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Japan Finance Corporation (Account for Agriculture, Forestry, Fisheries and Food Business Operations) http://www.jfc.go.jp 1. Summary of operations implemented using FILP funds For sustainable and sound development of agriculture, forestry and fisheries or businesses contributing to the security of stable food supply, JFC uses FILP funds for supplying long-term loans with low interest rates intended to complement financial services of general financial institutions to persons engaged in agriculture, forestry and fisheries management or in the business of manufacturing foodstuffs. Note: Operations not eligible for FILP include financing related to interest free loans for forest management specially designed to maintain biodiversity etc. JFC extends interest free loans using other funds than FILP. Securitization support operations are exempt from the analysis. 2. Amount of lending under FY2016 FILP (Unit: billion yen) Estimated outstanding amount of FILP lending at the end of FY2015 2,151.2 FY2016 FILP 249.0 3. Estimated policy (subsidy) cost analysis of the project (1) Policy (subsidy) cost Category (Unit: billion yen) FY2016 Fluctuation FY2015 1. Subsidies, etc. from the Government 37.8 33.7 -4.1 2. Money transferred to the Government -201.2 -222.7 -21.5 -163.4 -189.0 -25.6 230.8 252.0 +21.2 67.4 63.0 -4.3 - - - 67.4 63.0 -4.3 60 60 - Subtotal (1+2) 3. Opportunity cost of capital investments, etc. from the Government Subtotal (1+2+3) 4. Fluctuation in retained losses Total (1+2+3+4=policy cost(A)) Analysis period (years) (2) Breakdown of policy cost by the time of the provision of funds Category FY2015 (A) Policy cost (previously cited) (Unit: billion yen) FY2016 Fluctuation (3) Year-to-Year comparison analysis Category FY2015 (A) Policy cost (previously cited) 67.4 63.0 -4.3 (A') Policy cost obtained by re-calculating (A) using the same assumed interest rate as in the FY2015 analysis 67.4 61.7 -5.7 (B) Policy cost of (A') generated in FY2016 or later 49.8 61.7 +11.9 Policy cost in FY2016 is 63.0 billion yen. The analysis shows an increase of 11.9 billion yen in real policy cost over FY2015 when the effect of change in the assumed interest rate for FY2015 and FY2016 is eliminated and the policy cost that accrues in FY2016 and thereafter are compared. This increase in real policy cost is considered to be attributable to the following factors: • Decrease in cost due to new loans in FY2016 (-5.7 billion yen) • Increase in cost due to disuse of FY2014 (+0.4 billion yen) • Decrease in charge-off (-1.8 billion yen) • Increase in cost due to increase in advanced redemption (+0.9 billion yen) • Other factors (increase in clerical cost, etc. due to new loans for FY2016) (+18.1 billion yen) (4) Breakdown of policy cost by causative factor (Unit: billion yen) (A) Policy cost in FY2016 (previously cited) 63.0 1) Prepayments 14.2 -25.9 67.4 63.0 -4.3 1) Opportunity cost of capital investments, etc. provided before the beginning of the analysis period 226.1 247.6 +21.5 2) Loan losses 2) Policy cost expected to be newly accrued during the analysis period -158.8 -184.6 -25.8 3) Others (including profit spread) 37.8 33.7 -4.1 -201.2 -222.7 -21.5 1.6 1.7 +0.1 3.0 2.6 -0.4 Subsidies, etc. from the Government Money transferred to the Government Policy cost accrued with a change in surplus funds Opportunity cost of capital investments, etc. (Unit: billion yen) FY2016 Fluctuation 74.7 (5) Sensitivity analysis (cases where assumptions change) (Unit: billion yen) Changed assumption and extent of change Policy Cost (Fluctuation) Interest rates on money loaned and funds raised +1% 179.4 (+116.3) +58.8 Fluctuation in opportunity cost 10% rise in charge-off <Reference> Budgeted amounts of subsidies and capital investment in FY2016 Subsidies: 17.5 billion yen Capital investment: 4.1 billion yen 63.1 (+0.1) - Fluctuation in opportunity cost 4. Outline of estimation and project prospect employed in the analysis 1) 2) The estimation is made in respect of all lending operations financed by Fiscal Loan Fund. The estimation is made on the assumption that financing is implemented based on the FY2016 operation plan (¥418.3 billion) in addition to the existing loan balance of ¥2,545.3 billion (estimated as of the end of FY2015). 3) 4) The analysis period is supposed to be 60 years until the complete repayment of loans made based on the FY2016 operation plan as well as existing loans. In accordance with the above assumptions the estimate was made in relation to some data including subsidies to be required for the implementation of the operation plan,and the payment to the national treasury is expected in FY2020 and onwards. 5) 6) The JFC loan interest rate is supposed to be 1.678% (as a fixed rate for new loans in FY2016). For the prepayment ratio, the average figure for the preceding 3 years from FY2012 to FY2014 (3.12%) is applied. The loan loss provision ratio is the average figure for the preceding 5 years from FY2010 to FY2014 (0.01%). (Unit: %) FY Prepayment ratio 2010 2.91 0.00 Result 2011 2012 2.66 3.04 0.01 0.01 2013 3.83 0.01 Estimated 2014 2015 2.50 2.19 0.01 0.00 Planned 2016 2.38 0.00 Assumptions for calculation 2017~2075 3.12 0.01 Provision on loans 7) In the policy cost analysis, accumulated bad debt write-off is computed based on the average loan loss provision ratio in the preceding 5 years. It is estimated to be ¥1.0 billion. The loan loss provisions are calculated on the assumption that the end-of-term loan loss provisions are calculated according to the loan provision ratio (1.28% under the FY2016 budget) based on the asset assessment after the charge-off. * Components in each column may not add up to the total because of rounding. 5. Reasons for granting of subsidies, mechanism and underlying laws Agriculture, forestry and fisheries are subject to nature. Most managing bodies engaged in these sectors are small, often unstable and barely profitable. Therefore it takes a long time to recover invested capital. The objective of JFC (Agriculture, Forestry, Fisheries and Food Business Operations) is to provide long-term loans with low interest intended to complement financial services of general financial institutions to persons engaged in agriculture, forestry and fisheries management. JFC receives financial assistance from the general account of the national treasury as compensation for expenses (policy costs) which are not covered by spread. (Underlying laws and regulations) ・Grants have no legal base (they are budgetary measures). ・Capital fund and payment to the national treasury are stipulated in the Japan Finance Corporation Act. (Japan Finance Corporation Act) Article 4: 1) The Government may, when it finds it to be necessary, make contributions to JFC within the amount appropriated in the budget. Article 47: 1) In the event that the amount of the surplus recorded in the settlement of accounts for each business year exceeds zero in each account related to the operations listed in each Item of Article 41 hereof, JFC shall accumulate, as a reserve, the amount calculated in accordance with the standards prescribed by a Cabinet Order, among such surplus, until it reaches the amount prescribed by the Cabinet Order, and if there is still a surplus, JFC shall pay the amount of such surplus into the National Treasury within three (3) months after the end of such business year. 6. Special remarks (Policy financial reform-related matters) Agriculture Forestry and Fisheries Finance Corporation was dissolved on October 1, 2008, by the provisions of Paragraph 16 Article 1 of Supplementary Provisions of “Japan Finance Corporation Act” (Act No. 57, 25 May 2007) and Japan Finance Corporation [Account for Agriculture, Forestry, Fisheries and Food Business Operations]. The new corporation was established on the same day and succeeded to all the rights and obligations of AFFFC except assets to be handed to the Government, etc. (Reference) Outcome and social and economic benefits of operations 1) Aggregate amount of loan commitment from FY1953 to FY2014 3.85 mil. cases 19.8536 trillion yen Loan commitment in FY2014 12,000 cases 367.0 billion yen Outstanding loan at the end of FY2014 175,000 cases 2.6429 trillion yen Loan Commitment planned for FY2016 420.0 billion yen 2) Assistance for agricultural sector JFC extends loans to support various highly-motivated farmers’ efforts to improve their farm management in accordance with the policy of the “Basic Act and Plan on Food, Agriculture and Rural Areas.” a. 21% (48 thousand) of certified farmers (farmers whose plans for improving agricultural management approved by municipal governments) use Super L Loan (Long-term Investment Loan for certified farmers) to realize efficient and stable farm management. The figure increases to 40% for corporate certified farmers alone. b. JFC extended 188.2 billion yen of Super L Loans to 6,028 parties to foster and support certified farmers in FY2014. The borrowers would enjoy the increase of 1.0393 trillion yen of gross production and 155.3 billion yen of agricultural income. c. JFC provided loans to land improvement projects in order to enhance productivity of farmland, etc. Its loan commitment was 12.0 billion yen in FY2014. It is estimated by the existing cases that benefits of entire projects such as crop production effects and saving effects in farming costs will be 128.6 billion yen. d. JFC provided necessary loans for stability and preservation of management to farmers whose businesses temporarily suffer a downturn because of disasters such as earthquakes/typhoons and changes in social and economic environments such as drops in prices of agricultural products. It is estimated that the Corporation contributed to the maintenance of employment opportunities for 7,668 people in FY2014. 3) Assistance for forestry sector JFC is assisting improvement of forests and stability and preservation of forestry management to contribute to the maintenance of forests' multiple functions through financing in accordance with the policy development of the “Basic Act on Forests and Forestry” and “Basic Plan for Forests and Forestry.” a. JFC provided forestation related loans to 189 forestry management organizations and supported the forestation of 30 thousand hectares in FY2014. b. The size of planted forests managed by 1,835 forestry management organizations that have the balance of forestry funds is estimated to be 1.36 million hectares, and, according to the past research, public benefit functions are calculated at about 3.8 trillion yen, that include surface erosion prevention function (1.5338 trillion yen) and water purification function (794.4 billion yen). 4) Assistance for fishery sector JFC is proactively assisting fishermen's efforts for stable supply of fisheries products and sustainable use of fishery resources through financing in accordance with the policy development of the “Basic Act on Fisheries Policy.” a. It is estimated that the fishermen financed by JFC loans produce 190.2 billion yen or 987 thousand tons (26% of domestic production) in FY2014 in marine fishery, the main fishery production in Japan. This contributes to the stable supply of fishery products and creation and maintenance of about 8 thousand job opportunities in fishery areas. b. JFC provided necessary loans for stability and preservation of management to fishermen whose businesses temporarily suffer a downturn because of disasters such as typhoons, and changes in social and economic environments such as drops in the prices of fishery products, in addition to fishermen affected by the Great East Japan Earthquake. It is estimated that the Corporation contributed to the maintenance of employment opportunities for 1,822 people in FY2014. 5) Support for food industry JFC positively supports efforts for cooperation between agriculture, forestry and fisheries and food industries and highly-developed health management for secure and safe stable supply of food through financing to food processors. a. The financing was offered to 266 cases (59.5 billion yen) in FY2014. This contributed to the creation of 1,537 job opportunities with such projects. b. It is estimated that transaction volume of domestic agricultural, forestry and marine production in such borrowers will increase to about 99,000 tons within 3 to 5 years, and transaction value of domestic agricultural, forestry and marine production by stable transaction contracts with people who engage in agriculture, forestry, and fishery will increase to about 36,000 tons. This contributes to the advancement of domestic agriculture, forestry and fisheries. (Reference) Changes in Policy Costs by Component <Japan Finance Corporation (Account for Agriculture, Forestry, Fisheries and Food Business Operations)> (Unit: billion yen) Policy costs (total amount) Of which, subsidies, etc. from the government Of which, money transferred to the government Of which, opportunity cost of capital investments, etc. from the government 450.0 350.0 155.9 126.9 109.4 250.0 150.0 55.2 65.7 76.2 42.4 67.2 258.1 248.3 246.5 248.7 231.7 -154.6 -150.5 -143.2 -155.2 -166.6 37.8 303.1 283.6 262.1 33.7 230.8 252.0 50.0 -50.0 -210.8 -150.0 -242.6 -218.7 -201.2 -222.7 FY2013 FY2014 FY2015 FY2016 -250.0 FY2007 FY2008 FY2009 FY2010 FY2011 FY2012 Notes 1. Policy costs for each fiscal year differ in assumptions including interest rates applied to estimates. 2. Figures until FY2008 indicate the policy cost of AFFFC. (Points) ・Policy costs as a whole are on a downward trend due to the effects of improvement of the balance of interest rates in accordance with a decline in interest rates. ・From FY2012 onward, money transferred to the government and the opportunity cost of capital investments, etc. from the government have increased partly due to the extension of the analysis period in accordance with the extension of the loan period as a response to the Great East Japan Earthquake. (Reference) Financial Statements Balance Sheet (Account for Agriculture, Forestry, Fisheries and Food Business Operations) Item (Assets) Cash and Deposits Cash Deposits Pecuniary claims payable Securities Securities Stocks Other securities Loans Loan on deeds Other assets Prepaid expenses Accrued revenue Agency account receivable Other assets Tangible fixed assets Building Land Lease assets Other tangible fixed assets Intangible fixed assets Software Lease assets Other intangible fixed assetss Guaranty endorsement Allowances for bad debts Total assets End of FY2014 End of FY2015 End of FY2016 (Result) (Estimated) (Planned) 53,041 1 53,039 - 2,062 2,030 32 48,142 1 48,140 319 7,727 2,030 5,697 16,398 1 16,397 647 7,727 2,030 5,697 2,562,758 2,643,720 2,710,720 12,946 12,249 12,327 265 149 0 11,272 10,640 10,840 529 529 529 879 929 956 33,378 33,471 33,439 8,051 8,013 8,067 24,987 24,987 24,987 197 326 239 141 144 145 2,254 2,473 2,374 2,103 2,076 2,224 50 34 19 100 362 130 2,426 3,358 4,198 -23,484 -27,858 -32,969 2,645,382 2,723,605 2,754,864 Item (Liabilities and equity) Borrowed money Loans payable Bonds payable Trust money Other liabilities Accrued expenses Revenue received in advance Lease obligations Other liabilities Reserve for bonuses Reserve for directors’ bonuses Reserve for retirement pensions Reserve for directors’ retirement benefits Acceptances and guarantees (Total liabilities) Capital Retained earnings Earned reserve Total shareholders’ equity (Total equity) Notes 1. The balance sheet includes costs for projects other than those subject to the policy cost analysis. 2. Amounts of less than one million yen are rounded down. Income Statement (Account for Agriculture, Forestry, Fisheries and Food Business Operations) (Unit: million yen) FY2014 FY2015 FY2016 Item (Result) (Estimated) (Planned) Ordinary income Revenue from fund management Interest on loans Interest from repurchase agreements Interest on deposits Other interest received Revenue from service transactions, etc. Other service revenue Revenue from government grants Receipts from the general account Receipts from the special account Other ordinary income Recoveries of write-offs Other ordinary income Ordinary expenses Financing cost Interest on call money Interest on borrowed money Interest on bonds Expenses for service transactions, etc. Other service expenses Other operating expenses Amortization of bond issue expenses Business expenses Other ordinary expenses Provision of allowance for bad debts Loan amortization Other ordinary expenses Ordinary profit Extraordinary profits Revenue due to resignation from acting for the Employees' Pension Fund Extraordinary loss Loss on retirement of fixed assets Impairment loss Net profit 47,313 39,329 39,312 2 14 0 27 27 6,326 6,300 26 1,629 1,239 390 57,064 31,910 3 28,475 3,432 3,430 3,430 44 44 15,079 6,598 6,272 117 208 -9,750 9,763 9,763 13 12 0 - 55,976 36,877 36,857 2 14 3 40 40 17,274 17,240 33 1,784 1,310 474 55,973 30,248 2 26,977 3,268 4,059 4,059 61 61 17,193 4,410 4,373 37 - 3 - - 3 3 - - (Unit: million yen) 56,583 37,397 37,379 2 11 3 54 54 17,456 17,420 36 1,674 1,200 474 56,548 30,779 - 27,580 3,198 3,507 3,507 60 60 17,089 5,111 5,111 - - 35 - - 35 35 - - Notes 1. The income statement includes costs for projects other than those subject to the policy cost analysis. 2. Amounts of less than one million yen are rounded down. Total liabilities and equity End of FY2014 End of FY2015 End of FY2016 (Result) (Estimated) (Planned) 2,015,005 2,066,976 2,099,878 190,964 210,969 204,972 30,562 31,514 32,056 10,613 7,637 6,827 6,476 5,930 5,304 6 11 14 263 389 280 3,865 1,307 1,227 562 598 598 7 7 7 10,971 10,619 10,349 25 28 - 2,426 3,358 4,198 2,261,138 2,331,709 2,358,887 381,588 389,239 393,320 2,655 384,243 384,243 2,655 391,895 391,895 2,655 395,976 395,976 2,645,382 2,723,605 2,754,864