The Bank of Nagoya, Ltd.

There is a risk that non-performing loans and credit-related expenses may increase due to domestic and overseas economic conditions, trends in the regional economy, deterioration in the creditworthiness of counterparties, declines in real estate prices, and similar factors. There is also a possibility that additional provisions may become necessary due to a divergence between estimated allowances for doubtful accounts and actual credit losses, or due to declines in collateral value. The Bank has established a credit risk management framework through case-by-case screening, credit ratings, and a self-assessment system, and conducts periodic revaluation of collateral.

There are mismatches in interest rates and maturities between fund investment activities such as loans and securities investments and fund procurement through deposits, etc., and unexpected interest rate fluctuations may adversely affect the Bank's business results. A sharp rise or fall in interest rates resulting from changes in the Bank of Japan's monetary policy or other factors could directly impact the earnings structure. The Bank measures and manages risk using statistical methods such as VaR, and sets loss limits and conducts simulation analyses.

The Bank holds a portfolio of marketable securities such as bonds and stocks, and if prices decline significantly due to economic and market conditions, deterioration in the creditworthiness of issuers, changes in monetary policy, or other factors, impairment losses or valuation losses may occur, adversely affecting the Bank's business results. There is also a risk that losses exceeding the calculated risk amount may occur if market fluctuations differ from those experienced in the past. The Bank conducts multifaceted risk management through the setting of loss limits and simulation analyses.

As the Bank has overseas business locations, it is required to maintain a capital adequacy ratio based on the internationally uniform standards (Basel regulations), and if the ratio falls below the required standard, the Bank may be subject to supervisory measures such as restrictions on external distributions or business suspension orders. Factors that could affect the capital adequacy ratio include a decline in the value of the securities portfolio, an increase in credit-related expenses, an increase in credit risk assets, and changes in regulatory standards. The Bank conducts impact analyses and considers and implements countermeasures in parallel with its credit and market risk management.

As the Bank's main business base is Aichi Prefecture, a deterioration in the regional economy would directly lead to stagnation in business expansion and an increase in non-performing loans. In addition, heightened geopolitical risks such as the situation in the Middle East could cause raw material prices to remain elevated and disrupt supply chains, which, through a slowdown in the regional economy and deterioration in the business performance of counterparties, could lead to increased credit expenses and lower returns on securities investments. The Bank continuously monitors regional economic trends while diversifying risk through credit portfolio management.

There is a risk that suspension, malfunction, or unauthorized use of computer systems, including the core banking system, as well as cyberattacks such as unauthorized access or computer virus infections, could result in the suspension of financial services, data leakage or tampering, leakage of customer information, or fraudulent transactions. With the advance of digitalization, cyber threats are becoming more sophisticated and complex, raising concerns about the impact on business operations and business results. The Bank examines risk reduction and recurrence prevention measures through regular monitoring and analysis of operational risk and the use of external databases.

The Bank is subject to numerous laws and regulations related to banking operations, and if compliance with laws and regulations is found to be insufficient or if litigation is brought against the Bank, this could have a significant impact on its reputation and adversely affect its business results. There is also a risk of situations arising beyond the Bank's control due to changes in government policy, laws, regulations, policies, or business practices. The Bank strives to ensure thorough compliance awareness among its officers and employees through the development of compliance programs, hierarchical training, and study sessions at each department and branch.

Physical risks such as extreme weather and natural disasters associated with climate change may cause disruption to counterparties' and the Bank's business operations and damage to the value of real estate collateral. In addition, deterioration in the business performance of counterparties due to stricter climate-related regulations and the transition to a low-carbon society (transition risk) may adversely affect the Bank's business results. The Bank recognizes climate change risk as an important management risk and is working to establish a risk management framework.

If banking operations are used for money laundering, terrorist financing, or proliferation financing, this could adversely affect the Bank's business results due to violations of laws and regulations by domestic and overseas regulatory authorities or the imposition of fines. Reputational risk arising from deficiencies in the relevant framework is also significant. The Bank positions AML/CFT measures as an important management priority and is working to establish an appropriate cross-organizational framework within the Bank.

There is a possibility that the originally planned increase in earnings may not be realized due to sluggish growth in the number of customers resulting from competitive conditions and market environment, delays in cost reductions, failure to achieve expected returns on securities investments, the emergence of new risks associated with the expansion of business scope, and stagnation in the provision of next-generation financial services and improvement in operational efficiency due to delays in responding to DX strategy. In particular, delays in responding to DX are explicitly identified as a risk directly linked to a decline in competitiveness. The Bank regularly reviews market conditions and progress with respect to its various strategies and considers flexible responses as necessary.