Enhancing Allowance Estimates Using Macroeconomic Scenarios

「In forecasting macroeconomic indicators for calculating the general allowance for loan losses, excluding loans requiring monitoring, two macroeconomic scenarios, a base scenario and a risk scenario, are assumed. Their probabilities of occurrence are determined by considering past economic forecasts and share price trends, as well as whether events expected to have a material impact on the credit risk of receivables have occurred.」

「As of the end of the current consolidated fiscal year, analysis and preparation of data for reflecting expected credit risk in the allowance for loan losses in a timely manner had been completed, enabling more rational estimates. Accordingly, the method for estimating the allowance for loan losses was changed. Specifically, for the general allowance for loan losses, excluding loans requiring monitoring, loss rates based on probabilities of default are determined for each subdivided group, with necessary adjustments based on forecasts of macroeconomic indicators and other forward-looking information. As a result of these changes in estimates, the provision for allowance for loan losses for the current consolidated fiscal year increased by ¥1,048 million, while ordinary income and profit before income taxes for the fiscal year decreased by the same amount.」