Risk Management
Strengthening a Sound Management Foundation Through Preventive Risk Management
As the environment surrounding us continues to evolve amid escalating geopolitical risks around the world and uncertainty over the economic and financial market outlook, we
believe that risk and opportunity are two sides of the same coin, and that appropriate risk management provides the foundation for both soundness and growth.
Based on this recognition, the Bank has continued to enhance its risk management framework. Specifically, we have sought to improve the effectiveness of integrated risk
management through measures such as strengthening checks and balances over financial and investment execution through revisions to risk governance, reducing
concentrations in specific risks such as interest rate risk, and conducting integrated capital and liquidity stress testing. As we continue to diversify our revenue sources, we will
further strengthen preventive risk management through initiatives such as maintaining a risk balance in our business portfolio and enhancing credit risk management.
In addition, we will continue to foster a risk culture that appropriately addresses both risks and opportunities, while strengthening the management foundation that supports
sound risk-taking and value creation through the further enhancement of integrated management covering non-financial risks as well.
YASUTAKE Atsushi
Director and Senior Managing Executive Officer
(in charge of Risk Management Unit, Corporate & Shared Services)
Member of the Board of Directors
Chief Risk Officer (CRO) (BCP and financial risks)
Basic Approach
The business environment surrounding financial institutions is changing radically. For the Bank
to maintain its high level of financial soundness and continue to meet stakeholders'
expectations and perform its fundamental roles, it is increasingly important to recognize risks
from a forward-looking perspective and control them appropriately, while engaging in
disciplined risk-taking.
To put these into practice, the Bank has introduced the Risk Appetite Framework (RAF) as a
management framework. Under the RAF, the Bank works to achieve the goals set out in its
Medium-Term Vision and annual initiatives established in accordance with the Vision, while also
striving to foster and instill a sound risk culture that supports the management framework.
Risk Management
Overview of the Bank’s Risk Management
Based on its risk appetite established under RAF, the Bank conducts risk management with the aim of ensuring overall stability and robustness. To ensure its effectiveness, the Bank manages individual risks by assessing materiality and identifying which risks are to be managed in the context of business operations. The Bank also implements integrated risk management by measuring the overall amount of risk using quantitative methods and comparing it with the Bank’s capital resources.
Outline of the Bank’s Risk Management
Risk Appetite Framework (RAF)
The Bank's RAF is a framework for disciplined risk-taking and risk-return optimization that clarifies the Bank's management strategies, business strategies, expected return (types and amounts of target returns that are set as business goals), and risk appetite (types and amounts of risks that the Bank is willing to take or accept, as well as optimal management resources), and manages these elements in an integrated manner. In operating the RAF, the Bank further enhances its soundness by adapting to changes in the business environment and pursuing the optimal balance of risk and return.
Implementation of the RAF
The Bank has established its Risk Appetite Statement, which sets out and documents the fundamental principle regarding RAF management. In developing its annual initiatives, the Bank bases its approach on its Risk Appetite Statement, identifying the "Top Risks" (risk events that require particular attention in the future) by taking into account the business environment and risk recognition, analyzing future scenarios through the use of stress testing and other tools, and confirming potential response measures (management actions) that could be taken should such stress events materialize. Based on the results of this analysis, the Bank clarifies the expected returns and risk appetite associated with the execution of its management and business strategies, verifies their appropriateness, and formulates its annual initiatives. In addition to clarifying the policies for managing expected return and risk appetite, the Bank sets Key Goal Indicators (KGIs) and Risk Appetite Indicators. During the fiscal year, the Bank monitors the status of its management and business strategies, expected returns, and risk appetite while updating its assessment of the business environment and risk profiles, and reviewing these as necessary. The RAF is operated in an integrated manner with the PDCA cycle for annual initiatives.
Outline of the RAF
Examples of Top Risks
* Please note that the above represents only a portion of the risks identified by the Bank.
Enhancing Risk Management (Financial Risks)
To strengthen a Sound Management Foundation through Preventive Risk Management, the Bank is undertaking the following initiatives to enhance its financial risk management framework through the following initiatives.
Risk Governance
- The Bank has strengthened its risk governance framework by reviewing the RAF governance structure and clarifying when proactive risk-taking is prioritized to achieve earnings targets and when soundness and the sustainability of management are given priority, thereby enhancing the checks and balances exercised by the risk management function over financial and investment execution.
- As part of the Bank's risk governance framework, the Risk Management Committee, chaired by the Chief Risk Officer (CRO), is positioned to provide oversight of the various committees responsible for financial management and the execution of investments and loans.
Risk Management Framework
- In addition to regulatory capital management, the Bank is strengthening its risk management framework by establishing mechanisms to prevent excessive concentrations of risk, including the use of economic capital management and the control of specific risks that are of particular importance to financial management, such as interest rate risk, through Risk Appetite Indicators. The Bank is also enhancing its credit risk management and assessment framework.
Risk Management Operations
- The Bank is strengthening its risk management operations by focusing on preventive risk management, including enhanced monitoring for early signs of changes in market conditions and earnings trends, as well as the further utilization of stress testing.
Enhancing Risk Management (Non-Financial Risks)
The Bank is promoting the integrated management of non-financial risks, including information security, conduct risk, operational resilience and third-party risk, all of which have become increasingly important in recent years.
Information security management
The Bank utilizes a variety of information obtained through transactions with customers in its various business operations. At the same time, advancement in information technology have diversified both the environments in which information is handled and the purposes for which it is used. Against this backdrop, the Bank places particular emphasis on information security management among non-financial risks in order to appropriately protect and manage customer information, and has established a governance framework in which the Board of Directors bears ultimate responsibility for maintaining an information security management structure.
The Bank requires all employees to complete information security e-learning programs and provides training
programs each year to enhance awareness.
With respect to the handling of personal information, the Bank has established its Personal Information
Protection Declaration and maintains an appropriate management framework. The Bank has also established
privacy policies applicable overseas, in Europe and the United States. In addition, with respect to suppliers
(outsourcing contractors), the Bank has established processes and contractual arrangements designed to
ensure risk management standards equivalent to those applied by the Bank itself, thereby promoting the
appropriate handling of personal information.
Governance framework for information security
