SBI Shinsei Bank : Corporate Governance Report (July 4, 2023)

This document has been translated from the Japanese original (as submitted to the Tokyo Stock Exchange) for reference purpose only. In the event of any discrepancy between this translated document and the Japanese original, the original shall prevail. SBI Shinsei Bank, Limited assumes no responsibility for this translation or for direct, indirect or any other forms of damages arising from the translation.

SBI Shinsei Bank, Limited

Corporate Governance Report

Last Update: July 04, 2023

SBI Shinsei Bank, Limited

President and CEO Katsuya Kawashima Contact: 03-6880-7000 Group Investor Relations & Corporate Communications Division Securities Code: 8303

https://www.sbishinseibank.co.jp

The corporate governance of SBI Shinsei Bank, Limited (the "Bank") is described below.

1. Basic Views on Corporate Governance, Capital Structure, Corporate Profile and Other Basic Information

1. Basic Views

The Bank recognizes that enhancing corporate governance is one of the highest priorities to achieve our management principles, and has established a corporate governance framework as a "Company with an Audit & Supervisory Board". This model aims to ensure appropriate managerial decision-making and business implementation in order to establish a corporate governance framework with sufficient organizational checking functions. We aim to achieve this through the following two key actions:

1. Setting the broad direction of corporate strategy and establishing an environment where appropriate risk-taking by the senior management is supported through decision-making by Board of Directors, the highest managerial decision-making body, on important corporate business execution matters, such as basic management policies including medium-term plan and annual plans; and
2. Assigning Audit & Supervisory Board Members and an Audit & Supervisory Board those are independent of the Board of Directors auditing duties that include auditing of the Board of Directors.

The Bank approves of the "Corporate Governance Code" applicable to listed companies in Japan which came into effect in June 2015, in that we seek to adequately practice the Code for effective corporate governance in pursuit of sustainable growth and increasing corporate value over the mid- to long-term, and thereby contribute to the development and success of stakeholders and the Japanese economy as a whole. The Bank intends to enhance corporate governance in line with the basic policies outlined below for the respective general principles.

Basic guidelines on corporate governance

1. The Bank fully recognizes that without an appropriate cooperation with stakeholders including shareholders and investors, it would be difficult to achieve sustainable growth and shareholders are the primary starting point for corporate governance discipline. The Bank takes appropriate measures to fully secure shareholder rights and develop an environment in which shareholders can exercise their rights appropriately and effectively. In addition, the Bank enhances to secure effective equal treatment of shareholders.

1. The Bank fully recognizes that our sustainable growth and the creation of mid- to long-term corporate value are brought about a result of the provision of resources and contributions made by a range of shareholders, including employees, customers and local communities. As such, the Bank endeavors to appropriately cooperate with these stakeholders.
2. The Bank seeks actively disclose various information regarding its management in order to increase in transparency of management, to obtain accurate understanding on our management status and policies from customers, investors and stakeholders, and to widely receive an appropriate evaluation from society. The Bank aims to provide voluntary, timely and continuous disclosure in fair and effective manner in terms of information not only those in compliance with the relevant laws and regulations but also additional information that does not fall under the Timely Disclosure Rules in order to meet needs from customers, stakeholders and investors. The Bank endeavors to engage in constructive dialogue with shareholders even outside the general shareholder meeting and to work for developing a balanced understanding of the positions of shareholders and other stakeholders and acting accordingly.

[Reasons for Not Implementing the Respective Principles of the Corporate Governance Code]

We implement each of the Principles of the Corporate Governance Code.

[Disclosure Based on the Principles of the Corporate Governance Code] [UPDATE]

Please refer to the "Policies for Initiatives Concerning the 'Corporate Governance Code'" for initiatives and policies for each principle of the Code;

Policies for Initiatives Concerning the "Corporate Governance Code"

https://corp.sbishinseibank.co.jp/en/about/governance/cgcode.html

(Principle 1.4 Cross-Shareholdings)

(1) Policy for reducing cross-shareholdings

The Bank deems investment shares with the objective other than purely financial as cross- shareholdings, which in principle excludes shares that are strategically held due to a new business or a new business partnership. Under such a policy, for listed shares considered necessary to be acquired or held in view of the respective business status including the need to maintain or strengthen business relations, the Bank verifies the appropriateness of acquiring and holding the shares according to predefined procedures, and discloses in the securities report the individual name, number, the amount booked on the balance sheet, and the objective of the shares as specific investment shares.

A new cross-shareholding is approved at the Group Executive Committee if it is for a new business or business partnership and by a panel consisting of the Head of Executive Officer in charge of transaction, Head of Credit Risk Management, and Executive Officer in charge of Group Corporate Planning if it is for other purposes. A cross-shareholding related to an important new business or business partnership is approved at the Board.

(2) Verification of the significance and economic rationale of cross-shareholdings

The cross-shares held are regularly reported to the internal committee responsible for risk judgment of transactions to verify medium- to long-term economic rationale and future outlook based on the expected return and risks are to discuss the significance and policy of the cross-shareholding. The results of the discussions are regularly reported to the Board. Based on reports from the executive side, the Board verifies the appropriateness of cross-shareholding of individual stocks from perspectives including whether the cross-shareholding is in line with the Bank's strategy and whether the benefit gained from the holding should be prioritized even considering risks of the holding, and requests the executive side to take appropriate actions when necessary. Specifically, for all listed stocks it holds, the Bank defines its policy including decreasing the cross-shareholding and confirms the implementation status of the policy annually after the business section in charge

of the transaction, risk management section, and corporate and planning section examine the purpose of cross-shareholding, finance and risk statuses, statuses of transactions with the counterparty and earnings from the transactions, unrealized gains and losses, and other indirect advantages that can be gained by conducting comprehensive transactions with the counterparty.

(3) Criteria for exercising voting rights

In exercising voting rights as to cross-shareholdings, the Bank judges as basic criteria whether to exercise the rights or not through internal procedures, whether the cross-share contributes to the improvement of long-term shareholder value, whether the exercising incurs a disadvantage, whether the exercising damages the significance of cross-shareholding when it is due to a new business or a new business partnership, and whether the cross-shareholding has been fully explained as needed.

(Principle 1.7 Related Party Transactions)

Concerning transactions with related parties including Directors, the Bank Group has an established process to consider the transaction according to the Bank Rules, mainly in light of the conflicts of interest with the Bank and the fairness of the transaction, and if needed, obtain the approval of the Board of Directors upon deliberating the conflicts of interest and the fairness of the transaction at the Special Transaction Review Committee where Audit & Supervisory Board Members (Full-time) are present. The Bank implements regulation as Bank Rules pertaining to the transaction with major shareholders of the Bank, in order to ensure independence required by the Bank Law in the relationship with major shareholders, based on Bank Rules, the Bank has also established process to seek the judgment of the Board when a transaction that may cause conflict of interest is to be conducted. For transactions with related parties including Directors and with major shareholders of the Bank approved by the Board, the Bank will organize a system to secure the profits of the stakeholders based on objective judgment, including reports of important facts concerning the transactions to the Board following the initiation of the transactions, regular monitoring of the transactions by the Special Transaction Review Committee, and ensuring an appropriate monitoring framework by seeking the Board's judgment when necessary.

Furthermore, the Parent Company Transaction Screening Committee is established to discuss details of the transactions with the parent company, etc. that generate or may generate conflict of interest to be submitted to the Board of Directors and to provide opinions to the Board.

(Supplementary Principle 2.4.1）

The Bank Group believes that securing diverse viewpoints and values and having them co-exist organically through sound conflict and fusion, i.e., realizing diversity and inclusion, will create new value, ensure sustainable growth and management principles of the Group and become the source of the Group's competitiveness.

• With healthy management and wellbeing as bases, the Group is working on nurturing organizational culture and on creating a work environment where each employee views differences in attributes such as gender, age and nationality, disability, sexual orientation, and gender identity and differences in career, strengths and characteristics positively and plays an active part in the organization.
  ・For promoting diversity and inclusion, we established the Diversity Promotion Department in the Group Human Resources Division and the Group Committee to Promote the Active Participation of Women chaired by the heads of business sections to enhance the effectiveness of the Group's initiatives for promoting women's taking active roles. Since FY2020 we have also included diversity promotion in the performance targets for managers to promote initiatives in line with each section. Furthermore, the President agreed with the declaration on action by a "Group of Male Leaders who will Create a Society in which Women Shine" and "Women's Empowerment Principles"("WEPs") to demonstrate our stance.
  ・The Group focuses on the diversity of its core human resources engaging in important decision- making. For promoting active participation of women, we have set and publish targets for the ratio of female managers (section managers and above) for each group and each company. For foreign nationals and mid-career hires we have not set specific targets since mid-career hires exceed 50% of total employees and represent 60% of managers, and both foreign nationals and mid-career hires play an active part in the Group as core human resources with no difference as new-graduates. In

hiring new-graduates, we pay care of the candidates of foreign nationals whose mother language is not Japanese are not disadvantaged. In addition to hiring mid-careers, we are also actively rehiring human resources who have gained experience in different culture after leaving the Group, and have improved their knowledge and skills, and deepened new knowledge.

We have also established an alumni association to maintain connection with retired employees. ・We are developing diverse human resources that will assume next-generation management. We also accept employees' engaging in side business to encourage our diverse human resources to develop their skills, expand outside networks, broaden their view and expand their experience.

• We are promoting development of structures for providing diverse workstyles to employees including working from home so that personnel with diverse backgrounds can work without time and physical constraints regardless of their life state or life events.
  ・The status of ensuring the diversity of the Group through these initiatives, including the ratio of female managers, the number and the ratio of mid-career hires and the number of re-employed employees is regularly updated on our website and in the Integrated Report etc.

(Principle 2.6 Roles of Corporate Pension Funds as Asset Owners)

The Bank has adopted a defined benefit corporate pension plan, and conducts asset management aiming to secure needed total profits for a long period of time in order to ensure future pension payment to plan-holders and pensioners. In order to achieve this, the Bank responds as follows based on the Ministry of Health, Labor and Welfare's "Guidelines for the Roles and Responsibilities of Asset Managers Related to Defined Benefit Corporate Pension" so that the Bank can demonstrate its functions expected as the asset owner.

The Bank has established the Pension Asset Investment and Management Committee consisting of experts of financial market trends, risk management, and pension plans to establish and review the basic policy and guidelines for asset management and allocation of policy assets.

The Pension Asset Investment and Management Committee selects asset managers and funds based on our asset management target and policy asset allocation. We have selected asset managers that have declared acceptance of the Stewardship Code and conducts quantitative and qualitative evaluation of these asset managers on a quarterly basis. In considering its basic policy, etc. for asset management, the Bank has created a structure for responding in a continuous and appropriate manner from the expertise, credibility, and conflict of interest perspectives by using asset management consultants and pension (asset management) master trustees/trust banks. Management and performance status of pension assets are periodically reported to the Management Development Committee, which reviews important matters relating to human resources and labor issues.

(Principle 3.1 Full Disclosure)

The Bank Group proactively provides the information listed below in order to enhance transparency and fairness in decision-making and ensure effective corporate governance. In doing so, we seek to make the provided information carry high added value for the user.

1. Management principles and management plan
   The Bank Group presents Medium-Term Vision "Realize JPY 70.0 bn of consolidated net income and establish a foundation for further growth", "Evolve into a leading banking group providing pioneering and advanced finance" and "Show the path toward repayment of public funds" as the Group's objectives, and establishes the three Core Strategies "Pursue value co-creation inside and outside the Group", "Enhance the Group's strengths and realize a full range of service offerings" and "Achieve sustainability through business activities" in the Medium-Term Plan. The Bank's progress in the implementation will be regularly disclosed in the Integrated Report, etc.
2. Basic views and guidelines on corporate governance
   The Bank's basic views and guidelines based on the five principles of the Corporate Governance Code are stated under "1. Basic views on corporate governance" and "Basic guidelines on corporate governance."
3. Board of Directors' policies and procedures in determining the remuneration of the senior management and Directors

The remuneration of the Directors is deliberated at the Nomination and Compensation Committee and determined by the Board on the premise of the contents of the Revitalization Plan and within the total remuneration determined at the general meeting of shareholders. The remuneration of the Directors is determined based on the policy on the ratios and the amount of each type of remuneration, which is determined by the Board of Directors taking into consideration the recommendation of the Nomination and Compensation Committee.

The remuneration of Executive Officers including Executive Directors is decided based on the following policy.

・Appropriate incentives are provided in order to advance the Group's business and realize the mid-tolong-term Group management principles.

・Reflecting the roles and responsibilities of each director and executive officer, directors and executive officers share common shareholder value by holding the Company's shares over the long term.

・The scheme will curb excessive risk-taking and contribute to ongoing sound management as a financial institution.

・Focusing on share price, the Plan incorporates a compensation system that provides incentive to further increase corporate value.

The Bank is considering a new compensation system, as SBI Regional Bank Holdings Co., Ltd., its controlling shareholder for the common shares of the Bank, commenced tender offer for the common shares of the Bank on May 12, 2023, and after the TOB and subsequent series of procedures, the shares might be anticipated to be delisted.

1. Board of Directors' policies and procedures in the appointment/dismissal of the senior management and the nomination of candidates for Directors and Audit & Supervisory Board Members
   The Bank's Board makes final decisions on the appointment/dismissal of the senior management and the nomination of the candidates for Directors and Audit & Supervisory Board Members based on the Bank Rules. Details are as follows.
   Executive Officers: the Bank adopts the procedure with a high level of transparency to decide them from among candidates based on their evaluations and performance.
   Candidates for Directors: the appointment of Director is deliberated by the Nomination and Compensation Committee and determined by the Board of Directors meeting with a consideration of the Bank's size, a balance among knowledge, experience, skills and diversity.
   Candidates for Audit & Supervisory Board Members: they are decided with the consent of the Audit & Supervisory Board, considering the candidates' knowledge and experience in order to accurately, fairly and effectively ensure audit business execution by the Bank's Directors.
2. Explanations with respect to the individual appointments/dismissals and nominations based on (iv)
   The Bank explains, in the reference documents of the Annual General Meeting of Shareholders, the individual appointments and nominations of the Executive Directors and nominations of candidates for Directors and Audit & Supervisory Board Members. The appointment/dismissal of representative directors has been disclosed pursuant to the timely disclosure system governed by the Stock Exchange