JAPAN POST BANK Co., Ltd.

The Bank holds ¥41.4 trillion in Japanese government bonds (18% of total assets) and ¥88.2 trillion in foreign securities (38% of total assets), and there is a risk that sharp fluctuations in domestic and overseas interest rates or widening credit spreads could cause valuation losses or impairment losses on bonds. Amid a phase of rising domestic interest rates accompanying the Bank of Japan's policy rate hikes, the Bank is proceeding with restructuring of its yen interest rate portfolio; however, if this does not progress as expected, or if it is compounded by increased funding costs from higher deposit interest rates, the resulting narrowing of the gross margin on funds could have a material impact on business performance and financial position. As countermeasures, the Bank is promoting enhanced risk resilience of its portfolio and strengthening ALM specialist personnel.

Foreign-currency-denominated assets are hedged using currency swaps, forward foreign exchange contracts, and the like; however, some remain unhedged or only short-term hedged, creating a risk of losses in the event of significant foreign exchange fluctuations. If domestic and overseas interest rate differentials widen again or currency basis spreads expand, this could significantly affect business performance and financial position through increased foreign currency funding costs. Uncertainty in the external environment remains high, including trends in U.S. administration economic policy and deteriorating conditions in Ukraine and the Middle East.

The Bank has positioned private equity funds, real estate funds, direct lending funds, and the like as strategic investment areas and is expanding investments in them; however, these investments have long investment horizons and low liquidity, creating risks of downward deviation from expected exit timing and delays in enhancing enterprise value. Because reports provided by GPs are generally based on valuations from approximately three months prior, actual fair values may diverge from reported values, and combined with a shortage of investment know-how and specialist personnel, this could have a material impact on business performance and financial position. The Bank is addressing this through extending the funding horizon for illiquid assets and pursuing selective investment.

As cyber attack methods leveraging frontier AI and other technologies become increasingly sophisticated, and as the attack surface expands due to increased remote work and the broadening of digital channels, there is a risk of leakage of confidential and customer information, unauthorized money transfers, and system failures. From the perspective of economic security, the importance of countermeasures against interference from overseas is also increasing; if the cybersecurity framework fails to function effectively, this could affect the business and business performance through damages compensation, administrative sanctions, and damage to social credibility. The Bank is responding through the appointment of a CISO, establishment of dedicated departments, development of a multi-layered defense system, and collaboration with external specialist organizations.

Of the Bank's 23,306 branches, 23,071 are agencies (post offices) of Japan Post Co., Ltd., and approximately 90% of deposit balances are held in accounts deposited via agencies, meaning the business is heavily dependent on the post office network. If the number of post office users or agencies decreases, if there is insufficient recruitment or training of agency employees, if commission terms are revised, or if contracts are terminated, this could have a material adverse effect on the Bank's business continuity. In addition, if misconduct incidents such as embezzlement of funds at post offices or cross-selling issues (for which the Financial Services Agency issued an order in March 2025 requiring periodic reporting of recurrence prevention measures) continue, there is also a risk that a decline in social credibility across the Group as a whole could depress sales of financial products.

There exist compliance violation risks such as money laundering, terrorist financing, violations of economic sanctions, insider trading, and unsuitable sales, and implementation and oversight across the approximately 24,000-strong post office network as a whole presents difficulties. If a violation occurs, this could affect the business, business performance, and financial position through administrative sanctions, substantial fines, and damage to social credibility. The Bank is responding through the use of AI and other technologies, collaboration with authorities, enhancement of measures informed by the expertise of external organizations, and the establishment of customer due diligence measures and a framework for detecting and reporting suspicious transactions.

The Bank is subject under the Postal Service Privatization Act to restrictions on business expansion, deposit limit regulations, and other constraints not imposed on other banks, limiting its management flexibility. As of June 27, 2025, following Japan Post Holdings Co., Ltd.'s disposal of half or more of its shares in the Bank, the approval requirement for commencing new business shifted to a notification-based system; however, if requirements are not satisfied or if there is a difference in interpretation with the authorities, this could impede the commencement of new business. Furthermore, if legislation is enacted in the future that changes the framework of privatization, this could affect the execution of the Bank Group's business strategy and management plan.

With the advancement of technology, new financial service providers from other industries are entering the market and customer needs are becoming increasingly diverse; if the Bank Group is unable to establish an advantage over competing banks or fails to adapt to changes in market structure, there is a risk of customer base outflow, declining profitability, and obsolescence of existing services. If the promotion of the Digital Payment Business strategy, consulting business strategy, and other elements of the Medium-Term Management Plan (FY2026–FY2028, ending March 2026 to March 2028) does not progress as expected, this could lead to failure to achieve fee-based service profit targets and customer attrition. The Bank is addressing this through AI utilization, promotion of digitalization, and development of new products and services; however, new risks such as hallucination associated with AI use have also emerged.

Highly specialized fields such as market operations, risk management, DX, cybersecurity, GP relations, and ALM require capable personnel to be secured, retained, and developed, but amid a competitive environment with other financial institutions, it may be difficult to recruit and retain sufficiently skilled employees and management executives. If a talent shortage occurs, this could impair the competitiveness of the business and the efficiency of operations, creating a risk that hinders execution of the strategy under the Medium-Term Management Plan. The Bank is responding through the promotion of a talent strategy and human capital investment linked to the Medium-Term Management Plan, enhanced recruitment and development of specialist personnel, and measures to improve engagement.

As of the end of March 2026, the consolidated capital adequacy ratio stood at 14.93%, well above the regulatory ratio (4% or higher); however, there is a risk that the ratio could decline due to the full application of the finalized Basel III framework from March 2030, increases in risk assets, deterioration in valuation losses on other securities, and other factors. The CET1 ratio (internationally harmonized standard, fully applied basis) stands at 9.85%, below the normal-times target range under the Medium-Term Management Plan (11%–13%); if valuation losses expand beyond expectations or other adverse developments occur, achieving the target could become difficult. Furthermore, if it becomes difficult to secure distributable amounts, this could also affect the achievement of shareholder return targets.