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Measures to Enhance Corporate Governance
Hyakugo Bank understands the importance of strengthening corporate governance in order to quickly respond to change and exercise true competitiveness in a drastically changing operating environment. In these conditions, Hyakugo Bank has strengthened the functions of the Board of Directors and Management Committee, appointed an outside auditor, established the Compliance Committee and other committees, and enhanced investor relations activities to improve management efficiency, accelerate decision making and enhance management transparency.
Fundamental Risk Management Policies and Administrative Systems
With the progress of liberalization and internationalization of the financial sector, as well as the diversification of financial services and businesses, the number of risks to which banks are directly exposed has increased steadily. This has heightened the importance of managing each type of risk. Strengthening risk management is a fundamental operational issue at Hyakugo Bank, and we have established an integrated risk management system to control risk properly.
Hyakugo Bank has established its Risk Management Policy as the basis for integrated risk management and administration. In addition, the Risk Management Committee, chaired by the president, meets once a month to gauge and analyze each type of risk and consider risk management policies and measures. Moreover, the Audit Division is independent from business divisions, and conducts audits of business operations and examines the appropriateness and effectiveness of management within each of the Bank’s divisions.
[1] Credit Risk Management
Hyakugo Bank has always clearly separated its sales promotion and credit investigation functions to carry out rigorous assessment and control of credit risk. The Bank has also established a credit policy that controls the concentration of credit in any specific company or corporate group. In addition, Hyakugo Bank has implemented a 12-level internal credit rating system to assess borrower creditworthiness, which is useful in forming lending policies and setting interest rates. Hyakugo Bank is working to diversify its credit portfolio by understanding loan distribution status by industry and region and other parameters, and to quantify and regularly monitor credit risk in order to take appropriate risks and secure stable earnings.
For borrowers whose business conditions have deteriorated and require management improvement, the Corporate Management Support Team at the head office and the Sales Division cooperate to provide revitalization support.
[2] Market Risk and Liquidity Risk Management
The influence of changes in interest rates, foreign currency exchange rates, stock prices and other market movements on bank earnings has increased steadily. Consequently, Hyakugo Bank has strengthened its asset and liability management (ALM) capabilities with the objective of securing stable earnings. Specifically, the ALM Committee meets monthly to analyze the composition of assets (such as loans and securities) and liabilities (such as deposits). The Bank also has policies for using swaps and other techniques to hedge risk based on interest rate projections.
In the Market Trading Division, trade execution (front office) and office administration (back office) are clearly separated, and a risk management department (middle office) has also been established, thus creating a system of mutual checks and balances. Hyakugo Bank uses Value at Risk (VaR) to measure the amount of risk in market-related transactions, and manages it by setting risk limits.
Hyakugo Bank appropriately monitors day-to-day conditions and the outlook for the yen and foreign currencies, and manages funds accordingly. In addition, we deal with liquidity risk by periodically monitoring the amount of funds the Bank can raise from the market, and have established a series of measures to respond to unforeseen circumstances.
[3] Administrative Risk
In addition to establishing internal rules covering all Bank operations, Hyakugo Bank enhanced in-house training, guidance from the headquarters departments and internal divisional audits to promote rigorous administrative control. We are also working to reduce administrative risk by improving administrative processes, including systemization and mechanization of work.
[4] Systems and Information Asset Risk
In system development, Hyakugo Bank conducts rigorous advance testing to prevent system disruption. In addition, the Bank has prepared for natural disasters and problems with hardware, software, and information and communication systems by establishing a comprehensive back-up system. The Bank has also moved forward with emergency preparedness through measures such as redundant infrastructure, building safety enhancements and system failure drills. Hyakugo Bank has taken measures to prevent unauthorized intrusion into its systems, and has established the Information Management Committee based on the Security Policy covering all information assets. Through these measures, the Bank works to rigorously manage and protect information assets.
Compliance Measures
Compliance is one of the highest management priorities at Hyakugo Bank. In addition to issuing a business guidebook that states fundamental guidelines for compliance within the Bank, we have created a Compliance Committee chaired by the president and established a Compliance Division to conduct unified supervision and promotion of compliance. Moreover, compliance officers are assigned to all headquarters departments, regional headquarters and branches, and we formulate a compliance program every year as a concrete action plan to proactively prevent legal infractions and check the status of compliance. |
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