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35 th Regular Meeting of the ALIDE General Assembly New Trends of Lending and Funding Operations at Development Bank of Japan (DBJ) June 14, 2005 Eishi Yasunaga Director General Department for International Affairs Development Bank of Japan. DBJ’s Overview. Establishment

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slide1
35th Regular Meeting of the ALIDE General Assembly

New Trends of Lending and Funding Operations at

Development Bank of Japan (DBJ)

June 14, 2005

Eishi Yasunaga

Director General

Department for International Affairs

Development Bank of Japan

dbj s overview
DBJ’s Overview
  • Establishment
    • Previously known as the Japan Development Bank (JDB), established in 1951
    • October 1, 1999 as a special public corporation under the terms of the Development Bank of Japan Law, supervised by the Ministry of Finance
  • ObjectivesandBusinesses
    • Making financial contributions to the Japanese economy
    • Providing long-term loans and equity for private capital business investment
  • Scale
    • Loans outstanding: approximately 140billion US dollars (as of March 2004)

(New loans: approximately 11billion US dollars [FY 2003])

    • Employees: 1,362
financial institutions in japan
Financial Institutions in Japan

Central Bank

Bank of Japan

City Banks

Regional Banks

Private Financial

Institutions

Trust Banks

Credit Associations

Credit Cooperatives

Agricultural & Fishery Cooperatives

Insurance Companies

Securities Companies

Policy-based

Financial Institutions

Banks (DBJ and JBIC)

Government Finance Corporations

slide5

(Fund-raising)

(Loans)

government financial institutions

postal savings

financial institutions for agriculture, forestry and fisheries

city banks

city banks

Total \1,185 trillion

financial institutions for agriculture, forestry and fisheries

regional banks

regional banks

financial institutions for small- and medium-sized business

financial institutionsfor small- and medium-sized business

member banks of the Second Association of Regional Banks

trust accounts

trust accounts

foreign banks

trust banks and long-term credit banks

trust banks and long-term credit banks

member banks of the Second Association of Regional Banks

foreign banks 0.8

Policy-based Finance in Japan

Market Shares of Financial Institutions (%, as of the end of 2002)

Total \790 trillion

Notes: (1) Funds include deposits, debentures and trusts.

(2) Shaded areas denote banks.

Source: Bank of Japan

changes in major areas of dbj loans
Changes in Major Areas of DBJ Loans

Coal Mining

Others

Ocean Shipping

Electric Power

Regional Development

Coal Mining

Others

Development of Technology

NEF’s Regional Development

Regional Development

Improvement in Living Standards

Ocean Shipping

Urban Development

Resources and Energy

Others

Regional Development

Development of Technology

Telecommunications and Information Network

Resources and Energy

NEF’s Regional Development

Improvement in Living Standards

30

9

7

2

1

6

Improvement in Key Transportation Systems

Internationalization of Japan

Regional Development

Development of Industrial Technology

Improvement in Social Capital

Enhancement of Quality of Life

Economic Revitalization

Creation of Self-Reliant Regions

recent business focus
Recent Business Focus
  • Revitalization of Local Economies
    • Support urban renewal projects, regional industries and infrastructure, etc.
    • Provide investments and loans for the privatization of public/municipal enterprises through PFI and PPP in alliance with regional banks
  • Restructuring and Economic Revitalization
    • Support financial market revitalization, and industrial and business rehabilitation through funds
    • Develop intellectual infrastructure through evaluating technology commercialization plans
  • Environmental Measures and Infrastructure
    • Support financing of environment-friendly companies/projects
    • Credit decision and interest rate system based on environmental screening, as well as general corporate credit analysis
eligible projects and companies
Eligible Projects and Companies
  • Eligible Projects
    • Capital Investment
      • Facilities acquisition, improvement and repair, and related activities
    • R&D Costs
      • Construction/purchases of R&D facilities(land, buildings, machinery, etc.), Personnel expenses
  • Eligible Companies
    • Organizations such as stock companies (listed and unlisted)
loan conditions
Loan Conditions
  • Loan Amount
    • Max. 50 % of total amount of project cost
    • No fixed minimum or maximum amounts
  • Maturity and Grace Period
    • The average maturity is 15 years (max 25 years).
    • A grace period of up to three years is possible.
    • The maturity and grace period are determined according to the useful life and profitability of the project.
  • Interest Rate
    • Fixed at disbursement
    • Based on the lending period and credit risk
  • Collateral or Guarantor
    • In principle, either collateral or a guarantor is required.
sources of funds
Sources of Funds
  • All capital from the government
  • Borrowings from the government

(via Fiscal Investment Loan Program: FILP)

  • Bond issuance
    • Government-guaranteed Bonds
      • Foreign Bonds
      • Domestic Bonds
    • FILP Agency Bonds (Non-guaranteed Bonds)
fiscal investment and loan program
Fiscal Investment and Loan Program

Sources of Funds

Uses of Funds

FILP Agency Bonds

Policy-based

Financial

Institutions

(e.g., DBJ)

Postal Savings

Government- Guaranteed Bonds

Welfare Pensions

Financial Markets

National Pensions, Other

Fiscal Loan Fund

Special Account

Public

Companies

Postal Life Insurance

Industrial Investment

Special Account

Banks, Other

slide13

DBJ’s Annual Budget Settlement in FILP

(Line Ministries for Loan Program at DBJ)

(Demand-based Budget Proposal and Approval by MOF, Cabinet, and Diet)

Ministry of Land,

Infrastructure and Transport

■Urban redevelopment

Ministry of Economy,

Trade and Industry

■Support for industrial revitalization

Ministry of Finance

■Overall management

of FILP

Ministry of Health,

Labor and Welfare

■Welfare, aging and related issues

DBJ

Ministry of Environment

■ Waste disposal and recycling

Ministry of Agriculture,

Forestry and Fisheries

■ Distribution of food supplies

Ministry of Public Management,

Home Affairs,

Posts and Telecommunications

■Regional telecommunications networks

Ministry of Education,

Sports, Science, Culture

and Technology

■New technology development

Financial Services Agency

■Business rehabilitation

ensuring sound finance
Ensuring Sound Finance
  • Risk Management for Sound Operations
    • Credit Risk
      • Internal credit-rating system, since FY1999
      • Self-assessment of assets, since FY2000
      • External auditing by an audit corporation
    • Liquidity Risk / Interest Rate Risk
      • ALM: Comprehensive management of assets and liabilities
      • Fund management with liquidity taken into consideration
    • Exchange Risk
      • Currency swaps
financial highlights
Financial Highlights

Assets

Liabilities

  • 100% owned by the Government of Japan
  • BIS capital ratio: 13.39%
  • Ratio of non-performing loans to total loans: 3.2 %
  • Net profit: JPY 114 bn (USD 1 bn)
  • Net profit of1st fiscal half FY04:

JPY 72 bn (USD 0.7 bn)

Loans

97%

Bonds

13%

Borrowings

(FILP)

72%

JPY 14.8 trillion

(USD 140 bn)

Other Liabilities

Equity

12%

Other Assets

(Sep. 2004, Japan GAAP Basis)

slide17

DBJ’s New Directions in Financial Services

High risk

Investment funds

Investment banks

Venture capital

Investment business

Private equity fund

Privatization projects

Infrastructure projects

Business reconstruction

High-risk bonds

Large-scale M&A

Emphasis on risk dispersal

Investment business

Venture fund

MBO fund

Small scale

Little information

Close

regional connection

DIP finance

Risk requirements

Large scale

Much information

Macroeconomic

Emphasis on coverage

Arrangement,

Finance business

Project finance

Asset finance

Demand for close regional connection

  • Traditional scope
      • of DBJ finance

Investment banks

Securities firms

City banks

Refinancing system

Regional businesses

Community projects

Local banks, NPOs

Traditional commercial finance

Guarantee business

Bonds

Institutional investors

Securities firms

  • Low risk
introduction of japan s effort in the environmental sector
Introduction of Japan’s Effort in the Environmental Sector

– Clean Development Mechanism: CDM –

japan s ghg emission
Japan’s GHG Emission

8.0%

Level of emissions for base year

14.9%

6%

Reduction target for 2008-2012 under the Kyoto Protocol

slide20

Great Potential of Kyoto Mechanism

Source. A.D. Ellerman, H. Jacoby, and A. Decaux, 1998, “The Effects on Developing Countries of the Kyoto Protocol and CO2 Emissions Trading”, MIT Joint Program Report No.41

clean development mechanism
Clean Development Mechanism

Non-Annex Ⅰparty

Annex Ⅰparty

Acquired CERs are added to

the allowed emissions

GHG emissions projection

GHG emissions

Credit (CER)

Technology,

Investment, etc.

Baseline Scenario

Project

WIN-WIN

overview of japan carbon finance ltd
Overview of Japan Carbon Finance, Ltd.

(1) Objective:

To purchase certified emissions reductions (CERs) and emission reduction units (ERs/ERUs) issued for the crediting period until 2012 from CDM/JI Projects

(2)Fund Pool:

Called “Japan GHG Reduction Fund (JGRF),” which JCF can utilize to purchase ERs

(3) Committed Fund Amount:

USD 141.5 million

(4) Establishment: \

December 1, 2004

(5) Location:

Tokyo, Japan

(6) Fund Providers

Policy-lending institutions (JBIC & DBJ) & major Japanese private enterprises

slide23

CDM Procedure

Project

Design

Validation/

Registration

Verification/

Certification

Issuance of

CERs

Monitoring

Host Country

Government

DNA

Approval letter

PDD

Project

Implementation

Monitoring

on site

Project

Participant

Acquire

CERs

Approval letter

Investment

Country

Government

DNA

DOE

Validate

PDD

Verify the

Monitoring

Report,

Certify the

reduction

CDMEB

Register

The project

Issue

CERs

advantages for projects
Advantages for Projects

(1) Additional Cash Flow:

Project viability to be improved by cash inflow in USD under ERPA

(2) Development Function:

JCF assistance and orientation to develop CDM/JI projects

(3) Possibility of Co-purchase:

Opportunity for JGRF fund providers to purchase a part or all of the remaining ERs after the purchase by JCF

(4) Collaboration with and Support from JBIC & DBJ:

At present approx. 50 projects, on a pre-screening list, gained through JBIC/DBJ networks

slide25

Operational Flowchart

Project Entity/Sponsor

JCF

Submission of PIN

Clarification & Screening of PIN

Evaluation & Selection of Projects

Execution of Letter of Intent (LOI, which defines basic terms & conditions)

PDD Preparation

Assistance & Orientation

to Develop Projects

Validation & Registration

Execution of ERPA

Exclusivity Period for ERPA Execution

for more information
For More Information…

Contact:

  • Japan Carbon Finance, Ltd. (JCF)

Carbon Finance Department

Hitoshi Kurihara, Director General h-kurihara@jcarbon.co.jp

Shuji Isone, Deal Manager s-isone@jcarbon.co.jp

Tel: +81-3-5212-8875

Fax: +81-3-5212-8886

1-3, Kudankita 4-chome, Chiyoda-ku, Tokyo 102-0073, JAPAN

  • Development Bank of Japan (DBJ)

Department for International Affairs

intld@dbj.go.jp

Tel: +81-3-3244-1770

Fax: +81-3- 3270-4099

9-1,Otemachi 1-chome, Chiyoda-ku, Tokyo 100-0004, JAPAN