1

3535thth Regular Meeting of the ALIDE General Assembly Regular Meeting of the ALIDE General Assembly

New Trends of Lending and Funding Operations New Trends of Lending and Funding Operations at at

Development Bank of Japan (DBJ)Development Bank of Japan (DBJ)

June 14, 2005June 14, 2005

Eishi YasunagaEishi YasunagaDirector General

Department for International Affairs

Development Bank of Japan

2

DBJ’s OverviewDBJ’s OverviewEstablishment

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

Objectives and Businesses 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 JapanFinancial Institutions in JapanCentral Bank Bank of Japan

Private FinancialInstitutions

Regional Banks

Trust Banks

Credit Associations

Agricultural & Fishery Cooperatives

Credit Cooperatives

Insurance Companies

Securities Companies

Policy-based Financial Institutions

Banks (DBJ and JBIC)

Government Finance Corporations

City Banks

4

Policy-based Financial Institutions Policy-based Financial Institutions in Japanin Japan

(100 million yen)

Institutions New loans Loans outstanding

(FY 2002) (as of March 2003) Development Bank of Japan (DBJ) 11,602 158,591

Japan Bank for International Cooperation (JBIC) 19,465 209,948

Japan Finance Corporation for Small Business 16,559 75,595

National Life Finance Corporation 30,778 103,396

Housing Loan Corporation 40,409 672,000

Agriculture, Forestry and Fisheries Finance Corporation 3,710 36,407

Japan Finance Corporation for Municipal Enterprises 17,330 245,241

Okinawa Development Finance Corporation 1,441 16,002

Total 141,294 1,517,180

5

22.3

4.93.9

12.8

7.4

19.9

12.5

0.8

15.5

Market Shares of Financial Institutions (%, as of the end of 2002)

28.3

17.9

5.95.1

13.6

6.4

20.5

1.21.1

(Loans)

city banks

foreign banks

member banks of the Second Association of Regional Banks

trust banks and long-term credit banks

regional banks

trust accounts

financial institutions for small- and medium-sized

business

financial institutions for agriculture,

forestry and fisheries

government financial institutions

Total \790

trillion

(Fund-raising)

Total \1,185 trillion

city banks

regional banks

member banks of the Second Association of Regional Banks

trust banks and long-term credit banks

foreign banks 0.8

trust accounts

financial institutions 　　　　 for small- and

medium-sized business

financial institutions for

agriculture, forestry and

fisheries

postal savings

Notes: (1) Funds include deposits, debentures and trusts.

(2) Shaded areas denote banks.

Source: Bank of Japan

Policy-based Finance in JapanPolicy-based Finance in Japan

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DBJ’s Contribution to the Japanese EconomyDBJ’s Contribution to the Japanese EconomyConstantly Revising Its FocusConstantly Revising Its Focus

7

6

9

39

32

8

45

6

8

6

9

13

12 7

29

38

25 49 22 4

4

6

19

14

0

8

11

11

1414

17 26

13

10 8

0% 20% 40% 60% 80% 100%

2000 (1,200)

1995 (1,986)

1985 (1,240)

1975 (873)

1965 (237)

1955 (56)

(\ billions )Changes in Major Areas of DBJ LoansChanges in Major Areas of DBJ Loans

Electric Power Others

Ocean ShippingCoal Mining

Regional Development

Others

Regional Development

Development of Technology

Ocean Shipping Urban Development

Improvement in Living Standards

Resources and Energy Others

Regional Development Development of

Technology

Creation of Self-Reliant Regions

Enhancement of Quality of Life

Economic Revitalization

Improvement in Social Capital

Coal Mining

NEF’s Regional Development

NEF’s Regional Development

Regional Development

Resources and Energy

30 9 7 2 Improvement in Living Standards

Improvement in Key Transportation Systems

Telecommunications and Information Network

Development of Industrial Technology

Internationalization of Japan

1 6

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Recent Business FocusRecent Business Focus

Revitalization of Local EconomiesRevitalization of Local Economies Support urban renewal projects, regional industries and infrastructure, etc.Support urban renewal projects, regional industries and infrastructure, etc. Provide investments and loans for the privatization of public/municipal Provide investments and loans for the privatization of public/municipal

enterprises through PFI and PPP in alliance with regional banksenterprises through PFI and PPP in alliance with regional banks

Restructuring and Economic RevitalizationRestructuring and Economic Revitalization Support financial market revitalization, and industrial and business Support financial market revitalization, and industrial and business

rehabilitation through fundsrehabilitation through funds Develop intellectual infrastructure through evaluating technology Develop intellectual infrastructure through evaluating technology

commercialization planscommercialization plans

Environmental Measures and InfrastructureEnvironmental Measures and Infrastructure Support financing of environment-friendly companies/projectsSupport financing of environment-friendly companies/projects Credit decision and interest rate system based on environmental screening, as Credit decision and interest rate system based on environmental screening, as

well as general corporate credit analysiswell as general corporate credit analysis

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Eligible Projects and CompaniesEligible 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)

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Loan ConditionsLoan 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.

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Sources of FundsSources of Funds All capital from the government All capital from the government

Borrowings from the government Borrowings from the government

(via Fiscal Investment Loan Program: FILP)(via Fiscal Investment Loan Program: FILP)

Bond issuanceBond issuance Government-guaranteed BondsGovernment-guaranteed Bonds

• Foreign BondsForeign Bonds

• Domestic BondsDomestic Bonds FILP Agency Bonds (Non-guaranteed Bonds)FILP Agency Bonds (Non-guaranteed Bonds)

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Government- Guaranteed Bonds

Fiscal Investment and Loan ProgramFiscal Investment and Loan Program

Postal Savings

Welfare Pensions

National Pensions, Other

Postal Life Insurance

Banks, Other

Policy-based Financial Institutions (e.g., DBJ)

Public Companies

Sources of Funds Uses of Funds

Financial Markets

Fiscal Loan Fund Special Account

Industrial Investment Special Account

FILP Agency Bonds

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DBJDBJ

Ministry of Land,

Infrastructure and Transport

■Urban redevelopment

Ministry of Finance

■Overall management

of FILP

Ministry of Economy,

Trade and Industry

■Support for industrial revitalization

Ministry of Public Management,

Home Affairs,

Posts and Telecommunications

■Regional telecommunications networks

Ministry of Environment

■ Waste disposal and recycling

Ministry of Education,

Sports, Science, Culture

and Technology

■New technology development

Financial Services Agency

■Business rehabilitation

Ministry of Agriculture,

Forestry and Fisheries

■ Distribution of food supplies

Ministry of Health,

Labor and Welfare

■Welfare, aging and related issues

(Line Ministries for Loan Program at DBJ)DBJ’s Annual Budget Settlement in FILPDBJ’s Annual Budget Settlement in FILP

(Demand-based Budget Proposal and Approval by MOF, Cabinet, and Diet)

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RatingsRatings

International Domestic International Domestic

JAPAN Aaa A2 AA- AA-

Government-guaranteed

Aaa A2 AA- AA-

Non-guaranteed

― A2 ― AA-

Moody's S&P

DBJ

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Ensuring Sound FinanceEnsuring 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

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Financial HighlightsFinancial 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)

JPY 14.8 trillion

(USD 140 bn)

(Sep. 2004, Japan GAAP Basis)

Loans97%

Equity12%

Borrowings(FILP)72%

Bonds13%

Other Liabilities

Other Assets

17Low risk

High risk

Small scaleLittle informationClose regional connection

Emphasis on coverage

Em

ph

asi

s o

n

risk

dis

pe

rsa

l

Investment businessInvestment businessVenture fundVenture fund

MBO fundMBO fund

Venture capitalVenture capitalInvestment businessInvestment businessPrivate equity fundPrivate equity fund

Privatization projectsPrivatization projectsInfrastructure projectsInfrastructure projects

Business reconstructionBusiness reconstructionHigh-risk bondsHigh-risk bonds

Large-scale M&ALarge-scale M&A

Investment fundsInvestment banks

Arrangement,Arrangement,Finance businessFinance business

Project financeProject financeAsset financeAsset finance

Guarantee businessGuarantee businessBondsBonds

Refinancing systemRefinancing systemRegional businessesRegional businesses

Community projectsCommunity projectsLocal banks, NLocal banks, NPOsPOs

Institutional investorsInstitutional investorsSecurities firmsSecurities firms

Demand for close regional connection

Risk

req

uire

me

nt

s

Traditional commercial finance

Traditional scopeof DBJ finance

DIP financeDIP finance

Investment banksSecurities firmsCity banks

Large scaleMuch informationMacroeconomic

DBJ’s New Directions in Financial ServicesDBJ’s New Directions in Financial Services

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Introduction of Introduction of Japan’s Effort in the Japan’s Effort in the

Environmental SectorEnvironmental Sector

– Clean Development Mechanism: CDM –

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Japan’s GHG Emission

1150

1200

1250

1300

1350

1400

BaseYear

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

(mil.t

CO

2-e)

8.0%

14.9%

6%

Level of emissions for base year

Reduction target for 2008-2012 under the Kyoto Protocol

20

Example of marginal GHG emissions abatement cost curve

0

100

200

300

400

500

600

700

0 200 400 600 800 1,000 1,200 1,400 1,600

Amount of GHG emission reductionMarginal Emissions

Abatement Cost

J apan

Former Soviet Union

EUIndia

U. S. A.

China

J apan'sMAC

EUMAC

1985 US$（ / carbon ton）

million carbon tons（ ）

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

Great Potential of Kyoto MechanismGreat Potential of Kyoto Mechanism

21

Non-Annex partyⅠ Annex partyⅠ

Baseline Scenario

Project Technology,

Investment, etc.

Credit (CER)

Acquired CERs are added to the allowed emissions

WIN-WING

HG em

issions

GHG

emissions

projection

Clean Development Mechanism

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Overview of Japan Carbon Finance, Ltd.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 ProvidersPolicy-lending institutions (JBIC & DBJ) & major Japanese private enterprises

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CDM ProcedureCDM ProcedureCDM ProcedureCDM Procedure

InvestmentCountry Government

DOE

Project Design

Validation/Registration

Verification/Certification

Issuance of CERs

PDD

DNA

Approval letter

DNA

Approval letter

ProjectImplementation

Monitoringon site

CDMEBRegisterThe project

ValidatePDD

AcquireCERs

IssueCERs

Verify theMonitoringReport,Certify the reduction

Host CountryGovernment

Project Participant

Monitoring

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Advantages for ProjectsAdvantages 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

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JCF

Execution of ERPA

Operational FlowchartOperational Flowchart

Evaluation & Selection of Projects

Execution of Letter of Intent (LOI, which defines basic terms & conditions)

Project Entity/Sponsor

Submission of PIN Clarification & Screening of PIN

PDD Preparation

Validation & Registration

Assistance & Orientation to Develop Projects

Exclusivity Period for ERPA Execution

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For More Information…For More Information…

Contact:Contact: Japan Carbon Finance, Ltd. (JCF)

Carbon Finance DepartmentHitoshi Kurihara, Director General h-kurihara@jcarbon.co.jp

Shuji Isone, Deal Manager s-isone@jcarbon.co.jpTel: +81-3-5212-8875Fax: +81-3-5212-88861-3, Kudankita 4-chome, Chiyoda-ku, Tokyo 102-0073, JAPAN

Development Bank of Japan (DBJ) Department for International Affairs

intld@dbj.go.jpTel: +81-3-3244-1770Fax: +81-3- 3270-40999-1,Otemachi 1-chome, Chiyoda-ku, Tokyo 100-0004, JAPAN