Japan Finance Corporation
ACCOUNT FOR JBIC OPERATIONS

Balance Sheet （as of March 31, 2012）(Millions of yen)
2012

2012

AssetsCash and due from banks
CashLiabilities
685,678
0

Borrowed money

5,255,489

Borrowings

5,255,489

Due from banks

685,678

Bonds payable

2,378,637

Receivables under resale agreements

602,725

Other liabilities

372,934

Securities

74,108

Accrued expenses

28,923

Other securities

74,108

Unearned revenue

47,745Derivatives other than for

1,893

Loans and bills discounted

8,110,356

trading-liabilities
Loans on deeds
Other assets

8,110,356
927,190

Lease obligations

135

Collateral accepted for derivative

293,090transactions
Prepaid expenses

250

Other

1,146

Accrued income

31,856

Provision for bonuses

Derivatives other than for894,785

Provision for directors’ bonuses

6

296

Provision for retirement benefits

12,48137,425

Provision for directors’ retirement496

trading-assets
Other
Property, plant and equipment

24

benefits
Buildings

3,227

Acceptances and guarantees

2,378,325

Land

33,881

Total liabilities

10,398,395

Lease assets

22

Net assets

Construction in progress

13

Capital stock

Other

281

Retained earnings

824,522

1,291,000

Intangible assets

1,642

Legal retained earnings

772,006

Software

1,535

Other retained earnings

52,515

Lease assets

107

Retained earnings brought forward

52,515

Customers’ liabilities for

2,378,325

Total shareholders’ equity

2,115,522（124,271）

Valuation difference on（1,825）

acceptances and guarantees
Allowance for loan losses

available-for-sale securities
Deferred gains or losses on hedges

181,089

Total

179,263

valuationandtranslation

adjustments

Total assets

12,693,182

Total net assets

2,294,786

Total liabilities and net assets

12,693,182

Japan Finance Corporation
ACCOUNT FOR JBIC OPERATIONSStatement of Operations （Year ended March 31, 2012）(Millions of yen)
2012
Ordinary income

201,695

Interest income

176,852

Interest on loans and discounts

122,206

Interest and dividends on securities

75

Interest on receivables under resale agreements

491

Interest on deposits with banks

1,088Interest on interest swaps

52,985

Other interest income

5

Fees and commissions

14,221Other fees and commissions

14,221Other income

10,621

Reversal of allowance for loan losses

10,146

Recoveries of written-off claims

244

Other

230

Ordinary expenses

144,588

Interest expenses

118,110

Interest on borrowings and rediscounts

56,117

Interest on bonds

61,859Other interest expenses

133

Fees and commissions payments

1,105

Other fees and commissions

1,105

Other ordinary expenses

6,110

Loss on foreign exchange transactions

1,242

Amortization of bond issuance cost

739

Expenses on derivatives other than for trading or hedging

405

Other

3,723

General and administrative expenses

15,662Other expenses

3,598

Losses on sales of stocks and other securities
Other
Ordinary profit
Extraordinary income
Gain on disposal of noncurrent assets
Extraordinary losses
Loss on disposal of noncurrent assets

198
3,400
57,107
3
3
4,594
2

Other

4,592

Net income

52,515

Japan Finance Corporation
ACCOUNT FOR JBIC OPERATIONSStatement of Changes in Net Assets （Year ended March 31, 2012）(Millions of yen)
2012

2012

Shareholders’ equity

Deferred gains or losses on hedges

Capital stock

Balance at the beginning of current

157,781

periodBalance at the beginning of current

1,091,000

Changes of items during the period

periodChanges of items during the period

Net changes of items other than

23,308shareholders’ equity
Issuance of new shares

200,000

Total changes of items during the

23,308

periodTotal changes of items during the

200,000

Balance at the end of current period

181,089

periodBalance at the end of current period

1,291,000

Total valuation and translation
adjustments
Balance at the beginning of current

Retained earnings

156,115

periodLegal retained earnings
Balance at the beginning of current

Changes of items during the period
742,615

Net changes of items other thanperiodshareholders' equity

Changes of items during the period

Total changes of items during the23,14823,148

periodProvision of legal retained earnings

29,391

Balance at the end of current period

Total changes of items during the

29,391

Total net assets

772,006

Balance at the beginning of current

179,263

periodBalance at the end of current period

2,048,513

periodOther retained earnings

Changes of items during the period

Retained earnings brought forward

Issuance of new shares

Balance at the beginning of current

58,783

Payment to the national treasury

200,000（29,391）

periodChanges of items during the period
Provision of legal retained（29,391）

52,515

Net changes of items other than

23,148shareholders’ equity

earnings
Payment to the national treasury

Net income (loss)（29,391）

Total changes of items during the246,272

periodNet income (loss)
Total changes of items during theperiod52,515（6,267）

Balance at the end of current period

2,294,786

Japan Finance Corporation
ACCOUNT FOR JBIC OPERATIONS

Balance at the end of current period

52,515

Total retained earnings
Balance at the beginning of current

801,398

periodChanges of items during the period
Payment to the national treasury（29,391）

Net income (loss)

52,515

Total changes of items during the23,124

periodBalance at the end of current period

824,522

Total shareholders’ equity
Balance at the beginning of current

1,892,398

periodChanges of items during the period
Issuance of new shares
Payment to the national treasury

200,000（29,391）

Net income (loss)

52,515

Total changes of items during the223,124

periodBalance at the end of current period

2,115,522

Valuation and translation adjustments
Valuation difference on
available-for-sale securities
Balance at the beginning of current（1,665）

periodChanges of items during the period
Net changes of items other than（160）

shareholders’ equity
Total changes of items during the（160）

periodBalance at the end of current period（1,825）

Japan Finance Corporation
ACCOUNT FOR JBIC OPERATIONS

Notes to Financial Statements
ACCOUNT FOR JBIC OPERATIONS
Amounts presented are rounded down to the nearest million yen.

1. Significant accounting policies(a) Securities
Held-to-maturity securities are carried at amortized cost based on the moving average method.
Investments in affiliates are carried at cost based on the moving average method. Available-for-salesecurities, which have readily determinable fair value are stated at fair value with changes in net
unrealized gains or losses, included directly in Net assets. Available-for-sale securities whose fair value isextremely difficult to be determined are carried at cost based on the moving average method.
(b) Valuation method for derivative financial instruments
Derivative financial instruments are carried at fair value.
(c) Depreciation basis for fixed assets(i) Property, plant and equipment (except for lease assets)
Tangible fixed assets are depreciated under the declining-balance method over their useful economic
lives except for buildings (excluding installed facilities) which are depreciated under the straight-line
method.
Amortization is based on the following range of estimated useful lives:
Buildings: 2 years to 50 years
Other: 2 years to 20 years(ii) Intangible assets (except for lease assets)
Amortization of intangible fixed assets is computed by the straight-line method. Software used by JFC
is amortized over its useful life (5years).
(iii) Lease assets
Lease assets in “property, plant and equipment” or “intangible assets,” under finance leases that do not
involve transfer of ownership to the lessee are amortized under the straight-line method over the lease
term. Depreciation for lease assets is calculated with zero residual value being assigned to the asset.
(d) Method of amortization for deferred assets
Bond issuance costs are expensed as incurred.
(e) Foreign currency translation and revaluation method
JFC maintains its accounting records in Japanese yen. Assets and liabilities denominated in foreign
currencies are translated into Japanese yen primarily at the market exchange rate prevailing at the fiscal
year end.
(f) Accounting policy for reserves(i) Allowance for loan losses
The allowance for loan losses is maintained in accordance with internally established standards.
The allowance for claims on debtors who are legally bankrupt (“Bankrupt borrowers”) or substantiallyJapan Finance Corporation
ACCOUNT FOR JBIC OPERATIONS

bankrupt (“Substantially bankrupt borrowers”) is provided based on the outstanding balance after thewrite-offs described in the followings and the deductions of the amount expected to be collected throughthe disposal of collateral and execution of guarantees.
The allowance for claims on debtors who are not legally bankrupt but are likely to become bankrupt(“Potentially bankrupt borrowers”) is provided based on an assessment of the overall solvency of the
debtors after deducting the amount expected to be collected through the disposal of collateral and theexecution of guarantees.
The allowance for claims on debtors other than Bankrupt borrowers, Substantially bankrupt borrowers
and Potentially bankrupt borrowers is provided primarily based on the default rate, which is calculated
based on the actual defaults during a certain period in the past.
The allowance for possible losses on specific overseas loans is provided based on the expected loss
amount taking into consideration the political and economic situations of these countries.
All claims are assessed initially by the operational departments and subsequently by risk evaluation
department based on internal rules for self-assessment of asset quality. The risk evaluation department,
which is independent from the operational departments, reviews these self-assessments, and theallowance is provided based on the results of the assessments.
With respect to claims with collateral or guarantees on debtors who are legally or substantiallybankrupt (Bankrupt borrowers and Substantially bankrupt borrowers), the residual booked amount of theclaims after deduction of the amount which is deemed collectible through the disposal of collateral or the
execution of guarantees is written-off. The amount of accumulated write-off is ¥8,232 million.
(ii) Provision for bonuses
The “provision for bonuses” is calculated and provided for based on the estimated amounts of future
payments attributable to the services that have been rendered by employees to the date of the balance
sheet.
(iii) Provision for directors’ bonuses
The “provision for directors’ bonuses” is calculated and provided for based on the estimated amounts offuture payments attributable to the services that have been rendered by directors to the date of thebalance sheet.
(iv) Provision for retirement benefits
The “provision for retirement benefits” represents the future payment for pension and retirement benefits
to employees, and is accrued based on the projected benefit obligations and the estimated pension plan
assets at the fiscal period end.
Unrecognized prior service costs are recognized as income or expense by the straight-line method overa certain number of years; 10 years within the average remaining work period of employees at the year ofoccurrence.
Unrecognized actuarial differences are recognized as income or expense from the following fiscal yearby the straight-line method over a period up to a maximum of 10 years within the average remaining
service period of employees of the respective fiscal year.

Japan Finance Corporation
ACCOUNT FOR JBIC OPERATIONS(v) Provision for directors’ retirement benefits
The “provision for directors’ retirement benefits,” which provides for future retirement pension payments
to directors, corporate auditors and executive officers, is recognized at the amount accrued at the end of
the fiscal year.
(g) Accounting for hedging transactions(i) Accounting for hedges of interest rate risk(a) Hedge accounting
JFC used derivatives for interest rate risk hedging purposes under the deferral method.
(b) Hedging instruments and hedged items
Hedging instruments: interest rate swaps
Hedged items: loans, borrowings, bonds and notes(c) Hedging policy
JFC enters into hedging transactions up to the amount of the underlying hedged assets and liabilities.
(d) Assessment of hedge effectivenessJFC assesses the effectiveness of designated hedges by measuring and comparing the change of fairvalue or cumulative change of cash flows of both hedging instruments and corresponding hedged
items from the date of inception of the hedges to the assessment date.
(ii) Accounting for hedges of foreign exchange risk
Hedge instruments used to hedge foreign exchange risks associated with various foreign currency
denominated monetary assets and liabilities are accounted for using the deferral method, in accordancewith the standard treatment of The Japanese Institute of Certified Public Accountants (JICPA) Industry
Audit Committee Report No. 25.
The effectiveness of hedging instruments, such as currency swaps and foreign exchange forward
contracts used for hedging the foreign exchange risks of loans, borrowings, and bonds payable
denominated in foreign currencies, is assessed by comparing the foreign currency position of the hedgedloans and bills discounted, borrowings, and bonds payable with that of hedging instruments.
(h) Consumption and other taxes
Consumption taxes and local consumption taxes (“consumption taxes”) are excluded from transaction
amounts. Amounts of nondeductible consumption taxes related to property, plant and equipment are
expensed as incurred.

Additional information(The Accounting Standard for Accounting Changes and Error Corrections)
JFC has applied “the Accounting Standard for Accounting Changes and Error Corrections”, (ASBJ Statement
No. 24, December 4, 2009) and “Guidance on the Accounting Standard for Accounting Changes and Error
Corrections”, (ASBJ Guidance No. 24, December 4, 2009) beginning with the treatment of accountingchanges and corrections of prior period errors that are made after the beginning of this fiscal year. Based on“Practical Guidelines on Accounting Standards for Financial Instruments” (JICPA Accounting PracticeJapan Finance Corporation
ACCOUNT FOR JBIC OPERATIONS

Committee Statement No. 14), “Reversal of allowance for loan losses” and “Recoveries of written-off claims”
have been recorded in “Other income in Ordinary income” beginning with this fiscal year.

2. Equity securities of or investment in affiliates
Equity securities of or investment in affiliates is ¥ 50,248 million.

3. Receivables under resale agreements
Among the securities acquired under resale agreements, these securities which can be sold or pledged
without restrictions amounted to ¥602,725 million.
4. Loans
All loans entered into are loans on deeds. The amounts reported in the balance sheet include the followings:(Millions of yen)
As of March 31, 2012
Account for JBIC Operations
Bankrupt loans
Non-accrual loans—
101,565

Loans with interest or principal repayments more than three176

months in arrears
Restructured loans

83,014

Total

184,755(a) “Bankrupt loans” are loans, defined in Article 96, Paragraph 1, Item 3 and 4 of the Corporate Tax Law Enforcement Ordinance(Government Ordinance No. 97), on which accrued interest income is not recognized as there is substantial uncertainty over the ultimate
collectability of either principal or interest because they have been in arrears for a considerable period of time or for other reasons.
(b) “Non-accrual loans” are loans on which accrued interest income is not recognized, although this excludes Bankrupt loans and the loans on
which interest payments are deferred in order to support the borrowers’ recovery from financial difficulties.
(c) “Loans with interest or principal repayments more than three months in arrears” are loans whose principal or interest payment is more than
three months in arrears, and which do not fall under the category of “Bankrupt loans” and “Non-accrual loans”(d) “Restructured loans” are loans whose repayment terms and conditions have been amended in favor of the borrowers (e.g. reduction of or
exemption from the stated interest rate, the deferral of interest payments, the extension of principal repayments or renunciation of claims) inorder to support the borrowers’ recovery from financial difficulties, and which do not fall under the category of “Bankrupt loans”,“Non-accrual loans”, and “Loans with interest or principal repayments more than three months in arrears”.
(e) The amounts of loans indicated in the table above are the gross amounts prior to the deduction of allowance for possible loan losses.

JFC, as a policy, does not pay down loans in part or in full immediately after the execution of the loan
agreements, but instead makes disbursement, in accordance with the progress of the underlying projects.
These undisbursed amounts are not included in the loans on deed in the Balance Sheet. The balance of
unpaid amounts as of March 31, 2012 is ¥ 1,128,729 million.

Japan Finance Corporation
ACCOUNT FOR JBIC OPERATIONS

5. Assets pledged as collateral
Pursuant to Article 52 of the JFC Act, assets of JFC are pledged as general collateral for all bonds issued by
JFC (which include JBIC Operating Account bonds to a total amount ¥2,378,637 million.)

6. Accumulated depreciation of fixed assets
Accumulated depreciation of fixed assets amounted to ¥1,631 million.

7. Contingent liabilities
Contingent liabilities pertaining to debt assumption agreements for bonds payable are as follows.
6th FILP Agency Bonds (the former JBIC) ¥50,000 million
8th FILP Agency Bonds (the former JBIC) ¥60,000 million
15th FILP Agency Bonds (the former JBIC) ¥50,000 million
26th FILP Agency Bonds (the former JBIC) ¥50,000 million
28th FILP Agency Bonds (the former JBIC) ¥50,000 million
31st FILP Agency Bonds (the former JBIC) ¥20,000 million

8. Restriction in dividend distribution
JFC is restricted in its dividend distribution pursuant to Article 47 of the JFC Act*1. In the event that theamount of the retained earnings brought forward in the balance sheet exceeds zero in each account related tothe operations*2 listed in each Item of Article 41 hereof, JFC shall accumulate, as a reserve, the amountcalculated in accordance with the standards prescribed by a Cabinet Order to the extent that it reaches thecertain amount, and if there is still a surplus, JFC shall pay such surplus into the national treasury within 3months after closing date.
In the event that the amount of the retained earnings brought forward falls below zero in each account set
forth in the preceding paragraph, legal capital surplus and legal retained earnings shall be transferred toretained earnings brought forward to the extent that the amount of retained earnings brought forward
becomes zero.

*1 Including instances deemed applicable by the replacement of terms pursuant to the provisions of Article 22 (1) of the Act on
Special Measures Concerning Smooth Implementation of Realignment of United States Forces in Japan (Act No. 67; 2007)
and instances deemed applicable by the replacement of terms pursuant to the provisions of Article 17 of the Act on the
Promotion of Businesses to Develop and Manufacture Energy and Environmentally Friendly Products (Act No. 38; 2010).

*2 Including instances deemed applicable by the replacement of terms pursuant to the provisions of Article 17 of the Act on the
Promotion of Businesses to Develop and Manufacture Energy and Environmentally Friendly Products (Act No. 38; 2010)
and operations listed in Article 16 of the Act on Special Measures concerning Smooth Implementation of Realignment of
United States Forces in Japan [hereafter referred to as “operations listed under each section of Article 41 of the same law.”Japan Finance Corporation
ACCOUNT FOR JBIC OPERATIONS

9. The account title and the amount related to transactions with affiliates
Ordinary expenses - Other expenses - Other: ¥2,450 million

10. Other extraordinary losses
Other extraordinary losses of ¥4,592 million occurred in the account for JBIC Operations on August 4, 2011
in the form of cancellation fee paid for the agreed invalidation of the transfer agreement of the reserved floorarea with the Urban Renaissance Agency for Building A of the Otemachi 1-chome Second Area 1st Class
Urban Redevelopment Project (Chiyoda-ku, Tokyo).

11. Issued shares
For the fiscal year ended March 31, 2012, types and number of issued shares are as follows:(Unit: shares)
The number of stocks
Types

at the beginning of the
fiscal year

Commonstocks

1,091,000,000,000

Increase during the

Decrease during

The number of stocks at

fiscal year

the fiscal year

the end of the fiscal year

200,000,000,000—

1,291,000,000,000(Note) Increases is due to the issuance of 200,000,000,000 shares.

12. Financial instruments and related disclosure
1. Status of financial instruments(1) Initiatives for financial instruments
Based on the JFC Act, we are a governmental financial institution founded for the purpose of
supplementing the financing conducted by general financial institutions and contributing to thedevelopment of the Japanese and global economic society and the improvement of the lifestyle ofcitizens.
The budget required for governmental financial operations is decided on by the Diet of Japan, andbusiness plans and financial plans (funds through borrowing from the fiscal investment funds and loans,bonds, investments from the general account, and loans, etc.) are appended to the budget and submitted
to the Diet of Japan.
These operations are classified into Micro Business and Individual Operations, Agriculture, Forestry,
Fisheries and Food Business Operations, SME Loan Programs and Securitization Support Programs(Guarantee-type Operation), Securitization Support Programs (Purchase-type Operation), Credit
Insurance Programs, JBIC Operations, Financial Operations for Facilitating Realignment of UnitedStates Forces in Japan, Operations to Facilitate Crisis Responses, and Operations to Facilitate Specific
Business Promotion, etc. Accounts are made for each classification (“operation account”) for
accounting treatment.
The funds procured by JFC through borrowing from the fiscal investment funds and loans, bonds andJapan Finance Corporation
ACCOUNT FOR JBIC OPERATIONS

investments from the general account are managed separately by each operational account. In principle,
it is assumed that funds intended for one operation account will not be used for another operationaccount. Accordingly, ALM (asset and liability management) is conducted for the risks associated withfinancial assets and liabilities for each operation account. Note that financial instruments that can beused for the management of surplus funds are limited to extremely safe instruments such as Japanese
government bonds, etc., as stipulated by The JFC Act.
The purpose of the Account for JBIC Operations is to conduct the financing required for “Promoting
overseas development and acquisition of strategically important natural resources to Japan”,“Maintaining and improving the international competitiveness of Japanese industries”, “Promoting
overseas projects for conserving the global environment, such as mitigating global warming”, and“Taking appropriate measures with respect to disruptions to international financial order”. Principal
operations consist of export loans, import loans, investment financing, financing for businessdevelopment and capital investment (including guarantees expect for “capital investment”). To conduct
these operations funds are raised through borrowing from the fiscal investment funds and loans and theissuing of bonds. ALM (asset and liability management) is conducted for financial assets and liabilities
in this account that are subject to interest-rate and currency fluctuations to ensure that interest-rate andcurrency fluctuations do not have an adverse effect on these operations. Also, derivative transactions
are conducted for the purpose of mitigating risk inherent in foreign currency denominated transactions.
(2) Types of financial instruments and risks
The financial assets and liabilities owned by JFC are managed in separate operation accounts.
The assets in this account mainly include loans to borrowers in Japan and overseas, and securities, andliabilities mainly include borrowings and bonds. The associated risks are described below.
(a) Credit risk
Credit risk is the risk that the account will suffer losses if the financial condition of the borrower
deteriorates and the value of assets (including off-balance sheet assets) decrease or disappear.
The credit risks associated with this account include sovereign risk, country risk, corporate risk,
and project risk. Characteristic of support for overseas economic transactions conducted in thisaccount, much financing is conducted for overseas governments, governmental institutions, andoverseas corporations. Much of the credit risk associated with the credit provided typically consistsof sovereign or country risk.
As a result, if the financial condition of the individual borrower significantly deteriorates due topolitical and economic trends in the borrower’s country or region, the performance and financial
condition of these operations can be adversely affected.
(Note) Sovereign risk refers to risk associated with credit supplied to foreign governments, country risk refers to risk associatedwith the country in which the corporation or project is located (risk in addition to corporate risk or project risk associatedwith the country in which the corporation or the project is located), corporate risk refers to the risk associated with credit tocorporations, and project risk refers to the risk that the cash flow of an underlying project will not perform as planned in thecase of project finance where the repayment of the borrowing is primarily secured by the cash flow of the project to whichJapan Finance Corporation
ACCOUNT FOR JBIC OPERATIONS

credit is supplied.

(b) Market risk
Market risk is the risk that the value of assets and liabilities (including off-balance sheet assets) willfluctuate and losses will be suffered, or profits derived from assets and liabilities (including
off-balance sheet assets) will fluctuate and losses will be suffered due to the fluctuation of various
market risk factors such as interest rates, exchange rates, etc.
The market risk associated with this account mainly consists of exchange rate risk and interest
rate risk, and losses could be suffered from these risks from market fluctuations. However, inprinciple, these risks are mitigated through interest rate swaps, currency swaps, and forward
exchange transactions.
In this account hedge accounting is used for interest rate hedges, where the hedging instruments
are interest rate swaps to hedge the market fluctuation risk associated with loans, borrowed moneyand bonds. The effectiveness of the hedges is assessed by measuring and comparing the change infair value or cumulative change in cash flows of both hedging instruments and corresponding
hedged items from the date of inception of the hedges to the assessment date.
In this account hedge accounting is used for foreign exchange hedges, where currency swaps andforeign exchange forward contracts are used to hedge items such as loans, borrowings, and bondsfor exchange rate fluctuation risk. The effectiveness of the hedging currency-swaps and forward
contracts, hedging the foreign exchange risks of monetary assets and liabilities denominated inforeign currencies, is assessed by comparing the foreign currency position of the hedged monetary
assets and liabilities with that of the hedging instruments.
(c) Liquidity riskLong-term and stable funds, such as fiscal loan funds, government-backed bonds, and FILP agency
bonds, are secured to finance this account and deposits are not accepted, with the result that JFC
considers liquidity risk to be limited. However, financing costs could increase due to market
disturbances and unexpected events.
(3) Risk management structure for financial instruments
JFC has a Corporate Governance Committee established to properly conduct management in order tocomprehensively handle risks faced, including risks associated with financial instruments, to ensure thesustained and stable realization of the financing policies of the function.
For each type of risk, management policies and procedures have been created to handle the specifictypes of credit risks, market risks, and liquidity risks for financing associated with each operation, anda structure has been established to smoothly handle these tasks in each operation.
The risk management structure for these operations is described below.
(a) Credit risk management
The basis of credit risk management is centered on individual credit management based on thecreditworthiness of the borrower during the credit approval process.
When a new credit application is processed, the relevant finance departments (sales promotionJapan Finance Corporation
ACCOUNT FOR JBIC OPERATIONS

department) and credit departments collect and analyze information on the borrower. The overseas
representative offices also play a part in collecting information on foreign governments andcorporations. Credit appraisal takes place based on the information that has been gathered andanalyzed, with the different departments ensuring appropriate check throughout the process, leading
to the final decision by the management.
For lending to foreign governments and corporations, JFC makes most use of its position as apublic institution and exchanges views and information with governments and other authorities inrecipient countries, international institutions such as the IMF and the World Bank, other regional
development banks and official export credit agencies as well as private financial institutions in theindustrial countries. Using all these channels, JFC evaluates sovereign or country risk (in addition tocorporate risk and project risk associated with the country in which the corporation is located) basedon a broad range of information on government and government agency borrowers as well as
political and economic conditions in their countries.
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 based on the Financial Inspection Manual. 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.
In addition, a claims protection mechanism exists based on an international framework unique to
official creditors that is not contained in private sector financial institutions, for official claims on
foreign governments. This mechanism consists of international financial assistance uponinternational approval by the Paris Club, an international group focusing on debt, to allow the debtor
country to continue debt repayment when the debtor country becomes temporarily unable to service
its debt due to economic conditions. As part of this international financial assistance, the debtor
country conducts an economic reform program upon agreement with the IMF in order to secure theability to sustainably service its debt. In view of JFC’s position as a public financial institution, it
will use the framework of the Paris Club to preserve its official claims on foreign governments.
Besides the individual credit management outlined above, credit risks are quantified to assess theoverall risk of the portfolio in these operations. To quantify credit risks, it is important to take into
account the characteristic of the loan portfolio, that there are a significant proportion of long-termloans and loans involving sovereign risk or country risk. Also to be taken into account is themechanism of securing assets, such as the framework of international financial assistance to debtor
countries through the Paris Club, which is unique to official creditors. This account uses a uniquemodel to quantify the credit risk taking account of the above explained elements and measuresamount of credit risk, which are utilized for credit risk management.
(b) Market risk management
ALM is used to manage exchange rate risk and interest rate risk for these operations. Market risk
management protocols contain detailed stipulations of risk management methods and procedures,Japan Finance Corporation
ACCOUNT FOR JBIC OPERATIONS

which are used by the ALM Committee to assess and confirm the execution of ALM, and for
discussions concerning future responses. In addition, monitoring is conducted through gap analysis
and interest rate sensitivity analysis as well as Value at Risk (“VaR”) to comprehensively assess theinterest and terms of financial assets and liabilities. The results are regularly reported to the ALM
Committee.
The basic policy for managing exchange rate risk and interest rate risk in these operations is
described below.
(i) Exchange rate risk
Foreign currency-denominated loans conducted in these operations involve risks related to
exchange rate fluctuations.
We have a consistent policy of managing this risk by fully hedging this risk exposure throughthe use of currency swaps and forward foreign exchange transactions.
(ii) Interest rate risk
Interest rate risk arises from exposure to market interest rate fluctuations for yen-denominatedloan and foreign currency-denominated loan operations and the policy for managing interest raterisk is described below.
1 Yen-denominated loan operations
For the most part, funding for yen-denominated loans is managed at fixed-rate interest.
Currently, interest rate risk for yen-denominated loans is limited since maturity of loans and therelated funding arrangements are generally matched. In addition, swaps are used to hedge
interest rate risk for portions of loans that are thought to have high exposures to interest rate
fluctuation risk.
2 Foreign currency-denominated loan operations
For foreign currency-denominated loan operations, interest rate risk is hedged through theapplication of a consistent policy of using interest rate swaps and managing funds with floatinginterest rates for both loans and related funding arrangements.
(iii) Status of market risk
These operations only maintain a banking account and do not have financial instruments in a
trading account. While these operations are managed by hedging operation in principle, as statedpreviously, market risk, such as Value at Risk is measured in order to as certain fair value
assessment and risks inherent. The following represents the status of market risk in these
operations in the current fiscal year as calculated using Value at Risk (VaR).
(a) VaR status (Fiscal year ended March 31, 2012)(1) Interest rate VaR: 94.1 billions of yen(2) Exchange rate VaR: 54.0 billions of yen(b) VaR measurement model(1) Interest rate VaR: Historical model(2) Exchange rate VaR: Variance-covariance modelJapan Finance Corporation
ACCOUNT FOR JBIC OPERATIONS

Quantitative standards: 1 Confidence Interval: 99%; 2 Holding period: 1 year; 3
Observation period: 5 years(c) Risk management using VaR
VaR is a market risk measure that assesses the maximum possible profits or losses that could
be incurred due to market movements within a certain period of time (or holding period) anddegree of possibility (or confidence interval). These are derived statistically by employing
the theory of possibility distribution based on historical market movements of interest rates
or exchange rates, etc. over a specific period in the past (or observation period).

This measurement assumes actual market trends and the theory of probability distribution.
Based on the possibility that future market trends could deviate from these assumptions, aback-test is performed to cross-check the model-measured interest rate VaR with actual
profits or losses, in order to confirm the effectiveness of market risk measurements using
VaR. In addition, a stress test, which goes beyond the probability distribution of historicalmarket movements is conducted in order to capture risks from multifaceted perspectives.

The following bullet points represent general shortcomings of VaR models.
・Model-measured VaR may differ depending on the confidence interval, holding period, orobservation period.
・The VaR value represents the maximum fluctuation of a mark-to-market profit or loss at thetime of the measurement. This does not guarantee that the fluctuation will be within thelimit as predicted at some future point in time, since conditions precedent, such as market
trends, will vary during the time horizon.
・The VaR indicates the maximum value based on specific conditions precedent. As such, it isimperative to consider that model-measured VaR may underestimate the potential losses
when using VaR as a risk management indicator in practice.
(c) Liquidity risk management related to fund procurement
Long-term and stable funds such as fiscal loan funds, government-backed bonds, and FILP agency
bonds are used to finance these 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 properrisk management.
(d) Derivatives transactions
A protocol of internal checks with separate divisions executing transactions, assessing theeffectiveness of hedges, and conducting office management has been established for derivatives
transactions, and these transactions are conducted according to derivatives-related regulations.
(4) Supplementary explanation concerning fair value of financial instruments
The fair value of financial instruments includes amounts based on market value and amounts that haveJapan Finance Corporation
ACCOUNT FOR JBIC OPERATIONS

been reasonably estimated when no market value is available. Set valuation inputs are used for the
calculation of this amount, and if different valuation inputs are used the resulting amount could vary.

2. Fair value of financial instruments
The amount in the balance sheet at March 31, 2012, and the related fair value, and difference is as follows.
Note that financial instruments whose fair value is extremely difficult to determine are not included in thefollowing chart (refer to note 2).
(Millions of yen)Amount on
Balance Sheet

Fair value

Difference(1) Cash and due from banks

685,678685,678—(2) Receivables under resale agreements

602,725

602,725

—

3,795

3,795

—

7,992,700

8,069,429

76,728

Total assets

9,284,900

9,361,629

76,728(1) Borrowings

5,255,489

5,361,694

106,205(2) Bonds payable

2,378,637

2,472,265

93,628293,090

293,090—

7,927,216

8,127,049

199,833———

892,892

892,892—

892,892

892,892—(3) Securities
Available-for sale securities

8,110,356(4) Loans and bills discounted(117,656)

Allowance for loan losses*1(3) Collateral accepted for derivative transactions
Total liabilities
Derivative transactions*2

Derivative transactions not qualifying for hedge
accounting
Derivative transactions qualifying for hedge
accounting
Total derivative transactions(*1) General allowance for loan losses, specific allowance for loan losses and allowance for possible loan losses on specific overseas loan havebeen deducted from loans.
(*2) Derivative recorded in “other assets and other liabilities” are collectively displayed.
The net values of assets and liabilities arising from derivative transactions are displayed. The figures in parenthesis indicate net liabilities.

(Note 1) Valuation methodologies used for estimating fair values for financial instruments

Assets(1) Cash and due from banks
For due from banks that do not mature or have a maturity under 3 months, the carrying amount is used

Japan Finance Corporation
ACCOUNT FOR JBIC OPERATIONS

as fair value because fair value resembles the carrying amount.
(2) Receivables under resale agreements
For securities acquired under resale agreements, the carrying amount is used as fair value because
contractual terms of this item are short (i.e., within three months) and fair value resembles the carrying
amount.
(3) Securities
The fair value of “Available-for sale securities” is based on the price that is indicated from otherfinancial institution.
(4) Loans and bills discounted
For loans with variable interest rates an amount calculated by the floating rate note method to reflectmarket interest rates over the short term is used for fair value.
For loans with fixed interest, the total principal and interest is discounted by a risk free rate thatincorporates the default ratio and coverage ratio to calculate fair value. However for obligations onbankrupt borrowers, substantially bankrupt borrowers, and potentially bankrupt borrowers allowance
for loan losses is calculated based on the expected collectable amount from the collateral or guarantee.
Fair value approximates the amount on the balance sheet on the closing date after a deduction has been
made for allowance for loan losses, so this amount is used for fair value.

Liabilities(1) Borrowings
Borrowings with variable interest rates indicate that short-term market interest rates and the credit
conditions of JFC are not significantly altered by borrowings. Therefore, the carrying amount is usedas fair value because it is considered that the carrying amount approximates the fair value. For
borrowings with a fixed interest rate, in principle, fair value is calculated by discounting the principal
and interest of the borrowings by the risk free rate (the standard Japanese government bond rate) basedon the set period of loan.
(2) Bonds payable
Market value is used for fair value of bonds.
(3) Collateral accepted for derivative transactions
For Collateral accepted for derivative transactions, the carrying amount is used as fair value because
fair value resembles the carrying amount.

Derivative transactions
Derivative transactions consist of interest rate-related transactions (interest rate swap) and currency-relatedtransactions (currency swap and forward exchange contract). Calculation of fair value is based on the
discounted cash flow.

(Note 2) Financial instruments that are recognized to be extremely difficult to be determined fair value are as

Japan Finance Corporation
ACCOUNT FOR JBIC OPERATIONS

follows.
They are not included in “Assets, (3) Securities”, Fair value of financial instruments.
(Millions of yen)Classification
1) Unlisted stocks

Carrying amount on balance sheet(*1)

14,9582) Partnership investments(*2)

55,354

Total

70,312(*1) Since unlisted stocks do not have quoted market prices available and fair value is extremely difficult to be determined, fair values are notstated.
(*2) For partnership investments composed of unlisted stocks that do not have quoted market prices available and for which fair value is extremely
difficult to be determined fair values are not stated.

(Note 3) Redemption schedule for receivables and redeemable securities with future redemption dates(Millions of yen)Due from banks (*1)
Receivables underresale agreements

Maturities

Maturities

Maturities

Maturities

Maturities

after oneafter three

after fiveafter seven

Maturities

within one

year but

years but

years but

years butafter tenyear

within three

within five

within seven

within ten

years

years

years

years

years

685,678

—

—

—

—

—

602,725

—

—

—

—

—

—

2,921

878

—

—

—

1,030,849

2,170,354

1,640,783

1,055,416

1,224,854

885,1092,319,254

2,173,275

1,641,662

1,055,416

1,224,854

885,109

Securities (*2)
Available-for salesecurities
Loans and bills
discounted (*2)
Total(*1) Demand deposits contained within due from banks are stated as “Maturities within one year”.
(*2) Within loans and securities, claims against bankrupt borrowers, substantially bankrupt borrowers, and potentially bankrupt borrowers
contains an amount of ¥102,988 million that is not expected to be redeemed and not included in the table above.

(Note 4) Redemption schedule for bonds and borrowings with future redemption dates

Japan Finance Corporation
ACCOUNT FOR JBIC OPERATIONS(Millions of yen)
Maturities

Maturities

Maturities

Maturities

Maturities

after oneafter three

after fiveafter seven

Maturities

within one

year but

years but

years but

years butafter tenyear

within three

within five

within seven

within ten

years

years

years

years

years

Borrowings

337,924

2,049,013

1,976,179

852,533

39,840—Bonds payable

554,782

624,367

878,753

222,737

80,00020,000

Total

892,706

2,673,380

2,854,932

1,075,270

119,840

20,00013. Market value of securities
In addition to “Other securities” on the balance sheet, transferable deposits in “Due from banks” are also
included.
The market value of securities at March 31, 2012 is as follows:(a) Equity securities of or investment in subsidiaries and affiliates(Note) These are equity securities of, or investment in, subsidiaries and affiliates whose fair value isextremely difficult to be determined.
Carrying amount on the balance sheet(Millions of yen)
Equity securities of or investment in affiliates

50,248They have no quoted market price and their fair value is extremely difficult to be determined.

(b) Available-for-sale securities
Carrying amount on
Typethe balance sheet(Millions of yen)

Securities

whose

Difference(Millions of yen)

(Millions of yen)

213,800(4)

carrying

amount does not exceed theiracquisition cost

Acquisition cost

Others

213,795

Japan Finance Corporation
ACCOUNT FOR JBIC OPERATIONS(Note) Available-for-sale securities whose fair value is extremely difficult to be determined
Carrying amount on the balance sheet(Millions of yen)
Others14,958Unlisted foreign stocks
Unlisted Japanese securities

180

Unlisted foreign securities

4,926

These are not included in the above table of “Available-for-sale securities” because there are no quoted
market prices available and it is extremely difficult to determine the fair value of these securities.

14. Deferred tax accounting
JFC does not apply deferred tax accounting since JFC is a nontaxable entity classified in the Article 2 (5) of
the Corporation Tax Act (Act No. 34; 1965).

15. Retirement benefits
JFC has a defined benefit pension plan comprising of a welfare pension fund plan and a lump-sum severance
indemnity plan.
(a) The funded status of the pension plans
March 31, 2012 (Millions of yen)
Projected benefit obligations (A)Fair value of plan assets (B)Unfunded pension obligations (C)=(A)+(B)(17,310)
4,163(13,147)

Unrecognized prior service costs (D)73

Actuarial unrecognized difference (E)592

Net amount recognized on the balance sheet (F)=(C)+(D)+(E)Prepaid pension cost (G)Provision for retirement benefits (H)=(F)–(G)(12,481)—(12,481)(b) Component of pension cost
March 31, 2012 (Millions of yen)
Service cost

540

Interest cost

339

Expected return on plan assets(82)

Amortization of prior service cost accounted for as expense

8

Actuarial differences accounted for as expense

83

Other costs—

Net pensions cost

888

(Note) Employee contributions to pension funds have been deducted from the service cost.

Japan Finance Corporation
ACCOUNT FOR JBIC OPERATIONS(c) Principal assumptions
March 31, 2012
Discount rate

2.0%

Expected rate of return on plan assets

2.0%

Method of attributing the projected benefits to periods of services

Straight-line basis

Terms to amortize unrecognized prior service costs

10 years

Terms to amortize actuarial unrecognized differences

10 years

16. Profit and loss on equity method
Investment in affiliates¥50,248 million

Investment in affiliates (equity method)¥50,248 million

Profit or Loss of Investment in affiliates (equity method)None

17. Related party transaction
Related party transactions in the fiscal year ended March 31, 2012 are as follows:

Transactions with parent company and major shareholder companies(Millions of yen)
Ratio to
Corporate
name

Total

Relation

Votingwith related

Rightsparties

Transactions

Amounts oftransactions

Balance as
Items

of March
31, 2012(%)
Underwriting of
capital increase

200,000——(Note i)

Receipt of funds
Ministry(Note ii)

of431,423
5,255,489

Borrowings

Finance

Administration

Repayment offor policy based

borrowing

financing

Payment of100

Principal(Minister of

657,191(Direct)

shareholder
Finance)(Note i)Accruedinterest on

56,117

14,091
expensesborrowings
Guarantee forcorporate bonds

1,688,752——(Note iii)

(Note)(i) The underwriting of capital increase represents the increase in capital through shareholder allocation by JFC at an allocation amountJapan Finance Corporation
ACCOUNT FOR JBIC OPERATIONS

of ¥1 per share.
(ii) The receipts of funds represents borrowing under the FILP, and for this borrowing, the interest rates are applied under the FILP
agreement.
(iii) No guarantee fee has been paid for the guarantee of bonds.
(iv) Figures in the table above do not include consumption taxes.

18. Per share information
Net assets per share¥1.77

Net income per share¥0.04

19. Subsequent events
Based on the Japan Bank for International Cooperation Act (hereafter, the “New JBIC Act”), the Japan Bankfor International Cooperation (hereinafter “New JBIC”) was established on April 1, 2012. JFC’s JBIC
Operations and Financial Operations for Facilitating Realignment of United States Forces in Japan werehanded over to the New JBIC as of the same date.

JFC underwrote the shares of the New JBIC, and transferred these shares without compensation to thegovernment of Japan at the time the New JBIC was established on April 1, 2012. Effective the same day, in
accordance with the New JBIC Act, assets and liabilities that belong to JFC’s JBIC operations and Financial
Operations for Facilitating Realignment of United States Forces in Japan were succeeded by the New JBIC.
The amount of such assets and liabilities are determined by an evaluation committee pursuant to the New
JBIC Act. After the establishment of the New JBIC, profit and loss that belong to JFC’s JBIC Operations andFinancial Operations for Facilitating Realignment of United States Forces in Japan are no longer recognizedas profit and loss of JFC. The status of JFC’s Account for JBIC Operations and Financial Account Related to
the Financial Operations for Facilitating Realignment of United States Forces in Japan is founded in thefinancial statements and notes of each account.