Message from the Group CEO
(Translation from the Japanese Interim Review 2021)
As President & CEO of Mizuho Financial Group, I would like to express our deep appreciation for your continued patronage and support.
In 2021, the global COVID–19 pandemic, particularly the outbreak of the Delta variant, continued to bring about a multitude of restrictions on activity in a number of areas. Currently, the Omicron variant is driving another increase in infections worldwide. We still cannot let our guard down. I would like to express my heartfelt sympathies for all of those who have contracted COVID–19 and the many people who have been impacted in various ways by the spread of the virus.
In the midst of this unprecedented state of affairs, Mizuho Bank experienced a series of IT system failures in a short period of time and also failed to adequately ensure thorough operations under the Foreign Exchange and Foreign Trade Act of Japan. I deeply apologize again for the considerable inconvenience and concern we have caused to our customers and stakeholders. In January 2022, both Mizuho Financial Group and Mizuho Bank formulated business improvement plans. We will steadily execute these plans and carry forward our ceaseless transformation in our IT systems, customer service, crisis management, and corporate culture.
Response to IT system failures
In regard to the series of IT system failures that began on February 28, 2021, Mizuho Financial Group and Mizuho Bank received a business improvement order under the Banking Act of Japan in November 2021 and submitted business improvement plans in January 2022. In formulating the plans, we again took account of the seriousness of the series of system failures and eliminated all of our preexisting assumptions. This entailed an all–encompassing inspection and review of the measures we had previously put in place to improve our IT systems, customer service, crisis management, and other functions. Said inspection and review covered a range of perspectives by incorporating feedback customers had submitted to our offices as well as feedback from group employees and insights from outside experts. At the same time, it also focused on effectiveness, comprehensiveness, and continuity. We will steadily implement the measures to prevent further incidents that we designed based on our reexamination and make them an integral part of our daily operations. In doing so, we will further improve our multilayered system failure response capabilities. On the business management side as well, we will move forward with measures steadily and organically, with consideration to their interconnections. As part of these measures, we will conduct an appropriate and flexible review of business strategy and corporate resource allocation, with consideration to changes in the business environment, feedback from our customers and society, and the situation at the frontlines; reinforce our frameworks, including IT governance; enhance our internal management structure for system risk, legal compliance, and other areas; and make improvements enabling us to further exercise our supervisory functions.
What is important is that we not allow the measures to prevent further incidents and the other upgrades to our business management to become temporary or simply fade away. They must be ongoing initiatives to continuously enhance our people and organization and, in turn, transform our corporate culture. We will face these challenges directly, and executive management will take the lead in pursuing transformation.
Going forward, all of us will work together as one to develop a robust framework that prevents system failures with a significant impact on customers and also minimizes impacts on customers in the event a system failure occurs. Even as the business environment continues to change, we will maintain this framework to ensure that our customers can enjoy peace of mind when using Mizuho services.
Interim results for fiscal 2021
In the first half of fiscal 2021, the global economy remained on track to a modest recovery. Despite this, the worldwide outbreak of the Delta variant and consequent prolongation of the COVID–19 pandemic, along with global supply chain disruptions, US–centered inflation, and other issues, meant a sense of uncertainty about the future continued to dominate the business environment. Against these circumstances, our Consolidated Net Business Profits for the first half of fiscal 2021 came to JPY 460.3 billion. This is a progress rate of 58% towards our fiscal year target of JPY 790 billion, representing strong results. Under the challenging market environment worldwide, market divisions saw a year–on–year decrease of JPY 41.5 billion. However, their revenue base is diversifying through expanded product offerings. Customer divisions achieved a year–on–year increase of JPY 73.9 billion, due to significant growth in our retail investment and related businesses, as well as in lending income outside Japan. In their interim results, the Retail & Business Banking Company, Corporate & Institutional Company, Global Corporate Company, and Asset Management Company reached the highest level of profits since the introduction of the in–house company system. Our Profit Attributable to Owners of Parent, while in part influenced by positive tax effects and other factors tied to the optimization of capital at our subsidiaries in the first quarter, also reached JPY 385.6 billion, a year–on–year increase of JPY 170.1 billion and a progress rate of 75% towards our fiscal year target of JPY 510 billion. Because of this solid performance, we have revised upward our fiscal 2021 estimate for Consolidated Net Business Profits to JPY 820 billion and for Profit Attributable to Owners of Parent to JPY 530 billion. On a Basel III finalization fully–effective basis and excluding Net Unrealized Gains (Losses) on Other Securities, our Common Equity Tier 1 (CET1) Capital Ratio is at 9.6%, above the target we set in our 5–Year Business Plan for the lower end of the 9 – 10% range.
With our CET1 Capital Ratio improving rapidly enough to go beyond our target and our stable revenue seeing steady growth centered on customer divisions, we decided to increase our dividends for the first time in seven years. In regard to our capital management policy, we are pursuing the optimum balance between capital adequacy, growth investment, and the enhancement of shareholder returns. Under this policy, we will continue to proactively allocate corporate resources to our people and IT / digital areas, which form the foundation for our future growth, and to maintain shareholder returns based on progressive dividends. While moving forward on such capital management, we will also continue to fulfill our role as a financial intermediary amidst the COVID–19 pandemic.
Growth investment initiatives / sustainability
Given the global outbreak of the Omicron variant, the persistent inflation around the world, and the accompanying trends in financial markets, the business environment in which we at Mizuho find ourselves is likely to remain uncertain for some time to come. Within such a business environment, the trends toward digital transformation and sustainability transformation are accelerating, and alongside them the behavior of individual consumers is shifting further. In relation to sustainability issues, most prominently decarbonization and human rights, the new outlook is beginning to affect the supply chain and even supply–demand balance for energy and other products. We can say that the changes in society and people's behavior, looking ahead to a post–COVID–19 world, are racing forward at an even greater pace.
As these significant changes gain momentum, our strategy to differentiate ourselves is to build partnerships with our customers. We will do this by exercising our considerable expertise, standing beside our customers in facing the post–COVID–19 world, and engaging our customers in meaningful dialogue. We will also make the most of our customer segment–oriented organizational structure and insights and deepen our engagement. The key to creating new value and advancing with our customers will be to offer comprehensive solutions utilizing our capabilities across the group. These solutions will not be limited to simple financing; rather, they will combine finance with digital transformation, sustainability transformation, real estate, and other non–financial areas to address the challenges of individual customers, middle–market and SME clients, and large corporate clients. Some examples of solutions that will be needed in a post–COVID–19 world are asset formation, business succession, business portfolio restructuring, and growth strategy support.
There are two priority investments we will proactively make in 2022 in order to provide such solutions. The first is in the IT / digital areas essential to stable operations and strategic business development. The second is in our people, who will drive our future growth and support our competitiveness through their performance and commitment. While making these investments, we will also expand our business in growth areas. In December 2021, we announced our investment in a digital payments company in Vietnam. In coming years, we will further expand and develop the existing business domains that we have strengthened through our 5–Year Business Plan, while also establishing a greater presence in new business domains, cutting–edge technology, and business models.
We are continuing to strengthen our initiatives in sustainability, which we are approaching as a core part of our strategy. We are placing emphasis on engagement to support our customers and society as a whole in transitioning to a sustainable world. By holding constructive dialogue, we are leveraging the strengths we have developed over many years to consult with clients about transition strategies, to facilitate M&A and business succession, and to extend financial solutions. Mizuho has a history of supporting decarbonization in Japan, going back to the time of the Kyoto Protocol. Recently, we even arranged Japan's first transition finance and transition–linked loan. With sustainability–related needs among our customers and society becoming more intense, we will take part in a range of initiatives to further elevate our capabilities, and we will strive to be of service to our customers while also creating new markets. In fiscal 2021, we began offering products to support SDG initiatives at middle–market and SME clients, dedicating a staff of 2,000 people to do so. In addition, we concluded a memorandum of understanding with the International Finance Corporation, one of the world's largest international development institutions focused on private–sector development in emerging economies. The aim of the memorandum is to expand the market for voluntary carbon credits, which will benefit Japanese companies. Going forward, we will continue to strengthen our initiatives with an eye to the unique features and challenges of Japanese industry.
Creating lasting value
Mizuho's Corporate Identity is to create lasting value for our customers and the economies and communities in which we operate. This is embodied in our name, which evokes images of a "bountiful harvest of rice" in Japanese. Indeed, our purpose lies in creating such lasting value, and our fundamental approach remains unchanged. Through our diverse team of professionals, we will put our clients first, live up to the expectations of society, and stride with them together into the new era. Pushing forward on our initiatives will enable us to provide value only we can create and become an even more essential and reliable partner. All of us will put forth our best effort to pursue these goals as a united group. We appreciate your continued support and understanding and will do everything in our power to exceed your expectations.
Member of the Board of Directors
President & Group CEO
Mizuho Financial Group, Inc.