About Nanto Bank

Our Shared Vision

ConsolidatedDeveloping Human
Value Creation by theGovernance Supporting OurResources for Value Creation Group’s Human Resources Proactive Human Resources Financial Statements

Independent Auditors’ Report

Independent auditor’s report
To the Board of Directors of The Nanto Bank, Ltd.:
OpinionWe have audited the accompanying consolidated financial statements of The Nanto Bank, Ltd. (“theCompany”) and its consolidated subsidiaries (collectively referred to as “the Group”), which comprisethe consolidated balance sheets as at March 31, 2023 and 2022, the consolidated statements of income,comprehensive income, changes in net assets and cash flows for the years then ended, and notes,
comprising a summary of significant accounting policies and other explanatory information.
In our opinion, the accompanying consolidated financial statements present fairly, in all material
respects, the consolidated financial position of the Group as at March 31, 2023 and 2022, and its
consolidated financial performance and its consolidated cash flows for the years then ended inaccordance with accounting principles generally accepted in Japan.
Basis for Opinion
We conducted our audit in accordance with auditing standards generally accepted in Japan. Ourresponsibilities under those standards are further described in the Auditor’s Responsibilities for theAudit of the Consolidated Financial Statements section of our report. We are independent of the Groupin accordance with the ethical requirements that are relevant to our audit of the consolidated financialstatements in Japan, and we have fulfilled our other ethical responsibilities in accordance with theserequirements. We believe that the audit evidence we have obtained is sufficient and appropriate toprovide a basis for our opinion.
Key Audit Matters
Key audit matters are those matters that, in our professional judgment, were of most significance in ouraudit of the consolidated financial statements of the current period. These matters were addressed in thecontext of our audit of the consolidated financial statements as a whole, and in forming our opinion
thereon, and we do not provide a separate opinion on these matters.

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Appropriateness of the estimates of the reserve for possible loan losses for loans and bills
discounted to small and medium-sized enterprises (SMEs)
The key audit matter

How the matter was addressed in ouraudit

The Nanto Bank, Ltd. (“the Company”) and its
consolidated subsidiaries reported loans and bills
discounted of ¥3,944,387 million, accounting for 60.2% of
total assets, and a related reserve for possible loan lossesof ¥23,043 million in the consolidated balance sheet.
Reserve for possible loan losses reported in the balance
sheet of the Company accounted for a significant portionin the consolidated balance sheet.

The primary procedures we performed toassess whether the Company’s estimatesof the reserve for possible loan losses forloans and bills discounted to SMEs wasappropriate included the following:

As described in the Notes to Consolidated FinancialStatements, 2. SUMMARY OF SIGNIFICANTACCOUNTING POLICIES i. Reserve for possible loanlosses and 3. SIGNIFICANT ACCOUNTINGESTIMATES, the Company classifies borrowers based on
their credit risk rating in accordance with thepredetermined standards for write-offs and reserves, andreports the reserve for possible loan losses by calculating
the loan loss ratio based on the category of borrowers byregion.

The category of borrowers is determined based on thecredit rating determined by the rating models and theborrower’s repayment ability based on their substantial
financial position, financing capacities, and profitability,etc., and the terms and conditions of the loans andpayment status of the borrower. Also, the Company gives
comprehensive consideration to the borrower’ssustainability, projected profitability, and ability to pay
obligations based on their annual repayable amount,appropriateness of their business improvement plans, andother factors in light of the borrower’s industry
characteristics.
The Company aims to increase Nara prefecture’s real
gross domestic product by 10% over 2016 in its
management plan, “Nanto Mission and Objectives for theNext 10 Years,” targeted to be achieved by 2029. To
achieve this goal, the Company will contribute to thedevelopment of the region by taking the initiative in

102 Nanto Report 2023, the integrated report of Nanto Bank

(1) Internal control testing
In order to test the design and operating
effectiveness of certain of the Company’sinternal controls relevant to thedetermination of the category ofborrowers, we:tested the effectiveness of internal
controls related to various
regulations for the internal selfassessment criteria, and the policy
for write-offs and provisions;tested the effectiveness of internal
controls to ensure the reliability ofborrowers’ financial informationentered into the financing supportsystem;
tested IT application controls overthe quantitative determination of
the category of borrowers; andtested the effectiveness of internal
controls of the Credit Analysis
Division related to thedetermination of the category ofborrowers in consideration ofqualitative factors.

(2) Assessment of determination of thecategory of borrowers
In order to assess the appropriateness ofthe determination of the category ofborrowers, we selected borrowers to betested individually by considering
quantitative factors such as credit limits
and qualitative factors such as theprogress of the Company’s businessAbout Nanto Bank

Our Shared Vision

Consolidated
Developing HumanValue Creation by theGovernance Supporting Our
Resources for Value Creation Group’s Human Resources Proactive Human Resources Financial Statements

resolving regional issues, with the aim of “sustainablebusiness that grows together with the region.”

The Company operates mainly in Nara prefecture,neighboring prefectures, and Tokyo, but its businesscoverage area is limited. The main borrowers are SMEs,
and the Company’s balance sheet reported loans and bills
discounted to SMEs of ¥1,473,864 million.

improvement plans, the impact of the newcoronavirus and rising prices, andperformed the following procedures:
Since the fundamental business foundation of SMEs
generally tends to be weaker than medium to large-sizedenterprises, the Company determines the category of SME
borrowers by comprehensively considering not only theirfinancial conditions but their technical capabilities, sales
capacity and growth potential, their managements’ income
status, asset quality, and guarantee status and capacity, inlight of their business condition.
Therefore, there is judgment over the qualitative factors
including the estimate of reasonableness and feasibility ofthe business improvement plan which is important forborrowers categorized as needs attention borrowers(excluding claims corresponding to restructured loans)based mainly on the grounds that a drastic and highly
feasible or a reasonable and highly feasible business
improvement plan exists.
In addition, SMEs may be significantly impacted by the
new coronavirus and rising prices. Accordingly,
management’s judgment on the determination of thecategory of borrowers may have a significant impact on
the reported amount of the reserve for possible loan losses.

We, therefore, determined that our assessment of theappropriateness of the estimates of the reserve for possible
loan losses for loans and bills discounted to SMEs,
especially the appropriateness of the management’s
judgment on the category of borrowers, was of mostsignificance in our audit of the consolidated financial
statements for the current fiscal year, and accordingly, a
key audit matter.



compared the quantitative
information of borrowers,
including financial ratios, to the
supporting materials, in order toverify that the information is basedon accurate and the latest
information;
inspected related documents andinquired of personnel in therelevant divisions, such as theCredit Analysis Division, to assess
whether judgments based on
qualitative factors were made in atimely and appropriate manner,and assessed the appropriatenessof the determination of thecategories of borrowers based on
qualitative factors for borrowers
whose category have a relatively
high degree of dependence onmanagement’s judgment,
particularly including those underintensive credit monitoring andthose categorized as needs
attention borrowers (excluding
claims corresponding torestructured loans) based mainlyon the grounds that a drastic andhighly feasible or a reasonable andhighly feasible business
improvement plan exists; andassessed whether the determinedcategories of borrowers wereappropriate, focusing on therecoverability from the current
business performance andfinancing situation by
understanding the latest businessconditions of borrowers andconsidering their industry
characteristics through theinspection of related documents
and the inquiries of personnel inthe relevant divisions, such as theCredit Analysis Division, toevaluate the impact of the newcoronavirus and rising prices onborrowers’ operating results.

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Other Information
The other information comprises the information included in the Integrated Report, but does not include
the consolidated financial statements, the financial statements, and our auditor’s reports thereon.
Management is responsible for the preparation and presentation of the other information. The audit andsupervisory committee is responsible for overseeing the directors’ performance of their duties withregard to the design, implementation and maintenance of the reporting process for the otherinformation.
Our opinion on the consolidated financial statements does not cover the other information and we do
not express any form of assurance conclusion thereon.
In connection with our audit of the consolidated financial statements, our responsibility is to read theother information and, in doing so, consider whether the other information is materially inconsistent
with the consolidated financial statements or our knowledge obtained in the audit, or otherwise appears
to be materially misstated.
If, based on the work we have performed, we conclude that there is a material misstatement of thisother information, we are required to report that fact.
We have nothing to report in this regard.
Responsibilities of Management and the audit and supervisory committee for the Consolidated
Financial Statements
Management is responsible for the preparation and fair presentation of the consolidated financial
statements in accordance with accounting principles generally accepted in Japan, and for such internal
control as management determines is necessary to enable the preparation of consolidated financial
statements that are free from material misstatement, whether due to fraud or error.
In preparing the consolidated financial statements, management is responsible for assessing the Group’sability to continue as a going concern, disclosing, as applicable, matters related to going concern inaccordance with accounting principles generally accepted in Japan and using the going concern basis ofaccounting unless management either intends to liquidate the Group or to cease operations, or has norealistic alternative but to do so.
The audit and supervisory committee is responsible for overseeing the directors’ performance of theirduties with regard to the design, implementation and maintenance of the Group’s financial reporting
process.
Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements
Our objectives are to obtain reasonable assurance about whether the consolidated financial statements
as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’sreport that includes our opinion. Reasonable assurance is a high level of assurance, but is not aguarantee that an audit conducted in accordance with auditing standards generally accepted in Japan
will always detect a material misstatement when it exists. Misstatements can arise from fraud or error
and are considered material if, individually or in the aggregate, they could reasonably be expected toinfluence the economic decisions of users taken on the basis of these consolidated financial statements.
As part of our audit in accordance with auditing standards generally accepted in Japan, we exercise
professional judgment and maintain professional skepticism throughout the audit. We also:Identify and assess the risks of material misstatement of the consolidated financial statements,
whether due to fraud or error, design and perform audit procedures responsive to those risks, andobtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The riskof not detecting a material misstatement resulting from fraud is higher than for one resulting from104 Nanto Report 2023, the integrated report of Nanto Bank

About Nanto Bank

Our Shared Vision

ConsolidatedDeveloping Human
Value Creation by theGovernance Supporting Our
Resources for Value Creation Group’s Human Resources Proactive Human Resources Financial Statements

error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or theoverride of internal control.
Obtain an understanding of internal control relevant to the audit in order to design audit proceduresthat are appropriate in the circumstances, while the objective of the audit is not to express anopinion on the effectiveness of the Group’s internal control.

Evaluate the appropriateness of accounting policies used and the reasonableness of accounting
estimates and related disclosures made by management.

Conclude on the appropriateness of management’s use of the going concern basis of accounting
and based on the audit evidence obtained, whether a material uncertainty exists related to events orconditions that may cast significant doubt on the Group’s ability to continue as a going concern. If
we conclude that a material uncertainty exists, we are required to draw attention in our auditor’sreport to the related disclosures in the consolidated financial statements or, if such disclosures areinadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to
the date of our auditor’s report. However, future events or conditions may cause the Group tocease to continue as a going concern.

Evaluate whether the presentation and disclosures in the consolidated financial statements are inaccordance with accounting standards generally accepted in Japan, the overall presentation,
structure and content of the consolidated financial statements, including the disclosures, andwhether the consolidated financial statements represent the underlying transactions and events in amanner that achieves fair presentation.

Obtain sufficient appropriate audit evidence regarding the financial information of the entities orbusiness activities within the Group to express an opinion on the consolidated financial statements.
We are responsible for the direction, supervision and performance of the group audit. We remainsolely responsible for our audit opinion.

We communicate with the audit and supervisory committee regarding, among other matters, theplanned scope and timing of the audit, significant audit findings, including any significant deficiencies
in internal control that we identify during our audit.
We also provide the audit and supervisory committee with a statement that we have complied withrelevant ethical requirements regarding independence, and communicate with them all relationships andother matters that may reasonably be thought to bear on our independence, and where applicable,related safeguards.
From the matters communicated with the audit and supervisory committee, we determine those mattersthat were of most significance in the audit of the consolidated financial statements of the current period
and are therefore the key audit matters. We describe these matters in our auditor’s report unless law orregulation precludes public disclosure about the matter or when, in extremely rare circumstances, we
determine that a matter should not be communicated in our report because the adverse consequences ofdoing so would reasonably be expected to outweigh the public interest benefits of such communication.
Convenience Translation
The U.S. dollar amounts in the accompanying consolidated financial statements with respect to the yearended March 31, 2023 are presented solely for convenience. Our audit also included the translation ofyen amounts into U.S. dollar amounts and, in our opinion, such translation has been made on the basis
described in Note 1 to the consolidated financial statements.

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Interest required to be disclosed by the Certified Public Accountants Act of Japan
We do not have any interest in the Group which is required to be disclosed pursuant to the provisions ofthe Certified Public Accountants Act of Japan.

Manabu Matsumoto
Designated Engagement Partner
Certified Public Accountant
Yoshiyuki Sumihiro
Designated Engagement Partner
Certified Public Accountant

KPMG AZSA LLC
Osaka Office, Japan
November 10, 2023

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