Presentation to investors on fiscal year ended March 31, 2007

May 29, 2007
©2007 SURUGA bank, Ltd. All rights reserved.

Japan facing a monumental turning point:
Recognition of important trends in the midterm management plan
Blocked in with no exit in sight

7 major transitions in Japan⇒Japan at a monumental turning point
Economy which succeeded too
dramatically

１.

Country with a late start for
infrastructure development
Companies becoming insensitive
due to their success
Nation that does not desire change
Government that has put off developing
strategies
A Japan that cannot respond tochanges
Loss of affluent
life

Exhaustionof localregions

Destructionof theenvironment

Loss of theuniqueness

Necessity of a transitionin strategy

Island country isolated from the worldTransition from a priority on
2. production to a priority on life
3.

Disappearanceof uniquecultureTransition from a centralized structure
to a decentralized structure

4. Transition from a material economy to
an information economy
Transition from a policy of
5. development to a policy of recovery
Transition from the idea that authorities
6. are superiors to the idea thatsovereignty lies in the people

7.
Rarifying humanconnections

Transition from a society of
expansion to a society of shrinkage

Transition from global standards tounique culture
Source: Yoshio Tsukio©2007 SURUGA bank, Ltd. All rights reserved.

1

Financial industry standing at a new stage:
Recognition of important trends in the midterm management plan

“Ｓｐｅｃｉａｌｉｚｅｄ type finance” VS “all-in-one type finance”
Payment
Payment

DepositDepositMortgage
Mortgage
loans
loans

RetailRetail loans
loans

Securities/
Securities/
Insurance
Insurance
RealAll-inAll
in-one financeAll-in-one
finance

Megabanks (MUFG, SMBC, Mizuho)
Foreign capital entry (HSBC, etc.)“One stop shopping”
shopping” and“economy of scale”
scale”

Internet

VS

Cost andmarketsize?

Providing theinertia from which
Suruga createsdistinction andrealizes its ideas.

Community-based type“Specialized”
Specialized”
and “retailing”
retailing”

SpecializedSpecialized type
type
financefinance
Vertical and horizontal
integration by production
and retailing separationis possible in the future.

Securities/
Insurance companies

Local banks, cooperative banks, some distributor-affiliated banks
Specializing in services
Distributor-affiliatedbanks

SURUGA’s field(integration of space×different
industries×functions)

Specializing in services
Banks specializing in
the Internet

Specialized in service type
Banks specializing in the Internet
Achievement?

Investment typeNon-bank type
Consumer finance
Financial credit
companies

Real

Price
competition?

Investment type
Revision of the
Moneylending
Control Law?

Securities companies
on the Internet©2007 SURUGA bank, Ltd. All rights reserved.

Internet

2

Reorganization of the financial industry:

Recognition of important trends in the midterm management plan

Low -profit field

High-profit field

From indirect finance to direct finance

Investment banking
Lack of ability to compete with foreign banks

Small & middle sized banking
Low-profit due to fierce competition

Under- enhancement
Private banking

Individuals

Direction of financial industry

Companies

Wholesale banking

Lack of ability to compete with foreign banks

Under - enhancement
Retail banking
Competition at low
interest rate

The only field in which
Secure high profits
Japanese banks can survive

SURUGA’s
field

A rush on retail banking, the only way that Japanese banks can survive
However, Strategies separate them into low-profit and high-profit.
Conglomeratization of 3
major megabanks

Postal savings/
postal insurance(Gigabank)Merger and coalition of local
financial institutions

Full-scale entry fromdifferent industries©2007 SURUGA bank, Ltd. All rights reserved.

3

Business design
Major markets

5 core businesses

Direct bank
Active Nationwide

The greater
Tokyo areaThegreater
Osaka
area

The greater
Nagoya area

Kanagawa
area

Biggest market expected toincrease as a centerof society and economy.

↓
In a market with increasing
competition, market segments
and “high added value” strategies
are the key.

Expected to continue
growing in the futureThis is a growing area withthe characteristics of both a“city” and a “local region.”↓

Deployment of uniquestarategies in Yokohama,
Shonan, Keno, and Odawara

Complementary role foroffline business bases＋
Expansion of customer data basethrough alliance strategies

Shizuokaarea

Attractive as a mature market
An attractive market withhigh maturity located between
the greater Tokyo and
Chukyo areas.

↓

Facilitate “customer bonding”
and improve operational
effectiveness at the sametime for the further growth.

Effective assignment of management resources

The greater Tokyo,
Evolving into amore
Nagoya and Osaka area attractive market

Mortgage
Mortgage loans
loans

Free
Free loans
loans

CreditCredit cards
cards

WealthWealth management
management
supportsupport

Small-medium
Small-medium
enterpriseenterprise©2007 SURUGA bank, Ltd. All rights reserved.

4

Hierarchization of society:

Recognition of the society in evolving strategies in each segment
segment

Collapse
Collapse ofof traditional
traditional boundaries
boundaries
ofof middle
middle classclass

Formation
Formation ofof aa socialsocial hierarchyhierarchy

International competition

New noble classMarket rate of global wages
Business owners vs. Europe &United States
Labor force vs. China

・Businessowners・Investors

Merit &
performance system

Demographic changes

Change of tax system

Acceleration
Acceleration ofof rank
rank classification
classification

Increase of assets
Improvement ofinvestment environment

Wealthy class
Improvement ofability・Management
・Specialists
・Creative humanresources

New wealthy class
From the traditionalboundaries of middle
classtobipolarity or tripolarity

Expansion of gap
in assets

Increase of the elderly
population

Income throughinvestment

Investment in education

Middle class
Increase of
consumption
tax

・Workers
・Generalelderly people

Wageincreases

General class

Increase of medical
expenditures©2007 SURUGA bank, Ltd. All rights reserved.

5

CRM sophistication and diversification:
TopTop-down approach focusing on highhigh-end segments

Evolving
Evolving strategies
strategies throughthroughmultidimentional
multidimentional segments
segments
SURUGA’s ＣＲＭ＝ Information

Componentsof segment

Essential for marketingstrategies+ Accounting
Regionalityofresidence

Age
Job

Needs
Hobbies

Age/job

Top-down
Top-down approach
approach

Focusing on the segment the sameas on customers with high-profit
margins
Evolving strategies utilizing CRM segments
Overall impact is significant if high-profit
customer candidates actually become high-profit
customers.

etc.

(Example)

of
s
u
at e
St us

Regionality

Status of use

i

y
li t

Transaction
amount/Number of
products

Profitability

Segment ofserviceprovision

eg

a
on

Transaction amount/numberof productsR

Status ofuse(Example)

Strategic
segment by
area

Needs/hobbies

Segment for
product
development

Create dimension

segments by strategies(Example)

Purposeof useBy entering customers’ contact history into CRM to compile
information, it enables the creation of multidimentional customer
segments classified by purpose and leading to an increase in theability of business planning and proposal making.

Pr

of

b
i ta

il it

y

Transaction amount/number of
products

High-profit customers

High-profit customer
candidates
Profitable customers
Unprofitable customers
Non-active customers©2007 SURUGA bank, Ltd. All rights reserved.

6

Design for new business creation
Industries

New value creation bycollaboration withdifferent industries

Collaboration with different
industries/coalitions(Alliances/strategic partnerships)

Alliance
Collaboration withdifferent industries by
seeds

Collaboration withdifferent industries
by needs(Example: Active senior business/
nation-building based on tourism)

Technology(Seeds)(Example: Biobusiness/Nano-techno
business)

Society
Needs

Business
designFutureprediction☆Selection☆Selection ofof industry
industry
beyondtheboundary
beyond the boundary ofofindustries
industries☆Synergetic☆Synergetic effects
effects withwithcompanies
companies☆Business☆Businessmodel
model☆Business☆Businessfield/
field/
customercustomersegments
segments☆Social☆Socialneeds
needs☆Advanced☆Advancedtechnology/
technology/
services
services○The 21st century type business will be created by collaboration beyond the boundary of industries, and between
business and business.
○New social needs required by the society of the 21st century are realized by collaboration with several business entities(example: Active senior business)/Several business entities utilize new technology (seeds). (example: Bio-business) – It is
important to collaborate with different industries.
○In order to participate in the collaboration/coalition of different industries, outstanding ability in specialized fields is required.
©2007 SURUGA bank, Ltd. All rights reserved.

7

Internet branch– Expansion of collaboration with different industries
Customersegments

Approach to forefront company
customers(Provision of products andservices limited to members)

Deep cultivation of relationships
with customers

Possession of large
amount of customer ID High market shares in

Various points ofcustomer contact

Advertisement/
Distribution channels

Brand power

specific fields
Subject company forcollaboration withdifferent industries

Forefrontcompany

NTT DoCoMo, Inc.
Members: Approx. 44 million
Membership organization of
NTT DoCoMo, one of thelargest organizations in Japan

Sogo Security Services
Co., Ltd.
A major security company
Aggressively expanding in
the home security business

G. Plan Inc.
Members: Approx. 1.54 million
One of the largest point utilization
sites

NTT Communications
Corporation
Membership: Approx. 6 million
One of the largest internet
providers

Collaborationof values
utilizing strength

Financial OEM

SURUGAbank

Enablercompany

Established in
March, 2007
High ability in planningand proposal making

Established in
March, 2007
Unique productdevelopment

Internet banking branch
G point club

OCN branch

Scheduled to beestablished in summer,
2007

Scheduled to beestablished in fall, 2007

Speedy response
Flexible system design©2007 SURUGA bank, Ltd. All rights reserved.

8

Rapidly expanding electronic payment – noncontact IC
Increasing noncontact IC* For Suica, the number indicated in ( ) is the number corresponding to e-money* The number of Suica users equals the total of the number of issued cards＋number of mobile Suica*DCMX and DCMX mini indicate estimated figures by IT media(Source: NIR survey from declared figures by each company and reported figures by Nikkei)

Prepaid

Postpaid IC

Transportation type
Edy
Number of users(10 thousand)

Suica
2,052
(1,684)300

280

Number inuse

Number inuse

Number in
use

Time

2007.32007.42007.42007.32008.32008.32007.32007.1

2006.122006.122007.1

2007.1

Number of stores(10 thousand)

4.9

1.27

2

0.0226

1.1

2.3

1.5

7.4

7.4

7.4

0.45

3

Time

2007.2

2007.42007.32007.32007.6

2008.32007.32007.42007.42007.42007.32007.3

Maximum limit(¥)

50,00020,00020,00020,00020,000300,000

Set individually

200,000～

10,000Set individually

20,000

1,000(plan)
Issuednumberwaon
800(plan)
IssuednumberLess than¥30,000

60
Number ofmembers

DCMX
173

Number ofmembers

14
Number ofmembers

VisaTouch

121
Number ofmembers10
Number ofmembers

100
Number ofmembers（billion yen)

Noncontact
Noncontact IC
IC payment
payment market
market predictions
predictions

2,500

1,0,93.8

Noncontact IC credit
Noncontact IC e-money

2,000

942.8
732.3

1,500

220.9

500

4.0
77.1
2005

33.2
148.9

468.5

2006

2007

821.1
2008

1,182.4

England/FranceChina/Taiwan/
Korea/Malaysia

U.S.A.

1,093.8
1,736.8

4,97.0

1,000

0

iD

Noncontact
Noncontact IC
IC cardcard systemsystem inin thethe world
world

Electronic
Electronic payment
payment market
market utilizing
utilizing noncontact
noncontact IC
IC
3,000

Pitapa

Quick
Pay

ICOCA

Total ID
numbers

nanaco

DCMX
mini

Pasmo

2,600

Definition

Retail type

1,488.8

1,736.8

・・・Felica
Japan/Hong Kong/
Singapore

2009

2010

・・・Type A/B

2011(Source: Nomura Research Institute, Ltd.)©2007 SURUGA bank, Ltd. All rights reserved.

9Ｉｎｔｅｒｎａｔｉｏｎａｌ ｍｏｎｅｙ “VISA Debit Card”
Strategy
Strategy forfor affiliatedaffiliated credit
credit card
card utilizing
utilizing international
international VISA
VISA
payment
payment infrastructure
infrastructure

Ultimate payment solution forproblems with current payment options

IssuedIssued anan international
international debit
debit card
card inincollaboration
with
major
travelagencies
collaboration with major travel agencies“Provision of new value to individuals traveling overseas”
March, 2007

H.I.S. Co., Ltd.

Currency exchange
function＋

June, 2007

Unlimited use
due to use within
the range of
positive accountbalance.

○Students aged 15 or older on school trips or
studying abroad for an extended period.
○Individuals stationed abroad.
○Seniors who do not wish to use a credit card
etc.

“VISA
“VISA TOUCH”
TOUCH” -- aa mobile
mobile phone
phone noncontact
noncontact payment
payment service
service
Provision of
payment options
utilizing mobile
phones for dailyliving

Chargevia ATM and Website
Deposit / Transfer
No need to worry
about overusebecause, unlike credit
cards, this does not
involve borrowing(including postpaid emoney).

KNT Co., Ltd.

Shopping
function

Nontraditionaltargetsegments

Awards a wide
variety of charge
points that prepaid
type e-money does
not provide

Adopting
Adoptingthe
theinfrastructure
infrastructure
of
VISA,
an
of VISA, aninternational
international
brand,
brand, which
which
Corresponds
Correspondsto
todomestic
domestic
noncontact
ICnoncontact ICelectronic
electronic
payment
payment

Real
Realtimetime payment
payment

Use

Domestic

Overseas“Shopping” at VISA affiliated stores
Available not only at stores in Japan, but also at
approx. 24 million stores around the world.

“ATM” for local currency withdrawal
Available for the withdrawal local currency
at both foreign and domestic ATMs

©2007 SURUGA bank, Ltd. All rights reserved.

10

What is the subprime mortgage loan in the U.S.A.?
Definition
Definition ofof thethe subprime
subprime segment
segment inin U.S.A.
U.S.A.
There is no uniform definition; however, according to the authorities,
it is a mortgage loan for individuals to which 1 or more of thefollowing conditions apply.

○○Individuals
Individualsconvictedconvictedof
ofwrong-doing
wrong-doingby
byaacourt
courtofoflaw,
law,whowhohavehave
sufferedsufferedthe
theseizure
seizureof
ofmortgaged
mortgagedproperty,
property,experienced
experiencedforfeiture
forfeitureofofmortgagemortgageor
orthe
thewrite-off
write-offof
ofaanonperforming
nonperformingloan
loanwithin
withinthe
thepastpast2424months.
months.
○○Individuals
Individualswho
whowerewereininbankruptcy
bankruptcywithin
withinthe
thepastpast55years.
years.

U.S.A.

Japan

一般的な銀行の住宅ローン
顧客層
General bankmortgage loancustomer segments

Primemortgage loan○
○Individuals
Individualswhose
whoseloans
loansarearedeemed
deemedaarelatively
relativelyhighhighriskriskofofbecoming
becoming
irrecoverable.
For
example,aFICO
credit
score
of
660
or
below*.
irrecoverable. For example, a FICO credit score of 660 or below*.

SURUGA mortgage loancustomer segments○○Individuals
Individualswho
whohavehavefailed
failedto
topay
pay22times
timesorormoremoreininaagiven
given30-day
30-dayperiod
periodininthepast
12months,
or
1
time
or
more
in
a
given
60-dayperiodinthe past 12 months, or 1 time or more in a given 60-day period inthe
thepastpast
24
24months.
months.

Comparison
Comparison ofof mortgage
mortgage loan
loan customer
customer segments
segments
betweenJapan
andU.S.A.
(conceptual
diagram)between Japan and U.S.A. (conceptual diagram)customer segments○○Individuals
Individualswho
whohavehave50%50%orormoremoredebt-service
debt-serviceratio,
ratio,or
orwho
whohavehaveaalimitedability
to
live
on
their
incomeafter
deductingdebt
servicepayments.
limited ability to live on their income after deducting debt service payments.
*Generally, individuals with an FICO score of 620 points or below are
often
categorized as subprime.
What is FICO?
Registered trademark of Fair Isaac
Corporation, and the customer credit
rating system that FICO developed.

Source: OCC (Office of the Comptroller of theCurrency), FRB (Federal Reserve Board), FDIC
(Federal Deposit Insurance Corporation), OTS(Office of Thrift Supervision) “Expanded
Guidance for Subprime Lending Programs”“Segments that cannot be borrowers” in
the Japanese mortgage loan market

Subprime
mortgage loancustomersegments
Segments
not utilizing
subprime
mortgage loan

Segments not
utilizing
mortgage loan

©2007 SURUGA bank, Ltd. All rights reserved.

11

Vulnerability of subprime mortgage loan in U.S.A.
Subprime
Subprime mortgage
mortgage loan
loan problems
problems
If land value falls off…
off…
Outstanding balance ofborrowed funds exceed
asset value, and it causes
worry about debt
collection…

Excessive easing of lending standards by lenders
Appreciationof land value

Merchantability

・Mortgage loan without consistent plan from initial lending to final repayment.
・Reducing interest payment burden at the time of initial lending.

Sales attitude

・Sales for the purpose of collecting commission charges(promoting refinancing, etc.)
・Ignoring the risks of mortgage brokers

Fierce competition
Screening・Utilizing the automated screening system that extremely simplifies proper
procedures. For example, the 12 second screening by New Century.
・Screening based on the credit scores only.

Unreasonable
Unreasonable merchantability
merchantability ofof
subprime
mortgagesubprime mortgage loans
loans inin thethe U.S.A.
U.S.A.
State-income
State-income loan
loan

2/28
2/28 loan
loan

Minimum
Minimum payment
payment loan
loan

○ A loan with low interest (1-2%) for○ A loan not requiring any certification and○ A loan requiring extremely small payments.

income is self-assessed.

Example)Interest-Only・・・For the first few years, only the○ There are 2 types of loans: one requires
certification regarding assets, and the other loan
does not require certification and assets can be
self-assessed.

○ Interest and commission charges are high.

interest will be repaid.
Negative amortization・・・ For the first few years,
the amount of repayment will be less than theinterest.(If the land value appreciates before
increasing principal reaches the upper limit,
refinance.)

the first 2 years, and higher interest(around 10%) for 28 years thereafter.
(on the premise of improved credit scorewithin 2 years and refinancing.)○ There similar loans: 3/27 loan, 5/25 loan.

©2007 SURUGA bank, Ltd. All rights reserved.

12

Future of the loan market“Small“Small loans”
loans” will
will bebe offeredoffered mainly
mainly throughthrough banks
banks
from
from now.
now.

Circumstances of nonbanks
Business model of nonbank with an interest rate of more than 20%

Interest＝high risk × (cost of credit)＝high cost ○ (prevention of customer withdrawal/

High

Currently existing
markets predicted tohave movement fromnow.

cost of acquiring new customers)

Retail finance
Under the circumstances of interest rate upper limit reduction,

Credit card
Cashing loan

existing business model with high costs cannot survive.

Circumstances of general banks

Installment sales

It is impossible to provide loans without retail loan

20％

～
～
10％

(retail finance,credit) know-how, actual achievements, andnonbank guarantees by most of the banks.

Credit card
Revolving loan

Home equity loan

Banks become leading
character in retail loans
as they are in Europe
and the United States.

In order for banks to take control of retail loans
as in Europe and the United States
Radical banks that establish a business model at aninterim interest rate of between that of existing banks(less than 10%) and nonbank (20% or more) can takecontrol of retail loans.

Purpose type loan
・・・Secured5％

Mortgage loan

(Conditions)・・・Unsecured

Low・ Accumulation of long-term business expansion
experience at the interim interest rate.

・ Establishment of a low-cost structure with highBanks

Cards/sales credit

Consumer financeBusinesstype

customer retention.

©2007 SURUGA bank, Ltd. All rights reserved.

13

Sophistication of loan market and risk analysis
TargetBusinessmen－Businessman at major companies－Diligent businessman(with 20% of private fund)

Product

Traditional typeready-madeproducts

Foreigner
Careersnationals－ＩＴ engineers－Consultants

Licensed
DINKS Business
SelfSelfSingles owners employmentspecialists－Double-income, no kids
(young couples)－Single elite businessman－ＩＴventure owners－Artistic company owners－Restaurant owners－Agriculture, forestry and fisheries workers－Craftsman (ceramics, traditional crafts)－Workers engaged in culture, health,or beautification－Doctors, lawyers, certified
accountants, etc.
(acquirers of expensive articles)

SURUGA type customized products

Women－City type work style－Regional type work style

Risk analysis and customized model input by highly detailed customer segment

Minor division

Medium division
59 groups

Major division

12 groups－Businessman at major companies(without 20% of private fund)－Temporary employees－Sophisticated woman at mid &small size companies<<SURUGA’s model>>513 groups[An example]
Services
related tosocialcontributions

Broadcast journalism communication

Newspaper companies, Wire services, Mobile phone, Broadcasting, etc.

Temporary worker dispatch service

Marriage counselors, Nursing care service, Job placement service, etc.

Information survey reports

Ad agencies, Think tanks, Information handling services, etc.

Photography, designing, decoration

Illustrators, Copy writers, Designing, etc.

Specialized services/consultants

Certified public accountants, Lawyers, EP, Management consultants, etc.

Data accumulation in credit system[Examples of loan product models]
1. Classical model
2. Wide model
3. Premium model
4. Self-employment model
5. Business owner model
6. Lady’s model
7. Senior model
8. Doctor’s model

Credit screening
Pricing
Risk control
Marketing・・・based on data

©2007 SURUGA bank, Ltd. All rights reserved.

14

Financial services blended into lifestyle
and Co-creative financial services
Ordinary citizens and financial service providers will
cooperate to create services that are suitable to andsatisfy various needs of individual customers.

Banking 2.0

Co-creative
financial services

Dream
Dream index
index
Tokyo
Tokyo Midtown
Midtown

Next generationbankingHow
good content isachieved

ResortResort Planning
Planningtoto support
supportcustomers
customers retirement
retirement life
life
Salon
Salon dede Concierge
Concierge
forfor better
better communication
communication

Financial services and distribution channels are
blended into the lives of our customers so
seamlessly that they use the financial services
without knowing of it.

Financial services
blended into lifestyle

How lifestyleinfrastructureis achieved

Achieving both at the same time

Establishment of financial model
2010

Entering into an age ofcompetition at the market
by entry of generalbusiness companies

Products
Products fromfrom alliancealliancecompanies
companiesinin various
various industries
industries

New
New settlement
settlement options
options
VISA
VISA Debit
Debit Card
Card
Integration
Integration withwith
distribution
distribution networks
networks
ATMs
ATMs atatconvenience
convenience storesstoresProviding
Providing products
productsforfor eacheach segment
segment

Net
Net branches
branchesforfor eacheach segment
segment

Relationship
Relationshipmanagement
management
byby CRM
CRM

Banking 1.0
Traditional banking

Internet
Internet anytime,anytime,anywhere
anywhere(mobile(mobile banking)banking)©2007 SURUGA bank, Ltd. All rights reserved.

15

“bank 2.0” and “d-labo”
SURUGA’s evolutionary base for activity
with its corporate philosophy,
Helping to give shape and a timeframe
to customers’ dreams.

concept
Who likes dealing with banks? Sadly, not many. While banks handle
one of the most precious aspects of their customers’ lives, they often
leave them feeling dissatisfied with the service they receive. Banks too
often see their customers merely as a part of the product, treating them

Linking finance, a tool, withdreams (purposes).

with a distant and overly official attitude, keeping them waiting too longfor service, and setting business hours at their convenience rather than

Expansion as a Dream Index
on the basis of dreams andFuture, not money.

the customer’s. “d-labo” is different, so different that it is probably theworld’s first banking office that customers enjoy visiting even when it’s
not necessary, a banking office that communicates freely withcustomers via money. “d-labo” is a space filled with lifestyle tips, andChanging banks into places where
people enjoy spending time withno special reason, throwing off thecurrent image of banks.

advice about what you can realize by making the best use of money.
It’s an environment that makes you realize that spending time at thisbank is being ambitious for your future. SURUGA’s d-labo declaresthat “dream” is a word that will grow from the year 2007.

“d-labo” input is dreams, and the output is the effective utilization of money. In the greater
Tokyo area, “d-labo” strives to create a network on a different level utilizing virtual and real
properties through mutual communication that megabanks do not provide.

©2007 SURUGA bank, Ltd. All rights reserved.

16

Business expansion to Osaka/Nagoya
Expansion
Expansion ofof new
new areas
areas forfor thethe mortgage
mortgage loan
loan businessbusiness
1999
YokohamaKawasakiEasternTokyo(North)WesternTokyo

Expansion into thegreater
Yokohama
Yokohama Nihonbashi
Nihonbashi Shinjuku
Shinjuku
Tokyo area

Saitama

Chiba(South)Western
Tokyo

Omiya
Omiya

Kashiwa
Kashiwa

ShibuyaShibuyaCentralTokyo

Roppongi
Roppongi

Expansion into
Osaka/Nagoya
Osaka
Osaka

NagoyaNagoyaMortgage loan market size

SURUGA’s
SURUGA’s strength
strength

3 major metropolitan
areas account forslightly less than 60% of
the entire nation

Considering the market in the greater Tokyo
area as 100,
= the market in the Chukyo area is appox. 30= the market in the Kinki area is approx. 50

A wide range of
unique products

Population

×
Ability to make“One to One” proposal

Expansion
Expansion

Osaka

May, 2007～

NagoyaThe greater
Tokyo area
(existing business
area)

Number ofhouseholds

Number of new privately –owned housing units started

77,427

Saitama

7,053,689

2,647,746

Chiba

6,056,159

2,324,169

71,912

Tokyo

12,570,904

5,879,579

180,712

Kanawaga

8,790,900

3,590,241

101,149

The greater Tokyo Area

34,471,652

14,441,735

431,200

Gifu

2,107,293

713,276

16,750Aichi

7,254,432

2,756,200

86,865Mie

1,867,166

675,025

19,978The greater Nagoya Area

11,228,891

4,144,501

123,593

Shiga

1,380,343

478,915

15,972Kyoto

2,647,523

1,078,282

25,868Osaka

8,817,010

3,650,247

96,762

Hyogo

5,590,381

2,145,760

52,152

Nara

1,421,367

502,930

10,619Wakayama

1,036,061

384,734

6,653

The greater Osaka Area

20,892,685

8,240,868

208,026*Source: Census 2005, Statistics on Building Construction Started 2006

©2007 SURUGA bank, Ltd. All rights reserved.

17

SURUGA’s business direction
SURUGA’s business model is to focus attention on customer segmentsthat are not satisfied with the existing banks.

Customer
CustomertargettargetProfitProfitstructure
structure

Business
Business
operation
operation

ＮＥＷ

ＯＬＤ

SURUGA’SURUGA’s business model

Common characteristics
among existing banks

TargetTarget customer
customer segments
segments thatthat areare not
notsatisfiedsatisfied with
with thethe existing
existingbanks
banks..

ProvideProvide half-hearted
half-hearted values
values totoomnidirectional
omnidirectional customer
customer targets.
targets.

Based on the concept of financial services blended into
lifestyle/co-creative financial services, expand the area of
SURUGA’s specialty, where prospective customers’ needs
are not met by the existing financial institutions,consequently preventing prices from collapsing.

DepositDeposit andand loanloan priceprice collapse
collapse caused
caused byby
doing
doing what
what others
others do
do andand thethe fierce
fiercecompetitioncompetition thatthat follows.
follows.

Providing new services for the credit cardbusiness that will be a pillar of profit
without being attached to a specific Monthly
debit.

Existing
Existing type
type credit
credit card/card
card/card loan
loan provision
provisionthatinrealitydepends
solelyon
lessthat in reality depends solely on lessprofitableprofitable mortgage
mortgage loans
loans

Implement
Implement an
an openopenbusinessbusiness model
modelinincooperating
cooperatingwith
with other
other companies.
companies.

Ineffective
Ineffective businessbusiness operations
operations caused
caused bybyattempts
attempts toto complete
complete all
all operations
operations internally.
internally.

Providing
Providing thethe most
most appropriate
appropriate channel
channelforfor
each
each customer
customer target
targetoror productproduct provided.
provided.

Parallel
Parallel sales
sales ofof various
various operations
operations prevents
preventsany
any ofof themthem fromfrom being
being completely
completely achieved.
achieved.

©2007 SURUGA bank, Ltd. All rights reserved.

18

Change of yield/loan deposit margin(overall)
Yield on outstanding loans
Loan-deposit margin (Yield on outstanding loans - Yield on deposit)
Yield on deposit

3.60%

0.40%

3.50%

3.32

3.25

3.10%

3.29

3.32

3.29

【７/１４】
１４】

Lifting ofquantitativeeasing policy

Lifting ofzero interest
rate

3.31

3.29

0.19

Anotherrate rise

0.13

0.06

0.15%
２.３７５％

２.１２５％
Short-term prime rate

１.８７５％【７/１８】
１８】

０.１％

06/3

0.20%

0.10%

【８/２８】
２８】

2.90%
０.００１％
05/12

0.25%

【３/２６】
２６】

0.08
0.06

0.35%
0.30%

0.17【２/２１】
２１】

【３/９】

3.00%

2.80%

3.46

3.35

3.30%
3.20%

3.42

3.40

3.40%

3.51

06/6

【２/２６】
２６】

０.２％

Interest on ordinary depositｓ

06/9

06/12

0.05%
0.00%

07/3

©2007 SURUGA bank, Ltd. All rights reserved.

19

Yield／Margins (Domestic)
Loan-deposit
Loan-deposit margin
marginNet
Net interest
interest margin
marginYield on outstanding loans

SURUGAAll Regional Banks

Yield on funds managed
Cost of funds

SURUGAAll Regional Banks

Expense ratio
Yield on deposits

2.60

3.35
3.24
3.17

2.32

2.20

2.22

1.48

1.41

2.41

3.19

3.11

1.66

1.77

1.88

1.84

1.36
1.32

0.81
0.08

03/3

1.35
1.30

0 .8 50. 0 704/3

1.86

0 .8 41.31

0 . 050 . 04

05/3

06/3

03/3
07/3

0 .4 6

0 .4 5

0 .7 01 .1 1

0 .8 1

0 .7 2（０６／９）

1.36
1 .0 40 .9 50.13

0 .7 5

1.37

1.49

04/3

（０６／９）

0 .4 505/3

0 .4 3

06/3©2007 SURUGA bank, Ltd. All rights reserved.

0 .4 207/3

20

Gross Operating and Yen loan-deposit income
Gross
Gross operating
operating income
incomeYen
Yen loan-deposit
loan-deposit income
income（billion yen）

（billion yen）

Income from mortgage loan sales
Other operating income (except income from mortgage loan sales)
Net fees and commissions
Net interest income

７３.１
６８.２
５８.５
2.6
58.1

3.5

1.6
2.5
60.4

６８.０
0.7
3.3
63.9

0.8
5.0
67.2

７６.９
1.0
5.5

64.7

70.3

61.9
58.8
56.1
53.2

-2.2
03/3

04/3

05/3

06/3

07/3

03/3

04/3

05/3

06/3

07/3

©2007 SURUGA bank, Ltd. All rights reserved.

21

Core Net Operating and Net Income
CoreCore NetNet Operating
Operating Income
IncomeNet
Net Income
Income（billion yen）

～Record income highs 4 years consecutive～～

38.2（billion yen）

～Record income highs ３years consecutive～
～

20.0

■ROE

35.9

30.2

14.3

31.3

13.37%
10.4
8.7

24.2

7.4

10.37%
8.12%
7.26%

6.44%
03/3

04/3

05/3

06/3

03/3

07/3

04/3

05/3

06/3

07/3

©2007 SURUGA bank, Ltd. All rights reserved.

22

Strong Focus on RetailNew
New loansloansConsumer
Consumer loan
loan balancebalance andand ratio
ratio（billion yen）

Personal loans
Mortgage loans
Consumer loan ratio

1,668.6

New consumer loans second half
New consumer loans first half

235.3

1,299.5
172.1

1,377.8

169.0

196.4

169.8
.5
+ 99
.8
+ 94

..22
++77881,375.8

1,207.9

213.9

221.7
.3
+ 96

241.8

228.2

1,572.2
1,472.7（billion yen）

117.0

220.4

124.2

116.4
113.2

112.4

1,446.9

1,303.6
74.2%

1,127.4

72.0%
69.1%

118.3

111.7

03/3

04/3

66.4%

100.7

107.9

05/3

06/3

117.5

63.8%

03/3

04/3

05/3

06/3

07/3

07/3

©2007 SURUGA bank, Ltd. All rights reserved.

23

Focus on More Profitable Products
Consumer
Consumer loans
loans

Personal
Personal loans
loansSuper home loan

783.4（3.6%）

As
As of
of MarMar 31
31 ,, 2007
2007
Units
Units :: billion
billion yen
yen(averagerate)(average rate)

Personal loans

221.7(7.8%)

100%=221.7 billion yen(7.8%)
Securedpersonal loans

Unsecuredcard loans

69.1 (13.4%)

147.8 （5.1%）

Unsecured loans
on deed4.6 (6.9%)

Mortgage loans

663.5 (3.2%)

100%=１,６６８.６ billion yen (4.0%)

Unsecured loans on deed
Unsecured card loans
Secured personal loans

4.6
5.9

10.6

7.4

48.0

53.2

111.3

108.4

128.0

04/3

05/3

06/3

（billion yen）

69.1

62.5

147.8

07/3

©2007 SURUGA bank, Ltd. All rights reserved.

24Mortgage LoansNewNew Mortgages
Mortgages by
bygeographicalgeographical area
area
Greater Tokyo area
ShizuokaMortgage
Mortgage loan
loan balancebalance by
bygeographicalgeographical area
area
（％）

Kanagawa（％）
Greater Tokyo area

Other

Shizuoka

17.0
46 .6

5 4.4

5 8.2

60.0

62.0

24.2

Kanagawa

Other

29.7

34.0

38.7

33.9
32.4

30.1

28.3

26.4

22 .3
2 0.7

30 .6

1 7.7

16.6

15.5

44.9

40.5

37.7

35.4

32.9

2 4.8

2 2.9

22.0

20.3

0.5

0 .1

1.2

1.4

2.2

4.2

2.9

2.5

2.3

2.0

03/3

04/3

05/3

06/3

07/3

03/3

04/3

05/3

06/3

07/3

©2007 SURUGA bank, Ltd. All rights reserved.

25

Mortgage Loans ／The capital purpose of spending money
StatusStatus ofof secured
secured loans
loans
bypurposeby purpose

Distribution
Distribution ofof practicalpractical rates
rates forfor
mortgageloans(cumulative)
mortgage loans (cumulative)
5.0% or higher
4.5% to under 5.0%
4.0% to under 4.5%
3.5% to under 4.0%
3.0% to under 3.5%
2.5% to under 3.0%
2.0% to under 2.5%
Under 2.0%

0.3
4.2
10.6

（％）

(based on the actual number of cases)

0.4
4.2
12.3

0.4
4.2
14.9

0.3
4.4
16.6

0.4
4.5
19.3

Detached house

12.9

58.6% 14.9
22.8

23.0

22.5

1.8

22.5
21.3
14.1

32.1

14.0

30.0

13.3

12.7

12.0

28.0

26.3

25.4

29.3

41.1

15.4

14.7

13.6

0.3

16.3
0.3

1.1

2.0

2.3

03/3

04/3

05/3

06/3

17.1

07/3

（％）

(based on the actual number of cases)

03/3

Apartments

Resort property

10.2

10.3

11.3

13.8

15.0

13.0

2.4

2.5

10.7
2.7

8.7
3.6

24.0

23.9

47.0

50.2

51.4

04/3

05/3

06/3

25.4

Assumption©2007 SURUGA bank, Ltd. All rights reserved.

Other

29.5

44.4

07/3

26

Delinquency and
Loss Rates on Consumer Loans
Mortgage
Mortgage Loans
Loans

Personal
Personal loans
loans▲ Yield
Delinquency rate
Loss rate▲ Yield
Delinquency rate
Loss rate

7.49%

7.08%

7.88%

7.81%

0.81%

0.78%

7.81%

3.48%
2.98%

3.05%

3.09% 3.12%
0.72%

0.43%
0.27%

0.29%

0.76%

0.58%

0.32%

0.58%

0.27%

0.54%

0.60%

0.35%

0.08%
03/3

0.17%
04/3

0.19% 0.21%
05/3

06/3

0.35%

0.20%
07/3

03/3

Delinquency rate = amount 3 months or more overdue /remaining average amount of loan

04/3

05/3

06/3

07/3

Loss rate = default ratio ×(1 - recovery rate)©2007 SURUGA bank, Ltd. All rights reserved.

27

Fees income
Commission
Commission fromfrom mutual
mutual funds
funds
and
and insurance
insurance products
products

Balance
Balance breakdown
breakdown ofofinvestment
investment products
products（million yen）

（billion yen）

Personal pension funds
Mutual funds
JGBs in custody
Foreign currency deposits
Single premium life insurance■ Ratio of investment products

299.2
1 3 .1 %Fee for Personal pension
Fee for Fire insurance
Sales commission for Mutual funds
Fee for Mutual funds
Fee forSingle premium life insurance

3,446
3,011
1,215

Balance of investment products
Balance of personal assets under management

219.9(Including personal deposits)

110.9

1,361
2,055

1 0 .1 %6 .7 %
4 .3 %
2 .7 %

84.5
50.8

11.2
24.4
12.0
3.1
03/3

33.3

88.4

140.4

1,460

135.3

61.5
86.7

25.1
7.1

04/3

05/3

40.1
4.5
0.09
06/3

1,028

46.6
3.8
2.5

07/3

364

1,190

889

394

46.5

30.2
15.2
5.7

214
278

1,195

902
258
380

197
73

296
162
112

03/3

04/3

737

225

463
5

83

05/3

06/3

07/3

©2007 SURUGA bank, Ltd. All rights reserved.

28

Direct Banking (As of Mar 31,2007)
DirectDirect banking
banking accounts
accounts

Performance
Performance ofof netnet branches
branches

Ordinarybranches 36.8%

Softbank
branch 27.2%

100%=687,628accounts

Balance of loans anddeposits

Other net
branches 9.4%

214.8
218.8

Dream Direct
branch 13.0%

190.7
163.7

134.5
137.7
110.8

Direct One
branch 13.6%

TimeTime deposit
deposit with
with lottery
lottery

264.9
249.2

168.5

2006/3 605,763accounts
605,763accounts（billion yen）

De po sits
Lo an s0 3/ 30 4 /305/3

06 / 3

0 7/ 3（billion yen）

217.2
203.4

Ordinary Profit（billion yen）

4 .6

（Managed accounting basis）
4 .0

178.6
3 .2
2 .6

142.7

2 .7

114.4
03/3

04/3

05 /3

06/3

07/3

0 3/ 3

0 4/ 3

0 5/ 3

06/ 3

07/ 3

©2007 SURUGA bank, Ltd. All rights reserved.

29

Breakdown of Problem Assets based on
the Financial Rehabilitation Law
Debtorclassification

Claims against
bankrupt andsubstantiallybankrupt
obligors

Claims withcollection
riskClaims for
specialattention

Sub-total

NormalassetsTotal

Mar 07
Credit Proportion
balance

12.9

39.7

37.0

89.7

Consumer/
Corporate
Consumer

6.7

0.40%

4.0

3.0

1.0 59.88%

2.7 100.00% 100.00%

Corporate

6.1

1.03%

5.5

4.0

1.4 89.40%

0.6 100.00% 100.00%

Consumer

5.6

0.34%

3.2

2.2

1.0 57.59%

1.7 74.29% 89.10%

Corporate

34.0

5.69%

20.8

11.1

9.6 61.14%

12.1 91.94% 96.87%

Consumer

7.9

0.47%

5.5

4.9

0.5 69.68%

0.5 21.19% 76.11%

Corporate

29.0

4.86%

13.8

13.7

0.06 47.66%

6.2 41.08% 69.16%

Consumer

20.4

1.22%

12.8

10.2

2.6 63.07%

5.0 66.60% 87.66%

Corporate

69.2

11.59%

40.1

29.0

11.1 58.00%

19.0 65.52% 85.52%

Consumer 1,650.3

98.77%

0.57%

1.75%

1.63%

3.95%

2,178.4 96.04%

Corporate

2,268.1 100.00%（billion yen）
Total
Total
collateral
Guarantees Coverage
Reserved
Proportion
CollateralReservecoverage
and
＊NOTE
ratio
ratio
ratio
guarantees

528.1 88.40%

Consumer 1,670.7
Corporate

100.00%597.4 100.00%

Total coverage ratio 86.01%
Coverage ratio ： Covered by collateral andguarantees
Reserved ratio ： Reserved for unsecured portion
Total coverage ： Covered by collateral, guarantees
ratio
and reserves＊NOTE:The guarantee is not provided by us. We do not extend the guarantee by paying fee to external entity,
but the third party, who serves as the joint guarantor to the borrower, extends the guarantee.

©2007 SURUGA bank, Ltd. All rights reserved.

30

Ratio of disclosed assets／
Credit costs status
Ratio
Ratio ofof disclosed
disclosed assets
assetsCreditCredit costs
costs status
statusRatio of disclosed assets
Ratio of disclosed assets after deduction from reserves
Ratio of disclosed assets after deduction from reserves,
collateral and guarantees（billion yen）

Core net operating income
Actual credit costs(credit costs-collection of claims written off)
Actual credit costs ratio (actual credit costs/loan average balance)

8 .5 2 %6 .8 2%
6 .9 3 %35.9

6 .4 2 %30.2

5 .1 1%
5 .23 %

1.6 3 %

31.3

24.2

3.95 %

4 .9 1 %0.66%

3 .8 3 %1 .8 9 %

38.2

0.53%

2.89 %

1 .51 %
0 .7 1 %0.55 %

13.4

0.61%
12.5

10.6

0.61%
12.8

0.25%
5.5

03/3

04/3

05/3

06/3

07/3

03/3

04/3

05/3

06/3

©2007 SURUGA bank, Ltd. All rights reserved.

07/3
31

Expenses and OHR（billion yen）

76.9

62.7%

73.1
68.2

Gross operating income
Pe rso n n e l e xpe n se s
No n- pe rso nn e l e xpe n se s
Taxe s68.0

Expenses

58.5
３６.７
1 4 .1OHR =３６.４
1 4 .2

53.4%

３６.０

３６.４

３７.７

1 3 .6

1 3 .5

1 3 .5

2 0 .4Gross operating
income

52.9%
49.8%

2 0 .7OHR

49.1%

2 0 .32 0 .82 2 .0

1 .7
03/3

1 .8
04/3

2 .0
05/3

2 .0
06/3

2 .2
07/3

©2007 SURUGA bank, Ltd. All rights reserved.

32

Owned Capital
CapitalCapital adequacy
adequacy ratio
ratio

DeferredDeferred tax
tax assets
assets // Tier
Tier ⅠⅠ ratioratio（billion yen）

（billion yen）（％）

■ Amount of owned Capital (non-consolidated)

Deferred tax assets / Tier Ⅰ ratio

BIS standard(consolidated)
Domestic standard(non-consolidated)
ＴｉｅｒⅠratio(non-consolidated)

Deferred tax assets
Tier Ⅰ【New standard】

167.0

43.2%

175.8

150.2
128.6
115.2

159.3

137.6

137.4

29.1%
124.1

9.6%

28.3
17.5
03/3

04/3

05/3

10.73
9.93

11.6%

37.4

11.22
10.66

10.73

20.6%
49.8

146.4 11.36

06/3

16.1

9.46

8.93

10.14

10.13

10.12

9.53

8.85

8.50
7.89

07/3

03/3

04/3

05/3

06/3

07/3

©2007 SURUGA bank, Ltd. All rights reserved.

33

FY2006 Results and FY2007 Forecast
Forecasting
Forecasting premises
premises

FY２００７
FY２００７

３Ｍ ＴＩＢＯＲ
Ave. ０.８％

１０Ｙ ＪＧＢ
Ave. １.７７％

FY２００
５
FY２００５Results
（Ａ）

FY２００
６
FY２００６
Forecasted
（Ｂ）

FY２００
６
FY２００６
Results（Ｃ）

Increase or
Decrease
（Ｃ－Ａ）

FY２００
６
FY２００６
Forecast
comparison（Ｃ－Ｂ）

Gross operating income

７３.１

７５.０

７６.９

＋３.８

＋１.９

８２.０

Operating expenses

３６.４

３７.０

３７.７

＋１.３

＋０.７

３９.５

Net operating income

３６.６

３８.０

３７.２

＋０.６

△０.８

Core net operating income

３５.９

３８.０

３８.２

＋２.３

＋０.２

４２.５
４２.５

Ordinary Profit

２２.７

２５.０

３０.４

＋７.７

＋５.４

３６.５

Net income

１４.３

１５.５

２０.０

＋５.７

＋４.５

２０.５

Actual credit cost

１２.８

１２.０

５.５

△７.３

△６.５

６.５

ＲＯＥ（%）（net income basis）
basis）

１０.３７

１０.５０

１３.３７

＋３.００

＋２.８７ １１．６０

ＥＰＳ（Yen）

５４.２９

５８.９０

７６.３１ ＋２２.０２ ＋１７.４１ ７７．８９

Dividends（Yen）

８.０

８.０

（billion yen）

１１.０

＋３.０

FY2007
Forecast

＋３.０

１１．０

Record income highs©2007 SURUGA bank, Ltd. All rights reserved.

34

SURUGA’s Concept of Social Responsibilities
CSR from now

To Value Proposition CSR
Establishing
Establishing distinction
distinction ininthe
the market
marketTrusting
Trustingrelationshiprelationship withwithstakeholders
stakeholders
Clean
Clean Management
Management andandlaw-abiding
law-abiding
Managementofultimatetransparency
Managementof ultimate transparencyand
andabsolute
absoluteaccountability
accountability

CRS Starting Line
Legal
Compliance

Sophistication ofcustomer Information
management

Employment

Socialactivities

Human rights
protection
Regional
revitalization

Fairness

Safety ensuringof financial transaction

Corporate

Economic
activities

Sustainablegrowth

Coexistence

Products with highsocial value

Equilibrium

Socialcontributions

CSR, essential factor in doing
business using social infrastructure
Minimum
Minimumrequirement
requirement fromfromsocietysocietyRisk
reduction
Risk reduction

continuity
Profitability

Cash flow
Profit planning

Educational activities forenvironmental awarenessEcologicalactivities

Eco officeEnvironmentally conscious
financial products
Pollution
prevention

Eco procurement©2007 SURUGA bank, Ltd. All rights reserved.

35

Social Value Enhancement by
Exchanging Values at SURUGA
Implementing
Implementing anan optimal
optimal exchange
exchangeofof value
value with
with stakeholders
stakeholders
SURUGA is growing by improving the exchange of value
with stakeholders in a well-balanced approach.

Growingas a company
with a mission

Shareholders

Improving mission goals witha strong emphasis on society
Employees

SURUGA= Enhancing social value
Customers(SURUGA group)Management

SURUGA’s Mission
Helping to give shape and a timeframe tocustomers’ dreams as a concierge forbusiness and life.

Other
stakeholders

C

Culture-oriented

P

People-based

S

Social-perspective

Supporting culture
nationally and regionally
Focusing on
human capital
Aiming to enhancesocial contributions

CCPPS
S management
management©2007 SURUGA bank, Ltd. All rights reserved.

36

For further details regarding the above, please contact

IR & PR Office,
Suruga Bank Ltd.
Tel: +81-3-3279-5536
e-mail: ir.koho@surugabank.co.jp
This presentation contains forward looking statements about busines
performance. These statements are no guarantee of future businessperformance and inherently contain risk and uncertainties. Future
performance is subject to changes in business environment and may
differ from management targets.

©2007 SURUGA bank, Ltd. All rights reserved.