Risk management | CREDIT SAISON Investor Relations

Basic approach

The businesses of the Credit Saison Group are exposed to various risks , including risks related to the external environment, those related to financial affairs, and those related to operations. Because these risks may give a material impact on the safety and soundness of management, we recognize risk management as an important task for businesses and strive to develop a system that makes it possible to identify and assess risks and handle them appropriately. We will continue to take initiatives for risks common to the industry that we have been tackling. At the same time, we will make Group-wide efforts to appropriately control risks which have emerged due to changes in the external environment, such as assessing and tackling them from a medium- to long-term perspective.

Structure

We have established a Company-wide risk management system to handle various risks appropriately. The Board of Directors oversees risk management and understands medium- to long-term risks and checks measures taken to manage them in formulating its management strategies. Further, to identify risks from various angles, each department identifies and assesses risks of its own while the Corporate Risk Management Dept. has the information shared all over the Group. Thus, we are driving appropriate risk management. The Internal Audit Department audits the status of implementation of these tasks by each department and reports to the Board of Directors.

Types of risk and measures to address them

We assess risks both qualitatively and quantitatively based on the frequency of their actualization and their impacts in monetary terms. Based on the order of priority, we take measures to address the risks. The status of implementation of the measures are monitored regularly and the necessary improvements are made as appropriate.
Risks common to the industry and those that need to be addressed in the medium to long term include the following.

Risks common to the industry

	Details	Responses
Economic Conditions	● Decrease in transaction volumes of credit cards, loans, credit guarantees, and real estate mortgage loans provided by the Group, and decline in the loan collection rate due to deterioration of the domestic and overseas economic environment (employment environment, household disposable income, personal consumption, etc., due to recession) ● Decrease in capital investment by SMEs, which are the main customers of the Lease Business, and deterioration in corporate earnings ● Recorded loss on valuation of real estate for sale, etc., due to falling real estate prices in the Real Estate–related Business ● Negative impact of a decline in overseas economy on the Group's business performance and financial conditions	● Calculation by risk capital management (RCM) of the risk capital required by our business to maintain ratings and maximize returns within the scope of the risk capital surplus ● Building a solid governance system and ensuring firm credit and risk management by increasing local human resources with wealth of experience and knowledge
Fund Procurement	● Among fund procurement methods, such as borrowing from financial institutions and the issuing of corporate bonds and CP, liquidity risk due to the considerable amount of funding with a procurement period of less than one year	● In fund procurement, maintaining a certain percentage of long-term and fixed financing; the setting of liquidity enhancement limits, such as commitment lines; and the reduction of liquidity risk by promoting diversification by executing direct procurement, such as corporate bonds and the liquidation of receivables
Market Risk	● Risk of falling prices of investment assets, such as stocks of listed and unlisted companies, venture investment funds, bonds, real estate, and real estate funds ● Rise in funding interest rates when interest rates rise	● Appropriate management of market risk by introduction and utilization of RCM and ALM
Impairment of Financial Instruments (Allowance for Doubtful Accounts)	● Risk of non-repayment of receivables by large numbers of customers due to changes in the domestic and overseas economic environment (employment environment, household disposable income, personal consumption, etc., due to recession)	● Ongoing soundness of claims and appropriate allowance for doubtful accounts by strengthening credit management systems, such as establishment and operation of credit management systems relating to credit limits, credit information management, and internal ratings, as well as monitoring of credit status
Provision for Loss on Interest Payment	● Risk of increase in the amount of reimbursement claims from customers regarding the portion of interest that was higher than the interest rate ceiling set by the Interest Rate Restriction Act, interest that within the Group in Japan was repaid before the revision of the Act	● The amount of allowance required at the present time is recorded in consideration of the past reimbursement record and trends in interest reimbursement claims
Impairment of Goodwill	● Risk of ongoing impairment into the future when goodwill is not amortized on a regular basis with respect to IFRS to which the Group is subject ● Negative impacts on financial results and financial standing when impairment is declared due to a continuous increase in the balance of goodwill in the event that new goodwill arises following M&As, etc.	● Investment limits based on RCM are set in order to establish mechanisms for avoiding excessive risk ● Deliberations by supervisory divisions and specialized departments are conducted regarding the propriety of acquisition prices at the investment stage ● Follow up and regular monitoring of the business environment are implemented to achieve the income and expenditure plan at the time of acquisition once financing is complete
Various Regulatory and Legal System Changes	● Amendments to general laws and regulations related to company management, changes in interpretation or tightening of financial regulations, or application of new legal regulations. ● Risk of having to cease certain services due to regulatory changes, etc.	● Internal systems, rules, and operations are reviewed, maintained, etc., in accordance with the changes ● While complying with laws and regulations, prompt responses to service developments in accordance with new regulations
Anti-Money Laundering	● Risk of violations of laws and regulations when money laundering and terrorism financing measures (hereafter, money laundering measures) fail to function effectively ● Deterioration in the business operations, financial results, and financial standing of the Company and the Group due to business suspensions, penalties, and other administrative actions, and due to damage to reputation, etc.	● Preparations are made for complying with various laws and regulations in Japan and abroad as a result of being subject to various laws and regulations in Japan and abroad, and of falling under the supervision of supervisory authorities in Japan and abroad based on these ● Further strengthening of money laundering measures is ongoing
Compliance	● Risk of negative impacts on the business operations, financial results, and financial standing of the Group due to administrative actions or damage to reputation following the occurrence of legal or regulatory violations	● Awareness of compliance is raised again among managers, and ongoing employee training, monitoring of training implementation status, and other preventive measures are promoted, by constructing a compliance framework and by strengthening internal control systems ● Early detection and prompt response are enabled through the preparation of an internal reporting system for violations of legal and regulatory compliance, acts of wrongdoing by managers and employees, scandals, and potential conflicts of interest, etc.

Risks and opportunities that need to be addressed over the medium to long term

		Details	Responses
Occurrences of Large-Scale Disasters	Risks	● Physical damage to owned assets and human damage to employees due to large-scale natural disasters (e.g., earthquakes) in various regions in Japan and overseas	● Formulating a BCP plan and regularly confirming its effectiveness; implementing BCP education and training ● Improving the credit card usage environment by decentralizing authorization systems to the Kanto and Kansai regions
Occurrences of Large-Scale Disasters	Opportunities	● Securing human resources through BCP plan formulation and education, building trust with other corporations, and improving corporate value ● Continuously developing services as social infrastructure by preparing for unexpected circumstances
Impact of Pandemic and Other Unexpected Circumstances	Risks	● Economic downturn, corporate bankruptcies, and prolonged decline in personal consumption due to continued uncertain future restrictions on behavior and pandemic trends ● Decreasing acquisition of new members due to intensifying competition caused by factors such as diversification of payment methods through promotion of cashless payment and entry from companies in other industries	● Response to changes in the business environment by transforming the business portfolio from management based on the Payment Business to a comprehensive life services group ● Expand services targeting new customer segments by building new remote-type member capture models using SAISON CARD Digital ● Thoroughly implement employee health management and infection countermeasures
Impact of Pandemic and Other Unexpected Circumstances	Opportunities	● Improving customer satisfaction through Group-wide efforts to appropriately and quickly resolve all kinds of problems that arise in a mature society ● Initiating business structure transformation based on changes in customer psychology and behavior caused by a pandemic and other unexpected circumstances
Impact of Climate Change	Risks	● Decreasing transaction volume and increasing financing cost associated with deterioration of Group creditworthiness and brand due to factors such as a delay in responding to climate change and serious impact on the global environment and economy resulting from factors such as intensification of natural disasters and changes in ecosystems associated with climate change ● Increasing bad debt costs due to deterioration of customers’ household finances and business performance caused by abnormal weather such as typhoons and heavy rains	● In August 2021, we established the Sustainability Promotion Committee (attended by the Representative, Executive President and COO) to strengthen initiatives for sustainable business operations ● Expressing support for the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD) and promote information disclosure on governance, strategy, risk management, and indicators/targets related to responding to climate change ● Disclosing information via the Securities Report, etc. in response to the announcement of disclosure standards by the Sustainability Standards Board of Japan (SSBJ) ● Promoting CO2 reduction by reducing paper consumption by changing to online statements and applications, reducing the issuance of plastic cards through SAISON CARD Digital, and use of recyclable materials in the envelope windows of statements * Online statements: As of March 2024, 61% reduction compared to total members/Reduction of 500 grams of CO2 per envelope * Online applications: 98.8% of face-to-face card applications are accepted on tablet devices ● Switched all electricity used at Credit Saison’s Ubiquitous Building data centers to electricity derived from 100% virtually renewable energy using non-fossil certificates with tracking
Impact of Climate Change	Opportunities	● Improving corporate value through recognition of climate change countermeasures and CO2 reduction activities ● Securing human resources by improving corporate value and name recognition, improving employee motivation, and gaining the trust of various stakeholders by increasing recognition from investors who have a high interest in ESG
Competitive Environment	Risks	● Intensifying competition due to new entrants from other industries into the payment industry as the result of deregulation and technological advancement ● Presenting favorable transaction conditions and services to customers without regard to profitability by competitors in the real estate finance market	● Providing financial services optimized to markets and individual needs, such as by revising services in accordance with market conditions and improving UI and UX through DX ● In addition to issuing credit cards and other plastic cards, working to provide a wide variety of payment platforms aimed at improving customer convenience in a bid to realize a cashless society, including smartphone payments, QR code payments linked to partner apps, and the smartphone-exclusive payment service “SAISON CARD Digital.” ● Accelerating initiatives in the corporate field, including cross-selling of business cards and products related to corporations ● Increasing screening speed for the purpose of improving customer convenience, strengthening relationships with real estate related companies, and achieving differentiation by providing products and services unavailable from other companies
Competitive Environment	Opportunities	● Developing new business domains and new products/services through collaboration with other industries ● Expanding market share by improving convenience and strengthening relationships with affiliated companies
Relationships with Major Partners	Risks	● Deterioration of business performance of our partners with whom we have formed business alliances as important strategies or with whom we have built a capital relationship, changes of business alliance conditions, and cancellation of alliances with partners	● Strengthening relationships with existing partners ● Building a business model that does not depend on a specific partner by promoting new alliances with partners in diverse industries and sectors
Relationships with Major Partners	Opportunities	● Business development achieved by leveraging alliances with partner companies and organizations, such as acquiring memberships, expanding and diversifying services and product sales channels, and using the customer bases of both parties
Overseas Business Development	Risks	● Market trends in the countries in which the Company develops its business, the presence of competitors, politics, the economy, law, culture, religion, customs, foreign exchange rates, and various other country risks	● Dispersing country risks by expanding into multiple countries/regions; reducing risks through regular risk analysis of the countries where we are located ● Reducing risks by establishing international headquarters to reinforce the governance system, regularly analyzing risks in countries where we are located, establishing a detailed monitoring system for local affiliates, and monitoring them
Overseas Business Development	Opportunities	● Development of existing and new services in countries/regions where there are many people who do not possess a bank account and are unable to receive financial services
System Risk and Cyberattack Risk (including leaks of personal information, etc.)	Risks	● System failures caused by malfunctions of computer systems, communication line disruptions, cyber security threats, etc. and a decrease in credibility resulting from the leakage/unauthorized use of personal information or confidential information, actualization of risks, etc.	● Development of contingency plans, such as ensuring the backup of important systems ● Setting up the Cybersecurity Response Team to build a system which makes it possible to take the necessary actions promptly in the event of an incident, such as making judgments, doing triage, and otherwise responding to an incident ● Making necessary preparations and taking preventive measures, such as formulating procedures of responding to an incident and providing regular training ● Improving employee awareness of information security and developing countermeasures against cyberattacks, such as minimizing damage through the introduction of systems capable of detecting advanced cyberattacks ● Appropriate protection measures and system development of personal information, as stipulated Opportunities under Opportunities the Personal Information Protection Law, acquisition of Privacy Mark
	Opportunities	● Acquiring new customers for whom the Company undertakes processing operations on contract by using systems, etc ● In collaboration with external partners, external sales of secure payment systems in which use is made of fraud prevention technology
Actualization of Administrative Risks	Risks	● Risk of negligence and inappropriate handling of administrative tasks due to a large amount of manual paperwork ● Risk that the actualization of administrative risks causes a loss, administrative disposition, damage to reputation, etc.	● Taking preventive measures such as creating an administrative work manual, inspecting administrative work status regularly, preventing employee errors and fraud, providing ongoing employee training, and monitoring the status of implementation of tasks and, in addition, developing and operating rules related to the whistleblowing system for early detection of any illegal activity ● Promoting automation of administrative work by the systematization and introduction of robotic process automation (RPA)
Actualization of Administrative Risks	Opportunities	● Expanding demand for administrative process agencies at affiliated cards and partners
Securing and Developing Human Resources	Risks	● Risk of being unable to secure diverse, talented human resources to provide high-level services to customers and develop advanced products and services; risk of human resources leaving the Company	● Developing work systems and a side job system that permit employees to choose work styles according to their needs, providing equal opportunities by developing common employment patterns, and securing excellent human resources by adopting personnel systems that can utilize the abilities and characteristics of employees, such as the specialist/expert systems ● Introducing leave programs that can be utilized for self-development and fertility treatment ● Creating a culture of taking on challenges by introducing support systems such as an assessment program, a new business proposal system, a voluntary selective training program, and career development seminars by age group and by developing an environment that allows for long-term/multifaceted training and career development, such as personnel allocation based on employee requests centered on open recruitment
Securing and Developing Human Resources	Opportunities	● New service/product development by securing talent with expertise in digital technology
Reputation Risk	Risks	● Risks affecting business operations, financial results, and financial standing in the event negative reviews or rumors are spread regarding the Company and the Group, regardless of the veracity of such	● Striving for early detection of gossip and rumors ● Implementing countermeasures that respond in a timely, appropriate fashion according to the degree of impact and extent of dissemination in order to minimize impacts ● Providing all employees with compliance training, such as risk literacy training
Reputation Risk	Opportunities	● Building of relationships with stakeholders through reputation management ● New customers and greater earnings due to consumer need identification and service improvements

Initiatives

Business Continuity Plan (BCP)

We have developed a business continuity plan (BCP) to continue important operations as much as possible even in the case of an earthquake, any other natural disaster, an accident, or similar event and achieve an early recovery even when the operations have been suspended.
We have established an emergency response system, the roles of each, and actions to take in response, so that when a disaster has occurred, we can confirm and analyze damages and, where we have judged that the disaster will affect business continuity, we can take prompt actions to continue important operations based on the BCP.