Risk Management

Credit Risk and Credit Screening System
Credit risk arises when borrowers’ businesses collapse or business conditions deteriorate, causing the Bank to suffer losses due to the difficulty in recovering the principal and interest on loans.
   To improve the soundness of its assets, the Bank maintains a meticulous credit screening and management system, having traditionally separated such functions from those of other divisions.
   During the screening process, the Bank makes comprehensive evaluations based on quantitative and qualitative criteria, including consideration of the borrower’s financial condition, characteristics of the borrower company and its growth potential, and analyses of industry trends.
   In April 1998, the Bank introduced a credit rating system, which assigns a rating to each borrower and determines the Bank’s transaction policy vis-à-vis that borrowers accordingly. Each loan application is subject to rigorous examination from various perspectives, including appropriateness of the borrower’s business plan, proposed use of funds, sufficient resources for loan repayment, and collateral and other measures to preserve the integrity of the loan. The Credit Supervision Division conducts detailed credit evaluations and provides guidance to branches. These include separate inspections based on region, business group or industry, and specific customers.
   Credit management is supported by a reliable, efficient system in which the Credit Supervision Division manages financial and credit rating data systems and integrates real estate collateral valuation data.
   Since the fiscal year ended March 1998, banks have been charged with the duty of conducting self-assessments. The Bank is continually upgrading its self-assessment system through independent auditing by the Self-Assessment Supervision Department, which helps reinforce the system of checks and balances in the branches and the Credit Supervision Division. Moreover, external corporate auditors are brought in to ensure that the Bank has appropriate self-assessment standards and that assessments are being properly conducted according to those standards.

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