The Hyakujushi Bank, Ltd.

There is a risk that credit costs will increase due to deteriorating business performance of counterparties resulting from a domestic or global economic downturn or accelerating inflation. Prolonged management support for large borrowers and an increase in the number of underperforming borrowers could lead to continued management support costs and substantial credit costs. In response, the Bank employs credit risk measurement using the Foundation Internal Ratings-Based (FIRB) approach, conducts regular stress tests, and has established a management framework to control the amount of risk within the scope of its capital.

There is a risk that intensifying competition in a world with interest rates could result in changes to the asset-liability composition, a decline in lending market share, narrowing spreads, and profit/loss impacts from changes in the yield curve. In addition, there are concerns that sharp fluctuations in financial markets triggered by geopolitical risk and other factors could lead to deterioration in valuation gains/losses on securities due to a stock market crash or similar events. The Bank regularly measures the amount of market risk and conducts stress tests to strengthen management resilience.

There is a risk that increasingly frequent and sophisticated cyberattacks could cause the suspension of transactions and services and the leakage of customer information, damaging customer trust. The increase and growing complexity of financial crimes also present risks such as an increase in special fraud and skimming losses suffered by customers, and administrative sanctions due to inadequate anti-money laundering controls. This is positioned as a top risk and is addressed on a priority basis at the Board of Directors level.

There is a risk that large-scale disasters, pandemics, system failures, and other events impeding business continuity could cause the suspension of transactions and services and damage to the Bank's physical and human capital. An increase in credit costs due to disaster damage to counterparties is also anticipated. This is positioned as a top risk forming the foundation of the Bank's management and is addressed on a priority basis.

There is a risk that the intensifying severity of environmental issues such as climate change and the growing importance of biodiversity could result in a decline in social trust due to delays in decarbonization and biodiversity response. There are also concerns about business suspensions of counterparties due to extreme weather, an increase in credit costs due to declining collateral value, and deterioration in counterparties' business performance due to delays in decarbonization. The Board of Directors reviews these risks once a year following deliberation by the Sustainability Committee.

There is a risk that the accelerating digital shift in society and the economy, along with advances in AI technology, could lead to an outflow of funds to other banks and a decline in the Bank's presence in its business areas. Failure to utilize AI is a concern that could weaken competitiveness, potentially eroding the Bank's regional foothold. This is positioned as a top risk, and the Bank is advancing its response to technological transformation in an integrated manner with its management strategy.

There is a risk that regional economic contraction, the declining birthrate, aging population, and population decline could lead to a shrinking of business scale due to a decrease in the number of counterparties, as well as a contraction in retail transactions including a decline in personal deposits. As a regional bank, this is a structural risk that concerns the very foundation of its business base, and it is positioned as an issue to be addressed under the medium-term management plan "Dakara, Idomu." (FY2026 (ending March 2026) through FY2028 (ending March 2028)).

There is a risk that crimes or compliance violations by officers and employees could result in administrative sanctions due to legal violations and a loss of confidence among stakeholders. In addition, low profitability and capital efficiency, or a lack of effective group governance, raise concerns about declining corporate value, lower market evaluation, and an increased proportion of votes against proposals at general shareholders' meetings. A high ratio of strategic shareholdings is also recognized as a risk of lower market valuation and substantial impairment losses in the event of a stock market crash.

If the capital adequacy ratio falls below the required level under domestic standards (4%), there is a risk that the Commissioner of the Financial Services Agency will invoke prompt corrective action, which could result in orders to suspend all or part of operations. The Bank has adopted the Foundation Internal Ratings-Based (FIRB) approach for credit risk and the standardized approach for operational risk, and is susceptible to external factors such as economic conditions and deterioration in counterparties' business performance. Currently, the ratio significantly exceeds the required level, and the Bank evaluates the adequacy of its capital through regular stress tests based on multiple stress scenarios.

There is a risk that the growing emphasis on DE&I and respect for human rights, along with increasing labor mobility, could lead to a decline in employee engagement and difficulty in securing human resources. There are also concerns about the outflow of talent due to an insular and conservative corporate culture, as well as cultural friction among employees resulting from the acceptance of secondees from other companies with different corporate cultures amid cross-industry collaboration. This is positioned as a top risk, and the Bank is promoting risk management in an integrated manner with its human capital strategy.