KYUSHU LEASING SERVICE CO., LTD.

There is a close correlation between private-sector capital expenditure and lease equipment investment amounts, and if the economic downturn at home and abroad becomes prolonged, this could affect the Group's business performance through a significant decline in lease equipment investment amounts. Multiple downside factors exist, including surging resource prices, concerns over raw material supply, exchange rate fluctuations, and accelerating inflation, all stemming from geopolitical risk. As a countermeasure, the Group focuses on appropriate asset replacement based on market prices and yields, centered on Lease & Installment Sales, Finance, and Real Estate, and is working to build a business portfolio resilient to business fluctuations.

Lease & Installment Sales transactions and Business Loans (Loans to Businesses) transactions involve medium- to long-term credit extension, and when a lease contract is terminated due to a business partner's bankruptcy, losses on disposal of leased assets may occur; deterioration in business conditions and declines in the market value of collateral properties may also necessitate additional provisions for allowance for doubtful accounts. In addition to screening properties and assessing financial conditions at the start of transactions, the Group has established a management system to identify changes in creditworthiness at an early stage through regular monitoring of business conditions after the transaction begins. Valuation of real estate collateral is outsourced externally to ensure transparency and objectivity, and periodic reviews are conducted according to debtor classification.

Since lease payments, installment payments, and rental fees are fixed amounts, increases in market interest rates are not immediately reflected in income, whereas fund procurement is mainly through borrowings from financial institutions, and variable-rate borrowings are directly affected by interest rate increases, which could put pressure on earnings during periods of rising interest rates. In July 2025, the Group newly established the ALM Strategy Office to strengthen control over the ratio of fixed- and variable-rate funding and monitoring of borrowing periods, while also working to raise applicable interest rates and improve real estate yields on the investment side.

The Group holds real estate for sale of ¥13,369 million and rental real estate of ¥28,312 million. In the event of a decline in real estate prices, losses on sale or valuation losses may occur on real estate for sale, while impairment losses may occur on rental real estate due to declining occupancy rates or falling market values, potentially affecting business performance. As a countermeasure, the Group appropriately monitors domestic economic trends, real estate market conditions, and occupancy rates, and works to mitigate price fluctuation risk by promoting the replacement of held assets.

If changes occur in legal, tax, accounting, or other systems and standards, new costs may arise that could affect business performance. Lease transactions have business characteristics that are highly susceptible to the effects of accounting standards and tax systems. As a countermeasure, the Group appropriately obtains advice from lawyers and specialists when system changes occur, and strives to curb the occurrence of new costs.

The Group is subject to the Companies Act, the Financial Instruments and Exchange Act, the Money Lending Business Act, the Building Lots and Buildings Transaction Business Act, the Antimonopoly Act, the Act on the Protection of Personal Information, and other laws and regulations. If officers or employees violate laws and regulations, penalties, business suspension orders, revocation of registration qualifications, loss of credibility, and other consequences could have a material impact on business performance. The Group formulates a compliance program every year and manages progress through the Compliance Committee, while strictly managing the expiration dates of licenses and approvals such as money lender registration and real estate broker licenses.

The Group holds foreign currency-denominated assets, and sharp fluctuations in exchange rates caused by geopolitical risk or the monetary policies of various countries could affect business performance. As a countermeasure, the Group appropriately manages the balance of foreign currency-denominated assets while closely monitoring global economic trends and the monetary policies of various countries, working to minimize the impact of exchange rate fluctuations.

The Group utilizes computer systems in a wide range of operations, including business partner management, contract management, and accounting processing. Cyberattacks such as system failures, computer viruses, and unauthorized external access could disrupt business activities, and leaks of customer information or management information could lead to damage compensation and loss of social credibility, potentially affecting business performance. In addition to multi-layered defense measures against system intrusion, installation of virus detection and automatic quarantine software on all terminals, and daily data backups to multiple locations, the Group continuously conducts targeted phishing email drills and in-house training for all employees to improve IT literacy.

If administrative risk materializes due to emergencies such as disasters or accidents, damage to social infrastructure, or improper administrative processing, this could affect business performance. As a countermeasure, the Group has formulated management regulations and manuals such as the "Crisis Management Manual" and "Administrative Risk Management Regulations," and is working to mitigate and manage various risks.