1 People s Bank The Business Environment in Okinawa Prefecture Outline of Business Results for FY2013 Business Strategies
The Business Environment in Okinawa Contents 3 Business Strategies 29 Competitive Advantage of Okinawa s Ideal Location Future Development as International Distribution Base 1 Future Development as International Distribution Base 2 Population of Okinawa (Future Prospects) Number of Visitors to Okinawa Recent Economic Trends 1 (BOJ Tankan, Official land prices) Recent Economic Trends 2 (Economic growth rate, Unemployment rate) Outline of Business Results for FY2013 Highlights for FY2013 Earnings Deposits (Average Balance) Loans (Average Balance) Loans to Individuals (Term-End Balance) Fees and Commissions (Excluding Trust Fees) Loan / Deposit Interest Margin (Domestic) Loan / Deposit Spreads (Domestic).. Securities (Term-End Balance) Securities Allocation. Expenses Capital Ratio (Basel III Standard) Risk Management - Capital Allocation - Credit Cost Mandatory Disclosure of Bad Debt under the Financial Reconstruction Law Our Share of the Market Served by the Three Okinawan Regional Banks (FY2013) Comparison with Other Okinawan Regional Banks 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 Business Performance Forecasts FY2013-2014 Medium-Term Business Plan. Numerical Targets. Strategy for Consumer Loans Strategy for Assets in Custody Initiatives to Revitalize and Develop Local Communities Initiatives to Revitalize and Develop Local Communities (Foundation and Growth Support) Initiatives to Revitalize and Develop Local Communities (Management Improvement and Business Revitalization Support) Initiatives to Revitalize and Develop Local Communities (Business Succession and M&A Support) Initiatives to Revitalize and Develop Local Communities (Cooperation Among Industry, Academia, Government and Financial Institutions) Branch Network Strategy and Shareholder Returns Supplemental Materials Business Performance Term-End Balance, Average Balance, Yield, and Loan Balance by Industrial Segment Changes in Loan Balance by Assets Category (FY2012 and FY2013) Interest Sensitivity Major Economic Indicators in Okinawa Prefecture Participant President : Yoshiaki Tamaki 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 2
The Business Environment in Okinawa Prefecture 3
Competitive Advantage of Okinawa s s Ideal Location With major Asian cities within range of 4 hours, located in the heart of East Asia China (Population: 1.3 billion) Beijing Dalian Seoul Seoul 2h 10min Tsingtao Narita Tsingtao 2h 50min Shanghai Kansai Haneda Nagoya Shanghai 2h 5min Hanoi Bangkok Kuala Lumpur Singapore Guangzhou Hong Kong Taipei Manila Okinawa Japan (Population: 130 million) Located in the center of a massive market embracing a population of 2 billion Locations within 4-hour travel from Okinawa Taipei 1h 30min Hong Kong 2h 35min Bangkok 4h 25min Narita 2h 25min Haneda 2h 20min Nagoya 2h 15min Kansai 1h 50min Jakarta ASEAN countries (Population: 600 million) 4
Future Development as International Distribution Base 1 (Model of Distribution Relayed Through Okinawa) Cherries (Yamagata) Horsehair crabs (Hokkaido) Delivery of nationwide specialties to the Asian market, ensuring their added high-value and freshness Seoul Beef (Miyazaki) Echizen crabs (Fukui) Apples (Nagano) Bangkok Hong Kong Shanghai Taiwan Okinawa Sweet potatoes (Tokushima) Direct shipments from producers to consumers using e-commerce site malls! Achieving overwhelmingly advantageous lead times on the back of the logistic infrastructures of ANA and Yamato Transport. The Okinawa Great Trade Fair provides assistance in business matching for nationwide specialties suppliers and Japanese and overseas buyers. The export of nationwide specialty goods, including perishables, to the Asian market Rapid transport of high value-added products, e.g. electrical and precision apparatus Other Asian cities Kansai Nagoya ANA domestic flights ANA international flights Haneda Narita North America Europe Southeast Asia (Source: Okinawa Prefecture) Other Asian cities Inland areas in China Inland areas in China Other Asian cities Seoul Tsing tao Shan ghai Inland areas in China Okinawa Guan gzhou Hong Kong Asia Middle East Oceania Bang kok Taipei Singa pore Asia Middle East Oceania Other Asian cities Other Asian cities 5
Future Development as International Distribution Base 2 (Okinawa Warehousing Model) Dominant expansion into the Asian market by means of the Okinawa Distribution Depot Shipping goods to Okinawa by air or marine transport Inventory center Storage and delivery base for catalog retailers Repair center Perishable goods processing and distribution base (Source: Okinawa Prefecture) 6
Population of Okinawa (Future Prospects) The population of Okinawa is expected to take a downward turn in and after 2025. Population is on the increase at this stage, but active steps towards population growth are being taken now. (in( 単位 thousands) : 千人 ) Population 沖縄県の人口推移 trends in Okinawa (2100) 2,030 2,000 1,500 1,392 1,392 千人 (2010 (2010) 年 ) 1,415 千人 (2020) (2020 年 ) (2024) 1,440 (2035) 1,540 (2050) 1,610 Projected population リスクシナリオに基づく curve based on risk scenarios 人口予測 Efforts to facilitate natural increase in population (Creation of a society that allows people to marry, give birth to and raise children without undue worries) Higher marriage rates and birthrates Promotion of health and longevity in Okinawa campaign 1,000 Efforts to enhance growth of society 500 (2100) 840 (Creation of a dynamic society that is open to the world) Job creation and securing diverse human resources Addressing to increase tourists and visitors 0 10 11 12 13 15 20 25 30 35 40 50 60 70 80 90 100 Source: Statistics Bureau, Ministry ( 出所 ) 総務省統計局 Projected 推 population of Internal Affairs and 計値 Communications 人口問題研究所 沖縄県 of Japan, the National Institute of Population and Okinawa Prefecture Aims to resolve challenges faced by isolated islands and depopulated regions (Creation of a society that delivers well-balanced and sustainable population growth) Improvement of conditions for long-term residence Industrial development by demonstrating attractive regional characteristics 7
Number of Visitors to Okinawa FY2013 marked a record 6.58 million tourists visiting Okinawa Both domestic and overseas tourists registered a new record (Persons) ( 単位 : 人 ) Trends in the number 入域観光客数と観光収入の推移 of visitors and tourism revenues ( 単位 ( million) : 百万円 ) 10,000,000 Target 26 for 年度計画 FY2014 6,900,000 690 万人 600,000 500,000 National Strategic Special Zone designated as bases for international tourism (Designated in 2014) 8,000,000 6,000,000 4,000,000 Target for 33 年度計画 400,000 FY2021 10,000,000 1,000 万人 Building of second runway at Naha Airport 300,000 (Scheduled for completion in 2019) 200,000 2,000,000 0 Number H25 of 年度 visitors in FY2013 入域観光客数 6,580,000 658 万人 2003 04 05 06 07 08 09 10 11 12 13 14 H15 H16 H17 H18 H19 H20 H21 H22 H23 H24 H25 H26 H33 Source: Tourism ( 出所 ) 沖縄県 観光要覧 Handbook, Okinawa Prefecture Japanese visitors Overseas visitors 国内客 ( 左軸 ) 外国人客 ( 左軸 ) 観光収入 ( 右軸 ) (left axis) (left axis) 2021 Tourism revenues (right axis) 100,000 0 (fiscal ( 年度 ) year) Large-scale MICE (Facilities for international meetings, etc.) (Scheduled to commence service in 2020) 8
Recent Economic Trends 1 Official land prices BOJ Tankan Residential 住宅地 land prices 0.5 0-0.5-1 -1.5-2 -2.5-3 -3.5-4 -4.5 2010 22 年 23 2011 年 24 2012 年 252013 年 262014 年 Commercial 商業地 land prices 1 0-1 -2-3 -4-5 -6-7 -8 2010 22 年 2011 23 年 2012 24 年 25 2013 年 2014 26 年 Source: Ministry of Land, Infrastructure and Transport Highest value on record 209,000/sqm 沖縄県 Okinawa 福岡県 Fukuoka Kumamoto 熊本県 National 全国 average Highest value on record 796,000/sqm Okinawa 沖縄県福岡県 Fukuoka Kumamoto 熊本県 National average 全国 40 30 20 10 0-10 - 20 BOJ Tankan 日銀短観 Business 業況判断 Confidence DI DI - 30 Mar. H23.3 2011 Sep. H23.9 2011 Mar. H24.3 2012 Sep. H24.9 2012 Mar. H25.3 2013 Sep. H25.9 2013 Mar. H26.3 2014 Source: BOJ Naha Branch Regarding official land prices for 2014, only Okinawa marked a rise r in land prices among prefectures in the Kyushu region. (6th highest rate of rise in Japan) BOJ s s Tankan survey also underlines greater improvement in Okinawa s business outlook compared to the national average. Okinawa 沖縄県 National 全国 average 9
Recent Economic Trends 2 Economic growth rate (actual) Unemployment rate Comparison of economic growth rate - (%) Okinawa 沖縄県と国の経済成長率の比較 vs. National average (%) 4.0 8.0 Trends in 完全失業率の推移 unemployment rates 3.0 2.0 1.0 0.0-1.0-2.0-3.0-4.0 The prefecture s economic growth rate under 県振興計画は平成 the Okinawa Promotion 33 年まで Plan 年平均 is expected +2.0% を展望値としている to run at an annual average of +2.0% until 2021 7.0 6.0 5.0 4.0 3.0 2.0 1.0-5.0 Source: Okinawa Prefecture, Cabinet Office, Government of Japan 2008 H20 2009 H21 2010 H22 2011 H23 2012 H24 見込 forecast 沖縄県 全国 0.0 2010 H22 2011 H23 2012 H24 2013 H25 Mar. H26.3 2014 2021 H33 Source: Okinawa Prefecture, Difference 差異 Okinawa 沖縄県全国 Ministry of Internal Affairs and Communication Okinawa National average National average Okinawa has maintained higher rates of economic growth than the national average In the past, Okinawa suffered nearly twice the unemployment rate of the national average, but the rates have steadily fallen, becoming closer to the national level. l. 10
Outline of Business Results for FY2013 11
Highlights for FY2013 While interest income and commission revenues improved, credit costs increased substantially resulting in increase in revenues and decrease earnings ( billion) Non-consolidated FY13 FY12 YoY change Ordinary income 37.1 36.8 +0.3 Gross business profit 30.0 30.2 (0.2) Interest income 27.3 26.9 +0.3 Fees and commissions 2.5 2.4 +0.1 Fees and commissions (excluding trust fees) 2.0 1.8 +0.2 Trust account services 0.4 0.5 (0.1) Other business profit 0.1 0.8 (0.7) Gains (losses) on bond trading (0.0) 0.7 (0.7) Expenses (excluding non-recurrent items) 19.9 19.2 +0.6 Business profit on core banking operations 10.1 10.3 (0.1) Provision of general allowance for possible loan losses 0.6 (0.0) +0.7 Net business profit 9.4 11.0 (1.5) Non-recurrent items (0.9) (1.7) +0.8 Net gains (losses) on equity securities 1.0 (0.5) +1.5 Bad debt disposal (non-recurrent items) 2.2 1.6 +0.5 Ordinary profit 8.5 9.3 (0.7) Extraordinary gains (0.0) (0.0) (0.0) Bad debt disposal (reversal of extraordinary losses) - - - Net income 4.5 5.4 (0.8) Credit costs 2.8 1.6 +1.2 Non-performing loan ratio 1.72% 1.64% 0.08% Capital ratio 11.66% 11.88% - * The capital ratio for FY13 was calculated according to the new standard, Basel III. Year-on-year changes (\ billion, %) Average balance Yield Interest Loans and bills discounted +48.6 [+47.2] (0.15) [(0.15)] (0.6) [(0.7)] Securities +1.8 +0.06 0.3 Deposits +39.4 (0.03) (0.5) [+39.5] [(0.04)] [(0.6)] Others - - 0.0 [0.0] Total - - 0.2 [0.3] Net gains on securities are posted as +0.9 YoY comparison of business profit on core banking operations Decrease 1.4 0.6 0.6 0.0 Interest on loans and bills discounted Interest on securities Interest paid on deposits Others Commissions Expenses Trust account services Increase 0.1 0.3 0.2 0.5 Total 1.2 12
Earnings (Business profit on core banking operations continued to exceed the 10.0 billion level) ( billion) Business profit on core banking operations decreased due to higher expenses despite the rise in interest income 300 30.0 250 25.0 266 26.6 25.6 256 26.9 269 27.3 273 Interest 資金利益 income 200 20.0 150 15.0 100 10.0 50 5.0 101 10.1 50 5.0 9.1 91 5.1 51 103 10.3 54 5.4 101 10.1 45 4.5 Business profit on core banking operations コア業務純益 当期 Net 純利益 income 0 23/3 期 24/3 期 25/3 期 26/3 期 FY10 FY11 FY12 FY13 13
Deposits (Average Balance) Deposits by corporations rose by 38.4 billion (+8.7%) Deposits by individuals rose by 24.1 billion (2.2%) Total deposits rose by 39.1 billion (+2.2%) to 1,745.6 billion ( billion) 18,000 1,800 16,000 1,600 14,000 1,400 12,000 1,200 15,123 1,512.3 1,332 133.2 3,961 396.1 104 10.4 1,706.5 1,745.6 1,670.4 70 7.0 158 15.8 1,582 1,346 134.6 1,492 149.2 158.2 16,704 4,335 433.5 4,411 441.1 17,065 17,456 4,795 479.5 法人 Corporations 7.3 73 Financial 金融 institutions 公金 Public funds Deposits by corporations Increased liquidity Enhanced function to trace funds 10,000 1,000 8,000 800 6,000 600 4,000 400 2,000 200 0 1,071.8 1,124.2 9,724 10,718 11,000 11,242 972.4 1,100.0 Individuals 個人 23/3 FY10 期 24/3 FY11 期 25/3 FY12 期 26/3 FY13 期 Deposits by individuals Increased liquidity Opening of new pension and salary payment accounts Decrease in time deposits Maturity of deposits acquired through past promotional campaigns, etc. * Including trust accounts 14
Loans (Average Balance) Business loans rose by 24.7 million, loans to individuals rose by 23.2 billion Total loans and bills discounted rose by 47.2 billion (+4.1%) to 1,202.0 billion ( billion) 12,000 1,200 10,000 1,000 8,000 800 6,000 600 11,092 11,217 1,109.2 1,121.7 1,163 116.3 1,091 109.1 6,057 605.7 6,071 607.1 11,547 1,154.7 1,013 101.3 6,247 624.7 12,020 1,202.0 1,008 100.8 6,494 649.4 法人 Corporations Local government 地公体 bodies and other public organizations Business loans Factors for increase in loans: Apartment loans 4,000 400 2,000 200 0 3,872 4,056 4,286 4,518 387.2 405.6 451.8 428.6 個人 Individuals 23/3 FY10 期 24/3 FY11 期 25/3 FY12 期 26/3 FY13 期 Loans to individuals Factors for increase in loans: Mortgage loans Apartment loans * Including trust accounts 15
Loans to Individuals (Term-End Balance) Mortgage loans rose by 31.3 billion, other loans rose by 1.7 billion Loans to individuals rose by 33.0 billion (+6.6%) year on year to 529.8 billion ( billion) 5,000 500 4,000 400 ( 単位 : 億円 ) 4,478 447.8 595 59.5 4,732 473.2 611 61.1 4,968 496.8 63.5 635 5,298 529.8 65.2 652 その他 Other loans ローン 3,000 300 2,000 200 1,000 100 3,883 388.3 4,121 412.1 4,333 433.3 4,646 464.6 住宅ローン loans Mortgage 0 23/3 FY10 期 24/3 FY11 期 25/3 FY12 期 26/3 FY13 期 * Including 信託勘定を含んでおります trust accounts 16
Fees and Commissions (Excluding Trust Fees) ( billion) 25 2.5 Major factors for increase (on a YoY basis) 20 2.0 15 1.5 14 15 1.4 1.5 1.8 18 2.0 20 M&A fees Investment trust sales commissions 10 1.0 5 0.5 0 FY10 FY11 FY12 FY13 23/3 期 24/3 期 25/3 期 26/3 期 17
Loan / Deposit Interest Margin (Domestic) Loan / Deposit Interest Margin ( 単位 (%) :%) 3.50 Yield on loans 3.00 2.50 2.51 2.44 2.32 2.17 2.00 1.50 1.01 1.06 預貸金利鞘 Loan/deposit interest margin 1.05 0.94 1.00 1.21 1.12 0.50 経費率 Expense ratio 1.13 1.12 0.29 0.26 Yield 預金利回り on deposits 0.11 0.00 0.14 23/3 FY10 期 24/3 FY11 期 25/3 FY12 期 26/3 FY13期 18
Loan / Deposit Spreads (Domestic) (%) 3.00 2.50 2.00 1.50 1.00 0.50 Loan / Deposit Spreads (Domestic) 当行 Bank of Okinawa 2.22 2.18 2.18 2.06 Average of first-tier 第一地銀平均 regional banks 1.75 1.67 1.58 1.47 差異 Difference 0.60 0.47 0.51 0.59 0.00 23/3 FY10 期 24/3 FY11 期 25/3 FY12 期 26/3 FY13 期 19
Securities (Term-End Balance) Term-end end balance and average duration Yield on securities ( billion) (%) 6,000 600 5,000 500 4,000 400 3,000 300 446.6 4,466 214 21.4 196 19.6 280 28.0 2.00 854 85.4 デュレーション 5,773 577.3 Duration 6,002 600.2 3.28 5,399 539.9 25.1 251 209 258 25.8 20.9 203 20.3 216 21.6 181 18.1 76.9 769 2.87 953 95.3 324 32.4 Bonds 社債 108.4 1,084 1,146 114.6 1.98 123.5 1,235 Prefectural 地方債 / municipal bonds 3.50 その他 Others 3.00 株式 Stocks 2.50 2.00 1.50 1.600 1.400 1.200 1.000 0.800 0.600 Regional bank 地銀平均 average Bank 当行 of Okinawa 2,000 200 1,000 100 292.1 2,921 3,604 360.4 362.5 3,625 311.1 3,111 JGB 国債 s 1.00 0.50 0.400 0.200 0 23/3 FY10 期 24/3 FY11 期 25/3 FY12 期 26/3 FY13 期 0.00 0.000 H20/3 FY07 期 H21/3 FY08 期 H22/3 FY09 期 H23/3 FY10 期 H24/3 FY11 期 H25/3 FY12 期 H26/3 FY13 期 H27/3 FY14 期 Plan 計画 20
Securities Allocation 100% 80% 60% Review of allocation (improve allocation so it is not concentrated on JGBs) Pursuing higher yields while controlling risks 6.0% 2.5% 10.1% 14.7% 13.6% 1.0% Securities composition percentage (carrying value at term-end) 有価証券構成比率 ( 期末簿価 ) 3.4% 4.1% 2.9% 3.1% 0.8% 3.3% 3.7% 1.1% 0.8% 6.7% 4.3% 0.9% 3.3% 3.0% 2.9% 1.1% 3.1% 6.1% 6.3% 13.0% 7.6% 16.8% 20.6% 20.1% Bonds 社債 14.8% 19.3% 19.1% 21.5% Investments to be emphasized in the future 21.8% Prefectural / 地方債 municipal bonds Foreign 外国証券 securities その他有価 Other securities 証券 株式 Stocks 40% 20% 53.0% 66.5% 65.2% 66.8% 61.1% 54.4% 49.6% JGB 国債 s 0% Mar. H21/3 2009 末 Mar. H22/3 2010 末 Mar. H23/3 2011 末 Mar. H24/3 2012 末 Mar. H25/3 2013 末 Mar. H26/3 2014 末 H27/3 Mar. 末計画 2015 Plan 21
Expenses 19.9 billion (up 0.6 bn YoY) ( billion) (%) 28.0 280 24.0 240 20.0 200 16.0 160 12.0 120 8.0 80 4.0 40 0 Core コアOHR 64.7 67.3 65.1 66.1 70 60 185 18.5 188 18.8 19.9 192 19.2 199 税金 Taxes 9 9 9 9 0.9 0.9 0.9 0.9 50 84 85 87 93 9.3 40 8.4 8.5 8.7 Non-personal 物件費 expenses 30 20 9.1 91 9.3 93 9.5 95 96 9.6 Personnel 人件費 expenses 10 0 23/3 FY10 期 24/3 FY11 期 25/3 FY12 期 26/3 FY13期 Non-personal expenses increased (up 0.5 billion) mainly due to an increase in office consignment expenses Personnel expenses increased (up 0.1 billion) owing partly to higher expenses incurred by temporary hiring 22
Capital Ratio (Basel III Standard) (%) Capital ratio (domestic standard) at 11.66% 14.00 12.00 10.00 8.00 6.00 4.00 2.00 0.00 12.73 12.23 12.25 12.01 11.88 11.66 11.66 23/3 FY10 期 24/3 FY11 期 25/3 FY12 期 26/3 FY13期 Source: Bank of Okinawa 自己資本比率 Capital ratio TierⅠ I ratio 比率 Average capital ratio of regional banks in the term ended March 2014 Capital ratio: 11.60% Core コア資本 capital Calculated by new standard Outlier Ratio Total interest rate risk Outlier ratio End of March 2014 \4,202 million 3.59% Percentile standard Core deposits are assumed to be 50% of the term-end balance of liquid deposits. The average maturity is assumed to be 2.5 years. 23
Risk Management Capital Allocation Controlling risks within the scope of Tier I ( billion) 1200 1,093 109.3 Basis リスク量算定基準 for risk calculation 信用リスク Credit risk 市場リスク Market risk 預貸等の金利 Loan / deposit interest リスク risk オペレーショ Operational ナル リスク risk 1000 800 375 37.5 バッファー Buffer Unallocated 未配賦資本 capital Holding 保有区間 period Confidence Strategic share 政策株 : 年 1 1 year 年 holdings: 1 year 11 year 年その他 Others: : 1 month ヶ月 信頼区間 interval 99% 99% 99% Observation period 観測期間 11 year 年 11 year 年 11 year 年 Basic indication 基礎的手法 approach (BIA) 600 400 200 0 198 19.8 配賦リスク Allocated risk 資本 capital 520 52.0 52.0 520 5.0 50 12.0 120 268 26.8 19.0 190 43 4.3 48 4.8 102 10.2 16.0 160 73 7.3 Allocated 配賦可能資本 economic 25 Breakdown 年度リスク資本内訳 of risk 25 Risk 年度末リスク量 amount capital (Tier1 資本 (= Tier ) I) capital in FY13 (end of FY13) オペレーショナル Operational risk リスク 預貸等の金利 Loan / deposit リスク interest risk Market 市場リスク risk Credit 信用リスク risk 24
Credit Cost Reflecting the rise in historical default rates of normal assets and assets requiring caution, and further drops in prime borrower rating, credit cost amounted to 2.8 billion (up 1.2 bn YoY) ( billion) 3.0 30 2.5 25 11 1.1 (2.6-1.5) (26-15) Provision of general allowance for possible 一般貸倒引当金 loan 繰入額 losses 2.8 28 (2.2+0.6) (22+6) 6 0.23 0.6 計画 Plan Credit 与信費用 cost 比率 ratio 0.30 0.25 2.0 20 1.5 15 15 (1.5) 1.7 16 1.6 17 0.20 0.15 1.0 10 0.5 5 2.6 26 0.09 0.14 16 1.6 2.2 22 不良債権 Bad debt disposal 処理額 0.14 1.7 17 0.10 0.05 0 24/3 FY11 期 25/3 FY12 期 26/3 FY13 期 27/3 FY14 期 0.00 25
Mandatory Disclosure of Bad Debt under the Financial Reconstruction Law 21.7 billion (1.72%) Non-performing loan (NPL) ratio up 0.08% reflecting an increase in doubtful assets ( billion) (%) NPL ratio 30.0 300 開示債権比率 NPL ratio 開示債権比率 (regional bank 3.50 3.07 3.04 3.02 2.95 ( 地銀平均 average) ) 3.00 19.6 196 198 19.8 205 20.5 20.0 200 115 109 107 10.7 11.5 10.9 21.7 217 21.0 210 99 9.9 Bankrupt 破産更正債権及び and quasi- これに準ずる債権 bankrupt assets Plan 計画 2.50 21.0 210 2.00 10.0 100 0 1.68 1.63 1.64 1.72 1% 1.00- 台 1.99% 8.2 82 64 6.7 67 6.4 Doubtful 危険債権 assets 6.7 67 20 30 36 2.0 3.0 3.6 1.5 15 23/3 FY10 期 24/3 FY11 期 25/3 FY12 期 26/3 FY13 期 27/3 FY14期 1.50 1.00 0.50 0.00 26
Our Share of the Market Served by the Three Okinawan Regional Banks (FY2013) Increase in shares of loans; deterioration in shares of deposits Loans: 42.74% (up 0.25 points YoY) Deposits: 41.97% (down 0.49 points YoY) Loans Deposits 貸出金 (average ( balance) 平残 ) 預金 (average ( 平残 balance) ) (%) (%) 43.00 42.50 42.14 42.49 42.74 43.00 42.50 42.52 42.46 42.00 41.79 42.00 41.73 41.97 41.50 41.50 41.00 23/3 FY10 期 24/3 FY11 期 25/3 FY12 期 26/3 FY13 期 41.00 23/3 FY10 期 24/3 FY11 期 25/3 FY12 期 26/3 FY13 期 27
Comparison with Other Okinawan Regional Banks (FY2013) Bank of Okinawa (Increase in revenues, decrease in earnings) Bank A (Increase in revenues and earnings) Bank B (Decrease in revenues, increase in earnings) Ordinary income 37.1 billion 37.9 billion 12.6 billion Business profit on core banking operations 10.1 billion 8.4 billion 2.0 billion Net income 4.5 billion 3.4 billion 1.3 billion Capital ratio 11.66% 10.50% 9.83% Loan/deposit spreads 2.06% 2.04% 2.39% Core OHR 66.18% 71.87% 80.13% ROE 4.13% 3.91% 4.06% Loans (Average balance) 1,202.0 billion 1,247.7 billion 362.9 billion Deposits (Average balance) 1,745.6 billion 1,836.4 billion 577.3 billion Market capitalization 91.5 billion 52.9 billion - PBR (consolidated) 0.72 times 0.6 times - 28
Business Strategies 29
Business Performance Forecasts Year-on-year changes forecast ( billion) Non-consolidated Ordinary income FY13 37.1 FY14 36.4 YoY change (0.7) Gross business profit 30.0 31.0 +1.0 Interest income 27.3 27.9 +0.6 Fees and commissions 2.5 2.7 +0.1 Fees and commissions (excluding trust fees) 2.0 2.3 +0.2 Trust account services 0.4 0.4 (0.0) Other business profit 0.1 0.3 +0.2 Gains (losses) on bond trading (0.0) 0.2 +0.2 Expenses (excluding non-recurrent items) 19.9 20.5 +0.6 Business profit on core banking operations 10.1 10.2 0.1 Provision of general allowance for possible loan losses 0.6 (0.0) (0.6) Net business profit 9.4 10.5 1.0 Non-recurrent items (0.9) (1.2) (0.3) Net gains (losses) on equity securities 1.0 0.2 (0.8) Bad debt disposal (non-recurrent items) 2.2 1.7 (0.4) Ordinary profit 8.5 9.2 +0.7 Extraordinary gains (0.0) (0.0) 0.0 Net income 4.5 5.7 +1.1 Credit costs 2.8 1.7 (1.1) Loans and bills discounted Note) Figures in square brackets include trust accounts. YoY comparison of business profit on core コア業務純益の前期比 banking operations Decrease 0.6 (\ billion, %) Average balance Yield Interest 0.1 +47.1 [+45.7] Interest on loans and bills discounted Interest on securities Interest paid on deposits Others Commissions Expenses Trust account services Increase 0.1 0.0 0.0 0.3 0.2 (0.069) [(0.069)] 0.7 Total 0.8 0.1 [0.1] Securities (36.8) +0.052 +0.0 Deposits +32.0 (0.02) (0.3) [+26.6] [(0.03)] [(0.5)] Others - - (0.0) [(0.0)] Total - - 0.5 [+0.6] 30
FY2013-2014 2014 Medium-Term Business Plan Improve the speed of management decision-making and evolve into a next-generation bank with customer focused strategy Bank of Okinawa s goal is to be the People s Bank Basic Policy Reinforcing our foundations as the top bank in Okinawa Okigin s spirits make customers smile and revitalize the region A bank loved by people in Okinawa Prefecture Customer focused strategy Management Strategies Personnel Strategies Organizational Strategies Regional Contribution Strategies Strengthen sales and earning capabilities as well as promote retail sales from the customer s point of view Develop employees from the customer s point of view and promote the principle: small numbers, exceptional talent Build an organization from the customer s point of view and pass along the OKIGIN culture Leverage genuine value to revitalize business and the regional from the customer s point of view Strengthen sales and earnings capabilities as well as promote retail sales Promote IT marketing strategies Improve the quality of loan assets Develop employees from the customer s point of view Develop employees able to make proposals suitable to each customer life stage Strategically assign employees Build an organization from the customer s point of view Strengthen compliance systems Introduce next-generation systems Leverage consulting functions Build an organization by customer focused strategy Customer Management Committee Build an organization that helps improve customer and employee satisfaction by reflecting customer feedback and the needs of sales staff in management policies Customer Service Department Develop sales systems able to provide optimal financial services from the points of view of both individual and corporate customers To become Okinawa s No. 1 bank: aim achieve solidify leverage our true value 31
Numerical Targets Business profit on core banking operations 26/3 FY13 期実績 Results 27/3 FY14 期目標 Targets コア業務純益 10.1 billion 101 億円 Around 100 10.0 億円程度 billion ROE for core banking operations コア業務純益 ROE 9.16% 9.16% Around 9% 9% 程度 資金量 Deposits ((Average 平残 balance) ) 1,745.6 1 兆 7,456 billion 億円 1,770.0 1 兆 7,700 billion 億円 融資量 Loan assets ((Average 平残 ) balance) 1,202.0 1 兆 2,020 billion 億円 1,220.0 1 兆 2,200 billion 億円 開示債権比率 Non-performing loan ratio 1.72% 1.72% 1.00-1.99% 1% 台 60.00-60.99% コア Core OHR OHR 66.1% 66.1% 60% 台 11.66% 自己資本比率 Capital ratio 11.66% 12.00-12.99% 12% 台 4.53% Around 5% ROE( ROE (Consolidated) 連結 ) 4.53% 5% 程度 * ROE calculation formula ROE 算式 当期純利益 Net income ( 期首株主資本 + 期末株主資本 ) 2 (Shareholders equity at the beginning of period + shareholders equity at the end of period) / 2 32
Strategy for Consumer Loans Mortgage loans + 30.7 billion, Other loans + 2.3 billion Consumer loans 562.8 billion (+6.2% YoY) ( billion) 6,000 600 5,000 500 4,000 400 3,000 300 2,000 200 1,000 100 447.8 4,478 595 59.5 4,732 473.2 4,968 496.8 63.5 635 611 61.1 3,883 4,121 4,333 388.3 433.3 412.1 その他 Other ローン loans 529.8 5,298 65.2 652 4,646 464.6 Mortgage 住宅ローン loans Plan 計画 5,628 562.8 67.5 675 4,953 495.3 Solid housing demand Higher personal spending on the back of improving economic outlook 0 23/3 FY10 期 24/3 FY11 期 25/3 FY12 期 26/3 FY13 期 27/3 FY14 期 33
Strategy for Assets in Custody Boost sales focusing mainly on investment trusts and pension insurance ( billion) 2000 1800 1600 140 1400 1200 1000 800 600 40 400 200 0 132.1 1,321 445 44.5 415 41.5 1,233 123.3 524 52.4 460 46.0 319 31.9 1,394 139.4 69.7 697 390 39.0 452 45.2 150.7 1,507 1,141 114.1 90.1 901 年金保険 Pension insurance 403 Investment 投資信託 trusts 計画 Plan 1,791 179.1 45.6 456 244 24.4 20.1 201 国債 JGBs 194 19.4 23/3 FY10 期 FY11 24/3 期 FY12 25/3 期 FY13 26/3 期 FY14 27/3 期 40.3 Pension insurance Targeted sales volume 24.0 billion Investment trust Targeted sales volume 14.0 billion * Pension insurance totals are cumulative sums sold. * Sales target added to the balance as of the end of the previous fiscal year for the fiscal year ending March 31, 2015 excluding contract and other cancellations (Figures take into account redemption of JGBs) 34
Initiatives to Revitalize and Develop Local Communities The Bank of Okinawa s operating activities (SR Activities) that match corporate customer lifecycles and needs 1 Matching business initiatives 2 International logistics initiatives Initial funding (Foundation) Working capital and capital expenditure (Growth) Financing facilitation Business revitalization (Economic downturn) M&A (Transition) Working capital and capital expenditure (Stabilization) Corporate customer growth and development 3 Initiatives for business succession 4 Management improvement support Financing deeply rooted in the community: making the most of consulting functions SR activities 35
Initiatives to Revitalize and Develop Local Communities (Foundation and Growth Support) Foundation Support As an authorized support organization defined by the Act for Facilitating New Business Activities of Small and Medium-sized Enterprises, the Bank of Okinawa has implemented the following supporting services: Providing start-up business owners with useful information as well as assistance at the time of grant applications Dispatch of professionals in cooperation with member organizations comprising the local SME platform (Results for FY13) Support item 1. Foundation support for small-scale business owners, etc. (Assistance in the formulation of business or finance plans) 2. Assistance in the establishment of new medical businesses 3. Dispatch of professionals No. of cases Initiatives for business growth (Support for the cultivation of markets) Participation in the Okinawa Great Trade Fair Pre- Trade Fair The Bank of Okinawa co-hosted and participated in the Okinawa Great Trade Fair Pre-Trade Fair, a large, national-scale trade fair for visitors from around the world, with an eye to raising the status of The Bank of Okinawa Churashima Trade Fair to a prefectural level business fair. Held on November 14 and 15, 2013 Participation of 131 exhibitors and 102 buyers Approximately 1,600 individual business meetings took place in two days 119 staff members from the Bank of Okinawa collaborated in the administration of the fair 36
Initiatives to Revitalize and Develop Local Communities (Corporate Management Improvement and Business Revitalization Support) SME Revitalization Support Councils Corporate Banking Division Customers Credit Screening Division Authorized Support Organizations Okinawa Prefectural Center for Management Improvement Support Professional business consultants for SMEs Public support organizations certified by the government Tax accountants, SME management consultants, lawyers and bankers from financial institutions, etc. practicing in Okinawa Commencement of a project to provide assistance in the formulation of management improvement plans with collaboration from authorized support organizations A designated window for businesses, which provides necessary funds to finance up to twothirds of relevant expenses (maximum 2 million) Status of Application to SME Revitalization Support Councils Current situation concerning the use of a program implemented by authorized support organizations to assist in the formulation of management improvement plans FY03-FY12 1H FY13 2H FY13 Total Number of applications submitted to Councils 84 8 12 104 (of which, submitted to the Bank of Okinawa) 50 6 6 62 Percentage of applications submitted to the Bank of Okinawa 59.5% 75.0% 50.0% 59.6% Holding study sessions for authorized support organizations and briefing meetings at all the Bank s branches inviting lecturers from the Small and Medium Enterprises Department, Economy, Trade and Industry Division, Okinawa General Bureau of the Cabinet Office. The Bank of Okinawa has received 44 applications, representing 63.7% of a total of 69 applications submitted in Okinawa Prefecture. The Bank of Okinawa is committed to providing support for its customers in their management improvement and business revitalization, in proactive collaboration with external professionals, etc., as necessary. 37
Initiatives to Revitalize and Develop Local Communities (Business Succession and M&A Support) Challenges faced by regional SMEs More than 65 years have passed since World War II ended and now many SMEs are managed by older founders [average age of 57.5]. [85%] of business owners in Okinawa have yet to name or decide upon their successors. Many of them often consult with [tax accountants] and [lawyers] for advice. One of the critically important issues related to business succession is [finance]. Support system at the Bank of Okinawa 当行事業承継 M&A 取組実績 Number of business successions and M&A deals supported by the Bank of Okinawa 202008 年 212009 年 22010 年 232011 年 24 2012 年 252013 年 In 2008, the Bank of Okinawa established a division to promote business successions. In 2010, the Bank launched a business succession loan (the only provider of such loan in Okinawa). The Bank holds business succession seminars. It has run Okigin Business Successor School for five years in a row. Number 相談件数 of consultations 契約件数 39 62 56 109 91 101 1 1 Rapidly 急増中 increasing 2 Number of signed contracts 2 7 14 38
Initiatives to Revitalize and Develop Local Communities (Cooperation Among Industry, Academia, Government and Financial Institutions) Contribution to local community through cooperation among industry, academia, government and financial institutions Conclusion of an agreement to collaborate with the Integrated Innovation Center for Community, University of the Ryukyus As a regional financial institution deeply rooted in local communities, the Bank of Okinawa signed an agreement with the University of the Ryukyus to collaborate on the revitalization of local communities, by leveraging their combined capabilities, i.e. the Bank s s consulting function and corporate network and the university s s personnel and intellectual resources. The Bank of Okinawa will strive to contribute to the realization of a self-supporting supporting economy, envisaged by the 21st Century Vision of Okinawa Prefecture. Human resources development Internships Legal assistance Dispatch of lecturers (endowed lectures) Students business idea competition etc. University of the Ryukyus Local revitalization The Bank of Okinawa Fostering of industries Manufacturing, agricultural fields, etc. Joint research and analysis, product development, market expansion, coordinated research matching University side Commercialization (utilizing developmental technologies, resources, etc.) Company side Solution to problems Human resources development Manufacturing Incorporation of organizational structure, mutual understanding, human interaction, transmission of information Within 1-2 years Agriculture Presentation of developmental resources, specialized coordinator, matching, commercialization support Within 2-3 years Overall industries Commercializatio n projects, results recognition Within 3-5 years Vision for the future (Undertaken by collaborative work) Vision for the future (Consolidation of framework) 39
Branch Network Strategy and Shareholder Returns Branch network strategy October 2014 April 2015 May 2015 Moromi Branch scheduled to relocate and re-open for business Haebaru Branch scheduled to relocate and re-open for business Nago Branch scheduled to relocate, be newly built and re-opened for business Shareholder returns FY10 FY11 FY12 FY13 FY14 (forecast) Dividend (yen) 65 65 65 65 65 Payout ratio (%) 23.2 22.4 22.3 25.0 22.0 Own share purchases (million yen) 478 498 700 602 - Shareholder return ratio (%) 31.4 30.8 34.1 36.4-40
Supplemental Materials 41
Business Performance ( billion) Non-consolidated FY10 FY11 FY12 FY13 YoY change Ordinary income 40.3 36.8 36.8 37.1 +0.3 Gross business profit 30.3 28.5 30.2 30.0 (0.2) Interest income 26.6 25.6 26.9 27.3 +0.3 Fees and commissions 1.7 2.0 2.4 2.5 +0.1 Fees and commissions (excluding trust fees) 1.4 1.5 1.8 2.0 +0.2 Trust account services 0.3 0.4 0.5 0.4 (0.1) Other business profit 1.9 0.8 0.8 0.1 (0.7) Gains (losses) on bond trading 1.7 0.6 0.7 (0.0) (0.7) Expenses (excluding non-recurrent items) 18.5 18.8 19.2 19.9 +0.6 Business profit on core banking operations 10.1 9.1 10.3 10.1 (0.1) Provision of general allowance for possible loan losses (0.2) (1.5) (0.0) 0.6 +0.7 Net business profit 12.0 11.2 11.0 9.4 (1.5) Non-recurrent items (2.4) (2.9) (1.7) (0.9) +0.8 Net gains (losses) on equity securities (0.3) (0.6) (0.5) 1.0 +1.5 Bad debt disposal (non-recurrent items) 1.8 2.5 1.6 2.2 +0.5 Ordinary profit 9.5 8.3 9.3 8.5 (0.7) Extraordinary gains (0.0) (0.0) (0.0) (0.0) +0.0 Bad debt disposal (amounts posted under extraordinary gains) 0.0 - - - - Net income 5.0 5.1 5.4 4.5 (0.8) Credit costs 1.5 1.0 1.6 2.8 +1.2 Non-performing loan ratio 1.68% 1.63% 1.64% 1.72% 0.08% Capital ratio (calculated under Basel III Standard for FY13) 12.73% 12.25% 11.88% 11.66% - 42
Term-End Balance, Average Balance, Yield, and Loan Balance by Industrial Segment Term-end balance / Average balance / Yield (\ billion, %) FY10 FY11 FY12 FY13 Loans Term-end balance 1,149.3 1,197.1 1,236.2 1,251.4 Average balance 1,109.2 1,121.7 1,154.7 1,202.0 Yield 2.51 2.44 2.32 2.17 Securities Term-end balance 446.6 539.9 600.2 577.3 Average balance 416.7 509.6 581.8 583.6 Yield 0.88 0.61 0.56 0.62 Deposits Term-end balance 1,592.8 1,714.8 1,789.8 1,755.1 Average balance 1,512.3 1,670.4 1,706.5 1,745.6 Yield 0.29 0.26 0.14 0.11 Loan balance by industrial segment (\ billion) FY10 FY11 FY12 FY13 Manufacturing 41.2 40.5 37.9 36.6 Agriculture and Forestry 0.5 0.5 0.4 0.5 Fishery 0.5 0.5 0.5 0.5 Mining and quarrying of stone and gravel 1.8 3.9 1.5 1.9 Construction 54.4 49.7 47.3 44.7 Electricity, gas, heat and water supply 4.0 4.0 2.5 3.5 Telecommunications 9.4 10.0 7.9 7.2 Transport and postal activities 15.7 16.4 15.0 14.8 Wholesaling and Retailing 121.5 116.4 115.7 114.8 Finance and insurance 19.2 18.9 22.1 25.0 Real estate, and goods rental and leasing 206.2 227.4 261.9 294.8 Miscellaneous services 133.9 137.1 137.2 129.5 Local government bodies 111.0 123.8 127.3 98.3 Others 429.4 447.3 458.4 478.6 Total 1,149.3 1,197.1 1,236.2 1,251.4 * Term-end and average balances are calculated on the basis of loan/deposit balances of the banking and trust accounts. * Yields on loans and deposits are those used for domestic operations only. * Including trust accounts 43
Changes in Loan Balance by Assets Category (FY2012 and FY2013) Loan balance by assets category at the end of March 2013 (\ billion) Loan balance by assets category at the end of March 2014 (\1,262.4 billion) Assets requiring caution Bankrupt and Potentially Normal Other assets Assets effectively bankrupt assets requiring requiring bankrupt assets caution supervision assets Normal assets 1,061.2 976.8 24.4 0.2 0.3 0.5 Assets requiring caution Other assets requiring caution Assets requiring supervision 165.2 15.9 128.5 1.7 3.2 1.1 4.0 0.0 0.1 2.4 1.2 0.0 Potentially bankrupt assets Bankrupt and effectively bankrupt assets New borrowers Total 6.4 0.0 0.5 0.2 3.2 0.8 10.9 0.0 0.2 0.1 0.1 7.7-90.0 2.5 0.0 0.0 0.0 1,248.0 1,082.9 156.5 4.7 8.2 9.9 * Including trust accounts 44
Interest Sensitivity 預金預 Deposit ( 平残金 ) 貸出金貸出金 Loans ( 平残 ) Time deposits (up 定期性 to 1 year) (1 年 and money in 内 ) 金銭信 trust 託 41.5% Time deposits 定期性 (over(1 1 year) 年超 ) 6.4% Total deposits: 預金計 17,898 1,789.8 億円 billion Current account deposits 流動性 52.1% High 高い Market-linked Fixed 固定金利 interest 市場連動 32.9% 3.3% Short-term prime rate-linked 短プラ連動 54.1% Total 貸出計 loans: 12,362 1,236.2 億円 billion High 高い 低い Low Low 低い Loans 手貸 商手 on bills/ bills discounted ( 固定分 )(fixed 8.6% portion) 8.6% Long-term prime 長プラ連動 rate-linked 1.1% 45
Major Economic Indicators in Okinawa Prefecture Unit FY10 FY11 FY12 FY13 FY13 (nationwide) Population (Persons) 1,396,898 1,406,260 1,408,133 1,418,144 127.10 million Number of households (Households) 537,981 533,982 541,280 553,958 54.17 million GDP (nominal) (\ billion) 3,725.6 3,795.5 3,912.8 4,050.6 \529 trillion New car registration (Units) 39,266 38,170 40,506 50,686 5,692,000 Value of contracts for public works (\ million) 244,120 210,803 279,505 263,352 14,571,116 Housing starts (Houses) 10,914 11,737 12,713 17,173 987,254 Source Okinawa Prefecture, Ministry of Internal Affairs and Communications (estimated population) Okinawa Prefecture, Ministry of Internal Affairs and Communications (The nationwide figure is as of March 2012) Okinawa Prefecture, (estimates for FY2012 and FY2013) Japan Automobile Dealers Association Value Hosho Jigyo Kaisha Kyokai (Association of guaranty companies) Ministry of Land, Infrastructure and Transport Number of tourists to the prefecture Industrial production index (prior to seasonal adjustment) (Persons) 5,705,300 5,528,000 5,924,700 6,580,300 10,363,904 (2005=100) 94.8 92.9 98.0 99.0 98.9 Okinawa Prefecture, Japan National Tourism Organization Okinawa Prefecture (Average for 11 months between Apr. 2013 to Feb. 2014), Ministry of Economy, Trade and Industry Job offers-to-seekers ratio (Times) 0.31 0.31 0.46 0.57 0.97 Okinawa Labor Bureau, Ministry of Health, Labour and Welfare Land price change (residential land) Land price change (commercial land) (%, YoY) (1.5) (1.1) (0.6) 0.1 (0.6) (%, YoY) (3.8) (1.4) (0.4) 0.5 (0.5) Ministry of Land, Infrastructure and Transport Ministry of Land, Infrastructure and Transport * The number of tourists for FY2012 (nationwide) is the visitors from abroad (total number). 46
Statements contained in these materials regarding forecasts of future events are based on information known to the management at the time of writing, and do not constitute any form of guarantee of the business performance of the Bank of Okinawa. These materials have been prepared to serve as a report on the settlement of accounts of the Bank for the fiscal 2013 term, ended March 2014, as well as to provide an explanation of the Bank s future management vision: they are not intended as a solicitation of business. For further details, please contact: The Bank of Okinawa, Ltd. General Planning Department, Management Planning Group Tel: 81-98-869-1253 / Fax: 81-98-869-1464 47