The Bank of Kyoto, Ltd

NEWS RELEASE

Aug 12, 2020 R&I Affirms A, Stable: The Bank of Kyoto, Ltd.

Rating and Investment Information, Inc. (R&I) has announced the following: ISSUER: The Bank of Kyoto, Ltd. Issuer Rating: A, Affirmed Rating Outlook: Stable

RATIONALE: The Bank of Kyoto, Ltd. is a regional bank that has a relatively strong market presence in Kyoto Prefecture. In line with its management vision of becoming "a wide-area regional bank", the bank has proactively expanded a branch network mainly in the Kinki region. The growth in the value of lending remains high. During the period of the previous Medium-term Management Plan, which ran through the fiscal year ended March 2020, the bank's total loan balance had increased by about 800 billion yen over three years, surpassing its goal. The earning capacity is low relative to the rating. Although the customer base is expanding, yields on loans are low. This has resulted in low earnings from customer transactions. The bank's earnings are easily influenced by the level of dividends generated from its stockholdings. There is room for improvement in the earning capacity in terms of its quality and quantity. The increase in lending seen in recent years was fueled mainly by funding for big companies whose interest rates are low and the public sector. In its seventh Medium-term Management Plan, which began in April 2020, the bank plans to boost profitability by strengthening lending for small to medium sized enterprises whose interests are comparatively high. It will also launch cost saving drive after weak efforts to this point. As the bank has introduced a parameter concerning profits from customer transactions as a major element of key performance indicators, R&I will closely observe how far this step will pay off. The risk resilience matches the A rating category. Although the bank faces significant risks mainly market risks such as those associated with price fluctuations and interest rates, the risk resilience has been supported by an abundance of unrealized gains on stockholdings. Its plan to reinvest parts of funds created by yen-denominated bond redemption in investment trusts would increase risk slightly, though the risk resilience is likely to continue to be consistent with the A rating category. The bank has sufficient liquidity, too. Damage from the novel coronavirus is spreading across the world. Kyoto Prefecture, too, has suffered from a tourist traffic decline and other negative effects caused by the pandemic. In light of the sound quality of its loan assets and small outstanding loans to hotels and restaurants hit hard by the crisis, R&I believes that the bank should be largely free from substantial risks. Yet if economic activities remain stalled for quite a long time, this could worsen the asset quality. R&I will follow future developments.

The primary rating methodologies applied to this rating are provided at "R&I's Basic Methodology for Corporate Credit Ratings", "Shared Rating Approach for Financial Institutions, etc." and "Depository Financial Institutions". The methodologies are available at the web site listed below, together with other rating methodologies that are taken into consideration when assigning the rating. https://www.r-i.co.jp/en/rating/about/rating_method.html

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R&I RATINGS: ISSUER: The Bank of Kyoto, Ltd. (Sec. Code: 8369) Issuer Rating RATING: A, Affirmed RATING OUTLOOK: Stable