Message from the President

Economic and Financial Environment

In the first half of fiscal 2000, ended March 31, 2001, the Japanese economy benefited from increased private-sector capital investment, and signs of recovery in consumer spending appeared. In the second half, however, exports declined, private-sector production activity slowed, and consumer spending languished. These factors prevented overall domestic demand from picking up, leading to an increasingly severe and unpredictable operating environment.

The economy of Okinawa Prefecture, the Bank’s business base, stagnated in the second half of the year due to instability in the clothing sector, although consumer spending remained generally firm thanks to the opening of large-scale retail outlets. In the tourism sector, the number of visitors fell below the previous-year level due to a number of factors, including difficulty in securing rooms in the July peak season, caused by the hosting of a major heads-of-state (G8) summit. Another factor was an increase in the prices of tour packages to Okinawa as a result of competition from other vacation spots. In the construction industry, public-sector projects fell below the previous year’s level due to a decline in summit-related projects, most of which were completed prior to the year in review. Although the number of bankruptcies among small and medium-sized companies increased, the number of large-scale business failures declined. Overall debt levels of bankrupt companies moved lower as a result. The unemployment rate, however,remained high.

In the financial services industry, Japan’s “Big Bang” reforms entered their final phase. Competition within the industry grew increasingly severe as mergers and consolidations of institutions led to the creation of four major financial services groups and broad-scale alliances with life and non-life insurance firms. The period saw announcements of integration of operations, the birth of dedicated Internet banks, and the entry of new players into the banking sector. Meanwhile, amid the rapid pace of liberalization, the dawn of the new century is bringing with it a new era of “mega-competition” for the financial services industry.

Improved results

Facing these challenges, the Bank of the Ryukyus fulfilled its role as the core financial institution serving Okinawa Prefecture. We recognize that it is our responsibility to meet demand for funds from small and medium-sized companies, as well as individuals, by providing a stable supply of credit. In this way, we seek to contribute to the stability of the prefecture’s financial system and boost economic development. Guided by this commitment, in fiscal 2000 we meticulously implemented a number of measures to facilitate provision of high-quality financial services.

As a result, consolidated net income for the year amounted to ¥5,876 million (US$47,431 thousand). Non-consolidated net income totaled ¥5,190 million (US$41,893 thousand), a record-high level for the Bank. Profitability improved due to a number of factors, including a significant reduction in loan write-offs as the Bank neared completion of its campaign to dispose of non-performing loans accumulated during the bubble economy. Progress in improving efficiency of operations also benefited earnings.

In the previous fiscal year, the Bank took a number of measures under the Law Regarding Emergency Measures for the Early Restoration of Financial Functions. These included raising capitalization with a private share placement amounting to ¥22.7 billion and receiving a public injection of funds totaling ¥40 billion. The public fund injection was conducted through the issue of subordinated convertible bonds. On March 29, 2000, the entire ¥ 40 billion was converted to preferred shares at the request of the Resolution and Collection Corporation, which held such conversion rights. As a result, ¥40 billion was added to the Bank’s capital account on September 30, 2001, raising the capital ratio according to domestic standards from 6.38% to 8.98%.

Thanks to the above-mentioned improvement in the Bank’s earnings, we decided to resume dividend payments, which had been suspended from fiscal 1999, with effect from the current term.

Issues and Strategies

Speed 2001 is the name of our new medium-term management plan, covering the period from April 2001 to March 2003. While most medium-term plans cover periods of three to five years, the Bank decided on a two-year plan due to rapid changes in the financial sector in recent times. The principal objective of Speed 2001 is to help the Bank secure stable earnings, by concentrating managerial resources in selected areas and extensively rebuilding the Bank’s business processes. Specifically, we will focus managerial resources on lending operations, the Bank’s core business, while rigorously enhancing efficiency and simplifying internal processes and procedures. In these ways, we aim to accelerate the credit screening process and more accurately meet the needs of customers. In particular, we will strive to expand the volume of small-lot loans to corporate and retail customers. At the same time, we recognize that enhancing convenience for customers is an important ongoing management issue. With this in mind, in fiscal 2001 we will begin Internet and mobile banking services, upgrade the functions of our Mortgage Loan Center, and work in other ways to reinforce our menu of products and services.

Amid a very difficult operating environment, we will strive to make the Bank of the Ryukyus even stronger, laying the groundwork for success in the 21st century by meeting customer needs quickly and precisely. We request your continued support and understanding as we tackle the challenges that lie ahead.