The Shinsei Bank Group's Growth Strategies

INTEGRATED REPORT

For the fiscal year ended March 31, 2018 Who We Are?Who

Why

We Can? We Go? Where

26 Special Feature: To Maintain Its Role

as a Financial Innovator We Can?Why Overview and Progress under the Third Medium-Term Management Plan • Third Medium-Term Management Plan Overview • Overview and Progress of Business Strategies • Group Organizational Strategy • Group Business Strategy • Group Data Strategies We Now? Are How What Is Our Platform? Our Is What Financials/Information Data Section

SHINSEI BANK, LIMITED Integrated Report 2018 25 Why We Can? The Shinsei Bank Group’s Growth Strategies Special Feature: To Maintain Its Role as a Financial Innovator Overview and Progress under the Third Medium-Term Management Plan

Third Medium-Term Management Plan Overview (April 2016 – March 2019)

Group Integration Combining Group Management Infra- Creation of new businesses beyond the current structure framework based on real customer needs Seeking to improve operational efficiency through integration of management administration functions ■ Realization of Group synergies which leverage newly created services and the Group’s and aiming for overall increases in productivity customer base ■ Support front-office frameworks necessary to provide ■ Creation of sustainable business model customers with optimal products and services capable of delivering stable growth ■ Maintain a continuously optimized management organization through an ongoing review process Shinsei Bank Group Customers Needs ■ Realization of optimal, Group-wide allocation of management resources ● Loans, Finance and Settlement services ■ Achieve exceptional productivity and efficiency through for individual customers lean operations

● Finance and Settlement services for Optimal Conditions for the Group as a Whole small business owners/SME customers

● Asset formation, asset management, All Group Company asset/business succession Functions ・HR, General service ● Project-based business (real estate, ・Compliance shipping/aircraft, energy, infrastruc- ・Risk management ture) ・Finance, IT, Operations

Future Outlines Realign Business and Services from the Customers’ Perspective

Group Headquarters Functions

Realigning business activities according to customer groups and functions

Business Business Business Business for for Small and for for project- corpo- Medium-sized based individuals rations Enterprises businesses (SMEs) Advanced banking interfaces (Network and smartphone banking, settlements)

26 SHINSEI BANK, LIMITED Integrated Report 2018 Overview and Progress under the Third Medium-Term Management Plan

Overview and Progress of Business Strategies We Are?Who

Strategic Mapping of Businesses

atent ees Maret Groth Potential High Unsecured Loans Structured Finance SME/ Small Business Collaboration with Shopping Solutions Regional Financial Credit Settle- Institutions ment Credit Cards Business Succession Finance We Go? Where Corporate Mid Market Solutions Asset Management Consulting

Excluding basic banking services, Low such as funding, loans, etc.

Low Mid High Shinsei Bank Group Expertise/Differentiation Why We Can?Why Growth areas Strategic initiative areas Stable revenue areas Areas in which the Shinsei Areas which are expected to Areas in which the Shinsei Bank Bank Group already has deliver future growth and in Group will stably and selectively competitive advantages and which the Bank looks to create engage without being involved in is seen as having strong profit customer value through excessive competition and growth potential groundbreaking innovations beyond conventional formats

Progress on Business Strategies How Are We Now? Are How Business Progress up to FY2017 Toward FY2018 Growth Areas Unsecured Loans ・Secured growth in the balance of ・Expand customers of the Lake ALSA brand through unsecured loans in excess of the rate of Shinsei Financial Co., Ltd. market growth in Japan ・Consider expanding the small-lot finance business in ・Formed a joint venture with a major collaboration with local overseas partners private-sector bank in Vietnam to promote Consumer Finance Business growth

Structured Finance ・Secured steady growth in the balance of ・Continue to engage in activities while carefully Platform? Our Is What structured finance taking into consideration market conditions as well ・Achieved progress in the diversification as risk and return of project finance transaction volume in ・Continue to engage in the sourcing of high-quality Japan projects in the international project financing field Stable Asset Management ・Experienced sluggish trends in revenue ・Enhance customers’ experience utilizing customer Revenue Consulting related to asset management product data and channels Areas sales Corporate Market ・Recorded robust derivative revenue ・Expand the customer base, including collaboration Solutions trends through efforts aimed at with other financial institutions Financials/Information diversifying the customer base Shopping Credit, ・Increased the number of credit cards ・Utilize the YUI Platform (an integrated customer Credit Cards issued database) ・Increase in shopping credit outstanding Strategic SME* Business Solutions ・Promoted vendor leasing through the ・Build a new collaboration scheme utilizing resources Initiative merchant partner channels of APLUS both inside and outside the Group Areas Co., Ltd. Settlements ・Expanded WeChat Pay merchant ・Promote cross-sales among WeChat Pay merchant partners partners

Business with Regional ・Realized robust syndication transactions ・Undertake meticulous follow-up in an effort to Data Section Financial Institutions flow address the asset management product sales needs of regional financial institutions Business Succession ・Concentrated resources into support for ・Continue to implement measures aimed at increasing Finance change or discontinuance of businesses the level of awareness in a bid to expand the while implementing measures aimed at number of new transactions increasing the level of awareness

*Note: Small and Medium-sized Enterprises (SMEs) SHINSEI BANK, LIMITED Integrated Report 2018 27 Why We Can? The Shinsei Bank Group’s Growth Strategies Special Feature: To Maintain Its Role as a Financial Innovator

Group Organizational Strategy

Responsible for the specific upgrades to the organizational structure necessary to implement the Group business strategy for the promotion of a variety of Group-wide productivity enhancement projects Group Management Framework (Group Headquarters System)

Structuring a unique and workable corporate governance framework, with a strong consciousness of the integrated operation of the Group, based on an understanding of the current environment and the special features of the Shinsei Bank Group Governance Framework Specific Initiatives

Group support functions (Corporate Function) are integrated into the Group Headquarters as a 1 virtual company, and all businesses including the Bank will be reorganized into equal business units.

Group Management Framework

Important matters under Group Strategy are ■Group integrated management resolved at the Group Executive Committee and (governance enhancement) 2 important Group Committees. ■Platforms for business development

■Simpler organization and quick Establish “Cross-company Business Unit” consist- decision making ing of cross-company members working across multiple companies in order to facilitate businesses 3 to fully demonstrate Group functions. Also form a group of specialists to be in charge of realizing synergies through integration of the Group and implement strategies in Group businesses.

Objectives of Group Headquarters

■ Convert functions into business units ■ Enhance functions across the Group Convert each business into equal business units through Further enhance Group functions using extra manage- the integration of Group support functions into Group ment resources realized through better efficiency Headquarters as a virtual company ■ Decision-making level ■ Consolidate overlapping functions Enable quick and consistent decision making by simplify- Remove overlapping functions and reduce workload ing reporting lines

■ Expand room for better efficiency Realize room for much better efficiency by sharing best practices and jointly implementing new methods

28 SHINSEI BANK, LIMITED Integrated Report 2018 Group Business Strategy We Are?Who

Responsible for reviewing business management systems on a Group-wide basis, for the Group’s new business development and for examining and executing the strategic alliances for the development of that new business Strategy to Generate New Business Opportunities Where We Go? Where ■ Seek nonorganic growth opportunities to utilize the strengths of the Shinsei Bank Group • Focus on finding opportunities in both Japan and overseas that will draw on Shinsei Bank Group strengths. In non-banking business, especially in the Consumer Finance Business.

• For overseas activities, focus on the regions that have a We Can?Why large population with a “population bonus” and where high economic growth can be expected. Work with a suitable partner and utilize Shinsei Bank Group’s “know-how” to promote finance business. How Are We Now? Are How ■ Develop a promotional framework to respond to the needs of underserved customers • Unbundle and realign different functions within Shinsei • Provide services to the newly emerging customer seg- Bank Group and form an alliance with a 3rd party ments that form their own ecosystems. For example, of when necessary. the market segments that are expected to expand going forward, we will pay particular attention to free-

lancers and foreign workers while considering the Platform? Our Is What offering of new financial services.

Provide products and services to freelancers ■ Aggregated number of dedicated freelancers and Crowdsourcing Shared office Get payment in workers who have side jobs Fund provision platform space advance while affiliated with a company is expected to grow Financials/Information from the current 11.2 million to 20.9 million in 2030. ■ To capture opportunities in that growing freelancer market, the Shinsei Bank Find work Get orders Work Get paid Group announced a business alliance partnership with Lancers, Inc., the largest Live Improve skills Manage assets Get evaluated crowdsourcing company in Japan, in December 2017. ■ Usage of Lancers member

data to provide financial Data Section products and services. Explore possibilities of Shopping credit/ Job management Freelance developing a framework to Credit card Loan portfolio evaluation system evaluate individual freelancers with AI technology.

SHINSEI BANK, LIMITED Integrated Report 2018 29 Why We Can? The Shinsei Bank Group’s Growth Strategies Special Feature: To Maintain Its Role as a Financial Innovator

Group Data Strategies

■ Built the YUI Platform that features both a database that integrates the Shinsei Bank Group’s customer data and an AI/analytics platform

Intricate Credit YUI Corporate Customers Individual Customers Ratings Individual Corporate Shinsei Bank Credit Platform Credit Shinsei Bank Transaction-based Rating Scores Lending Appropriate Product AI/Analytics Recommendation Platform Appropriate APLUS Marketing Showa Leasing Product Scores Recommendation

Lending to New Customers Shinsei Group Customer Data Database Fraudulent APLUS Varieties of Financial Inquiries (Identification, Scores Lending Method Varieties of Transaction Anonymization) Methods Affiliates with Total: about Affiliates with Individual Customers 10 million Corporate Customers customers

AI keeps learning through continuous utilization and acquisition of the new data.

■ Having generated an AI score derived from the AI/analytics platform on the YUI Platform, score is utilized for more-sophisticated Lake ALSA credit rating/collection for providing unsecured loans to individual customers

● Expecting better performance through the application of ● Expecting higher accuracy of prediction by combining the Big sophisticated hybrid of AI and logit scores to the various Data and AI’s deep learning technology. financial products of the Group. ● Expecting better credit scoring performance by utilizing AI analysis of the credit position in the fund collection area.

Hybrid Credit Ratings Utilizing AI and Logit Scores AI Scoring the Group Is Working On AI Score

“Approve/increase” when AI Integrate and utilize not only credit and High Higher Credit attribute information, but also all structured, Scoring finds blue-chip customers, Data Performance regardless of low logit scores non-structured and open data within the Group for scoring

“Decline/decrease” when AI Maximize the impact of the Big Data by hiring Medium finds inappropriate customers, Algorithm the high-end mechanical learning models regardless of the high logit such as deep learning and ensemble learning scores

Utilize AI for the credit ratings as well as for Lower Credit Area of the fund collection area, upon evaluation of Low Scoring Performance Application the credit position (as they are two sides of the same coin)

Logit Score Low Medium High

30 SHINSEI BANK, LIMITED Integrated Report 2018