Aichi Financial Group, Inc.

The risk that non-performing loans and credit-related expenses increase due to economic trends, declines in real estate prices, or deterioration in the business condition of counterparties. If collateral values decline or actual credit losses exceed estimates, write-offs of loans or additional provisions for allowance for doubtful accounts may become necessary, affecting business performance and financial condition. The Group addresses this through a focus on supporting management improvement of borrowers and diversification of credit through portfolio management.

In addition to the risk of impairment losses on held bonds due to a significant rise in interest rates, mismatches in interest rates and maturities between assets such as loans and liabilities such as deposits may affect business performance and financial condition. The Group holds marketable bonds and is structured to be directly affected by interest rate fluctuations. While the Group strives to enhance its interest rate risk management, it may be difficult to respond adequately in the event of significant interest rate fluctuations.

As a bank operating under domestic standards, the Group is required to maintain a capital adequacy ratio of 4% or higher. If the capital adequacy ratio declines significantly due to increased credit-related expenses, changes in risk assets, declines in the market value of held securities, or changes in regulatory standards, the Group may be subject to administrative orders, including suspension of all or part of its business operations. A decline in the capital adequacy ratio could also have a wide-ranging impact on fund procurement and business operations.

The occurrence of computer system failures, unauthorized access, cyberattacks, or similar incidents may affect business operations, performance, and financial condition. Financial crimes are becoming increasingly sophisticated and diversified (e.g., cash card forgery, unauthorized access to internet banking), and there is a risk of increased costs for damage compensation and preventive measures. The Group strives to prevent system failures and enhance security, but depending on the scale of a failure, an adequate response may be difficult.

As the Group holds a large volume of information on corporate and individual customers, if important information is leaked due to inadequate management or cyberattacks/unauthorized access from outside parties, this could affect business operations, performance, and financial condition through damages claims or administrative sanctions. While the Group makes every effort to manage information based on various laws and regulations, complete prevention is difficult given the increasing sophistication of threats.

Business disruption at counterparties due to natural disasters and abnormal weather, and impairment of collateral value (physical risk), as well as deterioration in counterparties' business conditions due to policy and regulatory responses associated with the transition to a decarbonized society (transition risk), may affect business performance and financial condition. There is also a risk that insufficient response to or disclosure of climate change risk could lead to a decline in corporate value.

Future changes to various regulations and systems such as the Banking Act (including laws, rules, policies, business practices, and interpretations) may affect business operations, performance, and financial condition. If anti-money laundering and counter-terrorism financing measures do not function effectively, there is a risk of administrative sanctions such as business suspension or fines. The Group positions compliance as a key management priority and has established a system for timely and appropriate response.

In Aichi Prefecture, the Group's core operating base, competition with regional financial institutions, megabanks, and non-banks, as well as new entrants from other industries, may prevent the Group from securing a competitive advantage, which could affect business performance and financial condition. It is anticipated that more aggressive business development by other financial institutions will increase downward pressure on loan interest rates and fee income.

If the working environment deteriorates due to unexpected employee turnover, resulting in personnel shortages or a decline in employee morale, or if the Group fails to sufficiently secure and develop highly specialized personnel, this may affect business operations, performance, and financial condition. The Group strives for appropriate labor management based on labor-related laws and regulations, against a backdrop of intensifying competition for talent across the financial industry as a whole.

As a bank holding company, the Company depends on dividends and other income from its bank subsidiary for the majority of its revenue, and dividends from the subsidiary may be restricted by regulations such as the Banking Act or contractual limitations. If the bank subsidiary is unable to record sufficient profit, there is a risk that it will become difficult for the Company to pay dividends to its shareholders.