Sumitomo Mitsui Financial Group Inc Annual Report 2005

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FY2005 Annual Report · Sumitomo Mitsui Financial Group Inc

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SMFG_AR05_表1~4_0805入稿 05.8.15 5:25 PM ページ 2

ANNUAL REPORT

2005

YEAR ENDED MARCH 31, 2005

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SMFG_AR05_表2~3_0811入稿 05.8.15 5:13 PM ページ 1

Our Mission

The Groupwide management philosophy is as follows:

• To provide optimum added value to our customers and together with them achieve growth
• To create sustainable shareholder value through business growth
• To provide a challenging and professionally rewarding work environment for our dedicated employees

Profile (as of March 31, 2005)

Company Name:

Sumitomo Mitsui Financial Group, Inc.

Capital Stock:

¥1,352.6 billion

Head Office:

1-2, Yurakucho 1-chome,
Chiyoda-ku, Tokyo 100-0006, Japan

Chairman of the Board: Masayuki Oku

President:

(Concurrent President
at Sumitomo Mitsui Banking Corporation)

Teisuke Kitayama
(Concurrent Chairman of the Board at
Sumitomo Mitsui Banking Corporation)

Business Description:
Management of the affairs of subsidiaries
and relevant ancillary functions

Stock Exchange Listings:
Tokyo Stock Exchange (First Section)
Osaka Securities Exchange (First Section)
Nagoya Stock Exchange (First Section)

Shares Issued and Outstanding:
Ordinary Shares:
Type 1 Preference Shares:
Type 2 Preference Shares:
Type 3 Preference Shares:
Type 4 Preference Shares (1st series):
Type 4 Preference Shares (2nd series):

6,273,792
35,000
100,000
695,000
4,175
4,175

Type 4 Preference Shares (3rd series):
Type 4 Preference Shares (4th series):
Type 4 Preference Shares (5th series):
Type 4 Preference Shares (6th series):
Type 4 Preference Shares (7th series):
Type 4 Preference Shares (8th series):

4,175
4,175
4,175
4,175
4,175
4,175

4,175
Type 4 Preference Shares
(9th series):
Type 4 Preference Shares (10th series):
4,175
4,175
Type 4 Preference Shares (11th series):
Type 4 Preference Shares (12th series):
4,175
Type 4 Preference Shares (13th series): 107,087
(1st series): 70,001
Type 6 Preference Shares

Credit Ratings
Credit ratings for applicable companies within SMFG as of July 31, 2005 are as follows:

● Sumitomo Mitsui Banking Corporation

● Sumitomo Mitsui Card Company, Limited

● SMBC Leasing Company, Limited

Long-term

Short-term

Long-term

Short-term

Long-term

Short-term

Moody’s
S&P
Fitch
R&I
JCR

A1
A
A–
A
A+

P–1
A–1
F1
a–1
J–1+

JCR

A+

J–1+

JCR

J–1

CONTENTS
Foreword..................................................................................... 1
President’s Message .................................................................. 2
Group Companies....................................................................... 6
SMFG’s Strengths and Challenges .......................................... 12
Organizational Reforms at SMFG and SMBC .......................... 18
Business Overview ................................................................... 20
Financial Highlights................................................................... 28
Financial Review....................................................................... 31
Asset Quality............................................................................. 39
Risk Management..................................................................... 45

This material contains certain forward-looking statements. Such forward-looking
statements are not guarantees of future performance and involve risks and
uncertainties, and actual results may materially differ from those contained in the
forward-looking statements as a result of various factors. Important factors that
might cause such a material difference include, but are not limited to, those
economic conditions referred to in this material as assumptions.

In addition, the following items are among the factors that could cause actual
results to differ materially from the forward-looking statements in this material:
business conditions in the banking industry, the regulatory environment, new
legislation, competition with other financial services companies, changing
technology and evolving banking industry standards and similar matters.

Corporate Social Responsibility................................................ 53
Corporate Governance ............................................................. 54
Internal Audit System................................................................ 55
Compliance............................................................................... 56
Environmental Preservation Initiatives...................................... 58
Social Contribution Activities .................................................... 72
Human Resources .................................................................... 76
Financial Section and Corporate Data...................................... 79
SMFG Website ....................................................................... 179

Sumitomo Mitsui Financial Group, Inc.
Public Relations Department

1-2, Yurakucho 1-chome, Chiyoda-ku,
Tokyo 100-0006, Japan
TEL: +81-3-5512-3411

Sumitomo Mitsui Banking Corporation
Public Relations Department

1-2, Yurakucho 1-chome, Chiyoda-ku,
Tokyo 100-0006, Japan
TEL: +81-3-3501-1111

August 2005

Printed on recycled paper

Foreword

We are pleased to present to you the Annual Report 2005, summarizing
our activities and results in fiscal 2004 and our business policy for fiscal
2005 onward.

All of us at SMFG, the directors, officers and employees, will continue to
make every effort to enhance our customers’ trust and our shareholders’
and the market’s confidence in SMFG. We intend to achieve these goals
by quickly and accurately providing new value that answers our cus-
tomers’ increasingly diversified and sophisticated needs, thereby leading
to greater profitability that will further solidify our financial base.

We look forward to your continued support and encouragement as we
move forward in the new stage of our development.

August 2005

Masayuki Oku
Chairman of the Board

Teisuke Kitayama
President

SMFG 2005 1

President’s Message

I would like to thank you for your continued interest in and

consolidated net loss of ¥234.2 billion, but were able to greatly

support for the Sumitomo Mitsui Financial Group (SMFG). As the

reduce future risk factors. Meanwhile, to strengthen profitability,

new president of SMFG, I would like to explain our policy for

we accelerated our offensive in financial consulting for individuals,

new-type unsecured loans to small and medium-sized enterprises

(SMEs), investment banking business and other strategic busi-

nesses, thereby significantly boosting gross banking profits of

the Consumer Banking Unit, Middle Market Banking Unit and

other marketing units. In addition, we made advances in strategic

alliances with other sectors’ leading companies such as Daiwa

Securities Group, Promise Co., Ltd. and NTT DoCoMo, Inc.

Hand in hand with further enhancing strategic businesses which

are contributing significantly to our profit base as earnings

drivers with competitive market advantages, we were able to

steadily establish new businesses as future earnings drivers.

In fiscal 2004, we took measures to ensure earnings recovery

from fiscal 2005 onward, and thus, we have now entered a new

stage of development.

moving the company forward.

Fiscal 2004 Highlights:
Completion of intensive improvement in asset quality
and acceleration of offensive in strategic businesses
Looking at the financial and economic environment in fiscal 2004,

the U.S. economy stayed firm, supported by a strong household

sector, and the Asian economies continued their growth track led

by China. Meanwhile, the Japanese economic situation was

mixed—corporate earnings and private capital investment gradu-

ally grew, but there were inventory adjustments in the IT-related
sectors and exports started slowing down—and, overall, the

pace of economic recovery was very slow.

In that environment, SMFG had set completing “the intensive

improvement in asset quality” and enhancing profitability by

“accelerating the offensive in strategic businesses” as the pri-

mary imperatives for fiscal 2004, and took a number of initiatives

to achieve these goals.

To complete the intensive improvement in asset quality in order

to ensure earnings recovery from fiscal 2005 onward, we took

further financial measures both for our non-performing loans

and securities portfolio. As a result, we regrettably posted a

Fiscal 2003 - 2004

Period of Intensive Measures

■ Intensive Improvement in Asset Quality

Results

NPLs:

Halve problem asset* ratio

Stockholdings:

Reduce to account for 50%
or less of Tier I capital
over medium term

*Non-performing loans as defined under the
Financial Reconstruction Law

■ Further Strengthening Profitability

SMFG 2005

Halved problem asset balance and ratio

Greater ability to handle future risks through further
provisioning for possible loan losses

Reduced stockholdings

Took financial measures on securities portfolio

Took measures to

ensure earnings

recovery from

fiscal 2005 onward

Acceleration of Offensive in Strategic Businesses
Significantly increased combined gross banking profit of
marketing units

Established and strengthened strategic businesses

through advances in strategic alliances

Strengthened
collaboration
with Daiwa
Securities Group

Launched
new
businesses
with Promise

Entered into
business alliance
agreement with
NTT DoCoMo

Entered a new stage

of development

Business Environment:
Gradual economic recovery, intensifying competition
in growth markets and advances in deregulation
Since the inception of SMBC four years ago, our business

environment has been difficult to an unprecedented degree, but

recently there have been signs of a gradual economic recovery

and business activities, such as private capital investments, have

been picking up slowly.

Looking at the sectors across the board, cross-sectional and

cross-border competition in a wide range of growth markets is

expected to intensify further. In the financial sector, besides the

implementation of new rules such as Basel II, advances in dereg-

ulation are expected to lower business barriers, creating busi-

ness opportunities but at the same time lowering obstacles for

newcomers and intensifying competition.

Under such a business environment, in the Japanese financial

industry, horizontal and vertical integration is expected to accel-

erate further in the same manner as in the U.S. and Europe, and

alliances with companies in other sectors with potential synergy

are expected to increase also.

Business Mission:
Become a globally competitive top bank with the
highest trust of our customers, our shareholders,
the market and society
Our competitive edge derives from our four strengths of (a) solid

business franchise in commercial banking, (b) spirit of innovation

and transformation, (c) speed in making business profitable, and

(d) high efficiency. Under the above business environment, in

order to leverage our strengths, grasp the ever-changing needs

of our customers and further grow our business, we reflected on

what kind of organization we should be and the direction we

should take.

Teisuke Kitayama
President

The obvious answer was “to become a globally competitive top

bank with the highest trust of our customers, our shareholders,

the market and society.” We will formulate and implement our

business strategies guided by this mission.

We will, however, be flexible in our business management,

adjusting strategies in light of current and future situations: con-

tinuously predict changes in business environment, establish

hypotheses, and examine our businesses in view of the

hypotheses.

Business Environment

Underpinnings of Our Competitive Edge

Very slow economic recovery

Solid business franchise in commercial banking

Intensifying competition in growth markets

Spirit of innovation and transformation

Implementation of new rules such as Basel II

Speed in making business profitable

Advances in deregulation

High efficiency

Become a globally competitive top bank with the highest trust of our customers,

our shareholders, the market and society

SMFG 2005 3

Medium-Term Management Plan Targets
We have established a medium-term management plan,

Establishment of solid business base
We will establish a solid business base upon which above

spanning the four years from fiscal 2005, to realize the mission.

business developments will take place. Specifically, based on

We will make every effort to achieve the following targets in fiscal

our Group’s high top-line earnings power, we aim to expand our

2008, the last year of the plan: on a consolidated basis, ROE of

bottom-line profits by normalizing credit cost, and reinforce our

more than 15%, net income of more than ¥650 billion, and a

financial base by strengthening our capital both qualitatively and

capital ratio of about 11%, of which Tier I capital will account for

quantitatively by building up retained earnings. Regarding the

about 7%. By achieving these targets, we hope to raise the

remaining ¥1.1 trillion in public funds, we will complete the foun-

market’s evaluation of our profitability and growth potential and

dation for repaying the amount completely in the three years to

realize a market capitalization worthy of “the top bank”

fiscal 2007.

designation—more than ¥10 trillion.

Strengthening Group strategy to create new value
“Strengthening Group strategy in order to create new value”

further develop and evolve more effective compliance and

internal audit systems in order to reinforce risk management,

encompasses not just further boosting the profitability of existing

a prerequisite for taking new risks, and corporate governance

businesses, but also establishing new business lines in order to

for checking whether expanding businesses are suitable and

enhance our business portfolio by challenging new risks, new

that businesses are being conducted properly.

Of course, hand in hand with developing businesses, we will

regions, and new business areas and proactively forging strate-

gic alliances.

We will also strengthen strategic businesses in focus areas on a

group basis through strategic investment of resources

and improvement in capital efficiency, and thereby achieve

¥1.5 trillion in consolidated net business profit in fiscal 2008.

Strengthening Group Strategy to Create New Value
7Challenge new risks, new regions and new business areas
7Proactively forge strategic alliances

Establishing a Solid Business Base
7Build strong financial base
7Reinforce risk management
7Strengthen corporate governance

Medium-Term Management

Plan Targets (Fiscal 2008)

Consolidated ROE of more than 15%

Consolidated net income of more
than ¥650 billion

Capital ratio of about 11%, of which Tier I
capital accounts for about 7%

Realize market capitalization of more than ¥10 trillion

4 SMFG 2005

Fiscal 2005 Business Policy:
Secure solid profit level in fiscal 2005; establish and
strengthen new strategic businesses
During fiscal 2005, the first year of the medium-term management

plan, we aim to secure a solid profit level. Specifically, we intend

to achieve net income of ¥350 billion on a SMBC non-consolidated

basis and ¥460 billion on a SMFG consolidated basis, through

revenue growth based on proactive allocation of resources in the

focus areas and normalization of credit cost.

In Closing
Amid intensifying competition, it is becoming increasingly difficult

to maintain a competitive edge. Nevertheless, we intend to realize

a sustainable increase in corporate value through speedy

business development—a combination of enhancement of exist-

ing strategic businesses and establishment of new strategic

business—based on our medium-and-long-term perspectives.

We aim to meet the expectations of our customers, our share-

holders, the market and society by steadily producing results.

Regarding non-performing loans, we are targeting to reduce

outstanding balance of problem assets, nonperforming loans as

defined under the Financial Reconstruction Law, to the ¥1 trillion

level and ratio of problem assets to total assets to the 2% level as

our targets.

As for “establishing and strengthening new strategic

businesses,” we will further reinforce the investment banking

business, further develop the alliances with Promise and NTT

Teisuke Kitayama

President

DoCoMo, and seek various opportunities to form alliances that

Sumitomo Mitsui Financial Group, Inc.

increase our corporate value regardless of which industries

potential partners operate in.

August 2005

Fiscal 2005 Plan
Secure solid profit level in the first year of the medium-term management plan
● Grow revenues through proactive investment of resources in focus areas

SMFG consolidated net income

SMBC non-consolidated net income

● Normalization of credit cost

SMBC non-consolidated credit cost

SMBC non-consolidated problem asset* balance (term end)

SMBC non-consolidated problem asset ratio (term end)

*Non-performing loans as defined under the Financial Reconstruction Law

Fiscal 2004 Results

Fiscal 2005 Plan

– ¥234.2 billion

– ¥136.8 billion

¥460.0 billion

¥350.0 billion

Fiscal 2004 Results

Fiscal 2005 Plan

¥954.8 billion

¥1.8 trillion

3.3%

¥300.0 billion

¥1 trillion level

2% level

Establish and strengthen new strategic businesses
● Further enhance investment banking business: Corporate revitalization, business restructuring, real estate finance

● Quickly establish new business lines:

Make business with Promise profitable, early launching of business with

Further collaboration with Daiwa Securities SMBC

● Accelerate alliance strategies

NTT DoCoMo

SMFG 2005

Group Companies

SUMITOMO MITSUI Banking Corporation

Business Environment
The Japanese financial industry has resolved the
non-perfor ming loan problem and significantly
reduced cross-shareholdings, two issues that have
plagued the industry for many years. In other words,
the intensive improvement in asset quality has been
accomplished, and the banks are now shifting their
focus from dealing with the past to creating the
future. Meanwhile, deregulation has steadily
advanced, increasing not only business opportunities
but also competition with global competitors and
companies from other industries.

Fiscal 2004 Earnings Results
In fiscal 2004, we took further steps to reinforce our
financial base in order to ensure an earnings recov-
ery from fiscal 2005 onward, including posting credit
cost of more than ¥950 billion and taking fur ther
financial measures on our securities portfolio, result-
ing in a net loss. However, we reduced the balance of
problem assets (nonperforming loans as defined
under the Financial Reconstruction Law) at the end
of March 2005 by about ¥1 trillion compared to a
year earlier, to ¥1.8246 trillion, for a problem asset
ratio of 3.3%, thereby over-achieving the target of
halving the level at the end of March 2002.

Meanwhile, though the profit from ALM operations
declined, we continued our efforts to improve cus-
tomer service in consulting business for individuals,
new-type unsecured loans to SMEs and investment
banking business, and thus, significantly increased
the combined gross banking profit of the Consumer
Banking Unit, Middle Market Unit and other
marketing units.

Fiscal 2005 Business Policy
We were early in focusing on consulting business for
individuals and a new type of unsecured loans to
SMEs and have gained a competitive edge in these
businesses. We will continue to enhance customer

I am delighted to speak to you as the new president
of Sumitomo Mitsui Banking Corporation (SMBC)
and would like to take this opportunity to extend our
sincerest thanks for your continued support.

▲

www.smbc.co.jp/global/

Company Name:

Business Profile:
Establishment:
Head Office:

Employees:

Sumitomo Mitsui Banking
Corporation
Banking
June 6, 1996
1-2, Yurakucho 1-chome,
Chiyoda-ku, Tokyo
21,020 (as of March 31, 2005)

Network: (as of June 30, 2005)
Domestic:

1,392 locations*

Branches
(including 28 specialized deposit account branches)
Subbranches
Offices handling

136

472

nonbanking business
Automated service centers

16
768

Overseas:
Branches
Subbranches
Representative offices

35 locations
17
3
15

*Excluding the number of ATMs installed at corporate client facilities
and convenience stores

SMFG 2005

service in these strategic businesses in order to grow
profit qualitatively as well as quantitatively. Moreover,
the normalization of credit cost will lead to growth in
bottom-line profit.

For example, we will enhance the consulting
business for individuals by increasing the number of
SMBC Consulting Plazas to 65 and boosting the
number and ability of consultants. In new-type unse-
cured loans to SMEs, we have applied the know-how
we have gained from Business Select Loan to launch
a new loan product aimed at larger enterprises in
April of this year. We will continue to proactively take
steps to meet the funding needs of a wider range of
customers.

Forged cash cards, and other crimes using bank
accounts, ATMs, and various types of cards, are
becoming a social problem. In February of this year,
we started issuing IC cash cards, which are difficult
to skim data from, to increase card security. We have
also developed and evolved our information manage-
ment framework to better comply with the Personal
Information Protection Law. We will continue to strive
to enhance the financial security of our customers.

Management Mission
The future that we face will be an age of increasing
complexity and rapid changes, but our mission is and
will remain “becoming a globally competitive top bank
with the highest trust of our customers, our share-
holders, the market and society.” There are many
issues to be addressed, but our primary focus is “the
customer first on all points.” Everyone at SMBC, the
directors, officers and employees, will face the chal-
lenge of making SMBC into a bank that quickly and
accurately provides and executes solutions that
answer various customer needs with courage and
determination.

Masayuki Oku
President

Business Profile:

● Deposit taking
● Lending
● Securities retail sales and trading
● Securities investment
● Fund transfer
● Foreign exchange

Insourcing of financial futures transactions
● Corporate bond trustee and custody services
● Trust bank business (money claim trustee services

related to asset securitization business)

Investment trust sales

● Securities intermediary business
● Retail sales of insurance products

■ Consolidated

Billions of yen

Year ended March 31

2005

2004

2003

For the Year:

Operating income........... ¥ 2,691.3
(99.7)
Operating profit (loss) ....
(278.9)
Net income (loss) ...........

¥ 2,717.0
282.1
301.6

¥ 3,549.9
(467.5)
(429.3)

At Year-End:

Net assets ...................... ¥ 2,633.9
97,478.3
Total assets ....................

¥ 2,722.1
99,843.2

¥ 2,142.5
102,394.6

SMFG 2005 7

●
●
Strength as a Group

SMFG’s wholly-owned subsidiaries—SMBC, Sumitomo Mitsui Card, SMBC Leasing, and The Japan Research

Institute—rank among the top companies in their fields. In addition to strengthening each subsidiary’s business,

we have been promoting collaboration among these companies to enhance Group profitability.

SUMITOMO MITSUI Financial Group

SUMITOMO MITSUI Banking Corporation

Consumer
Banking Unit

Investment
Banking Unit

Treasury Unit

Middle Market
Banking Unit

Corporate
Banking Unit

International
Banking Unit

● No. 2 in number of cardholders
among bank-affiliated credit card
companies

● In the process of developing strate-
gies to strengthen credit card and
consumer finance businesses

● No. 1 in total assets among bank-

affiliated leasing companies

● Actively collaborating with SMBC to
offer leasing products such as
Select Lease to SMEs

● One of the leading think-tanks in

Japan

● The core IT specialist within the
Group, supporting SMFG’s business
strategy

SMFG 2005

As the pioneer in the issuance of the Visa Card in Japan
and a leader in the domestic credit card industr y,
Sumitomo Mitsui Card Company, Limited enjoys the
strong support of its many customers.

It also plays a major role as one of the strategic
businesses of SMFG. Leveraging its strong brand image
and its excellent capabilities across a wide range of
card-related services, the company meets customers’
credit needs through the provision of settlement and
financing services.

Sumitomo Mitsui Card’s core priority is to provide
customers with the most convenient and user-friendly
card ser vices, thereby becoming the card provider
of choice.

Michiyoshi Kuriyama
President

▲

www.smbc-card.com

★ Currently available in Japanese only

Company Name:

Business Profile:
Establishment:
Head Office:

Tokyo Head Office:

Osaka Head Office:

Employees:

Sumitomo Mitsui Card
Company, Limited
Credit card services
December 26, 1967

5-2-10, Shimbashi,
Minato-ku, Tokyo
4-5-15, Imahashi,
Chuo-ku, Osaka
1,696 (as of March 31, 2005)

Business Profile:

● Credit card services

Shopping services for cardholders; settling accounts with
affiliated merchants

● Credit finance

Loans to cardholders; cashing services;
revolving/installment payments;
loan guarantee business

● Sales promotion

Issuance of gift certificates; other services for
cardholders and affiliated merchants

● Ancillary businesses

Payment collection agency services;
operational service provider (card issuance, invoicing
cardholders, settlement of accounts of other cards)

Year ended March 31

For the Year:

Billions of yen

2005

2004

2003

Revenues from credit card operations...... ¥3,598.7
132.1
Operating revenue .................................
23.1
Operating profit ......................................

¥3,258.4
126.3
18.5

¥3,035.5
122.1
16.0

At Year-End:

Number of cardholders (in thousands)......
Number of merchant outlets (in thousands) .....

13,462
3,089

12,758
2,892

12,118
2,699

SMFG 2005 9

SMBC Leasing Company, Limited, and its subsidiaries specialize in
providing tailor-made solutions for corporate customers’ large-scale capital
investment needs. The company and its subsidiaries combine a broad spec-
trum of leasing products such as energy-saving equipment, commercial real
estate properties (shops, factories and warehouses), overseas facilities for
Japanese companies expanding abroad, and all types of medical equip-
ment for clinics. In addition, we provide online leasing services, including
support for the sales activities of manufacturers and dealers.

SMBC Leasing offers the “Select Lease” service, which is designed to
enable a prompt response to the needs of small and medium-sized busi-
nesses. The company and its subsidiaries also lease motor vehicles (for
personal as well as commercial use), measuring instruments, PCs, and other
IT equipment.

In May 2005 we established the subsidiary SMLC Trust Company, Limited
to engage in the trust business. This is the first instance in which the sub-
sidiary of a company that is not a financial institution has entered the trust
business. By effectively employing trust business models, we hope to bring
new dynamism to lease syndication transactions while further enhancing our
lineup of services.

▲

www.smbcleasing.co.jp

Business Profile:

● Corporate leasing

Youhei Shiraga
President

Leasing to meet companies’ domestic and overseas
capital investment needs

● Real estate leasing

Leasing services that enable owners of commercial real
estate such as office buildings and warehouses to more
effectively utilize their assets

● Sales-type leasing and product leasing

Leasing sales promotion tools for manufacturers and dealers
Internet leasing
Effective leasing over the Internet

● Select Lease

Speedy leasing to small and medium-sized businesses

● Leasing of eco-friendly equipment

Leasing in collaboration with companies providing
energy conservation services

● Car leasing

Car leasing through SMBC Auto Leasing Company, Limited

● Rental business

Renting personal computers and other IT equipment

Year ended March 31

Revenues from leasing operations .............
Operating revenue......................................
Operating profit...........................................

Billions of yen

2005

¥580.0
589.1
28.0

2004

¥555.7
553.0
23.2

2003

¥466.4
515.0
20.4

★ Currently in Japanese only

Company Name:
Business Profile:
Establishment:
Head Office:

Tokyo Head Office:

Osaka Head Office:

Employees:

SMBC Leasing Company,Limited
Leasing
September 2, 1968

3-9-4, Nishishimbashi,
Minato-ku, Tokyo
3-10-19, Minamisenba,
Chuo-ku, Osaka
922 (as of March 31, 2005)

SMFG 2005

●
Institute, Limited (JRI)

is a
The Japan Research
“knowledge engineering” company that offers comprehensive
high value-added services, effectively combining the three
functions of information systems integrator, consultant, and
think-tank.

Targeting customers in a wide range of sectors, JRI offers
consulting services focusing on management innovation and
IT-related issues. It also provides services such as the design
and development of strategic information systems, as well as
outsourcing. In addition, JRI conducts research and analysis of
both domestic and overseas economies, formulates policy
recommendations, and assists in the incubation of new
businesses.

Shunichi Okuyama
President

▲

www.jri.co.jp/english/

Business Profile:

● Computer systems development and information

processing service
Design and development of information systems;
outsourcing services
● Consulting business

Consulting in the fields of management innovation and
information technology

● Think-tank services

Economic analyses and strategy design; new business
incubation

Company Name:

Business Profile:

Establishment:
Head Office:

Tokyo Head Office:

Osaka Head Office:

Employees:

The Japan Research
Institute, Limited
Systems engineering,
data processing, and
management consulting and
economic research
November 1, 2002

16, Ichibancho,
Chiyoda-ku, Tokyo
1-5-8, Shimmachi,
Nishi-ku, Osaka
2,962 (as of March 31, 2005)

Year ended March 31

Operating revenue......................................
Operating profit...........................................

Billions of yen

2005

¥111.2
6.3

2004

¥105.1
7.6

2003

¥70.2
7.6

SMFG 2005 11

SMFG’s Strengths and Challenges

Below, we provide a brief explanation of the strengths of SMFG, and of SMBC in particular, as well as the

challenges we currently face in our drive to raise our corporate value.

SSMFG’s Strengths

Speed, Efficiency, and Profitability (SMBC)
Speed in Making Businesses Profitable (page 13)

High Efficiency (page 14)

Strength in Profitability (page 15)

Businesses Established as Earnings Drivers (SMBC)
Consulting for Individual Customers (pages 20-21)

Unsecured Loans to midsized companies and SMEs (pages 22-23)

Investment Banking (page 25)

Strength as a Group

Collaboration between Strong Group Companies (pages 8-11)

Alliances with Leading Companies (page 16)

Alliance with the Daiwa Securities Group (page 16)

Alliance with Promise (page 17)

Alliance with NTT DoCoMo (page 17)

SMFG’s Challenges

Nurturing New Earnings Drivers
Consumer Finance Business (pages 17, 20-21)

Securities Intermediary Business (pages 20-25)

Businesses in Asia, particularly China (SMBC, page 26)

IInitiatives to Improve Asset Quality (SMBC, pages 39-44)

SMFG 2005

Speed, Efficiency, and Profitability (SMBC)

Speed in Making Businesses Profitable
SMBC is working to accelerate the growth of numerous
businesses into key earnings drivers, thereby creating one
of the best business portfolios among Japanese banks.

Many of SMBC’s businesses are growing—now
generating an annual gross profit of between ¥20 billion
and ¥30 billion. These businesses include financial

consulting for individuals (primarily sales of investment
trusts and pension-type insurance products), new-type
unsecured loans (the Business Select Loan) to small and
medium-sized enterprises (SMEs), and the investment
banking business (loan syndication, securitization of
monetary claims and structured finance).

Investment Trust

Pension-type insurance

Business Select Loan

(Commissions)

(Interest income)

(¥ billion)
30

FY2002

FY2003

FY2004

FY2002

FY2003

FY2004

FY2002

FY2003

FY2004

Loan syndication

(Commissions)

Securitization of monetary claims
(Commissions)

Structured finance

(Commissions)

(¥ billion)
50

(¥ billion)
30

FY2002

FY2003

FY2004

FY2002

FY2003

FY2004

FY2002

FY2003

FY2004

SMFG 2005 13

High Efficiency
To enhance the value of our products and services
targeting individual and corporate customers, and to more
precisely meet their specific needs, SMBC has made its
investment priority the expansion of specialized marketing
channels in strategic business areas, such as financial
consulting for individuals and new-type unsecured loans to
SMEs.

At the same time, we were able to substantially curb
expenses by integrating overlapping marketing territories
and streamlining the workforce. As a result, SMBC’s
expense ratio, an important indicator of efficiency, is less
than 40%. This shows a high level of efficiency, not only by
domestic standards but also by global standards.

Expenses and expense ratio

Expenses (Billions of yen)

Expense ratio (expenses/gross profit)

808.6

56.1%

778.9

53.7%

727.6

50.7%

700.1

46.6%

Merger (SMBC)

670.1

647.0

584.0

582.4

36.2%

36.7%

36.9%

38.2%

FY1997

FY1998

FY1999

FY2000

FY2001

FY2002

FY2003

FY2004

Number of domestic branches*

Number of employees

*Excluding sub-branches, agencies, etc.

735

696

Merger (SMBC)

653

578

564

32,531

31,325

Merger (SMBC)

29,298

27,142

25,027

437

435

425

24,024

22,348

21,020

March 31
1998

March 31
1999

March 31
2000

March 31
2001

March 31
2002

March 31
2003

March 31
2004

March 31
2005

March 31
1998

March 31
1999

March 31
2000

March 31
2001

March 31
2002

March 31
2003

March 31
2004

March 31
2005

SMFG 2005

their contribution to total banking profit has been rising
steadily. Thus, SMBC not only achieved the highest bank-
ing profit among Japanese banks, it has also created a
stable earnings base that shows a resilient response to
fluctuations in interest rates and other capital market
trends.

Moreover, SMBC is establishing an earnings base that
is not wholly dependent on interest income derived from
lending and deposit-taking, as non-interest income has
been growing steadily. This is mainly due to the increase
in fee income generated by providing optimal solutions
that meet customers’ needs in businesses such as finan-
cial consulting for individuals and the investment banking
business.

Strength in Profitability
SMBC was the only Japanese bank to achieve more than
¥1 trillion in banking profit—the fundamental indicator of a
bank’s profitability—for three consecutive years up to fiscal
2003. (This figure is before provisions to the general
reserve for possible loan losses.) In fiscal 2004, SMBC’s
banking profit was approximately ¥940 billion, which was
the best result among Japanese banks.

Banking profit comprises the profits of marketing units
(the Consumer Banking, Middle Market Banking,
Corporate Banking, and International Banking Units) and
the Treasury Unit. Interest income from lending and
deposit-taking and fee income from various businesses
make up the marketing units’ profits. Activities such as
ALM operations to control interest rate risk, etc., and trad-
ing operations generate the Treasury Unit’s profits. The
main factor behind the year-on-year decline in SMBC’s
banking profit was a decrease in the Treasury Unit’s profit,
which had been high from ALM operations amid falling
domestic and overseas interest rates. On the other hand,
the marketing units’ profits have continued to grow, and

Banking profit*

Marketing units’ contribution
to total banking profit

1,113.6

72.2％

1,000.1

54.3％

1,186.5

48.2％％

(Billions of yen)

86.2％

940.5

950.0
(plan)

Increase in non-interest income*

Percentage of non-interest income to
Gross Banking Profit

351.6

20.0％％

271.0

14.5％％

398.6

225.2％

(Billions of yen)

501.5

32.9％％

FY2001

FY2002

FY2003

FY2004

FY2005

FY2001

FY2002

FY2003

FY2004

* Before provisions to general reserve for possible loan losses

* Non-interest income: Fees and commissions, income related to sales of

derivative products, etc.

SMFG 2005 15

Alliances with Leading Companies

SMFG has been enhancing group profitability through full-
scale alliances with the Daiwa Securities Group, Promise
Co., Ltd., and NTT DoCoMo, Inc., leading companies
in the securities, consumer finance, and mobile phone
businesses.

We believe the keys to successful alliances are to
efficiently utilize expertise, optimally leverage business
franchises, and speedily make the business profitable.
SMFG’s alliances are with leading companies, and are
aimed at fully utilizing SMBC’s customer base and market-
ing channels as well as its proven strength in speedily
bringing new ventures to the point of commercial
profitability.

Keys to
success

Expertise

Form alliances
with leading
companies

＋

Business
franchise

Mutually share
customer bases
& marketing
channels

＋

Speedily make

businesses

profitable

Daiwa Securities Group

Alliance with the Daiwa Securities Group
The alliance between SMFG and the Daiwa Securities
Group is the only full-scale alliance between a megabank
and a major securities company in Japan. Through this
collaboration, the two sides have created a framework
enabling them to meet the diverse financing needs of
corporate customers.

Daiwa Securities SMBC—a wholesale securities com-
pany jointly established by SMFG and Daiwa Securities
Group, Inc.—started business in April 1999. Over the
intervening six years, the two groups have created a solid
framework of collaboration through initiatives such as
active exchange of personnel and organizational

● SMBC’s collaboration with Daiwa Securities SMBC

Meeting customers’ varied financing needs

Debt finance

Asset-backed finance

Equity finance

SMBC’s Investment
Banking Unit

Collaboration,
exchanges of
personnel

Daiwa Securities
SMBC

SMBC’s marketing channels and sales force

SMBC’s customer base

e
s

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t
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p
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i
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c
n
a
r
f

s
s
e
n
s
u
B

SMFG 2005

restructuring. Daiwa Securities SMBC enjoys top-level
market shares in Japan in its core businesses—particularly
the underwriting of stocks and bonds—and the earnings
of Daiwa Securities SMBC achieved through this
collaboration have been increasing at a steady pace.

SMBC and Daiwa Securities SMBC continue to seek
ways to further strengthen their alliance. For example, in
December 2004, SMBC began securities intermediary
operations for corporate clients on behalf of Daiwa
Securities SMBC. We also reached a basic agreement on
collaboration in the private equity investment business in
February 2005.

Earnings through collaboration
with Daiwa Securities SMBC*

(¥ billion)

Fiscal
2001

Fiscal
2002

Fiscal
2003

Fiscal
2004

*Earnings of SMBC and Daiwa Securities SMBC
through collaboration

Alliance with Promise
SMFG and Promise signed a strategic alliance agreement
in June 2004, and a business alliance contract in
September 2004. In April 2005, the partners launched
three types of consumer loans, provided at different
interest rates. These loan products are being offered by
SMBC, At-Loan (an SMBC-Promise joint venture) and

Promise. We aim to achieve a loan balance of approxi-
mately ¥500 billion* in three years. By leveraging SMBC’s
marketing channels and customer base and Promise’s
expertise and know-how, SMFG aims to create new
demand and secure the No. 1 position in Japan’s consumer
finance market.

Interest rate

Channel

Provision of loans

Marketing

Guarantee, collection
Credit monitoring

12%

15%

18%

25.55%

ACMs (Automatic Contract Machines): 490
Telephone, Internet

SMBC

At–Loan (Joint venture)

Promise

Promise’s expertise in marketing

Promise’s expertise in credit monitoring and collection

Target loan balance after 3 years

*Total for SMBC, At-Loan and Promise

¥500 billion

Alliance with NTT DoCoMo
In April 2005, SMFG, SMBC and Sumitomo Mitsui Card
agreed to form capital and business alliances with NTT
DoCoMo, centered on a new credit-payment service utiliz-
ing DoCoMo “Mobile Wallet” phones. Sumitomo Mitsui

Card and NTT DoCoMo implemented a capital alliance in
July 2005.

We aim to create a new credit card market using
mobile phones by providing new services leveraging both
groups’ know-how, brands and customer bases.

SUMITOMO MITSUI CARD

Capital alliance
(SMFG acquired 34% of common shares)

Business
alliance

Expertise in credit card business

Network of member retail shops

ATM network

Mobile-wallet handset technology

Customer base
(Registered mobile phones: 49 million*)

Launch a new credit brand and develop a new credit-payment platform

Offer new credit-payment service

*As of May 31, 2005

Business
alliance

SMFG 2005 17

Organizational Reforms at SMFG and SMBC

SMFG and SMBC both implemented organizational reforms

Organizational Reforms at SMBC

during the term under review. The major reforms are as follows
(for more details, refer to pages 167, 170, and 171):

Organizational Reforms at SMFG

(1) Consolidating Management of the Group
SMFG has established a new department—the Consumer

Business Planning Department—to manage the Group’s credit

card and consumer finance businesses, one of its key strategic

domains, with the aim of more swiftly consolidating Group

management.

The new department will supervise consumer finance

operations at SMBC and the five group companies engaged in

this field, i.e. Sumitomo Mitsui Card Company, Limited (SMCC),

Promise Co., Ltd., At-Loan Co., Ltd., Sakura Card Co., Ltd., and

QUOQ Inc., and establish consistent, Groupwide strategies in the

consumer finance business.

(2) Placing Greater Priority on Corporate Social

Responsibility (CSR)

SMFG has established the Group CSR Committee, chaired by the

director responsible for the Corporate Planning Department, to

ensure a stronger emphasis on corporate social responsibility

within the Group. The Group Environmental Committee was dis-

solved, with its functions taken over by the new Group CSR

Committee. The committee’s members are drawn from SMFG,

SMBC, SMCC, SMBC Leasing Company, and The Japan

Research Institute, and they will proactively take a wide range of

measures to fulfill the Group’s social responsibilities. (Please refer

to page 53 for details.)

(3) Ensuring Fuller Disclosure
SMFG has established a Disclosure Committee, chaired by the

director responsible for the Financial Accounting Department, to

oversee the public disclosure of information about the Group and

ensure that the appropriate information is disclosed in a timely

manner. The committee discusses the appropriateness of the

contents of proposed disclosures, the effectiveness of the Group’s

internal information control systems, and devises improvements

where deemed necessary.

SMFG 2005

1. Restructuring Our Business Base

(1) Transition to new structure for managing branches
SMBC will reorganize its domestic branches under the “New

Structure for Managing Branches” (NSMB) framework in order to

further improve customer services and accelerate business

development.

Under the NSMB framework, each domestic branch will be

divided into a “branch” and a “service office.” Branches specialize

in business promotion targeting individuals, while service offices

focus on raising the efficiency of back-office operations in order to

improve customer satisfaction, establish advanced compliance

and operations management systems.

The Shinjuku Branch Service Office and the Nagoya Branch
Service Office were newly created within the Shinjuku Branch and

Nagoya Branch, and other domestic branches will successively

switch to the NSMB framework. The transition of all domestic

branches will be completed by the end of fiscal 2006.

The service offices will belong to the Corporate Services Unit.

SMBC has also established “Business Service Offices” in

Branches, “Main Service Offices” in Corporate Business Offices,

and “Public Institutions Operations Offices” in the Corporate

Services Unit will be responsible for handling public money.

In addition to the above, the following revisions were

implemented:
● The Operations & Administration Dept. and the Branch
Operations Dept. were dissolved, while an Operations Support

Dept. was newly established within the Operations Planning

Dept. Operations planning and support functions were reorga-

nized and centralized into the Operations Planning Dept. and

the Operations Support Dept.

● As a marketing channel of the International Banking Unit, a
Treasury Dept. was established within the Europe Division to

centralize the currently decentralized treasury functions in the

Europe Division.

● The Legal Dept. and Customer Relations Dept., within the
General Affairs Dept. of the Corporate Staff Unit, were

transferred to the Corporate Services Unit.

(2) Dissolution of Asset Restructuring Unit
Since its establishment in December 2002, the Asset

Restructuring Unit (ARU) has concentrated on corporate revital-

ization and business restructuring of SMBC borrowers. As a

result, SMBC achieved the target of halving the non-performing

loan ratio at the end of the first half of fiscal 2004 and strength-

ened its financial base, thereby becoming better prepared for

future risks. Having resolved its non-performing loan problem,

SMBC dissolved the ARU (effective March 31, 2005).

The expertise of the ARU has been passed on to other units,

enhancing the bank’s ability to establish new business lines

related to corporate revitalization and business restructuring,

among other areas. The ARU’s fund investment function is being

c. An R&D Dept. was newly established in the Planning Dept. of

undertaken by the Investment Development Department, a new

the Investment Banking Unit to strengthen development of new

department established within the Investment Banking Unit to

services and products.

expand SMBC’s investment activities in corporate revival funds

and private equity funds.

Along with the dissolution of the ARU, the Tokyo Corporate

(2) Bolstering settlements-related business
The settlements clearing business, which formerly had been

Business Office, the Osaka Corporate Business Office, and the

managed by the Operations Planning Dept., was integrated into

Credit Dept. III have been newly established within the Middle

the Global Investors Services Dept., which is in charge of

Market Banking Unit. Within the Corporate Banking Unit, the

securities processing services such as custody services, in

Tokyo Corporate Banking Dept. VIII and the Credit Dept. II were

order to centralize the currently decentralized functions of

newly established. The ARU’s Credit Administration Dept.,

securities processing and settlements-related business.

responsible mainly for disposal of problem assets such as loans

The Mass Marketing Dept. was renamed the Mass Retail

to potentially bankrupt borrowers, was transferred to the

Dept., and the Consumer Finance Dept., the Card Loan Dept.

Corporate Services Unit.

(3) Dissolution of Community Banking Unit
SMBC established the Community Banking Unit (CBU) in March

2003, when it merged with the former Wakashio Bank. The CBU

took over Wakashio Bank’s branches and related business

promotion and management functions. Since then, the CBU

has been working to strengthen business with small and

medium-sized enterprises and individuals by combining Wakashio

Bank’s community-focused approach (which emphasizes the

cultivation of ties with the local community and the extension of

services with the personal touch) with SMBC’s high capability to

provide sophisticated financial products.

As considerable progress has been made in integrating these

business models, the CBU was dissolved in order to further

accelerate the integration and enable SMBC to improve customer

services.

3. Preparing for implementation of New Basel Capital

Accord (Basel II)

(1) Enhancement of operational risk management
An Operational Risk Management Dept. was newly established

within the General Affairs Dept. to improve the effectiveness of

operational risk management in advance of the implementation of

the New Basel Capital Accord (Basel II).

(2) Achieving a more effective credit portfolio
A Credit Risk Management Dept. was newly established within

the Credit Planning Dept.* in advance of the implementation of

the Basel II, to achieve an optimal credit portfolio (plan and

develop active portfolio management), and to establish the

framework for managing assets with various risk profiles.
* The former Credit Risk Management Dept. was renamed the Credit Planning Dept.

Various functions of the CBU will be integrated into other

4. Reinforcing the Corporate Governance System

business units, mainly into the Consumer Banking Unit and the

Middle Market Banking Unit.

The Administrative Services Dept. for Community Banking,

the Internal Audit Dept. for Community Banking, and the Credit

Review Dept. for Community Banking were also dissolved.

(1) Enhancing compliance capabilities in securities business
In line with the expansion of securities-related activities, such as

the commencement of the securities intermediary business, a

Securities Compliance Dept. was newly established within the

General Affairs Dept. to centralize currently dispersed functions

related to securities compliance, thereby strengthening SMBC’s

2. Accelerating expansion into new lines of business

compliance capabilities in securities business.

(1) Reinforcing the investment banking business
a. The scale of business in the Securitization & Syndication Dept.

has been growing. To make the organization more efficient and

to clarify its missions, the functions of this department were

transferred to two new departments—the Syndication Dept. (in

charge of syndication) and the Asset Finance Dept. (in charge

(2) Emphasizing CSR
SMBC newly established a CSR Dept. within the Corporate

Planning Dept. and a CSR Committee operated by the CSR Dept.

to strengthen the promotion of CSR. (As a result, the existing

Environmental Committee was taken over by the CSR

of securitization)—and the Securitization & Syndication Dept.

Committee.)

was dissolved.

b. In view of the expansion of the real estate finance business,

which formerly was managed by the Structured Finance Dept.,

a new department was established (the Real Estate Finance

Dept.) to intensively promote the real estate finance business.

(3) Strengthening Credit Risk Management
A Credit Risk Committee was established to ensure the dynamic

and proper management of credit risk and the soundness of the

bank’s corporate governance regime on lending operations.

SMFG 2005

B u s i n e s s O v e r v i e w

Consumer Banking

Advertisement for SMBC
Consulting Plazas

Consulting Business
In fiscal 2004, SMBC’s Consumer Banking Unit expanded its range of financial products

and asset management services. The Unit added a securities intermediary service and

a testamentary trust service, and launched new investment trusts.

In home mortgages, SMBC in April 2005 launched “My Home Plus,” a new mortgage

loan product that meets diversified customer needs by offering a

comprehensive range of services, as well as competitive

interest rates.

The bank now operates 65 SMBC Consulting Plazas. These

immensely popular, dedicated service outlets—open until late

on weekdays, and also open on weekends and national

holidays—offer consultation on asset management and loans.

“Announcing My Home Plus”

Mortgage Loans

(For residential property)

Investment Trusts
(Outstanding balance, individual customers)

Pension-Type Insurance*

(Sales)

(¥ trillion)
1.2

Amount extended (left scale)
Outstanding balance (right scale)

(¥ trillion)
9.6

(¥ trillion)
2.5

1.0

0.8

0.6

0.4

0.2

2nd half
FY2002

1st half
FY2003

2nd half
FY2003

1st half
FY2004

2nd half
FY2004

9.4

9.2

9.0

8.8

8.6

8.4

8.2

8.0

7.8

7 67.6

2.0

1.5

1.0

0.5

Mar.
2003

Sept.
2003

Mar.
2004

Sept.
2004

Mar.
2005

(¥ trillion)
0.3

0.2

0.1

2nd half
FY2002

1st half
FY2003

2nd half
FY2003

1st half
FY2004

2nd half
FY2004

*Launched in the second half of fiscal 2002

P r o f i l e

SMFG, principally through the Consumer Banking

high-level expertise—and our area marketing

Unit of its banking subsidiary SMBC, offers

approach to provide superior financial services to our

high value-added financial services under the brand
name “One’s next.” This reflects the emphasis we
place on helping customers determine the next step

customers. Pension-type insurance sales in fiscal

2004 amounted to ¥583.9 billion, for a cumulative

total of ¥1,063.5 billion. Sales of foreign bonds came

of their financial plans according to their stage of life.

to ¥80.8 billion. As of March 31, 2005 the outstanding

By creating services that address specific customer

balance of investment trusts under management was

needs, we are working to make SMFG into the

¥2,264.8 billion, and that of mortgage loans was

No. 1 financial group in consumer financial services.

¥13,240.4 billion. These achievements underscore

Specifically, we are leveraging our capabilities

the popularity of our services.

to develop outstanding products and services,

our consulting abilities—provided by staff with

SMFG 2005

Consumer Finance
In September 2004, SMFG formed a business alliance with Promise Co., Ltd., one of

Japan’s leading consumer finance companies. Under the alliance, SMFG established

Card Loan Plazas in March 2005 to centralize all operations involved in the processing

of card loan applications, including the receipt of applications, requests to Promise for

credit screening, notification of the evaluation results, and the receipt of inquiries. In

addition, SMBC installed 427 ACMs (Automatic Contract Machines) at domestic

branches in April 2005, and launched a joint consumer finance business with At-Loan

Co., Ltd. and Promise.

Settlement and Finance Business
We are continuously working to upgrade the features of our popular online service

“One’s Direct” by expanding the service menu, thus enhancing customer convenience.

This remote banking service was ranked as the industry leader for three consecutive

years in the Internet Banking Services ranking by Gomez, Inc., a leading Internet perfor-

mance rating company. The number of subscribers to “One’s Direct” as of March 31,

2005 was 5.77 million, an increase of approximately 960,000 from March 31, 2004.

Low-Cost Operations
In April 2005, SMBC began reorganizing its domestic branch network to improve

customer service and enhance operational efficiency. In the new organization, each

domestic branch will be divided into a “branch” and a “service office.” Branches

specialize in business promotion targeting individuals, while service offices focus on

raising the efficiency of back-office operations in order to improve customer satisfaction,

establish advanced compliance and operations management systems.

“We offer three card loan products.”

Cumulative Number of Accounts for
“One’s Direct” Online Transactions

(Million)
6

March
2003

March
2004

March
2005

Topics

Reinforcing Cash Card Security

In February 2005, SMBC introduced the IC cash card, a smart card with an
embedded IC chip. SMBC also plans to introduce an IC cash card
equipped with a biometric authentication system to ensure even tighter
security.

“One’s Message” Service

In April 2005, SMBC launched the new “One’s Message” Service, a service
for clients who do not feel the need to leave a formal will, but would like to
communicate their last wishes to their families and make sure they know
the whereabouts of important documents such as bank passbooks.

The bank keeps the form and sends it to the designated person at the

time of inheritance.

SMFG 2005 21

B u s i n e s s O v e r v i e w

Middle Market Banking

Business Select Loans

(¥ trillion)
1.5

Amount of new loans made
Outstanding balance

1.0

0.5

2nd half
FY2002

1st half
FY2003

2nd half
FY2003

1st half
FY2004

2nd half
FY2004

Proactive Stance on Loans to Midsized Companies and SMEs
Aware of the importance of the sound development of midsized companies and small

and medium-sized enterprises (“SMEs”) to the growth of the Japanese economy, all

members of SMFG are strongly committed to extending services that will help such

customers enhance their earnings performance while implementing strategies for the

expansion of their operations.

SMBC, for example, is focused on a new type of unsecured loan to midsized

companies and SMEs that does not require collateral or third-party guarantees. In fiscal

2004, SMBC began offering the V-Fund Loan, for which loan approvals depend on eval-

uations of the borrower’s technologies and business model. A number of other new

loans have been developed as well: Business Select Loans, based on alliances with

local governments, such as Osaka Prefecture, to which they give a partial guarantee,

and Business Select CLO Loans, guaranteed by the Japan Finance Corporation for

Small and Medium Enterprise; and Members’ Business Loans for members of chambers

of commerce and industry. In addition, we added 40 offices capable of providing

Business Select Loans.

Through these fine-tuned approaches, we have been able to meet a broad range of

financing needs of middle market companies. As a result, in fiscal 2004, SMBC

extended approximately ¥3.7 trillion in new-type unsecured loans to these companies,

Business Model for Business Select Loans

marking a ¥800 billion increase over fiscal 2003. Even more noteworthy was the growth

Promotions
targeting
new clients

in Business Select Loans. We extended a total of ¥1.4 trillion in Business Select Loans

in fiscal 2004, raising the outstanding balance to ¥1.2 trillion. Both figures represent

large increases over fiscal 2003.

In addition, during fiscal 2004 SMBC extended loans totaling ¥1.9 trillion to 21,000

new customers.

Call Center

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Corporate
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Business
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Individual
promotions

New clients

Current clients

Head
Office

More decision-
making authority
Quick response
to loan
applications

Monthly
portfolio
management

Aggressive Moves to Raise Customers’ Corporate Value
Companies must cope with challenges posed by changes in their operating

environments, such as the diversification of funding methods and the need for

accounting methods with greater transparency. Accordingly, we need to offer our

customers a more diverse range of business solutions.

We believe that raising corporate value is the most important issue for our

clients. To help clients achieve this goal, we offer high-quality services that are backed

by the aggregate resources of the entire group, including those of SMBC and Daiwa

Securities SMBC Co., Ltd. Primarily, we provide solutions relating to business revitaliza-

tion, spin-offs of business divisions and subsidiaries, real estate securitization, and

business succession.

In fiscal 2005, SMFG will continue to improve its risk-taking capabilities to respond

effectively to the diversifying needs of our clients with the aim of developing this

corporate-value-enhancement business into a new earnings driver.

P r o f i l e

Services for Midsized Companies and SMEs

SMFG is leveraging the expertise of the Middle

needs of midsized companies and SMEs, thereby

Market Banking Unit of SMBC and Group companies

supporting the growth of these companies. Our goal

to strengthen its capabilities for managing higher lev-

is to become Japan’s No. 1 bank in the field of middle

els of risk. The aim is to provide even more accurate

market banking.

and speedy responses to the funding and solution

SMFG 2005

2.0

1.0

New-Type Unsecured Loans*

Our “Double-Front” System Facilitates High-Quality Services
SMFG has established a “double-front” system, which focuses on providing a unified

response on two fronts—at both branch offices and the head office—to accurately meet

(¥ trillion)
3.0

Total amount extended: ¥3.7 trillion

specific funding and solution needs of midsized companies and SMEs. With the SMBC

Amount of new loans made
Outstanding balance

Middle Market Banking Unit at its nucleus, this system combines the know-how of

corporate business offices, which have a first-hand knowledge of clients, with the

specialized knowledge of head office departments to devise solutions, realizing high-

quality and speedy services for clients.

2nd half
FY2002

1st half
FY2003

2nd half
FY2003

1st half
FY2004

2nd half
FY2004

Planning Dept.

*Business Select Loans, N-Fund Loans,
SMBC-CLO, V-Fund Loans, etc.

Supervision, sales promotion

Middle Market Banking Divisions

“Double-Front” System

Middle Market Banking Unit

Consumer Banking Unit

Product staff
(at each division)

Staff of International Business Promotion Dept.
Electronic commerce staff (in charge of electronic banking)
Derivative Sales Engineers
Treasury Officers

Corporate Business Offices
Business Support Offices

Customers

Group companies

Daiwa Securities SMBC
SMBC Leasing
The Japan Research Institute
Sumitomo Mitsui Card
SMBC Finance Service
SMBC Capital
SMBC Consulting
Financial Link

cooperation

Block Consumer Business
Offices and Branches

International Business Promotion Dept.
China Business Promotion Dept.

Foreign exchange

Electronic Commerce Banking Dept.

Domestic fund transfers,
domestic cash management services

Treasury Marketing Dept.

Forward exchange contract
(Treasury Officers)

Investment Banking Unit

Syndication
Securitization
Real estate non-recourse loans
Derivative Sales, M&A
Securities intermediation

Corporate Research Dept.

Enhancing customers’ corporate value
Making proposals

Business Owner Banking Dept.
Public Institutions Banking Dept.

SMEs and public sector

Credit Dept.

Increasing margins
Business restructuring
Recovery of NPLs

Corporate Advisory Office

Corporate revitalization
Preventing deterioration of
business situation

Corporate Business Offices*

Business Promotion Dept.

Cultivating new customers
Corporate revitalization
Sales promotion
to public companies

Business restructuring
Business mediation
Asset management

* We have established Corporate Business
Offices I-IV, especially designated to
cultivate new customers and provide
various sophisticated services.

Topics

Precisely Tailored Services to Satisfy Funding Needs of Midsized Companies and SMEs

Development of a new type of unsecured loans

SMBC Crecer Loan

V-Fund Agri

Introduced in April 2005, the SMBC Crecer
Loan targets companies with annual sales of
up to ¥3 billion. Together with the Business
Select Loan and other loans, this new product
gives SMBC a seamless lineup of loans that
precisely match the scale and funding
requirements of each middle market client.

V-Fund Agri, a newly developed version of the
V-Fund Loan, specifically targets companies in
the agriculture sector. As with all V-Fund
Loans, we evaluate companies based on their
technologies and business models. We will
continue to support the growth of middle mar-
ket companies by further expanding our lineup
of loan products and services.

Announcing the SMBC Crecer Loan

SMFG 2005 23

B u s i n e s s O v e r v i e w

Corporate Banking

Employing Diverse Means of Financing

In response to the increasingly complex financing needs of leading corporate clients,

SMBC’s Corporate Banking Unit contributes to their development of sophisticated

financial strategies by devising innovative financing arrangements such as

non-recourse loans, as well as equity financing in cooperation with Daiwa Securities

SMBC Co., Ltd.

The Corporate Banking Unit is working to develop even more innovative financing

arrangements for providing financial support for corporate activities in many different

fields as corporate earnings rebound amid a general economic recovery.

SMBC is also responding to customer expectations that banks increase the level of

risk-taking by offering flexible financing terms and developing innovative financing

programs, while simultaneously making efforts to adequately manage risk.

Providing Comprehensive Financial Services on a Global Scale

We offer sophisticated support to clients making proactive moves toward a global

presence by providing the latest information collected through SMFG’s extensive net-

work of bases in Japan and abroad, in addition to financing, settlement and other

services.

The staff at our network of bases will continue to work together to offer our

customers high-quality financial services.

High Value-Added Solutions for Business Strategies

The momentum for business restructuring is being seen in many industries and the

ability to support companies in their implementation of streamlining strategies is

becoming a decisive factor for doing business with large corporations.

SMFG fully utilizes the Group’s know-how to propose a broad range of solutions on

a continuing basis, thus providing clients with optimum solutions to raise their

corporate value.

P r o f i l e

SMFG, working primarily through SMBC’s Corporate

clients, we first take care to obtain a thorough grasp

Banking Unit, provides high value-added financial

of all needs specific to each company. This enables

services to Japan’s top-tier corporations, leveraging

us to design the optimal solution for each case, pro-

the wide-ranging resources of Group members.

viding invaluable support for our customers’ efforts to

In proposing solutions for the multifarious man-

enhance their corporate value.

agement issues facing our large-scale corporate

SMFG 2005

B u s i n e s s O v e r v i e w

Investment Banking

Standardizing Products for General
Marketing and Offering in Small Lots

Tailor-made products

Project finance

Product
development

Solutions for
specific customers

Semi-tailor-made products

Non-recourse loans
for real estate projects

Competitive Advantage
SMBC has a competitive edge in the investment banking business, which provides

various financing methods and financial solutions such as M&A and securitization for

corporate customers.

One of the features of SMBC’s investment banking business is that tailor-made

products developed for specific customers are quickly redesigned into small-lot,

standardized products to make them available to a wider range of customers. As a

Marketing

Standardizing

Loan syndication

result, profits from major investment banking products such as loan syndication,

structured finance and securitization of monetary claims have been growing steadily.

Standardized products

Securitization of
monetary claims

Profits from Investment
Banking Business

(¥ billion)
100

Fiscal
2001

Fiscal
2002

Fiscal
2003

Fiscal
2004

Securitization
of monetary
claims, etc.

Structured
finance

Loan
syndication

Alliance with Daiwa Securities Group
Daiwa Securities SMBC is a wholesale securities company—jointly established by

SMFG and Daiwa Securities Group Inc.—which started business in April 1999. Since

then, for six years, the two groups have been creating a solid framework of collaboration

through initiatives such as the active exchange of personnel and the establishment of a

structure to promote collaboration. The effectiveness of this strong partnership is

reflected in the continued steady growth in their fiscal 2004 business results.

Accomplishments in Fiscal 2004
SMBC’s Investment Banking Unit and Daiwa Securities SMBC both reported surges in

profits for the fiscal year ended March 31, 2005.

SMBC was appointed as the financial adviser of the Tokyo Metropolitan

Government-sponsored Super Eco-Town Project, Japan’s largest waste-into-electricity

facility. SMBC was also mandated as the financial advisor and arranger for the Central

Government Office Building No. 7 project, the largest private finance initiative (PFI) pro-

ject in Japan. Daiwa Securities SMBC was ranked No. 1 in the league tables by

Thomson Financial for secondary public equity offerings and corporate straight bond

underwriting. Thus, both companies continued to achieve top-class performance in the

key businesses of investment banking. Also, SMBC entered the securities intermediary

business upon its deregulation, and results have been better than expected. This indi-

cates that the business has great prospects of becoming a major earnings driver for the

Investment Banking Unit.

League Tables

Lead Managers of Corporate Straight Bond Issues
(April 1, 2004 - March 31, 2005)

Bookrunners for Secondary Public Equity Offerings
(April 1, 2004 - March 31, 2005)

Bookrunners for Initial Public Equity Offerings
(April 1, 2004 - March 31, 2005)

Ranking Name

Amount (¥ billion) Market share (%)

Ranking Name

Amount (¥ billion) Market share (%)

Ranking Name

Amount (¥ billion) Market share (%)

Daiwa Securities SMBC

1
2 Nomura Securities
3 Mizuho Securities
4 Nikko Citigroup
5 Mitsubishi Securities

Source: Thomson Financial

2,014.8
1,471.4
1,257.6
1,061.2
1,020.4

23.8
17.4
14.9
12.5
12.1

Daiwa Securities SMBC

1
2 Nomura Securities
3 Nikko Citigroup
4 Mizuho Securities
5 Mitsubishi Securities

Source: Thomson Financial

590.2
546.8
431.1
140.0
85.8

30.2
27.9
22.0
7.2
4.4

1 Nomura Securities
2 Daiwa Securities SMBC
3 Nikko Citigroup
4 UBS Securities Japan
Shinko Securities
5

Source: Thomson Financial

455.1
184.5
159.8
51.4
46.6

43.7
17.7
15.3
4.9
4.5

P r o f i l e

Leveraging the collaboration among SMBC’s

offer our corporate customers optimum solutions to

Investment Banking Unit, Daiwa Securities SMBC

meet their various needs, such as fund procurement,

and other Group companies, SMFG will be able to

asset management, risk hedging and M&As.

improve its clients’ corporate value. To this end, we

SMFG 2005 25

B u s i n e s s O v e r v i e w

International Banking

SMBC’s new Hangzhou Branch opened
in December 2004

Providing Global Solutions Leveraging the Group’s Strengths
● Expanded investment banking business in Asia, with a focus on China, through close

collaboration between SMBC and Daiwa Securities SMBC Co., Ltd.

● Strengthened collaboration between domestic and overseas operations, including
cross-company operations in the Americas, through a comprehensive business

framework

● Expanded business with U.S. and European companies through the alliance with the

Goldman Sachs Group, Inc.

● Promoted global collaboration between the Global Client Business Department (the
department responsible for business with foreign corporations operating in Japan),

the Global Institutional Banking Department (the department responsible for business

with foreign financial institutions), and overseas offices

By marshaling the Group’s resources in this way, we provide customers with

high value-added services tailored to their specific needs.

Building Up Assets with High Profitability and Liquidity
Taking into consideration the strict capital adequacy requirements of the New Basel

Accord (Basel II), we are focusing on securitized products, particularly the “buy and

sell” loan business in Asia. To contribute to the improvement of SMFG’s asset quality, we

are also enhancing the features of our fee businesses, such as clearing and custody

services.

Focusing on Crossover Business Transactions
The shift from the hitherto region-/industry-oriented approach to one focused on

crossover business transactions will enable us to further expand our earnings base by:
● Gaining a better grasp of commercial flows across the Americas, Europe and Asia.
● Identifying demand for services relating to transactions between Japanese and

foreign companies.

Raising Profile in Emerging and Growth Markets
In addition to the U.S., European and Asian markets, SMFG is moving aggressively into

emerging markets. We are adapting our project finance, trade finance and other prod-

ucts to best suit the specific needs of each market, taking into account the changing

market environments. By seizing every business opportunity in markets worldwide, we

aim to be a global financial complex that leverages its strengths in businesses related to

Japan and other Asian countries.

P r o f i l e

The international banking operations of SMFG,

We are working to strengthen our worldwide

centering on SMBC’s International Banking Unit,

network, particularly in Asia, centering on China, with

serve all customers operating globally, including

the aim of improving customer accessibility. In fiscal

Japanese and foreign companies, financial institu-

2004, we opened a new branch in Hangzhou and a

tions, sovereign governments, public entities, and

representative office in Hanoi.

Japanese branches and subsidiaries of multinational

corporations.

SMFG 2005

B u s i n e s s O v e r v i e w

Treasury Markets

Supporting Customers’ Transactions
SMFG aims to provide its clients with world-class support services for their market

transaction needs through the Treasury Unit of SMBC. The Treasury Unit undertakes

operations in money, foreign exchange, bond, and derivative markets. Based on a careful

evaluation of each client’s needs, we design financial products and services that deliver

optimal value-added solutions.

Enhancing Customer Convenience
In fiscal 2004, responding to customers’ transaction needs, the Treasury Unit took initiatives

such as the promotion of currency option transactions and NDF (non-deliverable forwards)

for corporate clients, as well as deposits with foreign exchange forward contracts for

individuals.

i-Deal
i-Deal is an easy-to-use online dealing system that allows customers to conclude foreign

exchange forward contracts over the Internet. In fiscal 2004, we enhanced the convenience

of this service by expanding its functions. We increased the range of currencies handled to

include the Thai baht, and offered the additional option of conversion of foreign currency

transactions into U.S. dollars, on top of the existing option of conversion into yen. In another

move, we started providing deposits with a foreign exchange forward contract to individual

customers through our One’s D irect service menu.

Customers

Corporate Business Offices, Branches

Treasury Unit

Planning Dept.

Treasury Marketing Dept.

Enhance customer convenience by improving our services

Planning, research

Transactions with customers

Trading Dept.

Efficient operation
based on
order-initiated trades
and ALM hedging

Foreign exchange
transactions
Derivative
transactions
CD, CP
transactions

Orders

ALM
Operations

Treasury Dept.
International
Treasury Dept.
Exact ALM
operations and
liquidity management

Deposits
Loans
Bonds
Alternative
investments

The Treasury Unit will continue working to fulfill all

our customers’ market transaction needs by providing

comprehensive support services of the highest level.

Asset Liability Management and
Dealing Operations
Through its asset liability management (ALM) and trading

operations, the Treasury Unit strives to secure a sufficient

level of earnings by investing in a diverse range of portfo-

lios, and by conducting well-timed arbitrage operations

while effectively managing market risk and liquidity risk.

In fiscal 2004, to diversify our revenue sources we

began undertaking alternative investments on a full-scale

basis in addition to interest rate and foreign exchange

trading, and established a new earnings driver.

We will continue to pursue optimal capital allocation

Trading

ALM (Asset Liability Management)

with a level of risk exposure appropriate to market

Fund and Bond Transactions

conditions, with the aim of securing stable profits.

Inter-bank Market

P r o f i l e

The Treasury Unit focuses on expanding transaction

assessment of domestic and overseas market trends

volume, strengthening ALM operations and diversify-

to further strengthen profitability, while effectively

ing fund management channels through the accurate

managing risk.

SMFG 2005

Financial Highlights

Sumitomo Mitsui Financial Group

■ Consolidated

Year ended March 31
For the Year:

Total income .................................................................................................................................
Total expenses..............................................................................................................................
Net income (loss)..........................................................................................................................

At Year-End:

Total stockholders’ equity .............................................................................................................
Total assets...................................................................................................................................
Risk-monitored loans....................................................................................................................
Reserve for possible loan losses..................................................................................................
Net unrealized gains (losses) on other securities.........................................................................
Capital ratio ..................................................................................................................................
Return on Equity...........................................................................................................................
Price Earnings Ratio (Times)........................................................................................................
Number of employees ..................................................................................................................

Per Share (Yen):

2005

3,589,871
3,698,406
(234,201)

2,775,728
99,731,858
2,227,445
1,273,560
696,339
9.94%
—%
—
40,683

Stockholders’ equity .....................................................................................................................
Net income (loss)..........................................................................................................................
Net income — diluted ...................................................................................................................

¥164,821.08
(44,388.07)
—

Millions of yen
2004

3,669,531
3,264,636
330,414

3,070,942
102,215,172
3,297,981
1,422,486
575,612
11.37%
31.68%
14.71
42,014

¥215,454.83
52,314.75
35,865.20

2003

3,518,293
4,109,207
(465,359)

2,424,074
104,607,449
5,770,700
2,243,542
(30,643)
10.10%
—%
—
42,996

¥106,577.05
(84,324.98)
—

Notes: 1. Unrealized gains (losses) on other securities represent the difference between the market prices and acquisition costs (or amortized costs) of “other
securities.” In principle, the values of stocks are calculated using the average market prices during the final month. For details, please refer to page
33.

2. Number of employees has been reported on the basis of full-time workers. Number of employees includes locally hired overseas staff members but

excludes contract employees and temporary staff.

■ Nonconsolidated

Year ended March 31
For the Year:

Operating income .........................................................................................................................
Dividends on investments in subsidiaries and affiliates ..........................................................
Operating expenses .....................................................................................................................
Net income ...................................................................................................................................
Capital stock .................................................................................................................................

Number of shares issued

2005

¥ 258,866
251,735
2,644
252,228
1,352,651

Preferred stock..................................................................................................................
Common stock ..................................................................................................................

1,057,188
6,273,792

At Year-End:

Total stockholders’ equity (A)........................................................................................................
Total assets (B).............................................................................................................................
Stockholders’ equity to total assets (A) / (B) ................................................................................
Return on Equity...........................................................................................................................
Price Earnings Ratio (Times)........................................................................................................
Pay-out ratio .................................................................................................................................
Number of employees ..................................................................................................................

¥3,319,615
3,795,110
87.47%
15.47%
18.95
7.81%
115

Per Share (Yen):

Millions of yen
2004

55,515
47,332
3,044
50,505
1,247,650

1,132,099
5,796,010

¥3,172,721
3,403,007
93.23%
1.57%
207.86
80.97%
97

2003

¥ 131,519
128,265
971
124,738
1,247,650

1,132,100
5,796,000

¥3,156,086
3,413,529
92.46%
8.52%
11.21
15.98%
94

Stockholders’ equity .....................................................................................................................
Dividends:

Common stock........................................................................................................................
Preferred stock (Type 1) .........................................................................................................
Preferred stock (Type 2) .........................................................................................................
Preferred stock (Type 3) .........................................................................................................
Preferred stock (1st series Type 4).........................................................................................
Preferred stock (2nd series Type 4)........................................................................................
Preferred stock (3rd series Type 4) ........................................................................................
Preferred stock (4th series Type 4).........................................................................................
Preferred stock (5th series Type 4).........................................................................................
Preferred stock (6th series Type 4).........................................................................................
Preferred stock (7th series Type 4).........................................................................................
Preferred stock (8th series Type 4).........................................................................................
Preferred stock (9th series Type 4).........................................................................................
Preferred stock (10th series Type 4).......................................................................................
Preferred stock (11th series Type 4) .......................................................................................
Preferred stock (12th series Type 4).......................................................................................
Preferred stock (13th series Type 4).......................................................................................
Preferred stock (1st series Type 6).........................................................................................
Net income ..................................................................................................................................
Net income — diluted ...................................................................................................................

¥257,487.78

¥232,550.74

¥231,899.30

3,000
10,500
28,500
13,700
135,000
135,000
135,000
135,000
135,000
135,000
135,000
135,000
135,000
135,000
135,000
135,000
67,500
728
38,302.88
25,178.44

3,000
10,500
28,500
13,700
135,000
135,000
135,000
135,000
135,000
135,000
135,000
135,000
135,000
135,000
135,000
135,000
67,500
/
3,704.49
3,690.72

3,000
10,500
28,500
13,700
19,500
19,500
19,500
19,500
19,500
19,500
19,500
19,500
19,500
19,500
19,500
19,500
3,750
/
18,918.33
15,691.82

Note: All SMFG employees are on secondment assignment from SMBC and another Group company.

SMFG 2005

Sumitomo Mitsui Banking Corporation

■ Consolidated

Year ended March 31
For the Year:

2005

2004

Total income ..............................................................
Total expenses...........................................................
Net income (loss).......................................................

¥ 2,699,202
2,875,897
(278,995)

At Year-End:

Total stockholders’ equity ..........................................
Total assets................................................................
Risk-monitored loans.................................................
Reserve for possible loan losses...............................
Net unrealized gains (losses) on other securities......

¥ 2,633,912
97,478,308
2,186,739
1,239,882
678,527

¥ 2,843,502
2,487,197
301,664

¥ 2,722,161
99,843,258
3,229,219
1,375,921
568,407

Millions of yen
2003

¥ 3,561,843
4,104,514
(429,387)

¥ 2,142,544
102,394,637
5,683,134
2,201,830
(27,471)

2002

2001

¥ 3,809,130
4,413,469
(463,887)

¥ 2,912,619
108,005,001
6,484,367
2,159,649
(495,507)

¥ 4,501,200
4,095,685
132,408

¥ 4,012,960
119,242,661
3,256,418
1,268,853
(301,106)

Sakura Sumitomo
Bank

Bank

11.31% 10.94%
2.67% 6.05%
43.92
62.36
22,222
24,184

Capital ratio ...............................................................
Return on Equity........................................................
Price Earnings Ratio (Times).....................................
Number of employees ...............................................

10.60%
—%
/
32,868

10.89%
25.38%
/
33,895

10.38%
—%
/
35,523

10.45%
—%
—
43,793

Per Share (Yen):

Stockholders’ equity ..................................................
Net income (loss).......................................................
Net income — diluted ................................................

¥23,977.62
(5,300.46)
—

¥25,928.02
5,238.85
5,231.31

¥15,353.34
(10,429.29)
—

¥282.85
(84.12)
—

¥333.46 ¥426.32
25.50
24.93

9.22
9.21

Notes: 1. Figures for the years ended March 31, 2001 are combined figures of the former Sakura Bank and the former Sumitomo Bank.

2. Total stockholders’ equity as of March 31, 2005, 2004, 2003 and 2002, includes net unrealized gains (losses) on “other securities.”
3. Unrealized gains (losses) on other securities represent the difference between the market prices and acquisition costs (or amortized costs) of “other

securities.” In principle, the values of stocks are calculated using the average market prices during the final month.

4. Number of employees has been reported on the basis of full-time workers. Number of employees includes locally hired overseas staff members but

excludes contract employees and temporary staff.

5. Effective from the year ended March 31, 2002, treasury stock is disclosed as a deductive item from stockholders’ equity. As a result, stockholders’

equity per share and net income (loss) per share are calculated on the basis of the number of shares outstanding less treasury stock.

(Year ended March 31)

Income Summary [Nonconsolidated]

(March 31)

Stock Holdings [Nonconsolidated]
listed equity shares and shares traded over the counter

(Billions of yen)

1,800

900

-900

-1,800

2001

2002

2003

2004

2005

7,000

6,000

5,000

4,000

3,000

2,000

1,000

2001

2002

2003

2004

2005

2,000

1,500

1,000

500

-500

-1,000

Banking profit (before provision for general reserve for possible loan losses)
Total credit cost

Gains/losses on stocks

Net income (loss)

Acquisition costs (left scale)

Net unrealized gains/losses (right scale)

Note: Figures shown for the years ended March 31, 2002 and 2001 are combined

Note: Figures shown as of March 31, 2002 and 2001 are combined figures of the

figures of the former SMBC and the former Wakashio Bank.

former SMBC and the former Wakashio Bank.

(March 31)

Problem Assets Based on the Financial Reconstruction Law
and Problem Asset Ratio [Nonconsolidated]

(March 31)

Capital Ratio [Consolidated]

(Billions of yen)

6,000

5,000

4,000

3,000

2,000

1,000

2001

2002

2003

2004

2005

(%)
10.0

8.0

6.0

4.0

2.0

0.0

(%)
12.00

11.00

10.00

9.00

(Billions of yen)

10,000

8,000

6,000

4,000

2,000

2001

2002

2003

2004

2005

Bankrupt and quasi-bankrupt assets (left scale)
Substandard loans (left scale)

Problem asset ratio (right scale)

Doubtful assets (left scale)

Capital ratio (Consolidated basis)/(left scale)

Total capital

Tier I capital (right scale)

Notes: 1. Figures shown as of March 31, 2002 and 2001 are combined figures of the

Notes: 1. Figures shown as of March 31, 2001 are combined figures of the former

former SMBC and the former Wakashio Bank.

Sakura Bank and the former Sumitomo Bank.

2. Problem asset ratio = Problem assets / (Problem assets + Normal assets)

2. Capital ratios as of March 31, 2005, 2004 and 2003 shown above represent

the capital ratio of SMFG on a consolidated basis.

SMFG 2005 29

■ Nonconsolidated

Year ended March 31
For the Year:

Total income .......................................................
Total expenses....................................................
Net income (loss)................................................
(Appendix)

Gross banking profit (A)................................
Banking profit................................................
Banking profit (before provision for general
reserve for possible loan losses) .................
Expenses (excluding nonrecurring

losses) (B)...................................................
Expense ratio (B) / (A) ..................................

At Year-End:

Total stockholders’ equity....................................
Total assets.........................................................
Deposits..............................................................
Loans and bills discounted .................................
Securities............................................................
Risk-monitored loans..........................................
Problem assets based on the

Financial Reconstruction Law...........................
Reserve for possible loan losses........................
Net unrealized gains (losses)

on other securities ............................................
Trust assets and liabilities...................................
Loans and bills discounted ...........................
Securities ......................................................

2005

2004

Millions of yen
2003

2002

2001

¥ 2,290,935
2,391,014
(136,854)

¥ 2,489,187
2,170,341
301,113

¥ 2,424,023
3,095,011
(478,304)

¥ 1,522,861
1,291,972

¥ 1,584,127
1,000,132

¥ 1,760,684
875,511

940,495

1,000,132

1,113,643

582,365
38.2%

583,995
36.9%

¥ 2,752,735
91,129,776
65,591,627
50,067,586
23,676,696
1,735,863

¥ 2,870,870
94,109,074
63,656,771
50,810,144
26,592,584
2,774,889

1,824,622
989,121

2,811,234
1,250,751

651,385
777,177
9,780
81,840

556,146
429,388
10,000
4,645

647,040
36.7%

¥ 2,279,223
97,891,161
63,524,258
57,282,365
23,656,385
5,169,531

5,261,345
2,074,797

(17,857)
166,976
35,080
—

2,818,189
3,354,826
(322,852)

1,853,515
678,811

1,183,369

670,145
36.2%

3,196,492
102,082,581
67,629,353
59,928,368
20,442,996
5,816,452

5,900,043
1,971,849

(481,654)
/
/
/

¥ 3,292,668
3,019,557
137,835

¥ 1,503,203
991,670

803,073

700,128
46.6%

¥ 4,199,937
113,727,498
70,729,773
61,747,880
27,059,978
2,732,590

2,822,459
1,095,841

(429,844)
/
/
/

Sakura
Bank

Sumitomo
Bank

Capital stock .......................................................
Number of shares issued (Thousands)

Preferred stock........................................
Common stock ........................................
Pay-out ratio .......................................................
Capital ratio ........................................................
Return on Equity.................................................
Price Earnings Ratio (Times)..............................
Number of employees ........................................

Per Share (Yen):

Stockholders’ equity ...........................................
Dividends:

Common stock..............................................
Preferred stock (Series II).............................
Preferred stock (Series III) (Type 2)..............
Preferred stock (First series Type 1).............
Preferred stock (Second series Type 1) .......
Preferred stock (Type 5) ...............................
Preferred stock (Type 1) ...............................
Preferred stock (Type 2) ...............................
Preferred stock (Type 3) ...............................
Preferred stock (First series Type 6).............
Net income (loss)................................................
Net income — diluted .........................................

664,986

¥ 559,985

1,326,746

¥1,042,706 ¥ 752,848

900
55,212
—%
11.32%
—%
/
16,338

967
54,811
79.88%
11.36%
22.49%
/
17,546

967
54,811
—%
10.49%
—%
/
19,797

967,000
5,709,424
—%
11.50%
—%
—
22,464

802,577
4,118,077
34.71%
11.91%
4.86%
33.27
12,558

167,000
3,141,062
36.15%
11.80%
3.72%
67.49
12,173

¥26,129.71

¥28,641.10

¥17,846.95

¥332.02

¥358.43

¥451.35

683
/
/
/
/
/
10,500
28,500
13,700
485
(2,718.23)
—

4,177
/
/
/
/
/
10,500
28,500
13,700
/
5,228.80
5,221.53

19.17
/
/
10.50
28.50
13.70
—
—
—
/
68,437.74
66,527.24

4.00
/
/
10.50
28.50
13.70
/
/
/
/
(59.20)
—

6.00
15.00
13.70
/
/
/
/
/
/
/
17.28
17.24

6.00
/
/
10.50
28.50
/
/
/
/
/
16.59
16.25

Notes: 1. Figures for the years ended March 31, 2001 are combined figures of the former Sakura Bank and the former Sumitomo Bank.

2. Figures related to profit or loss for the year ended March 31, 2003 include the former SMBC’s operating results for the period from April 1, 2002 to

March 16, 2003 to make possible a substantive comparison with previous years.

3. As a result of the merger of the two banks, total stockholders’ equity as of April 1, 2001, stood at ¥3,772,889 million.
4. Total stockholders’ equity as of March 31, 2005, 2004, 2003 and 2002, includes net unrealized gains (losses) on “other securities.”
5. Please refer to page 153 for the definitions of risk-monitored loans and problem assets based on the Financial Reconstruction Law.
6. Unrealized gains (losses) on other securities represent the difference between the market prices and acquisition costs (or amortized costs) of “other

securities.” The values of stocks are calculated using the average market prices during the final month. For details, please refer to page 36.

7. Number of employees has been reported on the basis of full-time workers. Number of employees includes locally hired overseas staff members but

excludes contract employees, temporary staff, and executive officers who are not also Board members.

8. The former Sakura Bank’s fiscal year-end dividend per share for 2001 was calculated assuming a dividend payment equivalent to the amount of

money resulting from the merger. Dividend per share for the term ended March 31, 2003 represents an interim dividend per share paid by the former
SMBC to its holding company.

9. Effective from the year ended March 31, 2002, treasury stock is disclosed as a deductible item from stockholders’ equity. As a result, stockholders’

equity per share and net income (loss) per share are calculated on the basis of the number of shares outstanding less treasury stock.

SMFG 2005

Financial Review

Sumitomo Mitsui Financial Group (Consolidated)
Sumitomo Mitsui Financial Group, Inc. and Subsidiaries

The following is a summary of SMFG’s consolidated financial results for fiscal 2004 ended March 31, 2005.

1. Operating Results
Business results for fiscal 2004 include the results of 167
consolidated subsidiaries (120 in Japan and 47 overseas) and
53 subsidiaries and affiliates accounted for by the equity
method (25 in Japan and 28 overseas).

Gross profit showed a year-on-year decrease of ¥44.5

billion, to ¥2,024.9 billion, primarily attributable to
declines in net interest income and net trading income,
which more than offset increases in net fees and commissions
and net other operating income.

Ordinary loss totaled ¥30.3 billion, compared with
¥342.8 billion in ordinary profit in fiscal 2003, a year-on-
year deterioration of ¥373.1 billion, which is attributable to
measures taken to dispose of non-performing loans and
write-down securities with the aim of ensuring an earnings
recovery in fiscal 2005 onward.

Extraordinary gains (losses), income taxes, and minority
interests resulted in a net loss of ¥234.2 billion, compared

with a ¥330.4 billion gain in the previous term, a year-on-
year deterioration of ¥564.6 billion.

Deposits (excluding negotiable certificates of deposit) as of

March 31, 2005, stood at ¥68,474.8 billion, a ¥3,141.4
billion increase compared with the previous fiscal year-end.
Negotiable certificates of deposit stood at ¥2,713.2 billion, a
decrease of ¥806.1 billion over the same period. Loans and
bills discounted decreased ¥582.9 billion to ¥54,799.8
billion, while securities decreased ¥2,816.2 billion to
¥24,233.7 billion.

During the term, stockholders’ equity decreased ¥295.2
billion to ¥2,775.7 billion, due to the posting of a net loss,
as well as the repayment of public funds in the form of
buybacks of shares held by the government, which more
than offset a capital increase through private placement of
shares.

Number of Consolidated Subsidiaries, and Subsidiaries and Affiliates Accounted for by the Equity Method

March 31
Consolidated subsidiaries...................................................................................................
Subsidiaries and affiliates accounted for by the equity method..........................................

2005 (A)
167
53

2004 (B)
165
48

Increase (decrease)
(A) – (B)

2
5

SMFG 2005 31

Income Summary

Year ended March 31
Consolidated gross profit ....................................................................................................
Net interest income........................................................................................................
Trust fees.......................................................................................................................
Net fees and commissions ............................................................................................
Net trading income ........................................................................................................
Net other operating income ...........................................................................................

General and administrative expenses ................................................................................
Total credit cost...................................................................................................................
Write-off of loans............................................................................................................
Provision for specific reserve.........................................................................................
Provision for general reserve for possible loan losses ..................................................
Others ............................................................................................................................

Gains (losses) on stocks.....................................................................................................
Equity in earnings of affiliates ..............................................................................................
Other income (expenses) ...................................................................................................

Ordinary profit (loss) ...........................................................................................................
Extraordinary gains (losses) ...............................................................................................
Income (loss) before income taxes and minority interests..................................................
Income taxes:

Current ..........................................................................................................................
Refund ...........................................................................................................................
Deferred.........................................................................................................................
Minority interests in net income (loss) ................................................................................

2005 (A)
¥2,024,990
1,171,342
2,609
516,109
144,387
190,540

(852,715)
(1,196,797)
(759,399)
(493,947)
201,216
(144,666)

(101,918)
27,142
69,005

(30,293)
(78,242)
(108,535)

(30,638)
8,869
(52,912)
(50,983)

Millions of yen

2004 (B)
¥2,069,501
1,281,070
334
424,176
304,094
59,825

Increase (decrease)
(A) – (B)
¥ (44,511)
(109,728)
2,275
91,933
(159,707)
130,715

(866,549)
(971,455)
(660,382)
—
—
(311,072)

101,496
15,700
(5,848)

342,844
62,049
404,894

(24,289)
—
(8,593)
(41,596)

13,834
(225,342)
(99,017)
(493,947)
201,216
166,406

(203,414)
11,442
74,853

(373,137)
(140,291)
(513,429)

(6,349)
8,869
(44,319)
(9,387)

Net income (loss)................................................................................................................

¥ (234,201)

¥ 330,414

¥(564,615)

[Reference]
Consolidated banking profit (Billions of yen).......................................................................

1,014.4

¥ 1,090.6

(76.2)

Notes: 1. Consolidated gross profit = (Interest income – Interest expenses) + Trust fees + (Fees and commissions (income)

– Fees and commissions (expenses)) + (Trading profits – Trading losses) + (Other operating income – Other operating expenses)
2. Consolidated banking profit = SMBC’s nonconsolidated banking profit (before provision for general reserve for possible loan losses)

+ SMFG’s ordinary profit + Other subsidiaries’ ordinary profit (excluding nonrecurring factors) + Equity method affiliates’ ordinary profit
x Ownership ratio – Internal transactions (dividends, etc.)

Assets, Liabilities and Stockholders’ Equity

March 31
Assets .................................................................................................................................
Loans and bills discounted ............................................................................................
Securities .......................................................................................................................
Liabilities .............................................................................................................................
Deposits.........................................................................................................................
Negotiable certificates of deposit...................................................................................
Minority interests.................................................................................................................
Stockholders’ equity............................................................................................................

Millions of yen

2005 (A)

2004 (B)

¥ 99,731,858 ¥102,215,172
55,382,800
27,049,901
98,150,534
65,333,426
3,519,464
993,696
3,070,942

54,799,805
24,233,701
95,934,927
68,474,861
2,713,270
1,021,203
2,775,728

Increase (decrease)
(A) – (B)
¥(2,483,314)
(582,995)
(2,816,200)
(2,215,607)
3,141,435
(806,194)
27,507
(295,214)

2. Unrealized Gains (Losses) on Securities
Net unrealized gains on securities at March 31, 2005
amounted to ¥694.7 billion, which is an increase of ¥126.4
billion from the previous fiscal year-end. Net unrealized
gains on other securities (including “other money held in

trust”), changes in which are directly credited to
stockholders’ equity, increased by ¥120.8 billion over the
same period, to ¥696.5 billion, mainly attributable to an
improvement in the valuation of bonds.

SMFG 2005

Unrealized Gains (Losses) on Securities

March 31
Held-to-maturity securities............
Other securities ...........................
Stocks......................................
Bonds ......................................
Others......................................
Other money held in trust .............

Total ..............................................
Stocks......................................
Bonds ......................................
Others......................................

2005

Millions of yen

Net unrealized
gains (losses) (A)
¥ (1,818)
696,339
705,053
14,961
(23,675)
204

694,724
705,053
12,621
(22,950)

(A) – (B)
5,607
120,727
35,269
118,217
(32,759)
83

126,416
35,269
124,404
(33,257)

Unrealized
gains
2,114
801,356
750,480
34,971
15,903
300

803,771
750,480
36,554
16,735

Unrealized
losses
¥ 3,933
105,017
45,426
20,010
39,579
95

109,046
45,426
23,932
39,686

Net unrealized
gains (losses) (B)
¥ (7,425)
575,612
669,784
(103,256)
9,084
121

568,308
669,784
(111,783)
10,307

2004

Unrealized
gains
2,840
787,517
736,878
18,590
32,047
222

790,580
736,878
20,330
33,371

Unrealized
losses
¥ 10,266
211,904
67,094
121,847
22,963
100

222,271
67,094
132,113
23,063

Notes: 1. The figures above include unrealized gains (losses) on negotiable certificates of deposit in “Deposits with banks” and claims on loan trusts in

“Commercial paper and other debt purchased.”

2. Unrealized gains (losses) on stocks are mainly calculated using the average market price during the final month of the respective reporting period.

The rest of the securities are valuated at the market price as of the balance sheet date.

3. “Other securities” and “Other money held in trust” are valuated and recorded on the consolidated balance sheet at market prices. The figures in the

table above indicate the differences between the acquisition costs (or amortized costs) and the balance sheet amounts.
“Unrealized gains (losses) on other securities” as of March 31, 2005 include gains of ¥469 million that were recognized as income by applying fair
value hedge accounting and valuation gains of ¥82 million on embedded financial instruments in their entirety that were recorded as income
because their embedded derivatives are not measured separately. Therefore, ¥551 million was excluded from the amount to be directly included in
stockholders’ equity. “Unrealized gains (losses) on other securities” as of March 31, 2004 include gains of ¥23,452 million recognized as income by
applying fair value hedge accounting, which are excluded from the amount to be directly included in stockholders’ equity.

3. Consolidated Capital Ratio
SMFG’s consolidated capital ratio at March 31, 2005 was
9.94%. (Please refer to “Capital Ratio” section on page 132
for more information.)

Total capital, which constitutes the numerator in the
capital ratio calculation equation, was ¥6,020.0 billion,
representing a ¥717.3 billion decrease from the previous
fiscal year-end. This is mainly attributable to the posting of
a net loss, as well as the repayment of public funds in the
form of buybacks of shares held by the government, which

Consolidated Capital Ratio

more than offset a capital increase through private placement
of newly issued shares.

On the other hand, risk-adjusted assets, the denominator

in the equation, increased ¥1,348.6 billion to ¥60,552.6
billion from the previous fiscal year-end. This was mainly
attributable to the active marketing of mortgage loans and
new-type unsecured loans to midsized companies and small
and medium-sized enterprises.

March 31
Tier I capital (A) ..................................................................................................................
Tier II capital included as qualifying capital (B) ..................................................................
Deductions (C) ...................................................................................................................

2005 (A)
¥ 3,262,250
3,262,250
(504,430)

2004 (B)
¥ 3,571,604
3,416,547
(250,754)

Increase
(decrease)
(A) – (B)
¥ (309,354)
(154,297)
(253,676)

Total capital (D) = (A) + (B) – (C) .......................................................................................

¥ 6,020,069

¥ 6,737,397

¥ (717,328)

Risk-adjusted assets (E) ....................................................................................................
Capital ratio = (D) / (E) × 100 .............................................................................................

¥60,552,620

¥59,204,015

¥1,348,605

9.94%

11.37%

(1.43)%

Millions of yen

4. Dividend Policy
Given the public nature of its business and respecting the
stockholders’ interests, SMFG subscribes to a fundamental
policy of paying dividends as deemed appropriate in view of
the need to increase capital and preserve sound operation.
After appropriating retained earnings to increase capital,

SMFG paid an annual dividend of ¥3,000 per share of

common stock. Annual dividends for preferred stock were
paid in the predetermined amounts for each category of
preferred stock.

SMFG did not pay an interim dividend for the reporting

term.

SMFG 2005 33

Sumitomo Mitsui Banking Corporation (Nonconsolidated)
Sumitomo Mitsui Banking Corporation

The following is a summary of SMBC’s nonconsolidated financial results for fiscal 2004 ended March 31, 2005.

1. Operating Results
Banking profit (before provision for general reserve for
possible loan losses) in fiscal 2004 decreased ¥59.6 billion
year on year to ¥940.5 billion, as a result of a ¥61.2 billion
decrease in gross banking profit to ¥1,522.9 billion, and a
¥1.6 billion decrease in expenses (excluding nonrecurring
losses) to ¥582.4 billion.

Ordinary loss, calculated by adjusting banking profit
(before provision for general reserve for possible loan losses)
for nonrecurring items such as total credit cost and losses on
stocks, amounted to ¥71.7 billion, compared with ¥185.1
billion profit a year earlier.

After adjusting ordinary loss for extraordinary gains
(losses) and income taxes, net loss came to ¥136.8 billion,
compared with income of ¥301.1 billion a year earlier, a
year-on-year decrease of ¥437.9 billion.

2. Income Analysis
Gross Banking Profit
Gross banking profit in fiscal 2004 declined ¥61.2 billion
year-on-year to stand at ¥1,522.9 billion. This was due to a
year-on-year decline of ¥114.5 billion in profits posted by
the Treasury Unit on the investment of funds, marking a

Banking Profit

sharp reversal of the extremely strong performance of the
previous term. This decline in profits was partially offset by a
¥71.5 billion increase in net revenue from fees and commis-
sions. The increase in fees and commissions is the result of
growth in sales of investment trusts and pension-type insur-
ance products to individuals, and syndicated loans to corpo-
rate customers.

Expenses
Expenses (excluding nonrecurring losses) decreased ¥1.6
billion year on year to ¥582.4 billion. This was mainly due
to a decline in personnel expenses resulting from workforce
downsizing, which more than offset an increase in taxes from
the nationwide adoption of a pro forma standard corporation
tax (a local corporation tax that was imposed from fiscal
2004) as well as increased nonpersonnel expenses from
investment of resources in core businesses.

Banking Profit
Banking profit (before provision for general reserve for
possible loan losses) decreased ¥59.6 billion year on year to
¥940.5 billion.

Year ended March 31
Gross banking profit............................................................................................................
Gross banking profit (excluding gains (losses) on bonds) ..................................................
Net interest income........................................................................................................
Trust fees.......................................................................................................................
Net fees and commissions ............................................................................................
Net trading income ........................................................................................................
Net other operating income ...........................................................................................
Gross domestic banking profit .......................................................................................
Gross international banking profit ..................................................................................
Provision for general reserve for possible loan losses .......................................................
Expenses (excluding nonrecurring losses) .........................................................................
Personnel expenses ......................................................................................................
Nonpersonnel expenses ................................................................................................
Taxes .............................................................................................................................
Banking profit......................................................................................................................
Banking profit (before provision for general reserve for possible loan losses) .........................
Banking profit (before provision for general reserve for

possible loan losses and gains (losses) on bonds) ..........................................................

2005 (A)
¥1,522,861
1,544,452
972,506
2,609
298,076
131,579
118,088
1,182,811
340,049
351,477
(582,365)
(204,146)
(341,534)
(36,684)
¥1,291,972
940,495

Millions of yen

2004 (B)
¥1,584,127
1,561,386
1,087,060
334
226,568
280,729
(10,565)
1,135,616
448,510
—
(583,995)
(221,284)
(332,238)
(30,472)
¥1,000,132
1,000,132

Increase (decrease)
(A) – (B)
¥ (61,266)
(16,934)
(114,554)
2,275
71,508
(149,150)
128,653
47,195
(108,461)
351,477
1,630
17,138
(9,296)
(6,212)
¥291,840
(59,637)

962,086

977,391

(15,305)

Banking Profit by Business Unit

Year ended March 31, 2005

Banking profit (losses) (before provision for
general reserve for possible loan losses).....

Billions of yen
Consumer Middle Market Corporate
International Community
Banking Unit Banking Unit Banking Unit Banking Unit Banking Unit

Treasury
Unit

Others

Total

Year-on-year increase (decrease)................

35.7

61.7

12.7

¥118.0

¥481.0

¥160.5

¥46.6

7.7

¥4.2

1.9

¥205.0

(152.4)

¥(74.8)

(26.9)

¥940.5

(59.6)

Notes: 1. Year-on-year comparisons are those used for internal reporting and exclude changes due to interest rate and foreign exchange rate fluctuations.

2. “Others” consists of (1) financing costs on preferred securities and subordinated debt, (2) profit earned on investing the Bank’s own capital, and

(3) adjustment of inter-unit transactions, etc.

SMFG 2005

Nonrecurring Losses (Credit Costs, etc.)
Nonrecurring losses amounted to ¥1,363.7 billion. This is
mainly due to the initiatives taken to ensure an earnings
recovery in fiscal 2005 onward. In order to reduce future risk
factors, the bank took an even more conservative stance than
hitherto in assessing assets, resulting in increased provisions
for general reserve for possible loan losses. Consequently, credit
cost related to disposal of NPLs totaled ¥1,306.3 billion (the
amount after addition of gain on reversal of general reserve for
possible loan losses was ¥954.8 billion). The bank also took
financial measures on securities, such as write-downs totaling
¥227.6 billion (including preferred shares purchased in the
past). As a result, losses on stocks totaled ¥118.7 billion.
(Please refer to the “Asset Quality” section beginning on page
39 for more information on credit cost and problem assets.)

Ordinary Profit (Loss)
As a result of the foregoing, ordinary loss totaled ¥71.7 billion,
compared with a profit of ¥185.1 billion in the previous
period, a year-on-year decrease of ¥256.8 billion.

Extraordinary Gains (Losses)
Net extraordinary losses amounted to ¥28.4 billion,
compared with a ¥133.7 billion gain in the previous period,
a year-on-year decrease of ¥162.1 billion.

Net Income (Losses)
An income tax refund of ¥8.2 billion and deferred income
taxes in the amount of ¥38.5 billion were recognized for the
reporting period, partly as a result of which the bank reported
a net loss of ¥136.8 billion, compared with income of ¥301.1
billion for the previous term, a year-on-year decline of ¥437.9
billion.

Ordinary Profit and Net Income

Year ended March 31
Banking profit (before provision for general reserve for possible loan losses) ...................
Provision for general reserve for possible loan losses (A)..................................................

Banking profit......................................................................................................................
Nonrecurring gains (losses)................................................................................................
Credit cost (B)................................................................................................................
Write-off of loans.......................................................................................................
Provision for specific reserve....................................................................................
Losses on loans sold to CCPC.................................................................................
Losses on sale of delinquent loans ..........................................................................
Provision for loan loss reserve for specific overseas countries ................................
Gains (losses) on stocks ...............................................................................................
Gains on sale of stocks ............................................................................................
Losses on sale of stocks ..........................................................................................
Losses on devaluation of stocks...............................................................................
Others ............................................................................................................................

Ordinary profit (loss) ...........................................................................................................
Extraordinary gains (losses) ...............................................................................................
Gains (losses) on disposal of premises and equipment ................................................
Amortization of net transition obligation from initial application of the

new accounting standard for employee retirement benefits ........................................
Reversal of reserve for possible loan losses (C) ...........................................................
Reversal of reserve for possible losses on loans sold (D).............................................
Tax refund from the Tokyo government and interest on the tax refund .........................
Gains on return of the entrusted portion of employee pension fund..............................

Income taxes:

Current...........................................................................................................................
Refund ...........................................................................................................................
Deferred.........................................................................................................................

2005 (A)
¥ 940,495
351,477

¥1,291,972
(1,363,653)
(1,306,320)
(697,941)
(474,155)
/
(138,052)
3,828
(118,727)
113,059
(4,206)
(227,580)
61,394

(71,680)
(28,398)
(12,495)

(16,001)
—
/
/
/

(6,379)
8,184
(38,579)

Millions of yen

2004 (B)
¥1,000,132
—

¥1,000,132
(814,994)
(869,234)
(566,344)
—
(806)
(302,083)
—
103,867
151,170
(36,577)
(10,724)
(49,627)

185,138
133,707
(11,853)

(19,473)
65,342
488
40,363
59,095

(12,752)
—
(4,980)

Increase (decrease)
(A) – (B)
¥ (59,637)
351,477

¥ 291,840
(548,659)
(437,086)
(131,597)
(474,155)
806
164,031
3,828
(222,594)
(38,111)
32,371
(216,856)
111,021

(256,818)
(162,105)
(642)

3,472
(65,342)
(488)
(40,363)
(59,095)

6,373
8,184
(33,599)

Net income (loss)................................................................................................................

¥ (136,854)

¥ 301,113

¥(437,967)

Total credit cost (A) + (B) + (C) + (D) ..................................................................................

¥ (954,843)

¥ (803,403)

¥(151,440)

SMFG 2005 35

3. Assets, Liabilities and Stockholders’ Equity
Assets
SMBC’s total assets at March 31, 2005 stood at ¥91,129.7
billion on a nonconsolidated basis, a ¥2,979.2 billion
decrease compared with the previous fiscal year-end. This
decline is mainly due to a ¥2,915.8 billion decrease in
securities, mostly Japanese government bonds and foreign
securities, from interest-rate-related trading operations.

Liabilities
Liabilities at March 31, 2005 decreased ¥2,861.1 billion to
¥88,377.0 billion from the previous fiscal year-end. This
decline was attributable to a ¥2,108.3 billion decrease in
payables under securities lending transactions and a

Assets, Liabilities and Stockholders’ Equity

¥1,146.9 billion decrease in bills sold. This decline was the
result of an intentional reduction in fund procurement in
line with our policy of reducing the total amount of our
assets.

Stockholders’ Equity
Stockholders’ equity decreased by ¥118.1 billion to ¥2,752.7
billion at March 31, 2005. This decline is mainly attribut-
able to the posting of a net loss and a reduction in retained
earnings due to dividend payments to SMFG, the parent
company, which were greater than increases in capital stock
and capital surplus as a result of capital increase through
private placement of shares.

March 31
Assets .................................................................................................................................
Loans and bills discounted ............................................................................................
Securities .......................................................................................................................
Liabilities .............................................................................................................................
Deposits.........................................................................................................................
Negotiable certificates of deposit...................................................................................
Stockholders’ equity............................................................................................................

2005 (A)
¥91,129,776
50,067,586
23,676,696
88,377,041
62,788,328
2,803,299
2,752,735

Millions of yen

2004 (B)
¥94,109,074
50,810,144
26,592,584
91,238,204
60,067,417
3,589,354
2,870,870

Increase (decrease)
(A) – (B)
¥(2,979,298)
(742,558)
(2,915,888)
(2,861,163)
2,720,911
(786,055)
(118,135)

4. Unrealized Gains (Losses) on Securities
Net unrealized gains on securities at March 31, 2005
amounted to ¥710.0 billion, which was an increase of
¥119.7 billion from the previous fiscal year-end. Net unreal-
ized gains on other securities (including “other money held

in trust”), changes in which are directly credited to stock-
holders’ equity, increased by ¥95.3 billion over the same
period, to ¥651.6 billion due to unrealized gains on bonds
compared with a loss for the previous business term.

Unrealized Gains (Losses) on Securities

2005

Millions of yen

Net unrealized
gains (losses) (A)

March 31
Held-to-maturity securities.................... ¥ (1,844)
60,343
Stocks of subsidiaries and affiliates .....
651,385
Other securities ....................................
667,326
Stocks .............................................
Bonds ..............................................
7,700
(23,641)
Others .............................................
204
Other money held in trust .....................

Total......................................................
Stocks .............................................
Bonds ..............................................
Others .............................................

710,088
727,669
5,360
(22,941)

(A) – (B)
5,802
18,647
95,239
16,225
109,590
(30,576)
83

119,770
34,871
115,776
(30,878)

Unrealized
gains
¥ 2,089
60,690
750,143
708,643
27,343
14,155
300

813,222
769,333
28,925
14,963

Unrealized
losses
¥ 3,933
347
98,757
41,317
19,642
37,797
95

103,133
41,664
23,565
37,904

Net unrealized
gains (losses) (B)
¥ (7,646)
41,696
556,146
651,101
(101,890)
6,935
121

590,318
692,798
(110,416)
7,937

2004

Unrealized
gains
¥ 2,618
41,696
757,072
711,514
16,211
29,346
222

801,610
753,211
17,950
30,448

Unrealized
losses
¥ 10,265
—
200,925
60,413
118,101
22,410
100

211,291
60,413
128,366
22,510

Notes: 1. The figures above include unrealized gains (losses) on negotiable certificates of deposit in “Deposits with banks.”

2. Unrealized gains (losses) on stocks (excluding stocks of subsidiaries and affiliates) are calculated using the average market price during the final

month of the respective reporting period. The rest of the securities are valuated at the market price as of the balance sheet date.

3. “Other securities” and “Other money held in trust” are valuated and recorded on the consolidated balance sheet at market prices. The figures in the

SMFG 2005

5. Deferred Tax Assets
Deferred Tax Assets on the Balance Sheet
SMBC computes deferred tax assets based on reasonable
estimates of the size of tax benefits on collectibility of assets in
question in the future in line with Accounting Standards for
Tax Effect Accounting (issued by the Business Accounting
Deliberation Council dated October 30, 1998) and related
practical guidelines. Moreover, SMBC continues to take a
conservative stance on the recognition of deferred tax assets
from the viewpoint of maintaining a sound financial position,
taking into full consideration the opinions expressed in the
“Strict Audit to Major Banks,” issued by the Japanese

Institute of Certified Public Accountants ( JICPA) on February
24, 2003.

Net deferred tax assets at March 31, 2005 amounted to
¥1,502.2 billion, an ¥88.3 billion decrease from the previous
term-end. This is mainly attributable to the increase in net
unrealized gains on other securities mentioned previously. In
addition, the valuation allowance (which was not included in
the scope of outstanding deferred tax assets due to taking a
conservative stance) amounted to ¥553.3 billion at March 31,
2005.

March 31
(A) Total deferred tax assets (B) – (C)

(B) Subtotal of deferred tax assets

Reserve for possible loan losses

Write-off of loans

Write-off of securities

Reserve for employee retirement benefits

Depreciation

Net unrealized losses on other securities

Net operating loss carryforwards

Other

(D) Total deferred tax liabilities

Gains on securities contributed to employee

retirement benefits trust

Net unrealized gains on other securities

Other

Net deferred tax assets

(balance sheet amount) (A) – (D)

Amounts corresponding to the estimated

taxable income before adjustments

Amounts to be realized after more than a

certain period (Note 1)

Amount corresponding to the deferred tax

liabilities shown in 14 above (Note 2)

2005

¥1,825.8

2,379.1

315.4

562.1

533.0

76.9

6.1

—

822.8

62.8

553.3

¥ 323.6

51.7

264.5

7.4

Change from
2004
¥ (13.8)

182.2

(113.9)

279.3

154.4

(5.4)

(1.0)

—

(128.6)

(2.6)

196.0

¥ 74.5

26.2

48.0

0.3

(Billions of yen)

(Reference)

Temporary differences

2004

¥1,839.6

2,196.9

429.3

282.8

378.6

82.3

7.1

—

951.4

65.4

357.3

2005

¥5,852.8

776.4

1,383.5

1,311.8

189.2

15.0

—

2,008.8

168.1

¥ 249.1

¥ 796.5

25.5

216.5

7.1

127.3

651.1

18.1

¥1,502.2

¥ (88.3)

¥1,590.5

1,694.1

72.6

(264.5)

(35.5)

(4.8)

(48.0)

1,729.6

77.4

(216.5)

Effective income tax rate

40.63%

—

40.63%

Notes: 1. Deferred tax assets arising from temporary differences that are expected to be reversed after more than five years (such as reserve for employee

retirement benefits and depreciation of buildings) may be recognized if there is a high likelihood of such tax benefits being realized. (JICPA Auditing
Committee Report No. 66 “Auditing Treatment Regarding Judgment of Realizability of Deferred Tax Assets”)

2. Deferred tax assets are recognized on the balance sheet on a net basis after offsetting against deferred tax liabilities arising from net unrealized

gains on other securities. But the collectability is assessed for the gross deferred tax assets, before offsetting against deferred tax liabilities. (JICPA
Auditing Committee Report No. 70 “Auditing Treatment Regarding Application of Tax Effect Accounting to Valuation Differences of Other Securities
and Losses on Impairment of Fixed Assets”)

SMFG 2005 37

Reason for Recognition of Deferred Tax Assets on the Balance Sheet
(a) Recognition Criteria

Practical Guideline 5 (1), examples (4) proviso

(1) SMBC has significant operating loss carryforwards on the tax base. These operating loss carryforwards are due to SMBC taking the below
measures in order to quickly strengthen its financial base under the prolonged deflationary pressure, and are accordingly judged to be
attributable to extraordinary factors. As a result, SMBC recognized deferred tax assets to the limit of the estimated future taxable income
for the period (approximately 5 years) pursuant to the practical guideline on assessing the collectability of deferred tax assets issued by
JICPA (“Practical Guideline”) (*).
(a) Disposal of Non-performing Loans

SMBC established internal standards for write-offs and provisions based on self-assessment in accordance with the “Prompt Corrective
Action” adopted in fiscal 1998 pursuant to the law concerning the maintenance of sound management of financial institutions (June 1996).
SMBC has been aggressively disposing non-performing loans and bolstering provisions against the risk of asset deterioration under the
severe business environment of a prolonged sluggish economy.
In addition, pursuant to the “Program for Financial Revival” of October 2002, SMBC accelerated the disposal of non-performing loans in
order to reduce the problem asset ratio to half by the end of fiscal 2004. As a result, SMBC achieved this target 6 months ahead of schedule,
in the 1st half of fiscal 2004. In the process, taxable disposals that were made in the past were realized, while new taxable disposals were
recognized. As a result, taxable disposal of non-performing loans (**) amounted to approximately ¥2.16 trillion as of March 31, 2005.

(b) Disposal of Unrealized Losses on Stocks

SMBC has been accelerating its effort to reduce stockholdings in order to reduce the risk of stock price fluctuations, and early meet the
regulation limiting stockholdings that was adopted in fiscal 2001.
During fiscal 2002, SMBC sold stocks and reduced the balance by approximately ¥1.1 trillion and also disposed all at once unrealized
losses on stocks of approximately ¥1.2 trillion by writing off impaired stocks and using the gains on the March 2003 merger.
Consequently, SMBC met the regulation limiting stockholdings at the end of fiscal 2002, before the deadline.
As a result, the outstanding balance of taxable write-off on securities (**) increased (from approximately ¥0.1 trillion as of March 31,
1999 to approximately ¥1.5 trillion as of March 31, 2003). On the other hand, taxable write-off of securities carried out in the past is
now being realized through accelerated selling of stocks (In fiscal 2004, approximately ¥130 billion was realized).

(2) Consequently, operating loss carryforwards on the tax base amounted to approximately ¥2 trillion as of March 31, 2005, but they are

certain to be offset by the end of their carry-over period by the taxable income that will be generated in the future. No material operating
loss carryforwards on the tax base have expired in the past.

(*) JICPA Auditing Committee Report No. 66 “Auditing Treatment Regarding Judgment of Realizability of Deferred Tax Assets”
(**) Corresponds to “(Reference) Temporary differences” of the table on the previous page.

(Reference 1) Outline of Practical Guideline 5 (1), examples (4)

When a company has material operating loss carryforwards on the tax base as of term-end, deferred tax assets may be considered to be collec-
table to the extent of the estimated taxable income for the next fiscal year and relating to the temporary differences expected to be reversed in
the next fiscal year.

However, when operating loss carryforwards are due to the company’s restructuring efforts, changes in laws, and/or other extraordinary

factors, the deferred tax assets may be considered to be collectable to the extent of the estimated taxable income for the estimation period
(approximately 5 years) and relating to the temporary differences expected to be reversed over the estimation period.

(b) Period for Future Taxable Income to be Estimated: 5 years
(c) Accumulated Amount of Estimated Future Taxable Income before Adjustments for the Next 5 Years

Banking profit (before provision for

general reserve for possible loan losses)

A Income before income taxes

B Adjustments to taxable income

(excluding reversal of temporary
differences as of Mar. 2005)

Billions of yen
Estimates of next 5 years

¥5,211.0

2,961.0

1,208.6

C Taxable income before adjustments (A + B) 4

¥4,169.6

Basic Policy on the Estimation of Future Taxable Income
(1) Estimate when the temporary differences will be reversed
(2) Conservatively estimate the taxable income before adjustments

for the next 5 years
(a) Rationally make earnings projection for up to fiscal 2009

based on the “Plan for strengthening the financial base (up
to fiscal 2006)”

(b) Reduce an amount reflecting the uncertainty of the
projected amount from the projected amount.

Deferred tax assets corresponding to
taxable income before adjustments

¥1,694.1

(3) Apply the effective tax rate to the above amount and record the

(corresponding to 17 of the table on the previous page)

amount as “deferred tax assets”

(Reference 2) Income of final return (before deducting operating loss carryforwards) for the last 5 years

FY2004

FY2003

Billions of yen
FY2002

FY2001

FY2000

Income of final return

(before deducting operating loss carryforwards)....

¥316.9

¥(1,437.8)

¥(745.5)

¥241.9

¥(176.0)

Notes: 1. Income of final return (before deducting operating loss carryforwards) = Taxable income before adjustments for each fiscal year – Temporary

differences to be reversed for each fiscal year

2. Since the final declaration for the corporate income tax is being done in the end of June, the figures for March 31, 2005 are estimated income of final

return as of March 31, 2005.

3. The figures above include amounts arising from “extraordinary factors” that are specified in the Practical Guideline. Taxable income has been

reported each year when these amounts are excluded.

SMFG 2005

Asset Quality

Current Status of Problem Assets
Designated as the year for completing the intensive improvement

in asset quality, SMBC made every effort in fiscal 2004 to radically

reinforce its financial base by further reducing the non-performing

loan (NPL) balance by taking various measures including off-

balancing, and revitalization of corporate borrowers. As a result,

the balance of NPLs—referred to as “problem assets” under the

Financial Reconstruction Law—dropped to ¥1,824.6 billion at the

end of March 2005, a sharp reduction from the ¥5,920.3 billion at

the end of March 2002. This represents an improvement in the

NPL ratio (the ratio of problem assets to total assets) from 8.9%

to 3.3%. We will leverage the know-how we have amassed from

NPL workouts to proactively develop business in corporate

revitalization support services and new business areas.

Borrower Categories, Defined

Normal Borrowers

Borrowers with good business performance and in good
financial standing without identified problems

Borrowers Requiring Borrowers identified for close monitoring
Caution

Potentially Bankrupt Borrowers perceived to have a high risk of falling into
Borrowers

bankruptcy

Effectively Bankrupt
Borrowers

Borrowers that may not have legally or formally declared
bankruptcy but are essentially bankrupt

Bankrupt Borrowers

Borrowers that have been legally or formally declared
bankrupt

Asset Classifications, Defined

Classification I

Assets not classified under Classifications II, III, or IV

I. Self-Assessment, Write-Offs, and Reserves
1. Self-Assessment
SMBC conducts rigorous self-assessment of asset quality

Classification II

Classification III

Assets perceived to have an above-average risk of
noncollectibility

Assets for which final collection or asset value is very
doubtful and which pose a high risk of incurring a loss

using criteria based on the Financial Inspection Manual of the

Financial Services Agency and the Practical Guideline published

by the Japanese Institute of Certified Public Accountants. Self-

assessment is the latter stage of the obligor grading process for

determining the borrower’s ability to fulfill debt obligations, and the

obligor grade criteria are consistent with the categories used in

self-assessment.

At the same time, self-assessment is a preparatory task for

ensuring SMBC’s asset quality and calculating the appropriate

level of write-offs and reserves. Each asset is assessed individu-

ally for its security and collectibility. Depending on the borrower’s

current situation, the borrower is assigned to one of five cate-

gories: Normal Borrowers, Borrowers Requiring Caution,

Potentially Bankrupt Borrowers, Effectively Bankrupt Borrowers,

and Bankrupt Borrowers. Based on the borrower’s category,

claims on the borrower are classified into Classification I, II, III,

and IV assets according to their default and impairment risk

levels, taking into account such factors as collateral and

guarantees. As part of our efforts to bolster risk management

throughout the Group, our consolidated subsidiaries carry out

self-assessment in substantially the same manner.

Classification IV

Assets assessed as uncollectible or worthless

SMFG 2005 39

2. Asset Write-Offs and Reserves
In cases where claims have been determined to be uncollectible,

deemed uncollectible, referred to as an indirect write-off.

Recognition of indirect write-offs is generally known as provision

or deemed to be uncollectible, write-offs signify the recognition of

of reserves.

losses on the account books with respect to such claims. Write-

S M B C ’ s w r i t e - o f f a n d r e s e r v e c r i t e r i a f o r e a c h

offs can be made either in the form of loss recognition by

self-assessment borrower category are shown in the table below.

offsetting uncollectible amounts against corresponding balance

As part of our overall measures to strengthen risk management

sheet items, referred to as a direct write-off, or else by recognition

throughout the Group, all consolidated subsidiaries use substantially

of a loan loss provision on a contra-asset account in the amount

the same standards as SMBC for write-offs and reserves.

Self-Assessment Borrower Categories

Standards for Write-Offs and Reserves

Normal Borrowers

Borrowers Requiring Caution

Potentially Bankrupt Borrowers

Effectively Bankrupt/Bankrupt Borrowers

Amounts are recorded as general reserves in proportion to the expected losses over the next 12 months based on the
historical bankruptcy rate for each obligor grading.

These assets are divided into groups according to the risk of default. Amounts are recorded as general reserves in pro-
portion to the expected losses based on the historical bankruptcy rate for each group. The groups are “claims to
substandard borrowers,’’ and “claims to other borrowers requiring caution’’ excluding claims to substandard borrow-
ers. For the latter, the borrower’s financial position and credit situation are additionally taken into account for
establishing sub-groups. Additionally, SMBC uses the discounted cash flow (DCF) method to calculate the amount of
reserve for possible losses on large-scale claims.

SMBC sets specific reserves for possible loan losses on the portion of Classification III assets (calculated for each
borrower) not secured by collateral, guarantee, or other means. In addition, SMBC applies the discounted cash flow
(DCF) method to large-scale claims for calculating individual amounts on the condition of rational estimates of future
cash flows.

SMBC calculates the amount of Classification III assets and Classification IV assets for each borrower, and writes off
the full amount of Classification IV assets (deemed to be uncollectible or of no value) and sets aside specific reserves
for possible loan losses against the full amount of Classification III assets.

Notes

General reserve

Provisions made in accordance with general inherent default risks of loans, unrelated to specific individual loans or
other claims

Specific reserve

Provisions made for claims that have been found uncollectable in part or in total (individually evaluated claims)

Discounted Cash Flow Method
SMBC utilizes the discounted cash flow (DCF) method to

One of the major advantages of the DCF method over

calculate the amount of reserves required to cover possible

conventional methods of calculating the amount of reserves

losses on large-scale claims to substandard borrowers and poten-

required to cover possible loan losses is that it enables effective

tially bankrupt borrowers. The DCF method is applied in cases

evaluation of each individual borrower. In the case of this method,

where it is reasonable to estimate the future cash inflow of the

the required amount of reserves may vary according to the basic

borrower that can be used for repayment of the principal and the

data used in applying the DCF method, such as estimated future

payment of interest on the debt. SMBC then makes provisions

cash flow based on the borrower’s business reconstruction plan,

equivalent to the excess of the book value of the claims over the

the applied discount rate, and the probability of the borrower

said cash inflow, discounted by the initial contractual interest rate

going into bankruptcy. Thus, SMBC makes every effort to utilize

or the effective interest rate at the time of origination. In this way,

timely and appropriate data to realize the most accurate estimates

we provide sufficient reserves against the risk of a future

possible.

deterioration in asset quality.

SMFG 2005

II. Credit Cost
The amount required for the disposal of NPLs—known as “credit

uncollectible loans and provisions already made in the case of

write-offs. The credit cost for fiscal 2004 is shown in the table

cost”—refers to the additional provision for loan losses in the case

below.

of provisioning, and the difference between the amount of

■ Credit Cost (SMBC Nonconsolidated; year ended March 31, 2005)

(Billions of yen)

Credit cost

Write-off of loans
Provision for specific reserve
Losses on loans sold to CCPC
Losses on sale of loans
Provision for loan loss reserve for specific overseas countries

Provision for general reserve for possible loan losses

Total credit cost

Reserve for possible loan losses

Amount of direct reduction

■ Credit Cost (SMFG Consolidated; year ended March 31, 2005)

Total credit cost

Reserve for possible loan losses

Amount of direct reduction

¥1,306.3
698.0
474.1
—
138.0
(3.8)

(351.5)

¥ 954.8

¥ 989.1

¥1,531.8

¥1,196.8

¥1,273.6

¥1,782.2

(Billions of yen)

■ Reserve for Possible Loan Losses (March 31, 2005)

SMBC (Nonconsolidated)

SMFG (Consolidated)

(Billions of yen)

Reserve for possible loan losses

General reserve
Specific reserve
Loan loss reserve for specific overseas countries

¥989.1
417.6
567.6
3.9

¥1,273.6
633.6
636.1
3.9

In fiscal 2004, we succeeded in resolving the NPL problem and

significantly reduced the degree of risk involved in our loan

are now in the next phase, starting from fiscal 2005, in which our

operations.

efforts will be focused on bringing credit cost back down to a nor-

The bank’s total credit cost on a nonconsolidated basis

mal level. To this end, during the reporting period, we took various

amounted to ¥954.8 billion for the reporting term.

initiatives, including the bolstering of reserves, and thus

SMFG 2005 41

III. Disclosure of Problem Assets and Off-Balancing
1. Disclosure of Problem Assets
Problem assets are loans and other claims of which recovery of

(where they are referred to as “problem assets”). Problem assets

are classified based on the borrower categories assigned during

self-assessment. The following tables explain the asset classifica-

either principal or interest appears doubtful, and are disclosed in

tion stipulated by the Financial Reconstruction Law and the

accordance with the Banking Law (in which they are referred to as

differences between risk-monitored loans and problem assets.

“risk-monitored loans”) and the Financial Reconstruction Law

Classification of Problem Assets Based on the Financial Reconstruction Law

Bankrupt and quasi-bankrupt assets

This category is defined as the sum of claims on Bankrupt Borrowers and Effectively Bankrupt Borrowers under self-assessment,
excluding Classification IV assets, which are fully written off. Classification III assets are fully covered by reserves, and
Classification I and II assets, the collectible portion, are secured by collateral, guarantees, or other means.

Doubtful assets

Substandard loans

Normal assets

This category is defined as claims on Potentially Bankrupt Borrowers under self-assessment. Specific reserves are set aside for
Classification III assets, and Classification I and II assets, the collectible portion, are secured by collateral, guarantees, or other means.

This category is defined as claims on Borrowers Requiring Caution under self-assessment. This category comprises past due
loans (three months or more) and restructured loans.

This category is defined as the term-end sum of loans, securities lending, import and export, accrued interest, suspense payments,
and customers’ liabilities for acceptances and guarantees that are not included in the other three categories.

Note: Based on the borrower’s category under self-assessment, claims on the borrower are categorized as Classification I, II, III, and IV assets according to their

default and impairment risk levels. (Please refer to page 39 for the asset classification table.)

❑ Problem Assets Based on the Financial Reconstruction Law, and Risk-Monitored Loans

Category of
borrowers under
self-assessment

Problem assets based on
the Financial Reconstruction Law

Risk-monitored loans

Total loans

Other
assets

Bankrupt Borrowers

Effectively Bankrupt
Borrowers

Potentially Bankrupt
Borrowers

Borrowers Requiring
Caution

Normal Borrowers

Bankrupt and quasi-
bankrupt assets

Doubtful assets

Substandard loans

(Normal assets)

Total loans

Bankrupt loans

Other
assets

The disclosure of risk-monitored loans

corresponds exactly to the disclosure of

problem assets based on the Financial

Reconstruction Law, except for such

non-loan assets as securities lending,

import and export, accrued interest, sus-

Non-accrual loans

Past due loans
(3 months or more)

Restructured loans

(C)

pense payments, and customers’

liabilities for acceptances and guaran-

tees, which are not subject to disclosure.

Since overdue interest from borrow-

ers classified under self-assessment as

Potentially Bankrupt Borrowers,

Effectively Bankrupt Borrowers, and

Bankrupt Borrowers is, as a rule, not

recognized as accrued interest, the

amount is not included in the problem

(A)

(B)

(C)

assets disclosed on the basis of the

Financial Reconstruction Law.

2. Problem Asset Disclosure Amounts
The amounts, as of March 31, 2005, of risk-monitored loans and

the balance of problem assets as defined in the Financial

Reconstruction Law was ¥1,824.6 billion, down ¥986.6 billion from

problem assets are shown on the following page. As we had

the end of March 2004. The NPL ratio improved to 3.3% from

pledged to make fiscal 2004 the year for completing the intensive

8.9% at the end of March 2002, far exceeding our goal of

improvement in asset quality, we took proactive measures to dis-

reducing the NPL ratio by half.

pose of problem assets while simultaneously facilitating the

revitalization and reconstruction of our borrowers. As a result,

SMFG 2005

■ Problem Assets Based on the Financial Reconstruction Law (March 31, 2005)

(Billions of yen)

Bankrupt and quasi-bankrupt assets
Doubtful assets
Substandard loans
Subtotal

Normal assets

Total

Amount of direct reduction

■ Risk-Monitored Loans (March 31, 2005)

Bankrupt loans
Non-accrual loans
Past due loans (3 months or more)
Restructured loans

Total

Amount of direct reduction

SMBC (Nonconsolidated)

Compared with
March 31, 2004

SMFG (Consolidated)

448.3
924.4
451.9
¥ 1,824.6

53,452.6

¥55,277.2

¥ 1,531.8

SMBC (Nonconsolidated)

46.0
1,238.0
26.9
425.0

¥1,735.9

¥1,504.6

¥ 86.7
(278.3)
(795.0)
¥(986.6)

578.2

¥(408.4)

Compared with
March 31, 2004

¥ (21.2)
(222.8)
(20.7)
(774.3)

¥(1,039.0)

481.0
1,074.2
767.8
¥ 2,323.0

57,094.8

¥59,417.8

¥ 1,782.2

(Billions of yen)

SMFG (Consolidated)

68.3
1,399.0
29.4
730.7

¥2,227.4

¥1,723.8

■ Classification under Self-Assessment, Disclosure of Problem Assets, and Write-Offs/Reserves (SMBC Nonconsolidated; March 31, 2005)

Category of
borrowers under
self-assessment

Problem assets based on
the Financial Reconstruction Law

Classification under self-assessment

Classification I Classification II Classification III

Classification IV

Reserve for possible
loan losses

Reserve ratio

(Billions of yen)

Bankrupt Borrowers

Bankrupt and
quasi-bankrupt assets (1)

Portion of claims secured by
collateral or guarantees, etc. (5)

Fully reserved

Effectively Bankrupt
Borrowers

¥448.3

¥432.2

¥16.1

Direct
write-offs
(Note 1)

¥22.4
(Note 2)

100%
(Note 3)

Doubtful assets (2)

Portion of claims secured by
collateral or guarantees, etc. (6)

¥924.4

¥348.4

Necessary
amount
reserved

¥576.0

Potentially
Bankrupt
Borrowers

Borrowers
Requiring
Caution

Substandard loans (3)
¥451.9

(Claims to substandard borrowers)

Normal Borrowers

Normal assets

¥53,452.6

Portion of substandard loans
secured by collateral or
guarantees, etc. (7)
¥179.2

Claims to borrowers requiring
caution, excluding claims to
substandard borrowers

Claims to normal
borrowers

Total (4)

¥55,277.2

(A) = (1) + (2) + (3)

¥1,824.6

Loan loss reserve for specific overseas countries

NPL ratio (A) / (4)
3.3%
(Note 5)

Total reserve for possible loan losses

(B) Specific reserve + General reserve
for substandard loans

Portion secured by collateral or
guarantees, etc. (C) = (5) + (6) + (7) ¥959.8

Unsecured portion
(D) = (A) - (C)

Specific
reserve

General
reserve

¥545.2
(Note 2)

94.6%
(Note 3)

General reserve
for substandard
loans ¥124.6

¥417.6

¥3.9

¥989.1

¥692.2

¥864.8

45.0%
(Note 3)

6.7%
[17.9%]
(Note 4)

25.5%
(Note 3)

0.2%
(Note 4)

Reserve ratio
(B) / (D)
80.0%
(Note 6)

Notes: 1. Includes amount of direct reduction totaling ¥1,531.8 billion.

Coverage ratio { (B) + (C) } / (A)

90.5%

2. Includes reserves for assets that are not subject to disclosure under the Financial Reconstruction Law. (Bankrupt/Effectively Bankrupt Borrowers:

¥6.3 billion; Potentially Bankrupt Borrowers: ¥7.5 billion)

3. Reserve ratios for claims on Bankrupt/Effectively Bankrupt Borrowers, Potentially Bankrupt Borrowers, Substandard Borrowers, and Borrowers

Requiring Caution: The proportion of each category’s total unsecured claims covered by reserve for possible loan losses.

4. Reserve ratios for claims on Normal Borrowers and Borrowers Requiring Caution (excluding claims to Substandard Borrowers): The proportion of
each category’s total claims covered by reserve for possible loan losses. The reserve ratio for unsecured claims on Borrowers Requiring Caution
(excluding claims to Substandard Borrowers) is shown in brackets.

5. Ratio of problem assets to total assets subject to Financial Reconstruction Law
6. Reserve ratio = (Specific reserve + General reserve for substandard loans) ÷ (Bankrupt and quasi-bankrupt assets + Doubtful assets +

Substandard loans – Portion secured by collateral or guarantees, etc.)

SMFG 2005 43

3. Off-Balancing Problem Assets
In the term under review, we continued to focus on off-balancing

Specific measures contained in the package include “the radical

disposal of problem assets.” This provision requires Japan’s

problem assets, and succeeded in off-balancing ¥1,762.4 billion

major banks to dispose of loans categorized as “claims to poten-

worth of problem assets. In April 2001, the Japanese government

tially bankrupt borrowers” and worse. Existing loans must be

passed the Emergency Economic Package, with the objective of

off-balanced within three years, and steady progress is being

simultaneously revitalizing the financial system and industry.
■ Breakdown of Off-Balancing (SMBC Nonconsolidated; March 31, 2005)

made.

March 31, 2003

Fiscal 2003

March 31, 2004

Fiscal 2004

New occurrences

Off-balanced

New occurrences

Off-balanced

(Billions of yen)

March 31, 2005

Bankrupt and quasi-
bankrupt assets

Doubtful assets

Total

Bankrupt and quasi-
bankrupt assets

Doubtful assets

Total

¥ 524.9

¥ 125.7

¥ (289.0)

361.6

¥ 311.9

¥ (225.2)

¥ 448.3

2,129.5

¥2,654.4

1,227.9

¥1,353.6

(2,154.7)

1,202.7

1,258.9

(1,537.2)

924.4

¥(2,443.7)

¥ 1,564.3

¥1,570.8

¥(1,762.4)

¥1,372.7

Increase/Decrease
(➁ -➀

)

¥ (163.3)

(926.8)

¥ (1,090.1)

Increase/Decrease
(➂ -➁

)

¥ 86.7

(278.3)

¥ (191.6)

Note: The figures shown in the above table under “new occurrences” and “off-balanced” are simple additions of the figures for the first and second halves of the
two periods reviewed. Amounts of ¥395.8 billion for fiscal 2003 and ¥486.8 billion for fiscal 2004, recognized as “new occurrences” in the first halves of the
terms, were included in the amounts off-balanced in the respective second halves.

4. Problem Assets by Region and Industry
■ Problem Assets by Domicile of Borrowers (SMBC Nonconsolidated; March 31, 2005)

(Billions of yen)

Financial Reconstruction Law Basis
(Excluding normal assets)

Percentage

Risk-Monitored Loans

Percentage

Domestic
Overseas
Asia

Indonesia
Hong Kong
India
China
Others

North America
Central and South America
Western Europe
Eastern Europe

¥1,787.8
36.8
12.8
3.3
0.4
1.1
0.2
7.8
22.7
0.7
0.6
—

98.0%
2.0
0.7
0.2
0.0
0.1
0.0
0.4
1.3
0.0
0.0
—

¥1,703.6
32.3
9.7
3.3
0.3
1.1
0.2
4.8
21.5
0.5
0.6
—

98.1%
1.9
0.6
0.2
0.0
0.1
0.0
0.3
1.3
0.0
0.0
—

Total
Note: “Domestic” means the total for domestic branches, excluding the special account for international financial transactions. “Overseas” means the total for

¥1,735.9

¥1,824.6

100.0%

overseas branches, including the special account for international financial transactions. The above countries and areas are categorized by the obligor’s domicile.

■ Problem Assets by Type of Borrowers (SMBC Nonconsolidated; March 31, 2005)

(Billions of yen)

Financial Reconstruction Law Basis
(Excluding normal assets)

Percentage

Risk-Monitored Loans

Percentage

Domestic

Manufacturing
Agriculture, forestry, fishery

and mining
Construction
Transportation, communications,
and other public enterprises

Wholesale and retail
Finance and insurance
Real estate
Services
Municipalities
Others
Overseas

Public sector
Financial institutions
Commerce and industry
Others

¥1,787.8
85.5

0.7

396.3

36.2

98.0%
4.7

0.0

21.7

2.0

¥1,703.6
81.3

0.7

342.2

33.4

98.1%
4.7

0.0

19.7

1.9

105.0
95.8
408.6
456.0
—
203.7
36.8
0.1
0.5
36.2
—
¥1,824.6

5.8
5.2
22.4
25.0
—
11.2
2.0%
0.0
0.0
2.0
—
100.0%

103.3
94.5
396.5
450.2
—
201.5
32.3
0.1
0.3
31.9
—
¥1,735.9

6.0
5.5
22.8
25.9
—
11.6
1.9%
0.0
0.0
1.9
—
100.0%

Total
Note: “Domestic” means the total for domestic branches, excluding the special account for international financial transactions. “Overseas” means the total for

overseas branches, including the special account for international financial transactions.

SMFG 2005

➀
➁
➂
Risk Management

Basic Principles
Financial and economic deregulation, globalization, and advances

Planning Department to comprehensively and systematically manage

all these categories of risk across the entire Group.

in IT are generating new business opportunities for financial

Top management plays an active role in determining SMFG’s

institutions. The risks accompanying these new business opportu-

Groupwide basic policies for risk management. The system works

nities are not only increasing in number but also growing in

as follows: The basic policies for risk management are determined

diversity and complexity. Accordingly, identifying, measuring, and

by the Management Committee before being authorized by the

controlling risks have never been more important in the manage-

Board. The Management Committee, the designated Board mem-

ment of a financial holding company.

bers, and the relevant risk management departments perform risk

SMFG has encapsulated the basic principles to be employed

management according to the basic policies.

in risk management in the manual entitled Regulations on Risk

Risk management systems are in place at the individual

Management. In the manual, we have specified the basic policies

Group companies in accordance with SMFG’s Groupwide basic

for risk management: 1) Set forth SMFG’s Groupwide basic poli-

policies for risk management. For example, at SMBC, specific

cies for risk management after specifying the categories of risk to

departments have been appointed to oversee the handling of the

which these policies apply; 2) Provide all necessary guidance to

four risk categories listed above, in addition to risks associated

Group companies to enable them to follow the basic risk manage-

with settlement. Each risk category is managed taking into

ment policies set forth by SMFG and set up their own appropriate

account the particular characteristics of that category. In addition,

risk management systems; 3) Monitor the implementation of risk

the Corporate Risk Management Department—independent of

management by all Group companies to ensure that their practices

the operating units—comprehensively and systematically man-

meet the relevant standards.

ages all categories of risk in cooperation with the Corporate

Types of Risk, and Risk Management System
At SMFG, we classify risk into the following categories: (1) credit

risk, (2) market risk, (3) liquidity risk and (4) operational risk

(including processing risk and systems risk). In addition, we pro-

vide individually tailored guidance to help Group companies

identify categories of risk that need to be addressed. Risk cate-

gories are constantly reviewed, and new categories may be added

in response to changes in the operating environment. The

Corporate Risk Management Department works with the Corporate

Planning Department.

Furthermore, under our system top management plays an

active role in the drafting of basic policies of risk management.

The decision-making process for addressing credit, market and
liquidity risks at the operating level is strengthened by the Credit

Risk Management Committee and the Market Risk Management

Committee, which are subcommittees of the Management

Committee. The Management Committee is also attended by the

relevant department heads.

■ SMFG’s Risk Management System

SMFG

Board of Directors

Corporate Auditors

SMBC

Corporate Auditors

Management Committee

Independent Auditors

Guidance for
drafting of basic
policies

Monitoring

Designated Board Members

Audit Dept.

Sumitomo
Mitsui Card

SMBC
Leasing

Corporate Risk
Management Dept.

Report

Corporate-
Wide Risk
Management

Corporate
Planning Dept./
Corporate Risk
Management
Dept.

Credit Risk

Market Risk

Liquidity Risk

Operational Risk

Processing Risk

Systems Risk

IT Planning Dept.

General Affairs Dept.

JRI

Corporate Planning
Dept./Corporate Risk
Management Dept.

Management
Committee

Market Risk
Management Committee

Credit Risk
Management Committee

Independent Auditors

Designated
Board
Members

Board Member in
Charge of Corporate
Risk Management Dept.

Board Member in
Charge of Credit Risk
Management Dept.

Internal Audit Dept.

Credit Risk

Bank-Wide
Risk Management

Market Risk

Liquidity Risk

Settle-
ment
Risk

Credit Risk
Management Dept.

Corporate Risk
Management Dept.

Operations
Planning Dept.

Processing Risk

Systems Risk

IT Planning Dept.

Operational Risk

General Affairs Dept.

Other Risks

Other Departments

SMFG 2005 45

Risk Management Methods
SMFG’s Groupwide basic policies for risk management stipulate
the basic risk management regulations that must be followed,

In the case of SMBC, for example, sufficient capital is

allocated to cover the bank’s exposure to credit, market, and oper-

ational risks. In the credit and market risk categories, in particular,

and spell out risk management procedures from various perspec-

the maximum risk capital that SMBC can use during a period is set

tives. These include managing risk on a consolidated accounting

as the risk capital limit within this limit to manage these risks.

basis, managing risk using quantification methods, ensuring con-

Liquidity risk is managed within the context of maximum limits set

sistency with business strategies, setting up a system of checks

for asset liability management (ALM) and the funding gap. Other

and balances, contingency planning for emergencies and serious

risk categories are managed with procedures closely attuned to

situations, and verifying of preparedness to handle all conceiv-

the nature of the risk, as described in the following paragraphs.

able risk situations. In addition, there are specific operational

policies for implementing appropriate management of risk by all

Group companies.

Under SMFG’s Groupwide basic policies for risk management,

all Group companies periodically carry out reviews of the basic

management policies for each risk category, or whenever deemed

necessary, thus ensuring that the policies followed at any time are

the most appropriate. The management of SMFG constantly moni-

tors the conduct of risk management at Group companies,

providing guidance when necessary.

Furthermore, in order to maintain a balance between risk and

return as well as ensure the soundness of the Group from an over-

all perspective, we employ the risk capital-based management

method, which allocates capital effectively to each department

according to its role in our business strategies to keep total expo-

sure to credit, market, and operational risks within the scope of our

management resources, i.e., capital.

■ Relationship between Risk Management Framework

and Risk Category at SMBC

Framework

Risk Category

Credit Risk

Banking Risk/Trading Risk

Strategic Equity Investment Risk

Credit Risk
Credit risk is the possibility of a loss arising from a credit event,

such as deterioration in the financial condition of a borrower, that

causes an asset (including off-balance sheet transactions) to lose
value or become worthless. Overseas credits also include an ele-

ment of country risk, which is closely related to credit risk. This is

the risk of loss caused by changes in foreign exchange, or politi-

cal or economic situations.

All Group companies follow the basic policy established by

SMFG to assess and manage credit risk on a Groupwide basis

and further raise the level of accuracy and comprehensiveness of

Groupwide credit risk management. Each Group company must

comprehensively manage credit risk according to the nature of its

business, and assess and manage credit risk of individual loans

and credit portfolios quantitatively and using consistent standards.

Credit risk is the most significant risk to which SMFG is exposed.

Without effective credit risk management, the impact of the corre-

sponding losses on operations can be overwhelming.

The purpose of credit risk management is to keep credit risk

exposure to a permissible level relative to capital, to maintain the

soundness of assets, and to ensure returns commensurate with

risk. This leads to a loan portfolio that achieves high returns on

capital and assets.

SMBC’s credit management policy and system are described

below.

1. Credit Policy
SMBC’s credit policy comprises clearly stated universal and

basic operating concepts, policies, and standards for credit opera-

Other Market-Related Risks

tions, in accordance with the business mission and rules of

conduct. SMBC is promoting the understanding of and strict

adherence to its credit policy among all its managers and

employees. By conducting credit risk management in line with

global standards laid down by the soon-to-be-implemented New

Basel Capital Accord, or Basel II, SMBC aims to enhance share-

holder value and play a key part in society by providing high

value-added financial services.

Operational Risk

Processing Risk

Systems Risk

Liquidity Risk

Other Risks
(Settlement Risk and Others)

Risk
Capital-Based
Management

Market
Risk

ALM/
Funding Gap

Management
by Risk Type

SMFG 2005

2. Credit Risk Assessment and Quantification
To effectively manage the risk involved in individual loans as well

fluctuations in the value of collateral, such as real estate and

securities. This range of data must be analyzed to quantify the

as the credit portfolio as a whole, SMBC first acknowledges that

risk of an entire portfolio or an individual loan.

every extension of credit poses risks, assesses the credit risk

To calculate credit risk, historical data on the obligor and

posed by each borrower and loan using an internal rating system,

facility are entered into a database. Such parameters as

and quantifies that risk for control purposes.

probability of grade migration, loss given default, and credit quality

(1) Internal Rating System
SMBC’s internal rating system consists of two indicators: the

obligor grading, which indicates the creditworthiness of a borrower;

and the facility grading, which shows the probability of collecting for

each facility. Facility gradings are assigned based on the borrower’s

obligor grading and transaction terms such as guarantee, tenure,

and collateral. Overseas credits are subjected to a further analysis

that takes into account country ranking, an indicator derived from
analyses of each country’s political and economic situation,

international balance of payments, and external debt burden. Self-

assessment is the obligor grading process for lower categories, and

the borrower categories used in self-assessment are consistent

with the overall obligor grade criteria.

(2) Quantification of Credit Risk
Quantifying credit risk is more than just calculating the probability

of default for a particular obligor. It must also reflect the

concentration of risk on a specific customer or industry and

■ SMBC’s Internal Rating System

correlation among obligors are set, and then the probability distrib-

ution of losses for the entire portfolio (amount of loss for a

particular probability) is computed to determine the potential

future loss. Specifically, based on the abovementioned parame-

ters, we run a simulation of 10,000 iterations of simultaneous

default using the Monte Carlo method to calculate our maximum

loss exposure. This quantification enables effective risk capital

allocation.

By obtaining an accurate understanding of the concentration

risk of a credit portfolio, and by carrying out quantitative risk

analysis simulations assuming various developments in the

macroeconomic situation, SMBC obtains quantified credit risk fig-

ures which are used for making optimal decisions across the

whole range of business operations, including formulating busi-

ness plans and providing a standard against which individual

credit applications are assessed.

Grading

Subrating

Obligor Grading

Definition

Borrower Classification under
Self-Assessment

Facility Grading

Grading

Financial Reconstruction
Law Based Disclosure
Category

Subrating

(Domestic)

a
b
c
a
b
c
a
b
c
A
B
C
A
B
C

Extremely high probability of redemption

High probability of redemption

Reasonable probability of redemption

Redemption is likely, but the debtor may be affected by
large shifts in business conditions or its industry.

No problem at present with redemption, but the future
prospects are not solid and the debtor may be affected
by trends in business conditions or its industry.

No problem at present with redemption, but there are
reasons for concern about the debtor’s financial condition
and the possibility of future problems with recovery.

Normal Borrowers

Requires management because there are problems meeting
loan conditions or with collection, the business is weak or
unstable, or the financial position is poor.

Borrowers Requiring Caution A

Borrowers Requiring Caution B

III

VII

a
b
c
a
b
c
a
b
c
A
B
C
A
B
C

Normal Assets

(Customers requiring caution among this rating)

Substandard Borrowers

Substandard Loans

Although the debtor is not bankrupt, its business
is in difficulty, restructuring progress is poor, and
it is recognized that the business may fall into bankruptcy.

Although the debtor is not legally or formally in a state of
bankruptcy, it is virtually bankrupt because its business is
in deep trouble and there appear to be no prospects for
restructuring.

Potentially Bankrupt
Borrowers

Effectively Bankrupt
Borrowers

VIII

Doubtful Assets

Bankrupt and
Quasi-Bankrupt
Assets

The debtor is legally and formally bankrupt.

Bankrupt Borrowers

SMFG 2005 47

3. Framework for Managing Individual Loans
(1) Credit Assessment
Credit assessment of corporate loans involves a variety of finan-

cial analyses, including cash flow, to predict an enterprise’s

capability of loan repayment and its growth prospects. These

quantitative measures, when combined with qualitative analyses

of industrial trends, the enterprise’s R&D capabilities, the competi-

tiveness of its products or services, and its management caliber,

result in a comprehensive credit assessment. The loan application

is analyzed in terms of the intended utilization of the funds and

the repayment schedule. Thus, SMBC is able to arrive at an accu-

rate and fair credit decision based on an objective examination of

all relevant factors.

Increasing the understandability of loan conditions and

approval standards for specific borrowing purposes and loan cate-

gories is a part of SMBC’s ongoing review of lending practices,

which includes the revision of loan contract forms with the chief

aim of clarifying lending conditions utilizing financial covenants.

SMBC is also making steady progress in rationalizing its credit

assessment process.

To respond proactively and promptly to customers’ funding

needs—particularly those of small and medium-sized

enterprises (SMEs)—we employ a standardized credit risk

assessment process for SMEs that uses a credit-scoring model.

With this process we are building a regime for efficiently market-

ing our Business Select Loan and SMBC Crecer Loan.

In the field of mortgage loans for individuals, we employ a

credit assessment model based on credit data amassed and ana-

lyzed by SMBC over many years. This model enables our loan

officers to efficiently make rational decisions on mortgage loan

applications, and to reply to the customers without delay. It also

facilitates the effective management of credit risk, as well as the

flexible setting of interest rates.

We also provide loans to individuals who rent out properties

such as apartments. The loan applications are subjected to a pre-

cise credit risk assessment process utilizing a risk-assessment

model that factors in the projected revenue from the rental

■ SMBC’s Credit Monitoring System

business. The process is also used to provide advice to such

customers on how to revise their business plans.

(2) Credit Monitoring System
In addition to analyzing loans at the application stage, the Credit

Monitoring System is utilized to reassess obligor grading, and

review self-assessment and credit policies so that problems can

be detected at an early stage and quick and effective action can

be taken. The system includes periodic monitoring carried out

each time an obligor enterprise discloses financial results, as well

as continuous monitoring performed each time the credit

conditions change, as indicated in the diagram below.

4. Framework for Credit Portfolio Management
In addition to managing individual loans, SMBC applies the follow-

ing basic policies to the management of the entire credit portfolio

to maintain and improve its soundness and profitability over the

medium to long term.

(1) Risk-Taking within the Scope of Capital
To keep credit risk exposure to a permissible level relative to

capital, SMBC sets credit risk capital limits for internal control

purposes. Under these limits, separate guidelines are issued for

each business unit and marketing unit. Also issued are special-

ized guidelines for each business unit and business type, such as

real estate finance, fund investment, and investment in securitiza-

tion products. Regular monitoring is conducted to check that these

guidelines are being followed, thus ensuring appropriate overall

management of credit risk.
(2) Controlling Concentration Risk
Because concentration of credit risk in an industry or corporate

group has the potential to substantially impair capital, SMBC

implements measures to prevent excessive concentration of loans

in an industry and to control large exposure to individual compa-

nies or corporate groups by setting guidelines for maximum loan

amounts. To manage country risk, SMBC also has credit limit

guidelines based on each country’s creditworthiness.

Obligor Information
Processing

Registration
of Financial
Statements/
Creation and
Revision of
Corporate
Card

SMFG 2005

Flow of Obligor Grading/Grading Outlook/Credit Policies/Action Plans/Facility Grading Assignment

Nonconsoli-
dated
Financial
Grade

Consolidated
Financial
Grade

Effective
Financial
Grade

Not Flagged

Flagging
According to
Self-
Assessment
Criteria

Flagged

Self-Assessment
Logic

Quantitative
Assessment
Financial
Assessment
Credit Status

Qualitative
Assessment

Normal
Borrowers

Borrowers
Requiring
Caution

Potentially
Bankrupt
Borrowers

Effectively
Bankrupt
Borrowers

Bankrupt
Borrowers

Final
Obligor
Grade

Grading Outlook Assessment

Performance
Trends

Qualitative
Risk
Factors

•Positive
•Flat
•Negative

Determination of
Credit Policies

Credit Policy Segment

Policy for Handling
Each Individual
Company

Action Plan Formulation

Restructuring
Feasibility

Basic
Approach

Specific
Action Plan

Facility Grading Assignment

(3) New Type of Unsecured Loans, and Balancing Risk

risk controlling functions of i) planning and devising specialized risk

and Returns

management methods and procedures for new types of transactions

Against the background of increasing sophistication in methods of

such as securitizations and non-recourse loans and ii) active portfo-

managing credit risk, SMBC actively engages in a new type of

lio management with the aim of stabilizing the bank’s overall credit

unsecured loans. Meanwhile, the bank runs credit operations on

portfolio via market transactions, e.g. securitization of bank’s loan

the basic principle of earning returns that are commensurate with

exposure.

the credit risk involved, and makes every effort to reduce capital

The Corporate Research Department within the Corporate

and credit costs as well as general and administrative expenses.

Services Unit performs research on industries as well as investi-

(4) Reduction and Prevention of Non-Performing Loans
On non-performing loans (NPLs) and potential NPLs, SMBC carries

out regular loan reviews to clarify handling policies and action

plans, enabling it to swiftly implement measures to prevent deterio-

ration of borrowers’ business situations, support business

recoveries, collect on loans, and enhance loan security.

(5) Toward Active Portfolio Management
SMBC makes active use of credit derivatives, loan securitization, and

other instruments to proactively manage its portfolio.

5. Credit Risk Management System
The Credit Planning Department within the Corporate Staff Unit is

responsible for the comprehensive management of credit risk. This

department drafts and administers credit policies, the internal rating

system, credit authority guidelines, credit application guidelines, and

manages NPLs, and other aspects of credit portfolio management.

Moreover, in April 2005, we established the Credit Risk

Management Department within the Corporate Staff Unit, and aim to

gates the business situations of borrower enterprises to detect

early signs of problems or growth potential. The Credit

Administration Department is responsible for handling NPLs of

borrowers classified as potentially bankrupt or lower, and draws

up plans for their workouts, including write-offs, and corporate

rehabilitation. The department closely liaises with the Group com-

pany SMBC Business Servicing Co., Ltd., which engages in

related services, and works to efficiently reduce the amount of

NPLs by such means as the sell-off of claims.

The credit departments within each business unit conduct credit

risk management for loans handled by their units and manage their

units’ portfolios. The credit limits they use are based on the baseline

amounts established for each grading category, with particular

attention paid to evaluating and managing customers or loans

perceived to have particularly high credit risk.

The Credit Review Department, operating independently of

the business units, audits asset quality, accuracy of gradings,

self-assessment, and state of credit risk management, and

reports the results directly to the Board of Directors and the

achieve more advanced portfolio management by strengthening our

Management Committee.

■ SMBC’s Credit Risk Management System

Board of Directors

Corporate Auditors

Management Committee

External Audit (Auditing Firm)

Corporate Staff Unit

Corporate Risk Management Dept.

•Aggregates risk for comprehensive management
•Plans and proposes risk quantification methods

Credit Planning Dept.

•Aggregates credit risk for unified management
•Plans and proposes basic credit policies

Credit Risk Management Dept.

•Undertakes active portfolio management
•Plans credit management of specific risk assets
•Oversees credit risk businesses

Internal Audit Unit

Credit Review Dept.
•Self-assessment, grading (obligors and loans), audits of write-offs
and reserves
•Credit risk management auditing

Corporate Services Unit

Corporate Research Dept.

•Industry trend research
•Credit assessment of major industry players, grading revisions

Credit Administration Dept.

•Manages problem assets (plans, implements corporate rehabilitation
program, sells off the revitalized company)

Consumer Banking Unit

Middle Market Banking Unit

Corporate Banking Unit

International Banking Unit

Investment Banking Unit

Business Units

Credit Dept.

Credit Dept. I, II & III

Credit Dept. I & II

Credit
Dept.

Credit for Individuals

Small and Medium-Sized Businesses

Large Domestic Corporations

Credit Dept.
Credit Dept., The Americas Div.
Credit Dept., Europe Div.

Overseas Corporations

Structured Finance

Structured Finance Credit Dept.

Domestic Structured Finance

SMFG 2005 49

SMBC has established the Credit Risk Committee, a new

transparency of the risk management process; clearly separating

consultative body, to round out its oversight system for undertak-

front-office, middle-office, and back-office operations; and

ing flexible and efficient control of credit risk, and ensuring the

establishing a highly efficient system of mutual checks and

overall soundness of the bank’s loan operations.

balances.

Market and Liquidity Risks
Market and Liquidity Risk Management System
Market risk is the possibility that fluctuations in interest rates,

foreign exchange rates, or stock prices will change the market

value of financial products, leading to a loss.

Liquidity risk is the possibility of encountering an obstacle to

raising the funds required for settlement due either to a mismatch

between the use and procurement of funds or to an unexpected

outflow of funds, or being forced to borrow at higher interest rates
than usual.

SMFG is working to further enhance the effectiveness of its

quantitative management of market and liquidity risks across the

entire Group by setting allowable risk limits; ensuring the

■ SMBC’s Market Risk and Liquidity Risk Management

Organization Chart

On the basis of SMFG’s Groupwide basic policies for risk

management, SMBC’s Board of Directors authorizes important

matters relating to the management of market and liquidity risks,

such as basic policies and risk limits, which are decided by the

Management Committee. Additionally, the bank’s Corporate Risk

Management Department, which is independent of business units

that directly handle market transactions, manages market and liq-

uidity risks in an integrated manner. The department not only

monitors the current risk situations, but also reports regularly to

the Management Committee and the Board of Directors.

Furthermore, SMBC’s ALM Committee meets on a monthly basis

to examine reports on the state of observance of the bank’s limits

on market and liquidity risks, and to review and discuss the bank’s

ALM policies.

To prevent unforeseen errors in operation or the manipulation

of transaction data through unauthorized trading, it is important to

establish a system of checks on the business units (front office).

At SMBC, both the processing departments (back office) and the

administrative departments (middle office) conduct the checks. In

addition, SMBC’s independent Internal Audit Unit periodically per-

forms comprehensive internal audits to verify that the risk

Board of Directors

management system is functioning properly.

Market
Risk
Manage-
ment

Management Committee

Market Risk Management Committee

ALM Committee

Board member in charge of
Corporate Risk Management Dept.

Policy

Reporting

Liquidity
Risk
Manage-
ment

Corporate
Auditors

Independent
Auditors
(an auditing firm)

Internal
Audit
Dept.

Back Office

(Back offices of
Japan and overseas branches)

Middle Office
(Corporate Risk Management Dept. and middle offices
of overseas branches)

Inspection and verification
of transactions

Model and new products approval,
Final approval, Management

Market Risk
The bank manages market risk by setting maximum limits for

value-at-risk (VaR) and the maximum loss. This is done using the

VaR method, in which the maximum potential loss on market

transactions for a given probability is calculated. These limits are,

themselves, set within the “market risk capital limit,” which is

determined taking into account the bank’s shareholders’ equity

and other principal indicators of the bank’s financial position and

management resources.

The SMBC VaR model estimates the maximum loss by

running simulations of changes in profit and loss on market

fluctuation scenarios based on historical data. Until fiscal 2004,

we used the Monte Carlo simulation method, but from fiscal 2005

we have switched to the historical simulation method, which

allows us to calculate VaR in a way that more accurately reflects

actual market movements.

Managing Departments

Market risk can be divided into various factors: foreign

Other market-
related
operations

Market
operations
(Treasury Unit)

International
Banking Unit
(ALM of overseas
branches and
subsidiaries)

Group
Companies’
market
operations

exchange rate, interest rate, equity price, and option risks. Fine-

tuned management for each risk category is achieved by

employing the VaR method in conjunction with suitable indicators

for managing the risk of individual financial instruments such as

the basis-point-value (BPV) indicator, which measures the poten-

Front Office

Front/Back/Middle Offices

tial change in earnings stated at market value for every 0.01

percentage-point fluctuation in interest rates.

At SMBC, exposure limits are set on market risk related to its

strategic equity investment and those of its main subsidiaries, and

SMFG 2005

reports regarding the observance of exposure limits are made to

■ SMBC’s Back-Testing Results (Trading Accounts)

Marginal Profit or Loss (¥ billion)

the Board of Directors and the Management Committee on a

regular basis.

In view of rising interest rates since June 2004, SMBC, after

deliberations by the ALM Committee and the Management

Committee, reduced the VaR on banking operations, a reflection

of the effectiveness of its risk management.

The VaR results of the trading and banking accounts on

a consolidated basis for fiscal 2004 are shown below.

3.0

2.0

1.0

-1.0

-2.0

■ SMBC’s VaR Results

(Billions of yen)

-3.0

4
VaR (¥ billion)

June 2004 Sep. 2004 Dec. 2004 Mar. 2005

Trading Accounts

1.8

2.5

2.1

SMBC attempts to keep the stock price fluctuation risk related to its

strategic equity investment at a level appropriate for the financial

strength of the bank. To achieve this, we have been reducing the

Banking Accounts

63.5

35.1

25.7

28.0

balance of shares. It was already brought down to within 60% of

(Billions of yen)

Tier I capital. Henceforth, our efforts over the medium-to-long term

will be to further lower the level to approximately 50% of Tier I

Maximum

Minimum

Average

Trading Accounts

2.9

Banking Accounts

91.0

1.2

23.9

2.0

46.1

(VaR for a one-day holding period with one-sided confidence interval of 99.0% (computed
using Monte Carlo simulation). The VaR model for trading accounts includes major consolidated
subsidiaries. Figures for trading accounts exclude specific risks.)

The market occasionally undergoes extreme fluctuations that

exceed projections. To manage market risk, therefore, it is important

to run simulations of situations that may occur only once in many

years (stress tests). At SMBC, periodic stress tests are conducted to

prepare for unforeseeable swings.

The internal model used by SMBC (SMBC VaR) has been peri-

odically evaluated by an independent auditing firm and certified as

appropriate. In addition, the relationship between the VaR calculated

with the model and the actual profit and loss data is back-tested.

The back-testing results for SMBC’s trading accounts for fiscal 2004

are shown below. A data point below the diagonal line indicates a

loss in excess of the predicted VaR for that day: there were no such

excess losses during fiscal 2004. This demonstrates that the SMBC

VaR model, with a one-sided confidence interval of 99.0%, is suffi-

ciently reliable.

capital.
■ Composition, by Industry, of Listed Equity Portfolio

(%)
30

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(March 31, 2005)

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TOPIX
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Liquidity Risk
At SMBC, liquidity risk is regarded as one of the major risks. So

as not to be overly dependent on market-based funding to cover

short-term cash outflows, SMBC’s liquidity risk management is

based on a framework consisting of setting funding gap limits and

guidelines, maintaining a system of highly liquid supplementary

funding sources, and establishing contingency plans.

In daily risk management operations, SMBC prevents

a cumulative increase in liquidity risk by adjusting the funding gap

limits and guidelines. For emergency situations, there are contin-

gency plans in place to reduce the funding gap limits and

guidelines and other measures. To prevent the possibility of mar-

ket crises interfering with funding, SMBC carries highly liquid

assets, such as U.S. Treasury securities, and has emergency bor-
rowing facilities in place, which also enable foreign
currency-denominated liquidity management.

SMFG 2005 51

Operational Risk
Operational risk is the possibility of losses arising from inadequate

Systems Risk
Systems risk is the possibility of a loss arising from the failure, mal-

or failed internal processes, people and systems or from external

function, or unauthorized use of computer systems. SMFG

events. SMFG is working to raise the level of sophistication of its

recognizes that reliable computer systems are essential for the

management of operational risk across the whole Group by pro-

effective implementation of management strategy in view of the IT

viding an effective framework for the identification, assessment,

revolution. We strive to minimize systems risk by drafting regula-

control and monitoring of significant risk factors and by establish-

tions and specific management standards, including a security

ing systems for contingency and business continuity plans.

policy. We also have contingency plans with the goal of minimizing

At SMBC, on the basis of SMFG’s Groupwide basic policies

losses in the event of a system failure. The development of such a

for risk management, the Operational Risk Management

systems risk management system ensures that the Group as a

Department set up in the General Affairs Department is responsi-

whole is undertaking adequate risk management.

ble for centrally supervising overall operational risk management,

At SMBC, safety measures are strengthened according to risk

jointly with the departments specifically responsible for controlling

assessment based on the Financial Services Agency’s Financial

processing risk and systems risk.

Inspection Manual, and the Security Guidelines published by The

To facilitate effective operational risk management, these

Center for Financial Industry Information Systems (FISC).

departments collect and analyze internal historical data on losses,

Because computer-related trouble at financial institutions now

assess internal control, and undertake risk management according

has greater potential to impact the public, and with systems risk

to the risk characteristic, such as processing and systems risk.

diversifying owing to the IT revolution, the resulting expansion of

In addition, SMBC controls its exposure to operational risk

networks and the rise in the number of personal computer users,

through risk capital allocation based on a quantification model.

the necessary steps are taken to ensure the smooth, secure oper-

Processing Risk
Processing risk is the possibility of losses arising from negligent

processing by employees, accidents, or unauthorized activities.

SMFG recognizes that all operations entail processing risk.

We are therefore working to raise the level of sophistication of our

management of processing risk across the whole Group by ensur-

ing that each branch conducts its own regular investigations of

processing risk; minimizing losses in the event of processing

errors or negligence by drafting exhaustive contingency

plans; and carrying out thorough quantification of the risk under

management.

ation of our information systems. We have duplicated all systems

and infrastructures, and the computer centers in eastern and

western Japan have been fully proofed against earthquakes and

other disasters. To maintain the confidentiality of customer infor-

mation and prevent information leaks, sensitive information is

encrypted, unauthorized external access is blocked, and all

known countermeasures to secure data are implemented. There

are also contingency plans and training sessions held as neces-

sary to ensure full preparedness in the event of an emergency. To

maintain security, countermeasures are revised as new technolo-

gies and usage patterns emerge.

In the administrative regulations of SMBC, in line with

SMFG’s Groupwide basic policies for risk management, the basic

Settlement Risk
Settlement risk is the possibility of a loss arising from a transac-

administrative regulations are summarized as “comprehending

tion that cannot be settled as planned. Because this risk

the risks and costs of administration and transaction processing,

comprises elements of several types of risk, including credit, liq-

and managing them accordingly,” and “seeking to raise the quality

uidity, processing, and systems risk, it requires interdisciplinary

of administration to deliver high-quality service to customers.”

management. At SMBC, the Operations Planning Department is

Adding new policies or making major revisions to existing ones for

responsible for coordinating the management of settlement risk

processing risk management requires the approval of both the

with the Credit Planning Department, which oversees credit risk,

Management Committee and the Board of Directors.

and the Corporate Risk Management Department, which

In the administrative regulations, SMBC has also defined

oversees liquidity risk.

specific rules for processing risk management. The rules allocate

processing risk management tasks among six types of depart-

ments: the Operations Planning Department, compliance

departments, operations departments, transaction execution

departments (primarily front-office departments and branches),

the Internal Audit Department, and the Customer Relations

Department. In addition, there is a specialized group within the

Operations Planning Department to strengthen administrative

procedures throughout the SMBC Group.

SMFG 2005

Corporate Social Responsibility

As a new financial services complex in step with the needs of the

In April 2005, SMFG established a Group CSR Committee, and

21st century, SMFG’s goal is to earn the highest trust of society

SMBC established its own CSR Committee, as well as a CSR

by meeting the public’s expectations and fulfilling its social

Department within its Corporate Planning Department.

responsibilities.

Through these committees, SMFG is taking steps to adopt a

Earning the highest level of trust requires the balanced

more high-profile stance with regard to corporate social responsibility.

provision of value to our four constituencies: customers, share-

holders and the market, the environment and society, and

employees. Through this process, we aim to contribute to the

sustainable development of society as a whole, and to fulfill our

corporate social responsiblity.

Our framework for fulfilling our obligations to society is

described in the Risk Management section and the Business

Overview section, as well as the following pages. The main points

are as follows.

First, we will maintain sound management through the further

enhancement of our management structure. To this end, we will

further strengthen our capabilities in corporate governance, inter-

nal audits, compliance, risk management, information disclosure

and other aspects of our business.

Second, we will prosper together with our customers by

offering high value-added products and services.

Third, we are committed to making continuous efforts in social

contribution activities and environmental initiatives, to realize a

better society and help preserve the integrity of the environment.

Fourth, we foster a free and unrestricted working atmosphere

that emphasizes respect for individuals and allows employees to

realize their full potential.

■ Commitment to CSR by SMFG and SMBC

Contributing to the sustainable development of society

Customers

Shareholders
and market

Society and
environment

Employees

CSR activities at SMFG

High value-added
products
and services

Sound
management

Social and
community
activities and
environmental
activities

Corporate
culture that
respects
individuals

Solid management structure
(corporate governance, internal audits, compliance,
risk management, information disclosure, etc.)

Newspaper advertisement

SMFG 2005 53

Corporate Governance

The SMFG Corporate Governance System
Further enhancement of corporate governance is a high-priority

direct supervision of the Board of Directors and chaired by the

president of SMFG, as the top decision-making body on business

management issue at SMFG and all Group companies.

administration and management supervision of the entire Group.

SMFG employs the corporate governance system of the

The committee, composed of directors chosen by the president,

Japanese Commercial Code, in which the statutory auditors over-

considers important matters relating to the execution of business,

see the execution of business by the directors. At SMFG, we have

and the president has the authority to make the final decision, in

five corporate auditors, of whom three are outside auditors. The

accordance with the basic policy determined by the Board of

auditors monitor the execution of business operations of SMFG

Directors, after considering the committee’s recommendations.

and its subsidiaries by attending important management-level

In addition to the above, SMFG also has a Group Strategy

meetings, notably those of the Board of Directors, where business

Committee to serve as a forum for the top management staff of all

matters are reported on by the directors and executive officers.

Group companies to exchange opinions and information on their

They also peruse documents relating to important decisions, and

respective business plans. With regard to the three Group companies

are reported to by staff members of the internal audit depart-

Sumitomo Mitsui Card Company, Limited, SMBC Leasing Company,

ments, representatives of subsidiaries of SMFG, and independent

Limited, and the Japan Research Institute, Limited, the director in

auditors (certified public accountants).

The Chairman of SMFG serves as the Chairman of the Board

of Directors of SMFG. This is to separate the role of the president

of SMFG, whose responsibility is to exercise overall supervision

of the execution of business activities of SMFG and other Group

companies from the role of supervising management. We also

have outside directors to improve the effectiveness of the Board,

as well as four committees—the Auditing Committee, the Risk

Management Committee, the Compensation Committee, and the

Nominating Committee—to improve its oversight function. Outside

charge of each subsidiary serves as a part-time director of these com-
panies to strengthen the supervision of SMFG over their operations.

The SMBC Corporate Governance System
To ensure sound and transparent management, SMBC separates

the two functions of management: decision-making at the opera-

tional level, and supervision of the management of the bank from

a longer-term perspective. For this purpose, the bank employs a

system in which executive officers are responsible for operational

duties, while the supervisory function is exercised principally by

directors are appointed to all these committees to facilitate the

the Board of Directors.

implementation of corporate governance from a suitably objective

perspective. As the need for objectivity is particularly acute in the

case of the Auditing Committee and the Compensation

Committee, the chairmanship of these committees is assigned to

outside directors. To ensure that the execution of the Group’s

business operations is in conformity with the law, the outside

directors are chosen from among the ranks of specialists such as

certified public accountants and lawyers.

The committees are delegated by the Board the responsibility for

considering the issues listed below, and report to the Board.
• Auditing Committee
Significant issues relating to Groupwide internal auditing
• Risk Management Committee
Significant issues relating to Groupwide risk management and

compliance
• Compensation Committee
Remuneration of Board members and executive officers of SMFG

and SMBC

1. Issues related to remuneration, salaries, and incentive program

2. Other remuneration issues
• Nominating Committee
Appointment of directors of SMFG and SMBC
1. Issues related to the selection of candidates for Board directorships
2. Issues related to the appointment of managing directors having

specific management responsibilities, and issues related to the

appointment of representative directors

3. Other major personnel issues related to directors

SMFG has created the Management Committee, under the

The chairman of the bank serves as the chairman of the

Board of Directors, and to clearly separate his functions from

those of the president of the bank, whose responsibility is to

exercise overall supervision of the bank’s activities, the chairman

does not simultaneously serve as an executive officer; instead, he

is primarily responsible for supervising management in their exe-

cution of operational duties. Following the practice at SMFG,

outside directors—two in this case—are appointed to the Board of

Directors of SMBC, with the aim of introducing an objective view-

point so as to strengthen the supervision of corporate governance.

Executive officers are selected by the Board to manage each

of SMBC’s businesses. As of June 30, 2005, there were 68 exec-

utive officers, including the president, 10 of whom concurrently

serve as directors. The Management Committee, under the direct

supervision of the Board of Directors, is the highest decision-mak-

ing body at the operational level. The president chairs the

committee and selects its members from the executive officers.

The committee members consider important management issues

in light of the policies laid down by the Board of Directors, and

the president has the authority to make the final decision after

considering the committee’s recommendations.

The president designates certain members of the

Management Committee as Authorized Management Committee

Members in charge of particular head office departments, as well

as supervisory officers, who are responsible for overseeing the

operations of each business unit. All of these designated individu-

als are charged with implementing the directives of the
Management Committee within the businesses they oversee.

SMFG 2005

Internal Audit System

An Outline of the Internal Audit System
The Audit Department of SMFG is responsible for conducting

Auditing of operations at each head office department focuses

on the crucial themes that arise in the management of specific

internal audits for the Group in a process separate from

business operations and risk categories and emphasizes

the oversight exercised by the Board of Directors on the

verification of “Target Audits” across the whole of the bank’s orga-

shareholders’ behalf. The Auditing Committee, which reports

nization. Moreover, audits of branches and offices include the

directly to the Board of Directors, was established in June 2005.

verification of compliance and operational risk management

The Internal Auditing Committee, which reports to the Group

frameworks, as well as the checking of operations, and recom-

Management Committee, has also been set up to raise the profile

mendations are made in the case of problems.

of internal auditing and facilitate the effective conduct of audits.

The Credit Review Department audits credit risk management,

The Internal Auditing Committee meets every quarter, and the

including the accuracy of ratings and self-assessment.

members discuss important matters relating to internal auditing

Internal auditing departments have been set up at other

based on reports prepared by the Audit Department.

Group companies, according to the respective nature of each

With the objective of helping realize optimal management and

company’s line of business.

business operations of the Group and ensuring the soundness of

the Group’s assets, the Audit Department conducts internal audits
of the operations of all units and departments. The audits have

the additional aim of verifying that the Group’s internal control

system, including compliance and risk management, is appropri-

ate and effective. The Audit Department is also responsible for

supervising the internal auditing systems of each Group company.

It monitors the implementation of internal audits at each company

and carries out its own audits directly when deemed necessary.

By these means, we are able to verify the appropriateness and

effectiveness of internal control of each Group company. Based

on the results of these audits, suggestions are made and/or guid-

ance provided, as necessary, to sections or departments of

SMFG, or to Group companies.

At SMBC, we have set up auditing departments independent

of bank units involved in marketing activities. We established the

Internal Audit Department and the Credit Review Department

within the Internal Audit Unit. As at SMFG, in June 2005 the bank

set up the Internal Auditing Committee, which reports to the

Enhancing Efficiency of the Internal Auditing Process
The Audit Department has adopted auditing methods in line

with the standards of the Institute of Internal Auditors (IIA)*, an

international body. It conducts risk-based audits and spreads

the concepts and methods to the Group companies.

Additionally, to effectively fulfill its role as the central body for

internal auditing, the staff of the Audit Department constantly work

to collect the latest information on internal auditing from inside

and outside Japan and to distribute it to all Group companies.

They also organize training courses, which are conducted by out-

side experts, for all the staff of Group companies, and encourage

the staff to obtain international qualifications, to raise their level

of specialist expertise in internal auditing. To improve the effec-

tiveness of auditing still further, we are also taking active steps

to ensure that our internal auditing standards are in line with

those set forth by the IIA, and these auditing standards are

being introduced on a graduated basis at all Group companies.

Management Committee. The committee receives reports on

* The Institute of Internal Auditors (IIA) was founded in 1941 in the United

important matters from the auditing departments and deliberates

States as an organization dedicated to helping raise the level of special-

on them.

The Internal Audit Department is responsible for auditing the

state of legal compliance, and the management of market, liquid-

ity, operational, and systems risks at SMBC’s head office

departments and domestic and overseas branches, and at all other

business offices of SMBC subsidiaries in Japan and overseas.

ization and professionalism of internal auditing staff. In addition to

conducting theoretical and practical research, the IIA administers exami-
nations for Certified Internal Auditor ® (CIA), which is the globally accepted

qualification in the field.

Group Strategy
Committee

[Subject of Audit]

SMFG

Shareholders’ Meeting

Nominating
Committee

Board of Directors
Risk Management
Compensation
Committee
Committee

Auditing
Committee

SMBC

Shareholders’ Meeting

Board of Directors

Management Committee

Internal Auditing Committee

Corporate Auditors/
Board of
Corporate Auditors

Office of
Corporate Auditors

Corporate Auditors/
Board of
Corporate Auditors

Office of
Corporate Auditors

Management Committee

Internal Auditing Committee

[Subject of Audit]

All Departments

Internal
Audits

Audit
Dept.

Head Office/Business Units

Internal
Audits

Internal Audit Unit
Internal Audit Dept.
Credit Review Dept.

Audit

Monitoring

SMFG 2005 55

Compliance

Compliance at SMFG

Basic Compliance Policies
At SMFG, as shown below, we have set out our Business

Management of Legal Risk
Legal risk, which refers to the possibility of loss (including

Ethics—basic principles of social responsibility that we follow—

reputational loss) arising from acts that break the law or violate the

positioning the strengthening of the compliance system as one of

conditions of contracts, principally as a result of failure to

the Group’s top management priorities.

Business Ethics

I. Satisfactory Customer Services

We intend to be a financial services complex that has the trust
and support of our customers. For this purpose, we will always
provide services that meet the true needs of our customers in
order to obtain their satisfaction and confidence in the Group.

II. Sound Management

We intend to be a financial services complex which maintains fair,
transparent, and sound management based on the principle of
self-responsibility. For this purpose, along with obtaining the firm
confidence of our shareholders, our customers, and the general
public, we take a long-term view of our business and operate it
efficiently, and actively disclose accurate business information
about the Group. Through these procedures, we will maintain
continuous growth on a sound financial basis.

III. Contribution to Social Development

We intend to be a financial services complex which contributes to
the healthy development of society. For this purpose, we recog-
nize the importance of our mission to serve as a crucial part of
the public infrastructure and also our social responsibilities. With
such recognition, we undertake business operations that con-
tribute to the steady development of Japan and the rest of the
world, and endeavor, as a good corporate citizen, to make a
positive contribution to society.

IV. Free and Active Business Environment

We intend to be a financial services complex for which all officers
and other employees work proudly and with great spirit. For this
purpose, we respect people, and train and produce employees
with professional knowledge and ability, thereby creating a free
and active business environment.

V. Compliance

We intend to be a financial services complex that always keeps in
mind the importance of compliance. For this purpose, we con-
stantly reflect our awareness of these Business Ethics in our
business activities. In addition, we respond promptly to directives
from auditors and inspectors. Through these actions, we observe
all laws and regulations, and uphold moral standards in our
business practices.

To carry out our mission of serving as a crucial part of the public

infrastructure, and to fulfill our important social responsibilities as

a financial services complex, we continuously strive to develop

and evolve a more effective compliance system, and with this,

become an outstanding global corporate group.

SMFG 2005

sufficiently examine the legal implications before taking action, has

become a matter requiring even greater attention in recent years,

owing to the widespread deregulation of the financial sector.

Consequently, SMFG has laid down procedures for managing

legal risk, collecting information on business laws and ordinances

and examining the legal implications of new products, services

and contracts under consideration. In these ways, SMFG is

enhancing legal risk management.

Group Management of the Compliance System
Since the establishment of SMFG as a financial holding company

in December 2002, we have been providing appropriate directions

and guidance, as well as monitoring each Group company’s com-

pliance system, from the perspective of ensuring the sound and

proper conduct of business activities throughout the entire Group.

Sumitomo Mitsui
Financial Group, Inc.

Corporate
Auditors

Audit

Board of Directors
Management Committee

Outside
Experts

Guidance

Directions

Report

Report on
Results of
Audit

Audit Dept.

Directions

Compliance
Committee

Directions

Report

Compliance Group,
General Affairs Dept.

Monitoring

Perform
Audits

Compliance System
Oversight and Legal Support

Report

Departments and Offices
General Manager responsible for compliance
Compliance Officers to assist General Manager

Management

Report

Management Report

Group Companies
SMBC, Sumitomo Mitsui Card, SMBC Leasing, and JRI

Compliance at SMBC

Strengthening the Compliance System:
A Top Management Priority
Compliance with laws, regulations, and other social standards is a

To make this basic structure effective, the bank conducts the

following operations.

matter of course for corporations. Ensuring compliance is a partic-

ularly important issue for banks because of their central role in the

Compliance Manual
Set out in accordance with the resolution of the Board of

financial system and socioeconomic infrastructure.

Directors, the Compliance Manual lays out specific Rules of

Consequently, in accordance with the basic concept of

Conduct. These Rules of Conduct comprise 60 items describing

compliance instituted throughout the Group, SMBC expects and

relevant laws and regulations, as well as providing procedural

demands that all directors, officers, and other employees assign

guidelines and specific examples of conduct that must be followed

utmost value to maintaining people’s trust, abide by laws and reg-

ulations, maintain high ethical standards, and act fairly and

sincerely.

SMBC’s Compliance System and Management
As shown below, SMBC employs a dual structure whereby, firstly,

by all directors, officers and employees of SMBC.
Compliance Program
The program’s primary objective is to effectively implement the

compliance system at SMBC and its consolidated subsidiaries.

The Board of Directors annually updates the compliance program.

The Board of Directors decides concrete annual plans regarding

each department and office is individually responsible for ensuring

compliance, which include a review of rules and regulations, as

that its conduct complies with laws and regulations, and secondly,

well as the content and schedule of training programs, to further

the independent Internal Audit Unit conducts impartial audits of

department and branch compliance.

strengthen the compliance system.
Appointment of Compliance Officers
A compliance officer has been assigned to each department and

branch to ensure the integrity of the compliance system.
Compliance Committee
The Compliance Committee is a cross-sectional organization,

ensuring that compliance issues are reviewed and discussed

widely. It is chaired by the director responsible for compliance

issues and includes the heads of relevant departments. To

enhance objectivity, the Committee includes an outside legal

expert who serves as an advisor.

■ Compliance System Overview

Audit Reports

Management

Directions

Auditing Role
(Internal Audit Unit)

Strict check as
independent unit

Directions
Directions

Autonomous Role
(Business Units)

Thorough advance check
based on self-regulation

Support Role
(General Affairs Department)

Compliance system
oversight and legal support

Audits of Operations

Compliance System Oversight and Legal Support

Conducts audits of all operations.
Reports directly to top management.

Each department is responsible for conducting
compliance checks under the supervision
of the branch or department manager.

Responsible for planning the compliance
system. Investigates legal issues in
support of each unit.

SMFG 2005 57

Environmental Preservation Initiatives

SMFG and Environmental Issues
SMFG assigns a high management priority to environmental issues. Our Group Environmental Policy sets out the Group’s basic action

guidelines. We also have a Group CSR Committee which promotes coordinated, Groupwide environmental activities.

The Group Environmental Policy
Basic Concepts
Recognizing the importance of realizing a sustainable society, SMFG is making continuous efforts to harmonize environmental preserva-
tion and corporate activities, in order to support the economy and contribute to the general well-being of society as a whole.

Specific Environmental Policies
• We provide environment-friendly financial products, information, and solutions that help our customers in their efforts to preserve the

eco-system

• We devise ways to reduce levels of environmental risk posed by our own activities and those of society at large
• We are determined to fulfill our social responsibilities through the conservation of resources, energy saving, and the reduction of waste
• We enforce a policy of strict adherence to environment-related laws and regulations
• We practice a high level of disclosure of information relating to the Group’s environmental activities, and make ceaseless efforts to
improve our contribution to environmental preservation, incorporating the views of our staff and concerned persons from outside
the Group

• We place a high priority on thoroughly educating our staff in our environmental principles, and in ensuring that they conform to these

principles in the performance of their work

• We actively and effectively conduct environmentally aware management, and make continuous efforts to improve our system for

tackling environmental issues, including by setting targets for each business term and reviewing them when deemed advisable

• These policies are published on the Group’s website, and are also available in printed form upon request

June 29, 2005
Teisuke Kitayama
President
Sumitomo Mitsui Financial Group, Inc.

SMFG’s Environmental Action Plan
The Group CSR Committee promotes coordinated Groupwide environmental activities. Based on our Group Environmental Policy, we have

a three-pronged action plan focusing on:

1) The reduction of environmental impact

2) The practice of environmental risk management

3) The promotion of environment-related businesses

The Group CSR Committee systematically follows the PDCA cycle of planning, performing, checking and improving in pursuing environmen-

tal activities centered on these three areas.

Group CSR Committee

SMFG’s Environmental Action Plan and the PDCA Cycles

Chairman
Director of SMFG

Supervisory Unit
SMFG Corporate Planning Dept.

Group CSR Committee

• Committee members

SMFG

SMBC

Sumitomo Mitsui Card

SMBC Leasing

JRI

• Strategy Adviser

JRI

The Group Environmental
Policy

Implement environmental
initiatives

Reduce environmental
impact

Manage environmental risk

Promote environment-related
businesses

PLAN

CHECK

ACT

SMFG 2005

■
■
■
■
■
■
SMFG Group Initiatives
We have been focusing on providing information to our customers to raise their awareness of environmental issues. The major initiatives are

as follows.

● Publication of Environmental Magazine SAFE
This magazine, through which we provide environment-related

information to our corporate clients, has been published on a

bimonthly basis since 1996. Current circulation is approximately

4,000 copies, and it is sent to clients of our Group companies as

well as customers that have participated in past “Environmental

Seminars” (described later) and others.

An Overview of SAFE Magazine

● 1st edition: April 1996
● Published by:

SMFG Public Relations Department

● Circulation:

Approximately 4,000 per edition

● Major recipients:

Each issue of this publication includes interviews with the top

management of companies at the forefront of the environmental

Clients of each company
Central and local government offices, etc.

preservation movement. It also introduces environmental tech-

Available on SMFG’s Japanese-language website only

nologies, highlights trends in legal regulations, and examines

other current topics.

● SMFG Environmental Seminars
The third SMFG environmental seminar was held on March 10

and 11, 2005, with the attendance of about 480 participants from

around the country, primarily clients of Group companies. Lecture

topics included “Climate Change and Financing.”

A survey of participants indicated that they would like SMFG

to provide information on environment-related issues. In the

future, we intend to continue to support our customers’ environ-

mental projects by holding more seminars, issuing magazines and

periodicals, and publishing books.

Environmental Initiatives Demanded of SMFG

Environmental consulting etc.

Information

Funding

Eco-funds, etc.

52%

18%

14%

16%

●Signatory to the UNEP Statement by Financial

Institutions

● Inclusion of SMFG Shares in SRI* Index Funds
SMFG’s stock is included in four of the world’s five major global

The United Nations Environment Programme (UNEP), a UN

indexes of socially responsible companies, reflecting SMFG’s

organization dedicated to advancing environmental issues, has

excellent reputation for environmental conservation initiatives and

established a support structure for the promotion of the environ-

social contribution activities (described later).

mental preservation movement within each industry. Our company

is a signatory to the UNEP Statement by Financial Institutions.

● Signatory to Carbon Disclosure Project (CDP)
SMBC became a signatory to the Carbon Disclosure Project (CDP)

in February 2005. The CDP serves a secretariat function in a

process whereby institutional investors and financial institutions

concerned over the issue of climate change cooperate in request-

ing global corporations to disclose their worldwide policies and

initiatives on environmental issues.

* SRI (Socially Responsible Investment) refers to investment in companies

that demonstrate responsible business conduct.

Included in:
FTSE4Good Global Index

FTSE4Good Global 100 Index

Ethibel Sustainability Index Global

Morningstar Socially Responsible Investment Index

Not Included in:

Dow Jones Sustainability World Index

SMFG 2005 59

Major Initiatives by Group Companies
The chart below shows the various environment-related initiatives of Group companies, centered around the three prongs of our

Environmental Action Plan:

1. The reduction of environmental impact

2. The practice of environmental risk management

3. The promotion of environment-related businesses

Objectives

Initiatives

Reduce

Reducing energy usage, such as electric power and water usage

environmental

Promoting green purchasing

impact

Reducing paper consumption

Providing training on environmental issues

Practice

Establishing credit rules on companies with high environmental risk

environmental

Selling items that can be reused

risk management

Proposing policies and measures related to the environment

Promote

Promoting soil decontamination and helping companies apply for ISO

environment-related

certification

businesses

Promoting energy-conserving projects, such as ESCOs and ESPs

Providing information (publishing books, etc.)

SMBC

Sumitomo
Mitsui
Card

SMBC
Leasing

JRI

◯

—

◯

—

◯

—

◯

—

◯

—

◯

—

◯

Reducing Environmental Impact
Activities such as energy conservation in the office and reduction

of paper consumption directly decrease the environmental impact

of business activities. Specific measures focus on conserving

natural resources by curbing the use of energy and paper, ratio-

nalizing office work and minimizing expenses. In addition, each

Group company has set certain targets for curbing the usage of

electricity and other forms of energy (described later on pages

68-71).

● Aiming for a paperless office
SMBC and the Japan Research Institute (JRI) are aiming for a

paperless office through the widespread use of IT and the imple-

mentation of business process reviews. Through the creation of

databases, they are computerizing their in-house administrative

operations. SMBC has installed an electronic forms system and

has been switching to electronic forms for bank branches. Through

these initiatives, the SMFG Group reduced its paper consumption

by 66% as of March 31, 2005.

● Environmentally Friendly Direct Mail
At SMBC, we use envelopes with glassine paper over the window

formulate environmental measures. Electricity generated from

April 2004 through March 2005 amounted to 912,000kWh.

Green Power Certification System

The Certificate of Green

Power represents, in con-

crete form, the merit of

reducing the use of fossil
fuels and CO 2 emissions,
and increasing the use of

natural forms of energy.

SMBC has adopted this cer-

tificate system as part of its

voluntary energy conserva-

tion and environmental

measures.

Practicing Environmental Risk Management
Energy consumption and waste disposal are the immediate, obvi-

ous detrimental effects of business activities on the environment.

A less obvious impact is soil contamination. When the environ-

mental impact of business activities becomes substantial enough

portion when sending transaction statements and other direct mail

to attract public attention, companies face increased expenses

to individual customers. Because glassine paper does not emit

and liabilities, such as declining sales and asset values as a result

dioxin when burned, the envelopes can be recycled together with

of legal and social requirements. As our clients are exposed to

ordinary paper.

● Certificate of Green Power
SMBC has adopted Japan Natural Energy Company Limited’s
Green Power Certification System to conserve energy and

greater risks, these risks pose greater risks to SMFG as well, and

there is the possibility that the bank will have to make a decision

to limit the credit it can extend to a client company. It is necessary

for financial institutions to take such considerations into account
when making credit decisions.

SMFG 2005

Environmental Risks

Corporate Risk
(Business Risk)

Latent environmental
impact (e.g. soil
contamination, etc.)

Obvious environmental
impact (e.g. waste
disposal)

Legal and
social
requirements

Reduced sales and
asset values, higher
expenses and liabilities

SMFG’s risk

Impact on credit-limit decisions

An SMFG response for controlling credit limits

In March 2004, SMBC concluded an “Environmental Inquiry

Written Agreement” with the Japan Bank for International

Cooperation (JBIC) to assist in strengthening environmental

assessments. Under this agreement, when SMBC undertakes

co-financing with JBIC, SMBC can have access to JBIC’s envi-

ronmental assessment data.

In November 2004, SMBC Leasing received the highest rating

from the Development Bank of Japan for the company’s environ-

mentally sensitive management promotion and investment sys-

tem. Receiving this highest rating is evidence of the high regard in

which the company’s environmental risk management and envi-

ronmental business are held.

JRI sounds the alarm about the environmental impact of cor-

porate and household activities through media interviews and arti-

cles, involvement in the activities of government and municipal

committees, and by making announcements at various events.

Moreover, JRI advises on policies related to these effects on the

environment and recommends ways for coping with environmen-

tal risks as part of the wide range of activities it undertakes to

raise awareness about the environment

Promoting Environment-Related Businesses
Making use of each subsidiary’s special characteristics, SMFG conducts various environment-related business activities. Through these

activities, we are planning to further strengthen relationships with our clients.

Types of Environmental Businesses

Environmental businesses

Main target products and services

Funding environment-related corporations
(Project finance, syndicated loans, etc.)

Introduction of environmental equipment, e.g. eco-cars

Wind power generation, biomass power generation, etc.

Risk hedging for bad weather

Weather derivatives

Providing investment products and operations-related services

Eco-fund and Web Passbook

Consulting

Addressing soil contamination, facilitating the acquisition of ISO certification

Incubating environment-related projects and services

Soil decontamination, ESCO and ESP projects, etc.

Providing information

Publishing informational periodicals; holding seminars

SMBC’s Activities
●Funding (Project Finance,
Syndicated Loans, etc.)

Project No. 1

On July 6, 2004, SMBC, as one of the lead

arrangers, announced project financing

worth ¥23 billion for a power generation pro-

ject on the shore of Tokyo Bay that utilizes

recycled industrial waste as fuel, and is part

of the Super Eco-Town Project sponsored by

the Tokyo Metropolitan Government.

The power generation project is the

largest of its kind in Japan. The initial invest-

ment is scheduled to be recouped principally

from waste treatment fees charged to the

companies discharging the waste. This is the

first case in Japan of the project finance

method being employed by banks to fund the

construction and operation of a waste treat-

ment facility, which is subject to the full range
of market risks.

Project Structure

Sponsor(s)

Financial institutions

The Government

Contractors
for construction,
operation,
and maintenance

Contract for
construction,
operation, and
maintenance

Companies discharging waste

Industrial
waste

Intermediate treatment
companies

Medical institutions

Waste
treatment
contract

Loan
contract

si d ie

r
g
a l e

s i c a
d s
n

a
B
l a

t ,
n
a
t r

e m e
o
s c

Tokyo Metropolitan
Government

Invitation of bids for
Super Eco-Town
Project contract

Tokyo Waterfront
Recycle Power Corp.

Electric
power
facility

Thermal recycling

Power sales
contract

Sales contract
(slag)

Electric power company

Construction materials
suppliers

Material recycling

Recycling companies

Industrial
waste
furnace

Furnace for
infectious
medical waste

Sales contract
(metals, etc.)

Non-co
fused ash
Residual ash

bustible m

aterials,

Landfill fees

Disposal site

SMFG 2005 61

Project No. 2

Syndication with local financial institutions is underway in Iwakuni

● Providing Financing (Mortgage Loans)
SMBC is working with leading housing construction companies to

City, in Yamaguchi Prefecture, for Iwakuni Wood Power Co., a

provide mortgage loans that encourage people to purchase envi-

wood biomass power generating company. Power generation

ronmentally friendly houses.

plants using wood chips made from the waste products of forestry

projects and construction byproducts as fuel have been receiving

much attention nationwide. The “carbon neutral” properties of bio-

● Weather Derivatives
SMBC’s product lineup includes weather derivatives. Weather deriv-

mass are also discussed in the Biomass Nippon Strategy issued

atives are derivative instruments based on weather conditions such

by a cabinet resolution in December 2002. Applying this property

as temperature, rainfall, snowfalls, etc. They are used to hedge the

to power generation can contribute to reducing the CO2 that is the

risk of deterioration in operating profit resulting from unseasonable

byproduct of energy.

Project Structure for Iwakuni Wood Power Co.

The First Energy
Service Company

Investment

Green Energy Holdings, Inc.

Investment

Fuel
suppliers

Wood
chips

Biomass
power generation
company

Iwakuni Wood Power Co.

Electricity
sales

Suppliers of
specified scale
power generators,
power retailers

Syndicated loans

Renewable Portfolio
Standard (RPS) sales

SMBC, regional banks

Electric power utility companies

and extraordinary weather caused by global warming, etc. SMBC is

expanding its product lineup to further enhance customer conve-

nience.

Weather Derivatives

Factors causing fluctuations in operating profit

Economic factors (business trends, interest rates,
exchange rate movements)

Market factors (product development, market share)

Social factors (fiscal policy, tax system)

Factors due to natural phenomena

Hedge against mild winters, cool summers and rainfall

Project No. 3

In March 2003, SMBC supported funding of a wind-power genera-

tion project in the Hibikinada area of Kitakyushu City through the

Weather Derivative Needs

project finance method.

Project Structure

Insurance company

Electric power
company

Insurance contract

Power sales
contract

City

Grants permission
for use of municipal
land

EPC contract and
operation & maintenance
contract
Nippon Steel
Corp. and
3 other
companies

Investment

Sponsor
support
contract

NS Wind Power Hibiki (SPC)

Loan contract

SMBC, regional banks

Industry

Major risk

Hedge basis

Gas

Temperature

Consumption declines due to
fierce heat in summers and
mild winters

Electric power

Temperature

Air conditioning equipment
manufacturing & sales

Food and drink

Restaurant industry

Department store

Tourism and
leisure industries

Sales declines due to cool
summers and mild winters

Fewer customers due to bad
weather
Slump in sales of seasonal
products

Fewer customers due to bad
weather
Refunds due to event
cancellations

Poor crops due to low or
high rainfall, fierce heat or
cool summers

Rainfall
Temperature

Rainfall
Temperature
Snowfall

Rainfall
Temperature

SMBC will continue to provide strong support to companies

Outdoor theme parks

engaged in building the infrastructure of a sustainable society,

such as alternative energy sources like wind power and the com-

Agriculture-related

bustion of waste materials, for which demand is expected to rise

steeply over the foreseeable future.

SMFG 2005

● Sales of Eco-Funds
SMBC’s investment trust product lineup includes the equity

eco-fund “Eco Japan,” which is managed by UBS Global Asset

Management (Japan) Ltd.

The eco-fund is an investment trust that targets companies

with excellent environmental management. JRI has been con-

Record of deposits
& withdrawals

Customizing feature

Web
Passbook

Calender

Record of transactions

signed the research for this fund, and donates a part of the profit

●Promoting Web21 (Internet banking for corporate

relating to the research contract from the UBS eco-fund to the

clients)

Japan Committee of the World Wide Fund for Nature (WWF).

SMBC is promoting Web21—Internet banking for companies—

Eco Japan Structure

JRI

UBS

Tokyo Stock Exchange
1st Section
(approx. 1,500 companies)
⇒ Eco-selection
(approx. 250 companies)

Group selection
(approx. 100 companies)

SMBC

Eco Japan sale

● Using “MC Stations”
SMBC has set up “MC (Money-Lifestyle Consulting) Stations,”

dedicated PC terminals that allow easy and paperless transac-

tions at “MC Desks.” This takes advantage of the company’s

know-how regarding the consultation-window work process culti-

vated through “One’s D irect” Internet banking. It has substantially

reduced the paperwork involved in the purchase of investment

trusts and the repayment of loans ahead of maturity. This, in turn,

has improved customer satisfaction, by reducing waiting times

and enabling the provision of in-depth consultations. The

and successor to the previous Exchange EB (Electronic Banking)

Services system. This will ensure the provision of upgraded ser-

vices, such as inquiries for trading account transaction statements

and lump-sum remittances. Internet banking will contribute to

reducing the volume of paper used for manuals and other docu-

ments, as well as the number of CD-ROMs needed for software

installation.

Your firm

Internet
Inquiries,
deposits, transfers,
data transmission

SMBC

Database

Depositing, fund
transfers, and
payment of taxes
and various other
charges

Conduct banking
transactions
from your office

Encrypted
transmissions
(128-bit SSL)

Internet Banking
Web21

Customer/Transaction Period

● Deposit or transfer (reservations for same-day processing,
and also for the following business day).
● Lump-sum remittances (specified-date remittances
made as a single package)
● Payment of taxes, various other charges

Employment insurance premiums, corporate taxes,
government employment insurance and national pension premiums,
health insurance premiums, income taxes, consumption taxes,
withholding tax

introduction of this sys-

tem has substantiallyre-

duced the volume of

paper used for applica-

tion forms and various

fliers, and thus con-

tributes to environmental

preservation.

● “Web Passbook ” Promotion
Instead of issuing an ordinary bank passbook, SMBC has started

issuing the “Web Passbook,” which allows for checking the con-

tent of transactions via the Internet. This has helped the bank to

greatly reduce its paper consumption. The system has yielded the

benefit that the bank and passbook user simultaneously con-

tribute to the preservation of the environment. A “Web Passbook”

campaign held from May–July 2004 yielded around 130,000 appli-

cations. A donation of ¥10 was made to the WWF for each appli-

cant, for a total donation of roughly ¥1.3 million.

SMFG 2005 63

● Eco-Consulting
Through collaboration between SMBC and JRI, SMFG

● Bio Net. Consortium
JRI is actively promoting the commercialization of new fuels.

undertakes eco-consulting, providing client companies with com-

Following ratification of the Kyoto Protocol, Japan is committed to

prehensive support

for dealing with environmental

reducing emissions of greenhouse gases by 6% from the level of

management issues. Depending on the client’s needs, SMBC will

1990. Energy conservation alone will not enable us to meet this

introduce JRI, which employs staff with a broad range of specialties

difficult target. Japan must also promote the use of alternative

to help the client. Such a system enables an appropriate and

power sources, such as wind power, solar power and biomass.

high-level response to customers’ diverse and sophisticated

The Bio Net. Consortium aims at creating an infrastructure to

needs.

Consulting Structure

Customer

1) Discussion

deliver biogas generated from livestock waste, wastewater sludge

and food waste to hospitals, manufacturing plants, restaurants

and other facilities. Biogas is a carbon-neutral fuel (a fuel that will

not increase atmospheric carbon dioxide when burned).

The Bio Net. Consortium plans to conduct field tests in

Hokkaido, the northern Japanese island where stock farming is a

major industry. If the Hokkaido field tests prove successful, the

next move will be to construct a nationwide network spanning

● Assistance in acquiring ISO
14001 certification

● Environmental accounting

● Soil contamination concerns

SMBC

3) Consulting

● Energy conservation

dairy farming areas from Tohoku to Kanto, and on to Kyushu, as

well as food processing facilities and wastewater treatment

facilities.

Establish and
maintain
biogas facility

Management
company

Livestock
farmer

Biogas

1) Establish small
biogas facility for
power generation

Livestock
farmer

Information
management

Ascertain
supply
and demand

Consumer
(factories, hospitals etc.)

3) Supplied
via gas
cylinder

2) Retrieve
only biogas

Biogas

Meal services
factory
(Meal service center)

Biogas

Livestock
farmer

Digestion
gas

Sewage processing
plant

2) Introduction

JRI

● Eco-marketplace

● Environment-related private
finance initiatives

(Revised in March 2005)

JRI’s Activities
Apart from the aforementioned eco-consulting, JRI is actively

promoting the incubation of environment-related start-ups.

● Soil Decontamination Consulting
JRI provides a consulting service on soil contamination for clients

holding land assets. Specifically, JRI’s experts conduct a simple

assessment of the degree of contamination of the soil on the cus-

tomer’s property, including an estimate of decontamination costs,

and help the customer draw up a strategy for the usage of the

property. In the event of the sale of the property, JRI provides sup-

port services for more detailed soil contamination assessment

and decontamination. This service enables customers to

preserve environmental integrity without hindering the vigorous

development of their business operations.

● Energy Service Provider (ESP) Initiatives
An ESP provides energy conservation services for changing

electricity charges from a fixed to a variable cost. The company

E-cubic Co., Ltd., established by the JRI consortium, is Japan’s

first ESP company. It uses as its main tools the gathering and

analysis of electric power consumption data, and has developed a

system that automatically draws up management reports to

enable the “visualization” of energy consumption.

This company’s corporate customers can obtain an accurate

grasp of their daily levels of electricity consumption, and it is pos-

sible for them to produce precise guidelines to identify and reduce

energy wastage. Moreover, the service fees are paid for by the

savings on energy costs. The potential market for this service,

which targets mainly private-sector clients, is estimated at

¥100 billion (US$909 million).

SMFG 2005

● MATICS Consortium
The MATICS (Material Tracing IC System) Consortium has

● Micro Grid Business
JRI runs the DESS (Decentralized Energy System & Software)

developed systems and services employing IC tags for controlling

Consortium, a group that investigates new business using micro

the process by which waste is designated for reuse, recycling, or

disposal. IC tags contain IC chips encrypted with data for system

users, and data can be read or added without having to actually

grids (control technology for a dispersed power supply network).
Presently, as part of the policy to reduce CO2 emissions in the
residential housing sector, the consortium is conducting research

make contact. The use of IC tags makes it easy to trace the

to ascertain the optimum control systems for realizing:

reused or recycled product’s history. In addition, transport and

1) improved energy efficiencies

processing details on a discarded item can be easily traced. The

2) improved power supply reliability (maintaining continuous

consortium intends to apply this system to the recycling of auto-

power supply even during power grid outages), and

mobile parts, focusing on management of product quality data.

3) reduced energy costs using a model in which a small fuel cell is

Management of disposed waste materials does not end with

located in each housing unit inside multiple-unit buildings.

tracing. A system is being developed to provide comprehensive

By fiscal 2004, research activities had confirmed that these

disposal management services that include reducing disposal

aims are technically feasible. In fiscal 2005, actual development

costs, increasing efficiency at disposal sites, and risk manage-

and verification of the required software began. The consortium

ment. In fiscal 2004, trials to verify the tracing of waste articles

hopes to use the system in multiple-unit buildings by 2008.

Apartment
Building
(Multiple
units)

301

201

101

Power generator
Heat-collecting layer

302

202

102

Power generator
Heat-collecting layer

Battery

Controls

Power line

1) Maintain balanced power supply and demand
2) Maximize power generation efficiency
3) Prioritized thermal loading operations

Individual
control device

from medical organizations and factories were conducted at a

large-scale hospital and an environmentally conscientious food

industry firm. These trials confirmed the effectiveness of the

system in improving operational efficiency.

● Energy Service Company (ESCO) Initiatives
An ESCO is an integrated energy service company that carries

out energy conservation audits of a building or facility, draws

up conservation proposals, plans, designs and builds energy con-

servation facilities and also guarantees energy reduction

amounts.

The First Energy Service Company, Limited (FESCO) was

established by the JRI consortium, and is the first energy service

company in Japan. It proposes measures for demand-side energy

reductions ranging from lighting, air-conditioning, transformers

and motive power to the supply of energy from dispersed sources

(such as energy co-generation from all types of engines, fuel

cells, biomass generation, etc.).

ESCO corporations are a type of enterprise that have not

existed in Japan until now, though in the U.S. they have formed a

market that is valued in excess of ¥100 billion (US$909 million).

The Ministry of Economy, Trade and Industry estimates that the

market in Japan will expand to ¥130 billion (US$1.2 billion) in

10 years.

ESCO was listed on the Tokyo Stock Exchange “Mothers”

market in March 2005.

SMFG 2005 65

●Participation in a voluntary emissions trading
system—an initiative of the Ministry of the
Environment of Japan

SMBC Leasing’s Activities
● ESCO Enterprise Initiatives
SMBC Leasing supports ESCO companies indirectly by proposing

JRI and SMBC are jointly participating in the voluntary emissions

leases when energy-conservation equipment is to be installed

trading system led by the Ministry of the Environment of Japan.

based on FESCO’s energy-conservation proposals. SMBC

This system enables participants to sell excess credits or pur-

Leasing proposes arrangements whereby the energy service fee

chase credits to make up for insufficiencies, depending on their

and the lease fee are fixed within the range of cost-savings, and

progress toward achieving their CO2 emissions reduction targets

would therefore produce no additional cash-flow burden for

(applied for in advance). Participating in the system helps compa-

clients.

nies deepen their understanding of the emissions trading process.

ESCO Business Model

Overview diagram

3.
4.
5.

Set fiscal 2006 emissions targets, taking the average emissions
volume for the period 2002 through 2004 as the standard (from
among applicants, select participants showing the most substantial
reductions in emissions).
Fiscal 2005: Period for installing equipment (Environment Ministry
provides subsidy).
Fiscal 2006: Work to achieve reduction.
At fiscal year-end: Verify achievement of target.
Companies failing to achieve their target can consider repaying the
subsidy, or offset shortfalls by trading emissions credits.

Government

5-1. Subsidy
termination

1. Setting CO2
reduction targets

Subsidize 1/3 of expenses

Company

2. Install energy-
conserving facilities

Not achieved

3. Efforts to reduce in one year

(Emissions trading market)

Company
failing to
achieve
target

Sale of excess credits

5-2. Purchase price

Select 5-1, 5-2

Target achieved

Company
achieving target

Buy and sell

Other
participants

4. Verify

Target
achieved

Environment Ministry-related site
http://www.env.go.jp/earth/ondanka/det/

SMFG 2005

Facility owner

Energy
service fees

Energy service
contract

Equipment manufacturer

JRI Consortium

FESCO

Equipment delivery

Equipment installment

Installation contractor

Lease fees

Lease contract

SMBC Leasing

●Business Collaboration with Development

Bank of Japan

Since the nineties, SMBC Leasing has been involved in activities

to reduce environmental load. Through collaboration with compa-

nies participating in the ESCO program, the company is leasing

energy-saving equipment and raising lease renewal and resale

rates. Through these and other initiatives, SMBC Leasing has

been promoting its 3R (Reduce, Reuse and Recycle) program,

part of initiatives to contribute to the realization of a recycling-

oriented society.

Through a new project financing system established in fiscal

2004, the Development Bank of Japan (DBJ) extends financial

support to companies for which environmental considerations are

emphasized as a management priority. SMBC Leasing has also

received financing under this system. Moreover, SMBC Leasing

and the DBJ entered into a business collaboration agreement,

which they hope will lead to the expansion of business in the
environment-related fields and contribute to the development of
Japan’s economy.
Specific Initiatives:
1. Popularizing the use of environmentally friendly equipment

through collaboration in financing leases for such equipment

2. Developing financing programs, with leasing firms’ asset

valuation and asset management know-how and socially

responsible investment (SRI) as the key concept

3. Promoting environmentally friendly management at leasing

firms in local areas

●Lease-up Eco Town Homepage
SMBC Leasing on July 22, 2004 established a website, Lease-up

Toward a Sustainable Society
At SMBC and JRI, instruction on environmental management sys-

Eco Town, a portal for selling equipment on which the leases have

tems (EMS) is included as part of the annual training program.

expired.

Site Description
●Site name: Lease-up Eco Town (LET)
●Participating companies:

SMBC Leasing Co., Ltd.
Diamond Lease Co., Ltd.
IBJ Leasing Co., Ltd.
Fuyo General Lease Co., Ltd.

● Products offered:
—Products on which lease periods have expired or lease contracts have

been terminated, etc.

—Industrial machinery, business equipment, forklifts and other equipment
● Target audience:

Clients of the four participating companies, other companies
(including sole-proprietorships), trading companies specializing in
recycled items. (This service is not available to the general public.)

Site Features
●This site is the first of its kind operated jointly by major leasing

companies in the industry.

●It is an eco-site, in that it promotes the reuse of items on which the

leases have expired, and extends their useful lives.

●This site offers a broad lineup of products which only a major leasing

company is capable of providing.

●Participation in voluntary emissions trading system

led by Japan’s Environment Ministry

SMBC Leasing is participating in the Environment Ministry’s vol-

untary emissions trading system together with Obihiro Matsushita

Electric Works, Ltd. and Matsushita Electric Works Engineering

Co., Ltd. This system enables participants to trade emissions

credits by selling excess credits and purchasing insufficient cred-

its, depending on progress made toward the achievement of their

CO 2 emissions reduction targets (applied for in advance).

Participating in the system helps companies deepen their under-

standing of the emissions trading process.

Acquisition of ISO 14001 Certification
SMBC and JRI have acquired ISO 14001 certification, the interna-

tional standard for environmental management systems.

JRI also offers environmental management training programs

through its e-learning systems. SMBC and SMBC Leasing are

also considering the introduction of e-learning systems for envi-

ronment issues.

Corporate actions and individual actions must both function

effectively if a sustainable society is to be achieved. We are pur-

suing a wide range of activities to enhance the effectiveness of

corporate and individual initiatives for achieving a sustainable

society.

Aiming at a Sustainable Society

Corporate activities

SMFG’s EMS Activities

Clients
(maximization of customer
satisfaction)

Regional community
(continuous improvement
of corporate image)

Maximization of
corporate value

Investors
(long-term improvement
of shareholder value)

Within the company
(knowledge of EMS, etc.)

Contributing as a corporate citizen to the realization of a
sustainable society

Directors, officers and employees raise their awareness of
social and economic considerations

Individual activities

SMFG 2005

Appraisal standard

.....Reached the objective
.....Did not reach target but results
have improved (over 80% of
fixed numerical targets reached)

.....Did not reach objectives

Environmental Objectives and Achievements

Fiscal 2004

SMBC

Items

Energy usage

Waste
processing load
reduction

Paper
consumption

Objectives

Achievements

Reduce power, water, gas usage by 6% from fiscal 2001 base
value at headquarter buildings in Tokyo (Hibiya and Otemachi),
Osaka and Kobe

Reduced power by 10.3%, water by 10.5%,
and gas by 8.2%

—

Reduce paper consumption at each head-office department
by 2% compared to the base value
(base value: average monthly usage for January-June 2004)

Increased 0.2% over the base value

Reduction of
environmental
impact

Green
purchasing

Expand purchasing of stationery items that are covered under the
Green Purchasing Law

Materials
distributed to
customers

Consider whether it is possible to draft guidelines for
incorporating eco-friendly materials in the production of
pamphlets and posters, etc.

Employee
training

Conduct environmental management systems (EMS) training to
teach all bank employees how to deal with environmental issues
and raise awareness of environmental concerns

Environmental
risk measures

Reduce the impact of
clients’ environmen-
tal risk on the
bank’s credit risk

Implement measures aimed at reducing environment risk for
customers and the bank by controlling credit environment risk

Switched over to 13 new eco-friendly items in fiscal 2004
(compared with fiscal 2003)
Note: We have nearly completed the switchover. No targets have been set for
fiscal 2005. (It is, however, being handled as a management issue.)

Decided against drafting guidelines because the use of such
materials is not cost effective.
Achievements:
1) Increased usage of recycled paper
2) As much as possible, used eco-friendly materials for
distributed printed matter and advertisements, etc.

1) Included an environmental awareness course in the training

curriculum for new employees from fiscal 2004

2) Conducted EMS training at all branches, implementing EMS
training beginning with senior staff first, then junior staff

1) Enforced credit-related regulations throughout the bank
2) Exchanged information with Japan Bank for International

Cooperation (June 2004)

Promote Web Passbook
1) Implement a program to promote “One’s Style,” a service

targeting customers in their 20s and 30s (February-April 2004)

2) Implement Web Passbook campaign (May-July 2004)
3) Improve convenience of Web Passbook

Initiatives were implemented as planned. Regarding the Web
Passbook campaign, the bank donated ¥10 to the World Wide Fund
for Nature (WWF) for each Web Passbook application. (During the
campaign, the bank received approximately 130,000 applications,
resulting in a donation of approximately ¥1.3 million).

Provision of
services

Environment-
related
businesses

—

Client support

1) Offer clients support (soil contamination consulting, etc.)
2) Provide environment-related information (hold environmental

seminars for clients)

3) Extend financial support to environmentally aware companies

Product lineup

Expand lineup of environment-related products and services

1) Raise awareness of environmental issues by conducting

educational activities within the bank
2) Conduct PR events outside the bank

1) Witnessed a decline in the number of consulting contracts.
2) Implemented environmental seminars (March 2005).

Extended the previous half-day session to a day-and-a-half
session. Registered attendees: 480.

3) Promoted individual projects related to environmental
businesses. Example: Organized project financing for a
power generation project on the shore of Tokyo Bay that
uses recycled industrial waste as fuel

1) Reviewed our eco-consulting lineup of services (March

2005)

2) Failed to develop standardized loan products for companies

undertaking environmental initiatives

1) Distributed EMS cards to all officers and employees (July

2004)

2) Expanded environment-related section in the fiscal 2004
annual report (increased from 2 pages to 10 pages)

−

–

−

Public
relations

Inside and
outside bank

Consider eco-
related social
contributions,
devise new
measures

SMFG 2005

Fiscal 2005

SMBC

Items

Energy usage

Objectives

Specific Plans

Reduce power, water and gas usage by 6% compared to 2001
base levels at headquarters buildings in Tokyo (Hibiya and
Otemachi), Osaka, and Kobe. (Targets were set in line with the
action plan submitted to the Tokyo Municipal government.)

Encourage strict adherence to rules governing usage of electricity,
gas and water

● — New ■ — Ongoing

Waste
processing load
reduction

Reduce waste by 2% compared with the fiscal 2004 level at all
headquarter buildings. (Targets were set in line with an action
plan submitted to the authorities.)

Consider recycling and reuse of discarded waste

Paper
consumption

Each head-office department will reduce its paper
consumption by 2% compared with the fiscal 2004 level

All head-office departments will work to meet targets

Reduction of
environmental
impact

Green
purchasing

—

Materials
distributed to
customers

Employee
training

1) Produce eco-friendly advertising materials
2) Use eco-friendly envelopes for direct mailings

1) Continuously monitor the rate of usage of recycled paper and

consider eco-friendly materials when ordering advertising and PR
materials

2) Use envelopes with glassine paper over the window portion when

sending transaction statements and other direct mailings to
individual customers

Conduct EMS training to teach all bank employees how to deal
with environmental issues and raise awareness of
environmental concerns

1) Introduce e-learning at all branches as part of employee training
2) Consider including an environmental awareness course (CSR

training) in the curriculum for training new staff from fiscal 2006

Environmental
risk measures

Reduce the impact of
clients’ environmen-
tal risk on the
bank’s credit risk

1) Continue to raise awareness about the risks of soil

contamination

2) Collect information on environmental studies

1) Promote widespread use of e-learning in employee training at all branches
2) Consider measures concerning the collection and handling of

data on environmental studies in line with an agreement with the
Japan Bank for International Cooperation

Promote Web Passbook

1) Promote Web Passbook in conjunction with One’s Style accounts
2) Promote Web Passbook in conjunction with One’s plus accounts

Provision of
services

Promote Internet Banking Web21

1) Within the department handling Web21, established a team to

work on promotion of this service

2) Promote business process reengineering at branches

Make transactions with bank tellers paperless
—Minimize the use of application forms at MC stations

1) Increase the number of MC stations
2) Implement training conducted by MC coaches, one bloc at a time

Make card loan statements paperless
—Discontinue the issuance of paper-based statements

1) Enable users to access their credit card loan balance and interest

statement via a remote channel

2) Stop sending quarterly transaction statements via mail unless

otherwise requested at the time of application

Environment-
related
businesses

Client support

1) Send environment-related information
2) Provide support to eco-friendly companies

1) Hold study sessions and regularly provide information
2) Improve eco-consulting performance over fiscal 2004 level

Product lineup

Provide full range of environment-related products

1) Investigate and developed new loan products
2) Consider hosting gatherings to promote discussions on

environment-related businesses

1) Publicize within the bank through in-house publications, such as

Public
relations

Inside and
outside bank

Consider eco-
related social
contributions,
devise new
measures

1) Raise awareness of environmental issues by conducting

distributing EMS cards, etc.

educational activities within the bank
2) Conduct PR events outside the bank

1) Encourage employees to participate in environment-related

projects as volunteers

2) Devise new projects and means for furthering environmen-
tal preservation efforts and making social contribution
activities that contribute to society

2) Effectively disclose information by publishing environment-

related magazines, posting information on the bank’s website,
and including it in the online annual report

1) Hold riverbank clean-up, beach clean-up events
2) Devise new projects and measures, drawing on the examples of

other companies

SMFG 2005

●
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Fiscal 2004

Sumitomo Mitsui Card Company, Limited

Appraisal standard

.....Reached the objective
.....Did not reach target but results
have improved (over 80% of
fixed numerical targets reached)

.....Did not reach objectives

Items

Energy usage

Objectives

Achievements

Reduce power usage per square meter by 2% from the fiscal
2002 base level
Reduce water usage by 2% per employee from the fiscal 2002
level (excluding branches and service centers)

Reduced power usage by 10%; reduced water usage by 24%

Reduction of
environmental
load

Paper
consumption

Reduce the per-employee consumption of copier paper from the
fiscal 2002 base level

Reduced power usage by 6%

Green
purchasing

Introduce the exclusive use of recycled copier paper

Exclusively using recycled copier paper

Employee
training

Educate employees about environmental concerns on an ongoing
basis, and provide them with environment-related information

Held study meetings at each branch for all employees
(December)

Environment-
related businesses

Provision of
services

SMBC Leasing Company, Limited

—

Reduction of
environmental
impact

Energy usage

Reduce power usage

Reduce water usage

Paper
consumption

Reduce paper consumption
(calculated on a purchase-price basis)

Reduce usage per
employee by 8% from
fiscal 2001 base levels
at Tokyo headquarters

Reduced by 28.6%

Reduced by 24.0%

Reduced by 31.6%

Number of employees at Tokyo
headquarters:
272 (as of March 31, 2002)
343 (as of March 31, 2005)

Green
purchasing

Employee
training

Expand green purchasing of stationery items

Switching over to such items

Conduct training to raise awareness of environmental issues and
teach about initiatives being undertaken

Publicized the company’s environment-related initiatives
through in-house publications and training programs for new
employees

Environmental
risk measures

Promote reuse

Improved the reuse rate
(acquisition price ÷ scrap value at
lease-expiration date)

Targeting a reuse
rate of 9%

Reuse rate: 8% (down 0.5% from the previous year),
however sales-and-reuse rate improved 0.8%

Environment-
related
businesses

JRI

Reduction of
environmental
impact

Client support

Promote leases that contribute to environment-related businesses

Provided low-energy-consumption leases (¥4.7 billion)

Energy usage

Reduce ordinary power usage: reduce the usage per square meter
by 3% from the fiscal 2002 base level

Reduced 2.6% from the base level
Achievement rate: 86.7%

Paper
consumption

Reduce per-person paper consumption of copier paper by 6%
from the 2002 base level

Per-person paper consumption declined 1.7% compared with
the base-year level. Achievement rate: 28.3%

Green
purchasing

Promote continuous green purchasing of stationery items and
PCs, etc. Achievement rate: over 99%

Realized an achievement rate of 99.6% for target items

Employee
Training

Conduct training sessions about environmental issues on an
ongoing basis, and provide employees with information on
environment-related topics

Conducted group training sessions, posted information on the
intranet, thereby achieving objectives as planned

Environmental
risk measures

Proposal of
policies and
measures

Propose policies and publicize environment-related performances
through various media announcements and events
(820 points)

Against a target of 820 points, realized an achievement
rate of 92.0%

Environment-
related
businesses

Client support

Develop new businesses in environmental fields; actively promote
businesses related to the environment (target: 60 projects)

Established 63 projects, surpassing the target of 60, for an
achievement rate of 105%

Provision of
information

Provide information through the publication of books on
environmental issues; hold lectures and host seminars

Proceeding as planned

SMFG 2005

Fiscal 2005

Sumitomo Mitsui Card Company, Limited

● — New ■ — Ongoing

Items

Objectives

Specific Plans

Energy usage

Reduce power, water usage by 6% from fiscal 2002 base
levels

Hold study sessions in which employees are taught “eco” rules

Reduction of
environmental
load

Paper
consumption

Green
purchasing

Employee
training

Environment-
related businesses

Provision of
services

SMBC Leasing Company, Limited

Reduction of
environmental
impact

Energy usage

Paper
consumption

Green
purchasing

Employee
training

Reduce paper consumption by 2% from the fiscal 2002 base
level

Continue efforts to raise employees’ awareness (e.g. encourage
employees to use both sides of paper when photocopying)

Expand green purchasing of stationery items

Consider items other than copier paper as items for green
procurement

Conduct training sessions in each department and branch
focusing on environmental issues on an ongoing basis, and
provide employees with information on environment-related
topics

Continue to hold study meetings at headquarters and branches

Promote the accessing of statements via the Internet

—

Reduce power usage

Reduce water usage

Reduce paper consumption

Reduce usage per
employee (in the Tokyo
headquarters) by 20%
from fiscal 2001 base
levels

Reduce overtime; prevent excessive air-conditioning

Reduce handouts and materials, promote use of projectors

Expand green purchasing of stationery items

Continue policy to expand green purchasing

Conduct training sessions about environmental issues on an
ongoing basis, and provide employees with information on
environment-related topics

Conduct training sessions for new employees; consider the
introduction of an e-learning system

Environmental
risk measures

Promote reuse

Reduce number of articles discarded following expiration of
leases

Effectively use Lease-up Eco Town (LET), an Internet site for selling
used leasing equipment

Environment-
related
businesses

Client support

JRI

Promote leasing of eco-friendly equipment

Develop and promote environmental alliances

Energy usage

Reduce ordinary power usage: reduce the usage per square
meter by 5% from the 2002 base level

Continue to promote business activities that take advantage of
opportunities provided by the trend toward environmental
preservation

Form an alliance with the Development Bank of Japan; promote
business alliances with the Tokyo Metropolitan Government and
other public bodies

In addition to ongoing measures, introduce new measure to reduce
power consumption of equipment on standby status; considered
measures for promoting low energy consumption year-round,
instead of just in summer and winter

Reduction of
environmental
impact

Paper
consumption

Green
purchasing

Employee
Training

Reduce paper usage per employee by 6% compared with the
fiscal 2002 base level

Strictly implement the practice of printing on both sides of paper;
consider making meetings “paperless”

Continue green purchasing of stationery items and PCs, etc.
(Target an achievement rate of over 99%)

Consider ways to realize greater cost-effectiveness

Conduct training sessions about environmental issues on an
ongoing basis, and provide employees with information on
environment-related topics

Make greater use of Intranet; conduct review of e-learning education

Environmental
risk measures

Proposal of
policies and
measures

Propose policies and publicize environment-related
performance through various media announcements and
events

To be undertaken by the think-tank consulting department; consider
conducting a review of target points by reducing the number of
departments to which this system is applied

Environment-
related
businesses

Client support

Develop new businesses in environmental fields; actively
promote businesses related to the environment
(target: 60 projects)

To be undertaken by the think-tank consulting department

Provision of
information

Provide information by publishing environment-related
material, holding lectures and seminars

To be undertaken by the think-tank consulting department

SMFG 2005 71

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Social Contribution Activities

Our Three-Pronged Approach
As a responsible corporate citizen, each SMFG company

undertakes a wide range of activities to contribute to the welfare

of society as a whole.

By placing particular emphasis on social welfare activities

and international cooperation, working together with private-sec-

tor non-profit organizations that have expertise in these two

areas, we are making various efforts to contribute to the develop-

ment of a prosperous society worldwide. Volunteer activities play

an important part in maintaining and improving the welfare of soci-

ety as a whole, and we actively support the volunteer activities of

our employees.

We will continue to undertake social contribution activities

with the hope of creating a better society for all.

Social
welfare
activities

International
cooperation

Employee
volunteer
activities

Social Welfare Activities
Group companies organize and participate in a wide range of

social welfare activities, and also support organizations devoted

to such causes to help create a more benevolent society.

● Donation of Voided Postcards
SMBC collects voided or otherwise unusable postcards from

employees of each Group company, exchanges them for new

postal stamps and donates these stamps to volunteer

organizations.

● SMBC Volunteer Fund
The SMBC Volunteer Fund makes donations to volunteer

organizations dedicated to providing assistance in cases of disas-

ter and economic hardship. This fund is raised by SMBC employ-

ees who make a voluntary contribution of ¥100 each month.

About 9,400 employees were participating in the program as of

June 2005.

SMFG 2005

Major Donations by the Fund in Fiscal 2004:

✱ The medical staff costs at
institutions in Cambodia caring

for orphans infected with AIDS.

✱ Donations for projects to
in
support

rural villagers

Bangladesh, including educa-

tional programs to raise the level

of literacy and improve hygienic

conditions, and projects to

generate income.

✱ Publishing costs for a book of
Cambodian folktales entitled

The Three Brothers, as well as

the cost of hosting training semi-

nars on reading for teachers in

Cambodia, where books for

children are extremely scarce.

✱ Scholarships for elementary
school students in Laos and

Cambodia, where many children

are unable to attend school for

economic and other reasons.

✱ Annual operating costs for a
medical center in the slums of

Haiti, where malaria, tuberculo-

sis and other contagious dis-

eases are rampant.

✱ Donations to cover the cost of
medical equipment, medicines

and other supplies for projects to

prevent the spread of AIDS in

poverty-stricken regions of

Indonesia where minority ethnic

groups live.

✱ Emergency Disaster Relief
• Donations for disaster relief for people in Hyogo, Kyoto and

other prefectures affected by powerful typhoons in October 2004

• Donations for disaster relief for areas affected by a major earth-

quake that struck Niigata Prefecture in October 2004

• Donations for disaster relief for areas affected by the massive

tsunami that struck northern Sumatra in December 2004

● Donation of Unused Prepaid Telephone Cards
SMBC collects unused prepaid telephone cards from employees

each year, and donates them to volunteer organizations.

● Donation of Used Postal Stamps and Prepaid Cards
Sumitomo Mitsui Card collects used postal stamps and prepaid

cards from employees each year, and donates them to volunteer

organizations.

✱ Donations to set up school
libraries in Laos, where books for

children are scarce, and also

operating costs for children’s

cultural centers for art education.

✱ Medical costs for people in
Northern Afghanistan who have

been injured in conflicts or by

land mines.

✱ Donations to build elementary
schools in poverty-stricken

regions of Tanzania.

✱ Scholarships for girls in rural
areas of China, where many chil-

dren are unable to attend school

for economic and other reasons.

✱ Financial support for the small
businesses of poverty-stricken

people in the Philippines. SMBC’s

donations covered the production

of training manuals and costs for

microfinancing and consulting

services.

SMFG 2005 73

● Support for Economic Education Program

“Finance Park”

SMBC has also implemented the UNICEF Donation Account

program, through which customers donate their net interest to

In June 2005, SMBC

became a sponsor of the

“Finance Park” economic

UNICEF and SMBC donates a matching amount.
✱ Through its World Present points service for members of the
VISA Japan Association, Sumitomo Mitsui Card collects

education program, sup-

donations from VISA cardholders every year and presents them

ported by firms in the finan-

to the Japan Committee for UNICEF. Total donations have

cial, telecommunications,

reached ¥216.2 million since the start of the program in 1992.

restaurant, supermarket

Sumitomo Mitsui Card also issues cards incorporating donations

and other sectors. Working

to specific charities, such as the UNICEF VISA Card and the Red

closely

with

Junior

Feather VISA Card (offered in cooperation with the Central

Achievement Japan, an economic education organization that

Community Chest of Japan). The company makes its own

teaches youth about free enterprise, and the Shinagawa Ward

donations to the working funds of all these organizations from its

Office, the sponsors have built and operate booths modeled after

card business revenues.

actual retail stores. The booths have been set up in a vacant

classroom in a junior high school in Shinagawa Ward in Tokyo.

After learning the basics of finance, students get hands-on experi-

ence through a variety of economic activities conducted at the

booths in this make-believe shopping center, and learn about

free enterprise.

International Cooperation
SMBC engages in a variety of international cooperation activities.

● Supporting UNICEF
✱ As a member of the steering committee for UNICEF’s “Change
for Good” program, SMBC cooperates in the organization’s

fundraising activities. Foreign coin collection boxes are placed at

SMBC branches and offices in Japan, to encourage donations by

the general public. The collected coins are sorted by currency

with the cooperation of SMBC Green Service, one of our Group

companies, before being sent to UNICEF. Total donations have

reached ¥490.8 million since 1992, when the program started.

(Please see photos and captions below.)

〜 Foreign Coins Collected for UNICEF 〜

● SMBC GLOBAL FOUNDATION
SMBC Global Foundation, Inc. awards financial grants to hundreds

of students each year as part of scholarship programs with

numerous universities in China, Indonesia, Thailand, Singapore,

and other parts of Asia, as well as supporting the educational

goals of Asian students abroad. In recent years, the Foundation

has also been active in supporting educational institutions and

community service organizations within the United States.

● SMBC Foundation
Through its education and international exchange programs, the

SMBC Foundation aims to help nurture the human resources nec-

essary to achieve sustainable development in developing

economies. The foundation offers scholarships to students from

Asian countries attending universities in Japan and provides sub-

sidies to research institutes around the world undertaking projects

related to developing countries.

Foreign coin collection boxes are placed
at SMBC branches and offices.

The coins are sent to SMBC Green Service,
a Group member, along with those
collected at airports and other locations
nationwide, to be sorted by currency.

©UNICEF

Coins are sent back to their countries with
the cooperation of all member companies
of the steering committee of UNICEF’s
”Change for Good” program. These coins
are then changed into U.S. dollars, and the
funds are used by UNICEF for projects
benefiting children worldwide.

SMFG 2005

Supporting Employees’ Volunteer Activities
SMFG actively supports employees’ participation in volunteer

● Seminars for Experiencing Volunteer Activities
SMBC holds events for its staff after working hours as well as on

activities. We believe volunteer activities will help raise employ-

weekends and holidays, enabling them to experience volunteer

ees’ awareness of social issues.

● YUI—an SMBC Volunteer Organization
At SMBC, we actively support YUI, an in-house volunteer

organization. As members of YUI, SMBC employees plan and

carry out a variety of welfare activities. The name derives from the

Japanese word yui, a term describing a mutual support system

among farmers that dates back to the Edo Period. The name

indicates the group’s desire to cultivate ties with people from all

walks of life. YUI undertook the following activities in fiscal 2004:

✱ Since fiscal 2002, the
organization has been offer-

ing computer courses for

school

children with

impaired hearing every

six months. These children

are instructed using pen

and paper and also sign

language.

✱ Since fiscal 2001, YUI has held an annual bazaar, selling items
collected from employees. Proceeds are donated to volunteer

organizations.
✱ Since fiscal 2002, YUI has been hosting an annual variety show
at a senior citizens center, presenting the senior citizens who

regularly attend classes and other social activities at the center an

opportunity to sing and perform on stage.

● Sign-Language Courses
SMBC has been offering sign-language courses annually to its

employees since fiscal 1997. These courses help employees to

communicate better with hearing-impaired customers and

improve customer service, while simultaneously enabling SMBC

to make a social contribution through its business activities. In fis-

cal 2004, 179 bank employees enrolled in the course. In April

2005, SMBC arranged a lecture in which the guest speaker, who

was hearing impaired, shared her impressions about her daily life

using sign language. The lecture, facilitated by an interpreter, was

attended by 73 employees. After completing the course, employ-

activities. SMBC also provides employees with information on var-

ious volunteer activities, and encourages their participation in

such events. The following initiatives were undertaken in fiscal

2004:

✱ An event was held for parents
and children, teaching them how

to provide support for people with

complete or partial lack of sight.

Demonstrations showed the

proper use of seeing-eye dogs.

Also, participants put on eye
masks and tried to do simple

tasks, like walking or eating.

✱ SMBC jointly hosted with other
firms an event that gave disabled

individuals an opportunity to

enjoy sports like wheelchair bas-

ketball, goal ball and boccia with

athletes.

✱ SMBC jointly hosted with other
companies an event in which vol-

unteers were taught how to

record lifestyle information col-

lected from newspapers and

magazines and post it on Internet

websites for users with impaired

vision.

● Neighborhood Cleanup Programs

ees use what they have learned in various ways, such as in deal-

In April 2005, approximately 170 employees took part in a

ing with customers at the bank, or by participating in volunteer

cleanup held along the banks of the Arakawa River in Tokyo.

activities in which sign language is used, and also by teaching

Participants also tested the quality of the water as part of the

sign-language classes for beginners.

event.

✱ At SMBC Leasing Company,
Limited, the staff at the Osaka

headquarters make extensive

efforts to beautify the surround-

ing area. Such efforts include a

regular neighborhood cleanup

conducted along Midosuji Street,

a major thoroughfare.

SMFG 2005 75

✱
Human Resources

Recognizing the vital role of human resources in its business

operations, SMBC makes utmost efforts to help employees

● Job Categories
The distinguishing feature of human resource management at

realize their full potential and make optimum use of their skills.

SMBC is a system based on a wide variety of job categories,

SMBC Human Resources (HR)
● Objectives
One of the crucial considerations in an HR system is that it

embodies the company’s management philosophy. The primary

goal of SMBC is to grow and prosper together with its three

main stakeholder groups—its customers, shareholders and

employees—and to achieve this goal, SMBC has established the

following objectives for its HR system:

● Support the building of an even more powerful business

base that can successfully compete on a global scale

● Cultivate staff with specialized skills who can provide

customers with value-added services

● Motivate employees more strongly by respecting their
individuality and encouraging them to seek personal

fulfillment

● Foster a corporate culture that rewards a forward-looking

and creative attitude

responding to the diverse scope of our business activities and our

need to cultivate specialists, as well as our desire to respect the

preferences and priorities of each employee.

● Basic Policy on Job Evaluations, Remuneration and

Promotions

Employee evaluations are based on two factors. The first is

performance, meaning the results that an individual delivers while

performing a specific job. The second factor has two elements.

One is aptitude, meaning the jobs for which an individual appears

best suited. The other is potential, meaning the level of results

that an individual appears capable of achieving. Concerning

remuneration, SMBC uses as its basic framework a unique sys-

tem called a “rank-based job grading system.” This system com-

bines evaluations of both performance and potential based on a

job grading system.

Performance
(scale of job and results)

How did an individual perform

in a particular job?

Aptitude and Potential

● For what type of job is this individual
best suited?
● What is this individual’s potential in
this particular job?

Job importance

Degree of success

Job aptitude

Potential

Job evaluation

Evaluation of
results

Personnel evaluations
(job aptitude, evaluation of potential)

Remuneration and promotion

Remuneration system
(salary, bonus, other benefits)

HR management
(transfers, assignments, etc.)

Rank-based job grading system

SMFG 2005

●
HR Management
● Putting the right staff in the right jobs
At SMBC, we make efforts to place each person in the right job.

HR Development
● Training Policy
The basic policy for HR development is to cultivate staff with

This is based on each individual’s aptitude and potential as

specialized skills, in line with our management philosophy of pro-

assessed by tests and other evaluation tools. Age does not figure

viding customers with high value-added services. In accordance

as a factor, and talented young employees are quickly given posi-

with this basic policy, our training policy is to speedily foster pro-

tions of responsibility to inject vitality into the workplace.

fessionals who can help us compete successfully.

● Performance-weighted evaluations
Under our comprehensive HR evaluation system, staff are

● Group Training
To complement on-the-job training, SMBC offers a variety of

assessed in accordance with their on-the-job performance, in a

training courses to help employees obtain the practical skills they

manner that all can understand and accept. Remuneration and

require. The training system is divided into two major categories:

promotions are then determined on the basis of these evalua-

training by job category and training by job rank.

tions. Furthermore, by reviewing evaluations in a timely and flexi-

Training by Job Category

ble manner according to an individual’s performance and other

These courses give individuals knowledge and skills that are

considerations, we facilitate an HR system that takes into full

linked directly to their jobs. The following courses have been

account each employee’s performance and skills. Through this

established, with the stated objective, in each business unit.

approach, SMBC aims to create a competitive and motivating

employment framework.

Corporate Banking
● Training to help new, young employees to quickly acquire

useful skills

● Career development system
One of the main features of the SMBC’s HR system is that every

employee is encouraged to cultivate highly specialized skills befit-

ting a financial professional. Each employee must have a thor-

● Support for executing key Corporate Banking initiatives
● Enhancing skills to create new sources of competitiveness
Consumer Banking
● Quickly make newly appointed employees productive and

ough awareness of his or her job aptitude and future career goals.

raise their output

It is vital that employees be able to realize their full potential.

SMBC’s HR system includes a framework for providing support to

● Ensure that branch office managers acquire Financial Planner
qualifications, as required by the new branch organizational

enable each employee to take responsibility for advancing his or

structure

her career, known as the Professional Career System. The core

● Help employees to upgrade their skills

concepts of this system are as follows.

Training by Job Rank

Basic Policy on Career Development

Foster development of
価値提供を実現できるプロフェッショナルの養成
professionals who can
provide value

Help individuals to realize
their full potential

Professional career
system

Basic concept

a. Cultivate skilled professionals
b. Encourage individuals to design their

own careers

Programs

a. Career development based on a
framework of career categories

b. An internal recruiting system for filling
positions allows employees to design
their own careers

c. Career planning that incorporates the

results of job aptitude tests

This training is given to all employees having the same duties,

seniority or job rank. There are two categories. First is training for

specific jobs: this is aimed at increasing understanding of each

job’s responsibilities and roles, as well as how to fulfill them.

Second is seniority-based training to assist individuals in develop-

ing their careers and skills in accordance with their seniority and

job ranks.

● Applying for Training Programs
Every employee drafts a career plan, and then submits applica-

tions to undergo the training programs required for achieving the

objectives specified in the career plan.

● Support for Self-Education
As tools for self-education, SMBC provides e-learning, assistance

in acquiring qualifications, correspondence courses and an inter-

nal examination system.

SMFG 2005 77

Employee Benefits System
SMBC has an employee benefits system to create a safe and

● Helping Employees Balance Work and Family Life
SMBC has the following programs to assist employees in leading

pleasant working environment. The system also helps employees

fulfilling lives at work and at home.

to lead healthy and fulfilling lives.
● Health Management
SMBC has health development centers at three locations,

System for rehiring former employees

SMBC has a system under which employees who have resigned

due to marriage, childbirth, child raising or care of a parent can

including the head office. Responsible for managing the health of

apply to be rehired within three years of their resignations.

employees, the centers are staffed by industrial physicians,

Leave for child raising

nurses, hygienists and other professionals. Each health develop-

SMFG allows employees to take leave for child raising until the

ment center includes a medical clinic.

On-site health consultations

child becomes one and half years old.

Shorter working hours

In addition to conducting periodic medical examinations for all

SMFG offers the possibility of shorter working hours to employees

employees, hygienists and nurses visit business sites that do not

who need to drop children off at a daycare facility and pick them

have a health development center to provide health consultations.

up at the end of the day. There are two types of shortened work

Health checkups

schedules: one that allows employees to specify a six-hour work-

To detect diseases at an early stage and maintain good health,

ing period each day, and another that allows employees to desig-

SMBC conducts not only the annual health checkups required by

nate one day each week as a holiday.

law, but also adult disease medical checkups for detection of

Support for child care/healthcare

chronic diseases, complete medical checkups and other check-

To reduce the economic burden on employees of child raising and

ups according to age in cooperation with the SMFG health insur-

other family requirements, SMBC offers, at a discount child care,

ance association.

baby-sitting, elderly parental care, health-related assistance and

Annual health checkups:

Ages 18 to 27, 29, 30, 31, 33, 34

other services provided by employee benefit service providers.

Extensive annual medical

checkups:

Ages 28, 32, 36, 37, 39, 41, 43

Adult disease medical checkups: Ages 38, 42, 44 to 60

(except years for complete
medical checkups)

Complete medical checkups:

Ages 35, 40, 45, 50, 55

Dental check-ups:

Mental healthcare

Ages 38, 42, 46

To help employees monitor their own mental health, SMBC has

made available a stress-checking system on the Group’s intranet.

In addition, the SMFG health insurance association provides tele-

phone consultations and face-to-face consultations.

Staff Profile
March 31

Number of Employees

Male

Female

Average age

Male

Female

Average years of service

Male

Female

2003

24,024

17,158

6,866

38.6

40.5

32.9

16.6

18.3

12.4

2004

22,348

15,750

6,598

38.7

40.9

33.3

16.6

18.3

12.8

2005

21,020

14,635

6,385

39.0

41.2

33.7

16.9

18.5

13.2

Handicapped employee ratio (% of total)

2.04%

2.03%

2.09%

SMFG 2005

Financial Section and Corporate Data

Financial Section

SMFG

Consolidated Balance Sheets ................................... 80

Consolidated Statements of Operations................... 81

Consolidated Statements of

Stockholders’ Equity ................................................ 82

Corporate Data

Sumitomo Mitsui Financial Group, Inc.

Board of Directors, Corporate Auditors,

and Executive Officers .......................................... 167

SMFG Organization ................................................ 167

Consolidated Statements of Cash Flows.................. 83

Sumitomo Mitsui Banking Corporation

Notes to Consolidated Financial Statements ........... 85

Independent Auditors’ Report ................................... 116

Summary of Significant Differences

between Japanese GAAP and U.S. GAAP .............. 117

SMBC

Board of Directors, Corporate Auditors,

and Executive Officers .......................................... 168

SMBC Organization ................................................ 170

Principal Subsidiaries and Affiliates

Principal Domestic Subsidiaries ............................. 172

Supplemental Information.......................................... 122

Principal Overseas Subsidiaries ............................. 173

Principal Affiliates ................................................... 174

International Directory................................................ 175

SMFG

Income Analysis (Consolidated) ................................ 126

Assets and Liabilities (Consolidated) ........................ 129

Capital Ratio (Consolidated) ...................................... 132

Capital (Nonconsolidated) ......................................... 133

SMBC

Income Analysis (Consolidated) ................................ 138

Assets and Liabilities (Consolidated) ........................ 141

Income Analysis (Nonconsolidated) .......................... 143

Deposits (Nonconsolidated) ...................................... 148

Loans (Nonconsolidated) ........................................... 150

Securities (Nonconsolidated)..................................... 154

Capital Ratio ............................................................... 156

Ratios (Nonconsolidated)........................................... 157

Capital (Nonconsolidated) ......................................... 159

Others (Nonconsolidated) .......................................... 162

Trust Assets and Liabilities (Nonconsolidated)......... 164

SMFG 2005 79

Consolidated Balance Sheets

Sumitomo Mitsui Financial Group, Inc. and Subsidiaries

March 31

Assets
Cash and due from banks (Note 9) ......................................................................
Deposits with banks (Notes 9 and 29) .................................................................
Call loans and bills bought ..................................................................................
Receivables under resale agreements.................................................................
Receivables under securities borrowing transactions ..........................................
Commercial paper and other debt purchased (Note 29)......................................
Trading assets (Notes 3, 9 and 29)......................................................................
Money held in trust (Note 29)...............................................................................
Securities (Notes 4, 9 and 29)..............................................................................
Loans and bills discounted (Notes 5 and 9) .........................................................
Foreign exchanges...............................................................................................
Other assets (Notes 6 and 9) ...............................................................................
Premises and equipment (Notes 7, 9 and 16)......................................................
Lease assets (Note 8) ..........................................................................................
Deferred tax assets (Note 25) ..............................................................................
Deferred tax assets for land revaluation (Notes 16 and 25).................................
Goodwill ...............................................................................................................
Customers’ liabilities for acceptances and guarantees ........................................
Reserve for possible loan losses .........................................................................
Total assets ........................................................................................................

Liabilities, minority interests and stockholders’ equity
Liabilities
Deposits (Notes 9 and 10) ...................................................................................
Call money and bills sold (Note 9) .......................................................................
Payables under repurchase agreements (Note 9) ...............................................
Payables under securities lending transactions (Note 9) .....................................
Commercial paper................................................................................................
Trading liabilities (Notes 9 and 11).......................................................................
Borrowed money (Notes 9 and 12) ......................................................................
Foreign exchanges...............................................................................................
Short-term bonds (Note 13) .................................................................................
Bonds (Note 13) ...................................................................................................
Due to trust account .............................................................................................
Other liabilities (Notes 9 and 14)..........................................................................
Reserve for employee bonuses ...........................................................................
Reserve for employee retirement benefits (Note 26) ...........................................
Reserve for expenses related to EXPO 2005 Japan ...........................................
Other reserves (Note 15) .....................................................................................
Deferred tax liabilities (Note 25)...........................................................................
Deferred tax liabilities for land revaluation (Notes 16 and 25) .............................
Acceptances and guarantees (Note 9).................................................................
Total liabilities ....................................................................................................

Millions of yen

Millions of
U.S. dollars (Note 1)

2005

2004

2005

¥ 2,930,645
2,059,168
1,004,512
124,856
568,340
606,032
3,769,073
3,832
24,233,701
54,799,805
895,586
3,110,454
836,053
1,007,015
1,598,158
—
13,381
3,444,799
(1,273,560)
¥99,731,858

¥71,188,131
4,971,462
405,671
3,868,001
374,100
2,110,473
2,142,873
478,482
1,000
4,339,497
50,457
2,363,786
23,816
34,792
231
1,093
45,259
90,994
3,444,799
95,934,927

¥ 3,529,479
1,799,471
360,509
152,070
1,009,328
480,847
3,306,780
3,749
27,049,901
55,382,800
743,957
3,034,182
984,060
991,781
1,706,586
706
21,706
3,079,738
(1,422,486)
¥102,215,172

¥ 68,852,890
6,292,495
1,098,449
5,946,346
282,700
1,873,245
2,360,474
572,755
—
4,002,965
36,032
3,591,818
22,226
40,842
116
862
40,181
56,391
3,079,738
98,150,534

$ 27,308
19,187
9,360
1,163
5,296
5,647
35,120
36
225,808
510,621
8,345
28,983
7,790
9,383
14,891
—
125
32,098
(11,867)
$929,294

$663,326
46,324
3,780
36,042
3,486
19,665
19,967
4,459
9
40,435
470
22,026
222
324
2
10
422
848
32,098
893,915

Minority interests (Note 17) ...............................................................................

1,021,203

993,696

9,515

Stockholders’ equity
Capital stock (Note 18).........................................................................................
Capital surplus .....................................................................................................
Retained earnings ................................................................................................
Land revaluation excess (Note 16) ......................................................................
Net unrealized gains on other securities (Notes 25 and 29) ................................
Foreign currency translation adjustments ............................................................
Treasury stock (Note 18)......................................................................................
Total stockholders’ equity.................................................................................
Total liabilities, minority interests and stockholders’ equity.........................

See accompanying notes to consolidated financial statements.

1,352,651
974,346
329,963
57,853
410,653
(79,883)
(269,857)
2,775,728
¥99,731,858

1,247,650
865,282
611,189
96,527
325,013
(71,764)
(2,956)
3,070,942
¥102,215,172

12,604
9,079
3,075
539
3,826
(744)
(2,515)
25,864
$929,294

SMFG 2005

Consolidated Statements of Operations

Sumitomo Mitsui Financial Group, Inc. and Subsidiaries

Year ended March 31

Income
Interest income:

Interest on loans and discounts ......................................................................
Interest and dividends on securities................................................................
Interest on receivables under resale agreements...........................................
Interest on receivables under securities borrowing transactions ....................
Interest on deposits with banks.......................................................................
Other interest income......................................................................................
Trust fees .............................................................................................................
Fees and commissions (Note 19) ........................................................................
Trading profits (Note 20) ......................................................................................
Other operating income (Note 21)........................................................................
Other income (Note 22)........................................................................................
Total income .......................................................................................................

Expenses
Interest expenses:

Interest on deposits.........................................................................................
Interest on borrowings and rediscounts ..........................................................
Interest on payables under repurchase agreements ......................................
Interest on payables under securities lending transactions ............................
Interest on bonds ...........................................................................................
Other interest expenses..................................................................................
Fees and commissions (Note 19) ........................................................................
Trading losses (Note 20)......................................................................................
Other operating expenses (Note 23)....................................................................
General and administrative expenses..................................................................
Provision for reserve for possible loan losses......................................................
Other expenses (Note 24)....................................................................................
Total expenses ...................................................................................................
Income (loss) before income taxes and minority interests............................
Income taxes (Note 25):

Current ............................................................................................................
Refund ............................................................................................................
Deferred ..........................................................................................................
Minority interests in net income (loss)..................................................................
Net income (loss) ...............................................................................................

Millions of yen

Millions of
U.S. dollars (Note 1)

2005

2004

2005

¥1,152,749
256,396
3,163
185
36,183
73,050
2,609
596,086
144,587
1,058,289
266,569
3,589,871

135,212
40,935
3,472
51,853
84,694
34,217
79,976
199
867,748
852,715
288,902
1,258,478
3,698,406
(108,535)

30,638
(8,869)
52,912
50,983
¥ (234,201)

¥1,171,663
256,600
2,542
104
12,687
147,740
334
501,028
305,011
946,474
325,344
3,669,531

108,180
46,397
4,212
48,622
76,202
26,653
76,851
916
886,649
866,549
—
1,123,401
3,264,636
404,894

24,289
—
8,593
41,596
¥ 330,414

$10,741
2,389
30
2
337
681
24
5,554
1,347
9,861
2,484
33,450

1,260
381
32
483
789
319
745
2
8,086
7,946
2,692
11,726
34,461
(1,011)

286
(83)
493
475
$ (2,182)

Yen

U.S. dollars (Note 1)

Per share data:

Net income (loss) ............................................................................................
Net income — diluted......................................................................................
Declared dividends on common stock ............................................................
Declared dividends on preferred stock (Type 1) .............................................
Declared dividends on preferred stock (Type 2) .............................................
Declared dividends on preferred stock (Type 3) .............................................
Declared dividends on preferred stock (First to Twelfth series Type 4) ..........
Declared dividends on preferred stock (Thirteenth series Type 4) .................
Declared dividends on preferred stock (First series Type 6) ..........................

¥(44,388.07)
—
3,000
10,500
28,500
13,700
135,000
67,500
728

¥52,314.75
35,865.20
3,000
10,500
28,500
13,700
135,000
67,500
/

$ (413.60)
—
27.95
97.84
265.56
127.66
1,257.92
628.96
6.78

See accompanying notes to consolidated financial statements.

SMFG 2005 81

Consolidated Statements of Stockholders’ Equity

Sumitomo Mitsui Financial Group, Inc. and Subsidiaries

Millions of yen

Year ended March 31, 2005 and 2004

Capital
stock

Capital
surplus

Retained
earnings

Balance at March 31, 2003 ............................................. ¥1,247,650
Merger of consolidated subsidiaries .................................
Change due to decrease of affiliates ................................
Gains on disposal of treasury stock..................................
Transfer of land revaluation excess..................................
Change in tax rate and others ..........................................
Cash dividends paid .........................................................
Net income .......................................................................
Change in net unrealized gains on other securities..........
Change in foreign currency translation adjustments ........
Change in treasury stock..................................................
Balance at March 31, 2004 ............................................. 1,247,650
Issuance of preferred stocks ............................................
105,001
Change due to decrease of consolidated subsidiaries .....
Change due to decrease of affiliates ................................
Gains on disposal of treasury stock..................................
Transfer of land revaluation excess..................................
Transfer to deferred tax liabilities for

land revaluation and others ............................................
Cash dividends paid .........................................................
Net loss.............................................................................
Change in net unrealized gains on other securities..........
Change in foreign currency translation adjustments ........
Change in treasury stock..................................................
Balance at March 31, 2005 ............................................. ¥1,352,651

Land
revaluation
excess

¥101,440

¥856,237 ¥311,664
(2,066)
54

9,044

(4,428)
(484)

4,428

(33,306)
330,414

865,282
105,001

4,063

611,189

96,527

3
(2,719)

2,111

(2,111)

(36,562)

(46,421)
(234,201)

Net
unrealized

Foreign
gains (losses) currency
translation
adjustments

on other
securities

Treasury
stock

Total

¥ (24,197) ¥(53,515) ¥ (15,204) ¥2,424,074
(2,066)
54
9,044
—
(484)
(33,306)
330,414
349,211
(18,248)
12,248
3,070,942
210,003
3
(2,719)
4,063
—

12,248
(2,956)

(18,248)

(71,764)

349,211

325,013

(36,562)
(46,421)
(234,201)
85,639
(8,119)
(266,900)
(266,900)
¥(79,883) ¥ (269,857) ¥2,775,728

(8,119)

85,639

¥974,346

¥329,963

¥ 57,853

¥410,653

Year ended March 31, 2005

Balance at March 31, 2004 .............................................
Issuance of preferred stocks ............................................
Change due to decrease of consolidated subsidiaries .....
Change due to decrease of affiliates ................................
Gains on disposal of treasury stock..................................
Transfer of land revaluation excess..................................
Transfer to deferred tax liabilities for

Capital
stock

$11,626
978

Millions of U.S. dollars (Note 1)

Capital
surplus

Retained
earnings

Land
revaluation
excess

Net
unrealized

Foreign
gains (losses) currency
translation
adjustments

on other
securities

Treasury
stock

$8,063
978

$5,695

$900

$3,028

$(669)

(28)

0
(25)

(433)
(2,182)

(20)

(341)

$12,604

$9,079

$3,075

$539

$3,826

$(744)

(2,487)
$ (2,515)

798

(75)

Total

$28,615
1,956
0
(25)
38
—

(341)
(433)
(2,182)
798
(75)
(2,487)
$25,864

See accompanying notes to consolidated financial statements.

SMFG 2005

Consolidated Statements of Cash Flows

Sumitomo Mitsui Financial Group, Inc. and Subsidiaries

Year ended March 31

1. Cash flows from operating activities:

Millions of yen

Millions of
U.S. dollars (Note 1)

2005

2004

2005

Income (loss) before income taxes and minority interests.........................
Depreciation of premises, equipment and others ......................................
Depreciation of lease assets......................................................................
Amortization of goodwill .............................................................................
Equity in earnings of affiliates ....................................................................
Net change in reserve for possible loan losses .........................................
Net change in reserve for possible losses on loans sold ...........................
Net change in reserve for employee bonuses ...........................................
Net change in reserve for employee retirement benefits ...........................
Net change in reserve for expenses related to EXPO 2005 Japan ...........
Interest income ..........................................................................................
Interest expenses.......................................................................................
Net (gains) losses on securities .................................................................
Net gains from money held in trust ............................................................
Net exchange (gains) losses......................................................................
Net losses from disposal of premises and equipment ...............................
Net gains from disposal of lease assets ....................................................
Net change in trading assets .....................................................................
Net change in trading liabilities ..................................................................
Net change in loans and bills discounted...................................................
Net change in deposits .............................................................................
Net change in negotiable certificates of deposit .......................................
Net change in borrowed money (excluding subordinated debt).................
Net change in deposits with banks ............................................................
Net change in call loans, bills bought, receivables under resale

agreements, and commercial paper and other debt purchased .............
Net change in receivables under securities borrowing transactions ..........
Net change in call money, bills sold

and payables under repurchase agreements ..........................................
Net change in commercial paper ...............................................................
Net change in payables under securities lending transactions ..................
Net change in foreign exchanges (assets).................................................
Net change in foreign exchanges (liabilities) .............................................
Net change in short-term bonds (liabilities)................................................
Issuance and redemption of bonds (excluding subordinated bonds).........
Net change in due to trust account ............................................................
Interest received ........................................................................................
Interest paid ...............................................................................................
Net change in payable on trading and securities contracts .......................
Other, net ...................................................................................................
Subtotal.....................................................................................................
Income taxes paid......................................................................................
Net cash (used in) provided by operating activities.................................

(108,535)
84,120
340,777
10,017
(27,142)
(140,104)
—
1,497
134,819
114
(1,521,728)
350,385
102,784
(0)
(105,603)
63,973
(3,345)
(468,577)
246,434
468,339
3,137,797
(806,192)
(180,888)
(245,726)

(743,218)
440,987

(2,013,905)
91,400
(2,078,345)
(151,254)
(94,405)
1,000
130,498
14,424
1,553,995
(336,234)
(1,020,879)
(350,488)
(3,223,208)
(56,914)
(3,280,122)

404,894
82,464
336,271
(4,260)
(15,700)
(824,917)
(20,665)
221
(40,069)
116
(1,591,338)
310,267
(67,928)
(121)
407,340
30,697
(1,870)
1,131,864
(929,787)
6,198,239
1,829,914
(1,338,888)
(112,211)
(1,299,305)

(318,516)
971,914

(5,704,903)
94,900
1,139,101
5,016
175,444
—
152,514
30,078
1,636,935
(336,704)
1,188,672
27,099
3,546,782
(24,664)
3,522,118

$ (1,011)
784
3,175
93
(253)
(1,306)
—
14
1,256
1
(14,179)
3,265
958
(0)
(984)
596
(31)
(4,366)
2,296
4,364
29,238
(7,512)
(1,686)
(2,290)

(6,925)
4,109

(18,765)
852
(19,366)
(1,409)
(880)
9
1,216
134
14,480
(3,133)
(9,512)
(3,266)
(30,034)
(530)
(30,564)

SMFG 2005 83

(Continued)

Year ended March 31

2. Cash flows from investing activities:

Millions of yen

Millions of
U.S. dollars (Note 1)

2005

2004

2005

Purchases of securities..............................................................................
Proceeds from sale of securities................................................................
Proceeds from maturity of securities..........................................................
Purchases of money held in trust ..............................................................
Proceeds from sale of money held in trust.................................................
Purchases of premises and equipment......................................................
Proceeds from sale of premises and equipment........................................
Purchases of lease assets .........................................................................
Proceeds from sale of lease assets ...........................................................
Purchases of stocks of subsidiaries...........................................................
Net cash provided by (used in) investing activities .................................

¥(46,309,832)
36,134,383
13,118,211
—
0
(56,945)
93,474
(396,497)
43,702
(2,970)
2,623,525

¥(47,305,660)
30,688,033
13,967,819
(21,225)
42,259
(80,932)
20,839
(368,159)
37,678
(8,999)
(3,028,346)

$(431,512)
336,698
122,235
—
0
(531)
871
(3,694)
407
(28)
24,446

336
(673)

4,102

(2,189)
1,957
(433)
196
(368)
(2,507)
84
505

(4)

(5,617)

32,888

—

3. Cash flows from financing activities:

Proceeds from issuance of subordinated debt...........................................
Repayment of subordinated debt...............................................................
Proceeds from issuance of subordinated bonds and bonds with

stock acquisition rights ............................................................................

Repayment of subordinated bonds and bonds with stock

acquisition rights .....................................................................................
Proceeds from issuance of stocks .............................................................
Dividends paid ...........................................................................................
Proceeds from minority stockholders.........................................................
Dividends paid to minority stockholders.....................................................
Purchases of treasury stock.......................................................................
Proceeds from sale of treasury stock.........................................................
Net cash provided by financing activities .................................................

4. Effect of exchange rate changes on cash and due from banks..............

36,000
(72,212)

89,500
(195,000)

440,237

436,453

(234,983)
210,003
(46,463)
21,024
(39,457)
(269,012)
9,063
54,199

(378)

(150,713)
—
(33,360)
25
(33,196)
(632)
24,058
137,134

(2,417)

628,488

5. Net change in cash and due from banks...................................................

(602,776)

6. Cash and due from banks at beginning of year........................................

3,529,479

2,900,991

7. Change in cash and due from banks

due to merger of consolidated subsidiaries ...........................................

8. Change in cash and due from banks

due to decrease of consolidated subsidiaries........................................

3,941

—

(0)

9. Cash and due from banks at end of year ..................................................

¥ 2,930,645

¥ 3,529,479

$ 27,308

See accompanying notes to consolidated financial statements.

SMFG 2005

Notes to Consolidated Financial Statements

Sumitomo Mitsui Financial Group, Inc. and Subsidiaries
Years ended March 31, 2005 and 2004

1. Basis of Presentation
Sumitomo Mitsui Financial Group, Inc. (“SMFG”) was established on
December 2, 2002 as a holding company for the SMFG group
through a statutory share transfer (kabushiki iten) of all of the outstand-
ing equity securities of the former Sumitomo Mitsui Banking
Corporation (“former SMBC”) in exchange for SMFG’s newly issued
securities. SMFG is a joint stock corporation with limited liability
(Kabushiki Kaisha) incorporated under the Commercial Code of Japan.
Upon formation of SMFG and completion of the statutory share trans-
fer, the former SMBC became a direct wholly owned subsidiary of
SMFG.

SMFG has prepared the accompanying consolidated financial state-

ments in accordance with the provisions set forth in the Japanese
Securities and Exchange Law and its related accounting regulations,
and in conformity with accounting principles generally accepted in
Japan (“Japanese GAAP”), which are different in certain respects as to
application and disclosure requirements of International Financial
Reporting Standards.

The accounts of overseas subsidiaries are based on their accounting
records maintained in conformity with generally accepted accounting
principles prevailing in the respective countries of domicile.

The accompanying consolidated financial statements have been

restructured and translated into English (with some expanded
descriptions and the inclusion of consolidated statements of stock-
holders’ equity) from the consolidated financial statements of SMFG
prepared in accordance with Japanese GAAP.

Some supplementary information included in the statutory

Japanese language consolidated financial statements, but not required
for fair presentation, is not presented in the accompanying consoli-
dated financial statements.

Amounts less than one million yen have been omitted. As a result,

the totals in Japanese yen shown in the financial statements do not
necessarily agree with the sum of the individual amounts.

The translation of the Japanese yen amounts into U.S. dollars are
included solely for the convenience of readers outside Japan, using
the prevailing exchange rate at March 31, 2005, which was ¥107.32
to US$1. The convenience translations should not be construed as
representations that the Japanese yen amounts have been, could have
been, or could in the future be, converted into U.S. dollars at that
rate.

2. Significant Accounting Policies
(1) Consolidation and equity method

(a) Scope of consolidation
Japanese accounting standards on consolidated financial state-
ments require a company to consolidate any subsidiaries of
which the company substantially controls the operations, even
if it is not a majority owned subsidiary. Control is defined as
the power to govern the decision making body of an enterprise.

(i) Consolidated subsidiaries
Number of consolidated subsidiaries is as follows:
March 31
Consolidated subsidiaries ...................

2005
167

2004
165

Principal subsidiaries:

Sumitomo Mitsui Banking Corporation (“SMBC”)
THE MINATO BANK, LTD. (“MINATO”)
Kansai Urban Banking Corporation
Sumitomo Mitsui Banking Corporation Europe Limited
Manufacturers Bank
SMBC Leasing Company, Limited
Sumitomo Mitsui Card Company, Limited (“SMCC”)
SMBC Capital Co., Ltd.
SMBC Finance Service Co., Ltd.
SMBC Friend Securities Co., Ltd.
The Japan Research Institute, Limited
SMBC Capital Markets, Inc.
Changes in consolidated subsidiaries in the fiscal year

ended March 31, 2005 are as follows:

Twenty-one companies including SMBC Financial

Business Planning Co., Ltd. were newly consolidated due to
establishment.

At-loan Co., Ltd. was excluded from the scope of consoli-
dation and treated as an affiliated company accounted for by
the equity method because it became a consolidated sub-
sidiary of Promise Co., Ltd.

Five companies including Minato Card Co., Ltd. were
excluded from the scope of consolidation because they were
no longer a subsidiary due to merger. Thirteen companies
including SMLC Indus Co., Ltd. became unconsolidated sub-
sidiaries that are not accounted for by the equity method
because they became silent partnerships for lease transactions.
(ii) Unconsolidated subsidiaries
Principal company:
SBCS Co., Ltd.
One hundred and seventeen subsidiaries including S.B.L.

Mercury Co., Ltd. are silent partnerships for lease transac-
tions and their assets and profits/losses do not belong to
them substantially. Therefore, they were excluded from the
scope of consolidation pursuant to Article 5 Paragraph 1
Item 2 of Consolidated Financial Statements Regulation.
Total assets, ordinary income, net income and retained
earnings of other unconsolidated subsidiaries have no mater-
ial impact on the consolidated financial statements.

(b) Application of the equity method
Japanese accounting standards also require any unconsolidated
subsidiaries and affiliates on which SMFG is able to exercise
material influence over their financial and operating policies to
be accounted for by the equity method.

(i) Unconsolidated subsidiaries accounted for by the equity
method
Number of unconsolidated subsidiaries accounted for by the
equity method is as follows:
March 31
Unconsolidated subsidiaries ...............
Principal company:
SBCS Co., Ltd.

2004
4

2005
4

SMFG 2005 85

2005
49

(ii) Affiliates accounted for by the equity method
Number of affiliates accounted for by the equity method is
as follows:
March 31
Affiliates ............................................
Principal companies:
Promise Co., Ltd.
Daiwa Securities SMBC Co. Ltd.
Daiwa SB Investments Ltd.
Sumitomo Mitsui Asset Management Company, Limited
QUOQ Inc.
Changes in affiliates in the fiscal year ended March 31,

2004
44

2005 are as follows:

Eight companies including Promise Co., Ltd. newly
became affiliated companies accounted for by the equity
method due to acquisition of shares.

Three companies including Sony Bank Incorporated were

excluded from the scope of affiliated companies due to
decrease in ratio of voting share ownership and other
reasons.
(iii) Unconsolidated subsidiaries that are not accounted for
by the equity method
One hundred and seventeen subsidiaries including S.B.L.
Mercury Co., Ltd. are silent partnerships for lease transac-
tions and their assets and profits/losses do not belong to
them substantially. Therefore, they are not treated as affili-
ated companies accounted for by the equity method pur-
suant to Article 10 Paragraph 1 Item 2 of Consolidated
Financial Statements Regulation.
(iv) Affiliates that are not accounted for by the equity
method
Principal company:

Daiwa SB Investments (USA) Ltd.
Net income and retained earnings of unconsolidated
subsidiaries and affiliates that are not accounted for by the
equity method have no material impact on the consolidated
financial statements.

(i) The balance sheet dates of the consolidated subsidiaries
are as follows:
March 31
September 30.....................................
October 31 ........................................
December 31......................................
January 31 .........................................
March 31 ...........................................

2004
5
1
65
2
92

2005
5
1
70
2
89

A consolidated domestic subsidiary changed its balance
sheet date from December 31 to March 31 from the fiscal
year ended March 31, 2004. Therefore, SMFG’s consoli-
dated financial statements for the fiscal year ended March
31, 2004 include the subsidiary’s profit or loss for the
period from January 1, 2003 to March 31, 2004. However,
this change had no material impact on the consolidated
financial statements.
(ii) As for the companies whose balance sheet dates are
September 30 and October 31, the accounts were provisionally

SMFG 2005

closed as of March 31 and January 31 for the purpose of consoli-
dation, respectively. The other companies were consolidated on
the basis of their respective balance sheet dates.

Appropriate adjustments were made for material

transactions during the periods from their respective bal-
ance sheet dates to the consolidated closing dates.

(2) Statements of cash flows

For the purposes of the consolidated statements of cash flows,
cash and cash equivalents represent cash and due from banks.

(3) Trading assets/liabilities and trading profits/losses

Transactions for trading purposes (seeking gains arising from
short-term changes in interest rates, currency exchange rates,
or market prices of securities and other market related indices
or from variation among markets) are included in “Trading
assets” or “Trading liabilities” on the consolidated balance
sheet on a trade date basis. Profits and losses on trading-
purpose transactions are recognized on a trade date basis, and
recorded as “Trading profits” and “Trading losses.”

Securities and monetary claims purchased for trading
purposes are stated at the fiscal year-end market value, and
financial derivatives such as swaps, futures and options are
stated at amounts that would be settled if the transactions
were terminated at the consolidated balance sheet date.

“Trading profits” and “Trading losses” include interest

received or paid during the fiscal year. The year-on-year valua-
tion differences of securities and monetary claims are also
recorded in the above-mentioned accounts. As for the deriva-
tives, assuming that the settlement will be made in cash, the
year-on-year valuation differences are also recorded in the
above-mentioned accounts.

SMBC accounts for foreign currency translation differences
arising from currency swaps for trading purposes as “Trading
assets” or “Trading liabilities” on a gross basis, pursuant to the
“Treatment of Accounting and Auditing Concerning
Accounting for Foreign Currency Transactions in Banking
Industry” (JICPA Industry Audit Committee Report No. 25).

(4) Securities

As for securities other than trading purposes, debt securities
that consolidated subsidiaries have the positive intent and
ability to hold to maturity are classified as held-to-maturity
securities and are carried at amortized cost (straight-line
method) using the moving-average method.

Investments in unconsolidated subsidiaries and affiliates
that are not accounted for by the equity method are carried at
cost using the moving-average method.

Securities other than trading purpose securities, held-to-

maturity securities and investments in unconsolidated
subsidiaries and affiliates are classified as “other securities”
(available-for-sale securities). Stocks in other securities that have
market prices are carried at their average market prices during
the final month of the fiscal year, and bonds and others that have
market prices are carried at their fiscal year-end market prices
(cost of securities sold is calculated using primarily the moving-
average method). Other securities with no available market prices
are carried at cost or amortized cost using the moving-average
method. Net unrealized gains (losses) on other securities, net of

income taxes, are included in “Stockholders’ equity,” after deduct-
ing the amount that is reflected in the fiscal year’s earnings
because of application of fair value hedge accounting.

Securities included in money held in trust are carried in the

same method as for securities mentioned above.

(5) Derivative transactions

Derivative transactions, excluding those classified as trading
derivatives, are carried at fair value, though some consolidated
overseas subsidiaries account for derivative transactions in
accordance with their local accounting standards.

(6) Hedge accounting

(a) Hedging against interest rate changes
As for the hedge accounting method applied to hedging trans-
actions for interest rate risk arising from financial assets and
liabilities, SMBC applies deferred hedge accounting or fair
value hedge accounting.

SMBC applies the basic provisions of “Treatment for
Accounting and Auditing of Application of Accounting
Standard for Financial Instruments in Banking Industry”
(JICPA Industry Audit Committee Report No. 24) to hedges
on groups of large-volume, small-value monetary claims and
debts with similar risk characteristics. SMBC assesses the
effectiveness of such hedges in offsetting fluctuation in fair
value arising from changes in interest rates, by classifying the
hedged items (such as deposits and loans) and the hedging
instruments (such as interest rate swaps) by their maturity. As
for cash flow hedges, SMBC assesses the effectiveness of such
hedges in fixing cash flows by verifying the correlation
between the hedged items and the hedging instruments.
SMBC also assesses the effectiveness of individual hedges.
As for the accounting method, SMBC applies fair value
hedge accounting to hedging transactions for reducing the
exposure to market volatility of bonds classified as other secu-
rities that are held for the purpose of Asset and Liability
Management in order to more properly reflect the effectiveness
of hedging transactions in the financial statements.

offsetting the risk of changes in currency exchange rates by
verifying that there are foreign-currency monetary claims and
debts corresponding to the foreign-currency positions.

In order to hedge risk arising from volatility of exchange
rates for stocks of subsidiaries and affiliates and other securi-
ties (excluding bonds) denominated in foreign currencies,
SMBC applies deferred hedge accounting or fair value hedge
accounting, on the conditions that the hedged securities are
designated in advance and that sufficient on-balance (actual)
or off-balance (forward) liability exposure exists to cover the
cost of the hedged securities denominated in the same foreign
currencies.
(c) Transactions between consolidated subsidiaries
As for derivative transactions between consolidated
subsidiaries or internal transactions between trading accounts
and other accounts (or among internal sections), SMBC man-
ages the interest rate swaps and currency swaps that are desig-
nated as hedging instruments in accordance with the strict
criteria for external transactions stipulated in JICPA Industry
Audit Committee Report No. 24 and No. 25. Therefore,
SMBC accounts for the gains or losses that arise from interest
rate swaps and currency swaps in its earnings or defers them,
rather than eliminating them.

Certain other consolidated subsidiaries apply the deferred
hedge accounting or the short-cut method (exceptional treat-
ment for interest rate swaps). A consolidated domestic sub-
sidiary (a leasing company) partly applies the accounting
method that is permitted by “Temporary Treatment for
Accounting and Auditing of Application of Accounting
Standard for Financial Instruments in Leasing Industry”
(JICPA Industry Audit Committee Report No. 19).

(7) Non-accrual loans

Loans are generally placed on non-accrual status when their
borrowers are classified as Bankrupt, Effectively Bankrupt or
Potentially Bankrupt under the self-assessment rule (see (11)
Reserve for possible loan losses).

A portion of deferred hedge losses and gains, which was pre-

(8) Bills discounted

viously under the macro hedge, is no longer subject to hedge
accounting. The deferred hedge losses and gains related to
hedging instruments to which SMBC discontinued the appli-
cation of hedge accounting or applied fair value hedge
accounting as a result of the change mentioned above are rec-
ognized as “Interest income” or “Interest expenses” over a 12-
year period (maximum) from the fiscal year ended March 31,
2004 according to their maturity. Gross amounts of deferred
hedge losses and gains on “macro hedge” at March 31, 2005
were ¥197,872 million ($1,844 million) and ¥167,948 mil-
lion ($1,565 million), respectively.
(b) Hedging against currency fluctuations
SMBC applies deferred hedge accounting stipulated in JICPA
Industry Audit Committee Report No. 25 to currency swap
and foreign exchange swap transactions executed for the pur-
pose of lending or borrowing funds in different currencies.
Pursuant to JICPA Industry Audit Committee Report
No. 25, SMBC assesses the effectiveness of currency swap and
foreign exchange swap transactions executed for the purpose of

Bills discounted are accounted for as financial transactions in
accordance with JICPA Industry Audit Committee Report
No. 24. SMFG’s banking subsidiaries have rights to sell or
pledge bank acceptance bought, commercial bills discounted,
documentary bills and foreign exchanges bought without
restrictions. The total face value at March 31, 2005 and 2004
was ¥966,552 million ($9,006 million) and ¥1,023,057 mil-
lion, respectively.
(9) Premises and equipment

Premises and equipment owned by SMFG and SMBC are gen-
erally stated at cost less accumulated depreciation.
Depreciation of premises is calculated using the straight-line
method over the estimated useful lives of the respective assets.
They calculated the depreciation cost for the fiscal year by pro-
portionally allocating the estimated annual cost to the fiscal
year. The estimated useful lives of major items are as follows:

Buildings: 7 to 50 years
Equipment: 2 to 20 years

SMFG 2005 87

Other consolidated subsidiaries depreciate premises and
equipment, and lease assets primarily using the straight-line
method over the estimated useful lives of the respective assets
and the straight-line method over the lease term based on the
residual value of assets at the end of the lease term, respectively.

(10) Software costs

Capitalized software for internal use owned by SMFG and its
consolidated domestic subsidiaries is depreciated using the
straight-line method over its estimated useful life (basically
five years).

(11) Reserve for possible loan losses

Reserve for possible loan losses of major consolidated sub-
sidiaries is provided as detailed below in accordance with the
internal standards for write-offs and provisions.

doubtful claims in the amount deemed uncollectible based on
assessment of each claim.

For collateralized or guaranteed claims on bankrupt borrow-
ers and effectively bankrupt borrowers, the amount exceeding
the estimated value of collateral and guarantees is deemed to
be uncollectible and written off against the total outstanding
amount of the claims. The amount of write-off was
¥1,782,244 million ($16,607 million) and ¥1,236,148 mil-
lion at March 31, 2005 and 2004, respectively.

(12) Reserve for possible losses on loans sold

Reserve for possible losses on loans sold is provided for contin-
gent losses arising from decline of market value of underlying
collateral for loans sold to the Cooperative Credit Purchasing
Company, Limited.

For claims on borrowers that have entered into bankruptcy,

(13) Reserve for expenses related to EXPO 2005 Japan

special liquidation proceedings or similar legal proceedings
(“bankrupt borrowers”) or borrowers that are not legally or
formally insolvent but are regarded as substantially in the
same situation (“effectively bankrupt borrowers”), a reserve is
provided based on the amount of claims, after the write-off
stated below, net of the expected amount of recoveries from
collateral and guarantees.

For claims on borrowers that are not currently bankrupt but

are perceived to have a high risk of falling into bankruptcy
(“potentially bankrupt borrowers”), a reserve is provided in the
amount deemed necessary based on an overall solvency assess-
ment of the claims, net of the expected amount of recoveries
from collateral and guarantees.

Discounted Cash Flows (DCF) method is used for claims on

borrowers whose cash flows from collection of principals and
interest can be rationally estimated and SMBC applies it to
claims on large potentially bankrupt borrowers and claims on
large borrowers requiring close monitoring that have been
classified as “Past due loans (3 months or more)” or
“Restructured loans” whose total loans from SMBC exceed a
certain amount. SMBC establishes a reserve for possible loan
losses using the DCF method for such claims in the amount of
the difference between the present value of principal and inter-
est (calculated using the rationally estimated cash flows dis-
counted at the initial contractual interest rate) and the book
value. In the fiscal year ended March 31, 2004, the DCF
method was not applied to the claims on large potentially
bankrupt borrowers.

For other claims, a reserve is provided based on the histori-

cal loan-loss ratio.

For claims originated in specific overseas countries, an addi-

tional reserve is provided in the amount deemed necessary
based on the assessment of political and economic conditions.
Branches and credit supervision departments assess all

claims in accordance with the internal rules for self-assessment
of assets, and the Credit Review Department, independent
from these operating sections, audits their assessment. The
reserves are provided based on the results of these assessments.
Reserve for possible loan losses of other consolidated sub-
sidiaries for general claims is provided in the amount deemed
necessary based on the historical loan-loss ratios, and for

SMBC accounts for the exhibition expenses related to “The
2005 World Exposition, Aichi, Japan” as “Reserve for
expenses related to EXPO 2005 Japan,” which includes the
reserve that is stipulated in Article 57-2 of the Specific
Taxation Measures Law.
(14) Reserve for employee bonuses

Reserve for employee bonuses is provided for payment of
bonuses to employees, in the amount of estimated bonuses,
which are attributable to the respective fiscal year.

(15) Reserve for employee retirement benefits

Reserve for employee retirement benefits is provided for pay-
ment of retirement benefits to employees, in the amount
deemed accrued at the fiscal year-end, based on the projected
retirement benefit obligation and the fair value of plan assets
at the fiscal year-end.

Unrecognized prior service cost is amortized using the
straight-line method, primarily over 10 years within the
employees’ average remaining service period at incurrence.
Unrecognized net actuarial gain (loss) is amortized using
the straight-line method, primarily over 10 years within the
employees’ average remaining service period, commencing
from the next fiscal year of incurrence.

Unrecognized net transition obligation from the initial
application of the new accounting standard for employee
retirement benefits is amortized primarily using the straight-
line method over five years.

A part of “Accounting Standards for Retirement Benefits”
(issued by the Business Accounting Deliberation Council on
June 16, 1998) was revised on March 16, 2005. As a result,
the amount by which the plan assets exceed the projected ben-
efit obligation (“unrecognized plan assets”) due to excess of the
actual return on the plan assets over the expected return on the
plan assets, or occurrence of prior service costs due to lowering
of pension benefit levels was permitted to be recognized as
assets and gains. SMBC implemented an early adoption of the
revised standards from the fiscal year ended March 31, 2005
and treated the unrecognized plan assets as actuarial differ-
ences. This accounting change had no impact on profit and
loss accounts.

SMFG 2005

(16) Other reserves

Reserves required by special laws are provided as follows:
(a) Reserve for contingent liabilities from financial futures
transactions is provided in accordance with Article 82 of the
Financial Futures Transaction Law, in order to cover losses
arising from financial futures transactions.
(b) Reserve for contingent liabilities from securities transac-
tions is provided in accordance with Article 51 of the
Securities and Exchange Law in provision for losses arising
from securities transactions.

transactions and income/expenses on installment sales are as
follows:
(a) Recognition of lease-related income on lease transactions
Primarily, lease-related income is recognized on a straight-line
basis over the full term of the lease, based on the contractual
amount of lease fees per month.
(b) Recognition of income and expenses on installment sales
Primarily, installment-sales-related income and installment-
sales-related expenses are recognized on a due-date basis over
the full term of the installment sales.

(17) Translation of foreign currency assets and liabilities

(19) Valuation of consolidated subsidiaries’ assets and liabilities

SMBC’s assets and liabilities denominated in foreign curren-
cies and overseas branches’ accounts are translated into
Japanese yen mainly at the exchange rate prevailing at the
consolidated balance sheet date, with the exception of stocks of
subsidiaries and affiliates translated at rates prevailing at the
time of acquisition.

As for the accounting method of foreign currency transac-
tions, SMBC and other domestic consolidated banking sub-
sidiaries apply the hedge accounting pursuant to the basic
provisions of JICPA Industry Audit Committee Report
No. 25.

Currency swaps and foreign exchange swaps for the purpose
of lending or borrowing funds in different currencies are valu-
ated at fair value and their fair-valued assets and liabilities are
recognized on the consolidated balance sheet.

Foreign currency translation differences arising from cur-

rency swaps and forward foreign exchange transactions are
accounted for as “Other assets” or “Other liabilities” on a gross
basis pursuant to JICPA Industry Audit Committee Report
No. 25.

Other consolidated subsidiaries’ assets and liabilities

denominated in foreign currencies are translated into Japanese
yen at the exchange rate prevailing at their respective balance
sheet dates.
(18) Lease transactions

Financing leases of SMFG and its consolidated domestic sub-
sidiaries, excluding those in which the ownership of the prop-
erty is transferred to the lessee, are accounted for in the same
method as operating leases.

Standards for recognizing lease-related income on lease

Assets and liabilities of consolidated subsidiaries including the
portion attributable to the minority shareholders are valuated
for consolidation at fair value when SMFG acquires control.

(20) Amortization of goodwill

Goodwill on Sumitomo Mitsui Card Company, Limited and
SMBC Leasing Company, Limited is amortized using the
straight-line method over five years and goodwill on other
companies is charged or credited to income directly when
incurred.

(21) Appropriation of retained earnings

Payments of dividends are accounted for as appropriations of
retained earnings in the fiscal year when such appropriations
are approved at the general shareholders’ meeting or, in the
case of interim dividends, at the meeting of the Board of
Directors.

Cash dividends charged to retained earnings are those actu-

ally paid during the fiscal year and consist of year-end divi-
dends applicable to the preceding year and interim dividends
for the current year.
(22) Amounts per share

Net income (loss) per share is calculated by deducting divi-
dends for preferred stock from net income (loss), divided by
the weighted average number of shares of common stock,
excluding treasury stock outstanding during each fiscal year.
Diluted net income per share reflects the potential dilution
that could occur if preferred stocks and other contracts to issue
common stocks were exercised.

Declared dividends represent the cash dividends declared
applicable to respective fiscal years, including dividends to be
paid after the end of the fiscal year.

3. Trading Assets
Trading assets at March 31, 2005 and 2004 consisted of the following:

March 31

Trading securities ................................................................................................
Derivatives of trading securities...........................................................................
Derivatives of securities related to trading transactions ........................................
Trading-related financial derivatives....................................................................
Other trading assets.............................................................................................

Millions of yen

2005

¥ 269,678
812
2,033
2,440,254
1,056,293
¥3,769,073

2004

80,766
139
595
2,135,318
1,089,960
¥3,306,780

Millions of
U.S. dollars
2005

$ 2,513
8
19
22,738
9,842
$35,120

SMFG 2005 89

4. Securities
Securities at March 31, 2005 and 2004 consisted of the following:

March 31

Japanese government bonds*1..............................................................................
Japanese local government bonds.........................................................................
Japanese corporate bonds .....................................................................................
Japanese stocks*1, 2 ..............................................................................................
Other*2 ...............................................................................................................

Millions of yen

2005

2004

¥13,636,577
486,884
3,243,443
3,516,280
3,350,515
¥24,233,701

¥14,448,940
506,263
2,651,971
3,637,892
5,804,833
¥27,049,901

Millions of
U.S. dollars
2005

$127,065
4,537
30,222
32,764
31,220
$225,808

*1 Unsecured loaned securities for which borrowers have the right to sell or pledge in the amount of ¥8,774 million ($82 million) are included in Japanese government bonds at March
31, 2005, and such securities in the amount of ¥15,849 million are included in Japanese government bonds and Japanese stocks at March 31, 2004. Loaned securities for which bor-
rowers only have the right to pledge and not to sell in the amount of ¥99 million are included in Japanese government bonds at March 31, 2004.
As for the unsecured borrowed securities for which SMBC has the right to sell or pledge and the securities which SMBC purchased under resale agreements, that are permitted to be
sold or pledged without restrictions, ¥467,647 million ($4,358 million) of securities are pledged, and ¥192,791 million ($1,796 million) of securities are held in hand at March 31,
2005. The respective amounts at March 31, 2004 were ¥1,022,170 million and ¥165,047 million.

*2 Japanese stocks and other include investments in unconsolidated subsidiaries and affiliates of ¥395,984 million ($3,690 million) and ¥208,201 million at March 31, 2005 and 2004,

respectively.

5. Loans and Bills Discounted
(1) Loans and bills discounted at March 31, 2005 and 2004 consisted of the following:

March 31

Bills discounted...................................................................................................
Loans on notes .....................................................................................................
Loans on deeds.....................................................................................................
Overdrafts ...........................................................................................................

Millions of yen

2005

2004

525,763
4,847,367
42,211,430
7,215,244
¥54,799,805

644,002
6,296,717
40,919,508
7,522,572
¥55,382,800

(2) Loans and bills discounted includes the following “Risk-monitored loans” stipulated in the Banking Law:

March 31

Risk-monitored loans:

Bankrupt loans*1............................................................................................
Non-accrual loans*2........................................................................................
Past due loans (3 months or more)*3...............................................................
Restructured loans*4 ......................................................................................

Millions of yen

2005

2004

68,337
1,398,964
29,441
730,701
¥2,227,445

96,413
1,767,862
51,538
1,382,168
¥3,297,981

Millions of
U.S. dollars
2005

4,899
45,168
393,323
67,231
$510,621

Millions of
U.S. dollars
2005

637
13,035
274
6,809
$20,755

*1 “Bankrupt loans” are loans, after write-off, to legally bankrupt borrowers as defined in Article 96-1-3 and 96-1-4 of the Enforcement Ordinance No. 97 of the

Japanese Corporate Tax Law (issued in 1965) and on which accrued interest income is not recognized as there is substantial doubt about the ultimate collectabil-
ity of either principal or interest because they are past due for a considerable period of time or for other reasons.

*2 “Non-accrual loans” are loans on which accrued interest income is not recognized, excluding “Bankrupt loans” and loans on which interest payments are deferred

in order to support the borrowers’ recovery from financial difficulties.

*3 “Past due loans (3 months or more)” are loans on which the principal or interest is past due for three months or more, excluding “Bankrupt loans” and “Non-

accrual loans.”

*4 “Restructured loans” are loans on which terms and conditions have been amended in favor of the borrowers (e.g. reduction of the original interest rate, deferral of

interest payments, extension of principal repayments or debt forgiveness) in order to support the borrowers’ recovery from financial difficulties, excluding
“Bankrupt loans,” “Non-accrual loans” and “Past due loans (3 months or more).”

The amounts above include the trusted amount with the Resolution and Collection Corporation of ¥41 million ($0 million) and ¥7,522 mil-

lion at March 31, 2005 and 2004, respectively, which is treated as off-balancing.

SMFG 2005

(3) Commitment line contracts on overdrafts and loans are agreements to lend to customers, up to a prescribed amount, as long as there is no
violation of any condition established in the contracts. The amount of unused commitments at March 31, 2005 and 2004 was ¥37,440,642
million ($348,869 million) and ¥32,634,541 million, respectively, and the amount of unused commitments whose original contract terms are
within one year or unconditionally cancelable at any time at March 31, 2005 and 2004 was ¥33,204,890 million ($309,401 million) and
¥29,806,280 million, respectively.

Since many of these commitments are expected to expire without being drawn upon, the total amount of unused commitments does not nec-
essarily represent actual future cash flow requirements. Many of these commitments include clauses under which SMBC and other consolidated
subsidiaries can reject an application from customers or reduce the contract amounts in the event that economic conditions change, SMBC and
other consolidated subsidiaries need to secure claims, or other events occur. In addition, SMBC and other consolidated subsidiaries may request
the customers to pledge collateral such as premises and securities at the time of the contracts, and take necessary measures such as monitoring
customers’ financial positions, revising contracts when need arises and securing claims after the contracts are made.

6. Other Assets
Other assets at March 31, 2005 and 2004 consisted of the following:

March 31

Prepaid expenses..................................................................................................
Accrued income...................................................................................................
Deferred assets.....................................................................................................
Financial derivatives* ..........................................................................................
Other...................................................................................................................

Millions of yen

2005

37,677
264,704
597,825
792,007
1,418,239
¥3,110,454

2004

37,943
238,454
518,913
1,010,355
1,228,515
¥3,034,182

Millions of
U.S. dollars
2005

351
2,467
5,570
7,380
13,215
$28,983

* Net amount of deferred unrealized losses on hedging instruments to which deferred hedge accounting is applied is reported as deferred losses on hedge and is
included in “Financial derivatives.” Gross deferred unrealized losses and gains on hedging instruments before netting at March 31, 2005 were ¥527,374 mil-
lion ($4,914 million) and ¥429,751 million ($4,004 million), respectively. The respective amounts at March 31, 2004 were ¥663,546 million and ¥564,122
million.

7. Premises and Equipment
Premises and equipment at March 31, 2005 and 2004 consisted of the following:

March 31

Land* ..................................................................................................................
Buildings.............................................................................................................
Equipment and others .........................................................................................
Total ...................................................................................................................
Accumulated depreciation ...................................................................................

* Includes land revaluation excess referred to in Note 16.

8. Lease Assets
Lease assets at March 31, 2005 and 2004 were as follows:

March 31

Equipment and others .........................................................................................
Accumulated depreciation ...................................................................................

Millions of yen

2005

¥ 411,545
487,686
465,828
1,365,060
(529,007)
¥ 836,053

2004

¥ 513,874
534,250
523,115
1,571,240
(587,180)
¥ 984,060

Millions of yen

2005

¥2,563,586
(1,556,570)
¥1,007,015

2004

¥2,520,092
(1,528,311)
¥ 991,781

Millions of
U.S. dollars
2005

$ 3,835
4,544
4,341
12,720
(4,930)
$ 7,790

Millions of
U.S. dollars
2005

$23,887
(14,504)
$ 9,383

SMFG 2005 91

9. Assets Pledged as Collateral
Assets pledged as collateral at March 31, 2005 and 2004 consisted of the following:

March 31

Assets pledged as collateral

Millions of yen

2005

2004

Cash and due from banks and Deposits with banks .........................................
Trading assets.................................................................................................
Securities ........................................................................................................
Loans and bills discounted ..............................................................................
Other assets ....................................................................................................
Premises and equipment.................................................................................

Liabilities corresponding to assets pledged as collateral

Deposits .........................................................................................................
Call money and bills sold................................................................................
Payables under repurchase agreements ............................................................
Payables under securities lending transactions ................................................
Trading liabilities...........................................................................................
Borrowed money ............................................................................................
Other liabilities ..............................................................................................
Acceptances and guarantees ............................................................................

75,769
630,553
6,492,047
1,524,286
1,080
—

12,745
3,976,469
393,895
3,283,601
143,819
7,566
14,072
144,023

112,778
540,579
10,723,663
1,375,426
1,056
524

15,276
5,175,669
1,055,508
5,700,206
203,599
4,451
1,122
141,835

Millions of
U.S. dollars
2005

706
5,875
60,492
14,203
10
—

119
37,052
3,670
30,596
1,340
70
131
1,342

In addition to the assets presented above, the following assets were pledged as collateral for exchange settlements, initial margins of futures

markets and certain other purposes at March 31, 2005 and 2004:

March 31

Cash and due from banks and Deposits with banks ..............................................
Trading assets......................................................................................................
Securities .............................................................................................................
Loans and bills discounted ...................................................................................

Millions of yen

2005

5,613
126,821
6,659,318
27,500

2004

42,537
3,908
6,801,910
55,000

Millions of
U.S. dollars
2005

52
1,182
62,051
256

Premises and equipment included surety deposits and intangibles of ¥100,014 million ($932 million) and ¥112,628 million at March 31,
2005 and 2004, respectively. Other assets included initial margins of futures markets of ¥9,582 million ($89 million) and ¥8,130 million at
March 31, 2005 and 2004, respectively.

10. Deposits
Deposits at March 31, 2005 and 2004 consisted of the following:

March 31

Current deposits ..................................................................................................
Ordinary deposits ................................................................................................
Savings deposits...................................................................................................
Deposits at notice ................................................................................................
Time deposits ......................................................................................................
Negotiable certificates of deposit .........................................................................
Other deposits .....................................................................................................

11. Trading Liabilities
Trading liabilities at March 31, 2005 and 2004 consisted of the following:

March 31

Trading securities sold for short sales...................................................................
Derivatives of trading securities...........................................................................
Derivatives of securities related to trading transactions ........................................
Trading-related financial derivatives....................................................................

Millions of yen

2005

2004

¥ 6,172,889
31,159,513
1,090,677
4,319,669
21,157,264
2,713,270
4,574,846
¥71,188,131

¥ 5,382,068
29,299,240
1,206,013
3,800,841
20,870,829
3,519,464
4,774,432
¥68,852,890

Millions of yen

2005

69,419
524
2,061
2,038,468
¥2,110,473

2004

32,658
242
940
1,839,404
¥1,873,245

Millions of
U.S. dollars
2005

$ 57,519
290,342
10,163
40,250
197,142
25,282
42,628
$663,326

Millions of
U.S. dollars
2005

647
5
19
18,994
$19,665

SMFG 2005

12. Borrowed Money
Borrowed money at March 31, 2005 and 2004 consisted of the following:

Millions of yen

March 31
Bills rediscounted............................................................ ¥
Other borrowings*2.........................................................

2004

2005
11,576 ¥

—
2,131,297
2,360,474
¥2,142,873 ¥2,360,474

Millions of
U.S. dollars
2005

108
$
19,859
$19,967

Average
interest rate*1

Due

2.97% Apr. 2005 — Aug. 2005
1.47
Jan. 2005 — Perpetual
1.48%

*1 Average interest rate represents the weighted average interest rate based on the balances and rates at respective year-end of SMBC and other consolidated subsidiaries.
*2 Includes subordinated debt obligation of ¥734,097 million ($6,840 million) and ¥770,003 million at March 31, 2005 and 2004, respectively.

The repayment schedule within five years on borrowed money at March 31, 2005 was as follows:

March 31

Millions of yen
2005

Millions of U.S. dollars
2005

Within 1 year ......................................................................................................................
After 1 year through 2 years..................................................................................................
After 2 years through 3 years ................................................................................................
After 3 years through 4 years ................................................................................................
After 4 years through 5 years ................................................................................................

¥703,518
224,614
151,415
119,289
120,220

$6,555
2,093
1,411
1,112
1,120

Millions of yen*

2005

2004

Millions of
U.S. dollars
2005

Interest rate
(%)

Due

¥2,070,089
[366,976]
5,000
73,983
($700,000 thousand)

$20,490

0.51–2.60 Apr. 2005–Sep. 2024

89
700

2.50–3.00 Mar. 2012–Sep. 2024
4.32–6.02 May 2005–Sep. 2005

13. Bonds
Bonds at March 31, 2005 and 2004 consisted of the following:
March 31
Issuer

Description

SMBC:
Straight bonds, payable in Yen .........................................

Straight bonds, payable in Euro Yen.................................
Straight bonds, payable in U.S. dollars .............................

Subordinated bonds, payable in Yen .................................
Subordinated bonds, payable in Euro Yen.........................
Subordinated bonds, payable in U.S. dollars .....................

Subordinated bonds, payable in British pound sterling .....

Subordinated bonds, payable in Euro................................

Other consolidated subsidiaries:
Straight bonds, payable in Yen .........................................

Straight bonds, payable in U.S. dollars .............................

Straight bonds, payable in Australian dollars ....................

Straight bonds, payable in other foreign currency .............

Subordinated bonds, payable in Yen .................................

Subordinated bonds, payable in U.S. dollars .....................

Short-term bonds .............................................................

¥2,198,996
[491,666]
9,500
75,124
($700,000 thousand)
[75,124]
400,000
664,900
174,287

350,000
483,100
171,640
($1,624,000 thousand) ($1,624,000 thousand)
2,317
(£12,000 thousand)
—

2,422
(£12,000 thousand)
173,437
(€1,250,000 thousand)

181,753
[92,403]
5,270
($48,000 thousand)
[1,209]
113
(A$2,000 thousand)

180,823
[67,865]
3,950
($38,000 thousand)
[521]
113
(A$2,000 thousand)
[113]
3,007
[1,596]
345,613
[36,649]
107,320

1,000
[1,000]
¥4,340,497

4,872
[1,990]
546,491
[12,000]
108,332
($1,000,000 thousand) ($1,025,000 thousand)
—

1.71–2.62 Jun. 2010–Oct. 2014
3,727
6,195 0.4175–2.685 May 2011–Perpetual
5.93–8.15 Nov. 2011–Perpetual
1,624

1,616

6.98

4.375

Perpetual

Oct. 2014

1,685

0.04–3.65 Feb. 2005–Oct. 2024

1.55–7.35 Jun. 2005–May 2009

7.00

Oct. 2005

3.90–4.35 Oct. 2005–Jun. 2018

3,220

0.00–6.00 Apr. 2005–Perpetual

1,000

8.50

0.14995

Jun. 2009

May 2005

¥4,002,965

$40,444

* Figures in ( ) are the balances in the original currency of the foreign currency denominated bonds, and figures in [ ] are the amounts to be redeemed within one year.

SMFG 2005 93

The redemption schedule within five years on bonds at March 31, 2005 was as follows:

March 31

Millions of yen
2005

Millions of U.S. dollars
2005

¥674,536
409,086
421,960
422,335
554,863

14. Other Liabilities
Other liabilities at March 31, 2005 and 2004 consisted of the following:

March 31

Accrued expenses.................................................................................................
Unearned income.................................................................................................
Income taxes payable ...........................................................................................
Financial derivatives ............................................................................................
Other...................................................................................................................

15. Other Reserves
Other reserves at March 31, 2005 and 2004 consisted of the following:

March 31

Reserve for contingent liabilities from financial futures transactions ....................
Reserve for contingent liabilities from securities transactions...............................

Millions of yen

2005

¥ 128,568
178,394
33,190
689,318
1,334,314
¥2,363,786

2004

¥ 111,725
172,066
27,490
897,731
2,382,804
¥3,591,818

Millions of yen

2005

18
1,075
¥1,093

2004

¥ 18
843
¥862

$6,285
3,812
3,932
3,935
5,170

Millions of
U.S. dollars
2005

$ 1,198
1,663
309
6,423
12,433
$22,026

Millions of
U.S. dollars
2005

$ 0
10
$10

16. Land Revaluation Excess
SMBC revaluated its own land for business activities in accordance
with the “Law Concerning Land Revaluation” (the “Law”) effective
March 31, 1998 and the law concerning amendment of the Law effec-
tive March 31, 2001. The income taxes corresponding to the net
unrealized gains are deferred and reported in “Liabilities” as
“Deferred tax liabilities for land revaluation,” and the net unrealized
gains, net of deferred taxes, are reported as “Land revaluation excess”
in “Stockholders’ equity.”

Certain other consolidated subsidiaries revaluated their own land
for business activities in accordance with the Law. The income taxes
corresponding to the net unrealized gains (losses) are deferred and
reported in “Liabilities” or “Assets” as “Deferred tax liabilities for
land revaluation” or “Deferred tax assets for land revaluation” and the
net unrealized gains (losses), net of deferred taxes, are reported as
“Land revaluation excess” in “Stockholders’ equity.”

Date of the revaluation

SMBC:

March 31, 1998 and March 31, 2002

Certain other consolidated subsidiaries:

March 31, 1999 and March 31, 2002.

Method of revaluation (provided in Article 3-3 of the Law)

SMBC:

Fair values were determined by applying appropriate
adjustments for land shape and timing of appraisal to the
values stipulated in Article 2-3, 2-4 or 2-5 of the
Enforcement Ordinance of the Law concerning Land
Revaluation (the Enforcement Ordinance No. 119) effec-
tive March 31, 1998.

Certain other consolidated subsidiaries:

Fair values were determined based on the values stipulated
in Article 2-3 and 2-5 of the Enforcement Ordinance
No. 119.

Total fair value of land used for business activities at March 31,
2005 and 2004, whose book value had been revaluated pursuant to
Article 10 of the Law, was ¥21,022 million ($196 million) and
¥16,497 million lower than the book value, respectively.

17. Minority Interests
SB Treasury Company L. L. C., a subsidiary of SMBC, issued noncu-
mulative perpetual preferred securities, totaling $1,800 million in
February 1998. SB Equity Securities (Cayman), Limited, a subsidiary
of SMBC, issued noncumulative perpetual preferred securities, total-
ing ¥340,000 million in February and March 1999. Sakura Preferred

SMFG 2005

Capital (Cayman) Limited, a subsidiary of SMBC, issued noncumula-
tive perpetual preferred securities, totaling ¥283,750 million in
December 1998 and March 1999. These subsidiaries are consolidated
and the preferred securities are accounted for as minority interests.

18. Capital Stock
Capital stock consists of common stock and preferred stock. Common stock and preferred stock at March 31, 2005 and 2004 were as follows:

Number of shares

2005

2004

March 31
Common stock..........................................................................................
Preferred stock (Type 1)............................................................................
Preferred stock (Type 2)............................................................................
Preferred stock (Type 3)............................................................................
Preferred stock (Type 4)............................................................................
Preferred stock (Type 5)............................................................................
Preferred stock (Type 6)............................................................................
Total.........................................................................................................

Authorized
15,000,000
35,000
100,000
695,000
242,087
250,000
300,000
16,622,087

Issued and
outstanding
6,273,792.49
35,000
100,000
695,000
157,187
—
70,001
7,330,980.49

Authorized
15,000,000
67,000
100,000
800,000
249,999
250,000
300,000
16,766,999

Issued and
outstanding
5,796,010.53
67,000
100,000
800,000
165,099
—
—

6,928,109.53

All of the preferred stock is noncumulative and nonparticipating
for dividend payments, and shareholders of the preferred stock are not
entitled to vote at a general meeting of shareholders except when the
proposal to pay the prescribed dividends to shareholders is not sub-
mitted to the general meeting of shareholders or is rejected at the
general meeting of shareholders.

Annual dividends per share of preferred stock (Type 1, Type 2,
Type 3, First to Twelfth series Type 4, Thirteenth series Type 4 and
First series Type 6) are paid to shareholders by ¥10,500, ¥28,500,
¥13,700, ¥135,000, ¥67,500 and ¥88,500, respectively.

In cases of liquidation distribution, shareholders of preferred stock
(Type 1, Type 2, Type 3, Type 4 and First series Type 6) will receive
¥3,000,000, ¥3,000,000, ¥1,000,000, ¥3,000,000 and ¥3,000,000 per
share, respectively, and will not have the right to participate in any
further liquidation distribution.

SMFG may, at any time, purchase and retire preferred stocks out of

earnings available for distribution to the shareholders.

Shareholders of preferred stock may request SMFG to convert their

preferred stocks into common stocks. The period during which the
conversion may be requested (the “conversion period”) and the terms
and conditions of conversion with respect to preferred stock (Type 1,
Type 2 and Type 3) were determined by the resolution made in accor-
dance with the provisions of Article 365 of the Commercial Code, of a
shareholders meeting of SMBC. The conditions of conversion of pre-
ferred stock (First to Twelfth series Type 4 and Thirteenth series Type
4) were determined by the resolution of the board of directors relating
to the issuance of the relevant preferred stocks. The conversion period
and conversion price* of each type of preferred stock are as follows:

Preferred stock (Type 1):

December 2, 2002 to February 26, 2009
¥947,100

Preferred stock (Type 2):

August 1, 2005 to February 26, 2009
Initial conversion price will be determined by a formula
based on the average of the daily closing prices per share of
common stock in regular transactions at the Tokyo Stock
Exchange on each of the 30 consecutive trading days
(excluding any day on which the closing price is not avail-
able) commencing on the 45th trading day prior to August
1, 2005. (Initial conversion floor price: ¥947,100)

Preferred stock (Type 3):

December 2, 2002 to September 30, 2009
¥644,200

Preferred stock (First to Twelfth series Type 4):

February 8, 2003 to February 7, 2028
¥322,300

Preferred stock (Thirteenth series Type 4):

April 14, 2003 to July 12, 2005
¥312,000

* Conversion prices are reset and adjusted pursuant to the appointed

rules governing conversion of the preferred stocks.

Any preferred stock (Type 1, Type 2, Type 3 and Type 4) with
respect to which conversion has not been requested during the con-
version period shall be mandatorily converted, as of the date immedi-
ately following the last day of the conversion period (the “mandatory
conversion date”), into such number of common stocks as is obtained
by dividing the corresponding amount set forth below by the average
of the daily closing prices per share of common stock in regular trans-
actions at the Tokyo Stock Exchange on each of the 30 consecutive
trading days (excluding any day on which the closing price is not
available) commencing on the 45th trading day preceding the
mandatory conversion date. If such average price is less than
¥500,000, in the case of preferred stock (Type 1, Type 2 and Type 4),
or less than ¥258,330, in the case of preferred stock (Type 3), then
the preferred stock shall be converted into such number of common
stocks as is obtained by dividing the corresponding amount set forth
below by the relevant amount described above:

Preferred stock (Type 1): ¥3,000,000 per share
Preferred stock (Type 2): ¥3,000,000 per share
Preferred stock (Type 3): ¥1,000,000 per share
Preferred stock (Type 4): ¥3,000,000 per share

Shares of common stock held by SMFG and consolidated sub-

sidiaries, and equity method unconsolidated subsidiaries and affiliates
are as follows:

March 31

Common stock .........................................

Number of shares (thousand)

2005

404

2004

SMFG 2005 95

Following stock option are granted to directors and employees at

March 31, 2005:

March 31

2005

Number of shares granted ................ 1,620 shares
Type of stock.................................... Common stock
Issue price ........................................ ¥673,000 per share
Amount capitalized
when shares are issued .................... ¥337,000 per share
Exercise period ................................. From June 28, 2004 to June 27, 2012

The stock option had been issued by former SMBC pursuant to the resolution of the ordi-
nary general meeting of shareholders held on June 27, 2002. SMFG succeeded the obliga-
tions related to the stock options at the time of its establishment pursuant to the
resolution of the preferred shareholders’ meetings held on September 26, 2002 and the
extraordinary shareholders’ meeting held on September 27, 2002.

19. Fees and Commissions
Fees and commissions for the years ended March 31, 2005 and 2004 consisted of the following:

Millions of yen

2005

2004

Millions of
U.S. dollars
2005

Year ended March 31

Fees and commissions (income):

Deposits and loans ..........................................................................................
Remittances and transfers ...............................................................................
Securities-related business ..............................................................................
Agency ...........................................................................................................
Safe deposits ...................................................................................................
Guarantees .....................................................................................................
Credit card business........................................................................................
Investment trusts............................................................................................
Other .............................................................................................................

Fees and commissions (expenses):

Remittances and transfers ...............................................................................
Other .............................................................................................................

¥ 45,105
124,289
51,973
19,304
6,735
39,442
93,768
45,574
169,891
¥596,086

¥ 24,215
55,760
¥ 79,976

¥ 34,587
118,444
43,883
16,239
5,927
33,503
90,506
35,214
122,722
¥501,028

¥ 23,553
53,298
¥ 76,851

20. Trading Income
Trading income for the years ended March 31, 2005 and 2004 consisted of the following:

Year ended March 31

Trading profits:

Gains on trading securities .............................................................................
Gains on trading-related financial derivatives .................................................
Other .............................................................................................................

Trading losses:

Losses on securities related to trading transactions ..........................................
Other .............................................................................................................

Millions of yen

2005

2004

7,857
136,224
504
¥144,587

199
—
199

6,735
298,275
—
¥305,011

904
11
916

21. Other Operating Income
Other operating income for the years ended March 31, 2005 and 2004 consisted of the following:

Year ended March 31

Gains on sale of bonds .........................................................................................
Gains on redemption of bonds .............................................................................
Lease-related income............................................................................................
Gains on foreign exchange transactions................................................................
Gains on financial derivatives ..............................................................................
Other ..................................................................................................................

Millions of yen

2005

85,683
583
691,864
118,840
—
161,318
¥1,058,289

2004

¥132,651
65
654,218
—
11,472
148,066
¥946,474

SMFG 2005

$ 420
1,158
484
180
63
367
874
425
1,583
$5,554

$ 226
519
$ 745

Millions of
U.S. dollars
2005

73
1,269
5
$1,347

2
—
2

Millions of
U.S. dollars
2005

$ 798
6
6,447
1,107
—
1,503
$9,861

22. Other Income
Other income for the years ended March 31, 2005 and 2004 consisted of the following:

Year ended March 31

Gains on sale of stocks and other securities ..........................................................
Gains on money held in trust...............................................................................
Equity in earnings of affiliates .............................................................................
Gains on disposal of premises and equipment ......................................................
Collection of written-off claims............................................................................
Gains on securities contributed to retirement benefits trust .................................
Gains on return of the entrusted portion of employee pension fund......................
Tax refund from the Tokyo Metropolitan Government ........................................
Interest on the tax refund from the Tokyo Metropolitan Government ..................
Gains on reversal of reserve for possible loan losses...............................................
Gains on reversal of reserve for possible losses on loans sold .................................
Other...................................................................................................................

Millions of yen

2005

¥129,258
0
27,142
4,909
1,032
75,275
—
—
—
—
—
28,951
¥266,569

2004

¥159,037
338
15,700
1,545
1,147
—
59,095
38,236
2,127
14,378
489
33,247
¥325,344

23. Other Operating Expenses
Other operating expenses for the years ended March 31, 2005 and 2004 consisted of the following:

Year ended March 31

Losses on sale of bonds .........................................................................................
Losses on redemption of bonds.............................................................................
Losses on devaluation of bonds.............................................................................
Bond issuance costs..............................................................................................
Lease-related expenses..........................................................................................
Losses on foreign exchange transactions ...............................................................
Losses on financial derivatives ..............................................................................
Other...................................................................................................................

Millions of yen

2005

¥105,828
693
255
1,898
626,387
—
3,904
128,779
¥867,748

2004

¥107,950
764
110
1,070
588,504
56,960
—
131,288
¥886,649

24. Other Expenses
Other expenses for the years ended March 31, 2005 and 2004 consisted of the following:

Year ended March 31

Write-off of loans ................................................................................................
Losses on sale of stocks and other securities ..........................................................
Losses on devaluation of stocks and other securities..............................................
Losses on money held in trust ..............................................................................
Losses on sale of delinquent loans.........................................................................
Losses on disposal of premises and equipment......................................................
Amortization of unrecognized net transition
obligation for employee retirement benefits .......................................................
Provision for reserve for contingent liabilities from securities transactions ...........
Other...................................................................................................................

Millions of yen

2005

¥ 759,399
6,910
224,266
—
147,984
68,883

17,876
23
33,133
¥1,258,478

2004

¥ 660,382
38,016
19,524
962
269,059
32,242

21,348
212
81,653
¥1,123,401

Millions of
U.S. dollars
2005

$1,204
0
253
46
10
701
—
—
—
—
—
270
$2,484

Millions of
U.S. dollars
2005

$ 986
7
2
18
5,837
—
36
1,200
$8,086

Millions of
U.S. dollars
2005

$ 7,076
64
2,090
—
1,379
642

166
0
309
$11,726

SMFG 2005 97

25. Income Taxes

(1) Significant components of deferred tax assets and liabilities at March 31, 2005 and 2004 were as follows:

March 31

Deferred tax assets:

Millions of yen

2005

2004

Net operating loss carryforwards ...........................................................
Write-off of loans..................................................................................
Reserve for possible loan losses ..............................................................
Write-off of securities ...........................................................................
Reserve for employee retirement benefits...............................................
Depreciation .........................................................................................
Other ....................................................................................................
Subtotal ................................................................................................
Valuation allowance ..............................................................................
Total deferred tax assets ........................................................................

Deferred tax liabilities:

Net unrealized gains on other securities ................................................
Gains on securities contributed to employee retirement benefits trust ...
Leveraged lease......................................................................................
Undistributed earnings of subsidiaries...................................................
Other ....................................................................................................
Total deferred tax liabilities ..................................................................
Net deferred tax assets ..............................................................................

¥ 926,210
545,008
470,016
401,414
92,852
8,389
109,942
2,553,833
(598,451)
1,955,381

(281,966)
(53,001)
(49,651)
(9,108)
(8,754)
(402,482)
¥1,552,898

¥1,030,860
286,808
549,411
351,143
95,722
8,642
114,996
2,437,585
(441,060)
1,996,524

(225,246)
(26,808)
(50,522)
(11,818)
(15,724)
(330,119)
¥1,666,405

Millions of
U.S. dollars
2005

$ 8,630
5,078
4,380
3,740
865
78
1,025
23,796
(5,576)
18,220

(2,627)
(494)
(463)
(85)
(81)
(3,750)
$14,470

(2) A reconciliation of the effective income tax rate reflected in the accompanying consolidated statements of operations to the statutory tax

rate for the years ended March 31, 2005 and 2004 was as follows:

Statutory tax rate..............................................................................................................................
Valuation allowance ...................................................................................................................
Change in the effective statutory tax rate due to the revision of the local tax law ........................
Difference in the effective statutory tax rate between SMFG
and consolidated domestic banking subsidiaries .......................................................................
Difference in the effective statutory tax rate between SMFG
and consolidated overseas subsidiaries ......................................................................................
Equity in earnings of affiliates....................................................................................................
Dividends exempted for income tax purposes .............................................................................
Other.........................................................................................................................................
Effective income tax rate ..................................................................................................................

(3) External based-corporate enterprise taxes

2005

40.69%

(140.70)
—

—

16.96
9.82
4.15
0.27
(68.81)%

2004

42.05%
(18.93)
(5.15)

(2.70)

—
(1.47)
(2.67)
(3.02)
8.12%

With the implementation of the “Revision of the Local Tax Law” (Legislation No. 9, 2003) on March 31, 2003, a part of the tax basis of
enterprise taxes comprises “amount of added value” and “amount of capital” from the fiscal year commenced April 1, 2004. As a result,
enterprise taxes that are calculated based on “amount of added value” and “amount of capital” are included in “General and administrative
expenses” from the fiscal year ended March 31, 2005 pursuant to “Practical Treatment for Presentation of External Based-Corporate
Enterprise Taxes in the Statement of Income” (Accounting Standards Board, Practical Solution Report No. 12).

26. Employee Retirement Benefits

(1) Outline of employee retirement benefits

Consolidated subsidiaries in Japan have contributory funded defined benefit pension plans such as employee pension plans, qualified pension
plans and lump-sum severance indemnity plans. Some domestic consolidated subsidiaries have general type of employee pension plans. They
may grant additional benefits in cases where certain requirements are met when employees retire.

A consolidated subsidiary in Japan adopts defined-contribution pension plan. SMBC and some consolidated subsidiaries in Japan con-

tributed some of their marketable equity securities to employee retirement benefit trusts.

SMFG 2005

(2) Projected benefit obligation

March 31

Millions of yen

2005

2004

Millions of
U.S. dollars
2005

—
1,632
(645)

$(8,305)
8,465
160

17,876
215,420
(78,022)

—
175,153
(69,163)

¥(892,421)
709,353
(183,068)

¥(891,311)
908,453
17,141

(D) ..................................
(E)...................................
(F)...................................

(A) ..................................
(B) ..................................
(C)=(A)+(B) ....................

(G)=(C)+(D)+(E)+(F).......
(H)..................................
(G)–(H)...........................

Projected benefit obligation
Plan assets
Unfunded projected benefit obligation
Unrecognized net transition obligation
from initial application of the new
accounting standard
Unrecognized net actuarial gain or loss
Unrecognized prior service cost
Net amount recorded on the consolidated
balance sheet
Prepaid pension cost (other assets)
Reserve for employee retirement benefits
(a) On January 26, 2004, SMBC received the approval from the Minister of Health, Labor and Welfare for exemption from future retirement
benefit obligations with respect to the entrusted portion of the employee pension fund, in accordance with the implementation of the
“Defined benefit enterprise pension plan law.” As a result, SMBC applied the temporary treatment stipulated in Article 47-2 of “Practical
Guidelines of Accounting for Retirement Benefits (Interim Report)” (JICPA’s Accounting Committee Report No. 13), and derecognized
retirement benefit liabilities on the entrusted portion and plan assets equivalent to the amount be returned on the day of approval. The
amount of expected return of plan assets (minimum legal reserves) was ¥184,014 million at March 31, 2004.
(b) On January 17, 2003, some domestic consolidated subsidiaries received the approval from the Minister of Health, Labor and Welfare for
exemption from future retirement benefit obligations with respect to the entrusted portion of the employees pension fund, in accordance
with the implementation of the “Defined benefit enterprise pension plan law.” On May 1, 2004, the subsidiaries also received the approval
from the Minister of Health, Labor and Welfare for exemption from past retirement benefit obligations with respect to the entrusted portion,
and adopted defined benefit pension plan.
(c) Plan assets related to the general type of welfare pension plan at March 31, 2005 and 2004, amounted to ¥14,057 million ($131 million)
and ¥32,501 million, respectively, and were not included in the “Plan assets” shown above.

123,131
157,924
¥ (34,792)

(27,792)
13,049
¥ (40,842)

1,147
1,471
$ (324)

(3) Pension expenses

Year ended March 31

Service cost ...............................................................................................
Interest cost on projected benefit obligation..............................................
Expected return on plan assets ..................................................................
Amortization of unrecognized net transition obligation from
initial application of the new accounting standard ..................................
Amortization of unrecognized net actuarial gain or loss.............................
Amortization of unrecognized prior service cost..........................................
Other (nonrecurring additional retirement allowance paid and other)........
Pension expenses.......................................................................................
Gains on return of the entrusted portion of employee pension fund ...........
Total.........................................................................................................

(4) Assumptions

Millions of yen

2005

¥22,109
22,041
(21,048)

17,876
26,828
(9,159)
8,139
66,788
—
¥66,788

2004

¥25,748
32,702
(23,033)

21,348
35,785
(6,062)
6,953
93,442
(59,095)
¥34,347

Millions of
U.S. dollars
2005

$206
205
(196)

166
250
(85)
76
622
—
$622

The principal assumptions used in determining benefit obligation and pension expenses at or for the years ended March 31, 2005 and
2004 were as follows:

Year ended March 31

Discount rate ......................................................................................................
Expected rate of return on plan assets..................................................................
Allocation of estimated amount of retirement benefits ........................................

Term to amortize unrecognized prior service cost................................................
Term to amortize unrecognized net actuarial gain or loss ....................................
Term to amortize unrecognized net transition obligation from initial
application of new accounting standard.............................................................

2005

2004

1.5% to 2.5%
0.0% to 4.0%
Allocated to each
period by the
straight-line method
Mainly 10 years
Mainly 10 years

Mainly 5 years

SMFG 2005 99

27. Cash Flows
Assets and liabilities of the companies that were newly consolidated through acquisition of stocks in the fiscal year ended March 31, 2004 were
as follows:

Assets and liabilities at the time of consolidation and the expense (net) for acquisition with respect to acquisition of the three companies
including former The Kansai Sawayaka Bank, Limited were as follows:

March 31

Assets...............................................................................................................................................................
Loans and bills discounted ............................................................................................................................
Liabilities .........................................................................................................................................................
Deposits .......................................................................................................................................................
Minority interests.............................................................................................................................................
Goodwill..........................................................................................................................................................
Acquisition costs for the three companies’ stocks (a) .........................................................................................
Cash and due from banks of the three companies (b) .........................................................................................
Cash expenditure for acquisition of the three companies (a) – (b) ......................................................................

Millions of yen
2004

¥800,118
593,042
(724,759)
(682,774)
(23,450)
(13,136)
38,773
(29,773)
8,999

28. Lease Transactions

(1) Financing leases

A summary of assumed amounts of acquisition cost, accumulated depreciation and net book value for financing leases without transfer of
ownership at March 31, 2005 and 2004 was as follows:
(a) Lessee side

Millions of yen

Millions of U.S. dollars
2005

2004
Acquisition Accumulated Net book Acquisition Accumulated Net book Acquisition Accumulated Net book

2005

March 31

cost

depreciation

value

cost

depreciation

value

Equipment ..............
Other ......................
Total .......................

¥4,779
392
¥5,171

¥2,716
234
¥2,950

¥2,063
157
¥2,221

¥11,705
606
¥12,312

¥6,848
357
¥7,206

¥4,856
249
¥5,106

cost

$44
4
$48

depreciation

value

$25
2
$27

$19
2
$21

Future minimum lease payments excluding interests at March 31, 2005 and 2004 were as follows:

March 31

Due within one year..................................................................................
Due after one year .....................................................................................

Millions of yen

2005

¥ 880
1,437
¥2,318

2004

¥2,070
3,251
¥5,322

Millions of
U.S. dollars
2005

$ 8
14
$22

Total lease expenses for the years ended March 31, 2005 and 2004 were ¥1,589 million ($15 million) and ¥2,296 million, respectively.

Assumed depreciation for the years ended March 31, 2005 and 2004 amounted to ¥1,449 million ($14 million) and ¥2,132 million,
respectively. Assumed depreciation is calculated using the straight-line method over the lease term of the respective assets without salvage
values. The difference between the minimum lease payments and the acquisition costs of the lease assets represents interest expenses. The
allocation of such interest expenses over the lease term is calculated using the effective interest method. Interest expenses for the years ended
March 31, 2005 and 2004 amounted to ¥144 million ($1 million) and ¥162 million, respectively.
(b) Lessor side

Millions of yen

Millions of U.S. dollars
2005

2004
Acquisition Accumulated Net book Acquisition Accumulated Net book Acquisition Accumulated Net book

2005

March 31

cost

depreciation

value

cost

depreciation

value

cost

depreciation

value

Equipment .............. ¥1,911,595 ¥1,204,282 ¥707,313 ¥1,908,945
Other ......................
580,899
Total ....................... ¥2,522,949 ¥1,546,997 ¥975,952 ¥2,489,845

611,354

342,715

268,639

¥1,197,471 ¥711,474
257,319
¥1,521,051 ¥968,794

323,580

$17,812
5,697
$23,509

$11,221
3,194
$14,415

$6,591
2,503
$9,094

Future lease payments receivable excluding interests at March 31, 2005 and 2004 were as follows:

March 31

Millions of yen

2005

¥319,727
668,731
¥988,459

2004

¥318,916
674,752
¥993,669

Millions of
U.S. dollars
2005

$2,979
6,231
$9,210

100

SMFG 2005

Total lease income for the years ended March 31, 2005 and 2004 was ¥412,550 million ($3,844 million) and ¥410,953 million,

respectively. Depreciation for the years ended March 31, 2005 and 2004 amounted to ¥348,971 million ($3,252 million) and ¥331,032
million, respectively. Interest income represents the difference between the sum of the lease payments receivable and estimated salvage
values, and the acquisition costs of the lease assets. The allocation of such interest income over the lease term is calculated using the
effective interest method. Interest income for the years ended March 31, 2005 and 2004 amounted to ¥66,591 million ($620 million)
and ¥60,905 million, respectively.

(2) Operating leases
(a) Lessee side
Future minimum lease payments at March 31, 2005 and 2004 were as follows:

March 31

(b) Lessor side
Future lease payments receivable at March 31, 2005 and 2004 were as follows:

March 31

Millions of yen

2005

¥17,692
81,546
¥99,238

2004

¥ 17,136
83,638
¥100,774

Millions of yen

2005

¥ 7,584
13,623
¥21,207

2004

¥ 4,189
9,804
¥13,993

Millions of
U.S. dollars
2005

$165
760
$925

Millions of
U.S. dollars
2005

$ 71
127
$198

Future lease payments receivable at March 31, 2005 and 2004 amounting to ¥74,176 million ($691 million) and ¥87,900 million,

respectively, on the lessor side referred to in (1) and (2) above were pledged as collateral for borrowings.

29. Market Value of Securities and Money Held in Trust

(1) Securities

The market value of securities at March 31, 2005 and 2004 was as follows:

The amounts shown in the following tables include trading securities, commercial paper and short-term corporate bonds classified as
“Trading assets,” negotiable certificates of deposit bought classified as “Deposits with banks,” and beneficiary claims on loan trusts clas-
sified as “Commercial paper and other debt purchased,” in addition to “Securities” stated in the consolidated balance sheets.
(a) Securities classified as trading purposes

March 31

2005

Consolidated balance sheet amount ..........................................................
Valuation losses included in the earnings for the fiscal year ......................

¥1,325,972
3,717

2004

¥1,170,727
1,707

Millions of yen

(b) Bonds classified as held-to-maturity with market value

March 31
Japanese government bonds..................................
Japanese local government bonds..........................
Japanese corporate bonds ......................................
Other ...................................................................
Total ....................................................................

Consolidated
balance sheet
amount
¥507,342
—
—
28,859
¥536,201

Consolidated
balance sheet
amount
¥509,458
—
—
17,272
¥526,731

Market value
¥505,002
—
—
29,380
¥534,382

Market value
¥500,930
—
—
18,374
¥519,305

Millions of yen
2005

Net unrealized
gains (losses)
¥(2,339)
—
—
520
¥(1,818)

Millions of yen
2004

Net unrealized
gains (losses)
¥(8,527)
—
—
1,101
¥(7,425)

Unrealized
gains
¥1,582
—
—
531
¥2,114

Unrealized
gains
¥1,739
—
—
1,101
¥2,840

Millions of
U.S. dollars
2005

$12,355
35

Unrealized
losses
¥3,922
—
—
11
¥3,933

Unrealized
losses
¥10,266
—
—
—
¥10,266

SMFG 2005 101

Millions of U.S. dollars
2005

Consolidated
balance sheet
amount
$4,727
—
—
269
$4,996

Market value
$4,705
—
—
274
$4,979

Net unrealized
gains (losses)
$(22)
—
—
5
$(17)

Unrealized
gains
$15
—
—
5
$20

Unrealized
losses
$37
—
—
0
$37

Note: Market value is calculated by using market prices at the fiscal year-end.

March 31
Stocks ............................................................................
Bonds ............................................................................
Japanese government bonds......................................
Japanese local government bonds..............................
Japanese corporate bonds..........................................
Other.............................................................................
Total..............................................................................

March 31
Stocks...................................................................
Bonds...................................................................
Japanese government bonds.............................
Japanese local government bonds.....................
Japanese corporate bonds.................................
Other ...................................................................
Total ....................................................................

Acquisition
cost

Consolidated
balance sheet
amount

¥ 1,992,711 ¥ 2,697,765
14,749,222
14,734,261
13,129,235
13,116,068
486,884
488,423
1,133,102
1,129,770
2,756,295
2,779,971
¥19,506,944 ¥20,203,283

Acquisition
cost

Consolidated
balance sheet
amount

¥ 2,234,577 ¥ 2,904,362
15,501,515
15,604,771
13,939,482
14,028,689
506,263
515,362
1,055,769
1,060,720
5,363,406
5,354,322
¥23,193,672 ¥23,769,285

Millions of yen
2005

Net unrealized
gains (losses)
¥705,053
14,961
13,167
(1,538)
3,332
(23,675)
¥696,339

Millions of yen
2004

Net unrealized
gains (losses)
¥669,784
(103,256)
(89,207)
(9,098)
(4,950)
9,084
¥575,612

Millions of U.S. dollars
2005

Acquisition
cost

$ 18,568
137,293
122,214
4,552
10,527
25,904
$181,765

Consolidated
balance sheet
amount
$ 25,138
137,432
122,337
4,537
10,558
25,683
$188,253

Net unrealized
gains (losses)
$6,570
139
123
(15)
31
(221)
$6,488

Unrealized
gains
¥750,480
34,971
27,115
2,061
5,794
15,903
¥801,356

Unrealized
gains
¥736,878
18,590
14,225
1,075
3,289
32,047
¥787,517

Unrealized
gains
$6,993
326
253
19
54
148
$7,467

Unrealized
losses
¥ 45,426
20,010
13,948
3,600
2,462
39,579
¥105,017

Unrealized
losses
¥ 67,094
121,847
103,432
10,173
8,240
22,963
¥211,904

Unrealized
losses

$423
187
130
34
23
369
$979

Notes: 1. Net unrealized gains at March 31, 2005 include gains of ¥469 million ($4 million) that is recognized in the fiscal year’s earnings because of the application of fair
value hedge accounting and gains of ¥82 million ($1 million) on embedded financial instruments in their entirety that are recognized in the earnings because their
embedded derivatives are not measured separately.
Of the total net unrealized gains for 2004, ¥23,452 million is included in the earnings for the year ended March 31, 2004 because of the application of fair value
hedge accounting.

2. Consolidated balance sheet amount is calculated as follows:

Stocks
Bonds and other Market prices at the fiscal year-end

Average market prices during one month before the fiscal year-end

3. Other securities with market value are considered as impaired if the market value decreases materially below the acquisition cost and such decline is not considered
as recoverable. The market value is recognized as the consolidated balance sheet amount and the amount of write-down is accounted for as valuation loss for the fis-
cal year. Valuation loss for the fiscal years ended March 31, 2005 and 2004 was ¥172 million ($2 million) and ¥5,625 million, respectively. The rule for determin-
ing “material decline” is as follows and is based on the classification of issuing company under self-assessment of assets.
Bankrupt/Effectively bankrupt/Potentially bankrupt issuers:
Issuers requiring caution:
Normal issuers:
Bankrupt issuers: Issuers that are legally bankrupt or formally declared bankrupt.
Effectively bankrupt issuers: Issuers that are not legally bankrupt but regarded as substantially bankrupt.
Potentially bankrupt issuers: Issuers that are not bankrupt now, but are perceived to have a high risk of falling into bankruptcy.
Issuers requiring caution: Issuers that are identified for close monitoring.
Normal issuers: Issuers other than the above four categories of issuers.

Market value is lower than acquisition cost.
Market value is 30% or more lower than acquisition cost.
Market value is 50% or more lower than acquisition cost.

102

SMFG 2005

(d) Held-to-maturity bonds sold during the years ended March 31, 2005 and 2004

Millions of yen

Cost of
securities sold

2005
Sales
amount

Gains
on sales

Cost of
securities sold

2004*
Sales
amount

Gains
on sales

Millions of U.S. dollars
2005
Sales
amount

Gains
on sales

Cost of
securities sold

—

—
—

—

—
—

—

—
—

¥21,063

¥21,709

¥ 645

23,060
¥44,123

23,796
¥45,506

736
¥1,382

—

—
—

—

—
—

—

—
—

Year ended March 31
Japanese government
bonds ....................
Japanese local
government bonds...
Total .......................
* Reason for sales:

A consolidated subsidiary, MINATO, changed its investment policy.

(e) Other securities sold during the years ended March 31, 2005 and 2004

Year ended March 31

Millions of yen

2005

2004

Sales amount ............................................................................................
Gains on sales...........................................................................................
Losses on sales ..........................................................................................

¥36,133,895
214,022
90,314

¥30,640,639
281,085
154,031

(f) Securities with no available market value

March 31

Bonds classified as held-to-maturity

Millions of yen
Consolidated
balance sheet
amount

2005

2004

Unlisted foreign securities.....................................................................
Other ....................................................................................................

2,400
8,566

3,371
9,713

Other securities

Unlisted stocks (excluding OTC stocks) ................................................
Unlisted bonds......................................................................................
Unlisted foreign securities.....................................................................
Other ....................................................................................................

429,658
2,110,338
412,118
221,982

532,446
1,596,199
316,217
144,433

Millions of
U.S. dollars
2005

$336,693
1,994
842

Millions of
U.S. dollars
Consolidated
balance sheet
amount
2005

22
80

4,004
19,664
3,840
2,068

(g) Change of classification of securities

In the fiscal year ended March 31, 2004, MINATO changed its investment policy and sold some of the held-to-maturity bonds
before their maturities. As a result, MINATO changed the classification of the remaining bonds that MINATO holds, ¥28,281 mil-
lion, from “held-to-maturity” to “other securities” pursuant to Article 83 of the “Practical Guidelines for Accounting for Financial
Instruments” (JICPA Accounting Committee Report No. 14). In addition, ¥12,063 million in reclassified bonds were sold in the fis-
cal year ended March 31, 2004 and net gains on sale of ¥18 million were recorded.

(h) Redemption schedule of other securities with maturities and held-to-maturity bonds

March 31
Bonds ............................................................................................................
Japanese government bonds......................................................................
Japanese local government bonds .............................................................
Japanese corporate bonds..........................................................................
Other.............................................................................................................
Total..............................................................................................................

Millions of yen
2005

Within 1 year
¥3,110,902
2,818,917
20,003
271,981
600,124
¥3,711,027

After 1 year
through 5 years
¥ 9,065,255
6,414,993
264,369
2,385,892
1,625,706
¥10,690,962

After 5 years
through 10 years
¥2,237,616
1,482,528
202,016
553,071
258,965
¥2,496,581

Millions of yen
2004

Within 1 year
¥2,879,079
2,706,787
7,759
164,531
441,373
¥3,320,453

After 1 year
through 5 years
¥ 9,470,889
7,223,369
263,194
1,984,324
4,212,911
¥13,683,800

After 5 years
through 10 years
¥3,999,979
3,266,491
234,789
498,698
457,429
¥4,457,409

After 10 years
¥2,953,130
2,920,138
494
32,497
725,965
¥3,679,096

After 10 years
¥1,257,227
1,252,292
519
4,415
538,094
¥1,795,322

SMFG 2005 103

Within 1 year

$28,987
26,267
186
2,534
5,592
$34,579

Millions of U.S. dollars
2005

After 1 year
through 5 years
$84,469
59,774
2,463
22,232
15,149
$99,618

After 5 years
through 10 years
$20,850
13,814
1,882
5,154
2,413
$23,263

After 10 years
$27,517
27,210
4
303
6,765
$34,282

(2) Money held in trust

(a) Money held in trust classified as trading purposes

There are no corresponding transactions.

(b) Money held in trust classified as held-to-maturity

There are no corresponding transactions.

March 31

Acquisition cost .......................................................................................
Consolidated balance sheet amount ..........................................................
Net unrealized gains.................................................................................
Unrealized gains.......................................................................................
Unrealized losses ......................................................................................

(3) Net unrealized gains on other securities and other money held in trust

Millions of yen

2005

¥3,628
3,832
204
300
95

2004

¥3,628
3,749
121
222
100

Millions of yen

March 31

Net unrealized gains.................................................................................
Other securities.....................................................................................
Other money held in trust.....................................................................
(–) Deferred tax liabilities ........................................................................
Net unrealized gains on other securities
(before following adjustment).................................................................
(–) Minority interests ...............................................................................
(+) SMFG’s interest in net unrealized gains on valuation of other
securities held by affiliates accounted for by the equity method ..............
Net unrealized gains on other securities....................................................

2005

¥695,951
695,746
204
282,389

413,561
7,982

5,074
¥410,653

2004

¥552,271
552,149
121
225,309

326,962
3,207

1,258
¥325,013

Millions of
U.S. dollars
2005

$34
36
2
3
1

Millions of
U.S. dollars
2005

$6,485
6,483
2
2,631

3,854
75

47
$3,826

2. Net unrealized gains (losses) included foreign currency translation adjustments on nonmarketable securities denominated in foreign currency.

104

SMFG 2005

30. Derivative Transactions
Interest rate derivatives

(1)

March 31
Transactions listed on exchange
Interest rate futures:

Millions of yen
2005

Contract amount

Total

Over 1 year

Market
value

Valuation
gains (losses)

¥ 39,978,468
42,079,595

866,455
1,915,442

45,530
(52,737)

Interest rate options:

—
250,080

—
21

Over-the-counter transactions
Forward rate agreements:

Sold..........................................................................................................
Bought ...................................................................................................
Interest rate swaps: .......................................................................................
Receivable fixed rate/payable floating rate ...............................................
Receivable floating rate/payable fixed rate ...............................................
Receivable floating rate/payable floating rate ..........................................

613,308
9,782,626
391,811,677
186,359,947
185,522,906
19,847,624

456,503
56,503
291,895,257
140,866,355
136,402,214
14,605,046

(60)
(4)
156,432
2,048,207
(1,885,274)
(3,515)

Interest rate swaptions:

Caps:

Floors:

Other:

2,720,750
2,807,739

7,957,445
5,131,777

287,377
310,056

—
639,798
/

1,358,410
1,970,731

5,140,360
3,276,916

123,982
167,044

—
105,311
/

(60)
(4)
156,432
2,048,207
(1,885,274)
(3,515)

(31,840)
39,263

(8,601)
6,496

(3,373)
3,673

(31,840)
39,263

(8,601)
6,496

(3,373)
3,673

—
4,989
¥ 159,789

March 31
Transactions listed on exchange
Interest rate futures:

Millions of yen
2004

Contract amount

Total

Over 1 year

Market
value

Valuation
gains (losses)

¥ 87,393,679
91,880,414

2,662,913
3,624,247

¥ (111,937)
110,424

Interest rate options:

554,768
984,778

267,333
267,333

(218)
241

Over-the-counter transactions
Forward rate agreements:

3,576,364
13,028,083
385,010,824
184,435,337
178,700,873
21,727,688

430,000
1,640,000
290,122,316
138,971,508
135,278,747
15,792,166

952
(2,001)
235,969
1,624,354
(1,380,548)
518

Interest rate swaptions:

Caps:

Floors:

Other:

2,224,743
2,589,152

5,408,280
3,602,677

224,688
302,366

—
306,408
/

968,959
1,173,273

3,469,422
2,345,784

190,319
240,371

—
72,854
/

952
(2,001)
235,969
1,624,354
(1,380,548)
518

(37,880)
41,346

(6,543)
5,628

(5,321)
5,040

(37,880)
41,346

(6,543)
5,628

(5,321)
5,040

—
4,402
¥ 240,101

SMFG 2005 105

March 31
Transactions listed on exchange
Interest rate futures:

Millions of U.S. dollars
2005

Contract amount

Total

Over 1 year

Market
value

Valuation
gains (losses)

$ 372,516
392,095

8,074
17,848

424
(491)

Interest rate options:

—
2,330

—
0

Over-the-counter transactions
Forward rate agreements:

Sold .........................................................................................................
Bought.....................................................................................................
Interest rate swaps: .......................................................................................
Receivable fixed rate/payable floating rate ................................................
Receivable floating rate/payable fixed rate ...............................................
Receivable floating rate/payable floating rate............................................

Interest rate swaptions:

Caps:

Floors:

Other:

5,715
91,154
3,650,873
1,736,489
1,728,689
184,939

4,254
526
2,719,859
1,312,583
1,270,986
136,089

25,352
26,162

74,147
47,818

2,678
2,889

—
5,962
/

12,658
18,363

47,898
30,534

1,155
1,557

—
981
/

(1)
(0)
1,458
19,085
(17,567)
(33)

(297)
366

(80)
61

(31)
34

(1)
(0)
1,458
19,085
(17,567)
(33)

(297)
366

(80)
61

(31)
34

—
46
$ 1,489

Notes: 1. The above transactions are valuated at market value and the valuation gains (losses) are accounted for in the consolidated statement of operations.

Derivative transactions to which deferred hedge accounting method is applied are not included in the amounts above.
Some consolidated overseas subsidiaries account for interest rate derivatives in accordance with local accounting standards. Such transactions are not included in the
amounts above. Net unrealized losses at March 31, 2005 amounted to ¥2,344 million ($22 million). Net unrealized gains at March 31, 2004 amounted to ¥13
million.

2. Market value of transactions listed on exchange is calculated mainly using the closing prices on the Tokyo International Financial Futures Exchange and others.

Market value of OTC transactions is calculated mainly using discounted present value and option pricing models.

(2) Currency derivatives

March 31
Over-the-counter transactions
Currency swaps .............................................................................................
Currency swaptions

Other

Sold ........................................................................................................
Bought.....................................................................................................
Total .............................................................................................................

Millions of yen
2005

Contract amount

Total

Over 1 year

Market
value

Valuation
gains (losses)

¥18,581,388

¥12,017,760

¥188,219

¥122,850

985,339
1,218,665
41,706,257

2,620,171
2,633,024

3,176
188
/

979,291
1,208,413
2,301,053

1,229,664
1,193,964

—
—
/

(22,071)
42,475
6,194

(83,225)
103,782

17
0
¥235,392

(22,071)
42,475
6,194

(83,225)
103,782

17
0
¥170,023

106

SMFG 2005

March 31
Over-the-counter transactions
Currency swaps .............................................................................................
Currency swaptions

Other

March 31
Over-the-counter transactions
Currency swaps .............................................................................................
Currency swaptions

Other

Millions of yen
2004

Contract amount

Total

Over 1 year

Market
value

Valuation
gains (losses)

¥16,317,980

¥10,396,658

¥ 82,675

¥131,136

646,230
1,135,123
33,748,772

2,911,936
2,883,999

7,957
—
/

623,671
1,112,563
1,368,595

898,824
907,272

882
—
/

(16,259)
40,495
(38,814)

(90,113)
107,026

51
—
¥ 85,060

(16,259)
40,495
(38,814)

(90,113)
107,026

51
—
¥133,521

Millions of U.S. dollars
2005

Contract amount

Total

Over 1 year

Market
value

Valuation
gains (losses)

$173,140

$111,981

$1,754

$1,145

9,181
11,355
388,616

24,415
24,534

30
2
/

9,125
11,260
21,441

11,458
11,125

—
—
/

(206)
396
58

(776)
967

0
0
$2,193

(206)
396
58

(776)
967

0
0
$1,584

Notes: 1. The above transactions are valuated at market value and the valuation gains (losses) are accounted for in the consolidated statement of operations. The amounts

above do not include the following:
(a) Derivative transactions to which deferred hedge accounting method is applied;
(b) Those that are allotted to financial assets/liabilities denominated in foreign currency and whose market values are already reflected to the consolidated balance

sheet; and

(c) Those that are allotted to financial assets/liabilities denominated in foreign currency and the financial assets/liabilities are eliminated in the process of

consolidation.

Some consolidated overseas subsidiaries account for currency derivatives in accordance with local accounting standards. Such transactions are not included in the
amounts above. Net unrealized gains at March 31, 2005 amounted to ¥698 million ($7 million). Net unrealized losses at March 31, 2004 amounted to ¥442
million.

2. Market value is calculated mainly using discounted present value.
3. Forward foreign exchange and currency options that were formerly revaluated at the fiscal year-end are included in the table above from the fiscal year ended March

31, 2004.

(3) Equity derivatives

March 31
Transactions listed on exchange
Equity price index futures:

Equity price index options:

Over-the-counter transactions
Equity options:

Equity price index swaps:

Receivable equity index/payable floating rate ...........................................
Receivable floating rate/payable equity index ...........................................

Other:

Millions of yen
2005

Contract amount

Total

Over 1 year

Market
value

Valuation
gains (losses)

233
594

—
—

17,500
17,000

—
—

22,834
66,278
/

¥ —
—

—
—

17,500
17,000

—
—

—
8,583
/

¥ —
(0)

—
—

(277)
271

—
—

(1,146)
4,887
¥3,735

¥ —
(0)

—
—

(277)
271

—
—

(1,146)
4,887
¥3,735

SMFG 2005 107

March 31
Transactions listed on exchange
Equity price index futures:

Millions of yen
2004

Contract amount

Total

Over 1 year

Market
value

Valuation
gains (losses)

¥ —
3,349

¥ —
—

¥ —
63

Equity price index options:

Over-the-counter transactions
Equity options:

Equity price index swaps:

Receivable equity index/payable floating rate ...........................................
Receivable floating rate/payable equity index ...........................................

Other:

—
—

4,791
7,336
/

—
3,005
/

(231)
311
¥143

—
—

(231)
311
¥143

March 31
Transactions listed on exchange
Equity price index futures:

Equity price index options:

Over-the-counter transactions
Equity options:

Equity price index swaps:

Receivable equity index/payable floating rate ...........................................
Receivable floating rate/payable equity index ...........................................

Other:

Millions of U.S. dollars
2005

Contract amount

Total

Over 1 year

Market
value

Valuation
gains (losses)

2
6

—
—

163
158

—
—

213
618
/

$ —
—

—
—

163
158

—
—

—
80
/

$—
(0)

—
—

(3)
3

—
—

(11)
46
$35

$—
(0)

—
—

(3)
3

—
—

(11)
46
$35

Notes: 1. The above transactions are valuated at market value and the valuation gains (losses) are accounted for in the consolidated statement of operations.

Derivative transactions to which deferred hedge accounting method is applied are not included in the amounts above.

2. Market value of transactions listed on exchange is calculated mainly using the closing prices on the Tokyo Stock Exchange.

Market value of OTC transactions is calculated mainly using discounted present value and option pricing models.

108

SMFG 2005

(4) Bond derivatives

March 31
Transactions listed on exchange
Bond futures:

Millions of yen
2005

Contract amount

Total

Over 1 year

Market
value

Valuation
gains (losses)

¥598,657
823,707

Bond futures options:

17,500
15,000

—
—

Over-the-counter transactions
Forward bond agreements:

Bond options:

—
263,054

702,330
691,518
/

—
243,588

11,851
—
/

¥(1,720)
6,645

(50)
21

—
1,485

(4,141)
1,144
¥ 3,383

¥(1,720)
6,645

(50)
21

—
1,485

(4,141)
1,144
¥ 3,383

March 31
Transactions listed on exchange
Bond futures:

Millions of yen
2004

Contract amount

Total

Over 1 year

Market
value

Valuation
gains (losses)

¥1,485,848
3,473,003

Bond futures options:

333,500
5,000

—
—

Over-the-counter transactions
Forward bond agreements:

Bond options:

296,334
—

2,821,954
2,420,812
/

273,251
—

14,114
2,972
/

¥ 5,213
(16,918)

(769)
66

1,746
—

(6,020)
18,216
¥ 1,533

¥ 5,213
(16,918)

(769)
66

1,746
—

(6,020)
18,216
¥ 1,533

March 31
Transactions listed on exchange
Bond futures:

Bond futures options:

Over-the-counter transactions
Forward bond agreements:

Bond options:

Millions of U.S. dollars
2005

Contract amount

Total

Over 1 year

Market
value

Valuation
gains (losses)

$5,578
7,675

163
140

—
2,451

6,544
6,444
/

$ —
—

—
—

—
2,270

110
—
/

$(16)
62

(0)
0

—
14

(39)
11
$ 32

$(16)
62

(0)
0

—
14

(39)
11
$ 32

Notes: 1. The above transactions are valuated at market value and the valuation gains (losses) are accounted for in the consolidated statement of operations.

Derivative transactions to which deferred hedge accounting method is applied are not included in the amounts above.

2. Market value of transactions listed on exchange is calculated mainly using the closing prices on the Tokyo Stock Exchange.

Market value of OTC transactions is calculated mainly using option pricing models.

SMFG 2005 109

(5) Commodity derivatives

March 31
Transactions listed on exchange
Commodity futures:

Millions of yen
2005

Contract amount

Total

Over 1 year

Market
value

Valuation
gains (losses)

—
310

—
—

¥ —
(16)

Over-the-counter transactions
Commodity swaps:

Receivable fixed price/payable floating price ............................................
Receivable floating price/payable fixed price ............................................

142,921
139,453

140,114
136,482

Commodity options:

6,861
6,095
/

6,854
5,925
/

(57,396)
67,597

(4,873)
5,056
¥10,367

(57,396)
67,597

(4,873)
5,056
¥10,367

March 31
Over-the-counter transactions
Commodity swaps:

Millions of yen
2004

Contract amount

Total

Over 1 year

Market
value

Valuation
gains (losses)

Receivable fixed price/payable floating price ............................................
Receivable floating price/payable fixed price ............................................

¥86,127
87,038

¥84,270
84,985

Commodity options:

4,457
4,448
/

4,318
4,309
/

¥(5,742)
9,932

(1,645)
1,667
¥ 4,211

¥(5,742)
9,932

(1,645)
1,667
¥ 4,211

March 31
Transactions listed on exchange
Commodity futures:

Millions of U.S. dollars
2005

Contract amount

Total

Over 1 year

Market
value

Valuation
gains (losses)

$ —
3

$ —
—

Over-the-counter transactions
Commodity swaps:

Receivable fixed price/payable floating price ............................................
Receivable floating price/payable fixed price ............................................

Commodity options:

1,332
1,299

64
57
/

1,306
1,272

64
55
/

$ —
(0)

(535)
630

(45)
47
$ 97

$ —
(0)

(535)
630

(45)
47
$ 97

Notes: 1. The above transactions are valuated at market value and the valuation gains (losses) are accounted for in the consolidated statement of operations.

Derivative transactions to which deferred hedge accounting method is applied are not included in the amounts above.

2. Market value is calculated based on factors such as price of the relevant commodity and contract term.
3. Commodity derivatives are transactions on fuel and metal.

(6) Credit derivative transactions

March 31
Over-the-counter transactions
Credit default options:

Millions of yen
2005

Contract amount

Total

Over 1 year

Market
value

Valuation
gains (losses)

¥45,468
76,405

¥37,132
62,558

Other:

923
1,481
/

—
—
/

¥ (779)
1,552

(84)
115
¥ 803

¥ (779)
1,552

(84)
115
¥ 803

110

SMFG 2005

March 31
Over-the-counter transactions
Credit default options:

Millions of yen
2004

Contract amount

Total

Over 1 year

Market
value

Valuation
gains (losses)

¥38,891
57,308

¥36,213
52,627

Other:

1,504
1,389
/

—
—
/

¥ (826)
1,580

(23)
27
¥ 757

¥ (826)
1,580

(23)
27
¥ 757

March 31
Over-the-counter transactions
Credit default options:

Millions of U.S. dollars
2005

Contract amount

Total

Over 1 year

Market
value

Valuation
gains (losses)

Other:

$424
712

9
14
/

$346
583

—
—
/

$ (7)
14

(1)
1
$ 7

$ (7)
14

(1)
1
$ 7

Notes: 1. The above transactions are valuated at market value and the valuation gains (losses) are accounted for in the consolidated statement of operations.

Derivative transactions to which deferred hedge accounting method is applied are not included in the amounts above.

2. Market value is calculated based on factors such as price of the reference assets and contract term.
3. “Sold” represents transactions in which the credit risk is accepted; “Bought” represents transactions in which the credit risk is transferred.

31. Segment Information

(1) Business segment information

Millions of yen
2005

Year ended March 31
I. Ordinary income

Banking business

Leasing

Other

Total

Elimination and
unallocated
corporate assets

Consolidated

(1) External customers .......................
(2) Intersegment ................................

¥ 2,447,122
41,862

¥ 706,860
19,723

Total .................................................
Ordinary expenses ................................

2,488,984
2,643,533

726,583
684,652

¥ 426,813
190,226

617,040
505,793

3,580,796
251,812

3,832,609
3,833,979

—
(251,812)

(251,812)
(222,889)

¥ 3,580,796
—

3,580,796
3,611,089

Ordinary profit (loss)............................

¥ (154,548)

41,931

¥ 111,246

(1,370)

(28,922)

(30,293)

II. Assets, depreciation and
capital expenditure
Assets ................................................
Depreciation......................................
Capital expenditure ...........................

¥96,420,384
60,568
66,189

¥1,924,019
343,134
400,119

¥5,649,310
24,248
27,112

¥103,993,713
427,951
493,421

¥(4,261,855)
14
9

¥99,731,858
427,966
493,430

Notes: 1. The business segmentation is classified based on SMFG’s internal administrative purpose.

Ordinary income and ordinary profit are presented as counterparts of sales and operating profit of companies in other industries.
2. “Other” includes securities, credit card, investment banking, loans, venture capital, system development and information processing.
3. As for assets, unallocated corporate assets that were included in “Elimination and unallocated corporate assets” mainly consisted of investments in affiliates of

¥3,806,067 million ($35,465 million).

4. Ordinary income represents total income excluding gains on disposal of premises and equipment, collection of written-off claims and reversals of other reserves.
Ordinary expenses represent total expenses excluding losses on disposal of premises and equipment, amortization of unrecognized net transition obligation for
employee retirement benefits and other extraordinary expenses.

SMFG 2005 111

Millions of yen
2004

Year ended March 31
I. Ordinary income

Banking business

Leasing

Other

Total

Elimination and
unallocated
corporate assets

Consolidated

(1) External customers .......................
(2) Intersegment ................................

¥ 2,492,168
26,911

¥ 674,243
18,466

Total .................................................
Ordinary expenses ................................

2,519,079
2,295,451

692,709
658,092

¥ 386,098
182,955

569,054
472,737

3,552,510
228,333

3,780,844
3,426,281

— ¥

(228,333)

(228,333)
(216,616)

3,552,510
—

3,552,510
3,209,665

Ordinary profit ....................................

223,627

34,616

96,317

354,562

(11,717)

342,844

¥99,062,021
66,809
91,870

¥1,815,963
336,392
371,350

¥5,940,301
19,043
28,906

¥106,818,286
422,245
492,127

¥(4,603,113)
9
33

¥102,215,172
422,255
492,161

Notes: 1. The business segmentation is classified based on SMFG’s internal administrative purpose.

¥3,409,122 million.

Millions of U.S. dollars
2005

Year ended March 31
I. Ordinary income

Banking business

Leasing

Other

Total

Elimination and
unallocated
corporate assets

(1) External customers .......................
(2) Intersegment ................................

Total .................................................
Ordinary expenses ...............................

$ 22,802
390

23,192
24,632

$ 6,587
184

6,771
6,380

$ 3,977
1,772

5,749
4,713

$ 33,366
2,346

35,712
35,725

—
(2,346)

(2,346)
(2,077)

Consolidated

$ 33,366
—

33,366
33,648

Ordinary profit (loss) ...........................

$ (1,440)

391

$ 1,036

(13)

(269)

(282)

II. Assets, depreciation and
capital expenditure
Assets ................................................
Depreciation .....................................
Capital expenditure ...........................

(2) Geographic segment information

$898,438
565
617

$17,928
3,197
3,728

$52,640
226
253

$969,006
3,988
4,598

$(39,712)
0
0

$929,294
3,988
4,598

Millions of yen
2005

Year ended March 31
I. Ordinary income

Japan

The Americas

Europe

Asia and Oceania

Total

Elimination and
unallocated
corporate assets

Consolidated

(1) External customers ........
(2) Intersegment.................

¥ 3,331,194
59,278

¥ 109,639
46,789

Total..................................
Ordinary expenses ................

3,390,472
3,494,330

156,429
107,027

62,959
6,189

69,148
63,254

77,003
26,013

103,016
60,692

¥ 3,580,796
138,270

— ¥ 3,580,796
—

(138,270)

3,719,067
3,725,305

(138,270)
(114,215)

3,580,796
3,611,089

Ordinary profit (loss) ............

¥ (103,857)

49,401

5,894

42,323

(6,238)

(24,055)

(30,293)

II. Assets .................................

¥91,564,408

¥4,704,584

¥2,462,266

¥3,253,758

¥101,985,019

¥(2,253,160)

¥99,731,858

Notes: 1. The geographic segmentation is classified based on the degrees of following factors: geographic proximity, similarity of economic activities and relationship of busi-

ness activities among regions.
Ordinary income and ordinary profit are presented as counterparts of sales and operating profit of companies in other industries.

2. The Americas includes the United States, Brazil, Canada and others; Europe includes the United Kingdom, Germany, France and others; Asia and Oceania includes

Hong Kong, Singapore, Australia and others except Japan.

3. As for assets, unallocated corporate assets that were included in “Elimination and unallocated corporate assets” mainly consisted of investments in affiliates of

¥3,806,067 million ($35,465 million).

112

SMFG 2005

Millions of yen
2004

Year ended March 31
I. Ordinary income

Japan

The Americas

Europe

Asia and Oceania

Total

Elimination and
unallocated
corporate assets

Consolidated

(1) External customers ........
(2) Intersegment.................

¥ 3,250,452
50,138

¥ 135,908
39,129

Total..................................
Ordinary expenses ................

3,300,591
3,067,985

175,038
109,837

75,566
6,113

81,680
65,586

90,582
11,360

101,942
59,397

3,552,510
106,742

3,659,252
3,302,806

— ¥

(106,742)

(106,742)
(93,140)

3,552,510
—

3,552,510
3,209,665

Ordinary profit.....................

232,606

65,201

16,093

42,545

356,446

(13,601) ¥

342,844

II. Assets .................................

¥95,318,870

¥4,826,318

¥2,177,644

¥2,731,299

¥105,054,133

¥(2,838,960) ¥102,215,172

Notes: 1. The geographic segmentation is classified based on the degrees of following factors: geographic proximity, similarity of economic activities and relationship of busi-

ness activities among regions.
Ordinary income and ordinary profit are presented as counterparts of sales and operating profit of companies in other industries.

2. The Americas includes the United States, Brazil, Canada and others; Europe includes the United Kingdom, Germany, France and others; Asia and Oceania includes

Hong Kong, Singapore, Australia and others except Japan.

3. As for assets, unallocated corporate assets that were included in “Elimination and unallocated corporate assets” mainly consisted of investments in affiliates of

¥3,409,122 million.

Millions of U.S. dollars
2005

Year ended March 31
I. Ordinary income

Japan

The Americas

Europe

Asia and Oceania

Total

Elimination and
unallocated
corporate assets

Consolidated

(1) External customers........
(2) Intersegment ................

Total .................................
Ordinary expenses ................

$ 31,040
552

31,592
32,560

Ordinary profit (loss) ............

(968)

II. Assets ................................

$853,191

$ 1,022
436

1,458
997

461

$43,837

586
58

644
589

718
242

960
566

394

$22,943

$30,318

$ 33,366
1,288

34,654
34,712

(58)

$950,289

—
(1,288)

(1,288)
(1,064)

(224)

$(20,995)

$ 33,366
—

33,366
33,648

(282)

$929,294

(3) Ordinary income from overseas operations

Year ended March 31

Consolidated ordinary income from overseas operations (A) ......................
Consolidated ordinary income (B).............................................................
(A) / (B)....................................................................................................

Millions of yen

2005

¥ 249,602
3,580,796

2004

¥ 302,057
3,552,510

Millions of
U.S. dollars
2005

$ 2,326
33,366

7.0%

8.5%

7.0%

Notes: 1. Consolidated ordinary income from overseas operations are presented as counterparts of overseas sales of companies in other industries.

2. The above table shows ordinary income from transactions of overseas branches of SMBC and transactions of overseas consolidated subsidiaries, excluding internal

income. These extensive transactions are not categorized by transaction party and the geographic segment information is not presented because such information is
not available.

32. Subsequent Events

(1) The following appropriations of retained earnings of SMFG at March 31, 2005 were approved by the general meeting of shareholders

held on June 29, 2005:

Cash dividends, ¥3,000 per share on common stock.........................................................
¥10,500 per share on preferred stock (Type 1) ........................................
¥28,500 per share on preferred stock (Type 2) ........................................
¥13,700 per share on preferred stock (Type 3) ........................................
¥135,000 per share on preferred stock (First to Twelfth series Type 4)....
¥67,500 per share on preferred stock (Thirteenth series Type 4) .............
¥728 per share on preferred stock (First series Type 6)............................

Millions of yen
¥17,607
367
2,850
9,521
6,763
7,228
50

Millions of U.S. dollars

$164
3
27
89
63
67
0

(2) On April 27, 2005, SMFG, SMCC and SMBC agreed with NTT DoCoMo, Inc. to form a strategic, business and capital alliance for the
launch of a credit-payment service using mobile phones. Pursuant to the agreement, NTT DoCoMo plans to acquire 34% of SMCC’s
common shares issued and outstanding for approximately ¥98 billion ($913 million).

SMFG 2005 113

33. Parent Company

(1) Nonconsolidated Balance Sheets

Sumitomo Mitsui Financial Group, Inc.

March 31

Assets

Millions of yen

Millions of
U.S. dollars (Note 1)

2005

2004

2005

Current assets ..........................................................................................

¥ 134,989

¥ 110,948

Cash and due from banks.....................................................................

44,021

98,159

Prepaid expenses .................................................................................

Deferred tax assets...............................................................................

Accrued income ....................................................................................

Current portion of long-term loans to subsidiaries and affiliates...........

Accrued income tax refunds .................................................................

Other current assets .............................................................................

443

40,000

50,349

112

424

—

12,179

145

$ 1,258

410

373

469

Fixed assets .............................................................................................

3,659,517

3,291,153

34,099

Premises and equipment ......................................................................

Buildings ...........................................................................................

Equipment.........................................................................................

Intangible assets...................................................................................

Software............................................................................................

—

Investments and other assets...............................................................

3,659,472

3,291,105

Investments in securities...................................................................

Investments in subsidiaries and affiliates..........................................

3,656,465

3,246,462

Long-term loans to subsidiaries and affiliates...................................

Deferred tax assets...........................................................................

Deferred charges ......................................................................................

Organization cost..................................................................................

—

2,997

603

40,000

4,565

905

34,099

34,071

—

Total assets .............................................................................................

¥3,795,110

¥3,403,007

$35,363

Liabilities

Current liabilities .......................................................................................

¥ 475,494

¥ 230,286

Short-term borrowings ..........................................................................

475,000

230,000

$ 4,431

4,426

Accounts payable .................................................................................

Accrued expenses ................................................................................

Income taxes payable...........................................................................

Business office taxes payable ..............................................................

Reserve for employees bonuses ..........................................................

Other current liabilities ..........................................................................

286

Total liabilities.........................................................................................

475,494

230,286

4,431

Stockholders’ equity

Capital stock ............................................................................................

Capital surplus ..........................................................................................

Capital reserve......................................................................................

Other capital surplus.............................................................................

Retained earnings ....................................................................................

Voluntary reserve..................................................................................

Special voluntary earned reserves....................................................

Unappropriated retained earnings ........................................................

Treasury stock ..........................................................................................

1,352,651

1,852,293

1,352,764

499,529

384,527

30,420

354,107

(269,857)

Total stockholders’ equity .....................................................................

3,319,615

Total liabilities and stockholders’ equity .............................................

¥3,795,110

1,247,650

1,747,273

1,247,762

499,510

178,720

30,420

148,300

(921)

3,172,721

¥3,403,007

12,604

17,260

12,605

4,655

3,583

283

3,300

(2,515)

30,932

$35,363

114

SMFG 2005

(2) Nonconsolidated Statements of Income
Sumitomo Mitsui Financial Group, Inc.

Millions of yen

Millions of
U.S. dollars (Note 1)

Year ended March 31

Operating income ...................................................................................

Dividends on investments in subsidiaries and affiliates........................

Fees and commissions received from subsidiaries ..............................

Interest income on loans to subsidiaries and affiliates .........................

Operating expenses ...............................................................................

General and administrative expenses ..................................................

2005

¥258,866

251,735

6,289

841

2,644

Operating profit ....................................................................................

256,222

Nonoperating income.............................................................................

Interest income on deposits..................................................................

Fees and commissions income ............................................................

Other nonoperating income ..................................................................

Nonoperating expenses .........................................................................

Interest on borrowings ..........................................................................

Amortization of organization costs........................................................

Stock issuance costs ............................................................................

Fees and commissions expenses.........................................................

Other nonoperating expenses ..............................................................

134

2,908

1,274

301

788

537

2004

¥55,515

47,332

7,341

841

3,044

52,470

121

101

1,403

874

301

—

206

2005

$2,412

2,346

2,387

Income before income taxes .................................................................

253,448

51,188

2,362

Income taxes:

Current.............................................................................................

Refund .............................................................................................

Deferred...........................................................................................

(329)

1,545

—

679

(3)

Net income ..............................................................................................

¥252,228

¥50,505

$2,350

Per share data:

Net income...............................................................................................

¥38,302.88

Net income — diluted...............................................................................

25,178.44

¥3,704.49

3,690.72

$356.90

234.61

Yen

U.S. dollars (Note 1)

SMFG 2005 115

Independent Auditors’ Report

To the Board of Directors of
Sumitomo Mitsui Financial Group, Inc.

We have audited the accompanying consolidated balance sheets of Sumitomo Mitsui Financial Group, Inc. (“SMFG”)
and subsidiaries as of March 31, 2005 and 2004, and the related consolidated statements of operations, stockholders’
equity and cash flows for the years then ended, expressed in Japanese yen. These consolidated financial statements are
the responsibility of SMFG’s management. Our responsibility is to express an opinion on these consolidated financial
statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in Japan. Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclo-
sures in the financial statements. An audit also includes assessing the accounting principles used and significant esti-
mates made by management, as well as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the con-
solidated financial position of SMFG and subsidiaries as of March 31, 2005 and 2004, and the consolidated results of
their operations and their cash flows for the years then ended, in conformity with accounting principles generally
accepted in Japan.

The consolidated financial statements as of and for the year ended March 31, 2005 have been translated into United
States dollars solely for the convenience of the reader. We have recomputed the translation and, in our opinion, the
consolidated financial statements expressed in Japanese yen have been translated into United States dollars on the
basis set forth in Note 1 to the consolidated financial statements.

Tokyo, Japan
June 29, 2005

116

SMFG 2005

Summary of Significant Differences
between Japanese GAAP and U.S. GAAP
The consolidated financial statements of SMFG and its subsidiaries presented in this annual report conform with generally
accepted accounting principles in Japan (“Japanese GAAP”). Such principles vary from the accounting principles generally
accepted in the United States (“U.S. GAAP”). Significant differences between Japanese GAAP and U.S. GAAP are summarized
below. These differences are not necessarily the only differences and other differences may exist:

Japanese GAAP

U.S. GAAP

Consolidated Subsidiaries
The consolidated financial statements include all enterprises
that are controlled by the parent, irrespective of the percent-
age of the voting shares owned.

Control is defined as the power to govern the decision

making body of an enterprise.

Equity Method of Accounting
Affiliates are enterprises over which SMFG has material influ-
ence with respect to their financial and operating policies.

Investments in nonconsolidated subsidiaries or affiliates
are accounted for by the equity method in the consolidated
financial statements.

Consolidated Subsidiaries
Statement of Financial Accounting Standards (“SFAS”)
No. 94 requires a parent company to consolidate all of its
majority-owned subsidiaries in which it holds more than
50% of the outstanding voting shares, subject to certain
exceptions related to temporary control or the parent com-
pany’s inability to exercise control over the subsidiary.

SFAS No. 140 defines the criteria of a qualifying special

purpose entity (“QSPE”), a trust or other legal vehicle that
may be the recipient of a transfer of financial assets from an
enterprise and that is not to be consolidated in the financial
statements of a transferor or its affiliates. An SPE is qualify-
ing only if it is demonstrably distinct from the transferor
and its activities are strictly limited. A QSPE generally may
hold only passive financial assets and may be permitted to
dispose of them only in automatic response to certain
objectively-defined events. Generally, for nonconsolidation
of non-qualifying SPEs to be appropriate, the majority own-
ers of the SPE must be independent third parties who have
made a substantive capital investment in the SPE, have con-
trol of the SPE, and have substantive risks and rewards of
ownership of the assets of the SPE.

FASB Interpretation No. 46R (“FIN 46R”) addresses
consolidation of what are termed variable interest entities,
where the voting interest approach is not effective in identi-
fying controlling financial interests in entities that are not
controllable through voting interests or in which the equity
investors do not bear the residual economic risks. An entity
is considered a variable interest entity that shall be subject
to consolidation if (i) the entity’s total equity at risk is insuf-
ficient to permit the entity to finance its activities without
additional subordinated support, or (ii) as a group, the hold-
ers of the equity investment at risk lack any of three charac-
teristics of a controlling financial interest. An enterprise
shall consolidate a variable interest entity if that enterprise
has a variable interest, that will absorb a majority of the
entity’s expected losses, receive a majority of the entity’s
residual returns, or both, where variable interests are defined
as contractual, ownership or other pecuniary interests in an
entity that change with changes in the fair value of the
entity’s net assets exclusive of variable interests.

Equity Method of Accounting
Investments representing ownership of 20% to 50% of the
outstanding voting shares are accounted for by the equity
method. In addition, investments representing ownership of
less than 20% are accounted for by the equity method if the
investor has the ability to exercise significant influence over
the entity in which it invests.

SMFG 2005 117

Business Combinations
Accounting treatment that is similar to the pooling-
of-interest method is normally used for business combina-
tions in accordance with the Commercial Code of Japan.
Under the accounting treatment, the balance sheet items of
the acquired company are combined with those of the
acquiring company at their carrying amount or fair value.
The Accounting Standards Board of Japan published
“Opinion Concerning Establishment of Accounting Standard
for Business Combination” in October 2003. According to
the opinion, from the fiscal year starting April 1, 2006, new
accounting standard is required to be applied. Under the new
accounting standard, the purchase method is the basic
method. The pooling-of-interests-method is applied only to
exceptionally limited circumstances when strict criteria are
met.

Securities
Debt securities that consolidated subsidiaries have the intent
and ability to hold to maturity (held-to-maturity securities)
are carried at amortized cost. Trading securities are carried at
market value with gains or losses included in the current
period income. Other securities (available-for-sale securities)
are carried at fair value with unrealized gains or losses
recorded directly to stockholders’ equity, net of taxes.

Accounting for Derivatives and Hedging Activities
Derivative instruments are carried at fair value with changes
included in the current period income unless certain hedge
accounting criteria are met. In general, if derivative instru-
ments are used as hedges and meet certain hedging criteria,
a company defers recognition of gains or losses resulting
from changes in fair value of derivative instruments as either
an asset or liability until the related losses or gains on the
hedged items are recognized. As a result of assessing and
measuring effectiveness of hedges, changes in fair values of
ineffective portion of derivatives can be deferred if only the
total portion is recognized as effective.

As for fair value hedge accounting to hedging transac-
tions for reducing the exposure to market volatility of bonds
classified as other securities, a company can select either of
following treatment.
(a) A company defers recognition of gains or losses resulting
from changes in fair value of derivative instruments as
either an asset or liability until the related losses or gains
on the hedged items are recognized.

(b) A company recognizes gains or losses resulting from

changes in fair value of derivative instruments in earn-
ings in the period of change together with the offsetting
fair value loss or gain on the hedged item.
A bank was permitted to adopt “Macro Hedge

Accounting” as hedge accounting method, under which the
bank manages the total interest rate risk arising from various
financial assets and liabilities as a whole by using financial
derivative transactions. The treatment was temporarily
permitted until fiscal year starting April 1, 2002.

118

SMFG 2005

Business Combinations
SFAS No. 141, Accounting for Business Combinations, pre-
scribes the purchase method for all business combinations.
The purchase method requires the valuation of the acquired
assets and liabilities based on fair market values at the time
of combination. The difference between the fair market val-
ues of the net assets and the consideration given represents
goodwill.

Securities
Investments in marketable equity and all debt securities
are classified at acquisition according to management’s
intent, into one of the following categories: trading,
available-for-sale, or held-to-maturity. Trading securities
are marked to fair value, with the resulting unrealized
gain or loss recognized in income. Available-for-sale securi-
ties should be marked to fair value, with the resulting unre-
alized gain or loss recorded in other comprehensive income.
Held-to-maturity securities are carried at amortized cost.
Other than temporary declines in value are charged to earn-
ings when incurred.

Accounting for Derivatives and Hedging Activities
SFAS No. 133, Accounting for Derivative Instruments and
Hedging Activities requires the recognition of all derivatives
as assets or liabilities in the balance sheet measured at fair
value. Changes in the fair values of derivatives are included
in earnings unless the derivative qualifies for hedge account-
ing criteria. As a result of assessing and measuring effective-
ness of hedges, changes in fair values of ineffective portion of
derivatives are included in earnings and to be disclosed. The
changes in the fair value of derivatives qualifying for hedge
accounting criteria depend on the intended use.

For derivatives designated as hedging the exposure to

changes in the fair value of an asset or liability or a firm
commitment, the gain or loss is recognized in earnings in
the period of change together with the offsetting fair value
loss or gain on the hedged item.

For derivatives designated as hedging the exposure to
variable cash flows of a forecasted transaction, the effective
portion of the derivative’s gain or loss is initially reported as
a component of other comprehensive income. Gains and
losses of cash flow hedges included in other comprehensive
income are reclassified into earnings in the same period or
periods during which the hedged cash flows affects earnings.
For derivatives designated as hedging the foreign cur-
rency exposure of a net investment in a foreign operation,
the gain or loss is reported in other comprehensive income as
part of the cumulative translation adjustment.

SFAS No. 133 was partially amended by SFAS No. 138

and SFAS No. 149.

From the fiscal year starting April 1, 2003, Japanese
banks are required to apply the basic provision of JICPA
Industry Audit Committee Report No. 24 to hedges on
groups of large-volume, small-value monetary and debts
with similar risk characteristics.

Accounting for Sales of Loans with Recourse
Certain loan participations which meet specified criteria are
allowed to be accounted for as sales, even though the loans
are not legally isolated from the transferor.

Restructured Loans
Discounted present value had not been historically used to
measure impairment of a loan. Reserves for restructured
loans were computed based on historical loss experience.

From the fiscal year ended at March 31, 2003, pursuant
to “Audit considerations with respect to the discounted cash
flow method used to determine allowance for credit losses by
banks and other financial institutions” (issued by JICPA on
February 24, 2003), major banks are required to provide
reserves for possible loan losses using the Discounted Cash
Flows method as follows for loans to large borrowers classi-
fied as “Past due loans (3 months or more)” or “Restructured
loans”:
(a) A bank rationally estimates the cash flows of principal
and interest, and measures their present values by dis-
counting the cash flows using the initial contractual
interest rate.

(b) A bank recognizes the difference between the present

value and its book value as estimated losses and provides
reserve for possible loan losses.

Accrued Interest on Non-Performing Loans
Consolidated subsidiaries place into the non-accrual status
loans which management assesses as “Bankrupt,”
“Effectively Bankrupt” or “Potentially Bankrupt.” Accrued
interest related to such loans is written-off.

Impairment of Long-Lived Assets
In August 2002, the Business Accounting Deliberation
Council issued “Opinion Concerning Establishment of
Accounting Standard for Impairment of Fixed Assets.” The
opinion requires that an impairment loss be recognized only
if there are indications of impairment loss and the carrying
amount of a fixed asset is lower than its aggregate undis-
counted future cash flows. The amount of impairment loss to
be recognized is the difference between the carrying amount

Accounting for Sales of Loans with Recourse
Under U.S. GAAP, pursuant to SFAS No. 140, financial
assets are generally recorded as sold and removed from the
balance sheet only when the following conditions have been
met: legal title has passed; the financial assets are beyond the
reach of the transferor’s creditors, even in bankruptcy or
receivership; the purchaser obtains the asset free of
conditions that constrain it from taking advantage of the
right to pledge or sell the asset; and the transferor does not
maintain effective control over the assets as defined. Sales
that are not free of such constraints are recorded as a financ-
ing. A transfer of assets qualifying as a sale under U.S.
GAAP but in connection with which the seller has assumed
a limited recourse obligation would result in the recording
of a liability for the estimated recourse.

Restructured Loans
SFAS No. 114 requires that impairment of a loan, including
a troubled debt restructuring, be measured based on the pre-
sent value of expected future cash flows discounted at the
loan’s effective interest rate or, as practicably expedient, at
the loan’s observable market price or the fair value of the col-
lateral if the loan is collateral-dependent.

Accrued Interest on Non-Performing Loans
Loans are placed on non-accrual status when they are deemed
uncollectible based on management’s assessment. Accrued
interest related to such loans is reversed against interest
income.

Income is generally recognized on such loans using
either a cost-recovery method, cash-basis method or some
combination of those methods.

Impairment of Long-Lived Assets
SFAS No. 144 requires that an impairment loss be recog-
nized only if the carrying amount of a long-lived asset is not
recoverable from its undiscounted future cash flows and be
measured as the difference between the carrying amount and
fair value of the long-lived assets. The impairment loss shall
be included in the current period income.

SMFG 2005 119

of fixed asset and the greater of: (i) the aggregate discounted
future cash flows, (ii) the expected resale price of the fixed
assets. The impairment loss shall be included in the current
period income.

This new accounting standard becomes effective for fiscal

years beginning after March 31, 2005. Earlier adoption is
permitted for the fiscal year ended March 31, 2004.

Goodwill
Goodwill that is the excess of investment cost over the par-
ent’s share of the underlying equity in net assets of the sub-
sidiary at the date of acquisition and that is created in
consolidation procedures shall be amortized within 20 years.
According to the “Opinion Concerning Establishment of

Accounting Standard for Business Combination” issued in
October 2003, goodwill is strictly amortized within 20 years
using a systematic method, with impairment test in addition.

Employee Pension and Post-Retirement Benefits
Reserve for employee retirement benefit is recorded based on
an actuarial computation, which uses the present value of the
projected benefit obligation and pension assets, based on an
employee’s credited years of services at the balance sheet
date. Contributions are charged to the income statement as a
decrease in pension costs when paid.

All unrecognized actuarial gains/losses are strictly sub-

ject to amortization.

There is no requirement of additional minimum liability

under Japanese GAAP.

Accounting for the transfer of the Substitutional
Portion of Employee Pension Fund Liabilities
In general, accounting for any gain on transfer to the
Japanese Government of the Substitutional Portion of
Employee Pension Fund Liabilities is recognized when the
obligation is settled and actually transferred. As an alterna-
tive, the gain on the return of the entrusted portion of the
employee pension fund is allowed if the transfer is resolved
by board of delegates and there are plan assets equivalent to
the amount that should be transferred to the Japanese
Government. This treatment is allowed from June 15, 2001
to March 31, 2004.

Earned Surplus Reserve
Under the Banking Law of Japan, an amount equivalent to
at least 20% of cash disbursements paid was appropriated
and was set aside as earned surplus reserve in the retained
earnings.

Effective October 1, 2001, such earned surplus reserve is
recorded until total of both earned surplus reserve and capi-
tal surplus equals the amount of common stock. The excess
of the total amount over the amount of common stock may
be transferred to retained earnings by resolution of
stockholders.

120

SMFG 2005

Goodwill
Under SFAS No. 142, goodwill is not amortized but tested
at least annually for impairment.

Employee Pension and Post-Retirement Benefits
U.S. GAAP generally requires the use of actuarial methods for
measuring annual employee benefit costs, including the use of
assumptions as to the rate of salary progression and discount
rate, the amortization of prior service costs over the remaining
service period of active employees and the immediate recogni-
tion of a liability when the accumulated benefit obligation
exceeds the fair market value of plan assets.

Unrecognized actuarial gains/losses that are equal to the

greater of 10% of the present value of benefit obligation
(PBO) and 10% of the fair value (market related value) of plan
assets, do not need to be amortized (corridor amortization).

Liability that is at least equal to unfunded accumulated

benefit obligation is recognized as additional minimum
liability.

Accounting for the transfer of the Substitutional
Portion of Employee Pension Fund Liabilities
In accordance with Emerging Issues Task Force Issue
No. 03-02 “Accounting for the Transfer to the Japanese
Government of the Substitutional Portion of Employee
Pension Fund Liabilities,” the entire separation process and
transfer will be accounted for at the time the transfer of the
benefit obligation and related plan assets is completed. The
ultimate determination of any gain or loss will be made as of
the date the transfer has been completed in accordance with
Statement of Financial Accounting Standards No. 88
“Employers’ Accounting for Settlements and Curtailments of
Defined Benefit Pension Plans and for Termination
Benefits.”

Earned Surplus Reserve
Such earned surplus reserve is not provided for under U.S.
GAAP.

Land Revaluation Excess
Land which had been recorded at acquired cost was allowed
to be revalued at fair value at one time during a fiscal year
from March 31, 1998 to March 31, 2002. The resulting
gains were recorded in land revaluation excess as a separate
component in the stockholders’ equity, net of tax.

The land shall not be revaluated after the initial revalua-

tion even if the fair value declined.

From the fiscal year commencing after March 31, 2005,

Accounting Standard for Impairment of Fixed Assets will
become effective. This new accounting standard stipulates
that when the impairment loss is recognized on revaluated
land under certain conditions, corresponding land revalua-
tion excess should be transferred to retained earnings.

Guarantees
Notional amounts of guarantees, including standby letters of
credit and the related reimbursement obligations of cus-
tomers, are presented on the balance sheet with assets of
equal amounts.

Loan Fees
Loan origination fees and costs are recognized when income
is received and costs are incurred.

Land Revaluation Excess
Such land revaluation excess is not permissible.

Guarantees
In November 2002, the Financial Accounting Standards
Board (FASB) issued interpretation No. 45, “Guarantor’s
Accounting and Disclosure Requirements for Guarantees,
Including Indirect Guarantees of Indebtedness of Others,”
which, among other provisions, applies to guarantees issued
or modified after December 31, 2002. The issuer of a guar-
antee is required to recognize, at the inception of the guar-
antee, an initial liability for fair value of its obligations
under the guarantee basically. The above-mentioned treat-
ment is required for letters, such as financial standby letters
of credit and contracts that contingently require the guaran-
tor to make payments to the guaranteed party.

Loan Fees
Loan origination fees are deferred and recognized over the
life of the related loan as an adjustment of yield based on the
effective interest method.

Certain direct loan origination costs are also deferred and

recognized over the life of the related loan as a reduction of
the loan’s yield based on the effective interest method.

Directors’ Bonuses
Directors’ bonuses are charged directly to retained earnings
by resolution of stockholders.

Directors’ Bonuses
Directors’ compensation is expensed on an accrual basis as
earned.

Leases
Unless transfer of ownership occurs, financing leases may be
accounted for as operating leases accompanied with suffi-
cient footnote disclosure.

Comprehensive Income
There are no specific accounting principles for reporting
comprehensive income.

Leases
Leases are classified as either capital lease or operating lease,
based on specified criteria. A lease which transfers substan-
tially all of the benefits and risks of ownership to the lessee
is reported as a capital lease. Other leases are accounted for as
operating leases.

Comprehensive Income
U.S. GAAP requires that all items that are required to be
recognized under accounting standards as components of
comprehensive income be reported in a financial statement
that is displayed with the same prominence as other finan-
cial statements. Comprehensive income includes all changes
in stockholders’ equity during an accounting period except
those resulting from investments by or distributions to own-
ers, including certain items not included in the current
results of operations.

SMFG 2005 121

Supplemental Information

Consolidated Balance Sheets (Unaudited)
Sumitomo Mitsui Banking Corporation and Subsidiaries

March 31

Assets
Cash and due from banks ...................................................................................
Deposits with banks ............................................................................................
Call loans and bills bought ...................................................................................
Receivables under resale agreements.................................................................
Receivables under securities borrowing transactions .........................................
Commercial paper and other debt purchased......................................................
Trading assets......................................................................................................
Money held in trust...............................................................................................
Securities .............................................................................................................
Loans and bills discounted...................................................................................
Foreign exchanges...............................................................................................
Other assets.........................................................................................................
Premises and equipment ....................................................................................
Lease assets ........................................................................................................
Deferred tax assets ..............................................................................................
Deferred tax assets for land revaluation ..............................................................
Customers’ liabilities for acceptances and guarantees ........................................
Reserve for possible loan losses .........................................................................
Total assets ........................................................................................................

Liabilities, minority interests and stockholders’ equity
Liabilities
Deposits ...............................................................................................................
Call money and bills sold .....................................................................................
Payables under repurchase agreements .............................................................
Payables under securities lending transactions ...................................................
Commercial paper................................................................................................
Trading liabilities ..................................................................................................
Borrowed money ..................................................................................................
Foreign exchanges...............................................................................................
Bonds ...................................................................................................................
Due to trust account ............................................................................................
Other liabilities......................................................................................................
Reserve for employee bonuses ...........................................................................
Reserve for employee retirement benefits ...........................................................
Reserve for expenses related to EXPO 2005 Japan ...........................................
Other reserves .....................................................................................................
Deferred tax liabilities...........................................................................................
Deferred tax liabilities for land revaluation ...........................................................
Acceptances and guarantees...............................................................................
Total liabilities ....................................................................................................

Millions of yen

Millions of U.S. dollars

2005

2004

2005

¥ 2,926,227
2,059,337
1,004,512
124,856
568,340
606,032
3,769,073
3,832
24,018,612
55,148,929
895,586
1,801,341
753,295
26,736
1,550,213
—
3,461,263
(1,239,882)
¥97,478,308

¥71,269,641
4,971,462
405,671
3,868,001
4,500
2,110,473
1,016,438
478,482
4,196,483
50,457
1,798,047
17,879
23,235
231
1,093
45,086
90,994
3,461,263
93,809,446

¥ 3,525,056
1,797,817
360,509
152,070
1,009,328
481,547
3,306,780
3,749
26,863,501
55,428,967
743,957
1,892,274
896,614
24,835
1,646,920
706
3,084,542
(1,375,921)
¥99,843,258

¥68,981,540
6,292,495
1,098,449
5,946,346
3,000
1,873,245
1,223,881
572,755
3,863,343
36,032
2,991,734
16,152
30,918
116
862
39,797
56,391
3,084,542
96,111,607

$ 27,266
19,189
9,360
1,163
5,296
5,647
35,120
36
223,803
513,874
8,345
16,785
7,019
249
14,445
—
32,252
(11,553)
$908,296

$664,085
46,324
3,780
36,042
42
19,665
9,471
4,458
39,103
470
16,754
167
217
2
10
420
848
32,252
874,110

Minority interests ...............................................................................................

1,034,950

1,009,489

9,643

Stockholders’ equity
Capital stock.........................................................................................................
Capital surplus .....................................................................................................
Retained earnings (deficit) ...................................................................................
Land revaluation excess ......................................................................................
Net unrealized gains on other securities ..............................................................
Foreign currency translation adjustments ............................................................
Total stockholders’ equity.................................................................................
Total liabilities, minority interests and stockholders’ equity.........................

Notes: 1. Amounts less than one million yen have been omitted.

664,986
1,603,512
(6,281)
57,772
394,973
(81,050)
2,633,912
¥97,478,308

559,985
1,298,511
519,354
96,393
319,780
(71,861)
2,722,161
¥99,843,258

6,196
14,942
(58)
538
3,680
(755)
24,543
$908,296

2. For the convenience of the readers, the accompanying U.S. dollar financial statements have been translated from Japanese yen, as a matter of

arithmetical computation only, at the rate of ¥107.32 to US$1, the exchange rate prevailing at March 31, 2005.

122

SMFG 2005

Consolidated Statements of Operations (Unaudited)
Sumitomo Mitsui Banking Corporation and Subsidiaries

Year ended March 31

Income
Interest income:

Interest on loans and discounts ......................................................................
Interest and dividends on securities ...............................................................
Interest on receivables under resale agreements...........................................
Interest on receivables under securities borrowing transactions ....................
Interest on deposits with banks.......................................................................
Other interest income......................................................................................
Trust fees .............................................................................................................
Fees and commissions ........................................................................................
Trading profits ......................................................................................................
Other operating income........................................................................................
Other income .......................................................................................................
Total income .......................................................................................................

Expenses
Interest expenses:

Interest on deposits.........................................................................................
Interest on borrowings and rediscounts ..........................................................
Interest on payables under repurchase agreements .....................................
Interest on payables under securities lending transactions ............................
Interest on bonds ............................................................................................
Other interest expenses..................................................................................
Fees and commissions ........................................................................................
Trading losses......................................................................................................
Other operating expenses....................................................................................
General and administrative expenses .................................................................
Provision for reserve for possible loan losses......................................................
Other expenses....................................................................................................
Total expenses ...................................................................................................
Income (loss) before income taxes and minority interests............................
Income taxes:

Current ............................................................................................................
Refund ............................................................................................................
Deferred .........................................................................................................
Minority interests in net income (loss)..................................................................
Net income (loss) ...............................................................................................

Millions of yen

Millions of U.S. dollars

2005

2004

2005

¥1,120,390
256,520
3,163
185
36,183
74,076
2,609
511,824
144,587
312,852
236,808
2,699,202

135,317
30,523
3,472
51,853
83,444
33,244
92,669
199
172,751
769,239
284,362
1,218,820
2,875,897
(176,695)

16,331
(8,539)
45,261
49,246
¥ (278,995)

¥1,139,037
256,601
2,542
104
12,679
149,740
334
422,066
305,011
231,017
324,367
2,843,502

108,286
33,687
4,212
48,622
74,855
25,410
91,455
916
223,464
776,106
—
1,100,179
2,487,197
356,304

13,970
—
293
40,376
¥ 301,664

$10,440
2,390
30
2
337
690
24
4,769
1,347
2,915
2,207
25,151

1,261
284
32
483
777
310
863
2
1,610
7,168
2,650
11,357
26,797
(1,646)

152
(79)
422
459
$ (2,600)

Yen

U.S. dollars

Per share data:

Net income (loss) ............................................................................................

¥(5,300.46)

Net income — diluted......................................................................................

Declared dividends on common stock ............................................................

Declared dividends on preferred stock (Type 1) .............................................

Declared dividends on preferred stock (Type 2) .............................................

Declared dividends on preferred stock (Type 3) .............................................

Declared dividends on preferred stock (First series Type 6) ..........................

—

683

10,500

28,500

13,700

485

¥5,238.85

5,231.31

4,177

10,500

28,500

13,700

$ (49.39)

—

6.36

97.84

265.56

127.66

4.52

Notes: 1. Amounts less than one million yen have been omitted.

2. For the convenience of the readers, the accompanying U.S. dollar financial statements have been translated from Japanese yen, as a matter of

arithmetical computation only, at the rate of ¥107.32 to US$1, the exchange rate prevailing at March 31, 2005.

SMFG 2005 123

Nonconsolidated Balance Sheets (Unaudited)
Sumitomo Mitsui Banking Corporation

March 31

Assets
Cash and due from banks ....................................................................................
Deposits with banks .............................................................................................
Call loans and bills bought ...................................................................................
Receivables under resale agreements.................................................................
Receivables under securities borrowing transactions ..........................................
Commercial paper and other debt purchased......................................................
Trading assets......................................................................................................
Money held in trust...............................................................................................
Securities .............................................................................................................
Loans and bills discounted...................................................................................
Foreign exchanges...............................................................................................
Other assets.........................................................................................................
Premises and equipment .....................................................................................
Deferred tax assets ..............................................................................................
Customers’ liabilities for acceptances and guarantees ........................................
Reserve for possible loan losses .........................................................................
Total assets ........................................................................................................

Liabilities and stockholders’ equity
Liabilities
Deposits ...............................................................................................................
Call money and bills sold .....................................................................................
Payables under repurchase agreements .............................................................
Payables under securities lending transactions ...................................................
Trading liabilities ..................................................................................................
Borrowed money ..................................................................................................
Foreign exchanges...............................................................................................
Bonds ...................................................................................................................
Due to trust account ............................................................................................
Other liabilities......................................................................................................
Reserve for employee bonuses ...........................................................................
Reserve for employee retirement benefits ...........................................................
Reserve for expenses related to EXPO 2005 Japan ...........................................
Other reserves .....................................................................................................
Deferred tax liabilities for land revaluation ...........................................................
Acceptances and guarantees...............................................................................
Total liabilities ....................................................................................................

Stockholders’ equity
Capital stock.........................................................................................................
Capital surplus .....................................................................................................
Retained earnings ................................................................................................
Land revaluation excess ......................................................................................
Net unrealized gains on other securities ..............................................................
Total stockholders’ equity.................................................................................
Total liabilities and stockholders’ equity.........................................................

Notes: 1. Amounts less than one million yen have been omitted.

Millions of yen

Millions of U.S. dollars

2005

2004

2005

¥ 2,689,806
1,835,023
946,397
88,021
568,340
126,682
3,363,376
3,832
23,676,696
50,067,586
840,923
1,446,439
660,469
1,502,153
4,303,148
(989,121)
¥91,129,776

¥65,591,627
4,811,207
365,127
3,838,031
1,711,030
2,267,602
477,845
3,718,372
50,457
1,143,206
9,092
—
231
18
90,043
4,303,148
88,377,041

664,986
1,367,548
291,311
42,345
386,543
2,752,735
¥91,129,776

¥ 3,355,519
1,511,401
287,262
130,337
1,009,328
133,081
2,958,990
3,749
26,592,584
50,810,144
720,840
1,480,776
688,325
1,590,518
4,086,964
(1,250,751)
¥94,109,074

¥63,656,771
6,204,833
1,071,114
5,946,346
1,504,465
2,531,973
576,958
3,177,741
36,032
2,368,824
8,752
11,748
116
18
55,541
4,086,964
91,238,204

559,985
1,237,307
676,064
81,158
316,354
2,870,870
¥94,109,074

$ 25,063
17,099
8,819
820
5,296
1,180
31,340
36
220,618
466,526
7,836
13,478
6,154
13,997
40,096
(9,217)
$849,141

$611,178
44,831
3,402
35,763
15,943
21,129
4,453
34,648
470
10,652
85
—
2
0
839
40,096
823,491

6,196
12,743
2,714
395
3,602
25,650
$849,141

2. For the convenience of the readers, the accompanying U.S. dollar financial statements have been translated from Japanese yen, as a matter of

arithmetical computation only, at the rate of ¥107.32 to US$1, the exchange rate prevailing at March 31, 2005.

124

SMFG 2005

Nonconsolidated Statements of Operations (Unaudited)
Sumitomo Mitsui Banking Corporation

Year ended March 31

Income
Interest income:

Interest on loans and discounts ......................................................................
Interest and dividends on securities ...............................................................
Interest on receivables under resale agreements...........................................
Interest on receivables under securities borrowing transactions ....................
Interest on deposits with banks.......................................................................
Other interest income......................................................................................
Trust fees .............................................................................................................
Fees and commissions ........................................................................................
Trading profits ......................................................................................................
Other operating income........................................................................................
Other income .......................................................................................................
Total income .......................................................................................................

Expenses
Interest expenses:

Interest on deposits.........................................................................................
Interest on borrowings and rediscounts ..........................................................
Interest on payables under repurchase agreements .....................................
Interest on payables under securities lending transactions ............................
Interest on bonds ............................................................................................
Other interest expenses..................................................................................
Fees and commissions ........................................................................................
Trading losses......................................................................................................
Other operating expenses....................................................................................
General and administrative expenses .................................................................
Provision for reserve for possible loan losses......................................................
Other expenses....................................................................................................
Total expenses ...................................................................................................
Income (loss) before income taxes ..................................................................
Income taxes:

Current ............................................................................................................
Refund ............................................................................................................
Deferred .........................................................................................................
Net income (loss) ...............................................................................................

Millions of yen

Millions of U.S. dollars

2005

2004

2005

¥ 939,895
262,640
1,955
181
33,651
80,375
2,609
399,434
131,779
228,005
210,408
2,290,935

110,763
89,059
2,786
51,818
60,483
31,283
101,358
199
109,916
603,477
117,688
1,112,179
2,391,014
(100,079)

¥ 975,130
249,594
818
104
11,167
155,507
334
322,075
283,611
149,209
341,633
2,489,187

88,122
94,186
3,089
48,621
49,441
21,822
95,506
2,881
159,774
623,098
—
983,795
2,170,341
318,846

6,379
(8,184)
38,579
¥ (136,854)

12,752
—
4,980
¥ 301,113

$ 8,758
2,447
18
2
314
749
24
3,722
1,228
2,124
1,961
21,347

1,032
830
26
483
564
291
944
2
1,024
5,623
1,097
10,363
22,280
(933)

59
(76)
359
$ (1,275)

Per share data:

Net income (loss) ............................................................................................

¥(2,718.23)

Net income — diluted......................................................................................

—

¥5,228.80

5,221.53

$ (25.33)

—

Notes: 1. Amounts less than one million yen have been omitted.

2. For the convenience of the readers, the accompanying U.S. dollar financial statements have been translated from Japanese yen, as a matter of

arithmetical computation only, at the rate of ¥107.32 to US$1, the exchange rate prevailing at March 31, 2005.

Yen

U.S. dollars

SMFG 2005 125

Income Analysis (Consolidated)

Sumitomo Mitsui Financial Group, Inc. and Subsidiaries

Operating Income, Classified by Domestic and Overseas Operations

2005

2004

Millions of yen

Year ended March 31

Domestic Overseas
operations
operations
Interest income .................................................... ¥1,352,588
¥219,685
Interest expenses ................................................
111,651
268,947
108,034
1,083,640
Net interest income....................................................

Elimination and
unallocated
Domestic Overseas
corporate
operations
operations
assets
¥238,922
¥(50,545) ¥1,521,728 ¥1,394,426
100,641
241,565
(30,216)
350,382
138,280
1,152,860
(20,329) 1,171,345

Total

Elimination and
unallocated
corporate
assets
¥(42,010) ¥1,591,338
310,246
1,281,091

(31,961)
(10,049)

Total

Trust fees................................................................... ¥

2,609

—

— ¥

2,609 ¥

334

—

— ¥

334

Fees and commissions (income) ......................... ¥ 558,734
Fees and commissions (expenses) .....................
78,271
480,462
Net fees and commissions ........................................

Trading profits...................................................... ¥ 138,258
Trading losses .....................................................
1,260
136,997
Net trading income ....................................................

Other operating income ....................................... ¥1,044,604
Other operating expenses ...................................
863,933

¥ 40,169
4,535
35,633

¥ 9,401
2,011
7,389

¥ 14,363
4,365

¥ (2,817) ¥ 596,086 ¥ 471,941
73,172
79,976
398,769
516,109

(2,831)
13

¥ (3,073) ¥ 144,587 ¥ 289,432
8,628
280,804

199
144,387

(3,073)
—

(678) ¥1,058,289 ¥ 927,894
877,113
(550)

867,748

¥ 30,604
4,309
26,294

¥ 23,302
11
23,290

¥ 19,006
10,729

¥ (1,517) ¥ 501,028
76,851
424,176

(629)
(887)

¥ (7,723) ¥ 305,011
916
304,094

(7,723)
—

(425) ¥ 946,474
886,649

(1,193)

Net other operating income .......................................

180,670

9,998

(127)

190,540

50,780

8,277

767

59,825

Notes: 1. Domestic operations comprise the operations of SMFG, its domestic consolidated banking subsidiaries (excluding overseas branches) and other

domestic consolidated subsidiaries. Overseas operations comprise the operations of the overseas branches of domestic consolidated banking
subsidiaries and overseas consolidated subsidiaries.

2. Income and expenses resulting from money held in trust are included in “Other income” and “Other expenses.” Therefore, “Interest expenses” are

shown after deduction of expenses (2005, ¥3 million; 2004, ¥21 million) related to the management of money held in trust.

3. Intersegment transactions are reported in “Elimination and unallocated corporate assets” column.

Average Balance, Interest and Earnings Yield of Interest-Earning Assets and Interest-Bearing Liabilities
Domestic Operations

Millions of yen

Average balance

Year ended March 31
Interest-earning assets.................................... ¥77,847,730
Loans and bills discounted......................... 50,766,858
Securities ................................................... 23,316,850
587,437
Call loans and bills bought .........................
Receivables under resale agreements ......
92,885
Receivables under securities

borrowing transactions .............................
Deposits with banks ...................................

874,138
1,226,375

Interest-bearing liabilities ................................ ¥83,983,565
Deposits .................................................... 62,961,909
3,561,190
Negotiable certificates of deposit ...............
4,836,442
Call money and bills sold ...........................
Payables under repurchase agreements ...
572,714
Payables under securities

lending transactions .................................
Commercial paper......................................
Borrowed money ........................................
Short-term bonds .......................................
Bonds .........................................................

4,645,843
305,731
2,942,159
263
3,623,970

2005

Interest
¥1,352,588
1,007,194
247,782
4,116
6

185
20,671

¥ 268,947
67,476
800
1,436
18

51,853
224
61,702
0
55,676

Earnings yield Average balance

2004

Interest
¥1,394,426
1,049,707
230,992
1,840
3

Earnings yield
1.74%
1.93
1.00
0.34
0.01

¥80,192,186
54,448,334
23,160,633
547,686
33,898

515,980
676,807

104
7,071

¥84,942,920
59,883,938
4,229,710
7,186,407
1,711,425

¥ 241,565
50,917
837
1,242
105

5,090,264
193,420
3,242,418
—
2,921,709

48,622
236
71,950
—
44,624

0.02
1.04

0.28%
0.09
0.02
0.02
0.01

0.96
0.12
2.22
—
1.53

1.74%
1.98
1.06
0.70
0.01

0.02
1.69

0.32%
0.11
0.02
0.03
0.00

1.12
0.07
2.10
0.14
1.54

Notes: 1. Domestic operations comprise the operations of SMFG, its domestic consolidated banking subsidiaries (excluding overseas branches) and other

domestic consolidated subsidiaries.

2. In principle, average balances are calculated by using daily balances. However, some domestic consolidated subsidiaries use weekly, monthly or

semiannual balances instead.

3. “Interest-earning assets” are shown after deduction of the average balance of noninterest earning deposits (2005, ¥1,674,507 million; 2004,

¥1,322,675 million).

4. Income and expenses resulting from money held in trust are included in “Other income” and “Other expenses.” Therefore, “Interest-earning assets”

are shown after deduction of the average balance of money held in trust (2005, ¥3,629 million; 2004, ¥21,933 million). “Interest-bearing liabilities” are
shown after deduction of amounts equivalent to the average balance of money held in trust (2005, ¥3,629 million; 2004, ¥21,933 million) and corre-
sponding interest (2005, ¥3 million; 2004, ¥21 million).

126

SMFG 2005

2.73%
3.09
3.20
2.46
2.03

—
1.74

2.04%
1.61
2.39
1.55
1.62

—
—
3.08
—
3.79

1.79%
2.07
1.05
1.00
1.27

0.02
1.71

0.40%
0.20
0.10
0.08
0.44

1.12
0.07
1.61
0.14
1.93

Overseas Operations

Average balance

Year ended March 31
Interest-earning assets.................................... ¥8,043,184
5,388,426
904,213
121,023
155,602

Loans and bills discounted.........................
Securities ...................................................
Call loans and bills bought .........................
Receivables under resale agreements ......
Receivables under securities

2005

Interest
¥219,685
166,477
28,944
2,979
3,157

borrowing transactions .............................
Deposits with banks ...................................

—
1,020,309

—
17,709

Interest-bearing liabilities ................................ ¥5,483,853
4,105,888
122,085
160,044
212,983

Deposits ....................................................
Negotiable certificates of deposit ...............
Call money and bills sold ...........................
Payables under repurchase agreements ...
Payables under securities

—
—
100,866
—
765,713

¥111,651
66,220
2,912
2,480
3,454

—
—
3,109
—
29,017

Millions of yen

Earnings yield Average balance

2004

Interest
¥238,922
148,501
35,639
2,200
2,538

Earnings yield
3.23%
2.93
3.44
2.16
1.99

¥7,391,661
5,064,994
1,036,961
101,843
127,275

—
703,330

—
7,008

¥5,109,984
3,404,225
96,735
123,925
354,094

—
—
113,752
—
1,004,354

¥100,641
55,119
2,697
1,355
4,107

—
—
2,179
—
31,577

—
1.00

1.97%
1.62
2.79
1.09
1.16

—
—
1.92
—
3.14

Notes: 1. Overseas operations comprise the operations of the overseas branches of domestic consolidated banking subsidiaries and overseas consolidated

subsidiaries.

2. In principle, average balances are calculated by using daily balances. However, some overseas consolidated subsidiaries use weekly, monthly or

semiannual balances instead.

3. “Interest-earning assets” are shown after deduction of the average balance of noninterest earning deposits (2005, ¥34,722 million; 2004, ¥29,738

million).

Total of Domestic and Overseas Operations

Average balance

Year ended March 31
Interest-earning assets.................................... ¥85,168,708
Loans and bills discounted......................... 55,390,830
Securities ................................................... 24,398,088
708,460
Call loans and bills bought .........................
248,487
Receivables under resale agreements ......
Receivables under securities

borrowing transactions .............................
Deposits with banks ...................................

874,138
2,112,078

Interest-bearing liabilities ................................ ¥88,566,822
Deposits .................................................... 66,931,833
Negotiable certificates of deposit ...............
3,683,275
4,996,487
Call money and bills sold ...........................
785,698
Payables under repurchase agreements ...
Payables under securities

4,645,843
305,731
2,278,563
263
4,389,684

2005

Interest
¥1,521,728
1,145,653
256,396
7,095
3,163

185
36,183

¥ 350,382
131,498
3,713
3,917
3,472

51,853
224
36,793
0
84,694

Millions of yen

Earnings yield Average balance

2004

Interest
¥1,591,338
1,167,622
256,600
4,040
2,542

Earnings yield
1.84%
1.99
1.05
0.62
1.58

¥86,714,682
58,643,284
24,355,276
649,529
161,173

515,980
1,224,157

104
12,687

¥89,009,467
63,115,626
4,326,445
7,310,332
2,065,520

¥ 310,246
104,644
3,535
2,598
4,212

5,090,264
193,420
2,486,093
—
3,926,064

48,622
236
43,561
—
76,202

0.02
1.04

0.35%
0.17
0.08
0.04
0.20

0.96
0.12
1.75
—
1.94

Notes: 1. The figures above comprise totals for domestic and overseas operations after intersegment eliminations.

2. In principle, average balances are calculated by using daily balances. However, some consolidated subsidiaries use weekly, monthly or semiannual

balances instead.

3. “Interest-earning assets” are shown after deduction of the average balance of noninterest earning deposits (2005, ¥1,708,177 million; 2004,

¥1,336,284 million).

4. Income and expenses resulting from money held in trust are included in “Other income” and “Other expenses.” Therefore, “Interest-earning assets”

SMFG 2005 127

Fees and Commissions

Year ended March 31
Fees and commissions (income)...............................
Deposits and loans ..............................................
Remittances and transfers...................................
Securities-related business..................................
Agency.................................................................
Safe deposits .......................................................
Guarantees ..........................................................
Credit card ...........................................................

2005

2004

Millions of yen

Elimination and
unallocated
corporate
assets

Domestic Overseas
operations
operations
¥40,169
¥558,734
23,974
23,448
7,009
117,282
0
51,973
—
19,304
3
6,732
3,463
36,399
—
93,768

Total
¥596,086
45,105
124,289
51,973
19,304
6,735
39,442
93,768

Domestic Overseas
operations
operations
¥30,604
¥471,941
17,995
17,470
5,756
113,302
0
43,883
—
16,239
3
5,923
2,845
30,668
—
90,506

¥(2,817)
(2,317)
(2)
—
—
—
(419)
—

Elimination and
unallocated
corporate
assets

¥(1,517)
(878)
(614)
—
—
—
(10)
—

Total
¥501,028
34,587
118,444
43,883
16,239
5,927
33,503
90,506

Fees and commissions (expenses) ...........................
Remittances and transfers...................................

¥ 78,271
23,071

¥ 4,535
1,529

¥(2,831)
(384)

¥ 79,976
24,215

¥ 73,172
21,952

¥ 4,309
2,128

¥ (629)
(527)

¥ 76,851
23,553

Notes: 1. Domestic operations comprise the operations of SMFG, its domestic consolidated banking subsidiaries (excluding overseas branches) and other

domestic consolidated subsidiaries. Overseas operations comprise the operations of the overseas branches of domestic consolidated banking
subsidiaries and overseas consolidated subsidiaries.

2. Intersegment transactions are reported in “Elimination and unallocated corporate assets” column.

Trading Income

Year ended March 31
Trading profits............................................................
Gains on trading securities ..................................
Gains on securities related to

2005

2004

Millions of yen

Domestic Overseas
operations
operations
¥9,401
¥138,258
—
7,857

Elimination and
unallocated
corporate
assets

¥(3,073)
—

Total
¥144,587
7,857

Domestic Overseas
operations
operations
¥23,302
¥289,432
—
6,735

Elimination and
unallocated
corporate
assets

¥(7,723)
—

Total
¥305,011
6,735

trading transactions ...........................................
Gains on trading-related financial derivatives......
Others ..................................................................

—
129,965
435

—
9,332
68

—
(3,073)
—

—
136,224
504

—
282,697
—

—
23,302
—

—
(7,723)
—

—
298,275
—

Trading losses ...........................................................
Losses on trading securities ................................
Losses on securities related to

trading transactions ...........................................
Losses on trading-related financial derivatives....
Others ..................................................................

¥ 1,260
—

¥2,011
—

¥(3,073)
—

189
1,071
—

10
2,001
—

—
(3,073)
—

199
—

199
—
—

¥ 8,628
—

904
7,723
—

11
—

—
—
11

¥(7,723)
—

—
(7,723)
—

916
—

904
—
11

Notes: 1. Domestic operations comprise the operations of SMFG, its domestic consolidated banking subsidiaries (excluding overseas branches) and other

domestic consolidated subsidiaries. Overseas operations comprise the operations of the overseas branches of domestic consolidated banking
subsidiaries and overseas consolidated subsidiaries.

2. Intersegment transactions are reported in “Elimination and unallocated corporate assets” column.

128

SMFG 2005

Assets and Liabilities (Consolidated)

Sumitomo Mitsui Financial Group, Inc. and Subsidiaries

Deposits and Negotiable Certificates of Deposit
Year-End Balance

March 31
Domestic operations:

2005

Millions of yen
2004

2003

Liquid deposits..........................................................................................................
Fixed-term deposits ..................................................................................................
Others ......................................................................................................................
Subtotal ....................................................................................................................
Negotiable certificates of deposit..............................................................................
Total..........................................................................................................................

Overseas operations:

¥39,010,945
20,513,332
4,566,079
¥64,090,357
¥ 2,579,986
¥66,670,344

¥ 3,731,804
643,931
8,767
¥ 4,384,503
¥ 133,283
¥ 4,517,787
¥71,188,131

¥36,825,754
20,308,162
4,766,396
¥61,900,312
¥ 3,423,393
¥65,323,706

¥ 2,862,410
562,667
8,036
¥ 3,433,114
¥
96,070
¥ 3,529,184
¥68,852,890

¥34,752,737
20,588,039
4,256,263
¥59,597,040
¥ 4,740,264
¥64,337,305

¥ 2,732,304
591,572
10,089
¥ 3,333,966
¥
112,753
¥ 3,446,720
¥67,784,025

Notes: 1. Domestic operations comprise the operations of SMFG, its domestic consolidated banking subsidiaries (excluding overseas branches) and other

domestic consolidated subsidiaries. Overseas operations comprise the operations of the overseas branches of domestic consolidated banking
subsidiaries and overseas consolidated subsidiaries.

2. Liquid deposits = Current deposits + Ordinary deposits + Savings deposits + Deposits at notice
3. Fixed-term deposits = Time deposits + Installment savings

Balance of Loan Portfolio, Classified by Industry
Year-End Balance

2005

2004

2003

March 31
Domestic operations:

Millions of yen

Percentage

Millions of yen

Percentage

Millions of yen

Percentage

Manufacturing ............................................ ¥ 5,659,954
Agriculture, forestry, fisheries and mining ...
134,289
Construction...............................................
1,829,895
Transportation, communications

2,872,776
and public enterprises..............................
5,692,582
Wholesale and retail ..................................
4,089,586
Finance and insurance ..............................
6,948,475
Real estate.................................................
Services .....................................................
6,271,962
Municipalities .............................................
656,386
Others ........................................................
15,895,492
Subtotal...................................................... ¥50,051,402

Overseas operations:

Public sector .............................................. ¥
83,325
406,015
Financial institutions ..................................
Commerce and industry.............................
4,060,708
Others ........................................................
198,353
Subtotal...................................................... ¥ 4,748,403
Total ................................................................ ¥54,799,805

11.31%
0.27
3.66

5.74
11.37
8.17
13.88
12.53
1.31
31.76
100.00%

1.75%
8.55
85.52
4.18
100.00%

—

¥ 6,136,783
142,576
1,950,595

3,275,122
5,884,109
3,828,350
7,965,230
6,136,593
765,690
15,328,834
¥51,413,887

81,737
338,375
3,304,282
244,516
¥ 3,968,912
¥55,382,800

11.94% ¥ 6,326,227
207,518
2,631,272

0.28
3.79

6.37
11.44
7.45
15.49
11.94
1.49
29.81

3,082,989
6,251,344
4,214,205
9,038,117
6,150,192
577,184
17,968,160
100.00% ¥56,447,214

2.06% ¥
8.53
83.25
6.16

141,741
312,632
3,898,656
282,701
100.00% ¥ 4,635,732
¥61,082,946

—

11.21%
0.37
4.66

5.46
11.07
7.47
16.01
10.90
1.02
31.83
100.00%

3.06%
6.74
84.10
6.10
100.00%

—

Notes: 1. Domestic operations comprise the operations of SMFG, its domestic consolidated banking subsidiaries (excluding overseas branches) and other

domestic consolidated subsidiaries. Overseas operations comprise the operations of the overseas branches of domestic consolidated banking
subsidiaries and overseas consolidated subsidiaries.

2. Japan offshore banking accounts are included in overseas operations’ accounts.
3. Percentage indicates the composition ratio.

SMFG 2005 129

Risk-Monitored Loans

March 31
Bankrupt loans...............................................................................................................
Non-accrual loans..........................................................................................................
Past due loans (3 months or more) ...............................................................................
Restructured loans ........................................................................................................
............................................................................................................................
Total

2005

68,337
1,398,964
29,441
730,701
¥2,227,445

Notes: Definition of risk-monitored loan categories

Millions of yen
2004

96,413
1,767,862
51,538
1,382,168
¥3,297,981

2003
¥ 201,392
2,710,164
130,353
2,728,791
¥5,770,700

1. Bankrupt loans: Credits for which accrued interest is not accounted in revenue; credits extended to borrowers that are undergoing bankruptcy,

corporate reorganization and rehabilitation proceedings or debtors receiving orders of disposition by suspension of business at bill clearinghouses

2. Non-accrual loans: Credits for which accrued interest is not accounted in revenue; credits, excluding loans to bankrupt borrowers and loans with

grace for interest payment to assist in corporate reorganization or to support business

3. Past due loans (3 months or more): Loans with payment of principal or interest in arrears for more than 3 months, calculated from the day following

the contractual due date, excluding borrowers in categories 1. and 2.

4. Restructured loans: Loans to borrowers in severe financial condition given certain favorable terms and conditions to assist in corporate rehabilitation

or to support business, excluding borrowers in categories 1. through 3.

Securities
Year-End Balance

March 31
Domestic operations:

2005

Millions of yen
2004

2003

Overseas operations:

Total of domestic and overseas operations:

Japanese government bonds ...................................................................................
Japanese local government bonds...........................................................................
Japanese corporate bonds .......................................................................................
Japanese stocks.......................................................................................................
Others.......................................................................................................................
Subtotal ....................................................................................................................
Total...............................................................................................................................

¥13,636,577
486,884
3,243,443
3,325,372
2,576,031
¥23,268,309

—
—
—
—
774,484
774,484

—
—
—
190,907
0
¥
190,907
¥24,233,701

¥14,377,379
506,263
2,651,971
3,473,577
4,908,958
¥25,918,150

71,560
—
—
—
895,875
967,436

—
—
—
164,314
—
¥ 164,314
¥27,049,901

¥12,813,396
375,204
2,369,698
3,321,531
3,346,246
¥22,226,077

88,250
—
854
—
1,650,405
¥ 1,739,510

—
—
—
152,932
—
¥ 152,932
¥24,118,520

Notes: 1. Domestic operations comprise the operations of SMFG, its domestic consolidated banking subsidiaries (excluding overseas branches) and other

domestic consolidated subsidiaries. Overseas operations comprise the operations of the overseas branches of domestic consolidated banking
subsidiaries and overseas consolidated subsidiaries.

2. “Others” include foreign bonds and foreign stocks.

130

SMFG 2005

Trading Assets and Liabilities

March 31

2005

2004

Millions of yen

Domestic Overseas
operations
operations

Elimination and
unallocated
corporate
assets

Total

Domestic Overseas
operations
operations

Elimination and
unallocated
corporate
assets

Total

Trading assets: ......................................................... ¥3,368,619
198,646
812
—

Trading securities ................................................
Derivatives of trading securities...........................
Securities related to trading transactions.............
Derivatives of securities related to

trading transactions ...........................................
Trading-related financial derivatives ....................
Other trading assets ............................................

2,033
2,110,833
1,056,293

Trading liabilities: ...................................................... ¥1,717,521
34,540
524
—

Trading securities sold for short sales .................
Derivatives of trading securities...........................
Securities related to trading transactions.............
Derivatives of securities related to

trading transactions ...........................................
Trading-related financial derivatives ....................
Other trading liabilities .........................................

2,061
1,680,394
—

¥411,698
71,032
—
—

—
340,666
—

¥404,196
34,878
—
—

—
369,318
—

¥(11,244) ¥3,769,073 ¥2,959,570
32,516
269,678
139
812
—
—

—
—
—

—

2,033
(11,244) 2,440,254
— 1,056,293

595
1,836,358
1,089,960

¥(11,244) ¥2,110,473 ¥1,518,119
19,855
69,419
242
524
—
—

—
—
—

—

2,061
(11,244) 2,038,468
—

—

940
1,497,081
—

¥366,802
48,250
—
—

—
318,552
—

¥374,718
12,802
—
—

—
361,915
—

¥(19,592) ¥3,306,780
80,766
139
—

—
—
—

—
(19,592)

595
2,135,318
— 1,089,960

¥(19,592) ¥1,873,245
32,658
242
—

—
—
—

—
(19,592)
—

940
1,839,404
—

Notes: 1. Domestic operations comprise the operations of SMFG, its domestic consolidated banking subsidiaries (excluding overseas branches) and other

domestic consolidated subsidiaries. Overseas operations comprise the operations of the overseas branches of domestic consolidated banking
subsidiaries and overseas consolidated subsidiaries.

2. Intersegment transactions are reported in “Elimination and unallocated corporate assets” column.

SMFG 2005 131

Capital Ratio (Consolidated)

Sumitomo Mitsui Financial Group, Inc. and Subsidiaries

March 31
Tier I capital:

Tier II capital:

Deductions:
Total capital:
Risk-adjusted assets:

Capital ratio:

Capital stock.......................................................................
Capital reserve ...................................................................
Retained earnings ..............................................................
Minority interests ................................................................
Valuation losses on other securities...................................
Treasury stock....................................................................
Foreign currency translation adjustments ..........................
Goodwill and others............................................................
Subtotal (A) ........................................................................
45% of unrealized gains on other securities.......................
45% of unrealized gains on land ........................................
General reserve for possible loan losses ...........................
Qualifying subordinated debt..............................................
Subtotal ..............................................................................
Tier II capital included as qualifying capital (B) ..................
(C) ......................................................................................
(D) = (A) + (B) - (C) ............................................................
On-balance-sheet...............................................................
Off-balance-sheet...............................................................
Asset equivalent of market risk ..........................................
Subtotal (E) ........................................................................
(D) / (E) × 100.....................................................................

2005
¥ 1,352,651
974,346
285,573
1,012,949
—
(269,857)
(79,883)
(13,531)
¥ 3,262,250
317,053
¥
67,103
633,515
2,537,304
¥ 3,554,977
¥ 3,262,250
¥
504,430
¥ 6,020,069
¥54,897,868
5,300,875
353,876
¥60,552,620
9.94%

Millions of yen
2004
¥ 1,247,650
865,282
564,767
990,426
—
(2,956)
(71,764)
(21,800)
¥ 3,571,604
249,401
¥
68,524
837,679
2,358,572
¥ 3,514,177
¥ 3,416,547
¥ 250,754
¥ 6,737,397
¥54,649,899
4,283,294
270,821
¥59,204,015
11.37%

2003
¥ 1,247,650
856,237
278,357
996,892
(24,197)
(15,204)
(53,515)
(30,282)
¥ 3,255,936
—
¥
71,699
1,173,927
2,150,334
¥ 3,395,961
¥ 2,961,619
¥ 238,633
¥ 5,978,922
¥55,417,663
3,525,419
223,781
¥59,166,864
10.10%

132

SMFG 2005

Capital (Nonconsolidated)

Sumitomo Mitsui Financial Group, Inc.

Change in Number of Shares Outstanding and Capital Stock

Number of shares
outstanding

Capital stock

Capital reserve

Millions of yen

Changes

Balances

Changes

Balances

December 2, 2002..........................
February 3, 2003 ............................
February 8, 2003 ............................
March 12, 2003 ..............................
April 1, 2003 — March 31, 2004.....
August 8, 2003 ...............................
April 1, 2004 — March 31, 2005.....
March 29, 2005 ..............................

—
86,576.53
50,100
115,000

8.61
—

332,869.96
70,001

6,676,424.39
6,763,000.92
6,813,100.92
6,928,100.92
6,928,109.53
6,928,109.53
7,260,979.49
7,330,980.49

—
—
75,150
172,500
—
—
—
105,001

¥1,000,000
1,000,000
1,075,150
1,247,650
1,247,650
1,247,650
1,247,650
1,352,651

Changes

—
3,069
75,150
172,500
—
(499,503)
—
105,001

Balances

¥1,496,547
1,499,616
1,574,766
1,747,266
1,747,266
1,247,762
1,247,762
1,352,764

Remarks:
February 3, 2003:

February 8, 2003:

Increase in the number of common stock as a result of merger with The Japan Research Institute
Holdings, Ltd. (merger ratio: 1-to-0.021)
Allotment to third parties:

Preferred stock (1st to 12th series Type 4)

Issue price:
Capitalization:

¥3,000,000
¥1,500,000

March 12, 2003:

Allotment to third parties:

Preferred stock (13th series Type 4)

Issue price:
Capitalization:

¥3,000,000
¥1,500,000

April 1, 2003 — March 31, 2004: Conversion of a share of preferred stock (13th series Type 4) to 9.61 shares of common stock.
Capital reserve was transferred to other capital surplus pursuant to Article 289-2 of the Commercial Code.
August 8, 2003:
April 1, 2004 — March 31, 2005: Conversion of 32,000 shares of preferred stock (Type 1), 105,000 shares of preferred stock (Type3), and

March 29, 2005:

7,912 shares of preferred stock (13th series Type 4) to 477,781.96 shares of common stock.
Allotment to third parties:

Preferred stock (1st series Type 6)
¥3,000,000
¥1,500,000

Issue price:
Capitalization:

Note: During the period from April 1 to May 31, 2005, SMFG converted 92,979 shares of preferred stock (13th series Type 4) into 894,027.10 shares of

common stock.

Total Outstanding Shares
March 31, 2005
Common stock...............................................................................................................................................................
Preferred stock (Type 1) ................................................................................................................................................
Preferred stock (Type 2) ................................................................................................................................................
Preferred stock (Type 3) ................................................................................................................................................
Preferred stock (1st series Type 4)................................................................................................................................
Preferred stock (2nd series Type 4) .............................................................................................................................
Preferred stock (3rd series Type 4) ..............................................................................................................................
Preferred stock (4th series Type 4) ..............................................................................................................................
Preferred stock (5th series Type 4) ..............................................................................................................................
Preferred stock (6th series Type 4) ..............................................................................................................................
Preferred stock (7th series Type 4) ..............................................................................................................................
Preferred stock (8th series Type 4) ..............................................................................................................................
Preferred stock (9th series Type 4) ..............................................................................................................................
Preferred stock (10th series Type 4) ............................................................................................................................
Preferred stock (11th series Type 4) ............................................................................................................................
Preferred stock (12th series Type 4) ............................................................................................................................
Preferred stock (13th series Type 4) .............................................................................................................................
Preferred stock (1st series Type 6)................................................................................................................................
Total...............................................................................................................................................................................

Number of shares issued

6,273,792.49
35,000
100,000
695,000
4,175
4,175
4,175
4,175
4,175
4,175
4,175
4,175
4,175
4,175
4,175
4,175
107,087
70,001
7,330,980.49

Stock Exchange Listings
Tokyo Stock Exchange (First Section)
Osaka Securities Exchange (First Section)
Nagoya Stock Exchange (First Section)

SMFG 2005 133

Number of Shares, Classified by Type of Shareholders
a. Common Stock

March 31, 2005
Japanese government and local government................................................................
Financial institutions ......................................................................................................
Securities companies ....................................................................................................
Other institutions............................................................................................................
Foreign institutions ........................................................................................................
Foreign individuals.........................................................................................................
Individuals and others....................................................................................................
Total...............................................................................................................................
Fractional shares ...........................................................................................................

Number of
shareholders

7
350
88
7,217
859
46
142,791
151,358
—

Number of
shares

4,897
2,038,829
54,258
1,619,383
1,494,278
264
1,033,430
6,245,339

Percentage of
total
0.08%

32.64
0.87
25.93
23.93
0.00
16.55
100.00%

28,453.49

—

Notes: 1. Of 404,503.97 shares in treasury stock, 404,503 shares are included in “Individuals and others” and the remaining 0.97 shares are included in “Fractional

shares.”

2. “Other institutions” and “Fractional shares” include 637 and 0.20 shares, respectively, held by the Securities Custody Association.

b. Preferred Stock (Type 1)

k. Preferred Stock (7th series Type 4)

March 31, 2005
Financial institutions ......

Number of
shareholders
1

Number of
shares
35,000

Percentage of
total
100.00%

March 31, 2005
Foreign institutions.........

Number of
shareholders
1

Number of
shares

4,175

Percentage of
total
100.00%

c. Preferred Stock (Type 2)

l. Preferred Stock (8th series Type 4)

March 31, 2005
Financial institutions ......

Number of
shareholders
1

Number of
shares
100,000

Percentage of
total
100.00%

March 31, 2005
Foreign institutions.........

Number of
shareholders
1

Number of
shares

4,175

Percentage of
total
100.00%

d. Preferred Stock (Type 3)

m. Preferred Stock (9th series Type 4)

March 31, 2005
Financial institutions ......

Number of
shareholders
1

Number of
shares
695,000

Percentage of
total
100.00%

March 31, 2005
Foreign institutions.........

Number of
shareholders
1

Number of
shares

4,175

Percentage of
total
100.00%

e. Preferred Stock (1st series Type 4)

n. Preferred Stock (10th series Type 4)

March 31, 2005
Foreign institutions.........

Number of
shareholders
1

Number of
shares

4,175

Percentage of
total
100.00%

March 31, 2005
Foreign institutions.........

Number of
shareholders
1

Number of
shares

4,175

Percentage of
total
100.00%

f. Preferred Stock (2nd series Type 4)

o. Preferred Stock (11th series Type 4)

March 31, 2005
Foreign institutions.........

Number of
shareholders
1

Number of
shares

4,175

Percentage of
total
100.00%

March 31, 2005
Foreign institutions.........

Number of
shareholders
1

Number of
shares

4,175

Percentage of
total
100.00%

g. Preferred Stock (3rd series Type 4)

p. Preferred Stock (12th series Type 4)

March 31, 2005
Foreign institutions.........

Number of
shareholders
1

Number of
shares

4,175

Percentage of
total
100.00%

March 31, 2005
Foreign institutions.........

Number of
shareholders
1

Number of
shares

4,175

Percentage of
total
100.00%

h. Preferred Stock (4th series Type 4)

q. Preferred Stock (13th series Type 4)

March 31, 2005
Foreign institutions.........

Number of
shareholders
1

Number of
shares

4,175

Percentage of
total
100.00%

March 31, 2005
Foreign institutions.........

Number of
shareholders
1

Number of
shares
107,087

Percentage of
total
100.00%

i. Preferred Stock (5th series Type 4)

r. Preferred Stock (1st series Type 6)

March 31, 2005
Foreign institutions.........

Number of
shareholders
1

Number of
shares

4,175

Percentage of
total
100.00%

March 31, 2005
Financial institutions ......

Number of
shareholders
4

Number of
shares
70,001

Percentage of
total
100.00%

j. Preferred Stock (6th series Type 4)

March 31, 2005
Foreign institutions.........

Number of
shareholders
1

Number of
shares

4,175

Percentage of
total
100.00%

134

SMFG 2005

Principal Shareholders
a. Common Stock
March 31, 2005
Shareholders

Number of
shares

Percentage of
shares outstanding

Japan Trustee Services Bank, Ltd. (Trust Account)........................................................................................

438,816.00

6.99%

The Master Trust Bank of Japan, Ltd. (Trust account)....................................................................................

431,664.00

Nippon Life Insurance Company.....................................................................................................................

154,388.42

Sumitomo Life Insurance Company ................................................................................................................

108,241.00

Matsushita Electric Industrial Co., Ltd. ...........................................................................................................

103,570.98

Hero & Company (Standing agent: SMBC Global Investor Services Dept.,

International Banking Unit) ...........................................................................................................................

91,529.00

The Chase Manhattan Bank N.A. London (Standing agent: Mizuho Corporate Bank, Ltd.’s

Kabutocho Custody & Proxy Department within the Settlement & Clearing Services Division)....................

89,864.00

Japan Trustee Services Bank, Ltd. (The Sumitomo Trust and Banking Company Retrust Portion,

Sumitomo Life Insurance Company Pension Trust)......................................................................................

58,000.00

TOYOTA MOTOR CORPORATION ..............................................................................................................

53,753.12

Trust & Custody Services Bank, Ltd. (Trust Account B) .................................................................................

51,729.00

State Street Bank and Trust Company (Standing agent: Mizuho Corporate Bank, Ltd.’s

Kabutocho Custody & Proxy Department within the Settlement & Clearing Services Division)....................

50,129.00

The Sumitomo Trust and Banking Company, Limited (Trust Account B)........................................................

46,918.00

The Mitsubishi Trust and Banking Corporation (Trust Account) .....................................................................

43,883.00

Japan Trustee Services Bank, Ltd. (Trust Account No. 4) ..............................................................................

41,069.00

The Chase Manhattan Bank 385036 (Standing agent: Mizuho Corporate Bank, Ltd.’s

Kabutocho Custody & Proxy Department within the Settlement & Clearing Services Division)....................

40,505.00

State Street Bank and Trust Company 505103 (Standing agent: Mizuho Corporate Bank, Ltd.’s

Kabutocho Custody & Proxy Department within the Settlement & Clearing Services Division)....................

40,054.00

KUBOTA CORPORATION..............................................................................................................................

39,499.00

Takeda Chemical Industries, Ltd. ...................................................................................................................

39,074.89

JPMCB USA Residents Pension Jasdec Lend 385051 (Standing agent: Mizuho Corporate Bank, Ltd.’s

Kabutocho Custody & Proxy Department within the Settlement & Clearing Services Division)....................

38,857.00

The Nomura Trust and Banking Co., Ltd. (Investment Trust Account) ...........................................................

36,433.00

The SMFG Employee Stockholders’ Association............................................................................................

34,564.03

Dresdner Bank AG (Standing agent: Dresdner Kleinwort Wasserstein (Japan) Limited) ...............................

34,026.00

The Bank of New York, Treaty JASDEC Account (Standing agent:

Bank of Tokyo-Mitsubishi Ltd.’s Global Securities Service Division) ............................................................

33,163.00

UFJ Trust Bank Limited (Trust Account A)......................................................................................................

32,176.00

SANYO ELECTRIC CO., LTD. .......................................................................................................................

32,063.44

Japan Trustee Services Bank, Ltd. (Mitsui Asset Trust and Banking Company Retrust Portion,

Toshiba Corporation Employee Pension Trust) ............................................................................................

31,463.00

The Chase Manhattan Bank N.A. London SL Omnibus Account (Standing agent: Mizuho Corporate Bank,
Ltd.’s Kabutocho Custody & Proxy Department within the Settlement & Clearing Services Division) ..........

29,805.00

JPMCB Omnibus USA Pension Treaty Jasdec 380052 (Standing agent: Mizuho Corporate Bank, Ltd.’s

Kabutocho Custody & Proxy Department within the Settlement & Clearing Services Division)....................

28,978.00

The Tokyo Electric Power Company, Incorporated.........................................................................................

28,313.38

Mitsui Asset Trust and Banking Company, Limited (Individually Operated Designated Money Trusts) .........

28,030.00

6.88

2.46

1.72

1.65

1.45

1.43

0.92

0.85

0.82

0.79

0.74

0.69

0.65

0.64

0.63

0.62

0.61

0.58

0.55

0.54

0.52

0.51

0.50

0.47

0.46

0.45

0.44

SMFG 2005 135

b. Preferred Stock (Type 1)

March 31, 2005
Shareholder
The Resolution and

Number of
shares

Percentage of
shares outstanding

Collection Corporation ......................

35,000

100.00%

i. Preferred Stock (5th series Type 4)

March 31, 2005
Shareholder
The GSSM Holding Corporation

(Standing agent: Goldman
Sachs (Japan) Ltd.) ..........................

Number of
shares

Percentage of
shares outstanding

4,175

100.00%

c. Preferred Stock (Type 2)

March 31, 2005
Shareholder
The Resolution and

Number of
shares

Percentage of
shares outstanding

Collection Corporation ...................... 100,000

100.00%

j. Preferred Stock (6th series Type 4)

March 31, 2005
Shareholder
The GSSM Holding Corporation

(Standing agent: Goldman
Sachs (Japan) Ltd.) ..........................

Number of
shares

Percentage of
shares outstanding

4,175

100.00%

d. Preferred Stock (Type 3)

March 31, 2005
Shareholder
The Resolution and

Number of
shares

Percentage of
shares outstanding

Collection Corporation ...................... 695,000

100.00%

k. Preferred Stock (7th series Type 4)

March 31, 2005
Shareholder
The GSSM Holding Corporation

(Standing agent: Goldman
Sachs (Japan) Ltd.) ..........................

Number of
shares

Percentage of
shares outstanding

4,175

100.00%

e. Preferred Stock (1st series Type 4)

March 31, 2005
Shareholder
The GSSM Holding Corporation

(Standing agent: Goldman
Sachs (Japan) Ltd.) ..........................

Number of
shares

Percentage of
shares outstanding

4,175

100.00%

l. Preferred Stock (8th series Type 4)

March 31, 2005
Shareholder
The GSSM Holding Corporation

(Standing agent: Goldman
Sachs (Japan) Ltd.) ..........................

Number of
shares

Percentage of
shares outstanding

4,175

100.00%

f. Preferred Stock (2nd series Type 4)

m. Preferred Stock (9th series Type 4)

March 31, 2005
Shareholder
The GSSM Holding Corporation

(Standing agent: Goldman
Sachs (Japan) Ltd.) ..........................

Number of
shares

Percentage of
shares outstanding

4,175

100.00%

March 31, 2005
Shareholder
The GSSM Holding Corporation

(Standing agent: Goldman
Sachs (Japan) Ltd.) ..........................

Number of
shares

Percentage of
shares outstanding

4,175

100.00%

g. Preferred Stock (3rd series Type 4)

n. Preferred Stock (10th series Type 4)

March 31, 2005
Shareholder
The GSSM Holding Corporation

(Standing agent: Goldman
Sachs (Japan) Ltd.) ..........................

Number of
shares

Percentage of
shares outstanding

4,175

100.00%

March 31, 2005
Shareholder
The GSSM Holding Corporation

(Standing agent: Goldman
Sachs (Japan) Ltd.) ..........................

Number of
shares

Percentage of
shares outstanding

4,175

100.00%

h. Preferred Stock (4th series Type 4)

o. Preferred Stock (11th series Type 4)

March 31, 2005
Shareholder
The GSSM Holding Corporation

(Standing agent: Goldman
Sachs (Japan) Ltd.) ..........................

Number of
shares

Percentage of
shares outstanding

4,175

100.00%

March 31, 2005
Shareholder
The GSSM Holding Corporation

(Standing agent: Goldman
Sachs (Japan) Ltd.) ..........................

Number of
shares

Percentage of
shares outstanding

4,175

100.00%

136

SMFG 2005

p. Preferred Stock (12th series Type 4)

r. Preferred Stock (1st series Type 6)

March 31, 2005
Shareholder
The GSSM Holding Corporation

(Standing agent: Goldman
Sachs (Japan) Ltd.) ..........................

Number of
shares

Percentage of
shares outstanding

4,175

100.00%

q. Preferred Stock (13th series Type 4)

March 31, 2005
Shareholder
JPMorgan Chase Bank, London

Number of
shares

Percentage of
shares outstanding

(Agent of SMFG Finance (Cayman)
Limited) (Standing agent:
Operations & Administration Dept.,
SMBC) .............................................. 107,087

100.00%

March 31, 2005
Shareholder
Sumitomo Life Insurance Company....
Nippon Life Insurance Company ........
MITSUI LIFE INSURANCE

Number of
shares
23,334
20,000

Percentage of
shares outstanding

33.33%
28.57

COMPANY LIMITED ........................

16,667

23.81

Mitsui Sumitomo Insurance

Company, Limited.............................
Total....................................................

10,000
70,001

14.29
100.00%

Note: The following reports on shareholdings (including their amendment

reports) were submitted to the authorities. However, as we could not
confirm how many shares are in beneficial possession of the submit-
ters as of March 31, 2005, we did not include them in the list of prin-
cipal shareholders shown above. The contents of the reports are
summarized as follows:

Percentage

Submitters
Fidelity Investments

Filing date

Number of of shares
outstanding

shares*

Japan Limited....................... Oct. 14, 2003

298,948
Nomura Securities Co., Ltd. ... Sep. 15, 2004 312,458
Resona Holdings, Inc. ............ Mar. 22, 2005
75,476
Goldman Sachs

5.16%
5.39
1.04

(Japan) Ltd. .......................... Apr. 14, 2005

563,991

7.69

* Includes shares held by co-shareholders.

Stock Options
March 31
Number of shares granted ..........................................................................................................
Type of stock................................................................................................................................
Issue price....................................................................................................................................
Amount capitalized when shares are issued................................................................................
Exercise period of stock options ..................................................................................................
Note: Former SMBC issued and granted stock options to certain directors and employees pursuant to the resolution of the ordinary general meeting of share-

1,620 shares
Common stock
¥673,000 per share
¥337,000 per share
From June 28, 2004 to June 27, 2012

2005

holders held on June 27, 2002. SMFG succeeded the obligations related to the stock options at the time of its establishment pursuant to the resolution of
the preferred shareholders’ meetings held on September 26, 2002 and the extraordinary shareholders’ meeting held on September 27, 2002.

Common Stock Price Range
Stock Price Performance

Year ended March 31
High ...............................................................................................................................
Low ................................................................................................................................
Notes: 1. Stock prices of common shares as quoted on the Tokyo Stock Exchange (First Section).

2005
¥854,000
599,000

Yen
2004

¥780,000
162,000

2003
¥452,000
206,000

2. Preferred stock (Type 1), Preferred stock (Type 2), Preferred stock (Type 3), Preferred stock (1st to 12th series Type 4), Preferred stock (13th series

Type 4) and Preferred stock (1st series Type 6) are not listed on exchanges.

Six-Month Performance

Yen

High ................................................................
Low.................................................................
Notes: 1. Stock prices of common shares as quoted on the Tokyo Stock Exchange (First Section).

October 2004
¥701,000
632,000

November 2004 December 2004
¥744,000
666,000

¥751,000
693,000

January 2005
¥745,000
708,000

February 2005
¥730,000
678,000

March 2005
¥754,000
716,000

2. Preferred stock (Type 1), Preferred stock (Type 2), Preferred stock (Type 3), Preferred stock (1st to 12th series Type 4), Preferred stock (13th series

Type 4) and Preferred stock (1st series Type 6) are not listed on exchanges.

SMFG 2005 137

Income Analysis (Consolidated)

Sumitomo Mitsui Banking Corporation and Subsidiaries

Operating Income, Classified by Domestic and Overseas Operations

2005

2004

Millions of yen

Year ended March 31

Domestic Overseas
operations
Interest income .................................................... ¥1,320,829
Interest expenses ................................................
255,867
1,064,962
Net interest income....................................................

¥219,685
111,651
108,034

Total

Domestic Overseas
operations
¥(49,996) ¥1,490,519 ¥1,363,268
225,847
(29,666)
337,851
1,137,420
(20,329) 1,152,667

¥238,922
100,641
138,280

operations Elimination

Total

¥(41,485) ¥1,560,705
295,053
1,265,651

(31,435)
(10,049)

Trust fees................................................................... ¥

2,609

—

— ¥

2,609 ¥

334

— ¥

334

Fees and commissions (income) ......................... ¥ 474,455
Fees and commissions (expenses) .....................
90,943
383,511
Net fees and commissions ........................................

Other operating income ....................................... ¥ 298,745
Other operating expenses ...................................
168,482
130,263
Net other operating income .......................................

¥ 40,169
4,535
35,633

¥ 9,401
2,011
7,389

¥ 14,310
4,365
9,944

¥ (2,799) ¥ 511,824 ¥ 392,956
87,775
92,669
305,180
419,155

(2,809)
10

¥ (3,073) ¥ 144,587 ¥ 289,432
8,628
280,804

199
144,387

(3,073)
—

(203) ¥ 312,852 ¥ 212,128
213,614
(1,486)

172,751
140,101

(96)
(107)

¥ 30,604
4,309
26,295

¥ 23,302
11
23,290

¥ 19,006
10,729
8,277

¥ (1,495) ¥ 422,066
91,455
330,610

(629)
(865)

¥ (7,723) ¥ 305,011
916
304,094

(7,723)
—

(117) ¥ 231,017
223,464
(878)
7,552
761

Notes: 1. Domestic operations comprise the operations of SMBC (excluding overseas branches) and its domestic consolidated subsidiaries.
Overseas operations comprise the operations of SMBC’s overseas branches and its overseas consolidated subsidiaries.

2. Income and expenses resulting from money held in trust are included in “Other income” and “Other expenses.” Therefore, “Interest expenses” are

shown after deduction of expenses (2005, ¥3 million; 2004, ¥21 million) related to the management of money held in trust.

3. Intersegment transactions are reported in “Elimination” column.

Average Balance, Interest and Earnings Yield of Interest-Earning Assets and Interest-Bearing Liabilities
Domestic Operations

Millions of yen

Average balance

Year ended March 31
Interest-earning assets.................................... ¥77,870,320
Loans and bills discounted......................... 50,866,716
Securities ................................................... 23,248,647
587,437
Call loans and bills bought .........................
92,885
Receivables under resale agreements ......
Receivables under securities

borrowing transactions .............................
Deposits with banks ...................................

874,138
1,217,735

Interest-bearing liabilities ................................ ¥82,499,517
Deposits .................................................... 62,999,470
3,620,709
Negotiable certificates of deposit ...............
Call money and bills sold ...........................
4,836,442
Payables under repurchase agreements ...
572,714
Payables under securities

4,645,843
4,528
1,798,989
136
3,487,399

2005

Interest
¥1,320,829
974,378
247,905
4,116
6

185
20,579

¥ 255,867
67,477
813
1,436
18

51,853
1
51,055
0
54,426

Earnings yield Average balance

2004

Interest
¥1,363,268
1,016,646
230,993
1,840
3

Earnings yield
1.70%
1.87
1.00
0.34
0.01

¥80,116,238
54,452,750
23,090,843
547,686
33,898

515,980
666,233

104
6,972

¥83,510,193
59,917,916
4,281,885
7,186,407
1,711,425

¥ 225,847
50,922
847
1,242
105

5,090,264
6,997
2,050,391
—
2,781,324

48,622
4
59,038
—
43,278

0.02
1.05

0.27%
0.08
0.02
0.02
0.01

0.96
0.07
2.88
—
1.56

1.70%
1.92
1.07
0.70
0.01

0.02
1.69

0.31%
0.11
0.02
0.03
0.00

1.12
0.04
2.84
0.12
1.56

Notes: 1. Domestic operations comprise the operations of SMBC (excluding overseas branches) and its domestic consolidated subsidiaries.

2. In principle, average balances are calculated by using daily balances. However, some domestic consolidated subsidiaries use weekly, monthly or

semiannual balances instead.

3. “Interest-earning assets” are shown after deduction of the average balance of noninterest earning deposits (2005, ¥1,670,430 million; 2004,

¥1,318,691 million).

4. Income and expenses resulting from money held in trust are included in “Other income” and “Other expenses.” Therefore, “Interest-earning assets”

138

SMFG 2005

2.73%
3.09
3.20
2.46
2.03

—
1.74

2.04%
1.61
2.39
1.55
1.62

—
—
3.08
—
3.79

1.75%
2.01
1.06
1.00
1.27

0.02
1.72

0.39%
0.20
0.10
0.08
0.44

1.12
0.04
2.30
0.12
1.96

Overseas Operations

Average balance

Year ended March 31
Interest-earning assets.................................... ¥8,043,184
5,388,426
904,213
121,023
155,602

2005

Interest
¥219,685
166,477
28,944
2,979
3,157

borrowing transactions .............................
Deposits with banks ...................................

—
1,020,309

—
17,709

Interest-bearing liabilities ................................ ¥5,483,853
4,105,888
122,085
160,044
212,983

—
—
100,866
—
765,713

¥111,651
66,220
2,912
2,480
3,454

—
—
3,109
—
29,017

Millions of yen

Earnings yield Average balance

2004

Interest
¥238,922
148,501
35,639
2,200
2,538

Earnings yield
3.23%
2.93
3.44
2.16
1.99

¥7,391,661
5,064,994
1,036,961
101,843
127,275

—
703,330

—
7,008

¥5,109,984
3,404,225
96,735
123,925
354,094

—
—
113,752
—
1,004,354

¥100,641
55,119
2,697
1,355
4,107

—
—
2,179
—
31,577

—
1.00

1.97%
1.62
2.79
1.09
1.16

—
—
1.92
—
3.14

Notes: 1. Overseas operations comprise the operations of SMBC’s overseas branches and its overseas consolidated subsidiaries.

2. In principle, average balances are calculated by using daily balances. However, some overseas consolidated subsidiaries use weekly, monthly or

semiannual balances instead.

3. “Interest-earning assets” are shown after deduction of the average balance of noninterest earning deposits (2005, ¥34,722 million; 2004, ¥29,738

million).

Total of Domestic and Overseas Operations

Average balance

Year ended March 31
Interest-earning assets.................................... ¥85,037,716
Loans and bills discounted......................... 55,510,427
Securities ................................................... 24,152,860
708,460
Call loans and bills bought .........................
Receivables under resale agreements ......
248,487
Receivables under securities

borrowing transactions .............................
Deposits with banks ...................................

874,138
2,107,140

Interest-bearing liabilities ................................ ¥87,106,414
Deposits .................................................... 66,973,294
3,742,795
Negotiable certificates of deposit ...............
Call money and bills sold ...........................
4,996,487
785,698
Payables under repurchase agreements ...
Payables under securities

4,645,843
4,528
1,155,133
136
4,253,112

2005

Interest
¥1,490,519
1,113,294
256,520
7,095
3,163

185
36,183

¥ 337,851
131,591
3,726
3,917
3,472

51,853
1
26,603
0
83,443

Millions of yen

Earnings yield Average balance

2004

Interest
¥1,560,705
1,134,996
256,601
4,040
2,542

Earnings yield
1.80%
1.93
1.06
0.62
1.58

¥86,501,290
58,663,957
24,127,804
649,529
161,173

515,980
1,217,563

104
12,679

¥87,597,113
63,153,721
4,378,620
7,310,332
2,065,520

¥ 295,053
104,741
3,545
2,598
4,212

5,090,264
6,997
1,310,322
—
3,785,679

48,622
4
31,084
—
74,855

0.02
1.04

0.34%
0.17
0.08
0.04
0.20

0.96
0.07
2.37
—
1.98

Notes: 1. The figures above comprise totals for domestic and overseas operations after intersegment eliminations.

2. In principle, average balances are calculated by using daily balances. However, some consolidated subsidiaries use weekly, monthly or semiannual

balances instead.

3. “Interest-earning assets” are shown after deduction of the average balance of noninterest earning deposits (2005, ¥1,703,992 million; 2004,

¥1,332,007 million).

4. Income and expenses resulting from money held in trust are included in “Other income” and “Other expenses.” Therefore, “Interest-earning assets”

SMFG 2005 139

Fees and Commissions

2005

2004

Millions of yen

operations Elimination

Domestic Overseas
operations
¥474,455
23,458
118,292
51,973
19,305
6,732
36,153
7,078

¥40,169
23,974
7,009
0
—
3
3,463
—

Total
¥511,824
45,116
125,299
51,973
19,305
6,736
39,213
7,078

Domestic Overseas
operations
¥392,956
18,449
114,231
43,884
16,247
5,923
30,377
8,820

operations Elimination
¥(1,495)
(878)
(613)
—
—
—
(2)
—

¥30,604
17,995
5,756
0
—
3
2,845
—

Total
¥422,066
35,566
119,374
43,884
16,247
5,927
33,221
8,820

¥(2,799)
(2,317)
(2)
—
—
—
(402)
—

Fees and commissions (expenses) ...........................
Remittances and transfers...................................

¥ 90,943
23,071

¥ 4,535
1,529

¥(2,809)
(363)

¥ 92,669
24,236

¥ 87,775
21,952

¥ 4,309
2,128

¥ (629)
(527)

¥ 91,455
23,553

2. Intersegment transactions are reported in “Elimination” column.

Trading Income

Year ended March 31
Trading profits............................................................
Gains on trading securities ..................................
Gains on securities related to

2005

2004

Millions of yen

Domestic Overseas
operations
¥138,258
7,857

¥ 9,401
—

Total
¥144,587
7,857

Domestic Overseas
operations
¥289,432
6,735

operations Elimination
¥(7,723)
—

¥23,302
—

Total
¥305,011
6,735

¥(3,073)
—

operations Elimination

trading transactions ...........................................
Gains on trading-related financial derivatives......
Others ..................................................................

—
129,965
435

—
9,332
68

—
(3,073)
—

—
136,224
504

—
282,697
—

—
23,302
—

—
(7,723)
—

—
298,275
—

Trading losses ...........................................................
Losses on trading securities ................................
Losses on securities related to

trading transactions ...........................................
Losses on trading-related financial derivatives....
Others ..................................................................

¥ 1,260
—

¥ 2,011
—

¥(3,073)
—

189
1,071
—

10
2,001
—

—
(3,073)
—

199
—

199
—
—

¥ 8,628
—

904
7,723
—

11
—

—
—
11

¥(7,723)
—

—
(7,723)
—

916
—

904
—
11

2. Intersegment transactions are reported in “Elimination” column.

140

SMFG 2005

Assets and Liabilities (Consolidated)

Sumitomo Mitsui Banking Corporation and Subsidiaries

Deposits and Negotiable Certificates of Deposit
Year-End Balance

March 31
Domestic operations:

2005

Millions of yen
2004

2003

Overseas operations:

¥39,038,245
20,513,692
4,566,079
¥64,118,017
¥ 2,627,486
¥66,745,504

¥ 3,736,715
645,371
8,767
¥ 4,390,853
¥
133,283
¥ 4,524,137
¥71,269,641

¥36,880,645
20,308,522
4,766,398
¥61,955,566
¥ 3,491,393
¥65,446,960

¥ 2,865,697
564,776
8,036
¥ 3,438,510
¥
96,070
¥ 3,534,580
¥68,981,540

¥34,812,728
20,588,487
4,258,026
¥59,659,242
¥ 4,776,264
¥64,435,507

¥ 2,733,493
593,179
10,089
¥ 3,336,761
¥
112,753
¥ 3,449,515
¥67,885,022

2. Liquid deposits = Current deposits + Ordinary deposits + Savings deposits + Deposits at notice
3. Fixed-term deposits = Time deposits + Installment savings

Balance of Loan Portfolio, Classified by Industry
Year-End Balance

2005

2004

2003

March 31
Domestic operations:

Millions of yen

Percentage

Millions of yen

Percentage

Millions of yen

Percentage

Manufacturing ............................................ ¥ 5,657,329
Agriculture, forestry, fisheries and mining...
134,289
Construction ...............................................
1,829,553
Transportation, communications

and public enterprises ..............................
2,868,583
5,681,187
Wholesale and retail ..................................
4,543,387
Finance and insurance...............................
Real estate .................................................
6,937,379
6,356,210
Services .....................................................
656,366
Municipalities .............................................
Others ........................................................
15,720,093
Subtotal ...................................................... ¥50,384,379

Overseas operations:

83,325
Public sector .............................................. ¥
406,025
Financial institutions...................................
4,077,950
Commerce and industry .............................
Others ........................................................
197,247
Subtotal ...................................................... ¥ 4,764,549
Total ................................................................ ¥55,148,929

11.23% ¥ 6,133,208
142,574
1,950,119

0.27
3.63

11.92% ¥ 6,321,452
207,514
2,630,118

0.28
3.79

5.69
11.28
9.02
13.77
12.61
1.30
31.20

3,270,116
5,871,202
4,035,142
7,948,701
6,177,383
765,640
15,153,844
100.00% ¥51,447,932

6.36
11.41
7.84
15.45
12.01
1.49
29.45

3,076,295
6,235,896
4,543,927
9,015,365
6,172,685
577,100
17,789,591
100.00% ¥56,569,948

1.75% ¥
8.52
85.59
4.14

81,737
338,458
3,317,645
243,193
100.00% ¥ 3,981,034
¥55,428,967

—

2.05% ¥
8.50
83.34
6.11

141,742
314,695
3,912,861
280,369
100.00% ¥ 4,649,668
¥61,219,617

—

11.17%
0.37
4.65

5.44
11.02
8.03
15.94
10.91
1.02
31.45
100.00%

3.05%
6.77
84.15
6.03
100.00%

—

2. Japan offshore banking accounts are included in overseas operations’ accounts.
3. Percentage indicates the composition ratio.

SMFG 2005 141

Risk-Monitored Loans

March 31
Bankrupt loans...............................................................................................................
Non-accrual loans..........................................................................................................
Past due loans (3 months or more) ...............................................................................
Restructured loans ........................................................................................................
Total...............................................................................................................................

2005

68,238
1,367,785
29,441
721,273
¥2,186,739

Notes: Definition of risk-monitored loan categories

Millions of yen
2004

96,101
1,710,575
51,019
1,371,524
¥3,229,219

2003
¥ 199,794
2,665,675
128,493
2,689,172
¥5,683,134