Credit Risk and Credit Screening System
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 stance on each borrower accordingly. Each loan application is subject to rigorous examination from various perspectives, including the 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 mutual checking between 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.

Market Risk, Liquidity Risk, and ALM System
As financial techniques have become more advanced in recent years, market risk has assumed a greater magnitude and complexity, raising the need for reliable risk management. To manage such risk correctly, the Bank undertakes unified management combining on-balance-sheet transactions related to assets and liabilities with off-balance-sheet transactions. The Business Administrative Division quantifies market risk using risk point techniques according to basis point value. The Bank pursues profits while controlling market risk with predetermined risk parameters and loss limits.
  The ALM (Asset Liability Management) Committee has been set up as part of the Bank’s comprehensive risk management system. Based on interest rate forecasts and other factors, the Committee deliberates on and determines policies for securities investment and hedging, in an effort to ensure proper risk control and stable earnings.
  To address liquidity risk, the Bank adopts a unified approach to yen and foreign currency-denominated fund-raising opportunities. Conditions related to capital flows are reported regularly to the ALM Committee, which discusses appropriate responses.

Operations Risk
To minimize operations risk, the Bank is continually strengthening its administration and management systems by raising administrative standards, implementing measures to prevent clerical errors, and increasing the reliability and efficiency of business operations.
  Specific measures include establishment of regulations for handling each type of transaction and ensuring that processes conform rigidly to such regulations. The Bank also provides training tailored to each operation area and rank, as well as on-the-job training, to raise the level of its administrative processes.
  Reflecting its assertive efforts to enhance the reliability and efficiency of its processes, the Bank has implemented business process reengineering (BPR) reforms. It also acquired ISO 9002 certification in December 2000 for its loan document storage and management system. In addition, the Bank is upgrading its office equipment and investing in systems to increase efficiency. These include reinforcing checking functions through the use of computers.

System Risk
The Bank maintains two computer centers. The two centers operate as one system, constantly backing each other up to ensure that data is preserved if one center is damaged. To further assure system safety, communications circuits have been duplicated and data files backed up with double or triple redundancy.
  The Bank has a Contingency Plan in place to prepare for natural disasters and other emergency situations. This system enables the Bank to respond to long-term disruptions of communications circuits or online systems.

Internal Auditing System
The Auditing Division serves to investigate and audit the Bank’s internal operations. Its role is to enhance the effectiveness of risk management, prevent unlawful actions and clerical errors, and maintain and improve the soundness of the Bank’s operations. The Division is also charged with undertaking meticulous audits and providing appropriate guidance as needed. Specific activities include annual spot checks of each branch, division, and affiliated company. It also conducts unscheduled full-day branch audits.
  The Bank’s auditing system is designed to cope with the increasing diversity and complexity of risk. As such, the market and systems-related sections of the Bank are each subject to quarterly audits to assure that their respective risk management systems are functioning properly.
  In addition, the branches and divisions conduct their own audits at least once a month to prevent mistakes and irregularities and raise the level of administrative management.