Japan Finance Corporation
ACCOUNT FOR JBIC OPERATIONS

Balance Sheet （as of March 31, 2011）(Millions of yen)
2011

2011

AssetsLiabilities

Cash and due from banks

978,074

Cash

0

Borrowed money

5,502,495

Borrowings

5,502,495

Due from banks

978,074

Bonds payable

2,703,551

Securities

76,453

Other liabilities

71,181Other securities

76,453

Accrued expenses

29,911Loans and bills discounted

8,376,794

Unearned revenue

38,881Loans on deeds

8,376,794

Derivatives other than for

1,899

trading-liabilities
Other assets

1,001,457

Lease obligations

290

Other

198
465

Prepaid expenses

234

Accrued income

29,379Provision for bonuses

966,988

Provision for directors’ bonuses

6

Other

4,855

Provision for retirement benefits

12,135

Property, plant and equipment

37,664

Provision for directors’ retirement

Derivatives

other

than

for

trading-assets

28

benefits
Buildings

3,488

Acceptances and guarantees

2,443,266

Land

33,881

Total liabilities

10,733,129

Lease assets

58

Net assets

Construction in progress

2

Capital stock

Other

233

1,091,000

Retained earnings

801,398

Intangible assets

2,349

Legal retained earnings

742,615

Software

2,116

Other retained earnings

58,783

Lease assets

218

Retained earnings brought forward

58,783Other

14

Customers’

liabilities

for2,443,266

acceptances and guarantees
Allowance for loan losses

Total shareholders’ equity
Valuation

1,892,398

differenceon(1,665)available-for-sale securities(134,417)

Deferred gains or losses on hedges

157,781

Total

156,115

valuationandtranslation

adjustments

Total assets

12,781,643

Total net assets

2,048,513

Total liabilities and net assets

12,781,643

Japan Finance Corporation
ACCOUNT FOR JBIC OPERATIONSStatement of Operations （Year ended March 31, 2011）(Millions of yen)
2011
Ordinary income

197,217

Interest income

178,661Interest on loans and discounts

122,329

Interest and dividends on securities

48

Interest on deposits with banks

1,199Interest on interest swaps

55,061Other interest income

22

Fees and commissions

13,183

Other fees and commissions

13,183

Other ordinary income

74

Other

74

Other income

5,298

Other

5,298

Ordinary expenses

147,576

Interest expenses

118,777

Interest on borrowings and rediscounts

55,696

Interest on bonds

63,081Fees and commissions payments

1,332

Other fees and commissions

1,332

Other ordinary expenses

3,370

Loss on foreign exchange transactions

2,501

Amortization of bond issuance cost

651

Expenses on derivatives other than for trading or hedging
Other

8
209

General and administrative expenses

15,861Other expenses

8,233

Written-off loans

8,232

Other

0

Ordinary profit

49,641

Extraordinary income

9,142Gain on disposal of noncurrent assets

0

Reversal of allowance for loan losses

8,715

Recoveries of written-off claims
Extraordinary losses
Loss on disposal of noncurrent assets
Net income

425
00
58,783

Japan Finance Corporation
ACCOUNT FOR JBIC OPERATIONSStatement of Changes in Net Assets （Year ended March 31, 2011）(Millions of yen)
2011

2011

Shareholders’ equity

Deferred gains or losses on hedges

Capital stock

Balance at the end of previous period

Balance at the end of previous period

1,055,500

Changes of items during the period

140,795

Changes of items during the period
Net changes of items other than

16,985

shareholders’ equity
Issuance of new shares

35,500Total changes of items during the

16,985

periodTotal changes of items during the35,500

Balance at the end of current period

157,781

periodBalance at the end of current period

1,091,000

Total

valuationandtranslation

adjustments
Retained earnings

Balance at the end of previous period

Legal retained earnings

Changes of items during the period

Balance at the end of previous period

726,011

Net changes of items other than

140,107

16,007

shareholders' equity
Changes of items during the period

Total changes of items during the

16,007

periodProvision of legal retained earnings

16,603

Balance at the end of current period

Total changes of items during the

16,603

Total net assets

742,615

Balance at the end of previous period

156,115

periodBalance at the end of current period

1,954,826

Other retained earnings

Changes of items during the period

Retained earnings brought forward

Issuance of new shares

35,500

Payment to the national treasury(16,603)

Net income (loss)

58,783

Net changes of items other than

16,007

Balance at the end of previous

33,207

periodChanges of items during the period
Provision

of

legal

retained(16,603)earnings
Payment to the national treasury

shareholders’ equity(16,603)

Total changes of items during the

93,687

periodNet income (loss)

58,783

Total changes of items during the25,575

periodBalance at the end of current period

58,783

Total retained earnings
Balance at the end of previous period

759,218

Balance at the end of current period

2,048,513

Japan Finance Corporation
ACCOUNT FOR JBIC OPERATIONS

Changes of items during the period
Payment to the national treasury(16,603)

Net income (loss)

58,783

Total changes of items during the42,179periodBalance at the end of current period

801,398

Total shareholders’ equity
Balance at the end of previous period

1,814,718

Changes of items during the period
Issuance of new shares

35,500

Payment to the national treasury(16,603)

Net income (loss)

58,783

Total changes of items during the77,679periodBalance at the end of current period

1,892,398

Valuation and translation adjustments
Valuation difference on
available-for-sale securities
Balance at the end of previous period(687)

Changes of items during the period
Net changes of items other than

(977)

shareholders’ equity
Total changes of items during the(977)

periodBalance at the end of current period(1,665)

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 fairvalue is extremely 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 thestraight-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 overthe lease term. Depreciation for lease assets is calculated with zero residual value being assigned tothe asset.

(d) Method of amortization for deferred assets
Bond issuance costs are expensed as incurred.

(e) Foreign currency translation and revaluation methodJapan Finance Corporation
ACCOUNT FOR JBIC OPERATIONS

JFC maintains its accounting records in Japanese yen. Assets and liabilities denominated in foreign
currencies are mostly translated into Japanese yen 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 bankrupt (“Substantially bankrupt borrowers”) is provided based on the outstandingbalance after the write-offs described in the followings and the deductions of the amount expected
to be collected through the disposal of collateral and execution of guarantees.
The allowance for claims on debtors who are not legally bankrupt but are likely to becomebankrupt (“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 ofcollateral and the execution 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 departments based on internal rules for self-assessment of asset quality. The risk
evaluation department, which is independent from the operational departments, reviews theseself-assessments, and the allowance 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 amountof the claims after deduction of the amount which is deemed collectible through the disposal ofcollateral 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 offuture 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 estimatedamounts of future payments attributable to the services that have been rendered by directors to theJapan Finance Corporation
ACCOUNT FOR JBIC OPERATIONS

date of the balance 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 estimatedpension plan assets at the fiscal period end.
Unrecognized prior service costs are recognized as income or expense by the straight-line
method over a certain number of years; 10 years within the average remaining work period of
employees at the year of occurrence.
Unrecognized actuarial differences are recognized as income or expense from the following
fiscal year by 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.
(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 amountaccrued 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 andliabilities.
(d) Assessment of hedge effectivenessJFC assesses the effectiveness of designated hedges by measuring and comparing the change offair value 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
accordance with the standard treatment of The Japanese Institute of Certified Public Accountants(JICPA) Industry Audit Committee Report No. 25.
The effectiveness of the hedging instruments described above, such as currency swaps, foreignJapan Finance Corporation
ACCOUNT FOR JBIC OPERATIONS

exchange forward contracts and similar transactions, used for hedging the foreign exchange risksof loans and bills discounted, borrowings, and bonds payable denominated in foreign currencies, isassessed by comparing the foreign currency position of the hedged loans and bills discounted,
borrowings, and bonds payable with that of the hedging instruments. An asset and liability
denominated in foreign currency for which currency swap is used to hedge the foreign currency
fluctuations are translated at the contracted rate if the currency swap qualifies for hedge
accounting.

(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.

Change in accounting policy(Accounting standard for equity method of accounting for investments)
ASBJ Statement No. 16, Accounting Standard for Equity Method of Accounting for Investments,
issued on March 10, 2008, and ASBJ Practical Issue Task Force (PITF) No. 24 Practical Solution on
Unification of Accounting Policies Applied to Associates Accounted for Using the Equity Method,
issued on March 10, 2008, have been adopted commencing with this fiscal year end.

(Accounting standard for asset retirement obligations)
ASBJ Statement No. 18, Accounting Standard for Asset Retirement Obligations, issued on March 31,
2008, and ASBJ Guidance No. 21, Guidance on Accounting Standard for Asset Retirement
Obligations, issued on March 31, 2008, have been adopted commencing with this fiscal year end.
Note that this adoption does not have any impacts on income or expense.

2. Equity securities of or investment in affiliates
Equity securities of or investment in affiliates is ¥52,193 million.

3. Loans
All loans entered into are loans on deeds. The amounts reported in the balance sheet include thefollowings:

Japan Finance Corporation
ACCOUNT FOR JBIC OPERATIONS(Millions of yen)
As of March 31, 2011
Account for JBIC Operations
Bankrupt loans

8,969

Non-accrual loans

97,717Loans with interest or principal repayments more than three―months on arrears
Restructured loans

187,046

Total

293,733(Note) The description of the following five accounts, Securitization Support Programs (Purchase-type operation), Credit Insurance
Programs, Finance Operations for Facilitating Realignment of United States Forces in Japan, Operations to Facilitate Crisis
Responses, and Operations to Facilitate Specific Business Promotion are omitted since there are no balance in these accounts.
(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 theultimate collectability of either principal or interest because they have been in arrears for a considerable period of time or for otherreasons.
(b) “Non-accrual loans” are loans on which accrued interest income is not recognized, although this excludes Bankrupt loans and theloans 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 morethan 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 ofor exemption from the stated interest rate, the deferral of interest payments, the extension of principal repayments or renunciation ofclaims) in order to support the borrowers’ recovery from financial difficulties, and which do not fall under the category of “Bankrupt
loans”, “Non-accrual loans”, and “Loans with interest or principal 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, 2011 is ¥875,019 million.

4. 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 ¥2,703,551 million.)

5. Accumulated depreciation of fixed assets
Accumulated depreciation of fixed assets amounted to ¥1,337 million.

Japan Finance Corporation
ACCOUNT FOR JBIC OPERATIONS

6. Net assets per share
Net assets per share is ¥1.87.

7. 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 accountrelated to the operations*2 listed in each Item of Article 41 hereof, JFC shall accumulate, as a reserve, theamount calculated in accordance with the standards prescribed by a Cabinet Order to the extent that itreaches the certain amount, and if there is still a surplus, JFC shall pay such surplus into the nationaltreasury within 3 months after closing date.
In the event that the amount of the retained earnings brought forward falls below zero in each accountset forth in the preceding paragraph, legal capital surplus and legal retained earnings shall be transferred
to retained 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 ofRealignment of United States Forces in Japan [hereafter referred to as “operations listed under each section of Article 41of the same law.”

8. The account title and the amount related to transactions with affiliates
Ordinary income–Other income-Other: ¥2,210 million

9. Net income per share
Net income per share is ¥0.05.

10. Issued shares
For the fiscal year ended March 31, 2011, types and number of issued shares are as follows:Japan Finance Corporation
ACCOUNT FOR JBIC OPERATIONS(Unit: shares)
The number ofTypesstocks at beginning

Increase during theof the fiscal year
Common1,055,500,000,000

stocksfiscal year

35,500,000,000

Decrease

The number ofduring thestocks at the end of

fiscal year

the fiscal year—

1,091,000,000,000(Note) Increases is due to the issuance of 35,500,000,000 shares.

11. 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,
and business plans and financial plans (funds through borrowing from the fiscal investment funds
and loans, bonds and investments from the general account, equity participation, 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
United States Forces in Japan, Operations to Facilitate Crisis Responses, and Operations to
Facilitate Specific Business Promotion. Accounts are made for each classification (“operationaccount”) for accounting treatment.
The funds procured by JFC through borrowing from the fiscal investment funds and loans, bonds
and 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 anotheroperation account. Accordingly, ALM (asset and liability management) is conducted for the risks
associated with financial assets and liabilities for each operation account. Note that financial
instruments that can be used 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 toJapan”, “Maintaining and improving the international competitiveness of Japanese industries”,

Japan Finance Corporation
ACCOUNT FOR JBIC OPERATIONS“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 business development 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 the issuing of bonds. ALM (asset and liability management) is
conducted for financial assets and liabilities in this account that are subject to interest-rate andcurrency fluctuations to ensure that interest-rate and currency fluctuations do not have an adverse
effect on these operations. Also, derivative transactions are conducted for the purpose of mitigatingrisk 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,
and liabilities 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 typicallyconsists of sovereign or country risk.
As a result, if the financial condition of the individual borrower significantly deteriorates due
to political and economic trends in the borrower’s country or region, the performance andfinancial 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
associated with the country in which the corporation or the project is located), corporate risk refers to the risk associatedwith credit to corporations, and project risk refers to the risk that the cash flow of an underlying project will not perform
as planned in the case of project finance where the repayment of the borrowing is primarily secured by the cash flow of
the project to which credit is supplied.

Japan Finance Corporation
ACCOUNT FOR JBIC OPERATIONS(b) Market risk
Market risk is the risk that the value of assets and liabilities (including off-balance sheet assets)
will fluctuate 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 money and bonds. The effectiveness of the hedges is assessed by measuring andcomparing the change in fair value or cumulative change in cash flows of both hedging
instruments and corresponding hedged items from the date of inception of the hedges to theassessment date.
In this account hedge accounting is used for foreign exchange hedges, where currency swaps
and foreign exchange forward contracts are used to hedge items such as loans, borrowings, andbonds for exchange rate fluctuation risk. The effectiveness of the hedging currency-swaps andforward contracts, hedging the foreign exchange risks of monetary assets and liabilities
denominated in foreign currencies, is assessed by comparing the foreign currency position of thehedged 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 resultthat JFC considers liquidity risk to be limited. However, financing costs could increase due tomarket disturbances and unexpected events.

(3) Risk management structure for financial instruments
JFC has a Corporate Governance Committee established to properly conduct management in order
to comprehensively handle risks faced, including risks associated with financial instruments, toensure the sustained and stable realization of the financing policies of the function.
For each type of risk, management policies and procedures have been created to handle thespecific types of credit risks, market risks, and liquidity risks for financing associated with each
operation, and a structure has been established to smoothly handle these tasks in each operation.

Japan Finance Corporation
ACCOUNT FOR JBIC OPERATIONS

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
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
and corporations. Credit appraisal takes place based on the information that has been gathered
and analyzed, 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
the industrial countries. Using all these channels, JFC evaluates sovereign or country risk (inaddition to corporate risk and project risk associated with the country in which the corporation is
located) based on 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 the ability 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

Japan Finance Corporation
ACCOUNT FOR JBIC OPERATIONS

the overall 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-term loans and loans involving sovereign risk or country risk. Also to be taken into accountis the mechanism of securing assets, such as the framework of international financial assistanceto debtor countries through the Paris Club, which is unique to official creditors. This account uses
a unique model to quantify the credit risk taking account of the above explained elements andmeasures amount 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,
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”) tocomprehensively assess the interest 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
through the 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
rate risk 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 the related funding arrangements are generally matched. In addition, swaps are used tohedge interest rate risk for portions of loans that are thought to have high exposures tointerest rate fluctuation risk.

Japan Finance Corporation
ACCOUNT FOR JBIC OPERATIONS② 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 withfloating interest 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
stated previously, 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, 2011)(1) Interest rate VaR: 69.7 billions of yen(2) Exchange rate VaR: 45.9 billions of yen(b) VaR measurement model(1) Interest rate VaR: Historical model(2) Exchange rate VaR: Variance-covariance model
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.

Japan Finance Corporation
ACCOUNT FOR JBIC OPERATIONS

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 forproper risk 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 thathave 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, 2011, and the related fair value, and difference is asfollows. Note that unlisted securities and partnership investments whose fair value is extremely difficult
to be determined are not included in the following chart (refer to note 2).

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

Fair value

Difference

978,074

978,074—

Available-for sale securities

3,800

3,800

—

(3) Loans and bills discounted

8,376,794

8,256,380

8,324,476

68,096

Total assets

9,238,255

9,306,351

68,096(1) Borrowings

5,502,495

5,599,191

96,696(2) Bonds payable

2,703,551

2,774,959

71,407

8,206,046

8,374,150

168,104

(4)

(4)

—

965,093965,093—965,089

965,089—

Balance Sheet(1) Cash and due from banks(2) Securities

Allowance for loan losses(*1)(120,414)

Total liabilities
Derivative transactions(*2)

Derivative transactions not qualifying for hedge
accounting
Derivativetransactions

qualifying

accounting
Total derivative transactions

for

hedge

(*1) General allowance for loan losses, specific allowance for loan losses and allowance for possible loan losses on specific overseas loan
have been 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 isused as fair value because fair value resembles the carrying amount.

(2) Securities
The fair value of “Available-for sale securities” is based on the price that is indicated from otherfinancial institution.

Japan Finance Corporation
ACCOUNT FOR JBIC OPERATIONS(3) Loans and bills discounted
For loans with variable interest rates an amount calculated by the floating rate note method toreflect market 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 collateralor guarantee. Fair value approximates the amount on the balance sheet on the closing date after adeduction 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 isused as 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 theprincipal and interest of the borrowings by the risk free rate (the standard Japanese government
bond rate) based on the set period of loan.

(2) Bonds payable
Market value is used for fair value of bonds.

Derivative transactions
Derivative transactions consist of interest rate-related transactions (interest rate swap) andcurrency-related transactions (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 areas follows.
They are not included in Fair value of financial instruments.
(Millions of yen)Classification
1) Unlisted stocks(*1)2) Partnership investments
Total

Carrying amount on balance sheet
19,907(*2)

52,74672,653(*1) Since unlisted stocks do not have quoted market prices available and fair value is extremely difficult to be determined, fair values areJapan Finance Corporation
ACCOUNT FOR JBIC OPERATIONS

not stated.
(*2) For partnership investments composed of unlisted stocks that do not have quoted market prices available and for which fair value isextremely 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
Securities

Maturities

Maturities

Maturities

after oneafter three

within one

year but

years butyear

within three

withinyears

five years(*1)

Maturities

after fiveafter

years butseven

withinyears butseven

within ten

years

years

Maturities
after tenyears

978,074

—

—

—

—

—

—

1,192

2,607

—

—

—

1,078,144

1,970,380

2,275,246

951,556

1,081,671

910,789

2,056,218

1,971,572

2,277,853

951,556

1,081,671

910,789(*2)

Available-for salesecurities
Loans

Maturities

anddiscounted

bills

(*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 ¥109,005 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(Millions of yen)

Maturities
within one
year

Borrowings
Bonds
payableTotal

Maturities
after one year
but within
three years

Maturities
after three
years butwithin fiveyears

Maturities
after five years
but withinseven years

Maturities
after seven

Maturitiyears butes afterwithin ten

ten years

years

367,683

1,204,243

2,478,286

1,072,471

379,812—503,387

1,094,772

837,187

150,000

100,000

20,000871,0702,299,015

3,315,473

1,222,471

479,81220,000Japan Finance Corporation
ACCOUNT FOR JBIC OPERATIONS

12. 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, 2011 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 balance sheet(Millions of yen)
Equity securities of or investment in affiliates

52,193

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

(b) Available-for-sale securities
Carrying amountType

on the balance

Acquisition cost

Difference

sheet (Millions of(Millions of yen)

(Millions of yen)

503,800—

yen)
Securities whose carrying
amount does not exceed

Others503,800

their acquisition cost

(Note) Available-for-sale securities whose fair value is extremely difficult to be determined
Carrying amount on the balance sheet(Millions of yen)
OthersUnlisted foreign stocks

15,095

Unlisted Japanese securities

224

Unlisted foreign securities

5,139

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.

13. Deferred tax accounting
JFC does not apply deferred tax accounting since JFC is a nontaxable entity classified in the Article 2 (5)Japan Finance Corporation
ACCOUNT FOR JBIC OPERATIONS

of the Corporation Tax Act (Act No. 34; 1965).

14. 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, 2011 (Millions of yen)
Projected benefit obligations (A)(16,969)

Fair value of plan assets (B)4,134

Unfunded pension obligations (C)=(A)+(B)(12,834)

Unrecognized prior service costs (D)81

Actuarial unrecognized difference (E)

617

Net

amountrecognized

on

the

balancesheet(12,135)(F)=(C)+(D)+(E)Prepaid pension cost (G)—Provision for retirement benefits (H)=(F)–(G)(12,135)(b) Component of pension cost
March 31, 2011 (Millions of yen)
Service cost

545

Interest cost

334

Expected return on plan assets(83)

Amortization of prior service cost accounted for as expense

0

Actuarial differences accounted for as expense

89

Other costs—

Net pensions cost

886

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

(c) Principal assumptions madeMarch 31, 2011
Discount rate

2.0%

Expected rate of return on plan assets

2.0%

Method of attributing the projected benefits to periods ofservices

Straight-line basis

Terms to amortize unrecognized prior service costs

10 years

Terms to amortize actuarial unrecognized differences

10 yearsJapan Finance Corporation
ACCOUNT FOR JBIC OPERATIONS

15. Profit and loss on equity method
Investment in affiliates¥52,193 million

Investment in affiliates (equity method)¥52,292 million

Profit or Loss of Investment in affiliates (equity method)¥98 million

16. Related party transaction
Related party transactions in the fiscal year ended March 31, 2011 are as follows:

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

Total
VotingRights(%)

Relation

Amounts

withofTransactions

relatedpartiestransactio

Balance as
Items

of March
31, 2011

ns
Underwriting of
capital increase

35,500(Note i)——

Borrowings

5,502,495

Receipt of funds
MinistryofAdministrati

1,014,444(Note ii)

Finance
Principal

100

on for policy

Repaymentof(Direct)

basedborrowing

financing

Payment

ofinterest

on626,657(Minister ofshareholder
Finance)(Note i)Accrued55,696

13,863
expensesborrowings
Guarantee

forcorporate bonds

1,633,712——(Note iii)

(Note)(i) The underwriting of capital increase represents the increase in capital through shareholder allocation by JFC at an allocation amount 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.

Japan Finance Corporation
ACCOUNT FOR JBIC OPERATIONS

17. Subsequent events
The Japan Bank for International Cooperation Act (hereafter, the “New JBIC Act”) was passed on April
28, 2011 at the 177th ordinary session of the Diet. Based on this Act, on April 1, 2012, JBIC will beseparated from JFC to form Japan Bank for International Cooperation Co., Ltd. (hereafter “New JBIC”),
and effective on the same date, JFC’s JBIC Operations and Finance Operations for Facilitating
Realignment of United States Forces in Japan will be transferred to the New JBIC.

JFC will underwrite the stock of the New JBIC, and will transfer this stock without compensation to thegovernment of Japanese at the time the New JBIC is established on April 1, 2012. Effective the same day,assets and liabilities relating to JFC’s JBIC operations and Financial Operations for Facilitating
Realignment of United States Forces in Japan will be succeeded by the New JBIC. The amount of assets
and liabilities to be succeeded will be the assessed amount as determined by an evaluation committee
based on the New JBIC Act. After the establishment of the New JBIC, profit and loss relating to JFC’s
JBIC Operations and Finance Operations for Facilitating Realignment of United States Forces in Japan
will no longer be recognized as profit and loss of JFC. Note that there is no impact on cash flows of
Account for JBIC operations, Financial Account Related to the Financial Operations for Facilitating
Realignment of United States Forces in Japan, or the New JBIC.