ANNUAL REPORT Year ended March 31, 2016

Transcription

1 ANNUAL REPORT 2016 Year ended March 31, 2016

2 Profile Kansai Urban Banking Corporation and The Biwako Bank, Ltd., two banks possessing the region s strongest management, merged in March 2010 with the goal of creating a regional bank with an operational base covering the entire Kansai region. The resulting entity, Kansai Urban Banking Corporation (KUBC or the Bank ) has set its sights on further growth in the economic center of Osaka, has positioned Shiga Prefecture, with its high-growth potential, as a major operational base and is developing its operations across the region, which comprises the Kansai economic zone. Seeking to further contribute to the development of the regional economy, we will merge the sophisticated financial know-how of the Sumitomo Mitsui Banking Corporation (SMBC) Group, of which we are a member, with the community-based support capabilities that only a regional financial institution can offer, and thereby provide financial services that satisfy local small- and medium-sized enterprises (SMEs) and individual customers. Data Summary (on a consolidated basis as of the end of March 2016) Common Stock 47.0 billion Total Assets 4,483.0 billion Net Income 16.0 billion Net Income per Share Employees 2,546 Number of Shares Issued First Series Type 1 Preferred Stock 73,791,891 shares 73,000,000 shares Contents Management Policy/Main Operational Base... 1 Message from the Management... 2 Corporate Social Responsibility (CSR) and Environmental Preservation Activities... 3 Business Performance in FY Corporate Governance... 6 Risk Management... 7 Initiatives to Strengthen Compliance Structure... 9 Board of Directors, Corporate Auditors, and Executive Officers Organization Overview of Kansai Urban Banking Corporation Group Consolidated Balance Sheets Consolidated Statements of Operations Consolidated Statements of Comprehensive Income Consolidated Statements of Changes in Net Assets Consolidated Statements of Cash Flows Notes to Consolidated Financial Statements Balance Sheets Statements of Operations Statements of Changes in Net Assets Forward-Looking Statements This material contains certain forward-looking statements. Such forward-looking statements are not guarantees of future performance and involve risks and uncertainties, and actual results may materially differ from those contained in the forward-looking statements as a result of various factors. Important factors that might cause such a material difference include, but are not limited to, those economic conditions referred to in this material as assumptions. In addition, the following items are among the factors that could cause actual results to differ materially from the forward-looking statements in this material: business conditions in the banking industry, the regulatory environment, new legislation, competition with other financial services companies, changing technology and evolving banking industry standards and similar matters.

3 Management Policy The corporate philosophy of Kansai Urban Banking Corporation (the Bank ) is to contribute to the development and prosperity of society through its banking business as a retail bank that is a member of Sumitomo Mitsui Banking Corporation (SMBC) Group. The Bank also works to establish the unshakable trust of society, customers, and shareholders by achieving sound, stable growth. Based on this philosophy, the Bank has established the following three management policies. Working to become a true topflight community-based regional bank We aim to be a bank that is trusted and helpful to its customers and harmoniously coexists with the region based on an intensive regional and customer focus. Building highly efficient and robust management We aim to raise corporate value by achieving continued stable growth through a strong customer base as well as sound and efficient management. Building dynamic and strong human resources We will work to foster a free corporate culture open to the vigorous exchange of opinions, and to develop strong human resources that are trusted by customers. Main Operational Base KUBC is a regional bank with an operational base covering the entire Kansai region. This operational base comprises 138 branches and 18 sub-branches. (These include Tokyo and Nagoya.) Hyogo Prefecture Kyoto Prefecture Shiga Prefecture Aichi Prefecture Osaka Prefecture Nara Prefecture Wakayama Prefecture 1

4 Message from the Management Aiming to be the No. 1 Kansai Regional Bank with the Strongest Presence Kazumasa Hashimoto Chairman of the Board & President I would like to thank you all for your strong support and patronage over the years. We have prepared this document with the goal of further deepening our stakeholders understanding of our management policies, our performance, and our current business activities. We hope that it plays a useful role in strengthening our bonds of trust with all our stakeholders and ensuring their continued support. Kansai Urban Banking Corporation has pursued the three management policies of 1) working to become a true topflight community-based regional bank, 2) building highly efficient and robust management and 3) building dynamic and strong human resources, focused its energies on building community-based relationships with the customers inside our operating area, and worked on retail banking centered on small- and medium-sized enterprises and finance for individual customers. Looking back on fiscal 2015, the pace of economic recovery in Japan slowed due to the impact of factors including the deceleration of growth in emerging markets, global uncertainty in financial markets and sharp appreciation of the yen. For the finance industry, the earnings environment grew increasingly severe as the Bank of Japan s introduction of negative interest rate lowered lending rates and capital demands continue to lack vigor. Given this operating environment, we strove to be of service to our regional customers under our slogan of Kansai o Motto Genki ni! (Cheer up Kansai!). As a result of these efforts, in fiscal 2015 the Bank recorded net income of 15.1 billion, exceeding the plan and maintaining a high profit level. The Bank s medium-term management plan, started in fiscal 2013, was extended for one year and its initiatives were further reinforced. Under this plan, as a regional bank of Sumitomo Mitsui Banking Corporation (SMBC) Group, we are meticulously implementing community-based relationship banking and are aiming for further expansion and enhancement of our customer base. Moreover, we are aiming to be the No. 1 Kansai regional bank with the strongest presence, in order to contribute to the development of the regional economy and local community. We ask for your continued support and patronage going forward. July

5 Corporate Social Responsibility (CSR) and Environmental Preservation Activities The Bank s Policies on CSR and the Environment Basic CSR Policies Contribute to local community development We aim to be a bank that contributes to the development of a sound local community. Therefore, realizing the public mission and social responsibility of a bank, we will strive to conduct business operations that contribute to stable regional economic development while contributing to society as a good corporate citizen. 1 4 Environment-friendly corporate activities We aim to be a bank that conducts sustained initiatives to attain harmony between environmental preservation and our corporate activities, and that implements environment-friendly corporate activities. To that end, we will provide services that are able to help maintain and improve the environment, and continuously carry out environment-friendly activities such as conserving resources and energy, and reducing waste. Total customer-orientation We aim to be a bank that is supported by its customers. To that end, we are always thinking up services that meet customer needs and we will win customer satisfaction and trust by providing the best service. 2 5 Foster an open and free corporate culture We aim to be a bank where officers and staff can work energetically with pride. To that end, we will respect humanity while developing highly specialized human resources, thereby fostering an open and free corporate culture. Maintain sound and efficient management We aim to be a bank that maintains fair, transparent, and sound management based on the principle of self-responsibility. To that end, we will maintain sustained growth along with a sound and highly capital efficient financial structure, while upholding sound relationships with stakeholders, including society, customers, and shareholders, through conducting business operations that are efficient and take the long-term perspective, and through timely and accurate information disclosure. 3 6 Compliance We aim to be a bank that is always conscious of compliance. To that end, officers and staff will always be conscious of business ethics when doing their job and will also ensure that prompt action is taken on audit and inspection findings, thereby establishing a bank that is based on laws, regulations and public decency. Environmental Policies [Basic Principle] Kansai Urban Banking Corporation aims to maintain and improve the global environment through its business activities and harmoniously coexist with the local community. [Environmental Policies] 1. We will support customers responses to environmental problems by providing products, information and solutions that help the sustained improvement of the global environment. 2. We will strive to form a sustainable society and to prevent pollution by practicing environment-friendly activities such as saving resources and energy, and reducing waste. 3. We will comply with environmental laws and regulations and other agreed-upon requirements. 4. We will disclose environmental information and strive to continuously improve our environmental preservation activities through dialogues both inside and outside the Bank. 5. We will rigorously disseminate these policies to our staff and conduct in-house training. 6. In order to actively and effectively implement our environmental management, we will set objectives and goals for each fiscal year, review them, and endeavor to continuously improve our initiatives. 7. These policies are posted on the Bank s website and will be distributed if outside requests are received. ISO Initiatives ISO is an international standard issued in November 2010 that provides guidance on the social responsibility of organizations. It consists of basic principles and seven core subjects (organizational governance, human rights, labor practices, the environment, fair operating practices, consumer issues, and community involvement and development). The Bank conducts its CSR activities based on these core subjects. 3

6 Business Performance in FY2015 (on a consolidated basis) Deposits ( billions) 4,000 3, , , ,000 2,000 1, /3 2015/3 2016/3 Loans and Bills Discounted ( billions) 4,000 3, , , ,000 2,000 Business Environment In fiscal 2015, the pace of economic recovery in Japan slowed due to the impact of factors including the deceleration of growth in emerging markets, global uncertainty in financial markets, and sharp appreciation of the yen. In terms of demand, exports and production lacked vigor due to the faltering growth in overseas economies, the yen s appreciation, and other factors. Capital investment recovered only slowly, despite support from investments for renewal and maintenance, while corporate earnings continued at a high level. Personal consumption was weak, affected by a deterioration in consumer sentiment due to sagging wage growth and a fall in stock prices. Going forward, we expect the economy to continue on a gradual recovery against a backdrop of low import prices and improved terms of trade associated with the fall in oil prices, despite the risk of a downturn due to lackluster internal demand and other factors. In the financial industry, the earnings environment grew increasingly severe as lackluster demand for finance continued, despite a further reduction in lending interest rates following the Bank of Japan s adoption of a negative policy interest rate. In this context, regional financial institutions advanced initiatives to support sustainable economic growth and regional revitalization by providing their financial brokerage functions for small- to medium-sized regional companies, and increasing their powers of judgment for helping to evaluate the commercial viability of companies. In this financial economic environment, the Bank committed itself to various measures based on the core themes of its medium-term management plan: Being the customers bank of choice, Establishing a stable earnings base, and Establishing a sound corporate foundation. We concentrated even harder on building relationships with customers in the community and on implementing retail banking with a focus on finance for small- to medium-sized companies and individuals. 1, /3 2015/3 2016/3 Securities ( billions) Results of Operations Deposits The Bank s balance of deposits at the fiscal 2015 year-end stood at 3,812.1 billion, an increase of 67.1 billion from the previous year. This was the result of steady fund procurement efforts centered on corporate deposits. The term-end balance of negotiable certificates of deposit stood at billion, a 45.8 billion year-on-year increase. Loans and Bills Discounted The year-end balance of loans and bills discounted increased by billion year on year to a balance of 3,747.1 billion due a continued focus on retail loans, including loans to small- and medium-sized enterprises. Securities The year-end balance of securities declined by 27.7 billion year on year to billion /3 2015/3 2016/3 4

7 Income (Consolidated) Consolidated business performance mostly reflected the non-consolidated business performance of the Bank, with consolidated gross profit decreasing 2.9 billion year on year to 69.2 billion. Meanwhile, due mainly to a 1.6 billion reduction in credit-related expenses, recurring profit fell 0.8 billion to 22.2 billion and profit attributable to owners of parent decreased 1.3 billion to 16.0 billion. (Non-consolidated) In terms of business performance of the Bank, gross banking profit excluding gains and losses from government and other bonds diminished 2.8 billion year on year to 63.8 billion. This was mainly attributable to a decrease in commission income on investment trusts due to the decline in lending interest rates following the fall in interest rates and market instability since summer As a consequence of a 1.1 billion decline in expenses (excluding non-recurring losses and amortization of goodwill), core banking profit declined by 1.6 million year on year to 21.6 billion. Meanwhile, as result of a 0.6 billion decline in credit-related expenses, and other factors, recurring profit declined 1.8 billion year on year to 20.4 billion, and net income declined by 1.8 billion to 15.1 billion. Non-Performing Loan Ratio based on Financial Reconstruction Act The ratio of non-performing loans (the amount of problem assets subject to mandatory disclosure under the Financial Reconstruction Act) dropped to 1.77%, a 0.25 percentage point improvement from the previous fiscal year. Capital Ratio The Bank began to apply the Basel III domestic standard from the end of fiscal 2014 and the Bank s capital ratio at the end of the reporting term was 7.25% on a consolidated basis and 7.13% on a non-consolidated basis. The Basel III standard enhances the previous Basel II framework to strengthen the financial base of banks in the future. General and Administrative Expenses Total Income and Expenses ( billions) 90.3 ( billions) 46.1 FY2013 FY2014 FY Dividend Policy 0 FY2013 FY2014 FY2015 The Bank follows a basic policy of paying a stable level of dividends to its shareholders while making a point to enhance its capital to ensure management soundness to fulfill its public role. The Bank paid a common dividend of per share in fiscal 2015 based on the above policy. The Bank paid the prescribed dividend for Class A preferred shares. Capital Ratio and Regulatory Capital (Consolidated) Capital Ratio (%) Regulatory Capital ( billions) Basel III 2014/3 2015/3 2016/3 5

8 Corporate Governance Basic Approach to Corporate Governance Having established the basic management policies of working to become a true topflight community-based regional bank, building highly efficient and robust management, and building dynamic and strong human resources, the Bank views contributing to the development and prosperity of society, achieving stable growth as a company, and establishing the unshakable trust of society, customers, and shareholders as its most crucial management challenges. To achieve the above, the Bank has positioned contributing to social development, total customer-orientation, maintaining sound and efficient management, environment-friendly corporate activities, and fostering an open and free corporate culture as its five corporate principles. Along with strengthening its legal functional system including the Shareholders Meeting, the Board of Directors, the Board of Corporate Auditors, and accounting auditors, the Bank is enhancing its system of compliance and internal control systems such as risk management, and is strengthening and enhancing corporate governance. To promote these initiatives for sustainable growth and to enhance the medium- to long-term corporate value, the Bank has also formulated and announced the Kansai Urban Banking Corporation Corporate Governance Guidelines as a reference for principles and guidelines related to corporate governance. Implementation Status of Policies and Measures Related to Corporate Governance As of June 29, 2016, the Bank s Board of Directors consisted of 11 directors (of which four were outside directors) who decide on important matters related to business execution in addition to legal matters to be resolved. Regular board meetings are held once a month and extraordinary board meetings are held when needed. Furthermore, the Board of Directors has established the Nomination and Compensation Committee, an internal committee to supplement the functions of the Board of Directors, and by appointing outside directors to the internal committee it builds a system that enables objective reviewing separated from execution of operations. There are six corporate auditors (of which three are outside corporate auditors). Based on auditing policies and auditing plans formulated by the Board of Corporate Auditors, each corporate auditor audits the status of the Bank s business execution by attending important meetings including Board of Directors meetings, and by examining the statuses of the Bank s businesses and properties. The Bank has established the Management Meeting under the Board of Directors as the highest decision-making body concerning business execution and other matters, and discusses and decides all important matters concerning management under the basic policies decided at meetings of the Board of Directors. The regular Management Meeting is held four times a month and when necessary. In addition, we have introduced an executive officer system that separates the decision-making function and oversight function for important management matters from the business execution function, and we are working to further reenergize the Board of Directors. Corporate Governance System Shareholders Meeting Appointment/ Dismissal Appointment/ Dismissal Appointment/ Dismissal Accounting Auditors Audit Board of Directors Nomination and Compensation Committee Management Meeting Audit Corporate Auditors/ Board of Corporate Auditors Audit Headquarter Departments Audit Internal Audit Department Branches/Affiliates General Audit Department 6

9 Risk Management In order to respond appropriately and promptly to the increasingly diverse and complex risks associated with changes in the business environment, Kansai Urban Banking Corporation (KUBC) is striving to strengthen its risk management and raise the level of risk awareness among its officers and staff. Risk Management The risks borne by banks are becoming more diverse and complex due to financial liberalization and internationalization, as well as developments in financial technology. Accordingly, under the principle of self-responsibility, KUBC has identified risk management as a key issue that must be addressed at the top management level if KUBC is to be a truly trustworthy bank. Having controlled risk to a level appropriate to the Bank s operational strength, we are working to develop our business and enhance profitability. Risk Management Structure Shareholders Meeting Board of Directors Board of Corporate Auditors Comprehensive Risk Management Committee Credit Risk Committee ALM Committee Compliance Committee Compliance with Laws and Regulations Customer Relationship Management Capital Management Integrated Risk Management Credit Risk Management Asset Assessment Management Market and Liquidity Risk Management Operational Risk Management (Processing Risk, etc.) Integrated Risk Management: Corporate Risk Management Dept. General Affairs Dept. General Affairs Dept. Operations Planning Dept. Corporate Risk Management Dept. Corporate Planning Dept. Credit & Investment Planning Dept. Credit Related Depts. Corporate Risk Management Dept. Corporate Risk Management Dept. Treasury and Securities Dept. Corporate Risk Management Dept. Operations Planning Dept. System Dept. General Affairs Dept. CS Promotion Dept. Internal Audit/External Audit Credit Risk Credit risk is the risk of incurring a loss because of an asset s decline in value due to the worsening financial condition of a borrower or other event. It is one of the key risks in banking. In KUBC s credit risk management system, the Credit & Investment Planning Department establishes the credit policy, credit authority regulations and operating rules; manages the credit portfolios, and controls the internal ratings system, and the Corporate Risk Management Department controls the credit risk amount. The credit screening system separates credit related departments from front-line sales departments, thus maintaining strict independence for the screening of individual cases. While maintaining the basic principles of loan screening as public need, growth potential, soundness, profitability and liquidity, we take an impartial attitude in the comprehensive evaluation of factors such as the business plan, the purpose of the loan, and the repayment capacity of the borrower. In addition to credit management through conventional screening, the Bank carries out stricter loan reviews with respect to borrowers meeting specific criteria on an individual basis. Under the loan review system, the credit related departments report regularly to management on the borrower s credit status, credit integrity and future credit policy. The Internal Audit Department and Asset Audit Department are maintained independently to strengthen the supervision function with respect to credit related departments and sales branches. In human resource development, the Bank is making efforts to improve the credit screening capabilities of its staff by enhancing internal and external training to increase knowledge of the basic principles of lending and improve understanding of the financial condition of prospective customers. In order to further increase the sophistication of our credit risk management, we are accumulating data and improving the accuracy of our quantitative credit risk evaluation. 7

10 Market Risk Market risk is the risk generated by price fluctuations in the market for bonds, equities, and other securities. Whereby market risk is managed. The Market Management Department, which holds authority independent from the Treasury Unit, supervises the unified management of market risk. The involvement of management is important to the realization of effective risk management. Therefore, risk conditions are reported to management on a daily basis by internal , and the risk management policy and other issues are discussed at Board of Directors meetings and by the ALM Committee. The Bank controls market risk arising from unfavorable, unexpected fluctuations in market prices and volatility (the rate of change in market prices) by setting limits on BPV (basis point value, the profit or loss occurring with every 0.01% change in interest rates). Liquidity Risk Liquidity risk is the risk of becoming unable to fulfill a payment obligation on the day of settlement or of being forced to procure funds at a much higher interest rate than usual because a mismatch in fund management and procurement or an unexpected outflow of funds affecting fund raising capabilities. With regard to the liquidity risk involved in a fund portfolio in yen and foreign currencies, the Bank reviews its fund procurement policy at the ALM Committee meetings held each month on the basis of market trends and movements in deposits and loans and sets limits on the amount of money to be procured (the finance gap) to implement day-to-day risk management. Furthermore, the Bank establishes phases for the valuation of outgoing deposits as a fund liquidity risk contingency plan to understand and manage risk on a day-to-day basis. Operational Risk Processing Risk Processing risk is the risk of incurring loss due to the nonperformance of correct business methods or the occurrence of an accident, fraud or the like. In response to product diversification and the expanded volume of business, the Bank is preparing operational regulations. The Bank is also upgrading operational capabilities and establishing a rigorous business system through training and on-site instruction at branches conducted by the Operations Planning Department and on-site auditing of branches by the Internal Audit Department. Systems Risk Systems risk is the risk of disturbing the supply of services to customers and incurring loss due to problems such as a computer system stoppage or malfunction. The Bank has established a security policy and specific systems management criteria to manage its computer systems and to maintain the safety and reliability of the systems. As additional measures, the Bank has drawn up a contingency plan (Crisis Management Plan) and has otherwise provided for its computer systems to establish a comprehensive systems risk management regime. Compliance Risk Compliance risk is the risk of incurring loss due to behavior in breach of laws, regulations, or the like. The Bank is reviewing its countermeasures against various compliance risks. Activities center on the Compliance Committee. 8

11 Initiatives to Strengthen Compliance Structure Banks, given their highly public nature, which exceeds that of private companies, assume the grave social responsibility of broadly contributing to the sound development of the nation s economy through an orderly financial system and the facilitation of financing. Therefore, compliance is of greater importance than it is for general companies, and as strengthening the compliance structure is viewed as an important management issue at the Bank, it is undertaking such efforts. The Bank s Compliance System The General Affairs Department has been positioned as the department with overall control of compliance at the Bank. As for operations under its jurisdiction, it has set up a system of allocating a compliance officer in each branch and headquarter department to ensure that they are operating in accordance with social norms such as the Bank s rules as well as laws and regulations, along with a compliance assistant to help the officer with those tasks. Compliance Structure Board of Directors Fixed Discussion authority report Audit Audit Corporate Auditors/ Board of Corporate Auditors Management Meeting Compliance Meeting Report Report Instruct Discussion report Kansai Urban Alarm Line General Audit Dept. Audit Audit General Affairs Dept. Compliance Meeting Secretariat Instruct/ Lead/ Support Report/ Consult Instruct/ Lead/ Support Report/ Consult Liaison CS Promotion Dept. Customer Service Office Consult/Notify Report of requests/complaints Each department in charge of risk management Each department and branch Compliance Officer: Department or branch manager Compliance Assistant: Officer s assistant Group companies, subcontractors, etc. 9

12 Establishment of the Compliance Meeting Aware of the Bank s social responsibility, Bank officers and staff foster a corporate culture in which strict compliance with laws, regulations and rules and the fulfillment of social norms are vital. At the same time, the Bank established the Compliance Meeting with the goal of fortifying and enhancing its compliance structure by examining the preventive legal measures required to prevent the occurrence of legal problems before they happen. Enactment of Compliance-Related Rules Starting with the Compliance Manual, which comprises the Bank s basic policies pertaining to compliance together with compliance standards, the Bank has enacted various compliance-related rules based on resolutions of the Board of Directors and suchlike. Formulation of a Compliance Program Each fiscal year, the Bank formulates a compliance program, which is a concrete action plan for achieving compliance. The Bank maintains its compliance structure in accordance with this program, and firmly establishes it among personnel by conducting hierarchical training for officers and staff. 10

13 Board of Directors, Corporate Auditors, and Executive Officers (as of July 1, 2016) Directors Kazumasa Hashimoto Chairman of the Board & President (Representative Director) Koji Kita Vice Chairman of the Board (Representative Director) Kiyoshi Miura Deputy President (Representative Director) Akio Matsumura Director and Senior Managing Officer Ken Ozaki Director and Senior Managing Officer Yoshiteru Imai Director and Senior Managing Officer Sumihiko Murai Director and Senior Managing Officer Tetsuya Nishikawa Director Mitsumasa Wada Director Nobuko Ishibashi Director Chiho Takeda Director Note: Among directors, Tetsuya Nishikawa, Mitsumasa Wada, Nobuko Ishibashi and Chiho Takeda are outside directors as stipulated by Article 2, Paragraph 15 of the Corporate Law. Tetsuya Nishikawa, Nobuko Ishibashi and Chiho Takeda are independent officers registered pursuant to the provisions of the financial instruments exchange. Corporate Auditors Corporate Auditors Satoru Morishima Yukihiro Tamaki Masahiro Kawai Outside Corporate Auditors Koji Minemoto Fumio Yasukawa Tatsumasa Matsumoto Note: Among corporate auditors, Koji Minemoto, Fumio Yasukawa and Tatsumasa Matsumoto are outside statutory auditors as stipulated by Article 2, Paragraph 16 of the Corporate Law. Koji Minemoto and Fumio Yasukawa are independent officers registered pursuant to the provisions of the financial instruments exchange. Executive Officers Managing Officers Hiroshi Kaya Yoshihiko Nawa Katsuya Tani Toshihisa Enami Teruyuki Sadamatsu Kazuhiro Sawatani Akito Takezawa Takahiro Muraoka Hitoshi Iwai Sadao Yamaguchi Hiroyuki Yamamoto Executive Officers Katsuya Morimoto Tomoyoshi Shimano Mitsuru Sakurada Akinari Murashima Hideshi Fusamoto Daisuke Okabe Naoki Takayama Tsuyoshi Nishiwaki Seiji Yamamoto Akira Yasuda Kouichi Kawakami Kaoru Satonishi Yasuhiro Kawasaki Kazunori Shimizu Toyokuni Hatayama Yoshiki Hayashi Hikaru Adachi Teruaki Orihashi Hirofumi Itou 11

14 Organization (as of July 1, 2016) General Audit Department Corporate Planning Department Financial Accounting Department Public Relations Department CSR and Environmental Business Department Tokyo Office Financial and Industrial Research Department Human Resources Department General Affairs Department Training Department Health Development Center Human Rights Education Promotion Department Financial Product Management Department Secretariat Nankou General Affairs Center CS Promotion Department Customer Service Department Corporate Risk Management Department Credit & Investment Planning Department Shareholders Meeting Mortgage Management Department Operations Focus Department Finance and Investment Operations Focus Department Board of Directors Management Meeting Operations Planning Department System Department Inheritance Operations Center My Number Department Market Operations Department International Business Operations Department Cyber Security Measures Department Customers Credit Screening Department Finance and Investment Guidance Department Business Consulting Department Board of Corporate Auditors Finance Facilitation Promotion Department Office of Corporate Auditors Sales Management Department Branch Development Department Business Development Department Electronic Commerce Banking Department Information Development Department Private Advisory Department Corporate Business Department New Business Support Department Regional Revitalization Support Department First to Third Areas Retail Banking Department Consumer Banking Business Department Wealth Management Promotion Department Direct Banking Center Housing Business Department International Business Promotion Department Asia Business Department Treasury and Securities Department Financial and Public Corporation Department 12

15 Overview of Kansai Urban Banking Corporation Group Businesses of Kansai Urban Banking Corporation and its Subsidiaries The Bank and its Subsidiaries The Bank and its affiliates, comprised of six consolidated subsidiaries, engage primarily in banking, and provide other financial services, such as leasing. Banking business Services related to deposits, lending, domestic bills, foreign exchange and securities are conducted by the Bank s head office marketing department and branches. Lending and credit guarantee businesses are conducted by consolidated subsidiaries. Leasing business The Group is engaged in the leasing business. Other businesses The Group is engaged in the credit card business and other related activities. The Group s Business Structure Parent company Sumitomo Mitsui Financial Group Sumitomo Mitsui Banking Corporation Banking business The Bank s headquarters, 138 branches and 18 sub-branches Kansaiurbangin Lease Company Limited (lending business) The Kansai Credit Service Co., Ltd. (lending and credit guarantee businesses) Kansai Sogo Shinyo Co., Ltd. (credit guarantee business) Biwako Credit Guarantee Co., Ltd. (credit guarantee business) KOFUKU Card Co., Ltd. (credit guarantee business) Kansai Urban Banking Corporation Leasing business Kansaiurbangin Lease Company Limited Other businesses The Kansai Credit Service Co., Ltd. (credit card service) Biwako Business Services Co., Ltd. (printing services and commissioned accounting services) 13

16 Status of Consolidated Subsidiaries The Bank has established subsidiaries to handle leases, credit cards and other related services with the aim of providing a wide range of financial services to meet the various needs of our corporate and individual customers. Name Principal business Establishment Paid-in capital (millions of yen) Percentage of the Bank s voting rights (%) As of March 31, 2016 Percentage of our subsidiaries voting rights (%) Kansaiurbangin Lease Company Limited Leasing Feb , The Kansai Credit Service Co., Ltd. Lending and credit card businesses Jan Kansai Sogo Shinyo Co., Ltd. Credit guarantee business Jun , Biwako Credit Guarantee Co., Ltd. Credit guarantee business Nov Biwako Business Services Co., Ltd. Printing services Nov KOFUKU Card Co., Ltd. Credit guarantee business Jul Financial Review (on a consolidated basis) Results of Operations Broken down by business segment on a consolidated basis, gross banking profits in the banking business came to 67.3 billion, while segment profits came to 22.9 billion. In the leasing business, gross banking profits amounted to 1.3 billion, while segment profits were 0.7 billion. In other businesses, gross banking profits came to 0.9 billion, while segment profit was 33.0 million. 14

17 Consolidated Balance Sheets Kansai Urban Banking Corporation and Consolidated Subsidiaries As of March 31, 2016 and 2015 U.S. dollars Assets: Cash and due from banks 307, ,955 $ 2,729,455 Call loans and bills bought 5,634 3,605 50,000 Securities 277, ,011 2,460,188 Loans and bills discounted 3,747,129 3,590,535 33,254,606 Foreign exchanges 9,015 7,231 80,005 Other assets 63,416 59, ,797 Tangible fixed assets 53,618 28, ,843 Intangible fixed assets 16,098 16, ,865 Net defined benefit asset 1,385 4,607 12,291 Deferred tax assets 19,633 22, ,237 Customers liabilities for acceptances and guarantees 7,560 8,012 67,093 Reserve for possible loan losses (25,243) (28,877) (224,024) Total assets 4,483,017 4,323,067 $39,785,383 Liabilities and Net Assets: Liabilities: Deposits 3,812,165 3,744,976 $33,831,780 Negotiable certificates of deposit 151, ,410 1,342,510 Call money and bills sold 105, ,842 Borrowed money 135, ,755 1,203,461 Foreign exchange Bonds 34,000 58, ,739 Other liabilities 35,803 33, ,741 Reserve for employee bonuses 2,506 2,516 22,240 Net defined benefit liability 6,762 6,073 60,011 Reserve for executive retirement benefits 24 Reserve for reimbursement of deposits ,911 Reserve for contingent losses ,757 Deferred tax liabilities Deferred tax liabilities for land revaluation ,248 Acceptances and guarantees 7,560 8,012 67,093 Total liabilities 4,292,359 4,140,454 38,093,353 Net assets: Capital stock 47,039 47, ,457 Capital surplus 94,163 94, ,667 Retained earnings 40,788 29, ,981 Treasury stock, at cost (603) (598) (5,351) Total stockholders equity 181, ,223 1,609,753 Net unrealized holding losses on other securities 11,518 10, ,219 Net deferred gains on hedging instruments (280) (67) (2,485) Land revaluation excess ,984 Remeasurements of defined benefit plans (4,061) (487) (36,040) Total accumulated other comprehensive income 7,963 11,110 70,669 Stock acquisition rights Non-controlling interests 1,257 1,223 11,155 Total net assets 190, ,612 1,692,022 Total liabilities and net assets 4,483,017 4,323,067 $39,785,383 Notes: 1. Yen amounts have been rounded down to the nearest million. 2. U.S. dollar amounts have been converted at the exchange rate of US$1= prevailing on March 31,

18 Consolidated Statements of Operations Kansai Urban Banking Corporation and Consolidated Subsidiaries Years ended March 31, 2016 and 2015 U.S. dollars Income: Interest income: Interest on loans and discounts 62,495 65,318 $554,624 Interest and dividends on securities 2,005 2,215 17,794 Other interest income 1,928 1,889 17,110 Fees and commissions 14,946 16, ,641 Other operating income 7,762 8,542 68,885 Other income 1,217 1,833 10,800 Total income 90,355 95, ,873 Expenses: Interest expenses: Interest on deposits 5,304 6,203 47,071 Interest on borrowing and rediscounts ,721 Other interest expenses 1,710 2,047 15,176 Fees and commissions payments 6,247 6,255 55,440 Other operating expenses 6,099 6,812 54,127 General and administrative expenses 46,126 47, ,354 Other expenses 3,298 3,955 29,269 Total expenses 69,318 73, ,176 Income before income taxes 21,037 22, ,697 Income taxes: Current ,086 Deferred 4,724 5,275 41,924 4,960 5,404 44,018 Profit 16,076 17, ,670 Profit attributable to non-controlling interests Profit attributable to owners of parent 16,016 17,354 $142,137 Net income per share (yen and U.S. dollars) $ 2.31 Consolidated Statements of Comprehensive Income Kansai Urban Banking Corporation and Consolidated Subsidiaries Years ended March 31, 2016 and 2015 U.S. dollars Profit 16,076 17,393 $142,670 Other comprehensive income: Net unrealized losses on securities 666 5,911 5,911 Unrealized gains on hedging instruments (212) 16 (1,881) Land revaluation excess Remeasurement of defined benefit plan, net of tax (3,576) 969 (31,736) Total other comprehensive income (3,100) 6,941 (27,512) Comprehensive income 12,976 24,335 $115,158 Comprehensive income attributable to: Owners of parent 12,917 24,294 $114,634 Non-controlling interests

19 Consolidated Statements of Changes in Net Assets Kansai Urban Banking Corporation and Consolidated Subsidiaries Years ended March 31, 2016 and 2015 Stockholders equity Total Capital stock Capital surplus Retained earnings Treasury stock stockholders equity Balance as of April 1, ,039 94,163 17,367 (589) 157,981 Cumulative effects of changes in accounting policies (868) (868) Restated balance 47,039 94,163 16,498 (589) 157,112 Changes during the fiscal year: Dividends of surplus (4,310) (4,310) Net income 17,354 17,354 Purchase of treasury stock (8) (8) Disposal of treasury stock (0) 0 0 Reversal of land revaluation excess Net changes in items other than stockholders equity Net changes for the fiscal year (0) 13,119 (8) 13,111 Balance as of March 31, ,039 94,163 29,618 (598) 170,223 Changes during the fiscal year: Dividends of surplus (4,894) (4,894) Net income 16,016 16,016 Purchase of treasury stock (5) (5) Disposal of treasury stock (0) 0 0 Reversal of land revaluation excess Net changes in items other than stockholders equity Net changes for the fiscal year (0) 11,169 (5) 11,164 Balance as of March 31, ,039 94,163 40,788 (603) 181,387 Net unrealized holding gains on other securities Accumulated other comprehensive income Net deferred gains (losses) Land Remeasurements on hedging revaluation of defined instruments excess benefit plans Total accumulated other comprehensive income Stock acquisition rights Noncontrolling interests Total net assets Balance as of April 1, ,939 (84) 848 (1,457) 4, , ,480 Cumulative effects of changes in accounting policies (868) Restated balance 4,939 (84) 848 (1,457) 4, , ,611 Changes during the fiscal year: Dividends of surplus (4,310) Net income 17,354 Purchase of treasury stock (8) Disposal of treasury stock 0 Reversal of land revaluation excess 76 Net changes in items other than stockholders equity 5, (33) 969 6,864 (14) 40 6,889 Net changes for the fiscal year 5, (33) 969 6,864 (14) 40 20,001 Balance as of March 31, ,851 (67) 814 (487) 11, , ,612 Changes during the fiscal year: Dividends of surplus (4,894) Net income 16,016 Purchase of treasury stock (5) Disposal of treasury stock 0 Reversal of land revaluation excess 48 Net changes in items other than stockholders equity 666 (212) (27) (3,573) (3,146) (6) 34 (3,119) Net changes for the fiscal year 666 (212) (27) (3,573) (3,146) (6) 34 8,045 Balance as of March 31, ,518 (280) 787 (4,061) 7, , ,657 17

20 Capital stock Capital surplus U.S. dollars Stockholders equity Retained earnings Treasury stock Total stockholders equity Balance as of March 31, 2015 $417,457 $835,667 $262,851 $(5,307) $1,510,676 Changes during the fiscal year: Dividends of surplus (43,433) (43,433) Net income 142, ,137 Purchase of treasury stock (44) (44) Disposal of treasury stock (0) 0 0 Reversal of land revaluation excess Net changes in items other than stockholders equity Net changes for the fiscal year (0) 99,121 (44) 99,077 Balance as of March 31, 2016 $417,457 $835,667 $361,981 $ 5,351 $1,609,753 Net unrealized holding gains on other securities U.S. dollars Accumulated other comprehensive income Net deferred Total accumulated losses on Land Remeasurements other hedging revaluation of defined comprehensive instruments excess benefit plans income Stock acquisition rights Noncontrolling interests Total net assets Balance as of March 31, 2015 $ 96,299 $ (595) $7,224 $ (4,322) $ 98,598 $488 $10,854 $1,620,625 Changes during the fiscal year: Dividends of surplus (43,433) Net income 142,137 Purchase of treasury stock (44) Disposal of treasury stock 0 Reversal of land revaluation excess 426 Net changes in items other than stockholders equity 5,911 (1,881) (240) (31,709) (27,920) (53) 302 (27,680) Net changes for the fiscal year 5,911 (1,881) (240) (31,709) (27,920) (53) ,397 Balance as of March 31, 2016 $102,778 $(2,485) $6,984 $(36,040) $ 70,669 $426 $11,155 $1,692,022 18

21 Consolidated Statements of Cash Flows Kansai Urban Banking Corporation and Consolidated Subsidiaries Years ended March 31, 2016 and 2015 U.S. dollars Cash flows from operating activities: Income before income taxes 21,037 22,798 $ 186,697 Depreciation 4,229 3,746 37,531 Loss on impairment of fixed assets 1, ,884 Amortization of goodwill ,532 Net change in reserve for possible loan losses (3,633) (2,845) (32,242) Net change in reserve for employee bonuses (9) 129 (80) Net change in reserve for employee retirement benefits (1,282) (2,778) (11,377) Net change in net defined benefit liability 62 (67) 550 Net change in reserve for executive retirement benefits (24) (9) (213) Net change in reserve for reimbursement of deposits Net change in reserve for contingent losses (44) (179) (390) Interest income (66,430) (69,424) (589,546) Interest expense 7,546 8,796 66,968 Net losses on securities ,216 Net foreign exchange gains (0) (7) (0) Net losses on disposal of fixed assets ,651 Net change in loans and bills discounted (156,594) (34,408) (1,389,723) Net change in deposits 67,189 70, ,282 Net change in negotiable certificates of deposit 45,864 22, ,029 Net change in borrowed money (excluding subordinated debt) (42,898) 92,117 (380,706) Net change in deposits with banks 770 (886) 6,834 Net change in call loans and others (2,028) (2,267) (17,998) Net change in call money and others 105,000 (47) 931,842 Net change in foreign exchanges, assets (1,783) (1,961) (15,824) Net change in foreign exchanges, liabilities Interest received 66,615 69, ,187 Interest paid (7,492) (9,873) (66,489) Other, net (3,918) (1,027) (34,771) Subtotal 34, , ,881 Income taxes paid (377) (347) (3,346) Income taxes refunded ,041 Net cash provided by operating activities 34, , ,568 Cash flows from investing activities: Purchases of securities (32,396) (49,992) (287,504) Proceeds from sale of securities 8,542 5,067 75,808 Proceeds from maturity of securities 52,207 27, ,321 Purchases of tangible fixed assets (28,351) (3,745) (251,606) Proceeds from sale of tangible fixed assets ,852 Purchases of intangible fixed assets (2,281) (2,591) (20,243) Proceeds from sales of intangible fixed assets Other, net 1, ,283 Net cash used in investing activities (461) (23,288) (4,091) Cash flows from financing activities: Repayment of subordinated loan (1,250) (11,093) Repayment of subordinated bonds (24,200) (10,000) (214,767) Cash dividends paid (4,894) (4,309) (43,433) Dividends paid to non-controlling interests (24) (213) Purchases of treasury stock (5) (8) (44) Proceeds from sale of treasury stock Net cash used in financing activities (30,374) (14,317) (269,560) Effect of exchange rate changes on cash and cash equivalents Net change in cash and cash equivalents 3, ,289 29,908 Cash and cash equivalents at beginning of the year 299, ,526 2,660,765 Cash and cash equivalents at end of the year 303, ,815 $ 2,690,682 19

22 Notes to Consolidated Financial Statements Kansai Urban Banking Corporation and Consolidated Subsidiaries Years ended March 31, 2016 and 2015 (Basis of Presenting Consolidated Financial Statements) The accompanying consolidated financial statements have been prepared in accordance with the provisions set forth in the Japanese Financial Instruments and Exchange Law and its related accounting regulations and in conformity with accounting principles generally accepted in Japan ( Japanese GAAP ), which are different in certain respects as to application and disclosure requirements from International Financial Reporting Standards. The accompanying consolidated financial statements have been restructured and translated into English (with some expanded descriptions) from the consolidated financial statements of Kansai Urban Banking Corporation (the Bank ) prepared in accordance with Japanese GAAP and filed with the appropriate Local Finance Bureau of the Ministry of Finance as required by the Financial Instruments and Exchange Law. Some supplementary information included in the statutory Japanese language consolidated financial statements, but not required for fair presentation, is not presented in the accompanying consolidated financial statements. The translations of the Japanese yen amounts into U.S. dollar amounts are included solely for the convenience of readers outside Japan using the prevailing exchange rate at March 31, 2016, which was to US$1.00. The convenience translations should not be construed as representations that the Japanese yen amounts have been, could have been or could in the future be converted into U.S. dollars at this or any other rate of exchange. (Notes to Significant Accounting Policies for Preparing Consolidated Financial Statements) 1. Scope of Consolidation The consolidated financial statements include the accounts of the Bank and all six of its subsidiaries. The Bank has no unconsolidated subsidiaries. 2. Application of the Equity Method a. Unconsolidated subsidiaries accounted for by the equity method Nothing applicable b. Affiliates accounted for by the equity method Nothing applicable c. Unconsolidated subsidiaries that are not accounted for by the equity method Nothing applicable d. Affiliates that are not accounted for by the equity method Nothing applicable 3. The Balance Sheet Dates of Consolidated Subsidiaries All the balance sheet dates of consolidated subsidiaries are March Accounting Policies (1) Securities Securities other than trading account securities are classified as available-for-sale securities. Stocks classified as availablefor-sale securities that have available market values are carried at their average market value during the final month of the fiscal year, and available-for-sale securities excluding such marketable stocks that have available market values are carried at their market value at the balance sheet date. Available-for-sale securities the fair values of which are extremely difficult to calculate are carried at cost using the moving-average method. Net unrealized gains (losses) on available-for-sale securities are recognized, net of applicable income taxes, as a separate component of net assets. (2) Derivative transactions Derivative transactions are stated at fair value. (3) Depreciation and amortization a. Tangible fixed assets Depreciation of the Bank s tangible fixed assets is computed by the declining balance method. However, the depreciation of buildings (other than equipment accessory to buildings) acquired after April 1, 1998 is computed by the straight-line method. Principal estimated useful lives are as follows: Buildings: 7 50 years Equipment: 2 20 years Depreciation of tangible fixed assets of consolidated subsidiaries is calculated principally by the straight-line method based on the estimated useful life of the asset. b. Intangible fixed assets Amortization of intangible fixed assets is computed on the straight-line method. Computer software for internal use is computed over the estimated useful life (basically five years). (4) Reserve for possible loan losses The reserve for possible loan losses of the Bank is provided for as described below in accordance with the predetermined standards for write-offs and provisions. For claims on borrowers that have entered into bankruptcy, special liquidation proceedings or similar legal proceedings ( bankrupt borrowers ) or borrowers that are not legally or formally insolvent but are regarded as substantially in the 20