Message from the President
Environment Affecting the DBJ Group
The economic and social landscape is changing swiftly and significantly. Political instability is increasing against a global backdrop of emerging protectionism and growing geopolitical risk. The environment surrounding financial institutions is also changing quickly amid tightened financial regulations across the globe, a digital revolution involving rapid innovation in fintech, and negative interest rates in Japan.
In a world of rising uncertainty, a heightened awareness of the role of finance in building a sustainable society has led to a global call for action for sustainable finance, in areas including environmental, social, and governance (ESG) investment.
Companies have quickly got on board with the final recommendations of the Task Force on Climate-related Financial Disclosures (TCFD), formed under the auspices of the Financial Stability Board (FSB) to facilitate the disclosure of information related to risks and opportunities presented by climate change. In Japan, government initiatives aimed at achieving the United Nations Sustainable Development Goals (SDGs) have been a powerful motivating force. Along with the ESG investment initiatives of the Government Pension Investment Fund (GPIF), they have spurred considerable progress in the industrial and financial dialogue on sustainability. A movement is gaining momentum for companies to develop solutions to social issues as an integral part of their business.
The Role of the DBJ Group and Our Achievements to Date
Since the days of its predecessors, Japan Development Bank and Hokkaido-Tohoku Development Finance Public Corporation,the DBJ Group has worked to promote Japan’s sustainable development. We have achieved this by responding flexibly to the issues of the day, through the periods of postwar reconstruction and high, stable growth, the bubble economy and its collapse, globalization, the declining birth rate and aging population, and growing environmental and disaster awareness.
The past decade alone has seen dramatic change in the wake of the global financial crisis and such major events as the Great East Japan Earthquake. Against this backdrop, the DBJ Group has developed new initiatives to address social issues with an eye on the future.
Amid ongoing change in the economy and society, the DBJ Group strives to strike a balance between economic value and social value by grasping the latest social issues and offering ideas for solving them from a financial perspective, all while collaborating with other financial institutions. Our unwavering core values of “initiative” and “integrity” have supported this flexible approach to solving problems. It would be a disservice to not mention two of our predecessors who had a major impact on shaping our core values: Dr. Osamu Shimomura, a former senior executive director of Japan Development Bank and the first executive officer of the Research Institute of Capital Formation (RICF) of DBJ, and Professor Hirofumi Uzawa, a former research advisor for the RICF. With a hands-on approach to policymaking, Dr. Shimomura played an instrumental role in shaping “Income-Doubling Plan.” Professor Uzawa developed the theory of “Social Common Capital” as a sustainable foundation for a society that is attractive on a human level. These two predecessors, who had a major impact on the direction of the DBJ Group, shared common characteristics—namely, warm hearts and cool heads—that facilitated their keen perception of changes over time. Our core employee values today are the culmination of their intentions, which live on as a cornerstone of sustainability management at the DBJ Group.
More than a decade has passed since October 2008, when DBJ became as a joint-stock company. Society has changed significantly over these 10 years, with the collapse of Lehman Brothers and the ensuing financial crisis, the Great East Japan Earthquake, large-scale monetary easing, and Industry 4.0 brought on by digital transformation.
The DBJ Group has changed just as significantly as we have responded to these changes in society. Specifically, there has been strong growth in the Group’s unique, integrated investment and loan-based business model through the development of Crisis Response Operations to cope with unprecedented events such as earthquakes and global financial crises, and via measures to enhance the supply of risk capital for subsequent growth.
The future is sure to present further changes and challenges. In keeping with our unwavering mission, the DBJ Group will take a flexible approach to issues faced by regions and our customers as a whole, staying true to our core values and being mindful of our action guidelines.
Our Mission: Designing the future with financial expertise Our Action Guidelines:
・Responsibility to future generations
・The customer’s perspective
・Commitment and cooperation
Our Values: Initiative and Integrity
Vision 2030 and Priority Areas
In 2015, with the aim of shaping our business vision around a longer-term outlook, we gave fresh thought to the role of DBJ in the years leading up to 2030. In the course of our debate, we identified a number of changes in the external environment with a significant impact on our stakeholders: Japan’s declining population and its climate and energy issues in the context of the global effort to build a sustainable society; intensifying global competition; and innovations in digital technology such as AI and fintech. Since our founding during the postwar reconstruction period, DBJ has dealt with issues ranging from urbanization and pollution control through the period of high economic growth, to the challenges of crisis management and competitiveness building we are working on today. Based on the roles we have undertaken and the value we have realized over this time, we identified issues to be tackled in the future and examined the best areas in which to use our strengths over the longer term in the interests of a sustainable society. Vision 2030 was the result. Drawn up in 2017, this long-term vision sets infrastructure, industry, and regional economies as the three priority areas (materialities) for the DBJ Group initiatives. Our contributions in these areas will be consistent with the Group’s course so far, and we believe they will be in line with what society and stakeholders expect from us in the future.
To fulfill our mission, we will work as financial professionals to enhance the added value provided to regional communities and our customers in industry and infrastructure, steadily implementing each initiative while respecting the views of stakeholders. We will take the lead in business and market creation by leveraging our ability to properly evaluate and address a broad range of risks. At the same time, as we look forward to 2030, we will fulfill our unique role in the economy and society by taking action during times of crisis and otherwise responding to social demand.
Fourth Medium-Term Management Plan
Financial Targets of the Fourth Medium-Term Management Plan
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|Fourth Medium-Term Management Plan|
(Average for fiscal 2017–fiscal 2018)
|Profitability||Gross ordinary income *1||¥187.7 billion||¥181.0 billion||¥190 billion|
|Net income attributable to owners of the parent||¥91.9 billion||¥91.9 billion||¥80 billion|
|Expense ratio *2||35%||34%||About 35%|
|Total assets||¥17.0 trillion||-||¥16 trillion|
|ROA *2||1.1%||1.1%||About 1%|
|ROE *2||2.9%||3.0%||About 3%|
|Soundness||Capital adequacy ratio *3||16.6%||-||At least 14%|
*1 Before credit cost deductions
*2 Expense ratio and ROA versus gross ordinary income, ROE versus net income
*3 Common equity Tier 1 risk-weighted capital ratio
Sustainability Management at the DBJ Group
The DBJ Group practices sustainability management as a means of creating value with a focus on the three priority areas. By sustainability management, we mean working to create economic and social value by providing the solutions needed to create new industries and initiatives, by responding during times of crisis, and by making other contributions towards the building of a sustainable society, all while being guided by the needs of our customers and society as a whole.
To this end, we must accurately understand the current issues affecting industries and our customers, in addition to longer-term trends and issues in society and the impact they may have on our customers and specific sectors. Leveraging our knowledge to produce future visions through trial and error, and sharing these visions with customers and regional communities while offering financial solutions such as risk capital to deal with related issues, the DBJ Group will take the lead in creating industries and initiatives that can serve as pillars of Japan’s economy and society in the years to come. Crisis Response Operations will be an important function, undertaken with flexibility and precision as required by events such as major disasters and instability in the financial markets.
As we move ahead with these services, we are also honing our strengths in relationship capital, as exemplified by robust networks in industry, government, and academia, sound financial capital, and human capital sharing a common set of core values. We believe in the importance of constantly improving our sustainability management processes through dialogue with external stakeholders, centering on the Advisory Board and the Special Investment Operations Monitoring Board of DBJ.
Initiatives under the Fourth Medium-Term Management Plan (Fiscal 2017–Fiscal 2019)
The Fourth Medium-Term Management Plan: Initiate Change,Create the Future was drawn up in 2017 by backcasting from the Group’s long-term vision—Vision 2030. The Fourth Medium-Term Management Plan features a business strategy,consisting of sector, function, and area strategies, for realizing the long-term vision as well as a management foundation strategy encompassing financial capital and non-financial capital.
Under the current plan, our business strategy is to expand integrated investment and loan services for customers in three infrastructure fields (energy, transportation, and urban development)and industrial fields, including new fields. In our loan business, we will provide high-value-added services in structured and mezzanine finance, and in investments we will promote long-term investments in the three infrastructure fields and growth investments in industrial fields. Advisory business, meanwhile, will benefit from expanded asset management in infrastructure and private equity. The DBJ Group will also play a role in connecting Japan’s regions to overseas markets by developing these activities both regionally and overseas.
Under our management foundation strategy, DBJ categorizes our management resources into financial capital, human capital, intellectual capital, and relationship and social capital. We will promote the growth and transformation of these forms of capital by investing in our management resources and improving our business activities to realize better results. Specifically, we aim to diversify funding methods, including SRI bonds, and develop our risk management. In the area of non-financial capital, we will develop human resources in line with our business strategy, speed up decision-making, and collaborate with other companies, including private-sector financial institutions.
Fiscal 2018, the second year of the Fourth Medium-Term Management Plan, saw progress in our initiatives to supply risk capital. This included the development of a stable investment portfolio in the infrastructure field and the creation of distinctive special investment projects, including assistance for Japanese companies participating in advanced overseas cases, in the renewable energy field. We established the Regional Reconstruction Headquarters and launched the Regional Emergency Response Program to provide rapid reconstruction support after heavy rainfall damaged Western Japan in July 2018 and the Eastern Iburi Earthquake struck Hokkaido two months later. The program facilitated reconstruction efforts while strengthening regional vitality.
On the finance side, efforts focused on the supply of risk capital have resulted in a higher ratio of investments in business profit and loss, bringing it to a level on a par with loans. Profits on loans decreased, owing in part to a decline in the average loan balance. The lending yield has come under downward pressure amid the ultra-low interest rates prevailing recently, as DBJ gradually reshuffles our assets in light of our relatively high ratio of long-term loans. We intend to strengthen our profits on loans, however, by focusing on relatively high-value-added projects such as structured financing and mezzanine financing. Profits on investments amounted to ¥81.5 billion, reflecting the booking of gains on the divesture of investment projects thanks to favorable macroeconomic conditions, in addition to earnings from investment portfolios producing relatively stable returns, such as investments in infrastructure-related energy and urban development projects. Fee and commission income totaled ¥25.2 billion, including commissions for arranging investments and loans, and fees for assets under management by Group company DBJ Asset Management Co., Ltd. As a result, gross ordinary income came to ¥187.7 billion and net income attributable to owners of the parent was ¥91.9 billion.
Business Profit and Loss (Consolidated)
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|(¥ billion)||Fiscal 2017||Fiscal 2018||YoY change|
|Gross ordinary income||174.3||187.7||13.3|
|Fee and commission income||23.6||25.2||1.5|
|Net ordinary income||115.1||122.8||7.6|
|Other extraordinary items||2.2||(1.3)||(3.6)|
|Gains on reversal of reserves and collection of written-off claims||11.9||5.3||(6.6)|
|Income before income taxes and minority interests||129.4||126.7||(2.6)|
|Total income taxes||(35.0)||(33.5)||1.5|
|Current net income||94.3||93.2||(1.1)|
|Net income attributable to non-controlling interests||2.4||1.2||(1.1)|
|Net income attributable to owners of the parent||91.9||91.9||(0)|
Note: Business categories are those used in business management.
Special Investment Operations
The DBJ Group’s Special Investment Operations are conducted as mandated in revisions made in 2015 to the Development Bank of Japan Inc. Act. Utilizing our experience in supplying risk capital, we decided to provide investments and loans totaling ¥104.8 billion in fiscal 2018 for 19 projects that contribute to regional revitalization and the strengthening of Japanese corporate competitiveness. Since launching these operations, DBJ has used them to extend ¥363.9 billion in investments and loans to a total of 81 projects. A total of ¥1,390.9 billion in private-sector investments and loans have been triggered by DBJ’s investments and loans worth ¥324.6 billion. The DBJ Group will continue to supply growth capital in collaboration with private financial institutions. The Group also has an extensive track record in regional revitalization projects, and is keen to engage in future initiatives with local financial institutions willing to help create distinctive regional communities. These initiatives are objectively evaluated by the Special Investment Operations Monitoring Board, which meets twice a year to see that stakeholder opinions are reflected in the Group’s businesses.
Future Business Operations
Fiscal 2019 is the final year of the Fourth Medium-Term Management Plan and the year that we begin formulating the Fifth Medium-Term Management Plan. We will carry on with initiatives underway in new fields, in order to reflect social shifts including changes in the aerospace, telecommunications, healthcare, and logistics fields. We will also strengthen our base for supplying risk capital to include more sophisticated investment risk management in tandem with growth in our investment business. Work on developing the Fifth Medium- Term Management Plan, which is slated to begin in fiscal 2020, should involve some lively debate. We will endeavor to meet our stakeholders’ expectations, backcasting from our vision of how society will evolve over the next 10 years and debating our response to those changes. In executing measures in the future, the DBJ Group will deepen cooperation with private financial institutions, including regional banks, as we seek out the best measures to resolve the issues faced by our customers and society at large.
Development of Human Resources for Better Sustainability Management
Sustainability management, a key to the DBJ Group’s value creation process, relies above all on workers who share the core values of initiative and integrity and who display the four elements of our core corporate values in pursuing balancing economic and social value. Officers and employees of the DBJ Group have inherited the core corporate values of long-term perspective, impartiality, public mindedness, and reliability, which have evolved over the years in the course of our business. Bolstered by these corporate values, the Group has consistently risen to meet the challenges of the times. We always strive to enhance our skills in corporate and project assessment. Our expertise in long-term screening and assessment, based on a comprehensive view of regional and current issues, is equal to knowledge, capability, and network building as a DBJ Group asset.
The employees embodying the Group’s values should be able to pursue their activities creatively and in good health, and we are promoting workstyle reform for this purpose. To bring more flexibility to working patterns, we have introduced telecommuting and a flex-time work system, and we aim to enhance work and paid leave programs for child-rearing and caregiving.
We also believe that improving the skills of our officers and employees is a vital issue as our business becomes more complex and sophisticated to deal with the increasingly diverse issues faced by society and our customers. In fiscal 2018, DBJ initiated a program to develop global human resources with the cooperation of the University of Oxford—the Global Strategic Alignment Leadership Program. I actually paid a visit to the university and spoke with young employees participating in the program. The program gave them an opportunity to think about future global changes and the roles the DBJ Group should fulfill. Through this learning experience, we hope that our young employees will absorb the varied expertise and insight of the outstanding instructors at the University of Oxford and develop into leaders capable of guiding the DBJ Group forward into the future. In addition to the University of Oxford, DBJ has partnered with the International Institute for Management Development (IMD) business school in Switzerland to launch a new program in fiscal 2019, and we also plan to augment training for managers in the future. DBJ will continue to develop our multi-faceted training and human resource development system in a bid to nurture personnel who can create new value by connecting customers and industries through the wide-ranging networks and knowledge of the DBJ Group.
Collaboration on a Broader Scale
The environment surrounding Japan is one of great and constant change. Over the next decade, Japan is likely to see a number of megatrends gain momentum. These include an aging and declining population, digital transformation affecting all aspects of industry, and intensifying global competition. In the industrial field, we anticipate new forms of cross-sector collaboration, an evolution in business models, and the emergence of new ecosystems. The DBJ Group will continue to supply risk capital through integrated investment and loan services for new initiatives being undertaken by our customers, in an effort to lead the development of a more sustainable society.
Building a sustainable society is a global agenda, and it is important that we work to make that happen. The public and private sectors have joined forces in a growing movement to contribute toward the SDG global agenda for 2030. In financial markets, interest in sustainable finance has increased. The DBJ Group has made strides toward the realization of a sustainable society by evaluating intangible assets through dialogue with customers in the course of our business, and especially through the DBJ Certification Programs. Engaging in dialogue with stakeholders will remain a crucial endeavor as we continue to fulfill our mission as a front runner in sustainability management. It is our sincere hope that this integrated report will lead to greater dialogue with all of our stakeholders.
August 2019 President and CEO
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