Fiscal 2008 saw unprecedentedly massive changes in the business environment. The first half of the business year was characterized by continued high prices of raw materials on the global market, which pushed up the prices of manufactured goods, leading to fears of inflation. In the second half, however, the situation performed an abrupt turnaround with the financial crisis that erupted in the United States, stemming originally from the subprime loan problem. This crisis caused a worldwide credit crunch, and the bankruptcy of Lehman Brothers sparked turmoil in the money markets on a scale never before seen.

The economy of Shizuoka Prefecture was not, of course, immune to the effects of these international developments. As the prefecture's economy had been performing quite firmly up to that point, the downturn was very severe in comparison with the previous year's performance. Corporate earnings continued to deteriorate across the board, irrespective of industry or business scale, and more and more companies were forced to take drastic cost-cutting measures and to reduce production volumes.

Amid this "once-in-a-century" economic crisis, I would like to propose the word "survival" as the key policy concept of Shizuoka Bank. By this, I do not mean that we must adopt a purely defensive stance and simply endure the current difficult operating environment, but that we must exert strong willpower and harness the expertise and creativity of our staff to build up the Bank's future potential, so that when the time is right we may realize vigorous growth.

I believe that we must work hand-in-hand with the authorities and important companies in the region to enable us all to ride out these harsh business conditions and ensure that Shizuoka Prefecture emerges from the downturn with its excellent economic base intact. If we can do that, we will have accomplished our prime mission as a regional financial institution.

Fiscal 2008 was the first year under the Bank's 10th medium-term business plan - Dream TEN - New Challenges. To realize our aims under this plan, expressed in our slogan "Foster regional goals as a growing comprehensive financial group - Dream with You Shizuoka Bank," we have laid down three basic strategies: 1) to establish the solid operational base required to achieve sustained growth in tandem with the region, 2) to achieve highly productive Group operations, and 3) to establish the "Shizugin"* brand. Addressing these three strategies as an indivisible whole, our desire is to create a business which gives rise to a virtuous circle of growth-infused enterprise value.

We have been putting considerable effort into realizing these strategies. As a result, despite a very difficult operating environment in fiscal 2008, marked by the lowering of the key policy rate, the necessity to dispose of an increased amount of bad debt, and the price slump on the nation's stock markets, we were able to achieve a steady growth in loans to individuals and SMEs. Thanks to this, the Bank's "core net operating profit" (net profit on core banking operations) grew still further. The Bank's annual dividend per share for fiscal 2008 stood at \13, maintaining the top level for the leading regional banks.

• *Shizu is short for Shizuoka, while gin is short for ginko, the Japanese word for bank.

With respect to our goal of establishing the "Shizugin" brand, one of our basic strategies under the 10th medium-term business plan, we are working to fulfill our corporate social responsibilities (CSR). At Shizuoka Bank, we believe that it is our mission as a regional financial institution to carry out a wide and balanced range of corporate activities in the fields of the economy, society as a whole, and the natural environment. By so doing, we will be able to satisfy the demands of all our stakeholders, including the regional community, our business partners, our shareholders, and our employees, and thereby achieve an even higher reputation for trustworthiness.

I believe that the ideal of the banking business is the provision of mutual support and encouragement so as to achieve prosperity for all parties involved through the synergy created from collaborative action. I also believe that this ideal is fully realizable. Moreover, in my opinion it is the responsibility of the Bank's management to bring together different stakeholders in this kind of organic relationship. I take as a guiding principle the concept of deriving pleasure from doing good to others. Under the key corporate philosophy statement of Shizuoka Bank - "Expand dreams and affluence with our community" - I intend to adopt a proactive management stance so as to meet the expectations of all our stakeholders and to guide the Bank into a bright future.

Although the economic situation seems to have improved somewhat, a fullscale recovery is likely to take quite some time. Thus, the current challenging circumstances will continue to prevail for a while, and we could well experience unforeseeable business developments. Despite this, the vital mission of the Shizuoka Bank Group is to support the prefecture's economy no matter how difficult the operating environment. This is why we are pursuing the establishment of the kind of solid operational base that is needed to realize sustained growth in tandem with the regional economy as a whole. Looking further ahead, I am confident that the Shizuoka Bank Group, in its role as a comprehensive financial group, will succeed in maintaining the support and enjoying the trust of all its stakeholders - the local community, our business partners, our shareholders, and our employees alike.

Katsunori Nakanishi
President & Chief Executive Officer