Relationship Banking. Year-on-Year Change in Outstanding Loan Balance to SMEs. Total Balance of Loans to SMEs in Japan by Type of Institution

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2 Performance This section provides details on the specific results of the Shoko Chukin Bank s initiatives Financial Our Profile and Functions Management Policy Performance Systems to Ensure Sound Business Topics Supporting Sustainable Growth for SMEs The Bank provides a flexible service tailored to the needs of companies. Through everyday transactions with SMEs we gain a deep understanding of the current status of each firm s business not just its financial aspects but the details of operations and technology, management skills and opinions, and other aspects and help companies to maintain a stable financial position over the long term, without being preoccupied by temporary downturns in the economy. Relationship Banking The Bank s nationwide employees are deeply familiar with SMEs because of day-to-day relationships. P Accurately grasp and analyze the state of a firm s finances and cash flow; P Evaluate a firm s business operations and technical capabilities, and assess its future potential; P Comprehend management thinking and concerns and offer advice on business development and improving management; and P Suggest new business opportunities and financing methods suited to each company. s basic business model is to provide a highvalue-added service focused on problem-solving that responds to the management needs of SMEs in a detailed and thoughtful manner, and secure an appropriate return. Outline of Organization 18 Annual Report 26 Year-on-Year Change in Outstanding Loan Balance to SMEs (%) Shaded areas denote recessions Shaded areas denote recessions Commercial banks (Fiscal year / quarterly basis) Notes: 1. Commercial banks include domestic banks, shinkin banks and credit cooperatives. 2. for domestic banks consists of loans to small, medium-sized and middle-market enterprises. For shinkin banks it consists of loans to businesses, and for credit cooperatives, total loans. 3. for domestic banks in the fourth quarter of fiscal 25 excludes credit cooperatives. Source: Bank of Japan, Bank of Japan Statistics, and others Total Balance of Loans to SMEs in Japan by Type of Institution (As of March 31, 25) Banks 69.9% The Shoko Chukin Bank 3.7% Shinkin Banks 15.9% Credit Cooperatives 3.6% Japan Finance Corporation for Small and Medium Enterprise 3.1% National Life Finance Corporation 3.8% * Banks include city banks, regional banks, second-tier regional banks and trust banks. Sources: Bank of Japan, Financial and Economic Statistics Monthly, and SHOKO RESEARCH INSTITUTE, Shoko Kinyu, and others

3 through Relationship Banking The Nationwide Business Foundation for SME Financing L s Business Base P Consists of over 27, affiliated SME cooperatives nationwide (total membership of 3 million companies) P High transaction rate with SMEs, core companies of local regions P Around 1 trillion in loans extended to approximately 8, SMEs nationwide L Number of of Loan Loan Recipient Companies Companies (Total recipients) 8, 4, L Loan Rate (%) by Company Size in Each Region Region 7,66 FY22 Paid-in capital 8,899 FY23 No. of recipients at end of period (left-hand scale) Less than 5 million 9,584 FY24 Less than 1 million (New recipients) 9,127 75,243 76,352 77,858 79,1 FY25 No. of new recipients (right-hand scale) 1, 2,5 Less than 3 million More than 3 million Total Hokkaido/Tohoku Kanto Hokuriku/Chubu Kinki Chugoku/Shikoku Kyushu/Okinawa All Japan * The number of companies per region is taken from the 24 Establishment and Enterprise Census (Ministry of Internal Affairs and Communications) * Number of the Shoko Chukin Bank clients is as of March 31, 26. Financial Our Profile Management Performance Systems to Ensure Sound Topics Outline of Organization and Functions Policy Business 19 Annual Report 26

4 Financial Providing a Range of Services Tailored to SME utilizes its position as a comprehensive financial institution with discerning judgment acquired through long experience in dealing with SMEs to provide timely and appropriate services. Our Profile and Functions Management Policy Performance Systems to Ensure Sound Business Topics SUPPORTING THE CHALLENGE OF START-UP Case Study: Vitas Co., Ltd. (Bunkyo-ku, Tokyo) is a venture company aiming to improve patient amenities and the care environment inside hospitals. The Bank was impressed by the novel idea of the business, and made financing available for the company in October 25 through our New Business Incubation Funding. We also provided advice and support for the company s application for approval to launch a new business in collaboration with other SMEs in other business areas. The Bank supports SMEs that are newly formed or venturing into new businesses with comprehensive financing services that include backing through an investment syndicates, and various types of public support programs. Financing through the New Business Incubation Funding (Loans) ( 1 million) 115 1, Outline of Organization Patients are able to select from a range of options using a bedside terminal SUPPORTING THE CHALLENGE OF INNOVATION ,47 FY23 No. of loans (left-hand scale) FY24 FY25 Amount (right-hand scale) Support for Companies Working to Control VOC Emissions: In August 25 the Bank developed a financial product in cooperation with the Gravure Cooperative Association of Japan to provide financial support for voluntary efforts to control emissions of volatile organic compounds (VOCs). The first case was financing for Toho Processing Inc. (Chiyoda-ku, Tokyo), in March 26. Control of VOCs requires the installation of combustion treatment devices and other types of equipment, placing a large financial burden on the company. The Bank helps companies to efficiently address environmental issues, and support the social contributions of SMEs that take on the challenge of innovation. 2 Annual Report 26 Toho Processing s Oyama Plant (Oyama-shi, Tochigi Prefecture) The K Filter VOC adsorptive recovery equipment at the Oyama Plant

5 Growth Stages SUPPORTING THE CHALLENGE OF START-UP REVITALI- ZATION The long-established sake brewery founded in the Meiji Period ( ) FULFILLING THE ROLE OF A SAFETY NET FOR SMEs A newly installed soy sauce production machine Case Study: In October 25 the Bank and the Niigata Credit Union helped Imayotsukasa Shuzo Co., Ltd. (Niigata-shi, Niigata Prefecture) secure 34 million in exit financing. Imayotsukasa, with the support of an alcohol wholesale company headquartered in Osaka, is making efforts to improve production efficiency and implement a revitalization plan to build a direct sales structure centered on retailers in the Kanto Koshinetsu region, with the idea of consolidating its product lineup to high-quality sake, and marketing it to consumers throughout Japan. We feel that support for the recovery of a sake brewer the representative local industry of Niigata as well as enhancing the creditworthiness of the company and contributing to its revival, is a worthy undertaking. Financing for Business Revitalization Loans (Loans) 1 54 FY23 No. of loans (left-hand scale) FY24 ( 1 million) 98 1 FY25 Amount (right-hand scale) Case Study: The Bank introduced Disaster Recovery Funding, a public support program to help companies recover from disasters, to Yamazaki Brewing Co., Ltd., (Ojiya-shi, Niigata Prefecture) a producer of miso and soy sauce whose production facilities were severely damaged during the Niigata Chuetsu Earthquake. The Bank, along with the local financial institution that is the company s main bank, provided funds necessary for restoration, realizing the recovery in investment of local industry. The Bank sets up special consultation desks in business offices, through which it is able to provide financial counseling in a timely manner in the wake of typhoons, earthquakes and other natural disasters, or in response to sudden shifts in the business environment, such as the appreciation of crude oil prices. These offices allow the Bank to assist SMEs affected by such events in a sympathetic, courteous and speedy manner. M Special Consultation Desks Set Up in Fiscal 25 Event Established Places Established Closure of Maruiimai Inc. s Otaru and Tomakomai stores Damage from Typhoon No. 14 Rise in crude oil prices Damage from heavy snowfall in January 26 July 25 September 25 September 25 January 26 Branch offices in Sapporo, Hakodate, Obihiro, Kushiro and Asahikawa All business offices in Tokyo, Yamaguchi, Kochi, Miyazaki, and Kagoshima prefectures (total of 18 branch offices) 99 branch offices nationwide Business offices in Niigata and Nagano prefectures (total of 5 branch offices) Financial Our Profile Management Performance Systems to Ensure Sound Topics Outline of Organization and Functions Policy Business 21 Annual Report 26

6 Financial Our Profile and Functions Management Policy Performance Systems to Ensure Sound Business Topics Outline of Organization 2 2 Development and Promotion of New Financing is developing new financing methods that are not overly dependent on real estate collateral or personal guarantees, with the aim of greater facilitation and diversification of financing for SMEs. We actively promote debt/debt swaps (DDS), syndicated loans and other financing methods in cooperation and coordination with regional financial institutions. M Overview of New Financing Methods Overview of Syndicated Loans (Loans) ( 1 million) No. of Loans Method 931 Start Date Accumulated Amount ( 1 million) , Private placed bonds Apr ,692 2, Securitization of trade receivables Feb ,784 5 (Arrangement deals) 62 Syndicated loans Mar. 2 (Participation amount total) 945 2, DIP finance July Local and regional government agencies CLOs Mar CDS FY23 FY24 FY25 June 23 (Notional principal total) DDS Loans as lead arranger (left-hand scale) Participation amount (right-hand scale) Mar ABL May (Transactions) 7 Loans as participant (left-hand scale) FY23 1,271 FY24 No. of transactions (left-hand scale) Amount as lead arranger (right-hand scale) Note: Amount as lead arranger is the cumulative total of the Shoko Chukin Bank and other banks. Participation amount is the contract amount where another bank is the lead arranger. Transactions Using a Securitization of Trade Receivables Scheme 1,539 FY25 ( 1 million) 2, Amount (right-hand scale) Overview of Syndicated Loans (Loans) FY23 (Transactions) FY24 Loans as lead arranger (left-hand scale) Loans as participant (left-hand scale) ( 1 million) 931 1, 51 FY25 5 Participation amount (right-hand scale) Amount as lead arranger (right-hand scale) Note: Amount as lead arranger is the cumulative total of the Shoko Chukin Bank and other banks. Participation amount is the contract amount where another bank is the lead arranger. Transactions Using a Securitization of Trade Receivables Scheme 869 1,271 1,539 ( 1 million) 2, Annual Report FY23 FY24 FY25 No. of transactions (left-hand scale) Amount (right-hand scale)

7 Methods Helps to Facilitate Financing for SMEs Financial DDS (Debt/Debt Swap) DDS is an advanced technique used to rebuild the finances of SMEs based on management improvement plans that are reasonable and have a high probability of success. Under such schemes, a portion of debt held by a financial institution is swapped for capital subordinated loans. In March 24, the Bank became the first financial institution in Japan to execute a DDS scheme in line with the requirements of the Supplement to the Financial Inspection Manual: Treatment of Classifications Regarding Credits to Small and Medium-sized Enterprises. ABL (Asset-Based Lending) ABL focuses on the business lifecycle process in which inventory is sold become trade receivables, which are then recovered. Under such a scheme the combined value of inventory and trade receivables is considered the collateral, and set as the upper limit for financing. Assets (market value) 1 Excess debt 5 (1 ) Purchaser Client company Cash deposits (management account) Trade receivables (receivables) Inventory (movable assets) Business transaction Recovery Sale GLOSSARY OF TERMS Execute DDS 5 Debt 15 (2 ) Borrowings 5 DDS 5 Designated deposit of proceeds from sale (into controlled account) Report regularly on collateral information Pledge or management account Collateral transfer Collateral transfer Conversion to a capital subordinated loan (The DDS becomes de facto capital) Execute financing Collateral acquisition as a single unit Financial institution Our Profile Management Performance Systems to Ensure Sound Topics Outline of Organization and Functions Policy Business 2 3 Annual Report 26

8 Financial Our Profile and Functions Cooperation with External Organizations Nation- collaborates and cooperates with local and regional government agencies, industry organizations, regional financial institutions and other bodies in its efforts to stimulate local economies and industries. M overview of Cooperation Efforts Management Policy Performance Systems to Ensure Sound Business Topics Federation of Small Business Associations 47 Small Business Associations (Approximately 4, subordinate associations) Chambers of Commerce and Industry Societies of Commerce and Industry Shopping District Promotion Cooperatives and Federations Organizational support Cooperative financing Cooperative financing SME Respond to needs Bank Policy-based lending Partner for revitalization support Information exchange Chukin Kai, Youth Kai All-Japan Youth Kai: Cross-industrial exchange organization composed 5, young entrepreneurs throughout Japan Local and Regional Government Agencies SME Revitalization Support Councils Resolution and Collection Corporation Industrial Revitalization Corporation of Japan Outline of Organization Chambers of commerce and industry 522 Societies of commerce and industry 2,776 Shopping District Promotion Cooperatives and Federations 47 Cooperative financing Risk sharing partner Promote new financing methods Support cooperation between industry, academic institutions and government agencies Support new alliances 24 Annual Report 26 Industry Groups Japan Trucking Association, others M Overview of Support in Cooperation with Various Organizations Support in cooperation with regional federations of small business associations Support in cooperation with chambers of commerce and industry Support in cooperation with industry associations Support in cooperation with universities, etc. Regional Financial Institutions Number of business cooperation agreements with financial institutions 351 Universities, others Agreements concluded with 6 institutions New Coordination Strategy Committees (Organization for Small & Medium Enterprises and Regional Innovation) Strategy committees established in 9 blocks nationwide The Bank supports the formation of new businesses and ventures into new business fields through cooperative arrangements by working together with regional federations of small business associations to provide business association support loans for newly formed cooperative associations, and loans for newly formed joint-enterprise associations. The Bank is making efforts to revitalize and stimulate local regions through such measures as establishing a Committee for Revitalization and Stimulation of Regional Areas together with the Japan Chamber of Commerce and Industry, and launching a Chamber of Commerce Alliance Loan in cooperation with chambers of commerce and industry in each region. The Bank is working in cooperation with the Japan Trucking Association to provide funds for replacing vehicles subject to emissions standards under the Vehicle NOx/PM Control Law. The Bank provides financing and information for SMEs working to commercialize R&D achievements of universities and other institutions, supporting the development of regional industries.

9 wide to Respond to the Diverse Needs of SMEs In December 24, the Shoko Chukin Bank formulated a comprehensive support strategy for regional revitalization and economic stimulation. We established numerous policy themes in line with the strategies of local and regional government agencies and other bodies, to provide support for regional SMEs in terms of both financing and information. April 25 to March 26 Policy themes: 298 Financing cases: 3,449 cases for a total of 24. billion Hokuriku No. of policy themes: 13 Stimulation of the manufacturing industry (Toyama) Support for local industries (lodging, textile manufacturing), (Kanazawa), etc. Kinki No. of policy themes: 62 Cooperation with the Eco- Kyoto 21 environmental strategies of Kyoto Prefecture (Kyoto) Support for Osaka manufacturing technology, (Senba), etc. Chugoku No. of policy themes: 28 Concentrated industry (roof tiles) stimulation support project (Matsue) Enhancing competitiveness of automobile-related industries (Hiroshima), etc. Kyushu/Okinawa No. of policy themes: 38 Support for the regional employment expansion project through development of new lifestyle industries (Kitakyushu) Support for overseas business development for prefectural businesses, (Kagoshima), etc. Koshinetsu No. of policy themes: 18 Regional revitalization following the Niigata Chuetsu Earthquake (Nagaoka) Financing support for businesses operating in specific business zone (wine zone), (Kofu), etc. Tokai No. of policy themes: 31 Ceramics (Mino ware) production area revitalization project (Gifu) Stimulation of the regional economy through support for recycling-related businesses, (Yokkaichi), etc. Shikoku No. of policy themes: 12 Support for the regional business international sales route development support project (Takamatsu) Support for the founding of new leading industries in the Ehime prefectural economy of the 21st century, (Matsuyama), etc. Hokkaido No. of policy themes: 7 Contribution to the Hokkaido invigoration program (Sapporo) Zero emissions Hokkaido (environmental preservation efforts), (Asahikawa), etc. Tohoku No. of policy themes: 27 Crystal Valley concept (concentration of flat panel display FPD manufacturers) (Aomori, Hachinohe) Support for businesses offering Aizu slow food (traditional and local cuisine), (Fukushima), etc. Kita-Kanto No. of policy themes: 28 Support for one company, one technology firms selected by Gunma Prefecture (Maebashi) Support for Ibaraki Prefecture industrial stimulation (manufacturing technology support project), (Mito), etc. Tokyo No. of policy themes: 23 Support for invigoration of Ginza District retail shops and commercial areas (Business Division) Support for invigoration of Kanda and Jimbocho, (Kanda), etc. Minami-Kanto No. of policy themes: 11 Support for Kawasaki entrepreneur auditions, (Kawasaki), etc. Financial Our Profile Management Performance Systems to Ensure Sound Topics Outline of Organization and Functions Policy Business 2 5 Annual Report 26