Message from the Management：The Norinchukin Bank

Message from the Management

The Basic Role of The Norinchukin Bank as the Central Organization for Cooperatives

As the national-level financial institution for agricultural, fishery and forestry cooperatives in Japan, the mission of The Norinchukin Bank (“the Bank”) is to contribute to the development of the agriculture, fishery and forestry industries and to national economic prosperity by facilitating access to financial resources. With the capital provided by Japan Agricultural Cooperatives (JA), Japan Fisheries Cooperatives (JF), Japan Forestry Cooperatives (JForest), etc., as well as the stable funding base through customer deposits at JA Bank and JF Marine Bank, the Bank, to achieve its mission, lends funds to its members, agricultural, fishery and forestry workers, and companies related to the agriculture, fishery and forestry industries. The Bank also conducts various lending and investment activities in Japan and abroad, efficiently manages funds, and stably returns profits to its members.

Moreover, the Bank provides various services for supporting the cooperative banking business of JA and JF, including the planning and implementation of policies, development of human resources, and provision of business infrastructure. The Bank also provides operational guidance for the cooperative banking business based on relevant rules and regulations, and is working to build a safety net for the JA Bank and JF Marine Bank Systems. The Bank continues to work to improve trust in its cooperative banking business, while playing the important role of strengthening and expanding the cooperative banking business.

Operation of the Medium-Term Management Plan (fiscal 2016 through fiscal 2018)

The environment surrounding the Bank and cooperatives is becoming increasingly harsh amid such developments as progress on the Trans-Pacific Partnership (TPP) and the tightening of international financial regulations. Meanwhile, public interest in and expectations for turning the agriculture, fishery and forestry industries into growth industries are higher than ever before.

In light of the situation surrounding the Bank and cooperatives and the basic role of the Bank, we have formulated a Medium-Term Management Plan (fiscal 2016 through fiscal 2018), comprising management and business management policies for three years from fiscal 2016, and are engaged in business management based on the Plan.

JA Bank, JF Marine Bank, JForest Group and the Bank will continue to perform their roles and functions with the goal of becoming financial institutions and organizations that win the confidence of their customers, and contribute to the advancement of the agriculture, fishery and forestry industries and their rural communities.

Finally, we would like to ask you all for your continued support for JA Bank, JF Marine Bank, JForest Group and The Norinchukin Bank.

Toru Nakaya
Chairman of the Supervisory Committee

Kazuto Oku
President and Chief Executive Officer

Message from the CEO

Toward a leading bank that supports the agriculture, fishery and forestry industries, food production and consumption, and the daily lives of local communities

Outline of the Medium-Term Management Plan

The Bank is conducting business management based on the “Medium-Term Management Plan for three years (fiscal 2016 through fiscal 2018).”
Under the Medium-Term Management Plan, we aim to achieve the three objectives of “contributing fully as a bank rooted in the agriculture, fishery and forestry industries and the food business, turning these industries into growth industries,” “reinforcing the cooperative banking business platform,” and “achieving stable returns to our members through the sophistication of the current globally diversified investment strategy,” namely, establishing the three business areas of the “food and agriculture business,” “retail business,” and “investment business,” taking overall control of these business areas and enhancing the supporting corporate functions.

Business Performance in Fiscal 2017

During fiscal 2017, which is the mid-year of the “Medium-Term Management Plan (fiscal 2016 through fiscal 2018),” based on the “Management Plan for Fiscal 2017,” the Bank strengthened its business management system by implementing pillar measures—increasing the number of Representative Directors, changing the composition of Directors and introducing an Executive Officer system—from the perspective of achieving quick decision making, policy development and implementation, and the flexible use of management resources. In addition, to establish the three business areas of the “food and agriculture business,” the “retail business” and the “investment business,” the Bank has implemented policies for each business.

Financial Results and Capital Adequacy in Fiscal 2017

In fiscal 2017, the Bank recorded an ordinary profit of ¥171.0 billion and profit attributable to owners of parent of ¥147.6 billion, showing steady profitability despite the impact of the rising cost of foreign currency funding and other factors.

The Bank’s capital adequacy ratios on a consolidated basis were maintained at a high level, with a Common Equity Tier 1 Capital Ratio of 19.02%, a Tier 1 Capital Ratio of 19.02% and a Total Capital Ratio of 23.50%.

	FY2015	FY2016	FY2017
Ordinary Profit	324.9	214.0	171.0
Profit Attributable to Owners of Parent	271.2	206.1	147.6
Net Assets	7,186.7	7,008.8	6,746.0
Common Equity Tier 1 Capital Ratio	18.94%	19.31%	19.02%
Tier 1 Capital Ratio	18.99%	19.34%	19.02%
Total Capital Ratio	25.07%	24.39%	23.50%

Targeted Management Objectives

Under the Medium-Term Management Plan (fiscal 2016 through fiscal 2018), the Bank aims to achieve ordinary profit of around ¥150.0 billion as a management goal. Looking ahead, although we recognize that the economic and financial environment is expected to remain harsh given the interest rate hikes in the United States, the continuation of the negative interest rate policy in Japan and the continued high cost of foreign currency funding, combined with increasing uncertainty due to factors such as rising geopolitical risk, the Bank will strive to achieve targets based on appropriate financial management.

Initiatives to Strengthen the Business Management System

After the start of the Medium-Term Management Plan (fiscal 2016 through fiscal 2018), the Bank introduced a four-headquarters system in fiscal 2016, increased the number of Representative Directors, changed the composition of Directors and introduced an Executive Officer system in fiscal 2017. Furthermore, to grasp changes in the business environment surrounding the Bank appropriately and address diverse and highly-specialized management issues quickly and accurately, we started the following initiatives from fiscal 2018.

(1) Start business management under a new system from the first day of the Management Plan (April 1)

To promptly undertake the Management Plan from the start date thereof, we shall determine and make an informal decision within the prior fiscal year on the officer system for the new fiscal year.

(2) Strengthen the Four-Headquarters System

Given that business management based on the four-headquarters system has been familiarized within the Bank, under the CEO, who oversees the entire operation, each of the four Senior Managing Directors (Representative Directors) is in charge of operations at the respective headquarters as the head of the business, aiming for business management that is more flexible and collaborative among the four headquarters.

In Conclusion

The Bank’s future vision is to become a “leading bank that supports the agriculture, fishery and forestry industries, food production and consumption, and the daily lives of local communities.” To meet expectations and gain the trust of our members and all other various stakeholders, all directors and employees of the Bank are committed to yielding concrete results in their respective positions and thereby contributing to turning the agriculture, fishery and forestry industries into continuous growth industries. We ask our members and all others concerned for understanding and support.

Messages from Each Business Head

Toward a “leading bank that supports the agriculture, fishery and forestry industries, food production and consumption, and the daily lives of local communities”

In this section, heads of each business explain the major initiatives and basic policies.

Food & Agri Banking Business

Tetsuya Kanamaru

Head of Food & Agri Banking Business

Major Initiatives

Turning the agriculture, fishery and forestry industries into growth industries (Integration and streamlining of the production base, reducing production cost, value added such as marketing channel development)
Playing a key role as a bridge between the agriculture, fishery and forestry workers and the business community

The Food & Agri Banking Business is in charge of expanding the “food and agriculture business,” which has been positioned as one of the pillars of the Bank’s business.

A severe situation persists in the environment surrounding the agriculture, fishery and forestry industries with the impact of various factors such as a declining population and a weakening production base despite partial bright signs such as an increase in exports and an increase in the number of new farmers. In the “food and agriculture business,” we take a centralized approach to diverse issues faced by the local and global food and agriculture value chains, which cover production, processing, distribution, sales and exports mainly of “foods,” with the aim of further contributing to turning the agriculture, fishery and forestry industries into growth industries, as well as the development of customers.

In the “food and agriculture business,” through ongoing dialogues with customers, we will address management issues not only from the financial aspect, but also from the perspective of business operations and offer thorough solutions to solve issues. Performing the Bank’s role as a bridge connecting the second and third industries with production sites, and as a coordinator of initiatives to improve productivity and increase sales, we will create added value for the food and agriculture value chain.

Retail Banking Business

Shozo Goto

Head of Retail Banking Business

Major Initiatives

Expand retail banking by identifying changes in organizational base and customer needs
Achieve JA Bank self-reforms and satisfaction of its members, etc.

The Retail Banking Business plays a major role in operations related to strengthening and expanding the JA Bank and JF Marine Bank businesses of agricultural and fishery cooperative organizations and increasing reliability of those businesses etc.

In addition to changes in the financial conditions, competition with other financial institutions and competition faced by JA Bank and JF Marine Bank in retail financing is increasingly fierce, coupled with structural problems such as changes in the organizational base due in part to the aging of its members and changes in customer needs.

Under these circumstances, JA Bank formulated the JA Bank Medium-Term Strategies to be implemented from fiscal 2016 through fiscal 2018. Having set the future vision of JA Bank at becoming an “entity that is needed more in regions by contributing to food, agriculture and local communities,” we are striving to contribute to “increasing agricultural income” and “revitalizing local communities” by providing high-quality, sophisticated financial services.

In addition to further enhancing and providing financial functions for the fishery industry, JF Marine Bank is striving to promote initiatives aimed at strengthening its business base, soundness and management capabilities in pursuit of a stronger control structure to enable the provision of stable and appropriate financial functions.

Through these initiatives, the Bank aims to “JA and JF to play the leading role in local communities on the themes of food/agriculture/local communities/finance” as indicated in the Medium-Term Management Plan.

Global Investments

Keito Shimbu

Head of Global Investments

Major Initiatives

Further evolve globally diversified investments
Enhance stable profitability
Steadily comply with international financial regulations, etc.

Global Investments is in charge of investments in securities and other financial instruments based on appropriate risk management aimed at realizing a stable return of profits in the medium and long run as the ultimate manager of funds entrusted by members to JA Bank and JF Marine Bank.

Although the investment environment is predicted to remain difficult for financial institutions with higher foreign currency funding costs and increasing market volatility due to rising concern over geopolitical risks, while each country’s monetary policy is being normalized, we recognize the need to carefully examine market trends and steadily promote the building of solid and high-quality portfolios. In addition, it is fair to say that the tasks of addressing international financial regulations steadily and enhancing our foreign currency funding ability are major challenges for the Bank, which secures profits through overseas financial markets and assets.

In these circumstances, under the current Medium-Term Management Plan, Global Investments aims, as its future vision, to “evolve toward the next model of globally diversified investment.” We are committed to securing profits that contribute to stable returns through the evolution of “globally diversified investments” through the further enhancement of our earnings base. Specifically, the Bank’s head office, overseas branches and representative offices will jointly explore new investment areas, by leveraging the Bank’s stable and ample fund, information network and various relationships nurtured in global markets to date.

Corporate & Shared Services

Kazuhiko Otake

Head of Corporate & Shared Services

Major Initiatives

Strengthen the business management system that covers the Group companies
Enhance operational efficiency and make other improvements to further promote the initiatives of each business
Upgrade its risk management with awareness of global standards

The role of Corporate & Shared Services is to support and control three business areas of the “food and agriculture business,” “retail business,” and “investment business.”

For these three business areas, as well as the Group companies’ intent to fulfill their roles and achieve the future vision, we recognize the paramount importance of ensuring quicker decision making and policy implementation and development by each headquarters. Based on that recognition, since the start of the Medium-Term Management Plan (fiscal 2016 through fiscal 2018), the Bank has implemented measures steadily to strengthen its business management system such as introducing and strengthening the four-headquarters system and deploying executive officers in charge of regions to the branches, aiming to reinforce the management of headquarters and onsite capability.

In addition, given that the environment surrounding financial institutions is increasingly uncertain and severe, we will support the further promotion of initiatives in each business through the bold redeployment of management resources. To that end, the Bank will thoroughly enhance operational efficiency by fully utilizing digital technologies and through a fundamental review of existing operations.

Moreover, by paying careful attention to fast changes in the management environment including the rapid advancement of digital technologies and tightening domestic and overseas regulations, as well as to society’s requests and expectations, while properly fulfilling our role as a “navigator,” we will build up concrete achievements with a sense of mission of turning the agriculture, fishery and forestry industries into growth industries to realize our vision of becoming a “leading bank that supports the agriculture, fishery and forestry industries, food production and consumption, and the daily lives of local communities.”

Message from the Management