Japan Bank for International Cooperation 18-K Annual report (foreign governments)

Exhibit 7

Audited consolidated financial statements of Japan Bank for International Cooperation and its subsidiaries (the “JBIC Group”) as of and for the fiscal years ended March 31, 2020 and 2019 prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (the “IASB”).*

* Audited consolidated financial statements of the JBIC Group as of and for the fiscal years ended March 31, 2020 and 2019 prepared in accordance with IFRS are being disclosed for reference purposes in order to improve comparability with international issuers. The registrant’s financial statements for reporting purposes are prepared in accordance with Japanese GAAP (see Exhibit 2).

Independent auditor’s report

The Board of Directors

Japan Bank for International Cooperation

Report on the audit of the consolidated financial statements

Opinion

We have audited the consolidated financial statements of Japan Bank for International Cooperation and its subsidiaries (the Group), which comprise the consolidated statements of financial position as at March 31, 2020 and 2019, and the consolidated income statements, consolidated statements of comprehensive income, consolidated statements of changes in equity and consolidated statements of cash flows for the years then ended, and notes to the consolidated financial statements, including a summary of significant accounting policies.

In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Group as at March 31, 2020 and 2019 and its consolidated financial performance and its consolidated cash flows for the years then ended in accordance with International Financial Reporting Standards (IFRSs) issued by the International Accounting Standards Board (IASB).

Basis for opinion

We conducted our audit in accordance with International Standards on Auditing (ISAs). Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the consolidated financial statements section of our report. We are independent of the Group in accordance with the International Code of Ethics for Professional Accountants (including International Independence Standards) (IESBA Code) together with the ethical requirements that are relevant to our audit of the consolidated financial statements in Japan, and we have fulfilled our other ethical responsibilities in accordance with these requirements and the IESBA Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Key audit matters

Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the consolidated financial statements of the current period. These matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. For each matter below, our description of how our audit addressed the matter is provided in that context.

We have fulfilled the responsibilities described in the Auditor’s responsibilities for the audit of the consolidated financial statements section of our report, including in relation to these matters. Accordingly, our audit included the performance of procedures designed to respond to our assessment of the risks of material misstatement of the consolidated financial statements. The results of our audit procedures, including the procedures performed to address the matters below, provide the basis for our audit opinion on the accompanying consolidated financial statements.

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Key audit matter	How our audit addressed the key audit matter
Impairment assessment of loans and other receivables
As of March 31, 2020, the Group reported gross loans and other receivables of ¥13,036 billion and recorded an allowance for loan losses of ¥277 billion. Management discloses information about credit risk in from Note 37 “Financial Risk Management” to Note 41 “Exercise of Rights to Obtain Collateral or Other Credit Enhancements” as well as the details of the allowance for loan losses and impairment losses in Note 4 “Significant Accounting Judgments, Estimates, and Assumptions,” Note 11 “Loans and Other Receivables,” and Note 30 “Impairment Losses on Financial Assets,” respectively. The Group’s loan portfolio is characterized by a significant portion of long-term loans and loans that entail sovereign and country risks. IFRS 9 applies the expected credit loss (“ECL”) model, which is a model for the recognition of impairment losses. IFRS 9 outlines a “three-stage” model for impairment based on changes in credit quality since initial recognition. The Group estimates risk parameters in consideration of information available on March 31, 2020 and measures ECL. The assessment of the impairment of loans and other receivables involves significant judgment by management and the estimation uncertainty on the following specific matters: - self-assessment of the quality of loans and other receivables, which is a process to determine the credit rating and risk of the borrowers and is used as a basis for assessment of impairment losses; - determination of assumptions used in the discounted cash flow method (“DCF approach”) for loans and other receivables assessed individually which are classified as Stage 3; - selection of the criteria for recognizing a significant increase in credit risk in ECL measurement of loans and other receivables classified as Stage 1 or Stage 2, use of forward-looking macroeconomic information; and inputs such as probability of default and loss given default (“LGD”). In addition, the spread of COVID-19 is causing political and economic impacts on borrowers’ countries or regions as well as impacting individual borrowers. ECL measurement is adjusted for uncertainties in the economic environment and involves management’s judgement on the timing of recovery of macroeconomic indicators in the future, but there is no consensus on this assumption and higher uncertainties are involved in estimates. Thus, we considered the assessment of impairment of loans and other receivables as a key audit matter, due to the significance of its potential impact on the Group’s consolidated financial statements as well as management’s judgement involved and the uncertainties in the estimates.	We obtained an understanding, evaluated the design and tested the operating effectiveness of internal controls over the following processes: - self-assessment of asset quality; and - impairment assessment of loans and other receivables In addition, we performed the following substantive procedures: - For the self-assessment of asset quality, we inspected the Group’s self-assessment files, analyzed debtors’ financial information and examined the consistency with the external information to assess whether management identifies the occurrence of loss events and recognizes the impairment losses in a timely manner. When selecting samples to be tested, we considered the macroeconomic factors and industry trends. Our sample selection considered debtors with higher credit risk which are covered by management’s monitoring. We also made inquiries to the relevant Finance Groups and Country Credit Department and inspected supporting materials to assess the financial condition of the debtors. In addition, we compared internal ratings on sovereign loans with external credit ratings. We discussed the credit quality of certain debtors with the Country Credit Department. - For the loans assessed individually and classified as Stage 3, we assessed the estimates of future cash flows used in the DCF approach as well as the inputs used by management, evaluated the model used in the DCF approach, and tested their mathematical accuracy through recalculation. In addition, for a sample of loans we performed procedures of comparing cash flows estimated in the previous years to actual results. - For the loans classified as Stage 1 or Stage 2, we evaluated criteria to recognize a significant increase in credit risk and inputs applied by management which are related to the measurement of ECL models. In addition, we assessed those models and tested their mathematical accuracy through recalculation. - We involved our specialists to evaluate the assumptions used by management to make the adjustment to the ECL to reflect the uncertainties caused by the COVID-19 pandemic. Also, we compared the timing of recovery of macroeconomic indicators in the future with available external information. - In addition, we assessed the adequacy of disclosure on notes related to the estimate of impairment on the loans and other receivables.

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Other information included in The Group’s 2020 Annual Report on Form 18-K

Other information consists of the information included in the Annual Report, other than Exhibits 3, 6, 7, 8 and our auditor’s report. Figures in Exhibit 1 and Exhibit 2 are prepared on a basis consistent with accounting principles generally accepted in Japan (Japanese GAAP). Exhibit 9 is a reconciliation between Japanese GAAP and IFRSs.

Management is responsible for the other information.

Our opinion on the consolidated financial statements does not cover the other information and we do not and will not express any form of assurance conclusion thereon.

In connection with our audit of the consolidated financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the consolidated financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.

Responsibilities of management and those charged with governance for the consolidated financial statements

Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with IFRSs, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the consolidated financial statements, management is responsible for assessing the Group’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Group or to cease operations, or has no realistic alternative but to do so.

Those charged with governance are responsible for overseeing the Group’s financial reporting process.

Auditor’s responsibilities for the audit of the consolidated financial statements

Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements.

As part of an audit in accordance with ISAs, we exercise professional judgment and maintain professional skepticism throughout the audit. We also:

^u  Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.

^u  Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group’s internal control.

^u  Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.

^u  Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Group to cease to continue as a going concern.

^u  Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation.

^u  Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion.

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We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.

From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the consolidated financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.

The partner in charge of the audit resulting in this independent auditor’s report is Hiroshi Nishida.

/s/ Ernst & Young ShinNihon LLC

Tokyo, Japan

August 25, 2020

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Consolidated Statements of Financial Position

			(Millions of yen)
	Notes		As of March 31, 2020		As of March 31, 2019
Assets
Cash and due from banks		7		1,544,838		1,191,463
Derivative financial instrument assets		8		420,937		145,235
Financial assets at fair value through profit or loss		9		374,596		361,964
Securities		10		60,532		84,087
Loans and other receivables		11		12,759,508		13,298,146
Equity method investments		13		131,856		145,834
Property and equipment		15		28,146		27,979
Other assets		16		69,141		133,145
Total assets				15,389,558		15,387,859
Liabilities
Derivative financial instrument liabilities		8		178,255		243,346
Borrowings		17		6,786,499		7,574,713
Bonds payable		18		4,999,024		4,606,882
Financial guarantee contracts		19		98,965		75,346
Other liabilities		20, 21		359,643		137,720
Total liabilities				12,422,389		12,638,008
Equity
Capital stock		22		1,883,800		1,785,300
Retained earnings				1,073,661		947,978
Other reserves		22		9,436		16,335
Non-controlling interests				271		235
Total equity				2,967,168		2,749,850
Total liabilities and equity				15,389,558		15,387,859

See Notes to the Consolidated Financial Statements.

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Consolidated Income Statements

			(Millions of yen)
	Notes		For the year ended March 31, 2020		For the year ended March 31, 2019
Interest income		24		422,286		453,200
Interest expense		24		246,447		271,366
Net interest income		24		175,838		181,834
Fee and commission income		25		16,898		16,892
Fee and commission expense		25		3,253		2,993
Net income (expense) from derivative financial instruments		26		63,870		(19,527	)
Net gain (loss) from financial assets at fair value through profit or loss		27		16,934		(1,794	)
Net gains on derecognition of financial assets measured at amortized cost		28		—		74
Other income		29		279		150
Net non-interest income (expense)				94,728		(7,197	)
Total operating income *1				270,566		174,636
Impairment losses on financial assets		30		92,372		15,669
Net operating income *2				178,194		158,967
Operating expenses		31		21,284		20,938
Other expenses		29		2,833		1,440
Total operating expenses				24,117		22,379
Losses of equity method investments		13		1,736		887
Profit before income tax				152,340		135,700
Income tax expense		32		25		4
Net profit				152,314		135,695
Attributable to:
Shareholder of JBIC				152,278		135,688
Non-controlling interests				35		7

*¹  Aggregate of “Net interest income” and “Net non-interest income (expense)”

*²  “Total operating income” less “Impairment losses on financial assets”

See Notes to the Consolidated Financial Statements.

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Consolidated Statements of Comprehensive Income

	(Millions of yen)
	For the year ended March 31, 2020			For the year ended March 31, 2019
Net profit		152,314			135,695
Other comprehensive income (loss)
Items that will not be reclassified to profit or loss:
Remeasurement of defined benefit plans:
Remeasurement arising during the year		(70	)		(236	)
Total of items that will not be reclassified to profit or loss		(70	)		(236	)
Items that may be reclassified to profit or loss:
Deferred gains (losses) on hedges:
Reclassification adjustments		(72	)		(3,952	)
Exchange differences on translation of foreign operations:
Net gains (losses) arising during the year		(4,121	)		6,614
Reclassification adjustments		(2,705	)		(1,017	)
Total of items that may be reclassified to profit or loss		(6,899	)		1,645
Other comprehensive income (loss)		(6,970	)		1,409
Total comprehensive income		145,344			137,105
Attributable to:
Shareholder of JBIC		145,308			137,097
Non-controlling interests		35			7

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Consolidated Statements of Changes in Equity

			(Millions of yen)
			Attributable to shareholder of JBIC
								Other reserves
	Notes		Capital stock		Retained earnings			Remeasurement of defined benefit plans			Available- for-sale financial assets			Deferred gains (losses) on hedges			Exchange differences on translation of foreign operations			Other reserves, Total			Sub Total
April 1, 2018				1,765,200		856,640			—			7,892			4,025			10,664			22,582			2,644,423
Effects of changes in accounting policies *				—		(12,963	)		—			(7,892	)		—			—			(7,892	)		(20,855	)
April 1, 2018 after the adoption of new accounting standards				1,765,200		843,677			—			—			4,025			10,664			14,690			2,623,567
Net profit				—		135,688			—			—			—			—			—			135,688
Other comprehensive income (loss)				—		—			(236	)		—			(3,952	)		5,597			1,409			1,409
Total comprehensive income (loss)				—		135,688			(236	)		—			(3,952	)		5,597			1,409			137,097
Issuance of new shares		22		20,100		—			—			—			—			—			—			20,100
Payment to national treasury		23		—		(31,150	)		—			—			—			—			—			(31,150	)
Other		22		—		(236	)		236			—			—			—			236			—
March 31, 2019				1,785,300		947,978			—			—			73			16,261			16,335			2,749,614
Net profit				—		152,278			—			—			—			—			—			152,278
Other comprehensive income (loss)				—		—			(70	)		—			(72	)		(6,827	)		(6,970	)		(6,970	)
Total comprehensive income (loss)				—		152,278			(70	)		—			(72	)		(6,827	)		(6,970	)		145,308
Issuance of new shares		22		98,500		—			—			—			—			—			—			98,500
Payment to national treasury		23		—		(26,525	)		—			—			—			—			—			(26,525	)
Other		22		—		(70	)		70			—			—			—			70			—
March 31, 2020				1,883,800		1,073,661			—			—			1			9,434			9,436			2,966,897
	Notes		Non - controlling interests		Total equity
April 1, 2018				227		2,644,651
Effects of changes in accounting policies *				—		(20,855	)
April 1, 2018 after the adoption of new accounting standards				227		2,623,795
Net profit				7		135,695
Other comprehensive income (loss)				—		1,409
Total comprehensive income (loss)				7		137,105
Issuance of new shares		22		—		20,100
Payment to national treasury		23		—		(31,150	)
Other		22		—		—
March 31, 2019				235		2,749,850
Net profit				35		152,314
Other comprehensive income (loss)				—		(6,970	)
Total comprehensive income (loss)				35		145,344
Issuance of new shares		22		—		98,500
Payment to national treasury		23		—		(26,525	)
Other		22		—		—
March 31, 2020				271		2,967,168

* The JBIC Group has adopted IFRS 9 and IFRS 15 effective from April 1, 2018. “Effects of changes in accounting policies” are transitional adjustments arising from the adoption of IFRS 9.

See Notes to the Consolidated Financial Statements.

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Consolidated Statements of Cash Flows

			(Millions of yen)
	Notes		For the year ended March 31, 2020			For the year ended March 31, 2019
Cash flows from operating activities
Profit before income tax				152,340			135,700
Depreciation and amortization				3,051			1,944
Increase (decrease) in liability for retirement benefits				(344	)		182
Net loss (gain) from financial assets at fair value through profit or loss				(16,934	)		1,794
Losses from equity method investments				1,736			887
Net decrease (increase) in loans and other receivables				538,638			(81,408	)
Net increase (decrease) in borrowings				(788,214	)		(796,045	)
Net decrease (increase) in deposits (excluding demand deposits)				184,287			68,193
Net change in derivative financial instrument assets and liabilities				(340,792	)		(39,812	)
Net increase (decrease) in financial guarantee contracts				23,619			1,459
Net increase (decrease) in bonds payable				392,142			218,127
Other				313,764			40,157
Net cash provided by (used in) operating activities				463,294			(448,819	)
Cash flows from investing activities
Purchase of financial assets at fair value through profit or loss				(28,702	)		(29,216	)
Sale of financial assets at fair value through profit or loss				4,840			6,851
Purchase of securities				—			(30,600	)
Proceeds from sales or redemption of securities				23,500			22,354
Purchase of equity method investments				(3,607	)		(12,570	)
Proceeds from return of equity method investments				13,009			9,111
Other				(1,404	)		(4,798	)
Net cash provided by (used in) investing activities				7,635			(38,867	)
Cash flows from financing activities
Proceeds from issuance of new shares		22		98,500			20,100
Payment to national treasury		23		(26,525	)		(31,150	)
Other				(197	)		—
Net cash provided by (used in) financing activities				71,777			(11,050	)
Exchange difference on cash and cash equivalents				(5,044	)		7,106
Net increase (decrease) in cash and cash equivalents				537,662			(491,630	)
Cash and cash equivalents at the beginning of the year				1,007,176			1,498,807
Cash and cash equivalents at the end of the year		7		1,544,838			1,007,176
Net cash provided by (used in) operating activities includes the following:
Interest received				442,505			416,979
Interest paid				(253,823	)		(253,882	)

See Notes to Consolidated Financial Statements.

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Notes to Consolidated Financial Statements

1. Corporate Information

On April 1, 2012, the JBIC Operations and the Financial Operations for Facilitating Realignment of United States Forces in Japan were transferred out of Japan Finance Corporation to establish Japan Bank for International Cooperation (“JBIC”), a policy-based financial institution, wholly owned by the Japanese government according to the Japan Bank for International Cooperation Act (2011 Act No. 39, or “JBIC Act”). JBIC is a joint-stock corporation incorporated and domiciled in Japan with its headquarters registered at 4-1 Ohtemachi 1-chome, Chiyoda-ku, Tokyo 100-8144, Japan.

The consolidated financial statements for the year ended March 31, 2020 were authorized for issue by the board of directors on August 25, 2020.

The objective of JBIC and its subsidiaries (the “JBIC Group”) is to contribute to the sound development of Japan and the international economy and society by conducting financial operations in the following four fields, while supplementing the financial transactions of private sector financial institutions:

• promoting the overseas development and securement of resources which are important for Japan;

• maintaining and improving the international competitiveness of Japanese industries;

• promoting the overseas business having the purpose of preserving the global environment, such as preventing global warming; and

• preventing disruptions to international financial order or taking appropriate measures with respect to damage caused by such disruptions.

See Note 6 “Segment Information” for details on the JBIC Group’s major operations.

2. Basis of Preparation

The consolidated financial statements of the JBIC Group are prepared in accordance with the International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”).

The consolidated financial statements are prepared on a historical cost basis, except for certain financial instruments measured at fair value. The consolidated financial statements are presented in yen, the functional currency of JBIC. Unless otherwise stated, all amounts are rounded down and stated in millions of yen.

3. Significant Accounting Policies

The JBIC Group adopted the following new accounting standards during the fiscal year ended March 31, 2020.

IFRS 16 Leases

On April 1, 2019, the JBIC Group adopted IFRS 16 Leases (“IFRS 16”). IFRS 16 sets out the principles for the recognition, measurement, presentation and disclosure of leases, replacing IAS 17 Leases and related interpretations. The JBIC Group’s accounting policies for adopting IFRS 16 are described below. See “Effects of Adoption of New and Amended Accounting Standards” for further information about the effects of adoption of IFRS 16 on its consolidated financial statements.

Interest Rate Benchmark Reform (Amendments to IFRS 9, IAS 39 and IFRS 7)

Interest rate benchmark reform gives rise to uncertainties about the timing or the amount of cash flows of hedged items or of hedging instruments based on benchmark interest rates. As a response, the IASB issued in September 2019 “Interest Rate Benchmark Reform: Amendments to IFRS 9, IAS 39 and IFRS 7” (the “Amendments”) that provides temporary reliefs from applying specific hedge accounting requirements to hedging relationships directly affected by interest rate benchmark reform. The reliefs try to ensure that the interest rate benchmark reform does not result in the discontinuance of hedge accounting. The Amendments are effective for annual periods beginning on or after January 1, 2020 with early adoption permitted. The JBIC Group has elected to early adopt the Amendments retrospectively from April 1, 2019. For further information, see “G. Hedge accounting” in this note and Note 8 “Derivative Financial Instrument Assets and Liabilities—Hedge Accounting.”

In addition to the above, a number of interpretations and amendments to standards have become effective during the fiscal year ended March 31, 2020. However, they have not resulted in any material changes to the JBIC Group’s accounting policies.

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A. Basis of consolidation

i. Subsidiaries

A subsidiary is an entity (including a structured entity) controlled by the JBIC Group. The JBIC Group controls an entity when it is exposed, or has rights, to variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. Currently exercisable potential voting rights are taken into account in considering whether the JBIC Group has power over an entity. Even if the JBIC Group does not have voting rights in an investee, the JBIC Group determines that the investee is its subsidiary if, as a result of considering the scope of its decision-making rights over the investee, the rights held by other parties and other factors, the JBIC Group determines that another entity with decision-making rights is acting as an agent for the JBIC Group.

Inter-company transactions entered into with consolidated companies, the inter-company balance of receivables and payables and, if any, unrealized gains included in assets acquired as a result of transactions executed with consolidated companies are eliminated in consolidation. The JBIC Group consolidates a subsidiary from the date it obtains control over the subsidiary until the date JBIC ceases to control the subsidiary. If the JBIC Group ceases to control a consolidated subsidiary, it recognizes any investment retained in the former subsidiary at its fair value.

ii. Associates and joint arrangements

An associate is an entity over which the JBIC Group has significant influence in respect of managerial decisions related to the financial and operating policies of the entity but does not have control or joint control of the entity. Indications, such as ownership interest or participation in decision-making bodies, are considered in determining the existence of significant influence.

Joint control is an arrangement that constitutes contractually-agreed sharing of control, which exists only when decisions about the activities that significantly affect the variable returns of the arrangement require the unanimous consent of the parties sharing control. The classification of a joint arrangement investment as a joint operation or a joint venture depends upon the rights and obligations of each investor to the arrangement. A joint operation is a joint arrangement whereby the parties that have joint control of the arrangement have rights to the assets and obligations for the liabilities relating to the arrangement. A joint venture is a joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the arrangement. JBIC does not have joint operation investments.

The JBIC Group’s investments in associates and joint ventures are accounted for using the equity method, except for the investments directly made by Russia-Japan Investment Fund, L.P. Under the equity method, the investments in the associates and joint ventures are carried at cost in the consolidated statement of financial position and are adjusted for changes in the JBIC Group’s share of the net assets of the investees since their respective acquisition dates. The consolidated income statement reflects the JBIC Group’s share of the results of operations of the investees. Where there has been a change in the other comprehensive income of the associates and joint ventures, the JBIC Group recognizes its share of the change in other comprehensive income. The profits (losses) of equity method investments are shown on the face of the consolidated income statements and represent the profits (losses) attributable to the investors of the associates and the joint ventures.

If there is a joint arrangement among investors including Russia-Japan Investment Fund, L.P. involving investments by Russia-Japan Investment Fund, L.P. and the investors have rights to the net assets of the arrangement, such investees are joint ventures of the JBIC Group. Investments in joint ventures through Russia-Japan Investment Fund, L.P. are accounted for as financial assets at fair value through profit or loss (“FVPL”) and presented in “Financial assets at fair value through profit or loss” in the consolidated statement of financial position.

The consolidated financial statements of the JBIC Group include investments in associates and joint ventures of which the reporting date is different from that of JBIC because it is impracticable to change the reporting date of those associates and joint ventures to coincide with that of the JBIC Group in conjunction with other shareholders or for other reasons. The reporting date of certain associates and joint ventures included in the JBIC Group’s consolidated financial statements is December 31, and therefore adjustments are made for the effects of significant transactions or events which occurred during the period between the reporting dates.

The JBIC Group determines whether it is necessary to recognize impairment losses on its investments in associates and joint ventures. At each reporting date, the JBIC Group determines whether there is objective evidence that its investments in associates and joint ventures are impaired. If there is such evidence, the JBIC Group recognizes impairment losses for the differences between the recoverable amounts of investments in associates or joint ventures and their carrying values.

Upon loss of significant influence or joint control over the associates and the joint ventures, the JBIC Group measures and recognizes any retained investments at their fair values. Any differences between the carrying amounts of its investments in associates or joint ventures upon the loss of significant influence or joint control and total of the fair values of the retained investments and proceeds from disposal are recognized in profit or loss.

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B. Foreign currency translation

The consolidated financial statements of the JBIC Group are presented in yen, which is the functional currency of JBIC.

Transactions in foreign currencies are initially recorded in the functional currency using the exchange rate at the transaction date.

Monetary assets and liabilities denominated in foreign currencies are translated into the functional currency at the exchange rate at the reporting date. Any gains or losses arising from the foreign currency translation are recognized in profit or loss.

Non-monetary items measured at historical cost in a foreign currency are translated using the exchange rate at the date of the initial transaction. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rate at the date when the fair value is determined, and any translation differences are recognized in other comprehensive income.

The assets and liabilities of foreign operations are translated into yen using the exchange rate at the reporting date. Income and expenses are translated into yen at the exchange rate (or the rate that approximates the exchange rate) at the transaction date. The exchange differences arising on translation are recognized in other comprehensive income.

C. Financial assets

The JBIC Group classifies its financial assets into the following three categories: amortized cost, financial assets at fair value through other comprehensive income (“FVOCI”), and FVPL. The classification of financial instruments at initial recognition depends on the business model within which they are held and their contractual cash flow characteristics.

The JBIC Group has assessed business models based on facts and circumstances at a portfolio level. Factors that are considered in determining the business model include policies and objectives for the relevant portfolio, how the performance and risks of the portfolio are managed, evaluated and reported to management, and the level of sales activity.

The JBIC Group has assessed the contractual cash flow characteristics of financial assets with reference to whether the contractual cash flows are solely payments of principal and interest (“SPPI”). Principal is the fair value of the financial asset at initial recognition but this may change over the life of the instrument as amounts are repaid. Interest is defined as consideration for the time value of money and the credit risk associated with the principal amount outstanding during a particular period of time. It can also include consideration for other basic lending risks such as liquidity risk and costs such as administrative costs associated with holding the financial asset for a particular period of time, as well as a profit margin. In assessing whether the contractual cash flows meet the condition for SPPI, the JBIC Group considers the contractual terms that could change the contractual cash flows so that it would not meet the condition for SPPI, including leverage features, contingent events that would change the amount and timing of cash flows, contractual terms that limit the JBIC Group’s claim to cash flows from specified assets, and features that modify consideration of the time value of money.

The JBIC Group recognizes a financial asset in its consolidated statement of financial position when, and only when, the JBIC Group becomes a party to the contractual provisions of the financial instrument. The JBIC Group derecognizes a financial asset when contractual rights to cash flows from the financial asset expire, or it transfers substantially all the risks and rewards of ownership of the financial asset. In transactions in which substantially all the risks and rewards of ownership of a financial asset are neither retained nor transferred, the JBIC Group derecognizes a financial asset if control over that asset is not retained. If the terms of the financial asset are significantly modified, the existing financial asset is derecognized and a new asset is recognized, and difference in the respective carrying amounts is recognized in profit or loss.

Regular way purchases or sales of financial assets at amortized cost, FVOCI, and FVPL are recognized and derecognized using trade date accounting. Trade date accounting refers to the recognition of an asset to be received and the liability to pay for it on the trade date, derecognition of an asset that is sold, and recognition of a receivable from the buyer for payment on the trade date.

Financial assets measured at amortized cost

Financial assets are measured at amortized cost if they are held within a business model whose objective is to hold the assets in order to collect contractual cash flows, and their contractual cash flows are SPPI. These financial assets are included in “Cash and due from banks,” “Securities,” “Loans and other receivables” and “Other assets” in the consolidated statement of financial position. They are initially recognized at fair value plus directly attributable transaction costs, and are subsequently measured at amortized cost using the effective interest method. Interest income on these financial assets is recognized in “Interest income” in the consolidated income statement using the effective interest method.

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Financial assets measured at fair value through other comprehensive income

Financial assets are measured at FVOCI if they are held within a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets, and their contractual cash flows are SPPI. They are initially recognized at fair value plus directly attributable transaction costs and are subsequently measured at fair value. Gains and losses arising from changes in the fair value of these financial assets are recognized in other comprehensive income, until they are derecognized. When they are derecognized, the cumulative gains or losses previously recognized in other comprehensive income are reclassified to profit or loss. However, interest income calculated using the effective interest method, foreign currency gains and losses, and impairment gains and losses are recognized in the consolidated income statement.

In addition, the JBIC Group has an option to make an irrevocable election at initial recognition, for particular non-trading equity instruments that would otherwise be measured at FVPL, to present subsequent changes in fair value in other comprehensive income. They are initially recognized at fair value plus directly attributable transaction costs and are subsequently measured at fair value. Amounts presented in other comprehensive income shall not be subsequently reclassified to profit or loss. The JBIC Group does not make this designation.

As of March 31, 2020 and 2019, there were no financial assets measured at FVOCI.

Financial assets measured at fair value through profit or loss

Any financial assets that do not meet the criteria of amortized cost or FVOCI are classified as FVPL, unless an entity makes an irrevocable election for non-trading equity instruments to be measured at FVOCI. Derivatives are measured at FVPL and included in “Derivative financial instrument assets” in the consolidated statement of financial position. Financial assets measured at FVPL, other than derivatives, are included in “Financial assets at fair value through profit or loss” in the consolidated statement of financial position. Additionally, financial assets measured at amortized cost or FVOCI can be designated at initial recognition to be measured at FVPL in order to eliminate or significantly reduce an accounting mismatch. The JBIC Group does not make this designation.

Financial assets measured at FVPL are initially recognized at fair value with transaction costs being recognized in the consolidated income statement and are subsequently measured at fair value. Gains or losses arising from derivatives are included in “Net income (expense) from derivative financial instruments” or “Other income (expenses)” in the consolidated income statement. Gains or losses arising from financial assets measured at FVPL are included in “Net gain (loss) from financial assets at fair value through profit or loss” in the consolidated income statement.

D. Financial liabilities

Financial liabilities are measured at fair value less directly attributable transaction costs at initial recognition and subsequently measured at amortized cost using the effective interest method, except for financial liabilities at FVPL and financial guarantee contracts. Amortization using the effective interest method and any gains or losses arising from the derecognition of a financial liability are recognized in profit or loss.

i. Financial liabilities at fair value through profit or loss

Financial liabilities that the JBIC Group classifies as held for trading or designates as FVPL are classified as financial liabilities at FVPL.

a. Financial liabilities classified as held for trading

In the JBIC Group, financial liabilities classified as held for trading only include derivatives and are included in “Derivative financial instrument liabilities” in the consolidated statement of financial position.

b. Financial liabilities at fair value through profit or loss

Financial liabilities can be designated as financial liabilities at FVPL upon initial recognition, if they meet either of the following criteria:

(i) a measurement or recognition inconsistency is eliminated or significantly reduced by the designation; or

(ii) a group of financial liabilities is managed and its performance is evaluated on a fair value basis, in accordance with a documented risk management or investment strategy.

When the JBIC Group is required to separate an embedded derivative from its host contract but is unable to measure the embedded derivative separately either at acquisition or at a subsequent reporting date, the JBIC Group designates the entire hybrid contract as FVPL. Financial liabilities at FVPL are initially and subsequently measured at fair value for which changes in the liability’s credit risk from initial recognition are recognized in other comprehensive income. Transaction costs are recognized in profit or loss.

As of March 31, 2020 and 2019, there were no financial liabilities that had been designated as FVPL.

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ii. Financial guarantee contracts

A financial guarantee contract requires its issuer to reimburse the contract holder for a loss caused by a specific debtor’s failure to make payment on the due date pursuant to the original or modified terms of a debt instrument. Upon initial recognition, financial liabilities associated with financial guarantee contracts are measured at fair value. They are subsequently measured at the higher of (a) the amount of the loss allowance determined in accordance with IFRS 9 and (b) the amount initially recognized less, when appropriate, the cumulative amount of income recognized in accordance with the principles of IFRS 15 Revenue from Contracts with Customers.

E. Offsetting financial instruments

Financial assets and financial liabilities are offset and the net amount is presented in the consolidated statement of financial position when, and only when, there is a currently enforceable right to offset the recognized amounts and there is an intention to settle on a net basis, or to realize the asset and settle the liability simultaneously.

F. Fair value measurement

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

The fair values of financial instruments traded in active markets are based on their quoted market prices. A financial instrument is regarded as quoted in an active market if transactions take place with sufficient frequency and volume to provide pricing information on an ongoing basis, for example, quoted prices are readily and regularly available from an exchange, dealer, broker, industry group, or pricing service. If an active market for a financial instrument is not available, the JBIC Group determines the fair value using valuation techniques, such as using recent arm’s-length market transactions between independent parties, discounted cash flow (“DCF”) analyses, and other valuation techniques commonly used by market participants.

See a detailed discussion in Note 35 “Fair Value of Financial Assets and Liabilities” and Note 36 “Fair Value Hierarchy.”

G. Hedge accounting

The JBIC Group applies fair value hedge accounting and hedge accounting of net investments in foreign operations in order to reflect the effect of risk management activities on its consolidated financial statements.

i. Fair value hedges

Changes in the fair value of derivatives that are designated and qualify as fair value hedges are recorded in the consolidated income statement, together with changes in the fair value of the hedged asset or liability that are attributable to the hedged risk. If the hedge no longer meets the criteria for hedge accounting, the adjustments to the carrying amount of a hedged item for which the effective interest method is used is amortized to profit or loss over the period to maturity and recorded as interest expense.

ii. Net investment hedges in foreign operations

The effective portion of the gain or loss on the hedging instruments is recognized in other comprehensive income, whereas the ineffective portion of the gain or loss on the hedging instruments is recognized in “Net income (expense) from derivative financial instruments” in the consolidated income statement. The cumulative gain or loss recognized in other comprehensive income is recognized in the profit or loss on the disposal or partial disposal of the foreign operations.

iii. Interest rate benchmark reform

The JBIC Group has elected to early adopt the Amendments from April 1, 2019 using the retrospective method. In order to apply hedge accounting, IFRS 9 requires a forward-looking prospective assessment, which requires there to be an economic relationship between the hedged item and the hedging instrument. Pursuant to the Amendments, the JBIC Group assumes that the interest rate benchmark on which the cash flows of the hedged item, hedging instrument or hedged risk are based is not altered by interest rate benchmark reform. In addition, the designated hedged risk in a fair value hedge is changes in the fair value attributable to changes in a benchmark interest rate, which is a non-contractually specified risk component. Pursuant to the Amendments, the JBIC Group only assesses whether the designated hedged risk is separately identifiable at inception of such a hedging relationship.

H. Impairment of financial assets

IFRS 9 applies the expected credit loss (“ECL”) model, which is a model for the recognition of impairment losses. The impairment requirements apply to financial assets measured at amortized cost, and FVOCI debt instruments, lease receivables, certain loan commitments and financial guarantee contracts. Under the ECL model, an entity is required to account for expected credit losses from initial recognition of financial instruments and to recognize full lifetime expected losses on a timely basis.

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IFRS 9 outlines a “three-stage” model for impairment based on changes in credit quality since initial recognition. A financial asset that is not credit-impaired on initial recognition is classified in “Stage 1” and has its credit risk continuously monitored by the JBIC Group. If a significant increase in credit risk since initial recognition is identified, the financial asset is moved to “Stage 2” but is not yet deemed to be credit-impaired. If the financial asset is credit-impaired, the financial asset is then moved to “Stage 3.” ECL of financial assets in Stage 1 is measured at an amount equal to the portion of lifetime expected credit losses that result from default events possible within the next 12 months. ECL of financial assets in Stages 2 or 3 is measured based on expected credit losses on a lifetime basis. A pervasive concept in measuring ECL in accordance with IFRS 9 is that it should consider forward looking information.

The assessment of significant increases in credit risk and the measurement of ECL are performed on an individual financial instrument basis. The JBIC Group considers asset type, credit risk ratings, collateral collectibility, past-due status and other relevant characteristics of financial instruments and assesses whether there have been significant increases in credit risk on an individual financial instrument basis.

The JBIC Group determines whether there has been a significant increase in credit risk by comparing the risk of a default occurring on a financial instrument at the reporting date with that at the date of initial recognition, based on quantitative and qualitative assessments. As for the quantitative assessment, the JBIC Group measures whether the probability of default (“PD”) has increased since initial recognition. A significant increase in credit risk is recognized if the increase of PD exceeds the threshold defined by the JBIC Group. In addition, if a borrower has been downgraded to a certain degree, reflecting an increase in its PD, the assessment of whether there has been a significant increase in credit risk is performed for such a borrower. A borrower’s grade is determined under the JBIC Group’s internal credit rating system. As for the qualitative assessment, the JBIC Group evaluates credit risk characteristics in accordance with the JBIC Group’s credit risk management practices and takes them into consideration for determining whether there has been a significant increase in credit risk. A backstop is applied, and a financial asset is considered to have experienced a significant increase in credit risk if the borrower is more than 30 days past due on its contractual payments.

A financial asset is credit-impaired when one or more events that have a detrimental impact on the estimated future cash flows of the financial asset have occurred. The criteria that the JBIC Group uses to determine that a financial asset is credit-impaired include:

(i) significant financial difficulty of the issuer or borrower;

(ii) a breach of contract, such as a default or past due event;

(iii) the lender, for economic or legal reasons relating to the borrower’s financial difficulty, granting to the borrower a concession that the lender would not otherwise consider;

(iv) it becoming probable that the borrower will enter into bankruptcy or other financial reorganization;

(v) the disappearance of an active market for that financial asset because of financial difficulties; or

(vi) the purchase or origination of a financial asset at a deep discount that reflects the incurred credit losses.

A quantitative criterion that the borrower is more than 90 days past due on its contractual payments is also applied.

The JBIC Group’s definition of “default” of a financial asset is consistent with the definition of credit-impaired described above that is used for ECL recognition and measurement and is also consistent with that used for internal credit risk management purposes. The JBIC Group manages credit risk with the internal credit rating system, whereby loans to substandard borrowers, potentially bankrupt borrowers, substantially bankrupt borrowers and bankrupt borrowers are defined as default for the purpose of the ECL model.

If the contractual cash flows on a financial asset have been renegotiated or modified, but the financial asset is not derecognized because the modification is not considered to be substantial, the JBIC Group assesses whether there has been a significant increase in the credit risk of the modified asset at the reporting date. Specifically, a risk of default of the modified asset is assessed by comparing with the risk under the original terms at initial recognition. In addition, the JBIC Group monitors the subsequent performance of modified assets, in particular for those that have been moved from Stage 3 or Stage 2 to Stage 1 as a result of being determined that the credit risk has significantly improved after restructuring. For such assets, the JBIC Group continues to monitor if there is a subsequent significant increase in credit risk using specific models for modified assets.

The JBIC Group measures ECL of a financial asset in a way that reflects an unbiased and probability-weighted amount, the time value of money, and reasonable and supportable information that is available at the reporting date about past events, current conditions and forecasts of future economic conditions.

ECL is measured on either a 12-month or lifetime basis depending on whether a significant increase in credit risk has occurred since initial recognition or whether an asset is considered to be credit-impaired. The ECL models have been built by using PD, loss given default (“LGD”) and exposure at default (“EAD”). For financial assets at Stage 1 and Stage 2, the JBIC Group uses 12-month PDs and lifetime PDs developed to measure 12-month ECL and lifetime ECL, respectively, and considers forward looking macro-economic information. For financial assets at Stage 3, the JBIC Group applies the DCF method for individually significant impaired financial assets.

To incorporate forward looking information into the ECL models, an approach based on multiple scenarios is introduced. In this approach, three scenarios (upside, downside, and base scenarios) are modelled to ensure an unbiased ECL calculation. Under each scenario, the relationship between credit losses and macroeconomic factors such as world gross domestic product (“GDP”) growth rates and West Texas Intermediate Crude Oil Prices (“WTI”) growth rates are analyzed. The analysis is based on statistical calculations by using historical data and forecasts. The outcomes are utilized for ECL calculation on a probability-weighted basis.

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The DCF method is used to measure ECL, which is the difference between the asset’s carrying amount and the present value of estimated future cash flows discounted at the financial asset’s original effective interest rate. If financial assets have a variable interest rate, the discount rate for measuring any impairment loss is the effective interest rate determined under the contract for the current period. The estimated future cash flows are individually calculated taking into account factors including historical loss information, the appropriateness of the borrower’s business plan or operational improvement plan, the status of progress of its plan, the overall support from financial institutions, and the realizable value of any collateral held.

ECL is recognized through allowance accounts. Changes in the carrying amount of the allowance accounts are recognized as impairment gain or loss in “Impairment losses (reversals) on financial assets” in the consolidated income statement.

The JBIC Group writes off financial assets, in whole or in part, when it has implemented all practical recovery efforts and has concluded that there is no reasonable expectation of recovery after any collateral is foreclosed and the amount of the loss has been determined. Those assets primarily include loans for borrowers that have been legally or formally declared bankrupt and borrowers that may not have been legally or formally declared bankrupt but are essentially bankrupt.

The measurement of ECL allowance for financial instruments is an area that requires the use of complex models and significant assumptions about future economic conditions and credit behavior. Management estimates and judgments may change from time to time as the economic environment changes or new information becomes available. Changes in these estimates and judgments may have a direct impact on impairment charges. For further information about estimates and assumptions for ECL models, refer to Note 4 “Significant Accounting Judgements, Estimates, and Assumptions”.

I. Property and equipment

Property and equipment is stated at cost, net of accumulated depreciation and accumulated impairment losses. The cost of an item of property and equipment includes costs directly attributable to the acquisition of the item.

Depreciation is generally calculated on a straight-line basis over the estimated useful lives of the assets as follows:

• Buildings (including leasehold improvements): 3 to 50 years

• Other: 2 to 35 years

An item of property and equipment and any significant part thereof initially recognized is derecognized upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss arising on derecognition of the asset, which is calculated as the difference between the net disposal proceeds and the carrying amount of the asset, is recognized in profit or loss when the asset is derecognized.

The residual values, useful lives, and methods of depreciation of property and equipment are reviewed at each reporting date and adjusted prospectively, if appropriate.

J. Leases

Lease transactions entered into by the JBIC Group as a lessee primarily consist of rental offices. The lease liabilities are initially recognized at the discounted present value of the remaining lease payments in the lease term at the commencement date of the lease and are subsequently measured at amortized cost using the effective interest method. The lease liabilities are included in “Other liabilities” in the consolidated statement of financial position. The discount rate used to calculate the discounted present value is the lessor’s interest rate implicit in the lease, if that rate can be readily determined. If that rate cannot be readily determined, the JBIC Group’s incremental borrowing rate is used.

The right-of-use assets are initially recognized at the amount of the initial measurement of the lease liabilities, plus any lease payments made at or before the commencement date, an estimate of costs to be incurred in, for example, restoring the underlying asset, and any initial direct costs. The right-of-use assets are subsequently measured at cost, less any accumulated depreciation and any accumulated impairment losses, and are included in “Other assets” in the consolidated statement of financial position.

The JBIC Group does not enter into lease transactions as a lessor.

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K. Impairment of non-financial assets

The JBIC Group assesses, at each reporting date, whether there is an indication that an asset may be impaired. If any indication exists, an impairment test is performed. When the carrying amount of an asset or cash-generating unit exceeds its recoverable amount, the asset is written down to its recoverable amount and an impairment loss is recognized.

L. Post-employment benefits

JBIC has defined benefit plans and defined contribution plans to secure funds to pay employees’ retirement benefits.

i. Defined benefit plans

JBIC determines the present value of its defined benefit obligations and the related current and past service costs for each plan using the projected unit credit method. Remeasurements of defined benefit plans are recognized in full in other comprehensive income in the year incurred, and immediately transferred to retained earnings. Past service costs are recognized in full in the year incurred.

The liability for retirement benefits is the present value of the defined benefit obligation less the fair value of the plan assets (the present value is determined using a discount rate based on market yields on high-quality corporate bonds. See the detailed discussion in Note 21 “Employee Benefits”). The plan assets comprise assets held by a long-term employee benefit fund and qualifying insurance policies. The plan assets are not used to repay JBIC’s creditors and are not returned to JBIC, except under certain circumstances. The fair value of the plan assets is based on market price information. The recognition of the net defined benefit asset is limited to the total amount of the present value of any economic benefits available in the form of refunds from the plan or reductions in the future contributions to the plan.

ii. Defined contribution plans

JBIC recognizes contributions to the defined contribution plans as expenses in the periods in which employees render the related services.

M. Taxes

JBIC is a nontaxable entity according to Paragraph 2, Item 5 of the Corporate Tax Act of Japan (Act No. 34, 1965) and has no obligation to pay corporate taxes. JBIC IG Partners is a taxable entity and has an obligation to pay corporate taxes as applicable under relevant laws. Russia-Japan Investment Fund, L.P. is a tax-exempt limited partnership established under Cayman Islands laws and has no obligation to pay corporate taxes.

N. Interest income and interest expense

Interest income and expense for all financial instruments, except for financial assets and financial liabilities at FVPL, is recognized in “Interest income” and “Interest expense” using the effective interest rate method. For financial assets, the interest rate is applied to the gross carrying amount of financial assets, except for:

a. Purchased or originated credit-impaired (“POCI”) financial assets, for which the original credit-adjusted effective interest rate is applied to their amortized cost.

b. Financial assets that are not POCI but have subsequently become credit-impaired or Stage 3, for which interest income is calculated by applying the effective interest rate to their amortized cost (i.e. net of the expected credit loss provision).

The effective interest rate method is a method for calculating the amortized cost of a financial asset or a financial liability (or a group of financial assets or financial liabilities) and allocating the interest income or interest expense over the relevant period.

O. Fee and commission income

Fee and commission income is mainly attributable to guarantee income arising from financial guarantee contracts. Guarantee income is recognized over the time period stipulated in the relevant contract.

P. Fee and commission expense

Fee and commission expense is mainly attributable to outsourcing expenses. Outsourcing expenses are recognized as the services are rendered on an accrual basis in accordance with the terms of the relevant agreement.

Q. Net income (expense) from derivative financial instruments

Net income (expense) from derivative financial instruments comprises gains and losses arising from changes in the fair values of derivatives and interests on these derivatives, except for gains or losses arising from the foreign currency translation of notional amounts of the currency swap contracts by using the exchange rate at the reporting date. This account also includes adjustments of the carrying amounts of hedged items under fair value hedge.

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R. Net gain (loss) from financial assets at fair value through profit or loss

Net gain (loss) from financial assets at fair value through profit or loss includes all gains and losses arising from changes in the fair value of these financial assets and sales of such assets, as well as interest and dividend income, and upfront and commitment fee on these financial assets.

S. Net investment income (expense)

Net investment income (expense) comprises gains or losses on the sale or redemption of debt instruments measured at FVOCI.

T. Net gains (losses) on derecognition of financial assets measured at amortized cost

Net gains (losses) on derecognition of financial assets measured at amortized cost comprises gains or losses on the sale or redemption of financial assets measured amortized cost.

U. Cash and cash equivalents

Cash and cash equivalents as stated in the consolidated statement of cash flows consist of cash on hand and demand deposits included in “Cash and due from banks” in the consolidated statement of financial position.

Effects of Adoption of New and Amended Accounting Standards

On April 1, 2019, the JBIC Group adopted IFRS 16. In applying IFRS 16, the JBIC Group did not make retrospective adjustments to prior reporting periods, and instead recognized the cumulative effect of initially applying IFRS 16 at the date of initial application, which is allowed as a transition method. Furthermore, the following practical expedients were applied:

a. As an alternative to performing an impairment review, the JBIC Group has relied on its assessment of whether leases are onerous applying IAS 37 Provisions, Contingent Liabilities and Contingent Assets immediately before April 1, 2019.

b. For leases with a remaining term of less than 12 months as of April 1, 2019, the JBIC Group applied the short term lease exemption and recognized the lease payments as an expense rather than record a right-of-use asset and a lease liability.

c. In applying IFRS 16, the JBIC Group did not reassess whether contracts meet the definition of leases. The JBIC Group applied IFRS 16 only to the contracts that were previously identified as leases under IAS 17 as of April 1, 2019.

The weighted average incremental borrowing rate applied to lease liabilities at the date of initial application is 2.53%.

The application of IFRS 16 has no material effect on the JBIC Group’s consolidated financial statements.

.

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4. Significant Accounting Judgments, Estimates, and Assumptions

The preparation of the consolidated financial statements requires the JBIC Group to make judgments, estimates, and assumptions that affect the reported amounts of revenues, expenses, assets, and liabilities, and the disclosure of contingent liabilities, at the reporting date.

The key assumptions concerning the future and other key sources of estimation uncertainty at the reporting date, that have a significant risk of resulting in a material adjustment to the carrying amounts of assets and liabilities within the next financial year, are described below. The JBIC Group based its key assumptions and estimates on parameters available when the consolidated financial statements were prepared. Existing circumstances and assumptions about future developments, however, may change due to market changes or circumstances arising beyond the control of the JBIC Group. Such changes are reflected in the assumptions when they occur.

Fair value of financial instruments

Where the fair value of financial assets and financial liabilities cannot be measured based on quoted prices in active markets, their fair value is determined using valuation techniques including DCF models. The JBIC Group uses its judgment in selecting valuation techniques and the inputs to these models are derived from observable markets, where possible. However, inputs that are not derived from observable markets are used for the estimation of the fair value for some financial instruments based on the JBIC Group’s estimates and judgments.

The JBIC Group’s estimates and judgments are continually evaluated and updated in line with market conditions, and these changes could directly affect the fair values of these financial instruments.

See a detailed discussion in Note 35 “Fair Value of Financial Assets and Liabilities” and Note 36 “Fair Value Hierarchy.”

Expected Credit Loss

ECL represents the JBIC Group’s estimates of expected credit losses on financial instruments subject to impairment at the reporting date. The JBIC Group is required to exercise judgment in making assumptions and estimates.

The JBIC Group’s estimates and judgments are continually evaluated and updated in response to changes in the economic environment and in the light of new information. These changes could lead to a revision of the amount of impairment losses.

ECL is disclosed in more detail in Note 11 “Loans and Other Receivables,” Note 19 “Financial Guarantee Contracts” and Note 30 “Impairment Losses on Financial Assets.” The credit risk is described in more detail in Note 38 “Maximum Exposure to Credit Risk” and the subsequent notes.

The spread of COVID-19 is causing political and economic impacts on borrowers’ countries or regions as well as impacting individual borrowers. The JBIC Group estimates risk parameters (i.e. PD, LGD and EAD) in consideration of information available on March 31, 2020 and measures ECL. Furthermore, to appropriately reflect uncertainties in the economic environment, the JBIC Group performed an additional analysis to assess the relationship between defaults that occurred during the financial crisis in 2008 and related macroeconomic indicators at that time, and has made necessary adjustments to the ECL model based on the analysis. As a result of these adjustments, “Loans and other receivables” decreased by ¥15,419 million and “Financial guarantee contracts” increased by ¥9,926 million, respectively, in the consolidated statement of financial position as of March 31, 2020. “Impairment losses on financial assets” increased by ¥25,346 million in the consolidated income statement for the fiscal year ended March 31, 2020.

According to the world economic outlook released by the International Monetary Fund (“IMF”) in April 2020, the spread of COVID-19 will continue to cause effects approximately over one year. The JBIC Group used this outlook and calculated ECL based on the assumption that macroeconomic indicators will recover in 2021. The IMF has not released its long-term economic outlook due to the uncertainty in the economic environment. The JBIC Group uses the prospects of macroeconomic indicators for 2022 and thereafter, which were published by the IMF in October 2019. As the future outlook is uncertain, the situation of COVID-19 or its economic impacts may show a more significant change than initially expected. In such a case, ECL estimates for the next fiscal year may change.

Post-employment benefits

The present value of defined benefit obligations and related costs are determined using actuarial valuations. An actuarial valuation involves making various assumptions, which may differ from actual developments in the future. These include the determination of the discount rate, future salary increases, mortality rates, and future pension increases. Due to the complexity of the valuation, the underlying assumptions, and its long-term nature, a defined benefit obligation is highly sensitive to changes in these assumptions. All assumptions are reviewed at each reporting date.

In determining the appropriate discount rate, the JBIC Group considers the market yield of high-quality corporate bonds in the respective currency, with extrapolated maturities corresponding to the expected duration of the defined benefit obligation.

See Note 21 “Employee Benefits” for further details about the assumptions used.

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5. Standards Issued but Not Yet Effective

Early application of standards and interpretations

The JBIC Group has elected to early adopt the “Amendments”. For further information, see “G. Hedge accounting” in Note 3 “Significant Accounting Policies” and Note 8 “Derivative Financial Instrument Assets and Liabilities—Hedge Accounting.”

Standards and interpretations issued but not yet applied

The following is a listing of standards and interpretations issued but not yet applied by the JBIC Group as of the date of the issuance of the consolidated financial statements. The JBIC Group intends to apply the standards and interpretations from the date they become effective.

IFRS 17 Insurance Contracts

IFRS 17 Insurance Contracts replaces IFRS 4 and sets out new principles for the recognition, measurement, presentation and disclosure of insurance contracts.

IFRS 4 allowed entities to account for insurance contracts using national accounting standards, resulting in a variety of different accounting practices. IFRS 17 requires that all insurance contracts be accounted for in a consistent manner.

In principle, insurance contracts are required to be measured at the total of the fulfilment cash flows and the contractual service margin and are required to be remeasured at the end of each reporting period.

As of the date of the issuance of the consolidated financial statements, the JBIC Group is in the process of evaluating the effect of applying IFRS 17.

IFRS 17 is effective for fiscal years beginning on or after January 1, 2023.

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6. Segment Information

The JBIC Group’s operating segments are those for which discrete financial information is available, and whose operating results are regularly reviewed by the JBIC Group’s management. Figures reported to management, including those used for purposes of budget management and performance evaluation, are prepared under Japanese GAAP. Therefore, Japanese GAAP-based figures are reported in operating segments. For business operations defined under the Act on Japan Bank for International Cooperation and other acts, the JBIC Group has two reporting segments: “Ordinary Operations” account and “Special Operations” account. Accounting operations are separately carried out for respective accounts.

The Ordinary Operations account covers the businesses that are not included in the Special Operations account. The Ordinary Operations account also includes the investment business of the consolidated subsidiaries. The Special Operations account includes the businesses that offer financing services such as lending to overseas infrastructure business projects that have risks but generate a sufficient level of expected return.

The reconciliation tables show differences between the amounts reported in the reportable segments and those reported in the IFRS-based consolidated financial statements.

A. Reportable segment information

	(Millions of yen)
	For the year ended March 31, 2020
	Ordinary Operations		Special Operations			Sub-total for reportable segments		Adjustments *			Amount reported in the Japanese GAAP-based consolidated financial statements
Ordinary income
Ordinary income from customers		485,529		579			486,109		(252	)		485,856
Intersegment ordinary income		37		—			37		(37	)		—
Total		485,566		579			486,146		(289	)		485,856
Segment profit (loss)		116,885		(145	)		116,740		—			116,740
Segment assets		17,044,626		292,904			17,337,531		(21	)		17,337,510
Segment liabilities		14,221,792		1,686			14,223,479		(21	)		14,223,458
Other items
Depreciation and amortization		2,740		—			2,740		—			2,740
Interest income		417,255		577			417,832		—			417,832
Interest expense		329,654		145			329,800		—			329,800
Losses of equity method investments		2,828		—			2,828		—			2,828
Write off of loans		2,897		—			2,897		—			2,897
Extraordinary income		16		—			16		—			16
Gain on disposal of noncurrent assets		16		—			16		—			16
Extraordinary loss		—		—			—		—			—
Loss on disposal of noncurrent assets		—		—			—		—			—
Income tax expenses		25		—			25		—			25
Equity method investments		70,494		—			70,494		—			70,494
Increase in property and equipment and intangible assets		1,428		—			1,428		—			1,428
Reversal of allowance for loan losses		7,467		—			7,467		(252	)		7,215
Provision of allowance for loan losses		—		252			252		(252	)		—

* The “Adjustments” above represent elimination of intersegment transactions.

* Adjustments to ordinary income from customers, reversal of allowance for loan losses and provision of allowance for loan losses, which are ¥252 million ($2 million), respectively, represent reclassification of accounts.

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	(Millions of yen)
	For the year ended March 31, 2019
	Ordinary Operations		Special Operations			Sub-total for reportable segments		Adjustments *			Amount reported in the Japanese GAAP-based consolidated financial statements
Ordinary income
Ordinary income from customers		478,958		155			479,113		—			479,113
Intersegment ordinary income		20		—			20		(20	)		—
Total		478,978		155			479,134		(20	)		479,113
Segment profit (loss)		53,195		(172	)		53,022		—			53,022
Segment assets		17,398,378		250,588			17,648,966		(14	)		17,648,951
Segment liabilities		14,961,981		320			14,962,302		(14	)		14,962,287
Other items
Depreciation and amortization		1,944		—			1,944		—			1,944
Interest income		450,644		154			450,798		—			450,798
Interest expense		365,856		22			365,878		—			365,878
Losses of equity method investments		2,026		—			2,026		—			2,026
Losses of devaluation of stocks and other securities		11,787		—			11,787		—			11,787
Extraordinary income		6		—			6		—			6
Gain on disposal of noncurrent assets		6		—			6		—			6
Income tax expenses		4		—			4		—			4
Equity method investments		86,860		—			86,860		—			86,860
Increase in property and equipment and intangible assets		4,763		—			4,763		—			4,763
Provision of allowance for loan losses		19,497		64			19,561		—			19,561

* The “Adjustments” above represent elimination of intersegment transactions.

B. Reconciliation of reportable segment information to consolidated statement of financial position and consolidated income statement

Reconciliation of ordinary income

	(Millions of yen)
	For the year ended March 31, 2020			For the year ended March 31, 2019
Ordinary income under Japanese GAAP		485,856			479,113
Interest income		10,997			2,401
Fees and commission income		(8,225	)		(6,137	)
Net income from derivative financial instruments *2		63,870			—
Net gain from financial assets at fair value through profit or loss		5,371			—
Loans and other receivables		(36,523	)		(3,207	)
Others		(1,078	)		(1,851	)
Ordinary income under IFRS *1		520,268			470,318

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Reconciliation of net profit attributable to shareholder of JBIC

	(Millions of yen)
	For the year ended March 31, 2020			For the year ended March 31, 2019
Segment profit under Japanese GAAP		116,740			53,022
Interest income		10,997			9,475
Fees and commission income		(8,225	)		(5,974	)
Net income (expense) from derivative financial instruments *2		149,370			76,072
Net gain (loss) from financial assets at fair value through profit or loss		5,371			2,257
Impairment losses on financial assets *3		(89,474	)		3,892
Loans and other receivables		(36,523	)		(3,207	)
Other expenses		5,278			1,197
Others		(1,257	)		(1,047	)
Net profit attributable to shareholder of JBIC under IFRS		152,278			135,688

Reconciliation of assets

	(Millions of yen)
	As of March 31, 2020			As of March 31, 2019
Segment assets under Japanese GAAP		17,337,510			17,648,951
Derivative financial instrument assets *4		127,297			102,982
Financial assets at fair value through profit or loss		14,598			10,130
Loans and other receivables *5		(2,096,961	)		(2,381,043	)
Equity method investments		4,426			6,642
Others		2,686			195
Total assets under IFRS		15,389,558			15,387,859

Reconciliation of liabilities

	(Millions of yen)
	As of March 31, 2020			As of March 31, 2019
Segment liabilities under Japanese GAAP		14,223,458			14,962,287
Derivative financial instrument liabilities *4		128,391			102,987
Bonds payable		112,377			23,389
Financial guarantee contracts *5		(2,059,136	)		(2,467,693	)
Other liabilities		��       17,298			17,036
Total liabilities under IFRS		12,422,389			12,638,008

Reconciliation of interest income

	(Millions of yen)
	For the year ended March 31, 2020			For the year ended March 31, 2019
Interest income under Japanese GAAP		417,832			450,798
Loans and other receivables		10,552			9,146
Financial assets at fair value through profit or loss		(6,543	)		(7,074	)
Others		444			329
Interest income under IFRS		422,286			453,200

Reconciliation of interest expense

	(Millions of yen)
	For the year ended March 31, 2020			For the year ended March 31, 2019
Interest expense under Japanese GAAP		329,800			365,878
Derivative financial instrument liabilities		(84,686	)		(95,797	)
Others		1,334			1,285
Interest expense under IFRS		246,447			271,366

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Reconciliation of equity method investments

	(Millions of yen)
	As of March 31, 2020		As of March 31, 2019
Equity method investments under Japanese GAAP		70,494		86,860
Difference in the scope of the equity method		61,361		58,974
Equity method investments under IFRS		131,856		145,834

Reconciliation of impairment losses on financial assets

	(Millions of yen)
	For the year ended March 31, 2020			For the year ended March 31, 2019
Provision (reversal) of allowance for loan losses under Japanese GAAP		(7,215	)		19,561
Securities		54			12
Loans and other receivables *3		66,104			(3,184	)
Financial guarantee contracts		33,427			(720	)
Impairment losses on financial assets under IFRS		92,372			15,669

*¹  “Ordinary income under IFRS” is an aggregate of “Interest income,” “Fee and commission income,” “Net income from derivative financial instruments,” “Net gain from financial assets at fair value through profit or loss,” “Net gains on derecognition of financial assets measured at amortized cost,” and “Other income” reported in the consolidated income statement.

*²  This primarily represents an impact of reversing “Deferred gains (losses) on hedges” recognized as a result of applying hedge accounting under Japanese GAAP.

*³  This primarily represents a difference between “Provision of allowance for loan losses” under Japanese GAAP and “Impairment losses on financial assets” under IFRS.

*⁴  This primarily represents a difference in presentation of derivative financial instrument assets and derivative financial instrument liabilities between a net basis under Japanese GAAP and a gross basis under IFRS.

*⁵ This primarily represents a difference between the amounts of financial guarantee contracts recognized under Japanese GAAP and those recognized under IFRS.

(Changes in presentation)

“Net gain (loss) from financial assets at fair value through profit or loss” in “Reconciliation of net profit attributable to shareholder of JBIC,” which was included in “Others” for the fiscal year ended March 31, 2019, is separately presented for the fiscal year ended March 31, 2020 since the amount is material. To reflect this change, “Reconciliation of net profit attributable to shareholder of JBIC” for the fiscal year ended March 31, 2019 is reclassified. As a result, ¥2,257 million, which was presented in “Others” for the fiscal year ended March 31, 2019, is reclassified to “Net gain (loss) from financial assets at fair value through profit or loss.”

In addition, “Securities,” which was presented separately in “Reconciliation of assets” for the year ended March 31, 2019, is included in “Others” for the fiscal year ended March 31, 2020 since the amount is immaterial. To reflect this change, “Reconciliation of assets” for the fiscal year ended March 31, 2019 is reclassified. As a result, ¥195 million, which was presented in “Securities” for the fiscal year ended March 31, 2019, is reclassified to “Others.”

C. Information about geographical areas

i. Interest income

	(Millions of yen)
	For the year ended March 31, 2020		For the year ended March 31, 2019
Japan		129,444		128,421
Asia and Oceania (excluding Japan)		111,190		117,498
Europe, the Middle East, and Africa		106,693		117,749
North America and Latin America		74,915		89,494
Other *		41		37
Total interest income in the consolidated income statement		422,286		453,200

The above information is based on the locations of customers.

* “Other” includes interest income from international organizations.

(Change in presentation)

Interest income from “Australia,” which was separately presented for the fiscal year ended March 31, 2019, is included in “Asia and Oceania (excluding Japan)” for the fiscal year ended March 31, 2020 since the amount is less than 10% of Interest income reported in the Consolidated Income Statement.

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To reflect this change, “C. Information about geographical areas i. Interest income” for the year ended March 31, 2019 is reclassified. As a result, ¥44,176 million, which was presented in “Australia” for the fiscal year ended March 31, 2019, is reclassified to “Asia and Oceania (excluding Japan).”

ii. Noncurrent assets

Noncurrent assets mainly consist of property and equipment. Information about noncurrent assets is omitted since the majority of the noncurrent assets on the consolidated statement of financial position are located in Japan.

D. Information about major customers

There are no transactions with a single external customer resulting in more than 10% of ordinary income.

7. Cash and Due from Banks

Cash and due from banks as of March 31, 2020 and 2019 consisted of the following:

	(Millions of yen)
	As of March 31, 2020		As of March 31, 2019
Cash and due from banks
Due from banks		1,544,838		1,191,463
Total cash and due from banks		1,544,838		1,191,463

Cash and cash equivalents in the consolidated statement of cash flows reconcile to cash and due from banks in the consolidated statement of financial position as of March 31, 2020 and 2019, respectively, as follows:

	(Millions of yen)
	As of March 31, 2020		As of March 31, 2019
Cash and due from banks		1,544,838		1,191,463
Due from banks (excluding demand deposits)		—		(184,287	)
Cash and cash equivalents		1,544,838		1,007,176

8. Derivative Financial Instrument Assets and Liabilities

Derivative financial instrument assets and derivative financial instrument liabilities as of March 31, 2020 and 2019 consisted of the following:

	(Millions of yen)
	As of March 31, 2020
	Notional amounts		Derivative financial instrument assets		Derivative financial instrument liabilities
Interest rate-related transactions
Interest rate swaps		5,457,188		270,380		60,785
Currency-related transactions
Currency swaps		3,913,914		150,466		117,450
Forward foreign exchange contracts		63,359		90		20
Total		—		420,937		178,255

	(Millions of yen)
	As of March 31, 2019
	Notional amounts		Derivative financial instrument assets		Derivative financial instrument liabilities
Interest rate-related transactions
Interest rate swaps		5,194,898		39,226		77,197
Currency-related transactions
Currency swaps		3,655,284		105,884		165,847
Forward foreign exchange contracts		154,311		124		301
Total		—		145,235		243,346

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Hedge Accounting

i. Fair value hedge

The JBIC Group issues long-term fixed rate bonds and therefore is exposed to changes in fair value due to movements in market interest rates. The JBIC Group manages this risk exposure by entering into pay floating/receive fixed interest rate swaps. For more information about the benchmark interest rates to which the JBIC Group’s hedging relationships are exposed, see “Interest Rate Benchmark Reform” in this note.

Hedge effectiveness is determined at the inception of the hedge relationship, and through periodic prospective effectiveness assessments to ensure that an economic relationship exists between the hedged item and hedging instrument. The JBIC Group enters into hedge relationships where the critical terms of the hedging instrument match exactly with the terms of the hedged item, and therefore a qualitative assessment of effectiveness is performed. If changes in circumstances affect the terms of the hedged item such that the critical terms no longer match exactly with the critical terms of the hedging instrument, the JBIC Group uses the hypothetical derivative method to assess effectiveness.

The JBIC Group establishes the hedging ratio by matching the notional of the derivatives with the principal of the portfolio being hedged. Possible sources of ineffectiveness are as follows:

a. the JBIC Group or counterparty credit risk which impacts the fair value of interest rate swaps; and

b. tenor differences between the hedging instruments and the hedged items.

The JBIC Group held the following interest rate swaps to hedge its interest rate risk on bonds payable as of March 31, 2020 and 2019.

	(Millions of yen)
	As of March 31, 2020
	Currency		Notional amounts		Maturity
Interest rate swap		USD		1,550,827		July 2021 to October 2029
	(Millions of yen)
	As of March 31, 2019
	Currency		Notional amounts		Maturity
Interest rate swap		USD		721,435		July 2021 to October 2028

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The amounts related to items designated as hedging instruments were as follows.

	(Millions of yen)
	As of March 31, 2020
	Notional amounts		Carrying amount of hedging instruments				Line item in the statement of financial position
			Assets		Liabilities
Interest rate swap		1,550,827		116,681		—	Derivative financial instrument assets

	Hedge ineffectiveness
	Change in fair value of hedging instruments for ineffectiveness assessment		Hedge ineffectiveness recognized in profit or loss		Line item in profit or loss that includes hedge ineffectiveness
Interest rate swap		89,196		44	Net income (expense) from derivative financial instruments

	(Millions of yen)
	As of March 31, 2019
	Notional amounts		Carrying amount of hedging instruments				Line item in the statement of financial position
			Assets		Liabilities
Interest rate swap		721,435		27,485		—	Derivative financial instrument assets

	Hedge ineffectiveness
	Change in fair value of hedging instruments for ineffectiveness assessment		Hedge ineffectiveness recognized in profit or loss			Line item in profit or loss that includes hedge ineffectiveness
Interest rate swap		27,485		(37	)	Net income (expense) from derivative financial instruments

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The amounts related to items designated as hedged items were as follows.

	(Millions of yen)
	As of March 31, 2020
	Carrying amount of hedged items				Accumulated amount of fair value				Line item in the statement of financial position	Change in fair value of hedged item for ineffectiveness assessment
	Assets		Liabilities		Assets		Liabilities
Bonds payable in USD		—		1,674,776		—		116,673	Bonds payable		89,151
	(Millions of yen)
	As of March 31, 2019
	Carrying amount of hedged items				Accumulated amount of fair value				Line item in the statement of financial position	Change in fair value of hedged item for ineffectiveness assessment
	Assets		Liabilities		Assets		Liabilities
Bonds payable in USD		—		752,742		—		27,522	Bonds payable		27,522

Interest Rate Benchmark Reform

The replacement of benchmark interest rates is underway, giving rise to uncertainties about the timing or the amount of cash flows of hedged items or of hedging instruments based on benchmark interest rates. As a response, the JBIC Group has elected to early adopt the Amendments retrospectively from April 1, 2019. The Amendments provide relief from applying specific hedge accounting requirements to hedging relationships.

The fair value hedges the JBIC Group engages in, where interest-linked derivatives are designated as hedging instruments, are directly affected by interest rate benchmark reform. The significant benchmark interest rates that affect the JBIC Group’s hedging activities are the U.S. dollar LIBOR rates. As of March 31, 2020, the notional amount of the interest-linked derivatives designated as hedging instruments was ¥1,550,827 million, which approximates the amount of risk exposure the JBIC Group manages that is directly affected by interest rate benchmark reform.

To address interest rate benchmark reform, the JBIC Group has developed scenarios on the timing of replacement with alternative benchmark rates for the main services that may be affected by the discontinuation of LIBOR, and identified key issues that need to be addressed by the JBIC Group in light of technical guidance issued by, and the progress of considerations made by, national authorities and industry associations. In addition, the JBIC Group has established a body focused on monitoring the implementation of the actions taken for the issues identified.

The actions taken by the JBIC Group for the issues above include the aggregation of exposure of existing transactions that reference LIBOR, considerations on the alternative benchmark rates to be used for such transactions and a client engagement policy for transition to the alternative benchmark rates, and the impact analysis. The JBIC Group has completed some of the actions.

In applying the reliefs specified by the Amendment, the JBIC Group has concluded that it is indeterminable when uncertainties arising from interest rate benchmark reform will no longer be present.

ii. Net investment hedges in foreign operations

The JBIC Group has investments in foreign operations which are equity method investments in its consolidated financial statements and whose functional currency is the U.S. dollar. The foreign exchange rate exposures arising from these investments are hedged through the use of forward foreign exchange contracts. These contracts are entered into to hedge designated layer components of the exposure arising from the net assets held in the foreign operations and are rolled forward on a periodic basis.

The JBIC Group designates the spot element of the foreign exchange forwards only as hedging instruments. Changes in the fair value of the hedging instruments attributable to changes in forward points are recognized directly in profit or loss, in principle, as “Net income (expense) from derivative financial instruments” in the consolidated income statement. These amounts are, therefore, not included in the hedge ineffectiveness assessment.

The JBIC Group establishes the hedging ratio by matching the notional amounts of the forward foreign exchange contracts with designated layer component of the net assets of the foreign operation. Given that only the spot element of the forward foreign exchange contracts is designated in the hedge relationship and the amount of hedging instruments and hedged items are equivalent in U.S. dollars, no ineffectiveness is expected except for credit risk of the JBIC Group or counterparty of forward foreign exchange contracts, which is included in fair value of forward foreign exchange contracts.

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The JBIC Group held the following forward foreign exchange contracts to hedge its net investments in foreign operations as of March 31, 2020 and 2019.

	(Millions of yen)
	As of March 31, 2020
	Notional amounts		Average JPY-USD exchange rates
	Less than 1 year
Forward foreign exchange contracts		58,034		107.8
	(Millions of yen)
	As of March 31, 2019
	Notional amounts		Average JPY-USD exchange rates
	Less than 1 year
Forward foreign exchange contracts		87,586		108.9

The amounts related to items designated as hedging instruments were as follows.

	(Millions of yen)
	As of March 31, 2020
	Notional amounts			Carrying amount of hedging instrument				Line item in the statement of financial position		Change in fair value of hedging instrument recognized in other comprehensive income
				Assets		Liabilities
Forward foreign exchange contracts		58,034			90		—		Derivative financial instrument assets		527
	Hedge ineffectiveness							Reclassification
	Change in fair value of hedging instrument for ineffectiveness assessment			Hedge ineffectiveness recognized in profit or loss		Line item in profit or loss that includes hedge ineffectiveness		Amount reclassified from the hedge reserve to profit or loss		Line item affects profit or loss because of reclassification
Forward foreign exchange contracts		(1,744	)		—		Net income (expense) from derivative financial instruments		(1,216)		Other expenses
	(Millions of yen)
	As of March 31, 2019
	Notional amounts			Carrying amount of hedging instrument				Line item in the statement of financial position		Change in fair value of hedging instrument recognized in other comprehensive income
				Assets		Liabilities
Forward foreign exchange contracts		87,586			—		234		Derivative financial instrument liabilities		1,660
	Hedge ineffectiveness							Reclassification
	Change in fair value of hedging instrument for ineffectiveness assessment			Hedge ineffectiveness recognized in profit or loss		Line item in profit or loss that includes hedge ineffectiveness		Amount reclassified from the hedge reserve to profit or loss		Line item affects profit or loss because of reclassification
Forward foreign exchange contracts		(1,699	)		—		Net income (expense) from derivative financial instruments		(39)		Other expenses

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The amounts related to items designated at hedged items were as follows.

	(Millions of yen)
	As of March 31, 2020
	Change in fair value of hedging instrument for ineffectiveness assessment		Exchange differences on translation of foreign operations
Net investments in USD		1,744		2,187
	(Millions of yen)
	As of March 31, 2019
	Change in fair value of hedging instrument for ineffectiveness assessment		Exchange differences on translation of foreign operations
Net investments in USD		1,699		1,660

The following table provides a reconciliation by risk category of components of equity and analysis of other comprehensive income items resulting from hedge accounting.

	(Millions of yen)
	For the year ended March 31, 2020			For the year ended March 31, 2019
Exchange differences on translation of foreign operations
Beginning of the year		1,660			—
Net gains arising during the year		1,744			1,699
Reclassification adjustments		(1,216	)		(39	)
End of the year		2,187			1,660

9. Financial Assets at Fair Value through Profit or Loss

Financial assets at fair value through profit or loss as of March 31, 2020 and 2019 consisted of the following:

	(Millions of yen)
	As of March 31, 2020		As of March 31, 2019
Listed and unlisted equity securities		185,104		156,780
Unlisted debt instruments		189,492		205,183
Total		374,596		361,964

10. Securities

Securities as of March 31, 2020 and 2019, which were classified as amortized cost consisted of the following:

	(Millions of yen)
	As of March 31, 2020		As of March 31, 2019
Securities
Unlisted debt securities		60,532		84,087
Securities, total		60,532		84,087

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11. Loans and Other Receivables

Loans and other receivables as of March 31, 2020 and 2019 consisted of the following:

	(Millions of yen)
	As of March 31, 2020			As of March 31, 2019
Sovereign		482,827			533,103
Non-sovereign		12,554,059			12,981,654
Total sovereign and non-sovereign		13,036,887			13,514,757
Allowance for loan losses		(277,378	)		(216,611	)
Loans and other receivables, total		12,759,508			13,298,146

The portfolio of loans and other receivables is disclosed in more detail in Note 40 “Concentration of Credit Risk.”

Details of changes in the loss allowance for loans and other receivables for the year ended March 31, 2020 were as follows:

	(Millions of yen)
	For the year ended of March 31, 2020
	ECL staging									Total
Loss allowance	Stage 1 12-month ECL			Stage 2 Lifetime ECL			Stage 3 Lifetime ECL
As of April 1, 2019		8,337			11,693			196,579			216,611
Transfers:
Transfer to Stage 1		4,778			(4,778	)		—			—
Transfer to Stage 2		(142	)		142			—			—
Transfer to Stage 3		(2,996	)		(399	)		3,395			—
Net remeasurement from stage changes		(4,710	)		47,690			2,594			45,575
Modification of contractual cash flows		—			—			(19	)		(19	)
Decrease in exposures		(605	)		(6,428	)		(2,552	)		(9,585	)
Increase in exposures		2,403			21,659			98			24,161
Write-offs		—			—			(2,959	)		(2,959	)
Changes in risk parameters		10,317			246			(5,107	)		5,457
Other changes		636			(941	)		(1,556	)		(1,861	)
As of March 31, 2020		18,020			68,885			190,472			277,378

The following table provides changes in the gross carrying amount of the loans and other receivables to show their impact on the changes in the loss allowance presented above.

	(Millions of yen)
	For the year ended March 31, 2020
	ECL staging									Total
Gross carrying amount	Stage 1 12-month ECL			Stage 2 Lifetime ECL			Stage 3 Lifetime ECL
As of April 1, 2019		11,826,024			1,175,406			513,326			13,514,757
Transfers:
Transfer to Stage 1		133,163			(133,010	)		(152	)		—
Transfer to Stage 2		(518,633	)		518,633			—			—
Transfer to Stage 3		(14,717	)		(3,045	)		17,762			—
Modification of contractual cash flows		—			—			3,981			3,981
Decrease in exposures		(1,487,625	)		(287,759	)		(64,919	)		(1,840,304	)
Increase in exposures		1,603,063			43,919			7,521			1,654,504
Write-offs		—			—			(2,959	)		(2,959	)
Other changes		(236,051	)		(45,808	)		(11,231	)		(293,091	)
As of March 31, 2020		11,305,223			1,268,336			463,327			13,036,887

32

The contractual amount outstanding on financial assets that were written off for the year ended March 31, 2020 but are still subject to enforcement activity was ¥2,959 million.

Details of changes in the loss allowance for loans and other receivables for the year ended March 31, 2019 were as follows:

	(Millions of yen)
	For the year ended of March 31, 2019
	ECL staging									Total
Loss allowance	Stage 1 12-month ECL			Stage 2 Lifetime ECL			Stage 3 Lifetime ECL
As of April 1, 2018		7,214			15,821			174,048			197,084
Transfers:
Transfer to Stage 1		557			(557	)		—			—
Transfer to Stage 2		(5	)		5			—			—
Transfer to Stage 3		—			—			—			—
Net remeasurement from stage changes		(537	)		454			—			(82	)
Modification of contractual cash flows		—			—			1,301			1,301
Decrease in exposures		(1,415	)		(3,362	)		(1,812	)		(6,590	)
Increase in exposures		467			—			1,653			2,121
Changes in risk parameters		1,304			(1,336	)		12,141			12,110
Other changes		751			668			9,246			10,666
As of March 31, 2019		8,337			11,693			196,579			216,611

The following table provides changes in the gross carrying amount of the loans and other receivables to show their impact on the changes in the loss allowance presented above.

	(Millions of yen)
	For the year ended March 31, 2019
	ECL staging									Total
Gross carrying amount	Stage 1 12-month ECL			Stage 2 Lifetime ECL			Stage 3 Lifetime ECL
As of April 1, 2018		11,536,255			1,333,611			543,956			13,413,823
Transfers:
Transfer to Stage 1		70,611			(70,611	)		—			—
Transfer to Stage 2		(50,472	)		50,472			—			—
Transfer to Stage 3		(191	)		(83	)		274			—
Modification of contractual cash flows		—			—			6,337			6,337
Decrease in exposures		(1,516,329	)		(184,342	)		(63,394	)		(1,764,066	)
Increase in exposures		1,334,574			613			15,727			1,350,915
Other changes		451,576			45,745			10,425			507,747
As of March 31, 2019		11,826,024			1,175,406			513,326			13,514,757

The following table includes summary information for loans and other receivables with lifetime ECL whose cash flows were modified during the period:

	(Millions of yen)
	For the year ended March 31, 2020		For the year ended March 31, 2019
Loans and other receivables
Amortized cost before modification		157,062		208,539
Net modification gains		3,981		6,337

There were no loans and other receivables with 12-month ECL whose cash flows were modified during the period and transferred from Stage 3 or Stage 2 to Stage 1 as of March 31, 2020 and 2019.

The policy for managing credit risk is disclosed in Note 37 “Financial Risk Management.”

33

12. Interests in Other Entities

The JBIC Group’s principal subsidiaries as of March 31, 2020 are shown in the table below. The JBIC Group consolidates all entities over which the JBIC Group has control. See Note 3 “Significant Accounting Policies” for additional information.

Name of entity	Country of incorporation	Ownership interest held by the JBIC Group (%)		Voting rights (%)		Principal activities
JBIC IG Partners	Japan		51		51	Management services for investments
Russia-Japan Investment Fund, L.P.*	Cayman Islands		100		—	Investments

* JBIC does not have decision-making rights in Russia-Japan Investment Fund, L.P. JBIC, however, has determined that Russia-Japan Investment Fund, L.P. is a subsidiary of JBIC because an entity that has all of the decision-making rights is deemed to be an agent of JBIC.

13. Equity Method Investments

13-1. Investments in Associates

Investments in associates are accounted for using the equity method. The JBIC Group does not have any investments in associates that are individually material. Investments in associates that were not individually material were as follows:

	(Millions of yen)
	As of March 31, 2020		As of March 31, 2019
Total carrying amount		128,957		142,845

Financial information of associates that were not individually material was as follows (the amount presented is based on the JBIC Group’s ownership interest):

	(Millions of yen)
	As of March 31, 2020		As of March 31, 2019
Total comprehensive loss		1,736		887

Associates did not record other comprehensive income. Therefore, losses of equity method investments were equal to the associates’ total comprehensive loss presented above.

13-2. Investments in Joint Ventures

Investments in joint ventures are accounted for using the equity method except for the investments directly made by Russia-Japan Investment Fund L.P. The JBIC Group does not have any joint ventures that are individually material, and the aggregate balance of investments in joint ventures that are not individually material are not significant. Accordingly, the carrying amount of the investment and the financial information of the joint ventures are not presented.

14. Unconsolidated Structured Entities

The JBIC Group has interests in structured entities formed by other entities (“unconsolidated structured entities”) for the purpose of providing project financing, mainly to resources and infrastructure projects, aircraft leasing, ship leasing, and others. These unconsolidated structured entities obtain funds mainly through bank borrowings. The JBIC Group has interests in these unconsolidated structured entities in the form of loans, financial guarantees, or investments, and therefore the JBIC Group is exposed to credit risk and market risk of these unconsolidated structured entities.

The JBIC Group’s maximum exposure to losses from its interests in these unconsolidated structured entities consists of the carrying amounts of its investments in equity securities, the amounts of loans and loan commitments, and the amount of financial guarantee obligations. The maximum exposure represents the possible amount of total losses the JBIC Group could ever incur without considering any collateral held and other credit enhancements, and does not represent the probability of loss occurrence. Income received from interests in unconsolidated structured entities is mainly interest income and guarantee fees.

34

The following table summarizes the carrying amounts of assets and liabilities recognized in the consolidated statement of financial position of the JBIC Group and its maximum exposure to losses from its interests in the unconsolidated structured entities.

	(Millions of yen)
	As of March 31, 2020				As of March 31, 2019
	Carrying amount		Maximum exposure		Carrying amount		Maximum exposure
Financial assets at fair value through profit or loss		25,099		25,099		18,577		34,116
Loans and other receivables		6,027,364		6,831,137		6,157,242		7,213,167
Equity method investments		11,588		11,588		11,588		11,588
Assets, total		6,064,052		6,867,825		6,187,408		7,258,872
Financial guarantee contracts		59,814		458,967		23,484		520,293
Liabilities, total		59,814		458,967		23,484		520,293

15. Property and Equipment

Changes in the carrying amounts of property and equipment for the years ended March 31, 2020 and 2019 were as follows:

	(Millions of yen)
	Land		Building			Other			Total
Cost
As of April 1, 2018		24,311		3,912			2,281			30,505
Additions		—		84			311			396
Disposals		—		—			(231	)		(232	)
Other decreases		—		—			(161	)		(161	)
As of March 31, 2019		24,311		3,996			2,199			30,508
Additions		—		504			1,028			1,532
Disposals		—		(68	)		(431	)		(499	)
Other decreases		—		—			(757	)		(757	)
As of March 31, 2020		24,311		4,432			2,039			30,783
Accumulated depreciation
As of April 1, 2018		—		1,046			1,057			2,104
Depreciation		—		168			483			652
Disposals		—		—			(228	)		(229	)
As of March 31, 2019		—		1,215			1,312			2,528
Depreciation		—		234			368			602
Disposals		—		(68	)		(425	)		(493	)
As of March 31, 2020		—		1,380			1,256			2,637
Carrying amount
As of April 1, 2018		24,311		2,865			1,224			28,401
As of March 31, 2019		24,311		2,781			886			27,979
As of March 31, 2020		24,311		3,051			782			28,146

16. Other Assets

Other assets as of March 31, 2020 and 2019 consisted of the following:

	(Millions of yen)
	As of March 31, 2020		As of March 31, 2019
Other assets
Cash collateral paid for financial instruments		56,950		123,340
Intangible assets		5,227		6,710
Right-of-use assets		2,757		—
Other		4,207		3,095
Other assets, total		69,141		133,145

35

17. Borrowings

Borrowings, including the currency of denomination and maturity dates, as of March 31, 2020 and 2019 consisted of the following:

	As of March 31, 2020			As of March 31, 2019
Currency	Maturity dates	Millions of yen		Maturity dates	Millions of yen
USD	June 2020 to September 2024		4,625,535	May 2019 to September 2023		5,412,873
EUR	November 2020 to April 2023		93,363	November 2020 to April 2023		118,939
JPY	November 2020 to November 2037		2,067,600	March 2020 to November 2037		2,042,900
Borrowings, total			6,786,499			7,574,713

Weighted-average contractual interest rates as of March 31, 2020 and 2019 were 1.30% and 2.13%, respectively.

The amounts of undiscounted contractual cash flows for borrowings by maturity date are disclosed in Note 43 “Maturity Analysis of Financial Liabilities.”

18. Bonds Payable

Bonds payable, including the currency of denomination, maturity dates and associated contractual interest rates, as of March 31, 2020 and 2019 consisted of the following:

	As of March 31, 2020				As of March 31, 2019
Currency	Maturity dates	Contractual interest rates	Millions of yen		Maturity dates	Contractual interest rates		Millions of yen
USD	May 2020 to October 2029	(Fixed) 1.500% – 3.500%		4,678,924	May 2019 to October 2028		(Fixed) 1.500% – 3.500%		4,153,015
	June 2020 to July 2020	(Floating) 2.060% – 2.209%		163,229	February 2020 to July 2020		(Floating) 3.106% – 3.221%		221,887
GBP	December 2020	(Fixed) 2.625%		56,622	December 2020		(Fixed) 2.625%		61,528
JPY	June 2020 to December 2025	(Fixed) 0.001% – 2.090%		100,247	September 2019 to December 2025		(Fixed) 0.001% – 2.090%		170,449
Bonds payable, total				4,999,024					4,606,882

JBIC’s bonds are secured by JBIC’s assets in the form of general liens in accordance with Article 34 of the JBIC Act.

The amounts of undiscounted contractual cash flows for bonds payable by maturity date are disclosed in Note 43 “Maturity Analysis of Financial Liabilities.”

36

19. Financial Guarantee Contracts

Financial guarantee contracts as of March 31, 2020 and 2019 consisted of the following:

			(Millions of yen)
	As of March 31, 2020		As of March 31, 2019
Sovereign		21,639		30,394
Non-sovereign		77,326		44,951
Financial guarantee contracts, total		98,965		75,346

Financial guarantee contracts are initially measured at fair value and subsequently measured at the higher of: (a) the amount initially recognized less accumulated amortization recognized in accordance with IFRS 15 and (b) the loss allowance determined in accordance with IFRS 9 required for settling the guarantee obligation at the reporting date.

Details of changes in the loss allowance for financial guarantee contracts for the year ended March 31, 2020 were as follows:

	(Millions of yen)
	For the year ended March 31, 2020
	ECL staging									Total
Loss allowance	Stage 1 12-month ECL			Stage 2 Lifetime ECL			Stage 3 Lifetime ECL
As of April 1, 2019		1,654			1,083			1,512			4,250
Transfers:
Transfer to Stage 1		—			—			—			—
Transfer to Stage 2		(1,135	)		1,135			—			—
Transfer to Stage 3		(22	)		—			22			—
Decrease in exposures		(71	)		(295	)		(1,239	)		(1,607	)
Increase in exposures		83			24			—			108
Net remeasurement		2,098			53,176			399			55,674
Other changes		(2	)		(17	)		(5	)		(25	)
As of March 31, 2020		2,605			55,107			688			58,400

The following table provides changes in the exposure amount of the financial guarantee contracts to show their impact on the changes in the loss allowance presented above.

	(Millions of yen)
	For the year ended March 31, 2020
	ECL staging									Total
Exposure amount	Stage 1 12-month ECL			Stage 2 Lifetime ECL			Stage 3 Lifetime ECL
As of April 1, 2019		2,451,920			10,575			29,271			2,491,767
Transfers:
Transfer to Stage 1		—			—			—			—
Transfer to Stage 2		(242,439	)		242,439			—			—
Transfer to Stage 3		(2,774	)		—			2,774			—
Decrease in exposures		(450,053	)		(5,454	)		(11,500	)		(467,008	)
Increase in exposures		70,489			28,923			—			99,413
Other changes		(3,064	)		(2,338	)		(399	)		(5,803	)
As of March 31, 2020		1,824,076			274,146			20,146			2,118,369

37

Details of changes in the loss allowance for financial guarantee contracts for the year ended March 31, 2019 were as follows:

	(Millions of yen)
	For the year ended March 31, 2019
	ECL staging									Total
Loss allowance	Stage 1 12-month ECL			Stage 2 Lifetime ECL			Stage 3 Lifetime ECL
As of April 1, 2018		1,407			1,447			1,757			4,612
Transfers:
Transfer to Stage 1		—			—			—			—
Transfer to Stage 2		—			—			—			—
Transfer to Stage 3		—			—			—			—
Decrease in exposures		(37	)		(351	)		(111	)		(500	)
Increase in exposures		93			—			—			93
Net remeasurement		182			(61	)		(207	)		(86	)
Other changes		8			49			73			131
As of March 31, 2019		1,654			1,083			1,512			4,250

The following table provides changes in the exposure amount of the financial guarantee contracts to show their impact on the changes in the loss allowance presented above.

	(Millions of yen)
	For the year ended March 31, 2019
	ECL staging									Total
Exposure amount	Stage 1 12-month ECL			Stage 2 Lifetime ECL			Stage 3 Lifetime ECL
As of April 1, 2018		2,217,257			13,368			28,762			2,259,388
Transfers:
Transfer to Stage 1		—			—			—			—
Transfer to Stage 2		—			—			—			—
Transfer to Stage 3		—			—			—			—
Decrease in exposures		(114,161	)		(3,245	)		(743	)		(118,150	)
Increase in exposures		363,346			—			—			363,346
Other changes		(14,522	)		452			1,252			(12,816	)
As of March 31, 2019		2,451,920			10,575			29,271			2,491,767

20. Other Liabilities

Other liabilities as of March 31, 2020 and 2019 consisted of the following:

	(Millions of yen)
	As of March 31, 2020		As of March 31, 2019
Other liabilities
Accrued expenses		57,208		68,163
Unearned revenue		16,653		16,923
Cash collateral received for financial instruments		268,460		44,620
Liability for retirement benefits		6,875		7,220
Lease liability		2,807		—
Other		7,637		793
Other liabilities, total		359,643		137,720

38

21. Employee Benefits

21-1. Post-employment Benefits

i. Defined benefit plans

JBIC has defined benefit pension plans composed of funded-type defined benefit corporate pension plans and unfunded-type lump-sum severance indemnity plans. Benefits provided under the plans are determined based on multiple factors, such as the employees’ number of years of service and their salary levels.

In accordance with Japanese laws and regulations, JBIC’s defined benefit corporate pension plans are operated by corporate pension funds that are legally separate from JBIC. The laws and regulations require that JBIC or the board of the corporate pension funds and pension-managing trustees act in the best interests of the plan members and are responsible for managing the plan assets based on the prescribed policy.

JBIC is responsible for contributing funds determined based on a prescribed proportion of the salaries stipulated in JBIC’s pension rules. If the funded balance is below the minimum funding requirement at the annual close of the pension fund, JBIC is required to pay an additional contribution. Further, the contribution is calculated to maintain the balance in future periods and is recalculated every five years at the fiscal year-end of the pension fund.

JBIC’s defined benefit corporate pension plans are multi-employer plans, which are different from single-employer plans from the following perspectives:

a. Assets contributed to multi-employer plans may be used to provide benefits to employees of other entities participating in the plan.

b. When certain employers discontinue contributions, other employers may bear the unfunded obligations.

c. When multi-employer plans are wound up or when an entity withdraws from a multi-employer plan, the entity may be required to pay for unfunded obligations as a special contribution.

The plans expose JBIC to the following actuarial risks, including investment risk, interest rate risk, and longevity risk:

a. Investment risk

The present value of defined benefit obligations is calculated using a discount rate, which is determined based on market yields on high-quality corporate bonds. Should the return on plan assets fall below this discount rate, a deficit in the defined benefit plan could arise.

b. Interest rate risk

A decline in market yields on high-quality corporate bonds leads to an increase in defined benefit obligations. The increase in obligations, however, is partly offset by an increase in the fair value of debt instruments (i.e., plan assets).

c. Longevity risk

JBIC’s defined benefit plans include lifelong annuity plans, which require JBIC’s guarantee at the time of the employees’ retirement to pay retirement benefits to plan members over their lifetime. The present value of defined benefit obligations is determined based on JBIC’s best estimate of the mortality of plan members both during and after their employment. An extended average longevity of plan members will cause an increase in defined benefit obligations.

39

Changes in the present value of defined benefit obligations and the fair value of plan assets

		(Millions of yen)
		For the year ended March 31, 2020			For the year ended March 31, 2019
(a)	Net defined benefit liability for funded and unfunded type plans (beginning) (b)-(d)+(g)		7,220			7,037
Changes in the present value of defined benefit obligations for funded type plans:
(b)	Beginning balance		6,485			6,428
	Current service cost		131			123
	Interest expense		25			32
	Remeasurements
	Actuarial gains and losses arising from changes in financial assumptions		(245	)		121
	Other		141			62
	Payments by the plan		(235	)		(283	)
(c)	Ending balance		6,303			6,485
Changes in the fair value of plan assets:
(d)	Beginning balance		4,483			4,411
	Interest income		17			22
	Remeasurements
	Return on plan assets		(12	)		208
	Contributions by the employer		129			125
	Payments by the plan		(235	)		(283	)
(e)	Ending balance		4,382			4,483
(f)	Net defined benefit liability for funded type plans (ending) (c)-(e)		1,920			2,001
Changes in the present value of defined benefit obligations for unfunded type plans:
(g)	Beginning balance		5,218			5,019
	Current service cost		337			332
	Past service cost		(191	)		—
	Interest expense		30			24
	Remeasurements
	Actuarial gains and losses arising from changes in financial assumptions		(81	)		41
	Other		243			218
	Payments by the plan		(601	)		(419	)
(h)	Ending balance		4,955			5,218
(i)	Net defined benefit liability for funded and unfunded type plans (ending) (f)+(h)		6,875			7,220

Significant actuarial assumptions used in determining the present value of defined benefit obligations

Items	As of March 31, 2020			As of March 31, 2019
Discount rate (%)		0.6	%		0.4	%
Salary increase rate (%)		4.3	%		4.3	%

40

An assessment of defined benefit obligations requires judgments in respect of uncertain future events. The following table shows the impact in the form of a sensitivity analysis of changes in discount rates on the defined benefit obligations at each reporting date. The sensitivity analysis is prepared based on the assumption that other variables remain constant; however, in practice, variables do not necessarily change in isolation. Negative amounts represent a decrease, while positive amounts show an increase in the defined benefit obligations.

Sensitivity analysis (discount rate)

	(Millions of yen)
	0.5% increase			0.5% decrease
Effect on defined benefit obligations as of March 31, 2020		(769	)		837
Effect on defined benefit obligations as of March 31, 2019		(791	)		859

Fair value by plan asset category

	(Millions of yen)
	As of March 31, 2020
Categories of plan assets	With quoted market prices in an active market		Without quoted market prices in an active market		Total
Equity securities (Japan)		479		—		479
Equity securities (foreign countries)		466		—		466
Total equity securities		946		—		946
Debt securities (Japan)		2,468		—		2,468
Debt securities (foreign countries)		365		—		365
Total debt securities		2,834		—		2,834
General accounts of life insurance companies		—		561		561
Cash and due from banks		16		—		16
Other		—		24		24
Plan assets, total		3,797		585		4,382

	(Millions of yen)
	As of March 31, 2019
Categories of plan assets	With quoted market prices in an active market		Without quoted market prices in an active market		Total
Equity securities (Japan)		527		—		527
Equity securities (foreign countries)		538		—		538
Total equity securities		1,065		—		1,065
Debt securities (Japan)		2,462		—		2,462
Debt securities (foreign countries)		348		—		348
Total debt securities		2,810		—		2,810
General accounts of life insurance companies		—		584		584
Cash and due from banks		23		—		23
Plan assets, total		3,899		584		4,483

Expected contribution to plan assets for the fiscal year ending March 31, 2021: ¥159 million

Weighted-average duration of defined benefit obligations
As of March 31, 2020	15 years
As of March 31, 2019	15 years

ii. Defined contribution plans

On October 1, 2014, JBIC introduced defined contribution plans.

JBIC recognized costs of ¥27 million and ¥26 million related to the defined contribution plans for the years ended March 31, 2020 and 2019, respectively.

41

21-2. Employee Benefit Expenses

Total employee benefit expenses included in operating expenses in the consolidated income statement were as follows:

	(Millions of yen)
	For the year ended March 31, 2020		For the year ended March 31, 2019
Employee benefit expenses		7,222		7,189

22. Capital Stock and Other Reserves

Total number of authorized shares

	(Thousands of shares)
	As of March 31, 2020		As of March 31, 2019
Common stock with no stated value		5,164,000,000		5,164,000,000

Shares of common stock issued and fully paid (common stock with no stated value)

	For the year ended March 31, 2020				For the year ended March 31, 2019
	Thousands of shares		Millions of Yen		Thousands of shares		Millions of yen
Beginning of the year		1,635,300,000		1,635,300		1,615,200,000		1,615,200
Issuance of new shares		98,500,000		98,500		20,100,000		20,100
End of the year		1,733,800,000		1,733,800		1,635,300,000		1,635,300

Total amount of capital stock

	(Millions of yen)
	As of March 31, 2020		As of March 31, 2019
Capital stock		1,883,800		1,785,300

Other reserves presented in the consolidated statement of changes in equity

Deferred gains (losses) on hedges

For hedges that qualify for hedge accounting under Japanese GAAP but that do not meet the conditions for hedge accounting under IAS 39, JBIC discontinued hedge accounting in respect of each hedge category. For cash flow hedges under Japanese GAAP, deferred gains or losses on hedges are recognized in other reserves at the date of transition and are recognized in profit or loss based on cash flows arising from hedged transactions.

Remeasurement of defined benefit plans

Remeasurement of defined benefit plans represents the changes in actuarial gains and losses and the return on plan assets, excluding amounts included in interest income. Actuarial gains and losses represent experience adjustments to the defined benefit obligations (i.e., differences between the actuarial assumptions at the beginning of the year and what has actually occurred) and the effects of changes in actuarial assumptions. Actuarial gains and losses are recognized in other comprehensive income as incurred and are immediately transferred from other reserves to retained earnings.

Exchange differences on translation of foreign operations

The amount represents the JBIC Group’s share of the translation differences arising on translating the consolidated financial statements of foreign subsidiaries, associates and joint ventures into the functional currency of JBIC. The amount includes gains or losses on the hedging instruments that are determined to be effective hedges of the net investments in foreign operations.

42

Capital controls

JBIC is not subject to either the Banking Act or capital adequacy regulations; however, JBIC is subject to the JBIC Act, and it has the following agreements with the Japanese government:

• The government, at all times, holds the total number of outstanding shares of JBIC (Article 3 of the JBIC Act).

• The government may make contributions to JBIC, if necessary, limited to the amount appropriated in the budget (Article 4 of the JBIC Act).

• JBIC prepares a budget for revenues and expenditures and submits it to the Minister of Finance each fiscal year. After the Cabinet’s decision is made, the Cabinet submits the budget to the Diet together with the national budget (Article 16 and Article 19 of the JBIC Act). JBIC’s business plans and financial plans (e.g., borrowings from the fiscal loan funds and foreign exchange funds, corporate bonds, capital contribution from the general account, and loans) are attached to the above-mentioned budget and submitted to the Diet (Article 17 of the JBIC Act).

JBIC manages the equity presented in the consolidated statement of financial position as its capital. Capital stock as of March 31, 2020 and 2019 is as presented above.

23. Dividend Distribution

JBIC is restricted in its ability to distribute dividends in accordance with Article 31 of the JBIC Act.

JBIC paid ¥31,150 million on June 28, 2018, for the year ended March 31, 2018, ¥26,525 million on June 27, 2019, for the year ended March 31, 2019, and ¥58,455 million on June 29, 2020, for the year ended March 31, 2020 in accordance with the JBIC Act as noted below. These amounts are calculated based on the amount of the retained earnings under Japanese GAAP.

In the event that the amount of the retained earnings recorded at each year-end closing in respective accounts for operations defined in each item of Article 26-2 of the JBIC Act:

i. exceeds zero, JBIC accumulates an amount calculated in accordance with the standards prescribed by the Cabinet Order as a reserve, until it reaches a certain amount stipulated by the Cabinet Order; and if there is a surplus, JBIC pays such a surplus into the national treasury within three months after the annual closing date (Paragraph 1 of Article 31 of the JBIC Act); or

ii. falls below zero, the reserve is transferred to the retained earnings to the extent that the amount of retained earnings becomes zero (Paragraph 2 of Article 31 of the JBIC Act).

24. Interest Income and Interest Expense

Interest income and interest expense for the years ended March 31, 2020 and 2019 consisted of the following:

	(Millions of yen)
	For the year ended March 31, 2020		For the year ended March 31, 2019
Interest income
Due from banks		16,860		13,538
Securities		1,003		1,361
Loans and other receivables		404,361		438,266
Other		60		34
Interest income, total		422,286		453,200
Interest expense
Borrowings		126,812		156,898
Bonds payable		119,125		114,020
Financial guarantee contracts		444		329
Other		64		118
Interest expense, total		246,447		271,366
Net interest income		175,838		181,834

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25. Fee and Commission Income and Fee and Commission Expense

Fee and commission income, as well as fee and commission expense for the years ended March 31, 2020 and 2019 consisted of the following:

	(Millions of yen)
	For the year ended March 31, 2020		For the year ended March 31, 2019
Fee and commission income
Guarantee fees		15,350		15,137
Other		1,547		1,754
Fee and commission income, total		16,898		16,892
Fee and commission expense
Outsourcing expenses		3,084		2,924
Other		169		69
Fee and commission expense, total		3,253		2,993

26. Net Income (Expense) from Derivative Financial Instruments

Net income (expense) from derivative financial instruments for the years ended March 31, 2020 and 2019 consisted of the following:

	(Millions of yen)
	For the year ended March 31, 2020			For the year ended March 31, 2019
Net income (expense) from derivative financial instruments
Net interest income (expense) from interest rate swaps		(86,357	)		(98,068	)
Net gain on valuation of derivative financial instruments		240,120			101,913
Other *		(89,893	)		(23,372	)
Net income (expense) from derivative financial instruments, total		63,870			(19,527	)

* The amount includes adjustments of the carrying amounts of hedged items under fair value hedge.

27. Net Gain (Loss) from Financial Assets at Fair Value through Profit or Loss

Net gain (loss) from financial assets at fair value through profit or loss for the years ended March 31, 2020 and 2019 consisted of the following:

	(Millions of yen)
	For the year ended March 31, 2020		For the year ended March 31, 2019
Net gain (loss) from listed and unlisted equity securities		10,736		(6,034	)
Net gain from unlisted debt instruments		6,197		4,240
Net gain (loss) from financial assets at fair value through profit or loss, total		16,934		(1,794	)

28. Net Gains on Derecognition of Financial Assets Measured at Amortized Cost

During the fiscal year ended March 31, 2019, the JBIC Group sold certain debt instruments in line with its credit risk management decision to eliminate exposures arising from a deterioration in credit risk. The JBIC Group realized gains of ¥74 million on the sale of the assets. There were no net gains on derecognition of financial assets measured at amortized cost for the fiscal year ended March 31, 2020.

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29. Other Income and Other Expenses

Other income and other expenses for the years ended March 31, 2020 and 2019 consisted of the following:

	(Millions of yen)
	For the year ended March 31, 2020		For the year ended March 31, 2019
Other income
Other		279		150
Other income, total		279		150
Other expenses
Loss on foreign exchange transactions *		2,327		805
Other		506		635
Other expenses, total		2,833		1,440

* The amount includes gains or losses arising on the foreign currency translation of notional amounts of the currency swap contracts by using the exchange rate at the reporting date.

30. Impairment Losses on Financial Assets

Impairment losses on financial assets for the years ended March 31, 2020 and 2019 consisted of the following:

	(Millions of yen)
	For the year ended March 31, 2020		For the year ended March 31, 2019
Impairment losses on financial assets
Securities		54		12
Loans and other receivables		58,889		16,377
Financial guarantee contracts		33,427		(720	)
Impairment losses on financial assets, total		92,372		15,669

31. Operating Expenses

Operating expenses for the years ended March 31, 2020 and 2019 consisted of the following:

	(Millions of yen)
	For the year ended March 31, 2020		For the year ended March 31, 2019
Operating expenses
Salaries and allowances		5,958		5,877
Retirement benefit costs		403		517
Welfare expenses		925		795
Depreciation and amortization		3,051		1,944
Travel expenses		1,654		1,552
Other		9,290		10,251
Operating expenses, total		21,284		20,938

32. Income Taxes

JBIC is a nontaxable entity in accordance with Paragraph 2, Item 5 of the Corporate Tax Act of Japan (Act No. 34, 1965) and has no obligation to pay corporate taxes. JBIC IG Partners is a taxable entity and has an obligation to pay corporate taxes as applicable under relevant laws. Russia-Japan Investment Fund, L.P. is a tax-exempt limited partnership established under Cayman Islands laws and has no obligation to pay corporate taxes. As the balances of income taxes are insignificant, the financial information for income taxes is not presented.

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33. Analysis of Financial Assets and Liabilities by Measurement Basis

Subsequent to initial recognition, financial assets and liabilities are measured either at fair value or amortized cost in accordance with the measurement classifications defined in IFRS 9. Note 3 “Significant Accounting Policies” describes how these classifications of financial assets and liabilities are measured, and how income and expenses are recognized in profit or loss.

The following tables present the carrying amounts of the financial assets and liabilities in the consolidated statement of financial position, by category and by line item, as of March 31, 2020 and 2019:

	(Millions of yen)
	As of March 31, 2020
	Financial assets and liabilities measured at FVPL		Financial assets measured at amortized cost		Financial liabilities measured at amortized cost		Total
Financial assets
Cash and due from banks		—		1,544,838		—		1,544,838
Derivative financial instrument assets		420,937		—		—		420,937
Financial assets at fair value through profit or loss		374,596		—		—		374,596
Securities		—		60,532		—		60,532
Loans and other receivables		—		12,759,508		—		12,759,508
Financial assets, total		795,533		14,364,880		—		15,160,414
Financial liabilities
Derivative financial instrument liabilities		178,255		—		—		178,255
Borrowings		—		—		6,786,499		6,786,499
Bonds payable		—		—		4,999,024		4,999,024
Financial liabilities, total		178,255		—		11,785,523		11,963,779

In addition to the above, JBIC had ¥98,965 million of financial guarantee contracts measured in accordance with IFRS 9 as of March 31, 2020.

	(Millions of yen)
	As of March 31, 2019
	Financial assets and liabilities measured at FVPL		Financial assets measured at amortized cost		Financial liabilities measured at amortized cost		Total
Financial assets
Cash and due from banks		—		1,191,463		—		1,191,463
Derivative financial instrument assets		145,235		—		—		145,235
Financial assets at fair value through profit or loss		361,964		—		—		361,964
Securities		—		84,087		—		84,087
Loans and other receivables		—		13,298,146		—		13,298,146
Financial assets, total		507,200		14,573,698		—		15,080,898
Financial liabilities
Derivative financial instrument liabilities		243,346		—		—		243,346
Borrowings		—		—		7,574,713		7,574,713
Bonds payable		—		—		4,606,882		4,606,882
Financial liabilities, total		243,346		—		12,181,595		12,424,942

In addition to the above, JBIC had ¥75,346 million of financial guarantee contracts measured in accordance with IFRS 9 as of March 31, 2019.

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34. Offsetting Financial Assets and Financial Liabilities

The following tables present quantitative information in respect of financial instruments that are subject to enforceable master netting arrangements or similar agreements as of March 31, 2020 and 2019. Of the financial assets held by the JBIC Group, amounts related to master netting agreements in respect of derivative transactions are disclosed in the following tables. The right to offset in accordance with these master netting agreements only becomes effective in the event of default or certain other events outside the normal course of business. The excess portion of the collateral received and collateral pledged is excluded.

	(Millions of yen)
	As of March 31, 2020
	Gross amounts of financial assets and liabilities recognized (a)		Amounts that are offset (b)		Net amounts presented in the consolidated statement of financial position (c)=(a)-(b)		Amounts subject to an enforceable master netting agreement or similar agreement and not included in (b) (d)						Net amount (e)=(c)-(d)
							Amounts related to financial instruments recognized that do not meet the offsetting criteria			Amounts related to financial collateral (including cash collateral)
Financial assets
Derivative financial instrument assets		420,847		—		420,847		(128,387	)		(268,460	)		23,999
Financial assets, total		420,847		—		420,847		(128,387	)		(268,460	)		23,999
Financial liabilities
Derivative financial instrument liabilities		178,235		—		178,235		(128,387	)		(56,950	)		—
Financial liabilities, total		178,235		—		178,235		(128,387	)		(56,950	)		—
	(Millions of yen)
	As of March 31, 2019
	Gross amounts of financial assets and liabilities recognized (a)		Amounts that are offset (b)		Net amounts presented in the statement of financial position (c)=(a)-(b)		Amounts subject to an enforceable master netting agreement or similar agreement and not included in (b) (d)						Net amount (e)=(c)-(d)
							Amounts related to financial instruments recognized that do not meet the offsetting criteria			Amounts related to financial collateral (including cash collateral)
Financial assets
Derivative financial instrument assets		145,110		—		145,110		(102,988	)		(44,620	)		—
Financial assets, total		145,110		—		145,110		(102,988	)		(44,620	)		—
Financial liabilities
Derivative financial instrument liabilities		243,045		—		243,045		(102,988	)		(123,340	)		16,716
Financial liabilities, total		243,045		—		243,045		(102,988	)		(123,340	)		16,716

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35. Fair Value of Financial Assets and Liabilities

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. The fair values stated below represent the best estimate determined using various valuation methods and assumptions, and the JBIC Group gives the highest priority to quoted prices in active markets. If such prices are not available, the fair values are determined using valuation techniques. The valuation techniques, if used, maximize the use of observable inputs and minimize the use of unobservable inputs.

The table below sets forth the carrying amounts and fair values of major financial assets and liabilities as of March 31, 2020 and 2019:

	(Millions of yen)
	As of March 31, 2020				As of March 31, 2019
	Carrying amount		Fair value		Carrying amount		Fair value
Financial Assets
Derivative financial instrument assets		420,937		420,937		145,235		145,235
Financial assets at fair value through profit or loss		374,596		374,596		361,964		361,964
Securities		60,532		60,603		84,087		83,892
Loans and other receivables		12,759,508		12,901,301		13,298,146		13,310,755
Financial Assets, total		13,615,573		13,757,437		13,889,432		13,901,846
Financial Liabilities
Derivative financial instrument liabilities		178,255		178,255		243,346		243,346
Borrowings		6,786,499		6,831,157		7,574,713		7,636,800
Bonds payable		4,999,024		5,162,845		4,606,882		4,589,487
Financial guarantee contracts		98,965		7,860		75,346		6,613
Financial Liabilities, total		12,062,743		12,180,117		12,500,287		12,476,246

Valuation methods used in determining the fair values of financial assets and liabilities

Derivative financial instrument assets and liabilities

Derivative financial instrument assets and liabilities held by JBIC are all over-the-counter (“OTC”) derivatives.

The fair values of OTC derivatives are measured using the projected future cash flows with observable inputs, mainly interest rates and foreign exchange rates. In determining the fair values, counterparty and JBIC’s credit risks are incorporated. In reflecting these credit risks, the default rates are determined with reference to observable market data, and the impact of master netting agreements and the effect of collateral are also incorporated.

Financial assets at fair value through profit or loss

Financial assets at fair value through profit or loss comprise listed and unlisted equity securities (i.e., some stocks and investments in partnerships), which include financial assets classified as debt instruments in accordance with IAS 32 Financial instruments: Presentation, and certain loans and other receivables.

Fair values of listed equity securities are determined using quoted market prices if the market prices are appropriate for valuation. Otherwise or as it pertains to stocks included in unlisted equity securities, their fair values are determined using valuation techniques, including the DCF method. The inputs used include unobservable inputs, such as the expected rate of return. For certain unlisted equity securities, the reported net asset values or a recent transaction price are considered to represent the fair values of these investments at the reporting date.

Since loans with variable interest rates reflect market interest rates in the short term, amounts calculated by applying the floating rate note method and a risk-free rate adjusted by unobservable inputs, such as the default ratio and collateral coverage ratio, represent the fair values of the loans.

For loans with fixed interest rates, the total amounts of the contractual principal and interest are discounted by using a risk-free rate adjusted by unobservable inputs, such as the default ratio and collateral coverage ratio, to calculate the fair values. Further, in respect of claims against bankrupt borrowers, substantially bankrupt borrowers, and potentially bankrupt borrowers, estimated loan losses are calculated based on the amounts expected to be collected from the collateral or guarantees.

Securities

Securities held by JBIC Group are unlisted debt securities. Quoted prices that are made available by third parties, such as brokers, are used for measuring fair values of the securities.

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Loans and other receivables

Since loans with variable interest rates reflect market interest rates in the short term, amounts calculated by applying the floating rate note method and a risk-free rate adjusted by unobservable inputs, such as the default ratio and collateral coverage ratio, represent the fair values of the loans.

For loans with fixed interest rates, the total amounts of the contractual principal and interest are discounted by using a risk-free rate adjusted by unobservable inputs, such as the default ratio and collateral coverage ratio, to calculate the fair values. Further, in respect of claims against bankrupt borrowers, substantially bankrupt borrowers, and potentially bankrupt borrowers, estimated loan losses are calculated based on the amounts expected to be collected from the collateral or guarantees. Thus, the amortized amount, net of an allowance for loan losses as of the reporting date approximates the fair value and such an amount represents the fair value.

Borrowings

Borrowings with variable interest rates reflect short-term market interest rates, and the credit risk of JBIC has not been significantly affected by these borrowings. Accordingly, the carrying amount is used as fair value as it is considered to approximate the fair value. For borrowings with fixed interest rates, fair value is calculated by discounting the total amount of the contractual principal and interest of the borrowings by the standard government bond rate.

Bonds payable

Market value is used as the fair value of the bonds.

Financial guarantee contracts

The fair value of financial contracts is determined by discounting the estimated future losses arising from guarantee obligations using a risk-free rate adjusted by the credit default swap spread of government bonds. Unobservable inputs, such as the default ratio and coverage ratio, are used to determine the estimated future losses associated with guarantee obligations. The fair value hierarchy of financial assets and liabilities is described in Note 36 “Fair Value Hierarchy.”

36. Fair Value Hierarchy

The inputs used in the valuation techniques that measure the fair values of assets and liabilities are categorized into the following three-level hierarchy:

• Level 1: quoted (unadjusted) prices in active markets for identical assets or liabilities;

• Level 2: inputs other than quoted prices included within Level 1 that are observable for assets or liabilities, either directly or indirectly; and

• Level 3: unobservable inputs.

The fair value hierarchy of an asset or liability is determined based on the hierarchy of inputs used in the fair value measurement of that asset or liability. If the inputs used to measure the fair value of an asset or a liability are categorized within different levels of the fair value hierarchy, the fair value measurement is categorized in its entirety in the same level of the fair value hierarchy as the lowest level input that is significant to the entire measurement.

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The following table shows a breakdown of assets and liabilities measured at fair value by level of the fair value hierarchy as of March 31, 2020 and 2019:

	(Millions of yen)
	As of March 31, 2020
	Level 1		Level 2		Level 3		Total
Assets
Derivative financial instrument assets
Interest-related derivatives
Interest rate swaps		—		270,380		—		270,380
Currency-related derivatives
Currency swaps		—		150,466		—		150,466
Forward foreign exchange contracts		—		90		—		90
Derivative financial instrument assets, total		—		420,937		—		420,937
Financial assets at fair value through profit or loss		—		441		374,155		374,596
Liabilities
Derivative financial instrument liabilities
Interest-related derivatives
Interest rate swaps		—		60,785		—		60,785
Currency-related derivatives
Currency swaps		—		117,450		—		117,450
Forward foreign exchange contracts		—		20		—		20
Derivative financial instrument liabilities, total		—		178,255		—		178,255

	(Millions of yen)
	As of March 31, 2019
	Level 1		Level 2		Level 3		Total
Assets
Derivative financial instrument assets
Interest-related derivatives
Interest rate swaps		—		39,226		—		39,226
Currency-related derivatives
Currency swaps		—		105,884		—		105,884
Forward foreign exchange contracts		—		124		—		124
Derivative financial instrument assets, total		—		145,235		—		145,235
Financial assets at fair value through profit or loss		—		541		361,423		361,964
Liabilities
Derivative financial instrument liabilities
Interest-related derivatives
Interest rate swaps		—		77,197		—		77,197
Currency-related derivatives
Currency swaps		—		165,847		—		165,847
Forward foreign exchange contracts		—		301		—		301
Derivative financial instrument liabilities, total		—		243,346		—		243,346

36-1. Transfers between Level 1 and Level 2

There were no transfers between Level 1 and Level 2 during the years ended March 31, 2020 and 2019.

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36-2. Quantitative Information about the Significant Unobservable Inputs Used in the Fair Value Measurement of Level 3 Financial Assets

The following tables present the significant unobservable inputs used in the fair value measurement of Level 3 financial assets that are recorded in the consolidated statement of financial position at fair value:

	As of March 31, 2020
	Fair value (Millions of yen)		Valuation Method	Unobservable input	Range
Financial assets at fair value through profit or loss
Listed equity securities (stocks)		7,719	DCF method	Discount rates		11.4%
				Expected cash flows		—  *1
Unlisted equity securities (stocks)		91,488	DCF method	Discount rates		2.8%–35.3%
				Expected cash flows		—  *1
		8,335	Net asset value	—  *2		—  *2
Unlisted equity securities (investments in partnerships)		77,119	Net asset value	—  *2		—  *2
Unlisted debt instruments (loans)		189,492	DCF method	Discount rates		(0.1)%–0.2%
				Expected cash flows		—  *1
	As of March 31, 2019
	Fair value (Millions of yen)		Valuation Method	Unobservable input	Range
Financial assets at fair value through profit or loss
Listed equity securities (stocks)		9,207	DCF method	Discount rates		13.1%
				Expected cash flows		—  *1
Unlisted equity securities (stocks)		77,963	DCF method	Discount rates		2.8%–15.1%
				Expected cash flows		—  *1
		7,525	Net asset value	—  *2		—  *2
		2,805	Recent transaction price	—  *3		—  *3
Unlisted equity securities (investments in partnerships)		58,739	Net asset value	—  *2		—  *2
Unlisted debt instruments (loans)		205,183	DCF method	Discount rates		(0.1)%–0.6%
				Expected cash flows		—  *1

*¹  Expected cash flows used in the valuation based on the DCF method are unobservable inputs, and accordingly, various scenarios reflecting the performance of the issuers are taken into account in performing the valuation.

*²  The net asset values reported by the partnerships are deemed to represent the fair value as of the reporting date.

*³  The fair value as of the reporting date is based on recent transaction prices.

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36-3. Movements in the Fair Value of Level 3 Financial Assets

The following table presents a reconciliation of the beginning and ending amounts of Level 3 financial assets that are recorded at fair value in the consolidated statement of financial position for the years ended March 31, 2020 and 2019:

	(Millions of yen)
	Securities			Financial assets at fair value through profit or loss
	Unlisted equity securities			Listed equity securities			Unlisted equity securities			Unlisted debt instruments			Total
As of April 1, 2018		120,400			8,282			—			—			128,682
Effects of transition to IFRS 9		(120,400	)		—			132,187			217,163			228,951
Total gains (losses) recorded in profit or loss		—			924			(7,788	)		(2,682	)		(9,546	)
Purchases		—			—			29,217			33,170			62,388
Sales and redemptions		—			—			(6,584	)		(42,468	)		(49,052	)
As of March 31, 2019		—			9,207			147,032			205,183			361,423
Total gains (losses) recorded in profit or loss		—			(1,487	)		8,764			(285	)		6,991
Purchases		—			—			25,923			31,453			57,376
Sales and redemptions		—			—			(4,776	)		(46,859	)		(51,636	)
As of March 31, 2020		—			7,719			176,943			189,492			374,155

36-4. Sensitivity Analysis of Level 3 Instruments

The fair value measurements of Level 3 financial assets are performed using valuation techniques based on inputs, such as prices and rates that are not observable in the market. The following sensitivity analysis provides the impact on the profit or loss and other comprehensive income when changing the unobservable inputs used in determining the fair value measurements of Level 3 financial assets recorded at fair value in the consolidated statement of financial position, to the extent reasonably possible.

The nature of the sensitivity analysis is determined based on the type of financial instrument and the market conditions at the time. As of March 31, 2020 and 2019, the sensitivity analysis was performed by increasing or decreasing the discount rates used in the DCF method by 1%.

	(Millions of yen)
	As of March 31, 2020
	Total fair value measured using valuation techniques		Impact on profit or loss					Impact on other comprehensive income
			Favorable change		Unfavorable change			Favorable change		Unfavorable change
Financial assets at fair value through profit or loss
Listed equity securities (stocks)		7,719		330		(313	)		—		—
Unlisted equity securities (stocks)		91,488		5,831		(5,299	)		—		—
Unlisted debt instruments (loans)		189,492		12,182		(10,923	)		—		—
	(Millions of yen)
	As of March 31, 2019
	Total fair value measured using valuation techniques		Impact on profit or loss					Impact on other comprehensive income
			Favorable change		Unfavorable change			Favorable change		Unfavorable change
Financial assets at fair value through profit or loss
Listed equity securities (stocks)		9,207		398		(384	)		—		—
Unlisted equity securities (stocks)		77,963		4,835		(4,479	)		—		—
Unlisted debt instruments (loans)		205,183		9,864		(9,263	)		—		—

For the listed equity securities, certain unlisted equity securities (i.e., some stocks and investments in partnerships) and debt securities, the sensitivity analysis was not performed since the effect of changing the unobservable inputs to reflect reasonably possible alternative assumptions did not change their fair values significantly.

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36-5. Unrealized Gain (Loss) of Level 3 Instruments

The following table presents changes in unrealized gain (loss) included in profit or loss for the years ended March 31, 2020 and March 31, 2019 related to Level 3 financial assets.

	(Millions of yen)
	For the year ended March 31, 2020		For the year ended March 31, 2019
Net gain (loss) from financial assets at fair value through profit or loss		6,715		(8,298	)

36-6. Fair Value Hierarchy of Assets and Liabilities that are Not Measured at Fair Value

The breakdown by fair value hierarchy of assets and liabilities that were not measured at fair value in the consolidated statement of financial position as of March 31, 2020 and 2019 was as follows:

	(Millions of yen)
	As of March 31, 2020
	Level 1		Level 2		Level 3		Total
Assets
Loans and other receivables		—		—		12,901,301		12,901,301
Securities		—		60,603		—		60,603
Liabilities
Borrowings		—		6,831,157		—		6,831,157
Bonds payable		—		5,162,845		—		5,162,845
Financial guarantee contracts		—		—		7,860		7,860

	(Millions of yen)
	As of March 31, 2019
	Level 1		Level 2		Level 3		Total
Assets
Loans and other receivables		—		—		13,310,755		13,310,755
Securities		—		83,892		—		83,892
Liabilities
Borrowings		—		7,636,800		—		7,636,800
Bonds payable		—		4,589,487		—		4,589,487
Financial guarantee contracts		—		—		6,613		6,613

37. Financial Risk Management

JBIC is a policy-based financial institution, conducting financial operations to achieve policy objectives, and its operations involve various risks, including credit risk, market risk (interest rate risk and exchange rate risk), liquidity risk, and operational risk. As such, JBIC has the following risk management policies in place.

37-1. Risk Management Structure

The types and magnitude of the risks associated with JBIC’s financial operations and its risk mitigation measures are different from those of risks associated with private financial institutions’ operations and their risk mitigation measures. Nonetheless, JBIC, as a financial institution, recognizes the importance of managing risk appropriately, and has built an organizational structure for risk management tailored to the types of risks and integrated risk management.

More specifically, JBIC identifies, measures, and monitors various risks to which JBIC is exposed in its operations, and defines ensuring the soundness and integrity of its operations and increasing transparency as the risk management objective. For this purpose, JBIC has designated staff responsible for managing various risks and established a department responsible for controlling the risk management efforts. In addition, the Corporate Risk Management Committee and the Asset Liability Management (ALM) Committee have also been set up to facilitate evaluations and discussions regarding successful risk management. JBIC has also established the Risk Advisory Committee, which mainly consists of external experts, to provide JBIC’s board of directors with advice for matters requiring their review, such as a risk assessment and the management structure of large credit exposures and issues related to the risk of large-scale projects.

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37-2. Credit Risk Management

Credit risk refers to the potential loss from a decline or loss in the value of credit assets due to deterioration in the financial conditions of a debtor. This risk is inherent in JBIC’s operations as it primarily engages in lending activities. The credit risk exposure of JBIC may be classified into the following categories: sovereign risk, which involves financing to foreign governments; corporate risk, which involves financing to business firms; project risk, which occurs when a project is financed by project financing—a financing structure in which a loan is primarily secured by the cash flows generated from the project—fails to generate the planned cash flows; and country risk, which involves financing to foreign firms as well as projects located in foreign countries (a risk arising from the country where the debtor resides and the project is located that adds to corporate risk and project risk). Given the very nature of the financial support the JBIC Group provides, including support for developing and securing strategically important resources for Japan overseas, for maintaining and improving the international competitiveness of Japanese industries, and for promoting overseas business in order to preserve the global environment, such as preventing global warming, the JBIC Group frequently extends loans to foreign governments, government agencies, and foreign companies. As such, sovereign and country risks account for a significant portion of the credit risk accompanying JBIC’s lending activities.

Credit risk management structure

The cornerstone of credit risk management at JBIC is the evaluation of an individual borrower’s creditworthiness in advance of credit approval. When a new credit application is processed, the relevant finance departments (sales promotion departments) and credit departments collect and analyze information on the borrower. JBIC’s overseas representative offices also play a part in collecting information on foreign governments and corporations. Credit appraisal takes place based on the information that has been gathered and analyzed with the different departments ensuring appropriate checks throughout the process, leading to the final decision by the management. In providing credit to foreign governments and other governmental entities, JBIC takes maximum advantage of its unique position as a public financial institution. This includes exchanging views and information with the governments and relevant authorities in the recipient countries, multilateral institutions such as the IMF and the World Bank, other regional development banks such as export credit agencies, and private financial institutions in developed countries. Using all these channels to exchange views and information, JBIC evaluates sovereign and country risks based on the broad range of information collected on the borrowing governments, the government agencies, and the political and economic conditions in their countries.

In providing credit to domestic and foreign companies, JBIC evaluates their creditworthiness and the appropriateness of the collateral and guarantees they offer. In respect of the credit provision related to overseas projects, credit evaluation involves examining the certainty of transactions to be financed, feasibility studies of the projects, and the industry in which the borrower operates. The concentration of credit risk is managed by setting a certain ratio to capital. The relevant finance departments and credit departments conduct proper credit risk management based on the credit risk rating system for segmented risk categories and the asset self-assessment system. In addition, an Integrated Risk Management Committee is held regularly to report the status of credit management to the management. The credit management situation is also checked by an independent auditing department.

Credit risk management methodology

A. Credit risk assessment

Internal credit rating

JBIC has established an internal credit rating system, which covers, in principle, all borrowers. Internal credit ratings are the cornerstone of credit risk management, being used for individual credit appraisals and quantifying credit risk as described below.

Self-assessment of asset quality

JBIC performs a self-assessment of asset quality to ensure that the characteristics of its assets will be accurately reflected in its assessment results. In carrying out the self-assessment of the asset quality, the first-stage of the assessment is conducted by the finance departments, while the second-stage of the assessment is conducted by the credit department, and the internal inspection is performed by the internal audit department. The results of the self-assessment of the asset quality are used for determining the existence of evidence indicating that a financial asset or group of financial assets classified into loans and receivables is credit-impaired. In addition, they are used for the continuous reviews of the loan portfolio as well as actively used in the disclosures of assets to enhance the transparency of the JBIC Group’s financial position.

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The “borrower category” is used to classify borrowers by their repayment abilities used in the self-assessment of asset quality, and borrowers are classified depending on their financial conditions as below

Borrower Category	Borrowers’ financial condition
Normal borrowers	Borrowers with good business performances and no significant financial problems
Borrowers needing attention	Borrowers requiring close monitoring, excluding substandard borrowers
Substandard borrowers	Borrowers in the “borrowers needing attention category” with loans that are completely or partially more than three months past due or borrowers whose loans have been restructured
Potentially bankrupt borrowers	Borrowers perceived to have a high risk of becoming bankrupt
Substantially bankrupt borrowers	Borrowers who may not have legally or formally declared bankruptcy but are essentially bankrupt
Bankrupt borrowers	Borrowers who have legally or formally declared bankruptcy

B. Quantifying credit risk

In addition to the above credit risk management related to individual borrowers, JBIC quantifies credit risk with a view to evaluating the risk of the overall loan portfolio. To quantify credit risk, it is important to take into account the characteristics of JBIC’s loan portfolio, which are not typically seen in other private financial institutions, namely that JBIC holds a significant portion of long-term loans that entail sovereign and country risks. Also to be taken into account are mechanisms for securing assets under an international supporting framework, such as the Paris Club*, which is a unique framework of debt management by official creditors. JBIC’s own credit risk quantification model, incorporating these factors, measures credit risk and is utilized for internal control purposes.

* The Paris Club is an informal group of official creditors whose role is to find coordinated and sustainable solutions to the payment difficulties encountered by debtor nations. Since the first meeting took place in 1956 to resolve the debt problem of Argentina, the meeting has been held in Paris, with the French Treasury (in Paris) acting as its secretariat. Hence, it is known as the Paris Club.

37-3. Credit Risk Management in Financial Markets

Credit risk in financial markets is the risk that JBIC will suffer losses if a counterparty to a derivative financial instrument transaction is unable to execute the transactions in accordance with the terms of the contract due to its financial difficulties or bankruptcy. As such, JBIC continuously gathers information on the market value of derivative financial instruments, the credit risk amount in respect of each counterparty and counterparties’ financial conditions. JBIC also monitors and utilizes such data in assessing the appropriateness of counterparties. JBIC mitigates credit risk in financial markets arising from derivatives transactions by entering into master netting agreements. Under IFRS, JBIC’s derivative financial instrument assets and liabilities do not meet the offsetting criteria and they are presented on a gross basis in the consolidated statement of financial position. In addition to the above, collateral is pledged by both parties to a transaction in accordance with market trends and risk levels.

38. Maximum Exposure to Credit Risk

The following tables summarize the JBIC Group’s maximum exposure to credit risk before recognizing risk mitigation by collateral or other credit enhancements as of March 31, 2020 and 2019:

Financial instruments not subject to impairment

	(Millions of yen)
	As of March 31, 2020				As of March 31, 2019
	Carrying amount		Maximum exposure		Carrying amount		Maximum exposure
Financial assets at fair value through profit or loss *1		374,596		601,610		361,964		564,583

^*1  Maximum exposure represents the total of investments, loans, equity participation commitments and loan commitments.

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Financial instruments subject to impairment

	(Millions of yen)
	As of March 31, 2020				As of March 31, 2019
	Carrying amount		Maximum exposure		Carrying amount		Maximum exposure
Securities *2		60,532		60,532		84,087		84,087
Loans and other receivables *3		12,759,508		13,969,522		13,298,146		14,733,454
Financial guarantee contracts *4		98,965		2,246,296		75,346		2,666,621

^*2  Maximum exposure represents the amounts of investments.

^*3 Maximum exposure represents the total of loans and loan commitments.

^*4 Maximum exposure represents the total of guarantee obligations and guarantee commitments.

The tables above exclude financial instruments whose carrying amounts best represent their maximum exposure to credit risk.

39. Collateral

Financial assets pledged as collateral

JBIC held ¥56,950 million and ¥123,340 million in cash collateral for derivatives transactions as of March 31, 2020 and 2019, respectively, which was included in “Other assets” in the consolidated statement of financial position. The general collateral in respect of bonds payable is described in Note 18 “Bonds Payable.��

Collateral and other credit enhancements

JBIC obtains collateral, such as financial assets and real estate, and utilizes guarantees to strengthen loan recovery and minimize the credit risk. JBIC also obtains collateral, such as movable property, for credit enhancement purposes in order to minimize the credit risk in relation to the financial guarantee contracts.

The JBIC’s policies regarding collateral have not significantly changed during the reporting period and there has been no significant change in the overall quality of the collateral held by JBIC since the prior period.

A portion of the JBIC Group’s financial assets are fully covered by collateral, which results in no loss allowance being recognized in accordance with the JBIC Group’s expected credit loss model. The carrying amount of such financial assets was ¥2,918,111 million and ¥2,899,346 million as of March 31, 2020 and 2019, respectively.

The following tables present financial effects of collateral and other credit enhancements in respect of credit-impaired loans and loans measured at FVPL which the impairment requirements in IFRS 9 are not applied as of March 31, 2020 and 2019. If the value of the collateral exceeds the carrying amount of the loan, the maximum amount of collateral is limited to the carrying amount of the corresponding loan.

	(Millions of yen)
	As of March 31, 2020		As of March 31, 2019
Credit-impaired loans and other receivables		56,019		48,627
Loans and other receivables measured at FVPL		120,653		198,309

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40. Concentration of Credit Risk

The following tables present the analysis of the concentration of credit risk in respect of loans and other receivables by borrowers’ key characteristics as of March 31, 2020 and 2019:

Analysis of loans and other receivables by borrowers’ credit grade as of March 31, 2020;

	(Millions of yen)
	As of March 31, 2020
	ECL staging									Total
	Stage 1 12-month ECL			Stage 2 Lifetime ECL			Stage 3 Lifetime ECL
Sovereign
Credit grade
S to BB3		151,984			—			—			151,984
B1 to C		225,638			3,239			—			228,877
D to F		9,999			—			91,966			101,965
Total sovereign		387,621			3,239			91,966			482,827
Allowance for loan losses		(3,662	)		(1,002	)		(732	)		(5,398	)
Non-sovereign
Credit grade
S to BB3		9,405,884			—			—			9,405,884
B1 to C		1,511,716			1,265,096			—			2,776,813
D to F		—			—			371,361			371,361
Total non-sovereign		10,917,601			1,265,096			371,361			12,554,059
Allowance for loan losses		(14,357	)		(67,882	)		(189,740	)		(271,980	)
Total loans and other receivables		11,287,203			1,199,450			272,854			12,759,508

Analysis of loans and other receivables by borrowers’ geographic area and industry as of March 31, 2020;

	(Millions of yen)
	As of March 31, 2020
	ECL staging									Total
	Stage 1 12-month ECL			Stage 2 Lifetime ECL			Stage 3 Lifetime ECL
Sovereign
Asia and Oceania		285,111			3,239			36,251			324,602
Europe, the Middle East, and Africa		98,513			—			9,103			107,617
North America and Latin America		3,997			—			46,610			50,607
Total sovereign		387,621			3,239			91,966			482,827
Allowance for loan losses		(3,662	)		(1,002	)		(732	)		(5,398	)
Non-sovereign
Manufacturing industry		1,922,652			365,599			107,465			2,395,717
Mining industry		1,790,374			645,587			—			2,435,962
Electricity, gas, heat supply, and water industry		2,123,419			220,741			14,281			2,358,442
Transport industry		650,310			20,764			29,880			700,955
Wholesale and retail industry		611,729			23			—			611,752
Finance and insurance industry		3,177,140			6,983			219,653			3,403,777
Other		641,974			5,395			80			647,451
Total non-sovereign		10,917,601			1,265,096			371,361			12,554,059
Allowance for loan losses		(14,357	)		(67,882	)		(189,740	)		(271,980	)
Total loans and other receivables		11,287,203			1,199,450			272,854			12,759,508

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Analysis of loans and other receivables by borrowers’ credit grade as of March 31, 2019;

	(Millions of yen)
	As of March 31, 2019
	ECL staging									Total
	Stage 1 12-month ECL			Stage 2 Lifetime ECL			Stage 3 Lifetime ECL
Sovereign
Credit grade
S to BB3		175,568			—			—			175,568
B1 to C		231,605			—			—			231,605
D to F		1,091			—			124,838			125,929
Total sovereign		408,265			—			124,838			533,103
Allowance for loan losses		(1,961	)		—			(4,042	)		(6,003	)
Non-sovereign
Credit grade
S to BB3		10,001,440			—			—			10,001,440
B1 to C		1,416,319			1,175,406			—			2,591,726
D to F		—			—			388,487			388,487
Total non-sovereign		11,417,759			1,175,406			388,487			12,981,654
Allowance for loan losses		(6,376	)		(11,693	)		(192,537	)		(210,607	)
Total loans and other receivables		11,817,686			1,163,713			316,746			13,298,146

Analysis of loans and other receivables by borrowers’ geographic area and industry as of March 31, 2019;

	(Millions of yen)
	As of March 31, 2019
	ECL staging									Total
	Stage 1 12-month ECL			Stage 2 Lifetime ECL			Stage 3 Lifetime ECL
Sovereign
Asia and Oceania		295,359			—			45,993			341,352
Europe, the Middle East, and Africa		103,310			—			10,832			114,143
North America and Latin America		9,594			—			68,012			77,607
Total sovereign		408,265			—			124,838			533,103
Allowance for loan losses		(1,961	)		—			(4,042	)		(6,003	)
Non-sovereign
Manufacturing industry		1,760,796			125,828			118,250			2,004,874
Mining industry		2,007,604			882,376			—			2,889,981
Electricity, gas, heat supply, and water industry		2,146,786			122,726			13,707			2,283,220
Transport industry		687,770			23,918			33,551			745,240
Wholesale and retail industry		585,561			—			4,775			590,337
Finance and insurance industry		3,474,688			10,698			218,040			3,703,427
Other		754,550			9,858			162			764,571
Total non-sovereign		11,417,759			1,175,406			388,487			12,981,654
Allowance for loan losses		(6,376	)		(11,693	)		(192,537	)		(210,607	)
Total loans and other receivables		11,817,686			1,163,713			316,746			13,298,146

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The following tables present an analysis of the concentration of credit risk in respect of financial guarantee contracts by the guaranteed parties’ key characteristics as of March 31, 2020 and 2019:

Analysis of financial guarantee contracts by guaranteed parties’ credit grade as of March 31, 2020;

	(Millions of yen)
	As of March 31, 2020
	ECL staging						Total
	Stage 1 12-month ECL		Stage 2 Lifetime ECL		Stage 3 Lifetime ECL
Sovereign
Credit grade
S to BB3		13,154		—		—		13,154
B1 to C		—		8,174		—		8,174
D to F		—		—		310		310
Total sovereign		13,154		8,174		310		21,639
Non-sovereign
Credit grade
S to BB3		26,326		—		—		26,326
B1 to C		—		50,334		—		50,334
D to F		—		—		665		665
Total non-sovereign		26,326		50,334		665		77,326
Total financial guarantee contracts		39,481		58,508		976		98,965

Analysis of financial guarantee contracts by guaranteed parties’ geographic area and industry as of March 31, 2020;

	(Millions of yen)
	As of March 31, 2020
	ECL staging						Total
	Stage 1 12-month ECL		Stage 2 Lifetime ECL		Stage 3 Lifetime ECL
Sovereign
Asia and Oceania		4,671		2,129		—		6,801
Europe, the Middle East, and Africa		7,780		6,045		—		13,825
North America and Latin America		702		—		310		1,013
Total sovereign		13,154		8,174		310		21,639
Non-sovereign
Manufacturing industry		—		72		665		738
Mining industry		12,468		—		—		12,468
Electricity, gas, heat supply, and water industry		7,727		50,261		—		57,988
Transport industry		3,518		—		—		3,518
Finance and insurance industry		1,090		—		—		1,090
Other		1,521		—		—		1,521
Total non-sovereign		26,326		50,334		665		77,326
Total financial guarantee contracts		39,481		58,508		976		98,965

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Analysis of financial guarantee contracts by guaranteed parties’ credit grade as of March 31, 2019;

	(Millions of yen)
	As of March 31, 2019
	ECL staging						Total
	Stage 1 12-month ECL		Stage 2 Lifetime ECL		Stage 3 Lifetime ECL
Sovereign
Credit grade
S to BB3		19,714		—		—		19,714
B1 to C		10,679		—		—		10,679
D to F		—		—		—		—
Total sovereign		30,394		—		—		30,394
Non-sovereign
Credit grade
S to BB3		42,127		—		—		42,127
B1 to C		—		1,083		—		1,083
D to F		—		—		1,741		1,741
Total non-sovereign		42,127		1,083		1,741		44,951
Total financial guarantee contracts		72,521		1,083		1,741		75,346

Analysis of financial guarantee contracts by guaranteed parties’ geographic area and industry as of March 31, 2019;

	(Millions of yen)
	As of March 31, 2019
	ECL staging						Total
	Stage 1 12-month ECL		Stage 2 Lifetime ECL		Stage 3 Lifetime ECL
Sovereign
Asia and Oceania		9,272		—		—		9,272
Europe, the Middle East, and Africa		18,544		—		—		18,544
North America and Latin America		2,577		—		—		2,577
Total sovereign		30,394		—		—		30,394
Non-sovereign
Manufacturing industry		43		—		1,741		1,784
Mining industry		14,635		—		—		14,635
Electricity, gas, heat supply, and water industry		20,912		1,083		—		21,995
Transport industry		3,521		—		—		3,521
Finance and insurance industry		1,515		—		—		1,515
Other		1,498		—		—		1,498
Total non-sovereign		42,127		1,083		1,741		44,951
Total financial guarantee contracts		72,521		1,083		1,741		75,346

41. Exercise of Rights to Obtain Collateral or Other Credit Enhancements

The JBIC Group did not obtain any material financial or non-financial assets through exercise of rights to collateral or other credit enhancements.

42. Market Risk and Liquidity Risk

Market risk is the risk that the value of assets and liabilities (including off-balance-sheet items) will fluctuate and losses will be incurred, or profits derived from assets and liabilities (including off-balance-sheet items) will fluctuate and losses will be incurred, due to changes in various market risk factors, such as interest rates and foreign exchange rates.

The market risk borne by JBIC mainly consists of foreign exchange risk and interest rate risk, and JBIC may suffer losses from these risks due to fluctuations in the markets, such as market turmoil. These risks are hedged, in principle, by interest rate swaps, currency swaps, and forward foreign exchange contracts.

Liquidity risk is the risk that losses will be incurred as a result of difficulties in obtaining the funds necessary due to a maturity mismatch between financing and funding, or unexpected outflow of funds, or being forced to fund at an interest rate significantly higher than that under normal circumstances (funding risk). It is also the risk that losses will be incurred from being unable to conduct market transactions due to market turmoil or being forced to transact at far more unfavorable prices than those under normal circumstances (market liquidity risk).

Long-term and stable funds, such as fiscal loan funds, government-guaranteed bonds and FILP agency bonds, are secured to finance JBIC. Deposits are not accepted. Therefore, JBIC considers liquidity risk to be limited. However, financing costs could increase due to market turmoil and unexpected events.

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Overview of market risk and liquidity risk management

i. Market risk management

JBIC manages foreign exchange risk and interest rate risk through its ALM. Market risk management protocols contain detailed stipulations in respect of risk management methods and procedures, and JBIC established an ALM Committee to assess and confirm the execution of ALM, and to discuss future responses to market risk. In addition, JBIC assesses and monitors the interest rate and terms of financial assets and liabilities in detail through a gap analysis and an interest rate sensitivity analysis as well as Value at Risk (“VaR”). The results are reported to the ALM Committee on a regular basis.

The basic policy for managing foreign exchange risk and interest rate risk at JBIC is described below:

a. Foreign exchange risk

Foreign currency-denominated loans conducted in the JBIC Group involve risks related to exchange rate fluctuations. The JBIC Group has a consistent policy of managing this risk by fully hedging this risk exposure through the use of currency swaps and forward foreign exchange contracts. Furthermore, a portion of the foreign exchange risk arising from investments in affiliates denominated in foreign currencies is hedged using forward foreign exchange contracts as hedging instruments.

b. Interest rate risk

Interest rate risk arises from exposure to market interest rate fluctuations for yen-denominated loan and foreign currency-denominated loan operations and the policy for managing interest rate risk is described below.

(i) Yen-denominated loan operations

Yen-denominated loan operations are managed based on fixed interest rates by matching the maturities of the loans and funds. As a result, JBIC’s exposure to interest rate risk is limited. For any loan operations that are significantly impacted by interest rate fluctuations, JBIC hedges the interest rate risk through hedging instruments, such as swaps.

(ii) Foreign currency-denominated loan operations

For foreign currency-denominated loan operations, interest rate risk is hedged through the application of a consistent policy of using interest rate swaps and managing the funds with floating interest rates for both loans and related funding arrangements.

c. Status of market risk

JBIC only maintains a banking book and does not have financial instruments in a trading book. While in principle JBIC holds derivatives only for hedging purposes, as stated previously, market risk is measured in order to assess potential risk exposures. The following represents the market risk exposure (VaR) as of March 31, 2020 and 2019. JBIC measures market risk (VaR) by taking into account the degree of correlation between interest rate risk and foreign exchange risk.

Risk management using VaR

VaR is a market risk measure that assesses the maximum possible fluctuation of gains or losses in fair values that could occur after a certain period of time (“holding period”) based on historical market movements of interest rates or exchange rates, etc., over a specific period in the past (or observation period) within a given probability (confidence interval), that is derived statistically by employing the theory of probability distribution.

The measurement assumes historical market trends and the theory of probability distribution. However, bearing in mind that future market trends could deviate from these assumptions, JBIC validates the effectiveness of its market risk measurements using the VaR model by back-testing, which cross-checks the measured VaR against the actual gains or losses. In addition, a stress test, which goes beyond the probability distribution of historical market movements, is carried out in order to capture risks from various perspectives.

The following points should generally be noted in measuring VaR

• VaR will differ depending on the choice of confidence interval, holding period, and observation period;

• VaR indicates the maximum fluctuation of gains or losses in fair values at the time of measurement. In practice, the actual results at a point in the future may differ from the VaR calculation due to changes in the assumptions caused by market movements during the holding period; and

• VaR indicates the maximum value based on specific assumptions. As such, when utilizing VaR as a risk management measure, it is imperative to keep in mind that VaR may underestimate the potential losses.

The table below provides VaR calculated as of March 31, 2020 and 2019.

	(Billions of yen)
	As of March 31, 2020		As of March 31, 2019
VaR		186.7		158.6

JBIC calculated VaR based on a historical model. The calculation is based on a 99% confidence interval, a one-year holding period and a five-year observations period.

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ii. Liquidity risk management

Long-term and stable funds, such as fiscal loan funds, government-guaranteed bonds and FILP agency bonds, are used to finance JBIC’s operations and deposits are not accepted.

Cash flows are assessed and proper measures, including establishing overdraft facility accounts with multiple private sector financial institutions, are taken to maintain daily cash flows for proper risk management.

43. Maturity Analysis of Financial Liabilities

The following tables present the amounts of financial liabilities by contractual maturity based on undiscounted contractual cash flows as of March 31, 2020 and 2019.

For financial liabilities, payments related to financial guarantee contracts are made when all the relevant contractual requirements for payment are met. Accordingly, total guarantee amounts do not indicate the settlement amounts. Financial guarantee contracts represent the total of guarantee obligations and guarantee commitments.

For off-balance-sheet items, loan commitments and equity participation commitments are exercised based on the status of the corresponding businesses. Accordingly, total commitment amounts do not indicate the settlement amounts.

	(Millions of yen)
	As of March 31, 2020
	On demand		Not later than one year		Later than one year and not later than three years		Later than three years and not later than five years		Later than five years and not later than seven years		Later than seven years and not later than ten years		Later than ten years		Total
Financial liabilities
Derivative financial instrument liabilities		—		45,147		117,783		70,796		23,965		4,656		1,631		263,981
Borrowings		—		1,545,038		3,243,186		1,160,654		513,162		233,348		219,098		6,914,487
Bonds payable		—		968,952		1,527,053		1,206,577		884,363		817,262		—		5,404,209
Financial guarantee contracts		2,246,296		—		—		—		—		—		—		2,246,296
Off-balance-sheet items
Loan commitments		1,373,586		—		—		—		—		—		—		1,373,586
Equity participation commitments		63,442		—		—		—		—		—		—		63,442
	(Millions of yen)
	As of March 31, 2019
	On demand		Not later than one year		Later than one year and not later than three years		Later than three years and not later than five years		Later than five years and not later than seven years		Later than seven years and not later than ten years		Later than ten years		Total
Financial liabilities
Derivative financial instrument liabilities		—		99,564		119,123		198,708		60,595		50,005		19,198		547,196
Borrowings		—		674,725		1,992,829		4,323,015		237,990		620,683		176,087		8,025,332
Bonds payable		—		569,754		1,554,057		1,139,042		601,492		1,277,463		—		5,141,811
Financial guarantee contracts		2,666,621		—		—		—		—		—		—		2,666,621
Off-balance-sheet items
Loan commitments		1,539,647		—		—		—		—		—		—		1,539,647
Equity participation commitments		98,279		—		—		—		—		—		—		98,279

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44. Related-Party Disclosures

Shares held by the Government

The total number of outstanding shares of JBIC is required to be held, at all times, by the Japanese government (Article 3 of JBIC Act). Accordingly, all the shares outstanding are wholly owned by the Japanese government (the Ministry of Finance). Transactions between JBIC and the Japanese government or entities controlled by the Japanese government were as follows:

Transactions with the Japanese government, which controls JBIC

		(Millions of yen)
		Transactions and transaction amounts										Balance
		Underwriting of capital increase *1		Receipt of funds *2		Repayment of borrowings		Payment of interest on borrowings		Guarantee of corporate bonds *3		Borrowings		Other liabilities (interest payable)
Ministry of Finance   (Minister of Finance)	Year ended March 31, 2020		98,500		466,673		1,147,530		126,812		4,786,648		6,786,499		21,013
	Year ended March 31, 2019		20,100		764,559		1,821,286		156,898		4,413,497		7,574,713		35,397

*¹  The underwriting of capital increase represents the increase in capital through shareholder allocation by JBIC at an allocation amount of ¥1 per share.

*²  The receipt of funds represents borrowings from the fiscal investment and loan program (FILP) special account and Foreign Exchange Funds Special Account. FILP interest rates are applied to the borrowings from the FILP, while the interest rates in accordance with the respective agreements related to the Foreign Exchange Funds Special Account are applied to the borrowings from the Foreign Exchange Funds Special Account.

*³  No guarantee fees have been paid in respect of the guarantee of bonds.

Transactions with entities controlled by the Japanese government

	(Millions of yen)
	Transactions	As of March 31, 2020		As of March 31, 2019
Japan International Cooperation Agency (JICA)	Joint obligations		40,000 *1,*4		80,000 *1,*4
Japan Finance Corporation (JFC)	Joint obligations		—		20,000 *2,*4
	Joint obligations		90,000 *3,*4		140,000 *3,*4

*¹  JBIC assumed the obligations of the JBIC bonds in accordance with Article 12 (1) of the Supplementary Provisions of the JBIC Act, and JICA is jointly responsible for the obligations of these bonds in accordance with Article 4 (1) of Supplementary Provisions of the JICA Act. According to Article 4 (2) hereof, all of JICA assets are pledged as general collateral for these joint obligations.

*²  JBIC assumed the obligations of the JFC bonds in accordance with Article 12 (1) of Supplementary Provisions of the JBIC Act, and JFC is jointly responsible for the obligations of these bonds in accordance with Article 46-2 (1) of Supplementary Provisions of the JFC Act. According to Article 46-2 (2) hereof, all of JFC’s assets are pledged as general collateral for these joint obligations.

*³  JBIC is jointly responsible for the obligations of the JFC bonds in accordance with Article 17 (1) (ii) of Supplementary Provisions of the JBIC Act. In accordance with Article 17 (2) hereof, all of JBIC’s assets are pledged as general collateral for these joint obligations. Accordingly, the creditors of the bonds are entitled to JBIC assets prior to other creditors. The statutory lien is secondary to the general statutory lien under the Civil Code of Japan.

*⁴  No transactions are recognized in the consolidated income statement for these joint obligations.

Remuneration of the JBIC Group’s key management personnel

	(Millions of yen)
	For the year ended March 31, 2020		For the year ended March 31, 2019
Short-term employee benefits		149		144
Post-employment benefits		11		10
Total		160		154

The above represents the remuneration expenses of the members of board of directors of JBIC recognized in the consolidated income statement.

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45. Current and Noncurrent Distinction

Carrying amounts expected to be recovered or settled in no more than and more than 12 months after March 31, 2020 and 2019 were as follows:

	(Millions of yen)
	As of March 31, 2020
	No more than 12 months *1		More than 12 months *2		Total
Assets
Cash and due from banks		1,544,838		—		1,544,838
Derivative financial instrument assets		20,578		400,358		420,937
Financial assets at fair value through profit or loss		40,444		334,151		374,596
Securities		29,949		30,583		60,532
Loans and other receivables		1,686,236		11,073,272		12,759,508
Equity method investments		—		131,856		131,856
Property and equipment		—		28,146		28,146
Other assets		63,860		5,281		69,141
Liabilities
Derivative financial instrument liabilities		6,628		171,627		178,255
Borrowings		1,485,135		5,301,363		6,786,499
Bonds payable		863,019		4,136,005		4,999,024
Financial guarantee contracts		98,965		—		98,965
Other liabilities		352,767		6,875		359,643

	(Millions of yen)
	As of March 31, 2019
	No more than 12 months *1		More than 12 months *2		Total
Assets
Cash and due from banks		1,191,463		—		1,191,463
Derivative financial instrument assets		3,375		141,860		145,235
Financial assets at fair value through profit or loss		36,573		325,390		361,964
Securities		23,498		60,589		84,087
Loans and other receivables		1,630,927		11,667,219		13,298,146
Equity method investments		—		145,834		145,834
Property and equipment		—		27,979		27,979
Other assets		126,379		6,766		133,145
Liabilities
Derivative financial instrument liabilities		12,810		230,536		243,346
Borrowings		521,428		7,053,285		7,574,713
Bonds payable		459,782		4,147,099		4,606,882
Financial guarantee contracts		75,346		—		75,346
Other liabilities		130,499		7,220		137,720

*¹  Includes demand deposits.

*²  Includes amounts with no fixed maturity dates.

46. Events after the Reporting Period

There were no reportable events after the reporting period.

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