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35 th Regular Meeting of the ALIDE General Assembly

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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35 th Regular Meeting of the ALIDE General Assembly

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  1. 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

  2. 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

  3. 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

  4. Policy-based Financial Institutions in Japan

  5. (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

  6. DBJ’s Contribution to the Japanese EconomyConstantly Revising Its Focus

  7. 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

  8. 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

  9. 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)

  10. 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.

  11. 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)

  12. 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

  13. 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

  14. Ratings

  15. 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

  16. 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)

  17. 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

  18. Introduction of Japan’s Effort in the Environmental Sector – Clean Development Mechanism: CDM –

  19. Japan’s GHG Emission 8.0% Level of emissions for base year 14.9% 6% Reduction target for 2008-2012 under the Kyoto Protocol

  20. 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

  21. 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

  22. 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

  23. 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

  24. 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

  25. 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

  26. 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

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