Special Feature : One-on-One Interview Page 1

We invited Mr. Hironari Nozaki, Managing Director of Citigroup Global Markets Japan Inc., to have a conversation with Mr. Toma, President and CEO of Shinsei Bank, on the overall assessment of the First Medium-Term Management Plan and notable aspects of the Second Medium-Term Management Plan. Mr. Nozaki is a top analyst of the banking sector.

Special Feature : One-on-One Interview Shigeki Toma (President and Chief Executive Officer) Hironari Nozaki (Managing Director of Citigroup Global Markets Japan Inc.)

The First Medium-Term Management Plan

Nozaki: When you became the President of Shinsei Bank, I was actually wondering what would happen because all your predecessors had had a "western fl avor," while you have a "Japanese flavor." Since your appointment, though, you have implemented various measures and I think that you have created a solid management base. You achieved success in many ways under the First Medium-Term Management Plan (the "First MTMP"). Can you tell me where you think you succeeded more than you had expected, especially regarding your personnel policy?

Toma: We achieved most of our numerical targets. Also, we largely eliminated our negative legacy issues-the problems that resulted in deterioration of our performance in the past. In that sense, I think we were successful. However, the problem is that we achieved this through a reduction in our balance. When I came to Shinsei Bank (hereafter the "Bank") in May 2010, the development of the First MTMP was almost completed.

But I thought the probability of us achieving the Plan was small, so I asked that revisions be made. I said that we should not expect our top-line (total revenue) to grow so much in the next three years, and suggested we set more conservative targets and generate profits through cost reduction.

In other words, rather than going on the offensive, the gist of the First MTMP was to strengthen our defenses to be able to overcome the existing crisis situation so that we could go to the next step. Nonetheless, our top-line revenue was too low.

Despite that, due to the drop in our top-line being steeper than expected, the ratio of non-performing loans and the expenseto-revenue ratio went up. These two figures clearly demonstrate our bank's weakness. Although they are better than before, they are still not at the level of the industry average,and we will have to improve these figures under the Second Medium-Term Management Plan (the "Second MTMP").

As for human resources, since I as the "Japanese flavor President" joined the Bank, many non-Japanese and female employees have left the Bank. In such a situation, people around me thought that Shinsei Bank would end up becoming an ordinary Japanese bank. However, I declared that where Shinsei Bank should head was not back to the model of traditional Japanese banks but that we needed to create a different business model. This is what originally motivated me so much to become the President.There are two important points in our personnel policy. The first is to restore diversity in human resources.

After securing this, we would like to maintain and develop our strengths. This year, we started recruiting non-Japanese new graduates. There are many overseas students who are learning at business schools in Japan. They normally do not go back to their home countries soon after graduation, but they will work in Japan for five to ten years before going back home. Many Japanese companies do not like the fact that they will only stay in Japan for five to ten years. However, we started recruiting non-Japanese new graduates this year considering that they may find it easy to work for us as we utilize a bilingual system. While we are thinking of recruiting non-Japanese mid-career people, I have given instructions to do what we can right now. Our approach to mid-career recruitment is that we hire good people whether they are Japanese, non-Japanese, male, or female. The other point is salary structure. Salary structure should be cross-sectional covering all Groups, and while we may have had such a structure in place, it wasn' t working and wasn't applied in a uniform manner, and it took a great deal of effort to optimize the system.

Nozaki: It must be very difficult to motivate employees while restructuring your business. Was that your experience?

Toma: It is true that many employees unfortunately left the Bank due to declines in motivation caused by restructuring.
However, this is, in a sense, unavoidable. What is most important is our actions from now on, and I think we need to seriously consider how to give appropriate incentives and how to conduct personnel evaluation.

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