Tokyo Century Corporation

Lease, installment, and loan transactions involve credit extension over relatively long periods, and if non-performing receivables increase due to economic downturn or deterioration in the creditworthiness of business partners, this may affect business performance through increased bad debt expenses. As countermeasures, the company implements credit risk quantification and management based on the Risk Management Committee regulations, deliberation of complex cases through the deal review committee, operation of single-obligor credit guidelines based on the internal rating system, and avoidance of credit concentration across the entire portfolio through country exposure management.

As the company actively pursues overseas business development and investment, changes in laws and regulations or shifts in the political, economic, and social conditions in the countries and regions where it operates may hinder the smooth progress of business development and investment, thereby affecting business performance. In light of the materialization of geopolitical risk, the company has established country risk as an independent risk category and has developed a management framework including enhanced monitoring of country exposure, designation of ineligible countries for investment and financing, and strengthened risk assessment of overseas business partners.

While lease payments for lease and installment transactions are, in principle, fixed for the duration of the contract, the portion of funding procured at variable interest rates is affected by fluctuations in market interest rates, and a sharp rise in market interest rates could affect business performance. In particular, Japan is facing a structural shift from a prolonged low-interest-rate era to a "world with interest rates," which is heightening this risk. The company has established an ALM Committee and manages risk based on ALM analysis utilizing hedge ratios, VaR management, and other tools.

Since the revenues and expenses of overseas consolidated subsidiaries and equity-method affiliates are converted into yen at the average exchange rate for the period, significant fluctuations in exchange rates may affect business performance, and there is also a risk of erosion of shareholders' equity and reduction in period profit related to overseas investments. The company addresses this through comprehensive asset and liability management utilizing GPS and VaR management by the ALM Committee, and hedges risk as necessary.

In strategic alliances, acquisitions, and investments with domestic and overseas partner companies, if alliances are dissolved or expected effects are not achieved due to changes in laws and regulations, intensified competition, or changes in the business environment, impairment losses, valuation losses, equity-method investment losses, and impairment of goodwill and intangible assets may occur, potentially affecting business performance. The company has strengthened its management through quantitative and qualitative evaluation at the investment committee based on the investment regulations, a unified monitoring process after execution, and the introduction of risk amount guidelines for investments with higher risk profiles.

With the expansion of operating leases and asset investments in aircraft, ships, automobiles, real estate, power plants, and other assets, the proportion of the asset business within the overall portfolio has increased, and a sharp change in the market resulting from a significant deterioration in economic or social conditions may cause a decline in profitability of the target assets, a substantial drop in asset value, and impairment losses. For aircraft, the company builds a portfolio centered on highly liquid, relatively young narrow-body aircraft with diversified lease maturities, and manages risk through regular monitoring on a consolidated basis using VaR and the introduction of risk amount guidelines for aircraft and real estate.

The company raises funds through bank borrowings, corporate bonds, commercial paper, and receivables securitization, among other means, and if the funding environment changes due to turmoil in financial markets or deterioration in the company's financial condition, constraints on fund procurement could affect business performance. The company has introduced liquidity management indicators such as long-term funding ratio, stable funding ratio, and liquidity coverage indicators, and addresses this risk through diversification of funding sources, committed line agreements, overdraft agreements, and adjustment of cash on hand.

In addition to risks such as computer system outages, malfunctions, unauthorized access, virus intrusion, and leakage of customer or internal information, new risks may materialize with the introduction of generative AI, including information leakage, copyright infringement, and misjudgment due to hallucination. In addition to obtaining ISO27001 certification, establishing the TC-CSIRT, conducting regular third-party assessments, and conducting regular cyberattack drills, the company has established usage guidelines and strengthened AI governance in connection with the company-wide introduction of generative AI (such as Google Gemini).

As a long-term risk extending to 2040-2050, there exist acute physical risks from abnormal weather events such as typhoons and heavy rains, as well as transition risks such as the introduction of carbon taxes and stricter regulations, and climate change with major societal impact could affect business performance. Based on its endorsement of the TCFD recommendations (April 2021), the company identifies climate change risks and opportunities using multiple scenarios for its environment and energy business, aircraft business, and Automobility Business, conducts qualitative and quantitative business impact assessments, and performs environmental impact assessments for individual deals along with monitoring by the Executive Committee and the Risk Management Committee.

As the company pursues business diversification domestically and overseas, failure to sufficiently secure and develop the diverse talent required, or the departure of employed personnel, may lead to additional costs for hiring specialized personnel and a decline in service quality, thereby affecting business activities, performance, and financial condition. The company strives for the stable securing and development of capable personnel and the enhancement of employee engagement by improving the workplace environment through various measures, including innovative recruitment methods, strengthened diversity initiatives, and career challenge programs.