Citibank Japan Ltd.
Annual Report For the Fiscal Year Ended March 31, 2016
Table of Contents
Message from the CEO 1
Company Overview 2
Our History 5
Management Strategy 6
Business Outline 8
Risk Management Framework 14
Compliance Framework 16
Diversity and CSR Activities 17
List of Citibank Japan's branches 18
Citibank Japan Ltd. Financial Information under Japanese GAAP 19 For the Fiscal year ended March 31, 2016 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
Message from the CEO
To Our Valued Clients,
I am honored to serve as President & CEO of Citibank Japan Ltd.
Citibank has a 114-year history in Japan, and today Citibank Japan proudly serves governmental institutions, financial institutions, multinational corporations and institutional investors across a range of corporate banking, lending, transaction services and markets businesses.
Citibank Japan has built a reputation for providing innovative and high quality products and services and for delivering the power of Citi's unrivalled global network to support our clients. We are committed to continuing to serve our clients in Japan; to being a bank with strong governance and controls; to making meaningful contributions to Japan’s economy and banking system; and to being a responsible member of Japanese society.
Thank you very much for your continued patronage and support.
July 2016
Anthony P. Della Pietra, Jr. Representative Director, President & CEO Citibank Japan Ltd.
Citibank Japan Ltd. 1
Company Overview
Company Profile
Company Name Citibank Japan Ltd. (“CJL”) Head Office Address Shin-Marunouchi Building, 5-1, Marunouchi 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, CJL is engaged in a range of corporate banking, lending, transaction services and markets businesses on behalf of institutional clients. Number of Employees 497 (As of March 31, 2016) 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 Shirish Apte 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 Grant Carson 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 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 July 1, 2016 except for Number of Employees)
2 Citibank Japan Ltd.
Organizational Structure
(As of July 1, 2016)
Financial Summary (From 09/2013 to 03/2016)
(Billions of Yen) 09/2013 03/2014 09/2014 03/2015 09/2015 03/2016 Ordinary income 34.7 68.3 32.1 66.3 35.0 53.2 Ordinary profit (loss) 1.4 2.8 2.8 3.4 0.6 2.4 Total Assets 4,536.0 4,513.9 5,267.0 5,057.2 5,718.6 3,404.3 △ △ △ Deposits 3,906.9 3,636.0 3,897.4 3,924.8 4,274.7 1,985.2 Total Net Assets 262.1 256.3 254.9 252.3 250.5 276.3 Capital Stock 123.1 123.1 123.1 123.1 123.1 123.1 Capital Adequacy Ratio 28.62% 25.72% 23.90% 30.26% 30.94% 38.29%
Credit Ratings Moody's S&P Fitch Rating Outlook Rating Credit Watch Rating Outlook Citibank Japan Ltd. Long Term A1 Stable A Positive A Positive Citigroup Inc. Long Term Baa1 Stable BBB+ Stable A Stable Citibank,N.A. Long Term A1 Stable A Positive A+ Stable (As of July 1, 2016) For further details, please refer to Citigroup Credit Ratings at http://www.citigroup.com/citi/investor/rate.htm
Citibank Japan Ltd. 3
Deposit Insurance
Citibank Japan (“CJL”) 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 CJL are protected in full per depositor; and interest-bearing Yen deposits accepted by CJL are protected up to a maximum of 10 million yen in principal plus related interest thereon per depositor.
Bank Agency Service 1) Name of Bank Agent Citigroup Global Markets Japan, Inc. (“CGMJ”) Offices of Bank Agent CGMJ Tokyo Headquarters Service Coverage - Intermediation for conclusion of a contract on acceptance of deposits or installment savings, etc.; and - Intermediation for conclusion of a contract on exchange transactions
2) Name of Bank Agent SMBC Trust Bank Ltd. Offices of Bank Agent 24 branches below: Aoyama, Akasaka, Ginza, Gotanda, Shibuya, Ikebukuro, Ohtemachi, Shinjuku Minamiguchi, Tachikawa, Shinjuku Higashiguchi, Hiroo, Nihonbashi, Yokohama, Urawa, Chiba, Umeda, Osaka Ekimae, Shinsaibashi, Ashiya, Kobe, Kyoto, Nagoya, Sapporo and Fukuoka Service Coverage - Intermediation for acceptance of cash for the credit of savings and current accounts; and - Intermediation for cash payment and debiting from savings or current accounts
Foreign Bank Agency Service
Name of Affiliated Foreign Citibank, N.A. Bank Offices of Bank Agent CJL 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 - Intermediation 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 Banking Act. 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.
4 Citibank Japan Ltd.
Our History
1812 City Bank of New York is established.
1902 International Banking Corporation opens its first branch in Yokohama.
1923 International Banking Corporation opens 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.
2011 Citi expands its Japan Desk network around the globe, opening in Dubai and Sao Paolo (10 locations as of July 1, 2016).
2012 Citi celebrates its 200th anniversary globally and its 110th anniversary in Japan.
Citibank Japan Ltd. 5
Management Strategy
Citi’s Mission and Value Proposition: A Mission of Enabling 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 protect people's savings and help them make the purchases—from everyday transactions to buying a home—that improve the quality of their lives. We advise people on how to invest for future needs, such as their children's education and their own retirement, and help them buy securities such as stocks and bonds.
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’s 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.
6 Citibank Japan Ltd.
We have further strengthened our capability to support our Japanese clients around the globe through “Japan Desks” offering exclusive relationship management coverage by experienced Japanese bankers. We have recently expanded the network to 10 countries. These Japan 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 for our clients.
CJL 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.
CJL 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.
Citibank Japan Ltd. 7
Business Outline
Corporate Banking Division
In corporate banking, CJL 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 both here in Japan and around the globe. CJL’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 offerings. CJL 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 unrivaled strength of Citi.
Our client coverage model consists of 6 departments: Global Industrials Dept., 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 10 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.
8 Citibank Japan Ltd.
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>
● ●
●
● ● ●
●
●
●
●
● Japan Desk Locations Citi’s Japan Desks around the World (As of July 1, 2016)
United Kingdom (London) Singapore
Russia (Moscow) China (Hong Kong)
India (Cheｎnai) United States (New York)
Thailand (Bangkok) Brazil (Sao Paulo)
Indonesia (Jakarta) United Arab Emirates (Dubai)
Citibank Japan Ltd. 9
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 over 100 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 their core businesses through our clearing and settlement outsourcing
10 Citibank Japan Ltd.
solutions. Our proprietary network is the largest in the industry with direct access in 60 markets globally, surpassing our closest competitor by over 20 markets.
Recent Global and Local Accolades and Awards
Global Finance - World’s Best Treasury & Cash Management Providers 2016 - Global Best Overall Bank for Cash Management - Global Best Bank for Payments and Collections - Citi was also recognized in five other regional and country award categories
Global Finance - The World’s Best Digital Bank 2015 - Best Corporate/Institutional Bank - Best Overall Digital Bank
Global Finance –Global Winners of World’s Best Bank 2015 in the following categories; Sub- Custody, Cash Management, Foreign Exchange
The Banker’s 2015 Transaction Banking Awards – Best Global Transaction Bank
Euromoney - Global Bank of the Year 2015
Euromoney - Best Bank in Asia in 2015
Global Trade Review’s Leaders in Trade Awards 2015 - Best Global Trade Finance Bank 2015 and Best Global Supply Chain Finance Bank
The Asset, Triple A Asset Servicing Awards 2015 - Best Global Custodian Bank in Asia
The Asset, Triple A Treasury, Trade and Risk Management Awards 2015 - Best Transaction Bank in Asia Pacific - Best Liquidity Management Bank in Asia Pacific - Best ECA-Financing Bank in Asia Pacific
TMI magazine’s (Treasury Management International) “2015 Awards for Innovation & Excellence in Treasury & Risk Management”- Citi won six awards for our regional expertise and technology solutions)
Citibank Japan Ltd. 11
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.
12 Citibank Japan Ltd.
List of CJL’s Major Activities
CJL provides the following products and 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
Citibank Japan Ltd. 13
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. CJL 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 CJL 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.
14 Citibank Japan Ltd.
• 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”, “Market 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 policies and rules which clearly define 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 policies and standards. 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.
Citibank Japan Ltd. 15
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.
16 Citibank Japan Ltd.
Diversity and CSR Activities
Citibank Japan pursues Corporate Social Responsibility (“CSR”) 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 CSR 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 communities 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 their own time and resources to bring some order to social responsibility by committing not only donations the lives of those affected. Citi in Japan supports but also by participating in programs as volunteers. employee efforts by matching monetary donations and helping organize non-monetary -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.
Citibank Japan Ltd. 17
List of CJL's locations in Japan
As of July 2016
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
18 Citibank Japan Ltd.
Citibank Japan Ltd.
Financial Information under Japanese GAAP For the fiscal year ended March 31, 2016
Citibank Japan Ltd. 19
1. Matters Related to Principal Business
< Business Overview>
Results of Operations for Fiscal Year ended March 31, 2016
• We had a net income of 25.6 billion yen for the year ended March 31, 2016 compared to net loss of 4.4 billion yen for the prior fiscal year.
• Ordinary income totaled 53.2 billion yen, down by 13.0 billion yen from the prior fiscal year.
Interest income totaled 20.0 billion yen, down by 7.8 billion yen from the prior fiscal year. Fees and commissions totaled 17.2 billion yen, down by 3.7 billion yen from the prior fiscal year. Trading income totaled 0.4 billion yen, up by 0.2 billion yen from the prior fiscal year. Other ordinary income totaled 14.5 billion yen, down by 2.1 billion yen from the prior fiscal year. Other income totaled 1.0 billion yen, up by 0.4 billion yen from the prior fiscal year.
• Ordinary expenses totaled 55.7 billion yen, down by 14.0 billion yen from the prior fiscal year.
Interest expense totaled 7.7 billion yen, up by 3.1 billion yen from the prior fiscal year. Fees and commissions paid totaled 2.5 billion yen, mostly unchanged from the prior fiscal year. General and administrative expenses totaled 45.2 billion yen, down by 16.2 billion yen from the prior fiscal year. Other expenses totaled 0.1 billion yen, down by 0.7 billion yen from the prior fiscal year.
• Ordinary loss was 2.4 billion yen compared to ordinary loss of 3.4 billion yen in the prior fiscal year.
• Extraordinary income of 42.1 billion yen is from the Retail Banking Business divestiture.
• Income before income taxes (including extraordinary income and loss) was 39.3 billion yen compared to loss before income taxes of 6.0 billion yen in the prior fiscal year.
Assets, liabilities, net assets, cash flows, and capital adequacy ratio were as follows;
• As of March 31, 2016, total assets were 3,404.3 billion yen, down by 1,652.8 billion yen compared to March 31, 2015.
Cash and deposits to other banks (due from banks) totaled 1,942.5 billion yen, down by 1,151.0 billion yen from the prior fiscal year end. Receivables under resale agreements were 438.6 billion yen, down by 30.1 billion yen from the prior fiscal year end. Trading assets were 22.1 billion yen, down by 13.9 billion yen from the prior fiscal year end. Available for sales securities (“AFS securities”) were 100.8 billion yen, down by 400.0 billion yen from the prior fiscal year end. Loans and bills discounted totaled 349.8 billion yen, down by 135.2 billion yen from the prior fiscal year end.
• As of March 31, 2016, total liabilities were 3,128.0 billion yen, down by 1,676.9 billion yen compared to March 31, 2015.
Deposits totaled 1,985.2 billion yen, down by 1,939.6 billion yen from the prior fiscal year end. Foreign exchanges totaled 584.0 billion yen, up by 61.0 billion yen from the prior fiscal year end.
• As of March 31, 2016, total net assets were 276.3 billion yen, up by 24.0 billion yen from the prior fiscal year end.
20 Citibank Japan Ltd.
• Cash flows from operating activities in the year totaled 993.6 billion yen (Inflow). Cash from investing activities was 1,851.0 billion yen (Outflow). As a result, cash and cash equivalents as of the end of the period totaled 1,519.4 billion yen.
• The capital adequacy ratio (Basel3 National standards) at the end of the period was 38.29%. (Basel3 National standards as of March 31, 2015 30.26%) 26,000 million yen (0.10 yen per share) based on resolution of the Annual General Meeting to be held on June 28, 2016 was deducted from “Capital”. (Capital Adequacy Ratio ex-payment of dividend in June was 42.26%)
Citibank Japan Ltd. 21
March 2012 March 2013 March 2014 March 2015 March 2016 Year end Year end Year end Year end Year end (Apr. 1, 2011 (Apr. 1, 2012 (Apr. 1, 2013 (Apr. 1, 2014 (Apr. 1, 2015 - Mar. 31, 2012) - Mar. 31, 2013) - Mar. 31, 2014) - Mar. 31, 2015) - Mar. 31, 2016)
Ordinary income 75,908 64,668 68,305 66,302 53,298 Ordinary profit (loss) 5,847 (1,541) 2,867 (3,478) (2,424) Net income (loss) 1,796 (1,983) 1,339 (4,454) 25,655 Capital stock 123,100 123,100 123,100 123,100 123,100 Total Net assets 265,083 262,823 256,350 252,315 276,317 Total assets 4,336,501 4,374,568 4,513,946 5,057,241 3,404,342 Deposits 3,510,460 3,541,504 3,636,024 3,924,867 1,985,244 Loans and bills discounted 299,056 330,614 356,243 485,111 349,834 Available for sale (AFS) securities 826,775 858,729 785,273 500,962 100,874 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 28.77% 28.47% 25.72% 30.26% 38.29% Dividend payment ratio - - 477.77% - 101.30% Number of employees 1,796 1,852 1,835 1,728 497
22 Citibank Japan Ltd.
Gross operating profit (Millions of Yen) March 2015 Year end March 2016 Year end (Apr. 1, 2014 - Mar. 31, 2015) (Apr. 1, 2015 - Mar. 31, 2016) Domestic International Total Domestic International Total Interest income and expenses Interest income 5,888 22,021 27,909 3,791 16,264 20,056 Interest expenses 133 4,455 4,588 123 7,592 7,715 Fees and commission Fees and commissions 13,308 7,659 20,968 9,171 8,093 17,265 Fees and commissions paid 1,698 899 2,598 1,544 1,053 2,597 Trading income and losses Trading income 383 (201) 182 16 406 423 Trading losses (15) 315 299 - - - Other ordinary income and expenses Other ordinary income 731 15,967 16,699 3,240 11,297 14,537 Other ordinary expenses 2 11 13 11 56 68 Gross operating profit 18,494 39,765 58,259 14,540 27,359 41,899 0.63% 2.35% 1.26% 0.57% 1.58% 0.98% 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 / 366)
Citibank Japan Ltd. 23
Average balance, Interest and Yield of Interest-Earning Assets / Interest-Bearing Liabilities (Millions of Yen) March 2015 Year end March 2016 Year end (Apr. 1, 2014 - Mar. 31, 2015) (Apr. 1, 2015 - Mar. 31, 2016)
Domestic International Domestic International operations operations Total operations operations Total Interest-earning assets Average balance 2,926,124 1,688,220 4,614,345 2,515,307 1,728,456 4,243,764 Interest 5,888 22,021 27,909 3,791 16,264 20,056 Yield (%) 0.20 1.30 0.60 0.15 0.94 0.47 Loans and bills Average balance 152,565 336,380 488,946 108,069 362,682 470,751 discounted Interest 1,681 5,742 7,423 1,060 5,896 6,956 Yield (%) 1.10 1.70 1.51 0.98 1.62 1.47 AFS securities Average balance 685,877 5,759 691,636 118,046 5,637 123,684 Interest 2,184 120 2,304 349 120 469 Yield (%) 0.31 2.09 0.33 0.29 2.13 0.37 Call loans Average balance 10,373 88,614 98,988 300 42,817 43,117 Interest 8 324 333 0 217 217 Yield (%) 0.08 0.36 0.33 0.03 0.50 0.50 Receivables under Average balance 293,042 428,577 721,620 3,232 468,333 471,566 resale agreements Interest 167 5,487 5,654 0 6,274 6,275 Yield (%) 0.05 1.28 0.78 0.03 1.33 1.33 Monetary claims Average balance 4,910 6 4,916 4,986 3 4,989 bought Interest 68 0 68 65 0 65 Yield (%) 1.39 1.02 1.39 1.32 1.09 1.31 Due from banks with Average balance 1,777,874 653,676 2,431,551 2,270,995 722,407 2,993,403 interest Interest 1,757 9,732 11,490 2,262 3,211 5,474 Yield (%) 0.09 1.48 0.47 0.09 0.44 0.18 Interest-bearing liabilities Average balance 2,071,235 2,403,316 4,474,552 1,613,061 2,398,789 4,011,850 Interest 133 4,455 4,588 123 7,592 7,715 Yield (%) 0.00 0.18 0.10 0.00 0.31 0.19 Deposits Average balance 2,057,527 1,824,182 3,881,710 1,603,429 1,823,825 3,427,255 Interest 125 4,427 4,552 116 7,572 7,689 Yield (%) 0.00 0.24 0.11 0.00 0.41 0.22 Negotiable Average balance 2,115 - 2,115 - - - certificates of deposit Interest 0 - 0 - - - Yield (%) 0.04 - 0.04 - - - Call money Average balance 378 1,355 1,733 - 2,529 2,529 Interest 0 1 1 - 5 5 Yield (%) 0.00 0.09 0.07 - 0.20 0.20 Borrowed money Average balance 8 - 8 13 232 245 Interest 0 - 0 0 1 1 Yield (%) 0.09 - 0.09 0.06 0.82 0.78
(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.
24 Citibank Japan Ltd.
Analysis of interest received / paid (Millions of Yen) March 2015 Year end March 2016 Year end (Apr. 1, 2014 - Mar. 31, 2015) (Apr. 1, 2015 - Mar. 31, 2016)
Domestic International Domestic International Total Total operations operations operations operations
Interest received Volume-related increase (decrease) 1,582 (659) 4,093 (826) 524 (2,241) Rate-related increase (decrease) (1,821) (1,499) (6,491) (1,269) (6,281) (5,611) Net increase (decrease) (238) (2,158) (2,397) (2,096) (5,757) (7,853) Loans and bills Volume-related increase (decrease) (183) 2,061 1,722 (489) 447 (274) discounted Rate-related increase (decrease) (65) 1,218 1,309 (131) (293) (192) Net increase (decrease) (248) 3,280 3,031 (620) 154 (466) AFS Securities Volume-related increase (decrease) (645) (1) (666) (1,760) (2) (1,874) Rate-related increase (decrease) (53) 1 (33) (74) 2 39 Net increase (decrease) (699) - (699) (1,834) 0 (1,835) Call loans Volume-related increase (decrease) (1) (266) (262) (8) (164) (184) Rate-related increase (decrease) (1) 45 38 0 57 68 Net increase (decrease) (2) (221) (223) (8) (107) (115) Receivables under Volume-related increase (decrease) (72) 797 (202) (144) 508 (1,950) resale agreements Rate-related increase (decrease) (84) (146) 697 (21) 278 2,571 Net increase (decrease) (156) 651 494 (166) 787 620 Monetary claims Volume-related increase (decrease) 23 0 22 1 0 1 bought Rate-related increase (decrease) (9) 0 (9) (3) 0 (3) Net increase (decrease) 13 0 13 (2) 0 (2) Due from banks Volume-related increase (decrease) 908 (3,155) 7,114 443 1,017 2,640 with interest Rate-related increase (decrease) (39) (2,615) (12,016) 61 (7,538) (8,656) Net increase (decrease) 869 (5,771) (4,902) 505 (6,520) (6,015) Interest paid Volume-related increase (decrease) 15 436 369 (29) (8) (462) Rate-related increase (decrease) (38) 657 700 19 3,145 3,590 Net increase (decrease) (23) 1,093 1,070 (9) 3,137 3,127 Deposits Volume-related increase (decrease) 14 (273) 25 (27) 0 (499) Rate-related increase (decrease) (28) 1,358 1,045 19 3,145 3,636 Net increase (decrease) (13) 1,084 1,071 (8) 3,145 3,136 Negotiable Volume-related increase (decrease) (12) - (12) 0 - 0 certificates of deposit Rate-related increase (decrease) (1) - (1) - - - Net increase (decrease) (14) - (14) 0 - 0 Call money Volume-related increase (decrease) 0 0 1 0 1 0 Rate-related increase (decrease) - 0 0 - 2 3 Net increase (decrease) 0 1 1 0 3 3 Borrowed Money Volume-related increase (decrease) 0 - 0 0 1 0 Rate-related increase (decrease) 0 - 0 0 - 1 Net increase (decrease) 0 - 0 - 1 1
（Note）Changes due to a combination of volume - and rate - related increase (decrease) have been included in rate - related increase (decrease).
Citibank Japan Ltd. 25
Yield on interest-earning assets, Yield on interest-bearing liabilities, Net yield/Interest rate (%)
March 2015 Year end March 2016 Year end (Apr. 1, 2014 - Mar. 31, 2015) (Apr. 1, 2015 - Mar. 31, 2016)
Domestic International Total Domestic International Total
Yield on interest-earning 0.20 1.30 0.60 0.15 0.94 0.47 assets
Yield on interest-bearing liabilities including 1.59 1.31 1.44 1.56 1.12 1.30 general expenses
Net yield / Interest rate (1.39) (0.01) (0.84) (1.41) (0.18) (0.82)
Fees and commissions (Millions of Yen) March 2015 Year end March 2016 Year end (Apr. 1, 2014 - Mar. 31, 2015) (Apr. 1, 2015 - Mar. 31, 2016)
Domestic International Total Domestic International Total
Fees and commissions 13,308 7,659 20,968 9,171 8,093 17,265 Fees and commissions on 1,771 3,677 5,448 1,753 3,516 5,270 fund transfer Other fees and commissions 11,537 3,982 15,520 7,417 4,577 11,994
Fees and commissions paid 1,698 899 2,598 1,544 1,053 2,597 Fees and commissions on 459 311 771 442 292 734 fund transfer Other fees and commissions 1,238 587 1,826 1,101 761 1,863
Fees and commissions profit 11,610 6,759 18,370 7,627 7,040 14,667
26 Citibank Japan Ltd.
Trading income and losses (Millions of Yen) March 2015 Year end March 2016 Year end (Apr. 1, 2014 - Mar. 31, 2015) (Apr. 1, 2015 - Mar. 31, 2016) Domestic International Total Domestic International Total
Trading income 383 (201) 182 16 406 423
Gains on trading account ------securities transactions
Gains on securities and derivatives related to 383 (201) 182 3 396 400 trading transactions
Gains on trading-related - - - 12 9 22 derivatives transactions
Other trading income ------
Trading losses (15) 315 299 - - - Losses on trading securities and ------Derivatives Losses on securities and derivatives related to ------trading transactions Losses on trading- related derivatives (15) 315 299 - - - transactions
Other trading losses ------
Trading profit 399 (516) (117) 16 406 423
Citibank Japan Ltd. 27
Other ordinary income and expenses (Millions of Yen) March 2015 Year end March 2016 Year end (Apr. 1, 2014 - Mar. 31, 2015) (Apr. 1, 2015 - Mar. 31, 2016) Domestic International Total Domestic International Total
Other ordinary income 731 15,967 16,699 3,240 11,297 14,537
Gains on foreign - 14,092 14,092 - 8,645 8,645 exchange transactions
Gains on sales of bonds 725 - 725 3,073 - 3,073
Gains on redemption of ------bonds
Income from derivatives other than for trading or ------hedging
Others 5 1,875 1,881 167 2,651 2,818
Other ordinary expenses 2 11 13 11 56 68
Losses on foreign ------exchange transactions Losses on sales of 2 - 2 - - - bonds Losses on redemption ------of bonds Losses on devaluation ------of bonds
Expenses on derivatives other than ------for trading or hedging
Others 0 11 11 11 56 68
Other ordinary profit 729 15,956 16,685 3,228 11,240 14,468
28 Citibank Japan Ltd.
General and administrative expenses (Millions of Yen) March 2015 Year end March 2016 Year end (Apr. 1, 2014 - Mar. 31, 2015) (Apr. 1, 2015 - Mar. 31, 2016)
Salary 20,950 15,429 Accrued pension cost 4,562 2,476 Welfare expenses 94 70 Depreciation cost 1,215 489 Rental fees on land, buildings, and machinery 5,660 3,393 Maintenance cost 215 141 Supplies cost 370 211 Utilities cost 134 84 Expenses of business trip 190 152 Communication charge 964 638 Advertising expenses 910 1,093 Membership, Contribution and Business promotion 188 202 Tax and public charges 1,635 2,078 Others 24,344 18,744 Total 61,437 45,206
Profit ratio (%) March 2015 Year end March 2016 Year end (Apr. 1, 2014 - Mar. 31, 2015) (Apr. 1, 2015 - Mar. 31, 2016)
Ordinary profit to total assets (0.06) (0.05) Ordinary profit to capital (net assets) (1.36) (0.91) Net income to total assets (0.08) 0.56 Net income to capital (net assets) (1.74) 9.70
Ordinary profit ÷ (Number of days of the period / 366) 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 / 366) Ordinary profit to capital (net assets) = ×100 （Beginning net assets + net assets）÷2
Net income ÷ (Number of days of the period / 366) 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 / 366) Net income to capital (net assets) = ×100 （Beginning net assets + net assets）÷2
Citibank Japan Ltd. 29
Average balance by deposit type (Millions of Yen)
As of Mar. 31, 2015 As of Mar. 31, 2016
Domestic International Total Domestic International Total Liquid deposits 1,953,558 - 1,953,558 1,498,253 - 1,498,253
Time deposits 97,020 - 97,020 100,433 - 100,433 Negotiable certificates of 2,115 - 2,115 - - - deposit Others 6,948 1,824,182 1,831,131 4,743 1,823,825 1,828,568 Total 2,059,642 1,824,182 3,883,825 1,603,429 1,823,825 3,427,255
(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, 2015 As of Mar. 31, 2016
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 70,496 12,205 9,649 1,210 338 7 93,907 35,960 5,000 2 - - - 40,962 time deposits
Floating interest time - - - 125 - - 125 125 - - - - - 125 deposits
Others ------
Total 70,496 12,205 9,649 1,336 338 7 94,033 36,085 5,000 2 - - - 41,088
30 Citibank Japan Ltd.
Balance by loan type
(1) Balance at the end of period (Millions of Yen)
As of Mar. 31, 2015 As of Mar. 31, 2016
Domestic International Total Domestic International Total Loans on bills 10,565 1,645 12,210 3,740 - 3,740 Loans on deeds 116,084 288,810 404,894 22,809 251,970 274,779 Overdrafts 14,959 52,412 67,372 6,664 64,001 70,665 Bills discounted 632 - 632 648 - 648 Total 142,243 342,867 485,111 33,862 315,971 349,834
(2) Average balance (Millions of Yen)
As of Mar. 31, 2015 As of Mar. 31, 2016
Domestic International Total Domestic International Total Loans on bills 9,864 1,432 11,297 7,720 856 8,576 Loans on deeds 119,617 290,993 410,610 85,727 284,541 370,269 Overdrafts 22,343 43,955 66,299 14,071 77,284 91,355 Bills discounted 739 - 739 549 - 549 Total 152,565 336,380 488,946 108,069 362,682 470,751
Balance of loans and bills discounted by remaining tenor (Millions of Yen)
As of Mar. 31, 2015 As of Mar. 31, 2016
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 17,508 15,138 14,073 98 124 46,943 1,211 1,000 - - 11,126 13,337 loans and bills discounted
Floating interest 118,315 68,819 73,738 57,439 119,854 438,168 95,210 65,362 54,984 56,636 64,303 336,496 loans and bills discounted
Total 135,823 83,957 87,812 57,538 119,979 485,111 96,421 66,362 54,984 56,636 75,430 349,834
Citibank Japan Ltd. 31
Balance of loans and bills discounted by collateral type (Millions of Yen)
As of Mar. 31, 2015 As of Mar. 31, 2016
Type of collateral pledged Loans and bills discounted Loans and bills discounted Deposits 6,325 - Securities 3,908 - Claims - - Commodities - - Real estates 63,090 7,654 Foundations - - Others 18,700 26,492 Sub-total 92,025 34,147 Guarantees 78,831 82,013 Clean credits 314,254 233,673 Total 485,111 349,834
Balance of customers’ liabilities for acceptances and guarantees by collateral type (Millions of Yen)
As of Mar. 31, 2015 As of Mar. 31, 2016
Customers' liabilities for acceptances Customers' liabilities for acceptances Type of collateral pledged and guarantees and guarantees Deposits 8,068 40,526 Securities 72,198 47,317 Claims - - Commodities - - Real estates - - Foundations - - Others - - Sub-total 80,267 87,843 Guarantees - - Clean credits 58,848 58,265 Total 139,115 146,109
Balance of loans and bills discounted by use (Millions of Yen)
As of Mar. 31, 2015 As of Mar. 31, 2016
Lending for equipments 154,321 118,214 Lending for operations 330,789 231,620 Total 485,111 349,834
32 Citibank Japan Ltd.
Balance of loans and bills discounted by industry (Millions of Yen)
As of Mar. 31, 2015 As of Mar. 31, 2016
Amount (%) Amount (%) Domestic Manufacturing 59,582 12.28% 63,292 18.09% Agriculture / Forestry - - - - Fishery - - - - Mining - - - - Construction - - - - Electric/gas/heat supply/water - - - - Information and telecommunications 540 0.11% 540 0.15% Shipping / transportation 18,864 3.89% 10,277 2.94% Wholesale / retail 43,752 9.01% 39,262 11.22% Finance / insurance 73,257 15.10% 17,621 5.04% Real estate 13,122 2.71% 21,709 6.21% Other Services 1,152 0.23% 11,833 3.38% Central / Local government - - - - Individuals 65,942 13.60% - - Overseas 208,896 43.07% 185,297 52.97% Total 485,111 100% 349,834 100%
Balance of loans and bills discounted for small and medium size businesses (Millions of Yen)
As of Mar. 31, 2015 As of Mar. 31, 2016
Total loans and bills discounted (A) 485,111 349,834 Balance of loans for small and medium size 262,659 153,186 corporations etc. (B) (B) / (A) 54.14% 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
Citibank Japan Ltd. 33
Loans - to - deposits ratio (%)
As of Mar. 31, 2015 As of Mar. 31, 2016
Domestic International Total Domestic International Total Balance at the end of period 7.10 17.82 12.35 3.92 28.12 17.62
Average balance 7.40 18.44 12.58 6.73 19.88 13.73
(Note) Negotiable certificates of deposit are included in “deposits”.
Allowance for loan losses (Millions of Yen) As of Mar. 31, 2015 As of Mar. 31, 2016
Beginning Ending Beginning Ending Category Increased Decreased Increased Decreased balance Balance balance Balance Allowance for general 1,014 1,245 1,014 1,245 1,245 957 1,245 957 loan losses
Allowance for specific 913 1,044 913 1,044 1,044 23 1,044 23 loan losses
Specified overseas claim ------reserve account
Total 1,928 2,290 1,928 2,290 2,290 981 2,290 981
Loan write-offs
None
Risk management Loans (Millions of Yen) As of Mar. 31, 2015 As of Mar. 31, 2016 Bankrupt loans 4 - Past due loans/non-accrual loans 1,902 3,374 Past due loans (3 months or more) 459 - Restructured loans 175 - Total 2,542 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)”.
34 Citibank Japan Ltd.
Claims under the Financial Reconstruction Law (Millions of Yen)
As of Mar. 31, 2015 As of Mar. 31, 2016
Bankrupt / De facto Bankrupt 911 - In Danger of Bankrupt 995 3,384 Need attention 635 - Subtotal (A) 2,542 3,384 Normal 754,372 1,567,592 Total (B) 756,915 1,570,977 (A) / (B) 0.33% 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.
Citibank Japan Ltd. 35
Average balance of securities related to trading transactions (Millions of Yen)
As of Mar. 31, 2015 As of Mar. 31, 2016
Trading Japanese government bonds 79,526 444 Trading municipal bonds - - Trading government guaranteed bonds - - Other trading securities 16,916 17,465 Total 96,442 17,909
Balance of AFS securities by remaining tenor (Millions of Yen) As of Mar. 31, 2015 As of Mar. 31, 2016
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 120,408 358,983 2,093 - - 481,484 - 86,154 3,107 - - 8,926 bonds Municipal bonds ------
Corporate bonds - - - 13,779 - 13,779 - - - 6,061 - 6,061
Stocks ------
Foreign bonds - 5,698 - - - 5,698 5,550 - - - - 5,550
Foreign stocks ------
Others ------
Total 120,408 364,681 2,093 13,779 - 500,962 5,550 86,154 3,107 6,061 - 100,874
Average balance of AFS securities (Millions of Yen)
As of Mar. 31, 2015 As of Mar. 31, 2016
Domestic International Total Domestic International Total Japanese government bonds 671,459 - 671,459 111,711 - 111,711 Municipal bonds ------Corporate bonds 14,418 - 14,418 6,335 - 6,335 Stocks ------Foreign bonds - 5,759 5,759 - 5,637 5,637 Foreign stocks ------Others ------Total 685,877 5,759 691,636 118,046 5,637 123,684
AFS securities - to - deposits ratio (%) As of Mar. 31, 2015 As of Mar. 31, 2016
Domestic International Total Domestic International Total Balance at the end of period 24.74 0.29 12.76 11.06 0.49 5.08 Average balance 33.30 0.31 17.80 7.36 0.30 3.60
(Note) Negotiable certificates of deposit are included in “deposits.”
36 Citibank Japan Ltd.
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, 2015 As of March 31, 2016 Account Name Amount Amount Asset Cash and due from banks 3,093,519 1,942,504 Cas h 7,707 442 Due from banks 3,085,811 1,942,062 Call loans 3,365 - Receivables under resale agreements 468,825 438,648 Monetary claims bought 4,675 5,382 Trading assets 36,121 22,139 Securities related to trading transactions 21,377 8,994 Trading-related financial derivatives 14,744 13,145 Securities 500,962 100,874 Government bonds 481,484 89,261 Corporate bonds 13,779 6,061 Other securities 5,698 5,550 Loans and bills discounted 485,111 349,834 Bills discounted 632 648 Loans on bills 12,210 3,740 Loans on deeds 404,894 274,779 Overdrafts 67,372 70,665 Foreign exchanges 127,098 70,499 Due from foreign banks (our accounts) 28,111 19,002 Due from foreign banks (their accounts) 26,541 4,195 Foreign bills bought 70,541 47,302 Foreign bills receivable 1,903 - Other assets 194,637 325,894 Prepaid expenses 1,292 716 Accrued income 5,344 2,264 Accrued income tax refunds 635 - Initial margins of futures markets 109 - Variation margins of futures markets 56 - Derivatives other than for trading-assets 158,513 282,434 Cash collateral paid for financial instruments 21,262 31,500 Others 7,423 8,978 Tangible fixed assets 2,090 5 Buildings 1,381 0 Construction in progress 275 - Other tangible fixed assets 433 4 Intangible fixed assets 573 24 Softw are 573 24 Deferred tax assets 3,435 3,406 Customers’ liabilities for acceptances and guarantees 139,115 146,109 Allow ance for loan losses (2,290) (981) Total assets 5,057,241 3,404,342
Citibank Japan Ltd. 37
(Millions of Yen)
As of March 31, 2015 As of March 31, 2016 Account Name Amount Amount Liabilities Deposits 3,924,867 1,985,244 Current deposits 285,034 364,679 Ordinary deposits 1,609,135 452,541 Time deposits 94,033 41,088 Other deposits 1,936,663 1,126,935 Call money 1,803 2,811 Trading liabilities 14,865 13,130 Derivatives of securities related to trading transactions 18 - Trading-related financial derivatives 14,847 13,130 Borrow ed money 7 - Borrow ings from other banks 7 - Foreign exchanges 523,010 584,093 Due to foreign banks (their accounts) 523,010 583,201 Due to foreign banks (our accounts) - 892 Other liabilities 197,861 392,969 Domestic exchange settlement account (credit) 297 - Income taxes payable 218 13,575 Accrued expenses 3,775 4,496 Unearned revenue 1,259 1,343 Derivatives other than for trading-liabilities 165,130 270,827 Cash collateral received for financail instruments 19,481 98,342 Asset retirement obligations 683 8 Others 7,013 4,376 Provision for bonuses 459 249 Provision for directors' bonuses 77 54 Provision for retirement benefits 2,481 3,354 Provision for directors' retirement benefits 50 7 Other provision 325 - Acceptances and guarantees 139,115 146,109 Total liabilities 4,804,926 3,128,025 Net Assets Capital stock 123,100 123,100 Capital surplus 121,100 121,100 Legal capital surplus 121,100 121,100 Retained earnings 5,503 31,159 Legal retained earnings 2,000 2,000 Other retained earnings 3,503 29,159 Retained earnings brought forw ard 3,503 29,159 Total shareholders' equity 249,703 275,359 Valuation difference on AFS securities 2,612 958 Total valuation and translation adjustments 2,612 958 Total net assets 252,315 276,317 Total liabilities and net assets 5,057,241 3,404,342
38 Citibank Japan Ltd.
< Statement of Income >
(Millions of Yen) From April 1, 2014 From April 1, 2015 Account Name to March 31, 2015 to March 31, 2016 Ordinary income 66,302 53,298 Interest income 27,909 20,056 Interest on loans and bills discounted 7,423 6,956 Interest and dividends on securities 2,304 469 Interest on call loans 333 217 Interest on receivables under resale agreements 5,654 6,275 Interest on deposits with banks 11,490 5,474 Other interest income 702 662 Fees and commissions 20,968 17,265 Fees and commissions on fund transfer 5,448 5,270 Other fees and commissions 15,520 11,994 Trading income 182 423 Gains on securities and derivatives related to trading transactions 182 400 Gains on trading-related derivatives transactions - 22 Other ordinary income 16,699 14,537 Gains on foreign exchange transactions 14,092 8,645 Gains on sales of bonds 725 3,073 Others 1,881 2,818 Other income 542 1,016 Reversal of allowance for loan losses - 461 Recoveries of written-off claims 4 2 Others 537 553 Ordinary expenses 69,780 55,723 Interest expenses 4,588 7,715 Interest on deposits 4,552 7,689 Interest on negotiable certificates of deposit 0 - Interest on call money 1 5 Interest on borrowings and rediscounts 0 1 Other interest expenses 33 19 Fees and commissions paid 2,598 2,597 Fees and commissions on fund transfer 771 734 Other fees and commissions 1,826 1,863 Trading Losses 299 - Losses on trading-related derivatives transactions 299 - Other ordinary expenses 13 68 Losses on sales of bonds 2 - Others 11 68 General and administrative expenses 61,437 45,206 Other expenses 842 135 Provision of allowance for loan losses 396 - Others 445 135 Ordinary profit (loss) (3,478) (2,424) Extraordinary income - 42,159 Gain from demerger - 42,159 Extraordinary loss 2,557 389 Losses on disposal of fixed assets 1,174 130 Others 1,382 258 Income (loss) before income taxes (6,036) 39,345 Income taxes - current 54 12,832 Income taxes - deferred (1,636) 857 Total income taxes (1,582) 13,689 Net income (loss) (4,454) 25,655
Citibank Japan Ltd. 39
From April 1, 2014 to March 31, 2015 (Millions of Yen) Shareholders' equity Valuation and translation adjustments Total net Capital stock Capital surplus Retained earnings Total Valuation Deferred gains Total valuation assets Legal capital Total Capital Legal Other retained Total retained shareholders' difference on or losses on and translation surplus surplus retained earnings earnings equity AFS securities hedges adjustments earnings Retained earnings brought forward
Balance at beginning 123,100 121,100 121,100 2,000 7,396 9,396 253,596 2,753 - 2,753 256,350 of the period
Cumulative effects of changes in 560 560 560 560 accounting policies
Restated balance 123,100 121,100 121,100 2,000 7,957 9,957 254,157 2,753 - 2,753 256,911
Changes in amounts during the period
Net loss (4,454) (4,454) (4,454) (4,454)
Net changes in amounts other than (141) (141) (141) shareholders' equity Total changes in amounts during the - - - - (4,454) (4,454) (4,454) (141) - (141) (4,595) period
Balance at the end 123,100 121,100 121,100 2,000 3,503 5,503 249,703 2,612 - 2,612 252,315 of the current period
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
40 Citibank Japan Ltd.
< Statement of Cash Flows >
(Millions of Yen)
From April 1, 2014 From April 1, 2015 Account Name to March 31, 2015 to March 31, 2016
Cash flows from operating activities Income (loss) before income taxes (6,036) 39,345 Depreciation 1,215 489 Increase (decrease) in allowance for loan losses 361 (465) Increase (decrease) in provision for bonuses 11 412 Increase (decrease) in provision for retirement benefits 1,437 2,068 Interest income (27,909) (20,056) Interest expenses 4,588 7,715 Losses (gains) on sales of AFS securities (723) (3,073) Losses (gains) on foreign exchanges (33) (9) Losses (gains) on dispositions of fixed assets 1,174 130 Gains on transfer of business - (42,159) Net decrease (increase) in trading assets 145,331 13,981 Net increase (decrease) in trading liabilities (11,289) (1,735) Net decrease (increase) in loans and bills discounted (128,867) 66,535 Net increase (decrease) in deposits 288,843 422,284 Net increase (decrease) in negotiable certificates of deposit (6,000) - Net decrease (increase) in due from banks (excluding cash equivalents) (155,269) 291,473 Net decrease (increase) in call loans 236,838 3,365 Net increase (decrease) in call money 1,803 1,008 Net increase (decrease) in borrowed money 2 (7) Net decrease (increase) in foreign exchanges - assets (15,513) 56,598 Net increase (decrease) in foreign exchanges - liabilities 176,799 61,082 Interest received - cash basis 30,124 22,254 Interest paid - cash basis (3,842) (7,232) Net increase (decrease) in reserve for others 77 (52) Net decrease (increase) in receivables under resale agreements 262,831 30,176 Net decrease (increase) in monetary claims bought (393) (707) Net decrease (increase) in other assets (36,797) (138,309) Net increase (decrease) in other liabilities 57,613 188,019 Others, net (10) (131) Sub-total 816,367 993,003 Income taxes paid - cash basis (1,855) - Income taxes refunded - cash basis - 644 Net cash provided by (used in) operating activities 814,512 993,647 Cash flows from investing activities Purchases of AFS securities (102,755) (73,399) Proceeds from sales of AFS securities 348,826 466,285 Proceeds from redemption of AFS securities 36,299 7,742 Net increase (decrease) from transfer of business - (2,251,778) Purchases of tangible fixed assets (346) (27) Purchases of intangible fixed assets (158) - Proceeds from sales of intangible fixed assets - 148 Others, net (39) - Net cash provided by (used in) investing activities 281,826 (1,851,030) Cash flows from financing activities Net cash provided by (used in) financing activities - - Effect of foreign exchange rate changes on cash and cash equivalents 33 - Net increase (decrease) in cash and cash equivalents 1,096,371 (857,382) Cash and cash equivalents at the beginning of the fiscal year 1,280,438 2,376,810 Cash and cash equivalents at the end of the fiscal year 2,376,810 1,519,427
Citibank Japan Ltd. 41
Amounts less than one million yen have been omitted.
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. 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 (mainly 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. 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.
42 Citibank Japan Ltd.
(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.
Citibank Japan Ltd. 43
Notes to Balance Sheet
1. For securities held as collateral under “receivables under resale agreements” and “derivative transactions” which can be sold or pledged without restrictions, 42,997 million yen were pledged and 430,641 million yen were held by CJL as of March 31, 2016.
2. There was no Bankrupt loans. Past due loans/non-accrual loans were 3,374 million yen. “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. “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. There was no Past due loans (3 months or more). “Past due loans (3 months or more)” are loans on which the principal or interest is past due for three months or more, excluding “Bankrupt loans” and “Past due loans/non-accrual loans”.
4. There was no Restructured loans. “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)”.
5. The total amount of “Bankrupt loans”, “Past due loans/non-accrual loans”, “Past due loans (3 months or more)” and “Restructured loans” were 3,374 million yen. Claims shown from 2 to 5 are the amounts before the appropriate allowance.
6. Bills discounted are treated as financial transactions in accordance with JICPA Industry Audit Committee Report No.24. CJL has rights to sell or pledge bank acceptance bought, commercial bills discounted, documentary bills and foreign bills bought without restrictions. The total face value was 47,950 million yen.
7. AFS securities of 89,261 million yen were pledged as collateral for settlements of FX transactions. In addition, Other assets include cash collateral paid for financial instruments of 31,500 million yen and other guarantee deposits of 2,260 million yen.
8. Overdraft facilities and commitment line contracts on loans are agreements to lend to customers up to a prescribed amount, as long as there is no violation of any condition established in the contracts. The amount of unused commitments was 305,126 million yen and the amount of those with remaining period within one year was 192,285 million yen. Since many of these commitments are expected to expire without being drawn upon, the total amount of unused commitments does not necessarily represent actual future cash flow requirements. Many of these commitments include clauses under which we can reject an application from customers or reduce the contract amounts in the event that economic conditions change, we need to secure claims, or other events occur. In addition, we may request the customers to pledge collateral such as premises and securities at the time of the contracts, and take necessary measures such as monitoring customers’ financial positions, revising contracts when need arises and securing claims after contracts are made on a periodic basis.
9. Accumulated depreciation on tangible fixed assets: 216 million yen.
10. Monetary assets to affiliates amounted to 640,550 million yen.
11. Monetary liabilities to affiliates amounted to 1,266,450 million yen.
12. Dividend is subject to the limitation of article 18 of the Banking law. Under the Banking law of Japan, 20% of the retained earnings decreased by dividends shall be appropriated as a Legal retained earnings until the aggregate amount of Legal capital surplus and Legal retained earnings equals the amount of Capital stock.
44 Citibank Japan Ltd.
Notes to Statement of Income
1. The amount of the pending settlement payment is recorded in Others shown in Extraordinary loss, reflecting the fact that CJL reached settlement with the plaintiffs in the US class action lawsuit with regard to the Yen LIBOR/TIBOR case.
2. Income from transactions with affiliates Total income of funding transaction 3,308 million yen Total income of fees and commissions 2,014 million yen Total income of other ordinary transactions 105,896 million yen Total income of other transactions 77 million yen Expenses from transactions with affiliates Total expenses of funding transaction 5,848 million yen Total expenses of fees and commissions 272 million yen Total expenses of other ordinary transactions 56 million yen million yen Total expenses of other transactions 6,537
3. 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 709,182 Due from banks 421,282 transaction (*2) & Accrued 457 interest 3,151 income
Fx 197,487 Other & 197,487 (*3) Assets Derivative
Business 760,190 Deposit 561,519 transaction (*2) & Accrued 1,692 interest 5,838 expenses
South Dakota, Due to USD 751 100% Funding / Settlement of 421,287 Parent Citibank, N.A. United Banking ― foreign banks 512,953 Million (indirect) Lending foreign exchange (*2) States of (their accounts) America
Other 98,262 98,262 Fx liabilities (*3) & Derivative FX / Derivative ― 85,847 Margin Liability
Customers’ liabilities for ― 7,366 Guarantees acceptances and & guarantees fee 4 10 Unearned revenue
Citibank Due to Subsidiary of Taiwan, TWD 66,033 Funding / Settlement of 35,667 Taiwan Banking ― ― foreign banks 28,617 parent Taipei Million Lending foreign exchange (*2) Limited (their accounts)
*1 Condition of transactions and its policy are decided as same as third party transactions. *2 Average balance for amount of transaction *3 Valuation difference based on year end market rate.
Citibank Japan Ltd. 45
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.
Dividends with Record Dates on or before March 31, 2016 and Effective Dates after March 31, 2016. The following matters relating to dividends were approved at the Annual General Meeting of Shareholders held on June 28, 2016.
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
1. Cash and Cash Equivalents consist of cash and due from Bank of Japan included in Cash and Due from Banks on the balance sheet.
As of March 31, 2016 (Millions of Yen) Cash and Due from Banks 1,942,504 Due from Banks excluding Bank of Japan (423,076) Cash and Cash Equivalents 1,519,427
2. Book value of assets and liabilities associated with divestiture of CJL's Retail Banking business 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 2,296,106 Other 74,171 Total assets 2,370,277 Deposits (2,361,907) Other (8,370) Total liabilities (2,370,277) Gains on transfer of business 42,159 Transfer value 42,159 Cash and Cash Equivalents (2,293,938) Net increase (decrease) from transfer of business (2,251,778)
46 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 retail and 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
Citibank Japan Ltd. 47
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. CJL market risk amount for trading activities (probable loss amount) as of March 31, 2016 was 9 million yen. 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 April 2015 through March 2016, no 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. CJL has exercised results that the net income before taxes would increase by 4,526 million yen on the scenario that interest rate to increase by 100 basis points (1%) for total portfolio, by 4,112 million yen on the scenario that benchmark JPY interest rate to increase by 100 basis points (1%) as of March 31, 2016. On the same basis, CJL's net income before taxes would increase by 691 million yen on the scenario that benchmark USD interest rate to increase by 100 basis points (1%). These results are based on the stable risk variables excluding interest rates, and no correlation between interest rates and other risk variables are considered in the calculation. In case of any unexpected moves over the 100 basis points (1%) moving range, there can be larger effect than the reported effect amounts on P&L.
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.
48 Citibank Japan Ltd.
2．Fair Value of Financial Instruments
Fair value and balance sheet amount of financial instruments as of March 31, 2016 are shown below. (Millions of Yen) Balance sheet Fair value Difference amount (1) Cash and due from banks 1,942,504 1,942,504 - (2) Receivables under resale agreements 438,648 439,381 733 (3) Monetary claims bought (*1) 5,377 5,377 - (4) Trading assets Trading securities 8,994 8,994 - (5) Securities (*1) Other securities 100,872 100,872 - (6) Loans and bills discounted 349,834 Allowance for loan losses (*1) (627) 349,206 359,407 10,200 (7) Foreign exchange (*1) 70,471 70,471 - Total Assets 2,916,076 2,927,009 10,933 (1) Deposits 1,985,244 1,988,467 3,223 (2) Call money 2,811 2,811 - (3) Foreign exchange 584,093 584,093 - Total Liabilities 2,572,150 2,575,373 3,223 Derivative transactions (*2) Trading 11,622 11,622 - Total derivative transactions 11,622 11,622 -
Others Contract amount Fair value （ ） Overdraft facilities and commitment line *3 305,126 3,908
(*1) General allowance for loan losses and specific allowance for loan losses provided to “Loans and bills discounted” are separately shown in the above table. Allowance for loan losses provided to “Monetary claims bought”, “Securities” and “Foreign exchange” are directly deducted from the book value due to immateriality. (*2) Derivatives included in “Trading assets”, “Trading liabilities”, “Other assets” and “Other liabilities” are shown together. Negative amount indicates in case of liabilities exceeding the assets. (*3) Contract amount of Overdraft facilities and commitment line are unused amount.
(Notes) Valuation method of financial instruments (Assets) (1) Cash and due from banks For due from banks without maturity, the carrying amount is presented as the fair value, as the fair value approximates such carrying amount. For due from banks with maturity, fair value is determined as present value of total future cash flows, discounted by interest rate that would be applied to new acceptances. Total future cash flows are contractual payment of principal and interest. For due from banks with short remaining period (within 1 year), the carrying amount is presented as the fair value, as the fair value approximates such carrying amount.
(2) Receivables under resale agreements For Receivables under resale agreements with remaining period exceeding 1 year, fair value is determined as present future cash flows, discounted by interest rate that would be applied to new acceptance. Total future cash flows are contractual payment of principal and interest. For Receivables under resale agreements with short remaining period (within 1 year), the carrying amount is presented as the fair value, as the fair value approximates such carrying amount.
(3) Monetary claims bought For monetary claims bought, 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)..
Citibank Japan Ltd. 49
(4) Trading assets For securities such as bonds that are held for trading, the fair value is calculated based on their market prices.
(5) Securities For securities such as bonds that are available for sale, the fair value is calculated based on their market prices.
(6) Loans and bills discounted For loans without maturity, the carrying amount is presented as the fair value, as the fair value approximates such carrying amount because of their estimated maturity length and the interest rate conditions. For loans with short remaining period (within 1 year), the carrying amount is presented as the fair value, as the fair value approximates such carrying amount. For loan with remaining period exceeding 1 year, fair value is determined as present value of total future cash flows, discounted by interest rate that would be applied to newly accepted loans. Total future cash flows are contractual payment of principal and interest. As for the loans to bankrupt, de facto bankrupt, and potentially bankrupt borrowers, credit loss is estimated based on factors such as the present value of expected future cash flow or the expected amount to be collected from collaterals and guarantees. Since the fair value of these items approximates the carrying amount net of the currently expected credit loss amount, such carrying amount is presented as the fair value.
(7) Foreign exchange Foreign exchanges consist of foreign currency deposits with other banks (due from other foreign banks), short- term loans involving foreign currencies (due from other foreign banks), export bills etc. (purchased foreign bills), and loans on notes using import bills (foreign bills receivables). For these items, the carrying amount is presented as the fair value, as the fair value approximates such carrying amount because most of these items are deposits without maturity or have short contract term (within 1 year).
(Liabilities) (1) Deposits For demand deposits, the amount payable on demand as of balance sheet date is considered to be the fair value. Time deposits are grouped by certain maturity lengths. The fair value of such deposits is the present value discounted by expected future cash flow. The discount rate is the risk free rates adjusted with funding spread of CJL as of balance sheet date. For deposits with short remaining period (within 6 months), the carrying amount is presented as the fair value as the fair value approximates such carrying amount.
(2) Call money For Call money, 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).
(3) Foreign exchange Among foreign exchange contracts, foreign currency deposits accepted from other banks and non-resident yen deposits are deposits without maturity. Furthermore, foreign currency short-term borrowing have no maturity. Thus, for the foreign exchanges, the carrying amount is presented as the fair value as the fair value approximates such carrying amount.
(Derivative transactions) Derivatives include interest rate related instruments (interest rate futures, interest rate options, interest rate swaps, etc.), currency related instruments (forward foreign exchange, currency options, currency swaps, etc.) and bond related instruments (bond futures, bonds future options, etc.). Fair value of these derivatives are based on market prices at exchanges, discounted present values, or amount calculated under the option pricing model. Derivative for hedge accounting is interest rate swap with exceptional treatment and the fair value of this hedging swap is included in the hedged loan.
(Others) For overdraft facilities and commitment line, fair value is the present value discounted by the difference between the expected future cash flow calculated by contractual rate and fee rate that would be applied to newly acceptance at the balance sheet date for the contract with remaining period exceeding 1 year.
50 Citibank Japan Ltd.
Notes related to Deferred tax accounting 1. The main causes for the deferred tax assets and deferred tax liabilities are as follows:
Deferred tax assets (Millions of Yen) Provision for retirement benefits 1,031 Accrued Enterprise Tax 922 Accrued expense 556 Allowance for loan losses 302 Unearned Commission 290 Fixed Assets 276 Other 426 Deferred assets sub total 3,807 Valuation reserve △8 Deferred tax assets total 3,798 Deferred tax liabilities Valuation difference on AFS securities 392 Deferred tax liabilities total 392 Net deferred tax assets 3,406
2. According to the promulgation of the “Law for Partial Amendment of the Income Tax Law, etc.” (Law No. 15, 2016) and the “Law for Partial Amendment of the Local Tax Law, etc.” (Law No. 13, 2016) on March 29, 2016, the corporate income tax rate will be lowered from the fiscal years beginning on and after April 1, 2016. In conjunction with this change, the effective statutory tax rate used to measure deferred tax assets and deferred tax liabilities have changed for the timing differences expected to be resolved on the fiscal year beginning on April 1, 2016 and on April 1, 2017, and for the timing differences expected to be resolved on and after the fiscal years beginning on April 1, 2018, from the former 33.06% to 30.86% and 30.62%, respectively. As a result of this change, the amount of deferred tax assets has decreased by 249 million yen and the amount of valuation difference on AFS securities has increased by 33 million yen and the amount of income taxes-deferred has increased by 282million yen.
3. According to the issuance of “Guidance No.26 Implementation Guidance on Recoverability of Deferred Tax Assets (Accounting Standards Board of Japan, December 28, 2015), this guidance is adopted from this fiscal year.
Indicators by Share 1. Net assets per share: 1.13 yen 2. Net income per share: 0.10 yen
Citibank Japan Ltd. 51
Business Divestiture 1. Outline of the business divestiture (1) Name of the company to which the business was divested SMBC Trust Bank Ltd., a 100% subsidiary of Sumitomo Mitsui Banking Corporation (2) Businesses to be divested CJL's Retail Banking business (3) Main reason for the divestiture Citigroup Inc. (“Citigroup”), the parent company which is the 100% indirect owner of CJL, announced strategic actions to transform its Global Consumer Banking ("GCB") business by streamlining the GCB's footprint to 24 markets in October 2014. As a result, Citigroup intends to exit its consumer businesses in 11 markets including Japan, then, took a step to implement the exit by transferring CJL's Retail Banking business. (4) Date of business divestiture November 1, 2015 (5) Other information of the divestiture including its legal form The divestiture has been effected in a transaction that involves an absorption-type corporate demerger of the business.
2. Outline of accounting treatment of the business divestiture (1) We had an Extraordinary Income of 42.1 billion yen in the current fiscal year.
(2) Book value of assets and liabilities associated with CJL's Retail Banking business
Cash and due from banks 2,296,106 (Millions of Yen) Other 74,171
Total assets 2,370,277
Deposits 2,361,907
Other 8,370
Total liabilities 2,370,277
3. Outline of Ordinary income and Ordinary loss attributable to CJL's Retail Banking business for the current fiscal year on proforma basis. Ordinary income: 18,362 million yen Ordinary loss: 6,398 million yen
52 Citibank Japan Ltd.
3. Market Value Information
(1) Securities classified as trading purpose
(Millions of Yen)
As of Mar. 31, 2015 As of Mar. 31, 2016
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 21,377 56 22,139 3 as trading purposes
(2) Other securities (Millions of Yen) As of Mar. 31, 2015 As of Mar. 31, 2016
Balance sheet Acquisition Valuations Balance sheet Acquisition Valuations Type amounts cost gains/(losses) amounts cost gains/(losses) Bonds 495,264 491,599 3,664 95,323 93,992 1,330 Japanese 481,484 478,774 2,710 89,261 88,449 811 Balance sheet Government Bonds amounts Corporate Bonds 13,779 12,825 954 6,061 5,542 518 exceeding acquisition cost Others 5,698 5,500 198 5,550 5,500 50
Sub total 500,962 497,099 3,863 100,874 99,492 1,381
Balance sheet Bonds ------amounts Japanese equal or ------Government Bonds less than acquisition cost Sub total ------Total 500,962 497,009 3,863 100,874 99,492 1,381
(Note) The figures are based on market value.
(3) Other securities sold during the fiscal year
(Millions of Yen) March 2015 Year end March 2016 Year end (Apr 1, 2014 - Mar 31, 2015) (Apr 1, 2015 - Mar 31, 2016) Losses on Losses on Sold amount Gains on sales Sold amount Gains on sales sales sales Bonds 348,826 725 2 466,285 3,073 - Japanese 348,826 725 2 466,285 3,073 - Government Bonds Total 348,826 725 2 466,285 3,073 -
Citibank Japan Ltd. 53
(1) Interest rate-related transactions (Millions of Yen)
As of Mar. 31, 2015 As of Mar. 31, 2016
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 120,211 - (37) (37) - - - - traded
Sell 120,211 - (37) (37) - - - - Buy ------Future Options ------Sell ------Buy ------
Over-the - Forward rate agreements ------counter
Sell ------Buy ------Interest rate swaps 405,192 405,192 (65) (65) 143,407 143,407 118 118
Receive fixed 137,606 137,606 8,093 8,093 71,675 71,675 4,603 4,603 / pay floating swaps
Receive floating 267,586 267,586 (8,158) (8,158) 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 - - (102) (102) - - 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.
54 Citibank Japan Ltd.
(2) Currency-related transactions (Millions of Yen)
As of Mar. 31, 2015 As of Mar. 31, 2016
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 215,127 196,753 0 0 265,516 143,199 1 1 Forward contracts 17,105,124 362,322 (6,622) (6,622) 21,172,724 449,167 11,607 11,607 Sell 9,945,759 203,358 (14,094) (14,094) 12,952,117 250,788 119,960 119,960 Over-the - Buy 7,159,365 158,964 7,471 7,471 8,220,606 198,379 (108,353) (108,353) counter Currency options 685,434 273,318 5 33 552,441 272,528 0 96 Sell 342,717 136,659 (10,069) (6,472) 273,504 136,264 (7,298) (4,104) Buy 342,717 136,659 10,074 6,505 278,936 136,264 7,298 4,200 Total - - (6,617) (6,589) - - 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
Citibank Japan Ltd. 55
(4) Bond-related transactions
(Millions of Yen)
As of Mar. 31, 2015 As of Mar. 31, 2016
Over 1 Over 1 year year Contract Market Revaluation Contract Market Revaluation Category Type in in amount value gains/losses amount value gains/losses contract contract amount amount Exchange- Bond futures 3,606 - (18) (18) - - - - traded Sell 3,606 - (18) (18) - - - -
Buy ------
Bond future options ------
Sell ------
Buy ------Over-the - Bond OTC options ------counter Sell ------
Buy ------
Total - - (18) (18) - - - -
(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 Stock Exchange (TSE) etc. for exchange-traded transactions.
(5) Commodity-related transactions
None
(6) Credit derivatives transactions
None
56 Citibank Japan Ltd.
4. Major Shareholders
(As of March 31, 2016) 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%
Citibank Japan Ltd. 57
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, 2016 Basel lll （Millions of Yen)
Amounts excluded Amounts excluded as of Mar. as of Mar. Item under transitional under transitional 31, 2016 31, 2015 arrangements arrangements
Core Capital Basic Components （１） Directly issued qualifying common share or mandatory convertible preference share plus related capital surplus and retained earnings 249,359 249,703 of w hich : capital and capital surplus 244,200 244,200 of w hich : retained earnings 31,159 5,503 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 general allow ance for loan losses and eligible provisions included in Core Capital Basic Components 957 1,245 of w hich: general allow ance for loan losses 957 1,245 of w hich: eligible provisions - - Qualifying non-cumulative perpetual preferred stock subject to transitional arrangements included in Core Capital Basic Components - - Eligible capital instruments subject to transitional 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) 250,316 250,948 Core Capital Adjustments （２） Total intangible assets (net of related tax liability, excluding those relating to mortgage servicing rights) 24 - 573 - 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 - 573 - Deferred tax assets that rely on future profitability excluding those arising from temporary differences (net of related tax liability) - - 1,028 - 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 temporary differences (net of related tax liability) - - - -
58 Citibank Japan Ltd.
（Millions of Yen)
Amounts excluded Amounts excluded as of Mar. as of Mar. Item under transitional under transitional 31, 2016 31, 2015 arrangements arrangements
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 temporary differences (net of related tax liability) - - - - Amount of Core Capital Adjustments (B) 24 1,602 Capital Capital amount （（A）－（B）） (C) 250,292 249,345 Risk w eighted assets （３） Credit risk w eighted assets 588,566 699,381 of w hich: Total of items in risk w eighted assets subject to transitional arrangements - - of w hich: intangible 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 temporary 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 11,430 Total amount of Operational Risk equivalent divided by 8% 45,515 113,041 Credit risk w eighted assets adjustments - - Operational risk w eighted assets adjustments - - Total amount of Risk w eighted assets （D） 653,664 823,854 Capital Adequacy Ratio Total Capital Adequacy Ratio （（C） / （D）） 38.29% 30.26%
Citibank Japan Ltd. 59
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 Risk Management Department’s 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, 2016.
60 Citibank Japan Ltd.
2. The following items on portfolios are subject to the standardized approach
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.
Citibank Japan Ltd. 61
(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.
62 Citibank Japan Ltd.
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 (“MRM”), is independent from the business divisions and is given control authority by the Board to 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) based on the defined Citibank Japan “Market Risk Management Policy”. MRM 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.
Citibank Japan Ltd. 63
(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 (“MRM”), is independent from the business divisions and is given control authority by the Board to manage interest rate risk in the banking; and based on the defined Citibank Japan “Market Risk Management Policy”. MRM 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.
64 Citibank Japan Ltd.
QUANTITATIVE DISCLOSURE
(1) Outline of means of Raising Equity Capital
Amount of Required Capital for Credit Risk (Millions of Yen)
as of Mar. 31, 2015 as of Mar. 31, 2016
Risk weighted Required Risk weighted Required exposure Capital exposure Capital On balance sheet asset items Cash - - - - Exposures to Japanese government and central bank - - - - Exposures to foreign government and central bank 600 24 600 24 Exposures to the Bank for International Settlements - - - - Exposures to Local Authorities - - - -
Exposures to overseas public sectors other than central government 3,339 133 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 2,567 102 1,109 44
Exposures to land development corporation, local housing corporations, Local Public Road Corporations - - - -
Exposures to financial institutions and Regulated securities companies 125,122 5,004 27,909 1,116
Corporate exposures 238,543 9,541 175,059 7,002 Exposures to small and medium size enterprises and individuals - - - -
Residential Mortgage Exposures 16,553 662 - - Retail Exposures related to real-estate acquisition 13,440 537 22,156 886
Exposures three months or more in arrears 2,300 92 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) 16,502 660 12,939 517
Assets backed up with several assets (so-called funds) which individual asset is ungraspable - - - - Others 31,790 1,271 12,579 503 On-balance sheet asset items total 450,762 18,030 257,385 10,295 Off-balance sheet asset items Derivative transactions 103,644 4,145 146,574 5,862 Others 96,192 3,847 85,723 3,428 Off-balance sheet asset items total 199,837 7,993 232,298 9,291 CVA risk asset 48,775 1,951 98,883 3,955 CCP 6 0 - - Total 699,381 27,975 588,566 23,542
Citibank Japan Ltd. 65
Amount of Required Capital for exposures relating to funds
None
Amount of Required Capital for Market Risk (Millions of Yen)
as of Mar. 31, 2015 as of Mar. 31, 2016
Specific General Required Specific General Required Risk Market Risk Capital Risk Market Risk Capital Standardized method of which Interest Rate Risk - 9,317 372 - 18,985 759 Equity Risk ------Foreign Exchange Risk - 2,113 84 - 597 23 Commodity Risk ------Options ------Total - 11,430 457 - 19,582 783
Amount of Required Capital for Operational Risk (Millions of Yen)
as of Mar. 31, 2015 as of Mar. 31, 2016
Operational Risk Required Capital Operational Risk Required Capital Basic Indicator Approach 113,041 4,521 45,515 1,820
Total Amount of Required Capital (Million of Yen)
as of Mar. 31, 2015 as of Mar. 31, 2016
Risk assets Credit Risk exposure 699,381 588,566 Market Risk exposure divided by 8% 11,430 19,582 Operational Risk exposure divided by 8% 113,041 45,515 Total of items in risk weighted assets subject to transitional arrangements - - Total (A) 823,854 653,664 Total required Capital (National Standard) （E）×4％ 32,954 26,146
66 Citibank Japan Ltd.
(2) Credit Exposure (Millions of Yen)
as of Mar. 31, 2015 as of Mar. 31, 2016
Loans etc. Securities Derivatives Total Loans etc. Securities Derivatives Total Domestic Manufacturing 111,340 - 6,558 117,899 108,024 - 10,208 118,233 Agriculture and ------Forestry Fishery ------Mining ------Construction 21 - 2,381 2,402 6 - 302 308 Electric power, gas, ------water supply
Information and 11,727 - 182 11,910 12,733 - 181 12,915 communication Transportation 19,286 - 593 19,879 10,523 - 599 11,122 Wholesale and retail 132,600 - 4,413 137,014 143,697 - 3,175 146,872 Financial Institutions 638,510 12,839 80,463 731,813 544,430 5,549 117,217 667,197 and Insurance
Real estate 17,086 - - 17,086 23,886 - - 23,886 Other Services 2,251 - 301 2,553 13,126 - 921 14,048 Central, Local 2,369,103 479,285 25 2,848,414 1,518,985 88,474 - 1,607,460 government Individuals 66,138 - 487 66,626 - - - - Others 22,338 - - 22,338 7,323 - - 7,323 Overseas Sovereign 50,451 5,504 - 55,956 10,632 5,504 - 16,136 Financial Institutions 799,722 - 58,288 858,010 470,774 - 181,911 652,685 Others 95,852 - 498 96,351 128,634 - 446 129,081 Total 4,336,432 497,629 154,195 4,988,257 2,992,779 99,527 314,964 3,407,271
(by Remaining Tenor) (Millions of Yen) as of Mar. 31, 2015 as of Mar. 31, 2016 Loans etc. Securities Derivatives Total Loans etc. Securities Derivatives Total To 1 year 2,955,999 120,387 138,233 3,214,620 1,906,451 5,504 306,557 2,218,513 1 to 3 years 727,682 224,474 8,905 961,062 683,380 20,013 2,256 705,649 3 to 5 years 338,851 137,940 2,750 479,542 130,719 65,390 5,970 202,080 Over 5 years 190,259 14,828 4,306 209,394 155,055 8,619 179 163,855 Undefined 123,637 - - 123,637 117,171 - - 117,171 Total 4,336,432 497,629 154,195 4,988,257 2,992,779 99,527 314,964 3,407,271
(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.
Citibank Japan Ltd. 67
Past-due over 3 months or Default Exposure (Millions of Yen)
as of Mar. 31, 2015 as of Mar. 31, 2016
Domestic Corporate 645 - Individuals 219 - Overseas 4,625 6,927 Total 5,491 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)
Fiscal Year ended Mar. 2015 Interim Fiscal Period ended Sep. 2015 Fiscal Year ended Mar. 2016
Beginning Change Ending Beginning Change Ending Beginning Change Ending Specific Reserve Corporate 5 342 347 347 (347) - 347 (327) 20 Individuals 905 (210) 694 694 (13) 681 694 (694) - Others 2 - 2 2 - 2 2 - 2 General Reserve 1,014 230 1,245 1,245 (5) 1,239 1,245 (287) 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, 2015 as of Mar. 31, 2016
Rated Unrated Rated Unrated
0% - 2,856,146 447 1,607,902 20% 515,006 11,595 262,416 3,366 35% - 47,294 - - 50% 149,420 11,896 182,570 1,411 75% - - - - 100% 49,931 349,542 34,971 264,473 150% - 542 0 1,295 250% - 3,625 - 3,798 1250% - - - - Deduction from Capital - - - - Total 714,358 3,280,641 480,406 1,882,248
(Note) 1. Figures are taking into account the effects of credit risk mitigation techniques and do not include any securitization exposure.
68 Citibank Japan Ltd.
(3) Credit Risk Mitigation (Millions of Yen)
as of Mar. 31, 2015 as of Mar. 31, 2016
Eligible Financial Collateral Cash 347,528 457,131 Bonds 534,532 484,007 Stocks 163 - Others - - Guarantee and Credit Derivatives Guarantee 111,033 103,478 Credit Derivatives - - Total 993,257 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, 2015 as of Mar. 31, 2016
ii．Total amount of gross positive fair value 166,342 290,099
iii．Credit exposure before Credit Risk Mitigation FX related 153,994 312,470 Interest rate related 201 2,494 Total 154,195 314,964
iv．The amount deducting iii from sum of ii and gross add-on (Reduction by Netting agreements) 182,450 181,622 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
Citibank Japan Ltd. 69
(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, 2015 as of Mar. 31, 2016
Claims on corporate customers - - Residential Mortgage Loan - - Claims on individual customers 82,513 64,697 (ex. Residential Mortgage Loan)
Others - - Total 82,513 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, 2015 as of Mar. 31, 2016 Exposure Required Capital Exposure Required Capital 20% 82,513 660 64,697 517 50% - - - - 100% - - - - 350% - - - - 1250% - - - - Deduction from Capital - - - - Total 82,513 660 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
70 Citibank Japan Ltd.
(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, 2015 as of Mar. 31, 2016
Japanese Yen 11,603 18,528 US Dollar (6,280) 4,399 Euro 1,003 (6) Others (409) (502) Total 5,917 22,419
Citibank Japan Ltd. 71
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.
72 Citibank Japan Ltd.
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.
Citibank Japan Ltd. 73
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, 2015 to March 31, 2016)
(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 4 602 345 77 0 268 221 0 178 43 36 outside officers,etc .)
Subject Employees 1 300 114 48 0 66 186 0 186 0 0 , etc.
(Note) 1. Other fixed remuneration includes housing or other allowances provided to the expatriated from Citigroup entities overseas. Subject Officers HC 3 includes one director who retired at middle of fiscal year. 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.
74 Citibank Japan Ltd.
Confirmation
July 29, 2016
Representative Director, President & CEO Anthony P. Della Pietra, Jr.
I confirm, to the best of my knowledge, the following matters concerning the Citibank Japan Ltd. financial statements for the Period from April 1, 2015 to March 31, 2016:
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. 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 Citibank Japan Ltd. is adequately reported to the Management and Board of Directors as necessary.
Citibank Japan Ltd. 75
www.citibank.co.jp