Tsukuba Bank, Ltd.

Deterioration in domestic and overseas economic conditions, worsening financial condition of borrowers, and declines in collateral value, among other factors, may increase non-performing loans and credit costs, potentially affecting business performance and financial condition. The Bank makes appropriate provisions and write-offs based on its self-assessment standards, but actual loan losses may exceed estimates for the allowance for loan losses. There is also a risk that disposal of non-performing loans may not progress if the cash conversion or forced execution of real estate or securities pledged as collateral proves difficult.

The Bank holds marketable securities such as stocks and bonds, and rising market interest rates or falling stock prices may result in valuation losses or losses on sale. There is also market credit risk, whereby fluctuations in credit spreads on corporate bonds, credit derivatives, and other instruments affect present value and period income. The Bank manages maximum potential losses using statistical methods based on VaR (99% confidence level) and, through its capital allocation system, ensures that risk amounts remain within the scope of its capital.

Mismatches in interest rates or repricing periods between assets and liabilities may cause profit to decline or losses to occur due to interest rate fluctuations, potentially affecting business performance. Foreign currency-denominated assets and liabilities also carry exchange rate fluctuation risk. The Bank practices risk management integrated with management strategy through the assessment of risk amounts using VaR and its capital allocation system.

Deterioration in the Bank's financial condition or adverse market rumors may make it difficult to secure necessary funds, worsening its cash flow position. There is also a risk of being forced to raise funds under significantly less favorable terms than usual in order to secure liquidity. If a credit rating downgrade or reputational risk materializes, deposit outflows may occur, potentially leading to higher funding costs due to increases in deposit interest rates.

If computer system outages or malfunctions, or destruction or leakage of information due to cyber attacks occur, business operations may be disrupted and public trust may be undermined, potentially affecting business results. As countermeasures, the Bank has established its "Security Policy" and "System Risk Management Regulations," and has set up backup centers for its host online system and internet banking system to ensure a business continuity framework.

The Bank Group applies domestic standards and is required to maintain a capital adequacy ratio of 4% or higher. If the capital adequacy ratio falls below 4%, prompt corrective action, including orders to suspend all or part of business operations, will be triggered. A reduction in deferred tax assets, changes in retirement benefit obligations, and recognition of impairment losses on fixed assets, among other factors, may lead to a decline in the capital adequacy ratio.

The Bank recognizes both transition risk, whereby tightened regulations and technological innovation accompanying the shift to a low-carbon society affect the business and financial condition of borrowers, and physical risk, whereby an increase in the frequency and scale of natural disasters caused by climate change damages assets of the Bank Group and its borrowers. Should these risks materialize, they may affect business performance and financial condition through increased credit costs and declines in collateral value. The Bank strives to mitigate these risks through its sustainability-related initiatives.

If business operations are found to violate laws and regulations, the Bank may face litigation or administrative sanctions, potentially leading to business suspension. There is also a risk that future amendments to laws and regulations, policy changes, or changes in the interpretation of laws may affect business operations. The Bank has established a Basic Compliance Policy and manuals, and through practices based on its Compliance Program, has built a framework to ensure legal compliance by officers and employees and a cross-organizational response system.

The Bank Group holds a large amount of customer information in the course of its business operations, and if an information leak were to occur, it could have a material impact on business operations and performance. The Bank has established internal regulations in accordance with laws and regulations and strives for thorough information management, but the risk of leakage due to cyber attacks or internal misconduct cannot be eliminated. Information leakage could also undermine public trust, raising concerns about secondary effects such as deposit outflows.

In the event of a large-scale earthquake or other natural disaster in the regions where the Bank's main business and system locations are situated, business activities may be disrupted, potentially affecting business performance and financial condition. Similar risks may arise if regional economic activity stagnates due to the spread of an infectious disease. In the event of a large-scale disaster, the Bank establishes an emergency response headquarters and has built a framework for initial response and business continuity based on its "Basic Business Continuity Regulations" and "System Failure Response Plan."