Japan Finance Corporation
ACCOUNT FOR JBIC OPERATIONS

Balance Sheets （as of March 31, 2010）(Unit: millions of yen)
2010

2010

AssetsLiabilities

Cash and due from banks

455,113Cash

0

Borrowed money

5,267,246

Borrowings

5,267,246

Due from banks

455,112

Bonds payable

2,598,954

Securities

44,280

Other liabilities

56,394

Other securities

44,280Accrued expenses

32,809Loans and bills discounted

8,771,342

Unearned revenue

21,534Loans on deeds

8,771,342

Derivatives other than for

1,598

trading-liabilities
Other assets

724,223

Lease obligations

356

Other

94
511

Prepaid expenses

225

Accrued income

30,685

Provision for bonuses

693,022

Provision for directors’ bonuses

6

290

Provision for retirement benefits

11,87237,903

Provision for directors’ retirement

Derivatives

other

than

for

trading-assets
Other
Property, plant and equipment

17

benefits
Buildings

3,554

Acceptances and guarantees

1,977,071

Land

33,881

Total liabilities

9,912,072

Lease assets

79

Net assets

Construction in progress

90

Capital stock

Other

296

Retained earnings

759,218

1,055,500

Intangible assets

2,320

Legal retained earnings

726,011

Software

2,025

Other retained earnings

33,207

Lease assets

259

Retained earnings brought forward

33,207

Other

34

Customers’

liabilitiesfor1,977,071

acceptances and guarantees
Allowance for loan losses

Total shareholders’ equity

1,814,718

Valuation difference on available for(687)

sale securities(145,354)

Deferred gains or losses on hedges

140,795

Total

140,107

valuationandtranslation

adjustments

Total assets

11,866,899

Total net assets

1,954,826

Total liabilities and net assets

11,866,899

Japan Finance Corporation
ACCOUNT FOR JBIC OPERATIONSStatements of Operations （Year ended March 31, 2010）(Unit: millions of yen)
2010
Ordinary income

191,178

Interest income

179,396

Interest on loans and discounts

143,212Interest on deposits with banks

547

Interest on interest swaps

35,617

Other interest income

19

Fees and commissions

11,144

Other fees and commissions

11,144

Other ordinary income

33

Other

33

Other income

604

Other

604

Ordinary expenses

163,355

Interest expenses

122,322

Interest on borrowings and rediscounts

58,349Interest on bonds

63,973

Fees and commissions payments

1,107

Other fees and commissions

1,107

Other ordinary expenses

4,679

Loss on foreign exchange transactions

3,416

Amortization of bond issuance cost

854

Expenses on derivatives other than for trading or hedging

68

Other

340

General and administrative expenses

16,392Other expenses

18,854

Provision of allowance for loan losses

18,853

Other

0

Ordinary income

27,823Extraordinary income

5,388

Gain on disposal of noncurrent assets
Recoveries of written-off claims

0
5,387

Extraordinary losses

3

Loss on disposal of noncurrent assets

3

Net income

33,207

Japan Finance Corporation
ACCOUNT FOR JBIC OPERATIONSStatements of Changes in Net Assets （Year ended March 31, 2010）(Unit: millions of yen)
2010

2010

Shareholders’ equity

Deferred gains or losses on hedges

Capital stock

Balance at the end of previous period

Balance at the end of previous period

1,035,500

Changes of items during the period

172,049

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

(31,253)

shareholders’ equity
Issuance of new shares

20,000Total changes of items during the(31,253)

periodTotal changes of items during the

20,000

Balance at the end of current period

140,795

periodBalance at the end of current period

1,055,500

Totalvaluationandtranslation

adjustments
Retained earnings

Balance at the end of previous period

Legal retained earnings

Changes of items during the period

Balance at the end of previous period

712,592

Net changes of items other than

170,984(30,876)

shareholders' equity
Changes of items during the period

Total changes of items during the(30,876)

periodProvision of legal retained earnings

13,419Total changes of items during the13,419Total net assets

726,011

Balance at the end of previous period

Balance at the end of current period

140,107

periodBalance at the end of current period
Other retained earnings

Changes of items during the period

Retained earnings brought forward

Issuance of new shares

Balance at the end of previous period

26,838Changes of items during the period
Provision of legal retained earnings

Payment to the national treasury
Net income(13,419)

Net changes of items other than

1,945,915

20,000(13,419)
33,207(30,876)

shareholders’ equity
Payment to the national treasury(13,419)

Total changes of items during the8,911

periodNet income

33,207

Total changes of items during the

6,368

periodBalance at the end of current period

33,207

Total retained earnings
Balance at the end of previous period
Changes of items during the period

739,430

Balance at the end of current period

1,954,826

Japan Finance Corporation
ACCOUNT FOR JBIC OPERATIONSPayment to the national treasury(13,419)

Net income

33,207

Total changes of items during the

19,788

periodBalance at the end of current period

759,218

Total shareholders’ equity
Balance at the end of previous period

1,774,930

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

20,000(13,419)

Net income

33,207

Total changes of items during the

39,788

periodBalance at the end of current period

1,814,718

Valuation and translation adjustments
Valuation difference on
available-for-sale securities
Balance at the end of previous period(1,064)

Changes of items during the period
Net changes of items other than337

shareholders’ equity
Total changes of items during the377

periodBalance at the end of current period(687)

Japan Finance Corporation
ACCOUNT FOR JBIC OPERATIONS

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

1. Significant accounting policies(a) Securities
Held-to-maturity securities are carried at amortized cost based on the moving average method.
Investments in affiliates are carried at cost based on the moving average method. Available-for-salesecurities, which have readily determinable fair value are stated at fair value with changes in net
unrealized gains or losses, included directly in Net assets. Available-for-sale securities whose fairvalue is extremely difficult to be determined are carried at cost based on the moving average method.
(Change in accounting policy)
ASBJ Statement No. 10 Accounting Standards for Financial Instruments and ASBJ Guidance on
Disclosures about Fair Value of Financial Instruments issued on March 10, 2008 have been adopted
commencing with this fiscal year end. Note that this adoption did not have any impacts on income or
expense.

(b) Valuation method for derivative financial instruments
Derivative financial instruments are carried at fair value.

(c) Depreciation basis for fixed assets(i) Property, plant and equipment (except for lease assets)
Tangible fixed assets are depreciated under the declining-balance method over their useful
economic lives except for buildings (excluding installed facilities) which are depreciated under thestraight-line method.
Amortization is based on the following range of estimated useful lives:
Buildings: 2 years to 50 years
Other: 2 years to 20 years(ii) Intangible assets (except for lease assets)
Amortization of intangible fixed assets is computed by the straight-line method. Software used by
JFC is amortized over its useful life (5 years).
(iii) Lease assets
Lease assets in “property, plant and equipment” or “intangible assets,” under finance leases that do
not involve transfer of ownership to the lessee are amortized under the straight-line method over thelease term. Depreciation for lease assets is calculated with zero residual value being assigned to theasset.

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

Japan Finance Corporation
ACCOUNT FOR JBIC OPERATIONS(e) Foreign currency translation and revaluation method
JFC maintains its accounting records in Japanese yen. Assets and liabilities denominated in foreign
currencies are mostly translated into Japanese yen at the market exchange rate prevailing at the fiscal
year end.

(f) Accounting policy for reserves(i) Allowance for loan losses
The allowance for loan losses is maintained in accordance with internally established standards. The
allowance for claims on debtors who are legally bankrupt (“Bankrupt borrowers”) or substantiallybankrupt (“Substantially bankrupt borrowers”) is provided based on the outstanding balance after
the write-offs described in the followings and the deductions of the amount expected to be collected
through the disposal of collateral and execution of guarantees.
The allowance for claims on debtors who are not legally bankrupt but are likely to becomebankrupt (“Potentially bankrupt borrowers”) is provided based on an assessment of the overall
solvency of the debtors after deducting the amount expected to be collected through the disposal ofcollateral and the execution of guarantees.
The allowance for claims on debtors other than Bankrupt borrowers, Substantially bankrupt
borrowers and Potentially bankrupt borrowers is provided primarily based on the default rate, whichis calculated based on the actual defaults during a certain period in the past.
The allowance for claims on debtors other than Bankrupt borrowers, Substantially bankrupt
borrowers and Potentially bankrupt borrowers is provided for primarily based on the which is
calculated based on the actual defaults during a certain period in the past.
The allowance for possible losses on specific overseas loans is provided based on the expected
loss amount taking into consideration the political and economic situations of these countries.
All claims are assessed initially by the operational departments and subsequently by risk
evaluation departments based on internal rules for self-assessment of asset quality. The internal
audit department, which is independent from the operational departments, reviews theseself-assessments, and the allowance is provided based on the results of the assessments.
With respect to claims with collateral or guarantees on debtors who are legally or substantiallybankrupt (Bankrupt borrowers and Substantially bankrupt borrowers), the residual booked amountof the claims after deduction of the amount which is deemed collectible through the disposal ofcollateral or the execution of guarantees is written-off. The amount of accumulated write-off is ¥5
million.
(ii) Provision for bonuses
The “provision for bonuses” is calculated and provided for based on the estimated amounts of future
payments attributable to the services that have been rendered by employees to the date of thebalance sheet.
(iii) Provision for directors’ bonuses

Japan Finance Corporation
ACCOUNT FOR JBIC OPERATIONSThe “provision for directors’ bonuses” is calculated and provided for based on the estimatedamounts of future payments attributable to the services that have been rendered by directors to thedate of the balance sheet.
(iv) Provision for retirement benefits
The “provision for retirement benefits” represents the future payment for pension and retirement
benefits to employees, and is accrued based on the projected benefit obligations and the estimatedpension plan assets at the fiscal period end.
Unrecognized actuarial differences are recognized as income or expense from the following fiscal
year by the straightline method over a period up to a maximum of 10 years within the averageremaining service period of employees of the respective fiscal year.
(Change in accounting policy)
ASBJ Statement No. 19, Partial Amendments to Accounting Standards for Retirement Benefits(Part 3), issued on July 31, 2008, has been adopted commencing with this fiscal year end. Note that
this adoption does not have any effects on income or expense.
(v) Provision for directors’ retirement benefits
The “provision for directors’ retirement benefits,” which provides for future retirement pension
payments to directors, corporate auditors and executive officers, is recognized at the amount accruedat the end of the fiscal year(g) Accounting for hedging transactions(i) Accounting for hedges of interest rate risk(a) Hedge accounting
JFC used derivatives for interest rate risk hedging purposes under the deferral method.
(b) Hedging instruments and hedged items
Hedging instruments: interest rate swaps
Hedged items: loans, borrowings, bonds and notes(c) Hedging policy
JFC enters into hedging transactions up to the amount of the underlying hedged assets andliabilities.
(d) Assessment of hedge effectivenessJFC assesses the effectiveness of designated hedges by measuring and comparing the change offair value or cumulative change of cash flows of both hedging instruments and corresponding
hedged items from the date of inception of the hedges to the assessment date.
(ii) Accounting for hedges of foreign exchange risks
Hedge instruments used to hedge foreign exchange risks associated with various foreign currency
denominated monetary assets and liabilities are accounted for using the deferral method, in
accordance with the standard treatment of The Japanese Institute of Certified Public Accountants(JICPA) Industry Audit Committee Report No. 25.
The effectiveness of the hedging instruments described above, such as currency swaps, foreignJapan Finance Corporation
ACCOUNT FOR JBIC OPERATIONS

exchange forward contracts and similar transactions, used for hedging the foreign exchange risks ofloans and bills discounted, borrowings, and bonds payable denominated in foreign currencies, isassessed by comparing the foreign currency position of the hedged loans and bills discounted,
borrowings, and bonds payable with that of the hedging instruments. Some assets and liabilities
denominated in foreign currency for which currency swaps are used to hedge the foreign currency
fluctuations are translated at the contracted rate if the currency swaps qualify for hedge accounting.
However, assessment of effectiveness is omitted for those currency swaps.

(h) Consumption and other taxes
Consumption taxes and local consumption taxes (“consumption taxes”) are excluded from transaction
amounts. Amounts of nondeductible consumption taxes related to property, plant and equipment are
expensed as incurred.

2. Equity securities of or investment in affiliates
Equity securities of or investment in affiliates is ¥24,857 million.

3. Loans
All loans entered into are loans on deeds. The amounts reported in the balance sheets include thefollowings:(Millions of yen)
As of March 31, 2010
Account for JBIC Operations
Bankrupt loans

17,938Non-accrual loans

257,260

Loans with interest or principal repayments

59

more than three months on arrears
Restructured loans

91,578

Total

366,837(a) “Bankrupt loans” are loans, defined in Article 96, Paragraph 1, Item 3 and 4 of the corporate Tax Law Enforcement Ordinance(Government Ordinance No. 97), on which accrued interest income is not recognized as there is substantial uncertainty over theultimate collectability of either principal or interest because they have been in arrears for a considerable period of time or for otherreasons.
(b) “Non-accrual loans” are loans on which accrued interest income is not recognized, although this excludes Bankrupt loans and theloans on which interest payments are deferred in order to support the borrowers’ recovery from financial difficulties.
(c) “Loans with interest or principal repayments more than three months in arrears” are loans whose principal or interest payment is morethan three months in arrears, and which do not fall under category of “Bankrupt loans” and “Non-accrual loans”(d) “Restructured loans” are loans whose repayment terms and conditions have been amended in favor of the borrowers (e.g. reduction ofor exemption from the stated interest rate, the deferral of interest payments, the extension of principal repayments or renunciation of

Japan Finance Corporation
ACCOUNT FOR JBIC OPERATIONS
claims) in order to support the borrowers’ recovery from financial difficulties, and which do not fall under the category of “Bankrupt
loans”, “Non-accrual loans”, and “Loans with interest or principal repayments more than three months in arrears”.
(e) The amounts of loans indicated in the table above are the gross amounts prior to the deduction of allowance for possible loan losses.

JFC, as a policy, does not pay down loans in part or in full immediately after the execution of the loan
agreements, but instead makes disbursement, in accordance with the progress of the underlying projects.
These undisbursed amounts are not included in the loans on deed in the Balance Sheets. The balance of
unpaid amounts as of March 31, 2010 is ¥1,307,962 million.

4. Assets pledged as collateral
Pursuant to Article 52 of the JFC Act, assets of JFC are pledged as general collateral for all bonds issued
by JFC (which includes JBIC Operating Account bonds to a total amount ¥2,598,954 million).

5. Accumulated depreciation of fixed assets
Accumulated depreciation of fixed assets amounted to ¥898 million.

6. Net assets per share
Net assets per share are ¥1.85.

7. Restriction in dividend distribution
JFC is restricted in its dividend distribution pursuant to Article 47 of the JFC Act. In the event that theamount of the retained earnings brought forward in the balance sheet exceeds zero in each accountrelated to the operations listed in each Item of Article 41 hereof, JFC shall accumulate, as a reserve, theamount calculated in accordance with the standards prescribed by a Cabinet Order to the extent that itreaches the certain amount, and if there is still a surplus, JFC shall pay such surplus into the nationaltreasury within 3 months after closing date.
In the event that the amount of the retained earnings brought forward falls below zero in each accountset forth in the preceding paragraph, legal capital surplus and legal retained earnings shall be transferred
to retained earnings brought forward to the extent that the amount of retained earnings brought forward
becomes zero.

8. The account title and the amount related to transactions with affiliates
Ordinary income – Other income – Other: ¥100 million

9. Net income per share
Net income per share is ¥0.03.

10. Issued shares
For the fiscal year ended March 31, 2010, types and number of issued shares are as follows:Japan Finance Corporation
ACCOUNT FOR JBIC OPERATIONS(Unit: shares)
The number of stocks
Types

at the beginning of

Increase during thethe fiscal year

Common1,035,500,000,000

stocksfiscal year

20,000,000,000

Decrease

The number of stocks

during theat the end of the fiscal

fiscal year

year

—

1,055,500,000,000

11. Financial instruments and related disclosure
1. Status of financial instruments(1) Initiatives for financial instruments
Based on the JFC Act, we are a governmental financial institution founded for the purpose of
supplementing the financing conducted by general financial institutions and contributing to thedevelopment of the Japanese and global economic society and the improvement of the lifestyle ofcitizens.
The budget required for governmental financial operations is decided on by the Diet of Japan,
and business plans and financial plans (funds through borrowing from the fiscal investment funds
and loans, bonds, investments from the general account, equity participation, etc.) are appended tothe budget and submitted to the Diet of Japan.
These operations are classified into Micro Business and Individual Operations, Agriculture,
Forestry, Fisheries and Food Business Operations, SME Loan Programs and Securitization Support
Programs (Guarantee-type Operation), Securitization Support Programs Purchase-type Operation),
Credit Insurance Programs, JBIC Operations and Operations to Facilitate Crisis Responses.
Accounts are made for each classification (“operation account”) for accounting treatment.
The funds procured by JFC through borrowing from the fiscal investment funds and loans, bonds
and investments from the general account are managed separately by each operational account. In
principle, it is assumed that funds intended for one operation account will not be used for anotheroperation account. Accordingly, asset and liability management is conducted for the risks associatedwith financial assets and liabilities for each operation account. Note that financial instruments thatcan be used for the management of surplus funds are limited to extremely safe instruments such as
Japanese government bonds, etc., as stipulated by The JFC Act.
The purpose of the Account for JBIC Operations is to conduct the financing required for“Promoting overseas development and acquisition of strategically important natural resources toJapan”, “Maintaining and improving the international competitiveness of Japanese industries”,“Promoting overseas projects for conserving global environment, such as mitigating global
warming”, and “Taking appropriate measures with respect to disruptions to international financial
order”. Principal operations consist of export loans, import loans, investment financing, financing
for business development and capital investment (including guarantees expect for “capital
investment”). To conduct these operations funds are raised through borrowing from fiscal

Japan Finance Corporation
ACCOUNT FOR JBIC OPERATIONS

investment funds and loans and the issuing of bonds. ALM (asset and liability management) is
conducted for financial assets and liabilities in this account that are subject to interest-rate andcurrency fluctuations to ensure that interest-rate and currency fluctuations do not have an adverse
effect on these operations. Also, derivative transactions are conducted for the purpose of mitigatingrisk inherent in foreign currency denominated transactions.

(2) Types of financial instruments and risks
The financial assets and liabilities owned by JFC are managed in separate operation accounts.

The financial assets in this account mainly include loans to borrowers in Japan and overseas, andsecurities, and liabilities mainly include borrowings and bonds. The associated risks are described
below.

(a) Credit risk
Credit risk is the risk that the account will suffer losses if the financial condition of the borrower
deteriorates and the value of assets (including off-balance sheet assets) decrease or disappear.
The credit risks associated with this account include sovereign risk, country risk, and corporate
risk. Characteristic of support for overseas economic transactions conducted in this account,much financing is conducted for overseas governments, governmental institutions, and overseas
corporations. Much of the credit risk associated with the credit provided typically consists ofsovereign or country risk.
As a result, if the financial condition of the individual borrower significantly deteriorates due
to political and economic trends in the borrower’s country or region, the performance andfinancial condition of these operations can be adversely affected.
(Note) Sovereign risk refers to risk associated with credit supplied to foreign governments,
country risk refers to risk associated with the country in which the corporation is located,and corporate risk refers to the risk associated with credit supplied to corporations.

(b) Market risk
Market risk is the risk that the value of assets and liabilities (including off-balance sheet assets)
will fluctuate and losses will be suffered, or profits derived from assets and liabilities (including
off-balance sheet assets) will fluctuate and losses will be suffered due to the fluctuation of various
market risk factors such as interest rates, exchange rates, etc.
The market risk associated with this account mainly consists of exchange rate risk and interest
rate risk, and losses could be suffered from these risks from market fluctuations. However, inprinciple, these risks are mitigated through interest rate swaps, currency swaps, and forward
exchange transactions.
In this account hedge accounting is used for interest rate hedges, where the hedging investment
is interest rate swaps to hedge the market fluctuation risk associated with loans, borrowed money,

Japan Finance Corporation
ACCOUNT FOR JBIC OPERATIONS

and bonds. The effectiveness of the hedges is assessed by measuring and comparing the change infair value or cumulative change in cash flows of both hedging instruments and corresponding
hedged items from the date of inception of the hedges to the assessment date.
In this account hedge accounting is used for foreign exchange hedges, where currency swaps
and foreign exchange forward contracts are used to hedge items such as loans, borrowings, andbonds for exchange rate fluctuation risk. The effectiveness of the hedging currency-swaps andforward contracts, hedging the foreign exchange risks of monetary assets and liabilities
denominated in foreign currencies, is assessed by comparing the foreign currency position of thehedged monetary assets and liabilities with that of the hedging instruments.

(c) Liquidity riskLong-term and stable funds, such as fiscal loan funds, government-backed bonds, and FILP
agency bonds, are secured to finance this account and deposits are not accepted, with the resultthat JFC considers liquidity risk to be limited. However, financing costs could increase due tomarket disturbances and unexpected events.

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

The risk management structure for these operations is described below.

(a) Credit risk management
The basis of credit risk management is centered on individual finance management based on thecreditworthiness of the borrower during the credit approval process.
When a new credit application is processed, the relevant finance departments (sales promotion
department) and credit departments collect and analyze information on the borrower. The
overseas representative offices also play a part in collecting information on foreign governments
and corporations. Credit appraisal takes place based on the information that has been gathered
and analyzed, with the different departments ensuring appropriate check throughout the process,leading to the final decision by the management.
For lending to foreign governments and corporations, JFC makes most use of its position as apublic institution and exchanges views and information with governments and other authorities inrecipient countries, international institutions such as the IMF and the World Bank, other regional
development banks and official export credit agencies as well as private financial institutions inJapan Finance Corporation
ACCOUNT FOR JBIC OPERATIONS

the industrial countries. Using all these channels, JFC evaluates sovereign or country risk (risk inaddition to corporate risk associated with the country in which the corporation is located) basedon a broad range of information on government and government agency borrowers as well as
political and economic conditions in their countries.
The relevant finance departments and credit departments conduct proper credit risk
management based on the credit risk rating system for segmented risk categories and the asset
self assessment system based on the Financial Inspection Manual. In addition, an Integrated Risk
Management Committee is held regularly to report the status of credit management to the
management. The credit management situation is also checked by an independent auditing
department.
In addition, a claims protection mechanism exists based on an international framework unique
to official creditors that is not contained in private sector financial institutions, for official claims
on foreign governments. This mechanism consists of international financial assistance uponinternational approval by the Paris Club, an international group focusing on debt, to allow the
debtor country to continue debt repayment when the debtor country becomes temporarily unable
to service its debt due to economic conditions. As part of this international financial assistance,
the debtor country conducts an economic reform program upon agreement with the IMF in order
to secure the ability to sustainably service its debt. In view of JFC’s position as a public financial
institution, it will use the framework of the Paris Club to preserve its official claims on foreign
governments.
Besides the individual credit management outlined above, credit risks are quantified to assess
the overall risk of the portfolio in these operations. To quantify credit risks, it is important to take
into account the characteristic of the loan portfolio, that there are a significant proportion of
long-term loans and loans involving sovereign risk or country risk. Also to be taken into accountis the mechanism of securing assets, such as the framework of international financial assistanceto debtor countries through the Paris Club, which is unique to official creditors. This account uses
a unique model to quantify the credit risk taking account of the above explained elements andmeasures amount of credit risk, which are utilized for credit risk management.

(b) Market risk management
ALM is used to manage exchange rate risk and interest rate risk for these operations. Market risk
management protocols contain detailed stipulations of risk management methods and procedures,
which are used by the ALM Committee to assess and confirm the execution of ALM, and for
discussions concerning future responses. In addition, monitoring is conducted through gap
analysis and interest rate sensitivity analysis to comprehensively assess the interest and terms offinancial assets and liabilities. The results are regularly reported to the ALM Committee.
The basic policy for managing exchange rate risk and interest rate risk in these operations is
described below.

Japan Finance Corporation
ACCOUNT FOR JBIC OPERATIONS(i) Exchange rate risk
Foreign currency-denominated loans conducted in these operations involve risks related to
exchange rate fluctuations. We have a consistent policy of managing this risk by fully hedging
this risk exposure through the use of currency swaps and forward foreign exchangetransactions.

(ii) Interest rate risk
Interest rate risk arises from exposure to market interest rate fluctuations for yen-denominatedloan and foreign currency-denominated loan operations and the policy for managing interest
rate risk is described below.
① Yen-denominated loan operations
For the most part, funding for yen-denominated loans is managed at fixed-rate interest.
Currently, interest rate risk for yen-denominated loans is limited since maturity of loans
and the related funding arrangements are generally matched. In addition, swaps are used tohedge interest rate risk for portions of loans that are thought to have high exposures tointerest rate fluctuation risk.
② Foreign currency-denominated loan operations
For foreign currency-denominated loan operations, interest rate risk is hedged through theconsistent policy of using interest rate swaps and managing funds with floating interest
rates for both loans and related funding arrangements.

(c) Liquidity risk management related to fund procurement
Long-term and stable funds such as fiscal loan funds, government-backed bonds, and FILP
agency bonds are used to finance these operations and deposits are not accepted.
Cash flows are assessed and proper measures including establishing overdraft facility accounts
with multiple private sector financial institutions are taken to maintain daily cash flows forproper risk management.

(d) Derivatives transactions
A protocol of internal checks with separate divisions executing transactions, assessing theeffectiveness of hedges, and conducting office management has been established for derivatives
transactions, and these transactions are conducted according to derivatives-related regulations.

(4) Supplementary explanation concerning fair value of financial instruments
The fair value of financial instruments includes amounts based on market value and amounts thathave been reasonably estimated when no market value is available. Set valuation inputs are used
for the calculation of this amount, and if different valuation inputs are used the resulting amountJapan Finance Corporation
ACCOUNT FOR JBIC OPERATIONS

could vary.

2. Fair value of financial instruments
The amount in the balance sheets at March 31, 2010, and the related fair value, and difference is asfollows. Note that unlisted securities whose fair value is extremely difficult to be determined are notincluded in the following chart (refer to note 2).
(Unit: millions of yen)Amount on

Fair value

Difference

455,113—

8,643,078

8,729,097

86,018

Total assets

9,098,191

9,184,210

86,018(1) Borrowings

5,267,246

5,359,477

92,231(2) Bonds payable

2,598,954

2,690,449

91,494

7,866,200

8,049,927

183,726———

691,423

691,423—

691,423

691,423—

Balance Sheet(1) Cash and due from banks

455,113(2) Loans and bills discounted

8,771,342(*1)(128,263)

Allowance for loan losses

Total liabilities
Derivative transactions(*2)

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

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

Assets(1) Cash and due from banks
For Due from banks that do not mature or have a maturity under 3 months, the carrying amount isused as fair value because fair value resembles the carrying amount approximates to the fair value.

(2) Loans and bills discounted
For loans with variable interest rates an amount calculated by the floating rate note method toreflect market interest rates over the short term is used for fair value.

Japan Finance Corporation
ACCOUNT FOR JBIC OPERATIONS

For loans with fixed interest, the total principal and interest is discounted by a risk free rate thatincorporates the default ratio and coverage ratio to calculate fair value. However for obligations onbankrupt borrowers, substantially bankrupt borrowers, and potentially bankrupt borrowers aprovision for bad debt is calculated based on the expected collectable amount from the collateral or
guarantee. Fair value approximates the amount on the balance sheet on the closing date after adeduction has been made for the provision for bad debt, so this amount is used for fair value.

Liabilities(1) Borrowings
Borrowings with variable interest rates indicate that short-term market interest rates and the credit
conditions of JFC are not significantly altered by borrowings. Therefore, the carrying amount isused as fair value because it is believed that the carrying amount approximates the fair value. For
borrowings with a fixed interest rate, in principle, fair value is calculated by discounting theprincipal and interest of the borrowings by the risk free rate (the standard Japanese government
bond rate) based on the set period of loan.

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

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

(Note 2) Financial instruments that are recognized to be extremely difficult to be determined fair value areas follows.
They are not included in Fair value of financial instruments.
(Millions of yen)Classification
1) Unlisted stocks(*1)

Carrying amount on balance sheet
20,4992) Partnership investments (*3)

23,780Total

44,280(*1) Since unlisted stocks do not have quoted market prices available and fair value is extremely difficult to be determined, fair values are
not stated.
(*2) For partnership investments composed of unlisted stocks that do not have quoted market prices available and for which fair value isextremely difficult to be determined fair values are not stated.

Japan Finance Corporation
ACCOUNT FOR JBIC OPERATIONS(Note 3) Redemption schedule for receivables and redeemable securities with future redemption dates(Millions of yen)

Maturities
within one
year

Maturities

Maturities

Maturities

after oneafter three

after five

year but

years but

years butwithinwithinwithin

three

five

seven

years

years

years

Maturities
after seven

Maturities

years butafter ten

within ten

years

years

Due from banks (*1)

455,112

—

—

—

—

—

Loans

815,323

2,369,008

2,150,165

1,046,909

1,110,214

1,020,193

1,270,436

2,369,008

2,150,165

1,046,909

1,110,214

1,020,193

and

bill

discounted (*2)
Total(*1) Demand deposits contained within due from banks are stated as “Maturities within one year”.
(*2) Within loans and bills discounted, claims against bankrupt borrowers, substantially bankrupt borrowers, and potentially bankrupt
borrowers contains an amount of ¥259,526 million that is not expected to be redeemed and not included in the table above.

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

Maturities
within one
year

Maturities

Maturities

Maturities

after oneafter three

after five

year but

years but

years butwithinwithinwithin

three

five

seven

years

years

years

Maturities
after seven

Maturities

years butafter ten

within ten

years

years

Borrowings

500,927

728,008

2,477,880

1,044,440

515,991—

Bonds payable

248,170

1,174,100

748,530

210,476

180,000

40,000

Total

749,097

1,902,108

3,226,410

1,254,916

695,991

40,00012. Market value of securities
In addition to “Other securities” on the balance sheet, transferable deposits in “Due from banks” are also
included.

The market value of securities at March 31, 2010 is as follows:

1. Equity securities of or investment in affiliates(Note) These are equity securities of or investment in affiliates whose fair value is extremely difficult tobe determined.

Japan Finance Corporation
ACCOUNT FOR JBIC OPERATIONS

Carrying amount on the balance sheet(millions of yen)

Equity securities of or investment in affiliates

24,857

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

2. Available-for-sale securities
Carrying amount on
Typethe balance sheet(millions of yen)

Acquisition cost

Difference(millions of yen)(millions of yen)

210,000—

Securities whosecarrying amount does
not exceed their

Others210,000

acquisition cost

(Note) Available-for-sale securities whose fair value is extremely difficult to be determined

Carrying amount on the balance sheet(millions of yen)

OthersUnlisted foreign stocks

15,688Unlisted Japanese securities

225

Unlisted foreign securities

3,508

These are no quoted market prices available and their fair values are extremely difficult to determine.

13. Deferred tax accounting
JFC does not apply deferred tax accounting since JFC is a nontaxable entity classified in the Article 2 (5)of the Corporation Tax Act.

14. Retirement benefits
JFC has a defined benefit pension plan comprising of a welfare pension fund plan and a lump-sum
severance indemnity plan.

Japan Finance Corporation
ACCOUNT FOR JBIC OPERATIONS(a) The funded status of the pension plans
March 31, 2010
(millions of yen)
Projected benefit obligations (A)(16,889)

Fair value of plan assets (B)4,238

Unfunded pension obligations (C)=(A)+(B)(12,651)

Actuarial unrecognized difference (D)778

Net amount recognized on the balance sheet (E)=(C)+(D)(11,872)

Prepaid pension cost (F)—Provision for retirement benefits (G)=(E)–(F)(11,872)(b) Component of pension cost
March 31, 2010
(millions of yen)
Service cost

543

Interest cost

326

Expected return on plan assets(69)

Actuarial differences accounted for as expense

125

Other costs—

Net pensions cost

926

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

(c) Principal assumptions madeMarch 31, 2010
Discount rate

2.0％

Expected rate of return on plan assets

2.0％

Method of attributing the projected benefits to periods of services

Straight-line basis

Terms to amortize actuarial unrecognized differences

10 years

15. Profit and loss on equity method
Investment in affiliates¥24,857 million

Investment in affiliates (equity method)¥24,857 million

Loss of Investment in affiliates (equity method)None

16. Related party transaction
Related party Transactions in the fiscal year ended March 31, 2009 are as follows:Japan Finance Corporation
ACCOUNT FOR JBIC OPERATIONS(a) Transactions with parent company and major shareholder companies(Millions of yen)
Ratio to
Corporate
name

Total
VotingRightsAmounts
Relation withrelated parties

Transactionsoftransactio

Balance as
Items

of March 31,
2010

ns

(%)
Underwritingof capitalincrease

20,000——Borrowings

5,267,246(Note i)

Receipt of
funds

1,894,038

Ministry of(Note ii)

Administration

Finance
Principal(Ministershareholder

100

Repayment offor policy based(Direct)of Finance)

borrowing

596,717

financing
Payment of(Note i)Accruedinterest on

58,308expenses

12,737borrowings
Guarantee forcorporatebonds

1,479,161——(Note iii)
(Note)(i) The underwriting of capital increase represents the increase in capital through shareholder allocation by JFC at an allocation amount of ¥1
per share.
(ii) The receipts of funds represents borrowing under the FILP, and for this borrowing, the interest rates are applied under the FILP
agreement.
(iii) No guarantee fee has been paid for the guarantee of bonds.
(iv) Figures in the table above do not include consumption taxes.

17. Subsequent events
Not applicable