Comprehensive Risk Management Activities

　As services become more diversified and advanced, the various risks that arise from business operations grow increasingly complex.
　In such an environment, Mizuho Leasing Group recognizes that precise monitoring and analysis, as well as proper control and management of these risks is exceedingly important for maintaining or increasing the soundness of business operations, and is strengthening and streamlining its risk management system accordingly.
　We separate risks that arise in association with business activities into two categories—financial risk to be managed quantitatively, and operational risk to be managed qualitatively—and have established risk management systems for each one. Moreover, the Risk Management Committee has been created to build a comprehensive risk management system to centrally manage operational and financial risk.
　With regard to financial risk, which covers credit risk, market risk, and price fluctuation risk, we monitor the locations and the magnitude of risk based on a management framework that centers on the allocation of risk capital. Operational risk, such as administrative risk, system risk, etc., is monitored for the occurrence status of risk events, countermeasures, preventive measures, etc.
　In addition, to achieve our goal of becoming a multi-faceted financial services company and expand our specialized financing services, we are aware that it will be more important than ever to further strengthen our risk management system, such as by monitoring and responding to the various risks inherent in transactions and the like. For example, when we start handling new products and develop new businesses, we evaluate risk from the perspective of both financial and operational risk, and work to reinforce controls through establishing a comprehensive review structure in advance.

[Main Risks and Management Systems]

Financial Risk Description Main Activities for Handling Risk
Credit Risk Lease transactions comprise Mizuho Leasing Group's main business activity, and involve providing credit to customers in the form of leases over relatively long terms (averaging five years). The initial expected revenue is secured by collecting the full amount of leasing fees from the customer. An economic slump slowing a customer's business to the point where it cannot pay the initially expected leasing fees may affect our business performance. Mizuho Leasing Group conducts strict credit checks at the start of each transaction and assesses the future second-hand value of leased equipment to judge whether it is appropriate to enter a lease agreement. Once a transaction has begun, we regularly monitor the customer's credit status and take various measures to ensure collection if necessary. In addition, we use statistical techniques to quantify portfolio credit risk and monitor the risk exposure.
Market Risk Mizuho Leasing Group procures funds for its key businesses by borrowing from external financial institutions and issuing bonds. Since the conditions for interest income (which is based on the lease period and whether the rate is fixed or variable) and interest paid differ, fluctuations in interest rates give rise to fluctuations in the difference between interest received and interest paid, which may affect interest revenue. To mitigate the risk of such interest rate fluctuations, we carry out hedging using derivative transactions. Specifically, we manage the matching ratio (setting the ratio of the portion of assets not subjected to interest rate fluctuation risk by allocating liabilities and derivatives with fixed-rate interest and variable-rate interest to assets with fixed-rate and variable-rate yields) by employing asset liability management (ALM) techniques. In addition, we apply statistical techniques to quantify the risk of such interest rate fluctuations, etc. and monitor the risk exposure.
Liquidity Risk We raise large amounts of money for lease transactions, loans, acquisition of asset equipment, and investment in businesses. If sufficient funds to continue business cannot be procured from financial institutions or investors due to a sharp deterioration in the economic environment, a decline in creditworthiness, etc.,  Mizuho Leasing Group's business performance may be affected. We ensure funding liquidity in preparation for emergencies by diversifying funding sources, including issuing corporate bonds and commercial paper as well as borrowing funds, and also by concluding commitment line agreements.
Price Fluctuation Risk (Asset Risk) The Group recovers funds by obtaining lease payment income through owning and leasing real estate, aircraft, and marine vessels and making investments and loans as well as by selling assets. If a customer's financial condition deteriorates, we enter into a contract with another customer, sell assets, and take other measures to minimize the impact on our business performance. However, there is a risk that assets cannot be sold at an expected price due to fluctuations in asset prices according to economic trends and market conditions, and another risk that expected payments cannot be received due to the customer's business situation. We make a comprehensive judgment at the start of each transaction by carefully assessing the future asset value, liquidity, etc. Once a transaction has begun, we continuously monitor the asset's performance and value. We also regularly measure and monitor the customer's credit status and price fluctuation exposure of assets in the portfolio.
Price Fluctuation Risk
(Investment Risk)		 Mizuho Leasing Group is engaged in investment activities for various businesses through investment, finance, and capital contribution, etc. for projects. Such investment activities carry the risk that expected returns may not be secured due to economic deterioration, that the invested amount cannot be recovered, and that the value of the investment falls below the amount of capital initially invested. We make a comprehensive judgment at the start of each transaction by carefully assessing the future investment value of the business in question, liquidity, market advantage, etc. Once a transaction has begun, we continuously monitor the investment's performance. In terms of quantitative risk, we also regularly measure and monitor the fluctuation forecast for investment value in each investment case.
Operational Risk Description Main Activities for Handling Risk
Administration In managing administrative work, human error, fraud, and the like may disrupt business and sales activities, thereby inviting a loss of credibility from customers, etc. that may affect the Group's business performance. We constantly strive to improve the quality of office work by developing regulations related to administrative management, and have built a robust structure through reviewing the administration system. As a result, there is a system in place that prevents human error and fraud.
Systems We use various systems to manage executed transactions, various contracts, clients, and leased equipment assets, accounting, and so on. Failure of such systems to operate normally due to poor maintenance or defective development would hinder performance of our business, potentially affecting the group's business results. Our system divisions and subcontractors have put in place and operate a solid maintenance management system. In addition, they regularly review and maintain the measures in the event of system trouble.
Cybersecurity Any unauthorized access, computer virus infection, fraud, and so on that triggers a system shutdown, leakage of confidential information and the like risks affecting the continued operation of our business activities or damaging our social credibility due to the compromise of important information. This may affect the Group's business performance. We have implemented a robust system to prevent trouble by providing all employees with regular in-house training on information security and how to deal with suspicious email. In addition, we constantly strengthen the Group's defense against cyberattacks by upgrading software to the latest versions.
Earthquakes, wind and flood damage, infections, terrorism, etc. An earthquake, wind and flood damage, infection, terrorism, and so on may significantly affect our business activities. In addition, a business shutdown or slump may affect the Group's overall business performance. To guard against such disruptions, we have put in place a system to establish an emergency headquarters to take company-wide measures in an emergency situation. In addition, we have a backup system in preparation for a system failure as well as a telework system in place for situations where employees cannot come to the office.
System Changes The Group provides a comprehensive range of financial services including lease transactions, based on existing legislation and tax, accounting, and other systems and standards. A substantial change in such systems may affect the Group's business performance. In response to such changes, we have measures in place to minimize the impact on the Group through developing an in-house management system for swift response, collect information on the revision and abolition of various systems, and share such information with management.
Compliance Failing to abide by laws and regulations, social norms, in-house rules, etc., risks putting the Group under legal action or damaging its social credibility, which may affect our business performance. To mitigate such risk, we have a system in place to provide regular education on compliance and the prevention of money laundering, terrorist financing, and other fraud to all employees, thereby preventing any such transactions.