YMFG Integrated Report 2023

This world. This town. And me.

Public & Investor Relations Office, Corporate Planning Dept., Yamaguchi Financial Group, Inc.
2-36, 4-chome Takezaki-cho, Shimonoseki, Yamaguchi 750-8603, Japan
Tel: +-81-83-223-5545
Issued in July 2023

Yamaguchi Financial Group, Inc.

Management Letter

About YMFGBusiness Strategy
for Value Creation

Power Supporting Value
Creation

C E O M e s s a ge

Putting thoughts into

Philosophy of“Kori zai kyodo (興利在共同)”connected to purpose

action to solve the many

In last year’s Integrated Report, I talked about
the formulation of“co-creating a bountiful
future for our region,”purpose (mission andthe meaning of its existence) of Yamaguchi
Financial Group, Inc. “YMFG”(
or the“Company”) and how this purpose is based on
three thoughts that have been inherited andcherished throughout our long history. The
three thoughts are as follows:“future-oriented,”
which means that we exist to create a future,
for the future;“coexistence-oriented,”whichmeans that we cannot survive alone, we must
always co-exist and work together with our
stakeholders; and“region-oriented,”whichmeans that we always exist for our region. To
put these three thoughts into practice, we havebeen committed to the management policy
since our foundation,“a sound and proactive
enterprising spirit,”which is our basic
approach. I hope that you can see that the
purpose, a YMFG’s new banner, is not
something unrelated to our past history.“Asound and proactive enterprising spirit,”ourmanagement policy inherited from thefoundation, means“a sound attitude is one inwhich you tackle everything proactively, boldly,
and with an enterprising spirit. In addition,
sound management content, management
system and management attitude will naturally
result in a constitution and strength that allows
for the aggressive and resolute taking in ofrisks.”In other words, soundness and proactive
action are not mutually exclusive concepts, butrather are a harmonious and integrated idea.
To harmonize these two philosophies, which
are apt to be seen as mutually exclusive
concepts, and to realize“a sound andproactive enterprising spirit,”it is essential thateach YMFG’s employee engages in friendly
competition and devotes themselves to their
daily work. It is only when one does not seek
the easy way out in everything, confronts theirwork with a strict attitude, and genuinely
cooperates with others, that a true trusting
relationship born out of mutual prosperity andmutual interest can arise.
At the head office of YMFG, which is also
the head office of The Yamaguchi Bank, Ltd.,
there is a piece of calligraphy that reads“Korizai kyodo (興利在共同).”This calligraphy wasissues facing the region“Be Active”
Under YMFG’s long-standing belief in“co-creation,” we will work together,believing in the “unlimited potential of
the region” and taking on challenges
together with the region.

Yamaguchi Financial Group, Inc.
President, Representative Director and CEO

Keisuke Mukunashi

1

Calligraphy of“Kori zai kyodo (興利在共同)”at YMFG head office

written by Mr. Korekiyo Takahashi, a politicianof the Taisho and Showa eras who served as
Prime Minister, Minister of Finance, andGovernor of the Bank of Japan, and had been
carefully preserved for many years in the“Yamagin Museum,”where used to be theformer head office of The Yamaguchi Bank, Ltd.
I strongly felt that the phrase of this calligraphy
was a reflection of the philosophy that has
been passed down to us from generation to
generation, and so I requested that the work
be displayed at our head office. The phrase“To
make a profit is to make it in cooperation”
expresses the very origin of YMFG’s purpose of“co-creation.”It teaches us that if the regionand our customers are satisfied, so too does
YMFG grow, and it leads to development of
new business fields and collaboration with adiverse range of external partners at the sametime. This will be passed down for generations
with our history. Whenever I see the phrase“Kori zai kyodo (興利在共同),”I can feel a deep
connection to the long history and emotions
tied to YMFG’s purpose, and it serves as aconstant reminder of the important
responsibility that has been passed down tome.
Has there ever been an era without change.
Life is about adapting to the unique changes ofeach era, and a company, as a collection ofpeople, can only enhance its sustainablecorporate value by flexibly taking on thechallenge of changing times. When I was incharge of new business areas, I was constantly
challenged by change. This attitude remains
unchanged even now as I serve as the
President and CEO, and I intend to accelerate
even further going forward. However, tochange and take on challenges correctly as anorganization, we need unwavering guidance,
and this is where YMFG’s purpose,
representing our long-held beliefs that havebeen passed down, comes in.
YMFG Integrated Report 2023

2

Management Letter

About YMFGBusiness Strategy
for Value Creation

Power Supporting Value
Creation

CEO Me ssa g e

Our new brand slogan,“This world. This town. And me.”This YMFG’s purpose cannot be achieved by
YMFG’s one-way thoughts alone, as the word
“co-creation”suggests. To achieve thispurpose, it is important for all of YMFG’sstakeholders to empathize with andunderstand the philosophy of this purpose.
From that perspective, in order to ensure thatstakeholders make the philosophy of our
purpose their own and easily understand it, weestablished a new brand slogan for YMFG,“This world. This town. And me.”in November
2022.“Region”meaning staying in a“region”isa discussion of the past. In the current time,
which is based on digital nature, the“region”
can connect with the“world”instantly and has
limitless possibilities, which are related to the
future of our stakeholders. This idea is deeply
infused in our brand slogan.
With this brand slogan as our foundation,
we have developed new brand communication
initiatives. As part of these initiatives, we haveintroduced a brand communication book, an
area magazine themed around the three mainareas of YMFG: Yamaguchi, Hiroshima andKitakyushu. From the unique perspective of
YMFG, which operates its business in thesethree areas, we introduce engaging content
and attractions that many people may not yet
be aware of, and present the future that YMFG
aims for in an easy-to-understand and easy-toimage manner. Through this brandcommunication book, we hope to help people
discover and communicate the new attractionsof these three areas.“This world. This town.
And me.”Each and every YMFG’s employee
will consider the purpose their own matter,connect it to their own individual purpose,seriously think about what they can do, andact towards realizing the YMFG’s vision (whatthe Group should become in the future),“aregional value-up corporate group that ischosen by our region and responds to the trustof our region.”We intend to take on thechallenge of realizing our purpose together
with the region, with the perspective of theinfinite possibilities in the region and thechallenges of connecting globally.

Brand communication book

Review of the fiscal year ended March 31, 2023
The previous fiscal year was the first year ofthe“YMFG Medium-Term Management Plan
2022,”which was formulated based on our
purpose. The plan was achieved for bothordinary profits and net income, and we
steadily advanced initiatives aimed atenhancing our structure and foundation tofurther contribute to the revitalization of theregional economy and improve YMFG’s
corporate value. As part of our efforts to build
a sales structure to provide high-quality
solutions to customers in the region, we
introduced a“block sales system”in October
2022. Additionally, during the establishment of3

this system, to further demonstrate YMFG’sgroup synergy and contribute to our regionalcustomers, we completed the“wholly-owned
acquisition of group companies,”including
YAMAGUCHI CAPITAL Co., Ltd. and YM Lease
Co., Ltd., which has enabled us to capture
100% of the profits that were previously
flowing outside the Company and its
subsidiaries (the“Group”).
From the perspective of regional cocreation, we have consistently advanced
various initiatives that involve the region, suchas launching and hosting the“SIB (Social
Impact Bond) Research Group”by YMFGZONE PLANNING CO., LTD., the Group’sregional revitalization consulting company,
co-hosting the“Shimonoseki Add-venture
Summit (SAS),”a regional revitalization summit,
with Shimonoseki City in a genuine effort torevitalize local industries by the community andstartups, and entering“comprehensive
partnership agreements with Shimonoseki City
University and Shunan University”to develop
human assets in digital and other fields
together with the local community.
To strengthen supervisory function of risk
management, we established the“Risk
Committee”in July 2022, primarily comprisedof outside Directors and third parties (external
experts). We have begun operations focusing
on the market department, where immediate
action is urgently needed, and are proceedingwith efforts to build a securities portfolio,
reflecting objective opinions from the Risk
Committee. In this manner, although steadyprogress has been made in implementing thepolicies set out in the first fiscal year and we
do feel a sense of accomplishment, from thecurrent fiscal year onwards, we will further
accelerate measures that contribute to theenhancement of the value of the region and
YMFG.

Management policy for the fiscal year ending March 31, 2024
In the current fiscal year, the second year of
the medium-term management plan, we will
aim for a trade-on between“resolving regional
issues”and“corporate profits.”We have set
outcomes which affect society andenvironment, and have identified six priority
regional issues (social and environmental
issues) based on the materiality. Under thepolicy of actively working to resolve theseregional issues, we will strive together towards
realizing our purpose and further enhancing
corporate value. The current fiscal year, under
the structure and foundation built in theprevious fiscal year, is truly“a year of
implementation”aiming for a leap towards the
final fiscal year of the medium-term
management plan, and the mindset andattitude required for this is“Be Active.”This isa message I communicated to all employees in

my New Year’s greeting, and I constantly
communicate to employees the need toapproach challenges with this mindset andattitude. Based on the keyword“Be Active,”
which I keep reminding myself of, we have set
forth important themes such as“revitalizationand growth support for regional companies”
and“personnel system reform and humanasset development”as foundations to promote
YMFG’s transformation and growth, and ourpolicy is to thoroughly pursue these initiatives.
Reviving regional companies that have beensignificantly affected by the COVID-19
pandemic for over three years is a
responsibility of YMFG, which supports
regional companies, and we believe that thegrowth and success of YMFG employees willundoubtedly contribute to the growth anddevelopment of the regional economy.

Promotion of the active participation of the Group’s human assets
The driving force of YMFG and source of ourinitiatives, based on our purpose and brandslogan, are entirely our“people”and“employees.”It is important for employees
who embody the philosophy of our purpose todemonstrate their creativity in a highly
motivated state and to engage in continuous
value creation. Based on the concept of humancapital management, we have identified“promotion of the active participation of theGroup’
s human assets”as one of our priority

items in our medium-term management plan,
and are actively pursuing it. We have
implemented initiatives for the active
participation of diverse human assets, including
the enhancement of the hiring of experienced
individuals, the promotion of the active
participation of women, and theimplementation of year-round hiring for new
graduates. In addition, from the perspective ofhuman asset development, we have doubled
our investment in training compared to the
YMFG Integrated Report 2023

4

Management Letter

About YMFGBusiness Strategy
for Value Creation

Power Supporting Value
Creation

CEO Me ssa g e
fiscal year ended March 31, 2022, and we are
steadily advancing initiatives such as reskilling
support for employees. Through theimplementation of these initiatives, we haveseen gradual changes, such as positive
developments in“loyalty to the company”in
employee awareness survey results. However,reforming the corporate culture is not
something that can be achieved overnight, andwe intend to address it with a long-term
perspective.
In order for YMFG to become anorganization that can flexibly respond to anincreasingly diverse and complex society, one
issue I highlighted in our previous Integrated
Report was the active participation of womenas we promote the active participation ofdiverse human assets. As a result of ourparticipation in the“Human CapitalManagement Consortium,”our membership inthe“30% Club Japan”to share advanced casestudies, efforts to improve the environment

through unconscious bias training and theFemale Corporate Sales Job Trial, and theactive promotion of female managers, the ratioof females in management positions increased
from 1.2% at the end of March 2022 to 4.5% at
the end of March 2023, an improvement of
3.3%, but it is still at a low level. However, inthe past year, the appointment rate of females
to leadership positions of section chief andabove has significantly increased to 37.6%, up
20.9% from 16.7% in the previous fiscal year.
We will continue to build a pool of female
candidates for manager to achieve a long-term,
consistent increase in the ratio of females inmanagement positions.

30% Club Japan

Provision of opportunities for employees to play an active role andintroduction of an incentive plan
In January 2023, we implemented a majorrevision to the personnel system by the“revision of the promotion requirements”for
employees. This revision reviewed the
traditional“seniority-based”promotion
requirements, aiming to enable employees toplay active roles by fully utilizing their uniquecharacteristics and abilities, regardless of theirage, etc. At YMFG’s group companies,
employees in their 30s and 40s are alreadytaking on leadership roles, such as the 37-yearold president of YM Career Inc., operating apersonnel recruitment business, and we intend
to expand this trend to the entire group. As a
stepping stone toward creating opportunities
for the active involvement of diverse humanassets, in April 2023, we appointed four
employees in their 40s to the position ofgeneral manager at Yamaguchi Financial
Group, Inc., the holding company. As a result,the average age of general managers of
Yamaguchi Financial Group, Inc. is now in the
40s, and with the addition of the strong driving
force and creativity of young, capable division
heads, I strongly feel the potential for further
growth of YMFG. To further accelerate the5driving force of the Group’s growth, we plan tobuild and cultivate a pool of talented young
employees and continue to promote the active
involvement of diverse human assets. To
ensure that these system reforms function
properly and promote the active participationof our human assets, it is important tointroduce a personnel evaluation system thateveryone in the organization can agree upon.
In addressing this issue, discussions on the
personnel evaluation system, including withoutside Directors, were held at a Group Officer
Retreat in February 2023, and we are currently
discussing within the organization toward theintroduction of a better system.
Furthermore, to enhance employees’
enthusiasm and morale towards improving
stock price and business performance byfurther strengthening the link between YMFG’sstock price, business performance andemployee compensation, and sharing
economic effects with our shareholders, in May
2023, we introduced an incentive plan, the“Employee Stock Ownership Plan (J-ESOP),”
which grants the Company’s shares to
employees. This incentive aims to improve

employee motivation, and we believe it is aneffective method for employees to manage
their business operations from a shareholder
perspective. By actively offering share-based
remuneration not only to officers but also to
employees, we hope to narrow the gap
between employees and the management

team, striving for a stakeholder structure where
customers, management team, and employees
are unified. Moreover, the introduction of thisJ-ESOP is the first among regional banks inwestern Japan. We intend to further acceleratesuch efforts to enhance human capitalmanagement.

Towards the improvement of corporate value
I have always stated at financial results
briefings that we“aim to be a growing regional
financial group and focus on enhancing
corporate value.”This is my role as the
President of the holding company, Yamaguchi
Financial Group, Inc., who does not serve
concurrently as President at any banks within
the Group, and I see it as a commitment to ourstakeholders, including our shareholders.
Regarding the current situation, while we
recognize that our capital cost is about 7%, ourrecent ROE is below this level and our PBR iswell below 1 fold. In response, we first aim toachieve the 5% ROE target set out in our
medium-term management plan, but strongly
recognize that in the medium to long term, weneed to aim for an ROE level that exceeds ourcapital cost. Our approach to enhance ROE
over the medium to long term is to break ROE
down into two major components, aiming toincrease Return on Risk-Weighted Assets(RORA) and apply appropriate financial
leverage. In terms of specific initiatives,
strengthening profitability and allocating
management resources to growth areas are
essential to boost RORA. To this end, we will
work to review our business portfolio andasset allocation, and improve service income.
In addition, to apply appropriate financial
leverage, we will implement capital allocation
while considering the total equity ratio. In thefiscal year ended March 31, 2023, we
executed initiatives such as subordinated bondissuance, acquisition of treasury shares, andimprovement of dividend payout ratio, and in
the fiscal years ending March 31, 2024 and2025, we will allocate capital to return toshareholders, organic areas such as loans andsecurities, and inorganic areas such as strategic
investments, while considering the Group’sstrategy and external environment, and strive
to enhance profitability. In terms of return toshareholders, we have set targets of a dividend
payout ratio of around 40% and flexible
acquisition of treasury shares in our mediumterm management plan. In the fiscal year
ended March 31, 2023, we realized thepromised dividend payout ratio of 40%, andthe total return amount exceeded ¥17.0 billion,
which is an increase from the previous fiscal
year. In addition, we have announced theacquisition of ¥10.0 billion of treasury shares in
the current fiscal year as well.

YMFG Integrated Report 2023

6

Management Letter

About YMFGBusiness Strategy
for Value Creation

Power Supporting Value
Creation

CEO Me ssa g e

Reduction of cross-shareholdings
To improve capital efficiency, we are also
working on reducing cross-shareholdings. Since
previous fiscal year, we have been discussing
the approach to accelerating reduction ofcross-shareholdings at the“Meeting for the
Reduction of Cross-Shareholdings”composedof members including myself and thePresidents of the banks, and conducting
negotiations towards the reduction. Along with
this, we started an award system for sales staff
who contributed to the reduction of cross-shareholdings in the previous fiscal year,
providing incentives for reduction. In theprevious fiscal, we reduced by ¥11.3 billion on
both market and book value bases comparedto the end of the previous fiscal year, andachieved a 16% reduction compared to thebook value at the end of the fiscal year ended
March 31, 2022, and I feel a significant senseof accomplishment. During the current fiscal
year, we continue to accelerate our reduction
efforts, aiming to improve capital efficiency.

Strengthening of the governance and internal control system
The foundation for all the efforts I havementioned is“governance and internal
control.”We formulated improvement
measures for a total of 35 items in November
2021 in order to work on strengthening of thegovernance and internal control. These
governance and internal control initiatives in
the improvement measures are also reflectedin our medium-term management plan, and theentire Group is taking action to address these
initiatives. As of June 30, 2023, we havealready implemented 32 out of 35 items, but
we recognize that the implementation of these
improvement measures is not the end of theprocess, and that it is important for the Boardof Directors, the management team, and theexecution departments to work together toproperly implement the PDCA cycle to further
improve governance and enhance corporate
value. We will continue to implement initiatives
appropriately.
In our effort to strengthen the governanceand internal control system, we underwent asignificant organizational restructuring in April
2022, and based on trust and delegation of
authority, we changed the system so that the
President of each of the three banks in theGroup executes all business execution. As the
President of the holding company, I am
positioned to oversee the entire Group andestablish the system to focus on formulating
the Group’s strategy from a medium- to longterm perspective, such as capital policies
aimed at“enhancing corporate value,”and I
7

actively create opportunities for dialogue withall our stakeholders, incorporating theiropinions that contribute to the enhancementof YMFG’s corporate value into the Group’sstrategy. This is the intention behindconcentrating on the holding company’s
President and one of the strengths of thegrowth-oriented YMFG. Of course, this
dialogue includes dialogue with YMFG’semployees. Regarding the“YMFG MediumTerm Management Plan 2022”in the previous
fiscal year and“Management Plan for FY2024”
in the current fiscal year, we held town hallmeetings attended by me and the Presidents ofthe three banks to deepen employees’
understanding and promote the plan’spermeation internally. All questions andopinions raised at these meetings are sharedinternally, and we are steadily promoting
permeation of the management plan.

At the Annual General Meeting of
Shareholders in June 2023, Directors Tsukuda
and Kunimasa, who had long contributed tothe development of YMFG, resigned as outside
Directors, and Directors Ogi and Shikichijoined, leaving YMFG’s Board of Directors witha new structure. Director Ogi possesses
expertise in maintaining and improving
corporate governance as well as insights in thefield of corporate revitalization, and we believethat he will provide precise advice on one of
the key themes of the current fiscal year,“revitalization and growth support for regional
companies.”In addition, Director Shikichi, has
his abundant experience as a lawyer and tax
accountant and specialized knowledge, andwe will continue to use this new board
structure as a strength to ensure YMFG’ssustainable growth.

In the spirit of“Hyakuman isshin (百万一心)”
I began by explaining the phrase“Kori zai
kyodo (興利在共同),”and lastly, I would like to

speak about another phrase that exists at
YMFG’s head office.“Hyakuman isshin (百万一心)”is a phrase which was engraved on thecornerstone set in the center of the large vault
on the second basement floor by order of
Shinsaku Fuura, who was the President of The
Yamaguchi Bank, Ltd. when the head office
was completed. The phrase was inscribed on astone monument praying for a successful work
as a substitute for a human sacrifice by orderof feudal lord Mori Motonari, who preached
the“teachings of the Three Arrows,”when
Yoshida-Koriyama Castle was built. The phrase
can be interpreted as“one day, one power,
one heart,”and conveys that“if time, power,
and heart are unified, anything can beachieved,”embodying“unity”and the“spirit ofcooperation.”This phrase is imbued with thephilosophy of“co-creation,”a purpose that has
been handed down to us through our long
history. Toward the achievement of our
purpose, in order to meet the expectations of

all stakeholders surrounding YMFG, it is a giventhat all YMFG’s employees, under the brandslogan that conveys“This is me,”must takeinitiatives with a sense of ownership, and I
believe that by facing the same direction andworking in“unity,”we can create powerful
momentum and achieve anything. During thecurrent fiscal year, based on the spirit of“Hyakuman isshin (百万一心),”YMFG intends toact with a“Be Active”attitude to meet the
expectations of our stakeholders.

At the cornerstone“Hyakuman isshin(百万一心)”set in the vault of the YMFG’shead office
From left
Hiroshi Matsuura, Representative Director of YM Career Inc.
Hiroyuki Harada, General Manager of the IT Administration Dept.
Keisuke Mukunashi, President, Representative Director and CEO
Tatsuya Furudo, General Manager of the Corporate Planning Dept.
Hajime Nishino, General Manager of the Risk Administration Dept.

Town hall meeting

YMFG Integrated Report 2023

8

Management Letter

About YMFGBusiness Strategy
for Value Creation

Power Supporting Value
Creation

A Tripartite Discussion among the Outside
Directors and the Expert

While exercising an appropriate monitoring

function, the Board of Directors also works as one

to encourage “Be Active” by increasing effectivenessWe invited Yuzuru Yamamoto, Chair of YMFG’s Nomination Committee, Yumiko Nagasawa, Chairof the YMFG’s Compensation Committee (resigned as Chair in June 2023), and Professor Shoichi
Tsumuraya from Hitotsubashi University, who specializes in corporate governance and information
disclosure, for a tripartite discussion on the effectiveness of YMFG’s corporate governance.

Fostering an openorganizational climate byensuring the“diversity andobjectivity”of the Board of
Directors
Tsumuraya: First, Director Yamamoto andDirector Nagasawa, as outside Directors,
how do you perceive the characteristics
and challenges in YMFG’s management?
Yamamoto: Our Board of Directors iscomprised of a majority of independent
outside Directors, and includes threefemales, so in terms of diversity andobjectivity, I believe it is structured very
well. I also believe that it is diverse andwell-balanced in terms of skills. YMFG
submitted an improvement report in
response to a governance issue two years
ago. The improvement report has beentaken seriously and based on its
improvement plans, the executive side,
including the President, has provided
information and taken responsive measures
9

Yuzuru Yamamoto

Yumiko Nagasawa

Shoichi Tsumuraya

Chairman of the Board of Directors & Directorof UBE Corporation, appointed as Director of
The Yamaguchi Bank, Ltd. in 2020 (retired in2021), and as Director of the Company in 2021.

Facilitator of Foster Forum (Forum for Fostering
High-quality Financial Instruments), Director ofYakult Honsha Co., Ltd. (outside director),
Director of GL Sciences Inc. (Audit andSupervisory Committee Member) (outside
director), appointed as Director of The
Yamaguchi Bank, Ltd. in 2018 (retired in 2020),
and as a Director of the Company in 2020.

He specializes in information disclosure and corporate
governance. He has been a visiting researcher at theJapan Investor Relations Association since 2007. He has
been a member of the “Council of Experts Concerning the
Follow-up of Japan’s Stewardship Code and Japan’s
Corporate Governance Code” of the Financial Services
Agency since 2020.

Outside Director

Outside Director

to various opinions presented at the Boardof Directors, and I believe that we are on
the way to making further progress in abetter direction.

medium-term management plan, and I feelthat the Board of Directors is getting abetter understanding of and is able todiscuss specific initiatives more effectively.

Nagasawa: While the governance issue twoyears ago indeed caused concerns amongshareholders and other stakeholders, I think
it was really significant that we were able
to recognize and confront the issue
objectively. I personally feel that theexecutive side has listened more to voices
through the bottom-up approach, and I
think our governance structure has elevatedto the next level. Nonetheless, I recognizethat there are still issues to be addressed
and that we are not at the end of theprocess.

Yamamoto: I agree. As outside Directors,
we also need to check the progress of themedium-term management plan andexpress our opinions at the Board of
Directors about areas that need
improvement, pushing for higher-levelmeasures. Furthermore, changing culture,climate, or mindset takes a considerable
amount of time, so the Board of Directors
will continue to voice its opinions properly
to ensure our stance does not become
mere formality.

Tsumuraya: To what extent do both of you
feel that progress has been made towards
the point of completion?
Nagasawa: I feel that we have just started
our ascent. Numbers are not everything, but
we receive reports from the employees on
how they work towards achieving theProfessor at the Graduate School of Business
Administration, Hitotsubashi University

and adjust the direction accordingly. The
diversity on the Board of Directors isenough ensured, so we can havemeaningful interactions with Directors
expressing their opinions from a variety ofperspectives.
Yamamoto: I feel that the environment has
become more open for discussion. Thisapplies to the executive side’s officers aswell as general managers. I feel they areclearly expressing their thoughts.

Transitioning to a system where
the opinions of outside
Directors are quickly
materialized

Tsumuraya: Is the Board of Directors of
YMFG currently having thorough discussions
about the progress of the medium-term
management plan and commitment tonumerical targets?

Tsumuraya: Are there any notable instanceswhere the executive side incorporated theopinions of outside Directors?

Nagasawa: Yes, it is. We must hear fromthe executive team and employees“whythings are the way they are,”confirm them,

Yamamoto: The suggestion that“should be
implemented”from all outside Directors
was to include the Presidents of the three

YMFG Integrated Report 2023

10

Management Letter

About YMFGBusiness Strategy
for Value Creation

Power Supporting Value
Creation

A Tripartite Discussion among the Outside Directors and the Expert
subsidiary banks as internal Directors. It
was agreed upon as something that weshould do.
Nagasawa: Yes, that is right. Because thesituations of the three banks are different
and each President has different
experience, being able to directly hear theirviews has proven extremely beneficial for
management decisions by the Board of
Directors.
Yamamoto: To make the Presidents of thethree banks Directors of YMFG, we needed
to increase the number of Directors in the
Articles of Incorporation, and I proposedthat they should be included as Directors
even if the Articles of Incorporation would
have to be changed. I believe that the
Presidents of the three banks should clearly
explain their execution status and operation
as the Presidents of the subsidiary banks,
and, on the other hand, as Directors of theGroup, they should contemplate how toposition and act upon their mission within
YMFG. Despite potential contradictions
between these roles, it is preferable forthem to join as YMFG’s Directors anddeliberate from both perspectives. In
addition, we transitioned to a company
with audit and supervisory committee in2015. While the general aim is to shift froma management board to a monitoringboard, if our aspiration as a Board of
Directors is to lean towards a monitoringrole, we decided to delegate what we canto the executive side, and retain othermatters to be resolved by the Board of
Directors. This is precisely where thediscretion of a company with audit andsupervisory committee lies, so whenmatters are brought up for discussion by
the Board of Directors, we assess them,
determine those which“should be left tothe executive side,”and consider as
needed and on a case-by-case basis theappropriate deliberating body to makechanges. From the perspective of the Boardof Directors, we want to discuss how tomanage the company and improve
corporate value in the medium to long term
rather than focusing on short-term issues,and take adequate time to discuss theseissues. Therefore, we seek the provision of
information and ways of reporting that
support these discussions.
Nagasawa: That was also the case with theestablishment of the Risk Committee.
Securities investment plays a very importantrole for regional banks. Regarding thesecurities investment of YMFG, I had
requested the executive team to explain
the policy and associated risks in a waythat we, the outside Directors, canunderstand, and that led to theestablishment of the Risk Committee. At themeeting of the Risk Committee, after
receiving reports from the asset managersof The Yamaguchi Bank, Ltd. and Momiji
Bank, Ltd., committee members ask
questions, and the results are then reported
to YMFG’s Board of Directors. We see thisas a significant advancement from a risk
management perspective.

A high-quality and vigorous
discussion in the committee
leads to appropriate monitoring
Tsumuraya: Both of you serve as Chairs of
the Nomination Committee and theCompensation Committee, respectively.
What are the roles expected of eachcommittee?
Yamamoto: We have the Nomination
Committee, the Compensation Committee,
and the Risk Committee, all of which areadvisory bodies to the Board of Directors.
The Nomination Committee discusses thenomination of officers, and because it
would be very time-consuming for theentire Board of Directors to discuss thenomination of officers one at a time,
discussions should be limited to a smallergroup and focus on specific matters. The
Nomination Committee has the role ofreporting the results of the discussion to
the Board of Directors and determining
officer candidates based on that. Anotherimportant role is discussing succession
plans. Simply put, it is a forum for discussing
the succession plan for the Chief Executive
Officer. At the recent general meeting ofshareholders, shareholders praised thecurrent President, saying,“The President isdoing a great job,”and Directors shares
this view. Although our current President isonly in his third year, it is becoming
important to determine how to secure anddevelop his successor. Within the
Nomination Committee, we listen to thespecifics of development efforts and ensurethat proper training is taking place.
Moreover, as we, the outside Directors,
need to be replaced eventually, so we
believe that we have two roles: to discuss
what kind of experts we will need in the
future and what kind of candidates weshould secure in preparation for thechangeover, using a skills matrix.
Tsumuraya: How about the Compensation
Committee?

Compensation Committee, we try to ask“why a given evaluation is being made.”As
outside Directors, we cannot interview andevaluate each individual being evaluated, so
we value the perspective of looking at thewhole, ensuring the overall assessment isfair and impartial. The situations at thethree banks are different, so naturally, thenumbers differ. This is why committee
members continuously ask why this number
is higher or lower compared to others. If we
receive a reasonable explanation, we
judged that there is no problem, but we
continue to ask questions until satisfied,feeling that we are fulfilling our monitoring
function.
Yamamoto: In the Nomination Committee,
there are things we do not know about
internal candidates, so we sometimes ask
the executive side at the committee
meetings why a particular person has been
nominated. We check whether thereasoning is logical and objective.
Tsumuraya: The committees seem to bevery active based on what you said.
Nagasawa: I think they have become
considerably more active. Each outside
Director expresses their opinions, and thebriefings before meetings of the Board of
Directors have improved both in quantityand quality, facilitating deeper discussions.
In fact, as outside Directors, we havespecifically requested the way of reporting,which may have been cumbersome for the
executive team, but it has responded to ourrequests. The same applies to committee
activities. I feel that communication with theexecutive team, including the President, has
become easier. Sometimes we are asked
for our opinions individually, and sometimes
we also provide opinions from us. At themeeting of the Board of Directors, thePresident mentions the opinions he hasreceived, and we outside Directors canproperly inquire about the reasons. I feelthe system is becoming conducive tofulfilling our responsibilities as outside
Directors.

Nagasawa: At the meeting of the11

YMFG Integrated Report 2023

12

Management Letter

About YMFGBusiness Strategy
for Value Creation

Power Supporting Value
Creation

A Tripartite Discussion among the Outside Directors and the Expert
Yamamoto: As Ms. Nagasawa mentioned, Ialso feel there is good mutualcommunication and engagement between
the executive side and Directors. Mutual
understanding is deepening, anddiscussions are becoming more lively in thisenvironment.
Tsumuraya: That is important. Despite thetime and effort spent on committee
activities, it is clear the two of you findthem very rewarding.

Shifting our focus from a“cost”
to an“investment”and making
long-term investments to realize
our desired state
Tsumuraya: In the medium-term
management plan, the Company has
announced a target for ROE, while
simultaneously advancing three objectives,
including various initiatives centered onhuman asset development and addressing
global challenges such as greenhouse gas
emission reduction, and these objectives
operate on different time frames. What kindof discussions are you having in the Boardof Directors about priorities, balance, andwhat should be focused on first?

Yamamoto: Everything announced in themedium-term management plan isimportant, and we start from the standpointthat it must be done. Although the durationof the medium-term management plan isthree years, to achieve our desired state,
the lead-up time should ideally be longer. I
believe that the medium-term management
13

plan serves as a milestone, formed byimagining how we want to be in the longterm and backcasting from there for taking
actions. In this way, there is no trade-off
between the ROE target of the mediumterm management plan, human asset
development and investments over the longterm and carbon neutrality investments.
Human asset development is an investment.
Conventionally, labor costs are seen as
costs, which would mean they are opposite
to ROE. However, I believe it is important tothink that we develop and invest in humanasset over the long term in order to further
improve ROE. Carbon neutrality might seem
like a distant goal, but its value is universally
recognized. However, when you try toachieve it immediately, it incurs costs. Thereis an apparent contradiction here, but by
taking a long-term view and discerningwhen, what, and how to invest, I think weshould move forward with the idea that it isan“investment.”
Nagasawa: I also do not think these threeobjectives are a trade-off. As a listedcompany, it is essential for us to aim for ahigher ROE. In the financial industry,
especially for regional banks that coexist
with the regional economy, it might bechallenging to raise this figure over the
short term. However, from the medium-term
perspective, we must think about thestrategies to improve ROE and I believe that
we also need to invest. I also believe that acompany is people, and that thedevelopment of human assets should beseen as an investment. I think companies
that can address social issues such as aging
society, digitalization, and climate change
can grow their profits. However, companies
need employees who can not only generate
ideas for solving these social issues, butalso take action, and providing
opportunities for skill development toemployees is an investment in my view.
Regarding the transition to carbon
neutrality, the region of Kitakyushu andHiroshima, centered around Yamaguchi,
was a pivotal area in Japan’sindustrialization after the Meiji Restoration,and this possesses the potential to initiate
a new industrial revolution in terms ofhuman assets. Furthermore, I also think that

one of the keys is achieving rapid success inaddressing global challenges. This region
has a history of prospering throughindustries emitting carbon dioxide during
the 20th century, and that is why theregion’s experience, in overcoming thisproblem, will help lead the new industrial
revolution. YMFG is expected to play aleading role in these efforts, and if we candemonstrate our ability to do so toshareholders and the region, it is inevitablethat both income and stock market
valuation will increase. Therefore, I believe
it is more of a sequence than a trade-off.

would like to emphasize that, over thecourse of attending five general meetings ofshareholders, I have strongly felt that YMFG
is supported not only by institutional
investors but also by individual shareholders
and business partners in the region. To all
stakeholders supporting YMFG, we will
demonstrate our management policies andachievements to ensure they are confident
that YMFG is the leading company driving
this region forward and to be supported bythem. Accordingly, both the executive teamand the outside Directors will work
together, and we would like shareholders
to see the process.
Yamamoto: I believe that the first step in
returning profits to our stakeholders will beto achieve the policies and targets set forthin the medium-term management plan. I
consider it my personal duty to work withthe management and the executive side to
make this happen. I strongly believe that
this will ultimately benefit our shareholders,so I will work hard to achieve this.

Steadily implementing themanagement plan to berecognized as YMFG, a
company that drives theJapanese economy through“regional co-creation”
Tsumuraya: Finally, could you give amessage to everyone, including
shareholders and investors?
Nagasawa: Due to my background as aformer securities analyst, I have always
valued the perspective of investors,
especially institutional investors, inevaluating the management decisions and I
participate in every meeting of the Board of
Directors with this viewpoint in mind. I

Tsumuraya: It was evident from what you
said how both of you approach meetings ofthe Board of Directors with a strong senseof responsibility and actively participate incommittee activities. In addition, I believe
we were able to get a clearer picture of theeffectiveness of YMFG’s Board of Directors.
Thank you. I also look forward to further
advancements in YMFG’s governance.

YMFG Integrated Report 2023

14

Management Letter

About YMFG

Purpose and vision
Basic approach to working on
business activities with a focus
on purpose

The Group’s mission andthe meaning of its existence(Purpose)

Co-creating abountiful future forour region

Business Strategy
for Value Creation

Power Supporting Value
CreationManagement policy“A sound and proactive enterprising spirit”
The thoughts that we cherish

Emphasized concepts

Yamaguchi Financial Group, Inc., has formulated the“Mission and meaning of existence (Purpose)”and“What the Group should become in the future (Vision)”in order to combine the abilitiesof the Group’s executives and employees, and to increase corporate value.
We have incorporated the concepts of the conventional group visionand the thoughts that we cherish through our business activities, etc.

Future-oriented

What the Group should become in the future(Vision)A regional value-up corporategroup that is chosen by our
region and responds to the trustof our region

We exist to create a future, for the future
Coexistence-oriented

We cannot survive alone,
we must always co-exist and work together
with our stakeholders
Region-oriented

This world. This town. And me.

We always exist for our region

CONTENTSManagement Letter

CEO Message… …………………………………………………………… 1
A Tripartite Discussion among the Outside Directors
and the Expert… …………………………………………………………………9

About YMFG

Purpose and Vision / Contents and Editorial Policy…… 15
History of YMFG………………………………………………………… 17
YMFG Overview………………………………………………………… 19
Value Creation Process… ………………………………………… 21
Characteristics of the Sales Area… ………………………… 23
Source of Competitive Advantage…………………………… 25
Materiality…………………………………………………………………… 27
Financial and Non-financial Highlights… ………………… 29

15

Editorial Policy
Message from General Manager of the Corporate
Administration Group… …………………………………………… 31

Business Strategy for Value Creation

Overview of the YMFG Medium-Term Management
Plan 2022…………………………………………………………………… 37＜Priority Item Ⅰ＞
Promotion of Regional Co-creation Sustainability
Management… …………………………………………………………… 39＜Priority Item Ⅱ＞
Promotion of the Active Participation of the Group’s
Human Assets… ………………………………………………………… 51
Round-table Discussion with Employees………………… 57＜Priority Item Ⅲ＞
Pursuit for the“Maximization of Value Provided to… ………………………………… 61
Our Region and Customers”＜Priority Item Ⅳ＞
Challenge to“Expand Business Areas and… ………………………………………… 67
Strengthen Profitability”＜Priority Item Ⅴ＞
Strengthening of the Governance and Internal
Control System…………………………………………………………… 73

Power Supporting Value Creation

Corporate Governance……………………………………………… 74
Compensation for Officers… …………………………………… 83
List of Officers… ………………………………………………………… 85
Risk Management System………………………………………… 91
Compliance System…………………………………………………… 95
Communication with Our Shareholders andInvestors……………………………………………………………………… 97

Yamaguchi Financial Group, Inc., has created the“YMFG
Integrated Report 2023”in order to help our stakeholders gain
an understanding of our efforts towards sustainable value
creation. In the compilation of this report, we have referred tothe“International Integrated Reporting Framework”managed by
the IFRS Foundation, the“Guidance for Integrated Corporate
Disclosure and Company-Investor Dialogues for Collaborative
Value Creation”published by the Ministry of Economy, Tradeand Industry, etc.
It should be noted that although thisreport does contain statements
concerning future performance, thesedescriptions do not represent guarantees
for future performance, and actual
performance may be different to thesestatements due to changes in the businessenvironment, etc.

YMFG Integrated Report 2023

16

Management Letter

Business Strategy
for Value Creation

About YMFGPower Supporting Value
Creation

History of YMFG
We are striving every day for the region and for the creation of a future, based on“a sound and proactive

YMFG Medium-Term Management Plan 2022

enterprising spirit”that has been passed down over the course of our long history of over 140 years.

Aim to“improve the sustainabilityof our region”and to“build asustainable business model for
YMFG”

We are supporting the development of the region from a variety of perspectives by connecting Yamaguchi,
Hiroshima and Northern Kyushu with the wide area network and using the Group’s comprehensive strengths,
and we are jointly creating a sustainable future for our customers and region.

Realizing management integrationahead of industry

This world. This town. And me.

In recent years, while there have been a large number ofmanagement integrations at regional banks, in 2006, The Yamaguchi
Bank, Ltd. and Momiji Holdings, Inc. (the holding company of Momiji
Bank, Ltd.) completed a management integration ahead of theindustry, resulting in the establishment of YMFG. Furthermore, The
Kitakyushu Bank, Ltd. was established in 2011, resulting in theconstruction of the current three-bank system. We are always at theforefront of the industry.

Yamaguchi Financial Group, Inc.
(current head office of The Yamaguchi Bank, Ltd.)▪Established Data Qvic Inc.

▪Established YM
Securities Co., Ltd.
▪Established YM Saison
Co., Ltd.

2006

2007

▪Established Yamaguchi
Financial Group, Inc.
▪Listed on the First
Section of the Tokyo
Stock Exchange

2009▪Changed the tradename of▪Established YMFG
Momiji Consulting
ZONE PLANNING
Corporation to YM
CO., LTD.
CONSULTING CORPORATION▪Started operation of The
Kitakyushu Bank, Ltd.

2014

2011

▪Acquired all issued sharesof Izutsuya Withcard
Company Limited▪Made YM Lease Co.,
Ltd., a consolidated
subsidiary

The Hyakuju National Bank, Ltd., the predecessorof The Yamaguchi Bank, Ltd. which is the origin of
Yamaguchi Financial Group, Inc., was founded in
1878.

1944 Founded The Yamaguchi Bank, Ltd.

17

Former head office of The Yamaguchi
Bank, Ltd.

2019

2020

2021

2023

2022

▪Established INESUS Inc.
▪Established Nishiseto
Marine Partners Inc.

▪Established YM Career Inc.

2015

1878 Founded The Hyakuju National Bank, Ltd.

(The merger of five banks: The Hyakuju Bank, Ltd.,
Kaho Bank, Ltd., Senjo Bank, Ltd., Oshima Bank,
Ltd., and Ube Bank, Ltd.)

2016

2018

▪Established Nishiseto
Regional CO-creation
Servicer Inc.

▪Made YAMAGUCHICAPITAL Co., Ltd.,Regional Trading
Company YamaguchiCo., LTD., KAIKA
Corporation andBankers Farm Inc.
subsidiaries▪Established YM AssetManagement Co., Ltd.
▪Established YM Life
Planning Co., Ltd.

▪Made YM Lease
Co., Ltd.,YAMAGINCARD
CO., LTD. andMomiji Card, Inc.
wholly owned
subsidiaries

Head office of Momiji Bank, Ltd.

Head office of The Kitakyushu Bank, Ltd.

1923 Established Hiroshima Mujin, Ltd.
1951 Converted to a sogo bank, and changed the trade name2010 Established Kitakyushu

to Hiroshima Sogo Bank, Limited.
1989 Converted to a commercial bank, and changed thetrade name to Hiroshima-Sogo Bank, Ltd.
2001 Established a holding company, Momiji Holdings, Inc.,
through stock transfer
2004 Merged with Setouchi Bank Ltd., and changed the tradename to Momiji Bank, Ltd.

Financial Project Co., Ltd.

2011 Changed the trade name to
The Kitakyushu Bank, Ltd.,and started its operation

YMFG Integrated Report 2023

18

Management Letter

About YMFGBusiness Strategy
for Value Creation

Power Supporting Value
Creation

YMFG Overview
YMFG has established a system for responding to the broad needs ofThis world. This town. And me.

the region and customers through the unification of various group

Yamaguchi Financial Group, Inc.
Head Office Address
Date of Establishment
Capitalcompanies, including the three core banks.

2-36, 4-chome Takezaki-cho, Shimonoseki
October 2, 2006
¥50.0 billion(As of July 1, 2023)

Banking businessNetworks in Japan:
125 branch offices
Networks in overseas:
3 branch offices,
1 representative office
Networks in Japan:
104 branch offices
Networks in Japan:
37 branch offices

Insurance agent and bank agent business

Various consulting businesses

HOKEN HIROBA, LTD.

YM CONSULTING CORPORATION

Credit card business

Investment fund operation businessIzutsuya Withcard Company Limited

Securities business

YM Saison Co., Ltd.

YM Securities Co., Ltd.

YAMAGINCARD CO., LTD.
Momiji Card, Inc.

Research on regional issues andconsulting business
YMFG ZONE PLANNING CO., LTD.

Nishiseto Regional CO-creation Servicer Inc.

Support for the development of the ship
finance businessNishiseto Marine Partners Inc.

Lease business
YM Lease Co., Ltd.

Real estate leasing business
Other two Group companies

Investment advisory and agency business
YM Life Planning Co., Ltd.

YAMAGUCHI CAPITAL Co., Ltd.

Receivables management andcollection business

Investment management business
YM Asset Management Co., Ltd.

Welfare agency business

INESUS Inc.

Credit guarantee business
YM Credit Guarantee Co., Ltd.

Cloud funding businessDX consulting businesses

KAIKA Corporation

Data Qvic Inc.

Business relating to agricultural management

19

Paid employment referral business

Wholesale and retail of regional products

YM Career Inc.

Regional Trading Company
Yamaguchi Co., LTD.

Bankers Farm Inc.

YMFG Integrated Report 2023

20

Management Letter

Business Strategy
for Value Creation

About YMFGPower Supporting Value
Creation

Value Creation Process

VisionPurposeCo-creating a bountiful future for our region
External
Environment
Declining
population
Declining birthrate
and aging population

Intellectual
capitaleveryone in the region, we contribute to therealization of a sustainable society by working

on the resolution of various issues andimproving the value of the region, through ourvarious business activities.

Sustainable virtuous cycle through sustainability management

Priority items of the Medium-Term Management Plan 2022

Sustainablegrowth of
the Group’sbusinesses

Promotion of regional co-creation sustainability management

Human capital

Financial
capital21◦Business revitalization and regrowth◦Revitalization of the regional economy◦Shift from savings to investment

Promotion of the active participation of the Group’s human assets
Enhancementof activities
for value
improvement

Expansion ofbusiness
opportunities

COVID-19

International
affairs

Social and environmental value◦Business succession

DX

Climate change

OutcomeIn order to progress and grow together with

Industry
creation

Lifestylechanges

OutputGroup Sustainability Policy

Corporate
growthLack ofsuccessors

Activity &Input

A regional value-up corporate group that is chosen
by our region and responds to the trust of our region

assets and creation of new value
Pursuit for the“maximization of value provided to our region and customers”

Challenge to“expand business areas and strengthen profitability”

Improvement ofenvironmental
and social
sustainability◦Active participation of diverse humanStrengthening of the governance and internal control system◦Realization of carbon neutrality

Economic value◦ROE 5％

◦Adjusted OHR 

Around 60%(excluding gain on cancellation of investment trusts)◦Dividend payout ratio  Around 40%

Four themes for materiality initiatives
Social andrelationshipcapital

Initiatives for revitalizationof local community andeconomies

Initiatives for the job
satisfaction of all
officers and employees

Initiatives for thepreservation of theenvironment

Initiatives for building
a solid managementfoundation

YMFG Integrated Report 2023

22

Management Letter

About YMFGBusiness Strategy
for Value Creation

Power Supporting Value
Creation

Characteristics of the Sales Area - Yamaguchi, Hiroshima, and Northern Kyushu Yamaguchi Prefecture, Hiroshima Prefecture and Northern Kyushu, YMFG’s sales areas, havedeveloped industrial infrastructure and are blessed with an abundance of tourism resources.
Geographically, they are located close to China and Korea, and have potential to become
industrial zones that have an eye towards the future.
On the other hand, one of the issues is the aging of the population progressing at a level
above the national average. In addition, there is also an issue of high CO2 emissions due to theindustrial structure where the manufacturing industry is concentrated. We contribute to thesustainable development of the region by earnestly facing these regional issues and aiming toresolve them.

Location and infrastructure◦Convenient transportation with urban
areas to both the east and west
Located between the cities of Hakata in
the west and Hiroshima in the east, bothcan be accessed in about 30 minutes by
Shinkansen (bullet train) from the centerof the prefecture◦Well-developed shipping infrastructure
Surrounded by the sea on three sides, it
has among the best shipping
infrastructure in Japan, including theinternational hub ports of Shimonoseki
Port and Tokuyama-Kudamatsu Port,and four other important ports

Yamaguchi Prefecture
Population

1.34 million people (27th in Japan)

Gross prefectural domestic product¥6,350.5 billion (25th in Japan)

Yamaguchi Prefecture

Prefectural income¥4,407.4 billion (25th in Japan)(Industrial structure)
・The primary industries are basic material industries such as steel, oil and chemical products
・Value of manufactured goods shipments per establishment is the highest in Japan◦Community school introduction 100%
All schools in the prefecture haveintroduced community schools thatreflect the voices of the region in school
management, enabling the creation ofunique schools in collaboration with theregionRegional issues◦Successor absence rate
65.3% (8th in Japan / national average 57.2%)(2022/“Successor Absence Rate Trends Survey”by TEIKOKU DATABANK, Ltd. (TDB))◦CO₂ emissions / CO₂ emissions per population
26,624,000 t-CO₂ (13th in Japan) / 19,605,000 t-CO₂ (3rd in Japan)(Estimates by the Company based on“Estimates of CO₂ Emissions by Sector”by the
Ministry of the Environment and“Statistics of Japan 2019”by the Ministry of Internal
Affairs and Communications)◦Average annual growth rate of gross prefectural domestic product(2011 to 2019)+1.0% (31st in Japan / national average: +1.3%)“Prefectural(
Accounts 2011 to 2019 (current prices)”by the Cabinet Office)◦Average annual growth rate of population (2005 to 2021)-0.7% (38th in Japan / national average: -0.1%)(Prepared by the Company based on“Population Estimates”on e-Stat)

Hiroshima Prefecture
Location and infrastructure◦Hiroshima City, the core city of Chugoku
and Shikoku
With a population of 1.2 million people,
it is the largest city in Chugoku andShikoku, and it is a core city with many
major companies based in Hiroshima
Prefecture

Fukuoka Prefecture (Kitakyushu City)
Population
5.14 million people (9th in Japan)(Of which, Kitakyushu City: 940,000 people)

Gross prefectural domestic product¥19,942.4 billion (9th in Japan)(Of which, Kitakyushu City: ¥3,812.0 billion)

Prefectural income¥14,573.1 billion (9th in Japan)(Of which, Kitakyushu City: ¥2,585.3 billion)(Industrial structure)
・Kitakyushu is the city where modern ironmanufacturing in Japan began, and in
addition to material industries,
processing-related industries, including
non-metallic and metallic products, generalmachinery and other products, are the mainindustries

Hiroshima Prefecture
Population
2.8 million people (12th in Japan)

Prefectural income¥8,869.1 billion (12th in Japan)(Industrial structure)
・Shipbuilding, transportation machinery
such as automobiles, steel, andproduction machinery are the mainindustries
・The Nishiseto region, which includes
Hiroshima Prefecture, is one of the leading
concentrations of maritime industry
businesses in Japan◦CO₂ emissions / CO₂ emissions per population
44,031,000 t-CO₂ (7th in Japan) / 15,703,000 t-CO₂ (5th in Japan)(Estimates by the Company based on“Estimates of CO₂ Emissions by Sector”by the
Ministry of the Environment and“Statistics of Japan 2019”by the Ministry of Internal
Affairs and Communications)◦Average annual growth rate of gross prefectural domestic product(2011 to 2019)＋0.7% (42nd in Japan / national average: +1.3%)“Prefectural(
Accounts 2011 to 2019 (current prices)”by the Cabinet Office)◦Percentage of businesses closed or dissolved
3.0% (31st in Japan / national average: 3.7%)(2021/“Business Closing and Dissolution Trends”by TDB)◦The proportion of securities in the financial asset balance perhousehold9.8% (35th in Japan / national average: 16.0%)

Gross prefectural domestic product¥11,969.1 billion (12th in Japan)(Population: according to“2020 Population Census”by the Ministry of Internal Affairs and Communications. Gross prefectural
domestic product and prefectural income: according to“Prefectural Accounts 2019”by the Cabinet Office *at current prices)23◦Abundant tourist resources
It boasts two World Heritage sites, theHiroshima Peace Memorial (Genbaku
Dome) and Itsukushima Shinto Shrine,
making it rich in tourism and inboundresources.

Regional issues(2019/“National Survey of Family Income, Consumption and Wealth”by the Ministryof Internal Affairs and Communications)

Fukuoka Prefecture (Kitakyushu City)
Location and infrastructure◦Kitakyushu City, the“Gateway to
Kyushu”
As one of the cities designated byordinance, it plays a role as the“gateway to Kyushu”with its welldeveloped land, sea and airtransportation infrastructure◦Became the first city in Asia to be
designated a“global model city forpromoting SDGs”in 2018

Regional issues◦CO₂ emissions / CO₂ emissions per population
38,075,000 t-CO₂ (11th in Japan) / 7,460,000 t-CO₂ (22nd in Japan)(Estimates by the Company based on“Estimates of CO₂ Emissions by Sector”by the
Ministry of the Environment and“Statistics of Japan 2019”by the Ministry of Internal
Affairs and Communications)(Of which, Kitakyushu City: 14,466,000 t-CO₂) (according to website of the Kitakyushu
City office)◦Successor absence rate
60.2% (17th in Japan / national average: 57.2%)(2022/“Successor Absence Rate Trends Survey”by TDB)

◦Percentage of businesses closed or dissolved
3.1% (28th in Japan / national average: 3.7%)(2021/“Business Closing and Dissolution Trends”by TDB)YMFG Integrated Report 2023

24

About YMFGManagement Letter

Business Strategy
for Value Creation

Power Supporting Value
Creation

Source of Competitive Advantage

Strengths of YMFGIntellectual capital

Financial capital<New brand communication>
We are communicating more actively than everbefore to share with all our stakeholders theaim of the Group and uniqueness of YMFG,
based on our brand slogan. As part of these
efforts, through the brand communication
book, we introduce the“bountiful future for our
region”that YMFG envisions by discovering andconveying the infinite possibilities and new
attractions of the region.

Consulting

Regional
revitalization

Regional trading
companyHumanassetsSecurities
Insurance

Agriculture

Bank

Card

Welfare<Comprehensive strength of the Group>
The Group is a comprehensive financial group
centered on banks. In order to respond to thebroad needs of the region and customers, wehave established a system that enables us toprovide solutions that go beyond theframework of finance by leveraging the knowhow of our more than 20 subsidiaries andassociates, including non-financial businesses.

Cloud funding

Lease
Servicer

VC

Total equity ratio

14.35%
Total assets

12,211.6 billion¥

Non-performing loan ratio

1.54%(As of March 31, 2023)<Sufficient equity capital and sound assets>
With the stable funding structure based on its
top class level of assets among regional banks
and a robust financial foundation, the Group
responds to the financial needs of its customers
as a regional financial infrastructure. In addition,
it aims to grow with the region through thestrategic use of capital such as the expansionof business domains supporting the growth ofregional companies and investments and loans
in areas that contribute to improved
profitability.

Social and relationship capital
Loan share

Deposit share

Yamaguchi
Prefecture

42 %

46 %

Hiroshima
Prefecture

22 %

22 %

Kitakyushu
City

14 %

10 %

<Solid customer base>
The Group has built a solid customer base, as it
holds the top share in Yamaguchi Prefecture
and the second-largest share in Hiroshima
Prefecture, and is the only regional bank with
its head office in Kitakyushu City.

(As of March 31, 2023) (Created based on clearinghouse exchange figures)

Human capital<Diverse human assets>
The Group’s diverse human assets who embody our cherished values, which are“futureoriented,”“coexistence-oriented,”and“region-oriented,”support our regional andcustomer-oriented business activities. In October 2022, we shifted to a block sales
system, and by strengthening collaboration and sharing information and know-how withinblocks, we demonstrate specialized proposal and issue-resolving abilities, enabling ourhuman assets to perform at their best, and provide swift and high-quality solutions.
Number of employees

Professional humanassets*1

3,797 people

212 people(As of March 31, 2023)

25

Hiring of experienced
personnel

31 people(1.6 times compared to theprevious year)

Diverse human assets*2
Ratio of employees inmanagement positions

9.0％(1.5 times compared to theprevious year)*1 SME Consultants, 1st-grade Certified Skilled Professionals of Financial Planning*2 Females, foreigners, experienced hires, alumni, staff with side jobs, and people withexperience of external secondments

Networks inJapan: 104
branch offices

Networks inJapan: 125
branch offices
Networks inoverseas: 3
branch offices, 1
representative
officeOverseas branches and offices
・Busan Branch
・Dalian Branch・Tsingtao Branch・Hong Kong
Representative Office<Three regions with different characteristics>
The Group has a wide-area network based on
Yamaguchi Prefecture, Hiroshima Prefecture
and Northern Kyushu, each with different
characteristics, and conducts businesses
centered on three banks in each region. In
addition to the horizontal deployment of theexperience and know-how gained in eachregion, by leveraging the hub function within
the wide-area network, it plays a role in cocreating new value with the regions.

Networks inJapan: 37
branch offices

YMFG Integrated Report 2023

26

Business Strategy
for Value Creation

About YMFGManagement Letter

Power Supporting Value
Creation

Materiality
STEP

01 Select ESG issues

Materiality identification process
YMFG has identified the ESG issues,“materiality,”as issues that should be particularly focusedon, in order to contribute to the realization of a sustainable society. Through our businessactivities, we will actively work on the resolution of the following 12 items of materiality.

Select ESG issues
comprehensively frominternational guidelines,
etc.
◦SASB Standards◦SDGs◦ISO12000◦GRI Standards, etc.

STEP

02 Determination oflevel of importance

Organize the level ofimportance of ESG issues
by mapping based on
the two axes of (1) levelof importance for society
and stakeholders and (2)level of importance for
the Group

STEP

03 Identificationof materiality

Conduct a survey of
employees andoutside Directors, andidentify 12 items ofmateriality andinitiative themes
based on materiality

STEP

04 Discussion and decisionat the management level

Discuss the identified
materiality by top
management level atthe Executive
Management Meetingand meeting of theBoard of Directors,
and decide materiality

Materiality
Materiality

Reasons for materiality selection

Priority items

Outcomes (figures are cumulative for FY2024/2025)

Initiatives for the preservationof the environment

Environmental conservation efforts such as resource conservation andthe utilization of new energy, responding to climate change, andrealizing carbon neutrality are global issues, and are also critical in the
Company’s main areas where secondary industry bases areconcentrated. As a leading company in the region, we need to takethe initiative and involve our customers in these efforts.

<Priority Item I>
Promotion of regional
co-creation sustainability
management▶ P.39Realization of carbon neutrality◦The Group’s CO₂ emission reduction for Scope 1 and Scope 2: Decreased by 2,324
t-CO₂ (compared to FY2022)◦Customers that have advanced their decarbonization efforts: at least 315 customers

Initiatives for the job
satisfaction of all officers andemployees

The driving force and source of efforts of the Company are all“people”
and“employees,”and creating an environment and opportunities
where employees can actively participate is essential for the“maximization of value provided to our region and customers”and“creation of new value.”It is necessary to develop employees andimprove the environment to promote the active participation ofdiverse human assets regardless of gender, age, background, etc.

<Priority Item II>
Promotion of the active
participation of theGroup’s human assets▶ P.51

Active participation of diverse human assets and creation of new value◦Overall employee satisfaction: 3.70 points or higher◦Satisfaction with supervisors: 3.80 points or higher◦Employee interest (in creativity): 25.0% or higher◦Employee interest (in diversity): 50.0% or higher◦Ratio of diverse human assets in management positions: 13.0% or higher◦Ratio of females in management positions: 7.0% or higher◦Male childcare leave acquisition rate: 100%

Initiatives for revitalization of
local community andeconomies

Solving various regional issues is one of the roles required of a leading
regional company. In order to respond to the declining population,
declining birthrate and aging population, and to revitalize the regional
economy through the growth of regional industries, it is necessary toinnovate within the region, utilize the Company’s network as a hub
function among regional communities, and work towards enhancing
regional value.

<Priority Item III>
Pursuit for the“maximization of value
provided to our region
and customers”▶ P.61Business succession◦Customers that started addressing the“successor absence issue”: at least 427
companies
Business revitalization and regrowth◦Customers that embarked on“business revitalization and regrowth”: at least 72
companies
Revitalization of the regional economy◦Contribution to the regional economy by businesses created through regional
revitalization consulting activities: at least ¥6.0 billion◦Population inflow to the region through the regional co-creation business: at least
736 people◦Customers that used the affiliated stores of the welfare services provided by YMFG /the number of times: at least 15,000 people / at least 110,000 times◦Amount of funds returned to the region due to the expansion of regional productsales channels: at least ¥1.2 billion
Shift from savings to investment◦Net increase in customers’assets under custody (investment trusts): at least ¥83.7
billionBased on“a sound and proactive enterprising spirit”as the
management policy, in order to achieve sustainable growth andimprove the medium- to long-term corporate value throughtransparent, fair, swift and decisive decision-making in management, itis necessary to continuously work on enhancing corporate governance,such as establishing an effective corporate governance system.

<Priority Item V>
Strengthening of thegovernance and internal
control system▶ P.73(1) Respond to the conservationof resources, and energy
saving and creation(2) Respond to air pollution andclimate change(3) Develop environmentallyfriendly products andservices(4) Cultivate human resources
and create training
opportunities(5) Create a safe and secure work
environment(6) Active participation of diverse
human resources (diversity
and inclusion)(7) Respond to the declining
population, declining
birthrate, and aging
population(8) Create innovation in theregion and support thegrowth of local industries(9) Strengthen cooperation withthe local community(10) Improve the safety andquality of products andservices

Initiatives for building a solidmanagement foundation(11) Strengthen the governanceand internal control system(12) Improve transparency andaccountability ofmanagement

27<Priority Item IV>
Challenge to“expand
business areas andstrengthen profitability”▶ P.67

Efforts towards enhancing corporate governance◦Efforts to secure the substantive rights of shareholders, create an environment where
shareholders can exercise their rights appropriately, and secure the substantive
equality of shareholders◦Appropriate cooperation with our principal stakeholders, including customers, thelocal community, shareholders and employees◦Appropriate disclosure of important management-related information to principal
stakeholders◦Efforts to ensure the effectiveness of the supervisory and auditing functions of thebusiness execution through the establishment of various bodies, including the Boardof Directors◦Creation of systems that promote constructive dialogue aimed at building a long-term
relationship with shareholders

YMFG Integrated Report 2023

28

About YMFGManagement Letter

Financial Highlights¥

Net income attributable to owners of the parent

35.8 billion¥*As of March 31, 2023

Sustainable finance execution amount17.8 billion

FY2021

FY2022

FY2022

FY2023

2

Male childcare leave acquisition rate

Male childcare leaveacquisition rate

9.0 %

OHR

Ratio of females inmanagement positions

Total equity ratio

14.35 %

63.1%¥

13,452 t-CO

* Total in Scope 1 and Scope 2

Ratio of diverse human assets
in management positions

FY2023■■Expenses

CO₂ Emissions¥232.8 billion

Promotion of the active participation of diverse human assets

Expenses / OHR

61.3 billion

16.3 %

4.5 %Employee engagement

Composition of the Board of Directors

Employee satisfaction

FY2022

FY2023

Average loan balance

FY2021

FY2022

FY2023

Average deposit balance

External assessments

10,422.6 billion

8,357.6 billion¥¥

Femaledirectors
3 out of 11

Outsidedirectors
6 out of 11

3.57 points

FY2021

Power Supporting Value
Creation

Non-financial Highlights

Business profit from core operations(excluding gain on cancellation of investment trusts)

FY2021Business Strategy
for Value Creation

2023 Certified Health & Productivity Management Outstanding Organization

Rating information
Yamaguchi Financial Group, Inc.

A

(Stable)29

FY2022

FY2023

FY2021

FY2022

FY2023A

A+ (Stable)

BBB

Momiji Bank, Ltd.

B

BB

A+ (Stable)
FY2021Creditlevel

CCC

Rating and Investment Information, Inc. (R&I)*As of May 2, 2023

High

AA

The Yamaguchi Bank, Ltd.

DX Certification

AAA

CC
D

Low

YMFG Integrated Report 2023

30

Business Strategy
for Value Creation

About YMFGManagement Letter

Power Supporting Value
Creation

Message from General Manager of the Corporate Administration Group▪Results for the fiscal year ended March 31, 2023 (consolidated)(Billions of yen)

Fiscal year ended
March 31, 2023

Core gross business profits

Executive Officer
General Manager of the Corporate
Administration Group

Kenichiro Okuda

Year-on-year

100.7

(8.0)

87.6

0.8

82.1

16.2

16.7

(5.8)

3.4

(8.7)

16.7

(0.2)

Net interest income
Of which interest on deposits, andloans and discounts
Of which interest and dividends on
securities
Of which gain on cancellation of
investment trusts
Net fees and commissions
Expenses (excluding temporary treatment portion)

61.3

(2.3)

Business profit from core operations
Excluding gain on cancellation of investment
trustsOrdinary profits

39.3

(5.7)

35.8

3.0

25.6

33.3

Extraordinary income or loss

0.9

(1.1)

Net income attributable to owners of the parent

17.8

30.8

Credit-related expenses

6.4(15.7)

Expenses (including temporary treatment portion)

61.1

0.5

Securities investment income

3.1

17.3

14.35

1.7

Total equity ratio (%)▪Causes of changes in ordinary profits for the fiscal year ended March 31, 2023
[Three banks total]
Pure investment department(income gain)-2.0
Pure investment department(capital gain)+11.6
Cross-shareholdings-related income+7.7

We will appropriate financial and capital operations that can
respond to changes in the business environment for thesustainable growth of YMFG.
Performance review for the fiscal
year ended March 31, 2023
We have positioned the“YMFG MediumTerm Management Plan 2022,”which theentire YMFG Group is currently working on,
as a“three year period to push forward with
regional and customer-oriented businessactivities as‘Team YMFG,’towards the
improved sustainability of our region and
YMFG.”In addition, as we work towards“improving the sustainability of our region”
and“building a sustainable business modelfor YMFG,”we have decided the five priority
items of the“promotion of regional cocreation sustainability management,”“promotion of the active participation of theGroup’
s human assets,”“pursuit for the‘maximization of value provided to ourregion and customers,’”“challenge to‘expand business areas and strengthen
profitability,’”and the“strengthening of thegovernance and internal control system,”and are engaged in these items.
31

In the fiscal year ended March 31, 2023,
the first year of the“YMFG Medium-Term
Management Plan 2022,”in addition to theimpact of COVID-19, we faced operational
challenges such as the deteriorating
situation between Russia and Ukraine, rising
raw material prices, and fluctuations ininterest rates and exchange rates. However,as a Group, we implemented the measures
set out in our medium-term management
plan. As a result, as for the consolidated
financial results,“business profit from core
operations (excluding gain on cancellation of
investment trusts),”which indicates the
profitability of our core business, increasedby ¥30 billion year on year to ¥358 billion,
mainly due to increased interest on loans
and discounts denominated in foreign
currencies and cost reductions. Ordinary
profits were ¥25.6 billion, and net income
attributable to owners of the parent was¥17.8 billion. Both achieved the first-yearplan set out in the medium-term
management plan, enabling a strong start.

Fiscal year
ended
March 31,
2022

-7.6

[Three banks total]Interest on loans
and discounts+0.0Interest on deposits
+0.1

+0.1

Derivatives
for customers[Three banks total]+0.5Interest on loans
Dividends from groupand discounts
credit life insurance for+18.2
housing loans
Interest on deposits
+0.4
-2.1
Net fees
Foreign currency
and commissions
funding cost
-0.2
-14.8

+1.5

Income from
Income fromloans denominated loans denominatedin Japanese yen in foreign currencies+0.6Service-related
incomeManagement Plan for FY2024
In the“Management Plan for FY2024,”as amid-fiscal year of the“three year period topush forward with regional and customeroriented business activities as‘Team
YMFG,’towards the improved sustainabilityof our region and YMFG,”we will focus on
the impacts on society and environment(outcomes) and aim for a trade-on between“resolving regional issues (social andenvironmental issues)”and“corporate
profits.”We have selected six regional
issues (social and environmental issues)that need to be resolved: (1)“sustainablegrowth of corporate customers facing the‘successor absence issue,’”(2)“re-growthof corporate customers‘toward the post-+17.3
Securities
investment income(Unit: Billions of yen)

Personnel expenses+1.0
Non-personnel
expenses
+1.3

-4.4
+15.7

Other

Temporary personnel
expenses-2.9(Foreign exchange) gains
or losses on investments
Credit expenses
in capital of overseas
branches
Expenses
General allowance-1.2
for loan losses(excluding temporary
Gains or losses on+7.3
treatment portion)
Speciﬁc allowance investments (in capital)-0.1
for loan losses, etc.
Interest on+8.4
deposits with banks
-0.3

+2.3

25.6

Fiscal year
ended
March 31,2023

coronavirus era,’”(3)“decline in economic
vitality in the region due to market
contraction and reduction of management
resources,”(4)“promotion of a shift fromsavings to investment and improvement offinancial literacy,”(5)“active participationof diverse human assets and creation of
new value without being bound by
precedent or customary practices,”and (6)“realization of carbon neutrality in theregion at an early stage,”and we will workin unison to address these issues.
For the fiscal year ending March 31,
2024, we forecast ordinary profits of ¥35.0
billion, up ¥9.3 billion year on year, and net
income attributable to owners of the parentof ¥24.0 billion, up ¥6.1 billion year on
year. The main reasons for the increase inprofits year on year were the“securities
YMFG Integrated Report 2023

32

Business Strategy
for Value Creation

About YMFGManagement Letter

Power Supporting Value
Creation

Message from General Manager of the Corporate Administration Groupinvestment business”and“credit expenses.”In the securities investment business, wesold ¥385.0 billion in securities in the fiscal
year ended March 31, 2022, mainly foreign
bonds and stock investment trusts, whichhave unrealized losses. In addition,
considering the market environment in thefiscal year ended March 31, 2023, we
adopted a risk-averse approach toinvestment, leaving us with ample risktaking capacity, and for the current fiscal
year, we aim to actively take on risks,
focusing on Japanese yen interest rates, tosecure stable income gain. Regarding credit
expenses, in the fiscal year ended March
31, 2022, we set aside provisions inadvance, including a total of ¥17.6 billion

for an additional allowance for business
partners requiring special attention for
future development and a precautionary
allowance for the portfolio affected by
COVID-19. In the fiscal year ended March
31, 2023, we also recorded credit expensesof ¥6.4 billion. Accordingly, we have alreadyrecorded ample allowances, with the
expectation of these amounts remaining
low in the future. However, given theuncertainties in the future economic
climate, we intend to focus as a Group on
one of the current fiscal year’s key themes,“revitalization and growth support forregional companies,”to prevent thedeterioration of our business partners’
performance.

▪Securities investment business (pure investment)
Average balance of pure investment*1(Billions of yen)

FG ConsolidatedCore gross business profits
Net interest income
Of which interest on deposits, and loans
and discounts
Of which interest and dividends on
securities
Of which gain on cancellationof investment trusts
Net fees and commissions[Fiscal year ended March 31, 2023]
Executed loss cuts primarily
for foreign bonds and curbed
the balance of foreign bonds

1,543.7
195.5
180.3
213.8

[Fiscal year ending March 31, 2024]
Aim to improve investment yield bybuilding up the balance, primarily inJapanese yen bonds

1,471.4

1,414.9

230.5
128.3
320.1

(0.8)

79.9

(7.7)

92.9

10.7

18.2

1.4

0.0

(3.4)

19.3

2.5

64.0

2.6

Business profit from core operations

35.8

(3.4)

35.8

0.0

Ordinary profits

35.0

9.3

Net income attributable to owners of the parent

24.0

6.1

Credit-related expenses
General and administrative expenses (including temporary treatment
portion)

2.5

(3.9)

64.2

3.1

Securities investment income

10.8

7.7

1,144.6[Three banks total]Interest on loans
and discounts+11.6Interest on deposits-1.9
Foreign currency
Income from
Service-related
funding costloans denominated-10.1
incomein Japanese yen

+1.2

25.6

[Three banks total]Interest on loans
and discounts+1.2
Interest on deposits+0.0

Fiscal year
ended
March 31, 2023

33

-0.7

Income fromloans
denominatedin foreign
currencies+1.0

Derivatives
for customers-1.4
Dividends from groupcredit life insurance
for housing loans-0.3
Net feesand commissions
+2.6

＋7.7
Securities
investment
incomeGeneral allowance
for loan losses-1.9
Speciﬁc allowance
for loan losses, etc.
+5.9

-2.6

Personnel
expenses-0.7
Non-personnel
expenses-1.8

Expenses(excluding temporary
treatment portion)＋3.9
Creditexpenses

124.5

203.3

105.4

86.9

907.3

Fiscal year ended
March 31, 2021

Fiscal year ended
March 31, 2022

Fiscal year ended Fiscal year ending
March 31, 2023
March 31, 2024

-1.1

0.50％

0.29％

0

-0.52%-1.06%

Fiscal year ending
March 31, 2024

▪Approach to improvement of ROE▪Examples of specific efforts
Strengthen proﬁtability/allocate resources in growth areas
Aim to improve RORA based on net income

RORA

Risk-weighted assets

ROE

Temporary personnel
expenses-0.5
Interest on
deposits with banks-0.3

Risk-weighted
asset leverage

Net income
Equity capital(for accounting purposes)
Net income
attributableto owners of
the parent

24.0

Fiscal year
endingMarch 31, 2024

Fiscal year ended
March 31, 2023

I would like to share YMFG’s approach andspecific examples of efforts to increase ROE
over the medium to long term.
To increase the ROE over the medium tolong term, we break down ROE into“Return(Unit: Billions of yen)

35.0

Fiscal year ended Fiscal year ended
March 31, 2021
March 31, 2022

on Risk-Weighted Assets (RORA)”and“adjusted risk-weighted asset leverage,”
and we aim to enhance RORA and apply
appropriate financial leverage.
To increase RORA, it is necessary tostrengthen profitability and allocate
management resources in growth areas,
and we are working on efforts such as
review of business portfolio and asset

Towards the improvement of
ROE

Net income
Other

0.33％

0.36％

Total proﬁt andloss yield

707.7▪Causes of changes in ordinary profits for the fiscal year ending March 31, 2024
[Three banks total]
Pure investment
department (income gain)+3.7
Pure investment department(capital gain)+9.3
Cross-shareholdings-related income
-5.2

277.7

146.7

792.5

0.57％

Income gain*2
yieldYear-on-year

99.8

Expenses (excluding temporary treatment portion)
Excluding gain on cancellation of investment trusts*2 Domestic and foreign bond interests (after taking hedging into account) +investment trust dividends + funding costs (-)*1 Investment position by risk category (internal management basis including derivatives, etc.)

954.1▪Performance forecast for the fiscal year ending March 31, 2024 (consolidated)

Securities investment business (pure investment) yield■■ Domestic interest rate ■■ Foreign interest rate
(Billions of yen)■■ Domestic and foreign stocks ■■ Foreign exchange, REIT, multi-asset

Fiscal year
endingMarch 31, 2024

Risk-weighted assets

Adjustedrisk-weighted
asset leverage
Risk-weighted assets
Equity capital(for accounting purposes)

Equity capital(for regulatory purposes)

Equitycapital ratio

Review of business portfolio

Allocationof human resources

Asset allocation

Improvementof service income

Capital policies/capital allocation

Apply appropriate leverage while considering
the total equity ratio target
Strategic capital utilization

Dividends

Tier 2 capital utilization

Flexible acquisitionof treasury shares

Equity capital(for regulatory purposes)
Equity capital(for accounting purposes)

YMFG Integrated Report 2023

34

About YMFGManagement Letter

Business Strategy
for Value Creation

Power Supporting Value
Creation

Message from General Manager of the Corporate Administration Group

allocation, and improvement of service
income. In June 2023, we established the“Structured Finance Office”in Tokyo tostrengthen the highly profitable field ofstructured finance. With regard to theappropriate application of financial
leverage, we are implementing capital
allocation (organic growth, inorganic
growth and return to shareholders) whileconsidering the total equity ratio target. In
the fiscal year ended March 31, 2023, four
subsidiaries, YAMAGUCHI CAPITAL Co.,
Ltd., YM Lease Co., Ltd., YAMAGINCARD
CO., LTD., and Momiji Card, Inc., weremade wholly owned subsidiaries, ensuringthat 100% of the profits that werepreviously flowing outside the Group are
now captured within the Group.
Additionally, we issued ¥22.4 billion ofBasel III-compliant Tier 2 subordinatedbonds to improve capital efficiency.
In regard to return to shareholders, inthe“YMFG Medium-Term Management Plan
2022,”we aim for a dividend payout ratioof around 40% and flexible acquisitions oftreasury shares. In the fiscal year ended
March 31, 2023, we realized the promised
dividend payout ratio of 40%, and the total
return amount exceeded ¥17.0 billion, an
increase from the previous fiscal year. We
have announced the acquisition of ¥10.0

Results

Total equity
ratio＋2.1% 14.35%

In regard to cross-shareholdings, we will
not take out new holdings unless there is avalid reason for such holding from theperspective of the appropriateness of the

Outlook (image)Target dividend
payout ratioof around 40%

While considering theCompany’s corporate
strategy, external
environment, etc., it will
manage capital whilebalancing return toshareholders, organic
areas and inorganic
areas

OrganicProﬁtaccumulation
Return toshareholders
Total equity
＋0.3%
ratio
12.65%

Subordinatedbond issuance

Organic
－0.3%
－0.3%

Changes in valuation
diﬀerences on
securities(including deferredgains or losses onhedges)

As of March 31,
2022 (Results)

35

Inorganic

＋0.4%

－0.3%

We also utilize Tier 2－0.2%

Medium-term
capital as a buﬀer
management plan target
Total equity ratio
Buﬀer during
Around 12%

Inorganic

times of stress

Return to shareholders

As of March 31,
2023 (Results)

Policy on returnto shareholders

・Dividend payout ratio of around 40%
・Flexible and prompt acquisition of treasury shares, considering market trends, earnings forecasts, etc.

Annual dividend / share and dividend payout ratio
Dividend payout ratio (%)■ Annual dividend per share (Yen)
40

23

24

26

20

22

26

40

Total return ratio (%)■ Amount of acquisition of treasury shares (Billions of yen)96
■ Total dividends (Billions of yen)
10.0

43

15
24

Total return amount* and total return ratio**Excludes acquisition of treasury shares relating to CB issuances and redemptions

28

31

46

15

23

10.0

24

5.0

6.5

nds

dividecreased to in ve periods
e
u
n
ti
cuti
Con
conse
for 12FY2018 FY2019 FY2020 FY2021 FY2022 FY2023 FY2024 FY2025

5.0

5.6

6.1

6.5

6.8

7.1

FY2018 FY2019 FY2020 FY2021 FY2022 FY2023 FY2024 FY2025

Reduction of crossshareholdings

Proﬁtaccumulation Dividends Acquisitionof treasury
sharesOrganic: loans, securities, etc.
Inorganic: strategic investments to expand
business areas and improve proﬁtability
Other(Eﬀects of the early applicationof Basel III ﬁnalization, etc.)

billion of treasury shares in the current fiscal
year as well. We will continue to provide
returns based on our policy on return toshareholders while considering capital
allocation.
Despite such risk-taking and return toshareholders in the fiscal year ended March
31, 2023, the total capital ratio increased
to 14.35% from 12.65% at the end of the
fiscal year ended March 31, 2022 due tothe effects of the early adoption of Basel III
finalization. For the fiscal years ending
March 31, 2024 and 2025, we will allocate
capital to return to shareholders, organic
areas such as loans and securities, andinorganic areas such as strategic
investments, while striving to improve
profitability, taking into account total equity
ratio of around 12% in the medium-term
management plan as the target
management indicator, our corporate
strategies, external environment, etc.

Growth investment

Minimum required total
capital adequacy ratio 10.5%

As of March 31, 2025
(Final ﬁscal year of the medium-term management plan)

holding purpose and whether the benefits
and risks associated with the holding areworth compared to our capital cost. In
addition, in regard to existing crossshareholdings, we periodically verify therationale for holding and will reduce them if
a valid reason for holding them is no longer
recognized.
From the fiscal year ended March 31,
2023, at the“Meeting for the Reduction of
Cross-Shareholdings”consisted of theCompany’s CEO and the Presidents of thebanks in the Group, we have discussed the
reduction policy and conductednegotiations toward the reduction. As aresult, a 16% reduction was realized on abook value basis in the fiscal year ended
March 31, 2023. We intend to accelerate
our efforts toward reduction in the current
fiscal year and beyond.
In this manner, considering factors suchas the changes in the business environment,
the progress of business strategies, andprofitability, we will focus on the steadyachievement of various target management
indicators set out in the“YMFG MediumTerm Management Plan 2022,”theenhancement of sustainable regional value,
and the growth of the Group, while
reviewing the business portfolio, optimizing

the allocation of management resources,and effectively utilizing capital.

▪Balance of cross-shareholdings and ratio to net assets
18.5%

17.3%

(Ratio to net assets)(Ratio to net assets)¥117.9 billion(Fair value)¥106.6 billion(Fair value)¥46.9 billion(Valuation gains
and losses)

Reduced 16%
of book valuebalance inthe ﬁscal year ended
March 31, 2022

¥71.0 billion¥46.9 billion(Valuation gains
and losses)(Book value)¥59.7 billion

Fiscal year ended March 31, 2022

Fiscal year ended March 31, 2023

(Book value)

YMFG Integrated Report 2023

36

Management Letter

Business Strategy
for Value Creation

About YMFGPower Supporting Value
Creation

Overview of the YMFG Medium-Term Management Plan 2022

Title

YMFG Medium-Term Management Plan 2022
- Co-Creating a Bountiful Future for Our Region

Five priority measures

Plan period

Three years from the fiscal year ended March 31,
2023 to the fiscal year ending March 31, 2025

Based on the trust of our stakeholders, think and act from the perspective of our region andcustomers as the driving force for growth through the regional co-creation sustainability
management and the active participation of the Group’s human assets.

Medium-term management plan policy

Priority Item I

In the“YMFG Medium-Term Management Plan 2022 - Co-Creating a Bountiful Future for Our
Region,”with the cornerstone of management being based on the Group’s mission and themeaning of its existence (Purpose) of the Group,“Co-Creating a Bountiful Future for Our
Region,”we have positioned the plan period (from the fiscal year ended March 31, 2023 to thefiscal year ending March 31, 2025) as a“three year period to push forward with regional andcustomer-oriented business activities as‘Team YMFG,’towards the improved sustainability of
our region and YMFG.”
Based on the purpose, we will implement the five priority items, promote“improving thesustainability of our region”and“building a sustainable business model for YMFG,”aim torealize“a regional value-up corporate group that is chosen by our region and responds to thetrust of our region,”which is what the Group should become in the future (Vision), and meet the
expectations of our stakeholders.

Positioning of the medium-term management plan

Promotion of regional
co-creation sustainability
management
Priority Item III

Pursuit for the “maximizationof value provided to ourregion and customers”
Accelerate sales activities truly fromthe perspective of our region andcustomers through thediversification and improved qualityof services, as well as thestreamlining of business
operations

Work to resolve the issues
facing society through business,
contributes to improving
the sustainabilityof the region

Priority Item II

Promotion of the active
participation of theGroup’s human assets

Priority Item IV

Challenge to “expand
business areas andstrengthen profitability”
Make use of the business baseand resources of our banking
business, and take onchallenges in areas that
contributes to the creation of
new value

Co-create an environment
in which employees canplay active roles, andstrengthen the unityof the Group

Towards realizing“a regional value-up corporate group that is chosen by our region andresponds to the trust of our region”
Group Sustainability Policy
Priority Item V

In order to progress and grow together with everyone in the region, we contribute to the realization of asustainable society by working on the resolution of various issues and improving the value of the region,
through our various business activities.

Strengthening of the governanceand internal control system

Improve soundness and pursue business operations that are
trusted by our region and stakeholders

Materiality specified by the Company (four themes for our initiatives)

Target management indicators
Initiatives for revitalizationof local community andeconomies

Initiatives for thepreservation of theenvironment

Initiatives for the job
satisfaction of all officers
and employees

Initiatives for building asolid managementfoundation

In the final fiscal year of the medium-term management plan (the fiscal year ending March 31,2025), we aim for an ROE of around 5.0% and net income of ¥33.0 billion, which will be ourhighest ever.
Fiscal year ended March 31, Fiscal year ended March 31, Fiscal year ending March 31, Fiscal year ending March 31,
2022 (results)
2023 (results)
2024
2025
Ordinary profits¥(7.6) billion¥25.6 billion¥35.0 billion¥47.5 billion

Net income¥(13.0) billion¥17.8 billion¥24.0 billion¥33.0 billion

ROE

ー

2.88%

3.9%

Around 5%(excluding gain on cancellation of investment trusts)

Adjusted OHR

66％

63.1％

64％

Around 60%

Targeted direction

Total equity ratio

12.65%

Around 12%

Aim to“improve the sustainability of our region”
and to“build a sustainable business model for YMFG”

Dividend payout ratioーAround 40%

Positioning of this medium-term management planA three year period to push forward with regional and customer-oriented businessactivities as“Team YMFG,”towards the improved sustainability of the region and YMFG37

YMFG Integrated Report 2023

38

Management Letter

Priority Item I

Promotion of Regional Co-creation Sustainability Management

Group Sustainability Policy
YMFG has formulated the“Group Sustainability Policy”with the objective of being a corporategroup that contributes to the“enhancement of regional value,”and as a policy that allows forintent to be shared across the whole group.
We will endeavor to develop the region and to create a future through the conducting ofbusiness activities based on this policy.
In addition, by promoting sustainability management, we will improve the link between thesustainable growth of the Group and the enhancement of regional value, and furthermore, byenhancing the disclosure of information, we will build a long-term relationship of trust withstakeholders.

- Group Sustainability Policy In order to progress and grow together with everyone in the region, we contribute to therealization of a sustainable society by working on the resolution of various issues andimproving the value of the region, through our various business activities

Establishment of YMFG Human Rights Policy
YMFG and its group companies have established the YMFG Human Rights Policy in June 2023 inorder to promote efforts to respect the human rights of all stakeholders, including customers,
the local community, and officers and employees, aiming to realize“a regional value-up
corporate group that is chosen by our region and responds to the trust of our region,”based on
the Group’s purpose of“co-creating a bountiful future for our region.”For more details on thispolicy, please visit our website (https://www.ymfg.co.jp/sustainability/human-rights.html) (inJapanese).

The Group has identified“respond to air pollution and climate change”as one of its“materiality,”regards responding to climate change as an important management issue, andendorsed the TCFD recommendations for a climate change information disclosure framework in
December 2021. We will strengthen our response to climate change and actively disclose
information based on the TCFD recommendations.

Governance
The Group holds regular meetings of the- Matters submitted to the Board of Directors“Sustainability Promotion Committee”that(Fiscal year ended March 31, 2023) is chaired by the President, Representative
1. Initiatives towards carbon neutrality
Director and CEO (10 meetings in the fiscal▪ CO2 emissions (Scopes 1 and 2) results and target setting foryear ended March 31, 2023), and
the Group
coordinates deliberation and progress▪ Development of solutions for regional customers towards
carbon neutrality
management centrally for matters relating▪ Endorsement of the GX League Basic Concept
to sustainability, including climate change.
2. Status of sustainability initiatives
Working groups for each field have been
▪ Status of response to the TCFD recommendations
established under the Committee, and a▪ Results of analysis regarding transition risks and physical risks
cross-organizational promotion system has
3. Acceleration of sustainability promotion▪ Future direction of sustainability promotion
been constructed.
In addition, the contents of deliberations
at the Sustainability Promotion Committee are submitted to the Board of Directors as appropriate, upon
discussion at the Group Executive Management Meeting, establishing a system where the Board of Directors
supervises sustainability initiatives, including those related to climate change.
Risks and opportunities, etc. related to climate change based on reporting and decision outcomes arereflected in the management plan.

Strategy
1. Climate change risks
Considering the CO2 emissions in Yamaguchi, Hiroshima and Fukuoka prefectures, the Group’s main areas, areamong the highest in Japan, we regard addressing climate change as one of the significant challenges for theregion and recognize the risks of climate change as follows.
Main evaluation items

Supervision

Business
execution

・Objective

Board of Directors
Submission

Group Executive Management Meeting
Submission

Sustainability Promotion Committee

Chair / President, Representative Director and CEO
Climate Change Countermeasure
Working Group

Diversity and Inclusion
Promotion Working Group

Cooperation

Cooperation

The
Yamaguchi
Bank, Ltd.

39

Cooperation

Momiji Bank,
Ltd.

The
Kitakyushu
Bank, Ltd.

CooperationGroup
associates

By contributing to the improved
sustainability of the environmentand society, which is thefoundation for the business, wewill accelerate the promotion ofsustainability management whichaims for the sustainable growthof the Group’s businesses.

・Overview

The Committee examines theannual plan and measures, etc.,with the objective of promoting
sustainability management,
conducts monitoring in order tocomprehensively ascertain thesustainability management
promotion activities, and alsobuilds a system for supervisionby the Board of Directors.

Power Supporting Value
Creation

Countermeasures to global warming and climate change (Initiatives for the TCFD Recommendations)Sustainability promotion system
Management
supervision

Business Strategy
for Value Creation

About YMFG

Government
policyLaw・Carbon tax andcarbon pricing
・Respond to GHG
emissions regulations
and other items

MarketTechnology

・Change in consumer
and other customer
behavior
・Energy prices
・Energy mix
and other items

Transition
risks

Physicalrisks

Intensification of abnormal weather

Main risks to the Group

Time frame

The risk of deterioration in
the financial condition byincreased operating costs,
decreased operating rate,
large capital investments,
etc.

・The risk of increases in credit costs due to deterioration in the・Medium
financial condition of customers by increased operating costs andto long
manufacturing/construction costs, decreased asset values, brandtermvalue damage, etc.

The risk of brand value
damage due to inadequate
measures towards realizing
carbon neutrality

・The risk of deterioration of the Group’s reputation due toinappropriate responses to climate change or inadequate
information disclosure

The risk of deterioration inbusiness continuity andfinancial condition due tothe occurrence of property
damage and businessinterruptions

・The risk of increases in credit costs due to an impact on・Short tobusinesses and financial condition of customers by the stagnation
long termof business activities and property damage caused by theoccurrence of natural disasters such as floods and storms
・The risk that make business continuity difficult due to the Group’s ・Short tolong termhead offices and branch offices affected by the occurrence of
natural disasters such as floods and storms

・Short tolong term

Short term: less than 3 years, medium term: less than 10 years, long term: over 10 years

2. Scenario analysis
The Group conducted a scenario analysis on transition risks and physical risks based on the TCFD
recommendations using multiple scenarios. For transition risks, considering the large GHG emissions and thevulnerability to the effects of climate change, and taking into account its lending portfolio, the Group hastargeted the power and automotive sectors for analysis. For physical risks, given the location in the region
prone to weather conditions such as typhoons and heavy rains, the Group has targeted flood damage foranalysis.
Considering that the effects of transition risks will manifest over the long term, the results of its scenario
analysis suggest that both transition risks and physical risks have a limited impact on its credit portfolio.
However, the current scenario analysis contains many high uncertainties and is based on certain assumptions.
The Group will continue to expand its target sectors and work on advanced scenario analysis, etc.
YMFG Integrated Report 2023

40

Management Letter- Transition risks -- Physical risks -Risks analyzed

・Deterioration of the financial condition ofborrowers due to increased costs associated with
the introduction of carbon tax
・Deterioration in the financial condition ofborrowers due to increased capital investments,
etc. associated with transitioning to a
decarbonized society

Subject ofanalysis
Portfolio

・Power sector
・Automotive sector

PeriodRisks analyzed

Subject ofanalysis
Portfolio・Borrowers of business loans in Japan・Until 2050

Period・Until 2050

Scenario・IEA 1.5℃（NZE）
・IEA 2.0℃（STEPS）

Scenario

Analysis
method・Based on the IEA scenarios and public
information, etc., financial statements of sample
companies up to 2050 were prepared tounderstand the impact on their financial condition
・The degree of the impact on sample companies
was applied to the entire target sector to
calculate the increase in credit-related expenses

・IPCC RCP 2.6 (2°C scenario)
・IPCC RCP 8.5 (4°C scenario)

Analysis
method・After the impact on collateral property at the timeof occurrence of floods and the financial impact
on business partners were calculated based on
hazard map data, the increase in credit-related
expenses was calculated

Results ofanalysis・Increase in credit-related expenses: approximately¥1.5 billion to ¥27.0 billion

Results ofanalysis・Increase in credit-related expenses: up to
approximately ¥7.0 billion

3. Opportunities
The Group views social responses to climate change as an opportunity and supports its customers’ efforts
towards carbon neutrality by offering not only sustainable finance but also various non-financial solutions
aimed at GHG emission reduction.
In sustainable finance, the Group has introduced a new package product*1 of green loan and sustainabilitylinked loan, making financing methods more accessible to not only large enterprises but also small andmedium-sized enterprises. In addition, it has begun offering“support for the formulation of CO₂ reduction
roadmap”to contribute to its customers’ selection of carbon-neutral initiatives and investment
decision-making. To further accelerate regional carbon neutrality, the Group will further strengthen its efforts
with local governments and other organizations such as a joint proposal with Yamaguchi City for the“Decarbonization Leading Areas (Second Round)”and its selection.
*1 A package product that includes an external evaluation certification concerning the alignment with various loan principles and guidelines

Considering the characteristic that risks associated with climate change spread to various risk categories such as
credit risk, market risk, liquidity risk, operational risk, and reputational risk, and manifest as risks in thosecategories, the Group has incorporated climate-related risks into its integrated risk management framework andis establishing a management system for each risk category according to the manifested risks.
In addition, the Group has established an“Investment and Loan Policy Considering Environment and Society”
for investments and loans to specific sectors that may have a negative impact on the environment and society,and it strives to reduce and avoid impacts on the environment and society. (For more details on the policy,
please visit our website <https://www.ymfg.co.jp/sustainability/tcfd.html> (in Japanese).) Since theestablishment of the investment and loan policy in May 2022, the Group has not made any investments or loansthat violate the policy.

- Spread of risks associated with climate change Risk
category

Description of transition risks

Credit risk

The risk of increases in credit costs due
to deterioration in the businessperformance of business partners
resulting from changes in the businessenvironment accompanying the transition
to a decarbonized society

Market risk

The risk of a decline in the market valueof securities held by the Group due to thedeterioration in the business performanceof business partners and others resulting
from changes in the business environment
accompanying the transition to a
decarbonized society✓ ＳGDs management
launch support service

Solutions provided
by the Group✓ Support for the
calculation of CO₂
emissions(Scopes 1 and 2)✓ Support for the
calculation of CO₂
emissions(Scope 3)

Plan formulation✓ Support for theformulation of CO₂
reduction roadmap✓ Initiative response
support(SBT, etc.)✓ Subsidy use

Equipment installationand fund raising

Emission rights purchasebrokerage and sales✓ Introduction ofrenewable energy andenergy-saving
equipment✓ Renewable energy sales
Emission rights
generation and sales✓ Green loan

Cumulative number of customers who have advanced their efforts towards carbon neutrality

Description of physical risks

Time
frame

Mediumto longterm

The risk of increases in credit costs dueto the degradation of collateral value anddeterioration in the business performanceof business partners caused by theoccurrence of natural disasters such as
floods and storms

Short tolong
term

Short tolongterm

The risk of a decline in the market valueof securities held by the Group due to thedeterioration in the business performanceof business partners and others causedby the occurrence of natural disasters
such as floods and storms

Short tolong
term

Short tolongterm

The risk of deposit outflows due toincreased funding demands from business
partners caused by the occurrence of
natural disasters such as floods andstorms
The risk of a worsening fundraising
environment due to financial market
disruptions caused by the occurrence of
natural disasters such as floods andstormsShort tolong
term

Short tolong
term

Short tolong
term

Liquidity risk

Operationalrisk

The risk of increases in response costs
and potential losses from fines andlitigation, etc. due to regulatory changes
accompanying the transition to a
decarbonized society

Short tolongterm

The risk that makes business continuity
difficult due to the head offices andbranch offices affected by the occurrenceof natural disasters such as floods andstorms, and the risk that incurs recovery
costs

Reputationalrisk

The risk of deterioration of the reputation
due to inappropriate responses toclimate change or inadequate information
disclosure

Short tolongterm

The risk of deterioration of the reputation
due to inadequate recovery efforts fromnatural disasters such as floods andstorms or insufficient support to affectedbusiness partners✓ Sustainability-linked
loan- Metrics and targets for regional carbon neutrality -

Time
frame

The risks of a worsening fundraising
environment and deposit outflows due tothe deterioration in the Company’s
performance and reputation resulting
from changes in the business environment
accompanying the transition to a
decarbonized society- Financial and non-financial solutions for regional carbon neutrality Measurement andvisualization

Power Supporting Value
Creation- Risk management -・Damage to collateral property due to flood
damage・Deterioration of financial condition of borrowers
due to suspension of business caused by flood
damageProcess

Business Strategy
for Value Creation

About YMFG

Short term: less than 3 years, medium term: less than 10 years, long term: over 10 years

315

205

105

Result for the ﬁscal year
ended March 31, 2023

41

Target for the ﬁscal year
ending March 31, 2024

Target for the ﬁscal year
ending March 31, 2025
YMFG Integrated Report 2023

42

Management Letter- Investment and Loan Policy Considering Environment and Society The Group has formulated a“Sustainability Policy”and“Materiality,”and actively supports customers that are
engaged in initiatives to resolve various issues, such as initiatives for revitalization of local community and economies,
and initiatives towards the preservation of the environment.
On the other hand, for investment and loan that carries significant risks on or which is highly likely to have anegative impact on the environment and society, the Group takes initiatives towards the reduction and avoidance ofan impact on the environment and society by responding appropriately based on this policy.
≫

Power Supporting Value
Creation

Metrics and targets- CO₂ emissions results and targets Aiming for the achievement of carbon neutrality for the Group, it have newly set a medium- to-long-term targetof net-zero CO₂ emissions (Scopes 1 and 2) by the fiscal year ending March 31, 2031. Going forward, the Groupwill enhance its efforts to achieve the target through measures such as switching company vehicles toenvironmentally friendly vehicles (EV, PHEV, etc.), utilizing renewable energy-derived electricity, and converting
to LED lighting.

Businesses that provide active support across sectors

Unit: t-CO₂
・Calculation scope: Yamaguchi Financial Group, Inc. and subsidiaries for accounting purpose*2
・The values are the combined totals of Scopes 1 and 2.

We actively support the following businesses towards the realization of a sustainable environment and society.
1.
2.
3.
4.
≫

Business Strategy
for Value Creation

About YMFGBusinesses that contribute to the initiatives for revitalization of local community and economies
Businesses that contribute to the mitigation of climate change towards the realization of carbon neutrality
Businesses that contribute to the preservation of cultural properties such as World Heritage sites as well as
tangible and intangible cultural properties
Businesses that contribute to disaster prevention and disaster mitigation

18,31916,565

15,414

Scope1
13,594

13,452

11,86011,270Businesses that prohibit investment and loan across sectors

NE T
ZE R OWe will not engage in investment and loan for the following businesses if we recognize that there will be risks ora negative impact on the environment and society.
1.

Businesses that violate the Convention on International Trade in Endangered Species of Wild Fauna andFlora (Washington Convention)* Sufficient care will be paid to the reservations of each country
2. Businesses that have a negative impact on the Ramsar Convention on Wetlands
3. Businesses that have a negative impact on UNESCO World Heritage Sites
4. Businesses involving child labor and forced labor≫

Policy on initiatives for specified sectors
We make appropriate investment and loan decisions based on the following policies for sectors that have thepotential of having a significant impact on the environment and society.
1.

Coal-fired thermal power generation
It is said that coal-fired thermal power generation produces higher emissions of greenhouse gases and air
pollutants than other forms of power generation, and it may increase concerns over climate change and air
pollution.
We will not provide investments and loans that involve the new construction of coal-fired thermal power
plants or the expansion of existing such power plants.
However, in the case of transitioning to high efficiency coal-fired thermal power generation through the useof new technologies such as CCUS (technology that makes use of separated and stored carbon dioxide), we
will consider this on a case by case basis.
2. Development and manufacture of inhuman weapons such as nuclear weapons, cluster bombs, etc.
The international society recognizes nuclear weapons, cluster bombs, biological and chemical weapons, andanti-personnel landmines as being of great humanitarian concern. In consideration of the inhumane nature ofthese weapons, we will not invest or provide loans for businesses for which the purpose of funds is the
manufacture of such inhumane weapons.
3. Development of palm oil plantations
Although palm oil is a vital raw material for daily life, the development of palm oil plantations may have amajor negative effect on the environment and society because of the impact it has on biodiversity andclimate change due to the logging of natural forests and the burning of peatlands, as well as issues of childlabor, human rights violations, etc.
In the event of considering financing initiatives for palm oil businesses, we carefully check the implementation
status of the customer’s environmental and social considerations, as well as participation in international
certifications such as RSPO(*1).
4. Large scale deforestation
Large scale deforestation has a negative impact on biodiversity and ecosystems, and may cause various
issues, including a negative impact on climate change due to a decline in the carbon dioxide absorption andstorage functions.
When considering investment and loan for businesses involving large scale deforestation, we carefully checkthe acquisition status of international certifications such as FSC, PEFC, etc.(*2), as well as the status of theirconsideration of the environment.
*1 RSPO certification: the“Roundtable on Sustainable Palm Oil (RSPO),”an international certification system that has the objective of thesustainable production and use of palm oil, as well as addressing issues surrounding palm oil*2 PEFC certification: the Programme for the Endorsement of Forest Certification Scheme (PEFC) is one of the international forest certification
systems.
Characteristics: a framework for the mutual recognition of the forest certification systems in each country.

43

Scope2FY2019ResultFY2020ResultFY2021ResultFY2022
ResultFY2023ResultFY2024
TargetFY2025
Target

FY2031
Target*2 Regarding the above CO₂ emission results, from the results for the fiscal year ended March 31, 2023, we revised the calculation standard andexpanded the calculation target to all subsidiaries for accounting purpose of the Group. For the results for the fiscal years ended March 31, 2019
to 2021 already published, we have recalculated according to the same standard.

Metrics and targets - Sustainable finance Cumulative amount of sustainable finance execution (results and targets)
The Group has set a long-term target for the cumulative amount of sustainable finance execution from the fiscal
years ended March 31, 2023 to 2032 at ¥1,500.0 billion (of which, ¥500.0 billion is sustainable finance that
contributes to the environmental sector or the response to climate change), and the execution amount in thefiscal year ended March 31, 2023 was ¥232.8 billion (¥151.4 billion). Moreover, for the achievement of carbon
neutrality in the region, the Group will newly set metrics and targets for sustainable finance, as well as
non-financial solutions that contribute to the reduction of GHG emissions, and it will enhance such efforts.

- Definition of sustainable finance The Group defines sustainable finance as investment and loan that will contribute to the resolution of environmental
issues and social issues, and investment and loan that will support efforts towards improved sustainability ofcustomers. Specifically, if any one of the following conditions applies, it is target for this finance.
private placement bond (donation type, with BCP formulation support service, etc.), sustainabilitylinked loan, green loan, social loan, etc.
Use of funds: renewable energy introduction, start-up related, business succession funds, etc.
medical care, nursing care and welfare, education related
Industry:
Products:¥1,500.0
billionSustainable ﬁnance results/targets
Of which, sustainable ﬁnance that contributes to theenvironmental sector and the response to climate change

Medium-term sustainability targets(by the end of March 2025)
Target for the cumulative amount of sustainableﬁnance execution:¥400.0 billion or more
Of which, sustainable ﬁnance that
contributes to the environmental sector andclimate change:¥135.0 billion or more

¥418.8billion¥232.8billion ¥151.4
billionFY2023Result¥611.8billion¥219.9billionFY2024
Forecast¥286.9billionFY2025
Forecast¥500.0billion

FY2032
TargetYMFG Integrated Report 2023

44

Management Letter

About YMFGBusiness Strategy
for Value Creation

Power Supporting Value
Creation

Sustainability initiatives¥670.0billionSupport service for the formulation of CO₂ reduction roadmap

Sustainable ﬁnance results/targets
Of which, sustainable ﬁnance that contributes to theenvironmental sector and the response to climate change

Medium-term sustainability targets(by the end of March 2025)
Target for the cumulative amount ofsustainable ﬁnance execution:¥180.0 billion or more
Of which, sustainable ﬁnance that contributes
to the environmental sector andclimate change:¥70.0 billion or more

¥124.7¥99.6
billionbillion¥237.7billionFY2023Result¥354.7billion¥186.6billion¥142.6billionFY2024
Forecast¥245.0billionFY2025
Forecast

FY2032
Target¥580.0billionWhile efforts towards carbon neutrality advance globally and rapidly, and spread throughout theentire supply chain, the importance of CO2 reduction initiatives becomes more important evenamong regional small and medium-sized enterprises.
YMFG offers the“support service for the formulation of CO₂ reduction roadmap”to assist
customers aiming for carbon neutrality in their transition to a decarbonization management.
This service helps customers set customized targets and formulate a roadmap that
contributes to choosing the measures for CO2 reduction and making investment decisions.

Service flow (start from April 2023)

Sustainable ﬁnance results/targets
Of which, sustainable ﬁnance that contributes to theenvironmental sector and the response to climate change

Medium-term sustainability targets(by the end of March 2025)
Target for the cumulative amount ofsustainable ﬁnance execution:¥155.0 billion or more
Of which, sustainable ﬁnance that contributes
to the environmental sector andclimate change:¥55.0 billion or more

¥72.1
billion ¥40.5
billion¥123.1billion ¥59.0

FY2023Result¥177.1billionbillionFY2024
Forecast¥205.0billion¥78.0
billionFY2025
Forecast

FY2032
Target¥250.0billion

Of which, sustainable ﬁnance that contributes to theenvironmental sector and the response to climate change

Medium-term sustainability targets(by the end of March 2025)
Target for the cumulative amount ofsustainable ﬁnance execution:¥65.0 billion or more
Of which, sustainable ﬁnance that contributes
to the environmental sector andclimate change:¥10.0 billion or more

- Carbon-related assets -¥36.0billion ¥11.3
billionFY2023ResultSector

The proportion of carbon-related assets*in the Group’s loans, etc. is as shown on
the right.

3*3 The total amount of loans, payment approvals,
foreign exchange, and private placement bonds, etc.
“Electricity”included in“energy”excludes renewableenergy business operators such as solar power
generation, biomass power generation, and wind
power generation.
(Reference) For renewable energy business
operators: ¥155.3 billion

Energy¥58.0
billion¥18.3
billionFY2024
Forecast¥50.0
billion¥22.3
billionFY2025
Forecast

Balance of receivables

Clarify targets and plans, and scope of emission reduction initiatives through meetings witha customer

Identify emission
sources

Identify the overall picture of emissions and main emission sources through the customer’s
data and hearings

Explore andevaluate measures

Widely explore feasible measures for emission reduction through the customer’s initiatives
and external research, and evaluate the reduction eﬀect and cost for each measure

Report analysis
results

Sustainable ﬁnance results/targets¥80.0
billionSet purposes

FY2032
TargetRatio¥496.0 billion

5.9％

Transportation¥1,059.0 billion

12.5％

Materials andbuildings¥1,780.1 billion

21.0％

Agriculture, food andforestry products¥167.7 billion

2.0％

Total carbon-related
assets¥3,502.7 billion

41.4％

Total for all sectors¥8,460.5 billion

100.0％

Report a list of measures and the evaluation results of their reduction eﬀects and costs

By visualizing the listed measures in order of cost-eﬀectiveness, it becomes possible to decide on the order of
implementing measures and their combinations that maximize reduction within a certain budget.

Holding a carbon neutrality seminar
YMFG held a carbon neutrality seminar targeting key
companies mainly in the manufacturing industry as part ofour efforts towards realizing a regional sustainable society.
External speakers gave lectures on efforts towards realizing
carbon neutrality and global trends, and a reception was
also held for information exchange among participatingcompanies, with 116 persons from 85 companies attending.
We received feedback from attendees such as“It waseasy to understand and very informative”and“It was anextremely interesting lecture, and I wish it had been
longer,”and we will continue holding the seminar occasionally.
Additionally, an online seminar on the theme on“decarbonization management required forsmall and medium-sized enterprises”was held.

Initiatives
The Group strives to promote initiatives towards carbon neutrality and enhance information disclosure throughits endorsement of the following initiatives.

45

YMFG Integrated Report 2023

46

Management Letter

Joint proposal with Yamaguchi City for the Ministry of the Environment’s“Decarbonization Leading Areas (Second Round)”and its selection
The Yamaguchi Bank, Ltd. and YMFG ZONE PLANNING CO., LTD., in collaboration with
Yamaguchi City, jointly made a proposal for the“Decarbonization Leading Areas (Second
Round)”led by the Ministry of the Environment, and the Group was selected as a“Decarbonized
Leading Area”for the first time through collaboration with the local government.
Within Yamaguchi Prefecture, Yamaguchi City is the first to be selected as a“Decarbonized
Leading Area,”and in the future, it aims to achieve urban decarbonization in areas around its
central urban district through co-creation among shopping districts, residents, businesses, andthe city.

Decarbonized Leading Areas
Decarbonization Leading Areas aim to achieve net-zero CO2 emissions fromelectricity consumption in households and business sectors by FY2030. In
addition, they make efforts to achieve reductions in other greenhouse gas
emissions such as from the transportation sector and heat use by utilizing
local characteristics, which is consistent with Japan’s FY 2030 target.

Overall picture of the initiatives“Zero carbon central urban district”- Achievement of urban decarbonization through the co-creation of shopping districts,
residents, companies, and the city ▶In the central urban district where“people live and work closely,”targeting areas around
shopping streets, achieve decarbonization through the introduction of solar power generation,
including solar rooftop of arcades, and the utilization of waste-to-energy generation▶Visualize the overall power consumption and CO2 emissions of shopping districts, andencourage behavioral changes in citizens and tourists through the use of an eco-point systemlinked to the citizens’ fund, as well as nudges▶Convert official vehicles to EVs and use them for EV car-sharing during off-hours, and electrify
the buses that connect tourist destinations like the neighboring Yuda-onsen with the central
urban district

YMFG promotion system (assumed main roles)

47

The Yamaguchi
Bank, Ltd.

・Start-up support for environment-related companies
・Financial support for the study of a citizen’s fund, etc. forrenewable energy power development
・Consider financing for the establishment of a regional new powercompany through public-private investmentand other roles

YMFG ZONEPLANNING CO.,LTD.

・Attract business operators to the region・Support for leading regional decarbonization
・Consider auxiliary functions of a regional new powercompanyand other roles

About YMFGBusiness Strategy
for Value Creation

Power Supporting Value
CreationAwarded at the“2022 Sustainable Finance Awards”hosted by the ResearchInstitute for Environmental FinanceIn October 2022, in response to the growing environmental conservation awareness of
individual investors and aiming to contribute to environmental conservation by YMFG, we issued
a green bond* of ¥20.0 billion for individual investors for the first time as a regional financial
institution.
For this initiative, we received the“Regional Finance Award”in the“2022 Sustainable
Finance Awards”hosted by the Research Institute for Environmental Finance.
* Green bonds issued by the Company are limited to loans which are used forrenewable energy and green building that meet the eligibility criteria.

“Sustainable Finance Awards”
The Sustainable Finance Awards are an awards system where the
Research Institute for Environmental Finance, which promotes and raises
awareness on“environmental finance”to financially solve environmental
problems, awards financial institutions, companies, and otherorganizations that provide environmental financial products, services,
and initiatives in the Japanese financial market.

“Club Activity MaaS”demonstration project for regional transition of junior highschool club activities
YMFG ZONE PLANNING CO., LTD. is working on the“ClubActivity MaaS*”demonstration project utilizing the services
and knowledge of Yamaguchi Daiichi Co., Ltd. incollaboration with Mine City, Yamaguchi Prefecture, toaddress the challenges related to the regional transition ofjunior high school club activities, following its selection for
the Ministry of Economy, Trade and Industry’s“2022‘Future Classrooms’ demonstration project.”* MaaS: Abbreviation for Mobility as a Service. A service that handles
the search, reservation, transportation, and payment of the optimalmeans of transportation in an integrated manner according to the mobility needs of each user.

Background of initiatives
Due to the decrease in the number of students caused by a declining birthrate and theexcessive workload of teachers, there are regions where it is difficult to sustain junior highschool club activities at the school level, and a shift to community-based club activities is being
promoted. Especially in hilly and mountainous areas with a significant decrease in the number ofstudents, although combined club activities involving multiple schools are considered one
solution for implementing team sports, solutions for the issue of traveling between distantschools also need to be explored.

Demonstration project(1) Implementation of joint club activities
For club activities in sports where maintaining a team at a single school is difficult, joint club
activities led by instructors other than teachers are implemented, and we are identifying issues
anticipated when transitioning to community-based club activities.
(2) Holding sports events
A sports event“Sports Festival in Mine”was held in Mine City on February 25, 2023.
In cooperation with the United Sports Foundation and local organizations that could
potentially accommodate regional club activities, we verified the feasibility of transitioning club
activities to the community while investigating transportation demands and price acceptance for
events.
YMFG Integrated Report 2023

48

Management Letter

Revitalizing the region through regional revitalization consulting
Social Impact Bond (SIB)[Cooperatingorganizations][Organizer]

Local Asset Backed Vehicle: a public-private cooperative development entity (LABV)LABV is a method of public-private collaboration implemented by the LABV joint venture formedby combining the in-kind investment of land owned by local governments and the investment
from the private business operators, etc. Currently, a town development project, in which theGroup is taking the lead, is in progress in Sanyo-Onoda City, Yamaguchi Prefecture, including theuse of LABV to redevelop the commercial and industrial center and utilize the site of a formerbank branch, developing multiple pieces of municipal land in a chain.
Using the LABV, this project is the first of its kind in Japan, and in February 2023, it received
the“Award from Secretary General of Secretariat for Promotion of Regional Revitalization,
Cabinet Office”the highest award in the“2022 Public-Private Partnership Initiative Cases Aimedat Achieving Regional Revitalization SDGs.”In March 2023, it received recognition from the
Minister of State for Regional Revitalization of the Cabinet Office in the“‘Distinctive Initiative
Cases’ of financial institutions, etc. contributing to regional revitalization.”
Going forward, we aim to spread such initiatives to local governments throughout Japan,
contributing to the broader revitalization of regions.
<Regional issues>

Regional Career Counseling Office
The Onoda Chamber of Commerce and Industry
conference room

Onoda Branch of The
Yamaguchi Bank, Ltd.

Communication Square

Koendori Branch Office

Ministry of Land,
Infrastructure,
Transport and Tourism

Improvementof areapotential

ProposalRequest forcooperation

Support(Sanyo-Onoda City)YM-ZOP

Civic Activity Center
Central Welfare
CenterAging ofpublicfacilities

private tenants

Business Strategy
for Value Creation

Power Supporting Value
Creation

The Yamaguchi Bank, Ltd. women’s handball team,“YMGUTS”

The Group established the“SIB Study Group”
on October 31, 2022, to further accelerate thepromotion of“social impact bond”(hereinafter,✓ Advice from specialized
knowledge, etc.
“SIB”
) utilization, which is attracting attention✓ Planning and managementof the study groupas a new method of a public-private
Resolving regional issues through SIB utilization
partnership. The purpose is to contribute to
the formation of specific projects through SIB
business know-how acquisition and[Members (participating organizations)]
information exchange with local governments
Yamaguchi, Hiroshima, ✓ Participation in the study group✓ Know-how acquisition, project consideration
gathering, as well as conducting study sessions
Northern Kyushu✓ Project creation, etc.
Local governmentswith case studies, etc.
The initial members were 10 local
governments at the time of establishment. As
of April 2023, the number doubled to 20, indicating a high level of interest from local
governments.

Sanyo-Onoda City University
Student Dormitory

About YMFGIn April 2018, YMGUTS was formed with the wish to revitalize the region through sports whileworking in the region, making use of the regional characteristics of eastern Yamaguchi
Prefecture, where handball has traditionally been popular. All team members are employees of
The Yamaguchi Bank, Ltd., work full-time, and train hard after work. In August 2022, they won
the“Japan Open Tournament”for the first time, a competition determining the best club teamin Japan which had been their goal since the team’s formation, and in June 2023, they ranked
6th in the Amateur Championship, surpassing teams in the top Japanese league, indicating theirsteadily improving competitive level.

Aim of YMGUTS◦ Establish a team that is loved by the local community, and serve as a model for achieving abalance between sports and work and the ways in which women work.
◦ Build a local community through handball, and develop the multi-generational interactions
and the younger generation◦ Contribute to improved competitiveness in handball and the promotion of regional sports,
and to the establishment of healthy lifestyles with“YMGUTSxα.”

Main initiatives◦ Contribute to the promotion of sports through the management of a team
◦ Develop activities that will convey to children and students awareness of working hard
towards their dreams, while having a professional awareness of both handball and work
・Visiting GUTS (visiting classes at local elementary and junior high schools)◦ Participate in regional events and develop activities that bring prosperity together with theregion・Appointed as tourism ambassador for Yuno-onsen and engaged in initiatives in partnershipwith regional business operators in order to conduct PR for the onsen

YMGUTS performance
August 2022:

Winner of the 27th Japan Open Handball Tournament National Championship

August 2022:

Runner-up in the 77th National Sports Festival, Chugoku Block Tournament

October 2022: Participated in the 77th National Sports Festival
January 2023: Best 16 in the 74th Japan Handball Championship
June 2023:

Best 6 in the Takamatsunomiya Memorial Trophy 11th All Japan Amateur
Championship<Regional demonstration and regional design>
Conduct a feasibility study
for a leading public-private
partnership project

Formulate the LABV
project business concept

Select business partners
and establish the LABV
joint venture<Business creation>
Sanyo-Onoda
City

The Yamaguchi
Bank, Ltd.

49

Investment in kind(Land, etc.)

Investment

LABV joint
ventureMaintenance,
management, andoperation of leading
facilities, etc.

Investment
and loan

Investment

The Onoda
Chamber ofCommerce andIndustry

Japan Open Tournament(August 2022)

Handball instruction(November 2022)

Visiting GUTS
(November 2022)

Event speaker at Yuno-onsen
Festival (November 2022)

Private sector
partners

YMFG Integrated Report 2023

50

Management Letter

Priority Item II

Business Strategy
for Value Creation

About YMFGPower Supporting Value
Creation

Promotion of the Active Participation of the Group’s Human Assets
Toward the“maximization ofvalue provided toour region andcustomers”and the“creation of new value”

Realization of the desired
state of each employee

We aim to support the growth of each
employee towards their aspirations for the

Repeating

Review the initiatives(Monitoring)

desired state and promote a transformationin organizational culture that encourages

Implement various
initiatives

General Manager, Human Capital Management& General Affairs Dept.

Promotion of the active participationof diverse human asset

Active participation of human assets
embodying regional co-creation

System in which every employee
is properly rewarded

Acceleration of diversity and inclusion
through the proactive hiring and promotionof diverse human assets, and individualcareer development of all employees

Development of human assets that canrealize co-creation with the region, andimplementation of human assets
development and various training programs
aimed at realizing the desired state of each
employee

Establishment of an internal environment toenhance employee motivation and achieve
diverse career paths and working styles

the creation of new value.

Ryoichi Sakamoto▪Key indicators
In an era of rapid environmental changes, where
we must respond to issues for which there areno right answers and entirely new ideas are
required, we believe that to achieve our YMFG’s
purpose of“co-creating a bountiful future for our
region,”we must prioritize the“maximization ofvalue provided to our region and customers”andthe“creation of new value.”
Our employees are the driving force and“assets”of YMFG. Our mission in the Human
Capital Management & General Affairs Dept. is tosupport the growth of these“human assets”byaddressing the aspirations for the desired stateof each and every one of our employees in orderto realize our purpose, and we are implementing
initiatives based on the following threeperspectives.
The first is the“promotion of the active
participation of diverse human assets.”Whileactively and continually recruiting and appointing
diverse human assets, including females,
experienced hires, alumni and people withexperience of external secondments, we are also
advancing the development of a work
environment where everyone can shine bymaking maximum use of their characteristics andabilities. Specifically, for promoting the active
participation of women, we are implementing
measures such as conducting the Female
Corporate Sales Job Trial and unconscious bias
training, and hosting Femtech events, while also
actively promoting women to management
positions. Moreover, mainly focusing on younger
employees, we have revised the traditionally“seniority-based”promotion requirements toenable diverse range of employees to play activeroles by fully utilizing their unique characteristics
and abilities, regardless of their age.
The second is the“active participation of51

human assets embodying regional co-creation.”
We are actively investing in employee growth
support and launching human assets
development and various training programs todevelop human assets capable of“co-creation”
with the region.
The third is the establishment of the“system
in which every employee is properly rewarded.”In order to motivate employees and support
diverse career paths and working styles, we are
introducing systems such as an incentive plan
“Employee Stock Ownership Plan (J-ESOP),”
which grants the Company’s shares to
employees, and establishing on-site childcare
facilities, etc. to develop working environment.
In conjunction with the implementation ofvarious measures based on these threeperspectives, we conduct“employee awarenesssurveys”to gain an understanding on employee
awareness and the state of organizational culture
within the Group, and by understanding the gap
between the Group’s desired state and thecurrent situation, we will continue to review thepersonnel systems and policies. As one example,
we have made revisions to the promotion
requirements in our personnel system, and tofurther promote the active participation of ourhuman assets leveraging these revised
requirements, it is crucial to introduce a
personnel evaluation system that brings out
employees’ sense of satisfaction and motivation,
and we are committed to strongly advancing thisapproach.
By rotating the cycle of various personnel
initiatives and surveys measuring the state of
employees and the organization, we aim totransform our organizational culture to promote
the“maximization of value provided to our region
and customers”and the“creation of new value.”

Key indicators

Diversity and inclusion

Ratio of management positionsof diverse backgrounds

25％ or more

(by the end of
December 2031)

Promotion of active participation of women

Ratio of females inmanagement positions

15％ or more

(by the end of
December 2031)

Development of human assets for realization of
the purpose

Investment in education

2 timesEstablishment of an internal environment aimed atrealizing diverse career paths and working styles

Male childcare leaveacquisition rate

16.3％

(actual results for
FY2023)

Measurement of employee engagement

Employee awareness survey
results (overall satisfaction)*

3.57 points(+0.01 points fromFY2022)(compared to
FY2022)*“How employees feel about the current organizational culture of YMFG and their current job and workplace environment”is the subject of thesurvey and analysis. A change in satisfaction is recognized by a change of ±0.10 points or more in this survey.

Diversity and inclusion initiatives
To become an organization that can always
create business with speed, the Group is
actively and continuously hiring andpromoting diverse human assets*1, and at thesame time, by advancing their development,
we aim to achieve a ratio of management
positions of diverse backgrounds of at least
25% by December 2031, and as of the end of
March 2023, it stands at 9.0%.
In addition, recognizing the need for
cultivating an organizational culture to secure
diverse human assets, we have implemented
unconscious bias training primarily at the
management level to eradicate unintentional
preconceptions and prejudices. Moreover,with the purpose of“the creation of anorganization that values opportunities for thegrowth and self-realization of all employees”
as well as an“organization that values
dialog,”we have been implementing
initiatives since December 2021 for all
employees to engage in one-on-one meetings

at least once a month, ensuring that
employees have high motivation and areworking towards realizing diverse career
paths and working styles.
*1 Diverse human assets is a collective term for theCompany’s employees who have diverse
backgrounds, including females, foreigners,
experienced hires, alumni, staff with side jobs, andpeople with experience of external secondments
Ratio of management
positions of diverse
25.0%
backgrounds

Hiring of experienced
personnel■ Alumni

or more31 people

19 people

5.9%
FY2022
Result9.0%

FY2023ResultEnd of Dec. 2031
Target* Females, foreigners, experienced
hires, alumni, staﬀ with side jobs,
and people with experience of
external secondments

0 people

6 people

FY2022
ResultFY2023Result* Alumni hiring began in
December 2021

YMFG Integrated Report 2023

52

Management Letter

Business Strategy
for Value Creation

Power Supporting Value
Creation

Initiatives to promote the active participation of womenInterview with the Female Corporate Sales Job Trial participant

At the Group, over 40% of the core employees are females, and although many are alreadyactive in various business areas, we believe that there is a need to further expand the fields inwhich women are active. Therefore, in addition to initiatives like the Female Corporate Sales Job
Trial, we have set a medium- to long-term goal of having a ratio of females in management
positions of 15% or more by the end of December 2031 and are focusing on measures related
to the career development of women, such as female leader training and Femtech events. The
ratio of females in management positions at the end of March 2023 was 4.5%.

─ What made you apply for the
Job Trial Program?
I worked at the headquarters fora long time, and after taking
maternity and childcare leave, I
switched my career course andstarted working at a sales branchfollowing a long absence. At thattime, I felt a sense of fulfillment
Hofu Branchwhen I could make proposals in
Akiko Okamura,retail (individual) sales that
Section Chief
pleased both customers and theirfamilies, which led me to think that“I would like to expand
the range of my proposals”and“I would like to be of service
to more customers.”The aspiration I had towards a
corporate sales position from my early days as a new
employee was always at the core of my feelings.

Ratio of females in management positions

Ratio of females promoted to leadership roles

15.0% or more

37.6%

16.7%

4.5%
1.2%
FY2022
ResultFY2023ResultAs of end of
Dec. 2031

FY2022
ResultFY2023Result* Ratio of females promoted to leadership roles = number of females
promoted (section chiefs and above)/number of people promoted(section chiefs and above)▪The current state of active participation of women at the Group

Ratio of females
promoted toleadership roles

Management
position

37.6%(Year-on-year: +20.9%)

Percentage
of females
by job level

Examples ofapplicable
positions4.5%

General Manager,
Deputy General Manager

12.7%

Section Manager,
Assistant General Manager

─ How do you find your role in corporate sales?
I have been in this position for a year now, and it is truly
rewarding when I am able to make proposals such as forbusiness succession and business matching, refining projects
together with colleagues from the workplace and otherGroup employees. Every day, as I share various challenges
with our customers and support them, I find it highly
stimulating, full of discoveries and learning, and I truly feel
fulfilled in my challenge of working in the corporate sales
position.
Initially, as I just returned from maternity and childcare leave,
I faced some challenges such as time management. However,thanks to the strong and comprehensive support from my

76.5%
Human Capital Management &General Affairs Dept.

Ayumi Hayashida,

Section Chief
position

Percentage of new female graduates who joined thecompany in the fiscal year ending March 31, 2024
53.9％

Staff position■ Management position:“managerial personnel and supervisors”under the Labor Standards Act
and those with equivalent authority.

■ Management position candidate:

Subordinate personnel by one level to management position■ Section Chief position:

Subordinate personnel by one level to management position candidate

workplace and the headquarters’ person in charge, I wasable to achieve a balance between work and personal life by
consulting and trying out different approaches. In particular, I
remember how reassuring it was when the General Manager
accompanied me on my first visits to all my clients. Even
now, I am in communication with the General Manager, mysuperiors, and colleagues on a daily basis, and I consult withthem before any problems arise.
Given that I might be absent at any time, such as when
taking care of my sick child, I make it a point to keep arecord of the progress of my projects and share it with mysuperiors and colleagues.
─ Can you tell us about your future goals?
I want to grow personally by taking on new challenges
regardless of my age. I also want to become a reliablesupporter that my colleagues and subordinates can dependon by absorbing the good qualities of the people I meetthrough my work.

Female Corporate Sales Job Trial Program
Since February 2022, we have been implementing the“Female Corporate Sales Job Trial”to support the
career development of female employees and to havethem play an active role in corporate sales. We seek
female employees who would like to work in corporate
sales, and while they actually work for customers, theyobtain knowledge on business feasibility evaluations,financial analysis, credit ratings, etc., and are given
on-site OJT guidance.

Interview with Femtech seminar organizer

33.9%Management
position candidate

53

About YMFG

Deputy Assistant Manager

─ Can you tell us the backgroundof the seminar?
With the aim of promoting theactive participation of women, we
wanted to achieve a state where
women can work vibrantly andhealthily both mentally andphysically, alleviate the resistanceto“active participation of
women”and involve more
employees as stakeholders, so
we organized the Femtech
seminar.

─ How was the seminar and the feedback from theparticipants?
About 160 employees from a wide age range of 20s to 50s
participated in the event. We invited Ms. Nakamura, aleading expert in the Femtech field and the director of
fermata Inc., which operates the world’s first
Femtech-specific online store, to provide an overview ofFemtech and deepen understanding on products addressing
individual issues, as well as share concerns and anxieties by
age group.
Through the event, there were many comments about
gaining insights into company changes, the importance of
health literacy, and the significance of mutual understanding,and I believe it provided an opportunity to shift fromunconsciously viewing women-specific health issues as taboo

and enduring them, to a mindset where these issues can be
improved and resolved through enhanced literacy andmutual understanding, leading to inner branding.
─ What are your plans for the future?
We plan to continue organizing seminars by each healthissue and considering introducing Femtech services. We also
want to promote participation by male employees andinitiate activities to promote wellness for both men andwomen.

What is Femtech?
Femtech is a term coined from the words“female”and“technology.”It refers to products, services, andinitiatives aimed at addressing women’s health issues.
The term is also used in Japan to refer to the entire
movement of this kind. As women’s societal
advancement progresses, the related markets are
expanding worldwide.

YMFG Integrated Report 2023

54

Management Letter

Development of human assets for realization of the purpose
At the Group, we believe that working together to create opportunities
that will allow for each employee to play an active role and providing
support for growth in a manner that gives him/her satisfaction isessential to our business activities, which are centered around the
purpose of“co-creating a bountiful future for our region.”
Therefore, in the fiscal year ended March 31, 2023, we invested¥141 million in human assets development, approximately double theamount invested in education compared to the previous fiscal year,
implemented reskilling training to strengthen the expertise of traditionalbanking business and learn know-how in non-financial areas, and also
expanded internal postings to strengthen our commitment to realizing
each employee’s aspirations for the desired state.
Furthermore, in order to build a new organizational culture, we havebeen implementing a system of secondment to companies andorganizations in different industries since the fiscal year ended March
31, 2017, with the aim of returning the know-how and insights of othercompanies to the Group, and as of March 31, 2023, a cumulative totalof 81 employees have been seconded.
Curriculum (excerpts)
・DX seminar(For management level / forsales branches)

・Career design training
・Management skill
improvement training
・One-on-one coaching skill
training

11

14

2

11

7

5

30

20

■ Manufacturers■ Trading companies■ Retail ■ Finance■ Service and infrastructure■ Software and telecommunications■ Advertising, publishing, and massmedia
■ Government, public offices, andorganizations

FY2022

FY2023Year-on-year¥70 million¥141 million+¥71 million

Total annual
training hours

35,905 hours 36,860 hours+955 hours

Total number oftrainees

4,218 people 5,531 people +1,313 people

Investment ineducation

・Unconscious bias training

Establishment of an internal environment aimed at realizing diverse career paths and working styles
The Group is continuously working to
improve corporate value over the medium tolong term and create a work environment
where employees can shine by leveraging
their individuality.
Specifically, we revised promotion
standards (promotion requirements) that
greatly influence employee careerdevelopment, responded appropriately tocontributions (achievements) to organizational
performance, and introduced the“Employee
Stock Ownership Plan (J-ESOP)”aimed atraising awareness of medium- to long-term
corporate value enhancement among
employees.
Moreover, in order for employees toactively engage in various reforms, we haveestablished systems such asMy Voice*1 (adirect channel with the CEO), My
Improvement (business improvement
proposal system), and YMFG Growth (newbusiness proposal system) to stimulate
communication between employees in thefield and the management and theheadquarters. In addition to initiatives related
to working styles such as a return to work
system, short-time work system, opening of55

on-site childcare centers, introduction of side
job and flextime systems, and implementationof teleworking, based on employee feedback
and analysis of the current situation andRevision of promotion requirements
MinimumtenureAbolished

Shift from“seniority”to an“emphasis on skills andaptitude”

Promotion
examination

Abolished

Considering“expertise suited
to diverse tasks”in addition to“banking business knowledge”

Share-based remuneration system
Objective

Aim

Rewards for organizational
contributions“Improve motivation”of employees
and“Raise awareness of medium- tolong-term corporate valueenhancement”

Sharing interests withshareholders

challenges, we newly introduced a special
leave (effective from April 2023) to promotechildcare leave acquisition among male
employees. During the fiscal year ended
March 31, 2023, the acquisition rate ofchildcare leave and other leave for childcare
purposes for male employees was 16.3%, andwe aim for a 100% childcare leave acquisition
rate through various system designs andawareness activities.

Group employee

Grant points according to organizational performance
Grant the Company’s shares, etc. according to granted
points upon retirement

Power Supporting Value
Creation

Support systems (excerpted)
・Special childcare leavesystem・Side job system

・Short-time work system

・Implementation of
teleworking

・Introduction of flextime
system・Return to work system
・Opening of on-site
childcare centers

Achievements in promoting
system leave acquisition*1 A system that encourages each employee to think
independently and to express opinions casually
without holding back. Opinions and requests aboutorganizational structure and various systems areconveyed, and measures are discussed andaddressed at each Group.

Male childcare leaveacquisition rate

FY2023 system leaveacquisition rate

FY2023
actual results

93.9%

16.3%

* Promoting the use of a total of 15 daysof paid leave consisting of consecutive
leave (5 days), split consecutive leave(5 days), and refresh leave (5 days)(As of March 31, 2023)▪Return on investment in education

・Female employee leadershiptraining
・Business diagnosis skills
courses by field・Onboarding training(Training for experienced hires)

Breakdown of industries（%）
for secondment

Business Strategy
for Value Creation

About YMFG

Measurement of employee engagement
In the Group’s sustainability and the improvement of social sustainability, human capital is
positioned as a crucial component, and we conduct employee awareness surveys with theobjective of understanding employees’ awareness and the state of organizational culture. In thissurvey, we investigate and analyze“how employees feel about the current organizational cultureof YMFG and their current job and workplace environment,”and by understanding the gap
between the Company’s desired state and the current situation, we utilize the insights for acomprehensive and continuous review of the personnel systems and policies.
In the fiscal year ended March 31, 2023, about 4,700 employees of the Group as a whole(including contract and temporary hires) responded, and the overall satisfaction level was 3.57
points and deemed“maintained.”Among the element categories, the primary category“loyalty to
the company”that makes up overall satisfaction showed a positive change at 3.32 points (+0.10
points year-on-year)*1, and within this category, we confirmed an improvement in satisfaction levels
for elements such as“trust”in management,“field sensibilities,”and“communication of vision.”
Based on the analysis of the survey results, etc., we believe it is crucial for transforming theGroup’s organizational culture to enhance satisfaction levels concerning“supervisors”as well as“creativity*2”and“diversity*3”in work, and we have set KPIs for these items and will continue todevelop various measures.
*1 This survey is evaluated up to a maximum of 5.00 points, and a change is recognized by a change of ±0.10
points or more
*2 Producing new things and know-how without being bound by existing frameworks*3 Availability of opportunities to acquire or demonstrate diverse capabilities and a broad range of skills
Overallsatisfaction

3.57 points

Work
Influence
Creativity
Diversity
Autonomy

Satisfaction“Improved”
Satisfaction“Maintained”

WorkplaceYear-on-year

Factors

Unity
Customer-orientation
Communication
Mutual growth＋0.23
pointsCreation of dialog
opportunities such as
meetings to exchange
opinions on themedium-term management
plan, etc.

Supervisors

Company＋0.18
pointsCommunication
Task completion
Member development
Trust building

Trust
Field sensibilities
Communication of vision
Evaluation and treatment

Reflection of opinions fromthe field in management
using My Voice, etc.

＋0.12
pointsEstablishment of purpose/
vision and dissemination
to employees＋0.10
points

Revision of the evaluation
system▪Implementation of measures thatreflect employee feedback throughemployee awareness surveys, town
hall meetings, etc.
Group employee
EmployeeawarenesssurveyTown hallmeeting

Management and headquarters* In the fiscal year ending March 31, 2024, there areplans to hold 20 town hall meetings organized bybusiness entities and regions

YMFG Integrated Report 2023

56

Management Letter

About YMFGBusiness Strategy
for Value Creation

Power Supporting Value
Creation

R ound - t ab le D iscussio n wi th E mp l o y e e s
Incorporating individual’s“own”aspirations into My Purpose
Five employees discussed their own My Purpose and the reasons for setting them, andshared their visions for YMFG’s future, all aimed at realizing the purpose of YMFG,“co-creating a bountiful future for our region.”— Please tell us about your“My Purpose”
and the reason for setting it.
Shiga: My Purpose for me is to“become aprofessional generalist.”I wanted to be the“ultimate jack-of-all-trades”ever since I wasyoung. To this end, I believe that it isessential not only to acquire knowledge
and skills for oneself but also to establish a
network of experts, and I have always been
actively involved in collaboration work withexternal parties. As The Kitakyushu Bank,
Ltd., to which I belong, is not a large bank,in order to gain the trust of our customers,
we must provide thorough answers to eachand every consultation. When I have aproblem that I cannot solve on my own, I
utilize the YMFG network to find a solution
and strive to address any concern.

Yuzo
HigashiJoined in 2020
The Yamaguchi Bank, Ltd.
Customers’ Business
Potentials Evaluation Dept.
Section Chief

Saki
Yoshiyama
Joined in 2017
The Yamaguchi Bank, Ltd.
Head Office Sales
Department

Akiko
Narimitsu

Tomohiro
Amita

Joined in 2002
Momiji Bank, Ltd.
Fukuyama BlockArea Manager

Joined in 2008
YMFG ZONE PLANNING
CO., LTD.
Section Manager

Noritaka
Shiga
Joined in 2007
The Kitakyushu Bank, Ltd.
Tobata Branch AssistantGeneral Manager

At YMFG, each and every employee formulates their own“My Purpose”as the
purpose of life and meaning of work, and by viewing YMFG’s purpose as a personal
concern, employees can deepen their understanding and empathy and feel a senseof fulfillment in their daily work.
We believe that each employee’s active participation and growth, living out their My
Purpose, will ultimately lead to the realization of YMFG’s purpose.
57

Narimitsu: My Purpose for me is“a chain ofsmiles.”While we of course strive for
consulting proposals and problem-solving
that bring smiles to our customers,
employees also collaborate as a team,sharing opinions, producing synergies, andaiming for successes as a result to makeeveryone smile. As a matter of course, inorder to achieve results as a manager, I
make sure not to be satisfied with just thesense of unity but to act with clear goals inmind.

Rather than just selling financial products, I
am constantly refining my information
gathering and conversation skills to givecustomers positive feelings when they meet
me. Now, customers feel free to consult me
about anything, which gives me a sense of
meaning to my existence and motivates me.
Higashi: My Purpose for me is“regional
revitalization through sports and businessevaluation activities.”I am the coach of The
Yamaguchi Bank, Ltd. women’s handballteam,“YMGUTS,”and I am engaged in bothpromoting regional sports and providing
solutions of the Customers’ Business
Potentials Evaluation Dept. I was a handball
player for a company outside of Yamaguchi
Prefecture before joining YMFG in 2020. I
feel that I was nurtured by the region
through the sport I love, so then I wanted
to give back to the region, prompting me tochange jobs and return to Yamaguchi
Prefecture. I think that the appeal of theCompany is the opportunity to meet people
from various industries through the financial
business and work together to revitalize theregion. I believe that a center or nucleus for

Yoshiyama: My Purpose for me is to“bringsmiles to the people I meet throughfinance.”For me, the joy and fulfillment in
my job come from the smiles and trust of
our customers. I believe this will lead to“co-creating a bountiful future for our
region.”I am in my seventh year with thebank, and from the end of my second year,
I have been in charge of asset management.
YMFG Integrated Report 2023

58

Management Letter

About YMFGBusiness Strategy
for Value Creation

Power Supporting Value
Creation

Rou n d -t a bl e D i s c us s i on w i th E m p lo y e e s
the region is important, and I want theregional children to feel a sense of unity
through sports.

cycle for the entire company by fairly
evaluating motivated people regardless of
their tenure.

Amita: My Purpose for me is the“realizationof HYGGE.”This word HYGGE is a Danish
word that means“a cozy space”and“enjoyable time.”This was a word taught
to me by a customer I used to work for,and I feel it is crucial in the fields and tasks
I currently handle. I am currently involved inwork related to regional revitalization,
especially urban development projects. In
urban development, I aim not just to
replace buildings but to offer a cozyenvironment for the current and new
residents, which is why I have adopted therealization of HYGGE as My Purpose.

Yoshiyama: Because the longer one’s
current job experience, the morediscouraged to take on other new tasks, I
believe mechanisms such as the Female
Corporate Sales Job Trial where one canexperience various jobs are alsomeaningful. I myself have been utilizing thissystem, and until now, I have only had
experience in asset management operations
and had the desire to broaden the scope ofmy operations. Honestly, I was hesitant toparticipate, but I applied because I wanted
to try out my potential. I feel that thischallenge has broadened my perspective,
and such experiences might lead toopportunities to envision a broader future
career without being constrained to one
way of thinking or one type of task.

for work that does not produce immediate
results. One thing I take care of during oneon-one meetings is to broaden myperspective, closely observe andunderstand the current state andcircumstances of my subordinates. I tell mysubordinates that they should not stop
thinking, which of course applies to me aswell. If they stop thinking, they would
completely rely on others, for this reason, I
believe that continuously pondering matters
is vital to act proactively.
Yoshiyama: Having one-on-one meetings
with superiors allows me to receive manypieces of advice, and I feel that it generally
has many benefits.

― What initiatives are you taking for theformulation and realization of My Purposeby employees?
Narimitsu: In one-on-one meetings withsubordinates, while some employees havea clear purpose, I also meet employees
who find it challenging to formulate one. In
such cases, I convey the strengths andweaknesses I see in them as a superior andprovide advice on defining their purpose.
Shiga: For example, for employees who areunable to formulate a clear vision for the
future, we hold one-on-one meetings toconvey our thoughts on“how we wantthem to grow in the future.”
Amita: I believe it is essential to thoroughly
evaluate the process of subordinates, even59

Higashi: At the Tokuyama Branch of The
Yamaguchi Bank, Ltd. where I work, we hada routine of announcing My Purpose during
the morning assembly. This sharing gave us
insights into“each other’s thoughts on
work,”leading to more conversations within
the branch. Even in the short 15 minutes in
the morning, I believe that just sharing
thoughts can gradually change theworkplace atmosphere.

― How do you perceive YMFG’sorganizational culture reform for therealization of My Purpose? What are yourthoughts on the“desired state”for the
future?
Amita: I believe that the“abolition of theminimum tenure”is a very significant
initiative. I think it can create a positive

Amita: I utilized the secondment system,and seeing YMFG from the outside was avaluable opportunity to change my values
and perspectives. When everyone in thesame organization looks in the same
direction, their way of thinking can become
entrenched, but I feel that being able to see
things differently and building new
networks has been extremely beneficial to
my current work. I think such opportunities
should be increased in the future, especiallyfor younger employees.

Narimitsu: I feel that the way time is used
has become more flexible than before with
the introduction of the flextime system. Thissystem is particularly helpful when my childbecomes sick. Also, when I feel unwell, it iseasier to go to the hospital and manage myhealth thanks to flextime. Although there
are concerns about taking sudden days off
and causing inconvenience at work, butwith flexible workstyle options, I feel it has
become easier to achieve a balance
between work and family life.

Higashi: The onboarding training forexperienced hires, which I also participatedin, was a great opportunity to learn about
the Company’s stance and management
policies that have been passed down
through its long history. Although I feel thatthe financial industry does not hire many
experienced people, I think there will be
more opportunities to hire professionals as
our business expands. It is essential forexperienced hires to understand YMFG’s
corporate culture, purpose, and systemthrough training. After joining YMFG myself,what I felt strongly was that everyone
approaches their work with professionalism
and a sense of responsibility. I feel this as asignificant strength of YMFG. Always beinga trusted company in the region while
carrying on tradition is what I believe ismost important. As a member of YMFG, I
will strive to realize our purpose of“cocreating a bountiful future for our region.”

YMFG Integrated Report 2023

60

Management Letter

Priority Item III

Pursuit for the“Maximization of Value Provided to Our Region and Customers”

Recognizing the high rate of successor absence, a characteristic of the YMFG sales area, and therevitalization of the regional economy affected by the COVID-19 pandemic, etc. as significant
regional issues, YMFG offers solutions based on business evaluation activities leveraging theGroup’s comprehensive strengths.
Moreover, by enhancing financial businesses such as ship finance and structured finance, we
also aim to boost the profitability of our corporate strategy.

Establishment of a foundation to support“business revitalization and regrowth”

Since July 2022, the banks and group companies have collaborated to establish the Business
Revitalization Review Committee (a consultative body) as a cross-group organizational entity,
preparing a foundation in the fiscal year ended March 31, 2023, to focus on business
revitalization and regrowth. Starting from the fiscal year ending March 31, 2024, we will
effectively utilize this structure to accelerate support for regional business operators facing
challenges and tackle the resolution of these issues.
Improvement of customer sustainability
Demonstration of group synergy

Revitalization
Council

Regional ﬁnancial
institutions

Nishiseto Regional
CO-creation Servicer Inc.

Initiatives to help solve the“successor absence issue”
We approach the absence of successor issue from various perspectives, utilizing the diverse
knowledge that YMFG possesses to the fullest.

Consulting (next generation
development, stock succession)
M&As

Business succession finance

Human assets matching
Utilization of regional human assets
platform

Utilization of funds
Search Fund, Elixir FundBusiness succession through the Search Fund

Search Fund
Search expense investment

Negotiation of
succession andstock acquisitionTaxaccountants

Lawyers
YMFG ZONEPLANNING CO., LTD.

YM Career Inc.

External companies(real estate companies, etc.)

Accelerate efforts
in the fiscal year
ending March 31,
2024

M&As

Plan
formulation

Consulting

Hands-onsupportDDS

DIP finance

DES

Providing support to companies aiming for“business revitalization and regrowth”

LP: Limited Partner

Capital gain

Corporate
management

SustainablegrowthResolving businesssuccession issues forregional companies

61

YAMAGUCHICAPITAL Co., Ltd.

Utilization ofservicers

Utilizing the“receivables purchase function”of Nishiseto Regional CO-creation Servicer Inc.
(hereinafter,“Nishiseto Servicer”), we provide support for business revitalization and regrowthof customers struggling with issues such as excessive debt. Furthermore, as part of our banking
business, we have been advancing our business revitalization support services and, in
collaboration with group companies, we have established a system providing comprehensive
management consulting functions.
In February 2023, the“Chiiki Mirai Revitalization Fund”(General Partner: MIRAI Consulting
Investment Co., Ltd.) was established as the first wide area fund in which Organization for Small& Medium Enterprises and Regional Innovation, JAPAN (hereinafter,“SME Support, JAPAN”)
invested a majority, targeting western Japan. By laying out a comprehensive support structure
including the financial support provided by the fund, and the receivables management andcollection business as a servicer, we will lead to fundamental business revitalization andregrowth.

Stock acquisition expense investment
Search forsuccessor
companies

YM CONSULTINGCORPORATION

Utilization offunds

Utilization of Nishiseto Servicer

The Search Fund has the objectives of inviting
searchers (talented young managers) to the region,
solving business succession issues for regional
companies, as well as diverse social issues,
including the depopulation of the region and thelack of young human assets, and realizing
corporate growth and transformation.
Since 2019, YMFG has pioneered the Search
Fund business in Japan, investing in 11 searchers
and achieving business succession for sevencompanies.
In February 2022, the Fund No.2 wasestablished with investments from various regional
financial institutions, etc. In February 2023, the firstbusiness succession of a core regional company inYamaguchi Prefecture was achieved.

SPC
establishment

Power Supporting Value
Creation

Establishment and effective utilization of a Business Revitalization Review Committee(consultative body)

Corporate strategy

Searcheradoption

Business Strategy
for Value Creation

About YMFG[Investors]

GP: General Partner

MIRAI Consulting
Investment Co., Ltd.

Deal sourcing

Contracting

Nishiseto Servicer

SME Support,
Outsourcing
JAPAN(Commission fee)
The Yamaguchi
Investment
Management
Management fee
Bank, Ltd.
Management and collection
supportExecution ofContingency
fee
Hands-onMomiji Bank, Ltd.
business
supportThe Kitakyushu
Bank, Ltd.
Investment
Investee
Chiiki Mirai Revitalization
The Ehime Bank, Ltd.
DPO,
(Rehabilitated companies
Fund Investment
Hagiyamaguchi
Reﬁnancing,
Shinkin Bankanddiscontinued
businesses)
Limited Partnership
Purchasing
M&As, etc.
Higashiyamaguchi- Distribution Total amount: ¥3.0 billion monetary claims from Target area: All of western Japanﬁnancial
institutions
Shinkinbank
Fund term: 8 years
NISHI CHUGOKURevenue from receivables collection through rehabilitation and business discontinuation support
SHINKIN BANK
Investment term: 5 years(= amount of receivables collection - book value of purchase - miscellaneous expenses)

YMFG Integrated Report 2023

62

Management Letter

TOPICS

Business Strategy
for Value Creation

About YMFGPower Supporting Value
Creation

TOPICS

Development of ship financeNew establishment of the Structured Finance Office

YMFG regards the maritime industry including
shipbuilding business as the key industry in
Setouchi and Northern Kyushu, and aims tocontribute to the maritime industry
development by enhancing our commitment toship finance (hereinafter,“SF”).
In March 2022, the Ship Finance Officespecializing in SF was relocated to Imabari City,
Ehime Prefecture, where shipbuilding andmarine transportation businesses are thriving.
Since then, the balance of loans has constantly
increased and the accumulation of financebusiness know-how is progressing steadily.

Average ship ﬁnance balance
562.3(Billions of yen)

599.5

449.2
348.5

FY2021ResultFY2022
ResultFY2023ResultFY2024
TargetFor YMFG, it is an urgent need to establish a new pillar of revenue during this medium-term
management plan period, and from the perspective of enhancing profitability as a part of“strategic capital utilization,”we have newly established the Structured Finance Office to bolster
our efforts in the structured finance domain, including the development of specialized humanassets.
Until now, the Structured Finance Office has centralized the management of projects that thethree group banks had been working on individually, aiming to consolidate knowledge andaccumulate know-how, with the goal of growing the structured finance loan balance and profits
towards the last fiscal year of the medium-term management plan.
* Structured finance
Structured finance refers to a financing method that is not based on corporate creditworthiness or collateral value, including project finance and LBO
loans (leveraged buyout: finance that uses the cash flow from the acquired M&A target as a repayment source). For customers who need financing,
this financing method focuses on the cash flow generated from the targeted project or asset, making it possible to achieve large-scale financing andrisk control.

Strengthening the Nishiseto partnership agreement

YMFG entered the Nishiseto partnership agreement with The Ehime Bank, Ltd. in January 2020
to share know-how in ship financing and regional revitalization with the aim of promoting
regional development of the Nishiseto area.
Since entering the partnership agreement, we have strengthened our collaboration in the
Nishiseto area, such as by jointly establishing Nishiseto Regional CO-creation Servicer Inc. andNishiseto Marine Partners Inc. with The Ehime Bank, Ltd. Joint financing projects with The Ehime
Bank, Ltd. in the fiscal year ended March 31, 2023 increased about sevenfold compared to thefiscal year ended March 31, 2021, the first year after entering the partnership agreement,
steadily achieving synergies through cooperation.
Exploring alliances that leverageeach other’s strengths
The Ehime Bank, Ltd. (Matsuyama City)・Loans of ¥1,927.5 billion
Loan balance as of March 31, 2023)
・”Ship Finance Department”established,with strength in ship ﬁnancing

Joint ﬁnancing projects

Co-creating abountiful future forour region

Sharingknow-how
Return of humanassetsYamaguchi
Prefecture
Fukuoka
Prefecture

Ehime
Prefecture

Holding the Maritime Industry Exchange Meeting
In November 2022, as part of the Nishisetopartnership agreement initiatives, YMFG heldthe“Maritime Industry Exchange Meeting 2022”
in Imabari City, Ehime Prefecture, incollaboration with The Ehime Bank, Ltd.
Approximately 280 people from about 170
maritime-related companies were invited,primarily international shipowners widely from
Tokyo to Northern Kyushu, and in addition to alecture on the theme of“the outlook on themaritime market”by analysts from a major
overseas research firm, the networking event
greatly deepened the relationships among thebusiness operators involved in the maritime
industry.
YMFG will continue efforts to contribute to thedevelopment of the domestic maritime industry.

Improvement ofskills of specialized
human assets
Return of specialized
human assets to
YMFG area(Billions of yen)

21.1

Tokyo
metropolitan
area

7.8

YMFG area

3.1
FY2021Result63

PurposeFY2022
ResultFY2023ResultStructured financeorigination in YMFG local
area (arranger)▪Forming projects
unique to YMFG inline with customer needs

Accumulationof know-how
Acquisition anddevelopment of
human assets
Networkbuilding

New establishment of theStructured Finance Office▪Attracting new capital
investments and business development in
the local area through project formation.

Medium- to long-term initiatives linked to YMFG’s purpose

YMFG Integrated Report 2023

64

Management Letter

Retail strategy

About YMFGBusiness Strategy
for Value Creation

Power Supporting Value
Creation

Omni-channel adoption through the expansion ofsmartphone app and call centers

Proposal of appropriate financial products according to life stages
Under the background of the diversification of lifestyles, such as in terms of people’s perceptionsof life and working styles, customer needs as well as thoughts and methods for selecting
financial services are also changing. YMFG supports abundant lives by helping form customers’
assets and alleviate their concerns about financial uncertainty, through mainly a digital approachfor younger and asset-forming customers, and face-to-face consulting for middle-aged and (semi)high net worth customers.
Strengthening of FP powerwith clearly deﬁned targets

Household ﬁnancial assets

Prior toretirement

Prior toinheritance

Prior tohome purchase

Prior todeath

Strengthening of portfolio
proposal capabilities

Organizational
knowledge andsophisticationof services

Asset management services
for high net worth individuals

In addition to approaches through enhancing
smartphone app functions, by increasing call center
staff, we aim to strengthen contact points withcustomers and promote omni-channel adoption.
By dividing the center into two departments, theloan department and the asset management
department, we aim to enhance the specialization ofcall center work, implement efficient customertransfer to apps and sales branches using the callcenter as a starting point, and increase the balancesof housing loans and investment trusts.

Number of smartphone app downloads (10,000 cases)(cumulative)
75
65

Customertransfer
Simpliﬁed asset
management service

Call center

Sales
branches

Smartphoneapp

Secured loan balance(average balance)
1,241.0
1,209.0(Billions of yen)

1,318.1

52

Enhancement of in- and outbound functions through theestablishment and utilization of strategic contact centers
Installment
savingLoan
CreditPayrolltransfers

Strengthening the UX of the smartphone
app and cross-selling througheasy-to-understand preferential programs

Development of infrastructure
for coordination among banks,
securities companies,
and insurance companies

FY2023ResultReinforcing the customer
base using digital means

Number of NISA accounts opened(cumulative total since FY2023)

Providing lifetime transactions
with a focus on“ease,”“peace of mind,”and“enjoyability”

Finding employment

Marriage

Retirement period
HousingPrior to retirement /Prior to inheritance

YMFG will promote financial literacy by conducting“financial seminars”for employees of companies, as wellas“financial education classes”for students fromelementary to high schools and university.
The importance of students having correct financial
knowledge has increased, especially since the legal ageof adulthood has been lowered to 18. By improving
financial literacy in the region, we aim to promote a shift
from savings to investment, and to provide support toprotect valuable assets.

65

FY2024
Target

Net increase in investment
trust balance
34.2

FY2025
Target(Billions of yen)

35.3

3

Inheritance(People)Total number of participants inﬁnancial courses*(cumulative total since FY2023) 11,343

8,418
5,493

FY2024
TargetFY2023Result14.2

FY2023ResultFY2023Result(1,000 accounts)

End-of-life
preparation period

Approach towards the younger and active generations
Improving financial literacy through holding financial
education classes and seminars

FY2025
Target42

Life stage
Active period

FY2024
TargetFY2025
Target* Combined total of“ﬁnancial education classes”and“ﬁnancial seminars”

FY2024
TargetFY2025
TargetFY2023ResultFY2024
TargetFY2025
TargetAsset management and smooth succession measures from the retirement period to the end-of-life preparation period
In the era of a 100-year life span, we support customers to lead an abundant second life byproposing the management of retirement savings and smooth inheritance measures during their
end-of-life preparations.

Creation of a long-term money plan for retirement savings

For pre-senior customers around their retirement age (aged 50 to 69 years), we conductdetailed consulting tailored to the customer’s life plan and asset status, and practice long-term
asset management and back up support.

Expansion of trust products and services

YMFG has long been focusing on promoting and educating the public about private trusts, andholds“family trust seminars”two to three times a month. Going forward, we will expand trust
products and services to build a lineup to meet a wide range of inheritance needs.

65

YMFG Integrated Report 2023

66

Management Letter

About YMFGBusiness Strategy
for Value Creation

Power Supporting Value
Creation

Challenge to“Expand Business Areas and Strengthen Profitability”
Regional co-creation strategy
Priority Item IV

The Group aims to create new value in the region by actively arranging“regional ecosystems”thatresolve regional social issues, creating many ecosystems, and implementing them.
The growth of existing business and the creation of new business in the regional co-creation
field will accelerate the resolution of regional issues, and realize the creation of new industries forthe further growth of regional co-creation businesses in major areas.

<Regional co-creation business model diagram>Yamaguchi, Hiroshima,Northern Kyushu

Regional issues inmain areas

Identiﬁcation ofregional issues
and needs

YMFG ZONEPLANNING CO., LTD.

Creation of next generation businesses
that drive the region

Abbreviated name: YM-ZOP

Established as a wholly owned subsidiary of YMFG.
To create a new “regional co-creation business”
aimed at solving regional issues, we handle theprocess of identifying issues, business planning andproposing solutions for these issues, conducting
demonstration with central government ministries,
local governments, and private business operators,
and commercializing them.

Local design

Demonstration

Creation of examples

Support for the developmentof sales channels forregional products

Wholesale andretail of regional
products(Established in 2017)●Refer to next page

Connecting aﬃliated stores in
the region and local business
operators through welfare

Welfare agency
business

Commercialization(Established in 2021)●Refer to next page

Cooperation

Paid employment
referral businessCentral government ministries,
local governments,
private business operators, etc.

YMFG ZONEPLANNING CO., LTD.

Creation of new value
with a future-oriented approach- Creation of businesses that produce
a virtuous cycle of regional co-creation -The business concept of YMFG ZONE PLANNING CO., LTD. (hereinafter,“YM-ZOP”) is“designing the future with the region.”As a regional
revitalization consulting company, we envision the ideal future of theregion, involve the region, and engage in various businesses with anattitude of creating that future of our initiative.
In particular, we are strengthening our eﬀorts in ﬁve areas of
public-private partnerships (PPP/PFI, SIB) and urban development,
entrepreneurship and venture development, tourism, green, and humanassets and education.
We provide consulting and execution support from a perspective of“aspects,”such as the regional economy and business environment,
aiming to achieve steady results through new initiatives to solve socialand regional issues.
Representative Director

Yoshinobu
Kurashige

Joined The Yamaguchi Bank, Ltd. in
2002. After working at a sales
branch, he was involved in projectﬁnance, etc. at the headquarters.
Since 2015, he has been seconded
to YMFG ZONE PLANNING CO.,LTD. and has been in charge of
PPP/PFI and urban development.
He was appointed as YM-ZOP’s
Representative Director in January
2021.

67

Contribution to the regional
economy by businesses createdthrough regional revitalization
consulting activities(Cumulative total since FY2023:
Billions of yen)

3.4

FY20236.0

4.0

FY2024

Connecting local companies
and management human assets

FY2025

TOPIC New establishment of YM-ZOP’s Tokyo oﬃce

In March 2023, YM-ZOP opened its Tokyo oﬃce in
Kasumigaseki, Tokyo. In addition to gathering
information on government policies, etc., we also
strengthen relationships with organizations suchas start-ups and major companies that engage ingroundbreaking initiatives contributing to regional
issue resolutions within the region.
By utilizing new business site, we will strive topioneer initiatives and create businesses in the
YMFG sales area (Yamaguchi, Hiroshima, andnorthern Kyushu) with a sense of speed.

(Established in 2019)

Business
evaluation activities
as a ﬁnancial group

Expansion outsideof main areas- Contributing to the revitalization of the region
from the aspect of“human assets”-

As a subsidiary of a regional ﬁnancial group, we support the resolutionof challenges faced by regional companies from the aspect of“humanassets.”We aim not only to introduce human assets but also tocontribute to the growth and development of regional companies.
A chronic shortage of labor is cited as a regional issue in the YMFG
sales area. Population decline and aging are serious issues for bothcompanies and the region. On the other hand, Yamaguchi Prefecture,
Hiroshima Prefecture, and northern Kyushu have many attractive regional
companies. We consider it our mission to attract excellent human assets
from outside the region and contribute to the revitalization of the region
by disseminating such real information.
People are the most valuable resources for both the region andcompanies, and we hope to open the door to new possibilities while
also improving the quality of the businesses we are
currently developing.
Localgovernments/ SMEsFurther regional
revitalization

Connecting people and companies,
solving business challenges

YM Career Inc.

Management level and middle
level human assets referral
Secondary job andside job human assets referral

Resolution ofregional issues

Core humanassets in
the Tokyo
metropolitan
area

Utilization ofdiverse human assets

Population inﬂow to the region
through the regional co-creation
business(People)226

FY2023240

FY2024270

FY2025

Representative Director

Hiroshi Matsuura
Joined The Yamaguchi Bank, Ltd. in
2009. He then worked in the
bank’s sales branch and theplanning department of YMFG.
Since October 2019, he was
assigned to YM Career Inc. and
YM-ZOP (concurrently), and was
mainly in charge of sales planningand business planning for YM
Career Inc. He was appointed as
Representative Director of YM
Career Inc. in June 2020.

YMFG Integrated Report 2023

68

Management Letter

About YMFGBusiness Strategy
for Value Creation

Power Supporting Value
Creation

Initiatives to improve regional value through investment
Mission is to promote

Regional Trading Company“Yamaguchi Prefecture products”- Aiming to be a regional general trading
Yamaguchi Co., LTD.
company supporting the regional economyWe aim to sell Yamaguchi Prefecture products outside the prefecture andmake Yamaguchi Prefecture a“proﬁtable region.”
Surrounded by abundant nature, Yamaguchi Prefecture is a treasure
trove of food, including seafood and mountain delicacies, as well as
nationally renowned Japanese sake, and our mission is to spreadawareness of these attractive products to people outside the prefecture.
Yamaguchi Prefecture as a whole is facing the major challenge of adeclining population. As the regional economy continues to shrink, it isurgent to promote attractive prefectural products outside the prefectureand develop new markets.
As a regional general trading company supporting the regional
economy, we aim to further develop the brand for Yamaguchi Prefecture
products and enhance added value.
Representative Director

Yuta
Nakamura

Existing
businessareas

Joined The Yamaguchi Bank, Ltd. in
2006. After working at the bank’ssales branch for approximately
eight years, he was engaged inbusinesses such as support forbusiness partners’ solutions andconsulting related to regional
revitalization. He was appointed as
Representative Director of Regional
Trading Company Yamaguchi Co.,
LTD. in June 2021.

New
businessareas

Funds returned to the region due
to the expansion of regional
product sales channels

0.7(Billions of yen)

0.4

Number of start-ups invested in (Companies)

FY2023

FY2024311▪ EC website operation support▪ Export of domestic products Japanesesake and livestock products, etc.

Regional
companies

Consumption
and purchase69

INESUS app(Welfare service)

Regional
storesRegional
Living support
storesemployees

182

12.8

Alliance business*▪ Investment in partner companies

54.1
44.5

35.6

27.7

▪ Import of food ingredients

20.0

16.6

23.0

▪ Work with companies that lacka successor* Work with business operators
including investment

FY2020

Number of customers that used theaﬃliated stores of the welfare
services and the number of times■Number of customers (People)
57,500■Number of times (Times)

22,4014,283

FY202332,000
5,000

5,750

FY2024FY2025

Representative Director

Consumption
and purchase

482

FY2025EC business ▪ Domestic EC website sales (B to C)

The business of INESUS Inc. is“welfare agency services.”In simple terms,
employees and their families of companies that have introduced our welfare
services can receive various beneﬁts at local INESUS aﬃliated stores.
While there are several similar services on a national scale, we focus on
the theme of“locally produced, locally consumed welfare,”enlisting theparticipation of familiar stores and companies rooted in the region.
In the YMFG sales area, we provide coupons for approximately 4,500
stores (as of March 31, 2023), and we pride ourselves on the advantage ofbeing able to approach not only chain stores but also individual shops
because our parent company is a regional bank.
Our vision is to“unite the community, foster aﬀection, and create alocal community where people can live in peace.”We will work with asense of mission towards realizing a local community where the companies
that have introduced our service, their employees, and local aﬃliatedstores can live in peace and achieve happiness for all three parties.
Regional
Living support company
employees

573

Of which, total pledged to start-ups (Billions of yen)

Realizing town revitalization through“locally produced, locally consumed welfare”

INESUS Inc.

YAMAGUCHI CAPITAL Co., Ltd., as a venture capital company rooted in the region, supports thegrowth and nurturing of small and medium-sized enterprises in the research, development, andfounding phases, and works to revitalize them that play a major role in the economic vitality andemployment of the region.
Including YAMAGUCHI CAPITAL Co., Ltd., the overall investment performance of YMFG has
been improving annually, and through support to regional companies by investment, we aim toenhance the regional value.
Total fund investment commitment (Billions of yen)

0.1

Domestic▪ Support for sales channel expansion
distribution ▪ Support for product development (branding)business▪ Support for improved productivity

Overseas
distribution
business

YAMAGUCHI CAPITAL Co., Ltd.

Tatsuro Ono

Joined The Yamaguchi Bank, Ltd. in 2008.
After working at the bank’s sales branch,
he worked in the bank’s screening
department, where he was engaged inrehabilitation support for business
partners. After being seconded to amajor telecommunications operator andgaining two years of experience in service
development, upon return he wasengaged in new business development,
and initiated and established INESUS Inc.
He was appointed as Representative
Director of INESUS Inc. in April 2023.

FY2021

FY2022

FY2023

Holding of the Shimonoseki Add-venture Summit
In partnership with DOGAN beta, Inc. (Fukuoka
City), as well as YAMAGUCHI CAPITAL Co., Ltd. andYMFG ZONE PLANNING CO., LTD., YMFG and
Shimonoseki City co-hosted“Shimonoseki
Add-venture Summit”(commonly called“SAS”), a
regional revitalization summit, aimed at creation of
innovation by the region and start-ups, for the firsttime on January 20, 2023.
“SAS”is a regional revitalization summit where
the region and start-ups seriously consider and act
for the revitalization of local industries.
On the day of the event, 16 start-up companies
aiming for regional revitalization gave presentations
connecting their products and services with regional
revitalization, and discussions were held fromvarious perspectives on the theme of“the regionand start-ups”to promote the revitalization ofregional industries, including panel discussionsaligned with six themes related to regional
revitalization.
By hosting such events going forward, YMFG aims
to promote creation of innovation in the region bytaking the lead in creating contact points between
the region and start-ups, striving to enhance thevalue of the region.

Panel discussion

YMFG Integrated Report 2023

70

Management Letter

DX strategy

DX human assets
development

DX human assets development
To develop human assets capable of creating new value digitally, we gain an understanding of andanalyze the current status of digital skills of all employees through a DX skill assessment. In
addition, to boost company-wide DX literacy, we have defined roles expected based on skill
levels, set personnel development targets for each level, and are working on improving the skillsof all employees through training tailored to each level, etc.
In addition, in the fiscal year ended March 31, 2023, we conducted training for managementlevel to change their awareness and behavior in the DX field.

Parallel to advancing the digitalization of our services, we are
accumulating know-how through demonstration experiments
for implementing various technologies into the Group’s
operations.
We will make use of the successful experiences andknow-how (BPR, training programs, etc.) accumulated within
the Group, and will solve the issues that are faced byregional companies and other financial institutions.

Lv. ３

Digital core humanassetsLv. ２

Human assets utilizing
digital data (advanced)

Lv. １

Human assets utilizing
digital data (basic)

Lv. ０

Digital novice

Current status
FY2023

Leading the company-wide
DX strategy with highexpertise
Planning, proposal, andimplementation of new business,
etc. using digital data

Utilizing digital and data indaily operations(sales using digital data, etc.)

TargetFY2024

TargetFY20250.2%

0.5%

Digitalization ofover-the-counter transactions

Partial early

0.3%

0.5%

0.3%

7.3%

11%

23.8%

52%

78%

40% or less 10% or less

Cultivating a mindset towards DX
Field-oriented data analysis basics
New sales tactics using customer data

71

Digital reskilling
Lv. 0
Lv. 1

Excel, PowerPoint, and Word skills
Utilizing digital tools (Teams)
DX basics (related to recognition andunderstanding)DX active learning
Lv. 2 orhigherIdeathon/hackathon
Data analysis and utilization (Python)
BPR planning/new business creation

Introduction of various
tools to smartphones
for business use

Underverification

LINE
WORKS
(Already
introduced)

Businesscard OCR(Underverification)

Operational support

Headquarters’ operations

Development of a dedicatedtool for utilizing ChatGPT

AmiVoice ScribeAssist for efficientmeeting minutes creation

Preparing fordevelopment

creation time

(Prompt engineering)(Already introduced)

50

Up to
%
reduction in

repayments

Enhancement ofdigital services

Balance anddeposit/withdrawal

Bank transfers

confirmation
Account

Internet

opening forinvestment

trust NISA

application

investment

Partial early
repayments
simulation

Asset management app

trust

Variousnotification
services

Work with regional universities

Conducting knowledge and skills education (excerpted)

All
employees

time deposits

Loan

75.4%

DX literacy education (external expert seminar)

Deposits andbalance inquiry

0.2%

Sales support

AI-OCR
Improvement of fleet
list operations

Exploration of diverse customer contact points using digital technologies

withdrawals for

0.3%

Ship financeIn our modern times, where lifestyles and business styles are undergoing significant changes, we
believe that advancing the digitalization of financial services is essential for the sustainablegrowth of the region. In the Group, not only do we advance digitalization, but to further enhance
convenience, we gather feedback from actual users, work on simplifying the operability of thesmartphone app, aim to improve its visibility through UI/UX enhancements, and are advancing
the sophistication of our digital services.
Going forward, we strive to allow a broader range of users to experience the Group’s digital
services and diversify our customer contact points.

opening

Image of DX human assets
Type of human assets
Expected role

Power Supporting Value
Creation

Improvement of UI/UX and functions of the smartphone app

Account

Digital leader

Business Strategy
for Value Creation

Accumulating know-how on technology utilization
through demonstration experiments, etc.

Starting with AI and IoT, and recently represented by Web3, the evolution of technology isadvancing rapidly. As a result, there are substantial changes in our lifestyles and business styles,
and“transformation through DX”will be theimportant key for companies to survive in the
future. We believe that promoting DX will also
have a significant impact on the sustainable
Technology
Collaboration withgrowth of the region.
implementation
regional
DX players
The Group, as a leading company in theand utilization
region, is implementing measures to solve the
Finance
DX issues faced by regional companies based
×on a DX strategy that focuses on“DX humanDX
assets development,”“technology
implementation and utilization,”and“collaboration with regional DX players,”with
the aim of promoting the DX of the region
together with the region and customers.

Lv. 4

About YMFG

Working with various players in the region isessential to solve regional issues, and we areparticularly strengthening our collaboration with
universities in the DX field.
In the fiscal year ended March 31, 2023, wenewly entered comprehensive partnershipagreements with Shimonoseki City University
and Shunan University, and by bringing together
academic insights and business insights for joint
research to address regional issues, and offeringlearning programs for students and working
adults, we will continue our efforts to develop
and retain regional DX human assets.

Electronic payment services

October 2022: Entered into acomprehensive
partnershipagreement
Faculty of Data
April 2024:
Science (tentativename) to be newly
established
January 2023: Entered into acomprehensive
partnershipagreement
Faculty ofApril 2024:
Information Science
to be newly
establishedYMFG Integrated Report 2023

72

Management Letter

Priority Item V

Strengthening of the Governance and Internal Control System

Initiatives toward the sound operation of business in the Group(improvement measure response status)
The Company sincerely accepted the facts recognized in the“investigation reports”by the Investigative Committeethat was established in May 2021 in response to a whistle-blowing made against the former CEO, and the Internal
Investigation Group that was established in August 2021 with the objective of investigating how to proceed with aproject for the establishment of a new bank, etc., as well as the indicated issues and recommendations for
improvement. Therefore, we identified the issues and analyzed the causes of such issues in four items in total,
consisting of three items of“governance,”“internal control”and“corporate culture,”which form the managementfoundation for the sound operation of businesses by the Group, adding perspective of“regional revitalization,”which
is one of our major roles as a regional financial institution, and formulated improvement measures for 35 items in total
on November 30, 2021.
To achieve sound business operations, which are the foundation of unwavering trust from all stakeholders,
including our shareholders and customers, and to contribute to the revitalization of the local community andeconomies, as well as the growth of the Group, we are working company-wide to implement improvement measures.

Main improvement measure response status (as of the end of June2023): 32 items out of 35 items in total was completed
Approximately one and a half years have passed since the formulation and implementation of the improvement
measures, and the followings are the main initiatives that have made progress toward strengthening the Group’s
governance and internal control and that are recognized as effective at this time.
Name of measure

Response status
June 30,
2023

June 30,
2022

Overview

Governance
Review of evaluation method
towards improving theeffectiveness of the Board of
Directors

Implemented Implemented

In order to further deepen and substantiate discussions at the Board of Directors,
we held the effectiveness evaluation meeting whose discussions are to be basedon the survey for evaluation of the effectiveness of the Board of Directors andindividual interviews, conducted once a year. We are implementing the PDCA
cycle to improve the effectiveness of the Board of Directors throughout the year.

Internal control
Review of succession plan

Work inprogress

Work inprogress

We formulated the“Group Officer Personnel Guidelines,”which serves as thepolicy for the development of managerial human assets at the Group and theappointment of officers of the Group. Individual measures such as the Junior
Board Program and the human assets development project for next generation
management are underway for the purpose of developing young human assets.
In the future, we plan to integrate and comprehensively operate thedevelopment plans and schedules for managerial human assets and candidates
for key management personnel.

Enhancement of humanresource development inspecialized fields

Implemented

Work inprogress

We established internal standards for specialized human assets development
and started full-scale implementation from June 2023. We plan to check the
progress on a quarterly basis to confirm the status of skill improvement andsuccession of specialized human assets.

Implementation of audits
focused on the achievement of
the management plan

Implemented

Work inprogress

We conducted theme audits for the purpose of verifying the PDCA of businessplan execution and monitoring of the progress status of measures for eachGroup and Dept. using an original check sheet.

Work inprogress

Work inprogress

While taking some individual measures ahead of others such as the introductionof a re-employment system for retirees and the review of promotion criteria, wewill align them with the personnel strategic policy for realizing human capitalmanagement in the Group and decide on an organizational policy in the future.

Corporate culture
Integrated review of personnel
system and operation system

Development of anenvironment that secures andmakes use of diversity

Implementation of measuresthat leads to awareness reformand organizational culture
reform (inner communication)

Implemented Implemented

Work inprogress

Work inprogress

We are gradually implementing the formation of the project for promoting active
participation of women, the enhancement of the hiring of experienced
individuals, and introduction of special leave for childcare purposes. Goingforward, the Sustainability Promotion Committee will monitor the progress of theannual plan for promotion of D&I*.
We plan to launch a Leader’s Session for newly appointed department heads
and General Managers to provide them with opportunities to disseminate
management strategies, after finalizing the details.

Implementation of regular
employee awareness surveys

Implemented Implemented

We conducted the regular employee awareness surveys (My Check), analyzed
issues based on the results of the surveys, and planned and implemented various
training programs, etc. based on the analysis results.

Promotion of“dialog”within
the Group

Implemented Implemented

We created continuous communication opportunities through one-on-one
meetings at each department and direct channels to the top management. We
also focused on introducing level-specific seminars, video content, etc.

About YMFGPower Supporting Value
Creation

Business Strategy
for Value Creation

Corporate Governance

Basic concepts on corporate governance
The Group has formulated the“Mission and the meaning of its existence (Purpose),”which is the basis of all
business activities of the Group, and“What the Group should become in the future (Vision),”as what the Groupshould become when pursuing the mission and the meaning of its existence, in order to combine the abilities of
the Group’s officers and employees and to increase corporate value.

[Mission and the meaning of its existence (Purpose)]
Co-creating a bountiful future for our region[What the Group should become in the future (Vision)]A regional value-up corporate group that is chosen by our region and responds to the trust of our region
Based on“a sound and proactive enterprising spirit”as the basic stance (management policy) for theengagement in business activities with the mission and meaning of its existence (Purpose) as basis, the Groupaims for management transparency and fair, swift and bold decision-making that will lead to sustainable growthand increases in corporate value over the medium to long term. To this end, positioning that creating aneffective corporate governance system is an important management priority, and we continue to pursue theinitiatives described below to enhance our corporate governance.
(1) The Company strives to substantially secure the shareholder rights, to create an environment thatshareholders can exercise their rights appropriately, and to secure effective equal treatment of shareholders.
(2) The Company appropriately cooperates with our principal stakeholders, including customers, the local
community, shareholders and employees.
(3) The Company appropriately discloses important management information to principal stakeholders.
(4) The Company endeavors to ensure the effectiveness of the supervisory and auditing functions of the businessexecution through the establishment of various bodies, including the Board of Directors.
(5) The Company creates systems to promote construction dialog in order to build long-term relationships withshareholders.

Corporate governance system
An overview of the corporate governance system at the Company is provided below.

Supervision(1) Board of Directors and Directors
The main role of the Board of Directors is to make decisions on important matters relating to the operation of
the Group, such as matters relating to management planning and governance and the basic policy on theinternal control system, and in addition, to supervise the execution of the duties of Directors and Executive
Officers. In principle, meetings are held once a month, and are chaired by the President and CEO.
The Board of Directors is composed of 11 Directors with a fine balance of knowledge, experience andabilities for the effective performance of their roles and responsibilities. In particular, outside Directors, whomake up the majority of the Board of Directors, have been arranged with a focus on diversity, based on theperspectives of gender, career history, and age, etc., in order to activate multifaceted and objective discussions(three out of the six outside Directors are females).
Composition of theBoard of Directors

5

6internal
persons

external
persons
Ratio ofexternal
persons:

55%

Female officers
Males

Females83
Ratio offemales:27%* D&I: diversity and inclusion

73

YMFG Integrated Report 2023

74

Management Letter

Name

Narumasa Soga
Koji Oda
Mitsuru Kato

Current position in the Company, etc.

Power Supporting Value
Creation(◎ : Chair)

Name

Current position in the Company, etc.

President, Representative Director and CEO

Minako Suematsu

Director

OutsideIndependent

Director (President and Director of The Yamaguchi Bank, Ltd.)

Yuzuru Yamamoto◎ Director

OutsideIndependent

Director (President and Director of Momiji Bank, Ltd.)

Tomoko Mikami

Director

OutsideIndependent

Takehiko Ogi

Director

OutsideIndependent

Director (President and Director of The Kitakyushu Bank, Ltd.)Minako Suematsu

Director

OutsideIndependent

Yuzuru Yamamoto

Director

OutsideIndependent

Tomoko Mikami

Director

OutsideIndependent

Takehiko Ogi

Director

OutsideIndependent

Susumu Fukuda

Director, Audit and Supervisory Committee Member

Yumiko Nagasawa

Director, Audit and Supervisory Committee Member

OutsideIndependent

Kenko Shikichi

Director, Audit and Supervisory Committee Member

OutsideIndependent(2) Committees
In addition to the“Audit and Supervisory Committee”prescribed in the Companies Act, the“Nomination
Committee,”“Compensation Committee”and“Risk Committee”have been established as described below.
(i) Audit and Supervisory Committee and Audit and Supervisory Committee Members
The Audit and Supervisory Committee is composed of three Directors who are Audit and Supervisory Committee
Members (including two outside Directors), holds meetings once a month, in principle. It audits the execution ofduties of the Directors, builds the internal control system of the Company and the Group, supervises andexamines the operation status of the system, and prepares audit reports.
In addition, through the exercising of voting rights at meetings of the Board of Directors by Audit andSupervisory Committee Members, who are mainly outside Directors, it is aimed to enhance the function ofauditing and supervising the Board of Directors, and to improve the transparency and speed of the decision
making process.
In order to prepare for cases where there is a shortage of Directors who are Audit and Supervisory
Committee Members as prescribed by law, one substitute Director who is an Audit and Supervisory Committee
Member has been elected.
Audit and Supervisory Committee
Name

Business Strategy
for Value Creation

Nomination Committee

Board of Directors

Keisuke Mukunashi

About YMFG

Compensation Committee
Name

Susumu Fukuda

Director, Audit and Supervisory Committee Member

Yumiko Nagasawa

Director, Audit and Supervisory Committee Member

OutsideIndependent

Kenko Shikichi

Director, Audit and Supervisory Committee Member

OutsideIndependent

Current position in the Company, etc.

Minako Suematsu◎ Director

OutsideIndependent

Yuzuru Yamamoto

Director

OutsideIndependent

Tomoko Mikami

Director

OutsideIndependent

Takehiko Ogi

Director

OutsideIndependent(iii) Risk Committee
From the perspective of strengthening the supervisory function of the Board of Directors for risk management, in
July 2022, the“Risk Committee”was established under the Board of Directors to strengthen the risk
management system by reflecting the objective opinions of outside Directors and third party (an external expert)
in risk management.
The Risk Committee deliberates on various matters relating to the risk management of the market
department and reports to the Board of Directors. It will consider reviewing matters subject to deliberation, as
necessary.
Risk Committee

(◎ : Chair)

Name
Ichinari Koda
Masao Aratani
Yumiko Nagasawa
Kyoji Hironaka

Current position in the Company, etc.

(◎ : Chair)

Current position in the Company, etc.
◎ Chairman and Director of The Yamaguchi Bank, Ltd.
Director, Audit and Supervisory Committee Member of The Yamaguchi Bank, Ltd.
(Outside)
Director, Audit and Supervisory Committee Member of Yamaguchi Financial
Group, Inc. (Outside)
External expert(ii) Nomination Committee and Compensation Committee
The Company has established the Nomination Committee and the Compensation Committee as voluntary
advisory bodies to the Board of Directors in order to ensure the validity of the proposals relating to theappointment and dismissal of Directors and Executive Officers and their remuneration, as well as the objectivity
and transparency of the decision making process, and has put a system in place to make decisions at the Boardof Directors based on the details reported from the respective committee regarding the proposal.
Based on the objective of its establishment, it is prescribed in the internal rules that each committee iscomposed of three or more committee members, and the majority of members is independent outside
Directors, in order to ensure independence.

75

YMFG Integrated Report 2023

76

Management Letter

Corporate governance system structure(As of June 30, 2023)

Yamaguchi Financial Group, Inc.
General meeting of shareholders
Election / Dismissal

Cooperation

Audit /
Supervision

Election /Dismissal
ReportBoard of Directors
Directors 11

Election

Directors (excluding Audit and Supervisory Committee Members) 8*Of which outside 4

Audit andSupervisory Committee
Cooperation

Audit and Supervisory
Committee Oﬃce

Directors (Audit and Supervisory Committee Members) 3*Of which outside 2

ReportInstruction/ Order

Audit &
Inspection Dept.

Internal Audit

SupportInstruction/ Order(Voluntary advisory body)

Nomination
Committee

Compensation
Committee

Report / Proposal

Secretariat

Risk
Committee
Financial
Audit

Cooperation

Group ALM Committee

President and CEOGroup Compliance Committee

Group Executive Management Meeting(Business execution system)

Group Risk Management Committee
Sustainability Promotion Committee

Instruction / OrderBusiness execution departments

Other associates•YM Lease Co., Ltd. •YM CONSULTING CORPORATION•Izutsuya Withcard Company Limited •YAMAGINCARD CO., LTD.

Company with audit and supervisory committee•YM Credit Guarantee Co., Ltd. •Sanyu•YMFG ZONE PLANNING CO., LTD. •YM Life Planning Co., Ltd.
•YM Asset Management Co., Ltd. •Momiji Estate •HOKEN HIROBA, LTD.
•YM Saison Co., Ltd. •Momiji Card, Inc. •Data Qvic Inc. •YM Career Inc.
•INESUS Inc. •Nishiseto Regional CO-creation Servicer Inc.
•Nishiseto Marine Partners Inc. •YAMAGUCHI CAPITAL Co., Ltd.
•Regional Trading Company Yamaguchi Co., LTD. •Bankers Farm Inc.
•KAIKA Corporation

About YMFGBusiness Strategy
for Value Creation

Power Supporting Value
Creation

Execution of business(1) Group Executive Management Meeting / various committees
The Group Executive Management Meeting has been established as a decision making body for businessexecution departments. The Group Executive Management Meeting is composed of Directors (excluding outside
Directors and Audit and Supervisory Committee Members), Executive Officers (excluding the General Managerof the Audit & Inspection Dept.) and the Presidents of the banks in the Group, and discusses and makes
decisions on important matters relating to the management of the Group based on the basic policy, etc.,
determined by the Board of Directors.
In addition, various committees (Group Compliance Committee, Group ALM Committee, Group Risk
Management Committee, Sustainability Promotion Committee) have been established for each management
themes as bodies for the deliberation of important matters relating to the execution of business.
(2) Executive Officers
The Group has introduced the executive officer system, under which the executive officers appointed byresolution of the Board of Directors are assigned the positions of heads of the respective departments (General
Managers of the Business Groups, General Managers of the Administration Groups and General Manager of the
Audit & Inspection Dept.), and engage in the execution of the designated business.

Policy and process relating to appointment at the Board of Directors
The Board of Directors of the Company ensures balance of the knowledge, experience and ability as required as
the Board of Directors as a whole, and diversity in order to effectively fulfill its role and responsibilities, andmaintains an appropriate number of members so that the functions of the Board of Directors may bedemonstrated most effectively and efficiently in terms of promptness of decision making.
Based on this basic concept, the Board of Directors nominates those who are familiar with the Company’sbusinesses and have exceptional ability and an abundance of experience as candidates for internal Director,
nominates those who have diverse knowledge and backgrounds as candidates for outside Director in order toensure the independence and objectivity of the Board of Directors, and maintains a number of members of theBoard of Directors within 13 members.
Please refer to the skills matrix for skills (experience and expertise) of the Board of Directors as a whole. It
should be noted that“Skill items”are reviewed from time to time based on the elements required bygovernance and society.
The Nomination Committee has been established as a voluntary advisory body of the Board of Directors forthe nomination of candidates for Director, and a system has been put in place in which decisions are made by
the Board of Directors based on the details reported from the Nomination Committee.
Qualifications and criteria for determining the independence of independent outside Directors
The Company designates as independent officer all outside officers who meet the qualifications for independent
officers. The criteria for determining independence determined by the Company is as shown below.
<Criteria for determining independence>
In principle, outside Directors of the Company are persons who at present or in the recent past*1 have notfallen under any of the following requirements.
(1) A person whose major business partner is the Company and its subsidiaries, or in the case of such aperson being a corporation, etc., a person who executes business(2) A person who is a major business partner of the Company and its subsidiaries, or in the case of such aperson being a corporation, etc., a person who executes business(3) A consultant, an accounting professional, or legal professional, etc., who receives a large sum*2 of moneyor other property from the Company and its subsidiaries other than remuneration for officers (in the caseof the person receiving such property being a body such as a corporation or organization, etc., a person
affiliated with such a body)(4) A major shareholder of the Company, or in the case of such a person being a corporation, etc., a person
who executes business77

YMFG Integrated Report 2023

78

Management Letter(5) A close relative*3 of the following person (excluding those who are not important*4)
A. A person who falls under (1) to (4) above
B. A Director, an Audit and Supervisory Board Member, or an important employee, etc., of the Company andits subsidiaries*1 Definition of“recent past”: refers to cases that may be regarded as being substantially identical to thepresent, for example, this includes such cases as when the candidate fell under the condition at the time
the content was determined for the proposal for the General Meeting of Shareholders electing him or her
as outside Director*2 Definition of“large sum”: an amount of ¥10 million or more per year on average over the last three years*3 Definition of“close relative”: a relative within the second degree of kinship*4 Definition of“important”: an important person refers to the officer and general manager in the case of aperson who execute business, and to certified public accountants and lawyers in the case of a person
affiliated with an accounting firm or law firm

Evaluation of the effectiveness of the Board of Directors
In order to further deepen and substantiate discussions at the Board of Directors, at the effectiveness evaluation
meetings whose discussions are to be based on the survey for evaluation of the effectiveness of the Board of
Directors and individual interviews conducted once a year, we clarify the matters that the Board of Directors
should focus particularly on, and throughout the year, we implement a PDCA cycle to improve the effectivenessof the Board of Directors.
In the effectiveness evaluation meetings, we confirm the improvement on issues that have been identified in
the past, and Directors share their awareness of themes that require to be particularly focused on in the future.
Going forward, we will maintain a Board of Directors system and operation that can maximize the supervisory
function as monitoring board towards realizing the Company’s purpose and vision, and continue to examine theimprovement status of the Company’s governance through regular surveys, informal individual interviews, theeffectiveness evaluation meetings and other activities, leading to the sustainable improvement of theeffectiveness of the Board of Directors.

Themes to focus particularly on in the future
Recognition of the issues

Future initiatives

Enhancement of
discussions on mediumto long-term management
strategies

・We will focus on our purpose, our discussions at a Group Officer Retreat
and the meetings for the regional ID realization project, and by leveraging
the knowledge of outside Directors and others, we will refine our mediumto long-term strategies.

Strengthening the internal
control of groupcompanies

・We will examine internal control and risk management of group companies
at meetings of the Board of Directors, etc.

Expanded delegation to
the management team・We will narrow down the matters to be discussed at the Board of Directors
based on the deliberation status of past meetings of the Board of Directors

Utilization of theknowledge of outside
Directors

・Observer participation in meeting bodies of the execution departments
besides the Board of Directors and regular holding of a Group Officer
Retreat including outside Directors

Skills Matrix
This does not represent all of the knowledge and experience possessed by each Director, but indicates up to
three priority areas where expertise is expected based on his or her experience, etc.
Classification

Summary of evaluation of the effectiveness for the fiscal year ended March 31, 2023

Recognition of issues tofurther improve
effectivenessImprovement on
previously recognizedissues79(1) Enhancement of discussions on medium- to long-term management
strategies(2) Strengthening the internal control of group companies(3) Expanded delegation to the management team(4) Utilization of the knowledge of outside Directors
・Provision of information to the Board of Directors and enhancement ofopportunities for communication and gaining knowledge
・Improvement on quality of deliberations through promotion of information
sharing and disclosure by holding briefings before meetings of the Board of
Directors

Expected priority areas of expertise

Overall evaluation

・The Board of Directors’ effectiveness was generally secured in light of its
purpose and expected functions.
・However, the following four points were recognized as issues to further
enhance the effectiveness of the Board of Directors.

Power Supporting Value
Creation

Business Strategy
for Value Creation

About YMFGInternal Directors

Name

Keisuke
Mukunashi

Position

President,
Representative
Director

Director

Corporate
Governance〇〇Corporate
Strategy〇

Business Strategy /Regional Revitalization〇

MarketInvestment
Human Resource
Development

Narumasa
Soga

Koji
Oda

Outside Directors

Mitsuru
Kato

SusumuFukudaName

MinakoSuematsu

Director〇

Director

Director,
Audit andSupervisory
Committee
Member(Full-time)

Position

Director,
Director,
Audit and Audit andDirector
Director
Director
Director
Supervisory Supervisory(Independent) (Independent) (Independent) (Independent) Committee Committee
MemberMember(Part-time) (Part-time)〇〇

Corporate
Governance
Sustainability〇〇

Regional Economy/ Administration

〇

〇

〇
〇

〇

TomokoMikami〇〇

Corporate
Legal Affairs

〇

〇

〇

YumikoNagasawa〇

Kenko
Shikichi〇〇〇Macroeconomics

DX

Takehiko
Ogi

〇
〇
〇

Finance〇DX /Systems
Compliance /Risk Management〇

YuzuruYamamoto〇〇〇〇

YMFG Integrated Report 2023

80

Management Letter

Regarding“expected priority areas of expertise”
Categories for internal Directors have been selected based on priority measures for the YMFG Medium-Term
Management Plan 2022, etc. And, categories for outside Directors have been selected with a focus on diverse
knowledge, experience, and expertise.
Category
Corporate
Governance

Priority Measures for the YMFG Medium-Term Management Plan 2022, etc.
〇 Establish a Group management structure with a system where the banks proactively engage in businessexecution by expanding the executive authority and responsibilities of the banks, and enable them todemonstrate front-line initiatives.

Corporate
Strategy〇 Strengthen the link between the Group’s sustainable growth and increase in regional value by promoting
sustainable management.
〇 Effectively utilize capital as a new growth driver, including by investing in areas that contribute to the
expansion of areas of business and improve profitability for the Group.

Business
Strategy /Regional
Revitalization〇 Strengthen support for corporate rehabilitation and business succession with equity, hands-on and corporate
business succession support to assist the local economy in recovering and returning to growth following the
COVID-19 pandemic and to improve sustainability.
〇 Clearly identify life events that require consulting, and provide sincere financial planning and asset
management services to each customer leveraging on skills assimilated throughout the organization.
〇 Review the customer touchpoints and provide“easy”and“convenient”services.
〇 Achieve both higher quality solutions for customers and efficient branch operation through the slimming ofsales branches by expanding centralized processing at the headquarters, making changes to the sales
systems, etc.
〇 Deepen the understanding of customers by using data analysis, and improve the quality of feasibility studies
and financial planning activities.
〇 Support business reform by building digital hubs available for use by regional corporations, etc.

MarketInvestment〇 Rebuild the securities portfolio with appropriate risk-taking and risk management and convert to a stableprofit structure.

DX / Systems〇 Promote DX across the Group through the development of next-generation financial businesses using thelatest technology, the formation of alliances with DX players, etc.

〇 Jointly create an environment and opportunities for each employee to thrive and grow with good job
Human
Resource
satisfaction, thereby transforming the organizational culture (behavior). The Group as a whole is to engage in
Development
the“maximization of value provided to our region and customers”and the“creation of new value.”〇 Build a compliance system that covers risks of damage to the interests and expectations of customers andlocal communities. Strengthen the establishment and operation of the RAF management structure using
Compliance /stress tests and scenario analysis.
RiskManagement 〇 Build a forward-looking credit risk management framework and strengthen the risk management frameworkof each group company.

Reason for selection as outside officer
Name ofoutside Director

Reason for selection as outside Director

MinakoSuematsu

She has offered information on the present conditions of Japan and global trends on a daily basis as
Representative Director, Chairman, and President of The Japan Times, Ltd. She also has advanced insights into
online business development, evidenced by matters such as her establishment of an internet-related business,and is actively working to increase the brand value of her hometown, the Setouchi area. We expect that she
will continue to provide pertinent recommendations on the Company’s current initiatives to increase the valueof regional communities, and thus we have selected her as an outside Director.

YuzuruYamamoto

We expect that he will provide pertinent recommendations toward overall management taking into accountlocal economic conditions, etc., based on his advanced insight and wealth of experience as a corporate
manager, having served as President & Representative Director of UBE Corporation and in other executive
positions, and thus we have selected him as an outside Director.

TomokoMikamiShe has been engaged in the promotion of digital transformation (DX) utilizing IT as Managing Executive Officerof Microsoft Japan Co., Ltd., particularly in the DX promotion of local enterprises. We expect that she will
provide pertinent recommendations on the Company’s current initiatives to provide DX support to client
corporations as well as DX within the Company, and thus we have selected her as an outside Director.

He has served as Representative Director of Kanebo Ltd., Maruzen CHI Holdings Co., Ltd., and Japan Human
Resource Network following his retirement from the Ministry of International Trade and Industry (currently the
Ministry of Economy, Trade and Industry), and currently specializes in organizational theory and corporate
Takehiko Ogi governance as Professor in the Department of Industrial Management, Faculty of Economics, Kyushu University.
We expect that he will provide pertinent recommendations on management, including the maintenance andimprovement of corporate governance, his strength, as well as support for the banks in the Group using his
knowledge of corporate revitalization, and thus we have selected him as an outside Director.

81

About YMFGName ofoutside Director

Business Strategy
for Value Creation

Power Supporting Value
Creation

Reason for selection as outside Director

She possesses a wealth of experience regarding financial instruments such as establishing a citizen group“Foster Forum (Forum for Fostering High-quality Financial Instruments)”after serving at financial institutions. We
expect that she will continue to provide pertinent recommendations toward overall management based on her(Audit andprofessional insight as well as the perspective of a citizen, and thus we have selected her as an outside
Supervisory
Committee Member) Director.
YumikoNagasawa

Kenko
Shikichi(Audit andSupervisory
Committee Member)

He has conducted mainly community-based attorney activities in Fukuoka City as partner of Kitahama Law
Office, and is registered as a certified tax accountant with the Kyushu-hokubu Certified Public Tax Accountants’
Association. We expect that he will provide pertinent recommendations based on his wealth of experience andprofessional knowledge as a legal expert, and thus we have selected him as an outside Director.

Support for outside Directors
The Secretariat, which is the administrative office of the Board of Directors, and the Audit and Supervisory Committee
Office, which is the secretarial office of the Audit and Supervisory Committee, provide support as appropriate for the
execution of duties of outside Directors (including the Audit and Supervisory Committee Members), and endeavor toactivate and facilitate cooperation with the execution departments.
In addition to making efforts to secure sufficient explanations to outside Directors and sufficient preparation time
for these through the early issuance of notice of convocation of a meeting of the Board of Directors, discussion
materials (including regular execution report materials), and the annual schedule for various meeting bodies, and theenhancement of prior briefing meetings, we regularly provide study sessions on the financial business andmanagement environment of regional banks, etc., which are necessary areas for Directors of the Company.

Succession plan
The“Group Officer Personnel Guidelines”prescribes the following in regard to the Group’s development process forcandidates for the Group officers and the monitoring system for development status.

Development of candidates for the Group officers
Individual development plans are formulated by the human resource department for candidates for key management
personnel that are selected internally, and they are promoted to important positions (General Manager of branch ofbanks in the Group, General Manager of the division, etc.) at the appropriate time, based on the activity status andperformance of each candidate.
A group of human assets holding important positions is designated as the pool of candidates for officer. The
President and CEO selects candidates for the Group officers from human assets in the pool of candidates for officer
based on each candidate’s activity status and performance, recommendation of the Group officer, etc., and thensubmits the list of candidates to the Nomination Committee.
Promotion to an important positions is determined and executed upon deliberation at internal meetings (personnel
promotion meetings), comprising of internal Directors and the human resource department, and the system ensures
the objectivity and validity of the promotion.

Monitoring system for development status
The activity status and performance of human assets who are candidates for key management personnel and who are
in important positions are regularly monitored by the President and CEO, and the human resource department.
The Nomination Committee also considers the development status of candidates for the Group officer to be an
important monitoring matter, and has adopted a system to monitor whether the development of candidates for theGroup officer is conducted as planned through reporting from the President and CEO as appropriate about thedevelopment status to the Nomination Committee and the Board of Directors.
Specific initiatives for development of candidates for officer include the Junior Board Program aimed at developing
young human assets, external secondments to different industries, the human assets development project for next
generation management targeting those in the pool of candidates for officer, and dispatch to external training.
In addition to the above initiatives, we are currently working on the establishment of the internal recommendation
process for candidates for key management personnel as prescribed in the Guidelines, and will continue to strive toenhance the effectiveness of development of candidates for officer in the Group.
YMFG Integrated Report 2023

82

Management Letter

About YMFGBusiness Strategy
for Value Creation

Power Supporting Value
Creation

Compensation for Officers

Compensation decision making process
In regard to the policy for determining the amount of compensation, etc., for Directors (excluding those who are
Audit and Supervisory Committee Members) and the calculation method, this is determined by the Board of
Directors upon deliberation by the Compensation Committee, which is chaired by an outside Director, within thecompensation limits resolved at the General Meeting of Shareholders.
In addition, the Compensation Committee deliberates on the decision making policy relating to the content of
the remuneration, etc., for the Directors of the Company and the banks in the Group, and the content of the
remuneration, reports the details to the Board of Directors, and aims to improve the objectivity and transparencyof the decision making process.
The allocation amount of performance-linked compensation for each individual (including individual
evaluations) is decided by a resolution of the Board of Directors, and the Board of Directors consults and obtains
a report from the Compensation Committee on the compensation limit and allocation amount. The amount of
performance-linked compensation for Directors is determined within the range of the amount calculated basedon the distribution ratio by position for performance-linked compensation and the evaluation rate as set forth in
the report from the Compensation Committee. Basic compensation is determined for each Director by the Boardof Directors based on the report from the Compensation Committee. In addition, in regard to the share-based
compensation, the number of points to be granted to each Director is calculated based on the Officer Share
Delivery Rules that have been prescribed by the Board of Directors based on the report from the Compensation
Committee.
The policies for determining the amount of compensation, etc., for Directors who are Audit and Supervisory
Committee Members, and the calculation method are determined upon consultation by the Audit andSupervisory Committee Members, including outside Directors, within the compensation limits resolved at theGeneral Meeting of Shareholders.

Total amount of compensation, etc. for each officer category, total amount, etc. by type of compensation andnumber of eligible officers
In the fiscal year ended March 31, 2023
Number of
officers

Total amount ofcompensation,
etc.
(Millions of yen)

Director (excluding Audit andSupervisory Committee
Member) (excluding outside
Director)2

Director (Audit and Supervisory
Committee Member)(excluding outside Director)
Outside officer

Category of officer

Fixed-amountcompensation

Performancelinked
compensation

Non-monetarycompensation,
etc.

74

43

18

12

1

28

28

－

－

7

39

39

－

－

Notes 1. The above includes one outside Director who is not an Audit and Supervisory Committee Member and retired at theconclusion of the Annual General Meeting of Shareholders held on June 24, 2022.
2.“Non-monetary compensation, etc.”refers to the amount recorded as expenses during the current fiscal year for the Board
Benefit Trust (BBT).

Compensation determination policy
The Company and the banks in the Group have established the compensation plan for officers with the objectiveof increasing the transparency of the compensation plan for officers, raising motivation towards contributing to
improved performance and increased corporate value, and raising awareness of shareholder-oriented
management. In terms of the specific officer compensation plan, the composition of officer compensation, etc.,
comprises of fixed-amount compensation, performance-linked compensation and share-based compensation(Board Benefit Trust: BBT).
Fixed-amount compensation
By the resolution of the General Meeting of Shareholders held on June 26, 2015, the maximum amount of thecompensation for Directors (excluding those who are Audit & Supervisory Committee Members) has been set as
up to ¥25 million per month (of which, up to ¥2.5 million per month for outside Directors) and up to ¥5 million
per month for Directors who are Audit and Supervisory Committee Members.
Performance-linked compensation
By the resolution of the General Meeting of Shareholders held on June 27, 2017, the maximum limit of theperformance-linked bonus compensation for Directors (excluding Directors who are Audit and Supervisory
Committee Members, part-time Directors and outside Directors) has been set as up to ¥70 million per year.
There are seven Directors (including one outside Director) subject to this plan as of the end of the said General
Meeting of Shareholders. The total amount of compensation is determined in consideration of the level ofbusiness performance, and the compensation has a function as a short-term performance-linked compensation
plan.
Board Benefit Trust (BBT)
By the resolution of the General Meeting of Shareholder held on June 27, 2017, the total number of points per
fiscal year to be granted to Directors (excluding Directors who are Audit and Supervisory Committee Members,
part-time Directors and outside Directors) has been set at up to 80,000 points (one point equals one share of the
Yamaguchi Financial Group, Inc.). There are seven Directors (including one outside Director) subject to this plan
as of the end of the said General Meeting of Shareholders. By granting points that vary each fiscal year dependingon the level of achievement of the medium-term management plan that has been formulated by the Company,
the trust has a function as a medium- to long-term performance-linked compensation plan with the objective toalign interests with shareholders, to increase incentives for the improvement of business performance andcorporate value over the medium to long term.

83

YMFG Integrated Report 2023

84

Management Letter

List of Officers

About YMFGPower Supporting Value
Creation

Business Strategy
for Value Creation

Organizational chart of Yamaguchi Financial Group, Inc. (As of July 1, 2023)

Officers of Yamaguchi Financial Group, Inc. (as of July 1, 2023)

Narumasa Soga

Business Strategy Planning Dept.
Corporate Banking Business Oﬃce

Risk Committee

Keisuke Mukunashi

Financial Business Group

Nomination Committee

Director

Compensation Committee

President, Representative
Director and CEO

Yamaguchi Financial Group, Inc.

Ship Finance Oﬃce
Structured Finance Oﬃce
Retail Banking Business Oﬃce
Digital Service Promotion Oﬃce

Director

Director

Minako Suematsu

Yuzuru Yamamoto

Tomoko Mikami

Takehiko Ogi

Regional Co-Creation Business Group
Corporate Administration Group

Public & Investor Relations Oﬃce
Accounting Oﬃce
Human Capital Management & General Aﬀairs Dept.

Compliance & Risk Administration Group

Susumu Fukuda

Yumiko Nagasawa

Compliance Administration Dept.
Financial Crime Prevention Oﬃce
Risk Administration Dept.
Credit Risk Control Oﬃce

Audit and Supervisory Committee Oﬃce

Director, Audit and Supervisory
Committee Member (Part-time)

Corporate Planning Dept.
Corporate Planning Oﬃce

IT & Operations Administration Group

Director, Audit and Supervisory
Committee Member (Full-time)

Regional Co-Creation Management Oﬃce

DX Strategy Planning Dept.

Secretariat

Director

Market Administration Dept.

Human Resource Development Oﬃce
Audit and Supervisory Committee

Director

Group Executive Management Meeting

Mitsuru Kato

President and CEO

Koji Oda

Board of Directors

Director
General meeting of shareholders

Director

IT Administration Dept.
System Uniform Promotion Oﬃce
Customer Relations Center
Customer Services Administration Dept.
Centralized Operations Oﬃce
Account Management Center

Various Group Committees
Audit & Inspection Dept.

Director, Audit and Supervisory
Committee Member (Part-time)

The Yamaguchi
Bank, Ltd.

Kenko Shikichi

MomijiBank, Ltd.

The Kitakyushu
Bank, Ltd.

YM Securities
Co., Ltd.

Company with audit and supervisory committee
Senior Managing Executive Officer and General
Shuji Tanabe
Manager of the Audit & Inspection Dept.
Managing Executive Officer and General Manager
Kazuhito Yagi
of the Regional Co-Creation Business GroupManaging Executive Officer and General Manager
Hirofumi Hiranaka
of the Financial Business Group85

Executive Officer and General Manager of theCompliance & Risk Administration Group
Executive Officer and General Manager of the IT& Operations Administration Group
Executive Officer and General Manager of the
Corporate Administration Group

Takeki Kaneko
Yasuhiro Kijima
Kenichiro Okuda* Minako Suematsu, Yuzuru Yamamoto, Tomoko Mikami, Takehiko Ogi, Yumiko Nagasawa and Kenko Shikichi are outside Directors as prescribed in Article 2, item (xv) of the Companies Act.

YM Lease Co., Ltd. YM CONSULTING CORPORATION
Izutsuya Withcard Company Limited YAMAGINCARD CO., LTD.
YM Credit Guarantee Co., Ltd. Sanyu
YMFG ZONE PLANNING CO., LTD.
YM Asset Management Co., Ltd. Momiji Estate
YM Life Planning Co., Ltd. HOKEN HIROBA, LTD.
YM Saison Co., Ltd. Momiji Card, Inc. Data Qvic Inc.
YM Career Inc. Nishiseto Regional CO-creation Servicer Inc.
INESUS Inc. Nishiseto Marine Partners Inc.
YAMAGUCHI CAPITAL Co., Ltd.
Regional Trading Company Yamaguchi Co., LTD.
Bankers Farm Inc. KAIKA Corporation

YMFG Integrated Report 2023

86

Management Letter

Officers of The Yamaguchi Bank, Ltd. (as of July 1, 2023)

About YMFGPower Supporting Value
Creation

Business Strategy
for Value Creation

Officers of Momiji Bank, Ltd. (as of July 1, 2023)

Director and President
Representative Director

Chairman and Director

Director and President
Representative Director

Director and Senior Managing
Executive Officer

Narumasa Soga

Ichinari Koda

Koji Oda

Hirofumi Hiranaka

Director and Senior Managing
Executive Officer

Director and Executive Officer

Director and Executive Officer

Hideyuki Taga

Director, Executive Officer andGeneral Manager of Head
Office Sales Department

Yasuhiro Watanabe

Hideyuki Fujimura

Yoshiro Yasudomi

Director

Director

Director, Audit and Supervisory
Committee Member (Full-time)

Masao Kusunoki

Kuniko Usagawa

Director, Executive Officer andGeneral Manager of Head
Office Sales Department

Director, Audit and Supervisory
Committee Member (Full-time)

Shinji Yoshidomi

Koji Kanayama

Satoshi Inoue

Director, Audit and Supervisory
Committee Member (Part-time)

Director, Audit and Supervisory
Committee Member (Part-time)

Director, Audit and Supervisory
Committee Member (Part-time)

Munefusa Saito

Masao Nagano

Yoji Ohshimo

Managing Executive Officer andGeneral Manager of Fukuyama Branch

Director, Audit and Supervisory
Committee Member (Part-time)

Hajime Ohshimo

Executive Officer and General Manager
Yuko Ogawa
of Kaita Branch

Executive Officer and General Manager
Shogo Katsusaka
of Kure Sales Department

Masao Aratani* Masao Nagano and Yoji Ohshimo are outside Directors as prescribed in Article 2, item (xv) of the Companies Act.

Senior Managing Executive Officer and General
Manager of Yamaguchi Branch

Executive Officer and General Manager of
Iwakuni Branch

Makoto Murakami

Managing Executive Officer and General Manager
Noritsugu Hanaeki
of Tokyo Branch

Executive Officer and General Manager of Hagi
BranchRie OmotoManaging Executive Officer, General Manager ofTokuyama Branch, General Manager of Shunan
Danchi Branch and General Manager ofKushigahama Branch

Hiroaki Kaita

Executive Officer and General Manager ofHiroshima Branch

Katsuhiro Sogi

Executive Officer and General Manager of Ube
BranchYoji Nakashima

Satoshi Ono* Masao Kusunoki, Kuniko Usagawa, Munefusa Saito and Masao Aratani are outside Directors as prescribed in Article 2, item (xv) of the Companies Act.

87

YMFG Integrated Report 2023

88

Management Letter

About YMFGBusiness Strategy
for Value Creation

Power Supporting Value
CreationInternal audits

Officers of The Kitakyushu Bank, Ltd. (as of July 1, 2023)

Director and President
Representative Director

The Group defines an internal audit as a series of processes for verifying the appropriateness andeffectiveness of internal controls, including risk management, objectively and fairly and making
recommendations for necessary improvements.
Based on this definition, the Company has established“Internal Audit Rules”as the Group’s basic audit
policy, and the internal audit departments of the Company and each group company conduct internal
audits in accordance with this basic policy.
In addition, the medium-term internal audit plan based on the management policy and internal andexternal conditions as a uniform plan for the Group. The internal audit departments of the Company andeach group company endeavor to ensure the effectiveness of internal audits through the conduct ofinternal audits based on this plan.

Director, Senior Managing Executive
Officer and General Manager ofHead Office Sales Department

Mitsuru Kato

Hiroyuki Nakano

Director and Executive Officer

Director, Audit and Supervisory
Committee Member (Full-time)Masahiko Nagamo

Akihisa UchidaDirector, Audit and Supervisory
Committee Member (Part-time)

Director, Audit and Supervisory
Committee Member (Part-time)

Noriaki Ayukawa

Hayato Morita

Executive Officer and General Manager of
Yahata Branch

Basic policy of internal audits

Takafumi Uno

Executive Officer and General Manager of
Fukuoka BranchInternal audit operation system

Hisao Tsubouchi* Noriaki Ayukawa and Hayato Morita are outside Directors as prescribed in Article 2, item (xv) of the Companies Act.

The Audit & Inspection Dept., the internal audit department of the Company, leads the planning anddrafting of group-wide internal audits, and in addition to conducting internal audits, ascertains andmanages the implementation status of internal audits at each group company.
Specifically, it formulates the various rules concerning the internal audits of the Group and the mediumterm internal audit plan mentioned earlier, conducts internal audits on the compliance administration
departments, the risk management departments, etc., of the Group, and conducts internal audits on theaccuracy of financial reports, including the accuracy of the Group’s capital adequacy ratio.
Internal audits of front-line sales sites, outlets are conducted with a focus on verifying the status offunctions of compliance and risk management and the effectiveness of the mutual checks.
In addition, it monitors the internal audit department of each group company based on the reportingon the internal audit results and improvement status, etc., received from each group company, gives
necessary guidance and advice to each group company, and reports the status of internal audits of theGroup to the Board of Directors and the Audit and Supervisory Committee.
Furthermore, exchanges of information and opinions are conducted by the Presidents, Directors who
are Audit and Supervisory Committee Members, and the General Manager of the Audit & Inspection
Dept., and it receives instructions and advice on improvement activities of the responsible departments,
as well as management needs related to audit themes, reflecting them on audits.

Timely information disclosure system
The Company has established“Internal Control Rules,”and endeavors to develop a system for the timely
information disclosure for the building of an internal control system.
In the“Timely Information Disclosure Standards”based on the“Internal Control Rules,”the following
basic policy is prescribed, and pursuant to this policy, in regard to the disclosure of important corporate
information and investment information, the Company aims to address timely and appropriate inaccordance with the Banking Act, the Financial Instruments and Exchange Act, the rules of financial
instruments exchange, other relevant laws and regulations, etc., after reporting to and consulting with the
management team.
Basic policy(1) The Group shall disclose important corporate information so that customers, shareholders,investors, etc., are able to accurately ascertain and determine the actual situation of the Group.
(2) The Group discloses important investment information so that investors, etc., are able to accurately
ascertain and determine the investment status of the Group.
(3) The disclosure of important corporate information and investment information is made in a timely
and appropriate manner, in accordance with the Banking Act, the Financial Instruments andExchange Act, the rules of financial instruments exchange, other relevant laws and regulations, etc.
(4) In order to disclose important corporate information and investment information in a timely andappropriate manner, the Group develops and enhances the systems of the Company andsubsidiaries that have entered into business outsourcing agreements with the Company.

89

YMFG Integrated Report 2023

90

Management Letter

About YMFGBusiness Strategy
for Value Creation

Power Supporting Value
Creation

Risk Management System

Credit risk management

The Group’s risk management system (as of July 1, 2023)
Yamaguchi Financial Group, Inc.

ReportBoard of Directors Audit and Supervisory Committee

ReportGroup Executive Management Meeting

Risk managementadministration department

Department in charge ofrisk management

Sustainability
Promotion Committee
Audit

Compliance & Risk Administration Group

Administration GroupClassiﬁcation of risk

Group Compliance
Committee

Group Risk Management Committee

Audit

Risk Administration Dept.
Credit risk

Market risk
Liquidity risk

Operational risk
・Administrative risk ・System risk
・Information risk ・Legal risk・Money laundering and terrorism funding risk
・Tangible asset risk ・Human risk

Reputational
risk

Compliancerisk

Climatechange risks

Risk
Administration
Dept.

Risk
Administration
Dept.

Risk Administration Dept.
Compliance Administration Dept.
Human Capital Management & General Aﬀairs Dept.
IT Administration Dept.

Corporate
Planning
Dept.

Compliance
Administration
Dept.

Risk
Administration
Dept.

Audit
Audit

External audits (audit ﬁrm)

Group ALM Committee

Audit & Inspection Dept.
(Veriﬁcation of the appropriatenessand eﬀectiveness of risk management)

Committee System

Integrated management of risks throughout the Group
Basic policy and instructions for system development, etc.

Report on risk management status

The Yamaguchi Bank, Ltd. Momiji Bank, Ltd. The Kitakyushu Bank, Ltd.

ReportReportBoard of Directors Audit and Supervisory Committee

Committee System(Yamaguchi Financial Group, Inc.)

Risk managementadministration department
Classiﬁcation of risk

Group Risk Management Committee

Group Compliance
Committee

Audit

Corporate Administration Dept.
Credit risk

Market risk
Liquidity risk

Operational risk
・Administrative risk ・System risk
・Information risk ・Legal risk・Money laundering and terrorism funding risk
・Tangible asset risk ・Human risk

Reputational
risk

Compliancerisk

Department in charge ofrisk management

Each Group and Dept. Each department in charge of risk management

Department involved inrisk management

Each Group and Dept. Each department involved in risk management

Sales / Business Operation

Sustainability
Promotion Committee

Climatechange risks

Operation of business by each group and dept. (integration, promotion, guidance,and management for each business under their jurisdiction), operation of business by sales branches

External audits (audit ﬁrm)

Group ALM Committee

Group Executive Management Meeting

Audit
Audit

Audit
Audit

YM Securities Co., Ltd., YM Lease Co., Ltd., Izutsuya Withcard Company Limited, YM CONSULTING CORPORATION, Sanyu, Momiji Estate,
YAMAGINCARD CO., LTD., YM Credit Guarantee Co., Ltd., YMFG ZONE PLANNING CO., LTD., YM Asset Management Co., Ltd., YM Life Planning Co., Ltd.,HOKEN HIROBA, LTD., Data Qvic Inc., YM Saison Co., Ltd., Momiji Card, Inc., YM Career Inc., INESUS Inc., Nishiseto Regional CO-creation Servicer Inc.,
Nishiseto Marine Partners Inc., YAMAGUCHI CAPITAL Co., Ltd., Regional Trading Company Yamaguchi Co., LTD., Bankers Farm Inc., KAIKA Corporation

The Group operates its businesses while facing various risks, including credit risk, market risk, liquidity risk, etc.,
and these risks become more diversified and complex along with changes in the economy, society and financial
environment. Based on such circumstances, the Group regards the enhancement of the risk management system
as one of its important issues, and endeavor to maintain and improve soundness.
The Group has established the“Risk Management Rules,”which clarify the basic policy for risk management.
The Group has established an organizational structure in which there is departments in charge of risk
management administration for each risk, a risk management control department, and the“Group ALM
Committee,”the“Group Risk Management Committee”and the“Group Executive Management Meeting”thatconduct management level deliberations, and promote the sophistication and strengthening of risk management
by measuring risk amount with a uniform method and allocating and managing capital depending on risk
amounts (integrated risk management), etc.
In addition, the Group applies the system that each department in charge of risk management of theCompany ascertains risk management conditions in the whole Group and manage comprehensively in
preparation for a ripple effect of risk within the Group.
The Audit & Inspection Dept., which is independent of the operation departments, conducts internal audits
to verify the appropriateness and effectiveness of each risk management condition in the Group, and promotes
the improvements.

91

Credit risk is the risk of a decline or the destruction in the value of assets held as a result of a deterioration in
the financial condition of customers granted credit, etc. In the case of a credit risk occurring, as this may have asignificant impact on the soundness of bank management, particularly strict risk management is conducted onloans that has most of the credit risk.
The Group endeavors to ascertain the actual status of the customers and to conduct accurate credit risk
assessments through the appropriate operation of the credit rating system, and improves the accuracy of
creditworthiness evaluations by reviewing credit ratings appropriately from time to time upon the issuance offinancial statements and the occurrence of changes in the credit standing of the customers.
Self-assessment is strictly conducted by the banks in the Group based on unified standards, write-offs andprovision of allowance are performed appropriately based on the results of the self-assessment. In regard to its
validity, the content is verified by the department in charge of verification, the internal audit is conducted by thedepartment in charge of audit with maintaining its independence, and the external audit is also conducted by anauditing firm.
In addition, for the screening of individual cases, the Group has introduced a screening system that
corresponds to the size and characteristics of the banks in the Group, provides detailed support and optimal
solutions that take into consideration the business characteristics, etc., of the customers. In terms of portfolio
management, based on credit risk quantification, the Group conducts risk status analysis for each credit rating,industry and district, and endeavors to make risk management more sophisticated.
In regard to the response to the new BIS regulations that were introduced at the end of March 2007 (newregulations for capital adequacy requirements), the Company, The Yamaguchi Bank, Ltd. and Momiji Bank, Ltd.
have applied the basic internal rating measures from the six months ended September 30, 2012, and The
Kitakyushu Bank, Ltd. has applied such measures from the fiscal year ended March 31, 2017.
For companies with management issues, the Customers’ Business Potentials Evaluation Dept., which has
been established in the banks in the Group, takes the leading role in responding to this, where it examines
management improvement measures, and provides support for the preparation and execution of reconstructionplans, in partnership with sales branches and external specialist organizations, and endeavors to work on
initiatives to improve rating and to prevent downgrades.

Market risk management
Market risk is the risk of incurring loss due to fluctuations in asset and liability values caused by changes invarious market risk factors, including interest, the price of securities, etc., and foreign exchange rates.
The Group constructs a management process for market risk, identifies inherent market risk, and conducts
quantitative measurements. In addition, in order to control market risk to tolerable levels, the Group has taken
measures such as introducing the Asset and Liability Management (ALM) system and holding regular meetings ofthe Group ALM Committee in accordance with the situation.
In addition, in regard to the status of market risk, the Group conducts regular evaluations, and conduct
verifications of the appropriateness, etc., of risk control.

Liquidity risk management
Liquidity risk is the risk, etc., of incurring loss due to being forced to raise funds at a much higher interest rate
than normal to secure funds in the case that, due to a deterioration in a bank’s financial condition, etc., thenecessary funds may not be secured, and the bank runs out of cash to run its operations.
As the majority of the Group’s fund raising is performed through deposits, fund management is conductedbased on precise forecasts under the stable funding base, and the Group mainly manages funds through fundcontrols in the financial markets.
In the fund management, the Group takes all possible measures to manage liquidity risk, including the
suppression of liquidity risk, the securing of stability, and the preparation of highly liquid assets in case of
unpredictable events, etc.
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Operational risk management
Operational risks are defined as risks that the Group suffers loss due to the occurrence of problematic events inbusiness operations. They include internal fraud, external fraud, inappropriate responses in the working
environment (acts that conflict with laws and regulations, etc.), inappropriate responses in transactions withcustomers (violations of obligations, problems in product design, etc.), natural disasters, accidents, system
failures, relationships with business partners, inappropriate transaction processing, and inadequate process
management, etc. The Group manages the operational risks by classifying into seven types: (1) administrativerisk, (2) system risk, (3) information risk, (4) legal risk, (5) money laundering and terrorist financing risk, (6)tangible asset risk and (7) human risk, and manage them.
The Group has established the“Operation Risk Management Standards,”which prescribe the basic mattersconcerning operational risk management, based on the“Risk Management Rules”that prescribe the basic policy
for risk management in general, in order to appropriately manage operational risks. The department in charge ofoverseeing operational risk management centrally ascertains and manages operational risks, and eachdepartment in charge of risk management manages each risk from a technical standpoint.
“Administrative risk”is the risk of incurring loss as a result of negligence in the performance of accurate
administrative work, or due to the occurrence of an accident or fraud. The Group has prescribed its basic policy
for administrative risk management in the“Risk Management Rules,”and conducts appropriate risk management
towards the reduction of administrative risk.
“System risk”is the risk of incurring loss due to system failures, including a computer system outage or
malfunction, a cyber security incident, or the unauthorized use of computers, etc. The Group has prescribed its
basic policy for system risk management in the“Risk Management Rules,”and has established the“Information
Asset Management Rules,”which prescribe the basic matters, etc., relating to the protection and use of
information systems, and the Group conducts appropriate system risk management.
“Information risk”is the risk of incurring loss due to the leaking, loss, tampering, or inappropriate handling,etc., of information. The Group has prescribed its basic policy for information management in the“RiskManagement Rules,”and has established the“Information Asset Management Rules,”which prescribe the basic
matters, etc., relating to the protection and use of information systems, and the Group conducts appropriate
information management.
“Legal risk”is the risk of incurring loss due to an incomplete legal relationship in a transaction, etc., or due toan inadequate response to an amendment, etc., of a law and regulations. The Group has prescribed its basic
policy for legal risk management in the“Risk Management Rules,”performs legal checks and works withspecialists towards the mitigation of legal risk, and conducts appropriate risk management.
“Money laundering and terrorism financing risk”is the risk that the Group supper loss, including risks
deteriorating the Group’s credibility domestically and internationally by damaging society, in addition to risks
negatively affecting business operation due to imposition of the immense amount of financial penalty,
cancellation of correspondent contract, etc., when there are insufficient countermeasures against money
laundering and the provision of funds for terrorist activities. The Group has prescribed its basic policy for money
laundering and terrorism funding risk management in the“Risk Management Rules,”has established the“Money
Laundering, etc., Prevention Standards,”and conducts appropriate money laundering and terrorism funding risk
management with a risk-based approach.
“Tangible asset risk”is the risk of incurring loss due to damage to tangible assets or a deterioration in thequality of the work environment, etc., that occurs as a result of fire, crime, or defect in asset management, etc.
The Group has clarified the department in charge of management in the“Operational Risk Management
Standards”based on the“Risk Management Rules,”and conducts appropriate risk management in response to
the wide ranging risks that surround tangible assets.
“Human risk”is the risk of incurring tangible and intangible loss due to an inappropriate employment,
workplace, or safety environment, the insufficient development of human assets, or traffic accident, etc. The
Group has clarified the department in charge of management in the“Operational Risk Management Standards”
based on the“Risk Management Rules,”and conducts appropriate risk management in accordance with thecharacteristics of the risk.
Towards preventing the occurrence of a risk and minimizing the impact in the case of a risk occurring, theGroup ascertains the distribution of the operational risks that are inherent to its products, businesses, processes

93

About YMFGBusiness Strategy
for Value Creation

Power Supporting Value
Creationand systems, internal department evaluations are conducted by each department in charge of management, andefforts are made towards risk and control self-assessment (CSA), which involves the improvement of risk
management independently, and furthermore, the Group endeavors to establish a PDCA cycle to improve theeffectiveness of risk management.
Furthermore, as a means for identifying risks and taking countermeasures, the Group establishes a reporting
system for operational risk information, collects information and reports to the management level, andendeavors to make risk management more sophisticated, such as control, transfer and avoidance of risks
through countermeasures to prevent recurrence based on factor analysis.

Compliance risk management
Compliance risk is the risk of the Group’s reputation being damaged and corporate value being impaired due toactions that go against laws, regulations, various internal rules, as well as corporate ethics and management
philosophies.
The Group shares a common understanding of its responsibilities to fulfill its public mission and corporatesocial responsibilities as a financial group and accords topmost management priority to thorough compliance.
To maintain and improve the compliance system, strengthen ongoing efforts and response, thoroughly
prevent illegal activities, integrally manage management plans, etc. and compliance, and implement measures
based on risk, we formulate our compliance program as a concrete action plan every fiscal year and put it into
practice.

Reputational risk management
Reputational risk is the risk of incurring loss due to the occurrence of reputation about the Group’s managementin the market, etc.
The Group constructs a system for the early ascertaining of information relating to reputation, and endeavors
to minimize risk by prescribing prevention measures in the case of occurrence of reputation, including
information disclosure, and emergency backup measures in the case of a concern of risk occurrence.

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Management Letter

About YMFGBusiness Strategy
for Value Creation

Power Supporting Value
Creation

Compliance System

Policy for compliance initiatives

Basic policy on responding to antisocial forces

The Group shares a common understanding of its responsibilities to fulfill its public mission and corporate social
responsibilities as a financial group. Accordingly, we accord topmost management priority to thoroughcompliance, take the seriousness of effective compliance and consider earning the trust of a broad-basedsociety as the basic policy.

The Group fully recognizes the importance of social responsibility and public mission, and in order to ensure thesound performance of business operations, based on the following basic policy, promotes efforts to cut off all
relationships with antisocial forces.
(1) We respond as an organization to unreasonable demands that are made by antisocial forces, andresolutely reject such demands. In addition, we take legal measures from both civil and criminal
perspectives.
(2) In preparation for unreasonable demands from antisocial forces, we always work to strengthen our close
cooperation with the police, the Center for the Elimination of Violence, the Corporate Defense Council,
and Lawyer, etc.
(3) We do not provide funds to antisocial forces.

Compliance system
To ensure appropriate compliance, the Group has established the compliance administration department, andconducts the development of compliance-related system and training for officers and employees. The
Compliance Administration Dept. liaises with the compliance administration department of each groupcompany, and centrally manages compliance matters throughout the Group.
In addition, the Group has established the Group Compliance Committee. It also formulates complianceprograms for each fiscal year, which equate to specific execution plans, and monitors the status of program
implementation.

Group compliance structure (as of July 1, 2023)
General meeting of shareholders

Yamaguchi Financial Group, Inc.
ReportReportReportBanks within the Group

Audit andSupervisory Committee

Audit

Director
Submit proposals

Instruction

Cooperation

Audit

Director
Submit proposals

Instruction

ReportSubmit proposals

Audit andSupervisory Committee

ReportGroup Executive Management Meeting

Accounting Auditor

ReportBoard of Directors

Board of Directors

ReportCooperation

Accounting Auditor

Submit proposals

Report / Submit proposals

Report / Submit proposals

Instruction

ReportGuidance /Instruction /Monitoring

Report / Report /Consulting Consulting

Department
in Charge
Report /of Business Consulting

Audit

Each Dept.

Instruction /Response

ComplianceManagerCompliance
Personnel
Employee

Audit

Instruction

Instruction

LawyerCooperation

Guidance /Report / Report /Control
Instruction /Consulting Consulting
Monitoring department

Report /Consulting
Instruction /Response

Department
in Charge
Report /of Business Consulting

Audit

YMFG Audit & Inspection Dept.

Sales Branch / Each Dept.

Report /Consulting

Guidance /Response /Monitoring

Compliance Committee

AdviceYMFG Compliance Administration Dept.
Guidance /Response /Monitoring

Board of Directors

Compliance administration
department

Group Compliance Committee
Secretariat: YMFG Compliance Administration Dept.
Instruction

Other Group Companies

Compliance
Personnel
Employee
Audit /
ReportInstruction

Whistleblowing system
In order to prevent scandals caused by compliance violations and harassment, etc., to detect risks at an earlystage, and to strengthen the self-cleaning function as a company, The Group has established a Group-wide
whistleblowing help desk.
In addition, for cases of compliance-related concerns and issues including acts that may be connected to aviolation of internal rules and social rules, harassment, etc., we have established the“Any Compliance Issue Help
Desk,”which receive a broad range of consultations and questions, and have developed a system to receive
reports and consultations broadly.

95

Financial Instruments Solicitation Policy
The banks in the Group comply with the following matters, and solicit financial instruments for customers
appropriately.
(1) We recommend financial instruments that are appropriate in consideration of the customer’s investment
objective, knowledge, experience and asset standing.
(2) In order to ensure that customers select and buy financial instruments at their own judgment, we
endeavor to explain important matters, including the product content and risks.
(3) We always pay close attention to soliciting in a sincere and fair manner, and in the case of anything thatis uncertain, we do not provide fragmentary judgments, intentionally misrepresent the facts, or conduct
misleading solicitation.
(4) In the case of solicitation made by telephone or in person, we always take care to ensure that the timeand location do not cause inconvenience for the customer.
(5) We always endeavor to gain extensive product knowledge so that we can meet the trust andexpectations of customers.
* We also comply with the solicitation policy described above in relation to the“Operational Management ofCorporate Pensions in Relation to Investment Method Selection and Presentation to Members, Etc.,”and the“Designation or Changing of Investment Management Organization for Personal Pensions”under the DefinedContribution Pension Act.

Handling of personal information

ComplianceManager

Audit“Financial Instruments Solicitation Policy”

The Group complies with relevant laws and regulations, including the Act on the Protection of Personal
Information and the Act on the Use of Numbers to Identify a Specific Individual in Administrative Procedures, andin order to ensure the accuracy and confidentiality of information, as well as safety, the Group has established adepartment in charge of information management, provides education for officers and employees on an ongoingbasis, and endeavors to improve its effectiveness.
In addition, we have formulated and published the“Personal Information Protection Policy”concerning theappropriate protection and use of personal information.

Financial alternative dispute resolution (ADR) system
In order to resolve complaints and disputes that are filed by customers in a fair and neutral manner, the banks in
the Group have entered into a master agreement on the performance of procedures with the following
designated dispute resolution organization for banking services.
Contracted designated dispute resolution organization for banking services under the Banking Act
Japanese Bankers Association
Contact Information: JBA Customer Relations Center
Telephone: 0570-017109 or 03-5252-3772
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Management Letter

Power Supporting Value
Creation

Business Strategy
for Value Creation

About YMFG

Communication with Our Shareholders and Investors

The Yamaguchi Financial Group, Inc. endeavor to enhance information disclosures in order to improve thesoundness and transparency of management and to increase the trust and reputation from all stakeholders,
including customers, shareholders and the local community. We focus on opportunities for dialog with ourshareholders and institutional investors, and will actively reflect the opinions of our stakeholders in management
policies and improvements through promotion of the constructive dialog.

General meetings of shareholders and financial results briefings (Investor Relation: IR)
We actively disseminate information about financial results and the Group’s initiatives through IR tools, including
the regular corporate briefings, briefings for investors and integrated reports.
In addition, at the annual general meeting of shareholders, which is held in June of each year, we provide
courteous explanations from the perspective of shareholders, with a focus on the disclosure of information heldby the Group, and with the interest of all shareholders being treated as the highest priority.

IR calendar
Financial results announcement, company brieﬁng
May

June

Q1 disclosure

July
Annual general
meeting ofshareholders

NovemberAugustIntegrated report
Disclosure journal(full year)
January

Q2 (ﬁrst half of year)
results announcement

Q3 disclosure
February

Disclosure journal (half year)

Meetings with our investors
Briefings for analysts
and institutional
investors

Two times (May and November) in the Tokyo venue, a total of 146
participants
Held in a hybrid manner in November with live webcast on the Internet

Individual briefings for
institutional investors

35 companies, for 66 times
Including participation by the President and CEO (13 companies, for 25 times)

Corporate briefings forindividual investors

Once
Streamed a video with 838 participants (viewers), posted on the Company’s
website after the broadcast* Implementation period: April 2022 to March 2023

Main dialog items
・Matters related to the status of human capital management initiatives
・Matters related to the disclosure policy through the integrated report, etc.
・Matters related to the status of cross-shareholding reduction initiatives
・Matters related to the status of strategic capital utilization initiatives

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