Message from the President

Placing top priority on customer satisfaction, we aim to become the bank of first choice

Looking back over the year
During the first half of fiscal 2008, the reporting term, the Japanese economy maintained a slow but steady expansion, driven principally by exports fueled by the growth of emerging economies such as China and India. This favorable performance came in spite of such adverse factors as the ripple effect on the financial sector of the subprime mortgage loan problem, which had surfaced in the United States in the previous year, and the high prices of crude oil and raw materials.
    In September, however, the bankruptcy of Lehman Brothers sent immediate shockwaves throughout financial markets around the world, especially those of the U.S. and Europe. The resultant credit crunch severely impacted real economies on a global scale, and Japan was no exception. The consequences were a steep drop in exports, decreased capital investment, and a sharp deterioration in corporate earnings. These factors in turn led to higher unemployment and a rapid stagnation in consumer spending. All in all, the situation became extremely severe.
    In our operating base of Wakayama and Osaka, the situation was similar, although the deterioration in the business environment took some time. Some bright spots were seen in the Osaka Bay area including the construction of plants for manufacturers of LCDs and solar cells, and the establishment of related businesses. Overall, however, the situation was very bleak.
    The worsening operating environment hit the Kiyo Financial Group as hard as everyone else, but although we failed to reach some of our targets under our first medium-term management plan, we managed to achieve a certain strengthening of the Bank’s business base.
    Kiyo Holdings, Inc. recorded a net income for the reporting term of approximately ¥1.4 billion. We regard this as a reasonable level given the severity of the Bank’s operating environment. I would like to appreciate our customers for their support, without which this could not have been achieved.

Achievements in the final year of the 1st medium-term plan
Since the start of the Kiyo Financial Group’s first medium-term management plan in October 2006, the management and employees of the Group have been making concerted efforts to realize the numerical targets set under the plan.
    This plan, which carries the subtitle of the “Heart & Brain Action Plan,” specifically targets the cultivation of a mindset among the Group’s employees in which they are placing top priority on customer satisfaction. Employees are urged to make full use of their expertise to serve as reliable partners for our customers and to work hard to improve our services and satisfy our customers. Kiyo Bank, which constitutes the core of the Kiyo Financial Group, aims to become the bank of first choice for customers in its home region. For that purpose, in fiscal 2008 we opened a branch in Osaka (the Shin-Osaka branch) dedicated to the provision of loans for corporate customers. We also opened a number of branches that specialize in private banking — under the name of Kiyo Heartful Plazas — as part of an overall reorganization of our branch network. These branches included one Kiyo Heartful Plaza in Sakai City, Osaka Prefecture, and two in Wakayama Prefecture. In total, since the start of the medium-term plan, we have opened three dedicated corporate loan branches, five Heartful Plazas, one dedicated mortgage loan center and two business support centers.
    It goes without saying that simply providing a network of branches is not enough to realize customer satisfaction. To ensure an excellent level of face-to-face service, we have been raising our level of new hires and have assigned an asset management advisor for wealthy customers to each branch, as well as increasing the number of marketing managers at our head office. We believe that this increase in our workforce will enable us to respond more speedily and effectively to our customers’ requests. We are confident that the measures we have taken will strengthen the Bank’s customer base, ensuring our survival amid the present difficult business conditions.

The 2nd medium-term management plan
In April 2009 we commenced our second medium-term management plan, which will cover the three-year period up to March 2012. Under the theme “~More & Steady~ Unceasing Progress,” this plan will direct continued efforts by Kiyo Bank to realize the goal of becoming the bank of first choice in our home region. By more effectively leveraging the extensive marketing network we have ever built up, we hope to forge closer ties with an even larger number of people in our home region and thereby enjoy an increase in the number of our regular customers. But our aim is not simply to grow in terms of scale: we aim also to deepen our relationship with our customers by offering them a comprehensive range of financial services. By raising the overall quality of our services, we believe that we will be able to satisfy our customers and that the simultaneous improvement in quality and quantity will significantly strengthen our financial position. Finally, we chose the name steady and unceasing progress for our new medium-term management plan to express our intention to complete preparations for steadily paying back the public funds that we have received.
    We have specified three principal challenges to enable us to achieve the targets described above: 1) to achieve competitive superiority in the Bank’s home region, 2) to create an efficient marketing network to diversify our points of contact with customers, and 3) to strengthen our organizational structure to enable steady growth.

    With respect to our aim of “Achieving competitive superiority in the Bank’s home region,” we are conducting aggressive marketing initiatives with the goal of increasing the number of corporate customers and achieving a steady increase in the volume of our business in Wakayama Prefecture and the southern part of Osaka Prefecture where we have over a number of years built up a network of branches and deployed a large number of sales staff. In Wakayama Prefecture, we already enjoy the top share in the banking services market due to strong customer support. We have already achieved a roughly 45% share in the loans market, and as we believe there is little potential left for further growth, our main strategic objective in the prefecture is to strengthen the Bank’s procurement capabilities to support steady, long-term growth.
    Wakayama Prefecture has one of the highest proportions of elderly people among the general population of all Japan’s prefectures. Therefore, it will be vital for the Bank to craft marketing initiatives and channels that target such seniors to raise our overall market share.
    In the southern part of Osaka Prefecture, the Bank opened its first branch about 50 years ago. Nevertheless we believe it is necessary for us to raise our profile further in this area as a reliable regional bank. To persuade the residents of southern Osaka Prefecture to accept Kiyo Bank as a regional bank, we need to form even closer relationships with our customers. Such relationships will come into being when we have the infrastructure that enables us to offer them a wide range of financial products and services. We must build a more advanced branch network and staff our branches with employees who possess specialized knowledge, and this will form the basis of further marketing development. As the Bank’s core computer system is scheduled for replacement in 2010, we plan to begin deploying our new branch-opening strategy once the new system is in place.
    Our second challenge is “Creating an efficient marketing network to diversify our points of contact with customers.” This consists of building a marketing system that can realize optimal satisfaction for each customer and involves the fostering of highly specialized employees capable of identifying customers’ particular needs with precision and meeting those needs through the provision of financial services with a high level of value added.
    For this purpose, our head office and branch staff are collaborating in the creation of a more advanced marketing system that will leverage the skills of specialist Bank employees and external bodies such as public institutions and educational institutions.
    We also plan to improve the functions of our call centers so as to not only complement the marketing functions of the Bank’s branches, but also raise the efficiency of the entire marketing system. Fullscale activities by our call centers were scheduled to begin in the summer of 2009, and we will be making efforts to expand and diversify our points of contact with customers through the enhancement of our after-sales services and telephone banking services.
    Regarding our measures to increase the number of staff working at our call centers, the Bank is participating in a project “Encouraging people to live and work in Wakayama” conducted by the Wakayama prefectural government to stimulate the local economy. We are doing this by conducting a special hiring program in addition to our normal annual program. In this way, we hope to contribute, even though in a small way, to alleviating the unemployment situation in Wakayama Prefecture.
    Our third challenge is “Strengthening our organizational structure to enable steady growth.” This is related to the above-described efforts to strengthen our marketing system as it involves building closer relationships with our customers and becoming the sort of reliable partner that can solve all their problems quickly. We are investing considerable management resources in meeting this challenge, while also implementing rigorous cost management in all expense categories to enable us to raise the Bank’s earnings.

The Bank’s social responsibilities as a financial institution
As a bank whose operations are deeply rooted in the life of the local community, we view our activities in the fields of lending to local business owners, consulting on asset management and investment and related matters, and our business transactions with all people living and working in our operational region as being part of our corporate social responsibilities (CSR). One of our most important social responsibilities is to contribute to the growth and healthy development of the regional economy, and we are working to implement the optimal measures to realize mutual prosperity for the Bank and the communities in which we operate.
    We have taken a number of steps to contribute to environmental issues. These include: adopting light, casual clothing during the summer for all staff, enabling us to raise the thermostats on our office air-conditioning systems so as to conserve energy; employing an in-house LAN to reduce the volume of paper print-outs; and ensuring that garbage is properly separated to facilitate efficient recycling. Environmental activities on a purely local scale include participation in an afforestation project undertaken by local companies and participation by Bank staff in neighborhood clean-up activities.
    We also contribute to environmental preservation through our lending operations, such as through loans for the acquisition of ISO 14000 series environmental management certification and loans for the purchase of more ecologically friendly equipment or vehicles. Many of our financial products and services make contributions to environmental preservation in various ways, and recently we have been collaborating with other companies in energy service company (ESCO) projects with the aim of promoting energy conservation.
    I have frequently reminded the Bank staff that a regional financial institution cannot grow without the growth of the regional economy, and thus it is our duty to offer the best financial services we can to our local customers to reinvigorate the economy. We must enhance our contact with our customers, increasing customer visits and employing new marketing channels, to live up to the expectations placed in us by the local community by making a real social contribution. Only in this way, we will be able to gain the trust and support of the community and to become the bank of first choice in our home region.
    Moreover, given the highly public nature of the role of a financial institution and the preeminent importance of trust for such an entity, it goes without saying that the establishment of a comprehensive and reliable system for ensuring legal compliance is extremely important. For this reason, Kiyo Holdings, Inc. has set up a compliance committee that includes outside experts to oversee all legal compliance systems and initiatives throughout the Kiyo Financial Group. For its part, Kiyo Bank has appointed a compliance officer who is responsible for advising employees on legal compliance issues and for providing consulting for employees regarding compliance-related problems or other concerns in the workplace. In the event of the discovery of problem areas relating to the working environment or the Bank’s organization, the Compliance Officer will make proposals for improvement to the Bank’s management. We intend to maintain a high level of awareness of compliance issues within the Kiyo Financial Group through proactive measures to mold the Group’s corporate culture.
    We will be focusing efforts on the issues which are very important for us listed above. At the same time, we will be working hard to achieve our goals under the second medium-term management plan.
    I look forward to receiving the continued support and encouragement of all our stakeholders.

Hiroomi Katayama
President