Risk Governance
Basic Policy on Risk Management
The Aozora Group works on challenge areas that require focus in order to maximize economic and social value, and contributes to the development of society through the creation of new value-added financial services. To this end, we recognize risk management activities as extremely critical and position them as a foundation for our Group-wide value creation process.
Based on our corporate principles, we conduct sound risk-taking, which will lead to improved capital efficiency and future growth. This takes place within the scope set by the Board of Directors in order to enhance corporate value by balancing value creation with financial soundness. At the same time, we are recognizing the diverse risks associated with changes in the macroeconomic environment and the execution of our business operations as well as taking into consideration risks which may arise from new business. We also strive for a higher level of risk management through the establishment of a framework designed to properly identify and control individual and aggregate risks and appropriate and disciplined management based on internal rules established by risk type.
Risk Governance Structure
The Aozora Group's risk governance structure is organized into two major groups. The
first is the Board of Directors and
the Audit and Compliance Committee which is comprised of outside directors. The second major group is
the
Management Committee, which is comprised of Aozora's executive officers, and sub-committees to which it
delegates
authority.
In the normal course of business, the Management Committee and sub-committees analyze and take into
consideration risks arising from the origination of loans and investments and the delivery of services to
customers as
well as relevant business operations from a broad perspective. In addition, monitoring and reporting on the status of risks are conducted regularly or as needed by each risk management department to the Management Committee and sub-committees, which leads to our flexible and timely responses.
The status of risks is also
regularly
reported to the Board of Directors and the Audit and Compliance Committee where the appropriateness and
effectiveness of
risk management are discussed mainly by outside directors in order to ensure the effectiveness of
risk
governance.
Risk Governance Structure
Key Risks
The Aozora Group recognizes the following items in its FY2023 business operations as its key risks. We discuss our risk appetite and business planning based on key risks, and also strive for a higher level of risk management.
|
Key Risks |
Countermeasures |
|---|---|
|
Deterioration in credit quality |
Despite growing uncertainty about the future, including the risk of economic recession due to the impact of interest rate increases by central banks in multiple countries and geopolitical tensions, we will adhere to our lending and investment management policies and guidelines, carefully analyze the business risks of our borrowers, and selectively undertake high-quality projects to build a well-diversified, high-quality portfolio. We will also analyze existing transactions in a timely manner to identify warning signs and conduct proactive credit management. |
|
Decrease in value of held securities due to financial market volatility |
In an environment where the outlook is uncertain, we aim to build a securities portfolio with high liquidity and implement flexible risk control while taking into account the correlation among interest rates, equities, and credit. In addition, we have developed a framework that allows for an early and appropriate response by establishing various points to check regarding risk levels and losses. |
|
Instability of funding due to turmoil and increased volatility in the financial market |
With regard to cash flow in yen and foreign currency, we take every possible measure to secure necessary fundings to cover a range of settlements by holding adequate securities and other assets with high liquidity. In addition, we regularly perform a simulation of funding pressures as a means to test the adequacy of funds on hand to maintain our asset size and also conduct exercises aimed to test our procedures for securing funds. |
|
Outbreak of wide-scale disasters, cyberattacks, system failures and other crises |
To prevent any significant impact from natural disasters, cyberattacks, serious system failures, terrorism, armed attacks, pandemics and other threats on the Aozora Group’s operations, we strive to ensure operational resilience mainly by formulating business continuity plans (BCP), exercising a set of drills at regular intervals and developing backup sites. Our cybersecurity initiatives include the evolution of multi-layered technical defense measures, enhancement of detection capabilities and recovery drills involving both business groups and IT groups. |
|
Delays in Aozora’s structural/business transformation |
Please refer to the sections titled “New Mid-term Plan ‘Aozora 2025’ (FY2023-25)” (pages 10-15) and “Sustainability Promotion” (pages 60-63) in the Annual Report. |
|
Inadequate response to financial crimes, occurrence of internal fraud and information leaks |
We intend to develop an anti-money laundering management system and ensure the ongoing effectiveness of our response to the targets of economic sanctions as well as promote the further enhancement of these systems based on the revised Anti-Money Laundering Guidelines and the revised Foreign Exchange Inspection Guidelines. As part of our annual compliance program, we develop plans for and check the status of our training programs, monitoring, dissemination of laws, regulations, and internal rules as well as other activities. In addition, Aozora works to further instill its Code of Ethics and Conduct by delivering regular messages from top management as well as receiving written pledges from all officers and employees. |
|
Sustainability of human resources |
Any shortage and departure of employees who are capable of responding properly to the changing business environment or have skill sets required for our focus areas of business, including Aozora’s Strategic Investments Business, could pose a risk to the Aozora Group’s sustainable growth that can be achieved through the implementation of business operations and strategies. |