Mitsubishi HC Capital Inc.

In the mid- to long-term credit extension business including leases, installment sales, and loans, if the creditworthiness of business partners deteriorates due to an economic downturn or changes in the financial environment, additional allowance for doubtful accounts may be required due to an increase in non-performing assets, affecting business results and financial position. "Increase in credit costs" has also been identified as a top risk, with vigilance against scenarios in which business partners' performance deteriorates due to instability in the global economic and financial environment. The Group responds through screening based on its proprietary rating system, portfolio diversification, and monitoring through regular measurement of credit risk exposure.

The Group holds global assets such as aircraft, aircraft engines, containers, and railcars under operating lease arrangements. Economic trends, obsolescence due to technological innovation, major accidents, geopolitical risk, natural disasters, and other factors may cause asset sale prices to fluctuate, potentially resulting in impairment losses and increased asset management costs. Price fluctuation risk directly affects earnings when recovering, re-leasing, or selling assets after lease expiration or in the event of a business partner's bankruptcy. The Group manages this risk by setting diversification criteria based on asset type, region, expiration timing, and other factors, along with early warning monitoring.

Escalating tensions in the Middle East leading to surging energy prices and supply chain disruptions causing inflation and economic slowdown, as well as worsening business conditions due to intensifying political friction between the U.S. and China, may affect the Group's business results through deterioration in business partners' performance and sharp interest rate increases. Strengthening of tariff policies and export controls is similarly recognized as a supply constraint risk, stemming from renewed inflation due to tariff hikes in various countries and tightened export/investment restrictions driven by economic security concerns. Management has identified this as a top risk and responds through scenario analysis at the ALM Committee and management of country risk ceiling values.

Cyberattacks such as business email compromise, malware intrusion, and unauthorized external access may result in system outages, financial losses, and leakage of confidential information or business partner information, which could disrupt business operations, cause economic losses, and damage social trust, thereby affecting business results and financial position. This has been identified as a top risk, with vigilance against scenarios of service disruption and reputational damage resulting from attacks on the Group and third parties. The Group has established a cross-organizational team, MHC-SIRT, and continues to implement multi-layered defense, incident response drills, and targeted email attack training for all employees.

While lease payments for lease and installment sale transactions are mostly fixed during the contract period, funding for asset acquisition is conducted using a balance of fixed and variable interest rates, so a sharp rise in market interest rates could increase the cost of funds and squeeze earnings. In addition, since the financial statements of overseas consolidated subsidiaries are denominated in local currencies, significant exchange rate fluctuations may affect consolidated business results and financial position when translated into yen. The Group manages this through ALM-based monitoring of interest rate structure and foreign exchange mismatches between assets and liabilities, timely hedging operations, and scenario analysis at the quarterly ALM Committee meetings.

Given the Group's substantial fundraising both domestically and overseas, if financial institutions and investors become more risk-averse due to a sharp deterioration in the economic and financial environment or a decline in the Group's creditworthiness, it may become difficult to secure sufficient funds, potentially affecting business results and financial position. In particular, foreign currency funding risk has been identified as a top risk, with vigilance against scenarios in which the foreign currency funding environment deteriorates due to financial market turmoil. The Group responds through diversification of funding sources such as corporate bonds, CP, and securitization of lease receivables, obtaining commitment lines, and building a group finance structure through its North American regional finance hub.

Investment activities such as renewable energy power generation businesses, investments in operating companies, and funds carry risks including profitability deterioration due to regulatory changes, rising interest rates, or cost inflation; earnings deterioration in existing investment projects due to construction delays, equipment malfunctions, or reduced utilization rates; and difficulty in exiting businesses due to differences in management policy with partners. Regardless of the performance of investees, if stock prices remain below a certain level for a considerable period due to sudden changes in the economic and financial environment, part or all of the investment could result in a loss, including valuation losses. The Group manages this through multi-faceted screening at the Investment Deliberation Council, ongoing monitoring after execution, and regular measurement of risk exposure.

Transition risk arising from stricter laws and regulations, policy changes, and technological innovation associated with the shift to a decarbonized society, as well as physical risk from extreme weather and intensifying natural disasters due to progressing global warming, may affect business results and financial position through deterioration in business partners' performance and declines in the value of held assets. In addition, if the Group's response to and disclosure regarding climate change risk is deemed inadequate, it could damage corporate value. The Group has expressed support for and built a framework compliant with the TCFD recommendations, and is working on information disclosure through its ESG Data Book and other means.

The Group is diversifying and expanding its business portfolio through M&A and strategic alliances both domestically and overseas, but changes in the economic and financial environment, intensifying competition, changes in partners' business environments, and changes in relevant laws and regulations may prevent expected effects from being achieved. This could require additional expense recognition, such as impairment of goodwill recorded at the time of M&A, affecting business results and financial position. The Group responds through multi-faceted screening of investment structures using external experts, and monitoring of business plans and actual performance after execution.

The Group has identified as a top risk the possibility that sustainable growth may stagnate due to difficulty in hiring specialized talent necessary to maintain and strengthen competitiveness across its various domestic and overseas businesses. If the Group is unable to sufficiently secure and develop the necessary talent, it may affect business results and financial position. The Group responds through diversification of new graduate and career hiring (including referral hiring and returnee hiring), and development measures such as the Career Challenge system, various training programs, and support for obtaining qualifications.