To be a financial innovator that provides innovative financial services made possible through the integration of its Group companies

One of the goals of the Shinsei Group?s Medium- to Long-Term Vision is "To be a financial innovator that provides innovative financial services made possible through the integration of its Group companies." Group integration is one of the key themes of the Group?s Third Medium-Term Management Plan (hereinafter, "MTMP"). Accordingly, for the Annual Report 2016, the Bank has invited Mr. Shinichiro Nakamura, the banking sector analyst at SMBC Nikko Securities Inc., to moderate a discussion regarding the meaning of "group integration" among the top executives of four major Group companies? Mr. Hideyuki Kudo, President of Shinsei Bank, Mr.Kiyohiro Kiyotani, President of Showa Leasing, Mr. Akira Watanabe, President of APLUS FINANCIAL and Mr.Riku Sugie, President of Shinsei Financial.


From left

Mr. Riku Sugie
President and CEO Shinsei Financial Co., Ltd.
Mr. Shinichiro Nakamura(Moderator)
Senior Analyst SMBC Nikko Securities Inc.
Mr. Kiyohiro Kiyotani
President and CEO Showa Leasing Co., Ltd.
Hideyuki Kudo
President & CEO, Shinsei Bank
Mr. Akira Watanabe
Representative Director and President and CEO APLUS FINANCIAL Co., Ltd.

"Considering the various capabilities and potential of the Shinsei Bank Group?s banking and nonbanking subsidiaries for meeting customer needs, it was decided that now is the optimal time to promote greater integration."

Nakamura:The Third MTMP calls for the Shinsei Group to pursue greater group integration. Why are you emphasizing group integration at this point in time?

Kudo:When I became the President of the Bank in June 2015, it was obvious to me that the key to the future growth of the Shinsei Bank Group laid not in the commercial banking business but in how we could best utilize the Group?s capabilities in other areas such as leasing, shopping credit, and unsecured personal loans. At the same time, I wondered if we were fully realizing the Group?s potential in each of these business areas. Additionally, although the unsecured personal loan business and shopping credit business were both delivering services as separate, independent entities, they did not appear to be fully meeting current customer needs. Consequently, I wondered how we could combine or recombine our numerous services and functions to provide optimized services that meet the needs of today?s customers. When we began to take concrete steps toward that end, terms such as "cooperation" and "collaboration" did not fully convey the nuance we desired, so we began using the term "integration." We have two main expectations for this integration. First, from a business perspective, we expect it to enable us to make greater use of the various functions of all Group companies and not just those of the commercial bank. Second, our Group companies have different origins and corporate cultures and we therefore need to build a platform that will enable us to generate synergies. In other words, we need to integrate back-office and administrative functions as much as possible and we expect to make those functions leaner and more efficient. We will implement our Group integration from these two perspectives.

"By integrating banking and nonbanking products and services, the value we are able to deliver to customers will clearly be different from what we could previously provide."

Nakamura:What is the difference between the group integration being expounded by Shinsei Bank and the cooperation being sought among mega bank group companies? What, if any, advantages or issues do you see?

Kudo:Although the end goals probably are not greatly different, the result of our integration will be considerably different. The mega bank groups are trying to create synergies among their banking, securities and trust businesses. At Shinsei Bank, however, securities and trust operations are already functions, or support functions, of our core banking business. Those functions have long been managed on what is essentially an integrated basis. Consequently, the integration of these functions is not a focus of our current group integration efforts. What we seek to achieve going forward is to integrate the unsecured personal loan, shopping credit and leasing functions of our nonbank businesses with our banking business. The goal of effectively linking our functions to better meet the needs of customers is a common goal for our securities, trust banking, leasing and unsecured personal loan businesses. However, the value we can deliver to customers clearly differs with the degree to which those functions are actually integrated. We think financial institutions with that level of awareness regarding integration and collaboration are rare.

"We see potential to expand our business if we can create new products and services by combining the various strengths of Group companies and providing the necessary support through dynamic Group management."

Nakamura:The Third MTMP positions unsecured personal loans and structured finance as growth areas in which the Shinsei Bank group already has competitive strengths. Refl ecting on your successes and shortfalls over the past three years, what changes do you plan to make to accelerate growth in the unsecured personal loan business? Also, what do you plan to do to increase market share?

Kudo:Considering our competitiveness in the market as well as its growth potential and profitability, the unsecured personal loan business is clearly the most promising business for the Shinsei Bank Group. However, there are areas where we have yet to fully demonstrate the potential of this business. This is because the Bank had been restrictive in its oversight. For example, from an operational management perspective, we create plans that include targets for revenues, cost controls and profits, but strict adherence to those plans restricted the investment of management resources in things such as marketing that have a direct impact on revenues, which resulted in an inability to maximize profits. By removing such unnecessary restrictions in operational management, we can complete the PDCA* process in an incredibly short period of time, and make any needed adjustments to strategies and implement new measures, through which we will be able to maximize profits over the medium term. Taking this as a model case, we plan to carry out more dynamic operational management going forward.

  • *PDCA = Plan?Do?Check?Act, a methodology for managing the productivity and quality of business operations

Sugie:In the Shinsei Bank Group, we had three companies engaged in the unsecured personal loan business?Shinsei Bank, which operates the Shinsei Bank Card Loan ? Lake business, Shinsei Financial, and SHINKI. In October 2015, we integrated the management of SHINKI and Shinsei Financial. By combining their head office functions and eliminating redundancies, we were able to cut costs by more than ?1 billion and achieve a smoother exchange of expertise. To date, I think the Third MTMP has had two important effects. The first is Group integration, and the second is the emphasis being placed on the unsecured personal loan and structured finance businesses. Group integration is enabling us to eliminate redundancies and free up our limited management resources to pursue businesses we had been eyeing but were not able to pursue due of a lack of resources. In addition, creating a common business foundation means going beyond simply sharing customer bases and also sharing data and technologies. By combining APLUS? customer database with that of Shinsei Financial, we have been able to detect new trends in customer behavior. Meanwhile, establishing a common technology platform forces us to give due consideration to how we can best share our IT resources. This is not limited to reallocating resources to achieve greater efficiency. Rather, we must also create new capabilities by combining the strengths of each company. Doing so will, I think, expand our business potential. Moreover, I believe the decision to devote more management resources and other corporate strengths to the unsecured personal loan business will give strong impetus to the growth of that business.

Nakamura:At present, the bank?s unsecured personal loan business is growing rapidly. What specific actions are called for in the new three-year plan to continue this growth? Please give us some specific initiatives that Shinsei Bank plans to undertake.

Sugie:Our spending on advertising for our unsecured personal loans is rather limited compared with other major lenders. Nonetheless, even with that lower spending level, we have managed to build a customer base comparable with those of our main rivals. In addition, our unsecured personal loan branch network is only 70 to 80 percent the size of our major rivals? networks, which tend to have more than 1,000 branch offices. By continuing to operate efficiently, we have freed up some management resources. I think we have reached the fighting fit state we need to be in to take on our rivals.

Kudo:Indeed, compared with the difficult conditions we faced about five years ago, we now have more leeway to spend. If our investments and other spending are effective in generating revenues and higher profits lead to a lower expense ratio, we can be fl exible in spending more to pursue business expansion. However, there is a tendency to adhere strictly to established budgets regardless of how the actual business situation evolves. We therefore must put a stop to such rigid budget management and constantly verify the efficacy of the use of our budget.

Sugie:From this year, we will be implementing a scrapand-build plan through which we will determine which branches to close and where to build new ones based upon quantitative evaluations of each outlet. This will directly contribute to greater customer convenience. We also plan a drastic revision of our loan contract process and will upgrade automated contract machines with new functions. These measures will greatly shorten the time from loan application to the receipt of cash. Generating returns through such effective investments is one of this year?s challenges in the growth area of the unsecured personal loan business.

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