1H FY2020
Earnings Results Briefing
November 30, 2020

Earnings Results for the 1H of FY2020 and the Numerical
Targets for FY2020

Major Initiatives

The Impacts of the Novel Coronavirus Infectious Disease(“COVID-19”)

4

Summary

5

Change in Net Interest Income

6

Major Accounts (1) Deposits & Assets in Custody

7

Major Accounts (2) Loans

8

Major Accounts (3) Securities

9

I. Enhance initiatives for regional revitalization and the SDGs

22～25

Fees and commissions

10

II. Deepen customer-oriented sales activities

26～28

Corporate Solution-related Earnings

11

III. Revitalization of the Organization

29

Revenues Related to Assets in Custody

12

IV. Enhance Digitalization Strategy

30

Expenses

13

V. Establish sustainable growth models

31

Credit Cost Trends/Non-performing Loans

14

Alliance Partnership Strategy

32

Capital Adequacy Ratio

15

Corporate Governance

33

Earnings Forecasts

16

Shareholder Return Policy

17Long-term Management Plan “Vision 2027: Plan for Creating the
Future Together” as the Assumption
Positioning of the Medium-term Management Plan “Plan for Creating
the Future Together: Stage II”
KPI

19
20
21

Major initiatives of the “Five Pillars,” the basic features of theMedium-term Management Plan

For inquiries regarding this document, please contact:
Management Planning Department, The Chugoku Bank, Ltd. Shimizu and Matsuo
Email: souki01@chugin.jp

TEL: 086-234-6519

2

Section I
Earnings Results for 1H FY2020
And
Numerical Targets for FY2020

3

The Impacts of the Novel Coronavirus Infectious Disease (“COVID-19”)
Responses to COVID-19
Feb. 5

・The Emergency Response Headquarters was established.

Feb. 10・“Consultation Counter” (at all sales branches) was established.

Feb. 12・Handling of “Emergency Special Loans” was commenced.

Mar. 2・Split operation was commenced (at the Head Office).

Mar. 16

・“Countermeasures and Support Center concerning COVID-19”
was established.

After April

・The condition change fee is exempted for customers who are
affected by the impact of COVID-19.
・Split operation was commenced (at all sales branches). A
lunch break was introduced.
・Obligation for all employees to wear a mask.
・Enhancement of new sales systems amid the COVID-19
calamity (Acceleration of DX).

After May

After June

July 27
October 15

・Handling of no-interest loans was commenced. The Holiday
Counter was established.
・The special counter for “Okayama Co-creation Partnerships”
was established.
・Recommendation for employees to use the contact
confirmation app “COCOA”
・Installation of partitions in the offices, guest spaces, etc.
・Handling of “equity loans” was commenced.
・Issuance of social bonds (Corona Bonds) for commitment tosupport local communities.

Challenges of and direction for post-COVID-19[Recognition of the challenges](External)• Continue strong financial support.
• Support for customers’ new challenges• Sustainability of regional economy amid the
COVID-19 calamity(Internal)• Enhancement of organized BCP• Establishment of sales systems not relying on“face-to-face” operations• Enhancement of our financial foundation to
support customers[What society will demand of us amid the post-COVID-19 environment]
・ Contribution to local communities beyond
Ⅰ．地方創生・SDGsの取組み強化
the borders of finance・ Proposal of solutions to customers’ newmanagement issues that have emerged dueto the COVID-19 calamity

Ⅱ．お客さま本位の営業の「深化」

・ Acceleration of workstyle reforms and active
participation of diversified human resources.

Ⅲ. 組織の活性化

・ Further development of digitalization

Ⅳ．デジタル戦略の強化

・Strengthening of management foundation by
improving profitability and cost reduction

Ⅴ．持続可能な成長モデルの確立

Accelerate the promotion of the “Five Pillars”
4of the Medium-term Management Plan

1H FY2020 Earnings Results– Summary –(Billion yen)[Consolidated]
Consolidated recurring profit
Net income attributable to owners of parent

1H
FY20171H
FY20181H
FY20191H
FY2020YoY (%)

vs. Plan* (%)

153
105

140
97

129
86

119
82

-10
-4

33
25

[Non-consolidated]Core business gross profit
Interest income
Fees and commissions
Other operating income
Expenses (-)
OHR (%)

401
338
71
-7
287
71.4

396
329
75
-8
272
68.6

377
300
75
1
273
72.6

389
303
75
9
264
67.7

12
3
0
8
-9
-4.9

20
17
-3
5
-14
-7.6

Core business net profit
Excluding investment trust redemption gain

114
107

124
120

103
102

125
122

22
20

34
33

Credit expense (- is reversal (profit))
Bond sales gains/redemption
Equity sales gains/redemption
Other

-26
-3
4
-2

2
-3
3
9

10
10
4
13

32
8
9
0

22
-2
5
-13

7
7
4
-6

Recurring profit
Extraordinary gain/loss
Net income attributable to owners of parent

140
-1
98

132
-1
94

122
-2
84

111
-1
77

-11
1
-7

33
1
24

* Forecast published on May 14, 2020

・Core business net profit Increased by 2.2 billion yen on a year-on-year basis due to growth of interest income arising from an increase in loan interest and adecrease in foreign currency procurement cost along with a cost reduction reflecting the improvement of operational efficiency inresponse to the “New Normal.”・Recurring profit
Decreased by 1.1 billion yen year on year mainly due to the increase in credit expenses, whereas there was an increase of 3.3
billion yen compared with the published forecast.

5

1H FY2020 Earnings Results – Change in Interest Income –[Loan yield][Factors behind changes in interest income] Yen-based: ¥26,300 million (-¥500
million YoY) Foreign currency-based: ¥4,000 million(+¥800 million YoY)(%)

Yen loan yield• Loan interest: -¥2,600 million YoY• Securities interest: -¥2,300 million YoY• Decrease in deposit interest:+¥800 million YoY• Increase in foreign currency procurement:+¥4,900 million YoY• Loan interest: +¥300 million YoY• Securities interest: -¥800 million YoY• Decrease in deposit interest:+¥60 million YoY

Loan yield

1.08

1.06
0.92

0.90

0.86

0.84

0.81

0.81

1H FY2018

1H FY2019

1H FY2020

FY2020Plan(100 million yen)
8

-5

2

300

- 10

1

0

-1

6
- 32

303

49

(%)

- 0.5
- 22

[Securities yield]
1.23

1.20

1.03

8

0.94

+¥300 million

0.91
0.83

0.84

0.99

0.92

0.75

0.81

• Yen interest income• Foreign currency interest income

1H FY2020

Foreign currency other

Fund procurement fromforeign exchange
marketForeign currency
deposit interest

Foreign currency
securities yield

Foreign currency
average securities
balance

Foreign currency loanyield

Foreign currency
average loan balance

Yen other

Yen deposit interest

Yen securities yield

Yen average securities
balanceYen loan yield

Yen average loanbalance

1H FY2019

Securities yield

0.72

Yen securities yield
Yen securities yield (excl. investment trust redemption gain)
1H FY2018

1H FY2019

1H FY2020

FY2020Plan

Decreased by 500 million yen year on year mainly due to a decline in securities interest on the back of continued
negative interest rates. (Loan interest turned to positive year on year due to an increase in loans forcountermeasures against COVID-19.)
Increased by 800 million yen year on year mainly due to a decrease in foreign currency procurement cost reflecting
the interest cut in the United States.

6

1H FY2020 Earnings Results – Major Accounts (1) Deposits & Assets in Custody –[Average balance of deposits
and assets in custody](100 million yen)

Total assets incustody(Deposits + NCD)
Financial instrument
intermediary services

75,000Public bonds
Insurance
Investment trusts

65,000

Other
Deposits + NCD

+5.4%
+1.4%

82,392(72,785)
78,168(68,050)

77,040(67,187)

1,449
2,777

1,883

1,888

2,848

2,923

4,014

3,619

1,373

1,424

Domestic corporateclients
Deposits + NCD+2.4%
16,019

1,216

4,070

5,856

1,370

18,02016,40445,00045,973+2.0%

46,893

1H FY2019

5,516

18,135
16,45948,90847,1501H FY2020

FY201935,0001H FY2018

4,223
1,253

+4.2%
Domestic
private clients
Deposits + NCD

1,460
2,788

1,749
2,820

82,504(72,780)

4,651

+9.8%
55,00078,270(68,260)

4,166

4,752

5,195

+5.4%

+10.1%+4.1%* Financial instrument intermediary services are based on the average balance of the acquisition value. Public bonds are based on the value of the averagebalance. Insurance is based on the average balance taking into account cancellations. Investment trusts are based on the average balance of net assets.

49,128FY2020Plan• The average balance of deposits + NCD increased significantly among both private and corporate clients due
to payment of various types of benefits, securing funds in hand, controlling spending, etc.

7

1H FY2020 Earnings Results – Major Accounts (2) Loans –
+4.5%

+1.8%

[Average loan balance]
50,00046,90747,780(100 million yen)

227

216

40,00049,942

48,116247

233

11,641

11,419Personal loans

5,299

4,840

Local government
loans

4,741

4,770

11,335

10,903

4,762

4,444

4,818

4,999

Urban
Development *2

5,534
4,675
+5.1%

6,091

5,844

20,81921,92221,0081H FY2019

1H FY2020

FY2019

5,827

6,289

11,669

+4.5%

-7.3%

50,488251

Hong Kong Branch

Loans from theheadquarters *3

30,000

+4.9%

6,145

20,000+5.2%

10,000Local
Development *1

20,043

+3.8%

+5.7%

22,2100
1H FY2018*1 Local development: Regions other than Tokyo and Osaka*2 Urban development: Tokyo and Osaka *3. Loans from the headquarters: Non-Japanese customers and SF centers

FY2020Plan• In 1H FY2020, the total loans grew 4.5% year on year due to positive efforts to provide financial support mainly through local development andurban development loans.
• Going forward, we will continue financial support and strengthen efforts to create fund demand and attract clients in the local communities throughconsulting services.

8

1H FY2020 Earnings Results – Major Accounts (3) Securities –[Average balance of securities][Appraisal profit and loss]+464(100 million
yen)

Others*1

23,939132

20,000Equities

1,014

Investment
trust

1,422

Foreign currency
bonds *2

2,887

22,963
158
936

1,493
-34

3,072

23,42723,436

151
847

155
868

1,472

1,685

(100 million yen)
Total

End of Sep. End of Mar. End of Sep.
Change from previous
2019
2020
2020
fiscal year end
1,473

898

1,160

262

4
1,468
503

3
895
364

2
1,157
475

-1
262
111

455

216

339

123

denominated bonds

39

23

60

37

Of which, bonds

463

304

271

- 33

Held to maturity
Other securities
Of which, stock
Of which,
investment trusts
Of which, foreign-currency

3,038

3,268

[Duration of bonds](Year)

+615

Bonds

18,48417,304

5.4

17,9195.5

5.5

17,460
4.4

3.9

3.7
Bonds

2.5

Foreign currency bonds

10,0001H FY2018
1H FY2019
1H FY2020*1: Others: Investment partnerships, etc.
*2: Foreign currency bonds: Foreign currency investment trusts are included.

6.0

FY2020Plan

End of Sep.
2019

End of Mar.
2019

End of Sep.
2020

• In 1H FY2020, the total balance remained almost flat on a year-on-year basis, although yen-denominated bonds increased on the back ofgrowth of deposit/loan balance.
• In the FY2020 plan, we will increase the percentage of bonds and investment trusts in foreign currencies by focusing on risk and return while
maintaining the total balance.

End of Mar.
2021
Plan

9

1H FY2020 Earnings Results – Change in Fees and Commissions –[Fee and commission (revenue) trends]

-499
+53

(Million yen)

15,857

15,358(Million yen)

7,578

8,000

7,588

7,535

15,000
4,467

6,000

Assets in custody*

2,315

2,162

-350

1,812

+329

1,464

Investment banking
operations

946

1,135

Remittance/collection fees

2,556

2,576

2,784

Other

1,762

1,662

1,528

1H FY2018

1H FY2019

1H FY2020

10,000

-378

4,089

3,074

2,857

5,155

5,459

3,161

2,953

FY2019FY2020
Plan

4,000

5,000

2,000

0

0

* Four products in custody (investment trusts, insurance, municipal bonds and financial instrument intermediary services) + inheritance-related business• In 1H FY2020, while assets in custody decreased because we refrained from conducting face-to-face sales activities, this was offset by robust
performance in investment banking operations.
• Going forward, we will endeavor to increase fees and commissions mainly from investment banking operations and assets in custody (including
inheritance-related business) through consulting services.

10

1H FY2020 Earnings Results – Corporate Solution-related Earnings –[Trend of revenue from solutions for corporate customers] ((Million yen)(Interest income, fees and commissions, other operating income).

8,959[Breakdown of lending from the headquarters](Trend of the actual results)

449＋1,221

4,713

855

307

445
733

＋466

Other fees

3,492
Fees on derivatives
Other investment
その他投資銀行
banking
Intermediary fees
(M&A, consulting, etc.)

3,287
310
189
120
170

Fees on corporate
bonds

232

Fees on syndicated
loans

422

Loan interest*(SF center, nonJapanese customers)

655

272

193

As of March 31,
2017

End of Sep.
2020
Marketable
loans

18%

10%

31%

19%

57%

504

Corporate
loans

38%
21%

6%

CLO

Project
asset loans

1,173

353

189
158
144

[Trend of average balance of lending from theheadquarters] (Billion yen)

284

231

553

444.4

601
4,796

Non-Japanese

137.5

SF Center

306.9

476.2

529.9
147.5

553.5
150.6

138.1

＋312
2,285
1,842

1,973

338.1

382.5

402.9

Investment banking
operations*SP earnings inforeign currencydenominated loans

1H FY2018

1H FY2019

1H FY2020

FY2020Plan

1H FY2018 1H FY2019 1H FY2020 FY2020 Plan

• In 1H FY2020, corporate solution-related earnings increased significantly, reflecting the increase in loan interest and theexecution of large-volume derivatives transactions.
• In the FY2020 plan, we will expand the provision of solutions in response to diversified customer needs and further takerisks into consideration in loans from the headquarters by paying close attention to the changes in the market environment.

11

1H FY2020 Earnings Results – Revenues Related to Assets in Custody –[Fees on inheritance-related business] (Million yen)

6,195
(4,089)Composition of revenues (FY2020)-169

Group total(bank parent)Groupsubsidiaries(securities, assets)

3,494(2,315)24

Financial instrument
intermediary services

560

Life insurance

Investment trusts

2,811(1,812)

1,179
818

981

396
72
894

-336

65%

2,106

149

+181

55
63

Flow
revenue

Stock revenue*
35%

2,980
(2,162)Inheritance-related
business

Municipal bonds(-350)

999

1,010

79

49

416
24

1,396

*Stock revenue/Investment trusts + Life insurance + Publicbonds + Financial instrument intermediary services

Sales turnover by channel
Chugoku Bank(Billion yen)

Chugin Securities
82.7

77.7

69.7

558

688

744

735

1H FY2018

1H FY2019

1H FY2020

1,485

FY2020Plan

32.8

1H FY2018

45.1

39.6

1H FY2019

1H FY2020

Chugoku Bank: Investment trusts + Financial instrument intermediary services
Chugin Securities: Stock, etc. + Investment trusts + Bonds• In 1H FY2020, revenue decreased because we refrained from conducting face-to-face sales activities.
• In the FY2020 plan, we will enhance customers’ asset formation and proposals for inheritance and businesssuccession also by using non-face-to-face channels.

12

1H FY2020 Earnings Results – Change in Expenses –[Expense trends]-2(100 million
yen)

300

272

273

18

18

Other property
expenses

60

60

Deposit insurance
premium

10

10

42

43

Taxes

200

(100 million
yen)

-9

System expenses

264

538

30

32

120

119

20

20

87

88

500

15
-3

540

400
57
10

300

42

200
100
Personnel costs(Retirement benefit
expense portion)

-4

139
(2)

141
(4)

137
(6)

0

100

282
(10)

-5

277
(13)

0
1H FY2018

1H FY2019

1H FY2020

FY2019FY2020Plan• In 1H FY2020, expenses, as a whole, were significantly reduced mainly for expenses associated with overtime
work and business trips by enhancing online non-face-to-face sales activities and promoting teleworking.
• In FY2020, we will make efforts to reduce expenses by continuing to improve productivity.

13

1H FY2020 Earnings Results – Credit Cost Trends/Non-performing Loans –[Credit cost trends](100 million yen)

Other credit costs
General provisions for doubtful receivables
Individual provisions for doubtful accounts
Calculation method of general provision for doubtful receivables:• Estimated loss ratio is calculated based on actual loan loss ratios of
three 3-year relevant periods, each of which is moved one year forward.
• Estimated loss ratio is taken from the higher of either “the average ofthree relevant periods” or “the average of the most recent two relevant
periods.”• “Performing loans” and “Loans requiring attention I” are adjusted
considering the average number of remaining years of loans.

[Non-performing loan (NPL) trends]*We do not implement partial direct write-offs.

NPL ratio*NPL ratio after partial
direct write-offs

10
2

0

0

14

5
-3
1H FY2018

1.44%

1.15%

1.18%

1.58%

1.34%

694

729
288

Substandard

204

229

Doubtful

274

281

334

Bankrupt

215

218

196

21

11

-4
1H FY2019

1.41%

819

32
0

(100 million yen)

1H FY2020

End of Sep. 2019 End of Mar. 2020 End of Sep. 2020

Credit cost = General provisions for doubtful receivables + Individual provisions for doubtful accounts + Loan write-offs + Provisions for specific foreign debt + Provisions for loss on sales ofclaim + Loss on sales of claim - Gain on reversal to loan loss account
Other credit costs = Loan loss write-offs, provisions for specific foreign debt, provisions for loss on sales of claim, loss on sales of claim• General provision for doubtful receivables increased mainly due to an increase in loans. Recently, the impact of COVID-19
has been limited in the individual provision for doubtful receivables.
• With the NPL ratio remaining at a low level despite a slightly increased NPL, the excellent quality of assets was maintained.

14

1H FY2020 Earnings Results – Capital Adequacy Ratio –[Capital adequacy ratio (Basel III) trends][Capital adequacy (consolidated)](100 million yen)

Total equity
Consolidated capital adequacy ratio

13.02%

12.70%

12.63%

13.25%
Non-consolidated capital
adequacy ratio

244

5,019

5,262

243

38,48540,418

1,933

Credit risks

36,93738,875

1,938

Operational risks

1,547

1,542

-5

[Other Basel regulations]

End of Sep. 2019

End of Mar. 2020

End of Sep. 2020

YoY

5,265

Risk weighted assets, etc.

13.04%

1H FY2020

5,021

Of which, Tier 1, includingcommon shares

13.62%FY2019FY20191H FY2020<Regulatory
standards>

3% or more

Consolidated leverage ratio

5.99%

6.40%

Consolidated liquidity coverage ratio(LCR)

165.3%

186.1% 100％ or more

Consolidated stress test (IRRBB)

3.6%

3.4% 15％ or less

• The total capital adequacy ratio remained almost flat on the back of an increase in total shareholders’ equity due to anincrease in valuation difference on securities, while risk assets increased due to an increase in loans.

15

15

Earnings Forecasts[Earnings Forecasts]

Non-consolidated

Consolidated(Billion yen)

[Impacts of the spread of COVID-19]
FY2019FY2020

ActualPlan

Vs. published forecast

YoY

at beginning of term

Consolidated recurring profit

174

175

1

8

Consolidated net income

119

120

1

9

Core business gross profit

747

752

5

20

Interest income

582

584

2

18

Fees and commissions

158

153

-5

-4

Other operating income

6

13

7

5

Expenses (-)

540

538

-2

- 10

Core business net profit

207

213

6

30

Credit expense (-)

56

89

33

26

23

39

16

8

32

49

17

17

Securities-related gains

-5

36

41

13

Other

7

-5

- 12

-8

Recurring profit

154

155

1

8

Net income

108

110

2

10

Of which, general provision for
doubtful receivables
Of which, individual provision for
doubtful accounts<Interest income>• In 1H FY2020, loans relating to countermeasures against COVID19 increased significantly.
• Since a certain level of demand for cash is expected to continue,
although the trend has slowed down recently, we anticipate anannual growth of 4.9% in total loans and a year-on-year increase of
500 million yen in Japanese-yen loan interest for FY2020.
<Fees and commissions>• In 1H FY2020, sales in assets in custody remained subdued
because we refrained from conducting face-to-face sales activities
from April to May.
• Since June, we have established sales systems in response to the
COVID-19 calamity and the sales activities have recovered to theplanned level. Therefore, we do not expect major impacts on
performance in 2H FY2020.
<Expenses>• With the recovery of sales activities and business activities, we
expect that necessary expenses and strategic investment will
increase to the initially planned level. However, total expenses will
decrease as we will accelerate the measures to improve operational
efficiency which we implemented amid the COVID-19 calamity.
<Credit cost>• An impact of increasing loans is expected on general provision for
doubtful receivables.
• Currently, there is no major impact on individual provisions for
doubtful accounts.
• However, a total of about 3.5 billion yen for general provision andindividual provision for doubtful accounts is included in the plan as apreventive measure in preparation for an occurrence of contingency.

• The impact of COVID-19 has been included in the FY2020 plan based on information currently available.
• In the FY2020 plan, our target for profits (core business net profit, recurring profit, and net income attributable toowners of parent) is to achieve year-on-year positive levels.

16

Shareholder Return Policy[Shareholder return policy for FY2020]
We will return profits at a total payout ratio of approximately 35%, calculatedby the sum of dividends and share repurchases.
The calculation method of net income has been changed from a nonconsolidated basis to a consolidated basis.

Annual dividend: 22 yen (11 yen as interim dividend)(22 yen per share, including stable dividend of 18 yen)

Non-consolidated basis Consolidated basis[Status of shareholder returns]
FY2016FY2017FY2018FY2019FY2020(plan)

Dividend per share

20 yen20 yen22 yen22 yen22 yen(interim dividend)(10 yen)(10 yen)(10 yen)(11 yen)(11 yen)

①

19.0

19.4

15.3

10.8

12.0

Total dividends ②

3.8

3.8

4.1

4.1

4.1

20.2%

19.7%

27.1%

38.2%

34.5%

Share buybacks ③

2.9

2.9

1.4

-

Total amount of profit②＋③
return

6.7

6.8

5.5

4.1

35.5%

35.1%

36.2%

38.2%

Total payout ratio
on a consolidated
basis: Estimated at
35%(Billion yen)

Net income

Payout ratio

Total payout ratio②÷①(②＋③)÷①*Share buyback as a factor in calculating payout ratio: Calculated based on buybacks during one year from time of general meeting of shareholders.

• We will set our target shareholder return at 35% of consolidated net income (attributable to owners of parent).
• Annual dividend will be 22 yen per share as planned at the beginning of the term.

17Section II
Major Initiatives

Long-term Management Plan “Vision 2027:
Plan for Creating the Future Together” as the Assumption• In March 2017, we formulated and announced our 10-year Long-term Management Plan “Vision 2027: Plan for Creating the Future
Together” based on our long-term vision to “Create with Our Community, Customers and Employees a Rich Future that We
Can All Share” with the aim of establishing sustainable business models by overcoming the decrease in population and lower
profitability.
Corporate Principles

Remain firm in self-driven sound management to develop in step with regional society bywinning unwavering trust and providing superior comprehensive financial services.

Corporate Vision

A bank that is “chosen” and “trusted” by regional customers

Long-term
VisionCreate with Our Community, Customers and Employees a Rich
Future that We Can All Share
[Framework for achieving the long-term vision]

Initiatives for creating a rich future─ Improve the quality of the services we provide─ Increase opportunities to provide services

Initiatives to create the foundation of management
─ Enhance our capabilities to provide services
─ Reform the mindsets of individuals and corporate and organizational culture
19

Positioning of the New Medium-term Management Plan
“Plan for Creating the Future Together: Stage II”• Based on the achievements of the structural reforms (strategic investments and improvement of efficiency and enhancement of sales
capabilities through BPR measures) under the previous Medium-term Management Plan, we will establish “our proprietary businessmodels” which can quickly respond to changes of the external environment and can develop together with local community.
• To that end, we will strengthen our organizational power and human resources development
Culmination ofunder the new Medium-term Management Plan.
FY2017

3 years

FY20203 years

FY20234 years

our efforts FY2026

Long-term Management Plan “Vision2027 Plan for Creating the Future Together: Stage II”
Previous Medium-term Management Plan
“Plan for Creating the Future Together: Stage I”

Enhance hardware
aspects

New Medium-term Management Plan
“Plan for Creating the Future Together:
Stage II”

Enhance software aspects(organizations and human resources)

Sales branches

Develop sales
Thoroughpersonnel
and time
structuralfor sales activities
reformDomestic exchange & counterreception

Enhance initiatives forregional revitalizationand the SDGs
[Regional
community]

Teller operation reforms

Sales
Sales activity reforms“Plan for Creating the Future Together:
Stage III”

Deepen customeroriented sales
activities[Customers]

Vitalize organizations

Five Pillars[Employees]

Loans

Establish businessmodels that growtogether with local
community
The Chugoku Bank
Group will become theregional platform

Headquarters

Concentration and improvement of efficiency
of loan business at the Headquarters

Streamline the headquarters
operations and promote
workstyle reforms

Enhance digitalization
strategy

Establish sustainablegrowth models

Advance to a comprehensive service bankcentering on financing

SDGs: The term stands for Sustainable Development
Goals which were adopted by the United
Nations member states in September 2015 as
the common goals of the international
community.
20Key Performance Indicator (KPI) for the Medium-term Management Plan
• The value we will be able to offer to each stakeholder is set as KPI of the Medium-term Management Plan “Plan for Creating the Future
Together: Stage II.”
• Through the achievement of KPI for each stakeholder, we aim to increase the population and improvement of GDP within the region (East
Setouchi Economic Zone*) in the long run.
KPI

Results in FY2019

Final year of theMedium-term Plan
(FY2022)

Number of projects to address regional issues that
contributed to the SDGs－

Sustainableimprovement－(1) Total of the number of startups for which we provided
support*2 and the number of companies for which we
provided support in business succession*3－

Total of 3 years: 200
customers－(2) Activities contributing to the improvement offinancial literacy*4－

Sustainableimprovement－

Customers

Customer satisfaction *5(Individual and corporate)

Sustainableimprovement

Sustainableimprovement

Sustainableimprovement

Employees

Labor share in core business net profit before
payment of personnel cost*6

57.6%

54% or more－

Net income attributable to owners of parent

11.9 billion yen

15.0 billion yen

30.0 billion yen

Consolidated total capital adequacy ratio (Basel III)13.04％

Maintained stably at
12%Maintained stably at
12%Consolidated ROE

2.27％

－

5％ or higher (on a singleyear basis)

Stakeholder

Regional community

Stakeholders, etc.
(All stakeholders)

Final year of the Longterm Management Plan
(FY2026)*1: Eastern Setouchi Economic Zone includes Okayama Prefecture, Kagawa Prefecture, the eastern part of Hiroshima Prefecture (Bingo region), and the western part of Hyogo Prefecture (Harima region)*2: Number of startups for which we provided support means the number of supported customers that started business through our events for startup support*3: Number of companies for which we provided support in business succession means the number of entrusted contracts for business succession consulting services.
*4: Activities contributing to the improvement of financial literacy means the number of events and study meetings held for the improvement of financial literacy and business skills, etc.
*5: Customer satisfaction represents the number of answers indicating “Satisfied or a little satisfied” in the customer questionnaires.
*6: Labor share in core business net profit before payment of personnel cost is calculated by dividing personnel cost by (Core business net profit + Personnel cost).

21

I. Enhance Initiatives for Regional Revitalization and the SDGs
– Towards the creation of future cities
 The SDGs initiative will be accelerated from Okayama by enhancing cooperation between local municipalities, universities andeducational research institutes, local companies, and media.
 We will proactively support the realization of regional revitalization through provision of “human resources,” “information,”“funds” and“know-how.”

Spread of SDGs within Okayama Prefecture
Okayama City

Okayama University

Maniwa CityFY 2018: SDGs future city

Nishi-awakura village

Maniwa City
FY2018: SDGs future city
Municipality’s SDGs model project

Sanyo Gakuen Junior and SeniorHigh School
Geography and History Club

Okayama ´

Nishi-awakura village
FY2019: SDGs future city
Municipality’s SDGs model project

Received a special award of the 2017
First “Japan SDGs Awards” as the only
national and public university.

Okayama City
Kurashiki City

Received a special award of the 2018
2nd “Japan SDGs Awards” and the Top
Award of the 2019 “Japan Water Award.”

Kurashiki City
FY2020: SDGs future city
Municipality’s SDGs model project

Mutual cooperation

Information on industries
and companies

Establishment of the place forco-creation (platform)

Realize regional
revitalization

Mutual cooperation

Human resources,
information and funds

Partner company group thatrealized the goals

Local
municipalities

Group

Universities
and research
institutes, etc.

The role of the Chugoku Bank Group in
Regional Revitalization

22

I. Enhance Initiatives for Regional Revitalization and the SDGs
– Responses to COVID-19
 The provision of support to our customers affected by COVID-19 is the top priority issue of “Regional revitalization and SDGs.”
 We issued social bonds (Corona Bonds), the first-ever bonds issued by a regional bank. We will continue to proactively provide financial
assistance to local customers.
Trend of loans provided forcountermeasures against COVID-19*

Approx. 6,000 loans

Outline of social bonds (Corona bonds)

Approx. 240.0 billion yen[Purpose of issuance]
 To give a message to local customers(to maintain local economic activities and employment
through financial assistance)
 To maintain sound operations and generate additional risktaking capacity, and to improve capital efficiency.

Amount of loans provided
Number of loans provided
Approx.
500 loans(Of which approx. 110.0
billion yen for Guarantee
Association)

Approx. 65.0
billion yen
5/15

5/29

6/30

7/31

8/31

9/30

*Total number of loans and amounts of policy-based directed credit and loans of which the use of
application of the proceeds relates to COVID-19 (including commitment lines).

Of which, analysis of policy-based
directed credit relating to COVID-19[Composition of loans by industry]

OthersManufacturing

26%
Restaurants
5%

Number of
employees
10～10人or less[Composition of loans by
number of employees]
3,454borrowers
3,454先Name of issue

The Chugoku Bank, Limited #1 Callable unsecured
corporate bonds (subordinated bonds subject toexemption in case of substantial bankruptcy) (Social
bonds)

Amount of issue

10 billion yen

Terms of maturity

10 years (subject to early redemption)

Date of issue
Outline of the useof proceeds andconformity with
SDGs

The proceeds will be applied to the provision of loans
to customers whose businesses are affected directly
or indirectly by the spread of COVID-19.

External
evaluation:

We have established a social bond framework inaccordance with the Social Bond Principles 2020 of
the International Capital Market Association (ICMA).
We received a second opinion from Rating andInvestment Information, Inc. (R&I) to the effect that therelevant framework is in conformity with the Social
Bond Principle 2020.

24%
Total:
5,230
borrowers

Wholesale
12%
Retail
12%

～100人
100
or less

Construction
21%～1,000人
Above
1,000

1,623borrowers
147
147先
borrowers

100 employees or less:• Number of borrowers: 5,077

1,000人～1,000 -

6 borrowers
6先• Number of employees: 59,395

October 15, 2020

RatingA (R&I)23

I. Enhance Initiatives for Regional Revitalization and the SDGs
– Local Trading Company
 Establish a business model for development together with local communities by using know-how, information and networks of the Group By establishing a local trading company, we will accelerate support for our customers’ main businesses and contribute to thedevelopment of local communities.

Local trading company “Setonowa”
Name of company: Setonowa Co., Ltd.
Head Office: Chugin Ekimae Building 607,2-5 Honmachi, Kita-ku,
Okayama City, Okayama Prefecture
Established: November 25, 2020
Shareholders: The Chugoku Bank, Limited 70%
The Sanyo Shimbun Co., Ltd. 15%
Tenmaya Co., Ltd. 15%* A company designated as a banking business sophisticationcompany.

The first banking businesssophistication company in Japanestablished jointly with generalbusines corporations
 Purposes of the local trading company• Create economic value within the region through transmitting information
to inside and outside the region and through assistance to increase sales
by identifying regional resources that customers have.
(*Regional resources: Agricultural and marine products, traditional handicrafts,
various technologies and products, etc.)

 Strengths of the local trading company “Setonowa”• Established jointly with companies representing the region in order tocomplement knowledge such as product distribution, promotion, design
and marketing, which a bank does not have sufficiently.
• As a banking business sophistication company, it will disseminate theuniqueness of the region by making the most of the bank’s managerial
resources together with the know-how and networks of the five
participating companies.

 Synergy effects to the banking business(Local newspaper
company)(Branding and design)

Analysis / Strategy(Local department store)
Product planning anddevelopment
Branding
Channel development
Promotion(Advertising and producing)• A broad range of synergy effects is expected through the local tradingbusiness, such as consulting, personnel recruitment, business matching
and an increase in loans.

Assistance forplanning of marketingstrategy Analysis ofenvironment, including
markets, customers
and competitions.
 Planning of sales
methods and pricing

Assistance for planningand development
 Provide assistance, fromplanning to execution, in theplanning of concept of new
products, effective use oftechnologies, andestablishment of development
and production systems.

Assistance fordeveloping sales
channels Provide sales channels
suitable for thecharacteristics andneeds of the products
and services.
 Sales agency operation

24

I. Enhance Initiatives for Regional Revitalization and the SDGs
– SDGs accelerated through main business As a leading bank of the region, we will contribute to the solution of “environmental and social issues” and support
customers’ SDGs initiatives.
 We pursue the improvement of long-term and sustainable corporate value by accelerating SDGs through our main business.
Initiatives for “environmental and social issues” through financing
Loans relating to the environment andenergy (Billion yen)*Accumulated value after 2016

88.9
40.5
FY2016FY2017FY2018259.9
 Support customers’ businessin cooperation with external
experts.
 The Headquarters SF Center
will also proactively endeavor
to work on this as project
FY2019 1H FY2020
finance.

* Accumulated value after 2018

FY2018FY20191H FY2020

11
5

SDGs private placement
bonds (Restoration
support type)22

Eco-friendly private
placement bonds

96 issues in
FY201944

SDGs private
placement bonds(Local promotion type)

SDGs private placement bonds: Part of the proceeds are used
for the relevant purposes of the SDGs.

3.1

1.7

SDGs private
placement bonds(BCP type)14

Eco-friendly private placement bonds:
Preferential cost of issuance is offered to customers who
implement environment-friendly management.

Childcare-related loan (Billion yen)

2.9

(Number of issues)

SDGs private
placement bonds(Advertising type)

210.6
146.5

Promote private placement bonds for social contribution

 Given the issue of children on
waiting lists for nursery schools,
we have strengthened support
as a local financial institution.
 We have assigned staff incharge at the Headquarters toprovide support for theformulation of business plans
and investigation of the external
environment, etc.

Local promotion type:• Donation and gift to publicorganizations, etc.

Restoration support type: • Contribution to relief
money for disaster victims

BCP type:• BCP consulting is conducted.

Advertising type: • The initiatives for the SDGs are
published in newspapers.

New

In April 2020 andthereafter: The
workstyle reform
type was added.
・The improvement ofwelfare is implemented.

25

II. Deepen customer-oriented sales activities
Deepening local support activity (corporate solution)
 Sales offices and the Headquarters unite to propose optimal solutions depending on the customer’s segment and stage.

Sales

Corporate customer’s segment (image)

Introduction of Relationship Management (RM)
Subject
customers

Large-scale and corecompanies in the region
Chugin’s share:
Low

Chugin’s share:High

Medium-sized andgrowing companies

 Companies whose impact on local economy is significant and who have a large
volume of transactions with us were selected.
* Such large companies representing the region’s industry, and the companies
who support local employment
 Personnel in charge of RM assigned at the Headquarters work together withsales branches offer comprehensive solutions to customers.

Activities• Analyses of the trends of the customer’s industry and competitors, andcommunication with customers• Sharing managerial challenges, and preparing milestones for improvement• Proposing various solutions

Enhancing support for start-ups
Establishment of “Chugin Infinity Fund”• Enhance support for equity capital inorder to cultivate companies that willplay important roles in the region.

Medium- to small-sized, microenterprises, and start-up
companies

Share in loan balance

Unlisted companies
Chugin Infinity
Fund(¥500 million)• Expected to growbased on innovative
businesses• Expected to go public

Enhance consulting services forcompanies having managerial challenges①“Legal liquidation-type M&A advisory services”• Search for a sponsor of the rehabilitation debtor②Okayama Capital Management Co., Ltd.
• Provide consultation services to customers withmanagerial challenges
Capital contribution /human resources

Capital contribution /human resources

Okayama CapitalManagement

The Chugoku BankLong Black Partners
Co., Ltd.

Medium- and small-sizedcompanies with managerial
challenges

26II. Deepen customer-oriented sales activities
Deepen life plan support activities (solutions for individual customers)
 Life plan support is provided throughout a lifetime from both financial and non-financial aspects depending on customer
segments and channels

Channel(Life stage)

FunctionAssetmanagement
Loan

Pre-seniorLife Plan Center
Loan Center
Sales office /Headquarters(Customers visit
stores / Staff visit
customers)

Face-toface

Non-faceto-face

Financial

Assetformation

Young age

SeniorAssetsuccession

Sales office /Headquarters(Customers visit
stores / Staff visit
customers)

Smartphone / website / call center
Opening of accountFace-to-face channel
 The existing “Loan center” will be sequentially shifted to the “Life
Plan Center,” where insurance and installment-type products areavailable.
(Three centers as of Mar. 2020 ⇒ Five centers as of Sep. 2020)
Enhance the functions of channel by providing insurance andinstallment-type products.
 Enhance the approach to working generations by conducting
business on holidays at sales offices.
Non-face-to-face channel
89,00089千65,00065千Credit card
23,00023千

Account transfer
Fixed-term deposit

iDeCo

Salary deposit

Insurance

Installment
investment trust

NISA

Succession /inheritance ofassetsAutomobile loan
Housing loan
Educational loan

Business matching for individuals

Passbook app
通帳アプリ（先）(customers)
Internet banking
インバン（先）(customers)

263,000
263千

277,000277千

End of Sep.
2019/9末2019

End of Sep.
2020/9末
2020

Numberof non-face-to非対面取引数（件）※
face transactions**Accounttransfer/bank※振替/振込・定期預金
transfer, fixed-term
投信・中銀証券
deposit,
investment
trusts, Chugin Securities

 The opportunities to use non-face-to-face channels are
increasing due to development of digitalization.
 The customer base for non-face-to-face tools is also expanding.
Non-financial

Non-financial

99,00099千

The service menu will be increased further.
TravelPreparation for theend of life

Home security
Housekeeping
agencyNursing care27

II. Deepen customer-oriented sales activities
Maximizing the Group synergy Implement measures for maximizing the Group synergy by working as a Group as a comprehensive service business

Chugoku Bank GroupThe Chugin
Card Company,
LimitedThe Chugin
Lease Company,
LimitedThe Chugoku
Bank, Ltd.

Maximizing the Groupsynergy

Chugin AssetManagement
Company,
LimitedCBS
Okayama Economic
Research Institute(Contractor of bankingrelated operations)New
The Chugin
Operation Center
Co., Limited

Kibiji Literary
Museum Enhance cooperation between the bank and the securities company
・Review of the sales offices in the Shikoku region of Chugin Securities
New

ChuginSecurities Co.,Ltd.
The Chugin
Credit Guarantee
Co., Limited

Expanding the Group synergy

Sent on loan

To Customer

Combine the expertise of employees of the securities
company and the customer base of the Bank

Abolished

Strategic personnel assignment

 Assignment to Group companies, such as card, lease andconsulting companies, started under the “Career Challenge System”
of the Bank.
 The Group synergy will be expanded by strategically assigningpromising bank employees.
New business development

Setonowa Co., Ltd.

Local trading
company“Setonowa”(Local Trading Company)

Okayama CapitalManagement Co.,
Ltd.

Chugin Securities,
Takamatsu Branch

Chugoku Bank Securities Advisor,
Takamatsu Desk

Consulting
business forcompanies withmanagerial
challenges

OkayamaCapitalManagement

Various points for consideration
 New areas forleasing Effective use of real
property Equity investments
using funds, etc.

28III. Revitalization of the Organization
 We will endeavor to establish personnel systems where employees can work depending on their personality and life stage.
 Further participation is encouraged to employees by establishing a personnel evaluation system which recommends
activities that contribute to solving customers’ challenges.

External environment
Change in customer
needs

Concept

People in demand

Personnel systems that cultivate motivated employeeswith unique personality regardless of gender and age

Personnel with expertise in the areas ofstrengths, characteristics and personality

Amendments to laws
and systems
 Act on Stabilization of
Employment of Elderly Persons
 Equal pay for equal work

Change in the senseof labor Diversity
 Work-life balance

Internal environment
Change of people in demand

New personnel system aiming to realize
diversity

 Sophisticated corporate
activities Diversification of life styles

Advancement of financial
DX and BPR

Challenges in personnel
systemChallenges in personnel
system operation
Employee satisfaction

System where employees can work flexibly,from joining the bank to retirement, in response
to various life stages
 Diversified work styles after age 55
 Optional personnel transfer requiring achange of residence

Flexible working system and improvement of motivation
 Flex-time system Teleworking
 Expanding leave of absence and reinstatement systems

Sales field-driven
personnel evaluation
systemProblems of personnel
composition

Two pillars in new personnel system

Personnel course where employees candemonstrate their capabilities to the maximum(enhancing expertise in individual and corporate sales) Reorganization of personnel course systems
 Establishment of specialist course Review of the business staff system

Human resources development New human resources development program Specialists development program Enhancement of middle management personnel
development

Direction for review of (performance) commendation systems
Target management by motivating with external factors

Target management by motivating with internal factors

Establishing the overall sales promotion systems byusing a performance commendation system as a tool
to increase employees’ motivation

Target management for increasing contribution tocustomers and company by stimulating the
spontaneous intention of sales offices and each
employee to achieve higher performance.

29

IV. Enhance Digitalization Strategy
 Digital strategy vision of Chugoku Bank: “Pursue comprehensive services business to serve every aspect of customers’ lifeand businesses”
 We will strongly proceed with digitalization by effectively using our strengths: “People (sales), products (sales offices) andinformation”
Step 3. (2030)
Step 1. (This Medium-term Plan)
Step 2. (Next Medium-term Plan)

Individuals

Improve the existing services andconvenience Digitalization of sales offices(Responses from back office andmanager operations)(Completion of transaction
using a tablet at sales office) Improvement of individual
applications
 Proposal for asset management
by AI
Sales office tablet

Combination of real and digital businessHighly convenient
smartphone app• Used all the time
• Optimum proposal• Liaison with realtransactions“TSUBASA Smile”

July 2, 2020
“Digital Innovation Promotion Center”
was established.

Corporate Provide corporate portal services

 Enhancement of online
communication tools

Provide services for every aspect of life

Next-generation-type sales
office (such as a tenant)Introduce and provide various real /digital services not limited tofinancial services on a daily basis

Username:

Real

Password:

DigitalSUBMIT

Deepening of digital channels andbeing armed with digitalization

 Computerization of non-face-to-faceloan application and contract
 Presentation of the financing limit
amount by transactional lending

Comprehensive services,
including non-financial

New financial services

業績予測

AIコンサル

Provision of total services
required by customers’
businesses

各種情報提供業務サービス

資金調達

営業支援

会計

受発注
生産管理

Partner for business / management consulting
Network of experts

In-house knowledge
database

Company
managerAI
Quick provision of appropriate data from alarge amount of data according to proposal

Bank’s customer
base network

Industry / region
information

External sales
consultant

30

V. Establish sustainable growth models
 Further reduce the back office operations at sales offices by establishing a middle office at the Headquarters
 Drastic cost reduction will be conducted towards a sustainable growth model while maintaining and improving customer
convenience.
57

Cost reduction
targetTrend of expenses

55
53
51

¥55.6 billion

49¥54.2 billion¥54.0 billion

A reduction of 3.2 New~ Toward the elimination of backEstablishment of Middle Officebillion yen in 3
office operation of sales offices ~items of expenses
compared with
Sales office
FY2019Reception

Customer

59¥53.8 billion

4745contact andinquiry43
FY2017FY2018FY2019FY2020

FY2021

FY2022

Small-volume andnon-regular operation

Large-volume andregular operatione.g.) General tasks ofdeposits and foreignexchangee.g.) bill, transfer, tax
and publicmoney, etc.

Middle office of the
Headquarters*3 items of expenses: System, other cost of materials, labor costTrend of number of employees

3,083

Reducing to a 2,800 level in a
medium to long run

3,099
3,018

2,972

• Improve productivity• Natural attrition in workforce by restricting new employment

Previous Medium-term Plan
(BPR period)
2017/92018/92019/9Emergence of
BPR effect
2020/9*Nonconsolidated number of employees (excluding part-timers and short-time contract employees)

To reduce to 145 offices by theend of the Medium-term Plan

Status of sales officereorganization
Number of
160 offices
domestic sales offices

Chugin Operation
Center159 offices

155 offices

153 offices

Branch-withina-branch

1 office

6 offices

8 offices

32 offices
Retail banking
branches andoffices
Full-banking
128 offices
services

33 offices

34 offices

32 offices

126 offices

121 offices

121 offices

2019/32020/32020/92018/3* Excluding overseas branches and internet branches

31

Alliance Partnership Strategy
 Under the TSUBASA Alliance, we pursue scale advantage and synergies in the broad and large-scale alliance.
 The Okayama Co-creation Partnership Local Businesses contributes to further development of the local economy by sharing theknowledge of the member financial institutions.

Okayama Co-creation Partnership

TSUBASA Alliance

本店所在地
店舗所在地

New

Total assets of the member banks:
78 trillion yen⇒ The largest regional bank alliance Cost reduction / Improvement of efficiency
Sharing the mission-critical system

Sharing operation departments

Foundation of TSUBASA FinTech

Sharing the sub-systems

Sophisticating the AML business

TSUBASA Smile Enhancing the top line
Coordinated finance

Effective use of the Group companies

Inheritance-related business

Exchange of human resources

M&A business platform

For further cost reduction and improvement ofservices by establishing TSUBASA Alliance Co., Ltd.

 Cooperative measures
Joint business meetings

Joint seminars

COVID-19 consultation desk

Co-financing

Establishing business /venture businessBusiness succession / M&A

Joint training for employees

Exchange of human resources

Contribute to further development of the local
economy.

32

Corporate Governance We pursue sound and sustainable growth concurrently with medium- to long-term improvement of corporate value by enhancing
and enriching corporate governance.
 We pursue improvement of capital efficiency by constantly reducing cross-held shares.
Strengthening of governanceNew Percentage of independent outside directors: 37.5% (six out of 16 directors)• All of the six outside directors are independent officers after the general
meeting of shareholders held in June 2020.
 A nomination and compensation committee was established. (December 22, 2017)• Chaired by an outside director, the committee carries out appropriatedeliberations.
 Continued to perform assessment of effectiveness of the Board of Directors
 Formulated the “Plan for a Successor to the Representative Director and the
Basic Policy concerning the Nurturing Plan”
 Grasping appropriate cost of capital ⇒ To be used for the revision of crossshareholding

Initiative for reduction of cross-held shares The relevant shares are held only when it is considered as necessary forsustainable growth of the issuers of the shares and the Group as well as for the
improvement of corporate value.
 From the perspectives of capital efficiency and the reduction of shareholding
risks, we will reduce the shares through communication with the issuers.
[Judging whether or not theshares should be held]• Profitability, taking cost of capital
into account• Relationship with local economy• Viewpoint on managerial strategy[Shares not satisfying the shareholding criteria]• Negotiations for improvement of
profitability in transactions• Negotiations for reducing the number ofshares held
The Board of Directors will verify thestatus on a regular basis.

Nomination andCompensation Committee(an arbitrary committee)

Board of Directors(Business execution)
Directors

Member of Audit andSupervisory Committee(Directors)

Outside Directors

Trend of balance of crossheld shares
14.1

631
63.1

'15/3

13.3

63.0
630

'16/3

Book value as of term-end (Billion yen)(Consolidated) Comparison with Tier 1 (%)

12.6

61.3
613

'17/3

11.5
60.6
606

'18/3

11.3

10.7

10.2

59.4
594

'19/3

53.9

53.6
536

'20/3

'20/9

33

This material contains forward-looking statements. These statements do not guarantee our
future business performance and includes risks and uncertainties. It should be noted that
future performance may differ from the targets mentioned herein due to changes in the
management environment and other factors.