Loans | 5. Loans The table below presents loans outstanding by domicile and industry of borrower at March 31, 2016 and 2017: 2016 2017 (in millions of yen) Domestic: Manufacturing 8,344,808 8,740,281 Construction and real estate 7,733,513 7,654,016 Services 4,655,704 4,759,225 Wholesale and retail 5,408,850 5,142,003 Transportation and communications 3,267,902 3,490,415 Banks and other financial institutions 3,632,481 4,006,401 Government and public institutions 3,395,784 8,532,246 Other industries (Note) 4,619,336 4,427,349 Individuals: Mortgage loans 10,589,646 9,964,633 Other 924,408 939,971 Total domestic 52,572,432 57,656,540 Foreign: Commercial and industrial 17,319,284 16,872,448 Banks and other financial institutions 6,382,449 6,759,921 Government and public institutions 1,174,665 959,948 Other (Note) 273,695 190,724 Total foreign 25,150,093 24,783,041 Total 77,722,525 82,439,581 Less: Unearned income and deferred loan fees—net 167,156 155,675 Total loans before allowance for loan losses 77,555,369 82,283,906 Note: Other industries of Domestic and Other of Foreign include trade receivables and lease receivables of consolidated VIEs. Net losses on sales of loans were ¥33,291 million, ¥1,752 million and ¥919 million, including unrealized losses related to recording loans held for sale at the lower of cost or fair value of ¥34,262 million, ¥810 million, and ¥310 million for the fiscal years ended March 31, 2015, 2016 and 2017, respectively. Credit quality information In accordance with the MHFG Group’s credit risk management policies, the Group uses an internal rating system that consists of credit ratings and pool allocations as the basis of its risk management infrastructure. Credit ratings consist of obligor ratings which represent the level of credit risk of the obligor, and transaction ratings which represent the ultimate possibility of incurring losses on individual loans by taking into consideration various factors such as collateral or guarantees involved. In principle, obligor ratings are applied to all obligors except those to which pool allocations are applied, and are subject to regular review at least once a year as well as special review which is required whenever the obligor’s credit standing changes. Pool allocations are applied to groups of small balance, homogeneous loans. The Group pools loans with similar risk characteristics, and the risk is assessed and managed according to such pools. The Group generally reviews the appropriateness and effectiveness of the approach to obligor ratings and pool allocations once a year in accordance with predetermined policies and procedures. The table below presents the MHFG Group’s definition of obligor ratings used by MHBK and MHTB: Obligor category Obligor rating Definition Normal A Obligors whose certainty of debt fulfillment is very high, hence their level of credit risk is very low. B Obligors whose certainty of debt fulfillment poses no problems for the foreseeable future, and their level of credit risk is low. C Obligors whose certainty of debt fulfillment and their level of credit risk pose no problems for the foreseeable future. D Obligors whose current certainty of debt fulfillment poses no problems, however, their resistance to future economic environmental changes is low. Watch (Note) E1 Obligors that require observation going forward because of either minor concerns regarding their financial position, or their somewhat weak or unstable business conditions. E2 Obligors that require special observation going forward because of problems with their borrowings such as reduced or suspended interest payments, problems with debt fulfillment such as failure to make principal or interest payments, or problems with their financial position as a result of their weak or unstable business conditions. Intensive control F Obligors that are not yet bankrupt but are in financial difficulties and are deemed likely to become bankrupt in the future because of insufficient progress in implementing their management improvement plans or other measures (including obligors that are receiving ongoing support from financial institutions). Substantially bankrupt G Obligors that have not yet become legally or formally bankrupt but are substantially insolvent because they are in serious financial difficulties and are deemed to be incapable of being restructured. Bankrupt H Obligors that have become legally or formally bankrupt. Note: Special attention obligors are watch obligors with debt in troubled debt restructuring (“TDR”) or 90 days or more delinquent debt. Loans to such obligors are considered impaired. The table below presents credit quality information of loans based on the MHFG Group’s internal rating system at March 31, 2016 and 2017: Normal obligors Watch obligors excluding (1) Impaired Total A-B C-D Retail (2) Other (3) E1-E2 Retail (2) Other (3) (in millions of yen) 2016 Domestic: Manufacturing 4,859,256 2,681,958 103,343 148,102 163,213 12,473 2,958 373,505 8,344,808 Construction and real estate 3,956,798 2,709,617 601,251 157,057 215,244 16,408 255 76,883 7,733,513 Services 2,611,296 1,674,328 195,140 2,380 81,704 24,846 — 66,010 4,655,704 Wholesale and retail 2,240,228 2,552,552 223,677 57,865 147,404 39,486 546 147,092 5,408,850 Transportation and communications 2,410,967 695,697 86,094 380 35,090 10,518 — 29,156 3,267,902 Banks and other financial institutions 2,719,047 881,405 2,234 3,788 22,303 264 — 3,440 3,632,481 Government and public institutions 3,181,241 4,047 — 210,496 — — — — 3,395,784 Other industries (4) 1,954,222 685,258 3,501 1,929,712 7,053 329 35,315 3,946 4,619,336 Individuals — 259,646 10,891,538 107,131 34,744 96,729 1,659 122,607 11,514,054 Total domestic 23,933,055 12,144,508 12,106,778 2,616,911 706,755 201,053 40,733 822,639 52,572,432 Foreign: Commercial and industrial 9,468,077 4,966,929 46 2,214,584 422,567 — 80,339 166,742 17,319,284 Banks and other financial institutions 5,129,904 550,380 — 656,969 45,196 — — — 6,382,449 Government and public institutions 942,366 224,514 — 2,940 4,801 — — 44 1,174,665 Other (4) — 6,308 8,336 258,363 132 10 268 278 273,695 Total foreign 15,540,347 5,748,131 8,382 3,132,856 472,696 10 80,607 167,064 25,150,093 Total 39,473,402 17,892,639 12,115,160 5,749,767 1,179,451 201,063 121,340 989,703 77,722,525 2017 Domestic: Manufacturing 5,313,232 2,599,760 90,825 67,734 276,771 11,589 1,314 379,056 8,740,281 Construction and real estate 4,199,022 2,641,436 558,321 15,585 165,836 16,023 317 57,476 7,654,016 Services 2,699,487 1,687,515 185,577 910 95,973 23,189 204 66,370 4,759,225 Wholesale and retail 2,244,214 2,369,842 200,003 22,785 124,846 32,911 501 146,901 5,142,003 Transportation and communications 2,584,367 739,781 82,543 1,092 50,319 9,698 — 22,615 3,490,415 Banks and other financial institutions 3,050,605 887,527 1,894 37,907 21,574 353 — 6,541 4,006,401 Government and public institutions 4,059,349 1,600 — 4,471,297 — — — — 8,532,246 Other industries (4) 1,873,137 591,109 3,535 1,906,756 4,613 410 41,179 6,610 4,427,349 Individuals — 289,809 10,312,739 80,566 26,288 89,066 1,434 104,702 10,904,604 Total domestic 26,023,413 11,808,379 11,435,437 6,604,632 766,220 183,239 44,949 790,271 57,656,540 Foreign: Commercial and industrial 9,310,432 4,814,906 173 2,153,757 312,275 — 90,722 190,183 16,872,448 Banks and other financial institutions 5,628,387 592,380 — 480,806 58,348 — — — 6,759,921 Government and public institutions 741,478 214,558 — 1,082 2,801 — — 29 959,948 Other (4) — 6,535 9,439 173,464 124 8 753 401 190,724 Total foreign 15,680,297 5,628,379 9,612 2,809,109 373,548 8 91,475 190,613 24,783,041 Total 41,703,710 17,436,758 11,445,049 9,413,741 1,139,768 183,247 136,424 980,884 82,439,581 Notes: (1) Special attention obligors are watch obligors with debt in TDR or 90 days or more delinquent debt. Loans to such obligors are considered impaired. (2) Amounts represent small balance, homogeneous loans which are subject to pool allocations. (3) Non-impaired (4) Other industries of Domestic and Other of Foreign include trade receivables and lease receivables of consolidated VIEs. Impaired loans The MHFG Group considers loans to be impaired when it is probable that the Group will be unable to collect all the scheduled payments of principal and interest when due according to the contractual terms of the loans. The Group classifies loans to special attention, intensive control, substantially bankrupt and bankrupt obligors as impaired loans, and all of the Group’s impaired loans are designated as nonaccrual loans. The Group does not have any loans to borrowers that cause management to have serious doubts as to the ability of such borrowers to comply with the present loan repayment terms for the periods presented other than those already designated as impaired loans. The table below presents impaired loans information at March 31, 2016 and 2017: Recorded investment (1) Unpaid Related (3) Average Interest (4) Requiring an Not (2) Total (in millions of yen) 2016 Domestic: Manufacturing 365,361 8,144 373,505 379,642 138,676 410,491 7,930 Construction and real estate 59,883 17,000 76,883 87,516 10,130 89,075 1,246 Services 56,695 9,315 66,010 72,603 19,095 69,525 1,292 Wholesale and retail 134,425 12,667 147,092 157,215 46,304 149,324 2,376 Transportation and communications 25,665 3,491 29,156 30,497 5,694 33,119 630 Banks and other financial institutions 3,390 50 3,440 3,440 1,095 5,188 42 Other industries 3,591 355 3,946 4,132 799 2,665 64 Individuals 63,367 59,240 122,607 135,325 6,085 133,015 2,058 Total domestic 712,377 110,262 822,639 870,370 227,878 892,402 15,638 Foreign: Total foreign 148,471 18,593 167,064 180,870 61,308 186,440 2,629 Total 860,848 128,855 989,703 1,051,240 289,186 1,078,842 18,267 2017 Domestic: Manufacturing 372,241 6,815 379,056 383,812 148,777 375,895 2,859 Construction and real estate 46,130 11,346 57,476 66,006 6,367 66,796 877 Services 58,366 8,004 66,370 72,261 20,122 66,050 1,173 Wholesale and retail 133,466 13,435 146,901 155,023 52,341 148,865 2,261 Transportation and communications 19,386 3,229 22,615 23,568 5,968 24,035 371 Banks and other financial institutions 2,601 3,940 6,541 6,873 962 5,305 50 Other industries 6,484 126 6,610 6,740 1,999 6,053 91 Individuals 51,893 52,809 104,702 114,880 4,935 114,104 1,696 Total domestic 690,567 99,704 790,271 829,163 241,471 807,103 9,378 Foreign: Total foreign 160,563 30,050 190,613 209,129 61,102 169,192 2,040 Total 851,130 129,754 980,884 1,038,292 302,573 976,295 11,418 Notes: (1) Amounts represent the outstanding balances of nonaccrual loans. The MHFG Group’s policy for placing loans in nonaccrual status corresponds to the Group’s definition of impaired loans. (2) These impaired loans do not require an allowance for loan losses because the MHFG Group has sufficient collateral to cover probable loan losses. (3) The allowance for loan losses on impaired loans includes the allowance for groups of small balance, homogeneous loans which were collectively evaluated for impairment, in addition to the allowance for those loans that were individually evaluated for impairment. The total carrying amount of the groups of small balance, homogeneous loans at March 31, 2016 and 2017 was ¥347,839 million and ¥302,251 million, respectively. (4) Amounts represent gross interest income on impaired loans which were included in Interest income on loans in the consolidated statements of income. The remaining balance of impaired loans which had been partially charged off was ¥31,933 million and ¥26,513 million as of March 31, 2016 and 2017, respectively. Troubled debt restructurings The MHFG Group considers a TDR to be a restructuring in which it, for economic or legal reasons related to the obligor’s financial difficulties, grants a concession to the obligor that it would not otherwise consider. The Group considers the relevant obligor to be in financial difficulty when its obligor rating is E2 or below. The following table presents TDRs that were entered into during the fiscal years ended March 31, 2016 and 2017: Loan forgiveness or debt to Interest rate Recorded (Note ) Charge-offs (in millions of yen) 2016 Domestic: Manufacturing 67,058 34,081 108,395 Construction and real estate — — 27,078 Services — — 43,919 Wholesale and retail — — 157,651 Transportation and communications 49 279 28,244 Banks and other financial institutions — — 6,342 Other industries — — 7,120 Individuals — — 28,163 Total domestic 67,107 34,360 406,912 Foreign: Total foreign — — 44,748 Total 67,107 34,360 451,660 2017 Domestic: Manufacturing — — 106,697 Construction and real estate — — 18,818 Services — — 45,287 Wholesale and retail — — 159,649 Transportation and communications — — 17,417 Banks and other financial institutions — — 7,933 Other industries — — 2,518 Individuals — — 17,067 Total domestic — — 375,386 Foreign: Total foreign — — 35,685 Total — — 411,071 Note: Amounts represent the book values of loans immediately after the restructurings. Payment default is deemed to occur when the loan becomes three months past due or the obligor is downgraded to the category of substantially bankrupt or bankrupt. The following table presents payment defaults which occurred during the fiscal years ended March 31, 2016 and 2017 with respect to the loans modified as TDRs within the previous twelve months: Recorded investment 2016 2017 (in millions of yen) Domestic: Manufacturing 10,669 5,164 Construction and real estate 2,195 2,887 Services 4,824 4,471 Wholesale and retail 20,522 10,116 Transportation and communications 2,361 795 Other industries — 14 Individuals 3,864 2,288 Total domestic 44,435 25,735 Foreign: Total foreign 10,846 3,213 Total 55,281 28,948 Age analysis of past due loans The table below presents an analysis of the age of the recorded investment in loans that are past due at March 31, 2016 and 2017: 30-59 days 60-89 days 90 days or Total past Current Total (in millions of yen) 2016 Domestic: Manufacturing 1,555 163 9,454 11,172 8,333,636 8,344,808 Construction and real estate 2,713 1,024 35,691 39,428 7,694,085 7,733,513 Services 2,479 223 7,016 9,718 4,645,986 4,655,704 Wholesale and retail 3,193 886 8,861 12,940 5,395,910 5,408,850 Transportation and communications 594 81 2,033 2,708 3,265,194 3,267,902 Banks and other financial institutions — — — — 3,632,481 3,632,481 Government and public institutions — — — — 3,395,784 3,395,784 Other industries — — 29 29 4,619,307 4,619,336 Individuals 38,682 13,570 38,413 90,665 11,423,389 11,514,054 Total domestic 49,216 15,947 101,497 166,660 52,405,772 52,572,432 Foreign: Total foreign 859 2,598 30,000 33,457 25,116,636 25,150,093 Total 50,075 18,545 131,497 200,117 77,522,408 77,722,525 2017 Domestic: Manufacturing 1,938 360 7,767 10,065 8,730,216 8,740,281 Construction and real estate 2,818 947 32,523 36,288 7,617,728 7,654,016 Services 917 217 5,914 7,048 4,752,177 4,759,225 Wholesale and retail 1,330 2,834 5,585 9,749 5,132,254 5,142,003 Transportation and communications 384 322 1,859 2,565 3,487,850 3,490,415 Banks and other financial institutions — — — — 4,006,401 4,006,401 Government and public institutions — — — — 8,532,246 8,532,246 Other industries — — 69 69 4,427,280 4,427,349 Individuals 32,995 12,291 34,846 80,132 10,824,472 10,904,604 Total domestic 40,382 16,971 88,563 145,916 57,510,624 57,656,540 Foreign: Total foreign 546 216 95,719 96,481 24,686,560 24,783,041 Total 40,928 17,187 184,282 242,397 82,197,184 82,439,581 |