Message from the Group CEO
COVID–19 is accelerating structural changes, and the movement towards a more sustainable society has become stronger than ever. Today, the world is facing enormous change.
We must reflect on the lessons learned in light of the IT system failures, and stride into the future in step with our customers and society. In this message, I would like to share with you the strategies and initiatives we are implementing towards Mizuho's continuous growth.
First of all, 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.
Although this crisis has continued for over a year, we are beginning to see the light at the end of the tunnel as vaccination rates rise. At the same time, some of the structural changes stemming from or accelerated by the pandemic are beginning to take hold under the "new normal", and this is having a variety of impacts on our customers and society.
Under this unprecedented situation, Mizuho Bank recently experienced a series of IT system failures. I would like to apologize again for the considerable inconvenience and concern this caused our customers and stakeholders. We view this as an issue for management to address and will reflect on what we can do to improve, taking this opportunity to strengthen our resolution to fulfil our social responsibilities and public mission as a financial services group. We will ensure that this situation never repeats itself by renewing the dedication of all members of the group to take responsibility for fully implementing efforts to prevent further incidents. I will lead these efforts and aim to achieve continuous growth for Mizuho.
Global trends and structural changes
Globally, following the dramatic deterioration the COVID-19 pandemic brought about in the real economy in 2020, we have begun to see signs of a recovery in economic activity, accompanying the rollout of vaccines and control of infection. Of course, there are still many uncertainties surrounding the new variants, the ongoing progress of vaccine rollouts, and other factors, and we cannot allow ourselves to become complacent. However, the world does seem to be gradually shifting from a pandemic to a post-pandemic state.
Interest in sustainability is also on the rise worldwide. The increasing attention towards various sustainability issues has become a significant trend, focusing most prominently on the environment and mitigation of climate change but also on respect of human rights in procurement and in business and on gender equality.
The world amidst and after the pandemic
The COVID-19 pandemic is constraining economic activity and physical movement, directly impacting the economy and society. While the downturn in the economy is expected to subside with the rollout of vaccines, the changes in society and in people's behavior may be in part irreversible.
Digitalization, the aging population and declining birthrate, and globalization—these megatrends have existed since before the pandemic and have each been the cause of societal vulnerabilities and issues. COVID-19 threw these vulnerabilities and issues into sharp relief and accelerated behavioral changes. Digitalization is driving governmental, corporate, and individual activity—including activity that was previously thought to be ill-suited to digital formats—to shift to the online, virtual sphere, drawn by rapidly expanding needs for contact-free services. The aging population and declining birthrate is creating anxieties about the future and urgency about asset and business succession for the next generation; a growing number of people are taking the pandemic as an opportunity to review their life planning in a broad sense and are placing greater priority on health, healthcare, and inheritance. Globalization is advancing and prompting movement towards development of an optimal global system for handling the various business issues exposed by the pandemic, exemplified by the imbalances in supply chains, and for handling the intensifying complexities of geopolitics.
The business activities of both the finance industry in general and Mizuho in particular can be of use here. We see it as our role to leverage our real estate, consulting, digital, and other non-financial capabilities; our industry insights; and our global network to fully address the current challenges.
As sustainability gains momentum worldwide, the COVID-19 pandemic has brought to the surface the obstacles to sustainability inherent in society as a whole and also induced changes in the behavior of governments, corporations, and individuals. In response to climate change, Japan is calling for large-scale initiatives towards becoming carbon neutral by 2050, and every Japanese company is seeing their responsibilities and strategies in relation to climate change take on greater importance. They are considering what risks and opportunities sustainability entails as a whole and what effects these will have on their organizations. They are also questioning how to incorporate these into their strategies. Particularly clients in sectors with a large environmental impact are confronting the considerable hurdle of designing a pathway to transition to low carbon, and we see every day that they are seeking a partner to guide them on such a pathway.
Based on the current organization we have built and the differentiating factors we have evolved over the years, how can Mizuho assist our clients and positively contribute to society in the midst of these dramatic changes? The answer to this question is part of our strategy for creating value.
Steadily improving our fundamental earnings power
The basic policy of the 5-Year Business Plan we launched in fiscal 2019 is to update our organization by implementing structural reforms in three interconnected areas: business structure, finance structure, and corporate foundations. This will enable us to respond to our customers' and society's considerable structural changes and achieve the goal which we set as the title of the plan: "Transitioning to the Next Generation of Financial Services".
Fiscal 2020 was the second year of this plan. Despite being under an unprecedented situation with the COVID-19 pandemic, we mitigated risk from the uncertain business environment, demonstrated our financial capabilities, and captured opportunities. At the same time, while coping with the realities of the pandemic on a daily basis, we moved forward with our reforms in order to respond to accelerating structural changes and prepare for the post-pandemic era. Through these efforts, we were able to achieve our initial 5-Year Business Plan targets of establishing a stable revenue base and of reaching JPY700 billion in Consolidated Net Business Profits by fiscal 2021, achieving the latter one year ahead of schedule and exceeding the target amount. In comparison to our results from past fiscal years, we also performed above the level we had achieved prior to the Bank of Japan's introduction of negative interest rates in fiscal 2015, and we recorded our highest profits since our introduction of the in-house company system in fiscal 2016.
In customer divisions, our support for clients' cash flow needs during the COVID-19 pandemic and our retail investment business were both robust, and the profitability of loan spreads and other business outside Japan improved. We were also able to capture the activity of primary markets for corporate and other bonds, mainly in Japan and North America. Our response to financing demands throughout the pandemic has further strengthened our relationships with our clients and enabled more active dialogue with their senior management. Our efforts have also led to business strategy deals based on new forms of partnership with large corporate clients, replacing cross-shareholdings as the basis of the relationship.
In markets divisions, our banking business accumulated carry income, mainly from foreign bonds, to improve revenue quality. Our sales and trading business successfully expanded product offerings with a focus on North America, an effort that had been ongoing for some time. The business also captured client flow trading during the rise in volatility caused by the COVID-19 pandemic, leading to strong performance.
As for expenses, we were able to off-set the increases from amortization of the core banking system and investment in focus areas by steadily moving forward with our reforms reflecting structural changes in customer needs. Both the improvement of our revenue during the fiscal year and the steady strengthening of our fundamental earnings power, focused on stable revenue, indicate we are seeing positive results. Credit-related costs remained within the range of initial estimates, even as we prepared for the future by recording reserves from a forward-looking perspective. Profits also increased in comparison to the previous year.
In fiscal 2021, we will continue building firm foundations for achieving the effects of our structural reforms during the second half of our 5-Year Business Plan and for ensuring future growth. Under the prolonged COVID-19 pandemic, we have again been reminded of the importance of demonstrating our stable business operations and financial intermediary functions to uphold our social responsibilities as a financial institution. In addition to this, we will assess changes in the business environment, pursue revenue potential in a flexible manner, and steadily move forward with our structural reforms.
Regarding the medium- to long-term business environment, the significant changes taking place make it likely that our customers’ needs, including their latent needs, will further diversify going forward. The non-financial capabilities which complement our financial capabilities will be one key way of differentiating Mizuho from our competitors. In April 2021, we established Mizuho Research & Technologies, which consolidates and integrates our research, consulting, and IT development into a single core group company for non-financial functions. Mizuho Research & Technologies has knowledge and experience in consulting and IT implementation in the fields of digital transformation and sustainability transformation.
It will exercise such non-financial capabilities not only in providing consulting services directly to clients but also in synergizing with our in-house companies' strategies to create and capture new value chains across the financial and non-financial spectrum. Further, it will apply these non-financial capabilities to new business arising from open innovation with external partners.
On that note, our deep understanding of our customers is what enables us to go beyond the conventional boundaries of finance. In the case of our retail customers, this is our ability to offer advice tailored to each individual's personal goals and life plans in an age of longer lifespans. In the case of our corporate clients, this is our industry insight, including cross-sector insight, and our expertise in building convincing corporate and business strategies. In May 2021, we reorganized our branch network to have separate operational frameworks for retail customers and corporate clients, establishing a structure for responding to customers’ unique needs in a more specialized way. In addition, we reorganized our industry-specific operational frameworks for banking and securities, which serve large corporate clients, into five industry groups composed of industries with mutual affinities. As our clients shift to business structures spanning multiple industries, we will also further enhance our perspective on inter-industry activity and further advance our business model as a financial services group.
For example, we will sharpen our insight both into individual industries and inter-industry activity and further cultivate our dialogue with the senior management of large corporations. Leveraging our research and consulting functions, we will discuss with our clients the post-COVID-19 business challenges of business structure transformation and new business expansion and offer them support from the strategy design phase, standing upstream, so to speak. By holding these discussions with an eye to how we can assist in turning such strategies into action, we will also be able to provide optimal financial services when our clients come to the implementation phases of their strategies. Drawing on our collective strength will enable us to positively contribute to our clients' entire value chains, from strategy formulation to implementation, and develop partnerships that go beyond providing simple financial services.
These sorts of insights can also be helpful to our clients outside Japan. We are currently accelerating our Global 300 strategy of developing high-level relationships with the senior management of international corporations. Along with our network of offices in Asia and our base of Japanese corporate clients, our industry insight has been a great strength in sharing business strategy with our clients worldwide.
While leveraging our non-financial capabilities to deepen our differentiation in select domains, we are also continuing to pursue new business. One example is our strategic partnerships with tech companies in industries such as IT and communications. Separately from our strategic partnerships, we are also already embarking on new business ventures inspired by our own employees' ideas.
These assorted initiatives are one way we are strongly differentiating ourselves from our competitors in responding to our customers' changing needs in the pandemic and post-pandemic eras. We will connect them to our creation of value going forward and continue making steady progress towards achieving our business plan.
Making sustainability a core part of Mizuho's brand
The global trend toward sustainability is an irreversible structural change. Within this trend, climate change is a crucial global issue which threatens to impact the stability of financial markets, an issue which we see as requiring action from society, our customers, and ourselves.
At Mizuho, we are approaching sustainability as a core part of our strategy. In particular, in light of the external business environment, we have identified key sustainability areas (materiality) based on society’s expectations in these areas and their importance for Mizuho, and we are incorporating these into specific initiatives in the course of formulating business strategy and targets at in-house companies and units, while also taking risks and opportunities into account.
Our basic approach to promoting sustainability is dialogue, also known as engagement. There are multiple reasons for this.
For example, the transition to a low-carbon society has been drawing greater attention recently, and in our relationships with clients who are facing issues in this regard we have been focusing on engagement rather than divestment. In other words, we are not simply considering whether or not to reduce our credit exposure. We are first holding dialogue with clients across multiple sessions, driven by a constructive purpose, as a way of working together with them towards a low-carbon society. That is the approach we have chosen.
Here as well our non-financial capabilities are key to differentiating Mizuho. We apply our understanding of industry characteristics and of our clients to this dialogue, our experience and knowledge in sustainability transformation to the development of decarbonization roadmaps, and our financial functions to support for specific initiatives. In doing so we are utilizing our support functions from upstream to downstream in order to both create business opportunities and enhance risk management.
There are other reasons for engagement: dialogue with a wide range of stakeholders and improvement of disclosure. In June 2021, we published our second TCFD Report. Over the last year, we have revised our Environmental Policy to clarify our support for the objective of the Paris Agreement, enhanced our environmental management in our financing and investment activity, produced estimates as a first step towards measurement and management of Scope 3 emissions, and strengthened our environmental and social management of our suppliers, among other advancements. By proactively disclosing such information, we are promoting dialogue with all of our stakeholders.
We will continue to promote sustainability as part of our strategy going forward, with the aim of becoming our clients’ primary partner for sustainability consulting. In our dialogue with stakeholders, we will gain their understanding and work with them together towards decarbonization. By establishing sustainability as part of Mizuho’s brand, we will positively contribute to the sustainable development and prosperity of the economy, industry, and society both in Japan and around the world and to environmental conservation, in turn positively contributing to the achievement of the Sustainable Development Goals.
Continuous enhancement of our people and organization
Our people are an absolutely vital aspect of the implementation of these strategies. Personnel who have a range of expertise and can be relied on by customers are indispensable. In our HR strategy, we are putting in place a foundation for development, evaluation, compensation, workplace environments, and flexible work styles which enable all of our employees to fully maintain their health and safety, expand their areas of responsibility in line with their expertise, and achieve professional growth. We are also further accelerating diversity and inclusion, such as women's advancement, so that all employees are able to take pride in their work, exercise their abilities to the utmost, and improve productivity.
Under our HR management, we are supporting career development while placing emphasis on areas of expertise, allowing employees to experience related divisions, such as the IT systems and customer divisions or the products and industry research and customer divisions, in a cross-divisional fashion. We are also more proactively hiring mid-career professionals in an effort to bring in new perspectives. Personnel evaluations have changed over to a dialogue format and are encouraging independent action and growth on the part of each employee.
This HR strategy and management will enable our employees to have a strong commitment to developing themselves in order to move forward in step with our customers and society. Simultaneously, we are endeavoring across the group to further enhance our ability to act as a unified organization not limited by rules and the scope of duties.
This requires transformation in behaviors. In tandem with introducing mechanisms to reinforce horizontal, vertical, and diagonal communication and raise our ability to act as a unified organization, we will strengthen the effectiveness of our in-house company system and our system for dual-hat assignments between Mizuho Financial Group, Mizuho Bank, and other entities. An example of this within executive management is our integrating the senior managing executive officer and managing executive officer levels to simplify the vertical layers of the organization. For employees, we will create mechanisms that allow for easy communication on a daily basis—and urgent communication when required for emergencies—between branches, branches and Head Office, and departments within Head Office, and we will allocate personnel for this effort.
We will also review our internal rule-making and our everyday communication methods. For example, we will institute rules to positively assess constructive proposals and recommendations rather than negatively assessing administrative mistakes. We will consider a “discussion-first” communication style founded on sharing the overall situation and discussion points prior to preparing comprehensive and precise documents.
Within Mizuho are a number of business segments, each with their own roles and expertise. Some of these depend on trial and error, and others depend on steady and reliable operations. Through our initiatives, every one of our employees will renew their day-to-day perspective and dedication for our customers and society, while fully accounting for their business segment and the nature of their work, and apply these to maintain consistently swift operational management. I will lead these efforts and ensure they take root throughout the organization.
In conclusion: Continuous growth, together with our customers and society
For our customers and society, fiscal 2021 is a critical year to determine the path to recovery from the COVID-19 pandemic and to carry out overarching structural changes oriented towards the post-pandemic era. It is also the third year of our 5-Year Business Plan, an important year for us to steadily deepen our ongoing initiatives, enhance our people and organization, and connect them to continuous growth.
We will become an even more essential and reliable partner, striding into the future in step with our customers and society. All of us will put forth our best effort to pursue these objectives 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.