Tokyo Kiraboshi Financial Group, Inc.

Due to domestic and overseas economic trends, fluctuations in real estate prices, interest rates, foreign exchange rates and stock prices, and deterioration in the business conditions of client companies, non-performing loans may increase, requiring additional provisions for allowance for doubtful accounts. In particular, with respect to Hold Co. loans (loans that provide funds for the acquisition of shares in investee companies), changes in the business environment and the success or failure of business strategies may have a material impact on the allowance for doubtful accounts. Although the Group strives to maintain soundness through a monitoring system that integrates the Credit Management Division and branch offices, as well as financial support based on business feasibility assessments, unpredictable uncertainties cannot be completely eliminated.

Given the existence of mismatches in interest rates and maturities between fund management and fund procurement, fluctuations in interest rates may reduce net interest income and adversely affect business performance. Significant interest rate fluctuations may occur over the medium to long term due to policy reviews and changes in economic conditions, and the Group's holdings of long-term bonds and foreign currency-denominated bonds, which are highly sensitive to interest rate movements, increase this risk. The Group manages this risk by setting and monitoring position limits and loss limits, as well as through hedging transactions, in order to keep the risk exposure within an acceptable range.

The Group holds marketable securities such as stocks, bonds, and investment trusts, and deterioration in economic conditions or market supply-demand conditions may result in valuation losses or losses on sale, adversely affecting business performance. In particular, stocks and investment trusts with high price volatility carry the risk of expanding losses even in the short term during sudden market fluctuations. The Group addresses this risk by allocating capital commensurate with risk within the scope of its capital, and by setting and monitoring position limits and loss limits, as well as through hedging transactions.

The Company Group and Kiraboshi Bank are required to maintain a capital adequacy ratio at or above the domestic standard under the Banking Act (currently 4%), and if this level is not maintained, they may be subject to administrative dispositions from regulatory authorities, including suspension of all or part of business operations. Major factors that could affect this include a significant increase in credit-related expenses, a significant decline in the value of held securities, a significant reduction in deferred tax assets, and changes in capital adequacy ratio standards or calculation methods. The Group continuously works to strengthen and stabilize its earning capacity in order to expand its capital base.

Cyberattacks are becoming increasingly sophisticated and elaborate year by year, raising the risk of information system outages, malfunctions, and external leaks. If unauthorized access, information leakage, data tampering, or similar incidents occur, the Group may face damage claims or administrative dispositions, which could adversely affect business operations, performance, and financial condition. The Group continuously strengthens its management framework through the establishment of a Group CIO and Group CRO, the assignment of cybersecurity personnel to the Corporate Planning Division, the collection of threat and vulnerability information, exercises and drills simulating cyberattacks, and the formulation of contingency plans. In the BaaS business, there is also a risk that, in the event of a system failure, providing services to partner companies could become difficult.

The transition to a decarbonized society and the degradation of natural capital may reduce the profitability of business assets and impair asset values, while an increase in natural disasters caused by abnormal weather may affect the business activities, financial condition, and collateral value of client companies, which could impact the Group's business performance and financial position. In addition, tightening of environment-related regulations and heightened stakeholder and consumer awareness may, depending on the Group's approach to environmental issues, lead to reputational decline or exclusion from investment targets. The Group established its

With Tokyo and the northeastern part of Kanagawa Prefecture as its main business areas, the Group competes with multiple financial institutions, including megabanks and other regional financial institutions, and competition is expected to intensify further due to advances in fintech, accelerating digitalization, and entry by companies from other industries following deregulation. If the Group is unable to establish or maintain a competitive advantage, this could adversely affect its business performance and financial position. The Group continues to pursue business development in high-growth markets while strengthening its solution-providing capabilities through Group collaboration.

With the advancement of cryptocurrency and fintech technologies, criminal methods are becoming more sophisticated, including concealing the source of funds through complex transactions. If the Group fails to prevent unauthorized money transfers and similar acts, it may face penalties or administrative dispositions, which could affect its credibility and business performance. The Risk Management Division has established a Financial Crime Countermeasures Office to manage anti-money laundering measures on a group basis, and the Group strives to strengthen its countermeasures by utilizing the knowledge of external experts. Preventing money laundering, terrorist financing, proliferation financing, and sanctions violation risks is positioned as one of the most important management priorities.

If important information, such as customer information or internal confidential information, is leaked externally due to human error by officers, employees, or outsourced personnel, system failures, disasters, or other unforeseen events, the Group may face damage claims or administrative dispositions, which could adversely affect business operations, performance, and financial condition over the medium to long term. The Group strives to prevent such occurrences through the establishment of internal regulations and information management frameworks, thorough employee education on the importance of information management, and system-based security measures. When outsourcing partners subcontract work to third parties, the Group also verifies and manages the subcontractors' management frameworks.

If the Group is unable to execute the strategies and measures set forth in the new medium-term management plan (three-year plan period) that began in FY2024 (ending March 2024), or if the initially expected results are not achieved, this could adversely affect business performance and financial position. In addition, as the Group expands its business scope into new fields beyond banking operations, it may be exposed to new risks in areas where it has no or only limited experience, which could adversely affect business performance and financial condition over the medium to long term. The Group works to expand its consolidated Group earnings by strengthening its customer base and solution-providing capabilities through collaboration among Group companies.