I would like to express my sincere gratitude to the shareholders and other stakeholders of the Bank of the Ryukyus for their continued support. The following is a report on the Bank’s business performance and financial position for the fiscal 2008 business term (April 1 2008 to March 31, 2009).

Financial & Economic Environment

During fiscal 2008 the entire world was impacted by a financial crisis triggered by the U.S. subprime mortgage loan issue, and the collapse of Lehman Brothers in September tipped the global real economy into a sharp downturn. In Japan, exports by automakers and electrical equipment manufacturers fell, leading to production cutbacks and a decline in capital investment as corporate earnings plummeted. Unemployment rose while average wage levels fell, causing consumer spending to stagnate. Both domestic and overseas demand weakened rapidly.

Okinawa Prefecture saw a rally in construction activity in a year-on-year rebound from the temporary slump cause by the introduction of the Revised Building Standards Law, but the overall economy continued to mark time. In the latter half of the term, however, personal consumption expenditure fell still further as consumers tightened their purse-strings in response to the deterioration of the Japanese economy. The effects of this development were seen in the tourism sector, as well, with the number of visitors to Okinawa registering a decline, leading to a decrease in the number of guests at hotels and other accommodation facilities. During this period, a decline was seen in job offers for new graduates. Although the number of corporate bankruptcies was up by only 7 over the previous year, at 96, the aggregate indebtedness of the failed enterprises rose sharply to ￥77.6 billion.

Business activities and performance results

Against this background, during the reporting term we took initiatives to achieve our main management target, which was to strengthen our earnings structure so as to support the implementation of growth strategies. Our aim was to enhance the Bank’s services from the twin perspectives of quality and quantity, so as to reach the numerical targets under our Challenge 51 medium-term management plan. At the same time, under the plan, we tackled the tasks of providing sufficient loans to SMEs, marketing our deposit and assets-in-custody services, expanding the number of our marketing channels, and rolling out new financial services.

Our main performance results are shown below.

Loans to SMEs

As part of our efforts to diversify fund procurement methods for our SME customers, we have introduced additional loans in which movable assets are accepted as collateral. In June 2008 we began offering a new loan product called Mobility 5000, which allows borrowers to put up commercial vehicles such as trucks and buses as collateral on loans. Then, in October we concluded a consulting services contract with TRUVA Group Holdings and the Nihon Dousan Kantei, an NPO, both of which specialize in personal property appraisal.

In view of the severity of the current business situation, we put particular efforts into bolstering our system for the provision of emergency credit under a new governmental initiative, and in January 2009 we provided consulting services for the renewal of business loans or the provision of additional loans, during evening hours on weekdays.

Sale of deposits and asset-in-custody services

To mark the 60th anniversary of the Bank we launched a variety of new products and conducted a vigorous marketing campaign. Our V-Camp time-deposit product, which is linked to the performance of professional baseball teams that hold their spring training sessions in Okinawa, proved its enduring popularity in its eleventh year after the initial launch.

In the field of asset-in-custody services, we responded to the severe investment environment by proposing special remedial measures on investments, centering on investment trusts.

Expanding marketing channels

In July 2008 we became the first bank in the Okinawa-Kyushu region to offer a mobile mortgage loan consulting services via a special vehicle, for customers who cannot easily visit our branches. In August, we began offering non-housing loans for individuals at three of our existing mortgage loan centers, in Naha, Makiminato, and Chubu. This enables customers seeking personal loans to use our services on Saturdays and Sundays.

New financial services

In July 2008 we began the sale of defined contribution pension plans to enable SMEs to receive preferential tax treatment, and in October we commenced agency services for investment trust products under contract to Lombard Odier Darier Hentsch Investment Trust Co., Ltd. the Japanese arm of the Swiss bank Lombard Odier Darier Hentsch. This was the first such arrangement for a Japanese regional bank. In other fields, we steadily accumulated a track record in the provision of advisory services relating to M&A issues and consulting on business succession issues.

Issues facing the Bank

Due to the prolonged effects of the global financial crisis, the economies of Japan and other countries have experienced substantial deterioration, and conditions in the financial sector are becoming increasingly severe. Competition is expected to grow between financial service sub-sectors, partly driven by aggressive business inroads by the Japan Post Bank. The Bank of the Ryukyus is faced with the necessity of further bolstering its marketing capabilities while simultaneously devoting adequate efforts to issues in the fields of legal compliance, customer information protection, and risk management.

As our main management target for fiscal 2009, we have selected the strengthening of our earnings base to secure sufficient earnings to enable the Bank to completely repay the public funds that it has received. To do this, we must secure stable earnings even in the worst-case scenario, and to this end we will reform our marketing system to pave the way for the future expansion of our business base. We will also be working to develop new, attractive financial products, and to improve our ability to make proposals for the improvement of corporate customers’ management capabilities. In these ways, we hope to increase the number of our customers and make substantial progress toward achieving our medium-term plan targets.

We plan to continue adapting flexibly to the changing financial environment while putting our full efforts into maintaining an accurate grasp of our customers’ needs. By so doing, we hope to achieve sustained growth and to play a significant role in the further development of the Okinawan economy and society by fulfilling the functions expected of the prefecture’s leading bank. In this way, we aim to retain the strong trust of the people of Okinawa, and to remain the bank of choice for the community.

March 2009

Isao Oshiro,

President