CJL K.K. (formerly Citibank Japan Ltd.)
Annual Report For the Fiscal Year Ended March 31, 2017
Table of Contents
Company Overview 1
Our History 4
Management Strategy 5
Business Outline 7
Risk Management Framework 14
Compliance Framework 16
Diversity and Citizenship Activities 17
List of Locations in Japan 18
Financial Information under Japanese GAAP 19 For the Fiscal year ended March 31, 2017 1. Matters Related to Principal Business
2. Financial Statements
3. Market Value Information
4. Major Shareholders
5. Disclosure Items Based on Pillar 3 of Basel III
Note: Citi transferred the entire business operations and personnel of Citibank Japan Ltd. to a newly established Tokyo branch of Citibank, N.A., a U.S. national association, at the end of the day on March 31, 2017. From and after April 1, 2017, Citi conducts its banking business in Japan solely through Citibank, N.A., Tokyo Branch (Representative in Japan, Branch Manager & CEO: Anthony P. Della Pietra, Jr.).
Company Overview
Company Profile
Company Name Citibank Japan Ltd. (“Citibank Japan”) Head Office Address Shin-Marunouchi Building, 5-1, Marunouch 1-Chome, Chiyoda-ku, Tokyo, 100-6520 Bank Code 0401 Head Office Branch Code 730 Telephone Number 03-6897-5000 Commencement of Operations July 1, 2007 (International Banking Corporation, a predecessor to Citibank, opened its Yokohama branch in October 1902) Business Overview As one of Citi's core entities in Japan, Citibank Japan is engaged in a range of corporate banking, lending, transaction services and markets businesses on behalf of institutional clients. Number of Employees 482 Number of Locations 4 (Head Office, Higashi Shinjuku, Osaka, Okinawa)
Directors and Statutory Auditors Representative Director, President Anthony P. Della Pietra, Jr. Director, Chairman Tatsuo Tanaka Director Koichi Tanaka Director Phee Boon Kang Director Ryozo Hayashi Statutory Auditor (full-time, outside) Mamoru Sato Statutory Auditor (outside) Toshiaki Kawashima Statutory Auditor Hiroto Sakai
Executive Officers CEO Anthony P. Della Pietra, Jr. Deputy President and Chief Administrative Officer Koichi Tanaka Deputy President and Head of Corporate Banking Jason Rekate Division Head of Transaction Services Division Ravi Saxena Head of Transition Management Office Division Hari Iyer Head of Corporate Planning Division Hiroaki Nigo General Counsel Akimoto Kawamura Deputy General Counsel Yasuto Hashinaga Head of Compliance Division Koichi Tanaka Head of Finance Division Nicholas Koukoumelidis Head of Risk Management Division Rajesh Paradkar Head of Human Resources Division Joel Fastenberg Head of Operations & Technology Division Shankar Ramasami Chief Auditor Yuichi Ito (As of March 31, 2017)
CJLK.K. (formerly Citibank Japan Ltd.) 1
Organizational Structure
(As of March 31, 2017)
Financial Summary (From 09/2014 to 03/2017)
(Billions of Yen) 09/2014 03/2015 09/2015 03/2016 09/2016 03/2017 Ordinary income 32.1 66.3 35.0 53.2 16.4 33.3 Ordinary profit (loss) ᇞ2.8 ᇞ3.4 0.6 ᇞ2.4 0.9 1.7 Total Assets 5,267.0 5,057.2 5,718.6 3,404.3 2,913.3 246.7 Deposits 3,897.4 3,924.8 4,274.7 1,985.2 1,650.7 - Total Net Assets 254.9 252.3 250.5 276.3 250.8 244.7 Capital Stock 123.1 123.1 123.1 123.1 123.1 123.1 Capital Adequacy Ratio 23.90% 30.26% 30.94% 38.29% 42.13% 423.35%
Credit Ratings (As of March 31, 2017) Moody's S&P Fitch Rating Outlook Rating Credit Watch Rating Outlook Citigroup Inc. Long Term Baa1 Stable BBB+ Stable A Stable Citibank, N.A. Long Term A1 Stable A+ Stable A+ Stable
Footnote: All credit ratings of Citibank Japan Ltd., a locally incorporated bank subsidiary of U.S.-based Citigroup Inc. were withdrawn at the request of Citibank Japan Ltd., upon the transfer of all its banking operations and personnel to a newly formed Tokyo branch of U.S.-based Citibank, N.A., a subsidiary of Citigroup, at the end of the day on March 31, 2017.
For further details, please refer to Citigroup Credit Ratings at
http://www.citigroup.com/citi/investor/rate.htm
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Deposit Insurance
Citibank Japan (“Citibank Japan”) has its head office located in Japan and is a member of the Deposit Insurance Corporation (DIC). Pursuant to the Deposit Insurance System, non-interest-bearing Yen deposits for payment and settlement purposes accepted by Citibank Japan are protected in full per depositor; and interest-bearing Yen deposits accepted by Citibank Japan are protected up to a maximum of 10 million yen in principal plus related interest thereon per depositor. (Note) As of end of March, Deposit insurance system protection was no longer covered.
Bank Agency Service
Not Applicable
Foreign Bank Agency Service
Name of Affiliated Foreign Citibank, N.A. Bank Offices of Bank Agent Citibank Japan Head Office and Osaka Branch Service Coverage - Intermediation for acceptance of deposits or installment savings, etc.; - Intermediation for making of loans or discounting and negotiation of bills/notes; - Intermediation for exchange transactions; - Intermediation for issuance of bank guarantee and acceptance of bills/notes; and - Intermediations for other ancillary services associated with acceptance of letters of credit (“LC”) and other services relevant to LCs, etc.
Designated Dispute Resolution Organization for CJL
Japanese Bankers Association (“JBA”) Contact for consultation and exchange of views: JBA Customer Relations Center 0570-017109 or 03-5252-3772
CJL has concluded a Basic Contract for Implementation of Dispute Resolution Procedure with JBA, the Designated Dispute Resolution Organization under the laws and regulations. JBA runs the JBA Customer Relations Center as a contact point to which customers can go for consultation and inquiries or to which they can direct their opinions and complaints about banks. Refer to the JBA website for more information. http://www.zenginkyo.or.jp/adr/ * JBA Customer Relations Center’s services are available only in Japanese.
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Our History
1812 City Bank of New York established.
1902 International Banking Corporation opened its first branch in Yokohama.
1923 International Banking Corporation opened Tokyo Branch (temporarily closed in 1941, reopened in 1946).
1973 First National City Corporation is listed on Tokyo Stock Exchange (delisted in 1998 with the merger between Citicorp and Travelers Group).
1974 First National City Corporation holding company changes its name to Citicorp.
1980 Decades of innovation and expansion lead to Citibank having operations in 90 countries.
1998 Citicorp and Travelers Group merge to form Citigroup Inc.
2007 Citibank Japan Ltd. commences operations as a locally incorporated bank.
2012 Citi celebrates its 200th anniversary globally and its 110th anniversary in Japan.
2016 Citi expands its global Desk Network with opening of new desks in Vietnam and Mexico.
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Management Strategy
Citi’s Value Proposition: A Mission of Enabling Growth and Progress
Citi's mission is to serve as a trusted partner to our clients by responsibly providing financial services that enable growth and economic progress. Our core activities are safeguarding assets, lending money, making payments and accessing the capital markets on behalf of our clients. We have 200 years of experience helping our clients meet the world's toughest challenges and embrace its greatest opportunities. We are Citi, the global bank – an institution connecting millions of people across hundreds of countries and cities.
We work with companies to optimize their daily operations, whether they need working capital, to make payroll or export their goods overseas. By lending to companies large and small, we help them grow, creating jobs and real economic value at home and in communities around the world. We provide financing and support to governments at all levels, so they can build sustainable infrastructure, such as housing, transportation, schools and other vital public works. These capabilities create an obligation to act responsibly, do everything possible to create the best outcomes, and prudently manage risk. If we fall short, we will take decisive action and learn from our experience.
We strive to earn and maintain the public's trust by constantly adhering to the highest ethical standards. We ask our colleagues to ensure that their decisions pass three tests: they are in our clients' interests, create economic value, and are always systemically responsible. When we do these things well, we make a positive financial and social impact in the communities we serve and show what a global bank can do.
Citibank Japan Management Strategy
Citibank Japan has a long and distinguished history serving institutional clients in Japan. We have a proud legacy of developing innovative relationship-driven solutions for our clients and delivering the power of Citi’s global network to meet their needs.
Citibank Japan aims to be the leading global bank for a select set of Japan’s leading multi-national companies and institutions, as well as the leading global bank serving Citi’s non-Japanese multi-national and institutional clients with operations or investments in Japan. Citibank Japan focuses on providing comprehensive global relationship management services to a targeted set of Japan’s largest multi-national companies and institutions. We coordinate and leverage Citi’s broad range of products and services, together with Citi’s unrivaled global network, in order to support the growth ambitions of our clients in Japan and around the globe.
Our core set of product and services at Citibank Japan is offered by three product groups that work closely with one another and with our relationship managers to serve our clients: Transaction Services Division (Cash Management, Trade, and Securities Services), Markets Division (Foreign Exchange and Markets Treasury), and Corporate Finance and Real Estate Department (Structured Finance, Real Estate Finance, Acquisition Finance, Syndicated Lending). Widely recognized as an industry leader, Citibank Japan has been consistently ranked at the top of major industry surveys, in particular for transaction services and foreign exchange.
We have further strengthened our capability to support our Japanese clients around the globe through “Japan Desks” offering exclusive relationship management efforts by experienced Japanese bankers. We have recently expanded the network to 11 countries. Many of these Japan
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Desks provide coverage to neighboring countries and jurisdictions. Our client support structure has become increasingly more available pan-regionally around the globe, covering North and South America, Europe, Middle East, Africa, and Asia. Citi’s Japan Desk Network is an unrivaled and unique service to our clients.
Citibank Japan is committed to providing a working environment where its employees can thrive and achieve their full potential. By attracting and training the best people, and providing them broad career development opportunities at every level, we aim to foster an environment where employees are able to provide our clients with outstanding financial products, services and advice that fit their needs over the long term.
Citibank Japan is proud of its contributions to a broad range of diversity and community initiatives. Our community activities focus broadly on improving access to financial education, assisting those with disabilities, and promoting environmental and social sustainability, as well as development of the communities in which we operate.
Note As of the end of the day on March 31, 2017, Citi transferred all the operations and personnel of Citibank Japan Ltd., a locally incorporated bank subsidiary, to a newly established Tokyo Branch of Citibank, N.A.. Beginning April 1, 2017, Citi’s banking operations in Japan are conducted exclusively from Citibank, N.A., Tokyo Branch.
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Business Outline
Corporate Banking Division
In corporate banking, Citibank Japan focuses on providing comprehensive global relationship management services to a targeted set of Japan’s largest multi-national companies and institutions. We coordinate and leverage Citi’s broad range of products and services, together with Citi’s unrivalled global network, in order to support the growth ambitions of our clients both here in Japan and around the globe. Citibank Japan’s Corporate Banking Division, located in Tokyo and Osaka, focuses on delivering innovative relationship-driven solutions for our clients’ needs related to both their day-to-day operations and their strategic business objectives.
Corporate Banking Division has a client group consisting of relationship managers and a product group responsible for Corporate Finance product development and offering. Citibank Japan also has product groups in Transaction Services Division and in Markets Division. The client group and product groups together provide solutions to diversified client needs. Each client group and product group coordinates across the respective global network within Citi, which enables us to build comprehensive relationships with our clients and their affiliates both in Japan and overseas. We, also, provide financial advice matching with each client’s business strategy based on our experience and expertise developed in global financial markets. This ability has been the unique and unrivalled strength of Citi.
Our client coverage model consists of 5 departments: Global Corporates Dept., Financial Institutions Dept., Public Sector Dept., Global Subsidiaries Group Dept. and Corporate Finance & Real Estate Dept. Each client coverage department is committed to serving the unique needs of their client set, by combining information and services with specialized Industry insight. By combining a deep understanding of each client’s unique needs with a view of key industry trends, we are in a position to tailor structured solutions to help our clients meet their growth ambitions. We focus on responding to our clients’ various day-to-day needs, as well as strategic business objectives by offering financing alternatives in an effort to build and further deepen long term relationships.
In coordination with "Japan Desks" which operate within Citi's affiliates abroad, the Corporate Banking Division has strengthened Citibank Japan’s capability to support our Japanese clients around the globe. These "Japan Desks" are located in 11 countries and offer exclusive relationship management efforts by experienced Japanese bankers. These Japan Desks also provide coverage to neighboring countries and jurisdictions. The Japan Desk network has become increasingly more available pan-regionally around the globe, covering North and South America, Europe, Middle East, Africa, and Asia. Citi’s Japan Desk Network is an unrivalled and unique service for our clients. Japan Desk bankers leverage their vast experiences in Japan, continue to build and further deepen great relationships with our clients and colleagues around the globe, and support our clients to meet their financial needs.
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Global Relationship Management
Financial Advice
Managing Risks Raising Money
Corporate Finance Global Markets Acquisition Finance & Syndication Lending
Investing Money Transaction Services Moving Money
< Japan Desk Locations>
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● Japan Desk Locations Citi’s Japan Desks around the World (As of March 31, 2017)
United Kingdom (London) Singapore
Russia (Moscow) China (Beijing, Shanghai)
India (Chennai, Delhi) United States (New York)
Thailand (Bangkok) Mexico Indonesia (Jakarta) United Arab Emirates (Dubai)
Vietnam (Ho Chi Minh)
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Transaction Services Division
The Transaction Services Division provides various products and services in the Treasury and Trade Solutions (TTS) and Securities Services (SS) businesses. Our services integrate cash management, trade finance, and securities services to multinational corporations, financial institutions and public sector clients in Japan and around the world.
Transaction Services is closely aligned with three important on-going trends - globalization, urbanization and digitization – and as the business world continues to internationalize and our clients continue to expand globally, we have been stepping up support to assist our Japanese and other global clients expand. Likewise, our inbound business supporting the Japanese subsidiaries of our international clients is central to our global business model.
Capabilities Leveraging the industry's largest proprietary network, we serve both the local and cross-border interests of clients. As Japanese companies continue the process of rapid globalization, Citi is positioned to be their partner and Global Bank. The Transaction Services Division is part of Citi’s global network servicing clients in 98 countries and top cities around the world.
Experience Transaction Services is part of Citi’s legacy in Japan which dates back over 110 years to when we opened our first Japanese branch. We strive to be a trusted advisor to our clients on industry issues such as local securities markets, emerging markets, settlement risk, receivables and payment processes, securities infrastructure and technology integration, regulatory organizations and third-party partners.
Innovation Our on-line portal, CitiDirect BE, and its mobile/tablet version are examples of Citi’s investments in innovation that add to our offering of solutions in Japan. We have introduced a Japanese language version of our mobile smart phone application and tablet version, and we provide our clients in Japan with treasury analytics and technology tools to enhance their efforts to effectively manage their businesses.
< Major Business Activities >
Treasury and Trade Solutions Citi serves our clients as an industry leader in cash management solutions. With 232 connections to cash clearing systems across the globe, Citi has a global infrastructure providing a wide range of innovative financial solutions. Our extensive network of qualified banking professionals provides a combination of local knowledge and global expertise to help meet clients’ strategic business goals.
Citi's portfolio of global cash management products offers tailored solutions to help manage collection and payment processes by establishing interfaces between the client’s treasury system and Citi's payment systems.
Trade Finance and Services Unit provides web-based, simple and quick supplier financing services not only for domestic purchases in Japan but also for purchases in foreign countries. Various risk-hedge solutions are provided to clients’ exports to help them effectively manage their risk and supply chains.
In addition to traditional financial support for exports and investments from Japan, our Export & Agency Finance Unit provides new services such as medium-long term loans for overseas Japanese subsidiaries’ exports to emerging markets and agricultural commodities imported by our clients in Japan.
Securities Services In Securities Services, Citibank Japan supports foreign investors’ investment in Japanese securities through our extensive custody services platform. In addition to these traditional services, the introduction of innovative Third Party Clearing offerings allow our resident intermediary clients to focus on what matters most, to grow the core businesses through our clearing and settlement outsourcing
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solutions. Our proprietary network is the largest in the industry with direct access in over 60 markets globally, unparalleled by any global custodians as well as sub-custodian networks.
Recent Global and Local Accolades and Awards Global Finance Best Treasury and Cash Management Provider Award 2017 Global Best Overall Bank for Cash Management (6th consecutive year) Global Best Bank for Liquidity Management Global Best Bank for Working Capital Optimization
Global Finance Best Supply Chain Finance Providers Award 2017 Global Best Supply Chain Finance Provider Global Best Integrated, Trade, Supply Chain Finance and Cash Management Solutions
Global Finance World’s Best Digital Bank Award 2016 Best Corporate/Istitutional Digital Bank Overall Global Best Digital Bank
Best Corporate/Institutional Digitial Bank Award Best Online Cash management Best Integrated Corporate Banking Site Best Information Security Initiatives Best Online Treasury Services Best Mobile Banking Best Mobile Banking App Best Corporate/Istitutional Digital Bank – Asia Pacific
Euromoney Awards for Excellene 2016 World’s Best Bank for Transaction Services Best Bank for Transaction Services – Asia Pacific
The Banker – Transaction Banking Award 2016 Best Trade Finance Bank
Global Finance Best Trade Finance Providers Award 2016 Global Best Bank for Trade Finance Global Best Bank for Structured Trade Finance
TMI(Treasury Management International) Awards for Innovation & Excellence in Treasury Management 2016 Global Bank of the Year for Cash & Liquidity Management Best Bank Award for Cash & Liquidity Management for Asia Pacific Best Bank Award for Payments & Collections for Asia Pacific
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Markets Division
The Markets Division consists of two departments, Market Sales and Markets Treasury. The Market Sales Department conducts foreign exchange and derivatives transactions for the customers of the Corporate Banking Division and the Transaction Services Division. The Markets Treasury Department leverages Citigroup’s extensive international network to provide money market transactions in various currencies, for liquidity management in order to help meet the customers’ funding and investment needs.
The Markets Division focuses on market trades and aims to build a robust transaction platform for customers and provide them valuable market information.
The Corporate FX Sales unit leverages Citigroup’s international network and global resources to deliver real-time information to customers. It also provides various types of risk-management related advice and foreign exchange transaction support, building on its well-established and powerful presence in the foreign exchange market. The Corporate Derivative Sales unit offers a wide range of derivatives solutions to customers, in order to address their diverse hedging needs.
The Markets Treasury Department provides money market transaction in various currencies in order to help meet the customers’ funding and investment needs. Also, as a funding department for CJL it ensures appropriate liquidity management and conducts banking account balance management as part of the comprehensive risk management framework.
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List of Citibank Japan’s Major Activities
Citibank Japan provides the following services:
1. Acceptance of Deposits Current deposit, savings deposit, time deposit, negotiable certificate of deposit, foreign currency deposit, etc.
2. Fund Lending etc. Loan on bills, loan on deeds, overdraft, discount of commercial bills, etc.
3. Fund Transfer, etc. Outward/inward remittance, fund transfer and collection of payment
4. Foreign Exchange, etc. Foreign exchange transactions (including foreign currency sales and purchase)
5. Others (1) Guaranty of liabilities (acceptance of payments), issuance of letter of credit and acceptance of bills (2) Arrangement for syndicated loan (3) Trade finance (purchase of trade notes, etc.) (4) Investment / Trading in securities (Japanese government bonds, etc.) (5) Acquisition or transfer of monetary claims, and securitization related services (6) Handling of receipt of money and other affairs pertaining to money of Government of Japan, local public authorities, and companies, etc. (7) Dealing in financial derivatives (interest rate, currency, etc.) (8) Safekeeping and transfer of securities, etc. (9) Brokerage for clearing of securities, etc. (10) Handling of private placement of securities (11) Money Exchange (12) Foreign Bank Agency Service (13) Transaction service for electronically recorded monetary claims
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Risk Management Framework
Risk Management Structure
Citibank Japan’s risk management framework balances strong corporate oversight by the Board of Directors with well defined oversight roles and responsibilities amongst the Control functions covering the various risk types.
Citibank Japan has the following three layers of risk management and controls:
1) Risk ownership by the business divisions 2) Oversight by the control functions 3) Independent assessment by Internal Audit
All three layers of control work together to achieve Citibank Japan’s shared goals with the following particular items:
To maintain a highly effective control environment and to establish efficient, proactive risk management; and To foster appropriate solutions for our clients and to facilitate business growth in accordance with agreed strategic goals and within the risk management framework of Citibank Japan
Citibank Japan’s “Comprehensive Risk Management Policy”, which is approved by the Board of Directors, defines the bank’s risk management structure, and its “Comprehensive Risk Management Rules” defines the bank’s risk management procedures. Citibank Japan adopts a comprehensive risk management approach and a Comprehensive Risk Manager who oversees risks will ensure that Management Committee and the Board of Directors are kept advised of the risks of and to Citibank Japan in a comprehensive management.
Types of risk to be managed
Citibank Japan identifies credit risk, market risk, liquidity risk, and operational risk as major risks, each of which is subject to its own risk management framework.
Credit Risk
1. Structure of Credit Risk Management: Credit risk is the risk of loss arising from decline in asset value attributable to deterioration of obligor’s credit condition. It includes the risk of difficulty to collect principal and interest due to default of obligor and decline in credit value due to increase of reserves arising from deterioration of obligor’s credit condition. Citibank Japan comprehensively manages its credit risk in the corporate banking business pursuant to the bank’s “Credit Risk Management Policy”. Citibank Japan also follows Citi’s “Institutional Client Group Risk Management Manual” as part of its credit risk management framework. Furthermore, the bank’s Credit Risk Management Committee (“CRMC”), which is led by the Head of the Risk Management Division, oversees Citibank Japan’s overall credit risk management efforts, including the self-assessment of assets.
2. Procedure of Credit Risk Management: Citibank Japan manages credit risk based on obligor analysis and whole portfolio analysis, monitoring concentration of credit to certain industries, ratings, obligors on relationship basis and delinquency trend of a portfolio. Such portfolio view of our credit exposures is reviewed and reported to the Credit Risk Management Committee in a timely manner.
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Market Risk / Liquidity Risk
1. Structure of Market Risk / Liquidity Risk Management: Market risk is the risk of loss as a result of a change in the value of assets and liabilities due to changing market prices. Liquidity risk is the risk of loss as a result of Citibank Japan finding it difficult to secure necessary funds and to meet liquidity obligations due to a rise in funding cost, a mismatch between the maturities of assets and liabilities or an unprecedented outflow of funds. Within Citibank Japan, market risk and liquidity risk management structures are established and operated in accordance with the bank’s “Liquidity Risk Management Policy” and related management policies and procedures. Furthermore, Citibank Japan’s Asset Liability Committee (“ALCO”), which is chaired by the President and co-chaired by the Head of the Corporate Treasury Department, oversees market risk and liquidity risk, monitors Citibank Japan’s accrual portfolio and trading portfolio, and manages the bank’s balance sheet and capital adequacy.
2. Procedure of Market / Liquidity Risk Management: The Market Risk Management Department captures consolidated profiles of interest rates and durations of the financial assets and liabilities, performs risk monitoring process using gap analysis and interest rate factor sensitivity analysis, and reports the result to the ALCO meeting on a regular basis. Citibank Japan’s market risk amount is measured by Value-at-Risk (“VaR”) method quantitatively, which is also used to measure the effectiveness of compliance with established guidelines. ALCO oversees liquidity risk by monitoring various liquidity ratios such as Large Fund Provider concentration ratio and the Total Customer Deposits / Total Customer Loans ratio. ALCO also monitors whether there is sufficient liquidity to meet all maturing obligations within 12 months under the Highly Stressed Market Disruption stress scenario.
Operational Risk
1. Structure of Operational Risk Management: Operational risk is the risk of loss as a result of inadequate or failed internal processes, systems, or human factors, or from external events. It includes reputation and franchise risk associated with business practices or market conduct. It also includes the risk of failing to comply with laws, regulations, ethical standards, regulatory administrative actions or internal policies. To comprehensively manage operational risk, Citibank Japan has adopted policy which clearly defines the control processes for the relevant risks, as well as assessment and reporting procedures. Citibank Japan separately manages its Jimu risk and systems risk in accordance with established policy. Moreover, Citibank Japan’s Operational Risk Management Unit under the Risk Management Division is responsible for comprehensive operational risk management across the bank. The status update of operational risk management is reported to Business Risk, Compliance & Control Committee (“BRCC”), and Jimu risk and systems risk are regularly reported to the System and Operations Committee (“SOC”).
2. Procedure of Operational Risk Management: Citibank Japan uses a Manager’s Control Assessment (“MCA”) program as a tool to manage “significant" operational risks. The MCA is used to self-assess key operational risks and controls and identify and address weaknesses in the design and/or effectiveness of internal controls that mitigate significant operational risks. Corrective actions are monitored continuously for full implementation. Results of the MCA are reported to management through the BRCC on a regular basis.
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Compliance Framework
Basic Policy
As a bank, Citibank Japan fully recognizes the importance of its social responsibilities and the public nature of its business. We understand that conducting business with fairness and integrity based on Citi’s Code of Conduct and in compliance with laws and regulations, etc. is the basic principle of our management.
Compliance Management Framework
The Compliance Division covers compliance related matters and is independent from the bank’s businesses. The Compliance Division consists of four units: (i) Corporate Banking Compliance Unit, (ii) Anti-Money Laundering Compliance Unit, (iii) Infrastructure Unit and (iv) Compliance Testing Unit. The Corporate Banking Compliance Unit is responsible for compliance matters relevant to the conduct of the bank’s businesses, the AML Compliance Unit covers matters relevant to anti-social forces and the prevention of money laundering, and the Infrastructure Unit is responsible for matters relevant to overall operations. The Compliance Testing Unit is responsible for testing to assure that controls over compliance matters are reasonably designed and functioning effectively. The Compliance Division owns the Code of Conduct and, in accordance with the Compliance Policy, promotes compliance and cultivates a compliance mindset, through the following activities among others:
Advice and support related to Compliance Creation and execution of internal rules related to Compliance Oversight of the development and maintenance of adequate risk management systems related to Compliance Education and training related to Compliance Monitoring of legal and regulatory developments that affect the bank Oversight of the development and maintenance of adequate risk management systems related to Anti-Money Laundering activities, including customer identification and matters related to Anti Social Forces Conduct of Compliance Testing
The Compliance Division reports compliance related issues and compliance status to the Business Risk, Compliance and Control Committee and the Management Committee on a regular and ad-hoc basis. Material issues are escalated to the Board of Directors through the Management Committee.
Preventive Measures against Anti-Social Forces and Money Laundering
Citibank Japan considers that preventive measures against anti-social forces and money laundering are one of the most important parts of legal compliance as a financial institution with public nature, and has continued its efforts to establish a proper prevention framework.
Measures against Compliance Breaches
It is the responsibility of each of the bank’s directors and employees to comply with the Code of Conduct, which provides an overview of the key policies and conduct standards applicable to all bank staff. We strongly encourage employees to raise concerns or questions regarding ethics and applicable laws, regulations and policies, and to report violations and suspected violations in accordance with the relevant internal policies. We believe that it is critical to identify issues at an early stage and proactively resolve those issues in order to maintain the highest standards of conduct required at a financial institution. Citibank Japan has established, in addition to the standard reporting procedures, an Ethics Hotline in order to properly take measures for a violation or a suspected violation of legal compliance.
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Diversity and Citizenship Activities
Citibank Japan pursues Citizenship activities in alignment with Citi’s global policies and priorities. We embrace the responsibility, as a socially responsible financial group, to make a difference in the community and to promote environmental and social sustainability by building positive relationships with customers, employees and their families, the community, and other stakeholders. Through our Citizenship activities, we respond to corporate governance and compliance initiatives and also reinforce our commitment to Financial Education, Community Development, the Environment, Disaster Relief, and Diversity with employees from various backgrounds and nationalities.
Financial Education Environment Citi's philosophy provides that, with financial education, We undertake various environmental activities by everyone has the chance to make their dreams come mobilizing our employees to act for the benefit of the true. Citi feels that this creates a need for financial earth and future generations. We aim to reduce our education programs so that the next generation of environmental footprint by embedding eco-friendly children can learn not just about money and the practices into our business and implementing green economy, but also how to think effectively, and building practices. ultimately plan their careers and lives in order to realize their dreams. Citi supports the environment in three key areas
Environment Conservation Activities Environmental and Social Risk Management Environmentally Sustainable Operations
Community Development Disaster Relief Citi values its relationships with the community where In addition to on-going philanthropic efforts, when its employees and their families live and work. By disaster strikes, Citi strives to support the victims of organizing and participating in fundraising events, by natural catastrophes in a timely and compassionate helping out with community bazaars and by manner. In support of relief activities both locally and undertaking various other volunteer efforts, we foster in conjunction with global efforts, Citi employees give our relationship with the community. We fulfill our social their own time and resources to bring some order to responsibility by committing not only donations but the lives of those affected. Citi in Japan supports also by participating in programs as volunteers. employee efforts by matching monetary donations and helping organize non-monetary relief. Children in Need Community in General People with Disabilities Tohoku
Diversity We see diversity as a source of strength. Therefore, we have made it a priority to foster a culture where the best people want to work, where people are promoted on their merits, where we value and respect others and where opportunities to develop are widely available to all - regardless of differences. We encourage our employees to participate and take responsibility for their engagement in diversity activities, internally and externally, which adds to the richness of the society in which we live.
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List of Locations in Japan
As of March 2017
Locations (Head Office, Higashi-Shinjuku, Osaka, Okinawa) Total：4
Head Office Shin-Marunouchi Building, 1-5-1, Marunouchi, Chiyoda-ku, Tokyo
Osaka Branch Midosuji Diamond Bldg., 2-1-2, Nishi-Shinsaibashi, Chuo-ku,Osaka-shi, Osaka
Yamabuki Branch Shinjuku Eastside Square 6-27-30 Shinjuku, Shinjuku-ku, Tokyo
Higashi-Shinjuku Sub-Branch Shinjuku Eastside Square, 6-27-30 Shinjuku, Shinjuku-ku, Tokyo
Okinawa Sub-Branch Tomari Port Terminal Bldg., 3-25-1 Maejima, Naha-shi, Okinawa
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Financial Information under Japanese GAAP For the fiscal year ended March 31, 2017
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1. Matters Related to Principal Business
< Business Overview>
Results of Operations for Fiscal Year ended March 31, 2017
Net loss for the year ended March 31 was 4.6 billion yen 2017, compared to net income of 25.6 billion yen for the prior fiscal year.
Ordinary income totaled 33.3 billion yen, down by 19.9 billion yen from the prior fiscal year.
Interest income totaled 16.8 billion yen, down by 3.1 billion yen from the prior fiscal year. Fees and commissions totaled 11.0 billion yen, down by 6.1 billion yen from the prior fiscal year. Trading income totaled 0.1 billion yen, down by 0.3 billion yen from the prior fiscal year. Other ordinary income totaled 2.5 billion yen, down by 12.0 billion yen from the prior fiscal year. Other income totaled 2.8 billion yen, up by 1.7 billion yen from the prior fiscal year.
Ordinary expenses totaled 31.6 billion yen, down by 24.1 billion yen from the prior fiscal year.
Interest expense totaled 6.8 billion yen, down by 0.8 billion yen from the prior fiscal year. Fees and commissions paid totaled 2.4 billion yen, down by 0.1 billion yen from the prior fiscal year. General and administrative expenses totaled 20.9 billion yen, down by 24.2 billion yen from the prior fiscal year. Other expenses totaled 1.2 billion yen, up by 1.0 billion yen from the prior fiscal year.
Ordinary income was 1.7 billion yen compared to ordinary loss of 2.4 billion yen in the prior fiscal year.
Extraordinary loss included 1.6 billion yen of retirement benefit cost and 5.2 billion yen loss on business transfer.
Loss before income taxes (including extraordinary income and loss) was 5.1 billion yen compared to income before income taxes of 39.3 billion yen in the prior fiscal year.
Assets, liabilities, net assets, cash flows, and capital adequacy ratio were as follows;
As of March 31, 2017, total assets were 246.7 billion yen, down by 3,157.5 billion yen compared to March 31, 2016. Total assets declined sharply due the business transfer.
As of March 31, 2017, total liabilities were 2.0 billion yen, down by 3,125.9 billion yen compared to March 31, 2016.
As of March 31, 2017, total net assets were 244.7 billion yen, down by 31.6 billion yen from the prior fiscal year end, mainly due to the dividend payment of 26.0 billion yen.
Cash flows from operating activities in the year totaled 238.6 billion yen (Outflow). Cash from investing activities was 1,254.7 billion yen (Outflow). Cash from financing activities was 26.0 bilion yen(Outflow). Cash and cash equivalents as of the end of the period is zero due to the business transfer.
The capital adequacy ratio (Basel3 National standards) at the end of the period was 423.35%. (Basel3 National standards as of March 31, 2016 38.29%)
20 CJL K.K. (formerly Citibank Japan Ltd.)
March 2013 March 2014 March 2015 March 2016 March 2017 Year end Year end Year end Year end Year end (Apr. 1, 2012 (Apr. 1, 2013 (Apr. 1, 2014 (Apr. 1, 2015 (Apr. 1, 2016 - Mar. 31, 2013) - Mar. 31, 2014) - Mar. 31, 2015) - Mar. 31, 2016) - Mar. 31, 2017)
Ordinary income 64,668 68,305 66,302 53,298 33,368 Ordinary profit (loss) (1,541) 2,867 (3,478) (2,424) 1,759 Net income (loss) (1,983) 1,339 (4,454) 25,655 (4,642) Capital stock 123,100 123,100 123,100 123,100 123,100 Total Net assets 262,823 256,350 252,315 276,317 244,716 Total assets 4,374,568 4,513,946 5,057,241 3,404,342 246,789 Deposits 3,541,504 3,636,024 3,924,867 1,985,244 - Loans and bills discounted 330,614 356,243 485,111 349,834 - Available for sale (AFS) securities 858,729 785,273 500,962 100,874 - Total shares issued (thousand shares) 244,200,000 244,200,000 244,200,000 244,200,000 244,200,000 Capital adequacy ratio (National standard 28.47% 25.72% 30.26% 38.29% 423.35% Dividend payment ratio - 477.77% - 101.30% - Number of employees 1,852 1,835 1,728 497 482
CJL K.K. (formerly Citibank Japan Ltd.) 21
Gross operating profit (Millions of Yen) March 2016 Year end March 2017 Year end (Apr. 1, 2015 - Mar. 31, 2016) (Apr. 1, 2016 - Mar. 31, 2017) Domestic International Total Domestic International Total Interest income and expenses Interest income 3,791 16,264 20,056 2,001 14,862 16,864 Interest expenses 123 7,592 7,715 53 6,789 6,842 Fees and commission Fees and commissions 9,171 8,093 17,265 2,658 8,417 11,076 Fees and commissions paid 1,544 1,053 2,597 1,290 1,132 2,423 Trading income and losses Trading income 16 406 423 - 112 112 Trading losses --- 44449 Other ordinary income and expenses Other ordinary income 3,240 11,297 14,537 191 2,316 2,507 Other ordinary expenses 11 56 68 79 35 115 Gross operating profit 14,540 27,359 41,899 3,423 17,707 21,131 0.57% 1.58% 0.98% 0.21% 1.54% 0.77% Gross operating profit ratio
（Notes） 1. Domestic operations are yen-denominated transactions and international operations are foreign currency-denominated transactions conducted in Japan. However, non-resident yen-denominated transactions and offshore account transactions, etc. are included in the international operations. 2. Gross operating profit ratio ＝(gross operating profit / average balance of interest-earning assets) x 100 ÷ (the number of days of the period / 365)
22 CJL K.K. (formerly Citibank Japan Ltd.)
Average balance, Interest and Yield of Interest-Earning Assets / Interest-Bearing Liabilities (Millions of Yen) March 2016 Year end March 2017 Year end (Apr. 1, 2015 - Mar. 31, 2016) (Apr. 1, 2016 - Mar. 31, 2017)
Domestic International Domestic International operations operations Total operations operations Total Interest-earning assets Average balance 2,515,307 1,728,456 4,243,764 1,588,368 1,145,586 2,733,955 Interest 3,791 16,264 20,056 2,001 14,862 16,864 Yield (%) 0.15 0.94 0.47 0.12 1.29 0.61 Loans and bills Average balance 108,069 362,682 470,751 43,349 258,684 302,034 discounted Interest 1,060 5,896 6,956 338 5,078 5,416 Yield (%) 0.98 1.62 1.47 0.78 1.96 1.79 AFS securities Average balance 118,046 5,637 123,684 83,214 1,551 84,765 Interest 349 120 469 140 33 174 Yield (%) 0.29 2.13 0.37 0.16 2.19 0.20 Call loans Average balance 300 42,817 43,117 - - - Interest 0 217 217 - - - Yield (%) 0.03 0.50 0.50 - - - Receivables under Average balance 3,232 468,333 471,566 810 420,580 421,391 resale agreements Interest 0 6,274 6,275 (1) 6,317 6,316 Yield (%) 0.03 1.33 1.33 (0.13) 1.50 1.49 Monetary claims Average balance 4,986 3 4,989 5,128 4 5,132 bought Interest 65 0 65 63 0 63 Yield (%) 1.32 1.09 1.31 1.23 1.50 1.23 Due from banks with Average balance 2,270,995 722,407 2,993,403 1,433,003 309,786 1,742,790 interest Interest 2,262 3,211 5,474 1,431 2,471 3,903 Yield (%) 0.09 0.44 0.18 0.09 0.79 0.22 Interest-bearing liabilities Average balance 1,613,061 2,398,789 4,011,850 818,958 1,667,872 2,486,831 Interest 123 7,592 7,715 53 6,789 6,842 Yield (%) 0.00 0.31 0.19 0.00 0.40 0.27 Deposits Average balance 1,603,429 1,823,825 3,427,255 800,052 1,032,448 1,832,500 Interest 116 7,572 7,689 44 6,413 6,458 Yield (%) 0.00 0.41 0.22 0.00 0.62 0.35 Negotiable Average balance ------certificates of deposit Interest ------Yield (%) ------Call money Average balance - 2,529 2,529 - 3,785 3,785 Interest - 5 5 - 19 19 Yield (%) - 0.20 0.20 - 0.50 0.50
Payables under Average balance - - - - 22,908 22,908 repurchase Interest - - - - 284 284 agreements Yield (%) - - - - 1.24 1.24 Borrowed money Average balance 13 232 245 1 2 3 Interest 0 1 1 0 0 0 Yield (%) 0.06 0.82 0.78 0.11 0.84 0.55 (Notes) 1. Average balance of foreign currency-denominated transactions in Japan, which are classified as international operations, is calculated based on the daily basis. 2. Average balance of and interest accrued from borrowing and lending between domestic and international operations are offset. 3. Due from bank without interest is excluded from Interest-earning assets and the amount equivalent to Money held in trust is excluded from Interest-bearing liabilities.
CJL K.K. (formerly Citibank Japan Ltd.) 23
Analysis of interest received / paid (Millions of Yen) March 2016 Year end March 2017 Year end (Apr. 1, 2015 - Mar. 31, 2016) (Apr. 1, 2016 - Mar. 31, 2017)
Domestic International Domestic International Total Total operations operations operations operations
Interest received Volume-related increase (decrease) (826) 524 (2,241) (1,397) (5,484) (7,135) Rate-related increase (decrease) (1,269) (6,281) (5,611) (392) 4,083 3,943 Net increase (decrease) (2,096) (5,757) (7,853) (1,790) (1,401) (3,191) Loans and bills Volume-related increase (decrease) (489) 447 (274) (634) (1,684) (2,480) discounted Rate-related increase (decrease) (131) (293) (192) (87) 866 940 Net increase (decrease) (620) 154 (466) (721) (818) (1,540) AFS Securities Volume-related increase (decrease) (1,760) (2) (1,874) (101) (87) (143) Rate-related increase (decrease) (74) 2 39 (107) 0 (151) Net increase (decrease) (1,834) 0 (1,835) (208) (86) (295) Call loans Volume-related increase (decrease) (8) (164) (184) 0 (217) (217) Rate-related increase (decrease) 05768- - - Net increase (decrease) (8) (107) (115) 0 (217) (217) Receivables under Volume-related increase (decrease) (144) 508 (1,950) 0 (635) (667) resale agreements Rate-related increase (decrease) (21) 278 2,571 (1) 678 708 Net increase (decrease) (166) 787 620 (2) 43 41 Monetary claims Volume-related increase (decrease) 101 101 bought Rate-related increase (decrease) (3) 0 (3) (4) 0 (4) Net increase (decrease) (2) 0 (2) (2) 0 (2) Due from banks Volume-related increase (decrease) 443 1,017 2,640 (754) (1,815) (2,251) with interest Rate-related increase (decrease) 61 (7,538) (8,656) (76) 1,075 680 Net increase (decrease) 505 (6,520) (6,015) (830) (739) (1,570) Interest paid Volume-related increase (decrease) (29) (8) (462) (60) (2,313) (2,897) Rate-related increase (decrease) 19 3,145 3,590 (9) 1,510 2,024 Net increase (decrease) (9) 3,137 3,127 (70) (803) (873) Deposits Volume-related increase (decrease) (27) 0 (499) (58) (3,244) (3,508) Rate-related increase (decrease) 19 3,145 3,636 (13) 2,085 2,277 Net increase (decrease) (8) 3,145 3,136 (71) (1,159) (1,230) Negotiable Volume-related increase (decrease) 0-0--- certificates of deposit Rate-related increase (decrease) ------Net increase (decrease) 0-0--- Call money Volume-related increase (decrease) 010 -22 Rate-related increase (decrease) - 2 3 - 11 11 Net increase (decrease) 033 -1313 Volume-related increase (decrease) - - - - 284 284 Payables under Rate-related increase (decrease) repurchase ------agreements Net increase (decrease) - - - - 284 284 Borrowed Money Volume-related increase (decrease) 010 0(1)(1) Rate-related increase (decrease) 0 -1 000 Net increase (decrease) -1 1 0(1)(1)
（Note）Changes due to a combination of volume - and rate - related increase (decrease) have been included in rate - related increase (decrease).
24 CJL K.K. (formerly Citibank Japan Ltd.)
Yield on interest-earning assets, Yield on interest-bearing liabilities, Net yield/Interest rate (%)
March 2016 Year end March 2017 Year end (Apr. 1, 2015 - Mar. 31, 2016) (Apr. 1, 2016 - Mar. 31, 2017)
Domestic International Total Domestic International Total
Yield on interest-earning 0.15 0.94 0.47 0.12 1.29 0.61 assets
Yield on interest-bearing liabilities including 1.56 1.12 1.30 1.50 0.88 1.09 general expenses
Net yield / Interest rate (1.41) (0.18) (0.82) (1.37) 0.40 (0.47)
Fees and commissions (Millions of Yen) March 2016 Year end March 2017 Year end (Apr. 1, 2015 - Mar. 31, 2016) (Apr. 1, 2016 - Mar. 31, 2017)
Domestic International Total Domestic International Total
Fees and commissions 9,171 8,093 17,265 2,658 8,417 11,076 Fees and commissions on 1,753 3,516 5,270 801 4,182 4,983 fund transfer Other fees and commissions 7,417 4,577 11,994 1,857 4,234 6,092
Fees and commissions paid 1,544 1,053 2,597 1,290 1,132 2,423 Fees and commissions on 442 292 734 420 214 634 fund transfer Other fees and commissions 1,101 761 1,863 870 918 1,788
Fees and commissions profit 7,627 7,040 14,667 1,368 7,285 8,653
CJL K.K. (formerly Citibank Japan Ltd.) 25
Trading income and losses (Millions of Yen) March 2016 Year end March 2017 Year end (Apr. 1, 2015 - Mar. 31, 2016) (Apr. 1, 2016 - Mar. 31, 2017) Domestic International Total Domestic International Total
Trading income 16 406 423 - 112 112
Gains on trading account ------securities transactions
Gains on securities and derivatives related to 3 396 400 - 112 112 trading transactions
Gains on trading-related 12922--- derivatives transactions
Other trading income ------
Trading losses - - - 4 44 49 Losses on trading securities and ------Derivatives Losses on securities and derivatives related to ------trading transactions Losses on trading- related derivatives - - - 44449 transactions
Other trading losses ------
Trading profit 16 406 423 (4) 68 63
26 CJL K.K. (formerly Citibank Japan Ltd.)
Other ordinary income and expenses (Millions of Yen) March 2016 Year end March 2017 Year end (Apr. 1, 2015 - Mar. 31, 2016) (Apr. 1, 2016 - Mar. 31, 2017) Domestic International Total Domestic International Total
Other ordinary income 3,240 11,297 14,537 191 2,316 2,507
Gains on foreign - 8,645 8,645 - 2,213 2,213 exchange transactions
Gains on sales of bonds 3,073 - 3,073 160 48 208
Gains on redemption of ------bonds
Income from derivatives other than for trading or ------hedging
Others 167 2,651 2,818 31 54 85
Other ordinary expenses 11 56 68 79 35 115
Losses on foreign ------exchange transactions Losses on sales of --- 79-79 bonds Losses on redemption ------of bonds Losses on devaluation ------of bonds
Expenses on derivatives other than ------for trading or hedging
Others 11 56 68 0 35 35
3,228 11,240 14,468 111 2,281 2,392 Other ordinary profit
CJL K.K. (formerly Citibank Japan Ltd.) 27
General and administrative expenses (Millions of Yen) March 2016 Year end March 2017 Year end (Apr. 1, 2015 - Mar. 31, 2016) (Apr. 1, 2016 - Mar. 31, 2017)
Salary 15,429 7,693 Accrued pension cost 2,476 1,420 Welfare expenses 70 25 Depreciation cost 489 25 Rental fees on land, buildings, and machinery 3,393 1,493 Maintenance cost 141 13 Supplies cost 211 70 Expenses of business trip 152 90 Communication charge 638 143 Advertising expenses 1,093 6 Membership, Contribution and Business promotion 202 144 Tax and public charges 2,078 1,195 Others 18,829 8,620 Total 45,206 20,944
Profit ratio (%) March 2016 Year end March 2017 Year end (Apr. 1, 2015 - Mar. 31, 2016) (Apr. 1, 2016 - Mar. 31, 2017)
Ordinary profit to total assets (0.05) 0.05 Ordinary profit to capital (net assets) (0.91) 0.67 Net income to total assets 0.56 (0.14) Net income to capital (net assets) 9.70 (1.78)
Ordinary profit ÷ (Number of days of the period / 365) Ordinary profit to total assets = ×100 Average balance of total assets (excl. customers' liabilities for acceptances and guarantees)
Ordinary profit ÷ (Number of days of the period / 365) Ordinary profit to capital (net assets) = ×100 （Beginning net assets + net assets）÷2
Net income ÷ (Number of days of the period / 365) Net income to total assets = ×100 Average balance of total assets (excl. customers' liabilities for acceptances and guarantees)
Net income ÷ (Number of days of the period / 365) Net income to capital (net assets) = ×100 （Beginning net assets + net assets）÷2
28 CJL K.K. (formerly Citibank Japan Ltd.)
Average balance by deposit type (Millions of Yen)
As of Mar. 31, 2016 As of Mar. 31, 2017
Domestic International Total Domestic International Total Liquid deposits 1,498,253 - 1,498,253 749,722 - 749,722
Time deposits 100,433 - 100,433 49,228 - 49,228 Negotiable certificates of ------deposit Others 4,743 1,823,825 1,828,568 1,101 1,032,448 1,033,550 Total 1,603,429 1,823,825 3,427,255 800,052 1,032,448 1,832,500
(Note) Liquid deposits ＝ current deposits ＋ ordinary deposits ＋ saving deposits ＋ deposits at notice
Time deposits balance by remaining tenor (Millions of Yen) As of Mar. 31, 2016 As of Mar. 31, 2017
Over 3 Over 6 Over 1 Over 2 Over 3 Over 6 Over 1 Over 2 Less months, months, year, years, Less months, months, year, years, Over 3 Over 3 than less less less less Total than less less less less Total years years 3 months than 6 than 1 than 2 than 3 3 months than 6 than 1 than 2 than 3 months year years years months year years years
Fixed interest 35,960 5,000 2 - - - 40,962 ------time deposits
Floating interest time 125 - - - - - 125 ------deposits
Others ------
Total 36,085 5,000 2 - - - 41,088 ------
CJL K.K. (formerly Citibank Japan Ltd.) 29
Balance by loan type
(1) Balance at the end of period (Millions of Yen)
As of Mar. 31, 2016 As of Mar. 31, 2017
Domestic International Total Domestic International Total Loans on bills 3,740 - 3,740 - - - Loans on deeds 22,809 251,970 274,779 - - - Overdrafts 6,664 64,001 70,665 - - - Bills discounted 648 - 648 - - - Total 33,862 315,971 349,834 - - -
(2) Average balance (Millions of Yen)
As of Mar. 31, 2016 As of Mar. 31, 2017
Domestic International Total Domestic International Total Loans on bills 7,720 856 8,576 3,617 8 3,625 Loans on deeds 85,727 284,541 370,269 34,624 210,866 245,491 Overdrafts 14,071 77,284 91,355 4,573 47,809 52,382 Bills discounted 549 - 549 535 - 535 Total 108,069 362,682 470,751 43,349 258,684 302,034
Balance of loans and bills discounted by remaining tenor (Millions of Yen)
As of Mar. 31, 2016 As of Mar. 31, 2017
Over 1 Over 3 Over 5 Over 1 Over 3 Over 5 Less year, years, years, Less year, years, years, Over 7 Over 7 than less less less Total than less less less Total years years 1 year than 3 than 5 than 7 1 year than 3 than 5 than 7 years years years years years years
Fixed interest 1,211 1,000 - - 11,126 13,337 ------loans and bills discounted
Floating interest 95,210 65,362 54,984 56,636 64,303 336,496 ------loans and bills discounted
Total 96,421 66,362 54,984 56,636 75,430 349,834 ------
30 CJL K.K. (formerly Citibank Japan Ltd.)
Balance of loans and bills discounted by collateral type (Millions of Yen)
As of Mar. 31, 2016 As of Mar. 31, 2017
Type of collateral pledged Loans and bills discounted Loans and bills discounted Deposits -- Securities -- Claims -- Commodities -- Real estates 7,654 - Foundations -- Others 26,492 - Sub-total 34,147 - Guarantees 82,013 - Clean credits 233,673 - Total 349,834 -
Balance of customers’ liabilities for acceptances and guarantees by collateral type (Millions of Yen)
As of Mar. 31, 2016 As of Mar. 31, 2017
Customers' liabilities for acceptances Customers' liabilities for acceptances Type of collateral pledged and guarantees and guarantees Deposits 40,526 - Securities 47,317 - Claims -- Commodities - - Real estates - - Foundations - - Others -- Sub-total 87,843 - Guarantees -- Clean credits 58,265 - Total 146,109 -
Balance of loans and bills discounted by use (Millions of Yen)
As of Mar. 31, 2016 As of Mar. 31, 2017
Lending for equipments 118,214 - Lending for operations 231,620 - Total 349,834 -
CJL K.K. (formerly Citibank Japan Ltd.) 31
Balance of loans and bills discounted by industry (Millions of Yen)
As of Mar. 31, 2016 As of Mar. 31, 2017
Amount (%) Amount (%) Domestic Manufacturing 63,292 18.09% - - Agriculture / Forestry - - - - Fishery - - - - Mining - - - - Construction - - - - Electric/gas/heat supply/water - - - - Information and telecommunications 540 0.15% - - Shipping / transportation 10,277 2.94% - - Wholesale / retail 39,262 11.22% - - Finance / insurance 17,621 5.04% - - Real estate 21,709 6.21% - - Other Services 11,833 3.38% - - Central / Local government - - - - Individuals - - - - Overseas 185,297 52.97% - - Total 349,834 100% - -
Balance of loans and bills discounted for small and medium size businesses (Millions of Yen)
As of Mar. 31, 2016 As of Mar. 31, 2017
Total loans and bills discounted (A) 349,834 - Balance of loans for small and medium size 153,186 - corporations etc. (B) (B) / (A) 43.78% -
(Note) Small and medium size corporation etc. refers as followings; - companies with its capital less than or equal to 300 million yen (100 million yen for wholesale businesses and 50 million yen for retail sale and services businesses), or - companies with its full-time employees less than or equal to 300 on the payroll (100 for wholesale, 50 for retail sale and 100 for services), or - individuals.
Balance of specified overseas claims
None
32 CJL K.K. (formerly Citibank Japan Ltd.)
Loans - to - deposits ratio (%)
As of Mar. 31, 2016 As of Mar. 31, 2017
Domestic International Total Domestic International Total Balance at the end of period 3.92 28.12 17.62 - - -
Average balance 6.73 19.88 13.73 5.41 25.05 16.48
(Note) Negotiable certificates of deposit are included in “deposits”.
Allowance for loan losses (Millions of Yen) As of Mar. 31, 2016 As of Mar. 31, 2017
Beginning Ending Beginning Ending Category Increased Decreased Increased Decreased balance Balance balance Balance Allowance for general 1,245 957 1,245 957 957 - 957 - loan losses
Allowance for specific 1,044 23 1,044 23 23 - 23 - loan losses
Specified overseas claim ------reserve account
Total 2,290 981 2,290 981 981 - 981 -
Loan write-offs
None
Risk management Loans
(Millions of Yen) As of Mar. 31, 2016 As of Mar. 31, 2017 Bankrupt loans -- Past due loans/non-accrual loans 3,374 - Past due loans (3 months or more) - - Restructured loans -- Total 3,374 -
(Notes) 1. “Bankrupt loans” are loans on which accrued interest income is not recognized as there is substantial doubt about the ultimate collectability of either principal or interest because they are past due for a considerable period of time or for other reasons (excluding write-offs, hereinafter “non-accrual loans”), and as defined in Article 96-1-3 and 96-1-4 of the Enforcement Ordinance of the Japanese Corporate Tax Law. 2. “Past due loans/non-accrual loans” are loans on which accrued interest income is not recognized, excluding “Bankrupt loans” and loans on which interest payments are deferred in order to support the borrowers’ recovery from financial difficulties. 3. “Past due loans (3 months or more)” are loans on which the principal or interest is past due for three months or more from the next day of prescribed payment date, excluding “bankrupt loans” and “Past due loans/non-accrual loans”. 4. “Restructured loans” are loans on which terms and conditions have been amended in favor of the borrowers (e.g., reduction of the original interest rate, deferral of interest payments, extension of principal repayments or debt forgiveness) in order to support the borrowers’ recovery from financial difficulties, excluding “bankrupt loans,” “past due loans/non-accrual loans” and “past due loans (3 months or more)”.
CJL K.K. (formerly Citibank Japan Ltd.) 33
Claims under the Financial Reconstruction Law (Millions of Yen)
As of Mar. 31, 2016 As of Mar. 31, 2017
Bankrupt / De facto Bankrupt - - In Danger of Bankrupt 3,384 - Need attention -- Subtotal (A) 3,384 - Normal 1,567,592 - Total (B) 1,570,977 - (A) / (B) 0.21% -
(Notes) 1. “Bankrupt / De facto Bankrupt” are claims to bankrupt borrowers in the event of filing for commencement of bankruptcy, corporate reorganization, rehabilitation proceedings and loans pursuant to these proceedings. 2. “In Danger of Bankrupt” are claims of which borrowers are not in bankruptcy but their financial status and business performance deteriorate, with a low collectability of principal and interest under the terms and conditions of the contract. 3. “Need attention” are Past due loans (3 months or more) and Restructured loans from “Risk management loans”. 4. “Normal” are claims classified as other than the credit listed in 1 to 3 above, with no problems seen with borrowers’ financial status and business performance.
34 CJL K.K. (formerly Citibank Japan Ltd.)
Average balance of securities related to trading transactions (Millions of Yen)
As of Mar. 31, 2016 As of Mar. 31, 2017
Trading Japanese government bonds 444 - Trading municipal bonds -- Trading government guaranteed bonds - - Other trading securities 17,465 8,460 Total 17,909 8,460
Balance of AFS securities by remaining tenor (Millions of Yen) As of Mar. 31, 2016 As of Mar. 31, 2017
Up to 1 1 - 5 5 - 10 Over 10 Indefinit Up to 1 1 - 5 5 - 10 Over 10 Indefinit Category Total Total year years years years e term year years years years e term Japanese government - 86,154 3,107 - - 29,261 ------bonds Municipal bonds ------
Corporate bonds - - - 6,061 - 6,061 ------
Stocks ------
Foreign bonds 5,550 - - - - 5,550 ------
Foreign stocks ------
Others ------
Total 5,550 86,154 3,107 6,061 - 100,874 ------
Average balance of AFS securities (Millions of Yen)
As of Mar. 31, 2016 As of Mar. 31, 2017
Domestic International Total Domestic International Total Japanese government bonds 111,711 - 111,711 78,087 3 78,090 Municipal bonds ------Corporate bonds 6,335 - 6,335 5,127 - 5,127 Stocks ------Foreign bonds - 5,637 5,637 - 1,548 1,548 Foreign stocks ------Others ------Total 118,046 5,637 123,684 83,214 1,551 84,765
AFS securities - to - deposits ratio (%) As of Mar. 31, 2016 As of Mar. 31, 2017
Domestic International Total Domestic International Total Balance at the end of period 11.06 0.49 5.08 - - - Average balance 7.36 0.30 3.60 10.40 0.15 4.62
(Note) Negotiable certificates of deposit are included in “deposits.”
CJL K.K. (formerly Citibank Japan Ltd.) 35
2. Financial Statements
Financial figures has been audited by KPMG AZSA LLC based on article 396, paragraph 1 of the Corporation Act.
(Millions of Yen)
As of March 31, 2016 As of March 31, 2017 Account Name Amount Amount Asset Cash and due from banks 1,942,504 - Cas h 442 - Due from banks 1,942,062 - Receivables under resale agreements 438,648 - Monetary claims bought 5,382 - Trading assets 22,139 - Securities related to trading transactions 8,994 - Trading-related financial derivatives 13,145 - Securities 100,874 - Government bonds 89,261 - Corporate bonds 6,061 - Other securities 5,550 - Loans and bills discounted 349,834 - Bills discounted 648 - Loans on bills 3,740 - Loans on deeds 274,779 - Overdrafts 70,665 - Foreign exchanges 70,499 - Due from foreign banks (our accounts) 19,002 - Due from foreign banks (their accounts) 4,195 - Foreign bills bought 47,302 - Other assets 325,894 246,789 Prepaid expenses 716 - Accrued income 2,264 - Accrued income tax refunds - 10,557 Derivatives other than for trading-assets 282,434 - Cash collateral paid for financial instruments 31,500 - Account receivable - 236,232 Others 8,978 - Tangible fixed assets 5 - Buildings 0- Other tangible fixed assets 4 - Intangible fixed assets 24 - Softw are 24 - Deferred tax assets 3,406 - Customers’ liabilities for acceptances and guarantees 146,109 - Allow ance for loan losses (981) - Total assets 3,404,342 246,789
36 CJL K.K. (formerly Citibank Japan Ltd.)
(Millions of Yen)
As of March 31, 2016 As of March 31, 2017 Account Name Amount Amount Liabilities Deposits 1,985,244 - Current deposits 364,679 - Ordinary deposits 452,541 - Time deposits 41,088 - Other deposits 1,126,935 - Call money 2,811 - Trading liabilities 13,130 - Trading-related financial derivatives 13,130 - Foreign exchanges 584,093 - Due to foreign banks (their accounts) 583,201 - Due to foreign banks (our accounts) 892 - Other liabilities 392,969 2,072 Income taxes payable 13,575 253 Accrued expenses 4,496 - Unearned revenue 1,343 - Derivatives other than for trading-liabilities 270,827 - Cash collateral received for financail instruments 98,342 - Asset retirement obligations 8 - Account payable - 1,818 Others 4,376 - Provision for bonuses 249 - Provision for directors' bonuses 54 - Provision for retirement benefits 3,354 - Provision for directors' retirement benefits 7 - Acceptances and guarantees 146,109 - Total liabilities 3,128,025 2,072 Net Assets Capital stock 123,100 123,100 Capital surplus 121,100 121,100 Legal capital surplus 121,100 121,100 Retained earnings 31,159 516 Legal retained earnings 2,000 2,000 Other retained earnings 29,159 (1,483) Retained earnings brought forw ard 29,159 (1,483) Total shareholders' equity 275,359 244,716 Valuation difference on AFS securities 958 - Total valuation and translation adjustments 958 - Total net assets 276,317 244,716 Total liabilities and net assets 3,404,342 246,789
CJL K.K. (formerly Citibank Japan Ltd.) 37
< Statement of Income >
(Millions of Yen) From April 1, 2015 From April 1, 2016 Account Name to March 31, 2016 to March 31, 2017 Ordinary income 53,298 33,368 Interest income 20,056 16,864 Interest on loans and bills discounted 6,956 5,416 Interest and dividends on securities 469 174 Interest on call loans 217 - Interest on receivables under resale agreements 6,275 6,316 Interest on deposits with banks 5,474 3,903 Other interest income 662 1,052 Fees and commissions 17,265 11,076 Fees and commissions on fund transfer 5,270 4,983 Other fees and commissions 11,994 6,092 Trading income 423 112 Gains on securities and derivatives related to trading transactions 400 112 Gains on trading-related derivatives transactions 22 - Other ordinary income 14,537 2,507 Gains on foreign exchange transactions 8,645 2,213 Gains on sales of bonds 3,073 208 Others 2,818 85 Other income 1,016 2,807 Reversal of allowance for loan losses 461 23 Recoveries of written-off claims 2 - Others 553 2,784 Ordinary expenses 55,723 31,609 Interest expenses 7,715 6,842 Interest on deposits 7,689 6,458 Interest on call money 519 Interest on payables under repurchase agreements - 284 Interest on borrowings and rediscounts 1 0 Other interest expenses 19 80 Fees and commissions paid 2,597 2,423 Fees and commissions on fund transfer 734 634 Other fees and commissions 1,863 1,788 Trading Losses -49 Losses on trading-related derivatives transactions - 49 Other ordinary expenses 68 115 Losses on sales of bonds -79 Others 68 35 General and administrative expenses 45,206 20,944 Other expenses 135 1,235 Others 135 1,235 Ordinary profit (loss) (2,424) 1,759 Extraordinary income 42,159 - Gain from demerger 42,159 - Extraordinary loss 389 6,904 Losses on disposal of fixed assets 130 8 Retirement benefit cost - 1,670 Loss on business transfer - 5,225 Others 258 - Income (loss) before income taxes 39,345 (5,145) Income taxes - current 12,832 334 Refund of income taxes - (4,667) Income taxes - deferred 857 3,829 Total income taxes 13,689 (503) Net income (loss) 25,655 (4,642)
38 CJL K.K. (formerly Citibank Japan Ltd.)
From April 1, 2015 to March 31, 2016 (Millions of Yen) Shareholders' equity Valuation and translation Total net Capital stock Capital surplus Retained earnings Total Valuation Total valuation assets Legal capital Total Capital Legal Other retained Total retained shareholders' difference on and translation surplus surplus retained earnings earnings equity AFS securities adjustments earnings Retained earnings brought forward
Balance at beginning 123,100 121,100 121,100 2,000 3,503 5,503 249,703 2,612 2,612 252,315 of the period
Changes in amounts during the period
Net income 25,655 25,655 25,655 25,655
Net changes in amounts other than (1,654) (1,654) (1,654) shareholders' equity Total changes in amounts during the - - - - 25,655 25,655 25,655 (1,654) (1,654) 24,001 period
Balance at the end 123,100 121,100 121,100 2,000 29,159 31,159 275,359 958 958 276,317 of the current period
From April 1, 2016 to March 31, 2017 (Millions of Yen) Shareholders' equity Valuation and translation Total net Capital stock Capital surplus Retained earnings Total Valuation Total valuation assets Legal capital Total Capital Legal Other retained Total retained shareholders' difference on and translation surplus surplus retained earnings earnings equity AFS securities adjustments earnings Retained earnings brought forward
Balance at beginning 123,100 121,100 121,100 2,000 29,159 31,159 275,359 958 958 276,317 of the period
Changes in amounts during the period
Dividends of (26,000) (26,000) (26,000) (26,000) retained earnings
Net loss (4,642) (4,642) (4,642) (4,642)
Net changes in amounts other than (958) (958) (958) shareholders' equity Total changes in amounts during the - - - - (30,642) (30,642) (30,642) (958) (958) (31,600) period
Balance at the end 123,100 121,100 121,100 2,000 (1,483) 516 244,716 - - 244,716 of the current period
CJL K.K. (formerly Citibank Japan Ltd.) 39
< Statement of Cash Flows >
(Millions of Yen)
From April 1, 2015 From April 1, 2016 Account Name to March 31, 2016 to March 31, 2017
Cash flows from operating activities Income (loss) before income taxes 39,345 (5,145) Depreciation 489 25 Increase (decrease) in allowance for loan losses (465) (23) Increase (decrease) in provision for bonuses 412 (11) Increase (decrease) in provision for retirement benefits 2,068 (3,354) Interest income (20,056) (16,864) Interest expenses 7,715 6,842 Losses (gains) on sales of AFS securities (3,073) (80) Losses (gains) on foreign exchanges (9) - Losses (gains) on dispositions of fixed assets 130 8 Losses (gains) on retirement benefit cost - 1,670 Losses (gains) on transfer of business (42,159) 5,225 Net decrease (increase) in trading assets 13,981 12,604 Net increase (decrease) in trading liabilities (1,735) (11,368) Net decrease (increase) in loans and bills discounted 66,535 58,169 Net increase (decrease) in deposits 422,284 (480,611) Net decrease (increase) in due from banks (excluding cash equivalents) 291,473 144,066 Net decrease (increase) in call loans 3,365 - Net increase (decrease) in call money 1,008 (2,811) Net increase (decrease) in borrowed money (7) - Net decrease (increase) in foreign exchanges - assets 56,598 (9,232) Net increase (decrease) in foreign exchanges - liabilities 61,082 (118,527) Interest received - cash basis 22,254 16,787 Interest paid - cash basis (7,232) (7,444) Net increase (decrease) in reserve for others (52) (22) Net decrease (increase) in receivables under resale agreements 30,176 114,354 Net increase (decrease) in payable under repurchase agreements - 111,838 Net decrease (increase) in monetary claims bought (707) (191) Net decrease (increase) in other assets (138,309) 122,134 Net increase (decrease) in other liabilities 188,019 (157,594) Others, net (131) (21) Sub-total 993,003 (219,575) Income taxes paid - cash basis - (19,181) Income taxes refunded - cash basis 644 65 Net cash provided by (used in) operating activities 993,647 (238,691) Cash flows from investing activities Purchases of AFS securities (73,399) (19,303) Proceeds from sales of AFS securities 466,285 51,593 Proceeds from redemption of AFS securities 7,742 4,092 Net increase (decrease) from transfer of business (2,251,778) (1,291,101) Purchases of tangible fixed assets (27) (6) Proceeds from sales of intangible fixed assets 148 - Others, net -(10) Net cash provided by (used in) investing activities (1,851,030) (1,254,736) Cash flows from financing activities Dividend paid - (26,000) Net cash provided by (used in) financing activities - (26,000) Net increase (decrease) in cash and cash equivalents (857,382) (1,519,427) Cash and cash equivalents at the beginning of the fiscal year 2,376,810 1,519,427 Cash and cash equivalents at the end of the fiscal year 1,519,427 -
40 CJL K.K. (formerly Citibank Japan Ltd.)
Amounts less than one million yen have been omitted.
CJL transferred the entire business operations and personnel of CJL to a newly established Tokyo branch of Citibank, N.A., a U.S. national association, at the end of the day on March 31, 2017.
Accounting Policies 1. Standard for valuation of trading assets and trading liabilities / booking of income and losses for trading purposes transaction Transactions for trading purposes, such as seeking gains arising from short-term changes in interest rates, foreign exchange rates, or securities prices and other market related indices or from variation among markets (hereinafter referred to as “Trading Purposes”), are included in “Trading assets” or “Trading liabilities” on the balance sheet on a trade date basis. Income and Expenses on trading-purpose transactions are recognized on a trading date basis, and recorded as “Trading income” and “Trading losses”. Securities and monetary claims purchased for trading purposes are stated at the fiscal year-end market value, and financial derivatives such as swaps, futures and options are stated at amounts that would be settled if the transactions were terminated at the fiscal year-end. “Trading income” and “Trading losses” include interest received or paid during the fiscal year. The year-on-year valuation differences of securities and money claims are also recorded in the above-mentioned accounts. As for the derivatives, assuming that the settlement will be made in cash, the year-on-year valuation differences are also recorded in the above-mentioned accounts.
2. Standard and method for valuation of AFS securities AFS securities that have market prices are carried at their balance sheet date market prices (cost of securities sold is calculated using primarily the moving-average method). Net unrealized gains/losses on AFS securities, net of income taxes, are included in “Net assets”.
3. Standard and method for valuation of derivative transaction Derivative transactions (excluding those for trading purposes) are carried at fair value.
4. Depreciation method for fixed assets (1) Tangible fixed assets Tangible fixed assets are depreciated using the declining-balance method(with the exception of building facilities acquired on or after April 1, 2016, for which the straight-line had been applied). The estimated useful lives are as follows: Buildings: 10 to 15 years Others: 4 to 20 years (2) Intangible fixed assets Intangible fixed assets are depreciated using the straight-line method. Capitalized software for internal use is depreciated over its estimated useful life (5 years).
5. Standard for the translation into Japanese yen Assets and liabilities denominated in foreign currencies are translated into Japanese yen at the exchange rate prevailing at the balance sheet date.
6. Standard for Allowance (1) Allowance for loan losses Allowance for loan losses is provided as detailed below in accordance with the internal standards for write-offs and provisioning. For claims on borrowers that have entered into bankruptcy, special liquidation proceedings or similar legal proceedings (“bankrupt borrowers”) or borrowers that are not legally or formally insolvent but are regarded as substantially in the same situation (“effectively bankrupt borrowers”), an allowance is provided based on the amount of claims, after the write-off stated in the additional paragraph below, net of the expected amount of recoveries from collateral and guarantees. For claims on borrowers that are not currently bankrupt but are perceived to have a high risk of falling into bankruptcy, an allowance is provided in the amount deemed necessary based on an overall solvency assessment of the claims, net of the expected amount of recoveries from collateral and guarantees. For other claims, an allowance is provided based on the expected loan-loss ratio assigned to each risk rating.
CJL K.K. (formerly Citibank Japan Ltd.) 41
Responsible divisions for Self-Assessment and Front office mutually conduct assessment of all claims in accordance with the internal rules for self-assessment of assets, and the Internal Audit Division, independently audits their assessment. The allowance is provided based on the results of these assessments.
(2) Provision for bonuses Provision for bonuses is reported in preparation for the payment of bonuses to the employees at the amount estimated for the payment of bonuses to the employees during the fiscal year.
(3) Provision for directors’ bonuses Provision for directors’ bonuses is reported in preparation for the payment of bonuses to the directors at the amount estimated for the payment of bonuses to the directors during the fiscal year.
(4) Provision for retirement benefits Provision for retirement benefits is reported in preparation for the payment of employee retirement allowance in the amount deemed accrued at the period, based on the projected retirement benefit obligation and the fair value of plan assets at the fiscal year-end. The basis for period recognition for the estimated retirement benefits adopts the benefit formula prorates approach. The unrecognized prior service cost and actuarial differences are recognized as profit and loss as follows;
Unrecognized prior service cost: Amortized using the straight-line method for a period, primarily over 7 years, within the employees’ average remaining service period, commencing on the fiscal year in which the services are provided. Actuarial differences: Amortized using the straight-line method, primarily over 7 years, within the employees’ average remaining service period, commencing from the next fiscal year of incurrence.
(5) Provision for directors’ retirement benefits Provision for directors’ retirement benefits is reported in preparation for the payment of director retirement allowance out of directors’ estimated allowance for the amount allocable to the period.
7. Method for hedge accounting The exceptional method is applied to certain interest rate swaps that meet the criteria for the exceptional treatments. No assessment is performed for hedge effectiveness of qualifying interest rate swaps accounted for by the exceptional treatments, as it is ascertained that the criteria for the exceptional treatments are continually met.
8. Accounting for consumption taxes National and Local Consumption Taxes are excluded from transaction amounts.
Change in Accounting Policies (Application of Practical Solution on a change in depreciation method due to Tax Reform 2016) In accordance with the revision to the Corporation Tax Act, with effect from the first half period of the fiscal year, CJL has applied the "Practical Solution on a change in depreciation method due to Tax Reform 2016" (ASBJ Practical Issues Task Force(PITF) Solution No. 32, June 17, 2016). Accordingly, CJL has changed the depreciation method for building facilities acquired on and after April 1, 2016 from the declining-balance method to the straight- line method. As a result, there are no material impact to the ordinary profit and loss before income taxes.
42 CJL K.K. (formerly Citibank Japan Ltd.)
Notes to Balance Sheet
1. Account receivable related to the business transfer.
2. Account payable related to the transfer of employees.
3. Monetary assets to affiliates amounted to 236,232 million yen.
Notes to Statement of Income
1. Income from transactions with affiliates Total income of funding transaction 2,967 million yen Total income of fees and commissions 2,124 million yen Total income of other ordinary transactions 27 million yen Total income of other transactions 4,500 million yen Expenses from transactions with affiliates Total expenses of funding transaction 5,546 million yen Total expenses of fees and commissions 209 million yen Total expenses of other ordinary transactions 93,568 million yen million yen Total expenses of other transactions 8,748
2. Information with respect to related party transaction is as follows.
Content of relations Balance at Percentage of Description of Amount Name of Relation Name Address Capital Business Year end stocks owned transaction (million yen) account Directors Business (million yen)
Business 709,947 Due from banks - transaction (*2) & Accrued - interest 2,471 income
Business 760,372 Deposit - transaction (*2) & Accrued - interest 5,482 expenses
South Due to Dakota, Settlement of 473,889 USD 751 100% Funding / foreign banks - Parent Citibank, N.A. United Banking ― foreign exchange (*2) Million (indirect) Lending (their accounts) States of America Business transfer (*3) Total assets 2,679,043 Total liabilities 2,436,820 Valuation Account difference on AFS 236,232 774 Receivable securities Loss on business 5,225 transfer Consideration for 236,232 business transfer
Citigroup Chiyoda-ku, Subsidiary of Global 151,900 Investment Double- Funding / Retirement benefit 1,670 Account Tokyo ― 1,670 parent Markets Japan Million Yen Banking hatted Lending cost (*4) Payable Inc.
Business Canary transaction 22,908 Citigroup Wharf, & payables under Subsidiary of USD 1,505 Investment Funding / (*2) Global London. ―― Interest on repurchase - parent Million Banking Lending Markets Ltd. United payables under agreements 284 Kingdom repurchase agreements *1 Condition of transactions and its policy are decided as same as third party transactions. *2 Average balances for amount of transaction. *3 Executed under negotiation, based on the company’s calculated amounts. *4 Retirement benefit cost from the transfer of employees.
CJL K.K. (formerly Citibank Japan Ltd.) 43
Notes to Statement of Changes in Net Assets
1. The types and number of our outstanding shares. (Thousands of Shares)
Number of shares Number of shares Number of shares Number of shares Memo at beginning of the increased during decreased during at end of the
period the period the period period Common stock 244,200,000 － － 244,200,000 Total 244,200,000 － － 244,200,000
2. Detailed Information regarding Cash Dividends.
Date of Type of Total Source of Dividend per Dividend record Effective date approval stock Dividends dividends share date Million Yen Yen Annual General Meeting of Common Retained Shareholders 26,000 0.10 March 31, 2016 June 28, 2016 stock earnings on June 28, 2016
Notes to Statement of Cash flow
Book value of assets and liabilities associated with transfer of entire business of Citibank Japan Ltd. in exchange for Cash and Cash Equivalents, transfer value, and Net increase (decrease) from transfer of business are as follows:
(Millions of Yen) Cash and due from banks 1,570,110 Other 1,108,942 Deposits (1,504,633) Other (932,187) Valuation difference on AFS securities (774) Loss on business transfer (5,225) Transfer value 236,232 Of which accrued amount (236,232) Cash and Cash Equivalents (1,291,101) Net increase (decrease) from transfer of business (1,291,101)
44 CJL K.K. (formerly Citibank Japan Ltd.)
Notes related to Financial Instruments
1．Disclosure on Financial Instruments (1) Policy on Financial Instruments
CJL is engaged in banking operations such as deposit taking business, credit extension business including loans, fund transfer and clearing business both in Yen and foreign currencies and investment business including marketable securities. The ALM, Asset and Liability Management, in CJL has related across these listed businesses. CJL has conducted integrated management of the Banking Portfolio, as ALM, for the purpose of managing interest rate and FX risk associated with market movement and liquidity risk from mismatch of future cash flows. Also it aims to minimize funding cost and maximize investment returns. As part of this effort, CJL enters into certain derivative transactions. As the banking portfolio in CJL, liabilities are sourced mainly from corporate customer deposits. And in asset, it has invested into securities, mainly in Japanese Government Bond (JGB), customer loans and Reverse Repo.
(2) Types of and Risks associated with Financial Instruments A majority of financial assets that CJL holds are loans to corporate customers in Japan and overseas, the securities and placements to the bank subsidiaries of Citigroup Inc. to which CJL belongs. Loans to corporate customers in Japan and overseas, for which CJL is exposed to credit risks potentially arising from the obligors' default and also there are risks on material adverse changes in economics, politics, and social environments. Securities are mainly low credit risk Japanese government bonds. These are exposed to interest rate risk and market price risks. A majority of financing source of CJL is a stable source of deposits from corporate customers, and group companies. They are exposed to liquidity risk where we may not be able to be repaid timely on maturities. Interest rate exposure is managed by establishing risk limits, etc. As to funding, CJL’s funding sources are stable, consisting of deposits from institutional customers, and group companies. These funding activities associate liquidity risk in which CJL may not be able to repay timely on maturities and interest rate risk. Derivative contracts include interest rate swaps, currency swaps, and forward FX for ALM purpose. In addition, we have trading bonds as well as trading positions that include interest rate related derivatives and currency related derivatives. These financial products are exposed to interest rate risk, foreign exchange rate risk, price risk and credit risk, etc.
(3) Risk Management System relating to Financial Instruments
① Credit Risk Management CJL establishes consistent risk management framework and controls credit risks related to loans, trade finance and other financial products by undertaking credit analysis, controlling credit limits, assigning internal obligor risk ratings, obtaining parent support, guarantee or collateral and managing classified or delinquent accounts in accordance with Credit Risk Management Policy and related rules and procedures. The key highlights of Credit Risk management aforementioned conducted by Risk Management Division are reported to Credit Risk Management Committee (“CRMC”, as a sub-committee of the Management Committee) and Board of Directors’ meeting (“BOD”), which takes place regularly. Moreover, the credit risk control process is assessed by internal auditor periodically. Credit risk of issuers and counterparty risk of derivatives are controlled and monitored by Credit Risk Management Services Unit and Portfolio Management Unit in Risk Management Division by obtaining related credit information and marked-to market periodically.
② Market Risk Management (A) Risk Management of Banking Book CJL manages interest-rate risks on banking book through ALM. The risk management methods and procedures are clearly described in the "Market Risk Management for Accrual Portfolios Policy and Standards". CJL monitors and reviews its activity implementation status, also discusses action plans in the monthly Asset Liability Committee (“ALCO”) meeting as per the ALCO Regulation which has been approved by the Management Committee. On a day to day basis, Market Risk Management Unit captures consolidated profiles of interest rates and durations of the financial assets and liabilities, performs risk monitoring process using the gap analysis and
CJL K.K. (formerly Citibank Japan Ltd.) 45
interest rate factor sensitivity analysis, and reports the results to the ALCO meeting on a monthly basis. For the purpose of hedging interest rate risks, CJL transacts some derivative trades such as interest rate swaps.
(B) Risk Management of Trading Book CJL mainly manages interest-rate risks and foreign exchange price risks on trading book following the Market Risk Management Policy and ALCO Regulation approved by Management Committee. CJL's market risk amount is measured by Value-at-Risk (“VaR”) method and its regulated compliance status is monitored and reported to ALCO meeting on a monthly basis.
(C) Quantitative information on Market Risks a) Trading purpose financial instruments CJL adopted the Monte Carlo Method that simulates variance and covariance estimated from the historical times series data for VaR calculation (holding period of one day, with the confidence level of 99%) for trading securities and derivative products. There are no applicable CJL market risk amount for trading activities (probable loss amount) because CJL transferred its Asset and Liability to Citibank, N.A., Tokyo Branch as of March 31, 2017 which is explained in the note to business combinations, etc.. CJL also conducts VaR back testing which is a comparative analysis of the VaR result calculated by the validated model against the actual profit and loss (P&L). As per the VaR back testing result for the period of Apr1, 2016 through Mar 31,2017, one exception was observed. However, VaR still may not pick up all probability of event under unpredictable market conditions so long as it is based on the certain probability calculated by statistical method using historical market movement.
b) Non-trading purpose financial instruments In CJL, the main financial instruments which to be influenced by interest rates as one of the key risk variables are, “Placements”, "Loans and bills discounted", "AFS securities", "Deposits", “Negotiable certificate of deposits”, "Borrowings" and "Reverse Repo". On the financial Assets and Liabilities, CJL calculates the effect amounts on profits and losses in the next one year when simulating reasonably expected moving range in the quantitative analysis for the purpose of managing interest rate risks. With respect to the revenue effect amount calculation, CJL splits respective financial asset and liability balances into groups of fixed or floating rate groups by tenor buckets responding to holding maturities and applies the interest rate moves by tenors. There are no applicable data on the scenario that interest rate to increase by 100 basis points (1%) for total portfolio, because CJL transferred its Asset and Liability to Citibank, N.A., Tokyo branch as of March 31, 2017 which is explained in the note to business combinations, etc..
③ Management of Liquidity Risk associated with Funding Activities Liquidity risk management has been regulated by related policies and procedures. ALCO, which is subject to supervision of the Management Committee, has been constituted to ensure that CJL maintains adequate liquidity, has sufficient capital to meet regulatory and business needs, has appropriate funding for business growth. ALCO's monitoring and reviewing of capital, liquidity, balance sheet and the banking account management is an integral part of the overall risk management framework of CJL.
(4) Supplement Explanation for Fair Value of Financial Instruments Fair value of financial instruments includes market prices as well as reasonably calculated prices in cases where there are no market prices available. Since the calculations of such prices are implemented under certain conditions and assumptions, the result of calculations may vary if different assumptions are used.
46 CJL K.K. (formerly Citibank Japan Ltd.)
2．Fair Value of Financial Instruments
Fair value and balance sheet amount of financial instruments as of March 31, 2017 are shown below. (Millions of Yen) Balance sheet Fair value Difference amount （1） Account receivable 236,232 236,232 - （2） Income taxes receivable 10,557 10,557 - Total Assets 246,789 246,789 - （1） Account payable 1,818 1,818 - （2） Income taxes payable 253 253 - Total Liabilities 2,072 2,072 -
(Notes) Valuation method of financial instruments (Assets) (1) Account receivable For Account receivable, the carrying amount is presented as the fair value, as the fair value approximates such carrying amount because they have short remaining period (within 1 year).
(2) Income taxes receivable For Income taxes receivable, the carrying amount is presented as the fair value, as the fair value approximates such carrying amount because they have short remaining period (within 1 year).
(Liabilities) (1) Account payable For Account payable, the carrying amount is presented as the fair value, as the fair value approximates such carrying amount because they have short remaining period (within 1 year).
(2) Income taxes payable For Income taxes payable, the carrying amount is presented as the fair value, as the fair value approximates such carrying amount because they have short remaining period (within 1 year).
CJL K.K. (formerly Citibank Japan Ltd.) 47
Indicators by Share 1. Net assets per share: 1.00 yen 2. Net loss per share: 0.01 yen
Business combinations, etc. Transaction under common control 1. Outline of the business transfer (1) Name of the company to which the business was transferred Citibank, N.A., Tokyo Branch (2) Businesses to be transferred The entire business operations of Citibank Japan Ltd. (3) Main reason for the business transfer Providing banking products and services through a local branch of Citibank, N.A., Citi’s primary bank subsidiary, will enhance Citi’s ability to serve its Japanese and other multinational clients, particularly those clients that value Citi’s global network. It also will allow Citi to operate its local banking business in a more capital-efficient manner. (4) Date of business transfer March 31, 2017 (5) Other information of the business transfer including its legal form Executed by an agreement of business transfer.
2. Outline of accounting treatment of the business transfer This business combination as a transaction under common control in accordance with the “Accounting Standard for Business Combinations” (ASBJ Statement No.21, issued on September 13, 2013) and the “Revised Guidance on Accounting Standard for Business Combinations and Accounting Standard for Business Divestitures” (ASBJ Guidance No.10, issued on September 13, 2013).
Subsequent events 1. Reduction of capital stock and capital surplus, and distribution out of surplus Based on the extra-ordinary shareholder’s resolution on April 1, 2017, the Company reduced capital stock and capital surplus, in order to make distribution out of surplus and executed the distribution of surplus given the condition those reductions were in effect as follows;
Amount of reduced capital stock 123,099,000,001 yen Amount of reduced capital surplus 121,100,000,000 yen Amount of increased other capital surplus 244,199,000,001 yen Effective date of the reduction of capital stock and capital surplus May 18, 2017 Amount of distribution out of surplus 180,000,000,000 yen Effective date of the distribution out of surplus May 18, 2017
2. Corporate name change The Company transferred its all business to Citibank, N.A., Tokyo Branch as of the conclusion of March 31, 2017 and changed its corporate name to CJL K.K. on April 1, 2017.
3. Corporate organization change Based on the resolution by the director and the consent by the shareholder on April 2, 2017, the Company will make change in its corporate organization to Goudou Kaisha effective as of June 26, 2017.
48 CJL K.K. (formerly Citibank Japan Ltd.)
3. Market Value Information
(1) Securities classified as trading purpose
(Millions of Yen)
As of Mar. 31, 2016 As of Mar. 31, 2017
Valuations gains (losses) Valuations gains (losses) Balance sheet Balance sheet included in P/L during the included in P/L during the amounts amounts Previous Period Current Period
Securities classified 22,139 3 - (1) as trading purposes
(2) Other securities (Millions of Yen) As of Mar. 31, 2016 As of Mar. 31, 2017
Balance sheet Acquisition Valuations Balance sheet Acquisition Valuations Type amounts cost gains/(losses) amounts cost gains/(losses) Bonds 95,323 93,992 1,330 - - - Japanese 89,261 88,449 811 - - - Balance sheet Government Bonds amounts Corporate Bonds 6,061 5,542 518 - - - exceeding acquisition cost Others 5,550 5,500 50 - - -
Sub total 100,874 99,492 1,381 - - -
Balance sheet Bonds ------amounts Japanese equal or ------Government Bonds less than acquisition cost Sub total ------Total 100,874 99,492 1,381 - - -
(Note) The figures are based on market value.
(3) Other securities sold during the fiscal year
(Millions of Yen) March 2016 Year end March 2017 Year end (Apr 1, 2015 - Mar 31, 2016) (Apr 1, 2016 - Mar 31, 2017) Losses on Losses on Sold amount Gains on sales Sold amount Gains on sales sales sales Bonds 466,285 3,073 - 51,593 208 79 Japanese 466,285 3,073 - 51,593 208 79 Government Bonds Total 466,285 3,073 - 51,593 208 79
CJL K.K. (formerly Citibank Japan Ltd.) 49
(1) Interest rate-related transactions (Millions of Yen)
As of Mar. 31, 2016 As of Mar. 31, 2017
Over 1 Over 1 Contract year in Market Revaluation Contract year in Market Revaluation Category Type amount contract value gains/losses amount contract value gains/losses amount amount
Exchange- Futures ------traded
Sell ------Buy ------Future Options ------Sell ------Buy ------
Over-the - Forward rate agreements ------counter
Sell ------Buy ------Interest rate swaps 143,407 143,407 118 118 - - - -
Receive fixed 71,675 71,675 4,603 4,603 - - - - / pay floating swaps
Receive floating 71,731 71,731 (4,485) (4,485) - - - - / pay fixed swaps
Receive floating ------/ pay floating swaps
Receive fixed ------/pay fixed swaps
Interest rate options ------Sell ------Buy ------Total - - 118 118 - - - -
(Notes) 1. These transactions were marked to market, and revaluation gains and losses are reported on the statement of income. In accordance with “Treatment for Accounting and Auditing of Application of Accounting Standard for Financial Instruments in Banking Industry” (JICPA Industry Audit Committee Report No. 24), derivatives transactions to which the hedge accounting method is applied are excluded. 2. Calculation of market value Market value is calculated based on closing/final price of the Tokyo International Financial Futures Exchange (TIFFE) etc. for exchange-traded transactions, and on discounted cash flow method or option price calculation models for over-the-counter (OTC) transactions.
50 CJL K.K. (formerly Citibank Japan Ltd.)
(2) Currency-related transactions (Millions of Yen)
As of Mar. 31, 2016 As of Mar. 31, 2017
Over 1 year Over 1 year Contract Market Revaluation Contract Market Revaluation Category Type in contract in contract amount value gains/losses amount value gains/losses amount amount
Futures ------Exchange Sell ------traded Buy ------Currency Swaps 265,516 143,199 1 1 - - - - Forward contracts 21,172,724 449,167 11,607 11,607 - - - - Sell 12,952,117 250,788 119,960 119,960 - - - - Over-the - Buy 8,220,606 198,379 (108,353) (108,353) - - - - counter Currency options 552,441 272,528 0 96 - - - - Sell 273,504 136,264 (7,298) (4,104) - - - - Buy 278,936 136,264 7,298 4,200 - - - - Total - - 11,608 11,705 - - - -
(Notes) 1. These transactions were marked to market, and revaluation gains and losses are reported on the statement of income. In accordance with “Treatment for Accounting and Auditing of Application of Accounting Standard for Financial Instruments in Banking Industry” (JICPA Industry Audit Committee Report No. 24), derivatives transactions to which the hedge accounting method is applied are excluded. 2. Calculation of market value Market value is calculated based on discounted cash flow method or option price calculation models for over-the-counter (OTC) transactions.
(3) Stock-related transactions
None
(4) Bond-related transactions
None
(5) Commodity-related transactions
None
(6) Credit derivatives transactions
None
CJL K.K. (formerly Citibank Japan Ltd.) 51
4. Major Shareholders
(As of March 31, 2017) Name of shareholder Numbers of shares Shareholding ratio
Citibank Overseas Investment Corporation 244,200,000 thousand shares 100%
Total 244,200,000 thousand shares 100%
52 CJL K.K. (formerly Citibank Japan Ltd.)
5. Disclosure Items Based on Pillar 3 of Basel lll
This section describes the information consistent with FSA Notification Number 7 based on Article 19.2.1.5d of the Bank Law Enforcement Rule (Refer to Ministry of Finance Ordinance Number 10).
With regard to the calculation of the capital adequacy ratio, KPMG AZSA LLC conducted certain procedures as an independent audit firm in accordance with “Treatment in implementing examination by agreed-upon procedures for calculating capital adequacy ratio”(Industry Committee Practical Guideline No. 30 of the Japanese Institute of Certified Public Accountants).
The certain procedures performed on our internal control framework for calculating the capital ratio are based on procedures agreed upon by Citibank Japan and the external auditor. This agreed-upon procedures engagement does not constitute an audit engagement for the audit of the financial statements and are not a validation of appropriateness of the capital ratio itself or opinion on the internal controls related to the capital ratio calculation.
COMPOSITION OF CAPITAL DISCLOSURE
As of March 31, 2017 Basel lll (Millions of Yen)
Amounts excluded Amounts excluded as of Mar. 31, as of Mar. 31, Item under transitional under transitional 2017 2016 arrangements arrangements
Core Capital Basic Components (1) Directly issued qualifying common share or mandatory convertible preference share plus related capital surplus and retained earnings 244,716 249,359 of w hich : capital and capital surplus 244,200 244,200 of w hich : retained earnings 516 31,159 of w hich : treasury stock (-) -- of w hich : national specific regulatory adjustments (earnings to be distributed) (-) - 26,000 of w hich : other than above -- Subscription rights to common shares or mandatory convertible preference shares -- Total of allow ance for general loan losses and eligible provisions included in Core Capital Basic Components 957 of w hich: allow ance for general loan losses 957 of w hich: eligible provisions -- Qualifying non-cumulative perpetual preferred stock subject to phase-out arrangements included in Core Capital Basic Components -- Eligible capital instruments subject to phase-out arrangements included in Core Capital Basic Components -- Capital instruments issued by public agency under capital enhancement action included in Core Capital Basic Components -- 45% equivalent of the difference betw een the revaluated amount of the land and the book value immediately prior to revaluation included in Core Capital Basic Components -- Amount of Core Capital Basic Components (A) 244,716 250,316 Core Capital Adjustments (2) Total intangible fixed assets (net of related tax liability, excluding those relating to mortgage servicing rights) -24- of w hich : goodw ill (net of related tax liability) ---- of w hich : other intangibles other than goodw ill and mortgage servicing rights (net of related tax liability) -24- Deferred tax assets that rely on future profitability excluding those arising from timing differences (net of related tax liability) ---- Shortfall of eligible provisions to expected losses - - - - Securitization gain on sale - - - - Gains and losses due to changes in ow n credit risk on fair valued liabilities - - - - Defined-benefit pension fund net assets (prepaid pension costs) - - - - Investments in ow n shares (excluding those reported in the Net assets section) - - - - Reciprocal cross-holdings in common equity - - - - Investments in the capital of banking, financial and insurance entities that are outside the scope of regulatory consolidation, net of eligible short positions, w here the bank does not ow n more than 10% of the issued share capital (amount above 10% threshold) ---- Amount exceeding the 10% threshold on specified items - - - - of w hich: significant investments in the common stock of financials - - - - of w hich: mortgage servicing rights - - - - of w hich: deferred tax assets arising from timing differences (net of related tax liability) - - - - Amount exceeding the 15% threshold on specified items - - - - of w hich: significant investments in the common stock of financials - - - - of w hich: mortgage servicing rights - - - - of w hich: deferred tax assets arising from timing differences (net of related tax liability) - - - - Amount of Core Capital Adjustments (B) 24
CJL K.K. (formerly Citibank Japan Ltd.) 53
(Millions of Yen) Amounts excluded Amounts excluded as of Mar. 31, as of Mar. 31, Item under transitional under transitional 2017 2016 arrangements arrangements Capital Capital amount （（A）－（B）） (C) 244,716 250,292 Risk w eighted assets (3) Credit risk w eighted assets 57,803 588,566 of w hich: Total of items in risk w eighted assets subject to phase-out arrangements -- of w hich: intangible fixed assets (net of related tax liability, excluding those relating to mortgage servicing rights) -- of w hich: deferred tax assets that rely on future profitability excluding those arising from timing differences ( net of related tax liability) -- of w hich: defined-benefit pension fund net assets (prepaid pension costs) -- of w hich: investments in the capital banking, financial and insurance entities -- none of the above -- Total amount of Market Risk equivalent divided by 8% 19,582 Total amount of Operational Risk equivalent divided by 8% 45,515 Credit risk w eighted assets adjustments -- Operational risk w eighted assets adjustments -- Total amount of Risk w eighted assets （D） 57,803 653,664 Capital Adequacy Ratio Total Capital Adequacy Ratio （（C） / （D）） 423.35% 38.29%
54 CJL K.K. (formerly Citibank Japan Ltd.)
QUALITATIVE DISCLOSURE
(1) Types of Capital Instruments
Citibank Japan’s capital is solely funded through issuance of common stocks.
(2) Capital Adequacy Assessment Process
Regulatory capital and risk assets are reported to Management on a monthly basis for verification of the appropriateness of Citibank Japan’s capital adequacy. We believe the current level of Citibank Japan’s capital adequacy to be sufficiently high. We aim to maintain our regulatory capital ratio above 10.5%, in accordance with the capital plan approved by the Board of Directors (“BOD”).
(3) Credit Risk Management Policies and Procedures
1. Overview of risk management policies and procedure
Citibank Japan manages its credit risk in accordance with the established “Credit Risk Management Policies.” We manage credit risk based on credit risk analysis of each customer and also manage credit risk on a portfolio basis, monitoring concentration of credit to certain industries, ratings, clients or industrial groups and delinquency trend of a portfolio. Such a portfolio view of our credit exposures is reviewed and discussed at the Credit Risk Management Committee (“CRMC”) on a monthly basis, and reported to the MC and BOD. Citibank Japan may sell loans (loan participation) when there is a client’s needs in excess of the “Legal Lending Limit” on the Article 13 of the Banking Act take, sell loans once Citibank Japan provided as is the case with loan syndication, or sell loans or obtain bank guarantee in order to reduce the amount of risk capital, however, Citibank Japan is not involved in any of measures such as exchange of portfolio or securitization of its own assets at present. For details, please refer to Quantitative Disclosure (1) Outline of means of Raising Equity Capital for Capital Adequacy and (2) for Credit Risk Exposure as of the fiscal year-end.
Citibank Japan applies the Standardized Approach for the Basel III calculation of credit risk assets.
(Corporate Banking Division)
On all the customers to whom credit is extended, Citibank Japan assigns Obligor Risk Ratings (“ORR”). On all the credit facilities established, a Facility Risk Rating (“FRR”) is assigned based on the types or nature of a transaction. An FRR can differ from the ORR of the customer in case there is a credit enhancement on that credit facility, etc.
The assignment of ORR and establishment of credit facilities are done at the time of initiating a credit relationship. After the credit relationship is initiated, ORR and credit facilities are reviewed at least once a year. For approval of credit facilities (“Credit Approval”), the Credit Policy requires sign off by at least two Credit Officers (“CO”s) or Senior Credit Officers (“SCO”s).
COs and SCOs are officers who are given the authority to approve credit. SCOs are appointed by the CRMC and COs are appointed by an SCO. The appointment to CO/SCO is based on the assessment on working experience in credit-related job functions, experience in credit risk training, credit judgment skills, knowledge, and aptitude.
The amount of credit an SCO can approve depends on the authorized “Approval Level”. CRMC determines the Approval Level based on each officer’s experience and past record.
The Level required for Credit Approval is determined by the matrix of the risk rating assigned to the customer and the amount of credit facilities proposed. The lower (worse) the risk rating and the larger the proposed credit facilities amount, the higher Approval Level is required.
Of the minimum two credit officers required for Credit Approval, at least one must be a Business Sponsoring Officer of the client, who is the account officer for the customer, and the other must be a Risk Management CO/SCO who is independent from business divisions. This requirement is aimed to establish and maintain check and balance mechanism within Citibank Japan.
Standard for Allowance for loan losses is described in (1) Allowance for loan losses, Article 6. Standard Allowance, under Accounting Policies of Section 2. Financial Statements, Financial Information for the fiscal year ended March 31, 2017.
2. The following items on portfolios are subject to the standardized approach
CJL K.K. (formerly Citibank Japan Ltd.) 55
A. Name of the eligible credit rating agency, etc. used to calculate the risk weights
Standard & Poor’s Ratings Services (“S&P”), Moody’s Investors Service, Inc. (“Moody’s”) and Organization for Economic Co-operation and Development (“OECD”)
B. Relationship between the type of exposure and eligible credit rating agency, etc., used by type of exposure.
The eligible External Credit Assessment Institutions (“ECAI”) etc., we use by the type of credit exposure are as shown below.
i. OECD - Country Risk Score - Exposures to the central government and central bank - Yen-dominated Exposures to the Government of Japan and the Bank of Japan - Exposures to financial institution and regulatory security firm that apply to the standards of capital ratio provided by Basel Committee on Banking Supervision or similar standards to this.
ii. External Rating of S&P and Moody’s - Exposures to corporates - Exposures to financial institutions and regulatory security firm that don't apply to the standards of capital ratio provided by Basel Committee on Banking Supervision or similar standards to this.
(4) Credit Risk Mitigation Policies and Procedures
1. Overall Credit Risk Mitigation
Citibank Japan applies a comprehensive Credit Risk Mitigation approach based on the Standardized Approach for the Basel III calculation of credit risk assets. Its credit risk assets and regulatory capital ratio are calculated based on the risk weights and the net exposures, reflecting the revaluation of exposures and the devaluation of collaterals. These evaluations are utilized by the haircut value reflecting its volatility risks.
2. Overall Credit Risk Mitigation Control Process
Citibank Japan reviews credit facilities at least once a year, and collaterals and ability to perform guarantees are also evaluated periodically for securing its portfolio. Types of collaterals and guarantees are shown in 3. Risk Mitigation Techniques below. At present, Citibank Japan does not use credit derivatives in its calculation of its risk assets and regulatory capital ratio. Citibank Japan takes into account bilateral netting agreements as risk mitigation measures for derivatives and repo transactions, if they are effective in light of the regulation, etc. of the jurisdiction where the counterparty of the transaction is domiciled.
3. Risk Mitigation Techniques
A. Eligible financial assets as collaterals
The following assets that satisfy all the conditions stipulated by the FSA Notice No.19 of 2006 Article 89 and 90 are used as eligible collateral to reduce risk assets.
Cash, deposits with Citibank Japan, gold, debt securities and equity securities.
B. Guarantees
The guarantee provided by the government, the central bank, government agencies, financial institutions, corporates which meet all the conditions stipulated by the FSA Notice No.19 of 2006 Article 118, 119, and 122 must be met.
C. On-balance netting
Exposures that are used to calculate capital ratio shall be netted with deposits if whose exposures meet all the conditions stipulated by the FSA Notice No.19 of 2006 Article 117.
56 CJL K.K. (formerly Citibank Japan Ltd.)
(5) Policies and Procedures for Counterparties of Derivative Products and Transactions with a Long-Horizon Settlement Period
1. Credit risks of counterparties
Credit risk of a counterparty of derivative transactions, etc. is defined as the sum of current replacement costs based on mark-to-market and a simulated amount of potential increase due to the future fluctuation of market value until settlement date.
2. Management of credit facilities
Counterparty credit facilities for derivative transactions, etc. are managed as part of total credit facilities, together with all credit facilities on-balance sheet transactions.
3. Protection by collateral and policy for loss reserve
Citibank Japan has ISDA Credit Support Annex (“CSA”) concluded with a number of financial institutions. Citibank Japan carries Derivative Transactions at fair value, for which Citibank Japan does not establish loss reserve. Citibank Japan does not have Transactions with a Long-Horizon Settlement Period.
(6) Securitization Exposure Risk Management Policies and Procedures
1. Citibank Japan’s engagement for securitization transactions
Citibank Japan’s engagement in securitization transactions can be described as follows:
A. Originator
Citibank Japan is not engaged in any securitization transaction of loan receivables for its own funding purposes or balance sheet management.
B. Investor
Citibank Japan has a framework to hold securitization exposure through arranging and providing funds to various securitization transactions (ABL, Asset Backed Commercial Paper (“ABCP”), etc.) that its clients undertake for funding purpose.
C. Swap provider
Citibank Japan may provide foreign exchange forwards or interest rate swaps to mitigate the issuer’s foreign exchange or interest rate in the securitization transactions arranged by Citibank Japan.
D. Others
Citibank Japan provides certain types of commitment lines related to liquidity facilities covering securitization transactions arranged by Citibank Japan, in connection with the ABCP business, etc.
2. Overview of risk management policies, risk characteristics, and monitoring system (including its operational status)
With regard to holding securitization exposure, Citibank Japan applies internal ratings and makes evaluations by assessing each such transactions and carefully managing the exposure together with other direct loan assets, in addition to capturing accurate understanding of the actual risk profile through due diligence from the viewpoint of investors. Citibank Japan will analyze and periodically monitor the credit risk amount of securitization transaction in the same manner as with other standard credit exposures.
Also, Citibank Japan recognizes that credit risks related to Citibank Japan’s securitization transactions include those associated with committed facilities, in case Citibank Japan commits to supply funds when funding through the ABCP market becomes unavailable for certain reasons. In the case of such committed facilities provided to securitization transactions, the primary source of repayment is cash, etc to be collected from the securitized assets. Therefore, the credit risk of committed facilities provided to securitization transactions is defined as the risk of being unable to recover the amount of credit extended from the securitized assets in the full amount.
CJL K.K. (formerly Citibank Japan Ltd.) 57
Citibank Japan manages credit risk in the case of committed facilities provided to securitization transactions through: (1) setting the ratio of the future cash flows from the securitized assets to the securitization exposure amount sufficiently high to cover expected credit loss (over-collateralization); (2) ensuring any other necessary credit enhancement; and (3) monitoring appropriately after the execution. Such risk management procedures are the same for the loans extended to securitization transactions arranged by Citibank Japan
Citibank Japan mainly uses special purpose companies (SPC) or Japanese Trusts as the securitization conduit when undertaking securitization transactions associated with third party assets.
As to credit risk management of foreign exchange forwards or interest rate swaps associated with securitization transactions, the policies and procedures are the same as for those transactions not associated with securitization transactions
3. Name of the approach used by Citibank Japan to calculate the amount of credit risk assets in securitization exposures
The Standardized Approach
4. Accounting policies for securitization transactions
Citibank Japan complies with Accounting Standard Board of Japan Statement No. 10, Accounting Standard for Financial Instruments (Business Accounting Council, January 22, 1999) in recognizing, evaluating, and booking the occurrence or extinguishment of financial assets or liabilities related to securitization transactions.
5. Names of the eligible credit rating agency used in the assessment of risk weight in securitization exposures (including the reason if there has been a change in the eligible credit rating agency used) and the relationship between the type of securitization exposure and the eligible credit rating agency used
As for the eligible external credit agencies, Citibank Japan applies S&P, Moody’s and Fitch Ratings Ltd. in determining securitization exposure risk weight.
(7) Market Risk Management Policies and Procedures
1. Overview of risk management policies and procedures
The Market Risk Management Unit , is independent from the business divisions and identify interest rate, foreign exchange rate or other types of risk factors which impact assets and liabilities (including off-balance sheet assets and liabilities) in the banking and trading books; establish evaluation methods (factor sensitivity or VaR etc.); and monitor risk exposures (including stress tests and market risk limit utilization).Market Risk Management Unit also coordinates management reporting to Asset-Liability Committee (“ALCO"), in addition to providing recommendations in risk analysis on a regular and timely basis.
2. Name of the approach used to calculate the market-risk-equivalent amount. Range of portfolios using each model where the standardized approach or internal model approach is used.
Standardized method
3. Methodology on Mark-to-Market calculation for Trading products based on its nature considering expected holding period and the possibility of exceeding expected holding period.
Citibank Japan limits trading products to highly liquid securities, foreign exchange or derivative transactions, and performs mark-to-market evaluation by applying theoretical prices based on market prices and other market data for the trading book. Target transactions and the method of the mark-to-market evaluation are defined by internal procedures.
4. Assumptions and valuation method for internal evaluation of capital adequacy on market risk
Risk Capital is calculated based on VaR and Stress test, and Capital Adequacy is measured together with Operational Risk and Credit Risk.
58 CJL K.K. (formerly Citibank Japan Ltd.)
(8) Operational Risk Management Policies and Procedures
1. General Description of Operational Risk Management Policies and Procedures
Operational risk refers to the risk of loss as a result of inadequate or failed internal processes, systems, human factors or from external events. As with other risk types, operational risk is managed through an overall framework with checks and balances that includes:
• Recognized ownership of the risk by the business divisions; • Oversight by Control Functions; and • Independent review by the Internal Audit Division.
Citibank Japan’s approach to operational risk is defined in the “Operational Risk Management Policy”. Specific operational risks - IT risk, Jimu risk, and Continuity of Business risk - are subject to additional specialized policies and regulations. The objective of the Policy is to establish a consistent, value-added framework for assessing and communicating operational risk and the overall effectiveness of the internal control environment.
Citibank Japan uses Manager’s Control Assessment (“MCA”) as a comprehensive tool to identify, evaluate qualitatively and monitor operational risk. The MCA was established as the process whereby ‘significant’ risks inherent in business activities are identified by senior business and functional managers and the effectiveness of the key controls over those risks are evaluated and monitored. In MCA processes, Annual Risk Assessment is conducted to identify significant processes; define significant risks and controls; identify optimum monitoring methods and assessment activities to assess the extent to which processes and control continue to operate effectively. These significant processes are reviewed periodically in consideration of changes to the operational processes and regulatory environment, and latest information shall be reflected in to the MCA. On a regular basis, the results of assessment of overall effectiveness of internal controls are reviewed and approved at Business Risk, Compliance & Control (“BRCC”) Committee, and including in periodic management reporting.
Since operational risk is inherent throughout the activities of Citibank Japan, all activities are subject to the Operational Risk process. Operational risk issues and trends are reported at the Citibank Japan Risk Oversight Committees responsible for operational risk management – the BRCC and the System and Operations Committee (“SOC”).
2. Methodology to Calculate Operational Risk
Basic Indicator Approach
(9) Equity Exposure Risk Management Policies and Procedures
There is no Equity Exposure.
(10) Banking Book Interest Rate Risk Management
1. Overview of risk management policies and procedures
The Market Risk Management Unit , is independent from the business divisions and manage the control framework for interest rate risk in the banking. Market Risk Management Unit also coordinates management reporting to Asset-Liability Committee (“ALCO"), in addition to providing recommendations in risk analysis on a regular and timely basis.
2. Banking book interest rate risk calculation method for internal management purpose
Citibank Japan measures interest rate risks in the banking book on a daily basis by applying the re-pricing ladder method, and considers changes of economic value per 1% interest rate increase for each currency as an index for internal control. Citibank Japan’s holding assets and liabilities are constructed into ladders sorted by the remaining durations for fixed rate items and by the durations till next re-pricing period for variable rate items, respectively. Liquid deposits, which do not have a clearly defined re-pricing period require practical assumptions on runoff tenors and balances, and the independent market risk manager approves their relevancy. The monitored amount of interest rate risks for internal control purpose is not necessarily identical with the total amount of interest rate risks calculated in a form of the outlier ratio as per the Standardized Approach.
CJL K.K. (formerly Citibank Japan Ltd.) 59
QUANTITATIVE DISCLOSURE
(1) Outline of means of Raising Equity Capital
Amount of Required Capital for Credit Risk (Millions of Yen) as of Mar. 31, 2016 as of Mar. 31, 2017
Risk weighted Required Capital Risk weighted Required Capital exposure exposure On balance sheet asset items Cash - - - - Exposures to Japanese government and central bank - - - - Exposures to foreign government and central bank 600 24 - - Exposures to the Bank for International Settlements - - - - Exposures to Local Authorities - - - - Exposures to overseas public sectors other than central government 2,962 118 - - Exposures to the International Bank for Reconstruction and Development - - - - Exposures to Japan Finance Organization for Municipal Enterprises - - - - Exposures to Japan Government-affiliated organization 1,109 44 - - Exposures to land development corporation, local housing corporations, Local Public Road Corporations -- -- Exposures to financial institutions and Regulated securities companies 27,909 1,116 47,246 1,889 Corporate exposures 175,059 7,002 - - Exposures to small and medium size enterprises and individuals - - - - Residential Mortgage Exposures -- -- Retail Exposures related to real-estate acquisition 22,156 886 - - Exposures three months or more in arrears 2,067 82 - - Bills before collection -- -- Exposures to the Credit Guarantee Association - - - - Exposures guaranteed by Industrial Revitalization Corporation of Japan - - - - Exposures to Investment -- -- Securitization exposures (originator) -- -- Securitization exposures (other than the originator) 12,939 517 - - Assets backed up with several assets (so-called funds) which individual asset is ungraspable - - - - Others 12,579 503 10,557 422 On-balance sheet asset items total 257,385 10,295 57,803 2,312 Off-balance sheet asset items Derivative transactions 146,574 5,862 - - Others 85,723 3,428 - - Off-balance sheet asset items total 232,298 9,291 - - CVA risk asset 98,883 3,955 - - CCP -- -- Total 588,566 23,542 57,803 2,312
Amount of Required Capital for exposures relating to funds
None
60 CJL K.K. (formerly Citibank Japan Ltd.)
Amount of Required Capital for Market Risk (Millions of Yen) as of Mar. 31, 2016 as of Mar. 31, 2017 Specific General Required Specific General Required Risk Market Risk Capital Risk Market Risk Capital Standardized method of which Interest Rate Risk - 18,985 759 - - - Equity Risk ------Foreign Exchange Risk - 597 23 - - - Commodity Risk ------Options ------Total - 19,582 783 - - -
Amount of Required Capital for Operational Risk (Millions of Yen) as of Mar. 31, 2016 as of Mar. 31, 2017 Operational Risk Required Capital Operational Risk Required Capital
Basic Indicator Approach 45,515 1,820 - -
Total Amount of Required Capital (Millions of Yen) as of Mar. 31, 2016 as of Mar. 31, 2017 Risk assets Credit Risk exposure 588,566 57,803 Market Risk exposure divided by 8% 19,582 - Operational Risk exposure divided by 8% 45,515 - Total of items in risk weighted assets subject to transitional arrangeme -- Total （A） 653,664 57,803 Total required Capital (Domestic Criteria) （A）×4％ 26,146 2,312
CJL K.K. (formerly Citibank Japan Ltd.) 61
(2) Credit Exposure （by Geography, Industry, or Counterparty) (Millions of Yen) as of Mar. 31, 2016 as of Mar. 31, 2017 Loans etc.Securities DerivativesTotal Loans etc. Securities Derivatives Total Domestic Manufacturing 108,024 - 10,208 118,233 ---- Agriculture and Forestry------Fishery ------Mining ------Constraction 6 - 302 308 - - - - Electric power, gas, water supply ------Information and communication 12,733 - 181 12,915 - - - - Transportation 10,523 - 599 11,122 - - - -
Wholesale and retail 143,697 - 3,175 146,872 ---- Financial Institutions and Insurance 544,430 5,549 117,217 667,197 236,232 - - 236,232 Real estate 23,886 - - 23,886 - - - - Services 13,126 - 921 14,048 - - - - Government 1,518,985 88,474 - 1,607,460 ---- Individuals ------Others 7,323 - - 7,323 10,557 - - 10,557 Overseas Sovereign 10,632 5,504 - 16,136 - - - - Financial Institutions 470,774 - 181,911 652,685 ---- Others 128,634 - 446 129,081 ---- Total 2,992,779 99,527 314,964 3,407,271 246,789 - - 246,789
(by Maturity) (Millions of Yen) as of Mar. 31, 2016 as of Mar. 31, 2017 Loans etc. Securities Derivatives Total Loans etc. Securities Derivatives Total To 1 year 1,906,451 5,504 306,557 2,218,513 246,789 - - 246,789 1 to 3 years 683,380 20,013 2,256 705,649 ---- 3 to 5 years 130,719 65,390 5,970 202,080 ---- Over 5 years 155,055 8,619 179 163,855 ---- Undefined 117,171 - - 117,171 - - - - Total 2,992,779 99,527 314,964 3,407,271 246,789 - - 246,789
(Note) 1. Figures are without taking into account the effects of credit risk mitigation techniques. Furthermore, figures do not include any securitization exposure, exposures relating to funds or exposures relating to central clearing funds. 2. Loans etc. include loans, commitments and other non-derivative off balance sheet exposure.
62 CJL K.K. (formerly Citibank Japan Ltd.)
Past-due over 3 months or Default Exposure
（by Geography, Industry, or Counterparty) (Millions of Yen) as of Mar. 31, 2016 as of Mar. 31, 2017 Domes tic Corporate - - Individuals - - Overseas 6,927 - Total 6,927 -
(Note) 1. Figures are without taking into account the effects of credit risk mitigation techniques. Furthermore, figures do not include any securitization exposure, exposures relating to funds or exposures relating to central clearing funds. 2. "Past-due over 3 months or default exposure" is the exposure either in principal or interest payment is delayed more than 3 months or risk weight is 150% before the consideration of loan loss reserve.
Allowance for Loan Losses
(Millions of Yen) as of Mar. 31, 2016as of Sep. 30, 2016 as of Mar. 31, 2017 Beginning Change Ending Beginning Change Ending Beginning Change Ending Specific Reserve Corporate 347 (327) 20 20 (2) 18 20 (20) - Individuals 694 (694) ------Others 2 - 2 2 - 2 2 (2) - General Reserve 1,245 (287) 957 957 (294) 663 957 (957) - Loan loss reserve for restructuring country Not applicable
Credit Risk Exposure after Credit Risk Mitigation by Risk weight under Standardized Approach
(Millions of Yen)
as of Mar. 31, 2016 as of Mar. 31, 2017
Rated Unrated Rated Unrated
0% 447 1,607,902 - - 20% 262,416 3,366 236,232 - 35% - - - - 50% 182,570 1,411 - - 75% - - - - 100% 34,971 264,473 - 10,557 150% 0 1,295 - - 250% - 3,798 - - 1250% - - - - Deduction from Capital - - - - Total 480,406 1,882,248 236,232 10,557
(Note) 1. Figures are taking into account the effects of credit risk mitigation techniques and do not include any securitization exposure.
CJL K.K. (formerly Citibank Japan Ltd.) 63
(3) Credit Risk Mitigation (Millions of Yen) as of Mar. 31, 2016 as of Mar. 31, 2017 Eligible Financial Collateral Cash 457,131 - Bonds 484,007 - Stocks - - Others - - Guarantee and Credit Derivatives Guarantee 103,478 - Credit Derivatives - - Total 1,044,616 -
(Note) On-balance netting was adopted for the interbank Money Market transaction with Citibank, N.A. overseas main branches.
(4) Counterparty Credit Risk of OTC Derivatives
i．Measurement of Credit exposure Current Exposure Method
(Millions of Yen) as of Mar. 31, 2016 as of Mar. 31, 2017
ii．Total amount of gross positive fair value 290,099 -
iii．Credit exposure before Credit Risk Mitigation FX related 312,470 - Interest rate related 2,494 - Total 314,964 -
iv．The amount deducting iii from sum of ii and gross add-on (Reduction by Netting agreements) 181,622 - v. Collateral type None vi. Credit exposure after Credit Risk Mitigation Same as iii vii. Notional amount of credit derivatives which have counterparty risk None viii. Notional amount of credit derivatives which cover exposures by Credit Risk Mitigation None
64 CJL K.K. (formerly Citibank Japan Ltd.)
(5) Securitization
i．Securitization exposure as Originator None
ⅱ. Securitization exposure as Investor
a. Information by Type of Underlying Assets (Millions of Yen) as of Mar. 31, 2016 as of Mar. 31, 2017
Claims on corporate customers -- Residential Mortgage Loan -- Claims on individual customers (ex. Residential Mortgage Loan) 64,697 - Others -- Total 64,697 -
There was no re-securitization exposure as of March 31, 2015 and 2016.
b. Exposure by Risk Weight Category and Amount of Required Capital (Millions of Yen) as of Mar. 31, 2016 as of Mar. 31, 2017
Exposure Required Capital Exposure Required Capital 20% 64,697 517 - - 50% -- -- 100% - - - - 350% - - - - 1250% - - - - Deduction from Capital - - - - Total 64,697 517 - -
There was no re-securitization exposure as of March 31, 2015 and 2016.
c. Amount of securitization exposure and type of underlying asset which 1250% risk weight should be adopted in accordance with Paragraph 1, Article 247 of FSA Notice No.19 None
d.Credit risk mitigation for resecuritization exposure. None
e. Credit Risk-Weighted Assets Calculated Pursuant to Article 15 of Supplementary Provisions of the FSA Capital Adequacy Ratio Notification None
ⅲ. Securitization exposure subject to measurement of comprehensive risk (as Originator) None
ⅳ. Securitization exposure subject to measurement of comprehensive risk (as Investor) None
CJL K.K. (formerly Citibank Japan Ltd.) 65
(6) Market Risk (under Internal Model Approach)
None
(7) Equity Exposure in Banking Book
None
(8) Amount in regarded exposure under the Accord article 167
None
(9) Interest Rate Risk in the Banking Book - the increase/(decrease) in economic value for 1% upward rate shocks according to internal management's method.
(Millions of Yen) as of Mar. 31, 2016 as of Mar. 31, 2017 Japanese Yen 18,528 - US Dollar 4,399 - Eur o ( 6) - Others (502) - Total 22,419 -
66 CJL K.K. (formerly Citibank Japan Ltd.)
DISCLOSURE OF REMUNERATIONS
(1) Matters relating to the development of the remuneration and other systems of the Subject Officer and Employee of Citibank Japan Ltd. (hereafter, “CJL”)
1. The scope of “Subject Officer and Employee”
The scope of "Subject Officer" and "Subject Employee, etc." (collectively, "Subject Officer and Employee") for which the remuneration announcement stipulates the disclosure is as below.
A. The scope of “Subject Officer”
Subject Officers are Directors and Statutory Auditors of CJL, excluding Outside Directors, Outside Statutory Auditors, and part-time Directors not receiving remuneration or other payments.
B. The scope of “Subject Employee, etc.”
Among (a) officers other than Subject Officers, (b) employees of CJL, and (c) officers and employees of the major consolidated subsidiaries, etc, who are categorized into either "those who receive a large remuneration, etc.” and “those who have a significant influence on the management and the status of the property of CJL and the major consolidated subsidiaries, etc” are disclosed as "Subject Employees, etc.”
i The scope of “major consolidated subsidiaries, etc ”
CJL has no consolidated subsidiaries.
ii The scope of “those who receive a large remuneration, etc”
"Those who receive a large remuneration, etc.” are persons who receive remuneration more than the “average of the Subject Officers’ remunerations” calculated by dividing the total amount of the remunerations the “Subject Officers” received for the fiscal year by “the number of the Subject Officers”. For this calculation, “Subject Officers” who newly-appointed and retires during fiscal year are excluded.
iii The scope of “those who have a significant influence on the management and the status of the property of CJL ”
The scope of “those who have a significant influence on the management and the status of the property of CJL” is designated as the same criteria as “Covered Employees” which is determined by Citi’s Independent Risk. The Covered Employees are comprised of “Individual Covered Employees” and “Group Covered Employees”. “Individual Covered Employees” are employees who, acting individually, have influence over the material risks of CJL or Business Units of Citi. “Group Covered Employees” are other employees who are compensated similarly and who acting together could have influence over the material risks of CJL or the material risks of a material business unit. Covered Employees can include Subject Officers, Subject Employees and persons in charge of the Risk Management Division and Markets Treasury. For the purpose of this section iii only, “Covered Employees” excluding Subject Officers is considered to be “those who have a significant influence on the management and the status of the property of CJL”.
2. Determination of the remuneration for the Subject Officer
A. Determination of the remuneration for the Subject Officer
The total amount of Director and Statutory Auditors remunerations (the maximum limited amount) is determined at the general meeting of shareholders. As for the remuneration for the Subject Officer, determination is made according to the Rules Concerning Remuneration for Officers (Yakuin). Additionally, all Directors’ annual remuneration (basic annual remuneration, bonus and equity compensation) is reviewed in respect of the appropriateness of the amount by the Chief Executive Officer, Compliance Head and Human Resources Head of CJL.
B. Determination of the remuneration for the Subject Employee, etc.
The remuneration for an employee of CJL is determined and paid according to our remuneration rules. For the rules, their system design and documentation have been conducted by Human Resources Division, which is independent from Unit/department responsible for business execution. Additionally, any employee with an annual remuneration (basic annual remuneration, bonus and stocks) exceeding 30-million yen or 300-thousand US dollar is reviewed in respect of the appropriateness of the amount by the Chief Executive Officer, Compliance Head and Human Resources Head of CJL.
CJL K.K. (formerly Citibank Japan Ltd.) 67
3. Determination of the remunerations for the employees in Risk Management Division and Compliance Division
The remunerations for the employees in Risk Management Division and Compliance Division are determined according to the remuneration rules of CJL and each payment amount is fixed according to the performance appraisal ultimately decided by the each division head. In that way, their remunerations are decided independently from Unit/department responsible for business execution.
4. The total remuneration amount paid to the Remuneration Committee members and the number of meetings held
There is not Remuneration Committee or an equivalent organization within CJL.
(2) Matters relating to the assessment of the appropriateness of the design and operation of the remuneration and other systems of the Subject Officer and Employee of CJL
1. Remuneration policy
A. Policy of the remuneration for the “Subject Officer”
With respect to the remunerations for Officers, Officer Remuneration Plan has been established according to the Rules Concerning Remuneration for Officers (Yakuin). Specifically, the Plan determines the composition of the remuneration:
・ Annual base remuneration ・ Bonus ・ Various allowances ・ Equity Compensation (or options to purchase shares) of Citigroup stock ・ Retirement benefits ・ Cash denominated awards (that earn notional investment returns).
Annual base remuneration is determined based on the roles, profile, performance, etc. as an officer, while bonus is determined based on the performance of CJL. Stocks (shares of Citigroup Inc. listed in the United States) are provided to align officer’s or employee’s interests with those of shareholders, clients and other stakeholders.
B. Policy of the remuneration for the “Subject Employee, etc.”
The remuneration for an officer or an employee of CJL is determined depending on the role, personnel evaluation, ability and performance according to the remuneration rules of CJL.
2. Significant change in the remuneration system design and operation
There is no significant change in the remuneration system design and operation.
(3) Consistency of the remuneration system of the Subject Officer and Employee and the risk management, and matters relating to linkage of the remuneration and performance
1. Methodology to take the risk into account for determining the compensation
For Individual Covered Employees, there is an annual control function review process pursuant to which the control functions (Compliance, Finance, Independent Risk, Internal Audit, and Legal) provide an evaluation of risk behaviors.
2. Performance-linked portion to determine the remuneration for the Subject Officer and Employee
A. Calculation method for the performance-linked portion
The rating from the independent review process is included in the performance evaluation system to inform the performance review conducted by the employees’ manager. The performance evaluation system includes formal risk goals for covered senior managers as well as a formal manager-provided risk rating. When incentive compensation recommendations are made, both the individual goals and risk performance goals are included in the compensation worksheet for consideration.
68 CJL K.K. (formerly Citibank Japan Ltd.)
B. Methodology to make adjustment to the performance linked portion
For Covered Employees, provisions also allow for the cancellation of deferred incentive compensation awarded in the event of serious financial or reputational harm to Citi, and can allow for cancellation if a failure to supervise or monitor risks results in such significant responsibility. Separately if the global reference business of a Covered Employee has pre-tax losses in any year of the deferral period, the portion of the deferred stock award that is scheduled to vest in the year following the loss year will be reduced.
C. Confirmation as to whether the compensation system is not too focused on the linkage to the short-term performance
It is confirmed that the compensation system is not too focused on the linkage to the short-term performance as the structure of annual incentive awards made to Covered Employees discourages imprudent risk-taking. Also the risk mitigates include substantial deferrals; vesting periods, broad-based clawbacks, and management discretion to clawback nonvested deferred compensation for improper risk-taking behavior.
D. Ensuring effective controls and risk-adjustment procedures including monitoring individual manipulation of risk when determining compensation
Compensation is determined based on year-end performance evaluations that focus on mission-critical goals with an emphasis on risk management. Performance evaluations reflect multiple inputs including multi- perspective feedback; review of performance against key business financial, risk and client metrics as well as qualitative and/or non-financial elements of performance; manager’s review of qualitative risk behavior; and independent review of qualitative risk behavior conducted by the Control Functions (Independent Risk, Compliance, Internal Audit, Legal and Finance)
3. Adjustment of the deferred payment
Please refer to 2B “Methodology to make adjustment to the performance linked portion”.
(4) Matters such as the categories of the remunerations for the Subject Officer and Employee of CJL and the amounts and payment methods.
The total amount of remunerations for the Subject Officers and Employees (from April 1, 2016 to March 31, 2017)
(Millions of Yen)
Remunerati Head on, etc. in Categories Variable Count total Fixed Stocks/ Retirement Basic Remunera Basic Remuneration Stock Other Bonus Other Benefits Remuneration tion Remuneration Option
Subject Officers (excluding 1 405 278 44 0 234 127 0 127 0 0 outside officers,etc .)
Subject Employees 0 0 0 0 0 0 0 0 0 0 0 , etc.
(Note) 1. Other fixed remuneration includes housing or other allowances provided to the expatriated from Citigroup entities overseas. 2. Other variable remuneration includes deferred remunerations, Equity Compensation, etc.
(5) Other information relevant to the remuneration and other systems of the Subject Officers and Employees of CJL.
There is not reportable information other than the above.
CJL K.K. (formerly Citibank Japan Ltd.) 69
Confirmation
June 23, 2017
Representative Director Iyer, Hari
I confirm, to the best of my knowledge, the following matters concerning formerly Citibank Japan Ltd. financial statements for the Period from April 1, 2016 to March 31, 2017:
1. Matters concerning the financial statements are in conformity with “The Regulations regarding Terminology, Format and Method of Preparation of Financial Statements, etc” and “Enforcement Regulation of the Banking Law” and others, and the financials present fairly in all material respects.
2. Formerly Citibank Japan Ltd. establishes and maintains the appropriate internal control systems as below, and fairly presents financial statements based on it.
(1) Assignment of duties and the corresponding units in charge are clearly defined, and the system for accomplishment of operation is appropriately established. (2) Internal Audit Division assesses the appropriateness and effectiveness of internal control systems for each responsible unit, and reports the material matters to the Management and Board of Statutory Auditors. (3) All material information concerning formerly Citibank Japan Ltd. is adequately reported to the Management and Board of Directors as necessary.
70 CJL K.K. (formerly Citibank Japan Ltd.)