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Welcome to Aozora's Fiscal Year 2020 Interim Financial Results Conference Call. Before we go further, I'd like to review the safe harbor statement.
Some of the matters that we will discuss today are forward-looking statements. These statements are based on current plans, estimates and expectations. Forward-looking statements involve inherent risks and uncertainties, and a number of factors could cause actual results to differ materially from those contained in the forward-looking statements.
Forward-looking statements are valid only on the date on which they are made, and Aozora Bank undertakes no obligation to update publicly or revise any forward-looking statement, whether as a result of new information, future developments or otherwise. Please note that this presentation is not an offering of any securities of the bank and should not be so construed in any jurisdiction or for any purpose. Thank you.
Hiroyuki Kajitani, General Manager, Corporate Communication division, will now provide you with a review of the fiscal year 2020 interim financial results. Kajitani-san?
Thank you. I want to thank everyone for joining us today for our Fiscal year 2020 Interim Financial Results Teleconference. I'd also like to once again thank all of Aozora's shareholders and analysts with their continued interest and support.
Before I discuss the results, I'd first like to start by saying a few words regarding current conditions. Since the onset of COVID-19, our management has been focused on leading our company forward while also prioritizing the health and safety of our customers and employees. As a result of the disruption of business conditions resulting from the pandemic, we've adjusted our focus somewhat in an effort to better respond and support the changing needs of our customers, especially in areas such as business restructuring and recovery support.
Turning now to our interim 2020 results. In addition to increased interest income, beginning in July, we saw a degree of recovery in customer-based transactions in our retail and corporate groups, this, despite the negative impact from state of emergency and subsequent restrictions on nonessential activities. Results within our financial markets business also remains strong. As a result, our overall business performance remained on track towards the achievement of our full year forecast.
We do expect business conditions to remain uncertain for the foreseeable future. As a result, we've continued our programs from the prior quarter to maintain active portfolio monitoring and strong risk controls while selectively rebalancing our loan and securities portfolio.
You'll see that today, we've announced the second quarter dividend of JPY 30 per common share, equivalent to 1 quarter of our full year dividend forecast of JPY 122 per common share. Looking ahead, you can expect that we'll remain committed to achieving our full year earnings targets. We will do this through the ongoing refinement of our business model based on our 6 areas of focus, established on a foundation of sound risk-taking and strong risk controls while consolidating resources by leveraging the capabilities and synergies of all Aozora group companies.
On behalf of the management team at Aozora, I'd like to express our appreciation to all of our stakeholders for their understanding and continued support.
Let me now turn to a more detailed discussion of our results for the first half of fiscal year 2020 by reviewing the breakdown of revenue and expenses included on Page 2 of today's financial results overview. For the first half of fiscal year 2020, net revenue was JPY 45 billion, a decrease of JPY 5 billion from last year. General and administrative expenses were JPY 26 billion, an increase of JPY 0.8 billion, while business profit was JPY 19 billion. Credit-related expenses were a net expense of JPY 0.1 billion. Gains and losses on stock transactions were a gain of JPY 1.1 billion, and taxes were a net expense of JPY 4.9 billion.
As a result of the factors I've just touched upon, bottom line net earnings for the first half were JPY 15.1 billion, a decline of JPY 5.1 billion from last year. Although lower than last year, net revenue, business profit and profit attributable to owners of parents remain on track for this year and represented progress of 50%, 55% and 53%, respectively, towards the full year forecast.
Next, let me touch upon several of the more significant items included in today's earnings release. Please now turn to Page 3. Net interest income was JPY 25.5 billion, an increase of JPY 0.8 billion from last year, mainly due to higher average loan balances and an improvement in our net interest margin. Interest income and interest expenses both saw a relatively significant decline compared with last year, largely due to lower U.S. dollar interest rates.
Turning to Page 4. As you can see at the bottom of the table, our net interest margin narrowed by 6 basis points to 1.11%. The main factor was a lower level of dividends, mostly on foreign currency ETFs and investment trusts. On the other hand, lending margins increased by 10 basis points compared to the previous year, mainly due to lower basis swap spreads related to foreign currency funding.
Please now turn to Page 5. Noninterest income was JPY 19.5 billion. Despite the negative impact from the state of emergency and subsequent restrictions on nonessential activities in the first quarter, we experienced a steady recovery in customer-based transactions from our retail and corporate customers during the second quarter. Results within our financial markets business also remained strong.
For a breakdown of noninterest income, please now turn to Page 6. Net fees and commissions were JPY 4.9 billion. While loan-related fees declined compared to the previous year, as there were contributions from several larger-sized loans in the second quarter of last year, loan fees this past quarter saw relatively strong performance on par with recent years, mainly due to a higher level of syndicated loan and LBO finance activity. Net trading revenues were a gain of JPY 2.2 billion. While results for the first quarter were slightly below expectations, more recently, we've seen an encouraging level of recovery, mainly due to the sale of structured bonds to our retail customers, which also led to strong results in our trading business.
Please turn to Page 7. Gains and losses on bond transactions for the first half were a gain of JPY 10.9 billion, an increase of JPY 1.2 billion compared to the previous year. We recorded gains on bond transactions mainly due to the timely purchase and sales of U.S. government and mortgage bonds principally during the first quarter in response to the decline in long-term interest rates resulting from global accommodative monetary policies.
Unrealized gains improved by JPY 46.8 billion compared to March 31, 2020, as we flexibly managed our foreign ETF and investment trust risk positions in line with the recovery in market conditions.
As you can see in the table at the bottom of the page, gains and losses on stock transactions were a gain of JPY 1.1 billion for the first half, mainly due to the sale of unlisted equities in the first quarter.
Please now turn to Page 8. Net other ordinary income, excluding gains and losses and bond transactions, was JPY 1.4 billion. As you can see in the graph at the bottom right, gains from limited partnerships increased significantly in the second quarter compared to the first quarter, mainly due to buyout related large-lot exit transactions and were JPY 3.1 billion for the interim period.
Please turn to Page 9. General and administrative expenses were JPY 26 billion, up JPY 0.8 billion from last year. The increase in expenses was mainly due to incremental costs associated with GMO Aozora Net Bank as well as our new retail banking smartphone app. Importantly, G&A expenses were tracking well at 47% of the full year budget of JPY 56 billion. As a result, our overhead ratio, or OHR, was 58% on a consolidated basis compared to our full year forecast of 62%. The OHR was 47% on a nonconsolidated basis.
Please now turn to Page 10. Credit-related expenses were a net expense of JPY 0.1 billion. While we recorded losses on the disposition of loans in the course of rebalancing our loan portfolio, mostly focusing on loans where future full collection was an increasing concern, provisions made to general loan loss reserves in the fourth quarter of fiscal year 2019 resulted in a net reversal in the first half, which offset these losses.
We reviewed the condition of all borrowers and conservatively established loan loss reserves during the interim period in light of the long-term potential impact of COVID-19 on business and economic activity. In the fourth quarter of fiscal year 2019, we recorded credit costs of 40 basis points against our total loan outstandings. We initially anticipated additional credit costs of 10 basis points for fiscal year 2020. That being said, there was a relatively limited level of grid-related costs during the first half. But due to the potential long-term impact of COVID-19, we'll continue to carefully manage our loan portfolio while maintaining the policy of strong risk controls.
Ratio of loan loss reserves to total loans was 1.66% as of September 30, 2020, a decrease compared to 1.82% at the end of the previous fiscal year. The decline mainly was due to the sale of loans for which we had made with large reserves such as nonperforming and lower-rated credits. As I mentioned earlier, this action was part of our overall effort to rebalance our loan portfolio.
When looking solely at provisions to general loan loss reserves to our overall loan portfolio, they remained at roughly the same level compared with March 31, 2020. For your reference, the overseas loan reserve ratio was approximately 2.4% at the end of the quarter.
Please turn to Page 11. FRL claims decreased by JPY 4.3 billion to JPY 24 billion, mainly due to the collection and sale of mostly overseas bankrupt and doubtful credit claims, and the ratio of FRL claims to total claims was 0.83%.
I will now provide some highlights on our balance sheet, starting on Page 13. Core funding was an increase of JPY 210.5 billion from March 31, 2020. The increase was mainly due to the successful launch of our new retail banking smartphone app in July 2019, which was an important driver behind the further expansion of retail customer deposits.
Please now turn to Page 14. Domestic loans decreased by JPY 15.7 billion during the first half. Domestic loan balances increased during the first quarter, in large part due to our response to COVID-19-related financing requests, but then decreased during the second quarter as a result of scheduled repayments of large-lot loans. Lending margins expanded as a result of the origination of high value-added financing transactions.
Please now turn to Page 15 for the breakdown of overseas loans. Overseas loans decreased by JPY 71.7 billion from March 31, 2020, including the effect of a strong yen on exchange rates. The decrease was mainly the result of rebalancing approximately JPY 32 billion of North American corporate loan exposures, while continuing our selective approach to the origination of new loans and the strict monitoring of our loan portfolio.
The percentage of overseas loans to total loans were 35.3%, a decrease of 1.4% compared to March 31, 2020, which is a decrease of $388 million on a U.S. dollar basis. We'll continue to flexibly manage our portfolio while selectively originating high-quality loans.
Please turn to Page 16 for more information about our North American corporate loan exposure. The ratings distribution of our North American corporate loan portfolio includes a relatively high percentage of investment-grade loans and a low percentage of single B-rated loans compared to the leveraged loan market index.
Page 17 contains information about our overseas real estate nonrecourse loan portfolio. Of overseas real estate nonrecourse loans, a significant share is secured by office buildings located in major U.S. cities. As an underwriting policy, we mainly require loans to be at an LTV of 65% or less. And because of this buffer, we believe that we'll be able to absorb a significant decline in collateral value. At present, the occupancy rate of our U.S. commercial office building loans is roughly equivalent to the U.S. market average. While the occupancy rate has declined 1% to 2% compared to pre-COVID-19 conditions, the situation has not caused any major concerns regarding cash flows at this time. As we recognize that the U.S. office market will be under pressure for some time, we intend to continue to improve the monitoring and active management of our CRE loan portfolio.
Please turn to Page 18. In Japan, most real estate nonrecourse loans are office, residential, warehouse buildings, focused mainly in the Tokyo Metro area. Approximately 90% of the real estate nonrecourse loans, including -- excluding REITs, remained at an LTV of 70% or below. Over 90% of REITs remained at an LTV of less than 50%, and we'll continue to carefully manage each of these portfolios.
For a review of our securities portfolio, please now turn to Page 19. Securities was an increase of JPY 56.3 billion compared to March 31, 2020. During the period, we rebalanced our portfolio's overall risk position, mainly through increasing our U.S. mortgage bond position while reducing our foreign currency credit ETS risk position. Total unrealized gains were a net gain of JPY 28.1 billion, an improvement of JPY 46.8 billion from March 31, 2020.
Please now turn to the graph on the right-hand side of Page 20, where you'll see the gains on the sale of securities and unrealized gains both improved during the first half of 2020. While our value at risk, or VAR, increased due to higher market volatility, as always, we will continue to strive to ensure stable earnings through risk diversification.
Please now turn to Page 21. On a preliminary basis, our consolidated capital adequacy ratio was 10.98%. Although we are subject to the Japan standard -- Japan domestic standard, for reference purposes, we also disclose our CET1 ratio, which is based on international standards. Our CET1 ratio as of September 30 was approximately 10.3%.
Please now turn to Page 22. As I mentioned earlier, we announced a second quarter dividend of JPY 30 per common share, the same level as the first quarter dividend and the equivalent to 1/4 of our full year dividend forecast of JPY 122 per common share.
Lastly, please turn to Page 24. We've provided some information here about our subsidiaries for your reference. While GMO Aozora Net Bank was a bottom line net loss of JPY 2.3 billion due to upfront investment costs, this result was in line with our original forecast. The Net Bank is expected to reach full year profitability in 3 years.
In the first half, corporate account openings increased at a strong pace, transfer fees and debit card revenue remains strong, and API partnerships may favorably progress.
I'd like to conclude by saying that your continued interest and support is greatly appreciated. Thank you for your time today. We hope that you, your family, friends and colleagues remain safe and healthy until we speak again. That concludes our call for today.