Shinkin Central Bank Annual Report 2011

Shinkin Central Bank

3-7, Yaesu 1-chome, Chuo-ku, Tokyo 103-0028, Japan
Telephone: +81-3-5202-7711 Facsimile: +81-3-3278-7011
http://www.shinkin-central-bank.jp

Printed in Japan

Shinkin Central Bank

Annual Report 2011

Shinkin Central Bank,
the Central Bank for Shinkin Banks
As the central financial institution of shinkin banks, Shinkin Central
Bank (referred to as SCB hereafter) has occupied a well-establishedposition in Japan’s financial industry, with shinkin banks having a totalof ¥119 trillion (equivalent to $1,431 billion) in funds.

Management Philosophy
As the central bank for all shinkin banks, the SCB supports the growth of
the shinkin bank sector and thus contributes to economic development
throughout Japan.

1.	Strengthening the corporate base, broadening the operational functions, and enhancing the credit standing of shinkin banks

2. 	Stable fund-raising from shinkin banks as well as diversification offunding sources

5.	Contributing to regional development and revitalization hand in handwith shinkin banks

6.	Achieving sound management through efficiency, capital adequacy,
and strengthened risk management

7. Nurturing professionals and creating an attractive workplace
8. Enhancing public trust in the SCB
Corporate Data (as of March 31, 2011)
Name:
Establishment:
Number of Employees:
Domestic Network:
Overseas Network:
Total Assets:
Total Funds:
Paid-in Capital:(Preferred Shares):
Capital Adequacy Ratio(Consolidated):
Number of Member Shinkin Banks:Long-term Credit Ratings:

Shinkin Central Bank (SCB)
June 1, 1950
1,125
14
4
¥31,277 billion ($376 billion)¥29,621 billion ($356 billion)¥490 billion ($5,892 million)¥90 billion ($1,082 million)

31.76%
271
Aa3 (Moody’s)
A+ (S&P)
A+ (R&I)
AA (JCR)		(As of July 31, 2011)
Note: T he number of employees includes full-time Directors and Auditor. The number ofOverseas Network includes Shinkin International, Ltd., a subsidiary in London. The
amounts of total assets and total funds are the average balances for the year ended
March 31, 2011.

Senior Managing Director(in charge of International/
Treasury Operations)Katsuo Akiyama
Managing Director(in charge of Overseas Offices)
Kazuyuki Okura

International Business Support Center
Address: 3-7, Yaesu 1-chome,
Chuo-ku, Tokyo 103-0028
Telephone: +81-3-5202-7674
Facsimile: +81-3-3278-7035
General Manager:Takeo Nakamura

Operational Policies

cial circumstances

Deputy President(in charge of International Planning)
Junichi Hattori

Strategic Planning Division(including International Planning)
Address: 3-7, Yaesu 1-chome,
Chuo-ku, Tokyo 103-0028
Telephone: +81-3-5202-7624
Facsimile: +81-3-3278-7033
General Manager: Hiroshi Sudo

Management Philosophy and Operational Policies

3. 	Upgrading market operation and developing financial services
4. 	Actively pursuing new business in conformity with changes in finan-International Directory (As of July 31, 2011)

Contents
F inancial Highlights (Non-Consolidated Financial
Summary) ································································ 1
Message from the President and CEO ······················ 2
Corporate Management and Auditors ······················ 3
The SCB Is a Powerful Financial Institution in Japan,
Which Is Listed on the Tokyo Stock Exchange ········· 4Management Issues and Strategies · ·························· 6
Overseas Bases ···························································· 8
Organization / SCB Group ··········································· 9Business Overview · ··················································· 10
Capital Adequacy · ·················································· 11
Asset Quality · ························································ 12
Important Management Indices ······························· 13
Corporate Governance · ········································· 14
Strengthening the Compliance System ···················· 15
Risk Management · ·················································· 16
Corporate Social Responsibility (CSR) Activities ···· 19
What Are Shinkin Banks? · ····································· 20
Preferred Shares · ·················································· 22
Financial Section ··························································· 23International Directory ················································ 81
This material contains certain forward-looking statements. Such forward-looking
statements are not guarantees of future performance and involve risks and uncertainties,
and actual results may materially differ from those contained in the forward-looking
statements as a result of various factors.
U.S. dollar amounts are converted for convenience only, at ¥83.15 per dollar, theprevailing rate on March 31, 2011.

Transfer & Clearing Division(including Correspondent Banking)Address: 3-7, Yaesu 1-chome,
Chuo-ku, Tokyo 103-0028
Telephone: +81-3-5202-7640
Facsimile: +81-3-3278-7037
General Manager: Hiromichi Chisaka
Treasury Business Division
Address: 3-7, Yaesu 1-chome,
Chuo-ku, Tokyo 103-0028
Telephone: +81-3-5202-7642
Facsimile: +81-3-3278-7040
SWIFT: ZENB JPJT
General Manager: Keiji Okuyama
Corporate Business Promotion Division
Address: 3-7, Yaesu 1-chome,
Chuo-ku, Tokyo 103-0028
Telephone: +81-3-5202-7665
Facsimile: +81-3-3278-7045
General Manager: Hiroyuki Toda
Operations Division(including International Operations Center)
Address: 3-7, Yaesu 1-chome,
Chuo-ku, Tokyo 103-0028
Telephone: +81-3-5202-7655
Facsimile: +81-3-3278-7041
General Manager: Yoichi Tobitsuka

Treasury Operations Division
Address: 3-7, Yaesu 1-chome,
Chuo-ku, Tokyo 103-0028
Telephone: +81-3-5202-7666
Facsimile: +81-3-3278-7046
SWIFT: ZENB JPJT
General Manager: Kazushi Miki
Research Institute
Address: 3-7, Yaesu 1-chome,
Chuo-ku, Tokyo 103-0028
Telephone: +81-3-5202-7671
Facsimile: +81-3-3278-7048
General Manager: Koji Hirao

Credit & Alternative Investment Division
Address: 3-7, Yaesu 1-chome,
Chuo-ku, Tokyo 103-0028
Telephone: +81-3-5202-7664
Facsimile: +81-3-3278-7044
General Manager: Katsushi Okado

LondonOverseas Offices
New York Representative Office
Address: 114 West 47th Street,
Suite 2420, New York, NY 10036, U.S.A.
Telephone: +1-212-642-4700
Facsimile: +1-212-730-6000
Chief Representative: Atsushi Toyoshima

ShanghaiHong Kong

Hong Kong Representative Office
Address: 1413-1414 Two Pacific Place,
88 Queensway, Hong Kong, P.R. of China
Telephone: +852-2537-3777
Facsimile: +852-2537-4002
Chief Representative: Tokuo Iwasaki
Shanghai Representative Office
Address: Room 508, Shanghai International Trade
Center, 2201 Yan-An Xi Road
Shanghai, P.R. of China
Telephone: +86-21-6270-3091
Facsimile: +86-21-6270-3095
Chief Representative: Masataka Murakami
Hokkaido

Overseas Subsidiary
Shinkin International Ltd.
Address: 4th Floor, River Plate House,
7-11 Finsbury Circus, London EC2M 7YA, UK
Telephone: +44-20-7562-0500
Facsimile: +44-20-7256-8544
Telex: 8812847 ZILUK GManaging Director: Kengo KajiTohokuInternational Operations Center
Address: 8-1, Kyoubashi 3-chome,
Chuo-ku, Tokyo 104-0031
Telephone: +81-3-5250-1700
Facsimile: +81-3-5250-1780
SWIFT: ZENB JPJT
General Manager: Shigehiro Yamamoto
Treasury Division
Address: 3-7, Yaesu 1-chome,
Chuo-ku, Tokyo 103-0028
Telephone: +81-3-5202-7660
Facsimile: +81-3-3278-7043
SWIFT: ZENB JPJT
General Manager: Satoshi Otanaka

New York

Hokuriku

ChugokuOkayama Kobe
Osaka

Head Office

NagoyaShizuoka

Shikoku

FukuokaMinami-Kyushu

Head Office
BranchOffice/Subsidiary

Shinkin Central Bank Head Office3-7, Yaesu 1-chome, Chuo-ku, Tokyo 103-0028, Japan
Telephone: +81-3-5202-7711 Facsimile: +81-3-3278-7011
http://www.shinkin-central-bank.jp

81

Shinkin Central Bank Annual Report 2011

Financial Highlights (Non-Consolidated Financial Summary)Millions of Yen

Shinkin Central Bank
For the years ended March 31,

2011

Millions of U.S. Dollars

2010

2009

2011

2010

2009

$

$

$

For the Fiscal Year
338,057 ¥

370,090 ¥462,491

Total Expenses

299,982352,862

682,736

3,607

3,792

6,952

Net Income (Loss)

27,38728,365(183,812)

329

304

(1,871)Net Business Profit (Loss)

49,94956,180(89,492)

600

603

(911)

¥31,283,720¥28,400,491¥27,311,870$376,232$305,217$278,124

Loans and Bills Discounted

5,254,796

6,263,796

5,437,196

63,19667,31655,368

Securities

21,547,910

17,324,312

16,202,812

259,145

186,182

164,998

Total Liabilities

30,258,547

27,397,921

26,884,624

363,903

294,443

273,774

Deposits

21,581,162

19,736,289

18,820,953

259,544

212,104

191,659

Debentures

4,340,630

4,815,810

4,728,880

52,20251,755

48,155

1,025,172

1,002,570

427,245

12,32910,774

4,350

Total Income

¥

4,065

3,977

4,709

At the Year-end
Total Assets

Total Shareholders’ Equity

U.S. dollar amounts are converted for convenience only, at ¥98.20, ¥93.05 and ¥83.15 per dollar, the prevailing rate on March 31, 2009, 2010 and 2011, respectively.
Total assets and total funds amounted to ¥31,277 billion ($376 billion) and ¥29,621 billion ($356 billion) of the average balance at the year ended March 31, 2011.

1

Message from the President and CEO

Shinkin Central Bank, or the SCB, serves as thecentral bank for Japan’s 271 shinkin banks—regional financial institutions located throughout the country that specialize in operations
with small and medium-sized enterprises.
Since its establishment in 1950, the SCB
has provided a wide range of financial services
in order to expand the potential of the shinkinbank sector as a whole.
Progress in the SCB Medium-Term
Action Program 2010
In June 2010, the SCB celebrated the 60th
anniversary of its establishment. To returnto the SCB’s founding roots and pursue fundamental management reforms, we launcheda three-year plan called the “SCB MediumTerm Action Program 2010.” In fiscal 2010,
ended March 31, 2011—the initial year of the
program—we strove to restructure our asset
portfolio as we aimed to build a stable and solid
financial base. In addition, we worked aggressively to generate income from sources otherthan market operations. As a result, in fiscal
2010, on a non-consolidated basis, the SCB
achieved net income amounting to ¥27.3 billion, substantially similar to the level achieved
in fiscal 2009.
During fiscal 2010, as the central financial
institution for the shinkin bank sector, wevigorously strove to implement measures tomaintain and enhance the creditworthinessof the shinkin bank sector and complement
the business operations of shinkin banks. In
particular, we formed business alliances withlocal banks in Thailand and China as a means ofsupporting the overseas expansion of shinkin

2bank customers. We also worked to support
shinkin bank customers in strengthening their
management and regenerating their businesses, and provided consulting services toassist in the revitalization of local communities.
Through such initiatives, the SCB reinforced its
capabilities for supporting shinkin bank activities directed toward solving problems faced by
SMEs and local communities.
To ensure the maintenance of orderly
credit conditions in the shinkin bank sector,
we overhauled the method of operation of
the industry’s safety net, the “Shinkin BankManagement Reinforcement System,” andimplemented strengthening of precautionary
measures, such as those to prevent the financial deterioration of individual shinkin banks.
In fiscal 2011, ending March 31, 2012, the
SCB is supporting the efforts of shinkin banks
toward recovery and reconstruction in regions
affected by the Great East Japan Earthquake. In
keeping with the fact that this is a milestone
year for the shinkin bank sector—marking
the 60th anniversary of the enactment of the
Shinkin Bank Law—we have positioned theyear as “a year in which the SCB takes the firststep in a new journey together with shinkinbanks.” Based on this stance, we will steadily
put into practice and implement a range of
specific policies set out in the SCB MediumTerm Action Program 2010, which is now in its
second year.

Strengthening Internal Management
Systems
We will continue our efforts to carry out
thorough compliance, strengthen corporate
governance, and contribute to society, so as
to become a distinguished financial institution
well respected in the society.
Recognizing our crucial responsibilities as
the central bank of the shinkin bank sector,
we will strive with the utmost commitment
to facilitate the continued development of thesector and thus contribute to development
throughout Japan.
I would like to take this opportunity
to express my sincere gratitude to all ourshareholders and other stakeholders for theircontinued understanding and support.
July 2011

Mitsuo Tanabe
President and Chief Executive Officer

Shinkin Central Bank Annual Report 2011

Corporate Management and Auditors

Koji Omae

Mitsuo Tanabe

Junichi Hattori

Shoichi Ishiko

Katsuo Akiyama

Directors

Toshiyuki Masuda
Masuo Kajita
Hiroyuki Hashimoto
Kazuyuki Takaki
Yasumasa Yamamoto
Ikushi Furukawa
Hirosuke Yamagami

Chairman of the Board of Directors

Deputy President

President and Chief Executive Officer

Senior Managing Director

Senior Managing Director(As of July 31, 2011)

Chairman of the Board of
Directors (Part-Time)
Koji Omae

Akira Ito
Hajime Hioki
Masami Fujita

President and Chief Executive Officer
Mitsuo Tanabe

Director and Senior Adviser
Shoji Mori

Deputy President
Junichi Hattori

Senior Managing Directors
Shoichi Ishiko
Katsuo Akiyama

Managing Directors
Hiroyuki Shibata
Kazuyuki Okura
Mikio Ichiyanagi

Directors (Part-Time)
Nobuto Kitamura
Takashi Ono
Shoichi Yokoyama
Tetsu Komori
Ryosuke Sugino
Tetsuo Ishihara
Keishi Hasegawa
Kiyoshi Yamachi
Kenichiro Mimuro
Jiro Ogawa

Auditor
Hirohisa Yabushita

Auditors (Part-Time)
Toshihisa Satou
Takamasa Nouda
Hiroshi Nakachi
Masamichi Narita

3The SCB Is a Powerful Financial Institution in Japan,
Which Is Listed on the Tokyo Stock Exchange
The SCB operates as a financial institution with the dual role of central bank forshinkin banks and an independent financial institution.
Founded in 1950, the SCB is the central bank for shinkin banks (See “What Are Shinkin Banks?”
on page 20), operating as a cooperative financial institution whose membership consists of all
shinkin banks nationwide.
The SCB plays the dual role of a central bank for shinkin banks and an independent financial institution. The SCB’s total funds mainly comprising deposits from shinkin banks and funds
acquired through the issuance of debentures had an average outstanding balance during the fiscal
year ended March 31, 2011, of ¥29,621 billion (equivalent to $356 billion), and total assets averaged¥31,277 billion (equivalent to $376 billion). The SCB is one of Japan’s leading financial institutions.

Overseas Networks and Correspondent Banks of the SCB(Number of banks with correspondent agreements by head branch; as of March 31, 2011)

The number of our overseas correspondent banks amounts to 247, with main branches covering
50 countries worldwide, as of the end of March 2011.
Shinkin International Ltd. (London)
New York Representative Office

Europe84 banksAsia
101 banks

Middle East
4 banks

North America
26 banks
Japan 9 banks
Shanghai Representative OfficeHong Kong Representative Office
Latin America
11 banks

Africa4 banks

Oceania
8 banks

Note: Correspondent banks refer to those banks with whom the SCB has an agreement for foreign exchange tradingin respective countries.

The SCB Is the Central Bank of the Shinkin Bank Sector
The SCB’s funds are raised mostly through deposits mainly from shinkin banks and the issuance ofdebentures. The SCB invests these funds in securities and lends them out as loans, and uses theresulting profits to support the activities of shinkin banks.
Total assets: around ¥31 trillion (equivalent to $372 billion)
Domestic network: 14
Overseas network: 4
Number of employees: 1,125
Number of member shinkin banks: 271

ShinkinBank

ShinkinBank

ShinkinBank

ShinkinBank

ShinkinBank

ShinkinBank

Number of banks: 271
Total assets: ¥128,859 billion (equivalent to $1,549 billion)
Number of branches: 7,584
Number of employees: 115,964
Number of members: 9,318,366(As of March 31, 2011)

4

Roles

Central Bank for Shinkin Banks(1) Supplementing the Operational
Capabilities of Shinkin Banks
Japan’s 271 shinkin banks nationwide play a keyrole in supporting regional economies by lending to local organizations and SMEs. With total
deposits held by shinkin banks reaching ¥119
trillion (equivalent to $1,431 billion), shinkinbanks occupy a very important position within
Japan’s overall financial sector.
As the central financial institution forthe shinkin bank sector, the SCB is promptly
responding to changes in the operating environment of shinkin banks. Such changes include
increasingly sophisticated and diverse customer
needs, intensified competition with other typesof institutions, and demands for very stringent
management control systems. Specifically, the
SCB provides support for shinkin banks’ financial services utilizing shinkin banks’ network,
activities in support of regional development
and the management of small and mediumsized businesses, and over-the-counter sales ofinvestment trust fund products. Furthermore,
the SCB provides support in such areas as assetliability management (ALM) and marketablesecurities portfolio analysis to assist shinkinbanks in raising profitability and strengthening
risk management systems.
Just as the Bank of Japan acts as a clearing house for domestic exchange transactions
between banks, the SCB performs the role ofa clearing house for shinkin banks, and for theyear ended March 31, 2011, the SCB settled
domestic exchange transactions with a substantial total value of ¥218 trillion (equivalent
to $2,621 billion). Moreover, the SCB acts as
the intermediary in settlement of utility bills
handled by shinkin banks.
The SCB also plays the role of supporting
other operations of shinkin banks. In addition to
supplementing international operations such as
foreign exchange operations, the SCB has been
supplementing the lending operations of shinkinbanks, by commissioning shinkin banks to lend
to local small and medium-sized businesses andbusiness owners who are their customers.
In this way, the SCB is further reinforcing
its capabilities to support shinkin banks in areasin which it is either difficult or inefficient forshinkin banks to provide services as individual
institutions.

Shinkin Central Bank Annual Report 2011(2) Enhancing the Creditworthiness of the
Shinkin Bank Sector
The SCB acts as a “consultant” or a “homedoctor” for the shinkin bank sector as part ofits measures to proactively support the management of shinkin banks. Shinkin banks playtheir part by operating such schemes as the“Shinkin Bank Management Reinforcement
System” and the “Shinkin Bank Mutual Funding Support System.” The SCB works to maintain and enhance the creditworthiness of theshinkin bank sector through such activities as
management analysis, management consulting
and capital reinforcement for shinkin banks.
In recent decades, Japanese financial institutions have experienced several major crises,
including the collapse of the country’s asset
bubble in the 1990s, and more recently the
global financial crisis triggered by the Lehman
Brothers bankruptcy. However, amid such
unsettling periods for the financial system, the
SCB’s financial functions have played a crucialrole in maintaining confidence in the shinkinbank sector and contributed to the stability ofregional economies.

Independent Financial Institution(1) Institutional Investor
Looking at the average balance for the year
ended March 31, 2011, the SCB maintained
assets under management of ¥30,602 billion(equivalent to $368 billion). Of this total, the
SCB invested ¥20,546 billion (equivalent to$247 billion) in securities, in the form of government bonds, municipal bonds, corporate
bonds and foreign securities and ¥3,481 billion (equivalent to $41 billion) in short-termmoney markets.
The SCB manages a vast amount of money
in both domestic and international markets,
holding an important position in the financial
industry as one of Japan’s leading institutional
investors.
(2) Comprehensive Financial Services Supplier
The SCB conducts deposit-taking and lending
operations—the core functions of a financial
institution—issues debentures, and conducts
foreign exchange operations.
It also undertakes such auxiliary operations
as underwriting public bonds, handling private

placement bonds, and issuing personal loan
guarantees, as well as peripheral operations offinancial institutions, including trust, securities,
financial advisory, investment trust funds, defined
contribution pensions, venture capital, and M&A
advisory.
These operations are conducted either by
the SCB itself or through its subsidiaries.
(3) Financial Institution Contributing toRegional Development
In order to contribute to the developmentof local economy, the SCB cooperates withshinkin banks, which work closely with local
communities all around the country, andactively promotes direct lending to regional
public bodies and local companies as well as
investment in regional development projects
and PFI entities through its nationwide
network of branches.
In addition, the SCB has been actively supporting the revitalization of regional companies
and invigoration of local communities in cooperation with shinkin banks from the perspectiveof relationship banking, and has been acting as aregional financial institution.

Shinkin bank management reinforcement system

Management analysis system

SCBManagement advisory system

Shinkinbanks

Capital reinforcement system

Management analysis system

Shinkin banks submit materials on their operating and financial conditions. The SCB conducts management analyses
based on those materials, and identifies shinkin banks for recommended management consultations. The SCB also
conducts more detailed analyses on shinkin banks when certain standards apply.

Management advisory system

The SCB provides management consulting and follow-up to shinkin banks that accept consultations or meet certain standards. This
consulting covers everything from overall management to individual issues toward. The consulting reinforces the shinkin banks’ management
capabilities by proposing various measures to resolve management problems and by sharing information on good examples, etc.

Capital reinforcement system

The SCB provides capital to shinkin banks that have received management consulting when analyses indicate this isnecessary. To prevent moral hazard on the part of the shinkin banks, capital is only provided with the submission ofa business revitalization plan, and the SCB provides subsequent management and operations guidance.

5

Stakeinvestors

clients

Local societies

Providing opportunities tochallenge and growSupporting local financing(local communities,
SMEs, individuals)

Marketparticipants
Providing high creditworthiness and liquidity

Employees

shinkin banks(debenture holders)

Implementing stabledividends and enhancing
the value of preferredsharesComplementing the businessesof shinkin banks by providing
products and services that are
difficult or inefficient forindividual shinkin banks toprovide

Expected roles of
the SCBManagement Issues and Strategies

Providing financial products
and services superior toother Japanese majorbanking groups

Maintaining and enhancing
the SCB’s creditworthiness

Facilitating a balance
between career andpersonal life, including
home and community roles

Supporting local
development
Maintaining orderly local
credit conditions

Maintaining
and enhancing
the 2010 we launched the “SCB Medium-Term Action Program
To coincide with the 60th anniversary of SCB’s
founding,
in April
Maintaining a stable market
creditworthiness of the shinkin2010”—a medium-term
management
plan—which
comprises
three core plans to be implemented over three years. As thepresencebank sector through theoperationof a reliable
net that it is essential to clearly articulate where we are headcentral financial institution for the shinkin banksector,we safety
believeed. Hence, this action program recognizes theProviding
needstable
to communicate
the SCB’s medium- to long-term management direction.
return of profits
through the management ofshinkin banks’ excess funds andplans,
underpinning
the three core plans, areby paying
dividends on commonsharesOverview of the Management Strategy
The management strategy comprises threeto (1) strengthen ties with shinkin banks, (2)Assisting shinkinbanks toprocess restructuring, (3)core plans and four support plans. The
promotebusinessdevelop their human resources incore plans are to (1) strengthen the SCB’s
enhanceandstrengthen
the SCB’s governance,such areas
as market
operations
function to support business solutions byand (4) develop human resources.
shinkin banks on local financing and SME
By steadily implementing the strategies
SCB Medium-Term
Program2010: in the management strategy, thefinancing,(2) strengthen theAction
SCB’s function
stipulated
toPresenting
support shinkinconcretebanks’ ensuringof manageSCBresponding
aims to further
the strength
actionplans andtoincrease
expectations
ment stability, and (3) build a stable and solidof our support for shinkin banks so that
financial basis of the SCB. The four support
shinkin banks can exercise their role infacilitating SME financing and revitalizing
regional economies.
The strategy sets out six figures as
medium-term target, including net income of
approximately ¥30 billion (equivalent to $360
million).
All of the directors and employees arecommitted to working together to achieve thegoals outlined above.

Overall Framework of the Management Strategy
Support Plan 1:

Support Plan 2:

Strengthen ties with shinkin banks(fundamental overhaul of the interface
between the SCB and shinkin banks)

Promote business process
restructuring

Core Plan 1:

Strengthen the SCB’s function to support
business solutions by shinkin banks on
local financing and SME financing

Core Plan 2:

Strengthen the SCB’s function to support
shinkin banks’ ensuring of management
stability

Core Plan 3:

Build a stable and solid financial basis of
the SCB

Support Plan 3:

Support Plan 4:

Enhance and strengthen the SCB’s
governance (checks and balances on thedecision-making process)Target figures

Outlier ratio: No morethan 20%Develop human resources (people who takepride in working for a central financial institution
and have a high level of professional expertise)

Capital adequacy ratio(domestic standard):
At least 15%
Net income: Approximately¥30 billion

Integrated risk management:
Manage within Tier I capital

6

Tier I ratio: At least 10%

Nonperforming-loan ratio:
No more than 1%

Shinkin Central Bank Annual Report 2011

Progress in the SCB Medium-Term Action
Program 2010
Under Core Plan 1, “strengthen the SCB’s function to support business solutions by shinkinbanks on local financing and SME financing,”
we strengthened our systems to support business operations that are difficult or inefficient
for an individual shinkin bank to provide on its
own. Specifically, we commenced services tosupport the management improvement andbusiness regeneration of shinkin bank customers. We also formed business alliances with
Bangkok Bank, Bank of Communications andBank of China as a means of supporting theoverseas expansion of shinkin bank customers. The SCB also provided a diverse array of
new products and services to shinkin banks.
Under Core Plan 2, “strengthen the SCB’s
function to support shinkin bank’s ensuring ofmanagement stability” within the industry’s
safety net, the “Shinkin Bank Management
Reinforcement System,” we reinforced precautionary measures to prevent the financial
deterioration of shinkin banks. For further
details, please refer to page 5 of this report.
Under Core Plan 3, “build a stable and solid
financial basis of the SCB” while conducting
investment and lending operations that appropriately responded to changes in the financial
environment and focused more closely than in
the past on risk–return efficiency, we implemented detailed and thorough risk management and worked to restructure our asset
portfolio.
As a result, in fiscal 2010, the SCB achieved
net income amounting to ¥27.3 billion (equivalent to $328 million), substantially similar tothe level achieved in fiscal 2009.
In fiscal 2011, although the operating environment remains uncertain in the aftermath of
the Great East Japan Earthquake, the SCB will
work to achieve stable income and diversify its
earning base, while aiming to achieve businessresults on par with those of fiscal 2010.
In fiscal 2011, the second year of themedium-term management plan, we will continue to steadily implement a range of policies.

Formulation of the “SCB PRINCIPLE OF
ACTION”
The key to whether or not the SCB will be able
to realize the policies set out in the mediumterm management plan is human resources.
One of the action program’s support plans
aims to “develop human resources—people
who take pride in working for a central financial
institution and have a high level of professional
expertise.” To cultivate pride and ambition
among the SCB’s directors and employees as
members of the central financial institution forshinkin banks, we formulated the “SCB PRINCIPLE OF ACTION.” All SCB directors andemployees are expected to strongly heed theprinciples as our unified fundamental guidelines for decision-making and behavior during
the conduct of business operations.
Response Measures to the Great East
Japan Earthquake
Although several months have passed since theGreat East Japan Earthquake struck on March
11, 2011, many thousands of people are still
forced to live in evacuation centers and othertemporary accommodations, and a resolutionof the nuclear accident at the Fukushima Daiichi Nuclear Power Plant is still not in sight.
Under these conditions, shinkin banks inregions affected by the earthquake are working to fully utilize their limited management
resources as they provide a wide range of consultation services and continue to offer the financial
services needed by their local communities.

SCB PRINCIPLE OF ACTION
As directors and employees of the central
financial institution for shinkin banks, we will
always deal with our business under following
guideline and style of action, with awarenessof the fact and pride in it, and high spirit andstrong sense of responsibility.
GUIDELINE OF ACTION
1. Be customer-oriented
From the perspective of the customers,
including shinkin banks, we try to provide
optimum products, services, and functions.
2. Be innovative
With awareness of the issues and cost-consciousness, regardless of precedent, we will
improve our operations.
3. Be professional
With tireless self-development, we will
strive to improve our expertise and skills
in our specialties.
STYLE OF ACTION
1. Speed
2. Challenge
3. Basic

The SCB remains committed to providing
support for recovery and reconstruction inareas affected by the Great East Japan Earthquake as its highest priority task in fiscal 2011.
At the same time, to enable victims of thedisaster to overcome their difficulties as rapidly as possible, we will utilize the nationwide
network of shinkin banks and support shinkinbanks in disaster-affected regions.

Current Status of Support for Shinkin Banksin Disaster-Affected Regions
Delivery of Relief goods
Immediately following the earthquake, we called on shinkin banks to create an action plan for
the transportation of relief goods to shinkin banks in disaster-affected areas, and subsequently
delivered supplies to these regions.
Substitute Payment Scheme for Shinkin Bank Deposits
The SCB implemented a variety of support measure, including the creation of a “Substitute
Payment Scheme for Shinkin Bank Deposits,” which enables depositors from disaster-affectedareas who have been evacuated to regions far from their own communities to withdraw deposited funds over-the-counter from shinkin banks nationwide.
Special Low-Interest Loan Program Based on Agency Loans
To promote the disaster recovery of shinkin bank customers who have suffered damage fromthe earthquake, we are using a system of agency loans as part of a special low-interest loan
program that we established in mid-March 2011. We have allocated a total lending amount of¥100 billion to this program. In addition, we are implementing such measures as repayment
moratoriums for customers who have already used the agency loans.

7

Overseas Bases
The SCB has overseas bases in New York,
Hong Kong, London and Shanghai. These
overseas bases actively undertake information gathering and analysis on current economy and financial market and facilitate the
SCB’s efforts to support shinkin banks.
New York Representative OfficeEver since Shinkin Central Bank opened its
Overseas Economic Institute’s New York
office in November 1983, the New York
Representative Office conducts research on
U.S. markets and assists the Head Office toexplore new investment opportunities. Taking
advantage of its location in the center of theworld finances, the New York Representative
Office helps the head office identify the latest
trends in the financial markets and obtain thevital information for its operation.
As a U.S. base for the shinkin bank industry, the office strives to provide shinkin bankswith the fast-changing information on the U.S.
economy and its financial market, provides
assistance in human resource developmentby accommodating trainees and visitors, andoffers a wide range of support services toshinkin banks in the U.S. market.
Hong Kong Representative OfficeEver since Shinkin Central Bank establisheda Hong Kong business office in November
1994, the Hong Kong Representative Officehas been continuously suppor ting theactivities of shinkin bank customers in Asian
countries, particularly in the South China
region, by providing information about theservices of the local banks, legal systems, tax
systems, employment, etc. The Hong Kong
Representative Office is providing shinkinbanks and their customers with the information relating to economic and financial
situations, and the investment environment
in Asian countries.
Furthermore, the Hong Kong Representative
Office also accepts trainees and visitors/missions from various shinkin banks to assist thehuman resources development program.

Shinkin International Ltd. (London)
Shinkin International Ltd., a wholly owned
subsidiary of the SCB, was established in
London in 1990 as an overseas base for securities business in order to expand investment
opportunities for the shinkin bank sector.

8

Supporting the Overseas Expansion of
Shinkin Bank Customers

Support for the Expansion of Overseas
Consumer Marketing Channels

Business Alliances with Asian Banks

As globalization of the international economy advances, we anticipate that SMEs—
customers of shinkin banks—will increasingly
look to expand overseas and engage in trading activities, particularly centered on China
and other countries in Asia.
For this reason, the SCB provides support to shinkin bank customers that areundertaking overseas expansion, specificallythrough SCB offices in such locations as

The SCB provides support to shinkin bankcustomers that are aiming to expand theirmarketing channels overseas. In February
2011, to provide an opportunity for matchingpotential business partners, we organized
an event attended by six domestic buyer
companies that possess overseas distribution
channels and 43 shinkin bank customers.
More than 100 meetings between potential
business partners took place at the event.

Expansion into Asia by Shinkin Bank Customers
South Korea: 43
China: 841
Hong Kong: 100
Taiwan: 42

Thailand: 113
Vietnam: 56

Philippines: 37
Malaysia: 32
Singapore: 13
Indonesia: 45
Source: Eighth Survey on the Overseas Advance of Shinkin Bank Customers (2010).

Support for the Expansion of Overseas Marketing Channels by Shinkin Bank Customers
Shinkin bank customers
Information promoting event
for matching business partners

Application to participate

Shinkin bank
Information promoting event
for matching business partners

Application to participate

Business partnermatching event

The SCB
Negotiation

Domestic buyer companies possessing consumer marketing channels overseas
ExportRetail stores owned by local subsidiaries / local customers

Commencement oftrading relationshipShanghai Representative OfficeSince its inception in September 2004, theShanghai Representative Office has been
providing a variety of information relating
to economic and financial conditions, theinvestment and loan environment, and thelaws, taxation and employment of each region.
The Shanghai Representative Office also has
been offering detailed advice and a variety ofof support to shinkin bank customers moving
into China and those planning such a move inthe future.

Hong Kong and Shanghai. Furthermore, in
October 2010, the SCB formed a businessalliance with Bangkok Bank, Thailand’s largest
bank, and followed up two months later by
establishing a business alliance with Bank ofCommunications, which is based in Shanghai,
China. In May 2011, the SCB also initiated abusiness alliance with Bank of China, which isheadquartered in Beijing. These relationships
are part of the SCB’s policy of strengthening
its support infrastructure for shinkin bankcustomers undertaking overseas businessexpansion.

The company arranges Eurobonds in astrong relationship with issuing bodies andoffers these securities to the shinkin banksector in close cooperation with Shinkin
Securities Co. Ltd., another subsidiary of the
SCB. The company also serves its customers’
secondary market trading needs and provides
necessary information about the market.
The company achieved seventh placein the 20 09 JPY Vanilla EMTN Dealer
Ranking—All Issuers (No size limit) publishedby MTN-i.

Shinkin Central Bank Annual Report 2011

Organization (As of July 31, 2011)
General Meeting of Members
Auditors
Board of Directors
Chairman of the Board of Directors (Part-Time)
President and Chief Executive Officer
Deputy President
Senior Managing Directors
Managing Directors
Directors

Chief Secretary
Internal Audit Division
General Affairs Division
Legal & Compliance Office
Personnel Division
Strategic Planning Division
Investor & Public Relations OfficeFinancial Management Division
Accounting Reseach & Planning Office
Risk Management Division
Credit Planning & Supervision Division
Business Promotion Division
Investment Trust & Defined Contribution
Promotion Office
Product Development Office
Disaster Recovery & Reconstruction
Support Office
Shinkin Business Solution Division
Shinkin Networks Promotion OfficeInternational Business Support Center

Corporate Business Division I

Support & Advisory Division for Shinkin Banks
Consulting OfficeTransfer & Clearing Division
Management Office for Domestic FundTransfer System
Treasury Business DivisionCorporate Business Promotion Division
Project Finance Office
Operations Division
Operations Center
International Operations Center
Systems Division
Systems Center
Treasury Division
Credit & Alternative Investment Division
Treasury Operations Division
Research Institute
SDB Promotion Office
Office for Strategic Research

Kobe Branch

Corporate Business Division II
Osaka Corporate Business DivisionTokyo Business Division
Kanto Business Division I
Kanto Business Division II
Hokkaido Branch
Tohoku Branch
Hokuriku Branch
Shizuoka Branch
Nagoya Branch
Osaka Branch

Okayama Branch
Chugoku Branch
Shikoku Branch
Fukuoka Branch
Minami-Kyushu Branch
New York Representative OfficeHong Kong Representative Office
Shanghai Representative Office

SCB Group
SCB Group
Trust businessBanking

Securities

Shinkin
Trust Bank

Shinkin
Securities

ShinkinInternational■ Dealing
Trust business
Fund trust
Special money trust ■ Brokerage
Securities■ Underwriting
investment trust
Negotiablesecurities trust
Money debentures
trust
Designated gift
trust
Public interest trust
Land trust■■

Foreign securities
investment andconsulting■

Banking■■¥10bn in capital(100% ownership)

30mn pounds incapital (100%ownership)
London local
securities entity■■¥20bn in capital(100% ownership) ;¥10bn capitalreserve■

Underwriting new
bonds and agency
business in theeuro market

Investment consulting
Investment trust

Personal loan
guarantee

Venture capital
M&A advisory

Data processing
consignment

Consigned
clerical works

Temporarystaffing business

Shinkin AssetManagement

Shinkin
Guarantee

Shinkin
CapitalShinkin Banks
Information
System Center

ShinkinCentralBusiness

Shinkin
Partners■

Data processing
consignment(handles SCB
administrative work)■

Softwaredevelopment■

Computing■■Computer
consulting andtraining

Promissory
note exchange■

Branch,dormitory, andother property
management■¥70mn in capital(100% ownership)■

Investment trust
consignments■

Investment
consulting fornegotiablesecurities andother products andinvestment
discretionary
contract
administration

Dealing andbrokering forexisting euro
bonds

■

¥200mn in capital(100% ownership)■■

Debt guarantee
business(guarantees for
unsecuredpersonal loans
provided byshinkin banks)¥1.0bn in capital(99.1% stakewith Shinkin
Trust at 0.8%) ;¥0.8bn capitalreserve■

Venturecapitalbusiness■

M&A
brokering■

Corporatebusiness
consulting■¥490mn in capital(100% ownership)■¥4.5bn in capital(50.7% stake;
49.2% owned byshinkin banks) ;¥1.5bn capitalreserve■

Consumables
and other item
procurement
and storage■

Temporarystaffing■¥20mn in capital(100% owned by
Shinkin Central
Business) ;¥10mn capitalreserve90.9%¥145 Billion
19.7%¥3,238 Billion

Business Overview
Earnings Performance
Reviewing the SCB’s operating results for fiscal 2010, operating income decreased by ¥33
billion (equivalent to $396 million) or 9.1% to¥336 billion (equivalent to $4,040 million). This
result was mainly attributable to such factors as
a decrease in gain on sales of such instruments
as bonds and stocks. Meanwhile, operating
expenses decreased by ¥53 billion (equivalent to$637 million) or 15.0% to ¥299 billion (equivalent
to $3,595 million). This result was mainly attributable to such factors as a significant decrease in loss
on sales of stock and other securities in the fiscal
year under review owing to the substantial completion of a portfolio restructuring to restore soundness. In particular, this restructuring included a
reduction, during the previous fiscal year, in holdingsof assets with high price volatility. In addition, there
was a large decrease in provision to the reserve forpossible loan losses.
As a result, ordinary income increased by ¥19
billion (equivalent to $228 million) from the previous fiscal year to a profit of ¥36 billion (equivalent
to $432 million). Net income decreased by ¥978
million (equivalent to $11 million) from the previous
fiscal year to a net profit of ¥27 billion (equivalent to$324 million).
Funding
During fiscal 2010, the total amount of funding
increased by ¥2,889 billion (equivalent to $34,744
million) or 10.7% to ¥29,744 billion (equivalent to$357,714 million) at the end of the fiscal year.
Deposits received during the fiscal year
increased by ¥1,847 billion (equivalent to $22,212
million), or 9.3% to ¥21,580 billion (equivalent to$259,530 million), owing to an increase in term
deposits.
The SCB issued ¥581 billion (equivalent to$6,987 million) worth of debentures during the
fiscal year. The outstanding amount of debentures decreased by ¥475 billion (equivalent to$5,712 million) or 9.8% to ¥4,340 billion (equivalent to $52,194 million).
Asset Management
The amount of assets under management in fiscal 2010 increased by ¥2,800 billion (equivalent
to $33,674 million) or 10.0% to ¥30,748 billion(equivalent to $369,789 million).
Owing to an increase in Japanese government
bonds, the outstanding amount of invested securities increased by ¥4,223 billion (equivalent to$50,787 million), or 24.3%, during the fiscal year,to ¥21,547 billion (equivalent to $259,134 million)at the end of the fiscal year.
Loans and bills discounted decreased by

5.1%¥835 Billion

1.3%¥214 Billion

59.5%¥9,767 Billion

9.5%¥1,558 Billion¥1,009 billion (equivalent to $12,134 million)
or 16.1% during the fiscal year to ¥5,254 billion(equivalent to $63,187 million) at the end of the
fiscal year.
Out of the total loans and bills discounted,
agency loans to shinkin bank customers (small
and medium-sized businesses) through shinkinbanks decreased by ¥66 billion (equivalent to$793 million) or 15.2% to ¥367 billion (equivalent
to $4,413 million).
Owing to an decrease by national or governmental agencies and organizations, the amount of
direct loans decreased by ¥942 billion (equivalent
to $11,328 million) or 16.1%. The outstanding
amount of direct loans was ¥4,887 billion (equivalent to $58,773 million) at the end of the fiscal
year.
The outstanding amount of short-termmoney market assets decreased by ¥402 billion(equivalent to $4,834 million), or 10.7%, during the fiscal year, to ¥3,350 billion (equivalent
to $40,288 million). This decrease primarilyreflected a shift toward securities within asset
management.

Breakdown4.0%
of Funding¥651 Billion

Securities

Breakdown of Securities

As of March 31, 2011, the outstanding amountof securities was ¥21,547 billion (equivalent to$259,134 million). Government bonds, corporate
bonds and other domestic securities accountedfor ¥16,291 billion (equivalent to $195,923 million) while foreign securities accounted for ¥5,256
billion (equivalent to $63,211 million). In foreign
securities, the SCB mainly invests in safe assets
which include government-secured financial institution bonds and government-agency bonds inmajor developed countries.
In order to advance its diversified investment
portfolio, the SCB also gradually invests risk assets
such as stocks which are not related interest risk.

Loans and Bills Discounted(As of March 31, 2011)12.8%¥3,822 Billion
14.6%
19.7%
¥4,340 Billion¥3,238 Billion

5.1%¥835 Billion72.6%¥21,580 Billion
59.5%¥9,767 Billion

1.3%¥214 Billion
0.0%¥0.5 Billion
9.5%¥1,558 Billion

4.0%

Deposits
Government
Bonds
Negotiable
Deposits
Municipal Bonds
Debentures
Corporate
Bonds
Borrowed Money
Securities
Investment Trusts
Foreign Securities
OthersBreakdown ¥651
of Asset
Billion Management(As of March 31, 2011)
1.9%¥594 Billion

10.9%¥3,350 Billion

17.1%¥5,254 Billion

Short-Term Market
Operation
70.1%¥21,547 Billion

Securities
Loans and Bills
Discounted
Cash in Trustand Others(As of March 31, 2011)

1.2%¥254 Billion

24.4%¥5,256 Billion
1.7%¥357 Billion
19.7%¥3,238 Billion
6.1%¥1,3271.3%
Billion¥214 Billion

64.9%¥13,982 Billion
5.1%¥835 Billion

9.5%¥1,558 Billion

1.7%
59.5%
¥370 Billion¥9,767 Billion

Medium- andLong-Term
Government Bonds
Municipal Bonds
Corporate Bonds
Stocks & Investment
Trust
Funds Bonds
Government
Foreign
Securities
Municipal
Bonds
OthersCorporate Bonds
Securities
Investment Trusts

Breakdown4.0%
of Loans and Bills
Foreign Securities(As Billionof March 31, 2011) Others
Discounted¥651

The SCB has conducted a variety of loan businesses. As of March 31, 2011, the outstanding
amount of loans and bills discounted was ¥5,254
billion (equivalent to $63,187 million).
Out of the total loans and bills discounted,
agency loans to shinkin bank customers (small
and medium-sized businesses) through shinkinbanks accounted for ¥367 billion (equivalent to$4,413 million), while direct loans to parties suchas national or governmental agencies and organizations, regional public corporations and charitable organizations accounted for ¥2,143 billion(equivalent to $25,772 million). Direct loans
to business corporations accounted for ¥2,356
billion (equivalent to $28,334 million).

7.4%¥386 Billion

National andGovernmental
Agencies andOrganizations

7.0%¥367 Billion
28.6%¥1,502 Billion
44.8%¥2,356 Billion

Regional Public
Corporations
and Charitable
Organizations
and Others
Business
Corporations

12.2%¥641 Billion

Ordinary Income and Net Income (Non-Consolidated)

10

Government Bonds
Municipal Bonds
Corporate Bonds
Securities
Investment Trusts
Foreign Securities
OthersAgency Loans
Others(Millions of Yen)

FY2006

FY2007

FY2008FY2009FY2010Ordinary Income (Loss)

47,494

48,947(220,090)

17,186

36,662Net Income (Loss)

36,28834,830(183,812)

28,36527,387

Shinkin Central Bank Annual Report 2011

Capital Adequacy
OutlineThe SCB’s equity capital mostly comprises basic (Tier I) and supplementary (Tier II) items.
The Tier I items comprise common shares
held by member shinkin banks nationwide,
preferred shares issued in public which supplement the common shares and the internal
reserves which the SCB has accumulated todate. The Tier II items comprise fixed-period
subordinated loans from shinkin banks andinstitutional investors, perpetual subordinateddebt and other instruments.
Measures to Enhance Capital Adequacy
Based on the recognition that increasing
equity capital is the most important way tosecure the sound management of financial institutions, the SCB has raised capital in phases
while working to accumulate internal reserves. The SCB procured ¥226 billion (equivalent to $2,717 million) in perpetual subordinated loans (Tier II capital) from the shinkinbank sector in September 2008. Then in June2009 the SCB raised ¥200 billion (equivalent
to $2,405 million) in common shares (Tier I
capital) from the shinkin bank sector in orderto improve equity capital quality by increasingcore capital, and thus strengthen the SCB’s
financial constitution, and to stably carry out
functions as the central financial institution of
the shinkin bank sector.
Consequently, the SCB’s core capitalincreased and quality of the SCB’s capital
improved.

Consolidated Capital Adequacy Ratio
The SCB’s consolidated capital adequacy
ratio rose 3.59 percentage points year-onyear to 31.76% as of March 31, 2011, measured by the domestic standard. Calculated
according to the BIS standard, the consolidated
capital adequacy ratio was 29.75%.
The amount of capital, which is the numerator for calculating the capital adequacy ratio,
increased by ¥32 billion (equivalent to $384
million), or 2.4%, to ¥1,344 billion (equivalent
to $16,163 million).
Risk assets, which are the denominator for
calculating the capital adequacy ratio, decreasedby ¥426 billion (equivalent to $5,123 million), or
9.1%, to ¥4,233 billion (equivalent to $50,907
million) as industrial bonds—which have a highrisk weight—reached maturity, we increased
holdings of domestic and foreign government
bonds.

Risk Management and Capital Replenishment
To maintain capital adequacy against the risk
level, the SCB has implemented policies tomanage its capital adequacy. As part of its integrated risk management, the capital assessment division evaluates the capital adequacy
using a holistic approach, measuring various
types of risks under the uniform criteria
and comparing quantified risks with the
SCB’s capital.
By adopting integrated risk management
as a method of assessing capital adequacy, the
SCB sets limits on the amount of risks according to the amount of capital allocated to eachcategory and thereby controls risks withinthese limits.
In order to monitor the potential impactsof shocks on its capital, the SCB further
conducts stress testing to estimate losses
under various scenarios, taking into accountthe gravity of each case and probability of its
occurrence.
The situation regarding risk limits and theamount of risk exposure is reported to senior
management at the Risk Management Committee and at other meetings. Furthermore,in principle, the Risk Management Committee
deliberates on measures in response to theresults of capital adequacy assessments andimplements measures as deemed necessary.

Major Capital-Raising in Recent Years
Date
Contents
Reference
Feb. 2006 ¥100 billion (equivalent to $1,202 million) perpetual subordinated loan, assuming securitization
Tier II¥100
billion(equivalentto$1,202
million)fixed-period
subordinated
loan
from
insurancecompanies
Mar. 2007 Existing fixed-period subordinated loans doubled to ¥60 billion (equivalent to $721 million)
Tier II
Sep. 2008 ¥226 billion (equivalent to $2,717 million) perpetual subordinated loan from shinkin banks
Tier II
Jun. 2009 Common shares doubled from ¥200 billion (equivalent to $2,405 million) to ¥400 billion (equivalent to $4,810 million)
Tier I

Capital Adequacy Ratio

Capital Adequacy Ratio
Consolidated

Amount of Capital
Amount of Risk-weighted
Assets

Non-Consolidated Capital Adequacy Ratio(%, billions of yen)
BIS Standard
Domestic Standard
BIS Standard
Domestic Standard
BIS Standard
Domestic Standard
BIS Standard
Domestic Standard

FY2006
20.09
–
1,081
–
5,383
–
19.93
–

FY2007
15.84
–
886
–
5,595
–
15.64
–

FY2008
–
22.56
–
1,137
–
5,041
–
22.43

FY2009
–
28.17
–
1,312
–
4,659
–
28.06

FY2010
–
31.76
–
1,344
–
4,233
–
31.78

Note: As the SCB converted the New York Branch and Hong Kong Branch into representative offices in March 2009, the capital adequacy ratio of the SCB isbased on the domestic standard since fiscal 2008. Calculated according to the BIS standard, the consolidated capital adequacy ratio was 29.75% and thenon-consolidated capital adequacy ratio was 29.24% as of March 31, 2011.

11

Asset Quality
Risk-Monitored Loans

The amount of risk-monitored loans as ofthe end of March 2011 was ¥599 million(equivalent to $7 million) for loans tobankrupt borrowers, ¥12,122 million(equivalent to $145 million) for delinquentloans, ¥295 million (equivalent to $3 million)

for loans past due three months or more, and¥6,207 million (equivalent to $74 million) for
restructured loans. Total risk-monitored loans
decreased by ¥20,771 million (equivalent to$249 million) to ¥19,224 million (equivalent
to $231 million) during the fiscal year.

Risk-Monitored Loans (Non-Consolidated)

The ratio of total risk-monitored loans
to total loans remained as low as 0.36%, andthe soundness of the SCB's loan assets
remained extremely high.

(Million yen, %)Loans to Bankrupt Borrowers
Delinquent Loans
Loans Past Due Three Months or More
Restructured Loans
Total Risk-Monitored Loans (A)End of March
2010
18,43014,744291
6,529
39,995End of March2011
599
12,122295
6,207
19,224

Increase or
decrease(17,831)(2,622)
4(322)(20,771)

−

659

−

6,263,796
0.63

5,254,796
0.36(1,009,000)(0.27)End of March
2010
18,43014,744291
6,529
39,995End of March2011
599
12,122295
6,207
19,224

Increase or
decrease(17,831)(2,622)
4(322)(20,771)

−

659

−

6,263,824
0.63

5,254,813
0.36(1,009,011)(0.27)

Partial direct write-offs
Total Loans (B)Ratio of Total Risk-Monitored Loans to Total Loans (%) (A/B)

Risk-Monitored Loans (Consolidated)*T he SCB is implementing partial
direct write-offs from fiscal year 2010.

(Million yen, %)Loans to Bankrupt Borrowers
Delinquent Loans
Loans Past Due Three Months or More
Restructured Loans
Total Risk-Monitored Loans (A)Partial direct write-offs
Total Loans (B)Ratio of Total Risk-Monitored Loans to Total Loans (%) (A/B)*T he SCB is implementing partial
direct write-offs from fiscal year 2010.

Asset Assessment under the Financial
Reconstruction Law

As of the end of March, 2011, bankrupt andquasi-bankrupt assets amounted to ¥1,356
million (equivalent to $16 million), doubtful
assets were ¥11,365 million (equivalent to$136 million), and substandard assets were
¥6,502 million (equivalent to $78 million).
Accordingly, the total amount of bad
debts under the Financial Reconstruction Law
decreased by ¥20,771 million (equivalent to$249 million) to ¥19,224 million (equivalent
to $231 million).

The coverage ratio of bad debts (the totalof claims deemed collectible with collateraland guarantees and the allowance for possible
loan losses divided by total bad debts) was
94.22%.
Bankrupt and quasi-bankrupt assets arerecorded for the remaining amount after
deducting the amounts deemed collectible
with collateral and guarantees, while doubtful
assets are recorded for the loss-expectedamount of the remaining amount after

similarly deducting the amounts deemed
collectible with collateral and guarantees,
respectively, in the specific allowance forpossible loan losses.
For substandard assets, the anticipatedloss ratio is calculated based on the loan loss
ratio and recorded in the general allowancefor doubtful accounts.

Asset Assessment under the Financial Reconstruction Law (FRL) (Non-Consolidated) (Million yen, %)Bankrupt and Quasi-Bankrupt Assets
Doubtful Assets
Substandard Assets
Total Claims under the FRL (A)Normal Claims
Partial direct write-offs
Total Loans (B)Ratio of Total Claims under the FRL to Total Loans (%) (A/B)
Total Coverage Amounts on Disclosed Claims under the FRL (C)Coverage Ratio (%) (C/A)

12

End of March2010
18,974
14,1996,821
39,995
6,279,914

End of March
2011
1,356
11,365
6,502
19,224
5,280,703

Increase or
decrease(17,618)(2,834)(319)(20,771)(999,211)

−

659

−

6,319,909
0.63

5,299,928
0.36(1,019,981)(0.27)

35,901
89.76

18,114
94.22(17,787)
4.46*T he SCB is implementing partial
direct write-offs from fiscal year 2010.

Shinkin Central Bank Annual Report 2011

Important Management Indices
As the central financial institution for shinkin banks, the SCB strives
for sound management.

Capital Adequacy Ratio (%)(As of September 30, 2010)

NPL Ratio (%)(As of September 30, 2010)29.10%
3.03%
15.94%

2.00%
12.32%

Long-Term Credit Rating(As of July 31, 2011)
0.32%
SCB

City Banks Regional BanksSCBCity Banks Regional Banks

31.76%

0.36%(As of March 31, 2011)(As of March 31, 2011)

Notes	1. City Banks: Average of 6 Banks
2. Regional Banks: Average of 63 Banks
Source Bank disclosure documents

Note
SourceNPL ratio = Total risk-monitored loans/Total loans
Financial Services Agency

Aa3

A+

A+

AA

Moody’s

S&P

R&I

JCR

Note	Symbols indicating credit rating are assigned byeach rating agency.

The SCB promotes streamlining of management through continuous
drastic restructuring.

Funds per Employee(Millions of U.S. dollars)(As of September 30, 2010)
290

Ratio of Expenses (%)(As of September 30, 2010)
1.11%
0.86%

39
SCB

17

City Banks Regional Banks

0.09%
SCB

City Banks Regional Banks$276Million

0.09%(As of March 31, 2011)(As of March 31, 2011)

Notes	1. Total funds = Deposits+CDs+Debentures
2. U S dollar amounts are conver ted forconvenience only, at ¥83.79 and ¥83.15 per
dollar, the prevailing rate on September 30,
2010 and March 31, 2011, respectively.
Source Japanese Bankers Association

Note
SourceRatio of expenses = Total expenses/(Deposits+CDs+Debentures) Average
outstanding balance
Japanese Bankers Association

13

Corporate Governance
The SCB strives to maintain fairness andtransparency in its management by fortifying
our corporate governance system as the SCB
implements various operational strategies.
The SCB’s goal is to gain the trust of all the
SCB’s stakeholders by demonstrating thestrong commitment to establishing a rigorous
corporate governance system and to becomea distinguished f inancial institution wellrespected in society.

General Meeting for Preferred Shares

Institutional Structure

Support System for Part-Time Directors
and Part-Time Auditors

General Assembly of Representatives(General Meeting)

The SCB is a cooperative financial institution
consisting of 271 shinkin banks nationwide(as of March 31, 2011) as its members andinvestors. The General Assembly of Representatives is equivalent to the general meetingof shareholders in a joint-stock company, andis held annually to elect directors and resolve
important issues.

Board of Directors

The SCB’s Board of Directors currently comprises 29 members, 11 full-time directors and18 part-time directors. It meets regularly eighttimes a year, making decisions about businessmatters vital to the SCB’s management andoperations. Part-time directors check the
SCB’s management from the perspective ofoutside directors. Part-time directors are
selected from shinkin banks.
In addition to 11 full-time directors, the
SCB’s Articles of Incorporation stipulate that
more than one-half of the total number ofboard members shall be executive officersof shinkin banks. In accordance with thisstipulation, persons serving as president orboard chair of a shinkin bank are chosen fromeach region throughout Japan as part-time
directors of the SCB. In addition, an academic
expert serves as a part-time director of
the SCB.

Auditors

The auditors of the SCB currently comprise
5 members, one full-time auditor appointed
from its employees, two part-time auditors
elected from shinkin banks and two otherpart-time auditors from disinterested parties
other than the SCB and shinkin banks.
Part-time auditors appointed carry out
management checks in what might be called
an outside auditor capacity, working toensure transparency.
In addition, auditors hold regular reporting meetings to inform the directors of theaudit situation. This is to ensure the effectiveness of the audit system.

14

The SCB’s preferred shares are listed on theTokyo Stock Exchange (see page 22).
Preferred shareholders have no voting
rights at the General Assembly of Representatives. However, a general meetingfor preferred shareholders may be held toprotect their property rights under the Law
Concerning Preferred Shares of Cooperative
Financial Institutions.

The G e ner al Af f air s Division provide s
information and other support for part-time
directors, and staff exclusively assisting theauditors provide the same for part-time auditors to facilitate timely and precise decision
making by part-time directors and auditors.
Checks on the Execution of Business
Operations

Execution of Business Operations

At the SCB, the Board of Directors makes
decisions on important business operations.
Based on those decisions, the President
presides over the SCB’s business operations
and the Deputy President and other full-time
directors assist the President.
In addition, the SCB has established the
Executive Committee to deliberate and makedecisions on important managerial matters,
including ones to be resolved by the Boardof Directors and ones to be reported to theBoard of Directors.
The SCB has also established various
committees of the Executive Committee tofacilitate robust discussions on all aspectsof its business operations. To ensure that
deliberations and resolutions are carried out
on a cross-organizational basis, each committee comprises several directors and generalmanagers of divisions.

Supervision and Checks

At the SCB, the Board of Directors supervises
the execution by the directors. More thanhalf of the Board of Directors are executive
officers of shinkin banks, thereby ensuringthat the Board of Directors fulfills its check
functions.

Audits by Auditors

At the SCB, to facilitate audits of the directors’ execution of duties, the auditors attend
meetings of the Board of Directors and otherimportant meetings. The auditors also receive
reports from directors regarding their execution of duties and inspect the minutes of the
Executive Committee and other important
documents. In addition, the auditors conduct
regular meetings with the independent audi-

tors to exchange opinions and information.
Exclusive staffs are assigned to assist theauditors in the execution of their duties so as
to facilitate the timely and precise executionof duties by the auditors.

The Internal Audit System

The SCB is building an internal audit systemthat aims at the realization of efficient andeffective business operations by utilizing theInternal Audit Division that is independent
from operational divisions and branches.
The Internal Audit Division examines andassesses the legal and regulatory compliancestatus, risk management status and operations
management status of each division, branch
and affiliated company of the SCB to makesure that they are functioning appropriately
and effectively. Where deemed necessary,
the Internal Audit Division issues guidance toundertake corrective measures.
In addition, each division and branch is
required to undertake their own internal
inspections for prevention and early detectionof administrative errors.

The Use of Outside Specialists

The SCB utilizes the expertise of outside
specialists, including independent auditors,
attorneys and tax accountants. To effectively
handle more sophisticated and diversified
operational requirements, the SCB consultswith and receives advice from such specialists
on a regular basis and as the need arises.

Appropriate Disclosure of Corporate
Information

The SCB’s preferred shares are listed on theTokyo Stock Exchange. The SCB strives tomaintain appropriate disclosure of corporate
information, pursuant to the Financial Instruments and Exchange Law, other related laws
and the Securities Listing Regulations of theTokyo Stock Exchange. The SCB also strives
to maintain transparency in its management
through appropriate disclosure.
Improving Internal Control Systems
The SCB regards compliance as basic premiseof all business activities. The SCB continues tostrengthen and operate the internal control
systems, based upon policy to maintain reliability of financial reporting, to manage risks
flexibly and effectively in response to thosecharacteristics, and to implement internal
audit by utilizing the Internal Audit Division,
which is independent from the operational
divisions and branches.

Shinkin Central Bank Annual Report 2011

Strengthening the Compliance System
The SCB views compliance as one of thehighest-priority management agendas. In linewith this stance, the SCB is carrying out themeasures outlined below as it strives tofurther strengthen its compliance system.
Compliance System
1. The SCB has formulated the Shinkin
Centr al B ank Code of E thics, which
stipulates the ethical rules and behavior
standards that must be upheld by all the
SCB directors and employees.
2. In order to improve customer protection
and satisfaction, the SCB formulates
Customer Protection Control Policy.
3. The SCB formulates an annual Compliance
Progr am, which lays out it s specif ic
compliance plan for each fiscal year.
4. To clarify the rules to be followed by directors and employees, the SCB has compiled a Compliance Manual as a practicalcompliance handbook.
5. A compliance supervisory division andcompliance related divisions are establishedand their respective roles are clarified.
A compliance supervisor, personnel responsible for compliance and personnel deputy
responsible for compliance are appointed atevery division and branch of the SCB.
6. In order to deliberate compliance issues,customer protection issues and serious
accidents, the SCB has established theCompliance Committee.
7. In addition to conducting regular lectures
and training seminars for directors andemployees, each division and branch also
carries out its own training programs as
part of the SCB’s efforts to strengthen
compliance education.
8. The list of audit items used by the Internal
Audit Division includes compliance-related
items, and internal audits include investigation on whether or not the compliancesystem is functioning adequately.
9. In cases of compliance violation, reports fromthe heads of concerned divisions or branches
are promptly called for and appropriate
actions are taken to prevent recurrence.
10. The SCB operates a hotline system to facilitate reporting of compliance breaches
by directors or employees. The SCB also
has in place strict measures to protect
whistle-blowers.
11. Pursuant to the Law on Sales of Financial
Products, the SCB has formulated andmade public its Financial Products Solicitation Policy. To ensure that solicitation iscarried out fairly, important points regarding a product must be explained to thecustomer at the time of sale.

12. Pursuant to the Law on Protection of Personal Information, the SCB has published
its Personal Information Protection Policy
on its Internet web site. The SCB takes
necessary and appropriate safety measures
to protect personal information.
13. In addition to publishing its “Outline forManaging Conflicts of Interest” on its
Internet web site pursuant to the Shinkin
Bank Law and the Financial Instruments
and Exchange Law, the SCB is implementing appropriate management to ensurethat customers’ interests are not wrongfully violated.
14. Based on the financial Alternative Dispute
Resolution (ADR) system, to respond
expeditiously, fairly and appropriately tocustomers’ enquiries, complaints, disputes
and other issues, the SCB has overhauled
its internal management system and is
striving to enhance its reliability.
The SCB intends to review and update thecontent of its Compliance Manual and otherpolicies on an ongoing basis. All directors andemployees of the SCB are working to maintain strict compliance through coordination
among related divisions and by strengthening
internal education programs.

Compliance System Overview
Customers
Division or branch

Corporate
lawyerAuditors

Personnel responsible for compliance (Appointed by the head of compliance administration)
Personnel deputy responsible for compliance (Appointed by the compliance supervisor)
Compliance supervisor (Head of division or branch)Compliance supervisory division（General Affairs Division）

Deputy head ofcomplianceadministration

Head of complianceadministration(General manager ofLegal & Compliance Office)(General manager ofGeneral Affairs Division)

Supervisor of compliance

Compliance-related divisions
Personnel Division
Strategic Planning Division
Business Promotion DivisionInternal Audit Division

Compliance hotline

Employees

Gene

Operations Division
Systems Division(Director in charge ofGeneral Affairs Division)

Risk Management Committee

Directors (full time)

Executive Committee
Board of Directors

15

Risk Management
Learning from the experience of the recent financial crisis, the SCB is exhaustively implementing more highly detailed andthorough risk management by pursuing more sophisticated integrated risk management, market risk management, credit risk
management and other measures while also advancing predictor and interim management for credit control.
Basic Policy on Risk Management
In the wake of the global financial crisis, financial
institutions face significant changes in economic
and financial market conditions and otheraspects of their operating environment. To
respond promptly and appropriately to thesechanges, financial institutions require very finely
tuned risk management.
The SCB believes that its future depends onrisk management and that a strong risk management system is a prerequisite for maintaining
sound management and securing adequate profits.
The SCB classifies “risk” into two broad
categories—risk that must be controlled andrisk that must be absolutely minimized—andmanages these risks accordingly. The types ofrisk that must be controlled are market risk,
liquidity risk and credit risk. The type of riskthat must be minimized is operational risk.
Risk is managed by divisions which are independent from divisions involved in business
operations. The Risk Management Division
coordinates management of differing risks toprovide comprehensive risk management.
The SCB has also established five crossorganizational bodies—the Risk Management
Committee, ALM Committee, and Credit Committee, —to manage risk from a Bank-wide
perspective. These committees deliberate andmake decisions on specific issues relating to theirrespective risk management functions based on
the policies determined by the Board of Directors and the Executive Committee.
To ensure the effectiveness of its risk management systems, the SCB has also establishedthe Internal Audit Division—a body independent from its risk management systems—tomonitor the SCB’s risk management activities.
Integrated Risk Management
To manage risk in a comprehensive manner,
the SCB employs the integrated risk management method to cope with quantifiable risk.
Integrated risk management is a way tomanage its diverse risks by calculating themwith uniform criteria such as the Value-at-Risk(VaR) method and comparing their aggregated value to the institution’s overall financial
strength (i.e., capital adequacy).
For market risk and credit risk, the SCB
calculates Value-at-Risk. For the calculationof operational risk capital requirements, theSCB employs the basic indicator approach
proposed under the Basel II Capital Accord.
The SCB defines capital under its integrated risk management system and allocatesrisk limit amounts for operational risk andother types of risk (note). Separately, theSCB estimates losses under various stressscenarios as part of its efforts to monitor
potential impacts on capital.
The quantitative risk limits and reserveamounts for each fiscal year are determinedby the Executive Committee after deliberationby the Risk Management Committee. The Risk
Management Division, which oversees integrated risk management, measures the amountof risk exposure both during and at the end ofeach month to ensure that quantitative limits
for each type of risk are not exceeded. The
Risk Management Division provides reports
on risk status to senior management andrelated divisions through the Risk Management
Committee.
Note: W ith regard to subsidiaries within the SCB’s
scope of consolidation, the SCB monitors risk
exposure at each subsidiary and allocates capitalcommensurate with the amount of risk. These
allocations provide for risk taking by subsidiaries.

Risk Categories and Definitions

Risk categories
Market Risk

Risks That Must
Be Controlled

Risks That Must
Be Minimized

Risk Definitions
Market risk is the risk of loss resulting from fluctuations in asset or liability values (including offbalance-sheet items) due to changes in such market risk factors as interest rates, stock prices or
exchange rates. This includes the risk of loss due to changes in earnings generated by assets andliabilities.

Liquidity Risk

Liquidity risk is the risk that a financial institution will be unable to generate sufficient cash inflow
to meet required cash outflows and the risk of loss resulting from the unavoidable need to procure
funds at much higher interest rates than normal (cash flow risk); and the risk that market transactions will become either impossible or transactions must be carried out at very unfavorable prices
due to market disruptions (market liquidity risk).

Credit Risk

Credit risk is the risk of loss due to the partial or complete loss of asset value (including off-balancesheet assets), owing to such factors that borrower or counterparty will fail to perform on an obligation.

Operational Risk

Operational risk is the risk of unexpected loss resulting from inadequacies in operational
processes, breaches in internal controls, employee actions, or computer systems, as well as therisk of loss resulting from external events.

Administrative Risk

Administrative risk is the risk of loss resulting from administrative failures, accidents or management
or staff fraud.

Information
Technology Risk

Information technology risk is the risk of loss due to computer system failures, errors, orinadequacies and the risk of loss due to the fraudulent use of computer systems.

Other operational risks are risks other than those mentioned above that may be defined, as necessary,O t h e r O p e r at i o n a lby the divisions responsible for the overall management of operational risk (excluding market risk,
Risk
liquidity risk and credit risk).

16

Shinkin Central Bank Annual Report 2011

Overview of the SCB’s Risk Management System
Board of Directors

Executive Committee

Risk Management
Committee

ALM
Committee

Divisions responsible forthe overall management of operational risk

Division responsible for integrated
risk management

Division responsible for market risk
management

Risk Management Division

Risk Management Division

Risk Management Division

Division responsible for administrativerisk management

Divisions responsible for capital
adequacy

Divisions responsible for liquidity risk
management

Operations Division

Risk Management Division(Assessment)

Division responsible for information
technology risk management

Strategic Planning Division (Policy)
Financial Management Division(Calculation)

Divisions responsible for the
management of other operational risk

Risk Management Division

Systems Division

Financial Management Division

Divisions stipulated by Risk
Management Division

The SCB’s Market Risk Management Framework
Board of Directors
Executive Committee
Decisions

Matters for discussion

Risk Management Committee
ALM Committee
Decisions

Decisions

Reports, etc.

Divisions responsible formarket risk management

Matters for discussion

Market divisions
Mutual checks

Mutual checks

Mutual checks

Administrative control divisions

Market Risk Management
To maintain an accurate understanding ofmarket risk and rigorously manage this risk,
the SCB has issued a market risk management
policy. Furthermore, divisions responsible formarket risk management are clearly separated
from divisions involved in market operations,providing a risk management structure inwhich internal checks are maintained throughthe independent functions.
The SCB has established the ALM Committee as the body responsible for deliberating
and making decisions on matters relating tomarket risk management. The ALM Committee comprises senior management and headsof divisions related to market risk. Based on

CreditCommittee

risk status information—obtained via reports
from divisions responsible for managing market risk and other sources—the ALM Committee deliberates widely and expeditiously onpolicy relating to fund-raising and management
as well as proposed market transactions.
For banking operations and trading activities, the divisions responsible for managing
market risk quantify and manage market risk
by VaR within the limit set by the Executive
Committee. In addition, market risk is further
divided into several categories and managed
according to risk limits allocated to eachcategory.
Note: M arket risk includes interest rate risk and such
equity-related risk as stock price fluctuation risk.

Divisions responsible for
credit risk management
Divisions responsible for credit control
Risk Management Division, Credit
Planning & Supervision Division
Division responsible for
credit assessment
Credit Planning & Supervision Division
Division responsible forasset assessment
Credit Planning & Supervision Division

In addition, the SCB manages market
risk by monitoring a wide range of measures
under various scenarios. These include theinterest rate risk amount calculated using
outlier standards; the possible stress loss
during a period of very high market volatility;
the basis-point-value (BPV) indicator, whichmeasures the potential change in portfolio
market value for every 0.01 percentage point
fluctuation in interest rates; and the market
risk equivalent amount.
The status of these risk management
activities is reported to senior management at
biweekly meetings of the ALM Committee.
Liquidity Risk Management
As the central financial institution for shinkinbanks, the SCB maintains a rigorous system
for managing liquidity risk to respond to
the needs of shinkin banks for daily working
capital and emergency funds.
To maintain an accurate understanding of
liquidity risk and rigorously manage this risk,
the SCB has formulated a liquidity risk management policy. Divisions responsible for liquidity
risk management are clearly separated fromdivisions involved in cash management andmarket operations, allowing internal checks
to be maintained through the independentfunctions. In addition, the ALM Committee
deliberates and makes decisions on mattersrelating to liquidity risk management.
Methods used for managing liquidity risk
include the daily setting and monitoring ofrisk limit amounts relating to the gap between
cash receipts and payments. This is carried17

out for individual currencies and periods. In
the event that a significant liquidity risk arises,
the SCB has preparations to respond rapidly,
including the securing of funding sources.
Credit Risk Management
To maintain an accurate understanding ofcredit risk and rigorously manage this risk, the
SCB has formulated a credit risk management
policy. Furthermore, the SCB has formulated
a Credit Policy, which sets out the SCB’s
fundamental philosophy. The SCB requires
strict adherence to the Credit Policy on thepart of all directors and employees involvedin credit operations. The SCB conducts ongoing internal communications emphasizing
the importance of sound ethics in all behavior
and decision making.
At the SCB, divisions responsible for
credit control, credit assessment and asset
assessment are clearly separated from divisions
involved in client services. In this way, we arebuilding a structure in which internal checks
are maintained through the independentfunctions given to each part of the system.
The SCB has established the Credit Committee as the body responsible for deliberating and making decisions on matters relatingto credit risk management. The Credit Committee is comprised of senior management
and general managers of related divisions. The
Credit Committee deliberates widely andthoroughly on credit transactions that exceed
a designated amount.
The Executive Committee deliberates on,
and makes decisions regarding, the results ofself-assessment of assets and matters relating
to self-assessment of asset write-offs and asset
reserve provisions.
Divisions responsible for credit control
manage the credit risk for each borrower
relating to loans and market trading activities.
An overall credit limit is set for each borrower
according to the credit rating of the borrower.
Credit ratings are based on quantitative
criteria set by evaluating the borrower’s
financial statements and qualitative criteria
set by evaluating the borrower’s competitive
strength within the particular industry it operates in. Based on these assessments of credit
strength, each borrower is given a credit
rating on the SCB’s 10-step scale. The credit
ratings given to borrowers are reviewed
regularly and flexibly revised as necessary.
Divisions responsible for credit control

18

analyze the SCB’s overall credit por tfolio
according to credit rating, industry, country
and other criteria. These analyses are used tomonitor the diversification of credit risk as well
as changes in portfolio credit risk. Furthermore,credit risk is quantified and managed within therisk limit set by the Executive Committee.
The credit risk amount is measured using
VaR as well as the Monte Carlo simulation
method.
The Credit Planning & Supervision Division—responsible for credit assessment—
accurately monitors each borrower’s financial
condition, the purposes for which funds areused and repayment resources. In addition toappropriate assessment and post-transaction
management, the Credit Planning & Supervision Division continually checks whether theclient service division is conducting appropriate credit control, and provides guidanceas necessary. In the case of any problem on
the side of borrowers, the Credit Planning& Supervision Division rapidly makes assessments of the borrower’s management situationand provides supervision. Where necessary,an action is taken to recover the loan.
The Credit Planning & Supervision Division is also responsible for asset assessment.
The division undertakes and manages operations relating to asset self-assessments, andthe calculation of asset write-offs and asset
reserve provisions.
Note: C redit risk includes such risk as counterpar ty
risk for derivative transactions and securitizationtransaction risk.

Operational Risk Management
To provide comprehensive management ofoperational risk, the SCB has issued a policythat governs operational risk management.
In addition, the SCB has separate policies tomanage two major types of operational risk:
administrative risk and information technology
risk. The Risk Management Division is responsible for overall operational risk management,
the Operations Division oversees administrative risk management, and the Systems Division is responsible for information technology
risk management. The SCB may also create
new divisions to cope with other types ofoperational risk as necessity arises. With thisstructure, the SCB comprehensively manages
operational risk.
The SCB has established the Risk Management Committee to deliberate and makedecisions on matters relating to operationalrisk management . The Risk Management
Committee, comprising senior management
and heads of related divisions, deliberates
and makes decisions on comprehensive
methods for managing operational risk,
including administrative risk and systems risk.
To calculate its operational risk capitalrequirements, the SCB uses the basic indicator approach proposed under the Basel
II Standards.

Administrative Risk Management
The Operations Division oversees administrative risk management and administrative
instruction. In addition to developing andmaintaining the administrative processing
system and administrative rules and undertaking reviews of administrative procedures,the Operations Division conducts administrative instruction programs for divisions
involved in administrative processing. With
this system, the SCB appropriately manages
administrative risk.
Furthermore, the SCB is undertaking a
range of measures to ensure accurate andefficient administrative processing. These
include further automation of administrative
processing, training programs tailored for eachstaff and management level, and programs toencourage staff to submit proposals to improveadministrative processes. The SCB also controls the entire process of administrative risk
management from the identification of risk to
the implementation of corrective measures.

Information Technology Risk
Management
T h e Sy s t e m s D i v i s i o n t a ke s c h ar ge of
information technology risk management. It
provides control and guidance to divisions
involved in system development, operation
and utilization.
In the event of a system failure that
seriously affects the execution of business
operations, a Bank-wide response is triggered
based on crisis management procedures(contingency plan). The SCB also conducts
crisis response drills periodically based on
system-failure crisis scenarios.
To prevent damage caused by system
failure, the SCB has issued a security policy
and undertakes internal communications
programs to ensure that all directors andemployees have a thorough understanding of
the SCB’s security policy.

Shinkin Central Bank Annual Report 2011

Corporate Social Responsibility (CSR) Activities
The SCB aims to be a financial institution highly valued throughout society.
Activities as a Regional Financial Institution
Since the SCB’s funds are principally deposits
received from many local shinkin banks, we
believe that it is ideal to contribute to thesocial and economic development of local
communities with its funds.
For this reason, in cooperation withshinkin banks, the SCB actively provides
financing to local governments, public interest corporations, and locally based businessenterprises.
Fur thermore, in collabor ation withshinkin banks, the SCB contributes to thedevelopment and revitalization of local communities with a very extensive variety ofactivities, including syndicated loans, private
finance initiatives (PFI), support for the improvement of SME managements, regional
industry research, and the implementation of
local contribution programs.
Activities Implemented through theProvision of Financial Products

Charitable Trusts
Shinkin Trust Bank Ltd., a wholly owned
subsidiary of the SCB, sets up and manages
charitable trusts on behalf of individuals andcompanies in order to contribute to activities
for the public good, such as environmental
conservation, scholarships, academic researchand subsidies for social welfare.

Socially Responsible Investing (SRI)
Funds
Shinkin Asset Management Co. Ltd., a wholly
owned subsidiary of the SCB, offers the
Shinkin SRI Fund, in which it focuses on thesocial responsibility of the companies andinvests.
SRI is based on the philosophy according
to which “companies with the best potential
for steady growth are those that maintainsustainable economic growth by fulfilling
their corporate social responsibilities.” Consequently, SRI funds carry out investments
based on research and analysis from a broad
range of perspectives, including financial,environmental, social and ethical.

Revitalizing Local Communities andPursuing Activities to Promote Environmental Sustainability
As part of its efforts to contribute to local
communities, the SCB sponsors Metrolink Nihonbashi, to realize human- and environmentfriendly transportation set in the Tokyo metropolitan government’s urban planning vision.
Metrolink Nihonbashi uses low-emission,
low-noise electric buses that provide a highdegree of accessibility through a low-floor
design. The buses serve a circular route thatruns through Nihonbashi and Yaesu, near to
the SCB’s head office, providing shoppers andpeople working in the area with a transportation option that is convenient and free ofcharge. This service aims to revitalize the local
area by helping to improve the environmentand by attracting shoppers and sightseers.

students, who will be responsible for the
future of their communities, to create new
business ideas, new jobs and new frameworks
to solve local problems.

Metrolink Nihonbashi

Activities That Aim to Contribute toSociety
With branches and offices throughout Japanand overseas, the SCB aims to contribute not
only to local communities but also to society
in the broadest possible way.
Recently, the SCB has become a suppor ter of the “Table For Two” program,a social contribution project that began inJapan. Table For Two enables consumers tocontribute to famine relief efforts in developing countries while enhancing their health.
When a customer purchases an item on the“healthy menu” offered at the SCB head officecafeteria, part of the price of the meal (¥20)
is donated to a developing country.
Shinkin Bank Contributions to Local Society
The shinkin bank sector has established the
Shinkin Bank Social Contribution Award torecognize local social contribution activities that can only be made by shinkin banks,
which are established and grow together withlocal communities. The award honors local
economic promotion, social welfare, arts andcultural support activities advanced by shinkinbanks nationwide.
Shinkin banks have also initiated the “High
School and Technical College Student Our
Town Business Idea Contest – Creating Workthat Benefits Society” as an opportunity for

19

What Are Shinkin Banks?
Shinkin banks are cooperative financial institutions. Their membership is composed of local
residents and small and medium-sized companies. Shinkin banks' distinctive characteristics
are (1) they are close and convenient, (2) they
offer fine-tuned and personalized services and(3) they have a strong relationship of mutual
trust with their customers and communities.
Cooperative financial institutions are organizations that operate under the fundamental
principle of mutual support.
Shinkin banks limit their lending, in principle, to members. However, their functions arealmost the same as those of commercial banks,
and they also deal with many people who are
not members, accepting deposits, providing
exchange services, accepting various payments
including those for public utilities, and engaging in over-the-counter sales of public bonds,
investment trust funds, and insurance.
Shinkin banks not only provide deposit, lending and exchange services, but also offer a diverse
range of services to customers and other members of the local community in such areas as support for management improvement and enterpriserenewal, business succession support, businessstart-up support and local-area revitalization.
Outline of Shinkin Banks
Shinkin banks dedicate themselves to providing
high-quality services to local residents, as financial institutions that are deeply rooted in theirrespective regions and contribute to regional
development.
Total deposits outstanding at 271 shinkinbanks as of March 31, 2011, reached approximately ¥119 trillion (equivalent to $1,431 billion), which ranks after Japan’s city and regionalbanks, and gives shinkin banks an important position in Japanese financial markets. The numberof shareholders at shinkin banks is 9.31 million.
Shinkin banks also possess one of the largest
branch networks among the financial businesscategories, forming a strong network throughout Japan.
Shinkin banks continue to further deepen
their presence and roles as important infrastructure for regional economies and communities.

Shinkin bank services

Regional Banks
Shinkin Banks

7,584

Succession support / M&A

Product and service expansion

Overseas expansion

Personal lending businessBusiness start-up

Local-area revitalization

3,134
2,364

1,761
658

Shinkin
Banks

Regional
Banks

Second-tier
Regional
Banks

City
Banks

CreditCooperatives

Labor
CreditAssociations

Note	The number of shinkin banks is as of March 31, 2011. The numbers of regional banks, second-tier regionalbanks, city banks, credit cooperatives and labor credit associations are as of September 30, 2010.
Sources	Japanese Bankers Association, National Central Society of Credit Cooperatives, National Association of Labour
Banks and SCB

Deposit Outstandingat Shinkin Banks (Billions of Yen)

111,377.2
<943>

2007

113,727.5<1,135>

2008

115,453.1<1,175>

2009

117,380.6<1,261>

Loan and Bills Discounted
Outstanding at Shinkin Banks(Billions of Yen)

119,746.5<1,440>

2010

1,431
1,022

Second-tier Regional Banks

685

Credit Cooperatives

204

Labor Credit Associations

204

1. Deposit includes domestic operations.
2. City banks, regional banks and second-tierregional banks do not include the special
international financial transactions account.
Sources	Japanese Bankers Association, Norinchukin
Bank, National Central Society of Credit
Cooperatives, National Association of Labour
Banks and SCB

63,495.3<537>

63,543.3
<634>

2007

2008

2011

(Billions of U.S. Dollars) Note
Items in angular brackets are U.S. dollar amounts.
	U.S. dollar amounts are converted for convenience$3,463
only at ¥118.06, ¥100.16, ¥98.20, ¥93.05 and¥83.15 per dollar, the prevailing rate on March
2,549
31, 2007, 2008, 2009, 2010, and 2011 respectively.
Source SCB

Agricultural Cooperatives

Shinkinbankcustomers

7,500

64,878.6
<660>

2009

64,157.4<689>

63,755.0
<766>

2010

2011

Note
Items in angular brackets are U.S. dollar amounts.
	U.S. dollar amounts are converted for convenience
only at ¥118.06, ¥100.16, ¥98.20, ¥93.05 and¥83.15 per dollar, the prevailing rate on March
31, 2007, 2008, 2009, 2010, and 2011 respectively.
Source SCB

Growth of Number of Shareholders (Millions) (As of March 31, 2011)
7.36
5.51
3.67

Notes

20

Co-financing

Domestic Branches by Bank Segment (Number of branches)

Deposits Outstanding by
Bank Segment (As of March 31, 2011)
City BanksManagement improvement / enterprise renewal

Shinkin
bank

8.11

8.87

9.13

9.31

2005.32011.3

6.20

4.25

2.58
1.31
1955.3

1.81

1960.3

Source SCB

1965.3

1970.31975.3

1980.3

1985.3

1990.3

1995.3

2000.3

Shinkin Central Bank Annual Report 2011

The capital adequacy ratio of shinkin banks asof the end of March 2011 increased by 0.33
percentage point over the previous fiscal
period to 12.67% (preliminary figure).
The capital adequacy ratio of shinkin banks
maintains a standard which is by no means inferior even compared to other business categories, and is outperforming the standards ofother regional banks (11.58%) or second-tierregional banks (10.34%).

Capital Adequacy Ratio of Shinkin Banks
12.67%
12.34%
11.96%

11.74%

2007

11.80%

2008

2009

2010

2011
(Preliminary Figure)

Note 	Capital adequacy requirements with flexibility measures are not applied before 2008.
Source SCB

Non-Consolidated
Capital Adequacy Ratio
by Bank Segment (%)(as of March, 31, 2011)17.57%
12.67%

ShinkinBanks

11.58%

City Banks(Preliminary Figure)

Nonperforming-Loan Ratioof Shinkin Banks (%)
7.09%

6.97%

10.34%

Regional Second-tierBanks Regional Banks

Sources Bank disclosure document
Regional Banks Association of JapanThe Second Association of Regional Banks

2007

6.25%

6.27%

2009

2010

2008

6.44%

2011
(Preliminary Figure)

Source SCB

Reference:
The Difference between Shinkin Banks and Commercial Banks
Category

Shinkin Banks

Commercial Banks

Legal Foundation

Shinkin Bank Law

Banking Act

Organization

Cooperative organizationFor-profit joint stock
corporations

Membership Qualifications• Those who have an address or location inNone

the region.
• Those who have a business office in the region.
• Those who work in the region.

21

Preferred Shares
The SCB’s Preferred Shares
The SCB issues preferred shares under the
Law Concerning Preferred Shares of Cooperative Financial Institutions. The preferredshares, which are regulated by the Financial
Instruments and Exchange Law, are issued tocomplement members’ (shinkin banks’) common shares and offered publicly to increase thenet worth of cooperative financial institutions.
Although the preferred shares do notcarry the voting rights that holders of common shares receive, the preferred shares havecertain advantages over common shares, suchas the guarantee of priority in the payment
of dividends.
Listing of Preferred Shares
The SCB has issued preferred shares since fiscal 1995, and the preferred shares were listedon the Tokyo Stock Exchange on December
22, 2000 (Securities Identification Code 8421)
for the first time in Japan. The SCB’s preferredshares are marketable securities that are very
similar to preferred stocks, and basically apply
the same listing criteria and disclosure ruleswith them.
Trading of Preferred Shares
Like listed stocks, the SCB’s preferred sharescan be traded anytime during trading hours of

the Tokyo Stock Exchange through a securities company. Credit transactions are also
possible for preferred shares just as they arefor stocks.
Dividends of Preferred Shares
The SCB’s basic policy is to pay stabledividends while securing sound management,enhancing internal reserves, and boostingearnings power.
The SCB’s preferred shares pay a dividend
to the holders at the end of March of every
fiscal year. As the rule of interim dividends is
not provided at the Law Concerning Preferred
Shares of Cooperative Financial Institutions,
the SCB does not pay interim dividends.
Dividends of preferred shares are comprised of preferred dividends and participating
dividends. Preferred dividends are paid before
any dividends are paid to common stock holders (shinkin banks). Participating dividends arepaid from retained earnings after preferred
dividends. They may vary depending on profits
of the SCB.
The SCB’s preferred shares have the same
treatment as stocks in the taxation system, andthey are given the same preferential treatment
concerning tax as stocks.
For fiscal 2010, a dividend for preferredshare was ¥6,500 (equivalent to $78) per

Composition of Preferred Shares (March 31, 2011)
・Number of Investors (Total 17,449)
Foreign Institutions
and Others
12(0.1%)
Financial Institutions
227(1.3%)
Other Corporations
233(1.4%)

Price(closing price,
in yen)Other Corporations
45,492(6.4%)First Day of Listing (December 22, 2000) 200,500
Securities Companies
6,537(0.9%)

Highest Price (March 15, 2006)

311,500

Lowest Price (April 14, 2009)

102,400

Closing Price (July 29, 2011)

150,900

Note: P rices of preferred share are split-adjusted,reflecting the stock split of preferred shares witha record date of July 31, 2009.

Individuals
104,556(14.8%)
Individuals
16,446(97.1%)

22

Price of Preferred Shares

・Number of Subscription (Total 708,222)
Foreign Institutions
and Others
200(0.0%)

Securities Companies
10(0.1%)

share, which comprised a preferred dividend of¥3,000 (equivalent to $36) and a participating
dividend of ¥3,500 (equivalent to $42). For
fiscal 2011, a dividend for preferred share is
expected to remain ¥6,500 (equivalent to $78)
per share.

Financial Institutions
551,437(77.9%)

Financial Section

Contents
24 Five-Year Summary (Consolidated)
25 Consolidated Balance Sheets
26 Consolidated Statements of Income
27 Consolidated Statements of Comprehensive Income
28 Consolidated Statements of Changes in Net Assets
29 Consolidated Statements of Cash Flows
30 Notes to Consolidated Financial Statements
78 Report of Independent Auditors
79 Non-Consolidated Balance Sheets
80 Non-Consolidated Statements of Income

23Five-Year(Consolidated)
Five-YearSummary
Summary(Consolidated)(Millions of yen)
FY2006

FY2007

FY2008FY2009FY2010Total Income

371,427445,869

484,598

392,849

361,820

Total Expenses

316,633

392,579

701,720

373,135

322,361

Net Income(Loss)

38,23838,727(182,518)

29,20627,887－－－－35,970938,534

747,431443,564

1,020,800

1,043,267

Total Assets

26,081,465

26,400,125

27,505,115

28,575,669

31,502,697

Shareholders' Equity / Net Assets
per Share(yen)395,199.46

313,698.61

185,280.93

214,698.35

219,425.69

Earnings(Loss) per Share(yen)15,340.75

15,548.57(77,531.92)

6,425.11

5,471.96

12,603

12,603－

13,37014,603

Common Shares

8,000

8,000

－

8,767

10,000Preferred Shares

4,603

4,603

－

4,603

4,603

20.09

15.84

－

－

－

－

－

22.56

28.17

31.76

Comprehensive Income
Shareholders' Equity / Net Assets

Dividends

Capital Adequacy Ratio(International Standard) (%)
Capital Adequacy Ratio(Domestic Standard) (%)

Notes:
1. Consumption tax and local consumption tax incurred by the Bank and its domestic consolidated subsidiaries are excluded
from transaction amounts.
2. Beginning with this fiscal year, the Bank had adopted the Accounting Standard for Presentation of Comprehensive Income(ASBJ Statement No. 25; June 30, 2010).
3. Shareholders’ equity per share was obtained by deducting preferred dividends from shareholders’ equity and was divided
by the number of shares at term-end. This calculation complies with ASBJ statement No. 2, September 25, 2002
“Accounting Standards of Net Profit per Share” and ASBJ Guidance No. 4, September 25, 2002 “Application Guideline of
Accounting Standards of Net Profit per Share”. Accompanying the revision of ASBJ Guidance No. 4, from fiscal 2006, thecalculation of net assets per share includes net deferred gains (losses) on hedging instruments.
4. Earnings per share were obtained by dividing the value obtained by deducting preferred dividends from current profit.
This calculation complies with ASBJ statement No. 2, September 25, 2002 “Accounting Standards of Net Profit per
Share” and ASBJ Guidance No. 4, September 25, 2002 “Application Guideline of Accounting Standards of Net Profit per
Share”.
5. From fiscal 2006, the Bank’s capital ratio on a consolidated basis is calculated using the formula stipulated in “Financial
Services Agency Notification No. 21 (2006).” This notification is pursuant to the standards set forth in Article 14-2 of the
Banking Law, which is stipulated for application by Article 89-1 of the Shinkin Bank Law. In addition, the Bank adopted
BIS standard up until fiscal 2007. However, the Bank has adopted domestic standard for fiscal 2008 since overseas branch
was closed down in March 2009.

Shinkin Central Bank

24

1

Consolidated
Balance Sheets
Consolidated Balance Sheets
Shinkin Central Bank As of March 31,
AssetsCash and Due from Banks (Note 2 (2), 24)
Call Loans and Bills Bought (Note 24)
Receivables under Resale Agreements (Note 24)
Receivables under Securities Borrowing Transactions (Note 24)
Monetary Debts Purchased (Note 24)
Trading Assets (Note 4, 10, 24, 25)
Money Held in Trust (Note 24, 25)
Securities (Note 5, 8, 10, 24, 25)Loans and Bills Discounted (Note 6, 7, 10, 24)
Foreign Exchanges Assets
Other Assets
Tangible Fixed Assets (Note 9, 14, 23)
Intangible Fixed Assets (Note 23)
Deferred Tax Assets (Note 21)
Customers’ Liabilities for Acceptances and Guarantees
Reserve for Possible Loan Losses
Reserve for Investment Losses
Total Assets
Liabilities and Net Assets
Liabilities
Deposits (Note 24)
Debentures (Note 13, 24)
Trading Liabilities (Note 11, 24)
Borrowed Money (Note 10, 12, 24)
Call Money and Bills Sold (Note 10, 24)
Payables under Securities Lending Transactions (Note 10, 24)
Foreign Exchanges Liabilities
Other Liabilities
Reserve for Employee Bonuses
Reserve for Directors' Bonuses
Reserve for Employee Retirement Benefits (Note 22)
Reserve for Directors' Retirement Allowances
Reserve under Specific Law
Deferred Tax Liabilities (Note 21)
Deferred Tax Liabilities for Land Revaluation (Note 14)
Acceptances and Guarantees
Total Liabilities
Net Assets
Common Shares and Preferred Shares (Note 20)
Capital Surplus
Retained Earnings
Total Shareholders' Equity
Net Unrealized Gains on Other Securities (Note 21, 25)
Net Deferred Gains on Hedging Instruments (Note 26)
Land Revaluation Excess (Note 14)
Foreign Currency Translation Adjustments
Total Accumulated Other Comprehensive Income
Minority Interests
Total Net Assets
Total Liabilities and Net Assets
The accompanying notes are an integral part of these financial statements.

2011

Millions of Yen

2010

Millions of
U.S. Dollars(Note 1)2011

2,026,383
750,984
86,983
93,138495,643466,569
211,106
21,516,667
5,254,813
4,001
419,077
76,745
14,271
28,82381,515(23,811)(215)
31,502,697

2,485,776
612,207
29,99766,925642,908
458,532
211,677
17,295,991
6,263,824
4,929
324,854
77,196
13,34845,732
83,039(40,947)(326)
28,575,669

24,370
9,031
1,046
1,120
5,960
5,611
2,538
258,769
63,196
48
5,040
922
171
346
980
(286)
(2)
378,865

21,569,331
4,323,600
139,458
630,950
435,272
2,843,378
144
406
050
406,0501,413
64
20,363
498
1
22
7,366
81,51530,459,430

19,723,454
4,802,920
102,896
628,950
452,101
1,297,387
122
435
776
435,776
1,266
45
18,988
483
1
7
7,426
83,03927,554,868

259,40251,997
1,677
7,588
5,234
34,195
1
44,883
883
17
0
244
5
0
0
88
980
366,319

490,998
100,678395,280
986,957
35,7832,490
13,875(3,876)48,272
8,037
1,043,267
31,502,697

490,998
100,678
380,630
972,307
10,776
18,896
14,007(3,016)
40,664
7,828
1,020,800
28,575,669

5,904
1,210
4,753
11,869
430
29
166
(46)
580
96
12,546
378,86525

Consolidated
Statements of Income
Consolidated Statements of Income
Shinkin Central Bank For the years ended March 31,
IncomeInterest Income:Interest on Loans and Discounts
Interest on Due from Banks
Interest on Call Loans and Bills BoughtInterest on Receivables under Resale Agreements
Interest on Receivables under Securities Borrowing Transactions
Interest and Dividends on Securities
OthersFees and Commissions (Note 15)
Trading Income (Note 16)
Other Operating Income
Other Income
Total Income

Expenses
Interest Expenses:
Interest on Deposits
Interest on Debentures
Interest on Borrowed Money
Interest on Call Money and Bills Sold
Interest on Payables under Repurchase Agreement
Interest on Payables under Securities Lending Transactions
OthersFees and Commissions (Note 15)
Trading Losses (Note 17)
Other Operating Expenses
General and Administrative Expenses
Other Expensesp((Note 18))
Total Expenses

Income before Income Taxes and Minority Interests
Income Taxes (Note 21):
Current
Deferred
Total Income Taxes
Income before Minority Interests
Minority Interests in Net Income
Net Income

Net Income per ShareDividend Declared per Share (Common Shares)
Dividend Declared per Share (Preferred Shares)
The accompanying notes are an integral part of these financial statements

26

2011

Millions of Yen

Millions of
U.S. Dollars(Note 1)
2011

2010

279,30352,480
6,926
2,322
148
360
212,809
4,255
31,111
12,91929,6108,874
361,820

292,334
65,438
12,237
2,683
105
583
194,599
16,687
29,768
9,942
37,58323,221
392,849

3,359
631
83
27
1
4
2,559
51
374
155
356
106
4,351

223,574
116,11255,693
12,675624
1
5,249
33,217
10,808734
22,98445,606
18,652,
322,361

227,349
149,479
56,98813,259
712
62
2,851
3,995
10,539470
30,07543,486
61,214,373,135

2,688
1,396
669
152
7
0
63
399
129
8
276
548
224
3,876

39,45819,714474

790
10,437
11,22828,230342
27,887

1,244(11,240)(9,995)503
29,206

9
125
135
339
4
335

2010
6,425.11
2,500.00
6,500.00

U.S. Dollars
2011
65.80
30.06
78.17

Yen
2011
5,471.96
2,500.00
6,500.00

Consolidated
Statements of Comprehensive Income
Consolidated Statements of Comprehensive Income
Shinkin Central Bank For the years ended March 31,
Income before Minority Interests
Other Comprehensive Income
Net Unrealized Gains on Other Securities (Note 21, 25)
Net Deferred Gains (Losses) on Hedging Instruments (Note 26)
Foreign Currency Translation Adjustments
Comprehensive Income
Comprehensive Income attributable to owners of the parent
Comprehensive Income attributable to minority interests

2011

Millions of Yen

28,2307,740
25,006(16,406)(860)
35,97035,627342

2010-

Millions of
U.S. Dollars(Note 1)
2011
339
93
300
(197)
(10)
432
428
4

27

Consolidated
Statements of Changes in Net Assets
Consolidated Statements of Changes in Net Assets

28

Shinkin Central Bank For the years ended March 31,
Shareholders' Equity
Common Shares and Preferred Shares
Balance at End of Previous Year
Fluctuation Amount during the Fiscal Year
Increase of Common Shares
Total Fluctuation Amount during the Fiscal Year
Balance at End of Year
Capital Surplus
Balance at End of Previous Year
Fluctuation Amount during the Fiscal Year
Total Fluctuation Amount during the Fiscal Year
Balance at End of Year
Retained Earnings
Balance at End of Previous Year
Fluctuation Amount during the Fiscal Year
Surplus Dividends
Net Income
The revarsal of Land Revaluation Excess (Note 14)
Total Fluctuation Amount during the Fiscal Year
Balance at End of Year
Total Shareholders’ Equity
Balance at End of Previous Year
Fluctuation Amount during the Fiscal Year
Increase of Common Shares
Surplus Dividends
Net Income
The revarsal of Land Revaluation Excess (Note 14)
Total Fluctuation Amount during the Fiscal Year
Balance at End of Year
Accumulated Other Comprehensive Income
Net Unrealized Gains (Losses) on Other Securities
Balance at End of Previous Year
Fluctuation Amount during the Fiscal YearNet Changes in Items Other Than Shareholders’Equity during the Fiscal Year
Total Fluctuation Amount during the Fiscal Year
Balance at End of YearNet Deferred Gains on Hedging Instruments
Balance at End of Previous Year
Fluctuation Amount during the Fiscal YearNet Changes in Items Other Than Shareholders’Equity during the Fiscal Year
Total Fluctuation Amount duringg the Fiscal Year
Balance at End of Year
Land Revaluation Excess
Balance at End of Previous Year
Fluctuation Amount during the Fiscal YearNet Changes in Items Other Than Shareholders’Equity during the Fiscal Year
Total Fluctuation Amount during the Fiscal Year
Balance at End of Year
Foreign Currency Translation Adjustments
Balance at End of Previous Year
Fluctuation Amount during the Fiscal YearNet Changes in Items Other Than Shareholders’Equity during the Fiscal Year
Total Fluctuation Amount during the Fiscal Year
Balance at End of Year
Total Accumulated Other Comprehensive Income
Balance at End of Previous Year
Fluctuation Amount during the Fiscal YearNet Changes in Items Other Than Shareholders’Equity during the Fiscal Year
Total Fluctuation Amount during the Fiscal Year
Balance at End of Year
Minority Interests
Balance at End of Previous Year
Fluctuation Amount during the Fiscal YearNet Changes in Items Other Than Shareholders’Equity during the Fiscal Year
Total Fluctuation Amount during the Fiscal Year
Balance at End of Year
Total Net Assets
Balance at End of Previous Year
Fluctuation Amount during the Fiscal Year
Increase of Common Shares
Surplus Dividends
Net Income
The revarsal of Land Revaluation Excess (Note 14)
Net Changes in Items Other Than Shareholders’ Equity
during the Fiscal Year
Total Fluctuation Amount during the Fiscal Year
Balance at End of Year
The accompanying notes are an integral part of these financial statements

2011

Millions of Yen

Millions of
U.S. Dollars(Note 1)
2011

2010

490,998

290,998

5,904－－
490,998

200,000
200,000
490,998－－
5,904

100,678

100,678

1,210－
100,678－
100,678－
1,210

380,630

351,423

4,577(13,370)
27,887132
14,649395,280－
29,206－
29,206
380,630

(160)
335
1
176
4,753

972,307743,100

11,693－(13,370)
27,887132
14,649986,957

200,000－
29,206－229,206
972,307

－
(160)
335
1
176
11,86910,776(339,204)129

25,00625,00635,783349,980
349,980
10,776

300
300
430

18,896

21,906

227(16,406)( , )(16,406)
2,490(3,009)( , )(3,009)18,896

(197)
( )
(197)
29

14,007

14,007

168

(1�2)
(1�2)
13,875－－14,007

(1)
(1)
166

(3,016)(3,638)

(36)

(860)
(860)
(3,876)622
622(3,016)

(10)
(10)
(46)

40,664(306,928)

489

7,607
7,607
48,272

347,593
347,593
40,664

91
91
580

7,828

7,392

94

209
209
8,037

436
436
7,828

2
2
96

1,020,800

443,564

12,276－(13,370)
27,887132

200,000－
29,206
－

－
(160)
335
1

7,816
22,466
1,043,267

348,029577,236
1,020,800

94
270
12,546

Consolidated
Statementsof Cash Flows
Consolidated Statementsof Cash Flows
Millions of
U.S. Dollars
Shinkin Central Bank For the years ended March 31,
Cash Flows from Operating Activities:
Income before Income Taxes and Minority Interests
Depreciation
Loss on Impairment of Fixed Assets
Amortization of Goodwill
Increase (Decrease) in Reserve for Possible Loan Losses
Increase (Decrease) in Reserve for Possible Losses on Investments
Increase (Decrease) in Reserve for Employee Bonuses
Increase (Decrease) in Reserve for Directors' Bonuses
Increase (Decrease) in Reserve for Employee Retirement Benefits
Increase (Decrease) in Reserve for Directors' Retirement AllowancesInterest Income
Interest Expenses
Net Losses (Gains) on Securities
Net Losses (Gains) on Money Held in Trust
Net Losses (Gains) on Foreign Exchange
Net Losses (Gains) on Disposal of Fixed Assets
Net Decrease (Increase) in Trading Assets
Net Increase (Decrease) in Trading Liabilities
Net Increase (Decrease) in Trading Payables
Net Decrease (Increase) in Loans and Bills Discounted
Net Increase (Decrease) in Deposits
Net Increase (Decrease) in Debentures
Net Increase (Decrease) in Borrowed Money (Excluding Subordinated Borrowings)
Net Decrease (Increase) in Due from Banks (Excluding Due from Central Bank)Net Decrease (Increase) in Call Loans and Others
Net Decrease (Increase) in Receivables under Securities Borrowing Transactions
Net Increase (Decrease) in Call Money and Others
Net Increase (Decrease) in Payables under Securities Lending Transactions
Net Decrease (Increase) in Monetary Debts Purchased
Net Decrease (Increase) in Foreign Exchanges (Assets)
Net Increase (Decrease) in Foreign Exchanges (Liabilities)
Net Increase ((Decrease)) in Due to Trust Accounts
Interest Received
Interest Paid
Other, Net
Sub-total
Income Taxes Refund (Paid)
Net Cash Provided by (Used in) Operating Activities

2011

Millions of Yen

2010(Note 1)
2011

39,458
8,278
253－(17,136)
(111)
147
19
1,374
14
(279,303)
223,5742,810(22)234,293
95(8,036)36,561
44,1881,009,010
1,845,877(479,320)
2,000
271,093(195,764)(26,213)(16,829)
1,545,990
147,265928
21((3,564), )414,723(334,926)(98,901)
4,367,852(2,227)4,365,625

19,714
8,149
－
(146)
12,305
(50)
(202)
45
1,229
120
(292,334)
227,349
13,538(1,232)125,08225(181,208)
2,885
3,411
(826,598)
918,552
85,260(1,308,460)
210,146(1,991)
16,988(97,862)
996,318
240,773(2,175)
(52)
3,249
,
418,174(345,973)(86,907)
158,127
16,493
174,620

474
99
3
－
(206)
(1)
1
0
16
0
(3,359)
2,688
33
(0)
2,817
1
(96)
439
531
12,13422,199(5,764)24
3,260(2,354)(315)(202)
18,592
1,771
110((42))
4,987(4,027)(1,189)52,529(26)
52,503(14,165,756)
4,250,791
5,377,038－(1,009)(1,221)－－(4,540,156)(19,520,395)
4,340,990
14,330,997(140,000)(396)(3,176)0(889)(992,867)(170,363)
51,12164,666
－
(12)
(14)
－
－
(54,602)

Cash Flows from Financing Activities:
Repayment of Subordinated Loans
Proceeds from increase of shares
Dividends Paid
Dividends Paid to Minority Interests
Net Cash Provided by (Used in) Financing Activities－－(13,370)(133)(13,504)(950)
200,000－(66)
198,983

－
－
(160)
(1)
(162)

Effect of Exchange Rate Changes on Cash and Cash Equivalents
Net Increase (Decrease) in Cash and Cash Equivalents
Cash and Cash Equivalents at Beginning of Period
Cash and Cash Equivalents at End of Period (Note 2 (2) )(0)(188,035)
580,177
392,142(0)(619,263)
1,199,441
580,177(0)(2,261)
6,977
4,716

Cash Flows from Investing Activities:
Acquisitions of Securities
Proceeds from Sales of Securities
Proceeds from Redemption of Securities
Increase in Money Held in Trust
Acquisitions of Tangible Fixed Assets
Acquisitions of Intangible Fixed Assets
Proceeds from Sales of Tangible Fixed Assets
Payments for Purchase of Stocks of Subsidiaries (affecting the scope of consolidation)
Net Cash Provided by (Used in) Investing Activities

The accompanying notes are an integral part of these financial statements.

29

Notes to Consolidated Financial Statements
1.

Basis of Presentation:
The accompanying consolidated financial statements have been
prepared from the accounts maintained by Shinkin Central Bank (the“Bank”) and its consolidated subsidiaries in accordance withaccounting principles and practices generally accepted in Japan thatare different in certain respects from the application and disclosure
requirements of International Financial Reporting Standards.
Certain items presented in the consolidated financial statements
have been reclassified for the convenience of readers outside Japan.
The amounts in Japanese yen are presented in millions of yen by
rounding down figures. As a result, the totals in yen shown in the
consolidated financial statements do not necessarily agree with thesums of the individual account balances.
U.S. dollar amounts represent the arithmetical results oftranslating original Japanese yen amounts of the respective accountbalances to U.S. dollars on a basis of ¥83.15 to U.S.$1, the exchange
rate prevailing as of March 31, 2011. The amounts in U.S. dollars arepresented in millions of U.S. dollars by rounding down figures. As aresult, the totals in U.S. dollars shown in the consolidated financial
statements do not necessarily agree with the sums of the individual
account balances. The U.S. dollars amounts are included solely forthe convenience of readers outside Japan and this translation should
not be construed as representation that Japanese yen amounts havebeen or could be readily converted, realized or settled in U.S. dollars
at that or at any other rates.
2. Significant Accounting Policies:(1) Principles of Consolidation
The consolidated financial statements include the accounts of
the Bank and its nine consolidated subsidiaries as of March 31, 2011
listed below:

Name
The Shinkin Banks Information
System Center Co., Ltd.
Shinkin International Ltd.
Shinkin Central Business Co., Ltd.
Shinkin Asset Management Co., Ltd.
Shinkin Trust Bank, Ltd.
Shinkin Securities Co., Ltd.
Shinkin Capital Co., Ltd.
Shinkin Partners Co., Ltd.
Shinkin Guarantee Co., Ltd.

30

Location

Ownership
Percentage

Tokyo
London
Tokyo
Tokyo
Tokyo
Tokyo
Tokyo
Tokyo
Tokyo

50.7%
100%
100%
100%
100%
100%
100%
100%
100%

Unconsolidated subsidiaries: 2 companies
Shinkin Capital No. 1 Limited Liability Investment Partnership
Shinkin Capital No. 2 Limited Liability Investment Partnership
Unconsolidated subsidiaries are excluded from the scope of
consolidation because their total assets, ordinary income, net income(amount based on the equity method) and retained earnings (amountbased on the equity method) are immaterial and do not hinder arational judgment of the Bank’s financial position and results ofoperation when excluded from the scope of consolidation.
The fiscal year and the closing date thereof for the financial
statements of the consolidated subsidiaries are in agreement withthose of the Bank, except for Shinkin International Ltd., which has afiscal year ended on December 31. For the consolidation of thesubsidiary, the Bank makes appropriate adjustments for any materialtransactions subsequent to December 31.
All significant intercompany accounts and transactions havebeen eliminated in consolidation. The Bank’s share of net assets ofsubsidiaries is valued at fair value on acquisition. Minority interests
in net assets of subsidiaries are valued at fair value on acquisition in
the consolidated financial statements. The excess of the cost over thefair value of the underlying net equity in subsidiaries on acquisitionis expensed when incurred.
The application of equity-method to unconsolidated
subsidiaries and affiliates is as follows:
Non-consolidated equity-method subsidiaries:
N/A
Affiliated equity-method companies:
N/A
Unconsolidated subsidiaries that are not accounted for by the equity
method:2 companies
Shinkin Capital No. 1 Limited Liability Investment Partnership
Shinkin Capital No. 2 Limited Liability Investment Partnership
Unconsolidated subsidiaries that are not accounted for by theequity method are excluded from the scope of equity method because
their effect on the accompanying consolidated financial statements, interms of net income (amount based on the equity method) andretained earnings (amount based on the equity method), would not bematerial.
Affiliated companies to which the equity method is not applied
due to immateriality: Aozora Loan Services Co., Ltd.
(2) Cash and Cash Equivalents
In the consolidated statements of cash flows, “Cash and Cash
Equivalents” consist of Cash and Due from Central Bank.
Reconciliation of Cash and Cash Equivalents with the amounts
disclosed in the consolidated balance sheets at March 31, 2011 and2010 is as follows:
Millions ofMillions of Yen
U.S. dollars
2011
2010
2011
Cash and Due fromBanks

2,026,383

2,485,776

24,370Due from Banks(Excluding Duefrom Central Bank )(1,634,240)(1,905,598)(19,654)392,142

580,177

4,716

Cash and Cash
Equivalents(3) Trading Assets & Liabilities
Transactions for “Trading Purposes” (for purposes of seeking
to capture gains arising from short-term changes in interest rates,
currency exchange rates or market prices of financial instruments andother market related indices or from gaps among markets) are
included in “Trading Assets” and “Trading Liabilities” on the
consolidated balance sheets on a trade date basis. In addition, gains
and losses from “Trading Assets” and “Trading Liabilities” arerecorded as “Trading Income” and “Trading Losses” on the
consolidated statements of income on a trade date basis.
Securities and monetary debts purchased for trading purposes
are stated at fair value at the fiscal year end. Trading-related financial
derivatives such as swaps, futures and options are stated at thedeemed amounts that would be received or paid for settlement if suchtransactions were terminated at the fiscal year end.
(4) Financial Instruments(i) Securities
The Bank and its consolidated subsidiaries classify securities
into three categories: held-to-maturity debt securities, investments inaffiliates that are not accounted for by the equity method, and othersecurities. Held-to-maturity debt securities are stated at cost and areamortized by the straight-line depreciation method using theweighted-average method. Investments in affiliates that are notaccounted for by the equity method are stated at cost using theweighted-average method. Among other securities, stocks andinvestment trusts with quoted market prices are stated based on the
average quoted market price over the month preceding the balance
sheet date. Other securities with quoted market prices other thanstocks and investment trusts are stated at fair value based on quoted
market prices and other applicable information at the balance sheet
date (and the cost of securities sold is mainly determined using theweighted-average method). Other securities where there is significant
difficulty in determining fair value are stated at cost using theweighted-average method.
The full amount of net unrealized gains or losses on othersecurities is recorded directly within Net Assets.
Securities included as trust property in “Money Held in Trust”
are stated in the same manner as above.
(ii) Derivative Transactions
Derivative transactions are stated at fair value.
(iii) Hedge Accounting(a) Hedge of Interest Rate Risk
The Bank applies the deferred method of hedge accounting
described in the Japanese Institute of Certified Public Accountants(JICPA) Industry Audit Committee Report No. 24 “Accounting and
Auditing Treatment of Accounting Standards for Financial
Instruments in Banking Industry” to transactions to hedge againstinterest rate risk arising from the financial assets and liabilities.
Effectiveness of a fair value hedge is assessed for each of theidentified group of hedged items such as loans and deposits, andcorresponding group of hedging instruments such as interest rate
swaps with the same maturity bucket. Effectiveness of a cash flow
hedge is assessed based on the correlation between an interest raterisk factor of the hedged items and that of the hedging instruments.
(b) Hedge of Foreign Exchange Fluctuation Risk
The deferred method of hedge accounting is applied totransactions to hedge against foreign exchange fluctuation risks
associated with monetary assets and liabilities denominated inforeign currencies in accordance with the regulations set forth in
JICPA Industry Audit Committee Report No. 25 “Accounting and
Auditing Treatment of Accounting Standards for Foreign Currency
Transactions in the Banking Industry”.
To minimize foreign exchange fluctuation risk on monetary
assets and liabilities, the Bank has engaged in currency swaps,
foreign exchange swaps, and similar transactions. Effectiveness ofthese transactions in the hedging of foreign exchange risks ofmonetary assets and liabilities denominated in foreign currencies isassessed through comparison of the foreign currency position of thehedged monetary assets and liabilities and of the hedging
instruments.
The Bank has also applied fair value hedge accounting to theforeign exchange risk of other securities in foreign currency (otherthan bonds) when the hedged foreign currency securities are
specified prior to the commencement of transactions, and there exists
spot and forward liabilities exceeding the acquisition costs of theforeign currency securities designated as hedged items on a foreign
currency basis.
(c) Internal Derivative Transactions
Internal derivative transactions between trading accounts andother accounts, which are designated as hedges, are not eliminatedand related gains and losses are recognized in the consolidated
statement of income or deferred under hedge accounting because theinternal interest rate swaps and currency swaps transactions
designated as hedging instruments are conducted in a manner without
any subjection and are appropriately covered by third party
transactions conducted in accordance with the standard articulated by
JICPA Industry Audit Committee Reports No. 24 and No. 25.
For certain asset and liabilities, the exceptional treatment forinterest rate swaps is applied.
(5) Tangible Fixed Assets (excluding Leased Assets)
Tangible fixed assets of the Bank are depreciated by the
declining balance method, except for buildings acquired on or after
April 1, 1998 (excluding facilities installed in building (s)), which are
depreciated by the straight-line method.
The estimated useful lives of major items are as follows:
Buildings ................. 5 to 50 years
Others ...................... 3 to 20 years
Tangible fixed assets of consolidated subsidiaries are, in
principle, depreciated using the declining balance method, based on
their estimated useful lives.
(6) Intangible Fixed Assets (excluding Leased Assets)
Intangible fixed assets are depreciated by the straight-line
method. The costs of software for internal use are amortized by thestraight-line method, mainly over a 5 year period (the estimateduseful life of the software).
(7) Leased Assets
Leased assets of Tangible Fixed Assets and Intangible Fixed
Assets related to finance leases that do not transfer ownership are
depreciated using the straight-line method with estimated useful lives
equal to lease terms, and zero residual values.
(8) Deferred Debenture Charges
Debenture charges are expensed in the fiscal year of issuance.
(9) Reserves for Possible Loan Losses
Reserve for possible loan losses of the Bank is provided inaccordance with the Bank’s predetermined internal rules forwrite-offs and provisions as follows:
The reserve for loans to borrowers who are classified as
substantially bankrupt or who are bankrupt in the legal sense isprovided at 100% of the amount remaining after write-offs anddeduction of expected collection from the disposal of collateral andthe execution of guarantees. In addition, a reserve is provided forloans to borrowers who, although not actually bankrupt in the legal
sense, are experiencing serious financial difficulties and whose
failure is imminent. In such cases, the reserve is provided at theamount deemed necessary based on the borrower’s capability of
repayment after deduction of expected collection from the disposal ofcollateral and the execution of guarantees.
For all other loans, a reserve is provided based on the ratio of
actual defaults for a certain period in the past.
The Bank calculates the reserve by the cash flow estimate
method to those borrowers who owe the debts classified as Loans toProbably Bankrupt Borrowers and Restructured Loans by the Bank,
whose total credit exceeds a certain amount and also the cash flow
related to collection of the principal and interest from whom can be
estimated. The cash flow estimate method is to determine the gap
between the amounts calculated by discounting the cash flow by thecontracted interest rate prior to relaxation of terms and conditions of31

loans and their book values.
All claims are assessed by the Operating Related Division
based on internal rules for self-assessment of asset quality.
Subsequently, the Asset Auditing Division, that is independent fromthe Operating Related Division, audits these self-assessments. The
reserve is provided based on the results of the assessment.
For loans to bankrupt and substantially bankrupt borrowers,
amounts deemed uncollectible, which are calculated after deductionof expected collection from the disposal of collateral and theexecution of guarantees, are written off. The amount written off forthis fiscal year was ¥659 million ($7 million).
Reserve for possible loan losses of the consolidated subsidiaries
for general claims is provided as the amounts deemed necessary
based on the default rate calculated from actual default during acertain period in the past, and for doubtful claims as the amounts
deemed uncollectible based on the assessment of each claim.
(10) Reserve for Investment Losses
An investment loss reserve is allocated in an amountconsidered necessary to provide against possible future losses frominvestments, taking into consideration the financial position of thecompany issuing the securities and other factors.
(11) Reserve for Employee Bonuses
Reserve for employee bonuses is set aside to pay employee
bonuses with respect to the portion of estimated bonus payments toemployees that correspond to this fiscal year.
(12) Reserve for Directors’ Bonuses
Reserve for Directors’ Bonuses is set aside to pay directors andcorporate auditors bonuses with respect to the portion of estimatedbonus payments to directors and corporate auditors that correspond to
this fiscal year.
(13) Reserve for Employee Retirement Benefits
Reserve for employee retirement benefits represents theestimated projected retirement benefit obligations in excess of thefair value of related pension plan assets at the end of the fiscal year.
Prior service costs and actuarial differences are charged to income asfollows:
Prior service costs: Prior service costs are amortized, using thestraight-line method over 10 years within the average remaining
service years of the current employees.
Actuarial differences: Actuarial differences will be amortizedfrom the following fiscal year, using the straight-line method over 10
years within the average remaining service years of the current
employees.
(14) Reserve for Directors’ Retirement Allowances
Reserve for directors’ retirement allowances provided for by
the Bank is calculated based on the estimated allowances to be paid
up to the end of this fiscal year.
(15) Reserve under Specific Law
This reserve amount is calculated pursuant to Article 46-5,
Paragraph 1 of the Financial Instruments and Exchange Law and
Article 175 of the Cabinet Office Ordinance on Financial Instruments
Business to indemnify any losses incurred from accidents in the
conduct of market derivative transactions on behalf of clients.

32(16) Translation of Foreign Currencies
Foreign currency-denominated assets and liabilities aretranslated into Japanese yen at exchange rates prevailing at the end of
the fiscal year.
Foreign currency-denominated assets and liabilities of
consolidated subsidiaries are translated into Japanese yen at exchange
rates prevailing at the end of the fiscal year.
(17) Leases
Finance leases for the Bank and its domestic consolidated
subsidiaries that do not transfer ownership and contracted for before
the fiscal year beginning April 1, 2008 are accounted for as operatingleases.
(18) Consumption Tax
Consumption tax and local consumption tax incurred by the
Bank and its domestic consolidated subsidiaries are excluded fromtransaction amounts. However, consumption tax and local
consumption tax paid on purchases of tangible fixed assets andintangible fixed assets, which are not deductible as a tax credit, arecharged to income at the end of the fiscal year.
(19) Amortization of Goodwill
Goodwill is fully amortized in the fiscal year incurred.
3. Changes in Significant Accounting Policies:(Accounting Standard for Asset Retirement obligations)
Beginning with this fiscal year, the Bank has adopted the
Accounting Standard for Asset Retirement Obligations (ASBJ
Statement No. 18; March 31, 2008) and the Guidance on AccountingStandard for Asset Retirement Obligations (ASBJ Guidance No.21,
March 31, 2008). The impact of this change on the consolidated
financial statements was immaterial.
(Consolidated Statements of Income)“Income before minority interests” is newly presented from thisfiscal year pursuant to the Cabinet Office Ordinance Partially
Revising Regulation on Terminology, Forms and Preparation of
Financial Statements (Cabinet Office Ordinance No. 5; March 242009), which is based on the Accounting Standard for Consolidated
Financial Statements (ASBJ Statement No. 22; December 26, 2008).
(Additional information)
Beginning with this fiscal year, the Bank has adopted the
Accounting Standard for Presentation of Comprehensive Income(ASBJ Statement No. 25; June 30, 2010). However, for the previous
fiscal year, the amounts for “Valuation and translation adjustments”
and “Total valuation and translation adjustments” were presented
instead of “Accumulated other comprehensive income” and “Total
accumulated other comprehensive income.”

4.

Trading Assets:
The details of Trading Assets as of March 31, 2011 and 2010
are as follows:
Millions ofMillions of Yen
2011

U.S. Dollars

2010

2011

Trading Securities
Trading Bonds-Related
Financial Derivatives
Derivatives of Securities
related to Trading
Transactions
Trading-Related
Financial Derivatives

83,02788,990

998

－

18

－

6

0

0

63,57852,975764

Other Trading Assets
Total

319,957

316,5483,847

466,569

458,5325,611

5.

Securities:
The details of Securities as of March 31, 2011 and 2010 are as
follows:
Millions ofMillions of Yen
U.S. Dollars
2011
2010
2011
168,322
Japanese Government Bonds 13,996,011 10,005,448
370,446
458,480
4,455
Municipal Government Bonds
19,99049,979240
Short-term Corporate Bonds
1,307,145
898,836
15,720
Corporate Bonds
83,419121,649
1,003
Stocks5,739,654 5,761,596
69,027
Others21,516,667 17,295,991
258,769
Total
Notes:
1. Stocks include investments in affiliated companies totaling ¥189
million ($2 million) as of March 31, 2011 and 2010.
2. Others include common shares and investment in unconsolidated
subsidiaries totaling ¥2,382 million ($28 million) as of March 31,
2011 and ¥3,050 million as of March 31, 2010. Others also include
preferred shares issued by Shinkin Banks which were contributedin accordance with the Shinkin Bank Management Reinforcement
System. The amount was ¥251,180 million ($3,020 million) as ofMarch 31, 2011 and ¥248,180 million as of March 31, 2010,
respectively. Others also include foreign bonds and equities.
6.

Loans and Bills Discounted:
Loans and Bills Discounted include the following
non-performing loans:
Millions of
U.S. Dollars
2011

Millions of Yen
2011
2010
Loans to Bankrupt
Borrowers

599

18,4307

Delinquent Loans

12,122

14,744145

Loans Past Due
Three Months or
More

295

291

3

Restructured Loans

6,207

6,529

74

Total

19,22439,995231

The above amounts are the amounts before exclusion of
specific reserves for possible loan losses.

Loans to Bankrupt Borrowers represent non-accrual loans toborrowers who are legally bankrupt as defined in Article 96-1-3 or 4of the Japanese Tax Law Enforcement Regulations (Article 97 of
1965 Cabinet Order).
Delinquent Loans represent non-accrual loans other than (i)Loans to Bankrupt Borrowers and (ii) Restructured Loans.
Loans Past Due Three Months or More represent Loans forwhich the principal and interest is past due three months or moreother than (i) Loans to Bankrupt Borrowers and (ii) Delinquent
Loans.
Restructured Loans represent loans on which contracts wereamended in favor of the borrowers (e.g. the reduction of or
exemption from stated interest, the deferral of interest payments, theextension of maturity dates, renunciation of claims in order to assist
or facilitate the business restructuring of borrowers under financial
difficulties) other than (i) Loans to Bankrupt Borrowers, (ii)Delinquent Loans and (iii) Loans Past Due Three Months or More.
Loans include subordinated loans with a covenant stipulatingthat repayment of principal is preceded by that of general credits. The
amount was ¥114,450 million ($1,376 million) as of March 31, 2011and ¥116,510 million as of March 31, 2010, respectively. Of theseamounts, ¥34,800 million ($418 million) as of March 31, 2011, and¥51,860 million as of March 31, 2010, respectively, were provided to
Shinkin Banks in accordance with the Shinkin Bank Management
Reinforcement System.
Bills discounted are accounted for as financial transactions inaccordance with JICPA Industry Audit Committee Report No.24“Accounting and Auditing Treatment of Accounting Standards for
Financial Instruments in Banking Industry”. The face value of bills of
lading amounted to ¥286 million ($3 million) as of March 31, 2011and ¥167 million as of March 31, 2010, respectively. The Bank has
the right to freely dispose of, sells or re-collateralize such bills.
With respect to loan participation, in accordance with the
JICPA Accounting Committee Report No. 3, dated June 1, 1995, theamount of the participation principal is accounted for as capitalloaned to the original debtor, and this amounted to ¥139,668 million($1,679 million) as of March 31, 2011 and ¥164,307 million as ofMarch 31, 2010.
7.

Commitments to Overdrafts and Loans:
Commitments related to overdrafts and loans represent
agreements to extend overdrafts or loans up to a pre-agreed amount at
the customer’s request as long as there is no violation of theconditions stipulated in commitment agreements.
The amount of unused commitment lines does not necessarily
have a significant effect on the future cash flows of the Bank because
most of these commitment lines are terminated without being
exercised. Most of these agreements have provisions which stipulatethat the Bank may not extend the loan or may decrease thecommitment when there are certain changes in the financial
conditions, certain issues relating to collateral and other reasons. The
Bank limits the commitment line to an amount below the amount of
the related customer’s time deposit. The Bank periodically checks thefinancial condition of its customers based on its internal rules andperforms certain actions to secure loans or revises the contracts, asnecessary.
The amounts of unused commitment lines under suchagreements are ¥15,367,602 million ($184,817 million) as of March
31, 2011 and ¥13,728,865 million as of March 31, 2010, respectively.
The amounts which the Bank could cancel at any time without
penalty or the period of the original contract is less than one year are¥15,301,753 million ($184,025 million) as of March 31, 2011 and33¥13,599,616 million as of March 31, 2010, respectively.
8.

Special Contracts for Securities and Cash-Collateralized
Securities Lending and Borrowings:
Securities lending based on non-collateralized special contracts(securities lending and borrowings) are stated as Japanese
Government Bonds and Others in “Securities.” The amount in total
was ¥99,665 million ($1,198 million) as of March 31, 2011 and¥94,056 million as of March 31, 2010.
Of cash-collateralized securities borrowings, those freely
disposable for sale or re-collateralized, and pledged as collateralamounted to ¥7,487 million ($90 million) as of March 31, 2011 and¥3,256 million as of March 31, 2010. Those held by the Bank
without being disposed of as of March 31, 2011 amounted to¥394,339 million ($4,742 million) and as of March 31, 2010
amounted to ¥170,890 million.
9.

Tangible Fixed Assets:
Millions of Yen

Millions ofU.S.
Dollars
2011

2011

2010

Accumulated Depreciation
on Tangible Fixed Assets

80,28677,421965

Accumulated Deferred
Gains on Tangible Fixed
Assets

1,822

1,822

21

10. Assets Pledged as Collateral and Associated Liabilities:
Assets pledged as collateral for the fiscal years ended March 31,
2011 and 2010 are as follows:
Millions ofMillions of Yen
U.S. Dollars
2011
2010
2011
Assets Pledged as Collateral
Trading Assets

33,202385

5,313,521 3,859,188

63,902Loans and Bills Discounted 1,022,941 1,536,564

12,302

Securities

32,019Liabilities associated with
Assets Pledged as Collateral
Borrowed Money
Call Money and Bills Sold
Payables under Securities
Lending Transactions

2,000

－

24

260,000

280,000

3,126

2,835,860 1,294,115

34,105

Securities in the amount of ¥936,152 million ($11,258 million)
as of March 31, 2011 and ¥412,582 million as of March 31, 2010,
and Trading Assets of ¥816 million ($9 million) as of March 31,
2011 and ¥814 million as of March 31, 2010, respectively, weresecured as collateral for exchange settlement transactions or futures
or as substitute for margin money in futures transactions.
Other Assets included margin money. The amount was ¥244
million ($2 million) as of March 31, 2011, and ¥345 million as ofMarch 31, 2010. Other Assets also included guarantee money
amounting to ¥270 million ($3 million) as of March 31, 2011, and¥253 million as of March 31, 2010, respectively.

34

Millions of U.S.
Dollars

Millions of Yen

11. Trading Liabilities:
The details of Trading Liabilities as of March 31, 2011 and2010 are as follows:

2011

2010

2011

Trading Bonds Sold78,87355,070948

Trading
Bonds-Related
Financial Derivatives

－

－

－

Derivatives of
Securities related to
Trading Transactions

－

－

－

Trading-Related
Financial Derivatives

60,58447,826

728

Total

139,458 102,896

1,677

12. Borrowed Money and Lease Obligations:
Balance as of
Balance as of
Balance as ofMarch 31, 2011
Average
March 31, 2011 March 31, 2010
(Millions of U.S. Interest Rate (%)(Millions of Yen) (Millions of Yen)
Dollars)

Category

Maturity

Borrowings

630,950

628,950

7,588

1.96

－

Borrowed Money630,950

628,950

7,588

1.96

Mar. 2012～No maturity

Lease Obligations Due for
Repayment within One Year

599

88

7

2.67

－

Lease Obligations (Excluding
Those Due for Repayment
within One Year)

3,597

470

43

2.67

Apr. 2012～May. 2018

Notes:
1. Average interest rates were computed by the weighted average method using the interest rates and the balances at each year-end.
2. The repayment schedule within 5 years after the balance sheet date is as follows:
Millions of Yen
Over 1 year,
Over 2 years,
Over 3 years,
Over 4 years,
One year or lessup to 2 years
up to 3 years
up to 4 years
up to 5 years
2,000
－
－
－
－
Borrowed Money
599
615
621
619
619
Lease Obligations
Millions of U.S. Dollars
Over 1 year,
Over 2 years,
Over 3 years,
Over 4 years,
One year or lessup to 2 years
up to 3 years
up to 4 years
up to 5 years
24
－
－
－
－
Borrowed Money
7
7
7
7
7
Lease Obligations
13. Debentures:
Interest
Rate (%)

Collateral

51,997

0.35～
1.75

－

Apr. 2010～
Mar. 2016

20,000－1.98－

Dec. 20, 2010

4,802,920

51,997－－

IssuerName of Issue

The Bank

No.185-256
5-yearcoupon debentures

Apr. 2005～
Mar. 2011

4,323,600

4,782,920

No. 1 10-year
coupon debenture

Dec. 20, 2000－
4,323,600

Total

Issuance Date

Balance as of Balance as of Balance as ofMarch 31,
March 31,
March 31,
2011
2010
2011
(Millions of (Millions of (Millions of
Yen)
Yen)
U.S. Dollars)－

Redemption

－

Note:
The redemption schedule within 5 years after the balance sheet date is as follows:
Millions of Yen
One year or less
954,000

Over 1 year,
up to 2 years
995,250

Over 2 years,
up to 3 years
997,270

Over 3 years,
up to 4 years
796,860

Over 4 years,
up to 5 years
580,220

Over 3 years,
up to 4 years
9,583

Over 4 years,
up to 5 years
6,977

Millions of U.S. Dollars
One year or less
11,473

Over 1 year,
up to 2 years
11,969Over 2 years,
up to 3 years
11,9937 Shinkin Central Bank35

14. Land Revaluation:
Based on the Law on the Revaluation of Land (Law 34,
promulgated on March 31, 1998), land used for business is to berevalued. Deferred tax on the revaluation of the land is recorded as“Deferred Tax Liabilities for Land Revaluation” under Liabilities, andunrealized gain on the revaluation of land, net of deferred tax, isrecorded as “Land Revaluation Excess” under Net Assets.

16. Trading Income:The details of Trading Income for the years ended March 31,
2011 and 2010 are as follows:
Millions ofMillions of Yen
U.S. Dollars
2011

Date of Revaluation: March 31, 1999
Revaluation method in accordance with Article 3-3 of Law 34:
Revaluations were made based on the method, determined by theCommissioner of the National Tax Administration, which formed
the basis for calculating land value taxes (prescribed by the Land
Value Tax Law), as set forth in Article 2-4 of the Ordinance
Implementing the Law Concerning Land Revaluation(Government Ordinance No. 119, dated March 31, 1998), withappropriate adjustments made for the depth of the land and thetiming of the assessment.
The difference between the total fair value at the end of this fiscal
year and the total post-revaluation book value of land that is used
for business and has been revalued pursuant to Article 10 of Law
34.: 7,801 million ($93 million) as of March 31, 2011, and ¥7,023
million as of March 31, 2010.
15. Fees and Commissions:
The details of Fees and Commissions for the years ended March
31, 2011 and 2010 are as follows:
Millions ofMillions of Yen
U.S. Dollars
2011
2010
2011
Deposit, Fixed Income
Securities and Lending

632

933

7

Exchange Business
Securities Related BusinessAgency Business
Guarantee Business
Trustee Business
Others

497
6,147
2,132
3,349
17,198
1,153

501
6,094
2,109
2,987
16,127
1,014

5
73
25
40
206
13

Profit on Fees andCommissions Businesses

31,111

29,768374

Exchange
Others128
10,680106
10,432

1
128

Expenses on Fees andCommissions Businesses

10,808

10,539

129

2010

2011

Income from Trading
Securities

352

615

4

Income from
Trading-Related Securities

－

－

－

Income from Trading-Related
Financial Derivatives

12,034

8,966

144

Other Trading Income
Total

532
12,919

361
9,942

6
155

17. Trading Losses:
The details of Trading Losses for the years ended March 31, 2011
and 2010 are as follows:
Millions ofMillions of Yen
U.S. Dollars
2011
2010
2011
Expenses from
734
470
8
Trading-Related Securities
Total
734
470
8
18. Other Expenses:
Other Expenses include Loss on Sales of Securities and Loss on
Write-Downs for Securities. The amount of Loss on Sales of Securitieswas ¥10,056 million ($120 million) and ¥36,057 million for the year
ended March 31, 2011 and 2010, respectively. The amount of Loss on
Write-Downs for Securities was ¥4,575 million ($55 million) and¥5,606 million for the year ended March 31, 2011 and 2010,
respectively. The amount of Loss on Sales of Loans was ¥2,349 million
for the year ended March 31, 2010.
19. Comprehensive Income:The details of Other Comprehensive Income for the year ended
March 31, 2010 are as follows:
Millions of Yen
Other Comprehensive Income
Net Unrealized Gains on Other Securities
Net Deferred Gains (Losses) on Hedging
Instruments
Foreign Currency Translation Adjustments

2010
347,593349,980(3,009)622

The details of Comprehensive Income for the year ended March 31,
2010 are as follows:
Millions of Yen
2010
377,303
Comprehensive Income
Comprehensive Income attributable to376,800
owners of the parent
Comprehensive Income attributable to503
minority interests
8 Shinkin Central Bank36

20. Changes in Net Assets:(1) Class and Number of Shares Outstanding, and Class and Number of
Shares of Treasury Shares
Number of
Number of Increase
Decrease
Share
Share During theDuring theUnits at
Units atFiscalFiscalMarch 31,
March 31, Year
Year
2011
2010 (Thousand(Thousand(Thousand(Thousand Units)
Units)
Units)
Units)
Shares Outstanding
4,000
4,000
－
－
General Common Shares
708
708
－
－
Preferred Shares (Type-A)
4,708
4,708
－
－
Total
Treasury Shares－－－－
General Common Shares－－－－
Preferred Shares (Type-A)
－
－
－
－
Total

21. Income Taxes:
A breakdown of Deferred Tax Assets and Liabilities is as follows:
Millions ofMillions of Yen
U.S. Dollars(2) Dividends
Dividends paid during the fiscal year ended March 31, 2011
AmountTotal Dividend
Class ofPer
Record Effective
Resolution
Amount
share
Share
Date
Date
(Million Yen)
(Yen)
June 23,
March
AnnualCommon8,767
2,500
31, 2010 2010
GeneralsharesMeeting ofJune 23,
Preferred
March
Shareholders,
4,603
6,500
31, 2010 2010
sharesJune 23, 2010

Deferred Tax Liabilities:

In the case of dividends for which the record date falls in the year
ended March 31, 2011, the effective date of the dividend falls in thefollowing fiscal year:
Total
AmountDividend Resource
Per
Record Effective
Class ofof
Resolution
Amount
Share
Date
Date
share
(Million Dividends
(Yen)
Yen)
March
June 22,
CommonRetained
Annual
10,0002,500 31,
2011
shares
Earnings
General2011
Meeting of
March
Shareholders, Preferred
Retained
June 22,4,603
6,500 31,
June 22, 2011 shares
Earnings
2011
2011

2011

2010

Deferred Tax Assets:
Depreciation

3,382

3,430

40

Reserve for Possible Loan
Losses

1,583

3,935

19

Reserve for Retirement Benefits
Write-Downs for Securities

6,377
17,0195,894
17,67876
204

Net Unrealized Gains on Other
Securities

－

1,156

－

32,082
3,295(20,532)
43,20839,971
2,586(19,723)54,930

385
39
(246)
519

Net Unrealized Gains on Other
Securities

12,756－153

Net Deferred Gains on Hedging
Instruments

1,132

8,593

13

OthersTotal Deferred Tax Liabilities

519
14,408

611
9,205

6
173

Net Deferred Tax Assets

28,80045,725346

Tax Loss Carryforwards
OthersValuation Allowances
Total Deferred Tax Assets

2011

Balances Reported on the consolidated balance sheets are as
follows:
Millions ofMillions of Yen
U.S. Dollars

Deferred Tax Assets
Deferred Tax Liabilities

2011

2010

2011

28,82345,732

346

22

7

0

Reconciliation between the effective statutory tax rate and theactual effective tax rate for the year ended March 31, 2011:
Statutory effective tax rate
31.26 %
(Adjustments)
Change in valuation allowance(0.88) %Dividends received, not taxable(3.15) %Others1.22 %
Actual effective income tax rate after
the application of tax effect accounting
28.45 %

9 Shinkin Central Bank37

22. Reserve for Employee Retirement Benefits:(1) Retirement Benefit Scheme
The Bank and some of its consolidated domestic subsidiaries
have a defined benefit plan that offers lump-sum payments uponretirement and contributes to the Employees’ Pension Fund for all
Shinkin Banks nationwide.

(4) Assumptions used in the calculation of the above information wereas follows:
1) Discount Rate

2.0%

2.0%

2) Expected Rate of
Return on

0.5%

0.5%

Attributing the
Projected Benefits toMillions of
U.S. Dollars

2010

Projected Benefit Obligations (A)(40,059)(37,885)(481)

Plan Assets (B)16,323

15,877

196

Unfunded Retirement Benefit
Obligations (C) = (A) + (B)(23,735)(22,008)(285)

Unrecognized Actuarial
Differences (D)

4,735

5,084

56

Unrecognized Prior Service
Cost (E)(1,363)(2,065)(16)

Net Amounts Reported in theConsolidated Balance Sheet(F) = (C) + (D) + (E)(20,363)(18,988)

(244)

－

－

－

5) Amortization of
Unrecognized(20,363)(18,988)(244)

Actuarial
Differences

Reserve for Employee Retirement
Benefits (F) – (G)20114) Amortization of
Unrecognized Prior
Service Costs

Notes:
1. The above projected benefit obligations included the governmental welfare
program.
2. The above projected benefit obligations on the lump-sum payment of
retirement benefit included amounts measured by consolidated subsidiaries
under the non-actuarial method.

2011

Millions of
U.S. Dollars

2010

2011

1,243

1,236

Interest Cost
Expected Return on Plan Assets

744

704

8

(79)

(70)

(0)

Amortization of Prior Service Costs

(702)

(794)

(8)

Amortization of Actuarial
Differences

1,569

1,579

18

－

－

－

Service Cost

Others (e.g., Extraordinary Retirement
Benefits Paid Out of the Scope of the14

Retirement Benefit Scheme)
2,775
2,654
33
Net Pension Expenses
Notes:
1. The amounts paid by employees to the Employees’ Pension Fund are
excluded.
2. The retirement benefit costs on the lump-sum payment of retirement benefit
for consolidated subsidiaries are included in “Service Cost”.

10

Shinkin Central Bank

Straight-line basis

10 years(Unrecognized prior

10 years(Unrecognized priorservice costs areamortized, using theservice costs areamortized, using thestraight-line method
within the averagestraight-line method
within the averageremaining service yearsof the current

remaining
service years of theemployees)
10 yearscurrent employees)
10 years(Unrecognizedactuarial differences will

(Unrecognizedactuarial differences willbe amortized from thefollowing fiscal year,

be amortized from thefollowing fiscal year,

using the straight-line
method within theusing the straight-line
method within the

average remaining
service years of theaverage remaining
service years of thecurrent employees)
current employees)
Note:
The rate of retirement, the mortality rate and the rate of increase in futurecompensation levels used in calculating the retirement benefit obligations on the
Employees’ Pension Fund are identical to the figures used in the formula for the
calculation of the Employees’ Pension Fund itself.

(3) The breakdown of Pension Expenses for the years ended March 31,
2011 and 2010 is as follows:
Millions of Yen

Straight-line basis

Periods
of Services

2011

Prepaid Pension Cost (G)

38

2010

Plan Assets
3) Method of(2) Reserve for Employee Retirement Benefits as at March 31, 2011
and 2010 is analyzed as follows:
Millions of Yen

201123. Leases:(1) Finance leases
In terms of leased assets under finance leases that do nottransfer ownership of the leased assets to the lessee, Tangible Fixed
Assets is Hardware concerning computer equipment, and Intangible
Fixed Assets is Software concerning computer equipment.
Leased assets of Tangible Fixed Assets and Intangible Fixed
Assets related to finance leases that do not transfer ownership are
depreciated using the straight-line method with estimated useful lives
equal to lease terms, and zero residual values.
In terms of leased assets under finance leases that do nottransfer ownership of the leased assets to the lessee, that are
accounted for under accounting principles applicable to operatingleases, acquisition costs, accumulated depreciation, and net bookvalue of the leased assets for the years ended March 31, 2011 and2010 are as follows:

Future minimum lease payments subsequent to the balance
sheet dates are as follows:
Millions of Yen
2011

One year or
lessMore than one
year

699

385

Intangible
Fixed
AssetsTangible
Fixed Assets

Acquisition Costs

2010

More than one
year

791

1,100

2011

Total
4,164

Accumulated
Depreciation

909

2,238

3,147

Net Book Value

319

698

1,017

Millions of Yen
Tangible
Fixed Assets

Intangible
Fixed
Assets

1,468

3,037

4,505

Accumulated
Depreciation

898

1,831

2,729

Net Book Value

569

1,205

1,775

Total

Millions of U.S. Dollars
2011

Tangible
Fixed Assets

Intangible
Fixed
Assets

1,891

One year or
lessMore than one
year

8

4

Total
13

Lease payments, depreciation, and interest receipt equivalents
for the years ended March 31, 2011 and 2010 are as follows:

2,936

Acquisition Costs

Total

Millions of U.S. Dollars

1,228

2010

1,084

Millions of Yen
One year or
lessMillions of Yen
2011

Total

Millions of
U.S. Dollars

Millions of Yen
2011

2010

2011

Lease Payments

806

970

9

Depreciation

757

915

9

Interest Receipt
Equivalents

25

39

0

Depreciation is calculated using the straight-line method overthe leasing periods for useful life and with a zero residual value.
The interest amount is assumed to be the equivalent of the sum of theaggregate total rent and the estimated residual value, reduced by theacquisition costs, with periodic allocation over the respective
accounting periods pursuant to the interest method.
(2) Operating Leases
Not applicable.

Total

Acquisition Costs

14

35

50

Accumulated
Depreciation

10

26

37

Net Book Value

3

8

12

11 Shinkin Central Bank39

24. Financial Instruments:
For the fiscal year ended March 31, 2011
1. Matters concerning financial instruments(1) Policies on financial instruments
Shinkin Central Bank Group (the “Group”) works to ensure
the stable procurement of funds through the acceptance of deposits
mainly from its Shinkin Bank members and through the issuance ofbonds. Additionally, the Group takes steps to diversify its funding
methods by procuring funds from short-term money markets
depending on market conditions.
Procured funds are invested in short-term money market
instruments, marketable securities, and loans.
Moreover, the Group uses derivative transactions for the
purpose of risk-hedging in ALM (asset liability management)
activities and engages in short-term trading of securities andderivatives.
To appropriately manage the various risks that result fromthese financial instruments, the Group engages in ALM activities
including the above-mentioned derivative transactions. For its
trading activities the Group establishes risk limit and loss limit
amounts and engages in transactions within the scopes of these risk
limits, and in this way works to preserve a sound management andto ensure stable earnings.
(2) Types and related risks of financial instruments
Financial assets held by the Group consist mainly of shortterm funds, securities, and loans assets.
Short-term funds are invested in the call loan and bills
markets and euro-yen deposits.
These investments are exposed to market risks such as thecounterparty credit risk, interest rate risk, and foreign currency risk.
Securities portfolios of the Group consist of domestic
securities including Japanese government, corporate bonds andothers as well as foreign securities such as government,
government-guaranteed, and government related institutional bonds
issued in the major industrialized countries. In addition, forinvestment diversification the Group also invests in equity securities
and investment funds.
These investments are exposed to market risks such as theindividual issuers’ credit risk, interest rate risk, price fluctuation risk,
and foreign currency risk, as well as market liquidity risk.
Loan assets consist of direct loans to low-risk borrowers
including Shinkin Banks, central and local governments, public
service corporations, blue chip private-sector corporations, andagency loans performed through Shinkin Banks.
These loans are exposed to counterparty credit risk andinterest rate risk.
Meanwhile, financial liabilities of the Group consist mainly of
deposits and bonds.
Deposits include current deposits, ordinary deposits, deposits
at notice, term deposits, and foreign denominated deposits, most ofwhich are deposits from Shinkin Bank members.
These deposits are exposed to market risks such as interest
rate risk and foreign currency risk, as well as liquidity risk.
As a bond issuer, the Group issues 5-year interest-bearing
bonds each month.
These bonds are exposed to interest rate risk and liquidity risk.
1240

Shinkin Central Bank

Furthermore, the Group engages in derivative transactions.
Specifically, the Group trades interest rate derivatives (interest
swaps, interest futures, and interest options), currency derivatives(foreign currency forwards, currency swaps, and currency options)and bond derivatives (bond futures and bond futures options).
These transactions are exposed to market risks such ascounterparty credit risk, interest rate risk, and foreign currency risk.
The Bank hedges market risks of its financial assets andliabilities through ALM activities.
The Group partially avoids market risks by mitigating (i)interest rate risk through interest rate swaps and (ii) foreign
currency risk of foreign denominated assets throughforeign-denominated funds procurement, currency swaps, and forex
swaps.
Hedge accounting is applied to risk hedges through ALM
activities including the use of derivatives. Hedge accounting
methods, hedging objects, policies, and methods of hedge
effectiveness assessment, etc. are described in the “Significant
Accounting Policies.”(3) Risk management frameworks for financial instruments
The basic policies for risk management of the Bank arebroadly distinguished between “risks to be minimized” and “risks to
be controlled”. Credit risk, market risks, and liquidity risks fall into
the latter category. Both categorized risks are managed by risk
management divisions that are independent of the market divisions.
For the comprehensive management of these risks, Risk
Management Division has been established.
<Integrated risk management>
For the integrated management of risks, the Bank has
introduced integrated risk management for quantifiable risks.
Integrated risk management is a risk management method bymeasuring various risks using a uniform risk measure such as Valueat Risk (VaR), aggregating the measurements, and comparing theaggregated amounts with the strength of the Bank’s capital. The
Bank measures credit risks and market risks using VaR
methodology, and monitors on a daily basis to prevent risk limits
from being breached.
These risk limit amounts are reviewed each fiscal year by the
Risk Management Committee and determined at the Executive
committee. The values of risk, on the other hand, are measured at
the middle and end of each month by the Risk Management
Division, which takes steps to prevent any of the various risk limits
from being breached and, through an ALM Committee, reports
regularly to the management and relevant divisions.
The values of risk managed at consolidated subsidiaries areaggregated and managed through the integrated risk management
framework.
(i) Credit risk management
For the accurate identification and strict management of credit
risk, the Bank has established credit risk management policies.
Moreover, the Bank has created a structure in which divisions
responsible for credit control, credit management and credit
assessment are clearly segregated from divisions involved in client
services, with mutually independent tasks to ensure effective
internal checking functions.

The Credit Committee has been established as an organ forreviewing and determining matters related to credit risk
management. The Credit Committee is comprised of senior
management and general managers of related divisions anddeliberates on credit transactions that exceed a designated amount.
The Executive Committee deliberates on the results of asset
self-assessments, asset write-offs and asset reserve provisions.
Divisions responsible for credit control manage the credit riskfor each borrower relating to loans and market trading activities. An
overall credit limit is set for each borrower according to the credit
rating of the borrower. They analyze the Bank’s overall credit
portfolio according to credit rating, industry, country and othercriteria. These analyses are used to monitor the diversification of
credit risk as well as changes in portfolio credit risk. Additionally,
divisions responsible for credit control quantify credit risk in VaR
methodology using Monte Carlo simulation methods and manage
credit risks based on the limits set at the Executive committee.
The Credit Planning & Supervision Division—responsible for
credit management—accurately monitors each borrower’s financial
condition, the purposes for which funds are used and repayment
resources. In addition to appropriate assessment andpost-transaction management, the Credit Planning & Supervision
Division continually checks whether the client service division isconducting appropriate credit control, and provides guidance asnecessary.
The Credit Planning & Supervision Division is also
responsible for asset self-assessments. The division undertakes andmanages operations relating to asset self-assessments, and thecalculation of asset write-offs and asset reserve provisions.
Credit risks of consolidated subsidiaries are by individual
borrower added to the credit risk of the Bank and monitored.
(ii) Market risk management
To maintain an accurate understanding of market risk andrigorously manage this risk, the Bank has issued a market risk
management policy. Furthermore, divisions responsible for market
risk management are clearly separated from divisions involved inmarket operations, providing a risk management structure in whichinternal checks are maintained through independent functions.
The Bank has established the ALM Committee as the body
responsible for deliberating and making decisions on mattersrelating to market risk management. The ALM Committee iscomprised of senior management and heads of divisions related tomarket risk. Based on risk status information—obtained via reports
from divisions responsible for managing market risk and othersources—the ALM Committee reviews broadly and in a timely
manner ALM related policies and market transactions for the Bank’s
fund-raising and management as well as the usage of hedging
transactions involving derivatives such as interest rate swaps.
The divisions responsible for managing market risk quantify
and manage market risk by VaR within the limit set by the
Executive Committee. In addition, market risk is further divided
into several categories and managed according to risk limits
allocated to each category. Market risk management at the Bank notonly uses VaR methodology but takes multi-faceted approaches, thatis, monitoring sensitivity to change in individual risk factors such as
the interest rate risk based on outlier standard and the basis point
13

value (BPV; the amount of the change in a portfolio’s market value
from a specific change in the interest rate), stress loss amounts from
unexpected market changes, and appraisal losses from financial
instruments. For stress loss amounts, in particular, a supplementary
framework has been incorporated into the integrated risk
management, in addition to the above monitoring system. In thisway, market risks including those that cannot be captured throughVaR methods alone are managed.
Moreover, for trading operations, clear regulations are in placeconcerning the trading instruments and trading management
methods, enabling appropriate trading operations by setting a
specific loss limit amount.
Market risks of consolidated subsidiaries are not directly
added to the values of market risk of the parent operations but aremanaged separately under integrated risk management.
<Quantitative information on market risk>(a) Financial instruments held for trading purposes
The Bank uses VaR analysis for quantifying market risk of
trading securities held within securities and interest-rate andforeign-exchange instruments held for trading purposes withinderivative transactions. The VaR model is based on the delta method
and uses a 99.0% confidence interval, a holding period of fivebusiness days and an observation period of one year. In addition,with regard to market risk related to trading operations at
consolidated subsidiaries, which is managed separately within the
integrated risk management framework, the Bank uses a market
risk-equivalent amount under the regulations on banks’ capital ratio.
At March 31, 2011, the market risk amount (estimated loss
amount) of the Bank’s trading operations was¥416 million ($5 million), and the market risk amount (estimatedloss amount) of the trading operations of the Bank’s consolidated
subsidiaries was ¥1,129 million ($13 million).
The Bank conducts back testing to compare VaR calculatedusing the model with actual loss amounts. Based on the results ofback testing covering the fiscal year ended March 31, 2011, theactual loss amount exceeded the VaR model on three occasions, andthe Bank believes that the measurement model it uses has anadequate level of accuracy to capture market risk. However, it
should be noted that VaR measures the amount of market risk atcertain probability levels statistically calculated based on historicalmarket fluctuation. Hence, there may be cases where market risk
cannot be captured in situations where market conditions change
unprecedentedly.
(b) Financial instruments other than those held for trading
purposes
The Bank uses VaR analysis for quantifying market risk ofdue from banks, securities not held for trading purposes, loans andbills discounted, deposits, debentures, receivables under securities
borrowing transactions and, within derivative transactions,interest-rate and foreign-exchange instruments not held for trading
purposes. The VaR model is based on the delta method and uses a
99.0% confidence interval, a holding period of one year and an
observation period of five years. In addition, with regard to market
risk at consolidated subsidiaries related to operations other than
trading operations, which is managed separately within the
integrated risk management framework, such risk is calculated inaccordance with methods used by the Bank.

Shinkin Central Bank

41

At March 31, 2011, the Group’s market risk amount(estimated loss amount) other than for trading purposes was¥314,857 million ($3,786 million).
The Bank conducts back testing to compare VaR calculatedusing the model with actual loss amounts. Based on the results ofback testing covering the fiscal year ended March 31, 2011, theactual loss amount exceeded the VaR model on one occasion, andthe Bank believes that the measurement model it uses has anadequate level of accuracy to capture market risk. However, it
should be noted that VaR measures the amount of market risk atcertain probability levels statistically calculated based on historicalmarket fluctuation. Hence, there may be cases where market risk
cannot be captured in situations where market conditions change
unprecedentedly.
(iii) Liquidity risk management related to fund-raising
For the accurate identification and strict management ofliquidity risk, the Bank has established liquidity risk management
policies. Divisions responsible for liquidity risk management areclearly separated from divisions involved in cash management andmarket operations, allowing internal checks to be maintained
through the independent functions. In addition, the ALM Committee
deliberates and makes decisions on matters relating to liquidity risk
management.
Methods used for managing liquidity risk include the daily
setting and monitoring of risk limit amounts relating to the gap
between cash receipts and payments. This is carried out forindividual currencies and periods. In the event that a significant
liquidity risk arises, the Bank has preparations to respond rapidly,
including the securing of funding sources.
The liquidity risk management frameworks created by the
Bank include subsidiaries as well, by providing overdraft facilities
for consolidated subsidiaries with operations involving fundmovements in relatively large amounts.
(4) Supplementary explanation concerning the market value offinancial instruments
Market values of financial instruments, in addition to values
based on market prices, also include values based on reasonableestimates if market prices are unavailable. Since value estimates are
predicated on certain assumptions, values may vary if theunderlying assumptions change.

14

42

Shinkin Central Bank

2. Matters concerning fair value and others of financial instruments
Carrying values stated on the consolidated balance sheet as of March 31, 2011, fair value and differences between them are as follows.
Unlisted stocks and similar items with significant difficulty in determining fair value are not included in the table below. (See Note 2.)
Immaterial items have been omitted.
Millions of Yen
2011
Carrying Value

Fair Value

Difference(1) Cash and Due from Banks

2,026,383

2,026,383－(2) Call Loans and Bills Bought

750,984

750,984－(3) Receivables under Resale Agreements

86,98386,983－(4) Receivables under Securities Borrowing Transactions

93,138

93,138－(5) Monetary Debts Purchased (Note 1)

495,572495,277(294)

Trading Securities

402,984

402,984－(7) Money Held in Trust

211,106

211,106－(6) Trading Assets(8) Securities
Held-to-Maturity Debt Securities

4,271,910

4,359,087

87,176

Other Securities

16,985,180

16,985,180－(9) Loans and Bills Discounted
Reserve for Possible Loan Losses (Note 1)

5,254,813(17,892)
5,236,920

5,286,425

49,504

Total Assets(1) Deposits

30,561,166

30,697,553

136,387

21,569,331

21,597,846

28,515(2) Debentures

4,323,600

4,377,850

54,25078,87378,873－(3) Trading Liabilities
Trading Bonds Sold
(4) Borrowed Money630,950

657,681

26,731(5) Call Money and Bills Sold

435,272

435,272－(6) Payables under Securities Lending Transactions

2,843,378

2,843,378－

Total Liabilities

29,881,405

29,990,901

109,496

Derivatives (Note 2)
To which Hedge Accounting was not applied
To which Hedge Accounting was applied
Total Derivatives

15

2,921

2,921

－

284,174

301,466

17,291

287,096

304,388

17,291

Shinkin Central Bank

43

Millions of U.S.Dollars
2011
Carrying Value

Fair Value

Difference(1) Cash and Due from Banks

24,37024,370－(2) Call Loans and Bills Bought

9,031

9,031

－

(3) Receivables under Resale Agreements

1,046

1,046

－

(4) Receivables under Securities Borrowing Transactions

1,120

1,120

－

(5) Monetary Debts Purchased (Note 1)

5,959

5,956

(3)

(6) Trading Assets
Trading Securities

4,846

4,846

－

(7) Money Held in Trust

2,538

2,538

－

Held-to-Maturity Debt Securities

51,37552,424

1,048

Other Securities

204,271204,271－

62,981

63,576595

Total Assets(1) Deposits

367,542

369,182

1,640

259,402259,745342(2) Debentures

51,99752,650652(8) Securities(9) Loans and Bills Discounted
Reserve for Possible Loan Losses (Note 1)

63,196(215)(3) Trading Liabilities
948

948

－

(4) Borrowed Money

Trading Bonds Sold

7,588

7,909

321

(5) Call Money and Bills Sold

5,234

5,234

－

(6) Payables under Securities Lending Transactions

34,19534,195－

Total Liabilities

359,367

360,684

1,316

Derivatives (Note 2)
To which Hedge Accounting was not applied
To which Hedge Accounting was applied
Total Derivatives

35

35

－

3,417

3,625

207

3,452

3,660

207

Notes:
1. General and specific reserves for possible loan losses of Loans and Bills Discounted have been deducted. Loss reserves for Monetary
Debts Purchased are immaterial and have therefore been deducted directly from the carrying value stated on the consolidated balance
sheet.
2. Derivative transactions stated in trading assets and liabilities, and other assets and liabilities are shown as a single amount.
For net claims and obligations derived from derivative transactions, net amounts are stated. Sums that represent net obligations are shownin parenthesis.
Note1: Calculation method of fair value for financial instruments
Assets(1) Cash and Due from Banks
For deposits without maturities, since fair value approximates carrying value, carrying value is used as fair value. For deposits withmaturities, categorized by residual maturities, present value is calculated by discounting based on the interest rate that would conceivably beapplied to newly made deposits.
(2) Call Loans and Bills Bought，(3) Receivables under Resale Agreements and (4) Receivables under Securities Borrowing Transactions
Since contract durations are short-term and fair value approximates carrying value, carrying value is used as fair value.
(5) Monetary Debts Purchased
Monetary debt purchased is stated at amounts obtained from brokers or at reasonably calculated amounts as fair value.
Reasonably calculated amounts are determined using the discounted cash flow method using the discount rates of comparable assets as themain variable input for price determination.
16

44

Shinkin Central Bank(6) Trading Assets
Securities including bonds held for trading are stated at market prices..
(7) Money Held in Trust
Securities managed as trust assets of money held in trust whose main purpose is securities investment are valued at the prices quoted by
the exchanges in the case of listed equity shares and at market prices in the case of bonds.
(8) Securities
Stocks are valued at the price quoted by the exchanges. Investment trusts are valued at the announced standard price. Bonds are valued at
the quoted market prices and other applicable information at the balance sheet date.
Floating-Rate Japanese Government Bonds
The Bank believes that current market prices may not accurately reflect fair value due to very limited volume of actual transactions
continuously. The Bank used a valuation technique in fiscal year 2011 which management believes provided a reasonable estimate of the bond's
fair value. As a result of this change, the fair value and the net unrealized gains of Securities increased by ¥24,205 million ($291 million) withregard to the Held-to-Maturity Debt Securities, compared to amounts determined by using market prices as basis for fair value. Moreover, thefair value increased by ¥39,562 million ($475 million), Net Unrealized Gains on Other Securities increased by ¥27,194 million ($327 million)
and Deferred Tax Assets decreased by ¥12,367 million ($148 million) with regard to the Other Securities, compared to amounts determined byusing market prices as basis for fair value.
Fair value based on management's reasonable estimates for Floating-Rate Japanese Government Bonds was calculated using thediscounted cash flow approach and others, with the primary price variables including government bond yields and swaption volatility andothers.
Securitized Products
Fair values for overseas Collateralized Loan Obligations (CLOs) and some other securitized products were previously determined basedon price information received from brokers. However, the bank believes that broker quotes does not accurately reflect fair values continuously
because of the very low frequency with which these products are traded and the significant gap in prices desired by sellers and buyers. Fairvalues for these securities, therefore, have been determined using a valuation technique which management believes provided a reasonableestimate of securities' fair value at the end of the fiscal year.
As a result of this change, the fair value and the net unrealized gains of Securities increased by ¥22,385 million ($269 million) with regard
to the Held-to-Maturity Debt Securities, compared to amounts determined by using price information received from brokers as basis for fairvalue. Moreover, the fair value increased by ¥11,719 million ($140 million), Net Unrealized Gains on Other Securities increased by ¥8,056
million ($96 million) and Deferred Tax Assets decreased by ¥3,663 million ($44 million) with regard to the Other Securities.
The securitized products for which fair values are stated based on management's estimates include CLOs with secured loans to overseas
companies as underlying assets, Asset-Backed Securities (ABSs) with receivables held by overseas credit card companies as underlying assets,
and other similar investments with a stated value of ¥546,402 million ($6,571 million) on the consolidated balance sheets at the end of thisfiscal year.
Fair values based on management’s reasonable estimates for these products were calculated using the discounted cash flow approach withthe primary price variables including default rates for similar assets, recovery rates, early redemption rates, and discount rates.
Notes concerning securities categorized by holding purpose are stated in “Securities (Information related to securities).”(9) Loans and Bills Discounted
For floating rate loans, since market interest is reflected in fair value in short term and fair value approximates carrying value unless theborrower’s credit standing after the lending undergoes significant change, carrying value is used as fair value. For fixed rate loans, categorizedby type of loan, internal credit rating, and maturity, fair value is determined by discounting loans to present value using the interest rate thatwould conceivably be applied in case of a newly made loan of the same principal and interest total.
For loans with short contractual maturities, since fair value approximates carrying value, carrying value is used as fair value.
With regard to loans to borrowers in bankruptcy, de facto bankruptcy, or at risk of bankruptcy, the Bank estimates loan loss based on thepresent value of estimated future cash flows or the estimated recoverable value from collateral and guarantees. Since fair value therefore
approximates the balance sheet carrying value as of the balance sheet date less the current estimated loan loss, carrying value reduced by theestimated loan loss is used as fair value of loans.
Liabilities(1) Deposits
For demand deposits, the amount payable upon demand on the balance sheet date (carrying value) is used as fair value. For term deposits,
categorized by specific maturities, fair value is calculated by discounting future cash flows to present value. The discount rate is the interest ratethat would be applicable to newly made deposits. For term deposits with short contractual maturities, since fair value approximates carrying
value, carrying value is used as fair value.
(2) Debentures
For debentures issued by the Bank, market prices are used as fair value.
(3) Trading Liabilities
For trading bonds sold, market prices, etc. are used as fair value.
17

Shinkin Central Bank45

(4) Borrowed Money
For borrowed money, categorized by types of loans and maturities, fair value is calculated by discounting borrowed money to present
value using the interest rate that would conceivably be applied in case of a newly made loan of the same principal and interest total.
In instances with short contractual maturities, since fair value approximates carrying value, the carrying value is used as fair value.
(5) Call Money and Bills Sold, and (6) Payables under Securities Lending Transactions
Since contract durations are short-term and fair value approximates carrying value, carrying value is used as fair value.
Derivative Transactions
Derivative transactions consist of interest-rate-related transactions (interest rate futures, interest rate options, interest rate swaps, etc.),
currency-related transactions (currency futures, currency options, currency swaps, etc.), and bond-related transactions (bond futures, bond future
options, etc.), and are stated at exchange-traded transaction prices, discounted present value, and amounts calculated using option pricing
models, etc.
Note 2: The following financial instruments have significant difficulty in determining fair value and are not included in fair value
information of financial instruments.

Category

Millions of Yen

Millions of U.S.Dollars

2011

2011

Unlisted stocks, etc.
Investment in investment partnerships
Total

255,600

3,073

3,975

47

259,575

3,121

Notes:
1. Unlisted stocks, etc. means unlisted common shares and preferred shares held by the Bank. Since unlisted stocks, etc. have no market prices
and therefore are with significant difficulty in determining fair value, unlisted stocks, etc. are not included in fair value disclosure information.
2. Investment in investment partnerships is not included in fair value disclosure information given that investment partnership assets include items
such as unlisted stocks, etc., which are with significant difficulty in determining fair value.
Note 3: Amounts of monetary claims and securities with maturities scheduled for redemption after the consolidated balance sheet dateMillions of Yen
2011

Due from Banks (Note 1)
Call Loans and Bills Bought
Receivables under Resale Agreements
Receivables under Securities Borrowing
Transactions

Over 1 year,
within 3 years

Over 3 years,
within 5 years

Over 5 years,
within 7 years

Over 7 years,
within 10 years

Over 10 years

1,954,786
750,984
86,98354,890
－
－

6,000
－
－

1,000
－
－

1,000
－
－

－
－
－

93,138

－

－

－

－

－

Monetary Debts Purchased
Securities
Held-to-Maturity Debt Securities
Japanese Government Bonds
Municipal Government Bonds
Short-term Corporate Bonds
Corporate Bonds
Other Securities with maturities
Japanese Government Bonds
Municipal Government Bonds
Corporate Bonds
Loans and Bills Discounted (Note 2)

13,02825,346

48,391

5,417

24,041

380,747

157,421
100,700
11,26720,00020,405
1,970,048
900,000
57,553
184,692
2,414,196

1,936,582
1,542,810
81,417－
246,938
5,807,692
3,482,500
112,576
533,337
1,401,208

345,793282,300－－
43,843
1,852,123
910,000
62,498234,920
683,332

648,695
619,400－－－
601,898
385,000
10,741
3,075
228,671591,098
457,000400－－
3,305,682
2,842,000
29,19323,568289,125595,114442,000－－－
2,361,271
1,800,000－
3,500
228,379

Total

7,440,589

9,225,719

2,935,641

1,485,683

4,210,947

3,565,513

18

46

Within 1 year

Shinkin Central Bank

23,509
9,031

Over 1 year,
within 3 years
660
－

1,046

－

Within 1 year
Due from Banks (Note 1)
Call Loans and Bills Bought
Receivables under Resale
Agreements

Millions of U.S.Dollars
2011Over 3 years,
Over 5 years,
within 5 years
within 7 years
72
12
－
－
－

Over 7 years,
within 10 years
12－－Over 10 years
－
－

－

－

Receivables under Securities
1,120
－
－
－
－
Borrowing Transactions
Monetary Debts Purchased
156
304
581
65
289
Securities
Held-to-Maturity Debt Securities
1,893
23,290
4,158
7,801
7,108
Japanese Government Bonds
1,211
18,554
3,395
7,449
5,496
Municipal Government Bonds
135
979
－
－
4
Short-term Corporate Bonds
240
－
－
－
－
Corporate Bonds
245
2,969
527
－
－
Other Securities with maturities
23,692
69,84522,274
7,238
39,755
Japanese Government Bonds
10,82341,882
10,944
4,630
34,179Municipal Government Bonds
692
1,353
751
129
351
Corporate Bonds
2,221
6,414
2,825
36
283
29,034
16,851
8,218
2,750
3,477
Loans and Bills Discounted (Note 2)
Total
89,483110,952
35,305
17,86750,642
Notes:
1. Current deposits, ordinary deposit, deposits at notice, and transfer deposits, included in “Due from banks,” are stated under amounts
redeemable “Within 1 year.”
2. Of Loans and bills discounted, claimes of ¥9,096 million ($109 million) to borrowers in bankruptcy, borrowers in quasi-bankruptcy, andborrowers at risk of bankruptcy, etc, are excluded since their redemption cannot be expected.

－
4,579
7,157
5,315
－
－
－
28,397
21,647－422,746
42,880Note 4: Amounts of deposits, debentures and other interest bearing debt scheduled for repayment after the consolidated balance sheet
dateMillions of Yen
2011
Over 1 year, Over 3 years, Over 5 years, Over 7 years,
Within 1 year
Over 10 years
within 3 years within 5 years within 7 years within 10 years
Deposits
Debentures
Borrowed Money
Call Money and Bills Sold
Payables under Securities Lending
Transactions

12,143,484
954,000
2,000
435,272

8,925,981
1,992,520－－

488,063
1,377,080－－－－
301,960－

11,802
－
－
－

－
－
－
－

2,843,378

－

－

－

－

－

Total

16,378,134

10,918,501

1,865,143

301,960

11,802－

Deposits
Debentures
Borrowed Money
Call Money and Bills Sold

Millions of U.S.Dollars
2011Over 1 year, Over 3 years, Over 5 years, Over 7 years,
Within 1 year
Over 10 years
within 3 years within 5 years within 7 years within 10 years
146,043
107,347
5,869
－
141
－
11,47323,962
16,561
－
－
－
24
－
－
3,631
－
－
5,234
－
－
－
－
－

Payables under Securities Lending
Transactions

34,195

－

－

－

－

－

Total

196,970

131,310

22,431

3,631

141

－

Note: Demand deposits, included in “Deposits,” are stated under amounts payable “Within 1 year.”

19

Shinkin Central Bank

47

For the fiscal year ended March 31, 2010
1. Matters concerning financial instruments(1) Policies on financial instruments
Shinkin Central Bank Group (the “Group”) works to ensure
the stable procurement of funds through the acceptance of deposits
mainly from its Shinkin Bank members and through the issuance ofbonds. Additionally, the Group takes steps to diversify its funding
methods by procuring funds from short-term money markets
depending on market conditions.
Procured funds are invested in short-term money market
instruments, marketable securities, and loans.
Moreover, the Group uses derivative transactions for the
purpose of risk-hedging in ALM (asset liability management)
activities and engages in short-term trading of securities andderivatives.
To appropriately manage the various risks that result fromthese financial instruments, the Group engages in ALM activities
including the above-mentioned derivative transactions. For its
trading activities the Group establishes risk limit and loss limit
amounts and engages in transactions within the scopes of these risk
limits, and in this way works to preserve a sound management andto ensure stable earnings.
(2) Types and related risks of financial instruments
Financial assets held by the Group consist mainly of shortterm funds, securities, and loans assets.
Short-term funds are invested in the call loan and bills markets
and euro-yen deposits.
These investments are exposed to market risks such as thecounterparty credit risk, interest rate risk, and foreign currency risk.
Securities portfolios of the Group consist of domestic
securities including Japanese government, corporate bonds andothers as well as foreign securities such as government,
government-guaranteed, and government related institutional bonds
issued in the major industrialized countries. In addition, forinvestment diversification the Group also invests in equity securities
and investment funds.
These investments are exposed to market risks such as theindividual issuers’ credit risk, interest rate risk, price fluctuation risk,
and foreign currency risk, as well as market liquidity risk.
Loan assets consist of direct loans to low-risk borrowers
including Shinkin Banks, central and local governments, public
service corporations, blue chip private-sector corporations, andagency loans performed through Shinkin Banks.
These loans are exposed to counterparty credit risk andinterest rate risk.
Meanwhile, financial liabilities of the Group consist mainly of
deposits and bonds.
Deposits include current deposits, ordinary deposits, deposits
at notice, term deposits, and foreign denominated deposits, most ofwhich are deposits from Shinkin Bank members.
These deposits are exposed to market risks such as interest
rate risk and foreign currency risk, as well as liquidity risk.
As a bond issuer, the Group issues 5-year interest-bearing
bonds each month.
These bonds are exposed to interest rate risk and liquidity risk.
Furthermore, the Group engages in derivative transactions.
20

48

Shinkin Central Bank

Specifically, the Group trades interest rate derivatives (interest
swaps, interest futures, and interest options), currency derivatives(foreign currency forwards, currency swaps, and currency options)and bond derivatives (bond futures and bond futures options).
These transactions are exposed to market risks such ascounterparty credit risk, interest rate risk, and foreign currency risk.
The Bank hedges market risks of its financial assets andliabilities through ALM activities.
The Group partially avoids market risks by mitigating (i)interest rate risk through interest rate swaps and (ii) foreign
currency risk of foreign denominated assets throughforeign-denominated funds procurement, currency swaps, and forex
swaps.
Hedge accounting is applied to risk hedges through ALM
activities including the use of derivatives. Hedge accounting
methods, hedging objects, policies, and methods of hedge
effectiveness assessment, etc. are described in the “Significant
Accounting Policies.”(3) Risk management frameworks for financial instruments
The basic policies for risk management of the Bank arebroadly distinguished between “risks to be minimized” and “risks to
be controlled”. Credit risk, market risks, and liquidity risks fall into
the latter category. Both categorized risks are managed by risk
management divisions that are independent of the market divisions.
For the comprehensive management of these risks, Risk
Management Division has been established.
<Integrated risk management>
For the integrated management of risks, the Bank has
introduced integrated risk management for quantifiable risks.
Integrated risk management is a risk management method bymeasuring various risks using a uniform risk measure such as Valueat Risk (VaR), aggregating the measurements, and comparing theaggregated amounts with the strength of the Bank’s capital. The
Bank measures credit risks and market risks using VaR
methodology, and monitors on a daily basis to prevent risk limits
from being breached.
These risk limit amounts are reviewed each fiscal year by the
Risk Management Committee and determined at the senior
management meeting. The values of risk, on the other hand, aremeasured at the middle and end of each month by the Risk
Management Division, which takes steps to prevent any of thevarious risk limits from being breached and, through an ALM
Committee, reports regularly to the management and relevant
divisions.
The values of risk managed at consolidated subsidiaries areaggregated and managed through the integrated risk management
framework.
(i) Credit risk management
For the accurate identification and strict management of credit
risk, the Bank has established credit risk management policies.
Moreover, the Bank has created a structure in which divisions
responsible for credit control, credit assessment and asset
management are clearly segregated from divisions involved in client
services, with mutually independent tasks to ensure effective
internal checking functions.

The Credit Committee has been established as an organ forreviewing and determining matters related to credit risk
management, and the Asset Assessment Committee has been
established as an organ for reviewing and determining mattersrelated to asset self-assessment. The Credit Committee and theAsset Assessment Committee are comprised of senior management
and general managers of related divisions. The Credit Committee
deliberates on credit transactions that exceed a designated amount.
The Asset Assessment Committee deliberates on the results of asset
self-assessments, asset write-offs and asset reserve provisions.
Divisions responsible for credit control manage the credit riskfor each borrower relating to loans and market trading activities. An
overall credit limit is set for each borrower according to the credit
rating of the borrower. They analyze the Bank’s overall credit
portfolio according to credit rating, industry, country and othercriteria. These analyses are used to monitor the diversification of
credit risk as well as changes in portfolio credit risk. Additionally,
divisions responsible for credit control quantify credit risk in VaR
methodology using Monte Carlo simulation methods and manage
credit risks based on the limits set at the management meeting.
The Credit Planning & Supervision Division—responsible for
credit assessment—accurately monitors each borrower’s financial
condition, the purposes for which funds are used and repayment
resources. In addition to appropriate assessment andpost-transaction management, the Credit Planning & Supervision
Division continually checks whether the client service division isconducting appropriate credit control, and provides guidance asnecessary.
The Credit Planning & Supervision Division is also
responsible for asset assessment. The division undertakes andmanages operations relating to asset self-assessments, and thecalculation of asset write-offs and asset reserve provisions.
Credit risks of consolidated subsidiaries are by individual
borrower added to the credit risk of the Bank and monitored.
(ii) Market risk management
To maintain an accurate understanding of market risk andrigorously manage this risk, the Bank has issued a market risk
management policy. Furthermore, divisions responsible for market
risk management are clearly separated from divisions involved inmarket operations, providing a risk management structure in whichinternal checks are maintained through independent functions.
The Bank has established the ALM Committee as the body
responsible for deliberating and making decisions on mattersrelating to market risk management. The ALM Committee iscomprised of senior management and heads of divisions related tomarket risk. Based on risk status information—obtained via reports
from divisions responsible for managing market risk and othersources—the ALM Committee reviews broadly and in a timely
manner ALM related policies and market transactions for the Bank’s
fund-raising and management as well as the usage of hedging
transactions involving derivatives such as interest rate swaps.

21

For banking operations and trading activities, the divisions
responsible for managing market risk quantify and manage market
risk by VaR within the limit set by the Executive Committee. In
addition, market risk is further divided into several categories andmanaged according to risk limits allocated to each category. Market
risk management at the Bank not only uses VaR methodology but
takes multi-faceted approaches, that is, monitoring sensitivity tochange in individual risk factors such as the interest rate risk basedon outlier standard and the basis point value (BPV; the amount of
the change in a portfolio’s market value from a specific change in
the interest rate), stress loss amounts from unexpected market
changes, and appraisal losses from financial instruments. For stressloss amounts, in particular, a supplementary framework has been
incorporated into the integrated risk management, in addition to theabove monitoring system. In this way, market risks including thosethat cannot be captured through VaR methods alone are managed.
Moreover, for trading operations, clear regulations are in placeconcerning the trading instruments and trading management
methods, enabling appropriate trading operations by setting a
specific loss limit amount.
Market risks of consolidated subsidiaries are not directly
added to the values of market risk of the parent operations but aremanaged separately under integrated risk management.
(iii) Liquidity risk management related to fund-raising
For the accurate identification and strict management ofliquidity risk, the Bank has established liquidity risk management
policies. Divisions responsible for liquidity risk management areclearly separated from divisions involved in cash management andmarket operations, allowing internal checks to be maintained
through the independent functions. In addition, the ALM Committee
deliberates and makes decisions on matters relating to liquidity risk
management.
Methods used for managing liquidity risk include the daily
setting and monitoring of risk limit amounts relating to the gap
between cash receipts and payments. This is carried out forindividual currencies and periods. In the event that a significant
liquidity risk arises, the Bank has preparations to respond rapidly,
including the securing of funding sources.
The liquidity risk management frameworks created by the
Bank include subsidiaries as well, by providing overdraft facilities
for consolidated subsidiaries with operations involving fundmovements in relatively large amounts.
(4) Supplementary explanation concerning the market value offinancial instruments
Market values of financial instruments, in addition to values
based on market prices, also include values based on reasonableestimates if market prices are unavailable. Since value estimates are
predicated on certain assumptions, values may vary if theunderlying assumptions change.

Shinkin Central Bank49

2. Matters concerning fair value of financial instruments
Carrying values stated on the consolidated balance sheet as of March 31, 2010, fair value and differences between them are as follows.
Unlisted stocks and similar items. with significant difficulty in determining fair value are not included in the table below. (See Note 2.)
Immaterial items have been omitted.
Millions of Yen
2010
Difference

Carrying Value

Fair Value(1) Cash and Due from Banks

2,485,776

2,485,776－(2) Call Loans and Bills Bought

612,207612,207－(3) Receivables under Resale Agreements

29,99729,997－(4) Receivables under Securities Borrowing Transactions

66,92566,925－(5) Monetary Debts Purchased (Note 1)

642,835

642,236(599)

Trading Securities

405,538

405,538－(7) Money Held in Trust

211,677

211,677－(6) Trading Assets(8) Securities－

Held-to-Maturity Debt Securities

4,817,007

4,900,011

83,004

Other Securities

12,221,276

12,221,276－

6,227,092

6,280,031

52,939Total Assets

27,720,335

27,855,678

135,343(1) Deposits

19,723,454

19,765,922

42,468(2) Debentures

4,802,920

4,882,695

79,77555,07055,070－(4) Borrowed Money628,950

656,630

27,680(5) Call Money and Bills Sold452,101

452,101－(6) Payables under Securities Lending Transactions

1,297,387

1,297,387－

Total Liabilities

26,959,883

27,109,808

149,925

2,644

2,644

－

234,107

280,765

46,658

236,752

283,410

46,658(9) Loans and Bills Discounted
Reserve for Possible Loan Losses (Note 1)

6,263,824(36,731)(3) Trading Liabilities
Trading Bonds Sold

Derivatives (Note 2)
To which Hedge Accounting was not applied
To which Hedge Accounting was applied
Total Derivatives
Notes:
1. General and specific reserves for possible loan losses of Loans and Bills Discounted have been deducted. Loss reserves for Monetary Debts Purchased are
immaterial and have therefore been deducted directly from the carrying value stated on the consolidated balance sheet.
2. Derivative transactions stated in trading assets and liabilities, and other assets and liabilities are shown as a single amount.
For net claims and obligations derived from derivative transactions, net amounts are stated. Sums that represent net obligations are shown in parenthesis.

2250

Shinkin Central Bank

Note1: Calculation method of fair value for financial instruments
Assets(1) Cash and Due from Banks
For deposits without maturities, since fair value approximates carrying value, carrying value is used as fair value. For deposits withmaturities, categorized by residual maturities, present value is calculated by discounting based on the interest rate that would conceivably beapplied to newly made deposits.
(2) Call Loans and Bills Bought，(3) Receivables under Resale Agreements and (4) Receivables under Securities Borrowing Transactions
Since contract durations are short-term and fair value approximates carrying value, carrying value is used as fair value.
(5) Monetary Debts Purchased
Monetary debt purchased is stated at amounts obtained from brokers or at reasonably calculated amounts as fair value.
Reasonably calculated amounts are determined using the discounted cash flow method using the discount rates of comparable assets as themain variable input for price determination.
(6) Trading Assets
Securities including bonds held for trading are stated at market prices.
(7) Money Held in Trust
Securities managed as trust assets of money held in trust whose main purpose is securities investment are valued at the prices quoted by
the exchanges in the case of listed equity shares and at market prices in the case of bonds.
(8) Securities
Stocks are valued at the price quoted by the exchanges. Investment trusts are valued at the announced standard price. Bonds are valued at
the quoted market prices and other applicable information at the balance sheet date.
Floating-Rate Japanese Government Bonds
In prior periods, the Bank used market prices to determine the fair value of Floating-Rate Japanese Government Bonds. However, thebank believes that current market prices may not accurately reflect fair value due to very limited volume of actual transactions continuously.
The Bank used a valuation technique in fiscal year 2010 which management believes provided a reasonable estimate of the bond's fair value. As
a result of this change, the fair value and the net unrealized gains of Securities increased by ¥31,993 million with regard to the Held-to-Maturity
Debt Securities, compared to amounts determined by using market prices as basis for fair value. Moreover, the fair value increased by ¥47,805
million, Net Unrealized Gains (Losses) on Other Securities increased by ¥32,861 million and Deferred Tax Assets decreased by ¥14,943 million
with regard to the Other Securities, compared to amounts determined by using market prices as basis for fair value.
Fair value based on management's reasonable estimates for Floating-Rate Japanese Government Bonds was calculated using thediscounted cash flow approach and others, with the primary price variables including government bond yields and swaption volatility andothers.
Securitized Products
Fair values for overseas Collateralized Loan Obligations (CLOs) and some other securitized products were previously determined basedon price information received from brokers. However, management believes that broker quotes does not accurately reflect fair values
continuously because of the very low frequency with which these products are traded and the significant gap in prices desired by sellers andbuyers. Fair values for these securities, therefore, have been determined using a valuation technique which management believes provided areasonable estimate of securities' fair value at the end of the fiscal year.
As a result of this change, the fair value and the net unrealized gains of Securities increased by ¥38,264 million with regard to theHeld-to-Maturity Debt Securities, compared to amounts determined by using price information received from brokers as basis for fair value.
Moreover, the fair value increased by ¥22,314 million, Net Unrealized Gains (Losses) on Other Securities increased by ¥15,339 million andDeferred Tax Assets decreased by ¥6,975 million with regard to the Other Securities.
The securitized products for which fair values are stated based on management's estimates include CLOs with secured loans to overseas
companies as underlying assets, Asset-Backed Securities (ABSs) with receivables held by overseas credit card companies as underlying assets,
and other similar investments with a stated value of ¥638,429 million on the consolidated balance sheets at the end of this fiscal year.
Fair values based on management’s reasonable estimates for these products were calculated using the discounted cash flow approach withthe primary price variables including default rates for similar assets, recovery rates, early redemption rates, and discount rates.
Notes concerning securities categorized by holding purpose are stated in “Securities (Information related to securities).”(9) Loans and Bills Discounted
For floating rate loans, since market interest is reflected in fair value in short term and fair value approximates carrying value unless theborrower’s credit standing after the lending undergoes significant change, carrying value is used as fair value. For fixed rate loans, categorizedby type of loan, internal credit rating, and maturity, fair value is determined by discounting loans to present value using the interest rate thatwould conceivably be applied in case of a newly made loan of the same principal and interest total.
For loans with short contractual maturities, since fair value approximates carrying value, carrying value is used as fair value.
With regard to loans to borrowers in bankruptcy, de facto bankruptcy, or at risk of bankruptcy, the Bank estimates loan loss based on thepresent value of estimated future cash flows or the estimated recoverable value from collateral and guarantees. Since fair value therefore
approximates the balance sheet carrying value as of the balance sheet date less the current estimated loan loss, carrying value reduced by theestimated loan loss is used as fair value of loans.
23

Shinkin Central Bank

51

Liabilities(1) Deposits
For demand deposits, the amount payable upon demand on the balance sheet date (carrying value) is used as fair value. For term deposits,
categorized by specific maturities, fair value is calculated by discounting future cash flows to present value. The discount rate is the interest ratethat would be applicable to newly made deposits. For term deposits with short contractual maturities, since fair value approximates carrying
value, carrying value is used as fair value.
(2) Debentures
For debentures issued by the Bank, market prices are used as fair value.
(3) Trading Liabilities
For trading bonds sold, market prices, etc. are used as fair value.
(4) Borrowed Money
For borrowed money, categorized by types of loans and maturities, fair value is calculated by discounting borrowed money to present
value using the interest rate that would conceivably be applied in case of a newly made loan of the same principal and interest total.
In instances with short contractual maturities, since fair value approximates carrying value, the carrying value is used as fair value.
(5) Call Money and Bills Sold, and (6) Payables under Securities Lending Transactions
Since contract durations are short-term and fair value approximates carrying value, carrying value is used as fair value.
Derivative Transactions
Derivative transactions consist of interest-rate-related transactions (interest rate futures, interest rate options, interest rate swaps, etc.),
currency-related transactions (currency futures, currency options, currency swaps, etc.), and bond-related transactions (bond futures, bond future
options, etc.), and are stated at exchange-traded transaction prices, discounted present value, and amounts calculated using option pricing
models, etc.
Note 2: The following financial instruments have significant difficulty in determining fair value and are not included in fair value
information of financial instruments.
Millions of Yen
Category
Unlisted stocks, etc.
Investment in investment partnerships
Total

2010
252,601
5,105
257,706

Notes:
1. Unlisted stocks, etc. means unlisted common shares and preferred shares held by the Bank. Since unlisted stocks, etc. have no market prices
and therefore are with significant difficulty in determining fair value, unlisted stocks, etc. are not included in fair value disclosure information.
2. In this fiscal year, an impairment loss of ¥2,883 million was charged for unlisted stocks.
3. Investment in investment partnerships is not included in fair value disclosure information given that investment partnership assets include items
such as unlisted stocks, etc., which are with significant difficulty in determining fair value.

24

52

Shinkin Central Bank

Note 3: Amounts of monetary claims and securities with maturities scheduled for redemption after the consolidated balance sheet dateMillions of Yen
2010
Within 1 year

Over 1 year,
within 3 years

Over 3 years,
within 5 years

Over 5 years,
within 7 years

Over 7 years,
within 10 years

Over 10 years

2,417,646

37,22028,610

1,000

－

－

Call Loans and Bills Bought

612,207

－

－

－

－

－

Receivables under Resale Agreements

29,997

－

－

－

－

－

Receivables under Securities Borrowing
Transactions

66,925

－

－

－

－

－

Monetary Debts Purchased

18,47321,65742,04043,355

6,982

513,076

Held-to-Maturity Debt Securities

1,283,947

507,198

1,082,631

379,706

884,878

690,812

Japanese Government Bonds

1,010,000

338,110

922,900

360,300

791,900

442,000

Municipal Government Bonds

130,81161,73929,130－400－

Short-term Corporate Bonds

50,000

－

－

－

－

－

Corporate Bonds

3,900

81,75050,225－－－

Other Securities with maturities

2,203,342

2,729,127

1,744,749

702,886

1,539,763

2,215,320

Japanese Government Bonds

1,123,000

942,100

705,000

405,000

1,260,000

1,555,000

Municipal Government Bonds

15,698118,400

59,532

11,77725,853－

Corporate Bonds

212,793353,749

153,979

5,485

23,2533,500

Loans and Bills Discounted (Note 2)

3,031,317

1,473,123

914,702305,933

232,726

273,756

Total

9,663,857

4,768,327

3,812,733

1,432,881

2,664,351

3,692,966

Cash and Due from Banks (Note 1)

Securities

Notes:
1. Cash, current deposits, ordinary deposit, deposits at notice, and transfer deposits, included in “Cash and Due from banks,” are stated underamounts redeemable “Within 1 year.”
2. Of Loans and bills discounted, claimes of ¥31,284 million to borrowers in bankruptcy, borrowers in quasi-bankruptcy, and borrowers at risk ofbankruptcy, etc, are excluded since their redemption cannot be expected.

25

Shinkin Central Bank

53

Note 4: Amounts of deposits, debentures and other interest bearing debt scheduled for repayment after the consolidated balance sheet
dateMillions of Yen
2010

Deposits
Debentures
Borrowed Money
Call Money and Bills Sold
Payables under Securities Lending
Transactions
Total

Over 1 year, Over 3 years, Over 5 years, Over 7 years,
Within 1 year
Over 10 years
within 3 years within 5 years within 7 years within 10 years
11,217,486
8,323,238
177,624－
5,105－
1,056,550
1,947,540
1,798,830
－
－
－
－
－
－
100,000
201,960－
452,101－－－－－
1,297,387

－

－

－

－

－

14,023,524

10,270,778

1,976,454

100,000

207,065－

Note: Demand deposits, included in “Deposits,” are stated under amounts payable “Within 1 year.”
25. Fair Value of Securities and Money Held in Trust:
1. Securities
For the Fiscal Year Ended March 31, 2011
The following tables contain information relating to Securities, Trading Assets (trading securities, commercial papers and Short-Term
Corporate Bonds), Cash and Due from Banks (negotiable certificates of deposit), Monetary Receivables Purchased (commercial paper andloaned claims in trust) in the consolidated balance sheets.
(1) Trading Securities
Millions of Yen

Millions of U.S. Dollars

2011

2011

Net Unrealized
Gains (Losses)
Recognized as Income

Net Unrealized
Gains (Losses)
Recognized as Income

240

Trading Securities(2) Held-to-Maturity Debt Securities

Millions of Yen
2011

3,007,115
92,10019,990145,369
353,5543,618,129
475,296
1,286－
168,470
12,080657,134

3,063,732
92,94519,992
146,229
383,8113,706,710
474,484
1,284－
168,070
11,890655,730

Unrealized
Gains (Losses)
56,617844
2859
30,256
88,580
(812)
(1)
－
(400)
(190)
(1,403)4,275,263

4,362,440

87,176

Carrying Value

Items with Fair
Value Exceeding
Carrying Value

Items with Fair
Value notExceeding Carrying
Value

Japanese Government Bonds
Municipal Government Bonds
Short-Term Corporate Bonds
Corporate Bonds
Others
Total
Japanese Government Bonds
Municipal Government Bonds
Short-Term Corporate Bonds
Corporate Bonds
Others
Total
Total

26

54

Shinkin Central Bank

Fair Value

Millions of U.S. Dollars
2011
Carrying Value

Unrealized
Gains (Losses)

Japanese Government Bonds
Municipal Government Bonds
Short-Term Corporate Bonds
Corporate Bonds
Others
Total
Japanese Government Bonds
Municipal Government Bonds
Short-Term Corporate Bonds
Corporate Bonds
OthersTotal

36,164
1,107
240
1,748
4,252
43,513
5,716
15
－
2,026
145
7,902

36,845
1,117
240
1,758
4,615
44,578
5,706
15
－
2,021
142
7,886

680
10
0
10
363
1,065
(9)
(0)
－
(4)
(2)
(16)

Total
Note: The fair value is based on quoted market prices as at March 31, 2011.

51,41652,464

1,048

Items with Fair
Value Exceeding
Carrying Value

Items with Fair
Value notExceeding Carrying
Value

27

Fair Value

Shinkin Central Bank55

(3) Other Securities

Millions of Yen
2011
Carrying Value

Items with Carrying
Value Exceeding
Acquisition Cost

Items with Carrying
Value notExceedingAcquisition Cost

Stocks
Bonds
Japanese Government Bonds
Municipal Government Bonds
Short-Term Corporate Bonds
Corporate Bonds
Others
Total
Stocks
Bonds
Japanese Government Bonds
Municipal Government Bonds
Short-Term Corporate Bonds
Corporate Bonds
Others
Total
Total

Acquisition Cost

Unrealized
Gains (Losses)

21,995
7,198,947
6,343,337
241,918－
613,692
3,172,839
10,393,783
57,006
4,585,016
4,170,262
35,141－
379,6122,649,307
7,291,330

17,352
7,095,812
6,249,867
238,395－
607,550
3,122,706
10,235,872
65,436
4,609,943
4,193,543
35,358－381,0422,696,624
7,372,004

4,643
103,135
93,469
3,522
－
6,142
50,132
157,911(8,429)(24,926)(23,281)(216)－(1,429)(47,316)(80,673)

17,685,114

17,607,876

77,238Millions of U.S. Dollars
2011
Carrying Value

Items with Carrying
Value Exceeding
Acquisition Cost

Items with Carrying
Value notExceedingAcquisition Cost

Acquisition Cost

Unrealized
Gains (Losses)

Stocks
Bonds
Japanese Government Bonds
Municipal Government Bonds
Short-Term Corporate Bonds
Corporate Bonds
Others264
86,57776,287
2,909
－
7,380
38,158208
85,33775,163
2,867
－
7,306
37,555

55
1,240
1,124
42
－
73
602

Total

125,000

123,101

1,899

Stocks
Bonds
Japanese Government Bonds
Municipal Government Bonds
Short-Term Corporate Bonds
Corporate Bonds
OthersTotal

685
55,14150,153422－
4,565
31,861
87,688786
55,44150,433425－
4,582
32,43088,659

(101)
(299)
(279)
(2)
－
(17)
(569)
(970)

Total
212,689
211,760
928
Note: In terms of carrying values of Securities recorded on the consolidated balance sheets, stocks and investment trusts are stated on
the average quoted market price over the month preceding the consolidated balance sheet date, and securities excluding stocks
and investment trusts are stated at fair value based on the quoted market prices as at March 31, 2011.

28

56

Shinkin Central Bank(4) Held-to-Maturity Debt Securities Sold during this Fiscal YearNo held-to-maturity debt securities were sold during the fiscal year ended March 31, 2011.
(5) Other Securities Sold during the Fiscal Year
Millions of Yen

  

2011
Amounts ofSecurities Sold

Aggregate Gains on
Sales

Aggregate Losses on
Sales

Stocks64,162

6,782

10,056

Bonds

2,682,226

17,4707,726Japanese Government Bonds

2,682,226

17,4707,726

Municipal Government Bonds

－

－

－

Short-Term Corporate Bonds

－

－

－

Corporate Bonds

－

－

－

Others1,380,896

9,893

8,653

Total

4,127,284

34,14626,436

Millions of U.S. Dollars   2011
Amounts ofSecurities Sold

29

Aggregate Gains on
Sales

Aggregate Losses on
Sales

Stocks

771

81

120

Bonds

32,257

210

92

Japanese Government Bonds

32,257210

92

Municipal Government Bonds

－

－

－

Short-Term Corporate Bonds

－

－

－

Corporate Bonds

－

－

－

Others

16,607

118

104

Total

49,636410

317

Shinkin Central Bank57

(6) Impaired Securities
Among Held-to-Maturity Debt Securities and Other Securities with a quoted market price, if the market price of certain security falls
by 30% or more of the book value, and with the percentage of decline over a certain past period taken into account, its market price is notexpected to recover to the acquisition price, the value of the security presented in the consolidated balance sheets is revised to the amount of
the market price. In addition, valuation differences are recorded as impairment loss in this fiscal year.
In the fiscal year ended March 31, 2011, impairment loss of ¥4,575 million ($55 million) was recorded for stocks in Other Securities.
For the Fiscal Year Ended March 31, 2010
The following tables contain information relating to Securities, Trading Assets (trading securities, commercial papers and Short-Term
Corporate Bonds), Cash and Due from Banks (negotiable certificates of deposit), Monetary Receivables Purchased (commercial paper andloaned claims in trust) in the consolidated balance sheets.
(1) Trading Securities
Millions of Yen
2010
Net Unrealized
Gains (Losses)
Recognized as Income
Trading Securities(27)(2) Held-to-Maturity Debt Securities
Millions of Yen
2010
Carrying Value

Items with Fair
Value Exceeding
Carrying Value

Items with Fair
Value notExceeding Carrying
Value

Japanese Government Bonds

3,470,047

3,517,046

46,998Municipal Government Bonds

222,467

224,062

1,595

Short-Term Corporate Bonds

49,97949,99313

Corporate Bonds

119,854

121,042

1,187

Others495,533

533,671

38,138

Total

4,357,882

4,445,816

87,933

Japanese Government Bonds

431,828

Municipal Government Bonds－

427,186－(4,641)－

Short-Term Corporate Bonds

－

－

－

Corporate Bonds

17,15917,144(15)

Others

10,836

10,564

(272)

Total
Total
Note: The fair value is based on quoted market prices as at March 31, 2010.

30

58

Shinkin Central Bank

Unrealized
Gains (Losses)

Fair Value

459,824454,894(4,929)4,817,707

4,900,711

83,003

(3) Other Securities
Millions of Yen
2010
Carrying Value

Unrealized
Gains (Losses)

Acquisition Cost

Stocks47,65838,897

8,760

Bonds

4,492,293

4,424,621

67,671

Japanese Government Bonds

3,616,442

3,560,349

56,093

Municipal Government Bonds

225,132

221,115

4,016

Corporate Bonds

650,719

643,156

7,562

Others3,384,692

3,316,167

68,524

Total

7,924,644

7,779,687

144,957

Items with Carrying
Value Exceeding
Acquisition Cost

Stocks69,572

83,934(14,361)

Bonds

2,609,114

2,621,697(12,583)

Japanese Government Bonds

2,487,130

2,498,679(11,548)

Municipal Government Bonds

10,88010,925(44)

Items with Carrying
Value notExceedingAcquisition Cost

111,103

112,093(990)

Others2,626,332

2,697,405(71,072)

Total

5,305,019

5,403,036(98,017)

Corporate Bonds

13,229,663
13,182,724
46,939Total
Note: In terms of carrying values of Securities recorded on the consolidated balance sheets, stocks and investment trusts are stated on
the average quoted market price over the month preceding the consolidated balance sheet date, and securities excluding stocks
and investment trusts are stated at fair value based on the quoted market prices as at March 31, 2010.
(4) Held-to-Maturity Debt Securities Sold during this Fiscal YearNo held-to-maturity debt securities were sold during the fiscal year ended March 31, 2010.
(5) Other Securities Sold during the Fiscal Year
Millions of Yen

  

2010
Amounts ofSecurities Sold

31

Aggregate Gains on
Sales

Aggregate Losses on
Sales

Stocks121,140

17,72020,796

Bonds

2,614,138

22,955

3,087

Japanese Government Bonds

2,440,295

19,266

3,087

Municipal Government Bonds

53,107

1,133－

Corporate Bonds

120,735

2,555－

Others1,327,743

16,89816,253

Total

4,063,023

57,574

40,138

Shinkin Central Bank59

(6) Reclassification of Securities
Securities reclassified from Other Securities to Held-to-Maturity Debt Securities (as of March 31, 2010):
Millions of Yen
2010
Fair ValueNet Unrealized Gains (Losses) for Other
Securities Recorded on the Consolidated
Balance Sheets

Carrying Value

Japanese Government Bonds

588,245

570,725

1,928

Others444,865

407,660(27,565)(7) Impaired Securities
Among Held-to-Maturity Debt Securities and Other Securities with a quoted market price, if the market price of certain security falls
by 30% or more of the book value, and with the percentage of decline over a certain past period taken into account, its market price is notexpected to recover to the acquisition price, the value of the security presented in the consolidated balance sheets is revised to the amount of
the market price. In addition, valuation differences are recorded as impairment loss in this fiscal year.
In the fiscal year ended March 31, 2010, impairment loss of ¥603 million was recorded for foreign securities in Held-to-Maturity
securities, and ¥3,292 million was recorded for stocks and foreign securities in Other Securities.
2. Money Held in Trust
For the Fiscal Year Ended March 31, 2011(1) Money Held in Trust for Investment
Millions of Yen
2011

Money Held in Trust for
Trading Purposes

Carrying Value

Unrealized Gains (Losses)
Recognized as Income

211,106(350)

Carrying Value
Money Held in Trust for
Trading Purposes

Millions of U.S. Dollars
2011
Unrealized Gains (Losses)
Recognized as Income

2,538

(4)

(2) Held-to-Maturity Money Held in Trust
Not applicable.
(3) Other Money Held in Trusts (Money Held in Trust other than Held for Trading Purposes)
Not applicable.
For the Fiscal Year Ended March 31, 2010
(1) Money Held in Trust for Investment

Carrying Value
Money Held in Trust for
Trading Purposes

32

60

Shinkin Central Bank

211,677

Millions of Yen
2010
Unrealized Gains (Losses) Recognized as
Income31

(2) Held-to-Maturity Money Held in Trust
Not applicable.
(3) Other Money Held in Trusts (Money Held in Trust other than Held for Trading Purposes)
Not applicable.
3. Net Unrealized Gains on Other Securities and Other Money Held in Trust
For the Fiscal Year Ended March 31, 2011
Components of Net Unrealized Gains on Other Securities in the consolidated balance sheets are as follows:
Millions of U.S.
Millions of Yen
Dollars
2011
Other Securities

2011
48,539583－－

Net Unrealized Gains

48,539583

Deferred Tax Liabilities

12,756

153

Net Unrealized Gains(Prior to Equity Method Adjustment)

35,783430

Minority Interests’ Portion－－

Parent Company’s Portion of Valuation Differential for Other
Securities Held by Equity-Method-Applicable Companies－－

35,783430

Other Money Held in Trust

Net Unrealized Gains

Notes:
1. Unrealized Gains on foreign currency translations of foreign currency-denominated other securities without fair market value areincluded in “Other Securities” under “Net Unrealized Gains”.
2. Any Net Unrealized Gains on other securities that are stated in the consolidated statements of income are excluded from the abovetable.
For the Fiscal Year Ended March 31, 2010
Components of Net Unrealized Gains on Securities are as follows:
Millions of Yen
2010
Other Securities
Other Money Held in Trust

9,645
－

Net Unrealized Gains

9,645

Deferred Tax Assets

1,131

Net Unrealized Gains(Prior to Equity Method Adjustment)

10,776

Minority Interests’ Portion－

Parent Company’s Portion of Valuation Differential for Other
Securities Held by Equity-Method-Applicable Companies－

Net Unrealized Gains

10,776

Notes:
1. Unrealized Gains on foreign currency translations of foreign currency-denominated other securities without fair market value (except
those stated in the consolidated statements of income) are included in “Other Securities” under “Net Unrealized Gains”.
2. Any Net Unrealized Gains on other securities that are stated in the consolidated statements of income are excluded from the abovetable.

33

Shinkin Central Bank61

26. Derivatives:
For the Fiscal Year Ended March 31, 2011
1. Derivative transactions to which hedging accounting was not applied
The following summarizes the contract values or the contracted principal equivalents, fair values, net unrealized gains (losses) and thevaluation methods of the fair values of the Bank’s derivative transactions that do not qualify for hedge accounting as of the consolidatedbalance sheet date, which were classified by types of financial instruments. Please note that the contract values in themselves do not reflect
the market risk associated with the Bank’s Derivative Transactions.
(1) Interest-Rate-Related Transactions
Millions of Yen
2011
Total
Contract
Value

Contract Value(Over 1 Year until
Settlement or Expiry)

Fair ValueNet Unrealized
Gains (Losses)

Exchange-Traded Transactions
Interest Rate Futures:
Sold

－

－

－

－

Bought

－

－

－

－

Sold

－

－

－

－

Bought

－

－

－

－

Sold

－

－

－

－

Bought－－－－Fixed Rate Receivable/Variable Rate Payable

14,086,667

10,187,357

169,893

169,893

Variable Rate Receivable/Fixed Rate Payable

14,883,739

9,547,704(157,031)(157,031)

Variable Rate Receivable/Variable Rate Payable

62,00040,00063

63

Fixed Rate Receivable / Fixed Rate Payable

110,000

110,000

2,721

2,721

Sold

－

－

－

－

Bought

－

－

－

－

Sold

3,187,400

1,640,400(25,157)(3,057)

Bought2,316,938

1,702,620

12,346

3,760

－

－

2,836

16,350Interest Rate Options:Over the Counter Transactions
Interest Rate Futures:

Interest Rate Swaps:

Interest Rate Options:

Others:

Total

34

62

Shinkin Central Bank

Millions of U.S. Dollars
2011
Total
Contract
Value

Contract Value(Over 1 Year until
Settlement or Expiry)

Fair ValueNet Unrealized
Gains (Losses)

Exchange-Traded Transactions
Interest Rate Futures:
Sold

－

－

－

－

Bought

－

－

－

－

Sold

－

－

－

－

Bought

－

－

－

－

Sold

－

－

－

－

Bought－－－－Fixed Rate Receivable/Variable Rate Payable

169,412122,517

2,043

2,043

Variable Rate Receivable/Fixed Rate Payable

178,998

114,825(1,888)(1,888)

745

481

0

0

1,322

1,322

32

32

Sold

－

－

－

－

Bought

－

－

－

－

Sold

38,333

19,728

(302)

(36)

Bought27,864

20,476

148

45

－

－

34

196

Interest Rate Options:Over the Counter Transactions
Interest Rate Futures:

Interest Rate Swaps:

Variable Rate Receivable/Variable Rate Payable
Fixed Rate Receivable/ Fixed Rate Payable
Interest Rate Options:

Others:

Total

Notes:
1. Transactions mentioned above were valued at fair value, and Net Unrealized Gains (Losses) were accounted for in the consolidated
statements of income.
2. Fair value calculation: Transactions on exchanges were valued on the basis of closing prices, mainly on the Tokyo Financial Exchange.
Over the counter transactions were valued using discounted present value or calculation models for option prices.

35

Shinkin Central Bank63

(2) Currency-Related Transactions
Millions of Yen
2011
Total Contract
Value

Contract Value(Over 1 Year until
Settlement or Expiry)

Net Unrealized
Gains (Losses)

Fair Value

Exchange-Traded Transactions
Currency Futures:
Sold

－

－

－

－

Bought

－

－

－

－

Sold

－

－

－

－

Bought－－－－101,487

81,794

2,263

2,263

Sold

54,128－(1,251)(1,251)

Bought40,490

－

553

553

Sold

－

－

－

－

Bought

－

－

－

－

Sold

－

－

－

－

Bought

－

－

－

－

－

－

1,565

1,565

Currency Options:Over the Counter Transactions
Currency Swaps:
Forward Foreign Exchange Contracts:

Currency Options:

Others:

Total

36

64

Shinkin Central Bank

Millions of U.S. Dollars
2011
Total Contract
Value

Contract Value(Over 1 Year until
Settlement or Expiry)

Net Unrealized
Gains (Losses)

Fair Value

Exchange-Traded Transactions
Currency Futures:
Sold

－

－

－

－

Bought

－

－

－

－

Sold

－

－

－

－

Bought

－

－

－

－

1,220

983

27

27

Sold

650

－

(15)

(15)

Bought

486

－

6

6

Sold

－

－

－

－

Bought

－

－

－

－

Sold

－

－

－

－

Bought

－

－

－

－

－

－

18

18

Currency Options:Over the Counter Transactions
Currency Swaps:
Forward Foreign Exchange Contracts:

Currency Options:

Others:

Total

Notes:
1. Transactions mentioned above were valued at fair value, and Net Unrealized Gains (Losses) were accounted for in the consolidated
statements of income.
2. Fair value calculation: Over the counter transactions were valued using discounted present value.
(3) Stock-Related Transactions
Not applicable.

37

Shinkin Central Bank65

(4) Bond-Related Transactions
Millions of Yen
2011
Total
Contract
Value

Contract Value(Over 1 Year until
Settlement or Expiry)

Fair ValueNet Unrealized
Gains (Losses)

17,315

－

11

11

－

－

－

－

Sold

－

－

－

－

Bought

－

－

－

－

Sold

－

－

－

－

Bought

－

－

－

－

Sold

－

－

－

－

Bought

－

－

－

－

－

－

11

11

Contract Value(Over 1 Year until
Settlement or Expiry)

Fair ValueNet Unrealized
Gains (Losses)

208
－

－
－

0
－

0
－

Sold

－

－

－

－

Bought

－

－

－

－

Sold

－

－

－

－

Bought

－

－

－

－

Sold

－

－

－

－

Bought

－

－

－

－

－

－

0

0

Exchange-Traded Transactions
Bond Futures:
Sold
BoughtBond Futures Options:Over the Counter Transactions
Bond Options:

Others:

Total

Millions of U.S. Dollars
2011
Total
Contract
Value
Exchange-Traded Transactions
Bond Futures:
Sold
BoughtBond Futures Options:Over the Counter Transactions
Bond Options:

Others:

Total

Notes:
1. Transactions mentioned above were valued at fair value, and Net Unrealized Gains (Losses) were accounted for in the consolidated
statements of income.
2. Fair value calculation: Transactions on exchanges were valued on the basis of closing prices, mainly on the Tokyo Stock Exchange.

38

66

Shinkin Central Bank(5) Commodity-Related Derivative Transactions
Not applicable.
(6) Credit Derivative Transactions
Not applicable.
2. Derivative transactions to which hedging accounting was applied
The following summarizes the contract values or the contracted principal equivalents, fair values and the valuation methods of theBank’s derivative transactions that qualify for hedge accounting as of the consolidated balance sheet date, which were classified by types offinancial instruments. Please note that the contract values in themselves do not reflect the market risk associated with the Bank’s Derivative
Transactions.
(1) Interest-Rate-Related Transactions

Method for Hedge
Accounting
Basic Treatment

Exceptional
Treatments forInterest Rate
Swaps

Items

Total Contract
Value

Interest Rate Swaps
2,725,000

1,770,000

13,831

Variable Rate Receivable/Fixed Rate Payable

4,761,302

4,586,568(35,366)

Variable Rate Receivable/Variable Rate Payable

97,72597,725848

Fixed Rate Receivable/Variable Rate Payable

2,021,000

1,431,000

25,845

Variable Rate Receivable/Fixed Rate Payable

885,000

885,000(8,554)－－(3,395)Interest Rate Swaps

Method for Hedge
Accounting

Exceptional
Treatments forInterest Rate
Swaps

Fair Value

Fixed Rate Receivable/Variable Rate Payable

Total

Basic Treatment

Millions of Yen
2011
Contract Value(Over 1 Year until
Settlement or Expiry)

Items

Millions of U.S.Dollars
2011
Contract Value(Over 1 Year until
Settlement or Expiry)

Total Contract
Value

Interest Rate Swaps

Fair Value

Fixed Rate Receivable/Variable Rate Payable

32,772

21,286

166

Variable Rate Receivable/Fixed Rate Payable

57,261

55,160(425)

Variable Rate Receivable/Variable Rate Payable

1,175

1,175

10

Fixed Rate Receivable/Variable Rate Payable

24,305

17,209310

Variable Rate Receivable/Fixed Rate Payable

10,643

10,643(102)

Interest Rate Swaps

Total

(40)
Notes:
1. Most of hedged items with respect to Basic Treatment are Interest-bearing assets and liabilities such as Loans, Other Securities (Bonds) anddeposits, including negotiable certificate of deposit.
2. Hedged items with respect to Exceptional Treatments for Interest Rate Swaps are Held-to-Maturity Debt Securities and Debenture.
3. The deferred method of hedge accounting is primarily applied to the transactions mentioned above based on the Japanese Institute of Certified
Public Accountants (“JICPA”) Industry Audit Committee Report No.24, “Treatment of Accounting and Auditing of Application of AccountingStandard for Financial Instruments in Banking Industry”
4. Fair value calculation for these transactions was carried out using discounted present value.

39

－

－

Shinkin Central Bank67

(2) Currency-Related Transactions
Millions of Yen
2011
Method for Hedge
Accounting
Basic Treatment

Items
Currency Swaps

Contract Value(Over 1 Year until
Settlement or Expiry)

Total Contract
Value

Fair Value

1,304,853

752,639

9,904

Forward Foreign Exchange Contracts:
Sold819,970－(21,523)

Bought

－

－

－

Total

－

－

(11,618)

Millions of U.S.Dollars
2011
Method for Hedge
Accounting
Basic Treatment

Items
Currency Swaps

Contract Value(Over 1 Year until
Settlement or Expiry)

Total Contract
Value

Fair Value

15,692

9,051

119

Sold

9,861

－

(258)

Bought

－

－

－

Total

－

－

(139)

Forward Foreign Exchange Contracts:

Notes:
1. Most of hedged items are foreign currency denominated securities, deposits etc.
2. The deferred method of hedge accounting is primarily applied to the transactions mentioned above based on the Japanese Institute of Certified
Public Accountants (“JICPA”) Industry Audit Committee Report No.25, “Accounting and Auditing Treatment of Accounting Standards for
Foreign Currency Transactions in the Banking Industry”
3. Fair value calculation for these transactions was carried out using discounted present value.
(3) Stock-Related Transactions
Not applicable.
(4) Bond-Related Transactions
Not applicable.

40

68

Shinkin Central BankFor the Fiscal Year Ended March 31, 2010
1. Derivative transactions to which hedging accounting was not applied
The following summarizes the contract values or the contracted principal equivalents, fair values, net unrealized gains (losses) and thevaluation methods of the fair values of the Bank’s derivative transactions that do not qualify for hedge accounting as of the consolidatedbalance sheet date, which were classified by types of financial instruments. Please note that the contract values in themselves do not reflect
the market risk associated with the Bank’s Derivative Transactions.
(1) Interest-Rate-Related Transactions
Millions of Yen
2010
Total
Contract
Value

Contract Value(Over 1 Year until
Settlement or Expiry)

Fair ValueNet Unrealized
Gains (Losses)

－

－

－

－

49,809

－

(1)

(1)

Sold

－

－

－

－

Bought

－

－

－

－

Sold

－

－

－

－

Bought－－－－Fixed Rate Receivable/Variable Rate Payable

12,255,851

10,350,719

159,104

159,104

Variable Rate Receivable/Fixed Rate Payable

12,334,400

9,624,178(145,688)(145,688)

Exchange-Traded Transactions
Interest Rate Futures:
Sold
BoughtInterest Rate Options:Over the Counter Transactions
Interest Rate Futures:

Interest Rate Swaps:

Variable Rate Receivable/Variable Rate Payable

52,00047,000

1

1

Fixed Rate Receivable / Fixed Rate Payable

160,628

30,000

280

280

Sold

－

－

－

－

Bought

－

－

－

－

Sold

4,524,100

1,045,000(16,574)(334)

Bought2,270,767

734,070

4,801(4,511)

－

－

1,923

8,850

Interest Rate Options:

Others:

Total

Notes:
1. Transactions mentioned above were valued at fair value, and Net Unrealized Gains (Losses)were accounted for in the consolidated
statements of income.
2. Fair value calculation: Transactions on exchanges were valued on the basis of closing prices, mainly on the Tokyo Financial Exchange.
Over the counter transactions were valued using discounted present value or calculation models for option prices.

41

Shinkin Central Bank69

(2) Currency-Related Transactions
Millions of Yen
2010
Total Contract
Value

Contract Value(Over 1 Year until
Settlement or Expiry)

Net Unrealized
Gains (Losses)

Fair Value

Exchange-Traded Transactions
Currency Futures:
Sold

－

－

－

－

Bought－－－－Currency Options:
Sold

－

－

－

－

Bought－－－－112,881

103,111

1,668

1,668

Sold

37,528

－

(778)

(778)

Bought49,449

－

1,080

1,080

Sold

－

－

－

－

Bought－－－－Over the Counter Transactions
Currency Swaps:
Forward Foreign Exchange Contracts:

Currency Options:

Others:
Sold

－

－

－

－

Bought

－

－

－

－

－

－

1,970

1,970

Total

Notes:
1. Transactions mentioned above were valued at fair value, and Net Unrealized Gains (Losses) were accounted for in the consolidated
statements of income.
2. Fair value calculation: Over the counter transactions were valued out using discounted present value.
(3) Stock-Related Transactions
Not applicable.

42

70

Shinkin Central Bank(4) Bond-Related Transactions
Millions of Yen
2010
Contract Value(Over 1 Year until
Settlement or Expiry)

Total
Contract
Value

Fair ValueNet Unrealized
Gains (Losses)

Exchange-Traded Transactions
Bond Futures:Sold

10,648

－

5

5

－

－

－

－

BoughtBond Futures Options:
Sold

－

－

－

－

10,000

－

18

(1)

Sold

－

－

－

－

Bought

－

－

－

－

Sold

－

－

－

－

Bought

－

－

－

－

－

23

4

BoughtOver the Counter Transactions
Bond Options:

Others:

Total－

Notes:
1. Transactions mentioned above were valued at fair value, and Net Unrealized Gains (Losses) were accounted for in the consolidated
statements of income.
2. Fair value calculation: Transactions on exchanges were valued on the basis of closing prices, mainly on the Tokyo Stock Exchange.
(5) Commodity-Related Derivative Transactions
Not applicable.
(6) Credit Derivative Transactions
Not applicable.
2. Derivative transactions to which hedging accounting was applied
The following summarizes the contract values or the contracted principal equivalents, fair values and the valuation methods of theBank’s derivative transactions that qualify for hedge accounting as of the consolidated balance sheet date, which were classified by types offinancial instruments. Please note that the contract values in themselves do not reflect the market risk associated with the Bank’s Derivative
Transactions.
(1) Interest-Rate-Related Transactions

Method for Hedge
Accounting
Basic Treatment

Exceptional
Treatments forInterest Rate
Swaps

43

Items
Interest Rate Swaps
Fixed Rate Receivable/Variable Rate Payable
Variable Rate Receivable/Fixed Rate Payable
Variable Rate Receivable/Variable Rate Payable
Interest Rate Swaps
Fixed Rate Receivable/Variable Rate Payable
Variable Rate Receivable/Fixed Rate Payable
Total

Millions of Yen
2010
Contract Value(Over 1 Year until
Settlement or Expiry)

Total Contract
Value

Fair Value

3,715,000
2,540,215
68,301

1,780,000
2,361,399
68,301

28,226(15,085)(413)

1,741,000

1,741,000

34,053885,000

885,000

12,605－－59,385

Shinkin Central Bank

71

Notes:1. Most of hedged items with respect to Basic Treatment are Interest-bearing assets and liabilities such as Loans, Other Securities (Bonds) anddeposits, including negotiable certificate of deposit.
2. Hedged items with respect to Exceptional Treatments for Interest Rate Swaps are Held-to-Maturity Debt Securities and Debenture.
3. The deferred method of hedge accounting is primarily applied to the transactions mentioned above based on the Japanese Institute ofCertified Public Accountants (“JICPA”) Industry Audit Committee Report No.24, “Treatment of Accounting and Auditing of Application of
Accounting Standard for Financial Instruments in Banking Industry”
4. Fair value calculation for these transactions was carried out using discounted present value.
(2) Currency-Related Transactions
Millions of Yen
2010
Method for Hedge
Accounting
Basic Treatment

Items
Currency Swaps

Contract Value(Over 1 Year until
Settlement or Expiry)

Total Contract
Value
1,834,406

Fair Value

1,412,480

10,025(17,673)

Forward Foreign Exchange Contracts:
Sold997,859－

Bought

71,755－－－－(7,647)

Total

Notes:
1. Most of hedged items are foreign currency denominated securities, deposits etc.
2. The deferred method of hedge accounting is primarily applied to the transactions mentioned above based on the Japanese Institute ofCertified Public Accountants (“JICPA”) Industry Audit Committee Report No.25, “Accounting and Auditing Treatment of AccountingStandards for Foreign Currency Transactions in the Banking Industry”
3. Fair value calculation for these transactions was carried out using discounted present value.
(3) Stock-Related Transactions
Not applicable.
(4) Bond-Related Transactions
Not applicable.
27. Related Party Transactions:
For the Fiscal Year Ended March 31, 2011
There were no significant related-party transactions.
For the Fiscal Year Ended March 31, 2010
There were no significant related-party transactions.

44

72

Shinkin Central Bank

28. Segment Information:(1) Description of Reportable Segments
The Group classifies the businesses of the Bank and its consolidated subsidiaries as individual business segments. Among thosebusiness segments, the business of the Bank is deemed as the reportable segment.
The Bank, as an individual financial institution, provides such financial services as deposits, debentures, lending, market fundmanagement, securities and clearing. As the central financial institution for shinkin banks, the Bank provides services to support theoperations and complement the functions of shinkin banks as well as maintain and enhance their creditworthiness.
(2) Method of Calculating Amounts by Reportable Segment
The accounting methods of the reportable segment are the same as those described in note 2, “Significant Accounting Policies.”
Reportable segment profit is based on net income.
(3) Amounts by Reportable Segment
For the Fiscal Year Ended March 31, 2011

(Millions of Yen)

Reportable segment
Shinkin Central Bank
business

Other

Total

Adjustment

Amount presented in the
consolidated
financial statements

IncomeExternal customers

336,119

25,839361,959(139)

361,820

1,937

2,202

4,139

(4,139)－Total

338,057

28,042366,099(4,278)361,820

Segment profit

27,387

1,333

28,720(833)

27,887

Segment assets

31,283,720

300,064

31,583,785(81,087)

31,502,697

Segment liabilities

30,258,547

226,558

30,485,106(25,676)

30,459,430

Depreciation

5,129

3,150

8,280

(1)

8,278

Interest Income

278,927545

279,473(169)

279,303

Interest Expenses

223,479

197

223,676(102)

223,574

Income Taxes

10,687698

11,386(158)

11,228

Increase in Tangible andIntangible Fixed Assets

1,361

868

2,230

－

2,230

Inter-segment

Other items

45

Shinkin Central Bank

73

For the Fiscal Year Ended March 31, 2011

(Millions of U.S. Dollars)

Reportable segment
Shinkin Central Bank
business

Other

Total

Adjustment

Amount presented in the
consolidated
financial statements

IncomeExternal customers

4,042

310

4,353

(1)

4,351

23

26

49

(49)

－

4,065

337

4,402

(51)

4,351

Segment profit

329

16

345

(10)

335

Segment assets

376,232

3,608

379,841(975)

378,865

Segment liabilities

363,903

2,724

366,627(308)

366,319

Depreciation

61

37

99

(0)

99

Interest Income

3,354

6

3,361

(2)

3,359

Interest Expenses

2,687

2

2,690

(1)

2,688

Income Taxes

128

8

136

(1)

135

Inter-segment
Total

Other items

Increase in Tangible and
16
10
26
26
－
Intangible Fixed Assets
Notes:
1. The “Other” classification comprises the Bank’s nine consolidated subsidiaries which are not included within the reportable segment.
The Bank’s consolidated subsidiaries provide such financial services as trust and banking, securities, investment advisory and investment trust,guarantees, venture capital and M&A intermediary, and data processing outsourcing.
2. Adjustment comprises the following.
(i)Within adjustment of segment profit, reduction of ¥833 million ($10 million) comprises reduction of ¥342 million ($4 million) on minority
interests and ¥490 million ($5 million) on inter-segment eliminations, etc.
(ii)Within adjustment of segment assets, reduction of ¥81,087 million ($975 million) comprises reduction of ¥53,144 million($639 millions) on
eliminations relating to capital consolidation and ¥27,942 million($336 million) on inter-segment elimination, etc.
(iii) Reduction of ¥25,676 million ($308 millions) on the adjustment of segment liabilities comprises inter-segment eliminations, etc.
(iv)The adjustment for other items comprises inter-segment eliminations, etc.
3. Segment profit has been adjusted from Net Income presented in the Consolidated Statements of Income.

46

74

Shinkin Central BankFor the Fiscal Year Ended March 31, 2010

(Millions of Yen)

Reportable segment
Shinkin Central Bank
business

Other

Total

Adjustment

Amount presented in the
consolidated
financial statements

IncomeExternal customers

368,308

24,633392,942(92)

392,849

1,782

2,273

4,055

(4,055)－

Total

370,090

26,907396,997(4,147)392,849

Segment profit

28,365

1,547

29,912(705)

29,206

Segment assets

28,400,491

253,378

28,653,870(78,200)

28,575,669

Segment liabilities

27,397,921

180,088

27,578,010(23,141)

27,554,868

Depreciation

5,922

2,227

8,149

－

8,149

Interest Income

291,793665

292,458(124)

292,334

Interest Expenses

227,347

119

227,466(117)

227,349

Income Taxes(11,137)

1,268(9,868)(127)(9,995)Inter-segment

Other items

Increase in Tangible and
1,849
1,723
3,572
3,572
－
Intangible Fixed Assets
Notes:
1. The “Other” classification comprises the business segment that is not included within the reportable segment. This business segment comprises
the Bank’s nine consolidated subsidiaries.
The Bank’s consolidated subsidiaries provide such financial services as trust and banking, securities, investment advisory and investment trust,guarantees, venture capital and M&A intermediary, and data processing outsourcing.
2. Adjustment comprises the following.
(i)Within adjustment of segment profit, reduction of ¥705 million comprises reduction of ¥503 million on minority interests and ¥202 million
on inter-segment eliminations, etc.
(ii)Within adjustment of segment assets, reduction of ¥78,200 million comprises reduction of ¥53,144 million on eliminations relating tocapital consolidation and ¥25,056 million on inter-segment eliminations, etc.
(iii) Reduction of ¥23,141 million on the adjustment of segment liabilities comprises inter-segment eliminations, etc.
(iv)The adjustment for other items comprises inter-segment eliminations, etc.
3. Segment profit has been adjusted from Net Income presented in the Consolidated Statements of Income.
(Additional Information)
Beginning with this fiscal year, the Bank has adopted the Accounting Standard for Disclosures about Segments of an Enterprise and RelatedInformation (ASBJ Statement No. 17; March 27, 2009) and the Guidance on the Accounting Standard for Disclosures about Segments of anEnterprise and Related Information (ASBJ Guidance No. 20; March 21, 2008).

47

Shinkin Central Bank

75

(Related Information)
1. Information by service(Millions of Yen)
Securities
investment
operations
Ordinary Income fromexternal customers

Lending operations

246,755

Other

52,480Total
60,905360,140(Millions of U.S. Dollars)

Securities
investment
operations
Ordinary Income fromexternal customers

Lending operations

Other

2,967

631

Other

46,868

United States
31,116

United States

Other

Total
732

4,331

53,496(Millions of Yen)
Total
360,140

2. Information by geographic region(1) Ordinary Income
Japan

Europe228,659

Japan

Europe
2,749

563

374

(Millions of U.S. Dollars)
Total
643
4,331

(2) Tangible fixed assets
The Group’s tangible fixed assets located in Japan account for over 90% of the tangible fixed assets presented in the Consolidated
Balance Sheets. Consequently, this information is omitted.
3. Information by principal customer
Name of customer
The Government of Japan

Ordinary Income

Name of customer
The Government of Japan

Ordinary Income

108,935(Millions of Yen)
Related segment
Shinkin Central Bank business

1,310(Millions of U.S. Dollars)
Related segment
Shinkin Central Bank business(Information related to Impairment of Fixed Assets by Reportable Segment)(Millions of Yen)

Impairment loss

Reportable segment
Shinkin Central Bank business
253

Other

Total
－

253

(Millions of U.S. Dollars)
Reportable segment
Shinkin Central Bank businessImpairment loss

Other
3

Total
－

(Information related to Amortization of Goodwill and Balance of Unamortized Goodwill by Reportable Segment)
Not applicable.
(Information related to Accrual of Income from Negative Goodwill by Reportable Segment)
Not applicable.

48

76

Shinkin Central Bank3

29. Amounts per Share:
Yen
2011

U.S. Dollars
2011

2010

Net Assets per Share on
219,425.69
214,698.35
2,638.91
a Consolidated BasisNet Income per Share on
5,471.96
6,425.11
65.80
a Consolidated BasisNet Income per Share after Adjustment for Common－－－
Share equivalents on a Consolidated Basis
Notes:
1. In the calculation of net assets per share and net income per share, preferred dividends were deducted from current net income. However,participating dividends were not deducted from current net income.
2. The basis for calculation of net assets per share is as follows:
2011
2011
2010
Millionsof
U.S.
Millions of Yen
Total Net Assets
1,043,267
1,020,800
12,546
dollars
MillionsofU.S.
Amount Deducted from Total Net Assets Millions of Yen
122
10,162
9,953
dollars
Millions of U.S.
Millions of Yen
Minority Interests
96
8,037
7,828
dollars
Millions of U.S.
Millions of Yen
Preferred Dividends
25
2,124
2,124
dollars
Net Assets at Fiscal Year-end Used toMillions of U.S.
Millions of Yen
1,033,104
1,010,847
12,424
dollars
Calculate Net Assets per Share
Number of Share Units at Fiscal Year-end

Unit

4,708,222

4,708,222－－

Number of Common
Share Units

Unit

4,000,000

4,000,000－－

Number of Preferred
Share UnitsUnit

708,222708,222－－

3. The basis for calculation of net income per share is as follows:
2011

2011

2010

Millions of
U.S. dollars
Millions of
U.S. dollars

Net Income

Millions of Yen

27,887

29,206

Amount Deducted from Net
IncomeMillions of Yen

2,124

2,124

Preferred Dividend

Millions of Yen

2,124

2,124

Millions of
U.S. dollars

25

Net Income Used to Calculate
Net Income per share

Millions of Yen

25,76327,082Millions of
U.S. dollars

309

Average Number of Share Units
for the fiscal year

Unit

4,708,222

4,215,071－－

Average Number of Common
Share Units

Unit

4,000,000

3,506,849－－

Average Number of Preferred
Share UnitsUnit

708,222708,222

－

－

335
25

4. Net income per Share after adjustment for Common share equivalent is not listed as there are no dilutive securities.
5. As of August 1, 2009, the Bank implemented a 2-for-1 share split of preferred share units held by shareholders of preferred shares. In
addition the Bank implemented the increase in common share units held by share holders of common share on June 30, 2009 by 2 million
share units for a total of ¥200 billion.
30. Subsequent Events:
For the Fiscal Year Ended March 31, 2011
Not applicable.
For the Fiscal Year Ended March 31, 2010
Not applicable.

49

Shinkin Central Bank

77

78

Non-Consolidated Balance Sheets
Non-Consolidated Balance Sheets

Shinkin Central Bank As of March 31,
AssetsCash and Due from Banks
Call Loans
Receivables under Resale Agreements
Monetary Debts Purchased
Trading Assets
Money Held in Trust
Securities
Loans and Bills Discounted
Foreign Exchanges Assets
Other Assets
Tangible Fixed Assets
Intangible Fixed Assets
Deferred Tax Assets
Customers’ Liabilities for Acceptances and Guarantees
Reserve for Possible Loan Losses
Allowance for Investment Losses
Total Assets

2011

Millions of Yen

2010

Millions of
U.S. Dollars
2011

2,020,526
750,984
86,983492,290
383,535
211,106
21,547,910
5,254,796
4,001
415,227
72,3795,772
27,177
34,828(23,586)(215)
31,283,720

2,469,177
612,207
29,997642,208
394,533
211,677
17,324,312
6,263,796
4,929
319,543
74,7997,314
44,27942,791(40,749)(326)
28,400,491

24,299
9,031
1,046
5,920
4,612
2,538
259,145
63,196
48
4,993
870
69
326
418
(283)
(2)
376,232

Liabilities and Net Assets
Liabilities
Deposits
Debentures
Trading Liabilities
Borrowed Money
Call Money
Payables under Securities Lending Transactions
Foreign Exchanges Liabilities
Other Liabilities
Reserve for Employee Bonuses
Reserve for Directors’ Bonuses
Reserve for Employee Retirement Benefits
Reserve for Directors’ Retirement Allowances
Deferred Tax Liabilities for Land Revaluation
Acceptances and Guarantees
Total Liabilities

21,581,162
4,340,630
60,584
630,950
378,272
2 813 644
2,813,644
144
393,294
1,057
64
16,226321
7,366
34,82830,258,547

19,736,289
4,815,810
47,826
628,950
401,901
1 272 652
1,272,652
122
427,375916
45
15,469344
7,426
42,791
27,397,921

259,544
52,202
728
7,588
4,549
33 83833,838
1
4,729
12
0
195
3
88
418
363,903

Total Net Assets
Total Liabilities and Net Assets

1,025,172
31,283,720

1,002,570
28,400,491

12,329376,23279

Non-Consolidated Statements of Income
Non-Consolidated Statements of Income
Shinkin Central Bank For the years ended March 31,
IncomeInterest Income:Interest on Loans and Discounts
Interest on Due from Banks
Interest on Call Loans
Interest on Receivables under Resale Agreements
Interest on Receivables under Securities Borrowing Transactions
Interest and Dividends on Securities
Interest Receivable on Interest Rate Swaps
OthersFees and Commissions
Trading Income
Other Operating Income
Other Income
Total Income

Expenses
Interest Expenses:
Interest on Deposits
Interest on Debentures
Interest on Borrowed Money
Interest on Call Money
Interest on Payables under Repurchase Agreement
Interest on Payables under Securities Lending Transactions
Interest Payable on Interest Rate Swaps
OthersFees and Commissions
Trading Losses
Other Operating Expenses
General and Administrative Expenses
Other Expenses
Total Expenses

2011

80

Millions of
U.S. Dollars
2011

2010

278,927
52,480
6,912
2,322
148
232
212,586
4,244
7,208
12,56730,454
8,899
338,057

291,793
65,437
12,207
2,683
105
463
194,230
9,876
6,787
7,532
9,327
38,36523,071
370,090

3,354
631
83
27
1
2
2,556
51
86
151
366
107
4,065

223,479
116,130
55,777
12,571565
15,214
29,909
3,308
7,841
774
23,242
26,08018,564299,982

227,347
149,523
57,062
13,242
633
62
2,827
3,994
8,070
595
30,42025,35561,073352,862

2,687
1,396
670
151
6
0
62
359
39
94
9
279
313
223
3,607

38,074

17,228457

61
10,625
10,687
27,387106(11,244)(11,137)
28,365

0
127
128
329

Income before Income Taxes
Income Taxes
Current
Deferred
Total Income Taxes
Net Income

Net Income Per ShareDividend Declared per Share (Common Shares)
Dividend Declared per Share (Preferred Shares)

Millions of Yen

2011

Yen

5,365.65
2,500.00
6,500.00

2010

6,225.46
2,500.00
6,500.00

U.S. Dollars
2011

64.52
30.06
78.17

Shinkin Central Bank,
the Central Bank for Shinkin Banks
As the central financial institution of shinkin banks, Shinkin Central
Bank (referred to as SCB hereafter) has occupied a well-establishedposition in Japan’s financial industry, with shinkin banks having a totalof ¥119 trillion (equivalent to $1,431 billion) in funds.

Management Philosophy
As the central bank for all shinkin banks, the SCB supports the growth of
the shinkin bank sector and thus contributes to economic development
throughout Japan.

1.	Strengthening the corporate base, broadening the operational functions, and enhancing the credit standing of shinkin banks

2. 	Stable fund-raising from shinkin banks as well as diversification offunding sources

5.	Contributing to regional development and revitalization hand in handwith shinkin banks

6.	Achieving sound management through efficiency, capital adequacy,
and strengthened risk management

7. Nurturing professionals and creating an attractive workplace
8. Enhancing public trust in the SCB
Corporate Data (as of March 31, 2011)
Name:
Establishment:
Number of Employees:
Domestic Network:
Overseas Network:
Total Assets:
Total Funds:
Paid-in Capital:(Preferred Shares):
Capital Adequacy Ratio(Consolidated):
Number of Member Shinkin Banks:Long-term Credit Ratings:

Shinkin Central Bank (SCB)
June 1, 1950
1,125
14
4
¥31,277 billion ($376 billion)¥29,621 billion ($356 billion)¥490 billion ($5,892 million)¥90 billion ($1,082 million)

31.76%
271
Aa3 (Moody’s)
A+ (S&P)
A+ (R&I)
AA (JCR)		(As of July 31, 2011)
Note: T he number of employees includes full-time Directors and Auditor. The number ofOverseas Network includes Shinkin International, Ltd., a subsidiary in London. The
amounts of total assets and total funds are the average balances for the year ended
March 31, 2011.

Senior Managing Director(in charge of International/
Treasury Operations)Katsuo Akiyama
Managing Director(in charge of Overseas Offices)
Kazuyuki Okura

International Business Support Center
Address: 3-7, Yaesu 1-chome,
Chuo-ku, Tokyo 103-0028
Telephone: +81-3-5202-7674
Facsimile: +81-3-3278-7035
General Manager:Takeo Nakamura

Operational Policies

cial circumstances

Deputy President(in charge of International Planning)
Junichi Hattori

Strategic Planning Division(including International Planning)
Address: 3-7, Yaesu 1-chome,
Chuo-ku, Tokyo 103-0028
Telephone: +81-3-5202-7624
Facsimile: +81-3-3278-7033
General Manager: Hiroshi Sudo

Management Philosophy and Operational Policies

3. 	Upgrading market operation and developing financial services
4. 	Actively pursuing new business in conformity with changes in finan-International Directory (As of July 31, 2011)

Contents
F inancial Highlights (Non-Consolidated Financial
Summary) ································································ 1
Message from the President and CEO ······················ 2
Corporate Management and Auditors ······················ 3
The SCB Is a Powerful Financial Institution in Japan,
Which Is Listed on the Tokyo Stock Exchange ········· 4Management Issues and Strategies · ·························· 6
Overseas Bases ···························································· 8
Organization / SCB Group ··········································· 9Business Overview · ··················································· 10
Capital Adequacy · ·················································· 11
Asset Quality · ························································ 12
Important Management Indices ······························· 13
Corporate Governance · ········································· 14
Strengthening the Compliance System ···················· 15
Risk Management · ·················································· 16
Corporate Social Responsibility (CSR) Activities ···· 19
What Are Shinkin Banks? · ····································· 20
Preferred Shares · ·················································· 22
Financial Section ··························································· 23International Directory ················································ 81
This material contains certain forward-looking statements. Such forward-looking
statements are not guarantees of future performance and involve risks and uncertainties,
and actual results may materially differ from those contained in the forward-looking
statements as a result of various factors.
U.S. dollar amounts are converted for convenience only, at ¥83.15 per dollar, theprevailing rate on March 31, 2011.

Transfer & Clearing Division(including Correspondent Banking)Address: 3-7, Yaesu 1-chome,
Chuo-ku, Tokyo 103-0028
Telephone: +81-3-5202-7640
Facsimile: +81-3-3278-7037
General Manager: Hiromichi Chisaka
Treasury Business Division
Address: 3-7, Yaesu 1-chome,
Chuo-ku, Tokyo 103-0028
Telephone: +81-3-5202-7642
Facsimile: +81-3-3278-7040
SWIFT: ZENB JPJT
General Manager: Keiji Okuyama
Corporate Business Promotion Division
Address: 3-7, Yaesu 1-chome,
Chuo-ku, Tokyo 103-0028
Telephone: +81-3-5202-7665
Facsimile: +81-3-3278-7045
General Manager: Hiroyuki Toda
Operations Division(including International Operations Center)
Address: 3-7, Yaesu 1-chome,
Chuo-ku, Tokyo 103-0028
Telephone: +81-3-5202-7655
Facsimile: +81-3-3278-7041
General Manager: Yoichi Tobitsuka

Treasury Operations Division
Address: 3-7, Yaesu 1-chome,
Chuo-ku, Tokyo 103-0028
Telephone: +81-3-5202-7666
Facsimile: +81-3-3278-7046
SWIFT: ZENB JPJT
General Manager: Kazushi Miki
Research Institute
Address: 3-7, Yaesu 1-chome,
Chuo-ku, Tokyo 103-0028
Telephone: +81-3-5202-7671
Facsimile: +81-3-3278-7048
General Manager: Koji Hirao

Credit & Alternative Investment Division
Address: 3-7, Yaesu 1-chome,
Chuo-ku, Tokyo 103-0028
Telephone: +81-3-5202-7664
Facsimile: +81-3-3278-7044
General Manager: Katsushi Okado

LondonOverseas Offices
New York Representative Office
Address: 114 West 47th Street,
Suite 2420, New York, NY 10036, U.S.A.
Telephone: +1-212-642-4700
Facsimile: +1-212-730-6000
Chief Representative: Atsushi Toyoshima

ShanghaiHong Kong

Hong Kong Representative Office
Address: 1413-1414 Two Pacific Place,
88 Queensway, Hong Kong, P.R. of China
Telephone: +852-2537-3777
Facsimile: +852-2537-4002
Chief Representative: Tokuo Iwasaki
Shanghai Representative Office
Address: Room 508, Shanghai International Trade
Center, 2201 Yan-An Xi Road
Shanghai, P.R. of China
Telephone: +86-21-6270-3091
Facsimile: +86-21-6270-3095
Chief Representative: Masataka Murakami
Hokkaido

Overseas Subsidiary
Shinkin International Ltd.
Address: 4th Floor, River Plate House,
7-11 Finsbury Circus, London EC2M 7YA, UK
Telephone: +44-20-7562-0500
Facsimile: +44-20-7256-8544
Telex: 8812847 ZILUK GManaging Director: Kengo KajiTohokuInternational Operations Center
Address: 8-1, Kyoubashi 3-chome,
Chuo-ku, Tokyo 104-0031
Telephone: +81-3-5250-1700
Facsimile: +81-3-5250-1780
SWIFT: ZENB JPJT
General Manager: Shigehiro Yamamoto
Treasury Division
Address: 3-7, Yaesu 1-chome,
Chuo-ku, Tokyo 103-0028
Telephone: +81-3-5202-7660
Facsimile: +81-3-3278-7043
SWIFT: ZENB JPJT
General Manager: Satoshi Otanaka

New York

Hokuriku

ChugokuOkayama Kobe
Osaka

Head Office

NagoyaShizuoka

Shikoku

FukuokaMinami-Kyushu

Head Office
BranchOffice/Subsidiary

Shinkin Central Bank Head Office3-7, Yaesu 1-chome, Chuo-ku, Tokyo 103-0028, Japan
Telephone: +81-3-5202-7711 Facsimile: +81-3-3278-7011
http://www.shinkin-central-bank.jp

81

Shinkin Central Bank Annual Report 2011

Shinkin Central Bank

3-7, Yaesu 1-chome, Chuo-ku, Tokyo 103-0028, Japan
Telephone: +81-3-5202-7711 Facsimile: +81-3-3278-7011
http://www.shinkin-central-bank.jp

Printed in Japan

Shinkin Central Bank

Annual Report 2011