Thank you very much for joining us for this web conference briefing for fiscal year 2021 first half financial results for Mizuho Financial Group, despite the busy schedule. We will be taking the form of the web conference method of using Webex. It will only be on audio, therefore please refer to the presentation material that is entitled Fiscal Year 2021 H1 Financial Results from our website. My name is Chisaka of the IR department, I will be moderating today's event. Before we start the web conference, there are some announcements to make. Please note that any comments regarding future outlook at this time is subject to risk and uncertainty. Therefore, please be aware that actual results may differ from the forecast.
The presentation will be given by the CFO, Umemiya. There will be an outline, a presentation for 10 minutes, based on the presentation material, and 35 minutes will be allocated for Q&A. The overall meeting will be for 45 minutes. Mr. Umemiya, please.
This is Umemiya of the Mizuho Financial Group. Thank you very much for allowing us time today. First of all, I would like to apologize deeply for the system failures at the Mizuho Bank. I would like to take this opportunity to apologize for the inconvenience.
Currently, in order to provide a reassurance to our customers against the backdrop of recognition of the challenges that is current after the August onward periods, we are now reviewing the measures to prevent a recurrence. After review is completed, we will report back to you. Now, I would like to give you the explanation of the first half of fiscal year 2021 financial results. Please refer to Page 3. First of all, this is the outline of the results. Please refer to the third line from the left, which is the consolidated net of business profit and net gains related to ETF and others.
It increased by JPY 40.9 billion year-on-year at JPY 460.3 billion. Against the fiscal plan of JPY 790 billion, we are at 58%. Strong results have been achieved, especially in the customer groups. Now, in terms of the breakdown for the customer group, individual investment was strong. Non-Japanese loan deposits revenue increased as well. Therefore, there was a significant increase of JPY 73.9 billion year-on-year if we compare to the previous years. It exceeded the 2015 before the introduction of the negative interest rate policy, and also recorded four-year record high since the in-house company was introduced. In markets, last year was a very special year.
For this year there was a decline in bond sales again, and the underwriting S&T revenue declined because of stabilization of market volatility, decreased by JPY 41.5 billion. For credit-related constant process JPY 33.7 million for forward-looking reserves. This ended at JPY -49.6 billion, JPY -31.5 billion year-on-year, with other net gains related to stocks that we have sold cross-shareholdings. We also canceled the bear funds, which was for the purpose of stabilizing the underlying gains on stock. Capital increase and the stock market increase leading to cancellation the quarter to a JPY -6.8 billion compared to last year.
The impairment of cross holdings comparison was, as a result, taken that into consideration, increased by JPY 43.6 billion. Net extraordinary gains was declined by JPY 18.4 billion because of the reaction decline of the extraordinary profit related to pension system revision of last year, return of the retirement benefit and trust. There was also a tax effect. Net income attributable to our Financial Group was JPY 385.6 billion, up JPY 170.1 billion. Against the fiscal year plan, we have made a progress of 75%. Please refer to page 4. This is looking at the company page performance.
For the customer group, I'm going to refer to the net business profit in the middle. For retail and business banking, the individual business saw individual asset formation. There was a successful trend, and there was also a non-interest income for real estate-related, recording a significant increase of JPY 35.9 billion year-on-year. Corporate and Institutional was subject to rational decline of the loan solution revenues falling off. Loan balances increased year-on-year, JPY 8.2 billion increase was recorded for global corporate company.
The loan spread improved, as well as the reduction of high-cost deposits, as well as capital markets transactions, M&A, and other non-interest income increased, even compared to a stronger performance of last year, in Europe and United States, we have seen increase this year of JPY 24.5 billion compared to the past NPLs. The retail and the business, as well as corporate and institutional and global corporate and asset management recorded a record high since the in-house company has been introduced. Please refer to page 5. This is the balance sheet outline.
Left-hand side is the total assets add to JPY 227 trillion of foreign bond increase, which meant an increase of JPY 1.6 trillion compared to the end of last fiscal year for loans. With the peak behind us for COVID-related financing, there was a decline for the major companies for deposits and negotiable deposits. Individual deposit increase, however, company reduced cash in hand. Right-hand bottom non-Japanese yen denominated loans and deposits. Non-Japanese yen customer loans declined by JPY 2.2 billion because of the repayment of the COVID-related loans, as well as reduction of low profit assets. Non-Japanese yen customer deposits saw a decline.
Progress is made to control the high cost deposit. Proportion of deposits alone was maintained at 70%. Going forward, the trend in deposit as well as the funding environment will be taken into consideration to achieve optimal non-Japanese yen funding management going forward by combining customer deposits as well as lead to long-term funding. Next, loans. For domestic loans, average balance peaked in the first half of 2020 and then was on declining trends. There was a decline of JPY 1.1 trillion. The loans and deposit rate margin in Japan, as you can see on the right-hand top, compared to the previous year, improved by one basis point.
As mentioned here, for small and medium-sized companies as well as for large corporations, loan spreads improved because of the project loan execution, as well as repayment of COVID-related loans, which is low spread. Now, loans outside of Japan average balance declined because of repayment of COVID-related loans as well as non-COVID loans in United States and Europe, declined year-on-year by JPY 11.1 billion. For non-Japanese loan spread, increase by five basis point has been achieved. Project lending has grown and relatively low spread COVID-related loans have been subject to repayment. We have made progress in terms of spread improvement.
On page seven, please. This is regarding the non-interest income for customer groups by in-house companies. As you can see on the left-hand side, the non-interest income increased by JPY 34.5 billion year-on-year. Last year, although there was a Corporate & Institutional increase of 1 in loan solutions, transaction banking declined this year. Retail & Business Banking grew, therefore, it improved over the previous year. Please proceed to page eight. This is an explanation on credit portfolio. Starting with left-hand side, credit-related costs.
In the second quarter, the company recorded reserves from a forward-looking perspective of JPY 33.7 billion to be prepared for the future, taking into account macroeconomic conditions and rising risks expected in the future, such as global supply constraints. As a result, CIC incurred costs, but with reversal of forward-looking provisions made in prior years, RBC and GCC had reversals. In total, credit-related cost was JPY -49.6 billion, which is a progress of 49% against the plan of JPY -100 billion. On the right-hand side, non-performing loans based on FRA is more or less flat year-over-year for both balance and NPL ratio. As shown bottom right, low level is maintained from past years. Since resurgence of COVID-19 and prolonged impact of COVID on customers is expected, we will keep a close eye on credit costs.
Please go to page nine. Next is securities portfolio. On the left, unrealized gains, losses on other securities. Revaluation gain was JPY 1,589 billion, up JPY 18 billion from March 2021, mainly owing to rise in Japanese stock prices, remaining at a high level. Bottom right, reduction of cross-shareholdings. Against our target of reducing JPY 300 billion by March 2022 in three years, we have made 97% progress with a total of JPY 292.3 billion as of end of September 2021.
Excluding temporal increase due to cancellation of employee retirement benefit trust scheduled by the end of the year. Sales amount excluding impairment is JPY 258.3 billion, representing 86% in progress. We will continue to engage in close negotiation with customers to reduce holdings further. Please turn to page 10. Basel regulatory capital. The CET1 ratio based on current regulations shown in the center of the table increased 0.64% compared to March 2021 to 12.27%, mainly owing to increase in profit. We have adequate level against other regulatory requirements as well.
As shown bottom right, an important management KPI for the company, which is CET1 capital ratio based on Basel III finalization fully effective basis, is 9.6%, excluding net unrealized gains and losses on other securities, already exceeding the target set forth in our five year business plan of 9%. Please turn to page 11. This is a revised plan for fiscal year 2021. Consolidated net business profits revised up by JPY 30 billion- JPY 820 billion. Markets group was revised down based on judgment to take cautious stance in light of market trends, including interest rate outlook overseas. Customer groups with a strong performance in and out of Japan is more than offsetting the drop. Credit-related costs remain unchanged from original plan as we continue to take a cautious approach in the second half.
Net gains and losses related to stocks and others revised downward due to the execution of bear funds cancellation considering increase in unrealized gains on cross-share holdings and capital accumulation. The plan has been revised downward by JPY 60 billion to a loss of JPY 10 billion, the same level as the first half results. In addition to the above, and taking into account the positive impact of the tax effect associated with the capital optimization of subsidiaries recorded in the first quarter, the forecast for net income attributable to FG for fiscal 2021 has been revised up by JPY 20 billion- JPY 530 billion.
With regard to the dividend per share of common stock, as shown in the bottom right table, taking into account the steady growth of the stable earnings base, mainly in the customer groups, and the dividend payout ratio of 40%, the interim dividend will be JPY 40 per share, which is an increase of JPY 2.5 from the initial forecast. The year-end dividend will be JPY 40 per share, an increase of JPY 2.5 from the initial forecast as well. This is the first time in seven years since the fiscal year ended March 2015 that we have increased the dividend. With future capital policies, we intend to achieve an optimal balance between capital adequacy, investment and growth, and enhanced shareholder returns while continuing to fully demonstrate the financial intermediary function under COVID-19.
We will continue to actively allocate management resources to human resources and IT and digital fields, which are cornerstones of future further growth, and to return profits to shareholders based on progressive dividends. Page 12. This page describes the progress against the five year business plan that started from fiscal year 2019, and Page 13 illustrates the progress against fundamental structural reform plan. I will not go into details, but we are making steady progress at this point in time. This concludes my explanation on our earnings. We would now like to proceed to the Q&A. Let me introduce the method of the Q&A. You are all muted now. We will delegate a person to ask a question and then unmute will be made.
Those of you with the questions, please select the person mark and press the command. Please inform us that the questions will not be taken on the English channel. Please contact the IR department if you have any questions in English. Please note that questions will not be taken in English channel. Please contact the IR department if you have any questions in English. Takamiya-san of the Nomura Securities, you have the floor for the first question.
This is Takamiya of Nomura Securities. I have two questions. Regarding the system failure impact, please elaborate, as well as a dividend increase. Regarding the system failure, currently, please elaborate on the impact on your management performance going forward, as well as the impact on cost and expenses. Please elaborate further. That is the first question. The second question is regarding dividend increase. Now, you have disclosed the dividend increase before the end of fiscal year. Why have you announced this at this point in time? What is your intention, and what is the message for the market participants?
Thank you very much for your question. Regarding the system failure impact.
Now, in terms of gross profit, as well as expense, as well as investment, there will be some quantitative explanation to be given. In terms of gross profit, in the revised plan, JPY 3 billion negative impact is assumed. Specifically, foreign exchange for corporate transactions have declined. These are the major reasons. In terms of expenses, at the timing of February, I have already spoke about this point. JPY 10 billion and in terms of expense, other expenses, JPY 8 billion have been earmarked in the plan for February and March with the system failures that occurred. We wanted to implement various measures, and we hope that it can be managed with the JPY 10 billion + JPY 8 billion.
As you know, in August and September, there were other system failures occurring as well. Compared to February and March, in terms of hardware, especially for monitoring and infrastructure related, revision will have to be made further. Therefore, there could be need to increase expenses. In terms of the necessary measures, and the accumulation of these measures, in May, JPY 10 billion has been earmarked and JPY 8 billion in terms of expenses was achievable. There is a possibility that it could be exceeded. This is the current forecast. Therefore, we wanted to, for investment, we increased it to, by JPY 3 billion- JPY 13 billion for expenses. There will be some extraordinary measures as well. The JPY 8 billion will be increased to JPY 14 billion.
Therefore we want to earmark sufficiently in terms of cost. That is reflected in the guidance at this time. To your second question, regarding the dividend increase, why did we announce it at this time, was the gist of your question. At the time of May, I also elaborated that progressive payout ratio of 40% guideline has been presented. Therefore, we have changed the policy in terms of dividend from the past. At that time, we elaborated that JPY 510 billion was the original guidance, and 40% of that is JPY 80. That was within visibility.
On the other hand, at the timing of May, there were emergency declarations made, and it was immediately thereafter, and there was uncertainty in terms of the COVID-19 going forward. The guidance level of JPY 510 billion, the probability of the achievement, has been enhanced, and that is the timing in which we wanted to disclose our policy in terms of the shareholder returns. At this timing, it isn't as if we are out of the woods in terms of COVID-19. There is possibility of a sixth wave. What was not assumed in May, such as supply chain constraints, as well as energy price increases have come to the fore more recently.
However, even if we're able to absorb that, it would be around JPY 500+ billion is achievable. According to our management, we have the confidence, we have visibility of achieving this number. Therefore, conscious of the 40% payout ratio, we have made this announcement of dividend increase. That is all. Thank you very much. Thank you for the question. Next question, Takei-san from Daiwa Securities.
This is Takei. I have just one question. Your revised forecast for the full- year, I'm on Page 11. Basically, this is credit-related cost or share-related cost. It's flat in the first half and second half. The second half, you're expecting a decrease of about JPY 100 billion in the second half. For credit-related costs, forward-looking provision is included in the first half, which means that the second half, I think, you will also be including some reserve for that. The bear funds cancellation, I think has been conducted to a certain extent in the first half. The same amount is expected in the second half. Is that why the credit-related cost and stock-related net gains and losses are anticipated in the first half and the second half?
For the main business, there is not much of an enhancement in the first half. The reason why there is a drop in business performance in the main part of your business in the second half, I don't exactly know why. If you could share with us the background to that would be very much appreciated. The bear funds cancellation and the reason for expecting a drop in business profits in the second half.
Thank you very much for your questions. If I may share with you where we are coming from in terms of our earnings forecast.
With regards to credit-related costs, as you correctly pointed out, the forward-looking JPY 30 billion or so that has been set aside for forward-looking, it's about half of the JPY 100 billion that was anticipated for the full year. In the second half, the forward-looking provision will just be set aside in the same way as we did in the first half. It will depend on the situation going forward. In terms of the breakdown, how much will be forward-looking and how much will be base, this is not the approach that we are taking. We are basically taking into account the current situation, and we feel that it is necessary for us to take a cautious approach at this moment.
That is why we've decided to maintain our guidance that we've given in May this year. Net gains and losses related to stocks in the first half, bear funds cancellation has been implemented in the first half. At our corporate briefings, I think this will be explained in more detail, but in balance basis, basically JPY 200 billion or so reduction in balance of bear funds has been conducted in the first half. For the second half, with regards to the question of whether the same amount will be conducted in the second half, it would depend on the market conditions. If robust share prices continue, we may execute bear funds cancellation to the same extent as in the first half.
If share prices are in a negative situation, instead of executing bear funds cancellation, I think we will need to be prepared for risks. At any rate, for the second half, gains from sales of cross-shareholdings will be the source of funding to unwind the unrealized losses for bear funds. This is the approach that we want to take for the second half. Instead of thinking of balance, outstanding balance, gains from sales, we will be eyeing on that in our operations. Lastly, with regards to our main business profits, why is there a drop from first half to second half? In our revised plan, the JPY 30 billion of which is an improvement compared to the original plan, there's customer groups and market groups.
There's a difference between the two. For customer group, JPY 60 billion upside is incorporated, whereas the markets group JPY 40 billion decrease from original plan. There's also ForEx that we need to take into account. All in all, it's a 30% improvement compared to original plan. For the markets group, with regards to a realized gain for the first half and the second half, we're taking a conservative approach. I would say maybe about JPY 100 billion decrease in business profits is anticipated for the markets group. Most of this comes from the negative impact from the markets group. Whether this will turn out as we expect, we don't know.
It will depend on the market conditions, but there are concerns for rise in inflation. Unrealized losses, how to manage unrealized losses is a key for us. We shouldn't stretch ourselves in trying to realize gains. This is not necessarily an appropriate approach at this point in time. Although we do think that we are taking a conservative approach, a large realized losses in our business is not something we should mention. On MTM basis, we will be taking into account the market conditions, and that has been reflected in our revision this time. That's all for me.
Thank you very much. Just to confirm, consolidated, the JPY 30 billion decrease in net profit, the JPY 2 billion, because on a consolidated basis, the tax effect is a positive.
For the two banks, there's an impact of tax, and so forth, and therefore a minus impact of JPY 30 billion on a consolidated basis. Is that the fair way to state it?
Yes. I think you've said it right.
Understood. Thank you very much. That was very helpful.
Thank you.
Thank you very much. Next, on the telephone, we have 03-625, is the telephone number that we have received. Please state your name and affiliation for asking your question.
Bank of America Securities. My name is Nakamura. I have two questions. First of all, regarding the bear funds, the hedge effect, it's 9.4%, is the prevailing level. In terms of the capital, how do you evaluate this? This is the first point. Second point is regarding the additional shareholder returns. Share buyback, is that a possibility or option that you will be considering? Please elaborate as far as you can at this current time.
Thank you very much for the question.
First of all, regarding your first question, regarding the CET1 ratio, the evaluation was the question. As Nakamura, you have mentioned, because of the bear fund hedge effect is around 20 basis points. Therefore, that's 9.4% excluding that impact. That would be the basic guideline. On the other hand, we have to deal with the COVID-19 and we have been providing financing for this purpose. The first half of 2020 was a peak, and currently we are making progress in terms of the repayment of the COVID-related loans. In terms of loan balance, it's around 3.5 or so. Therefore, if we put that to CET1, that has a negative effect of 20 basis points.
At any rate, it doesn't going to happen immediately unless it's got ill, but over several years down the road, it will continue to decline. Therefore, our target of 9% + is a level that we can achieve. Therefore, we want to enhance the shareholder return. We are in a position where we can consider incremental returns. This is related to the second part of your question. Regarding buyback going forward, whether this is a possibility that we can opt for is your question.
Obviously, on our part, we have not given indication to the investors yet, but we have to consider growth investment, the speed and scale, and the domain will have to be considered fully together with our response. Therefore, growth investment utilizing investor capital, and we have to strike a good balance in considering a possible buyback. This is what we intend to do. For the analysts and investors, we will continue to provide clarity going forward.
Next question, Morgan Stanley MUFG, Nagasaka, over to you.
Morgan Stanley MUFG Securities. Nagasaka is my name. I hope you can hear me. I have two questions. First question, Page 4, retail business corporation. As you explained, the top line is growing. In the meantime, expenses have been suppressed. It's almost flat year-over-year. G&A expenses control, maybe your initiatives are proving to be quite effective. How much room do you have in terms of further improvements? That's my first question. My second question is on spread. Page 6, loan spread, GCC is 1.606%, still at a high level. In the first quarter earnings, I think you said that there could be some challenges in improvement going forward, but you've seen some improvement already.
I would appreciate if you could share with us your outlook going forward. Those are my two questions.
Thank you very much. Starting with the first question on RBC, especially cost control on expenses.
G&A expenses, how we see the current situation and how much room do we have for further improvements. In terms of how we see the current situation, our impression is that we're seeing very steady improvements in terms of how much room we have going forward. This is something that we have been sharing with you in light of COVID-19 pandemic. With COVID-19, we have seen an acceleration of transformation of the society. For example, work from home not necessarily requiring the office space that we have today. In that sense, I think there is still more room for us to improve.
In the meantime, as I mentioned, in the earlier question from Takamiya-san, the system failure, and this is not necessarily because of system failure, but being able to operate our business, this is a must as a financial institution, and therefore we need to be investing where it is needed and use expenses where needed. I am not suggesting that we are expecting a big increase in that area, but there could be a possibility of increase in expenses that could offset further improvement. I would once again want to reiterate that we do see some still room for improvement in cutting G&A expenses. About GCC overseas, the lending spread, how do we see the continuity going forward?
For the past six to 12 months, we've always been saying that we've already hit peak, but yet we've been seeing improvements month-over-month. 1.06%, this level is, I believe, very high. Very high spread product credit is coming in recently, and that I think has pushed up another notch forward. Whether this will continue to improve, likely not. That is my frank opinion. We are expecting the growth in loan spread to subside going forward, but whether it will go below 1% in a short period of time, we believe that there is a certain level of sustainability that can be expected for the loan spread for GCC.
That's all for me. Thank you very much.
Thank you very much. I understood very clearly. Thank you for that.
Thank you very much. We still have some time left. Are there any other questions? Jefferies Securities, Ban-san, please.
Hope you can hear me. Now, regarding the credit cost, I have a question. For the second half, it is likely to re-incur. You said that it is not necessarily forward-looking, but what about sectors? So what is the macroeconomic assumptions? Is it going to be industries that are impacted by COVID-19? Do you think that there will be increased credit cost for these industries? Or do you have large customers that you have to be cautious about in terms of credit cost?
Please elaborate further on the credit-related cost, in terms of the risk, by industry and large exposures. Please elaborate further.
Thank you for your question. Well, it doesn't mean there is a significant customer where we have to be concerned about. That is not the case. Generally speaking, we have to remain vigilant and cautious in this area. This is the basic assumption that we have. Especially in COVID-19 having an impact on retail business as well as transportation. These areas are after the lifting of the emergency declaration, it is looking upward. I think it is going to have a continuous impact, therefore gradually for the second half and next year, there could be a lingering impact. In addition to this, there is supply chain constraints as well as energy price increases. These are.
There could be possible damages where we did not expect in the past. Therefore, at the first half, we have set aside the forward-looking credit cost at the end of September. Whether the forward-looking credit cost is sufficient or not will have to be taken into consideration whether the reserves we have set aside are sufficient or not. Therefore, against this backdrop, for the second half, we should be considering similar levels of credit reserves.
Thank you very much. Thank you. As it is time, we would like to conclude this session. If there are any additional questions, the IR department will take your questions. Thank you very much for joining us in spite of your busy schedule today. With this, we would like to conclude the web conference by Mizuho Financial Group.