Special Feature : President's Conversation with Investors

We invited Mr. Hideichiro Nishimura from Nomura Asset Management Co., Ltd. and Mr. Hiroyuki Hanaoka from JPMorgan Asset Management (Japan) Ltd. to discuss with Mr. Shigeki Toma, President & CEO of Shinsei Bank, the Shinsei Bank Group's growth strategy, development of products and services unique to Shinsei Bank, and the capital and shareholder return policies. Mr. Toyoki Sameshima of BNP Paribas Securities (Japan) Limited, a banking sector analyst, participated in the discussion as the moderator.

Special Feature : President's Conversation with Investor

Capital Policy / Shareholder Return Policy

Sameshima:Shinsei Bank's Common Equity Tier 1 Capital Ratio is currently significantly above the 7.5% target set in the Second MTMP. What is your assessment on this? Also, as an analyst, I think share buy-backs could be one of the options for your capital policy. What are your views on this, and what is the possibility of share buy-backs in the future?

Toma:Our Common Equity Tier 1 Capital Ratio currently stood at 9.2%. This is attributable to the accumulation of retained earnings through the generation of profits combined with the decrease in risk assets due to generally sluggish asset growth and progress in the disposal of nonperforming loans. However, going forward, we are committed to growth, and in order to grow we need capital and we need to enhance our business promotion. Our price-to-book value ratio (PBR) is currently below 1. While share buy-backs are an option, we cannot use up our capital only to buy back our shares. In particular, because we have received public funds, we must not repeat being in a situation where we have a capital shortage. However, I would like to carefully think about how we will provide shareholder returns in the future. In addition, I consider return on equity (ROE) important. Although it is hard to balance ROE and capital position required under Basel III, I don't think our current ROE is acceptable at all.

Hanaoka:Because there is the Second MTMP, we tend to use the numbers and time frame of the Second MTMP as our reference points. But, in fact, what do you think should be the timeline for your capital policy and growth strategy? Will you wrap them up when the MTMP ends?

Toma:Regarding the capital policy, as a bank that has received public funds,we must make sure that we will not suffer from the lack of capital in the future. In addition, we should repay public funds. This is to be discussed as part of the Revitalization Plan.

Nishimura:What kind of a bank will Shinsei Bank be in five to ten years time?

Toma:Rather than expanding in size, I would like to improve our quality,especially our intelligence. In addition, I would like to develop overseas business in the near future. Our target market will likely be Asia and Oceania including Japan. I also would like to offer investment consulting service to individual customers. The baby-boomers are around 60 years old now and will retire soon. The asset management needs of people in this generation are certain to increase, and we are preparing ourselves to deal with such needs.Rather than expanding in size, I would like to improve our quality, especially our intelligence. In addition, I would like to develop overseas business in the near future. Our target market will likely be Asia and Oceania including Japan. I also would like to offer investment consulting service to individual customers. The baby-boomers are around 60 years old now and will retire soon. The asset management needs of people in this generation are certain to increase, and we are preparing ourselves to deal with such needs.

Sameshima:Are you looking into M&A as an option for your growth strategy?

Toma:If we have a good opportunity, we will. But we don't intend to get together and do something with a company whose ideas and principles are different from ours.

Sameshima:You may have a long way to go before you can repay public funds. What is the timeline you are thinking of?

Toma:I cannot make any promises. But I am optimistic by nature, and I think our performance will improve significantly if the business model I have explained works well. Share price normally is a leading indicator, so our share price might improve much earlier. I cannot say when we can do it, but I think it won't be that far ahead. I hope to set out a specific scenario within five years or with the next MTMP. We will do everything we can in order to do this. We have dealt with most of our nonperforming loans, so there are not many of them left. Our nonperforming loan ratio as of March 31, 2014 was 3.81%, and I think we can bring it down to the 2% level by the end of fiscal year 2014. At the very least, in the four years since I joined the Bank, we haven't become burdened with any new, significant nonperforming loans. Even if we have nonperforming loans in the future, they won't affect us in a serious way. Therefore, if we can successfully switch to an offensive approach in our business promotion activities with sufficient commitment, I am optimistic that the path to success will open up before us.

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