Senshu Ikeda Holdings, Inc.

Credit risk arising from deterioration in the financial condition of borrowers is a major risk for the Group, and non-performing loans and credit-related expenses may increase due to economic trends, real estate price movements, stock price fluctuations, and other factors. If non-performing loans arise beyond current expectations, this could adversely affect the financial position and operating results, including a reduction in capital. The subsidiary bank conducts multifaceted credit portfolio management by industry and by debtor classification, among other categories, based on its credit policy and credit risk management regulations.

Fluctuations in interest rates, foreign exchange rates, stock prices, and other market variables affect the Group's market-related businesses, and if fluctuations exceed expectations, this could adversely affect the financial position and operating results. In particular, stock price declines and rises in market interest rates are explicitly identified as factors that directly affect the capital adequacy ratio. Although a Risk Management Committee and an ALM Committee have been established to discuss and implement response measures according to changes in the market environment, complete avoidance of such risk cannot be guaranteed.

In a funding structure that relies mainly on deposits and market-based procurement, changes in domestic and overseas economic conditions and market environments may affect cash flow management or force procurement at significantly higher interest rates. Ikeda Senshu Bank, a subsidiary bank, has obtained ratings from rating agencies, and if its rating were downgraded, there is a risk that it would be forced into fund procurement transactions on unfavorable terms. The Group has established a management framework by securing the liquidity of held assets and diversifying funding methods.

The Group and its banking subsidiaries are legally required to maintain consolidated and non-consolidated capital adequacy ratios at or above the domestic standard (4%), and if the ratio falls below the standard, the Commissioner of the Financial Services Agency may issue a business suspension order or other measures. Increases in non-performing loan disposal amounts, stock price declines, rises in market interest rates, reversal of deferred tax assets, and changes in the method of calculating the capital adequacy ratio are cited as major factors that could lower the ratio. Maintaining the capital adequacy ratio is positioned as a regulatory risk fundamental to the continuity of the business.

Due to the rapidly increasing prevalence of computer virus infections and increasingly sophisticated cyber attacks, incidents such as business suspension, loss of critical data, and theft or leakage of confidential information and personal data may occur. In the event of such an incident, in addition to an adverse impact on business performance and financial position, damage to the Group's reputation for reliability could also result. The Group has established a CSIRT (Computer Security Incident Response Team) and is working to strengthen its response framework through enhanced security measures and cyber attack drills, among other initiatives.

If a serious failure occurs in the online systems connecting branches, ATMs, and other banks, or in customer information systems, this could disrupt settlement operations and otherwise have a material impact on the business. Because business operations are heavily dependent on computer systems, system failures could directly and adversely affect the financial position and operating results. The Group strives to ensure reliability and safety through the establishment of backup systems, data encryption, and strengthened access authority management, among other measures.

If deficiencies in measures against money laundering, terrorist financing, and other financial crimes fail to prevent unfair or improper transactions, there is a risk of sanctions being imposed by domestic and overseas financial authorities, or of correspondent banking agreements being terminated by overseas financial institutions. The Group positions this as one of its most important management issues and is working to establish a management framework based on a risk-based approach.

The Group's principal business base is the Kansai region, and if the economy in its main operating area deteriorates, credit risk may increase through the deteriorating business conditions of client companies, adversely affecting the financial position and operating results. Although the Group conducts business so as to avoid excessive dependence on specific regions or specific customers, vulnerability to a structural deterioration in the regional economy remains. Combined with intensifying competition from the entry of megabanks, other local financial institutions, and neighboring regional banks, the risk of a deteriorating earnings environment is increasing.

If a large-scale natural disaster such as the Nankai Earthquake or the Tonankai Earthquake occurs, in addition to damage sustained directly by the Group, deteriorating performance among client companies affected by the disaster could adversely affect the financial position and operating results. Large-scale disruptions to systems and social infrastructure caused by natural disasters or terrorism, as well as the spread of infectious diseases, are also explicitly identified as risks that could cause partial disruption to operations. Although the Group strives to develop the physical asset environment for the purpose of business continuity, there are limits to its ability to respond to events that exceed expectations.

At the Group, which holds a vast amount of customer information, if leakage, loss, falsification, or improper use of customer information or management information occurs, this could adversely affect the financial position and operating results through a loss of trust. In addition, since various operations are outsourced, there is a risk that disruption to operations at outsourcing partners, or information leakage or improper use by such partners, could damage confidence in the Group's management framework. The Group addresses this through the establishment of internal management systems for information management and verification and management of the qualifications of outsourcing partners, but complete prevention cannot be guaranteed.