Japan Post Bank Co Stock

Hello, everyone. I am Takayuki Kasama, President and CEO of Japan Post Bank. Thank you very much for taking time out of your busy schedule to attend our investors meeting today. Today, I would like to focus on helping everyone to gain a deeper understanding of the new medium-term management plan announced last week on May 15. I will cover the background and our approach to its formulation, along with my thoughts and awareness of issues that we face. In my discussions with investors since the briefing for our first half financial results last fiscal year, I have often asked them to wait until the announcement in May, and I myself have been frustrated at not being able to share specific details. Today, I am delighted to finally be able to give an overall picture of the plan in my own words.

First, I would like to talk about our recognition of the current business environment and our strategic direction going forward. In the financial markets, amid a clear divergence in monetary policy cycles among major countries, uncertainty regarding the outlook remains high. This is affected not only by economic indicators, but also by factors such as the trajectory of inflation influenced by geopolitical risks and trends in resource prices. In light of these conditions, we believe it is necessary to conduct careful business management while comprehensively assessing various factors, including policy trends. In Japan, we think that the direction of the financial environment has remained broadly unchanged over the past half year, and we believe that the environment continues to be favorable for the bank. After the turnaround in the policy of the Bank of Japan, we are now firmly in an era of positive interest rates. Yields on Japanese government bonds, which are our investment target remain at relatively high levels. Regarding of whether or not additional rate hikes occur going forward, by steadily moving ahead with restructuring of yen interest rate portfolio, we believe that we can realize stable high profit growth over the medium- to long-term. In addition, with the return of positive interest rates in Japan, deposits are becoming even more valuable for financial institutions. The shift from savings to investment is continuing, and we will work to strengthen our customer and deposit base through diverse channels and means while giving maximum consideration to customer-oriented perspectives.

Meanwhile, looking at overseas markets, we think the United States has reached the end of a phase of monetary tightening aimed at controlling inflation and has now entered the stage of adjusting its policy stance. However, at present, views on the future direction of monetary policy continue to vary widely. Furthermore, the tension in the Middle East, which emerged in March, has escalated and become prolonged and persistently high oil price threatened to amplify inflationary pressure and the risk of economic slowdown in many countries. We are monitoring this trend carefully.

Individually, AI disruption and private credit have become market themes, but we consider their direct impact on the bank's investment portfolio to be limited. Our materials include additional information regarding the status of the bank's direct lending investments. We hope you will find it useful. On the technological innovation front, the advancement of generative AI is bringing significant changes to the entire financial industry. AI has wide-ranging potential applications, such as promoting operational efficiency, improving customer experience and creating new financial services. We will utilize AI and gradually incorporate technology as a means of enhancing and streamlining our response in the area of daily business processes and transactions. In this business environment, we will maintain and cultivate the robust customer base that we have built to date and fully leverage our asset management capabilities with an emphasis on discipline and stability.

Our portfolio reflects a rigorous strategic emphasis on quality over scale. For bonds, we have focused mainly on investment grade, and we also have made investments in carefully screened high-quality alternative assets such as private equity, real estate and direct lending. We believe this strategy supports the bank's stable financial base and sustainable growth even during phases of high market volatility. Instead of settling for the status quo, we have taken an expansive view on the changes in the environment and work to sophisticate our management framework to cope with various risks that we envisage across our overall business operations. In particular, since changes in the financial market environment may have a significant impact on the bank's management, we believe it is essential for ensuring the stability of management that we are able to make rapid judgments and response to environmental changes. Going forward, we will promote flexible and agile management while accurately grasping the changes in the market environment and economic conditions.

Based on this assessment, I will now explain the new medium-term management plan. First, please look at Page 3 of the materials. The 5-year period of the previous medium-term management plan ended, and we have now truly entered a new stage of realizing nonlinear growth. Over this 5-year period, the environment changed dramatically with changes in population trends and social structure, digitalization and the advancement of generative AI and the arrival of an era of positive interest rates. Amid this environment, under the previous medium-term management plan, we achieved our highest profit since listing for third consecutive year, and our market cap broke above JPY 10 trillion at one point. In addition, the Yucho Bank book app grew to become one of the largest among Japanese banks, and we made steady progress on the privatization process with 2 global offerings. In this way, we have now truly entered a new stage of realizing nonlinear growth. The central message of this new medium-term management plan is that we have now entered a new stage of working toward nonlinear growth. We are committed to overcoming this period of major transformation and striving for even greater heights.

In addition, we have also formulated two medium- to long-term vision statements, setting out who we want to be in 2040, looking ahead to internal and external environmental changes that we expect to gain momentum going forward. The first is to become Japan's leading comprehensive financial platform, meeting customers' diverse needs and accompany them through life. The second is to become a leading global market player aiming to increase the value of customers' assets and realize a sustainable society through investment in Japan and overseas. The new medium-term management plan is positioned as the first step toward realizing this medium- to long-term vision. Through the promotion of four business strategies, which I will explain later, we aim to achieve nonlinear growth that breaks from our previous trend with net income of over JPY 1 trillion and ROE of around 10% in the final fiscal year.

In this message, I seek to express my own determination and readiness to lead Japan Post Bank to the next growth stage in an era of significant change. Moving on, please look at Page 4. In FY 2028, the final year of the new medium-term management plan, we aim to achieve a net income of over JPY 1 trillion and ROE of around 10%. Compared with the previous medium-term management plan, we will pursue accelerated growth in both net income and ROE. First, looking at our FY 2025 financial results. Net income was JPY 525.5 billion, reaching a record high since listing for the third consecutive year. This result was even higher than earnings forecast of JPY 500 billion, which we revised in February and was around 1.5x the level of FY 2021, the first fiscal year of the previous medium-term management plan. In addition, ROE reached 5.3%. We had already announced that we would aim for ROE of 5% or higher early in the next medium-term management plan, but we achieved it ahead of our target, indicating our strong financial results overall. With these solid results as our foundation, under the new medium-term management plan, we are aiming to double net income to over JPY 1 trillion and ROE to around 10% over the 3-year period through FY 2028. In the medium- to long-term, we will meet shareholders' expectations by assuming further increases in net income and ROE.

Next, please look at Page 5. On this page, I will explain our capital policy. First, with regard to dividend per share for FY 2025, we increased the dividend to JPY 74 in line with our profit growth. This is also around 5.5x the level of the JPY 50 paid for the first fiscal year of the previous medium-term management plan. In addition, as announced in December last year, in FY 2025, we conducted a JPY 30 billion share repurchase. This was our first share repurchase conducted without an accompanying global offering. We think it demonstrates our readiness to conduct shareholder returns flexibly in various ways. During the next medium-term management plan, we will ensure financial soundness while aiming to increase corporate value by maximizing the cycle of growing profit through growth investments and making returns to shareholders. Shareholder returns are based on a dividend payout ratio of around 50% with progressive dividend payments through profit growth and share repurchases, et cetera, considered on an ongoing basis. We also set the target range for our CET1 ratio in normal times at between 11% and 13%, aiming to improve capital efficiency while maintaining a stable financial base.

Next, please look at Page 6. Under the new medium-term management plan, we have set out two missions for achieving our medium- to long-term vision, along with four business strategies for achieving the missions. Specifically, the four business strategies are the Digital Payment Business Strategy, Consulting Business Strategy, Market Operations and Asset Management Business Strategy, and Regional and Corporate Solutions business strategy. Starting with the digital payment business strategy at the top left. We aim to provide beneficial rewards to customers by digitalizing their daily usage of the bank, linking with points ecosystem and other measures, mainly through the Yucho Bank book app. Furthermore, we also aim to increase lifetime value and enhance customer experience through customer-centric digital marketing and advertising. In addition, we will provide new payment services using tokenized deposits.

If I could ask you to look also at Page 8, our KPI for the strategy is the number of accounts registered for the Yucho Bank book app which expanded to 16.62 million accounts at the end of FY 2025. By the end of FY 2028, we aim to expand this to 25 million accounts, roughly 1 in 4 among the population of Japan. Next, under the Consulting Business Strategy on the upper right, we will enhance our lineup of products and services to meet the diverse financial needs of customers in the era of 100-year lifespans through collaboration with partner companies. We will also build a system that can provide seamless services to customers of all generations nationwide by enhancing three channels: the Physical Channel of directly operated branches and post offices, the Digital Channel via the app and the Remote Channel where we provide online consultation by specialist personnel.

For example, we will introduce an AI concierge that customers can easily consult with using a smartphone or other device as well as strengthening the professional function of post offices as a financial concierge. As a KPI for this strategy, we have set the number of users of long-term asset building systems such as NISA and iDeCo, aiming for 1.1 million users by the end of FY 2028. Next, under the Market Operations and Asset Management Business Strategy on the lower right, we will focus mainly on restructuring the yen interest rate portfolio in a new era of positive interest rates while improving investment efficiency of risk assets, that is risk-adjusted return and pursue the optimal investment portfolio. We will also take on the challenge of building a distinctive asset management business centered on Japan Post Bank Asset Management Company Limited, which was launched on April 1 and deepening our alliance with outside asset management companies. Our KPI for this strategy is net interest income, et cetera, which has currently grown to around JPY 1.5 trillion, and we aim to achieve over JPY 2.3 trillion by FY 2028.

And finally, under the Regional and Corporate Solutions Business Strategy on the lower left, we are working to enhance private equity investment in Japan through development of a general partner, GP, business centered on Japan Post Bank Capital Partners Company Limited. We will contribute to the revitalization of regional economies through measures such as strengthening collaboration with regional financial institutions, providing settlement solutions to regional companies and promoting sales through workplace channels. As our KPI for this strategy, we have set a target of 60 deals executed, totaling approximately JPY 60 billion through our subsidiary GPs by the end of FY 2028.

We will also focus on the management resources that support these four business strategies by promoting human capital management and corporate culture reforms and enhancing our management base. Finally, to reiterate what we have stated many times in the past. To realize a sustainable increase in corporate value as a listed company, we believe it is essential to sincerely acknowledge how we are evaluated by the market. Our recently announced new medium-term management plan was formulated through rigorous continuous discussions within management based on the opinions and requests that we have received through our dialogue with shareholders and investors. We will continue to value communication with the market and work to further improve our management while listening carefully to your candid feedback.

[Statements in English on this transcript were spoken by an interpreter present on the live call.]

Hello, everyone. I am Takayuki Kasama, President and CEO of JAPAN POST BANK. Thank you for taking time out of your busy schedules to attend our investors meeting today. Today, I will present the first half financial results of the final fiscal year and the current medium-term management plan, which started from fiscal year 2021. I will give our assessment of the business environment and a brief review of our first half financial results.

I will also talk about the current medium-term management plan to date as well as our thinking regarding the direction of the next medium-term management plan, which is currently being discussed internally with plans to announce it in May next year. After that, I would like to address your questions.

First, I will comment on our recognition of the business environment and the bank's direction. With regard to the market business, 6 months ago, at our announcement of the financial results for the previous fiscal year, I commented that the financial markets remained unstable, both in Japan and overseas. On the other hand, over the past 6 months, geopolitical risks have decreased slightly and the political situations in the United States and Japan have become somewhat clearer, and it feels as though the direction of monetary policy is also becoming clear.

In Japan, the environment for the bank continues to be positive. The market is expecting further policy rate hikes by the Bank of Japan and yields on Japanese government bonds, which the bank invests in, remain at a relatively high level. If the current yield level is maintained, we expect this to contribute significantly to profit growth over the next several years, and we will, therefore, continue to steadily restructure the yen interest rate portfolio. Furthermore, if the policy rate of BOJ were to be raised, it would have an even more positive effect, although this contingency is not factored into our current earnings forecast.

Overseas, on the other hand, the U.S. tariff policies as well as the resulting risk of an economic slowdown and tension between countries continue to raise concerns. However, we consider the risk of a downturn to have decreased somewhat. We have made minor revisions to our investment policy appropriately in line with changes in the market environment, such as the continued contraction of credit spreads overseas, but we have not made major change in our investment policy.

As we have been doing already, our portfolio has been built with a rigorous emphasis on quality rather than a pursuit of scale, centered mainly on investment grade rather than high-yield investment for bonds with careful selection for high quality in our alternative assets such as private equity and real estate. We will continue to follow this approach even further going forward. However, although we said that the risks had somewhat decreased, we will certainly remain vigilant. The market environment is changing rapidly and new situations are arising daily. We are not being complacent, but pursuing the establishment of a system that will enable us to respond swiftly to whatever kind of risks emerge any time.

Next, in the retail business, the environment is not entirely favorable. We face a challenging situation with factors that continue to intensify the competitive environment, such as the rising value of bank deposits, the rapid advance of digitalization, including the use of AI and entry into the banking industry by companies in other industries. Specifically, the value of deposits has increased with the shift to positive yen interest rates, obliging us to compete fiercely with other banks to capture deposits.

We recognize that competition to capture customers in both physical and digital channels is intensifying. Under these conditions, the bank will also work to maintain and expand our customer base, which is one of our strengths and to achieve steady and stable profit expansion by paying more attention to environmental changes and quickly introducing appropriate strategies such as conducting promotional campaigns related to pensions and further growing the user base of the Yucho Bankbook app.

Based on this recognition of the situation, I would like to make some comments about fiscal year 2025 first half results. First, please see Page 3 of the materials. Consolidated net income attributable to owners of parent was JPY 240.3 billion, a 51.1% progress rate against the full year forecast of JPY 470 billion. We have maintained a robust financial base in terms of both the capital adequacy ratio and the CET1 ratio. We consider it a strong financial result. We have left our full year net income forecast for fiscal year 2025 at JPY 470 billion and the annual dividend forecast at JPY 66 per share.

Although we are in a favorable environment, taking an overall view, the environment has not diverged significantly from our initial assumptions. So we have left the forecast unchanged for now. With regard to the current status of our restructuring of the yen interest rate portfolio, which is a major pillar of our revenue growth, we are making steady progress as shown on Page 5. A large volume of JGBs is scheduled for redemption this fiscal year.

So the overall balance has not increased significantly. However, the JGBs currently being redeemed carry yields of around 0%. And as shown at the bottom left, the yield of JGB has improved substantially. I would like to reemphasize this point. For our future direction, please look at Page 6. This page summarizes the direction of the next medium-term management plan. The key points are as follows: First, we set our vision to become a comprehensive financial platform and a leading global market player. Second, as our Direction for Capital Policy, we show progressive dividends in line with profit growth and inorganic investments. In addition, we are now aiming for a higher ROE target. I will explain this in detail later. Please turn to Page 8. Here, we have a review of the current medium-term management plan as a basis for determining the direction of the next plan.

To summarize the period of the current medium-term management plan up to now, I would say that we have made solid progress in a rapidly changing environment and that we look ahead to a leap to the next stage. Looking at our profitability target, we achieved our initial profit target of JPY 400 billion ahead of schedule, partly due to the shift to positive yen interest rates.

In the current fiscal year, we expect to achieve new record high profits for the third consecutive year since listing on the stock market, showing that we have entered a profit expansion phase. In terms of our efficiency target, through continued efforts to reduce operating expenses and improve the OHR, we have broadly achieved the target. Now we believe we have entered a phase of increasing proactive spending and expanding investments targeting top line growth. However, we will continue to prohibit undisciplined expansion in spending, and we will continue our efforts to reduce OHR. Looking at our targets for soundness, we expect to be able to maintain our target level. However, in this area also, we see the bank reaching a turning point from a decreasing phase to an increasing phase.

Next, on Page 9, we have also reviewed our respective businesses. As a qualitative comment, our 3 businesses, the Retail business, Market business and [indiscernible] business have achieved a certain level of results, but we have also been able to recognize issues to address in each business.

Next, please have a look at Page 10. In addition to this review and assessment of the current medium-term management plan, we have also considered JAPAN POST BANK's purpose, management philosophy and changes in the internal and external environments to define our medium- to long-term vision as follows: Japan's leading comprehensive financial platform, meeting customers' diverse needs and accompanying them through life and a leading global market player, aiming to increase the value of customers' assets and realize a sustainable society through investment in Japan and overseas.

To realize these, the next medium-term management plan period will be the 3-year period starting from fiscal year 2026, during which time we will aim to achieve the following 2 missions. As a platform to support an era of 100-year life spans, we provide diverse financial services for customers throughout Japan together with partner companies. As one of Japan's largest institutional investors, we refine our asset management capabilities and develop a distinctive asset management business.

To achieve these, we will reorganize our business strategies as: one, digital payment; two, consulting; three, regional and corporate solution; and four, market operation and asset management. To give an example, in our market operation and asset management strategy, the bank seeks to make a further leap forward by providing products that leverage our accumulative market operation capabilities and by expanding its customer base and sales channels. We have made considerable progress for each strategy, and I would like to unveil them to you all here, but I hope you will excuse me for not doing so at this stage.

However, we do not intend to keep you waiting indefinitely, and we aim to present some sort of results to you during the current fiscal year. Please turn to the next page, where we present an overview of our target vision. Page 12 shows an image of the profit trend over the period of the next medium-term management plan and the revision of our ROE target accordingly. For ROE, we are currently still discussing specific figures. However, our current target of 5% or more early in the next medium-term management plan period will be revised upward to a higher level.

We intend for the new level to be one that is acceptable to everyone in view of feedback from investors and the status of our industry peers. I hope you will look forward to it with anticipation. Next, we turn to the direction of our capital policy. Please see Page 13 of the materials. We will retain our existing capital policy direction of pursuing the optimal balance among shareholder returns, growth investments and soundness. In shareholder returns, we will aim for progressive dividends in line with profit growth, looking ahead to solid growth in net income going forward.

In growth investments, we will enhance investments, including inorganic. Furthermore, with regard to share repurchases, we intend to consider these as necessary based on the market environment and the status of the parent company. In all of these measures, we aim to increase corporate value further. We are currently engaged in internal discussion regarding a new capital policy suitable for a new stage, including specific figures, and I would ask you to wait for another half year to hear details on this as well.

To conclude, I would like to reiterate a message that I always give. As a publicly listed company, it is natural for us to think about how the bank is perceived by the market in order to continuously improve corporate value. The direction of the next medium-term management plan presented today has been determined through discussion within the management team, politely taking into account the requests and opinions of our shareholders and investors. We will continue to value communication with the market and look forward to hearing your candid comments and opinions so that we can have a productive exchange of views.

[Statements in English on this transcript were spoken by an interpreter present on the live call.]