Message from the President

Strengthening customer relationships to more effectively meet diversifying needs

Looking back over the year
I would like to begin by thanking our many stakeholders for their support over the years.
    Following its establishment in 2006, The Kiyo Financial Group’s first medium-term management plan, named The Heart & Brain Action Plan, commenced in October of the same year. This plan has been progressed well thus far, with the current business term ending March 2009 the final year of the plan. For the term under review, ended March 2008, we enjoyed a healthy local economy and saw increases in both deposits and loans. Kiyo Holdings, Inc. recorded a favorable business performance on a consolidated basis, while Kiyo Bank posted favorable results on a nonconsolidated basis.
    We are currently devoting considerable management resources to push ahead with a strategy to enhance relationship banking, enabling Kiyo Bank to achieve its goal of becoming the bank of first choice for customers in our home region.
    These days, there are various modes of interface between a bank and its customers, but the central, most important one is a bank’s network of branches.
    In February of this year we opened two branches in Osaka (the Osaka-Higashi and Osaka-Kita branches) dedicated to loan provision services. Kiyo Bank opened its first branch in Osaka over 50 years ago, but we decided to open additional outlets in the city to attract new customers by expanding our marketing over a larger part of Osaka. At the same time, our expanded network will provide more convenient service to our existing customers. We will be opening another branch dedicated to corporate loan services in northern Osaka this autumn.
    To offer individuals an improved range of services relating to deposits and assets-under-custody plans, we have begun creating a network of branches that specialize in private banking under the name of Kiyo Heartful Plazas. Thus far, we have opened the Nishiwaki branch in Wakayama City and a branch in Izumi-Otsu City, and more are planned in the near future. These branches are staffed entirely by female employees, and their theme is to provide a relaxed atmosphere with friendly staff who offer easy-to-understand advice about the Bank’s products and services. We hope to use the Kiyo Heartful Plazas as a means of attracting new customers in areas where we have not previously operated.
    It goes without saying that simply providing a tight network of branches is not enough. Even if a bank’s branch is conveniently close, if the level of service is not high enough, customers will not remain loyal. In recent years, people’s banking needs have been diversifying. So, in addition to providing traditional time deposits, banks need to offer other investment vehicles for customers’ funds, including investment trusts and personal pension plans. At Kiyo Bank, we have stationed asset investment advisers at 51 of our branches to advise customers on ways to safely protect and grow their assets to suit their own particular circumstances and requirements.
    We have also stationed qualified Financial Advisors from our headquarters in each of our marketing districts to assist the branches in making even more appropriate and timely asset management proposals to their customers.
    Recently, in dealing with customer asset management needs, we have encountered many situations in which we have to take the customer’s life plans carefully into consideration, and our branch staff inform us that special expertise in such fields as pensions and inheritance issues is now essential for effective management of personal assets. Obviously, we cannot expect each Bank employee to take responsibility for solving all our customers’ problems. We have therefore set up a special office on the fourth floor of our Wakayama-Chuo Branch building to handle all types of customer queries and provide consultation on the full range of personal financial issues. This consulting office — staffed by specialists in a wide range of fields — is open on Saturdays and Sundays in addition to normal weekday hours, enabling working customers to easily visit the office to discuss their asset management needs. Customers can also take advantage of the expertise of the consulting office’s specialist at their local Bank branch. Our consulting staff are ready to discuss and give advice on any problems or queries that customers may have with regard to their daily lives. In addition, seminars on various issues are held every day at the consulting office, and interested customers can arrange to attend at any time via a toll-free telephone number.
    In recent years we have seen a series of corporate scandals in Japan in some industrial sectors. Because of the public nature of the financial services industry and the crucial role trust plays, scandals are particularly damaging to the management of a financial institution. Not only does corporate misconduct harm the bonds of trust between a financial institution and its customers and business partners, but also the effects of a scandal inevitably lead to a deterioration in the level of customer service.
    For these reasons, the Kiyo Financial Group has been taking a number of measures to strengthen its compliance system. Among these is the appointment last year of an outside director, in addition to the outside corporate auditor already employed by us. The principal role of the outside director, who is an attorney, is to give advice to the Board of Directors on legal matters. He also serves as the chairman of the Compliance Committee, which is composed entirely of outside experts and is charged with the duty of strengthening the Bank’s legal compliance. We have also appointed a team of compliance officers to help upgrade, from the compliance standpoint, the administrative operations at our branches. The compliance officers pay regular visits to the branches to monitor compliance at the front line. They provide direction to branch staff and make recommendations for improvement of the compliance system to the Bank’s head office.
    We believe that strengthening compliance ultimately leads to improved customer service, and we will be focusing our efforts on this endeavor more over the years to come.

Collaboration with Wakayama Prefectural Authorities
Japanese regional banks cannot achieve growth without the revitalization of their local economies. Accordingly, it is the duty of regional banks to provide their customers with the best possible services so as to support the development of their regional economies.
    In our business, we often have occasion to talk to the managers of other business enterprises, and many of them follow a business philosophy in which it is not enough that a transaction benefits the two parties directly involved; it must also be of benefit to society as a whole. This, naturally, applies to the financial sector. In particular, the degree of contribution to the community made by the business operations of a regional financial institution is a crucial factor in determining that institution’s long-term sustainability. Regional banks are expected to support regional development by using their relationship banking functions to create a network of win-win relationships.
    To this end, in February of this year Kiyo Bank signed an agreement with the prefectural authorities of Wakayama on a comprehensive collaboration project aimed at revitalizing the regional economy. From April, we began a personnel exchange program with the prefectural government and are planning a variety of joint initiatives to assist the economic growth of the communities in which we operate.
    Despite differences in the viewpoints of the public and private sectors, both Wakayama Prefecture and Kiyo Bank are strongly committed to the revitalization of regional economy. To realize our goal, we have set up working groups together with Wakayama prefectural staff who are engaging in vigorous debate regarding programs for the training of human resources for local industries, the provision of support for companies’ growth plans and other initiatives for the full and effective utilization of the region’s resources.
    The collaboration program on which we have agreed with the prefecture consists of measures to: 1) strengthen the competitiveness of local corporations; 2) train sufficient human resources for local industries; 3) provide support for the tourism industry and town planning projects; 4) carry out technological research and provide consulting on technology issues; 5) exchange young employees between Kiyo Bank and the prefectural government; and 6) exchange information on ways to attract new companies. We intend to make steady progress with these initiatives while extending our collaborative network to encompass local chambers of commerce and industry and educational organizations that are committed to the same goal of regional economic revitalization.
    The Japanese economy at present has lost some of the vigor it once boasted, and the future gives little cause for optimism. In the financial sector, too, competition is becoming increasingly severe with the start-up of the Japan Post Bank and its rapid expansion of its lineup of financial products and services, as well as business tie-ups with companies in other industries. At the Kiyo Financial Group, we will be working hard during fiscal 2008 — the final year of our current medium-term management plan — to achieve our goals and thereby provide our customers with the level of service they demand.
    I look forward to the continued support and encouragement of our stakeholders.

Hiroomi Katayama
President