Sound capital base and asset portfolio compared with other major Japanese banks. Weaker business franchise and profitability in comparison to other major banks. Need for further reduction of its asset erosion risk. Since the inception of Aozora Bank Ltd., the bank has reduced its nonperforming loans (NPLs) through a secondary loss protection arrangement with the Japanese government and collection of its loans. As a result, its risk-managed loan balance fell below its bad debt reserves as of the end of fiscal 2003 (ended March 31, 2004). The bank's Tier 1 capital ratio at the end of fiscal 2003 was high at 15%. Although Aozora's Tier 1 capital consists of about 55% preferred stock, its deferred tax assets are limited. In
