Message from the President

I would like to thank all our shareholders and other stakeholders for their support and encouragement. The following is a report on the Bank’s business performance and financial position for the six-month first-half period (April 1 to Sept. 30, 2008) of the fiscal 2008 business term.

　Isao Oshiro

　President

Financial & Economic Environment

Japan’s economic activity as a whole slowed significantly during the first half of fiscal 2008. Corporate earnings deteriorated amid high prices of oil and raw materials, while rising goods prices impacted household income, causing consumer spending to stagnate. The Japanese stock markets also remained unsettled due to the financial sector crisis sparked by the emergence of the subprime mortgage loan problem in the United States. Overall, the Japanese domestic economic environment continued to be extremely fragile.

　In Okinawa Prefecture, the tourism sector remained in robust health, but consumer spending, which had hitherto been holding firm, was impacted as households tightened their purse-strings. The enforcement of the Revised Building Standards Law held down the number of new housing starts, leading to a stagnant business performance by the construction industry. During the six-month period, unemployment figures and wage levels remained roughly flat, but the number of corporate bankruptcies rose slightly.

Business activities and performance results

Against this background, during the current term we have been taking initiatives to achieve our main management target, which is to strengthen our earnings structure so as to support the implementation of growth strategies. We aim 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 medium-term plan, which went into effect in April 2007, we are tackling the tasks of developing and rolling out new financial services, expanding the number of our marketing channels, and offering greater diversity in fund procurement methods for SMEs.

　Regarding new financial services, in May 2008 the Small and Medium Enterprise Agency of METI selected the Bank of the Ryukyus as one of the pivotal institutions in Okinawa for the strengthening of relationship banking services, with the aim of revitalizing corporate activity in the region. In response, we set up the Ryugin Management Consulting Center to strengthen our SME management support system, and in July we began the sale of defined contribution pension plans to enable SMEs to receive preferential tax treatment. In other fields, we are steadily building a track record in the provision of advisory services relating to M&A issues and consulting on business succession issues.

　We have also been widening the range of marketing channels employed by the Bank. In July 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 in Saturdays and Sundays.

　With respect to the diversification of fund procurement methods for SMEs, in June of this year 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.

Issues facing the Bank

In response to the crisis afflicting the world’s financial markets the Japanese economy suddenly entered a recessionary phase in the autumn of 2008, and the operating environment for the country’s regional banks is becoming increasingly difficult. At the Bank of the Ryukyus, we will continue to provide the services expected of a regional bank, while also focusing our efforts on promptly meeting the newly emerging needs of our customers. In this way, we believe the Bank will be able to effectively differentiate itself from its competitors.

　In May of this year the Bank celebrated the 60th anniversary of its establishment. We intend to continue evolving proactively as a financial institution that devotes itself to meeting customers’ needs while adapting effectively to the changing financial environment. We hope to play a significant role in the further growth and 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.

November 2008