Q Please tell us about your securities investment policy for the future, including the gain on the sale of Hisamitsu Pharmaceutical shares following their recent management buyout (MBO) announcement.
A Regarding the matter of Hisamitsu Pharmaceutical, as the takeover bid (TOB) offer period is currently underway, we cannot provide a definitive statement. However, as you may have surmised, based on the publicly announced purchase price, the sale value is estimated at approximately 20 billion yen, and we expect to record a corresponding gain on the sale. FFG's basic policy regarding shareholder returns is to "steadily increase and maintain dividends through profit growth." Regarding the current revision to our earnings projection, we have revised earnings upward by an amount equivalent to the upside in core business profit and announced a dividend increase in line with our policy of a dividend payout ratio of approximately 40%. Rather than a discussion specifically linked to "what to do with the gains from the Hisamitsu Pharmaceutical sale," we intend to address necessary areas with an eye toward FY2026 and beyond-such as yen interest-rate risk control within our securities investment-while maintaining an overall perspective, contingent on achieving the announced consolidated net income of 85.0 billion yen.
Q Regarding domestic bonds, I would like to ask about the pace of portfolio restructuring following the loss-cutting. Do you expect carry income from domestic bonds to increase in FY2026 due to this restructuring? Furthermore, based on those factors, are you considering that consolidated net income for FY2026 will exceed the level that was presented during the investor meeting following the first-half results?
A Regarding our domestic bond portfolio, bonds with maturities exceeding 10 years have already been hedged via interest rate swaps, allowing us to suppress interest rate risk to a certain degree. We have also shortened the duration to 1.5 years. Currently, we are managing funds through short-term bonds and loans to Government, and we are evaluating the optimal timing for fixed-rate bond investments based on interest rate forecasts. With a view toward growth from the next fiscal year onward, we will consider our future portfolio composition while accounting for factors such as hedging costs. The consolidated net income figure provided at the investor meeting following the first-half results was a simulation based on specific assumptions. The environment has shifted significantly since we formulated our Medium-Term Management Plan-not only in terms of the policy interest rate but also long-term interest rates, stock prices, and the advancement of DX/AI. We will proceed with discussions regarding earnings for FY2026 and beyond in light of these environmental changes.
Q Regarding the unrealized gains on stocks and investment trusts within FFG's securities portfolio, should we look at the Nikkei Stock Average as a benchmark when estimating the situation from an external perspective? Additionally, please explain the factors behind the significant increase in unrealized gains on stocks and investment trusts from the end of September to the end of December.
A The factors contributing to the increase in unrealized gains on securities include rising prices of individual stocks, Japanese equity funds, and strategic shareholdings. Broadly speaking, the Nikkei Stock Average may be used as a benchmark. One of the reasons for the current upward revision is an increase in fund revenue. While there is no specific benchmark we monitor for private equity (PE) funds, when M&A activity intensifies globally, funds prioritize internal rate of return (IRR) and aim for early exits. Consequently, profits are being recorded ahead of our initial projections.
[Profit Levels for FY2026 and beyond]Q Regarding the impact of the FY2026 hike in the policy interest rate (0.50% → 0.75%), a positive impact of 10 billion yen was indicated at the investor meeting at the time of the first-half results. However, in FY2025, earnings are being bolstered by roughly 8 to 9 billion yen due to factors such as fund revenue from the investment banking division and external sales revenue from Minna Bank. This suggests that the year-on-year profit increase factors for FY2026 might be largely offset. Are there other areas where we can expect upside, such as the effect of rebalancing the domestic bond portfolio? Please share your outlook for earnings and return on equity (ROE) for FY2026 and beyond.
A While this is strictly a simulation based on specific assumptions, we estimate that the increase in net interest income resulting from the policy rate hike from 0.50% to 0.75% will be approximately 10 billion yen in FY2026 and approximately 15 billion yen in FY2027. The environment has shifted significantly since we formulated our Medium-Term Management Plan-not only in terms of the policy interest rate but also long-term interest rates, stock prices, and the advancement of DX/AI. We will proceed with discussions regarding earnings for FY2026 and beyond in light of these environmental changes. In these discussions, we will remain committed to our principles for FFG of strengthening our financial fundamentals, achieving sustainable growth, and continuing to increase and maintain dividends in line with profit growth.
[Credit Cost]Q We are hearing some concerns from other banks regarding the credit costs of SMEs. What is FFG's outlook on credit costs?
A Due to concerns regarding the U.S. tariff policy and rising prices, our plan for FY2025 incorporates credit cost conservatively. At present, however, we do not have concerns that FFG's loan portfolio will be significantly impaired. That said, we are seeing increasing polarization;
while many companies are performing well, a certain number are struggling, and bankruptcies are increasing, particularly among micro-enterprises. Should credit cost not materialize as initially planned, our policy-contingent on achieving the announced consolidated net income of 85.0 billion yen-is to proactively address areas that require attention, including within our securities portfolio, with an eye toward the next fiscal year and beyond.
[Minna Bank]Q Regarding Minna Bank, deposit balances at the end of the third quarter increased by approximately 10 billion yen. To what extent has the collaboration with Merpay influenced this?
A It has been about one and a half months since the launch of our collaboration with Merpay and our focus has been on prioritizing stable operations, not aggressive PR. Given this, the impact of the Merpay collaboration on deposit balances at Minna Bank as of the end of the third quarter is not significant. The increase in deposit balances as of the end of the third quarter is primarily the result of other campaigns. Although account acquisition through the Merpay collaboration is currently lower than initially projected, we are seeing a certain level of organic acquisition even without PR activities. We expect that upcoming campaigns will drive an increase in account numbers, which will in turn lead to growth in deposits and loans. We will provide more specific details regarding these effects at the investor meeting for FY2026.
[vary Services]Q It may still be too early to ask, but could you tell us about the customer reaction and your internal sentiment regarding vary services.
A Locally, there has been a tremendous response, and we can sense the high level of expectation from our customers. Significant attention is being drawn to vary services due to their high point rewards and the construction of a new ecosystem. In the approximately two weeks since the launch, we have received nearly 30,000 applications. While our goal is to achieve 640,000 card acquisitions over five years, progress is currently well on track.
Q Key projects for FFG are underway, such as the rollout of vary services and Minna Bank's collaboration with Merpay. Is there a possibility that advertising and other operating expenses will increase significantly from FY2026 onward?
A We see vary services as a very major project for FFG. Currently, FFG has successfully secured highly stable deposits and maintained positive annual growth rates. However, given the uncertain elements in the future outlook, we aim to further strengthen our customer base through vary services. Regarding the costs associated with vary services, we do not anticipate a significant negative impact on profit, as we will be reallocating costs from our previous loyalty program. Specifically, we have budgeted 2.0 billion yen for system investment and a total of 3.0
billion yen over five years, including promotional expenses, and we project the return on investment (ROI) to be +1.0 billion yen over that five-year period. Regarding Minna Bank's collaboration with Merpay, while we will deploy marketing activities, these will be controlled within our overall marketing costs.
[Other]Q Under the Regional Financial Power Enhancement Plan, if regulations on large credit exposure limits between subsidiary banks within the same group are relaxed-considering, for example, that Kumamoto Bank is currently in an over-loaned position-what are your thoughts on liquidity sharing between Group banks?
A As discussions on this matter are still ongoing, many aspects of the institutional design remain unclear. Generally speaking, however, this would increase the flexibility of intra-group financing, and we view it as a positive development. Once the institutional design has been finalized, we intend to examine specific ways to utilize it.
Q The enterprise value charge (EVC) system is set to begin in May. Could you please tell us about FFG's initiatives and your evaluation of this system?
A The EVC system is generally expected to be utilized by venture companies and companies undergoing rehabilitation. While we are yet to define specific operational procedures, we feel that, in conjunction with the Early Business Recovery Act, the responsibility and commitment of the main bank will be increasingly required. Once the EVC system and the Early Business Recovery Act are actually implemented, we will consider specific applications by evaluating each case individually.
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