Trust Recovery Growth Vitalization - Marubeni

Risk Management
As emphasized in the “V” PLAN, we have positioned risk management as the key
tool to ensure our earning power and to maximize corporate value. Marubeni has
implemented an integrated risk management system based on Value at Risk (VaR) as
part of a ceaseless drive to improve the management of risk.
Through the 1990s, Marubeni applied a project-by-project
approach to risk management that made risk-return
performance a function of the aggregate of many individual
management decisions. This approach had the disadvantage
that it did not provide adequate control over risk
diversification. Consequently, Marubeni was unable to
appropriately respond to the simultaneous and frequent
materialization of risks in specific segments like during the
currency crisis in Asia.
Based on these experiences, Marubeni is shifting its focus
to a management method, which uses “portfolio management”
to oversee the risk in group assets as a whole so as
not to appropriate assets unevenly among certain countries,
industries, or clients.
The basis of portfolio management is in quantifying the
risk of assets for the Group as a whole, including those
held by subsidiaries. In order to do this, assets are categorized
by country, industry, credit rating, and projected
recovery date, and by calculating the Value at Risk (VaR),
“Value at Risk” Assessment Scale
Small asset value Large asset value
Worst case (99%) asset value
Unexpected loss =
Handled with equity capital
Expected asset value
Expected loss =
Reserves
which takes into account dispersion effects and correlations.
By adopting a simulation system that uses an
independently developed computerized statistical model,
we have made it possible to grasp risk levels at a more
minute level than other companies. The method, called
“Integrated Risk Management,” integrates various risk
factors, and monitors them as one risk value.
Based on the risk of the maximum decline in the value of
Group assets as quantified by integrated risk management,
profit after tax less risk asset cost (PATRAC*, which equals
net income – [risk assets x 8%]), the main management
metric in the “V” PLAN, is calculated and used as the portfolio
unit performance indicator.
PATRAC indicates total added value after adjustment for risk
and enables each portfolio unit to achieve maximum returns
for a given level of risk. Marubeni is committed to proactive
review and reshuffling of its assets to achieve balanced
growth through the maximization of PATRAC.
*PATRAC = Profit After Tax less Risk Asset Cost
Amount of principal
High possibility
Low possibility
Definition
The largest amount of momentary
loss expected to occur within a
certain time period, based on a
certain probability standard
determined by the decision maker.
= VaR reliability interval of 99%
= Required stockholder capital
= Risk asset