Sumitomo Mitsui Financial Group Inc Annual Report 2007

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FY2007 Annual Report · Sumitomo Mitsui Financial Group Inc

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ANNUAL REPORT

2007

YEAR ENDED MARCH 31, 2007

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Aiming to become a globally competitive financial

services group with the highest trust

We are a group of highly qualified professionals

that can provide truly valuable financial services to our customers.

Each of us thinks and acts with pride as experts in each business area

in order to LEAD the competition in creating and delivering

customer VALUE in a continually changing business environment.

Masasyuki Oku
President of
Sumitomo Mitsui
Banking Corporation

Teisuke Kitayama
President of
Sumitomo Mitsui
Financial Group

These activities are supported by our three core strengths:

Spirit of Innovation

We LEAD the market by
providing innovative,
globally competitive services
that meet customer needs.

Speed

Solution & Execution

We LEAD the pace by
providing our customers
with desirable services in a
timely manner with speed
and determination.

We LEAD the business by using all
the knowledge and experiences of
our group to solve the issues of
our customers, whether individuals
or corporates, identified through
a deep understanding of their
needs and financial
situations.

We create new VALUE by forming teams of

specialists in various fields and providing optimal services to

our customers through two-way communication.

As a result, we will be selected as a truly trusted partner.

CONTENTS

•Message from the Management ............................... 2
•LEAD THE VALUE—SMFG’s
•Business Overview.................................................... 12

New Medium-Term Management Plan ...................... 6

Consumer Banking................................................................... 12

Corporate Banking ................................................................... 14

Targeting Issues Involving Companies and Individuals........... 16

Investment Banking.................................................................. 17

International Banking................................................................ 18

Treasury Markets ...................................................................... 19

•Group Companies..................................................... 20
•Financial Highlights................................................... 22
•Financial Review ....................................................... 26
•Asset Quality ............................................................. 32
•Risk Management ..................................................... 36
•Corporate Social Responsibility ................................ 45
•Corporate Governance ............................................. 46
•Internal Audit System ................................................ 47
•Compliance ............................................................... 48
•Environmental Preservation Initiatives....................... 50
•Social Contribution Activities..................................... 54
•Human Resources..................................................... 58
•Financial Section and Corporate Data ...................... 61

Financial Section ...................................................................... 62

Corporate Data.........................................................................171

This material contains certain forward-looking statements. Such forward-looking
statements are not guarantees of future performance and involve risks and uncer-
tainties, 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: busi-
ness 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.

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 2007

SMFG 2007 1

Message from the Management

In fiscal 2006, we set the stage for future growth and reinforced our risk tolerance to adapt to future changes in

financial markets. From the start of the current term — fiscal 2007 — we have been focusing on implementing

the strategies of our new medium-term management plan. By maximizing the value we add to our products and

services, we aim to become a globally competitive financial services group with the highest trust.

Teisuke Kitayama
President

Sumitomo Mitsui
Financial Group, Inc.

Fiscal 2006: Setting the stage for growth
and reinforcing our risk tolerance to
adapt to future changes

In the financial services sector, the Diet passed the

Financial Instruments and Exchange Law in June 2006,

establishing a broad framework for the protection of users

of financial instruments and services. In December 2006,

the Diet passed a new Trust Business Law that incorpo-

rates revisions to all aspects of the previous law, and

amended the Money Lending Business Control and

Regulation Law to lower the maximum interest rate.

Under these conditions, SMFG positioned fiscal 2006

as a year for concentrating on establishing a sound base

for growth and reinforcing risk tolerance to adapt to future

changes in the operating environment.

At SMBC, non-consolidated banking profit was down

¥225 billion year on year, at ¥740.6 billion. This was mainly

due to losses on sales of Japanese government bonds.

The bonds were sold to reduce our exposure to risks asso-

ciated with our bond portfolio, primarily in response to

interest rate movements in Japan and abroad. SMBC also

took a conservative stance by making an additional provi-

sion for possible losses on investments in our affiliate

Promise Co., Ltd., in view of the fact that the share prices

had fallen well below the book value during the reporting

term. As a result, SMBC’s net income declined ¥203.8 bil-

lion year on year, to ¥315.7 billion on a non-consolidated

basis. In October 2006, we completed the repayment of

During fiscal 2006, the U.S. economy continued to grow,

public funds, achieving this goal about one-and-a-half years

although the growth rate slowed because of a sharp drop

ahead of our original target.

in housing investments. Economic expansion also contin-

In April 2006, SMBC received an administrative order

ued in Asia and Europe. In Japan, the economy maintained

from the Financial Services Agency with respect to interest

its moderate growth pace, as exports rose and strong cor-

rate swap transactions at its Corporate Business Offices.

porate earnings supported an increase in capital expendi-

We take this matter very seriously, and have further tight-

tures. In the financial markets, there was an upturn in

ened the bank’s system of internal controls so as to prevent

short-term interest rates in Japan. This was in response to

any recurrence of such an incident. We have also begun

interest rate hikes by the Bank of Japan following the

the process of reinforcing the bank’s entire compliance sys-

abandonment of the zero interest rate policy in July 2006.

tem, including measures to prevent money laundering at

Long-term interest rates, however, declined. The yield on

SMBC’s overseas branches. Moreover, we took necessary

newly issued 10-year Japanese government bonds rose to

steps to comply with the new regulatory environment, such

2% in May 2006, but then declined to about 1.6% at the

as reinforcing compliance activities in advance of the

end of March 2007 as expectations for a way out of defla-

enactment of Japan’s Financial Instruments and Exchange

tion receded. The Nikkei Average was on an upward trend

Law and by fulfilling Basel II capital adequacy requirements.

from July 2006 and, despite a significant drop in February

In addition, SMBC steadily strengthened its operations

2007, ended fiscal 2006 slightly higher than the previous

in growth business fields such as financial consulting ser-

fiscal year-end.

vices for individuals and the investment banking business.

SMFG 2007

In fiscal 2006, SMFG’s ordinary profit on a consolidated

basis declined ¥164.9 billion year on year, to ¥798.6 billion,

and net income declined ¥245.5 billion year on year, to

¥441.4 billion. The decrease in the earnings of SMFG is

mainly attributable to a decline in earnings at SMBC and

the recording of a substantial loss on equity-method invest-

ments in Promise. Meanwhile, SMFG made significant

progress in its group strategy. In the retail securities busi-

ness, SMBC Friend Securities became a wholly owned

subsidiary. In the leasing and auto leasing business, we

launched a strategic undertaking with the Sumitomo

Corporation Group. In April of this year we entered into a

strategic alliance with Central Finance Co., Ltd. in the

consumer finance business.

LEAD THE VALUE — Our New
Medium-Term Management Plan

Upon completion of the repayment of public funds, we

started a new three-year medium-term management plan

— which will end in March 2010 — to address the great

changes in the business environment. We reaffirmed the

fact that SMFG’s core strengths are Spirit of Innovation,

Speed, and Solution & Execution, which we have used to

improve the profitability of our strategic businesses. By

maximizing the value we add to our products and services

through these strengths, we aim to be a globally competi-

tive financial services group with the highest trust. We set

the following goals for the next three years.

Masayuki Oku
President

Sumitomo Mitsui
Banking Corporation

• Tier I capital ratio of about 8%
• Overhead ratio of 40% to 45%

(SMBC on a non-consolidated basis)

During the period of the new medium-term plan, we expect

the ROE to be between 10% and 15% on a consolidated

basis.

1. Aim for top quality in growth business areas

Fiscal 2007 Management Policies

2. Realize a solid financial base as a global player

Having made solid progress in achieving the fiscal 2006

3. Increase returns to shareholders

To accomplish these goals, we will vigorously execute the

following two strategic initiatives: 1) strengthening our pres-

ence in growth business areas, and; 2) fortifying our plat-

form to support sustainable growth. In specific terms, we

set the following financial targets for fiscal 2009.

• Consolidated net income of ¥650 billion
• Consolidated net income RORA

(return on risk-adjusted assets) of about 1%

objectives of setting the stage for future growth and rein-

forcing our risk tolerance to adapt to future changes in

financial markets, we are taking a more aggressive stance

in fiscal 2007. We position this year as the first step toward

achieving the goals of the new medium-term plan, primarily

by using growth-oriented investments to expand our busi-

ness volume.

One task essential to strengthening our growth businesses

is making up-front investments in our resources. In these

fields, we will increase our workforce and expenditures to

SMFG 2007 3

reinforce our infrastructure, including IT systems. At the

weekends and holidays, and SMBC Consulting Offices,

same time, we aim to expand our business volume by giv-

which specialize in asset management and housing loans.

ing greater consideration to customer needs in the conduct

To enhance the appeal of its popular housing loan with loan

of our marketing activities. Our goal is to raise gross profit

repayment insurance in the event that the borrower is diag-

from SMBC’s marketing operations by approximately ¥100

nosed with one of three major fatal diseases, SMBC added

billion, as a first step under the new medium-term plan. We

coverage for five more chronic conditions. With Sumitomo

plan to use the benefits of this first year of growth to

Mitsui Card, SMBC introduced SMBC First Pack, a new

achieve two goals: enhancing our retained earnings to sup-

package of deposit, Internet banking and credit card ser-

port sustainable growth in the following years, and expand-

vices, which eliminated utilization charges and annual fees.

ing returns to shareholders. In fiscal 2007, we forecast

Through actions like these, SMBC is working to make

non-consolidated net income of ¥410 billion for SMBC and

its products and services even more accessible to retail

consolidated net income of ¥540 billion for SMFG.

customers.

A Message to Our Customers

For midsized companies and SMEs, SMBC concen-

trated on meeting a broad spectrum of financing needs.

The core product is the Business Select Loan, an unse-

SMFG is committed to leveraging its aggregate Group

cured loan that requires no third-party guarantee. In addi-

strengths to offer financial services that have considerable

tion, SMBC bolstered its ability to provide extensive

added value. To provide an even larger number of individu-

assistance for their business succession issues and

als with financial services such as asset management and

launching of overseas business activities. For major corpo-

loan consultations, SMBC expanded its network of

rate clients and other listed companies, SMBC established

Consulting Plazas, which are open on weekday evenings,

the Corporate Advisory Division in April 2006. This unit cen-

Group Strategy Overview

Payment & settlement service,
consumer finance

Solution providing for
corporations

Mobile credit service

NTT DoCoMo

Consumer finance

Promise

Central Finance

Financial consulting
for individuals

SMBC Friend Securities

Leases/auto leases
Sumitomo
Corporation Group

Investment banking

Daiwa
Securities Group

SMFG 2007

tralizes all SMBC know-how and information involving cor-

We will also continue to fulfill our corporate social responsi-

porate banking. Furthermore, mainly through collaboration

bilities by leveraging the resources of the entire group in

with Daiwa Securities SMBC, this division can create

the implementation of environmental preservation initiatives

solutions for complex and diverse management issues at

and contributions to society.

client companies.

Outside Japan, SMBC opened branches in Ho Chi

A Message for SMFG Employees

Minh City, Sydney, and Dubai, and took other actions to

better serve rapidly growing markets. To expand opera-

We want SMFG to provide its staff with a challenging and

tions in China, where economic growth has been consis-

professionally rewarding workplace. This is why we show

tently robust, SMBC strengthened its service network by

respect to our employees as individuals, and provide them

establishing the China Division, and by opening new repre-

with the opportunity to acquire highly specialized skills. We

sentative offices in the Binhai New Area of Tianjin and the

are maintaining this stance to foster a corporate culture that

Suzhou Industrial Park.

encourages our employees to realize their full potential. We

By executing the Group strategies mentioned above,

will continue to invigorate operations at the workplace, and

SMFG remains committed to further enlarging and

to upgrade our ability in the recruitment and training of

upgrading its lineup of products and services across

talented staff.

the entire Group.

In addition, in fiscal 2006, we established a Customer

We are determined to meet the expectations of our stake-

Satisfaction and Quality Improvement Committee. We are

holders by using the initiatives outlined in this message to

taking customers’ opinions and requests fully into account

make steady progress toward our goals.

in improving the quality of our services to provide increased

satisfaction and earn greater trust from our customers. Our

objective is to become one of the world’s most advanced

organizations in terms of customer satisfaction, not only

among financial companies but also among all other cate-

gories of the service industry.

August 2007

A Message for Shareholders,
Market Participants and the Public

SMFG is devoted to achieving sustainable growth and

financial soundness by conducting business operations

that are efficient and based on a long-term perspective. We

will continue to enhance our capital base in terms of both

quality and quantity, and we will channel even more

resources into strategic business fields to further raise our

corporate value over the medium-to-long term. To increase

returns to shareholders, we decided to raise the ordinary

dividend for fiscal 2006 by ¥4,000 to ¥7,000 per share. For

fiscal 2007, we plan to increase the annual dividend again

to ¥10,000, half of which will be paid as an interim dividend.

Teisuke Kitayama
President

Sumitomo Mitsui
Financial Group, Inc.

Masayuki Oku
President

Sumitomo Mitsui
Banking Corporation

SMFG 2007 5

LEAD THE VALUE — SMFG’s New Medium-Term Management Plan

SMFG launched a new medium-term management plan under

By maximizing these strengths, we aim to be a globally competi-

the name “LEAD THE VALUE,” for the three years from fiscal

tive financial services group with the highest trust. We have set

2007 to 2009, given the completion of repayment of public funds

the following goals for the next three years.

last October and in response to the greatly changed business

environment, including the economic situation and competitive

1. Aim for top quality in growth business areas

environment.

In the process of drawing up our new plan, we reaffirmed that

2. Realize a solid financial base as a global player

the most important criteria for achieving sustainable growth is to

3. Increase returns to shareholders

provide customers with value exceeding their expectations, and

continuously be the financial services group that helps cus-

To accomplish these goals, we will vigorously execute the

tomers in their value creation.

strategic initiatives aimed at strengthening targeted growth busi-

We also reconfirmed that SMFG’s core strengths are the Spirit

ness areas and fortify our platform to support sustainable growth.

of Innovation, Speed, and Solution & Execution, the drivers

We have set the following financial targets for fiscal 2009, the

behind our ability to quickly make strategic businesses profitable.

plan’s final year.

Sustainable growth

Consolidated net income of
¥650 billion
(FY06: ¥441.4 billion)

Financial soundness

Consolidated Tier I ratio
Approximately 8%

By growing steadily, we aim to raise consolidated net income to ¥650 billion,

which is about ¥210 billion more than in fiscal 2006.

SMFG aims to reinforce its financial base and achieve a consolidated

Tier I ratio of approximately 8% in order to capture growth opportunities

globally and improve its capability to manage increasingly diversifying risks.

RORA (Consolidated)
Approximately 1%

SMFG aims to achieve an RORA (Return on Risk-adjusted Assets;

Return = consolidated net income) of approximately 1% from the perspective

of improving risk-return efficiency.

Overhead ratio
40-45%
(SMBC non-consolidated basis)
Fiscal 2006: 44.9%

SMFG will allocate resources to further improve customer convenience, fortify its

management infrastructure and strengthen competitiveness, but also make

efforts to further improve efficiency and productivity. Accordingly, we are aiming

for an overhead ratio of 40-45% for SMBC on a non-consolidated basis.

We expect the consolidated net income ROE during the period of

in step with progress made in achieving the goals of the plan.

the medium-term management plan to be 10-15%.

Specifically, we aim for a payout ratio (on a consolidated basis)

Under the medium-term management plan, to improve the

of over 20% for fiscal 2009, the final year of the plan.

quality of its products and services, SMFG will aggressively invest

The entire workforce of SMFG is dedicated to the successful

in growth business areas, establish a solid financial base as a

completion of the new medium-term management plan, and is

global player, and fortify its platform to support sustainable growth.
At the same time, SMFG will increase returns to shareholders

determined to further raise the group members’ corporate value
by achieving sustained growth.

SMFG 2007

Goals of
“LEAD THE VALUE” Plan

A globally competitive financial services group
with the highest trust

LEAD THE VALUE

Spirit of
Innovation

Speed

Solution
&
Execution

Mission Statement

• 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

Outline of “LEAD THE VALUE” Plan

Fiscal 2007-2009

“LEAD THE VALUE” Plan

Aim for “a globally competitive financial
services group with the highest trust”
by maximizing our strengths to LEAD THE VALUE

Strategic
initiatives

To LEAD the competition in creating
and delivering customer VALUE

•Strengthen targeted
growth business areas

Our strengths (sources of corporate value)

“Seven growth areas”

Management
targets

•Aim for top quality in
growth business areas
•Realize solid financial base as a
global player
•Increase return to shareholders
(realize payout ratio of more than 20%)

Financial targets for fiscal 2009
(SMFG consolidated)

Spirit of
innovation

Speed

Solution
&
execution

•Fortify platform to

support sustainable
growth

•Net income:
¥650 billion
•Tier I ratio:
Approx. 8%
•Net income RORA: Approx. 1%
•Overhead ratio:

(SMBC non-consolidated)

40-45%

•ROE (SMFG consolidated): 10-15%

Assumed values of key economic indicators for “LEAD THE VALUE” Plan

Nominal GDP growth rate (annual)

Three-month TIBOR (annual avg.)

10-year yen swap rate (annual avg.)

Yen/dollar exchange rate (year-end)

FY2007

2.5 %

0.72 %

1.87 %

11 5

FY2008

2 .9 %

1.12%

2.10%

115

FY2009

2.4 %

1.16%

2.12%

115

SMFG 2007 7

Strategic Initiatives of “LEAD THE VALUE” Plan

SMFG has been reinforcing profitability by identifying businesses

formed the basis for our previous management plan. Therefore,

with high growth potential at an early stage and creating highly

we must ensure we have an accurate grasp of macroeconomic

productive and efficient proprietary business models. These

trends that present opportunities for earning profits and compet-

strategic businesses grew, our asset quality improved substan-

ing at the global level in order to continue our growth in the pre-

tially, and net income recovered, allowing us to complete the

sent competitive environment. This means we can no longer

repayment of public funds in fiscal 2006 about one-and-a-half

follow our previous policy of maximizing earnings by restructuring

years earlier than initially planned. Overall, we have made steady

and streamlining our operations. Instead, we must switch to a

progress with regard to both earnings capabilities and financial

stance of sustaining growth while making substantial investments

soundness.

aimed at growth from a medium- and long-term perspective. This

As we achieved this progress, dramatic changes were

is the reason why our LEAD THE VALUE plan features the two

reshaping our operating environment including intensifying com-

strategic initiatives of strengthening targeted growth business

petition in the domestic loan market and a labor shortage. Further,

areas and fortifying our platform to support sustainable growth.

the magnitude of these changes exceeded the assumptions that

Strategic Initiatives in LEAD THE VALUE

Five mega-trends

Tide of
generational
change

Economic
and
financial
globalization

Deregulations
and
tightening of
regulations

Expansion
of ubiquitous
network

“Great
investment
era”

Strengthen targeted growth business areas: seven growth areas

Financial
consulting
for
individuals

Solution
providing
for
corporations

Focused
business
areas in
global markets

Payment &
settlement
service;
Consumer
finance

Investment
banking;
Trust
banking

Proprietary
investment

Credit
derivative,
trading
&
distribution

Fortify platforms to support sustainable growth

Business performance
evaluation system with
medium-term viewpoint

Framework to secure
and develop professionals

Reinforce IT and
operational infrastructure

Improve ALM and
risk management;
Strengthen compliance

SMFG 2007

Macroeconomic Trends

The tide of generational change: Japan’s population ages and decreases, and the nation’s baby boomers retire

Population composition by age, home ownership ratio and household financial assets

Population (left scale: thousand)

Children of
baby boomers

Growth in demand
for housing loans

40,000

15,000

10,000

5,000

Baby boomers

Growth in demand for
asset management

~24

25~29 30~34 35~39 40~44

45~49 50~54 55~59 60~64 65~69 70~74

75~

(age)

Home ownership (right scale: %)
Securities (stocks, bonds, investment trusts, etc.)/Avg.
savings (right scale: %)

Source: Ministry of Internal
Affairs and Communications

Housing and Land Survey (October 2003)
National Survey of Family Income and Expenditures
(fiscal 2004)

Development of globalization

Foreign trade growth rate for ASEAN + 3 East Asian nations (2005): +115% from 1999

Growth in sales at overseas
subsidiaries of Japanese companies

(Figures are the sum of imports and exports; US$ billions)

(US$ billion)

2002

2006

South
Korea

+81%

71.1

39.2

727.7

394.3

810.7

545.3

+118%

288.0

132.4

JAPAN

148.7

100.9

+47%

+85%

+49%

ASEAN
+3*2

U.S.A

*1
China

ASEAN

*1 China: Includes China, Hong Kong and Taiwan
*2 ASEAN+3: Includes ASEAN members plus China,
South Korea and Japan

244.7

246.6

173.1

123.1

106.7

62.6

250

200

150

100

Europe

Asia

North America

Source: Ministry of Economy, Trade and Industry

The great investment era: A shift from savings to investments and excess liquidity worldwide, with a
diversification of financial instruments

Investments’ share of Japanese household financial assets

The growth of alternative investments in global markets

(%)

(US$ billion)

¥1,397 trillion

¥1,541 trillion

100

55%

11%
2%

27%

50%

+6 points

15%

26%

2004

2001

(Source: Bank of Japan)

Deposits

Stocks & bonds

Investment trusts

Insurance

Others

5,000

4,000

3,000

2,000

1,000

2001

2004

(Source: Complied by SMFG)

residential mortgage-
RMBS ( )
backed securities

commercial mortgage-
CMBS ( )
backed securities
collateralized debt
CDO ( )
obligations

ABS (asset-backed securities)

Hedge funds

Private equity & venture capital

SMFG 2007 9

(1) Strengthen targeted growth business areas
We will focus on the following seven business areas, which will

4) Payment and settlement services, consumer finance
IT technology for payment and settlement is becoming more

be growing rapidly in the future. In these areas, we will provide

sophisticated, as shown by the rapid diffusion of electronic

customers with value exceeding their expectations, to realize top

money. SMFG intends to play a leading role in this trend, and to

quality and achieve sustainable growth.

provide its customers with innovative, convenient, and secure

payment and settlement services.

1) Financial consulting for individuals
SMFG has been strengthening operations in this strategic busi-

In consumer finance, SMFG, with the vision of making a fur-

ther dramatic advance as an industry leader, will strengthen its

ness area, and expects the market to continue to expand steadily

credit card business centered on Sumitomo Mitsui Card Company,

and client needs to become more diversified and sophisticated

Limited, through aggressive growth strategies which include fur-

due to advances in deregulation, regulatory system changes, the

ther alliances. SMFG will continue to strengthen its collaboration

declining birthrate and the aging population.

with Promise Co., Ltd. to meet the sound financial needs of con-

SMFG will develop new products and services in a timely

sumers with various lifestyles while keeping a close eye on

manner in response to the above mentioned diverse needs of

changes in the consumer finance industry’s business environment.

customers amid deregulation and other changes in the business

environment. The Group will also increase its marketing chan-

nels, as well as the number of financial consultants. At the same

5) Investment banking and trust business
Amid the globalization of corporate customers and investors, the

time, SMFG will establish a business model to offer individual

demand for sophisticated financial solutions to match customers’

customers “one-stop shopping” for various financial services,

business strategies has been increasing. To address this demand

such as investment trusts, insurance products, securities, trust

and become a market leader in investment banking, SMFG will

services and other products and services as their sales are

take an active approach by implementing strategies which

deregulated.

2) Solution providing for corporations
SMFG has been strengthening its ability to provide solutions to

corporate customers by expanding the lineup of unsecured loan

products to small- and medium-sized enterprises, strengthening

investment banking, and establishing the Corporate Advisory

include greater collaboration with Daiwa Securities SMBC Co.,

Ltd. In addition, SMFG will reinforce the trust business — for

which customer needs are expected to rise — with greater flexi-

bility, made possible by the revision of trust-related laws.

6) Proprietary investment
In view of the globalization of investment markets and diversifica-

Division within SMBC. SMFG expects growing demand for solu-

tion of investment instruments, SMFG will broaden the frontier of

tions to corporate customers’ managerial issues, such as various

its investments and loans to alternative fields, such as mezza-

types of funding according to their growth stage, business suc-

nine, equity, and fund investments. SMFG will improve its return

cession due to generational changes, and so on.

on assets and capital by creating a more risk-diversified portfolio.

In order to strengthen its coverage of business areas where

the needs of individual customers and corporate customers co-

exist, such as private banking, workplace banking and business

7) Credit derivatives, trading & distribution
Along with more sophisticated risk management, SMFG will cre-

succession consulting, SMBC established the Private Advisory

ate financial products by structuring various types of risk on its

Department in April 2007. SMBC also established a Merchant

balance sheet and distributing such risks to investors who have

Banking Department to nurture growth companies through equity

different risk tolerances, thereby reinforcing its ability to meet the

investment. Through these initiatives, SMFG will provide more
sophisticated solutions to meet the rising demand for such services.

investment and financing needs of customers and improving the

asset efficiency of the Group.

3) Focused business areas in global markets
SMFG will strengthen initiatives in (a) specific growth industries in

(2) Fortifying our platform to support sustainable

growth

which the needs for fund raising or business consolidation are

SMFG will maximize its ability to provide added value by (a)

expected to expand globally, (b) Asia, a region which continues

implementing an internal business performance evaluation sys-

to demonstrate remarkable economic growth, and (c) specific

tem centered on medium-term targets and strategic measures,

products and services with global competitive advantages, such

(b) establishing a framework for developing professionals capa-

as project finance and ship finance. In order to become one of

ble of aiming at and achieving top quality in growth business

the top global banks in debt-related businesses in its targeted

areas, (c) reinforcing its IT and operational infrastructure to sup-

areas, SMFG will further expand business franchises through

port SMFG’s business in a flexible manner, (d) strengthening

measures which include strategic alliances and M&As, strategic

compliance, and (e) improving its asset liability management

allocation of human resources, and establishment of a global

(ALM) and risk management system.

business promotion system.

SMFG 2007

SMBC’s Performance in Selected Growing Market Sectors

Outstanding Balance of
Investment Trust and
Pension-Type Insurance

Housing Loans

Consumer Finance
(year-end balances)

( )
¥ trillion;
year-end

Pension-type
insurance (accumulated)

Investment
trust

(¥ trillion)

Securitized loans

Loans on balance
sheet at year-end

(¥ billion)

Unsecured card-type loans
Promise alliance portion

2.2

1.7

1.1

+33%

3.4

0.5

1.9

2.8

2.3

0.8

10.0

0.4

9.5

1.6

9.9

0.1
8.9

+8%

390

140

270

330

+20%

400

300

200

100

2004/3

2005/3

2006/3

2007/3

2003

2004

2005

2006

(FY)

2005/3

2006/3

2007/3

Syndications

Amount (¥ trillion)

Syndications

779

7.1

670

702

6.7

5.5

6.1

490

+12%

4.6

349

800

600

400

200

Business Select Loan (originations)

Global e-Trade Service (contracts)

(¥ billion)

(thousand)

1,800

1,500

1,200

900

600

300

+48%

13.7

12.7

11.7

10.7

9.7

+19%

2002

2003 2004 2005 2006 (FY)

2002

2003 2004 2005 2006 (FY)

2005/3

2005/9 2006/3 2006/9 2007/3

Web21
(Internet banking for corporate customers)
Users

One’s Direct Internet Banking Users

Internet Transactions

(thousand companies)

(million people)

(million transactions)

125

115

105

+24%

125

100

7.0

6.6

5.8

4.8

+21%

3.3

129

108

+36%

130

2005/3

2005/9 2006/3 2006/9 2007/3

2003/3

2004/3 2005/3 2006/3 2007/3

2002

2003 2004 2005 2006 (FY)

Note: Compound annual growth rates inside green circles

SMFG 2007 11

Business Overview

■ Consumer Banking

Financial Consulting Business
SMBC’s Consumer Banking Unit introduced several new

The member companies of the SMFG are working together to

investment trusts and life insurance products in fiscal 2006,

enhance their consumer financial services.

and began offering fund wrap accounts (asset management

At SMBC, we offer value-added financial services under
the brand name “One’s next.” This reflects the emphasis we
place on helping customers determine the next step of their

services in which customers entrust their investments to a

securities company), in collaboration with SMBC Friend

Securities in January 2007. In this way, we are expanding our

financial plans according to their stage of life. By creating

lineup of products and services to address the asset man-

services that address specific customer needs, we are work-

agement needs of our individual customers.

ing to make SMFG the No. 1 financial group in consumer

One of our popular loan products is a housing loan with

financial services.

insurance that covers payment of the outstanding loan

Specifically, we are leveraging our capabilities to develop

balance in the event of three major medical conditions. This

outstanding products and services, our consulting abilities—

loan has been a big success since its introduction in October

provided by staff with high-level expertise—and our area mar-
keting approach to provide superior financial services to our

2005, and at the end of March 2007, the aggregate contract
amount of these loans was about ¥370 billion. In addition, this

customers. Pension-type insurance sales in fiscal 2006

innovative loan won the 2006 Nikkei Superior Products and

amounted to ¥461.7 billion. Sales of foreign bonds came to

Services Awards/Nikkei Financial Daily Awards for Excellence.

¥112.2 billion. As of March 31, 2007, the outstanding balance

of investment trusts under management was ¥3,421.5 billion,

and that of housing loans was ¥13,557.5 billion. These achieve-

ments underscore the popularity of our services.

In December 2005 we commenced the sale of a new

SMBC has now made more accessible the members-only
services of “One’s next Club 50s,” which is for customers in
their late 50s who are preparing for life after retirement, and
“One’s next Club Woman,” which provides services specifi-
cally for women. We have also revised our membership

single-premium whole life insurance product, and by the end

requirements, making it easier to join these clubs.

of March 2007, sales amounted to ¥73.5 billion.

We also continued to make consulting services more

accessible to individuals by expanding our network of

Consulting Plazas and Consulting Offices. At the end of

March 2007, there were 67 SMBC Consulting Plazas, which

are open on weekends and national holidays, as well as

evenings on weekdays. During the term, we also increased to

22 the number of SMBC Consulting Offices. In addition,

Housing loan with exemptions in the event of
cancer, strokes and heart attacks

SMFG 2007

Introducing an information service for women

Announcing a members-only information
service

SMBC opened a new branch in the Yokohama district of

SMBC also revised its fee system for retail banking ser-

Higashi-Totsuka in April 2007. We remain committed to mak-

vices during fiscal 2006. For subscribers to our “One’s plus”

ing our consulting services even more easily accessible to our

program, we waived after-hours fees for certain transactions

customers.

Settlement Business
In April 2007, SMBC began accepting ATM cards and credit

with SMBC via ATMs at SMBC branches and the ATMs
(@B^NK) at am/pm convenience stores, and in March 2007,
eliminated all after-hours fees for SMBC transactions at con-

venience store ATMs (E-net, Lawson and Seven Bank ATMs).

cards bearing the China UnionPay brand that are issued by

We also eliminated “One’s Direct” remittance fees for pay-

banks in China. This service allows individuals to use these

ments made to an SMBC account (except fees for remittances

cards at ATMs in SMBC branches to make withdrawals and

made by telephone via an operator). Moreover, we terminated

check balances. Further, Sumitomo Mitsui Card Co., Ltd. has

all “One’s plus” user fees starting from withdrawals made on

been allowing payments by China UnionPay credit cards at

February 21, 2007.

its affiliated merchants in Japan since December 2005.

Sumitomo Mitsui Card started the Mitsui Sumitomo Card
iD ® electronic settlement service in December 2005 through
a strategic alliance with NTT DoCoMo, Inc. At the end of

Consumer Finance Business
The consumer finance business launched in April 2005

through the strategic alliance of Promise, At-Loan (an SMBC-

March 2007, there were about 230,000 subscribers and a

Promise joint venture) and SMBC has expanded to include

network of about 150,000 affiliated merchants that accepted
payments via the iD ® service.

623 automatic contract machines (ACMs) at SMBC branches,

and had a loan balance of ¥276 billion at the end of

Sumitomo Mitsui Card will continue to fully leverage the

March 2007.

know-how it has accumulated through its business as a com-

prehensive provider of credit card services to create a settle-

ment system capable of handling both small and large

amounts, and thereby enhance our service for settlement

system users.

For its “One’s Direct” remote banking service, SMBC is

constantly expanding the service lineup, and enhancing the

convenience of these services. As a result of these efforts,

this service ranks among Japan’s leading mobile banking

services. At the end of March 2007, “One’s Direct” had about

7.44 million subscribers, approximately 840,000 more than a

year earlier.

Topics

SMBC First Pack
In March 2007, SMBC began a service called “SMBC First Pack.” The new
service, offered in collaboration with Mitsui Sumitomo Card, combines
“One’s plus,” “One’s Direct” and the Mitsui Sumitomo Visa Card into a single
package. Customers receive all the benefits of “One’s plus” along with a
number of exclusive benefits. Two major features are no annual fee for the
credit card (excluding gold card members) and the ability to exchange
points for the products and services of alliance partners All Nippon Airways
Co., Ltd. and NTT DoCoMo.

SMFG 2007 13

■ Corporate Banking

Enhancing Services
Organizational Changes to Strengthen Marketing
SMBC has undertaken organizational changes to strengthen

Services and Support for Customers’ Global
Activities
SMBC provides many types of support for the global busi-

ness activities of corporate clients of all sizes. For large cor-

porations that manage group activities on a global scale,

marketing to corporate customers. Initiatives include chang-

SMBC offers assistance in raising the efficiency of cash man-

ing the name of the Small and Medium Enterprises Business

agement and the upgrading of corporate governance for

Promotion Department to the Small and Medium Enterprises

financial matters, and facilitates other improvements. For

Marketing Department in April 2007. The objective is to serve

example, these customers can use SMBC’s international cash

mid-sized companies and small and medium-sized enter-

management system, which enables seamless fund manage-

prises (SMEs) better by developing products that meet their

ment and transfers among group companies. Another innova-

needs and offering services for a diverse range of manage-

tive service combines several credit lines in different

ment issues. Within the Small and Medium Enterprises

countries into a single credit facility. SMBC will continue to

Marketing Department, two new groups were established.
One provides business matching assistance to customers, to

develop sophisticated products that meet the requirements of
international corporations.

help them expand their operations. The other group special-

For midsized companies and SMEs, SMBC offers many

izes in management issues encountered primarily by hospi-

forms of assistance for starting up overseas operations.

tals and schools. These initiatives will better enable SMBC to

Customers can receive a variety of information and advice

supply solutions of all types for midsized and SME corporate

when first setting up an overseas base. Services include the

clients.

More Initiatives Targeting Growth Companies
SMBC serves many relatively new companies and rapidly

growing companies that have operations based on advanced

technologies or innovative business models. Responding to

the diversifying fund procurement needs of these companies

requires support through both loans and investments.

Recognizing this need, SMBC in April 2004 established

the V-Fund Loan to provide loans to companies with excellent

growth prospects. In addition, SMBC recently established the

Asia Business Loan, which allows customers to perform all

procedures in Japan that are necessary for obtaining financ-

ing for their overseas subsidiaries.

Structure of the Asia Business Loan

Balance management and fund transfers using electronic banking
(SMAR&TS service not included)

Customer’s head office
in Japan

Customer’s
overseas base

Receipt
of loan

Merchant Banking Department, which helps growth compa-

nies achieve their goals through equity investment. SMBC,

Loan
application

SMBC Head Office

together with the SMFG affiliate NIF SMBC Ventures Co., Ltd.,

offers a variety of fund procurement options for growth

companies.

SMBC offices in Japan

SMBC overseas bases

Communication

A Stronger Commitment to Public and Financial
Institutions
SMBC has established the Public & Financial Institutions

Banking Department for the purpose of cultivating stronger

Japan

Overseas

Environmental Business Activities
Based on our Group Environmental Policy, we have a three-

ties with local government bodies and regional financial insti-

pronged action plan focusing on: 1) the reduction of environ-

tutions. The new department specializes in transactions with

mental impact; 2) the practice of environmental risk

local and national government agencies (which was previ-

management; and 3) the promotion of environment-related

ously the responsibility of the Public Institutions Banking

businesses. SMBC began offering the Environmentally

Department), and regional financial institutions (formerly han-

Responsible Company Support Loan in February 2006. The

dled by the Tokyo Corporate Banking Department VI). In this

loan features preferential interest rates for midsize companies

way, transactions with central government agencies, local

and SMEs with a strong commitment to the environment. In

government bodies and regional financial institutions have

January 2007, the eligibility for the loan was extended to

been concentrated within a single department, affording

companies that were already using Business Select Loans

SMBC a platform for better participating in industrial develop-

and also to companies that had received environmental certi-

ment and privatization activities throughout Japan.

fications from local governments and other organizations.

SMFG 2007

As the loan covers a wider range of customers, SMBC had

extended a total of about ¥10 billion of Environmentally

Responsible Company Support Loans by the end of March 2007.

In December 2006, SMBC joined the Ministry of the

Environment and others in sponsoring a contest called “eco

japan cup 2006” for venture businesses involved in environ-

mental businesses. In March 2007, SMBC held a business

matching event called the Environmental Business Networking

Event, for the second year in a row. SMBC remains dedicated

to assisting customers’ environmental activities in a variety of

ways.

Poster for the Environmentally
Responsible Company Support Loan

Topics

Management Seminar for Women
SMBC held a seminar in February 2007 entitled “Refining
Women’s Entrepreneurial and Management Skills.” The sem-
inar attracted about 350 women who are either planning on
starting a company or have recently established a company.
After hearing a keynote speech on the subject of time
management, the participants attended a panel discus-
sion, in which individuals who have started companies and
SMBC employees took part. Discussions covered many
topics of interest, and seminar participants gained insights
into establishing and managing companies, the role of
banks in supporting new companies, and other subjects.
Many women also attended the reception following the
seminar, which provided valuable networking opportunities.

Corporate Advisory Division
SMBC established its Corporate Advisory Division in early fis-

cal 2006 for the purpose of strengthening relationships with

publicly owned companies and other companies. The divi-

sion has industry-specific groups that collect knowledge and

information concerning their respective industries. Operations

take advantage of collaboration with many partners: the busi-

ness offices of the Middle Market Banking Unit and Corporate

Banking Unit; the Investment Banking Unit, research depart-

ments and other SMBC divisions; and Daiwa Securities

SMBC and other SMFG companies. These resources enable

the Corporate Advisory Division to meet needs involving cus-

tomers’ increasingly complex and diverse management

issues, including measures to achieve growth and reorganize
operations. Due to this approach, the division can utilize its

strengths as a unit that interacts with all types of industries as

well as the customers of both the Middle Market Banking Unit

and Corporate Banking Unit. This makes it possible to give

customers a broad range of proposals.

In fiscal 2007, the Corporate Advisory Division will con-

tinue to concentrate on offering customers many types of pro-

posals. Furthermore, the division plans to reinforce its ability

to supply comprehensive solutions to customers’ manage-

ment issues.

How Project Teams Serve Corporate Clients

Analysis of management issues and execution of strategies
Analysis of management issues and execution of strategies

Analysis of issues

Enhancement of project team

Branch offices

Collaboration

Branch offices

Collaboration

Corporate Advisory Division

Collaboration

Research departments

(
t
e
a
m
e
n
h
a
n
c
e
m
e
n
t
)

R
e
q
u
e
s
t

f
o
r

a
s
s
s
t
a
n
c
e

Research departments
Credit departments
International Banking Unit
Investment Banking Unit
Daiwa Securities SMBC
Other Group companies

Proposals
and execution
of strategies
to solve
management
issues

Provision of solutions
Provision of solutions

Provision of solutions

Solutions for management issues and growth in corporate value

SMFG 2007 15

■ Targeting Issues Involving
Companies and Individuals

Financial consulting
for individuals

Solution providing
for corporations

Investment banking
services

Established April 2007

Established April 2006

Private
Advisory Department

Corporate
Advisory Division

Targets fields where needs of
individuals and companies overlap

Promoting solution providing for
management tasks of corporate clients

the products and services of SMFG companies and alliance partners to
assemble the optimum package for each customer.

Status of Preparations for Business Succession

15.9%

20.1%

Fully prepared

Preparations still inadequate
None

Private banking

M&As

64.0%

Workplace banking

Fund raising

Business
succession consulting

Capital management

Private Advisory Department
SMBC established its Private Advisory Department in April

2007 with the aim of targeting business opportunities gener-

ated by several trends in Japan. Most notable are the emer-

About 80% of companies are unprepared
despite having chosen a successor.

Source: 2006 White Paper on Small and Medium Enterprises in Japan

Have discussed succession with a consultant

Have not yet sought assistance

gence of wealthy entrepreneurs, the upcoming retirement of

(Age of CEO)

the baby-boomers, and the next generation of leaders taking

over from corporate executives.

Total

44.2%

55.8%

The division is devoted to serving the diversifying needs

Up to 54

35.4%

64.6%

of customers. For example, there are growing demands for

personalized asset management plans, business succession

55 or more

46.4%

53.6%

plans, and the preparation of benefit programs that will satisfy

employees. In response, the division provides sophisticated

services and creates new business processes.

Three departments make up the Private Advisory

Department — the Private Banking, Succession Business and

Corporate Employees Business departments. All depart-

ments work with other SMBC departments as well as SMFG

companies and affiliated companies to extend support to

SMBC branches. This approach makes it possible to offer

customers the best possible products and services under the

“one-stop shopping” concept.

• The Private Banking Department develops tailor-made financial products,
expands SMBC’s lineup of financial products, and creates comprehen-
sive asset management proposals using highly advanced techniques.
Furthermore, the department works with branch personnel to supply cus-
tomers with assistance that precisely matches each requirement.

• The Succession Business Department is a source of comprehensive sup-
port for issues and other concerns regarding the future transfer of a busi-
ness to a new owner. Experts create smooth succession plans that
prioritize growth of the owner’s assets and the business. In every case,
the department formulates a plan that accurately reflects the customer’s
unique requirements.

• The Corporate Employees Business Department is responsible for offer-
ing services to the employees of corporate clients and creating personnel
and employee benefit programs. SMBC formed a Defined Contribution
Department in April 2006 to offer services for defined-contribution pen-
sion plans. For customers with needs that are beyond the scope of bank-
ing services, the Corporate Employees Business Department can select

20
20

100
(%)

The majority of owners have not consulted
anyone about succession issues.

Source: 2006 White Paper on Small and Medium Enterprises in Japan

Companies with Defined Contribution Plans (Corporate)
and Participants

Participants (thousand)

3,000

2,500

2,000

1,500

1,000

500

As of March 31, 2007
• Approved corporate pension plans
• Number of participants
• Number of companies offering these plans 8,667

2,313
2,187,000

8,667

6,664

2,187

1,722

4,350

1,255

2,379

708

325

2002/03 2003/03 2004/03 2005/03 2006/03 2007/03

Companies

10,000

9,000

8,000

7,000

6,000

5,000

4,000

3,000

2,000

1,000

Source: Ministry of Health, Labor and Welfare

SMFG 2007

(US$ million)

17,109

15,804

14,235

9,687

7,215

4,818

4,317

2,859

2,835

2,517

(US$ million)

13,691

13,334

5,306

4,682

3,622

2,951

2,715

2,689

2,386

1,995

■ Investment Banking

League Tables

SMFG’s Investment Banking Business
SMFG is targeting opportunities in investment banking, a

business field that continues to grow, leveraging the exten-

sive customer base we have built up over many years in com-

mercial banking. We are able to propose optimal solutions to

our customers’ increasingly diverse and complex needs in

fund procurement, asset management, M&A, risk manage-

ment, settlement and other fields by drawing on the com-

bined expertise of SMBC’s Investment Banking Unit and our

other subsidiaries. We aim to rank among the leaders in every

category of investment banking.

Accomplishments in Fiscal 2006
One highlight of the year was growth in business involving

corporate reorganizations. We executed several large MBO

Global Project Finance (Advisor)*

Jan. 1-Dec. 31, 2006

SMBC

Ernst & Young

Pricewaterhouse Coopers

HSBC

Société Générale

Citigroup

KPMG

Royal Bank of Canada

Investec

BNP Paribas

and LBO deals and supplied mezzanine financing through

Shipping Loan Bookrunners**

mutual funds. In addition, SMBC established the Shipping

Jan. 1-Dec. 31, 2006

Finance Department, the first unit of this type at any

Japanese bank. This better allows us to meet the growing

demand for ship financing. We also implemented a number of

new business operations, developed a synthetic employee

stock ownership plan (ESOP), and arranged a large-scale

emissions trading program.

Collaboration with Daiwa Securities SMBC
In fiscal 2006, Daiwa Securities SMBC Co., Ltd. ranked sec-

ond among securities firms operating in Japan in the corpo-

rate straight bond lead manager league table and first in the

IPO bookrunner league table, and was chosen by Thomson

Financial as the “House of the Year” in its fiscal 2006 overall

rankings. These accomplishments are testimony to the promi-

nent position of Daiwa Securities SMBC in the capital markets.

Topics

Project Finance Global Advisor of the Year
In 2006, SMBC ranked first in the world in project finance,
helping clients to procure a total of US$17.1 billion. Thanks
to this achievement, SMBC became the first Japanese
bank to be selected as “Global Advisor of the Year” by the
U.K. periodical Project Finance International. This testifies
to the excellence of SMBC’s project finance skills. We will
continue to reaffirm our leadership in the project finance
market by offering services that combine speed and out-
standing quality.

DnB NOR

Nordea

BNP Paribas

Citigroup

ING

Fortis

SMBC

Calyon

SG CIB

HSH Nordbank

Lead Managers of Corporate Straight Bond
Issues*

Apr. 1, 2006-Mar. 31, 2007

Amount (¥ billion) Market share (%)

1 Mizuho Securities

1,771.6

2 Daiwa Securities SMBC

1,511.5

3 Mitsubishi UFJ Securities

1,029.5

4 Nomura Securities

5 Nikko Citigroup

1,001.2

567.8

26.0

22.2

15.1

14.7

8.3

Bookrunners for Initial Public Equity Offerings*

Apr. 1, 2006-Mar. 31, 2007

Amount (¥ billion) Market share (%)

1 Daiwa Securities SMBC

2 Nomura Securities

3 Nikko Citigroup

4 Goldman Sachs

5 Mitsubishi UFJ Securities
*Source: Thomson Financial
**Source: Marine Money

344.5

261.2

194.7

89.3

33.7

33.4

25.4

18.9

8.7

3.3

SMFG 2007 17

■ International Banking

The international banking operations of SMFG, centering on

SMBC’s International Banking Unit, serve all corporate cus-

tomers operating globally, including financial institutions, sov-

ereign governments, and public entities.

Leveraging our extensive overseas network
and comprehensive group strength to provide
sophisticated financial services
We offer our customers higher value-added services, by pro-

distribution by improving our capability to structure risks on

our balance sheet and distributing such risks to investors.

Reinforcing Compliance System
In order to expand our business operations on a global scale,

we must adapt our compliance system to the differing legal

systems and ethical practices prevailing in the various coun-

tries where we wish to do business. In line with this, we have

set up an International Compliance Department and a

Compliance Department in the Americas Division. We have

also assigned Compliance Officers from the head office to all

viding one-stop financial solutions through collaboration

our principal overseas business bases.

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

also through the contribution of all Group companies, opti-
mally utilizing the resultant synergies.

We are also expanding our overseas network by opening

We will take every opportunity to be an active player on the

international banking scene, fully leveraging our competitive

additional offices to improve customer convenience, and gain

advantage in Japan and Asia.

better access to emerging markets. We intend to maintain our

proactive policy of expanding our office network, focusing

particularly on promising markets in strategic regions. We will

give priority to promoting locally hired staff to Branch

Manager or other executive-level posts when suitable candi-

dates are found, with the aim of providing services that are

tailored to the particular needs of each locality.

Creating a Global Service System
To strengthen still further our capabilities in marketing finan-

cial products — already one of our core competencies — we

are creating a system that will enable us to offer optimal solu-

tions in specialized fields, such as trade finance and ship

finance, to meet the needs of customers around the world.

This is one of the ways in which we are making progress

toward our goal of offering an optimal financial service that

addresses our customers’ global needs.

Raising Our Profile in Emerging and
Growth Markets
In addition to established markets, such as Western Europe,

North America, and East Asia, we are enhancing our ability to

meet customers’ needs in emerging markets, including the

Middle East, Central and Eastern Europe, and Latin America.

We are developing a lineup of products and services tailored

to match the unique features of each market. We take an

active role in these markets, keeping a close watch on

changes in the business environment.

Continuously Optimizing Our Asset Portfolio
With the requirements of the new Basel Accord (Basel II) in

mind, we will make further efforts to improve our asset effi-

ciency by developing new securitization products and focus-

ing more on buying and selling loans, rather than originating
them, and will also strengthen credit derivative trading and

Topics

Expanding our Service Network
We are opening overseas offices dedicated to the specific
needs of their local markets. For example, our Houston
Representative Office (opened in June 2006) specializes in
the financing of businesses in the energy and natural
resources fields, while the staff of the Milan Branch of
Sumitomo Mitsui Banking Corporation Europe Ltd. (opened
October 2006) focus their efforts on project finance. In
March 2007 we became the first Japanese bank to open a
branch in Dubai, which will become our central base for
business in the Middle East. In China, we opened a repre-
sentative office in the Binhai New Area of Tianjin in March
of this year, followed by an office in the Industrial Park of
Suzhou City in April, and preparations for the opening of
our Beijing Branch are currently underway.

Greenhouse Gas Emissions Trading
In collaboration with Banco do Brasil, the largest commer-
cial bank in Brazil, we have commenced an introduction
service for companies wishing to engage in greenhouse
gas emissions trading. This service utilizes the framework
put in place by the Kyoto Protocol for collaboration between
advanced industrialized countries and developing coun-
tries in the fight against global warming. In 2006 we were
able to combine a number of emissions rights together
into a single package and find a prospective Japanese
purchaser. This innovative business model received high
evaluation from the market, and as a result, Banco
Sumitomo Mitsui Brasileiro S.A. was awarded a prize for
excellence by the Financial Times in the “Achievement in
Carbon Finance” category. We will continue to promote envi-
ronment-related businesses of this kind, in line with the
importance that SMFG places on fulfilling its corporate
social responsibility.

SMFG 2007

Establishment of China Division
SMBC has established a China Division and a planning
department to oversee operations in China. This will allow
SMBC to respond even faster to deregulation, market liber-
alization and other events in China’s rapidly growing mar-
kets. Thanks to these organizational changes, the bank
expects to achieve even higher levels of customer satisfac-
tion through the provision of products and services that
meet specific needs, as well as the further reinforcement of
risk management and compliance systems.

Alliance signed with Kookmin Bank of Korea
SMBC has concluded an alliance with Kookmin Bank, a
South Korean bank with an established reputation in the
fields of deposit and loan transactions with individuals and
SMEs, as well as local financial products. The alliance is
intended to facilitate mutual financial support for Japanese
companies setting up in business in Korea, and Korean
companies entering the Japanese market. It will also facili-
tate collaboration in structured finance projects and fund-
ing for import/export businesses. The agreement is
expected to provide SMBC with new business opportuni-
ties in Korea and other markets. SMBC will be able to offer
a menu of techniques for procuring funds in the local cur-
rency to Japanese corporate clients entering the Korean
market, as well as a wide range of other sophisticated
financial services.

■ Treasury Markets

SMFG aims to provide its clients with world-class support ser-

vices for their market transaction needs through the Treasury

Unit of SMBC. The Treasury Unit undertakes operations in the

money, foreign exchange, bond, and derivatives markets.

Based on a careful evaluation of each client’s needs, we

design financial products and services that deliver optimal

value-added solutions.

The Treasury Unit focuses on expanding transaction vol-

ume, strengthening ALM operations and diversifying fund

management channels through the accurate assessment of

domestic and overseas market trends to further strengthen

profitability, while effectively managing risk.

Enhancing Customer Convenience
In fiscal 2006, the Treasury Unit, in collaboration with the mar-

keting units, took steps to expand the market transaction ser-

vices system for corporate and retail customers. We also

increased the range of functions offered by i-Deal, a system

that allows customers to conclude foreign exchange con-

tracts over the Internet. The Treasury Unit will continue work-

ing 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 control market and

liquidity risks while maximizing earnings. To do this, it uses an

expanded array of investment techniques, including alterna-

tive investments, leading to a more diversified investment

portfolio and increased arbitrage investment opportunities.

We will continue to pursue optimal capital allocation with

a level of risk exposure appropriate to market conditions, with

the aim of securing stable profits.

Customers

Corporate Business Offices, Branches

Treasury Unit

Treasury Marketing Dept.

Planning 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
Bond
transactions
CD, CP
transactions

Orders

ALM
Operations

Deposits
Loans
Bonds
Alternative
investments

Treasury Dept.
International
Treasury Dept.

Exact ALM
operations and
liquidity
management

Trading

ALM (Asset Liability Management)

Fund and Bond Transactions

Inter-bank Market

Topics

Expanding Support Systems to Meet User Needs
To further increase customer convenience, SMBC periodi-
cally enhances the functions of i-Deal.

We are responding promptly and effectively to the
diversification of our customers’ needs by such means as
expanding our systems for providing foreign exchange risk
hedging to customers engaging in large-scale capital
transactions such as M&As, and our system for promoting
Asian business for Japanese clients through our offices in
the ASEAN nations, Hong Kong, and Shanghai.

Diversified Investment and Efficient Use of ALM
The Treasury Unit utilizes alternative investments, in addition
to derivatives linked to interest rate and foreign exchange
movements, to diversify and expand its investment options,
and effectively employs ALM operations in response to mar-
ket movements.

SMFG 2007 19

Group Companies (as of March 31, 2007)

SUMITOMO MITSUI Financial Group

www.smfg.co.jp/english/

The companies under the umbrella of Sumitomo Mitsui Financial Group
(SMFG) offer diversified financial services centering on banking opera-
tions, and including leasing, securities and credit card services, and
information services.

Our Mission
• 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 reward-
ing work environment for our dedicated employees

Company Name: Sumitomo Mitsui Financial Group, Inc.
Business Description:
Management of the affairs of banking subsidiaries (under the stipula-
tions of the Banking Law) and of non-bank subsidiaries, and ancillary
functions
Establishment: December 2, 2002
Head Office: 1-2, Yurakucho 1-chome, Chiyoda-ku, Tokyo, Japan
Chairman of the Board: Masayuki Oku
(Concurrent President at Sumitomo Mitsui Banking Corporation)
President: Teisuke Kitayama
(Concurrent Chairman of the Board at Sumitomo Mitsui Banking
Corporation)
Capital Stock: ¥1,420.9 billion
Stock Exchange Listings:
Tokyo Stock Exchange (First Section)
Osaka Securities Exchange (First Section)
Nagoya Stock Exchange (First Section)

SUMITOMO MITSUI Banking Corporation

www.smbc.co.jp/global/

Sumitomo Mitsui Banking Corporation (SMBC)
was established in April 2001 through the merger
of two leading banks, The Sakura Bank, Limited
and The Sumitomo Bank, Limited. In December
2002, Sumitomo Mitsui Financial Group, Inc. was
established through a stock transfer as a holding
company, under which SMBC became a wholly
owned subsidiary. SMBC boasts a number of
competitive advantages, including a strong cus-
tomer base, the quick implementation of strate-
gies, and an extensive lineup of financial products
that leverage the expertise of strategic Group
companies in specialized areas.

As a pivotal member of SMFG, SMBC works
closely with other Group companies to offer cus-
tomers highly sophisticated, comprehensive finan-
cial services.

Company Name: Sumitomo Mitsui Banking Corporation
Business Profile: Banking
Establishment: June 6, 1996
Head Office: 1-2, Yurakucho 1-chome,

Chiyoda-ku, Tokyo

President & CEO: Masayuki Oku
Number of Employees: 16,407
Network:
Domestic:
Branches

1,464 locations*
463
(including 38 specialized deposit account branches)
156
1

Subbranches
Agency
Offices handling

nonbanking business
Automated service centers

Overseas:
Branches
Subbranches
Representative offices

20
824
36 locations
18
5
13

*Excluding the number of ATMs installed at convenience stores

Credit Ratings (as of July 31, 2007)

Moody’s
S&P
Fitch
R&I
JCR

Long-term Short-term
P–1
A–1
F1
a–1
J–1+

Aa2
A+
A
A+
A+

■ Consolidated
Year ended March 31

2007

Billions of yen
2005
2006

2004

For the Year:
Ordinary income ....... ¥ 2,925.6 ¥ 2,750.2 ¥ 2,691.3 ¥ 2,717.0
282.1
Ordinary profit (loss)...
301.6
Net income (loss)......
At Year-End:
Net assets................. ¥ 5,412.4 ¥ 3,598.2 ¥ 2,633.9 ¥ 2,722.1
99,843.2
Total assets............... 98,570.6 104,418.5 97,478.3

(99.7)
(278.9)

716.6
401.7

862.0
563.5

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

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

Sumitomo Mitsui Card aims to actively con-
tribute, through its card business, to the realization
of comfortable and affluent consumer lifestyles,

and make further dramatic progress as a leading
brand company.

Company Name: Sumitomo Mitsui Card

Company, Limited

Business Profile: Credit card services
Establishment: December 26, 1967
Head Office:

Tokyo Head Office 5-2-10, Shimbashi,

Osaka Head Office 4-5-15, Imahashi,

Minato-ku, Tokyo

Chuo-ku, Osaka

President & CEO: Koichi Tsukihara
Number of Employees: 1,909

www.smbc-card.com
(Japanese only)

Credit Ratings (as of July 31, 2007)

JCR

■ Consolidated
Year ended March 31

2007

For the Year:
Revenues from credit
card operations....... ¥4,753.8
157.6
Operating revenue....
14.1
Operating profit.........
At Year-End:
Number of cardholders
(in thousands).........

14,951

Long-term Short-term
J–1+

A+

Billions of yen
2005
2006

2004

¥4,181.3 ¥3,598.7
132.1
23.1

148.2
25.8

¥3,258.4
126.3
18.5

14,067

13,462

12,758

SMFG 2007

www.smbcleasing.co.jp
(Japanese only)

SMBC Leasing Company, Limited, and its sub-
sidiaries specialize in providing tailor-made solu-
tions for corporate customers’ large-scale capital
investment needs. The company and its sub-
sidiaries combine a broad spectrum of leasing
products such as energy-saving equipment, com-
mercial real estate properties (shops, factories and
warehouses), and overseas facilities for Japanese
companies expanding abroad.The company and
its subsidiaries are working actively to offer auto
leases and rentals, lease trusts and other services
associated with leases.

SMBC Leasing is scheduled to merge with
Sumisho Lease Co., Ltd. in October 2007. The new
company aims to become the top leasing com-
pany in Japan in terms of both quantity and quality
by leveraging the assets of the two founding

companies, i.e. the customer base and know-how
possessed by SMBC Leasing as a bank-affiliated
leasing company; the financial solutions offered by
other subsidiaries of SMFG; the customer base of
trading company-affiliated Sumisho Lease; and the
various value chains of Sumitomo Corporation.

Company Name: SMBC Leasing Company, Limited
Business Profile: Leasing
Establishment: September 2, 1968
Head Office:

Tokyo Head Office 3-9-4, Nishishimbashi,

Osaka Head Office 3-10-19, Minamisenba,

Minato-ku, Tokyo

Chuo-ku, Osaka

President & CEO: Koji Ishida
Number of Employees: 916

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

Targeting customers in a wide range of sec-
tors, 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 the Japanese and over-
seas economies, formulates policy recommenda-
tions, and assists in the incubation of new
businesses.

In July 2006, JRI spun off part of its operations
to create JRI Solutions, Limited with the aim of
strengthening the provision of information tech-
nology solutions to corporate customers outside
our Group. The new company will leverage the

extensive fund of know-how in system develop-
ment and operations amassed by JRI in its long
years of service (principally to SMFG companies)
to offer the very best IT solutions to a wider array
of customers in the general industrial, financial,
and public sectors.

Company Name: The Japan Research Institute,

Business Profile: Systems engineering, data

Limited

processing, management
consulting, economic research

Establishment: November 1, 2002
Head Office:

Tokyo Head Office 16, Ichibancho,

Chiyoda-ku, Tokyo
Osaka Head Office 1-5-8, Shimmachi,

Nishi-ku, Osaka

President & CEO: Yasuyuki Kimoto
Number of Employees: 2,877
(including JRI Solutions, Limited)

Credit Ratings (as of July 31, 2007)

R&I
JCR

■ Consolidated
Year ended March 31

For the Year:
Revenues from
leasing operations...
Operating revenue...
Operating profit........

Long-term Short-term
a–1
J–1

A
A+

2007

Billions of yen
2005
2006

2004

¥583.6
630.0
31.5

¥615.5
619.7
32.2

¥580.0
589.1
28.0

¥555.7
553.0
23.2

www.jri.co.jp/english/

■ Consolidated
Year ended March 31

For the Year:
Operating revenue...
Operating profit........

2007*

¥111.8
6.1

Billions of yen
2005
2006

2004

¥115.8
5.2

¥111.2
6.3

¥105.1
7.6

*Figures include JRI Solutions (for three months through
June 30, 2006)

SMBC friend securities co., ltd.

www.smbc-friend.co.jp
(Japanese only)

SMBC Friend Securities was founded through
the merger of Meiko National Securities and
Sakura Friend Securities in April 2003. It later
merged with Izumi Securities, an affiliate of
Sumitomo Life Insurance Company, in April 2004.
It became a wholly-owned subsidiary of SMFG
through a share transfer in September 2006.

SMBC Friend Securities boasts one of the
strongest financial bases among Japanese secu-
rities companies. Its operations are highly effi-
cient, and it provides a full range of securities
services, focused mainly on retail customers
through its nationwide network of branches.
Aiming to become the leading provider of high-

quality retail securities services in Japan, the
company precisely tailors products and services
to match customers’ needs.

Company Name: SMBC Friend Securities Co., Ltd.
Business Profile: Securities services
Establishment: March 2, 1948
Head Office: 7-12 Nihonbashi-Kabutocho,
Chuo-ku, Tokyo
President: Katsuhiko Tamaki
Number of Employees: 1,836

■ Consolidated
Year ended March 31

2007

Billions of yen
2005
2006

2004*

For the Year:

Operating revenue...
..................................

¥58.7

¥68.5

¥52.3

Operating profit........
..................................
*SMBC Friend Securities (top), Izumi Securities (bottom)

18.0

21.2

31.0

¥48.3
8.3
18.8
1.6

SMFG 2007 21

Financial Highlights

Sumitomo Mitsui Financial Group

l Consolidated
Year ended March 31

For the Year:

2007

2006

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

¥ 3,947,786
3,140,996
441,351

At Year-End:

Total net assets .........................................................
Total assets ...............................................................
Risk-monitored loans.................................................
Reserve for possible loan losses...............................
Net unrealized gains (losses) on other securities......
Number of employees ...............................................

¥ 5,331,279
100,858,309
1,067,386
889,093
1,825,168
41,428

Selected Ratios:

Capital ratio ...............................................................
Return on Equity........................................................
Price Earnings Ratio..................................................

11.31%
13.07%
18.74x

Per Share (Yen):

3,803,089
2,759,726
686,841

4,454,399
107,010,575
1,243,160
1,035,468
1,373,337
40,681

12.39%
33.15%
13.72x

Millions of yen
2005

¥ 3,589,871
3,698,406
(234,201)

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

9.94%
—%
—x

2004

2003

¥ 3,669,531
3,264,636
330,414

¥ 3,070,942
102,215,172
3,297,981
1,422,486
575,612
42,014

11.37%
31.68%
14.71x

¥ 3,518,293
4,109,207
(465,359)

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

10.10%
—%
—x

Net assets..................................................................
Net income (loss).......................................................
Net income — diluted ................................................

¥469,228.59
57,085.83
51,494.17

¥400,168.89
94,733.62
75,642.93

¥164,821.08
(44,388.07)
—

¥215,454.83
52,314.75
35,865.20

¥106,577.05
(84,324.98)
—

Notes: 1. Net 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 27.

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.

3. From the fiscal year ended March 31, 2007, SMFG has applied “Accounting Standard for Presentation of Net Assets in the Balance Sheet” (ASBJ

Statement No.5) and “Guidance on Accounting Standard for Presentation of Net Assets in the Balance Sheet” (ASBJ Guidance No.8).

4. The ASBJ revised “Guidance on Accounting Standard for Earnings per Share” (ASBJ Guidance No.4). From this period, SMFG has applied the

revised Guidance and calculated net assets per share by including net deferred gains (losses) on hedges.

5. Capital ratio as of March 31, 2007 is calculated under Basel II. Capital ratio as of March 31, 2006 and before was calculated under the former

method.

SMFG 2007

l Nonconsolidated
Year ended March 31

For the Year:

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

At Year-End:

Total net assets (A) ...................................................
Total assets (B) .........................................................
Total net assets to total assets (A) / (B) ...................
Capital stock ..............................................................

Number of shares issued

Preferred stock...............................................
Common stock ...............................................
Number of employees ...............................................

Selected Ratios:

Return on Equity........................................................
Price Earnings Ratio..................................................
Dividend payout ratio.................................................

Per Share (Yen):

Net assets..................................................................
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 ................................................

2007

2006

Millions of yen
2005

2004

2003

¥ 376,479
366,680
3,641
363,535

¥ 2,997,898
3,959,444
75.72%
1,420,877

120,101
7,733,653
131

13.71%
23.10x
15.31%

55,482
46,432
3,196
73,408

¥ 3,935,426
4,166,332
94.46%
1,420,877

950,101
7,424,172
124

2.38%
190.16x
46.64%

¥ 258,866
251,735
2,644
252,228

¥ 3,319,615
3,795,110
87.47%
1,352,651

1,057,188
6,273,792
115

15.47%
18.95x
7.81%

55,515
47,332
3,044
50,505

¥ 3,172,721
3,403,007
93.23%
1,247,650

1,132,099
5,796,010
97

1.57%
207.86x
80.97%

¥ 131,519
128,265
971
124,738

¥ 3,156,086
3,413,529
92.46%
1,247,650

1,132,100
5,796,000
94

8.52%
11.21x
15.98%

¥342,382.75

¥330,206.27

¥257,487.78

¥232,550.74

¥231,899.30

7,000
—
—
—
135,000
135,000
135,000
135,000
135,000
135,000
135,000
135,000
135,000
135,000
135,000
135,000
/
88,500
46,326.41
41,973.46

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
/
88,500
6,836.35
6,737.46

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

Notes: 1. All SMFG employees are on secondment assignment from SMBC etc.

2. From the fiscal year ended March 31, 2007, SMFG has applied “Accounting Standard for Presentation of Net Assets in the Balance Sheet” (ASBJ

Statement No.5) and “Guidance on Accounting Standard for Presentation of Net Assets in the Balance Sheet” (ASBJ Guidance No.8).

3. The ASBJ revised “Guidance on Accounting Standard for Earnings per Share” (ASBJ Guidance No.4). From this period, SMFG has applied the

revised Guidance and calculated net assets per share by including net deferred gains (losses) on hedges.

SMFG 2007 23

Sumitomo Mitsui Banking Corporation

l Consolidated

Year ended March 31
For the Year:

2007

2006

¥ 2,971,693
2,220,971
401,795

At Year-End:

¥ 5,412,458
98,570,638
1,047,566
860,799
1,852,971
31,718

Selected Ratios:

Capital ratio ...............................................................
Return on Equity........................................................

12.95%
12.95%

Per Share (Yen):

¥67,823.69
7,072.09
7,012.46

¥ 2,789,433
1,903,374
563,584

¥ 3,598,294
104,418,597
1,219,383
1,006,223
1,337,192
32,918

10.77%
30.15%

¥41,444.83
9,864.54
9,827.19

Millions of yen
2005

¥ 2,699,202
2,875,897
(278,995)

¥ 2,633,912
97,478,308
2,186,739
1,239,882
678,527
32,868

10.60%
—%

¥23,977.62
(5,300.46)
—

2004

2003

¥ 2,843,502
2,487,197
301,664

¥ 2,722,161
99,843,258
3,229,219
1,375,921
568,407
33,895

10.89%
25.38%

¥25,928.02
5,238.85
5,231.31

¥ 3,561,843
4,104,514
(429,387)

¥ 2,142,544
102,394,637
5,683,134
2,201,830
(27,471)
35,523

10.38%
—%

¥15,353.34
(10,429.29)
—

Notes: 1. Net 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.

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.

3. From the fiscal year ended March 31, 2007, SMBC has applied “Accounting Standard for Presentation of Net Assets in the Balance Sheet” (ASBJ

Statement No.5) and “Guidance on Accounting Standard for Presentation of Net Assets in the Balance Sheet” (ASBJ Guidance No.8).

4. The ASBJ revised “Guidance on Accounting Standard for Earnings per Share” (ASBJ Guidance No.4). From this period, SMBC has applied the

revised Guidance and calculated net assets per share by including net deferred gains (losses) on hedges.

5. Capital ratio as of March 31, 2007 is calculated under Basel II. Capital ratio as of March 31, 2006 and before was calculated under the former

method.

(Year ended March 31)
Income Summary [Nonconsolidated]

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

Gains/losses on stocks

Net income (loss)

(Billions of yen)

1,800

900

-900

-1,800
1 800

2003

2004

2005

2006

2007

(March 31)
Problem Assets Based on the Financial Reconstruction Law
and Problem Asset Ratio [Nonconsolidated]

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

Problem asset ratio (right scale)

Doubtful assets (left scale)

(March 31)
Stock Holdings [Nonconsolidated]
Listed equity shares and shares traded over the counter

Acquisition costs (left scale)

Net unrealized gains/losses (right scale)

(Billions of yen)

7,000

6,000

5,000

4,000

3,000

2,000

1,000

2003

2004

2005

2006

2007

(March 31)
Capital Ratio [Consolidated]

Capital ratio (left scale)

Total capital

Tier I capital (right scale)

2,000

1,500

1,000

500

-500

-1,000
1 000

(Billions of yen)

10,000

8,000

6,000

4,000

2,000

(Billions of yen)

6,000

5,000

4,000

3,000

2,000

1,000

2003

2004

2005

2006

2007

(%)
10.0

8.0

6.0

4.0

2.0

0 00.0

(%)

13.00

12.00

11.00

10.00

9 009.00

2003

2004

2005

2006

2007

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

Note: Capital ratio shown above represents the capital ratio of SMFG on a consoli-

dated basis.

SMFG 2007

l Nonconsolidated

Year ended March 31
For the Year:

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

At Year-End:

Total net assets .........................................................
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 .............................................................
Capital stock ..............................................................

Number of shares issued (in thousands)

Preferred stock ...............................................
Common stock................................................
Number of employees ...............................................

Selected Ratios:

Capital ratio ...............................................................
Return on Equity........................................................
Dividend payout ratio.................................................
Overhead ratio (B) / (A) .............................................

Per Share (Yen):

Net assets..................................................................
Dividends:

Common stock.....................................................
Preferred stock (1st series Type 1)......................
Preferred stock (2nd series Type 1) ....................
Preferred stock (Type 5) ......................................
Preferred stock (Type 1) ......................................
Preferred stock (Type 2) ......................................
Preferred stock (Type 3) ......................................
Preferred stock (1st series Type 6)......................
Net income (loss).......................................................
Net income — diluted ................................................

2007

2006

Millions of yen
2005

2004

2003

¥ 2,492,577
1,905,648
315,740

¥ 2,322,699
1,576,026
519,520

¥ 2,290,935
2,391,014
(136,854)

¥ 2,489,187
2,170,341
301,113

¥ 2,424,023
3,095,011
(478,304)

1,344,490
782,330

740,601
603,888

¥ 3,992,884
91,537,228
68,809,338
53,756,440
20,060,873
721,064

738,667
677,573
1,832,891
1,174,396
5,350
267,110
664,986

70
56,355
16,407

13.45%
10.13%
13.89%
44.9%

1,552,033
810,593

965,573
586,459

¥ 3,634,776
97,443,428
68,222,167
51,857,559
25,202,541
914,173

960,095
816,437
1,316,206
1,305,915
7,870
238,205
664,986

900
55,212
16,050

11.35%
26.57%
63.02%
37.8%

1,522,861
1,291,972

940,495
582,365

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

1,824,622
989,121
651,385
777,177
9,780
81,840
664,986

900
55,212
16,338

11.32%
—%
—%
38.2%

1,584,127
1,000,132

1,000,132
583,995

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

2,811,234
1,250,751
556,146
429,388
10,000
4,645
559,985

967
54,811
17,546

11.36%
22.49%
79.88%
36.9%

1,760,684
875,511

1,113,643
647,040

¥ 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
—
559,985

967
54,811
19,797

10.49%
—%
—%
36.7%

¥67,124.90

¥42,105.57

¥26,129.71

¥28,641.10

¥17,846.95

763
/
/
/
/
/
/
88,500
5,533.69
5,487.21

5,714
/
/
/
10,500
28,500
13,700
88,500
9,066.46
9,050.63

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

Notes: 1. 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. However, figures related to net income per share and diluted net income per share exclude the former SMBC’s operating results for
the same period mentioned above.

2. Please refer to page 158 for the definitions of risk-monitored loans and problem assets based on the Financial Reconstruction Law.
3. Net 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 31.
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, temporary staff, and executive officers who are not also Board members.

5. Dividend per share for the term ended March 31, 2003 represents an interim dividend per share paid by former SMBC to SMFG.
6. From the fiscal year ended March 31, 2007, SMBC has applied “Accounting Standard for Presentation of Net Assets in the Balance Sheet” (ASBJ

Statement No.5) and “Guidance on Accounting Standard for Presentation of Net Assets in the Balance Sheet” (ASBJ Guidance No.8).

7. The ASBJ revised “Guidance on Accounting Standard for Earnings per Share” (ASBJ Guidance No.4). From this period, SMBC has applied the

revised Guidance and calculated net assets per share by including net deferred gains (losses) on hedges.

8. Capital ratio as of March 31, 2007 is calculated under Basel II. Capital ratio as of March 31, 2006 and before was calculated under the former

method.

SMFG 2007 25

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 the fiscal year ended March 31, 2007.

1. Operating Results
Operating results for fiscal 2006 include the results of 181
consolidated subsidiaries (125 in Japan and 56 overseas) and
62 subsidiaries and affiliates accounted for by the equity
method (35 in Japan and 27 overseas).

Gross profit showed a year-on-year decrease of ¥183.9 bil-
lion to ¥1,906.1 billion. This was primarily attributable to
recording of “net other operating expenses” compared to the
substantial “net other operating income” of fiscal 2005 as
JGBs and other bond holdings were scaled back to reduce
the risk exposure of our portfolio in light of domestic and
overseas interest rate trends.

After factoring in general and administrative expenses,
credit cost, gains on stocks, equity in earnings (losses) of
affiliates, and other relevant income items, ordinary profit
came to ¥798.6 billion, a year-on-year decrease of ¥164.9
billion. This was due mainly to the fact that equity in earn-
ings of affiliates registered a ¥136.0 billion decrease to
¥104.1 billion, although credit cost showed a decrease of
¥187.3 billion. Net income after inclusion of extraordinary
gains and income taxes amounted to ¥441.3 billion, a
¥245.4 billion decrease from the previous term.

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 ..............................

2007 (A)

2006 (B)

181
62

162
63

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 (expenses) .............................................................
General and administrative expenses .....................................................................
Credit cost (A) .........................................................................................................
Write-off of loans ................................................................................................
Provision for specific reserve for possible loan losses.......................................
Provision for general reserve for possible loan losses.......................................
Others ................................................................................................................
Net gains on stocks .................................................................................................
Equity in earnings (losses) of affiliates .....................................................................
Net other income (expenses) ..................................................................................
Ordinary profit..........................................................................................................
Extraordinary gains (losses)....................................................................................
Losses on impairment of fixed assets ................................................................
Gains on collection of written-off claims (B) .......................................................
Gains on return of securities from retirement benefits trust ...............................
Income before income taxes and minority interests ................................................
Income taxes:

Current ..............................................................................................................
Deferred .............................................................................................................
Minority interests in net income...............................................................................
Net income ..............................................................................................................
Total credit cost (A) + (B) ........................................................................................
[Reference]
Consolidated banking profit (Billions of yen) ...........................................................

2007 (A)

¥1,906,173
1,168,592
3,508
609,185
125,625
(738)
(888,561)
(146,186)
(81,415)
(77,446)
53,370
(40,695)
44,730
(104,170)
(13,374)
798,610
8,180
(30,548)
1,236
36,330
806,790

(87,818)
(218,770)
(58,850)
¥ 441,351
¥ (144,950)

Millions of yen

2006 (B)

¥ 2,090,149
1,161,607
8,631
619,591
32,807
267,511
(853,796)
(333,571)
(69,355)
(45,047)
(120,078)
(99,091)
47,119
31,887
(18,233)
963,554
79,807
(12,303)
31,584
—
1,043,362

(69,818)
(226,901)
(59,800)
¥ 686,841
¥ (301,987)

Increase (decrease)
(A) – (B)

19
(1)

Increase (decrease)
(A) – (B)

¥(183,976)
6,985
(5,123)
(10,406)
92,818
(268,249)
(34,765)
187,385
(12,060)
(32,399)
173,448
58,396
(2,389)
(136,057)
4,859
(164,944)
(71,627)
(18,245)
(30,348)
36,330
(236,572)

(18,000)
8,131
950
¥(245,490)
¥ 157,037

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.)

SMFG 2007

924.2

¥ 1,225.4

(301.2)

Deposits (excluding negotiable certificates of deposit) as of
March 31, 2007, stood at ¥72,156.2 billion, a ¥1,322.0 bil-
lion increase compared with the previous fiscal year-end.
Negotiable certificates of deposit stood at ¥2,589.2 billion, a
decrease of ¥119.4 billion over the same period. Loans and
bills discounted increased ¥1,422.1 billion to ¥58,689.3 bil-
lion, while securities decreased ¥4,968.3 billion to ¥20,537.5
billion.

Assets, Liabilities and Net assets

Net assets as of the term-end came to ¥5,331.2 billion. Of
this sum, stockholders’ equity amounted to ¥2,741.6 billion,
the combined total of consolidated net income and purchase
and retirement of treasury shares following the repayment of
public funds.

March 31
Assets......................................................................................................................
Securities ...........................................................................................................
Loans and bills discounted.................................................................................
Liabilities..................................................................................................................
Deposits .............................................................................................................
Negotiable certificates of deposit .......................................................................
Minority interests .....................................................................................................
Net assets ...............................................................................................................

2007 (A)
¥100,858,309
20,537,500
58,689,322
95,527,029
72,156,224
2,589,217
—
5,331,279

Millions of yen

2006 (B)
¥107,010,575
25,505,861
57,267,203
101,443,151
70,834,125
2,708,643
1,113,025
4,454,399

Increase (decrease)
(A) – (B)
¥(6,152,266)
(4,968,361)
1,422,119
(5,916,122)
1,322,099
(119,426)
(1,113,025)
876,880

Note: From March 31, 2007, SMFG has applied “Accounting Standard for Presentation of Net Assets in the Balance Sheet” (ASBJ Statement No.5) and

“Guidance on Accounting Standard for Presentation of Net Assets in the Balance Sheet” (ASBJ Guidance No.8). Minority interests are included in net
assets with an application of these standards.

2. Unrealized Gains (Losses) on Securities
Net unrealized gains on securities as of March 31, 2007
amounted to ¥1,812.4 billion, which is an increase of ¥469.6
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 net assets,
increased by ¥451.9 billion over the same period, to
¥1,825.4 billion due mainly to an increase in unrealized
gains on stocks and a decrease in unrealized losses on bonds.

Unrealized Gains (Losses) on Securities

2007

Millions of yen

Net unrealized
gains (losses) (A)

March 31
Held-to-maturity securities .................... ¥ (13,065)
1,825,168
Other securities ....................................
1,972,647
Stocks ..............................................
(157,367)
Bonds...............................................
9,888
Others ..............................................
322
Other money held in trust......................

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

1,812,424
1,972,647
(170,613)
10,391

(A) – (B)
¥ 17,716
451,831
269,957
139,866
42,008
113

469,659
269,957
157,675
42,027

Unrealized
gains

200
2,032,120
1,987,337
1,805
42,977
322

2,032,643
1,987,337
1,825
43,480

Unrealized
losses
¥ 13,266
206,952
14,689
159,173
33,089
—

220,218
14,689
172,439
33,089

2006

Net unrealized
gains (losses) (B)
¥ (30,781)
1,373,337
1,702,690
(297,233)
(32,120)
209

Unrealized
gains

580
1,771,170
1,722,129
988
48,052
209

1,342,765
1,702,690
(328,288)
(31,636)

1,771,960
1,722,129
1,294
48,535

Unrealized
losses
¥ 31,361
397,833
19,438
298,222
80,172
—

429,195
19,438
329,583
80,172

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

loan trust 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, 2006 include losses of ¥3,193 million that were recognized in the income statement
by applying fair value hedge accounting, which are included in the amount to be directly included in stockholders’ equity.

SMFG 2007 27

3. Consolidated Capital Ratio
SMFG’s consolidated capital ratio as of March 31, 2007 was
11.31%. (Please refer to “Capital Ratio Information” section
on page 123 for more information.)

Total capital, which constitutes the numerator in the capital

ratio calculation equation, was ¥6,852.7 billion.

Meanwhile, risk-adjusted assets, the denominator in the
equation, amounted to ¥60,540.3 billion. Capital ratio as of
March 31, 2007 was calculated under Basel II. Capital ratio
as of March 31, 2006 was calculated under the former
method.

Consolidated Capital Ratio

March 31
Tier I capital .....................................................................................................
Tier II capital included as qualifying capital .....................................................
Deductions.......................................................................................................

Total capital .....................................................................................................

Risk-adjusted assets .......................................................................................

2007
¥ 3,903,257
3,640,226
(690,759)

6,852,723

60,540,346

Millions of yen

2006
¥ 4,645,905
4,067,736
(619,279)

8,094,361

65,322,349

Consolidated capital ratio ................................................................................

11.31%

12.39%

4. Dividend Policy
Given the public nature of its business, SMFG subscribes to a
fundamental policy of increasing dividends stably and con-
tinuously through a sustainable growth in corporate value,
while enhancing the Group’s capital to maintain a sound
financial position. It is aiming for a payout ratio of over 20%
on a consolidated net income basis for the fiscal year ending
March 31, 2010, the final year of its medium-term manage-
ment plan, “LEAD THE VALUE” Plan.

SMFG’s basic policy is to make dividend payments twice a

year in the form of interim and term-end dividends. The
term-end dividend is approved at the annual general meeting
of shareholders. As for the interim dividend, it is stated in
the Articles of Incorporation of SMFG that the interim divi-
dend payment shall be determined by resolution of a meeting

of the Board of Directors, with September 30 of each year as
the record date.

Based on the above mentioned policy, SMFG decided to

pay a term-end dividend of ¥7,000 per share of common
stock for the fiscal year ended March 31, 2007, a year-on-year
increase of ¥4,000. Annual dividends on preferred stocks
were paid in the predetermined amounts for each category of
preferred stock. SMFG did not pay an interim dividend for
the reporting period, taking into account the need for a suffi-
cient amount of retained earnings.

SMFG will use retained earnings to implement strategic
initiatives centered on strengthening targeted growth business
areas and fortifying the Group’s platform for supporting sus-
tainable growth, with the aim of raising its corporate value.

5. Deferred Tax Assets
Net deferred tax assets, which represent deferred tax assets
after deduction of deferred tax liabilities, decreased by
¥165.8 billion from the previous fiscal year-end, to stand at
¥836.2 billion. This decline was mainly attributable to the

posting of an income before income taxes.

SMFG has been adopting a conservative stance on the

recognition of deferred tax assets in consideration of the need
to secure a sound financial position.

Deferred Tax Assets

March 31
Net deferred tax assets ...................................................................................
Net deferred tax assets / Tier I capital × 100 ...................................................

2007 (A)
¥836,270

21.4%

Millions of yen

2006 (B)
¥1,002,125

Increase (decrease)
(A) – (B)
¥(165,855)

21.6%

(0.2)%

SMFG 2007

Sumitomo Mitsui Banking Corporation (Nonconsolidated)
Sumitomo Mitsui Banking Corporation

The following is a summary of SMBC’s nonconsolidated financial results for the fiscal year ended March 31, 2007.

1. Operating Results
Banking profit (before provision for general reserve for possi-
ble loan losses) for fiscal 2006 decreased ¥224.9 billion to
¥740.6 billion year on year, as a result of a ¥207.5 billion
decrease in gross banking profit to ¥1,344.4 billion, and a
¥17.4 billion increase in expenses (excluding nonrecurring
losses) to ¥603.8 billion.

Ordinary profit, calculated by adjusting banking profit
(before provision for general reserve for possible loan losses)
for nonrecurring items such as total credit cost and gains on
stocks, amounted to ¥573.3 billion, a ¥147.6 billion
decrease year on year.

After adjusting ordinary profit for extraordinary gains
(losses) and income taxes, net income was ¥315.7 billion, a
year-on-year decrease of ¥203.7 billion.

2. Income Analysis
Gross Banking Profit
Gross banking profit for fiscal 2006 decreased ¥207.5 billion
year on year, to ¥1,344.4 billion. This was primarily attrib-
utable to recording of “net other operating expenses” com-
pared to the substantial “net other operating income” of
fiscal 2005 as JGBs and other bond holdings were scaled

Banking Profit

back to reduce the risk exposure of our portfolio in light of
domestic and overseas interest rate trends. In addition,
profits fell in the Treasury Unit due to a decline in yen-
denominated banking transactions and trading profits in
line with its scaling back of positions and reduction in
interest-rate spreads.

Expenses
Expenses (excluding nonrecurring losses) increased ¥17.4
billion year on year, to ¥603.8 billion. This increase is
mainly attributable to higher expenses incurred in enhanc-
ing its marketing channels to improve customer satisfaction,
as well as aggressive investment in priority business fields
such as loans to small and medium-sized corporations, which
more than offset SMBC’s continued efforts to cut costs in
existing operations through rationalization of administrative
systems.

Banking Profit
Banking profit (before provision for general reserve for possi-
ble loan losses) decreased ¥224.9 billion year on year, to
¥740.6 billion.

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

2007 (A)
¥1,344,490
[1,149,941]
[194,548]
937,452
3,482
353,416
101,620
(51,482)
[1,456,903]
(603,888)
(190,630)
(378,240)
(35,017)
740,601

[853,015]
41,728
782,330

Millions of yen

2006 (B)
¥1,552,033
[1,266,488]
[285,545]
954,544
8,626
366,675
11,937
210,248
[1,562,354]
(586,459)
(192,359)
(360,720)
(33,379)
965,573

[975,894]
(154,980)
810,593

Increase (decrease)
(A) – (B)
¥(207,543)
[(116,547)]
[(90,997)]
(17,092)
(5,144)
(13,259)
89,683
(261,730)
[(105,451)]
(17,429)
1,729
(17,520)
(1,638)
(224,972)

[(122,879)]
196,708
(28,263)

Banking Profit by Business Unit

Year ended March 31, 2007

Banking profit (before provision for

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

Treasury
Unit

Others

Total

general reserve for possible loan losses) .................

¥161.5

¥420.1

¥158.3

¥74.7

¥ 34.0

¥(108.0)

¥740.6

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

(9.9)

(82.8)

(12.0)

6.1

(167.8)

41.4

(225.0)

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 2007 29

Nonrecurring Losses (Credit Cost, etc.)

Nonrecurring losses amounted to ¥209.0 billion, a year-on-
year increase of ¥119.3 billion. This is mainly attributable to a
provision for reserve for possible losses on investments made
for affiliates, resulting in a loss of ¥88.4 billion in “others”
under nonrecurring losses, a ¥79.8 billion increase in loss over
the previous year.

Total credit cost, which is the combined total of credit cost

of ¥131.6 billion recorded under “Nonrecurring gains
(losses),” provision for general reserve for possible loan losses,
and gains on collection of written-off claims, was ¥89.4 bil-
lion, a year-on-year decrease of ¥141.4 billion. This decline is
mainly attributable to progress in corporate rehabilitation pro-
grams and decreases in provision ratios from improvements in
loan asset quality.

Ordinary Profit and Net Income

Ordinary Profit
As a result of the foregoing, ordinary profit totaled ¥573.3 bil-
lion, a decrease of ¥147.6 billion from the previous term.

Extraordinary Gains
Net extraordinary gains amounted to ¥13.6 billion, a year-
on-year decrease of ¥12.1 billion.

Net Income
Current income taxes amounted to ¥16.5 billion, and deferred
income taxes amounted to ¥254.6 billion. As a result, net
income decreased ¥203.7 billion to ¥315.7 billion year on
year.

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) ....................................................................................................
Net gains on stocks............................................................................................
Gains on sale of stocks .................................................................................
Losses on sale of stocks ...............................................................................
Losses on devaluation of stocks ...................................................................
Others ................................................................................................................

Ordinary profit .........................................................................................................
Extraordinary gains .................................................................................................
Gains on disposal of premises and equipment .................................................
Losses on disposal of fixed assets.....................................................................
Losses on impairment of fixed assets ................................................................
Gains on collection of written-off claims (C).......................................................
Gains on return of securities from retirement benefits trust ...............................
Losses on liquidation of subsidiary ....................................................................

Income taxes:

2007 (A)
¥740,601
41,728

782,330
(209,017)
(131,676)
11,098
50,204
(546)
(38,559)
(88,439)

573,313
13,615
—
(1,680)
(3,680)
455
36,330
(17,809)

Millions of yen

2006 (B)
¥ 965,573
(154,980)

Increase (decrease)
(A) – (B)
¥(224,972)
196,708

810,593
(89,659)
(106,560)
25,460
70,085
(13,367)
(31,257)
(8,559)

720,933
25,739
1,457
—
(6,300)
30,605
—
—

(28,263)
(119,358)
(25,116)
(14,362)
(19,881)
12,821
(7,302)
(79,880)

(147,620)
(12,124)
(1,457)
(1,680)
2,620
(30,150)
36,330
(17,809)

Current ...............................................................................................................
Deferred .............................................................................................................

(16,507)
(254,680)

Net income ..............................................................................................................

¥315,740

(13,512)
(213,639)

¥ 519,520

(2,995)
(41,041)

¥(203,780)

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

¥ (89,491)

¥(230,935)

¥ 141,444

Provision for general reserve for possible loan losses.......................................
Write-off of loans ................................................................................................
Provision for specific reserve for possible loan losses.......................................
Losses on sales of delinquent loans ..................................................................
Provision for loan loss reserve for specific overseas countries..........................
Gains on collection of written-off claims.............................................................

41,728
(50,468)
(44,358)
(37,262)
412
455

(154,980)
(12,650)
(15,825)
(79,659)
1,575
30,605

196,708
(37,818)
(28,533)
42,397
(1,163)
(30,150)

SMFG 2007

3. Assets, Liabilities and Net Assets
Assets
SMBC’s total assets as of March 31, 2007 stood at ¥91,537.2
billion on a nonconsolidated basis, a ¥5,906.2 billion
decrease compared with the previous fiscal year-end. Factors
behind this decrease in total assets include 1) a rise in the
term-end balance of loans of ¥1,898.8 billion compared with
the previous term-end, due to an increase in overseas lending
to companies with high credit ratings and overseas project
finance; 2) a decrease in the value of SMBC’s securities hold-
ings of ¥5,141.6 billion, as a result of reducing its risk expo-
sure by scaling back bond portfolio in light of interest-rate
trends inside and outside Japan.

Liabilities
Liabilities as of March 31, 2007 decreased ¥6,264.3 billion

Assets, Liabilities and Net Assets

to ¥87,544.3 billion from the previous fiscal year-end. This
was the result of an increase of ¥1,164.2 billion in deposits,
mainly overseas, which was offset by a decrease in fund pro-
curement due to the decrease in assets.

Net Assets
Net assets as of the term-end came to ¥3,992.8 billion. Of
this sum, stockholders’ equity amounted to ¥2,793.5 billion,
the combined total of capital stock of ¥664.9 billion, capital
reserve of ¥1,367.5 billion (including “other capital reserve”
of ¥702.5 billion), and retained earnings of ¥761.0 billion.

Valuation and translation adjustments amounted to

¥1,199.3 billion — ¥1,259.8 billion in net unrealized gains
on other securities, ¥84.7 billion in net deferred losses on
hedges, and ¥24.2 billion in land revaluation excess.

March 31
Assets......................................................................................................................
Securities ...........................................................................................................
Loans and bills discounted.................................................................................
Liabilities..................................................................................................................
Deposits .............................................................................................................
Negotiable certificates of deposit .......................................................................
Net Assets ...............................................................................................................

2007 (A)
¥91,537,228
20,060,873
53,756,440
87,544,344
66,235,002
2,574,335
3,992,884

Millions of yen

2006 (B)
¥97,443,428
25,202,541
51,857,559
93,808,652
65,070,784
3,151,382
3,634,776

Increase (decrease)
(A) – (B)
¥(5,906,200)
(5,141,668)
1,898,881
(6,264,308)
1,164,218
(577,047)
358,108

Note: From March 31, 2007, SMBC has applied “Accounting Standard for Presentation of Net Assets in the Balance Sheet” (ASBJ Statement No.5) and

“Guidance on Accounting Standard for Presentation of Net Assets in the Balance Sheet” (ASBJ Guidance No.8). Minority interests are included in net
assets with an application of these standards.

4. Unrealized Gains (Losses) on Securities
Net unrealized gains on securities as of March 31, 2007
amounted to ¥1,828.1 billion, which is an increase of
¥274.8 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 net assets,
increased by ¥516.7 billion over the same period, to
¥1,833.2 billion. The increase in unrealized gains on other
securities resulted mainly from an increase in unrealized
gains on stocks and a decrease in unrealized losses on bonds.

Unrealized Gains (Losses) on Securities

2007

2006

Millions of yen

Net unrealized
gains (losses)(A)

March 31
Held-to-maturity securities.................... ¥ (13,064)
7,958
Stocks of subsidiaries and affiliates .....
1,832,891
Other securities ....................................
1,978,749
Stocks .............................................
(151,444)
Bonds ..............................................
5,587
Others .............................................
322
Other money held in trust .....................

Total

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

1,828,107
1,986,707
(164,690)
6,090

(A) – (B)
¥ 17,718
(259,617)
516,685
346,345
130,810
39,530
113

274,899
86,728
148,617
39,553

Unrealized
gains

Unrealized
losses

Net unrealized
gains (losses)(B)

Unrealized
gains

¥ 200
85,505
2,028,694
1,990,476
748
37,469
322

2,114,723
2,075,981
768
37,972

¥ 13,265 ¥ (30,782)
267,575
1,316,206
1,632,404
(282,254)
(33,943)
209

77,547
195,802
11,727
152,193
31,882
—

286,615
89,274
165,458
31,882

1,553,208
1,899,979
(313,307)
(33,463)

577
270,285
1,695,589
1,649,881
727
44,980
209

1,966,661
1,920,166
1,033
45,460

Unrealized
losses
¥ 31,359
2,710
379,383
17,476
282,981
78,924
—

413,453
20,186
314,341
78,924

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

beneficiary claims on loan trust and commodity investment trust in “Commercial paper and other debt purchased.”

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 interim 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 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.
“Net unrealized gains on other securities” as of March 31, 2006 include losses of ¥3,193 million that were recognized in the income statement by
applying fair value hedge accounting, which are included in the amount to be directly included in stockholders’ equity.

SMFG 2007 31

Asset Quality

Current Status of Problem Assets
SMBC continued to take measures in fiscal 2006 to further reinforce its financial soundness with the aim of achieving sustainable growth.
In fiscal 2006, improvements in asset quality reduced the total credit cost to ¥89.5 billion, which was ¥141.4 billion less than in fiscal 2005.
As of the end of March 2007, the balance of non-performing loans (NPLs)—referred to as “problem assets” under the Financial
Reconstruction Law—stood at ¥738.7 billion, and the NPL ratio (the ratio of problem assets to total assets) was 1.2%. We will continue to
leverage the know-how we have accumulated in the course of implementing NPL workouts to actively develop business opportunities in
corporate revitalization support services and new business areas.

I. Self-Assessment, Write-Offs, and Provisions
1. Self-Assessment
SMBC conducts rigorous self-assessment of asset quality using cri-
teria 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 provisions. Each asset is assessed individually for
its security and collectibility. Depending on the borrower’s current
situation, the borrower is assigned to one of five categories: 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 clas-
sified 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.

Borrower Categories, Defined

Normal Borrowers

Borrowers with good earnings performances and
no significant financial problems

Borrowers Requiring Borrowers identified for close monitoring
Caution
Potentially Bankrupt Borrowers perceived to have a high risk of falling into
Borrowers
Effectively Bankrupt
Borrowers
Bankrupt Borrowers

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

Asset Classifications, Defined

Classification I
Classification II

Classification III

Classification IV

Assets not classified under Classifications II, III, or IV
Assets perceived to have an above-average risk of
uncollectibility
Assets for which final collection or asset value is very
doubtful and which pose a high risk of incurring a loss
Assets assessed as uncollectible or worthless

2. Asset Write-Offs and Provisions
In cases where claims have been determined to be uncollectible,
or deemed to be uncollectible, write-offs signify the recognition of
losses on the account books with respect to such claims. Write-
offs can be made either in the form of loss recognition by offset-
ting uncollectible amounts against corresponding balance sheet
items, referred to as a direct write-off, or else by recognition of a
loan loss provision on a contra-asset account in the amount

deemed uncollectible, referred to as an indirect write-off.
Recognition of indirect write-offs is generally known as provision
for the reserve for possible loan losses.

SMBC’s write-off and provision criteria for each self-
assessment borrower category are shown in the table below. As
part of our overall measures to strengthen risk management
throughout the Group, all consolidated subsidiaries use substan-
tially the same standards as SMBC for write-offs and provisions.

Self-Assessment Borrower Categories

Normal Borrowers

Borrowers Requiring Caution

Potentially Bankrupt Borrowers

Effectively Bankrupt/
Bankrupt Borrowers

Standards for Write-Offs and Provisions

Expected loss amount for the next 12 months is calculated for each grade based on the grade’s historical bankruptcy rate, and the total
amount is recorded as “provision for the general reserve for possible loan losses.”
These assets are divided into groups according to the level of default risk. Amounts are recorded as provisions for the general reserve in
proportion to the expected losses based on the historical bankruptcy rate of each group. The groups are “claims on Substandard
Borrowers” and “claims on other Borrowers Requiring Caution.” The latter group is further subdivided according to the borrower’s finan-
cial position, credit situation and other factors. Further, when cash flows can be estimated reasonably accurately, the discount cash flow
(DCF) method is applied mainly to large claims for calculating the provision amount.
A provision for the specific reserve for possible loan losses is made for the portion of Classification III assets (calculated for each bor-
rower) not secured by collateral, guarantee or other means. Further, when cash flows can be estimated reasonably accurately, the DCF
method is applied mainly to large claims for calculating the provision amount.
Classification III asset and Classification IV asset amounts for each borrower are calculated, and the full amount of Classification IV
assets (deemed to be uncollectible or of no value) is written off in principle and provision for the specific reserve is made for the full
amount of Classification III assets.

Notes

General reserve
Specific reserve

Provisions made in accordance with general inherent default risk of loans, unrelated to specific individual loans or other claims
Provisions made for claims that have been found uncollectable in part or in total (individually evaluated claims)

SMFG 2007

Discounted Cash Flow Method
SMBC uses the discounted cash flow (DFC) method to calculate

One of the major advantages of the DCF method over con-

ventional methods of calculating the provision amount is that it

the provision amounts for large claims on Substandard Borrowers

enables effective evaluation of each individual borrower.

and Potentially Bankrupt Borrowers when the cash flow from

However, as the provision amount depends on the future cash

repayment of principal and interest received can be estimated

flow estimated on the basis of the borrower’s business recon-

reasonably accurately. SMBC then makes provisions equivalent

struction plan and DCF formula input values, such as the dis-

to the excess of the book value of the claims over the said cash

count rate and the probability of the borrower going into

inflow discounted by the initial contractual interest rate or the

bankruptcy, SMBC makes every effort to utilize up-to-date and

effective interest rate at the time of origination.

correct data to realize the most accurate estimates possible.

II. Credit Cost
Credit cost, in the case of provisioning, is the total amount of pro-

of provision already made deducted from the uncollectible

amount. The credit cost for fiscal 2006 is shown in the table

visions newly made, and in the case of write-offs, it is the amount

below.

■ Credit Cost (SMBC Nonconsolidated; year ended March 31, 2007)

(Billions of yen)

Credit cost

Provision for general reserve for possible loan losses
Write-off of loans
Provision for specific reserve for possible loan losses
Losses on sale of loans
Provision for loan loss reserve for specific overseas countries
Gains on collection of written-off claims

Reserve for possible loan losses

Amount of direct reduction

■ Credit Cost (SMFG Consolidated; year ended March 31, 2007)

Total credit cost

Reserve for possible loan losses

Amount of direct reduction

¥ 89.5
(41.7)
50.5
44.4
37.3
(0.5)
(0.5)

¥677.5

¥298.3

¥145.0

¥889.1

¥490.1

(Billions of yen)

Note: Gains on collection of written-off claims are included in total credit cost. Bracketed amount indicates gains.

■ Reserve for Possible Loan Losses (March 31, 2007)

Reserve for possible loan losses

General reserve
Specific reserve
Loan loss reserve for specific overseas countries

Amount of direct reduction

SMBC (Nonconsolidated)

SMFG (Consolidated)

(Billions of yen)

¥677.5
530.8
144.8
1.9

¥298.3

¥889.1
683.6
203.6
1.9

¥490.1

SMFG 2007 33

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

Financial Reconstruction Law, except for such non-loan assets as

either principal or interest appears doubtful, and are disclosed in

securities lending, import and export, accrued interest, suspense

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

payments, customers’ liabilities for acceptances and guarantees,

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

and bank-guaranteed bonds sold through private placements,

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

none of which are subject to disclosure.

are classified based on the borrower categories assigned during

Since overdue interest from borrowers classified under self-

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

assessment as Potentially Bankrupt Borrowers, Effectively

cation stipulated by the Financial Reconstruction Law and the dif-

Bankrupt Borrowers, and Bankrupt Borrowers is, as a rule, not rec-

ferences between risk-monitored loans and problem assets.The

ognized as accrued interest, the amount is not included in the

disclosure of risk-monitored loans under the Banking Law corre-

problem assets disclosed on the basis of the Financial

sponds exactly to the disclosure of problem assets based on the

Reconstruction Law.

Classification of Problem Assets Based
on the Financial Reconstruction Law

Bankrupt and
quasi-bankrupt
assets

Doubtful assets

Substandard
loans

Normal assets

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

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.

❑ 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

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)

Bankrupt loans

Non-accrual
loans

Past due loans
(3 months or more)

Restructured
loans

2. Problem Asset Disclosure Amounts
The amounts of problem assets (as defined in the Financial

point from the end of fiscal 2005, to 1.2%. We will continue work-

ing to prevent the reoccurrence of further NPL problems through

Reconstruction Law) and risk-monitored loans, as of March 31,

support for corporate revitalization and by helping our customers

2007, are as follows. The balance of problem assets held by

to upgrade their borrower categories. In parallel with these initia-

SMBC as of the end of March 2007 was ¥738.7 billion, a decline

tives, we will continue taking proactive measures to further

of ¥221.4 billion compared with the ¥960.1 billion recorded at the

enhance the soundness of the bank’s credit portfolio.

previous term-end. The NPL ratio improved by 0.5 percentage

■ Problem Assets Based on the Financial Reconstruction Law (March 31, 2007)

Bankrupt and quasi-bankrupt assets
Doubtful assets
Substandard loans
Subtotal

Normal assets

Total

SMBC (Nonconsolidated)

108.9
300.1
329.7
738.7

60,542.2

¥61,280.9

Compared with
March 31, 2006

¥ (55.6)
(173.3)
7.5
¥ (221.4)

4,557.3

¥4,335.9

(Billions of yen)

SMFG (Consolidated)

193.8
384.8
506.0
¥ 1,084.6

64,815.6

¥65,900.2

Amount of direct reduction
Note: From fiscal 2006, SMBC has included bank-guaranteed bonds sold through private placements (SMBC guarantees all or part of the principal repayment and

298.3

490.1

interest payment) among the items subject to disclosure as problem assets under the Financial Reconstruction Law.

SMFG 2007

■ Risk-Monitored Loans (March 31, 2007)

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

Total

Amount of direct reduction

SMBC (Nonconsolidated)

¥ 33.8
357.6
20.6
309.1

¥721.1

¥266.9

Compared with
March 31, 2006

¥ (7.1)
(193.5)
(2.9)
10.4

¥(193.1)

(Billions of yen)

SMFG (Consolidated)

60.7
507.3
22.0
477.4

¥1,067.4

¥ 430.3

■ Classification under Self-Assessment, Disclosure of Problem Assets, and Write-Offs/Reserves (SMBC Nonconsolidated; March 31, 2007)

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

¥108.9

¥97.3

¥11.6

Direct
write-offs
(Note 1)

¥15.7
(Note 2)

100%
(Note 3)

Doubtful assets (2)

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

¥300.1

¥138.7

Necessary
amount
reserved

¥161.4

Potentially
Bankrupt
Borrowers

Borrowers
Requiring
Caution

Substandard loans (3)
¥329.7

(Claims to substandard borrowers)

Normal Borrowers

Normal assets

¥60,542.2

Portion of substandard loans
secured by collateral or
guarantees, etc. (7)
¥107.0

Claims to borrowers requiring
caution, excluding claims to
substandard borrowers

Claims to normal
borrowers

Total (4)

¥61,280.9

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

¥738.7

Loan loss reserve for specific overseas countries

NPL ratio (A) / (4)
1.2%
(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) ¥343.0

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

Specific
reserve

General
reserve

¥129.1
(Note 2)

80.0%
(Note 3)

General reserve
for substandard
loans ¥98.9

¥530.8

¥1.9

¥677.5

¥243.7

¥395.7

44.9%
(Note 3)

6.5%
[12.7%]
(Note 4)

18.5%
(Note 3)

0.3%
(Note 4)

Reserve ratio
(B) / (D)
61.6%
(Note 6)

Notes: 1. Includes amount of direct reduction totaling ¥298.3 billion.

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

79.4%

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

¥4.1 billion; Potentially Bankrupt Borrowers: ¥11.9 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.)

3. Off-Balancing Problem Assets
The off-balancing (also known as “final disposal”) of problem

balance sheet by way of sale, direct write-off or other means.

SMBC off-balanced ¥586.5 billion in problem assets during the

assets refers to the removal of such assets from the bank’s
■ Breakdown of Off-Balancing (SMBC Nonconsolidated; March 31, 2007)

year under review.

March 31, 2005

Fiscal 2005

March 31, 2006

Fiscal 2006

New occurrences

Off-balanced

New occurrences

Off-balanced

Bankrupt and quasi-
bankrupt assets

Doubtful assets

Total

Bankrupt and quasi-
bankrupt assets

Doubtful assets

Total

¥ 448.3

924.4

¥1,372.7

¥ 70.5

481.8

¥552.3

¥ (354.3)

(932.8)

¥(1,287.1)

¥ 56.8

300.8

¥357.6

¥(112.4)

(474.1)

¥(586.5)

¥ 164.5

473.4

¥ 637.9

Increase/Decrease
(➁ -➀

)

¥(283.8)

(451.0)

¥(734.8)

(Billions of yen)

March 31, 2007

¥ 108.9

300.1

¥ 409.0

Increase/Decrease
(➂ -➁

)

¥ (55.6)

(173.3)

¥(228.9)

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 ¥231.4 billion for fiscal 2005 and ¥78.8 billion in fiscal 2006, recognized as “new occurrences” in the first halves of the
terms, were included in the amounts off-balanced in the respective second halves.

SMFG 2007 35

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 insti-

Top management plays an active role in determining SMFG’s

tutions. The risks accompanying these new business opportunities

Groupwide basic policies for risk management. The system

are not only increasing in number but also growing in diversity and

works as follows: The basic policies for risk management are

complexity. Accordingly, identifying, measuring, and controlling

determined by the Management Committee before being autho-

risks have never been more important in the management of a

rized by the Board. The Management Committee, the designated

financial holding company.

Board members, and the relevant risk management departments

SMFG has encapsulated the basic principles to be employed

perform risk 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 poli-

Group companies in accordance with SMFG’s Groupwide basic

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

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

policies for risk management after specifying the categories of

departments have been appointed to oversee the handling of the

risk to which these policies apply; 2) Provide all necessary guid-

four risk categories listed above, in addition to risks associated

ance to Group companies to enable them to follow the basic risk

with settlement. Each risk category is managed taking into

management policies set forth by SMFG and set up their own

account the particular characteristics of that category. In addi-

appropriate risk management systems; 3) Monitor the implemen-

tion, the Corporate Risk Management Department—independent

tation of risk management by all Group companies to ensure that

of the operating units—comprehensively and systematically man-

their practices meet the relevant standards.

ages all categories of risk in cooperation with the Corporate

Planning Department.

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

Furthermore, under our system top management plays an

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

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

The decision-making process for addressing credit, market and

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

liquidity risks at the operating level is strengthened by the Credit

vide individually tailored guidance to help Group companies

Risk Management Committee and the Market Risk Management

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

Committee, which are subcommittees of the Management

gories are constantly reviewed, and new categories may be

Committee. The Management Committee is also attended by the

added in response to changes in the operating environment. The

relevant department heads.

Corporate Risk Management Department works with the Corporate

■ SMFG’s Risk Management System

SMFG

Board of Directors

Corporate Auditors

SMBC

Board of Directors

Management Committee

Independent Auditors

Designated Board Members

Audit Dept.

Guidance for
drafting of basic
policies

Monitoring

Sumitomo
Mitsui Card

SMBC
Leasing

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 &
Investment Planning Dept.

Internal Audit Unit

Corporate-
Wide Risk
Management

Corporate
Planning Dept./
Corporate Risk
Management
Dept.

Credit Risk

Market Risk

Liquidity Risk

Operational Risk

Processing Risk

Corporate Risk
Management Dept.

General Affairs Dept.

Systems Risk

IT Planning Dept.

SMFG 2007

Credit Risk

JRI

Bank-Wide
Risk Management

Market Risk

Liquidity Risk

Report

SMBC
Friend
Securities

Corporate Planning
Dept./Corporate Risk
Management Dept.

Settle-
ment
Risk

Credit & Investment
Planning

Corporate Risk
Management Dept.

Operations
Planning Dept.

Processing Risk

Systems Risk

IT Planning Dept.

Operational Risk

General Affairs Dept.

Other Risks

Other Departments

Risk Management Methods
SMFG’s Groupwide basic policies for risk management stipulate

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

operational risks. In the credit and market risk categories, in par-

the basic risk management regulations that must be followed,

ticular, the maximum risk capital that SMBC can use during a

and spell out risk management procedures from various per-

period is set as the risk capital limit within this limit to manage

spectives. These include managing risk on a consolidated

these risks. Liquidity risk is managed within the context of maxi-

accounting basis, managing risk using quantification methods,

mum limits set for asset liability management (ALM) and the

ensuring consistency with business strategies, setting up a sys-

funding gap. Other risk categories are managed with procedures

tem of checks and balances, contingency planning for emergen-

closely attuned to the nature of the risk, as described in the fol-

cies and serious situations, and verifying preparedness to handle

lowing paragraphs.

all conceivable risk situations. In addition, there are specific

operational policies for implementing appropriate management

of risk by all Group companies.

Implementation of Basel II
The Basel Capital Accord, an international agreement for ensur-

Under SMFG’s Groupwide basic policies for risk manage-

ing the soundness of banks through adherence to BIS capital

ment, all Group companies periodically carry out reviews of the

adequacy regulations, was revised in response to the diversifica-

basic management policies for each risk category, or whenever

tion of the banking business and the increasing sophistication of

deemed necessary, thus ensuring that the policies followed at

risk management technology. The revised BIS regulations, known

any time are the most appropriate. The management of SMFG

as Basel II, became effective from March 31, 2007 in Japan.

constantly monitors the conduct of risk management at Group

Basel II requires banks to implement internal controls to serve

companies, providing guidance when necessary.

as the basis for capital calculation, and to strengthen their risk

Furthermore, in order to maintain a balance between risk and

management framework. It also requires disclosure of information

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

to encourage market discipline in risk management.

overall perspective, we employ the risk capital-based manage-

We have been implementing initiatives to strengthen our risk

ment method, which allocates capital effectively to each depart-

management framework, taking into account Basel II and other

ment according to its role in our business strategies to keep total

considerations. Details of the initiatives are provided below, and

exposure to credit, market, and operational risks within the scope

detailed information on the capital ratio is provided in the discus-

of our management resources, i.e., capital.

sion on Capital Ratio Information appearing in the Financial

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

Section.

■ Relationship between Risk Management Framework

and Risk Category at SMBC

Framework

Risk Category

Credit 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 element of country risk, which is closely related to credit risk.

This is the risk of loss caused by changes in foreign exchange,

or political or economic situations.

Banking Risk/Trading Risk

All Group companies follow the basic policy established by

Risk
Capital-Based
Management

Market
Risk

Strategic Equity Investment Risk

Other Market-Related Risks

Operational Risk

Processing Risk

Systems Risk

Liquidity Risk

Other Risks
(Settlement Risk and Others)

ALM/
Funding Gap

Management
by Risk Type

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 stan-

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

exposed. Without effective credit risk management, the impact of

the corresponding 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.

SMFG 2007 37

SMBC’s credit management policy and system are described

below.

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

(1) Internal Rating System
There is an internal rating system for each asset control category

set according to portfolio characteristics. For example, credits to

commercial and industrial (C&I) companies, individuals for busi-

ness purposes (domestic only), sovereigns, public sector enti-

basic operating concepts, policies, and standards for credit

ties, and financial institutions are assigned an “obligor grade”

operations, in accordance with the business mission and rules of

which indicates the borrower’s creditworthiness, and/or “facility

conduct. SMBC is promoting the understanding of and strict

grade” which indicates the collectability of assets taking into

adherence to its credit policy among all its managers and

account transaction conditions such as guarantee/collateral, and

employees. By conducting risk-sensitive credit management in

tenor. An obligor grade is determined by first assigning a finan-

accordance with Basel II and other capital adequacy regulations,

cial grade using a financial strength grading model and data

SMBC aims to enhance shareholder value and play a key part in

obtained from the obligor’s financial statements. The financial

society by providing high value-added financial services.

grade is then adjusted taking into account the actual state of the

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

obligor’s balance sheet and qualitative factors to derive the

obligor grade. In the event that the borrower is domiciled over-

seas, internal ratings for credit are made after taking into consid-

as the credit portfolio as a whole, SMBC first acknowledges that

eration country risk, which represents an assessment of the

every loan entails credit risks, assesses the credit risk posed by

credit quality of each country, based on its political and eco-

each borrower and loan using an internal rating system, and

nomic situation, as well as its current account balance and exter-

quantifies that risk for control purposes.

nal debt. Self-assessment is the obligor grading process for

assigning lower grades, and the borrower categories used in

self-assessment are consistent with the obligor grade categories.

■ SMBC’s Obligor Grading System

Obligor Grade

Domestic
(C&I), etc.

Overseas
(C&I), etc.

Definition

Borrower Category

Financial Reconstruction
Law Based Disclosure
Category

(Domestic)

Very high certainly of debt repayment

High certainty of debt repayment

Satisfactory certainty of debt repayment

Debt repayment is likely but this could change in case of
significant changes in economic trends or business environment

No problem with debt repayment over the short term, but not satisfactory
over the medium-to-long term and the situation could change in the event of
significant changes in economic trends or business environment.

Currently no problem with debt repayment, but there are unstable business
and financial factors that could lead to debt repayment problems

Normal Borrowers

Normal Assets

Close monitoring is required due to problems in meeting loan terms
and conditions, sluggish/unstable business, or financial problems

Borrowers Requiring
Caution

J7R

G7R

(Substandard Borrowers)

Substandard Borrowers

Substandard Loans

Currently not bankrupt, but experiencing business difficulties,
making insufficient progress in restructuring, and highly
likely to go bankrupt

Though not yet legally or formally bankrupt, has serious business
difficulties and rehabilitation is unlikely; thus, effectively bankrupt

J10

G10

Legally and formally bankrupt

Potentially Bankrupt
Borrowers

Effectively Bankrupt
Borrowers

Bankrupt Borrowers

Doubtful Assets

Bankrupt and
Quasi-Bankrupt
Assets

SMFG 2007

Obligor grades and facility grades are reviewed once a year and

whenever necessary, such as when there are changes in the

credit situation.

3. Framework for Managing Individual Loans
(1) Credit Assessment
Credit assessment of corporate loans involves a variety of

There are also grading systems for SME (Small and Medium

financial analyses, including cash flow, to predict an enterprise’s

Enterprise) loans, loans to individuals, and project finance and

capability of loan repayment and its growth prospects. These

other structured finance tailored according to the risk character-

quantitative measures, when combined with qualitative analyses

istics of these types of assets.

of industrial trends, the enterprise’s R&D capabilities, the com-

The Credit & Investment Planning Department centrally man-

petitiveness of its products or services, and its management cal-

ages the internal rating systems, and properly designs, operates,

iber, result in a comprehensive credit assessment. The loan

supervises and validates the grading models. It validates the

application is analyzed in terms of the intended utilization of the

grading models (including statistical validation) of main assets

funds and the repayment schedule. Thus, SMBC is able to arrive

following the procedures manual once a year, to ensure their

at an accurate and fair credit decision based on an objective

effectiveness and suitability.

examination of all relevant factors.

(2) Quantification of Credit Risk
Credit risk quantification refers to estimating the degree of credit

risk of a portfolio or individual loan taking into account not just the

obligor’s probability of default (PD), but also the concentration of

risk in a specific customer or industry and the loss impact of fluctu-

ations in the value of collateral, such as real estate and securities.

Specifically, the PD by grade, LGD (loss given default), credit

quality correlation among obligors, and other parameter values

are estimated using historical data of obligors and facilities

stored in a database to calculate the credit risk. The PD and LGD

values are, in principle, the same values as those used for calcu-

lating the capital ratio. Based on these parameters, we run a sim-

ulation 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.

Risk quantification is also executed for purposes such as to

determine the portfolio’s risk concentration, or to simulate eco-

nomic movements (stress tests), and the results are used for

making optimal decisions across the whole range of business

operations, including formulating business plans and providing a

standard against which individual credit applications are

assessed.

■ SMBC’s Credit Monitoring System

Increasing the understandability of loan conditions and

approval standards for specific borrowing purposes and loan

categories is a part of SMBC’s ongoing review of lending prac-

tices, 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 other SME loans.

In the field of housing loans for individuals, we employ a credit

assessment model based on credit data amassed and analyzed

by SMBC over many years. This model enables our loan officers

to efficiently make rational decisions on housing loan applica-

tions, and to reply to the customers without delay. It also facili-

tates 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

Obligor Information
Processing

Registration
of Financial
Statements/
Creation and
Revision of
Corporate
Card

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

SMFG 2007 39

model that factors in the projected revenue from the rental busi-

ness. 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

(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

Monitoring System is utilized to reassess obligor grades, and

companies or corporate groups by setting guidelines for maxi-

review self-assessment and credit policies so that problems can

mum loan amounts. To manage country risk, SMBC also has

be detected at an early stage and quick and effective action can

be taken. The system includes periodic monitoring carried out

credit limit guidelines based on each country’s creditworthiness.
(3) New Type of Unsecured Loans, and Balancing Risk

each time an obligor enterprise discloses financial results, as

and Returns

well as continuous monitoring performed each time credit condi-

Against the background of increasing sophistication in methods

tions change, as indicated in the diagram below.

of managing credit risk, SMBC is engaged in a new type of unse-

4. Framework for Credit Portfolio Management
In addition to managing individual loans, SMBC applies the fol-

lowing basic policies to the management of the entire credit port-

folio 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 cap-

cured loans. Meanwhile, the bank runs credit operations on the

basic principle of earning returns that are commensurate with the

credit risk involved, and makes every effort to reduce capital and

credit costs as well as general and administrative expenses.
(4) Reduction and Prevention of Non-Performing Loans
On non-performing loans (NPLs) and potential NPLs, SMBC car-

ries out regular loan reviews to clarify handling policies and

action plans, enabling it to swiftly implement measures to prevent

ital, SMBC sets credit risk capital limits for internal control pur-

deterioration of borrowers’ business situations, support business

poses. 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

recoveries, collect on loans, and enhance loan security.
(5) Toward Active Portfolio Management
SMBC makes active use of credit derivatives, loan securitization,

as real estate finance, fund investment, and investment in securi-

and other instruments to proactively and flexibly manage its port-

tization products. Regular monitoring is conducted to make sure

folio to stabilize credit risk.

that these guidelines are being followed, thus ensuring appropri-

ate overall management of credit risk.

■ 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 & Investment Planning Dept.

•Aggregates credit risk for unified management
•Plans and proposes basic credit policies
•Drafts, administers and examines internal rating system

CPM Dept.

•Undertakes active portfolio management

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

Credit Administration Dept.

•Manages problem assets (plans, implements corporate rehabilitation
program, sells off the revitalized company)

Business Units

Consumer Banking Unit

Middle Market Banking Unit

Corporate Banking Unit

International Banking Unit

Investment Banking Unit

Credit Dept.

Credit Dept. I & II

Credit Dept.

Credit
Dept.

Credit for Individuals

Small and Medium-Sized Enterprises

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 2007

5. Credit Risk Management System
The Credit & Investment Planning Department within the

outflow of funds, or being forced to borrow at higher interest rates

than usual.

Corporate Staff Unit is responsible for the comprehensive man-

SMFG is working to further enhance the effectiveness of its

agement of credit risk. This department drafts and administers

quantitative management of market and liquidity risks across the

credit policies, the internal rating system, credit authority guide-

entire Group by setting allowable risk limits; ensuring the trans-

lines, credit application guidelines, and manages NPLs and other

parency of the risk management process; clearly separating

aspects of credit portfolio management.

front-office, middle-office, and back-office operations; and estab-

The department also cooperates with the Corporate Risk

lishing a highly efficient system of mutual checks and balances.

Management Department in quantifying credit risk (risk capital

On the basis of SMFG’s Groupwide basic policies for risk

and risk-weighted assets) and controls the bank’s entire credit

management, SMBC’s Board of Directors authorizes important

risk. Further, the Corporate Portfolio Management Department

matters relating to the management of market and liquidity risks,

within the Credit & Investment Planning Department has been

such as basic policies and risk limits, which are decided by the

strengthening its active portfolio management function whereby

Management Committee. Additionally, the bank’s Corporate Risk

loan securitization and other market transactions are used to sta-

Management Department, which is independent of business

bilize the portfolio’s credit risk for more sophisticated portfolio

units that directly handle market transactions, manages market

management.

and liquidity risks in an integrated manner. The department not

The Corporate Research Department within the Corporate

only monitors the current risk situations, but also reports regularly

Services Unit performs research on industries as well as inves-

to the Management Committee and the Board of Directors.

tigates the business situations of borrower enterprises to

Furthermore, SMBC’s ALM Committee meets on a monthly basis

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 man-

age 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

Management Committee.

SMBC has established the Credit Risk Committee, as a

consultative body, to round out its oversight system for undertak-

ing flexible and efficient control of credit risk, and ensuring the

overall soundness of the bank’s loan operations.

Market and Liquidity Risks
Market and Liquidity Risk Management System
Market risk is the possibility that fluctuations in interest rates, for-

eign 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

■ SMBC’s Market Risk and Liquidity Risk Management

Organization Chart

Board of Directors

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.)

Inspection and verification
of transactions

Model and new products approval,
Final approval, Management

Managing Departments

Other market-
related
operations

Market
operations
(Treasury Unit)

Market
operations
(International
Banking Unit)

Market
operations
(Group companies)

Front Office

Front/Back/Middle Offices

SMFG 2007

to examine reports on the state of observance of the bank’s limits

Market risk can be divided into various factors: foreign exchange

on market and liquidity risks, and to review and discuss the

rate, interest rate, equity price, and option risks. Fine-tuned man-

bank’s ALM policies.

agement of each risk category is achieved by employing the VaR

To prevent unforeseen processing errors as well as fraudu-

method in conjunction with suitable indicators for managing the

lent transactions, it is important to establish a system of checks

risk of individual financial instruments such as the basis-point-

on the business units (front office). At SMBC, both the processing

value (BPV) indicator, which measures the potential change in

departments (back office) and the administrative departments

earnings stated at market value for every 0.01 percentage-point

(middle office) conduct the checks. In addition, SMBC’s indepen-

fluctuation in interest rates. The VaR results for fiscal 2006 are

dent Internal Audit Unit periodically performs comprehensive

shown below.

internal audits to verify that the risk management system is func-

The internal model used by SMBC (SMBC VaR) has been

tioning properly.

Market Risk
The bank manages market risk by setting maximum limits for

periodically evaluated by an independent auditing firm and certi-

fied as appropriate. In addition, the relationship between the VaR

calculated with the model and the actual profit and loss data is

back-tested daily. The back-testing results for SMBC’s trading

value-at-risk (VaR) and maximum loss. This is done using the VaR

accounts for fiscal 2006 are shown below. A data point below the

method, in which the maximum potential loss on market transac-

diagonal line indicates a loss in excess of the predicted VaR for

tions for a given probability is calculated. These limits are, them-

that day: there were no such excess losses during fiscal 2006.

selves, set within the “market risk capital limit,” which is determined

This demonstrates that the SMBC VaR model, with a one-sided

taking into account the bank’s shareholders’ equity and other prin-

confidence interval of 99.0%, is sufficiently reliable.

cipal indicators of the bank’s financial position and management

The market occasionally undergoes extreme fluctuations that

resources.

exceed projections. To manage market risk, therefore, it is impor-

The SMBC VaR model estimates the maximum loss by running

tant to run simulations of situations that may occur only once in

simulations of changes in profit and loss on market fluctuation sce-

many years (stress tests). At SMBC, monthly stress tests using

narios based on historical data (historical simulation method).
■ VaR Results

scenarios of past market fluctuations, those not related to past

(Billions of yen)

SMFG (consolidated)

SMBC (consolidated)

SMBC (non-consolidated)

Trading Book

Banking Book

Trading Book

Banking Book

Trading Book

Banking Book

June 2006

Sept. 2006

Dec. 2006

Mar. 2007

Maximum

Minimum

Average

2.1

2.9

3.1

2.9

4.7

2.1

2.9

57.0

42.8

47.1

47.6

78.9

36.8

51.6

2.1

2.9

3.1

2.9

4.7

2.1

2.9

53.2

39.7

43.5

44.1

75.5

33.4

48.1

1.6
2.4

2.6

2.3

4.2

1.5

2.5

45.3

35.1

39.3

39.8

69.1

29.4

43.0

(VaR for a one-day holding period with one-sided confidence interval of 99.0% [computed daily using historical simulation (based on
four years of historical observations)]. The VaR model for the trading book includes principal consolidated subsidiaries. Figures for the
trading book exclude specific risks.)

■ Back-Testing Results (Trading Book)
1. SMFG (consolidated)

2. SMBC (consolidated)

3. SMBC (non-consolidated)

Marginal Profit or Loss (¥ billion)

2.0

1.0

-1.0

-2.0

-3.0

-4.0

2.0

1.0

-1.0

-2.0

-3.0

-4.0

2.0

1.0

-1.0

-2.0

-3.0

-4.0

5
4
VaR (¥ billion)

SMFG 2007

market fluctuations, and specific-factor driven market fluctuations

the entire Group. Under these regulations, SMFG is working to

are conducted to prepare for unforeseeable swings.

raise the level of sophistication of its management of operational

The Corporate Risk Management Department establishes limits

risk across the whole Group by providing an effective framework

on allowable risk for strategic equity investments, and monitors

for the identification, assessment, control and monitoring of sig-

the observance of those limits to keep stock price fluctuation risk

nificant risk factors and by establishing a system for executing

within acceptable parameters.

contingency and business continuity plans.

SMBC aims to keep the stock price fluctuation risk associ-

Moreover, in view of the fact that operational risk is assessed

ated with its strategic equity investments at a level appropriate to

as a regulatory factor under the Basel II capital adequacy frame-

the financial strength of the bank. To achieve this, we have been

work, we have implemented an operational risk quantification

reducing the balance of our stock holdings, and the balance now

system, and a sophisticated management system for the

stands at approximately 50% of Tier I capital.

entire Group.

■ Composition, by Industry, of Listed Equity Portfolio

(%)
25

F
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r
i
e
s
/
F
a
r
m
i
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g
/
F
o
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s
t
r
y

(March 31, 2007)

SMBC Portfolio
TOPIX
Nikkei Average

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Liquidity Risk
At SMBC, liquidity risk is regarded as one of the major risks. So

On the basis of SMFG’s Groupwide basic policies for risk man-

agement, SMBC Board of Directors authorizes important matters

relating to management of operation risk, such as basic policies,

which are decided by the Management Committee.

Further, the Operational Risk Management Department, set up

within the bank’s General Affairs Department, is responsible for

centrally supervising overall operational risk management. It

works together with the Corporate Risk Management Department,

which is responsible for the quantification of operational risk, and

with the departments specifically responsible for controlling pro-

cessing risk and systems risk. The independent Internal Audit Unit

periodically performs comprehensive internal audits to verify that

the operational risk management system is functioning properly.

Specifically, operational risk is managed by collecting and

analyzing internal loss data, comprehensively identifying risk

scenarios in each business process by regularly conducting risk

control assessments, and estimating loss severity and frequency

for each risk scenario. Each risk scenario is assessed for its

impact, and each branch/department establishes a risk reduction

plan for high-impact scenarios. The Operational Risk Management

as not to be overly dependent on market-based funding to cover

Department then reviews the implementation of the reduction

short-term cash outflows, SMBC’s liquidity risk management is

plan, and uses the collected internal loss data and scenarios to

based on a framework consisting of setting funding gap limits

quantify operational risk in order to quantitatively manage

and guidelines, maintaining a system of highly liquid supplemen-

operational risk.

tary funding sources, and establishing contingency plans.

The occurence of internal loss data, scenarios determined

In daily risk management operations, SMBC prevents a

from risk control assessments, and risk reduction situations are

cumulative increase in liquidity risk by setting the funding gap

regularly reported to the director in charge of the Operational

limits and guidelines. For emergency situations, there are contin-

Risk Management Department. Additionally the Operational Risk

gency plans in place to reduce the funding gap limits and guide-

Committee, whose members are drawn from all relevant depart-

lines and other measures. To prevent the possibility of market

ments of the bank, also meets regularly to discuss ways of mini-

crises interfering with funding, SMBC carries highly liquid assets,

mizing operational risk and realizing a highly effective operational

such as U.S. Treasury securities, and has emergency borrowing

risk management framework. The operational risk situation is also

facilities in place, which also enable foreign currency-denomi-

reported to the Management Committee and the Board of Directors

nated liquidity management.

on a regular basis, for review of the basic policies on operational

Operational Risk
Operational risk is the possibility of losses arising from inade-

quate or failed internal processes, people and systems or from

external events. SMFG has drawn up the Regulations on

Operational Risk Management to define the basic rules to be
observed in the conduct of operational risk management across

risk management.

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

SMFG 2007 43

management of processing risk across the whole Group by ensur-

sensitive information is encrypted, unauthorized external access

ing that each branch conducts its own regular investigations of

is blocked, and all known countermeasures to secure data are

processing risk; minimizing losses in the event of processing

implemented. There are also contingency plans and training

errors or negligence by drafting exhaustive contingency plans; and

sessions held as necessary to ensure full preparedness in the

carrying out thorough quantification of the risk under management.

event of an emergency. To maintain security, countermeasures

In the administrative regulations of SMBC, in line with SMFG’s

are revised as new technologies and usage patterns emerge.

Settlement Risk
Settlement risk is the possibility of a loss arising from a transac-

tion that cannot be settled as planned. Because this risk com-

prises elements of several types of risk, including credit,

liquidity, processing, and systems risk, it requires interdisciplinary

management. At SMBC, the Operations Planning Department

is responsible for coordinating the management of settlement
risk with the Credit & Investment Planning Department, which

oversees credit risk, and the Corporate Risk Management

Department, which oversees liquidity risk.

Groupwide basic policies for risk management, the basic admin-

istrative regulations are defined as “comprehending the risks and

costs of administration and transaction processing, and manag-

ing them accordingly,” and “seeking to raise the quality of admin-

istration to deliver high-quality service to customers.” Adding

new policies or making major revisions to existing ones for pro-

cessing risk management requires the approval of both the

Management Committee and the Board of Directors.

In the administrative regulations, SMBC has also defined spe-

cific rules for processing risk management. The rules allocate pro-

cessing risk management tasks among six types of departments:

operations planning departments, compliance departments, opera-

tions departments, transaction execution departments (primarily

front-office departments, branches, and branch service offices),

internal audit departments, and the customer support departments.

In addition, there is a specialized group within the Operations

Planning Department to strengthen administrative procedures

throughout the Group.

Systems Risk
Systems risk is the possibility of a loss arising from the failure,

malfunction, or unauthorized use of computer systems. SMFG

recognizes that reliable computer systems are essential for the

effective implementation of management strategy in view of the

IT revolution. We strive to minimize systems risk by drafting regu-

lations and specific management standards, including a security

policy. We also have contingency plans with the goal of minimiz-

ing losses in the event of a system failure. The development of

such a systems risk management system ensures that the Group

as a whole is undertaking adequate risk management.

At SMBC, safety measures are strengthened according to

risk assessment based on the Financial Services Agency’s

Financial Inspection Manual, and the Security Guidelines pub-

lished by The Center for Financial Industry Information Systems

(FISC).

Computer-related trouble at financial institutions now has

greater potential to impact the public, with systems risk diversify-

ing owing to the IT revolution, and the resulting expansion of net-

works and the rise in the number of personal computer users. To

prevent any computer system breakdowns, we have taken

numerous measures, including the duplication of various systems

and infrastructures, constant maintenance of our computer sys-

tem to ensure steady, uninterrupted operation, and the establish-

ment of a disaster-prevention system consisting of computer

centers in eastern and western Japan. And to maintain the confi-

dentiality of customer information and prevent information leaks,

SMFG 2007

Corporate Social Responsibility

As a new financial services group in step with the needs of the

At SMFG, as shown below, we have set out our Business

21st century, SMFG’s goal is to earn the highest trust of society

Ethics, as the principles of corporate social responsibility that

by meeting the public’s expectations and fulfilling its social

apply to the entire Group.

responsibilities.

In July 2006, SMFG established the Group Business

Earning the highest level of trust requires the balanced

Management Department, which is charged with the central role

provision of value to our four constituencies: customers, share-

in fulfilling SMFG’s responsibility as a holding company by effec-

holders and the market, the environment and society, and

tively monitoring the business operations of all Group companies

employees. Through this process, we aim to contribute to the

for legal and ethical compliance. In April 2007 SMFG established

sustainable development of society as a whole, and to fulfill our

the Group CS Committee to monitor business operations to maxi-

corporate social responsibility.

mize customer satisfaction at each Group company and discuss

Our framework for fulfilling our obligations to society is

specific actions when required.

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 prosper together with our customers by

offering high value-added products and services.

Second, we will maintain sound management through the

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.

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.

To reinforce CSR activities, SMFG has established the Group

CSR Committee, and has also set up a Group CSR Department

within the Corporate Planning Department.

■ 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.)

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 busi-
ness 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.

SMFG 2007 45

Corporate Governance

Our Stance on Corporate Governance
SMFG and its Group companies adhere to the SMFG manage-

three Group companies Sumitomo Mitsui Card, SMBC Leasing,

and JRI, the director in charge of each subsidiary serves as a

ment philosophy as a universal ideal for group management. This

part-time director of these companies to strengthen the supervi-

management philosophy serves as an anchor for corporate

sion of SMFG over their operations.

actions groupwide.

Furthermore, to maintain the soundness of management,

We regard the fully effective functioning of corporate gover-

SMFG has established an internal regulation system to ensure

nance as one of the top priorities of management for realizing the

appropriate performance of duties in accordance with the

objectives advocated in our management philosophy.

Japanese Company Law. Maintenance of an internal control sys-

The SMFG Corporate Governance System
SMFG employs the corporate governance system in which statu-

tory auditors oversee the execution of business by the directors.

At SMFG, we have five corporate auditors, of whom three are out-

tem, which is integral to the construction of a consolidated man-

agement system, ranks among our top management priorities.

The SMBC Corporate Governance System
SMBC employs the traditional statutory auditor system. Of the six

side auditors. The auditors monitor the execution of business

statutory auditors appointed, three are from outside the bank. To

operations of SMFG and its subsidiaries by attending meetings of

ensure sound and transparent management, SMBC separates

the Board of Directors. They also peruse documents relating to

the two functions of management: decision-making at the opera-

important decisions, and are reported to by staff members of the

tional level, and supervision of the management of the bank from

internal audit departments, representatives of subsidiaries of

a longer-term perspective. For this purpose, the bank employs a

SMFG, and independent CPAs.

system in which executive officers are responsible for operational

The Chairman of SMFG serves as the Chairman of the Board

duties, while the supervisory function is exercised principally by

of Directors of SMFG. This is to separate the role of the president

the Board of Directors.

of SMFG, whose responsibility is to exercise overall supervision

The chairman of the bank serves as the chairman of the

of business activities of SMFG and other Group companies, from

Board of Directors, and to clearly separate his functions from

the role of supervising management. We also have outside direc-

those of the president of the bank, whose responsibility is to

tors to improve the effectiveness of the Board, as well as four

exercise overall supervision of the bank’s activities, the chairman

committees—the Auditing Committee, the Risk Management

does not simultaneously serve as an executive officer; instead,

Committee, the Compensation Committee, and the Nominating

he is primarily responsible for supervising management in their

Committee—to improve its oversight function. Outside directors

execution of operational duties. Following the practice at SMFG,

are appointed to all these committees to facilitate corporate gov-

outside directors—three out of a total of 12 directors in this

ernance from an objective perspective. As the need for objectiv-

case—are appointed to the Board of Directors of SMBC, with the

ity is particularly acute in the case of the Auditing Committee and

aim of introducing an objective viewpoint so as to strengthen the

the Compensation Committee, the chairmanship of these com-

supervision of corporate governance.

mittees is assigned to outside directors. To ensure that the exe-

Executive officers are selected by the Board to manage each

cution of the Group’s business operations is in conformity both

of SMBC’s businesses. As of June 30, 2007, there were 70 exec-

with the law and with generally accepted practice, the outside

utive officers, including the president, eight of whom concurrently

directors are chosen from among the ranks of specialists (CPAs,

serve as directors. The Management Committee, under the direct

lawyers, and consultants).

supervision of the Board of Directors, is the highest decision-

SMFG has created the Management Committee, under the

making body at the operational level. The president chairs the

direct supervision of the Board of Directors and chaired by the

committee and selects its members from the executive officers.

president of SMFG, as the top decision-making body of the entire

The committee members consider important management issues

Group. The committee, composed of directors chosen by the

in light of the policies laid down by the Board of Directors, and

president, considers important matters relating to the execution

the president has the authority to make the final decision after

of business, and the president has the authority to make the final

considering the committee’s recommendations.

decision, in accordance with the basic policy determined by the

The president designates certain members of the

Board of Directors. SMFG also has a Group Strategy Committee

Management Committee as Authorized Management Committee

to serve as a forum for the top management staff of all Group

Members in charge of particular head office departments, as well

companies to exchange opinions and information on their

as supervisory officers, who are responsible for overseeing the

respective business plans. SMFG has nine directors, of whom

operations of each business unit. All of these designated individ-

three are outside directors. Of these, eight (including the three

uals are charged with implementing the directives of the

outside directors) concurrently serve as directors of SMBC. In

Management Committee within the businesses they oversee.

this way, SMFG is able to constantly monitor the execution of

day-to-day business operations at SMBC. With regard to the

SMFG 2007

Internal Audit System

An Outline of the Internal Audit System
At SMFG, in addition to the existing Auditing Committee, which

Auditing of operations at each head office department focuses

on the crucial themes that arise in the management of specific

reports to the Board of Directors, we established the Internal

business operations and risk categories and emphasizes verifica-

Auditing Committee, which reports to the Group Management

tion of “Target Audits” across the whole of the bank’s organization.

Committee, to further raise the profile of internal auditing and

Moreover, audits of branches and offices include the verification of

facilitate more effective conduct of audits. The Internal Auditing

compliance and operational risk management frameworks, as well

Committee meets every quarter, and the members discuss

as the checking of operations, and recommendations are made in

important matters related to internal auditing based on reports

the case of problems.

prepared by the departments responsible for internal audits.

The Credit Review Department audits credit risk management,

Under this system, the Audit Department of SMFG has been

including the accuracy of ratings and self-assessment.

functioning as an internal auditing entity independent from the

Internal auditing departments have been set up at other

operating departments of the Group.

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

Enhancing Efficiency of the Internal Auditing Process
The Audit Department has adopted auditing methods in line with

have the additional aim of verifying that the Group’s internal con-

the standards of the Institute of Internal Auditors (IIA)*, an inter-

trol system, including compliance and risk management, is

national body. It conducts risk-based audits and spreads the

appropriate and effective. The Audit Department is also responsi-

concepts and methods to the Group companies.

ble for supervising the internal audit systems of each Group com-

Additionally, to effectively fulfill its role as the central body for

pany. It monitors the adequacy and effectiveness of the internal

internal auditing, the staff of the Audit Department constantly

audit system at each group company through the review or audit

work to collect the latest information on internal auditing from

of relevant issues. Based on the results of these audits, sugges-

inside and outside Japan and to distribute it to all Group compa-

tions are made and/or guidance provided, as necessary, to sec-

nies. They also organize training courses, which are conducted

tions or departments of SMFG, or to Group companies.

by outside experts, for all the staff of Group companies, and

At SMBC, we have set up auditing departments independent

encourage the staff to obtain international qualifications, to raise

of bank units involved in marketing activities. We established the

their level of specialist expertise in internal auditing. To improve

Internal Audit Department and the Credit Review Department

the effectiveness of auditing still further, we are also taking active

within the Internal Audit Unit. As at SMFG, the bank has set up

steps Groupwide to ensure that our internal auditing standards

the Internal Auditing Committee, which reports to the Management

are in line with those set forth by the IIA.

Committee. The committee receives reports on important matters

from the auditing departments and deliberates on them.

* The Institute of Internal Auditors (IIA) was founded in 1941 in the United

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 depart-

ments and domestic and overseas branches, and at all other

business offices of SMBC subsidiaries in Japan and overseas.

States as an organization dedicated to helping raise the level of special-

ization and professionalism of internal auditing staff. In addition to con-

ducting theoretical and practical research, the IIA administers
examinations 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 2007 47

Compliance

Compliance at SMFG

Basic Compliance Policies
To effectively carry out its mission as an important part of the

In fiscal 2007, the current business term, we are focusing on:

nation’s public infrastructure and fulfill its social responsibilities

1. Ensuring strict compliance with the Antimonopoly Law.

as a comprehensive financial services group, SMFG will intensify

2. Monitoring the state of compliance with newly enacted

its efforts to strictly obey the principles of compliance. We

legal statutes.

believe that by so doing, SMFG will have opened the way to

3. Strengthening preventive measures against conflicts of

becoming an outstanding global corporate group.

interest.

At SMFG, compliance is one of the pillars of our Business

Ethics (p.45), which serve as the basic principles of corporate

In these ways, we are working to make certain that all Group

social responsibility that we follow, and strengthening compliance

members fully uphold our high standards of compliance.

has been positioned as one of our top management priorities.

Group Management of the Compliance System
As a financial holding company, SMFG works to sustain a system

Management of Legal Risk
Legal risk, which refers to the possibility of loss (including

reputational loss) arising from violations of laws or contractual

which monitors and also provides appropriate direction and guid-

obligations, principally as a result of failure to sufficiently examine

ance for each Group company’s compliance system to ensure

the legal implications before taking action, has become a matter

the sound and proper conduct of business activities throughout

requiring even greater attention in recent years, owing to the

the entire Group.

widespread deregulation of the financial sector.

Specifically, we hold regular meetings attended by represen-

SMFG has established rules for managing legal risk, collect-

tatives of all Group companies, as well as individual meetings

ing information on business laws and ordinances and examining

with Group companies, to oversee the state of compliance at

the legal implications of new products, services and contracts

major Group companies.

under consideration. In these ways, SMFG is enhancing legal risk

management.

Sumitomo Mitsui Financial Group, Inc.

Corporate Auditors

Group Business
Management Dept.

Audit

Report

Board of Directors
Management Committee

Outside Experts

Consult

Directions

Report

Discuss

Compliance Committee

Monitoring
Group
Companies

Audit Dept.

General Affairs Dept.

Audit

Compliance System
Oversight and Guidance

Report

Compliance System
Oversight and Guidance

Audit

Departments and Offices
General Manager responsible for compliance
Compliance Officers to assist General Manager

Management

Report

Group Companies
SMBC, Sumitomo Mitsui Card, SMBC Leasing, JRI, and SMBC Friend Securities

SMFG 2007

Compliance at SMBC

Strengthening the Compliance System:
A Top Management Priority
Compliance with laws, regulations, and other social standards is

Compliance Program
The program’s primary objective is to effectively implement the

compliance system at SMBC and its consolidated subsidiaries.

a matter of course for corporations. Ensuring compliance is a

The Board of Directors annually updates the compliance pro-

particularly important issue for banks because of their central

gram, and decides concrete annual plans regarding compliance,

role in the financial system and socioeconomic infrastructure.

which include a review of rules and regulations, as well as the

In accordance with the basic concept of compliance insti-

content and schedule of training programs, to further strengthen

tuted throughout the Group, SMBC expects and demands that all

the compliance system. Priority tasks for fiscal 2007 include tight-

directors, officers, and other employees assign the utmost value

ening the function for checking financial products and services;

to maintaining people’s trust, abide by all relevant laws and regu-

proactively ensuring full compliance with the Financial Instruments

lations, uphold high ethical standards, and act fairly and sincerely.

and Exchange Law to be enforced by the end of 2007; reinforc-

Compliance System and Management
SMBC employs a dual structure whereby, firstly, each department

ing SMBC’s system of legal checks for compliance with the

Antimonopoly Law and the prevention of conflicts of interest; and

further tightening our information security system. At the same

and office is individually responsible for ensuring that its conduct

time, we will continue our pursuit of further refinements in the

complies with laws and regulations, and secondly, an indepen-

bank’s internal rules, and will be taking steps to strengthen our

dent auditing unit conducts rigorous audits of department and

branch compliance.

To improve the effectiveness of this dual system, dedicated

training courses and monitoring.
Assignment of Compliance Officers
In addition to the compliance officers appointed within each

staff from the Compliance Unit, composed of the General Affairs

department and branch, we have appointed Area Compliance

Department and the Legal Department, carry out all necessary

Officers at some units, such as the Middle Market Banking Unit

planning and supervision to ensure efficient functioning of the

and the Consumer Banking Unit, who are independent from the

compliance system. Under the basic compliance policies drawn

front-line departments. These officers are responsible for direct-

up by the bank’s management, these compliance specialists

ing and overseeing compliance regarding transactions carried

supervise all departments and branches and conduct monitor-

out by the staff of our branches, Corporate Business Offices and

ing. They also provide assistance to branch staff in making com-

pliance-related decisions.

The framework of our compliance system is shown in the dia-

other front-line offices.
Compliance Committee and Other Committees
The Compliance Committee is a cross-sectional organization,

gram below. SMBC has also implemented the following mea-

ensuring that compliance issues are reviewed and discussed

sures to enable this compliance system to function effectively.

widely. It is chaired by the director responsible for compliance

Compliance Manual
Set out in accordance with the resolution of the Board of

issues and includes the heads of relevant departments. To

enhance objectivity, the Committee includes an outside legal

expert who serves as an advisor.

Directors, the Compliance Manual lays out specific Rules of

Additionally, in 2006 we established a Business Monitoring

Conduct. These Rules of Conduct comprise 60 items describing

Committee, whose members consist principally of outside direc-

relevant laws and regulations, as well as providing procedural

tors and other external experts, to enhance the bank’s monitoring

guidelines and specific examples of conduct that must be fol-

of compliance and customer satisfaction and ensure objective

lowed by all directors, officers and employees of SMBC.

assessments of performance in these matters.

■ Compliance System Overview

Board of Directors, Management Committee

Audit

Corporate
Auditors

Directions

Report

Compliance Unit

Discuss

Compliance
Committees

Consult

Outside
Experts

General Affairs Dept. (overall control), Legal Dept.

Directions,
Monitoring and
Legal Support

Report
and
Discuss

Head Office Departments

Directions

General
Manager

Area Compliance Officers

Report

Front-Line Offices
(Corporate Business Offices, Branches)

General Managers

Compliance Officers

Audit

Internal
Audit
Dept.

SMFG 2007 49

Environmental Preservation Initiatives

SMFG and Environmental Issues
Protecting the global environment is one of the most critical issues of our time. In view of the public nature of financial institutions and the

social responsibilities they bear, they naturally have a duty to earnestly address the issue of environmental preservation.

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
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 environ-

mental activities centered on these three areas. SMBC and JRI have acquired ISO 14001 certification, the international standard for envi-

ronmental management systems.

Group CSR Committee

SMFG’s Environmental Action Plan and the PDCA Cycle

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

SMFG 2007

The Group Environmental
Policy

Implement environmental
initiatives

Reduce environmental
impact

Manage environmental risk

Promote environment-related
businesses

PLAN

CHECK

ACT

■
■
■
■
■
■
• Major Initiatives by Group Companies

Objectives

Initiatives

Reduce
environmental
impact

Practice
environmental
risk management

Promote
environment-related
businesses

Reducing consumption of energy and paper

Promoting green purchasing

Providing training on environmental issues

Establishing credit rules on companies with high environmental risk

Selling items that can be reused

Proposing policies and measures related to the environment

Providing funds for environment-friendly projects

Promoting soil decontamination and helping companies apply for ISO

certification

Promoting energy-conserving projects, such as ESCOs and ESPs

Providing information (publishing books, etc.)

SMBC

Sumitomo
Mitsui
Card

SMBC
Leasing

JRI

6 6 6 6
6 6 6 6
6 6 6 6
6
—
—

—

6
6
—

—

—
6
—

6
—
6 6
6
—

—
6

6
—

—

• Acquisition of ISO 14001

(Certification for SMBC and JRI)

of 1990). SMBC also participates in the Green Power Certification

System of the Japan Natural Energy Company Limited (JNEC) to

SMBC and JRI have acquired ISO 14001 certification, the inter-

contribute to eco-friendly power generation and environmental

national standard for environmental management systems.

preservation. It generated 900,000 kWH of electric power from

April 2006 to March 2007 under the program.

Reducing Environmental Impact
Activities such as energy conservation in the office and reduction

The combination of this eco-friendly power and the acquisition

of emission rights makes the SMBC head office building effec-

of paper consumption directly decrease the environmental

tively carbon neutral. The Tokyo head office building of SMBC

impact of business activities.

• Aiming for a paperless office

SMBC and JRI are aiming for a paperless office through the use

of IT and the implementation of business process reviews.

Leasing and the Osaka head office building of Sumitomo Mitsui

Card are carbon neutral as a result of emission right purchases.

• Environmental Education

Making staff more aware of environmental issues is regarded as

Through the creation of databases, they are computerizing their

a vital part of SMFG’s ongoing efforts to reduce the environmental

in-house administrative operations. SMBC has been switching to

burden caused by business operations. Year-long staff education

electronic forms for bank branches. Through these initiatives, the

programs, including a program to acquaint staff with the con-

Group reduced its paper consumption by 83.7% as of March 31,

cepts behind environmental management systems, are pursued

2007. In addition, SMBC has taken various measures to facilitate

through regular classes and e-learning systems.

easy customer transactions and reduce the bank’s consumption

of business forms. The bank has set up “MC (Money-Lifestyle

Consulting) Stations” at “MC Desks”; offers the “Web Passbook,”

a virtual bank passbook that allows customers to check their

transactions via the Internet; and is promoting the use of the

Web21 system of Internet banking for corporate clients.

• Reducing Energy Consumption

SMFG sets new targets each year for the reduction of energy

consumption (mainly electric power) by the Group, and diligently

works to meet these targets. SMFG, SMBC, SMBC Leasing, and

JRI are also participating in the Team Minus 6% project being

promoted by the Japanese government (which aims to reduce

energy consumption in 2012 by 6% compared with the base year

SMFG 2007 51

Environmental Risk Management
When the environmental impact of business activities becomes

Promoting Environment-Related Business
SMFG is putting particular emphasis on environment-related busi-

substantial enough, companies face serious adverse effects on

ness as it is the most effective way for a financial services

their business. Environmental risks involved in the business oper-

provider, through its core business operations, to fulfill its corpo-

ations of a borrower company directly affect the credit risk of the

rate social responsibility.

lender. Financial institutions therefore need to take such consid-

Starting in fiscal 2005, SMBC began regularly holding meet-

erations carefully into account when making credit decisions.

ings of the Eco-Biz Promotion Council, whose aim is to oversee

SMBC therefore incorporates environmental risk assessments

the coordination of environment-related business activities car-

in its credit screening process, and in view of the importance of

ried out by various departments of the bank.

this factor, in its Credit Policies (a set of regulations governing the

As an example of specific initiatives, we started providing

bank’s lending operations) the bank has clearly stated its stance

information to companies in Japan that are interested in purchas-

on environmental risk in relation to collateral taking. Soil contami-

ing emission rights in fiscal 2005. We later began handling small-

nation risk assessments are mandatory under the bank’s regula-

lot purchases of emission rights in June 2007 (Fig. 1).

tions for real estate properties put up as collateral that meet

In February 2006, we introduced the “Environmentally

certain specified criteria.

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

Responsible Company Support Loan” (Fig. 2). We then made

improvements to this product in January 2007 to make it easier

for SMEs to apply. As of March 2007, we had extended a total of

about ¥10 billion of these loans.

With the support of the Ministry of the Environment, in March

2007 SMBC held the “Environmental Business Networking

Event—With Team Minus 6%” (Fig. 3). This was the largest such

business networking event held by the bank, with the participa-

tion of 1,600 representatives from 623 companies, and 600 busi-

ness discussions took place.

SMFG’s risk

Impact on credit-limit decisions

(Figure 1)

An SMFG response for controlling credit limits

In July 2006 the bank adopted the revised Equator Principles,

which make the assessment of environmental and social risks

part of the project finance screening process. The Equator

Principles are a set of voluntary guidelines on environmental and

social considerations to be observed when conducting project

finance operations.

Small-lot emission credits trading using trust accounts (June 2007)

1
Money in Trust

Payment

SMBC

3
Transfer of
emission rights

Beneficiary/
purchaser

2
Purchase of
emission rights

Piratini
Energia

Seller

Mori Trust

Sumitomo
Mitsui Card

SMBC
Leasing

Entrustor and
beneficiary

(Figure 2)

Environmentally Responsible Company Support Loans (started Feb. 2006)

• Loans to environment-friendly SMEs

• These loans are provided at preferential rates to SMEs with ISO 14001 and

Eco-Action 21 certification.

SMFG 2007

(Figure 3)

Environmental Business Networking Event (March 2007)

Providing Environment-Related Information
• Publication of Environmental Magazine SAFE

SMFG has published this magazine,

The event was aimed at raising customer satisfaction by helping open up new
marketing channels in environment-related businesses for the bank’s
business partners, as well as introducing them to new suppliers and
facilitating business alliances.

We provided support through business matching services for customers
thinking of entering environment-related businesses or incorporating
environmental preservation activities into their business plans to raise their
corporate value and draw up new
management strategies.

The event, attended by 1,600
representatives from 623 companies,
featured 81 booths. Business talks
between participants were held on
600 potential deals.

Prospective market scale: The Ministry of the Environment estimates the
market, which was worth ¥30 trillion in 2000, will expand to ¥58 trillion by 2020.

The bank’s customers’ needs: More sales channels for environment-
related businesses

Background social factors: The Kyoto Protocol to the United Nations
Framework Convention on Climate Change is a protocol that came into effect
in February 2005. The 2012 target is to reduce emissions of greenhouse
gases by 6% compared with the volume emitted in the base year of 1990.
Additionally, in Japan, laws have been passed mandating the recycling of
electric appliances and promoting the formation of a society based on
recycling and the reuse of resources.

through which we have been providing

environment-related information on a

bimonthly basis since 1996. Current

circulation is approximately 4,000

copies. Each issue of this publication

includes interviews with the top man-

agement of companies at the forefront

of the environmental preservation

movement. It also highlights trends in

legal regulations and examines other

current topics. The magazine is sent to Group company clients.

• Signatory to the UNEP Statement by Financial

Institutions

The United Nations Environment Programme (UNEP), a UN

organization dedicated to advancing environmental issues, has

established a support structure for the promotion of the environ-

mental preservation movement within each industry. Our company

is a signatory to the UNEP Statement by Financial Institutions.

• Signatory to Carbon Disclosure Project (CDP)

SMFG is a signatory to the Carbon Disclosure Project (CDP).

Under the CDP, institutional investors and financial institutions

concerned over the issue of climate change cooperate in request-

ing companies operating on a global scale to submit written

reports on their policies and initiatives on environmental issues.

The responses received are collated and issued in report form.

Environment-Related Social Contributions

—SMBC’s Creative Conservation Club supports the Furano

course. Once the area has been restored to its original

Nature School—

forested state, fallen leaves will be collected and strewn on

SMBC is supporting the environmental project being pursued

the paths. People learn about nature directly through their

by So Kuramoto, a TV and movie scriptwriter, in the city of

senses, for instance, by walking along these paths barefoot,

Furano in Hokkaido. This project involves the replanting of

identifying the sounds and smells of a forest.

trees by volunteers on one-third of the land of a former golf

Employees and their families participating in the Furano Nature School in July 2007

SMFG 2007 53

Social Contribution Activities

Fundamental approach to social contribution activities

SMFG and its Group companies, due to the public service nature of the financial services industry, recognize the importance of using

business operations to contribute to the development of society. In addition to this contribution to society through day-to-day business

operations, we must also act as a responsible corporate citizen by engaging in activities that help lay the foundations for a better soci-

ety in the future. In the spirit of corporate citizenship, SMFG and its Group companies will fulfill their social obligations through a broad

range of activities.

Policy on social contribution activities

SMFG and its Group companies understand their role as responsible corporate citizens, and undertake activities that contribute to the

realization of a prosperous and sustainable society. We maintain an extensive social contribution program by planning and executing

social contribution activities at the corporate level, as well as encouraging employees to volunteer for worthwhile activities.

The central elements of our social contribution activities

SMFG and its Group companies position the following four sectors as the core fields for social contributions: 1) social welfare; 2) local

and international communities; 3) environment; and 4) culture, art and education.

Social Welfare Contribution Activities
Group companies organize and participate in a wide range of

social welfare activities, and also support organizations devoted

employees use what they have learned in various ways, such as

in dealing with customers at the bank, or by participating in volun-

teer activities in which sign language is used, and also by teach-

to such causes to help create a more benevolent society.

ing sign-language classes for beginners.

•Donations of Voided Post Cards, Unused Prepaid

Telephone Cards, Used Postage Stamps

SMBC collects voided post cards and exchanges them for new

postal stamps, which are donated to volunteer organizations to

cover their correspondence fees.

•Events for Experiencing Volunteer Activities

SMBC holds events for its staff after working hours as well as on

weekends and holidays, enabling them to experience volunteer

activities. SMBC also provides employees with information on vari-

ous volunteer activities, and encourages their participation in such

In addition, SMBC collects unused prepaid telephone cards

events. The following initiatives were undertaken in fiscal 2006.

from employees each year, and donates them to volunteer orga-

nizations. Sumitomo Mitsui Card collects used postage stamps

and prepaid cards from employees, while SMBC Friend Securities

collects used postage stamps. These are all donated to volunteer

organizations.

•Sign-Language Courses

SMBC has been offering

sign-language courses

annually to its employees

since fiscal 1997, to help

employees communicate

better with hearing-impaired

customers and improve ser-

vice, while simultaneously

enabling SMBC to make a social contribution through its business

activities. In fiscal 2006, 100 bank employees enrolled in the

course. In fiscal 2005, the bank held a lecture, at which a hearing-

impaired guest speaker, assisted by an interpreter, shared her

*SMBC holds sessions, with the

participation of parents and chil-

dren, to increase understanding

among members of the public

regarding guide dogs for people

with visual and hearing impair-

ments, and assistance dogs for

people with physical disabilities. These sessions also teach chil-

dren about society’s needs to provide support for disabled people.

*SMBC held an international good-

will event for parents and their chil-

dren. Participants learned about

children in developing countries

where natural disasters, wars and

poverty cause considerable hard-

ship. The participants also

sorted foreign coins collected at SMBC branches for donations to

impressions of daily life using sign language. This annual event

assist these children.

was held again in the following, and for a third time this April, with

the attendance of 930 employees. After completing the course,

SMFG 2007

*After a seminar held by people

with hearing disabilities, partici-

pants watched a Japanese movie

with Japanese subtitles and no

sound. This event, sponsored

jointly by SMBC, several other

companies and a university, gave people a better understanding

of the challenges posed by the loss of hearing.

*SMBC, together with several com-

panies and a university, sponsored

a charity concert to raise aware-

ness of the need to remove land-

mines. At this event, donations were

collected for this worthy cause.

•Donations for Organizations that Assist Seniors

SMBC Friend Securities launched an investment trust in April

2007 with a focus on companies that offer services for Japan’s

aging population. The company donated part of its earnings from

this trust to an organization that helps seniors lead healthy and

fulfilling lives.

Contribution Activities for Local and Overseas
Communities
We undertake a variety of activities which contribute to the devel-

opment of local communities in Japan, and international commu-

nities overseas.

•SMBC Volunteer Fund

The SMBC Volunteer Fund makes donations to volunteer organi-

zations. This fund is raised by SMBC employees who make a vol-

untary contribution of ¥100 each month. About 11,000 employees

were participating in the program as of July 2007.

Major Donations by the Fund in Fiscal 2006:

*Donations for primary schools in

impoverished areas of Cambodia

to build toilets and make other

repairs, and to set up libraries

with study rooms.

*Publishing costs for a book of

Cambodian folktales entitled Good

Times for Khmer Children, as well

as the cost of hosting training sem-

inars on reading for teachers in

Cambodia, where books for chil-

dren are extremely scarce.

*Donations to set up school

libraries in Laos, where books for

children are scarce, and also

operating costs for children’s cul-

tural centers for art education.

*Scholarships for elementary

school students in Laos, where

many children are unable to

attend school for economic and

other reasons, and funding for a

health care and hygiene project in

that country.

*Scholarships for girls in rural

areas of China, where many chil-

dren are unable to attend school

for economic and other reasons.

*Medical costs for people in Norther n

Afghanistan who have been injured in con-

flicts or by land mines.

*Donations for replacement of test-

ing equipment, and installation of

equipment for emergency obstet-

rics treatment at a hospital in an

impoverished district of Nepal.

*Donations for a project in Myanmar

that improves the living environ-

ment for mothers and their children

by providing healthcare services,

training in hygiene, and education

to raise the literacy level.

*Donations to cover the expenses

involved in running a tractor coop-

erative in Eritrea on the Horn of

Africa, which helps farming house-

holds, headed by women who

have returned from refugee camps.

SMFG 2007 55

*Donations for programs in

*Since fiscal 2002, the organization has been offering computer

Bangladesh to assist women at

courses for school children with impaired hearing every six

the bottom of the economic ladder

months. These children are instructed using pen and paper and

to increase their incomes and

also sign language.

improve their lives in other ways.

• Supporting UNICEF

*As a member of the steering committee for UNICEF’s “Change

*Donations to the African nation of

for Good” program, SMBC cooperates in the organization’s

Benin to operate a business to

fundraising activities. Foreign coin collection boxes are placed at

process cassava, a primary source

SMBC branches and offices in Japan, to encourage donations by

of nutrition in that country, to help

the general public. The collected coins are sorted by currency

make residents of the country more

with the cooperation of SMBC Green Service Co., Ltd., one of our

economically self-sufficient.

Group companies, before being sent to the Japan Committee for

*Donations in Indonesia for

mately 1.8 tons) and 14,000 foreign currency bills were collected

surgery expenses for children with

at SMBC branches, airports throughout Japan, and other loca-

cleft palates or cleft lips, and

tions. Donations included about ¥4 million in Japanese coins and

UNICEF. In fiscal 2006, about 400,000 foreign coins (approxi-

scholarships for street children.

*Emergency Disaster Relief

• Donations for victims of the major earthquake that hit central

Java in May 2006

• Donations for victims of floods and landslides in Japan in July

2006

• Donations for victims of the Noto Peninsula earthquake in Japan

in March 2007

• Donations for victims of the Solomon Islands earthquake and

tsunami in April 2007

•Opening of account for donations to disaster victims

When a major natural disaster happens, either in Japan or over-

seas, SMBC opens a special account and allows anyone wishing

bills. The total amount of donations reached ¥720 million since
1992, when the program started. (Please see photos and cap-

tions below.) SMBC has also implemented the UNICEF Donation

Account program, through which customers donate their net

interest to UNICEF and SMBC donates a matching amount.

Foreign coin collection boxes are
placed at SMBC branches and
offices.

The collected coins are sorted by currency
and sent to UNICEF.

to donate money to the victims to make a deposit free of charge.

*Through its World Present points service for members of the VISA

We also solicit donations for such causes from employees of

Japan Association, Sumitomo Mitsui Card collects donations from

SMBC and JRI.

•YUI — an SMBC Volunteer Organization

At SMBC, we actively support YUI, an in-house volunteer organi-

VISA cardholders every year and presents them to the Japan

Committee for UNICEF. Total donations have reached over ¥200

million since the start of the program in 1992. From April 2007, we

have also begun donating funds to the Japanese National

zation. As members of YUI, SMBC employees plan and carry out

Commission for UNESCO and the WWF-Japan (World Wildlife

a variety of welfare activities. The name derives from the

Fund). Sumitomo Mitsui Card also issues cards incorporating

Japanese word yui, a term describing a mutual support system

donations to specific charities, such as the UNICEF VISA Card

among farmers that dates back to the Edo Period. The name indi-

and the Red Feather VISA Card (offered in cooperation with the

cates the group’s desire to cultivate ties with people from all

Central Community Chest of Japan). The company makes its own

walks of life. YUI undertook the following activities in fiscal 2006:

donations to the working funds of all these organizations from its

card business revenues.

*Since fiscal 2001, YUI has held

an annual bazaar, selling items

collected

from employees.

•SMBC Global Foundation

The primary activity of the SMBC Global Foundation is the provi-

Proceeds are donated to volun-

sion of scholarships to university students in Asian countries.

teer organizations.

Since 1994, the foundation has distributed scholarships to more

than 5,000 students in five countries. In 2006, the foundation

extended its activities to Malaysia and Vietnam. Activities also

encompass the United States and Canada, where the foundation
supports many community activities, mostly involving education

SMFG 2007

and culture. Overall, the foundation’s programs represent an

investment portfolio of the Eco Fund, an investment trust that tar-

important part of SMBC’s international social contribution activities.

gets environmentally responsible companies. The institute

•SMBC Foundation

The SMBC Foundation, established 16 years ago, aims to help

nurture the human resources necessary to achieve sustainable

development in developing economies, as well as promote inter-

national exchange activities. The Foundation has thus far pro-

vided financial support for 39 students from Asian countries to

enable them to attend universities in Japan. The Foundation also

provides subsidies to research institutes and researchers under-

taking projects related to developing countries.

Environmental Contribution Activities
We conduct numerous environmental preservation activities.

•Neighborhood Cleanup Programs

*In April each year since 2004, bank employees have been tak-

ing part in a cleanup held along the banks of the Arakawa River

in Tokyo. Participants also test the quality of the water as part of

the event. In April 2007, approximately 460 employees and vol-

unteers took part in the event.

*At SMBC Leasing Company,

Limited, the staff at the Osaka

donates part of the fees received for performing this research to

private-sector nature conservation groups.

Contribution Activities for Culture,
Art and Education
We also sponsor cultural, artistic and educational events.

•Charity Concert for Grown-Ups and Kids

In May 2006, SMBC sponsored a

charity concert, the proceeds of

which went to help children all

over the world who have been

injured in wars and natural disas-

ters. The concert was performed

by members of the bank’s own Music Club, including a chorus, a

chamber orchestra, and a brass band. They performed music to
suit the tastes of both adults and children, ranging from the clas-

sics to songs from popular animation programs and movies. In

addition to donations collected from the audience, charity funds

were also obtained through the sale of goods in the foyer. The

event also featured a display of drawings and paintings by chil-

dren from all around the world. In June 2007, SMBC held the sec-

ond such concert. Many adults and children were invited to this

event, which took place at Nihon University Casals Hall in Tokyo.

•Educational Activities for Finance and Economics

SMBC engages in many educa-

tional activities involving finance

and economics. The bank issued

a book titled What Do Banks Do? ;

is a sponsor of the Kidzania

Tokyo job-experience theme park

headquar ters make extensive

for children; gives elementary school students tours of bank

efforts to beautify the surrounding

branches during summer vacation; sponsors the “Finance Park,”

area. Such efforts include a regu-

an educational program on economics for junior high and high

lar neighborhood cleanup con-

school students in Tokyo’s Shinagawa Ward; holds finance and

ducted along Midosuji Street, a

economics seminars at universities; and conducts other programs.

major thoroughfare. In May 2007, many employees volunteered

to participate in a trash collection and cleanup event to celebrate

the 70th anniversary of the completion of Midosuji Street.

•Student Intern Program

JRI started an intern program in 1999, recognizing the impor-

tance of giving students the opportunity to spend time in different

*JRI and JRI Solutions extend support for the International Beach

workplaces prior to their graduation. JRI Solutions began partici-

Cleanup Campaign. During fiscal 2006, employees of the two

pating in this program in 2006. Thus far, about 400 university stu-

companies and their family members took part in cleanup events

dents have spent time at one of these companies as interns. To

held in the spring and fall at Kugenuma Beach and Suma Beach.

provide exposure to a diverse range of jobs and activities, the

Employees of these two companies also participated in the 70th

interns were assigned to IT systems, consulting, think tank and

anniversary cleanup of Osaka’s famous Midosuji Street. In addi-

many other operations.

tion, volunteers from the two companies responded to requests

from municipalities to help keep their neighborhoods clean, par-

ticularly around the companies’ head office buildings in Tokyo

and Osaka.

•Support for Private Nature Conservation Groups

JRI studies the environmental activities of various companies to

determine companies that are suitable for inclusion in the

•Support for Exhibitions at Yamatane Museum of Art

SMBC Friend Securities provides support for the Yamatane

Museum of Art, which displays works of modern and contempo-

rary Japanese art. These works were collected by the late Taneji

Yamazaki, founder of Yamatane Securities, which is a predeces-
sor of SMBC Friend Securities.

SMFG 2007 57

Human Resources

The greatest asset possessed by SMFG is its employees, and the growth of the Group is supported by the efforts of individual employees.

SMFG makes active efforts to ensure that the invaluable individuality and unique abilities of each employee are optimally utilized.

Hereunder, we explain the steps taken by SMBC in this field.

SMBC Human Resources (HR)
The primary goal of SMBC is to grow and prosper together with

its four main stakeholder groups’ — its customers, shareholders

and employees. 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 cus-

tomers with value-added services

● Motivate employees more strongly by respecting their indi-

viduality and encouraging them to seek personal fulfillment

Director System in fiscal 2006. Workers with 15 to 20 years of

experience assist new employees, providing general guidance

and support, as well as instructing them on specific matters.

Also for the consumer banking business, SMBC has a num-

ber of highly specialized training programs tailored to different

career tracks and business fields.

Support for Personal Career Designing
To develop into financial service professionals, it is vital for all our

staff to carefully assess their own skills and aptitudes and to be
given the opportunity to decide for themselves what future career

development course they wish to pursue.

To support employees’ personal efforts to develop their own

● Foster a corporate culture that rewards a forward-looking

careers, SMBC operates a hiring system with three entry

and creative attitude

Nurturing Highly Specialized Human Resources
At SMBC, we nurture highly specialized and professional staff to

channels: 1) entry to specific mid-management posts (“post

entry”); 2) entry to specific specialist jobs (“job entry”); and 3)

entry via career-related training courses (“training entry”). The

content of the various jobs offered is revised every year, and in

achieve the goal of providing optimum added value to our

fiscal 2006 we offered openings in seven different posts and 133

customers. In view of the present trend of diversification in the

job categories.

types of business in which we engage, and specialization of

banking staff in specific fields, as well as the growing diversity in

Training entry

A program designed to enable employ-

values held by our staff, we are working to design a system of

job categories to more effectively cope with these changing

circumstances.

To enhance the effectiveness of our personnel system and

reward highly specialized professional staff, we have set up

“Master Courses” for the attainment of higher qualifications within

ees to apply for the training courses nec-

essary for their career plans, including:

on-the-job training abroad; sponsorship

for graduate schools; and discussion

forums held with companies in fields of

business outside banking.

each job category, and have created the new job description of

Job entry

A program designed to allow employees

to pursue their own career goals.

Employees can apply for jobs in specific

business fields, such as corporate plan-

ning or investment banking.

Post entry

A program designed to give enthusiastic

and talented employees a chance to

apply for specific posts, such as branch

manager or section head.

“special expert” for those individuals who possess excellent

market value in their own specialized fields.

•The Rising Rookie Program (RRP)

SMBC has a variety of basic education programs for newly hired

employees, differing according to job category, to equip them with

standard banking knowledge and skills. The newly introduced

RRP is being offered as an introductory course for the corporate

banking business. In their first six months, the new staff take a

concentrated curriculum, which includes financial analysis and

other practical in-class subjects, mixed with on-the-job training at

our corporate offices. By dramatically accelerating their acquisition

of basic knowledge and skills, which previously took several years,

we aim to raise motivation among our entry-level employees.

After completion of the program, instructors follow up on the

progress of their students as they work in corporate banking

operations. Going one step further, SMBC launched the Senior

SMFG 2007

•The SMBC Job Forum

At the SMBC Job Forum held in January 2007, almost 100 SMBC

* System for rehiring former employees

Employees who have resigned due to marriage, childbirth, child

departments seeking to recruit new employees through the “job

raising or care of a parent can apply to be rehired within five

entry” channel provided an overview of possible assignments.

The forum raised interest among employees in cross-divisional

years of their resignations.
* Parental leave

career development by providing insights into the particular

Employees may take parental leave until the child is 18 months

activities of many departments. Furthermore, the forum was

intended to give employees a chance to think about their career

old.
* Shorter working hours

goals and find a means for achieving those goals. Approximately

SMBC offers the possibility of shorter working hours to employ-

1,200 SMBC employees, who are interested in transferring to a

ees who need to drop children off at a daycare facility and pick

new position, gathered from many parts of Japan.

them up at the end of the day. There are two types of shortened

work schedules: one that allows employees to specify a six-hour

working period each day, and another that allows employees to

designate one day each week as a holiday.
* Leave for taking care of elderly or disabled family members

Employees may take leave to care for a disabled or elderly family

member.

Financial support for child rearing
* Child-care subsidies

SMBC reimburses employees for up to ¥50,000 in monthly after-

school child care and babysitting expenses.
* Other programe

To reduce the economic burden on employees of child raising

and other family requirements, SMBC offers reduced-fee child

care, baby-sitting and other services provided by employee ben-

Measures to Tap the Diversity of SMBC’s Workforce
SMBC is committed to providing a workplace that can fully utilize

the capabilities of all its staff, who have diverse priorities and

efit service providers.

lifestyles.

•Helping employees meet responsibilities at work and home

Since April 2005, SMBC has been operating an Employee

SMBC also has a program to help employees returning to the

workplace following parental leave. Starting in April 2006, we

have been holding monthly seminars for individuals using this

Support Program to assist employees in maintaining the proper

leave. The seminars keep these people up-to-date on the recent

balance between their work and families. The program includes

events at SMBC.

time off and reduced working hours to care for children as well as

elderly relatives and others in need of care. We significantly

expanded this program in January 2007 with the aim of giving

employees even more flexibility. With this program, both male

and female employees are better able to properly divide their

time between their jobs and family responsibilities.

Programs to give employees a more flexible work environment
* Work relocations

Employees with job categories that do not normally provide for

transfers can request reassignments to other locations due to

marriage, relocation of one’s spouse, or other reasons.
* Leave for taking care of sick children

Employees may take leave to care for sick pre-school children.
* Half-day vacation time

Employees can use their annual leave and other days off in half-

day increments, thus providing the flexibility to attend school

events and take care of other personal matters.

SMFG 2007 59

Expanding employment opportunities for
persons with disabilities
In line with new legislation to promote the employment of persons

Developing employee awareness of individual rights
SMBC has laid down as principles to be observed by all its

employees in the course of their work: 1) the requirement to

with disabilities, SMBC has established a subsidiary, SMBC

respect the individual human dignity of customers and fellow staff

Green Service Co., Ltd., as part of the bank’s overall policy of

members alike at all times; and 2) a prohibition against discrimi-

actively seeking to increase the employment of persons with dis-

nation or prejudice of any kind against any person or class of

abilities within the SMBC group.

persons.

In recognition of SMBC Green Service’s significant contribu-

To increase our employees’ knowledge of the issues involved

tion to expanding the employment of persons with disabilities,

in respecting the rights of individuals, we have implemented the

and providing conditions that enable them to stay at the same

workplace for longer, in fiscal 2005 the Osaka Prefectural

following measures:
(1) Group Seminars

Government presented the company with an award under its

The bank provides group seminars for the general managers of

“Compassionate Corporation Program.”

•The SMBC Open Lounge

SMBC wants an even more diverse range of potential recruits to

gain an understanding of banking operations and career oppor-

departments and branches who are responsible for overseeing

their staff. The bank conducts similar seminars for employees

newly promoted to management positions, junior staff, and

newly-hired employees.
(2) On-the-job Training Sessions

These training sessions are held twice a year at each department

and branch, and are presided over by the head of the depart-

ment or the branch manager. A wide range of themes are

addressed, including the treatment of persons with disabilities,

sexual harassment, and discrimination on the basis of race or

citizenship. These issues all for m the subject of intensive

discussions.
(3) Submission of Slogans

tunities. For this purpose, we conduct many activities that target

To raise the level of awareness of individual rights issues within the

university students. In fiscal 2005, we started a seminar called

workplace, we invite our employees to think up slogans for display

“Banking College for Women,” a program aimed specifically at

in the office or in manuals and so on concerning respect for indi-

recruiting female university students. This program attracts a

vidual rights. Staff at SMBC group companies, as well as temp

large number of participants every year. Activities like this helped

staff and other non-regular employees are also urged to attend our

raise the share of women to about 40% of all new graduates that

study sessions and to submit slogans for consideration.

we hired for the banking career track (including consumer ser-

vice specialists) in April 2007.

In March 2007, SMBC sponsored a one-month event called

Staff Profile
March 31

“The SMBC Open Lounge.” This event offered university students

Number of employees*

the chance to speak directly with younger staff members from var-

ious units, such as the Consumer Banking, Corporate Banking,

Male

Female

International Banking, Investment Banking and Treasury units.

Average age

Male

Female

Average years of service

Male

Female

Ratio of employees with
disabilities (% of total)**

2005

21,020
14,635

6,385

39.0

41.2

33.7

16.9

18.5

13.2

2006

20,322
13,955

6,367

39.0

41.2

34.0

16.7

18.3

13.3

2007

19,723
13,424

6,299

39.0

41.1

34.4

16.6

18.1

13.5

2.09%

1.99%

2.03%

* This figure is the number of full-time employees, including employees temporar-

ily dispatched to other companies and organizations. The following have all
been excluded from this total: executive officers, employees on short-term con-
tracts, part-time employees, temp-staff employees, and local staff at overseas
branches.

** As of March 1

SMFG 2007

Financial Section and Corporate Data

Financial Section

SMFG

Consolidated Balance Sheets ................................... 62

Consolidated Statements of Income......................... 64

Consolidated Statement of
Changes in Net Assets.............................................. 65

Consolidated Statement of

Stockholders’ Equity ................................................ 65

Consolidated Statements of Cash Flows.................. 66

Corporate Data

Sumitomo Mitsui Financial Group, Inc.

Board of Directors, Corporate Auditors,

and Executive Officers .......................................... 171

SMFG Organization ................................................ 171

Sumitomo Mitsui Banking Corporation

Board of Directors, Corporate Auditors,

and Executive Officers .......................................... 172

Notes to Consolidated Financial Statements ........... 68

SMBC Organization ................................................ 174

Independent Auditors’ Report ................................... 107

SMBC

Principal Subsidiaries and Affiliates

Principal Domestic Subsidiaries ............................. 176

Supplemental Information.......................................... 108

Principal Overseas Subsidiaries ............................. 177

Principal Affiliates ................................................... 178

International Directory................................................ 179

SMFG

Income Analysis (Consolidated) ................................ 113

Assets and Liabilities (Consolidated) ........................ 116

Capital (Nonconsolidated) ......................................... 119

Capital Ratio Information (Consolidated) .................. 123

SMBC

Income Analysis (Consolidated) ................................ 144

Assets and Liabilities (Consolidated) ........................ 147

Income Analysis (Nonconsolidated) .......................... 149

Deposits (Nonconsolidated) ...................................... 153

Loans (Nonconsolidated) ........................................... 155

Securities (Nonconsolidated)..................................... 159

Ratios (Nonconsolidated)........................................... 161

Capital (Nonconsolidated) ......................................... 163

Others (Nonconsolidated) .......................................... 164

Trust Assets and Liabilities (Nonconsolidated)......... 166

Capital Ratio Information ........................................... 169

SMFG 2007 61

Consolidated Balance Sheets

Sumitomo Mitsui Financial Group, Inc. and Subsidiaries

March 31

Assets
Cash and due from banks (Note 11) ....................................................................
Deposits with banks (Notes 11 and 31) ...............................................................
Call loans and bills bought ..................................................................................
Receivables under resale agreements.................................................................
Receivables under securities borrowing transactions ..........................................
Commercial paper and other debt purchased (Note 31)......................................
Trading assets (Notes 3, 11 and 31)....................................................................
Money held in trust (Note 31)...............................................................................
Securities (Notes 4, 11 and 31)............................................................................
Loans and bills discounted (Notes 5 and 11) .......................................................
Foreign exchanges...............................................................................................
Other assets (Notes 6 and 11) .............................................................................
Premises and equipment (Notes 8, 11 and 18)....................................................
Tangible fixed assets (Notes 7 and 18)................................................................
Intangible fixed assets (Note 9)............................................................................
Lease assets (Note 10) ........................................................................................
Deferred tax assets (Note 27) ..............................................................................
Goodwill ...............................................................................................................
Customers’ liabilities for acceptances and guarantees ........................................
Reserve for possible loan losses .........................................................................
Total assets ........................................................................................................

Millions of yen

Millions of
U.S. dollars (Note 1)

2007

2006

2007

¥ 1,927,024
2,109,831
1,107,078
76,551
2,276,894
963,916
3,277,885
2,924
20,537,500
58,689,322
881,436
3,349,949
—
817,567
234,896
1,001,346
887,224
—
3,606,050
(889,093)
¥100,858,309

¥ 5,159,822
1,947,647
651,905
117,474
1,956,650
633,760
4,078,025
2,912
25,505,861
57,267,203
947,744
3,403,832
806,369
—
—
999,915
1,051,609
6,612
3,508,695
(1,035,468)
¥107,010,575

$ 16,318
17,866
9,375
648
19,281
8,163
27,758
25
173,914
496,988
7,464
28,368
—
6,923
1,989
8,480
7,513
—
30,536
(7,529)
$854,080

SMFG 2007

(Continued)

March 31

Millions of yen

Millions of
U.S. dollars (Note 1)

2007

2006

2007

Liabilities, minority interests and net assets/stockholders’ equity
Liabilities
Deposits (Notes 11 and 12) .................................................................................
Call money and bills sold (Note 11) .....................................................................
Payables under repurchase agreements (Note 11) .............................................
Payables under securities lending transactions (Note 11) ...................................
Commercial paper................................................................................................
Trading liabilities (Notes 11 and 13).....................................................................
Borrowed money (Notes 11 and 14) ....................................................................
Foreign exchanges...............................................................................................
Short-term bonds (Note 15) .................................................................................
Bonds (Note 15) ...................................................................................................
Due to trust account .............................................................................................
Other liabilities (Notes 11 and 16)........................................................................
Reserve for employee bonuses ...........................................................................
Reserve for employee retirement benefits (Note 29) ...........................................
Reserve for executive retirement benefits............................................................
Other reserves (Note 17) .....................................................................................
Deferred tax liabilities (Note 27)...........................................................................
Deferred tax liabilities for land revaluation (Notes 18 and 27) .............................
Acceptances and guarantees (Note 11)...............................................................
Total liabilities ....................................................................................................

Net assets (Note 28)
Capital stock (Note 20) ........................................................................................
Capital surplus .....................................................................................................
Retained earnings ................................................................................................
Treasury stock (Note 20)......................................................................................
Total stockholders’ equity.................................................................................
Net unrealized gains on other securities (Note 31) ..............................................
Net deferred losses on hedges (Note 32) ............................................................
Land revaluation excess (Note 18) ......................................................................
Foreign currency translation adjustments ............................................................
Total valuation and translation adjustments...................................................
Stock acquisition rights (Note 33) ........................................................................
Minority interests (Note 19) ..................................................................................
Total net assets ..................................................................................................
Total liabilities and net assets ..........................................................................

Minority interests (Note 19) ...............................................................................

Stockholders’ equity
Capital stock (Note 20).........................................................................................
Capital surplus .....................................................................................................
Retained earnings ................................................................................................
Land revaluation excess (Note 18) ......................................................................
Net unrealized gains on other securities (Note 31) ..............................................
Foreign currency translation adjustments ............................................................
Treasury stock (Note 20)......................................................................................
Total stockholders’ equity.................................................................................
Total liabilities, minority interests and stockholders’ equity.........................

See accompanying notes to consolidated financial statements.

¥ 74,745,441
2,286,698
140,654
1,516,342
—
1,942,973
3,214,137
323,890
439,600
4,093,525
65,062
2,981,714
27,513
34,424
7,371
1,137
50,953
49,536
3,606,050
95,527,029

1,420,877
57,773
1,386,436
(123,454)
2,741,632
1,262,135
(87,729)
37,605
(30,656)
1,181,353
14
1,408,279
5,331,279
¥100,858,309

¥ 73,542,769
8,016,410
396,205
2,747,125
10,000
2,908,158
2,133,707
447,722
383,900
4,241,417
318,597
2,625,594
25,300
36,786
—
1,141
49,484
50,133
3,508,695
101,443,151

—
—
—
—
—
—
—
—
—
—
—
—
—
—

—

—
—
—
—
—
—
—
—
—

1,113,025

1,420,877
1,229,225
992,064
38,173
819,927
(41,475)
(4,393)
4,454,399
¥107,010,575

$632,953
19,364
1,191
12,841
—
16,453
27,218
2,743
3,723
34,664
551
25,250
233
292
62
10
431
419
30,536
808,934

12,032
489
11,740
(1,045)
23,216
10,688
(743)
319
(260)
10,004
0
11,926
45,146
$854,080

—

—
—
—
—
—
—
—
—
—

SMFG 2007 63

Consolidated Statements of Income

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 21) ........................................................................
Trading profits (Note 22) ......................................................................................
Other operating income (Note 23)........................................................................
Other income (Note 24)........................................................................................
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 and short-term bonds ........................................................
Other interest expenses..................................................................................
Fees and commissions (Note 21) ........................................................................
Trading losses (Note 22)......................................................................................
Other operating expenses (Note 25)....................................................................
General and administrative expenses..................................................................
Provision for reserve for possible loan losses......................................................
Other expenses (Note 26)....................................................................................
Total expenses ...................................................................................................
Income before income taxes and minority interests ......................................
Income taxes (Note 27):

Current ............................................................................................................
Deferred ..........................................................................................................
Minority interests in net income............................................................................
Net income .........................................................................................................

Millions of yen

Millions of
U.S. dollars (Note 1)

2007

2006

2007

¥1,404,060
369,770
7,098
4,857
96,763
96,517
3,508
705,998
127,561
1,003,632
128,017
3,947,786

500,555
50,984
18,354
60,856
91,223
88,502
96,812
1,936
1,004,370
888,561
23,663
315,175
3,140,996
806,790

¥1,228,472
317,352
6,767
613
59,875
49,519
8,631
703,928
32,807
1,144,147
250,973
3,803,089

279,526
35,055
7,447
58,292
86,386
34,285
84,336
—
876,635
853,796
163,549
280,414
2,759,726
1,043,362

87,818
218,770
58,850
¥ 441,351

69,818
226,901
59,800
¥ 686,841

$11,890
3,131
60
41
819
817
30
5,979
1,080
8,499
1,084
33,430

4,239
432
155
515
773
750
820
16
8,505
7,524
200
2,669
26,598
6,832

744
1,853
498
$ 3,737

Yen

U.S. dollars (Note 1)

Per share data (Note 36):

Net income .....................................................................................................
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 (1st to 12th series Type 4).................
Declared dividends on preferred stock (1st series Type 6).............................

¥57,085.83
51,494.17
7,000
—
—
—
135,000
88,500

¥94,733.62
75,642.93
3,000
10,500
28,500
13,700
135,000
88,500

$ 483.41
436.06
59.28
—
—
—
1,143.20
749.43

See accompanying notes to consolidated financial statements.

SMFG 2007

Consolidated Statement of Changes in Net Assets

Sumitomo Mitsui Financial Group, Inc. and Subsidiaries

Stockholders’ equity

Valuation and translation adjustments

Millions of yen

Year ended March 31, 2007
Balance at March 31, 2006 ................
Changes in the year
Increase due to exchange of shares.........
Cash dividends.......................................
Net income ............................................
Acquisition of own shares........................
Disposal of treasury shares .....................
Retirement of treasury shares..................
Increase due to increase in subsidiaries .....
Increase due to decrease in subsidiaries ....
Decrease due to increase in subsidiaries....
Decrease due to decrease in subsidiaries...
Transfer from land revaluation excess......
Net changes in the items other than
stockholders’ equity in the year .............
Net changes in the year ..........................
Balance at March 31, 2007 .................

Year ended March 31, 2007
Balance at March 31, 2006 .................
Changes in the year
Increase due to exchange of shares.........
Cash dividends.......................................
Net income ............................................
Acquisition of own shares........................
Disposal of treasury shares .....................
Retirement of treasury shares..................
Increase due to increase in subsidiaries .....
Increase due to decrease in subsidiaries ....
Decrease due to increase in subsidiaries....
Decrease due to decrease in subsidiaries...
Transfer from land revaluation excess......
Net changes in the items other than
stockholders’ equity in the year .............
Net changes in the year ..........................
Balance at March 31, 2007 .................

Capital
stock
¥1,420,877

Capital
surplus
¥1,229,225

Retained
earnings
¥ 992,064

Treasury
stock

equity

(4,393) ¥3,637,773

securities
¥ 819,927

Total

Net
unrealized

stockholders’ gains on other

221,365

3,459
(1,396,277)

(1,519,599)
4,260
1,396,277

(47,951)
441,351

396
22
(16)
(5)
575

221,365
(47,951)
441,351
(1,519,599)
7,720
—
396
22
(16)
(5)
575

Net deferred
losses on
hedges
¥ —

Land
revaluation
excess
¥38,173

Foreign
currency
translation
adjustments

Total
valuation and
translation
adjustments
¥(41,475) ¥ 816,625

Stock
acquisition
rights

Minority
interests

¥— ¥1,113,025

Total net
assets
¥5,567,424

221,365
(47,951)
441,351
(1,519,599)
7,720
—
396
22
(16)
(5)
575

— (1,171,452)
57,773

¥1,420,877

394,372
¥1,386,436

(119,061)

(896,141)
¥ (123,454) ¥2,741,632

442,207
442,207
¥1,262,135

(87,729)
(87,729)
¥(87,729)

(568)
(568)
¥37,605

10,818
10,818

364,728
364,728
¥(30,656) ¥1,181,353

14
14
¥14

295,254
295,254
¥1,408,279

659,996
(236,144)
¥5,331,279

Stockholders’ equity

Valuation and translation adjustments

Millions of U.S. dollars (Note 1)

Capital
stock
$12,032

Capital
surplus
$10,409

Retained
earnings
$ 8,401

Treasury
stock
$

(37)

stockholders’ gains on other

equity
$30,805

securities
$ 6,943

Total

Net
unrealized

Net deferred
losses on
hedges

Land
revaluation
excess

$ —

$323

Foreign
currency
translation
adjustments
$(351)

Total
valuation and
translation
adjustments
$ 6,915

Stock
acquisition
rights
$—

Minority
interests
$ 9,426

Total net
assets
$47,146

1,875

29
(11,824)

(12,868)
36
11,824

(406)
3,737

3
0
(0)
(0)
5

1,875
(406)
3,737
(12,868)
65
—
3
0
(0)
(0)
5

—
$12,032

(9,920)
489

3,339
$11,740

(1,008)
$ (1,045)

(7,589)
$23,216

3,745
3,745
$10,688

(743)
(743)
$(743)

(4)
(4)
$319

91
91
$(260)

3,089
3,089
$10,004

0
0
$ 0

2,500
2,500
$11,926

5,589
(2,000)
$45,146

See accompanying notes to consolidated financial statements.

Consolidated Statement of Stockholders’ Equity

Sumitomo Mitsui Financial Group, Inc. and Subsidiaries

Year ended March 31, 2006

Capital
stock

Capital
surplus

Retained
earnings

Millions of yen

Land
revaluation
excess

Net unrealized Foreign
currency
translation
adjustments

gains
on other
securities

Treasury
stock

Total

68,225

Balance at March 31, 2005 ............................................. ¥1,352,651 ¥ 974,346
Issuance of common stocks .............................................
68,225
Change due to increase in consolidated subsidiaries ......
Change due to decrease in affiliates ................................
Gains on disposal of treasury stock..................................
Transfer of land revaluation excess..................................
Change in equity of consolidated subsidiary 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, 2006 ............................................. ¥1,420,877 ¥1,229,225

186,653

¥329,963

¥57,853

¥410,653

(2)
1

19,649

(44,389)
686,841

(19,649)
(29)

409,273

¥992,064

¥38,173

¥819,927

¥(79,883) ¥(269,857) ¥2,775,728
136,451
(2)
1
186,653
—
(29)
(44,389)
686,841
409,273
38,408
265,463
¥ (4,393) ¥4,454,399

¥(41,475)

265,463

38,408

SMFG 2007 65

Consolidated Statements of Cash Flows

Sumitomo Mitsui Financial Group, Inc. and Subsidiaries

Year ended March 31

1. Cash flows from operating activities:

Income before income taxes and minority interests...................................
Depreciation of premises, equipment and others ......................................
Depreciation of fixed assets.......................................................................
Depreciation of lease assets......................................................................
Losses on impairment of fixed assets........................................................
Amortization of goodwill .............................................................................
Equity in (earnings) losses of affiliates.......................................................
Gains on sale of subsidiaries’ shares and

gains on change in equity of subsidiary ...................................................
Net change in reserve for possible loan losses .........................................
Net change in reserve for employee bonuses ...........................................
Net change in reserve for employee retirement benefits ...........................
Net change in reserve for executive 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 ...................................................................................
Net gains from disposal of premises and equipment .................................
Net losses from disposal of fixed assets....................................................
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 and bills bought and others.................................
Net change in receivables under securities borrowing transactions ..........
Net change in call money and bills sold and others...................................
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 ...............................................................................................
Other, net ...................................................................................................
Subtotal.....................................................................................................
Income taxes paid......................................................................................
Net cash (used in) provided by operating activities.................................

Millions of yen

Millions of
U.S. dollars (Note 1)

2007

2006

2007

806,790
—
78,869
335,399
30,548
4,858
104,170

¥ 1,043,362
82,671
—
336,871
12,303
6,270
(31,887)

(5,072)
(146,971)
2,128
(2,639)
7,371
—
(1,979,069)
810,476
71,686
(0)
(103,541)
—
3,067
(1,364)
767,067
(969,090)
(1,376,693)
1,307,266
(136,304)
1,141,752
(157,092)
(612,297)
(320,243)
(5,994,528)
(10,000)
(1,230,782)
66,917
(124,047)
55,700
(198,091)
(253,534)
1,966,949
(774,678)
197,841
(6,637,179)
(123,561)
(6,760,740)

(63,257)
(241,530)
1,403
1,993
—
(231)
(1,662,600)
500,993
(27,853)
(13)
(175,815)
(551)
—
(3,235)
(225,005)
746,642
(2,311,499)
2,210,634
(8,026)
90,612
175,960
342,387
(1,388,310)
3,027,037
(364,100)
(1,120,876)
(46,473)
(31,381)
382,900
(365,646)
268,140
1,691,320
(509,760)
(104,996)
2,238,450
(30,096)
2,208,354

6,832
—
668
2,840
259
41
882

(43)
(1,245)
18
(22)
62
—
(16,759)
6,863
607
(0)
(877)
—
26
(12)
6,496
(8,206)
(11,658)
11,070
(1,154)
9,668
(1,330)
(5,185)
(2,712)
(50,762)
(85)
(10,422)
567
(1,050)
472
(1,677)
(2,147)
16,656
(6,560)
1,675
(56,204)
(1,047)
(57,251)

SMFG 2007

(Continued)

Year ended March 31

2. Cash flows from investing activities:

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......................................................
Purchases of tangible fixed assets ............................................................
Proceeds from sale of premises and equipment........................................
Proceeds from sale of tangible fixed assets ..............................................
Purchases of intangible fixed assets..........................................................
Proceeds from sale of intangible fixed assets............................................
Purchases of lease assets .........................................................................
Proceeds from sale of lease assets ...........................................................
Proceeds from sale of stocks of subsidiaries.............................................
Purchases of stocks of subsidiaries...........................................................
Net cash provided by (used in) investing activities .................................

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 disposal of treasury stock ..................................................
Net cash (used in) provided by financing activities .................................

Millions of yen

Millions of
U.S. dollars (Note 1)

2007

2006

2007

(35,085,809)
21,544,154
18,886,454
—
—
—
(193,614)
—
8,474
(57,506)
6
(383,526)
48,392
3,745
(1,317)
4,769,454

(43,620,790)
33,089,259
10,164,213
(2,851)
3,789
(43,066)
—
17,733
—
—
—
(380,894)
55,186
54,937
—
(662,482)

20,000
(83,000)

103,000
(215,884)

196,951

431,458

(181,283)
—
(47,926)
360,362
(46,724)
(1,474,644)
11,320
(1,244,945)

(198,800)
136,451
(44,373)
59,640
(42,366)
(2,209)
452,549
679,464

3,840

2,229,177

2,930,645

—

(0)

(297,111)
182,438
159,933
—
—
—
(1,640)
—
72
(487)
0
(3,248)
410
32
(11)
40,388

169
(703)

1,668

(1,535)
—
(406)
3,052
(396)
(12,487)
96
(10,542)

(27,376)

43,694

—

4. Effect of exchange rate changes on cash and due from banks..............

3,434

5. Net change in cash and due from banks...................................................

(3,232,797)

6. Cash and due from banks at beginning of year........................................

5,159,822

7. Change in cash and due from banks

due to newly consolidated subsidiaries..................................................

8. Change in cash and due from banks

due to exclusion of consolidated subsidiaries.......................................

—

9. Cash and due from banks at end of year ..................................................

¥ 1,927,024

¥ 5,159,822

$ 16,318

See accompanying notes to consolidated financial statements.

SMFG 2007 67

Notes to Consolidated Financial Statements

Sumitomo Mitsui Financial Group, Inc. and Subsidiaries
Years ended March 31, 2007 and 2006

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 out-
standing equity securities of 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 former Commercial Code
of Japan. Upon formation of SMFG and completion of the statutory
share transfer, former SMBC became a direct wholly-owned sub-
sidiary 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 from the consolidated finan-
cial 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 is
included solely for the convenience of readers outside Japan, using the
prevailing exchange rate at March 31, 2007, which was ¥118.09 to
US$1. The convenience translations should not be construed as repre-
sentations 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
The number of consolidated subsidiaries is as follows:
March 31
Consolidated subsidiaries ...................
Principal companies:

2007
181

2006
162

Sumitomo Mitsui Banking Corporation (“SMBC”)
THE MINATO BANK, LTD.
Kansai Urban Banking Corporation
Sumitomo Mitsui Banking Corporation Europe Limited
Manufacturers Bank
SMBC Leasing Company, Limited (“SMBC Leasing”)

SMFG 2007

Sumitomo Mitsui Card Company, Limited (“SMCC”)
SMBC Finance Service Co., Ltd.
SMBC Friend Securities Co., Ltd. (“SMBC Friend Securities”)
The Japan Research Institute, Limited
SMBC Capital Markets, Inc.
Changes in consolidated subsidiaries in the fiscal year

ended March 31, 2007 are as follows:

Forty-two companies including JRI Solution Ltd. were
newly consolidated due to establishment and other reasons.
Four companies including SUMIGIN GUARANTEE
COMPANY, LIMITED were excluded from the scope of
consolidation because they were no longer subsidiaries due
to merger and other reasons. Also, nineteen companies
including SMLC MAHOGANY CO., LTD. were excluded
from the scope of consolidation and became unconsolidated
subsidiaries 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 twenty-four subsidiaries including
S.B.L. Jupiter Co., Ltd. are silent partnerships for lease
transactions and their assets and profits/losses do not belong
to them substantially. Therefore, they have been excluded
from the scope of consolidation pursuant to Article 5
Paragraph 1 Item 2 of Consolidated Financial Statements
Regulations.

Other unconsolidated subsidiaries are also excluded from

the scope of consolidation because their total amounts in
terms of total assets, ordinary income, net income and
retained earnings are so immaterial that they do not hinder
a rational judgment of SMFG’s financial position and results
of operations when excluded from the scope of consolidation.

(b) Application of the equity method
Japanese accounting standards also require any unconsolidated
subsidiaries and affiliates over the financial and operating poli-
cies of which SMFG is able to exercise material influence to be
accounted for by the equity method.

(i) Unconsolidated subsidiaries accounted for by the equity
method
The number of unconsolidated subsidiaries accounted for by
the equity method is as follows:
March 31
Unconsolidated subsidiaries ...............
Principal company:
SBCS Co., Ltd.

2006
3

2007
3

(ii) Affiliates accounted for by the equity method
The 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.
NIF SMBC Ventures Co., Ltd.
Daiwa SB Investments Ltd.
Sumitomo Mitsui Asset Management Company, Limited
QUOQ Inc.

2006
60

2007
59

Changes in affiliates accounted for by the equity method

their respective balance sheet dates.

in the fiscal year ended March 31, 2007 are as follows:
Four companies including NIFSMBC-V2006S1

Investment Enterprise Partnership newly became affiliated
companies accounted for by the equity method due to estab-
lishment and other reasons.

Five companies including SMFC Holdings (Cayman)
Limited were excluded from the scope of affiliated compa-
nies accounted for by the equity method because they were
no longer affliated companies due to liquidation and other
reasons.
(iii) Unconsolidated subsidiaries that are not accounted for
by the equity method
One hundred and twenty-four subsidiaries including S.B.L.
Jupiter Co., Ltd. are silent partnerships for lease transac-
tions and their assets and profits/losses do not belong to
them substantially. Therefore, they have not been accounted
for by the equity method pursuant to Article 10 Paragraph
1 Item 2 of Consolidated Financial Statements Regulations.
(iv) Affiliates that are not accounted for by the equity
method
Principal company:

Daiwa SB Investments (USA) Ltd.
Unconsolidated subsidiaries and affiliates that are not
accounted for by the equity method are also excluded from
the scope of equity method because their total amounts in
terms of net income and retained earnings are so immaterial
that they do not hinder a rational judgment of SMFG’s
financial position and results of operations when excluded
from the scope of equity method.

2007
2
1
7
2
2
70
1
3
93

(i) The balance sheet dates of the consolidated subsidiaries
are as follows:
March 31
June 30 ..............................................
July 31 ..............................................
September 30 ....................................
October 31 ........................................
November 30.....................................
December 31......................................
January 31 .........................................
February 28........................................
March 31 ...........................................

2006
2
—
5
1
2
64
1
2
85
A consolidated overseas subsidiary changed its balance
sheet date from December 31 to March 31 in the fiscal year
ended March 31, 2007. Therefore, SMFG’s consolidated
financial statements include the subsidiary’s earnings for the
15month period from January 1, 2006 to March 31, 2007.
However, this change had no material impact on the consol-
idated financial statements.
(ii) The subsidiaries whose balance sheet dates are June 30,
September 30 and November 30 are consolidated after the
accounts were provisionally closed as of March 31 for the pur-
pose of consolidation. In case of the subsidiary whose balance
sheet date is July 31, it is consolidated after the accounts were
provisionally closed as of January 31. As for the subsidiaries
whose balance sheet dates are October 31, their financial
statements are consolidated based on the provisional financial
statements closed as of January 31 and March 31, respec-
tively. The other companies are consolidated on the basis of

Appropriate adjustments are made for material transac-
tions during the periods from their respective balance sheet
dates to the consolidated balance sheet date.

(2) Statements of cash flows

(a) For the purposes of presenting the consolidated statements
of cash flows, cash and cash equivalents represent cash and due
from banks.
(b) In accordance with the change in presentation of “Premises
and equipment” in the consolidated balance sheet as of March
31, 2007, “Depreciation of premises, equipment and others” is
presented as “Depreciation of fixed assets.” “Net (gains) losses
from disposal of premises and equipment” is also renamed as
“Net (gains) losses from disposal of fixed assets.” In addition,
“Purchases of premises and equipment” and “Proceeds from
sale of premises and equipment” are presented as “Purchases of
tangible fixed assets” and “Proceeds from sale of tangible fixed
assets,” respectively.
(c) In accordance with the change in presentation of consoli-
dated balance sheet as of March 31, 2007, software which had
been included in “Other assets” is included in “Intangible fixed
assets.” Therefore, payments or proceeds from purchase or sale
of software which had been included in “Other, net” in “Cash
flows from operating activities” are included in “Purchases of
intangible fixed assets” and “Proceeds from sale of intangible
fixed assets” in “Cash flows from investing activities.”
(d) Material non-monetary transactions
Capital surplus increased by ¥221,365 million ($1,875 mil-
lion) because SMFG made SMBC Friend Securities into a
wholly-owned subsidiary through a share exchange and deliv-
ered common stocks in the fiscal year ended March 31, 2007.

(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” or “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.

(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.

SMFG 2007 69

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 mar-
ket prices (cost of securities sold is calculated using primarily
the moving-average method). Other securities with no avail-
able 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 “Net
assets,” after deducting the amount that is reflected in the fis-
cal year’s earnings by applying 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 deferred hedge accounting stipulated in
“Treatment for Accounting and Auditing of Application of
Accounting Standard for Financial Instruments in Banking
Industry” (Japanese Institute of Certified Public Accountants
(“JICPA”) Industry Audit Committee Report No.24) to port-
folio hedges on groups of large-volume, small-value monetary
claims and debts. As for the portfolio hedges to offset market
fluctuation, SMBC assesses the effectiveness of such hedges by
classifying the hedged items (such as deposits and loans) and
the hedging instruments (such as interest rate swaps) by their
maturity. As for the portfolio hedges to fix cash flows, SMBC
assesses the effectiveness of such hedges by verifying the corre-
lation between the hedged items and the hedging instru-
ments.

As for the individual hedges, SMBC also basically applies

deferred hedge accounting. But, SMBC applies fair value
hedge accounting to hedging transactions for reducing the
market volatility of bonds classified as other securities that are
held for the purpose of Asset and Liability Management.
As a result of the application of JICPA Industry Audit

Committee Report No.24, SMBC discontinued the application
of hedge accounting or applied fair value hedge accounting to a
portion of the hedging instruments using “macro hedge,”
which had been applied in order to manage interest rate risk
arising from large-volume transactions in loans, deposits and
other interest-earning assets and interest-bearing liabilities as a
whole using derivatives pursuant to “Temporary Treatment for
Accounting and Auditing of Application of Accounting

SMFG 2007

Standard for Financial Instruments in Banking Industry”
(JICPA Industry Audit Committee Report No.15). The
deferred hedge losses and gains related to such a portion of
hedging instruments are charged to “Interest income” or
“Interest expenses” over a 12-year period (maximum) according
to their maturity from the fiscal year ended March 31, 2004.
Gross amounts of deferred hedge losses and gains on “macro
hedge” (prior to application of tax effect accounting) at March
31, 2007 were ¥41,522 million ($352 million) and ¥29,583
million ($251 million), respectively.
(b) Hedging against currency fluctuations
SMBC applies deferred hedge accounting stipulated in
“Treatment of Accounting and Auditing Concerning
Accounting for Foreign Currency Transactions in Banking
Industry” (JICPA Industry Audit Committee Report No.25)
to currency swap and foreign exchange swap transactions exe-
cuted for the purpose of lending or borrowing funds in differ-
ent 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
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
non-arbitrary and strict criteria for external transactions stipu-
lated 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 earn-
ings or defers them, rather than eliminating them.

Certain other consolidated subsidiaries apply the deferred

hedge accounting or the special treatment for interest rate
swaps. A consolidated domestic subsidiary (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).

(8) Bills discounted

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, 2007 and 2006
was ¥915,318 million ($7,751 million) and ¥891,160 million,
respectively, and bank acceptance bought, commercial bills
discounted, documentary bills and foreign exchanges bought
that were rediscounted by the banking subsidiaries accounted
for ¥2,918 million of the total amount at March 31, 2006.

(9) Tangible fixed assets and leases assets

Tangible fixed assets owned by SMFG and SMBC are
generally stated at cost less accumulated depreciation.
Depreciation of tangible fixed assets and equipment is calcu-
lated using the straight-line method and the declining-balance
method over the estimated useful lives of the respective assets,
respectively. The estimated useful lives of major items are as
follows:

Buildings: 7 to 50 years
Equipment: 2 to 20 years

Other consolidated subsidiaries depreciate tangible fixed
assets 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) Intangible fixed assets

Depreciation of intangible fixed assets is calculated using the
straight-line method.

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.

For claims on borrowers that have entered into bankruptcy,

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
interest (calculated using the rationally estimated cash flows
discounted at the initial contractual interest rate) and the book
value.

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
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 ¥490,123
million ($4,150 million) and ¥799,143 million at March 31,
2007 and 2006, respectively.
(12) 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.

(13) 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 nine years within the
employees’ average remaining service period at incurrence.
Unrecognized net actuarial gain (loss) is amortized using
the straight-line method, primarily over nine years within the
employees’ average remaining service period, commencing
from the next fiscal year of incurrence.
(14) Reserve for executive retirement benefits

Reserve for executive retirement benefits is provided for pay-
ment of retirement benefits to directors, corporate auditors
and other executive officers, in the amount deemed accrued at
the fiscal year-end based on our internal regulations.

Retirement benefits to directors, corporate auditors and
other executive officers were formerly expensed when they
were paid. However, “Treatment for Auditing of Reserve
under Special Taxation Measures Law and Reserve under
Special Laws” (JICPA Audit Committee Report No.42, issued
on September 21, 1982) was revised and “Treatment for
Auditing of Reserve under Special Taxation Measures Law,

SMFG 2007 71

Reserve under Special Laws and Reserve for Retirement
Benefits to Directors and Corporate Auditors” (JICPA Audit
and Assurance Practice Committee Report No.42) was
announced on April 13, 2007. In accordance with this
accounting change, from March 31, 2007, SMFG started
recording “reserve for executive retirement benefits” in order
to recognize periodic gains (losses) more proper by allocating
the estimated retirement benefits to the tenure of the relevant
executives. As a result, “Income before income taxes and
minority interests” decreased by ¥7,371 million ($62 million)
as compared with the former method.

Consolidated financial statements for the six months ended

September 30, 2006 were accounted for under the former
method because this accounting change was announced on
April 13, 2007. Accordingly, “Income before income taxes
and minority interests” for the six months were excessively
recorded by ¥6,241 million ($53 million) as compared with
the revised method.

(15) 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 81 of the
Financial Futures Transaction Law and Article 29 of the
Enforcement Ordinance on 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.

(16) Translation of foreign currency assets and liabilities

Assets and liabilities of SMFG and SMBC denominated in for-
eign currencies and accounts of SMBC overseas branches 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.

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.
(17) 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 by the same
method as operating leases.

Standards for recognizing lease-related income on lease
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.

SMFG 2007

(18) Valuation of consolidated subsidiaries’ assets and liabilities

Assets and liabilities of consolidated subsidiaries including the
portion attributable to the minority stockholders are valuated
for consolidation at fair value when SMFG acquires control.

(19) Amortization of goodwill

Goodwill on SMBC Friend Securities, SMBC Leasing and
SMCC is amortized using the straight-line method over
twenty years, five years and five years, respectively, and good-
will on other companies is charged or credited to income
directly when incurred.

(20) Issuance of new shares and sale of treasury shares

On January 31, 2006, SMFG issued 80,000 new shares of
common stock at ¥1,130,500 per share (issue price) for final
allocation by underwriters at ¥1,166,200 per share (offer
price). Furthermore, in connection with the over-allotment of
40,700 shares of common stock offered for sale at ¥1,166,200
per share (sales price) in the public offering, SMFG issued on
February 28, 2006 the same number of new shares of common
stock at ¥1,130,500 per share (issue price) through third-
party allocation to the underwriter who conducted the over-
allotment. The purchase agreement for the offering prescribes
that the total amount of issue price be treated as the total
amount of subscription price and no underwriting commission
be paid. Accordingly, other expenses do not include the
amount equivalent to the underwriting commission for the
offering. Out of the issue price per share, ¥565,250 is
accounted for as capital stock and ¥565,250 as capital surplus.

Also, on January 31, 2006, SMFG disposed of 400,000
shares of treasury stock at ¥1,130,500 per share (disposal
price) for final allocation by underwriters at ¥1,166,200 per
share (sales price). The purchase agreement for the offering
prescribes that the total amount of disposal price be treated as
the total amount of subscription price and no underwriting
commission be paid. Accordingly, other expenses do not
include the amount equivalent to the underwriting commis-
sion for the offering. The difference between the disposal price
and the book value of the treasury stock sold in the offering is
accounted for as capital surplus.

(21) Impairment of fixed assets

Effective April 1, 2005, SMFG has applied “Accounting
Standards for Impairment of Fixed Assets” (“Opinion
Concerning Establishment of Accounting Standard for
Impairment on Fixed Assets,” issued by the Business
Accounting Council (“BAC”) on August 9, 2002) and
“Guidelines on Implementation of Accounting Standard for
Impairment of Fixed Assets” (Guidelines on Implementation of
Business Accounting Standard No.6, issued by the Accounting
Standards Board of Japan (“ASBJ”) on October 31, 2003). As a
result, income before income taxes and minority interests for the
fiscal year ended March 31, 2006 decreased by ¥11,523 million
compared with the former method.

In the banking industry, fixed assets are stated at cost less

accumulated depreciation pursuant to the Enforcement
Ordinance of the Banking Law and the accumulated impair-
ment loss is also deducted from the book value of each asset.

(22) Application of new accounting standards

(e) SMFG previously recognized deferred bond discounts as

(a) “Accounting Standard for Presentation of Net Assets in the
Balance Sheet” (ASBJ Statement No.5, issued on December
9, 2005) and “Guidance on Accounting Standard for
Presentation of Net Assets in the Balance Sheet” (ASBJ
Guidance No.8, issued on December 9, 2005) were applic-
able from the fiscal year beginning on and after April 1,
2006. Effective April 1, 2006, SMFG has changed its con-
solidated balance sheet presentation as follows:
(i) Former “Stockholders’ equity” is renamed as “Net

assets,” which consists of stockholders’ equity, valua-
tion and translation adjustments, stock acquisition
rights and minority interests. The amount correspond-
ing to former stockholders’ equity at March 31, 2007
was ¥4,010,715 million ($33,963 million).

(ii) “Minority interests” which were presented below lia-

bilities section are presented in net assets.

(iii) Deferred unrealized losses or gains on hedging instru-
ments which were included in “Other assets” or
“Other liabilities” on a net basis are presented as “Net
deferred gains (losses) on hedges” in valuation and
translation adjustments after deducting tax effect on a
net basis.

(b) “Practical Solution on Application of Control Criteria and
Influence Criteria to Investment Associations” (ASBJ
Practical Issues Task Force No.20, issued on September 8,
2006) was applicable from on and after the fiscal year end-
ing September 8, 2006, the announcement date, and
SMFG has applied the new accounting pronouncement.
This accounting change had no material impact on the
consolidated financial statements.

(c) “Accounting Standard for Share-based Payment” (ASBJ
Statement No.8, issued on December 27, 2005) and
“Guidance on Accounting Standard for Share-based
Payment” (ASBJ Guidance No.11, issued on May 31, 2006)
were applicable to the stock options which are granted on
and after May 1, 2006. As a result, SMFG has applied the
new accounting standards from the fiscal year beginning on
April 1, 2006. This accounting change had no material
impact on the consolidated financial statements.
(d) “Accounting Standards for Business Combinations”
(“Opinion Concerning Establishment of Accounting
Standards for Business Combinations,” issued by the BAC
on October 31, 2003), “Accounting Standard for Business
Divestitures” (ASBJ Statement No.7, issued on December
27, 2005) and “Guidance on Accounting Standard for
Business Combinations and Accounting Standard for
Business Divestitures” (ASBJ Guidance No.10, issued on
December 22, 2006) were applicable from the fiscal year
beginning on April 1, 2006. Effective April 1, 2006,
SMFG has applied the new accounting standards.

assets and amortized them over the redemption periods. On
August 11, 2006, “Accounting Standard for Financial
Instruments” (issued by the BAC on January 22, 1999) was
revised by ASBJ Statement No.10 “Accounting Standards
for Financial Instruments,” and the revised accounting stan-
dards were applicable from on and after the fiscal year end-
ing August 11, 2006. SMFG applied the revised accounting
standards and bonds were carried at the amounts calculated
based on amortized cost (straight-line method) on the con-
solidated balance sheet. As a result, deferred bond discounts
in “Other assets” and “Bonds” each decreased by ¥2,308
million ($20 million) compared with the former method.
Deferred bond discounts, which were recognized on the

consolidated balance sheet at March 31, 2006, were
accounted for by the former method pursuant to “Tentative
Solution on Accounting for Deferred Assets” (ASBJ
Practical Issues Task Force No.19, issued on August 11,
2006) and amortized over the redemption periods and the
unamortized balances have been deducted from bonds
balances.

(23) Changes in presentation

The Enforcement Ordinance of the Banking Law was revised
on April 28, 2006 and applicable from the fiscal year begin-
ning on and after April 1, 2006. Effective April 1, 2006,
SMFG has changed its consolidated financial statement pre-
sentation as follows:
(a) “Premises and equipment” are separately presented as
“Tangible fixed assets,” “Intangible fixed assets” and
“Other assets.”

(b) “Goodwill” which had been separately presented in assets
section is included in “Intangible fixed assets.” As a result,
amortization of goodwill which was accounted for as
“Other expenses” in “Expenses” is accounted for as amorti-
zation of intangible fixed assets and included in “General
and administrative expenses.”

(24) Basic agreement on strategic joint businesses in leasing and

auto leasing
SMFG, SMBC Leasing and SMBC Auto Leasing Company,
Limited (“SMBC Auto Leasing”) reached a basic agreement to
pursue strategic joint businesses in leasing and auto leasing with
Sumitomo Corporation, Sumisho Lease Co., Ltd. (“Sumisho
Lease”) and Sumisho Auto Leasing Corporation (“Sumisho Auto
Lease”) on October 13, 2006. Based on the agreement, SMBC
Leasing and Sumisho Lease plan to merge on October 1, 2007,
and the merged company is expected to be a consolidated sub-
sidiary of SMFG, which will have 55% of the voting rights. The
merger is regarded as an acquisition under “Accounting
Standards for Business Combinations,” and SMFG will recog-
nize goodwill. However, the amount of goodwill is undeter-
mined at this time.

SMBC Auto Leasing and Sumisho Auto Lease also plan to

merge on October 1, 2007.

SMFG 2007 73

3. Trading Assets
Trading assets at March 31, 2007 and 2006 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.............................................................................................

4. Securities
Securities at March 31, 2007 and 2006 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

2007

53,288
373
2,344
2,125,214
1,096,664
¥3,277,885

2006

¥ 163,042
275
4,162
2,984,988
925,557
¥4,078,025

Millions of yen

2007

2006

¥ 7,640,069
571,103
4,066,497
4,747,601
3,512,228
¥20,537,500

¥11,566,093
607,777
3,958,181
4,500,639
4,873,169
¥25,505,861

Millions of
U.S. dollars
2007

451
3
20
17,997
9,287
$27,758

Millions of
U.S. dollars
2007

$ 64,697
4,836
34,436
40,203
29,742
$173,914

*1 Unsecured loaned securities for which borrowers have the right to sell or pledge in the amount of ¥2,188 million ($19 million) and ¥1,331 million are included in Japanese govern-

ment bonds and Japanese stocks at March 31, 2007 and 2006, respectively.
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, and that are permitted
to be sold or pledged without restrictions, ¥2,088,859 million ($17,689 million) of securities are pledged, and ¥154,192 million ($1,306 million) of securities are held in hand at
March 31, 2007. The respective amounts at March 31, 2006 were ¥1,713,027 million and ¥199,720 million.

*2 Japanese stocks and other include investments in unconsolidated subsidiaries and affiliates of ¥430,090 million ($3,642 million) and ¥498,660 million at March 31, 2007 and 2006,

respectively.

5. Loans and Bills Discounted
(1) Loans and bills discounted at March 31, 2007 and 2006 consisted of the following:

March 31

Bills discounted...................................................................................................
Loans on notes .....................................................................................................
Loans on deeds.....................................................................................................
Overdrafts ...........................................................................................................

Millions of yen

2007

2006

454,164
3,781,841
46,485,666
7,967,649
¥58,689,322

432,795
4,022,517
44,949,655
7,862,235
¥57,267,203

(2) Loans and bills discounted included 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

2007

2006

60,715
507,289
22,018
477,362
¥1,067,386

¥ 59,332
714,366
24,571
444,889
¥1,243,160

Millions of
U.S. dollars
2007

3,846
32,025
393,646
67,471
$496,988

Millions of
U.S. dollars
2007

$ 514
4,296
187
4,042
$9,039

*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).”

SMFG 2007

(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 amounts of unused commitments at March 31, 2007 and 2006 were ¥40,947,052
million ($346,744 million) and ¥38,176,896 million, respectively, and the amounts of unused commitments whose original contract terms are
within one year or unconditionally cancelable at any time at March 31, 2007 and 2006 were ¥34,769,824 million ($294,435 million) and
¥32,754,665 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, 2007 and 2006 consisted of the following:

March 31

Prepaid expenses..................................................................................................
Accrued income...................................................................................................
Deferred assets.....................................................................................................
Financial derivatives* ..........................................................................................
Other ..................................................................................................................

Millions of yen

2007

38,293
280,115
725,893
702,211
1,603,435
¥3,349,949

2006

¥ 36,731
275,870
702,914
814,433
1,573,880
¥3,403,832

Millions of
U.S. dollars
2007

324
2,372
6,147
5,947
13,578
$28,368

* 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, 2006 were ¥610,517 mil-
lion and ¥436,183 million, respectively.

7. Tangible Fixed Assets
Tangible fixed assets at March 31, 2007 consisted of the following:

March 31

Buildings ............................................................................................................................................
Land* .................................................................................................................................................
Construction in progress .....................................................................................................................
Other tangible fixed assets ..................................................................................................................
Total
.................................................................................................................................................
Accumulated depreciation ...................................................................................................................

* Includes land revaluation excess referred to in Note 18.

Millions of yen
2007

¥226,593
476,059
703
114,211
¥817,567
¥555,288

Millions of
U.S. dollars
2007

$1,919
4,031
6
967
$6,923
$4,702

8. Premises and Equipment
Premises and equipment at March 31, 2006 consisted of the following:

March 31

Land* ...........................................................................................................................................................................
Buildings .....................................................................................................................................................................
Equipment and others ..................................................................................................................................................
Total ............................................................................................................................................................................
Accumulated depreciation ............................................................................................................................................

* Includes land revaluation excess referred to in Note 18.

Millions of yen
2006

¥ 396,667
493,406
462,967
1,353,041
(546,672)
¥ 806,369

SMFG 2007 75

9. Intangible Fixed Assets
Intangible fixed assets at March 31, 2007 consisted of the following:

March 31

Software ..............................................................................................................................................
Goodwill.............................................................................................................................................
Other intangible fixed assets ...............................................................................................................

Millions of yen
2007

¥123,151
100,850
10,894
¥234,896

10. Lease Assets
Lease assets at March 31, 2007 and 2006 were as follows:

March 31

Equipment and others .........................................................................................
Accumulated depreciation ...................................................................................

11. Assets Pledged as Collateral
Assets pledged as collateral at March 31, 2007 and 2006 consisted of the following:

March 31

Assets pledged as collateral

Millions of yen

2007

¥2,593,445
(1,592,098)
¥1,001,346

2006

¥2,564,601
(1,564,686)
¥ 999,915

Millions of yen

2007

2006

Cash and due from banks and Deposits with banks .........................................
Trading assets.................................................................................................
Securities ........................................................................................................
Loans and bills discounted ..............................................................................
Other assets (installment account receivable etc.) ............................................

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 ............................................................................

¥ 104,328
202,292
3,043,253
934,423
1,946

20,588
1,335,000
128,695
1,250,450
84,532
1,112,257
23,207
167,153

¥ 79,117
114,551
9,229,645
1,552,435
1,131

19,111
6,996,598
383,597
2,543,261
196,137
27,019
36,317
157,658

Millions of
U.S. dollars
2007

$1,043
854
92
$1,989

Millions of
U.S. dollars
2007

$21,962
(13,482)
$ 8,480

Millions of
U.S. dollars
2007

883
1,713
25,771
7,913
16

174
11,305
1,090
10,589
716
9,419
197
1,415

In addition to the assets presented above, the following assets were pledged as collateral for cash settlements, variation margins of futures

markets and certain other purposes at March 31, 2007 and 2006:

March 31

Cash and due from banks and Deposits with banks ..............................................
Trading assets......................................................................................................
Securities .............................................................................................................
Loans and bills discounted ...................................................................................

Millions of yen

2007

6,761
500,158
3,946,194
535,770

2006

¥ 6,729
665,395
4,072,275
—

Millions of
U.S. dollars
2007

57
4,235
33,417
4,537

Other assets included surety deposits and intangibles of ¥94,129 million ($797 million) and initial margins of futures markets of ¥3,140

million ($27 million) at March 31, 2007.

Premises and equipment included surety deposits and intangibles of ¥97,162 million, and other assets included initial margins of futures

markets of ¥14,631 million at March 31, 2006.

SMFG 2007

12. Deposits
Deposits at March 31, 2007 and 2006 consisted of the following:

March 31

Current deposits ..................................................................................................
Ordinary deposits ................................................................................................
Savings deposits...................................................................................................
Deposits at notice ................................................................................................
Time deposits ......................................................................................................
Negotiable certificates of deposit .........................................................................
Other deposits .....................................................................................................

13. Trading Liabilities
Trading liabilities at March 31, 2007 and 2006 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....................................................................

14. Borrowed Money
Borrowed money at March 31, 2007 and 2006 consisted of the following:

Millions of yen

March 31
Bills rediscounted............................................................ ¥ — ¥ 2,918
3,214,137
2,130,788
Other borrowings*2.........................................................
¥3,214,137 ¥2,133,707

2007

2006

Millions of yen

2007

2006

¥ 6,631,965
33,667,482
933,026
5,364,306
22,279,749
2,589,217
3,279,695
¥74,745,441

¥ 7,043,924
33,369,831
1,025,890
4,458,093
20,866,095
2,708,643
4,070,290
¥73,542,769

Millions of yen

2007

16,415
288
1,975
1,924,294
¥1,942,973

2006

¥ 119,337
1,238
4,079
2,783,503
¥2,908,158

Millions of
U.S. dollars
2007

$ 56,160
285,100
7,901
45,426
188,667
21,926
27,773
$632,953

Millions of
U.S. dollars
2007

139
2
17
16,295
$16,453

Millions of
U.S. dollars
2007
$ —
27,218
$27,218

Average
interest rate*1
—%

1.27
1.27%

Due
—
Jan. 2007 — Perpetual

*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 of ¥559,500 million ($4,738 million) and ¥622,500 million at March 31, 2007 and 2006, respectively.

The repayment schedule within five years on borrowed money at March 31, 2007 was as follows:

March 31

Millions of yen
2007

Millions of U.S. dollars
2007

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 ................................................................................................

¥1,832,734
212,380
222,596
151,006
137,446

$15,520
1,798
1,885
1,279
1,164

SMFG 2007 77

15. Bonds
Bonds at March 31, 2007 and 2006 consisted of the following:
March 31
Issuer

Millions of yen*1

Description

2007

2006

SMBC:
Straight bonds, payable in Yen ....................................

Straight bonds, payable in Euroyen..............................
Subordinated bonds, payable in Yen ............................
Subordinated bonds, payable in Euroyen......................
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 British pound sterling ........

Subordinated bonds, payable in Yen ............................

Subordinated bonds, payable in U.S. dollars ................

Short-term bonds ........................................................

¥1,692,060
[405,500]
38,900
519,880
731,300
350,461

¥1,883,760
[390,781]
22,900
450,000
774,800
349,385
($2,967,747 thousand) ($2,974,000 thousand)
2,462
(£12,000 thousand)
99,960
(€700,000 thousand)
178,500
(€1,247,482 thousand) (€1,250,000 thousand)

2,782
(£12,000 thousand)
109,261
(€694,207 thousand)
196,341

174,504
[64,902]
2,382
($20,000 thousand)
[1,191]
1,866
(£8,000 thousand)
155,694
[500]
118,090

197,181
[85,893]
3,886
($33,000 thousand)
[1,525]
1,622
(£8,000 thousand)
159,478
[1,993]
117,480
($1,000,000 thousand) ($1,000,000 thousand)
383,900
[383,900]
¥4,625,317

439,600
[439,600]
¥4,533,125

Millions of
U.S. dollars
2007

Interest rate*2
(%)

Due

$14,329

0.52–2.625 Apr. 2007–May 2025

329
4,402
6,193
2,968

925

1,663

1.50–22.15 Mar. 2012–Feb. 2037
1.71–2.62 Jun. 2010–Feb. 2017
0.92–2.97 May 2011–Perpetual
5.625–8.15 Nov. 2011–Perpetual

6.98

4.375

Perpetual

Oct. 2014

1,477

0.2535–4.50 Apr. 2007–Oct. 2024

5.77188–7.00

Sep. 2007–May 2009

3.95

Oct. 2008

1,318

0.98188–4.95 Dec. 2007–Perpetual

1,000

8.50

Jun. 2009

3,723

0.4888–0.8099 Apr. 2007–Aug. 2007

$38,387

*1 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.
*2 Interest rates indicate nominal interest rates which are applied at the consolidated balance sheet dates. Therefore, they may differ from real interest rates.

The redemption schedule within five years on bonds at March 31, 2007 was as follows:

March 31

Millions of yen
2007

Millions of U.S. dollars
2007

¥911,693
425,866
570,677
312,998
274,534

16. Other Liabilities
Other liabilities at March 31, 2007 and 2006 consisted of the following:

March 31

Accrued expenses.................................................................................................
Unearned income.................................................................................................
Income taxes payable ...........................................................................................
Financial derivatives ............................................................................................
Other ..................................................................................................................

Millions of yen

2007

¥ 169,803
180,374
56,292
868,169
1,707,075
¥2,981,714

2006

¥ 127,194
183,091
47,260
830,867
1,437,180
¥2,625,594

$7,720
3,606
4,833
2,651
2,325

Millions of
U.S. dollars
2007

$ 1,438
1,527
477
7,352
14,456
$25,250

SMFG 2007

17. Other Reserves
Other reserves at March 31, 2007 and 2006 consisted of the following:

March 31

Reserve for contingent liabilities from financial futures transactions ....................
Reserve for contingent liabilities from securities transactions...............................

Millions of yen

2007

18
1,118
¥1,137

2006

18
1,122
¥1,141

Millions of
U.S. dollars
2007

$ 0
10
$10

18. 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 “Net assets” at March 31, 2007 and “Stockholders’ equity” at
March 31, 2006.

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 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 “Net assets.”

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 (stipulated 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) effective
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,
2006, whose book value had been revaluated pursuant to Article 10
of the Law, was ¥15,253 million lower than the book value.

19. Minority Interests
SB Treasury Company L. L. C., a subsidiary of SMBC, issued noncumu-
lative perpetual preferred securities, totaling $1,800 million in February
1998. SB Equity Securities (Cayman), Limited, a subsidiary of SMBC,
issued noncumulative perpetual preferred securities, totaling ¥340,000
million in February and March 1999. Sakura Preferred Capital
(Cayman) Limited, a subsidiary of SMBC, issued noncumulative perpet-
ual preferred securities, totaling ¥283,750 million in December 1998

and March 1999. SMFG Preferred Capital USD 1 Limited and SMFG
Preferred Capital GBP 1 Limited, subsidiaries of SMFG, issued noncu-
mulative perpetual preferred securities, totaling $1,650 million and
£500 million, respectively, in December 2006. These subsidiaries are
consolidated and the preferred securities are accounted for as minority
interests.

SMFG 2007 79

20. Capital Stock
Capital stock consists of common stock and preferred stock. Common stock and preferred stock at March 31, 2007 and 2006 were as follows:

Number of shares

2007

2006

Issued
March 31
7,424,172.77
Common stock..........................................................................................
35,000
Preferred stock (Type 1)*2.........................................................................
100,000
Preferred stock (Type 2)*2.........................................................................
695,000
Preferred stock (Type 3)*2.........................................................................
50,100
Preferred stock (Type 4)............................................................................
—
Preferred stock (Type 5)............................................................................
70,001
Preferred stock (Type 6) ............................................................................
8,374,273.77
Total.........................................................................................................
*1 Partial amendment of the Articles of Incorporation was approved at the annual ordinary general meeting of shareholders held on June 28, 2007 and the amended Articles stipulate

Authorized
15,000,000
35,000
100,000
695,000
135,000
250,000
300,000
16,515,000

Authorized*1
15,000,000
35,000
100,000
695,000
135,000
250,000
300,000
16,515,000

—
—
—
50,100
—
70,001
7,853,754.77

Issued
7,733,653.77

that the total number of authorized shares is 15,684,101, which consists of the types and the number of authorized shares as follows:

Common stock
Preferred stock (Type 4)
Preferred stock (Type 5)
Preferred stock (Type 6)
Preferred stock (Type 7)
Preferred stock (Type 8)
Preferred stock (Type 9)

15,000,000 shares
50,100 shares
167,000 shares
70,001 shares
167,000 shares
115,000 shares
115,000 shares

*2 See Note 28.

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.

In the event that SMFG pays dividends, SMFG shall pay to holders
of shares of its preferred stock, in preference to the holders of its com-
mon stock, cash dividends in the amounts as described below. If pre-
ferred interim dividends stipulated in the Articles of Incorporation of
SMFG were paid during the relevant fiscal year, the amount of such
preferred interim dividends shall be subtracted from such amount of
annual preferred dividends. Preferred stock (1st to 12th series Type
4) bear an annual noncumulative dividend of ¥135,000 per share and,
in the event SMFG pays an interim dividend, holders are entitled to
receive ¥67,500 in preference to common shareholders.

Preferred stock (1st series Type 6) bear an annual noncumulative

dividend of ¥88,500 per share and, in the event SMFG pays an
interim dividend, holders are entitled to receive ¥44,250 in prefer-
ence to common shareholders. Holders of preferred stock are not enti-
tled to any further dividends in excess of the amount as described
above.

In the event of SMFG’s voluntary or involuntary liquidation, hold-

themselves and in preference over shares of its common stock, to
receive out of SMFG’s residual assets upon liquidation a distribution
of ¥3,000,000 per share in the case of Type 4 and Type 6 preferred
stock. Holders of preferred stock are not entitled to any further divi-
dends or other participation or distribution of SMFG’s residual assets
upon SMFG’s liquidation.

SMFG may, subject to the requirements provided in the Company

Law, purchase any shares of the preferred stock then outstanding at
any time and retire such preferred stock out of distributable amounts
of SMFG. SMFG may also, subject to the requirements provided in
the Company Law, redeem all or some of preferred stock (1st series
Type 6) out of distributable amounts of SMFG at any time on and
after March 31, 2011 at a price of ¥3,000,000 per share.

Preferred stock (1st to 12th series Type 4) are convertible at any
time through February 7, 2028. Such preferred stock is convertible at
a conversion price, which is ¥318,800 as of March 31, 2007, subject
to anti-dilution adjustment, and to downward reset if the market
price of SMFG’s common stock at the time of conversion is less than
the then-applicable conversion price. The reset is subject to a floor
price, which is ¥105,100 as of March 31, 2007 and is subject to anti-
dilution adjustment. Preferred stock (Type 4) outstanding on the last
day of the applicable conversion period will be mandatorily converted
into shares of its common stock on the immediately following day.

ers of its preferred stock will be entitled, equally in rank as among

Preferred stock (Type 6) is non-convertible.

SMFG 2007

Millions of yen

2007

2006

Millions of
U.S. dollars
2007

21. Fees and Commissions
Fees and commissions for the years ended March 31, 2007 and 2006 consisted of the following:

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 .............................................................................................................

¥ 65,698
132,836
48,650
16,581
7,322
45,961
117,197
77,971
193,778
¥705,998

¥ 27,200
69,612
¥ 96,812

¥ 54,698
131,526
64,773
18,929
7,384
41,445
108,643
69,481
207,046
¥703,928

¥ 25,868
58,468
¥ 84,336

22. Trading Income
Trading income for the years ended March 31, 2007 and 2006 consisted of the following:

Year ended March 31

Trading profits:

Gains on trading securities .............................................................................
Gains on securities related to trading transactions...........................................
Gains on trading-related financial derivatives .................................................
Other .............................................................................................................

Trading losses:

Losses on securities related to trading transactions ..........................................

Millions of yen

2007

2006

¥ 15,109
—
109,208
3,244
¥127,561

¥
¥

1,936
1,936

¥12,880
1,229
18,599
97
¥32,807

—
—

23. Other Operating Income
Other operating income for the years ended March 31, 2007 and 2006 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................................................................
Other ..................................................................................................................

Millions of yen

2007

28,180
1,119
744,881
56,800
172,649
¥1,003,632

2006

¥ 51,003
90
716,846
203,929
172,278
¥1,144,147

$ 556
1,125
412
141
62
389
993
660
1,641
$5,979

$ 230
590
$ 820

Millions of
U.S. dollars
2007

$ 128
—
925
27
$1,080

$
$

16
16

Millions of
U.S. dollars
2007

$ 239
9
6,308
481
1,462
$8,499

SMFG 2007 81

24. Other Income
Other income for the years ended March 31, 2007 and 2006 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 fixed assets...........................................................................
Gains on disposal of premises and equipment ......................................................
Collection of written-off claims............................................................................
Gains on return of securities from retirement benefits trust .................................
Gains on sale of a subsidiary’s shares and change in equity of the subsidiary.........
Other ..................................................................................................................

Millions of yen

2007

¥ 62,793
0
—
4,730
—
1,236
36,330
4,226
18,700
¥128,017

2006

¥ 93,433
39
31,887
—
5,794
31,584
—
60,574
27,660
¥250,973

25. Other Operating Expenses
Other operating expenses for the years ended March 31, 2007 and 2006 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 financial derivatives ..............................................................................
Other ..................................................................................................................

Millions of yen

2007

¥ 139,302
3,534
—
799
674,662
22,809
163,262
¥1,004,370

2006

¥ 66,483
195
50
760
650,132
5,619
153,395
¥876,635

26. Other Expenses
Other expenses for the years ended March 31, 2007 and 2006 consisted of the following:

Millions of yen

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 sale of delinquent loans.........................................................................
Equity in losses of affiliates..................................................................................
Losses on disposal of fixed assets ..........................................................................
Losses on disposal of premises and equipment......................................................
Losses on impairment of fixed assets* ..................................................................
Provision for reserve for contingent liabilities from securities transactions ...........
Other ..................................................................................................................

*Losses on impairment of fixed assets consisted of the following:

2007

¥ 81,415
1,499
16,562
39,302
104,170
7,798
—
30,548
—
33,876
¥315,175

2006

¥ 69,355
13,968
32,345
100,666
—
—
5,242
12,303
47
46,484
¥280,414

Millions of
U.S. dollars
2007

$ 532
0
—
40
—
10
308
36
158
$1,084

Millions of
U.S. dollars
2007

$1,180
30
—
7
5,713
193
1,382
$8,505

Millions of
U.S. dollars
2007

$ 689
13
140
333
882
66
—
259
—
287
$2,669

Year ended
March 31

Area

Purpose of use

Type

Tokyo metropolitan area ....................................... Branches (2 branches)
Idle assets (32 items)

Land and premises etc.

Kinki area ............................................................. Branches (19 branches)

Land and premises etc.

Other ....................................................................

Idle assets (22 items)
Idle assets (18 items)

Land and premises etc.

Millions of yen

2007

¥25,799
1,782
839
443
1,683

2006

¥ —
5,277
4,668
2,022
334

Millions of
U.S. dollars
2007

$219
15
7
4
14

A consolidated subsidiary, SMBC, continuously manages every branch and determines its income and expenses. SMBC considers each branch

as the smallest unit of asset group for recognition and measurement of impairment loss. Fixed assets (such as corporate headquarters facilities,
training institutes, business and system centers, and health and recreational facilities) which do not have identifiable cash flows are grouped
with other assets. As for idle assets, impairment loss on each asset is measured individually. At other consolidated subsidiaries, a branch is gen-
erally considered as the smallest grouping unit.

SMFG 2007

In case investments in idle assets and branches (only idle assets in the case of SMBC) are not expected to be recovered, SMBC and other con-

solidated subsidiaries reduce the book values to their recoverable amounts and recognize the relevant losses.

Recoverable amounts are calculated using net realizable value which is based on appraisal value in accordance with the Real Estate Appraisal

Standard less the expected sale costs.

27. Income Taxes

(1) Significant components of deferred tax assets and liabilities at March 31, 2007 and 2006 were as follows:

March 31

Deferred tax assets:

Millions of yen

2007

2006

Net operating loss carryforwards ...........................................................
Write-off of securities ...........................................................................
Reserve for possible loan losses ..............................................................
Write-off of loans..................................................................................
Reserve for employee retirement benefits...............................................
Gain or loss on deferred hedges .............................................................
Depreciation .........................................................................................
Other ....................................................................................................
Subtotal ................................................................................................
Valuation allowance ..............................................................................
Total deferred tax assets ........................................................................

Deferred tax liabilities:

Net unrealized gains on other securities ................................................
Leveraged lease......................................................................................
Gains on securities contributed to employee retirement benefits trust ...
Securities returned from employee retirement benefits trust ..................
Undistributed earnings of subsidiaries...................................................
Other ....................................................................................................
Total deferred tax liabilities ..................................................................
Net deferred tax assets ..............................................................................

¥1,170,595
284,084
191,150
101,611
75,582
60,247
9,256
120,304
2,012,833
(457,174)
1,555,659

(569,723)
(60,724)
(42,408)
(20,312)
(10,600)
(15,619)
(719,388)
¥ 836,270

¥1,190,699
301,260
374,368
170,249
91,208
—
8,984
92,013
2,228,784
(533,411)
1,695,373

(560,800)
(56,423)
(52,329)
—
(11,223)
(12,470)
(693,247)
¥1,002,125

Millions of
U.S. dollars
2007

$ 9,913
2,406
1,619
860
640
510
78
1,019
17,045
(3,871)
13,174

(4,825)
(514)
(359)
(172)
(90)
(132)
(6,092)
$ 7,082

(2) SMFG and its domestic consolidated subsidiaries are subject to Japanese national and local income taxes, which, in the aggregate,

resulted in an effective statutory tax rate of approximately 40.69% for the years ended March 31, 2007 and 2006. A reconciliation of the
effective income tax rate reflected in the accompanying consolidated statements of income to the statutory tax rate for the years ended
March 31, 2007 and 2006 was as follows:

Statutory tax rate..............................................................................................................................
Valuation allowance ...................................................................................................................
Dividends exempted for income tax purposes .............................................................................
Difference in the effective statutory tax rate between SMFG
and consolidated overseas subsidiaries ......................................................................................
Equity in losses of affiliates ........................................................................................................
Other.........................................................................................................................................
Effective income tax rate ..................................................................................................................

2007

40.69%
(6.94)
—

—
5.25
(1.00)
38.00%

2006

40.69%
(8.53)
(2.45)

(2.15)
—
0.88
28.44%

SMFG 2007 83

28. Changes in Net Assets

(1) Type and number of shares issued and treasury shares are as follows:

Shares issued

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 (1st series Type 6) .............................................
Total....................................................................................

Treasury shares

March 31,
2006

7,424,172.77
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
70,001
8,374,273.77

Number of shares

Increase

Decrease

March 31,
2007

309,481*1

—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
309,481

35,000*2
100,000*3
695,000*4

— 7,733,653.77
—
—
—
4,175
4,175
4,175
4,175
4,175
4,175
4,175
4,175
4,175
4,175
4,175
4,175
70,001
7,853,754.77

—
—
—
—
—
—
—
—
—
—
—
—
—
830,000

6,307.15
—
—
—
6,307.15

170,936.41*5
35,000*2
100,000*3
695,000*4

8,612.61*5
35,000*2
100,000*3
695,000*4

1,000,936.41

838,612.61

168,630.95
—
—
—
168,630.95

*1 Increase in number of common shares issued:

• 249,015 shares due to issuance of new shares related to the share exchange with SMBC Friend Securities on September 1, 2006
• 60,466 shares due to exercising of rights to request acquisition of common shares with respect to preferred stock (Type 3) on September 29, 2006

*2 Increase in number of treasury shares of preferred stock (Type 1):

• 35,000 shares due to acquisition of own shares on May 17, 2006 pursuant to the resolution of the ordinary general meeting of shareholders held on June 29, 2005
Decrease in number of shares issued and treasury shares of preferred stock (Type 1):
• 35,000 shares due to retirement of treasury shares on May 17, 2006
*3 Increase in number of treasury shares of preferred stock (Type 2):

• 100,000 shares due to acquisition of own shares on May 17 and September 6, 2006 pursuant to the resolution of the ordinary general meetings of shareholders held on

June 29, 2005 and June 29, 2006

Decrease in number of shares issued and treasury shares of preferred stock (Type 2):
• 100,000 shares due to retirement of treasury shares on May 17 and September 6, 2006

*4 Increase in number of treasury shares of preferred stock (Type 3):

• 645,000 shares due to acquisition of own shares on September 29 and October 11, 2006 pursuant to the resolution of the ordinary general meeting of shareholders held on

June 29, 2006

• 50,000 shares due to acquisition of own shares on September 29, 2006 as a result of exercising of rights to request acquisition of common shares
Decrease in number of shares issued and treasury shares of preferred stock (Type 3):
• 695,000 shares due to retirement of treasury shares on September 29 and October 11, 2006

*5 Increase in number of treasury common shares:

• 60,466 shares due to acquisition of own shares on October 17, 2006 pursuant to the resolution of the ordinary general meeting of shareholders held on June 29, 2006
• 1,265.41 shares due to purchase of fractional shares
• 109,205 shares owned by consolidated subsidiaries and affiliates in connection with the share exchange with SMBC Friend Securities
Decrease in number of treasury common shares:
• 182.61 shares due to sale of fractional shares and delivery of shares in connection with exercising of stock options
• 8,430 shares due to sale of shares of SMFG’s common stock owned by subsidiaries and affiliates

SMFG 2007

(2)

Information on stock acquisition rights is as follows:

Detail of stock
acquisition rights
Stock options

Type of
shares
—

March 31,
2006
—

Number of shares

Increase
—

Decrease
—

March 31,
2007
—

Millions of yen
March 31,
2007
¥ —

Millions of
U.S. dollars
March 31,
2007
$ —

—

14
¥ 14

0
$ 0

SMFG ............................
Consolidated
subsidiaries ..................
Total..............................

Aggregate amount Cash dividends

(3)

Information on dividends is as follows:
(a) Dividends paid in the fiscal year ended March 31, 2007

Type of shares

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 (1st series Type 6) ........................................

of dividends
¥22,253
367
2,850
9,521
563
563
563
563
563
563
563
563
563
563
563
563
6,195

(Millions of yen, except per share amount)

per share

Record date

¥ 3,000 March 31, 2006
10,500 March 31, 2006
28,500 March 31, 2006
13,700 March 31, 2006
135,000 March 31, 2006
135,000 March 31, 2006
135,000 March 31, 2006
135,000 March 31, 2006
135,000 March 31, 2006
135,000 March 31, 2006
135,000 March 31, 2006
135,000 March 31, 2006
135,000 March 31, 2006
135,000 March 31, 2006
135,000 March 31, 2006
135,000 March 31, 2006
88,500 March 31, 2006

Effective date
June 29, 2006
June 29, 2006
June 29, 2006
June 29, 2006
June 29, 2006
June 29, 2006
June 29, 2006
June 29, 2006
June 29, 2006
June 29, 2006
June 29, 2006
June 29, 2006
June 29, 2006
June 29, 2006
June 29, 2006
June 29, 2006
June 29, 2006

Date of resolution: Ordinary general meeting of shareholders held on June 29, 2006

(b) Dividends to be paid in the fiscal year ending March 31, 2008

(Millions of yen, except per share amount)

Type of shares

Common stock .............................................
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 (1st series Type 6) ................

Aggregate amount
of dividends
¥53,660
563
563
563
563
563
563
563
563
563
563
563
563
6,195

Source
of dividends
Retained earnings
Retained earnings
Retained earnings
Retained earnings
Retained earnings
Retained earnings
Retained earnings
Retained earnings
Retained earnings
Retained earnings
Retained earnings
Retained earnings
Retained earnings
Retained earnings

Cash dividends
per share

Record date

¥ 7,000 March 31, 2007
135,000 March 31, 2007
135,000 March 31, 2007
135,000 March 31, 2007
135,000 March 31, 2007
135,000 March 31, 2007
135,000 March 31, 2007
135,000 March 31, 2007
135,000 March 31, 2007
135,000 March 31, 2007
135,000 March 31, 2007
135,000 March 31, 2007
135,000 March 31, 2007
88,500 March 31, 2007

Effective date
June 28, 2007
June 28, 2007
June 28, 2007
June 28, 2007
June 28, 2007
June 28, 2007
June 28, 2007
June 28, 2007
June 28, 2007
June 28, 2007
June 28, 2007
June 28, 2007
June 28, 2007
June 28, 2007

Date of resolution: Ordinary general meeting of shareholders held on June 28, 2007

SMFG 2007 85

29. 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.

Consolidated subsidiaries in Japan adopt defined-contribution pension plan. SMBC and some consolidated subsidiaries in Japan con-

tributed some of their marketable equity securities to employee retirement benefit trusts.

(2) Projected benefit obligation

March 31

Projected benefit obligation
Plan assets
Unfunded projected benefit obligation
Unrecognized net actuarial gain or loss
Unrecognized prior service cost
Net amount recorded on the consolidated
balance sheet

(A) ..................................
(B) ..................................
(C)=(A)+(B) ....................
(D) ..................................
(E)...................................

Millions of yen

2007

¥ (910,139)
1,186,060
275,921
(83,905)
(48,257)

2006

¥ (909,802)
1,236,535
326,733
(126,816)
(59,727)

Millions of
U.S. dollars
2007

$ (7,707)
10,044
2,337
(711)
(409)

(F)=(C)+(D)+(E) ..............
(G) ..................................
(F)–(G)............................

143,757
178,182
(34,424)

Prepaid pension cost
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.” On September 1, 2005, SMBC 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 pen-
sion plan.
(b) Some consolidated subsidiaries adopt the simple method in calculating projected benefit obligation.
(c) Plan assets related to the general type of welfare pension plan at March 31, 2007 and 2006, amounted to ¥19,648 million ($166 million)
and ¥18,701 million, respectively, and were not included in the “Plan assets” shown above.

1,217
1,509
$ (292)

140,189
176,976
(36,786)

(3) Pension expenses

Year ended March 31

Service cost ...............................................................................................
Interest cost on projected benefit obligation..............................................
Expected return on plan assets ..................................................................
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 employee retirement benefits trust...............................
Total.........................................................................................................

Millions of yen

2007

¥ 20,082
22,325
(30,184)
3,305
(11,175)
3,254
¥ 7,607
(36,330)
¥(28,722)

2006

¥20,600
22,002
(24,416)
23,343
(9,374)
3,263
¥35,419
—
¥35,419

Millions of
U.S. dollars
2007

$ 170
189
(256)
28
(95)
28
$ 64
(307)
$(243)

Note: Pension expenses of consolidated subsidiaries which adopt simple method are included in “Service cost.”

(4) Assumptions

The principal assumptions used in determining benefit obligation and pension expenses at or for the years ended March 31, 2007 and
2006 were as follows:

Year ended March 31

Discount rate ....................................................................................
Expected rate of return on plan assets................................................
Allocation of estimated amount of retirement benefits ......................

Period to amortize unrecognized prior service cost ............................

Period to amortize unrecognized net actuarial gain or loss.................

2007

2006

1.4% to 2.5%
0% to 4.5%
Allocated to each
period by the
straight-line method
Mainly 9 years (using the
straight-line method
within the employees’
average remaining service
period at incurrence)
Mainly 9 years (using the
straight-line method within
the employees’ average
remaining service period,
commencing from the next
fiscal year of incurrence)

1.4% to 2.5%
0% to 4.0%
Allocated to each
period by the
straight-line method
Mainly 10 years (using the
straight-line method
within the employees’
average remaining service
period at incurrence)
Mainly 10 years (using the
straight-line method within
the employees’ average
remaining service period,
commencing from the next
fiscal year of incurrence)

SMFG 2007

30. 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, 2007 and 2006 was as follows:
(a) Lessee side

Millions of yen

Millions of U.S. dollars
2007

2006
Acquisition Accumulated Net book Acquisition Accumulated Net book Acquisition Accumulated Net book

2007

March 31

cost

depreciation

value

cost

depreciation

value

Equipment ..............
Other ......................
Total .......................

¥11,843
721
¥12,564

¥5,188
423
¥5,612

¥6,654
298
¥6,952

¥7,464
313
¥7,778

¥3,146
193
¥3,339

¥4,317
120
¥4,438

cost

$100
6
$106

depreciation

value

$44
3
$47

$56
3
$59

Future minimum lease payments excluding interests at March 31, 2007 and 2006 were as follows:

March 31

Due within one year..................................................................................
Due after one year .....................................................................................

Millions of yen

2007

¥3,006
4,205
¥7,212

2006

¥1,653
2,888
¥4,542

Millions of
U.S. dollars
2007

$25
36
$61

Total lease expenses for the years ended March 31, 2007 and 2006 were ¥3,046 million ($26 million) and ¥1,509 million, respectively.

Assumed depreciation for the years ended March 31, 2007 and 2006 amounted to ¥2,690 million ($23 million) and ¥1,383 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, 2007 and 2006 amounted to ¥179 million ($2 million) and ¥141 million, respectively.
(b) Lessor side

Millions of yen

Millions of U.S. dollars
2007

March 31

2006
Acquisition Accumulated Net book Acquisition Accumulated Net book Acquisition Accumulated Net book

2007

cost

depreciation

value

cost

depreciation

value

cost

depreciation

value

Equipment .............. ¥1,812,599 ¥1,186,663 ¥625,936 ¥1,834,771
670,443
Other ......................
Total ....................... ¥2,505,150 ¥1,570,797 ¥934,353 ¥2,505,215

692,551

384,134

308,416

¥1,173,611 ¥661,159
293,749
¥1,550,306 ¥954,908

376,694

$15,349
5,865
$21,214

$10,049
3,253
$13,302

$5,300
2,612
$7,912

Future lease payments receivable excluding interests at March 31, 2007 and 2006 were as follows:

March 31

Millions of yen

2007

¥307,152
629,981
¥937,133

2006

¥304,065
667,086
¥971,151

Millions of
U.S. dollars
2007

$2,601
5,335
$7,936

At March 31, 2007 and 2006, future lease payments receivable shown above included subleases of ¥5,057 million ($43 million) and
¥1,963 million (due within one year: ¥2,214 million ($19 million) and ¥707 million) on the lessor side, respectively. The amount on
the lessee side was almost the same and was included in the future minimum lease payments shown in (a).

Total lease income for the years ended March 31, 2007 and 2006 was ¥403,316 million ($3,415 million) and ¥412,926 million,

respectively. Depreciation for the years ended March 31, 2007 and 2006 amounted to ¥324,614 million ($2,749 million) and ¥327,776
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, 2007 and 2006 amounted to ¥52,856 million ($448 million)
and ¥58,255 million, respectively.

(2) Operating leases
(a) Lessee side
Future minimum lease payments at March 31, 2007 and 2006 were as follows:

March 31

Millions of yen

2007

¥14,164
55,124
¥69,288

2006

¥ 18,089
87,061
¥105,150

Millions of
U.S. dollars
2007

$120
467
$587

SMFG 2007 87

(b) Lessor side
Future lease payments receivable at March 31, 2007 and 2006 were as follows:

March 31

Millions of yen

2007

¥18,861
53,625
¥72,487

2006

¥11,703
28,648
¥40,352

Millions of
U.S. dollars
2007

$160
454
$614

Future lease payments receivable at March 31, 2007 and 2006 amounting to ¥47,816 million ($405 million) and ¥56,572 million,

respectively, on the lessor side referred to in (1) and (2) above were pledged as collateral for borrowings.

31. Market Value of Securities and Money Held in Trust

(1) Securities

The amounts shown in the following tables include trading securities and short-term bonds classified as “Trading assets,” negotiable
certificates of deposit bought classified as “Deposits with banks,” and beneficiary claims on loan trust classified 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

2007

Consolidated balance sheet amount ..........................................................
Valuation gains (losses) included in the earnings for the fiscal year ...........

¥1,149,952
438

2006

¥1,088,599
(648)

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
¥ 629,762
97,102
380,142
5,445
¥1,112,452

Consolidated
balance sheet
amount
¥ 750,204
96,892
379,614
19,619
¥1,246,330

Consolidated
balance sheet
amount
$5,333
822
3,219
46
$9,420

Note: Market value is calculated using market prices at the fiscal year-end.

Millions of yen
2007

Net unrealized
gains (losses)

¥ (8,045)
(1,794)
(3,406)
180
¥(13,065)

Millions of yen
2006

Net unrealized
gains (losses)

¥(19,635)
(3,365)
(8,053)
274
¥(30,781)

Market value
¥ 621,717
95,307
376,735
5,626
¥1,099,387

Market value
¥ 730,568
93,527
371,560
19,893
¥1,215,549

Millions of U.S. dollars
2007

Market value
$5,264
807
3,190
48
$9,309

Net unrealized
gains (losses)
$ (69)
(15)
(29)
2
$(111)

Unrealized
gains
¥ 20
—
—
180
¥200

Unrealized
gains
¥306
—
—
274
¥580

Unrealized
gains
$0
—
—
2
$2

Millions of
U.S. dollars
2007

$9,738
4

Unrealized
losses
¥ 8,065
1,794
3,406
—
¥13,266

Unrealized
losses
¥19,942
3,365
8,053
—
¥31,361

Unrealized
losses
$ 69
15
29
—
$113

SMFG 2007

March 31
Stocks...................................................................
Bonds...................................................................
Japanese government bonds.............................
Japanese local government bonds.....................
Japanese corporate bonds.................................
Other ...................................................................
Total ....................................................................

Acquisition
cost

Consolidated
balance sheet
amount

¥ 1,953,767 ¥ 3,926,414
8,324,140
7,010,306
474,001
839,831
2,763,949
¥13,189,336 ¥15,014,504

8,481,507
7,150,792
482,555
848,158
2,754,061

Acquisition
cost

Consolidated
balance sheet
amount

¥ 1,903,193 ¥ 3,605,884
12,386,646
12,683,880
10,815,889
11,083,609
510,885
525,076
1,059,872
1,075,194
4,162,057
4,194,178
¥18,781,252 ¥20,154,589

Millions of yen
2007

Net unrealized
gains (losses)
¥1,972,647
(157,367)
(140,485)
(8,554)
(8,327)
9,888
¥1,825,168

Millions of yen
2006

Net unrealized
gains (losses)
¥1,702,690
(297,233)
(267,720)
(14,191)
(15,321)
(32,120)
¥1,373,337

Unrealized
gains
¥1,987,337
1,805
1,182
119
503
42,977
¥2,032,120

Unrealized
gains
¥1,722,129
988
173
282
532
48,052
¥1,771,170

Millions of U.S. dollars
2007

Acquisition
cost

$ 16,545
71,822
60,554
4,086
7,182
23,322
$111,689

Consolidated
balance sheet
amount
$ 33,250
70,489
59,364
4,014
7,111
23,406
$127,145

Net unrealized
gains (losses)
$16,705
(1,333)
(1,190)
(72)
(71)
84
$15,456

Unrealized
gains
$16,829
15
10
1
4
364
$17,208

Unrealized
losses
¥ 14,689
159,173
141,668
8,674
8,830
33,089
¥206,952

Unrealized
losses
¥ 19,438
298,222
267,894
14,473
15,854
80,172
¥397,833

Unrealized
losses
$ 124
1,348
1,200
73
75
280
$1,752

Notes: 1. Net unrealized gains at March 31, 2006 included losses of ¥3,193 million that were recognized in the fiscal year’s earnings by applying 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 declines 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 fiscal
year. Valuation losses for the fiscal years ended March 31, 2007 and 2006 were ¥7,296 million ($62 million) and ¥97 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.

(d) Held-to-maturity bonds sold during the years ended March 31, 2007 and 2006

There are no corresponding transactions.

(e) Other securities sold during the years ended March 31, 2007 and 2006

Year ended March 31

Millions of yen

2007

2006

Sales amount ............................................................................................
Gains on sales...........................................................................................
Losses on sales ..........................................................................................

¥21,543,637
87,911
141,143

¥33,089,259
138,964
78,609

Millions of
U.S. dollars
2007

$182,434
744
1,195

SMFG 2007 89

(f ) Securities with no available market value

March 31

Bonds classified as held-to-maturity

Millions of yen
Consolidated
balance sheet
amount

2007

2006

Unlisted foreign securities.....................................................................
Other ....................................................................................................

17
5,422

269
3,758

Other securities

Unlisted stocks (excluding OTC stocks) ................................................
Unlisted bonds......................................................................................
Unlisted foreign securities.....................................................................
Other ....................................................................................................

402,141
2,846,521
595,286
476,942

402,747
2,518,691
457,953
309,303

(g) Change of classification of securities

There are no corresponding transactions.

(h) Redemption schedule of other securities with maturities and held-to-maturity bonds

Millions of yen
2007

Millions of
U.S. dollars
Consolidated
balance sheet
amount
2007

0
46

3,405
24,105
5,041
4,039

March 31
Bonds ...............................................................................................
Japanese government bonds .........................................................
Japanese local government bonds .................................................
Japanese corporate bonds .............................................................
Other................................................................................................
Total.................................................................................................

Within 1 year
¥3,564,060
2,824,945
101,824
637,290
665,251
¥4,229,311

After 1 year
through 5 years
¥4,284,559
1,872,346
161,564
2,250,648
495,728
¥4,780,288

After 5 years
through 10 years
¥2,346,081
956,640
307,293
1,082,146
701,134
¥3,047,215

After 10 years
¥2,082,953
1,986,136
421
96,396
956,785
¥3,039,739

Within 1 year
¥5,841,530
5,339,631
32,135
469,763
870,175
¥6,711,706

After 1 year
through 5 years
¥4,784,630
2,060,842
252,239
2,471,547
1,564,473
¥6,349,103

After 5 years
through 10 years
¥2,468,673
1,239,560
322,956
906,156
682,146
¥3,150,820

After 10 years
¥3,037,217
2,926,058
445
110,713
848,570
¥3,885,788

Millions of yen
2006

Within 1 year
$30,181
23,922
862
5,397
5,633
$35,814

Millions of U.S. dollars
2007

After 1 year
through 5 years
$36,282
15,855
1,368
19,059
4,198
$40,480

After 5 years
through 10 years
$19,867
8,101
2,602
9,164
5,937
$25,804

After 10 years
$17,639
16,819
4
816
8,102
$25,741

(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 ...................................................................................

Note: Consolidated balance sheet amount is calculated using market prices at the fiscal year-end.

SMFG 2007

Millions of yen

2007

¥2,602
2,924
322
322
—

2006

¥2,703
2,912
209
209
—

Millions of
U.S. dollars
2007

$22
25
3
3
—

(3) Net unrealized gains on other securities and other money held in trust

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....................................................

Millions of yen

2007

¥1,825,564
1,825,242
322
567,845
1,257,719
8,589

13,004
¥1,262,135

2006

¥1,376,785
1,376,576
209
559,501
817,283
8,343

10,986
¥ 819,927

Millions of
U.S. dollars
2007

$15,459
15,456
3
4,808
10,651
73

110
$10,688

Notes: 1. Net unrealized gains on other securities at March 31, 2006 included losses of ¥3,193 million that were recognized in the fiscal year’s earnings by applying fair value

hedge accounting.

2. Net unrealized gains include foreign currency translation adjustments on nonmarketable securities denominated in foreign currency.

32. Derivative Transactions
Interest rate derivatives

(1)

March 31
Transactions listed on exchange
Interest rate futures:

Millions of yen
2007

Contract amount

Total

Over 1 year

Market
value

Valuation
gains (losses)

¥ 60,107,669
58,921,496

3,490,131
3,573,504

4,557
(3,229)

Interest rate options:

118,090
—

—
—

(20)
—

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 ..........................................

400,000
11,162,242
445,985,618
213,209,584
212,837,074
19,815,084

—
125,008
333,381,100
162,321,475
156,710,751
14,229,818

Interest rate swaptions:

3,163,737
3,380,799

1,550,186
2,002,072

Caps:

21,500,368
12,022,208

14,937,062
8,260,827

Floors:

Other:

842,962
3,569,523

1,950,131
4,049,334
/

709,538
2,042,491

1,368,826
2,440,410
/

278
(35)
57,891
(292,629)
342,402
13,821

(40,755)
61,695

(27,574)
16,947

(2,931)
1,342

(11,465)
27,040
¥ 83,740

278
(35)
57,891
(292,629)
342,402
13,821

(40,755)
61,695

(27,574)
16,947

(2,931)
1,342

(11,465)
27,040
¥ 83,740

SMFG 2007 91

March 31
Transactions listed on exchange
Interest rate futures:

Millions of yen
2006

Contract amount

Total

Over 1 year

Market
value

Valuation
gains (losses)

¥ 49,280,626
50,392,316

2,201,562
2,231,955

60,069
(64,209)

Interest rate options:

176,220
2,702,918

—
2,526,698

(178)
691

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:

801,161
7,893,630
419,010,536
199,965,277
199,621,924
19,271,520

2,088,827
2,237,396

13,530,699
7,730,947

413,170
211,275

717,241
2,034,707
/

—
216,820
332,474,995
160,275,395
157,996,133
14,070,934

1
(98)
125,464
(1,679,647)
1,789,530
20,004

(45,860)
82,932

(28,931)
16,252

(1,460)
1,661

1,524,826
1,836,727

9,447,218
5,314,256

205,858
124,754

554,895
1,470,629
/

1
(98)
125,464
(1,679,647)
1,789,530
20,004

(45,860)
82,932

(28,931)
16,252

(1,460)
1,661

(5,505)
15,554
¥ 156,383

March 31
Transactions listed on exchange
Interest rate futures:

Millions of U.S. dollars
2007

Contract amount

Total

Over 1 year

Market
value

Valuation
gains (losses)

$ 508,999
498,954

29,555
30,261

Interest rate options:

1,000
—

—
—

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:

3,387
94,523
3,776,659
1,805,484
1,802,329
167,796

26,791
28,629

182,068
101,805

7,138
30,227

16,514
34,290
/

—
1,059
2,823,110
1,374,557
1,327,045
120,500

13,127
16,954

126,489
69,954

6,008
17,296

11,591
20,666
/

39
(27)

(0)
—

2
(0)
490
(2,478)
2,900
117

(345)
522

(234)
144

(25)
11

(97)
229
$ 709

39
(27)

(0)
—

2
(0)
490
(2,478)
2,900
117

(345)
522

(234)
144

(25)
11

(97)
229
$ 709

Notes: 1. The above transactions are valuated at market value and the valuation gains (losses) are accounted for in the consolidated statements of income.

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, 2006 amounted to ¥589 million.

2. Market value of transactions listed on exchange is calculated using the closing prices on the Tokyo International Financial Futures Exchange and others.

Market value of OTC transactions is calculated using discounted present value and option pricing models.

SMFG 2007

(2) Currency derivatives

March 31
Over-the-counter transactions
Currency swaps .............................................................................................
Currency swaptions:

Millions of yen
2007

Contract amount

Total

Over 1 year

Market
value

Valuation
gains (losses)

¥20,642,376

¥12,660,922

¥ 42,405

¥ 55,918

866,633
896,229
61,066,579

4,501,193
4,344,112
/

863,798
890,206
5,056,679

2,381,131
2,195,492
/

3,489
4,146
(104,438)

(159,703)
98,237
¥(115,862)

3,487
4,149
(104,438)

(159,703)
98,237
¥(102,349)

Millions of yen
2006

Contract amount

Total

Over 1 year

Market
value

Valuation
gains (losses)

¥20,199,152

¥12,978,710

¥ 75,779

¥ 64,049

1,021,039
1,237,505
46,902,149

3,516,658
3,297,890
/

1,009,291
1,215,027
3,882,673

1,672,181
1,501,779
/

(2,495)
12,292
(139,351)

(126,859)
71,540
¥(109,094)

(2,502)
12,299
(139,351)

(126,859)
71,540
¥(120,824)

Millions of U.S. dollars
2007

Contract amount

Total

Over 1 year

Market
value

Valuation
gains (losses)

$174,802

$107,214

$ 359

$ 473

7,339
7,589
517,119

38,117
36,786
/

7,315
7,538
42,821

20,164
18,592
/

29
35
(884)

(1,352)
832
$ (981)

29
35
(884)

(1,352)
832
$ (867)

Notes: 1. The above transactions are valuated at market value and the valuation gains (losses) are accounted for in the consolidated statements of income. 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 losses at March 31, 2006 amounted to ¥276 million.
2. Market value is calculated using discounted present value and option pricing models.

SMFG 2007 93

(3) Equity derivatives

March 31
Transactions listed on exchange
Equity price index futures:

Millions of yen
2007

Contract amount

Total

Over 1 year

Market
value

Valuation
gains (losses)

¥ 13,146
19,646

—
—

Over-the-counter transactions
Equity options:

17,000
252,092
/

17,000
105,043
/

¥(150)
403

587
(587)
¥ 252

¥(150)
403

587
(587)
¥ 252

March 31
Transactions listed on exchange
Equity price index futures:

Millions of yen
2006

Contract amount

Total

Over 1 year

Market
value

Valuation
gains (losses)

¥20,967
23,459

¥ —
—

¥(1,037)
1,103

Over-the-counter transactions
Equity options:

19,051
21,672
/

238
(219)
84

March 31
Transactions listed on exchange
Equity price index futures:

Millions of U.S. dollars
2007

Contract amount

Total

Over 1 year

Market
value

Valuation
gains (losses)

$ 111
166

Over-the-counter transactions
Equity options:

144
2,135
/

$ —
—

144
890
/

$(1)
3

5
(5)
$ 2

$(1)
3

5
(5)
$ 2

Notes: 1. The above transactions are valuated at market value and the valuation gains (losses) are accounted for in the consolidated statements of income.

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 using the closing prices on the Tokyo Stock Exchange and others.

Market value of OTC transactions is calculated using option pricing models.

SMFG 2007

(4) Bond derivatives

March 31
Transactions listed on exchange
Bond futures:

Millions of yen
2007

Contract amount

Total

Over 1 year

Market
value

Valuation
gains (losses)

¥667,769
655,089

¥ —
—

¥1,895
(1,680)

Over-the-counter transactions
Forward bond agreements:

—
69,970
/

—
65,498
/

—
1,575
¥1,791

March 31
Transactions listed on exchange
Bond futures:

Bond futures options:

Over-the-counter transactions
Forward bond agreements:

Bond options:

March 31
Transactions listed on exchange
Bond futures:

Millions of yen
2006

Contract amount

Total

Over 1 year

Market
value

Valuation
gains (losses)

¥565,847
627,879

4,699
42,880

—
17,038

162,044
349,000
/

¥ —
—

—
2,937

—
9,517

13,044
—
/

¥3,517
(5,063)

(88)
122

—
1,614

(540)
1,525
¥1,088

¥3,517
(5,063)

(88)
122

—
1,614

(540)
1,525
¥1,088

Millions of U.S. dollars
2007

Contract amount

Total

Over 1 year

Market
value

Valuation
gains (losses)

$5,655
5,547

$ —
—

Over-the-counter transactions
Forward bond agreements:

—
593
/

—
555
/

$16
(14)

—
13
$15

$16
(14)

—
13
$15

Notes: 1. The above transactions are valuated at market value and the valuation gains (losses) are accounted for in the consolidated statements of income.

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 using the closing prices on the Tokyo Stock Exchange and others.

Market value of OTC transactions is calculated using discounted present value and option pricing models.

SMFG 2007 95

(5) Commodity derivatives

March 31
Transactions listed on exchange
Commodity futures:

Millions of yen
2007

Contract amount

Total

Over 1 year

Market
value

Valuation
gains (losses)

Commodity futures option:

237
359

949
949

Over-the-counter transactions
Commodity swaps:

Receivable fixed price/payable floating price ............................................
Receivable floating price/payable fixed price ............................................
Receivable fixed price/payable fixed price .................................................

Commodity options:

359,881
259,581
17,821

7,624
38,356
/

¥ —
—

—
—

311,948
209,132
—

7,058
30,957
/

(3)
6

(43)
43

(69,212)
157,000
29

(945)
6,304
¥ 93,180

(3)
6

(43)
43

(69,212)
157,000
29

(945)
6,304
¥ 93,180

March 31
Over-the-counter transactions
Commodity swaps:

Millions of yen
2006

Contract amount

Total

Over 1 year

Market
value

Valuation
gains (losses)

Receivable fixed price/payable floating price ............................................
Receivable floating price/payable fixed price ............................................

¥211,239
202,635

¥180,091
168,747

Commodity options:

9,924
8,921
/

7,454
7,135
/

¥(136,629)
153,389

(8,056)
7,875
¥ 16,578

¥(136,629)
153,389

(8,056)
7,875
¥ 16,578

March 31
Transactions listed on exchange
Commodity futures:

Millions of U.S. dollars
2007

Contract amount

Total

Over 1 year

Market
value

Valuation
gains (losses)

Commodity futures option:

2
3

8
8

Over-the-counter transactions
Commodity swaps:

Commodity options:

3,048
2,198
151

65
325
/

—

—
—

2,642
1,771
—

60
262
/

(0)
0

(586)
1,330
0

(8)
53
$ 789

(0)
0

(586)
1,330
0

(8)
53
$ 789

Notes: 1. The above transactions are valuated at market value and the valuation gains (losses) are accounted for in the consolidated statements of income.

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 using the closing prices on the New York Mercantile Exchange and others.

Market value of OTC transactions is calculated based on factors such as price of the relevant commodity and contact term.

3. Commodity derivatives are transactions on fuel and metal.

SMFG 2007

(6) Credit derivative transactions

March 31
Over-the-counter transactions
Credit default options:

Millions of yen
2007

Contract amount

Total

Over 1 year

Market
value

Valuation
gains (losses)

¥1,322,651
1,514,279

¥1,295,611
1,509,279

Other:

40
40
/

—
—
/

¥2,628
(1,816)

(3)
3
¥ 812

¥2,628
(1,816)

(3)
3
¥ 812

March 31
Over-the-counter transactions
Credit default options:

Millions of yen
2006

Contract amount

Total

Over 1 year

Market
value

Valuation
gains (losses)

¥301,923
306,790

¥298,381
298,748

Other:

754
140
/

—
—
/

¥ 118
1,359

(23)
7
¥1,462

¥ 118
1,359

(23)
7
¥1,462

March 31
Over-the-counter transactions
Credit default options:

Millions of U.S. dollars
2007

Contract amount

Total

Over 1 year

Market
value

Valuation
gains (losses)

$11,200
12,823

$10,971
12,781

Other:

0
0
/

—
—
/

$22
(15)

(0)
0
$ 7

$22
(15)

(0)
0
$ 7

Notes: 1. The above transactions are valuated at market value and the valuation gains (losses) are accounted for in the consolidated statements of income.

Derivative transactions to which deferred hedge accounting method is applied are not included in the amounts above.

2. Market value is calculated using discounted present value and option pricing models.
3. “Sold” represents transactions in which the credit risk is accepted; “Bought” represents transactions in which the credit risk is transferred.

SMFG 2007 97

33. Stock Options
SMFG applied the “Accounting Standard for Share-based Payment” and the related guidance from the fiscal year beginning on April 1, 2006.
These accounting standards require companies to recognize compensation expense for stock acquisition rights based on the fair value at the
grant date and over the vesting periods for stock acquisition rights newly granted on and after May 1, 2006. Share-based compensation expense
of ¥14 million ($0 million) are accounted for as general and administrative expenses in the fiscal year ended March 31, 2007.

Outline of stock options and changes are as follows:

(1) SMFG

(a) Outline of stock options
Date of resolution
Title and number of grantees .........................................................................
Number of stock options................................................................................
Grant date .....................................................................................................
Condition for vesting .....................................................................................
Requisite service period .................................................................................
Exercise period...............................................................................................

June 27, 2002
Directors and employees of SMFG and SMBC: 677
Common shares: 1,620
August 30, 2002
N.A.
N.A.
June 28, 2004 to June 27, 2012

(b) Stock options granted and changes
Number of stock options
Date of resolution
Before vested
Previous fiscal year-end ................................................................................
Granted .......................................................................................................
Forfeited ......................................................................................................
Vested .........................................................................................................
Outstanding ................................................................................................
After vested
Previous fiscal year-end ................................................................................
Vested .........................................................................................................
Exercised .....................................................................................................
Forfeited ......................................................................................................
Exercisable...................................................................................................

Price information (Yen)
Date of resolution
Exercise price .................................................................................................
Average exercise price ....................................................................................
Fair value at the grant date ............................................................................

June 27, 2002

—
—
—
—
—

1,215
—
99
—
1,116

June 27, 2002
¥ 669,775
1,188,686
—

SMFG 2007

(2) A consolidated subsidiary, Kansai Urban Banking Corporation

(a) Outline of stock options
Date of resolution
Title and number of grantees ............................. Directors and Directors and Directors and Directors and Directors and
employees
183

Officers not
doubling as
directors 14
Employees 46
Number of stock options .................................... Common shares Common shares Common shares Common shares Common shares Common shares Common shares

June 28, 2001 June 27, 2002 June 27, 2003 June 29, 2004 June 29, 2005 June 29, 2006 June 29, 2006

employees
65

employees
44

employees
174

employees
45

Directors
9

234,000
July 31, 2002
N.A.
N.A.

238,000
July 31, 2001
N.A.
N.A.

399,000
July 30, 2004
N.A.
N.A.
June 29, 2003 June 28, 2004 June 28, 2005 June 30, 2006 June 30, 2007 June 30, 2008 June 30, 2008
to June 29,
2014

464,000
July 29, 2005
N.A.
N.A.

306,000
July 31, 2003
N.A.
N.A.

115,000
July 31, 2006
N.A.
N.A.

162,000
July 31, 2006
N.A.
N.A.

to June 27,
2013

to June 28,
2011

to June 29,
2015

to June 27,
2012

to June 29,
2016

Grant date ..........................................................
Condition for vesting..........................................
Requisite service period ......................................
Exercise period ...................................................

(b) Stock options granted and changes
Number of stock options
Date of resolution
Before vested
Previous fiscal year-end.....................................
Granted ............................................................
Forfeited...........................................................
Vested ..............................................................
Outstanding .....................................................
After vested
Previous fiscal year-end.....................................
Vested ..............................................................
Exercised ..........................................................
Forfeited...........................................................
Exercisable........................................................

Price information (Yen)
Date of resolution
Exercise price......................................................
Average exercise price.........................................
Fair value at the grant date .................................

June 28, 2001 June 27, 2002 June 27, 2003 June 29, 2004 June 29, 2005 June 29, 2006 June 29, 2006

—
—
—
—
—

220,000
—
46,000
—
174,000

204,000
—
30,000
—
174,000

282,000

—
26,000
—
256,000

399,000
—
—
399,000
—

—
399,000
36,000
—
363,000

464,000
—
—
—
464,000

—
162,000
—
—
162,000

—
115,000
—
—
115,000

—
—
—
—
—

June 28, 2001 June 27, 2002 June 27, 2003 June 29, 2004 June 29, 2005 June 29, 2006 June 29, 2006

¥155
488
—

¥131
489
—

¥179
486
—

¥202
487
—

¥313
—
—

¥490
—
138

Stock options granted in the fiscal year ended March 31, 2007 were valuated using the Black-Scholes option-pricing model and the
principal parameters were as follows:

Date of resolution
Expected volatility *1 ....................................................................................
Average expected life *2.................................................................................
Expected dividends *3....................................................................................
Risk-free interest rate *4 ................................................................................

June 29, 2006
38.84%
5 years
¥4 per share
1.40%

*1 Calculated based on the actual stock prices during the five years from June 2001 to June 2006
*2 The average expected life could not be estimated rationally due to insufficient amount of data. Therefore, it was estimated assuming that the options were exercised at the

mid point of the exercise period.

*3 The actual dividends on common stock for the fiscal year ended March 31, 2006
*4 Japanese government bond yield corresponding to the average expected life

(d) Method of estimating number of stock options vested

Only the actual number of forfeited stock options is reflected because it is difficult to rationally estimate the actual number of stock
options that will be forfeited in the future.

SMFG 2007 99

34. Segment Information

(1) Business segment information

Year ended March 31
I. Ordinary income

(1) External customers .......................
(2) Intersegment ................................
Total .................................................
Ordinary expenses ................................
Ordinary profit ....................................
II. Assets, depreciation, losses on impairment
of fixed assets and capital expenditure
Assets ................................................
Depreciation......................................
Losses on impairment of fixed assets....
Capital expenditure ...........................

Year ended March 31
I. Ordinary income

(1) External customers .......................
(2) Intersegment ................................
Total .................................................
Ordinary expenses ...............................
Ordinary profit ...................................
II. Assets, depreciation, losses on impairment
of fixed assets and capital expenditure
Assets ................................................
Depreciation .....................................
Losses on impairment of fixed assets....
Capital expenditure ...........................

Millions of yen
2007

Banking business

Leasing business

Other business

Total

Elimination

Consolidated

¥ 2,689,086
53,714
2,742,800
1,993,893
748,907

¥ 783,119
20,831
803,951
759,103
44,847

¥ 429,052
220,369
649,421
609,781
39,640

3,901,259
294,914
4,196,173
3,362,779
833,394

— ¥

(294,914)
(294,914)
(260,130)
(34,784)

3,901,259
—
3,901,259
3,102,649
798,610

¥97,525,686
59,908
4,661
216,612

¥2,241,572
336,712
—
390,455

¥5,663,614
17,630
25,887
27,565

¥105,430,874
414,251
30,548
634,633

¥(4,572,564)
16
—
13

¥100,858,309
414,268
30,548
634,647

Millions of yen
2006

Banking business

Leasing business

Other business

Total

Elimination

Consolidated

2,485,470
44,864
2,530,334
1,764,055
766,278

¥ 755,137
18,503
773,640
728,363
45,277

¥ 464,529
204,294
668,823
487,692
¥ 181,130

3,705,136
267,661
3,972,798
2,980,111
992,686

— ¥

(267,661)
(267,661)
(238,529)
(29,131)

3,705,136
—
3,705,136
2,741,582
963,554

¥103,026,827
62,886
7,435
62,482

¥2,056,078
337,345
620
384,370

¥6,083,193
21,274
4,247
22,859

¥111,166,100
421,505
12,303
469,711

¥(4,155,524)
13
—
0

¥107,010,575
421,519
12,303
469,711

Millions of U.S. dollars
2007

Banking business

Leasing business

Other business

Total

Elimination

Consolidated

$ 22,771
455
23,226
16,884
6,342

$825,859
507
40
1,834

$ 6,632
176
6,808
6,428
380

$18,982
2,852
—
3,306

$ 3,633
1,867
5,500
5,164
336

$47,960
149
219
234

$ 33,036
2,498
35,534
28,476
7,058

$892,801
3,508
259
5,374

—
(2,498)
(2,498)
(2,203)
(295)

$(38,721)
0
—
0

$ 33,036
—
33,036
26,273
$ 6,763

$854,080
3,508
259
5,374

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 business” includes securities, credit card, investment banking, loans, venture capital, system development and information processing.
3. Assets in Elimination include unallocated corporate assets of ¥4,012,414 million ($33,978 million) and ¥4,214,877 million at March 31, 2007 and 2006, respec-

tively, which mainly consist of investments in subsidiaries and affiliates.

4. Ordinary income represents total income, excluding gains on return of securities from retirement benefits trust, gains on disposal of fixed assets, collection of

written-off claims and other extraordinary gains. Ordinary expenses represent total expenses, excluding losses on disposal of fixed assets, losses on impairment of
fixed assets and other extraordinary expenses.

5. As mentioned in Note 2. (14), retirement benefits to directors, corporate auditors and other executive officers were formerly expensed when they were paid.

However, “Treatment for Auditing of Reserve under Special Taxation Measures Law and Reserve under Special Laws” (JICPA Audit Committee Report No.42,
issued on September 21, 1982) was revised and “Treatment for Auditing of Reserve under Special Taxation Measures Law, Reserve under Special Laws and Reserve
for Retirement Benefits to Directors and Corporate Auditors” (JICPA Audit and Assurance Practice Committee Report No.42) was announced on April 13, 2007.
In accordance with this accounting change, from March 31, 2007, SMFG started recording “reserve for executive retirement benefits” in order to recognize periodic
gains (losses) more proper by allocating the estimated retirement benefits to the tenure of the relevant executives. As a result, “Ordinary profit” of “Banking busi-
ness,” “Leasing business” and “Other business” for the year ended March 31, 2007 decreased by ¥5,397 million ($46 million), ¥221 million ($2 million) and ¥1,752
million ($15 million), respectively, as compared with the former method.
Interim consolidated financial statements for the six months ended September 30, 2006 were accounted for under the former method because this accounting
change was announced on April 13, 2007. Accordingly, “Ordinary profit” of “Banking business,” “Leasing business” and “Other business” for the six months were
excessively recorded by ¥4,556 million ($38 million), ¥188 million ($2 million) and ¥1,496 million ($13 million), respectively, as compared with the revised
method.

6. As mentioned in Note 2. (22), “Accounting Standard for Financial Instruments” (issued by the BAC on January 22, 1999) was revised on August 11, 2006 by ASBJ
Statement No.10 “Accounting Standards for Financial Instruments,” and the revised accounting standards were applicable from on and after the fiscal year ending
August 11, 2006. SMFG applied the revised accounting standards and bonds were carried at the amounts calculated based on amortized cost (straight-line method)
on the consolidated balance sheet. As a result, “Assets” of “Banking business” at March 31, 2007 decreased by ¥2,308 million ($20 million) compared with the for-
mer method.

SMFG 2007

100

(2) Geographic segment information

Year ended March 31
I. Ordinary income

Japan

The Americas

(1) External customers ........
(2) Intersegment.................
Total..................................
Ordinary expenses ................
Ordinary profit.....................
II. Assets .................................

¥ 3,238,374
98,720
3,337,094
2,686,461
¥
650,633
¥89,301,196

¥ 247,208
46,833
294,042
222,992
¥
71,049
¥5,775,716

Europe and
Middle East

¥ 203,585
9,974
213,559
177,377
¥
36,182
¥3,190,553

Millions of yen
2007

Asia and Oceania

Total

Elimination

Consolidated

¥ 212,090
59,802
271,892
202,955
¥
68,937
¥4,514,648

3,901,259
215,330
4,116,589
3,289,786
¥
826,802
¥102,782,115

— ¥

3,901,259
—
3,901,259
3,102,649
¥
798,610
¥(1,923,805) ¥100,858,309

(215,330)
(215,330)
(187,137)
(28,192) ¥

Year ended March 31
I. Ordinary income

Japan

The Americas

Europe

Millions of yen
2006
Asia and Oceania

Total

Elimination

Consolidated

¥ 3,256,730
70,044
3,326,774
2,482,510
¥
844,264
¥97,046,578

¥ 176,443
41,114
217,558
152,350
¥
65,208
¥5,034,350

¥ 125,351
2,836
128,188
103,720
¥
24,468
¥2,825,039

¥ 146,611
36,345
182,956
136,967
¥
45,988
¥3,856,601

3,705,136
150,341
3,855,478
2,875,548
¥
979,929
¥108,762,570

— ¥

3,705,136
—
3,705,136
2,741,582
¥
963,554
¥(1,751,994) ¥107,010,575

(150,341)
(150,341)
(133,966)
(16,375) ¥

Millions of U.S. dollars
2007

Year ended March 31
I. Ordinary income

(1) External customers........
(2) Intersegment ................
Total .................................
Ordinary expenses ................
Ordinary profit.....................
II. Assets ................................

Japan

The Americas

$ 27,423
836
28,259
22,749
$
5,510
$756,213

$ 2,093
397
2,490
1,888
$
602
$48,909

Europe and
Middle East

$ 1,724
84
1,808
1,502
$
306
$27,018

Asia and Oceania

Total

Elimination

Consolidated

$ 1,796
507
2,303
1,719
$
584
$38,231

$ 33,036
1,824
34,860
27,858
$
7,002
$870,371

—
(1,824)
(1,824)
(1,585)
$
(239)
$(16,291)

$ 33,036
—
33,036
26,273
$
6,763
$854,080

Notes: 1. The geographic segmentation is classified based on the degrees of the following factors: geographic proximity, similarity of economic activities and relationship of

business 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 and Middle East includes the United Kingdom, Germany, France and others; Asia and

Oceania includes Hong Kong, Singapore, Australia and others except Japan.

3. Assets in Elimination include unallocated corporate assets of ¥4,012,414 million ($33,978 million) and ¥4,214,877 million at March 31, 2007 and 2006, respec-

tively, which mainly consist of investments in subsidiaries and affiliates.

4. Ordinary income represents total income, excluding gains on return of securities from retirement benefits trust, gains on disposal of fixed assets, collection of

5. As mentioned in Note 2. (14), retirement benefits to directors, corporate auditors and other executive officers were formerly expensed when they were paid.

However, “Treatment for Auditing of Reserve under Special Taxation Measures Law and Reserve under Special Laws” (JICPA Audit Committee Report No.42,
issued on September 21, 1982) was revised and “Treatment for Auditing of Reserve under Special Taxation Measures Law, Reserve under Special Laws and Reserve
for Retirement Benefits to Directors and Corporate Auditors” (JICPA Audit and Assurance Practice Committee Report No.42) was announced on April 13, 2007.
In accordance with this accounting change, from March 31, 2007, SMFG started recording “reserve for executive retirement benefits” in order to recognize periodic
gains (losses) more proper by allocating the estimated retirement benefits to the tenure of the relevant executives. As a result, “Ordinary profit” of “Japan” for the
year ended March 31, 2007 decreased by ¥7,371 million ($62 million) as compared with the former method.
Interim consolidated financial statements for the six months ended September 30, 2006 were accounted for under the former method because this accounting
change was announced on April 13, 2007. Accordingly, “Ordinary profit” of “Japan” for the six months were excessively recorded by ¥6,241 million ($53 million)
as compared with the revised method.

6. As mentioned in Note 2. (22), “Accounting Standard for Financial Instruments” (issued by the BAC on January 22, 1999) was revised on August 11, 2006 by ASBJ
Statement No.10 “Accounting Standards for Financial Instruments,” and the revised accounting standards were applicable from on and after the fiscal year ending
August 11, 2006. SMFG applied the revised accounting standards and bonds were carried at the amounts calculated based on amortized cost (straight-line method)
on the consolidated balance sheet. As a result, “Assets” of “Japan” and “The Americas” at March 31, 2007 decreased by ¥2,266 million ($19million) and ¥41 mil-
lion ($0 million), respectively, compared with the former method.

(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

2007

¥ 662,884
3,901,259

2006

¥ 448,406
3,705,136

Millions of
U.S. dollars
2007

$ 5,613
33,036

17.0%

12.1%

17.0%

Notes: 1. Consolidated ordinary income from overseas operations is presented as counterpart of overseas sales of companies in other industries.

2. The above table shows ordinary income from transactions of overseas branches of domestic consolidated banking subsidiaries and transactions of overseas consoli-

dated 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.

SMFG 2007 101

35. Business Combinations
Transactions under common control in the year ended March 31,
2007
(1) Outline of the transactions

(a) Name and business of combined entity

SMBC Friend Securities Co., Ltd. (“SMBC Friend Securities”)
Securities business
(b) Form of reorganization
Exchange of shares

Sumitomo Mitsui Financial Group, Inc. (“SMFG”)

(d) Outline and purpose of the transaction

In accordance with the stabilization of the Japanese financial
system, Japanese households’ portfolios have shown clear signs
of a shift from savings to investment, and their investment
needs are expected to become further diversified. At the same
time, we believe that new types of asset management services
will become popular among individual investors who improve
their financial knowledge and have an increased interest in
portfolio management based on asset allocation concepts.
In view of these trends, SMFG will further strengthen
cooperation among group companies by making SMBC Friend
Securities a wholly-owned subsidiary, establishing a new busi-
ness model distinct from the conventional one by combining
banking and securities businesses and maximizing synergies
between them. With such initiatives, SMFG will try to make
every effort to enhance the enterprise value of the whole group.

(2) Accounting method

SMFG applied the following accounting treatments stipulated by
the Accounting Standard for Business Combinations to the con-
solidated and nonconsolidated financial statements:
“Chapter 3 Accounting Standard for Business Combinations,
Article 4 Accounting treatment for the transactions under common
control, Paragraph 2 Transactions with minority shareholders.”

(3) Additional acquisition of subsidiary’s shares

(a) Acquisition cost

Common shares ...............................
Expenses for acquiring
the common shares ........................
Acquisition cost................................

Millions of
Millions of yen U.S. dollars
$1,875

¥221,365

160
¥221,525

1
$1,876

(b) Share exchange ratio, its basis for determination, number of

shares delivered and its values
(i) Type of shares and share exchange ratio

Common shares
SMFG 1: SMBC Friend Securities 0.0008
(ii) Basis for determination of share exchange ratio

SMFG appointed Goldman Sachs (Japan) Ltd. as its finan-
cial advisor and SMBC Friend Securities appointed Merrill
Lynch Japan Securities Co., Ltd. as its financial advisor.
SMFG and SMBC Friend Securities comprehensively con-
sidered numerous factors including results of the analyses
provided by their respective financial advisors, and dis-
cussed and agreed to the above.

(iii) Number of shares delivered and values

249,015 shares
¥221,525 million ($1,876 million)

method and amortization term
(i) Amount of goodwill

¥99,995 million ($847 million)
(ii) Reason for recognizing goodwill

SMFG accounted for the difference between the acquisi-
tion cost of additional shares of common stock of SMBC
Friend Securities, and the decrease in minority interests, as
goodwill.

(iii) Method and term to amortize goodwill
Straight-line method over 20 years

36. Per Share Data

March 31

Yen

2007

2006

Net assets per share..............................................................................................

¥469,228.59

¥400,168.89

Year ended March 31

Net income per share...........................................................................................
Net income per share (diluted).............................................................................

Yen

2007

¥57,085.83
51,494.17

2006

¥94,733.62
75,642.93

U.S. dollars
2007

$3,973.48

U.S. dollars
2007

$483.41
436.06

Notes: 1. The ASBJ revised “Guidance on Accounting Standard for Earnings per Share” (ASBJ Guidance No.4, issued on September 25, 2002) on January 31, 2006, and the revised

Guidance was applicable from the fiscal year ending on or after May 1, 2006, the implementation date of the Company Law. Effective April 1, 2006, SMFG has applied the
revised Guidance and calculated net assets per share by including “Net deferred gains (losses) on hedges.” This accounting change decreased net assets per share by ¥11,596.71
($98.20) compared with the former method.

102

SMFG 2007

2. Net income per share and net income per share (diluted) are calculated based on the following:

Year ended March 31

Net income per share
Net income .............................................................................................................................
Amount not attributable to common stockholders ...................................................................
[preferred stock dividends] ................................................................................................
Net income attributable to common stock ...............................................................................
Average number of common stock during the year (in thousand) ............................................

Net income per share (diluted)
Adjustment for net income ......................................................................................................
[preferred stock dividends] ................................................................................................
[stock acquisition rights issued by subsidiaries and affiliates] ............................................
Increase in number of common stock (in thousand)..................................................................
[preferred stock]................................................................................................................
[stock acquisition rights]...................................................................................................

3. Net assets per share is calculated based on the following:

March 31

Millions of yen except number of shares

2007

2006

Millions of U.S. dollars
2007

¥441,351
12,958
[12,958]
428,392
7,504

6,748
[6,763]
[(14)]
945
[945]
[0]

¥686,841
25,697
[25,697]
661,143
6,978

19,483
[19,502]
[(18)]

2,018
[2,018]
[0]

$3,737
110
[110]
3,628
/

57
[57]
[(0)]
/
/
/

Millions of yen
except number of shares
2007

Millions of U.S. dollars
2007

Net assets.......................................................................................................................................................
Amounts excluded from Net assets ................................................................................................................
[preferred stock]........................................................................................................................................
[dividends on preferred stock] ...................................................................................................................
[stock acquisition rights] ..........................................................................................................................
[minority interests] ...................................................................................................................................
Net assets attributable to common stock at the fiscal year-end .......................................................................
Number of common stock at the fiscal year-end used for the calculation of
Net assets per share (in thousand).................................................................................................................

¥5,331,279
1,781,555
[360,303]
[12,958]
[14]
[1,408,279]
3,549,724

7,565

$45,146
15,086
[3,051]
[110]
[0]
[11,925]
30,059

37. Subsequent Events

The following appropriations of retained earnings of SMFG at March 31, 2007 were approved by the ordinary general meeting of sharehold-
ers held on June 28, 2007:

Millions of yen Millions of U.S. dollars

Cash dividends,

¥7,000 per share on common stock......................................................................
¥135,000 per share on preferred stock (1st to 12th series Type 4) ........................
¥88,500 per share on preferred stock (1st series Type 6) ......................................

¥53,660
6,763
6,195

$454
57
52

38. Parent Company

(1) Nonconsolidated Balance Sheets

Sumitomo Mitsui Financial Group, Inc.

March 31

Assets

Millions of yen

Millions of
U.S. dollars (Note 1)

2007

2006

2007

Current assets ..........................................................................................

¥ 109,364

¥ 579,372

Cash and due from banks.....................................................................

37,073

561,862

Prepaid expenses .................................................................................

Deferred tax assets...............................................................................

Accrued income ....................................................................................

Accrued income tax refunds .................................................................

Other current assets .............................................................................

265

71,377

603

17,371

Fixed assets .............................................................................................

3,850,079

3,586,657

Tangible fixed assets ............................................................................

Buildings ...........................................................................................

Equipment.........................................................................................

Intangible fixed assets ..........................................................................

Software............................................................................................

Investments and other assets...............................................................

3,850,052

3,586,627

Investments in securities...................................................................

Investments in subsidiaries and affiliates..........................................

3,847,716

3,586,045

Deferred tax assets...........................................................................

Deferred charges ......................................................................................

Organization cost..................................................................................

2,315

—

562

301

$ 926

314

605

32,603

32,583

—

Total assets .............................................................................................

¥3,959,444

¥4,166,332

$33,529

SMFG 2007 103

(Continued)

March 31

Liabilities and net assets/stockholders’ equity

Liabilities

Millions of yen

Millions of
U.S. dollars (Note 1)

2007

2006

2007

Current liabilities .......................................................................................

961,372

¥ 230,905

Short-term borrowings ..........................................................................

959,030

230,000

$ 8,141

8,121

Accounts payable .................................................................................

Accrued expenses ................................................................................

Income taxes payable...........................................................................

Business office taxes payable ..............................................................

Reserve for employees bonuses ..........................................................

Other current liabilities ..........................................................................

Fixed liabilities ..........................................................................................

Reserve for executive retirement benefits ............................................

108

964

1,132

174

117

465

211

—

Total liabilities.........................................................................................

961,546

230,905

8,142

Net assets

Stockholders’ equity

Capital stock ........................................................................................

1,420,877

Capital surplus ......................................................................................

Capital reserve..................................................................................

Other capital surplus .........................................................................

Retained earnings.................................................................................

Other retained earnings ....................................................................

Voluntary reserve ..........................................................................

Retained earnings brought forward...............................................

930,469

642,355

288,113

729,129

30,420

698,709

Treasury stock ......................................................................................

(82,578)

Total stockholders’ equity .....................................................................

Total net assets ......................................................................................

2,997,898

Total liabilities and net assets...............................................................

¥3,959,444

—

Stockholders’ equity

Capital stock ............................................................................................

Capital surplus ..........................................................................................

Capital reserve......................................................................................

Other capital surplus.............................................................................

Retained earnings ....................................................................................

Voluntary reserve..................................................................................

Unappropriated retained earnings ........................................................

Treasury stock ..........................................................................................

Total stockholders’ equity .....................................................................

Total liabilities and stockholders’ equity .............................................

—

1,420,877

2,105,396

1,420,989

684,406

413,546

30,420

383,126

(4,393)

3,935,426

¥4,166,332

12,032

7,879

5,439

2,440

6,175

258

5,917

(699)

25,387

$33,529

—

104

SMFG 2007

(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 ..................................................

2007

¥376,479

366,680

9,798

—

3,641

Operating profit .....................................................................................

372,838

Nonoperating income.............................................................................

Interest income on deposits..................................................................

Fees and commissions income ............................................................

Other nonoperating income ..................................................................

Nonoperating expenses .........................................................................

Interest on borrowings ..........................................................................

Amortization of organization cost..........................................................

Stock issuance cost ..............................................................................

Fees and commissions expenses.........................................................

Other nonoperating expenses ..............................................................

234

213

8,594

4,311

301

—

3,978

Ordinary profit ........................................................................................

364,477

Extraordinary gains ................................................................................

Gains on sale of a subsidiary’s shares .................................................

—

Income before income taxes .................................................................

364,477

Income taxes:

Current.............................................................................................

Deferred...........................................................................................

2,918

(1,975)

Net income ..............................................................................................

¥363,535

2006

¥55,482

46,432

9,038

3,196

52,285

138

4,159

1,490

301

739

1,519

108

48,264

27,579

75,844

2,431

¥73,408

2007

$3,188

3,105

—

3,157

—

3,086

—

3,086

(17)

$3,078

Per share data:

Net income............................................................................................

¥46,326.41

Net income — diluted ...........................................................................

41,973.46

¥6,836.35

6,737.46

$392.30

355.44

Yen

U.S. dollars (Note 1)

SMFG 2007 105

(3) Nonconsolidated statement of changes in net assets

Sumitomo Mitsui Financial Group, Inc.

Millions of yen

Stockholders’ equity

Capital surplus

Retained earnings

Year ended March 31, 2007

Balance at March 31, 2006......................................
Changes in the year
Transfer of capital reserve to other capital surplus ..............
Increase due to exchange of shares .............................
Cash dividends ...........................................................
Net income.................................................................
Acquisition of own shares............................................
Disposal of treasury shares..........................................
Retirement of treasury shares ......................................
Net changes in the year...............................................
Balance at March 31, 2007......................................

Capital
stock

Capital
reserve

Other capital
surplus

Total capital
surplus

Other retained earnings
Retained
earnings
brought
forward

Voluntary
reserve

Total
retained
earnings

Treasury
stock

Total
stockholders’
equity

Total
net assets

¥1,420,877

¥1,420,989

¥ 684,406

¥2,105,396

¥30,420

¥383,126

¥413,546

(4,393)

¥3,935,426

(1,000,000)
221,365

1,000,000

—
221,365

(47,951)
363,535

—
¥1,420,877

(778,634)
¥ 642,355

(15)
(1,396,277)
(396,292)
¥ 288,113

(15)
(1,396,277)
(1,174,927)
¥ 930,469

—
¥30,420

315,583
¥698,709

315,583
¥729,129

—
221,365
(47,951)
363,535
(1,474,644)
(1,474,644)
167
182
—
1,396,277
(78,184)
(937,527)
(82,578) ¥2,997,898

—
221,365
(47,951)
363,535
(1,474,644)
167
—
(937,527)
¥2,997,898

Millions of U.S. dollars

Stockholders’ equity

Capital surplus

Retained earnings

Year ended March 31, 2007

Capital
stock

Capital
reserve

Other capital
surplus

Total capital
surplus

Other retained earnings
Retained
earnings
brought
forward

Voluntary
reserve

Total
retained
earnings

Treasury
stock

Total
stockholders’
equity

Total
net assets

$12,032

$12,033

$ 5,796

$17,829

$258

$3,244

$3,502

(37)

$33,326

(8,468)
1,874

8,468

—
1,874

(406)
3,079

—
$12,032

(6,594)
$ 5,439

(0)
(11,824)
(3,356)
$ 2,440

(0)
(11,824)
(9,950)
$ 7,879

—
$258

2,673
$5,917

2,673
$6,175

—
1,874
(406)
3,079
(12,487)
1
—
(7,939)
$25,387

(12,487)
1
11,824
(662)
$ (699)

106

SMFG 2007

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 consolidated subsidiaries as of March 31, 2007 and 2006, the consolidated statements of income for the years
then ended, the consolidated statement of changes in net assets for the year ended March 31, 2007, the consolidated
statement of stockholders’ equity for the year ended March 31, 2006, and the consolidated statements of cash flows
for the years ended March 31, 2007 and 2006, expressed in Japanese yen. These consolidated financial statements are
the responsibility of SMFG’s management. Our responsibility is to independently express an opinion on these consol-
idated 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, 2007 and 2006, 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, 2007 have been translated into United
States dollars solely for convenience of the readers. 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 28, 2007

SMFG 2007 107

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 ....................................................................................
Tangible fixed assets ...........................................................................................
Intangible fixed assets..........................................................................................
Lease assets ........................................................................................................
Deferred tax assets ..............................................................................................
Customers’ liabilities for acceptances and guarantees ........................................
Reserve for possible loan losses .........................................................................
Total assets ........................................................................................................

Millions of yen

Millions of U.S. dollars

2007

2006

2007

¥ 1,907,823
2,046,199
1,102,078
76,551
2,276,894
960,591
3,262,341
2,924
20,304,639
59,617,850
881,436
1,630,049
—
755,891
101,219
26,922
804,627
3,673,396
(860,799)
¥98,570,638

¥ 5,155,217
1,946,475
651,905
117,474
1,956,650
633,760
4,079,106
2,912
25,233,716
57,440,761
947,744
1,935,804
724,962
—
—
27,314
1,017,316
3,553,696
(1,006,223)
¥104,418,597

$ 16,156
17,327
9,333
648
19,281
8,134
27,626
25
171,942
504,851
7,464
13,803
—
6,401
857
228
6,814
31,107
(7,289)
$834,708

108

SMFG 2007

(Continued)

March 31

Liabilities, minority interests and net assets/stockholders’ equity
Liabilities
Deposits ...............................................................................................................
Call money and bills sold .....................................................................................
Payables under repurchase agreements .............................................................
Payables under securities lending transactions ...................................................
Trading liabilities ..................................................................................................
Borrowed money ..................................................................................................
Foreign exchanges...............................................................................................
Short-term bonds (Note 15) .................................................................................
Bonds (Note 15) ...................................................................................................
Due to trust account ............................................................................................
Other liabilities......................................................................................................
Reserve for employee bonuses ...........................................................................
Reserve for employee retirement benefits ...........................................................
Reserve for executive retirement benefits............................................................
Other reserves .....................................................................................................
Deferred tax liabilities...........................................................................................
Deferred tax liabilities for land revaluation ...........................................................
Acceptances and guarantees...............................................................................
Total liabilities ....................................................................................................

Net assets
Capital stock ........................................................................................................
Capital surplus .....................................................................................................
Retained earnings ................................................................................................
Total stockholders’ equity.................................................................................
Net unrealized gains on other securities ..............................................................
Net deferred losses on hedges ............................................................................
Land revaluation excess ......................................................................................
Foreign currency translation adjustments ............................................................
Total valuation and translation adjustments...................................................
Stock acquisition rights ........................................................................................
Minority interests ..................................................................................................
Total net assets ..................................................................................................
Total liabilities and net assets ..........................................................................

Minority interests ...............................................................................................

Stockholders’ equity
Capital stock.........................................................................................................
Capital surplus .....................................................................................................
Retained earnings ................................................................................................
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.

Millions of yen

Millions of U.S. dollars

2007

2006

2007

¥74,826,561
2,286,698
140,654
1,516,342
1,941,142
2,034,633
323,890
3,500
3,929,325
65,062
2,279,167
18,919
13,382
6,233
18
49,714
49,536
3,673,396
93,158,180

664,986
1,603,512
581,619
2,850,119
1,269,385
(87,571)
37,526
(37,194)
1,182,145
14
1,380,179
5,412,458
¥98,570,638

¥ 74,137,830
8,016,410
396,205
2,747,125
2,909,239
933,567
447,722
4,000
4,076,317
318,597
2,056,102
19,033
23,617
—
1,141
48,413
50,133
3,553,696
99,739,154

—
—
—
—
—
—
—
—
—
—
—
—
—

—

—
—
—
—
—
—
—
—

1,081,148

664,986
1,603,512
542,551
38,080
793,731
(44,568)
3,598,294
¥104,418,597

$633,640
19,364
1,191
12,841
16,438
17,230
2,743
30
33,274
551
19,300
160
113
53
0
421
419
31,107
788,875

5,631
13,579
4,925
24,135
10,749
(741)
318
(315)
10,011
0
11,687
45,833
$834,708

—

—
—
—
—
—
—
—
—

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 ¥118.09 to US$1, the exchange rate prevailing at March 31, 2007.

SMFG 2007 109

Consolidated Statements of Income (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 and short-term 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 before income taxes and minority interests ......................................
Income taxes:

Current ............................................................................................................
Deferred .........................................................................................................
Minority interests in net income ...........................................................................
Net income .........................................................................................................

Per share data:

Net income......................................................................................................

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) .............................................

Millions of yen

Millions of U.S. dollars

2007

2006

2007

¥1,377,189
369,548
7,098
4,857
96,700
94,840
3,482
577,435
118,589
197,172
124,779
2,971,693

500,904
41,320
18,353
60,856
88,353
86,996
111,413
1,936
236,292
768,498
19,940
286,105
2,220,971
750,722

¥1,196,998
317,356
6,767
613
59,867
48,706
8,626
604,859
32,807
360,246
152,583
2,789,433

279,644
27,295
7,447
58,292
84,848
32,408
97,979
—
137,538
767,852
160,013
250,053
1,903,374
886,058

47,601
238,764
62,561
¥ 401,795

45,274
219,789
57,410
¥ 563,584

$11,662
3,129
60
41
819
803
30
4,890
1,004
1,670
1,057
25,165

4,242
350
155
515
748
737
944
16
2,001
6,508
169
2,423
18,808
6,357

403
2,022
530
$ 3,402

Yen

U.S. dollars

¥7,072.09

7,012.46

¥9,864.54

9,827.19

763

—

5,714

10,500

28,500

13,700

88,500

$ 59.89

59.38

6.46

—

749.43

Declared dividends on preferred stock (1st series Type 6).............................

88,500

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 ¥118.09 to US$1, the exchange rate prevailing at March 31, 2007.

110

SMFG 2007

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 .....................................................................................
Tangible fixed assets ...........................................................................................
Intangible fixed assets..........................................................................................
Deferred tax assets ..............................................................................................
Customers’ liabilities for acceptances and guarantees ........................................
Reserve for possible loan losses .........................................................................
Reserve for possible losses on investments ........................................................
Total assets ........................................................................................................

Liabilities and net assets/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 executive retirement benefits............................................................
Reserve for point service program .......................................................................
Other reserves .....................................................................................................
Deferred tax liabilities for land revaluation ...........................................................
Acceptances and guarantees...............................................................................
Total liabilities ....................................................................................................

Net assets
Capital stock ........................................................................................................
Capital surplus .....................................................................................................
Retained earnings ................................................................................................
Total stockholders’ equity.................................................................................
Net unrealized gains on other securities ..............................................................
Net deferred losses on hedges ............................................................................
Land revaluation excess ......................................................................................
Total valuation and translation adjustments...................................................
Total net assets ..................................................................................................
Total liabilities and net assets ..........................................................................

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

2007

2006

2007

¥ 1,734,199
2,265,361
1,006,657
39,725
2,213,314
333,524
2,914,023
2,924
20,060,873
53,756,440
835,617
1,442,066
—
678,581
87,615
743,605
4,177,816
(677,573)
(77,547)
¥91,537,228

¥68,809,338
2,291,128
104,640
1,516,342
1,578,730
3,371,846
329,695
3,647,483
65,062
1,588,683
8,892
4,757
990
18
48,917
4,177,816
87,544,344

664,986
1,367,548
761,028
2,793,563
1,259,814
(84,733)
24,240
1,199,320
3,992,884
¥91,537,228

¥ 4,798,403
1,791,564
576,909
81,470
1,956,650
115,637
3,694,791
2,912
25,202,541
51,857,559
877,570
1,567,812
639,538
—
—
976,203
4,120,300
(816,437)
—
¥97,443,428

¥68,222,167
7,937,965
382,082
2,709,084
2,515,932
2,023,023
449,560
3,776,707
318,597
1,295,135
8,691
—
—
18
49,384
4,120,300
93,808,652

—
—
—
—
—
—
—
—
—
—

—
—
—
—
—
—
—

664,986
1,367,548
794,033
24,716
783,491
3,634,776
¥97,443,428

$ 14,686
19,183
8,525
336
18,743
2,824
24,676
25
169,878
455,216
7,076
12,212
—
5,746
742
6,297
35,378
(5,738)
(657)
$775,148

$582,686
19,402
886
12,841
13,369
28,553
2,792
30,887
551
13,453
75
40
9
0
414
35,378
741,336

5,631
11,581
6,444
23,656
10,668
(717)
205
10,156
33,812
$775,148

—
—
—
—
—
—
—

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 ¥118.09 to US$1, the exchange rate prevailing at March 31, 2007.

SMFG 2007 111

Nonconsolidated Statements of Income (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 before income taxes.............................................................................
Income taxes:

Millions of yen

Millions of U.S. dollars

2007

2006

2007

¥1,166,967
369,039
4,064
4,827
77,722
83,548
3,482
465,171
103,719
106,725
107,309
2,492,577

430,045
103,090
16,523
60,770
73,483
84,809
111,754
2,098
158,207
609,816
450
254,598
1,905,648
586,928

¥1,002,320
317,180
4,362
613
50,454
51,615
8,626
474,972
13,250
273,861
125,442
2,322,699

234,616
82,491
6,359
58,204
68,252
22,077
108,296
1,312
63,613
604,098
164,630
162,072
1,576,026
746,672

$ 9,882
3,125
34
41
658
708
29
3,939
878
904
909
21,107

3,642
873
140
514
622
718
946
18
1,340
5,164
4
2,156
16,137
4,970

Current ............................................................................................................
Deferred .........................................................................................................
Net income..........................................................................................................

16,507
254,680
¥ 315,740

13,512
213,639
¥ 519,520

140
2,156
$ 2,674

Per share data:

Net income......................................................................................................

Net income — diluted......................................................................................

¥5,533.69

5,487.21

¥9,066.46

9,050.63

$46.86

46.47

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 ¥118.09 to US$1, the exchange rate prevailing at March 31, 2007.

Yen

U.S. dollars

112

SMFG 2007

Income Analysis (Consolidated)

Sumitomo Mitsui Financial Group, Inc. and Subsidiaries

Operating Income, Classified by Domestic and Overseas Operations

2007

2006

Millions of yen

Year ended March 31

Domestic Overseas
operations

operations Elimination

Total

Domestic Overseas
operations

operations Elimination

Total

Interest income .................................................... ¥1,441,457
432,558
Interest expenses ................................................
1,008,898
Net interest income....................................................

¥593,892
409,364
184,528

¥(56,280) ¥1,979,069 ¥1,306,241
281,037
810,471
1,025,204
1,168,597

(31,450)
(24,829)

¥392,619
245,122
147,497

¥(36,260) ¥1,662,600
500,991
1,161,608

(25,167)
(11,092)

Trust fees...................................................................

Fees and commissions (income) .........................
Fees and commissions (expenses) .....................
Net fees and commissions ........................................

Trading profits......................................................
Trading losses .....................................................
Net trading income ....................................................

Other operating income .......................................
Other operating expenses ...................................

3,508

647,473
89,805
557,668

127,667
10,720
116,946

981,643
988,511

Net other operating income (expenses) ....................

(6,868)

—

59,223
7,353
51,870

21,459
12,780
8,679

22,977
16,052

6,924

—

(698)
(345)
(352)

(21,564)
(21,564)
—

(988)
(193)

(794)

3,508

705,998
96,812
609,185

127,561
1,936
125,625

8,631

657,115
82,489
574,625

36,163
8,066
28,096

1,003,632
1,004,370

1,126,212
865,666

(738)

260,545

—

49,288
3,601
45,686

18,099
13,389
4,710

19,504
12,346

7,157

—

(2,474)
(1,754)
(719)

(21,455)
(21,455)
—

(1,569)
(1,377)

8,631

703,928
84,336
619,591

32,807
—
32,807

1,144,147
876,635

(192)

267,511

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 (2007, ¥5 million; 2006, ¥1 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

Year ended March 31
Interest-earning assets....................................
Loans and bills discounted.........................
Securities ...................................................
Call loans and bills bought .........................
Receivables under resale agreements ......
Receivables under securities

borrowing transactions .............................
Deposits with banks ...................................

Average balance
¥76,132,613
51,620,802
19,820,864
784,972
41,945

2007

Interest
¥1,441,457
1,004,005
330,791
17,383
94

1,329,318
1,054,974

4,857
26,901

Interest-bearing liabilities ................................
Deposits ....................................................
Negotiable certificates of deposit ...............
Call money and bills sold ...........................
Payables under repurchase agreements ...
Payables under securities

lending transactions .................................
Commercial paper......................................
Borrowed money ........................................
Short-term bonds .......................................
Bonds .........................................................

¥80,928,373
65,159,829
2,365,296
2,908,959
157,722

¥ 432,558
177,510
5,858
4,286
431

2,301,547
712
3,530,322
370,939
3,784,043

60,856
1
53,287
1,503
68,789

Earnings yield Average balance

2006

Interest
¥1,306,241
953,658
290,826
7,773
8

Earnings yield
1.70%
1.89
1.35
1.09
0.01

¥76,691,842
50,469,167
21,565,285
713,123
98,096

1,411,749
1,387,168

613
23,781

¥83,944,515
64,237,443
3,359,901
5,910,627
213,153

¥ 281,037
100,809
844
1,310
6

2,771,613
64,266
2,649,069
341,628
3,867,212

58,292
69
50,353
375
62,878

0.04
1.71

0.33%
0.16
0.03
0.02
0.00

2.10
0.11
1.90
0.11
1.63

1.89%
1.94
1.67
2.21
0.23

0.37
2.55

0.53%
0.27
0.25
0.15
0.27

2.64
0.24
1.51
0.41
1.82

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 (2007, ¥1,096,906 million; 2006,

¥2,802,641 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 (2007, ¥2,607 million; 2006, ¥1,717 million). “Interest-bearing liabilities” are
shown after deduction of amounts equivalent to the average balance of money held in trust (2007, ¥2,607 million; 2006, ¥1,717 million) and corre-
sponding interest (2007, ¥5 million; 2006, ¥1 million).

SMFG 2007 113

5.29%
5.12
5.65
5.41
4.81

—
4.76

4.55%
4.05
5.10
4.46
5.08

—
—
4.53
—
6.01

2.28%
2.34
1.75
2.86
3.78

0.37
3.89

0.91%
0.63
1.40
0.58
3.60

2.64
0.24
1.07
0.41
2.17

Overseas Operations

Average balance

Year ended March 31
Interest-earning assets.................................... ¥11,234,586
7,838,766
1,109,300
200,194
145,659

Loans and bills discounted.........................
Securities ...................................................
Call loans and bills bought .........................
Receivables under resale agreements ......
Receivables under securities

2007

Interest
¥593,892
401,333
62,710
10,824
7,003

borrowing transactions .............................
Deposits with banks ...................................

—
1,530,875

—
72,925

Interest-bearing liabilities ................................ ¥ 8,996,910
6,985,307
738,076
325,729
352,703

Deposits ....................................................
Negotiable certificates of deposit ...............
Call money and bills sold ...........................
Payables under repurchase agreements ...
Payables under securities

—
—
159,086
—
348,240

¥409,364
282,707
37,618
14,520
17,923

—
—
7,199
—
20,930

Millions of yen

Earnings yield Average balance

2006

Interest
¥392,619
283,993
37,627
6,556
6,758

Earnings yield
4.08%
4.27
3.96
3.66
3.69

¥9,621,722
6,652,589
949,114
178,988
182,955

—
1,182,483

—
37,742

¥6,988,102
5,705,664
303,226
145,523
208,672

—
—
93,085
—
521,556

¥245,122
167,488
12,033
4,658
7,440

—
—
2,182
—
23,131

—
3.19

3.51%
2.94
3.97
3.20
3.57

—
—
2.34
—
4.44

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 (2007, ¥48,701 million; 2006, ¥32,268

million).

Total of Domestic and Overseas Operations

borrowing transactions .............................
Deposits with banks ...................................

Average balance
¥86,851,328
58,785,489
21,188,587
985,167
187,604

2007

Interest
¥1,979,069
1,375,851
369,770
28,208
7,098

1,329,318
2,487,172

4,857
96,763

¥89,150,368
72,045,922
3,103,373
3,234,688
510,425

¥ 810,471
457,078
43,476
18,807
18,354

2,301,547
712
3,015,247
370,939
4,132,284

60,856
1
32,175
1,503
89,719

Millions of yen

Earnings yield Average balance

2006

Interest
¥1,662,600
1,214,142
317,352
14,330
6,767

Earnings yield
1.94%
2.15
1.40
1.61
2.41

¥85,869,391
56,497,565
22,716,737
892,111
281,051

1,411,749
2,549,161

613
59,875

¥90,283,734
69,920,269
3,663,127
6,056,150
421,826

¥ 500,991
266,648
12,877
5,969
7,447

2,771,613
64,266
2,117,940
341,628
4,388,769

58,292
69
29,016
375
86,010

0.04
2.35

0.55%
0.38
0.35
0.10
1.77

2.10
0.11
1.37
0.11
1.96

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 (2007, ¥1,146,135 million; 2006,

¥2,832,832 million).

114

SMFG 2007

Fees and Commissions

2007

2006

Millions of yen

Year ended March 31

Domestic Overseas
operations

operations Elimination

Fees and commissions (income)...............................
Deposits and loans ..............................................
Remittances and transfers...................................
Securities-related business..................................
Agency.................................................................
Safe deposits .......................................................
Guarantees ..........................................................
Credit card ...........................................................

¥647,473
25,034
123,671
48,378
16,581
7,317
45,102
117,197

¥59,223
40,664
9,166
271
—
4
1,266
—

¥(698)
—
(1)
—
—
(0)
(407)
—

Total

¥705,998
65,698
132,836
48,650
16,581
7,322
45,961
117,197

Domestic Overseas
operations

operations Elimination

¥657,115
23,622
122,863
64,561
18,929
7,379
40,473
108,643

¥49,288
32,250
8,663
211
—
4
1,472
—

¥(2,474)
(1,174)
(1)
—
—
—
(500)
—

Total

¥703,928
54,698
131,526
64,773
18,929
7,384
41,445
108,643

Fees and commissions (expenses) ...........................
Remittances and transfers...................................

¥ 89,805
25,135

¥ 7,353
2,262

¥(345)
(198)

¥ 96,812
27,200

¥ 82,489
24,048

¥ 3,601
1,827

¥(1,754)
(7)

¥ 84,336
25,868

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” column.

Trading Income

2007

2006

Millions of yen

Year ended March 31

Domestic Overseas
operations

operations Elimination

Total

Domestic Overseas
operations

operations Elimination

Trading profits............................................................ ¥127,667
15,071

Gains on trading securities ..................................
Gains on securities related to

trading transactions ...........................................
Gains on trading-related financial derivatives......
Others ..................................................................

—
109,351
3,244

¥21,459
37

¥(21,564)
—

¥127,561
15,109

¥36,163
12,662

¥18,099
217

¥(21,455)
—

—
21,422
—

—
(21,564)
—

—
109,208
3,244

1,172
22,230
97

57
17,824
—

—
(21,455)
—

Total

¥32,807
12,880

1,229
18,599
97

Trading losses ........................................................... ¥ 10,720
—

Losses on trading securities ................................
Losses on securities related to

trading transactions ...........................................
Losses on trading-related financial derivatives....
Others ..................................................................

1,928
8,791
—

¥12,780
—

¥(21,564)
—

¥ 1,936
—

¥ 8,066
—

¥13,389
—

¥(21,455)
—

7
12,773
—

—
(21,564)
—

1,936
—
—

—
8,066
—

—
13,389
—

—
(21,455)
—

—
—

—
—
—

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” column.

SMFG 2007 115

Assets and Liabilities (Consolidated)

Sumitomo Mitsui Financial Group, Inc. and Subsidiaries

Deposits and Negotiable Certificates of Deposit
Year-End Balance

March 31
Domestic operations:

Liquid deposits .........................................................................................
Fixed-term deposits .................................................................................
Others .....................................................................................................
Subtotal....................................................................................................
Negotiable certificates of deposit .............................................................
Total .........................................................................................................

Overseas operations:

Millions of yen

2007

2006

¥41,266,689
21,273,509
3,271,453
65,811,653
1,883,747
¥67,695,400

¥ 5,330,090
1,006,239
8,241
6,344,570
705,470
¥ 7,050,041
¥74,745,441

¥41,727,352
20,023,737
4,063,539
65,814,629
2,106,986
¥67,921,616

¥ 4,170,386
842,358
6,750
5,019,495
601,657
¥ 5,621,152
¥73,542,769

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

March 31
Domestic operations:

Millions of yen

2007

2006

Manufacturing ..........................................................................................
Agriculture, forestry, fisheries and mining .................................................
Construction.............................................................................................
Transportation, communications and public enterprises..........................
Wholesale and retail ................................................................................
Finance and insurance.............................................................................
Real estate...............................................................................................
Services ...................................................................................................
Municipalities ...........................................................................................
Others ......................................................................................................
Subtotal....................................................................................................

Overseas operations:

Public sector ............................................................................................
Financial institutions.................................................................................
Commerce and industry...........................................................................
Others ......................................................................................................
Subtotal....................................................................................................
Total ..............................................................................................................

¥ 5,598,883
139,509
1,435,589
3,038,681
5,507,322
4,189,606
7,630,563
6,238,878
648,704
17,216,194
¥51,643,934

35,783
481,228
5,950,135
578,240
¥ 7,045,387
¥58,689,322

10.84% ¥ 5,517,879
140,677
1,488,609
2,808,274
5,553,808
4,302,537
7,385,799
6,230,670
735,328
17,138,631
100.00% ¥51,302,215

0.27
2.78
5.88
10.66
8.11
14.78
12.08
1.26
33.34

0.51% ¥
6.83
84.45
8.21

46,892
549,081
5,005,510
363,503
100.00% ¥ 5,964,987
¥57,267,203

—

10.76%
0.27
2.90
5.47
10.83
8.39
14.40
12.14
1.43
33.41
100.00%

0.79%
9.21
83.91
6.09
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.

116

SMFG 2007

Risk-Monitored Loans

March 31
Bankrupt loans ..............................................................................................
Non-accrual loans .........................................................................................
Past due loans (3 months or more)...............................................................
Restructured loans ........................................................................................
Total ..............................................................................................................

Notes: Definition of risk-monitored loan categories

2007

60,715
507,289
22,018
477,362
¥1,067,386

Millions of yen

2006

59,332
714,366
24,571
444,889
¥1,243,160

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:

Millions of yen

2007

2006

Overseas operations:

Unallocated corporate assets:

Japanese government bonds...................................................................
Japanese local government bonds ..........................................................
Japanese corporate bonds ......................................................................
Japanese stocks ......................................................................................
Others ......................................................................................................
Subtotal....................................................................................................
Total ..............................................................................................................

¥ 7,640,069
571,103
4,066,497
4,468,620
2,306,641
¥19,052,932

—
—
—
—
1,205,587
¥ 1,205,587

—
—
—
278,980
—
¥ 278,980
¥20,537,500

¥11,566,093
607,777
3,958,181
4,277,449
3,915,033
¥24,324,535

—
—
—
—
958,135
958,135

—
—
—
223,189
—
¥
223,189
¥25,505,861

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.

SMFG 2007 117

Trading Assets and Liabilities

March 31

Domestic Overseas
operations

operations Elimination

Total

Domestic Overseas
operations

operations Elimination

2007

2006

Millions of yen

Trading assets: ......................................................... ¥2,906,229
27,932
373
—

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 ............................................

2,344
1,778,913
1,096,664

Trading liabilities: ...................................................... ¥1,572,595
12,065
288
—

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 .........................................

1,975
1,558,265
—

¥397,304
25,355
—
—

—
371,949
—

¥396,026
4,349
—
—

—
391,676
—

¥(25,647)
—
—
—

¥3,277,885 ¥3,709,059
122,278
275
—

53,288
373
—

¥412,178
40,764
—
—

¥(43,212)
—
—
—

Total

¥4,078,025
163,042
275
—

—
(25,647)
—

2,344
2,125,214
1,096,664

4,160
2,656,787
925,557

1
371,412
—

—
(43,212)
—

4,162
2,984,988
925,557

¥(25,647)
—
—
—

¥1,942,973 ¥2,521,185
118,803
1,238
—

16,415
288
—

¥430,185
533
—
—

¥(43,212)
—
—
—

¥2,908,158
119,337
1,238
—

—
(25,647)
—

1,975
1,924,294
—

4,079
2,397,064
—

—
429,651
—

—
(43,212)
—

4,079
2,783,503
—

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” column.

118

SMFG 2007

Capital (Nonconsolidated)

Sumitomo Mitsui Financial Group, Inc.

Change in Number of Shares Issued and Capital Stock

Number of shares
issued

Capital stock

Capital reserve

Changes

Balances

Changes

Balances

Changes

Balances

Millions of yen

December 2, 2002 ...........................
February 3, 2003*1...........................
February 8, 2003*2...........................
March 12, 2003*3 .............................
April 1, 2003 — March 31, 2004*4 ...
August 8, 2003*5..............................
April 1, 2004 — March 31, 2005*6 ...
March 29, 2005*7 .............................
April 1, 2005 — March 31, 2006*8 ...
January 31, 2006*9 ..........................
February 28, 2006*10 .......................
May 17, 2006*11...............................
August 11, 2006*12 ..........................
September 1, 2006*13 ......................
September 6, 2006*14 ......................
September 29, 2006*15 ....................
October 11, 2006*16.........................

—
86,576.53
50,100
115,000

8.61
—

332,869.96
70,001
922,593.28
80,000
40,700
(68,000)
—
249,015
(67,000)
(439,534)
(195,000)

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
8,253,573.77
8,333,573.77
8,374,273.77
8,306,273.77
8,306,273.77
8,555,288.77
8,488,288.77
8,048,754.77
7,853,754.77

—
—
75,150
172,500
—
—
—
105,001
—
45,220
23,005
—
—
—
—
—
—

¥1,000,000
1,000,000
1,075,150
1,247,650
1,247,650
1,247,650
1,247,650
1,352,651
1,352,651
1,397,871
1,420,877
1,420,877
1,420,877
1,420,877
1,420,877
1,420,877
1,420,877

—
3,069
75,150
172,500
—
(499,503)
—
105,001
—
45,220
23,005
—
(1,000,000)
221,365
—
—
—

¥1,496,547
1,499,616
1,574,766
1,747,266
1,747,266
1,247,762
1,247,762
1,352,764
1,352,764
1,397,984
1,420,989
1,420,989
420,989
642,355
642,355
642,355
642,355

Remarks:
*1 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)
*2 Allotment to third parties:

Preferred stock (1st to 12th series Type 4): 50,100 shares

*3 Allotment to third parties:

Preferred stock (13th series Type 4): 115,000 shares

Issue price: ¥3,000,000

Capitalization: ¥1,500,000

Issue price: ¥3,000,000

Capitalization: ¥1,500,000

*4 Conversion of 1 share of preferred stock (13th series Type 4) to 9.61 shares of common stock
*5 Capital reserve was transferred to other capital surplus pursuant to Article 289-2 of the Commercial Code.
*6 Conversion of 32,000 shares of preferred stock (Type 1), 105,000 shares of preferred stock (Type 3) and 7,912 shares of preferred stock (13th series Type

4) to 477,781.96 shares of common stock

*7 Allotment to third parties:

Preferred stock (1st series Type 6): 70,001 shares

Issue price: ¥3,000,000

Capitalization: ¥1,500,000

*8 Conversion of 107,087 shares of preferred stock (13th series Type 4) to 1,029,680.28 shares of common stock
*9 Public offering:

Common stock: 80,000 shares
Issue price: ¥1,130,500

Capitalization: ¥565,250

*10 Allotment to third parties:

Common stock: 40,700 shares
Issue price: ¥1,130,500

Capitalization: ¥565,250

*11 Repurchase and cancellation of 35,000 shares of preferred stock (Type 1) and 33,000 shares of preferred stock (Type 2)
*12 Capital reserve was transferred to other capital surplus pursuant to Article 448-1 of the Company Law.
*13 Increase in the number of common stock as a result of share exchange for making SMBC Friend Securities Co., Ltd. as our wholly-owned subsidiary (share

exchange ratio: 1-to-0.0008)

*14 Repurchase and cancellation of 67,000 shares of preferred stock (Type 2)
*15 Repurchase and cancellation of 500,000 shares of preferred stock (Type 3) and increase in shares of common stock of 60,466
*16 Repurchase and cancellation of 195,000 shares of preferred stock (Type 3)

SMFG 2007 119

Number of Shares Issued
March 31, 2007
Common stock...............................................................................................................................................................
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 (1st series Type 6)................................................................................................................................
Total...............................................................................................................................................................................

Number of shares issued

7,733,653.77
4,175
4,175
4,175
4,175
4,175
4,175
4,175
4,175
4,175
4,175
4,175
4,175
70,001
7,853,754.77

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

Number of Common Shares, Classified by Type of Shareholders

March 31, 2007
Japanese government and local government................................................................
Financial institutions ......................................................................................................
Securities companies ....................................................................................................
Other institutions............................................................................................................
Foreign institutions ........................................................................................................
Foreign individuals.........................................................................................................
Individuals and others....................................................................................................
Total...............................................................................................................................
Fractional shares ...........................................................................................................

Number of
shareholders

6
470
114
7,490
1,033
35
163,012
172,160
—

Number of
shares

4,751
2,345,415
110,908
1,425,270
3,130,016
114
692,309
7,708,783

Percentage of
total
0.06%

30.43
1.44
18.49
40.60
0.00
8.98
100.00%

24,870.77

—

Notes: 1. Of 67,855.95 shares in treasury stock, 67,855 shares are included in “Individuals and others” and the remaining 0.95 shares are included in “Fractional

shares.”

2. “Other institutions” includes 532 shares held by the Securities Custody Association.

Principal Shareholders
a. Common Stock

March 31, 2007

Number of
shares

Percentage of
shares outstanding

Japan Trustee Services Bank, Ltd. (Trust Account)........................................................................................

442,347.00

5.71%

The Master Trust Bank of Japan, Ltd. (Trust account)....................................................................................

397,852.00

The Chase Manhattan Bank N.A. London* .....................................................................................................

193,039.00

State Street Bank and Trust Company 505103* .............................................................................................

164,808.00

Nippon Life Insurance Company.....................................................................................................................

154,667.42

Japan Trustee Services Bank, Ltd. (Trust Account 4).....................................................................................

133,979.00

State Street Bank and Trust Company* ..........................................................................................................

114,571.00

Sumitomo Mitsui Banking Corporation............................................................................................................

100,481.00

JPMCB USA Residents Pension Jasdec Lend 385051*.................................................................................

91,511.00

Mellon Bank, N.A. as Agent for its Client Mellon Omnibus US Pension** ......................................................

83,621.00

5.14

2.49

2.13

1.99

1.73

1.48

1.29

1.18

1.08

Total ................................................................................................................................................................ 1,876,876.42

24.26%

*Standing agent: Mizuho Corporate Bank, Ltd.’s Kabutocho Custody & Proxy Department within the Settlement & Clearing Services Division
** Standing agent: The Hongkong and Shanghai Banking Corporation Limited’s Tokyo Branch Custody Department

120

SMFG 2007

b. Preferred Stock (1st series Type 4)

k. Preferred Stock (10th series Type 4)

March 31, 2007
Shareholder
The Goldman Sachs Group, Inc.

(Standing agent: Goldman
Sachs Japan Co., Ltd.) .....................

Number of
shares

Percentage of
shares outstanding

March 31, 2007
Shareholder
GSSM Holding II Corp.

Number of
shares

Percentage of
shares outstanding

4,175

100.00%

(Standing agent: Goldman
Sachs Japan Co., Ltd.) .....................

4,175

100.00%

c. Preferred Stock (2nd series Type 4)

l. Preferred Stock (11th series Type 4)

March 31, 2007
Shareholder
The Goldman Sachs Group, Inc.

(Standing agent: Goldman
Sachs Japan Co., Ltd.) .....................

Number of
shares

Percentage of
shares outstanding

March 31, 2007
Shareholder
GSSM Holding II Corp.

Number of
shares

Percentage of
shares outstanding

4,175

100.00%

(Standing agent: Goldman
Sachs Japan Co., Ltd.) .....................

4,175

100.00%

d. Preferred Stock (3rd series Type 4)

m. Preferred Stock (12th series Type 4)

March 31, 2007
Shareholder
The Goldman Sachs Group, Inc.

(Standing agent: Goldman
Sachs Japan Co., Ltd.) .....................

Number of
shares

Percentage of
shares outstanding

March 31, 2007
Shareholder
GSSM Holding II Corp.

Number of
shares

Percentage of
shares outstanding

4,175

100.00%

(Standing agent: Goldman
Sachs Japan Co., Ltd.) .....................

4,175

100.00%

e. Preferred Stock (4th series Type 4)

March 31, 2007
Shareholder
The Goldman Sachs Group, Inc.

(Standing agent: Goldman
Sachs Japan Co., Ltd.) .....................

Number of
shares

Percentage of
shares outstanding

4,175

100.00%

f. Preferred Stock (5th series Type 4)

March 31, 2007
Shareholder
GSSM Holding II Corp.

Number of
shares

Percentage of
shares outstanding

(Standing agent: Goldman
Sachs Japan Co., Ltd.) .....................

4,175

100.00%

g. Preferred Stock (6th series Type 4)

March 31, 2007
Shareholder
GSSM Holding II Corp.

Number of
shares

Percentage of
shares outstanding

(Standing agent: Goldman
Sachs Japan Co., Ltd.) .....................

4,175

100.00%

n. Preferred Stock (1st series Type 6)

March 31, 2007
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%

Notes: 1. Pursuant to Article 67 of the Enforcement Ordinance of the

Company Law, the exercise of voting rights of common shares
held by our subsidiary SMBC is not entitled.

2. The following reports on shareholdings (including their amend-

ment reports) were submitted to the authorities. However, as we
could not confirm how many shares are in beneficial possession
of the submitters as of March 31, 2007, we did not include them
in the list of principal shareholders shown above. The contents of
the reports are summarized as follows:

Submitters

Capital Research and

Filing date

Number of
shares*

Management Company............ May 15, 2006

387,480

5.22%

Goldman Sachs

Japan Co., Ltd. ....................... Jan. 22, 2007

117,680**

1.50

Percentage
of shares
outstanding

h. Preferred Stock (7th series Type 4)

March 31, 2007
Shareholder
GSSM Holding II Corp.

Number of
shares

Percentage of
shares outstanding

* Includes shares held by co-shareholders.
** Includes 15,520 residual shares.

(Standing agent: Goldman
Sachs Japan Co., Ltd.) .....................

4,175

100.00%

i. Preferred Stock (8th series Type 4)

March 31, 2007
Shareholder
GSSM Holding II Corp.

Number of
shares

Percentage of
shares outstanding

(Standing agent: Goldman
Sachs Japan Co., Ltd.) .....................

4,175

100.00%

j. Preferred Stock (9th series Type 4)

March 31, 2007
Shareholder
GSSM Holding II Corp.

Number of
shares

Percentage of
shares outstanding

(Standing agent: Goldman
Sachs Japan Co., Ltd.) .....................

4,175

100.00%

SMFG 2007 121

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-

1,116 shares
Common stock
¥669,775 per share
¥334,888 per share
From June 28, 2004 to June 27, 2012

2007

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’ meeting 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).

2007
¥1,390,000
1,010,000

2006
¥1,370,000
659,000

2. Preferred stocks are not listed on exchanges.

Six-Month Performance

2004

¥780,000
162,000

2003
¥452,000
206,000

Yen
2005
¥854,000
599,000

Yen

High ................................................................
Low.................................................................
Notes: 1. Stock prices of common shares as quoted on the Tokyo Stock Exchange (First Section).

October 2006
¥1,340,000
1,220,000

November 2006 December 2006
¥1,250,000
¥1,320,000
1,190,000
1,120,000

January 2007
¥1,290,000
1,200,000

February 2007
¥1,220,000
1,100,000

March 2007
¥1,160,000
1,010,000

2. Preferred stocks are not listed on exchanges.

122

SMFG 2007

Capital Ratio Information

Sumitomo Mitsui Financial Group, Inc. and Subsidiaries

The consolidated capital ratio at the end of March 2007 and thereafter is calculated using the method stipulated in “Standards for Bank
Holding Company to Examine the Adequacy of Its Capital Based on Assets, Etc. Held by It and Its Subsidiaries Pursuant to Article 52-25 of
the Banking Law” (Notification 20 issued by the Japanese Financial Services Agency in 2006; hereinafter referred to as “the Notification”).
The consolidated capital ratio at the end of March 2006 was calculated using the method stipulated in “Standards for Consolidated Capital
Ratio Pursuant to Article 52-25 of the Banking Law” (Ordinance 62 issued by the Ministry of Finance in 1998; hereinafter referred to as “the
Ordinance”).

In addition to the method stipulated in the Notification to calculate consolidated capital ratio (referred to as “First Standard” in the

Notification), SMFG has adopted the foundation internal ratings-based approach for calculating credit risk-weighted asset amounts and imple-
mented market risk controls.

“Capital Ratio Information” is a new section of the Annual Report for this fiscal year only as Basel II became effective from March 31,

2007. Further, the section was prepared based on the Notification and the terms and details in the section may differ from the terms and details
in other sections of the Annual Report.

Scope of Consolidation

1. Consolidated Capital Ratio Calculation

• Number of consolidated subsidiaries: 181

Please refer to “Principal Subsidiaries and Affiliates” of page 176 for their names and business outline.

• Scope of consolidated subsidiaries for calculation of consolidated capital ratio is based on the scope of consolidated subsidiaries for prepar-

ing consolidated financial statements.

• There are no affiliates to which the proportionate consolidation method is applied.
• There are no companies engaged exclusively in ancillary banking business or in developing new businesses as stipulated in Article 52-23 of

the Banking Law.

2. Deduction from Capital

• Number of nonconsolidated subsidiaries subject to deduction from capital: 127

Principal subsidiaries:

S.B.L. Jupiter Co., Ltd. (Office rental, etc.)
SBCS Co., Ltd. (Venture capital and consulting)

• Number of financial affiliates subject to deduction from capital: 76

Please refer to “Principal Subsidiaries and Affiliates” of page 176 for their names and business outline.

3. Restrictions on Movement of Funds and Capital within Holding Company Group

There are no special restrictions on movement of funds and capital among SMFG and its group companies.

4. Companies Subject to Deduction from Capital with Capital below Basel II Required Amount and Total Shortfall Amount

Not applicable.

SMFG 2007 123

■
■ Capital Structure Information (Consolidated Capital Ratio (First Standard))
Regarding the calculation of capital ratio as of March 31, 2007, certain procedures were performed by KPMG AZSA & Co. pursuant to
“Treatment of Inspection of Capital Ratio Calculation Framework Based on Agreed-Upon Procedures” (JICPA Industry Committee Report
No. 30), and as of March 31, 2006, certain procedures were performed by KPMG AZSA & Co. pursuant to “Treatment of Inspection of Capital
Ratio Calculation Framework by External Auditors Based on Practical Guidelines Concerning External Audit of Internal Controls of Financial
Institutions” ( JICPA Industry Audit Committee Report No. 30). The certain procedures performed by the external auditor are not part of the
audit of consolidated financial statements. The certain procedures performed on our internal control framework for calculating the capital ratio
are based on procedures agreed upon by SMFG and the external auditor and are not a validation of appropriateness of the capital ratio itself or
opinion on the internal controls related to capital ratio calculation.

Millions of yen

March 31
Tier I capital:

Tier II capital:

Deductions*:
Total qualifying capital:
Risk-adjusted assets:

Tier I risk-adjusted

capital ratio:

Total risk-adjusted

capital ratio:

Required capital:

Capital stock..................................................................................................
Capital surplus ..............................................................................................
Retained earnings .........................................................................................
Treasury stock...............................................................................................
Cash dividends to be paid ............................................................................
Foreign currency translation adjustments .....................................................
Stock acquisition rights .................................................................................
Minority interests ...........................................................................................
Goodwill and others ......................................................................................
Gain on sale on securitization transactions...................................................
Total Tier I capital (A) ....................................................................................
Unrealized gains on other securities after 55% discount ..............................
Land revaluation excess after 55% discount.................................................
General reserve for possible loan losses ......................................................
Excess amount of provision ..........................................................................
Subordinated debt.........................................................................................
Total Tier II capital.........................................................................................
Tier II capital included as qualifying capital (B) .............................................
(C) .................................................................................................................
(D) = (A) + (B) - (C) .......................................................................................
On-balance sheet items ................................................................................
Off-balance sheet items ................................................................................
Market risk items ...........................................................................................
Operational risk .............................................................................................
Total risk-adjusted assets (E)........................................................................

2007
¥ 1,420,877
57,773
1,386,436
(123,454)
(66,619)
(30,656)
14
1,399,794
(100,850)
(40,057)
3,903,257
825,432
39,367
35,309
175,921
2,564,195
3,640,226
3,640,226
690,759
¥ 6,852,723
¥47,394,806
8,713,413
412,044
4,020,082
¥60,540,346

2006
¥ 1,420,877
1,229,225
944,112
(4,393)
—
(41,475)
—
1,104,244
(6,686)
—
4,645,905
627,807
39,934
742,614
—
2,657,378
4,067,736
4,067,736
619,279
¥ 8,094,361
¥58,984,821
5,952,321
385,206
—
¥65,322,349

(A) / (E) x 100................................................................................................

6.44%

7.11%

(D) / (E) x 100................................................................................................
(E) x 8% ........................................................................................................

11.31%
¥ 4,843,227

12.39%
—

* “Deductions” refers to deductions stipulated in Article 8-1 of the Notification (Article 7-1 of the Ordinance) and includes willful holding of securities issued by

other financial institutions and securities stipulated in Clause 2 (Clause 2 of Article 7-1 of the Ordinance).

(Reference)
The consolidated capital ratio as of March 31, 2007, calculated using the formula stipulated in the Ordinance is 10.59%.

124

SMFG 2007

■ Capital Requirements
March 31, 2007

Capital requirements for credit risk:

Internal ratings-based approach ..............................................................................................................................
Corporate exposures: .........................................................................................................................................
Corporate exposures (excluding specialized lending)....................................................................................
Sovereign exposures......................................................................................................................................
Bank exposures .............................................................................................................................................
Specialized lending .......................................................................................................................................
Retail exposures: ................................................................................................................................................
Residential mortgage exposures....................................................................................................................
Qualifying revolving retail exposures..............................................................................................................
Other retail exposures ...................................................................................................................................
Equity exposures: ...............................................................................................................................................
Grandfathered equity exposures ....................................................................................................................
PD/LGD approach ..........................................................................................................................................
Market-based approach ................................................................................................................................
Simple risk weight method ........................................................................................................................
Internal models method.............................................................................................................................
Credit risk-weighted assets under Article 145 of the Notification ........................................................................
Securitization exposures .....................................................................................................................................
Other exposures ..................................................................................................................................................
Standardized approach ...........................................................................................................................................
Total capital requirements for credit risk...................................................................................................................

Capital requirements for market risk:

Standardized measurement method .......................................................................................................................
Interest rate risk ..................................................................................................................................................
Equity position risk ..............................................................................................................................................
Foreign exchange risk ........................................................................................................................................
Commodities risk ................................................................................................................................................
Options ...............................................................................................................................................................
Internal models method ...........................................................................................................................................
Total capital requirements for market risk ................................................................................................................
Capital requirements for operational risk ................................................................................................................
Total amount of capital requirements .......................................................................................................................

Billions of yen

¥5,155.6
3,185.5
2,836.8
42.8
126.6
179.3
763.6
332.1
81.1
350.4
424.6
336.2
35.7
52.7
52.7
—
301.5
158.9
321.3
487.1
5,642.7

4.7
3.2
0.6
0.9
—
—
28.2
33.0
321.6
¥5,997.2

Notes: 1. Capital requirements for credit risk are capital equivalent to “credit risk-weighted assets x 8%” under the standardized approach and “credit risk-weighted assets x 8% +

expected loss amount” under the internal ratings-based approach. Regarding exposures to be deducted from capital, the deduction amount is added to the amount of required
capital.

2. The above amounts are after credit risk mitigation.
3. There were no eligible purchased corporate receivables as of March 31, 2007.
4. “Other exposures” includes estimated lease residual values, purchased receivables and other assets.

Internal Ratings-Based (IRB) Approach

1. Scope

SMFG and the following consolidated subsidiaries have adopted the foundation IRB approach for exposures as of March 31, 2007.
(1) Domestic Operations

Sumitomo Mitsui Banking Corporation, Sumitomo Mitsui Card Company, Limited, SMBC Guarantee Co., Ltd. and SMBC Finance
Service Co., Ltd.

(2) Overseas Operations

Sumitomo Mitsui Banking Corporation Europe Limited, Sumitomo Mitsui Banking Corporation of Canada, Banco Sumitomo Mitsui
Brasileiro S.A., PT Bank Sumitomo Mitsui Indonesia, SMBC Leasing and Finance, Inc., SMBC Capital Markets, Inc., SMBC Capital
Markets Limited, and SMBC Derivative Products Limited

Further, of consolidated subsidiaries that have adopted the standardized approach for exposures as of March 31, 2007, SMBC Leasing
Company, Limited, THE MINATO BANK, LTD., and Kansai Urban Banking Corporation are scheduled to adopt the foundation IRB
approach from March 31, 2010.

Note: Directly controlled SPCs and limited partnerships for investment of consolidated subsidiaries using the foundation IRB approach have also adopted the

foundation IRB approach. Further, the IRB approach is applied to equity exposures on a group basis, including equity exposures of consolidated sub-
sidiaries applying the standardized approach.

SMFG 2007 125

■
2. Exposures by Asset Class
(1) Corporate Exposures

A. Corporate, Sovereign and Bank Exposures

(A) Rating Procedures

• “Corporate, sovereign and bank exposures” includes credits to domestic and overseas C&I companies, individuals for business pur-
poses (domestic only), sovereigns, public sector entities, and financial institutions. Business loans such as apartment construction
loans, and SME loans with standardized screening process (hereinafter referred to as “standardized SME loans”) are, in principle,
included in “retail exposures”. However, credits of more than ¥100 million are treated as corporate exposures in accordance with
the Notification.

• An obligor is assigned an obligor grade by first assigning a financial grade using a financial strength grading model and data

obtained from the obligor’s financial statements. The financial grade is then adjusted taking into account the actual state of the
obligor’s balance sheet and qualitative factors to derive the obligor grade (for details, please refer to “Credit Risk Assessment and
Quantification” on page 38). Different rating series are used for domestic and overseas obligors – J1 ~ J10 for domestic obligors
and G1 ~ G10 for overseas obligors – as shown below due to differences in actual default rate levels and portfolios’ grade distribu-
tion. Different PD (Probability of Default) values are applied also.

• In addition to the above basic rating procedure which builds on the financial grade assigned at the beginning, in some cases, the

obligor grade is assigned based on the parent company’s credit quality or credit ratings published by external rating agencies. The
Japanese government, local authorities and other public sector entities with special basis for existence and unconventional finan-
cial statements are assigned obligor grades based on their attributes (for example, “local municipal corporations”), as the data on
these obligors are not suitable for conventional grading models. Further, credits to individuals for business purpose, business loans
and standardized SME loans are assigned obligor grades using grading models developed specifically for these exposures.

• PDs used for calculating credit risk-weighted assets are estimated based on the default experience for each grade and taking into

account possibility of estimation errors. In addition to internal data, external data are used to estimate and validate PDs. The defi-
nition of default is the definition stipulated in the Notification (an event that would lead to an exposure being classified as “sub-
standard loans,” “doubtful assets” or “bankrupt and quasi-bankrupt assets” occurring to the obligor).

Obligor Grade

Domestic
Corporate

Overseas
Corporate

J1
J2
J3
J4

G1
G2
G3
G4

J7R

G7R

J10

G10

Definition

Very high certainty of debt repayment
High certainty of debt repayment
Satisfactory certainty of debt repayment
Debt repayment is likely but this could change in cases of
significant changes in economic trend or business environment
No problem with debt repayment over the short term, but not
satisfactory over the mid to long term and the situation could
change in cases of significant changes in economic trend or
business environment
Currently no problem with debt repayment, but there are unstable
business and financial factors that could lead to debt repayment
problems
Close monitoring is required due to problems in meeting loan
terms and conditions, sluggish/unstable business, or financial
problems
Of which substandard borrowers
Currently not bankrupt, but experiencing business difficulties,
making insufficient progress in restructuring, and highly likely
to go bankrupt
Though not yet legally or formally bankrupt, has serious business
difficulties and rehabilitation is unlikely; thus, effectively bankrupt
Legally or formally bankrupt

Borrower Category

Normal Borrowers

Borrowers Requiring Caution

Substandard Borrowers

Potentially Bankrupt Borrowers

Effectively Bankrupt Borrowers

Bankrupt Borrowers

126

SMFG 2007

(B) Portfolio

a. Domestic Corporate, Sovereign and Bank Exposures

March 31, 2007

Total

Billions of yen
Exposure amount
On-balance
sheet assets

Off-balance
sheet assets

Weighted-
average PD

Weighted-
average LGD

Weighted-
average
risk weight

J1-J3 ........................................................... ¥18,261.6
14,378.6
J4-J6 ...........................................................
J7 (excluding J7R) ......................................
1,978.0
Japanese government and
10,983.0
local municipal corporations ............................
6,793.1
Other ...........................................................
Default (J7R, J8-J10) ..................................
991.9
Total ............................................................ ¥53,386.2
Notes: 1. “Other” includes exposures guaranteed by credit guarantee corporations, exposures to public sector entities and voluntary organizations, and exposures to

10,875.2
6,016.1
965.0
¥44,321.7

107.8
777.0
26.9
¥9,064.5

¥13,350.4
11,355.4
1,759.6

0.00
1.26
100.00
—

¥4,911.1
3,023.2
218.4

44.70
43.48
43.45
—

44.97%
41.78
40.63

0.10%
0.84
10.67

0.46
70.91
—
—

22.88%
63.13
161.66

obligors not assigned obligor grades because they have yet to close their books (for example, newly established companies), as well as business loans and stan-
dardized SME loans of more than ¥100 million.

2. “LGD” stands for loss given default.

b. Overseas Corporate, Sovereign and Bank Exposures

March 31, 2007

Total

Billions of yen
Exposure amount
On-balance
sheet assets

Off-balance
sheet assets

Weighted-
average PD

Weighted-
average LGD

Weighted-
average
risk weight

G1-G3 ......................................................... ¥12,579.4
670.4
G4-G6 .........................................................
152.0
G7 (excluding G7R) ....................................
163.6
Other ...........................................................
Default (G7R, G8-G10) ...............................
88.7
Total ............................................................ ¥13,654.1
Note: “Other” includes exposures to obligors not assigned obligor grades because they have yet to close their books (for example, newly established companies).

0.22%
1.71
27.13
0.94
100.00
—

¥5,595.3
192.0
80.5
42.1
10.9
¥5,920.8

¥6,984.1
478.4
71.5
121.5
77.8
¥7,733.3

43.73%
44.66
44.89
44.88
44.95
—

105.65
251.83
86.24
—
—

38.57%

B. Specialized Lending (SL)

(A) Rating Procedures

• “Specialized lending” is sub-classified into “project finance,” “object finance,” “commodity finance,” “income-producing real
estate” (IPRE) and “high-volatility commercial real estate” (HVCRE) in accordance with the Notification. Project finance is
financing of a single project, such as a power plant or transportation infrastructure, and cash flows generated by the project is the
primary source of repayment. Object finance includes aircraft finance and ship finance, and IPRE and HVCRE include real estate
finance (a primary example is non-recourse real estate finance). There were no commodity finance exposures as of March 31, 2007.

• Each SL product is assigned a grade using grading models based primarily on the expected loss ratio, and qualitative assessment.

As with obligor grades, there are ten grade levels but the definition of each grade differs from that of obligor grade which is
focused on PD.

Credit risk-weight asset amount for the SL category is calculated by mapping the expected loss-based facility grades to the

below five categories of the Notification.

SMFG 2007 127

(B) Portfolio

a. Project Finance, Object Finance and IPRE

March 31, 2007

Strong:

Residual term less than 2.5 years...................
Residual term 2.5 years or more.....................

Good:

Residual term less than 2.5 years...................
Residual term 2.5 years or more.....................
Satisfactory .........................................................
Weak...................................................................
Default ................................................................
Total....................................................................

b. HVCRE
March 31, 2007

Strong:

Risk weight

Project finance

Billions of yen
Object finance

50%
70%

70%
90%
115%
250%
—

¥100.4
435.9

34.8
146.8
31.4
22.7
3.6
¥775.6

Risk weight

Billions of yen

¥ 3.2
64.8

1.0
10.0
9.0
8.2
—
¥96.3

IPRE

¥ 274.6
695.7

44.7
105.0
56.4
1.5
—
¥1,177.9

Residual term less than 2.5 years...................
Residual term 2.5 years or more.....................

Good:

70%
95%

95%
120%
140%
250%
—

¥ 5.9
5.6

86.8
46.4
162.0
—
—
¥306.7

(2) Retail Exposures

A. Residential Mortgage Exposures

(A) Rating Procedures

• “Residential mortgage exposures” includes mortgage loans to individuals and some real estate loans in which the property consists
of both residential and commercial facilities such as a store or rental apartment units, but excludes apartment construction loans.

• Mortgage loans are rated as follows.

Mortgage loans are allocated to a portfolio segment with similar risk characteristics in terms of (a) default risk determined using
loan contract information, results of exclusive grading model and borrower category under self-assessment executed in accordance
with the financial inspection manual of the Japanese FSA, and (b) recovery risk at time of default determined using LTV (Loan To
Value) calculated based on the assessment value of collateral real estate. PDs and LGDs are estimated based on the default experi-
ence for each segment and taking into account possibility of estimation errors.

Further, the portfolio is subdivided based on the lapse of years from contract date and the effectiveness of segmentation in

terms of default risk and recovery risk is validated periodically.

Internal data are used to estimate and validate PDs and LGDs. The definition of default is the definition stipulated in the

Notification.

(B) Portfolio

March 31, 2007

Mortgage loans
PD segment:

Not delinquent

Billions of yen
Exposure amount
On-balance
sheet assets

Total

Off-balance
sheet assets

Weighted-
average PD

Weighted-
average LGD

Weighted-
average
risk weight

25.11%
Use model ....................................
67.60
Other ............................................
287.54
Delinquent .........................................
26.54
Default ........................................................
—
Total ............................................................
Notes: 1. “Delinquent” loans are past due loans and loans to obligors categorized as “Borrowers Requiring Caution” that do not satisfy the definition of default stipu-

¥8,925.2
915.3
39.1
119.3
¥9,998.9

0.32%
0.62
26.34
100.00
—

¥8,818.8
915.3
31.9
116.7
¥9,882.7

45.91%
70.60
51.49
46.09
—

¥106.4
—
7.3
2.6
¥116.2

lated in the Notification.

2. “Other” includes loans guaranteed by employers.

128

SMFG 2007

B. Qualifying Revolving Retail Exposures (QRRE)

(A) Rating Procedures

• “Qualifying revolving retail exposures” includes card loans and credit card balances.
• Card loans and credit card balances are rated as follows.

Card loans and credit card balances are allocated to a portfolio segment with similar risk characteristics determined based, for card
loans, on the credit quality of loan guarantee company, credit limit, settlement account balance and payment history, and, for
credit card balances, on repayment history and frequency of use.

PDs and LGDs used to calculate credit risk-weighted asset amounts are estimated based on the default experience for each

segment and taking into account possibility of estimation errors.

Further, the effectiveness of segmentation in terms default risk and recovery risk is validated periodically; internal data are

used to estimate and validate PDs and LGDs; and the definition of default is the definition stipulated in the Notification.

(B) Portfolio

March 31, 2007

Card loans

PD segment:

Billions of yen

Exposure amount

On-balance sheet assets

Total

Balance

Increase

Off-balance
sheet
assets

Undrawn
amount

Average
CCF

Weighted- Weighted- Weighted-
average
average
average
risk weight
LGD
PD

Not delinquent... ¥ 430.4
Delinquent ......
29.9
Credit card balances
PD segment:

Not delinquent...
Delinquent ......
Default .....................

904.3
6.0
14.4

¥ 356.3
29.2

¥ 74.1
0.7

¥— ¥ 141.8
4.3

—

52.24%
15.33

2.45% 79.11%
9.81

81.16

58.93%

126.30

599.4
4.9
12.3

305.0
1.1
2.2

— 3,497.3
—
—
—
—

8.72
—
—

1.09
71.46
100.00

80.49
83.42
83.22

26.27
152.96
48.93

Total......................... ¥1,385.1
Notes: 1. On-balance sheet exposure amount is estimated by estimating the amount of increase in each transaction balance and not by multiplying the undrawn amount

¥— ¥3,643.4

¥1,002.1

¥383.0

—

by CCF (credit conversion factor).

2. “Average CCF” is “on-balance sheet exposure amount ÷ undrawn amount” and provided for reference only. It is not used for estimating on-balance sheet expo-

sure amounts.

3. Past due loans of less than three months are recorded in “delinquent.”

SMFG 2007 129

C. Other Retail Exposures
(A) Rating Procedures

• “Other retail exposures” includes business loans such as apartment construction loans, standardized SME loans, and consumer

loans such as My Car Loan.

• Business loans, standardized SME loans and consumer loans are rated as follows.

a. Business loans and standardized SME loans are allocated to a portfolio segment with similar risk characteristics in terms of (a)
default risk determined using loan contract information, results of exclusive grading model and borrower category under self-
assessment executed in accordance with the financial inspection manual of the Japanese FSA, and (b) recovery risk determined
based on, for standardized SME loans, obligor attributes and, for business loans, LTV. LGD is estimated based on the default
experience for each segment and taking into account possibility of estimation errors.

b. Rating procedures for consumer loans depends on whether the loan is collateralized. Collateralized consumer loans are allocated

to a portfolio segment using the same standards as for mortgage loans of “A. Residential Mortgage Exposures.”
Uncollateralized consumer loans are allocated to a portfolio segment based on account history. PDs and LGDs are estimated
based on the default experience for each segment and taking into account possibility of estimation errors.

Further, the effectiveness of segmentation in terms default risk and recovery risk is validated periodically, and internal data

are used to estimate and validate PDs and LGDs. The definition of default is the definition stipulated in the Notification.

(B) Portfolio

March 31, 2007

Business loans
PD segment:

Not delinquent

Billions of yen
Exposure amount
On-balance
sheet assets

Total

Off-balance
sheet assets

Weighted-
average PD

Weighted-
average LGD

Weighted-
average
risk weight

Use model ....................................
Other ............................................
Delinquent .........................................

¥1,805.5
208.7
352.2

¥1,790.1
208.7
348.5

Consumer loans
PD segment:

Not delinquent

Use model ....................................
Other ............................................
Delinquent .........................................
Default ........................................................
Total ............................................................
Notes: 1. “Business loans” includes apartment construction loans and standardized SME loans.

356.3
247.1
36.9
184.0
¥3,171.5

370.1
249.3
37.2
195.8
¥3,218.8

¥15.4
0.0
3.7

13.8
2.3
0.3
11.8
¥47.3

1.82%
1.78
10.99

60.42%
53.09
60.21

64.34%
62.24
98.65

1.47
1.76
23.10
100.00
—

45.11
66.29
49.81
56.46
—

51.30
64.45
116.06
44.71
—

2. “Delinquent” loans are past due loans and loans to obligors categorized as “Borrowers Requiring Caution” that do not satisfy the definition of default stipu-

lated in the Notification.

3. “Other” includes loans guaranteed by employers.

130

SMFG 2007

(3) Equity Exposures and Credit Risk-Weighted Assets under Article 145 of the Notification

A. Equity Exposures

(A) Rating Procedures

When acquiring equities subject to the PD/LGD approach, issuers are assigned obligor grades using the same rules as those of gen-
eral credits to C&I companies, sovereigns and financial institutions. The obligors are monitored (for details, please refer to page 39)
and their grades are revised if necessary (credit risk-weighted asset amount is set to 1.5 times when they are not monitored individu-
ally). In the case there is no credit transaction with the issuer or it is difficult to obtain financial information, internal grades are
assigned using ratings of external rating agencies if it is a qualifying investment. In the case it is difficult to obtain financial infor-
mation and it is not a qualifying investment, the simple risk weight method under the market-based approach is applied.

(B) Portfolio

a. Equity Exposure Amounts

March 31, 2007

Billions of yen

Market-based approach ................................................................................................................................
Simple risk weight method .......................................................................................................................
Listed equities (300%) ........................................................................................................................
Unlisted equities (400%) .....................................................................................................................
Internal models method ...........................................................................................................................
PD/LGD approach.........................................................................................................................................
Grandfathered equity exposures...................................................................................................................
Total ..............................................................................................................................................................
Notes: 1. The above exposures are equity exposures stipulated in the Notification and differ from “stocks” described in the consolidated financial statements.

¥ 166.8
166.8
45.6
121.2
—
367.5
3,965.0
¥4,499.3

2. “Grandfathered equity exposures” amount was calculated in accordance with Supplementary Provision No. 15 of the Notification.

b. PD/LGD Approach

March 31, 2007

Exposure
amount

Billions of yen
Weighted-
average PD

Weighted-average
risk weight

J1-J3 ..................................................................................................
J4-J6 ..................................................................................................
J7 (excluding J7R) .............................................................................
Other ..................................................................................................
Default (J7R, J8-J10) .........................................................................
Total ...................................................................................................
Notes: 1. The above exposures are “equity exposures” stipulated in the Notification to which the PD/LGD approach is applied and differ from “stocks” of consolidated

0.05%
0.47
9.30
2.24
100.00
—

¥350.0
8.9
4.4
4.2
0.0
¥367.5

105%
176
432
275
—
—

financial statements.

2. “Other” includes exposures to public sector entities.

B. Credit Risk-Weighted Assets under Article 145 of the Notification

(A) Rating Procedures

Exposures under Article 145 of the Notification include credits to funds. In the case of such exposures, in principle, each underlying
asset of the fund is assigned an obligor grade to calculate the asset’s credit risk-weighted asset amount and the amounts are totalized
to derive the credit risk-weighted asset amount of the fund. When stocks account for more than half of the underlying assets of the
fund, or it is difficult to directly calculate the credit risk-weighted asset amount of individual underlying assets, the credit risk-
weight asset amount of the fund is calculated using the simple majority adjustment method, in which the equity exposure’s risk
weight is applied to the entire fund, or the simple risk weight method (risk weight of 400% or 1,250%).

(B) Portfolio

March 31, 2007

Billions of yen

Exposures under Article 145 of the Notification ............................................................................................

¥1,896.2

SMFG 2007 131

(4) Securitization Exposures

A. Risk Management Policies and Procedures

Definition of securitization exposure has been clarified in order to properly identify, measure, evaluate and report risks, and a risk
management department, independent of business units, has been established to centrally manage risks from recognizing securitiza-
tion exposures to measuring, evaluating and reporting credit risk-weighted assets.
The Group takes one of the following positions in securitization transactions.

• Originator (a direct or indirect originator of underlying assets; or a sponsor of an ABCP conduit or a similar program that acquires

exposures from third-party entities)

• Investor
• Other (for example, provider of swap for preventing a mismatch between dividend on trust beneficiary rights and cash flows gener-

ated by underlying assets on which the rights are issued)

B. Credit Risk-Weighted Asset Calculation Methodology

There are three method of calculating the credit risk-weighted asset amount of securitization exposures subject to the IRB approach:
the external ratings-based approach, supervisory formula, and internal assessment approach. The methods are used as follows.
• First, securitization exposures are examined and the external ratings-based approach is applied to qualifying exposures.
• The remaining exposures are examined and the supervisory formula is applied to qualifying exposures.
• The remaining exposures are deducted from capital (risk weight of 1,250%).

Credit risk-weighted asset amount for securitization exposures subject to the standardized approach is calculated mostly using
ratings published by qualifying rating agencies or based on weighted-average risk weights of underlying assets as stipulated in the
Notification.

C. Accounting Policy on Securitization Transactions

Accounting treatment of securitization of financial assets is as follows. Extinguishment of financial assets is recognized when the con-
tractual rights over the financial assets is exercised, forfeited or control over the rights is transferred to a third-party, and the difference
between the book value of the financial assets and the amount received/paid is recorded as the term’s gain/loss. When the control over
the contractual rights is not deemed to have been transferred, the securitization transaction is treated as a financial transaction such as
a mortgage loan.

When a portion of financial assets satisfies the extinguishment condition, the extinguishment of the said portion is recognized

and the difference between the book value of the extinguished portion and the amount received/paid is recorded as the term’s
gain/loss. The book value of the extinguished portion is calculated by allocating the book value of the financial assets based on the
proportion of the financial assets’ fair value that the extinguished portion represents.

Further, the remaining portion is subject to self-assessment, and write-offs and provisions are made as necessary.

D. Qualifying External Ratings Agencies

When computing credit risk-weighted asset amounts for securitization exposures using the external rating-based approach under the
IRB approach or standardized approach, the risk weights are determined by mapping the ratings of qualifying rating agencies to the
risk weights stipulated in the Notification. The qualifying rating agencies are Rating and Investment Information, Inc., Japan Credit
Rating Agency, Ltd., Moody’s Investors Service, Inc., Standard & Poor’s Ratings Services, and Fitch Ratings Ltd. When there are
more than one rating for an exposure, the second smallest risk weight is used.

132

SMFG 2007

E. Portfolio

(A) Securitization Transactions as Originator
a. As Originator (excluding as Sponsor)
(a) Underlying Assets

March 31, 2007
Underlying asset amount
Asset
transfer
type

Synthetic
type

Total

Claims on corporates ...................... ¥ 330.2
Mortgage loans................................
1,550.9
Retail loans

¥ 181.5
1,550.9

¥148.7
—

Billions of yen

Fiscal 2006

Securitized
amount

¥ 520.5
789.7

Default
amount

¥13.3
0.3

Loss
amount

¥4.3
0.0

—
450.4
(excluding mortgage loans) ...........
5.9
Other claims ....................................
174.7
¥1,738.4
Total ................................................ ¥2,506.3
Notes: 1. The above amounts include the amount of underlying assets securitized during the term without entailing securitization exposure.
2. “Default amount” is the total of underlying assets which are past due three months or more and defaulted underlying assets.
3. There were no securitization exposures subject to early amortization provision.
4. There were no credit risk-weighted assets calculated using Supplementary Provision 15 of the Notification.
5. “Other claims” includes claims on PFI (Private Finance Initiative) businesses and lease fees.

341.2
0.4
¥1,651.7

450.4
168.8
¥768.0

20.1
0.0
¥33.7

2.1
0.2
¥6.6

Gains/losses
on sales

¥ —
26.8

—
—
¥26.8

(b) Securitization Exposures

i. Underlying Assets by Asset Type

March 31, 2007

Term-end balance

Claims on corporates....................................................................
Mortgage loans.............................................................................
Retail loans (excluding mortgage loans) ......................................
Other claims .................................................................................
Total..............................................................................................

¥183.4
142.7
111.1
8.4
¥445.6

ii. Risk Weights

March 31, 2007

Billions of yen
To be deducted
from capital

Increase in
capital equivalent

¥ 1.7
29.9
6.8
8.4
¥46.7

¥ —
40.1
—
—
¥40.1

Billions of yen

Term-end balance

Required capital

20% or less...................................................................................................................
100% or less.................................................................................................................
650% or less.................................................................................................................
Capital deduction..........................................................................................................
Total .............................................................................................................................

¥175.1
76.7
2.0
191.8
¥445.6

¥ 1.2
1.0
0.7
46.7
¥49.6

SMFG 2007 133

b. As Sponsor
(a) Underlying Assets

Claims on corporates......................
Mortgage loans ...............................
Retail loans

March 31, 2007
Underlying asset amount
Asset
transfer
type

¥1,014.3
—

Total

¥1,014.3
—

Billions of yen

Fiscal 2006

Synthetic
type

¥—
—

Securitized
amount

¥5,898.5
—

Default
amount

¥206.0
—

0.0
(excluding mortgage loans) ..........
1.5
Other claims....................................
¥207.5
Total................................................
Notes: 1. The above amounts include the amount of underlying assets securitized during the term without entailing securitization exposure.

37.1
124.2
¥1,175.6

0.5
175.0
¥6,074.0

—
—
¥—

Loss
amount

¥204.8
—

0.0
1.3
¥206.0

2. “Default amount” is the amount of defaulted underlying assets and those past due three months or more.
3. “Default amount” and “loss amount” when acting as a sponsor of securitization of customer claims are estimated using the following methods and alterna-

tive data are used as it is difficult to obtain relevant data in a timely manner because the underlying assets are recovered by the customer.
(1) “Default amount” estimation method

• For securitization transactions subject to the external ratings-based approach, the amount is estimated based on information on underlying assets

obtainable from customers, etc.

• For securitization transactions subject to supervisory formula, the amount is estimated based on obtainable information on, or default rate of, each
obligor. Further, when it is difficult to estimate the amount using either method, it is conservatively estimated by assuming that the underlying
asset is a default asset.

(2) “Loss amount” estimation method

• For securitization transactions subject to the external ratings-based approach, the amount is the same amount as the default amount estimated con-

servatively in (1) above.

• For securitization transactions subject to supervisory formula, when expected loss ratios of defaulted underlying assets can be determined, the amount

is estimated using the ratios. When it is difficult to determine the ratios, the amount is the same amount as the default amount estimated in (1)
above.

4. “Other claims” includes lease fees.
5. There were no securitization exposures subject to early amortization provision.
6. There were no credit risk-weighted assets calculated using Supplementary Provision 15 of the Notification.

(b) Securitization Exposures

i. Underlying Assets by Asset Type

March 31, 2007

Term-end balance

¥807.7
—
37.1
100.3
¥945.1

ii. Risk Weights

March 31, 2007

Billions of yen
To be deducted
from capital

Increase in
capital equivalent

¥13.1
—
—
—
¥13.1

¥—
—
—
—
¥—

Billions of yen

Term-end balance

Required capital

¥809.4
103.1
18.9
13.7
¥945.1

¥ 5.6
3.7
2.4
13.1
¥24.9

134

SMFG 2007

(B) Securitization Transactions in which the Group is the Investor

a. Securitization Exposures
(a) Underlying Assets by Asset Type

March 31, 2007

Term-end balance

¥301.6
379.3
17.8
124.0
¥822.8

Billions of yen
To be deducted
from capital

Increase in
capital equivalent

¥76.9
—
—
1.3
¥78.2

¥—
—
—
—
¥—

2. There were no credit risk-weighted assets calculated using Supplementary Provision 15 of the Notification.

(b) Risk Weights

March 31, 2007

Billions of yen

Term-end balance

Required capital

¥668.5
26.2
—
128.1
¥822.8

¥ 4.7
1.6
—
78.2
¥84.4

(5) Analysis of Actual Losses

A. Comparison of Actual Losses This and Previous Fiscal Years

SMFG recorded total credit cost (general provisions, nonperforming loan write-offs and gains on collection of written-off claims) of
¥145.0 billion on a consolidated basis in fiscal 2006, a year-over-year decrease of ¥157.0 billion.

SMBC recorded ¥89.5 billion in total credit cost on a nonconsolidated basis in fiscal 2006, a year-over-year decrease of ¥141.4 bil-

lion, attributable mainly to improvement in asset quality. In terms of exposure category, credit cost for corporate exposures increased
¥9.6 billion yen to ¥58.7 billion, and credit cost for other retail exposures increased ¥10.3 billion yen to ¥43.9 billion, mainly due to
higher default rates.

Total Credit Cost (Notes 1, 2 and 3)

Fiscal 2006

Billions of yen
Fiscal 2005

Increase (decrease)

SMFG (consolidated) total........................................................................
SMBC (consolidated) total........................................................................
SMBC (nonconsolidated) total..................................................................
Corporate exposures ...........................................................................
Sovereign and bank exposures ...........................................................
Residential mortgage exposures .........................................................
QRRE ..................................................................................................
Other retail exposures .........................................................................

¥145.0
122.9
89.5
58.7
(0.7)
0.5
(0.1)
43.9

¥302.0
275.0
230.9
49.1
(0.4)
(0.1)
0.7
33.6

¥(157.0)
(152.1)
(141.4)
9.6
(0.3)
0.6
(0.8)
10.3

Notes: 1. The above amounts do not include credit costs for equity exposures and exposures on capital market-driven transactions, and gains/losses on exposures subject to

Article 145 of the Notification.

2. Exposure category amounts do not include general provisions for Normal Borrowers.
3. Bracketed fiscal year amount indicates gains generated by reversal of provisions, etc.
4. Credit costs for residential mortgages and QRRE guaranteed by consolidated subsidiaries are not included in the total credit cost of SMBC (nonconsolidated).

B. Comparison of Estimated and Actual Losses

Loss estimates will be evaluated in comparison with actual loss experience starting in fiscal 2007 as SMFG will begin estimating losses
in accordance with the Notification in fiscal 2007.

SMFG 2007 135

Standardized Approach

1. Scope

The following consolidated subsidiaries have adopted the standardized approach for exposures as of March 31, 2007 (i.e. consolidated sub-
sidiaries not listed in “IRB Approach: 1. Scope” on page 125).

(1) Consolidated subsidiaries planning to adopt phased rollout of foundation IRB approach

SMBC Leasing Company, Limited, THE MINATO BANK, LTD., and Kansai Urban Banking Corporation
The three subsidiaries will adopt the foundation IRB approach from March 31, 2010.

(2) Other consolidated subsidiaries

These are consolidated subsidiaries judged not to be significant in terms of credit risk management based on the type of business, scale
and other factors. These subsidiaries will adopt the standardized approach on a permanent basis.

2. Credit Risk-Weighted Asset Calculation Methodology

A 100% risk weight is applied to claims on corporates in accordance with Article 145 of the Notification, and risk weights corresponding to
country risk scores published by the Organization for Economic Co-operation and Development are applied to claims on sovereigns and
financial institutions.

3. Exposure Balance by Risk Weight Segment

March 31, 2007

Billions of yen

Assigned
country risk score

0%...................................................................................................................................................
10%.................................................................................................................................................
20%.................................................................................................................................................
35%.................................................................................................................................................
50%.................................................................................................................................................
75%.................................................................................................................................................
100%...............................................................................................................................................
150%...............................................................................................................................................
Total ................................................................................................................................................
Notes: 1. The above amounts are exposures amounts after credit risk mitigation (before deduction of direct write-offs).

2. Equity exposures are not included.

¥1,078.7
562.3
574.4
1,247.5
97.7
643.5
5,128.1
16.6
¥9,348.9

¥ 83.7
—
261.9
—
1.9
—
0.4
—
¥348.0

136

SMFG 2007

■
■ Credit Risk Mitigation Techniques
1. Credit Risk Management Policy and Procedures

Credit risk mitigation (CRM) techniques are taken into account in calculating credit risk-weighted asset amounts. Specifically, amounts are
adjusted for eligible financial or real estate collateral, guarantees or credit derivatives, or by netting loans against obligors’ deposits.

(1) Scope and Management

A. Collateral (Eligible Financial or Real Estate Collateral)

SMBC designates deposits and securities as eligible financial collateral, and land and buildings as eligible real estate collateral.

Real estate collateral is evaluated taking into account its fair value, appraisal value, and current condition, and our lien position.

Real estate collateral must maintain sufficient collateral value in the event security rights must be exercised due to delinquency.
However, during the period from acquiring the rights to exercising the rights, the property may deteriorate or suffer damages from
natural disasters, or there may be changes in lien position due to, for example, attachment or establishment of lien by a third-party.
Therefore, regular monitoring of collateral is implemented according to the type of property and the type of security interest.

B. Guarantees and Credit Derivatives

Guarantors are sovereigns, municipal corporations, credit guarantee corporations and other public sector entities, financial institutions
and C&I companies. Counterparties to credit derivative transactions are mostly domestic and overseas banks and securities companies.
Credit risk-weight asset amounts are calculated taking into account credit risk mitigation of guarantees and credit derivatives
acquired from entities with sufficient ability to provide protection such as sovereigns, municipal corporations and other public sector
entities of comparable credit quality, and financial institutions and C&I companies with sufficient credit ratings.

C. Netting of Loans against Deposits

SMBC verifies the legal effectiveness of netting arrangement for loans and deposits for each transaction. Specifically, lending transac-
tions subject to netting of loans against deposits are stipulated in the “Agreement on Bank Transactions”, and fixed-term deposits
which have fixed maturity and cannot be transferred to third-party entities are subject to netting. Regarding deposits with us submit-
ted as collateral, their effect as credit risk mitigant is taken into account under the above A. eligible financial collateral framework.

Further, daily maturity and balance (including post-netting situation) monitoring of subject loans and deposits is implemented in
accordance with the Notification. When there is a maturity/currency mismatch, netting is executed after making adjustments as stip-
ulated in the Notification, and credit risk-weighted asset amount is calculated after netting.

(2) Concentration of Credit Risk and Market Risk

At SMBC, there is a framework in place for controlling concentration of risk in obligors with large exposures which includes credit limit
guidelines, risk concentration monitoring, and reporting to Credit Risk Committee (please refer to page 41). Further, exposures to these
obligors are monitored on a group basis, taking into account risk concentration in their parent companies in cases of guaranteed
exposures.

When marketable financial products (for example, credit derivatives) are used as credit risk mitigants, market risk generated by

these products is controlled by setting upper limits.

2. Exposure Balance after CRM

March 31, 2007

Billions of yen

Eligible financial
collateral

Eligible real
estate collateral

¥2,325.5
1,675.0
0.1
650.4
133.4
¥2,458.9

¥2,661.4
2,660.2
1.2
0.1
—
¥2,661.4

March 31, 2007

Billions of yen

Guarantee

Credit derivative

Foundation IRB approach ...............................................................................................................
Corporate exposures .................................................................................................................
Sovereign exposures .................................................................................................................
Bank exposures .........................................................................................................................
Residential mortgage exposures ...............................................................................................
QRRE ........................................................................................................................................
Other retail exposures ...............................................................................................................
Standardized approach...................................................................................................................
Total ................................................................................................................................................

¥3,659.7
3,044.9
58.3
294.8
261.3
—
0.4
90.2
¥3,749.9

¥226.0
226.0
—
—
—
—
—
—
¥226.0
SMFG 2007 137

■ Derivative Transactions
1. Risk Management Policy and Procedures

(1) Policy on Collateral Security and Impact of Deterioration of Our Credit Quality

Collateralized derivative is a CRM technique in which collateral is delivered or received regularly in accordance with replacement cost.
The Group conducts collateralized derivative transactions as necessary, thereby reducing credit risk. In the event our credit quality dete-
riorates, however, the counterparty may demand additional collateral, but its impact is deemed to be insignificant.

(2) Netting

Netting is another CRM technique, and “close-out netting” is the main type of netting. In close-out netting, when a default event, such
as bankruptcy, occurs to the counterparty, all claims against, and obligations to, the counterparty, regardless of maturity and currency,
are netted out to create a single claim or obligation.

Close-out netting is applied to foreign exchange and swap transactions covered under a master agreement with a net-out clause or

other means of securing legal effectiveness, and the effect of CRM is taken into account only for such claims and obligations.

2. Credit Equivalent Amounts
(1) Derivative Transactions
A. Calculation Method

Current exposure method

B. Credit Equivalent Amounts

March 31, 2007

Billions of yen

Gross replacement cost ...................................................................................................................................
Gross add-on amount.......................................................................................................................................
Gross credit equivalent amount........................................................................................................................
Foreign exchange related transactions .......................................................................................................
Interest rate related transactions.................................................................................................................
Gold related transactions ............................................................................................................................
Equities related transactions .......................................................................................................................
Precious metals (excluding gold) related transactions ...............................................................................
Other commodity related transactions ........................................................................................................
Credit default swaps....................................................................................................................................
Reduction in credit equivalent amount due to netting ......................................................................................
Net credit equivalent amount............................................................................................................................
Collateral amount .............................................................................................................................................
Qualifying financial collateral ......................................................................................................................
Qualifying real estate collateral ...................................................................................................................
Net credit equivalent amount (after taking into account credit risk mitigation effect of collateral) ....................
Note: Net credit equivalent amount was the same before and after taking into account the CRM effect of collateral as the foundation IRB approach and simple approach of

¥2,901.8
3,931.1
6,832.9
2,932.7
3,616.1
—
2.3
—
265.1
16.7
3,253.1
3,579.8
216.6
122.7
93.9
¥3,579.8

the standardized approach have been adopted.

(2) Notional Principal Amounts of Credit Derivatives

March 31, 2007

Billions of yen

Notional principal
amount

Of which for CRM

Protection purchased................................................................................................................
Protection provided...................................................................................................................

¥1,260.4
1,067.4

¥226.0
—

138

SMFG 2007

■ Market Risk
1. Scope

The following approaches are used to calculate market risk equivalent amounts.

(1) Internal Models Approach

General market risk of SMBC, Sumitomo Mitsui Banking Corporation Europe Limited, SMBC Capital Markets, Inc., SMBC Capital
Markets Limited, and SMBC Derivative Products Limited

(2) Standardized Measurement Method

• Specific risk
• General market risk of consolidated subsidiaries other than SMBC, Sumitomo Mitsui Banking Corporation Europe Limited, SMBC

Capital Markets, Inc., SMBC Capital Markets Limited, and SMBC Derivative Products Limited

2. Valuation Method Corresponding to Transaction Characteristics

All assets and liabilities held in the trading book – therefore, subject to calculation of market risk equivalent amount – are transactions with
high market liquidity. Securities and monetary claims are carried at the fiscal year-end market price, and 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.

■ Operational Risk
1. Methodology for Calculating Operational Risk Equivalent Amounts

The Basic Indicator Approach has been adopted to calculate operational risk equivalent amounts as of March 31, 2007.

■ Equity Exposures in Banking Book
1. Risk Management Policy and Procedures

Securities in the banking book are properly managed, for example, by setting upper limits on the allowable amount of risk under the market
or credit risk management framework selected according to their holding purpose and risk characteristics. For securities held as “other secu-
rities,” the upper limits are also set in terms of price fluctuation risk.

Regarding stocks of subsidiaries, assets and liabilities of subsidiaries are managed on a consolidated basis, and risks related to stocks of
affiliates are recognized separately. Their risk as equity is not measured as upper limits on the allowable amount of risk are set for stocks of
subsidiaries and affiliates, and the limits are established within the “risk capital limit” of SMFG, taking into account the financial and busi-
ness situations of the subsidiaries and affiliates.

2. Valuation of Securities in Banking Book and Other Significant Accounting Policies

Stocks of subsidiaries and affiliates are carried at amortized cost using the moving-average method. Other securities with market prices are
carried at their average market prices during the final month of the fiscal year. Securities other than these securities are carried at their fiscal
year-end market prices (cost of securities sold is calculated using primarily the moving-average method) and those with no available market
prices are carried at cost using the moving-average method.

Net unrealized gains (losses) on other securities, net of income taxes, are reported as a component of “net assets.” Derivative transactions

are carried at fair value.

3. Consolidated Balance Sheet Amounts and Fair Values

March 31, 2007

Billions of yen

Balance sheet amount

Fair value

Listed equity exposures ..................................................................................................................
Stocks of subsidiaries and affiliates and equity exposures other than above ................................
Total ...............................................................................................................................................

¥3,980.3
519.0
¥4,499.3

¥3,980.3
—
—

SMFG 2007 139

4. Gains (Losses) on Sale and Devaluation of Stocks of Subsidiaries and Affiliates and Equity Exposures

Fiscal 2006

Gains (losses) ...........................................................................................................................................................
Gains on sale ......................................................................................................................................................
Losses on sale ....................................................................................................................................................
Devaluation ..........................................................................................................................................................

Note: The above amounts are “gains (losses) on stocks and other securities” in the consolidated statements of income.

Billions of yen

¥44.7
62.8
1.5
16.6

5. Unrealized Gains (Losses) Recognized on Consolidated Balance Sheet but Not on Consolidated Statements of Income

March 31, 2007

Unrealized gains (losses) recognized on

Billions of yen

consolidated balance sheet but not on consolidated statements of income ............................................................

¥1,982.6

Note: The above amount is for stocks of Japanese companies and foreign stocks with market prices.

6. Unrealized Gains (Losses) Not Recognized on Consolidated Balance Sheet or Consolidated Statements of Income

March 31, 2007

Unrealized gains (losses) not recognized on

Billions of yen

consolidated balance sheet or consolidated statements of income.........................................................................

¥65.7

Note: The above amount is for stocks of affiliates with market prices.

Interest Rate Risk in Banking Book

Interest rate risk in the banking book fluctuates significantly depending on the method of recognizing maturity of demand deposits (such as cur-
rent accounts and ordinary deposits which funds can be withdrawn on demand) and the method of predicting early withdrawal from fixed-term
deposits and prepayment of consumer loans. Key assumptions made by SMBC in measuring interest rate risk in the banking book are as follows.

1. Method of Recognizing Maturity of Demand Deposits

The total amount of demand deposits expected to remain with the bank for the long term (with 50% of the lowest balance during the past
three years as the upper limit) is recognized as a core deposit amount and interest rate risk is measured for each maturity with 3 years as the
maximum term (the average is 1.5 years).

2. Method of Estimating Early Withdrawal from Fixed-term Deposits and Prepayment of Consumer Loans

Rate of early withdrawal from fixed-term deposits and rate of prepayment of consumer loans are estimated and the rates are used to calculate
cash flows used for measuring interest rate risk.

Outlier Framework (Sumitomo Mitsui Banking Corporation and Subsidiaries)
Banks experiencing declines in economic value of the banking book by more than 20% of the sum of Tier I and Tier II capital as a result of a
standardized interest rate shock are deemed “outlier banks” from fiscal 2006.

SMBC measures the amount of decline in economic value monthly. At the end of March 2007, the amount of decline in economic value was

2.1% of sum of Tier I and Tier II capital, far below the criterion of “outlier bank.”

Billions of yen
Decline in economic value

Impact of yen interest rate..............................................................................................................................................
Impact of US dollar interest rate.....................................................................................................................................
Impact of Euro interest rate ............................................................................................................................................
Total ...............................................................................................................................................................................
Total / Tier I + Tier II ......................................................................................................................................................
Note: “Decline in economic value” is the decline of present value after a standardized interest rate shock (1st and 99th percentile of observed interest rate changes using a 1 year holding

¥119.7
33.6
3.4
¥165.8

2.1%

period and 5 years of observations).

140

SMFG 2007

■
n Exposure Balance by Type of Assets, Geographic Region, Industry and Residual Term
1. Exposure Balance by Type of Asset, Geographic Region and Industry

Billions of yen

March 31, 2007

Loans, etc.

Bonds

Derivatives

Other

Total

Domestic operations (excluding offshore banking accounts)
Manufacturing.............................................................
Agriculture, forestry, fishery and mining .....................
Construction ...............................................................
Transport, information, communications and utilities....
Wholesale and retail ...................................................
Financial and insurance..............................................
Real estate .................................................................
Services......................................................................
Local municipal corporations ......................................
Other industries ..........................................................
Subtotal ......................................................................

Overseas operations and offshore banking accounts

¥ 8,135.7
179.1
1,772.1
3,793.9
6,982.3
7,593.2
8,766.4
7,010.9
1,133.8
18,412.1
¥63,779.4

Sovereigns..................................................................
Financial institutions ...................................................
C&I companies ...........................................................
Others.........................................................................
Subtotal ......................................................................
Total.................................................................................
Notes: 1. The above amounts are exposure amounts after credit risk mitigation.

315.8
2,473.8
8,964.0
2,075.2
¥13,828.8
¥77,608.2

132.7
1.1
57.9
137.7
64.3
1,275.2
89.1
65.6
750.2
7,912.8
¥10,486.5

82.5
243.9
258.8
350.4
¥
935.5
¥11,422.0

¥ 400.5
9.0
14.6
97.7
433.6
1,217.3
40.0
87.5
1.1
160.7
¥2,461.9

8.4
805.3
263.0
41.3
¥1,117.9
¥3,579.8

¥2,846.4
66.7
185.3
880.6
685.1
322.3
262.0
515.1
2.6
3,771.8
¥9,537.9

—
0.0
—
293.8
¥ 293.8
¥9,831.6

¥ 11,515.2
255.9
2,029.8
4,909.9
8,165.2
10,408.0
9,157.5
7,679.1
1,887.7
30,257.3
¥ 86,265.7

406.6
3,523.0
9,485.7
2,760.7
¥ 16,176.0
¥102,441.7

2. The above amounts do not include equity exposures and credit risk-weighted assets under Article 145 of the Notification.
3. “Domestic operations” comprises the operations of SMFG, its domestic consolidated banking subsidiaries (excluding overseas branches) and other domestic consolidated

subsidiaries. “Overseas operations” comprises the operations of the overseas branches of domestic consolidated banking subsidiaries and overseas consolidated subsidiaries.
4. “Loans, etc.” includes loans, commitments and off-balance sheet assets except other derivatives, and “Other” includes equity exposures and standardized approach applied

funds.

2. Exposure Balance by Residual Term

Billions of yen

March 31, 2007

Loans, etc.

Bonds

Derivatives

Other

Total

To 1 year .........................................................................
More than 1 year to 3 years.............................................
More than 3 years to 5 years...........................................
More than 5 years to 7 years...........................................
More than 7 years ...........................................................
No fixed maturity..............................................................
Total.................................................................................
Notes: 1. The above amounts are exposure amounts after credit risk mitigation.

¥22,237.0
11,762.0
11,734.2
4,508.1
20,365.9
7,000.9
¥77,608.2

¥ 3,747.2
1,628.6
1,451.8
1,382.4
3,212.1
—
¥11,422.0

¥ 389.4
1,232.6
1,058.7
431.9
467.2
—
¥3,579.8

¥ 176.6
503.0
621.5
162.9
110.4
8,257.2
¥9,831.6

¥ 26,550.3
15,126.2
14,866.1
6,485.3
24,155.7
15,258.2
¥102,441.7

2. The above amounts do not include equity exposures and credit risk-weighted assets under Article 145 of the Notification.
3. “Loans, etc.” includes loans, commitments and off-balance sheet assets except other derivatives, and “Other” includes equity exposures and standardized approach applied

funds.

4. “No fixed maturity” includes exposures not classified by residual term.

SMFG 2007 141

3. Term-end Balance of Exposures Past Due 3 Months or More or Defaulted and Their Breakdown

(1) By Geographic Region

March 31, 2007

Billions of yen

Domestic operations (excluding offshore banking accounts) ..............................................................................
Overseas operations and offshore banking accounts .........................................................................................
Asia ................................................................................................................................................................
North America ................................................................................................................................................
Other regions..................................................................................................................................................
Total .....................................................................................................................................................................
Notes: 1. “Domestic operations” comprises the operations of SMFG, its domestic consolidated banking subsidiaries (excluding overseas branches) and other domestic consoli-
dated subsidiaries. “Overseas operations” comprises the operations of the overseas branches of domestic consolidated banking subsidiaries and overseas consolidated
subsidiaries, and the term-end balances are calculated based on the obligor’s domicile country.

¥1,948.3
135.0
81.9
42.3
10.8
¥2,083.3

2. The above amounts are credits subject to self-assessment, including mainly off-balance sheet credits to obligors categorized as “Substandard Borrowers” or lower

under self-assessment.

3. The above amounts include partial direct write-offs (direct reductions).

(2) By Industry

March 31, 2007

Domestic operations (excluding offshore banking accounts)

Manufacturing.................................................................................................................................................
Agriculture, forestry, fishery and mining .........................................................................................................
Construction ...................................................................................................................................................
Transport, information, communications and utilities .....................................................................................
Wholesale and retail.......................................................................................................................................
Financial and insurance .................................................................................................................................
Real estate .....................................................................................................................................................
Services..........................................................................................................................................................
Other industries ..............................................................................................................................................
Subtotal ..........................................................................................................................................................

Overseas operations and offshore banking accounts

Billions of yen

¥ 123.6
6.3
196.4
155.8
170.5
16.6
556.5
452.2
270.4
¥1,948.3

Financial institutions .......................................................................................................................................
C&I companies ...............................................................................................................................................
Others.............................................................................................................................................................
Subtotal ..........................................................................................................................................................
Total .....................................................................................................................................................................
Notes: 1. “Domestic operations” comprises the operations of SMFG, its domestic consolidated banking subsidiaries (excluding overseas branches) and other domestic consoli-
dated subsidiaries. “Overseas operations” comprises the operations of the overseas branches of domestic consolidated banking subsidiaries and overseas consolidated
subsidiaries.

1.1
133.9
—
¥ 135.0
¥2,083.3

2. The above amounts are credits subject to self-assessment, including mainly off-balance sheet credits to obligors categorized as “Substandard Borrowers” or lower

under self-assessment.

3. The above amounts include partial direct write-offs (direct reductions).

4. Term-end Balances of General Reserve for Possible Loan Losses, Specific Reserve for Possible Loan Losses and Loan Loss Reserve

for Specific Overseas Countries
(1) By Geographic Region

March 31

2007

Billions of yen
2006

Increase (decrease)

General reserve for possible loan losses ..................................................
Loan loss reserve for specific overseas countries ....................................
Specific reserve for possible loan losses .................................................
Domestic operations (excluding offshore banking accounts) ..............
Overseas operations and offshore banking accounts .........................
Asia .................................................................................................
North America .................................................................................
Other regions ..................................................................................
Total ..........................................................................................................
Notes: 1. “Domestic operations” comprises the operations of SMFG, its domestic consolidated banking subsidiaries (excluding overseas branches) and other domestic consoli-
dated subsidiaries. “Overseas operations” comprises the operations of the overseas branches of domestic consolidated banking subsidiaries and overseas consolidated
subsidiaries, and the term-end balances are calculated based on the obligor’s domicile country.

¥ 683.6
1.9
693.7
661.0
32.7
14.1
12.9
5.7
¥1,379.2

¥ 742.6
2.4
1,089.6
1,048.4
41.2
21.9
16.2
3.1
¥1,834.6

¥ (59.0)
(0.5)
(395.9)
(387.4)
(8.5)
(7.8)
(3.3)
2.6
¥(455.4)

2. “Specific reserve for possible loan losses” includes partial direct write-offs (direct reductions).

142

SMFG 2007

(2) By Industry

March 31

2007

Billions of yen
2006

Increase (decrease)

General reserve for possible loan losses ..................................................
Loan loss reserve for specific overseas countries ....................................
Specific reserve for possible loan losses ..................................................
Domestic operations (excluding offshore banking accounts)...............
Manufacturing .................................................................................
Agriculture, forestry, fishery and mining..........................................
Construction ....................................................................................
Transport, information, communications and utilities ......................
Wholesale and retail .......................................................................
Financial and insurance ..................................................................
Real estate ......................................................................................
Services ..........................................................................................
Other industries...............................................................................
Overseas operations and offshore banking accounts ..........................
Financial institutions........................................................................
C&I companies................................................................................
Others .............................................................................................
........................................................................................................

¥ 683.6
1.9
693.7
661.0
43.6
0.4
37.5
48.7
82.7
8.7
157.7
154.6
127.1
32.7
0.9
31.8
—
¥1,379.2

¥ 742.6
2.4
1,089.6
1,048.4
43.5
0.5
141.9
62.8
70.8
57.1
301.7
273.9
96.2
41.2
0.7
40.5
—
¥1,834.6

¥ (59.0)
(0.5)
(395.9)
(387.4)
0.1
(0.1)
(104.4)
(14.1)
11.9
(48.4)
(144.0)
(119.3)
30.9
(8.5)
0.2
(8.7)
—
¥(455.4)

Total
Notes: 1. “Domestic operations” comprises the operations of SMFG, its domestic consolidated banking subsidiaries (excluding overseas branches) and other domestic consoli-
dated subsidiaries. “Overseas operations” comprises the operations of the overseas branches of domestic consolidated banking subsidiaries and overseas consolidated
subsidiaries.

2. “Specific reserve for possible loan losses” includes partial direct write-offs (direct reductions).

5. Loan Write-Offs by Industry

Fiscal 2006

Domestic operations (excluding offshore banking accounts)

Manufacturing ......................................................................................................................................................
Agriculture, forestry, fishery and mining...............................................................................................................
Construction .........................................................................................................................................................
Transport, information, communications and utilities ...........................................................................................
Wholesale and retail.............................................................................................................................................
Financial and insurance .......................................................................................................................................
Real estate ...........................................................................................................................................................
Services ...............................................................................................................................................................
Other industries....................................................................................................................................................
Subtotal ................................................................................................................................................................

Billions of yen

¥10.6
0.0
5.6
14.9
21.3
1.1
(10.2)
16.2
25.4
¥84.9

Overseas operations and offshore banking accounts

Financial institutions.............................................................................................................................................
C&I companies.....................................................................................................................................................
Others ..................................................................................................................................................................
Subtotal ................................................................................................................................................................
Total ...........................................................................................................................................................................
Note: “Domestic operations” comprises the operations of SMFG, its domestic consolidated banking subsidiaries (excluding overseas branches) and other domestic consolidated sub-
sidiaries. “Overseas operations” comprises the operations of the overseas branches of domestic consolidated banking subsidiaries and overseas consolidated subsidiaries.

¥ 0.0
(3.5)
—
¥ (3.5)
¥81.4

SMFG 2007 143

Income Analysis (Consolidated)

Sumitomo Mitsui Banking Corporation and Subsidiaries

Operating Income, Classified by Domestic and Overseas Operations

2007

2006

Millions of yen

Year ended March 31

Domestic Overseas
operations

operations Elimination

Total

Domestic Overseas
operations

operations Elimination

Total

Interest income .................................................... ¥1,411,367
419,280
Interest expenses ................................................
992,086
Net interest income....................................................

¥593,969
408,872
185,097

¥(55,102)
(31,373)
(23,728)

¥1,950,234 ¥1,273,062
269,092
1,003,969

796,779
1,153,455

¥392,619
245,122
147,497

¥(35,372) ¥1,630,309
489,935
1,140,374

(24,279)
(11,092)

Trust fees...................................................................

Fees and commissions (income) .........................
Fees and commissions (expenses) .....................
Net fees and commissions ........................................

Other operating income .......................................
Other operating expenses ...................................
Net other operating income (expenses) ....................

3,482

518,851
104,406
414,445

118,694
10,720
107,974

179,271
225,707
(46,435)

—

59,223
7,353
51,870

21,459
12,780
8,679

18,294
10,759
7,535

—

(639)
(345)
(293)

(21,564)
(21,564)
—

(394)
(174)
(219)

3,482

577,435
111,413
466,021

118,589
1,936
116,653

197,172
236,292
(39,120)

8,626

557,992
96,132
461,860

36,163
8,066
28,096

341,621
126,546
215,075

—

49,288
3,601
45,686

18,099
13,389
4,710

19,504
12,346
7,157

—

(2,421)
(1,754)
(666)

(21,455)
(21,455)
—

(880)
(1,354)
474

8,626

604,859
97,979
506,879

32,807
—
32,807

360,246
137,538
222,708

Notes: 1. Domestic operations comprise the operations of SMBC (excluding overseas branches) and its domestic consolidated subsidiaries. Overseas opera-

tions 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 (2007, ¥5 million; 2006, ¥1 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.................................... ¥76,675,402
52,294,389
19,724,688
777,805
41,945

2007

Interest
¥1,411,367
975,869
330,569
17,367
94

borrowing transactions .............................
Deposits with banks ...................................

1,329,318
1,027,774

4,857
26,863

Interest-bearing liabilities ................................ ¥79,416,907
65,216,658
2,563,245
2,908,959
157,630

2,301,547
—
2,288,969
3,560
3,627,408

¥ 419,280
177,587
6,064
4,294
430

60,856
—
47,872
14
67,408

Earnings yield Average balance

2006

Interest
¥1,273,062
921,387
290,830
7,773
8

Earnings yield
1.66%
1.82
1.35
1.09
0.01

¥76,860,046
50,705,981
21,493,008
713,123
98,096

1,411,749
1,390,836

613
23,683

¥82,422,311
64,276,673
3,506,890
5,910,627
213,153

¥ 269,092
100,809
870
1,310
6

2,771,613
289
1,486,282
3,791
3,723,495

58,292
0
41,865
4
61,711

0.04
1.70

0.33%
0.16
0.02
0.02
0.00

2.10
0.22
2.82
0.12
1.66

1.84%
1.87
1.68
2.23
0.23

0.37
2.61

0.53%
0.27
0.24
0.15
0.27

2.64
—
2.09
0.40
1.86

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 (2007, ¥1,088,877 million; 2006,

¥2,787,783 million).

144

SMFG 2007

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 (2007, ¥48,320 million; 2006, ¥32,268

Overseas Operations

Average balance

Year ended March 31
Interest-earning assets.................................... ¥11,228,957
7,836,742
1,109,298
200,194
145,659

borrowing transactions .............................
Deposits with banks ...................................

—
1,527,271

¥8,929,624
6,985,307
738,076
325,729
352,703

—
—
91,801
—
348,240

2007

Interest
¥593,969
401,424
62,710
10,824
7,003

—
72,910

¥408,872
282,707
37,618
14,520
17,923

—
—
2,931
—
20,930

million).

Total of Domestic and Overseas Operations

Average balance

Year ended March 31
Interest-earning assets.................................... ¥87,160,682
59,486,052
20,833,987
978,000
187,604

2007

Interest
¥1,950,234
1,348,997
369,548
28,192
7,098

borrowing transactions .............................
Deposits with banks ...................................

1,329,318
2,457,987

4,857
96,700

Interest-bearing liabilities ................................ ¥87,602,397
72,104,532
3,301,321
3,234,688
510,333

2,301,547
—
1,735,608
3,560
3,975,649

¥796,779
457,221
43,683
18,815
18,353

60,856
—
22,504
14
88,338

Millions of yen

Earnings yield Average balance

2006

Interest
¥392,619
283,993
37,627
6,556
6,758

Earnings yield
4.08%
4.27
3.96
3.66
3.69

¥9,621,722
6,652,589
949,114
178,988
182,955

—
1,182,483

—
37,742

¥6,988,102
5,705,664
303,226
145,523
208,672

—
—
93,085
—
521,556

¥245,122
167,488
12,033
4,658
7,440

—
—
2,182
—
23,131

—
3.19

3.51%
2.94
3.97
3.20
3.57

—
—
2.34
—
4.44

Millions of yen

Earnings yield Average balance

2006

Interest
¥1,630,309
1,182,668
317,356
14,330
6,767

Earnings yield
1.90%
2.08
1.41
1.61
2.41

¥85,860,247
56,756,777
22,442,122
892,111
281,051

1,411,749
2,555,420

613
59,867

¥88,786,744
69,962,314
3,810,116
6,056,150
421,826

¥ 489,935
266,739
12,904
5,969
7,447

2,771,613
289
977,550
3,791
4,245,052

58,292
0
21,326
4
84,843

0.04
2.34

0.55%
0.38
0.34
0.10
1.77

2.10
0.22
2.18
0.12
2.00

5.29%
5.12
5.65
5.41
4.81

—
4.77

4.58%
4.05
5.10
4.46
5.08

—
—
3.19
—
6.01

2.24%
2.27
1.77
2.88
3.78

0.37
3.93

0.91%
0.63
1.32
0.58
3.60

2.64
—
1.30
0.40
2.22

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 (2007, ¥1,136,823 million; 2006,

¥2,817,927 million).

SMFG 2007 145

Fees and Commissions

2007

2006

Millions of yen

Year ended March 31

Domestic Overseas
operations

operations Elimination

¥518,851
25,649
124,972
35,484
16,594
7,318
44,860
6,903

¥59,223
40,664
9,166
271
—
4
1,266
—

¥(639)
—
(0)
—
—
—
(391)
—

Total

¥577,435
66,313
134,137
35,756
16,594
7,322
45,734
6,903

Domestic Overseas
operations

operations Elimination

¥557,992
24,305
123,757
64,561
18,938
7,380
40,246
7,056

¥49,288
32,250
8,663
211
—
4
1,472
—

¥(2,421)
(1,174)
(0)
—
—
—
(482)
—

Total

¥604,859
55,381
132,420
64,773
18,938
7,384
41,236
7,056

Fees and commissions (expenses) ...........................
Remittances and transfers...................................

¥104,406
25,135

¥ 7,353
2,262

¥(345)
(198)

¥111,413
27,200

¥ 96,132
24,048

¥ 3,601
1,827

¥(1,754)
(7)

¥ 97,979
25,868

Notes: 1. Domestic operations comprise the operations of SMBC (excluding overseas branches) and its domestic consolidated subsidiaries. Overseas opera-

tions comprise the operations of SMBC’s overseas branches and its overseas consolidated subsidiaries.

2. Intersegment transactions are reported in “Elimination” column.

Trading Income

2007

2006

Millions of yen

Year ended March 31

Domestic Overseas
operations

operations Elimination

Trading profits............................................................ ¥118,694
6,099

Gains on trading securities ..................................
Gains on securities related to

trading transactions ...........................................
Gains on trading-related financial derivatives......
Others ..................................................................

—
109,351
3,244

¥21,459
37

¥(21,564)
—

—
21,422
—

—
(21,564)
—

Total

¥118,589
6,136

—
109,208
3,244

Domestic Overseas
operations

operations Elimination

¥36,163
12,662

¥18,099
217

¥(21,455)
—

1,172
22,230
97

57
17,824
—

—
(21,455)
—

Total

¥32,807
12,880

1,229
18,599
97

Trading losses ........................................................... ¥ 10,720
—

Losses on trading securities ................................
Losses on securities related to

trading transactions ...........................................
Losses on trading-related financial derivatives....
Others ..................................................................

1,928
8,791
—

¥12,780
—

¥(21,564)
—

¥ 1,936
—

¥ 8,066
—

¥13,389
—

¥(21,455)
—

7
12,773
—

—
(21,564)
—

1,936
—
—

—
8,066
—

—
13,389
—

—
(21,455)
—

—
—

—
—
—

Notes: 1. Domestic operations comprise the operations of SMBC (excluding overseas branches) and its domestic consolidated subsidiaries. Overseas opera-

tions comprise the operations of SMBC’s overseas branches and its overseas consolidated subsidiaries.

2. Intersegment transactions are reported in “Elimination” column.

146

SMFG 2007

Assets and Liabilities (Consolidated)

Sumitomo Mitsui Banking Corporation and Subsidiaries

Deposits and Negotiable Certificates of Deposit
Year-End Balance

March 31
Domestic operations:

Overseas operations:

Millions of yen

2007

2006

¥41,307,135
21,273,969
3,273,252
65,854,357
1,920,747
¥67,775,104

¥ 5,331,444
1,006,300
8,241
6,345,986
705,470
¥ 7,051,456
¥74,826,561

¥41,753,248
20,024,287
4,063,554
65,841,090
2,671,986
¥68,513,076

¥ 4,173,635
842,709
6,750
5,023,096
601,657
¥ 5,624,753
¥74,137,830

Notes: 1. Domestic operations comprise the operations of SMBC (excluding overseas branches) and its domestic consolidated subsidiaries. Overseas opera-

tions comprise the operations of SMBC’s overseas branches and its 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

March 31
Domestic operations:

Millions of yen

2007

2006

Overseas operations:

¥ 5,594,929
139,509
1,435,549
3,035,500
5,502,101
5,169,458
7,626,700
6,371,973
648,704
17,021,236
¥52,545,664

35,783
481,228
5,977,548
577,624
¥ 7,072,185
¥59,617,850

10.65% ¥ 5,516,716
140,677
1,488,462
2,804,338
5,543,468
4,551,941
7,379,265
6,350,489
735,327
16,944,100
100.00% ¥51,454,786

0.27
2.73
5.78
10.47
9.84
14.51
12.13
1.23
32.39

0.51% ¥
6.80
84.52
8.17

46,892
549,081
5,027,249
362,752
100.00% ¥ 5,985,975
¥57,440,761

—

10.72%
0.27
2.89
5.45
10.78
8.85
14.34
12.34
1.43
32.93
100.00%

0.78%
9.17
83.99
6.06
100.00%

—

Notes: 1. Domestic operations comprise the operations of SMBC (excluding overseas branches) and its domestic consolidated subsidiaries. Overseas opera-

tions comprise the operations of SMBC’s overseas branches and its overseas consolidated subsidiaries.

2. Japan offshore banking accounts are included in overseas operations’ accounts.

SMFG 2007 147

Risk-Monitored Loans

Notes: Definition of risk-monitored loan categories

2007

60,068
488,812
22,018
476,665
¥1,047,566

Millions of yen

2006

59,681
694,658
24,571
440,471
¥1,219,383