ZENKOKU HOSHO Co.,Ltd.

Given the business structure whereby the Company makes substitute payments to financial institutions when a guarantee obligor defaults, a significant deterioration in the domestic or overseas economic environment or a rise in interest rates could affect the guarantee obligors' ability to repay loans, potentially increasing substitute payments. Although the Company applies credit judgments based on strict screening criteria and conducts receivables management from the early stages of delinquency, an increase in substitute payments could have a direct adverse effect on business performance and financial condition.

The provision for loss on guarantees for guarantee obligations prior to substitute payment, and the allowance for doubtful accounts for indemnity receivables after substitute payment, are calculated based on the status of guarantee obligors, collateral conditions, historical loan loss ratios, and other factors. If actual credit losses exceed the assumptions underlying the estimated loss amounts, or if collateral values decline, credit-related expenses may increase due to additional provisioning, which could adversely affect business performance and financial condition.

In a rising interest rate environment, while investment yields are expected to improve, the present value of held bonds may decline, potentially exerting a negative impact on net assets. In a declining interest rate environment, a decrease in reinvestment yields may lower the average investment yield, potentially having an adverse effect on business performance and financial condition, particularly for cases where guarantee fees were received in a lump sum. The Company manages the balance with the duration of guarantee obligations by constructing a laddered portfolio.

The Credit Guarantee Business, the Company Group's core business, is heavily dependent on external factors such as trends in homebuying sentiment, market interest rates, housing construction trends, tax reforms, and Japan's declining population. If homebuying sentiment declines, housing loan interest rates rise, or the housing loan market contracts, the number of applicants seeking guarantee services may decrease, which could adversely affect business performance and financial condition.

The Company Group holds financial instruments including securities such as bonds and time deposits, and losses may arise from a decline in bond prices due to credit rating downgrades, bond defaults, or the failure of financial institutions in which assets are invested. In addition, some of the held securities include those whose prices may decline due to foreign exchange market trends, as well as marketable equity securities, and valuation losses or impairment losses due to exchange rate fluctuations or stock price declines could adversely affect business performance and financial condition.

If substitute payments increase sharply due to a rapid economic downturn or similar events, liquid assets may decrease, potentially forcing the Company to cancel or dispose of other assets under unfavorable terms. In addition, if credit ratings assigned by rating agencies are downgraded, the interest burden on loans may increase, which could adversely affect business performance and financial condition. The Company strives to maintain sufficient liquidity through the management of guarantee obligations and indemnity receivables and the construction of an investment portfolio.

As much of the guarantee business is computerized, if stable system operation becomes difficult due to equipment or line failures, malfunctions, software defects, or unauthorized external access, normal business operations could be disrupted, potentially damaging social credibility. Although appropriate security measures are in place, the occurrence of system failures could adversely affect business operations, performance, and financial condition.

If confidential information or personal information is leaked externally due to unauthorized access from external cyberattacks or other causes, or due to human error or accidents by officers, employees, or outsourcing partners, the Company Group's credibility could be damaged, which could adversely affect business performance and financial condition. The Company addresses this risk through the establishment of information security regulations and detailed rules, the development of a management structure, and thorough education of officers and employees.

The Company Group is subject to various laws and regulations in the course of its business operations, and failure to comply with such laws and regulations could damage its social credibility. In addition, future changes to or abolition of laws, the enactment of new laws, and changes to various systems including regulations and provisioning standards and accounting standards could adversely affect business performance and financial condition.

The Company has its head office, business locations, and subsidiaries in Tokyo, and a widespread or localized disaster could cause severe damage to officers, employees, business locations, and facilities. If a large-scale disaster or infectious disease outbreak causes damage to many buildings or results in fatalities, it could adversely affect business operations, performance, and financial condition.