | As of March 31, | |
| | 2009 | |
| | (In millions of yen) | |
EXPORT LOANS | | | | | | |
Asia | | ¥ | 492,296 | | 6.8 | % |
The Pacific | | | — | | — | |
Europe | | | 76,403 | | 1.0 | % |
The Middle East | | | 177,230 | | 2.4 | % |
Africa | | | 52,022 | | 0.7 | % |
North America | | | — | | — | |
Latin America | | | 100,412 | | 1.4 | % |
International Organizations, etc. | | | 2,821 | | 0.0 | % |
| | | | | | |
Total | | ¥ | 901,183 | | 12.4 | % |
| | | | | | |
| | |
IMPORT LOANS | | | | | | |
Asia | | | 27,629 | | 0.4 | % |
The Pacific | | | 81,412 | | 1.1 | % |
Europe | | | 22,031 | | 0.3 | % |
The Middle East | | | 463,036 | | 6.4 | % |
Africa | | | 7,684 | | 0.1 | % |
North America | | | 96,629 | | 1.3 | % |
Latin America | | | 17,091 | | 0.2 | % |
International Organizations, etc. | | | 10 | | 0.0 | % |
| | | | | | |
Total | | | 715,521 | | 9.8 | % |
| | | | | | |
| | |
OVERSEAS INVESTMENT LOANS | | | | | | |
Asia | | | 1,127,715 | | 15.5 | % |
The Pacific | | | 255,299 | | 3.5 | % |
Europe | | | 616,759 | | 8.5 | % |
The Middle East | | | 972,170 | | 13.4 | % |
Africa | | | 108,689 | | 1.5 | % |
North America | | | 269,303 | | 3.7 | % |
Latin America | | | 813,843 | | 11.2 | % |
International Organizations, etc. | | | 8,811 | | 0.1 | % |
| | | | | | |
Total | | | 4,172,590 | | 57.3 | % |
| | | | | | |
| | |
UNTIED LOANS | | | | | | |
Asia | | | 618,086 | | 8.5 | % |
The Pacific | | | 188 | | 0.0 | % |
Europe | | | 69,828 | | 1.0 | % |
The Middle East | | | 34,176 | | 0.5 | % |
Africa | | | 10,814 | | 0.1 | % |
North America | | | — | | — | |
Latin America | | | 402,423 | | 5.5 | % |
International Organizations, etc. | | | 270,987 | | 3.7 | % |
| | | | | | |
Total | | | 1,406,502 | | 19.3 | % |
| | | | | | |
| | |
GOVERNMENTAL LOANS(1) | | | | | | |
Asia | | | 16,085 | | 0.2 | % |
The Pacific | | | — | | — | |
Europe | | | 1,163 | | 0.0 | % |
The Middle East | | | 18,883 | | 0.3 | % |
Africa | | | 3,725 | | 0.1 | % |
North America | | | — | | — | |
Latin America | | | 14,468 | | 0.2 | % |
International Organizations, etc. | | | — | | — | |
| | | | | | |
Total | | | 54,323 | | 0.7 | % |
| | | | | | |
| | |
INVESTMENTS | | | | | | |
Asia | | | 8,729 | | 0.1 | % |
The Pacific | | | — | | — | |
Europe | | | — | | — | |
The Middle East | | | — | | — | |
Africa | | | — | | — | |
North America | | | — | | — | |
Latin America | | | — | | — | |
International Organizations, etc. | | | 21,850 | | 0.3 | % |
| | | | | | |
Total | | | 30,579 | | 0.4 | % |
| | | | | | |
Total loans outstanding | | ¥ | 7,280,698 | | 100.0 | % |
| | | | | | |
8
The following table sets forth the new loan commitments made by JBIC, by type of credit and geographical distribution in accordance with JBIC’s system of classification for the periods indicated.
Credit Commitments by Type of Credit and Geographical Distribution of the JBIC Operations
| | | | | | |
| | | JBIC Operations | |
| | As of March 31, | |
| | 2009 | |
| | (In millions of yen) | |
EXPORT LOANS | | | | | | |
Asia | | ¥ | 6,652 | | 0.3 | % |
The Pacific | | | — | | — | |
Europe | | | 205 | | 0.0 | % |
The Middle East | | | 19,040 | | 0.9 | % |
Africa | | | — | | — | |
North America | | | — | | — | |
Latin America | | | 1,788 | | 0.1 | % |
International Organizations, etc. | | | — | | — | |
| | | | | | |
Total | | | 27,684 | | 1.3 | % |
| | | | | | |
| | |
IMPORT LOANS | | | | | | |
Asia | | | — | | — | |
The Pacific | | | 11,650 | | 0.5 | % |
Europe | | | — | | — | |
The Middle East | | | — | | — | |
Africa | | | — | | — | |
North America | | | 3,800 | | 0.2 | % |
Latin America | | | — | | — | |
International Organizations, etc. | | | — | | — | |
| | | | | | |
Total | | | 15,450 | | 0.7 | % |
| | | | | | |
| | |
OVERSEAS INVESTMENT LOANS | | | | | | |
Asia | | | 286,182 | | 13.2 | % |
The Pacific | | | 244,428 | | 11.3 | % |
Europe | | | 601,441 | | 27.7 | % |
The Middle East | | | 191,025 | | 8.8 | % |
Africa | | | 71,020 | | 3.3 | % |
North America | | | 207,938 | | 9.6 | % |
Latin America | | | 214,565 | | 9.9 | % |
International Organizations, etc. | | | — | | — | |
| | | | | | |
Total | | | 1,816,599 | | 83.7 | % |
| | | | | | |
| | |
UNTIED LOANS | | | | | | |
Asia | | | 26,250 | | 1.2 | % |
The Pacific | | | — | | — | |
Europe | | | — | | — | |
The Middle East | | | — | | — | |
Africa | | | 25,500 | | 1.2 | % |
North America | | | — | | — | |
Latin America | | | 53,152 | | 2.4 | % |
International Organizations, etc. | | | 120,623 | | 5.6 | % |
| | | | | | |
Total | | | 225,525 | | 10.4 | % |
| | | | | | |
| | |
GOVERNMENTAL LOANS(1) | | | | | | |
Asia | | | — | | — | |
The Pacific | | | — | | — | |
Europe | | | — | | — | |
The Middle East | | | — | | — | |
Africa | | | — | | — | |
North America | | | — | | — | |
Latin America | | | — | | — | |
International Organizations, etc. | | | — | | — | |
| | | | | | |
Total | | | — | | — | |
| | | | | | |
| | |
INVESTMENTS | | | | | | |
Asia | | | 22,131 | | 1.0 | % |
The Pacific | | | — | | — | |
Europe | | | — | | — | |
The Middle East | | | — | | — | |
Africa | | | — | | — | |
North America | | | 4,019 | | 0.2 | % |
Latin America | | | — | | — | |
International Organizations, etc. | | | 59,527 | | 2.7 | % |
| | | | | | |
Total | | | 85,677 | | 3.9 | % |
| | | | | | |
Total loans outstanding | | ¥ | 2,170,935 | | 100.0 | % |
| | | | | | |
9
Loan and Guarantee Terms of the JBIC Operations
The JFC Law provides that the JBIC’s interest rates and guarantee charges shall be determined in light of the interest rates and commissions charged for guarantees by private banks on a basis such that the revenues of the JBIC Operations will cover its expenditures and losses. In addition, JBIC may not compete with private financial institutions in extending loans and guarantees, and may extend loans and guarantees only if financing by private financial institutions on ordinary terms is deemed difficult. JBIC carefully investigates the financial position of each prospective borrower and the technical and financial aspects of the project to be financed, and a loan or guarantee is extended only if there is reasonable assurance of repayment.
JBIC itself determines the interest rates, maturities, loan participation percentages, security and other terms on which it lends its funds or extends its guarantees. The interest rate to be applied to each loan is set by the Governor of the JBIC, taking into consideration JBIC’s funding cost and the rate for borrowers of the highest credit standing from private banks extending long-term loans.
Most of the JBIC Operations involve the financing of projects in cooperation with private financial institutions. Loans extended to domestic borrowers are usually secured by a bank guarantee, a mortgage or other collateral, or supported by a covenant requiring the borrower to provide security to JBIC at its request. Overseas direct loans, which are usually extended to banks, governmental institutions in foreign countries or private companies with Japanese capital, are generally secured by guarantees issued by the foreign government or the foreign governmental financial institution, by securities issued by Japanese domestic companies, or by cash flow and other assets of the borrower taken as security by JBIC.
In addition to the loan terms provided in the JFC Law, JBIC’s terms and conditions for export loans are determined, in the case of plant and equipment exports, in accordance with the OECD’s “Arrangement on Guidelines for Officially Supported Export Credits”, commonly referred to as the Consensus and, in the case of ship exports, the OECD’s “Understanding on Export Credits for Ships”, commonly referred to as the Understanding. The Consensus and the Understanding, which were established to avoid excessive competition in the area of financing for plant or ship exports, stipulate minimum interest rates, maximum credit terms and minimum down payments for officially supported medium-and long-term export credit.
The following table sets forth information concerning the balances of JBIC’s outstanding loans as of March 31, 2009.
Loan Balances of the JBIC Operations by Remainder of Term(1)
| | | | | | |
| | | As of March 31, 2009 | |
| | (billions of yen) | |
One year or less | | ¥ | 821 | | 11.5 | % |
More than 1 to 2 years | | | 801 | | 11.2 | |
More than 2 years to 3 years | | | 1,055 | | 14.8 | |
More than 3 years to 4 years | | | 752 | | 10.5 | |
More than 4 years to 5 years | | | 709 | | 9.9 | |
More than 5 years to 6 years | | | 528 | | 7.4 | |
More than 6 years to 7 years | | | 481 | | 6.7 | |
More than 7 years to 8 years | | | 419 | | 5.9 | |
More than 8 years to 9 years | | | 320 | | 4.5 | |
More than 9 years to 10 years | | | 301 | | 4.2 | |
More than 10 years | | | 963 | | 13.5 | |
| | | | | | |
Total | | ¥ | 7,151 | | 100.0 | % |
| | | | | | |
| (1) | The amounts do not include principal that is overdue and unpaid, and principal that may possibly be waived according to the “Changes in Debt Relief Method” announced by Government of Japan in December 2002. |
10
Allowance for Possible Loan and Investment Losses of the JBIC Operations
JBIC provides an allowance for possible loan and investment losses, pursuant to the relevant cabinet order and related regulations. Provision of allowance for loan losses, as of March 31, 2009, amounts to ¥195 million.
For the fiscal year ended March 31, 2009, JBIC did not write off loans but posted losses on devaluation of stocks and other securities amounting ¥ 12 million.
In cases where borrowers indicate that they may be unable to meet payments on their loans, JBIC may revise the terms of repayment. In the case of direct loans to foreign governments, the international system provides several mechanisms and institutions through which countries facing repayment difficulties can effect remedial measures in agreement with their creditors (Paris Club rescheduling). Therefore, rescheduled principal and interest payments may have to be accepted in order to facilitate the collectibility of some loans or portions of loans. Should a default occur in the payment of principal or interest (whether by reason of a failure to agree on modified loan terms or otherwise), JBIC considers the related loan to be in arrears immediately to the extent of the defaulted amount.
Sources of Funds of the JBIC Operations
The following table sets forth information concerning the sources of funds for the JBIC Operations during the fiscal year ended March 31, 2009.
Sources of Funds of the JBIC Operations
| | | |
| | | Year ended March 31, |
| | | 2009 |
| | | (In millions of yen) |
Borrowings from the Government Fund for Fiscal Investment and Loan Program(1) | | ¥ | 858,700 |
Borrowings from the Foreign Exchange Fund Special Account | | | 490,360 |
Bonds and Notes with the Government Guarantee(2) | | | 174,642 |
Bonds and Notes without the Government Guarantee | | | 69,991 |
| (1) | Includes both short-term and long-term borrowings. |
| (2) | Guaranteed by the Government except for the Fiscal Investment and Loan Program Agency Bond. |
The Predecessor and JFC have raised funds for the Predecessor’s international financial account and the JBIC Operations through borrowings from Government of Japan and issuances of Japanese Government-guaranteed bonds and notes in international markets. In accordance with the government’s policy to reform the zaito program, the Predecessor began to raise funds in the Japanese domestic capital market on its own creditworthiness, starting in the fiscal year ended March 31, 2002. Specifically, the Predecessor issued bonds with a guarantee from the Government of Japan in the amount of $1.5 billion and bonds without a guarantee from the Government of Japan in the aggregate amount of ¥70 billion in its international financial account during the fiscal year ended September 30, 2008 and JFC did not issue bonds with and without a guarantee from the Government of Japan in the fiscal year ended March 31, 2009.
11
Capital of the JBIC Operations and the Other Domestic Financial Operations
The following table sets forth information concerning the account-wise total assets and equity at the end of the fiscal year ended March 31, 2009.
| | | | | | | | | | | | | | | | |
| | | (In millions of yen) | |
| | |
| | | JBIC
Operations | | | Domestic Financial Operations | |
| | | Micro Business
and Individual
Operations | | | Agriculture,
Forestry,
Fisheries and
Food Business
Operations | | | SME Loan Programs
and Securitization
Support Programs
(Guarantee-type
Operation) | |
Total Assets | | ¥ | 9,756,961 | | | ¥ | 7,291,149 | | | ¥ | 2,812,228 | | | ¥ | 5,452,322 | |
Net Assets | | | 1,945,915 | | | | 151,160 | | | | 327,532 | | | | 232,193 | |
Capital Stock | | | 1,035,500 | | | | 461,470 | | | | 324,735 | | | | 574,435 | |
Capital Surplus | | | — | | | | 181,500 | | | | — | | | | — | |
Retained Earning | | | 739,430 | | | | (491,809 | ) | | | 2,797 | | | | (342,241 | ) |
| | | | | | | | | | | | | | | | |
Net Assets /Total Assets | | | 19.9 | % | | | 2.0 | % | | | 11.6 | % | | | 4.2 | % |
| | | | | | | | | | | | | | | | |
| | |
| | | Domestic Financial Operations | | | JFC Total | |
| | Securitization
Support
Programs
(Purchase-type
Operation) | | | Credit
Insurance
Programs | | | Crisis
Response
Operations | | |
Total Assets | | ¥ | 26,924 | | | ¥ | 1,200,900 | | | ¥ | 1,461,710 | | | ¥ | 28,002,099 | |
Net Assets | | | 23,738 | | | | 172,003 | | | | 28,023 | | | | 2,880,565 | |
Capital Stock | | | 24,476 | | | | — | | | | 31,551 | | | | 2,452,167 | |
Capital Surplus | | | — | | | | 1,291,138 | | | | — | | | | 1,472,638 | |
Retained Earning | | | (737 | ) | | | (1,119,135 | ) | | | (3,527 | ) | | | (1,215,224 | ) |
| | | | | | | | | | | | | | | | |
Net Assets /Total Assets | | | 88.1 | % | | | 14.3 | % | | | 1.9 | % | | | 10.2 | % |
| | | | | | | | | | | | | | | | |
BIS based capital adequacy ratio for the JBIC Operations at the end of the fiscal year ended March 31, 2009 are set forth in the table below.
| | | | |
| | | (In millions of yen) | |
| | | 2009
Total | |
Core Capital (Tier I)(A) | | ¥ | 1,761,511 | |
Supplementary Capital (Tier II) (B) | | | 18,456 | |
Exclusion (C) | | | — | |
Total Capital (A)+(B)-(C) (D) | | | 1,779,967 | |
Risk Assets, etc (E) | | | 8,531,178 | |
Total Capital Ratio (D)/(E) | | | 20.86 | % |
| | | | |
Tier I Ratio (A)/(E) | | | 20.64 | % |
| | | | |
12
Non-performing Loans
JFC assessed its loans and other credits in accordance with disclosure requirements that are based, in all material respects, on two sets of disclosure regulations that are followed by commercial financial institutions in Japan, although JFC is not required to follow either set of regulations. The first set of disclosure regulations includes those set forth under the Banking Law of 1981, as amended (the “Banking Law”). The Banking Law standards require “Risk-monitored Loans” to be disclosed in four categories: (1) bankrupt loans, (2) non-accrual loans, (3) past due loans (three months or more), and (4) restructured loans. The loan categories can be described in greater detail as follows:
| (1) | “Bankrupt loans” are loans, defined in Article 96, Paragraph 1, Item 3 and 4 of the corporate Tax Law Enforcement Ordinance (Government Ordinance No.97), on which accrued interest income is not recognized as there is substantial uncertainty over the ultimate collectability of either principal or interest because they have been in arrears for a considerable period of time or for another reason. |
| (2) | “Non-accrual loans” are loans on which accrued interest income is not recognized, although this excludes loans on which interest payments are deferred in order to support the borrowers’ recovery from financial difficulties. |
| (3) | “Loans with interest or principal repayments more than three months in arrears” are loans whose principal or interest payment is more than three months in arrears, and which do not fall under category of “Bankrupt loans” and “Non-accrual loans” |
| (4) | “Restructured loans” are loans whose repayment terms and conditions have been amended in favor of the borrowers (e.g. reduction of or exemption from the stated interest rate, the deferral of interest payments, the extension of principal repayments or renunciation of claims) in order to support the borrowers’ recovery from financial difficulties, and which do not fall under the category of “Bankrupt loans”, “Non-accrual loans”, and “Loans with interest or principal payments more than three months in arrears”. |
| (5) | The amounts of loans indicated in the table below are the gross amounts prior to the deduction of allowance for possible loan losses. |
The following table sets forth the results of JFC’s assessment of its loans according to the Banking Law standards as of March 31, 2009 :
Principal Amount of Non-Performing Loans
Calculated and Disclosed under the Banking Law
| | | | | | | | | | | | |
| | | (In millions of yen) |
| | | As of March 31, 2009 |
| | | Account for
Micro Business
and Individual
Operations | | Account for
Agriculture,
Forestry,
Fisheries and
Food Business
Operations | | Account for
SME Loan Programs
and Securitization
Support Programs
(Guarantee-type
Operation) | | Account for
JBIC
Operations |
Bankrupt loans | | ¥ | 43,377 | | ¥ | 1,287 | | ¥ | 54,219 | | ¥ | 26,908 |
Non-accrual loans | | | 163,890 | | | 76,064 | | | 458,308 | | | 110,674 |
Loans with interest or principal repayments more than three months on arrears | | | 233 | | | 3,864 | | | — | | | — |
Restructured loans | | | 309,915 | | | 24,843 | | | 153,114 | | | 92,894 |
| | | | | | | | | | | | |
Total | | ¥ | 517,417 | | ¥ | 106,060 | | ¥ | 665,642 | | ¥ | 230,477 |
| | | | | | | | | | | | |
13
In addition, JFC has assessed its loans and other assets in accordance with disclosure requirements that are based, in all material respects, on the requirements set forth in the Law on Emergency Measures for the Revitalization of the Functions of the Financial System of 1998, as amended (the “Financial Revitalization Law”). The Financial Revitalization Law requires that problem assets be categorized in three categories: (1) bankrupt and quasi-bankrupt assets, (2) doubtful assets and (3) substandard loans, which may be described more fully as follows:
| (1) | “Bankrupt and quasi-bankrupt assets” are loans to and other credits to debtors which have begun proceedings under the Bankruptcy Law, the Corporate Reorganization Law, the Financial Revitalization Law or other similar laws of Japan and have financially failed, as well as similar loans as so designated. |
| (2) | “Doubtful Assets” are loans to and other credits to debtors whose financial and operational conditions have been deteriorated and which are unlikely to make payment of principal and/or interest on a contractual basis. |
| (3) | “Substandard loans” are (a) “Past due loans (three months or more)” for which principal and/or interest is past due three months or more from the date following the scheduled payment date excluding “Bankrupt and quasi-bankrupt assets” and “Doubtful assets”, and (b) restructured loans on which JFC granted concessions to borrowers in financial difficulties to assist them in their financial recovery and eventually be able to pay to creditors, but exclude “Bankrupt and quasi-bankrupt assets”, “Doubtful assets” and “Past due loans (three months or more)”. |
The following table sets forth the result of JFC’s assessment of its loan portfolio according to the Financial Revitalization Law standards as of March 31, 2009:
Problem Assets
Calculated and Disclosed under Financial Revitalization Law
| | | | | | | | | | | | |
| | | (In millions of yen) |
| | | As of March 31, 2009 |
| | Account for
Micro Business
and Individual
Operations | | Account for
Agriculture,
Forestry,
Fisheries and
Food Business
Operations | | Account for
SME Loan Programs
and Securitization
Support Programs
(Guarantee-type
Operation) | | Account for
JBIC
Operations |
Bankrupt and quasi-bankrupt assets | | ¥ | 139,990 | | ¥ | 9,393 | | ¥ | 116,337 | | ¥ | 26,908 |
Doubtful Assets | | | 68,273 | | | 67,975 | | | 397,312 | | | 110,674 |
Substandard loans | | | 310,149 | | | 28,708 | | | 153,114 | | | 92,894 |
| | | | | | | | | | | | |
Total | | ¥ | 518,412 | | ¥ | 106,077 | | ¥ | 666,764 | | ¥ | 230,477 |
| | | | | | | | | | | | |
In the event that a debtor country is temporarily unable to repay its external public debt (debts to creditors that are public institutions such as central governments, trade insurance agencies and export credit agencies) due to a decline in its balance of payments, meetings of creditor countries (the “Paris Club”) may be held to discuss debt relief measures. When creditor countries agree on debt relief measures, debt rescheduling agreements between the creditors and a debtor are agreed, and repayments are made according to the agreements. During this temporary liquidity assistance effort, the debtor country implements an economic reform program pursuant to an agreement with the IMF and continues repayments of its debts. The principal amount of loans as of March 31, 2009, for which JFC agreed to provide debt relief in the JBIC Operations pursuant to the Paris Club agreements was ¥321,176 million on the JBIC Operations.
In the past, the Predecessor had not categorized the loans rescheduled under the Paris Club agreements, described above, under “Restructured loans.” This practice was based on the assumption that, unlike loans provided by private financial institutions, the Predecessor’s loans, as loans from a public creditor, benefit from an asset securing mechanism under the international framework which accords a high probability of repayment. However, in order to facilitate comparison with private financial institutions, effective from the fiscal year ended March 31, 2005, JFC now classifies its loans in the JBIC Operations rescheduled under the Paris Club made to borrowers classified under the Banking Law self assessment as “Watchlisted”, but not “Past due loans (3 months or more)”, as “Restructured loans”. The amount of such loans as of March 31, 2009, included in “Restructured loans” in the above table, is ¥73,547 million attributable to the JBIC Operations, of which ¥ 70,289 million represents original principal.
14
Risk Management– General
JFC, in order to ensure uninterrupted and stable execution of its policy finance functions, deals with risks it faces in a comprehensive manner and seeks to manage them appropriately. JFC devotes significant resources to strengthening its risk management policies and procedures. However, it is not possible through such policies and procedures to predict, identify and effectively manage each and every risk that might arise in connection with those operations. To the extent that risks arise in connection with those operations that cannot be effectively managed under such policies and procedures, JFC’s financial condition and results of operations could be materially and adversely affected.
JFC manages the following types of risks:
Credit risk refers to risk of losses arising from a decrease in or disappearance of the value of an asset (including off-balance sheet assets), due to deterioration in creditworthiness or default of the entity to which credit is granted.
| | • | | Credit insurance underwriting risks |
Credit insurance underwriting risk refers to risk of losses due to movements in the loss incurrence and recovery rates with respect to loans granted to SMEs under the Credit Insurance Programs that were not anticipated at the time the relevant insurance premiums were set.
Market risk refers to risk of losses arising from a loss in the value of an asset (including off-balance sheet assets) resulting from changes in market prices, rates, indices, volatilities, correlations or other market factors, such as interest rates, currency exchange rates and stock prices.
Liquidity risk refers to the potential inability to meet financial obligations as they become due. This risk could arise from an inability to access the secured or unsecured debt markets, a deterioration in JFC’s credit ratings which could raise funding costs, a failure to manage unplanned changes in funding requirements, or a failure to liquidate assets quickly and with minimal loss in value.
Operational risk refers to risk of losses arising from improper administration of operations, actions by employees or functioning of systems, or from external events that, for example, disrupt JFC’s operations, resulting in financial and other losses. JFC faces the following types of operational risk:
| | • | | Administrative risk – risk of losses resulting from a failure by an employee to properly discharge his or her administrative responsibilities, or accidents and improper actions committed by an employee. |
| | • | | System risk – risk of losses resulting from a malfunction or other failures in JFC’s computer systems or improper use of such systems. |
| | • | | Human risk – risk of losses resulting from improper employment, inappropriate workplace and safety conditions, loss of human resources, loss of morale, or insufficient education of employees. |
| | • | | Legal risk – risk of losses resulting from violations of law or contracts, entering into improper contracts or incurrence of other legal liabilities. |
| | • | | Tangible asset risk – risk of damage to tangible assets due to natural disasters or other events. |
| | • | | Reputational risk – risk of losses due to loss of reputation or spread of rumors, resulting in a loss of other parties’ trust in JFC. |
Each of JFC’ operations faces a different combination, as well as levels, of the above types of risks compared with the other operations. In light of this, JFC has established and maintains risk management policies and procedures that are administered at the level of each of its operations.
15
Risk Management – JBIC
With respect to the JBIC Operations, JFC, acting under the name of JBIC, manages major risks in those operations as a policy-lending institution in the following manner.
Credit Risk
Managing credit risk
The cornerstone of credit risk management at JBIC is evaluation of an individual borrower’s creditworthiness, among other factors, in the process leading to credit approval. When a new credit is processed, the relevant financing departments, credit analysis department and country economic analysis department collect and analyze information on the borrower. The overseas representative offices also play a part in collecting information on foreign governments and corporations. Credit appraisal takes place, with checks and balances at work between these different departments throughout the process, leading to the final decision by the management.
For lending to foreign governments and corporations, JBIC makes most use of its position as a public institution and exchanges views and information with governments and other authorities in recipient countries, international institutions such as the IMF and the World Bank, other regional development banks and official export credit agencies as well as private financial institutions in the industrial countries. Using all these channels, JBIC evaluates sovereign or country risk based on a broad range of information on government and government agency borrowers as well as political and economic conditions in their countries.
For credit to domestic and foreign corporations, there is need to evaluate their creditworthiness and the appropriateness of the collateral they provide. In particular, for credit related to projects overseas, credit evaluation involves checking and examining the certainty of transactions to be financed, feasibility studies of projects and the industry in which the borrower operates.
Internal credit rating
JBIC has institutionalized its internal credit rating program that covers basically all of its borrowers. JBIC uses its internal credit ratings for loan appraisals and to quantify its credit risks. Further, the internal credit rating program has been revised where necessary on a timely basis.
Internal assessment of asset portfolio
As part of its internal credit risk management, the Predecessor started self-assessments of its asset portfolio in the year ended March 31, 2001. JBIC is undertaking internal assessments, similar to Japanese private financial institutions, in accordance with the Financial Inspection Manuals prepared by the Financial Services Agency as well as in discussion with independent auditors to assure the appropriateness of JBIC’s self-assessment of its loan assets. In this process, JBIC, following the examples of private financial institutions, conducts first stage assessments by the relevant financing departments, second stage assessments by the credit and country economic analysis departments, and inspections by the auditing department. The results of this internal assessment of asset portfolios are used for the disclosure of the quality of assets to enhance the transparency of JBIC’s financial position.
16
Quantifying credit risks
In addition to individual credit risk management, JBIC is working on quantifying credit risks with a view to reflecting them in financing policy in the future. To quantify credit risks, it is important to take into account the characteristic of JBIC’s loan portfolio that there is a significant proportion of long-term loans and loans involving sovereign risk or country risk. Also to be taken into account is the mechanism of securing assets, such as the framework of international financial assistance to debtor countries through the Paris Club, which is unique to official creditors. Currently, work is underway on measuring the volume of overall credit risks, incorporating these factors.
Market Risks
Exchange rate risk
Foreign currency-denominated loans of the JBIC Operations involve risks related to exchange rate fluctuations. JBIC has a consistent policy of managing its risk by hedging the full amount of such exposure through currency swaps and forward exchange transactions.
Interest rate risk
In the JBIC Operations, interest rate risk for foreign currency-denominated loans (and for a portion of yen-denominated loans) is mainly hedged by using interest rate swaps by which both foreign currency-denominated loans (and for a portion of yen-denominated loans) and the related funding arrangements can be managed on a floating rate basis. Interest rate risk for yen-denominated loans is limited since maturity of loans and the related funding arrangements, both on a fixed-rate basis, are generally matched. In addition, JBIC makes careful projections of its future asset/liability structure and profits and losses.
Derivatives transactions
Policy for derivatives transactions
JBIC engages in derivatives transactions exclusively for the purpose of hedging exchange rate and interest rate risks that are involved in its lending and funding operations.
Transactions
Derivatives transactions of JBIC include interest rate and currency swaps and forward exchange contracts. The table below gives details of these transactions as of March 31, 2009.
Credit Risk Amounts of Derivatives, etc. for the JBIC Operations
| | | | | | | |
| | | As of March 31, 2009 | |
| | Notional Amount | | Credit Risk | |
| | (billions of yen) | |
Interest Rate Swap | | ¥ | 2,476 | | ¥ | 104 | |
Currency Swaps | | | 3,603 | | | 822 | |
Forward Exchange Contracts | | | 1 | | | 0 | |
Other Derivatives | | | — | | | — | |
Credit Risk Reductions through Netting | | | — | | | (94 | ) |
| | | | | | | |
Total | | ¥ | 6,081 | | ¥ | 832 | |
| | | | | | | |
17
Risks involved in derivatives transactions and policies for addressing risks
Credit risk. Potential loss from the failure of a counterparty to perform its obligations in accordance with terms and conditions of the contract governing transactions due to bankruptcy or deteriorating business conditions.
JBIC constantly monitors the market value of derivatives transactions as to each counterparty and the amount of its credit exposure to and creditworthiness of each counterparty in order to ascertain the appropriateness of entering into or maintaining a transaction with each counterparty.
Liquidity Risk. Liquidity risk refers to the risk of cash flow tightening due to worsening fund-raising capability that arises from deterioration of creditworthiness or mismatches in the maturity of assets and liabilities. JBIC is minimizing the liquidity risk through effective cash flow management and diversification of its funding sources. In addition, multiple financial institutions have established short-term credit line with JBIC. JFC borrows under the zaito program and issues government-guaranteed bonds in the international capital markets for the JBIC Operation. The Predecessor started to issue bonds without a government guarantee in the domestic capital market in the fiscal year ended March 31, 2002.
Operational Risk. Operational risk refers to the potential loss from neglecting of duty or from accidents or misdeeds on the part of JBIC’s management and staff or from external events. JBIC has been minimizing this risk by ensuring accurate operations through checks on the administrative process, creating operational manuals, improving training programs, and streamlining and computerizing the procedures. In addition, the Audit Department, in charge of internal auditing, inspects the administrative practices of the head office, the Osaka Branch and overseas representative offices.
Computer System Risk. Computer system risk refers to the potential loss from a breakdown or malfunction in computer systems as well as from their misuse. With greater reliance on information systems, there is an increasing need to make the operations of JBIC smoother and more effective by exchanging information with Japanese firms as well as foreign governments through information networks. It is thus important to give greater weight to information management and staff with respect to internal information management and by putting in place measures to block illegal access to JBIC’s information systems from external sources by way of information networks. As part of an effort to ensure information security, JBIC drew up the Information Security Policy and created the Information Security Committee, consisting of the Senior Executive Director in charge and heads of the relevant departments.
18
MANAGEMENT
JFC’s board of directors has the ultimate responsibility for the administration of its affairs. JFC’s articles of incorporation provide for a board of directors of not more than 22 directors and provide for not more than five corporate auditors. All directors and corporate auditors are elected by the Japanese government as JFC’s sole shareholder at the shareholder’s general meetings, but the election of each director and corporate auditor is subject to approval of the competent minister in accordance with the JFC Law. The normal term of office for directors is two years, and the normal term of office for corporate auditors is four years, but directors and corporate auditors may serve any number of consecutive terms. The board of directors may elect from among its members, a Governor, two Deputy Governors, several Senior Managing Directors and several Managing Directors. The Governor acts as the chairperson at the shareholder’s general meeting. One of the Deputy Governors (the “President & CEO, JBIC”) presides over the JBIC Operations. The board of directors also elects one or more representative directors from among its members, but such election is subject to the approval of the competent minister. Each of the Governor, Deputy Governor, President & CEO, JBIC and Senior Managing Directors has the authority to represent JFC in the conduct of its affairs. The corporate auditors, or auditors, form the board of corporate auditors. The board of corporate auditors has a statutory duty to prepare and submit an audit report to the board of directors each year based on the audit reports issued by the individual corporate auditors that year. The board of corporate auditors is empowered to establish audit principles, the method of examination by the corporate auditors of JFC’s affairs and financial position and any other matters relating to the performance of the corporate auditors’ duties. JFC is required to appoint, and has appointed, independent auditors, who have the statutory duties of examining the financial statements, prepared on a basis consistent with accounting principles generally accepted in Japan, to be submitted to the shareholders by a representative director, and preparing their audit report thereon. JFC has selected its independent auditors to audit the financial statements for the six-month period ending March 31, 2009, which is JFC’s initial fiscal period.
JFC’s current directors and corporate auditors as of October 2, 2009, are as follows:
| | |
Name | | Title |
| Shosaku Yasui | | Governor & CEO |
| Koichi Hosokawa | | Deputy Governor |
| Hiroshi Watanabe | | President & CEO, JBIC |
| Ryuhei Katsuno | | Senior Managing Director |
| Masatoshi Sakano | | Senior Managing Director |
| Yoshihiko Murase | | Senior Managing Director |
| Yoshihiko Morita | | Senior Managing Director (Deputy President, JBIC) |
| Kazuhiko Bando | | Managing Director |
| Masaki Omura | | Managing Director (Managing Director, JBIC) |
| Hiromichi Tanigawa | | Managing Director |
| Yasutaka Tobita | | Managing Director |
| Yoshio Nakamura | | Managing Director |
| Akira Fujitsuka | | Managing Director |
| Takuo Murase | | Managing Director |
| Fumio Hoshi | | Executive Director (Executive Director, JBIC) |
| Tetsuo Matsui | | Executive Director |
| Toshio Matsumoto | | Executive Director |
| Hiromi Minagawa | | Executive Director |
| Masaharu Miyahara | | Executive Director |
| Hiroo Motegi | | Executive Director |
| Kunio Nakamura | | Executive Director |
| Sachiko Hayakawa | | Executive Director |
| Katsufumi Nomura | | Auditor |
| Yoichiro Iwakiri | | Auditor |
| Toshio Ikeda | | Auditor |
| Nobuko Takahashi | | Auditor |
19
DEBT RECORD
There has been no default in the payment of interest or principal on any obligation of JFC, the Predecessor or the Other Predecessors.
FINANCIAL STATEMENTS
JFC’s financial statements as of March 31,2009 and the six months period ended March 31,2009, prepared in accordance with accounting principles generally accepted in Japan (“Japan GAAP”), are included as Exhibit 2 to this Amendment No. 1 to JFC’s Annual Report on Form 18-K filed with the Commission. Such financial statements have been audited by Ernst & Young ShinNihon LLC, independent auditors, as stated in their report accompanying such financial statements. Also, JBIC’s unaudited financial statements as of and for the six months ended March 31, 2009, also prepared in accordance with Japan GAAP, are included as Exhibit 4 to this Amendment No. 1. Furthermore, Exhibit 5 to this Amendment No. 1 sets forth unaudited summary financial information of the Predecessor and the Other Predecessors as of and for the years ended March 31, 2007 and 2008, and as of and for the six months ended September 30, 2007 and 2008.
SUPPLEMENTAL INFORMATION
For supplemental information relating to the outstanding bonds of JFC, including those issued by the Predecessor and the Other Predecessors to which JFC succeeded, as of March 31, 2009, see Note 24 of the audited financial statements of JFC included as Exhibit 2 to this Amendment No. 1 to JFC’s Annual Report on Form 18-K filed with the Commission.
20
