The Keiyo Bank, Ltd.

There is a risk that actual loan losses may significantly exceed the allowance for loan losses due to economic trends, changes in the financial condition of borrowers, natural disasters, pandemics, etc., resulting in increased credit-related expenses. The Bank estimates loan loss amounts and records allowances for loan losses based on forecasts of macroeconomic indicators, but there is a possibility that the allowance may be insufficient due to unforeseen events. The Bank strives to record appropriate allowances through monitoring of borrowers' financial condition and other factors.

Since the Bank's main business base is Chiba Prefecture and most of its borrowers are located within Chiba Prefecture, fluctuations in credit risk are heavily influenced by economic trends in Chiba Prefecture. In the event of a large-scale earthquake, typhoon, or other natural disaster in Chiba Prefecture or nearby areas, the deterioration of borrowers' financial condition could affect the Bank's business performance and financial condition. The geographic concentration of the business forms a risk structure that is difficult to diversify.

Because there are differences in the interest rate revision dates between fund investments (loans and securities) and fund procurement (deposits), fluctuations in market interest rates may narrow the interest margin and affect the Bank's financial condition. In particular, in a rising interest rate environment, there is a risk that the increase in procurement costs may exceed the improvement in investment yields. The Bank manages this risk through forecasting interest rate trends and grasping and analyzing the amount of interest rate risk.

For held equity securities, impairment or valuation losses may occur depending on stock market trends, which could lead to deteriorating business performance and a decline in the capital adequacy ratio. For held bonds (mainly government bonds), fluctuations in interest rates, exchange rates, issuer creditworthiness, and supply-demand conditions may affect business performance and financial condition. The Bank strives to minimize such impact through diversification of holdings by issue and by remaining maturity.

If an incident such as a system outage or information leakage occurs due to a cyber attack, computer virus infection, or similar cause, it could result in unforeseen losses and a decline in social credibility, thereby affecting business performance and financial condition. The Bank's systems are connected online to customers and various settlement organizations, meaning the impact of any failure could be widespread. The Bank has implemented multi-layered technical countermeasures, contingency plans, and incident response manuals, and conducts regular training.

As the Bank holds a large amount of personal and internal information, if information is leaked or lost due to error, misconduct, or accident by officers or employees, it could lead to customer claims for damages and loss of social credibility, thereby affecting business operations, performance, and financial condition. The Bank has established information management regulations, thoroughly conducts education and training for officers and employees, supervises outsourcing partners, and implements centralized information management and system security measures.

The Bank is required to maintain a capital adequacy ratio of at least 4% under domestic standards, and if this falls below the threshold, the Bank may receive an order, including business suspension, from the Commissioner of the Financial Services Agency. Factors that could affect the capital adequacy ratio include an increase in credit-related expenses, a decline in the value of the securities portfolio, the reversal of deferred tax assets, and changes in regulatory standards. The Bank strives to maintain sufficient capital in both quality and quantity and to secure a capital adequacy ratio commensurate with its risk profile.

In addition to the risk of increased credit-related expenses due to the deterioration of business partners' performance and impairment of collateral value caused by natural disasters resulting from climate change, there is a risk of increased credit costs for sectors affected over the medium to long term by regulatory and tax system changes in the transition process to a decarbonized society. If the Bank's response to and disclosure of climate change risk is deemed inadequate, this could also affect business performance and financial condition. The Bank is strengthening its efforts to identify and analyze the impact of such risks and to enhance information disclosure.

Competition in the financial industry is intensifying due to significant deregulation of the financial system, and if the Bank is unable to secure a competitive advantage, this could affect its business performance and financial condition. The entry of fintech companies and companies from other industries is also complicating the competitive environment. The Bank seeks to differentiate itself through measures that enhance customer convenience.

If the Bank is unable to sufficiently secure and develop capable human resources, or if outstanding personnel leave the Bank, its competitiveness and efficiency may decline, affecting its business performance and financial condition. The Bank aims to improve engagement and retain talent by actively recruiting highly specialized external personnel, enhancing its training system, and establishing fair evaluation and treatment systems.