My name is Hisashi Goto, and I am the President of the Fukuoka Financial Group.
Thank you all for taking the time to join us today.
My presentation today will focus on two primary agenda items: first, the progress of our financial results for FY2025 alongside our earnings projection; and second, our initiatives aimed at improving FFG's corporate value.
This slide shows an executive summary, providing a broad overview of today's presentation.
I will elaborate on the details on subsequent slides.
Now, please turn your attention to page 5.
Looking at our financial results for the first half of FY2025, consolidated core business profit reached 66.6 billion yen, representing a year-on-year increase of 7.9 billion yen. This corresponds to a progress rate of 53.5% against our initial projection.
Domestic net interest income increased by 7.4 billion yen year-on-year. This growth was achieved despite the absence of approximately 3.0 billion yen in gains from large fund exits that were recorded in the previous year.
In addition, the recording of revenue from external system sales related to Minna Bank also contributed to the increase in core business profit.
Furthermore, while overhead expenses have risen following our aggressive growth investments-such as increases in base pay and investments in digital transformation (DX)-consolidated core business profit nevertheless achieved an increase of 7.9 billion yen after absorbing these costs.
I will now elaborate on the factors behind the increase in domestic net interest income.
Regarding interest on deposits and loans, we adhered to a policy of not engaging in excessive interest rate competition. By steadily improving loan yields while simultaneously containing deposit yields, we achieved a year-on-year increase of 3.9 billion yen.
Interest on securities increased by 3.3 billion yen year-on-year. While gains from fund exits declined compared to the previous year, this was offset by an increase in bond interest and dividends from stocks and investment trusts.
Regarding fund transactions, results remained flat for the first half of FY2025. While loans to Government and deposits with the Bank of Japan increased, market procurement costs and interest rate swap payments also increased.
The graph in the bottom right of the slide illustrates the trend in domestic net interest income. FFG manages its ALM operations with the objective of smoothing out, to a certain extent, the earnings volatility caused by interest rate fluctuations.
Before the Bank of Japan began raising interest rates, securing revenue through loan-deposit spreads was challenging. Consequently, we utilized interest rate swaps to partially supplement our net interest income. However, as loan-deposit spreads have improved following the rate hikes, we are now scaling back our use of interest rate swaps.
As a consequence of the growth in core business profit, consolidated net income increased by 4.4 billion yen year-on-year, achieving a progress rate of 54.5% against our initial projection.
Examining the year-on-year factors: the absence of the impact from the previous year's securities portfolio restructuring led to an improvement in gains (losses) on securities; while, in terms of credit cost, the absence of the previous year's recovery of large loans exerted downward pressure on earnings.
I will now provide additional context regarding our gains (losses) on securities and credit cost in the first half of the year.
Regarding gains (losses) on securities, while we recorded gains from the sale of strategic shareholdings, we also executed a partial rebalancing of our domestic bonds in anticipation of future interest rate hikes in Japan.
The table in the bottom left of the slide details our unrealized gains (losses) on securities. While unrealized gains on stocks have increased, we have successfully curbed the expansion of unrealized losses on domestic bonds by shortening the duration to under two years.
As a result, unrealized gains (losses) after considering hedges stood at a gain of 64.8 billion yen.
Let me explain this in more detail. If you look at the breakdown, while the unrealized losses on Japanese Government Bonds may appear considerable, bonds with maturities exceeding 10 years are already hedged. We have successfully reduced our risk exposure and have sufficient capacity for further investment.
Furthermore, we have approximately 150 billion yen in unrealized gains on stocks, which could be used to offset these positions. Therefore, when viewed as an overall portfolio, we 8
do not believe this will impose any constraints on our operations.
Here is our earnings projection for FY2025, reflecting our performance in the first half.
Reflecting the strong performance of domestic net interest income as well as fees and commissions from investment trusts and insurance, we have revised our core business profit upward.
However, regarding credit cost, we have kept our projection in line with the initial plan, taking into account the bankruptcies and rating downgrades seen in the first half. Consequently, at this stage, we are maintaining our projection for consolidated net income.
As for this bottom-line projection, we plan to revisit the numbers towards the end of this fiscal year, while carefully assessing trends in core business profit, credit cost, and the sale of strategic shareholdings.