Chugin Financial Group,Inc.

Cyber attacks or large-scale system failures may lead to leakage of customer information or business suspension, resulting in losses from damage claims or loss of credibility. Cyber attacks, which are becoming increasingly sophisticated and elaborate on a daily basis, are positioned as one of the top risks, and the Group is working to strengthen its response system centered on the Group's CSIRT, participate in industry-wide exercises, and enhance security measures.

There is a risk that credit costs may increase due to deterioration in the creditworthiness of borrowers within the region, driven by a downturn in the regional economy of the East Setouchi area, centered on Okayama Prefecture. Combined with uncertainty in monetary policy and corporate earnings stemming from global inflation, geopolitical risk, and the situation in the Middle East, non-performing loans and credit costs may increase more than expected. The Group addresses this through understanding of the actual conditions of companies based on business feasibility assessments, rigorous screening of individual cases, and early detection of warning signs through monitoring of borrowers.

There is a risk that rising domestic and overseas interest rates could worsen valuation and trading gains/losses on bonds, reducing capital and earnings, as well as a risk that falling stock prices could worsen valuation gains/losses on equities or result in losses from write-downs of stocks. There is also concern that a prolonged low interest rate environment could lead to a continued decline in net interest income. The Group addresses this through setting and managing limits on risk amounts, conducting stress tests, and formulating and implementing risk hedging policies.

There exist both transition risks, in which regulatory changes and shifts in market trends associated with climate change adversely affect the business environment and performance of business partners, and physical risks, in which an increase in the frequency and severity of natural disasters leads to deterioration in the creditworthiness of business partners, damage to collateral assets, and damage to the Group's own fixed assets. The Group conducts scenario analysis to assess risks and opportunities, and works to reduce risk and create business opportunities through enhanced dialogue with business partners and support for sustainable finance and decarbonization.

If the management system for anti-money laundering and financial crime prevention does not function adequately, this could lead to fraudulent transactions and expanded damage, resulting in administrative sanctions by domestic and overseas authorities and loss of social credibility. This is positioned as one of the top risks, and the Group addresses it through timely and appropriate identification and assessment of risk, implementation of risk-appropriate mitigation measures, and thorough employee education.

There is a risk that intensifying competition for talent acquisition, an increase in mid-career resignations, and delays in human resource development could result in a shortage of necessary personnel, impeding the stable operation of existing businesses and the reliable execution of growth strategies. The Group addresses this through expansion of personnel systems, work-style reforms, promotion of diversity and inclusion, and the establishment and dissemination of internal whistleblowing systems.

There is a risk that the Group's customer base could shrink against the backdrop of population decline and a decrease in the number of business partners, leading to a contraction in the scale of the Group's business and revenue opportunities. The Group aims to revitalize the regional economy and maintain and expand its customer base through strengthened collaboration with regional companies, organizations, and local governments, support for solving regional issues, and initiatives in sustainable finance.

There is a risk that deterioration in domestic and overseas funding conditions, or a deterioration in the Group's creditworthiness or reputation, could make it difficult to secure necessary funds or force the Group to raise funds at significantly higher interest rates, thereby reducing net interest income. Since foreign currency funding relies heavily on the market, it is subject to particularly intensive management, and the Group aims to maintain the medium- to long-term stability of its foreign currency balance sheet through stress tests assuming deterioration in the foreign currency funding environment and through measurement and management of foreign currency stability ratios.

There is a risk that changes in laws, regulations, policies, business practices, or interpretations thereof could adversely affect business activities and performance, as well as a risk that violations of laws and regulations, inappropriate transactions, or acts contrary to social norms could result in administrative sanctions or losses from damage claims and loss of credibility. The Group addresses this through multifaceted advance review of regulatory changes, establishment of a legal check system, cultivation of a sound corporate culture, and thorough employee education.

As a bank holding company, the majority of the Company's income depends on dividends and other payments from its subsidiary bank, and the amount received may be restricted by regulatory or contractual limitations. If the subsidiary bank is unable to record sufficient profit and finds it difficult to pay dividends to the Company, it may become impossible for the Company to pay dividends to its shareholders.