April 20, 2022
Ms. Michelle Miller
Ms. Sharon Blume
Division of Corporation Finance
U.S. Securities and Exchange Commission
100 F Street, N.E.
Washington, D.C. 20549
Re: ORIX Corporation
Form 20-F for the Fiscal Period Ending March 31, 2021
Filed June 29, 2021 File 001-14856
Dear Ms. Miller and Ms. Blume:
This letter is in response to the comment letter of the staff (the Staff) of the U.S. Securities and Exchange Commission (the Commission) dated April 7, 2022 relating to the Form 20-F for the fiscal year ended March 31, 2021 (the 2021 Form 20-F) of ORIX Corporation (the Company).
The Companys responses to the Staffs comments are set forth below. References to the Company, we, us and our in the responses set forth below are to the Company, unless the context otherwise requires.
Comment 1:
Form 20-F for the Fiscal Period Ending March 31, 2021
Allowance for doubtful receivables and probable loan losses and allowance for credit losses, page 63
1. | We note your response to prior comment 2, including the provision benefit of ¥ 7,437 for off-balance sheet credit exposures. We also note on page F-28, that upon adoption of ASU 2016-13, you recognized a provision of ¥ 28,294 related to off-balance sheet credit exposures such as financial guarantees and loan commitments and as disclosed on page F133, as of March 31, 2021 the allowance for off-balance sheet credit exposure was ¥ 26,094. Please tell us and revise your proposed disclosure to explain how you accounted for the provision benefit of ¥ 7,437, considering also that total commercial commitments as disclosed on page 105 of ¥ 1,272,096 increased from March 31, 2020. |
Response to Comment 1:
We acknowledge the Staffs comments. Prior to adoption of Accounting Standards Update 2016-13 (ASU2016-13), an allowance of ¥5,424 million was recorded for off-balance sheet credit exposures as of March 31, 2020. Upon adoption of ASU2016-13 on April 1, 2020, a provision of ¥28,294 was recorded as a cumulative effect through retained earnings as described on F-28 and the balance of allowance for credit losses related to off balance sheet credit exposures totaled ¥33,718 million as of April 1, 2020.
The allowance for credit losses for off-balance sheet credit exposures was decreased by ¥7,624 million from ¥33,718 million to ¥26,094 million during the fiscal year ended March 31, 2021, due mainly to a reversal of the allowance of ¥7,437 million.
(Millions of yen) | ||||
Allowance prior to adoption of ASU2016-13 |
¥ | 5,424 | ||
Cumulative adjustment related to adoption of ASU2016-13 |
28,294 | |||
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Beginning balance of allowance for credit losses upon adoption of ASU2016-13 |
33,718 | |||
Provision (reversal) |
(7,437 | ) | ||
Charge-off/recoveries |
(101 | ) | ||
Other (*) |
(86 | ) | ||
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Ending balance of allowance for credit losses |
¥ | 26,094 | ||
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(*) | Other mainly includes foreign currency translation adjustments and a decrease in allowance related to a sale of a subsidiary. |
The reversal of the allowance was mainly caused by a decrease in outstanding financial guarantees of card loans and other credit facilities extended by Japanese financial institutions as a result of restrained customer demand for funds and an increase in repayments reflecting changes in consumer behavior due to COVID-19.
Please note that the amount of total commercial commitments disclosed on page 105 included financial guarantees and financial commitment agreements which were not subject to the scope of Topic 326, such as unexecuted commitments to fund construction and other costs to complete ongoing real estate development projects and agreements, to invest in funds, as long as the agreed-upon terms are met.
In response to your request, we will add an explanation as note 1 to the following reconciliation table of the provision for credit losses, which was proposed in our response to the comment 2 in our previous response letter filed on March 1, 2022. Furthermore, we will add an explanation for the reversal of the allowance for off-balance sheet credit exposures in the Note 33. Commitments, Guarantees and Contingent Liabilities.
Allowance for doubtful receivables and probable loan losses and allowance for credit losses of Item 5 Operating and Financial Review and ProspectsDetails of Operating Results on page 63 in the 2021 Form 20-F
Year ended March 31, | ||||||||
2020 | 2021 | |||||||
(Millions of yen) | ||||||||
Provision (Reversal): |
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Net investment in leases |
3,304 | 3,285 | ||||||
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Loans not individually assessed for credit losses |
14,920 | 580 | ||||||
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Loans individually assessed for credit losses |
6,201 | 15,248 | ||||||
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Sub-total |
24,425 | 19,113 | ||||||
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Others: |
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Off-balance sheet credit exposures (Note1) |
0 | (7,437 | ) | |||||
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Available-for-Sale Debt Securities |
0 | 117 | ||||||
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Accounts receivable * |
0 | 4,228 | ||||||
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Provision for doubtful receivables and probable loan losses / provision for credit losses in the consolidated statement of income |
24,425 | 16,021 | ||||||
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* | Accounts receivable was included in installment loans before 2020. |
Note 1: The reversal of the allowance was mainly caused by a decrease in outstanding financial guarantees of card loans and other credit facilities extended by Japanese financial institutions as a result of restrained customer demand for funds and an increase in repayments reflecting changes in consumer behavior due to COVID-19.
Note 33 Commitments, Guarantees and Contingent Liabilities on page F-133 in the 2021 From 20-F
Allowance for off-balance sheet credit exposuresSince April 1, 2020, Credit Losses Standard has been adopted. If the entity has a present contractual obligation to extend the credit and the obligation is not unconditionally cancelable by the entity, credit losses related the loan commitments of card loans and installment loans and financial guarantees are in the scope of the allowance for credit losses. For the loan commitments of card loans and installment loans, credit losses are recognized on the loan commitments for the portion expected to be drawn. For financial guarantees, the allowance is recognized for the contingent obligation which generates credit risk exposures. These allowance for off-balance sheet credit exposures is measured using the same measurement objectives as the allowance for loans and net investment leases, considering quantitative and qualitative factors including historical loss experience, current conditions and reasonable and supportable forecasts. The allowance for off-balance sheet credit exposure is accounted for in other liabilities on the consolidated balance sheets and the amount was ¥26,094 million as of March 31, 2021. Additionally, provision for credit losses in the consolidated statements of income included reversals of ¥7,437 million, which was mainly caused by a decrease in outstanding financial guarantees of card loans and other credit facilities extended by Japanese financial institutions as a result of restrained customer demand for funds and an increase in repayments reflecting changes in consumer behavior due to COVID-19.
Comment 2:
Note 11. Credit Quality of Financial Assets and the Allowance for Credit Losses, page F-65
2. | We note your response to prior comment 3 and your enhanced proposed disclosure. In future filings, please also disaggregate your installment loan categories as present in your allowance for credit loss rollforward disclosed on page F-66 and your non-accrual loans disclosed on page F-72, consistent with the installment loan categories disclosed in Note. 9 on page F-54 to provide investors with additional information concerning the credit quality of your loan and lease portfolio. Refer to ASC 325-20-50-4. Please provide us with your revised enhanced disclosure. |
Response to Comment 2:
In response to your request, we will revise the categories presented in the allowance for credit loss rollforward disclosed on page F-66 and the non-accrual loans disclosed on page F-72 to be consistent with the installment loan categories disclosed in Note 9 on page F-54.
In addition, we will revise part of the installment loan categories disclosed in Note 9 as set forth below, and make corresponding changes to the categories presented in the allowance for credit loss rollforward and the non-accrual loans based on the revised categories in future filings to ensure that they are disclosed consistently.
Note 9 Installment Loans on page F-54 in the 2021 Form 20-F
Draft revised Note 9 Installment Loans
Millions of yen | ||||
2021 | ||||
Borrowers in Japan: |
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Consumer |
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Real estate loans |
¥1,995,031 | |||
Card loans |
188,547 | |||
Other |
27,698 | |||
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2,211,276 | ||||
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Corporate |
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Real estate companies |
279,046 | |||
Non-recourse loans |
47,956 | |||
Commercial, industrial and other companies |
203,890 | |||
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530,892 | ||||
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Overseas: |
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Consumer |
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Real estate loans |
¥75,890 | (*) | ||
Other |
26,192 | (*) | ||
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102,082 | ||||
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Corporate |
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Real estate companies |
197,074 | |||
Non-recourse loans |
113,129 | |||
Commercial, industrial companies and other |
503,980 | (*) | ||
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814,183 | ||||
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Purchased loans |
12,351 | |||
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¥3,670,784 | ||||
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(*) | Items subdivided by this revision |
Allowance for credit loss rollforward in Note 11 Credit Quality of Financial Assets and the Allowance for Credit Losses beginning on page F-65 in the 2021 Form 20-F
Draft revised allowance for credit loss rollforward disclosed on page F-66
Fiscal Year ended March 31, 2021 | ||||||||||||||||||||||||||||||||||||||||||||||||
Millions of yen | ||||||||||||||||||||||||||||||||||||||||||||||||
Beginning balance |
Cumulative effect of adopting According Standards Update 2016-13 |
Reclassification to allowance for investment in operating leases |
Balance at April 1, 2020 |
Provision (Reversal) |
Allowance of purchased loans during the reporting period |
Charge-offs | Recoveries | Other | Ending balance |
Collective (pool) assessment |
Individual assessment |
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Consumer borrowers: |
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Japan real estate loans |
¥ | 3,112 | ¥ | 2,856 | ¥ | 0 | ¥ | 5,968 | ¥ | 390 | ¥ | 0 | ¥ | (495 | ) | ¥ | 59 | ¥ | 0 | ¥ | 5,922 | ¥ | 5,354 | ¥ | 568 | |||||||||||||||||||||||
Overseas real estate loans |
128 | (102 | ) | 0 | 26 | 412 | 0 | 0 | 1 | 31 | 470 | 470 | 0 | |||||||||||||||||||||||||||||||||||
Japan card loans |
3,785 | 12,146 | 0 | 15,931 | (802 | ) | 0 | (2,150 | ) | 6 | (1 | ) | 12,984 | 12,283 | 701 | |||||||||||||||||||||||||||||||||
Japan other |
12,735 | (963 | ) | 0 | 11,772 | 5,875 | 0 | (9,296 | ) | 8 | 0 | 8,359 | 5,616 | 2,743 | ||||||||||||||||||||||||||||||||||
Overseas other |
782 | 563 | 0 | 1,345 | 739 | 0 | (1,754 | ) | 577 | 368 | 1,275 | 1,038 | 237 | |||||||||||||||||||||||||||||||||||
Corporate borrowers: |
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Japan non-recourse loans |
13 | 24 | 0 | 37 | (5 | ) | 0 | 0 | 0 | 0 | 32 | 32 | 0 | |||||||||||||||||||||||||||||||||||
Overseas non-recourse loans |
1,773 | 1,577 | 0 | 3,350 | 43 | 0 | 0 | 0 | 57 | 3,450 | 3,218 | 232 | ||||||||||||||||||||||||||||||||||||
Japan real estate companies |
983 | 46 | 0 | 1,029 | (58 | ) | 0 | (96 | ) | 25 | 1 | 901 | 621 | 280 | ||||||||||||||||||||||||||||||||||
Overseas real estate companies |
2,010 | 1,579 | 0 | 3,589 | (1,502 | ) | 0 | (570 | ) | 33 | (11 | ) | 1,539 | 1,539 | 0 | |||||||||||||||||||||||||||||||||
Japan commercial, industrial companies |
2,447 | 98 | 0 | 2,545 | (27 | ) | 0 | (592 | ) | 11 | 1 | 1,938 | 199 | 1,739 | ||||||||||||||||||||||||||||||||||
Overseas commercial, industrial companies and other |
14,769 | 9,002 | 0 | 23,771 | 10,410 | 0 | (15,427 | ) | 18 | (9 | ) | 18,763 | 13,013 | 5,750 | ||||||||||||||||||||||||||||||||||
Purchased loans: |
1,458 | 0 | 0 | 1,458 | 353 | 3,899 | (4,040 | ) | 46 | 119 | 1,835 | 681 | 1,154 | |||||||||||||||||||||||||||||||||||
Net investment in leases: |
11,692 | 3,550 | 0 | 15,242 | 3,285 | 0 | (2,668 | ) | 10 | 653 | 16,522 | 13,267 | 3,255 | |||||||||||||||||||||||||||||||||||
Other financial assets measured at amortized cost: |
1,149 | 1,369 | (312 | ) | 2,206 | 4,483 | 0 | (344 | ) | 11 | (351 | ) | 6,005 | 810 | 5,195 | |||||||||||||||||||||||||||||||||
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Total |
¥ | 56,836 | ¥ | 31,745 | ¥ | (312 | ) | ¥ | 88,269 | ¥ | 23,596 | ¥ | 3,899 | ¥ | (37,432 | ) | ¥ | 805 | ¥ | 858 | ¥ | 79,995 | ¥ | 58,141 | ¥ | 21,854 | ||||||||||||||||||||||
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Non-accrual loans disclosed in Note 11 Credit Quality of Financial Assets and the Allowance for Credit Losses beginning on page F-65 in the 2021 Form 20-F
Draft revised non-accrual loans disclosed on page F-72
March 31, 2021 |
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Millions of yen | ||||||||||||||||||
Class |
Beginning balance |
Ending balance |
Interest income recognized during the reporting period |
Balance not associated allowance for credit losses among financial assets measured at amortized cost, which is suspending recognition of income |
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Non-accrual of financial assets: |
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Consumer borrowers |
¥ | 13,607 | ¥ | 10,322 | ¥ | 519 | ¥ | 736 | ||||||||||
Japan real estate loans | 2,469 | 1,976 | 194 | 424 | ||||||||||||||
Overseas real estate loans | 0 | 570 | 0 | 268 | ||||||||||||||
Japan card loans | 2,114 | 1,115 | 50 | 0 | ||||||||||||||
Japan other | 8,611 | 5,970 | 275 | 44 | ||||||||||||||
Overseas other | 413 | 691 | 0 | 0 | ||||||||||||||
Corporate borrowers |
44,622 | 53,820 | 229 | 10,572 | ||||||||||||||
Non-recourse loans |
The Americas | 2,466 | 10,148 | 0 | 0 | |||||||||||||
Other than Non-recourse loans |
Japan real estate companies | 586 | 778 | 30 | 509 | |||||||||||||
Overseas real estate companies | 12,491 | 14,505 | 0 | 0 | ||||||||||||||
Japan commercial, industrial companies | 2,409 | 1,993 | 196 | 127 | ||||||||||||||
Overseas commercial, industrial companies and other | 26,670 | 26,396 | 3 | 9,936 | ||||||||||||||
Net investment in leases |
15,346 | 17,166 | 0 | 0 | ||||||||||||||
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Total |
¥ | 73,575 | ¥ | 81,308 | ¥ | 748 | ¥ | 11,308 | ||||||||||
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* * * * *
If you have any questions about this response letter or any further comments on ORIXs 2021 Form 20-F, please do not hesitate to contact Hitomaro Yano of ORIX Corporation in Tokyo (Tel: +81-3-3435- 3100; Fax: +81-3-3435-3015) or Jon Gray or Christopher Kodama of Davis Polk & Wardwell LLP in Tokyo (Tel: +81-3-5574-2667; Fax: +81-3-5574-2867 or Tel: +81-3-5574-2668; Fax: +81-3-5574-2868).
Sincerely yours, |
/s/ Hitomaro Yano |
Hitomaro Yano |
Executive Officer and Head of Treasury and Accounting Headquarters |
ORIX Corporation |
cc: | Yutaka Terasawa |
KPMG AZSA & Co.
Jon Gray, Esq.
Christopher Kodama, Esq.
Davis Polk & Wardwell LLP