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## 2. Overview of Capital Instruments 

The Group’s capital is consisted of common stock and subordinated debts with defined maturity. 

<img src='content_image/268636.jpg'>

## 3. Overview of Capital Adequacy Assessment Methods 

The Group set forth “The Rules of Economic Capital Management” and “The Rules of Regulatory Capital Management”, and assesses capital adequacy from economic capital as well as regulatory capital point of views. 

## <Economic Capital> 

The Group sets economic capital allocation amount after reserving capital buffer adequately resists financial stress under Tier 1 capital, and accordingly allocates such capital toward major Group companies. 

In assessing the capital adequacy, the Group monitors capital requirements based on the aggregated level of each Group company against the economic capital allocated to them. 

## 4. Credit Risk 

## A). Overview of risk management policies and procedures 

## <Credit Risk Management Policy> 

In regard to transactions that involve exposure to credit risk, before the transaction is made, the Group assigns the counterparty a credit limit based on its credit rating. Subsequently, the Group carefully monitors the notional amount and the credit equivalent amount. In particular, in the wholesale business where the expo- sure to credit risk is comparatively high, the Group assigns credit limit based on the probability of failure of each counterparty and expected recovery rate of the transaction. The probability of failure is estimated via internal model and expected recovery rate from the transaction conditions such as the maturity, collaterals and legal enforceability of the agreement. In addition, the Group measures and periodically monitors credit VaR at the portfolio level. 

## <Allowance for Doubtful Account> 

In order to prepare for the loss from bad debts on loan and others, 

## 5. Overview of Policy and Procedure for the Credit Risk Mitigation Techniques 

Collateral is used for the Credit Risk Mitigation techniques (hereunder CRM Techniques) purpose. 

Types of collaterals are generally cash or high liquid securities. Received collateral is valued mark to market daily and monitored against exposures. In addition, balance and type of collaterals taken are also subject to the monitoring. For derivative and repo transac- 

Economic capital allocated toward major companies is set with reflecting historical risk amount, business plans, budget, and others are considered. Capital adequacy is assessed by confirming and quantifying if the risk amount held by the Group companies as a result of their business activities falls with in the range of allocated capital. 

## <Regulatory Capital> 

The Group monitors regulatory capital against the alert level which is set well above the minimum regulatory capital ratio. 

allowance for doubtful accounts is provided for probable losses on loans and receivables, based on the actual historical default rate for normal claims, and based on individually assessed amounts for doubtful and default loans. 

## <Calculation of Credit Risk Asset> 

Credit risk exposures are being calculated in the Standardized Approach. 

## B). The Name of the external credit assessment institutions (hereunder ECAIs) used when determining the risk weight 

Following ECAIs are used to determine the risk weight. 

Rating & Investment Information, Inc. Japan Credit Rating Agency, Ltd. Moody’s Investors Service, Inc. Standard & Poor’s Rating Services 

tions, bilateral netting agreements are generally set. For transaction where legally enforceable bilateral netting arrangement exists, the CRM Techniques are applied. 

The Group uses the Comprehensive Approach for the CRM Techniques. 

