Based on our analysis of the top risks described above, we have described below major
matters relating to risks to our business and other risks that we believe may have a material impact on your investment decision. In addition, to proactively disclose information to investors, we have described matters that do not necessarily
correspond to such risk factors, but that we believe are material to you in making an investment decision. We will, with the understanding that these risks may occur, endeavor to avoid the occurrence of such risks and to address such risks if they
occur.
This section contains forward-looking statements, which, unless specifically stated otherwise, reflect our understanding as of the
date of filing of this annual securities report.
Risks Related to Our Business Environment
1.
|
Risks relating to deterioration in economic conditions in Japan and globally
|
Economic conditions in Japan and around the world may deteriorate 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.
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, concerns over the U.S. -China conflict, changes in the European economy after the United Kingdoms withdrawal from the European Union, and economic stagnation and 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.
2.
|
Risks relating to external circumstances or events (such as conflicts, terrorist attacks and natural
disasters)
|
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.
2