Looking back at the holding company structure

With the advent of the Reiwa era in 2019, we saw clear and substantial changes in our customers' needs. And after the pandemic, the environment surrounding various businesses changed dramatically, across industries. Hokkoku Bank adopted a holding company structure in order to respond to its customers' needs in a speedy and attentive manner. There is no continuity to a business model heavily weighted toward devoting management resources to the lending business-a model based on logic drawn from the suppliers' perspective without the essence of being customer-driven. Our move was based on such a judgement. Financial business that involves just simple money lending and settlement will face further digitalization and become commoditized. Thus, we aspire to elevate the professional skills of our management and employees, collectively achieve business growth through consulting and advisory services to corporate and individual customers, and help enrich the lives of each individual. At the same time, we want to develop a business model unattainable by Al. To these ends, we decided to establish a holding company (an integrated regional company) truly suitable for the new era. Hokkoku Bank has embraced the corporate philosophy, "Trust-a bridge to a fruitful regional future,"over the past 80 years. At the juncture of our shift to a holding company structure, we additionally introduced the brand philosophy: "Hokkoku Financial Holdings exists to act for the benefit of people and the world,enriching the lives of individuals and society as a whole." The brand slogan "Quality Company, Good Company" is the declaration of our commitment to taking action. While our journey continues, we have received numerous accolades in various fields over the past two years. These include the DX Certification, Human Capital Leaders 2022 award, and Minister of Regional Revitalization award at the 13th "Companies that Deserve to be Valued the Most in Japan" Awards. I am confident we are making steady progress in implementing our business strategy.

From three to seven strategic pillars

In updating our medium- to long-term business strategy, we added four new initiatives to the existing priority measures in the card, consulting, and leasing businesses, designating a total of seven priority areas.

1. In the previous fiscal year, we began an internal test run of our new internet banking system for corporate customers. All development work will be completed this fiscal year, and a full-scale launch is slated for next year. In this project, in addition to revamping the system design, we revisited the fundamental thinking behind the design and substantially bolstered security. This system is a public cloud-based internet banking service for corporate customers, the first of its kind in Japan. We expect it to vastly improve convenience and operability. According to our plan, in just a few years, the accounting staff at our customer companies will be able to complete their bank-related accounting work right on this system. At Hokkoku Bank, as well, the system will dramatically save labor associated with the processing of loans and lease transactions.
2. In consulting and advisory services, we will take on a segment-specific approach, covering corporate customers both in the Hokuriku region and beyond. In June 2023, FD Advisory merged with ALCOLAB, Ltd., which is headquartered in Tokyo. As an investment advisory firm under the name FDAlco, this company will step up asset management advisory services to individual customers, corporations, and financial institutions.
3. In the area of cashless payment, we will start a new digital regional currency project in addition to our brand card initiatives centered on Visa. We plan to introduce services this summer, and stable coins based on blockchain technology should be ready for use by the end of the year. Our aim is to improve productivity of the region as a whole by further raising the cashless payment ratio, while at the same time enhancing efficiency and convenience of public services through linkage with the My Number identity verification system.
4. In the investment business, we began originating funds dedicated to corporate revitalization over a decade ago. We have already raised approximately ¥7.0 billion through Fund No. 3 and supported the revitalization of 20 companies. We are actively structuring other funds such as those for startups and companies in their growth phase, as well as for businesses in the Noto area, and are looking to achieve a total investment balance of ¥100.0billion in 10 years' time.
5. Over the past decade or so, the Market Department of Hokkoku Bank has secured stable income, without being swayed by the market environment. Rather than just investing in Japanese government bonds, the department has worked to carry a diversified portfolio while stringently managing associated risks. Moving forward, we intend to raise our operations in the market to a more sophisticated level so that we can determine expected returns and risk tolerance with even greater clarity and engage in sustainable and stable investments.
6. By implementing digital transformation ahead of other companies, we were able to make steady progress in our firm-wide reform. Our major systems-related investments have already run their course for the most part. We have a very clear image of our strategy, which is to make thorough use of public cloud services while reducing systems-related costs. Moving forward, we intend to further incorporate new technology and architecture, and achieve systems modernization at an accelerated pace.
7. While managing our businesses in a progressive and proactive manner, we have implemented multiple measures simultaneously to enhance our risk management and compliance. ESG is also at the center of our management priorities, and we are working to expedite our actions. On the environmental front, we intend to accomplish our goal for CO₂ emission reductions ahead of schedule, now seeking to reach effectively zero emissions in 2030. We also plan to build bases that qualify for "Nearly ZEB" or "ZEB Ready" certifications and speed up the introduction of electric vehicles (including hybrid vehicles) to our operations. To strengthen our human capital, we have implemented measures in a number of areas. We updated our personnel system to stay abreast with the times, discontinued the performance-based award program, and created a support system that promotes recurrent education and reskilling among the employees. We also took steps to create a work friendly environment. We will continue to respect the career plans of employees with diverse sense of values and further support their learning. By doing so, we hope to foster management talent capable of becoming a driving force within our company and the local community at large, and thereby further contribute to regional growth. In governance, to date, we have implemented a number of measures ahead of schedule. For instance, we clarified the details regarding the operation of our Board of Directors and Nomination and Compensation Committee, the mission of independent outside directors, and succession planning, and revised the executive compensation system. From the current fiscal year, our Board has nine directors, with six being Audit and Supervisory Committee members. Discussions are under way to further strengthen governance from next year onward, and we plan to introduce new measures as early as in the latter half of the current fiscal year.

Driving force behind the new business model

The speed at which the new business model takes root hinges on our corporate culture and the mindsets of our management and employees. In short, what counts is whether we can adamantly take actions based on our corporate philosophy and brand philosophy. Without our firm commitment to making customers the starting point of our operations, the business model of Hokkoku Financial Holdings would not have a meaning. Nor could we become a sustainable company. In this sense, our management ideology can be defined as the pursuit of added value and ESG.
Of course, business management focusing on added value and ESG is easier said than done, and we have spent vast amounts of time thus far in implementing a variety of specific measures. The phrase "removal of sales quotas" is often used to describe our sales strategy. The real objective here is to accomplish a major shift in our sales strategy, switching our focus from volume to quality, and to added value. To eliminate all obstacles hampering our added value-driven management, we I have made various efforts to reduce the extensive amount of time and labor spent on things that are not directly related to our customers. Breaking away from quotas was only one of these efforts. We are working to eliminate the concept of budgets as well as meetings set up for the sake of securing consensus in advance. We are pushing forward on digitization, digitalization, and reskilling, and efforts are under way to reset people's mindsets and change the corporate culture. We have decided to focus on KPIs, delegate authority, ensure transparency within the organization, and invest in intellectual capital (personnel system in a broad sense). All these initiatives are intended to drive forward our management approach centered on added value and ESG. Amid these activities, I have noticed firsthand that thorough commitment to our corporate philosophy and brand philosophy has transformed some management and employee behaviors. It is a self-evident truth within our Group that investment in recurrent education and reskilling helps reset our people's mindsets, and leads to the improvement of our organizational capabilities. As the quality of internal communication improves, our corporate philosophy and brand philosophy will gain further footing, encouraging our management team and employees to exert their power in actions that generate added value. I am also confident that this leads to the evolution of concepts behind our products and services. Such "redevelopment of organizational capabilities" is what lies behind our initiatives, which are often considered progressive. To date, we made efforts to remove personal guarantee obligations by business owners. We completely eliminated the base handling fees of internet banking users (corporate and individuals), the remittance fees for transactions between Hokkoku Bank branches, and commissions on purchases of investment trusts. We also distributed card payment devices free of charge. Moving forward, we will continue to further enhance the convenience of our products and services with strong momentum. As you can see, our branding efforts begin with internal branding. Going forward, our five in-house designers-all well-versed in these types of internal branding-will be working together with the marketing strategy team to bolster external branding as well. Rather than just passively acceding to reforms led by the Tokyo Stock Exchange, we are actively embracing efforts to enhance our corporate value. As one of the leading companies in our regional economy, we are also accelerating ESG-related initiatives. Specifically, in addition to dissolving cross-shareholdings, we plan to raise the level of dialogue with companies in which we hold shares for pure investment purposes. With the introduction of performance-linked compensation for our officers and a restricted stock program for our employees, our management team and employees now share the same viewpoint as our shareholders. Added value-driven management requires the full understanding and consent of our management team and employees as well as our customers. I believe the sharing of metrics such as ROE and PBR among our entire team of management and employees, while pursuing customer-centric businesses, will boost our people's motivation to generate results. Further improvement in internal communication has substantially contributed to the betterment of external communication that calls for sincere engagement with our customers and investors. In my view, this has led to a healthy sense of mutual focus in our communications and greater attention to enhancing governance. Ideas that are meticulously thought out from the customers' perspective encourage the evolution and growth of our customers and serve as a catalyst for the evolution and development of the local community. In the medium to long term, they will sharpen the sensitivity of our management and employees, ensure long-term profits, and contribute to the lasting presence of Hokkoku Financial Holdings.

Toward ESG evolution

Environmental issues present serious challenges to the Earth's survival. This is a common understanding within our Group. As a leader in our region, we intend to proactively engage in various initiatives with strong commitment. At the same time, we are encouraging members of our community to jointly take part in these initiatives.
Human capital is an integral component of all business. Therefore, we must step up our efforts to foster highly skilled professionals, as it is our duty as a leading company to develop human resources for the region at large. Governance is the driving force behind safeguarding and enhancing the quality of business management. This fiscal year, we are working once again to improve the quality of deliberations at our Board of Directors meetings. Starting this fall, we plan to implement new measures to refine our succession planning, and improve the quality of discussions at the Nomination and Compensation Committee meetings with a view to further enhancing governance. Recently, our efforts have often been associated with words like proactive management," "challenge-driven business development," and "moves of the first penguin." Third-party comments aside, every challenge must be backed by an advanced risk management and compliance structure. For this reason, integrity is what we emphasize the most when we hire and utilize personnel. Our work entails more than just maintaining psychological safety, promoting a flat organization, working in an agile manner, and ensuring transparency. In addition to pandemics like COVID-19, we now face more risks than ever, including those associated with earthquakes, landslides, information leaks, system failures, external attacks on systems, and instability in the financial and capital markets. Accordingly, we also deploy resources to constantly improve our defense as one organization.

In closing

Lately, the phrase "Japan's three lost decades" is often featured in various media. To break away from this stagnation, companies must take on the challenge of adopting new business models. We believe such challenges go beyond companies in metropolitan areas. In fact, as one of the leading companies in the regional economy, we consider this challenge to be our mission. Beyond that, we must accelerate communication and collaboration, and spark innovation not only within our Group but also in the region at large, as this is our true purpose. In recent years, we are seeing clear signs of progress that point to vast possibilities. I have reaffirmed my resolve to create a new future together with our customers, shareholders, management and employees, and other stakeholders.