Message from the President

In this report, we present an overview of the business environment and results of Bank of the Ryukyus for the fiscal 2007 first-half period, i.e. the six-month term from April 1 to September 30, 2007.

　Isao Oshiro

　President

The business environment in the financial sector

Further overall growth by the Japanese economy was seen during the reporting six-month period, despite declines in production volume and capital investment in some industries as a result of inventory adjustment in the IT sector. This economic growth is mainly attributable to the continued improvement in corporate earnings.

In Okinawa Prefecture, the enforcement of the Revised Building Standards Law caused delays in building construction approvals, which led to a slowdown in the construction business, as in the rest of Japan. Tourism-related companies, however, continued to enjoy favorable business performances, and the prefecture’s economy as a whole grew at a moderate pace against the background of firm consumer spending. There was some improvement in the employment situation during the six-month period, with wages rising slightly and the trend of corporate bankruptcies showing a tendency to level off.

Business Performance

Although our top priority is to complete the repayment of the Bank’s outstanding public fund debt, in view of the fact that this goal is now within sight, we have decided to take the bold decision to switch our management stance from defensive to aggressive. To serve us as a guideline in this effort, we drew up our new medium-term business plan – under the name of Challenge 51 – which went into effect in April 2007.

Our principal goal under Challenge 51 is to firmly establish a new business model that will enable sustainable growth by enhancing our problem-solving ability. Only in this way can we improve the quality of our services and ensure that the Bank maintains its status as the leading regional bank in Okinawa in terms of loan portfolio and service quality.

In line with the new plan, during the reporting period we launched a number of new financial services, began providing assistance for SMEs in diversifying their fund procurement methods, and took steps to strengthen our customer base. These initiatives are described hereunder.

· In April 2007 we commenced a number of new services for our corporate customers, such as helping food companies expand their sales through the utilization of the Maruichi-Meat Web Shopping website operated by Infomart Corporation, with which the Bank has concluded a business tie-up. We also began offering seminars on the Corporation Law and its implications, consultation on business succession issues, and seminars on the use of M&A. In addition, we commenced M&A advisory and business succession consulting services on an individual corporate customer basis, and the number of consultation cases has been rising steadily.

· To help SMEs diversify their fund procurement methods, in July 2007 we began offering Asset Based Lending (ABL) -- secured lending in which we accept assets other than real estate as collateral.

· We succeeded in strengthening our customer base by launching a new quickly-available small-lot (up to ￥10 million) loan product for SMEs and sole proprietors, and a new mortgage loan offered under alliances with home builders.

Tasks Ahead

The banking environment is expected to become even more competitive against the backdrop of the birth of the Japan Post Bank in October 2007, as well as the increased business activity by megabanks in the provincial areas of Japan, both directly and indirectly. In response, all the banks are being forced to develop and implement new strategies that focus on their differing core strengths.

At the Bank, we will continue working steadily to realize our goals under our new medium-term plan. In this way, we will ensure that the Bank enjoys the strong trust of the people of Okinawa, and that it remains a truly indispensable player in the prefecture’s economy and a valuable member of the regional community.

November 2007