・Core net operating profit, which reflects the Bankʻs core business, declined by ¥16.2billion year-on-year to ¥36.3 billion, primarily due to a decline in interest on loans andbills discounted.
・Actual credit costs were ¥2.4 billion, a reduction of ¥133.9 billion year-on-year, due tosignificant provision of allowance for loan losses related to share house loans, etc., inFY3/19 and the reversal of provision of allowances for loan losses related to founderaffiliated companies and share house-related loan receivables in FY3/20.
・Net income increased ¥121.4 billion year-on-year to ¥24.4 billion due to a significantimprovement in actual credit costs, even as extraordinary losses of ¥9.4 billion such asimpairment loss on real estate holdings were recorded as part of structural reforminitiatives set forth in the Mid-Term Management Plan to further strengthen the financialfoundation.
・Profit attributable to the owners of the parent increased by ¥122.4 billion year-on-yearto ¥25.3 billion on a consolidated basis.・Actual credit costs of borrowers of share house loans resulted in reversal of ¥13.3billion due to reduction of the allowance for loan losses accompanying the transfer ofloan receivables, reduced delinquency accompanying changes in terms and conditions,etc., and improvement of the debtor classifications due to improved earnings ofcustomers.
・As for the status of coverage of share house loans, the ratio of coverage by collateraland allowance has been maintained at 91% even after the transfer of share houserelated loan receivables in March.
・Actual credit costs of investment property loans was ¥22.1 billion for the full year.
The main reason was provision of more than ¥11 billion in allowance for credit lossesin Q3 because among obligors who requested exemption for repayment of part of theprincipal amount of loans, the Bank lowered the classification of obligors who requestedmoratorium on scheduled repayment under the policy of their attorneys-at-law aftercarefully examining the possibility of collection of loan.
・Investment property loans resulted in reversal of ¥1.8 billion in Q4 due to the followingfactors:① Reduced delinquency through continuous support of long-delinquent borrowers② Restart of transfer of loan receivables.
・Actual credit costs for business financing other than for founder family-affiliatedcompanies were ¥5.0 billion in Q4 due to additional provision of allowance for loanlosses regarding major obligors subject to claims above a certain amount, in light ofimpacts of the COVID-19 pandemic and the business conditions, etc.・The total outstanding balance of consumer loans declined ¥357.8 billion year-on-yearto ¥2,307 billion, the yield declined 0.12% year-on-year to 3.74% and the delinquencyrate declined 0.12% to 3.93%.
・Specific factors impacting the reduced balance and improved delinquency rate are:securitization of studio apartment loans (approximately ¥108 billion) and transfer ofshare house-related loan receivables (approximately ¥44 billion).
The period-end balance of share house loans decreased ¥47.3 billion compared to theend of FY3/19 and the delinquency rate declined 11.87% year-on-year.
・The balance of corporate loans for property investment and asset finance, mentionedin the Mid-Term Management Plan, was ¥6.6 billion at the end of FY3/20.・The loan-deposit margin declined 0.19% year-on-year to 1.74% due to a 0.13%decline in yield on loans and bills discounted and a 0.07% increase in the expense ratioin the yield on interest bearing liabilities.
・The net interest margin declined 0.31% year-on-year to 1.14% primarily due to adecline in yield on loans and bills discounted as well as a 0.24% decline in yield oninterest earning assets and a 0.07% increase in yield on interest bearing liabilities.
・The period-end balance of loans declined ¥402.7 billion year-on-year to ¥2,496.1billion, primarily due to a decline in consumer loans.
However, the decline in the balance at the end of FY3/20 included approximately ¥200billion due to the following specific factors:① securitization of studio apartment loans (approximately ¥108 billion)② recovery of loans to founder family-affiliated companies (approximately ¥48billion)③ transfer of share house-related loan receivables (approximately ¥44 billion)・Deposits increased ¥45.1 billion year-on-year to ¥3,210.8 billion.
Deposits by individuals also increased by ¥9.4 billion year-on-year.・The capital adequacy ratio at the end of FY3/20 was 10.28% on a non-consolidated basisand 10.42% on a consolidated basis.
・Expenses declined ¥3.0 billion year-on-year as a result of structural reform according tothe reduction policy set forth in the Mid-Term Management Plan.
・The OHR increased year-on-year to 54.4% due to the decline in gross operating profitdespite the reduction in expenses.・The Mid-Term Management Plan until FY3/26 positions roughly the next three years as Phase 1,in which the Bank aims to reestablish a sustainable business model.
・The prospects look good for solving the two issues raised as priority issues.
The transfer of share house-related loan receivables to a third party closed on March 25, 2020.
The share house-related loan receivables totaling ¥44 billion of 257 customers under civilconciliation proceedings were transferred. Efforts will continue to reach a final resolution of theshare house-related loan issues.
Dissolution of the capital relationship and loan transactions with the founder was completed inFebruary 2020. The Bank will establish a new organizational culture and create the "image of theNew Suruga Bank" that brings satisfaction to the hearts of customers and a sense of meaning toemployees.
・We have begun to implement structural reform and establish a business foundation to promotenew business strategies.
Expenses in FY3/20 were decreased ¥3.0 billion year-on-year to achieve 45% of thereduction targeted in Phase 1.
In order to build a robust financial foundation for establishment of a sustainable business model,rigorous appraisal of art objects and real estate owned by the Bank was conducted andimpairment losses of ¥9.4 billion were recorded. (Impairment losses were recorded for branchesand headquarter facilities due to be consolidated or rebuilt)Upon review of functions in line with strategy to boost profitability across the entire group, theBank's three subsidiaries with credit guarantee businesses, namely, DIRECTONE, Suruga Capitaland SDP were merged to give birth to the new DIRECTONE on April 1, 2020. (Referencematerials available)Furthermore, the insurance agency business of Life NAVI PARTNERS, engaged in insurancepolicy solicitation, was transferred in May 2020.・Regarding investment property loans, the Bank will aim for transition to a middle risk-middlereturn business model with reduced risk compared to conventional businesses, also newly targetingthe affluent customer segment, while re-building sales channels for each segment, introducingscreening models using DSCR and other quantitative indices, and promoting new sales andoperational processes.
・Housing loans have been restarted on the Bankʼs proprietary platform utilizing loan screeningknowhow based on a database built up over the years to deliver custom products tailored to eachcustomer in this core competency market.
・Corporate asset finance is off to a good start and the business will be expanded further as theBank's presence increases.
・Regarding market activities, a foundation is being put in place to enable investment in securitieswith characteristics that are complementary to credit risks. Preparations are complete for start ofactivities in the first half of FY3/21.
Going forward, the Bank will start controlling the portfolio, including loans, with the aim ofdiversifying risk and stabilizing earnings.
・As for collaboration with external companies, in October 2019, the Bank entered into a businessalliance with Shinsei Bank, Limited, regarding business succession and M&A.
The aim is to strengthen support for business succession and M&A needs of corporate customersmainly in Shizuoka and Kanagawa Prefectures, the Bank's home ground.
・In May 2020, the Bank entered into a basic agreement on a capital and business alliance withNojima Corporation.
Going forward, collaboration will be promoted to achieve a win-win relationship between the twocompanies.
・Amid a difficult environment, the Bank will continue to make retail banking its core business andaim to develop businesses that are different from those in the past while leveraging its existinginfrastructure and knowhow.・Investment property loans will be promoted on the basis of a system of rigorous screening,management flows and internal controls.
Report lines have been established for swift reporting to management on alarms detected by eachsection.
○ Explanations to customers- After receipt of loan applications, direct meetings are held with the customers and theoriginals of required documents are checked thoroughly.
Prior to execution of the loan contracts, the Bank's employees accompany the customersto the properties due to be purchased and confirm their will to purchase them.
- After loan execution, efforts are made to obtain tax returns from the customer everyyear to keep track of their earning and expense situation.
Furthermore, every year, field surveys are conducted at all investment properties andthe occupancy status, management status and market rental fees in the vicinity, etc.,are investigated to prevent delinquency.
○ Loan screening- Due to an emphasis on the income and expenditure of properties subject to loans forrental businesses, property appraisal is being carried out based on property profitability(DSCR) throughout the loan period using external systems.
○ Sales Field- The Compliance Leaders are stationed at each sales base and Area Supportersbelonging to the Compliance Department regularly visit sales bases to support theestablishment of business operations to prevent fraud, etc., and ensure compliance.
○ Monitoring- The Sales Control Department and the risk committees, etc., that perform second-linefunctions carry out multi-faceted monitoring to identify potential risks in theinvestment property loan business at an early stage, and respond with reviews ofaction policies, etc.・In its response to the COVID-19 pandemic, the Bank will prioritize protection of life andhealth of customers, employees and their families, while continuing to provide thefinancial services required as essential financial infrastructure for functioning of society,with thought to safety and security.
・As a response to secure customers' safety and security while maintaining businesscontinuity, a number of measures have been introduced such as installation of partitionsat counters and closure of some branches in the daytime.
・Introduction of a split team system, use of teleconferencing for trainings and meetings,and other measures are being taken to ensure the safety and security of employees.
・As for the provision of financial service functions, the Bank handles institutional loansfor small and medium-sized enterprises, has set up consultation counters, flexiblyrevises terms and conditions according to circumstances, and provides remote loanconsultation utilizing video conferencing, etc.
・As for consultations for loans related to the COVID-19 pandemic and responsemeasures, the Bank has held 1,398 consultations, provided 74 new loans and changedthe terms and conditions of 743 loans as of May 22.
・A flexible response is made according to the specific circumstances of each customer.・The earnings forecast was calculated with thought to certain impacts of the COVID-19pandemic. However, if the impacts continue for a long time, the earnings may bedriven down in the respective business segments.
・The Bank is currently adopting a business stance focused on supporting existingcustomers affected by the COVID-19 pandemic, especially in Shizuoka and Kanagawaprefectures, paying close attention to delinquency and other circumstances.・For the time being, the Bank is focusing on supporting existing customers who areaffected by the COVID-19 pandemic, especially in Shizuoka and Kanagawa prefectures;the full-fledged restart of business activities will be from the latter half of the year orlater.
・In preparation for restart of full-fledged business activities, the Bank is promotingconsolidation of sales bases, deepening of relationships with realtors, construction ofbusiness flows supporting the New Normal through digitalization, and responses to newvalues and needs emerging in society, etc.
・After the subsidence of the COVID-19 pandemic, the Bank will continue to supportexisting customers particularly in Shizuoka and Kanagawa prefectures while expandingnew investment property loan businesses such as asset finance, approaching newsegments such as the affluent class, as stated in the Mid-Term Management Plan.
・After subsidence of the COVID-19 pandemic, the Bank will also promote new housingloan business in response to newly emergent values and changing needs for housing.
・In FY3/21 the total loan execution amount for investment property loans, housingloans, asset finance, etc., is forecast to be approximately ¥70 billion at an averageplacement rate in the lower 2% range.
The forecast assumes that the majority of new loan execution will be in the latter halfof the year.The assumptions regarding the earnings forecast are as follows:＜Gross Operating Profit＞- ¥10.3 billion YOYFull-fledged sales activities for investment property loans, housing loans, asset financeand other loans are expected to restart in the latter half of the year, due to impacts ofthe COVID-19 pandemic.
Market activities are expected to start in the first half of the year, but their materialcontribution to profits is expected next year or thereafter. Gains (losses) on bonds arenot expected to be recorded.
＜Expenses＞-¥700 million YOYExpenses are expected to be reduced ¥700 million year-on-year due to branchoperations reform and other structural reforms.
＜Gains (losses) on stocks＞-¥5.3 billion YOYGains (losses) on stocks are not expected to be recorded due to instability of the marketenvironment and other factors.
＜Actual credit costs＞ +¥17.6 billion YOYActual credit costs for the full year are expected to be ¥20.0 billion.
The following two specific factors have been accounted for:・Worsening business conditions of three industry types (lodging, restaurants and retail)particularly severely impacted by the COVID-19 pandemic and increased credit costs forconsumer loans in general have been considered.
・Regarding share house-related loan receivables, additional provision of allowance forloan losses and transfer of the loan receivables at the same scale as before in the latterhalf of the year have been taken into account.・Core net operating profit is expected to decline by ¥9.3 billion year-on-year to ¥27.0billion, due to a reduction in interest on loans and bills discounted due to scheduledrepayments and advance repayments of consumer loans, etc., even though a reductionin expenses is expected due to branch operation reform and other structural reforms.
・Actual credit costs are expected to be ¥20 billion, due to the impacts of the COVID-19pandemic, provision of additional allowance for loan losses related to share house loanreceivables and transfer of the loan receivables planned in the latter half of the year.
・Net income is expected to decline ¥19.4 billion year-on-year to ¥5.0 billion due to anincrease in actual credit costs, etc.
・Profit attributable to owners of the parent on a consolidated basis is expected to be¥6.0 billion, which is ¥1.0 billion more than on a non-consolidated basis.・The earnings forecast for FY3/21 predicts achievement of management indices atroughly the same level as targeted for FY3/23 in the Mid-Term Management Plan.
・OHR is expected to be slightly above the FY3/23 target of 60%, but expenses havebeen reduced by ¥3.0 billion year-on-year in FY3/20 and efforts will continue to bringOHR down to the target of below 60% by FY3/23 through continuation of branchoperation reform and other structural reforms.
・The capital adequacy ratio already exceeds the target but own capital will be increasedfurther through continued accumulation of profits.・On May 19, 2020, the Bank entered into a "Basic Agreement on a Capital and Business Alliance"with Nojima Corporation (hereinafter, "Nojima"). The Bank has announced a managementstructure that welcomes Mr. Nojima, President of Nojima Corporation, as a candidate forDirector, and has reinforced the relationship between the two companies.
・Discussions on the business alliance have proceeded on the basis of the "Basic Agreement onBusiness Alliance" entered into May of last year.
Recently, a Basic Agreement on a Capital and Business Alliance was entered into. An alliancecommittee under the responsibility of the top leadership of both companies and a number ofthematic alliance promotion meetings have been established to hold discussions to promote winwin collaboration with a sense of speed.
For reference: contents of the business alliance① Joint development of RetailTech business② Joint development of online services and FinTech business utilizing the customer basesof both companies③ Collaboration in sales strategies, such as sales of mutual products and sales promotionat stores and branch offices of the two companies④ Discounted cross-selling of Nojima's products and services at Nojima's stores to SurugaBank's customers⑤ Regional revitalization centered on Tokyo metropolitan area and the Tokai region.
・The aim is to deliver new value by combining the Bank's proprietary retail infrastructure withthe broad business portfolio of Nojima Group with a vision for the future beyond the IoT age.