Juroku Financial Group, Inc.

Risk that deterioration in the financial condition of borrowers due to worsening domestic and overseas economic conditions or stagnation of the regional economy leads to an increase in non-performing loans and credit-related expenses. Concentration of credit exposure to specific counterparties or industries and declines in collateral value are also factors that amplify credit risk. As countermeasures, the Group conducts monthly VaR measurement using the Monte Carlo simulation method (99% confidence interval, one-year holding period), sets individual credit limits by counterparty, and maintains industry-based total credit exposure guidelines.

Risk that market fluctuations—such as a decline in the value of the bond portfolio due to rising interest rates, valuation losses or impairment of the equity portfolio due to a significant drop in stock prices, and depreciation of foreign-currency-denominated assets due to yen appreciation—adversely affect financial position and business performance. VaR is measured daily and monthly using the variance-covariance method (99% confidence interval), and limits are set on securities balances and loss amounts for management purposes.

Since interest rates applied to deposits, market funding, and fund investments such as loans are determined based on market interest rates, fluctuations in market interest rates may negatively affect earnings depending on the maturity composition of funding and investment balances. Increased funding costs due to intensifying competition for deposits, and heightened liquidity risk associated with outflows of inherited deposits and deposits sensitive to high interest rates, are also recognized as top risks. These risks are managed through regular monitoring and organizational structure development.

Risk that cyberattacks, unauthorized access, computer virus infections, and the like result in leakage of personal information, data tampering, outflow of funds, or suspension of operations. Strengthening countermeasures and responding to increasingly stringent related regulations may require substantial costs and could also constrain business operations. The Group addresses this through the establishment of a CSIRT, enhancement of backup systems, and development of computer system failure countermeasure regulations.

Risk that large-scale earthquakes, typhoons, and other natural disasters, or serious infectious disease outbreaks, cause damage to branch facilities, difficulty for officers and employees to work, declines in stock and bond prices, and an increase in bankruptcies among business counterparties, leading to suspension of operations or deterioration of financial position. The Group has formulated a business continuity plan and periodically reviews the plan in line with changes in the external environment and conducts initial response drills as appropriate; however, in the event of an unforeseen situation, there is also a possibility of a decline in social reputation.

Against the backdrop of advances in digital technologies such as AI and blockchain, entry into the financial industry by companies from other sectors has continued one after another, further intensifying competition. Rapid technological innovation may render existing business models obsolete, and a relative decline in the Group's competitiveness could adversely affect business execution and business performance. This has been selected as a top risk and countermeasures are being taken, although specific details of the measures have not been disclosed.

The Group, whose primary business base is Gifu and Aichi Prefectures, faces the risk of deteriorating business performance among its counterparties and a shrinking revenue base due to a shortage of business successors, decline of regional industries caused by population decline and the falling birthrate coupled with an aging population, and labor shortages and rising labor costs stemming from a declining working population. If the regional economy deteriorates, this may adversely affect financial position and business performance through worsening creditworthiness of business counterparties.

Risk of loss of credibility due to compliance violations arising from changes in laws and social norms, or from legal violations or improper conduct at outsourcing partners. In addition, future establishment, revision, or abolition of regulations may adversely affect business execution, financial position, and business performance. There are also concerns about increasing regulatory compliance costs, including the risk of falling below the capital adequacy ratio requirement (domestic standard of 4% or higher).

As the Group holds a large volume of customer information, there is a risk that misconduct or clerical errors by officers and employees, or business disruptions or information leaks at outsourcing partners, could result in claims for damages, reputational damage, or suspension of operations. A failure at the data center of an outsourcing partner responsible for operating and maintaining the bank's core systems could directly disrupt banking operations. The Group addresses this through the development of information management regulations and systems and thorough training of officers and employees.

Risk that if various initiatives based on the management plan—such as securing loan interest margins, expanding fee income, improving efficiency, and forming capital alliances or investments—fail to produce the expected results, this could adversely affect financial position and business performance. If the effects of capital alliances or investments diverge from expectations, the value of intangible fixed assets such as goodwill could also be impaired. In addition, as a holding company, the Group relies for the majority of its income on dividends and other payments from subsidiaries such as Juroku Bank, and if subsidiaries are unable to record sufficient profit, the Group may be unable to pay dividends to shareholders.