Yoshio Kono

Yoshio Kono
President and CEO

The Norinchuckin Bank

Yoshio Kono has been the Chief Executive Officer of The Norinchukin Bank since April 1, 2009 and also serves as its President. Prior to becoming the Chief Executive Officer, Kono served as Managing Director, Senior Managing Director, Deputy President and Co-Chief Executive Officer at The Norinchukin Bank. Kono serves as a Director at The Norinchukin Bank and serves as its Member of Supervisory Committee.

 

Quotes

Yoshio Kono

Yoshio Kono

President and CEO, The Norinchuckin Bank

Now, taking our cue from the Lehman shock, we maintain a policy to scale back exposure.

Yoshio Kono

Yoshio Kono

President and CEO, The Norinchukin Bank

We have also stepped up our risk management, while at the same time switching to a policy to take an interest rate risk by investing in fixed income and other relatively safer bonds to make profits.

Yoshio Kono

Yoshio Kono

President and CEO, The Norinchuckin Bank

We manage about 30 trillion yen abroad. Although we are aiming to diversify our international portfolio, at this point we manage about 80% to 90% in dollar assets in the US. We manage less than 10% in Euro assets, with investments made in the European continent and Britain, and the remainder in some parts of Asia. Our bank will put more emphasis on Asia and Oceania from now on, just as other financial institutions do.

Yoshio Kono

Yoshio Kono

President and CEO, The Norinchuckin Bank

We are interested in Brazil, though. Brazil is expected to make further economic growth on the back of the coming Olympics and the World Cup. It is looking to join the advanced countries, but at the same time some commentators are pointing to the risks of inflation.

Yoshio Kono

Yoshio Kono

President and CEO, The Norinchuckin Bank

In the coastal areas, some of our member banks were swept away while others lost ATMs and terminals. For this reason, the Norinchukin Bank decided to provide financial assistance to the farmers, fishermen and foresters affected by the disaster who were trying to make a new start.

Yoshio Kono

Yoshio Kono

President and CEO, The Norinchukin Bank

The disaster hit on March 11 and by the end of that day we had established the disaster countermeasures headquarters.

Yoshio Kono

Yoshio Kono

President and CEO, The Norinchuckin Bank

Our bank has branch and office managers in the Miyagi, Fukushima and Iwate Prefectures, which were all hit by the disaster. I told these local heads, who were the on-the-spot commanders, not to panic but to sit tight and issue explicit directions, and that if things went wrong, I as the president would assume full responsibility.

Yoshio Kono

Yoshio Kono

President and CEO, The Norinchuckin Bank

We have been sending two to three employees a year to the MBA programmes and we now have nearly 100 MBA graduates working in the organisation. We have since increased the number of students to six or seven a year.

Yoshio Kono

Yoshio Kono

President and CEO, The Norinchuckin Bank

We have now radically changed that by developing a global HR training process to screen potential candidates and send them abroad to gain work experience for a year, beginning in 2012.

Yoshio Kono

Yoshio Kono

President and CEO, The Norinchuckin Bank

We have not yet created a globally diverse work environment but we have begun the process. We have secured posts, in Japan and abroad, suitable for global work. We also rotate our employees to work at investment firms. A good number of people have opted to take such posts. I find that very reassuring.

 

Read interview transcript

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How did your bank recover from being affected by the global fallout of the Lehman?

When our bank was hit by the Lehman shock it recorded a net ordinary loss of over 600 billion yen in the fiscal year ended March 31, 2009. Although many financial institutions were affected by the crisis, our bank was hit the second hardest among Japanese companies. In its 88-year history, the Norinchukin Bank has recorded a net loss only once before, the amount being in the order of tens of billions of yen. So this second net loss was far greater.

It was widely said that the hardest hit in the Lehman shock were securitised products, especially subprime loan products (subprime). Subprime was the highest risk product but there were many other securitised products with properly managed risks which plummeted en masse because of their association with subprime.

Our bank's portfolio at that time did include a very small amount of subprime but it largely consisted of securitised products without any cause for concern over their redemption. Market prices of subprime and other inferior quality products never came full circle, but we were convinced that the prices of the securitised products that fell in response to general price decreases would surely come back again, just as bonds did.

Thanks to a capital increase of 1,900 billion yen made in March 2009 by membership organisations such as JA and JF, our equity capital was strengthened, making it possible for us to hold on to those securitised products until, as we had predicted, prices recovered within 18 months to two years. Our conviction dovetailed nicely with the capital increase that gave us the means to ride out the tough market environment. I think these were the prime reasons for our recovery in such a short period of time.

How did your investment strategy and investment portfolio change after the Lehman shock?

We continued to work towards the improvement of our balance sheet and set a target to be able to pay dividends within four years. As it turned out, we were able to do so in just two years.

Before the Lehman shock, we spent seven to eight years building a business model for "international portfolio diversification", accumulating marketable credit risk assets, from zero yen to 10 trillion yen in outstanding balance. Whenever we saw lax risk management, we reviewed it. Now, taking our cue from the Lehman shock, we maintain a policy to scale back exposure.

We have also stepped up our risk management, while at the same time switching to a policy to take an interest rate risk by investing in fixed income and other relatively safer bonds to make profits.

Are you going to maintain the policy over the next three years?

We are aware of the challenges posed by taking more interest rate risks than credit risks vis-a-vis other financial institutions, but then again we believe that this is a necessary step in a transitional period. Over the next three years, we think it would be better to make a careful assessment of the market and seek profits from long- and short-term interest rate spreads, in order to stabilise our bank.

Your bank is a global institutional investor. In which areas of the world are you interested?

We manage about 30 trillion yen abroad. Although we are aiming to diversify our international portfolio, at this point we manage about 80% to 90% in dollar assets in the US. We manage less than 10% in Euro assets, with investments made in the European continent and Britain, and the remainder in some parts of Asia. Our bank will put more emphasis on Asia and Oceania from now on, just as other financial institutions do. Furthermore, I think it necessary to invest in emerging markets such as BRICs. However, since our investment volumes in them are way too small and their country risks difficult to determine, we will have to be prudent about this.

We are interested in Brazil, though. In fact, we are planning to make a look-see trip next year. Brazil is expected to make further economic growth on the back of the coming Olympics and the World Cup. It is looking to join the advanced countries, but at the same time some commentators are pointing to the risks of inflation. One of our executives has already visited Brazil and made investments in local companies amounting to tens of billions of yen. But I would like to see the local situation for myself and see whether there is a room for further investment.

For a global institutional investor, you talked about going back to basics, from overseas-oriented to home market-oriented. What did you mean by that?

At a news conference in April 2009 when I became president, I was asked whether, in the wake of failed international portfolio diversification, our bank would discard that business model. As I said then, I am firmly convinced that we need to maintain international portfolio diversification in order to secure profits. But I also said that we will be very thorough in managing risks.

Meanwhile, we will also aim to become a financial institution with an enhanced, high-profile retail base at home. The task will be assigned specifically to JA Bank and JF Marine Bank (which are managed by agricultural and fishery cooperatives, Prefectural Banking Federations of Agricultural Cooperatives (Shinnoren), Prefectural Banking Federations of Fishery Cooperatives (Shingyoren) and the Norinchukin Bank). JA Bank and JF Marine Bank combined hold about a 10% share of the retail market, trailing the larger share held by the Post Office Bank of Japan.

The Norinchukin Bank is the national headquarters of the cooperative system and has only a small number of outlets. Lending roles have, therefore, been divided within the cooperative system. JA and JF have provided retail loans to farmers and fishermen, while Shinnoren and Shingyoren have provided lending at the prefectural level. The Norinchukin Bank has been engaged primarily in financing large enterprises in Japan.

However, after the Lehman shock, we received a number of complaints from members of our cooperative system saying that the Norinchukin Bank had been hit hard because there had been too much emphasis on investments in overseas and general corporations and not enough in agriculture and fishery industries. We also received messages advising us to divert more funds into those industries. As a result, our bank reaffirmed that our contribution to the cooperative system is an unchangeable mission for us, and we are beginning to further our role as the central organisation of that system.

For example, over the last 20 to 30 years more farmers have set up companies which now account for tens of thousands. JA has not been able to form relations with these companies, and so the Norinchukin Bank should target these companies for lending. That's part of what we call going back to basics.

What measures did you take to mitigate the impact of the Great East Japan Earthquake upon your bank?

The earthquake hit many but, among the financial institutions, JA Bank and JF Marine Bank were hit hardest. This was because these banks had been serving the disaster-hit areas as a kind of life infrastructure. We launched the reconstruction assistance programme with a hope that by helping member organisations hit hard by the disaster we would be able to repay them for the capital increase they gave us three years ago.

In the coastal areas, some of our member banks were swept away while others lost ATMs and terminals. For this reason, the Norinchukin Bank decided to provide financial assistance to the farmers, fishermen and foresters affected by the disaster who were trying to make a new start. In addition, we made available 1 trillion yen worth of loan facilities, providing a framework for compensating JA and JF for part of their damaged infrastructures. We also decided to make available 30 billion yen from our profits over the next four years.

Your bank took a flexible approach to the unheard-of disaster that captured worldwide attention. What role do you think a financial institution or a private enterprise should play in a situation like that?

The disaster hit on March 11 and by the end of that day we had established the disaster countermeasures headquarters. I felt that it was most important for top management to get the message out immediately.

In April, we made available 300 billion yen worth of loan facilities for farmers and fishermen: 50 billion yen for fishery cooperatives and 250 billion yen for agricultural cooperatives. We also said that we would subsidise the loans so that borrowers would not have to pay interest.

In order to execute the lending, it was necessary to coordinate with prefectural governments and related organisations and also decide on the outline of the lending beforehand, but I thought I should send out the message first so that stricken people would feel reassured. It was not intended to urge them to “try harder” but to let them know that we were “on their side”. Our position was to be prepared to assist with a variety of measures as and when required.

Immediately after the disaster, I also sent an explicit instruction to the heads of local operations about how they should behave in the crisis. Our bank has branch and office managers in the Miyagi, Fukushima and Iwate Prefectures, which were all hit by the disaster. I told these local heads, who were the on-the-spot commanders, not to panic but to sit tight and issue explicit directions, and that if things went wrong, I as the president would assume full responsibility.

How is your bank working on the development of human resources and the labour force in local areas?

For the 3,000 employees of the Norinchukin Bank, the human resources development team of the Personnel Division has built up a tightly organised training system. It has trained a variety of professionals, including those who can use English to manage international portfolio diversification and those who can manage corporate financing. In a way, those 3,000 employees comprise the headquarters of JA Bank and JF Marine Bank.

However, in order for our cooperative banking business to increase its share of the retail market and grow into a financial institution with a solid base, it is necessary to improve the level of human resources of member organisations such as JA and JF on the mid- to long-term basis. To do that, we have set up a Cooperative System Human Resources Development Division to cater for the entire cooperative banking system.

This is an historic step for our bank. Until now, agricultural and fishery cooperatives, which are individual entities, have been responsible for basic human resources training. Kyodo Seminar, which is a subsidiary of our bank, has been providing collective training to develop skills such as bookkeeping, tax accounting and sales skills as well as correspondence courses. From now on, our bank will be more involved in the planning of human resource development schemes throughout our cooperative system, promoting human exchanges among agricultural, fishery and forestry cooperatives, and training top-level managers, such as those of the financial divisions and the managing directors of agricultural cooperatives. We are now working on specific plans to do that.

How are you developing human resources in your bank?

There are two important points here. One is to have our employees gain experience of working in the cooperative system, at JA and JF, for example. The other is to develop human resources with language skills good enough to work abroad.

We have been sending two to three employees a year to the MBA programmes and we now have nearly 100 MBA graduates working in the organisation. We have since increased the number of students to six or seven a year.

I am the first employee of the Norinchukin Bank proper ever to be promoted to president. All of my 11 predecessors were former administrative vice ministers of the Ministry of Agriculture, Forestry and Fisheries. Inside the Norinchukin Bank itself, there was no established system to develop top executives. We have now radically changed that by developing a global HR training process to screen potential candidates and send them abroad to gain work experience for a year, beginning in 2012.

What is the challenge in developing global human resources?

We have not yet created a globally-diverse work environment but we have begun the process. We have secured posts, in Japan and abroad, suitable for global work. We also rotate our employees to work at investment firms. A good number of people have opted to take such posts. I find that very reassuring.

Is there anything you want to add?

After I became president, I keenly felt that the size and status of a company depends very much on the calibre of the top executive. I have been making efforts to develop my abilities over the last two years, but I am not certain that I have succeeded. I work hard day in and day out, but if someone emerged with greater calibre as a top manager, I would pass the torch to that person because it would be best for the bank.