Hirogin Holdings, Inc.

Delays in the transition to a decarbonized society and the increasing frequency and severity of natural disasters may result in a compound increase in risk, including higher credit risk from deteriorating borrower conditions, the emergence of liquidity risk and reputational risk, and even a decline in the capital adequacy ratio. The Group has established a Sustainability Management Division, set medium- to long-term targets for greenhouse gas emissions reduction and sustainable finance, and is working to quantitatively assess climate change risk.

Fluctuations in the global economy, domestic economic conditions, and changes in real estate prices, stock prices, and foreign exchange rates may lead to an increase in non-performing loans, potentially resulting in insufficient allowance for loan losses. If a decline in collateral value or deterioration in a borrower's financial condition diverges significantly from the assumptions used when recording allowances, the resulting increase in credit costs may adversely affect business performance and financial condition. In response, the Group conducts rigorous credit screening, provides hands-on support centered on Hiroshima Bank's "Management Support Office," and strengthens monitoring of certain industries.

A decline in the value of held bond portfolios due to rising domestic and overseas interest rates, impairment or valuation losses on held equity securities due to a significant fall in stock prices, and a decrease in yen-converted amounts of foreign currency-denominated transactions due to yen appreciation may adversely affect business performance and financial condition. In response, the Group diversifies investments into highly liquid and safe assets, sets various holding limits and loss management points, and conducts comprehensive management of assets and liabilities through the ALM Strategy Committee.

Computer system outages or malfunctions, and external cyberattacks, unauthorized access, or virus infections, may result in business suspension, information leakage, and liability for damages, which could adversely affect business performance and share price. In response, the Group ensures stable operations and thorough security measures based on the Group System Risk Management Regulations, has centralized management of core systems under the "Systems Planning Section," and is strengthening cybersecurity response through the "Security Management Section."

Insufficient compliance with laws and social norms, litigation, or deficiencies in the framework for preventing financial crimes such as money laundering and terrorist financing may result in business suspension orders, payment of administrative fines, loss of foreign currency funding lines, and a decline in social credibility. In response, the Group continuously raises employee awareness through various training programs and strengthens its AML framework, which is also recognized as a top risk.

There is a risk of losing revenue and growth opportunities due to encroachment on business from other industries, including digital platform operators, and delays in responding to digital transformation. Delays in digitalization may also make it difficult to secure deposits and maintain financial intermediation functions, potentially causing sales strategies to fail. The Group has positioned digitalization as a key management priority and is promoting initiatives to improve efficiency and strengthen its revenue base.

A ratings downgrade, deterioration in the financial condition of financial institutions overall, or worsening market conditions may lead to unexpected fund outflows, making it impossible to raise capital or funds, or forcing transactions under unfavorable terms. Increased funding costs may reduce the profitability of market transaction-related business and adversely affect business performance and financial condition. In response, the Group thoroughly implements investment and funding controls that assume a certain level of fund outflows and monitors the status of market-based fundraising.

Insufficient recruitment and development of human capital amid a declining population may reduce competitiveness and efficiency, adversely affecting business performance and share price. The loss of revenue opportunities due to a decrease in the number of business establishments and shifts in industrial structure is also recognized as a top risk. In response, the Group is building a Group-wide recruitment and training framework, promoting DE&I, utilizing senior talent, hiring career professionals, and implementing a major overhaul of its personnel system from July 2025.

Business performance is heavily dependent on economic conditions in the four core prefectures centered on Hiroshima Prefecture (Okayama Prefecture, Yamaguchi Prefecture, and Ehime Prefecture), and a deterioration in the regional economy may directly and adversely affect business performance and financial condition. In addition, intensifying cross-industry competition driven by deregulation and digitalization, as well as sales offensives from megabanks and neighboring banks, pose a risk of eroding the revenue base if competitive advantage cannot be maintained.

A decline in the value of the securities portfolio, an increase in credit costs due to a rise in non-performing loans, or changes in the standards or calculation methods for the capital adequacy ratio may cause the ratio to fall below the domestic standard (4%), in which case the Group risks receiving various orders from the Commissioner of the Financial Services Agency, including full or partial suspension of business. While the ratio currently exceeds the required level, it could decline if multiple risks materialize in combination, and it is managed in conjunction with credit risk, market risk, and other risks.