MUFG

Good evening. I am Togawa, Group CFO. May I thank all the investors, shareholders, and rating agencies for joining MUFG's online conference call today, despite the late hour. Please look at the material titled Financial Highlights under JGAAP for the fiscal year ended March 31st, 2026. First, let me explain our FY 2025 financial results, followed by FY 2026 performance targets, shareholder return policy, and others. Let me begin with the income statement summary. Please turn to page eight. FY 2024 on the far left column includes the impact of the change in financial results closing date at Krungsri in Thailand last year. The far right column shows the actual year-on-year change after adjusting for this impact. I will explain this page using the adjusted year-on-year change. Line 1, gross profits increased by JPY 1,290.2 billion year-on-year.

Line 2 and below show the breakdown of gross profits. Net interest income increased by the impact of higher JPY interest rates, increased lending with improved lending margins, and improvements due to last year's bond portfolio rebalancing. In addition, net fees and commissions expanded significantly, mainly driven by domestic and overseas solution business and contribution from acquisitions. Fee income increased by around JPY 300 billion for two consecutive years. On the other hand, line 4, net trading profits and net other operating profits increased significantly year-on-year due to special factors. With the review of JPY interest rate hedging operations in FY 2025, JPY 200 billion of deferred hedging gains and losses recorded in net assets was recognized as realized losses.

On the other hand, we had a rebound from approximately JPY 780 billion loss on sale of debt securities, mainly foreign bond, following bond portfolio rebalancing in FY 2024. Due to these two special factors, gross profits increased significantly. The review of yen interest rate hedging operations in FY 2025 will boost our net interest income by approximately JPY 20 billion from FY 2026 onward. Next, line 6, G&A expenses increased by JPY 424.6 billion year-on-year. The increase is around JPY 200 billion, excluding the FX impact of approximately JPY 100 billion and impact of acquisitions of around JPY 120 billion. This is due to strategic expense allocation in retail and digital business group, AI, cybersecurity, etc., and the impact of inflation, among other factors.

As a result, line 8, net operating profits increased significantly by JPY 865.5 billion year-on-year. Next, line 9, total credit costs increased by JPY 290.6 billion year-on-year. I will explain this later. Line 10, net gains on equity securities decreased by JPY 108.1 billion due to the absence of large gain on sale of equity holdings in FY 2024. Line 12, equity and earnings of equity method investees increased significantly year-on-year, mainly thanks to exceptionally strong performance of Morgan Stanley. As a result, line 16, profits attributable to owners of parent increased by JPY 586.3 billion year-on-year. ROE on JPX basis reached 11.3%, exceeding 11% for the first time since MUFG was established. This demonstrates a solid improvement in both profitability and capital efficiency.

ROE, excluding the impact of equity holdings, is approximately 10.4%, indicating steady progress toward the medium to long-term ROE target of 12%. Page 9 through 12 show the results by business group. I will not go into detail, but in line with the steady evolution of our growth strategy, NOP increased year-over-year in all business groups. Please turn to page 14 on balance sheet summary. The left diagram shows the overview of our balance sheet. Loan on the upper left increased by approximately JPY 12.3 trillion from the end of FY 2024. Excluding government loans in Japan, the increase was approximately JPY 17 trillion due to strong financing needs both in Japan and overseas, as well as large high-profitability deals in Japan near the end of the fiscal year. Next, page 15 shows the status of domestic loans.

The lower right graph shows the trend in domestic corporate lending spreads. The gradual uptrend in both large corporates in red and SMEs in orange continues, thanks to the successful profitability improvement measures. page 16 shows the status of overseas loans. The bottom right graph shows the trend in overseas lending spreads. It has stabilized somewhat as the replacement of low-profitability assets with high-profitability assets in the U.S. has run its course, but we will continue to work on improving profitability in each region and expect to maintain a gradual improvement trend. Please turn to page 17 on asset quality. NPL ratio shown on the line graph on the left remains at a low level. The bottom right graph shows the breakdown of year-over-year changes in total credit costs.

It increased significantly on a bank non-consolidated basis due to reversal of large credit costs recorded mainly overseas in FY 2024. Overseas subsidiaries also saw an increase due to the acquisition of a subsidiary at Krungsri in Thailand. Total credit costs were up by JPY 290.6 billion, a significant increase year-on-year, but were in line with the initial forecast of JPY 350 billion, despite the impact of the weaker yen and the acquisition of a subsidiary by Krungsri. Next, please turn to page 18 on the breakdown of our credit portfolio. While there are concerns from investors regarding private credit and the Middle East, MUFG's exposure to such areas is currently limited, and we are mainly focusing on low-risk deals.

Furthermore, in response to concerns about increased future credit risk stemming from the situation in the Middle East, we recorded a certain amount of provision, roughly JPY 25 billion in FY 2025 based on a reasonable estimate at this time. Please turn to page 19. This shows the status of investment securities such as equity and government bonds. I will explain the unrealized gains and losses shown in the table on the upper left. Regarding the balance of domestic equity securities in the third row, while we have made progress in reducing our equity holdings, the balance has increased by JPY 0.19 trillion compared to the end of March 2025 due to rising stock prices.

Unrealized gains and losses on domestic bonds reflected hedging positions in the upper part of the lower graph on the left remains under control at a low level of JPY 0.2 trillion even amid rising interest rates. Unrealized gains on foreign bonds reflected hedging positions in the lower section are positive. We can say that the unrealized gains on available for sale securities are in an extremely sound condition. Regarding the reduction of equity holdings on the right, the total agreed amount to be sold under the current MTBP, including those not yet sold, has reached approximately JPY 600 billion. We will continue to strive to achieve our reduction target of JPY 700 billion.

Furthermore, the ratio of domestic listed equity securities and deemed holdings to consolidated net assets stood at 18%, partly due to a significant decrease in the balance of deemed holdings in fiscal year 2025, raising the likelihood of achieving the ratio of less than 20% during the current MTBP period considerably. Page 21 outlines our capital adequacy. CET1 ratio reflecting the finalized and fully implemented Basel III basis, excluding net unrealized gains stood at 9.2%. A 1.6 percentage point decrease from the end of March 2025 and fell below the target range. This was due to capital allocation results shown in the lower right, including our investment in Shriram Finance and a significant increase in loans near the end of the fiscal year that I mentioned.

Originally, we had stated that this ratio was inflated by approximately 30 basis points compared to the end of March 2025 due to yen depreciation, and that the actual level was around 10.5%. Therefore, in real terms, this represents a decline of 1.3 percentage points. Half of this decline is attributable to the investment in Shriram Finance, while the majority of the remainder is due to risk-weighted asset factors resulting from increase in lending. Given the rise in profit levels over the past few years, we believe that by steadily accumulating profits, we can restore capital while balancing shareholder returns and growth, and to return to the target range within the current fiscal year. Next, I would like to discuss our view of the business environment, forming the basis of the assumptions for FY 2026 targets. Please turn back to page three.

The domestic economy is supported by an accommodative financial environment and various government policies designed to boost growth. While corporate earnings in Japan is facing some downward pressure, such as from U.S. tariff policies, we believe the overall growth trend is continuing. At the same time, we currently face a highly uncertain business environment fraught with various risks, particularly the situation in the Middle East and cybersecurity risks. While we continue to monitor the situation closely, we will leverage our group's comprehensive strength and our resilient, diversified business portfolio to respond flexibly to these environmental changes. Please turn to page four regarding our performance targets for FY 2026.

As I just mentioned, although the current external business environment remains highly uncertain, our targets for profits attributable to owners of parent is JPY 2.7 trillion, representing an increase of over 10% from fiscal year 2025, which was a record high. As shown in the bottom left chart, growth in NOP, which demonstrates the strength of our core business, will continue to be the main driver of growth. Furthermore, for FY 2026, as the financial target for the final year of our current MTBP, we aim for ROE of approximately 12%. We have previously referred to the two ROE 12% targets, and this will realize the 12% ROE we had expected to achieve in the short term. While there are various risk factors, including the current situation in the Middle East, none have materialized at this point.

Therefore, they have not been factored into the plan's assumptions. Next, on the right side of the page, we have shareholder returns. We continue to target a dividend payout ratio of around 40%. We have raised the annual dividend for fiscal year 2025 to JPY 86, an increase of JPY 22 from the previous fiscal year and JPY 12 from the most recent forecast. Furthermore, the projected annual dividend for fiscal year 2026 is JPY 96, a further increase of JPY 10 from fiscal year 2025. Regarding share buybacks, based on the trend in the CET1 ratio, we have resolved to repurchase common stock up to JPY 100 billion in the first half of the fiscal year.

For the second half, we will evaluate the necessary capital level to ensure financial soundness, taking into account profit progress, the expected use of capital for growth, and the external environment at that time. We will continue to pursue shareholder returns while maintaining an optimal balance between capital soundness and growth investments. Please turn to page five. This shows the progress toward the financial targets of the current MTBP. As I mentioned earlier, we have raised the ROE target for the current MTBP to approximately 12%. At the same time, we have also raised the profit target, which is the driver for achieving the ROE target. We will continue to manage our finances with a focus on three key areas: profit, expense, and RWA. Please turn to page six.

I will now explain the progress of the three pillars of MTBP, which we position as the three years to pursue and produce growth. First, regarding the first pillar, expand and refine growth strategies, as shown in the graph on the left, the seven growth strategies are each progressing steadily, resulting in an increase in profit of approximately JPY 440 billion compared to fiscal year 2023. In particular, for domestic retail, the launch of emut, announced last June, has led to a significant increase in new account openings and expanded transactions across group companies. Going forward, we aim to further expand our services through new initiatives, such as the launch of the digital bank, the integration of Mitsubishi UFJ eSmart Securities and WealthNavi, and the strategic partnership with Google announced recently. Finally, please turn to page seven.

The left side represents the second pillar, social and environmental progress. Even amid high level of uncertainty, we will continue to pursue decarbonization while balancing economic growth. Our recently published Transition Progress 2026 report focuses on the progress of our transition plan toward a sustainable society. Specifically, regarding emissions reductions in our financed portfolio, we have revised interim targets for certain sectors and formulated a new 5-year action plan aimed at achieving net zero by 2050. We are also continuing to build a solid track record in sustainable finance. On the right is the third pillar, transformation and innovation. In our current MTBP, to fully unlock MUFG's potential, we are promoting a group-wide effort that combines ongoing cultural reform with taking on new business challenges, investing in human capital, and strengthening our infrastructure in areas such as AI and data.

In particular, we are accelerating our efforts to expand the use of AI. By combining this with agile transformation, we are driving a group-wide transformation into an AI-native company. The number of implemented AI use cases is progressing at a pace exceeding our plans. The total investment amounts during the current MTBP is expected to exceed JPY 70 billion, and we anticipate that nearly JPY 40 billion in expected benefits will materialize early by the end of fiscal 2026. We will continue to accelerate the use of AI across the entire group and promote initiatives such as partnerships with other companies. The environment surrounding us, and I believe that I said something similar last year, is currently at a major turning point, and we are living in an era of uncertainty.

Even so, MUFG will strive for sustainable growth through our diversified business portfolio while working to realize our stated purpose committed to empowering a brighter future. We ask for your continued support. This concludes my presentation. Thank you.

Thank you, Togawa-san. We will now take questions from you. Let me introduce the first questioner. Mr. Takamiya from Nomura Securities, please.

This is Takamiya from Nomura Securities. I have two questions. The background behind the decision on the amount of share buyback and your underlying capabilities toward your NOP result for FY 2025. Regarding the share buyback, I understand the opaque environment and the fact that CET1 ratio of 9.2% at the end of March 2026 is slightly below the lower end of the target range of 9.5%. The gap is only 30 basis points.

Considering that MUFG had previously taken a forward-looking stance and given the net income guidance of JPY 2.7 trillion for FY 2026 and the total payout ratio target, an early recovery of the CET1 ratio can be expected, so some investors may view JPY 100 billion as conservative. Could you explain the background and your thinking behind the points I just raised and other relevant points? That is my first question. Secondly, regarding the increase in net interest income for FY 2025, what does the core underlying performance look like? If you have any views on particular business group or region driving this growth, please explain.

Thank you for the question. First, regarding the basis for the JPY 100 billion share buyback, we had no intention of setting a conservative amount given the certain- uncertainty of the future.

CET1 ratio at the end of March was 9.2%, which was below the lower end of the target range. Clearly, we think we need to bring it up back up to the lower end for the time being. As I mentioned earlier, even with a JPY 100 billion share buyback, we expect to recover to near the lower end of the target range during the first half of the year. As for the scale of the share buyback for the second half, given the progress towards the JPY 2.7 trillion net income target for FY 2026 and the fact that the higher-than-expected lending resulted in a slight shortfall from the target range, we will consider the amount of buyback after carefully assessing the balance with loan growth that will contribute to future profits.

Please note that we are not taking future uncertainties into too much consideration. NII was up by about JPY 5 billion year-on-year as decline due to currency impact change in financial results closing date in FY 2024 was offset by a positive impact of weaker yen in FY 2025. That said, NII increased even with the absence of the JPY 135 billion in gains on investment trust cancellation in FY 2024. I believe the quality of our NII also improved significantly. I hope this answers your question. Thank you.

Next, Mr. Nakamura of BofA Securities, please.

This is Nakamura of BofA Securities. I also have two questions. First, regarding the CET1 ratio, based on previous communications in the first half, Q3, after the Shriram deal was finalized, perhaps this is just my own assumption, I expected CET1 ratio at the end of March 26 to be around 9.8%. 9.2% seems lower than expected. Please explain if there were any factors such as a few dozen basis points from loans and others that caused it to fall below internal expectations. To put it somewhat harshly, was it within the scope of the CEO and other management team's expectations that CET1 ratio fell below the target range despite the hard work of the front offices to increase profits? If I were in the front office, I would be wondering why CET1 ratio is dropping like this.

Since a dividend increase was also announced, only short-term investors may be concerned about the temporary drop in CET1 ratio. Could you explain whether it was managed with the full understanding of everyone, including the CEO? That is my first question. My second question overlaps with Mr. Takamiya's earlier question. I believe the amount of change in NOP by business group will be given at the IR presentation on the 19th. Could you explain the details of the projected growth in NOP for FY 2026?

Thank you for the question. First, CET1 ratio as of the end of March 2025 announced in May of last year was 10.8%. Excluding the FX impact on subsidiaries with change in financial results closing date of approximately +30 basis points, the actual ratio is around 10.5%.

The initial expected impact when we announced the investment in Shriram Finance was approximately negative 60 basis points. Considering the negative impact of 30 to 35 basis points from increased lending, the ratio at the end of March 2026 was estimated at around 9.5% to 9.7%. The fluctuations from the forecast were as follows. Approximately plus 10 basis points due to net profit upside excluding dividend increase and FX impact. Around negative 5 basis points impact from additional impact from Shriram Finance investment due to FX fluctuations. Negative 9 basis points due to the JPY 3 trillion upside in the loan period and balance as opposed to the usual downtrend. Negative 4 basis points due to higher profit accumulation at equity method investees, mainly Morgan Stanley. Negative 20 basis points due to an increase in operational RWA resulting from higher gross profits.

The final CET1 ratio was 9.2%. While some of the upsides in operational RWA, which are technical factors, were not fully anticipated, the increase in loan balance itself was within our expectation. Looking at the results by business group, in FY 2025, in Japan, JCIB and commercial banking and wealth management in particular increased their average loan balance while securing lending spreads and the associated fee income from loan-related activities, LBOs, MBOs, and real estate businesses. They were significant drivers. Another driver was Global CIB, where O&D business, mainly large-scale project finance deals for AI and data centers, was successful, although we hear various concerns, and loan-related fees increased significantly. I wanted to ask about the breakdown of your FY 2026 plan by business group.

My apologies. For FY 2026, we forecast a JPY 170 billion increase from rising yen interest rates and JPY 140 billion increase due to the rebound from the realized losses resulting from the review of yen interest rate hedging operations, both after-tax basis. As shown in the left graph on page 4, JPY 140 billion increase in loan interest income and fee income. On the lending side, approximately JPY 80 billion in both domestic and overseas loans, JPY 45 billion-JPY 50 billion in fee income, JPY 38 billion-JPY 40 billion in AMIS, asset management and investor services, and JPY 17 billion-JPY 18 billion from our Asian partner banks, where the contribution from acquisitions will be fully realized from FY 2026. These are the positive factors to the growth in gross profits.

We need to carefully monitor the impact of the situation in the Middle East on the performance of our Asian partner banks. These are the main areas of expected gross profit increase. I see that you have higher expectations on the domestic side. You are right. Are you expecting net gains and losses on equity securities to be around JPY 600 billion? We reached JPY 560 billion at the end of FY 2025. In FY 2026, we intend to sell the remaining amount to reach JPY 700 billion, including the agreed but unsold and yet to be agreed amount. Therefore, we expect unrealized gains to become gain on sale. Thank you.

Thank you. Next is Mr. Matsuno from Mizuho Securities, please.

This is Matsuno from Mizuho Securities. Thank you for your explanation. I have two questions. My first question is about lending.

Please explain why overseas loans increased significantly. MUFG is actively promoting O&D. Is this happening because you are unable to distribute in this environment, or that is not the case? This is my first question. My second question is on credit costs. In Q4 of FY 2025, you accounted forward-looking credit costs related to the situation in the Middle East. Could you give us the size of these provisions and your outlook for future credit costs?

Thank you for the question. Overseas lending includes bridge loans related to Japanese companies' overseas acquisitions and a temporary increase due to a timing difference between warehousing and sell-down in O&D. The increase is approximately JPY 5 trillion excluding the FX impact. Please understand that there are some ad hoc factors. Regarding credit costs, we accounted just under JPY 25 billion for a specific portfolio for the Middle East.

This may be less than other megabanks, but MUFG's approach to building provision for specific portfolio is to calculate the additional required amount based on the reserve ratio relative to the total amount of exposure. If the reserve ratio is higher than that of other megabanks, the additional reserve will be smaller. The historical average over the past 10 years is JPY 330 billion. We are looking at that average. If the situation in the Middle East worsens and lingers like the COVID-19 pandemic, it could increase by about JPY 100 billion, but we are not currently making such assumptions.

I understand well. Thank you very much.

Thank you. Mr. Yano from J.P. Morgan Securities.

Thank you. This is Yano from J.P. Morgan Securities. I have two questions. The first question is on the guidance for FY 2026. The interest rate assumption is around 1%, but when do you expect rates to rise to that level? In other words, if the BOJ's rate hike is delayed slightly, for example, if we have to wait until the end of the fiscal year, what would be the downside risk to the earnings forecast and guidance? That is my first question. My second question concerns the fund-related exposure on slide 18. I really appreciate you providing this information. Within this, for example, regarding BDCs, I'd like to know the balance or status regarding software-related companies. Although I don't think this falls strictly under the BDC categories, investments in the so-called data centers.

Please tell me about the distribution status, whether you are successfully divesting to local investors as planned and within the expected range. You have provided an explanation on private credit, I'd like some additional color on data center and software sectors. Thank you very much.

Regarding the assumption of when the policy rate hike will occur in fiscal year 2026. I understand that the current market consensus is that there is about a 60% chance it will happen in June, with a view that it will likely be no later than July. We have based our earnings forecast for FY 2026 on these timing assumptions. As you all know, our interest rate sensitivity when the policy rate rises by 25 basis points is approximately JPY 100 billion in the first year.

Please understand that if the rate hike is delayed by about 4 months, the impact will be shifted accordingly. Next, regarding your second question, financing for BDCs. I have spoken directly with people on the front lines, I understand that these are extremely small and diversified loans. It was explained to me that the so-called packaged software and AI-related projects account for only about 20% of this BDC exposure. I don't believe data centers were included at all, there is no need for concern on that point. Thank you. Regarding your large-scale data center loans, perhaps in the form of syndicated loans, are there any updates on the distribution or inquiries from local investors? As of now, I haven't heard of any major cases of hung deals. Distribution is proceeding smoothly, but I believe we need to closely monitor the future environment and assess the business impact.

Thank you. Understood.

Thank you very much. Next, we have Mr. Matsuda from Daiwa Securities.

Thank you. This is Matsuda from Daiwa. I have two questions as well. My first point concerns the profit plan and actual results. The actual results were quite strong, and on top of that, the profit growth plan appears to be quite substantial. When compared to past trends, my impression is that this plan is less conservative. Could you explain what discussions took place formulating this plan? There are also some swing factors, such as the situation in the Middle East mentioned earlier, or the possibility of rate hike delays. If such risk factors materialize, are there downside risks to the JPY 2.7 trillion target?

In other words, has the certainty or probability of achieving this target changed compared to the past? That is my first question. My second point concerns the CET1 ratio. If my memory serves me right, your past comments suggested that one option for capital management was to consider the CET1 ratio based on the current Basel III basis rather than on the finalized and fully implemented Basel III basis. Looking at the current capital structure, the CET1 ratio appears sufficient. However, when you examine the details, the amount exceeding the 15% threshold for specified items has increased slightly, which I suspect may be partly due to the investment in Shriram Finance. To summarize my question, I'd like to ask if there was any discussion about evaluating the CET1 level on the current rule basis.

Given that the amount exceeding the 15% threshold is significant and the capital deduction portion has expanded, if this implies that investments in other financial institutions require greater control, or if there are any differences in the direction of capital management that might arise from this balance. Thank you.

Regarding some additional color on the outlook for FY 2026. We did discuss internally that we should announce the current most likely scenario, and that if the external environment deteriorates and results fall short, we will revise the forecast downward. The heads of each business have agreed to this approach. Please understand that the forecast is somewhat less conservative than in the past.

In terms of downside risks, if the situation in the Middle East drags on for a long time or worsens further, and given that supply chain disruptions have already occurred in some areas, this could lead to negative impacts on both business operations and credit costs. Additionally, there is the possibility of increased costs related to the methods issue. While these downside risks do exist, there are some upside factors that have not been included in the plan because the likelihood is still low. Please understand that taking all this into account, we are representing this figure with the view that we can achieve JPY 2.7 trillion under the current environment.

Regarding the CET1 ratio, while there is always debate about whether we should assess on the current rules basis, we must manage the target range for the CET1 ratio, excluding unrealized gains under the finalized Basel III with greater sensitivity since the finalized and fully implemented basis will be in three years or so. We consider the gap between our CET1 ratio under the current Basel III basis and the finalized and fully implemented basis as a buffer in case of sudden surge in lending demand from customers or a significant deterioration in the external environment. In this instance, we believe it is best to return to the lower range of the target as soon as possible, thus setting the buyback amount at JPY 100 billion. That is all for me. Oh, sorry. Regarding the 15% threshold for specified items.

One unique aspect for us is that this portion increases in proportion to our stake in Morgan Stanley as its retained earnings increase. While Morgan Stanley's significant profit increase is positive in terms of our share of earnings, it has aspects that are not so welcome from a capital ratio perspective, and that is where the impact is significant. Thank you very much.

On the second point, with that in mind, are you considering the need for more control going forward for investments?

Well, I can't go into much detail yet, but there is room for this to decrease. That is one. Additionally, we plan to review our business portfolio going forward, specifically regarding minority investments in financial institutions that are subject to deductions. We will periodically review the business portfolio and divest as deemed necessary. I believe that this will become even more important in terms of control. Thank you very much.

Thank you. There seems to be no further questions, but the floor is still open. No questions. We still have some time left, but there doesn't seem to be any other questions, so we will conclude the Q&A session. Finally, a few words from Mr. Togawa.

Thank you. Thank you so much for the lively Q&A and comments. While we are reasonably confident in our current performance and forecasts, I understand that your primary concerns are the CET1 ratio and the volume of share buybacks. We intend to provide thorough explanations and continue to carefully consider our capital policy. Thank you. At the investor briefing on the nineteenth, our new CEO, Mr. Hanzawa, will provide a more detailed explanation of our strategy, including his own thoughts. We look forward to your participation in that event as well. We ask for your continued understanding and support. Thank you very much for your time today in spite of the late hour.

This concludes MUFG online conference on financial results for the fiscal year ended March 31st, 2026. Thank you very much.

Good evening, investors, shareholders and rating agencies. I am Togawa, Group CFO. Thank you very much for joining MUFG's online conference call today despite the late hour. Please look at the material titled Financial Highlights under JGAAP for the first half of the fiscal year ending March 31, 2026. Let me first explain our Q2 financial results, followed by revised FY '25 performance targets and shareholder return measures. Let me start from the income statement summary. Please turn to Page 8. First, the figures for the first half of FY '24 on the far left column of the table include the impact of the change in the equity method accounting date at Krungsri in Thailand. So the far right column shows the actual year-over-year change, adjusting this impact. All explanations on this page will be based on adjusted year-on-year comparisons. Line 1, gross profits increased by JPY 189.3 billion year-on-year. Line 2 and below shows the breakdown of gross profits. Net interest income increased, thanks to the impact of rising yen interest rates, improving lending spreads and benefits from last year's bond portfolio rebalancing. In addition, net fees and commissions expanded significantly, primarily due to growth in various fee revenues from domestic and overseas solution services and effects of acquisitions. Next, Line 6, G&A expenses increased by JPY 127.9 billion year-on-year due to the impact of inflation and acquisitions, as well as strategic expense allocation, mainly in Retail and Digital business group. Expense ratio was flat year-on-year at 56.1%. As a result, Line 8, net operating profits increased by JPY 61.3 billion year-on-year. Next, Line 9, credit costs decreased by JPY 65.7 billion year-on-year. I will explain the reasons for this later. Line 10, net gains and losses on equity securities decreased by JPY 235.3 billion, due to the gain on sale of large equity holdings last year, which is in line with our projection at the beginning of FY '25. Line 12, equity in earnings of equity method investees increased significantly year-on-year, mainly due to the extremely strong performance of Morgan Stanley. As a result, Line 16, profits attributable to owners of parent was JPY 1,292.9 billion. Although gain on sale of equity holdings decreased year-on-year, we were able to achieve steady growth in net operating profits and equity accounted earnings, which demonstrates the strength of our core business and also recorded onetime gains related to investments and organizational restructuring, resulting in a record high first half profit. Our progress toward initial full year target of JPY 2 trillion stands at a high level of 64.6%. Performance by business group is shown on Pages 9 through 12. I will not go into detail, but customer segment NOP is growing steadily with the exception of retail and digital, where strategic expenditures were made and Global Commercial Banking, which was affected by the economic slowdown in Asia. All business groups achieved an increase in net income. Please turn to Page 14 on balance sheet summary. The diagram on the left shows the overview. Loans shown in the top left increased by approximately JPY 1.8 trillion from the end of FY '24. Excluding government loans, it increased both in Japan and overseas by approximately JPY 4 trillion. Page 15 shows the status of domestic loans. The graph on the bottom right shows the trend in domestic corporate lending spreads. Spreads for large corporates in red line is rising, thanks to the accumulation of large, highly profitable loans. Along with SMEs in orange, profit improvement measures have been successful, and the upward trend is continuing. Next, Page 16 shows the status of overseas loans. The bottom right graph shows the trend in overseas lending spreads. The Americas has settled somewhat as the replacement of low-profit assets with high profit assets has run its course, but we continue to work on improving profitability in each region and maintain the gradual recovery trend. Meanwhile, GCIB has seen a significant increase in fee income as their O&D measures are progressing, and we are working to improve capital efficiency on both fronts. Please turn to Page 17 on asset quality. The NPL ratio shown by the line graph on the left continues to remain at a low level. The bottom right graph shows the breakdown of year-on-year changes in total credit costs, while there was an increase in large loan loss provisions overseas last year on the bank nonconsolidated basis, the sale was completed this fiscal year, resulting in a reversal. There were also multiple significant reversals in Japan, resulting in a significant decrease in credit costs. Credit costs also decreased at our overseas subsidiaries due to the effect of stricter screening criteria for new credit transactions in Asian partner banks. Taking the current situation into account, we kept our full year outlook for credit costs unchanged. Please turn to Page 18 on investment securities, including equities and government bonds. I will explain the unrealized gains and losses in the upper left table. Line 3, unrealized gains on domestic equity securities increased by JPY 0.36 trillion compared to the end of March 2025, due to rising stock prices despite progress in reducing equity holdings. In addition, unrealized gains and losses on domestic bonds reflecting hedging positions showing in the upper half of the lower left graph is controlled at a low level of just under JPY 0.3 trillion and unrealized gains and losses on foreign bonds in the bottom half are slightly positive. Given the scale of our balance sheet and income statement, we think we are in an extremely healthy state with reasonable degree of flexibility. Regarding the reduction of equity holdings on the right, the cumulative sales during the current MTBP were JPY 339 billion on an acquisition cost basis, which is about half of the JPY 700 billion target. The agreed amount has reached nearly 80% of the target, and we are making steady progress toward achieving this target. Page 20 shows capital adequacy. The CET1 ratio, excluding unrealized gains on the finalized and fully implemented Basel III basis fell 30 basis points from the end of March to 10.5% at the upper end of our target range due to growth investments and increase in loans, as well as yen appreciation versus end of March. Towards the end of the fiscal year, we expect risk-weighted assets to continue to accumulate and the yen to appreciate based on the financial indicators, I will come back later. Therefore, we expect the ratio to remain around the midpoint of the target range. Capital allocation results are shown on the lower right. We will continue to manage capital with an eye on balancing shareholder returns and growth investments. Please go back to Page 3. Let me turn to our FY '25 financial targets and shareholder returns. As shown on the left, given the continued strong performance of NOP, particularly in the customer segment and increased income from equity method investee, we revised up our net income target by JPY 100 billion from initial target to JPY 2.1 trillion. Turning to shareholder returns on the right. We continue to aim for a dividend payout ratio of approximately 40%. And in line with the upward revision of profit target, our annual dividend forecast for FY '25 was revised up to JPY 74, up JPY 10 from the previous year and JPY 4 from initial forecast. Regarding share repurchase, a resolution was approved today to acquire an additional JPY 250 billion in the second half of the year, bringing the total amount for the full year to JPY 500 billion. As discussed in May, this is due to take into account total shareholder return over the past few years. We also announced today the cancellation of 200 million treasury shares. We aim to achieve our mid- to long-term ROE target and we will work to provide shareholder returns while taking the optimal balance with growth investments into account. Turning to progress of 3 pillars of MTBP. Please turn to Page 4. First pillar is expand and refine growth strategies as shown on the left. Each of the seven strategies for seasoning growth is on track, resulting in an increase in NOP of approximately JPY 150 billion compared to FY '23. In particular, in the domestic retail business, a new service brand, EMUTO, was announced in June this year. The credit card reward programs and group-wide campaigns launched in conjunction with EMUTO generated strong response, leading to increased transactions for each group company. We will continue to demonstrate the collective strength of the group and aim to expand our services, including digital banking. Please turn to Page 5. Second pillar, social and environmental progress is shown on the left. Sustainable finance has steadily built up a track record even with different vectors at play globally. A white paper will be published again this year to communicate our view on contributing to accelerating transition. On the right is our third pillar, transformation and innovation. Under the current midterm plan to maximize MUFG's potential, we are working as a group to pursue new business initiatives, invest in human capital and strengthen our foundations in areas such as AI and data in addition to continuing cultural reform. Corporate transformation using AI is a particular urgent priority. And by combining this with agile management, we are working to transform into an AI-native company. The number of AI use cases has reached 116, and the aim is to increase to over 250 cases by FY '26. Current estimates suggest that the cumulative benefits over the 3 years of the current MTBP is approximately JPY 30 billion. The launch of a new strategic partnership with OpenAI is expected to accelerate use of AI across the company and to collaborate on various services, primarily in the retail sector such as digital banking. Moving on to Page 6. Let me take you through our path to achieving mid- to long-term ROE target of 12%, which has been a popular question since our announcement in May. We assume that the policy rate will rise to around 1%, while the sale of equity holdings will come to an end and capital gains will seize. After solidifying the goals of the growth strategy of the current MTBP, as explained on Page 4, we will pursue both organic growth by refining existing areas, both domestically and overseas and inorganic growth by focusing on the areas described in the slide, thereby making steady progress towards an ROE of 12%. Mr. Kamezawa will share his thoughts on this point at the investor meeting on the 18th. Page 7, my last slide. Last month, in October, we celebrated our 20th anniversary as MUFG. Looking back over the past 20 years, thanks to the understanding and support of our stakeholders, including our investors, we have taken on many challenges, gone through three major transitions and achieved growth sometimes despite headwinds. MUFG will continue to push ourselves forward and guided by our purpose of committed to empowering a brighter future, we will aim to further increase our corporate value even in a rapidly changing external environment. Your continued understanding and support is very much appreciated. That is all for me.

Let me introduce the first questioner, Mr. Takamiya of Nomura Securities.

This is Takamiya from Nomura Securities. I have two questions. On the upward revision of your guidance and the 12% ROE target. I would like to hear your thoughts on the upward revision from two perspectives. First, I wonder if the assumptions are too conservative considering the current levels of the Nikkei stock average and the dollar-yen exchange rate. Second, the revision of JPY 100 billion from JPY 2 trillion to JPY 2.1 trillion is not small, but it is a somewhat small revision to your bottom line profit. What was the aim and your thoughts on this small revision? This is my question on your guidance. My second question is on your ROE target. On Page 6, you explained verbally the general direction you are heading, including assumptions like interest rate of around 1% and no gain on sale from reducing your equity holdings. But I think this is the first time you have clarified this in writing. Regarding the mid- to long-term ROE target of 12%, I want to know if there were any changes in your thinking and the management's perspective, reflecting the changes in the environment or tailwinds.

Thank you, Takamiya-san. Regarding the upward revision, our initial guidance was JPY 2 trillion based on the assumption that the decrease in net gains and losses on equity securities and the absence of reversal of large loan loss provisions will be offset by continued growth in customer segment NOP, improvement in treasury interest income benefiting from last year's bond portfolio rebalance and a rebound from the loss due to bond portfolio rebalance in FY '24. Decrease in gains and losses on equity securities, absence of reversal of large loan loss provisions, treasury interest income improvement and rebound from last year's bond portfolio rebalance are in line with our initial forecast. Meanwhile, progress in the first half exceeded expectations, thanks to better-than-planned customer segment NOP, lower credit costs, upside in Morgan Stanley equity accounted earnings and onetime gains not factored in our initial forecast. I will explain our assumptions for the second half later, but we forecast strong yen toward the end of the fiscal year, slower treasury sales in the second half as trading gains were weighted to the first half, credit costs in line with our initial forecast, though the full year will depend on the impact of tariffs and an increase in strategic expense allocation, including retail and also included certain financial measures for FY '26, resulting in a guidance of JPY 2.1 trillion. There was internal discussion about whether a 5% revision was really necessary, but we decided to do so with the aim of disclosing our forecast appropriately at each point in time since the first half of last year. We may not have done this in the past, but that is our line of thinking. Regarding the assumptions, the yen assumption against the dollar is quite strong given the current level. But depending on interest rate trends, it is not unreasonable for the yen to be in the mid-JPY 140s by the end of the fiscal year. The share price of around JPY 43,000 may also seem conservative, but the impact of share prices on our earnings is not significant. So this was not the reason for the conservative profit target. As for future upside, we expect further growth in the customer segment and decline in credit costs, which is again subject to tariffs and also an upside in FX that you mentioned. Whether there has been a change in our view on the 12% target, we originally began the discussions to set the 12% target by trying to see how much we can increase our profit under the assumptions that Japan's policy interest rate will be around 1% and that we have no gain on sale of equity holdings, which I strongly insisted. Since investors asked questions based on different assumptions such as including gain on sale of equity holdings, we made that clear. We are fleshing out the details to achieve this as we speak. One change in our thinking, both in terms of inorganic investment and the use of capital, as I may have mentioned before, is that we are now discussing potential investments internally based on whether or not they contribute to achieving 12% ROE.

Next, Mr. Nakamura of BofA Securities, please.

This is Nakamura from BofA Securities. I also have two questions. First, let me confirm the full year CET1 ratio forecast on Page 20 again. It doesn't seem like it will approach the middle of the range. So if you could share with us your view on the level and the breakdown to the extent possible. There was an article in Bloomberg about your inorganic investments, and you denied that the information came from you. Could you elaborate on this, if possible? Sorry for asking too much. That is my first question. My second question is on credit cost. In the first half, there was a reversal on the bank nonconsolidated basis. So if you achieve your target in the second half, this is a reasonable level. So my question is on the current situation of private credit in the U.S. Although MUFG has not directly mentioned it, we are seeing large-scale loans to Oracle's data center investment, among others, which is widening credit spreads as a result. What are your thoughts on this increasing concentration of risk? Thank you.

First, regarding the outlook for CET1 ratio toward the end of FY '25, the end of March '26, approximately 80 basis points up in the second half from the accumulation of net income based on the revised performance targets, 65 basis points down due to shareholder returns, including dividends and share buybacks, as I explained earlier, around 30 basis points down from the planned increase in risk assets. And with Morgan Stanley's accumulated profit from its extremely strong performance, et cetera, we expect the ratio to be somewhere between 10% and 10.5%. Regarding the private credit market, MUFG actually does not have a significant exposure. We have some exposure to companies that have been mentioned in the media. But as you saw earlier, our NPL ratio is declining. So I do not think we have a significant exposure. That said, the private credit market is extremely strong now. So we need to keep a close eye on the recent increase in volatility. I think the risk of lending to data centers depends on the project. We have extensive knowledge on project finance. So it is important to carefully select projects, taking into account factors like sources of cash flow and technical conditions, such as proper installation of high-voltage cables. Regarding the first question on inorganic investment, sorry, I skipped that. But actually, I have no comment. We continue to consider opportunities in three areas, namely AMIS, Digital and U.S. Asia.

Next, Mr. Matsuno from Mizuho Securities.

Matsuno from Mizuho Securities. I have two questions. First question is on Page 3. Upward revision of financial targets for FY '25. Can you give a more detailed breakdown? The graph on the bottom left shows a breakdown into customer segment, equity method investees and review on financial indicators. Can you give a breakdown of each of them? For example, weaker yen than the beginning of the year, would that be included in review on financial indicators or the equity market value? Can you give some color on the factors affecting changes in net income? My second question is on the operational policy of Global Markets in the second half. In the first half of the year, it looks like you did well by drastically reducing yen bonds and super long-term bonds and making profits on foreign bonds. Is there anything you can speak about the operations of Global Markets in the second half of the year? Those are my two questions.

So starting with Page 3, your question on major factors affecting changes in full year targets. Earlier, I said the customer segment is expected to continue making steady progress in the second half of the year and is expected to exceed the initial plan by around JPY 30 billion for the full year. Regarding equity and earnings of equity method investees, I must admit it is difficult to say how much is coming from Morgan Stanley, but a certain amount is factored in. There are also some one-offs. Please look at the footnote on Page 8. Step-up gains from acquiring shares of JACCS, one-off gains from acquisition of Tidlor as a subsidiary and gains related to liquidation of local subsidiaries, a part of them were not factored in, accounting for approximately JPY 40 billion. The revision of financial indicators is expected to have an impact of approximately JPY 30 billion, mainly due to the weak yen. Stock price outlook was revised up, but gain on sales of equity holdings has been hedged for stocks scheduled for sale at the beginning of the fiscal year. So impact of sales of equity holdings is minimal. Although there will be partial impact on earnings due to an increase in AUM in the asset management and investor services, the impact of the revision of stock price assumptions is not that big. The impact is primarily from ForEx, and the total adds up to JPY 100 billion. For Global Markets, you are right. In Q1, reducing the balance of super long-term JGBs, partially offsetting with redemption gains on bear fund and gains on sale of foreign bonds, that's for the first half of the year. Regarding yen bond management from the second half onwards, our policy of gradually building up our yen bond positions, while monitoring the rise in Japan's policy rate remains unchanged. Short-term JGBs decreased as the BOJ's growth-oriented lending support operation is gradually coming to an end and need for short-term JGBs as collateral has decreased. The balance of short-term government bonds has fallen significantly. As for foreign bonds, the balance of long-term bonds appears to be increasing, while duration is decreasing and some might feel this doesn't sit well. This is due to categorizing mortgage bonds with long statutory maturities as long term. But overall duration shortened to 4 years.

Next is Mr. Matsuda from Daiwa Securities.

Matsuda from Daiwa Securities. I also have two questions. Regarding net fees and commissions. Net fees and commissions in the first half of the year was very strong for both domestic and nondomestic. Is this trend in the first half a temporary phenomenon? Or including the current pipeline, can we expect further growth going forward? That is my first question. Second question is on CET1 ratio on Page 20. The impact of exchange rates was cited as a factor in the decline in the CET1 ratio in the first half of the year. It worsened by 40 basis points, but the yen did not appreciate significantly between the end of March and the end of September. Then why deteriorate by 40 basis points? Was it due to the Thai baht? What was the impact in the first half? If the weak yen environment continues, can we expect the CET1 ratio to improve further? These are my two questions.

Thank you for your questions. Fee revenues, fee income partially include impact of acquisitions. Acquisition of WealthNavi, MPMS acquired by our Trust Bank and NICOS acquiring Zenhoren has resulted in a total acquisition effect of about JPY 48 billion. Apart from that, GCIB, in particular, is further promoting O&D initiatives, so fee income will grow. Domestically, fees related to loans such as MBOs and LBOs are growing. Solution-related fees are also growing. So we can expect continued growth in this area. In addition, AUM in asset management is growing steadily, and IS has also issued a press release stating that outsourcing operations have quickly achieved the MTBP target. These areas are growing steadily. So I believe we can continue to grow. Regarding CET1 ratio for the first half of the year, impact of U.S. MUA is large, as I might have said in May. The dollar-yen exchange rate from December to June saw the yen appreciate by about JPY 14. We took some hedging measures, but were implemented after April or May and hence, this impact. Regarding impact of the weak yen on CET1 ratio, it will depend on the trends in the dollar yen and Thai baht, but the weak yen will have a certain effect in lifting the CET1 ratio. That's all for me.

Next is Mr. Yano, JPMorgan.

I also have two questions. One is a detailed question, a follow-up to Mr. Matsuno's question. Regarding the revised target for this fiscal year, you referred to the waterfall chart on the lower left, but I'd like to confirm referring to the table above. NOP is up JPY 50 billion. Credit costs haven't changed and ordinary profits increased by JPY 150 billion. I assume this is coming from increase in ownership interest, stock-related and other factors accounting for JPY 100 billion. I'd like to know the breakdown. This is my first question. The second question is a high-level question. Today, there was a headline in the news quoting CEO, Mr. Kamezawa about achieving top -- global top-tier ROE and corporate value. I assume this is along the same lines of what has he has been saying. But just to be sure, can we take this as a hint that the current ROE target of 12% will change? Is there no need to read too much into it? I would like to know what you mean by achieving global top-tier ROE, if there is anything we should know of.

Thank you for the questions. Should I explain both NOP and ordinary profit? Well, if you could elaborate on the variance, if there is anything that is tricky in NOP. Okay. Within NOP, JPY 25 billion is from ForEx, assuming the yen to be about JPY 5 stronger. The rebound from treasury trading gains was concentrated in the first half, as I said, and the difference between first half and second half is about JPY 130 billion. Then there is increase in expenses, expense incurred in EMUTO, IT costs, AI, cyber-related impact from certain inflation-related costs, base wage increase, among others. All in all, about JPY 100 billion in expense increase. We are also considering a certain level of structural improvements for next fiscal year as profits are also strong. Averaging them all out, we expected an upside of about JPY 50 billion in NOP. Regarding ordinary profit, there is a one-off step-up gain from an increase in our ownership interest. This accounted for about JPY 100 billion in the first half. Some of it was not accounted for in the plan, as I said earlier. Combined with Morgan Stanley's profit increase, ordinary profit was revised up by JPY 150 billion. To your second question, I appreciate the expectations you have on us, but we will first focus on achieving 12%. Mr. Kamezawa spoke in that context. Thank you.

It seems there are no further questions, so we will conclude the Q&A session. Finally, Mr. Togawa would like to say a few words. Togawa-san, please.

Thank you very much for joining us today despite the late hour and on a day where many companies are announcing their results. Thank you for your diverse questions and comments. Today, I mainly explain the progress made in Q2 of FY 2025, and President Kamezawa will provide a more detailed explanation, including his own thoughts at the investor briefing on the 18th. We look forward to your participation. We would appreciate your continued understanding and further support. Thank you very much for joining us today.

This concludes the online conference call on financial highlights for the first half of FY '25 of Mitsubishi UFJ Financial Group. Thank you very much for participating today. [Statements in English on this transcript were spoken by an interpreter present on the live call.]

Thank you for waiting. We will now begin the online conference call on financial highlights for the first half of the fiscal year ending March 31st, 2025 of Mitsubishi UFJ Financial Group. I am Nakao from Investor Relations Office, Financial Planning Division and will serve as the moderator today. Jun Togawa, Senior Managing Corporate Executive and Group CFO, will give a 15 to 20 minute presentation on the financial highlights for the first half of FY'24 followed by a Q&A session. The entire session is scheduled to be about 50 minutes. Before we begin, let me read the disclaimer. In this presentation, we may state forward-looking statements based on current expectations, all of which are subject to risks and uncertainties. Please be aware that actual results may differ materially from those forecasts. We will now begin the financial results briefing. Mr. Togawa, please begin.

Good evening. I am Togawa, Group CFO of MUFG. May I thank all the investors, shareholders, and rating agencies for joining MUFG's online conference call today despite the late hour and on a day when many companies are announcing their results. Please look at the material titled Financial Highlights Under JGAAP for the First Half of the Fiscal Year Ending March 31st, 2025. First, let me explain our Q2 financial results followed by revised FY'24 performance targets, shareholder return measures and progress on the medium term business plan or MTBP. Please turn to page one. These are the highlights of our first half financial results. For the first half of FY'24, net operating profits was JPY1,305.3 billion, up by JPY219.5 billion year-on-year, marking the third consecutive year of record high first half profits. Net income reached JPY1,258.1 billion, also the highest profit since MUFG was established, and the first time profit exceeded JPY1 trillion in the first half. Excluding the impact of the change in the financial results closing date of Morgan Stanley and Krungsri profits increased by JPY391.5 billion. Furthermore, progress towards the JPY1.5 trillion target set at the beginning of the year is 83%. As explained on the bottom right chart, there are two main drivers of the profit increase. First, the strong performance of customer segments, resulting in a significant increase in profits, even excluding the impact of the change in the closing period of Bank of Ayudhya or Krungsri. Second driver is the recognition of large gains on sale of equity holdings following the trend to accelerate cross shareholding reduction. We believe these factors led to the record high profits. Now, let me start by explaining the profit and loss summary on Page 9. For the first half of FY'24, we included nine months' worth of profits for Krungsri in Thailand instead of six months due to the change in the equity method accounting date. The impact of this change for Krungsri is summarized on Page 14, so please take a look at it later. In addition, the FX impact is stronger Yen against the Dollar and weaker Yen against the Thai Baht, vis-a-vis FY'23. So the weak yen has a major impact on gross profits and expenses where Krungsri accounts for a large portion and strong yen has impact on net profit where Morgan Stanley accounts for a large part. The amount of impact is shown in the chart on Page 1. Now on Page 9, Line 1 of the table on the left, gross profits increased significantly by $424.4 billion year-on-year. Line 2 and below shows the breakdown of gross profits. Both net interest income and fee income grew steadily, thanks to capturing the impact of yen interest rate hike, increase in net interest income due to the improved margins and favorable performance in the fee business both domestically and globally such as solutions, wealth management and AM/IS business, as well as impact of change in the accounting period of Krungsri and the impact of acquisitions mainly in Asia. Next, Line 6, G&A expenses increased by $204.8 billion year-on-year due to the Krungsri impact and the effect of overseas acquisitions, as well as the allocation of resources for growth and increase of overseas compensation costs due to inflation. However, expense ratio improved by 1.1 percentage points year-on-year to 55.1%. Thanks to successful expense controls coupled with gross profit increase. As a result, Line 8, NOP was JPY1,305.3 billion up by JPY219.5 billion, setting a new first half record for the third consecutive period and demonstrating our strong earning power. Next, Line 9, total credit costs, dropped by approximately JPY48 billion year-on-year in real terms, excluding the JPY43.5 billion increase in expenses due to Krungsri impact due to the reversals of loan loss provisions mainly at overseas branches. Line 10, net gains and losses on equity securities increased significantly due to the progress in the sale of equity holdings. In particular, gain on sales for the first half increased significantly due to the large sales in Q2. As a result, Line 16, profits attributable to owners of parent was $1,258.1 billion. As we achieved a high progress rate of 83% against the initial earnings target, we revised our target for profits attributable to owners of parent upwards. I will explain this later. Please turn to page 10. Performance by business group is shown on pages 10 through 13. I will not go into detail, but in customer segments, all business groups steadily increased their net operating profits, thanks to increases in net interest income from loans and deposits and fee income. Retail and digital business group's ROE has risen to 7% from 4% last year, partly due to the rise in yen interest rates. On the other hand, global markets business group's profits in the treasury business decreased due to the limited decline in US interest rates, but is trending in line with the outlook for the fiscal year. Please turn to page 15 on balance sheet summary. Loans on the upper left increased by approximately $3.4 trillion from the end of FY'23. Of this, overseas loans were significantly affected by FX, but the balance decreased thanks to credit management focusing on profitability and asset quality. In addition, government loans increased by $5.4 trillion, but domestic bonds shown below decreased by $5.6 trillion. Please understand that there were transfers between these two for ALM purpose. On the liability side, domestic deposits increased on net, while overseas deposits fell by JPY2 trillion due to profit oriented management. Page 16 shows the status of domestic loans. The graph on the bottom right shows the trend in domestic corporate lending spreads, both the red line for large corporates and the orange line for SMEs have been gradually increasing. Thanks to the success of profitability improvement measures and our efforts in large M&A and LBO transactions. Next, page 17 shows the status of overseas loans. The bottom right graph shows the trend in overseas lending spreads. While the balance is decreasing, lending spreads continue to expand as profitability improvement efforts have been successful. Please turn to page 18 on asset quality. Nonperforming loan balance, shown in the bar graph on the left was high in Europe and the US at the end of March, but decreased, and also decreased in Japan. As a result, NPL ratio, the line graph also declined. The bottom right graph shows the breakdown of year-over-year changes in total credit costs. On the bank, non-consolidated basis, expenses decreased mainly due to the reversal of loan loss provisions at overseas branches. On the other hand, expenses increased at overseas subsidiaries due to the impact of business expansion of subsidiaries acquired in the Asian partner bank domain and the economic slowdown in Asia. However, these are within our expectations and our full year forecast remains unchanged from the JPY400 billion we set at the beginning of the year. Please turn to Page 19 on securities such as equities and government bonds. I will explain the unrealized gains and losses in the upper left table. Line 3, unrealized gains on domestic equity securities decreased from the end of March 24 due to the decline in stock prices from the end of March as well as the impact of large gains on sales. On the other hand, Line 8, unrealized losses on foreign bonds improved, thanks to the decline in overseas interest rates. Also, lower left, unrealized losses on foreign bonds, in real terms, reflecting unrealized gains from hedging positions, etcetera, were approximately JPY0.5 trillion, which is flat compared to the end of March. Right side shows the reduction of equity holdings. The reduction in the first half was JPY170 billion on an acquisition cost basis, a significant reduction compared with past results. The agreed amount to be sold also reached JPY436 billion, which is over 60% of the revised target. Please turn to Page 21 on capital adequacy. The CET1 ratio excluding net unrealized gains on AFS securities calculated on the regulatory finalization basis was 11.2%, a high level due to the high progress rate in the first half profits with the preceding accumulation of profits and the impact of the change in the closing date of overseas subsidiaries translated at the FX rate. Towards the end of the fiscal year, we expect to be within our target range as shareholder returns will exceed profit in the second half of the year with RWA spend to be biased towards the second half of the year and with FX rate assumptions considered. Next, I will explain our financial targets and shareholder returns for FY'24. Please turn back to Page 3. In addition to changes in the economic environment since the plan was formulated, such as the rise in yen interest rates and the fact that the progress rate against the initial four financial target reached 83%. We have raised a target for net income by JPY250 billion to JPY1,750 billion. As shown bottom left, this is due to the growth in NOP resulting from strong growth in the customer segment, maintaining the trend seen in the first half of the year and the progress in the sales of equity holdings resulting in increased gains. Furthermore, the gains on sales of equity holdings that exceeded the forecast is expected to be used in part to restructure the bond portfolio in order to improve future profitability and there will be differences between net income and NOP. NOP target remains unchanged. On the other hand, the ordinary profit was revised upwards by JPY350 billion and the forecast for net income revised upwards by JPY250 billion compared to the initial target to come to JPY1,750 billion. We will achieve a financial target set out in the MTBP, which is an ROE of around 9% ahead of schedule this fiscal year and aim to exceed 9%. The level of 9% is also within sight in terms of ROE target of TSE. Given that we are already approaching the mid to long-term target of 9% to 10% ROE, we will start initial discussions of revising mid to long-term targets in addition to the financial targets for the final year of the MTBP. Next, shareholder returns on the right. In line with the increase in profit targets, we have raised our annual dividend forecast to JPY60, an increase of JPY10 against the initial forecast, and JPY19 compared to FY'23. And we have also resolved to conduct additional share repurchase of up to $300 billion. This will amount to JPY400 billion for FY'24. In addition, the ratio of treasury stock to the total number of shares issued will be around 5.2%, so 270 million shares will be canceled. We will continue to aim for a dividend payout ratio of around 40%. And based on profit growth, we will aim for sustainable increase in dividends per share taking into account the optimal balance between capital softness and investment into growth. Please turn to Page 4, a response based on environmental changes since the beginning of FY'24. On the left shows estimated impact of an interest rate hike. We assume the financial impact of interest rate hike in July will be approximately JPY35 billion in the first year. Of this we assume that the impact of FY'24 business performance will be approximately JPY25 or eight months' worth. Next regarding the equity holdings reduction target on the right based on the results so far and progress in negotiations, we will double the reduction target to JPY700 billion aiming to half the balance of the book value of shares hold over the three years of the current MTBP. At the same time we will continue to vigorously reduce our holdings with the aim of achieving ratio of less than 20% of consolidated net assets during the current MTBP period ahead of plan. Please turn to Page 5 for the progress on our financial targets. By focusing on managing the three drivers namely profits, expenses and RWA for improving ROE, we are on track to achieve the ROE target of around 9% in the current MTBP ahead of schedule. First, the profession on the lower left is as we have just seen. As for the expenses shown in the lower middle, as I explained earlier, the expense ratio is below the MTBP target of around 60%, showing improvement year-on-year. As for the RWA shown lower right, we are continuing to operate our business mindful of risk and return. From Page 6 onwards, the progress of the three pillars of the current MTBP is shown. On Page 6 is the growth strategies. The seven strategies for capturing growth have performed steadily. On the left, we are off to a good start with 40% of the MTBP targets already achieved in the first six months of the fiscal year. We will continue to leverage the comprehensive strength of the group and promote high value added sales activities. Please turn to Page 7. On the left is a second pillar aiming to solving social issues. As a responsible financial institution, we are responding solidly to the demand for sustainable finance both in Japan and overseas in relation to climate change and the realization of carbon neutral society. On the right is a third pillar, accelerating corporate transformation. In order to awaken the full potential of MUFG, we are promoting a group based transformation of our corporate culture, which will form the foundation for growth and strengthen your management base, including human resources, systems, and AI. And we have implemented agile operations on a trial basis. In addition, we are stepping up our efforts to realize corporate reform using AI, including expanding the utilization of generative AI. Please turn to page 8. I would like to report on the status of our response to the administrative actions taken in June of this year. I would like to take this opportunity once again to apologize for the troubling concern that this matter has caused to our customers and other related parties. Since the incident, we have been working to implement various improvement measures to prevent recurrence. From the second half of the year onwards, we will continue to work to restore the trust of our customers and stakeholders by steadily implementing initiatives to ensure correct understanding and awareness through training and study sessions. We have also reported the details of measures to the Financial Services Agency on October 15th. That concludes my explanation. Thank you very much for your attention.

Thank you, Togawa-san. We will now take questions from you. [Operator Instructions] Thank you. First, Takamiya -san, please.

I am Takamiya of Nomura Securities. I have one question. Please share with us your assessment on the current financial performance trends and your capital base. More specifically, I want to know the message from the company, contained in the figures of the following six announcements, in other words, your assessment of financial performance and capital.

The six announcements are the upward revision of the financial forecast this year, the increase in the target for sales of equity holdings, the review of MTBP targets, increment of the dividend increase, the announcement of a relatively large amount JPY300 billion of share buyback and the CET1 ratio of 11.2% as of the end of September.

I would like to know your assessment of capital based on these six points. The purpose of my question is to get a qualitative reference for your medium term financial outlook and capital measures.

Thank you for the question. First, regarding our financial performance, we announced our MTBP in May. At that time, we took a conservative view on rising yen interest rates and FX, and started with a plan to increase net operating profits by JPY500 billion based on how much we could earn through our own measures. After that, we announced a plan to incorporate the impact of rising yen interest rates as a megabank with the largest balance sheet and to set a target for the sale of equity holdings of JPY350 billion as the minimum amount to be achieved through bottom up approach. After that, we raised this target in response to the recent trend of accelerating the sale of equity holdings. We took the positive external environment into account in this upward revision. But the profit increase from the implementation of the measures that we originally planned in MTBP also increased our net operating profits by about JPY100 billion even excluding the impact of rising yen interest rates. So we feel a sense of accomplishment. Gain on sale of equity holdings will peak during the current MTBP period, and then gradually decrease, while yen interest rates will rise. We want to increase our earning power through the efforts of our measures over three years, while dealing with both positive and negative factors. Therefore, we think it is important to deliver intrinsic profit growth, while facing both positive and negative factors, and feel that we are making progress in this regard. Regarding the capital adequacy ratio and capital level, we will operate within the target range of 9.5% to 10.5% from the current MTBP. But as other participants may ask later, the level in the first half exceeded the target range as profits are heavily weighted towards the first half of the year. And of course, the use of risk weighted assets to pursue measures under MTBP tends to be concentrated in the latter half of the fiscal year and due to temporary FX impact. That said, I think we can stay within the target range towards the year end by implementing this shareholder return policy. There is no change to our overall policy of operating between 9.5% 10.5%. We want to decide on shareholder returns by looking at the trends in the capital level for a single fiscal year or over the medium term within the MTBP rather than set one ratio at each time point. So our basic stance remains unchanged.

Understood. Thank you very much.

Moving on to the next question, Mr. Nakamura, please.

Thank you very much. This is Nakamura from BofA Securities. My first question is on the CET1 ratio on page 21. I understand the factors that led to the increase in the first half of the year. But can you give me more details on what kind of increases or decreases in the second half of the year would bring it down to 10.5%. I think the JPY300 billion in share buybacks is fantastic, but some say that with such a large profit, you could have done a little more. The total payout ratio comes to 63%, so we may be asking too much. But since profits have risen so much, some people say more could have been done. The second question concerns the NOP in the first and second halves. I would appreciate it if you could tell me, even roughly, what you see as a slowdown in NOP in the second half of the year when you have such excellent results in the first half of the year. Why only about JPY650 billion target in the second half of the year? That is what I'd like to know.

Thank you very much for your question. I'd like to explain the CET1 ratio first. In the first half of the fiscal year, from the end of March to the end of September, accumulation of profits proceeded. And as for shareholder returns, we only purchased JPY100 billion of our own shares that resulted in accumulation of profits for which we have received a lot of harsh criticism from our shareholders. The impact of the change of US subsidiaries translated at the FX rate saw an instantaneous upward swing as the yen depreciated to JPY161 against the dollar at the end of June. Had a large impact on the rise in CET1 ratio at the end of September. This had an effect of more than 30 basis points. And we have not changed our assumptions for the dollar yen at the end of the fiscal year, which we put at around 140 yen from the beginning of the year. Since move to a stronger yen will have an impact of about 40 odd basis points, as we are considering higher RWA in the second half of the year combined with shareholder returns including share buybacks and dividends. I would say that, we are within our target range. And depending on the trend of the exchange rate towards the end of the fiscal year, we may consider additional shareholder returns. As I mentioned earlier, the global markets accumulated capital gain in the first half of the year. We had originally planned to improve the book value of the business group's earnings in the second half of the year. The difference between the first half and the second half is large at around JPY300 billion. And then in the second quarter there was a large gain on the sale of equity holdings, but it will not be as large in the second half. So I think it will shrink by about JPY100 billion. On top of that, part of the portion of the gain on sales that is above the original plan or within the scope of the portion that is above the same period last year will be put to elimination of unrealized losses on foreign bonds. So if we also include such financial measures, the difference in NOP will be JPY660billion from the first half to the second half.

Thank you. But I am still not clear on the NOP level. So I guess you are leaving the specifics for later. I understood up to the global markets having a difference of JPY300 billion but couldn't follow after that. I couldn't imagine how it will go down to JPY650 billion. But you are saying there are miscellaneous factors to be considered, and also the KS impact, and I guess the rest is explained in the presentation material.

Yes. That is right. By the way, I forgot to mention the KS impact will be around 80 billion to the NOP as well.

Thank you very much.

So next Matsuno-san, please.

I am Matsuno from Mizuho Securities. Thank you very much. I have two questions. First question is on capital on Page 21. My impression is that foreign currency translation reserve increased more than expected this time. Is this due to the change in the equity method accounting date as you explained earlier? In addition, could you please, to the extent that you can, touch on the status of your future investment pipeline as you are currently exceeding your capital target? My second question is about the equity holdings on Page 19. The target has been raised to JPY700 billion this time. But what is your view on the pace of sales on a fiscal year basis? Do you anticipate any impacts from the drop in unrealized gains, including raising capital targets in the future? Thank you.

So your question is on factors that led to foreign currency translation reserve increase as of the end of September?

Yes.

FX was JPY151 or JPY152 at the end of March, JPY161 at the end of June, and JPY142 at the end of September. The change in the accounting date at Krungsri and Morgan Stanley is complete, so it's almost linear now. The other big factor is the FX impact of the US subsidiary, MUAH, which I mentioned earlier. Moreover, the FX fluctuated dramatically between the end of March, June and September and caused the foreign currency translation reserve to inflate unexpectedly. Regarding the pace of the sales of equity holdings the agreed amount to be sold is JPY266 billion yen shown in light pink on Page 19. In terms of the actual reduction in the book value balance, I think FY'24 will be the largest among the three years. The rest will be roughly 50-50. But it depends on how we can reach an agreement with our customers. This time it is not a minimum target and we have not reached this figure through the accumulation so far. This is a declaration of our determination to do this much, so I cannot say specifically how far or at what pace. Some have pointed out since July as to what we think about the decline in unrealized gains.

What level should CET1 ratio be? And how far can ROE rise based on that? Please give us a little more time on this.

I would like to consider this as part of the review of the financial targets for the final year of the MTBP and our medium to long-term targets. However, one thing I can say is that if you look at the capital on financial accounting basis, the unrealized gains and losses on securities have become significantly smaller. We think the gap with the ROE target based on the TSE standards have narrowed considerably. So we are considering setting a target under TSE definition as well. The share price volatility, which was a risk factor for CET1 ratio in our stress tests, is shrinking, so we will consider a target range with multiple positives and negatives.

Thank you very much.

Next, Mr. Yano, please.

Thank you very much for taking my question. This is Yano from JPMorgan. My first question is on overseas reversals of loan loss provision. Could you put some more colors to it as much as possible? For example, what business sectors are involved, what were the triggers, etcetera? And my next question is on domestic lending. I have a feeling that funding demand is strong. Are you seeing demands related to, for example, manufacturing companies' production bases returning to Japan that comes with enormous price tags? If a substantive, buyout deal comes your way, how much is acceptable on your end? With many such deals, how much risk asset can be put? Or how capable are you of responding to changing landscape? That is what I would like to have your comments on.

Thank you very much for your questions. As for the overseas non-performing loans, it became quite big in the Americas in March because maybe we have explained this before, but as we conducted O&D expansion, there were multiple big accounts that saw downgrading, impacting credit costs. And as a result, the balance of NPL increased. This had decreased since and resulting in lower NPL. And as for domestic lending demand, this is where I wanted to focus more on. But in fact, domestic lending is almost flat if we exclude government loans. The balance at the end of the period will not be increasing that much due to spot repayment of working capital. But compared to the end of March, it had grown by about three percentage points on average, which supports the fact that there is demand for funds. There are large LBOs and MBOs that you mentioned where we want to grow and improve the yield. As for the acceptable amount on our part, of course, there is a credit regulation on large funds that we need to consider, and we are managing within around 80%, and that would give us a maximum theoretical value. At the end of March, we had some issues related to O&D deals, so we had to make some changes, but I cannot give you any specific numbers as to the maximum amount per deal. I hope that answers your question.

Thank you very much. As CET1 ratio is heightened, I don't think there is room for any concerns. But if such offer comes your way, you will basically be responding positively. Is that the correct interpretation?

Yes. In the current MTBP, the plan is net increase of JPY7 trillion for RWA. So we will do our utmost to accumulate highly profitable projects.

Understood very well. Thank you very much.

Thank you. Next, Matsuda-san, please. If you have questions, we are still accepting more questions. Thank you. Matsuda-san?

I am Matsuda from Daiwa Securities. I have two questions. First is about gain on sales of equity holdings and second is about your thinking behind this year's earnings. Regarding the first question, gain on sales, on Page 3 on FY'24 plans, looking at net operating profits and ordinary profits vis-a-vis initial targets, there seems to be positive $350 billion below net operating profits. Is this mostly gain on sales of equity holdings? In addition, if we look at the bar chart for this year, we can see that gain on sales of equity holdings are greater than the impact of the portfolio restructuring. But if larger gains on sale of equity holdings are included in the plan for this year, how should we think of the baseline for a gain on sales of equity holdings from next year onwards? My second question is on this year's profits. I think the macroeconomic environment is favorable due to the weak yen, and the FX assumption for the second half is JPY140. If profits are likely to be higher, thanks to the macro environment, are there any items that you can cut losses on? For example, I apologize for talking about other banks, but some banks have a recorded a lump sum provision for loss on interest repayment. Your group also has a subsidiary, ACOM. And I would like to know if you are considering similar costs for interest repayment or items where you can cut losses?

Thank you for the question. Our ordinary profit target is JPY350 billion, most of which is accumulated through higher target for gain on sales of equity holdings. As I mentioned earlier, we are considering using part of the gain on sales of equity holdings to rebalance our bond portfolio. And for now, we want to use JPY100 billion to JPY200 billion to reduce unrealized losses. On the other hand, cutting unrealized losses on bonds negatively affect net operating profits, so we kept the guidance unchanged. Ordinary profit is set at 350 billion including that and additional portfolio restructuring. There are not many other items for cutting losses. And we want to first optimize our portfolio. As for interest repayment, ACOM is a listed company, so we cannot say much. But we understand that ACOM sets three years' worth of provision for loss on interest repayment at the time of the medium term plan review. So I think they will proceed with that policy. I am not familiar with SMFG's thinking behind the JPY100 billion provision for repayment, but ours will probably be smaller. If the gain on sales of equity holdings accumulates more than expected, we will do what we can to secure future profits. But there is not much we can do now other than improving the unrealized losses on bonds.

I understand. Regarding your first point, if we assume that the bond portfolio has unrealized losses of maximum JPY200 billion against a profit of JPY350 billion, the base gain on sales of equity holdings is up by around 150 billion this time. Will this be the baseline from next fiscal year onwards?

As I mentioned earlier, FY'24 will be the highest. And for FY'25 and '26, we have set the aspirational amount at JPY700 billion. As we will review the FY'25 plans and the financial targets for the final year of the MTBP toward FY'26 once again, these targets will be examined within this framework, so I cannot comment on the baseline at this point.

I understand well. Thank you very much.

Any other questions? We are still waiting for additional questions. Yes, we have a question. Mr. Niwa, please.

This is Niwa from Citigroup Securities. Can you hear me?

Yes, we can hear you.

So my question is not related to the financial results, but, this is regarding the equity holdings reduction on page 4. I understand that you are going to be mindful of the balance in the final year of the MTBP. But looking ahead, what will happen in the next MTBP? If this pace is continued, we will be seeing the balance go down to zero. So as you work on revising the plan going forward, what is the future vision based your discussions on? That is what I'd like to know. Thank you.

Actually, the same question was raised by an outside director today in the BOD meeting. On book value or acquired value basis, this JPY700 billion target will mean a reduction of almost half. It was JPY1.3 billion in March, and the balance will be around JPY0.6 trillion or JPY0.7, which suggests that the balance will be very small during the next MTBP period. But having said that as Kamezawa always say this will be conducted upon a dialogue with our customers. But I myself believe that as for the existing equity holdings, it will approach zero, but we cannot make any definitive statements as to when. On the other hand, business investments or equity investments into new business developments will continue, so such balance will appear on the book going forward. In the meanwhile, we will aim for a JPY700 billion reduction and equity holdings to be reduced to less than 20% of net assets during the current MTBP period. We will continue negotiations so we can come to agreements with our customers. That will be our focus for now.

Thank you so much for being more specific. Thank you.

Thank you very much. With that we'd like to end the Q&A session. Next, Togawa will give you some closing remarks.

Thank you for your active participation in the Q&A session and your valuable opinions today. Today, I spoke mainly about the progress of the first half for FY'24. At the Investor Briefing scheduled on 18th, Kamezawa will explain in details the strategy and corporate transformation initiatives including his own thoughts. We look forward to your participation in that event as well. As I mentioned at the July Investor Day, we believe that by showing steady profit growth and improvements in ROE as actual results, we can foster further expectations, which will lead to an improvement in PER and have a positive impact on the stock price. We will achieve improvements in EPS and ROE and link this to an increase in shareholder values going forward. We'll continue to focus on dialogue with our shareholders and investors and work to improve our financial and capital management with the aim of achieving sustainable growth in shareholder value. We ask for your continued understanding and support. Thank you very much.

With that, we'd like to end the first half results presentation for the Fiscal Year '24 for MUFG. Thank you very much for your participation despite your busy schedule.

Thank you very much for waiting. We will now begin Mitsubishi UFJ Financial Group briefing on the financial highlights for the fiscal year ended March 31, 2024. Thank you very much for joining us today. I am [Nakao] from Investor Relations office, Financial Planning, and I will be your moderator today. First, Mr. Jun Togawa, Representative Corporate Executive, Senior Managing Corporate Executive and Group CFO, will give a presentation on the financial highlights for the fiscal year ended March 31, 2024, for about 15 minutes, and then we will move on to the Q&A session. The entire session is expected to take approximately 15 minutes. Before I begin, I would like to ask for your understanding. The presentation to follow may include forward-looking statements based on current expectations. However, all such statements are subject to risks and uncertainties. Please be aware that actual results may differ materially from those discussed in the forward-looking statements. Now we would like to begin. Mr. Togawa, please begin your presentation.

Investors, shareholders and representatives of rating agencies, it is pleasure to meet you. My name is Togawa, and I was appointed Group CFO this April. Thank you for joining this online conference at this late hour. Please refer to the presentation material titled financial highlights under Japanese GAAP for the fiscal year ended March 31, 2024. After explaining our financial results for FY '23, I will explain our performance targets and shareholder returns policy for FY '24 and outline our new medium-term business plan starting this fiscal year. I will start with the income statement summary. Please turn to Page 10. Line 1, gross profits on the left side of the table increased by ¥229.5 billion year-on-year. Line 2 and below is a breakdown of gross profits. In FY '23, there was a large decrease in net interest income and a large increase in net other operating profits. In addition to the absence of revenue resulting from the sale of MUB, in the treasury business of the global markets, there was a recording of a decrease of gains on investment trusts cancellation of ¥555.7 billion, included in the prior year for bear funds with hedge purposes and losses on the sale of foreign bonds in net other operating profits or losses and rebalancing of the bond portfolio, resulting in adjustment of accounting items. Excluding these two factors, net interest income also increased steadily on a real basis. Line 3, net fees and commissions increased approximately ¥130 billion, mainly due to an increase in fees related to foreign loans and an increase in fee income from the AM/IS business and Wealth Management business bringing steady top line growth. Line 6, G&A expenses were down ¥19.9 billion year-on-year, despite the effects of inflation and weaker yen, mainly due to a decrease in expenses resulting from the sale of MUB. Line 21, expense ratio improved significantly to 61%, down 3.5 percentage points from the same period last year, largely due to gross profit growth but also due to successful expense control. As a result, Line 7, net operating profit increased ¥249.4 billion to ¥1,843.7 billion, a record high, offsetting the impact of the sale of MUB. Total credit cost, Line 8, amounted to ¥497.9 billion, reflecting the absence of the reversal of reserves in the previous year and an increase in overseas allowances, including the impact of acquisitions and individual company factors. The absence of the ¥393.9 billion valuation losses on loan held by MUB in the previous year resulted in ¥176.9 billion decrease in expenses compared to the same period last year. Equity in earnings of equity method investees, Line 12, is due to the change of closing date in the equity method of accounting for Morgan Stanley. And in FY 2023, equity in earnings increased by ¥105.9 billion from the same period of the previous year as profits were recorded for 15 months instead of 12 months. The net effect of Morgan Stanley's profit increased due to the change of closing date when applying the equity method of accounting is just under ¥85 billion since the loss on change in equity was also recorded for two quarters in the net extraordinary gains and losses. As a result of the above, profits attributable to owners of parent, Line 17, increased by ¥374.2 billion year-on-year to ¥1,490.7 billion, the highest profit in MUFG history. ROE, Line 19, was 8.5% or 8.1% even excluding the profit increase effect of Morgan Stanley's change of closing date, which I explained earlier. Please go to Page 11. The graph on the lower left show a breakdown of year-on-year changes in net operating profits by business segment. In Customer segments, all business segments steadily increased net operating profit, mainly due to an increase in lending and deposit interest income and fee income. As a result, total net operating profit of Customer segments rose sharply by ¥470.3 billion. On the other hand, Global Markets posted a decrease in profit due to increase in foreign currency funding costs in treasury business and the significant impact of portfolio rebalancing. Page 12 on the right is a breakdown of changes in net income by business segment. While JCIB was down due to an increase in overseas credit costs and global markets due to the impact of portfolio rebalancing in treasury business, other business segments reported an increase in net income due to higher net operating profit. Page 14 is a balance sheet summary. Loans, second line in the table on the left, increased by approximately ¥8 trillion from the end of the previous fiscal year. Approximately 70% of this increase is attributable to the increase in overseas loans. Line 6, which is generally due to the impact of yen depreciation. Deposits from Line 12 and below increased approximately ¥10 trillion from the end of the previous fiscal year, of which overseas deposit increased ¥7.1 trillion, again, mainly due to the impact of foreign exchange. Next is Page 15, it shows the status of domestic loans. The graph on the lower right shows the domestic corporate lending spreads, the red line, the large cooperations continues to improve and the orange line for SMEs indicates a gradual improvement. The next page is Page 16, and it shows the status of the overseas loans. The graph on the lower right shows the overseas lending spreads. As for domestic, we have maintained an improving trend through our efforts to improve profitability. Please turn to Page 17, this is the status of loan assets. Nonperforming loans, the bar graph on the left, increased due in part to the factors related to individual overseas companies, resulting in a slight increase of NPL ratio, but remains at a low level. Please turn to Page 18 on the status of securities, including equities and government bonds. Unrealized gains and losses are shown in the upper left table, with the increase in unrealized gains on domestic equity securities, thanks to rising stock prices and improvement in unrealized gains and losses on foreign bonds following the sale of U.S. treasury bonds and U.S. mortgage bonds, unrealized gains for available-for-sale securities totaled ¥2.7 trillion. Line 8, unrealized losses on foreign bonds is approximately ¥1 trillion, but as shown below the upper right graph, unrealized losses in real terms, taking into account unrealized gains, reflecting hedging positions was approximately ¥0.5 trillion. So although overseas interest rates rose and remained high, we were able to firmly control and improve the unrealized gains and losses. The selling amount of equity holdings on the lower right shows that in FY '23, we sold ¥216 billion on an acquisition cost basis. As a result, we reached ¥539 billion, exceeding the 3-year cumulative sales target of ¥500 billion in the previous MTBP. In the new MTBP, the target is ¥350 billion, with the aim of reducing the ratio of market value, including deemed shareholdings to consolidated net assets to less than 20% by the end of the next MTBP period. Page 19 shows our capital adequacy. CET1 ratio on finalized and fully implemented Basel III basis, excluding net unrealized gains on available-for-sale securities is 10.1%, which is around the middle of the new MTBP target range. Next, let me explain our FY '24 financial targets and shareholder returns. Please go back to Page 9. First, on the left, our target profits attributable to owners of parent is ¥1.5 trillion for FY '24. In FY '24, we expect the yen to strengthen year-on-year and will offset the negative impact on our profit. In the absence of the FY '23 positive impact of the change in the equity method accounting date for Morgan Stanley, driven by an increase in NOP. Next, shareholder returns, on the right. In the new MTBP, dividend payout ratio will remain at around 40%, and the basic policy is to increase dividend per share steadily and sustainably through profit growth, taking into account the optimal balance between capital soundness and growth investment. On that basis, FY '24, dividend per common stock forecast is set at ¥50, an increase of ¥9 for two consecutive years. In addition, repurchase of our own shares up to ¥100 billion was resolved today. Regarding shareholder returns, the current basic policy was originally formulated during my three years as Head of the Financial Planning Division from 2016. So I hope you will understand that the basic policy remains unchanged. Finally, on the new MTBP, please go back to Page 5. Under the previous MTBP, which was positioned as three years of challenge and transformation, we focused on improving profitability and creating resilient business model. We sold MUB while making an approximately ¥700 billion strategic investment for future growth. The new MTBP is positioned as three years to pursue and produce growth, taking the opportunity offered by the recent major changes in the social and economic structure and environment. The three pillars supporting this concept are: Expand and refine growth strategies; drive social and environmental progress; and accelerating transformation and innovation with a financial target of around 9% ROE in the final year. From Page 6, let me explain the three pillars of the new MTBP. In the first pillar, expand and refine growth strategies, MUFG's strategy in the new MTBP was examined on Products x Channels quadrants and seven growth strategies to capture growth were formulated. We aim to achieve growth through a more resilient business model, which includes improving the profitability of our balance sheet based on changes in the interest rate environment as well as broader customer touch point through new products and services and new channels. Focusing on these strategies, we set a target of increasing NOP by approximately ¥500 billion over three years, targeting over ¥2.1 trillion for FY '26, an increase of 30% compared to FY '23. Please turn to Page 7. Left side is an overview of the second pillar, drive social and environmental progress. We have been working to contribute to the resolution of social issues over the years. But in the new MTBP, we are taking it to the next level and focusing on the implementation of initiatives and materialization of results with a greater awareness of the societal impact. We selected 10 priority issues based on the three axes of sustainable society, vibrant society and resilient society and set specific targets as KPIs, which we will promote in tandem with our growth strategy. Right side shows the third pillar, accelerating transformation and innovation. In the previous MTBP, we fostered the mindset of taking on new challenges among our employees through the initiatives listed here. In the new MTBP, we will keep the existing initiatives while further strengthening our corporate culture, human resources, systems, AI and other management foundations, which form the basis for growth in line with our basic policy of three years to pursue and produce growth. Please turn to Page 8. Let me explain the financial targets of the new MTBP based on these strategies. In the new MTBP, we will continue our ROE-focused management, aiming for ROE target of around 9%. In addition, to improve the transparency of our capital management, our CET1 ratio target range is now 9.5% to 10.5%. The three drivers for achieving the ROE target in the previous MTBP, profits, expenses and risk-weighted assets, remain unchanged in the new MTBP. In profits, the first driver, we aim to achieve NOP of over ¥2.1 trillion and net profits of over ¥1.6 trillion in FY '26. In expenses, the second driver, we will maintain disciplined management and prioritize our operations to aim for expense ratio of around 60% in FY '26. In RWA, the third driver, we are replacing low profitability RWA with high profitability RWA. By operating our business with these three drivers in mind, we will achieve ROE of around 9% in the new MTBP and take steady steps toward our mid- to long-term target of 9% to 10% ROE. That concludes my explanation.

Thank you very much, Mr. Togawa. We will now take questions. [Operator Instructions] Now we'd like to take the first question. Mr. Takamiya, please.

Thank you very much. This is Takamiya from Nomura Securities. I have two questions. My first question is on the profits attributable to owners of parent. What were your thoughts or emotions behind the target of ¥1.5 trillion. Where my question is coming from is, this ¥1.5 trillion is an ambitious target, slightly higher than the current market consensus. Banks usually come up with a conservative target at the beginning of the fiscal year. And the results of the fiscal year just ended was aided by a tailwind. And yet you are still looking for an upside in FY '24. Please share the intention behind this ambitious target. And my second question is on ¥100 billion share repurchase that was just announced. It gives a setback of your shareholder returns policy. Just looking at the numbers or the total payout ratio, it is a decline from the previous fiscal year. However, looking at the target CET1 ratio, excluding the unrealized gain, it is right at the middle of the range. So as capital is accumulated with profit growth going forward, it may lead to better visibility of achieving the targets. And if so, will there be a possibility that an additional shareholder returns be considered? I'm not asking you to state whether you'll be conducting additional returns going forward here today, but with this ¥100 billion may be considered as a setback from the shareholders' returns policy of management with focus on ROE.

Thank you very much for your questions. First, on the assumptions of the FY 2024 plan. As for the exchange rates, the plan is based on the assumption of ¥140 to the U.S. dollar. And as for the domestic policy interest rate, we assume that 0.1% will be maintained throughout this fiscal year. With these assumptions, we have set the target of ¥1.5 trillion. The change in closing date of Morgan Stanley will come to an impact of ¥84 billion to the final profit, but with this being absent, it will bring a negative impact. The impact of foreign exchange will result in negative ¥56 billion from the previous fiscal year and the ¥84 billion related to Morgan Stanley, I mentioned earlier, will be offset by increase in NOP. There will also be impact of change of closing date for Krungsri as well, lifting the numbers. But basically, those will be offset with NOP, and that is a plan we have formulated. Actually, we had heated discussion whether to go with ¥1.5 trillion or not. But under Group CEO, Kamezawa's leadership, the decision was made to go with ¥1.5 trillion as a target. It will be dependent on the timing of the change in the policy interest rate. But when the interest rate is raised, there will be a plus alpha effect to be considered. And although it will be limited to a small amount in FY '24, this is considered. As for the meaning behind ¥100 billion of share repurchase, our aim is to somehow reach payout ratio of 40%. And with two consecutive years of raising the dividend up by ¥9, excluding the currency profit impact of ¥20 billion in FY 2024, we have almost just reached this 40%. As for the FY 2023 share buyback, ¥400 billion is mainly coming from capital adjustment from the release of capital related to the sale of MUB. Therefore, if we are to conduct returns at the beginning of the fiscal year, it will be set at ¥100 billion. And if we see steady progress going forward or if the yen interest rate changes, bringing us confidence that we will be able to achieve the target, then we will consider whether to conduct additional share buyback in conjunction with investment into growth after the midterm. By the way, thank you for recognizing this as an ambitious target. I hope that answers your question.

Yes, thank you very much for the explanation.

Thank you very much. Next, Mr. Nakamura, please.

Yes, this is Nakamura from BofA Securities. Thank you for the presentation. I have two questions. First, on CET1 ratio. There is an approximately 50 basis point decline quarter-on-quarter compared to 10.6% in the third quarter. What were the factors behind this decline of 50 basis points as it was quite a sharp decline? The range has widened to between 9.5% to 10.5%. But is there any intention behind this that you want to maintain it around 10%? I would like to have your confirmation. Second question is on reduction of equity holdings. I do understand well that your group has been working on it proactively, but the target will decline from ¥500 billion to ¥350 billion. What is the background factor or logic behind this deceleration when we are seeing acceleration in general? Is there any upside factors with effort you'll be able to achieve this? Please share.

Thank you very much for your question. First, on the CET1 ratio compared to the third quarter, there are two main factors. First, the accumulation of profit in the fourth quarter. We worked on improving the book value. And as you can tell by looking at the P&L, ¥230 billion of credit cost is recorded in the fourth quarter. So retained earnings or capital accumulation was quite small. And the second factor is purely technical in nature. The foreign currency translation reserve related to change in closing dates, we adopt the currency rate at the end of December and for others, the rate at the end of March, resulting in gain that was more than expected by the Street. We had expected right around this amount at the end of the fiscal year. And as for the target range, I understand that there was quite a debate over last year. So in order to increase transparency, we set the target between 9.5% to 10.5%, but our current thinking is to set the middle line at 10% with 20 to 30 basis points leeway on either side. And as for your question on equity holdings, it is very MUFG in that. With new MTBP, it is formulated bottom up. And as we see advances in the sales negotiation, it is the fact that we are left with the bedrock brands. And if we accumulate them, what we can commit to is ¥350 billion. However, having said that, looking at the moves of casualty insurance industry or the activists with operating companies, we can expect a further headway. But as for the start of the new MTBP, we will commit to ¥350 billion as outlined in the plan. And as stated in the financial results highlights, during the next MTBP, the market value of equity holdings and deemed shares held will be kept within 20% of net assets, and that will be our target. And with the pace that we are achieving, we will be able to keep to the target in the next MTBP period. This is the thinking behind the plan of ¥350 billion.

So going back to the first question. Listening to what you have just said, even so the decline was quite sizable, and, I believe, you said there were three factors involved. The foreign currency translation reserve recognition and no accumulation of profit, which we had not expected to start with, is there any other factors involved, any deduction items involved?

Well, profit of just less than ¥0.2 trillion accumulated in the fourth quarter, a dividend of minus ¥0.2 trillion and share buyback of minus ¥0.2 billion, with retained earnings in the negative and goodwill of AlbaCore and Mandala, minus ¥0.14 trillion. And CapEx of Morgan Stanley related to foreign exchange and MS internal reserves and smaller than market expectation of the foreign currency translation reserves, those led to decrease in the denominator. And maybe it was smaller than what had expected by the Street. I believe those are the factors involved.

Understood. So MS and double gearing are included. Now I understand. Thank you very much.

Thank you very much. So we will take the next questioner, Matsuno-san, please.

This is Matsuno from Mizuho Securities. I have two questions. First is on capital policy. Am I correct in understanding that the shareholder return policy in the new MTBP remains unchanged from the previous MTBP?

You are right, there is no change. Previously, we said we aim for a dividend payout ratio of 40%. And this time, we are saying maintain approximately 40%. In that sense, we will continue with it, and that is the only change.

Understood. My next question is on the exchange rate sensitivity on CET1 ratio. Please also explain whether this will result in a decrease in foreign currency translation reserve and the amount of share buybacks since the yen was considerably strong in your FX assumption in the final year of the previous MTBP.

Yes, ¥1 depreciation increases or appreciation decreases the CET1 ratio by approximately two basis points. So ¥1 appreciation is two basis points.

Understood. As the exchange rate assumption for the final year of the new MTBP is set between ¥125 and ¥130, will the decrease in numerator foreign currency translation reserve due to strong yen pushed down CET1 ratio?

That is the case in the plan up to FY '26.

Understood. So you are saying that if the yen weakens, capital surplus will increase?

Yes. But our shareholder return policy will not change during the MTBP period as a result of foreign exchange impact. Under the current FX assumptions, we will continue to return profits to shareholders based on the same disciplined capital management as in the past.

I understand. My next question is on the breakdown of NOP in the new MTBP, which is mentioned on Page 6, to reach ¥2.1 trillion, up by ¥500 billion. Could you give us a bit more color on how this is divided between the top line and expenses?

If we go by the planned rate mentioned earlier, the net increase of ¥500 billion in NOP is based on the assumption that gross profit increase by ¥1 trillion and expenses increase by ¥500 billion.

Thank you very much.

Does this answer your question?

Yes.

Thank you. Next questioner. Mr. Yano, please go ahead.

Thank you. This is Yano from JPMorgan Securities. I have two questions. The first is on CET1 ratio, and I'm sorry to be persistent, but I want to ask you in more detail about the technical factors you mentioned in your response to Mr. Nakamura earlier. Am I correct in understanding that the technical impact of the temporary decrease is not necessarily large, but that it is a structural decrease to 10.1%? Also, I am sorry to quote the media coverage, but there is a potential strategic investment in India. And if we assume that the yen will strengthen in the future, you said that CET1 ratio will be around 10%. But I think it will fall below 10%. Has your internal view on capital buffer changed over time? Is CET1 ratio down to 10.1% from structural reasons? And after a while, it will go back up again in the next quarter or not? This is my first question. My second question is simple. You explained on Page 17 that credit costs are rising, but not that high, but it is indeed rising. I would appreciate it if you could comment on the credit situation by category, for example, domestic, corporate, retail, et cetera.

Regarding CET1 ratio and the technical factor, we intend to operate under the assumption that the CET1 ratio could go below 10% due to the impact of the recognition delay in the foreign currency translation reserve, as mentioned earlier. Does this answer your question?

Understood. In terms of the recognition delay in foreign currency translation reserve, how big will it be in terms of basis points?

It depends on your assumption, but assuming that there were no such impacts, the difference in the foreign currency translation reserve would be around ¥0.2 trillion. So the gap from your assumption could have been around 20 basis points.

I understand. Thank you.

To your second question, credit costs have risen in the Americas, as you can see, increasing by about ¥200 billion, but it is due to some individual companies. We do not expect it to increase at the same pace going forward. As for potential areas, we expect an annual increase of around ¥20 billion to ¥30 billion due to the business expansion of two consumer finance companies in Japan and the retail business in Asia. This will be accompanied by a strong top line growth. So this is our assumption for credit costs. We are assuming credit costs of ¥400 billion for FY '24, including approximately ¥50 billion due to change in financial results closing date for Krungsri.

Thank you very much.

Thank you very much. We have a questioner. Ms. Kuroda, please.

Thank you very much. I have one question. Is the NOP target of over ¥2.1 trillion for FY '26 achievable through organic growth?

Thank you very much. If you could look at the bar chart showing ¥340 billion growth in NOP, you can see that the growth is particularly strong in -- for strengthened APAC business and platform resilience. This is inorganic as it includes the impact of the deals that are already announced and will be completed in the future.

But they are already in the group at the moment, right?

Yes, you're right. MUFG Group will increase NOP in an integrated manner.

Thank you very much.

The next questioner, Mr. Matsuda. Please go ahead.

Thank you very much. This is Matsuda from Daiwa Securities. I have two questions. First, regarding the results for FY '23, you finished the year far exceeding the plan, but I think you could have achieved 7.5% ROE with lower profits. While profits were generated, unrealized losses on foreign bonds still seems to exist. Was there a little incentive to cut losses? That is my first question. My second question is on the assumptions for the new MTBP. I think profits of over ¥1.6 trillion is calculated by backcasting from 9% ROE. Do you have any assumptions or targets for the total payout ratio?

Thank you very much. As to whether we could have cut losses a little more in FY '23, we have to admit that there was an upside to our estimates. And we faced some uncontrollable factors when we changed the financial results closing date. And large credit costs were recorded in Q4. Therefore, this level of portfolio rebalance was considered appropriate in FY '23. Regarding the total payout ratio in the new MTBP, the NOP plan was developed through a bottom-up process. MTBP plans for capital management with 9% ROE target, but we have not set the target for a total payout ratio. The policy is to maintain a dividend payout ratio of around 40% and total return and share buybacks will be considered from the perspective of growth investment and capital soundness to achieve 9% ROE. Thank you very much for your wide-ranging questions and valuable comments today. I only explained FY '23 results and the outline of the new MTBP today, and Kamezawa will explain the details of the new MTBP, including his thoughts at the briefing on the 17th. I look forward to your participation. Like my predecessor, Yonehana, I will continue to focus on our dialogue with shareholders and investors while working on financial and capital management to continue increasing shareholder value. I'd like to ask you for your continued understanding and further support. Thank you very much for joining us today.

Thank you for waiting. We now start the net conference on the financial results for the first half of fiscal year ending March 2024. I am [ Nakao ] from the IR Office, Financial Planning Division. I will serve as the MC today. Thank you for joining us out of your busy schedules. First, our Senior Managing Corporate Executive and Group CFO, Tetsuya Yonehana, will give a briefing on the financial highlights for about 10 minutes. And then we will take your questions. The total length of the conference is expected to be about 50 minutes. Before we start the briefing, let me give you some reminders. In the briefing, we may talk about our future projections based on the current forecast. They are all accompanied by risks and uncertainties. Please be informed in advance that the actual results may differ from our projections. Now let's start the briefing. Over to you, Mr. Yonehana.

I am Yonehana. Thank you very much for joining us for this MUFG net conference. Please take a look at the material entitled Financial Highlights under Japanese GAAP for the First Half of Fiscal Year Ending March 31, 2024. I'll take you through the first half results and then we'll talk about shareholder returns. Please go to Page 7. I'll start from the income statement. MUFG first half results for fiscal 2023, as Line 17 in the left-hand table shows, profits attributable to owners of parent is JPY 927.2 billion, is an all-time high for half year results since the inception of MUFG. Achieving a full year target of JPY 1.3 trillion as well as our ROE target of 7.5% in the midterm management plan are well within our sight. Let me give you some breakdown. Line 1 gross profit is up JPY 163.9 billion year-on-year. Line 2 and below gives you the breakdown. In the first half, there are large swings in net interest income and net other operating profits. This is because in last fiscal year, JPY 490 billion in redemption proceeds of fixed income bear funds booked in net interest income in Global Markets Treasury operations was used to rebalance our portfolio, and recorded losses on the sale of foreign bonds booked in net other operating profit and losses. As a result, we have these movements between these accounting items. Also, in this half year period, with the drop in profit attributed to the sale of Union Bank, it's difficult to see the real change in profits. Let me try to give you how it looks on a real basis after excluding these factors. Line 2, net interest income, with higher rates overseas and improvement in lending margins, pushed up deposit and loan income and is up by about JPY 100 billion. Line 3, fees and commissions, with increases in overseas loan-related fees and security primary revenue, it's up by about JPY 110 billion. Sales and trading profits included in Line 4 also increased by about JPY 40 billion. So our gross profits are making solid growth. Next, Line 6, G&A expenses. With the impact of the sale of Union Bank, it's down by JPY 26.5 billion year-on-year. Line 21, expense ratio, in addition to expense controls owing to a large increase in gross profits, it's about 56.3%, down 5.1 percentage points year-on-year, demonstrating a major improvement. As a result, net operating profits in Line 7, more than offsetting the impact of the sale of Union Bank, is up JPY 190.5 billion at JPY 1,085.7 billion. It's a further improvement from an all-time high in the interim period last year. Next, Line 8, total credit costs. Credit costs of JPY 181.2 billion were incurred. At the bank, it increased due to the absence of the reversal of allowance of last year. But with the absence of valuation losses of JPY 231.9 billion on loans held by Union Bank recorded last year, credit costs are down by JPY 62.6 billion year-on-year. Line 12, equity in earnings of equity method investees. With the change of the closing date in the equity method accounting for Morgan Stanley, we have booked not the usual 6 months but rather 9 months of profits. And as a result, it's up by JPY 66 billion year-on-year. Lastly, Line 13, other nonrecurring gains or losses. Similar to total credit costs, with the absence of valuation losses of bonds held by Union Bank, losses were lower by JPY 315.3 billion year-on-year. As a result, Line 17, profits attributable to owners of parent is up 696.1 billion year-on-year at JPY 927.2 billion. Even when compared against last year's figure, after adding back the valuation losses of Union Bank, which were reversed at the end of last fiscal year, it is higher by JPY 248 billion. The ROE in the first half in Line 19 is at 10.65%. After excluding the impact of the change of the closing date in the equity method accounting for Morgan Stanley, it is 9.7%. Please go to Page 8. The graph in the lower left shows the breakdown of changes in net operating profits by segment. In the customer segments, GCB is down due to a drop in profits of about JPY 30 billion due to the sale of Union Bank. But other business group steadily built up net operating profits with increases in deposit and loan income and in fees and commissions. And as for the whole of customer segments, profits recorded a large growth of JPY 216.9 billion. In the Global Markets segment, the treasury business in the rising interest rate environment conducted flexible position management and maintained a high level of profits of the previous year. And with the increase in profits in sales and trading business, the segment as a whole posted increases in profits. Please turn to Page 9. Right side shows the changes in net income by business segment. While JCIB posted a decrease due to a rebound in credit costs from the previous year, other business groups posted an increase, thanks to higher net operating profits, resulting in an overall increase of JPY 53.1 billion in net income for the customer segments. Please skip to Page 11, which shows the balance sheet summary. In the left table, Line 2 and below, loans increased by JPY 4.4 trillion from March 2023, mainly due to an increase in Line 6, overseas loans, which was mostly due to FX impact or weaken. Line 12 and below. Deposits increased by JPY 4.2 trillion from March 2023, of which overseas deposits increased by JPY 3.8 trillion, which again is almost flat, excluding the FX impact. Page 12 shows the status of domestic loans. The lower right graph shows the trend of the domestic corporate lending spreads. The red line, lending spreads on large corporates, continue to improve. The orange line, lending spreads on SMEs, also shows a gradual improvement. Page 13 shows the status of overseas loans. The bottom line in the upper right graph shows the yield difference between lending rate and deposit rate on a nonconsolidated basis, which has been increasing steadily since FY '22, although it has recently declined slightly due to higher deposit rates. The lower right graph shows the trend of overseas lending spreads. Lending spreads continue to improve steadily as a result of our efforts to improve profitability. Please turn to Page 14, which shows the status of our loan assets. NPL balance in the left bar chart decreased slightly from the end of FY '22. And NPL ratio, shown by the line chart, remains at a low level. Please turn to Page 15, which shows the status of securities, including equity and government bonds. The upper left table shows unrealized gains and losses. Although unrealized losses on bonds have increased since the end of FY '22 due to rising interest rates, unrealized gains on domestic equity securities increased, thanks to rising stock prices. And overall unrealized gains on available-for-sale securities was JPY 1.4 trillion, which was in line with the end of FY '22. Line 8. Unrealized losses on foreign bonds at the end of September was about JPY 1.7 trillion. But as shown at the bottom of the upper right graph, unrealized losses in real terms, taking into account unrealized gains from hedging positions, was approximately JPY 0.8 trillion. We are firmly controlling unrealized gains and losses even as overseas interest rates rise and remain high. Page 16 shows our capital adequacy. CET1 ratio on the finalized Basel III reforms basis, excluding net unrealized gains, is 10.5%, which is above the target range of MTBP and continues to be adequate from the soundness perspective. Lastly, let me explain our shareholder return policy. Please return to Page 3. Dividend per common stock remains unchanged from the initial forecast of JPY 41 per share. In addition, based on the actual CET1 ratio as of the end of September and the outlook for the end of FY '23, we resolved today a share repurchase of up to JPY 400 billion in total, the largest ever for a half year period, in order to improve our capital efficiency. That concludes my explanation.

Thank you very much. Now we will take your questions. The first question is from Mr. Takamiya.

I am Takamiya from Nomura Securities. I have 2 questions. It's about share buyback and the reason you kept the full year guidance unchanged. On the share buyback of JPY 400 billion, the largest for an interim period, what is your thinking behind the decision? Any implications on your approach to your capital policy going forward? Can you talk about the background of your decision of JPY 400 billion of your share buyback? That's my first question. The second question is why you kept your full year guidance unchanged. Your core business performance and your progress against the plan seem very solid, but you still kept your target unchanged. Can you talk about the background behind the decision?

Mr. Takamiya, thank you for the question. Your first question, the background of our decision of JPY 400 billion of share buyback. As I briefly discussed in my presentation, one factor was our capital ratio at the end of September, the level of the CET1 capital and the outlook for the year-end in March. Based on these considerations, we decided on the size of JPY 400 billion. Let me go into some specifics. In May, when we announced our results for fiscal 2022, CET1 ratio was 10.3% at March end. It was higher than our target range. But we decided not to do a share repurchase. At that time, right before that timing in March, there was the Silicon Valley Bank failure and bailout of Credit Suisse. And in April, there was the First Republic case. So we wanted to have more buffer in our capital, and that is why we decided not to do a share buyback. That was the biggest reason for not doing a share buyback in May. Thereafter, the events at these banks in the U.S. and Europe were found to be isolated cases and the spillover effects on regulation and the economy were apparently limited. So that is the biggest difference between our decision back in May and now. Against this backdrop, given the CET1 ratio at the end of September, and our projections for March, taking these into consideration in view of the headroom in our capital, we decided on the amount of JPY 400 billion. Now you asked us about its implications for the future. We will continue with our target range management. As to what will be the target range, we will be revisiting that in our next midterm management plan. But we will be managing our capital within a certain range, and that policy will be continued. And when we do so, obviously, with respect to capital, we will think about investment for organic and inorganic growth, as well as shareholder returns. And in terms of surplus capital, we will look into share buybacks. We want to have a well-balanced allocation, and that position remains the same. If we are not going to use our capital for strategic investments or organic growth, then we will use it for shareholder returns. That is our thinking. In the second half, including how we use our assets, taking into account our projection of our capital ratio at March end, we have decided on the amount of JPY 400 billion. Your second question, the background of our decision to keep our guidance unchanged. We did consider what to do with the full year guidance. As you said, for the first half, this year being the final year of the medium-term management plan, achieving the ROE target of 7.5% was a must. So we already had a challenging plan internally to start with, as well as challenging financial targets. Even setting aside the foreign exchange impact, progress in the first half, especially in the customer segments, was in excess of 110% against the plan. So it is very strong. Now on net operating profits, based on the first half actual results and the outlook for the second half, we took a fresh look at how it will be this fiscal year. In Global Markets in Treasury business, we frontloaded profits in the first half. And in the second half, in line with the initial plan, we will generate some losses mainly from foreign bonds. So a level in line with the initial plan is being expected. In Customer segments, in the second half, we expect that a high level of profits can be achieved as before. And overall, excluding the impact from foreign exchange fluctuations, our assessment is that the initial challenging plan can be achieved. And in our guidance of JPY 1,300 billion, the exchange rate assumption was lower JPY 120 level. Our projection of exchange rate at the fiscal year-end was revised, and it's now upper JPY 130 level. Even after excluding the impact from foreign exchange rate fluctuations, it is in line with the initial plan, and the exchange rate assumption was revised from lower JPY 120 level to upper JPY 130 level. With the weaker yen impact, we often talk about this, that if the yen weakens by JPY 1, the bottom line impact will be about JPY 7.5 billion. So that will be a positive of about JPY 100 billion plus. So our base case is now JPY 1-trillion-and-lower-400-billion level can be projected. On net operating profit in that case, because of the exchange rate impact, JPY 1-trillion-mid-600-billion level is a level that we are tentatively assuming. As we manage our business in the second half in terms of P&L with a weaker yen, positive impact will be felt. But the flip side of that is the U.S. interest rates staying high and the yen is weaker against that background. And that impact is being felt in the P&L. On the other hand, when you think about the balance sheet, with U.S. interest rates staying high, more than initially expected, profitability of the balance sheet has to be considered. We want to make our balance sheet to be more profitable over time. So we feel that we need to look at both the P&L and the balance sheet. So the upside coming from the weaker yen is used partially for loss cutting of foreign bonds, to improve the profitability of our balance sheet. That is also being assumed in the second half. With that in mind and also what is going to be the exchange rate at the fiscal year-end, this is a variable factor. When you take all of these into consideration, for the first half, we decided to keep our financial targets the same and the guidance unchanged. That was the decision taken. Let me supplement. The ROE target of 7.5%, this is something that we want to achieve by all means. Depending on the level of the exchange rate at the fiscal year-end, the required net income level will change. If yen continues to weaken, then a net income of slightly higher than JPY 1.3 trillion will be required. With that assumption in mind, we decided to keep JPY 1.3 trillion unchanged, assuming that we will overachieve it to make sure that the ROE of 7.5% to be achieved. This is our thinking, and that is how we arrived at our decision of not changing our guidance this time around.

Next, Mr. Nakamura, please.

I am Nakamura of BofA Securities. I have 2 questions. First, you conservatively kept your guidance unchanged. So I want to ask you about your dividend policy when net income at the end of the fiscal year rises to JPY 1.4 trillion. I understand that you adjusted the 3-month add-on earnings of Morgan Stanley with the change in the equity method accounting date, but this time yen weakened against the dollar considerably, which increased the amount. So do you also look at the FX conservatively and decide on the dividend payout ratio? Or is it just the Morgan Stanley add-on portion that is deducted? What is your approach to the dividend payout policy if there is an upside? That is my first question. My second question is on Page 6, where you show the next MTBP at a glance. It appears that under management policy, growth investment and strengthening corporate infrastructure seem to be emphasized in bold letters. It also says 3 years for pursuing further growth. As PBR approaches 0.9x, are you fine-tuning your thinking such as increasing the number of growth investment deals that can be considered compared to share buybacks?

Thank you for your question, Mr. Nakamura. To your first question on dividend for FY '23, we left the performance target unchanged this time, as I mentioned earlier, considering the management of the second half and the FX fluctuation at the end of the fiscal year. And also kept the year-end dividend forecast unchanged. As I mentioned earlier, in order to achieve the ROE target of 7.5%, the required profit will change somewhat depending on the FX level. So we will consider the dividend level while also taking into account the full year profit forecast. Since the beginning of the year, we have talked about excluding the 3-month add-on portion of Morgan Stanley, as you rightly mentioned. We will examine how the impact of the weak yen should be taken into account as part of our effort to increase dividend progressively every year. In any case, we will consider that as well. So that is the first point. The second point is on the next MTBP. The management policy calls for 3 years for pursuing further growth through growth investment, strengthening of corporate infrastructure and agility while maintaining the existing management policy. Purpose-driven management and ROE focused management as promoted in the current MTBP will remain unchanged. On top of that, we will continue to build on our profit structure, which has been strengthened to a certain degree to date, but still needs to be enhanced in order to capture growth during the next 3 years. To this end, we will focus on growth investment and strengthening of corporate infrastructure, if it contributes to sustainable future growth, although we may not see the results immediately in the next MTBP. But in order to do that, and to continue to uphold ROE-focused management, our existing business needs to be more resilient. This is the underlying premise. Only then can we utilize capital for medium- to long-term growth. In any case, we will do so in a balanced manner. So in conclusion, we have not changed much from our previous approach. We will maintain this line of thinking, build on it, and pursue and capture growth for the next 3 years. We are in the process of discussing specific business group strategies and will present the package we put together at next year's financial results briefing.

Next question is from Mr. Matsuno.

I am Matsuno from Mizuho Securities. I have 2 questions. The first one is about the outlook for the next fiscal year. If the yen continues to weaken and you try to achieve an ROE of 7.5%, your net income this fiscal year will be substantially high. In your next midterm business plan, when you have a tendency to be conservative, is there a possibility that your bottom line in the next fiscal year will be lower? Should we be assuming that possibility? That's my first question. My second question. With the recent amendment in the BOJ monetary policy, I want to ask about your policy in the global markets operations, and Mr. Yonehana, your own outlook for the monetary policy going forward.

Thank you for your question, Mr. Matsuno. The second question, I have to say, I find some difficulty in answering it. Let me start with the first question. Outlook for the next fiscal year, we are still in the process of developing our plan. It is one component of the next 3-year midterm business plan, so it is still under development. Where we will land at the end of this fiscal year, as you said, Mr. Matsuno, it depends on the exchange rate. At the fiscal year-end if the weak yen continues or even if it strengthens a little, but it's still weak, then as I said earlier, in order to achieve the ROE target of 7.5%, we need to have something like JPY 1.4 trillion. So it may be a matter of comparing against that figure. It is also a function of the level of exchange rate assumption for the next fiscal year. So it's difficult to say. I, myself, would like to see that in the next midterm business plan over the 3-year period, we hope to grow as if we are climbing steps. But still, it's under development so I can't say right now. That is my answer. On your second question, our Global Markets operation given the change in the BOJ monetary policy. From around the second quarter, from the end of July, with flexibility added to the yield curve control, JGB long-term interest rates have risen. In preparation for such interest rate rises, in Global Markets Treasury operations, we are conducting hedging operations, mainly with fixed income bear funds. So currently, domestic bonds in the available-for-sale category are mostly hedged. So our position is poised for interest rate rises. As rates rise, what will be the level that we should go in and take our position? Right now, it is difficult to tell. Going forward, with short-term rates normalization and when long-term interest rate rises are expected, at some timing, we will be going in to take our positions. Now about monetary policy developments going forward. This is the prerogative of the BOJ, and it is a matter of how they will decide. Reading the minutes that are made public and their interactions with the media. As we take them into consideration, it seems that a virtuous cycle of rises in prices and wages. Once it is confirmed or observed, that will be the basis for their decision. As for these preconditions, I myself believe that they will be met. So it is a matter of at what timing the BOJ will take that decision. Personally, I think that the mechanism of price rises is quite strong. And given the corporate profits outlook for this fiscal year, I think we could expect a commensurate level of wage hikes next spring. It is just a matter of timing. The rest is up to the BOJ to decide, I think.

Next, Mr. Yano, please.

This is Yano from JPMorgan. I also have 2 questions. First, could you put in perspective the one-off factors for the first half? ROE for the first half, by MUFG definition, is 10.65%. Even excluding the JPY 66 billion contribution from Morgan Stanley, ROE was close to 10%, above 9.5% which is the level of ROE as defined by MUFG. If exchange rate has minimal impact on ROE, I would expect ROE in the first half to be very high. What are the one-off factors that led to this? And what factors, if any, need to be deducted? If there is nothing in particular, what is the base case ROE, which is now targeting 7.5%? Probably not 10%, but how high can it be? If you could share with us your view on ROE in real terms, and if it has changed after the first half results. So ROE is my first question. My second question is simple. Are you seeing changes in the drivers for improvement in domestic corporate lending rates on Slide 12? For example, are there any successful negotiations for rate increase in expectation of higher interest rates ahead?

Thank you, Mr. Yano. To your first question on ROE, onetime factor in the first half, as you pointed out, is the inclusion of 15 months' worth of earnings of Morgan Stanley, due to the change in the equity method accounting date. We estimate the amount for the first quarter of FY '23 to be JPY 82.7 billion, based on the exchange rate at the end of September. In terms of the factors weighted toward the first half of the fiscal year, Treasury department realized gains in the first half, front-loading the full year plan, which is approximately JPY 140 billion. So that amount is weighted toward the first half. This is another one-off factor in the first half results. I think your point is that ROE still exceeds 7.5% after taking them into account.

You are right.

But when looking at the full year, considering the treasury adjustments made between the first and the second half, I said that low JPY 1.4 trillion range is the realistic level, including the exchange rate impact. On that basis, 8% is one level. We have not discussed the current ROE level internally, but I think that is about right as one estimate. And to your second question, the driver of the uptrend in domestic corporate lending spreads. We have not had any particular negotiation on lending rates and have not seen base rate shifting from floating to fixed rates in expectation of higher interest rates. There are 2 key factors for this. We have always negotiated to raise even 1 basis point for each loan. And high-margin deals, including LBO finance and real estate finance, are contributing to the increase in lending spread, which has always been the case. There are no particular movements due to the interest rate trends.

I understand well. Thank you.

Next is Ms. Kuroda.

I have a similar question, if you could take time to answer it. In the slide on the bond portfolio, I observed that held-to-maturity bonds have increased and the domestic bonds in the available-for-sale category seem to have decreased. Has there been any change in your investment policy? If you have changed something, can you talk about that? Also a related question. On the right-hand side, there is disclosure of unrealized gains or losses, reflecting hedging positions for domestic bonds. What is included in these hedging positions? Are these [ bare ] investment trusts? Is there anything else, anything to net out, something with duration on the liability side?

Thank you for your question, Ms. Kuroda. About the first question, available-for-sale domestic bonds have decreased and held-to-maturity bonds increased. Broadly speaking, there are 2 factors. General domestic bonds, other than government bonds, including municipal bonds and corporate bonds, when they are rolled over, we switch them to the held-to-maturity category. That's one. And as for JGBs, we need to hold some of them for the purposes of collateral. We hold them as held-to-maturity bonds. We are trying to reduce our interest rate position in the available-for-sale securities, and the required JGBs are held as held-to-maturity bonds. We conducted such an operation in the first half. That is why available-for-sale domestic bonds decreased and held-to-maturity bonds increased. That is on the first question. And the second question, yen bonds figures after reflecting hedging positions. There are 2 types of hedging effects that are reflected in these figures. One is fixed income bear investment trusts. The other is swaps where the hedged item is marketable securities themselves. And valuation gains and losses of such hedging positions are factored in the unrealized gains or losses on domestic bonds, reflecting hedging positions as shown here.

Next, Mr. Matsuda, please.

This is Matsuda from Daiwa Securities. I have 2 questions. On customer and Global Markets segments. First, customer segments remain strong, and overseas lending spread is also improving. Please give us a summary of the customer segments for the first half and the outlook for the future. . And the second question is regarding Global Markets. You maintain profit growth, but you mentioned JPY 400 billion earlier. You are reducing your exposure to foreign bonds. But could you give us your outlook on foreign bond investment going forward?

Thank you. Regarding your first question on the strong net operating profits for the customer segment. In the material, Page 8, bottom left graph shows the year-on-year change in net operating profits. The drivers are JCIB and GCIB. For JCIB, foreign currency deposit interest income was quite profitable in FY '22 when U.S. interest rates were on the rise. In addition, lending spreads on domestic and overseas loans have been expanding. So non-Japanese yen deposit interest income and loan interest income are increasing. Furthermore, related fee income is also increasing and driving the growth. GCIB's contribution is equally large, not so much through deposit interest income, but more through overseas loan interest income, O&D and fee income from securities primary. These 2 business segments have been very strong contributors. Looking at the progress in the first half, while I mentioned that the customer segments as a whole achieved over 10% vis-a-vis the first half plan, all business groups achieved the plan. Although some business groups saw a larger increase in profit than others, depending on various factors, all business groups are firmly executing their strategies and showing favorable results. It remains to be seen whether the lending spread, which serves as the foundation, will continue to increase at the same rate as in the past. But I think this uptrend will continue. Regarding your second question on foreign bond investment in the Global Markets. We recognize that the environment is difficult to manage. Medium- to long-term interest rates have flattened considerably, but the yield curve is still inverted. The challenge is how to manage the situation. In this context, our current operations are aimed primarily at controlling unrealized gains and losses while also trying to increase profitability, including trading profits. Given the profitability of the balance sheet, I think we are at a critical stage where it is important to increase profitability while recording loss on sale of foreign bonds to a certain degree.

I understand very well. Thank you very much. .

Thank you very much. Since we are coming close to the scheduled time and there seems to be no one else with questions, we will conclude the Q&A session. Before closing, Mr. Yonehana would like to say a few words. .

Thank you very much for your valuable questions. Today, I explained the results of the first half of FY 2023. We will continue our efforts in financial and capital management to achieve sustainable improvement in shareholder value while focusing on our shareholder and investors dialogue. I would like to ask you for your continued understanding and support. Thank you very much for your attendance today.

Thank you. Today's conference will be available on demand as an archive on the company hotline website until Monday, November 21. This concludes the web conference on Mitsubishi UFJ Financial Group's Financial Highlights for the First Half of Fiscal Year Ending March 31, 2024. Thank you very much for your participation today. [Statements in English on this transcript were spoken by an interpreter present on the live call.]