Management of Risk Appetite Framework

While the banking sector continues to experience significant changes in its operating environment, Aozora remains committed to sustainably increasing its corporate value. In keeping with this commitment, we are focused on sound risk-taking while implementing effective risk controls through proper awareness of our business environment and potential risks. Aozora has established a risk appetite framework for business management that clearly identifies the type and level of risks (risk appetite) it assumes to achieve its business strategies and financial plans.

In FY2023, we decided to fundamentally address two balance sheet issues: exposure to U.S. non-recourse office loans and the restructuring of the securities portfolio, with the goal of reducing future potential risks and establishing a better foundation for future growth.

In the course of developing the management plan for FY2024, the Board of Directors discussed how to make the risk appetite framework clearer from the perspective of enhancing risk governance. We established the following basic risk appetite policy “The Aozora Group will strive to generate sustained and steady returns through sound risk-taking, thereby enhancing its capital and achieving corporate growth, with a view to realizing our management philosophy: ‘Contribute to the development of society through the creation of new value-added financial services.’”

Concurrently, we also established the Risk Appetite Policy. This policy clearly re-establishes the type and level of risks Aozora will assume, along with the risks that it will control.

We will work to reduce the exposures and risks associated with U.S. non-recourse office loans through debt collection. For securities portfolio management, we will limit the exposure of securities to a level where any losses incurred during times of stress can be absorbed by our financial strength.

Meanwhile, we will allocate additional managerial resources to Aozora’s Strategic Investments Business and further implement initiatives to support Fostering, Change, and Recovery of customers’ businesses and assets.

Under the governance of the Management Committee, which is the highest decision-making body for business execution, and various committees, Aozora manages business operations in accordance with a management plan that reflects its risk appetite. Monitoring and reporting on the status of operations are provided to the Management Committee and various committees periodically and as needed. Appropriate actions are taken promptly, such as confirming whether or not the risk profile falls within the scope of the risk appetite. In addition, the monitoring results are periodically reported to the Board of Directors and the Audit and Compliance Committee. Outside directors lead discussions about the appropriateness and efficacy of risk management, thereby ensuring the effectiveness of risk governance. Through these and other measures, we strive to lay the groundwork for steady and sustained earnings.

Through our recently announced capital and business alliance with Daiwa Securities Group Inc., we will restore our risk tolerance, efficiently control and use managerial resources, and practice sound risk-taking, with the aim of further increasing our corporate value.