Risk Governance

Basic Policy on Risk Management

The Aozora Group's basic policy is to leverage its financial intermediary function as a financial institution by strengthening its business groups' business operations while promoting our strategic investments business which is designed to foster new businesses and support customers' corporate restructuring as well as customers' growth and business recovery initiatives. We prioritize strong risk management as a critical support base for our group-wide value creation activities.
Based on its corporate principles, the Aozora Group makes sound risk-taking within the scope set by the Board of Directors in order to enhance corporate value by balancing value creation with financial soundness while also recognizing the diverse risks associated with the execution of its operation as well as taking into consideration risks which may arise from new businesses. We have also established a framework designed to properly identify and control individual and aggregate risks, with which we strive for a higher level of risk management in accordance with internal rules established by risk category.

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 are primarily comprised of outside directors. The second major group is the Management Committee, which is mainly comprised of Aozora's executive officers, and subcommittees to which it delegates authority.
In the normal course of business, the Management Committee and subcommittees 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 multifaceted perspective. In addition, the status of risks is monitored and reported regularly or as needed, 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 and reviewed mainly by outside directors in order to ensure the effectiveness of risk governance.

an image about Risk Governance Structure an image about Risk Governance Structure

Key Risks

In FY2021 business operations, among multiple risk factors identified in our business environment, the Aozora Group recognizes the following items as its most significant risks (i.e. risks that pose the highest risk and potential impact for management in the coming year). We focus on key risks when discussing our risk appetite and business planning, and also develop countermeasures that provide for effective monitoring and flexible responses.

Key Risks

Countermeasures

Deterioration of credit quality,
decrease in the value of securities portfolio

Aozora maintains its selective origination policy regarding investment/loan transactions while carefully analyzing business risk and considering the diversification of its investment/loan portfolio. The Bank also continues to perform predictive control within its Business Groups, Risk Management Group and senior management. In addition, the Bank conducts capital control, including stress testing, based on a set of established guidelines designed to limit credit risk concentrations.
For risk related to the securities portfolio, the Bank works to establish an efficient portfolio with high liquidity comprised of a balanced mix of risks including interest rate, equity and credit risk, in addition to flexible risk control in light of market conditions and the financial environment.

Unstable foreign currency funding

Aozora has worked to develop a framework that ensures a sufficient level of liquidity available under stressed conditions along with monitoring and verification through periodic stress testing. The Bank also continues to work towards long-term and stable foreign currency funding, including the ongoing issuance of foreign currency dominated bonds.

Delay in Aozora’s structural/
business transformation

Amid the current historic turning point for the industrial structure, Aozora will strive to contribute to society through proactive risk-taking, as a financial partner with a deep understanding of our customers’ business, in order to foster new business and support corporate restructuring and business recovery while promoting Aozora’s Strategic Investments Business.

IT Risk

In terms of cybersecurity measures, the Bank intends to continuously train cybersecurity personnel and maintain a required level of cybersecurity while effectively implementing entry/exit measures against targeted cyberattacks and internal measures, including more strengthened monitoring of unauthorized access, as well as practical training for system recovery from ransomware and other attacks.
For responses to critical system failures, the Bank promotes efforts to ensure a sufficient level of verification when performing system updates and has developed a framework that enables the proper guidance of and response to customers in the event of a system failure.

Anti-money laundering, anti-
terrorism financing and transactions with anti-social elements

In accordance with its annual compliance program designed to maintain and improve compliance awareness among Aozora’s officers/employees, the Bank plans initiatives to further their understanding of laws and internal rules, conduct monitoring and training, and check the progress of the program. The Bank also works to improve its framework to manage transactions, including continued customer control, as part of its anti-money laundering and anti-terrorism financing measures.

Mismatch of personnel to business

The introduction of a new human resources system enables Aozora to eliminate the barriers of age and restrictive career courses and appoint specialized personnel as a financial group that continues to take on new challenges as one unified team.

Climate change

For details, please refer to "Sustainability" (Annual Report, pages 36-53).