Risks Related to Our Business Environment
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Risks relating to deterioration in economic conditions in Japan and globally
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Economic conditions in Japan and around the world may deteriorate significantly due to various factors such as the COVID-19 pandemic and measures being implemented in response to the pandemic, including restrictions on travel, store operations and other economic activities, in Japan and other countries and regions as well as
crude oil prices declining or remaining at low levels. Uncertainty over the Japanese and global economies still remain not only because of the unpredictability of the timing of containment of COVID-19 but also
because of such other factors as concerns over political developments in the United States, the possible negative impact on international trade resulting from shifts in the trade policies of various countries and regions, concerns relating to the
United Kingdoms withdrawal from the European Union, and the slowing economic growth in China and the economic stagnation in emerging countries and commodity-exporting countries, as well as the political turmoil in various regions around the
world. In addition, external events, such as earthquakes, typhoons, floods and other natural disasters, terrorism and other political and social conflicts, abduction, and health pandemics or epidemics, may cause deterioration in economic conditions
and market instability in affected areas.
Worsening economic conditions in Japan and around the world may result in, among other things,
impairment or valuation losses on securities and other assets that we hold due to declines in the market value of such assets, an increase in our non-performing loans and credit costs due to deterioration in
borrowers business performance, a decrease in our profits due to deterioration in the creditworthiness of counterparties in market transactions, a reduction in foreign currency funding liquidity, an increase in our foreign currency funding
costs, and an increase in the level of risk in, and the balance of, the risk assets that we hold. Our profitability may be adversely affected by various other factors, including a decline in our net interest income caused by such factors as changes
in the monetary policies of central banks in various jurisdictions. In addition, an economic downturn may result in a decline in new investments and business transactions by customers due to stagnation in economic activity, weak consumer spending,
diminished investor appetite for making investments in uncertain financial markets, and a decrease in our assets under custody or management.
In the event of a financial market turmoil or depression resulting from significant volatility in bond and stock markets or foreign currency
exchange rates, or a global financial crisis, the market value of financial instruments that we hold may significantly decline, properly quoted market prices of such instruments may become unavailable for valuation purposes, or financial markets may
become dysfunctional. As a result, we may incur impairment or valuation losses on financial instruments in our portfolio.
Any of the
foregoing factors may materially and adversely affect our business, operating results and financial condition.
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Risks relating to external circumstances or events (such as conflicts, terrorist attacks and natural
disasters)
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As a major financial institution incorporated in Japan and operating in major international financial
markets, our business operations, ATMs and other information technology systems, personnel, and facilities and other physical assets are subject to the risks of earthquakes, typhoons, floods and other natural disasters, terrorism and other political
and social conflicts, abduction, health pandemics or epidemics, and other disruptions caused by external events, which are beyond our control. Such external events may result in loss of facility and human and other resources, suspension or delay in
all or part of our operations, inability to implement business strategic measures or respond to changes in the market or regulatory environment as planned, and other disruptions to our operations. In addition, we may be required to incur significant
costs and expenses, including those incurred for preventive or remedial measures, to deal with the consequences of such external events. As a result, our business, operating results and financial condition may be materially and adversely affected.
For example, the COVID-19 pandemic has required us to temporarily close some of our business
locations, resulted in reduction in our and our vendors operational capacity due to restrictions on mobility, and had other negative impact on us. Although we have taken various measures, including establishing a Group Crisis Event Control
Headquarter headed by our Group CEO and implementing remote work and off-peak commute policies and programs, designed to ensure the safety of our employees and vendors as well as the continuity of our
operations, if a large number or concentrated groups of employees of us and our vendors become infected of the virus or if the pandemic continues to expand or is not sufficiently controlled, we may be further adversely affected.
As with other Japanese companies, we are exposed to heightened risks of large-scale natural disasters, particularly earthquakes. In
particular, a large-scale earthquake occurring in the Tokyo metropolitan area and other areas where we have our important business functions may have a material adverse effect on our business, operating results and financial condition.
Our risk management policies and procedures may be insufficient to address the consequences of these external events, resulting in our
inability to continue to operate a part or the whole of our business, although we work to strengthen our operational resilience (the comprehensive ability to continue critical operations in the event of a disruption such as a conflict, terrorism
(including cyber terrorism), or natural disaster) by establishing a business continuity framework based on the regulations of each relevant jurisdiction and testing through training and other measures.
Our redundancy and backup measures may not be sufficient to avoid a material disruption in our operations, and our contingency and business
continuity plans may not address all eventualities that may occur in the event of a material disruption caused by a large-scale natural disaster such as the March 2011 Great East Japan Earthquake, which led to tsunamis, soil liquefaction and fires,
as well as electricity power supply shortages and electricity power conservation measures.
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