Sumitomo Mitsui Financial Group Inc
Annual Report 2020

Plain-text annual report

SMBC GROUP ANNUAL REPORT 2020 YEAR ENDED MARCH 31, 2020 S M B C G R O U P A N N U A L R E P O R T 2 0 2 0 Printed in Japan SMBC Group has devoted its best efforts to contribute to the sound development of society, mainly via its financial services. To clearly reflect this stance, in April 2020 Our Mission was revised to include the statement “We contribute to a sustainable society by addressing environmental and social issues.” At this time, we also put forth the new Vision of being “a trusted global solution provider committed to the growth of our customers and advancement of society” while revising the “Five Values” that represent the values we aim to share with all SMBC Group members. In accordance with the revisions to Our Group Mission, Vision, and Values, we will continue to fulfill our social mission by further building upon a variety of initiatives that are not limited to financial services. MISSION VISION FIVE VALUES We aim to maximize our shareholders’ value through the continuous growth of our business. We grow and prosper together with our customers, by providing services of greater value to them. We create a work environment that encourages and rewards diligent and highly-motivated employees. We contribute to a sustainable society by addressing environmental and social issues. A trusted global solution provider committed to the growth of our customers and advancement of society INTEGRITY As a professional, always act with sincerity and a high ethical standard. CUSTOMER FIRST Always look at it from the customer’s point of view, and provide value based on their individual needs. PROACTIVE & INNOVATIVE Embrace new ideas and perspectives, don’t be deterred by failure. SPEED & QUALITY Differentiate ourselves through the speed and quality of our decision-making and service delivery. TEAM “SMBC GROUP” Respect and leverage the knowledge and diverse talent of our global organization, as a team. MISSION & VISION & FIVE VALUESSMBC Group has devoted its best efforts to contribute to the sound development of society, mainly via its financial services. To clearly reflect this stance, in April 2020 Our Mission was revised to include the statement “We contribute to a sustainable society by addressing environmental and social issues.” At this time, we also put forth the new Vision of being “a trusted global solution provider committed to the growth of our customers and advancement of society” while revising the “Five Values” that represent the values we aim to share with all SMBC Group members. In accordance with the revisions to Our Group Mission, Vision, and Values, we will continue to fulfill our social mission by further building upon a variety of initiatives that are not limited to financial services. MISSION VISION FIVE VALUES We grow and prosper together with our customers, by providing services of greater value to them. We aim to maximize our shareholders’ value through the continuous growth of our business. We create a work environment that encourages and rewards diligent and highly-motivated employees. We contribute to a sustainable society by addressing environmental and social issues. A trusted global solution provider committed to the growth of our customers and advancement of society INTEGRITY As a professional, always act with sincerity and a high ethical standard. CUSTOMER FIRST Always look at it from the customer’s point of view, and provide value based on their individual needs. PROACTIVE & INNOVATIVE Embrace new ideas and perspectives, don’t be deterred by failure. SPEED & QUALITY Differentiate ourselves through the speed and quality of our decision-making and service delivery. TEAM “SMBC GROUP” Respect and leverage the knowledge and diverse talent of our global organization, as a team. SMBC GROUP ANNUAL REPORT 2020 001 MISSION & VISION & FIVE VALUESEditorial Policy　 SMBC GROUP REPORT 2020 is designed to convey financial and non-financial information successfully implement our business strategy through our subsidiaries, affiliates and alliance about the overall picture, business strategy, and corporate infrastructure of SMBC Group. It has partners; and exposure to new risks as we expand the scope of our business. Given these and been compiled with reference to the International Integrated Reporting Framework issued by other risks and uncertainties, you should not place undue reliance on forward-looking state- the International Integrated Reporting Council (IIRC) in December 2013. ments, which speak only as of the date of this document. We undertake no obligation to update The appendix in the back of this report contains more detailed information on the or revise any forward looking statements. Group. Additional information on Sustainability activities can be found on the Company’s cor- Please refer to our most recent disclosure documents such as our annual report on porate website. CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS Form 20-F and other documents submitted to the U.S. Securities and Exchange Commission, as well as our earnings press releases, for a more detailed description of the risks and uncer- tainties that may affect our financial condition and our operating results, and investors’ This document contains “forward-looking statements” (as defined in the U.S. Private decisions. Securities Litigation Reform Act of 1995), regarding the intent, belief or current expectations of us and our management with respect to our future financial condition and results of opera- tions. In many cases but not all, these statements contain words such as “anticipate,” “believe,” “estimate,” “expect,” “intend,” “may,” “plan,” “probability,” “risk,” “project,” “should,” “seek,” “target,” “will” and similar expressions. Such forward-looking statements are not guarantees of future performance and involve risks and uncertainties, and actual results may differ from those expressed in or implied by such forward-looking statements contained or deemed to be contained herein. The risks and uncertainties which may affect future performance include: deterioration of Japanese and global economic conditions and financial markets; declines in the value of our securities portfolio; incurrence of significant credit-related costs; our ability to Scope of Report Period covered: FY2019 (April 2019 to March 2020) Some subsequent information is also included. Organizations covered: Sumitomo Mitsui Financial Group and its subsidiaries and affiliates Published August 2020 002 SMBC GROUP ANNUAL REPORT 2020 CONTENTS About SMBC Group 004 SMBC Group’s Response to COVID-19 006 History of SMBC Group 008 Financial Highlights 009 ESG Highlights 012 SMBC Group’s Value Creation Process To Our Stakeholders 014 Message from the Group CEO 026 Core Policy of the new Medium-Term Management Plan 028 Break the Mold 030 Message from the Group CFO 036 The Impact of COVID-19 038 Round-Table Discussion with Outside Directors Business Strategies for Creating Value 044 Group Structure 046 Retail Business Unit 050 Wholesale Business Unit 054 Global Business Unit 058 Global Markets Business Unit Corporate Infrastructure Supporting Value Creation 064 Corporate Governance 072 SMBC Group Global Advisors 074 Sumitomo Mitsui Financial Group Directors “SMBC” has been designated as the corporate group’s master brand. All Group companies use the SMBC logo and promote the SMBC brand in order to enhance the brand power of the entire SMBC Group. Rising Mark The Rising Mark is the upward curving strip seen beside the letters “SMBC.” This mark indicates our desire for the Group to grow together with our customers, shareholders, and society by providing high-value-added, cutting-edge, and revolutionary services. Corporate Colors 078 Sustainability Management 084 Customer-Oriented Initiatives 087 Internal Audit 088 Risk Management 092 Compliance 094 Human Resources Strategy 098 IT Strategies The fresh green color (color of young grass) of the Rising Mark symbolizes youthfulness, intellect, and gentleness while the trad green (deep, dark green) background presents tradition, reliability, and stability. 100 Communication with Stakeholders 102 Financial Review SMBC GROUP ANNUAL REPORT 2020 003 S P E C I A L F E A T U R E SMBC Group’s Response to COVID-19 Considering the significant impact on people's lives and the economy caused by COVID-19, SMBC Group strive to ensure the health and safety of our customers and employees. Furthermore, SMBC Group will support our customers through financial services and be committed to contributing to the medical industry and society overall. https://www.smfg.co.jp/english/covid_19/ SMBC Group has established a page on its website detailing its response to COVID-19. Please refer to this page for more information. Customers Support Customers Through Financial Services Employees Prevention of the Spread of Infection and Initiatives SMBC Group, as a financial institution which is a part of the for Continuous Business Operation social infrastructure, will fulfill its responsibility by continuing to In order to continue providing our services as a social provide services such as financing and payment. To this end, infrastructure while preventing the spread of infection, with extensive safety precautions in place, SMBC is continuing ensuring the health of our employees as well as their the operation of all branches and ATMs while also enhancing families, and safety and security of our customers, we are its online services to allow customers to perform transactions implementing various initiatives all over the world. without having to visit a branch. In April 2020, the number of To prevent the spread through droplet infection, we have individual customers performing Internet banking services installed acrylic boards at our branches. Our call centers was 36% higher than in the same month of the previous fiscal and operational offices has been making efforts to keep year. We are also supporting the urgent financial needs of conducting business operation by separating staffs into two customers by offering loan programs with special interest rates or more teams. In addition, apart from those who need to and customer reliefs such as relaxing conditions of existing work at their office for smooth operations, we are enabling loans. In addition, we have established investment funds to most of the staffs to telework or stand by at home. We are support medical ventures and implemented a short-pitch also giving consideration to the health of our employees and contest designed to offer support for the promotional activities their families through measures such as encouraging our of ventures. Meanwhile, we also launched the support program employees who need to take care of their children to work for SMEs, which provides partial funding support for telework- at home via telework or to obtain special leave, and also related services. In this manner, SMBC Group is implementing established a health consultation counter. various initiatives to address the social issues that have arisen as a reaction to COVID-19. 004 SMBC GROUP ANNUAL REPORT 2020 About SMBC GroupSMBC Group’s Response to COVID-19 Community and Society Contributing to the Community and Society SMBC Group donated a total of 1.5 billion yen to fund Supporting the Promotion of Cultural Activities and the Arts measures for combating COVID-19, and we engaged in other The spread of this disease has various effects on cultural support activities together with customers. and artistic activities that are indispensable to a prosperous Supporting Medical Research and Activities society. As part of our support to the promotion of culture and arts, SMBC Group donated 100 million yen to the SMBC Group donated 500 million yen to the Center for iPS "Association of Japanese Symphony Orchestras" to support Cell Research and Application， Kyoto University (CiRA), 37 orchestral organizations across Japan. SMBC Group will to support research on the behavior and characteristics work with these organizations to promote projects to comfort of COVID-19 and other newly discovered viruses, in order and encourage people through music. SMBC at HOME Project The SMBC at HOME Project is a project in which customers are invited to join us in contributing to society. Through this project, we will make donations toward COVID-19 in an amount based on the number of individual and corporate customers that performed applicable transactions using SMBC’s Internet banking service. to help develop effective means of treating these viruses. These donations were used to fund large-scale epidemiologic studies pertaining to COVID-19 advanced by the Center for iPS Cell Research and Application together with municipalities, hospitals, and research institutions. Enhancing Medical Care and Education in Emerging Countries As part of our efforts to support the enhancement of medical and educational systems in emerging market economies, SMBC Group donated 100 million yen to the Japan Committee for UNICEF. The donation will be used to support a number of worthy causes, such as enhancing the medical system in Indonesia, where our Group company PT Bank BTPN Tbk has operations. Response to SMBC Group’s Donations to the Center for iPS Cell Research and Application, Kyoto University (CiRA) Pursuing a Safe and Quick End to the COVID-19 Pandemic The COVID-19 pandemic continues to disrupt our lives, and we all pray that a vaccine or another effective treatment will be developed as soon as possible. However, such breakthroughs require time, and we therefore have to prepare for a drawn-out battle with this virus. In the midst of this battle, SMBC Group graciously offered to donate equipment to CiRA. This most-generous action enabled us to quickly commence a number of research ventures together with prefectural governments and research institutions, and I am incredibly grateful for this kindness. We are encouraged by the dedicated efforts of SMBC Group and various other companies and individuals looking to do what they can today to help bring about a safe and quick end to the COVID-19 pandemic. Understanding the behavior and characteristics of a virus is imperative to developing treatments. We are working together with other institutions to contribute to the development of treatments by means of research using iPS cells. Let us all come together to protect ourselves, our loved ones, and our society. Director, CiRA Shinya Yamanaka SMBC GROUP ANNUAL REPORT 2020 005 About SMBC GroupTo Our StakeholdersBusiness Strategies for Creating ValueCorporate Infrastructure Supporting Value CreationHistory of SMBC Group SMBC Group has overcome numerous challenges and enhanced the quality of our corporate infrastructure via the flexible and timely shifting of target businesses by expanding the scope of our operations and the markets in which we operate based on the changing needs of the times. Expansion of Business Domain 1895 Sumitomo Bank established 1590 Riemon Soga (Brother-in-law of Masatomo Sumitomo) starts copper refining business 1673 Takatoshi Mitsui opens Mitsui Echigoya Kimono Dealer 1876 Mitsui Bank established Expansion of Regional Coverage Operating Environment Japan Global SMBC Nikko Securities (Former Nikko Cordial Securities) Cedyna OMC Card, Central Finance, and QUOQ merged Sumitomo Mitsui Banking Corporation formed Sumitomo Mitsui Card Company Sumitomo Mitsui Finance and Leasing SMBC Friend Securities Merged with SMBC Nikko Securities in January 2018 Japan Research Institute Sumitomo Mitsui Asset Management SMBC Consumer Finance (Former Promise) Sumitomo Mitsui Financial Group established 2004 2003 2002 2001 2009 2008 2007 2005 2006 Vietnam Eximbank (Vietnam) The Bank of East Asia (Hong Kong) • “Program for Financial Revival” commenced Disposal of non-performing Loans conducted • Lift the ban of securities intermediary • Zero interest rate policy rescinded by the Bank of Japan • Firewall regulations between banking and securities alleviated • Blanket guarantee of deposits fully lifted • Financial Instruments and Exchange Act enacted • Full lift of the insurance products sale by banks • Japan Post privatized • Collapse of the IT bubble • Implementation of Basel II • Subprime mortgage crisis • Financial crisis 006 SMBC GROUP ANNUAL REPORT 2020 About SMBC GroupSMBC Trust Bank (Former Societe Generale Private Banking (Japan)) Acquired Citibank Japan’s retail banking operations in November 2015 Became a wholly owned subsidiary (Became a wholly owned subsidiary of Sumitomo Mitsui Card Company in April 2019) Became a wholly owned subsidiary Became an equity- method affiliate Sumitomo Mitsui DS Asset Management (Former Sumitomo Mitsui Asset Management) Merged with Daiwa SB Investments in April 2019 Became a consolidated subsidiary 2011 2010 Became a wholly owned subsidiary 2015 2014 2012 2013 2019 2018 2020 2016 2017 ACLEDA Bank (Cambodia) SMBC Rail Services (United States) Bank BTPN (Indonesia) SMBC Aviation Capital (Ireland / former RBS Aerospace) Became an equity- method affiliate TT International (U.K.) Became a consolidated subsidiary Merged with PT Bank Sumitomo Mitsui Indonesia in February 2019 • Start of “Abenomics” • NISA introduced • Japan’s Corporate Governance • Great East Japan Earthquake • Consumption tax rate raised to 8% Code instituted • Workstyle reform-related laws established • Introduction of negative interest rate policy • Introduction of quantitative and qualitative monetary easing • “Principles for Customer-Oriented Business Conduct” released • Consumption tax rate raised to 10% • European sovereign debt crisis • Dodd-Frank Act enacted in the U.S. • Implementation • U.S. federal funds rate of Basel III raised for the first time in nine and a half years • Finalization of the Basel III reform • COVID-19 pandemic begins • U.K. withdraws from the European Union • Trade friction between the United States and China erupts SMBC GROUP ANNUAL REPORT 2020 007 About SMBC GroupTo Our StakeholdersBusiness Strategies for Creating ValueCorporate Infrastructure Supporting Value CreationFinancial Highlights Profit attributable to owners of parent (Billions of yen) 1,000 500 0 703.9 ’15 ’16 ’17 ’18 ’19 (FY) Return on equity (ROE) Calculated using stockholders’ equity as the denominator Accreditation (%) 10 5 0 7.6 % ’15 ’16 ’17 ’18 ’19 (FY) ESG Highlights Profit attributable to owners of parent exceeded the target of ¥700 billion in FY2019 despite the negative impact of COVID-19 pandemic. This was mainly due to the increase in gains on sales of bonds with the decline of overseas interest rates, low credit costs that continued until the third quarter of the fiscal year under review, and a reduction in tax burden. We were able to reach our Medium-Term Management Plan target for ROE of 7-8% due to the steady progress of the plan, which led to higher-than-expected profit attributable to owners of parent. Overhead ratio (OHR) Common Equity Tier 1 capital ratio (CET1 ratio) Basel III fully-loaded basis (%) 80 60 0 62.8 % 62.0 % (excl. impact of reorganization) ’15 ’16 ’17 ’18 ’19 (FY) (%) 20 15 0 15.55 % ’16/3 ’17/3 ’18/3 ’19/3 ’20/3 Support for initiatives in Japan and overseas OHR remained nearly flat compared with FY2016 after excluding the impacts of group reorganizations. This was mainly due to continued overseas expenditures including regulatory compliance costs, offsetting cost reduction through group-wide cost control initiatives. CET1 ratio is still greatly exceeding the required level, while it decreased YoY by 0.82%. This decrease was mainly due to an increase in risk-weighted asset through allocating capital in overseas business and providing financial support to customers, as well as a decrease in net unrealized gains on other securities as a result of stock price decline caused by COVID-19 pandemic. As a global corporate citizen of the global society, SMBC Group is fully aware of the social impact of financial institutions, and it supports the following initiatives in Japan and overseas (the action guidelines for the corporate activities and principles). Dividend per share of common stock (Yen) 200 100 0 190 Credit ratings (As of June 30, 2020) Holding company SMBC Long-term Short-term Long-term Short-term Moody’s S&P Fitch R&I JCR A1 A- A A+ AA- P-1 — F1 — — A1 A A AA- AA P-1 A-1 F1 a-1+ J-1+ ’15 ’16 ’17 ’18 ’19 (FY) We increased dividend per share for FY2019 to ¥190, ¥10 higher than FY2018 and our initial forecast as we exceeded our target for profit attributable to owners of parent because of the steady progress in the Medium-Term Management Plan and took steps towards achieving a dividend payout ratio of 40%. 008 SMBC GROUP ANNUAL REPORT 2020 About SMBC GroupFinancial Highlights ESG Highlights Profit attributable to owners of parent Return on equity (ROE) Accreditation Calculated using stockholders’ equity as the denominator 703.9 7.6 % ’15 ’16 ’17 ’18 ’19 (FY) ’15 ’16 ’17 ’18 ’19 (FY) Profit attributable to owners of parent exceeded the target of ¥700 billion in FY2019 despite We were able to reach our Medium-Term Management Plan target for ROE of 7-8% due to the negative impact of COVID-19 pandemic. This was mainly due to the increase in gains on the steady progress of the plan, which led to higher-than-expected profit attributable to sales of bonds with the decline of overseas interest rates, low credit costs that continued owners of parent. until the third quarter of the fiscal year under review, and a reduction in tax burden. Overhead ratio (OHR) Common Equity Tier 1 capital ratio (CET1 ratio) Basel III fully-loaded basis 15.55 % 62.8 % 62.0 % (excl. impact of reorganization) Garnered solid reputation for our investor engagement and other IR activities SMBC Nikko Securities and SMBC were selected as financial institutions engaged in ESG financing Recognized as a company practicing Competitive IT Strategy to improve corporate value The Securities Analysts Association of Japan Japan Investor Relations Association MOE METI Tokyo Stock Exchange Selected five times in the Nadeshiko Brand selection of listed companies excelling at empowering female employees METI Tokyo Stock Exchange Acquired Top Gold Rating in PRIDE index evaluation for LGBT-related initiatives Selected four times as company exercising superior health and productivity management work with Pride METI Recognized as company that stands on the forefront of sustainable growth by heightening productivity through workstyle reforms Nikkei ’15 ’16 ’17 ’18 ’19 (FY) ’16/3 ’17/3 ’18/3 ’19/3 ’20/3 Support for initiatives in Japan and overseas OHR remained nearly flat compared with FY2016 after excluding the impacts of group CET1 ratio is still greatly exceeding the required level, while it decreased YoY by 0.82%. This reorganizations. This was mainly due to continued overseas expenditures including decrease was mainly due to an increase in risk-weighted asset through allocating capital in regulatory compliance costs, offsetting cost reduction through group-wide cost control overseas business and providing financial support to customers, as well as a decrease in net initiatives. unrealized gains on other securities as a result of stock price decline caused by COVID-19 pandemic. As a global corporate citizen of the global society, SMBC Group is fully aware of the social impact of financial institutions, and it supports the following initiatives in Japan and overseas (the action guidelines for the corporate activities and principles). (%) 10 5 0 (%) 20 15 0 (Billions of yen) 1,000 500 0 (%) 80 60 0 (Yen) 200 100 0 Dividend per share of common stock 190 ’15 ’16 ’17 ’18 ’19 (FY) We increased dividend per share for FY2019 to ¥190, ¥10 higher than FY2018 and our initial forecast as we exceeded our target for profit attributable to owners of parent because of the steady progress in the Medium-Term Management Plan and took steps towards achieving a dividend payout ratio of 40%. SMBC GROUP ANNUAL REPORT 2020 009 About SMBC GroupTo Our StakeholdersBusiness Strategies for Creating ValueCorporate Infrastructure Supporting Value CreationESG Highlights Environment See page 080 for more information. Social See page 082, 095 for more information. Project finance for overseas renewable energy projects Total CO2 Emissions (per m2) Annual CO2 reduction 17,643 thousand t-CO2 Hydropower Biomass Solar power Wind power 68 projects 97 thousand t-CO2 per thousand m2 (t-CO2) 150 100 50 0 ’16 ’17 ’18 ’19 (FY) Note: The figure for FY2019 is a preliminary figure. Rate of employees taking parental leave (male) Ratio of female managers 100 % Target: Maintain rate of 100% every year 15.3 % FY2025 target: 20% (%) 100 50 0 (%) 20 15 10 5 0 ’17 ’18 ’19 (FY) ’18/3 ’19/3 ’20/3 ’26/3 Note: Figures are for SMBC. Ratio of GM positions with locally hired employees Paid leave acquisition rate 35 % 74.7 % (%) 40 30 0 ’17/4 ’18/4 ’19/4 ’20/4 (%) 100 75 50 25 0 FY2025 target: 85% or more ’17 ’18 ’19 ’25 (FY) Note: Figures are for SMBC and overseas bases of major affiliates. 010 SMBC GROUP ANNUAL REPORT 2020 Corporate Governance System Ratio of Outside Directors 47 % Governance See page 064 for more information. Outside directors Internal, non-executive directors Inside directors Outside expert Chairman Board of Directors Focus on supervision of executive officers’ and directors’ execution of duties Internal Committees Nomination Committee Compensation Committee Audit Committee* Risk Committee (Optional) Management Committee Business execution decisions Departments Audit Dept. * The Audit Committee holds the right to consent personal affairs of Chief Audit Executive. Reporting line ESG Indices on which Sumitomo Mitsui Financial Group is listed SMBC Group has been included in the following major global ESG indices (as of June 30, 2020). (%) 50 25 0 Number of directors 15 Non-executive directors 10 %67 Outside directors ’14/6 ’15/6 ’16/6 ’17/6 ’18/6 ’19/6 ’20/6 Company with Auditors Company with Three Committees Composition of the Board of Directors Internal directors (executive) Internal directors (non-executive) 5 3 Areas of Expertise of Outside Directors Management Finance / accounting Law Diplomacy 3 1 2 1 Composition of the Board of Directors 7 %47 About SMBC GroupESG Highlights Environment See page 080 for more information. Social See page 082, 095 for more information. Rate of employees taking parental leave Ratio of female managers (male) 100 % Target: Maintain rate of 100% every year 15.3 % FY2025 target: 20% Project finance for overseas renewable energy projects Total CO2 Emissions (per m2) Annual CO2 reduction 17,643 thousand t-CO2 Hydropower Biomass Solar power Wind power 97 (t-CO2) 150 thousand t-CO2 per thousand m2 68 projects ’16 ’17 ’18 ’19 (FY) Note: The figure for FY2019 is a preliminary figure. (%) 100 50 0 (%) 40 30 0 ’17 ’18 ’19 (FY) ’18/3 ’19/3 ’20/3 ’26/3 Note: Figures are for SMBC. Ratio of GM positions with locally hired employees Paid leave acquisition rate 35 % 74.7 % FY2025 target: 85% or more ’17/4 ’18/4 ’19/4 ’20/4 ’17 ’18 ’19 ’25 (FY) Note: Figures are for SMBC and overseas bases of major affiliates. 100 50 0 (%) 20 15 10 5 0 (%) 100 75 50 25 0 Governance See page 064 for more information. Corporate Governance System Ratio of Outside Directors Outside directors Internal, non-executive directors Inside directors Outside expert Chairman Board of Directors Focus on supervision of executive officers’ and directors’ execution of duties Internal Committees (%) 50 25 0 47 % ’14/6 ’15/6 ’16/6 ’17/6 ’18/6 ’19/6 ’20/6 Company with Auditors Company with Three Committees Composition of the Board of Directors Nomination Committee Compensation Committee Audit Committee* Risk Committee (Optional) Management Committee Business execution decisions Departments Audit Dept. * The Audit Committee holds the right to consent personal affairs of Chief Audit Executive. Reporting line Number of directors 15 Non-executive directors 10 %67 Outside directors ESG Indices on which Sumitomo Mitsui Financial Group is listed SMBC Group has been included in the following major global ESG indices (as of June 30, 2020). Internal directors (executive) 5 Internal directors (non-executive) 3 Composition of the Board of Directors Areas of Expertise of Outside Directors Management Finance / accounting Law Diplomacy 3 1 2 1 7 %47 SMBC GROUP ANNUAL REPORT 2020 011 About SMBC GroupTo Our StakeholdersBusiness Strategies for Creating ValueCorporate Infrastructure Supporting Value CreationSMBC Group’s Value Creation Process SMBC Group’s Value Creation Cycle Definition of Sustainability Creating a society in which today’s generation can enjoy economic prosperity and well-being, and pass it on to future generations ④ Outcomes Impacts on stakeholders derived from our business activities Climate Change Demographic Changes Geopolitical Risks Changes in Consumer Behavior ③ Outputs Services and products supplied through our business activities ⑤ Impacts Changes in stakeholders inspired by value created by SMBC Group Business Activities / Models ② Business activities emphasizing three Materiality (“Environment,” “Community,” and “Next Generation) 財務資本 人的資本 社会的資本 知的資本 ① Inputs SMBC Group’s intangible assets ⑥ Value Cycle Beyond the impacts, value returns to stakeholders by improving SMBC Group’s corporate value, as well as enhancing intangible assets that are a source of SMBC Group’s corporate value 012 SMBC GROUP ANNUAL REPORT 2020 IMPACT Society / Customers Society / Customers Shareholders Sustainability management is the practice of continuously enriching the soil (an intangible asset) that we have inherited from the past and which is the origin of our corporate value. Creation of a society in which everyone can live with peace of mind Preservation of a healthy environment Fostering of people and industries that will shape the future Outcomes Cash settlements Wealth management Financial inclusion Renewable energy projects Green bond underwriting Employees Employees New business development Digital transformations Financial literacy education Outputs SMBC Group’s Business Activities Creation and intermediation of value Business Units Retail Wholesale Global Global Markets Five Values Five Values Integrity Customer First Proactive & Innovative Speed ＆ Quality Team “SMBC Group” Three Priority Issues Environment Community Next Generation Human Capital On-the-ground capabilities (diverse and highly specialized human resources) Financial Capital Intellectual Capital History and brand Speed Spirit of innovation Social and Relationship Capital Domestic and international network Group strength Solid customer base Inputs Compliance Risk management Corporate governance About SMBC GroupSMBC Group’s Value Creation Cycle Definition of Sustainability Creating a society in which today’s generation can enjoy economic prosperity and well-being, and pass it on to future generations ④ Outcomes Impacts on stakeholders derived from our business activities Climate Change Demographic Changes Geopolitical Risks Changes in Consumer Behavior Creation of a society in which everyone can live with peace of mind Preservation of a healthy environment Fostering of people and industries that will shape the future Outcomes ③ Outputs Services and products supplied through our business activities ⑤ Impacts Changes in stakeholders inspired by value created by SMBC Group Business Activities / ② Models Business activities emphasizing three Materiality (“Environment,” “Community,” and “Next Generation) ⑥ Value Cycle Beyond the impacts, value returns to stakeholders by improving SMBC Group’s corporate value, as well as enhancing intangible assets that are a source of SMBC Group’s 人的資本 社会的資本 corporate value 財務資本 知的資本 ① Inputs SMBC Group’s intangible assets Cash settlements Wealth management Financial inclusion Renewable energy projects Green bond underwriting Employees Employees IMPACT Society / Customers Society / Customers Shareholders SMBC Group’s Business Activities Creation and intermediation of value Business Units Retail Wholesale Global Global Markets Five Values Five Values Integrity Customer First Proactive & Innovative Speed ＆ Quality Team “SMBC Group” Three Priority Issues Environment Community Next Generation New business development Digital transformations Financial literacy education Outputs Sustainability management is the practice of continuously enriching the soil (an intangible asset) that we have inherited from the past and which is the origin of our corporate value. Human Capital On-the-ground capabilities (diverse and highly specialized human resources) Financial Capital Intellectual Capital History and brand Speed Spirit of innovation Social and Relationship Capital Domestic and international network Group strength Solid customer base Inputs Compliance Risk management Corporate governance SMBC GROUP ANNUAL REPORT 2020 013 About SMBC GroupTo Our StakeholdersBusiness Strategies for Creating ValueCorporate Infrastructure Supporting Value CreationMESSAGE FROM THE GROUP CEO MESSAGE FROM THE GROUP CEO Building the Path to our Future Jun Ohta Director President and Group CEO Overcoming the “Unexpected” Our world is undergoing fundamental change. We have seen COVID-19 spread to all corners of the globe in what seemed like the blink of an eye, and the virus continues to wreak havoc on an unprecedented scale. No one could have possibly foreseen the scale of disruption COVID-19 would have on our lives at the beginning of the year. “Unexpected” is a fitting description of COVID-19 and its global impact. However, I feel that circumstances described as “unexpected” have increased over the past few years. Natural disasters of a scale previously occurring only once in a 100 years are occurring on a seemingly annual basis. The results of the 2016 United States presidential election and the United Kingdom European membership referendum overturned prior expectations. While it is easy to merely dismiss these events as unexpected, we need 014 SMBC GROUP ANNUAL REPORT 2020 P 004 SMBC Group’s Response to COVID-19 To Our Stakeholdersto ask ourselves if they really were. Before the COVID-19 pandemic, humanity battled and defeated numerous new infectious diseases, such as cholera, smallpox, and SARS. Thus, the speed and scope at which COVID-19 has spread can be viewed as a negative aspect of globalization, an ideal that we have all benefited from, coming to rise. Similarly, global warming lies behind the intensification of natural disasters, and the rise of populism has its roots in the fact that frameworks, such as democracy, which served as the foundations of economic growth in the post-war era have become outdated in their current format. The point I am trying to illustrate is that the events which we have witnessed over the past few years would most likely have occurred in some form or format eventually. In order to realize sustainable growth, SMBC Group must strive to become a more sophisticated organization, capable of SMBC GROUP ANNUAL REPORT 2020 015 To Our StakeholdersAbout SMBC GroupBusiness Strategies for Creating ValueCorporate Infrastructure Supporting Value CreationMESSAGE FROM THE GROUP CEO evolving our business model constantly so that we can continue to prosper even when the business environment undergoes rapid and extensive change due to a black swan event. Business leaders must be able to accurately identify medium- to long-term trends by keeping calm and viewing matters from a bird’s-eye view, even though the world may be in the midst of major upheaval. However, we must keep in mind that overreacting to these risks or allowing our awareness of them to become distorted could cause us to misread how the world is changing or what our business vision should be. The COVID-19 pandemic is said to have sparked a fundamental change in peoples’ values, but I believe that it is during times such as these that we must take a long and careful look at what we change and what we keep untouched. The further acceleration of digitalization to realize “Society 5.0” is the key example of how our world will change. For example, we are seeing an increasing number of customers using online transactions as part of their efforts to prevent the further spread of COVID-19. The number of SMBC’s customers engaging in online transactions increased by 36% year- on-year and digital contracts concluded using services provided by SMBC CLOUDSIGN experienced a dramatic 10-fold month-on-month increase following the Government of Japan declaring a state of emergency in April 2020. I expect for online transactions to continue gaining popularity even after COVID-19 is brought fully under control given its superiority in terms of convenience and cost-efficiency, not to mention that the benefits of those services will increase given the ripple effect of additional users. On the other hand, lifestyles, habits, and family and work-related values that have developed over hundreds, if not thousands, of years will not be so easily changed. For example, is it possible to provide optimal solutions that address customer needs without engaging in face-to-face communication? Is it possible to pass-on SMBC Group’s corporate culture to junior employees or ensure their proper professional development without person-to-person interaction? Such concerns require serious and in-depth consideration. Business leaders must be able to accurately identify medium- to long-term trends by keeping calm and viewing matters from a bird’s-eye view, even though the world may be in the midst of major upheaval. 016 SMBC GROUP ANNUAL REPORT 2020 To Our StakeholdersSteering a Supertanker Innovation is the key to successfully overcome changes in the current business environment, as innovation is what allows for the creation of a strong yet flexible organization that continuously evolves its business model. People often associate the term innovation with the image of a genius experiencing an epiphany and discovering a new concept or vision. However, this is not always the case. In order to pursue sustainable growth, it is crucial to develop a corporate culture which encourages all employees to be unafraid of failure and continue attempting to create new business opportunities so that small improvements are realized throughout SMBC Group. For this reason, ever since I was appointed Group CEO in April 2019, I have urged employees to “Break the Mold” and proactively pursue new challenges without being bound by precedent or fixed ideas. I have assigned management resources to employees who have stepped forward and established new companies for them to lead. So far, nine companies have been established in such a manner, and I will continue to encourage in-house business ventures as part of my CEO production project. The introduction of a free dress code policy which received considerable media attention was also aimed at changing the mindset of employees. I want to establish a transparent and encouraging corporate culture that allows employees to freely pursue their dreams and aspirations. Making this vision a reality however is by no means an easy task. There will be employees who hesitate, fearing their careers could still be negatively impacted even though the Group CEO’s message is to be unafraid of failure, and many people will view change as an inconvenience rather than as an opportunity. Therefore, I will continue to encourage employees who are pursuing new challenges by repeating my message and building a track record of successful inhouse business ventures. Even when employees are not successful in their efforts, I will not blame them. Rather, I will praise them for their bravery and determination. SMBC Group is made up of one hundred thousand employees who are located throughout the world. So, in terms of size, you could say that SMBC Group is like a supertanker. When you attempt to change the direction of such a large vessel, those changes may appear to be slow and gradual. However, once the correct direction has been set and we begin the journey towards our goals, I promise you that the momentum we witness will be phenomenal. Becoming a Global Solutions Provider So where should we direct our supertanker? In April 2020, we established SMBC Group’s new vision: “A trusted global solution provider committed to the growth of our customers and advancement of society.” P 028 Break the Mold SMBC GROUP ANNUAL REPORT 2020 017 To Our StakeholdersAbout SMBC GroupBusiness Strategies for Creating ValueCorporate Infrastructure Supporting Value CreationMESSAGE FROM THE GROUP CEO This new vision reflects our commitment to realizing the sustainable growth of SMBC Group by providing top tier solutions on a global basis, not only by further honing our capabilities in the financial sector, but also expanding into non-financial sectors so that we can better address the needs and issues of customers and of society. There are three key themes that we must adhere to in order to realize this vision. Data Oriented The first theme is data oriented. Information and data are very valuable assets which are not represented in a company’s balance sheet, and businesses around the world, not only those in the financial sector, are striving to monetize these assets. Going forward, how well a company can monetize information assets and incorporate them into its P/L will be the key to success. In addition to accumulating a vast volume of payment and credit information through our various business lines which include banking, securities, and consumer finance, SMBC Group also possesses top tier capabilities in personal data protection and online security, two issues which must be addressed before utilizing data. For example, Sumitomo Mitsui Card released “stera” a payment platform that provides all the necessary functions to facilitate cashless payment transactions. At the same time, it released “Custella” a service which supports clients in planning management strategies, developing new products, and creating new marketing strategies by using AI to analyze the payment data that is accumulated via the platform. If we can further develop such services, it will allow us to engage in a variety of new “data +α” businesses, for example personnel data trust banking, advertising, and personalized marketing that targets individual customers. Building Platforms The second theme is to build platforms. Through bank deposits and payment services we have established relationships with corporate and individual customers both in and outside of Japan. By leveraging this robust customer base that is based on many years of mutual trust, SMBC Group can build platforms which provide a variety of services with its capabilities in the financial sector. I am not concerned about the principle of self-sufficiency in our efforts to enhance our platforms. In the unbundling of financial functions, I think that it is only natural that players from outside the financial sector take over some of those functions. I view companies from outside the financial sector, 018 SMBC GROUP ANNUAL REPORT 2020 To Our Stakeholdersnot only as rivals with whom we engage in healthy competition, but also as partners whose capabilities complement ours and vice-versa. For example, SMBC Group recently established Plari Town, Inc., a digital platform that supports the digitalization of mid-tier companies and SMEs, and we are working to swiftly enhance the value of the platform by including various services provided by external partners. We will strive to create an ecosystem that creates business opportunities involving not only SMBC Group and our customers, but also between customers themselves, by collecting various information as a result of our platform securing an ever growing customer base. Solutions Provider The third theme is to become a solutions provider. Customer needs are becoming increasingly diverse and sophisticated, and SMBC Group must become our customers’ most trusted business partner who can provide solutions to a wide range of issues. Let us take Japan’s aging society as an example. When a financial institution considers potential measures to address the needs of an aging society, a common approach is to consider the types of financial products, with the focus being on existing products, that can be used to build customers’ post-retirement asset portfolios. We need to break-out of this outdated method of thinking. The concerns of elderly customers are not limited to building-up their post-retirement assets, they include a range of issues, such as nursing and health care, the passing on of assets to the next generation, and relations with family members. We cannot allow ourselves to view potential solutions based on the narrow perspective of wealth management products and loans. Rather, we must identify all the issues that our customers are facing and work with companies from outside the financial sector to provide solutions which add true value. Concepts Behind the New Medium-Term Management Plan We launched a new Medium-Term Management Plan in FY2020 to take the first step to realize this vision and begin our journey to build the future of the financial sector. The preparation of the new Medium-Term Management Plan included more than one year of deliberations in an all team’s effort including mid- and junior-level employees. While the impact of the COVID-19 pandemic was certainly not part of the deliberation process, the new Medium-Term Management Plan was prepared based on the understanding that our business environment would be challenging with irreversible structural changes, such as climate change, our shrinking mother market, and the rise P 053 Corporate Service Digital Platform P 052 Group-Based Comprehensive Solutions P 026 Core Policy of the new Medium- Term Management Plan SMBC GROUP ANNUAL REPORT 2020 019 To Our StakeholdersAbout SMBC GroupBusiness Strategies for Creating ValueCorporate Infrastructure Supporting Value CreationMESSAGE FROM THE GROUP CEO of geopolitical risks as demonstrated by the US-China trade war. I am fully confident that the Plan contains well thought-out strategies which will allow us to overcome any adversities we may face and realize further growth. This is why we will proceed without any doubt or hesitation, even though we are facing many challenges, both foreseen and unforeseen. We established the following three core policies as part of the Medium- Term Management Plan: Transformation, Growth, and Quality. First, so that we may emerge victorious from this challenging business environment, we will devote our utmost efforts to continue restructuring our business model and cost structure. In the previous Medium-Term Management Plan, we concentrated on enhancing productivity by establishing Discipline and Focus as core policies. In the new Medium-Term Management Plan, we took these policies one step further to “Transformation”, and we will increase profit by engaging in the fundamental transformation and streamlining of our business model. For example, for cost control our goal is to realize cost reductions of ¥100 billion, double our target for the previous Medium-Term Management Plan, by reforming domestic businesses, reorganizing our domestic retail branches, and integrating group operations. In addition, we will continue to reduce unprofitable assets and strategic shareholdings as part of our efforts to optimize risk-weighted asset management. On the other hand, while we were still in the process of accumulating capital in the previous Medium-Term Management Plan, we have now reached our CET1 ratio target which will allow us to utilize capital and other management resources in the New Medium-Term Management Plan. As such, we will decisively allocate capital to business sectors for which medium- to long-term growth can be expected. For example, in our inorganic strategy, while being disciplined we will use surplus capital to proactively pursue opportunities to acquire businesses and portfolios with high capital and asset efficiencies, in addition to business platforms to realize medium- to long-term growth. In addition, ¥100 billion has been allocated as “CEO Budget” for IT related investments. This framework will allow for agile investments to be made in businesses, such as digital-related enterprises and cashless payments, that are deemed to have potential for significant future growth. Quality is the core policy that applies to our management base. We will work tirelessly to strengthen our management base so that we may meet the expectations of our stakeholders as a global financial group, for example accelerating sustainability management, realizing human resource management that allows for personnel to realize their full potential, and further enhancing our Risk Appetite Framework to promote appropriate risk taking. Presently, on a core earnings basis our bottom-line is approximately ¥640 billion. In the previous Medium-Term Management Plan, our bottom- 020 SMBC GROUP ANNUAL REPORT 2020 To Our Stakeholdersline exceeded ¥700 billion for all three years due to reversal of provisions from large borrowers and gains from the sale of strategic shareholdings. However, I am by no means satisfied with this profit level. In the new Medium-Term Management Plan, through our seven key strategies we will strive to increase consolidated net business profit by ¥100 billion and realize a core earnings bottom-line of more than ¥700 billion in the final year. Seven Key Strategies We will focus on our seven key strategies to realize our goal of raising our profit level on a core earnings basis. I will introduce two key strategies which I feel best characterize the core policies of Transformation and Growth as the heads of our respective business units will discuss the details of their specific strategies in the later sections of this report. Pursue Sustainable Growth of Wealth Management Business Given Japan’s declining population, in order to realize sustainable growth of our retail business we need to focus management resources on growth areas while simultaneously enhancing efficiencies. In regard to enhancing efficiencies, we are reforming our cost structure while preserving, if not improving, the customer experience by further developing non-face-to-face channels, for example online services, and improving the productivity of face-to-face transactions by reorganizing our domestic retail branches. For high-net-worth customers possessing minimum assets of ¥2 billion, we have consolidated our banking, securities, and trust banking services under the new brand SMBC Private Wealth. In addition to wealth management products which reflect our unique strengths, SMBC Private Wealth offers customers a comprehensive line-up of solutions including business succession consulting, trust banking, and concierge services. For mass affluent customers we will engage in personalized marketing by analyzing their transaction data so that our proposals fit their preferences and lifestyles. Through these efforts we will grow our top line revenues while lowering the break-even point of our wealth management business. Expand our Franchise in Asia Under our Multi-franchise strategy, we have devised and implemented initiatives based upon a time span of ten, twenty years in order to build a second and third SMBC Group in Asia’s developing economies. Indonesia, a key market in our Multi-franchise strategy, is expected to see its economy grow at a slower rate due to the COVID-19 pandemic. However, there are three commitments we made when we were formulating our strategy. First is to become a full-line financial services provider in the target market, second is that the franchise would have a strong home-market focus with P 044 Group Structure P 048 Wealth Management Business P 056 Expand our Franchise in Asia SMBC GROUP ANNUAL REPORT 2020 021 To Our StakeholdersAbout SMBC GroupBusiness Strategies for Creating ValueCorporate Infrastructure Supporting Value CreationMESSAGE FROM THE GROUP CEO its foundations firmly embedded in the local economy, and third is that we would not retreat even when faced with changes in the business environment. When we experience a sudden downturn in the economy, such as our current situation, companies often consider the possibility of exiting foreign markets given that such circumstances lead to a renewed focus on their respective mother markets. However, it is not possible to grow together with developing markets if we take such an approach. As such, we will not retreat, even in times of economic downturn, and we will construct a robust business base by establishing firm relationship with markets, such as Indonesia, where GDP is expected to grow over the medium- to long-term. Going forward, in addition to expanding our Multi-franchise strategy to India and the Philippines, we will enhance the overseas presence of our securities, leasing, and consumer finance businesses so that we can reach the next stage of growth and development as a full-line financial services provider. To our Stakeholders I will now share my commitment to our stakeholders, which extends beyond the term of the new Medium-Term Management Plan. Supporting our Customers’ Future Our first and foremost focus is to support customers who are suffering from the adverse effects of COVID-19. As part of our efforts to provide undisrupted financial services that are indispensable to our customers’ everyday lives, we have kept open all SMBC branches by taking necessary safety measures. In addition, we have taken a flexible approach in order to support the cash flow needs of individual and corporate customers, for example introducing loans with special interest rates and extending repayment schedules. SMBC Group will fulfill its responsibility as part of society’s infrastructure so that our customers and society itself can return to normal at the earliest possible date. “Data oriented” “Build Platforms” and “Solutions Provider” have been established as the key themes which SMBC Group will pursue. These themes were decided following a careful analysis of what the future role of financial institutions will be based on the future direction we envisioned our customers pursuing. I want SMBC Group to become a proactive solutions provider that is consistently prepared to extend optimal support to customers once they decide upon a course of action. 022 SMBC GROUP ANNUAL REPORT 2020 P 084 Customer-Oriented Initiatives To Our StakeholdersP 094 Human Resources Strategy Creating a Work Environment Where Employees can Pursue Their Dreams with Confidence and Ambition First, I would like to express my sincere appreciation to all of our employees who are working tirelessly to ensure that SMBC Group is able to continue offering undisrupted financial services which are indispensable to our customers’ lives amidst the havoc caused by COVID-19. I have a responsibility to protect the health and wellbeing of all of our one hundred thousand SMBC Group employees, and failing this responsibility will have serious repercussions, including the possibility that we may no longer be able to provide a full range of financial services. Management will continue to extend the maximum level of support to employees, such as the thorough implementation of infection preventive measures at branch offices and carrying out initiatives aimed at ensuring employees’ physical and mental wellbeing, so that they are able to carry-out their responsibilities with confidence and peace of mind. In addition to the above, I want to create a work environment where employees can pursue their dreams with confidence and ambition. When establishing HR frameworks, for example to enhance employee engagement or to support employees in challenging themselves, we cannot forget that establishing frameworks is not the goal. Frameworks are merely tools to help us achieve our true objectives. In order to transform SMBC Group into a vibrant and energetic organization, in addition to building the corporate culture which I have just shared with you, we are also developing an internal SNS system. The goal is for SMBC Group employees, irrespective of their assigned country or department, to communicate daily and offer encouragement when a colleague puts forth a new idea. The focus must be on what we can do rather than what we cannot. I want to create a workplace in which innovation is a natural result of employees carrying out their duties with a sense of fun and purpose, even under the challenging business environment we are currently facing. Building a Sustainable Society with our Customers SMBC Group defines sustainability as: “Creating a society in which today’s P 078 generation can enjoy economic prosperity and well-being and pass it on to Sustainability Management future generations.” In recent years, we are seeing environmental and social issues, for example climate change due to global warming and human rights violations resulting from the establishment of international supply chains, on a global scale. Given this backdrop, the expectations placed on financial institutions to address such developments are extremely high given our business allows us to act as a hub connecting various industries. In April 2020, we launched the SMBC Group Statement on Sustainability (“the Statement”) and established SMBC Group GREEN×GLOBE 2030, a ten year plan that extends to 2030 through which we will realize the objectives of the Statement, so that we may remedy social issues through our business and further enhance our SDG-related initiatives. Specifically speaking, for SMBC GROUP ANNUAL REPORT 2020 023 To Our StakeholdersAbout SMBC GroupBusiness Strategies for Creating ValueCorporate Infrastructure Supporting Value CreationMESSAGE FROM THE GROUP CEO environmental goals a target of �10 trillion has been set for Green Finance and a 30% reduction in SMBC’s CO2 emissions, while for social goals we will hold financial literacy education sessions for 1.5 million participants aimed at realizing financial inclusion and expand retail financial services in Asia’s emerging market economies. Furthermore, for governance goals, we will tirelessly pursue the enhancement of our corporate governance and risk governance capabilities as they are the foundations upon which sustainability management is built. However, there is a limit on what we at SMBC Group can accomplish by ourselves. What is important is that we create a sizeable, cohesive movement by involving retail and corporate customers. SMBC Group recently launched GREEN×GLOBE Partners, a community platform that aims to solve environmental and social issues. Through the platform, SMBC Group will work with customers to realize a sustainable society by hosting seminars and facilitating the exchange of information concerning the environment and society, assisting participants in connecting with each other, and initiating projects that contribute to solving social issues. Maximizing Shareholder Value from both Financial and non- Financial Perspectives Under the previous Medium-Term Management Plan, we launched initiatives aimed at enhancing shareholder returns. We realized a dividend increase of ¥40 over the three years covered under the previous Medium- Term Management Plan and increased our dividend payout ratio from 30% to 37%. We also completed share buybacks totaling ¥170 billion. There is no change to our commitment to enhancing shareholder returns in the new Medium-Term Management Plan. Dividends will remain our principal approach to shareholder returns, and we will also continue our flexible approach to share buybacks. While we are currently facing a challenging business environment due to the COVID-19 pandemic, we will steadily carry-out the business strategies established under the new Medium-Term Management Plan and over the next three years we will strive to grow our bottom line and realize a dividend payout ratio of 40%. In addition to enhancing the quantitative and financial returns which I have just shared, I am fully aware that enhancing the long-term non- financial value of SMBC Group is equally as important to our shareholders. We will enhance the non-financial corporate value of SMBC Group by focusing on adding value to customers via the three key themes and ESG- related initiatives aimed at realizing a sustainable society. We will continue to proactively disclose both financial and non-financial information so that we can minimize any differences in the information available to our shareholders and SMBC Group, and decrease the cost of shareholder’s equity in order to realize the sustainable growth of shareholder value. 024 SMBC GROUP ANNUAL REPORT 2020 To Our StakeholdersBuilding the Path to our Future The Daoist text Liezi from China’s Warring States era contains the fable “The Foolish Old Man Removes the Mountains,” and its message is one of my favorite mottos. Once upon a time in China there was an old man called Yu Gong who lived at the foot of two very high mountains. As the two mountains were a hindrance to Yu Gong and travelers passing by his house, Yu Gong one day decided to level the mountains. Yu Gong’s neighbors mocked him, saying that he was a fool and that he would never accomplish the task during his lifetime. Yu Gong, however, replied that upon his death his son would carry on the task, who then would be succeeded by his grandson, and that the mountains would eventually be leveled if Yu Gong’s family never gave-up. Upon hearing this, the heavens approved of Yu Gong’s determination and moved the two mountains. The fable illustrates that perseverance will eventually allow us to accomplish any task, regardless of its size. We are witnessing the contraction of the global economy and irreversible structural changes. Although we must operate under a very challenging business environment, I have no doubt that by tirelessly working towards the realization of our vision, we too can move mountains and build the path to a bright future for the financial sector. I would like to ask for the continued support and understanding of all our stakeholders as I will stand at the forefront of our efforts to lead SMBC Group to new levels of growth and prosperity, with each and every one of our employees devoting their utmost efforts to accomplish this goal. SMBC GROUP ANNUAL REPORT 2020 025 To Our StakeholdersAbout SMBC GroupBusiness Strategies for Creating ValueCorporate Infrastructure Supporting Value CreationCore Policy of the new Medium-Term Management Plan The new three-year Medium-Term Management Plan began in FY2020. We will pursue major reform of our business model and explore new businesses to overcome the dynamic change of the business environment. Thereby, we will aim to provide solutions for the challenges faced by our customers and society and pursue sustainable growth in order to further enhance our corporate value. We have established three core policies in order to take an important step towards the realization of our new Vision of becom- ing “A trusted global solution provider committed to the growth of our customers and advancement of society.” Vision A trusted global solution provider committed to the growth of our customers and advancement of society Business strategies – Transformation & Growth – We will reform existing business models and cost structure to overcome intense competition and create new value for future growth. Previous Plan New Medium-Term Management Plan Discipline Focus Improve efficiency Increase profit by drastic optimization and remodeling businesses Invest for future growth Core Policy Accumulate capital Use capital for organic growth Use capital for inorganic growth Business strategy Management base Financial Targets Transform existing businesses Seek new growth opportunities Elevate quality in all aspects As in the previous plan, we have set three targets regarding profitability, efficiency, and financial soundness. We have changed the metric from ROE to ROCET1 for profitability and from OHR to base expenses for efficiency. Please see page 031 for the Message from the Group CFO. Profitability Efficiency Financial soundness Maximize profitability by increasing bottom-line profit and disciplined capital management Reduce cost while investing for growth Secure ample level of capital on a post-Basel III reforms basis ROCET1 ≥8.5% Target for FY2022 Base expenses < FY2019 results CET1 ratio c.10% Changed to CET1 in line with CET1 ratio target Purse both cost reduction and growth investment Post-Basel III reforms basis (excl.OCI) FY2019 results 026 SMBC GROUP ANNUAL REPORT 2020 Seven Key strategies Management base – Quality – Transformation Transform existing businesses Pursue sustainable growth of wealth management business As a global financial institution, we will continue working toward enhancement of our management base to meet the expectations of our stakeholders. 1 2 3 4 5 6 7 Improve productivity and strengthen solutions in the domestic wholesale business Enhance overseas CIB business to improve asset / capital efficiency Hold the number one position in payment business Enhance asset-light business on a global basis Expand franchise and strengthen digital banking in Asia Develop digital solutions for corporate clients Growth Seek new growth opportunities Elevate quality in all aspects ESG Resource management Business management •Contribute to realize a •Sophisticate HR sustainable society •Enhance corporate governance suitable for a global bank management to motivate employees •Build flexible and robust IT/cyber infrastructure •Enforce sound risk-taking •Pursue efficient and scientific management 9.5%9.8%JPY 1,530 bn(vs. FY2016 +JPY 70 bn)To Our StakeholdersCore Policy of the new Medium-Term Management Plan The new three-year Medium-Term Management Plan began in FY2020. We will pursue major reform of our business model and explore new businesses to overcome the dynamic change of the business environment. Thereby, we will aim to provide solutions for the challenges faced by our customers and society and pursue sustainable growth in order to further enhance our corporate value. We have established three core policies in order to take an important step towards the realization of our new Vision of becom- ing “A trusted global solution provider committed to the growth of our customers and advancement of society.” A trusted global solution provider committed to the growth of our customers and advancement of society Vision Core Policy Business strategy Management base Financial Targets Transform existing businesses Seek new growth opportunities Elevate quality in all aspects As in the previous plan, we have set three targets regarding profitability, efficiency, and financial soundness. We have changed the metric from ROE to ROCET1 for profitability and from OHR to base expenses for efficiency. Please see page 031 for the Message from the Group CFO. Profitability Efficiency Financial soundness Maximize profitability Reduce cost by increasing bottom-line profit while investing for growth Secure ample level of capital on a post-Basel III reforms basis and disciplined capital management ROCET1 ≥8.5% CET1 ratio c.10% Changed to CET1 in line with CET1 ratio target Purse both cost reduction and Post-Basel III reforms basis (excl.OCI) Target for FY2022 Base expenses < FY2019 results growth investment FY2019 results Business strategies – Transformation & Growth – We will reform existing business models and cost structure to overcome intense competition and create new value for future growth. Previous Plan New Medium-Term Management Plan Discipline Focus Improve efficiency Increase profit by drastic optimization and remodeling businesses Invest for future growth Accumulate capital Use capital for organic growth Use capital for inorganic growth Seven Key strategies Management base – Quality – Transformation Transform existing businesses Growth Seek new growth opportunities 1 2 3 4 5 6 7 Pursue sustainable growth of wealth management business Improve productivity and strengthen solutions in the domestic wholesale business Enhance overseas CIB business to improve asset / capital efficiency Hold the number one position in payment business Enhance asset-light business on a global basis Expand franchise and strengthen digital banking in Asia Develop digital solutions for corporate clients As a global financial institution, we will continue working toward enhancement of our management base to meet the expectations of our stakeholders. Elevate quality in all aspects ESG Resource management •Contribute to realize a sustainable society •Enhance corporate governance suitable for a global bank •Sophisticate HR management to motivate employees •Build flexible and robust IT/cyber infrastructure Business management •Enforce sound risk-taking •Pursue efficient and scientific management SMBC GROUP ANNUAL REPORT 2020 027 9.5%9.8%JPY 1,530 bn(vs. FY2016 +JPY 70 bn)To Our StakeholdersAbout SMBC GroupBusiness Strategies for Creating ValueCorporate Infrastructure Supporting Value CreationS P E C I A L F E A T U R E Ever since I was appointed Group CEO in April 2019, I have urged employees to “Break the Mold.” The message behind the slogan is that I want our employees to proactively pursue new challenges in this rapidly changing business environment without being bound by precedent, fixed ideas, or organizational boundaries. I would like to take this opportunity to share a few examples of how employees responded to this message. Break the Mold Selecting a Free Workstyle A free dress code policy was introduced in FY2019 as part of efforts to develop a corporate culture in which employees could pursue new challenges without being bound by precedent or convention. We received generally favorable feedback, such as “I felt that our corporate culture is changing” and “I was able to carry-out my responsibilities with a positive attitude” in our employee surveys. The policy also received positive feedback from the media, saying that it softened our conservative image. We also introduced frameworks allowing employees to telecommute or adopt flexible work schedules. I hope that providing employees with the flexibility to shape their working lives based on their lifestyle and professional responsibilities, without being bound by strict rules governing where or when they work, will allow them to produce a steady stream of new ideas that are unrestricted by fixed ideas. Our Challenge 028 SMBC GROUP ANNUAL REPORT 2020 To Our StakeholdersSelf-Development of RPA Tools SMBC Group has been promoting the use of Robotic Process Automation (“RPA”) since FY2017. The purpose of introducing RPA is to free employees from routine tasks so that they can focus on high-value added tasks. While many companies have also introduced RPA, what makes our RPA efforts stand out is that we provide our employees with the training necessary to develop RPA tools themselves. Specifically, we established a comprehensive training program that not only includes classroom learning, but also provides one-on-one support to employees interested in developing RPA tools. Employees now play a critical role in pushing forward work style reform as they are further automating tasks and operations after experiencing firsthand the benefits of using self-developed RPA tools to enhance efficiency. Participants Approx. Automated (hours) Approx. 1,200 120k Producing new CEOs 　 I am producing new CEOs from our employees in order to support them in breaking through the confinements placed upon them by the expected norms and precedents of the financial sector so that they could pursue new challenges. Through this project I have proactively allocated funds and human resources to employees who have come up with interesting new ideas that I feel could develop into new growth areas for SMBC Group, with the said individual assigned to lead the new in-house business venture. Nine companies have been established so far, with the establishment of SMBC CLOUDSIGN drawing particular attention given its CEO is still in his 30s. Mr. Hideki Mishima, the CEO of SMBC CLOUDSIGN, was a mid- career hire who joined SMBC in 2018 and was originally responsible for overseeing our digital innovation center, “hoops link tokyo”. The initial vision for SMBC CLOUDSIGN was born from discussions between Mr. Mishima and representatives from bengo4.com at a hoops link tokyo event, and Mr. Mishima was named the CEO of SMBC CLOUDSIGN after successfully pitching the vision to SMBC Group’s top management team. I will continue to extend the maximum level of support to motivated, proactive employees, such as Mr. Mishima. Feedback from RPA Training Participants: Members of my department are often required to travel for work, and the calculation of monthly travel expenses had become a time-consuming burden. Thus, I developed an RPA tool which automatically calculates employees’ travel expenses. As of today, I have developed ten RPA tools, and I feel that I have been able to contribute to the streamlining of my department’s operations. My experience with RPA led me to develop an interest in programming, and I earned a certificate in JAVA through self- study. Going forward, I want to challenge myself by taking on new responsibilities where I can leverage my programing skills. Satoe Umezawa Business Promotion Group Sustainable Business Promotion Dept. Planning Dept., Wholesale Banking Unit Becoming a Role Model as CEO of the new in-house business venture: Discussions with my General Manager was the first step in my journey to becoming the CEO of SMBC CLOUDSIGN. I strongly believed that the project should be led by someone who was the most passionate about the new business, and I conveyed this to him. An employee directly approaching his or her superior as I did is unthinkable in the conservative culture of Japanese banks, and I feel that the company taking the time to listen to me and actually appointing me as CEO shows how seriously SMBC Group views the topic of self-reformation. Furthermore, the establishment of SMBC CLOUDSIGN was made possible due to the generous support I received from various internal departments. SMBC Group is an organization where employees who are pursuing new challenges or are thinking about pursuing new challenges can count on receiving the full support of their colleagues and supervisors. The importance of telecommuting is rapidly increasing given the current environment, and our digital contract services are receiving much interest as the last piece of digital technology that makes telecommuting a truly viable workstyle. I take great pride in leading a business that has the potential to make a positive impact on society, and I will do my best so that I can become a role model as the CEO of the new in- house business venture. Hideki Mishima President & CEO SMBC CLOUDSIGN, Inc. SMBC GROUP ANNUAL REPORT 2020 029 To Our StakeholdersAbout SMBC GroupBusiness Strategies for Creating ValueCorporate Infrastructure Supporting Value CreationMESSAGE FROM THE GROUP CFO We will leverage our robust capital base to support our customers affected by COVID-19 while further enhancing shareholder returns and investing for growth Last year, the first year I was responsible for both the Group CFO and CSO roles, was the year we worked on creating the new Medium-Term Management Plan (“the New Plan”). In last year’s message, I shared my belief that in the context of management, financial and business strategies are two sides of the same coin, and I witnessed firsthand the benefits of the current management framework as I was able to consistently plan and verify initiatives from the perspectives of the Group CFO and CSO, positions that are responsible for SMBC Group’s financial and business strategies. We have now entered the execution phase of the New Plan, and I will continue to leverage our management framework’s strengths to ensure the New Plan’s strategies are carried out in a comprehensive and speedy manner. Toru Nakashima Group CFO Director Senior Managing Corporate Executive Officer 030 SMBC GROUP ANNUAL REPORT 2020 To Our StakeholdersFurther Enhancing Efficiencies For financial targets, ROE, OHR, and CET1 ratio were selected as the metrics for profitability, efficiency, and SMBC Group strives to conduct a resilient, first class group financial soundness. Although we were unable to reach our management by focusing on enhancing our capital, asset, FY2019 OHR target due to COVID-19 reducing our topline and cost efficiencies. revenues, we were able to reach our targets for ROE and optimize our Group structure and improve capital and assets 7.8%* 8.2% 7.6% 7-8% CET1 ratio. The Previous Plan’s Financial Targets ROE* 8.8% FY2016 FY2017 FY2018 FY2019 Target * Excluding special factors, such as the effects of implementing the consolidated corporate- tax system OHR 62.1% 60.9% 60.3% 62.8% vs. FY2016 (1)% FY2016 FY2017 FY2018 FY2019 Target 62.0% (excl. impact of reorganization) CET1 ratio 8.3% 10.3% 9.8% 10% 9.5% Mar.17 Mar.18 Mar.19 Mar.20 Target • Review of the Previous Plan In the previous Medium-Term Management Plan (“the Previous Plan”), SMBC Group categorized its business portfolio into four quadrants based on our competitive advantage and future potential. Through this categorization we swiftly reorganized our Group’s businesses in order to efficiencies. For the “Transform” and “Enhance” quadrants we deconsolidated the Kansai regional banks and SMFL in order to enhance capital and asset efficiencies by reducing our risk weighted assets. On the other hand, for our asset management business, which is positioned in the “Build” quadrant given its potential for future growth combined with our current lack of competitive advantage, we started proactively allocating management resources to build up our overseas presence, as illustrated by our acquisition of TT International and our investment in Ares Management. Improved capital and asset efficiency through group reorganization Grow Merged SMBC Nikko and SMBC Friend e g a t n a v d a e v i t i t e p m o C Enhance Deconsolidated SMFL RWA JPY (3) tn*1 Deconsolidated Kansai regional banks RWA JPY (4) tn*1 Made JNB a consolidated subsidiary of Yahoo Lowered ownership stake in POCKET CARD Transform Made SMCC a wholly owned subsidiary Bottom-line JPY+10 bn*2 * Post-Basel III reforms basis Merged BTPN and SMBCI Bottom-line JPY+10 bn*2 Merged SMAM and Daiwa SB Acquired TT International Acquired stake in Ares Management • The New Plan’s Financial Targets In the New Plan there is no change to our commitment to conducting business management with the focus on enhancing efficiencies. As Mr. Ohta stated in the Group CEO Message, through our core policy of Transformation, we Build will increase profit by drastic optimization and remodeling businesses, while at the same time leveraging our capital base to pursue further growth through our core policy of *1 Post Basel III reforms basis Business growth *2 Calculated the impact from the change of ownership ratio (excl. one-time impact) Growth. SMBC GROUP ANNUAL REPORT 2020 031 To Our StakeholdersAbout SMBC GroupBusiness Strategies for Creating ValueCorporate Infrastructure Supporting Value Creation MESSAGE FROM THE GROUP CFO As in the Previous Plan, we have set three metrics of strengthening our overseas businesses and IT systems. profitability, efficiency, and financial soundness as financial Although we expect expenses related to overseas targets. However, for profitability we changed the metric from businesses and IT systems to increase by a little under ROE to ROCET1, while for efficiency we changed the metric �100 billion during the New Plan, we will further enhance from OHR to controlling base expenses. cost control measures so that there is no increase in base A target of 8.5% or higher has been set for ROCET1. expenses. Specifically, we will cut costs by �100 billion, a ROCET1 is calculated using CET1 as the denominator with figure that is double the Previous Plan’s achievement, through CET1 being a valuable metric that we use in determining the three key initiatives: reform of domestic businesses, retail financial soundness. The ROE target of 7-8% set under branch reorganization, and integration of Group operations. the Previous Plan is currently equivalent to an ROCET1 of 8-9%. As such, our new target reflects practically raising the minimum level by 0.5%. Change in base expenses for coming three years As for efficiency, we introduced a new concept, “base (JPY bn) expenses,” in order to achieve a balanced approach to cost control and investment for growth. Our goal is to realize base expenses that are lower than FY2019 levels. I will explain the definition of base expenses further below. As for financial soundness, consistent with the Previous Plan, we aim to secure a CET1 ratio of c.10% on a post-Basel III reforms basis and excluding unrealized gains on securities. Profitability (ROCET1) Efficiency (Base Expenses) Financial Soundness (CET1 Ratio) FY2022 Targets ≥8.5% < FY2019 results c. 10% FY2019 Results 9.5% �1,530 billion (vs FY2016 +�70 billion) 9.8% • Cost Control Base expenses, our new efficiency metric, is comprised of 1 (50) 100 Overseas business Strategic areas System cost 2 (25) 3 (25) JPY (100) bn Previous plan JPY (54) bn Reform of domestic businesses Retail branch reorganization Integration of group operations 1 2 3 1.5 tn FY2019 Our Basic Capital Policy Remains Unchanged G&A expenses net of expenses related to investments for In the New Plan, we will continue to take a balanced approach future growth, revenue linked variable costs, and one-off to securing financial soundness, enhancing shareholder expenses. This new metric was introduced in response to returns, and investing for growth. feedback during the Previous Plan that cost management based on OHR tends to fall into a shrinking equilibrium and leads to a lack of investment for growth. This change is by no means an attempt to loosen controls on cost. Given that approximately 90% of G&A expenses fall under base expenses, we believe that it is fully possible to enhance efficiency by carefully controlling base expenses. In the Previous Plan, we succeeded in reducing costs by �54 billion, exceeding our target of �50 billion, through the following key initiatives: business reforms to improve Shareholder returns Dividends in principal + flexible share buybacks • Progressive dividends • Achieve dividend payout ratio of 40% by Mar. 23 Sustainable growth of shareholder value ROCET1 target ≥ 8.5% Investment for growth Investment criteria • Fits with our strategy • ROCET1 ≥ 8.5% after synergies • Risk is manageable Financial soundness CET1 ratio target : c.10% efficiency, retail branch reorganization, and reorganization of Group companies. However, base expenses rose by �70 • Securing Financial Soundness We were able to reach our CET1 ratio target of c.10% as a billion over the same period due to expenses related to result of accumulating capital over the course of the Previous 032 SMBC GROUP ANNUAL REPORT 2020 To Our StakeholdersPlan. The CET1 ratio target was calculated taking into account three years covered under the New Plan and further increase the impact of the Basel III reforms which will gradually take our dividends so that we realize a 40% dividend payout ratio place from 2023 to 2028 and excludes unrealized gains on based on these figures. securities. Also, based on the Basel III fully-loaded basis, We decided not to announce share buybacks in May which is currently required by regulators, our CET1 ratio as of 2020. We recognize our share price is currently at a very low the end of FY2019 was 15.5%, greatly exceeding the required level and understand that there are expectations for share level of 8%. buybacks from investors. However, at this time, we have Our financial soundness can be a formidable concluded that we must focus on providing financial support competitive advantage during times of crisis, such as the to our customers and that more time is required to assess the one we are currently facing. First, we will provide financial real impact of COVID-19. support to customers both in and outside of Japan who are being affected by COVID-19. As such, risk weighted assets Shareholder returns are expected to exceed our original target for FY2020, the first year of the New Plan, by �5 trillion which equals a 0.5% Dividend (JPY bn) Share buybacks (JPY bn) decrease in our CET1 ratio. Therefore, for the foreseeable DPS future we will manage our CET1 ratio at c.9.5%, 0.5% less than the target set under the New Plan, in order to reflect the impact of COVID-19 associated loans. It is this robust capital base that will allow us to proactively enhance shareholder returns and pursue attractive growth opportunities. • Further Enhancing Shareholder Returns In the Previous Plan, we increased dividends throughout all three years (a total of �40 per share) while carrying out share buybacks totaling �170 billion. In the New Plan there is no change to our shareholder return policy of dividends being our principal approach while conducting flexible share buybacks. We will continue to pursue a progressive dividend policy, meaning that we will at least maintain, if not increase, dividend payments, and aim to achieve a dividend payout ratio of 40% by FY2022. CAGR: +8.2% 180 170 190 190 150 150 140 100 70 120 120 260.1 260.1 251.2 239.8 211.5 211.5 169.2 169.2 197.4 FY2012 FY2013 FY2014 FY2015 FY2016 FY2017 FY2018 FY2019 FY2020E Dividend payout ratio (%) 21 20 26 33 30 33 Total payout ratio (%) - - - - - - 35 44 37 51 65 - • Investing for Growth Unlike the Previous Plan during which we focused on capital We increased our dividends for FY2019 by �10 to �190 accumulation, given that we have reached our CET1 Ratio per share as we exceeded our �700 billion target for profit target, the New Plan represents a new stage in which we attributable to owners of parent and took steps towards leverage our capital base to pursue growth opportunities. achieving a dividend payout ratio of 40%. For FY2020, we While asset efficiency will remain a key focus and we will maintain our dividend payout of ¥190 per share based will continue reducing unprofitable assets and strategic on our progressive dividend policy despite a significant shareholdings, we will allocate capital to increase risk reduction in forecasted net income, which will raise our weighted assets to growth areas. As illustrated in the below dividend payout ratio to 65%. Please be assured however, chart, over the three years covered by the New Plan we will that we will by no means view this as reaching our target allocate a net of ¥500 billion of capital and increase risk dividend payout ratio of 40%. While we must continue to weighted assets by a net of ¥5 trillion through our seven key operate in a challenging business environment, we will aim strategies. to increase profit attributable to owners of parent during the We expect that risk weighted assets associated with SMBC GROUP ANNUAL REPORT 2020 033 To Our StakeholdersAbout SMBC GroupBusiness Strategies for Creating ValueCorporate Infrastructure Supporting Value CreationMESSAGE FROM THE GROUP CFO COVID-19 related loans will be fully repaid by the end of business, securities business, trust banking, and digital FY2022 and therefore have no impact on the New Plan’s businesses. targets. SMBC Group purchased the aircraft leasing businesses We will pursue inorganic growth through strategic of a European bank (currently SMBC Aviation Capital) M&A while maintaining financial soundness and disciplined following the Financial crisis, and the current market investment criteria. There will be no change in the focus of environment may bring opportunities to acquire quality assets our investments: “assets that promptly raise our ROCET1” at discounted prices. Of course, any investment will be made and “investments for the future.” The former refers to areas following our disciplined investment criteria. in which SMBC Group possesses global strengths, with past The chart below shows the use of capital for FY2019 and examples being investments in aircraft leasing, middle- FY2020. As for FY2020, the forecast of profit attributable to market LBO, and asset management businesses. The latter owners of parent is �400 billion. �260 billion will be allocated refers to investments in the Asian commercial banking to dividends and we will extend loans to our overseas and Changes in Risk-Weighted Assets during the New Plan (JPY tn) Improve asset efficiency Allocate resources to strategic areas (3) Global CIB (4) Payment +0.5 (5) Asset-light business +0.4 (6) Asia +0.2 +3.7 (1) Wealth management (2) Domestic corporate +2.4 COVID-19 related loans (1.6) Unprofitable assets (0.4) Strategic shareholdings 87 1.0 +4.0 •Mortgage loans •Unprofitable assets (domestic SME, overseas products) (7) Digital Others COVID-19 related loans + JPY 5 tn Required CET1： + JPY 500 bn FY2019 Use of Capital in FY2019 and FY2020 (JPY bn) 10.3% 703.9 Impact on CET1 ratio +0.9% (0.3)% 260 (0.3)% 280 Overseas 220 Domestic 60 (0.1)% 100 (0.1)% 100 Reorganization of SMCC 50 60 Asset management (0.1)% 110 (0.5)% 400 260 9.8% FY2022 target 9-10% CET1 ratio Mar. 19 Net income Dividends Organic COVID-19 related loans Share buybacks In-organic Others CET1 ratio Mar. 20 Net income Dividends COVID-19 related loans Others CET1 ratio Mar. 21 FY2019 FY2020 034 SMBC GROUP ANNUAL REPORT 2020 To Our Stakeholdersdomestic customers who are suffering from the adverse During FY2019, in addition to individual and small effects of COVID-19. Then we will consider how to best deploy meetings led by senior management with investors and IR our remaining capital. • Reducing Strategic Shareholdings Over a five-year period starting October 2015, we set a day presentations by the heads of our respective business units, we also held seminars regarding our cashless payment strategy given the strong interest in our efforts in this area. I believe that incorporating the views and opinions we receive plan to reduce our strategic shareholdings by �500 billion in such meetings allowed us to prepare a higher quality (book value basis). As of March 2020, six months before Medium-Term Management Plan and capital policy. our deadline, we succeeded in reducing our strategic Furthermore, in April 2019 SMBC Group become the shareholdings by �480 billion, in addition to obtaining first global financial institution to calculate and release customers’ consent to sell another �70 billion worth of the financial impact of climate change in response to strategic shareholdings. As such, we are highly confident that recommendations made by the Task Force on Climate- we will reach our target. Related Financial Disclosures (“TCFD”). Initially, only We have established a new reduction plan in which we physical risks related to climate change were calculated and will reduce strategic shareholdings by �300 billion over a five disclosed. However, we tirelessly worked to enhance our year period starting April 2020 together with the launch of the analytical capabilities, and in February 2020 we disclosed the New Plan. transition risks associated with climate change. While we have made steady progress in reducing I am very happy that such efforts have received proper our strategic shareholdings, the pace of reductions going recognition, with SMBC Group being selected for the top forward will be slower than the previous reduction plan, as award in the banking category of the 2019 Award for the remaining stocks include those of customers who are not Corporate Disclosure presented by the Securities Analysts open to the idea of having SMBC Group reduce our ownership Association of Japan and the 2019 Best IR Award presented of their shares. However, there has been no change in our by the Japan Investor Relations Association. policy to reduce strategic shareholdings over the medium- to long-term, and we will continue to work hard to reduce them. Book value of domestic listed stocks (JPY tn) Ratio of stocks to CET1* 28% 16% Results JPY 479 bn (4.5 years) Target 6.1 1.8 JPY 300 bn (5 years) 10% Next Medium-Term Management Plan 1.0 1.3 Apr. 01 Sep. 15 Mar. 20 Mar. 25 Previous reduction plan New reduction plan * Excludes net unrealized gains on other securities Further Enhancing Communication with our Shareholders A different approach to investor communication is required due to COVID-19. For example, our FY2020 Investors Meeting was conducted online and individual investor meetings are being conducted either online or via teleconference. However, it is during times such as these that as Group CFO I must safeguard the continuation of high-quality and timely communication. We will ensure any changes to our business environment or earnings forecasts due to COVID 19 are disclosed in a timely manner. Furthermore, we will place an even greater focus on disclosing non-financial and ESG-related information. For the first time in our history, on June 2020 we held an ESG-themed investor meeting. SMBC Group will continue to proactively disclose Creating opportunities to engage in constructive discussions information that is useful to our stakeholders and incorporate with investors and analysts is one of my key responsibilities as these measures into our efforts to realize sustainable growth Group CFO. and increase corporate value. SMBC GROUP ANNUAL REPORT 2020 035 To Our StakeholdersAbout SMBC GroupBusiness Strategies for Creating ValueCorporate Infrastructure Supporting Value CreationThe Impact of COVID-19 As stated in the Group CEO Message, the New Medium-Term Management Plan’s (“the New Plan”) goal is to realize sustainable growth in a challenging business environment, and we have not made any changes to the New Plan’s framework in response to COVID-19. However, I will touch upon some key points given that COVID-19 will have a big impact on our FY2020 financial results. Impact on FY2020 Earnings Excluding some countries and territories, the number of new COVID-19 cases has peaked-out, although we expect Credit Cost Our FY2020 forecast for credit cost is ¥450 billion on a consolidated basis, of which ¥290 billion is for SMBC, 60% for Japanese corporations and 40% for non-Japanese corporations. As for Japanese corporations, half is for large corporates and the other half is for medium-sized corporations and SMEs. As for non-Japanese corporations, we expect increased costs in the leisure industry such as hotels and casinos, oil and gas, and LBOs. As for Group companies other than SMBC, we expect credit cost of ¥160 billion, a ￥40 billion increase from FY2019, centering on retail Group companies (SMBC Consumer Finance, Sumitomo Mitsui Card Company).　 While this represents a substantial increase in credit new infections to continue for the remainder of the year. cost, we are not expecting the situation to deteriorate further Therefore, although the global economy is expected to than what we experienced during the Financial crisis in 2008. bottom out in the second half of the year, we expect that Although the decline in GDP is expected to exceed that of negative fallout from the virus will last throughout FY2020. the Financial crisis, we do not forecast credit cost to increase As such, we made major revisions to the various targets as much. This is the result of the financial sector’s increased that had been originally established for the New Plan’s resilience due to more stringent international financial first year. The revised business targets we announced in May 2020 are as follows. However, we will not hesitate to regulations requiring financial firms to set aside greater amounts of capital, in addition to our improved asset quality make further changes to our plans and goals, even during due to domestic companies’ increased internal reserves. the year, if material changes in our business environment require such adjustments. (JPY bn) FY2020 target Consolidated Net Business Profit Credit Cost Profit attributable to owners of parent Before COVID-19 1,140 190 710 Revised 970 450 400 Impact of COVID-19 (170) +260 (310) (JPY bn) 500 250 0 Other group companies SMBC +279.4 170.6 121.0 49.6 FY2019 450 160 290 Retail 120 Others Japanese 60% Non- Japanese 40% FY2020 036 SMBC GROUP ANNUAL REPORT 2020 To Our StakeholdersAircraft Leasing Business Exposure to the Natural Resources Sector Our aircraft leasing business conducted by SMBC Aviation Our natural resource-related exposure is currently ¥7.3 Capital represents a business area in which SMBC Group has trillion, which is equivalent to 5.6% of our consolidated total a competitive advantage. However, the cash flow of airlines exposure, and 90% of our obligors have high internal ratings. is deteriorating due to worldwide restrictions on travel, and In addition, we have a diversified portfolio by business area some airlines are finding it difficult to pay leasing fees. Once and geographic location. Moreover, by taking a cautious airlines fail to pay leasing fees, leasing companies take action, approach, we have reduced exposure of non-Japanese for example repossessing aircrafts and re-leasing them to upstream and service transactions that are vulnerable to oil other airlines. In this case, if the leasing fees are reduced, prices, which make them relatively risky. Therefore, we do leasing companies record impairment losses on leasing not expect a significant increase of credit cost in this sector. assets due to the reduction of future cash flow. However, we However, considering the recent sharp decline in oil prices do not expect SMBC Aviation Capital to record significant and revisions of demand–supply forecasts, we recorded impairment losses considering its highly liquid portfolio. The some forward-looking provisions in FY2019 and expect a majority of the aircraft assets they own are young narrow certain level of associated credit cost in FY2020. body aircrafts whose price volatility is low. Therefore, although a short-term decline in profit is inevitable, bottom-line profit for FY2020 is expected to decline only by 30 to 40% YoY. As SMBC Aviation Capital is our equity method affiliate, the negative impact on our consolidated bottom line profit, based on our ownership share, is expected to be less than ¥10 billion. Upstream (E&P) Midstream (storage / transportation) Highly liquid portfolio B737MAX Wide Body(A350, B787) Aircraft Assets USD 13 bn Exposure to natural resources JPY 7.3 tn 5.6% of total exposure Downstream Integrated oil & gas Service Others (mining) Narrow Body Over 80% Non-Japanese Mar.16 Upstream (E&P) 24% Service 7% (ratio to non-Japanese exposure to natural resources) (JPY tn) 1.3 1.5 1.7 1.6 0.3 1.0 Mar.20 16% 4% SMBC GROUP ANNUAL REPORT 2020 037 To Our StakeholdersAbout SMBC GroupBusiness Strategies for Creating ValueCorporate Infrastructure Supporting Value Creation ⇩ ⇩ DISCUSSION Round-Table Discussion with Outside Directors Group CFO Toru Nakashima asked Katsuyoshi Shinbo and Eriko Sakurai, both outside directors of Sumitomo Mitsui Financial Group, and Sonosuke Kadonaga, an outside director of Sumitomo Mitsui Banking Corporation, for their thoughts about the new Medium-Term Management Plan (“the New Plan”) which was announced in May 2020. Nakashima Thank you for taking part in today’s round-table discussion. First, I am going to ask everyone for your thoughts opportunity to provide input which in turn led to robust discussions. I believe this represents the changing corporate regarding the New Plan. Ms. Sakurai, would you be kind culture of SMBC Group. enough to start things off? Sakurai I was also involved in discussions during the formulation of the previous Medium-Term Management Shinbo I agree. I also feel that during the formulation of the New Plan, significant time was spent discussing what the right balance is when attempting to address the needs and Plan (“the Previous Plan”) so I will begin by touching upon expectations of SMBC Group’s shareholders, customers, the differences that I felt in comparing the two. First, I employees, and society. If we take financial targets as an was impressed by the New Plan’s formulation process. In example, a situation must not arise in which customers are comparison to the Previous Plan, the involvement of outside negatively impacted due to employees having to pursue directors in discussions began much earlier. In addition, the unrealistic targets. Having said this, careful attention must documents that were used in those discussions were at the also be paid to shareholders’ expectations and genuine draft stage with some pages still being blank. Being able to efforts must be made to meet those expectations. I believe engage in discussions at the early stages of the respective that fair, achievable financial targets have been set as a result strategies and goals provided outside directors with ample of the senior management team having developed a common 038 SMBC GROUP ANNUAL REPORT 2020 To Our StakeholdersTop left: Katsuyoshi Shinbo Outside Director, Sumitomo Mitsui Financial Group Bottom left: Eriko Sakurai Outside Director, Sumitomo Mitsui Financial Group Top right: Sonosuke Kadonaga Outside Director, Sumitomo Mitsui Banking Corporation Bottom right: Toru Nakashima Group CFO and Senior Managing Corporate Executive Officer, Sumitomo Mitsui Financial Group The round-table discussion was held via a web-based conference. understanding by engaging in in-depth discussions regarding the conclusion of a basic agreement in April 2020 with SBI what the right balance is. Group concerning a strategic capital and business alliance reflects SMBC Group’s commitment to taking the necessary Kadonaga There are three main points that I would like to share. First, the topic of financial targets just came up measures to ensure its growth and development beyond the New Plan. and in addition to setting quantitative targets I stressed the importance of setting qualitative goals as well. What sort of corporate group do we want to become by the end of the New Sakurai In comparison to the Previous Plan’s formulation process, I feel the discussions had evolved, not only in Plan? For example, what sort of value will SMBC Group add to terms of quantity, but also quality. Our involvement in the customers’ business operations? Where does SMBC Group formulation of the New Plan began at the stage where the want to stand in the financial sector given its competitors in ideas and theories which would later act as the building the global and domestic markets? The reason for this being blocks for individual initiatives were still being addressed, for that employees are the ones who take the heaviest burden example the future vision for SMBC Group and the corporate in the execution of plans and initiatives, and qualitative goals values that act as the basis of the Group’s business as are a valuable tool to boost employee motivation. Messrs. Shinbo and Kadonaga pointed out. As a result, the My second point is that while further efforts to optimize discussions that followed had a level of depth which was not cost structures must be undertaken as market conditions present in earlier discussions. In addition, by using advance surrounding the financial sector are becoming even more briefings to address specific matters pertaining to individual challenging, SMBC Group must also clarify where it will initiatives and the Group CxOs themselves presenting allocate capital including investments. My third point deals material and conducting Q&A sessions during Board with SMBC Group’s future business model. In other words, meetings, discussions from a high vantage point were made what kind of business model will SMBC Group strive to possible. I also feel that in-depth discussions for each section create given that levels of past growth can no longer be of the New Plan’s growth investments were made possible by realized through its traditional bank-centric model. Although holding study sessions on SMBC Group’s capital policy and identifying a solution to this predicament is by no means an creating the opportunity for the Board to reach a consensus. easy task, we engaged in discussions from the standpoint of how and where management resources, such as capital and personnel, should be allocated in SMBC Group’s efforts to establish its future business model. Nakashima Obtaining input from our outside directors at the earliest possible stage was one of our key focus points during the New Plan’s formulation. We also worked to further enhance the quality of our discussions by not limiting them Shinbo I agree that very active discussions regarding the future of SMBC Group beyond the three years covered to Board meetings, but also expanding them to include advance briefings and study sessions. For example, in the under the New Plan took place. As I have been involved study sessions covering SMBC Group’s capital policy, for the in the securities industry in my capacity as a lawyer, in first time ever we organized a meeting between our outside connection to growth strategies of SMBC Group’s securities directors and investors/analysts. Mr. Shinbo highlighted business I offered my thoughts on the topics of digitalization, the importance of viewing matters from a shareholder’s winning young customers, and strengthening the overseas perspective earlier and this is a mindset that all of us at SMBC presence. While there is no direct connection, I believe that Group share. I felt the meeting was an excellent opportunity SMBC GROUP ANNUAL REPORT 2020 039 To Our StakeholdersAbout SMBC GroupBusiness Strategies for Creating ValueCorporate Infrastructure Supporting Value CreationDISCUSSION Round-Table Discussion with Outside Directors for our outside directors to also share in this mentality. initiative and apply an overly rigid approach to their execution. As you can see, the New Plan has incorporated much of The New Plan recognizes that the future is not fixed. It the input we received from our outside directors, and I would takes into consideration that events which result in material like to take this opportunity to thank you all once again. Would changes to the business environment, for example the anyone like to add anything else? Kadonaga Ms. Sakurai touched upon the concept of corporate values earlier, and I think very highly of the COVID-19 pandemic, will occur and the New Plan shows the broad vision which SMBC Group will work towards through its various initiatives that have been prepared in a manner which allows for sufficient flexibility in their execution. As a result, fact that “Integrity” was added to the Five Values, a set of shared beliefs and behavioral guidelines for all SMBC Group the initiatives’ varying levels of importance have been made clear. employees, in line with the formulation of the New Plan. As the Five Values were already firmly embedded in the SMBC Group mindset, I believe that introducing change to those Kadonaga A phrase that I often use is: “do more better.” It means that even within the same framework, a little more values was a challenge. However, I believe that adding effort can lead to a substantial improvement. However, I “Integrity” to the Five Values will prove to be beneficial to believe that it is important that everyone goes one step ahead SMBC Group’s shareholders and investors considering of this mindset when carrying out the New Plan. Especially the increased attention being directed to ESG-themed in terms of building SMBC Group’s future business model, investments, by bringing together the Group’s employees, frank and open discussions must continue, taking into and helping attract talented personnel. This is a point that I consideration factors such as how consumer behavior and have repeatedly raised from the discussion phase of the New society will change in the post-COVID-19 world. Plan. Shinbo I was also of the opinion that “Integrity” should be added to the Five Values. For example, in recent years Sakurai Digitalization is expected to further accelerate in the post-COVID-19 world. The fact that SMBC Group was able to launch initiatives aimed at winning the key digital points of corporate fiduciary duty has drawn increasing interest and various value chains prior to the commencement of this trend SMBC Group established the Basic Policy for Customer- will prove to be very beneficial given SMBC Group’s standing Oriented Business Conduct as part of its efforts to ensure that as a leading company in the cashless payment sector. it was in compliance with its fiduciary duty. However, SMBC Group employees most likely viewed the concept of SMBC Group’s fiduciary duty strictly within the context of marketing Nakashima Various opportunities, such as Board meetings, will be used to conduct discussions concerning what financial products. By incorporating “Integrity” into SMBC SMBC Group’s business will look like in the post-COVID-19 Group’s Five Values, a set of values which forms the basis of world with a range of counterparties, including our outside the Group’s business conduct, a clear message was sent to directors. all SMBC Group employees that the concept of “Integrity” To bring today’s discussion to a close, could you kindly applies to all aspects of their actions, in short, that SMBC share with us how, as an outside director, you will draw upon Group must possess and act according to a strict code of your personal experiences to contribute to enhancing SMBC ethics. Group’s corporate value? Sakurai From the standpoint of preparing the New Plan’s strategies, being able to discuss SMBC Group’s future vision Sakurai I am reminded on a regular basis that for the concept of an outside director to properly function, a company’s was very valuable. Given the reality that the current business Board must be comprised of a number of outside directors environment is undergoing sudden and substantial change, who have different backgrounds and areas of expertise. As it is not realistic to focus on determining the details of each such, I will leverage the experience that I have accumulated 040 SMBC GROUP ANNUAL REPORT 2020 To Our Stakeholdersover the many years I have spent at a global corporation, on realizing opportunities which will allow me to witness experience which I continue to accumulate today, to help employees’ honest thoughts and concerns. enhance SMBC Group’s corporate value. There are a number My second role is to point out instances where I feel of differences in the mentality of Western and Japanese that deliberations undertaken by the Board are becoming firms. For example, Japanese firms view accountability as short-sighted or narrow-minded. For example, if too much being identical to responsibility, while in the West they are focus is being directed towards SMBC Group’s direct treated as two separate concepts. In the West, accountability competitors, I attempt to expand the scope of the discussion refers to the responsibility of an individual to explain a while introducing applicable cases experienced by other particular outcome and great importance is placed on who is accountable. As such, this point must be clarified if a companies. My third role is to act as a catalyst for the candid business is going to successfully operate in the West. This was exchange of views and discussions. I feel that substantial one of the perspectives from which I provided advice during progress has been made in this regard compared to when the introduction of the CxO framework. I joined SMBC’s Board of Directors three years ago as an Furthermore, a duty of an outside director is to represent outside director, and I will continue doing my best to carry- the company’s various stakeholders, so I pay careful attention out this role. to ensure my comments and questions during Board meetings are made from the standpoint of SMBC Group’s shareholders and customers. As such, in addition to regularly Shinbo I believe that my input regarding legal matters is expected given that I am a lawyer. Having said this, I have checking the share price and reading analyst reports, I visit made a conscious effort to refrain from dealing with the an SMBC branch or use smartphone apps to understand specific details regarding legal matters as I believe that is SMBC Group from a customer’s perspective. the responsibility of a corporate lawyer and not of an outside As a member of the Nomination Committee, I am director. Of course, I firmly believe that it is very important entrusted with the heavy responsibility of assisting in the that I put forward my honest opinion without any compromise selection of SMBC Group’s leaders. To ensure that this regarding issues which I feel contain significant risk for process does not become arbitrary, committee members SMBC Group. Lawyers need to establish a close relationship have established a number of common evaluation criteria. with clients but must take care not to lose their objectivity. I When I interview candidates for leadership positions, I add believe that using this objectivity to convey tough feedback integrity and inclusion to the evaluation criteria so that when needed is the role expected of me. This also applies leaders fitting of SMBC Group are selected. to my responsibilities as a member of the Remuneration Kadonaga My career as a management consultant spans more than 30 years. In addition, from 2012 I have served Committee, and I do not hesitate to voice my concerns when I feel that an irregularity exists with the existing compensation framework. as an outside director of Kao Corporation. Based on such The final role of an outside director, and this applies to experience, I believe I have the following three key roles. situations when the company itself is going down an incorrect My first role is to check whether the senior management path, for example pursuing unattainable goals or strategies team is pushing forward SMBC Group’s various strategies involving too much risk, is to support individuals who are based on an accurate understanding of the circumstances attempting to correct the direction the company is pursuing the Group’s employees are being placed under and whether and stand with them against the senior management team. the goals of those strategies have been determined in a reasonable, rational manner. You can say that this makes me an overseer of suitability, a role which I believe to be of Nakashima Thank you very much for your valuable opinions today. I look forward to receiving your frank, continuous input. considerable significance. As such, I place great importance SMBC GROUP ANNUAL REPORT 2020 041 To Our StakeholdersAbout SMBC GroupBusiness Strategies for Creating ValueCorporate Infrastructure Supporting Value Creation042 SMBC GROUP ANNUAL REPORT 2020 Business Strategies for Creating ValueBusiness Strategies for Creating Value 044 Group Structure 046 Retail Business Unit 050 Wholesale Business Unit 054 Global Business Unit 058 Global Markets Business Unit SMBC GROUP ANNUAL REPORT 2020 043 To Our StakeholdersBusiness Strategies for Creating ValueAbout SMBC GroupCorporate Infrastructure Supporting Value CreationGroup Structure SMBC Group is a global financial group that develops operations in a wide range of fields, including banking, leasing, securities, credit cards, and consumer finance. Under the holding company, Sumitomo Mitsui Financial Group, we have established four business units that draft and implement Group strategies based on customer segments. For head office functions, we have clarified the managers responsible for specific areas of group-wide management and planning under the CxO system. In addition, we are taking steps to share management resources and optimize the allocation of resources. Group-Wide Business Units and CxO System Business Units Retail Wholesale Global Global Markets Banking Leasing Securities Credit Cards and Consumer Finance Other Business Sumitomo Mitsui Banking Corporation SMBC Trust Bank Sumitomo Mitsui Finance and Leasing SMBC Nikko Securities Sumitomo Mitsui Card Company SMBC Japan Research Sumitomo Mitsui DS Asset Consumer Finance Institute Management ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● Head Office (CxO System) CFO Chief Financial Officer CSO Chief Strategy Officer CRO Chief Risk Officer CCO Chief Compliance Officer 044 SMBC GROUP ANNUAL REPORT 2020 Business Strategies for Creating ValueNet Business Profit by Business Unit in FY2019 Retail Wholesale Global Global Markets 234.5 ¥ billion 409.2 ¥ billion 371.2 ¥ billion ¥ 398.8 billion 17 % 29% 26% 28 % Banking Leasing Securities Credit Cards and Consumer Finance Other Business Sumitomo Mitsui Banking Corporation SMBC Trust Bank Sumitomo Mitsui Finance and Leasing SMBC Nikko Securities Sumitomo Mitsui Card Company SMBC Consumer Finance Japan Research Institute Sumitomo Mitsui DS Asset Management Business Units Retail Wholesale Global Global Markets Head Office (CxO System) ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● CHRO Chief Human Resources Officer CIO Chief Information Officer CDIO Chief Digital Innovation Officer CAE Chief Audit Executive SMBC GROUP ANNUAL REPORT 2020 045 To Our StakeholdersBusiness Strategies for Creating ValueAbout SMBC GroupCorporate Infrastructure Supporting Value CreationRetail Business Unit W e are witnessing significant opportunities for expanding markets in the domestic retail banking field, including the overarching trend of shifting from savings to asset holding, the upcoming era in which people consistently live to be 100, the spread of cashless payments, and increasing digitalization. Against this backdrop, we are striving to become the most trusted and No. 1 Japanese retail finance business. To this end, the Retail Business Unit was swift to begin reforming its business models through means such as transitioning to a customer-oriented wealth management business and embracing cashless payments and digitalization. In our wealth management, payment service, and financing businesses, we are steadily growing balances of stock-based assets, sales handled, and consumer loans. Meanwhile, branch reorganizations Retail Business Unit The top-class companies in banking, securities, credit card, are enabling us to realize improvements in customer and consumer finance industries that comprise the Retail Business Unit are enhancing intra-Group coordination to convenience alongside reductions in costs. External institutions hold in high regard SMBC Group’s customer- oriented business operations as well as the smartphone address the financial needs of all individual customers, applications of SMBC and Sumitomo Mitsui Card striving to develop the most trusted and No. 1 Japanese retail finance business. Senior Managing Executive Officer Head of Retail Business Unit Naoki Tamura Company, indicating a gradual increase in our ability to achieve ongoing growth. Under the new Medium-Term Management Plan, the Retail Business Unit aims to establish the most sustainable retail finance business in Japan. In our primary businesses, we are proactively allocating resources to growth markets, such as the cashless payment and consumer finance markets as well as those serving wealthy large-scale clients, as we seek to enhance the services we supply to customers and otherwise bolster competitiveness. At the same time, we are pursuing higher levels of efficiency in the branch reorganizations and administrative and middle- and back-office function consolidation efforts implemented previously. By drastically reforming our business processes through these efforts, we aim to further improve customer convenience while cutting costs. We are also endeavoring to develop new businesses utilizing digital technologies and IT in order to create new earnings opportunities amid intensifying competition, thereby realizing ongoing growth for the entire Retail Business Unit. 046 SMBC GROUP ANNUAL REPORT 2020 Business Strategies for Creating ValueContribution to Consolidated Net Business Profit 234.5 billion ¥ 17% FY2019 FY2019 Increase (Decrease)*1 Gross profit (JPY bn) 1,257.7 Expenses (JPY bn) 1,025.2 (9.6) +4.5 (Overhead ratio) 81.5% +1.0% Net business profit (JPY bn) ROE*2 RwA (JPY tn) 234.5 (13.9) 7.2% 12.3 (0.5)% (0.4) *1 Figures are after adjustments for interest rate and exchange rate impacts. *2 Figures exclude provision for losses on interest repayments, etc. SMBC GROUP ANNUAL REPORT 2020 047 To Our StakeholdersBusiness Strategies for Creating ValueAbout SMBC GroupCorporate Infrastructure Supporting Value Creation Retail Business Unit Priority Strategy 1 Sustainable Growth in Wealth Management Business In the Retail Business Unit, we revise resource allocations based on the growth potential of specific market segments. In regard to high- net-worth customers, we are strengthening sales capabilities through the consolidation of Group banking, trust, and securities services and appointing dedicated staff to increase our share of transactions from business owners and other wealthy large-scale clients. These efforts are part of our drive to promote the new SMBC Private Wealth service brand. Meanwhile, our approach toward the mass affluent segment, which is seeing growth in demand for asset building services, entails transitioning to highly productive sales approaches and models through digital and remote services promising significant convenience to customers, in order to efficiently capture a share of this vast, unexplored market. By expanding our balance of stock- based assets and radically increasing efficiency, we will achieve sustainable growth in wealth management business. Priority Strategy 2 Balance of Stock-Based Assets (JPY tn) Impacts of COVID-19 pandemic + 3 trillion 18.1 12.4 13.5 20 10 0 ’16 ’19 ’22 (FY) Pursuit of No. 1 Position in Payment Service Business In our payment service business, we are committed to achieving growth that outpaces that of the market by accelerating cashless payment strategies and improving the convenience of our services for both business operators and users alike. For business operators, we have rolled out our stera next-generation cashless payment platform and are working to grow our share among affiliated merchants. For users, we aim to deliver convenient and beneficial services through means such as the enhancement of application services and the utilization of the Group’s shared V Point loyalty point system. In the consumer finance field, a driver behind our growth, we are steadily addressing financing needs, which are rising in conjunction with the growth of cashless payment services. We also seek to approach the new customer segments born out of changes in the working population. Sales Handled (JPY tn) Consumer Loan Balance (JPY bn) 40 30 20 10 0 CAGR +16% +10 trillion 20.3 14.5 2,000 +100 billion 1,800 1,758.3 1,791.6 1,600 0 ’16 ’19 ’22 (FY) ’17/3 ’20/3 ’23/3 048 SMBC GROUP ANNUAL REPORT 2020 Business Strategies for Creating ValuePriority Strategy 3 Online Merges with Offline Strategy Points of contact with customers are rapidly shifting toward the Internet. In light of this trend, the Retail Business Unit is transitioning away from its prior business processes focused on face-to-face interactions to adopt business models oriented toward online interactions. Part of this undertaking is streamlining work processes through extensive application of digital and remote technologies, which includes bolstering our artificial intelligence targeting and digital tools. We are also augmenting digital and remote channels in businesses that provide services to customers and coordinating these channels with face-to-face consulting in order to improve customer convenience in both online and offline settings. Furthermore, improvements to the convenience of digital Number of “SMBC Direct” Users* (Thousands of people) 8,000 8,000 6,400 4,000 3,700 products and services will be pursued by linking Group applications 0 and otherwise utilizing Group infrastructure, expertise, and resources. ’16 ’19 ’22 (FY) * Number of customers who have logged in SMBC Direct at least once every six months Response to the COVID-19 Pandemic T he various measures being implemented to fight the COVID-19 pandemic are having a massive impact on people’s everyday lives. Moreover, we realize that financing, payment, and other services provided by financial institutions support people’s lives and are a part of social infrastructure. We therefore see the ongoing provision of these services as our top priority in the midst of this crisis. In addition to keeping the branches of SMBC and other companies operating, we are taking steps to support customers COVID 19 RESPONSE based on their individual needs. For example, SMBC Group companies offer financial products specifically for customers who have been impacted by the pandemic. We are also bolstering our online services to enable customers to perform various transactions without actually visiting one of our branches. Other efforts include supplying Internet banking and credit card applications and conducting donation campaigns in which donations are made to healthcare professionals based on Internet banking transaction amounts. SMBC GROUP ANNUAL REPORT 2020 049 To Our StakeholdersBusiness Strategies for Creating ValueAbout SMBC GroupCorporate Infrastructure Supporting Value CreationWholesale Business Unit Wholesale Business Unit The Wholesale Business Unit contributes to the development of the Japanese economy by providing financial solutions that respond to the diverse needs of domestic companies in relation to financing, investment management, M&A advisory, and leases through a united Group effort. Deputy President and Executive Officer Co-Head of Wholesale Business Unit Senior Managing Executive Officer Co-Head of Wholesale Business Unit Gotaro Michihiro Kimio Matsuura 050 SMBC GROUP ANNUAL REPORT 2020 F aced with Japan’s negative interest rate policy and a continuously challenging operating environment, the Wholesale Business Unit mustered the collective strength of SMBC to deliver sophisticated solutions and carry out operations with an extensive focus on profitability. It was thereby able to maintain high levels of return on equity. During the period of the previous Medium-Term Management Plan, we achieved gains on loans for the first time in 10 years due to our allocation of funds to financing corporate acquisitions and other high-value-added applications. In addition, we were No. 1 in terms of the number of M&A advisory deals for the third consecutive year, and steady growth was seen in the number of initial public offerings in which we were the lead underwriter. These successes indicate that we have effectively established group-wide systems for delivering solutions for improving the corporate value of our customers. The new Medium-Term Management Plan calls on the Wholesale Business Unit to fully leverage the strength that is its group-based comprehensive solutions capability to furnish solutions to the social issues and difficult management issues of customers seen as social structures and customers’ businesses transform during and after the COVID-19 pandemic. Capitalizing on this strength, we will pursue an unprecedented degree of coordination between domestic and overseas bases and Group companies and boldly allocate management resources to growth fields. The Wholesale Business Unit has also been promoting digitalization through collaboration with customers. Together with Toyota Motor Corporation, we launched TOYOTA Wallet. We engaged in co-creation with Komatsu Ltd. and other major companies. Moreover, we launched the Biz-Create online business matching service in addition to establishing the SMBC CLOUDSIGN cloud-based electronic contract service. These are just some of our unique initiatives in the digitalization field. Going forward, we will continue to implement initiatives for creating new businesses from the perspectives of customers. Also in the future, we will further improve our strengths, including our keen ability to make proposals, speed, and pioneering spirit, to provide high-value-added solutions to customers and thereby contribute to the growth of customers and of the Japanese economy. Business Strategies for Creating ValueContribution to Consolidated Net Business Profit 409.2 29 billion % ¥ FY2019 FY2019 Increase (Decrease)*1 Gross profit (JPY bn) Expenses (JPY bn) 641.5 284.4 (6.7) (2.2) (Overhead ratio) 44.3% +0.1% Net business profit (JPY bn) 409.2 (0.9) ROE*2 11.6% (0.7)% RwA (JPY tn) 17.4 +0.5 *1 Figures are after adjustments for interest rate and exchange rate impacts. *2 Figures exclude medium- to long-term foreign currency funding costs. SMBC GROUP ANNUAL REPORT 2020 051 To Our StakeholdersBusiness Strategies for Creating ValueAbout SMBC GroupCorporate Infrastructure Supporting Value CreationWholesale Business Unit Priority Strategy 1 Group-Based Comprehensive Solutions To bolster responsiveness to change in growth fields, a number of SMBC organizations were set up in the Wholesale Business Unit. Specifically, these organizations were the Financial Solutions Division, which SMBC Nikko Growing area specializes in financial products; the Sustainable Business Promotion Global M&A Corporate restructuring Department, which focuses on environmental, social, and governance (ESG) issues and the United Nations Sustainable Development Goals (SDGs); and the Corporate Digital Solution Department. By uniting our front-office service, financial product, and solutions organizations in addressing customers’ various issues and needs, the Wholesale Business Unit will provide group-based comprehensive solutions. In addition, we are developing systems for delivering swift and high-quality proposals to large corporations active on the global stage. As part of this process, we are enhancing our group- based competitive edge in response to increasingly complex and sophisticated management issues pertaining to such matters as business portfolio revision and global M&A activities. In Japan, corporate bankruptcies are on the rise, stimulating an increase in corporate restructuring needs. SMBC Group was a step ahead of the competition in developing a corporate restructuring business foundation to cater to these needs. On this front, we established SMBC Capital Partners Co., Ltd., a dedicated corporate restructuring support company, in February 2020, and this company is planning equity investments to the tune of ¥60.0 billion during the period of the new Medium-Term Management Plan. The Wholesale Business Unit views initiatives for improving the corporate value of customers and ensuring their business continuity as part of its value chain, and we will advance our corporate restructuring business on a group-wide basis accordingly. SMBC Trust Growing company PE / LBO Infrastructure Investors business SMFL Settlement Succession Real estate Sustainability Digital SMCC SMBC VC Reconstruction Bankrupt company Corporate reconstruction investment FA (Sponsor selection) Exit finance DIP finance Corporate reconstruction consulting Real estate brokerage Initial public offerings SMBC Group 052 SMBC GROUP ANNUAL REPORT 2020 Business Strategies for Creating ValuePriority Strategy 2 Corporate Digital Solutions The Corporate Digital Solution Department was established in FY2020 to support customers’ digitalization and new business creation efforts. For example, we aim to supply highly convenient digital services by increasingly linking the robotic process automation, electronic contract, and other digital services of Group companies. Robotic process automation Business process outsourcing Electronic contracts Reinforcement of digital services Furthermore, we established Plari Town, Inc., a corporate digital Biometrics Settlement platform operator, in May 2020. Utilizing this company’s platform, we will accelerate our corporate digital marketing efforts and deliver a diverse range of financial and non-financial services, including those of external partners, as we advance initiatives for creating new value. Digital platform Transform your business with us Response to the COVID-19 Pandemic I n response to the COVID-19 pandemic, the Wholesale Business Unit turned its attention to supporting customers in continuing their business activities and providing easy access to funding. To this end, we are conducting financing Electronic Contract Service Use (Cases) + 80 % 1,981 and other initiatives utilizing the support funds set up through a special operation of the Bank of Japan as well as the systems of credit guarantee companies and municipal governments. We are also flexibly revising financing 1,101 COVID 19 RESPONSE procedures and assessment processes. Other efforts include ʼ19/4 ʼ20/4 enhancing our lineup of online services to offer payment and financing processing services through Internet banking schemes as well as business-matching services and cloud-based electronic contract services. Going forward, we will continue to fight the COVID-19 pandemic so that we can keep providing the services people rely on as a part of social infrastructure. At the same time, we aim to utilize digital technologies in our sales activities to an even greater degree. SMBC GROUP ANNUAL REPORT 2020 053 To Our StakeholdersBusiness Strategies for Creating ValueAbout SMBC GroupCorporate Infrastructure Supporting Value CreationGlobal Business Unit Global Business Unit The Global Business Unit supports the global business operations of domestic and overseas customers by leveraging SMBC Group’s extensive global network and products and services in which we possess strengths. Deputy President and Executive Officer Head of Global Business Unit Masahiko Oshima 054 SMBC GROUP ANNUAL REPORT 2020 T he Global Business Unit faced a difficult business environment over the course of the previous Medium-Term Management Plan due to factors such as US-China trade friction and the United Kingdom’s decision to leave the European Union. Amidst such adversity, we carried out various measures which produced steady results, permitting us to maintain upward trends in gross profit and net business profit. Specifically, we further enhanced collaborations between SMBC and SMBC Nikko Securities, advanced asset-turnover-based businesses, and expanded our product line-up in areas where we possess top-tier capabilities, such as aircraft leasing and project finance. Addressing customer needs will remain at the heart of our operations under the new Medium-Term Management Plan as we leverage SMBC Group’s strengths to provide optimal solutions so that we can grow together with customers as a global financial group. To this end, we will expand our overseas securities businesses and further enhance the competitiveness of products, such as sustainable finance, and combine them with the unique strengths SMBC Group has developed over the years to deliver solutions that are tailor made to address customers’ business issues and the issues facing society. This will allow us to shift toward a business model that is not overly dependent on expanding our balance sheet by deepening customers’ trust in SMBC Group, accelerating efforts to promote cross-selling and enhance our standing as customers’ trusted business partner, and improving our profitability and efficiency. At the same time, we will focus on augmenting our earnings capacity through the expansion of operations in Asia and other growth markets. By deploying our Multi- Franchise Strategy, we aim to incorporate the growth of the Asian market while aggressively pursuing new growth opportunities, such as acquisitions geared toward obtaining new business platforms for the future. Through such initiatives, we will boost the earnings capacity of both Group companies and investees, generate synergies, and heighten the Group’s overall strength. In addition, we will take measures to reinforce business platforms for supporting sustainable growth through means such as reinforcing corporate governance systems, diligently streamlining operational structures, and ensuring the stable procurement of foreign currencies. Business Strategies for Creating ValueContribution to Consolidated Net Business Profit 371.2 ¥ billion 26 % FY2019 FY2019 Increase (Decrease)*1 Gross profit (JPY bn) Expenses (JPY bn) 667.1 350.6 +26.2 +19.7 (Overhead ratio) 52.6% +1.0% Net business profit (JPY bn) ROE*2 RwA (JPY tn) 371.2 +3.3 8.1% 21.4 (1.6)% +2.1 *1 Figures are after adjustments for interest rate and exchange rate impacts. *2 Figures exclude medium- to long-term foreign currency funding costs. SMBC GROUP ANNUAL REPORT 2020 055 To Our StakeholdersBusiness Strategies for Creating ValueAbout SMBC GroupCorporate Infrastructure Supporting Value CreationGlobal Business Unit Priority Strategy 1 Initiatives to Improve Profitability The Global Business Unit is looking to enhance its corporate investment banking business, which merges its banking business with its securities business. To this end, we will fully capitalize on Group strengths, such as our product/sector expertise and global network, in order to bolster our ability to provide integrated, group- wide solutions. Furthermore, we will develop multi-faceted business relationships by addressing customers’ business issues, as well climate change and other social issues, through our expertise in areas such as sustainable finance, M&A advisory, and payment services. We will also pursue initiatives aimed at improving profitability that do not require us to significantly expand our balance sheet. Efforts to this end will aim to increase efficiency in terms of both capital and assets, for example by adopting a rigorous focus on profitability and strengthening our asset-turnover-based businesses’ focus on customers’ investment needs. Priority Strategy 2 Global network Sector expertise Japanese customer base Pursue cross-selling opportunities by Leveraging our strengths Banking business M&A advisory Green finance Loans, deposits, payments Product capabilities Securities business Address investors’ asset management needs Improve profitability without overly depending on expanding our balance sheet Expansion in Asia, Other Growth Markets, and New Business Areas Gross Profit in Indonesia Looking to expand its operations in growth markets, the Global (USD mn) Business Unit is directing efforts toward Asia and other new business areas. In Indonesia, we are strengthening our business foundations and developing financial service franchises centered on PT Bank Tabungan Pensiunan Nasional Tbk (“BTPN”). We will enhance our foundations for medium- to long-term growth by developing relationships with mid-tier companies through intra-Group collaborations, in addition to augmenting our digital banking operations. The Global Business Unit is also expanding operations in countries such as India, the Philippines, and Vietnam, while also engaging in digital technology-related projects in Asia with the aim of capturing the region’s growth. Another area of focus is the acquisition of business platforms in new growth markets, such as asset management. 1,200 1,000 800 600 400 200 0 056 SMBC GROUP ANNUAL REPORT 2020 BTPN (profit booked based on a 40% equity stake) PT Bank Sumitomo Mitsui Indonesia Merger 100% of profit booked + 15 % ’15 ’16 ’17 ’18 ’19 ’22 (FY) Business Strategies for Creating ValuePriority Strategy 3 Establishing Business Foundations That Meet the Needs of a Global Bank Our global operations are becoming more complex due to the increasing speed at which the environment changes, for example market fluctuations, geopolitical risks, and the heightening expectations of regulatory authorities. To support such operations, the Global Business Unit is prioritizing the allocation of resources to the reinforcement of its corporate governance and risk management systems. Furthermore, we will continue to diligently streamline our Market fluctuations Political/Geopolitical risks Regulatory requirements Proactive response to market fluctuations and overseas regulatory requirements Enhancement of corporate governance Diversification of foreign currency procurement sources operations by revising business promotion frameworks and Response to credit risk consolidating administrative functions so that we may secure resources that can be allocated to priority fields and generate surplus funds Generate resources by diligently streamlining operations that can be invested in new businesses. For foreign currency funding, without which the sustainable growth of our overseas businesses cannot be realized, the focus will be on cost and stability as we diversify procurement sources and enhance the quality of deposits, which includes growing our share of the highly sticky deposits of non-financial firms. Response to the COVID-19 Pandemic T he Global Business Unit has established a COVID-19 response fund that extends credit at favorable rates in order to support the cash flow needs of customers impacted by the COVID-19 pandemic and to support customers whose businesses contribute to efforts aimed at preventing the virus from further spreading. We are also contributing to the enhancement of the healthcare and education systems of emerging market economies. As one facet of these efforts, we have made donations to the Japan © UNICEF/UNI329169/Ijazah COVID 19 RESPONSE Committee for UNICEF and other public organizations to support the development of healthcare systems and vaccines. We will devote our utmost efforts to support customers’ economic activities by maintaining the scope and quality of our global operations so that we are able to continue addressing their financial needs, regardless of the challenging overseas environment resulting from lockdowns and other factors. SMBC GROUP ANNUAL REPORT 2020 057 To Our StakeholdersBusiness Strategies for Creating ValueAbout SMBC GroupCorporate Infrastructure Supporting Value CreationGlobal Markets Business Unit T he Global Markets Business Unit is committed to analyzing the various phenomena that occur throughout the world based on the “3Is” of insight, imagination, and intelligence in order to forecast the market trends that will emerge in the future. We adopt this approach based on the belief that it will create significant value in our efforts to manage SMBC Group’s investment portfolio and provide solutions to customers as market professionals. We also position the enhancement of our foreign currency funding capabilities as a priority strategy. We are therefore expanding the range of investors and funding methods we utilize with the goal of providing reliable support for SMBC Group’s overseas operations. When formulating the new Medium-Term Management Plan, the Global Markets Business Unit instituted a massive restructuring of its organization from a medium- to long-term perspective based on irreversible Global Markets Business Unit The Global Markets Business Unit offers solutions through foreign exchange, derivatives, bonds, stocks, and other marketable financial products and also undertakes changes in the operating environment, such as the asset liability management (“ALM”) operations which comprehensively control balance sheet liquidity risks and interest rate risks. Senior Managing Executive Officer Head of Global Markets Business Unit Masamichi Koike prolongation of the low interest-rates seen around the world and the advancement of technologies. The goal of this restructuring was to further evolve our risk-taking processes, which represent the unit’s core business, while continuously heightening our ability to provide solutions to customers. The current market environment is ripe with uncertainty, resulting in a rising sense of opaqueness. In the face of such volatility, we will reevaluate markets from an earnest perspective and, as market risk professionals, exercise our commitment to supplying customers with high levels of value. Customer needs are becoming increasingly diverse, as indicated by the advancement of the digitalization trend and the growing interest in social issues. We therefore aim to effectively address these diversifying needs and contribute to the growth of customers and SMBC Group. 058 SMBC GROUP ANNUAL REPORT 2020 Business Strategies for Creating ValueContribution to Consolidated Net Business Profit 398.8 ¥ billion 28 % FY2019 FY2019 Increase (Decrease)*1 Gross profit (JPY bn) 421.6 +60.6 Expenses (JPY bn) 56.2 +2.6 (Overhead ratio) 13.3% (1.5)% Net business profit (JPY bn) ROE*2 RwA (JPY tn) 398.8 +59.9 45.9% +13.3% 5.3 +0.4 *1 Figures are after adjustments for interest rate and exchange rate impacts. *2 Figures exclude IRRBB (Interest-Rate Risk in the Banking Book). SMBC GROUP ANNUAL REPORT 2020 059 To Our StakeholdersBusiness Strategies for Creating ValueAbout SMBC GroupCorporate Infrastructure Supporting Value Creation Global Markets Business Unit Priority Strategy 1 Flexible Portfolio Management in Response to Market Changes At the Global Markets Business Unit, we are constantly collecting and analyzing new information to fuel discussions and facilitate the formulation of various scenario projects. We thereby develop the capabilities to forecast the market trend in order to optimize our risk/ return ratio. The dynamic and flexible operations of SMBC Group founded on proactive observation of market fluctuations are one of its strengths. Looking ahead, it can be anticipated that globally low interest rates and technological progress will continue. In this environment, we will continue to manage assets in developed and other countries while exploring new revenue sources through means such as branching out into the bonds of emerging countries and other investment products and employing investment methods that take advantage of technologies. Turning point of trend Carefully-crafted risk control Bonds Equities Dynamic portfolio rebalancing Turning point of trend Priority Strategy 2 Enhancement of Solutions Provided through Marketable Financial Overseas Sales and Trading Amounts Products The Global Markets Business Unit is expanding its product lineup and enhancing coordination between domestic and overseas product sales teams in order to respond to customers’ risk hedging and investment needs. In addition to heightening product provision capabilities in response to the diversification and growing sophistication of customer needs, we will focus on offering tailor-made solutions based on risks associated with customer transactions and balance sheets. We will also develop systems for coordinating and providing these solutions on a global basis in the pursuit of further growth. Meanwhile, the popularization of electronic transactions has created a pressing need for improving platform convenience and pricing capabilities. Accordingly, another focus will be cultivating Quants. (JPY bn) 120 80 40 0 060 SMBC GROUP ANNUAL REPORT 2020 Impacts of COVID-19 pandemic +25% 100.3 74.2 ’16 ’19 ’22 (FY) Business Strategies for Creating ValuePriority Strategy 3 Strengthening of Foreign Currency Funding Capabilities We seek to expand our investor base and diversify funding methods. Initiatives toward this purpose have included issuing Japan’s first covered bonds along with regular foreign currency bonds and utilizing cross-currency repo transactions*. At the same time, we have been taking advantage of the favorable funding environment to raise Diversification of Funding Sources First in Japan | Covered bonds •Aaa rating •Low funding cost under stressed market Senior Covered Subordinated funding in a manner that is suited to the market environment through (USD bn) means such as increasing medium- to long-term currency swaps. To support the overseas businesses of SMBC Group, we will continue to promote high-quality foreign currency funding emphasizing stability and costs. At the same time, we will appropriately control our balance sheet in response to international financial regulations. * Cross-currency repo transactions are forms of foreign currency funding backed by government bonds, etc. 20 15 10 5 0 ’15 ’16 ’17 ’18 ’19 (FY) Response to the COVID-19 Pandemic T o support customers amid the COVID-19 pandemic, we are building systems to enable them to perform transactions with peace of mind without fear of missing out on the ideal timing. Specifically, we are proactively utilizing electronic transactions to make it possible for transactions to be performed anywhere. We are also staggering staff and shifts and spreading employees across multiple bases. Securing staff for services that can have a particularly large impact on customers, such as funding and market transactions, is being prioritized. COVID 19 RESPONSE SMBC GROUP ANNUAL REPORT 2020 061 To Our StakeholdersBusiness Strategies for Creating ValueAbout SMBC GroupCorporate Infrastructure Supporting Value Creation062 SMBC GROUP ANNUAL REPORT 2020 Corporate Infrastructure Supporting Value CreationCorporate Infrastructure Supporting Value Creation 064 Corporate Governance 072 SMBC Group Global Advisors 074 Sumitomo Mitsui Financial Group Directors 078 Sustainability Management 084 Customer-Oriented Initiatives 087 Internal Audit 088 Risk Management 092 Compliance 094 Human Resources Strategy 098 IT Strategies 100 Communication with Stakeholders 102 Financial Review SMBC GROUP ANNUAL REPORT 2020 063 To Our StakeholdersBusiness Strategies for Creating ValueCorporate Infrastructure Supporting Value CreationAbout SMBC Group Corporate Infrastructure Supporting Value Creation Corporate Governance Our Approach We position “Our Mission” as the universal philosophy underpinning the management of SMBC Group and as the foundation for all of our corporate activities. We are working toward effective corporate governance as we consider the strengthening and enhancement of corporate governance to be one of our top priorities in realizing “Our Mission.” 064 SMBC GROUP ANNUAL REPORT 2020 Initiatives for Improving Corporate Governance 2002 •Establishment of Sumitomo Mitsui Financial Group •Voluntary establishment of Nominating Committee, Compensation Committee, and Risk Committee as internal committees of the Board of Directors 2005 •Voluntary establishment of Audit Committee as internal committee of the Board of Directors 2006 •Formulation of “Basic Policy on Internal Control Systems” through internal control resolution made based on “Our Mission” and “Code of Conduct” in order to establish frameworks for ensuing appropriate operations •Listing of shares on the New York Stock Exchange in order to improve 2010 transparency of financial reporting, increase convenience for investors, and diversify fund procurement methods 2014 •Appointment of independent directors and independent auditors based on stipulations of the Tokyo Stock Exchange 2015 •Establishment of the “SMFG Corporate Governance Guideline” •Increase in the number of outside directors to five and the number of outside corporate auditors to three •Strengthening of Group governance by appointing the Chairman of SMBC Nikko Securities as a director of Sumitomo Mitsui Financial Group along with the President of SMBC 2016 •Commencement of evaluations of the effectiveness of the Board of Directors 2017 •Transition to a Company with Three Committees; increase in the number of outside directors to seven; establishment of voluntary Risk Committee together with legally mandated Nomination Committee, Compensation Committee, and Audit Committee; and appointment of outside directors as chairmen of three legally mandated committees •Institution of new Group governance system through introduction of group-wide business units and CxO system 2019 •Transition to the Company with Audit and Supervisory Committee structure by core subsidiaries SMBC and SMBC Nikko Securities •Decrease in the number of directors from 17 to 15 and increase in the ratio of outside directors to 47% 2020 •Appointment of an outside director as the chairman of the Risk Committee Sumitomo Mitsui Financial Group’s Corporate Governance System In addition to fulfilling our responsibilities to stakeholders, Corporate Governance System which we consider to be “Our Mission,” SMBC Group has set forth a Vision for our medium- to long-term goals and Five Values as the core values to be shared by all executives and employees, and will seek to make the Vision and Five Values known as guiding principles for the group by all its directors and employees. Also, the “SMFG Corporate Governance Guideline,” a guideline for corporate governance, has been Outside directors Internal, non-executive directors Inside directors Outside expert Chairman Board of Directors Focus on supervision of executive officers’ and directors’ execution of duties Internal Committees formulated and disclosed. We are promoting awareness and Nomination Committee Compensation Committee Audit Committee* Risk Committee (Optional) Management Committee Business execution decisions Departments Audit Dept. * The Audit Committee holds the right to consent personal affairs of Chief Audit Executive. Reporting line understanding regarding these guidelines among all SMBC Group officers and employees. SMBC Group employs the Company with Nominating Committee, etc., structure described in the Companies Act. This structure was adopted in order to establish a corporate governance system that is globally recognized and is aligned with international banking regulations and supervision requirements and achieve enhanced oversight of the exercise of duties by the Board of Directors and expedite this exercise of duties. In addition, core subsidiaries SMBC and SMBC Nikko Securities transitioned to the Company with Audit and Supervisory Committee described in the Companies Act in June 2019. Through the implementation of effective corporate governance systems, we aim to prevent scandals and other forms of corporate misconduct while also achieving ongoing growth and medium- to long-term improvements in corporate value. We realize that there is no perfect form for corporate governance structures. Accordingly, we will continue working toward the strengthening and enhancement of corporate governance in order to realize higher levels of effectiveness. SMBC GROUP ANNUAL REPORT 2020 065 To Our StakeholdersBusiness Strategies for Creating ValueCorporate Infrastructure Supporting Value CreationAbout SMBC GroupCorporate Infrastructure Supporting Value Creation Corporate Governance Board of Directors Role of the Board of Directors　 The Board of Directors of the Company is primarily directors in order to enable the Board of Directors to function with the greatest degree of effectiveness and efficiency. In addition, the Board of Directors is to be comprised of at least responsible for making decisions on the matters that are two directors, and more than one-third of all directors should within its legally mandated scope of authority, such as basic be outside directors designated as independent directors management policies, as well as for overseeing the exercise based on the stipulations of the Tokyo Stock Exchange. of duties of executive officers and directors. Authority for As of June 26, 2020, the Board of Directors was execution decisions other than those legally required to be comprised of 15 directors. Ten of the 15 directors did not made by the Board of Directors will, in principle, be delegated have business execution responsibilities at the Company or to executive officers. The purpose for this delegation is to its subsidiaries, with seven of these 10 directors being outside enhance the oversight function of the Board of Directors and directors. The chairman of Sumitomo Mitsui Financial Group, to expedite the exercise of duties. who does not have business execution responsibilities, served The Board of Directors works toward the realization of as the chairman of the Board of Directors. This membership “Our Mission” and the long-term growth of corporate value ensures an objective stance toward supervising the exercise and the common interests of the shareholders. Any action of duties by executive officers and directors. that may impede those objectives will be addressed with Outside directors serve as chairmen and members of impartial decisions and response measures. the Company’s legally mandated and voluntarily established Furthermore, the Board of Directors is responsible committees when necessary, outside directors will request for establishing an environment that supports appropriate reports on compliance, risk management, or other matters risk taking by executive officers. It will develop a system for from the relevant divisions in order to promote appropriate ensuring the appropriateness of SMBC Group’s business coordination and supervision. Number of directors 15 Non-executive directors 10 %67 Outside directors Composition of the Board of Directors 7 %47 Internal directors (executive) 5 Internal directors (non-executive) 3 Areas of Expertise of Outside Directors Management Finance / accounting Law Diplomacy 3 1 2 1 operations pursuant to the Companies Act and other relevant legislation in order to maintain sound management. Another responsibility of the Board of Directors is to exercise highly effective oversight of executive officers from an independent and objective standpoint. Accordingly, the Board of Directors endeavors to appropriately evaluate company performance and reflect these evaluations in its assessment of executive officers. Composition of the Board of Directors The Board of Directors is comprised of directors with various backgrounds and diverse expertise and experience. The Company strives to maintain the appropriate number of 066 SMBC GROUP ANNUAL REPORT 2020 Internal Committees Nomination Committee　 The Nomination Committee is responsible for preparing Audit Committee The Audit Committee is responsible for the auditing of the execution of duties by the executive officers and directors of the Company, preparation of audit reports, and determination proposals regarding the appointment and dismissal of the content of proposals for election, dismissal, or non- of directors to be submitted to the general meeting of reelection of the accounting auditor to be submitted to the shareholders. This committee also deliberates on matters general meeting of shareholders. Committee members regarding personnel decisions pertaining to officers of are appointed by this committee to perform audits of the the Company and major subsidiaries and the selection of operations and assets of the Company and its subsidiaries. successors to the presidents of the Company and of core The Audit Committee is comprised of two internal directors subsidiaries. The Nomination Committee comprises one and three outside directors. An outside director has been internal director and five outside directors. In order to ensure appointed to serve as the chairman of this committee in order transparency in deliberations on officer personnel decisions, to guarantee the objectivity of audits and independence from an outside director has been appointed to serve as the business execution. In principle, at least one member of this committee is to possess specialized expertise in finance. chairman of this committee. Compensation Committee The Compensation Committee is responsible for Risk Committee The Risk Committee is responsible for deliberation on matters deciding policies for determining the compensation of relating to environmental and risk awareness, the operation executive officers and directors of the Company as well as of the Risk Appetite Framework, and the implementation of compensation amounts of individual executive officers and risk management systems as well as other important matters directors of the Company based on those policies. In addition, pertaining to risk management and reporting to the Board of this committee deliberates on the policies for determining the Directors on these matters. The Risk Committee is comprised compensation of the executive officers of major subsidiaries of one internal director, two outside directors, and two outside and the compensation amounts of individual executive experts. officers of the Company. The Compensation Committee is comprised of two internal directors and four outside directors. In order to ensure transparency in deliberations on officer compensation, an outside director has been appointed to serve as the chairman of this committee. ⃝ ⃝ ⃝ ⃝ ⃝ ⃝ Internal Committee Composition Masayuki Matsumoto Outside director Arthur M. Mitchell Outside director Shozo Yamazaki Masaharu Kohno Outside director Outside director Yoshinobu Tsutsui Outside director Katsuyoshi Shinbo Outside director Eriko Sakurai Takeshi Kunibe Jun Ohta Toru Nakashima Atsuhiko Inoue Toru Mikami Outside director Chairman of the Board Director President Director Senior Managing Corporate Executive Officer Director Director Hirohide Yamaguchi*1 Outside expert Tatsuo Yamasaki*2 Outside expert Nomination Committee (1 inside director, 5 outside directors) Attendance at 4/5 meetings Compensation Committee (2 inside directors, 4 outside directors) Audit Committee (2 inside directors, 3 outside directors) Risk Committee (1 inside director, 2 outside directors, and 2 outside experts) ⃝ Attendance at 15/15 meetings Attendance at 5/5 meetings ⃝ Attendance at 6/6 meetings ⃝： Chairman ⃝： Member Attendance at 5/5 meetings Attendance at 5/5 meetings Attendance at 5/5 meetings Attendance at 5/5 meetings ⃝ ⃝ ⃝ ⃝ ⃝ ⃝ Attendance at 15/15 meetings ⃝ Attendance at 4/4 meetings ⃝ Attendance at 4/4 meetings Attendance at 5/6 meetings Attendance at 6/6 meetings ⃝ Attendance at 15/15 meetings Attendance at 6/6 meetings Attendance at 6/6 meetings Attendance at 6/6 meetings ⃝ Attendance at 12/12 meetings ⃝ Attendance at 15/15 meetings ⃝ Attendance at 4/4 meetings ⃝ ⃝ Attendance at 4/4 meetings Attendance at 4/4 meetings SMBC GROUP ANNUAL REPORT 2020 067 *1 Chairman of the Advisory Board of Nikko Research Center, Inc., former Deputy Governor of the Bank of Japan *2 Specially appointed professor of International University of Health and Welfare To Our StakeholdersBusiness Strategies for Creating ValueCorporate Infrastructure Supporting Value CreationAbout SMBC GroupCorporate Governance Support Systems for Outside Directors Meetings Only Attended by Outside Directors The Company recognizes that outside directors require an in- As described in the “SMFG Corporate Governance depth understanding of the Group’s business operations and Guideline,” outside directors may hold meetings that only business activities. Accordingly, we endeavor to continually outside directors may attend to serve as forums for building supply outside directors with the information and insight consensus and exchanging information with regard to matters on business activities that are necessary to supervise pertaining to corporate governance and businesses from an management while also providing the opportunities needed independent and objective standpoint. At recent meetings, to fulfill their roles. outside directors engaged in brisk exchanges of opinions Initiatives to support directors in FY2019 included the aimed at better exercising their functions. following. responsibility companies and other executive team meetings, tours of bases of Group companies, and discussions with presidents of Group companies for facilitating a greater understanding of business operations and business activities · Participation in meetings of general managers of core Group · Informal exchanges of opinion with internal officers by area of · Explanatory forums on Board of Directors’ meeting agenda items· Study sessions for outside directors led by external lecturers · Small meetings with institutional investors to provide · Training through SMBC Academy training website for on topics such as corporate governance and financial regulations opportunities for understanding the perspectives of stakeholders items prior to Board meetings to assist in understanding of employees Discussions between Outside Directors and Investors and Analysts In formulating the Medium-Term Management Plan that began in FY2020, we arranged discussions between outside directors and investors and analysts to enable these directors to receive direct input from the market. At the meetings, in- depth discussions were carried out centered on such high- interest topics as capital measures and the reduction of strategic holdings. This input was used in developing the Medium-Term Management Plan as well as capital measures and strategic holdings reduction plans. Outside Director and Corporate Auditor Independence Standards In order for an outside director or outside corporate auditor (“Outside Director or Corporate Auditor”) of the Company to be classified as independent, they must not fall under, or have recently fallen under, any of the following categories: 1 Major Business Partner 2 Specialist 3 Donations 4 Major Shareholder • An entity that has the Company or SMBC as a major business partner or an executive director, officer, or other person engaged in the execution of business of such an entity. • An entity that is a major business partner of the Company or SMBC or an executive director, officer, or other person engaged in the execution of business of such an entity. • A legal expert, accounting expert, or consultant who has received money or other property from the Company or SMBC averaging more than JPY 10 million per year over the last three years, in addition to any compensation received as a director or corporate auditor. • A member of a Juridical Person, etc. or other organization that provides specialist services, such as a law firm, accounting firm, or consulting firm, which has received large amounts of money or other property from the Company or SMBC. A person who has received – or an executive director, officer, or other person engaged in the execution of business of an entity which has received – on average over the last three years, donations or other payments from the Company or SMBC in excess of the greater of JPY 10 million per year and 2% of the recipient’s annual revenue. A major shareholder of the Company or an executive director, officer, or other person engaged in the execution of business of a major shareholder (including anyone who has been a major shareholder, or an executive director, officer, or other person engaged in the execution of business of a major shareholder, within the last three years). 5 Close Relative A close relative of any person (excluding non-material personnel) who falls under any of the following: (1) A person who falls under any of 1 through 4 above; or (2) A director, corporate auditor, executive officer, or other person engaged in the execution of business of the Company or a subsidiary thereof. Please see Reference 6 of the “SMFG Corporate Governance Guideline” for more information. https://www.smfg.co.jp/english/aboutus/pdf/cg_guideline_e.pdf 068 SMBC GROUP ANNUAL REPORT 2020 Corporate Infrastructure Supporting Value CreationEvaluation of the Board of Directors’ Effectiveness The “SMFG Corporate Governance Guideline” contains provisions on evaluating the effectiveness of the Board of Directors. In accordance with these provisions, annual analyses and evaluations are conducted by the Board of Directors to determine whether or not it is executing its duties in line with the guideline, and the results of these analyses and evaluations are disclosed. In FY2019, the evaluation focused on the three areas described below, which are areas for which provisions exist in Japan’s Corporate Governance Code and the “SMFG Corporate Governance Guideline.” All seven outside directors were asked for their opinions regarding these areas at meetings of the Board of Directors held in April and May 2020, and interviews of internal directors were conducted thereafter. The primary subject of interviews with internal directors was their expectations of outside directors. Discussions based on the findings took place at Board of Directors’ meetings in June, after which analyses and evaluations were carried out to determine whether or not the Board of Directors was executing its duties in line with the “SMFG Corporate Governance Guideline.” Moreover, reviews by external specialists with expertise from developed nations are received at each stage of the evaluation process. Overview of Results of Evaluation of the Board of Directors’ Effectiveness Targets Improvement proposals PDCA Cycle Implementation (1 year) Effectiveness evaluation Role of the Board of Directors · Steps are taken to invigorate discussions while taking advantage of the highly specialized expertise of the outside directors. These discussions were geared toward medium- to long-term improvements in corporate value based on the interests of various stakeholders while incorporating important matters related to business strategies to contribute to the fulfillment of “Our Mission.” In FY2019, the Board of Directors took part in discussions that carefully incorporated the input of outside directors on important themes pertaining to the Medium-Term Management Plan at an early stage in its development. · Based on the executive-side discussions of the Management Committee, matters related to business plans and other basic management policies as well as the status of the business execution were presented and reported on several occasions. As a result, effective deliberations on these matters were able to take place and oversight functions were exercised properly. · It is important for the Board of Directors to fulfill its role based on the changes in the operating environment to occur during and after the COVID-19 pandemic and supported by mutual understanding among inside and outside directors. Proceedings of the Board of Directors and Support Systems for Outside Directors · The number and content of agenda items as well as the amount of time dedicated to discussion of agenda items were more or less around the appropriate level. Discussions were livelier than those in the previous fiscal year due to clear identification of priority proposals and swift conclusion of discussions by the chairman of the Board as well as other improvements to proceedings. · The Company continued to provide systems for effectively supporting the Board of Directors in making management decisions through venues such as study sessions for outside directors and forums for discussions between outside directors and internal directors, executive officers, and the accounting auditor. In FY2019, the newly introduced informal exchanges of opinion with internal officers helped foster mutual understanding between outside directors and internal officers and thereby contributed to livelier discussions at meetings of the Board of Directors. · It is desirable for the Company to continue arranging informal exchanges of opinion between outside directors and internal officers to better utilize the insight of outside directors and contribute to more frank discussions. Composition of the Board of Directors · As of March 31, 2020, the Board of Directors consisted of 15 directors, seven of which were outside directors. Accordingly, outside directors represented over 40% of all directors. SMBC GROUP ANNUAL REPORT 2020 069 To Our StakeholdersBusiness Strategies for Creating ValueCorporate Infrastructure Supporting Value CreationAbout SMBC GroupCorporate Governance Compensation Program To facilitate the fulfillment of Our Mission and the realization We also introduced the malus (forfeiture) of restricted of Our Vision, SMBC Group’s medium- to long-term vision, we stock and the claw-back of vested stock allocated to the developed compensation program for Directors, Corporate Executives under the Plans to restrain excessive risk-taking Executive Officers and Executive Officers (the “Executives”) and foster a prudent risk culture expected of a financial and introduced Stock Compensation Plans as a part of institution. Executives compensation programs, for the purpose of: Providing appropriately functioning incentives for Executives, strengthening 1 linkage with our short-, medium-, and long-term performance, and Further aligning the interests of Executives with those of shareholders, 2 by increasing the weight of stock compensation and enhancing the shareholding of our Executives. Executives Compensation System Compensation Components Payment Standards (Range of Variation) Payment Method Base salary Fixed compensation • Cash Bonus (cash) Bonus (Stock Compensation Plan II) Compensation determined based on SMFG’s annual performance (0%–150%) Standard levels × annual performance of SMFG and SMBC as well as on the performance of the executive • Cash: 70% • Restricted stock: 30% Compensation determined based on SMFG’s medium-term performance, etc. (0%–150%) Standard levels × SMFG’s medium-term performance, etc. [Performance Indices] Category Performance Indices Stock Compensation Plan I Financial Targets ROCET1 Base expenses CET1 ratio Gross profit • Restricted stock Shareholder Value Total shareholder return Profit attributable to owners of parent Qualitative Customer satisfaction surveys, ESG initiatives, etc. Stock Compensation Plan III (Promotion reward plan) • Restricted stock * Variable compensation is capped at a maximum of 100% of total base salary Applicable to malus and claw-back provisions Foster a prudent risk culture expected of a financial institution P o r t i o n o f v a r i a b l e c o m p e n s a t i o n : 4 0 % * P o r t i o n o f s t o c k - b a s e d c o m p e n s a t i o n : 2 5 % Providing more appropriate incentives for executives Further aligning the interests of Executives with those of shareholders 070 SMBC GROUP ANNUAL REPORT 2020 Corporate Infrastructure Supporting Value Creation Executive Management Systems Management Committee The Management Committee is set up under the Board to serve as the top decision-making body. The Management Committee is chaired by the President of Sumitomo Mitsui Financial Group with other members including executive officers and other officers designated by the President. The President of Sumitomo Mitsui Financial Group considers important matters relating to the execution of business in accordance with the basic policies set by the Board of Directors and based on discussions held by the committee members. Group-Wide Business Units and CxO System In April 2017, the Company introduced group-wide business units and the CxO system with the aim of enhancing Group management. The group-wide business unit structure entailed the creation of the Retail Business Unit, the Wholesale Business Unit, the Global Business Unit, and the Global Markets Business Unit. The goal of this structure is to heighten our ability to address the various needs of customers on a group-wide basis by enabling the business units to formulate and implement business strategies based on their respective customer segments. The CxO system entails the appointment of nine Group chief officers in charge of specific areas in addition to the Group CEO (President of Sumitomo Mitsui Financial Group). This system is meant to improve Group management capabilities centered on the holding company. The heads of business units as well as the chief officer positions will, in principle, be filled with executive officers of the Company, with the one exception being the Group Chief Audit Executive (CAE). Individuals appointed to these positions are expected to exercise their duties as the person responsible for overseeing their business unit or head office division and report on the execution of their duties to the Board of Directors. SMBC GROUP ANNUAL REPORT 2020 071 To Our StakeholdersBusiness Strategies for Creating ValueCorporate Infrastructure Supporting Value CreationAbout SMBC GroupCorporate Governance SMBC Group Global Advisors SMBC Group Global Advisors (“Global Advisors”) act in an advisory capacity to the SMBC Group Management Committee by attending SMBC Group Global Advisory Meetings, which we hold on a regular basis. At the SMBC Group Global Advisory Meeting in November 2019, five SMBC Group Global Advisors and members of the Management Committee participated in lively discussions regarding the outlook for the business environment and growth strategies that should be recognized when formulating the new Medium-Term Management Plan. In particular, with regard to the business trends in the financial services sector, various opinions were raised concerning sentiments pertaining to recent international financial regulations and what strategies should be implemented in the future. In addition, discussions were held with outside directors regarding the development of a global governance system. SMBC Group has appointed Global Advisors to provide Furthermore, brisk exchanges of opinion took place on topics advice to it on global business and on political and economic SMBC Group should consider in its global business, such as issues in the Americas, EMEA and Asia. At SMBC Group how to respond to the U.S.–China trade friction, geopolitical Global Advisory Meetings, advisors inform the Management risks, and rapid digitalization. Committee of trends and developments in the financial sector By proactively utilizing recommendations and advice and the political and economic environments of respective from SMBC Group Global Advisors, SMBC Group aims to regions. Global Advisors also provide regular insight with realize its Vision to be “a trusted global solution provider respect to political and economic issues related to the committed to the growth of our customers and advancement formulation of strategies and key risks faced by SMBC Group. of society” through the enhancement of Group management. 072 SMBC GROUP ANNUAL REPORT 2020 Corporate Infrastructure Supporting Value CreationDr. Andreas Dombret Dr. Robert D. Hormats Andrew N.Liveris 2010–2018 A member of the Executive Board, Deutsche 2020–Present Managing Director, Tiedemann Advisors 2017–2018 Executive Chairman, DowDuPont Inc. Bundesbank 2005–2009 Vice Chairman Europe, Bank of America 2013–2020 Vice Chairman, Kissinger Associates 2006–2017 Chairman and CEO, The Dow Chemical Company Cesar V. Purisima Sir David Wright Joseph Yam 2010–2016 Secretary of Finance of the Republic of the 2003–2017 Vice Chairman, Barclays 2017–Present A member of the Executive Council, Hong Kong SAR Philippines 2004–2005 Secretary of Trade and Industry of the Republic of the Philippines 1996–1999 British Ambassador to Japan 1993–2009 Chief Executive of the Hong Kong Monetary Authority SMBC GROUP ANNUAL REPORT 2020 073 To Our StakeholdersBusiness Strategies for Creating ValueCorporate Infrastructure Supporting Value CreationAbout SMBC Group Corporate Governance Sumitomo Mitsui Financial Group Directors (As of June 26, 2020) Chairman of the Board Director President (Representative Corporate Executive Officer) Group CEO Director President of SMBC Director Senior Managing Corporate Executive Officer Group CRO Director and Senior Managing Executive Officer of SMBC Takeshi Kunibe Jun Ohta Makoto Takashima Haruyuki Nagata 1976 Joined Sumitomo Bank 2003 Executive Officer of Sumitomo Mitsui Banking Corporation (“SMBC”) 2006 Managing Executive Officer of SMBC 2007 Managing Executive Officer of the Company Director of the Company 2009 Director and Senior Managing Executive Officer of SMBC 2011 President and Chief Executive Officer of SMBC 2017 President of the Company Resigned as Director of SMBC Director President of the Company 2019 Chairman of the Board of the Company (to present) 1982 Joined Sumitomo Bank 2009 Executive Officer of SMBC 2012 Managing Executive Officer of SMBC 2013 Managing Executive Officer of the 1982 Joined Sumitomo Bank 2009 Executive Officer of SMBC 2012 Managing Executive Officer of SMBC Company 2014 Senior Managing Executive Officer of SMBC 2016 Director and Senior Managing Executive Officer of SMBC 2017 President of SMBC (to present) Director of the Company (to present) 2014 Senior Managing Executive Officer of the Company Senior Managing Executive Officer of SMBC Director of the Company 2015 Director and Senior Managing Executive Officer of SMBC 2017 Director and Deputy President of the Company Resigned as Director of SMBC Director Deputy President and Corporate Executive Officer of the Company 2018 Director and Deputy President of SMBC 2019 Director President of the Company (to present) Resigned as Director of SMBC 1985 Joined Mitsui Bank 2011 General Manager of Financial Accounting Department of the Company 2013 Executive Officer of SMBC 2015 Managing Executive Officer of SMBC 2016 Managing Executive Officer of the Company 2018 Director and Managing Executive Officer of SMBC Director and Senior Managing Executive Officer of SMBC (to present) 2019 Senior Managing Corporate Executive Officer of the Company Director Senior Managing Corporate Executive Officer of the Company (to present) 074 SMBC GROUP ANNUAL REPORT 2020 Corporate Infrastructure Supporting Value Creation Director Senior Managing Corporate Executive Officer Group CFO, Group CSO Director and Senior Managing Executive Officer of SMBC Director Director of SMBC Director Director Representative Director, Chairman of SMBC Nikko Toru Nakashima Atsuhiko Inoue Toru Mikami Yoshihiko Shimizu 1986 Joined Sumitomo Bank 2014 Executive Officer of SMBC 2015 General Manager of Corporate Planning Department of the Company 2016 Managing Executive Officer of SMBC 2017 Managing Executive Officer of the Company 2019 Director and Managing Executive Officer of SMBC Senior Managing Corporate Executive Officer of the Company Director and Senior Managing Executive Officer of SMBC (to present) Director Senior Managing Corporate Executive Officer of the Company (to present) 1981 Joined Sumitomo Bank 2008 Executive Officer of SMBC 2011 Managing Executive Officer of SMBC 2014 Senior Managing Executive Officer of 1984 Joined Sumitomo Bank 2006 General Manager of Legal Department of SMBC 2013 Co-General Manager of General 1978 Joined Sumitomo Bank 2004 Executive Officer of SMBC 2008 Managing Executive Officer of SMBC 2010 Director and Senior Managing Executive the Company Director and Senior Managing Executive Officer of SMBC Director of the Company 2015 Resigned as Director of the Company Senior Managing Executive Officer of SMBC 2019 Director of the Company (to present) Director of SMBC (to present) Affairs Department of the Company Officer of SMBC 2015 Senior Manager of Head Office of SMBC Standing Corporate Auditor of the Company 2012 Director and Deputy President of SMBC 2014 Director and Deputy Chairman of SMBC 2015 Resigned as Director of SMBC 2015 Advisor of SMBC Nikko Securities Inc. 2017 Director of the Company (to (“SMBC Nikko”) present) 2015 Representative Director, Deputy President of SMBC Nikko 2016 Representative Director, President & CEO of SMBC Nikko 2020 Representative Director, Chairman of SMBC Nikko (to present) SMBC GROUP ANNUAL REPORT 2020 075 To Our StakeholdersBusiness Strategies for Creating ValueCorporate Infrastructure Supporting Value CreationAbout SMBC Group Corporate Governance Sumitomo Mitsui Financial Group Directors (As of June 26, 2020) Director Special Advisor of Central Japan Railway Company Director Attorney at law, admitted in New York, the U.S.A. and Foreign Attorney in Japan Director Certified public accountant Director Former diplomat Masayuki Matsumoto Arthur M. Mitchell Shozo Yamazaki Masaharu Kohno 1967 Joined the Japanese National Railways 1987 Joined Central Japan Railway Company 2004 President and Representative Director of Central Japan Railway Company 2010 Vice Chairman and Representative Director of Central Japan Railway Company 2011 Resigned as Director of Central Japan Railway Company President of Japan Broadcasting Corporation 2014 Retired from Japan Broadcasting Corporation Special Advisor of Central Japan Railway Company (to present) 2015 Director of SMBC 2017 Director of the Company (to present) Retired as Director of SMBC 1976 Registered as an attorney at law, 1970 Joined Tohmatsu Awoki & Co. 1973 Joined Ministry of Foreign Affairs admitted in New York, the U.S.A. (to present) 2003 General Counsel of the Asian Development Bank 2007 Joined White & Case LLP 2008 Registered as Foreign Attorney in Japan (to present) Registered Foreign Attorney in Japan at White & Case LLP (to present) 2015 Director of the Company (to present) (currently Deloitte Touche Tohmatsu LLC) 1974 Registered as a certified public accountant (to present) 1991 Representative Partner of Tohmatsu & Co.(currently Deloitte Touche Tohmatsu LLC) 2010 Retired from Deloitte Touche Tohmatsu LLC Chairman and President of The Japanese Institute of Certified Public Accountants 2013 Advisor of The Japanese Institute of Certified Public Accountants (to present) 2014 Professor of Tohoku University Accounting School 2017 Director of the Company (to present) of Japan 2005 Director-General of Foreign Policy Bureau in Ministry of Foreign Affairs of Japan 2007 Deputy Minister for Foreign Affairs (in charge of economy) of Ministry of Foreign Affairs of Japan 2009 Ambassador of Japan to Russia Ambassador of Japan to Russia, Armenia, Turkmenistan and Belarus 2011 Ambassador of Japan to Italy Ambassador of Japan to Italy, Albania, San Marino and Malta 2014 Retired from office 2015 Director of the Company (to present) 076 SMBC GROUP ANNUAL REPORT 2020 Corporate Infrastructure Supporting Value Creation Director Chairman of Nippon Life Insurance Company Director Attorney at law Director Chairperson and CEO of Dow Toray Co., Ltd Yoshinobu Tsutsui Katsuyoshi Shinbo Eriko Sakurai 1977 Joined Nippon Life Insurance Company 2004 Director of Nippon Life Insurance 1984 Registered as an attorney at law (to present) 1999 Attorney at law at Shinbo Law Office (currently Shinbo & Partners) (to present) 2015 Corporate Auditor of SMBC 2017 Director of the Company (to present) Resigned as Corporate Auditor of SMBC Company 2007 Director and Executive Officer of Nippon Life Insurance Company Director and Managing Executive Officer of Nippon Life Insurance Company 2009 Director and Senior Managing Executive Officer of Nippon Life Insurance Company 2010 Representative Director and Senior Managing Executive Officer of Nippon Life Insurance Company 2011 President of Nippon Life Insurance Company 2017 Director of the Company (to present) 2018 Chairman of Nippon Life Insurance Company (to present) 1987 Joined Dow Corning Corporation 2008 Director of Dow Corning Toray Co., Ltd. 2009 Chairman and CEO of Dow Corning Toray Co., Ltd. 2011 Regional President -Japan/Korea of Dow Corning Corporation 2015 President and Representative Director of Dow Corning Holding Japan Co., Ltd. Director of the Company (to present) 2018 Executor, Dow Switzerland Holding GmbH, which is a Representative Partner of Dow Silicones Holding Japan G.K. (to present) Chairman and CEO of Dow Toray Co., Ltd. (to present) Note: Mr. Matsumoto, Mr. Mitchell, Mr. Yamazaki, Mr. Kohno, Mr. Tsutsui, Mr. Shinbo and Ms. Sakurai satisfy the requirements for an “outside director” under the Companies Act. Please see page 139 for information on SMBC's Board of Directors, Directors, Members of the Audit and Supervisory Committee and Executive Officers. SMBC GROUP ANNUAL REPORT 2020 077 To Our StakeholdersBusiness Strategies for Creating ValueCorporate Infrastructure Supporting Value CreationAbout SMBC Group Realizing a Sustainable Society SMBC Group revised Our Mission to include the statement “We contribute to a sustainable society by addressing environmental and social issues.” This change was made to clearly indicate the Group’s stance toward making even larger contributions to the healthy development of society. In conjunction with the revision of Our Mission, we established the SMBC Group Statement on Sustainability to indicate our basic stance toward contributing to the realization of a sustainable society along with “SMBC Group GREEN×GLOBE 2030,” a 10-year plan that extends to 2030. This statement and plan will guide us in pursuing sustainability. Past Dedication to Sustainability Seen in Predecessors of Mitsui and Sumitomo Recognition of Current Conditions Present and Our Role 2020–2030 Society We Aim to Achieve Inheriting the dedication to sustainability that has been a part of the Mitsui and Sumitomo traditions for 400 years, SMBC Group will contribute to the realization of sustainability based on its three priority issues (materiality), “environment” as a corporate citizen that protects the green earth, as well as on “community” and “next generation” as a member of society. • Innovation of business practice • Important developer of financial infrastructure Predecessor of Mitsui Uki-e Suruga-cho gofukuya zu (Mitsui Bunko Collection) • Technological innovation in copper smelting • Afforestation activities for the beautification of mountains Predecessor of Sumitomo Left: Besshi Copper Mine in 1881 (Sumitomo Historical Archives Collection) Right: Current Besshi Copper Mine (Sumitomo Forestry Co., Ltd. Collection) SMBC Group GREEN×GLOBE 2030 Key Pillars of the Plan 1. Sustainability initiatives that are directed toward our customers/society. 2. Internal initiatives that contribute to Sustainability management. 3. Enhance engagement with investors. Example Targets Green finance 10 trillion ¥ Reduction of CO2 emissions 30 % reduction (SMBC vs. FY2018) Development of communities related to environmental and social issues Provision of financial literacy education Aggregate total to 1.5 million people Priority Issues (Materiality) Environment Foundation of the society we aim to achieve Community Social safety net to help the society we aim to achieve work smoothly Next Generation Presence that makes society better and passes it on to future generations Definition of Sustainability Creating a society in which today’s generation can enjoy economic prosperity and well-being, and pass it on to future generations Sustainable Society Sustainability Management Our Approach Currently, we are facing various social issues on a global scale, and there is thus a need for a united effort between governments, companies, and people to work toward the realization of a sustainable society. On this front, SMBC Group has established the Corporate Sustainability Committee, which is chaired by the Group CEO. Under the strong commitment of top management, SMBC Group is promoting sustainability management. 078 SMBC GROUP ANNUAL REPORT 2020 Corporate Infrastructure Supporting Value CreationSMBC Group Statement on Sustainability Throughout its 400-year history, SMBC Group has continuously upheld its commitment to sustainability. We hereby declare that we will drive forward our efforts to make sustainability a reality. Past Dedication to Sustainability Seen in Predecessors of Mitsui and Sumitomo Present Recognition of Current Conditions and Our Role 2020–2030 Society We Aim to Achieve Inheriting the dedication to sustainability that has been a part of the Mitsui and Sumitomo traditions for 400 years, SMBC Group will contribute to the realization of sustainability based on its three priority issues (materiality), “environment” as a corporate citizen that protects the green earth, as well as on “community” and “next generation” as a member of society. • Innovation of business practice • Important developer of financial infrastructure Uki-e Suruga-cho gofukuya zu (Mitsui Bunko Collection) • Technological innovation in copper smelting • Afforestation activities for the beautification of mountains Predecessor of Mitsui Predecessor of Sumitomo Left: Besshi Copper Mine in 1881 (Sumitomo Historical Archives Collection) Right: Current Besshi Copper Mine (Sumitomo Forestry Co., Ltd. Collection) SMBC Group GREEN×GLOBE 2030 Key Pillars of the Plan 1. Sustainability initiatives that are directed toward our customers/society. 2. Internal initiatives that contribute to Sustainability management. 3. Enhance engagement with investors. Example Targets Green finance 10 trillion ¥ Reduction of CO2 emissions 30 % reduction (SMBC vs. FY2018) Development of communities related to environmental and social issues Provision of financial literacy education Aggregate total to 1.5 million people Priority Issues (Materiality) Environment Foundation of the society we aim to achieve Community Social safety net to help the society we aim to achieve work smoothly Next Generation Presence that makes society better and passes it on to future generations Definition of Sustainability Creating a society in which today’s generation can enjoy economic prosperity and well-being, and pass it on to future generations Sustainable Society SMBC GROUP ANNUAL REPORT 2020 079 To Our StakeholdersBusiness Strategies for Creating ValueCorporate Infrastructure Supporting Value CreationAbout SMBC GroupSustainability Management Environment Environmental Initiatives The global environment is an important asset that is shared by all of humanity, regardless of region or age, and a healthy environment is prerequisite to the realization of a sustainable society. SMBC Group is earnestly engaging with climate change and various other environmental issues. By helping resolve such issues through our business, we aim to ensure that we can pass on a healthy environment to future generations. Target: Green Finance Amount 10trillion (by FY2029) � Tenpoku Wind Farm Photograph provided by Eurus Energy Holdings Corporation Sustainable Finance SMBC Group is committed to the resolution of environmental and social issues through its business. One initiative for addressing financial issues is the provision of green finance specifically designed for environment-related initiatives. We have set the target of investing ¥10 trillion through green finance over the decade leading up to FY2029. For example, we are helping promote renewable energy projects that use natural forces, such as solar and wind, to generate power. As a comprehensive financial group, we are uniting all Group companies and capitalizing on their unique characteristics in this undertaking. Accordingly, support for such projects is provided by SMBC through financing, SMBC Nikko Securities through investment, SMBC Trust Bank through contracting related to generation equipment and sites, and Sumitomo Mitsui Finance and Leasing through leasing of generation equipment. In addition, the new Sustainable Business Promotion Department established within the Wholesale Business Unit and the SDGs Finance Department inside of SMBC Nikko Securities’ Capital Markets Division are working to address environmental and social issues through finance together with customers. ESG-Minded Financing Policies SMBC Group has disclosed financing policies for businesses and sectors with a high risk of significantly impacting the environment or society. Major subsidiaries (SMBC, SMBC Trust Bank, Sumitomo Mitsui Finance and Leasing, and SMBC Nikko Securities) are introducing these policies according to their business. Going forward, we will continue to engage with customers and various other stakeholders while constantly considering the need to revise our financing policies as necessitated by the operating environment. Businesses and Sectors for Which Policies Have Been Disclosed • Coal-fired power generation • Hydroelectric generation • Oil and gas • Coal mining • Tobacco manufacturing • Natural conservation areas • Palm oil plantation development • Deforestation • Manufacturing of cluster bombs and other weapons of destruction For more information, please refer to Sumitomo Mitsui Financial Group’s corporate website. https://www.smfg.co.jp/english/sustainability/materiality/environment/risk/ 080 SMBC GROUP ANNUAL REPORT 2020 Corporate Infrastructure Supporting Value CreationResponse to Climate Change (Announcement of Support for TCFD) SMBC Group announced its support of the Task Force on Climate-related Financial Disclosures (TCFD) in December 2017, and we are performing climate change scenario analyses and working together with customers to address the issues caused by climate change and help realize a low-carbon society. The following initiatives are being carried out with regard to the four areas advocated in the recommendations of the TCFD. We are planning to release a TCFD report (scheduled for August 2020) while making efforts to enhance our disclosure of information. Target: Coal-Fired Power Generation Loans Outstanding balance of 0 (by FY2040) � For more information on initiatives regarding the recommendations of the TCFD, please refer to Sumitomo Mitsui Financial Group’s corporate website. https://www.smfg.co.jp/english/sustainability/materiality/environment/climate/ Category Initiatives Governance •Establishment of Group environmental policies •Reflection of climate change response measures in management strategies via the Corporate Sustainability Committee •Reports on climate change risks at the Risk Committee, a committee positioned within the Board of Directors, and the Management Committee Physical Risks •Analyses of anticipated water damage-associated credit-related expenses to be incurred in SMBC’s domestic operations under the Representative Concentration Pathways (RCP) 2.6 scenario (2°C scenario) and RCP 8.5 scenario (4°C scenario); aggregate costs of ¥30.0 billion–¥40.0 billion to be incurred leading up to FY2050 Strategy Transition Risks •Analyses of credit-related costs to be incurred in energy, power, and other sectors by SMBC and overseas subsidiaries under the International Energy Agency’s Sustainable Development Scenario; increase in annual costs of ¥2.0 billion–¥10.0 billion to be seen leading up to FY2050 •Estimated carbon-related asset (power, energy, etc.) exposure ratio: 6.9% of all loans*1 Opportunities •Total financing of renewable energy projects of ¥630.0 billion achieved in FY2019 •Issuance of bonds based on the guidelines of the International Capital Market Association and the Ministry of the Environment, Government of Japan Risk Management •Climate change risks positioned among Top Risks and stress test impact analyses conducted •Disclosure of financing policies for sectors with high climate change impacts (coal-fired power generation, oil and gas, coal mining, etc.) •Assessment of social and environmental risks based on the Equator Principles Metrics and Targets •Total of �10 trillion in green financing to be conducted from FY2020 to FY2029 •CO2 emissions volumes of SMBC to be reduced by 30% from FY2018 by FY2029 •Outstanding coal-fired thermal power generation loans to be reduced to zero by FY2040 (applicable to project finance*2) *1 Excludes loans for renewable energy projects to provide a more accurate picture of transition risk exposure *2 Excludes projects entailing technologies pertaining to carbon recycling and other projects that contribute to the realization of a low-carbon society SMBC GROUP ANNUAL REPORT 2020 081 To Our StakeholdersBusiness Strategies for Creating ValueCorporate Infrastructure Supporting Value CreationAbout SMBC GroupSustainability Management Social Community As people live and the economy advances, communities to form connections between proponents in these areas and thereby encourage mutual support and enable each other to act in peace of mind are needed. SMBC Group continues to contribute to communities and society and to fulfill our social responsibility as an entity that acts as a member of these communities. GREEN×GLOBE Partners The various environmental and social issues we face on a global scale are so massive that it is impossible for them to be resolved by one individual person or company. However, if people, companies, government agencies, and academic institutions can team up, united under a shared sense of conviction, we can take effective steps toward the resolution of these issues. Based on this ambition, SMBC Group established GREEN×GLOBE Partners, a community for encouraging a wider range of people and companies to actively work together to resolve environmental and social issues. SMBC Group aims to help contribute to resolve social and environmental issues together with customers through initiatives such as broadcasting a variety of meaningful information arising out of its collective insight. Website screenshot Contributions to Communities and Societies Impacted by the COVID-19 Pandemic SMBC Group has declared it intent to donate ¥1.5 billion to various organizations to help realize its desire for every customer, community, and society impacted by the COVID-19 pandemic to be able to go back to living healthily and with peace of mind as quickly as possible. In addition, we instated a matching gift scheme in which donations from Group officers and employees for supporting NPOs combating the pandemic are matched by the Company. Recipients of these donations will include medical institutions and related organizations fighting to combat the spread of the virus and working to create an © UNICEF/UNI329169/Ijazah effective treatment and organizations helping develop medical systems in emerging nations. In addition, we are conducting donations to support culture and the arts given the difficulty of maintaining operations as groups in this field are forced to refrain from holding events. These donations to culture and the arts are founded on our belief that mental health is important in these uncertain times. By supporting communities and society as a whole, we aim to help shape an empowered world in which everyone can live with peace of mind. New Japan Philharmonic 082 SMBC GROUP ANNUAL REPORT 2020 Corporate Infrastructure Supporting Value CreationNext Generation Ensuring the sustainability of our society and economy amid the changing social environment will require the cultivation of human resources who can support society with the necessary knowledge and technologies. SMBC Group is promoting sustainability by fostering the next-generation human resources and industries that will shape the society of the future together with us. Financial Literacy Education Capitalizing on its insight and expertise as a comprehensive financial group to contribute to society, SMBC Group is providing financial literacy education. We aim to supply such education to 1.5 million people by FY2029. SMBC Consumer Finance has been holding PROMISE Financial and Economic Educational Seminars at its 17 Customer Service Plazas nationwide since FY2011. The aggregate number of participants in these seminars surpassed 1 million in FY2019. SMBC Consumer Finance is also expanding the educational programs it provides in response to the diversifying needs of participants. For example, it is coordinating with other Group companies to offer education on cashless payments and wealth management. By providing financial literacy education to a wide range of age groups, from children to adults, SMBC Group will help build a society in which people can live with peace of mind by acquiring accurate knowledge pertaining to finances. New Business Support Programs To support next-generation businesses, SMBC Group is advancing the “Mirai” program. Through this program, we solicit business plans from people aspiring to commercialize some new idea or technology. A wide range of opportunities are provided to individuals whose plans passed the judging process, including business development support from advisors, networking assistance, and financial aid. By offering such support to start-ups and people looking to launch enterprises, we aim to form ties between companies and investors and thereby stimulate their growth and innovation and contribute to the development of next-generation industries. By supporting communities and society as a whole, we aim to help shape an Target: Financial Literacy Education Program Participants 1.5 million (by FY2029) Educational materials used in seminars empowered world in which everyone can live with peace of mind. “Mirai” program pitch contest SMBC GROUP ANNUAL REPORT 2020 083 To Our StakeholdersBusiness Strategies for Creating ValueCorporate Infrastructure Supporting Value CreationAbout SMBC GroupCorporate Infrastructure Supporting Value Creation Customer-Oriented Initiatives Our Approach SMBC Group companies are united in their efforts for customer experience (CX) and quality improvement in line with “Our Mission,” which states “We grow and prosper together with our customers, by providing services of greater value to them.” 084 SMBC GROUP ANNUAL REPORT 2020 CX Improvement System We have established the CX Improvement Subcommittee as well as the CX Improvement Committee, through which we are advancing initiatives, reinforcing management systems, and promoting Group coordination related to customer- oriented business conduct. Outside experts are invited to serve as advisors at meetings of the CX Improvement Subcommittee, where information is exchanged on how to fully entrench a customer-oriented mindset. Meanwhile, the CX Improvement Committee, which shares members with the Group Management Committee, deliberates on concrete measures based on reports from the CX Improvement Subcommittee. Incorporation of Customer Feedback into Management Holding Company (Sumitomo Mitsui Financial Group) CX Improvement Committee Instruct Report CX Improvement Subcommittee Verify Report / Share Group Companies Information gathering Analysis Feedback Improvement activities Customer Declaration of Compliance with ISO 10002 SMBC, SMBC Nikko Securities, and SMBC Consumer Finance have declared their intent to comply with the ISO 10002 (JIS Q 10002) international standard with regard to their processes for incorporating customer feedback into management. Customer-Oriented Business Initiative Based on the Principles for Customer-Oriented Business Conduct (a guideline on fiduciary duties) released by the Basic Policy for Customer-Oriented Business Conduct in the Retail Business Unit Based on the Sumitomo Mitsui Financial Group’s Basic Policy Financial Services Agency, SMBC Group* formulated its for Customer-Oriented Business Conduct, the Retail Business Basic Policy for Customer-Oriented Business Conduct and Unit shall adhere to the following conduct policies in offering the Basic Policy for Customer-Oriented Business Conduct in service as a retail company that is responsible for providing the Retail Business Unit. wealth management and asset building services for individual Basic Policy for Customer-Oriented Business Conduct (Excerpt) SMBC Group’s Customer-Oriented Business Conduct As one part of “Our Mission,” it is stated that “We grow and prosper together with our customers, by providing services of greater value to them.” Based on the spirit of this mission, we have defined our Five Values, a list of five key words that includes “Customer First” (always think based on a customer-oriented perspective and provide value based on the individual needs of customers), shared by all the executives and employees of SMBC Group. Initiatives for Promoting Customer-Oriented Business Conduct SMBC Group will implement the following initiatives to entrench the principles of customer-oriented business conduct into its activities. 1. Provision of Products and Services Suited to the Customer 2. Easy-to-Understand Explanation of Important Information 3. Clarification of Fees 4. Management of Conflicts of Interest 5. Frameworks for Properly Motivating Employees SMBC Group aims to facilitate the shift from savings to asset holding seen in Japan through such initiatives. Furthermore, we will periodically disclose information on initiatives by SMBC Group based on this policy with the aim of facilitating understanding regarding these initiatives among customers. In addition, the status of initiatives and their results will be verified so that initiatives can be revised as necessary to improve upon operating practices. Information regarding these verifications and revisions will be disclosed. * Group companies applicable under this policy: Sumitomo Mitsui Banking Corporation; SMBC Trust Bank Ltd.; SMBC Nikko Securities Inc.; Sumitomo Mitsui DS Asset Management Company, Limited For information on the Basic Policy for Customer-Oriented Business Conduct, please see page 129–130. customers. In accordance with these policies, the Retail Business Unit shall implement a plan-do–check-act (PDCA) cycle that entails disclosing specific indicators, confirming and analyzing its status in relation to these indicators, and utilizing this information in the future to improve business practices. Conduct Policies 1. Customer-Oriented Wealth Management Proposals Based on Medium- to Long-Term Diversified Investment With a focus on accurately addressing customers’ wealth management needs related to protecting or building assets, we will provide customer-oriented wealth management proposals based on medium- to long-term diversified investment. Through this approach, we strive to deliver customer-oriented financial products. 2. Lineup of Customer-Oriented Products We shall constantly revise our product lineup, utilizing third-party evaluations of the products of Group companies and other products as necessary, in order to enhance our lineup so that we can accurately address customers’ needs related to protecting or building assets. At the same time, we will increase the amount of information provided to customers and take steps to ensure that this information is easy to understand. 3. Customer-Oriented After-Sales Services We will provide fine-tuned after-sales services to help customers continue to hold our wealth management products with peace of mind over the long term. 4. Customer-Oriented Performance Evaluation Systems We shall develop performance evaluation systems that encourage employees to engage in effective customer- oriented sales activities. 5. Improvement of Consulting Capabilities We shall continuously improve our consulting capabilities to ensure we are always capable of proposing the best possible solution for customers’ wide-ranging needs. SMBC GROUP ANNUAL REPORT 2020 085 To Our StakeholdersBusiness Strategies for Creating ValueCorporate Infrastructure Supporting Value CreationAbout SMBC GroupCustomer-Oriented Initiatives Disclosed Indicators Increase in balance of investment assets 1 2 Number of customers using wealth management products 3 Ratio sales by wealth management product 4 Average investment trust holding period 5 Fund wrap sales and cancellation amounts 6 Amount of fixed-term foreign currency deposits 7 Number of investment trust and automatic foreign currency deposit accounts 8 Amount of investment trusts and automatic foreign currency deposits 9 Tsumitate Nisa account numbers, balances, and ratio of new users 10 By product sales amounts of lump-sum insurance products 11 Ratio of sales of investment trust products of Group companies 12 Sales amounts of investment trusts (including fund wraps) (Breakdown of monthly allocation type and others) 13 Breakdown of losses and gains by customers using investment trusts and fund wraps 14 Costs and returns of investment trusts with top-ranking balance amounts 15 Risks and returns of investment trusts with top-ranking balance amounts 16 Acquisition status of FP qualifications Performance with Regard to Disclosed Indicators Increase in Balance of Investment Assets (Indicator 1) In FY2019, the total balance of investment assets for SMBC, Number of customers using wealth management products (Indicator 2) We continue to increase the number of customers using wealth management products by working to accurately address customers’ needs related to protecting or building assets. Number of customers using wealth management products (left axis) Number of customers commencing new transactions (right axis) (Tens of thousands of people) (Tens of thousands of people) 30 20 10 0 ’16/3 ’17/3 ’18/3 ’19/3 ’20/3 Number of investment trust and automatic foreign currency deposit accounts (Indicator 7) To respond to the needs of customers seeking to begin 400 350 300 250 SMBC Nikko Securities, and SMBC Trust Bank continued to acquiring assets, we have been aggressively proposing grow due in part to the continuation of customer-oriented investment trust products that allow for small-sum initiatives focused on medium- to long-term diversified investments as well as time-dispersed investments in investment. automatic foreign currency deposits. As a result, steady growth has been achieved in the number of investment trust and automatic foreign currency deposit accounts. Increase in balance of investment assets (since Apr. 2013, aggregated, left axis) Increase in balance of investment assets (year-on-year, right axis) Number of investment trust and automatic foreign currency deposit accounts Of which, customers under 50 (JPY bn) +8,000 +6,000 +4,000 +2,000 +0 (JPY bn) +1,800 (Tens of thousands of accounts) 30 +1,200 20 +600 +0 10 0 ’15 ’16 ’17 ’18 ’19 (FY) ’15 ’16 ’17 ’18 ’19 (FY) Note: Figures represent the combined total for the Retail Banking Unit of SMBC and the Retail Note: Automatic foreign currency deposit transactions were commenced in April 2015. (Private) of SMBC Nikko Securities. 086 SMBC GROUP ANNUAL REPORT 2020 Corporate Infrastructure Supporting Value Creation Overview of the Group’s Internal Audit Framework The Department has been established under the Audit Committee and is independent from business units, compliance unit and risk management units. Internal audits within our Group companies are structured broadly in line with SMFG. The Group Chief Audit Executive oversees group-wide internal audit activities. The Department verifies the appropriateness and the effectiveness of internal control which aims to assure the appropriateness of Group operations and the soundness of assets by conducting internal audits on each department and Group entity as well as conducting on continuous monitoring of Group companies’ internal auditing and other activities. The activities are based on the “Group Internal Audit Charter” and the “Basic Audit Policy and Plan” formulated by the Audit Committee and the Board of Directors. Major audit findings and relevant information are regularly reported to the Audit Committee, the Board of Directors, and the Group Management Committee. Whilst the Department strives to strengthen cooperation to conduct proper audit practices through frequent information exchange with external auditors. Internal Audit Framework Holding Company (Sumitomo Mitsui Financial Group) Board of Directors Audit Committee Management Committee Reporting line Chief Audit Executive Audit Dept. Group Companies Internal Audit Our Approach As a part of SMBC Group’s internal control framework, the audit department (the Department) verifies the effectiveness of the internal control of business units, risk management units and other units from an independent standpoint and pursues the quality of internal audits in order to contribute to development and the highest trust across the entire SMBC Group. Note: The Audit Committee holds the right to consent personal affairs of Chief Audit Executive. Enhancement and Effectiveness of Internal Audit The Department has adopted auditing methods in accordance with the Institute of Internal Auditors (IIA) standards,* conducts risk-based audits, and expands the same approach to Group companies. To implement effective and efficient internal audits, the Department conducts monitoring by attending important meetings and by obtaining internal management documents of SMFG and Group companies. In addition, the Department seeks to enhance group-wide internal auditors’ expertise by gathering up-to-date internal audit practices, providing the practices to Group companies, holding training programs, and encouraging auditors to obtain internal auditors’ international certification. Furthermore, the Department enhances its quality assurance on a group-wide basis by both fully satisfying the IIA standards and referring to G-SIFIs practices. * The Institute of Internal Auditors, Inc. (IIA), was founded in 1941 in the United States as an organization dedicated to raise the level of specialization and the status of professionalism of internal auditing staff. Its main activity is to study the theory and practice of internal audit and to provide an internationally recognized qualification (Certified Internal Auditor (CIA)). SMBC GROUP ANNUAL REPORT 2020 087 To Our StakeholdersBusiness Strategies for Creating ValueCorporate Infrastructure Supporting Value CreationAbout SMBC GroupCorporate Infrastructure Supporting Value Creation Risk Management Our Approach Strengthening of compliance and risk management is positioned as a key issue in SMBC Group’s Principles of Action on Compliance and Risk. SMBC Group is therefore devoted to improving its systems in these areas in order to become a truly outstanding global group. 088 SMBC GROUP ANNUAL REPORT 2020 Risk Culture In order for SMBC Group to realize and maintain a sustainable growth in corporate value as a “Top Tier Global Financial Group,” each one of our colleagues should think and judge on their own if their actions meet the expectations and requirements of customers, markets, and other stakeholders, not just if they are compliant with laws and regulations. SMBC Group has established “Principles of Action on Compliance and Risk” in order for every colleague to hold onto as a “keystone” of their daily business. The principle includes “Business based on the Risk Appetite Framework” and “Business operations which give a high priority to the management of risks such as credit risk, market risk, liquidity risk and operational risk.” Concrete measures include internal surveys for monitoring the compliance awareness and risk sensitivity of our colleagues as well as internal training for fostering a sound risk culture. Risk Appetite Framework SMBC Group has introduced a Risk Appetite Framework for controlling group-wide risks that clarifies the types and levels of risk that we are willing to take on or are prepared to tolerate in order to grow profits (risk appetite). The Risk Appetite Framework is one of two pivots of our business management alongside business strategies. It functions as a management framework for sharing information on the operating environment and risks facing SMBC Group among management and for facilitating appropriate risk taking based thereon. Risk Appetite Framework Positioning Environment/Risk View Top Risks Risk Register KRE (Key Risk Events) Risk Appetite Framework Stress Testing Two pivots of our business management Business Strategy Risk Appetite Composition Categories Soundness Profitability Liquidity Credit Market Operational Conduct*1 Established for each category Risk Appetite Statement Risk Appetite Measures A qualitative explanation of our approach to risk taking and risk management for various risk categories Quantitative Risk Appetite Measures that function as benchmarks for risks that we are considering taking and for risk/return Risk Appetite Framework Positioning Environment/Risk View Top Risks Risk Register KRE (Key Risk Events) Risk Appetite Framework Stress Testing Two pivots of our business management Business Strategy Risk Appetite Composition Categories Top Risks SMBC Group identifies risks that threaten to significantly Soundness Profitability Liquidity Credit impact management as Top Risks. Market Operational Conduct*1 The selection of Top Risks involves comprehensive Established for each category screening of risk factors, evaluation of each risk scenario’s Risk Appetite Statement Risk Appetite Measures possibility of occurrence and potential impact on A qualitative explanation of our approach to risk taking and risk management for various risk categories Quantitative Risk Appetite Measures that function as benchmarks for risks that we are considering taking and for risk/return *1 Conduct Risk: Conduct risk is the risk that our conduct negatively affects customers, market integrity, effective competition, public interest, and SMBC Group’s stakeholders, through acts that violate laws and regulations or social norms. Individual risk appetites have been established for specific business units or strategies as necessary based on the overall risk appetite of SMBC Group. Risk appetites are decided during the process of formulating business strategies and management policies. These risk appetites are set based on Top Risks that threaten to significantly impact management and on risk analyses (stress testing) that illustrate the impact if a risk should materialize. In addition, risk register and Key Risk Events (KRE) are utilized in verifying the adequacy of Top Risks, risk appetites, and business strategies. The outlooks for the operating environment and risks and the risk appetite situation are monitored throughout the course of the fiscal year. Risk Appetite Measures and business strategies are revised as necessary. For example, overall risk capital*2 has been selected as an indicator for risk appetite, which displays the soundness of SMBC Group. Overall risk capital is the aggregate of the risk capital amounts for each risk category. Management standards have been set management, and discussion by the Risk Management Committee and the Management Committee. Top Risks are utilized to enhance risk management by being incorporated into discussions of the Risk Appetite Framework and the formulation of business strategies and into the creation of risk scenarios for stress testing. Volatile financial and economic environment Intensification of the international political confrontation Decline in Japan’s social vitality Ideological and religious conflicts Pandemics Large-scale earthquakes Top Risks Ceased operation of information systems due to cyber attacks Climate change Industry structure changes stemming from technological progress Legal or compliance-related incidents Materialization of risks impeding implementation of strategies (lack of human resources, etc.) Note: The above is only a portion of the risks recognized by SMBC Group. It is possible that the materialization of risks other than those listed above could have a significant impact on our management. Please see page 113 for Top Risks. Stress Testing At SMBC Group, we use stress testing to analyze and for the upper limit for overall risk capital based on group-wide comprehend the impact on SMBC Group’s businesses of management constitution. Overalll risk capital levels are thus changes in economic or market conditions, in order to plan monitored throughout the course of each fiscal year to clearly and execute forward-looking business strategies. indicate risk-taking capacity and promote the sound taking of In our stress testing, we prepare multiple risk scenarios risks. including macroeconomic variables such as GDP, stock In addition, specific risk appetite indicators have been prices, interest rates, and foreign exchange rates based on set for credit risk, market risk, liquidity risk, and other risk the aforementioned Top Risks, discussions with experts and categories to facilitate appropriate management based on a related departments. quantitative understanding of risk appetite. When developing business strategies, we set out *2 Risk capital: The amount of capital required to cover the theoretical maximum potential loss arising from risks of business operations. scenarios assuming stressed business environments such as serious economic recessions and market disruption for the sake of assessing risk-taking capabilities at SMBC Group and verifying whether adequate soundness can be maintained under stress. SMBC GROUP ANNUAL REPORT 2020 089 To Our StakeholdersBusiness Strategies for Creating ValueCorporate Infrastructure Supporting Value CreationAbout SMBC GroupRisk Management During a fiscal year, we will undertake stress testing their business, and these risks are reflected in business on a flexible basis to assess the potential impact on our strategies after they have been evaluated and the adequacy business and to take the appropriate response in case a serious risk event occurs. For example, stress tests have been conducted with regard to the intensifying trade conflict between the US and China, and the COVID-19 pandemic to Key Risk Events of measures for controlling them has been verified. Key Risk Events (KRE), external events that indicate the verify the soundness of SMBC Group’s capital and confirm increased threat of risks, have been identified to ascertain the the appropriate actions to be taken. symptoms of the potential risks. KRE are utilized to analyze In addition, we conduct detailed stress testing for and assess how likely similar cases will occur in SMBC Group individual risks such as credit risk, market risk, and liquidity and what effects such similar cases will have on SMBC Group, risk, so as to decide and review risk-taking strategies. and to enhance our risk management system. We are also in line with the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD). As part of our efforts in this regard, we have included climate- related risk*3 in our Top Risks, and scenario analyses on physical and transition risks have been conducted to estimate Risk Management System Based on the recognition of the importance of risk management, the group-wide basic policies for risk management are determined by the Management Committee the potential credit-related expenses. before being authorized by the Board of Directors in order *3 Climate-related risk: Natural disasters resulting from extreme weather (physical risks) and carbon-related stranded assets due to the transition to a low-carbon society (transition risks) and so forth. Please see page 081 for information on our approach to climate change. Risk Register A risk register is formulated by each business unit for the to have top management play an active role in the risk management process. In accordance with these basic policies for risk management, three lines of defense have been defined, and we have clarified related roles and responsibilities. Risk management systems have been established based on the characteristics of particular businesses, and measures are being put in place to strengthen and improve the purpose of realizing more sophisticated risk governance and effectiveness of these systems. enhancing business units’ risk ownership. In formulating Furthermore, SMBC Group is strengthening group-wide these registers, business units communicate with risk risk management systems through the Group CRO Committee management departments to identify the risks present in and the Global CRO Committee. Response to the COVID-19 Pandemic S MBC Group has considered pandemics as one of Top Risks. In response to the COVID-19 pandemic, we quickly recognized the increase in liquidity risk with the framework which we were regularly utilizing to detect a sign of change. Accordingly, we held Extraordinary ALM committee and closely shared the related information among the relevant divisions. After various verifications, we enacted a policy of meeting the customers funding needs as much as we can. Furthermore, stress testing was used to quantitatively assess the adequacy of capital and liquidity levels based on the potential for the prolongation of the pandemic. It was thereby reaffirmed that the Group is able to guarantee financial soundness even under high-stress circumstances. Meanwhile, the trend toward teleworking and other changes in workstyles prompted by the pandemic bring with them concern for cyber attack risks. We are combating these risks by strengthening security precautions and implementing measures that thoroughly enforce key information management considerations. Various measures are carried out after such verifications and countermeasures are discussed by Executive Committee and Risk Committee. COVID 19 RESPONSE 090 SMBC GROUP ANNUAL REPORT 2020 Corporate Infrastructure Supporting Value CreationSMBC Group’s Risk Management System Holding Company (Sumitomo Mitsui Financial Group) External Audit Audit Dept. Board of Directors Risk Committee Audit Committee Management Committee Group CRO Risk Management Committee ALM Committee Credit Risk Committee Group CRO Committee Global CRO Committee Departments Responsible for Risk Management Group Companies Definition of SMBC Group’s Three Lines of Defense The Basel Committee on Banking Supervision’s “Corporate three lines of defense with the aim of achieving more effective governance principles for banks” recommends “three lines of and stronger risk management and compliance systems defense” as a framework for risk management and through the clarification of roles and responsibilities. governance. Based on this framework, we have defined our Principal Organizations Roles and Responsibilities First Line Business Units Second Line Risk Management and Compliance Departments Third Line Audit Department The Business Units shall be risk owners concerning their operations and shall be responsible for the following in accordance with the basic principles provided by Second Line. • Identification and evaluation of risks encountered in the business activities • Implementation of measures for minimizing and controlling risks • Monitoring of risks and reporting within First Line and to Second Line • Creation and fostering of a sound risk culture The Risk Management and Compliance Departments shall assume the following functions and responsibilities in order to manage the risk management and compliance systems. • Drafting and development of basic principles and frameworks concerning risk management and compli- ance • Oversight, monitoring, and development of training programs for First Line Independent from First Line and Second Line, the Audit Department shall assess and verify the effective- ness and appropriateness of risk management and compliance systems managed and operated by First Line and Second Line, and report these results to the Audit Committee and the Management Committee. The Department shall provide recommendations regarding identified issues / problems. SMBC GROUP ANNUAL REPORT 2020 091 To Our StakeholdersBusiness Strategies for Creating ValueCorporate Infrastructure Supporting Value CreationAbout SMBC GroupCorporate Infrastructure Supporting Value Creation Compliance Our Approach Management positions the strengthening of compliance and risk management as a key issue in enabling SMBC Group to fulfill its public mission and social responsibilities as a global financial group. We are therefore working to entrench such practices into our operations as we aim to become a truly outstanding global group. 092 SMBC GROUP ANNUAL REPORT 2020 Compliance Management SMBC Group seeks to maintain a compliance system that provides appropriate instructions, guidance, and monitoring for compliance to ensure sound and proper business operations on a group-wide and global basis. Measures have been put in place to prevent misconduct and quickly detect inappropriate activities that have occurred to implement corrective measures. SMBC Group has established the Compliance Committee, which is chaired by the Group CCO responsible for overseeing matters related to compliance. This committee comprehensively examines and discusses SMBC Group’s various work processes from the perspective of compliance. In addition, SMBC Group formulated the Group Compliance Program to provide a concrete action plan for practicing compliance from the perspective of group-based management. SMBC and other Group companies develop their own compliance programs based on the Group program and take necessary steps to effectively install compliance frameworks. The Company receives consultations and reports on compliance-related matters from Group companies, providing suggestions and guidance as necessary to ensure compliance throughout the Group. From the perspective of global-based management, compliance departments for major overseas offices have been reorganized within the Compliance Unit, which facilitated to develop an integrated group-based compliance management framework for overseas offices. Compliance Systems at SMBC Group Holding Company (Sumitomo Mitsui Financial Group) Board of Directors Audit Committee Group Management Committee Audit Dept. Compliance Committee Group CCO Compliance Dept. Group Companies Initiatives for Supporting Healthy Risk Taking and Appropriate Risk Management In order for companies to coexist with society and develop sustainable growth, it is crucial to take an appropriate amount of risks and to maintain appropriate risk management, including compliance. In particular, financial institutions Response to Anti-Social Forces SMBC Group has established a basic policy stipulating that all should emphasize compliance and risk management, Group companies must unite in establishing and maintaining considering its public mission and the heaviness of the social a system that ensures that the Group does not have any responsibility. connection with anti-social forces or related individuals. Based on this recognition, management positions the Specifically, the Group strives to ensure that no strengthening of compliance and risk management as a key business transactions are made with anti-social forces or issue in enabling SMBC Group to fulfill its public mission and individuals. Contractual documents or terms and conditions social responsibilities. SMBC Group is therefore devoted to state the exclusion of anti-social forces from any business improving its systems in these areas in order to become a relationship. In the event that it is discovered subsequent truly outstanding global group. to the commencement of a deal or trading relationship that To this end, SMBC Group has defined the Principles the opposite party belongs to or is affiliated with an anti- of Action on Compliance and Risk to serve as guidelines for social force, we undertake appropriate remedial action by executives and employees in practicing compliance and contacting outside professionals specializing in such matters. risk management. Continuous reviews are carried out to improve compliance with these guidelines and to ensure their effectiveness. Anti-Money Laundering (AML) and Countering the Financing of Terrorism (CFT) SMBC Group recognizes the importance of preventing money laundering and terrorist financing (ML/TF), and therefore, Basic Policy for Anti-Social Forces 1. Completely sever any connections or relations from antisocial forces. 2. Repudiate any unjustifiable claims, and do not engage in any “backroom” deals. Further, promptly take legal action as necessary. 3. Appropriately respond as an organization to any anti-social forces by cooperating with outside professionals. undertake every effort to prevent ourselves and employees, from engaging in, and/or assistance to, the commission of Customer Information Management SMBC Group has established Group policies that set forth ML/TF. guidelines for the entire Group regarding proper protection SMBC Group strictly complies with AML/CFT regulations and use of customer information. All Group companies by establishing a Group policy and implementing effective adhere to these policies in developing frameworks for internal control systems in each of the Group companies to managing customer information. ensure that our operations are sound and appropriate. The SMBC and its Group companies establish and disclose Group Policy and systems are implemented in accordance with privacy policies for their measures regarding the proper the requirements of the relevant international organizations protection and use of customer information and customer (e.g., the United Nations and the Financial Action Task Force numbers. Appropriate frameworks are established based on Recommendations) and the laws/regulations of relevant these policies. countries including Japan in which the Group has operations (e.g., U.S. “Office of Foreign Assets Control Regulations”). Agreement with Federal Reserve Bank of New York In April 2019, SMBC entered into a written agreement with the Federal Reserve Anti-Bribery and Corruption The SMFG Group Policies for Anti-Bribery Compliance and Ethics have been established to prevent business entertainment and the provision or receipt of anything of Bank of New York (the “Reserve Bank”) to improve its New York Branch’s value that violate laws, regulations or social practices and program for compliance with the Bank Secrecy Act (“BSA”) and related U.S. anti-money laundering (“AML”) laws and regulations, which was found to be inadequate by the Reserve Bank. Furthermore, SMBC is working to improve compliance on a global basis while taking other necessary actions based on the written agreement with the Federal Reserve Bank of New York. customs. Group companies have developed frameworks to prevent bribery and corruption based on these policies. SMBC GROUP ANNUAL REPORT 2020 093 To Our StakeholdersBusiness Strategies for Creating ValueCorporate Infrastructure Supporting Value CreationAbout SMBC GroupHuman Resources Strategy Underpinning Group Management Strategies Human Resource Medium-Term Management Plan To establish a robust platform to realize SMBC Group’s medium- to long-term vision, we have established the Human Resource Medium- Term Management Plan, with the following three pillars. (1) Resource Management Strategic Allotment of Human Resources across Group Companies and Divisions (2) Seamless Platform Realization of True Diversity and Inclusion (3) Employee Engagement Measures to Enable All Employees to Fully Exercise Their Potential (1) Resource Management Strategic Allotment of Human Resources across Group Companies and Divisions SMBC Group promotes business transformation and the streamlining of its business processes through business model reforms, branch reorganizations, and group-wide integration of operations. At the same time, we will be more proactive in reallocating human resources on a group-wide basis to strategic fields and areas as designated in the seven key strategies of the new Medium-Term Management Plan. By realizing efficient operations and proactive human resource management across Group companies, we aim to reduce the quantity of work to enable natural attrition of domestic workforce by 6,500 people over the new Medium-Term Management Plan period, an increase from the reduction of 4,900 people achieved in the previous Medium-Term Management Plan. (2) Seamless Platform Realization of True Diversity and Inclusion We aim to alleviate the “seven disparities” to enhance optimal allotment of human resources across Group companies and divisions. Workstyle/ Lifestyle Entity Skill Set Location of Hire Age Gender Recruitment Human Resources Strategy Our Approach One overarching social trend is the change in relationship between companies and employees and there are more alterations and diversifications in employees’ attitudes toward work. SMBC Group has approximately 100,000 employees around the world. We aim to improve both employee motivation and corporate productivity in order to effectively implement the Group’s management strategies. We envisage to be a bank with the best talent pool by fostering talent capable of continuous growth and encouraging employees to tackle ambitious challenges. 094 SMBC GROUP ANNUAL REPORT 2020 Corporate Infrastructure Supporting Value Creation1. Entity Disparity Group-Wide Human Resources Strategy Based on Business Necessities SMBC Group is establishing frameworks to accelerate inter- Group company secondments, enhance coordination in recruiting activities, and establish human resource systems to facilitate Group collaborations. In addition, we intend to cater to business necessities across entities through the use of human resource systems. Such necessities include realization of better coordination between SMBC, SMBC Nikko Securities, and SMBC Trust Bank to promote “SMBC Private Wealth” business targeted for high-net-worth customers, and the integration of head office functions of Sumitomo Mitsui Card Company and SMBC Consumer Finance, both responsible for our payment service business. 2. Skill Set Disparity Reeducation Opportunities to Support New Challenges SMBC Group encourages employees to take part in spontaneous learning opportunities, such as voluntary applications and career planning programs, through proactive disclosure of information related to human resource measures. Furthermore, we are expanding training prior to assuming new positions and enhancing follow-up frameworks to support employees pursuing new challenges across Group companies or divisions, regardless of their current position or employee category. Revision of HR Management Framework Amid rising demand for motivation, environments conducive to growth, and social meaningfulness for the Company, we revised our HR Management Framework in January 2020 with the new slogan, “Be a Challenger”. The new framework is intended to enable and encourage our employees to work more energetically and maximize their performance. HR Management Framework Fair Integration of employee categories Challenge Integration of job bands Chance Enrichment of a lifelong career Integration of Employee Categories Employee categories have been integrated to allow employees to assume higher responsibilities based on their ambitions and skills. Integration of Job Bands Job bands have been integrated to enable fairer evaluations and compensation based on levels of contributions, and to realize early promotions by decoupling them from seniority. Extension of Retirement Age The retirement age has been extended to 65. Furthermore, the evaluation framework has been revised and the voluntary application system has been expanded to allow employees to tackle diverse challenges on a life-long basis. 3. Age Disparity Create an Environment which Allows Employees to Tackle Challenges and Succeed, Regardless of Age or Seniority We envisage to promote individuals to senior positions, such as executive positions at Group companies, regardless of age or length of career, as evidenced in SMBC CLOUDSIGN Inc.’s case where the president assumed the position in his 30s. At the same time, we encourage and support senior employees to contribute continuously, by offering recurrent training and establishing a dual career support system that provides flexible work options for employees older than 60. 4. Recruitment Disparity Focus on Mid-Career Hiring As our business domains change, we are enhancing mid- career hiring to acquire talent with diverse skills and backgrounds. In this regard, we have substantially expanded the business areas and positions for mid-career individuals in order to recruit diverse talent including candidates for management positions. Furthermore, we are enhancing support provided to mid-career hires by both the Human Resources Department and the assigned departments, to ensure early settlement and active contributions. 5. Gender Disparity Enhancement of Diversity at Decision-Making Levels SMBC Group is devoting efforts to fostering female management candidates by increasing hiring of women and offering them strategic career development support shortly after they join the organization. To ensure appointments and promotions are determined based on individuals’ skills and competencies, unconscious bias training has been made compulsory for management and members of the Human Resources Department. Furthermore, in support of the LGBT community and other sexual minorities, we are offering employee education and supporting the development of networks of sexual minority allies* through aid and donations for external events. Targets for FY2025 Ratio of female managers Number of female executive officers 20% 20 15.3% in FY2019 13 in FY2019 SMBC GROUP ANNUAL REPORT 2020 095 To Our StakeholdersBusiness Strategies for Creating ValueCorporate Infrastructure Supporting Value CreationAbout SMBC GroupHuman Resources Strategy The Company has also expanded its employee welfare and benefit to include same-sex partners and set up helpdesks to support members of sexual minorities. * An ally is someone who understands and supports members of the LGBT community and other sexual minorities, despite not belonging to such a group himself/herself, and who makes this stance clear. 6. Location of Hire Disparity Establishment of Talent Development and Management Frameworks to Support Growing Overseas Businesses SMBC Group advances its operations in more than 40 countries and regions worldwide, and these overseas businesses are driving the growth of the Group. To support these businesses, we are developing talent management frameworks to enable optimal assignments and promotions, regardless of their location of hire. Based on the SMBC Global Management Competency model, we established standardized talent review framework. We are also developing a database to enable centralized management of talent information on overseas employees. For talent development, we offer various training programs for employees from offices around the globe, including leadership training for management-level employees delivered in partnership with The Wharton School of the University of Pennsylvania in the United States. Another area of focus is personnel exchanges, promoted through programs such as the Global Japan Program, under which, employees from overseas offices are assigned to departments in Japan for up to one year. Approximately 1,700 employees have participated in these programs to date. 7. Workstyle and Lifestyle Disparity Fostering of Workplaces That Allows Diverse Workstyles to Realize Maximum Performance SMBC Group is enhancing training programs and support frameworks to foster corporate cultures supportive of all employees’ willingness to work, regardless of their physical or mental restrictions due to life events (marriage, childcare, nursing care, etc.) or illness or disability. • Workstyle Reforms We are actively adopting systems that allow for flexibility in working hours and work locations, such as flextime, staggered working hours, and telework systems. Infrastructure to enable these systems, such as teleworking terminals and satellite offices, is also being put in place. Furthermore, to prevent excessive working hours, we are introducing monitoring and interval systems to ensure due compliance with relevant laws and improve working 096 SMBC GROUP ANNUAL REPORT 2020 environments. Working hour-related targets have been set for paid leave acquisition rates (target of 85% in FY2025) and for work efficiency through the implementation of robotic process automation. • Health and Productivity Management To ensure our employees’ physical and mental health, we are maintaining good work environments by offering stress checks, preventive measures for mental health, support for employees returning from long absence, and consultation desks. To enhance health awareness, we also offer reimbursement for expenses associated with quitting smoking and encourage the taking of regular health examinations. In addition, Group companies have formulated a “Statement on Health Management” and are accelerating their initiatives under the leadership of the Chief Health Officer. Diversity and Inclusion Initiatives Workplace Environment Development Aimed at Encouraging Efforts of a Diverse Workforce SMBC Group is promoting “Diversity and Inclusion” as a growth strategy itself. The Group has formulated its “Diversity and Inclusion Statement” as a core philosophy to promote initiatives to encourage active contributions of a diverse workforce, establishing a work environment that enables all employees to fully exercise their capabilities and skills. Under the new Medium-Term Management Plan, we aim to alleviate the aforementioned seven disparities in order to truly realize the spirit of diversity and inclusion. To accelerate diversity and inclusion initiatives through a concerted group-wide effort, SMBC Group has established the SMFG Diversity and Inclusion Department, holding regular discussions at meetings of the Board of Directors and the Management Committee. Furthermore, we are regularly hosting the SMFG Diversity and Inclusion Committee, chaired by the Group CEO. Message on Diversity and Inclusion from the Group CEO https://www.smfg.co.jp/english/sustainability/materiality/diversity/top-message/ Text of Diversity and Inclusion Statement and information on diversity and inclusion promotion system https://www.smfg.co.jp/english/sustainability/materiality/diversity/statement/ Corporate Infrastructure Supporting Value Creation(3) Employee Engagement Measures to Enable All Employees to Fully Exercise Their Potential 1. Talent Development Strategy SMBC Group has established the SMFG Learning and Development Institute to spearhead its group-wide talent development activities, in addition to developmental initiatives each Group company is advancing based on respective business environments. The Learning and Development Institute implements development programs for cultivating group-wide perspectives and fostering a sense of solidarity. Meanwhile, we are actively implementing joint programs with graduate schools and cross-Group job rotations to develop management candidates. Furthermore, we have established the “Digital University” and are expanding its range of courses to foster planning and development capabilities for transforming businesses with digital technologies. SMBC, the core subsidiary of SMFG, is advancing the following initiatives. • Human Resources Vision SMBC has formulated its Human Resources Vision to serve as a long-term strategy for human resource development amid a volatile competitive climate. It is also shifting from Human Resources Department-driven development models to more business-oriented, self-controlled development models that support the growth of individuals based on self-disciplined tasks. SMBC supports the challenges of its employees, regardless of position or seniority. • Enhancement of Experiential Learning SMBC is taking steps to enhance on-the-job training. Such steps include frameworks through which new employees receive guidance from more experienced employees (“anchor” system) along with one-on-one feedback. For management, we offer SMBC Management Review, a multi- source feedback, to enable development through enhanced self-recognition. • Self-Disciplined Career Support Voluntary application systems for training, jobs, and posts are provided as frameworks for supporting self-driven career development and to enhance specialized skills. In addition, the annual SMBC Job Forum provides a platform to gain understanding of the business of each department, thereby enhancing the effectiveness of voluntary application systems. Voluntary application systems are also available for dispatches to domestic and overseas graduate schools and other external educational institutions. Furthermore, SMBC has introduced a system that allows employees to take leave to attend graduate schools (career planning leave system) and a system that offers financial support for paying tuition fees for employees attending graduate schools or seeking to acquire qualifications while continuing to work normally (career planning support system), 2. Corporate Culture SMBC Group seeks to foster a sense of emotional safety in its corporate culture that allows employees to be frank and genuine in communication. For this reason, we have a free dress code, enabling employees to wear what they please to work, and encourage employees to refer to each other without titles. In addition, we are examining the possibility of introducing an internal social media service as a digital tool for transmitting information about individuals, management, and organizations to better link people and organizations. Meanwhile, engagement surveys are instituted to track levels of employee engagement and facilitate self-driven improvements by organizations. Employee awareness surveys are also conducted to develop an understanding of the levels of desire for coordination and solidarity among Group employees. These surveys have found that the average level of satisfaction among employees is at the high level of around 70%. Engagement survey (wevox) 3. Concentration on Appealing Work Drastic and continuous improvements to the efficiency of routine tasks are being pursued to heighten productivity and to create an environment that gives rise to appealing work and allows employees to concentrate on performing high-value-added work. In addition to promoting robotic process automation, instituting paperless work practices and drastically revising meeting procedures, we are soliciting and implementing work-streamlining ideas from the perspectives of employees. Furthermore, competitions in which employees can volunteer to participate and present their ideas are being held at various companies as divisions investigate possible new business models. SMBC GROUP ANNUAL REPORT 2020 097 To Our StakeholdersBusiness Strategies for Creating ValueCorporate Infrastructure Supporting Value CreationAbout SMBC GroupCorporate Infrastructure Supporting Value Creation IT Strategies Our Approach Currently, the operating environment is trending toward hybrid solutions, whether it comes to the maturing domestic market or growing overseas markets, the expansion of opportunities to utilize digital technologies, the reinforcement of security measures, the need for digital innovation and digital transformations, the importance of existing IT fields that now represent a majority of sales, or system ownership and use. In this environment, we will advance IT strategies with a focus on supporting both management and operations. 098 SMBC GROUP ANNUAL REPORT 2020 IT Investment Strategies Under the new Medium-Term Management Plan, the budget for IT investments was increased to ¥500.0 billion, a rise from the ¥440.0 billion budget under the previous Medium- Term Management Plan, with the aim of fueling future growth. By effectively controlling investments in existing IT areas via efficient management, we will secure a significantly larger budget for strategic investments in areas such as digitalization. Specifically, we have secured a CEO budget of ¥100.0 billion to be used for flexible investments in areas in which the Group CEO expects growth in the future. With this budget, SMBC Group will promote digitalization, reinforce management foundations, and implement business strategies. Increased IT Investments for Future Growth (JPY bn) 440 500 CEO budget of flexible investments 100 for Previous Medium-Term Management Plan New Medium-Term Management Plan Digitalization The Digital Solution Division has been established to promote business model reforms and the creation of new value for customers through digitalization. In addition, the Digital Strategy Department and the Corporate Digital Solution Department have been set up within the Digital Solution Division. The Digital Strategy Department is responsible for the allocation of digital technology-related budget resources, the drafting and implementation of digitalization strategies, and the development of new businesses. Meanwhile, the Corporate Digital Solution Department is tasked with the co-creation of businesses with major companies and the planning and implementation of digital solutions. Reformation and Reconstruction of Core Infrastructure Supporting Future Businesses SMBC Group is developing core infrastructure with an eye toward the next decade based on the three perspectives of flexibility, sustainability, and efficiency with the aim of adapting to the medium- to long-term changes in the business environment and in customer needs. 1 Flexibility Development of foundations for connectivity with external and internal systems to allow for the adjustment and augmentation of flexible functions 2 Sustainability Taking of precautions for avoiding development of systems with overly complicated structures and excessive customization 3 Efficiency Examination of measures for streamlining system structures and standardizing systems within the Group Development of Human Resources for Supporting Sustainable Growth in a Digital Society Accelerating digitalization at SMBC Group and contributing to customers and society require all employees, not just those in divisions dedicated to IT, to possess a digital-oriented mindset and basic IT knowledge. At SMBC Group, the Digital University has been established within core IT Group company The Japan Research Institute, Limited, as an internal training institution for promoting IT adoption and digitalization. The Digital University provides training for all employees on digital IT literacy and on IT adoption measures applicable to actual work. We are also devoted to fostering human resources with specialized skills. For this purpose, we offer a unique menu of training programs including training based on the operations of specific Group companies, curricula employing the expertise gained from project case studies, and cutting-edge technology workshops. Cyber Security Cyber attacks are becoming ever-more serious and sophisticated. In order to respond to the risks of such attacks, SMBC Group has strengthened cyber security measures by defining cyber risks as one of its Top Risks and, establishing a Declaration of Cyber Security Management. Seeking to facilitate management-led measures for fortifying response frameworks, the general manager of the System Security Planning Department has been appointed as the Chief Information Security Officer (CISO). Positioned under the Group CIO and the Group Chief Risk Officer (CRO), SMBC Group’s Cyber Security Governance System the CISO has professional expertise regarding measures in this area, and steps have been taken to clarify the roles and responsibilities of the CISO. Furthermore, we have established a computer security incident response team (CSIRT) and a security operation center (SOC), and analyses are performed on information regarding threats and observed cases collected from inside and outside of the Group. The results of these analyses, along with information on the status of security measures currently being implemented, are discussed regularly at meetings of the Board of Directors and the Management Committee to drive ongoing improvements to our cyber security measures. The CSIRT is centered on the System Security Planning Department, which possesses dedicated cyber security functions. To ensure preparedness for cyber incidents, the CSIRT coordinates with national government agencies as well as with the U.S. Financial Services Information Sharing and Analysis Center (FS-ISAC),*1 Financials ISAC Japan (Financials ISAC),*2 and other external institutions to share information on pertinent topics such as cyber attack methods and vulnerabilities. The SOC, which is centered around The Japan Research Institute, is dedicated to continuously fortifying cyber security monitoring systems to mitigate the ever-rising threat of cyber attacks. Measures taken by SOC include the integration of the monitoring systems of Group companies and the development of global systems for conducting monitoring on a 24-hours-a-day, 365-days-a-year basis. *1 An organization responsible for coordinating financial industry cyber security measures in the United States *2 Financials ISAC Japan (Japanese equivalent of the FS-ISAC) Government, law enforcement agencies Group CIO Group CRO Board of Directors / Management Committee National center of Incident readiness and Strategy for Cybersecurity Metropolitan Police Department etc. ISAC, industry bodies FS-ISAC Financials ISAC CEPTOAR-Council etc. Security vendors, experts etc. Corporate staff IT Planning Dept. Corporate Planning Dept. Public Relations Dept. General Affairs Dept. Risk Planning Dept. CISO (Chief Information Security Officer) System Security Planning Dept. SMBC Group SOC (security operation center) Group companies and offices in Japan / overseas SMBC Group CSIRT (Computer Security Incident Response Team) SMBC GROUP ANNUAL REPORT 2020 099 To Our StakeholdersBusiness Strategies for Creating ValueCorporate Infrastructure Supporting Value CreationAbout SMBC GroupStakeholders of SMBC Group Customers P 084 The environment and society Shareholders and the market Employees Stakeholder Type Example Communication Activities Customers In-branch questionnaires, Customer satisfaction surveys, Call centers Shareholders and the market Employees The environment and society General meeting of shareholders, Investors meetings, One on one meetings Opinion exchange meetings with top management, Employee surveys Support for initiatives in Japan and overseas, Volunteer activities of employees Engagement with the Environment and Society In addition to the contribution to society through our business operations, SMBC Group will contribute to realize a flourishing society in the future by pursuing diverse social contribution activities in order to fulfill responsibilities as a “good corporate citizen.” For example, our employees and their families have taken part in numerous volunteer activities, including post- disaster restoration activities and clean-up activities in various regions. In addition, employees coordinate with NPOs through pro bono activities to help contribute to the resolution of social issues. Communication with Stakeholders Our Approach SMBC Group strives to contribute to the sustainable development of society. To this end, we work diligently to provide greater value to our various stakeholders: “Customers,” “Shareholders and the market,” “Employees” and “The environment and society.” 100 SMBC GROUP ANNUAL REPORT 2020 Clean-up activity at Suma Beach in Hyogo Prefecture Running event aimed at fostering exchanges with the community Corporate Infrastructure Supporting Value CreationEngagement with Shareholders and the Market Engagement with Employees SMBC Group recognizes that appropriate disclosure of Management implements various initiatives to engage with corporate and management information must form the employees and foster mutual understanding. foundation of our efforts to realize one of the statements posted For example, when formulating the new Medium- in “Our Mission”: “We aim to maximize our shareholders’ Term Management Plan, a number of discussions were held value through the continuous growth of our business.” For this regarding the new business areas to be targeted by SMBC reason, we are taking steps to facilitate accurate understanding Group. Junior employees from Group companies participated of our management strategies and financial position through in these discussions, and the ideas and opinions that arose investor meetings after announcements of financial results, from these discussions were compiled to be used as advice conferences, one-on-one meetings, large meetings for for management. In the end, this input was incorporated individual investors, and other activities. These efforts have into the policies and measures of the new Medium-Term been highly evaluated, resulting in the Company winning the Management Plan. 2019 Award for Excellence in Corporate Disclosure (ranked In addition, SMBC Group companies hold town hall No. 1 in the banking industry) from the Securities Analysts meetings as venues for direct communication between Association of Japan as well as the 2019 Best IR Award from management and frontline employees. In FY2020, these the Japan Investor Relations Association. town hall meetings were conducted via video messages from Even faced with the COVID-19 pandemic, we members of management explaining their thoughts regarding endeavored to prevent declines in the quality of disclosure. management policies and strategies to employees. This As one effort for this purpose, the May 2020 investors briefing precaution was taken out of consideration for the COVID-19 was conducted in the form of a video presentation by the pandemic. Group CEO broadcast via the Internet and the question and In addition, SMBC holds the “SMBC Pitch Contest,” answer session was carried out via teleconference. which provides opportunities for all domestic and overseas employees to present their business ideas directly to top management. Business ideas that have won previous contests have since been transformed into new products and services. Investors briefing video presentation Large meeting for individual investors The 18th Ordinary General Meeting of Shareholders Award for Excellence in Corporate Disclosure award ceremony Discussion on formulation of the new Medium-Term Management Plan Activities in FY2019 General meeting of shareholders Participants: 478* IR meetings for institutional investors and analysts 11 meetings One-on-one meetings with institutional investors and analysts Conferences held by securities companies Large meetings for individual investors 308 meetings 3 conferences 5 meetings * Including 371 viewers of simultaneous Internet broadcast Video message to employees (SMBC Nikko Securities) SMBC GROUP ANNUAL REPORT 2020 101 To Our StakeholdersBusiness Strategies for Creating ValueCorporate Infrastructure Supporting Value CreationAbout SMBC GroupFinancial Review Principal Financial Data Consolidated Performance Summary Year ended March 31 Consolidated gross profit Net interest income Net fees and commissions + Trust fees Net trading income + Net other operating income General and administrative expenses Overhead ratio Equity in gains (losses) of affiliates Consolidated net business profit Total credit cost (gains) SMBC non-consolidated Gains (losses) on stocks Other income (expenses) Ordinary profit Extraordinary gains (losses) Income taxes Profit attributable to non-controlling interests Profit attributable to owners of parent Consolidated Balance Sheet Summary March 31 Total assets Loans and bills discounted Securities Total liabilities Deposits Negotiable certificates of deposit Total net assets Stockholders’ equity Retained earnings Accumulated other comprehensive income Non-controlling interests Financial Indicators March 31 Total capital ratio (BIS guidelines) Tier 1 capital ratio (BIS guidelines) Common equity Tier 1 capital ratio (BIS guidelines) Dividend per share (Yen) Dividend payout ratio ROE (on a stockholders’ equity basis) Market Data (As of the end of each fiscal year) Nikkei Stock Average (Yen) Foreign exchange rate (USD/JPY) 102 SMBC GROUP ANNUAL REPORT 2020 2016 2017 2018 2019 2020 (Billions of yen) 2,904.0 1,422.9 1,007.5 473.5 1,724.8 59.4% (36.2) 1,142.9 102.8 (3.2) 69.0 (123.9) 985.3 (5.1) 225.0 108.4 646.7 2,920.7 1,358.6 1,017.1 545.0 1,812.4 62.1% 24.6 1,132.9 164.4 61.1 55.0 (17.6) 2,981.1 1,390.2 1,070.5 520.3 1,816.2 60.9% 39.0 2,846.2 1,331.4 1,064.6 450.2 1,715.1 60.3% 61.1 2,768.6 1,276.6 1,088.1 403.9 1,739.6 62.8% 56.1 1,203.8 1,192.3 1,085.0 94.2 (26.7) 118.9 (64.5) 110.3 (2.2) 116.3 (63.1) 1,005.9 1,164.1 1,135.3 (26.6) 171.0 101.8 706.5 (55.3) 270.5 104.0 734.4 (11.7) 331.4 65.5 726.7 170.6 49.6 80.5 (62.8) 932.1 (43.4) 167.7 17.1 703.9 186,585.8 197,791.6 199,049.1 203,659.1 219,863.5 75,066.1 25,264.4 80,237.3 24,631.8 72,945.9 25,712.7 77,979.2 82,517.6 24,338.0 27,128.8 176,138.2 186,557.3 187,436.2 192,207.5 209,078.6 110,668.8 117,830.2 116,477.5 122,325.0 127,042.2 14,250.4 10,447.7 7,454.3 4,534.5 1,459.5 1,531.0 11,880.9 11,234.3 8,119.1 5,036.8 1,612.5 1,499.3 11,220.3 11,612.9 8,637.0 5,552.6 1,753.4 1,219.6 11,165.5 10,180.4 11,451.6 10,784.9 9,054.4 5,992.2 1,713.9 678.5 9,354.3 6,336.3 1,365.7 62.9 17.02% 13.68% 11.81% 150 32.7% 8.9% 16.93% 14.07% 12.17% 150 29.9% 9.1% 19.36% 16.69% 14.50% 170 32.7% 8.8% 20.76% 18.19% 16.37% 180 34.6% 8.2% 18.75% 16.63% 15.55% 190 37.0% 7.6% 16,759 112.62 18,909 112.19 21,454 106.25 21,206 111.00 18,917 108.81 Corporate Infrastructure Supporting Value Creation Consolidated Performance Summary Consolidated Net Business Profit Consolidated gross profit decreased by ¥77.6 billion year-on-year to ¥2,768.6 billion. This decrease was Impacts from the COVID-19 Pandemic (Approximations, billions of yen) primarily results of the impacts of group reorganizations Consolidated net business profit and the COVID-19 pandemic, which outweighed the Total credit cost increase in gains on sales of bonds with the decline of Gains (losses) on stocks overseas interest rates. Extraordinary gains (losses) General and administrative expenses increased by Profit attributable to owners of parent (50.0) +40.0 (23.0) (40.0) (110.0) ¥24.6 billion year-on-year to ¥1,739.6 billion, following the continued overseas expenditure. As a result, consolidated net business profit decreased by ¥107.2 billion year-on-year to ¥1,085.0 billion. Excluding the impacts of reorganizations and the COVID-19 pandemic, it reached the same level as FY2018. Profit Attributable to Owners of Parent Total credit cost increased by ¥60.4 billion year-on-year to ¥170.6 billion, due to the absence of gains on reversal of reserves for large obligors recorded in FY2018 and the record of reserve for possible loan losses arising from the COVID-19 pandemic. As a result, ordinary profit decreased by ¥203.2 billion year-on-year to ¥932.1 billion. In addition, profit attributable to owners of parent decreased by ¥22.8 billion year-on-year to ¥703.9 billion, because impairment losses on goodwill of SMBC Trust Bank Ltd.’s business, PRESTIA, were recognized, whereas the absence of tax costs at Sumitomo Mitsui Card Company, Limited, which joined in the consolidated corporate-tax system recorded last year, but exceeded the disclosed target of ¥700.0 billion. Financial Impacts of Group Reorganization*  (Approximations, billions of yen) Consolidated gross profit (70.0) General and administrative expenses Equity in gains (losses) of affiliates (16.0) (7.0) Consolidated net business profit (61.0) Non-controlling interests (7.0) Profit attributable to owners of parent +31.0 * The combined impact of the deconsolidation of Kansai Urban Banking Corporation, THE MINATO BANK, LTD. and Sumitomo Mitsui Finance and Leasing Company, Limited, which are current equity method affiliates; the consolidation of PT Bank Tabungan Pensiunan Nasional Tbk; the conversion of Sumitomo Mitsui Card Company, Limited into a wholly owned subsidiary; the merger of two asset management companies; and the deconsolidation of SMM Auto Finance, Inc. Performance of Major Group Companies (Left: FY2019 performance; Right: Year-on-year comparison)  (Billions of yen) SMBC SMBC Trust Gross profit 1,412.0 +16.4 808.1 604.0 (3.5) +19.9 49.5 48.6 0.9 Expenses Net business profit Net income Gross profit Expenses Net business profit Net income Gross profit Expenses Net business profit Net income Gross profit Expenses Net business profit Net income (0.3) (3.2) +2.8 (29.0) +11.8 +22.8 (11.0) +84.9*3 317.4 (160.0)*1 (32.8) SMBC Nikko*2 SMCC 320.1 271.8 48.3 35.2 (3.0) (4.3) +1.2 +4.1 420.0 328.1 92.4 38.2 SMBCCF SMDAM*5 50% 35.1 32.0 3.1 0.9 +9.3 +14.1 (4.7) (4.3) 274.4 113.9 160.5 90.1 +5.9 +3.0 +2.9 +45.1*4 SMFL*6 50% 183.0 84.7 101.1 61.2 (2.5) (3.6) +1.9 (18.8) Ratio of Ownership by SMFG *1 Attributable to recording of provision for investment loss for The Bank of East Asia, Limited (approx. ¥120.0 billion) *2 Excludes profit from overseas equity method affiliates of SMBC Nikko Securities Inc. (consolidated subsidiaries of SMFG) *3 Due to the absence of tax costs by becoming a wholly owned subsidiary recorded last year *4 Attributable to an increase in tax effect accounting *5 Year-on-year comparison excludes FY2018 profit of Daiwa SB Investments Ltd. *6 Figures are on a managerial accounting basis SMBC GROUP ANNUAL REPORT 2020 103 To Our StakeholdersBusiness Strategies for Creating ValueCorporate Infrastructure Supporting Value CreationAbout SMBC Group Financial Review Consolidated Balance Sheet Summary Domestic Loan-to-Deposit Spread FY2019 （%） FY2018 Loans and Bills Discounted (SMBC non-consolidated) Loans and bills discounted increased by ¥3,785.6 billion year-on-year to ¥80,187.4 billion due to an increase in overseas loans. Balance of Loan (Trillions of yen) 1Q 2Q 3Q 4Q Yearly average Yearly average 0.92 0.90 0.90 0.89 0.91 0.94 0.00 0.00 0.00 0.00 0.00 0.92 0.90 0.90 0.89 0.91 0.00 0.94 Interest earned on loans and bills discounted Interest paid on deposits, etc. Loan-to-deposit spread Securities 75.6 21.1 73.9 20.7 76.4 22.4 80.2 25.6 69.3 19.2 Other securities increased by ¥2,848.7 billion year-on-year to ¥26,649.2 billion due to an increase in the amount of foreign bonds held by SMBC. Net unrealized gains on other securities decreased by ¥429.0 billion year-on-year to ¥1,892.3 billion 50.1 54.5 53.2 54.0 54.6 mainly because of lower stock prices. 100 50 0 120 60 0 ’16/3 ’17/3 ’18/3 ’19/3 ’20/3 Domestic offices (excluding Japan offshore banking accounts) Overseas offices and Japan offshore banking accounts Deposits (SMBC non-consolidated) Deposits increased by ¥3,882.2 billion year-on-year to ¥119,973.3 billion. This increase was mainly due to increases in both individual and corporate deposits in Japan. Balance of Deposit (Trillions of yen) 105.6 110.2 98.8 39.8 44.1 47.6 50.2 53.1 42.3 43.6 45.3 47.1 49.1 ’16/3 ’17/3 ’18/3 ’19/3 ’20/3 Individuals (domestic) Corporates (domestic) Others Domestic Loan-to-Deposit Spread (SMBC non-consolidated) In FY2019, domestic loan-to-deposit spread decreased by 0.03% year-on-year to 0.91% primarily as a result of a decline of loan spreads. After the second quarter, the decrease in domestic loan-to-deposit spread has been limited to 0.01%, and this downward trend appears to be bottoming out. 104 SMBC GROUP ANNUAL REPORT 2020 116.1 120.0 The balance of NPLs based on the Financial Reconstruction NPLs Based on the Financial Reconstruction Act Unrealized Gains (Losses) on Other Securities  (Billions of yen) Balance Net unrealized gains (losses) March 31, 2020 YoY March 31, 2020 YoY Stocks Bonds Others 2,736.8 (749.8) 1,269.6 (633.4) 10,067.4 +1,083.7 13,845.0 +2,514.8 21.5 601.2 (38.8) +243.2 Total 26,649.2 +2,848.7 1,892.3 (429.0) Act decreased by ¥44.9 billion year-on-year to ¥650.3 billion, and the NPL ratio declined by 0.08% to 0.68%, remaining at a low level. Balance of NPLs Based on the Financial Reconstruction Act and NPL Ratio (Billions of yen) 1,500 1,000 500 0 992.7 927.7 622.6 1.15 0.78 567.7 1.00 0.65 672.3 695.2 650.3 436.3 0.78 0.51 476.5 0.76 0.54 428.6 0.68 0.46 ’16/3 ’17/3 ’18/3 ’19/3 ’20/3 Balance: Consolidated SMBC non-consolidated Ratio: Consolidated SMBC non-consolidated (%) 6 4 2 0 Corporate Infrastructure Supporting Value CreationCapital Capital Shareholder Returns The Company increased the dividend per common share Common equity Tier 1 capital decreased by ¥73.3 billion for FY2019 to ¥190, which is ¥10 higher year-on-year and year-on-year due to a decrease in net unrealized gains on than the original forecast. This increase was mainly due other securities. to exceeding the disclosed target for Profit attributable to owners of parent of ¥700.0 billion for FY2019 and taking Risk-Weighted Assets steps towards achieving a payout ratio of 40% under the new Risk-weighted assets increased by ¥2,656.3 billion year-on- Medium-Term Management Plan. year, due to an increase in overseas loans. Ordinary Dividend per Share of Common Stock (Yen) Capital Ratio The common equity Tier 1 capital ratio was 15.55% and the total capital ratio was 18.75%. In addition, the external TLAC ratio reached its required level on both the risk-weighted asset basis and the leverage exposure basis. 200 150 100 50 0 150 150 170 180 190 ’15 ’16 ’17 ’18 ’19 (FY) Dividend Payout Ratio 32.7% 29.9% 32.7% 34.6% 37.0% (Reference) Total payout ratio 51.2% Total Capital Ratio (BIS guidelines) 2019 (A) 2018 (B) Common equity Tier 1 capital 9,581.3 9,654.5 Additional Tier 1 capital 668.6 1,072.7 Tier 1 capital Tier 2 capital Total capital 10,249.9 10,727.2 1,302.1 1,513.3 11,552.0 12,240.5 (Billions of yen) Increase (decrease) (A–B) (73.3) (404.1) (477.3) (211.2) (688.5) Risk-weighted assets 61,599.1 58,942.8 +2,656.3 Common equity Tier 1 capital ratio Tier 1 ratio Total capital ratio 15.55% 16.63% 18.75% 16.37% 18.19% 20.76% (0.82)% (1.56)% (2.01)% Leverage Ratio Leverage ratio External TLAC Ratio 4.31% 4.88% (0.57)% Risk-weighted asset basis 25.96% 26.90% Leverage exposure basis 7.64% 8.19% (0.94)% (0.55)% SMBC GROUP ANNUAL REPORT 2020 105 To Our StakeholdersBusiness Strategies for Creating ValueCorporate Infrastructure Supporting Value CreationAbout SMBC Group　 SMBC Group Supports the Olympic and Paralympic Games Tokyo 2020. Initiatives for Generating Interest in theOlympic and Paralympic Games Tokyo 2020 Contributions to Paralympic Sports in Preparation for the Tokyo 2020 Paralympic Games SMBC Group is holding events across Japan with the aim SMBC Group employs 20 para-athletes, three of whom joined of generating interest in the Olympic and Paralympic in FY2020. These athletes take part in sports workshops Games Tokyo 2020. For example, an event for SMBC Group and join panels in employee training sessions to promote employees and their family members was arranged in increased recognition regarding Paralympic sports and foster Olympic Stadium, which will be a principal venue for Tokyo a more inclusive society. In addition, SMBC has sponsored a 2020 Games. SMBC, on a standalone basis, is helping television program on Japanese para-athletes. SMBC Group with performances in the Olympic Concert 2020 Premium para-athletes took part in events arranged by this program, Sound Series of concerts arranged by the Japanese Olympic in which they visited schools to give students a chance to Committee. A portion of the revenues from these concerts is experience their sports and promote understanding regarding being donated to the organizations fostering future athletes in paralympic sports and people with disabilities. the areas where concerts are held. Together with these employees, SMBC Group is SMBC Group remains united in its ongoing commitment contributing to the spread of paralympic sports leading up to to ensuring the success of the Olympic and Paralympic the Tokyo 2020 Paralympic Games. Games Tokyo 2020. Sumitomo Mitsui Financial Group is the Gold Partner (Banking Category) of the Olympic and Paralympic Games Tokyo 2020. 106 SMBC GROUP ANNUAL REPORT 2020 Appendix I CONTENTS Group Companies .......................................... 108 Corporate Data ............................................... 137 Risk Management ........................................... 113 Sumitomo Mitsui Financial Group, Inc. Internal Reporting Systems and Hotline for Inappropriate Accounting and Auditing Activities .................................... 128 Basic Policy for Customer-Oriented Business Conduct ........................................... 129 Support for Mid-Sized Corporations and SMEs, Vitalization of Local Regions in Japan ............ 131 Employees ....................................................... 133 Main Work-Life Balance Support System ........ 136 Directors and Executive Officers ................ 137 Sumitomo Mitsui Financial Group Organization ............................................... 138 Sumitomo Mitsui Banking Corporation Board of Directors, Directors, Members of the Audit and Supervisory Committee and Executive Officers ........................................ 139 SMBC Organization .................................... 142 Principal Subsidiaries and Affiliates ................ 144 Principal Domestic Subsidiaries ................. 144 Principal Overseas Subsidiaries ................. 145 Principal Affiliates ........................................ 146 International Directory .................................... 147 107 SMBC GROUP ANNUAL REPORT 2020 Group Companies (as of March 31, 2020) The companies of Sumitomo Mitsui Financial Group primarily conduct commercial banking through the following financial services: leas- ing, securities, consumer finance, system development data processing, and asset management. Business Mission • We grow and prosper together with our customers, by providing services of greater value to them. • We aim to maximize our shareholders’ value through the continuous growth of our business. • We create a work environment that encourages and rewards diligent and highly motivated employees. • We contribute to a sustainable society by addressing environmental and social issues. Company Name: Sumitomo Mitsui Financial Group, Inc. Business Description: 1. Management of banking subsidiaries and other companies that can be treated as subsidiaries under the stipulations of Japan’s Banking Act as well as the performance of ancillary functions 2. Functions that can be performed by bank holding companies under the stipulations of Japan’s Banking Act Establishment: December 2, 2002 Head Office: 1-2, Marunouchi 1-chome, Chiyoda-ku, Tokyo, Japan Chairman of the Board: Takeshi Kunibe President: Jun Ohta Capital: ¥2,339.9 billion Stock Exchange Listings: Tokyo Stock Exchange (First Section) Nagoya Stock Exchange (First Section) Note: American Depositary Receipts (ADRs) are listed on the New York Stock Exchange. www.smfg.co.jp/english/ Credit Ratings (as of June 30, 2020) Moody’s Standard & Poor’s Fitch Ratings R&I JCR Long-term Short-term A1 A– A A+ AA– P–1 — F1 — — Financial Information (Consolidated basis, years ended March 31) 2020 Billions of yen 2018 2019 2017 932�0 For the Year: Ordinary income �������� ¥ 5,314�3 ¥ 5,735�3 ¥ 5,764�1 ¥ 5,133�2 Ordinary profit��������� 1,005�8 Profit attributable to owners of parent ����� At Year-End: Net assets �������������� ¥ 10,784�9 ¥ 11,451�6 ¥ 11,612�8 ¥ 11,234�2 Total assets ������������ 219,863�5 203,659�1 199,049�1 197,791�6 1,164�1 1,135�3 726�6 734�3 703�8 706�5 www.smbc.co.jp/global/index.html Sumitomo Mitsui Banking Corporation (“SMBC”) was established in April 2001 through the merger of the two leading banks of The Sakura Bank, Limited and The Sumitomo Bank, Limited. Sumitomo Mitsui Financial Group, Inc. was established in December 2002 as a bank holding company through a share transfer, and SMBC became a wholly owned subsidiary of Sumitomo Mitsui Financial Group. In March 2003, SMBC merged with The Wakashio Bank, Ltd. SMBC’s competitive advantages include its solid and extensive client base, the expe- ditious implementation of strategies, and also the service providing capability of its predominant Group companies. Under the management of Sumitomo Mitsui Financial Group, SMBC will unite with other SMBC Group companies in an effort to provide highly sophisticated and comprehensive financial services to clients. Company Name: Sumitomo Mitsui Banking Corporation Business Profile: Commercial banking Establishment: June 6, 1996 Head Office: 1-2, Marunouchi 1-chome, Chiyoda-ku, Tokyo, Japan President and CEO: Makoto Takashima (Concurrent Director at Sumitomo Mitsui Financial Group) Number of Employees: 27,957 Number of branches and other business locations: 1,938* In Japan: Branches: 515 (Including 47 specialized deposit account branches) 350 Sub-branches: 1 Banking agencies: 1,072 Automated service centers: 45 19 22 4 * The number of domestic branches excludes ATMs located at retail convenience stores. The number of overseas branches excludes branches that are closing and locally incorporated companies overseas. Overseas: Branches: Sub-branches: Representative offices: 108 Credit Ratings (as of June 30, 2020) Moody’s Standard & Poor’s Fitch Ratings R&I JCR Long-term Short-term A1 A A AA– AA P–1 A–1 F1 a–1+ J–1+ Financial Information (Consolidated basis, years ended March 31) 2020 Billions of yen 2018 2019 2017 For the Year: Ordinary income ������� ¥ 3,469�0 ¥ 3,369�8 ¥ 3,117�0 ¥ 3,014�4 829�4 Ordinary profit �������� Net income ������������� 543�1 At Year-End: Net assets �������������� ¥ 8,368�3 ¥ 8,986�7 ¥ 9,090�4 ¥ 8,908�1 Total assets ������������ 206,089�6 190,690�2 182,727�4 180,946�6 894�5 617�4 932�7 627�5 770�4 517�7 SMBC GROUP ANNUAL REPORT 2020 www.smbctb.co.jp/en Company Name: SMBC Trust Bank Ltd. Business Profile: Commercial banking and Trust Banking Establishment: February 25, 1986 Head Office: 1-3-1, Nishi-Shimbashi, Minato-ku, Tokyo President and CEO: Kozo Ogino Number of Employees: 2,112 Number of branches: In Japan: 55 (Including Internet Branch, and Sub-Branches, and Foreign Exchange Counters) Financial Information (Years ended March 31) For the Year: Ordinary income ������� Ordinary profit (loss) �� Net income (loss) ������ At Year-End: Total assets �������������� 2020 Billions of yen 2018 2019 2017 ¥ 61�0 1�0 (32�7) ¥ 61�9 (2�4) (3�7) ¥ 50�6 (7�1) (5�7) ¥ 39�9 (15�8) (4�1) ¥3,423�3 ¥3,273�6 ¥3,064�4 ¥2,710�8 Company Name: Sumitomo Mitsui Finance and Leasing Company, Limited Business Profile: Leasing Establishment: February 4, 1963 Head Office: Tokyo Head Office: 3-2, Marunouchi 1-chome, Chiyoda-ku, Tokyo, Japan Osaka Head Office: 3-10-19, Minami-Semba, Chuo-ku, Osaka President and CEO: Masaki Tachibana Number of Employees: 3,357 www.smfl.co.jp/english/ Credit Ratings (as of June 30, 2020) Standard & Poor’s R&I JCR Long-term Short-term A– A+ AA — a–1 J–1+ Financial Information (Consolidated basis, years ended March 31) 2020 Billions of yen 2018 2019 2017 For the Year: Leasing transaction volume ��������������������� Operating revenue ����� Operating profit ��������� Ordinary profit����������� Profit attributable to owners of parent ������� At Year-End: Total assets �������������� ¥2,489�2 1,513�7 89�4 90�3 ¥2,412�2 1,502�3 90�9 87�5 ¥2,185�0 1,622�8 96�4 97�6 ¥2,192�6 1,420�8 89�0 90�4 61�2 80�0 54�5 50�4 ¥6,378�7 ¥5,812�6 ¥5,660�6 ¥5,601�6 Formerly Societe Generale Private Banking, SMBC Trust Bank Ltd. joined SMBC Group in October 2013. We then made a fresh start following the integration of the retail banking operations of Citibank Japan Ltd. under the new PRESTIA brand in November 2015. SMBC Trust Bank is carrying out full- fledged initiatives, including developing joint branches with SMBC and SMBC Nikko Securities, to deliver comprehensive SMBC Group financial services on a one-stop basis. As a trust bank with strengths in the fields of “foreign currency”, “real estate” and “trusts”, we provide finely tuned support with tailor- made products and solutions for customer asset management, administration, and asset succession needs for the upcoming era of 100-year life. Sumitomo Mitsui Finance and Leasing (“SMFL”) is a leading Japanese leasing com- pany. SMFL provides financial solutions and services that aid customers in their capital expenditures and sales activities by taking advantage of its abundant experience and past performance results accumulated over the years. In the constantly growing global market, SMFL supports customers’ overseas expansion efforts and also develops an unparalleled aircraft leasing business and other transportation field businesses. Guided by the new Medium-Term Manage- ment Plan, which was launched in April 2020, SMFL is developing sophisticated services in response to changes in society while fur- ther broadening its business scope. SMFL is also accelerating its initiatives in areas such as green energy, digital technologies, and local communities so as to continue being a chosen business partner for future genera- tions through contributions to the sustainable development of society. 109 SMBC GROUP ANNUAL REPORT 2020Ever since our foundation in 1918 as Kawa- shimaya Shoten, SMBC Nikko Securities Inc. has over the past 100 years been supported by many clients and we have grown together with our clients. Since October 2009, when we joined Sumitomo Mitsui Financial Group, we have been redoubling our efforts to further improve our ability to assist our clients, both individual and corporate clients, and to enhance our capabilities as an integrated securities company. Our vision remains to grow with our clients and be their trusted advisor. “Share the Future” is our brand slogan and, as a firm of financial professionals, we will strive to act in the best interests of our clients by leveraging our track record of managing diverse risks and delivering innovative financial services. Since its founding in 1967, Sumitomo Mitsui Card Company, Limited, has continued to drive the development of Japan’s credit card industry as a pioneer in the issuance of the Visa Card in Japan and as a comprehensive payment service provider at the forefront of the cashless payment trend. In April 2019, Cedyna Financial Corpora- tion was converted into a wholly owned subsidiary of Sumitomo Mitsui Card Com- pany to solidify the core of SMBC Group’s cashless payment strategies, and these two companies have been effectively functioning as a single business entity since. Capitalizing on the transaction base, expertise, credibility, and other strengths it has accumulated as an industry leader, Sumitomo Mitsui Card Company aims to become Japan’s No. 1 comprehensive pay- ment service provider in the burgeoning cashless society through the integration of its credit card, consumer credit, and financing solution businesses. Company Name: SMBC Nikko Securities Inc. Business Profile: Securities Establishment: June 15, 2009 Head Office: 3-1, Marunouchi 3-chome, Chiyoda-ku, Tokyo President and CEO: Yuichiro Kondo Number of Employees: 9,926 (Appointed on April 1, 2020) www.smbcnikko.co.jp/en Credit Ratings (as of June 30, 2020) Moody’s Standard & Poor’s R&I JCR Long-term Short-term A1 A AA– AA P–1 A–1 a–1+ — Financial Information (Years ended March 31) 2020 Billions of yen 2018 2019 2017 For the Year: Operating revenue ����� ¥ 378�0 ¥ 344�6 ¥ 376�0 ¥ 334�4 69�0 Operating income������ 70�5 Ordinary profit����������� Net income ��������������� 39�4 At Year-End: Total assets �������������� ¥12,090�0 ¥10,753�1 ¥10,541�4 ¥11,536�9 38�6 42�1 28�0 84�8 87�4 57�7 39�0 42�6 32�1 www.smbc-card.com (Japanese only) Company Name: Sumitomo Mitsui Card Company, Limited Business Profile: Credit card Establishment: December 26, 1967 Head Office: Tokyo Head Office: 1-2-20, Kaigan, Minato-ku, Tokyo Credit Rating (as of June 30, 2020) R&I Long-term Short-term AA– a–1+ Osaka Head Office: 4-5-15, Imabashi, Financial Information (Years ended March 31) Chuo-ku, Osaka President and CEO: Yukihiko Onishi Number of Employees: 2,650 2020 Billions of yen 2018 2019 2017 For the Year: Revenue from credit card operations ��������� ¥20,527�8 ¥18,004�6 ¥16,083�3 ¥14,507�7 418�6 Operating revenue ����� 52�3 Operating profit ��������� 52�3 Ordinary profit����������� Net income (loss) ������ 46�8 At Year-End: Total assets 436�2 54�6 54�4 30�7 465�5 62�4 62�7 (46�7) 480�8 50�5 50�8 38�2 Sumitomo Mitsui Card Company ������� ¥ 2,257�2 ¥ 1,933�3 ¥ 1,698�2 ¥ 1,500�7 Cedyna ����������������� ¥ 2,052�2 ¥ 2,128�7 ¥ 2,115�0 ¥ 2,112�5 5,042 4,479 4,238 4,715 Number of cardholders (in tens of thousands) ������������ Notes: 1� To reflect the integrated management of Sumitomo Mitsui Card Company and Cedyna, the above figures for revenue from credit card operations, operating revenue, operating profit, ordinary profit, net income (loss), and number of cardholders use internal management figures arrived at through the simple addition of the consolidated figures for both companies� (Consolidated figures for Sumitomo Mitsui Card Company do not include consolidated figures for Cedyna�) 110 2� From FY2018, revenue from credit card operations includes e-money transactions� 3� From FY2017, number of cardholders includes the number of debit cardholders� SMBC GROUP ANNUAL REPORT 2020 Company Name: Cedyna Financial Corporation Business Profile: Credit card and installment Establishment: September 11, 1950 Head Office: Head Office: 3-23-20, Marunouchi, Naka-ku, Nagoya Tokyo Head Office: 2-16-4, Konan, Minato-ku, Tokyo President and CEO: Naoki Ono Number of Employees: 3,084 www.smbc-fs.co.jp/ (Japanese only) Notes: 1� To reflect the integrated management of Cedyna and Sumitomo Mitsui Card Company, financial information for both companies is displayed in the latter’s section on the previous page� 2� Cedyna and SMBC Finance Service Co�, Ltd�, were merged on July 1, 2020� www.smbc-cf.com/english/ Company Name: SMBC Consumer Finance Co., Ltd. Business Profile: Consumer lending Establishment: March 20, 1962 Head Office: 4-12-15, Ginza, Chuo-ku, Tokyo President and CEO: Ryohei Kaneko Number of Employees: 2,241 Cooperation: SHOCHIKU Co., Ltd., Kabuki-za Co., Ltd. Credit Rating (as of June 30, 2020) R&I Long-term Short-term A+ — Financial Information (Years ended March 31) For the Year: Operating revenue ����� Operating profit ���������� Ordinary profit����������� Net income ��������������� At Year-End: Total assets �������������� 2020 ¥ 199�8 41�4 42�9 78�6 Billions of yen 2018 2019 ¥196�4 23�6 32�0 35�9 ¥192�2 15�4 15�7 8�9 2017 ¥186�2 51�6 51�8 100�8 ¥1,011�3 ¥959�9 ¥939�3 ¥925�8 Cedyna Financial Corporation was formed in April 2009 through the merger of OMC Card, Inc., Central Finance Co., Ltd., and QUOQ Inc. Moreover, Cedyna was converted into a wholly owned subsidiary of Sumitomo Mitsui Card Company in April 2019 to solidify the core of SMBC Group’s cashless payment strategies, and these two companies have been effectively functioning as a single busi- ness entity since. Together with Sumitomo Mitsui Card Com- pany, Cedyna aims to become Japan’s No. 1 comprehensive payment service provider in the burgeoning cashless society by capitalizing on the transaction base, expertise, credibility, and other strengths it has accumulated to date and integrating its credit card, installment, and payment solution businesses. Since its establishment in 1962, with the orig- inal goal of striving to become the leading provider of innovative financial services for individual consumers, Promise Co., Ltd., cur- rently known as SMBC Consumer Finance Co., Ltd., has been offering consumer financial services to promptly meet the diverse funding needs of our customers while keeping pace with changing lifestyle patterns by developing safe, convenient personal loan products and building the infrastructure for dealing with customer inquiries and loan applications. As an expert in the consumer finance business, SMBC Consumer Finance aspires to be the most trusted global consumer finance company by providing consistent and sincere services to our customers. 111 SMBC GROUP ANNUAL REPORT 2020The Japan Research Institute, Limited (“JRI”) is a comprehensive information services company with IT solutions, consulting, and think-tank functions. Under the fundamental philosophy of “cre- ating new value for the client,” JRI offers concrete proposals for identifying and resolving issues with a company along with support for enacting those proposals. In addition to providing IT-based strategic data systems planning and development and outsourcing services, JRI offers consultation in areas such as management strategy and admin reforms. It also engages in activities ranging from economic research and analy- sis on Japan and other countries and policy recommendation to business incubation. Formed from the merger of Sumitomo Mitsui Asset Management Company, Limited, and Daiwa SB Investments Ltd. in April 2019, Sumitomo Mitsui DS Asset Management Company, Limited is one of Japan’s top-tier asset managers. Leveraging its industry-leading research platform and global network, Sumitomo Mitsui DS Asset Management Company provides high-quality asset management ser- vices that meet specific needs of its diverse client base composed of Japanese and non-Japanese institutional (pension funds, financial institutions, etc.) and individual inves- tors. The company’s vision is to become the best asset management firm for better Qual- ity of Life of our clients and all the other stake holders. www.jri.co.jp/english/ Company Name: The Japan Research Institute, Limited Business Profile: System development, data processing, management consulting and economic research Establishment: November 1, 2002 Head Office: Tokyo Head Office: 2-18-1, Higashi-Gotanda, Shinagawa-ku, Tokyo Osaka Head Office: 2-2-4, Tosabori, Nishi-ku, Osaka President and CEO: Katsunori Tanizaki Number of Employees: 2,665 Financial Information (Years ended March 31) For the Year: Operating revenue ����� Operating profit ��������� Ordinary profit����������� Net income ��������������� At Year-End: Total assets �������������� 2020 ¥143�2 2�9 2�8 0�9 Billions of yen 2018 2019 ¥138�4 3�6 3�4 2�6 ¥136�5 2�8 2�5 1�7 2017 ¥132�9 2�2 2�0 1�5 ¥100�8 ¥104�9 ¥103�4 ¥103�2 www.smd-am.co.jp/english/ Company Name: Sumitomo Mitsui DS Asset Management Company, Limited Business Profile: Investment management (discretionary/advisory) and investment trust fund management Establishment: July 15, 1985 Head Office: 1-17-1 Toranomon, Minato-ku, Tokyo President and CEO: Takashi Saruta (Appointed on April 1, 2020) Number of Employees: 1,008 Financial Information (Years ended March 31) Sumitomo Mitsui Asset Management 2020 2019 Sumitomo Mitsui Asset Management Daiwa SB Investments Billions of yen 2018 Sumitomo Mitsui Asset Management 2017 Daiwa SB Investments Sumitomo Mitsui Asset Management Daiwa SB Investments For the Year: Operating revenue ��������� Operating profit ������������� Ordinary profit��������������� Net income ������������������� At Year-End: Total assets ������������������ ¥ 65�5 1�5 2�2 0�6 ¥133�6 ¥46�9 6�0 6�0 4�1 ¥48�9 ¥28�7 4�4 4�5 2�9 ¥38�6 ¥46�5 7�3 7�4 4�9 ¥53�8 ¥31�5 6�8 6�8 4�7 ¥39�3 ¥39�1 4�5 4�6 3�5 ¥46�5 ¥32�5 6�9 6�9 4�8 ¥35�8 112 SMBC GROUP ANNUAL REPORT 2020 Risk Management Risk Management Categories SMBC Group defines the following risk management categories and conducts management of these risks accordingly. Group companies manage risk in accordance with the characteristics of their particular businesses. These risk categories are continuously reviewed and new ones may be added in response to changes in the operating environment. Credit risk Market risk Liquidity risk Risk Category 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. Department in Charge Credit & Investment Planning Department Market risk is the possibility that fluctuations in interest rates, foreign exchange rates, stock prices, or other market prices will change the market value of financial products, leading to a loss. Corporate Risk Management Department Liquidity risk is defined as uncertainty around the ability of the firm to meet debt obligations without incurring unacceptably large losses. Examples of such risk include the possible inability to meet current and future cash flow / collateral needs, both expected and unexpected. In such cases, the firm may be required to raise funds at less-than-favorable rates or be unable to raise sufficient funds for settlement. Corporate Risk Management Department Operational risk Conduct risk Operational risk is the possibility of losses arising from inadequate or failed internal processes, people, and systems or from external events (see page 123 for information on risk categories and the departments in charge). Corporate Risk Management Department Conduct risk is the risk that our conduct negatively affects customers, market integrity, effective competition, public interest, and the SMBC Group’s stakeholders through acts that violate laws and regulations or social norms. Corporate Risk Management Department Compliance Department Top Risks Top Risks, risks that threaten to significantly impact management, recognized by SMBC Group are listed in the table below (see page 89 for information on methods of utilizing Top Risks). Volatile financial and economic environment Intensification of the international political confrontation • Serious global economic slowdown and accompanying disruption in financial markets Top Risks • Slowdown in the global economy following intensification of conflict between the United States and China Decline in Japan’s social vitality • Diminished growth potential in Japanese economy due to population decline, etc. Ideological and religious conflicts • Increased geopolitical risks associated with tensions in the Korean peninsula and the Middle East, etc. Pandemics • Impacts on business continuity due to spread of infectious disease among employees Large-scale earthquakes • Impacts on business continuity due to widespread damage to employees and branches Ceased operation of information systems due to cyber attacks • Impacts on business continuity due to major system failures Climate change • Changes in competitive environment for SMBC Group and business partners due to industry structure changes Industry structure changes stemming from technological progress • Changes in competitive environment for SMBC Group and business partners due to emergence of new technologies, etc. Legal or compliance-related incidents • Government penalties due to insufficient measures for Anti-Money Laundering/Combating the Materialization of risks impeding implementation of strategies (lack of human resources, etc.) Financing of Terrorism, etc. • Difficulty securing human resources in strategic fields Note: The above is only a portion of the risks recognized by SMBC Group. It is possible that the materialization of risks other than those listed above could have a significant impact on our management. 113 SMBC GROUP ANNUAL REPORT 2020 Stress Testing SMBC Group conducts stress testing for each category of risks as well as stress testing used to verify the overall soundness of comprehensive risk management practices. The level of soundness used for verifications is determined based on risk appetite com- bined with consideration for the severity of the scenario anticipated. When evaluating group-wide soundness, evaluations are made using the consolidated balance sheets and consolidated statements of income, which include data from affiliates, with the goal of identifying major risks to our business and asset portfolio. Specifically, scenarios are selected based on the aforementioned severity level as well as background conditions that cover all areas In this manner, stress testing processes often require a variety of expertise. When selecting the background conditions for scenar- ios, expertise regarding macroeconomic conditions and geopolitical risks is required. When selecting methodologies, insight into the statistical and other mathematical analysis techniques is crucial. When calculating impacts on SMBC Group as a whole, insight into SMBC Group and the businesses of its customers must be used. Stress testing processes will thus be based on discussions and opinions of directors, members of upper management, specialists, and representatives from relevant organizations and records will be created of these discussions and opinions in order to ensure objectivity, transparency, and reproducibility. In this way, measures in which we may face risks (e.g. an outlook encompassing the entire for practicing proper governance of stress testing will be applied. world). We also employ methodology for ensuring scenarios can be accurately reflected and for incorporating business and portfolio characteristics. Commonly used statistical methods are utilized in developing such methodologies. However, as it is necessary to estimate out- liers, we may choose the methodology that best recreates outliers rather than the methodology that offers the highest statistical accuracy. When projecting scenarios for which there are no prior examples, human judgment may be given greater weight than the results of estimates. ■ Stress Testing Process (1) Scenario Design Scenarios are designed by the Corporate Risk Management Department after compil- ing information on SMBC Group’s Top Risks and the views of related departments on such factors as future global trends. (2) Scenario Finalization Scenarios are revised as necessary based on the outcome of discussions between specialists and related departments. (3) Calculation of Impact The scenario’s impact on each financial item is estimated for analysis of the impact on such indicators as the CET1. (4) Confirmation by the Management Committee At the Management Committee, business strategies are examined based on analyses of risk impact amounts and then verified from the perspective of capital adequacy. 114 SMBC GROUP ANNUAL REPORT 2020 Risk-Weighted Assets Risk-weighted assets subject to the Basel Capital Accord totaled (3) Credit Policy SMBC Group’s credit policy comprises clearly stated universal ¥61,599.1 billion as of March 31, 2020, up ¥2,656.3 billion from and basic operating concepts, policies, and standards for credit March 31, 2019. The main factors behind the increase in risk- operations, in accordance with our business mission and rules of weighted assets was an increase in our corporate credit exposure. conduct. SMBC Group is promoting the understanding of and strict ■ Risk-Weighted Assets as of March 31, 2020 adherence to its Group credit policy among all its managers and employees. By fostering a culture of appropriate levels of risk-taking (Trillions of yen) and providing high-value-added financial services, SMBC Group Credit risk Market risk Operational risk Total March 31, 2019 March 31, 2020 Increase (decrease) 53.0 2.3 3.6 58.9 55.1 2.5 3.9 61.5 +2.1 +0.2 +0.3 +2.6 ■ Risk Assets of Individual Business Units aims to enhance shareholder value and play a key contributory role in the community. 2. Credit Risk Management System At SMBC Group, the Group CRO formulates credit risk manage- ment policies each year based on the group-wide basic policies for risk management. Meanwhile, the Credit & Investment Planning Department is responsible for the comprehensive management of (Trillions of yen) credit risk. This department drafts and administers credit risk regu- Retail Business Unit Wholesale Business Unit Global Business Unit 12.0 17.4 21.4 Global Markets Business Unit 5.3 SMBC Group Credit risk Market risk Operational risk 55.1 2.5 3.9 Credit Risk 1. Basic Approach to Credit Risk Management (1) Characteristics of Credit Risk Credit risk is characterized by 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 transac- tions) to lose value or become worthless. (2) Fundamental Principles for Credit Risk Management All Group companies follow the fundamental principles established by SMBC Group to assess and manage credit risk on a group-wide basis and further raise the level of accuracy and comprehensive- ness of group-wide credit risk management. Each Group company must comprehensively manage credit risk according to the nature of its business, and assess and manage credit risk of individual loans and credit portfolios quantitatively and using consistent standards. Credit risk is the most significant risk to which SMBC Group is exposed. Without effective credit risk management, the impact of the corresponding losses on operations can be overwhelming. The purposes of credit risk management is to keep credit risk exposure to a permissible level relative to capital, to maintain the soundness of group-wide assets, and to ensure returns commen- surate with risk. Doing so leads to a loan portfolio that achieves high returns on capital and assets. lations, including the Group credit policies, manages non-performing loans (NPLs), and performs other aspects of credit portfolio manage- ment. We have also established the Credit Risk Committee to serve as a body for deliberating on matters related to group-wide credit portfolios. At SMBC, the core bank of SMBC Group, the Credit & Investment Planning Department within the Risk Management Unit furnishes the credit risk management system and is thus responsible for the comprehensive management of credit risk. This department drafts and administers credit policies, the internal rating system, credit authority guidelines, and credit application guidelines, and also manages NPLs and performs other aspects of credit portfolio management. The department also cooperates with the Corporate Risk Management Department in quantifying credit risk (risk capital and risk-weighted assets) and controls the bank’s entire credit risk. Further, the Credit Portfolio Management Department within the Credit & Investment Planning Department has been strengthening its active portfolio management function for stable credit portfolios mainly through credit derivatives and the sales of loans. The credit department in charge, in cooperation with branches, conducts credit risk assessments and manages credit portfolios within each credit department’s jurisdiction. The credit approval authority is determined based on the credit amount and internal grades, while credit departments focus on the analysis and manage- ment of customers and transactions with relatively high credit risk. The Credit Administration Department is responsible for handling NPLs of borrowers classified as potentially bankrupt or lower, and 115 SMBC GROUP ANNUAL REPORT 2020 draws up plans for their workouts, including write-offs. It works to 3. Credit Risk Management Methods efficiently reduce the amount of NPLs through Group company SMBC Servicer Co., Ltd., which engages in related services, and by such means as the sell-off of claims. Through industrial and sector-specific surveys and studies of individual companies, the Corporate Research Department works to form an accurate idea of the circumstances of borrower companies and quickly identify those with potentially troubled credit positions as well as promising growth companies. The Compliance Unit has in place a system of coordinating to establish systems for providing explanations to customers and develop information management practices for the purpose of cus- tomer protection and to prevent transactions with antisocial forces, among other tasks. The Internal Audit Unit, operating independently of the business units, audits asset quality, the accuracy of gradings and self- assessment, and the state of credit risk management, and reports the results directly to the Audit and Supervisory Committee and the Management Committee. SMBC has established the Credit Risk Committee as a con- sultative body to round out its oversight system for undertaking flexible and efficient control of credit risks, and ensuring the overall soundness of the bank’s loan operations. ■SMBC’s Domestic Obligor Grading System Obligor Grade Definition (1) Credit Risk Assessment and Quantification At SMBC Group, to effectively manage the risk involved in individual loans as well as the credit portfolio as a whole, we first acknowl- edge that every loan entails credit risks, assess the credit risk posed by each borrower and loan using an internal rating system, and quantify that risk for control purposes. (a) Internal Rating System There is an internal rating system for each asset control category established according to portfolio characteristics. For example, credits to corporates are assigned an “obligor grade,” which indi- cates the borrower’s creditworthiness, and/or “facility grade,” which indicates the collectibility of assets taking into account transaction conditions, such as guarantee/collateral, credit period, and tenor. An obligor grade is determined by first assigning a financial grade using a financial strength grading model and data obtained from the obli- gor’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. In the event that the borrower is domiciled overseas, internal ratings for credit are made after taking into consideration country rank, which represents an assessment of the credit quality of each country, based on its polit- ical and economic situation as well as its current account balance and external debt. The borrower categories used in self-assessment are consistent with the obligor grade categories. Borrower Category Financial Reconstruction Act Based Disclosure Category Normal Borrowers Normal Assets 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 trends or business environment depending on the situation 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 any changes in economic trends or business environment Currently no problem with debt repayment, but it is highly likely that this could change in cases of significant changes in economic trends or business environment 1 2 3 4 5 6 7 8 9 Close monitoring is required due to problems in meeting loan terms and conditions, sluggish/unstable business, or financial problems Borrowers Requiring Caution (Borrowers Requiring Caution identified as 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 Potentially Bankrupt Borrowers Virtually Bankrupt Borrowers Bankrupt Borrowers Doubtful Assets Bankrupt and Quasi-Bankrupt Assets 10 Legally or formally bankrupt 116 SMBC GROUP ANNUAL REPORT 2020 Obligor grades and facility grades are reviewed once a year, and whenever necessary, such as when there are changes in the credit (2) Framework for Managing Individual Loans SMBC Group strives to maintain a sound portfolio through appro- situation. There are also grading systems for loans to individuals and priate credit assessments and monitoring conducted over credit project finance and other structured finance tailored according to periods. The following framework is used for managing individual the risk characteristics of these types of assets. loans at SMBC, the core bank of SMBC Group. The Credit & Investment Planning Department centrally man- (a) Credit Assessment ages the internal rating systems and properly designs, operates, At SMBC, credit assessment of corporate loans involves a variety supervises, and validates the grading models. It validates the grad- of financial analyses, including cash flow, to predict an enterprise’s ing models and systems of main assets following the procedures capability of loan repayment and its growth prospects. These quan- manual (including those for statistical validation) once a year to titative measures, when combined with qualitative analyses of indus- ensure their effectiveness and suitability and submits reports with trial trends, the enterprise’s R&D capabilities, the competitiveness this regard. SMBC, the core bank of SMBC Group, employs a total of its products or services, and its management caliber, result in a of 22 grading models for corporate, specialized lending, and retail comprehensive credit assessment. The loan application is analyzed applications. For details on internal rating methods, please refer to in terms of the intended utilization of the funds and the repayment Appendix II. (b) Quantification of Credit Risk schedule. Thus, SMBC is able to arrive at an accurate and fair credit decision based on an objective examination of all relevant factors. Credit risk quantification refers to the process of estimating the Increasing the understandability to customers of loan conditions degree of credit risk of a portfolio or individual loan taking into and approval standards for specific borrowing purposes and loan account not just the obligor’s Probability of Default (PD) but also the categories is a part of SMBC’s ongoing review of lending practices, concentration of risk in a specific customer or industry and the loss which includes the revision of loan contract forms with the chief aim impact of fluctuations in the value of collateral, such as real estate of clarifying lending conditions utilizing financial covenants. and securities. To respond proactively and promptly to customers’ funding Specifically, first, the PD by grade, Loss Given Default (LGD), needs—particularly those of SMEs—we employ a standardized credit quality correlation among obligors, and other parameter credit risk assessment process for SMEs that uses a credit-scoring values are estimated using historical data of obligors and facilities model. With this process, we are building a regime for efficiently stored in a database to calculate the credit risk. Then, based on marketing our Business Select Loan and other SME loans. these parameters, we run a simulation of simultaneous default using In the field of housing loans for individuals, we employ a credit the Monte Carlo method to calculate our maximum loss exposure to assessment model based on credit data amassed and analyzed the estimated amount of the maximum losses that may be incurred. by SMBC over many years. This model enables our loan officers Based on these quantitative results, we allocate risk capital. to efficiently make rational decisions on housing loan applications Risk quantification is also executed for purposes such as to and to reply to the customers without delay. It also facilitates the determine the portfolio’s risk concentration, or to simulate economic effective management of credit risk as well as the flexible setting of movements (stress tests), and the results are used for making interest rates. optimal decisions across the whole range of business operations, We also provide loans to individuals who rent out properties including formulating business plans and providing a standard such as apartments. The loan applications are subjected to a against which individual credit applications are assessed. For details precise credit risk assessment process utilizing a risk assessment on internal rating methods, please refer to Appendix II. model that factors in the projected revenue from the rental business. We also provide advice to such customers on how to revise their business plans. 117 SMBC GROUP ANNUAL REPORT 2020 (b) Credit Monitoring System (c) Researching Borrowers More Rigorously and Balancing Risk At SMBC, in addition to analyzing loans at the application stage, the and Returns Credit Monitoring System is utilized to maintain an understanding Against a backdrop of drastic change in the business environment, of the circumstances surrounding the obligor in order to reassess we rigorously research borrower companies’ actual conditions. obligor grades and review self-assessment and credit policies so It runs credit operations on the basic principle of earning returns that problems can be detected at an early stage and quick and that are commensurate with the credit risk involved, and makes effective action can be taken. The system includes periodic moni- every effort to reduce credit and capital costs as well as general and toring carried out each time an obligor enterprise discloses financial administrative expenses. results as well as continuous monitoring performed each time credit (d) Preventing and Reducing Non-Performing Loans conditions change, as indicated in the diagram below. On NPLs and potential NPLs, we carry out regular loan reviews (3) Framework for Credit Portfolio Management In addition to managing individual loans, SMBC Group applies the following 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. Information on the status of credit portfolio management is reported to the Management Committee and the Board of Directors and regular monitoring is performed through the Risk Appetite Framework (RAF). (a) Appropriate Risk Control within Capital to clarify handling policies and action plans, enabling it to swiftly implement measures to prevent deterioration of borrowers’ busi- ness situations, support business recoveries, collect on loans, and enhance loan security. (e) Actively Managing Portfolios We make active use of credit derivatives, loan asset sales, and other instruments to proactively and flexibly manage its portfolios to stabilize credit risk. (4) Self-Assessment, Write-Offs and Provisions, To take risks within the acceptable level of capital, we set upper Non-Performing Loans Disclosure limits for overall risk capital based on the risk appetite and portfolio (a) Self-Assessment plan of each business unit and monitor credit risk capital as a break- Self-assessment is a preparatory task for ensuring SMBC Group’s down of overall risk capital. (b) Controlling Concentration Risk asset quality and calculating the appropriate level of write-offs and provisions. Each asset is assessed individually for its security and As the equity capital of SMBC Group may be materially impaired in collectibility. Depending on the borrower’s current situation, the the event that the credit concentration risk becomes apparent, we borrower is assigned to one of five categories: Normal Borrowers, implement measures to manage credit toward industrial sectors with Borrowers Requiring Caution, Potentially Bankrupt Borrowers, excessive risk concentration and introduce large exposure limit lines Virtually Bankrupt Borrowers, and Bankrupt Borrowers. Based on and conduct intensive loan review for obligors with large exposure. the borrower’s category, claims on the borrower are classified into To manage country risk, we also have credit limit guidelines Classification I, II, III, and IV assets according to their default and based on each country’s creditworthiness. impairment risk levels, taking into account such factors as collateral and guarantees. ■SMBC’s Credit Monitoring System 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 Non- Consolidated 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 Virtually Bankrupt Borrowers Bankrupt Borrowers Grading Outlook Assessment Performance Trends + Qualitative Risk Factors Final Obligor Grade •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 118 SMBC GROUP ANNUAL REPORT 2020  Self-assessment is the latter stage of the obligor grading pro- cess for determining the borrower’s ability to fulfill debt obligations, and the obligor grade criteria are consistent with the categories used in self-assessment. As part of our efforts to bolster risk man- SMBC’s Standards for Write-Offs and Provisions Self-Assessment Borrower Categories Standards for Write-Offs and Provisions agement throughout SMBC Group, consolidated subsidiaries carry Normal Borrowers out self-assessment in substantially the same manner. Borrower Categories, Defined Borrowers Requiring Caution Normal Borrowers Borrowers with good earnings performances and no significant financial problems Borrowers Requiring Caution Borrowers identified for close monitoring Potentially Bankrupt Borrowers Virtually Bankrupt Borrowers Borrowers perceived to have a high risk of falling into bankruptcy Borrowers that may not have legally or formally declared bankruptcy but are essentially bankrupt Bankrupt Borrowers Borrowers that have been legally or formally declared bankrupt Potentially Bankrupt Borrowers Asset Classifications, Defined Classification I Classification II Classification III 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 Classification IV Assets assessed as uncollectible or worthless (b) Write-Offs and Provisions In cases in which 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- The 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 financial position, credit situation, and other factors� Further, when cash flows can be estimated reasonably accurately, the discounted 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 borrower) 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� Virtually Bankrupt / Bankrupt Borrowers General Reserve Notes 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 uncollectible in part or in total (individually evaluated claims) offs can be made either in the form of loss recognition by offsetting Discounted Cash Flow Method 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. The write-off and provision standards and procedures for each self-assessment borrower category at SMBC, the core bank of SMBC Group, are shown below. As part of our overall measures to strengthen credit risk management throughout SMBC Group, all consolidated subsidiaries use substantially the same standards as SMBC for write-offs and provisions. SMBC uses the discounted cash flow (DCF) method to calculate the provision amounts for large claims on Substandard Borrowers and Potentially Bankrupt Borrowers when the cash flow from repayment of principal and interest received can be estimated rea- sonably accurately. SMBC then makes provisions equivalent to the excess of the book value of the claims over the said cash inflow discounted by the initial contractual interest rate or the effective interest rate at the time of origination. One of the major advantages of the DCF method over conventional methods of calculating the provision amount is that it enables effective evaluation of each indi- vidual borrower. However, as the provision amount depends on the future cash flow estimated on the basis of the borrower’s business reconstruction plan and the DCF formula input values, such as the discount rate and the probability of the borrower going into bank- ruptcy, SMBC makes every effort to utilize up-to-date and correct data to realize the most accurate estimates possible. Forward-Looking Provisions SMBC records general reserves in amounts deemed necessary through comprehensive judgments to prepare for future losses in accordance with forecasts for specific portfolios with a high likelihood of occurrence and that cannot be reflected in past performance or in the borrower categories of specific companies based on recent operating environment and risk trends. 119 SMBC GROUP ANNUAL REPORT 2020 (c) Non-Performing Loans Disclosure transparency of the risk management process; and clearly sep- Non-Performing Loans are loans and other claims of which recovery arating front-office, middle-office, and back-office operations to of either principal or interest appears doubtful and are disclosed in establish a highly efficient system of mutual checks and balances. accordance with the Banking Act (in which they are referred to as “risk-monitored loans”) and the Financial Reconstruction Act (in which they are referred to as “Non-Performing Loans”). Non-Performing Loans are classified based on the borrower categories assigned during self-assessment. For detailed information on results of self- assessments, asset write-offs and provisions, and disclosure of Non- Performing Loans at March 31, 2020, please refer to page 344. 4. Risk Management of Marketable Credit Transactions 2. Market and Liquidity Risk Management System In accordance with the group-wide basic policies for risk man- agement decided upon by the Management Committee, SMBC Group determines important matters relating to the management of market and liquidity risks, such as basic policies and risk lim- its, in order to manage these risks. The ALM Committee meets four times a year, in principle, to report on the state of market and liquidity risk management and to discuss ALM operation policies. The Corporate Risk Management Department, which is indepen- Financial products, such as investments in funds, securitized dent of the business units that directly handle market transactions, products, and credit derivatives, that bear indirect risk arising from manages market and liquidity risks in an integrated manner. This underlying assets such as bonds and loan obligations are considered department not only monitors the current risk situations but also to be exposed to both credit risk from the underlying assets as well reports regularly to the Management Committee and the Board of as “market risk” and “liquidity risk” that arise from their trading as Directors. Furthermore, the ALM Committee at SMBC, the core financial products. This is referred to as marketable credit risk. bank of SMBC Group, meets on a monthly basis to examine reports For these types of products, we manage credit risk by analyzing on the state of observance of limits on market and liquidity risks and and assessing the characteristics of the underlying assets, but, for the to discuss ALM operation policies. sake of complete risk management, we also apply the methods for Verification of the effectiveness of this risk management system management of market and liquidity risks. is conducted through regular internal audits implemented by the In addition, we have established guidelines based on the charac- independent Audit Department. teristics of these types of risks and appropriately manage the risk of losses. Market and Liquidity Risks 3. Market and Liquidity Risk Management Methods (1) Market Risk Management SMBC Group manages market risk by controlling amounts of value 1. Basic Approach to Market and Liquidity Risk at risk (VaR), losses, and risk capital based on consideration for Management (1) Definitions of Market and Liquidity Risks Market risk is the possibility that fluctuations in interest rates, foreign exchange rates, stock prices, or other market prices will change the market value of financial products, leading to a loss. Liquidity risk is defined as the uncertainty around the ability of the firm to meet debt obligations without incurring unacceptably large losses. Examples of such risk include the possible inability to meet current and future cash flow/collateral needs, both expected and unexpected. In such cases, the firm may be required to raise funds at less than favorable rates or be unable to raise sufficient funds for settlement. (2) Fundamental Principles for Market and Liquidity Risk Management SMBC Group is working to further enhance the effectiveness of its quantitative management of market and liquidity risks across the entire Group by setting allowable risk limits; ensuring the the Group’s shareholders’ equity and other principal indicators of the Group’s financial position and management resources and for business policies pertaining to market transactions. Market risk can be divided into various factors: foreign exchange rates, interest rates, equity prices, and option risks. SMBC Group manages each of these risk categories by employing the VaR method as well as supplemental indicators suitable for managing the risk of each risk factor, such as the BPV. Trading activities are market operations that gain profits by taking advantage of fluctuations of market prices in the short term or price differences among markets. We assess and manage the market risk of trading activities on a daily basis by utilizing VaR and other tools. Banking activities are market operations which gain profits by controlling interest rates and term period for assets (loans, bonds, etc.) and liabilities (deposits, etc.). In the same way as in the case of trading activities, we assess and manage the market risk of banking activities on a daily basis, utilizing VaR and other tools. 120 SMBC GROUP ANNUAL REPORT 2020 Please note that, the risk of interest rate fluctuation differs The following table shows the VaR results of the Group’s trading substantially by how to recognize the dates for the maturity of activities during fiscal 2019. VaR fluctuated greatly during this fiscal demand deposits (current accounts and ordinary deposit accounts year due to changes in the nature and investment positions of our that can be withdrawn at any time) and how to estimate the time of trading operations. cancellation prior to maturity of time deposits and consumer loans. b. Banking activities At SMBC, the maturity of demand deposits that are expected to Banking activities are market operations which gain profits by con- be left with the bank for a prolonged period is regarded to be up trolling interest rates and term period for assets (loans, bonds, etc.) to five years (2.5 years on average). The cancellation prior to the and liabilities (deposits, etc.). At SMBC Group, in the same way as in maturity of time deposits and consumer loans is estimated based the case of trading activities, we assess and manage the market risk on historical data. (a) Market Risks a. Trading activities of banking activities on a daily basis, utilizing VaR and other tools. The following table shows the VaR results of the Group’s bank- ing activities during fiscal 2019. Trading activities are market operations that gain profits by taking advantage of fluctuations of market prices in the short term or price differences among markets. At SMBC Group, we assess and man- age the market risk of trading activities on a daily basis by utilizing VaR and other tools. ■ VaR for Trading Activities March 31, 2020 September 30, 2019 Fiscal 2019 Maximum Minimum Average (Billions of yen) March 31, 2019 Sumitomo Mitsui Financial Group (consolidated) Interest rates Foreign exchange Equities, commodities, etc. SMBC (consolidated) SMBC (non-consolidated) 16.2 12.6 9.5 5.0 6.4 3.5 17.7 10.2 6.2 7.8 7.7 2.9 22.4 13.7 10.6 14.1 10.2 5.7 13.8 9.2 4.4 4.2 6.2 2.1 16.7 10.6 6.2 7.7 7.3 3.0 16.4 10.5 5.1 7.7 6.6 2.5 Note: VaR for a one-day holding period with a one-sided confidence interval of 99.0% [computed daily using the historical simulation method (based on four years of historical observations)]. ■ VaR for Banking Activities March 31, 2020 September 30, 2019 Fiscal 2019 Maximum Minimum Average (Billions of yen) March 31, 2019 Sumitomo Mitsui Financial Group (consolidated) Interest rates Equities, etc. SMBC (consolidated) SMBC (non-consolidated) 50.5 46.2 15.4 49.6 41.7 47.1 44.1 18.9 46.4 39.1 52.4 47.6 30.2 51.5 43.7 36.5 33.6 10.8 35.6 29.0 45.1 41.5 20.4 44.3 37.1 44.8 38.2 19.8 43.9 35.8 Notes: 1. VaR for a one-day holding period with a one-sided confidence interval of 99.0% [computed daily using the historical simulation method (based on four years of historical observations)]. 2. The above category of “Equities” does not include stocks held for strategic purposes. 121 SMBC GROUP ANNUAL REPORT 2020 (b) Market Risk Volume Calculation Model (d) Management of Stocks Held for Strategic Purposes SMBC Group uses internal models to measure VaR and stressed SMBC Group establishes risk allowance limits on stocks held for VaR. For information on the consolidated subsidiaries that employ strategic purposes and monitors the observance of these limits these internal models, please refer to the section on market risk. in order to control stock price fluctuation risk appropriately. More a. Presuppositions and limits of model specifically, VaR (1 year holding period) computed from profit-and- In the Group’s internal VaR and stressed VaR models, various loss simulations based on historical market fluctuation data and market fluctuation scenarios are drawn up on the basis of past aggregated fluctuation in market price from the beginning of the data, and the historical simulation method is used to run profit- fiscal year are subject to the risk capital management and moni- and-loss movement simulations that enable us to forecast probable tored on a daily basis. maximum losses. The appropriateness of the internal model is later SMBC Group conducts ongoing measures for mitigating stock verified through back-testing. price fluctuation risks with the aim of securing the financial base However, as back-testing cannot take into account major necessary to sufficiently exercise intermediary functions, even under market fluctuations that have not actually occurred historically, we high-stress environments that create substantial declines in stock supplement this method with the use of stress testing. prices. Specifically, we have been reducing balances of stocks held This internal model employed by SMBC Group undergoes for strategic purposes based on a five-year reduction plan launched regular auditing by an independent auditing firm to ensure that it on September 30, 2015. As this plan is expected to be completed, operates appropriately. b. Validity verification process i Outline of validity verification SMBC Group uses back-testing as a method for verification of the validity of the internal model. VaR figures calculated by the internal model are compared with actual portfolio profit-and-loss figures on a given day to compute an appropriate VaR level and confirm the adequacy of risk capital management. ii Back-testing results Information on back-testing of trading in fiscal 2019 can be found on page 307. c. Indicators substitute for the back-testing method SMBC Group employs, as a method substitute for the back-testing method, the VaR wherein presumptions for the model, such as observation periods, change. d. Changes in model from fiscal 2018 There have been no changes in the model from fiscal 2018. (c) Stress Testing The market occasionally undergoes extreme fluctuations that exceed projections. To manage market risk, therefore, it is important to run simulations of unforeseen situations that may occur in finan- cial markets (stress testing). SMBC Group conducts stress tests regularly, assuming various scenarios, and has measures in place for irregular events. 122 a new five-year reduction plan was launched on March 31, 2020, to promote ongoing reductions. Under this new plan, we will seek to reduce the balance of stocks held for strategic purposes* by ¥300.0 billion. * Refers to book value of Group holdings of stocks listed in Japan ■ Composition, by Industry, of Listed Equity Portfolio (%) 25 20 15 10 5 0 i F s h e r i e s / F a r m n g i / F o r e s t r y i M n n g i C o n s t r u c t i o n F o o d P r o d u c t s T e x t i l e s P u p l / P a p e r C h e m c a s l i P h a r m a c e u t i c a s l P e t r o e u m l / C o a l R u b b e r P r o d u c t s S t e e l l G a s s / i M n e r a s l M a c h n e r y i M e t a l P r o d u c t s N o n f e r r o u s M e t a s l l E e c t r i c M a c h n e r y i T r a n s p o r t M a c h n e r y i i i P r e c s o n M a c h n e r y i (March 31, 2020) SMBC Group’s Portfolio TOPIX Nikkei 225 l W h o e s a e l A i r T r a n s p o r t M a r i n e T r a n s p o r t O v e r l a n d T r a n s p o r t O t h e r P r o d u c t s l E e c t r i c i t y / G a s U t i l i t i e s W a r e h o u s n g i i / D s t r i b u t i o n l T e e c o m m u n c a t i o n s i S e r v c e s i R e a l E s t a t e O t h e r i F n a n c a i l R e t a i l B a n k n g i I n s u r a n c e S e c u r i t i e s / C o m m o d i t y / F u t u r e s T r a d n g i (2) Liquidity Risk Management At SMBC Group, liquidity risk is regarded as one of the major risks. The Group’s liquidity risk management is based on a framework consisting of setting Risk Appetite Measures and establishing con- tingency plans. The Risk Appetite Measures are measures for selecting the types and levels of risk that we are willing to take on or tolerate. As the level of liquidity risk is evaluated based on cash flow and balance sheet conditions, Risk Appetite Measures have been set for both of these areas. These measures include Liquidity Coverage Ratio, a liquid- ity regulation; periods set for which it will be possible to maintain SMBC GROUP ANNUAL REPORT 2020 funding levels even under stress due to deposit outflow or other factors; and the ratio that stable funding covers loans. (2) Fundamental Principles for Operational Risk Management We have set forth the policies on Operational Risk Management to The tolerated levels of risk are set based on account funding define the basic rules to be observed in the conduct of operational status, cash management planning, economic environments, and risk management across the entire Group. Under these policies, we other factors, and measures are monitored on a daily or monthly have been working to enhance the operational risk management basis in order to limit reliance on short-term funding and appropri- framework across the whole Group by establishing an effective sys- ately manage liquidity. tem for identifying, assessing, controlling, and monitoring material As a framework to complement the Risk Appetite Measures, operational risks as well as a system for addressing risks that have upper limits are set in place on both a Group company basis and materialized and implementing emergency response measures. an individual branch basis with regard to funding gaps, which is Based on the framework of the Basel Capital Accord, we have been defined as a maturity mismatch between the source of funds and continuously pursuing sophisticated quantification of operational use of funds. risks and advanced group-wide management. Furthermore, contingency plans are established in preparation for emergency situations. These plans contain information on chains of command and lines of reporting as well as detailed action plans depending on the existing situation (i.e., normal, concerned, or criti- cal). Meanwhile, SMBC carries out quantitative management of alert indications based on early warning indicators established to assist the bank in promptly and systematically detecting liquidity risks. Operational Risk 2. Operational Risk Management System Based on the group-wide basic policies for risk management established by Sumitomo Mitsui Financial Group, Group companies have developed an operational risk management system. At Sumitomo Mitsui Financial Group, the Management Committee makes decisions on basic policies for operational risk management, and these decisions are authorized by the Board of Directors. In addition, the Corporate Risk Management Department 1. Basic Approach to Operational Risk Management oversees the overall management of operational risks and works (1) Definition of Operational Risk Operational risk is the risk of loss arising from inadequate or failed internal processes, people, and systems or from external events. Specifically, the risk—which, in addition to processing risk and system risk, covers legal risk, human resources risk, reputational risk, and tangible asset risk, and third party risk—consists of the following seven event types that may lead to the risk of loss defined in the Basel Capital Accord: (1) internal fraud, (2) external fraud, (3) employment practices and workplace safety, (4) clients, products, and business practices, (5) damage to physical assets, (6) business disruption and system failures, and (7) execution, delivery, and pro- cess management. Risk Category together with departments responsible for the subcategories such as processing risks and system risks to establish a system for comprehensively managing operational risks. As a brief overview, this system operates by collecting and analyzing internal loss data and Key Risk Indicators (KRI) from Group companies. In addition, the system entails comprehen- sively specifying scenarios involving operational risks based on the operational procedures of companies that have adopted the Advanced Measurement Approach (AMA) on a regular basis and estimating the loss amount and frequency of the occurrence of such losses based on each scenario. Risk severities are quantified for each scenario. For those scenarios having high severities, risk Definition Department in charge Operational risk The risk of loss arising from inadequate or failed internal processes, people, and systems or from external events. Corporate Risk Management Department Processing risk The risk of losses arising from negligent processing by directors and employees, and from accidents or misconducts. Operations Planning Department System risk The risk arising from nonconformity to the business strategies, inappropriate technologies applied, changes to the development plan and delay in development when building an information system, and the risk of loss incurred due to the breakdown including those caused by cyber attack, malfunction, deficiency, or unauthorized use (unauthorized alteration, destruction, duplication, and leakage of the information). System Security Planning Department Legal risk The risk of compensation of damages arising from insufficient legal consideration or breach of contract, or a surcharge, a forfeit or an administrative fine for infringing the laws and regulations. Compliance Department Human resources risk The risk of loss arising from inappropriate labor practices, poor working environments, discriminatory conduct, an Human Resources Department outflow or loss of human resources, or deterioration in employee morale. Reputational risk The risk of loss arising from deterioration in reputation as a consequence of the spread of rumors or media reports of the actual risk events. General Affairs Department, Public Relations Department Tangible asset risk The risk of loss arising from damage to tangible assets or deterioration in the operational environment caused by disasters or inadequate asset maintenance. Administrative Services Department Third party risk The risk of loss arising from damage due to negative incidents caused by third parties who have business relationship with SMBC Group. Corporate Risk Management Department 123 SMBC GROUP ANNUAL REPORT 2020 mitigation plans will be developed and the implementation status Specifically, a model to which internal loss data and scenario of such risk mitigation plans will be monitored by the Corporate analysis results are input has been introduced to calculate the oper- Risk Management Department. Furthermore, operational risks are ational risk equivalent amount and risk asset amounts. In addition, quantified and quantitatively managed by utilizing the collected steps are taken to ensure the objectivity, accuracy, and comprehen- internal loss data and scenarios. siveness of scenario evaluations by utilizing external loss data and Regular reports are issued to the Group CRO on internal loss Business Environment and Internal Control Factors in verification data, KRI, scenario risk severity information, and the status of risk processes. mitigation to ensure the effectiveness of risk management mea- The quantification model produces the distribution of loss sures. Moreover, our independent Internal Audit Department con- frequency and loss severity based on the internal loss data and ducts periodic internal audits to verify that the Group’s operational scenario analysis results, and it also produces the loss distribution risk management system is functioning properly. based on the said distribution of loss frequency (distribution of 3. Operational Risk Management Methodology As previously defined, operational risks cover a wide range of cases, including the risks of losses due to errors in operation, system failures, and natural disasters. Also, operational risk events can occur virtually anywhere and everywhere. Thus, it is essential to check whether material operational risks have been overlooked, monitor the overall status of risks, and manage and control them. To this end, it is necessary to be able to quantify risks using a measurement methodology that can be applied to all types of oper- ational risks and to comprehensively and comparatively capture the status of and changes in potential operational risks in business pro- cesses. Also, from the viewpoint of internal control, the measure- ment methodology used to create risk mitigation measures must be such that the implementation of the measures quantitatively reduces operational risks. At the end of March 2008, SMBC Group adopted the AMA set forth by the Basel Capital Accord for calculating the operational risk equivalent amount. The approach has been utilized for the manage- ment of operational risks since then. ■ Basic Framework of Operational Risk Measurement losses in a year) and the distribution of loss severity (distribution of loss amount per case) by making various combinations of frequen- cies and amounts of losses according to the Monte Carlo simulation method. In addition, the model calculates the maximum amount of loss expected, due to operational risks, based on the assumption of one-sided confidence interval of 99.9% and the holding period of one year. Regarding losses on repayment of excess interest of cer- tain subsidiaries engaged in consumer finance operations, expected losses are deducted from the maximum amount of operational risk loss when calculating the operational risk equivalent amount. Operational risk equivalent amount in respect of the tangible asset damages arising from earthquakes is measured using the probability data of earthquake occurrence in each part of Japan and the distribution of loss amount from those earthquake occurrences. The measurement units are Sumitomo Mitsui Financial Group consolidated basis, SMBC consolidated basis, and SMBC non- consolidated basis. The operational risk equivalent amount based on the AMA is calculated as the simple aggregate of the amount of the seven event types set forth by the Basel Capital Accord and of tangible asset damages arising from earthquakes. However, in Internal Loss Data Data input Distribution of Loss Frequency Calculation of Operational Risk Equivalent Amount Using Quantification Model ( f r e q u e n c y ) P r o b a b i l i t y o f o c c u r r e n c e 0.20 0.15 0.10 0.05 0 0 ( f r e q u e n c y ) P r o b a b i l i t y o f o c c u r r e n c e 0.30 0.25 0.20 0.15 0.10 0.05 0 0 5 10 15 20 25 30 Number of incidents / year Distribution of Loss Severity 2 4 6 8 10 Loss per incident Aggregated Loss Distribution Frequency x Severity ( f r e q u e n c y ) P r o b a b i l i t y o f o c c u r r e n c e 0.4 0.3 0.2 0.1 0 99.9% Aggregated annual loss amount External Loss Data Verifi- cation Scenario Analysis Results Business Environment and Internal Control Factors 124 SMBC GROUP ANNUAL REPORT 2020 the case of Sumitomo Mitsui Financial Group consolidated basis, establishing contingency plans to minimize losses if a system risk the risk of losses on repayment of excess interest is added on. The materializes. A risk management system has thus been put in place measurement accuracy is ensured through a framework of regu- to ensure adequate risk management. larly conducted verifications of the quantification models pre- and The methods whereby cyber attacks are carried out are post-measurement. growing more sophisticated and diverse, and the threat of cyber Meanwhile, the operational risk equivalent amounts of other risks to financial institutions is becoming more serious. In response Group companies that do not apply the AMA are calculated to the growing threat of cyber risks, SMBC Group is enhancing according to the Basic Indicator Approach (BIA), and the opera- its response measures while utilizing third-party assessments to tional risk equivalent amounts for Sumitomo Mitsui Financial Group objectively evaluate its response systems and compiling threat- consolidated basis and SMBC consolidated basis are calculated by specific contingency plans based on assessment results. To ensure consolidating such amounts calculated based on the BIA with the preparedness for a wide range of cyber attacks, we are augmenting operational risk equivalent amount calculated based on the AMA. our prior program of cyber attack response drills and training with 4. Processing Risk Management Processing risk is the risk of losses arising from negligent processing by directors and employees, and from accidents or misconducts. SMBC Group has clarified the divisions responsible for the over- sight functions for processing risk management, and we are working to raise the level of sophistication of our management of processing risk across the whole Group on a risk basis by establishing systems for managing the processing risks faced by Group companies, ensuring in-office inspection, minimizing losses in the event of processing risk materialization by drafting exhaustive contingency plans, and carrying out thorough quantification of the risk under management as basic principles. Basic policies for processing risk management are decided by the Management Committee and then approved by the Board of Directors. The status of processing risk management is reported to the Management Committee and the Board of Directors regularly and when necessary. These and other steps are taken to ensure that we can provide customers with high-quality services. Based on the group-wide basic policies for risk management, Group companies promote appropriate operating practices by establishing operating rules and regulations, systematizing trans- action processing, receiving guidance from business divisions, and inspecting conditions related to transaction processing. 5. System Risk Management System risk is the risk arising from nonconformity to the business strategies, inappropriate technologies applied, changes to the development plan and delay in development when building an information system, and the risk of loss incurred due to system breakdown including those caused by cyber attack, malfunction, deficiency or unauthorized use (unauthorized alteration, destruction, duplication and leakage of information). SMBC Group has set the following as basic principles: rec- ognizing information systems as an essential part of management strategy taking into account advances in IT, minimizing system risk by updating policies and procedures, including a security policy and more sophisticated practical-application drills, which incorporate the fundamental elements* for cyber risk management by the financial sector released by the G7 Cyber Expert Group in October 2018. We will continue to reinforce response measures to cyber risks going forward, with specific plans including drills to prepare for instances of multiple simultaneous attacks. In addition, we actively and openly incorporate various tech- nological progress to improve convenience for customers, create new businesses, boost productivity and efficiency, and otherwise promote digitalization in a wide range of fields. The systems for managing the risks projected to arise from such activities are being strengthened on an ongoing basis in response to operating environ- ment changes. As SMBC Group adopts artificial intelligence, cloud, robotic process automation, and application programing interface technologies, shared group-wide manuals have been prepared with regard to items requiring compliance at the time of introduction, technology-specific risks, and items for periodic monitoring. By entrenching an emphasis on security throughout the organization, we are working to reinforce group-wide IT governance. SMBC operates its risk management system by conducting risk assessments based on the Security Guidelines published by the Center for Financial Industry Information Systems (FISC) and by enhancing safety measures based on the results of these assessments. System troubles at banks have the potential to heavily impact society. In addition, system risks are diversifying due to advances in IT and the expansion of business fields. Recognizing these facts, we have numerous measures in place for system trouble prevention, including maintenance to ensure stable and uninterrupted operation, duplication of various systems and infrastructure, and a disaster- prevention system consisting of data centers in eastern and western Japan. In addition, we are preparing for unforeseeable circumstances through the creation of contingency plans and the implementation of system failure drills. To maintain the confidentiality of customer data and prevent leaks of information, sensitive information is encrypted, unauthorized external access is blocked, and all other possible measures are taken to secure data. * As defined in G-7 Fundamental Elements for Threat-led Penetration Testing 125 SMBC GROUP ANNUAL REPORT 2020 Conduct Risk 1. Basic Approach to Conduct Risk Management (1) Definition of Conduct Risk Conduct risk is the risk that our conduct negatively affects custom- Department and the Compliance Department oversee the overall management of conduct risks and promote basic conduct risk management policies, frameworks, and measures. In addition, these bodies report on circumstances pertaining to conduct risk management to the Audit Committee and Risk Committee and ers, market integrity, effective competition, public interests, and the discuss these circumstances to ensure the effectiveness of conduct SMBC Group’s stakeholders, through acts that violate laws and risk management. Furthermore, the Internal Audit Unit verifies and regulations or social norms. evaluates the conduct risk management system. (2) Fundamental Principles of Conduct Risk Management SMBC Group’s fundamental stance is that its business is not to negatively affect customers, market integrity, effective compe- tition, public interests, and stakeholders. Efforts are being made to improve group-wide conduct risk management. Focuses of these efforts include preemptively identifying phenomena with the potential to cause significant deterioration in the trust of the Group and preventing the materialization of serious management risks by being keenly responsive to environmental changes. 3. Conduct Risk Management Methodology SMBC Group mitigates and controls conduct risk by having business units identify and assess the major risks present in their business and establish measures for controlling these risks using the risk register framework. Meanwhile, risk management departments verify the appropriateness of the risks identified and assessed by business units and their control measures based on the KRE and KRI. Through this process of verification, these departments maintain close communication with business units 2. Conduct Risk Management System Based on the group-wide basic policies for risk management, with regard to matters such as the need to add risks or revisit assessments while checking and monitoring activities in order to SMBC Group has developed a conduct risk management system. improve the effectiveness of conduct risk management efforts. The Management Committee makes decisions on basic policies for conduct risk management, and these decisions are authorized by the Board of Directors. In addition, the Corporate Risk Management 126 SMBC GROUP ANNUAL REPORT 2020Glossary ALM Abbreviation for Asset Liability Management Method for comprehensive management of assets and liabilities, with appropriate controls on market risk (interest rates, exchange rates, etc.) and liquidity risk. Advanced Measurement Approach (AMA) Based on the operational risk measurement methods used in the inter- nal management of financial institutions, this is a method for obtaining the operational risk equivalent amount by calculating the maximum amount of operational risk loss expected over a period of one year, with a one-sided confidence interval of 99.9%. Back-testing A formal statistical framework that consists of verifying that actual losses are in line with projected losses. This involves systematically comparing the history of VaR forecasts with their associated portfolio returns. Basic Indicator Approach (BIA) A calculation approach in which an average value for the most recent three years derived by multiplying gross profit for the financial institution as a whole by certain level (15%) is deemed to be the operational risk equivalent amount. BPV Abbreviation for Basis Point Value Potential change in present value of financial product corresponding to 0.01-percentage-point increase in interest rates. Credit cost Average losses expected to occur during the coming year. Historical simulation method Method of simulating future fluctuations without the use of random num- bers, by using historical data for risk factors. LGD Abbreviation for Loss Given Default Percentage of loss assumed in the event of default by obligor; ratio of uncollectible amount of the exposure owned in the event of default. Monte Carlo simulation method General term used for a simulation method which uses random numbers. Operational risk equivalent amount Operational risk capital requirements under the Basel Capital Accord. PD Abbreviation for Probability of Default Probability of becoming default by obligor during one year. Present value A future amount of money that has been discounted to reflect its current value taking into account the interest rate and the extent of credit risk. Risk appetite The types and levels of risk that we are willing to take on or tolerate to drive earnings growth. Risk capital The amount of capital required to cover the theoretical maximum potential loss arising from risks of business operations. It differs from the minimum regulatory capital requirements, and it is being used in the risk management framework voluntarily developed by financial institutions for the purpose of internal management. Risk factor Anything which may become a factor for risk. In the case of market risk, it would be the share price or interest rate; in the case of credit risk, it would be the default rate or economic environment. Risk-weighted assets The denominator used in the calculation of the capital ratio designed to maintain prudential standards for banks. VaR Abbreviation for Value at Risk The maximum loss that can be expected to occur with a certain degree of probability when holding a financial asset portfolio for a given amount of time. 127 SMBC GROUP ANNUAL REPORT 2020Internal Reporting Systems and Hotline for Inappropriate Accounting and Auditing Activities SMBC Group Alarm Line is intended to promote self-correction Sumitomo Mitsui Financial Group Accounting and Auditing through early detection and rectification of actions that may violate Hotline is aimed at strengthening the Group’s self-correction function laws and regulations. All Group employees can use this internal by encouraging early detection and rectification of improper actions means of reporting from inside and outside their company. In addi- relating to accounting, accounting internal controls, and auditing tion, SMBC and other Group companies have established internal at the Company and its consolidated subsidiaries. The hotline can reporting systems for their employees. be used from inside or outside the Group to report accounting and auditing irregularities. SMFG Accounting and Auditing Hotline/Designated Dispute Resolution Agencies SMFG Accounting and Auditing Hotline Designated Dispute Resolution Agencies Reports may be submitted by regular mail or e-mail to the following addresses. Mailing address: SMFG Accounting and Auditing Hotline Iwata Godo Attorneys and Counselors at Law 10th floor, Marunouchi Building 2-4-1, Marunouchi, Chiyoda-ku, Tokyo 100-6310 E-mail address: smfghotline@iwatagodo.com • The hotline accepts any alerts of inappropriate activities concerning accounting and auditing at the Company or its consolidated subsidiaries. • Anonymous reports are also accepted; however, if possible, providing personal information such as your name and contact information would be appreciated and helpful. • Please provide as much detail as possible for such inappropriate activities. An investigation may not be feasible if adequate information is not provided. • Personal information will not be disclosed to any third parties without your consent, unless such disclosure is required by law. For the handling of any complaints received from and conflicts with our clients, SMBC has executed agreements, respectively, with the Japanese Bankers Association, a designated dispute resolution agency under the Banking Act, and the Trust Companies Association of Japan, a Designated Dispute Resolution Organization under the Trust Business Act and Act on Provision, etc. of Trust Business by Financial Institutions and the specified non-profit organization of “Financial Instruments Mediation Assistance Center,” one of the “Designated Dispute Resolution Agencies” under the Financial Instruments and Exchange Act. Japanese Bankers Association: Contact information: Consultation office, Japanese Bankers Association Telephone numbers: (Japan) 0570-017109 or 03-5252-3772 Business hours: Mondays through Fridays (except public and bank holidays) 9:00 am to 5:00 pm Trust Companies Association of Japan: Contact information: Consultation office, Trust Companies Association of Japan Telephone numbers: (Japan) 0120-817335 or 03-6206-3988 Business hours: Mondays through Fridays (except public and bank holidays) 9:00 am to 5:15 pm Financial Instruments Mediation Assistance Center Contact information: Financial Instruments Mediation Telephone number: Fax: Business hours: Assistance Center (Japan) 0120-64-5005 (Japan) 03-3669-9833 Mondays through Fridays (except public and bank holidays) 9:00 am to 5:00 pm 128 SMBC GROUP ANNUAL REPORT 2020Basic Policy for Customer-Oriented Business Conduct SMBC Group*1 has formulated the Basic Policy for Customer- relation to its sales practices for interest rate swaps. We are thus Oriented Business Conduct for its domestic asset management and committed to preventing the recurrence of such malpractice. asset formulation businesses, based on which they are promoting Accordingly, we have adopted a customer- oriented perspective in customer-oriented business conduct. pursuing sustainability throughout our management, internal control, This policy informs our basic stance of emphasizing the dispers- and compliance systems. Through these and other efforts, we have ing of investments over the medium to long term through which endeavored to regain trust from customers and from society as a we seek to support customers in stable asset formulation. Also whole. based on this policy, Sumitomo Mitsui Financial Group and its Group Furthermore, the Customer Experience (CX) Improvement companies aim to contribute to the development of capital markets Subcommittee has been set up to incorporate customer input into that provide companies with the funds they need to grow and to management. The opinions of external experts*2 are utilized in meet- economic growth through their asset management and asset formu- ings of this committee as discussions on and verification of initiatives lation businesses. at Group companies are carried out to promote the exercise of a customer-oriented perspective on a group-wide basis. In addition, 1. SMBC Group’s Customer-Oriented Business the CX Improvement Committee, which comprises officers sitting on Conduct the Group Management Committee, holds regular discussions on As one part of “Our Mission,” it is stated that “We grow and prosper customer-oriented business conduct. together with our customers, by providing services of greater value We are convinced that the ongoing quest to provide quality to them.” Based on the spirit of this mission, we have defined our products and services based on customer needs and desires will Five Values, a list of five key words that includes “Customer First” contribute to economic growth and subsequently growth for SMBC (always think based on a customer-oriented perspective and provide Group. Everyone at SMBC Group will carry out their duties in an value based on the individual needs of customers), shared by all the earnest and just manner while exercising a high degree of special- executives and employees of SMBC Group. SMBC Group continues ized knowledge and good business ethics. SMBC Group will never to push forward with various initiatives to actualize these values. let up in its efforts to ensure that it always thinks and acts based on Sumitomo Mitsui Financial Group is fully aware of the severity a customer-oriented perspective in the truest sense as it strives to of the government penalties imposed on SMBC in April 2006 in generate the greatest profits for its customers. Five Values Customer First Always look at it from the customer’s point of view, and provide value based on their individual needs. Speed & Quality Differentiate ourselves through the speed and quality of our decision- making and service delivery. Integrity As a professional, always act with sincerity and a high ethical standard. Proactive & Innovative Embrace new ideas and perspectives, don’t be deterred by failure. Team “SMBC Group” Respect and leverage the knowledge and diverse talent of our global organization, as a team. 129 SMBC GROUP ANNUAL REPORT 2020 2. Initiatives for Promoting Customer-Oriented Business Conduct Sumitomo Mitsui Financial Group will implement the following ini- (5) Frameworks for Properly Motivating Employees Always thinking and acting based on a customer-oriented perspec- tive in the truest sense requires our employees to be properly moti- tiatives to entrench the principles of customer-oriented business vated so that they can remain dedicated and effective in their work. conduct into its activities. (1) Provision of Products and Services Suited to the Customer When drawing up and underwriting financial products, we will act with an accurate understanding of customer needs, determining the ideal target customer group based on the risks and complexity of the products, in order to properly develop and select products. We will also help customers to find the ideal products and ser- vices. Our first step in this process will be to learn about our custom- ers, inquiring into their needs and goals. We will next look at their level of knowledge, investment experience, and asset portfolios so that we can propose the best possible products and services for them. If we think that a product may not be ideally suited to a custom- er’s needs based on its characteristics or risks, we will discuss this matter with the customer as necessary and refrain from proposing such products when doing so is inappropriate. (2) Easy-to-Understand Explanation of Important Information The amount of information provided to customers on the charac- teristics, risks, and fees of the products we handle as well as on the economic climate and market trends will be enhanced to help customers make informed decisions. Furthermore, we will strive to explain this information in an easy-to-understand manner. (3) Clarification of Fees Sumitomo Mitsui Financial Group receives fees from customers for the products and services it provides out of consideration for the Sumitomo Mitsui Financial Group thus develops its performance evaluation systems from a long-term perspective with the aim of encouraging customer-oriented sales activities. At the same time, we are expanding our range of training programs for promoting earnest and just work practices and higher levels of business ethics. SMBC Group aims to facilitate the shift from savings to asset holding seen in Japan through such initiatives. Furthermore, we will periodically disclose information on initiatives by SMBC Group based on this policy with the aim of facilitating understanding regarding these initiatives among customers. In addi- tion, the status of initiatives and their results will be verified so that initiatives can be revised as necessary to improve upon operating practices. Information regarding these verifications and revisions will be disclosed. *1 Sumitomo Mitsui Financial Group and its subsidiaries and affiliates are referred to collectively as “SMBC Group.” The following SMBC Group companies are subject to this policy: SMBC; SMBC Trust Bank Ltd.; SMBC Nikko Securities Inc.; Sumitomo Mitsui DS Asset Management Company, Limited *2 External experts* are invited to meetings of the CX Improvement Subcommittee to provide advice and suggestions with the aim of incor- porating a wide range of perspectives into management that includes and goes beyond input and requests from customers. * External experts (in alphabetical order) Name Position Professor Hideki Kanda Emeritus Professor, University of Tokyo, and Professor, Gakushuin University Law School need to develop and improve the quality of products and services Kumiko Bando President, Japan Legal Support Center Taku Umezawa Partner, Nagashima Ohno & Tsunematsu and to supply various types of information as well as for process- ing- and infrastructure-related expenses. We will seek to provide thorough explanations of these fees that are as easy to understand as possible. (4) Management of Conflicts of Interest Performing duties in an earnest and just manner based on a cus- tomer-oriented perspective entails managing any potential conflicts of interest to ensure that our operations are truly customer oriented. Based on the Management Policy Concerning Conflicts of Interest in Sumitomo Mitsui Financial Group, we have defined the types of conflicts of interest requiring management as well as the types of transactions that tend to present conflicts of interest and procedures for identifying these transactions, methods and systems for managing conflicts of interest, and the scope of Group compa- nies at which conflicts of interest should be managed. In this manner, we take steps to ensure that conflicts of interest are properly man- aged and therefore do not impede the interests of customers. 130 SMBC GROUP ANNUAL REPORT 2020 Support for Mid-Sized Corporations and SMEs, Vitalization of Local Regions in Japan Services for Corporations Through the Area Corporate Office, SMBC provides services to mid-sized corporations and SME clients. The Area Corporate Office Collaboration with Local Credit Guarantee Corporations SMBC offers Business Select Loans, a loan service that offers has in place a system for providing specialized services utilizing the un secured and unguaranteed financing, and also provides jointly networks of SMBC Group companies to address customers’ funding guaranteed loans and support for using prefectural financing systems needs, wide-ranging financial needs, and management issues. We in Japan through collaboration with local credit guarantee corpora- are also supporting customers’ business continuity through funding tions, enabling it to meet the funding needs of customers impacted assistance via means such as setting up a special fund specifically for by the COVID-19 pandemic. mid-sized corporations and SME clients impacted by the COVID-19 pandemic. Credit Guarantee Corporation Name Going forward, we will continue to fulfill our social responsibility as a financial institution by providing support based on the custom- Credit Guarantee Corporation of Tokyo er’s standpoint. SMBC Strengthen Management Base Guarantee (SDGs, electronic contracts) Credit Guarantee Corporation of Kanagawa Kanagawa Asset 200 Credit Guarantee Corporation of Osaka CS Next Guarantee Credit Guarantee Corporation of Hyogo-Ken HIYAKU Support System for Mid-Sized Corporations and SMEs SMBC Group SMBC Mid-sized corporations, SMEs, and retail customers • Loans • Management consultation • Management support • Corporate Business Offices • Area Corporate Office • Area Main Offices • Branches, etc. Affiliation • Departments of the head office Affiliation • External organizations • External experts / professionals Affiliation SMBC Group Companies 131 SMBC GROUP ANNUAL REPORT 2020Support for Improved Management, Business Turnaround, and Business Transformation Along with its efforts to fulfill its financial intermediary function Involvement in Regional Revitalization Regional revitalization continues to be a key theme for the Japanese government. Related “regional comprehensive strategy” plans drawn smoothly, SMBC seeks to provide solutions to management issues, up by local government entities are in their second phase. putting itself in the position of the client to devise optimum propos- It is becoming more important for regions to exercise their overall als based on the nature of the issues and the client’s stage in life. capabilities. There are thus high expectations for contributions that Examples include offering a full range of loan products designed financial institutions can make by leveraging their wide-reaching to meet funding needs and address management issues. We also information networks. provide solutions in such areas as business matching, overseas SMBC Group has entered into cooperation agreements with local business development, and business succession. government entities as part of its efforts to assist in local industrial Our assistance in business operating improvements and regen- development. Based on these agreements, we are making contribu- eration involves links with external experts / professionals *1 and tions to regional revitalization from various angles based on specific external organizations*2 to provide support in drawing up plans for issues and needs of individual local government entities and regions improvement and advice in such areas as cost cutting and asset across Japan. By coordinating with local government entities, regional sales. financial institutions, and private-sector companies, we provide a wide For clients that have suffered damage in natural disasters or have variety of support services. For example, we leverage the functions been impacted by the COVID-19 pandemic, we propose optimal of SMBC Group companies to help enhance regional infra structure, solutions and support the implementation of rebuilding lives and attract domestic and overseas tourists, promote tourism by utiliz- business. ing historic cultural heritage sites, accomplish the United Nations *1 SMBC Consulting, certified tax accountants, certified public accountants, Sustainable Development Goals, and increase popularity of regional etc. *2 Council supporting revitalization of SMEs, Regional Economy Vitalization Corporation of Japan, etc. specialties in Tokyo. We will continue to work with local government entities and regional financial institu- tions across Japan, drawing on SMBC Group’s network to contribute to local economies through regional revitalization. Ceremony commemorating the conclusion of a cooperation agreement for transforming Yokohama into a futuristic city compatible with the Sustainable Development Goals Measures for Finance Facilitation SMBC’s “Basic Policy for Finance Facilitation” underlies efforts to be diligent and thorough in the provision of funding and consultation. “Basic Policy for Finance Facilitation” 1. Conduct appropriate review of applications submitted for a new loan or requests to modify loan conditions 2. Provide appropriate management consultation and guidance for clients and appropriate support for management improvements 3. Strive to improve the ability to assess the value of a client’s business appropriately 4. Provide appropriate and thorough explanations to clients in consultations and applications for new loans or modification of loan conditions 5. Respond appropriately and adequately to client inquiries regarding new loan and modification consultations and applications and to consulting requests or complaints 6. Liaise closely with other financial institutions involved in applications for modifying loan conditions, applications for support through public and third-party institutions, or other applications 7. Respond appropriately in respect of personal guarantees in accordance with the “Guidelines for Personal Guarantee Provided by Business Owners” 132 SMBC GROUP ANNUAL REPORT 2020 Employees SMBC March 31 Number of employees*1 Male Percentage of total Female Percentage of total Average age Male Female Average years of service Male Female Number of women in managerial positions*2 Ratio of employees with disabilities (% of total)*3 2018 2019 2020 27,935 12,989 46.50% 14,946 53.50% 37 yrs 1 mos� 40 yrs 5 mos� 34 yrs 2 mos� 13 yrs 1 mos� 15 yrs 10 mos� 10 yrs 9 mos� 27,154 12,471 45.93% 14,683 54.07% 37 yrs 5 mos� 40 yrs 4 mos� 34 yrs 10 mos� 13 yrs 6 mos� 15 yrs 11 mos� 11 yrs 4 mos� 26,457 12,021 45.44% 14,436 54.56% 37 yrs 9 mos� 40 yrs 3 mos� 35 yrs 8 mos� 13 yrs 11 mos� 16 yrs 0 mos� 12 yrs 1 mos� 696 804 824 2.38% 2.47% 2.65% *1 The number of full-time employees, including employees seconded to other companies and organizations� The following list of employees is deducted from the total number of employees: executive officers, employees on short-term contracts, part-time employees, employees of temporary employment agencies, and locally hired employees at overseas branches� *2 Retroactive revisions have been made to previous fiscal years due to change in definition� *3 As of March 1 of respective years April 1 2020 Number of new hires 622 Number of newly employed female graduates 201 Ratio of newly employed females to total new employees 46.3% 40.3% 32.3% 2019 667 269 2018 803 372 Fiscal Number of employees taking parental leave Number of career hires 2019 2018 2017 2,948 2,370 2,217 <223> <316> <838> 25 32 16 SMBC Trust Bank March 31 Number of employees*1 Male Percentage of total Female Percentage of total Average age Male Female Average years of service Male Female Number of women in managerial positions Ratio of employees with disabilities (% of total)*2 2018 2019 2020 1,937 907 46.82% 1,030 53.18% 42 yrs 5 mos� 44 yrs 4 mos� 40 yrs 9 mos� 9 yrs 1 mos� 8 yrs 6 mos� 9 yrs 7 mos� 1,985 948 47.76% 1,037 52.24% 44 yrs 7 mos� 46 yrs 11 mos� 41 yrs 4 mos� 7 yrs 3 mos� 6 yrs 3 mos� 8 yrs 2 mos� 2,084 987 47.36% 1,097 52.64% 44 yrs 3 mos� 46 yrs 3 mos� 42 yrs 5 mos� 9 yrs 0 mos� 7 yrs 9 mos� 10 yrs 1 mos� 90 95 84 1.96% 2.51% 2.31% *1 The number of full-time employees, including employees seconded to other companies and organizations� The number excludes employees seconded from other companies and organizations, directors, employees on short-term contracts, part-time employees, and employees of temporary employment agencies� *2 The legally mandated number of employees with disabilities had been hired as of March 31, 2020� April 1 2020 Number of new hires 52 Number of newly employed female graduates 16 Ratio of newly employed females to total new employees 51.9% 40.9% 30.8% 2019 44 18 2018 54 28 Sumitomo Mitsui Finance and Leasing March 31 Number of employees*1 2019 2018 Male Percentage of total Female Percentage of total Average age Male Female Average years of service Male Female Number of women in managerial positions*2 Ratio of employees with disabilities (% of total)*3 1,683 1,072 63.70% 611 36.30% 40 yrs 6 mos� 42 yrs 5 mos� 37 yrs 1 mos� 15 yrs 0 mos� 16 yrs 10 mos� 11 yrs 11 mos� 2,434 1,581 64.95% 853 35.05% 40 yrs 7 mos� 42 yrs 8 mos� 37 yrs 2 mos� 15 yrs 0 mos� 16 yrs 11 mos� 11 yrs 10 mos� 2020 2,448 1,590 64.95% 858 35.05% 42 yrs 2 mos� 43 yrs 8 mos� 39 yrs 2 mos� 15 yrs 0 mos� 16 yrs 3 mos� 12 yrs 6 mos� 19 36 38 2.18% 2.05% 1.80% *1 The number of full-time employees, including employees seconded to other companies and organizations� The following list of employees is deducted from the total number of employees: employees seconded from other companies and organizations, executive officers, employees on short-term contracts, part-time employees, employees of temporary employment agencies, and full-time employees of affiliates (including overseas subsidiaries)� *2 Retroactive revisions have been made to previous fiscal years due to change in definition� *3 As of March 1 of respective years April 1 2020 Number of new hires 81 Number of newly employed female graduates 33 Ratio of newly employed females to total new employees*4 50.0% 56.6% 40.7% 2019 76 43 2018 56 28 Fiscal Number of employees taking parental leave Number of career hires 2017 69 <35> 7 2018 44 <17> 16 2019 48 <9> 18 SMBC Nikko Securities March 31 Number of employees*1 2018 Male Percentage of total Female Percentage of total Average age Male Female Average years of service*2 Male Female Number of women in managerial positions Ratio of employees with disabilities (% of total)*3 10,678 6,579 61.61% 4,099 38.39% 40 yrs 0 mos� 41 yrs 4 mos� 37 yrs 11 mos� 11 yrs 10 mos� 12 yrs 1 mos� 11 yrs 5 mos� 2019 2020 10,394 6,411 61.68% 3,983 38.32% 40 yrs 7 mos� 41 yrs 9 mos� 38 yrs 8 mos� 12 yrs 6 mos� 12 yrs 8 mos� 12 yrs 3 mos� 10,187 6,330 62.14% 3,857 37.86% 41 yrs 4 mos� 42 yrs 5 mos� 39 yrs 7 mos� 13 yrs 3 mos� 13 yrs 4 mos� 13 yrs 2 mos� 166 171 178 2.16% 2.38% 2.49% *1 Excluding employees seconded to other companies, executive officers, part-time employees, dispatched employees, locally hired employees (LH) at overseas branches *2 The average years of service of applicable employees� Years of service for employees joined through the merger with SMBC Friend Securities are counted from the date of the merger� *3 As of March 31 of respective years April 1 2020 Number of new hires 341 Number of newly employed female graduates 118 Ratio of newly employed females to total new employees 37.6% 35.1% 34.6% 2019 325 114 2018 354 133 Fiscal Number of employees taking parental leave Number of career hires 2017 94 <1> 35 2018 95 <33> 28 2019 117 <25> 25 Fiscal Number of employees taking parental leave Number of career hires Note: The merger with SMBC Friend Securities was conducted in January 2018� 2017 399 <62> 89 2018 409 2019 446 <64> <101> 56 59 133 SMBC GROUP ANNUAL REPORT 2020 Sumitomo Mitsui Card March 31 Number of employees*1 2018 Male Percentage of total Female Percentage of total Average age Male Female Average years of service Male Female Number of women in managerial positions*2 Ratio of employees with disabilities (% of total)*3 2,482 1,151 46.37% 1,331 53.63% 39 yrs 0 mos� 41 yrs 0 mos� 37 yrs 4 mos� 14 yrs 8 mos� 15 yrs 11 mos� 13 yrs 8 mos� 2019 2020 2,495 1,141 45.73% 1,354 54.27% 39 yrs 6 mos� 41 yrs 5 mos� 37 yrs 10 mos� 15 yrs 0 mos� 16 yrs 2 mos� 14 yrs 0 mos� 2,533 1,159 45.76% 1,374 54.24% 39 yrs 11 mos� 41 yrs 9 mos� 38 yrs 4 mos� 15 yrs 3 mos� 16 yrs 3 mos� 14 yrs 5 mos� 5 17 23 2.32% 2.45% 2.68% SMBC Consumer Finance March 31 2018 Number of employees*1 Male Percentage of total Female Percentage of total Average age Male Female Average years of service Male Female Number of women in managerial positions Ratio of employees with disabilities (% of total)*2 2,134 1,386 64.95% 748 35.05% 41 yrs 0 mos� 42 yrs 7 mos� 38 yrs 1 mos� 16 yrs 8 mos� 18 yrs 7 mos� 13 yrs 3 mos� 2019 2020 2,263 1,425 62.97% 838 37.03% 41 yrs 2 mos� 42 yrs 8 mos� 38 yrs 8 mos� 16 yrs 4 mos� 18 yrs 1 mos� 13 yrs 6 mos� 2,475 1,454 58.75% 1,021 41.25% 41 yrs 8 mos� 43 yrs 1 mos� 39 yrs 7 mos� 16 yrs 1 mos� 18 yrs 1 mos� 13 yrs 2 mos� 112 118 126 2.32% 2.43% 3.00% *1 The number of full-time employees� This excludes directors, consultants, advisors, part-time employees, specialist contract employees, and affiliated company employees (including employees seconded from other companies and organizations)� *2 Retroactive revisions have been made to previous fiscal years due to change in definition� Total of number of managers ranked section manager or above (division managers, group managers, and area work L rank managers) *3 Computed based on single month of March April 1 2020 Number of new hires 78 Number of newly employed female graduates 36 Ratio of newly employed females to total new employees 60.9% 51.9% 46.2% 2019 54 28 2018 69 42 Fiscal Number of employees taking parental leave Number of career hires 2017 187 <29> 22 2018 202 <33> 16 2019 218 <36> 48 Cedyna March 31 Number of employees*1 Male Percentage of total Female Percentage of total Average age Male Female Average years of service Male Female Number of women in managerial positions Ratio of employees with disabilities (% of total)*2 2018 2019 2020 3,425 1,971 57.55% 1,454 42.45% 42 yrs 8 mos� 44 yrs 10 mos� 39 yrs 7 mos� 18 yrs 2 mos� 20 yrs 6 mos� 15 yrs 1 mos� 3,349 1,897 56.64% 1,452 43.36% 43 yrs 0 mos� 45 yrs 2 mos� 40 yrs 2 mos� 18 yrs 6 mos� 20 yrs 9 mos� 15 yrs 7 mos� 3,252 1,820 55.97% 1,432 44.03% 43 yrs 5 mos� 45 yrs 6 mos� 40 yrs 11 mos� 19 yrs 0 mos� 21 yrs 1 mos� 16 yrs 3 mos� 75 88 94 2.39% 2.32% 2.32% *1 Excluding employees seconded from other companies, employees on short-term contracts and part-time employees *2 As of March 1 of respective years April 1 2020 Number of new hires 53 Number of newly employed female graduates 32 Ratio of newly employed females to total new employees 63.3% 49.0% 60.4% 2019 51 25 2018 60 38 Fiscal Number of employees taking parental leave*3 Number of career hires *3 Including employees on short-term childcare leave� Note: Cedyna Financial Corporation and SMBC Finance Service Co�, Ltd�, were merged on July 1, 2020� 2019 135 <35> 0 2018 180 <32> 0 2017 136 <3> 0 *1 The number of full-time employees on a non-consolidated basis, including employees seconded to other companies and organizations� The following list of employees is deducted from the total number of employees: employees seconded from other companies, locally hired employees at overseas branches, executive officers, contract employees, part-time employees, and employees of temporary employment agencies� *2 As of March 31 of respective years April 1 2020 Number of new hires 57 Number of newly employed female graduates 37 Ratio of newly employed females to total new employees 43.6% 50.0% 64.9% 2019 48 24 2018 55 24 Fiscal Number of employees taking parental leave*3 Number of career hires *3 Retroactive revisions have been made to previous fiscal years due to change in definition� 2018 58 <3> 1 2017 59 <3> 1 2019 85 <7> 0 Japan Research Institute March 31 2018 Number of employees*1 Male Percentage of total Female Percentage of total Average age Male Female Average years of service Male Female Ratio of employees with disabilities (% of total)*2 2,357 1,710 72.55% 647 27.45% 40 yrs 6 mos� 41 yrs 4 mos� 38 yrs 6 mos� 12 yrs 6 mos� 12 yrs 10 mos� 11 yrs 7 mos� 2019 2020 2,427 1,773 73.05% 654 26.95% 40 yrs 9 mos� 41 yrs 6 mos� 38 yrs 10 mos� 12 yrs 8 mos� 13 yrs 1 mos� 11 yrs 10 mos� 2,510 1,841 73.35% 669 26.65% 41 yrs 1 mos� 41 yrs 8 mos� 39 yrs 3 mos� 12 yrs 10 mos� 13 yrs 3 mos� 11 yrs 8 mos� 2.40% 2.27% 2.23% *1 The number of full-time employees, including employees seconded to other companies and organizations� The following list of employees is deducted from the total number of employees: executive officers, consultants, advisors, employees on short-term contracts, part-time employees, employees of temporary employment agencies, locally hired employees at overseas branches, and full-time employees of affiliates� *2 As of March 31 of respective years April 1 2020 Number of new hires 119 Number of newly employed female graduates*3 35 Ratio of newly employed females to total new employees 30.5% 27.3% 29.4% *3 Including only Sogoshoku employees� Ippanshoku employees are excluded� 2019 110 30 2018 105 32 Fiscal Number of employees taking parental leave Number of career hires*4 *4 Excluding employees of temporary employment agencies converted to direct employees and former 2019 84 <35> 60 2018 75 <30> 46 2017 64 <21> 33 134 bank employees transferred to the company SMBC GROUP ANNUAL REPORT 2020  Sumitomo Mitsui DS Asset Management March 31 Number of employees*1 2018 2019 Male Percentage of total Female Percentage of total Average age Male Female Average years of service Male Female Number of women in managerial positions 551 388 70.42% 163 29.58% 44 yrs 1 mos� 45 yrs 10 mos� 39 yrs 10 mos� 8 yrs 5 mos� 8 yrs 10 mos� 7 yrs 5 mos� 552 386 69.93% 166 30.07% 44 yrs 7 mos� 46 yrs 3 mos� 40 yrs 6 mos� 9 yrs 3 mos� 9 yrs 9 mos� 8 yrs 2 mos� 2020 845 614 72.66% 231 27.34% 45 yrs 11 mos� 47 yrs 5 mos� 42 yrs 0 mos� 15 yrs 3 mos� 16 yrs 6 mos� 11 yrs 8 mos� 10 9 11 *1 The number of full-time employees� This excludes directors, dispatched employees, and locally hired employees at overseas branches� Note: Figures for March 31, 2018 and 2019, include those for the former Sumitomo Mitsui Asset Management Company, Limited� April 1 2020 Number of new hires 12 Number of newly employed female graduates 6 Ratio of newly employed females to total new employees 45.5% 40.0% 50.0% Note: Figures for April 2018 and April 2019 include those for the former Sumitomo Mitsui Asset 2019 15 6 2018 11 5 Management Company, Limited� Fiscal Number of employees taking parental leave Number of career hires Note: Figures for fiscal 2017 and fiscal 2018 include those for the former Sumitomo Mitsui Asset 2019 19 <8> 2 2018 10 <0> 15 2017 11 <1> 32 Management Company, Limited� Note: In April 2019, Sumitomo Mitsui DS Asset Management Company, Limited, was formed through the merger of Sumitomo Mitsui Asset Management Company, Limited, and Daiwa SB Investments Ltd� 135 SMBC GROUP ANNUAL REPORT 2020Main Work-Life Balance Support System Parental leave 18 months or maximum of 2 years in case of inability to place in daycare center Leave for taking care of sick children Until March 31 of the 6th grade (10 days per annum per child; 20 days for two or more children) Applicable for caring for sick children as well as for school events and other reasons Shorter working hours Employees can choose shorter working hours for each day or fewer days worked per week, both applicable until March 31 of the 6th grade SMBC Restrictions on overtime Until March 31 of the 6th grade Exemption from late-night work Until March 31 of the 6th grade SMBC Trust Bank 1 year or maximum of 18 months in case of inability to place in daycare center Up to 26 months if other conditions are met Until March 31 of the 6th grade (10 days per annum per child; 20 days for two or more children) Employees can work shortened hours equivalent to working a minimum of 6 hours per day until March 31 of the 6th grade Until March 31 of the 6th grade Until March 31 of the 6th grade • Short-term childcare leave • Work relocations • Primary Work Location Registration system • Work Location of Choice system • Childcare subsidies • Leave for nursing care • Shorter working hours allowed for nursing care • Nursing care leave system • Career design leave system • Flextime system • Flexibility in the work place • Paternity leave (3 days) • Leave for nursing care Other principal systems 1 year or maximum of 2 years in case of inability to place in daycare center Until the entry into elementary school (5 days per annum per child; 10 days for two or more children) Employees can reduce daily working hours to a minimum of 5 hours 30 minutes until March 31 of the 6th grade Until the entry into elementary school Until the entry into elementary school • Work relocations • System for rehiring former • System for rehiring former employees • Special leave for childbirth • Carryover leave (infertility treatment) • Half day leave • Flexibility in the work place • Telework • Staggered working hours • Dual-Career Support system for side work • Shorter working hours allowed for nursing care • Family care time off • Family support leave • Short-term childcare leave • Annual leave in hour increments • Staggered working hours • Nursing care leave system • Flextime system • Flexibility in the work place • Life support leave system • Childcare subsidies • Work-from-Home Policy • Half-day paid leave • Hourly paid leave • Amortized Holiday Reserving Policy • Side business • Long-Term Self Development Leave Policy a�k�a� “Challenge Leave” • Three-day and four-day workweeks • Shorter working hours for nursing care • Rehiring former employees • Telework • Flextime system • Health-purpose or anniversary leave • Short-term childcare leave • Leave for nursing care • Shorter working hours allowed for nursing care • Nursing care and sick child care leave system (by the hour) • System for rehiring former employees • Childcare leave (2 days) • School-visiting day (2 days a year) • Rehiring of former employees who quit for childcare or care-giving reasons • Paternity leave (3 days) • Rollover of unused paid vacation • Nursing care leave • Adjustment of work start and end times • Days off for nursing care • Special leave for childbirth • Paid leave for initial 15 days of childcare • Half day leave • Leave system for receiving treatment while working • Career design leave system • Annual leave in hour increments • Flextime system • Daycare subsidies • Celebratory gifts for birth of 3rd child • Leave for accompanying spouse undergoing job relocation employees • Short-term childcare leave • Leave for nursing care • Shorter working hours allowed for nursing care • Half day leave • Short-term childcare leave • Discounted rates for daycare center • Nursing care leave • Special days off for nursing care • Shorter working hours allowed for nursing care • Short-term leave for nursing care • Staggered working hours (working in shifts) • Rehiring former employees • Work relocations • Staggered working hours • Half-day paid leave • Special leave for childbirth • Childcare subsidies • Nursing care leave, days off for nursing care • Work relocations • Staggered working hours • Half-day paid leave • Special leave for childbirth • Maternity leave • Maternity work system • Area-limited employment system • Rehiring retirees • A grace period for job rotation • Leave for nursing care • Shorter working hours allowed for nursing care • Paid leave by the hour • Half-day paid leave • Leave for supporting return-to-work after childcare leave • Childcare subsidies • Telecommuting • Flextime system • Nursing care leave • Shorter working hours (for nursing care, etc�) • Time off and shorter working hours Until 3 years of age Until the entry into junior high school (5 days per annum per child; 10 days for two or more children) Employees may reduce daily working hours in increments of 30 minutes up to 2�5 hours until March 31 of the 6th grade Until March 31 of the 6th grade Until March 31 of the 6th grade 18 months or maximum of 2 years in case of inability to place in daycare center Until March 31 of the 6th grade (5 days per annum per child; 10 days for two or more children) Employees can choose to reduce daily working hours by 30, 60, or 90 minutes or reduce the number of days worked a week until March 31 of child’s 3rd-grade year Until March 31 of the 3rd grade Until March 31 of the 3rd grade Until 3 years of age Until completion of the 6th grade (40 hours per annum per child; 80 hours for two or more children) Until completion of the 3rd grade (Employees can choose to work 5, 6, or 7 hours a day) Until the entry into elementary school Until the entry into elementary school 18 months or maximum of 2 years in case of inability to place in daycare center Until the entry into elementary school (5 days per annum per child; 10 days for two or more children) Employees can choose to work 6, 6�5, 7, or 7�5 hours a day until March 31 of 6th grade Until the entry into junior high school Until the entry into junior high school 18 months or maximum of 2 years in case of inability to place in daycare center Until March 31 of the 6th grade (5 days per annum per child; no upper limit) Employees can choose to work 4, 5, 6 or 7 hours per day until March 31 of the 3rd grade (this system can be combined with flextime) Until the entry into elementary school For employees who are pregnant or have given birth within previous 12 months Sumitomo Mitsui Finance and Leasing SMBC Nikko Securities Sumitomo Mitsui Card Cedyna SMBC Consumer Finance Japan Research Institute Sumitomo Mitsui DS Asset Management 1 year or maximum of 36 months in case of inability to place in daycare center Until the entry of child into elementary school (5 days per annum per child; 10 days for two or more children) Until March 31 of the 6th grade (Employees can choose to work 5, 6, 6�5, or 7 hours a day) Until child completes 6th grade of elementary school Until child completes 3rd grade of elementary school • Leave for childbirth by spouse • Leave for taking care of sick children • Annual leave in half-day increments • Telecommuting • Leave for nursing care • Shorter working hours allowed for nursing care • Job return system • Lifestyle enriching leave • Paid leave for initial 15 days of childcare Note: Cedyna Financial Corporation and SMBC Finance Service Co�, Ltd�, were merged on July 1, 2020� 136 SMBC GROUP ANNUAL REPORT 2020Corporate Data Sumitomo Mitsui Financial Group, Inc. ■ Directors and Executive Officers (as of June 30, 2020) DIRECTORS AND CORPORATE EXECUTIVE OFFICERS EXECUTIVE OFFICERS Senior Managing Executive Officers Executive Officers Chairman of the Board Takeshi Kunibe Director President (Representative Executive Officer) Jun Ohta Group CEO Director Makoto Takashima Director Senior Managing Executive Officers Haruyuki Nagata Group CRO Corporate Risk Management Dept., Risk Management Dept., Americas Division, Credit & Investment Planning Dept. Toru Nakashima Group CFO and Group CSO Public Relations Dept., Corporate Planning Dept., Business Development Dept., Financial Accounting Dept., Digital Strategy Dept. Directors Atsuhiko Inoue Toru Mikami Yoshihiko Shimizu Masayuki Matsumoto (1) Arthur M. Mitchell (1) Shozo Yamazaki (1) Masaharu Kohno (1) Yoshinobu Tsutsui (1) Katsuyoshi Shinbo (1) Eriko Sakurai (1) Deputy President and Executive Officers (Representative Executive Officers) Gotaro Michihiro Co-Head of Wholesale Business Unit Masahiko Oshima Head of Global Business Unit Toshikazu Yaku Group CHRO General Affairs Dept., Human Resources Dept., Quality Management Dept., Administrative Services Dept. Senior Managing Executive Officers Katsunori Tanizaki Group CDIO Digital Solution Division Digital Strategy Dept. Naoki Tamura Head of Retail Business Unit Kimio Matsuura Co-Head of Wholesale Business Unit Tetsuro Imaeda Group CCO Compliance Dept. Fumiharu Kozuka Group CAE Audit Dept. Masamichi Koike Head of Global Markets Business Unit Shoji Masuda Group CIO IT Planning Dept., System Security Planning Dept., Data Management Dept., Operations Planning Dept. (1) Mr. Matsumoto, Mr. Mitchell, Mr. Yamazaki, Mr. Kohno, Mr. Tsutsui, Mr. Shinbo and Ms. Sakurai satisfy the requirements for an “outside director” under the Companies Act. DEPUTY CHAIRMAN Manabu Narita Toshihiro Isshiki Deputy Head of Retail Business Unit (Wealth Management Business Division) Transaction Business Planning Dept. Ryuji Nishisaki Deputy Head of Global Business Unit Iwao Kawaharada Deputy Head of Wholesale Business Unit Toru Sawada Credit & Investment Planning Dept. Teiko Kudo Deputy Head of Wholesale Business Unit (Financial Solutions Dept., Sustainable Business Promotion Dept., Planning Dept., Wholesale Business Unit), Deputy Head of Global Business Unit Managing Executive Officers CHOW Ying Hoong Co-Head of Asia Pacific Division Naoya Ishida Wholesale Business Unit Takashi Aiki Group Deputy CIO and Group Deputy CDIO Nobuyuki Kawabata Global Business Unit Business Development Dept. Hitoshi Ishii Deputy Head of Wholesale Business Unit Kazuhiro Notsu Group Deputy CFO Hitoshi Minami Deputy Head of Global Business Unit Masayoshi Furusho Group Deputy CHRO Takaki Ono Wholesale Business Unit Yoshihiro Hyakutome Head of Americas Division Takashi Yamashita Deputy Head of Retail Business Unit Hideo Goto Retail Business Unit Toshihiro Sato Deputy Head of Global Markets Business Unit Takeshi Omoto Group Deputy CIO Tadaaki Komori Deputy Head of Wholesale Business Unit Hironari Shoji Wholesale Business Unit Eiichi Sekiguchi Wholesale Business Unit Kenichi Hida Deputy Head of Retail Business Unit Yusuke Hirako Wholesale Business Unit, Retail Business Unit Olympic and Paralympic Dept., Corporate Planning Dept. Muneo Kanamaru Wholesale Business Unit Airo Shibuya Head of Digital Solution Division Shinya Inose Group Deputy CCO Hiroshi Irie Head of East Asia Division Yoshiaki Kageyama Co-Head of Asia Pacific Division Nobu Sakamoto Deputy Head of Retail Business Unit Head of Wealth Management Business Division Hideki Sakamoto Deputy Head of Wholesale Business Unit Keiichiro Nakamura Head of Europe, Middle East and Africa Division Yuichi Nishimura Deputy Head of Americas Division Fumihiko Ito General Manager, Corporate Planning Dept. Hirofumi Otsuka General Manager, Planning Dept., Global Business Unit Takashi Kobayashi General Manager, Human Resources Dept. Rie Asayama Retail Business Unit Quality Management Dept. Yukiko Yoritaka Human Resources Dept. Nobuaki Nakamura Global Markets Business Unit Shuji Yabe Deputy Head of Americas Division Jun Uchikawa General Manager, IT Planning Dept. Yoshiyuki Gono General Manager, Corporate Risk Management Dept. Takanori Kato Wholesale Business Unit (Planning Dept., Wholesale Business Unit) Isaac Deutsch Deputy Head of Americas Division Hideyuki Omokawa Business Development Dept. Akio Isowa General Manager, Transaction Business Planning Dept. Tomoaki Nakayama Digital Strategy Dept. Natsuhiro Samejima General Manager, Planning Dept., Americas Division Kazuhiro Fukuda General Manager, Planning Dept., East Asia Division Yukihiro Mabuchi General Manager, Planning Dept., Wholesale Business Unit Shinsuke Ushijima Group Deputy CSO Teruya Sugino Group Deputy CRO Tetsuro Yoshino Group Deputy CAE General Manager, Audit Dept. Terumasa Takahashi General Manager, Planning Dept., Retail Business Unit Tatsuya Okumura General Manager, Quality Management Dept. Hideki Takamatsu General Manager, Operations Planning Dept. Hideki Tahara General Manager, Public Relations Dept. Akio Uemura General Manager, Planning Dept., Retail Business Unit Kenji Kawabata General Manager, Credit & Investment Planning Dept. Hideo Kawafune General Manager, Planning Dept., Europe, Middle East and Africa Division Akihiro Kawara General Manager, Planning Dept., Global Markets Business Unit Carl Adams Deputy Head of Americas Division [REFERENCE] Group CxO/Head of Business Units (as of June 30, 2020) Head of Business Units Head of Retail Business Unit Naoki Tamura Co-Head of Wholesale Business Unit Gotaro Michihiro Co-Head of Wholesale Business Unit Kimio Matsuura Head of Global Business Unit Masahiko Oshima Head of Global Markets Business Unit Masamichi Koike Group CxO Group CEO Jun Ohta Group CFO and Group CSO Toru Nakashima Group CRO Haruyuki Nagata Group CCO Tetsuro Imaeda Group CHRO Toshikazu Yaku Group CIO Shoji Masuda Group CDIO Katsunori Tanizaki Group CAE Fumiharu Kozuka 137 SMBC GROUP ANNUAL REPORT 2020Sumitomo Mitsui Financial Group Organization (as of June 30, 2020) Public Relations Dept. Corporate Planning Dept. Investor Relations Dept. Corporate Sustainability Dept. Olympic and Paralympic Dept. Productivity Management Dept. Retail Business Unit Planning Dept., Retail Business Unit Planning Dept., Wealth Management Business Division Retail Marketing Dept. Business Development Dept. Card Loan Dept. Retail IT Strategy Dept. Financial Accounting Dept. Tax Planning Dept. Equity Portfolio Management Dept. IT Planning Dept. Board of Directors Nomination Committee Shareholders’ Meeting Compensation Committee Audit Committee Risk Committee Group Management Committee Audit Committee Office System Security Planning Dept. Wholesale Business Unit General Affairs Dept. Legal Dept. Human Resources Dept. Planning Dept., Wholesale Business Unit Financial Solutions Dept. Sustainable Business Promotion Dept. Learning and Development Institute Corporate Digital Solution Dept. Diversity and Inclusion Dept. Global Human Resources Dept. *2 *1 Quality Management Dept. Global Business Unit Digital Strategy Dept. *1 Silicon Valley Digital Innovation Lab. Data Management Dept. Planning Dept., Global Business Unit Global Portfolio Strategy Dept., Global Business Unit Asia Growing Markets Dept. Corporate Risk Management Dept. Risk Management Information Dept. Americas Division Planning Dept., Americas Division Europe, Middle East and Africa Division Asia Pacific Division Planning Dept., Europe, Middle East and Africa Division Planning Dept., Asia Pacific Division East Asia Division Planning Dept., East Asia Division Global Markets Business Unit Planning Dept., Global Markets Business Unit Risk Management Dept., Americas Division Credit & Investment Planning Dept. Compliance Dept. Anti Money Laundering & Financial Crime Prevention Dept. Compliance Dept., Americas Division Administrative Services Dept. Secretariat Corporate Real Estate Management Dept. Cost Control Dept. Operations Planning Dept. Audit Dept. T r a n s a c t i o n B u s i n e s s P a n n n g D e p t . i l 138 *1 Belongs to Digital Solution Division. *2 Belongs to Wealth Management Business Division. SMBC GROUP ANNUAL REPORT 2020 Sumitomo Mitsui Banking Corporation ■ Board of Directors, Directors, Members of the Audit and Supervisory Committee and Executive Officers DIRECTORS, MEMBERS OF THE AUDIT AND SUPERVISORY COMMITTEE Yozo Takigawa Toshiaki Nakai Hiroshi Takahashi (2) Sonosuke Kadonaga (2) Masaaki Oka (2) Michiko Kuboyama (2) Atsuhiko Inoue (2) Mr. Takahashi, Mr. Kadonaga, Mr. Oka and Ms. Kuboyama satisfy the requirements for an “outside director” under the Companies Act. (as of June 30, 2020) BOARD OF DIRECTORS Chairman of the Board Koichi Miyata President and Chief Executive Officer (Representative Director) Makoto Takashima* Director and Deputy Presidents (Representative Directors) Gotaro Michihiro* Co-Head of Wholesale Banking Unit Head of Global Corporate Banking Division Masahiko Oshima* Head of Global Banking Unit Toshikazu Yaku* General Affairs Dept., Human Resources Dept., Retail Human Resources Dept., Human Resources Development Dept., Quality Management Dept., Administrative Services Dept. Director and Senior Managing Executive Officers Haruyuki Nagata* Corporate Risk Management Dept., Risk Management Depts., Americas Division, Europe, Middle East and Africa Division and Asia, Credit & Investment Planning Dept., Credit Depts., Americas Division, Europe, Middle East and Africa Division, Asia Pacific Division and East Asia Division, Global Credit Dept. Human Resources Dept., Retail Human Resources Dept., Human Resources Development Dept. Keiji Kakumoto* Deputy Head of Wholesale Banking Unit (in charge of West Japan) Located at Osaka Toru Nakashima* Public Relations Dept., Corporate Planning Dept., Business Development Dept., Financial Accounting Dept., Digital Strategy Dept. Tetsuro Imaeda* Compliance Dept. Shoji Masuda* IT Planning Dept., System Security Planning Dept., Data Management Dept., Operations Planning Dept., Inter-Market Settlement Dept. Director Paul Yonamine (1) * These Directors are appointed as Executive Officers also. (1) Mr. Yonamine satisfies the requirements for an “outside director” under the Companies Act. 139 SMBC GROUP ANNUAL REPORT 2020Yoshihiro Hyakutome Head of The Americas Division and President of SMBC Americas Holdings, Inc. Takashi Yamashita Deputy Head of Retail Banking Unit Tomofumi Saeki Head of Kyoto Hokuriku Middle Market Banking Division Akira Ueda Tokyo Corporate Banking Division (Tokyo Corporate Banking Depts. II, IX, X and XI) Hiroshi Irie Head of East Asia Division and Chairman of Sumitomo Mitsui Banking Corporation (China) Limited Hiroyuki Kamimoto Head of Corporate Advisory Division and Deputy Head of Financial Solutions Division Kenji Hirao Tokyo Corporate Banking Division (Tokyo Corporate Banking Depts. I, IV, VI and VII) Takeshi Mikami Internal Audit Dept., Credit Review Dept. Masatsugu Kojima Deputy Head of Wholesale Banking Unit Airo Shibuya Head of Digital Solution Division Ryoichi Tanaka Deputy Head of Corporate Advisory Division Yoshiaki Kageyama Co-Head of The Asia Pacific Division Keiichiro Nakamura Head of Europe, Middle East and Africa Division and CEO of Sumitomo Mitsui Banking Corporation Europe Limited Yuichi Nishimura Deputy Head of The Americas Division Fumihiko Ito General Manager, Corporate Planning Dept. Katsufumi Uchida Deputy Head of Europe, Middle East and Africa Division Hirofumi Otsuka General Manager, Planning Dept., Global Banking Unit Takashi Kobayashi General Manager, Human Resources Dept. Rajeev Kannan Deputy Head of The Asia Pacific Division and General Manager, Corporate Banking Dept., Asia Pacific Division DEPUTY CHAIRMAN Manabu Narita EXECUTIVE OFFICERS Senior Managing Executive Officers Katsunori Tanizaki Digital Solution Division Digital Strategy Dept. Kimio Matsuura Co-Head of Wholesale Banking Unit Naoki Tamura Head of Retail Banking Unit Ryuji Nishisaki Deputy Head of Global Banking Unit Toshihiro Isshiki Private Advisory Division, Transaction Business Division Iwao Kawaharada Deputy Head of Wholesale Banking Unit Head of Corporate Banking Division Toru Sawada Credit & Investment Planning Dept. Deputy Head of Wholesale Banking Unit (Corporate Credit Dept., Credit Administration Dept., Trust Services Dept.) Corporate Research Dept. Teiko Kudo Deputy Head of Wholesale Banking Unit (Financial Solutions Dept., Sustainable Business Promotion Dept., Planning Dept., Wholesale Banking Unit) Head of Financial Solutions Division Corporate Advisory Division Deputy Head of Global Banking Unit Masamichi Koike Head of Treasury Unit Managing Executive Officers Nobuyuki Kawabata Deputy Head of Global Banking Unit Business Development Dept. CHOW Ying Hoong Co-Head of The Asia Pacific Division Muneo Kanamaru Deputy Head of Wholesale Banking Unit (in charge of East Japan) Tokyo Corporate Banking Division (Tokyo Corporate Banking Dept. XII) Yusuke Hirako Deputy Head of Wholesale Banking Unit, Deputy Head of Retail Banking Unit Olympic and Paralympic Dept., Corporate Planning Dept. Takashi Arima Osaka Corporate Banking Division (Osaka Corporate Banking Depts. I, II and III) Hiroyoshi Korosue Tokyo Corporate Banking Division (Tokyo Corporate Banking Depts. III, V and VIII) Takaki Ono Deputy Head of Wholesale Banking Unit (in charge of West Japan) Kotaro Hagiwara Nagoya Corporate Banking Division (Nagoya Corporate Banking Dept.) Head of Nagoya Middle Market Banking Division 140 SMBC GROUP ANNUAL REPORT 2020Executive Officers Stanislas Roger Deputy Head of Europe, Middle East and Africa Division Rie Asayama Deputy Head of Retail Banking Unit Quality Management Dept. Isaac Deutsch Deputy Head of The Americas Division John Ferreira (Executive Officer without portfolio) Yukiko Yoritaka Human Resources Dept. Antony Yates President of SMBC Nikko Capital Markets Limited Shuji Yabe Deputy Head of The Americas Division and Chairman of SMBC Nikko Securities America, Inc. Nobuaki Nakamura General Manager, Planning Dept., Treasury Unit Fumito Yoshioka Head of Higashinihon Daiyon Middle Market Banking Division Alan Krouk Deputy Head of Global Banking Unit Jun Uchikawa General Manager, IT Planning Dept. Shinji Ono President of Sumitomo Mitsui Banking Corporation (China) Limited Tomohiro Ohisa General Manager, Corporate Credit Dept. Hiroyuki Kaneko Deputy Head of Retail Banking Unit Yoshiyuki Gono General Manager, Corporate Risk Management Dept. Takanori Kato General Manager, Planning Dept., Wholesale Banking Unit Takafumi Tsuji Deputy Head of Financial Solutions Division Akihiro Yasuda Head of Higashinihon Daisan Middle Market Banking Division James Fenner General Manager, Specialised Products Dept., Europe, Middle East and Africa Division Takayuki Inoue Credit Depts., Americas Division, Europe, Middle East and Africa Division, Asia Pacific Division and East Asia Division, Global Credit Dept. Makoto Ueda Head of Nishinihon Daisan Middle Market Banking Division Noriyuki Watanabe Deputy Head of Wholesale Banking Unit (Credit Dept., Wholesale Banking Unit, Area Credit Dept.), Deputy Head of Retail Banking Unit (Area Credit Dept.) Akio Isowa Head of Transaction Business Division and General Manager, Transaction Business Planning Dept. Akihiro Ueda Deputy Head of Retail Banking Unit Yoshiyuki Ogata General Manager, Hong Kong Branch Nobuo Ozawa Deputy Head of Corporate Advisory Division Tomoaki Nakayama Digital Strategy Dept. Hiroyuki Fukuda General Manager, Osaka Corporate Banking Dept. II Katsuya Fujita General Manager, Global Markets Marketing Dept. Hitoshi Miyake General Manager, Sydney Branch Natsuhiro Samejima General Manager, Planning Dept., Americas Division Hideki Niiyama General Manager, Nagoya Corporate Banking Dept. Kazuhiro Fukuda General Manager, Planning Dept., East Asia Division Yukihiro Mabuchi General Manager, Planning Dept., Wholesale Banking Unit and Global Corporate Banking Dept., Planning Dept., Wholesale Banking Unit Richard Miles General Manager, Corporate Banking Dept. -II, Europe, Middle East and Africa Division Hideyuki Omokawa Business Development Dept. Yuichi Hirano Head of Kobe Middle Market Banking Division Takashi Kakiuchi General Manager, Tokyo Corporate Banking Dept. X Hideomi Shigematsu Country Head of Thailand and General Manager, Bangkok Branch Terumasa Takahashi Deputy Head of Retail Banking Unit Tatsuya Okumura General Manager, Quality Management Dept. Yasuhiro Shirai General Manager, Osaka Corporate Banking Dept. I Hideki Takamatsu General Manager, Operations Planning Dept. Hideki Tahara General Manager, Public Relations Dept. Daisuke Nakamura General Manager, Kanda Corporate Business Office -I Akio Uemura General Manager, Planning Dept., Retail Banking Unit Kenji Kawabata General Manager, Credit & Investment Planning Dept. Hideo Kawafune General Manager, Planning Dept., Europe, Middle East and Africa Division Akihiro Kawara General Manager, Planning Dept., Treasury Unit Carl Adams Deputy Head of The Americas Division and General Manager, Specialized Finance Dept., Americas Division, Latin America Marketing Dept., Americas Division, Specialized Finance Dept., Americas Division and Subscription Secured Finance Dept., Americas Division 141 SMBC GROUP ANNUAL REPORT 2020SMBC Organization (as of June 30, 2020) Audit and Supervisory Committee Audit and Supervisory Committee Office Internal Audit Unit Internal Audit Dept. Credit Review Dept. Corporate Staff Unit Public Relations Dept. Corporate Planning Dept. Corporate Sustainability Dept. Olympic and Paralympic Dept. Productivity Management Dept. Business Development Dept. Financial Accounting Dept. Tax Planning Dept. Equity Portfolio Management Dept. IT Planning Dept. System Security Planning Dept. General Affairs Dept. Legal Dept. Human Resources Dept. Learning and Development Institute Counseling Dept. Diversity and Inclusion Dept. Global Human Resources Dept. Retail Human Resources Dept. Human Resources Development Dept. Quality Management Dept. Customer Relations Dept. Digital Solution Division Digital Strategy Dept. Data Management Dept. *4 *4 Retail Banking Unit Wholesale Banking Unit Shareholders’ Meeting Board of Directors Management Committee Global Banking Unit Treasury Unit Compliance Unit Compliance Dept. Anti Money Laundering & Financial Crime Prevention Department Compliance Dept., Americas Division Compliance Dept., Europe, Middle East and Africa Division Legal and Compliance Dept., Asia Pacific Division Risk Management Unit Corporate Risk Management Dept. Risk Management Information Dept. Risk Management Dept., Americas Division Risk Management Dept., Europe, Middle East and Africa Division Risk Management Dept., Asia Credit & Investment Planning Dept. Credit Portfolio Management Dept. Credit Dept., Americas Division Financial Products Credit Dept., Americas Division Credit Dept., Europe, Middle East and Africa Division Asset Finance Credit Dept. LBO Credit Dept., Europe, Middle East and Africa Division Credit Dept., Asia Pacific Division Credit Dept., East Asia Division Global Credit Dept. Environmental and Social Risk Analysis Dept. Corporate Services Unit Administrative Services Dept. Secretariat Corporate Real Estate Management Dept. Operations Planning Dept. Inter-Market Settlement Dept. 142 Area Main Office Branch Private Banking Dept. Area Private Banking Dept. Consumer Loan Promotion Office Remote Marketing Dept. Remote Transaction Marketing Dept. Call Center Consumer Finance Promotion Office Global Transaction Office E-Transaction Business Center Area Credit Business Office Area Corporate Office Strategic Finance Promotion Office Credit Business Office Real Estate Corporate Business Office Public Institutions Business Office Global Transaction Office E-Transaction Business Center Private Banking Dept. Area Private Banking Dept. *7 *7 *6 *6 *6 *6 *7 *7 Global FIG Dept. Global Client Business Dept. Global Trade Finance Dept. Global Supply Chain Finance Dept. Transportation Dept. Departments of Americas Division Departments of Europe, Middle East and Africa Division Branches / Representative Offices in Asia Pacific Division Global Transaction Office E-Transaction Business Center *6 *6 *2 Small and Medium Enterprises Banking Division Corporate Banking Middle Market Banking Corporate Business Office Division Division Global Corporate Banking Division Tokyo Corporate Banking Division Corporate Banking Dept. Osaka Corporate Banking Division Nagoya Corporate Banking Division East Asia Division Branches / Representative Offices in East Asia *4 *3 Americas Division Europe, Middle East and Africa Division Asia Pacific Division Planning Dept., Retail Banking Unit Next W-ing Project Dept. Retail Facilitating Financing Dept. Channel Strategy Dept. Loan Business Dept. Retail Business Control Dept. Retail Financial Products Compliance Dept. Retail Anti Money Laundering Dept. Business Promotion Dept., Retail Banking Unit Financial Consulting Dept., Retail Banking Unit Area Support Dept. Retail Marketing Dept., Retail Banking Unit Area Support Dept. Retail IT Strategy Dept. Card Loan Dept. Area Credit Dept. Planning Dept., Wholesale Banking Unit Middle Market Facilitating Financing Dept. Global Corporate Banking Dept. Wholesale Business Control Dept. Financial Solutions Dept. Sustainable Business Promotion Dept. *1 *5 Strategic Corporate Business Dept. Public & Financial Institutions Banking Dept., Wholesale Banking Unit Corporate Credit Dept. Structured Finance Credit Dept. Credit Dept., Wholesale Banking Unit Credit Administration Dept. Growth Business Development Dept. M&A Advisory Services Dept. Corporate Digital Solution Dept. Small and Medium Enterprises Banking Division Planning Dept., East Asia Division Planning Dept., Global Banking Unit Global IT & Business Administration Planning Dept. Aviation & Maritime Strategy Dept. Global Portfolio Strategy Dept. Global IB Coordination Dept., Global Banking Unit Planning Dept., Americas Division Information Control Dept., Americas Division Planning Dept., Europe, Middle East and Africa Division IT & Security Planning Dept., Europe, Middle East and Africa Division Planning Dept., Asia Pacific Division Learning and Development Dept., Asia Corporate Solutions Dept., Asia Asia Growing Markets Dept. Asia Innovation Centre Planning Dept., Treasury Unit Treasury Dept. Global Investment Dept. Portfolio Investment Dept. Trading Dept. Global Markets Marketing Dept. Global Markets Solution Dept. Treasury Dept., Asia Pacific Division Treasury Dept., East Asia Division *1 *2 Corporate Advisory Division Private Advisory Division Advisory Dept. I Advisory Dept. II Advisory Dept. III Capital Market Dept. Corporate Research Dept. Private Advisory Business Dept. Inheritance Advisory Business Dept. Corporate Employees Solution Dept. Defined Contribution Dept. *3 Transaction Business Division Transaction Business Planning Dept. *5 Financial Solutions Division Structured Finance Dept. Transaction Products Development Dept. Strategic Corporate Banking Dept. Transaction Banking Dept. Global Advisory Dept. Global Business Promotion Dept. *4 Belongs to Digital Solution Division. *6 Belongs to Retail Banking Unit, Wholesale Banking Unit, and Global Banking Unit. *7 Belongs to both Retail Banking Unit and Wholesale Banking Unit. Debt Finance Dept. Investment Banking Services Dept. Real Estate Finance Dept. Merchant Banking Dept. Distribution Dept. Asset Finance Dept. Trust Services Dept. Trust Business Operations Dept. Public Institutions Operations Office Operations Service Branch Zaikei-office Sub-Branch Souzoku-office Sub-Branch Operations Service Office SMBC GROUP ANNUAL REPORT 2020Audit and Supervisory Committee Audit and Supervisory Committee Office Shareholders’ Meeting Board of Directors Management Committee Global Banking Unit Retail Banking Unit Wholesale Banking Unit Treasury Unit Internal Audit Unit Internal Audit Dept. Credit Review Dept. Corporate Staff Unit Public Relations Dept. Corporate Planning Dept. Corporate Sustainability Dept. Olympic and Paralympic Dept. Productivity Management Dept. Equity Portfolio Management Dept. Business Development Dept. Financial Accounting Dept. Tax Planning Dept. IT Planning Dept. System Security Planning Dept. General Affairs Dept. Legal Dept. Human Resources Dept. Learning and Development Institute Counseling Dept. Diversity and Inclusion Dept. Global Human Resources Dept. Retail Human Resources Dept. Human Resources Development Dept. Quality Management Dept. Customer Relations Dept. Digital Solution Division Digital Strategy Dept. Data Management Dept. *4 *4 Compliance Unit Compliance Dept. Anti Money Laundering & Financial Crime Prevention Department Compliance Dept., Americas Division Compliance Dept., Europe, Middle East and Africa Division Legal and Compliance Dept., Asia Pacific Division Risk Management Unit Corporate Risk Management Dept. Risk Management Information Dept. Risk Management Dept., Americas Division Risk Management Dept., Europe, Middle East and Africa Division Risk Management Dept., Asia Credit & Investment Planning Dept. Credit Portfolio Management Dept. Credit Dept., Americas Division Financial Products Credit Dept., Americas Division Credit Dept., Europe, Middle East and Africa Division Asset Finance Credit Dept. LBO Credit Dept., Europe, Middle East and Africa Division Credit Dept., Asia Pacific Division Credit Dept., East Asia Division Global Credit Dept. Environmental and Social Risk Analysis Dept. Corporate Services Unit Administrative Services Dept. Secretariat Operations Planning Dept. Inter-Market Settlement Dept. Corporate Real Estate Management Dept. Area Main Office *2 Small and Medium Enterprises Banking Division Corporate Banking Division Middle Market Banking Division *1 *5 Global Corporate Banking Division Tokyo Corporate Banking Division Osaka Corporate Banking Division Nagoya Corporate Banking Division *4 *3 Branch Private Banking Dept. Area Private Banking Dept. Consumer Loan Promotion Office Remote Marketing Dept. Remote Transaction Marketing Dept. Call Center Consumer Finance Promotion Office Global Transaction Office E-Transaction Business Center *7 *7 *6 *6 Area Credit Business Office Area Corporate Office Corporate Business Office Strategic Finance Promotion Office Credit Business Office Real Estate Corporate Business Office Public Institutions Business Office Global Transaction Office E-Transaction Business Center Private Banking Dept. Area Private Banking Dept. *6 *6 *7 *7 Corporate Banking Dept. East Asia Division Branches / Representative Offices in East Asia Americas Division Europe, Middle East and Africa Division Asia Pacific Division Global FIG Dept. Global Client Business Dept. Global Trade Finance Dept. Global Supply Chain Finance Dept. Transportation Dept. Departments of Americas Division Departments of Europe, Middle East and Africa Division Branches / Representative Offices in Asia Pacific Division Global Transaction Office E-Transaction Business Center *6 *6 Planning Dept., Retail Banking Unit Next W-ing Project Dept. Retail Facilitating Financing Dept. Channel Strategy Dept. Loan Business Dept. Retail Business Control Dept. Retail Financial Products Compliance Dept. Retail Anti Money Laundering Dept. Business Promotion Dept., Retail Banking Unit Financial Consulting Dept., Retail Banking Unit Area Support Dept. Retail Marketing Dept., Retail Banking Unit Area Support Dept. Retail IT Strategy Dept. Card Loan Dept. Area Credit Dept. Planning Dept., Wholesale Banking Unit Middle Market Facilitating Financing Dept. Global Corporate Banking Dept. Wholesale Business Control Dept. Financial Solutions Dept. Sustainable Business Promotion Dept. Strategic Corporate Business Dept. Public & Financial Institutions Banking Dept., Wholesale Banking Unit Corporate Credit Dept. Structured Finance Credit Dept. Credit Dept., Wholesale Banking Unit Credit Administration Dept. Growth Business Development Dept. M&A Advisory Services Dept. Corporate Digital Solution Dept. Small and Medium Enterprises Banking Division Planning Dept., East Asia Division Planning Dept., Global Banking Unit Global IT & Business Administration Planning Dept. Aviation & Maritime Strategy Dept. Global Portfolio Strategy Dept. Global IB Coordination Dept., Global Banking Unit Planning Dept., Americas Division Information Control Dept., Americas Division Planning Dept., Europe, Middle East and Africa Division IT & Security Planning Dept., Europe, Middle East and Africa Division Planning Dept., Asia Pacific Division Learning and Development Dept., Asia Corporate Solutions Dept., Asia Asia Growing Markets Dept. Asia Innovation Centre Planning Dept., Treasury Unit Treasury Dept. Global Investment Dept. Portfolio Investment Dept. Trading Dept. Global Markets Marketing Dept. Global Markets Solution Dept. Treasury Dept., Asia Pacific Division Treasury Dept., East Asia Division *1 *2 *3 Corporate Advisory Division Advisory Dept. I Advisory Dept. II Advisory Dept. III Capital Market Dept. Corporate Research Dept. Private Advisory Division Private Advisory Business Dept. Inheritance Advisory Business Dept. Corporate Employees Solution Dept. Defined Contribution Dept. Transaction Business Division Transaction Business Planning Dept. Transaction Products Development Dept. Transaction Banking Dept. Global Advisory Dept. Global Business Promotion Dept. *4 Belongs to Digital Solution Division. *6 Belongs to Retail Banking Unit, Wholesale Banking Unit, and Global Banking Unit. *7 Belongs to both Retail Banking Unit and Wholesale Banking Unit. *5 Financial Solutions Division Structured Finance Dept. Strategic Corporate Banking Dept. Debt Finance Dept. Investment Banking Services Dept. Real Estate Finance Dept. Merchant Banking Dept. Distribution Dept. Asset Finance Dept. Trust Services Dept. Trust Business Operations Dept. Public Institutions Operations Office Operations Service Branch Zaikei-office Sub-Branch Souzoku-office Sub-Branch Operations Service Office 143 SMBC GROUP ANNUAL REPORT 2020Principal Subsidiaries and Affiliates (as of March 31, 2020) All companies shown hereunder are consolidated subsidiaries or affiliates of Sumitomo Mitsui Financial Group, Inc. Those printed in green ink are consolidated subsidiaries or affiliates of Sumitomo Mitsui Banking Corporation. ■ Principal Domestic Subsidiaries Note: Figures in parentheses ( ) in the voting rights columns indicate voting rights held indirectly via subsidiaries and affiliates. Company Name Issued Capital (Millions of Yen) Percentage of SMFG’s Voting Rights (%) Percentage of SMBC’s Voting Rights (%) Date of Establishment or Investment Main Business Sumitomo Mitsui Banking Corporation 1,770,996 100 SMBC Trust Bank Ltd. SMBC Nikko Securities Inc. Sumitomo Mitsui Card Company, Limited Cedyna Financial Corporation* SMBC Consumer Finance Co., Ltd. The Japan Research Institute, Limited Sumitomo Mitsui DS Asset Management Company, Limited SMBC Guarantee Co., Ltd. SMBC Finance Service Co., Ltd.* SMBC Mobit Co., Ltd. JAIS, Limited NCore Co., Ltd. SMBC VALUE CREATION CO., LTD. SMBC GMO PAYMENT, Inc. SMBC Venture Capital Co., Ltd. SMBC Consulting Co., Ltd. Japan Pension Navigator Co., Ltd. SMBC Loan Business Planning Co., Ltd. SMBC Servicer Co., Ltd. SMBC Electronic Monetary Claims Recording Co., Ltd. SMBC Staff Service Co., Ltd. SMBC Learning Support Co., Ltd. SMBC PERSONNEL SUPPORT CO., LTD. SMBC OPERATION SERVICE CO., LTD. SMBC Green Service Co., Ltd. SMBC Real Estate Appraisal Service Co., Ltd. SMBC REIT Management Co., Ltd. SMBC Capital Partners Co., Ltd. 87,550 0 (100) 10,000 34,000 100 100 82,843 0 (100) 140,737 10,000 100 100 2,000 50.12 — 100 — — — — — — Jun. 6, 1996 Commercial banking Feb. 25, 1986 Trust service and commercial banking Jun. 15, 2009 Securities Dec. 26, 1967 Credit card services Sep. 11, 1950 Credit card services, Installment Mar. 20, 1962 Consumer loans Nov. 1, 2002 System engineering, data processing, management consulting, and economic research Dec. 1, 2002 Investment management 187,720 71,705 20,000 450 10 495 490 500 1,100 1,600 100,010 1,000 500 90 10 10 30 30 30 200 100 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 (100) (100) (100) (100) 0 (99.99) Jul. 14, 1976 Credit guarantee — — — Dec. 5, 1972 Collecting agent and factoring May 17, 2000 Consumer lending Oct. 16, 1990 System engineering and data processing (50.99) 50.99 Apr. 1, 2004 Data processing service and e-trading consulting (100) (51) (40) 100 51 Feb. 20, 2019 Data processing service and e-trading consulting Nov. 2, 2015 Settlement agent 0 (40) Sep. 22, 2005 Venture capital (100) 50 (1.63) May 1, 1981 Management consulting and seminar organizer (69.71) 69.71 Sep. 21, 2000 Defined contribution plan administrator (100) (100) (100) (100) (100) (100) (100) (100) (100) (100) (100) 100 100 100 100 100 100 100 100 100 100 100 — — Apr. 1, 2004 Management support services Mar. 11, 1999 Servicer Apr. 16, 2009 Electronic monetary claims recording Jul. 15, 1982 Fee-based headhunting services and contracting of human resources-related procedures May 27, 1998 Seminar organizer Apr. 15, 2002 Banking clerical work Jan. 31, 1996 Banking clerical work Mar. 15, 1990 Banking clerical work Feb. 1, 1984 Collateral real estate survey and appraisal Mar. 10, 2020 Asset management Feb. 10, 2020 Investments May 1, 2017 Biometric authentication services (Polarify biometric authentication services) and e-KYC service (Polarify e-KYC) Oct. 1, 2019 Cloud-based electronic contract services Polarify, Inc. SMBC CLOUDSIGN, Inc. 100 77.03 50 51 * Cedyna Financial Corporation and SMBC Finance Service Co., Ltd., were merged on July 1, 2020. 144 SMBC GROUP ANNUAL REPORT 2020■ Principal Overseas Subsidiaries Company Name Country Issued Capital Sumitomo Mitsui Banking Corporation Europe Limited Sumitomo Mitsui Banking Corporation (China) Limited U.K. China US$3,200 million CNY10.0 billion PT Bank BTPN Tbk Indonesia Rp163.0 billion SMBC Americas Holdings, Inc. Manufacturers Bank Banco Sumitomo Mitsui Brasileiro S.A. JSC Sumitomo Mitsui Rus Bank SMBC Bank EU AG Sumitomo Mitsui Banking Corporation Malaysia Berhad U.S.A U.S.A. Brazil Russia Germany Malaysia US$2,100 US$80.786 million R$1,559.699 million RUB6.4 billion €450 million MYR2,452 million SMBC Leasing and Finance, Inc. U.S.A. US$4,350 SMBC Rail Services LLC U.S.A. SMBC Nikko Securities America, Inc. U.S.A. 0 US$388 SMBC Nikko Capital Markets Limited U.K. US$1,138 million SMBC Capital Markets, Inc. U.S.A. SMBC Cayman LC Limited* Cayman Islands TT International Asset Management Ltd U.K. SMBC Asset Management Services (UK) Limited U.K. US$100 US$500 £11 million £134 million SMBC MVI SPC Cayman Islands US$195 million SMBC DIP Limited SFVI Limited SMBC, S.A.P.I. DE C.V., SOFOM, E.N.R. Cayman Islands US$8 million British Virgin Islands US$9,600 Mexico MXN1,460 million SMBC International Finance N.V. Curaçao SMFG Preferred Capital JPY 3 Limited Cayman Islands Sumitomo Mitsui Finance Dublin Limited Ireland Sakura Finance Asia Limited SMBC Capital Partners LLC SMBC Derivative Products Limited Hong Kong U.S.A. U.K. SMBC Advisory Services Saudi Arabia LLC Saudi Arabia US$200,000 ¥4,900 million US$18 million US$65.5 million US$10,000 US$200 million SAR18,000,000 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 Percentage of SMFG’s Voting Rights (%) Percentage of SMBC’s Voting Rights (%) Date of Establishment or Investment Main Business (100) (100) 100 100 Mar. 3, 2003 Commercial banking Apr. 27, 2009 Commercial banking (93.52) 93.52 Feb. 5, 1958 Commercial banking 0 0 (100) Aug. 8, 1990 Management of the US BHC and US BHC subsidiaries (100) Jun. 26, 1962 Commercial banking 100 Oct. 6, 1958 Commercial banking 99 (1) May 8, 2009 Commercial banking 100 100 Nov. 23, 2017 Commercial banking Dec. 22, 2010 Commercial banking 0 0 0 (100) Nov. 9, 1990 (100) May 11, 2011 Leasing, investments, Deferred payment services Leasing, money lending, selling used lease property and maintenance, and other related business (80) Aug. 8, 1990 Securities, investments (100) (100) (100) (100) (100) (100) (100) (100) (100) (100) 84.84 Mar. 13, 1990 (100) 0 (100) Dec. 4, 1986 Derivatives and investments, securities services Derivatives and investments, Leasing (100) (100) 100 (100) (100) (100) (100) (100) 100 (100) (100) (100) (100) (100) 100 — — 100 100 100 100 100 — 100 100 Feb. 7, 2003 Credit guarantee, bond investment Feb. 28, 2020 Investment management Oct. 16, 2019 Stock holding Sep. 9, 2004 Mar. 16, 2005 Loans, buying / selling of monetary claims Loans, buying / selling of monetary claims Jul. 30, 1997 Investments Sep. 18, 2014 Money lending business, services related to leasing and used lease properties Jun. 25, 1990 Finance Aug. 12, 2009 Finance Sep. 19, 1989 Finance Oct. 17, 1977 Investments 0 0 (100) (100) Dec. 18, 2003 Holding and trading securities Apr. 18, 1995 Derivatives and investments 100 Dec. 29, 2017 Consulting * SMBC Cayman LC Limited, like other subsidiaries of SMBC, is a separate corporate entity with its own separate creditors and the claims of such creditors are prior to the claims of SMBC, as the direct or indirect holder of the equity in such subsidiary. 145 SMBC GROUP ANNUAL REPORT 2020Issued Capital (Millions of Yen) Percentage of SMFG’s Voting Rights (%) Percentage of SMBC’s Voting Rights (%) Date of Establishment or Investment Main Business (46.57) 46.57 Sep. 19, 2000 Commercial banking (24.08) 21.30 (0.13) Nov. 14, 2017 Business management 0 0 (100) (100) Nov. 24, 1950 Commercial banking Sep. 6, 1949 Commercial banking 37,250 29,589 38,971 39,984 Rp928,707 million Rp2,442,060 million US$428 million HKD41,379 million 0 0 0 0 0 0 0 0 0 15,000 50 (100) (100) (35.10) (35.10) (15.07) (18.25) (19.57) (100) (20) (50) (49) 35.10 35.10 15.07 18.25 19.57 — — 32 20 — 49 Mar. 28, 1994 Automotive financing Sep. 20, 1990 Motorcycle financing May 24, 1989 Commercial banking Dec. 1, 2003 Commercial banking Nov. 14, 1918 Commercial banking Feb. 4, 1963 Leasing Feb. 21, 1981 Leasing Aug. 14, 1997 Leasing May 25, 1982 Credit card services Jul. 3, 2006 Nov. 29, 1972 System engineering and data processing System engineering and data processing System engineering and data processing (49.53) 28.52 (3.33) Mar. 29, 1969 (49) 49 Dec. 5, 2014 Information processing services (23.67) 23.67 Apr. 24, 2012 Investment management (40) 40 Feb. 1, 2010 Investments, fund management (24.50) 24.50 Jul. 31, 2018 Investments 49 — Jun. 1, 2018 Marketing ■ Principal Affiliates Company Name The Japan Net Bank, Limited Kansai Mirai Financial Group, Inc. Kansai Mirai Bank, Limited THE MINATO BANK, LTD. PT Oto Multiartha PT Summit Oto Finance ACLEDA Bank Plc. The Bank of East Asia, Limited Sumitomo Mitsui Finance and Leasing Company, Limited Vietnam Export Import Commercial Joint Stock Bank VND12,526,947 million Sumitomo Mitsui Auto Service Company, Limited 13,636 21.99 (48) SMBC Aviation Capital Limited POCKET CARD CO., LTD. JSOL CORPORATION Sakura Information Systems Co., Ltd. SAKURA KCS Corporation brees corporation US$887 million 14,374 5,000 600 2,054 100 China Post & Capital Fund Management Co., Ltd. CNY304 million Daiwa Securities SMBC Principal Investments Co., Ltd. Spring Infrastructure Capital Co., Ltd. BrainCell, Inc. 100 250 300 0 0 0 0 0 0 0 0 0 146 SMBC GROUP ANNUAL REPORT 2020International Directory (as of June 30, 2020) Asia and Oceania SMBC Branches and Representative Offices Hong Kong Branch 7th, 8th Floor, One International Finance Centre, 1 Harbour View Street, Central, Hong Kong Special Administrative Region, The People’s Republic of China Tel: 852-2206-2000 Hong Kong Branch Kowloon Office 19F, The Metropolis Tower, 10 Metropolis Drive, Hunghom, Kowloon, Hong Kong Tel: 852-(2206) 2000 Taipei Branch 3F, Walsin Lihwa Xinyi Building, No. 1 Songzhi Road, Xinyi District, Taipei 11047, Taiwan Tel: 886 (2) 2720-8100 Seoul Branch 12F, Mirae Asset CENTER1 Bldg. West Tower, 26, Eulji-ro 5-gil, Jung-gu Seoul, 04539, The Republic of Korea Tel: 82 (2) 6364-7000 Singapore Branch 3 Temasek Avenue #06-01, Centennial Tower, Singapore 039190, Republic of Singapore Tel: 65-6882-0001 Sydney Branch Level 35, The Chifley Tower, 2 Chifley Square, Sydney, NSW 2000, Australia Tel: 61 (2) 9376-1800 Perth Branch Level 19, Exchange Tower, 2 The Esplanade, Perth, Western Australia 6000, Australia Tel: 61 (8) 9492-4900 New Delhi Branch 13th Floor, Hindustan Times House, 18-20, Kasturba Gandhi Marg, New Delhi 110001, India Tel: 91 (11) 4768-9111 Mumbai Branch Unit No. 601, 6th Floor, Platina Building, Plot No. C-59, G Block, Bandra Kurla Complex, Bandra (East), Mumbai 400051, Maharashtra, India Tel: 91 (22) 6229-5000 Bangkok Branch 8th-10th Floor, Q.House Lumpini Building, 1 South Sathorn Road, Tungmahamek, Sathorn, Bangkok 10120, Thailand Tel: 66 (2) 353-8000 Chonburi Branch Harbor Office 14th Floor, 4/222 Moo. 10 Sukhumvit Road, Tungsukla, Sriracha, Chonburi 20230, Thailand Tel: 66 (38) 400-700 Ho Chi Minh City Branch 15th Floor, Times Square Building, 22-36 Nguyen Hue Street, District 1, Ho Chi Minh City, Vietnam Tel: 84 (28) 3520-2525 Hanoi Branch Unit 1201, 12th Floor, Lotte Center Hanoi, 54 Lieu Giai Street, Cong Vi Ward, Ba Dinh District, Hanoi, Vietnam Tel: 84 (24) 3946-1100 Manila Branch 21st Floor, Tower One & Exchange Plaza, Ayala Triangle, Ayala Avenue, Makati City, The Philippines 1226 Tel: 63 (2) 8807100 Yangon Branch Level #5 Strand Square, No.53 Strand Road, Pabedan Township, Yangon, Myanmar Tel: 95 (1) 2307380 Yangon Branch Thilawa Front Office Room No. 103, Administration Building, Corner of Thilawa Development Road and Dagon - Thilawa Road, Thilawa SEZ, Thanlyin Township, Yangon, Myanmar Tel: 95 (1) 2309100 Labuan Branch Level 12 (B&C), Main Office Tower, Financial Park Labuan, Jalan Merdeka, 87000 Labuan, Federal Territory, Malaysia Tel: 60 (87) 410955 Labuan Branch Kuala Lumpur Office Suite 22-03, Level 22, Integra Tower, The Intermark, 348, Jalan Tun Razak, 50400 Kuala Lumpur, Malaysia Tel: 60 (3) 2176-1700 Ulaanbaatar Representative Office Unit 1011, 10F, Central Tower, 2 Chinggis Square, 8th Khoroo, Sukhbaatar District, Ulaanbaatar, 14200, Mongolia Tel: 976-7011-8950 Phnom Penh Representative Office Exchange Square (7th Floor) Unit 701, No.19 and 20, Street 106, Sangkat Wat Phnom, Village 2, Khan Daun Penh, Phnom Penh, Kingdom of Cambodia Tel: 855 (23) 964-080 SMBC Principal Subsidiaries/ Affiliates SMFG Network Sumitomo Mitsui Banking Corporation (China) Limited Head Office (Shanghai) 11F, Shanghai World Financial Center, 100 Century Avenue, Pudong New Area, Shanghai 200120, The People’s Republic of China Tel: 86 (21) 3860-9000 Sumitomo Mitsui Banking Corporation (China) Limited Guangzhou Branch 12F, International Finance Place, No.8 Huaxia Road, Tianhe District, Guangzhou 510623, The People’s Republic of China Tel: 86 (20) 3819-1888 Sumitomo Mitsui Banking Corporation (China) Limited Hangzhou Branch 5F, Offices At Kerry Centre, 385 Yan An Road, Xia Cheng District, Hangzhou, Zhejiang Province, The People’s Republic of China Tel: 86 (571) 2889-1111 Sumitomo Mitsui Banking Corporation (China) Limited Chongqing Branch Unit 2, 34F, Tower1, River International, 22 Nanbin Road, Nan’an District, Chongqing 400060, The People’s Republic of China Tel: 86 (23) 8812-5300 Sumitomo Mitsui Banking Corporation (China) Limited Shenzhen Branch 23/F, Tower Two, Kerry Plaza, 1 Zhongxinsi Road, Futian District, Shenzhen 518048, The People’s Republic of China Tel: 86 (755) 2383-0980 Sumitomo Mitsui Banking Corporation (China) Limited Shenyang Branch 1606, 1 Building, Forum 66, No.1 Qingnian Street, Shenhe District, Shenyang, Liaoning Province, The People’s Republic of China Tel: 86 (24) 3128-7000 147 SMBC GROUP ANNUAL REPORT 2020Sumitomo Mitsui Banking Corporation (China) Limited Suzhou Branch 12F, SND International Commerce Tower, No.28 Shishan Road, Suzhou New District, Suzhou, Jiangsu 215011, The People’s Republic of China Tel: 86 (512) 6606-6500 Sumitomo Mitsui Banking Corporation (China) Limited Dalian Branch Senmao Building 4F-A, 147 Zhongshan Road, Xigang District, Dalian, The People’s Republic of China Tel: 86 (411) 3905-8500 Sumitomo Mitsui Banking Corporation (China) Limited Tianjin Branch 12F, The Exchange Tower 2, 189 Nanjing Road, Heping District, Tianjin 300051, The People’s Republic of China Tel: 86 (22) 2330-6677 Sumitomo Mitsui Banking Corporation (China) Limited Beijing Branch Unit1601,16F, North Tower, Beijing Kerry Centre, No.1, Guang Hua Road, Chao Yang District, Beijing 100020, The People’s Republic of China Tel: 86 (10) 5920-4500 Sumitomo Mitsui Banking Corporation (China) Limited Kunshan Sub-Branch Room 2001-2005, Taiwan Business Association International Plaza, No. 399 Qianjin East Road, Kunshan, Jiangsu 215300, The People’s Republic of China Tel: 86 (512) 3687-0588 Sumitomo Mitsui Banking Corporation (China) Limited Shanghai Pilot Free Trade Zone Sub-Branch Room 15T21, 15F, Shanghai World Financial Center, 100 Century Avenue, Pudong New Area, Shanghai 200120, The People’s Republic of China Tel: 86 (21) 2067-0200 Sumitomo Mitsui Banking Corporation (China) Limited Shanghai Puxi Sub-Branch 1, 12, 13, 12F, Maxdo Center, 8 Xingyi Road, Changning District, Shanghai, The People’s Republic of China Tel: 86 (21) 2219-8000 Sumitomo Mitsui Banking Corporation (China) Limited Changshu Sub-Branch 8F, Science Innovation Building (Kechuang Building), No.333 Dongnan Road, Changshu Southeast Economic Development Zone of Jiangsu, Changshu, Jiangsu, The People’s Republic of China Tel: 86 (512) 5235-5553 Sumitomo Mitsui Banking Corporation (China) Limited Suzhou Industrial Park Sub-Branch 16F, International Building, No.2, Suzhou Avenue West, Suzhou Industrial Park, Jiangsu 215021, The People’s Republic of China Tel: 86 (512) 6288-5018 PT Bank BTPN Tbk Menara BTPN, 29th Floor, CBD Mega Kuningan, Jl. Dr. Ide Anak Agung Gde Agung Kav. 5.5-5.6, Jakarta 12950, Indonesia Tel: 62 (21) 300-26200 PT Bank BTPN Syariah Tbk Menara BTPN, 12th Floor, CBD Mega Kuningan Jl. Dr. Ide Anak Agung Gde Agung Kav. 5.5-5.6, Jakarta 12950, Indonesia Tel: 62 (21) 300-26400 Sumitomo Mitsui Banking Corporation Malaysia Berhad Suite 22-03, Level 22, Integra Tower, The Intermark, 348, Jalan Tun Razak, 50400 Kuala Lumpur, Malaysia Tel: 60 (3) 2176-1500 SMBC Capital Markets (Asia) Limited 7th Floor, One International Finance Centre, 1 Harbour View Street, Central, Hong Kong Special Administrative Region, The People’s Republic of China Tel: 852-2532-8500 SMBC Nikko Capital Markets Limited (Sydney Office) Level 35, The Chifley Tower, 2 Chifley Square, Sydney, NSW 2000, Australia Tel: 61 (2) 9376-1895 The Bank of East Asia, Limited 10 Des Voeux Road, Central, Hong Kong Tel: 852-3608-3608 Vietnam Export Import Commercial Joint Stock Bank 8th Floor, Vincom Center Building, 72 Le Thanh Ton Street, Ben Nghe Ward, District 1, Ho Chi Minh City, Vietnam Tel: 84 (28) 3821-0056 PT Oto Multiartha Summitmas II, 18th floor, Jl. Jend. Sudirman Kav. 61-62, Jakarta 12190, Indonesia Tel: 62 (21) 522-6410 PT Summit Oto Finance Summitmas II, 8th floor, Jl. Jend. Sudirman Kav. 61-62, Jakarta 12190, Indonesia Tel: 62 (21) 252-2788 ACLEDA Bank Plc. #61, Preah Monivong Blvd., Sangkat Srah Chork, Khan Daun Penh, Phnom Penh, Kingdom of Cambodia Tel: 855 (23) 998-777 The Japan Research Institute (Shanghai) Solution Co., Ltd. Unit 141, 18F, Hang Seng Bank Tower, 1000 Lujiazui Ring Road, Pudong New Area, Shanghai, 200120, The People’s Republic of China Tel: 86 (21) 6841-2788 Sumitomo Mitsui Finance and Leasing (Singapore) Pte. Ltd. 152 Beach Road, 21-05 Gateway East, Singapore 189721 Tel: 65-6224-2955 Sumitomo Mitsui Finance and Leasing (Hong Kong) Ltd. Unit 4206-8,42/F, Sunlight Tower, 248 Queen’s Road East, Wanchai, Hong Kong Tel: 852-2523-4155 SMFL Leasing (Thailand) Co., Ltd. 30th Floor, Q. House Lumpini Building, 1 South Sathorn Road, Tungmahamek, Sathorn, Bangkok 10120, Thailand Tel: 66-2-677-7400 Sumitomo Mitsui Finance and Leasing (China) Co., Ltd. Unit 2302, TaiKoo Hui Tower 1, 385 Tianhe Road, Tianhe District, Guangzhou, China Tel: 86-20-8755-0021 148 SMBC GROUP ANNUAL REPORT 2020PROMISE (WUHAN) CO., LTD. 14F, Block A, Pingan International Financial Building, 216 Gongzheng Road, Wuchang, Wuhan, Hubei, 430000, The People’s Republic of China Tel: 86 (27) 8711-6300 PROMISE (SHANGHAI) CO., LTD. Room 03-10, Floor 14, China Insurance Building No.166, East Lujiazui Road, Pudong New Area, Shanghai 200120, The People’s Republic of China Tel: 86 (21) 2066-6262 PROMISE ASSET MANAGEMENT (TAIWAN) CO., LTD. 8F No.6, Sec 3, Min Chuan E. Rd., Taipei, Taiwan 10477, R.O.C. Tel: 886 (2) 2515-6369 SMCC Consulting (Shanghai) Co., Ltd. Room 5135, 51F Raffles City Centre, 268 Xi Zang Middle Road, Huang Pu District, Shanghai 200001, The People’s Republic of China Tel: 86 (21) 2312-7632 Sumitomo Mitsui Asset Management Company, Limited Shanghai Representative Office Suite1002, 10F, CITIC Square, 1168 Nanjing Road West, Shanghai 200041, The People’s Republic of China Tel: 86 (21) 5292-5960 Sumitomo Mitsui Asset Management (Hong Kong) Limited 24th Floor, Shanghai Commercial Bank Tower, 12 Queen’s Road Central, Hong Kong Tel: 852-2521-8883 UOB-SM Asset Management Pte. Ltd. 80 Raffles Place #15-22, UOB Plaza2, Singapore 048624 Tel: 65-6589-3850 Shanghai Sumitomo Mitsui General Finance and Leasing Co., Ltd. 10 F, Gopher Center, 757 Mengzi Road, Huangpu District, Shanghai, China Tel: 86-21-5396-5522 Shanghai Sumitomo Mitsui Finance and Leasing Co., Ltd. Room 723, 7/F, No. 6 Ji Long Rd, China (Shanghai) Pilot Free Trade Zone, Shanghai 200131, China Tel: 86-21-5065-6052 Sumitomo Mitsui Finance and Leasing (China) Co., Ltd. Beijing Branch Unit 3001-3007, 30F, North Tower, Beijing Kerry Centre, 1 Guanghua Road, Chaoyang District, Beijing, China Tel: 86-10-8529-7887 Shanghai Sumitomo Mitsui General Finance and Leasing Co., Ltd. Chengdu Branch Room 2002, YanLord Landmark, No.1, Section 2, Renmin South Road, Chengdu, China Tel: 86-28-8691-7181 SMFL Leasing (Malaysia) Sdn. Bhd. Suite 16D, Level 16, Vista Tower, The Intermark No. 348, Jalan Tun Razak, 50400 Kuala Lumpur, Malaysia Tel: 60-3-2710-0170 PT. SMFL Leasing Indonesia Menara BTPN, 31st Floor, Jl. Dr. Ide Anak Agung Gde Agung, Kav. 5.5 - 5.6, Mega Kuningan, Jakarta Selatan 12950, Indonesia Tel: 62-21-8062-8710 Sumitomo Mitsui Auto Leasing & Service (Thailand) Co., Ltd. 161 Nantawan Building, 17th Floor, Rajdamri Road, Lumpinee, Pathumwan, Bangkok 10330, Thailand Tel: 66-2252-9511 Summit Auto Lease Australia Pty Ltd. Unit 7, 38-46 South Street Rydalmere, NSW 2116 Australia Tel: 61 (2) 9638-7833 SMAS Auto Leasing India Private Limited Office No. 406, 4th Floor, Worldmark-2, Asset area No.8, Aerocity Hospitality District, New Delhi-110037, India Tel: 91 (11) 4828-8300 PROMISE (HONG KONG) CO., LTD. 14th Floor, Luk Kwok Centre, 72 Gloucester Road, Wanchai, Hong Kong Special Administrative Region, The People’s Republic of China Tel: 852 (3199) 1000 Liang Jing Co., Ltd. 8FI, No.6, Sec 3, Min Chuan E. Rd., Taipei, Taiwan 10477, R.O.C. Tel: 886 (2) 2515-1598 PROMISE (THAILAND) CO., LTD. 12th, 15th, 22nd Floor, Capital Tower, All Seasons Place, 87/1 Wireless Road, Lumpini, Phatumwan, Bangkok 10330, Thailand Tel: 66 (2) 655-8574 PROMISE (SHENZHEN) CO., LTD. 1001, 10/F, Tower A, Kingkey 100 Building, No. 5016 Shennan East Road, Luohu District, Shenzhen 518000, The People’s Republic of China Tel: 86 (755) 2396-6200 PROMISE (SHENYANG) CO., LTD. 5F, No.1 Yuebin Street, Shenhe District, Shenyang, Liaoning Province 110013, The People’s Republic of China Tel: 86 (24) 2250-6200 Promise Consulting Service (Shenzhen) Co., Ltd. 1003, 10/F, Tower A, Kingkey 100 Building, No. 5016 Shennan East Road, Luohu District, Shenzhen 518000, The People’s Republic of China Tel: 86 (755) 3698-5100 PROMISE (TIANJIN) CO., LTD. Room H-I-K 17th Floor, TEDA Building No. 256, Jie-Fang Nan Road, Hexi District, Tianjin 300042, The People’s Republic of China Tel: 86 (22) 5877-8700 PROMISE (CHONGQING) CO., LTD. 38F, Xinhua International Mansion, No.27, Minquan Road, Yuzhong District, Chongqing, 400010, The People’s Republic of China Tel: 86 (23) 6037-5200 PROMISE (CHENGDU) CO., LTD. Level 18, Minyoun Financial Plaza, No.35 Zidong Section Dongda Street, Jinjiang District, Chengdu, 610061, The People’s Republic of China Tel: 86 (28) 6528-5000 149 SMBC GROUP ANNUAL REPORT 2020The Americas SMBC Branches and Representative Offices New York Branch 277 Park Avenue, New York, NY 10172, U.S.A. Tel: 1 (212) 224-4000 Canada Branch Toronto Dominion Centre, 222 Bay Street, Suite 1400, P.O. Box 172, Toronto, Ontario M5K 1H6, Canada Tel: 1 (416) 368-4766 Cayman Branch 25 Main Street, George Town, P.O. BOX 694, Grand Cayman, Cayman Islands Los Angeles Branch 601 South Figueroa Street, Suite 1800, Los Angeles, CA 90017, U.S.A. Tel: 1 (213) 452-7800 San Francisco Branch 555 California Street, Suite 3350, San Francisco, CA 94104, U.S.A. Tel: 1 (415) 616-3000 Chicago Representative Office 300 S. Riverside Plaza, Suite 1970, Chicago, IL 60606, U.S.A. Tel: 1 (312) 796-3668 Dallas Representative Office 14241 Dallas Parkway, Suite 660, Dallas,TX 75254, U.S.A. Tel: 1 (972) 942-7000 Houston Representative Office Two Allen Center, 1200 Smith Street, Suite 1140, Houston, TX 77002, U.S.A. Tel: 1 (713) 277-3500 Silicon Valley Representative Office 101 Jefferson Drive, Menlo Park, CA 94025, U.S.A. Tel: 1 (650) 460-1669 White Plains Representative Office 1 North Lexington Avenue, 6F, 9F, 10F, White Plains, NY,10601, U.S.A. Tel: 1 (212) 224-7240 Mexico City Representative Office Torre Virreyes-Pedregal 24, Piso 5, Int 502-A, Col. Molino del Rey, Ciudad de Mexico, Mexico, 11040 Tel: 52 (55) 2623-0200 Leon Representative Office Plaza de la Paz #102. int.901 Puerto Interior, Silao, Guanajuato, CP36275, Mexico Tel: 52 (472) 500-0177 Bogota Representative Office Carrera 11 #79-52, Oficina 1002, Bogotá DC, Colombia Tel: 57 (1) 619-7200 Lima Representative Office Avenida Canaval y Moreyra 380, Oficina 702, San Isidro, Lima 27, Peru Tel: 51 (1) 200-3600 Santiago Representative Office Isidora Goyenechea 3000, Suite 2102, Las Condes, Santiago, Chile Tel: 56 (2) 2896-8440 SMBC Principal Subsidiaries/ Affiliates SMFG Network Manufacturers Bank 515 South Figueroa Street, Los Angeles, CA 90071, U.S.A. Tel: 1 (213) 489-6200 Banco Sumitomo Mitsui Brasileiro S.A. Avenida Paulista, 37-11 e 12 andar Sao Paulo-SP-CEP 01311-902, Brazil Tel: 55 (11) 3178-8000 SMBC Capital Markets, Inc. 277 Park Avenue, New York, NY 10172, U.S.A. Tel: 1 (212) 224-5100 SMBC Leasing and Finance, Inc. 277 Park Avenue, New York, NY 10172, U.S.A. Tel: 1 (212) 224-5200 SMBC, S.A.P.I. DE C.V., SOFOM, E.N.R. Torre Virreyes-Pedregal 24, Piso 5, Int 502-A, Col. Molino del Rey, Ciudad de Mexico, Mexico, 11040 Tel: 52 (55) 2623-1373 SMBC Nikko Securities America, Inc. 277 Park Avenue, New York, NY 10172, U.S.A. Tel: 1 (212) 224-5300 JRI America, Inc. 277 Park Avenue, New York, NY 10172, U.S.A. Tel: 1 (212) 224-4200 Sumitomo Mitsui Finance and Leasing Company, Limited New York Branch 666 Third Avenue, New York, NY 10017, U.S.A. Tel: 1 (212) 224-5201 Sumitomo Mitsui Asset Management (New York) Inc. 300 Park Avenue, 16th Floor, New York, NY 10022, U.S.A. Tel: 1 (212) 418-3030 SMBC Americas Holdings, Inc. 251 Little Falls Drive, Wilmington, New Castle, DE 19808, U.S.A. Tel: 1 (212) 224-4000 Europe, Middle East and Africa SMBC Branches and Representative Offices London Branch 99 Queen Victoria Street, London EC4V 4EH, U.K. Tel: 44 (20) 7786-1000 Düsseldorf Branch Prinzenallee 7, 40549 Düsseldorf, Germany Tel: 49 (211) 36190 Brussels Branch Neo Building, Rue Montoyer 51, Box 6, 1000 Brussels, Belgium Tel: 32 (2) 551-5000 DIFC Branch-Dubai Building One, 5th Floor, Gate Precinct, Dubai International Financial Centre, PO Box 506559 Dubai, United Arab Emirates Tel: 971 (4) 428-8000 Abu Dhabi Representative Office Office No.801, Makeen Tower, Al Zahiyah, Abu Dhabi, United Arab Emirates Tel: 971 (2) 495-4000 150 SMBC GROUP ANNUAL REPORT 2020SMBC Aviation Capital Limited IFSC House, IFSC, Dublin 1, Ireland Tel: 353 (1) 859-9000 SMBC Advisory Services Saudi Arabia LLC 7th Floor Al Faisaliah Tower, P.O.Box 3333, Riyadh 12212, Kingdom of Saudi Arabia Tel: 966-11-417-5701 SMBC Nikko Capital Markets Europe GmbH Neue Mainzer Str. 52-58, 60311 Frankfurt am Main, Germany Tel: 49 (69) 2222-9-8500 Istanbul Representative Office Metrocity Is Merkezi, Kirgulu Sokak No:4 Kat:7/A D Blok, Esentepe Mahallesi, Sisli 34394, Istanbul, Republic of Turkey Tel: 90 (212) 371-5900 SMBC Bank EU AG Amsterdam Branch World Trade Center Amsterdam, Tower H, Level 15 Zuidplein 130, 1077XV, Amsterdam, The Netherlands Tel: 31 (20) 718-3888 Doha QFC Office Office 1901, 19th Floor, Qatar Financial Centre Tower, Diplomatic Area-West bay, Doha, Qatar, P.O.Box 23769 Tel: 974-(4036)-6701 Bahrain Representative Office No.406 & 407 (Entrance 3, 4th Floor) Manama Centre, Government Road, Manama, State of Bahrain Tel: 973-17223211 Johannesburg Representative Office Building Four, First Floor, Commerce Square, 39 Rivonia Road, Sandhurst, Sandton 2196, South Africa Tel: 27 (11) 219-5300 Cairo Representative Office 23rd Floor, Nile City Towers, North Tower, 2005C, Cornish El Nile, Ramlet Boulak, Cairo, Egypt Tel: 20 (2) 2461-9566 Tehran Representative Office First Floor, No. 17, Haghani Expressway (north side), Between Modarres & Africa, Tehran 1518858117, Iran Tel: 98 (21) 8888-4301/4302 SMBC Principal Subsidiaries/ Affiliates SMFG Network Sumitomo Mitsui Banking Corporation Europe Limited Head Office 99 Queen Victoria Street, London EC4V 4EH, U.K. Tel: 44 (20) 7786-1000 Sumitomo Mitsui Banking Corporation Europe Limited Paris Branch 1/3/5 rue Paul Cézanne, 75008, Paris, France Tel: 33 (1) 44 (90) 48-00 SMBC Bank EU AG Main Tower, Neue Mainzer Str. 52-58, 60311 Frankfurt am Main, Germany Tel: 49 (69) 222298200 SMBC Bank EU AG Dublin Branch IFSC House, IFSC, Dublin 1, Ireland Tel: 353 (1) 859-9300 SMBC Bank EU AG Düsseldorf Branch Prinzenallee 7, 40549 Düsseldorf, Germany Tel: 49 (211) 36190 SMBC Bank EU AG Prague Branch International Business Centre, Pobrezni 3 186 00 Prague 8, Czech Republic Tel: 420 (295) 565-800 SMBC Bank EU AG Madrid Branch Calle Pedro Teixeira 8, Edificio Iberia Mart I, planta 4a., 28020 Madrid, Spain Tel: 34 (91) 312-7300 SMBC Bank EU AG Milan Branch Via della Spiga 30/ Via Senato 25, 20121 Milan, Italy Tel: 39 (02) 7636-1700 JSC Sumitomo Mitsui Rus Bank Presnenskaya naberezhnaya, house 10, block C, Moscow, 123112 Russian Federation Tel: 7 (495) 287-8200 SMBC Nikko Capital Markets Limited One New Change, London EC4M 9AF, U.K. Tel: 44 (20) 3527-7000 SMBC Derivative Products Limited One New Change, London EC4M 9AF, U.K. Tel: 44 (20) 3527-7000 Sumitomo Mitsui Finance Dublin Limited La Touche House, I.F.S.C., Custom House Docks, Dublin 1, Ireland Tel: 353 (1) 670-0066 JRI Europe, Limited 99 Queen Victoria Street, London EC4V 4EH, U.K. Tel: 44 (20) 7406-2700 Sumitomo Mitsui Asset Management (London) Limited 3rd Floor, 90 Basinghall Street, London EC2V 5AY, U.K. Tel: 44 (20) 7397-3970 151 SMBC GROUP ANNUAL REPORT 2020SMBC Bank EU AG SMBC Nikko Capital Markets Europe GmbH SMBC Bank EU AG Dublin Branch Sumitomo Mitsui Finance Dublin Limited SMBC Aviation Capital Limited Sumitomo Mitsui Banking Corporation Europe Limited SMBC Nikko Capital Markets Limited London Branch SMBC Bank EU AG Amsterdam Branch JSC Sumitomo Mitsui Rus Bank Brussels Branch SMBC Bank EU AG Prague Branch Düsseldorf Branch SMBC Bank EU AG Düsseldorf Branch SMBC Bank EU AG Milan Branch Ulaanbaatar Representative Office SMBC Bank EU AG Madrid Branch Sumitomo Mitsui Banking Corporation Europe Limited Paris Branch Istanbul Representative Office Tehran Representative Office Cairo Representative Office Bahrain Representative Office DIFC Branch-Dubai SMBC Advisory Services Saudi Arabia LLC Doha QFC Office Abu Dhabi Representative Office Mumbai Branch New Delhi Branch Johannesburg Representative Office Perth Branch Sydney Branch SMBC Nikko Capital Markets Limited (Sydney Office) GLOBAL NETWORK Asia and Oceania ■ Sumitomo Mitsui Banking Corporation (China) Limited ■ Sumitomo Mitsui Banking Corporation (China) Limited Head Office (Shanghai) Shanghai Pilot Free Trade Zone Sub-Branch ■ Sumitomo Mitsui Banking Corporation (China) Limited ■ Sumitomo Mitsui Banking Corporation (China) Limited Guangzhou Branch Shanghai Puxi Sub-Branch ■ Sumitomo Mitsui Banking Corporation (China) Limited ■ Sumitomo Mitsui Banking Corporation (China) Limited Hangzhou Branch Changshu Sub-Branch ■ Sumitomo Mitsui Banking Corporation (China) Limited ■ Sumitomo Mitsui Banking Corporation (China) Limited Chongqing Branch ■ Sumitomo Mitsui Banking Corporation (China) Limited Shenzhen Branch ■ Sumitomo Mitsui Banking Corporation (China) Limited Shenyang Branch ■ Sumitomo Mitsui Banking Corporation (China) Limited Suzhou Branch ■ Sumitomo Mitsui Banking Corporation (China) Limited Dalian Branch ■ Sumitomo Mitsui Banking Corporation (China) Limited Tianjin Branch ■ Sumitomo Mitsui Banking Corporation (China) Limited Beijing Branch ■ Sumitomo Mitsui Banking Corporation (China) Limited Kunshan Sub-Branch Suzhou Industrial Park Sub-Branch ■ PT Bank BTPN Tbk ■ Sumitomo Mitsui Banking Corporation Malaysia Berhad ■ Hong Kong Branch ■ Hong Kong Branch Kowloon Office ■ Taipei Branch ■ Seoul Branch ■ Singapore Branch ■ Sydney Branch ■ Perth Branch ■ New Delhi Branch ■ Mumbai Branch ■ Bangkok Branch ■ Chonburi Branch ■ Ho Chi Minh City Branch ■ Hanoi Branch ■ Manila Branch ■ Yangon Branch ■ Yangon Branch Thilawa Front Office ■ Labuan Branch ■ Labuan Branch Kuala Lumpur Office ■ Ulaanbaatar Representative Office ■ Phnom Penh Representative Office ■ SMBC Capital Markets (Asia) Limited ■ SMBC Nikko Capital Markets Limited (Sydney Office) ■ The Bank of East Asia, Limited ■ Vietnam Export Import Commercial Joint Stock Bank ■ PT Oto Multiartha ■ PT Summit Oto Finance ■ ACLEDA Bank Plc. 152 Overseas service network (as of June 30, 2020) Total: 86 (including banking subsidiaries and their branches/ sub-branches/rep. offices) Consolidated subsidiary PT Bank BTPN Tbk has 507 offices. (as of June 30, 2020) Also showing principal overseas subsidiaries Los Angeles Branch San Francisco Branch Silicon Valley Representative Office Shenyang Branch Beijing Branch Tianjin Branch Dalian Branch Seoul Branch Chicago Representative Office Canada Branch Manufacturers Bank Dallas Representative Office Houston Representative Office New York Branch SMBC Capital Markets, Inc. SMBC Leasing and Finance, Inc. SMBC Nikko Securities America, Inc. SMBC Americas Holdings, Inc. White Plains Representative Office Suzhou Branch Suzhou Industrial Park Sub-Branch Changshu Sub-Branch Chongqing Branch Kunshan Sub-Branch Head Office (Shanghai) Shanghai Puxi Sub-Branch Shanghai Pilot Free Trade Zone Sub-Branch Hangzhou Branch Hanoi Branch Guangzhou Branch Taipei Branch Shenzhen Branch The Bank of East Asia, Limited Hong Kong Branch Kowloon Office SMBC Capital Markets (Asia) Limited Yangon Branch Thilawa Front Office Bangkok Branch Sumitomo Mitsui Banking Corporation Malaysia Berhad Kuala Lumpur Office Manila Branch Phnom Penh Representative Office Ho Chi Minh City Branch Vietnam Export Import Commercial Joint Stock Bank Labuan Branch Singapore Branch PT Bank BTPN Tbk PT Oto Multiartha PT Summit Oto Finance Indicates branch or sub-branch of Sumitomo Mitsui Banking Corporation (China) Limited Cayman Branch Mexico City Representative Office SMBC, S.A.P.I. DE C.V., SOFOM, E.N.R. Leon Representative Office Bogota Representative Office Banco Sumitomo Mitsui Brasileiro S.A. Santiago Representative Office Chonburi Branch ACLEDA Bank Plc. Lima Representative Office Europe, Middle East and Africa ■ Sumitomo Mitsui Banking Corporation Europe Limited Head Office ■ Sumitomo Mitsui Banking Corporation Europe Limited Paris Branch ■ SMBC Bank EU AG ■ SMBC Bank EU AG Amsterdam Branch ■ SMBC Bank EU AG Dublin Branch ■ SMBC Bank EU AG Düsseldorf Branch ■ SMBC Bank EU AG Prague Branch ■ SMBC Bank EU AG Madrid Branch ■ SMBC Bank EU AG Milan Branch ■ London Branch ■ Düsseldorf Branch ■ Brussels Branch ■ DIFC Branch-Dubai ■ Abu Dhabi Representative Office ■ Istanbul Representative Office ■ Doha QFC Office ■ Bahrain Representative Office ■ Johannesburg Representative Office ■ Cairo Representative Office ■ Tehran Representative Office ■ JSC Sumitomo Mitsui Rus Bank ■ SMBC Nikko Capital Markets Limited ■ SMBC Nikko Capital Markets Europe GmbH ■ Sumitomo Mitsui Finance Dublin Limited ■ SMBC Aviation Capital Limited ■ SMBC Advisory Services Saudi Arabia LLC The Americas ■ New York Branch ■ San Francisco Branch ■ Los Angeles Branch ■ Canada Branch ■ Cayman Branch ■ Chicago Representative Office ■ Dallas Representative Office ■ Houston Representative Office ■ Silicon Valley Representative Office ■ White Plains Representative Office ■ Mexico City Representative Office ■ Leon Representative Office ■ Santiago Representative Office ■ Bogota Representative Office ■ Lima Representative Office ■ Manufacturers Bank ■ Banco Sumitomo Mitsui Brasileiro S.A. ■ SMBC Capital Markets, Inc. ■ SMBC Nikko Securities America, Inc. ■ SMBC Leasing and Finance, Inc. ■ SMBC, S.A.P.I. DE C.V., SOFOM, E.N.R. ■ SMBC Americas Holdings, Inc. SMBC GROUP ANNUAL REPORT 2020SMBC Bank EU AG SMBC Nikko Capital Markets Europe GmbH SMBC Bank EU AG Dublin Branch Sumitomo Mitsui Finance Dublin Limited SMBC Aviation Capital Limited Sumitomo Mitsui Banking Corporation Europe Limited SMBC Nikko Capital Markets Limited London Branch SMBC Bank EU AG Amsterdam Branch JSC Sumitomo Mitsui Rus Bank Brussels Branch SMBC Bank EU AG Prague Branch Düsseldorf Branch SMBC Bank EU AG Düsseldorf Branch SMBC Bank EU AG Milan Branch Istanbul Representative Office SMBC Bank EU AG Madrid Branch Sumitomo Mitsui Banking Corporation Europe Limited Paris Branch Tehran Representative Office Cairo Representative Office Bahrain Representative Office DIFC Branch-Dubai SMBC Advisory Services Saudi Arabia LLC Doha QFC Office Abu Dhabi Representative Office Ulaanbaatar Representative Office Mumbai Branch New Delhi Branch Johannesburg Representative Office Perth Branch Sydney Branch SMBC Nikko Capital Markets Limited (Sydney Office) GLOBAL NETWORK Asia and Oceania ■ Sumitomo Mitsui Banking Corporation (China) Limited ■ Sumitomo Mitsui Banking Corporation (China) Limited ■ Ho Chi Minh City Branch Head Office (Shanghai) Shanghai Pilot Free Trade Zone Sub-Branch ■ Sumitomo Mitsui Banking Corporation (China) Limited ■ Sumitomo Mitsui Banking Corporation (China) Limited ■ Sumitomo Mitsui Banking Corporation (China) Limited ■ Sumitomo Mitsui Banking Corporation (China) Limited ■ Sumitomo Mitsui Banking Corporation (China) Limited ■ Sumitomo Mitsui Banking Corporation (China) Limited Shanghai Puxi Sub-Branch Changshu Sub-Branch Suzhou Industrial Park Sub-Branch ■ Sumitomo Mitsui Banking Corporation (China) Limited ■ PT Bank BTPN Tbk ■ Sumitomo Mitsui Banking Corporation Malaysia Berhad ■ Hong Kong Branch ■ Hong Kong Branch Kowloon Office Guangzhou Branch Hangzhou Branch Chongqing Branch Shenzhen Branch Shenyang Branch Suzhou Branch Dalian Branch Tianjin Branch Beijing Branch ■ Sumitomo Mitsui Banking Corporation (China) Limited ■ Sumitomo Mitsui Banking Corporation (China) Limited ■ Sumitomo Mitsui Banking Corporation (China) Limited ■ Sumitomo Mitsui Banking Corporation (China) Limited ■ Sumitomo Mitsui Banking Corporation (China) Limited ■ Sumitomo Mitsui Banking Corporation (China) Limited Kunshan Sub-Branch ■ Taipei Branch ■ Seoul Branch ■ Singapore Branch ■ Sydney Branch ■ Perth Branch ■ New Delhi Branch ■ Mumbai Branch ■ Bangkok Branch ■ Chonburi Branch ■ Hanoi Branch ■ Manila Branch ■ Yangon Branch ■ Labuan Branch ■ Yangon Branch Thilawa Front Office ■ Labuan Branch Kuala Lumpur Office ■ Ulaanbaatar Representative Office ■ Phnom Penh Representative Office ■ SMBC Capital Markets (Asia) Limited ■ SMBC Nikko Capital Markets Limited (Sydney Office) ■ The Bank of East Asia, Limited ■ Vietnam Export Import Commercial Joint Stock Bank ■ PT Oto Multiartha ■ PT Summit Oto Finance ■ ACLEDA Bank Plc. Overseas service network (as of June 30, 2020) Total: 86 (including banking subsidiaries and their branches/ sub-branches/rep. offices) Consolidated subsidiary PT Bank BTPN Tbk has 507 offices. (as of June 30, 2020) Also showing principal overseas subsidiaries Los Angeles Branch San Francisco Branch Silicon Valley Representative Office Shenyang Branch Beijing Branch Tianjin Branch Dalian Branch Seoul Branch Chicago Representative Office Canada Branch Manufacturers Bank Dallas Representative Office New York Branch SMBC Capital Markets, Inc. SMBC Leasing and Finance, Inc. SMBC Nikko Securities America, Inc. SMBC Americas Holdings, Inc. White Plains Representative Office Houston Representative Office Suzhou Branch Suzhou Industrial Park Sub-Branch Changshu Sub-Branch Chongqing Branch Kunshan Sub-Branch Head Office (Shanghai) Shanghai Puxi Sub-Branch Shanghai Pilot Free Trade Zone Sub-Branch Hangzhou Branch Guangzhou Branch Taipei Branch Hanoi Branch Shenzhen Branch The Bank of East Asia, Limited Hong Kong Branch Kowloon Office SMBC Capital Markets (Asia) Limited Yangon Branch Thilawa Front Office Bangkok Branch Chonburi Branch Sumitomo Mitsui Banking Corporation Malaysia Berhad Kuala Lumpur Office Manila Branch Phnom Penh Representative Office ACLEDA Bank Plc. Ho Chi Minh City Branch Vietnam Export Import Commercial Joint Stock Bank Labuan Branch Singapore Branch PT Bank BTPN Tbk PT Oto Multiartha PT Summit Oto Finance Indicates branch or sub-branch of Sumitomo Mitsui Banking Corporation (China) Limited The Americas Europe, Middle East and Africa Cayman Branch Mexico City Representative Office SMBC, S.A.P.I. DE C.V., SOFOM, E.N.R. Leon Representative Office Bogota Representative Office Lima Representative Office Banco Sumitomo Mitsui Brasileiro S.A. Santiago Representative Office ■ Sumitomo Mitsui Banking Corporation Europe Limited Head Office ■ Sumitomo Mitsui Banking Corporation Europe Limited Paris Branch ■ SMBC Bank EU AG ■ SMBC Bank EU AG Amsterdam Branch ■ SMBC Bank EU AG Dublin Branch ■ SMBC Bank EU AG Düsseldorf Branch ■ SMBC Bank EU AG Prague Branch ■ SMBC Bank EU AG Madrid Branch ■ SMBC Bank EU AG Milan Branch ■ London Branch ■ Düsseldorf Branch ■ Brussels Branch ■ DIFC Branch-Dubai ■ Abu Dhabi Representative Office ■ Istanbul Representative Office ■ Doha QFC Office ■ Bahrain Representative Office ■ Johannesburg Representative Office ■ Cairo Representative Office ■ Tehran Representative Office ■ JSC Sumitomo Mitsui Rus Bank ■ SMBC Nikko Capital Markets Limited ■ SMBC Nikko Capital Markets Europe GmbH ■ Sumitomo Mitsui Finance Dublin Limited ■ SMBC Aviation Capital Limited ■ SMBC Advisory Services Saudi Arabia LLC ■ New York Branch ■ San Francisco Branch ■ Los Angeles Branch ■ Canada Branch ■ Cayman Branch ■ Chicago Representative Office ■ Dallas Representative Office ■ Houston Representative Office ■ Silicon Valley Representative Office ■ White Plains Representative Office ■ Mexico City Representative Office ■ Leon Representative Office ■ Santiago Representative Office ■ Bogota Representative Office ■ Lima Representative Office ■ Manufacturers Bank ■ Banco Sumitomo Mitsui Brasileiro S.A. ■ SMBC Capital Markets, Inc. ■ SMBC Nikko Securities America, Inc. ■ SMBC Leasing and Finance, Inc. ■ SMBC, S.A.P.I. DE C.V., SOFOM, E.N.R. ■ SMBC Americas Holdings, Inc. 153 SMBC GROUP ANNUAL REPORT 2020154 SMBC GROUP ANNUAL REPORT 2020Appendix II CONTENTS Financial Data Sumitomo Mitsui Financial Group SMBC Financial Highlights Consolidated Balance Sheets Consolidated Statements of Income Consolidated Statements of Comprehensive Income Consolidated Statements of Changes in Net Assets Consolidated Statements of Cash Flows 156 157 159 161 162 165 Notes to Consolidated Financial Statements 167 Independent Auditor’s Report SMBC Supplemental Information Sumitomo Mitsui Financial Group Income Analysis (Consolidated) Assets and Liabilities (Consolidated) Capital (Non-consolidated) 229 235 241 244 247 Financial Highlights Income Analysis (Consolidated) Assets and Liabilities (Consolidated) Income Analysis (Non-consolidated) Deposits (Non-consolidated) Loans (Non-consolidated) Securities (Non-consolidated) Ratios (Non-consolidated) Capital (Non-consolidated) Others (Non-consolidated) 328 329 332 334 338 340 345 347 349 350 Trust Assets and Liabilities (Non-consolidated) 352 Basel III Information Basel III Information Sumitomo Mitsui Financial Group SMBC Capital Ratio and Leverage Ratio Information (Consolidated) Countercyclical buffer requirement by country or region Indicators for assessing Global Systemically Important Banks (G-SIBs) TLAC information Liquidity Coverage Ratio Information (Consolidated) 250 318 319 322 326 Capital Ratio and Leverage Ratio Information (Consolidated) Liquidity Coverage Ratio Information (Consolidated) 353 361 Capital Ratio and Leverage Ratio Information (Non-consolidated) 363 Liquidity Coverage Ratio Information (Non- consolidated) 371 Compensation Sumitomo Mitsui Financial Group SMBC Compensation (Consolidated) 375 Compensation 379 006_0800801372008.indd 155 155 2020/08/13 14:06:54 SMBC GROUP ANNUAL REPORT 2020Financial Highlights Sumitomo Mitsui Financial Group (Consolidated) Year ended March 31 For the Year: 2020 2019 Ordinary income ����������������������������������������������������������� ¥ 5,314,313 Ordinary profit �������������������������������������������������������������� 932,064 Profit attributable to owners of parent ������������������������� 703,883 Comprehensive income ����������������������������������������������� 372,971 ¥ 5,735,312 1,135,300 726,681 795,191 At Year-End: Millions of yen 2018 ¥ 5,764,172 1,164,113 734,368 984,133 2017 2016 ¥ 5,133,245 1,005,855 706,519 966,057 ¥ 4,772,100 985,284 646,687 178,328 Total net assets ������������������������������������������������������������ ¥ 10,784,903 Total assets ������������������������������������������������������������������ 219,863,518 Total capital ratio (International Standard) ������������������� Tier 1 capital ratio (International Standard) ������������������ Common equity Tier 1 capital ratio 18.75% 16.63% (International Standard) ��������������������������������������������� Number of employees �������������������������������������������������� 15.55% 86,443 ¥ 11,451,611 203,659,146 ¥ 11,612,892 199,049,128 ¥ 11,234,286 197,791,611 ¥ 10,447,669 186,585,842 20�76% 18�19% 16�37% 86,659 19�36% 16�69% 14�50% 72,978 16�93% 14�07% 12�17% 77,205 17�02% 13�68% 11�81% 73,652 Note: “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. 156 010_0800801372008.indd 156 2020/08/21 16:48:10 Sumitomo Mitsui Financial GroupSMBC GROUP ANNUAL REPORT 2020Consolidated Balance Sheets Sumitomo Mitsui Financial Group, Inc� and Subsidiaries March 31 Assets: Cash and due from banks �������������������������������������� Call loans and bills bought ������������������������������������� Receivables under resale agreements ������������������� Receivables under securities borrowing transactions ���������������������������������������������������������� Monetary claims bought ����������������������������������������� Trading assets �������������������������������������������������������� Money held in trust ������������������������������������������������� Securities ���������������������������������������������������������������� Loans and bills discounted ������������������������������������ Foreign exchanges ������������������������������������������������� Lease receivables and investment assets �������������� Other assets ����������������������������������������������������������� Tangible fixed assets ���������������������������������������������� Assets for rent ��������������������������������������������������� Buildings ������������������������������������������������������������ Land ������������������������������������������������������������������ Lease assets ��������������������������������������������������� Construction in progress ����������������������������������� Other tangible fixed assets ������������������������������� Intangible fixed assets �������������������������������������������� Software ������������������������������������������������������������ Goodwill ������������������������������������������������������������ Lease assets ����������������������������������������������������� Other intangible fixed assets ����������������������������� Net defined benefit asset ��������������������������������������� Deferred tax assets ������������������������������������������������ Customers’ liabilities for acceptances and guarantees ������������������������������������������������������������ Reserve for possible loan losses ���������������������������� Total assets ������������������������������������������������������������� Millions of yen 2019 2020 *8 *8 *8 *1, *2, *8, *16 *3, *4, *5, *6, *7, *8, *9 *7 *8 *10, *11, *12 ¥ 57,411,276 2,465,744 6,429,365 4,097,473 4,594,578 5,328,778 390 24,338,005 77,979,190 1,719,402 247,835 7,307,305 1,504,703 573,292 345,420 427,484 25,548 37,663 95,293 769,231 431,135 193,127 990 143,977 329,434 40,245 *8 *8 *1, *8, *16 *3, *4, *5, *6, *7, *8, *9 *7 *8 *10, *11, *12 ¥ 61,768,573 896,739 8,753,816 5,005,103 4,559,429 7,361,253 353 27,128,751 82,517,609 2,063,284 219,733 8,298,393 1,450,323 506,755 341,505 423,346 28,933 46,138 103,645 753,579 440,407 194,289 986 117,896 230,573 26,314 Millions of U�S� dollars 2020 $ 567,674 8,241 80,450 45,999 41,903 67,652 3 249,322 758,364 18,962 2,019 76,265 13,329 4,657 3,139 3,891 266 424 953 6,926 4,047 1,786 9 1,084 2,119 242 9,564,993 (468,808) ¥203,659,146 9,308,882 (479,197) ¥219,863,518 85,552 (4,404) $2,020,619 010_0800801372008.indd 157 157 2020/08/21 16:48:10 Sumitomo Mitsui Financial GroupSMBC GROUP ANNUAL REPORT 2020Consolidated Balance Sheets (Continued) March 31 Liabilities and net assets: Liabilities: Deposits ����������������������������������������������������������������� Negotiable certificates of deposit �������������������������� Call money and bills sold ��������������������������������������� Payables under repurchase agreements ���������������� Payables under securities lending transactions ���������������������������������������������������������� Commercial paper �������������������������������������������������� Trading liabilities ����������������������������������������������������� Borrowed money ���������������������������������������������������� Foreign exchanges ������������������������������������������������� Short-term bonds ��������������������������������������������������� Bonds ��������������������������������������������������������������������� Due to trust account ����������������������������������������������� Other liabilities �������������������������������������������������������� Reserve for employee bonuses ������������������������������ Reserve for executive bonuses ������������������������������ Net defined benefit liability ������������������������������������� Reserve for executive retirement benefits �������������� Reserve for point service program ������������������������� Reserve for reimbursement of deposits ����������������� Reserve for losses on interest repayment �������������� Reserves under the special laws ���������������������������� Deferred tax liabilities ��������������������������������������������� Deferred tax liabilities for land revaluation ������������� Acceptances and guarantees ��������������������������������� Total liabilities ��������������������������������������������������������� Net assets: Capital stock ���������������������������������������������������������� Capital surplus ������������������������������������������������������� Retained earnings �������������������������������������������������� Treasury stock �������������������������������������������������������� Total stockholders’ equity �������������������������������������� Net unrealized gains (losses) on other securities �������������������������������������������������������������� Net deferred gains (losses) on hedges ������������������� Land revaluation excess ����������������������������������������� Foreign currency translation adjustments �������������� Accumulated remeasurements of defined benefit plans ��������������������������������������������������������� Total accumulated other comprehensive income ������������������������������������������������������������������ Stock acquisition rights ������������������������������������������ Non-controlling interests ���������������������������������������� Total net assets ������������������������������������������������������ Total liabilities and net assets ��������������������������������� Millions of yen 2019 2020 Millions of U�S� dollars 2020 *8 *8 *8 *8, *13 *14 *8, *15 *10 *8 *10 ¥122,325,038 11,165,486 1,307,778 11,462,559 1,812,820 2,291,813 4,219,293 10,656,897 1,165,141 84,500 9,227,367 1,352,773 4,873,630 70,351 3,091 31,816 1,374 23,948 7,936 147,594 2,847 378,220 30,259 9,564,993 192,207,534 2,339,443 739,047 5,992,247 (16,302) 9,054,436 1,688,852 (54,650) 36,547 50,379 (7,244) 1,713,884 4,750 678,540 11,451,611 ¥203,659,146 *8 *8 *8 *8, *13 *14 *8, *15 *10 *8 *10 ¥127,042,217 10,180,435 3,740,539 13,237,913 $1,167,560 93,562 34,377 121,661 2,385,607 1,409,249 6,084,528 15,210,894 1,461,308 379,000 9,235,639 1,811,355 7,011,967 73,868 3,362 35,777 1,270 26,576 4,687 142,890 3,145 257,384 30,111 9,308,882 209,078,615 2,339,964 692,003 6,336,311 (13,983) 9,354,296 1,371,407 82,257 36,878 (32,839) (92,030) 21,925 12,951 55,919 139,793 13,430 3,483 84,879 16,647 64,442 679 31 329 12 244 43 1,313 29 2,365 277 85,552 1,921,502 21,505 6,360 58,233 (129) 85,969 12,604 756 339 (302) (846) 1,365,673 2,064 62,869 10,784,903 ¥219,863,518 12,551 19 578 99,117 $2,020,619 158 010_0800801372008.indd 158 2020/08/21 16:48:10 Sumitomo Mitsui Financial GroupSMBC GROUP ANNUAL REPORT 2020 Consolidated Statements of Income Sumitomo Mitsui Financial Group, Inc� and Subsidiaries Year ended March 31 Ordinary income �������������������������������������������������������������������������������������� Interest income ����������������������������������������������������������������������������������� Interest on loans and discounts ���������������������������������������������������� Interest and dividends on securities ��������������������������������������������� Interest on call loans and bills bought ������������������������������������������ Interest on receivables under resale agreements ������������������������� Interest on receivables under securities borrowing transactions �� Interest on deposits with banks ���������������������������������������������������� Interest on lease transactions ������������������������������������������������������� Other interest income �������������������������������������������������������������������� Trust fees �������������������������������������������������������������������������������������������� Fees and commissions ���������������������������������������������������������������������� Trading income ����������������������������������������������������������������������������������� Other operating income ��������������������������������������������������������������������� Lease-related income �������������������������������������������������������������������� Installment-related income ������������������������������������������������������������ Other ��������������������������������������������������������������������������������������������� Other income �������������������������������������������������������������������������������������� Gains on reversal of reserve for possible loan losses ������������������� Recoveries of written-off claims ���������������������������������������������������� Other ��������������������������������������������������������������������������������������������� Ordinary expenses ���������������������������������������������������������������������������������� Interest expenses ������������������������������������������������������������������������������� Interest on deposits ���������������������������������������������������������������������� Interest on negotiable certificates of deposit �������������������������������� Interest on call money and bills sold ��������������������������������������������� Interest on payables under repurchase agreements ��������������������� Interest on payables under securities lending transactions ���������� Interest on commercial paper ������������������������������������������������������� Interest on borrowed money ��������������������������������������������������������� Interest on short-term bonds �������������������������������������������������������� Interest on bonds �������������������������������������������������������������������������� Other interest expenses ���������������������������������������������������������������� Fees and commissions payments ������������������������������������������������������ Trading losses ������������������������������������������������������������������������������������ Other operating expenses ������������������������������������������������������������������ Lease-related expenses ���������������������������������������������������������������� Installment-related expenses �������������������������������������������������������� Other ��������������������������������������������������������������������������������������������� General and administrative expenses ������������������������������������������������ Other expenses ���������������������������������������������������������������������������������� Provision for reserve for possible loan losses ������������������������������� Other ��������������������������������������������������������������������������������������������� Ordinary profit ����������������������������������������������������������������������������������������� *1 *2 *3 Millions of yen 2019 2020 Millions of U�S� dollars 2020 ¥5,735,312 2,488,904 1,666,283 364,685 16,551 20,457 17,784 103,135 47,573 252,433 4,656 1,240,917 194,676 1,578,159 233,675 981,090 363,393 227,997 5,729 11,047 211,220 4,600,012 1,157,482 463,989 136,178 14,270 119,733 1,272 45,356 75,883 60 226,536 74,201 181,019 3,305 1,319,328 120,097 930,884 268,347 1,715,050 223,825 — 223,825 1,135,300 *1 *2 *3 ¥5,314,313 2,456,364 1,693,016 346,822 15,890 31,449 21,247 80,924 7,307 259,705 4,701 1,287,538 262,826 1,050,065 39,123 752,775 258,166 252,816 — 12,414 240,401 4,382,249 1,179,770 441,477 131,849 10,284 131,320 1,111 31,525 57,632 29 220,874 153,666 204,188 — 908,951 26,514 722,440 159,997 1,739,603 349,734 70,571 279,163 932,064 $48,840 22,575 15,559 3,187 146 289 195 744 67 2,387 43 11,833 2,415 9,650 360 6,918 2,373 2,323 — 114 2,209 40,274 10,842 4,057 1,212 95 1,207 10 290 530 0 2,030 1,412 1,877 — 8,354 244 6,639 1,470 15,988 3,214 649 2,566 8,566 010_0800801372008.indd 159 159 2020/08/21 16:48:10 Sumitomo Mitsui Financial GroupSMBC GROUP ANNUAL REPORT 2020Consolidated Statements of Income (Continued) Year ended March 31 Extraordinary gains ���������������������������������������������������������������������������������� Gains on disposal of fixed assets ������������������������������������������������������ Other extraordinary gains ������������������������������������������������������������������� Extraordinary losses �������������������������������������������������������������������������������� Losses on disposal of fixed assets ���������������������������������������������������� Losses on impairment of fixed assets ������������������������������������������������ Provision for reserve for eventual future operating losses from financial instruments transactions ���������������������������������������������������� Income before income taxes ������������������������������������������������������������������� Income taxes-current ������������������������������������������������������������������������������ Income taxes-deferred ���������������������������������������������������������������������������� Income taxes ������������������������������������������������������������������������������������������� Profit �������������������������������������������������������������������������������������������������������� Profit attributable to non-controlling interests ����������������������������������������� Profit attributable to owners of parent ���������������������������������������������������� Millions of yen 2020 Millions of U�S� dollars 2020 2019 ¥ *4 *5 2,826 541 2,285 14,547 4,485 9,610 *4 *5 450 1,123,579 276,329 55,095 331,424 792,155 65,474 ¥ 726,681 ¥ 23,896 1,855 22,040 67,314 1,910 65,106 297 888,646 213,526 (45,842) 167,684 720,962 17,078 ¥ 703,883 $ 220 17 203 619 18 598 3 8,167 1,962 (421) 1,541 6,626 157 $ 6,469 160 010_0800801372008.indd 160 2020/08/21 16:48:10 Sumitomo Mitsui Financial GroupSMBC GROUP ANNUAL REPORT 2020Consolidated Statements of Comprehensive Income Sumitomo Mitsui Financial Group, Inc� and Subsidiaries Year ended March 31 *1 Profit �������������������������������������������������������������������������������������������������������� Other comprehensive income (losses) ���������������������������������������������������� Net unrealized gains (losses) on other securities ������������������������������� Net deferred gains (losses) on hedges ����������������������������������������������� Land revaluation excess ��������������������������������������������������������������������� Foreign currency translation adjustments ������������������������������������������ Remeasurements of defined benefit plans ����������������������������������������� Share of other comprehensive income of affiliates ���������������������������� Total comprehensive income ������������������������������������������������������������������� Comprehensive income attributable to owners of parent ������������������ Comprehensive income attributable to non-controlling interests ������ Millions of yen 2019 2020 Millions of U�S� dollars 2020 *1 ¥792,155 3,035 31,157 29,981 — 10,396 (65,530) (2,970) 795,191 687,690 107,500 ¥ 720,962 (347,990) (314,792) 166,177 (39) (74,052) (84,420) (40,864) 372,971 355,302 17,669 $ 6,626 (3,198) (2,893) 1,527 (0) (681) (776) (376) 3,428 3,265 162 010_0800801372008.indd 161 161 2020/08/21 16:48:10 Sumitomo Mitsui Financial GroupSMBC GROUP ANNUAL REPORT 2020Consolidated Statements of Changes in Net Assets Sumitomo Mitsui Financial Group, Inc� and Subsidiaries Year ended March 31, 2019 Balance at the beginning of the fiscal year ��������������������� ¥2,338,743 Changes in the fiscal year Capital stock Millions of yen Stockholders’ equity Retained earnings ¥5,552,573 Capital surplus ¥758,215 Treasury stock ¥(12,493) ¥8,637,039 Total Issuance of new stock������������������������������������������������ Cash dividends ����������������������������������������������������������� Profit attributable to owners of parent ����������������������� Purchase of treasury stock����������������������������������������� Disposal of treasury stock ������������������������������������������ Cancellation of treasury stock ������������������������������������ Changes in shareholders’ interest due to transaction with non-controlling interests ����������������������������������� Increase due to increase in subsidiaries �������������������� Increase due to decrease in subsidiaries ������������������� Decrease due to increase in subsidiaries ������������������� Decrease due to decrease in subsidiaries ����������������� Reversal of land revaluation excess ��������������������������� Transfer from retained earnings to capital surplus ����� Net changes in items other than stockholders’ 699 699 (245,576) 726,681 0 4 (11) (23) 302 (41,704) (68) (65,922) 4,419 41,704 (70,094) 363 65,922 1,398 (245,576) 726,681 (70,094) 294 — 4,419 0 4 (11) (23) 302 — equity in the fiscal year ��������������������������������������������� 699 Net changes in the fiscal year ����������������������������������������� Balance at the end of the fiscal year ������������������������������� ¥2,339,443 (19,167) ¥739,047 439,673 ¥5,992,247 (3,809) 417,396 ¥(16,302) ¥9,054,436 Year ended March 31, 2019 Balance at the beginning of the fiscal year ��������������������� ¥1,688,842 Changes in the fiscal year Net unrealized gains (losses) on other securities Millions of yen Accumulated other comprehensive income Net deferred gains (losses) on hedges ¥(68,543) Land revaluation excess ¥37,097 Foreign currency translation adjustments ¥36,906 Accumulated remeasurements of defined benefit plans ¥ 59,121 Total ¥1,753,424 Issuance of new stock������������������������������������������������ Cash dividends ����������������������������������������������������������� Profit attributable to owners of parent ����������������������� Purchase of treasury stock����������������������������������������� Disposal of treasury stock ������������������������������������������ Cancellation of treasury stock ������������������������������������ Changes in shareholders’ interest due to transaction with non-controlling interests ����������������������������������� Increase due to increase in subsidiaries �������������������� Increase due to decrease in subsidiaries ������������������� Decrease due to increase in subsidiaries ������������������� Decrease due to decrease in subsidiaries ����������������� Reversal of land revaluation excess ��������������������������� Transfer from retained earnings to capital surplus ����� Net changes in items other than stockholders’ 10 equity in the fiscal year ��������������������������������������������� Net changes in the fiscal year ����������������������������������������� 10 Balance at the end of the fiscal year ������������������������������� ¥1,688,852 13,893 13,893 ¥(54,650) (549) (549) ¥36,547 13,473 13,473 ¥50,379 (66,366) (66,366) (39,540) (39,540) ¥ (7,244) ¥1,713,884 Year ended March 31, 2019 Balance at the beginning of the fiscal year ��������������������� Changes in the fiscal year Issuance of new stock������������������������������������������������ Cash dividends ����������������������������������������������������������� Profit attributable to owners of parent ����������������������� Purchase of treasury stock����������������������������������������� Disposal of treasury stock ������������������������������������������ Cancellation of treasury stock ������������������������������������ Changes in shareholders’ interest due to transaction with non-controlling interests ����������������������������������� Increase due to increase in subsidiaries �������������������� Increase due to decrease in subsidiaries ������������������� Decrease due to increase in subsidiaries ������������������� Decrease due to decrease in subsidiaries ����������������� Reversal of land revaluation excess ��������������������������� Transfer from retained earnings to capital surplus ����� Net changes in items other than stockholders’ Stock acquisition rights Millions of yen Non- controlling interests Total net assets ¥2,823 ¥1,219,604 ¥11,612,892 1,398 (245,576) 726,681 (70,094) 294 — 4,419 0 4 (11) (23) 302 — equity in the fiscal year ��������������������������������������������� Net changes in the fiscal year ����������������������������������������� Balance at the end of the fiscal year ������������������������������� 1,926 1,926 ¥4,750 (541,063) (541,063) (578,677) (161,280) ¥ 678,540 ¥11,451,611 162 010_0800801372008.indd 162 2020/08/21 16:48:10 Sumitomo Mitsui Financial GroupSMBC GROUP ANNUAL REPORT 2020Consolidated Statements of Changes in Net Assets (Continued) Year ended March 31, 2020 Balance at the beginning of the fiscal year ��������������������� ¥2,339,443 Changes in the fiscal year Capital stock Millions of yen Stockholders’ equity Retained earnings ¥5,992,247 Capital surplus ¥ 739,047 Treasury stock Total ¥ (16,302) ¥9,054,436 Issuance of new stock������������������������������������������������ Cash dividends ����������������������������������������������������������� Profit attributable to owners of parent ����������������������� Purchase of treasury stock����������������������������������������� Disposal of treasury stock ������������������������������������������ Cancellation of treasury stock ������������������������������������ Changes in shareholders’ interest due to transaction with non-controlling interests ����������������������������������� Decrease due to decrease in subsidiaries ����������������� Decrease due to decrease in affiliates accounted for by the equity method ����������������������������������������������� Reversal of land revaluation excess ��������������������������� Transfer from retained earnings to capital surplus ����� Net changes in items other than stockholders’ 521 521 (255,834) 703,883 (945) (679) (435) (101,923) (250) (101,673) (47,565) 101,923 (100,088) 733 101,673 1,043 (255,834) 703,883 (100,088) 483 — (47,565) (945) (679) (435) — equity in the fiscal year ��������������������������������������������� Net changes in the fiscal year ����������������������������������������� 521 Balance at the end of the fiscal year ������������������������������� ¥2,339,964 (47,044) ¥ 692,003 344,064 ¥6,336,311 2,318 299,860 ¥ (13,983) ¥9,354,296 Year ended March 31, 2020 Balance at the beginning of the fiscal year ��������������������� ¥1,688,852 Changes in the fiscal year Net unrealized gains (losses) on other securities Millions of yen Accumulated other comprehensive income Net deferred gains (losses) on hedges ¥(54,650) Land revaluation excess ¥36,547 Foreign currency translation adjustments ¥ 50,379 Accumulated remeasurements of defined benefit plans Total ¥ (7,244) ¥1,713,884 Issuance of new stock������������������������������������������������ Cash dividends ����������������������������������������������������������� Profit attributable to owners of parent ����������������������� Purchase of treasury stock����������������������������������������� Disposal of treasury stock ������������������������������������������ Cancellation of treasury stock ������������������������������������ Changes in shareholders’ interest due to transaction with non-controlling interests ����������������������������������� Decrease due to decrease in subsidiaries ����������������� Decrease due to decrease in affiliates accounted for by the equity method ����������������������������������������������� Reversal of land revaluation excess ��������������������������� Transfer from retained earnings to capital surplus ����� Net changes in items other than stockholders’ equity in the fiscal year ��������������������������������������������� (317,445) Net changes in the fiscal year ����������������������������������������� (317,445) Balance at the end of the fiscal year ������������������������������� ¥1,371,407 136,907 136,907 ¥ 82,257 331 331 ¥36,878 (83,219) (83,219) ¥(32,839) (84,785) (84,785) (348,211) (348,211) ¥(92,030) ¥1,365,673 Year ended March 31, 2020 Balance at the beginning of the fiscal year ��������������������� Changes in the fiscal year Issuance of new stock������������������������������������������������ Cash dividends ����������������������������������������������������������� Profit attributable to owners of parent ����������������������� Purchase of treasury stock����������������������������������������� Disposal of treasury stock ������������������������������������������ Cancellation of treasury stock ������������������������������������ Changes in shareholders’ interest due to transaction with non-controlling interests ����������������������������������� Decrease due to decrease in subsidiaries ����������������� Decrease due to decrease in affiliates accounted for by the equity method ����������������������������������������������� Reversal of land revaluation excess ��������������������������� Transfer from retained earnings to capital surplus ����� Net changes in items other than stockholders’ Stock acquisition rights ¥ 4,750 Millions of yen Non- controlling interests ¥ 678,540 ¥11,451,611 Total net assets 1,043 (255,834) 703,883 (100,088) 483 — (47,565) (945) (679) (435) — equity in the fiscal year ��������������������������������������������� Net changes in the fiscal year ����������������������������������������� Balance at the end of the fiscal year ������������������������������� (2,685) (2,685) ¥ 2,064 (615,671) (615,671) (966,568) (666,708) ¥ 62,869 ¥10,784,903 010_0800801372008.indd 163 163 2020/08/21 16:48:10 Sumitomo Mitsui Financial GroupSMBC GROUP ANNUAL REPORT 2020Consolidated Statements of Changes in Net Assets (Continued) Year ended March 31, 2020 Balance at the beginning of the fiscal year ��������������������� Changes in the fiscal year Issuance of new stock������������������������������������������������ Cash dividends ����������������������������������������������������������� Profit attributable to owners of parent ����������������������� Purchase of treasury stock����������������������������������������� Disposal of treasury stock ������������������������������������������ Cancellation of treasury stock ������������������������������������ Changes in shareholders’ interest due to transaction with non-controlling interests ����������������������������������� Decrease due to decrease in subsidiaries ����������������� Decrease due to decrease in affiliates accounted for by the equity method ����������������������������������������������� Reversal of land revaluation excess ��������������������������� Transfer from retained earnings to capital surplus ����� Net changes in items other than stockholders’ equity in the fiscal year ��������������������������������������������� Net changes in the fiscal year ����������������������������������������� Balance at the end of the fiscal year ������������������������������� Year ended March 31, 2020 Balance at the beginning of the fiscal year ��������������������� Changes in the fiscal year Issuance of new stock������������������������������������������������ Cash dividends ����������������������������������������������������������� Profit attributable to owners of parent ����������������������� Purchase of treasury stock����������������������������������������� Disposal of treasury stock ������������������������������������������ Cancellation of treasury stock ������������������������������������ Changes in shareholders’ interest due to transaction with non-controlling interests ����������������������������������� Decrease due to decrease in subsidiaries ����������������� Decrease due to decrease in affiliates accounted for by the equity method ����������������������������������������������� Reversal of land revaluation excess ��������������������������� Transfer from retained earnings to capital surplus ����� Net changes in items other than stockholders’ Millions of U�S� dollars Stockholders’ equity Retained earnings Capital surplus Treasury stock $6,792 $55,071 $(150) Capital stock $21,500 5 5 (920) 7 934 (2,351) 6,469 (9) (6) (4) (937) (2) (934) (437) 937 Total $83,213 (2,351) 6,469 (920) 4 — (437) (9) (6) (4) — 5 $21,505 (432) $6,360 3,162 $58,233 21 $(129) 2,756 $85,969 Millions of U�S� dollars Accumulated other comprehensive income Net unrealized gains (losses) on other securities Net deferred gains (losses) on hedges Land revaluation excess $15,521 $ (502) $336 Foreign currency translation adjustments $ 463 Accumulated remeasurements of defined benefit plans $ (67) Total $15,751 — equity in the fiscal year ��������������������������������������������� Net changes in the fiscal year ����������������������������������������� Balance at the end of the fiscal year ������������������������������� (2,917) (2,917) $12,604 1,258 1,258 $ 756 3 3 $339 (765) (765) $(302) (779) (779) $(846) (3,200) (3,200) $12,551 Year ended March 31, 2020 Balance at the beginning of the fiscal year ��������������������� Changes in the fiscal year Issuance of new stock������������������������������������������������ Cash dividends ����������������������������������������������������������� Profit attributable to owners of parent ����������������������� Purchase of treasury stock����������������������������������������� Disposal of treasury stock ������������������������������������������ Cancellation of treasury stock ������������������������������������ Changes in shareholders’ interest due to transaction with non-controlling interests ����������������������������������� Decrease due to decrease in subsidiaries ����������������� Decrease due to decrease in affiliates accounted for by the equity method ����������������������������������������������� Reversal of land revaluation excess ��������������������������� Transfer from retained earnings to capital surplus ����� Net changes in items other than stockholders’ Stock acquisition rights Millions of U�S� dollars Non- controlling interests $ 44 $ 6,236 Total net assets $105,244 10 (2,351) 6,469 (920) 4 — (437) (9) (6) (4) — equity in the fiscal year ��������������������������������������������� Net changes in the fiscal year ����������������������������������������� Balance at the end of the fiscal year ������������������������������� (25) (25) $ 19 (5,658) (5,658) $ 578 (8,883) (6,127) $ 99,117 164 010_0800801372008.indd 164 2020/08/21 16:48:10 Sumitomo Mitsui Financial GroupSMBC GROUP ANNUAL REPORT 2020Consolidated Statements of Cash Flows Sumitomo Mitsui Financial Group, Inc� and Subsidiaries Year ended March 31 Cash flows from operating activities: Income before income taxes �������������������������������������������������������������� Depreciation ��������������������������������������������������������������������������������������� Losses on impairment of fixed assets ������������������������������������������������ Amortization of goodwill ��������������������������������������������������������������������� Net (gains) losses on step acquisitions ���������������������������������������������� Equity in net (gains) losses of affiliates ����������������������������������������������� Net change in reserve for possible loan losses ���������������������������������� Net change in reserve for employee bonuses ������������������������������������ Net change in reserve for executive bonuses ������������������������������������ Net change in net defined benefit asset and liability ������������������������� Net change in reserve for executive retirement benefits �������������������� Net change in reserve for point service program ������������������������������� Net change in reserve for reimbursement of deposits ����������������������� Net change in reserve for losses on interest repayment �������������������� Interest income ����������������������������������������������������������������������������������� Interest expenses ������������������������������������������������������������������������������� Net (gains) losses on securities ���������������������������������������������������������� Net (gains) losses from money held in trust ��������������������������������������� Net exchange (gains) losses �������������������������������������������������������������� Net (gains) losses from disposal of fixed 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 borrowings) ��������������������������������������������������������������������������������������� 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 lease receivables and investment assets �������������������� 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 provided by (used in) operating activities �������������������������������� Millions of yen 2019 2020 Millions of U�S� dollars 2020 ¥ 1,123,579 269,010 9,610 25,919 (2,285) (61,145) (60,213) (16,467) (757) (25,570) (196) 1,704 (9,828) 2,830 (2,488,904) 1,157,482 (101,219) (0) (148,278) 3,944 477,890 (1,603,188) (3,152,247) 5,039,495 (73,017) 1,418,493 1,520,423 (6,235,713) 4,240,226 6,097,354 (95,014) (5,374,040) 446,136 298,550 (53,975) (51,200) 467,587 24,502 2,435,453 (1,116,584) 489,142 4,879,488 (283,245) 4,596,242 ¥ 888,646 209,198 65,106 17,533 (22,040) (56,051) 13,411 3,103 201 101,532 (84) 2,627 (3,249) (4,703) (2,456,364) 1,179,770 (143,877) (0) 118,815 54 (1,859,195) 1,930,360 (4,839,243) 5,064,595 (982,400) 4,844,384 (1,455,747) (812,970) (907,630) 4,256,015 (882,878) 572,787 (346,503) 296,890 17,309 294,500 152,729 458,581 2,471,480 (1,201,792) 386,091 7,370,996 (283,536) 7,087,460 $ 8,167 1,923 598 161 (203) (515) 123 29 2 933 (1) 24 (30) (43) (22,575) 10,842 (1,322) (0) 1,092 0 (17,087) 17,741 (44,474) 46,545 (9,029) 44,521 (13,379) (7,471) (8,341) 39,114 (8,114) 5,264 (3,184) 2,729 159 2,707 1,404 4,215 22,714 (11,045) 3,548 67,742 (2,606) 65,136 010_0800801372008.indd 165 165 2020/08/21 16:48:10 Sumitomo Mitsui Financial GroupSMBC GROUP ANNUAL REPORT 2020 Consolidated Statements of Cash Flows (Continued) Year ended March 31 Cash flows from investing activities: Purchases of securities ���������������������������������������������������������������������� Proceeds from sale of securities �������������������������������������������������������� Proceeds from redemption of securities �������������������������������������������� Purchases of money held in trust ������������������������������������������������������� Proceeds from sale of money held in trust ���������������������������������������� Purchases of tangible fixed assets ���������������������������������������������������� Proceeds from sale of tangible fixed assets �������������������������������������� Purchases of intangible fixed assets �������������������������������������������������� Purchase of stocks of subsidiaries resulting in change in scope of consolidation ������������������������������������������������������������������������������������ Proceeds from sale of stocks of subsidiaries resulting in change in scope of consolidation ��������������������������������������������������������������������� Net cash provided by (used in) investing activities ��������������������������������� Cash flows from financing activities: Repayment of subordinated borrowings �������������������������������������������� Proceeds from issuance of subordinated bonds and bonds with stock acquisition rights �������������������������������������������������������������������� Redemption of subordinated bonds and bonds with stock acquisition rights ������������������������������������������������������������������������������ Dividends paid������������������������������������������������������������������������������������ Repayments to non-controlling stockholders ������������������������������������ Dividends paid to non-controlling stockholders �������������������������������� Purchases of treasury stock ��������������������������������������������������������������� Proceeds from disposal of treasury stock ������������������������������������������ Purchase of stocks of subsidiaries not resulting in change in scope of consolidation �������������������������������������������������������������������������������� Proceeds from sale of stocks of subsidiaries not resulting in change in scope of consolidation ����������������������������������������������������������������� Net cash provided by (used in) financing activities ��������������������������������� Effect of exchange rate changes on cash and cash equivalents ������������ Net change in cash and cash equivalents ����������������������������������������������� Cash and cash equivalents at the beginning of the fiscal year ��������������� Net change in cash and cash equivalents resulting from business Millions of yen 2019 2020 ¥(26,615,239) 17,969,410 10,078,569 (2) 1,094 (510,213) 104,451 (139,329) ¥(35,544,708) 23,204,983 9,550,000 (284) 321 (103,052) 19,206 (147,784) Millions of U�S� dollars 2020 $(326,668) 213,261 87,768 (3) 3 (947) 177 (1,358) *2 *3 (57,182) (17,365) (160) 174,702 1,006,260 27,021 (3,011,660) 248 (27,678) (8,000) — (27,539) (245,594) (212,537) (77,185) (70,094) 294 — 7,837 (632,819) 166,646 5,136,329 47,983,114 (8,000) 139,405 (113,000) (255,771) (436,500) (16,922) (100,088) 483 (234,159) — (1,024,554) (74,480) 2,976,764 53,120,963 (74) 1,281 (1,039) (2,351) (4,012) (156) (920) 4 (2,152) — (9,416) (685) 27,357 488,199 combinations between subsidiaries ������������������������������������������������������ — 79 1 Increase in cash and cash equivalents resulting from inclusion of subsidiaries in consolidation ����������������������������������������������������������������� Cash and cash equivalents at the end of the fiscal year ������������������������� *1 1,519 ¥ 53,120,963 — ¥ 56,097,807 *1 — $ 515,557 166 010_0800801372008.indd 166 2020/08/21 16:48:10 Sumitomo Mitsui Financial GroupSMBC GROUP ANNUAL REPORT 2020 Notes to Consolidated Financial Statements Sumitomo Mitsui Financial Group, Inc� and Subsidiaries (Basis of presentation) Sumitomo Mitsui Financial Group, Inc. (“the Company”) was established on December 2, 2002 as a holding company for the SMBC Group (“the Group”) through a statutory share transfer (kabushiki iten) of all of the outstanding equity securities of Sumitomo Mitsui Banking Corporation (“SMBC”) in exchange for the Company’s newly issued securities. The Company is a joint stock corporation with limited liability (Kabushiki Kaisha) incorporated under the Companies Act of Japan. Upon formation of the Company and completion of the statutory share transfer, SMBC became a direct wholly owned subsidiary of the Company. The Company has prepared the accompanying consolidated financial statements in accordance with the provisions set forth in the Japanese Financial Instruments and Exchange Act 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 from International Financial Reporting Standards (“IFRS”). The accounts of overseas subsidiaries and affiliated companies, are, in principle, integrated with those of the Company’s accounting policies for purposes of consolidation unless they apply different accounting principles and standards as required under U.S. GAAP or IFRS, in which case a certain limited number of items are adjusted based on their materiality. These consolidated financial statements are translated from the consolidated financial statements contained in the annual securities report filed under the Financial Instrument and Exchange Act of Japan (“FIEA based financial statements”) except for the addition of the non- consolidated financial statements and US dollar figures. Amounts less than 1 million yen have been rounded down. 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, 2020 which was ¥108.81 to US$1. These translations should not be construed as representations that the Japanese yen amounts have been, could have been, or could in the future be, converted into U.S. dollars at that rate. 010_0800801372008.indd 167 167 2020/08/21 16:48:10 Sumitomo Mitsui Financial GroupSMBC GROUP ANNUAL REPORT 2020As of and for the years ended March 31, 2019 and 2020 (Significant accounting policies for preparing consolidated financial statements) 1. Scope of consolidation (1) Consolidated subsidiaries The number of consolidated subsidiaries at March 31, 2020 is 174. Principal companies: Sumitomo Mitsui Banking Corporation (“SMBC”) SMBC Trust Bank Ltd SMBC Nikko Securities Inc. (“SMBC Nikko”) Sumitomo Mitsui Card Company, Limited (“SMCC”) Cedyna Financial Corporation SMBC Consumer Finance Co., Ltd. The Japan Research Institute, Limited Sumitomo Mitsui DS Asset Management Company, Limited (“SMDAM”) Sumitomo Mitsui Banking Corporation Europe Limited Sumitomo Mitsui Banking Corporation (China) Limited PT Bank BTPN Tbk SMBC Americas Holdings, Inc. SMBC Guarantee Co., Ltd. Changes in the consolidated subsidiaries in the fiscal year ended March 31, 2020 are as follows: TT International Asset Management Ltd and 15 other companies were newly included in the scope of consolidation as a result of acquisition of shares and for other reasons. SMM Auto Finance, Inc. and 14 other companies were excluded from the scope of consolidation as they ceased to be subsidiaries due to the sale of their stocks and for other reasons. (2) Unconsolidated subsidiaries Principal company: SBCS Co., Ltd. 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 immaterial, as such, they do not hinder a rational judgment of the financial position and results of operations of the Company and its consolidated subsidiaries when excluded from the scope of consolidation. 2. Application of the equity method (1) Unconsolidated subsidiaries accounted for by the equity method The number of unconsolidated subsidiaries accounted for by the equity method at March 31, 2020 is 5. Principal company: (2) Equity method affiliates SBCS Co., Ltd. The number of affiliates accounted for by the equity method at March 31, 2020 is 96. Principal companies: Sumitomo Mitsui Finance and Leasing Company, Limited Sumitomo Mitsui Auto Service Company, Limited Changes in the equity method affiliates in the fiscal year ended March 31, 2020 are as follows: 3 companies became equity method affiliates due to new establishment. Daiwa SB Investments Ltd. and 16 other companies were excluded from the scope of equity method affiliates as they ceased to be affiliates due to merger and for other reasons. (3) Unconsolidated subsidiaries that are not accounted for by the equity method There are no corresponding companies. (4) Affiliates that are not accounted for by the equity method Principal company: Affiliates that are not accounted for by the equity method are also excluded from the scope of equity method because their total Park Square Capital / SMBC Loan Programme S. à r. l. amounts in terms of net income and retained earnings are immaterial, and as such, they do not hinder a rational judgment of the Company’s financial position and results of operations when excluded from the scope of equity method. 3. The balance sheet dates of consolidated subsidiaries (1) The balance sheet dates of the consolidated subsidiaries at March 31, 2020 are as follows: 4 2 82 1 85 June 30.................................. October 31............................. December 31.......................... January 31.............................. March 31................................ 168 010_0800801372008.indd 168 2020/08/21 16:48:10 Sumitomo Mitsui Financial GroupSMBC GROUP ANNUAL REPORT 2020Notes to Consolidated Financial Statements (2) The subsidiaries with balance sheets dated June 30 are consolidated using the financial statements as of March 31, the subsidiaries with balance sheets dated October 31 are consolidated using the financial statements as of January 31 and a subsidiary with balance sheets dated January 31 as well as certain subsidiaries with balance sheets dated December 31 are consolidated using the financial statements as of March 31. Other subsidiaries are consolidated using the financial statements as of their respective balance sheet dates. Appropriate adjustments were made to material transactions during the periods between their respective balance sheet dates and the consolidated closing date. 4. Accounting policies (1) Standards for recognition and measurement of trading assets/liabilities and trading income/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 sheets on a trade date basis. Profits and losses on trading-purpose transactions are recognized on a trade date basis, and recorded as “Trading income” and “Trading losses” on the consolidated statements of income. 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 income” and “Trading losses” include interest received or paid during the fiscal year. The year-on-year valuation differences of securities and monetary claims are also recorded in the above-mentioned accounts. As for the derivatives, assuming that the settlement will be made in cash, the year-on-year valuation differences are also recorded in the above-mentioned accounts. (2) Standards for recognition and measurement of securities 1) 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 (based on straight-line method) using the moving-average method. Investments in 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 (including foreign stocks) in other securities are carried at their average market prices during the final month of the fiscal year, and bonds and others are carried at their fiscal year-end market prices (cost of securities sold is calculated using primarily the moving-average method). Other securities which are extremely difficult to determine fair value are carried at cost using the moving-average method. Net unrealized gains (losses) on other securities, net of income taxes, are included in “Net assets” except for the amount reflected on the gains or losses by applying fair value hedge accounting. 2) Securities included in money held in trust are carried in the same method as in (1) and (2), 1) above. (3) Standards for recognition and measurement of derivative transactions Derivative transactions, excluding those classified as trading derivatives, are carried at fair value. (4) Depreciation 1) Tangible fixed assets (excluding assets for rent and lease assets) Buildings owned by the Company and SMBC, which is a consolidated subsidiary of the Company, are depreciated using the straight- line method. Others are depreciated using the declining-balance method. The estimated useful lives of major items are as follows: Buildings: Others: Other consolidated subsidiaries depreciate tangible fixed assets primarily using the straight-line method over the estimated useful 7 to 50 years 2 to 20 years 2) lives of the respective assets. Intangible fixed assets Intangible fixed assets are depreciated using the straight-line method. Capitalized software for internal use owned by the Company and its consolidated domestic subsidiaries is depreciated over its estimated useful life (5 to 10 years). 3) Assets for rent Assets for rent are depreciated using the straight-line method, assuming that lease terms are, in principle, their depreciation period and the salvage is estimated disposal value when the lease period expires. 4) Lease assets Lease assets with respect to non-transfer ownership finance leases, which are recorded in “Tangible fixed assets,” are depreciated using the straight-line method, assuming that lease terms are their expected lifetime and salvage values are zero. 010_0800801372008.indd 169 169 2020/08/21 16:48:10 Sumitomo Mitsui Financial GroupSMBC GROUP ANNUAL REPORT 2020Notes to Consolidated Financial Statements(5) Reserve for possible loan losses The reserve for possible loan losses of major consolidated subsidiaries 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 assessment 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, which is a consolidated subsidiary of the Company, 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 primarily provided by setting the potential losses in the next one year or three years. The potential losses are calculated by determining the loss ratio based on the historical loan-loss ratio derived from actual loan losses or bankruptcies in the past one year or three years, or average (of a certain period) probability of bankruptcies, and by making necessary adjustments including future estimations. In addition, in light of the latest economic situation and risk factors, for potential losses for specific portfolios that are based on the future prospects with high probability, but cannot be reflected in actual loan losses in the past and in any individual borrower’s classification, a reserve is provided in the amount deemed necessary based on an overall assessment. For claims originated in specific overseas countries, an additional 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 reserve for possible loan losses of other consolidated subsidiaries 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 borrowers 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 for the years ended March 31, 2019 and 2020 were ¥139,981 million and ¥142,834 million, respectively. (6) Reserve for employee bonuses The reserve for employee bonuses is provided for payment of bonuses to employees, in the amount of estimated bonuses, which are attributable to the fiscal year. (7) Reserve for executive bonuses The reserve for executive bonuses is provided for payment of bonuses to executives, in the amount of estimated bonuses, which are attributable to the fiscal year. (8) Reserve for executive retirement benefits The reserve for executive retirement benefits is provided for payment of retirement benefits to directors, corporate auditors and other corporate executive officers, in the amount deemed accrued at the fiscal year-end based on our internal regulations. (9) Reserve for point service program The reserve for point service program is provided for the potential future redemption of points awarded to customers under the “SMBC Point Pack,” credit card points programs, and other customer points award programs. The amount is calculated by converting the outstanding points into a monetary amount, and rationally estimating and recognizing the amount that will be redeemed in the future. (10) Reserve for reimbursement of deposits The reserve for reimbursement of deposits which were derecognized as liabilities under certain conditions is provided for the possible losses on the future claims of withdrawal based on the historical reimbursements. (11) Reserve for losses on interest repayment The reserve for losses on interest repayment is provided for the possible losses on future claims of repayment of interest based on historical interest repayment experience. (12) Reserve under the special laws The reserve under the special laws is a reserve for contingent liabilities and provided for compensation for losses from securities related transactions or derivative transactions, pursuant to Article 46-5 of the Financial Instruments and Exchange Act. 170 010_0800801372008.indd 170 2020/08/21 16:48:10 Sumitomo Mitsui Financial GroupSMBC GROUP ANNUAL REPORT 2020Notes to Consolidated Financial Statements(13) Employee retirement benefits In calculating the projected benefit obligation, mainly the benefit formula basis is used to attribute the expected benefit attributable to the respective fiscal year. Unrecognized prior service cost is amortized on a straight-line basis, primarily over 9 years within the employees’ average remaining service period at incurrence. Unrecognized net actuarial gain (loss) is amortized on a straight-line basis, primarily over 9 years within the employees’ average remaining service period, commencing from the next fiscal year of incurrence. (14) Translation of foreign currency assets and liabilities Assets and liabilities of the Company and SMBC, which is a consolidated subsidiary of the Company, denominated in foreign 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. (15) Lease transactions 1) Recognition of income on finance leases Interest income is allocated to each period. 2) Recognition of income on operating leases 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. 3) 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 period of the installment sales. (16) Hedge accounting 1) Hedging against interest rate changes As for the hedge accounting method applied to hedging transactions for interest rate risk arising from financial assets and liabilities, SMBC, which is a consolidated subsidiary of the Company, applies deferred 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” (JICPA Industry Audit Committee Report No. 24, February 13, 2002) to portfolio 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 correlation between the hedged items and the hedging instruments. As for the individual hedges, SMBC also assesses the effectiveness of such individual hedges. 2) Hedging against currency fluctuations SMBC, which is a consolidated subsidiary of the Company, 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, July 29, 2002) to currency swap and foreign exchange swap transactions executed for the purpose of lending or borrowing funds in different currencies. Pursuant to JICPA Industry Audit Committee Report No. 25, SMBC assesses the effectiveness of currency swap and foreign exchange swap transactions executed for the purpose of 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 securities (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. 3) Hedging against share price fluctuations SMBC, which is a consolidated subsidiary of the Company, applies fair value hedge accounting to individual hedges offsetting the price fluctuation of the shares that are classified under other securities, and accordingly evaluates the effectiveness of such individual hedges. 4) 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 manages the interest rate swaps and currency swaps that are designated as hedging instruments in accordance with the non-arbitrary and strict criteria for external transactions stipulated in JICPA Industry Audit Committee Report No. 24 and No. 25. Therefore, SMBC accounts for the gains or losses that arise from interest rate swaps and currency swaps in its earnings or defers them, rather than eliminating them. Certain other consolidated subsidiaries apply the deferred hedge accounting, fair value hedge accounting or the special treatment for interest rate swaps. 010_0800801372008.indd 171 171 2020/08/21 16:48:11 Sumitomo Mitsui Financial GroupSMBC GROUP ANNUAL REPORT 2020Notes to Consolidated Financial Statements(17) Amortization of goodwill Goodwill is amortized using the straight-line method over a period in which its benefit is expected to be realized, not to exceed 20 years. Immaterial goodwill is charged or credited to income directly when incurred. (18) Scope of “Cash and cash equivalents” on consolidated statements of cash flows For the purpose of presenting the consolidated statements of cash flows, “Cash and cash equivalents” are cash on hand, non-interest earning deposits with banks and deposits with the Bank of Japan. (19) Consumption taxes National and local consumption taxes of the Company and its consolidated domestic subsidiaries are accounted for using the tax- excluded method. (20) Adoption of the consolidated corporate-tax system The Company and certain consolidated domestic subsidiaries apply the consolidated corporate-tax system. (Unapplied Accounting Standards and Others) 1. “Revised Accounting Standard for Revenue Recognition” (ASBJ Statement No.29) etc. (issued March 30, 2018, revised March 31, 2020) (1) Outline The accounting standard etc. provide comprehensive principles for revenue recognition by taking into account of international trends. The principles of revenue recognition in the standard etc. are to recognize revenue by depicting the transfer of promised goods or services to customers in an amount that reflects the consideration expected to be earned in exchange for those goods or services. (2) Date of Application The Company will apply the standard etc. from the beginning of the fiscal year commencing on April 1, 2021. (3) Effects of Application of the Accounting Standard etc. The effects of the application of the accounting standard etc. are currently being assessed. 2. “Accounting Standard for Fair Value Measurement” (ASBJ Statement No.30) etc. (issued July 4, 2019) (1) Outline The accounting standard etc. provide the guidance regarding methods of measuring fair values to improve comparability with those stipulated by international accounting standards. (2) Date of Application The Company applies the standard etc. from the beginning of the fiscal year commencing on April 1, 2020. (3) Effects of Application of the Accounting Standard etc. The effects of the application of the accounting standard etc. are currently being assessed. 3. “Accounting Standard for Disclosure of Accounting Estimates ” (ASBJ Statement No.31) (issued March 31, 2020) (1) Outline The accounting standard aims to disclose information to help users of financial statements to understand accounting estimates for items with risks that could have significant effects on consolidated financial statements of the following fiscal year, among the amounts determined by the accounting estimates on consolidated financial statements of the current fiscal year. (2) Date of Application The Company will apply the standard etc. from the end of the fiscal year ending on March 31, 2021. 4. “Revised Accounting Standard for Accounting Policy Disclosures, Accounting Changes and Error Corrections” (ASBJ Statement No.24) (revised March 31, 2020) (1) Outline The accounting standard aims to provide the outline of adopted accounting principles and procedures in case that provisions of related accounting standards etc. are not evident. (2) Date of Application The Company will apply the standard etc. from the end of the fiscal year ending on March 31, 2021. 172 010_0800801372008.indd 172 2020/08/21 16:48:11 Sumitomo Mitsui Financial GroupSMBC GROUP ANNUAL REPORT 2020Notes to Consolidated Financial Statements(Additional information) 1. The estimates of reserve for possible loan losses related to the increasing impact of the spread of the novel coronavirus disease (COVID-19) The estimates of reserve for possible loan losses related to the increased impact of COVID-19 are reflected in the consolidated financial statements using the following method. For potential losses related to individual borrowers due to deterioration in business performance and funding, a reserve for possible loan losses is provided by reviewing, as necessary, the borrower’s classification based on the most recent available information. In addition, for potential losses for specific portfolios that are based on the future prospects with high probability, which cannot be reflected in any of individual borrower’s classification, a reserve is provided in the amount deemed necessary based on an overall assessment in light of impacts such as fluctuations in market indices including crude oil price due to factors such as COVID-19. 2. Transition from the consolidated corporate-tax system to the group tax sharing system Companies are required to shift from the consolidated corporate-tax system to the group tax sharing system from the fiscal year beginning on or after April 1, 2022, in accordance with the “Act for Partial Amendment of the Income Tax Act, etc.” (Act No. 8, 2020) enacted on March 31, 2020. However, the Company and certain consolidated domestic subsidiaries, currently adopting the consolidated corporate-tax system, applied the accounting treatment based on the provisions of the Income Tax Act before the amendment for the fiscal year ended March 31, 2020, in accordance with the “Practical Solution on the Treatment of Tax Effect Accounting for the Transition from the Consolidated Taxation System to the Group Tax Sharing System” (ASBJ Practical Issue Task Force No. 39, March 31, 2020). (Notes to consolidated balance sheets) *1 Stocks and investments in unconsolidated subsidiaries and affiliates Stocks and investments in unconsolidated subsidiaries and affiliates at March 31, 2019 and 2020 were as follows: March 31 Stocks ............................................................................................................................... Investments ...................................................................................................................... 2019 ¥969,481 6,368 2020 ¥943,980 661 Millions of yen Stocks of jointly controlled entities were as follows: March 31 Stocks of jointly controlled entities ................................................................................... 2019 ¥340,821 2020 ¥322,598 Millions of yen *2 Unsecured loaned securities for which borrowers have the right to sell or pledge The amount of unsecured loaned securities for which borrowers have the right to sell or pledge at March 31, 2019 and 2020 were as follows: March 31 Japanese government bonds in “Securities” ....................................................................... 2019 ¥902 2020 ¥— Millions of yen As for the unsecured borrowed securities, securities under resale agreements and securities borrowed with cash collateral with rights to sell or pledge without restrictions, those securities pledged, those securities lent and those securities held without being disposed at March 31, 2019 and 2020 were as follows: March 31 Securities pledged ............................................................................................................. Securities lent ................................................................................................................... Securities held without being disposed ............................................................................. 2019 ¥7,270,140 140,772 2,232,706 2020 ¥11,030,067 171,224 2,546,017 Millions of yen 010_0800801372008.indd 173 173 2020/08/21 16:48:11 Sumitomo Mitsui Financial GroupSMBC GROUP ANNUAL REPORT 2020Notes to Consolidated Financial Statements *3 Bankrupt loans and non-accrual loans Bankrupt loans and non-accrual loans at March 31, 2019 and 2020 were as follows: March 31 Bankrupt loans ................................................................................................................. Non-accrual loans ............................................................................................................. 2019 ¥ 12,806 456,802 2020 ¥ 13,978 378,173 Millions of yen “Bankrupt loans” are loans, after write-off, to legally bankrupt borrowers as defined in Article 96-1-3 and 96-1-4 of “Order for Enforcement of the Corporation Tax Act” (Cabinet Order No. 97 of 1965) and on which accrued interest income is not recognized as there is substantial doubt about the ultimate collectability of either principal or interest because they are past due for a considerable period of time or for other reasons. “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. *4 Past due loans (3 months or more) Past due loans (3 months or more) at March 31, 2019 and 2020 were as follows: March 31 Past due loans (3 months or more) .................................................................................... 2019 ¥13,444 2020 ¥14,400 Millions of yen “Past due loans (3 months or more)” are loans on which the principal or interest payment is past due for 3 months or more, excluding “Bankrupt loans” and “Non-accrual loans.” *5 Restructured loans Restructured loans at March 31, 2019 and 2020 were as follows: March 31 Restructured loans ............................................................................................................ 2019 ¥193,427 2020 ¥221,288 Millions of yen “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).” *6 Risk-monitored loans The total amount of bankrupt loans, non-accrual loans, past due loans (3 months or more) and restructured loans at March 31, 2019 and 2020 were as follows: March 31 Risk-monitored loans ....................................................................................................... 2019 ¥676,481 2020 ¥627,840 Millions of yen The amounts of loans presented in Notes *3 to *6 above are the amounts before deduction of reserve for possible loan losses. *7 Bills discounted Bills discounted are accounted for as financial transactions in accordance with the “Treatment for Accounting and Auditing of Application of Accounting Standard for Financial Instruments in Banking Industry” (JICPA Industry Audit Committee Report No. 24, February 13, 2002). SMBC and its banking subsidiaries have rights to sell or pledge bank acceptance bought, commercial bills discounted, documentary bills and foreign exchanges bought without restrictions, etc. The total face value at March 31, 2019 and 2020 were as follows: March 31 Bills discounted ................................................................................................................ 2019 ¥906,636 2020 ¥850,324 Millions of yen 174 010_0800801372008.indd 174 2020/08/21 16:48:11 Sumitomo Mitsui Financial GroupSMBC GROUP ANNUAL REPORT 2020Notes to Consolidated Financial Statements*8 Assets pledged as collateral Assets pledged as collateral at March 31, 2019 and 2020 consisted of the following: March 31, 2019 Assets pledged as collateral: Cash and due from banks ..................................... ¥ 7,353 11,459 Monetary claims bought ...................................... 514,328 Trading assets ...................................................... 6,286,499 Securities ............................................................. 9,086,500 Loans and bills discounted ................................... Millions of yen March 31, 2020 Millions of yen Assets pledged as collateral: 78,112 Cash and due from banks ..................................... ¥ Trading assets ...................................................... 834,864 Securities ............................................................. 10,502,767 Loans and bills discounted ................................... 10,679,243 Liabilities corresponding to assets pledged as collateral: Liabilities corresponding to assets pledged as collateral: Deposits .............................................................. Payables under repurchase agreements ................. Payables under securities lending transactions ..... Borrowed money ................................................. Due to trust account ............................................ Acceptances and guarantees ................................. 26,089 5,762,587 1,582,791 7,922,955 124,550 167,027 21,908 Deposits .............................................................. 6,670,132 Payables under repurchase agreements ................. Payables under securities lending transactions ..... 2,334,251 Borrowed money ................................................. 10,587,419 432,135 Due to trust account ............................................ 103,886 Acceptance and guarantees .................................. In addition to the assets presented above, the following assets were pledged as collateral for cash settlements, and substitution for margins of futures transactions and certain other purposes at March 31, 2019 and 2020: March 31, 2019 Cash and due from banks .......................................... ¥ 41,584 Trading assets ........................................................... 1,591,280 4,812,271 Securities .................................................................. 853,603 Loans and bills discounted ........................................ Cash and due from banks .......................................... ¥ 12,543 Trading assets ........................................................... 1,179,599 3,570,617 Securities .................................................................. 10,350 Loans and bills discounted ........................................ Millions of yen March 31, 2020 Millions of yen Other assets include collateral money deposited for financial instruments, surety deposits, margin of futures markets and other margins. The amounts for such assets were as follows: March 31, 2019 Collateral money deposited for financial instruments .... ¥2,240,739 Collateral money deposited for financial instruments .... ¥1,630,600 87,976 92,281 Surety deposits ......................................................... Surety deposits ......................................................... 101,838 64,340 Margins of futures markets ....................................... Margins of futures markets ....................................... Other margins .......................................................... 46,569 Other margins .......................................................... 43,365 Millions of yen March 31, 2020 Millions of yen *9 Commitment line contracts on overdrafts and loans 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, 2019 and 2020 were as follows: March 31 The amounts of unused commitments .............................................................................. The amounts of unused commitments whose original contract terms are within 1 year or unconditionally cancelable at any time............................................................................ Millions of yen 2019 ¥62,409,943 2020 ¥61,881,806 44,048,947 44,330,598 Since many of these commitments are expected to expire without being drawn upon, the total amount of unused commitments does not necessarily 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 such need arises and securing claims after the contracts are made. 010_0800801372008.indd 175 175 2020/08/21 16:48:11 Sumitomo Mitsui Financial GroupSMBC GROUP ANNUAL REPORT 2020Notes to Consolidated Financial Statements *10 Land revaluation excess SMBC, a consolidated subsidiary of the Company, revalued its own land for business activities in accordance with “Act on Revaluation of Land” (the “Act”) (Act No. 34, effective March 31, 1998) and “Act for Partial Revision of Act on Revaluation of Land” (Act No. 19, effective March 31, 2001). The income taxes corresponding to the net unrealized gains are reported in “Liabilities” as “Deferred tax liabilities for land revaluation excess,” and the Company’s share of the net unrealized gains, net of deferred taxes, are reported as “Land revaluation excess” in “Net assets.” Certain equity method affiliates also revalued its own land for business activities in accordance with the Act. The Company’s share of the net unrealized gains and 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 equity method affiliates: March 31, 1999 and March 31, 2002 Method of revaluation (stipulated in Article 3-3 of the Act) 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 “Order for Enforcement of Act on Revaluation of Land” (Cabinet Order No. 119 effective March 31, 1998). Certain equity method affiliates: Fair values were determined based on the values stipulated in Article 2-3 and 2-5 of “Order for Enforcement of Act on Revaluation of Land” (Cabinet Order No. 119 effective March 31, 1998). *11 Accumulated depreciation on tangible fixed assets Accumulated depreciation on tangible fixed assets at March 31, 2019 and 2020 were as follows: March 31 Accumulated depreciation ................................................................................................ 2019 ¥741,648 2020 ¥783,544 Millions of yen *12 Deferred gain on tangible fixed assets deductible for tax purposes Deferred gain on tangible fixed assets deductible for tax purposes at March 31, 2019 and 2020 were as follows: March 31 Deferred gain on tangible fixed assets deductible for tax purposes ..................................... [The consolidated fiscal year concerned] ....................................................................... 2019 ¥62,127 [—] 2020 ¥62,099 [—] Millions of yen *13 Subordinated borrowings The balance of subordinated borrowings in “Borrowed money” at March 31, 2019 and 2020 were as follows: March 31 Subordinated borrowings .................................................................................................. 2019 ¥257,000 2020 ¥249,000 Millions of yen *14 Subordinated bonds The balance of subordinated bonds included in “Bonds” at March 31, 2019 and 2020 were as follows: March 31 Subordinated bonds .......................................................................................................... 2019 ¥2,195,130 2020 ¥2,216,743 Millions of yen *15 Borrowings from trust account in relation to covered bonds issued by trust account The amount of borrowings from trust account in relation to covered bonds issued by trust account included in “Due to trust account” at March 31, 2019 and 2020 were as follows: March 31 The amount of borrowings from trust account in relation to covered bonds issued Millions of yen 2019 2020 by trust account ........................................................................................................... ¥124,550 ¥432,135 176 010_0800801372008.indd 176 2020/08/21 16:48:11 Sumitomo Mitsui Financial GroupSMBC GROUP ANNUAL REPORT 2020Notes to Consolidated Financial Statements*16 Guaranteed amount to privately-placed bonds The amount guaranteed by SMBC and its banking subsidiaries to privately-placed bonds (stipulated by Article 2-3 of the Financial Instruments and Exchange Act) in “Securities” at March 31, 2019 and 2020 were as follows: March 31 Guaranteed amount to privately-placed bonds .................................................................. 2019 ¥1,662,777 2020 ¥1,603,941 Millions of yen (Notes to consolidated statements of income) *1 Other income “Other” in “Other income” for the fiscal years ended March 31, 2019 and 2020 included the following: Year ended March 31, 2019 Gains on sales of stocks ............................................. Millions of yen Year ended March 31, 2020 ¥134,748 Gains on sales of stocks ............................................. Millions of yen ¥154,735 *2 General and administrative expenses “General and administrative expenses” for the fiscal years ended March 31, 2019 and 2020 included the following: Year ended March 31, 2019 Salaries and related expenses ..................................... Research and development costs ............................... Millions of yen Year ended March 31, 2020 ¥641,844 167 Salaries and related expenses ..................................... Depreciation expense ................................................ Research and development costs ............................... Millions of yen ¥618,071 180,765 77 *3 Other expenses “Other expenses” for the fiscal years ended March 31, 2019 and 2020 included the following: Year ended March 31, 2019 Write-off of loans...................................................... Millions of yen Year ended March 31, 2020 ¥105,429 Write-off of loans...................................................... Write-off of stocks and others ................................... Millions of yen ¥105,307 45,374 *4 Other extraordinary gains “Other extraordinary gains” for the fiscal year ended March 31, 2019 and 2020 including the following gains: Year ended March 31, 2019 Gains on step acquisitions ........................................ Millions of yen Year ended March 31, 2020 ¥2,285 Gains on step acquisitions ........................................ Millions of yen ¥22,040 010_0800801372008.indd 177 177 2020/08/21 16:48:11 Sumitomo Mitsui Financial GroupSMBC GROUP ANNUAL REPORT 2020Notes to Consolidated Financial Statements*5 Losses on impairment of fixed assets The differences between the recoverable amounts and the book value of the following asset is recognized as “Losses on impairment of fixed assets,” and included in “Extraordinary losses” for the fiscal year ended March 31, 2019 and 2020. Year ended March 31, 2019 Area Purpose of use Type Tokyo metropolitan area ...............................Branches (14 items) Idle assets (64 items) Land and buildings, etc. Kinki area ....................................................Branches (7 items) Land and buildings, etc. Other ...........................................................Branches (2 items) Land and buildings, etc. Idle assets (40 items) — Year ended March 31, 2020 Area Idle assets (19 items) — Intangible fixed assets Purpose of use Type Tokyo metropolitan area ...............................Branches (21 items) Idle assets (87 items) Land and buildings, etc. Kinki area ....................................................Branches (7 items) Land and buildings, etc. Other area in Japan .......................................Branches (5 items) Land and buildings, etc. Idle assets (57 items) Americas ......................................................Lease assets for freight cars — — Idle assets (20 items) Assets for rent Goodwill and other intangible fixed assets Millions of yen Impairment loss ¥ 205 2,335 77 2,139 258 889 3,703 Millions of yen Impairment loss ¥ 2,180 6,221 769 1,105 456 609 13,805 39,958 As for land and building, etc., at SMBC, a consolidated subsidiary of the Company, a branch, which continuously manages and determines its income and expenses, is the smallest unit of asset group for recognition and measurement of impairment loss of land and buildings, etc. Assets such as corporate headquarters facilities, training facilities, data and system centers, and health and recreational facilities which do not produce cash flows that can be attributed to individual assets are treated as corporate assets. As for idle assets, impairment loss is measured individually. At other consolidated subsidiaries, a branch or other group is the smallest asset grouping unit as well. The carrying amounts of idle assets at SMBC are reduced to their recoverable amounts, and the decreased amounts are included in “Extraordinary losses” as “Losses on impairment of fixed assets,” if there are indicators that the invested amounts may not be recoverable. The recoverable amount is calculated using net realizable value which is basically determined by subtracting the expected disposal cost from the appraisal value based on the Real Estate Appraisal Standard. Assets for rent are grouped by type of freight cars. For the fiscal year ended March 31, 2020, the carrying amounts of some of the freight cars were reduced to their recoverable amounts, and the decreased amounts were included in “Extraordinary losses” as “Losses on impairment of fixed assets,” as the invested amounts were considered not to be recoverable. The recoverable amount is measured by value in use, which is calculated by discounting future cash flows by 6%. For goodwill and other intangible fixed assets, a consolidated subsidiary is the main unit of asset group. For the fiscal year ended March 31, 2020, SMBC Trust Bank Ltd. reviewed its future cash flows in view of the current market environment. As a result, all of the unamortized balance of goodwill and other intangible fixed assets at the end of the fiscal year ended March 31, 2020 were included in “Extraordinary losses” as “Losses on impairment of intangible fixed assets,” as the carrying amounts of the aforementioned assets associated with its PRESTIA business were considered not to be recoverable. The recoverable amount is measured by value in use, which is calculated by discounting future cash flows by 6%. 178 010_0800801372008.indd 178 2020/08/21 16:48:11 Sumitomo Mitsui Financial GroupSMBC GROUP ANNUAL REPORT 2020Notes to Consolidated Financial Statements(Notes to consolidated statements of comprehensive income) *1 Reclassification adjustment and tax effect of other comprehensive income Year ended March 31 Net unrealized gains (losses) on other securities: Amount arising during the fiscal year .......................................................................... Reclassification adjustments ........................................................................................ Before adjustments to tax effect .............................................................................. Tax effect ................................................................................................................ Net unrealized gains (losses) on other securities ...................................................... Net deferred gains (losses) on hedges: Amount arising during the fiscal year .......................................................................... Reclassification adjustments ........................................................................................ Before adjustments to tax effect .............................................................................. Tax effect ................................................................................................................ Net deferred gains (losses) on hedges ...................................................................... Land revaluation excess: Amount arising during the fiscal year .......................................................................... Reclassification adjustments ........................................................................................ Before adjustments to tax effect .............................................................................. Tax effect ................................................................................................................ Land revaluation excess ........................................................................................... Foreign currency translation adjustments: Amount arising during the fiscal year .......................................................................... Reclassification adjustments ........................................................................................ Before adjustments to tax effect .............................................................................. Tax effect ................................................................................................................ Foreign currency translation adjustments ............................................................... Remeasurements of defined benefit plans: Amount arising during the fiscal year .......................................................................... Reclassification adjustments ........................................................................................ Before adjustments to tax effect .............................................................................. Tax effect ................................................................................................................ Remeasurements of defined benefit plans ................................................................ Share of other comprehensive income of affiliates: Amount arising during the fiscal year .......................................................................... Reclassification adjustments ........................................................................................ Before adjustments to tax effect .............................................................................. Tax effect ................................................................................................................ Share of other comprehensive income of affiliates .................................................... Total other comprehensive income ..................................................................... Millions of yen 2019 2020 ¥ 67,769 (142,464) (74,694) 105,852 31,157 381 40,513 40,895 (10,914) 29,981 — — — — — 13,212 (2,815) 10,396 — 10,396 (80,149) (15,063) (95,212) 29,682 (65,530) (22,857) 19,886 (2,970) — (2,970) ¥ 3,035 ¥(203,676) (211,281) (414,958) 100,166 (314,792) 128,887 110,070 238,957 (72,779) 166,177 — — — (39) (39) (74,067) 15 (74,052) — (74,052) (125,218) 5,429 (119,789) 35,369 (84,420) (42,843) 1,979 (40,864) — (40,864) ¥(347,990) 010_0800801372008.indd 179 179 2020/08/21 16:48:11 Sumitomo Mitsui Financial GroupSMBC GROUP ANNUAL REPORT 2020Notes to Consolidated Financial Statements (Notes to consolidated statements of changes in net assets) Fiscal year ended March 31, 2019 1. Type and number of shares issued and treasury stock Year ended March 31, 2019 Shares issued At the beginning of the fiscal year Increase Decrease At the end of the fiscal year Number of shares Common stock .................................... Total ............................................... 1,414,443,390 1,414,443,390 326,330 326,330 15,368,300 15,368,300 1,399,401,420 1,399,401,420 Treasury stock Common stock .................................... Total ............................................... 3,884,968 3,884,968 15,390,528 15,390,528 15,474,578 15,474,578 3,800,918 3,800,918 Notes 1,2 3,4 Notes: 1. The increase of 326,330 shares in the total number of shares issued was due to issuance of new stocks as stock-based compensation. 2. The decrease of 15,368,300 shares in the total number of shares issued was due to cancellation of treasury stock. 3. The increase of 15,390,528 shares in the number of treasury common stock comprises the increase of 22,228 shares due to purchase of fractional shares, and the increase of 15,368,300 shares due to purchase of treasury stock. 4. The decrease of 15,474,578 shares in the number of treasury common stock comprises the decrease of 106,278 shares due to sales of fractional shares as well as exercise of stock option, and the decrease of 15,368,300 shares due to cancellation of treasury stock. 2. Information on stock acquisition rights Year ended March 31, 2019 The Company Consolidated subsidiaries ... Total ................................ Details of stock acquisition rights Stock acquisition rights as stock options — 3. Information on dividends (1) Dividends paid in the fiscal year Type of shares At the beginning of the fiscal year Increase Decrease At the end of the fiscal year Number of shares Millions of yen At the end of the fiscal year Notes — — — — — — — — — — ¥2,539 2,210 ¥4,750 Date of resolution Ordinary General Meeting of Shareholders held on June 28, 2018 ................................ Common stock Meeting of the Board of Directors held on November 13, 2018 ................................... Common stock Type of shares (2) Dividends to be paid in the next fiscal year Millions of yen, except per share amount Cash dividends Cash dividends per share Record date Effective date ¥126,950 ¥90 March 31, 2018 June 29, 2018 118,626 85 September 30, 2018 December 4, 2018 Date of resolution Ordinary General Meeting of Shareholders held on June 27, 2019 ................................ Common stock Type of shares Millions of yen, except per share amount Cash dividends ¥132,582 Source of dividends Retained earnings Cash dividends per share Record date Effective date ¥95 March 31, 2019 June 28, 2019 180 010_0800801372008.indd 180 2020/08/21 16:48:11 Sumitomo Mitsui Financial GroupSMBC GROUP ANNUAL REPORT 2020Notes to Consolidated Financial Statements Fiscal year ended March 31, 2020 1. Type and number of shares issued and treasury stock Year ended March 31, 2020 Shares issued At the beginning of the fiscal year Increase Decrease At the end of the fiscal year Number of shares Common stock .................................... Total ............................................... 1,399,401,420 1,399,401,420 272,536 272,536 26,502,400 26,502,400 1,373,171,556 1,373,171,556 Treasury stock Common stock .................................... Total ............................................... 3,800,918 3,800,918 26,525,707 26,525,707 26,681,582 26,681,582 3,645,043 3,645,043 Notes 1,2 3,4 Notes: 1. The increase of 272,536 shares in the total number of shares issued was due to issuance of new stocks as stock-based compensation. 2. The decrease of 26,502,400 shares in the total number of shares issued was due to cancellation of treasury stock. 3. The increase of 26,525,707 shares in the number of treasury common stock comprises the increase of 23,307 shares due to purchase of fractional shares, and the increase of 26,502,400 shares due to purchase of treasury stock. 4. The decrease of 26,681,582 shares in the number of treasury common stock comprises the decrease of 179,182 shares due to sales of fractional shares as well as exercise of stock option, and the decrease of 26,502,400 shares due to cancellation of treasury stock. 2. Information on stock acquisition rights Year ended March 31, 2020 The Company Total ................................ Details of stock acquisition rights Stock acquisition rights as stock options 3. Information on dividends (1) Dividends paid in the fiscal year Type of shares At the beginning of the fiscal year Increase Decrease At the end of the fiscal year Number of shares Millions of yen At the end of the fiscal year Notes — — — — — ¥2,064 ¥2,064 Date of resolution Ordinary General Meeting of Shareholders held on June 27, 2019 ................................ Common stock Meeting of the Board of Directors held on November 12, 2019 ................................... Common stock Type of shares (2) Dividends to be paid in the next fiscal year Millions of yen, except per share amount Cash dividends Cash dividends per share Record date Effective date ¥132,582 ¥95 March 31, 2019 June 28, 2019 123,252 90 September 30, 2019 December 3, 2019 Date of resolution Ordinary General Meeting of Shareholders held on June 26, 2020 ................................ Common stock Type of shares Millions of yen, except per share amount Cash dividends ¥136,952 Source of dividends Retained earnings Cash dividends per share Record date Effective date ¥100 March 31, 2020 June 29, 2020 010_0800801372008.indd 181 181 2020/08/21 16:48:11 Sumitomo Mitsui Financial GroupSMBC GROUP ANNUAL REPORT 2020Notes to Consolidated Financial Statements (Notes to consolidated statements of cash flows) *1 Reconciliation of balance of “Cash and cash equivalents” at the end of the fiscal year and the amounts of items stated in the consolidated balance sheet Year ended March 31 Cash and due from banks .................................................................................................. Interest earning deposits with banks (excluding the deposit with the Bank of Japan) ........ Cash and cash equivalents ................................................................................................. 2019 ¥57,411,276 (4,290,312) ¥53,120,963 2020 ¥61,768,573 (5,670,766) ¥56,097,807 Millions of yen *2 The major components of assets and liabilities for the companies newly consolidated by stock acquisition and for other reasons The major components of assets and liabilities at the commencement of consolidation due to consolidation of PT Bank Tabungan Pensiunan Nasional Tbk (“BTPN”) and 1 other company by SMBC’s stock acquisition and the relation between the acquisition cost of the shares and expenditure to acquire were as follows: Year ended March 31, 2019 Assets ............................................................................................................................... Loans and bills discounted ........................................................................................... Liabilities ......................................................................................................................... Deposits ...................................................................................................................... Foreign currency translation adjustments .......................................................................... Stock acquisition rights .................................................................................................... Non-controlling interests ................................................................................................. Goodwill .......................................................................................................................... Acquisition cost of 2 companies ........................................................................................ Cash and cash equivalents included in acquired assets of 2 companies ............................... Fair value of BTPN’s common stocks immediately prior to the business combination ....... Expenditure for acquisition of 2 companies ....................................................................... Millions of yen ¥ 837,523 522,918 (643,346) (538,529) 5,049 (2,141) (12,402) 4,707 189,390 (54,182) (78,025) ¥ 57,182 *3 The major components of assets and liabilities of companies which were excluded from the scope of consolidation by sale of the shares The major components of assets and liabilities of Sumitomo Mitsui Finance and Leasing Company, Limited (“SMFL”) and 184 other companies which were excluded from the scope of consolidation due to the partial sale of SMFL’s stock by the Company and the relation between the selling price of the shares and the income for sales were as follows: Year ended March 31, 2019 Assets ............................................................................................................................... Lease receivables and investment assets ........................................................................ Tangible fixed assets .................................................................................................... Liabilities ......................................................................................................................... Borrowed money ......................................................................................................... Non-controlling interests ................................................................................................. Investment account after sales of stocks ............................................................................ Gains (losses) on sales of stocks ......................................................................................... Selling price of 185 companies ......................................................................................... Cash and cash equivalents included in disposed assets of 185 companies ........................... Income for sales of 185 companies .................................................................................... Millions of yen ¥ 6,154,253 2,157,141 2,267,524 (5,435,353) (3,101,458) (258,602) (301,028) 17,014 176,284 (1,582) ¥ 174,702 182 010_0800801372008.indd 182 2020/08/21 16:48:11 Sumitomo Mitsui Financial GroupSMBC GROUP ANNUAL REPORT 2020Notes to Consolidated Financial Statements(Notes to lease transactions) 1. Finance leases (1) Lessee side 1) Lease assets (a) Tangible fixed assets Tangible fixed assets mainly consisted of branches and equipment. (b) Intangible fixed assets Intangible fixed assets are software. 2) Depreciation method of lease assets Depreciation method of lease assets is reported in 4. Accounting policies (4) Depreciation. (2) Lessor side 1) Breakdown of lease investment assets March 31 Lease receivables ...................................................................................................... Residual value ......................................................................................................... Unearned interest income ........................................................................................ Total ........................................................................................................................ Millions of yen 2019 ¥269,214 65,094 (86,474) ¥247,835 2) The scheduled collections of lease payments receivable related to lease investment assets are as follows: Millions of yen March 31 Within 1 year .......................................................................................................... More than 1 year to 2 years ...................................................................................... More than 2 years to 3 years .................................................................................... More than 3 years to 4 years .................................................................................... More than 4 years to 5 years .................................................................................... More than 5 years .................................................................................................... Total ........................................................................................................................ 2019 ¥ 43,411 24,003 21,214 20,682 13,813 146,089 ¥269,214 2020 ¥258,052 47,285 (85,604) ¥219,733 2020 ¥ 26,938 26,318 23,880 16,453 13,612 150,848 ¥258,052 3) Non-transfer ownership finance leases, which commenced in fiscal years beginning before April 1, 2008, are valued at their appropriate book value, net of accumulated depreciation, as of March 31, 2008, and recorded as the beginning balance of “Lease receivables and investment assets.” Moreover, interest on such non-transfer ownership finance leases during the remaining term of the leases is allocated over the lease term using the straight-line method. As a result of this accounting treatment, “Income before income taxes” for the fiscal years ended March 31, 2019 was ¥1,332 million more than it would have been if such transactions had been treated in a similar way to sales of the underlying assets. 2. Operating leases (1) Lessee side Future minimum lease payments on operating leases which were not cancelable were as follows: March 31 Due within 1 year ......................................................................................................... Due after 1 year ............................................................................................................ Total ............................................................................................................................. 2019 ¥ 44,385 271,612 ¥315,997 Millions of yen (2) Lessor side Future minimum lease payments on operating leases which were not cancelable were as follows: March 31 Due within 1 year ......................................................................................................... Due after 1 year ............................................................................................................ Total ............................................................................................................................. 2019 ¥ 35,936 85,242 ¥121,178 Millions of yen 2020 ¥ 42,384 247,206 ¥289,591 2020 ¥ 31,498 72,655 ¥104,154 010_0800801372008.indd 183 183 2020/08/21 16:48:11 Sumitomo Mitsui Financial GroupSMBC GROUP ANNUAL REPORT 2020Notes to Consolidated Financial Statements (Notes to financial instruments) 1. Status of financial instruments (1) Policies on financial instruments The Group conducts banking and other financial services such as leasing, securities, consumer finance, system development and information processing. Its banking business includes deposit taking, lending, securities trading and investment, remittance and transfer, foreign exchange, bond subscription agent, trust business, and over-the-counter sales of securities investment trusts and insurance products. These services entail holding of financial assets such as loans and bills discounted, bonds, and stocks. Meanwhile, the Group raises funds through deposit taking, borrowing, bond offering, etc. Furthermore, it undertakes derivative transactions to meet customers’ hedging needs to control market risk associated with deposit taking and lending (“ALM purposes”), and to make profit on short-term fluctuations in interest rates, foreign exchange rates, etc. (“trading purposes”). At SMBC, the Company’s major consolidated subsidiary, derivative transactions for ALM purposes are undertaken by the Treasury Dept. and the International Treasury Dept. of the Treasury Unit, while derivative transactions for trading purposes are undertaken by the Trading Dept. of the Treasury Unit (derivative transactions for both ALM and trading purposes are undertaken by the Asia and Oceania Treasury Dept. in Asia and Oceania region, and are undertaken by the East Asia Treasury Dept. in East Asia region). (2) Details of financial instruments and associated risks 1) Financial assets The main financial assets held by the Group include loans to foreign and domestic companies and domestic individuals, and securities such as bonds (government and corporate bonds) and stocks (foreign and domestic stocks), etc. Bonds such as government bonds are held for both trading and ALM purposes, and certain bonds are held as held-to-maturity securities. Stocks are held mainly for strategic purposes. These assets expose the Group to credit risk, market risk and liquidity risk. Credit risk is the risk of loss arising from nonperformance of obligations by the borrower or issuer due to factors such as deterioration in the borrower’s/issuer’s financial conditions. Market risk is the risk stemming from fluctuations in interest rates, exchange rates, or share prices. Liquidity risk is the risk arising from difficulty executing transactions in desired quantities at appropriate prices due to low market liquidity. These risks are properly monitored and managed based on “(3) Risk management framework for financial instruments” below. 2) Financial liabilities Financial liabilities of the Group include borrowed money and bonds, etc. in addition to deposits. Deposits mainly comprise deposits of domestic and foreign companies and domestic individuals. Borrowed money and bonds include subordinated borrowings and subordinated bonds with special clause specifying that the repayment order of borrowing or bond subordinates to other borrowings or bonds. Also, financial liabilities, like financial assets, expose the Group to not only market risk but also funding liquidity risk: the risk of the Group not being able to raise funds due to market turmoil, deterioration in the Group’s creditworthiness or other factors. These risks are properly monitored and managed based on “(3) Risk management framework for financial instruments” below. 3) Derivative transactions Derivatives handled by the Group include foreign exchange futures; futures, forwards, swaps and options related to interest rates, currencies, equities, bonds and commodities; and credit and weather derivatives. Major risks associated with derivatives include market risk, liquidity risk, and credit risk arising from nonperformance of contractual obligations due to deterioration in the counterparty’s financial conditions. These risks are properly monitored and managed based on “(3) Risk management framework for financial instruments” below. Hedge accounting is applied to derivative transactions executed for ALM purposes, as necessary. Hedging instruments, hedged items, hedging policy and hedging method to assess the effectiveness of the hedge are described in “(Notes to significant accounting policies for preparing consolidated financial statements), 4. Accounting policies, (16) Hedge accounting.” (3) Risk management framework for financial instruments The fundamental matters on risk management for the entire Group are set forth in “Regulations on Comprehensive Risk Management.” The Company’s Management Committee establishes the basic risk management policy for the entire Group, based on the regulations, which is then approved by the Board of Directors. Each Group company has a risk management system based on the characteristics of its particular businesses and in accordance with the basic policy. Furthermore, the Group CRO is established to assess risk management across the Group unitarily and implement appropriate risk management. The Company is sharing information on group-wide risk management and strengthening related systems through the Group CRO Committee, which consists of the Group CRO and risk management representatives from strategically important Group companies. 1) Management of credit risk The Company has established fundamental principles on credit risk management to thoroughly manage the credit risk of the entire Group. Each group company conducts integrated management of credit risk according to its operational characteristics, and the credit risk inherent in the entire portfolio as well as the risk in individual credits are managed quantitatively and continuously. (a) Credit risk management system The Group CRO formulates credit risk management policies each year based on the group-wide basic policies for risk management. Meanwhile, the Credit & Investment Planning Dept. is responsible for the comprehensive management of credit risk. This department drafts and administers credit risk regulations, including the Group’s credit policies, and performs credit portfolio management including non-performing loans. The Company has also established the Credit Risk Committee to serve as a body for deliberating on matters related to group-wide credit portfolios. 184 010_0800801372008.indd 184 2020/08/21 16:48:11 Sumitomo Mitsui Financial GroupSMBC GROUP ANNUAL REPORT 2020Notes to Consolidated Financial StatementsAt SMBC, the Company’s major consolidated subsidiary, the Credit & Investment Planning Dept. of the Risk Management Unit is responsible for the comprehensive management of credit risk. This department establishes, revises or abolishes credit policies, the internal rating system, credit authority regulations, credit application regulations, and manages non-performing loans and other aspects of credit portfolio management. The department also controls SMBC’s total credit risk by quantifying credit risk (i.e. calculating risk capital and risk-weighted assets) in cooperation with the Corporate Risk Management Dept. Moreover, the Credit Portfolio Management Dept. within the Credit & Investment Planning Dept. works to stabilize SMBC’s overall credit portfolio through selling credit derivatives and loan claims. The credit departments of each business unit conduct credit risk management for loans handled by their units and manage their units’ portfolios. Credit approval authority is generally determined based on the credit amounts and internal grades, and the credit departments focus on analysis and management of customers and transactions with relatively high credit risk. The Credit Administration Dept. is mainly responsible for formulating and implementing measures to reduce the exposure of non- performing loans. Through industrial and sector-specific surveys and studies of individual companies, the Corporate Research Dept. works to form an accurate idea of the circumstances of borrower companies and identify those with potentially troubled credit positions at early stage. Moreover, the Credit Risk Committee, a cross-departmental consultative body, rounds out SMBC’s oversight systems for undertaking flexible and efficient control of credit risk and ensuring the overall soundness of SMBC’s loan operations. In addition to these, the Internal Audit Unit, operating independently of the business units, audits asset quality, grading accuracy, self-assessment, and appropriateness of the credit risk management system, and reports the results directly to the Management Committee and the Audit Committee. (b) Method of credit risk management The Company properly manages the credit risk inherent in individual loans and the entire portfolio by assessing and quantifying the credit risk of each borrower/loan using the internal rating system. In addition to management of individual loans through credit screening and monitoring, it manages the credit portfolio as described below in order to secure and improve the credit portfolio’s soundness and medium-term profitability. • Appropriate risk-taking within capital To keep credit risk exposure to a permissible level relative to capital, the Company sets credit risk capital limit for internal control purposes. Under these limits, separate guidelines are issued for each business unit and marketing unit. The Company regularly monitors compliance with these guidelines. • Controlling concentration of risk Because concentration of credit risk in an industry or corporate group has the potential to impair the Company’s capital significantly, the Company implements measures to prevent excessive concentration of loan in a single industry and to control large exposure to individual borrowers by setting maximum loan amounts and conducting loan reviews thoroughly. To manage country risk, the Company also has credit limit guidelines based on each country’s creditworthiness. • Greater understanding of actual corporate conditions and balancing returns and risks The Company runs credit operations on the basic principle of thoroughly understanding actual corporate conditions and gaining profit commensurate with the level of credit risk entailed, and makes every effort to improve profit at after-cost (credit cost, capital cost and overhead cost) level. • Reduction and prevention of non-performing loans For non-performing loans and potential non-performing loans, the Company carries out loan reviews to clarify credit policies and action plans, enabling it to swiftly implement measures to prevent deterioration of borrowers’ business situations, support business recoveries, collect on loans, and enhance loan security. In regard to financial instruments such as investments in certain funds, securitized products and credit derivatives that indirectly retain risks related to assets such as corporate bonds and loan claims (underlying assets), such instruments entail market and liquidity risks in addition to credit risk, since such instruments are traded on the market. Credit risk management for these instruments involving detailed analysis and evaluation of characteristics of underlying assets is performed while market risk is comprehensively managed within the framework for managing market and liquidity risks. Moreover, guidelines have been established based on the characteristics of each type of risk to appropriately manage risks of incurring losses. In regard to credit risk of derivative transactions, the potential exposure based on the market price is regularly calculated and properly managed. When the counterparty is a financial institution with which the Company frequently conducts derivative transactions, measures such as a close-out netting provision, which provide offsetting credit exposures between two parties in a single net payment from one party to the other in case of bankruptcy or other default event, are implemented to reduce credit risk. 2) Management of market and liquidity risks The Company manages market and liquidity risks across the entire Group by setting allowable risk limits; ensuring the transparency of the risk management process; and clearly separating front-office, middle-office, and back-office operations for a highly efficient system of mutual checks and balances. 010_0800801372008.indd 185 185 2020/08/21 16:48:11 Sumitomo Mitsui Financial GroupSMBC GROUP ANNUAL REPORT 2020Notes to Consolidated Financial Statements(a) Market and liquidity risk management systems In accordance with the group-wide basic policies for risk management decided upon by the Management Committee, the Company determines important matters relating to the management of market and liquidity risks, such as basic policies and risk limits, in order to manage these risks. The ALM Committee meets four times a year, in principle, to report on the state of market and liquidity risk management and to discuss ALM operation policies. The Corporate Risk Management Dept., which is independent from the business units that directly handle market transactions, manages market and liquidity risks in an integrated manner. This department not only monitors the current risk situations but also reports regularly to the Management Committee and the Audit Committee. Furthermore, the ALM Committee at SMBC, the core bank of the Company, meets on a monthly basis to examine reports on the state of observance of limits on market and liquidity risks and to discuss ALM operation policies. In addition, the Internal Audit Dept., which is independent of other departments, periodically performs comprehensive internal audits to verify that the risk management framework is properly functioning and reports the audit results to the Management Committee, the Audit Committee and other concerned committees and departments. (b) Market and liquidity risk management methodology • Market risk management The Company manages market risk by setting maximum loss and VaR (value at risk: maximum potential loss that may be incurred to a specific financial instrument for a given probability) within the market risk capital limit, which is set taking into account stockholders’ equity and other factors in accordance with the market transaction policies. The Company uses the historical simulation method (a method for estimating the maximum loss by running simulations of changes in profit and loss on market fluctuations scenarios based on historical data) to measure VaR. Regarding banking activities (activities for generating profit through management of interest rates, terms, and other aspects such as loans and bonds in assets, deposits in liabilities) and trading activities (activities for generating profit by taking advantage of short-term fluctuations in market values and differences in value among markets), the Company calculates the maximum loss that may occur as a result of market fluctuations in 1 day with a probability of 1% based on 4 years of historical observation. With regard to the holding of shares (such as listed shares) for the purpose of strategic investment, the Company calculates the maximum loss that may occur as a result of market fluctuations in 1 year with a probability of 1% based on 10 years of historical observation. Regarding risks associated with foreign exchange rates, interest rates, equity risk, option prices and other market risk factors, the Company manages such risks by setting a maximum limit on the indicator suited for each market risk factor such as BPV (basis point value: denotes the change in value of a financial instrument resulting from a 0.01 percentage-point change in the yield). • Quantitative information on market risks As of March 31, 2020, total VaR of SMBC and its major consolidated subsidiaries was ¥50.5 billion for the banking activities, ¥16.2 billion for the trading activities and ¥942.4 billion for the holding of shares (such as listed shares) for the purpose of strategic investment. However, it should be noted that these figures are statistical figures that change according to changes in assumptions and calculation methods, and may not cover the risk of future market conditions fluctuating drastically compared to market fluctuations of the past. • Liquidity risk management The Company manages liquidity risk based on the framework of “setting management levels of risk appetite indicators” and “developing contingency plans.” Risk appetite indicators are quantitative benchmarks that select the types and indicate the levels of risk that the Company is willing to take on or tolerate. As an example, the Company sets a lower limit on the number of days over which cash flows could be maintained under the stress conditions such as deposit outflow, so as to secure funding sources that do not fall below the benchmark to avoid excessive reliance on short term funding. In addition, the Company develops contingency plans consisting of instructions, reporting lines and action plans in case of emergency. Moreover, to manage the liquidity risk of marketable instruments, derivative transactions, etc., the Company has trading limits for each business office classified by currency, instrument, transaction period, etc. As for financial futures, etc., risks are managed by restricting positions to within a certain percentage of open interest in the entire market. (4) Supplementary explanations about matters concerning fair value of financial instruments Fair values of financial instruments are based on their market prices and, in cases where market prices are not available, on reasonably calculated prices. These prices have been calculated using certain assumptions, and may differ if calculated based on different assumptions. 186 010_0800801372008.indd 186 2020/08/21 16:48:11 Sumitomo Mitsui Financial GroupSMBC GROUP ANNUAL REPORT 2020Notes to Consolidated Financial Statements2. Fair value of financial instruments (1) “Consolidated balance sheet amount,” “Fair value” and “Net unrealized gains (losses)” of financial instruments as of March 31, 2019 and 2020 are as follows: The amounts shown in the following tables do not include financial instruments (see (3) below) whose fair values are extremely difficult to determine, such as unlisted stocks classified as other securities, and stocks of subsidiaries and affiliates. March 31, 2019 1) Cash and due from banks *1 ...................................................... 2) Call loans and bills bought *1 .................................................... 3) Receivables under resale agreements .......................................... 4) Receivables under securities borrowing transactions *1 .............. 5) Monetary claims bought *1 ........................................................ 6) Trading assets Securities classified as trading purposes ................................. 7) Money held in trust ................................................................... 8) Securities Bonds classified as held-to-maturity...................................... Other securities .................................................................... 9) Loans and bills discounted ......................................................... Reserve for possible loan losses *1 ......................................... 10) Foreign exchanges *1 ................................................................. 11) Lease receivables and investment assets *1 .................................. Total assets ................................................................................ 1) Deposits .................................................................................... 2) Negotiable certificates of deposit ............................................... 3) Call money and bills sold ........................................................... 4) Payables under repurchase agreements ....................................... 5) Payables under securities lending transactions ........................... 6) Commercial paper ..................................................................... 7) Trading liabilities Trading securities sold for short sales .................................... 8) Borrowed money ....................................................................... 9) Foreign exchanges ..................................................................... 10) Short-term bonds ....................................................................... 11) Bonds ........................................................................................ 12) Due to trust account .................................................................. Total liabilities .......................................................................... Derivative transactions *2 .......................................................... Hedge accounting not applied .............................................. Hedge accounting applied .................................................... Total .......................................................................................... Consolidated balance sheet amount ¥ 57,404,619 2,463,660 6,429,365 4,097,238 4,591,920 2,755,519 390 280,247 22,696,091 77,979,190 (301,809) 77,677,380 1,717,469 247,550 ¥180,361,453 ¥122,325,038 11,165,486 1,307,778 11,462,559 1,812,820 2,291,813 1,992,314 10,656,897 1,165,141 84,500 9,227,367 1,352,773 ¥174,844,490 Millions of yen Fair value ¥ 57,414,384 2,466,418 6,429,231 4,097,502 4,609,409 2,755,519 390 281,136 22,696,091 79,713,860 1,720,319 242,941 ¥182,427,205 ¥122,320,963 11,170,627 1,307,710 11,462,559 1,812,820 2,291,785 1,992,314 10,706,117 1,165,141 84,500 9,387,562 1,354,823 ¥175,056,926 ¥ 391,707 [45,676] ¥ 346,030 ¥ 391,707 [45,676] ¥ 346,030 Net unrealized gains (losses) ¥ 9,765 2,757 (133) 263 17,489 — — 888 — 2,036,479 2,850 (4,609) ¥2,065,752 ¥ (4,074) 5,140 (68) — — (27) — 49,219 — — 160,195 2,050 ¥ 212,435 ¥ ¥ — — — *1 The amounts do not include general reserve for possible loan losses and specific reserve for possible loan losses. The reserves for possible losses on “Cash and due from banks,” “Call loans and bills bought,” “Receivables under securities borrowing transactions,” “Monetary claims bought,” “Foreign exchanges” and “Lease receivables and investment assets” are deducted directly from consolidated balance sheet amount since they are immaterial. *2 The amounts collectively represent the derivative transactions which are recorded in “Trading assets,” “Trading liabilities,” “Other assets” and “Other liabilities.” Debts and credits arising from derivative transactions are presented on a net basis, with a net debt presented in square brackets. 010_0800801372008.indd 187 187 2020/08/21 16:48:11 Sumitomo Mitsui Financial GroupSMBC GROUP ANNUAL REPORT 2020Notes to Consolidated Financial StatementsMarch 31, 2020 1) Cash and due from banks *1 ...................................................... 2) Call loans and bills bought *1 .................................................... 3) Receivables under resale agreements .......................................... 4) Receivables under securities borrowing transactions *1 .............. 5) Monetary claims bought *1 ........................................................ 6) Trading assets ............................................................................ Securities classified as trading purposes ................................. 7) Money held in trust ................................................................... 8) Securities ................................................................................... Bonds classified as held-to-maturity...................................... Other securities .................................................................... 9) Loans and bills discounted ......................................................... Reserve for possible loan losses *1 ......................................... 10) Foreign exchanges *1 ................................................................. 11) Lease receivables and investment assets *1 .................................. Total assets ................................................................................ 1) Deposits .................................................................................... 2) Negotiable certificates of deposit ............................................... 3) Call money and bills sold ........................................................... 4) Payables under repurchase agreements ....................................... 5) Payables under securities lending transactions ........................... 6) Commercial paper ..................................................................... 7) Trading liabilities Trading securities sold for short sales .................................... 8) Borrowed money ....................................................................... 9) Foreign exchanges ..................................................................... 10) Short-term bonds ....................................................................... 11) Bonds ........................................................................................ 12) Due to trust account .................................................................. Total liabilities .......................................................................... Derivative transactions *2 .......................................................... Hedge accounting not applied .............................................. Hedge accounting applied .................................................... Total .......................................................................................... Consolidated balance sheet amount ¥ 61,763,910 894,743 8,753,816 5,005,089 4,556,779 2,752,881 353 282,379 25,484,707 82,517,609 (301,752) 82,215,856 2,060,975 219,548 ¥193,991,042 ¥127,042,217 10,180,435 3,740,539 13,237,913 2,385,607 1,409,249 2,012,475 15,210,894 1,461,308 379,000 9,235,639 1,811,355 ¥188,106,637 ¥ 517,570 294,816 ¥ 812,386 Millions of yen Fair value ¥ 61,765,323 896,463 8,753,505 5,005,125 4,588,270 2,752,881 353 282,519 25,484,707 84,118,833 2,063,721 218,858 ¥195,930,563 ¥127,049,743 10,187,496 3,740,628 13,237,913 2,385,607 1,409,249 2,012,475 15,254,734 1,461,308 379,000 9,360,807 1,824,319 ¥188,303,284 ¥ 517,570 294,816 ¥ 812,386 Net unrealized gains (losses) ¥ 1,412 1,720 (311) 36 31,490 — — 140 — 1,902,976 2,745 (690) ¥1,939,520 ¥ 7,526 7,060 88 — — — — 43,839 — — 125,167 12,964 ¥ 196,647 ¥ ¥ — — — *1 The amounts do not include general reserve for possible loan losses and specific reserve for possible loan losses. The reserves for possible losses on “Cash and due from banks,” “Call loans and bills bought,” “Receivables under securities borrowing transactions,” “Monetary claims bought,” “Foreign exchanges” and “Lease receivables and investment assets” are deducted directly from consolidated balance sheet amount since they are immaterial. *2 The amounts collectively represent the derivative transactions which are recorded in “Trading assets,” “Trading liabilities,” “Other assets” and “Other liabilities.” Debts and credits arising from derivative transactions are presented on a net basis, with a net debt presented in square brackets. (2) Fair value calculation methodology for financial instruments Assets 1) Cash and due from banks, 2) Call loans and bills bought, 3) Receivables under resale agreements, 4) Receivables under securities borrowing transactions, 9) Loans and bills discounted, 10) Foreign exchanges and 11) Lease receivables and investment assets: Of these transactions, for dues from banks without maturity and overdrafts with no specified repayment dates, the book values are used as fair value as they are considered to approximate their fair value. For short-term transactions with remaining maturity not exceeding 6 months, in principle, the book values are used as fair value as they are considered to approximate their fair value. The fair value of those with a remaining maturity of more than 6 months is, in principle, the present value of future cash flows (calculated by discounting estimated future cash flows, taking into account factors such as the borrower’s internal rating and pledged collateral, using a rate comprising of a risk-free interest rate and an adjustment). Certain consolidated subsidiaries of the Company calculate the present value by discounting the estimated future cash flows computed based on the contractual interest rate, using a rate comprising a risk-free rate and a credit risk premium. 188 010_0800801372008.indd 188 2020/08/21 16:48:11 Sumitomo Mitsui Financial GroupSMBC GROUP ANNUAL REPORT 2020Notes to Consolidated Financial StatementsRegarding claims on bankrupt borrowers, effectively bankrupt borrowers and potentially bankrupt borrowers, expected losses on such claims are calculated based on either the expected recoverable amount from disposal of collateral or guarantees, or the present value of expected future cash flows. Since the claims’ balance sheet amounts minus the expected amount of loan losses approximate their fair values, such amounts are considered to be their fair values. 5) Monetary claims bought: The fair values of monetary claims bought, such as subordinated trust beneficiary interests related to securitized housing loans, are based on the assessed value of underlying housing loans securitized through the trust scheme minus the assessed value of senior beneficial interests, etc. The fair values of other transactions are, in principle, based on prices calculated using methods similar to the methods applied to 9) Loans and bills discounted. 6) Trading assets: The fair values of bonds and other securities held for trading purposes are, in principle, based on their market price at the end of the fiscal year. 7) Money held in trust: The fair values of money held in trust are, in principle, based on the market prices of securities held in trust calculated using methods similar to the methods applied to 8) Securities. 8) Securities: In principle, the fair values of stocks (including foreign stocks) are based on the average market price during 1 month before the end of the fiscal year. The fair values of bonds and securities with market prices other than stocks are prices calculated based on their market prices as of the end of the fiscal year. In light of the “Practical Solution on Measurement of Fair Value for Financial Assets” (ASBJ Practical Issue Task Force No. 25), the fair values of floating rate government bonds are based on the present value of future cash flows (the government bond yield is used to discount and estimate future cash flows). Bond yield and yield volatility are the main price parameters. The fair values of those without market prices, such as private placement bonds, are based on the present value of future cash flows calculated by discounting estimated future cash flows taking into account the borrower’s internal rating and pledged collateral by a rate comprising a risk-free interest rate and an adjustment. However, the fair values of bonds, such as private placement bonds issued by bankrupt borrowers, effectively bankrupt borrowers and potentially bankrupt borrowers are based on the bond’s book value after the deduction of the expected amount of a loss on the bond computed by using the same method applied to the estimation of a loan loss. Meanwhile, the fair values of publicly offered investment trusts are calculated based on the published net asset value (NAV) per share, while those of private placement investment trusts are calculated based on the NAV published by securities firms and other financial institutions. Liabilities 1) Deposits, 2) Negotiable certificates of deposit and 12) Due to trust account: The fair values of demand deposits and deposits without maturity are based on their book values. The fair values of short-term transactions with remaining maturity not exceeding 6 months are also based on their book values, as their book values are regarded to approximate their market values. The fair values of transactions with a remaining maturity of more than 6 months are, in principle, based on the present value of estimated future cash flows calculated using the rate applied to the same type of deposits that are newly accepted until the end of the remaining maturity. The fair values of borrowings from the trust account related to covered bond issued by the trust account are based on the amount calculated in accordance with the price quoted by industry associations, etc. 3) Call money and bills sold, 4) Payables under repurchase agreements, 5) Payables under securities lending transactions, 6) Commercial paper, 8) Borrowed money, 10) Short-term bonds and 11) Bonds: The fair values of short-term transactions with remaining maturity not exceeding 6 months are based on their book values, as their book values are considered to approximate their fair values. For transactions with a remaining maturity of more than 6 months, their fair values are, in principle, based on the present value of estimated future cash flows calculated using the refinancing rate applied to the same type of instruments for the remaining maturity. For certain type of instruments, however, fair values are based on either the amount calculated in accordance with the price quoted by industry associations, etc., or the present value of future cash flows calculated by using the rate derived from the published yield data, etc. 7) Trading liabilities: The fair values of bonds sold for short sales and other securities for trading purposes are, in principle, based on their market prices as of the end of the fiscal year. 9) Foreign exchanges: The fair values of foreign currency-denominated deposits without maturity received from other banks are based on their book values. The fair values of foreign exchange related short-term borrowings are based on their book values, as their book values are regarded to approximate their fair values. 010_0800801372008.indd 189 189 2020/08/21 16:48:11 Sumitomo Mitsui Financial GroupSMBC GROUP ANNUAL REPORT 2020Notes to Consolidated Financial StatementsDerivatives transactions The fair values of exchange-traded derivatives are based on their closing prices. With regard to OTC transactions, the fair values of interest rate, currency, stock, bond and credit derivatives are based on their prices calculated based on the present value of the future cash flows, option valuation models, etc. The fair values of commodity derivatives transactions are based on their prices calculated based on the derivative instrument’s components, including price and contract term. (3) Consolidated balance sheet amount of financial instruments whose fair values are extremely difficult to determine are as follows: March 31 Securities: Millions of yen 2019 2020 Unlisted stocks, etc. *1 *3 ........................................................................................ Investments in partnership, etc. *2 *3 ...................................................................... Total ............................................................................................................................. ¥170,572 215,245 ¥385,817 ¥174,347 242,674 ¥417,022 *1 They are not included in the scope of fair value disclosure since there are no market prices and it is extremely difficult to determine their fair values. *2 They are capital contributions with no market prices. The above-stated amount includes the book value amount of investments in the partnership of which the Company records net changes in their balance sheets and statements of income. *3 Unlisted stocks and investments in partnership totaling ¥9,669 million and ¥22,903 million were written-off in the fiscal year ended March 31, 2019 and 2020, respectively. (4) Redemption schedule of monetary claims and securities with maturities Millions of yen March 31, 2019 Deposits with banks ................................................... Call loans and bills bought ......................................... Receivables under resale agreements ........................... Receivables under securities borrowing transactions ... Monetary claims bought ............................................. Securities *1 ............................................................... Bonds classified as held-to-maturity....................... Japanese government bonds .............................. Japanese local government bonds ...................... Japanese corporate bonds .................................. Other ............................................................... Other securities with maturity............................... Japanese government bonds .............................. Japanese local government bonds ...................... Japanese corporate bonds .................................. Other ............................................................... Loans and bills discounted *1 *2 ................................. Foreign exchanges *1 .................................................. Lease receivables and investment assets ....................... Total ........................................................................... Within 1 year ¥56,196,163 2,416,537 6,169,917 4,097,473 3,587,450 3,857,187 20,000 20,000 — — — 3,837,187 1,217,500 — 292,202 2,327,484 19,029,803 1,703,142 38,813 ¥97,096,488 After 1 year through 5 years ¥ 142,027 49,206 72,150 — 514,675 8,960,637 260,000 260,000 — — — 8,700,637 4,080,400 11,072 1,200,987 3,408,177 32,387,618 15,882 55,765 ¥42,197,963 After 5 years through 10 years ¥ 8,980 — — — 161,745 3,667,235 — — — — — 3,667,235 520,900 87,188 840,586 2,218,560 13,497,696 — 23,295 ¥17,358,954 After 10 years ¥ 1,125 — — — 286,006 2,116,326 — — — — — 2,116,326 335,700 7 273,372 1,507,246 6,642,339 — 64,866 ¥9,110,664 *1 The amounts shown in the table above do not include amounts for claims on bankrupt borrowers, effectively bankrupt borrowers and potentially bankrupt borrowers and other claims for which redemption is unlikely. The amounts for such claims are Securities: ¥12,958 million, Loans and bills discounted: ¥417,829 million, Foreign exchanges: ¥378 million. *2 “Loans and bills discounted” without the maturity dates are not included. Such amount is totaled to ¥6,000,359 million at March 31, 2019. 190 010_0800801372008.indd 190 2020/08/21 16:48:11 Sumitomo Mitsui Financial GroupSMBC GROUP ANNUAL REPORT 2020Notes to Consolidated Financial Statements March 31, 2020 Deposits with banks ................................................... Call loans and bills bought ......................................... Receivables under resale agreements ........................... Receivables under securities borrowing transactions ... Monetary claims bought *1 ......................................... Securities .................................................................... Bonds classified as held-to-maturity....................... Japanese government bonds .............................. Japanese local government bonds ...................... Japanese corporate bonds .................................. Other ............................................................... Other securities with maturity............................... Japanese government bonds .............................. Japanese local government bonds ...................... Japanese corporate bonds .................................. Other ............................................................... Loans and bills discounted *1 *2 ................................. Foreign exchanges *1 .................................................. Lease receivables and investment assets ....................... Total ........................................................................... Within 1 year ¥ 60,891,144 853,031 8,427,511 5,000,653 3,310,435 6,702,393 260,000 260,000 — — — 6,442,393 3,388,590 2,912 316,475 2,734,414 20,530,820 2,057,021 21,006 ¥107,794,017 Millions of yen After 1 year through 5 years ¥ 26,083 43,708 65,286 4,450 735,646 7,787,784 — — — — — 7,787,784 2,780,300 45,000 1,123,144 3,839,340 34,431,806 2,911 58,938 ¥43,156,614 After 5 years through 10 years ¥ 5,413 — — — 163,273 3,250,285 22,300 — 22,300 — — 3,227,985 450,200 179,449 814,564 1,783,771 13,516,514 — 26,716 ¥16,962,203 After 10 years ¥ 906 — — — 295,468 4,241,524 — — — — — 4,241,524 413,700 12,775 449,623 3,365,426 6,514,499 — 65,787 ¥11,118,187 *1 The amounts shown in the table above do not include amounts for claims on bankrupt borrowers, effectively bankrupt borrowers and potentially bankrupt borrowers and other claims for which redemption is unlikely. The amounts for such claims are Monetary claims bought: ¥292 million, Loans and bills discounted: ¥339,003 million, Foreign exchanges: ¥3,351 million. *2 “Loans and bills discounted” without the maturity dates are not included. Such amount is totaled to ¥7,182,191 million at March 31, 2020. (5) Redemption schedule of bonds, borrowed money and other interest-bearing debts March 31, 2019 Deposits * .................................................................. Negotiable certificates of deposit ................................ Call money and bills sold ............................................ Payables under repurchase agreements ........................ Payables under securities lending transactions ............ Commercial paper ...................................................... Borrowed money ........................................................ Foreign exchanges ...................................................... Short-term bonds ........................................................ Bonds ......................................................................... Due to trust account ................................................... Total ........................................................................... Within 1 year ¥118,166,614 10,605,811 1,307,778 11,443,460 1,812,820 2,291,813 8,430,682 1,165,141 84,500 1,087,139 1,228,223 ¥157,623,985 * Demand deposits are included in “Within 1 year.” Deposits include current deposits. Millions of yen After 1 year through 5 years ¥3,495,841 559,675 — — — — 1,086,996 — — 4,240,236 124,550 ¥9,507,299 After 5 years through 10 years ¥ 182,195 — — — — — 765,268 — — 2,833,135 — ¥3,780,600 After 10 years ¥ 480,387 — — — — — 373,949 — — 1,067,400 — ¥1,921,736 010_0800801372008.indd 191 191 2020/08/21 16:48:11 Sumitomo Mitsui Financial GroupSMBC GROUP ANNUAL REPORT 2020Notes to Consolidated Financial Statements March 31, 2020 Deposits * .................................................................. Negotiable certificates of deposit ................................ Call money and bills sold ............................................ Payables under repurchase agreements ........................ Payables under securities lending transactions ............ Commercial paper ...................................................... Borrowed money ........................................................ Foreign exchanges ...................................................... Short-term bonds ........................................................ Bonds ......................................................................... Due to trust account ................................................... Total ........................................................................... Within 1 year ¥123,191,393 9,488,288 3,740,539 13,219,904 2,385,607 1,409,249 10,116,503 1,461,308 379,000 1,311,716 1,379,220 ¥168,082,732 * Demand deposits are included in “Within 1 year.” Deposits include current deposits. Millions of yen After 1 year through 5 years ¥ 3,269,858 692,146 — — — — 4,185,181 — — 3,876,955 282,735 ¥12,306,877 After 5 years through 10 years ¥ 158,359 — — — — — 637,820 — — 3,016,822 149,400 ¥3,962,402 After 10 years ¥ 422,607 — — — — — 271,389 — — 1,030,816 — ¥1,724,812 192 010_0800801372008.indd 192 2020/08/21 16:48:11 Sumitomo Mitsui Financial GroupSMBC GROUP ANNUAL REPORT 2020Notes to Consolidated Financial Statements (Notes to securities) The amounts shown in the following tables include trading securities and short-term bonds classified as “Trading assets,” negotiable certificates of deposit classified as “Cash and due from banks,” and beneficiary claims on loan trust classified as “Monetary claims bought,” in addition to “Securities” stated in the consolidated balance sheets. 1. Securities classified as trading purposes March 31 Valuation gains (losses) included in the earnings for the fiscal year ...................................... Millions of yen 2019 ¥20,551 2020 ¥(27,480) 2. Bonds classified as held-to-maturity March 31, 2019 Bonds with unrealized gains: Japanese government bonds ....................... Japanese local government bonds ............... Japanese corporate bonds ........................... Other ........................................................ Subtotal ..................................................... Japanese government bonds ....................... Japanese local government bonds ............... Japanese corporate bonds ........................... Other ........................................................ Subtotal ..................................................... Total ............................................................................................................. Bonds with unrealized losses: March 31, 2020 Bonds with unrealized gains: Japanese government bonds ....................... Japanese local government bonds ............... Japanese corporate bonds ........................... Other ........................................................ Subtotal ..................................................... Japanese government bonds ....................... Japanese local government bonds ............... Japanese corporate bonds ........................... Other ........................................................ Subtotal ..................................................... Total ............................................................................................................. Bonds with unrealized losses: Millions of yen Consolidated balance sheet amount Fair value Net unrealized gains (losses) ¥280,247 — — — 280,247 — — — — — ¥280,247 ¥281,136 — — — 281,136 — — — — — ¥281,136 ¥888 — — — 888 — — — — — ¥888 Millions of yen Consolidated balance sheet amount Fair value Net unrealized gains (losses) ¥260,079 2,000 — — 262,079 — 20,300 — — 20,300 ¥282,379 ¥260,286 2,001 — — 262,287 — 20,232 — — 20,232 ¥282,519 ¥206 1 — — 208 — (67) — — — ¥140 010_0800801372008.indd 193 193 2020/08/21 16:48:11 Sumitomo Mitsui Financial GroupSMBC GROUP ANNUAL REPORT 2020Notes to Consolidated Financial Statements 3. Other securities March 31, 2019 Other securities with unrealized gains: Stocks ........................................................ Bonds ........................................................ Japanese government bonds .................. Japanese local government bonds .......... Japanese corporate bonds ...................... Other ........................................................ Subtotal ..................................................... Stocks ........................................................ Bonds ........................................................ Japanese government bonds .................. Japanese local government bonds .......... Japanese corporate bonds ...................... Other ........................................................ Subtotal ..................................................... Total .............................................................................................. Other securities with unrealized losses: Consolidated balance sheet amount ¥ 3,175,611 8,094,287 5,547,344 89,608 2,457,334 5,885,370 17,155,270 171,965 889,443 686,982 9,555 192,906 5,198,045 6,259,454 ¥23,414,725 Millions of yen Acquisition cost ¥ 1,242,178 8,031,868 5,523,497 88,868 2,419,502 5,398,325 14,672,372 202,460 891,497 687,573 9,560 194,363 5,327,052 6,421,010 ¥21,093,383 Net unrealized gains (losses) ¥1,933,433 62,419 23,847 740 37,831 487,045 2,482,898 (30,495) (2,053) (591) (4) (1,457) (129,007) (161,555) ¥2,321,342 Notes: 1. Net unrealized gains (losses) on other securities shown above include losses of ¥12,777 million for the fiscal year ended March 31, 2019 that are recognized in the earnings by applying fair value hedge accounting. 2. Consolidated balance sheet amounts of other securities whose fair values are extremely difficult to determine are as follows: March 31, 2019 Stocks ....................................................................................................... Other ....................................................................................................... Total ......................................................................................................... Millions of yen ¥139,051 246,765 ¥385,817 These amounts are not included in “3. Other securities” since there are no market prices and it is extremely difficult to determine their fair values. March 31, 2020 Other securities with unrealized gains: Stocks ........................................................ Bonds ........................................................ Japanese government bonds .................. Japanese local government bonds .......... Japanese corporate bonds ...................... Other ........................................................ Subtotal ..................................................... Stocks ........................................................ Bonds ........................................................ Japanese government bonds .................. Japanese local government bonds .......... Japanese corporate bonds ...................... Other ........................................................ Subtotal ..................................................... Total .............................................................................................. Other securities with unrealized losses: Consolidated balance sheet amount ¥ 2,372,608 5,197,614 2,871,225 76,337 2,250,052 10,655,671 18,225,894 222,431 4,869,781 4,216,709 164,044 489,027 2,914,076 8,006,289 ¥26,232,183 Millions of yen Acquisition cost ¥ 1,038,349 5,159,687 2,865,395 75,981 2,218,310 9,934,324 16,132,361 287,126 4,886,191 4,229,667 164,575 491,949 3,034,175 8,207,493 ¥24,339,854 Net unrealized gains (losses) ¥1,334,258 37,927 5,829 356 31,741 721,347 2,093,533 (64,694) (16,410) (12,957) (530) (2,921) (120,098) (201,204) ¥1,892,329 Notes: 1. Net unrealized gains (losses) on other securities shown above include losses of ¥26,403 million for the fiscal year ended March 31, 2020 that are recognized in the earnings by applying fair value hedge accounting. 2. Consolidated balance sheet amounts of other securities whose fair values are extremely difficult to determine are as follows: March 31, 2020 Stocks ....................................................................................................... Other ....................................................................................................... Total ......................................................................................................... Millions of yen ¥141,767 275,254 ¥417,022 These amounts are not included in “3. Other securities” since there are no market prices and it is extremely difficult to determine their fair values. 194 010_0800801372008.indd 194 2020/08/21 16:48:11 Sumitomo Mitsui Financial GroupSMBC GROUP ANNUAL REPORT 2020Notes to Consolidated Financial Statements4. Held-to-maturity bonds sold during the fiscal year Fiscal year ended March 31, 2019 There are no corresponding transactions. Fiscal year ended March 31, 2020 There are no corresponding transactions. 5. Other securities sold during the fiscal year Year ended March 31, 2019 Stocks ............................................................................................ Bonds ............................................................................................ Japanese government bonds ...................................................... Japanese local government bonds .............................................. Japanese corporate bonds .......................................................... Other ............................................................................................ Total .............................................................................................. Year ended March 31, 2020 Stocks ............................................................................................ Bonds ............................................................................................ Japanese government bonds ...................................................... Japanese local government bonds .............................................. Japanese corporate bonds .......................................................... Other ............................................................................................ Total .............................................................................................. Sales amount ¥ 206,738 8,071,326 7,797,751 80,253 193,321 9,588,573 ¥17,866,638 Sales amount ¥ 205,299 8,380,330 8,036,803 92,994 250,532 14,797,180 ¥23,382,810 Millions of yen Gains on sales Losses on sales ¥ 96,067 11,418 10,798 67 551 48,653 ¥156,140 ¥ (1,139) (2,154) (2,065) (71) (17) (36,968) ¥(40,262) Millions of yen Gains on sales Losses on sales ¥115,228 26,478 25,415 295 766 120,696 ¥262,403 ¥(11,013) (4,384) (4,349) (34) (0) (33,219) ¥(48,617) 6. Change of classification of securities Fiscal year ended March 31, 2019 There are no significant corresponding transactions to be disclosed. Fiscal year ended March 31, 2020 There are no significant corresponding transactions to be disclosed. 7. Write-down of securities Bonds classified as held-to-maturity and other securities (excluding securities whose fair values are extremely difficult to determine) are considered as impaired if the fair value decreases materially below the acquisition cost and such decline is not considered as recoverable. The fair 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, 2019 and 2020 were ¥9,013 million and ¥23,000 million, respectively. The rule for determining “material decline” is as follows and is based on the classification of issuers under the rules of self-assessment of assets. Bankrupt/Effectively bankrupt/Potentially bankrupt issuers: Fair value is lower than acquisition cost. Issuers requiring caution: Normal issuers: Fair value is 30% or lower than acquisition cost. Fair value is 50% or lower than acquisition cost. 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 4 categories of issuers. 010_0800801372008.indd 195 195 2020/08/21 16:48:11 Sumitomo Mitsui Financial GroupSMBC GROUP ANNUAL REPORT 2020Notes to Consolidated Financial Statements(Notes to money held in trust) 1. Money held in trust classified as trading purposes Fiscal year ended March 31, 2019 There are no corresponding transactions. Fiscal year ended March 31, 2020 There are no corresponding transactions. 2. Money held in trust classified as held-to-maturity Fiscal year ended March 31, 2019 There are no corresponding transactions. Fiscal year ended March 31, 2020 There are no corresponding transactions. 3. Other money held in trust March 31, 2019 Other money held in trust ............................................................. Consolidated balance sheet amount ¥390 March 31, 2020 Other money held in trust ............................................................. Consolidated balance sheet amount ¥353 Millions of yen Acquisition cost ¥390 Millions of yen Acquisition cost ¥353 Net unrealized gains (losses) — Net unrealized gains (losses) — 196 010_0800801372008.indd 196 2020/08/21 16:48:11 Sumitomo Mitsui Financial GroupSMBC GROUP ANNUAL REPORT 2020Notes to Consolidated Financial Statements(Notes to net unrealized gains (losses) on other securities) The breakdown of “Net unrealized gains (losses) on other securities” reported on the consolidated balance sheets is as shown below: March 31, 2019 Net unrealized gains (losses) .......................................................................................................................................... Other securities ........................................................................................................................................................ Other money held in trust ........................................................................................................................................ (-) Deferred tax liabilities Net unrealized gains (losses) on other securities (before following adjustments) ............................................................. (-) Non-controlling interests .......................................................................................................................................... (+) The Company’s interest in net unrealized gains (losses) on valuation of other securities held by equity method affiliates ..... Net unrealized gains (losses) on other securities ............................................................................................................. Millions of yen ¥2,333,619 2,333,619 — 553,246 1,780,372 102,611 11,090 ¥1,688,852 Notes: 1. Net unrealized losses of ¥12,277 million for the fiscal year ended March 31, 2019 recognized in the fiscal year’s earnings by applying fair value hedge accounting are deducted from net unrealized gains on other securities. 2. Net unrealized gains (losses) on other securities include foreign currency translation adjustments on foreign currency denominated securities whose fair value is extremely difficult to determine. March 31, 2020 Net unrealized gains (losses) .......................................................................................................................................... Other securities ........................................................................................................................................................ Other money held in trust ........................................................................................................................................ (-) Deferred tax liabilities Net unrealized gains (losses) on other securities (before following adjustments) ............................................................. (-) Non-controlling interests .......................................................................................................................................... (+) The Company’s interest in net unrealized gains (losses) on valuation of other securities held by equity method affiliates ..... Net unrealized gains (losses) on other securities ............................................................................................................. Millions of yen ¥1,918,660 1,918,660 — 453,080 1,465,580 103,969 9,795 ¥1,371,407 Notes: 1. Net unrealized losses of ¥26,403 million for the fiscal year ended March 31, 2020 recognized in the fiscal year’s earnings by applying fair value hedge accounting are deducted from net unrealized gains on other securities. 2. Net unrealized gains (losses) on other securities include foreign currency translation adjustments on foreign currency denominated securities whose fair value is extremely difficult to determine. 3. Non-controlling interests include equity acquired from non-controlling stockholders. 010_0800801372008.indd 197 197 2020/08/21 16:48:11 Sumitomo Mitsui Financial GroupSMBC GROUP ANNUAL REPORT 2020Notes to Consolidated Financial Statements(Notes to derivative transactions) 1. Derivative transactions to which the hedge accounting method is not applied The following tables set forth the contract amount or the amount equivalent to the notional amount, fair value, valuation gains (losses) and fair value calculation methodologies by type of derivative with respect to derivative transactions to which the hedge accounting method is not applied at the end of the fiscal year. Contract amount does not indicate the market risk relating to derivative transactions. (1) Interest rate derivatives March 31, 2019 Listed Interest rate futures: Millions of yen Contract amount Total Over 1 year Fair value Valuation gains (losses) Sold ............................................................................ Bought ....................................................................... ¥ 30,533,013 28,898,271 ¥ 3,061,730 5,902,494 ¥ (16,015) 16,633 ¥ (16,015) 16,633 Interest rate options: Sold ............................................................................ Bought ....................................................................... 3,452,722 130,788,808 3,286,192 65,425,283 (1,929) 24,009 (1,929) 24,009 Over-the-counter 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 .............. 26,319,818 28,150,897 444,871,798 197,044,427 189,646,811 58,102,014 1,420,320 1,305,595 354,014,671 156,309,066 153,321,990 44,309,569 Interest rate swaptions: Sold ............................................................................ Bought ....................................................................... 6,329,197 5,706,918 3,871,862 3,485,353 Caps: Sold ............................................................................ Bought ....................................................................... 48,034,687 11,030,207 31,841,749 7,991,304 Floors: Sold ............................................................................ Bought ....................................................................... 939,796 1,253,804 Other: Sold ............................................................................ Bought ....................................................................... Total ................................................................................ 1,519,045 7,769,837 / 767,715 776,639 772,769 6,281,874 / 12,029 (12,572) 294,408 2,831,588 (2,545,878) (156) (39,722) 39,242 (57,898) 6,571 (3,380) 4,160 12,029 (12,572) 294,408 2,831,588 (2,545,878) (156) (39,722) 39,242 (57,898) 6,571 (3,380) 4,160 (3,053) 31,891 ¥ 294,374 (3,053) 31,891 ¥ 294,374 Notes: 1. The above transactions are valued at fair value and the valuation gains (losses) are accounted for in the consolidated statements of income. 2. Fair value of transactions listed on an exchange is calculated using the closing price on the Tokyo Financial Exchange or other relevant exchanges. Fair value of OTC transactions is calculated using discounted present value and option pricing models. 198 010_0800801372008.indd 198 2020/08/21 16:48:12 Sumitomo Mitsui Financial GroupSMBC GROUP ANNUAL REPORT 2020Notes to Consolidated Financial Statements March 31, 2020 Listed Interest rate futures: Millions of yen Contract amount Total Over 1 year Fair value Valuation gains (losses) Sold ............................................................................ Bought ....................................................................... ¥ 21,076,337 14,737,369 ¥ 4,765,699 2,199,856 ¥ (27,290) 27,550 ¥ (27,290) 27,550 Interest rate options: Sold ............................................................................ Bought ....................................................................... 6,750,245 158,524,331 4,521,273 67,831,291 (11,465) 48,263 (11,465) 48,263 Over-the-counter 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 .............. 62,823,188 61,810,031 466,801,624 204,935,762 199,732,233 62,049,122 4,805,635 3,914,222 363,010,583 162,453,955 157,519,483 42,972,238 Interest rate swaptions: Sold ............................................................................ Bought ....................................................................... 7,216,094 6,612,746 3,744,854 3,503,884 Caps: Sold ............................................................................ Bought ....................................................................... 58,316,271 13,991,264 35,057,852 9,813,927 Floors: Sold ............................................................................ Bought ....................................................................... 3,427,268 2,001,857 Other: Sold ............................................................................ Bought ....................................................................... Total ................................................................................ 1,723,114 6,906,532 / 3,271,036 1,816,324 1,045,482 4,948,922 / 132,247 (132,242) 571,893 9,871,580 (9,312,725) 4,408 5,054 (22,405) (27,575) 689 (34,570) 21,728 132,247 (132,242) 571,893 9,871,580 (9,312,725) 4,408 5,054 (22,405) (27,575) 689 (34,570) 21,728 (2,327) 74,235 ¥ 623,785 (2,327) 74,235 ¥ 623,785 Notes: 1. The above transactions are valued at fair value and the valuation gains (losses) are accounted for in the consolidated statements of income. 2. Fair value of transactions listed on an exchange is calculated using the closing price on the Tokyo Financial Exchange or other relevant exchanges. Fair value of OTC transactions is calculated using discounted present value and option pricing models. 010_0800801372008.indd 199 199 2020/08/21 16:48:12 Sumitomo Mitsui Financial GroupSMBC GROUP ANNUAL REPORT 2020Notes to Consolidated Financial Statements (2) Currency derivatives March 31, 2019 Listed Currency futures: Millions of yen Contract amount Total Over 1 year Fair value Valuation gains (losses) Sold ............................................................................ Bought ....................................................................... ¥ 2,833 1,109 ¥ — — ¥ 21 0 ¥ 21 0 Over-the-counter Currency swaps ................................................................ Currency swaptions: Sold ............................................................................ Bought ....................................................................... Forward foreign exchange ................................................ Currency options: Sold ............................................................................ Bought ....................................................................... Total ................................................................................ 46,383,650 34,753,013 82,884 76,881 341,280 817,560 81,510,434 3,031,324 2,676,865 / 256,973 708,288 11,113,122 1,496,970 1,186,165 / (628) 1,484 24,012 (62,269) 67,564 ¥113,069 (628) 1,484 24,012 (62,269) 67,564 ¥107,066 Notes: 1. The above transactions are valued at fair value and the valuation gains (losses) are accounted for in the consolidated statements of income. 2. Fair value of transactions listed on exchange is calculated using the closing price on the Tokyo Financial Exchange or other relevant exchanges. Fair value of OTC transactions is calculated using discounted present value, option pricing models and other methodologies. March 31, 2020 Listed Currency futures: Millions of yen Contract amount Total Over 1 year Fair value Valuation gains (losses) Sold ............................................................................ Bought ....................................................................... ¥ 4,500 — ¥ — — ¥ (7) — ¥ (7) — Over-the-counter Currency swaps ................................................................ Currency swaptions: Sold ............................................................................ Bought ....................................................................... Forward foreign exchange ................................................ Currency options: Sold ............................................................................ Bought ....................................................................... Total ................................................................................ 55,227,153 41,204,948 (116,557) (97,022) 229,152 789,974 80,636,837 3,622,112 3,258,083 / 45,273 577,080 10,126,712 1,493,867 1,206,448 / (429) 1,766 (1,771) (429) 1,766 (1,771) (115,008) 120,743 ¥(111,265) (115,008) 120,743 ¥ (91,729) Notes: 1. The above transactions are valued at fair value and the valuation gains (losses) are accounted for in the consolidated statements of income. 2. Fair value of transactions listed on exchange is calculated using the closing price on the Tokyo Financial Exchange or other relevant exchanges. Fair value of OTC transactions is calculated using discounted present value, option pricing models and other methodologies. 200 010_0800801372008.indd 200 2020/08/21 16:48:12 Sumitomo Mitsui Financial GroupSMBC GROUP ANNUAL REPORT 2020Notes to Consolidated Financial Statements (3) Equity derivatives March 31, 2019 Listed Equity price index futures: Millions of yen Contract amount Total Over 1 year Fair value Valuation gains (losses) Sold ............................................................................ Bought ....................................................................... ¥635,249 295,976 Equity price index options: Sold ............................................................................ Bought ....................................................................... 682,846 576,496 Over-the-counter Equity options: Sold ............................................................................ Bought ....................................................................... Equity index forward contracts: Sold ............................................................................ Bought ....................................................................... Equity price index swaps: Receivable equity index/payable short-term floating rate ........................................................................... Receivable short-term floating rate/payable equity index ........................................................................ Total ................................................................................ 401,236 320,518 — 8,094 ¥ 28,221 15,021 350,760 317,636 290,126 242,408 — 115 ¥ 3,170 (1,081) (56,853) 29,383 (25,905) 24,375 — 554 ¥ 3,170 (1,081) (56,853) 29,383 (25,905) 24,375 — 554 67,491 43,666 (8,214) (8,214) 254,937 / 177,164 / 21,736 ¥(12,835) 21,736 ¥(12,835) Notes: 1. The above transactions are valued at fair value and the valuation gains (losses) are accounted for in the consolidated statements of income. 2. Fair value of transactions listed on exchange is calculated using the closing price on the Osaka Exchange or other relevant exchanges. Fair value of OTC transactions is calculated using discounted present value and option pricing models. March 31, 2020 Listed Equity price index futures: Millions of yen Contract amount Total Over 1 year Fair value Valuation gains (losses) Sold ............................................................................ Bought ....................................................................... ¥683,868 470,636 Equity price index options: Sold ............................................................................ Bought ....................................................................... 625,316 476,035 Over-the-counter Equity options: Sold ............................................................................ Bought ....................................................................... Equity index forward contracts: Sold ............................................................................ Bought ....................................................................... Equity price index swaps: Receivable equity index/payable short-term floating rate ........................................................................... Receivable short-term floating rate/payable equity index ........................................................................ Total ................................................................................ 342,896 312,867 — 2,614 ¥ 3,250 30,247 253,364 197,739 52,544 38,253 — 28 ¥ (7,234) 1,286 (69,629) 31,351 (30,674) 32,382 — 448 ¥ (7,234) 1,286 (69,629) 31,351 (30,674) 32,382 — 448 58,774 31,271 (18,606) (18,606) 268,608 / 151,227 / 51,513 ¥ (9,162) 51,513 ¥ (9,162) Notes: 1. The above transactions are valued at fair value and the valuation gains (losses) are accounted for in the consolidated statements of income. 2. Fair value of transactions listed on exchange is calculated using the closing price on the Osaka Exchange or other relevant exchanges. Fair value of OTC transactions is calculated using discounted present value and option pricing models. 010_0800801372008.indd 201 201 2020/08/21 16:48:12 Sumitomo Mitsui Financial GroupSMBC GROUP ANNUAL REPORT 2020Notes to Consolidated Financial Statements (4) Bond derivatives March 31, 2019 Listed Bond futures: Millions of yen Contract amount Total Over 1 year Fair value Valuation gains (losses) Sold ............................................................................ Bought ....................................................................... ¥2,145,140 1,755,892 ¥ — — ¥(28,956) 26,722 ¥(28,956) 26,722 Bond futures options: Sold ............................................................................ Bought ....................................................................... 446,325 45,285 Over-the-counter Bond forward contract: Sold ............................................................................ Bought ....................................................................... Bond options: Sold ............................................................................ Bought ....................................................................... Total ................................................................................ 1,328 — 505,303 595,039 / — — — — (662) 120 2 — (662) 120 2 — — 83,476 / (1,887) 853 ¥ (3,805) (1,887) 853 ¥ (3,805) Notes: 1. The above transactions are valued at fair value and the valuation gains (losses) are accounted for in the consolidated statements of income. 2. Fair value of transactions listed on exchange is calculated using the closing price on the Osaka Exchange or other relevant exchanges. Fair value of OTC transactions is calculated using option pricing models. March 31, 2020 Listed Bond futures: Millions of yen Contract amount Total Over 1 year Fair value Valuation gains (losses) Sold ............................................................................ Bought ....................................................................... ¥1,098,669 1,137,437 ¥ — — ¥(15,128) 16,168 ¥(15,128) 16,168 Bond futures options: Sold ............................................................................ Bought ....................................................................... 3,000 2,992 Over-the-counter Bond forward contract: Sold ............................................................................ Bought ....................................................................... Bond options: Sold ............................................................................ Bought ....................................................................... Total ................................................................................ 499 — 298,310 371,168 / — — — — 2 10 0 — 2 10 0 — — 71,357 / (119) 8,240 ¥ 9,174 (119) 8,240 ¥ 9,174 Notes: 1. The above transactions are valued at fair value and the valuation gains (losses) are accounted for in the consolidated statements of income. 2. Fair value of transactions listed on exchange is calculated using the closing price on the Osaka Exchange or other relevant exchanges. Fair value of OTC transactions is calculated using option pricing models. 202 010_0800801372008.indd 202 2020/08/21 16:48:12 Sumitomo Mitsui Financial GroupSMBC GROUP ANNUAL REPORT 2020Notes to Consolidated Financial Statements (5) Commodity derivatives March 31, 2019 Listed Commodity futures: Millions of yen Contract amount Total Over 1 year Fair value Valuation gains (losses) Sold ............................................................................ Bought ....................................................................... ¥14,158 14,664 ¥ — — ¥ 326 (296) ¥ 326 (296) Over-the-counter Commodity swaps: Receivable fixed price/payable floating price ............... Receivable floating price/payable fixed price ............... Receivable floating price/payable floating price ........... Commodity options: Sold ............................................................................ Bought ....................................................................... Total ................................................................................ 91,437 89,660 2,018 7,918 5,796 / 42,874 41,086 1,461 2,678 778 / (1,163) 3,089 (10) (401) 12 ¥ 1,556 (1,163) 3,089 (10) (401) 12 ¥ 1,556 Notes: 1. The above transactions are valued at fair value and the valuation gains (losses) are accounted for in the consolidated statements of income. 2. Fair value of transactions listed on exchange is calculated using the closing price on the New York Mercantile Exchange or other relevant exchanges. Fair value of OTC transactions is calculated based on factors such as price of the relevant commodity and contract term. 3. Underlying assets of commodity derivatives are fuels and metals. March 31, 2020 Listed Commodity futures: Millions of yen Contract amount Total Over 1 year Fair value Valuation gains (losses) Sold ............................................................................ Bought ....................................................................... ¥ 3,090 4,044 ¥ — — ¥ 171 (379) ¥ 171 (379) Over-the-counter Commodity swaps: Receivable fixed price/payable floating price ............... Receivable floating price/payable fixed price ............... Receivable floating price/payable floating price ........... Commodity options: Sold ............................................................................ Bought ....................................................................... Total ................................................................................ 80,464 76,311 1,363 3,153 1,307 / 47,610 44,804 1,347 2,199 532 / 18,209 (15,201) 0 (529) (89) ¥ 2,181 18,209 (15,201) 0 (529) (89) ¥ 2,181 Notes: 1. The above transactions are valued at fair value and the valuation gains (losses) are accounted for in the consolidated statements of income. 2. Fair value of transactions listed on exchange is calculated using the closing price on the New York Mercantile Exchange or other relevant exchanges. Fair value of OTC transactions is calculated based on factors such as price of the relevant commodity and contract term. 3. Underlying assets of commodity derivatives are fuels and metals. 010_0800801372008.indd 203 203 2020/08/21 16:48:12 Sumitomo Mitsui Financial GroupSMBC GROUP ANNUAL REPORT 2020Notes to Consolidated Financial Statements (6) Credit derivative transactions March 31, 2019 Over-the-counter Credit default options: Millions of yen Contract amount Total Over 1 year Fair value Valuation gains (losses) Sold ............................................................................ Bought ....................................................................... Total ................................................................................ ¥692,851 811,914 / ¥639,636 713,858 / ¥ 6,303 (6,955) ¥ (651) ¥ 6,303 (6,955) ¥ (651) Notes: 1. The above transactions are valued at fair value and the valuation gains (losses) are accounted for in the consolidated statements of income. 2. Fair 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. March 31, 2020 Over-the-counter Credit default options: Millions of yen Contract amount Total Over 1 year Fair value Valuation gains (losses) Sold ............................................................................ Bought ....................................................................... Total ................................................................................ ¥1,010,046 1,173,724 / ¥ 871,799 1,012,367 / ¥ (10,922) 13,779 ¥ 2,856 ¥ (10,922) 13,779 ¥ 2,856 Notes: 1. The above transactions are valued at fair value and the valuation gains (losses) are accounted for in the consolidated statements of income. 2. Fair 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. 204 010_0800801372008.indd 204 2020/08/21 16:48:12 Sumitomo Mitsui Financial GroupSMBC GROUP ANNUAL REPORT 2020Notes to Consolidated Financial Statements 2. Derivative transactions to which the hedge accounting method is applied The following tables set forth the contract amount or the amount equivalent to the notional amount, fair value and fair value calculation methodologies by type of derivative and hedge accounting method with respect to derivative transactions to which the hedge accounting method is applied at the end of the fiscal year. Contract amount does not indicate the market risk relating to derivative transactions. (1) Interest rate derivatives March 31, 2019 Hedge accounting method Deferral hedge method Principal items hedged Interest-earning/bearing financial assets/liabilities such as loans and bills discounted, other securities, deposits and negotiable certificates of deposit Type of derivative Interest futures: Sold ..................................................... Bought ................................................ Interest rate swaps: Receivable fixed rate/payable floating rate .................................................... Receivable floating rate/payable fixed rate .................................................... Interest rate swaptions: Sold ..................................................... Bought ................................................ Recognition of gain or loss on the hedged items Special treatment for interest rate swaps Interest rate swaps: Loans and bills discounted Receivable floating rate/payable fixed rate .................................................... Interest rate swaps: Receivable floating rate/payable fixed rate .................................................... Total .......................................................... Borrowed money, corporate bonds Millions of yen Contract amount Total Over 1 year Fair value ¥ 2,220,000 — ¥ 2,220,000 — ¥ (149) — 33,822,621 30,249,753 252,739 15,191,315 13,130,451 (282,377) 157,065 — 157,065 — 3,441 — 301,178 291,450 (3,274) 68,690 / 66,690 / (Note 3) ¥ (29,620) Notes: 1. The Company applies deferred hedge accounting stipulated in “Treatment for Accounting and Auditing of Application of Accounting Standard for Financial Instruments in Banking Industry” (JICPA Industry Audit Committee Report No. 24, February 13, 2002). 2. Fair value of transactions listed on exchange is calculated using the closing price on the Tokyo Financial Exchange or other relevant exchanges. Fair value of OTC transactions is calculated using discounted present value and option pricing models. 3. Interest rate swap amounts measured by the special treatment for interest rate swaps are treated with the borrowed money or other transactions that are subject to the hedge. Therefore, such fair value is included in the fair value of the relevant hedged items such as borrowed money disclosed in “(Notes to financial instruments) 2. Fair value of financial instruments”. 010_0800801372008.indd 205 205 2020/08/21 16:48:12 Sumitomo Mitsui Financial GroupSMBC GROUP ANNUAL REPORT 2020Notes to Consolidated Financial Statements March 31, 2020 Hedge accounting method Deferral hedge method Principal items hedged Interest-earning/bearing financial assets/liabilities such as loans and bills discounted, other securities, deposits and negotiable certificates of deposit Type of derivative Interest futures: Sold ..................................................... Bought ................................................ Interest rate swaps: Receivable fixed rate/payable floating rate .................................................... Receivable floating rate/payable fixed rate .................................................... Interest rate swaptions: Sold ..................................................... Bought ................................................ Recognition of gain or loss on the hedged items Special treatment for interest rate swaps Interest rate swaps: Loans and bills discounted Receivable floating rate/payable fixed rate .................................................... Interest rate swaps: Borrowed money Receivable floating rate/payable fixed rate .................................................... Total .......................................................... Millions of yen Contract amount Total Over 1 year Fair value ¥ 435,240 1,142,505 ¥ — — ¥ 43 269 36,700,930 28,992,026 697,034 14,785,349 13,677,981 (507,233) 151,789 — 151,789 — 26,130 — 409,908 390,290 (13,781) 71,880 / 55,700 / (Note 3) ¥ 202,463 Notes: 1. The Company applies deferred hedge accounting stipulated in “Treatment for Accounting and Auditing of Application of Accounting Standard for Financial Instruments in Banking Industry” (JICPA Industry Audit Committee Report No. 24, February 13, 2002). 2. Fair value of transactions listed on exchange is calculated using the closing price on the Tokyo Financial Exchange or other relevant exchanges. Fair value of OTC transactions is calculated using discounted present value and option pricing models. 3. Interest rate swap amounts measured by the special treatment for interest rate swaps are treated with the borrowed money or other transactions that are subject to the hedge. Therefore, such fair value is included in the fair value of the relevant transaction subject to the hedge in the “(Notes to financial instruments) 2. Fair value of financial instruments.” (2) Currency derivatives March 31, 2019 Hedge accounting method Deferral hedge method Recognition of gain or loss on the hedged items Millions of yen Contract amount Type of derivative Principal items hedged Currency swaps ................................ Foreign currency denominated loans and Total ¥7,828,136 Over 1 year ¥5,000,432 Fair value ¥(22,720) Forward foreign exchange ................ bills discounted, other securities, deposits, foreign exchange, etc. 2,772 — (218) Currency swaps ................................ Loans and bills discounted, other 186,032 131,640 5,056 securities Total ................................................ / / ¥(17,882) Notes: 1. The Company 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, July 29, 2002). 2. Fair value is calculated using discounted present value. March 31, 2020 Hedge accounting method Deferral hedge method Recognition of gain or loss on the hedged items Millions of yen Contract amount Type of derivative Principal items hedged Currency swaps ................................ Foreign currency denominated loans and Total ¥9,966,619 Over 1 year ¥5,490,043 Fair value ¥64,752 Forward foreign exchange ................ bills discounted, other securities, deposits, foreign exchange, etc. 39,426 — 723 Currency swaps ................................ Loans and bills discounted, other 254,494 208,359 18,015 securities Total ................................................ / / ¥83,491 Notes: 1. The Company 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, July 29, 2002). 2. Fair value is calculated using discounted present value. 206 010_0800801372008.indd 206 2020/08/21 16:48:12 Sumitomo Mitsui Financial GroupSMBC GROUP ANNUAL REPORT 2020Notes to Consolidated Financial Statements (3) Equity derivatives March 31, 2019 Hedge accounting method Recognition of gain or loss on the hedged items Type of derivative Equity price index swaps: Receivable floating rate/payable equity index ....................................................... Total .............................................................. Principal items hedged Other securities Millions of yen Contract amount Total Over 1 year Fair value ¥48,510 / 48,510 / 1,826 ¥1,826 Note: Fair value is calculated using discounted present value. March 31, 2020 Hedge accounting method Recognition of gain or loss on the hedged items Type of derivative Equity price index swaps: Receivable floating rate/payable equity index ....................................................... Total .............................................................. Principal items hedged Other securities Note: Fair value is calculated using discounted present value. Millions of yen Contact amount Total Over 1 year Fair value ¥41,556 / 41,556 / 8,861 ¥8,861 010_0800801372008.indd 207 207 2020/08/21 16:48:12 Sumitomo Mitsui Financial GroupSMBC GROUP ANNUAL REPORT 2020Notes to Consolidated Financial Statements (Notes to employee retirement benefits) 1. Outline of employee retirement benefits The Company’s consolidated subsidiaries have funded and unfunded contributory defined benefit pension plans and defined-contribution pension plans for benefit payments to their employees. Funded contributory defined benefit pension plans mainly consist of contributory funded defined benefit pension plans and lump-sum severance indemnity plans which set up employee retirement benefit trusts. Unfunded contributory defined benefit pension plans are lump-sum severance indemnity plans which do not use such trust scheme. Some consolidated subsidiaries adopt the simplified method in calculating the projected benefit obligation. Additional benefits may also be granted when employees retire. 2. Contributory defined benefit pension plan (1) Reconciliation of beginning and ending balances of projected benefit obligation Millions of yen Year ended March 31 Beginning balance of projected benefit obligation ......................................................... Service cost ................................................................................................................ Interest cost on projected benefit obligation ............................................................... Unrecognized net actuarial gain or loss incurred ........................................................ Payments of retirement benefits ................................................................................. Unrecognized prior service cost .................................................................................. Net change as a result of business combinations ......................................................... Other ......................................................................................................................... Ending balance of projected benefit obligation .............................................................. 2019 ¥1,125,746 38,597 5,946 31,582 (55,656) 96 (22,529) (22) ¥1,123,760 (2) Reconciliation of beginning and ending balances of plan assets Millions of yen Year ended March 31 Beginning balance of plan assets ................................................................................... Expected return on plan assets ................................................................................. Unrecognized net actuarial gain or loss incurred ...................................................... Contributions by the employer ................................................................................ Payments of retirement benefits ............................................................................... Net change as a result of business combinations....................................................... Other ...................................................................................................................... Ending balance of plan assets ........................................................................................ 2019 ¥1,469,182 43,473 (48,332) 15,746 (42,816) (14,348) (1,525) ¥1,421,378 2020 ¥1,123,760 37,323 4,098 13,225 (55,337) — 1,227 (318) ¥1,123,979 2020 ¥1,421,378 42,510 (112,013) 13,108 (43,656) — (2,551) ¥1,318,775 (3) Reconciliation of the projected benefit obligation and plan assets to net defined benefit asset and net defined benefit liability reported on the consolidated balance sheets March 31 Funded projected benefit obligation .............................................................................. Plan assets .................................................................................................................... Unfunded projected benefit obligation .......................................................................... Net amount of asset and liability reported on the consolidated balance sheet ................ Millions of yen 2019 ¥(1,099,416) 1,421,378 321,961 (24,343) ¥ 297,617 Millions of yen March 31 Net defined benefit asset ............................................................................................... Net defined benefit liability .......................................................................................... Net amount of asset and liability reported on the consolidated balance sheet ................ 2019 ¥329,434 (31,816) ¥297,617 2020 ¥(1,096,602) 1,318,775 222,172 (27,376) ¥ 194,795 2020 ¥230,573 (35,777) ¥194,795 208 010_0800801372008.indd 208 2020/08/21 16:48:12 Sumitomo Mitsui Financial GroupSMBC GROUP ANNUAL REPORT 2020Notes to Consolidated Financial Statements(4) 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 .......................................................................................................... Note: Pension expenses of consolidated subsidiaries which adopt the simplified method are included in “Service cost.” Millions of yen 2019 2020 ¥ 38,597 5,946 (43,473) (15,100) (131) 6,300 ¥ (7,861) ¥ 37,323 4,098 (42,510) 5,569 (140) 7,521 ¥ 11,861 (5) Remeasurements of defined benefit plans The breakdown of “Remeasurements of defined benefit plans” (before deducting tax effect) is as shown below: Year ended March 31 Prior service cost ........................................................................................................... Net actuarial gain or loss .............................................................................................. Total ............................................................................................................................. 2019 ¥ 227 94,984 ¥95,212 2020 ¥ 140 119,648 ¥119,789 Millions of yen (6) Accumulated remeasurements of defined benefit plans The breakdown of “Accumulated remeasurements of defined benefit plans” (before deducting tax effect) is as shown below: March 31 Unrecognized prior service cost .................................................................................... Unrecognized net actuarial gain or loss ......................................................................... Total ............................................................................................................................. 2019 ¥ (300) 8,596 ¥8,295 2020 ¥ (159) 128,245 ¥128,085 Millions of yen (7) Plan assets 1) Major asset classes of plan assets The proportion of major asset classes to the total plan assets is as follows: March 31 Stocks ...................................................................................................................... Bonds ...................................................................................................................... General account of life insurance .............................................................................. Other ...................................................................................................................... Total ........................................................................................................................ 2019 2020 58.7% 17.8% 2.8% 20.7% 100.0% 56.3% 15.1% 3.0% 25.6% 100.0% Note: The retirement benefit trusts set up for employee pension plans and lump-sum severance indemnity plans account for 36.3% and 35.5% of the total plan assets at March 31, 2019 and 2020, respectively. 2) Method for setting the long-term expected rate of return on plan assets The long-term expected rate of return on plan assets is determined based on the current and expected allocation of plan assets and the current and expected long-term rates of return on various asset classes of plan assets. (8) Actuarial assumptions The principal assumptions used in determining benefit obligation and pension expenses are as follows: 1) Discount rate Year ended March 31, 2019 Domestic consolidated subsidiaries ........................ Overseas consolidated subsidiaries ......................... Year ended March 31, 2020 Percentages (0.1)% to 0.8% Domestic consolidated subsidiaries ........................ 2.4 % to 9.0% Overseas consolidated subsidiaries ......................... Percentages 0.3% to 0.8% 2.3% to 8.3% 010_0800801372008.indd 209 209 2020/08/21 16:48:12 Sumitomo Mitsui Financial GroupSMBC GROUP ANNUAL REPORT 2020Notes to Consolidated Financial Statements2) Long-term expected rate of return on plan assets Year ended March 31, 2019 Domestic consolidated subsidiaries ........................ Overseas consolidated subsidiaries ......................... Percentages Year ended March 31, 2020 0% to 4.0% Domestic consolidated subsidiaries ........................ 2.4% to 9.0% Overseas consolidated subsidiaries ......................... Percentages 0% to 4.0% 2.3% to 8.3% 3. Defined contribution plan Fiscal year ended March 31, 2019 The amount required to be contributed by the consolidated subsidiaries is ¥11,500 million. Fiscal year ended March 31, 2020 The amount required to be contributed by the consolidated subsidiaries is ¥11,122 million. 210 010_0800801372008.indd 210 2020/08/21 16:48:12 Sumitomo Mitsui Financial GroupSMBC GROUP ANNUAL REPORT 2020Notes to Consolidated Financial Statements(Notes to stock options) 1. Amount of stock options expenses Stock options expenses which were accounted for as general and administrative expenses for the fiscal years ended March 31, 2019 and 2020 are as follows: Year ended March 31 General and administrative expenses ................................................................................... Millions of yen 2019 ¥29 2020 ¥7 2. Amount of profit by non-exercise of stock acquisition rights Profit by non-exercise of stock acquisition rights which were accounted for as other income for the fiscal years ended March 31, 2019 and 2020 are as follows: Year ended March 31 Other income ..................................................................................................................... Millions of yen 2019 ¥— 2020 ¥1,610 3. Outline of stock options and changes The Company (1) Outline of stock options Date of resolution Title and number of grantees ........................... Number of stock options* ................. July 28, 2010 July 29, 2011 July 30, 2012 July 29, 2013 Directors of the Company 8 Corporate auditors of the Company 3 Executive officers of the Company 2 Directors, corporate auditors and executive officers of SMBC 69 Directors of the Company 9 Corporate auditors of the Company 3 Executive officers of the Company 2 Directors, corporate auditors and executive officers of SMBC 71 Directors of the Company 9 Corporate auditors of the Company 3 Executive officers of the Company 2 Directors, corporate auditors and executive officers of SMBC 71 Directors of the Company 9 Corporate auditors of the Company 3 Executive officers of the Company 3 Directors, corporate auditors and executive officers of SMBC 67 Common shares 102,600 August 13, 2010 Grant date ......................... Condition for vesting ......... Stock acquisition right holders may exercise stock acquisition rights from the day when they are relieved of their positions either as a director, corporate auditor or executive officer of the Company and SMBC. From June 29, 2010 to the closing of the ordinary general meeting of shareholders of the Company for the fiscal year ended March 31, 2011 August 13, 2010 to August 12, 2040 Exercise period .................. Requisite service period ..... Common shares 268,200 August 16, 2011 Stock acquisition right holders may exercise stock acquisition rights from the day when they are relieved of their positions either as a director, corporate auditor or executive officer of the Company and SMBC. From June 29, 2011 to the closing of the ordinary general meeting of shareholders of the Company for the fiscal year ended March 31, 2012 August 16, 2011 to August 15, 2041 Common shares 280,500 August 15, 2012 Stock acquisition right holders may exercise stock acquisition rights from the day when they are relieved of their positions either as a director, corporate auditor or executive officer of the Company and SMBC. From June 28, 2012 to the closing of the ordinary general meeting of shareholders of the Company for the fiscal year ended March 31, 2013 August 15, 2012 to August 14, 2042 Common shares 115,700 August 14, 2013 Stock acquisition right holders may exercise stock acquisition rights from the day when they are relieved of their positions either as a director, corporate auditor or executive officer of the Company and SMBC. From June 27, 2013 to the closing of the ordinary general meeting of shareholders of the Company for the fiscal year ended March 31, 2014 August 14, 2013 to August 13, 2043 010_0800801372008.indd 211 211 2020/08/21 16:48:12 Sumitomo Mitsui Financial GroupSMBC GROUP ANNUAL REPORT 2020Notes to Consolidated Financial Statements Date of resolution Title and number of grantees ........................... Number of stock options* ................. July 30, 2014 July 31, 2015 July 26, 2016 Directors of the Company 10 Corporate auditors of the Company 3 Executive officers of the Company 2 Directors, corporate auditors and executive officers of SMBC 67 Directors of the Company 8 Corporate auditors of the Company 3 Executive officers of the Company 4 Directors, corporate auditors and executive officers of SMBC 68 Directors of the Company 8 Corporate auditors of the Company 3 Executive officers of the Company 5 Directors, corporate auditors and executive officers of SMBC 73 Common shares 121,900 August 15, 2014 Grant date ......................... Condition for vesting ......... Stock acquisition right holders may exercise stock acquisition rights from the day when they are relieved of their positions either as a director, corporate auditor or executive officer of the Company and SMBC. From June 27, 2014 to the closing of the ordinary general meeting of shareholders of the Company for the fiscal year ended March 31, 2015 August 15, 2014 to August 14, 2044 Exercise period .................. Requisite service period ..... Common shares 132,400 August 18, 2015 Stock acquisition right holders may exercise stock acquisition rights from the day when they are relieved of their positions either as a director, corporate auditor or executive officer of the Company and SMBC. From June 26, 2015 to the closing of the ordinary general meeting of shareholders of the Company for the fiscal year ended March 31, 2016 August 18, 2015 to August 17, 2045 Common shares 201,200 August 15, 2016 Stock acquisition right holders may exercise stock acquisition rights from the day when they are relieved of their positions either as a director, corporate auditor or executive officer of the Company and SMBC. From June 29, 2016 to the closing of the ordinary general meeting of shareholders of the Company for the fiscal year ended March 31, 2017 August 15, 2016 to August 14, 2046 * Number of stock options is converted and stated as number of shares. (2) Stock options granted and changes 1) 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 ........................ Number of stock options July 28, 2010 July 29, 2011 July 30, 2012 July 29, 2013 July 30, 2014 July 31, 2015 July 26, 2016 7,200 — — 2,000 5,200 59,700 2,000 17,000 — 44,700 13,600 — — 7,200 6,400 173,600 7,200 47,800 — 133,000 65,400 — — 7,100 58,300 161,000 7,100 38,500 — 129,600 42,700 — — 3,500 39,200 33,300 3,500 9,900 — 26,900 59,400 — — 17,300 42,100 32,000 17,300 21,500 — 27,800 91,200 — — 13,500 77,700 14,400 13,500 14,800 — 13,100 121,300 — — 18,500 102,800 24,600 18,500 27,400 — 15,700 * Number of stock options has been converted and stated as number of shares. 2) Price information Date of resolution Exercise price .......................... Average exercise price ............. Fair value at the grant date ..... Yen July 28, 2010 July 29, 2011 July 30, 2012 July 29, 2013 July 30, 2014 July 31, 2015 July 26, 2016 ¥ 1 3,318 4,159 ¥ 1 3,856 3,661 ¥ 1 4,002 4,904 ¥ 1 3,601 2,042 ¥ 1 3,263 2,215 ¥ 1 3,452 1,872 ¥ 1 3,739 2,811 (3) 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. 212 010_0800801372008.indd 212 2020/08/21 16:48:12 Sumitomo Mitsui Financial GroupSMBC GROUP ANNUAL REPORT 2020Notes to Consolidated Financial Statements PT Bank BTPN Tbk, a consolidated subsidiary of the Company (1) 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 .................. March 26, 2015 March 26, 2015 April 29, 2016 Executives 16 Employees 309 Executive 1 Employees 4 Employees 332 Common shares 141,575,000 April 15, 2015 In service at the time of exercise No provisions 30 days from May 1, 2017 30 days from November 6, 2017 30 days from May 7, 2018 30 days from November 5, 2018 30 days from May 6, 2019 30 days from December 2, 2019 Common shares 10,500,000 October 10, 2016 In service at the time of exercise No provisions 30 days from May 1, 2017 30 days from November 6, 2017 30 days from May 7, 2018 30 days from November 5, 2018 30 days from May 6, 2019 30 days from December 2, 2019 Common shares 56,645,000 September 21, 2016 In service at the time of exercise No provisions 30 days from May 28, 2018 30 days from December 17, 2018 30 days from May 28, 2019 30 days from December 19, 2019 30 days from June 1, 2020 30 days from December 17, 2020 * Number of stock options is converted and stated as number of shares. (2) Stock options granted and changes 1) Number of stock options* Date of resolution Before vested March 26, 2015 Number of stock options March 26, 2015 April 29, 2016 Previous fiscal year-end ...... Granted ............................. Forfeited ............................ Vested ............................... Outstanding ...................... 83,240,000 — 83,240,000 — — 9,600,000 — 9,600,000 — — 37,896,500 — 37,896,500 — — After vested Previous fiscal year-end ...... Vested ............................... Exercised ........................... Forfeited ............................ Exercisable ........................ — — — — — — — — — — — — — — — * Number of stock options has been converted and stated as number of shares. 2) Price information Date of resolution Exercise price (IDR) ............... Average exercise price (IDR) ... Fair value at the grant date March 26, 2015 4,000.00 — IDR March 26, 2015 4,000.00 — April 29, 2016 2,617.00 — (IDR) ................................ 1,408.90 1,408.90 712.81 (3) 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. 010_0800801372008.indd 213 213 2020/08/21 16:48:12 Sumitomo Mitsui Financial GroupSMBC GROUP ANNUAL REPORT 2020Notes to Consolidated Financial Statements (Notes to deferred tax assets and liabilities) 1. Significant components of deferred tax assets and liabilities March 31, 2019 Deferred tax assets: Millions of yen March 31, 2020 Deferred tax assets: Millions of yen Reserve for possible loan losses and write-off of loans .................................................................... ¥ 181,930 210,814 Net operating loss carryforwards *2 ....................... 147,466 Securities ............................................................... 45,195 Reserve for losses on interest repayment................. Accumulated remeasurements of defined benefit plans .................................................................... Other .................................................................... Subtotal ................................................................. Valuation allowance for net operating loss carryforwards *2 ................................................... Valuation allowance for total amount of deductible temporary differences etc. .................................... Valuation allowance subtotal *1 ............................. Total deferred tax assets .............................................. Deferred tax liabilities: 2,785 185,582 773,774 (366,407) 407,367 (200,111) (166,296) Reserve for possible loan losses and write-off of loans .................................................................... ¥ 209,156 Net operating loss carryforwards *2 ....................... 177,351 146,854 Securities ............................................................... 43,753 Reserve for losses on interest repayment................. Accumulated remeasurements of defined benefit plans .................................................................... Other .................................................................... Subtotal ................................................................. Valuation allowance for net operating loss carryforwards *2 ................................................... Valuation allowance for total amount of deductible temporary differences etc. .................................... Valuation allowance subtotal *1 ............................. Total deferred tax assets .............................................. Deferred tax liabilities: 39,818 164,543 781,478 (192,146) (308,148) 473,329 (116,002) (551,785) Net unrealized gains on other securities ................. — Net deferred gains (losses) on hedge....................... Depreciation .......................................................... (44,994) (148,562) Other .................................................................... Total deferred tax liabilities ........................................ (745,341) Net deferred tax assets (liabilities) .............................. ¥ (337,974) (445,574) Net unrealized gains on other securities ................. (57,250) Net deferred gains (losses) on hedge....................... Depreciation .......................................................... (52,125) (149,449) Other .................................................................... Total deferred tax liabilities ........................................ (704,399) Net deferred tax assets (liabilities) .............................. ¥ (231,070) *1 The change of valuation allowance is mainly due to utilization of net operating loss carryforwards and a decrease in valuation allowance due to the judgement of recoverability of deferred tax assets from expected future taxable income at SMBC Consumer Finance Co., Ltd. *2 Net operating loss carryforwards and the amount of its deferred tax assets by expiry date. March 31, 2019 Net operating loss carryforwards * .................. Valuation allowance ............. Deferred tax assets ............... Within 1 year More than 1 year to 5 years Millions of yen More than 5 years to 10 years More than 10 years Total ¥ 41,259 (40,810) 448 ¥ 105,321 (102,113) 3,207 ¥ 23,043 (22,063) 979 ¥41,190 (1,308) 39,881 ¥ 210,814 (166,296) 44,517 * Net operating loss carryforwards is multiplied by statutory tax rate. March 31, 2020 Net operating loss carryforwards * .................. Valuation allowance ............. Deferred tax assets ............... Within 1 year More than 1 year to 5 years Millions of yen More than 5 years to 10 years More than 10 years Total ¥ 68,777 (58,773) 10,044 ¥ 37,998 (37,271) 727 ¥ 20,754 (18,714) 2,040 ¥49,821 (1,282) 48,538 ¥ 177,351 (116,002) 61,349 * Net operating loss carryforwards is multiplied by statutory tax rate. 214 010_0800801372008.indd 214 2020/08/21 16:48:12 Sumitomo Mitsui Financial GroupSMBC GROUP ANNUAL REPORT 2020Notes to Consolidated Financial Statements 2. Significant components of difference between the statutory tax rate used by the Company and the effective income tax rate March 31, 2019 Statutory tax rate ........................................................ Dividends exempted for income tax purposes......... Equity in gains of affiliates .................................... Difference between the Company and overseas consolidated subsidiaries ...................................... Expired loss carryforwards ..................................... Valuation allowance ............................................... Other .................................................................... Effective income tax rate ............................................. Percentages 30.62% (3.57) (1.67) (1.62) 4.27 2.39 (0.92) 29.50% March 31, 2020 Statutory tax rate ........................................................ Valuation allowance ............................................... Equity in gains of affiliates .................................... Dividends exempted for income tax purposes......... Difference of the scope of taxable income between corporate income tax and enterprise income tax ... Other .................................................................... Effective income tax rate ............................................. Percentages 30.62% (8.36) (1.93) (1.05) (1.00) 0.59 18.87% (Notes to asset retirement obligations) Fiscal year ended March 31, 2019 There is no significant information to be disclosed. Fiscal year ended March 31, 2020 There is no significant information to be disclosed. (Notes to real estate for rent) Fiscal year ended March 31, 2019 There is no significant information to be disclosed. Fiscal year ended March 31, 2020 There is no significant information to be disclosed. (Notes to segment and other related information) [Segment information] 1. Summary of reportable segment The Group’s reportable segment is defined as an operating segment for which discrete financial information is available and reviewed by the Board of Directors and the Company’s Management Committee regularly in order to make decisions about resources to be allocated to the segment and assess its performance. The businesses operated by each business unit are as follows; Wholesale Business Unit: Retail Business Unit: International Business Unit: Global Markets Business Unit: Business to deal with financial market Head office account: Business other than businesses above Business to deal with domestic medium-to-large-sized enterprise Business to deal with domestic individual and small-to-medium-sized enterprise Business to deal with international (including Japanese) corporate customers 2. Method of calculating profit and loss amount by reportable segment Accounting methods applied to the reported business segment are the same as those described in “(Notes to significant accounting policies for preparing consolidated financial statements).” In case several business units cooperate for transactions, profit and loss, and expenses related to the transactions are recognized in the business units cooperating for the transactions and those amounts are calculated in accordance with internal managerial accounting policy. The Company does not assess assets by business segments. 010_0800801372008.indd 215 215 2020/08/21 16:48:12 Sumitomo Mitsui Financial GroupSMBC GROUP ANNUAL REPORT 2020Notes to Consolidated Financial Statements3. Information on profit and loss amount by reportable segment Year ended March 31, 2019 Consolidated gross profit ..... Expenses .............................. Others. ................................ Consolidated net business profit .................... Wholesale Business Unit ¥ 784,886 (345,133) 45,109 Retail Business Unit ¥ 1,281,574 (1,021,383) 14,445 Millions of yen International Business Unit ¥ 689,603 (333,382) 38,911 Global Markets Business Unit ¥333,572 (54,239) 19,127 Head office account and others ¥(243,457) 39,087 (56,447) Total ¥ 2,846,178 (1,715,050) 61,145 ¥ 484,862 ¥ 274,637 ¥ 395,131 ¥298,460 ¥(260,818) ¥ 1,192,273 Notes: 1. Figures shown in the parenthesis represent the loss. 2. “Others” includes equity in profit and loss of affiliates and cooperated profit and loss based on internal managerial accounting. 3. “Head office account and others” includes profit or loss to be eliminated as inter-segment transactions. 4. Income (loss) of Sumitomo Mitsui Finance and Leasing Company, Limited (“SMFL”) for the period from January 1, 2019 to March 31, 2019 was recorded mainly as “Consolidated gross profit” and “Expenses” under “Wholesale Business Unit” and “International Business Unit,” and those figures were deducted from “Head office account and others” and recorded as “Others” under “Head office account and others.” Income (loss) of SMFL was recorded as “Equity in gains (losses) of affiliates” in the consolidated statement of income. Year ended March 31, 2020 Consolidated gross profit ..... Expenses .............................. Others. ................................ Consolidated net business profit .................... Wholesale Business Unit ¥ 641,542 (284,353) 52,059 Retail Business Unit ¥ 1,257,678 (1,025,179) 1,974 Millions of yen International Business Unit ¥ 667,083 (350,579) 54,736 Global Markets Business Unit ¥421,629 (56,235) 33,376 Head office account and others ¥(219,345) (23,256) (86,094) Total ¥ 2,768,587 (1,739,603) 56,051 ¥ 409,247 ¥ 234,473 ¥ 371,240 ¥398,770 ¥(328,696) ¥ 1,085,304 Notes: 1. Figures shown in the parenthesis represent the loss. 2. “Others” includes equity in profit and loss of affiliates and cooperated profit and loss based on internal managerial accounting. 3. “Head office account and others” includes profit or loss to be eliminated as inter-segment transactions. 4. Difference between total amount of consolidated net business profit by reportable segment and ordinary profit on consolidated statements of income (adjustment of difference) Year ended March 31, 2019 Consolidated net business profit ................................................................................................................................ Other ordinary income (excluding equity in gains of affiliates) .................................................................................. Other ordinary expenses ........................................................................................................................................... Ordinary profit on consolidated statements of income ............................................................................................... Millions of yen ¥1,192,273 166,851 (223,825) ¥1,135,300 Note: Figures shown in the parenthesis represent the loss. Year ended March 31, 2020 Consolidated net business profit ................................................................................................................................ Other ordinary income (excluding equity in gains of affiliates) .................................................................................. Other ordinary expenses ........................................................................................................................................... Ordinary profit on consolidated statements of income ............................................................................................... Millions of yen ¥1,085,034 196,764 (349,734) ¥ 932,064 Note: Figures shown in the parenthesis represent the loss. 216 010_0800801372008.indd 216 2020/08/21 16:48:12 Sumitomo Mitsui Financial GroupSMBC GROUP ANNUAL REPORT 2020Notes to Consolidated Financial Statements [Related information] Fiscal year ended March 31, 2019 1. Information on each service There is no information to be disclosed since information on each service is similar to the segment information. 2. Geographic information (1) Ordinary income Japan ¥3,847,287 The Americas ¥734,495 Millions of yen Europe and Middle East ¥524,807 Asia and Oceania ¥628,721 Total ¥5,735,312 Notes: 1. Consolidated ordinary income is presented as a counterpart of sales of companies in other industries. 2. Ordinary income from transactions of the Company and its domestic consolidated banking subsidiaries (excluding overseas branches) and other domestic consolidated subsidiaries is classified as “Japan.” Ordinary income from transactions of overseas branches of domestic consolidated banking subsidiaries and overseas consolidated subsidiaries is classified as “The Americas,” “Europe and Middle East” and “Asia and Oceania,” based on their locations and in consideration of their geographic proximity and other factors. 3. The Americas includes the United States, Brazil, Canada and others; Europe and Middle East includes the United Kingdom, Germany and others; Asia and Oceania includes China, Singapore, Indonesia and others except Japan. (2) Tangible fixed assets Japan ¥880,935 The Americas ¥574,502 Millions of yen Europe and Middle East ¥23,413 Asia and Oceania ¥25,851 Total ¥1,504,703 3. Information on major customers There are no major customers individually accounting for 10% or more of ordinary income reported on the consolidated statements of income. Fiscal year ended March 31, 2020 1. Information on each service There is no information to be disclosed since information on each service is similar to the segment information. 2. Geographic information (1) Ordinary income Japan ¥3,496,033 The Americas ¥764,766 Millions of yen Europe and Middle East ¥395,209 Asia and Oceania ¥658,303 Total ¥5,314,313 Notes: 1. Consolidated ordinary income is presented as a counterpart of sales of companies in other industries. 2. Ordinary income from transactions of the Company and its domestic consolidated banking subsidiaries (excluding overseas branches) and other domestic consolidated subsidiaries is classified as “Japan.” Ordinary income from transactions of overseas branches of domestic consolidated banking subsidiaries and overseas consolidated subsidiaries is classified as “The Americas,” “Europe and Middle East” and “Asia and Oceania,” based on their locations and in consideration of their geographic proximity and other factors. 3. The Americas includes the United States, Brazil, Canada and others; Europe and Middle East includes the United Kingdom, Germany and others; Asia and Oceania includes China, Singapore, Indonesia and others except Japan. (2) Tangible fixed assets Japan ¥881,203 The Americas ¥511,264 Millions of yen Europe and Middle East ¥26,941 Asia and Oceania ¥30,914 Total ¥1,450,323 3. Information on major customers There are no major customers individually accounting for 10% or more of ordinary income reported on the consolidated statements of income. [Information on impairment loss for fixed assets by reportable segment] The Company does not allocate impairment loss for fixed assets to the reportable segment. Impairment loss for the fiscal year ended March 31, 2019 is ¥9,610 million. Impairment loss for the fiscal year ended March 31, 2020 is ¥65,106 million. 010_0800801372008.indd 217 217 2020/08/21 16:48:12 Sumitomo Mitsui Financial GroupSMBC GROUP ANNUAL REPORT 2020Notes to Consolidated Financial Statements[Information on amortization of goodwill and unamortized balance by reportable segment] Year ended March 31, 2019 Amortization of goodwill .............. Unamortized balance ..................... Year ended March 31, 2020 Amortization of goodwill .............. Unamortized balance ..................... Wholesale Business Unit ¥309 — Wholesale Business Unit ¥— — Retail Business Unit ¥ 4,019 50,100 Retail Business Unit ¥ 4,019 46,080 Millions of yen International Business Unit ¥5,494 — Global Markets Business Unit ¥— — Millions of yen International Business Unit Global Markets Business Unit ¥— — ¥— — Head office account and others ¥ 16,095 143,027 Head office account and others ¥ 13,513 148,209 Total ¥ 25,919 193,127 Total ¥ 17,533 194,289 [Information on gains on negative goodwill by reportable segment] Fiscal year ended March 31, 2019 There are no corresponding transactions. Fiscal year ended March 31, 2020 There are no corresponding transactions. [Information on related parties] Fiscal year ended March 31, 2019 There is no significant corresponding information to be disclosed. Fiscal year ended March 31, 2020 There is no significant corresponding information to be disclosed. (Business Combination) Merger between Sumitomo Mitsui Asset Management Company, Limited and Daiwa SB Investments Ltd. On April 1, 2019, Sumitomo Mitsui Asset Management Company, Limited (“SMAM”), a consolidated subsidiary of the Company, merged with Daiwa SB Investments Ltd. (“DSBI”), an equity method affiliate of the Company, under a merger agreement concluded between the two companies on September 28, 2018. The trade name of the merged company is Sumitomo Mitsui DS Asset Management Company, Limited. The outline of the merger is as follows. 1. Outline of the business combination 1) Name of the acquired company and its business Name: Business: Daiwa SB Investments Ltd. Investment management business, investment advisory and agency business 2) Main reasons for the business combination The asset management business is undergoing global growth, and the investment management capabilities and services desired by clients are progressively becoming more sophisticated. The merger aims to establish an asset management company that combines the strengths and expertise of SMAM and DSBI, and offers the highest quality of investment management performance and services based on its fiduciary duties, in order to address the aforesaid client needs. 3) Date of the business combination April 1, 2019 4) Legal form the business combination The structure of the merger is an absorption-type merger with SMAM as the surviving company and DSBI as the absorbed company. 5) Name of the entity after the business combination Sumitomo Mitsui Financial Group, Inc. 6) The ratio of acquired voting rights Ratio of voting rights owned by the Company immediately prior to the business combination: 48.96% Ratio of voting rights increased on the date of business combination: 1.16% Ratio of voting rights after the merger: 50.12% 7) Grounds for deciding on the acquirer The Company owns a majority of voting rights of Sumitomo Mitsui DS Asset Management Company, Limited. 218 010_0800801372008.indd 218 2020/08/21 16:48:12 Sumitomo Mitsui Financial GroupSMBC GROUP ANNUAL REPORT 2020Notes to Consolidated Financial Statements2. Period of the acquired company’s financial results included in the consolidated statements of income of the Company From April 1, 2019 to March 31, 2020 3. Acquisition cost and consideration of the acquired company Fair Value at the business combination of the common shares of DSBI held by the Company immediately prior to the business combination Consideration (shares of SMAM) for the common shares of DSBI additionally acquired by the Company on the date of business combination Acquisition cost of the acquired company 40,111 million yen 958 million yen 41,070 million yen 4. Merger ratio by type of shares, its calculation method and number of shares delivered 1) Type of shares and merger ratio Common stock SMAM 1: DSBI 4.2156 2) Method for calculating the merger ratio SMAM and DSBI conducted careful discussion on the merger ratio following a comprehensive consideration of the financial condition, asset condition and future prospects of the two companies based on the analysis by each third-party appraiser regarding merger ratio, Ernst & Young Transaction Advisory Services Co., Ltd., appointed by SMAM, and PwC Advisory LLC, appointed by DSBI. As a result, SMAM and DSBI concluded that the merger ratio was appropriate and reached an agreement. 3) Number of shares delivered Common share of SMAM 16,230,060 shares 5. Major acquisition-related costs Advisory fees, etc. 9 million yen 6. Difference between acquisition cost and total amount of acquisition cost of each transaction Acquisition cost Sum of acquisition costs of each transaction resulting in the acquisition Difference (gains on step acquisitions) 41,070 million yen 19,072 million yen 21,997 million yen 7. Amount of goodwill, reason for recognizing goodwill, amortization method and the period 1) Amount of goodwill 17,022 million yen 2) Reason for recognizing goodwill The Company accounted for the difference between the acquisition cost and fair value of the acquired net assets on the date of the business combination as goodwill. 3) Amortization method and the period Goodwill is amortized using the straight-line method over 14 years 8. Amounts of assets acquired and liabilities assumed on the date of the business combination 1) Assets Total assets: Cash and due from banks: 2) Liabilities Total liabilities: 61,319 million yen 22,798 million yen 14,178 million yen 9. Amounts allocated to intangible fixed assets other than goodwill, breakdown by component and the weighted average amortization period by component Intangible fixed assets other than goodwill: Assets related to customers: 19,898 million yen (13 years) 19,898 million yen (13 years) 10. Approximate amounts and their calculation method of impact on the consolidated statements of income for the fiscal year ended March 31, 2020, assuming that the business combination had been completed at the beginning of the fiscal year Not applicable as the date of business combination is the beginning day of the fiscal year ended March 31, 2020 (April 1, 2019). 010_0800801372008.indd 219 219 2020/08/21 16:48:12 Sumitomo Mitsui Financial GroupSMBC GROUP ANNUAL REPORT 2020Notes to Consolidated Financial Statements (Per Share Data) As of and year ended March 31 Net assets per share ................................................................................................................. Earnings per share ................................................................................................................... Earnings per share (diluted) ..................................................................................................... Notes: 1. Earnings per share and earnings per share (diluted) are calculated based on the following. Year ended March 31 Earnings per share: Yen 2019 ¥7,715.91 519.95 519.59 2020 ¥7,827.50 511.87 511.57 Millions of yen except number of shares 2019 2020 Profit attributable to owners of parent ................................................................. Amount not attributable to common stockholders ............................................... Profit attributable to owners of parent attributable to common stock................... Average number of common stock during the fiscal year (in thousand) ................. ¥ 726,681 — ¥ 726,681 1,397,599 ¥ 703,883 — ¥ 703,883 1,375,118 Earnings per share (diluted): Adjustment for profit attributable to owners of parent ......................................... Adjustment of dilutive shares issued by consolidated subsidiaries and equity method affiliates ........................................................................................ Increase in number of common stock (in thousand) .............................................. Stock acquisition rights .................................................................................. Outline of dilutive shares which were not included in the calculation of “Earnings per share (diluted)” because they do not have dilutive effect: 2. Net assets per share are calculated based on the following: March 31 Net assets ................................................................................................................. Amounts excluded from Net assets ........................................................................... Stock acquisition rights ....................................................................................... Non-controlling 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 thousands) .......................................................................................... ¥ (21) ¥ (6) (21) 923 923 — (6) 801 801 — Millions of yen except number of shares 2019 ¥11,451,611 683,290 4,750 678,540 ¥10,768,320 2020 ¥10,784,903 64,933 2,064 62,869 ¥10,719,969 1,395,600 1,369,526 (Significant Subsequent Events) There is no significant corresponding information to be disclosed. 220 010_0800801372008.indd 220 2020/08/21 16:48:12 Sumitomo Mitsui Financial GroupSMBC GROUP ANNUAL REPORT 2020Notes to Consolidated Financial Statements [Consolidated Supplementary Financial Schedules] [Schedule of bonds] Company The Company Type of bonds Straight bonds, payable in U.S. dollars (Notes 3 and 4) ................................ Straight bonds, payable in Euro (Note 3) ........................................... Straight bonds, payable in Australian dollars (Note 3) ................................ Straight bonds, payable in Hong Kong Date of issuance Mar.2016 ~ Jan.2020 Jun. 2016 ~ Oct. 2019 Sep. 2016 ~ Oct. 2019 Subordinated bonds, payable in Yen ... dollars (Note 3) ................................ Apr. 26, 2018 Sep. 2014 ~ Sep. 2016 Sep. 2014 ~ Mar. 2018 Jul. 2015 ~ Jun. 2019 Apr. 2014 ~ Sep. 2019 Subordinated bonds, payable in Yen ... Perpetual subordinated bonds, payable in Yen .............................................. Subordinated bonds, payable in U.S. dollars (Note 3) ................................ SMBC Straight bonds, payable in Yen (Note 4) ........................................... Apr. 23, 2014 Straight bonds, payable in U.S. dollars (Notes 3 and 4) ................................ Jan. 2012~ Dec. 2018 Subordinated bonds, payable in U.S. dollars (Note 3) ................................ May. 28, 2015 Straight bonds, payable in Euro (Notes 3 and 4) ................................ Jul. 2013 ~ Jul. 2018 Straight bonds, payable in British pounds (Notes 3 and 4) .................... Sep. 2018 Straight bonds, payable in Australian dollars (Notes 3 and 4) ..................... Sep. 2014 ~ Dec. 2018 Straight bonds, payable in Hong Kong dollars (Notes 3 and 4) ..................... Mar. 2015 ~ Jul. 2015 Straight bonds, payable in Thai Baht (Notes 3 and 4) ................................ Subordinated bonds, payable in Yen (Note 4) ........................................... Perpetual subordinated bonds, payable Nov. 2016 ~ Nov. 2018 Jul. 2009 ~ Dec. 2011 in U.S. dollars (Note 3) .................... Mar.1, 2012 Subordinated bonds, payable in Euro (Notes 3 and 4) ................................ Nov. 9, 2010 (*1) Consolidated subsidiaries, straight Millions of yen At the beginning of the fiscal year 3,219,528 ($29,004,761 thousand) [—] 555,064 (€4,456,556 thousand) 183,344 (A$2,331,738 thousand) 4,242 (HK$300,000 thousand) At the end of the fiscal year 4,098,762 ($37,668,982 thousand) [270,983] 754,586 (€6,313,473 thousand) 195,744 (A$2,956,426 thousand) 4,212 (HK$300,000 thousand) 370,669 386,312 371,891 352,794 598,974 191,741 ($1,727,400 thousand) 50,000 [50,000] 1,591,494 ($14,337,789 thousand) [814,740] 72,705 ($655,000 thousand) 429,901 (€3,451,637 thousand) [—] 36,257 (£250,017 thousand) [—] 41,134 (A$523,137 thousand) [17,298] 33,426 (HK$2,364,000 thousand) [—] 33,155 (THB9,500,000 thousand) [12,215] 362,786 [73,000] 166,395 ($1,499,060 thousand) 93,250 (€748,695 thousand) [—] 684,797 244,822 ($2,250,000 thousand) — 761,633 ($6,999,664 thousand) [283,994] 71,270 ($655,000 thousand) 412,108 (€3,448,026 thousand) [262,944] 33,338 (£250,005 thousand) [33,337] 20,074 (A$303,193 thousand) [11,255] 33,190 (HK$2,364,000 thousand) [10,459] 19,980 (THB6,000,000 thousand) [13,320] 289,899 [150,000] 163,019 ($1,498,199 thousand) 89,517 (€748,976 thousand) [89,565] Percentages Interest rate (Note 1) Collateral 2.058 ~ 4.306 0 ~ 1.716 1.6617 ~ 4.13 3.54 0.469 ~ 1.328 0.3 ~ 0.59 1.07~ 2.88 3.202 ~ 4.436 — 2.00413~ 4.13 None None None None None None None None — None Date of maturity Mar. 2021 ~ Feb. 2048 Jan. 2022 ~ Feb. 2033 Mar. 2022 ~ Jul. 2028 Apr.26, 2028 Sep. 2024 ~ May 2030 May 2025 ~ Mar. 2028 Perpetual Apr. 2024 ~ Sep. 2029 — May 2020~ Mar. 2030 4.3 None May 30,2045 0.085~ 2.75 None Apr. 2020 ~ Jul. 2023 0.82188 None Sep. 7, 2020 2.9 ~ 3.67 2.09~ 2.92 2 ~ 2.66 1.43 ~ 2.21 None None None None Aug. 2020 ~ Mar. 2025 Apr. 2020 ~ Apr. 2025 Aug. 2020 ~ Nov. 2021 Sep. 2020 ~ Dec.2026 4.85 None Mar. 1, 2022 4 None Nov. 9, 2020 (*2) bonds, payable in Yen (Notes 2 and 4) ................................ Feb. 2011 ~ Mar. 2020 Consolidated subsidiaries, straight bonds, payable in U.S. dollars (Notes 2,3 and 4) ............................. Aug. 2015 ~ Mar. 2020 706,988 [108,921] 48,142 ($433,516 thousand) [3,506] 536,998 [156,953] 43,609 ($400,785 thousand) [6,578] 0.01 ~ 20 0.01 ~ 11.4 None None Apr. 2020 ~ Mar. 2050 Apr. 2020 ~ Nov. 2037 (*3) Consolidated subsidiaries, straight bonds, payable in Euro (Notes 2 and 3) ................................ Dec. 18, 2018 (*4) Consolidated subsidiaries, straight (*5) bonds, payable in Australian dollars (Notes 2,3 and 4) ............................. Mar. 2016~ Dec. 2018 Consolidated subsidiaries, straight bonds, payable in Turkish lira (Notes 2,3 and 4) ............................. Jul. 2017~ Dec. 2018 124 (€1,000 thousand) 2,074 (A$26,388 thousand) [—] 5,164 (TRY 259,660 thousand) [117] 95 (€800 thousand) 1,290 (A$19,483 thousand) [39] 4,080 (TRY 246,110 thousand) [863] 0.1 None Dec.18, 2023 0.01~ 3 0.01~ 15 None None Jun. 2020~ Aug. 2031 Jul. 2020~ Oct. 2023 010_0800801372008.indd 221 221 2020/08/21 16:48:12 Sumitomo Mitsui Financial GroupSMBC GROUP ANNUAL REPORT 2020Notes to Consolidated Financial StatementsType of bonds Date of issuance At the beginning of the fiscal year At the end of the fiscal year Millions of yen Percentages Interest rate (Note 1) Collateral Company (*6) (*7) Consolidated subsidiaries, straight bonds, payable in Indonesia rupiah (Notes 2,3 and 4) ............................. Jun. 2017 ~ Nov. 2019 19,487 (IDR2,498,374,855 thousand) [2,340] Consolidated subsidiaries, straight bonds, payable in Renminbi (Notes 2,3 and 4) ............................. Mar. 2020 (*8) Consolidated subsidiaries, subordinated bonds, payable in Yen (Notes 2 and 4) ................................ Consolidated subsidiaries, short-term Dec. 1997~ Aug. 1999 (*9) bonds, payable in Yen (Notes 2 and 4) ................................ Total ............................................................................. Jan. 2019 ~ Mar. 2020 — 21,066 (IDR3,191,941,480 thousand) [14,531] 6,855 (CNY 447,756 thousand) [6,889] 20,000 [—] 379,000 [379,000] ¥9,614,639 7.50~ 8.25 0 4 ~ 4.15 0 ~ 0.01 — — 25,000 [5,000] 84,500 [84,500] ¥9,311,867 Date of maturity Jun. 2020~ Nov. 2024 Jun. 2020~ Sep. 2020 None None None Jan.28, 2028 None — Apr. 2020 ~ Sep. 2020 — Notes: 1. “Interest rate” indicates a nominal interest rate which is applied at respective consolidated balance sheet dates. Therefore, this rate may differ from an actual interest rate. 2. (*1) This represents an aggregate of straight bonds issued in Yen by SMBC Nikko, a domestic consolidated subsidiary. (*2) This represents straight bonds issued in U.S. dollar by SMBC Nikko, a domestic consolidated subsidiary. (*3) This represents straight bonds issued in Euro by SMBC Nikko, a domestic consolidated subsidiary. (*4) This represents straight bonds issued in Australian dollar by SMBC Nikko, a domestic consolidated subsidiary. (*5) This represents straight bonds issued in Turkish lira by SMBC Nikko, a domestic consolidated subsidiary. (*6) This represents straight bonds issued in Indonesia rupiah by PT Bank BTPN Tbk, an overseas consolidated subsidiary. (*7) This represents straight bonds issued in Renminbi by Sumitomo Mitsui Banking Corporation (China) Limited, an overseas consolidated subsidiary. (*8) This represents subordinate term bonds issued in Yen by SMBC International Finance N.V., an overseas consolidated subsidiary. (*9) This represents an aggregate of short-term bonds issued in yen by SMBC Nikko and SMCC, domestic consolidated subsidiaries. 3. Figures showed in ( ) in “At the beginning of the fiscal year” and “At the end of the fiscal year” are in foreign currency. 4. Figures showed in [ ] in “At the beginning of the fiscal year” and “At the end of the fiscal year” are the amounts to be redeemed within one year. 5. The redemption schedule over the next 5 years after respective balance sheet dates of the consolidated subsidiaries was as follows: Within 1 year ¥1,690,716 More than 1 year to 2 years ¥1,173,258 Millions of yen More than 2 years to 3 years ¥1,014,148 More than 3 years to 4 years ¥663,631 More than 4 years to 5 years ¥1,025,916 [Schedule of borrowings] Classification Borrowed money .......................................... Other borrowings .................................... Lease obligations .......................................... Millions of yen At the beginning of the fiscal year ¥10,656,897 10,656,897 30,379 At the end of the fiscal year ¥15,210,894 15,210,894 29,103 Percentages Average interest rate 0.28 0.28 3.06 Repayment Term — Jan. 2020 ~ Perpetual Apr. 2020 ~ Jul. 2032 Notes: 1. “Average interest rate” represents the weighted average interest rate based on the interest rates and “At the end of the fiscal year” at respective balance sheet dates of consolidated subsidiaries. 2. The redemption schedule over the next 5 years on Borrowings and Lease obligations after respective balance sheet dates of the consolidated subsidiaries was as follows: Other borrowings ........................... Lease obligations ............................ Within 1 year ¥10,116,503 7,338 More than 1 year to 2 years ¥542,906 6,006 Millions of yen More than 2 years to 3 years ¥1,838,978 4,773 More than 3 years to 4 years ¥1,581,809 4,550 More than 4 years to 5 years ¥221,487 2,816 Since the commercial banking business accepts deposits and raises and manages funds through the call loan and commercial paper markets as a normal course of business, the schedule of borrowings shows a breakdown of Borrowed money included in the “Liabilities” and Lease obligations included in “Other liabilities” in the consolidated balance sheet. Reference: Commercial paper issued for funding purpose as a normal course of business is as follows: Commercial paper ........................................ ¥2,291,813 At the beginning of the fiscal year At the end of the fiscal year ¥1,409,249 Millions of yen Percentages Average interest rate 1.35 Repayment Term Apr. 2020 ~ Aug. 2020 222 010_0800801372008.indd 222 2020/08/21 16:48:13 Sumitomo Mitsui Financial GroupSMBC GROUP ANNUAL REPORT 2020Notes to Consolidated Financial Statements[Schedule of asset retirement obligations] Since the amount of asset retirement obligations accounts for 1% or less than the total of liabilities and net assets, the schedule of asset retirement obligation is not disclosed. [Others] Quarterly consolidated financial information in the fiscal year ended March 31, 2020 is as follows: Ordinary income .......................................... Income before income taxes .......................... Profit attributable to owners of parent .......... Earnings per share ........................................ First quarter consolidated total period ¥1,334,510 282,383 215,727 155.24 Millions of yen (except Earnings per share) Third quarter Second quarter consolidated consolidated total period total period ¥2,707,673 578,978 431,955 312.84 ¥4,021,547 831,431 610,830 443.60 Fiscal year ended March 31, 2020 ¥5,314,313 888,646 703,883 511.87 Earnings per share ........................................ First quarter consolidated accounting period ¥155.24 Second quarter consolidated accounting period ¥157.61 Third quarter consolidated accounting period ¥130.62 Fourth quarter consolidated accounting period ¥67.95 Yen 010_0800801372008.indd 223 223 2020/08/21 16:48:13 Sumitomo Mitsui Financial GroupSMBC GROUP ANNUAL REPORT 2020Notes to Consolidated Financial Statements(Non-consolidated financial statements) 1. Non-consolidated balance sheets March 31 Assets: Current assets Millions of yen 2019 2020 Millions of U�S� dollars 2020 Cash and due from banks ������������������������������������������������������������������������� Prepaid expenses�������������������������������������������������������������������������������������� Accrued income ���������������������������������������������������������������������������������������� Accrued income tax refunds ��������������������������������������������������������������������� Current portion of long-term loans receivables from subsidiaries and affiliates ��� Other current assets ���������������������������������������������������������������������������������� Total current assets ����������������������������������������������������������������������������������� ¥ 434,005 365 42,124 118,877 — 37,124 632,497 ¥ 174,641 413 45,660 127,541 272,025 59,769 680,051 Fixed assets Tangible fixed assets Buildings ���������������������������������������������������������������������������������������������� Equipment�������������������������������������������������������������������������������������������� Construction in progress ��������������������������������������������������������������������� Total tangible fixed assets ������������������������������������������������������������������� Intangible fixed assets Software ����������������������������������������������������������������������������������������������� Total intangible fixed assets����������������������������������������������������������������� Investments and other assets Investment securities ��������������������������������������������������������������������������� Investments in subsidiaries and affiliates �������������������������������������������� Long-term loans receivable from subsidiaries and affiliates ��������������� Long-term prepaid expenses �������������������������������������������������������������� Deferred tax assets ������������������������������������������������������������������������������ Other investments and other assets ���������������������������������������������������� Total investments and other assets ����������������������������������������������������� Total fixed assets��������������������������������������������������������������������������������������� Total assets ���������������������������������������������������������������������������������������������������� Liabilities: Current liabilities Short-term borrowings ������������������������������������������������������������������������������ Accounts payable ������������������������������������������������������������������������������������� Accrued expenses ������������������������������������������������������������������������������������ Income taxes payable ������������������������������������������������������������������������������� Business office taxes payable ������������������������������������������������������������������� Reserve for employee bonuses����������������������������������������������������������������� Reserve for executive bonuses ����������������������������������������������������������������� Current portion of bonds ��������������������������������������������������������������������������� Other current liabilities ������������������������������������������������������������������������������ Total current liabilities �������������������������������������������������������������������������������� 85 5 13,718 13,809 276 276 — 6,085,818 6,258,343 226 414 0 12,344,803 12,358,889 ¥12,991,386 ¥ 1,228,030 8,924 42,571 9 35 722 389 — 649 1,281,332 Fixed liabilities Bonds �������������������������������������������������������������������������������������������������������� Long-term borrowings ������������������������������������������������������������������������������ Total fixed liabilities ����������������������������������������������������������������������������������� Total liabilities ������������������������������������������������������������������������������������������������ 5,790,820 234,223 6,025,043 7,306,375 Net assets: Stockholders’ equity 80 12 29,464 29,557 270 270 645 6,341,210 7,173,150 104 476 3 13,515,590 13,545,418 ¥14,225,470 ¥ 1,228,030 39,682 44,409 12 39 769 410 272,025 673 1,586,051 6,441,874 231,275 6,673,150 8,259,202 Capital stock ��������������������������������������������������������������������������������������������� Capital surplus 2,339,443 2,339,964 Capital reserve ������������������������������������������������������������������������������������� Total capital surplus ����������������������������������������������������������������������������� 1,560,921 1,560,921 1,561,442 1,561,442 Retained earnings Other retained earnings Voluntary reserve ��������������������������������������������������������������������������� Retained earnings brought forward ����������������������������������������������� Total retained earnings������������������������������������������������������������������������� Treasury stock ������������������������������������������������������������������������������������������� Total stockholders’ equity ������������������������������������������������������������������������� Stock acquisition rights ��������������������������������������������������������������������������������� Total net assets ���������������������������������������������������������������������������������������������� Total liabilities and net assets ���������������������������������������������������������������������������� 30,420 1,767,989 1,798,409 (16,302) 5,682,471 2,539 5,685,011 ¥12,991,386 30,420 2,046,360 2,076,780 (13,983) 5,964,203 2,064 5,966,267 ¥14,225,470 $ 1,605 4 420 1,172 2,500 549 6,250 1 0 271 272 2 2 6 58,278 65,924 1 4 0 124,213 124,487 $130,737 $ 11,286 365 408 0 0 7 4 2,500 6 14,576 59,203 2,126 61,328 75,905 21,505 14,350 14,350 280 18,807 19,086 (129) 54,813 19 54,832 $130,737 224 010_0800801372008.indd 224 2020/08/21 16:48:13 Sumitomo Mitsui Financial GroupSMBC GROUP ANNUAL REPORT 2020Notes to Consolidated Financial Statements2. Non-consolidated statements of income Year ended March 31 Operating income: Dividends on investments in subsidiaries and affiliates ���������������������������������� Fees and commissions received from subsidiaries ���������������������������������������� Interests on loans receivable from subsidiaries and affiliates ������������������������� Total operating income ������������������������������������������������������������������������������������ Operating expenses: General and administrative expenses ������������������������������������������������������������� Interest on bonds �������������������������������������������������������������������������������������������� Interest on long-term borrowings �������������������������������������������������������������������� Total operating expenses �������������������������������������������������������������������������������� Operating profit ��������������������������������������������������������������������������������������������������� Non-operating income: Interest income on deposits ���������������������������������������������������������������������������� Fees and commissions income ����������������������������������������������������������������������� Other non-operating income ��������������������������������������������������������������������������� Total non-operating income ���������������������������������������������������������������������������� Non-operating expenses: Interest on borrowings ������������������������������������������������������������������������������������ Fees and commissions payments ������������������������������������������������������������������� Amortization of bond issuance cost ���������������������������������������������������������������� Total non-operating expenses ������������������������������������������������������������������������� Ordinary profit ������������������������������������������������������������������������������������������������������ Extraordinary gains: Gains on sales of stocks of subsidiaries and affiliates ������������������������������������ Total extraordinary gains ��������������������������������������������������������������������������������� Extraordinary loss: Loss on sales of stocks of subsidiaries and affiliates ������������������������������������� Total extraordinary loss ����������������������������������������������������������������������������������� Income before income taxes ������������������������������������������������������������������������������ Income taxes-current �������������������������������������������������������������������������������������� Income taxes-deferred ������������������������������������������������������������������������������������ Income taxes �������������������������������������������������������������������������������������������������������� Net income ����������������������������������������������������������������������������������������������������������� Millions of yen 2019 2020 Millions of U�S� dollars 2020 ¥371,805 5,665 145,072 522,543 24,332 143,809 6,449 174,591 347,952 32 1 178 212 4,298 254 2,407 6,960 341,203 106,273 106,273 1,414 1,414 446,062 (27,998) (136) (28,134) ¥474,196 ¥659,428 9,087 165,319 833,835 26,146 161,535 6,843 194,525 639,310 70 1 130 202 4,312 120 5,816 10,249 629,263 — — — — 629,263 (6,803) (62) (6,865) ¥636,128 $6,060 84 1,519 7,663 240 1,485 63 1,788 5,875 1 0 1 2 40 1 53 94 5,783 — — — — 5,783 (63) (1) (63) $5,846 Per share data: Earnings per share ����������������������������������������������������������������������������������������������� Earnings per share (diluted) ���������������������������������������������������������������������������������� Yen 2019 2020 U�S� dollars 2020 ¥339�29 339�07 ¥462.60 462.33 $4.25 4.25 010_0800801372008.indd 225 225 2020/08/21 16:48:13 Sumitomo Mitsui Financial GroupSMBC GROUP ANNUAL REPORT 2020Notes to Consolidated Financial Statements 3. Non-consolidated statements of changes in net assets Year ended March 31, 2019 Balance at the beginning of the fiscal year ��� ¥2,338,743 Capital stock Capital reserve ¥1,560,221 Other capital surplus ¥ 24,286 Total capital surplus ¥1,584,508 Other retained earnings Voluntary reserve ¥30,420 Retained earnings brought forward ¥1,581,073 Total retained earnings ¥1,611,493 Millions of yen Stockholders’ equity Capital surplus Retained earnings Changes in the fiscal year: Issuance of new stock ������������������� Cash dividends ������������������������������ Net income ������������������������������������� Purchase of treasury stock ������������ Disposal of treasury stock �������������� Cancellation of treasury stock ������� Transfer from retained earnings to capital surplus ����������������������������� Net changes in items other than 699 699 699 (245,576) 474,196 (245,576) 474,196 (68) (65,922) (68) (65,922) 41,704 41,704 (41,704) (41,704) stockholders’ equity in the fiscal year ����� 699 Net changes in the fiscal year �������������� Balance at the end of the fiscal year ���� ¥2,339,443 699 ¥1,560,921 (24,286) (23,587) — ¥1,560,921 ¥ — ¥30,420 186,916 ¥1,767,989 186,916 ¥1,798,409 Year ended March 31, 2019 Balance at the beginning of the fiscal year ��� Changes in the fiscal year: Issuance of new stock ������������������� Cash dividends ������������������������������ Net income ������������������������������������� Purchase of treasury stock ������������ Disposal of treasury stock �������������� Cancellation of treasury stock ������� Transfer from retained earnings to capital surplus ����������������������������� Net changes in items other than Millions of yen Stockholders’ equity Treasury stock ¥(12,493) Total ¥5,522,252 Stock acquisition rights ¥2,823 Total net assets ¥5,525,075 (70,094) 363 65,922 1,398 (245,576) 474,196 (70,094) 294 — — 1,398 (245,576) 474,196 (70,094) 294 — — stockholders’ equity in the fiscal year ����� Net changes in the fiscal year �������������� Balance at the end of the fiscal year ���� (3,809) ¥(16,302) 160,219 ¥5,682,471 (283) (283) ¥2,539 (283) 159,935 ¥5,685,011 226 010_0800801372008.indd 226 2020/08/21 16:48:13 Sumitomo Mitsui Financial GroupSMBC GROUP ANNUAL REPORT 2020Notes to Consolidated Financial Statements Year ended March 31, 2020 Balance at the beginning of the fiscal year ��� ¥2,339,443 Capital stock Capital reserve ¥1,560,921 Other capital surplus Total capital surplus ¥ — ¥1,560,921 Other retained earnings Voluntary reserve ¥30,420 Retained earnings brought forward ¥1,767,989 Total retained earnings ¥1,798,409 Millions of yen Stockholders’ equity Capital surplus Retained earnings Changes in the fiscal year: Issuance of new stock ������������������� Cash dividends ������������������������������ Net income ������������������������������������� Purchase of treasury stock ������������ Disposal of treasury stock �������������� Cancellation of treasury stock ������� Transfer from retained earnings to capital surplus ����������������������������� Net changes in items other than 521 521 521 (255,834) 636,128 (255,834) 636,128 (250) (101,673) (250) (101,673) 101,923 101,923 (101,923) (101,923) stockholders’ equity in the fiscal year ����� Net changes in the fiscal year �������������� 521 Balance at the end of the fiscal year ���� ¥2,339,964 521 ¥1,561,442 ¥ — 521 — ¥1,561,442 — ¥30,420 278,370 ¥2,046,360 278,370 ¥2,076,780 Year ended March 31, 2020 Balance at the beginning of the fiscal year ��� Changes in the fiscal year: Issuance of new stock ������������������� Cash dividends ������������������������������ Net income ������������������������������������� Purchase of treasury stock ������������ Disposal of treasury stock �������������� Cancellation of treasury stock ������� Transfer from retained earnings to capital surplus ����������������������������� Net changes in items other than Millions of yen Stockholders’ equity Treasury stock Total ¥ (16,302) ¥5,682,471 Stock acquisition rights ¥2,539 Total net assets ¥5,685,011 (100,088) 733 101,673 1,043 (255,834) 636,128 (100,088) 483 — — 1,043 (255,834) 636,128 (100,088) 483 — — stockholders’ equity in the fiscal year ����� Net changes in the fiscal year �������������� Balance at the end of the fiscal year ���� 2,318 281,732 ¥ (13,983) ¥5,964,203 (475) (475) ¥2,064 (475) 281,256 ¥5,966,267 010_0800801372008.indd 227 227 2020/08/21 16:48:13 Sumitomo Mitsui Financial GroupSMBC GROUP ANNUAL REPORT 2020Notes to Consolidated Financial Statements Millions of U� S� dollars Stockholders’ equity Capital surplus Retained earnings Capital stock $21,500 Capital reserve $14,345 Other capital surplus $ — Total capital surplus $14,345 5 5 5 (2) (934) 937 (2) (934) 937 Other retained earnings Voluntary reserve Retained earnings brought forward $16,248 $280 Total retained earnings $16,528 (2,351) 5,846 (2,351) 5,846 (937) (937) 5 $21,505 5 $14,350 — $ — 5 $14,350 — $280 2,558 $18,807 2,558 $19,086 Millions of U� S� dollars Stockholders’ equity Treasury stock $(150) Total $52,224 Stock acquisition rights $23 Total net assets $52,247 (920) 7 934 10 (2,351) 5,846 (920) 4 — — 10 (2,351) 5,846 (920) 4 — — Year ended March 31, 2020 Balance at the beginning of the fiscal year ��� Changes in the fiscal year: Issuance of new stock ������������������� Cash dividends ������������������������������ Net income ������������������������������������� Purchase of treasury stock ������������ Disposal of treasury stock �������������� Cancellation of treasury stock ������� Transfer from retained earnings to capital surplus ����������������������������� Net changes in items other than stockholders’ equity in the fiscal year ����� Net changes in the fiscal year �������������� Balance at the end of the fiscal year ���� Year ended March 31, 2020 Balance at the beginning of the fiscal year ��� Changes in the fiscal year: Issuance of new stock ������������������� Cash dividends ������������������������������ Net income ������������������������������������� Purchase of treasury stock ������������ Disposal of treasury stock �������������� Cancellation of treasury stock ������� Transfer from retained earnings to capital surplus ����������������������������� Net changes in items other than stockholders’ equity in the fiscal year ����� Net changes in the fiscal year �������������� Balance at the end of the fiscal year ���� 21 $(129) 2,589 $54,813 (4) (4) $19 (4) 2,585 $54,832 228 010_0800801372008.indd 228 2020/08/21 16:48:13 Sumitomo Mitsui Financial GroupSMBC GROUP ANNUAL REPORT 2020Notes to Consolidated Financial StatementsIndependent Auditor’s Report To the Board of Directors of Sumitomo Mitsui Financial Group, Inc.: Opinion We have audited the accompanying consolidated financial statements of Sumitomo Mitsui Financial Group, Inc. (“the Company”) and its consolidated subsidiaries (collectively referred to as “the Group”), which comprise the consolidated balance sheets as at March 31, 2020 and 2019, the consolidated statements of income, comprehensive income, changes in net assets and cash flows for the years then ended, and notes, comprising a summary of significant accounting policies, other explanatory information. In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Group as at March 31, 2020 and 2019, and its consolidated financial performance and cash flows for the years then ended in accordance with accounting principles generally accepted in Japan. Basis for Opinion We conducted our audit in accordance with auditing standards generally accepted in Japan. Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements section of our report. We are independent of the Group in accordance with the ethical requirements that are relevant to our audit of the consolidated financial statements in Japan, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Key Audit Matters Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the consolidated financial statements of the current period. These matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. Measurement of the reserve for possible loan losses The key audit matter How the matter was addressed in our audit In the consolidated balance sheet of the Group as of March 31, 2020, reserve for possible loan losses (the “Reserve”) amounted to ¥301,752 million provided on loans and bills discounted (the “Loans”) of ¥82,517,609 million (or approximately 37.5% of the total assets). Included in such balances were mainly corporate loans of Sumitomo Mitsui Banking Corporation (“SMBC”), a commercial banking subsidiary. The primary procedures we performed to assess the reasonableness of measurement of the Reserve for SMBC’s corporate loans included the following: (1) Internal control testing We evaluated the design and operating effectiveness of certain internal controls over the provisioning process by focusing on controls that: ∙ approve the internal rules for accounting for the Reserve, including the criteria for self-assessment and the policy for write-offs and provisions; ∙ validate the obligor grading models; 010_0800801372008.indd 229 229 2020/08/21 16:48:13 Sumitomo Mitsui Financial GroupSMBC GROUP ANNUAL REPORT 2020SMBC assesses all claims including the Loans in accordance with the internal criteria for self-assessment of asset quality, and classifies borrowers into credit categories through examining individual credit risk profiles. On the basis of each borrower category, reserves and direct write-offs are recorded in accordance with its internal policy for write-offs and provisions. The methodologies used include an expected credit loss (ECL) model based on the historical loan-loss ratios or the probability of default, and a discounted cash flow (DCF) method. Additionally, considering recent economic environment and risk factors, an ECL amount deemed necessary for specific portfolios is reflected in the Reserve based on an overall assessment of a probable future outlook for those portfolios that has not been fully captured in the historical data or individual borrower classification. The evaluation of the Reserve for SMBC’s corporate loans involves significant measurement uncertainty, and therefore requires complex management judgment primarily in the following aspects: ∙ classifying borrowers into appropriate credit categories through performing obligor-specific qualitative assessment, including the use of forward- looking information; ∙ deciding on whether changes to the borrower classification as well as additional provisions for specific portfolios are deemed necessary, and determining appropriate methodologies to measure such provisions, in light of recent economic environment and risk factors, specifically the potential impact of the spread of the COVID-19 and the coinciding fluctuations of market indices such as crude oil prices; and ∙ projecting future cash flow scenarios as an input to the DCF method for borrowers with large claims classified mainly as substandard or potentially bankrupt. We, therefore, determined that the measurement of the Reserve for SMBC corporate loans; specifically, classifying borrowers into credit categories through qualitative assessment, reflecting recent economic environment and risk factors into the Reserve, and projection of cash flow scenarios used in the DCF method, was one of the most significant in our audit of the consolidated financial statements for this fiscal year, and accordingly, a key audit matter. ∙ relate to classification of individual borrowers into credit categories through qualitative assessment; ∙ reflect recent economic environment and risk factors into the Reserve; and ∙ relate to the projection of future cash flow scenarios used in the DCF method. (2) Evaluation of the appropriateness of the policy for provisions and the borrower classification model We evaluated the policy for provisions for compliance with the accounting principles generally accepted in Japan. Additionally, we involved credit risk specialists with industry-specific knowledge and expertise who assisted us in evaluating the obligor grading models through analyzing the consistency of obligor grades with external ratings, and evaluating the default prediction capability of the models. (3) Evaluation of the appropriateness of borrower classification taking into account qualitative factors For SMBC’s corporate borrowers that we selected based on certain criteria, we evaluated the appropriateness of borrower classification taking into account qualitative factors through analyzing the feasibility of their business plan and assessing their liquidity position. (4) Evaluation of the reasonableness of a provision that reflects the effect of recent economic environment and risk factors In light of the recent economic environment and risk factors, specifically the potential impact of the spread of COVID-19 and the coinciding fluctuations of market indices such as crude oil price, we evaluated the reasonableness of changes to the borrower classification and of an additional provision for specific portfolios through: ∙ analyzing the liquidity position of borrowers affected by the COVID-19 and the related circumstances including their recent operating performance and request for loan modifications, and assessing the borrower classification on the basis of such analysis; and ∙ analyzing the scope of potential effects and assessing assumptions by inspecting available external reports on market indices including crude oil prices, and evaluating the methodologies used to measure an ECL for specific portfolios. 230 010_0800801372008.indd 230 2020/08/21 16:48:13 Sumitomo Mitsui Financial GroupSMBC GROUP ANNUAL REPORT 2020Sumitomo Mitsui Financial GroupIndependent Auditor’s Report(5) Evaluation of the reasonableness of future cash flow scenarios used in the DCF method For borrowers that we selected based on certain criteria from those in scope of DCF method, we evaluated the reasonableness of future cash flow scenarios through analyzing their restructuring plans and related progress. Measurement of the value-in-use of goodwill and other intangible assets related to the retail banking business of SMBC Trust Bank, Ltd. The key audit matter How the matter was addressed in our audit In the consolidated balance sheet of the Group as of March 31, 2020, goodwill and other intangible fixed assets amounted to ¥194,289 million and ¥117,896 million, respectively. The goodwill and other intangible fixed assets consisting of assets related to customers and core deposits (collectively, the “Intangible Assets”) recognized in connection with the acquisition of the retail banking business of Citibank Japan Ltd. (the “PRESTIA business”) by SMBC Trust bank Ltd, (“SMBC Trust Bank”) were impaired, and an impairment loss of ¥39,958 million for the entire amount of the Intangible Assets was recorded for the fiscal year ended March 31, 2020. While the Intangible Assets are amortized in a systematic manner, whenever there is an indicator that the carrying amounts of the Intangible Assets may not be recoverable, the Group needs to determine whether an impairment shall be recognized by comparing the undiscounted future cash flows to be generated from the business to which the Intangible Assets relate and its carrying amount. If it is determined that the recognition of an impairment loss is required, the carrying amount is reduced to its recoverable amount, with such reduction being recognized as an impairment loss. The recoverable amount of an asset group is the higher of its fair value less costs to sell and its value in use. The primary procedures we performed to evaluate the reasonableness of the measurement of the value in use related to the PRESTIA business of SMBC Trust Bank included the following. (1) Internal control testing We evaluated the design and operating effectiveness of certain internal controls over the process of calculating the value in use related to the PRESTIA business of SMBC Trust Bank by focusing controls that: ∙ evaluate the reasonableness of estimated future cash flows; and ∙ evaluate the reasonableness of the discount rate. (2) Evaluation of the appropriateness of valuation methodology used to calculate the value in use We involved valuation specialists with industry- specific knowledge and expertise who assisted us in evaluating the reasonableness of valuation methodology used to calculate the value in use by comparing it to the standard methods commonly used for the valuation of retail banks. (3) Evaluation of the reasonableness of future cash flows used to calculate the value in use We assessed the level of precision of the prior year estimate of future cash flows by comparing it to the actual result. In addition, we evaluated the reasonableness of estimated future cash flows, considering the historical operating performance, the current market environment and economic trends including future prospect of the PRESTIA business of SMBC Trust Bank, and the regulatory environment. 010_0800801372008.indd 231 231 2020/08/21 16:48:13 Sumitomo Mitsui Financial GroupSMBC GROUP ANNUAL REPORT 2020Sumitomo Mitsui Financial GroupIndependent Auditor’s Report(4) Evaluation of the reasonableness of the discount rate used to calculate the value in use We involved valuation specialists with industry- specific knowledge and expertise who assisted us in evaluating the reasonableness of the valuation methodology used to calculate a discount rate and the calculation result, considering historical market data and current market conditions. There was an indicator of impairment for the PRESTIA business of SMBC Trust Bank during the year ended March 31, 2020 due to the deterioration in its market environment. As a result of an impairment test, the recognition of an impairment loss was required. The value in use was used as the recoverable amount to measure an impairment loss on the Intangible Assets related to the PRESTIA business of SMBC Trust Bank. The value in use was calculated using the future cash flows based on the business plan approved by management and a discount rate. The estimate of future cash flows inherently requires complex management judgments, and the discount rate may be significantly affected by market interest rates and other market conditions. Also, as SMBC Trust Bank has revised the estimated future cash flows considering the recent market environment, there was a higher degree of uncertainty in the estimates used for calculating the value in use. We, therefore, determined that the measurement of the value in use related to the PRESTIA business of SMBC Trust Bank was one of the most significant in our audit of the consolidated financial statements for this fiscal year, and accordingly, a key audit matter. Responsibilities of Management and the Audit Committee for the Consolidated Financial Statements Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with accounting principles generally accepted in Japan, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. In preparing the consolidated financial statements, management is responsible for assessing the Group’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern in accordance with accounting principles generally accepted in Japan. The Audit Committee is responsible for overseeing the directors and the corporate executive officers’ performance of their duties including the design, implementation and maintenance of the Group’s financial reporting process. Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with auditing standards generally accepted in Japan will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements. As part of our audit in accordance with auditing standards generally accepted in Japan, we exercise professional judgment and maintain professional skepticism throughout the audit. We also: 232 010_0800801372008.indd 232 2020/08/21 16:48:13 Sumitomo Mitsui Financial GroupSMBC GROUP ANNUAL REPORT 2020Sumitomo Mitsui Financial GroupIndependent Auditor’s Report∙ Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. ∙ Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, while the objective of the audit is not to express an opinion on the effectiveness of the Group’s internal control. ∙ Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management. ∙ Conclude on the appropriateness of management’s use of the going concern basis of accounting and based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Group to cease to continue as a going concern. ∙ Evaluate whether the presentation and disclosures in the consolidated financial statements are in accordance with accounting standards generally accepted in Japan, the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation. ∙ Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion. We communicate with the Audit Committee regarding, among other matters, the planned scope and timing of the audit, significant audit findings, including any significant deficiencies in internal control that we identify during our audit. We also provide the Audit Committee with a statement that we have complied with relevant ethical requirements regarding independence, and communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards. From the matters communicated with the Audit Committee, we determine those matters that were of most significance in the audit of the consolidated financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. Convenience Translation The U.S. dollar amounts in the accompanying consolidated financial statements with respect to the year ended March 31, 2020 are presented solely for convenience. Our audit also included the translation of yen amounts into U.S. dollar amounts and, in our opinion, such translation has been made on the basis described in basis of presentation. Interest required to be disclosed by the Certified Public Accountants Act of Japan We do not have any interest in the Group which is required to be disclosed pursuant to the provisions of the Certified Public Accountants Act of Japan. 010_0800801372008.indd 233 233 2020/08/21 16:48:13 Sumitomo Mitsui Financial GroupSMBC GROUP ANNUAL REPORT 2020Sumitomo Mitsui Financial GroupIndependent Auditor’s ReportToshihiro Otsuka Designated Engagement Partner Certified Public Accountant Noriaki Habuto Designated Engagement Partner Certified Public Accountant Kazuhide Niki Designated Engagement Partner Certified Public Accountant KPMG AZSA LLC Tokyo Office, Japan June 25, 2020 234 010_0800801372008.indd 234 2020/08/21 16:48:13 Sumitomo Mitsui Financial GroupSMBC GROUP ANNUAL REPORT 2020Sumitomo Mitsui Financial GroupIndependent Auditor’s ReportSupplemental Information Consolidated Balance Sheets (Unaudited) Sumitomo Mitsui Banking Corporation and Subsidiaries March 31 Assets: Cash and due from banks �������������������������������������� Call loans and bills bought ������������������������������������� Receivables under resale agreements ������������������� Receivables under securities borrowing transactions ���������������������������������������������������������� Monetary claims bought ����������������������������������������� Trading assets �������������������������������������������������������� Money held in trust ������������������������������������������������� Securities ���������������������������������������������������������������� Loans and bills discounted ������������������������������������ Foreign exchanges ������������������������������������������������� Lease receivables and investment assets �������������� Other assets ����������������������������������������������������������� Tangible fixed assets ���������������������������������������������� Assets for rent ��������������������������������������������������� Buildings ������������������������������������������������������������ Land ������������������������������������������������������������������ Lease assets ����������������������������������������������������� Construction in progress ����������������������������������� Other tangible fixed assets ������������������������������� Intangible fixed assets �������������������������������������������� Software ������������������������������������������������������������ Goodwill ������������������������������������������������������������ Lease assets ����������������������������������������������������� Other intangible fixed assets ����������������������������� Net defined benefit asset ��������������������������������������� Deferred tax assets ������������������������������������������������ Customers’ liabilities for acceptances and guarantees ������������������������������������������������������������ Reserve for possible loan losses ���������������������������� Total assets ������������������������������������������������������������ Millions of yen 2019 2020 ¥ 55,747,048 2,665,744 5,082,709 ¥ 59,991,835 1,246,739 8,243,182 Millions of U�S� dollars 2020 $ 551,345 11,458 75,758 1,440,159 4,582,886 2,452,825 0 23,469,621 79,792,401 1,715,759 247,835 3,571,248 1,409,802 573,292 308,990 421,156 2,597 22,561 81,203 375,389 274,116 12,003 11 89,259 324,672 23,399 957,271 4,550,644 4,133,816 0 26,282,649 84,280,613 2,057,887 219,733 4,647,291 1,341,895 506,755 305,799 417,640 7,345 15,192 89,163 320,622 272,870 — 2 47,750 226,273 26,147 8,798 41,822 37,991 0 241,546 774,567 18,913 2,019 42,710 12,332 4,657 2,810 3,838 68 140 819 2,947 2,508 — 0 439 2,080 240 8,121,131 (332,343) ¥190,690,293 7,898,071 (335,041) ¥206,089,633 72,586 (3,079) $1,894,032 010_0800801372008.indd 235 235 2020/08/21 16:48:14 SMBC GROUP ANNUAL REPORT 2020SMBCSupplemental Information(Continued) March 31 Liabilities and net assets: Liabilities: Deposits ����������������������������������������������������������������� Negotiable certificates of deposit �������������������������� Call money and bills sold ��������������������������������������� Payables under repurchase agreements ���������������� Payables under securities lending transactions ����� Commercial paper �������������������������������������������������� Trading liabilities ����������������������������������������������������� Borrowed money ���������������������������������������������������� Foreign exchanges ������������������������������������������������� Bonds ��������������������������������������������������������������������� Due to trust account ����������������������������������������������� Other liabilities �������������������������������������������������������� Reserve for employee bonuses ������������������������������ Reserve for executive bonuses ������������������������������ Net defined benefit liability ������������������������������������� Reserve for executive retirement benefits �������������� Reserve for point service program ������������������������� Reserve for reimbursement of deposits ����������������� Deferred tax liabilities ��������������������������������������������� Deferred tax liabilities for land revaluation ������������� Acceptances and guarantees ��������������������������������� Total liabilities �������������������������������������������������������� Net assets: Capital stock ���������������������������������������������������������� Capital surplus ������������������������������������������������������� Retained earnings �������������������������������������������������� Treasury stock �������������������������������������������������������� Total stockholders’ equity ������������������������������������� Net unrealized gains (losses) on other securities ��� Net deferred gains (losses) on hedges ������������������� Land revaluation excess ����������������������������������������� Foreign currency translation adjustments �������������� Accumulated remeasurements of defined benefit plans ���������������������������������������� Total accumulated other comprehensive income ��������������������������������������� Stock acquisition rights ������������������������������������������ Non-controlling interests ���������������������������������������� Total net assets ������������������������������������������������������ Total liabilities and net assets ������������������������������� Millions of yen 2019 2020 Millions of U�S� dollars 2020 $1,172,907 94,940 26,841 98,261 7,625 12,951 31,790 200,540 13,718 17,850 16,647 46,246 335 11 38 6 4 43 3,507 277 72,586 1,817,124 16,276 18,071 33,289 (1,930) 65,706 10,347 952 339 (450) (814) ¥127,623,995 10,330,435 2,920,539 10,691,772 829,729 1,409,249 3,459,117 21,820,785 1,492,634 1,942,291 1,811,355 5,032,050 36,494 1,236 4,114 617 388 4,687 381,605 30,111 7,898,071 197,721,284 1,770,996 1,966,291 3,622,140 (210,003) 7,149,425 1,125,808 103,609 36,870 (48,969) (88,577) 1,128,741 — 90,182 8,368,349 ¥206,089,633 10,374 — 829 76,908 $1,894,032 ¥123,190,830 11,335,486 572,778 8,743,386 680,051 2,291,813 1,818,610 15,988,948 1,196,960 2,955,282 1,352,773 2,929,172 34,283 1,249 4,457 669 468 7,936 446,993 30,259 8,121,131 181,703,543 1,770,996 1,966,353 3,743,614 (210,003) 7,270,960 1,426,493 (47,281) 36,531 24,371 (5,446) 1,434,667 2,210 278,910 8,986,749 ¥190,690,293 236 010_0800801372008.indd 236 2020/08/21 16:48:14 Sumitomo Mitsui Financial GroupSMBC GROUP ANNUAL REPORT 2020SMBCSupplemental Information Consolidated Statements of Income and Consolidated Statements of Comprehensive Income (Unaudited) Sumitomo Mitsui Banking Corporation and Subsidiaries (Consolidated Statements of Income) Year ended March 31 Ordinary income ����������������������������������������������������� Interest income �������������������������������������������������� Interest on loans and discounts ������������������� Interest and dividends on securities ������������ Interest on call loans and bills bought ��������� Interest on receivables under resale agreements������������������������������������������������� Interest on receivables under securities borrowing transactions������������������������������� Interest on deposits with banks ������������������� Interest on lease transactions ���������������������� Other interest income ����������������������������������� Trust fees ����������������������������������������������������������� Fees and commissions ������������������������������������� Trading income �������������������������������������������������� Other operating income ������������������������������������ Lease-related income ����������������������������������� Installment-related income ��������������������������� Other ������������������������������������������������������������ Other income ����������������������������������������������������� Gains on reversal of reserve for possible loan losses ������������������������������������������������� Recoveries of written-off claims ������������������� Other ������������������������������������������������������������ Ordinary expenses ������������������������������������������������� Interest expenses ���������������������������������������������� Interest on deposits ������������������������������������� Interest on negotiable certificates of deposit ��������������������������������������������������� Interest on call money and bills sold ������������ Interest on payables under repurchase agreements������������������������������������������������� Interest on payables under securities lending transactions ����������������������������������� Interest on commercial paper ���������������������� Interest on borrowed money ������������������������ Interest on bonds ����������������������������������������� Other interest expenses ������������������������������� Fees and commissions payments ��������������������� Trading losses ��������������������������������������������������� Other operating expenses ��������������������������������� Lease-related expenses ������������������������������� Other ������������������������������������������������������������ General and administrative expenses ��������������� Other expenses ������������������������������������������������� Provision for reserve for possible loan losses ������������������������������������������������� Other ������������������������������������������������������������ Ordinary profit �������������������������������������������������������� Millions of yen 2019 2020 ¥3,369,898 2,240,944 1,481,622 354,451 16,561 36,101 2,512 101,030 6,378 242,285 4,541 613,741 80,112 225,361 44,732 8,600 172,028 205,196 35,622 647 168,926 2,475,397 1,138,789 463,791 136,178 14,586 122,755 959 45,356 197,488 87,594 70,078 162,563 4,430 79,991 26,296 53,694 1,009,410 80,212 — 80,212 894,501 Millions of U�S� dollars 2020 $31,882 20,565 13,649 3,130 146 499 10 727 67 2,337 43 5,644 1,448 2,378 399 21 1,958 1,804 — 16 1,789 24,801 10,900 4,057 1,212 97 1,249 9 290 1,979 618 1,391 1,654 — 830 244 586 9,721 1,697 353 1,344 7,081 ¥3,469,068 2,237,626 1,485,144 340,553 15,865 54,336 1,047 79,068 7,307 254,303 4,701 614,134 157,531 258,749 43,409 2,268 213,072 196,323 — 1,697 194,626 2,698,577 1,186,005 441,411 131,851 10,540 135,924 941 31,525 215,283 67,206 151,322 179,925 — 90,269 26,514 63,755 1,057,690 184,685 38,437 146,248 770,491 010_0800801372008.indd 237 237 2020/08/21 16:48:14 SMBC GROUP ANNUAL REPORT 2020SMBCSupplemental Information (Continued) (Consolidated Statements of Income) Year ended March 31 Extraordinary gains ������������������������������������������������� Gains on disposal of fixed assets ��������������������� Other extraordinary gains ���������������������������������� Extraordinary losses ����������������������������������������������� Losses on disposal of fixed assets ������������������� Losses on impairment of fixed assets ��������������� Income before income taxes ���������������������������������� Income taxes-current ��������������������������������������������� Income taxes-deferred ������������������������������������������� Income taxes ���������������������������������������������������������� Profit ����������������������������������������������������������������������� Profit attributable to non-controlling interests �������� Profit attributable to owners of parent ������������������� (Consolidated Statements of Comprehensive Income) Year ended March 31 Profit ����������������������������������������������������������������������� Other comprehensive income (losses) ������������������� Net unrealized gains (losses) on other securities ��������������������������������������������������������� Net deferred gains (losses) on hedges �������������� Land revaluation excess ������������������������������������ Foreign currency translation adjustments ��������� Remeasurements of defined benefit plans �������� Share of other comprehensive income of affiliates ����������������������������������������������������������� Total comprehensive income ���������������������������������� Comprehensive income attributable to owners of parent ���������������������������������������������������������� Comprehensive income attributable to non- controlling interests ����������������������������������������� Millions of yen 2019 2020 ¥ 2,788 502 2,285 8,833 4,260 4,573 888,456 165,371 54,107 219,479 668,976 51,483 ¥617,493 Millions of yen 2019 2020 ¥668,976 (120,740) (78,282) 27,672 — 12,682 (67,113) (15,698) 548,236 500,124 48,111 Millions of U�S� dollars 2020 $ 12 12 — 563 13 550 6,529 1,697 (16) 1,681 4,849 90 $4,758 Millions of U�S� dollars 2020 $4,849 (2,807) (2,758) 1,526 (0) (617) (766) (192) 2,041 1,943 98 ¥ 1,273 1,273 — 61,313 1,425 59,887 710,451 184,642 (1,778) 182,864 527,586 9,836 ¥517,750 ¥527,586 (305,464) (300,099) 166,083 (39) (67,110) (83,402) (20,896) 222,122 211,445 10,676 238 010_0800801372008.indd 238 2020/08/21 16:48:14 Sumitomo Mitsui Financial GroupSMBC GROUP ANNUAL REPORT 2020SMBCSupplemental Information Non-consolidated Balance Sheets (Unaudited) Sumitomo Mitsui Banking Corporation Millions of yen 2019 March 31 Assets: Cash and due from banks ������������������������������������������������������������������������������������ ¥ 54,205,583 Call loans �������������������������������������������������������������������������������������������������������������� 2,134,392 Receivables under resale agreements ����������������������������������������������������������������� 3,364,070 Receivables under securities borrowing transactions ������������������������������������������ 1,222,284 Monetary claims bought ��������������������������������������������������������������������������������������� 1,470,872 Trading assets ������������������������������������������������������������������������������������������������������ 1,534,100 Securities �������������������������������������������������������������������������������������������������������������� 24,336,638 Loans and bills discounted ���������������������������������������������������������������������������������� 76,401,807 Foreign exchanges ����������������������������������������������������������������������������������������������� 1,627,105 Other assets ��������������������������������������������������������������������������������������������������������� 2,895,757 Tangible fixed assets �������������������������������������������������������������������������������������������� 802,501 Intangible fixed assets ������������������������������������������������������������������������������������������ 236,352 Prepaid pension cost ������������������������������������������������������������������������������������������� 321,031 Customers’ liabilities for acceptances and guarantees ��������������������������������������� 9,078,706 Reserve for possible loan losses �������������������������������������������������������������������������� (275,185) Reserve for possible losses on investments �������������������������������������������������������� (7,363) Total assets ���������������������������������������������������������������������������������������������������������� ¥179,348,654 Liabilities and net assets: Liabilities: Deposits ��������������������������������������������������������������������������������������������������������������� ¥116,091,103 Negotiable certificates of deposit ������������������������������������������������������������������������ 11,581,605 Call money ������������������������������������������������������������������������������������������������������������ 796,761 Payables under repurchase agreements �������������������������������������������������������������� 7,364,577 Payables under securities lending transactions ��������������������������������������������������� 418,912 Commercial paper ������������������������������������������������������������������������������������������������ 1,634,811 Trading liabilities ��������������������������������������������������������������������������������������������������� 1,348,931 Borrowed money �������������������������������������������������������������������������������������������������� 15,567,626 Foreign exchanges ����������������������������������������������������������������������������������������������� 1,213,861 Bonds ������������������������������������������������������������������������������������������������������������������� 2,910,794 Due to trust account ��������������������������������������������������������������������������������������������� 1,292,699 Other liabilities ������������������������������������������������������������������������������������������������������ 1,659,172 Reserve for employee bonuses ���������������������������������������������������������������������������� 13,285 Reserve for executive bonuses ���������������������������������������������������������������������������� 937 Reserve for point service program ����������������������������������������������������������������������� 468 Reserve for reimbursement of deposits ��������������������������������������������������������������� 7,425 Deferred tax liabilities ������������������������������������������������������������������������������������������� 374,529 Deferred tax liabilities for land revaluation ����������������������������������������������������������� 30,259 Acceptances and guarantees ������������������������������������������������������������������������������� 9,078,706 Total liabilities ������������������������������������������������������������������������������������������������������ 171,386,468 Net assets: Capital stock �������������������������������������������������������������������������������������������������������� 1,770,996 Capital surplus ����������������������������������������������������������������������������������������������������� 1,774,554 Retained earnings ������������������������������������������������������������������������������������������������ 3,196,504 Treasury stock ������������������������������������������������������������������������������������������������������ (210,003) Total stockholders’ equity ����������������������������������������������������������������������������������� 6,532,053 Net unrealized gains (losses) on other securities ������������������������������������������������� 1,427,008 Net deferred gains (losses) on hedges ����������������������������������������������������������������� (22,444) Land revaluation excess ��������������������������������������������������������������������������������������� 25,568 Total valuation and translation adjustments ������������������������������������������������������ 1,430,131 Total net assets ���������������������������������������������������������������������������������������������������� 7,962,185 Total liabilities and net assets ����������������������������������������������������������������������������� ¥179,348,654 2020 ¥ 57,971,293 645,967 5,963,377 943,940 1,562,083 3,189,980 27,058,633 80,187,382 1,896,157 4,178,263 794,957 234,707 344,481 9,399,524 (279,702) (127,256) ¥193,963,791 ¥119,973,324 10,580,261 3,068,726 8,728,522 571,095 642,447 2,959,613 21,561,177 1,519,777 1,894,369 1,735,889 3,453,008 13,794 939 388 3,900 330,699 30,111 9,399,524 186,467,572 1,770,996 1,774,554 2,875,747 (210,003) 6,211,295 1,073,795 185,163 25,964 1,284,923 7,496,219 ¥193,963,791 Millions of U�S� dollars 2020 $ 532,775 5,937 54,805 8,675 14,356 29,317 248,678 736,949 17,426 38,400 7,306 2,157 3,166 86,385 (2,571) (1,170) $1,782,592 $1,102,595 97,236 28,203 80,218 5,249 5,904 27,200 198,154 13,967 17,410 15,953 31,734 127 9 4 36 3,039 277 86,385 1,713,699 16,276 16,309 26,429 (1,930) 57,084 9,869 1,702 239 11,809 68,893 $1,782,592 010_0800801372008.indd 239 239 2020/08/21 16:48:14 SMBC GROUP ANNUAL REPORT 2020SMBCSupplemental Information Non-consolidated Statements of Income (Unaudited) Sumitomo Mitsui Banking Corporation Year ended March 31 Millions of yen 2019 2020 Millions of U�S� dollars 2020 Ordinary income ��������������������������������������������������������������������������������������������������� ¥2,805,840 ¥2,851,162 Interest income ������������������������������������������������������������������������������������������������ 1,970,831 Interest on loans and discounts ����������������������������������������������������������������� 1,298,725 Interest and dividends on securities ���������������������������������������������������������� 345,566 Trust fees ��������������������������������������������������������������������������������������������������������� Fees and commissions ����������������������������������������������������������������������������������� Trading income ������������������������������������������������������������������������������������������������ Other operating income ���������������������������������������������������������������������������������� Other income ��������������������������������������������������������������������������������������������������� 2,250 524,566 46,507 109,674 152,009 Ordinary expenses ����������������������������������������������������������������������������������������������� 2,156,192 Interest expenses �������������������������������������������������������������������������������������������� 1,026,727 Interest on deposits ����������������������������������������������������������������������������������� Fees and commissions payments ������������������������������������������������������������������� Trading losses ������������������������������������������������������������������������������������������������� Other operating expenses ������������������������������������������������������������������������������� General and administrative expenses ������������������������������������������������������������� Other expenses ����������������������������������������������������������������������������������������������� Ordinary profit ������������������������������������������������������������������������������������������������������ Extraordinary gains ����������������������������������������������������������������������������������������������� Extraordinary losses ��������������������������������������������������������������������������������������������� Income before income taxes �������������������������������������������������������������������������������� Income taxes - current ����������������������������������������������������������������������������������������� Income taxes - deferred ��������������������������������������������������������������������������������������� 381,304 182,365 3,305 45,846 802,961 94,986 649,647 380 6,355 643,672 136,885 29,420 1,900,107 1,254,132 329,152 2,110 521,450 111,655 142,854 172,983 2,367,218 1,022,015 347,736 198,192 — 45,962 819,423 281,624 483,944 1,224 4,191 480,977 156,282 7,313 $26,203 17,463 11,526 3,025 19 4,792 1,026 1,313 1,590 21,756 9,393 3,196 1,821 — 422 7,531 2,588 4,448 11 39 4,420 1,436 67 Net income ����������������������������������������������������������������������������������������������������������� ¥ 477,367 ¥ 317,381 $ 2,917 Per share data: Earnings per share ������������������������������������������������������������������������������������������ ¥4,492�93 ¥2,987.16 Earnings per share (diluted) ���������������������������������������������������������������������������� — — $27 — Yen 2019 2020 U�S� dollars 2020 240 010_0800801372008.indd 240 2020/08/21 16:48:14 Sumitomo Mitsui Financial GroupSMBC GROUP ANNUAL REPORT 2020SMBCSupplemental Information Income Analysis (Consolidated) Sumitomo Mitsui Financial Group, Inc� and Subsidiaries Operating Income, Classified by Domestic and Overseas Operations 2020 2019 Millions of yen Year ended March 31 Domestic operations Overseas operations Elimination Total Interest income ����������������������������������������������������� ¥1,122,203 ¥1,413,309 Interest expenses �������������������������������������������������� 724,655 688,654 Net interest income ��������������������������������������������������� Trust fees ������������������������������������������������������������������� — 229,143 35,117 194,025 51,822 9,564 42,257 139,144 49,349 89,795 344,555 777,647 4,701 Fees and commissions ����������������������������������������� 1,075,452 Fees and commissions payments ������������������������ 175,449 900,003 Net fees and commissions ���������������������������������������� Trading income������������������������������������������������������ 220,851 Trading losses ������������������������������������������������������� 282 220,569 Net trading income ���������������������������������������������������� Other operating income ���������������������������������������� 912,316 Other operating expenses������������������������������������� 860,312 52,003 Net other operating income��������������������������������������� ¥ (79,149) ¥2,456,364 1,179,770 1,276,593 4,701 1,287,538 204,188 1,083,350 262,826 — 262,826 1,050,065 908,951 141,114 110,558 (189,708) — (17,057) (6,379) (10,678) (9,846) (9,846) — (1,395) (710) (684) Domestic operations ¥1,178,337 ¥1,409,909 749,988 659,921 — 230,997 28,199 202,798 37,423 5,220 32,202 286,957 149,435 137,522 355,524 822,812 4,656 1,033,005 160,129 872,876 163,227 4,058 159,169 1,291,973 1,172,406 119,566 Overseas operations Elimination Total ¥ (99,342) ¥2,488,904 1,157,482 1,331,421 4,656 1,240,917 181,019 1,059,898 194,676 3,305 191,371 1,578,159 1,319,328 258,830 51,970 (151,312) — (23,084) (7,308) (15,776) (5,974) (5,974) — (771) (2,512) 1,740 Notes: 1. Domestic operations comprise the operations of the Company, its domestic consolidated banking subsidiaries (excluding overseas branches) and other domestic consolidated subsidiaries. 2. Overseas operations comprise the operations of the overseas branches of domestic consolidated banking subsidiaries and overseas consolidated subsidiaries. 3. Inter-segment transactions are reported in the “Elimination” column. Average Balance, Interest and Average Rate of Interest-Earning Assets and Interest-Bearing Liabilities Domestic Operations Average balance Year ended March 31 Interest-earning assets ���������������������������������������������� ¥ 85,864,531 51,570,227 18,201,943 198,734 5,191,204 Loans and bills discounted ����������������������������������� Securities �������������������������������������������������������������� Call loans and bills bought ������������������������������������ Receivables under resale agreements ������������������ Receivables under securities borrowing transactions ��������������������������������������� Deposits with banks ���������������������������������������������� Lease receivables and investment assets ������������ 3,965,107 2,142,807 — Interest-bearing liabilities ������������������������������������������ ¥133,242,885 101,322,743 5,259,479 1,221,029 8,586,289 1,835,513 100,091 10,272,204 233,005 3,140,917 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 �������������������������������������������������������������������� Millions of yen 2020 Interest ¥1,122,203 748,287 251,441 144 (2,473) 21,175 19,985 — ¥ 344,555 51,772 407 (288) 54,711 1,111 11 35,797 29 65,860 Average rate 1.31% 1.45 1.38 0.07 (0.05) 0.53 0.93 — 0.26% 0.05 0.01 (0.02) 0.64 0.06 0.01 0.35 0.01 2.10 Average balance ¥ 84,031,845 49,778,260 17,019,375 108,697 3,940,030 5,324,298 1,961,674 1,374,202 ¥128,086,199 97,629,923 5,526,249 580,180 5,795,961 2,658,313 101,122 9,637,102 966,046 4,151,350 2019 Interest ¥1,178,337 765,630 261,921 358 (3,090) 17,746 20,898 29,773 ¥ 355,524 58,851 429 189 53,877 1,272 11 65,994 60 87,123 Average rate 1�40% 1�54 1�54 0�33 (0�08) 0�33 1�07 2�17 0�28% 0�06 0�01 0�03 0�93 0�05 0�01 0�68 0�01 2�10 Notes: 1. Domestic operations comprise the operations of the Company, 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 consolidated subsidiaries use weekly, monthly or quarterly balances instead. 3. “Interest-earning assets” are shown after deduction of the average balance of noninterest-earning deposits (2020, ¥49,066,481 million; 2019, ¥44,359,932 million). 011_0800804262008.indd 241 241 2020/08/11 18:00:48 Sumitomo Mitsui Financial GroupSMBC GROUP ANNUAL REPORT 2020Income Analysis (Consolidated) Overseas Operations Year ended March 31 Interest-earning assets ���������������������������������������������� Loans and bills discounted ����������������������������������� Securities �������������������������������������������������������������� Call loans and bills bought ������������������������������������ Receivables under resale agreements ������������������ Receivables under securities Average balance ¥45,569,621 27,230,587 5,737,546 1,575,530 2,580,540 borrowing transactions ��������������������������������������� Deposits with banks ���������������������������������������������� Lease receivables and investment assets ������������ 24,706 4,149,235 224,582 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 �������������������������������������������������������������������� ¥37,840,304 22,611,324 6,424,927 727,834 5,240,834 — 1,811,251 496,301 — 83,025 2020 Interest ¥1,413,309 948,980 126,658 15,746 57,573 72 78,027 7,307 ¥ 724,655 407,081 131,442 10,573 100,259 — 31,513 19,014 — 3,367 Millions of yen Average rate 3.10% 3.48 2.21 1.00 2.23 0.29 1.88 3.25 1.92% 1.80 2.05 1.45 1.91 — 1.74 3.83 — 4.06 Average balance ¥44,546,369 26,222,907 5,236,149 2,026,876 1,857,211 12,108 4,830,531 420,967 ¥38,000,522 23,044,643 6,017,305 807,510 4,186,351 — 2,433,961 1,033,629 — 193,460 2019 Interest ¥1,409,909 929,632 115,493 16,192 39,967 37 99,636 17,800 ¥ 749,988 422,464 135,749 14,080 82,275 — 45,344 32,478 — 7,258 Average rate 3�17% 3�55 2�21 0�80 2�15 0�31 2�06 4�23 1�97% 1�83 2�26 1�74 1�97 — 1�86 3�14 — 3�75 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 consolidated subsidiaries use weekly, monthly or quarterly balances instead. 3. “Interest-earning assets” are shown after deduction of the average balance of noninterest-earning deposits (2020, ¥3,486,210 million; 2019, ¥3,210,358 million). Total of Domestic and Overseas Operations Millions of yen Average balance Year ended March 31 Interest-earning assets ���������������������������������������������� ¥128,509,884 78,649,214 23,887,779 1,774,265 6,501,384 Loans and bills discounted ����������������������������������� Securities �������������������������������������������������������������� Call loans and bills bought ������������������������������������ Receivables under resale agreements ������������������ Receivables under securities borrowing transactions ��������������������������������������� Deposits with banks ���������������������������������������������� Lease receivables and investment assets ������������ 3,989,813 5,004,709 224,582 Interest-bearing liabilities ������������������������������������������ ¥174,571,663 122,617,614 11,684,407 1,948,864 12,556,748 1,835,513 1,911,343 10,819,244 233,005 9,395,255 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 �������������������������������������������������������������������� 2020 Interest ¥2,456,364 1,693,016 346,822 15,890 31,449 21,247 80,924 7,307 ¥1,179,770 441,477 131,849 10,284 131,320 1,111 31,525 57,632 29 220,874 Average rate 1.91% 2.15 1.45 0.90 0.48 0.53 1.62 3.25 0.68% 0.36 1.13 0.53 1.05 0.06 1.65 0.53 0.01 2.35 Average balance ¥125,654,947 75,410,118 22,035,388 2,135,574 4,891,163 5,336,406 5,619,591 1,795,167 ¥168,829,462 119,491,850 11,543,554 1,387,690 9,076,234 2,658,313 2,535,084 10,296,695 966,046 9,584,336 2019 Interest ¥2,488,904 1,666,283 364,685 16,551 20,457 17,784 103,135 47,573 ¥1,157,482 463,989 136,178 14,270 119,733 1,272 45,356 75,883 60 226,536 Average rate 1�98% 2�21 1�65 0�78 0�42 0�33 1�84 2�65 0�69% 0�39 1�18 1�03 1�32 0�05 1�79 0�74 0�01 2�36 Notes: 1. The figures above comprise totals for domestic and overseas operations after inter-segment eliminations. 2. In principle, average balances are calculated by using daily balances. However, some consolidated subsidiaries use weekly, monthly or quarterly balances instead. 3. “Interest-earning assets” are shown after deduction of the average balance of noninterest-earning deposits (2020, ¥52,536,286 million; 2019, ¥47,559,830 million). 242 011_0800804262008.indd 242 2020/08/11 18:00:48 Sumitomo Mitsui Financial GroupSMBC GROUP ANNUAL REPORT 2020Income Analysis (Consolidated) Fees and Commissions Domestic Year ended March 31 operations Fees and commissions ���������������������������������������������� ¥1,075,452 16,975 119,894 119,023 9,551 4,347 76,386 335,678 146,849 Deposits and loans ����������������������������������������������� Remittances and transfers ������������������������������������ Securities-related business ����������������������������������� Agency ������������������������������������������������������������������ Safe deposits �������������������������������������������������������� Guarantees ������������������������������������������������������������ Credit card business ��������������������������������������������� Investment trusts �������������������������������������������������� Millions of yen 2020 Overseas operations Elimination Total ¥229,143 131,138 21,612 41,135 — 2 9,549 0 3,500 ¥(17,057) ¥1,287,538 142,545 141,475 154,238 9,551 4,350 85,585 335,678 150,349 (5,568) (30) (5,921) — — (350) — — Domestic operations ¥1,033,005 15,736 116,871 122,233 11,423 4,544 79,110 316,877 122,475 2019 Overseas operations Elimination Total ¥230,997 131,375 22,740 36,278 — 2 11,461 0 5,286 ¥(23,084) ¥1,240,917 140,570 139,574 151,532 11,423 4,547 85,599 316,878 127,761 (6,541) (36) (6,980) — — (4,971) — — Fees and commissions payments ����������������������������� ¥ 175,449 32,905 Remittances and transfers ������������������������������������ ¥ 35,117 7,817 ¥(6,379) ¥ 204,188 40,598 (124) ¥ 160,129 31,501 ¥ 28,199 10,630 ¥ (7,308) ¥ 181,019 42,127 (4) Notes: 1. Domestic operations comprise the operations of the Company, its domestic consolidated banking subsidiaries (excluding overseas branches) and other domestic consolidated subsidiaries. 2. Overseas operations comprise the operations of the overseas branches of domestic consolidated banking subsidiaries and overseas consolidated subsidiaries. 3. Inter-segment transactions are reported in the “Elimination” column. Trading Income Year ended March 31 Trading income ���������������������������������������������������������� Gains on trading securities ����������������������������������� Gains on securities related to 2020 Domestic operations ¥220,851 64,082 Overseas operations Elimination ¥(9,846) — ¥51,822 8,418 trading transactions �������������������������������������������� Gains on trading-related financial derivatives ������� Others ������������������������������������������������������������������� 9,088 147,599 80 Trading losses������������������������������������������������������������ Losses on trading securities ��������������������������������� Losses on securities related to trading transactions �������������������������������������������� Losses on trading-related financial derivatives ����� Others ������������������������������������������������������������������� 282 — — 282 — 176 43,223 2 9,564 — — 9,564 — — (9,846) — (9,846) — — (9,846) — Millions of yen 2019 Domestic operations ¥163,227 83,367 Overseas operations Elimination ¥(5,974) (718) ¥37,423 — — 79,515 345 4,058 — 2,956 1,102 — — 37,423 — 5,220 718 348 4,143 10 — (5,245) (10) (5,974) (718) — (5,245) (10) Total ¥194,676 82,648 — 111,693 334 3,305 — 3,305 — — Total ¥262,826 72,501 9,265 180,976 83 — — — — — Notes: 1. Domestic operations comprise the operations of the Company, its domestic consolidated banking subsidiaries (excluding overseas branches) and other domestic consolidated subsidiaries. 2. Overseas operations comprise the operations of the overseas branches of domestic consolidated banking subsidiaries and overseas consolidated subsidiaries. 3. Inter-segment transactions are reported in the “Elimination” column. 011_0800804262008.indd 243 243 2020/08/11 18:00:48 Sumitomo Mitsui Financial GroupSMBC GROUP ANNUAL REPORT 2020Assets and Liabilities (Consolidated) Sumitomo Mitsui Financial Group, Inc� and Subsidiaries Deposits and Negotiable Certificates of Deposit Year-End Balance March 31 Domestic operations: Millions of yen 2020 2019 Liquid deposits �������������������������������������������������������������������������������������������� Fixed-term deposits ������������������������������������������������������������������������������������ Others ���������������������������������������������������������������������������������������������������������� Subtotal ������������������������������������������������������������������������������������������������������� Negotiable certificates of deposit ���������������������������������������������������������������� Total ������������������������������������������������������������������������������������������������������������� Overseas operations: Liquid deposits �������������������������������������������������������������������������������������������� Fixed-term deposits ������������������������������������������������������������������������������������ Others ���������������������������������������������������������������������������������������������������������� Subtotal ������������������������������������������������������������������������������������������������������� Negotiable certificates of deposit ���������������������������������������������������������������� Total ������������������������������������������������������������������������������������������������������������� Grand total ������������������������������������������������������������������������������������������������������ ¥ 80,041,189 17,764,493 7,198,446 105,004,129 4,081,740 ¥109,085,870 ¥ 14,594,963 7,264,054 179,069 22,038,088 6,098,695 ¥ 28,136,783 ¥137,222,653 ¥ 74,819,074 17,885,194 7,317,911 100,022,180 4,962,651 ¥104,984,831 ¥ 14,237,044 7,875,029 190,785 22,302,858 6,202,835 ¥ 28,505,693 ¥133,490,525 Notes: 1. Domestic operations comprise the operations of the Company, its domestic consolidated banking subsidiaries (excluding overseas branches) and other domestic consolidated subsidiaries. 2. Overseas operations comprise the operations of the overseas branches of domestic consolidated banking subsidiaries and overseas consolidated subsidiaries. 3. Liquid deposits = Current deposits + Ordinary deposits + Savings deposits + Deposits at notice 4. Fixed-term deposits represents Time deposits Balance of Loan Portfolio, Classified by Industry Year-End Balance March 31 Domestic operations: Millions of yen 2020 2019 Manufacturing���������������������������������������������������������������������������������������������� Agriculture, forestry, fisheries and mining ��������������������������������������������������� Construction ������������������������������������������������������������������������������������������������ Transportation, communications and public enterprises ���������������������������� Wholesale and retail ������������������������������������������������������������������������������������ Finance and insurance �������������������������������������������������������������������������������� Real estate, goods rental and leasing ��������������������������������������������������������� Services ������������������������������������������������������������������������������������������������������� Municipalities ����������������������������������������������������������������������������������������������� Others ���������������������������������������������������������������������������������������������������������� Subtotal ������������������������������������������������������������������������������������������������������� Overseas operations: Public sector ������������������������������������������������������������������������������������������������ Financial institutions ������������������������������������������������������������������������������������ Commerce and industry ������������������������������������������������������������������������������ Others ���������������������������������������������������������������������������������������������������������� Subtotal ������������������������������������������������������������������������������������������������������� Total ����������������������������������������������������������������������������������������������������������������� ¥ 7,264,656 271,216 753,216 5,228,310 4,393,894 2,738,583 9,302,244 4,355,912 784,273 17,561,120 ¥52,653,427 ¥ 276,493 2,087,889 23,939,816 3,559,982 ¥29,864,181 ¥82,517,609 13.80% 0.52 1.43 9.93 8.34 5.20 17.67 8.27 1.49 33.35 100.00% 0.93% 6.99 80.16 11.92 100.00% — ¥ 6,715,306 272,306 730,187 5,341,650 4,299,232 2,282,725 8,727,788 4,247,592 754,500 18,099,796 ¥51,471,087 ¥ 286,310 1,821,717 21,381,483 3,018,591 ¥26,508,102 ¥77,979,190 13�05% 0�53 1�42 10�38 8�35 4�43 16�96 8�25 1�47 35�16 100�00% 1�08% 6�87 80�66 11�39 100�00% — Notes: 1. Domestic operations comprise the operations of the Company, its domestic consolidated banking subsidiaries (excluding overseas branches) and other domestic consolidated subsidiaries. 2. Overseas operations comprise the operations of the overseas branches of domestic consolidated banking subsidiaries and overseas consolidated subsidiaries. 3. Japan offshore banking accounts are included in overseas operations’ accounts. 244 011_0800804262008.indd 244 2020/08/11 18:00:48 Sumitomo Mitsui Financial GroupSMBC GROUP ANNUAL REPORT 2020Assets and Liabilities (Consolidated) Reserve for Possible Loan Losses March 31 General reserve ����������������������������������������������������������������������������������������������� Specific reserve ����������������������������������������������������������������������������������������������� Loan loss reserve for specific overseas countries ������������������������������������������ Reserve for possible loan losses ��������������������������������������������������������������������� Amount of direct reduction ������������������������������������������������������������������������������ Risk-Monitored Loans March 31 Bankrupt loans ������������������������������������������������������������������������������������������������ Non-accrual loans ������������������������������������������������������������������������������������������� Past due loans (3 months or more) ����������������������������������������������������������������� Restructured loans ������������������������������������������������������������������������������������������ Total ����������������������������������������������������������������������������������������������������������������� Amount of direct reduction ������������������������������������������������������������������������������ Notes: Definition of risk-monitored loan categories Millions of yen Millions of yen 2020 ¥336,089 143,107 0 ¥479,197 ¥142,834 2020 ¥ 13,978 378,173 14,400 221,288 ¥627,840 ¥113,254 2019 ¥318,233 150,533 41 ¥468,808 ¥139,981 2019 ¥ 12,806 456,802 13,444 193,427 ¥676,481 ¥118,980 1. Bankrupt loans: Loans on which accrued interest income is not recognized, and to borrowers that are undergoing bankruptcy, corporate reorganization and rehabilitation proceedings or borrowers receiving a disposition to suspend transactions with a clearing house. 2. Non-accrual loans: 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): Loans on which the principal or interest is past due for 3 months or more, excluding loans in categories 1. and 2. 4. Restructured loans: Loans to borrowers on which terms and conditions have been amended in favor of the borrowers in order to support the borrowers’ recovery from financial difficulties and facilitate collection of loans, excluding loans in categories 1. through 3. NPLs Based on the Financial Reconstruction Act March 31 Bankrupt and quasi-bankrupt assets �������������������������������������������������������������� Doubtful assets ����������������������������������������������������������������������������������������������� Substandard loans ������������������������������������������������������������������������������������������ Total of NPLs ��������������������������������������������������������������������������������������������������� Normal assets ������������������������������������������������������������������������������������������������� Total ����������������������������������������������������������������������������������������������������������������� Amount of direct reduction ������������������������������������������������������������������������������ Notes: Definition of problem asset categories 2020 ¥ 87,857 326,883 235,539 650,280 95,273,195 ¥95,923,476 ¥ 142,834 Millions of yen 2019 ¥ 89,659 398,295 207,199 695,153 90,694,649 ¥91,389,803 ¥ 139,981 1. Bankrupt and quasi-bankrupt assets: Credits to borrowers undergoing bankruptcy, corporate reorganization, and rehabilitation proceedings, as well as claims of a similar nature 2. Doubtful assets: Credits for which final collection of principal and interest in line with original agreements is highly improbable due to deterioration of financial position and business performance, but not insolvency of the borrower 3. Substandard loans: Past due loans (3 months or more) and restructured loans, excluding 1. and 2. 4. Normal assets: Credits to borrowers with good business performance and in financial standing without identified problems and not classified into the 3 categories above 011_0800804262008.indd 245 245 2020/08/11 18:00:48 Sumitomo Mitsui Financial GroupSMBC GROUP ANNUAL REPORT 2020Assets and Liabilities (Consolidated) Securities Year-End Balance March 31 Domestic operations: Millions of yen 2020 2019 Japanese government bonds ���������������������������������������������������������������������� Japanese local government bonds ������������������������������������������������������������� Japanese corporate bonds ������������������������������������������������������������������������� Japanese stocks ������������������������������������������������������������������������������������������ Others ���������������������������������������������������������������������������������������������������������� Subtotal ������������������������������������������������������������������������������������������������������� Overseas operations: Japanese government bonds ���������������������������������������������������������������������� Japanese local government bonds ������������������������������������������������������������� Japanese corporate bonds ������������������������������������������������������������������������� Japanese stocks ������������������������������������������������������������������������������������������ Others ���������������������������������������������������������������������������������������������������������� Subtotal ������������������������������������������������������������������������������������������������������� Unallocated corporate assets: Japanese government bonds ���������������������������������������������������������������������� Japanese local government bonds ������������������������������������������������������������� Japanese corporate bonds ������������������������������������������������������������������������� Japanese stocks ������������������������������������������������������������������������������������������ Others ���������������������������������������������������������������������������������������������������������� Subtotal ������������������������������������������������������������������������������������������������������� Total ����������������������������������������������������������������������������������������������������������������� ¥ 7,348,013 262,681 2,666,212 2,867,103 7,284,775 ¥20,428,786 ¥ — — 72,866 — 6,265,416 ¥ 6,338,283 ¥ — — — 357,931 3,749 ¥ 361,681 ¥27,128,751 ¥ 6,514,573 99,164 2,582,014 3,618,083 5,711,745 ¥18,525,580 ¥ — — 68,226 — 5,365,181 ¥ 5,433,407 ¥ — — — 376,373 2,643 ¥ 379,016 ¥24,338,005 Notes: 1. Domestic operations comprise the operations of the Company, its domestic consolidated banking subsidiaries (excluding overseas branches) and other domestic consolidated subsidiaries. 2. Overseas operations comprise the operations of the overseas branches of domestic consolidated banking subsidiaries and overseas consolidated subsidiaries. 3. “Others” include foreign bonds and foreign stocks. Trading Assets and Liabilities 2020 2019 Millions of yen March 31 Trading assets ����������������������������������������������������������� ¥5,973,291 ¥1,519,904 215,669 — — Trading securities �������������������������������������������������� 2,473,626 Derivatives of trading securities ���������������������������� 128,871 Securities related to trading transactions ������������� — Derivatives of securities related to Domestic operations Overseas operations Elimination Total Overseas operations Elimination Total ¥(131,942) ¥7,361,253 — 2,689,295 128,871 — — — Domestic operations ¥4,334,415 ¥1,014,471 365,398 — — 2,346,123 74,204 — ¥(20,108) ¥5,328,778 — 2,711,521 74,204 — — — trading transactions �������������������������������������������� 28,604 Trading-related financial derivatives ��������������������� 3,284,185 Other trading assets���������������������������������������������� 58,005 19 1,298,633 5,581 — (131,942) — 28,624 4,450,876 63,586 28,120 1,841,968 43,997 0 649,072 — — (20,108) — 28,121 2,470,932 43,997 Trading liabilities �������������������������������������������������������� ¥5,137,487 ¥1,078,983 69,515 — Trading securities sold for short sales ������������������ 1,942,959 Derivatives of trading securities ���������������������������� 129,596 Securities related to trading transactions ¥(131,942) ¥6,084,528 — 2,012,475 129,596 — ¥3,685,269 ¥ 554,132 119,540 — 1,872,773 92,370 ¥(20,108) ¥4,219,293 — 1,992,314 92,370 — sold for short sales ��������������������������������������������� — — — — — — — — Derivatives of securities related to trading transactions �������������������������������������������� 28,931 Trading-related financial derivatives ��������������������� 3,035,999 Other trading liabilities ������������������������������������������ — 9 1,009,457 — — (131,942) — 28,941 3,913,513 — 29,030 1,691,095 — 2 434,588 — — (20,108) — 29,032 2,105,576 — Notes: 1. Domestic operations comprise the operations of the Company, its domestic consolidated banking subsidiaries (excluding overseas branches) and other domestic consolidated subsidiaries. 2. Overseas operations comprise the operations of the overseas branches of domestic consolidated banking subsidiaries and overseas consolidated subsidiaries. 3. Inter-segment transactions are reported in the “Elimination” column. 246 011_0800804262008.indd 246 2020/08/11 18:00:48 Sumitomo Mitsui Financial GroupSMBC GROUP ANNUAL REPORT 2020Capital (Non-consolidated) Sumitomo Mitsui Financial Group, Inc� Changes in Number of Shares Issued and Capital Stock Number of shares issued Capital stock Capital reserve July 26, 2017* ������������������������������������������ August 3, 2018** �������������������������������������� August 20, 2018*** ���������������������������������� July 29, 2019**** �������������������������������������� September 20, 2019***** ������������������������� Changes 387,765 326,330 (15,368,300) 272,536 (26,502,400) Balances 1,414,443,390 1,414,769,720 1,399,401,420 1,399,673,956 1,373,171,556 Changes 847 699 — 521 — Balances 2,338,743 2,339,443 2,339,443 2,339,964 2,339,964 Changes 847 699 — 521 — Balances 1,560,221 1,560,921 1,560,921 1,561,442 1,561,442 Millions of yen Remarks: * Allotment to third parties (in-kind contribtions of monetary compensation claims): Common stock: 387,765 shares Issue price: ¥4,372 ¥2,186 Capitalization: ** Allotment to third parties (in-kind contribtions of monetary compensation claims): Common stock: 326,330 shares ¥4,287 Issue price: ¥2,144 Capitalization: *** The decrease of 15,368,300 shares is due to cancellation of treasury stock. **** Allotment to third parties (in-kind contribtions of monetary compensation claims): Common stock: 272,536 shares Issue price: ¥3,828 ¥1,914 Capitalization: ***** The decrease of 26,502,400 shares is due to cancellation of treasury stock. Number of Shares Issued March 31, 2020 Common stock ��������������������������������������������������������������������������������������������������������������������������������������������������������������� Total �������������������������������������������������������������������������������������������������������������������������������������������������������������������������������� Number of shares issued 1,373,171,556 1,373,171,556 011_0800804262008.indd 247 247 2020/08/11 18:00:48 Sumitomo Mitsui Financial GroupSMBC GROUP ANNUAL REPORT 2020Capital (Non-consolidated) Stock Exchange Listings Tokyo Stock Exchange (First Section) Nagoya Stock Exchange (First Section) New York Stock Exchange* * The Company listed its ADRs on the New York Stock Exchange. Number of Common Shares, Classified by Type of Shareholders March 31, 2020 Japanese government and local government ������������������������������������������������������������������ Financial institutions ��������������������������������������������������������������������������������������������������������� Securities companies ������������������������������������������������������������������������������������������������������� Other institutions �������������������������������������������������������������������������������������������������������������� Foreign institutions ����������������������������������������������������������������������������������������������������������� Foreign individuals ����������������������������������������������������������������������������������������������������������� Individuals and others ������������������������������������������������������������������������������������������������������ Total ���������������������������������������������������������������������������������������������������������������������������������� Fractional shares (shares) ������������������������������������������������������������������������������������������������� Number of shareholders 8 337 72 6,724 1,145 443 276,567 285,296 — Number of units 4,918 4,260,606 861,523 1,194,761 5,521,779 8,861 1,860,624 13,713,072 1,864,356 Percentage of total 0�04% 31�07 6�28 8�71 40�27 0�06 13�57 100�00% — Notes: 1. Of 3,645,043 shares in treasury stock, 36,450 units are included in “Individuals and others” and the remaining 43 shares are included in “Fractional shares.” 2. “Other institutions” and “Fractional shares” includes 29 units and 48 shares, held at Japan Securities Depository Center, Incorporated. Principal Shareholders March 31, 2020 The Master Trust Bank of Japan, Ltd� (Trust Account) �������������������������������������������������������������������������������� Japan Trustee Services Bank, Ltd� (Trust Account) ������������������������������������������������������������������������������������� Japan Trustee Services Bank, Ltd� (Trust Account 9) ���������������������������������������������������������������������������������� Japan Trustee Services Bank, Ltd� (Trust Account 7) ���������������������������������������������������������������������������������� NATSCUMCO* ��������������������������������������������������������������������������������������������������������������������������������������������� Japan Trustee Services Bank, Ltd� (Trust Account 5) ���������������������������������������������������������������������������������� JP MORGAN CHASE BANK 385151** �������������������������������������������������������������������������������������������������������� SSBTC CLIENT OMNIBUS ACCOUNT*** ��������������������������������������������������������������������������������������������������� STATE STREET BANK WEST CLIENT - TREATY 505234** ������������������������������������������������������������������������� Barclays Securities Japan Limited �������������������������������������������������������������������������������������������������������������� Total ������������������������������������������������������������������������������������������������������������������������������������������������������������� Number of shares 97,156,600 78,332,600 40,332,600 29,320,200 28,121,342 27,785,900 26,387,481 25,409,243 19,353,327 18,484,174 390,683,467 Percentage of shares outstanding 7�09% 5�71 2�94 2�14 2�05 2�02 1�92 1�85 1�41 1�34 28�52% * Standing agent: Sumitomo Mitsui Banking Corporation ** Standing agent: Mizuho Bank, Ltd., Settlement Service Department *** Standing agent: The Hongkong and Shanghai Banking Corporation Limited, Tokyo Branch, Custody Services Department Notes: 1. BlackRock Japan Co., Ltd. has submitted a Change Report of Possession of Large Volume regarding its shareholding as of March 22, 2017. It stated that BlackRock Japan Co., Ltd. and nine other shareholders held the following common shares in the Company as of March 15, 2017. But, these ten are not included in the above Principal Shareholders because the Company was unable to confirm the number of shares owned by them at the end of the fiscal year ended March 31, 2020. The Change Report of Possession of Large Volume is detailed as follows: Principal Shareholder: BlackRock Japan Co., Ltd. (and nine other joint holders) Number of shares held: 90,686,690 shares (including joint ownership) Shareholding ratio: 6.41% 2. Mizuho Securities Co., Ltd. has submitted a Report of Possession of Large Volume regarding its shareholding as of September 25, 2018. It stated that Mizuho Securities Co., Ltd. and two other shareholders held the following common shares in the Company as of September 14, 2018. But, these three are not included in the above Principal Shareholders because the Company was unable to confirm the number of shares owned by them at the end of the fiscal year ended March 31, 2020. The Report of Possession of Large Volume is detailed as follows: Principal Shareholder: Mizuho Securities Co., Ltd. (and two other joint holders) Number of shares held: 70,765,251 shares (including joint ownership) Shareholding ratio: 5.06% 3. Sumitomo Mitsui Trust Bank, Limited has submitted a Change Report of Possession of Large Volume regarding its shareholding as of April 19, 2019. It stated that Sumitomo Mitsui Trust Asset Management Co., Ltd. and another shareholder held the following common shares in the Company as of April 15, 2019. But, these two are not included in the above Principal Shareholders because the Company was unable to confirm the number of shares owned by them at the end of the fiscal year ended March 31, 2020. The Change Report of Possession of Large Volume is detailed as follows: Principal Shareholder: Sumitomo Mitsui Trust Asset Management Co., Ltd. (and another joint holder) Number of shares held: 70,915,700 shares (including joint ownership) Shareholding ratio: 5.07% 4. Nomura Securities Co., Ltd. has submitted a Report of Possession of Large Volume regarding its shareholding as of April 7, 2020. It stated that Nomura Securities Co., Ltd. and two other shareholders held the following common shares in the Company as of March 31, 2020. But, these three are not included in the above Principal Shareholders because the Company was unable to confirm the number of shares owned by them at the end of the fiscal year ended March 31, 2020. The Report of Possession of Large Volume is detailed as follows: Principal Shareholder: Nomura Securities Co., Ltd. (and two other joint holders) Number of shares held: 70,759,192 shares (including joint ownership) Shareholding ratio: 5.15% 248 011_0800804262008.indd 248 2020/08/11 18:00:48 Sumitomo Mitsui Financial GroupSMBC GROUP ANNUAL REPORT 2020Capital (Non-consolidated) Stock Options March 31 Number of shares granted�������������������������������������������������������������������������������������������������������� Type of stock ���������������������������������������������������������������������������������������������������������������������������� Issue price �������������������������������������������������������������������������������������������������������������������������������� Amount capitalized when shares are issued ���������������������������������������������������������������������������� Exercise period of stock options ���������������������������������������������������������������������������������������������� Date of resolution: Meeting of the Board of Directors held on July 28, 2010 March 31 Number of shares granted�������������������������������������������������������������������������������������������������������� Type of stock ���������������������������������������������������������������������������������������������������������������������������� Issue price �������������������������������������������������������������������������������������������������������������������������������� Amount capitalized when shares are issued ���������������������������������������������������������������������������� Exercise period of stock options ���������������������������������������������������������������������������������������������� Date of resolution: Meeting of the Board of Directors held on July 29, 2011 March 31 Number of shares granted�������������������������������������������������������������������������������������������������������� Type of stock ���������������������������������������������������������������������������������������������������������������������������� Issue price �������������������������������������������������������������������������������������������������������������������������������� Amount capitalized when shares are issued ���������������������������������������������������������������������������� Exercise period of stock options ���������������������������������������������������������������������������������������������� Date of resolution: Meeting of the Board of Directors held on July 30, 2012 March 31 Number of shares granted�������������������������������������������������������������������������������������������������������� Type of stock ���������������������������������������������������������������������������������������������������������������������������� Issue price �������������������������������������������������������������������������������������������������������������������������������� Amount capitalized when shares are issued ���������������������������������������������������������������������������� Exercise period of stock options ���������������������������������������������������������������������������������������������� Date of resolution: Meeting of the Board of Directors held on July 29, 2013 March 31 Number of shares granted�������������������������������������������������������������������������������������������������������� Type of stock ���������������������������������������������������������������������������������������������������������������������������� Issue price �������������������������������������������������������������������������������������������������������������������������������� Amount capitalized when shares are issued ���������������������������������������������������������������������������� Exercise period of stock options ���������������������������������������������������������������������������������������������� Date of resolution: Meeting of the Board of Directors held on July 30, 2014 March 31 Number of shares granted�������������������������������������������������������������������������������������������������������� Type of stock ���������������������������������������������������������������������������������������������������������������������������� Issue price �������������������������������������������������������������������������������������������������������������������������������� Amount capitalized when shares are issued ���������������������������������������������������������������������������� Exercise period of stock options ���������������������������������������������������������������������������������������������� Date of resolution: Meeting of the Board of Directors held on July 31, 2015 March 31 Number of shares granted�������������������������������������������������������������������������������������������������������� Type of stock ���������������������������������������������������������������������������������������������������������������������������� Issue price �������������������������������������������������������������������������������������������������������������������������������� Amount capitalized when shares are issued ���������������������������������������������������������������������������� Exercise period of stock options ���������������������������������������������������������������������������������������������� Date of resolution: Meeting of the Board of Directors held on July 26, 2016 2020 49,900 shares Common stock ¥2,216 per share ¥1,108 per share From August 13, 2010 to August 12, 2040 2020 139,400 shares Common stock ¥1,873 per share ¥937 per share From August 16, 2011 to August 15, 2041 2020 187,900 shares Common stock ¥2,043 per share ¥1,022 per share From August 15, 2012 to August 14, 2042 2020 66,100 shares Common stock ¥4,160 per share ¥2,080 per share From August 14, 2013 to August 13, 2043 2020 69,900 shares Common stock ¥3,662 per share ¥1,831 per share From August 15, 2014 to August 14, 2044 2020 90,800 shares Common stock ¥4,905 per share ¥2,453 per share From August 18, 2015 to August 17, 2045 2020 118,500 shares Common stock ¥2,812 per share ¥1,406 per share From August 15, 2016 to August 14, 2046 011_0800804262008.indd 249 249 2020/08/11 18:00:48 Sumitomo Mitsui Financial GroupSMBC GROUP ANNUAL REPORT 2020Basel III Information Capital Ratio and Leverage Ratio Information (Consolidated) Sumitomo Mitsui Financial Group, Inc. and Subsidiaries Regarding the calculation of the capital ratio and leverage ratio of Sumitomo Mitsui Financial Group, an external audit was performed by KPMG AZSA LLC pursuant to the Technical Practical Guidelines 4465 “Practical Guidelines on Agreed-Upon Procedures for the Capital Ratio and Leverage Ratio Calculation Framework.” The aforementioned external audit was not meant to provide a statement of opinions or conclusions on the capital ratio and leverage ratio themselves, or our internal control framework for calculating these ratios, but to present us a report on the results of the procedure performed within the scope agreed upon between the external auditor and us. It constitutes neither part of the audit of consolidated financial statements nor part of the audit of our internal control over financial reporting. “Consolidated Capital Ratio and Leverage Ratio Information” was prepared principally based on the Notification, and the terms and details in the section may differ from those in other sections of this report. ■ Scope of Consolidation 1. Consolidated Capital Ratio Calculation • Number of consolidated subsidiaries: 174 Please refer to “Principal Subsidiaries and Affiliates” on page 144 for their names and business outline. • Scope of consolidated subsidiaries for calculation of the consolidated capital ratio is based on the scope of consolidated subsidiaries for preparing consolidated financial statements. • There are no affiliates to which the proportionate consolidation method is applied. 2. Restrictions on Movement of Funds and Capital within Holding Company Group There are no special restrictions on movement of funds and capital among us and its group companies. 3. Names of companies among subsidiaries of bank-holding companies (other financial institutions), with the Basel Capital Accord required amount, and total shortfall amount Not applicable. ■ Capital Ratio Information (Consolidated) The consolidated capital ratio 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 Act” (Notification No. 20 issued by the Japanese Financial Services Agency in 2006; hereinafter referred to as “the Notification”). In addition to the method stipulated in the Notification to calculate the consolidated capital ratio (referred to as “International Standard” in the Notification), we have adopted the Advanced Internal Ratings-Based (AIRB) approach for calculating credit risk-weighted asset amounts and the Advanced Measurement Approach (AMA) for calculating the operational risk equivalent amount. 250 012_0800885852007.indd 250 2020/08/19 11:13:54 Sumitomo Mitsui Financial GroupSMBC GROUP ANNUAL REPORT 2020■ CC1: Composition of regulatory capital Basel III Template No. Items (Millions of yen, except percentages) a b As of March 31, 2020 As of March 31, 2019 c Reference to Template CC2 Common Equity Tier 1 capital: instruments and reserves (1) 1a+2-1c-26 Directly issued qualifying common share capital plus related capital surplus and retained earnings 1a 2 1c 26 of which: capital and capital surplus of which: retained earnings of which: treasury stock (–) of which: national specific regulatory adjustments (earnings to be distributed) (–) of which: other than the above 1b Stock acquisition rights to common shares 3 Accumulated other comprehensive income and other disclosed reserves 5 Common share capital issued by subsidiaries and held by third parties (amount allowed in group CET1) 9,217,343 8,921,854 3,031,968 6,336,311 13,983 136,952 — 2,064 1,365,673 3,078,490 5,992,247 16,302 132,582 — 2,539 1,713,884 1,155 2,181 (a) 6 Common Equity Tier 1 capital: instruments and reserves (A) 10,586,236 10,640,460 Common Equity Tier 1 capital: regulatory adjustments (2) 8+9 Total intangible assets (net of related tax liability, excluding those relating to mortgage servicing rights) 8 9 10 of which: goodwill (including those equivalent) of which: other intangibles other than goodwill and mortgage servicing rights Deferred tax assets that rely on future profitability excluding those arising from temporary differences (net of related tax liability) 11 Net deferred gains or losses on hedges 12 Shortfall of eligible provisions to expected losses 13 Securitisation gain on sale 14 Gains and losses due to changes in own credit risk on fair valued liabilities 15 Net defined benefit asset 16 Investments in own shares (excluding those reported in the Net assets section) 17 Reciprocal cross-holdings in common equity 18 Investments in the capital of banking, financial and insurance entities that are outside the scope of regulatory consolidation, net of eligible short positions, where the bank does not own more than 10% of the issued share capital (amount above the 10% threshold) 19+20+21 Amount exceeding the 10% threshold on specified items of which: significant investments in the common stock of financials of which: mortgage servicing rights of which: deferred tax assets arising from temporary differences (net of related tax liability) 19 20 21 22 Amount exceeding the 15% threshold on specified items 23 24 25 of which: significant investments in the common stock of financials of which: mortgage servicing rights of which: deferred tax assets arising from temporary differences (net of related tax liability) Regulatory adjustments applied to Common Equity Tier 1 due to insufficient Additional Tier 1 and Tier 2 to cover deductions 27 634,783 657,131 237,333 397,450 247,659 409,472 3,390 2,208 84,324 50,636 62,486 5,582 160,200 3,567 — (52,610) 81,582 60,286 3,940 228,913 4,491 — — — — — — — — — — — — — — — — — — — — — 28 Common Equity Tier 1 capital: regulatory adjustments (B) 1,004,972 985,942 Common Equity Tier 1 capital (CET1) 29 Common Equity Tier 1 capital (CET1) ((A)-(B)) (C) 9,581,264 9,654,517 012_0800885852007.indd 251 251 2020/08/19 11:13:54 Sumitomo Mitsui Financial GroupSMBC GROUP ANNUAL REPORT 2020Basel III Information Basel III Template No. Items Additional Tier 1 capital: instruments (3) (Millions of yen, except percentages) a b As of March 31, 2020 As of March 31, 2019 c Reference to Template CC2 31a Directly issued qualifying Additional Tier 1 instruments plus related capital surplus of which: classified as equity under applicable accounting standards and the breakdown 31b Stock acquisition rights to Additional Tier 1 instruments 30 32 34-35 33+35 33 35 Directly issued qualifying Additional Tier 1 instruments plus related capital surplus of which: classified as liabilities under applicable accounting standards Qualifying Additional Tier 1 instruments plus related capital surplus issued by special purpose vehicles and other equivalent entities Additional Tier 1 instruments issued by subsidiaries and held by third parties (amount allowed in group AT1) Eligible Tier 1 capital instruments subject to transitional arrangements included in Additional Tier 1 capital: instruments of which: instruments issued by bank holding companies and their special purpose vehicles of which: instruments issued by subsidiaries (excluding bank holding companies’ special purpose vehicles) — — — — 684,797 598,974 — — 9,400 62,752 — — — 436,500 436,500 — 36 Additional Tier 1 capital: instruments Additional Tier 1 capital: regulatory adjustments 37 Investments in own Additional Tier 1 instruments 38 Reciprocal cross-holdings in Additional Tier 1 instruments 39 40 42 Investments in the capital of banking, financial and insurance entities that are outside the scope of regulatory consolidation, net of eligible short positions, where the bank does not own more than 10% of the issued common share capital of the entity (amount above the 10% threshold) Significant investments in the Additional Tier 1 capital of banking, financial and insurance entities that are outside the scope of regulatory consolidation (net of eligible short positions) Regulatory adjustments applied to Additional Tier 1 due to insufficient Tier 2 to cover deductions 43 Additional Tier 1 capital: regulatory adjustments Additional Tier 1 capital (AT1) 44 Additional Tier 1 capital ((D)-(E)) Tier 1 capital (T1 = CET1 + AT1) 45 Tier 1 capital (T1 = CET1 + AT1) ((C)+(F)) Tier 2 capital: instruments and provisions (4) (D) 694,198 1,098,227 — — — — — — 25,525 25,516 — — 25,525 25,516 668,672 1,072,710 (E) (F) (G) 10,249,936 10,727,228 46 Directly issued qualifying Tier 2 instruments plus related capital surplus of which: classified as equity under applicable accounting standards and the breakdown Stock acquisition rights to Tier 2 instruments Directly issued qualifying Tier 2 instruments plus related capital surplus of which: classified as liabilities under applicable accounting standards Qualifying Tier 2 instruments plus related capital surplus issued by special purpose vehicles and other equivalent entities 48-49 Tier 2 instruments issued by subsidiaries and held by third parties (amount allowed in group T2) Eligible Tier 2 capital instruments subject to transitional arrangements included in Tier 2: instruments and provisions 47+49 47 49 of which: instruments issued by bank holding companies and their special purpose vehicles of which: instruments issued by subsidiaries (excluding bank holding companies’ special purpose vehicles) 50 Total of general reserve for possible loan losses and eligible provisions included in Tier 2 50a 50b of which: general reserve for possible loan losses of which: eligible provisions 51 Tier 2 capital: instruments and provisions (H) — — — — 961,464 997,723 — — 1,546 15,087 358,491 488,092 — — 358,491 488,092 63,204 63,204 — 1,384,706 62,357 62,357 — 1,563,260 252 012_0800885852007.indd 252 2020/08/19 11:13:54 Sumitomo Mitsui Financial GroupSMBC GROUP ANNUAL REPORT 2020Basel III Information Basel III Template No. Items Tier 2 capital: regulatory adjustments (5) 52 Investments in own Tier 2 instruments 53 Reciprocal cross-holdings in Tier 2 instruments and other TLAC liabilities 54 54a 55 Investments in the capital and other TLAC liabilities of banking, financial and insurance entities that are outside the scope of regulatory consolidation, net of eligible short positions, where the bank does not own more than 10% of the issued common share capital of the entity (amount above the 10% threshold) Investments in the other TLAC liabilities of banking, financial and insurance entities that are outside the scope of regulatory consolidation, where the bank does not own more than 10% of the issued common share capital of the entity: amount previously designated for the 5% threshold but that no longer meets the conditions Significant investments in the capital and other TLAC liabilities of banking, financial and insurance entities that are outside the scope of regulatory consolidation (net of eligible short positions) 57 Tier 2 capital: regulatory adjustments Tier 2 capital (T2) 58 Tier 2 capital (T2) ((H)-(I)) Total capital (TC = T1 + T2) 59 Total capital (TC = T1 + T2) ((G) + (J)) Risk weighted assets (6) 60 Total risk-weighted assets (RWA) Capital ratios (consolidated) and buffers (7) (Millions of yen, except percentages) a b As of March 31, 2020 As of March 31, 2019 c Reference to Template CC2 0 — — — 0 — — — 82,643 50,000 82,643 50,000 1,302,063 1,513,260 (I) (J) (K) 11,552,000 12,240,489 (L) 61,599,066 58,942,791 61 Common Equity Tier 1 risk-weighted capital ratio (consolidated) ((C)/(L)) 62 Tier 1 risk-weighted capital ratio (consolidated) ((G)/(L)) 63 Total risk-weighted capital ratio (consolidated) ((K)/(L)) 64 CET1 specific buffer requirement 65 66 67 68 CET1 available after meeting the minimum capital requirements of which: capital conservation buffer requirement of which: countercyclical buffer requirement of which: G-SIB/D-SIB additional requirement Regulatory adjustments (8) 72 73 Non-significant investments in the capital and other TLAC liabilities of other financials that are below the thresholds for deduction (before risk weighting) Significant investments in the common stock of other financials that are below the thresholds for deduction (before risk weighting) 74 Mortgage servicing rights that are below the thresholds for deduction (before risk weighting) Deferred tax assets arising from temporary differences that are below the thresholds for deduction (before risk weighting) 75 Provisions included in Tier 2 capital: instruments and provisions (9) 76 Provisions (general reserve for possible loan losses) 77 Cap on inclusion of provisions (general reserve for possible loan losses) 78 Provisions eligible for inclusion in Tier 2 in respect of exposures subject to internal ratings-based approach (prior to application of cap) (if the amount is negative, report as “nil”) 15.55% 16.63% 18.75% 3.52% 2.50% 0.02% 1.00% 10.63% 16.37% 18.19% 20.76% 3.60% 2.50% 0.10% 1.00% 11.87% 679,784 816,189 907,634 921,378 — — 4,128 2,605 75,065 63,204 — 72,970 62,357 — 79 Cap for inclusion of provisions in Tier 2 under internal ratings-based approach 274,040 265,937 Capital instruments subject to transitional arrangements (10) 82 Current cap on AT1 instruments subject to transitional arrangements 83 Amount excluded from AT1 due to cap (excess over cap after redemptions and maturities) (if the amount is negative, report as “nil”) 84 Current cap on T2 instruments subject to transitional arrangements 85 Amount excluded from T2 due to cap (excess over cap after redemptions and maturities) (if the amount is negative, report as “nil”) 325,171 487,757 — — 406,856 610,284 — — Items Required capital ((L) ✕ 8%) (Millions of yen) As of March 31, 2020 4,927,925 As of March 31, 2019 4,715,423 012_0800885852007.indd 253 253 2020/08/19 11:13:54 Sumitomo Mitsui Financial GroupSMBC GROUP ANNUAL REPORT 2020Basel III Information ■ Overview of RWA (OV1) OV1: Overview of RWA Basel III Template No. 1 Credit risk (CR) (excluding counterparty credit risk) 2 Of which: Standardised Approach (SA) 3 Of which: internal ratings-based (IRB) approach Of which: significant investments in commercial entities Of which: lease residual value Other assets 4 Counterparty credit risk (CCR) 5 Of which: standardised approach for counterparty credit risk (SA-CCR) Of which: current exposure method (CEM) 6 Of which: Expected Positive Exposure (EPE) Of which: Credit Valuation Adjustment (CVA) Of which: Central Counterparty (CCP) Others 7 Equity positions in banking book under market-based approach 8 Equity investments in funds – look-through approach 9 Equity investments in funds – mandate-based approach Equity investments in funds – simple approach (subject to 250% risk weight) Equity investments in funds – simple approach (subject to 400% risk weight) 10 Equity investments in funds – fall-back approach 11 Settlement risk 12 Securitisation exposures in banking book 13 Of which: securitisation IRB approach (SEC-IRBA) or internal assessment approach (IAA) 14 Of which: securitisation external ratings-based approach (SEC-ERBA) 15 Of which: securitisation standardised approach (SEC-SA) Of which: Risk weight (RW) 1250% is applied 16 Market risk 17 Of which: standardised approach (SA) 18 Of which: internal model approaches (IMA) 19 Operational risk 20 Of which: Basic Indicator Approach 21 Of which: Standardised Approach 22 Of which: Advanced Measurement Approach 23 Amounts below the thresholds for deduction (subject to 250% risk weight) RWA subject to transitional arrangements 24 Floor adjustment 25 Total (after applying scaling factors) (Millions of yen) a b c d RWA As of As of March March 31, 2019 31, 2020 40,936,349 39,966,325 2,843,844 3,050,149 34,877,672 33,898,986 — 52,206 3,171,288 4,111,505 — 1,094,827 — 2,376,345 177,913 462,418 699,163 2,107,834 — 20,577 317,353 41,684 — 1,136,269 — 46,881 2,961,646 5,382,967 — 1,495,568 — 3,067,315 213,245 606,838 789,942 1,766,889 — 41,242 375,427 59,012 10 1,153,950 Minimum capital requirements As of March 31, 2020 3,442,320 244,011 2,957,626 — 3,750 236,931 437,131 — 125,330 — 245,385 17,059 49,356 66,987 141,351 — 3,310 31,730 4,720 0 92,316 As of March 31, 2019 3,360,021 227,507 2,874,634 — 4,176 253,703 333,623 — 91,618 — 190,107 14,233 37,664 59,289 168,626 — 1,669 26,834 3,334 — 90,901 1,020,034 970,149 81,602 77,611 118,792 — 15,123 2,509,994 825,580 1,684,414 3,924,796 839,490 — 3,085,305 2,279,392 — — 158,514 — 7,605 2,323,156 752,059 1,571,096 3,617,535 776,185 — 2,841,349 2,309,872 — — 61,599,066 58,942,791 9,503 — 1,209 200,799 66,046 134,753 313,983 67,159 — 246,824 193,271 — — 4,927,925 12,681 — 608 185,852 60,164 125,687 289,402 62,094 — 227,307 195,867 — — 4,715,423 254 012_0800885852007.indd 254 2020/08/19 11:13:54 Sumitomo Mitsui Financial GroupSMBC GROUP ANNUAL REPORT 2020Basel III Information ■ Credit Quality of Assets 1. Overview of Criteria for Accounting Provisions and Write-Offs (1) Policies and Methods of Provisions and Write-Offs For “Policies and Methods of Provisions and Write-Offs,” please refer to pages 116 to 120 (Risk Management - 3. Credit Risk Management Methods - (1) Credit Risk Assessment and Quantification, (4) Self-Assessment, Write-Offs and Provisions, Non-Performing Loans Disclosure). (2) Extent of the Number of Delinquency Days of “Past Due Loans of Three Months or More” that are Allowed Not to Classify Their Loan Category as “Doubtful Assets” or Below (or Not to Judge as Loans to Parties Classified as Potentially Bankrupt Borrowers or Below) and Reasons Thereof At SMBC, as a core bank of SMBC Group, the delinquency period of past due loans of three months or more that are allowed not to classify loans as doubtful assets or below (or not to judge as loans to parties classified as potentially bankrupt borrowers or below) is generally less than six months, and they are loans to parties that are expected to improve business conditions. If there are any past due loans of six months or more, they shall be in principle classified as loans to potentially bankrupt borrowers or below. (3) Definition of Loans Whose Loan Terms and Conditions were Restructured At SMBC, as a core bank of SMBC Group, loans whose loan terms and conditions were restructured are defined as loans with interest rate reduction, deferred payment of interest, deferred repayment of principal amount, abandonment of loans, or other arrangements that are advantageous for the obligors, for the purpose of business rehabilitation or support for the obligors. Obligors with loans whose loan terms and conditions were restructured may not be classified as doubtful assets or below depending on the outlook for business conditions, financial statements and loan terms and conditions. If the borrower category deteriorates due to restructuring of loan terms and conditions, provisions will increase. (4) Key Differences in Parameters of Credit Risks Used to Calculate Provisions and Capital Ratio, Respectively SMBC, as a core bank of SMBC Group, uses Probability of Default and loan-loss ratio as parameters for calculation of provisions. Probability of Default is calculated based on the actual performance in the past of the deterioration rate for one year from each borrower category to potentially bankrupt borrowers or below (regarding the deterioration rate to potentially bankrupt borrowers, the deterioration transition rates equivalent to three accumulated years from potentially bankrupt borrowers to virtually bankrupt borrowers or below are included). For the PD used to calculate the capital ratio, deterioration to substandard borrowers or below is defined as default, and assuming a long-term average value of the default rate, conservative estimation for some portfolios is conducted, which is the major difference from the Probability of Default used to calculate provisions. Loan-loss ratio is calculated using the loan-loss amount including direct write-offs and indirect write-offs incurred during the year for each borrower category to the amount of initial existing exposure by borrower category. For details of parameters used to calculate the capital ratio, please refer to pages 261 to 262 “3. Overview of Internal Rating System (2) Parameter Estimation and Its Validation System.” 2. Credit Quality of Assets (CR1) CR1: Credit quality of assets As of March 31, 2020 As of March 31, 2019 (Millions of yen) Item No. On-balance sheet assets 1 2 Loans Securities (of which: debt securities) Other on-balance sheet assets (of which: debt-based assets) Subtotal (1+2+3) Off-balance sheet assets 3 4 a b Gross carrying values of: Defaulted exposures Non- defaulted exposures c d Allowances Net values (a+b–c) a b Gross carrying values of: Defaulted exposures Non- defaulted exposures c d Allowances Net values (a+b–c) 663,784 4,949 81,057,792 21,417,801 448,179 81,273,397 — 21,422,751 679,145 4,343 76,937,799 17,806,238 436,374 77,180,570 — 17,810,581 6,012 66,533,162 30,751 66,508,423 5,765 63,680,487 21,406 63,664,846 674,747 169,008,756 478,930 169,204,572 689,254 158,424,525 457,781 158,655,999 5 6 7 Total 8 Acceptances and guarantees, etc. Commitments, etc. Subtotal (5+6) 18,097 9,587 27,685 9,905,268 21,216,668 31,121,937 64,283 65,341 129,625 9,859,082 21,160,914 31,019,997 12,667 7,026 19,693 9,847,197 20,746,667 30,593,864 73,339 60,659 133,998 9,786,525 20,693,034 30,479,559 Total (4+7) 702,432 200,130,693 608,556 200,224,570 708,948 189,018,390 591,779 189,135,558 012_0800885852007.indd 255 255 2020/08/19 11:13:54 Sumitomo Mitsui Financial GroupSMBC GROUP ANNUAL REPORT 2020Basel III Information 3. Changes in stock of defaulted loans and securities (of which: debt securities) (CR2) (Millions of yen) CR2: Changes in stock of defaulted loans and securities (of which: debt securities) Item No. 1 2 3 4 5 6 Stock of loans and securities (of which: debt securities) that were placed in defaulted status as of March 31, 2019 Changes in loans and securities (of which: debt securities) by factors during the current interim period Amounts defaulted Amounts returned to non-defaulted status Amounts written off Other changes Stock of loans and securities (of which: debt securities) that were placed in defaulted status as of March 31, 2020 (1+2-3-4+5) Amount 689,254 160,092 27,420 128,030 (19,148) 674,747 Note: The major factor for other changes is due to decreases in stock by collection and sale of receivables that were placed in defaulted status at the end of the previous fiscal year. CR2: Changes in stock of defaulted loans and securities (of which: debt securities) (Millions of yen) Item No. 1 2 3 4 5 6 Stock of loans and securities (of which: debt securities) that were placed in defaulted status as of March 31, 2018 Changes in loans and securities (of which: debt securities) by factors during the current interim period Amounts defaulted Amounts returned to non-defaulted status Amounts written off Other changes Stock of loans and securities (of which: debt securities) that were placed in defaulted status as of March 31, 2019 (1+2-3-4+5) Amount 723,981 161,433 49,433 111,269 (35,457) 689,254 Note: The major factor for other changes is due to decreases in stock by collection and sale of receivables that were placed in defaulted status at the end of the previous fiscal year. 4. Term-End Balance of Exposures by Category and Their Breakdown by Major Type of Assets (1) Exposure Balance by Type of Assets, Geographic Region and Industry (Millions of yen) As of March 31, 2020 As of March 31, 2019 Category 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, goods rental and leasing Services Local municipal corporations Other industries Overseas operations and offshore banking accounts Sovereigns Financial institutions C&I companies Others Total Loans, commitments and other off-balance sheet exposures except derivatives Bonds Others Total Loans, commitments and other off-balance sheet exposures except derivatives Bonds Others Total 117,104,673 15,714,695 6,751,935 139,571,303 113,695,547 13,028,014 7,819,862 134,543,424 10,305,832 261,335 1,611,649 12,178,818 9,095,207 295,529 1,959,265 11,350,002 508,218 1,078,838 10,365 46,235 6,571 525,155 516,118 117,601 1,242,675 1,162,654 13,035 43,884 10,848 540,001 156,515 1,363,053 6,337,831 195,824 451,513 6,985,169 6,310,609 174,252 615,181 7,100,043 5,549,017 56,166,851 208,602 2,552,894 287,865 243,609 6,045,486 58,963,355 5,764,959 54,249,795 249,713 1,012,399 317,123 188,531 6,331,796 55,450,726 9,846,929 1,147,847 89,948 11,084,725 9,365,923 1,251,563 136,385 10,753,873 4,448,552 2,290,348 20,572,251 366,545 32,320 10,892,725 74,114 1,230 3,867,830 4,889,212 2,323,898 35,332,807 4,517,647 2,435,177 20,277,453 397,536 21,102 9,568,998 124,502 1,065 4,310,441 5,039,686 2,457,346 34,156,894 52,288,064 5,708,881 1,556,566 59,553,513 48,427,182 4,784,721 1,564,532 54,776,436 9,743,269 6,413,387 29,954,809 6,176,597 169,392,737 3,575,176 1,154,322 832,400 146,981 21,423,577 6,164 373,929 — 1,176,472 8,308,502 13,324,610 7,941,639 30,787,210 7,500,051 199,124,817 9,093,815 5,449,564 27,931,363 5,952,438 162,122,729 3,338,992 1,095,238 276,791 73,700 17,812,736 6,442 380,646 — 1,177,443 9,384,395 12,439,250 6,925,449 28,208,154 7,203,581 189,319,860 Notes: 1. The above amounts are exposures after Credit Risk Mitigation (CRM). 2. The above amounts do not include “securitisation exposures” and “credit RWA under Article 145 of the Notification.” 3. “Domestic operations” comprises the operations of us, 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. 256 012_0800885852007.indd 256 2020/08/19 11:13:54 Sumitomo Mitsui Financial GroupSMBC GROUP ANNUAL REPORT 2020Basel III Information (2) Exposure Balance by Type of Assets and Residual Term (Millions of yen) Category 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 As of March 31, 2020 As of March 31, 2019 Loans, commitments and other off-balance sheet exposures except derivatives 40,381,530 18,703,429 17,835,434 6,691,657 23,518,615 62,262,070 169,392,737 Bonds Others Total 6,157,045 3,901,032 2,019,572 1,241,389 8,104,537 — 21,423,577 24,658 — — — — 8,283,843 8,308,502 46,563,235 22,604,461 19,855,006 7,933,047 31,623,153 70,545,913 199,124,817 Loans, commitments and other off-balance sheet exposures except derivatives 32,620,590 18,175,523 17,740,873 6,460,343 22,894,533 64,230,864 162,122,729 Bonds Others Total 3,313,354 5,908,243 1,514,641 1,687,774 5,388,722 — 17,812,736 23,855 — — — — 9,360,540 9,384,395 35,957,800 24,083,766 19,255,515 8,148,118 28,283,255 73,591,404 189,319,860 Notes: 1. The above amounts are exposures after CRM. 2. The above amounts do not include “securitisation exposures” and “credit RWA under Article 145 of the Notification.” 3. “No fixed maturity” includes exposures not classified by residual term. 5. Amounts of Reserves and Write-offs Corresponding to the Term-End Balance of Obligors’ Exposures Related to Loans Prescribed in the Provisions of Article 4, Paragraph 2 (Bankrupt and Quasi-Bankrupt Assets), Paragraph 3 (Doubtful Assets) or Paragraph 4 (Substandard Loans) of the Ordinance for Enforcement of the Act on Emergency Measures for the Revitalization of Financial Functions, as well as Breakdown by Each of the Following Categories (1) By Geographic Region Domestic operations (excluding offshore banking accounts) Overseas operations and offshore banking accounts Asia North America Other regions Total (2) By Industry 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, goods rental and leasing Services Other industries Overseas operations and offshore banking accounts Financial institutions C&I companies Others Total Term-end balance Fiscal 2019 Term-end Reserves Write-offs for the year Term-end balance (Billions of yen) Fiscal 2018 Term-end Reserves Write-offs for the year 713.9 215.9 68.1 62.4 85.4 929.8 218.0 107.2 41.3 17.8 48.1 325.3 91.9 27.0 20.3 2.5 4.1 118.9 800.4 176.7 24.3 53.1 99.3 977.1 235.2 86.1 16.0 20.3 49.8 321.3 90.1 12.2 9.8 3.0 (0.6) 102.3 Term-end balance Fiscal 2019 Term-end Reserves Write-offs for the year Term-end balance (Billions of yen) Fiscal 2018 Term-end Reserves Write-offs for the year 713.9 218.0 91.9 57.0 8.4 12.0 44.0 86.1 5.4 48.0 72.5 380.5 215.9 1.9 127.7 86.3 929.8 18.9 6.7 2.5 20.8 36.8 0.2 5.6 21.0 105.4 107.2 0.2 76.0 31.0 325.3 0.6 0.0 0.4 0.9 1.0 (0.3) (0.8) 0.5 89.5 27.0 0.0 16.3 10.8 118.9 800.4 109.5 6.3 17.5 40.8 93.4 8.4 52.1 78.7 393.7 176.7 2.2 92.2 82.3 977.1 235.2 25.7 6.2 5.2 18.0 39.6 2.9 5.6 28.3 103.7 86.1 0.3 54.4 31.4 321.3 90.1 (0.3) (1.5) 0.3 0.5 1.9 (0.1) 5.8 1.1 82.4 12.2 0.0 0.5 11.7 102.3 Notes: 1. Term-end Reserves include partial direct write-offs (direct reduction). 2. “Domestic operations” comprises the operations of SMBC Group (excluding overseas branches) and domestic consolidated subsidiaries. “Overseas operations” comprises the operations of SMBC Group’s overseas branches and overseas consolidated subsidiaries, and the term-end balances are calculated based on the obligor’s domicile country. 012_0800885852007.indd 257 257 2020/08/19 11:13:54 Sumitomo Mitsui Financial GroupSMBC GROUP ANNUAL REPORT 2020Basel III Information6. Term-End Balance of Exposures by Past Due Periods Less than 1 month 1 month or more to less than 2 months Fiscal 2019 2 months or more to less than 3 months 3 months or more Total 160.4 60.4 37.5 81.0 339.5 Notes: 1. Bankrupt and Quasi-Bankrupt Assets prescribed in Article 4, Paragraph 2 of the Ordinance for Enforcement of the Act on Emergency Measures for the Revitalization of Financial Functions and doubtful assets prescribed in Paragraph 3 of the said Article are excluded. Items that are not accompanied by deterioration of business conditions/cash flows are excluded. 2. (Billions of yen) Less than 1 month 1 month or more to less than 2 months Fiscal 2018 2 months or more to less than 3 months 3 months or more Total 180.3 62.7 26.4 59.1 328.5 Notes: 1. Bankrupt and Quasi-Bankrupt Assets prescribed in Article 4, Paragraph 2 of the Ordinance for Enforcement of the Act on Emergency Measures for the Revitalization of Financial Functions and doubtful assets prescribed in Paragraph 3 of the said Article are excluded. Items that are not accompanied by deterioration of business conditions/cash flows are excluded. 2. (Billions of yen) 7. Term-End Balance of Exposures of Obligors Whose Loan Conditions were Restructured for Business Rehabilitation or Support; of Which Amounts of Increased Reserves for Such Exposures and Other Amounts due to the Restructuring of the Loan Conditions Term-end balance Fiscal 2019 Of which: amounts of increased Reserves for such exposures due to the restructuring of the loan conditions Of which: other amounts Term-end balance Fiscal 2018 Of which: amounts of increased Reserves for such exposures due to the restructuring of the loan conditions (Billions of yen) Of which: other amounts 248.2 248.2 0.0 223.2 223.2 0.0 Note: Bankrupt and Quasi-Bankrupt Assets prescribed in Article 4, Paragraph 2 of the Ordinance for Enforcement of the Act on Emergency Measures for the Revitalization of Financial Functions, doubtful assets prescribed in Paragraph 3 of the said Article, and loans past due three months or more prescribed in Paragraph 4 of the said Article are excluded. 258 012_0800885852007.indd 258 2020/08/19 11:13:54 Sumitomo Mitsui Financial GroupSMBC GROUP ANNUAL REPORT 2020Basel III Information ■ Internal Ratings-Based (IRB) Approach 1. Background on Determining the Scope of Application of Internal Ratings-Based (IRB) Approach When the criteria of materiality defined by us according to business characteristics and business conditions, etc. are met, in principle, the IRB approach is adopted by the unit of our asset class or by the unit of the affiliated group companies. In addition, for the asset class or group companies that meet the quantitative criteria specified by the authorities, the IRB approach is in principle adopted regardless of whether the criteria of materiality are met. For adopting the IRB approach, the Advanced Internal Ratings-Based (AIRB) approach is in principle adopted. However, for group companies which were judged unnecessary or inappropriate to adopt the AIRB approach in light of the scale, business contents, etc., the Foundation Internal Ratings-Based (FIRB) approach is adopted. 2. Scope We and the following consolidated subsidiaries have adopted the Advanced Internal Ratings-Based (AIRB) approach for exposures as of March 31, 2009. (1) Domestic Operations Sumitomo Mitsui Banking Corporation, Sumitomo Mitsui Card Company, Limited and SMBC Guarantee Co., Ltd., Cedyna Financial Corporation, SMBC Trust Bank Ltd. (2) Overseas Operations Sumitomo Mitsui Banking Corporation Europe Limited, Sumitomo Mitsui Banking Corporation (China) Limited, Banco Sumitomo Mitsui Brasileiro S.A., JSC Sumitomo Mitsui Rus Bank, PT Bank Sumitomo Mitsui Indonesia, Sumitomo Mitsui Banking Corporation Malaysia Berhad, SMBC Leasing and Finance, Inc., SMBC Capital Markets, Inc., SMBC Nikko Capital Markets Limited, SMBC Derivative Products Limited and SMBC Capital Markets (Asia) Limited, SMBC Bank EU AG and PT Bank BTPN Tbk. SMBC Finance Service Co., Ltd. has adopted the Foundation Internal Ratings-Based (FIRB) approach. Note: Directly controlled SPCs and limited partnerships for investment of consolidated subsidiaries using the AIRB approach have also adopted the AIRB approach. Further, the AIRB approach is applied to equity exposures on a group basis, including equity exposures of consolidated subsidiaries applying the standardised approach. 3. Overview of Internal Rating System (1) Rating Procedures (A) Corporate Exposures • “Corporate, sovereign and bank exposures” includes credits to domestic and overseas commercial/industrial (C&I) companies, individuals for business purposes (domestic only), sovereigns, public sector entities, and financial institutions. Business loans such as apartment construction 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 pages 116 to 117). Different rating series are used for domestic and overseas obligors — J1 ~ J10 for domestic obligors and G1 ~ G10 for overseas obligors — as shown in the table following page due to differences in actual default rate levels and portfolios’ grade distribution. Different Probability of Default (PD) 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 financial 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 purposes and business 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 the possibility of estimation errors. In addition to internal data, external data are used to estimate and validate PDs. The definition of default is the definition stipulated in the Notification (an event that would lead to an exposure being classified as “substandard loans,” “doubtful assets” or “bankrupt and quasi-bankrupt assets” occurring to the obligor). • Loss Given Defaults (LGDs) and exposure at default (EAD) used in the calculation of credit risk-weighted assets are estimated based on historical loss experience of credits in default, taking into account the possibility of estimation errors. 012_0800885852007.indd 259 259 2020/08/19 11:13:54 Sumitomo Mitsui Financial GroupSMBC GROUP ANNUAL REPORT 2020Basel III InformationObligor Grade Domestic Corporate J1 J2 J3 J4 J5 J6 J7 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 trends or business environment depending on the situation 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 any changes in economic trends or business environment Currently no problem with debt repayment, but it is highly likely that this could change in cases of significant changes in economic trends or business environment Close monitoring is required due to problems in meeting loan terms and conditions, sluggish/unstable business, or financial problems J8 J9 J7R Borrowers Requiring Caution identified as 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 J10 Obligor Grade Overseas Corporate G1 G2 G3 G4 G5 G6 G7 Definition Very high certainty or 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 trends or business environment depending on the situation Debt repayment is likely but this could change in cases of significant changes in economic trends 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 any changes in economic trends or business environment Currently no problem with debt repayment, but it is highly likely that this could change in cases of significant changes in economic trends or business environment Close monitoring is required due to problems in meeting loan terms and conditions, sluggish/unstable business, or financial problems G8 G7R Borrowers Requiring Caution identified as 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 G9 G10 Borrower Category Normal Borrowers Borrowers Requiring Caution Substandard Borrowers Potentially Bankrupt Borrowers Virtually Bankrupt Borrowers Bankrupt Borrowers Borrower Category Normal Borrowers Borrowers Requiring Caution Substandard Borrowers Potentially Bankrupt Borrowers Virtually Bankrupt Borrowers Bankrupt Borrowers • “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 are 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, 2020. • Each SL product is classified as either a facility assigned a PD grade and LGD grade or a facility assigned a grade based primarily on the expected loss ratio, both using grading models and qualitative assessment. The former has the same grading structure as that of corporate, and the latter has ten grade levels as with obligor grades but the definition of each grade differs from that of the obligor grade which is focused on PD. For the credit risk-weighted asset amount for the SL category, the former facility is calculated in a manner similar to corporate exposures, while the latter facility is calculated by mapping the expected loss-based facility grades to the five categories (hereinafter the “slotting criteria”) of the Notification because it does not satisfy the requirements for PD application specified in the Notification. 260 012_0800885852007.indd 260 2020/08/19 11:13:54 Sumitomo Mitsui Financial GroupSMBC GROUP ANNUAL REPORT 2020Basel III Information (B) Retail Exposures • “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 default risk determined using loan contract information, a borrower category under self-assessment in accordance with an exclusive grading model, and recovery risk at the time of default determined using Loan To Value (LTV) calculated based on the assessment value of collateral real estate. PDs and LGDs are estimated based on the default experience for each segment and taking into account the possibility of estimation errors. Further, the portfolio is subdivided based on the lapse of years from the 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. • “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 the 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 the possibility of estimation errors. Further, 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. • “Other retail exposures” includes business loans such as apartment construction loans and consumer loans such as My Car Loan. • Business loans and consumer loans are rated as follows. a. Business loans are allocated to a portfolio segment with similar risk characteristics in terms of default risk determined using loan contract information, a borrower category under self-assessment in accordance with an exclusive grading model, and recovery risk determined based on LTV for business loans. PDs and LGDs are estimated based on the default experience for each segment and taking into account the 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 “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 the possibility of estimation errors. Further, 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. (C) Equity Exposures When acquiring equities subject to the PD/LGD approach, issuers are assigned obligor grades using the same rules as those of general credits to C&I companies, sovereigns and financial institutions. The obligors are monitored (for details, please refer to page 117) and their grades are revised if necessary (credit risk-weighted asset amount is set to 1.5 times when they are not monitored individually). 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 information and it is not a qualifying investment, the simple risk weight method under the market-based approach is applied. (2) Parameter Estimation and Its Validation System A. PD This is defined as the probability that obligors could default over one year. PD is estimated as the expected value in the long term regardless of the business cycle using the default rate for each fiscal year based on the historical data for five consecutive fiscal years or more. In principle, the default rate for each fiscal year is measured by the initial number of target obligors as the numerator and the number of defaults occurred during the fiscal year as the denominator. For assets, ratings, and portfolios applicable to LDP (LDP: Low Default Portfolio), conservative PD is estimated by creating virtual rating transition data based on Monte Carlo simulation and by using the floor value proposed under Basel Capital Accord. 012_0800885852007.indd 261 261 2020/08/19 11:13:54 Sumitomo Mitsui Financial GroupSMBC GROUP ANNUAL REPORT 2020Basel III Information The actual default rates in the past three periods are lower than PD estimate values applied for the respective periods for the most portfolios, because the long-term average value including the recession period is estimated, and also because the possibility of estimation errors is taken into account. Validation consists of two systems: “backtesting” to retrospectively compare and validate the parameter estimated value and the actual value for the respective applicable period, and “pretesting” to validate before applying the parameter for the purpose of complementing the “backtesting.” The overview for each is as follows. (a) Backtesting This is to compare the parameter estimated value with the actual value at least once a year, and to validate that the degree of divergence is within the statistically assumed range. In case of hitting the predetermined excess criteria as a result of validation, reviews shall be taken including revising the estimation method or rating system. (b) Pretesting This is to compare and validate the estimated value to be applied and the historical value. In the case of hitting the predetermined excess criteria, the estimated value shall be conservatively corrected. The purpose is to prevent underestimation by making adjustments, if necessary. B. LGD This is defined as the ratio of loss amounts after default to the amount of receivable at the time of default. LGD is estimated as a long- term average value calculated based on historical data over seven consecutive fiscal years (for retail, five fiscal years) or more. However, in the case where a high positive correlation with the default rate is observed, LGD shall be in principle the value taking into account the possibility that the loss rate of the recession period will exceed the long-term average value, and it is estimated mainly by one of the following methods. • By taking into account the influence of the recession period on the interest rate to customers constituting the discount rate for calculating the economic loss to be used for estimation • By taking into account the influence of the recession period by modeling the relationship between the loss ratio and economic and financial indicators, etc. For the purpose of estimating LGD using economic loss based on requirement of Basel Capital Accord, discount rate is estimated with using recovery cost. The averaged period from the time of default and the termination of recovery is used as discount period. As for validation, backtesting and pretesting are conducted as in the A. PD. C. EAD This is defined as the amount of exposure at the time of default. EAD is estimated as a long-term average value calculated based on the historical data over seven consecutive fiscal years (for retail, five fiscal years) or more. For estimation, the possibility that the default balance may exceed the latest balance is assumed and taken into account, and EAD is estimated by one of the following methods. • By estimating the conversion factor that is the ratio of actually drawn amount to the amount associated with undrawn commitments one year before the time of default • By estimating the conversion factor that is the ratio of the average outstandings of the default borrowers to the average outstandings of the non-default borrowers of the whole limit-type credit subject to the estimation • By estimating an increased amount by comparing the initial outstandings with ones at the time of default and taking the average for each segment As for validation, backtesting and pretesting are conducted as in the A. PD. 4. Percentage of EAD by Asset Class by Type of Approach for Calculating Credit RWA to Total EAD As of March 31, 2020 As of March 31, 2019 IRB approach Corporate exposures (Advanced Internal Ratings-Based (AIRB) approach) Corporate exposures (Foundation Internal Ratings-Based (FIRB) approach) Retail exposures Equity exposures Purchased receivables (AIRB approach) Purchased receivables (FIRB approach) Other assets, etc. SA Total 262 94.70 % 82.44 % 0.24 % 7.48 % 1.76 % 0.94 % 0.00 % 1.81 % 5.29 % 100.00 % 94.82 % 81.24 % 0.27 % 8.15 % 2.19 % 1.00 % 0.00 % 1.94 % 5.17 % 100.00 % 012_0800885852007.indd 262 2020/08/19 11:13:54 Sumitomo Mitsui Financial GroupSMBC GROUP ANNUAL REPORT 2020Basel III Information5. CR Exposures by Portfolio and PD (CR6) CR6: IRB - CR exposures by portfolio and PD range Item No. PD scale (Millions of yen, %, the number of data in thousands, years) As of March 31, 2020 a On-balance sheet gross exposures b Off-balance sheet exposures pre CCF (Credit Conversion Factor) and pre CRM c d e f g h i j k l Average CCF (%) EAD post CCF and post CRM Average PD (%) Number of obligors Average LGD (%) Average maturity Credit RWA amounts RWA density (%) EL Eligible provisions Sovereign exposures (AIRB approach) 1 0.00 to <0.15 2 0.15 to <0.25 3 0.25 to <0.50 4 0.50 to <0.75 5 0.75 to <2.50 6 2.50 to <10.00 7 10.00 to <100.00 8 100.00 (Default) 9 Subtotal 73,107,376 364,083 8,777 2,315 173,824 88,158 — 8 73,744,545 62,797 25,813 24 2 9,567 47,907 — — 146,113 Sovereign exposures (FIRB approach) 1 0.00 to <0.15 2 0.15 to <0.25 3 0.25 to <0.50 4 0.50 to <0.75 5 0.75 to <2.50 6 2.50 to <10.00 7 10.00 to <100.00 8 100.00 (Default) 9 Subtotal — — — — — — — — — Bank exposures (AIRB approach) 5,651,140 789,579 124,122 24,809 619,369 34,969 — 356 7,244,349 Bank exposures (FIRB approach) 3,244 — — — 402 — — — 3,646 1 0.00 to <0.15 2 0.15 to <0.25 3 0.25 to <0.50 4 0.50 to <0.75 5 0.75 to <2.50 6 2.50 to <10.00 7 10.00 to <100.00 8 100.00 (Default) 9 Subtotal 1 0.00 to <0.15 2 0.15 to <0.25 3 0.25 to <0.50 4 0.50 to <0.75 5 0.75 to <2.50 6 2.50 to <10.00 7 10.00 to <100.00 8 100.00 (Default) 9 Subtotal — — — — — — — — — — — — — — — — — — 731,858 217,139 12,663 5,329 102,747 4,309 — — 1,074,048 76.85 70.74 55.47 33.79 38.55 35.93 — — 71.32 6,448,660 923,343 120,201 26,610 598,474 29,881 — 356 8,147,528 85.17 75,440,612 362,167 46.84 8,793 64.04 202 50.00 125,118 47.77 51,705 62.45 — — 8 — 68.49 75,988,608 — — — — — — — — — — — — — — — — — — — — — — — — — — — 3,244 — — — 402 — — — 3,646 54.73 38,059,248 54.39 16,791,142 3,828,262 53.48 2,228,333 53.17 4,719,039 53.77 739,898 57.96 231,537 60.46 209,837 100.00 54.55 66,807,297 0.00 0.18 0.26 0.52 1.21 3.98 — 100.00 0.00 — — — — — — — — — 0.03 0.18 0.26 0.51 1.37 3.96 — 100.00 0.17 0.03 — — — 2.46 — — — 0.29 0.05 0.17 0.26 0.51 1.38 6.27 17.02 100.00 0.65 0.4 0.0 0.0 0.0 0.0 0.0 — 0.0 0.6 — — — — — — — — — 0.6 0.2 0.0 0.0 0.6 0.0 — 0.0 1.7 0.0 — — — 0.0 — — — 0.1 7.2 6.3 2.8 1.5 4.4 0.6 0.2 0.2 23.5 34.25 33.11 29.55 25.14 34.04 34.76 — 34.03 34.25 — — — — — — — — — 33.87 30.22 30.82 29.74 34.97 33.64 — 80.91 33.48 45.00 — — — 45.00 — — — 45.00 34.71 29.45 28.70 28.85 27.19 27.72 25.42 48.74 32.25 3.9 1.9 1.3 2.7 2.4 2.9 — 1.2 3.9 — — — — — — — — — 3.0 1.1 1.2 1.2 0.5 0.7 — 1.0 2.5 5.0 — — — 5.0 — — — 5.0 251,604 101,209 2,292 88 91,402 60,597 — 4 507,199 — — — — — — — — — 1,242,169 226,102 36,904 10,717 400,084 27,172 — 48 1,943,199 1,144 — — — 745 — — — 1,889 6,979,472 2.5 4,712,138 2.4 1,297,994 2.6 1,024,458 2.4 3,111,257 3.0 765,528 2.8 296,210 2.5 69,976 2.4 2.5 18,257,035 0.33 27.94 26.07 43.83 73.05 117.19 — 53.50 0.66 — — — — — — — — — 19.26 24.48 30.70 40.27 66.85 90.93 — 13.63 23.85 35.27 — — — 185.32 — — — 51.82 18.33 28.06 33.90 45.97 65.92 103.46 127.93 33.34 27.32 280 221 6 0 508 713 — 2 1,733 — — — — — — — — — 854 507 100 41 2,886 398 — 288 5,076 0 — — — 4 — — — 4 7,836 8,783 2,910 3,315 17,700 13,670 10,092 102,288 166,599 2,197 — 6,066 17 171,747 263 2020/08/19 11:13:55 Corporate exposures (AIRB approach) 1 0.00 to <0.15 2 0.15 to <0.25 3 0.25 to <0.50 4 0.50 to <0.75 5 0.75 to <2.50 6 2.50 to <10.00 7 10.00 to <100.00 8 100.00 (Default) 9 Subtotal 26,480,029 13,468,788 7,497,730 13,991,591 1,005,418 3,520,031 633,162 2,072,283 2,209,416 5,502,117 402,421 981,579 57,965 236,679 17,927 202,742 52,987,056 25,292,831 012_0800885852007.indd 263 Sumitomo Mitsui Financial GroupSMBC GROUP ANNUAL REPORT 2020Basel III Information CR6: IRB - CR exposures by portfolio and PD range Item No. PD scale (Millions of yen, %, the number of data in thousands, years) As of March 31, 2020 a On-balance sheet gross exposures b Off-balance sheet exposures pre CCF and pre CRM c Average CCF (%) d EAD post CCF and post CRM e f g h i j Average PD (%) Number of obligors Average LGD (%) Average maturity Credit RWA amounts RWA density (%) k EL l Eligible provisions Corporate exposures (FIRB approach) — — — — — — — — — — — — — — — — — — — — — — — — — 22 22 — — — — — — — 22 22 — — — — — — — 0.0 0.0 — — — — — — — 100.00 100.00 1 0.00 to <0.15 2 0.15 to <0.25 3 0.25 to <0.50 4 0.50 to <0.75 5 0.75 to <2.50 6 2.50 to <10.00 7 10.00 to <100.00 8 100.00 (Default) 9 Subtotal — — — — — — — 45.00 45.00 Mid-sized corporations and small-medium enterprises (SMEs) exposures (AIRB approach) 31.99 30.47 31.89 28.77 31.84 22.27 46.87 46.01 31.54 944,136 1,304,229 1,121,417 677,027 2,120,242 169,064 73,800 157,477 6,567,394 Mid-sized corporations and SMEs exposures (FIRB approach) — — — — 34 — — — 34 1 0.00 to <0.15 2 0.15 to <0.25 3 0.25 to <0.50 4 0.50 to <0.75 5 0.75 to <2.50 6 2.50 to <10.00 7 10.00 to <100.00 8 100.00 (Default) 9 Subtotal 1 0.00 to <0.15 2 0.15 to <0.25 3 0.25 to <0.50 4 0.50 to <0.75 5 0.75 to <2.50 6 2.50 to <10.00 7 10.00 to <100.00 8 100.00 (Default) 9 Subtotal 904,104 1,292,354 1,152,104 737,848 2,659,505 351,444 139,976 223,666 7,461,004 79,495 105,264 20,996 40,185 152,942 136,821 944 450 537,099 0.08 0.17 0.30 0.53 1.63 8.36 27.22 100.00 3.59 48.18 62.35 64.18 50.15 57.68 48.57 47.46 100.00 54.58 1.2 5.1 6.7 4.7 34.0 1.3 3.1 3.5 60.0 — — — — 34 — — — 34 — — — — — — — — — — — — — — — — — — — — — — 1.22 — — — 1.22 0.04 0.17 0.26 0.51 1.07 3.96 13.94 100.00 1.16 0.04 0.17 0.26 0.51 2.17 9.88 27.27 100.00 0.09 — — — — 0.0 — — — 0.0 0.2 0.4 0.1 0.1 0.2 0.0 0.0 0.0 1.3 1.3 0.4 0.1 0.0 0.1 0.0 0.0 0.0 2.1 — — — — 45.00 — — — 45.00 22.50 23.40 31.56 24.61 25.18 31.15 36.08 59.44 25.11 90.00 90.00 90.00 90.00 90.00 90.00 90.00 90.00 90.00 Specialized lending (SL) 1 0.00 to <0.15 2 0.15 to <0.25 3 0.25 to <0.50 4 0.50 to <0.75 5 0.75 to <2.50 6 2.50 to <10.00 7 10.00 to <100.00 8 100.00 (Default) 9 Subtotal Equity exposures 1 0.00 to <0.15 2 0.15 to <0.25 3 0.25 to <0.50 4 0.50 to <0.75 5 0.75 to <2.50 6 2.50 to <10.00 7 10.00 to <100.00 8 100.00 (Default) 9 Subtotal 1,967,269 1,889,210 1,035,545 759,378 964,824 170,258 28,332 52,406 6,867,224 2,901,486 220,234 14,685 4,211 16,123 1,962 21 674 3,159,398 113,312 554,107 362,381 206,481 246,808 37,954 2,594 6,757 1,530,397 46.83 54.39 53.53 56.69 59.61 82.24 85.15 100.00 55.73 1,976,616 2,031,916 967,458 616,840 884,023 105,864 27,777 49,604 6,660,101 — — — — — — — — — — 2,901,486 220,234 — 14,685 — 4,211 — 16,123 — 1,962 — 21 — 674 — — 3,159,398 264 — — — — — — — 5.0 5.0 3.1 3.6 3.8 3.4 3.4 2.7 1.6 1.8 3.4 — — — — 1.0 — — — 1.0 3.8 4.2 4.1 3.9 3.8 4.3 3.5 3.6 4.0 5.0 5.0 5.0 5.0 5.0 5.0 5.0 5.0 5.0 — — — — — — — — — 197,069 373,474 447,563 295,384 1,369,629 124,179 153,071 23,209 2,983,581 — — — — 21 — — — 21 240,854 599,465 486,728 286,613 543,236 121,276 51,257 26,538 2,355,971 2,968,167 291,234 24,440 9,029 56,577 10,782 179 7,588 3,367,999 — — — — — — — 0.00 0.00 20.87 28.63 39.91 43.62 64.59 73.45 207.41 14.73 45.43 — — — — 62.80 — — — 62.80 12.18 29.50 50.31 46.46 61.45 114.55 184.52 53.50 35.37 102.29 132.23 166.43 214.39 350.90 549.53 836.00 1,124.99 106.60 — — — — — — — 10 10 258 676 1,111 1,045 11,033 3,010 9,423 72,469 99,029 — — — — 0 — — — 0 204 857 824 784 2,459 1,306 1,396 29,485 37,319 — — — — — — — — — 2 98,375 0 41,098 — 012_0800885852007.indd 264 2020/08/19 11:13:55 Sumitomo Mitsui Financial GroupSMBC GROUP ANNUAL REPORT 2020Basel III Information CR6: IRB - CR exposures by portfolio and PD range Item No. PD scale (Millions of yen, %, the number of data in thousands, years) As of March 31, 2020 a On-balance sheet gross exposures b Off-balance sheet exposures pre CCF and pre CRM c Average CCF (%) d EAD post CCF and post CRM e f g h i j Average PD (%) Number of obligors Average LGD (%) Average maturity Credit RWA amounts RWA density (%) k EL l Eligible provisions Purchased receivables (corporates) (the amount equivalent to default risks) (AIRB approach) 1 0.00 to <0.15 2 0.15 to <0.25 3 0.25 to <0.50 4 0.50 to <0.75 5 0.75 to <2.50 6 2.50 to <10.00 7 10.00 to <100.00 8 100.00 (Default) 9 Subtotal 961,910 360,408 70,529 35,734 84,464 4,638 193 2,688 1,520,568 69,391 100,052 78,200 66,823 87,620 4,069 1,424 220 407,803 100.00 71.87 73.31 88.28 97.75 100.00 100.00 100.00 85.57 1,021,314 429,775 126,645 94,139 168,937 8,706 1,618 2,896 1,854,035 0.06 0.18 0.29 0.57 1.48 5.14 63.51 100.00 0.49 7.0 5.8 5.3 8.1 16.4 0.8 0.2 0.1 44.0 36.30 32.66 42.04 50.13 47.10 44.77 61.47 78.66 37.66 Purchased receivables (corporates) (the amount equivalent to dilution risks) (AIRB approach) 1 0.00 to <0.15 2 0.15 to <0.25 3 0.25 to <0.50 4 0.50 to <0.75 5 0.75 to <2.50 6 2.50 to <10.00 7 10.00 to <100.00 8 100.00 (Default) 9 Subtotal 617,365 201,714 65,593 37,151 64,699 3,727 — 1,057 991,308 — 106,680 — — — — — — 106,680 — 46.72 — — — — — — 46.72 617,365 251,556 65,593 37,151 64,699 3,727 — 1,057 1,041,149 0.06 0.17 0.26 0.51 0.89 3.96 — 100.00 0.28 0.0 0.0 0.0 0.0 0.0 0.0 — 0.0 0.2 33.48 29.97 33.40 31.81 31.36 25.02 — 46.64 32.42 Purchased receivables (corporates) (the amount equivalent to default risks) (FIRB approach) 1 0.00 to <0.15 2 0.15 to <0.25 3 0.25 to <0.50 4 0.50 to <0.75 5 0.75 to <2.50 6 2.50 to <10.00 7 10.00 to <100.00 8 100.00 (Default) 9 Subtotal 0 — — — — — — 37 37 385 234 1,365 3,172 2,198 28 — — 7,384 100.00 100.00 100.00 100.00 100.00 100.00 — — 100.00 385 234 1,365 3,172 2,198 28 — 36 7,420 0.07 0.22 0.36 0.62 1.14 2.96 — 100.00 1.17 0.0 0.0 0.0 0.1 0.1 0.0 — 0.0 0.3 45.00 45.00 45.00 45.00 45.00 45.00 — 45.00 45.00 Purchased receivables (corporates) (the amount equivalent to dilution risks) (FIRB approach) 1 0.00 to <0.15 2 0.15 to <0.25 3 0.25 to <0.50 4 0.50 to <0.75 5 0.75 to <2.50 6 2.50 to <10.00 7 10.00 to <100.00 8 100.00 (Default) 9 Subtotal 10 20 — 1 4 — — — 36 — — — — — — — — — — — — — — — — — — 10 20 — 1 4 — — — 36 0.11 0.22 — 0.58 0.92 — — — 0.29 Purchased receivables (retail) (the amount equivalent to default risks) 1 0.00 to <0.15 2 0.15 to <0.25 3 0.25 to <0.50 4 0.50 to <0.75 5 0.75 to <2.50 6 2.50 to <10.00 7 10.00 to <100.00 8 100.00 (Default) 9 Subtotal 4,967 2,033 2,402 692 58 57 — 0 10,213 — — — — 20 0 — — 20 — — — — 100.00 100.00 — — 100.00 4,967 2,033 2,402 692 79 57 — 0 10,234 0.09 0.22 0.32 0.60 1.09 2.96 — 100.00 0.23 0.0 0.0 — 0.0 0.0 — — — 0.0 0.4 0.2 0.4 0.1 0.0 0.0 — 0.0 1.3 45.00 45.00 — 45.00 45.00 — — — 45.00 65.00 65.00 39.60 64.58 63.02 65.00 — 80.91 58.99 1.1 1.0 1.0 1.0 1.1 1.0 1.0 1.0 1.1 1.0 1.1 1.0 1.0 1.0 1.0 — 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.2 — 1.0 1.0 1.0 1.0 — 1.0 1.0 — — — 1.0 — — — — — — — — — 126,585 91,947 47,379 59,487 142,943 11,398 2,458 394 482,595 69,229 48,777 18,485 17,297 31,463 2,506 — 144 187,903 56 67 516 1,600 1,351 24 — — 3,615 2 6 — 0 3 — — — 12 764 570 546 357 52 51 — 0 2,343 12.39 21.39 37.41 63.19 84.61 130.92 151.88 13.63 26.02 11.21 19.39 28.18 46.56 48.63 67.24 — 13.63 18.04 14.54 28.66 37.82 50.46 61.45 85.89 — 0.00 48.72 21.22 31.94 — 56.66 70.61 — — — 34.73 15.39 28.07 22.72 51.58 66.50 90.51 — 13.63 22.90 296 260 162 276 1,187 209 626 2,279 5,298 137 132 57 60 184 36 — 493 1,102 0 0 2 8 11 0 — 16 39 0 0 — 0 0 — — — 0 3 2 3 2 0 1 — 0 14 3,825 772 29 0 17 012_0800885852007.indd 265 265 2020/08/19 11:13:55 Sumitomo Mitsui Financial GroupSMBC GROUP ANNUAL REPORT 2020Basel III Information CR6: IRB - CR exposures by portfolio and PD range Item No. PD scale (Millions of yen, %, the number of data in thousands, years) As of March 31, 2020 a On-balance sheet gross exposures b Off-balance sheet exposures pre CCF and pre CRM c Average CCF (%) d EAD post CCF and post CRM e f g h i j Average PD (%) Number of obligors Average LGD (%) Average maturity Credit RWA amounts RWA density (%) k EL l Eligible provisions Purchased receivables (retail) (the amount equivalent to dilution risks) (AIRB approach) 1 0.00 to <0.15 2 0.15 to <0.25 3 0.25 to <0.50 4 0.50 to <0.75 5 0.75 to <2.50 6 2.50 to <10.00 7 10.00 to <100.00 8 100.00 (Default) 9 Subtotal 17 — — — — — — — 17 — — — — — — — — — Qualifying revolving retail exposures (QRRE) 1 0.00 to <0.15 2 0.15 to <0.25 3 0.25 to <0.50 4 0.50 to <0.75 5 0.75 to <2.50 6 2.50 to <10.00 7 10.00 to <100.00 8 100.00 (Default) 9 Subtotal 60,714 264,550 289,571 179,072 526,965 810,722 36,656 78,426 2,246,680 Residential mortgage exposures — — 7,265,643 925,652 974,717 — 27,202 85,079 9,278,297 1 0.00 to <0.15 2 0.15 to <0.25 3 0.25 to <0.50 4 0.50 to <0.75 5 0.75 to <2.50 6 2.50 to <10.00 7 10.00 to <100.00 8 100.00 (Default) 9 Subtotal 248,831 422,264 301,796 23,273 52,156 157,905 4,336 7,810 1,218,375 — — 8,671 1,487 2,654 — 1,163 54 14,032 — — — — — — — — — 7.92 19.22 11.68 7.58 15.68 6.88 9.39 100.00 35.16 — — 100.00 100.00 100.00 — 100.00 100.00 100.00 17 — — — — — — — 17 309,546 686,815 591,367 202,345 579,121 968,628 40,993 86,237 3,465,055 54,563 2,176 7,275,348 927,140 923,454 — 24,509 85,134 9,292,329 Other retail exposures 1 0.00 to <0.15 2 0.15 to <0.25 3 0.25 to <0.50 4 0.50 to <0.75 5 0.75 to <2.50 6 2.50 to <10.00 7 10.00 to <100.00 8 100.00 (Default) 9 Subtotal Total (all portfolios) 3 106,023 331,489 44,133 916,516 28,280 13,619 51,065 1,491,132 3 11 276 1,004 502,743 142,045 5,303 889 652,277 167,005,575 30,987,064 5.13 100.00 100.00 100.00 96.14 100.00 100.00 100.00 100.00 7 106,035 331,766 45,138 1,419,260 170,326 18,922 51,954 2,143,410 58.54 185,147,723 0.03 — — — — — — — 0.03 0.08 0.19 0.39 0.50 1.64 4.47 48.76 100.00 4.73 0.05 0.17 0.29 0.59 0.97 — 23.16 100.00 1.36 0.08 0.17 0.38 0.67 1.36 3.05 24.87 100.00 3.87 0.62 0.0 — — — — — — — 0.0 4,222.3 4,582.4 3,952.4 302.0 609.3 1,602.6 78.0 153.4 15,502.8 5.9 0.2 451.6 53.1 72.3 — 2.4 6.7 592.5 0.0 2.5 9.9 2.0 2,437.7 138.3 40.2 92.9 2,724.0 18,955.0 45.00 — — — — — — — 45.00 70.64 71.93 68.50 73.98 77.29 76.51 73.22 76.77 73.66 39.66 72.39 25.79 27.55 33.59 — 29.18 28.18 26.87 69.84 35.00 36.03 36.40 53.67 49.52 54.42 56.69 49.40 34.59 5.0 — — — — — — — 5.0 4 — — — — — — — 4 11,621 51,375 75,125 33,683 249,060 822,217 70,595 83,217 1,396,896 13,312 881 995,548 223,565 391,466 — 39,311 22,329 1,686,415 1 13,447 73,844 13,921 842,931 117,267 23,011 94,290 1,178,714 — 34,355,402 25.88 — — — — — — — 25.88 3.75 7.48 12.70 16.64 43.00 84.88 172.21 96.49 40.31 24.39 40.49 13.68 24.11 42.39 — 160.39 26.22 18.14 14.69 12.68 22.25 30.84 59.39 68.84 121.60 181.48 54.99 18.55 0 — — — — — — — 0 188 958 1,605 756 7,390 33,015 14,628 66,208 124,751 11 2 5,480 1,507 3,164 — 1,639 23,995 35,800 0 63 465 111 10,509 2,539 2,552 29,453 45,694 522,475 0 105,920 25,981 27,972 484,023 266 012_0800885852007.indd 266 2020/08/19 11:13:55 Sumitomo Mitsui Financial GroupSMBC GROUP ANNUAL REPORT 2020Basel III Information CR6: IRB - CR exposures by portfolio and PD range Item No. PD scale (Millions of yen, %, the number of data in thousands, years) As of March 31, 2019 a On-balance sheet gross exposures b Off-balance sheet exposures pre CCF (Credit Conversion Factor) and pre CRM c d e f g h i j k l Average CCF (%) EAD post CCF and post CRM Average PD (%) Number of obligors Average LGD (%) Average maturity Credit RWA amounts RWA density (%) EL Eligible provisions Sovereign exposures (AIRB approach) 1 0.00 to <0.15 2 0.15 to <0.25 3 0.25 to <0.50 4 0.50 to <0.75 5 0.75 to <2.50 6 2.50 to <10.00 7 10.00 to <100.00 8 100.00 (Default) 9 Subtotal 69,453,467 431,406 20,692 0 157,002 56,447 4,668 14 70,123,699 78,330 38,263 3,601 — 52,286 18,344 1,048 — 191,874 Sovereign exposures (FIRB approach) 1 0.00 to <0.15 2 0.15 to <0.25 3 0.25 to <0.50 4 0.50 to <0.75 5 0.75 to <2.50 6 2.50 to <10.00 7 10.00 to <100.00 8 100.00 (Default) 9 Subtotal — — — — — — — — — Bank exposures (AIRB approach) 3,216,252 733,785 85,671 3,290 552,906 84,714 — 2,706 4,679,326 Bank exposures (FIRB approach) 15,684 — — — — 246 — — 15,930 1 0.00 to <0.15 2 0.15 to <0.25 3 0.25 to <0.50 4 0.50 to <0.75 5 0.75 to <2.50 6 2.50 to <10.00 7 10.00 to <100.00 8 100.00 (Default) 9 Subtotal 1 0.00 to <0.15 2 0.15 to <0.25 3 0.25 to <0.50 4 0.50 to <0.75 5 0.75 to <2.50 6 2.50 to <10.00 7 10.00 to <100.00 8 100.00 (Default) 9 Subtotal — — — — — — — — — 624,391 319,461 27,324 — 80,578 64,543 — — 1,116,298 — — — — — — — — — Corporate exposures (AIRB approach) 1 0.00 to <0.15 2 0.15 to <0.25 3 0.25 to <0.50 4 0.50 to <0.75 5 0.75 to <2.50 6 2.50 to <10.00 7 10.00 to <100.00 8 100.00 (Default) 9 Subtotal 25,503,136 12,003,437 7,974,982 12,341,508 1,692,490 4,543,025 128,805 977,494 2,751,808 4,393,656 202,744 1,177,025 223,729 320,598 8,299 225,062 49,481,506 24,986,298 89.51 72,190,343 457,064 46.67 14,852 47.36 0 — 120,951 68.32 21,362 46.62 1,126 82.16 14 — 70.26 72,805,716 — — — — — — — — — — — — — — — — — — 71.62 85.48 83.33 — 64.89 44.96 — — 73.84 3,837,811 965,080 100,131 3,290 533,872 100,751 — 2,706 5,543,644 — — — — — — — — — 15,684 — — — — 246 — — 15,930 54.96 36,348,114 53.90 15,185,261 5,015,580 52.14 1,029,655 50.68 3,590,654 51.35 1,005,471 53.34 390,917 60.72 100.00 185,511 54.07 62,751,168 0.00 0.16 0.30 0.53 1.45 3.98 12.08 100.00 0.00 — — — — — — — — — 0.03 0.16 0.28 0.53 1.08 2.92 — 100.00 0.26 0.03 — — — — 2.56 — — 0.06 0.05 0.17 0.32 0.53 1.21 3.15 13.42 100.00 0.60 0.4 0.1 0.0 0.0 0.0 0.0 0.0 0.0 0.6 — — — — — — — — — 0.7 0.2 0.0 0.0 0.1 0.6 — 0.0 1.7 0.0 — — — — 0.0 — — 0.1 7.0 6.3 3.1 1.3 3.7 1.3 0.4 0.3 23.7 34.38 32.49 33.57 35.00 33.68 34.66 21.74 34.07 34.37 — — — — — — — — — 33.72 29.35 30.12 34.45 34.64 34.41 — 97.40 33.02 45.00 — — — — 45.00 — — 45.00 34.46 29.18 29.70 28.81 27.06 30.07 29.24 50.33 32.23 4.0 2.2 2.2 1.0 2.7 1.9 2.0 2.2 4.0 — — — — — — — — — 2.2 1.1 1.2 1.3 0.6 1.0 — 1.2 1.8 5.0 — — — — 5.0 — — 5.0 164,668 126,865 5,626 0 93,573 25,003 1,088 7 416,833 — — — — — — — — — 600,581 212,981 31,985 1,917 318,811 99,100 — 1,356 1,266,735 5,524 — — — — 454 — — 5,978 6,458,543 2.5 4,190,022 2.5 1,943,358 2.7 478,683 2.4 2,197,645 2.9 1,083,456 3.7 519,952 2.2 2.1 52,915 2.5 16,924,578 0.22 27.75 37.88 42.85 77.36 117.04 96.65 53.13 0.57 — — — — — — — — — 15.64 22.06 31.94 58.28 59.71 98.36 — 50.13 22.85 35.22 — — — — 184.32 — — 37.53 17.76 27.59 38.74 46.48 61.20 107.75 133.00 28.52 26.97 184 252 14 0 590 294 30 5 1,372 — — — — — — — — — 493 476 86 6 1,991 1,006 — 2,636 6,696 2 — — — — 2 — — 4 7,287 7,548 4,698 1,573 11,674 9,262 14,964 93,381 150,390 1,624 — 7,173 8 154,809 267 012_0800885852007.indd 267 2020/08/19 11:13:55 Sumitomo Mitsui Financial GroupSMBC GROUP ANNUAL REPORT 2020Basel III Information CR6: IRB - CR exposures by portfolio and PD range Item No. PD scale (Millions of yen, %, the number of data in thousands, years) As of March 31, 2019 a On-balance sheet gross exposures b Off-balance sheet exposures pre CCF and pre CRM c Average CCF (%) d EAD post CCF and post CRM e f g h i j Average PD (%) Number of obligors Average LGD (%) Average maturity Credit RWA amounts RWA density (%) k EL l Eligible provisions Corporate exposures (FIRB approach) — — — — — — — — — — — — — — — — — — — — — — — 40 — 23 63 — — — — — 40 — 23 63 — — — — — 0.0 — 0.0 0.0 — — — — — 2.56 — 100.00 38.23 1 0.00 to <0.15 2 0.15 to <0.25 3 0.25 to <0.50 4 0.50 to <0.75 5 0.75 to <2.50 6 2.50 to <10.00 7 10.00 to <100.00 8 100.00 (Default) 9 Subtotal — — — — — 45.00 — 45.00 45.00 Mid-sized corporations and small-medium enterprises (SMEs) exposures (AIRB approach) 26.10 30.46 32.39 31.01 36.05 29.74 32.54 46.22 32.41 623,457 1,260,956 1,243,431 652,713 1,809,801 630,107 187,175 175,730 6,583,375 Mid-sized corporations and SMEs exposures (FIRB approach) — — — — 2 5 — — 7 1 0.00 to <0.15 2 0.15 to <0.25 3 0.25 to <0.50 4 0.50 to <0.75 5 0.75 to <2.50 6 2.50 to <10.00 7 10.00 to <100.00 8 100.00 (Default) 9 Subtotal 1 0.00 to <0.15 2 0.15 to <0.25 3 0.25 to <0.50 4 0.50 to <0.75 5 0.75 to <2.50 6 2.50 to <10.00 7 10.00 to <100.00 8 100.00 (Default) 9 Subtotal 576,250 1,268,741 1,268,465 704,287 2,248,740 917,344 285,084 253,076 7,521,991 17,679 81,430 39,812 8,429 130,381 102,701 5,205 432 386,072 0.08 0.17 0.31 0.55 1.44 2.65 16.88 100.00 3.95 49.86 61.51 63.81 54.88 62.49 51.63 49.26 100.00 58.65 1.2 5.1 7.0 5.0 23.9 14.3 4.7 4.0 65.6 — — — — — — — — — — — — — 2 5 — — 7 — — — — — — — — — — — — — 1.57 3.05 — — 2.63 0.04 0.16 0.36 0.53 1.09 3.38 13.54 100.00 1.35 0.04 0.17 0.27 0.53 1.36 2.56 10.30 100.00 0.07 — — — — 0.0 0.0 — — 0.0 0.2 0.4 0.2 0.0 0.2 0.0 0.0 0.0 1.2 1.3 0.4 0.1 0.0 0.0 0.0 0.0 0.0 2.2 — — — — 45.00 45.00 — — 45.00 24.56 25.19 24.65 29.56 30.64 30.42 32.54 55.48 26.18 90.00 90.00 90.00 90.00 90.00 90.00 90.00 90.00 90.00 Specialized lending (SL) 1 0.00 to <0.15 2 0.15 to <0.25 3 0.25 to <0.50 4 0.50 to <0.75 5 0.75 to <2.50 6 2.50 to <10.00 7 10.00 to <100.00 8 100.00 (Default) 9 Subtotal Equity exposures 1 0.00 to <0.15 2 0.15 to <0.25 3 0.25 to <0.50 4 0.50 to <0.75 5 0.75 to <2.50 6 2.50 to <10.00 7 10.00 to <100.00 8 100.00 (Default) 9 Subtotal 1,760,726 1,756,561 1,570,972 90,408 985,045 192,398 63,221 52,882 6,472,217 3,575,798 196,091 12,741 2,953 5,516 7,994 1,604 393 3,803,094 96,795 570,251 520,039 — 172,972 29,676 25,192 7,851 1,422,778 46.62 52.00 58.28 — 57.43 94.19 65.36 100.00 55.97 1,764,239 1,884,080 1,274,658 90,408 876,489 118,276 76,788 50,193 6,135,134 — — — — — — — — — — 3,575,798 196,091 — 12,741 — 2,953 — 5,516 — 7,994 — 1,604 — 393 — — 3,803,094 268 — — — — — 5.0 — 5.0 5.0 2.8 3.4 3.9 3.3 3.1 3.9 2.1 1.6 3.3 — — — — 1.0 1.0 — — 1.0 3.5 4.1 3.9 4.5 3.7 3.1 4.1 3.2 3.8 5.0 5.0 5.0 5.0 5.0 5.0 5.0 5.0 5.0 — — — — — 75 — — 75 95,427 354,913 518,308 302,696 1,267,982 451,548 249,004 27,097 3,266,979 — — — — 2 7 — — 10 214,308 559,205 509,668 56,914 620,869 112,731 130,656 26,667 2,231,023 3,643,225 262,251 20,772 5,730 15,471 30,530 8,953 4,428 3,991,363 — — — — — 189.84 — 0.00 120.34 15.30 28.14 41.68 46.37 70.06 71.66 133.03 15.41 49.62 — — — — 110.24 134.96 — — 128.11 12.14 29.68 39.98 62.95 70.83 95.31 170.15 53.13 36.36 101.88 133.73 163.02 194.02 280.47 381.88 557.87 1,125.00 104.95 — — — — — 0 — 10 10 133 678 1,293 1,125 9,810 4,972 12,347 81,238 111,599 — — — — 0 0 — — 0 180 799 1,158 141 2,973 1,172 3,427 27,851 37,706 — — — — — — — — — 129 108,991 0 42,089 — 012_0800885852007.indd 268 2020/08/19 11:13:55 Sumitomo Mitsui Financial GroupSMBC GROUP ANNUAL REPORT 2020Basel III Information CR6: IRB - CR exposures by portfolio and PD range Item No. PD scale (Millions of yen, %, the number of data in thousands, years) As of March 31, 2019 a On-balance sheet gross exposures b Off-balance sheet exposures pre CCF and pre CRM c Average CCF (%) d EAD post CCF and post CRM e f g h i j Average PD (%) Number of obligors Average LGD (%) Average maturity Credit RWA amounts RWA density (%) k EL l Eligible provisions Purchased receivables (corporates) (the amount equivalent to default risks) (AIRB approach) 1 0.00 to <0.15 2 0.15 to <0.25 3 0.25 to <0.50 4 0.50 to <0.75 5 0.75 to <2.50 6 2.50 to <10.00 7 10.00 to <100.00 8 100.00 (Default) 9 Subtotal 990,373 410,217 83,101 14,517 60,153 3,812 589 4,866 1,567,631 50,697 115,696 39,940 50,469 75,444 19,821 1,709 270 354,049 99.99 77.19 100.00 100.00 95.20 100.00 100.00 100.00 91.52 1,030,611 496,474 121,873 64,907 131,083 23,503 2,296 5,080 1,875,834 0.05 0.17 0.34 0.61 1.45 2.62 32.23 100.00 0.56 4.0 7.7 5.1 7.5 13.8 3.7 0.3 0.1 42.5 35.41 33.53 42.27 59.59 48.30 60.36 57.66 80.78 37.56 Purchased receivables (corporates) (the amount equivalent to dilution risks) (AIRB approach) 1 0.00 to <0.15 2 0.15 to <0.25 3 0.25 to <0.50 4 0.50 to <0.75 5 0.75 to <2.50 6 2.50 to <10.00 7 10.00 to <100.00 8 100.00 (Default) 9 Subtotal 600,177 232,666 127,296 15,517 36,218 3,576 — 1,928 1,017,381 14,455 34,959 18 — — — — — 49,434 46.62 46.62 46.62 — — — — — 46.62 606,917 248,910 127,305 15,517 36,218 3,576 — 1,928 1,040,374 0.06 0.17 0.32 0.53 1.21 3.97 — 100.00 0.36 0.0 0.0 0.0 0.0 0.0 0.0 — 0.0 0.1 33.83 30.38 31.05 35.00 32.48 21.32 — 47.03 32.62 Purchased receivables (corporates) (the amount equivalent to default risks) (FIRB approach) 1 0.00 to <0.15 2 0.15 to <0.25 3 0.25 to <0.50 4 0.50 to <0.75 5 0.75 to <2.50 6 2.50 to <10.00 7 10.00 to <100.00 8 100.00 (Default) 9 Subtotal — — — — — — — 46 46 54 676 1,377 4,512 3,374 146 — — 10,142 100.00 100.00 100.00 100.00 100.00 100.00 — — 100.00 54 676 1,377 4,512 3,374 146 — 44 10,186 0.05 0.22 0.39 0.65 1.23 3.05 — 100.00 1.24 0.0 0.0 0.0 0.0 0.0 0.0 — 0.0 0.0 45.00 45.00 45.00 45.00 45.00 45.00 — 45.00 45.00 Purchased receivables (corporates) (the amount equivalent to dilution risks) (FIRB approach) 1 0.00 to <0.15 2 0.15 to <0.25 3 0.25 to <0.50 4 0.50 to <0.75 5 0.75 to <2.50 6 2.50 to <10.00 7 10.00 to <100.00 8 100.00 (Default) 9 Subtotal — 20 2 7 14 — — — 46 — — — — — — — — — — — — — — — — — — — 20 2 7 14 — — — 46 — 0.18 0.39 0.67 0.95 — — — 0.52 Purchased receivables (retail) (the amount equivalent to default risks) 1 0.00 to <0.15 2 0.15 to <0.25 3 0.25 to <0.50 4 0.50 to <0.75 5 0.75 to <2.50 6 2.50 to <10.00 7 10.00 to <100.00 8 100.00 (Default) 9 Subtotal 3,058 5,605 3,688 1,248 130 — — 0 13,730 — — — — 18 2 — — 21 — — — — 100.00 100.00 — — 100.00 3,058 5,604 3,687 1,247 148 2 — 0 13,750 0.08 0.21 0.33 0.64 1.11 3.05 — 100.00 0.27 — 0.0 0.0 0.0 0.0 — — — 0.0 0.0 0.0 0.4 0.0 0.0 0.0 — 0.0 0.4 — 45.00 45.00 45.00 45.00 — — — 45.00 65.00 65.00 42.79 64.42 62.96 65.00 — 81.53 58.97 1.1 1.1 1.0 1.0 1.2 1.1 1.0 1.0 1.1 1.0 1.0 1.0 1.1 1.0 1.0 — 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0 — 1.0 1.0 — 1.0 1.0 1.0 1.0 — — — 1.0 — — — — — — — — — 118,019 108,517 48,413 50,205 116,078 28,692 4,410 661 474,998 68,151 51,105 37,973 6,758 21,609 3,507 — 265 189,371 6 209 540 2,326 2,171 127 — — 5,381 — 5 1 4 13 — — — 25 412 1,521 940 665 99 1 — 0 3,641 11.45 21.85 39.72 77.34 88.55 122.07 192.02 13.01 25.32 11.22 20.53 29.82 43.55 59.66 98.07 — 13.75 18.20 11.21 31.01 39.19 51.56 64.35 86.82 — 0.00 52.83 — 28.16 45.37 61.05 91.71 — — — 55.07 13.49 27.13 25.50 53.36 66.56 90.91 — 13.75 26.48 234 300 178 240 889 373 424 4,104 6,746 135 136 127 28 139 51 — 906 1,526 0 0 2 13 18 2 — 19 57 — 0 0 0 0 — — — 0 1 7 5 5 1 0 — 0 21 3,137 735 44 0 25 012_0800885852007.indd 269 269 2020/08/19 11:13:55 Sumitomo Mitsui Financial GroupSMBC GROUP ANNUAL REPORT 2020Basel III Information CR6: IRB - CR exposures by portfolio and PD range Item No. PD scale (Millions of yen, %, the number of data in thousands, years) As of March 31, 2019 a On-balance sheet gross exposures b Off-balance sheet exposures pre CCF and pre CRM c Average CCF (%) d EAD post CCF and post CRM e f g h i j Average PD (%) Number of obligors Average LGD (%) Average maturity Credit RWA amounts RWA density (%) k EL l Eligible provisions Purchased receivables (retail) (the amount equivalent to dilution risks) (AIRB approach) 1 0.00 to <0.15 2 0.15 to <0.25 3 0.25 to <0.50 4 0.50 to <0.75 5 0.75 to <2.50 6 2.50 to <10.00 7 10.00 to <100.00 8 100.00 (Default) 9 Subtotal 49 — — — — — — — 49 — — — — — — — — — Qualifying revolving retail exposures (QRRE) 1 0.00 to <0.15 2 0.15 to <0.25 3 0.25 to <0.50 4 0.50 to <0.75 5 0.75 to <2.50 6 2.50 to <10.00 7 10.00 to <100.00 8 100.00 (Default) 9 Subtotal 63,222 270,442 306,429 234,914 542,536 827,903 34,314 75,609 2,355,373 Residential mortgage exposures — — 7,487,736 978,326 1,074,533 — 32,676 98,771 9,672,044 1 0.00 to <0.15 2 0.15 to <0.25 3 0.25 to <0.50 4 0.50 to <0.75 5 0.75 to <2.50 6 2.50 to <10.00 7 10.00 to <100.00 8 100.00 (Default) 9 Subtotal 183,004 110,524 287,713 373,026 53,874 165,197 4,214 5,547 1,183,102 — — 10,596 1,780 3,202 — 1,418 70 17,068 — — — — — — — — — 6.55 6.35 10.90 57.54 16.42 6.84 9.59 100.00 33.43 — — 100.00 100.00 100.00 — 100.00 100.00 100.00 49 — — — — — — — 49 246,227 380,966 594,142 607,941 596,411 993,100 38,529 81,157 3,538,476 66,289 2,101 7,499,041 980,108 1,012,811 — 29,918 98,841 9,689,113 Other retail exposures 1 0.00 to <0.15 2 0.15 to <0.25 3 0.25 to <0.50 4 0.50 to <0.75 5 0.75 to <2.50 6 2.50 to <10.00 7 10.00 to <100.00 8 100.00 (Default) 9 Subtotal Total (all portfolios) 2 102,833 349,497 50,000 945,786 31,508 16,960 55,898 1,552,487 — — 342 1,284 502,021 147,294 5,212 967 657,123 158,276,630 30,374,265 — — 83.62 89.80 95.74 100.00 100.00 100.00 100.00 2 102,833 349,839 51,285 1,447,808 178,802 22,172 56,865 2,209,611 58.40 176,015,577 0.03 — — — — — — — 0.03 0.08 0.19 0.40 0.51 1.67 4.73 49.54 100.00 4.62 0.05 0.17 0.29 0.59 1.00 — 22.72 100.00 1.48 0.08 0.17 0.40 0.69 1.41 3.50 22.83 100.00 4.10 0.65 0.0 — — — — — — — 0.0 3,519.3 1,842.0 3,858.6 3,267.9 610.3 1,630.0 76.2 139.3 14,944.0 6.9 0.2 462.7 54.7 77.8 — 2.7 7.7 612.8 0.0 2.5 10.8 2.1 2,472.7 142.0 39.5 90.4 2,760.4 18,455.9 45.00 — — — — — — — 45.00 69.57 70.17 64.60 74.25 77.81 75.52 72.88 77.62 72.88 41.36 66.14 27.66 29.57 35.89 — 30.54 30.76 28.86 69.57 35.25 36.46 35.91 50.84 46.14 51.29 56.30 47.25 35.07 5.0 — — — — — — — 5.0 12 — — — — — — — 12 8,556 27,348 72,601 102,965 261,390 864,699 65,835 75,999 1,479,397 16,196 902 1,100,798 256,704 466,838 — 50,806 24,618 1,916,865 0 13,133 80,426 15,825 830,910 117,377 24,427 90,458 1,172,559 — 33,345,832 25.88 — — — — — — — 25.88 3.47 7.17 12.21 16.93 43.82 87.07 170.87 93.64 41.80 24.43 42.92 14.67 26.19 46.09 — 169.81 24.90 19.78 14.63 12.77 22.98 30.85 57.39 65.64 110.16 159.07 53.06 18.94 0 — — — — — — — 0 137 507 1,559 2,321 7,789 35,450 13,891 62,996 124,653 14 2 6,064 1,739 3,809 — 2,054 30,408 44,093 0 61 514 128 10,603 2,873 2,593 32,017 48,792 533,673 0 89,065 28,735 28,150 464,718 270 012_0800885852007.indd 270 2020/08/19 11:13:55 Sumitomo Mitsui Financial GroupSMBC GROUP ANNUAL REPORT 2020Basel III Information 6. Effect on Credit RWA of Credit Derivatives Used as CRM Techniques (CR7) CR7: IRB – Effect on credit RWA of credit derivatives used as CRM techniques Item No. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 Portfolio Sovereign exposures - FIRB Sovereign exposures - AIRB Bank exposures - FIRB Bank exposures - AIRB Corporate exposures (excluding SL) - FIRB Corporate exposures (excluding SL) - AIRB SL - FIRB SL- AIRB Retail - QRRE Retail - Residential mortgage exposures Retail - Other retail exposures Equity - FIRB Equity - AIRB Purchased receivables - FIRB Purchased receivables - AIRB Total (Millions of yen) As of March 31, 2020 As of March 31, 2019 a Pre-credit derivatives credit RWA — 435,987 1,889 1,907,175 21 21,249,845 531,575 2,445,379 1,396,896 1,686,415 1,178,714 — 4,157,942 3,628 672,847 35,668,320 b Actual credit RWA — 435,987 1,889 1,907,175 21 21,249,140 531,575 2,445,379 1,396,896 1,686,415 1,178,714 — 4,157,942 3,628 672,847 35,667,615 a Pre-credit derivatives credit RWA — 324,283 5,978 1,232,599 85 20,216,917 561,130 2,325,087 1,479,397 1,916,865 1,172,559 — 4,690,527 5,407 668,024 34,598,865 b Actual credit RWA — 324,283 5,978 1,232,599 85 20,216,202 561,130 2,325,087 1,479,397 1,916,865 1,172,559 — 4,690,527 5,407 668,024 34,598,150 7. RWA flow statements of credit risk exposures under IRB approach (CR8) CR8: RWA flow statements of credit risk exposures under IRB approach Item No. 1 2 3 4 5 6 7 8 9 RWA as of March 31, 2019 Breakdown of variations in the credit risk- weighted assets Asset size Asset quality Model updates Methodology and policy Acquisitions and disposals Foreign exchange movements Other RWA as of March 31, 2020 CR8: RWA flow statements of credit risk exposures under IRB approach Item No. 1 2 3 4 5 6 7 8 9 RWA as of March 31, 2018 Breakdown of variations in the credit risk- weighted assets Asset size Asset quality Model updates Methodology and policy Acquisitions and disposals Foreign exchange movements Other RWA as of March 31, 2019 (One hundred billions of yen) RWA amounts 345 15 (1) — — — (4) — 356 (One hundred billions of yen) RWA amounts 368 7 (17) — (1) (13) 2 — 345 012_0800885852007.indd 271 271 2020/08/19 11:13:56 Sumitomo Mitsui Financial GroupSMBC GROUP ANNUAL REPORT 2020Basel III Information 8. Backtesting of Probability of Default (PD) per Portfolio (CR9) CR9: IRB - Backtesting of PD per portfolio a b c External rating equivalent d e f Number of obligors Portfolio PD Range S&P Moody’s Fitch R&I JCR Weighted average PD (EAD weighted) Arithmetic average PD (by obligors) As of March 31, 2019 As of March 31, 2018 A~A- A2~A3 AAA~A+ Aaa~A1 AAA~A+ AAA~AA- AAA~AA- A+~BBB- A+~BBB- A~A- to BB+ to BB+ to BB+ BBB+~BB Baa1~Ba2 BBB+~BB to BB+ BB-~B Ba3~B2 BB-~B to BB+ to BB+ to B- to B3 to B- Corporates Qualifying re v o l v i n g retail Residential mortgage Other retail 0.00 to < 0.05 0.05 to < 0.10 0.10 to < 0.50 0.50 to < 2.50 2.50 to < 100.00 0.00 to < 0.05 0.05 to < 0.10 0.10 to < 0.50 0.50 to < 2.50 2.50 to < 100.00 0.00 to < 0.05 0.05 to < 0.10 0.10 to < 0.50 0.50 to < 2.50 2.50 to < 100.00 0.00 to < 0.05 0.05 to < 0.10 0.10 to < 0.50 0.50 to < 2.50 2.50 to < 100.00 0.03% 0.08% 0.23% 1.43% 6.82% — 1,766 4,192 13,505 26,059 14,107 — 0.00% 0.07% 0.21% 1.25% 6.25% — 0.08% 0.33% 1.03% 6.42% — — 0.29% 0.82% 1,766 4,192 13,504 26,058 14,104 — 0.08% 4,962,040 4,812,835 0.35% 5,727,438 5,626,176 0.66% 3,948,483 3,737,623 7.26% 1,659,648 1,646,644 — — — — 672,122 0.29% 662,016 171,058 0.86% 165,706 3,860 23.51% 25.40% 2,565 — — — — — — 0.35% 15,246 13,787 1.41% 2,453,050 2,454,758 183,828 8.99% 183,691 — — 0.33% 1.47% 5.73% — — (%, the number of data) g Number of defaulted obligors in the year h Of which: number of new defaulted obligors in the year i Average historical annual default rate (5 years) 2 1 20 83 1,290 — 4,034 10,704 15,313 79,921 — — 736 615 320 — — 29 12,665 9,624 0 0 1 1 3 — 1,576 2,202 1,803 2,280 — — 1 0 0 — — 4 2,324 410 0.02% 0.03% 0.09% 0.25% 6.19% — 0.07% 0.15% 0.33% 4.68% — — 0.11% 0.41% 10.08% — — 0.16% 0.51% 2.49% Notes: 1. IRB model presented in this table covers all models used within the scope of regulatory consolidation. 2. Applicable portfolios of each IRB model take into account the portfolio classification under Basel Capital Accord. “Corporates” include “Sovereign,” “Financial entities,” “Specialized lending,” “Equity (PD/LGD method)” and “Purchased receivables (corporates),” and “Residential mortgage” and “Other retail” include “Purchased receivables (retail).” Therefore, the same classifications are used in this table. 3. A maximum of ten categories of obligor rating in the internal rating system are consolidated into five categories as PD categories. 4. For the external ratings associated with, external ratings equivalent to the PD of non-Japanese companies mainly are listed in the columns of S&P, Moody’s, and Fitch, and external ratings equivalent to the PD of Japanese companies mainly are listed in the columns of R&I and JCR. 5. The number of obligors of “Qualifying revolving retail,” “Residential mortgage” and “Other retail” states the number of receivables. 6. The proportion of credit risk-weighted assets subject to the IRB approach is that “Corporates” accounts for 84.92 percent, “Qualifying revolving retail” accounts for 4.36 percent, “Residential mortgage” accounts for 5.59 percent, and “Other retail” accounts for 3.47 percent. 272 012_0800885852007.indd 272 2020/08/19 11:13:56 Sumitomo Mitsui Financial GroupSMBC GROUP ANNUAL REPORT 2020Basel III Information 9. SL (Slotting Criteria Approach) and Equity Exposures (Market-Based Approach, etc.) (CR10) (Millions of yen, except percentages) CR10: IRB - SL (slotting criteria approach) and equity exposures (market- based approach, etc.) a b c As of March 31, 2020 d e SL (slotting criteria approach) Other than high-volatility commercial real estate (HVCRE) g h f i j k l On-balance sheet amount Off-balance sheet amount RW PF Exposure amount (EAD) CF OF IPRE Credit RWA amount Expected losses Total 12,423 29,415 50% 41,023 — 29,086 30,793 70% 40,443 3,029 3,695 — 70% 3,695 51,217 5,440 90% 53,759 3,615 — 3,137 103,175 324 — — 65,973 115% 3,792 250% — 3,131 — — 145,845 HVCRE — — — — 6 3,035 — — — — — — — — Remaining maturity Less than 2.5 years Equal to or more than 2.5 years Less than 2.5 years Equal to or more than 2.5 years Regulatory categories Strong Good Satisfactory Weak Default Total Less than 2.5 years Equal to or more than 2.5 years Less than 2.5 years Equal to or more than 2.5 years Strong Good Satisfactory Weak Default Total Regulatory categories Remaining maturity On-balance sheet amount Off-balance sheet amount RW 4,348 3,237 70% 4,248 4,857 95% 169,829 31,437 120% 92,083 — — 299,142 14,357 — — 88,010 140% 250% — — Equity exposures (market-based approach, etc.) Equity exposures subject to market-based approach Categories On-balance sheet amount Off-balance sheet amount RW — 300% 11,804 52,987 64,792 400% 174% — 27,836 57,885 206,555 292,277 Simple risk weight method –listed shares Simple risk weight method –unlisted shares Internal models approach Total Equity exposures subject to 100% risk weight Equity exposures subject to 100% risk weight pursuant to the provisions of Article 166, Paragraph 1 of the Notification No. 19 issued by the Japan Financial Service Agency in 2006 — — 41,023 20,511 — — 43,472 30,431 173 — 3,695 2,586 14 — 53,759 48,383 430 — 3,792 — — 3,137 — — 148,881 4,361 — — 106,274 106 — 1,568 2,293 Exposure amount (EAD) Credit RWA amount Expected losses 5,861 4,102 6,517 6,191 23 26 187,353 224,824 749 98,791 — — 343,332 138,307 — — 415,995 2,766 — — 3,744 Exposure amount (EAD) Credit RWA amount 27,836 83,509 63,400 253,603 259,543 350,780 452,830 789,942 28,634 34,120 95% 44,809 42,569 179 — 100% — — 012_0800885852007.indd 273 273 2020/08/19 11:13:56 Sumitomo Mitsui Financial GroupSMBC GROUP ANNUAL REPORT 2020Basel III Information CR10: IRB - SL (slotting criteria approach) and equity exposures (market- based approach, etc.) a b c (Millions of yen, except percentages) As of March 31, 2019 d e SL (slotting criteria approach) Other than high-volatility commercial real estate (HVCRE) g h f i j k l On-balance sheet amount Off-balance sheet amount RW PF Exposure amount (EAD) CF OF IPRE Credit RWA amount Expected losses Total 7,686 28,595 50% 36,282 — 17,399 18,062 70% 22,398 3,437 4,899 710 70% 5,257 45,993 — 90% 45,993 2,179 24 3,317 81,500 — — — 47,368 2,179 115% — 250% — 3,317 — 115,428 HVCRE — — — 24 — 3,461 — — — — — — — — Remaining maturity Less than 2.5 years Equal to or more than 2.5 years Less than 2.5 years Equal to or more than 2.5 years Regulatory categories Strong Good Satisfactory Weak Default Total Less than 2.5 years Equal to or more than 2.5 years Less than 2.5 years Equal to or more than 2.5 years Strong Good Satisfactory Weak Default Total Regulatory categories Remaining maturity On-balance sheet amount Off-balance sheet amount RW 5,483 3,097 70% 2,820 2,900 95% 122,748 42,273 120% 153,511 — — 343,084 901 — — 85,719 140% 250% — — Equity exposures (market-based approach, etc.) Equity exposures subject to market-based approach Categories On-balance sheet amount Off-balance sheet amount RW — 300% 8,520 59,500 68,021 400% 141% — 57,835 31,926 191,666 281,428 Simple risk weight method –listed shares Simple risk weight method –unlisted shares Internal models approach Total Equity exposures subject to 100% risk weight Equity exposures subject to 100% risk weight pursuant to the provisions of Article 166, Paragraph 1 of the Notification No. 19 issued by the Japan Financial Service Agency in 2006 — — 36,282 18,141 — — 25,835 18,084 103 — 5,257 3,679 21 — 45,993 41,394 367 2,179 — 24 — — 3,317 — 118,890 2,506 61 — 83,868 61 1 1,658 2,214 Exposure amount (EAD) Credit RWA amount Expected losses 6,927 4,849 4,172 3,964 27 16 144,101 172,922 576 153,931 — — 384,971 215,504 — — 469,285 4,310 — — 5,234 Exposure amount (EAD) Credit RWA amount 31,926 95,779 61,808 247,232 251,166 344,901 356,151 699,163 58,520 36,546 95% 75,837 72,045 303 — 100% — — 274 012_0800885852007.indd 274 2020/08/19 11:13:56 Sumitomo Mitsui Financial GroupSMBC GROUP ANNUAL REPORT 2020Basel III Information 10. Credit Risk-Weighted Assets under Article 145 of the Notification Exposures under Article 145 of the Notification include investments 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 totaled to derive the credit risk-weighted asset amount of the fund. When it is difficult to calculate the credit risk-weighted asset amount of individual underlying assets, the weighted average of the risk weight of individual underlying assets is calculated, where risk weight of 250%/ 400% is applied if the result of such calculation proved to be 250%/400% or less, while 1,250% is applied otherwise. Calculation method Look-through approach Mandate-based approach Simple approach (subject to 250% risk weight) Simple approach (subject to 400% risk weight) Fall-back approach As of March 31, 2020 As of March 31, 2019 (Millions of yen) 964,706 — 16,497 93,856 4,720 1,337,269 — 8,231 79,338 3,334 012_0800885852007.indd 275 275 2020/08/19 11:13:56 Sumitomo Mitsui Financial GroupSMBC GROUP ANNUAL REPORT 2020Basel III Information ■ Standardised Approach 1. Scope The following consolidated subsidiaries have adopted the standardised approach for exposures as of March 31, 2020 (i.e. consolidated subsidiaries not listed in the “Internal Ratings-Based (IRB) Approach: 1. Scope” on page 259). (1) Consolidated Subsidiaries Planning to Adopt Phased Rollout of the AIRB Approach SMBC Consumer Finance Co., Ltd. and SMBC Nikko Securities Inc. (2) Consolidated Subsidiaries Planning to Adopt Phased Rollout of the FIRB Approach Currently, there are no subsidiaries applicable. (3) 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 standardised 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 45 of the Notification, and risk weights corresponding to country risk scores published by the Organization for Economic Co-operation and Development (OECD) are applied to claims on sovereigns and financial institutions. 3. CR Exposure and Credit Risk Mitigation (CRM) Effects (CR4) CR4: SA – CR exposure and CRM effects a b As of March 31, 2020 c d Exposures pre-CCF and pre-CRM Exposures post-CCF and post-CRM Off-balance sheet amount — On-balance sheet amount 30,832 Off-balance sheet amount — On-balance sheet amount 30,832 Item No. 1 2 3 4 5 6 7 8 9 10 11 Asset classes Cash Government of Japan and Bank of Japan (BOJ) Foreign central governments and foreign central banks Bank for International Settlements, etc. Local governments of Japan Foreign non-central government public sector entities (PSEs) Multilateral development banks (MDBs) Japan Finance Organization for Municipalities (JFM) Government- affiliated agencies of Japan The three local public corporations Banks entities and financial instruments business operators engaged in Type I Financial Instruments Business 12 Corporates 13 14 15 SMEs and retail Residential mortgage loans Real estate acquisition activities Past due loans (three months or more),etc. (excluding residential mortgage loans) Past due loans (three months or more) (residential mortgage loans) Bills in the course of collection Guaranteed by credit guarantee associations, etc. Guaranteed by Regional Economy Vitalization Corporation of Japan (REVIC), etc. Investments, etc. (excluding significant investments) Total 16 17 18 19 20 21 22 276 (Millions of yen, except percentages) e f Credit RWA amount RWA density 0 0 0.00% 0.00% 2,629 0.13% 0 0 0.00% 0.00% 1,062 20.00% 0 — 0.00% — 4,445 10.00% — — 252,457 20.56% — — — — — — — — — — 101,868 714,347 — — 1,002,704 1,580,991 47,226 — 101.58% 75.00% 35.00% — 2,753,060 2,000,186 8 1,230 5,313 1,265 — 44,459 — 1,227,664 885,549 1,393,641 134,933 — — — — — — — — — — — 233,441 971,198 — — 2,753,060 2,000,186 8 1,230 5,313 1,265 — 44,459 — 1,227,664 885,191 1,393,641 134,933 — 111,258 830 111,126 830 157,361 140.55% 59 — — — 1,209 — — — — — 59 — — — 1,209 — — — — — 59 — — — 100.00% — — — 1,209 100.00% 8,590,673 1,205,469 8,590,184 817,045 3,050,149 32.42% 012_0800885852007.indd 276 2020/08/19 11:13:56 Sumitomo Mitsui Financial GroupSMBC GROUP ANNUAL REPORT 2020Basel III Information CR4: SA – CR exposure and CRM effects As of March 31, 2019 a b c d e f (Millions of yen, except percentages) Exposures pre-CCF and pre-CRM Exposures post-CCF and post-CRM Off-balance sheet amount — On-balance sheet amount 29,321 Off-balance sheet amount — On-balance sheet amount 29,321 Item No. 1 2 3 4 5 6 7 8 9 10 11 Asset classes Cash Government of Japan and Bank of Japan (BOJ) Foreign central governments and foreign central banks Bank for International Settlements, etc. Local governments of Japan Foreign non-central government public sector entities (PSEs) Multilateral development banks (MDBs) Japan Finance Organization for Municipalities (JFM) Government- affiliated agencies of Japan The three local public corporations Banks entities and financial instruments business operators engaged in Type I Financial Instruments Business 12 Corporates 13 14 15 SMEs and retail Residential mortgage loans Real estate acquisition activities Past due loans (three months or more),etc. (excluding residential mortgage loans) Past due loans (three months or more) (residential mortgage loans) Bills in the course of collection Guaranteed by credit guarantee associations, etc. Guaranteed by Regional Economy Vitalization Corporation of Japan (REVIC), etc. Investments, etc. (excluding significant investments) Total 16 17 18 19 20 21 22 2,732,090 1,295,182 — 1,065 5,966 3,862 — 24,632 — 1,014,364 693,915 1,432,756 114,618 — — — — — — — — — — — 244,629 999,406 — — 2,732,090 1,295,182 — 1,065 5,966 3,862 — 24,632 — 1,014,364 693,306 1,432,756 114,618 — Credit RWA amount RWA density 0 0 0.00% 0.00% 11,203 0.86% — 0 — 0.00% 1,193 20.00% 0 — 0.00% — 2,463 10.00% — — 208,559 20.56% — — — — — — — — — — 100,975 749,729 — — 805,109 1,636,864 40,116 — 101.36% 75.00% 35.00% — 100,681 676 100,482 676 138,293 136.70% 40 — — — — — — — — — 40 — — — — — — — — — 40 — — — — 100.00% — — — — 7,448,496 1,244,712 7,447,687 851,382 2,843,844 34.26% 012_0800885852007.indd 277 277 2020/08/19 11:13:56 Sumitomo Mitsui Financial GroupSMBC GROUP ANNUAL REPORT 2020Basel III Information 4. CR Exposures by Asset Classes and Risk Weights (CR5) As of March 31, 2020 a b c d f CR exposure amounts (post-CCF and CRM) g h e (Millions of yen) i j k 0% 10% 20% 35% 50% 75% 100% 150% 250% 1250% Total CR5: SA – CR exposures by asset classes and risk weights Item No. Risk weight Asset classes 1 Cash 2 Government of Japan and BOJ 3 4 Foreign central governments and foreign central banks Bank for International Settlements, etc. 5 Local governments of Japan 6 Foreign non-central government PSEs 7 MDBs 8 JFM 9 11 10 Government- affiliated agencies of Japan The three local public corporations Banks and financial instruments business operators engaged in Type I Financial Instruments Business 12 Corporates 13 SMEs and retail 14 Residential mortgage loans 15 Real estate acquisition activities Past due loans (three months or more), etc. (excluding residential mortgage loans) Past due loans (three months or more) (residential mortgage loans) 17 16 18 Bills in the course of collection 19 20 21 Guaranteed by credit guarantee associations, etc. Guaranteed by REVIC of Japan, etc. Investments, etc. (excluding significant investments) 30,832 2,753,060 1,994,927 8 1,230 — 1,265 — — — — 4,834 — — — — — — — — — — — — — — — — — 44,459 — — — — — — 5,313 — — — — — — — — — — — — — — — — 5,259 — — — — — — — — 1,208,548 — 16,736 — — — — — — — — — — — — — — — — — — — — — 2,379 — 6,358 — — — 134,933 — — — — 2,107,989 — — — — — 975,867 — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — 6,719 — — — — — — — — — — — 7,706 97,530 59 — — — 1,209 — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — 30,832 — 2,753,060 — 2,000,186 — — — — — — — 8 1,230 5,313 1,265 — 44,459 — — 1,227,664 — 987,060 — 2,107,989 — 134,933 — — — 111,956 — — — — — 59 — — — 1,209 — 9,407,230 22 Total 4,786,159 44,459 1,220,220 134,933 28,715 2,107,989 987,222 97,530 278 012_0800885852007.indd 278 2020/08/19 11:13:56 Sumitomo Mitsui Financial GroupSMBC GROUP ANNUAL REPORT 2020Basel III Information CR5: SA – CR exposures by asset classes and risk weights Item No. Risk weight Asset classes 1 Cash 2 Government of Japan and BOJ 3 4 Foreign central governments and foreign central banks Bank for International Settlements, etc. 5 Local governments of Japan 6 Foreign non-central government PSEs 7 MDBs 8 JFM 9 10 11 Government- affiliated agencies of Japan The three local public corporations Banks and financial instruments business operators engaged in Type I Financial Instruments Business 12 Corporates 13 SMEs and retail 14 Residential mortgage loans 15 Real estate acquisition activities Past due loans (three months or more), etc. (excluding residential mortgage loans) Past due loans (three months or more) (residential mortgage loans) 16 17 18 Bills in the course of collection 19 20 21 Guaranteed by credit guarantee associations, etc. Guaranteed by REVIC of Japan, etc. Investments, etc. (excluding significant investments) 29,321 2,732,090 1,272,774 — 1,065 — 3,862 — — — — 8,318 — — — — — — — — — As of March 31, 2019 a b c d f CR exposure amounts (post-CCF and CRM) g h e (Millions of yen) i j k 0% 10% 20% 35% 50% 75% 100% 150% 250% 1250% Total — — — — — — — — 24,632 — — — — — — 5,966 — — — — — — — — — — — — — — — — 22,407 — — — — — — — — 999,989 — 11,626 — — — — — — — — — — — — — — — — — — — — — 2,749 — 5,587 — — — 114,618 — — — — 2,182,486 — — — — — 780,375 — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — 6,347 — 14,194 80,616 — — — — — — — — — — 40 — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — 29,321 — 2,732,090 — 1,295,182 — — — — — — — — 1,065 5,966 3,862 — 24,632 — — 1,014,364 — 794,282 — 2,182,486 — 114,618 — — — 101,159 — — — — — 40 — — — — — 8,299,070 22 Total 4,047,432 24,632 1,011,542 114,618 40,382 2,182,486 797,359 80,616 Note: As the sum of the respective risk weight of the original obligor and the original obligee are applied for the risk weight for loan participation transactions by a bank adopting the SA, the credit RWA amount calculated by summing up the exposure amount multiplied by the corresponding risk weights in the above table does not match with the credit RWA amount shown in column e of CR4 (SA-CR exposure and CRM effects). 012_0800885852007.indd 279 279 2020/08/19 11:13:56 Sumitomo Mitsui Financial GroupSMBC GROUP ANNUAL REPORT 2020Basel III Information ■ Credit Risk Mitigation (CRM) Techniques 1. Overview of Risk Characteristics, Risk Management Policy, Risk Management Procedures and Risk Management System In calculating credit risk-weighted asset amounts, We take into account credit risk mitigation (CRM) techniques. Specifically, amounts are adjusted for eligible financial or real estate collateral, guarantees, and credit derivatives. The methods and scope of these adjustments and methods of management are as follows. (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 by taking into account its fair value, appraisal value, and current condition, as well as 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 damage from earthquakes or other natural disasters, or there may be changes in the lien position due to, for example, attachment or establishment of liens by a third party. Therefore, the 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 entities, financial institutions, and C&I companies. Counterparties to credit derivative transactions are mostly domestic and overseas banks and securities companies. Credit risk-weighted 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. (2) Concentration of Credit Risk and Market Risk under Credit Risk Mitigation Techniques There is a framework in place for controlling concentration of risk in obligors with large exposures which includes large exposure limit lines, risk concentration monitoring, and reporting to the Credit Risk Committee (please refer to pages 115 to 120). Further, exposures to these obligors are monitored on a group basis, taking into account risk concentration in their parent companies in cases that exposures to the obligors are guaranteed by the parent companies for risk mitigation. In addition, 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. As credit risk mitigation techniques, eligible real estate collateral and guarantees have shown a certain effect. 2. Credit Risk Mitigation Techniques (CR3) CR3: CRM techniques Item No. a b As of March 31, 2020 c Exposures unsecured Exposures secured Exposures secured by collateral (Millions of yen) d Exposures secured by financial guarantees e Exposures secured by credit derivatives 1 2 3 4 5 Loans Securities (of which: Debt securities) Other on-balance sheet assets (of which: debt-based assets) Total (1+2+3) Of which: defaulted 53,633,492 27,639,904 12,939,469 9,007,125 24,590 20,595,740 827,011 239,656 33,890 66,211,425 296,998 4,793 257,250 140,440,658 527,485 28,763,914 147,261 13,183,919 79,156 9,298,265 9,453 — — 24,590 — 280 012_0800885852007.indd 280 2020/08/19 11:13:56 Sumitomo Mitsui Financial GroupSMBC GROUP ANNUAL REPORT 2020Basel III Information CR3: CRM techniques Item No. a b As of March 31, 2019 c Exposures unsecured Exposures secured Exposures secured by collateral (Millions of yen) d Exposures secured by financial guarantees e Exposures secured by credit derivatives 1 2 3 4 5 Loans Securities (of which: Debt securities) Other on-balance sheet assets (of which: debt-based assets) Total (1+2+3) Of which: defaulted 49,092,490 28,088,080 13,092,100 9,260,609 16,890,132 920,449 258,021 51,641 63,331,991 332,855 6,071 275,620 129,314,614 536,741 29,341,384 152,513 13,356,193 81,179 9,587,871 6,482 — 600 — 600 — 012_0800885852007.indd 281 281 2020/08/19 11:13:56 Sumitomo Mitsui Financial GroupSMBC GROUP ANNUAL REPORT 2020Basel III Information ■ Counterparty Credit Risk 1. Overview of Risk Characteristics Counterparty credit risk is actualized when counterparties become default in a condition where derivative transactions, etc. have a positive value, and risks fluctuate according to the credit quality of counterparties and related market indicators. 2. Risk Management Policy and Procedures (1) Risk Management Policy For counterparty credit risks, credit limits are set according to the frameworks of credit management in each SMBC Group company. For transactions with CCP, credit risks are managed after validating the financial base and the default management process, etc. (2) 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 deteriorates, however, the counterparty may demand additional collateral, but its impact is deemed to be insignificant. (3) 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. 3. Amount of Counter Party Credit Risk (CCR) Exposure by Approach (CCR1) CCR1: Amount of CCR exposure by approach Item No. 1 2 3 4 5 6 SA-CCR CEM Expected exposure method (IMM) Simple approach for CRM Comprehensive approach for CRM Exposure fluctuation estimation model Total CCR1: Amount of CCR exposure by approach Item No. 1 2 3 4 5 6 SA-CCR CEM Expected exposure method (IMM) Simple approach for CRM Comprehensive approach for CRM Exposure fluctuation estimation model Total As of March 31, 2020 a Replacement cost b PFE c Effective EPE (EEPE) — 2,310,569 — 2,548,104 d Alpha used for computing regulatory EAD 1.4 — — As of March 31, 2019 a Replacement cost b PFE c Effective EPE (EEPE) — 1,328,818 — 2,558,596 d Alpha used for computing regulatory EAD 1.4 — — (Millions of yen) f RWA — 1,495,568 — — 606,838 e EAD post- CRM — 4,858,674 — — 8,303,441 — — 2,102,407 (Millions of yen) e EAD post- CRM — 3,887,415 — — 4,676,937 f RWA — 1,094,827 — — 462,418 — — 1,557,246 282 012_0800885852007.indd 282 2020/08/19 11:13:56 Sumitomo Mitsui Financial GroupSMBC GROUP ANNUAL REPORT 2020Basel III Information 4. CVA Capital Charge (CCR2) CCR2: CVA risk capital charge As of March 31, 2020 As of March 31, 2019 (Millions of yen) a EAD post- CRM Total portfolios subject to the advanced CVA capital charge — (i) VaR component (including the 3×multiplier) (ii) Stressed VaR component (including the 3×multiplier) Total portfolios subject to the standardised CVA capital charge Total subject to the CVA capital charge 4,375,111 4,375,111 b RWA (Amount calculated by dividing CVA capital charge by 8%) — — — 3,067,315 3,067,315 a EAD post- CRM — 3,455,139 3,455,139 b RWA (Amount calculated by dividing CVA capital charge by 8%) — — — 2,376,345 2,376,345 Item No. 1 2 3 4 5 5. CCR Exposures by Regulatory Portfolio and Risk Weights (CCR3) CCR3: CCR exposures by regulatory portfolio and risk weights Item No. Risk weight 1 2 3 Regulatory porfolio Government of Japan and BOJ Foreign central governments and foreign central banks Bank for International Settlements, etc. Local governments of Japan Foreign non-central government PSEs 6 MDBs 7 5 4 JFM Government- affiliated agencies of Japan The three local public corporations Banks and financial instruments business operators engaged in Type I Financial Instruments Business 8 9 10 11 Corporates 12 SMEs and retail 13 Other than the above 14 Total As of March 31, 2020 a b c d e Credit equivalent amounts (post-CRM) f (Millions of yen) g h i 0% 10% 20% 50% 75% 100% 150% Others Total 47,709 — — 3,087 — — — — — — — — — 50,797 — — — — — — — — — — — — — — — — — — — 476,777 — — — — — — — 476,777 — — — — — — — — — 517 — — — 517 — — — — — — — — — — — — — — — — — — — — — 567,305 — 42,630 609,936 58,587 — 58,587 — 0 — — — — — — — — — — — 0 — — — — — — — — — 47,709 0 — 3,087 — — — — — — 477,295 — 567,305 58,587 — 42,630 — — 1,196,616 012_0800885852007.indd 283 283 2020/08/19 11:13:56 Sumitomo Mitsui Financial GroupSMBC GROUP ANNUAL REPORT 2020Basel III Information CCR3: CCR exposures by regulatory portfolio and risk weights Item No. Risk weight 1 3 2 Regulatory porfolio Government of Japan and BOJ Foreign central governments and foreign central banks Bank for International Settlements, etc. Local governments of Japan Foreign non-central government PSEs 6 MDBs 7 4 5 JFM Government- affiliated agencies of Japan The three local public corporations Banks and financial instruments business operators engaged in Type I Financial Instruments Business 8 9 10 As of March 31, 2019 a b c d e Credit equivalent amounts (post-CRM) f (Millions of yen) g h i 0% 10% 20% 50% 75% 100% 150% Others Total 81,773 — — 62 — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — 604,407 1,093 — — — — — — — — — — — — — — — — — — — — — 10 — — — — — — — — — — — 10 — — — — — — — — — 81,773 10 — 62 — — — — — — 605,501 — 366,869 66,984 — — 38,851 — 1,160,053 11 Corporates SMEs and retail 12 13 Other than the above 14 Total — — — 81,836 — — — — — — — 604,407 — — — 1,093 — 366,869 — 38,851 405,721 66,984 — 66,984 284 012_0800885852007.indd 284 2020/08/19 11:13:56 Sumitomo Mitsui Financial GroupSMBC GROUP ANNUAL REPORT 2020Basel III Information 6. IRB Approach – CCR Exposures by Portfolio and PD Scale (CCR4) (Millions of yen, %, the number of data in thousands, years) CCR4: IRB - CCR exposures by portfolio and PD scale As of March 31, 2020 Item No. PD scale Sovereign exposures (AIRB approach) 1 2 3 4 5 6 7 8 9 0.00 to <0.15 0.15 to <0.25 0.25 to <0.50 0.50 to <0.75 0.75 to <2.50 2.50 to <10.00 10.00 to <100.00 100.00 (Default) Subtotal Sovereign exposures (FIRB approach) 1 2 3 4 5 6 7 8 9 0.00 to <0.15 0.15 to <0.25 0.25 to <0.50 0.50 to <0.75 0.75 to <2.50 2.50 to <10.00 10.00 to <100.00 100.00 (Default) Subtotal Bank exposures (AIRB approach) 1 2 3 4 5 6 7 8 9 0.00 to <0.15 0.15 to <0.25 0.25 to <0.50 0.50 to <0.75 0.75 to <2.50 2.50 to <10.00 10.00 to <100.00 100.00 (Default) Subtotal Bank exposures (FIRB approach) 1 2 3 4 5 6 7 8 9 0.00 to <0.15 0.15 to <0.25 0.25 to <0.50 0.50 to <0.75 0.75 to <2.50 2.50 to <10.00 10.00 to <100.00 100.00 (Default) Subtotal a b c EAD post- CRM Average PD (%) Number of obligors d Average LGD (%) e f g Average maturity Credit RWA RWA density (%) 3,766,191 83,118 10 — 2,621 106 — — 3,852,047 — — — — — — — — — 4,198,535 1,140,827 548 27 43,182 192,366 — — 5,575,486 — — — — — — — — — 0.00 0.17 0.26 — 2.13 3.96 — — 0.00 — — — — — — — — — 0.03 0.17 0.27 0.52 0.91 3.96 — — 0.20 — — — — — — — — — 0.8 0.0 0.0 — 0.0 0.0 — — 0.9 — — — — — — — — — 16.4 5.2 0.0 0.0 0.1 0.0 — — 21.9 — — — — — — — — — 2.26 34.46 35.00 — 34.56 34.93 — — 2.97 — — — — — — — — — 17.95 15.96 31.45 35.00 6.92 0.18 — — 16.84 — — — — — — — — — 0.2 0.0 1.0 — 1.4 1.0 — — 0.2 — — — — — — — — — 1.2 1.1 1.0 1.0 0.1 0.0 — — 1.1 — — — — — — — — — 4,622 15,177 2 — 2,050 100 — — 21,952 — — — — — — — — — 291,980 199,153 139 14 5,816 1,176 — — 498,281 — — — — — — — — — 0.12 18.26 28.13 — 78.21 93.90 — — 0.56 — — — — — — — — — 6.95 17.45 25.42 54.14 13.47 0.61 — — 8.93 — — — — — — — — — 012_0800885852007.indd 285 285 2020/08/19 11:13:56 Sumitomo Mitsui Financial GroupSMBC GROUP ANNUAL REPORT 2020Basel III Information CCR4: IRB - CCR exposures by portfolio and PD scale As of March 31, 2020 (Millions of yen, %, the number of data in thousands, years) a b c EAD post- CRM Average PD (%) Number of obligors d Average LGD (%) e f g Average maturity Credit RWA RWA density (%) Item No. PD scale Corporate exposures (AIRB approach) 1 2 3 4 5 6 7 8 9 0.00 to <0.15 0.15 to <0.25 0.25 to <0.50 0.50 to <0.75 0.75 to <2.50 2.50 to <10.00 10.00 to <100.00 100.00 (Default) Subtotal Corporate exposures (FIRB approach) 1 2 3 4 5 6 7 8 9 0.00 to <0.15 0.15 to <0.25 0.25 to <0.50 0.50 to <0.75 0.75 to <2.50 2.50 to <10.00 10.00 to <100.00 100.00 (Default) Subtotal 894,668 624,623 107,002 27,357 67,808 3,036 879 1,670 1,727,046 — — — — — — — — — Mid-sized corporations and SMEs exposures (AIRB approach) 1 2 3 4 5 6 7 8 9 0.00 to <0.15 0.15 to <0.25 0.25 to <0.50 0.50 to <0.75 0.75 to <2.50 2.50 to <10.00 10.00 to <100.00 100.00 (Default) Subtotal 7,003 10,873 7,257 6,391 10,469 336 5 314 42,651 Mid-sized corporations and SMEs exposures (FIRB approach) 1 2 3 4 5 6 7 8 9 0.00 to <0.15 0.15 to <0.25 0.25 to <0.50 0.50 to <0.75 0.75 to <2.50 2.50 to <10.00 10.00 to <100.00 100.00 (Default) Subtotal — — — — — — — — — 0.05 0.17 0.26 0.51 1.49 7.47 23.45 100.00 0.29 — — — — — — — — — 0.08 0.17 0.26 0.51 1.35 9.88 27.27 100.00 1.32 — — — — — — — — — 47.9 27.4 8.1 4.3 4.4 0.6 0.0 0.0 93.1 — — — — — — — — — 3.8 7.0 2.9 3.0 6.3 0.2 0.0 0.1 23.6 — — — — — — — — — 29.74 31.09 35.19 34.39 33.15 34.35 34.78 36.99 30.79 — — — — — — — — — 33.25 33.56 35.00 34.26 34.92 35.00 35.00 46.58 34.30 — — — — — — — — — 2.4 3.2 2.6 2.7 3.0 2.3 1.2 2.9 2.8 — — — — — — — — — 2.9 3.5 3.6 3.8 3.9 3.1 1.0 4.5 3.6 — — — — — — — — — 140,730 218,903 49,169 15,810 57,217 3,951 1,540 716 488,040 — — — — — — — — — 1,474 3,484 3,054 3,880 7,976 423 8 42 20,345 — — — — — — — — — 15.72 35.04 45.95 57.79 84.38 130.13 175.22 42.92 28.25 — — — — — — — — — 21.04 32.04 42.08 60.71 76.19 125.85 161.01 13.63 47.70 — — — — — — — — — 286 012_0800885852007.indd 286 2020/08/19 11:13:56 Sumitomo Mitsui Financial GroupSMBC GROUP ANNUAL REPORT 2020Basel III Information CCR4: IRB - CCR exposures by portfolio and PD scale As of March 31, 2020 (Millions of yen, %, the number of data in thousands, years) PD scale Item No. SL 1 2 3 4 5 6 7 8 9 0.00 to <0.15 0.15 to <0.25 0.25 to <0.50 0.50 to <0.75 0.75 to <2.50 2.50 to <10.00 10.00 to <100.00 100.00 (Default) Subtotal Equity exposures 1 2 3 4 5 6 7 8 9 0.00 to <0.15 0.15 to <0.25 0.25 to <0.50 0.50 to <0.75 0.75 to <2.50 2.50 to <10.00 10.00 to <100.00 100.00 (Default) Subtotal Other retail exposures 0.00 to <0.15 0.15 to <0.25 0.25 to <0.50 0.50 to <0.75 0.75 to <2.50 2.50 to <10.00 10.00 to <100.00 100.00 (Default) Subtotal Total (sum of portfolios) 1 2 3 4 5 6 7 8 9 a b c EAD post- CRM Average PD (%) Number of counterparties d Average LGD (%) e f g Average maturity Credit RWA RWA density (%) 122,515 350,757 108,267 51,454 123,915 6,796 1,825 2,734 768,266 0.05 0.18 0.26 0.51 1.16 3.96 13.44 100.00 0.77 — — — — — — — — — — — — — — — — — — 11,965,498 — — — — — — — — — — — — — — — — — — 0.19 0.2 0.4 0.6 0.9 0.2 0.0 0.0 0.0 2.5 — — — — — — — — — — — — — — — — — — 142.2 17.82 25.82 23.94 20.38 28.34 39.33 37.70 69.53 24.62 — — — — — — — — — — — — — — — — — — 14.95 4.7 4.8 4.8 4.5 4.8 4.8 4.7 4.7 4.8 — — — — — — — — — 1.3 19,606 127,049 43,497 22,066 96,927 10,021 3,664 1,462 324,295 — — — — — — — — — — — — — — — — — — 1,352,915 16.00 36.22 40.17 42.88 78.22 147.43 200.75 53.50 42.21 — — — — — — — — — — — — — — — — — — 11.30 012_0800885852007.indd 287 287 2020/08/19 11:13:56 Sumitomo Mitsui Financial GroupSMBC GROUP ANNUAL REPORT 2020Basel III Information CCR4: IRB - CCR exposures by portfolio and PD scale As of March 31, 2019 (Millions of yen, %, the number of data in thousands, years) Item No. PD scale Sovereign exposures (AIRB approach) 1 2 3 4 5 6 7 8 9 0.00 to <0.15 0.15 to <0.25 0.25 to <0.50 0.50 to <0.75 0.75 to <2.50 2.50 to <10.00 10.00 to <100.00 100.00 (Default) Subtotal Sovereign exposures (FIRB approach) 1 2 3 4 5 6 7 8 9 0.00 to <0.15 0.15 to <0.25 0.25 to <0.50 0.50 to <0.75 0.75 to <2.50 2.50 to <10.00 10.00 to <100.00 100.00 (Default) Subtotal Bank exposures (AIRB approach) 1 2 3 4 5 6 7 8 9 0.00 to <0.15 0.15 to <0.25 0.25 to <0.50 0.50 to <0.75 0.75 to <2.50 2.50 to <10.00 10.00 to <100.00 100.00 (Default) Subtotal Bank exposures (FIRB approach) 1 2 3 4 5 6 7 8 9 0.00 to <0.15 0.15 to <0.25 0.25 to <0.50 0.50 to <0.75 0.75 to <2.50 2.50 to <10.00 10.00 to <100.00 100.00 (Default) Subtotal a b c EAD post- CRM Average PD (%) Number of obligors d Average LGD (%) e f g Average maturity Credit RWA RWA density (%) 87,145 19,471 — — 364 2,159 — — 109,141 — — — — — — — — — 4,105,450 914,345 498 — 51,747 169,601 — — 5,241,643 — — — — — — — — — 0.01 0.16 — — 0.86 2.56 — — 0.09 — — — — — — — — — 0.03 0.16 0.29 — 0.85 3.96 — — 0.19 — — — — — — — — — 0.8 0.0 — — 0.0 0.0 — — 0.8 — — — — — — — — — 15.2 4.6 0.0 — 0.0 0.1 — — 20.2 — — — — — — — — — 27.06 23.14 — — 35.00 1.01 — — 25.87 — — — — — — — — — 16.34 17.65 31.92 — 3.97 0.56 — — 15.94 — — — — — — — — — 2.9 0.0 — — 3.5 1.0 — — 2.4 — — — — — — — — — 1.0 0.9 1.6 — 0.0 0.0 — — 0.9 — — — — — — — — — 6,370 1,911 — — 285 62 — — 8,629 — — — — — — — — — 237,771 150,782 184 — 3,402 3,009 — — 395,151 — — — — — — — — — 7.31 9.81 — — 78.35 2.87 — — 7.90 — — — — — — — — — 5.79 16.49 36.91 — 6.57 1.77 — — 7.53 — — — — — — — — — 288 012_0800885852007.indd 288 2020/08/19 11:13:56 Sumitomo Mitsui Financial GroupSMBC GROUP ANNUAL REPORT 2020Basel III Information CCR4: IRB - CCR exposures by portfolio and PD scale As of March 31, 2019 (Millions of yen, %, the number of data in thousands, years) a b c EAD post- CRM Average PD (%) Number of obligors d Average LGD (%) e f g Average maturity Credit RWA RWA density (%) Item No. PD scale Corporate exposures (AIRB approach) 1 2 3 4 5 6 7 8 9 0.00 to <0.15 0.15 to <0.25 0.25 to <0.50 0.50 to <0.75 0.75 to <2.50 2.50 to <10.00 10.00 to <100.00 100.00 (Default) Subtotal Corporate exposures (FIRB approach) 1 2 3 4 5 6 7 8 9 0.00 to <0.15 0.15 to <0.25 0.25 to <0.50 0.50 to <0.75 0.75 to <2.50 2.50 to <10.00 10.00 to <100.00 100.00 (Default) Subtotal 957,186 427,536 96,278 12,922 34,043 13,397 4,401 173 1,545,940 — — — — — — — — — Mid-sized corporations and SMEs exposures (AIRB approach) 1 2 3 4 5 6 7 8 9 0.00 to <0.15 0.15 to <0.25 0.25 to <0.50 0.50 to <0.75 0.75 to <2.50 2.50 to <10.00 10.00 to <100.00 100.00 (Default) Subtotal 8,073 13,019 7,548 7,631 9,493 1,859 354 366 48,347 Mid-sized corporations and SMEs exposures (FIRB approach) 1 2 3 4 5 6 7 8 9 0.00 to <0.15 0.15 to <0.25 0.25 to <0.50 0.50 to <0.75 0.75 to <2.50 2.50 to <10.00 10.00 to <100.00 100.00 (Default) Subtotal — — — — — — — — — 0.05 0.16 0.30 0.53 1.53 2.72 14.56 100.00 0.21 — — — — — — — — — 0.08 0.17 0.27 0.53 1.37 2.56 13.77 100.00 1.41 — — — — — — — — — 46.6 22.8 7.9 3.5 4.2 0.6 0.4 0.0 86.4 — — — — — — — — — 3.2 6.0 2.9 2.4 4.9 0.5 0.1 0.0 20.5 — — — — — — — — — 29.65 30.47 34.45 34.99 32.19 34.21 32.31 41.51 30.32 — — — — — — — — — 33.45 35.00 34.00 34.42 34.84 35.00 35.00 46.91 34.55 — — — — — — — — — 2.3 3.4 2.4 3.0 3.2 2.6 2.1 4.0 2.7 — — — — — — — — — 2.8 3.1 3.3 3.4 3.5 4.3 4.3 4.5 3.3 — — — — — — — — — 142,052 150,001 43,218 7,949 28,198 14,987 6,321 23 392,753 — — — — — — — — — 1,672 4,261 3,015 4,313 7,143 1,692 507 50 22,656 — — — — — — — — — 14.84 35.08 44.88 61.51 82.83 111.86 143.61 13.75 25.40 — — — — — — — — — 20.71 32.73 39.94 56.52 75.24 91.01 143.15 13.75 46.86 — — — — — — — — — 012_0800885852007.indd 289 289 2020/08/19 11:13:56 Sumitomo Mitsui Financial GroupSMBC GROUP ANNUAL REPORT 2020Basel III Information CCR4: IRB - CCR exposures by portfolio and PD scale As of March 31, 2019 (Millions of yen, %, the number of data in thousands, years) PD scale Item No. SL 1 2 3 4 5 6 7 8 9 0.00 to <0.15 0.15 to <0.25 0.25 to <0.50 0.50 to <0.75 0.75 to <2.50 2.50 to <10.00 10.00 to <100.00 100.00 (Default) Subtotal Equity exposures 1 2 3 4 5 6 7 8 9 0.00 to <0.15 0.15 to <0.25 0.25 to <0.50 0.50 to <0.75 0.75 to <2.50 2.50 to <10.00 10.00 to <100.00 100.00 (Default) Subtotal Other retail exposures 0.00 to <0.15 0.15 to <0.25 0.25 to <0.50 0.50 to <0.75 0.75 to <2.50 2.50 to <10.00 10.00 to <100.00 100.00 (Default) Subtotal Total (sum of portfolios) 1 2 3 4 5 6 7 8 9 a b c EAD post- CRM Average PD (%) Number of counterparties d Average LGD (%) e f g Average maturity Credit RWA RWA density (%) 96,708 215,673 89,110 339 49,437 3,713 1,392 2,852 459,226 0.04 0.16 0.36 0.53 1.18 3.98 14.27 100.00 0.98 — — — — — — — — — — — — — — — — — — 7,404,300 — — — — — — — — — — — — — — — — — — 0.25 0.2 0.4 0.6 0.0 0.1 0.0 0.0 0.0 1.5 — — — — — — — — — — — — — — — — — — 129.6 18.68 22.33 22.00 30.00 25.26 46.18 42.94 65.94 22.35 — — — — — — — — — — — — — — — — — — 19.61 4.8 4.8 4.8 4.4 4.6 4.9 4.9 4.8 4.8 — — — — — — — — — 1.6 13,306 64,682 37,065 212 34,188 6,440 3,240 1,515 160,652 — — — — — — — — — — — — — — — — — — 979,843 13.75 29.99 41.59 62.68 69.15 173.43 232.79 53.13 34.98 — — — — — — — — — — — — — — — — — — 13.23 290 012_0800885852007.indd 290 2020/08/19 11:13:57 Sumitomo Mitsui Financial GroupSMBC GROUP ANNUAL REPORT 2020Basel III Information 7. Composition of Collateral for CCR Exposure (CCR5) CCR5: Composition of collateral for CCR exposure As of March 31, 2020 a b c d e f (Millions of yen) Item No. 1 2 3 4 5 6 7 8 9 Cash (domestic currency) Cash (other currencies) Domestic sovereign debt Other sovereign debt Government agency debt Corporate bonds Equity securities Other collateral Total Collateral used in derivative transactions Fair value of collateral received Fair value of posted collateral Segregated Unsegregated Segregated Unsegregated 27,859 666 860 7,461 9 5,216 11,446 — 53,519 94,109 345,002 6,350 — — — — — 445,462 — — — — — — — — — 307,476 493,507 4,485 — — — — — 805,469 Collateral used in securities financing transactions (SFTs) Fair value of Fair value of posted collateral collateral received 11,145,743 2,612,553 6,787,322 3,787,074 — 112,253 931,679 — 25,376,627 6,184,166 4,009,606 8,495,144 2,726,571 1,129,593 80,559 1,799,917 16,921 24,442,481 (Millions of yen) CCR5: Composition of collateral for CCR exposure As of March 31, 2019 a b c d e f Item No. 1 2 3 4 5 6 7 8 9 Cash (domestic currency) Cash (other currencies) Domestic sovereign debt Other sovereign debt Government agency debt Corporate bonds Equity securities Other collateral Total Collateral used in derivative transactions Fair value of collateral received Fair value of posted collateral Segregated Unsegregated Segregated Unsegregated 16,008 110 154 3,399 5 2,496 3,376 5,349 30,900 53,826 174,936 239 — — — — — 229,001 — — — — — — — — — 216,069 252,900 39,088 — — — — — 508,057 Collateral used in securities financing transactions (SFTs) Fair value of Fair value of posted collateral collateral received 6,219,697 3,641,626 5,901,864 2,037,550 1,183,595 63,059 1,386,785 55,026 20,489,205 8,270,506 2,056,347 7,019,774 3,681,176 — 25,982 356,931 — 21,410,718 8. Credit Derivative Transaction Exposures (CCR6) CCR6: Credit derivative transaction exposures Item No. Notionals 1 2 3 4 5 6 Single-name credit default swaps Index credit default swaps Total return swaps Credit options Other credit derivatives Total notionals Fair values 7 8 Positive fair value (asset) Negative fair value (liability) (Millions of yen) As of March 31, 2020 As of March 31, 2019 a Protection bought b Protection sold a Protection bought b Protection sold 475,205 396,299 — 62,565 — 934,070 16,305 139,824 525,596 320,438 — 54,405 — 900,439 13,898 44,430 375,808 147,640 — — — 523,448 1,137 8,013 472,253 119,000 — — — 591,253 9,593 4,008 012_0800885852007.indd 291 291 2020/08/19 11:13:57 Sumitomo Mitsui Financial GroupSMBC GROUP ANNUAL REPORT 2020Basel III Information 9. RWA flow statements of CCR exposures under the Expected exposure method (IMM) (CCR7) Not applicable. 10. Exposures to Central Counterparties (CCR8) CCR8: Exposures to central counterparties (CCP) Item No. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Exposures to qualifying central counterparties (QCCPs) (total) Exposures for trades at QCCPs (excluding initial margin and default fund contributions); of which (i) OTC derivatives (ii) Exchange-traded derivatives (iii) SFTs (iv) Netting sets where cross-product netting has been approved Segregated initial margin Non-segregated initial margin Pre-funded default fund contributions Unfunded default fund contributions Exposures to non-QCCPs (total) Exposures for trades at non-QCCPs (excluding initial margin and default fund contributions); of which (i) OTC derivatives (ii) Exchange-traded derivatives (iii) SFTs (iv) Netting sets where cross-product netting has been approved Segregated initial margin Non-segregated initial margin Pre-funded default fund contributions Unfunded default fund contributions (Millions of yen) As of March 31, 2020 As of March 31, 2019 a EAD to CCP (post-CRM) b RWA a EAD to CCP (post-CRM) b RWA 203,061 167,548 6,775,421 135,509 3,320,224 6,166,396 536,455 72,569 — — 303,373 174,687 — 9,527 7,295 2,232 — — — 5,468 — — 123,328 10,729 1,451 — 6,068 61,482 — 10,183 9,089 7,295 1,794 — — 1,093 — — 2,826,512 469,547 24,163 — — 172,119 164,959 — 14,781 3,617 11,163 — — — 2,771 — — 66,407 56,532 9,391 483 — 3,444 97,696 — 10,365 9,810 3,617 6,192 — — 554 — — 292 012_0800885852007.indd 292 2020/08/19 11:13:57 Sumitomo Mitsui Financial GroupSMBC GROUP ANNUAL REPORT 2020Basel III Information ■ Securitisation Transactions 1. Overview of Risk Characteristics Securitisation exposures have, in addition to credit risk and market risk, the following intrinsic risks, which are properly managed based on the nature of each risk. (1) Dilution Risk Means the risk of a decrease in purchased receivables due to cancellation or termination of the original contract for the purchased receiv- ables, or netting of debts between the original obligor and the original obligee. (2) Servicer Risk A. Commingling Risk Means the risk of uncollectible funds, which should be collected from the underlying assets, due to the bankruptcy of the servicer before the delivery of the funds collected from the obligor of the receivables. B. Performance Risk Means the risk of difficulty in maintenance and collection due to the servicer’s failure to properly and accurately perform its clerical duties and procedures. (3) Liquidity Risk Means the risk that cash flows related to the underlying assets may be insufficient for paying the principal and interest of the securitisa- tion exposure due to a timing mismatch between the securitisation conduit’s receipt of the cash flows related to the underlying assets and payment of the securitisation exposure of the principal and interest, etc. (4) Fraud Risk Means the risk of a decrease in or complete loss of the receivables subject to collection due to a fraud, prejudicial or other malicious act by a customer or a third-party obligor. 2. Overview of Risk Management Policy and Procedures Definition of securitisation 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 securitisation exposures to measuring, evaluating and reporting risks. Securitisation transactions are subject to the following policies. • Undertake those which allow separate assessment of underlying short-term assets by making credit decisions on individual underlying assets. • Undertake those which cover short-term receivables, etc., by creating a framework mainly to estimate the default rate of the underlying assets based on the historical loan-loss ratio and ensure that they have sufficient subordination. • Undertake others such as those requiring special management by implementing additional management, such as an analysis of the market environment. Particularly, with respect to securitisation transactions backed by retail loans whose creditworthiness is relatively inferior, such as subprime loans in the U.S., the Group deals only with transactions that are sufficiently structured by taking into account not only the above policies, but others such as the underlying asset selection criteria of the originator and the average life. The Group shall basically not conduct resecuritisation transactions. Its policy is to conduct securitisation transactions by verifying effectiveness in mitigating credit risk through the use of the asset transfer type or synthetic type securitisation transactions covering domestic and foreign exposures and using them as underlying exposures if securitisation transactions are used as an approach for credit risk mitigation. The Group takes one of the following positions for securitisation 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 • Others (for example, provider of swap for preventing a mismatch between the dividend on trust beneficiary rights and cash flows generated by underlying assets on which the rights are issued) 012_0800885852007.indd 293 293 2020/08/19 11:13:57 Sumitomo Mitsui Financial GroupSMBC GROUP ANNUAL REPORT 2020Basel III Information3. Name of Securitisation Conduit and Whether or Not It Possesses Securitisation Exposure Related to Securitisation Transactions, as well as Names of Subsidiaries and Affiliated Companies of us Which Hold Securitisation Exposures Related to Securitisation Transactions Conducted by us and we Engage in the Management of the Company or Provides Advice In order to undertake securitisation transactions related to third-party assets, the Group mainly uses a special purpose company (SPC) as a securitisation conduit. • Manhattan Asset Funding Company LLC • Chelsea Capital Corporation • Forest Corporation • Spur Funding Corporation • Deccan Funding GK • Taeguk Funding Designated Activity Company Excluding consolidated subsidiaries, subsidiaries or affiliated companies holding securitisation exposures related to the security transactions conducted by the Holding Company Group are as follows: • THE MINATO BANK, LTD. • The Japan Net Bank, Limited 4. Name of Securitisation Conduit that Provides Non-Contractual Credit Enhancement, etc. and Impacts on Capital by Such Non- Contractual Credit Enhancement, etc. for Each Securitisation Conduit Not applicable. 5. Accounting Policy on Securitisation Transactions The recognition of the generation and extinguishment of financial assets and financial liabilities associated with securitisation transactions and the valuation and accounting treatment thereof are mainly governed by the “Accounting Standard for Financial Instruments” (ASBJ Statement No. 10). 6. Names of Qualifying External Ratings Agencies In order to calculate the amount of credit risk weighted asset for securitisation exposure with the external ratings-based approach or the stan- dardised approach, or to calculate the amount of market risk associated with specific risk, 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 Invest- ment Information, Inc. (R&I), Japan Credit Rating Agency, Ltd. (JCR), Moody’s Investors Service, Inc. (Moody’s), S&P Global Ratings (S&P), and Fitch Ratings Ltd. (Fitch). When more than one rating is available for an exposure, the second smallest risk weight is used, in accordance with the Notification. 7. Securitisation Exposures in the Banking Book (SEC1) SEC1: Securitisation exposures in the banking book As of March 31, 2020 (Millions of yen) c b a Bank acts as originator f e d Bank acts as sponsor Traditional Synthetic Subtotal Traditional Synthetic Subtotal Traditional Synthetic Subtotal i h g Bank acts as investor 451,033 451,033 — — — 70,622 70,622 — — — — — 451,033 679,152 — 679,152 834,688 — 834,688 — — 451,033 — — 9,626 — 669,526 — — — — — — 9,626 — 669,526 — — — 136,222 298,797 399,668 — — 136,222 — 298,797 — 399,668 — — 8 8 — — — — 70,630 799,756 — 799,756 1,093,399 201,724 1,295,123 23,185 70,630 — — — 771,071 5,500 — — — 23,185 — — — — 771,071 5,500 — — — 939,675 1,209 73,746 78,767 — — 939,675 1,209 — 89,976 16,230 264,261 185,493 — — Item No. Type of underlying asset 1 2 3 4 5 6 7 8 9 10 11 Retail (total) - of which Residential mortgage Credit card Other retail exposures Re-securitisation Wholesale (total) - of which Loans to corporates Commercial mortgage Lease and receivables Other wholesale Re-securitisation 294 012_0800885852007.indd 294 2020/08/19 11:13:57 Sumitomo Mitsui Financial GroupSMBC GROUP ANNUAL REPORT 2020Basel III Information SEC1: Securitisation exposures in the banking book As of March 31, 2019 (Millions of yen) Item No. Type of underlying asset 1 2 3 4 5 6 7 8 9 10 11 Retail (total) - of which Residential mortgage Credit card Other retail exposures Re-securitisation Wholesale (total) - of which Loans to corporates Commercial mortgage Lease and receivables Other wholesale Re-securitisation c b a Bank acts as originator d f e Bank acts as sponsor Traditional Synthetic Subtotal Traditional Synthetic Subtotal Traditional Synthetic Subtotal g i h Bank acts as investor 427,251 427,251 — — — — 427,251 511,257 — 511,257 750,681 — 750,681 — — 427,251 11,997 — — — 499,260 — — — — — 11,997 — — 499,260 — — — 129,918 302,137 318,625 — — 129,918 — 302,137 — 318,625 — — 50,367 94,728 145,095 685,450 — 685,450 1,051,904 170,304 1,222,208 50,367 — — — — 94,728 — — — — 22,776 145,095 — — — 657,173 5,500 — — — 22,776 — — — — 657,173 5,500 — — — 884,242 608 73,985 93,067 — — 884,242 — 608 95,387 21,401 241,970 148,903 — — 8. Securitisation Exposures in the Trading Book (SEC2) SEC2: Securitisation exposures in the trading book As of March 31, 2020 (Millions of yen) Item No. Type of underlying asset 1 2 3 4 5 6 7 8 9 10 11 Retail (total) - of which Residential mortgage Credit card Other retail exposures Re-securitisation Wholesale (total) - of which Loans to corporates Commercial mortgage Lease and receivables Other wholesale Re-securitisation c b a Bank acts as originator d f e Bank acts as sponsor Traditional Synthetic Subtotal Traditional Synthetic Subtotal Traditional Synthetic Subtotal g i h Bank acts as investor — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — 10,452 — 10,452 — — — — — 10,452 — — — — — — — — 3,632 — — 3,632 — — — — — — — 10,452 — — — — — — — — 3,632 — — 3,632 — — (Millions of yen) SEC2: Securitisation exposures in the trading book As of March 31, 2019 Item No. Type of underlying asset 1 2 3 4 5 6 7 8 9 10 11 Retail (total) - of which Residential mortgage Credit card Other retail exposures Re-securitisation Wholesale (total) - of which Loans to corporates Commercial mortgage Lease and receivables Other wholesale Re-securitisation 012_0800885852007.indd 295 c b a Bank acts as originator d f e Bank acts as sponsor Traditional Synthetic Subtotal Traditional Synthetic Subtotal Traditional Synthetic Subtotal g i h Bank acts as investor — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — 8,717 — 740 7,977 — 250 — — 250 — — — — — — — — — — — — — 8,717 — 740 7,977 — 250 — — 250 — — 295 2020/08/19 11:13:57 Sumitomo Mitsui Financial GroupSMBC GROUP ANNUAL REPORT 2020Basel III Information 9. Securitisation Exposures in the Banking Book and Associated Regulatory Capital Requirements (Bank Acting as Originator or as Sponsor) (SEC3) (Millions of yen) As of March 31, 2020 a b c d e f g h Total Traditional securitisation (subtotal) Securitisation Retail underlying Wholesale Re- securitisation Senior Non-senior SEC3: Securitisation exposures in the banking book and associated capital regulatory requirements (bank acting as originator or sponsor) (1/2) Item No. Exposure values (by RW bands) 1 2 3 4 5 ≤20% RW >20% to 50% RW >50% to 100% RW >100% to <1250% RW 1250% RW Exposure values (by regulatory approach) 6 7 8 9 SEC-IRBA or IAA SEC-ERBA SEC-SA 1250% RW 1,147,761 1,147,761 1,147,761 446,464 446,464 216,223 216,223 189,745 189,745 368 368 446,464 216,223 189,745 377 592,259 298,427 115,753 123,745 — 1,868,291 1,868,282 1,868,282 1,030,546 99,638 — — 132,281 — — 132,281 — — 132,281 — — Credit RWA amounts (by regulatory approach) 10 11 12 13 SEC-IRBA or IAA SEC-ERBA SEC-SA 1250% RW 726,531 29,508 — — 726,425 29,508 — — 726,425 29,508 — — 401,497 19,927 — — Capital charge after cap (by regulatory approach) 14 15 16 17 SEC-IRBA or IAA SEC-ERBA SEC-SA 1250% RW 58,122 2,360 — — 58,114 2,360 — — 58,114 2,360 — — 32,119 1,594 — — 555,502 148,037 100,470 66,000 368 837,736 32,643 — — 324,928 9,580 — — 25,994 766 — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — 296 012_0800885852007.indd 296 2020/08/19 11:13:57 Sumitomo Mitsui Financial GroupSMBC GROUP ANNUAL REPORT 2020Basel III Information SEC3: Securitisation exposures in the banking book and associated regulatory capital requirements (bank acting as originator or sponsor) (2/2) Item No. (Millions of yen) As of March 31, 2020 i j k l m n o Synthetic securitisation (subtotal) Securitisation Retail underlying Wholesale Re- securitisation Senior Non-senior Exposure values (by RW bands) 1 2 3 4 5 ≤20% RW >20% to 50% RW >50% to 100% RW >100% to <1250% RW 1250% RW Exposure values (by regulatory approach) 6 7 8 9 SEC-IRBA or IAA SEC-ERBA SEC-SA 1250% RW Credit RWA amounts (by regulatory approach) 10 11 12 13 SEC-IRBA or IAA SEC-ERBA SEC-SA 1250% RW Capital requirement values (by regulatory approach) 14 15 16 17 SEC-IRBA or IAA SEC-ERBA SEC-SA 1250% RW — — — — 8 8 — — — 105 — — — 8 — — — — — — — 8 8 — — — 105 — — — 8 — — — — — — — — — — — — — — — — — — — — — — — — 8 8 — — — 105 — — — 8 — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — 012_0800885852007.indd 297 297 2020/08/19 11:13:57 Sumitomo Mitsui Financial GroupSMBC GROUP ANNUAL REPORT 2020Basel III Information SEC3: Securitisation exposures in the banking book and associated capital regulatory requirements (bank acting as originator or sponsor) (1/2) Item No. (Millions of yen) As of March 31, 2019 a b c d e f g h Total Traditional securitisation (subtotal) Securitisation Retail underlying Wholesale Re- securitisation Senior Non-senior Exposure values (by RW bands) 1 2 3 4 5 ≤20% RW >20% to 50% RW >50% to 100% RW >100% to <1250% RW 1250% RW Exposure values (by regulatory approach) 6 7 8 9 SEC-IRBA or IAA SEC-ERBA SEC-SA 1250% RW 967,718 427,887 238,108 134,950 389 873,000 427,887 238,108 134,950 379 873,000 427,887 238,108 134,950 379 1,642,136 1,547,407 1,547,407 126,919 126,919 — — — — 126,919 — — Credit RWA amounts (by regulatory approach) 10 11 12 13 SEC-IRBA or IAA SEC-ERBA SEC-SA 1250% RW 609,637 28,497 — — 591,525 28,497 — — 591,525 28,497 — — Capital charge after cap (by regulatory approach) 14 15 16 17 SEC-IRBA or IAA SEC-ERBA SEC-SA 1250% RW 48,771 2,279 — — 47,322 2,279 — — 47,322 2,279 — — 369,183 286,265 150,440 132,619 — 844,890 93,619 — — 401,816 18,723 — — 32,145 1,497 — — 503,816 141,622 87,668 2,331 379 702,517 33,300 — — 189,708 9,773 — — 15,176 781 — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — 298 012_0800885852007.indd 298 2020/08/19 11:13:57 Sumitomo Mitsui Financial GroupSMBC GROUP ANNUAL REPORT 2020Basel III Information SEC3: Securitisation exposures in the banking book and associated regulatory capital requirements (bank acting as originator or sponsor) (2/2) Item No. (Millions of yen) As of March 31, 2019 i j k l m n o Synthetic securitisation (subtotal) Securitisation Retail underlying Wholesale Re- securitisation Senior Non-senior Exposure values (by RW bands) 1 2 3 4 5 ≤20% RW >20% to 50% RW >50% to 100% RW >100% to <1250% RW 1250% RW Exposure values (by regulatory approach) 6 7 8 9 SEC-IRBA or IAA SEC-ERBA SEC-SA 1250% RW Credit RWA amounts (by regulatory approach) 10 11 12 13 SEC-IRBA or IAA SEC-ERBA SEC-SA 1250% RW 94,718 — — — 10 94,728 — — — 18,112 — — — Capital requirement values (by regulatory approach) 14 15 16 17 SEC-IRBA or IAA SEC-ERBA SEC-SA 1250% RW 1,448 — — — 94,718 — — — 10 94,728 — — — 18,112 — — — 1,448 — — — — — — — — — — — — — — — — — — — — 94,718 — — — 10 94,728 — — — 18,112 — — — 1,448 — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — 012_0800885852007.indd 299 299 2020/08/19 11:13:57 Sumitomo Mitsui Financial GroupSMBC GROUP ANNUAL REPORT 2020Basel III Information 10. Securitisation Exposures in the Banking Book Associated Capital Requirements (Bank Acting as Investor) (SEC4) SEC4: Securitisation exposures in the banking book and associated capital requirements (bank acting as investor) (1/2) Item No. Exposure values (by RW bands) 1 2 3 4 5 ≤20% RW >20% to 50% RW >50% to 100% RW >100% to <1250% RW 1250% RW Exposure values (by regulatory approach) As of March 31, 2020 (Millions of yen) a b c d e f g h Total Traditional securitisation (subtotal) Securitisation Retail underlying Wholesale Re- securitisation Senior Non-senior 1,896,821 1,798,983 1,798,983 96,193 22,376 9,324 1,209 200,079 22,376 9,324 1,209 96,193 22,376 9,324 1,209 733,671 1,065,312 — 22,376 4,500 1,209 96,193 — 4,824 — 6 7 8 9 SEC-IRBA or IAA SEC-ERBA SEC-SA 1250% RW 1,789,399 1,587,675 1,587,675 339,202 339,202 — — 1,209 1,209 339,202 — 1,209 599,916 234,771 — — Credit RWA amounts (by regulatory approach) 10 11 12 13 SEC-IRBA or IAA SEC-ERBA SEC-SA 1250% RW 293,503 89,283 — 15,123 244,769 89,283 — 15,123 244,769 89,283 — 15,123 Capital charge after cap (by regulatory approach) 14 15 16 17 SEC-IRBA or IAA SEC-ERBA SEC-SA 1250% RW 23,480 7,142 — 1,209 19,581 7,142 — 1,209 19,581 7,142 — 1,209 96,054 51,986 — — 7,684 4,158 — — 987,758 104,430 — 1,209 148,714 37,297 — 15,123 11,897 2,983 — 1,209 — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — 300 012_0800885852007.indd 300 2020/08/19 11:13:57 Sumitomo Mitsui Financial GroupSMBC GROUP ANNUAL REPORT 2020Basel III Information SEC4: Securitisation exposures in the banking book and associated capital requirements (bank acting as investor) (2/2) Item No. As of March 31, 2020 (Millions of yen) i j k l m n o Synthetic securitisation (subtotal) Securitisation Retail underlying Wholesale Re- securitisation Senior Non-senior Exposure values (by RW bands) 1 2 3 4 5 ≤20% RW >20% to 50% RW >50% to 100% RW >100% to <1250% RW 1250% RW Exposure values (by regulatory approach) 6 7 8 9 SEC-IRBA or IAA SEC-ERBA SEC-SA 1250% RW Credit RWA amounts (by regulatory approach) 97,838 103,886 — — — 201,724 — — — 10 11 12 13 SEC-IRBA or IAA SEC-ERBA SEC-SA 1250% RW Capital charge after cap (by regulatory approach) 14 15 16 17 SEC-IRBA or IAA SEC-ERBA SEC-SA 1250% RW 48,734 — — — 3,898 — — — 97,838 103,886 — — — 201,724 — — — 48,734 — — — 3,898 — — — — — — — — — — — — — — — — — — — — 97,838 103,886 — — — 201,724 — — — 48,734 — — — 3,898 — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — 012_0800885852007.indd 301 301 2020/08/19 11:13:57 Sumitomo Mitsui Financial GroupSMBC GROUP ANNUAL REPORT 2020Basel III Information SEC4: Securitisation exposures in the banking book and associated capital requirements (bank acting as investor) (1/2) Item No. Exposure values (by RW bands) 1 2 3 4 5 ≤20% RW >20% to 50% RW >50% to 100% RW >100% to <1250% RW 1250% RW Exposure values (by regulatory approach) As of March 31, 2019 (Millions of yen) a b c d e f g h Total Traditional securitisation (subtotal) Securitisation Retail underlying Wholesale Re- securitisation Senior Non-senior 1,534,395 1,470,068 1,470,068 261,957 261,957 32,713 32,713 37,237 37,237 608 608 261,957 32,713 143,215 608 468,565 1,001,503 261,957 — 28,205 4,507 21,586 15,651 608 — 6 7 8 9 SEC-IRBA or IAA SEC-ERBA SEC-SA 1250% RW 1,576,141 1,405,836 1,405,836 396,140 396,140 — — 608 608 396,140 — 608 436,086 314,595 — — Credit RWA amounts (by regulatory approach) 10 11 12 13 SEC-IRBA or IAA SEC-ERBA SEC-SA 1250% RW 360,511 130,017 — 7,605 236,940 130,017 — 7,605 236,940 130,017 — 7,605 Capital charge after cap (by regulatory approach) 14 15 16 17 SEC-IRBA or IAA SEC-ERBA SEC-SA 1250% RW 28,840 10,401 — 608 18,955 10,401 — 608 18,955 10,401 — 608 74,334 94,532 — — 5,946 7,562 — — 969,750 81,544 — 608 162,606 35,485 — 7,605 13,008 2,838 — 608 — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — 302 012_0800885852007.indd 302 2020/08/19 11:13:57 Sumitomo Mitsui Financial GroupSMBC GROUP ANNUAL REPORT 2020Basel III Information SEC4: Securitisation exposures in the banking book and associated capital requirements (bank acting as investor) (2/2) Item No. As of March 31, 2019 (Millions of yen) i j k l m n o Synthetic securitisation (subtotal) Securitisation Retail underlying Wholesale Re- securitisation Senior Non-senior Exposure values (by RW bands) 1 2 3 4 5 ≤20% RW >20% to 50% RW >50% to 100% RW >100% to <1250% RW 1250% RW Exposure values (by regulatory approach) 6 7 8 9 SEC-IRBA or IAA SEC-ERBA SEC-SA 1250% RW Credit RWA amounts (by regulatory approach) 10 11 12 13 SEC-IRBA or IAA SEC-ERBA SEC-SA 1250% RW 64,327 — — 105,977 — 170,304 — — — 123,570 — — — Capital charge after cap (by regulatory approach) 14 15 16 17 SEC-IRBA or IAA SEC-ERBA SEC-SA 1250% RW 9,885 — — — 64,327 — — 105,977 — 170,304 — — — 123,570 — — — 9,885 — — — — — — — — — — — — — — — — — — — — 64,327 — — 105,977 — 170,304 — — — 123,570 — — — 9,885 — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — 012_0800885852007.indd 303 303 2020/08/19 11:13:57 Sumitomo Mitsui Financial GroupSMBC GROUP ANNUAL REPORT 2020Basel III Information ■ Equity Exposures 1. Overview of 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 “available-for-sale securities,” the upper limits are also set in terms of price fluctuation risk and default risk. Regarding stocks of subsidiaries, assets and liabilities of subsidiaries are risk-managed on a consolidated basis. As for stocks of affiliates, risks related to gains and losses from investments are recognized separately. As in each case maximum allowable amount of risk is managed individually, risks as stocks are not measured. The limits are established within the maximum amount of overall risk capital, taking into account the financial and business situations of SMBC Group. 2. Valuation of Securities and Other Significant Accounting Policies Stocks of non-consolidated subsidiaries and affiliates not accounted for by the equity method are carried at amortized cost using the moving- average method. Available-for-sale securities with market prices (including foreign stocks) are carried at their average market prices during the final month of the fiscal year. Securities other than these securities are carried at their market prices at the end of the fiscal year under review (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 available-for-sale securities and net of income taxes are reported as a component of “net assets.” 304 012_0800885852007.indd 304 2020/08/19 11:13:57 Sumitomo Mitsui Financial GroupSMBC GROUP ANNUAL REPORT 2020Basel III Information■ Market Risk 1. Scope The following approaches are used to calculate market risk equivalent amounts. (1) Internal Models Method General market risk of SMBC, Sumitomo Mitsui Banking Corporation Europe Limited, SMBC Bank EU AG, Sumitomo Mitsui Banking Corporation (China) Limited, SMBC Capital Markets, Inc., SMBC Nikko Capital Markets Limited, SMBC Derivative Products Limited, and SMBC Capital Markets (Asia) Limited (2) Standardized Measurement Method • Specific risk • General market risk of consolidated subsidiaries other than SMBC, Sumitomo Mitsui Banking Corporation Europe Limited, SMBC Bank EU AG, Sumitomo Mitsui Banking Corporation (China) Limited, SMBC Capital Markets, Inc., SMBC Nikko Capital Markets Limited, SMBC Derivative Products Limited, and SMBC Capital Markets (Asia) Limited • A portion of general market risk of SMBC 2. Market Risk under standardised approach (MR1) MR1: Market risk under standardised approach Item No. 1 2 3 4 5 6 7 8 9 Interest rate risk (general and specific) Equity risk (general and specific) Foreign exchange risk Commodity risk Options Simplified approach Delta-plus method Scenario approach Specific risk related to securitisation exposures Total 3. RWA flow statements of market risk exposures under an IMA (MR2) MR2: RWA flow statements of market risk exposures under an IMA Item No. 1a 1b 1c 2 3 4 5 6 7 8a 8b 8c RWA as of March 31, 2019 Ratio of 1a / 1c RWA at end of March 31, 2019 Movement in risk levels Model updates/ changes Methodology and policy Acquisitions and disposals Foreign exchange movements Other RWA at end of March 31, 2020 Ratio of 8c / 8a RWA as of March 31, 2020 Breakdown of variations in the market risk- weighted assets a VaR 465 2.8 161 68 — — — (11) (13) 204 2.3 488 b Stressed VaR 1,105 3.0 361 53 — — — (30) — 384 3.1 1,195 012_0800885852007.indd 305 (Millions of yen) As of March 31, 2020 RWA (Amounts calculated by dividing risk equivalent amounts by 8%) 384,544 256,899 20,788 7 As of March 31, 2019 RWA (Amounts calculated by dividing risk equivalent amounts by 8%) 371,760 177,934 17,049 627 — 159,857 — 3,483 825,580 — 178,326 — 3,180 748,878 (Billions of yen) As of March 31, 2020 c IRC d CRM e Other f Total RWA — — — — — — — — — — — — — — — — — — — — — — — — 1,571 3.0 522 121 — — — (42) (13) 589 2.8 1,684 305 2020/08/19 11:13:57 Sumitomo Mitsui Financial GroupSMBC GROUP ANNUAL REPORT 2020Basel III Information a VaR 634 2.8 220 (60) 0 — — 5 (3) 161 2.8 465 b Stressed VaR 927 3.6 253 101 0 — — 6 — 361 3.0 1,105 MR2: RWA flow statements of market risk exposures under an IMA Item No. 1a 1b 1c 2 3 4 5 6 7 8a 8b 8c RWA as of March 31, 2018 Ratio of 1a / 1c RWA at end of March 31, 2018 Movement in risk levels Model updates/ changes Methodology and policy Acquisitions and disposals Foreign exchange movements Other RWA at end of March 31, 2019 Ratio of 8c / 8a RWA as of March 31, 2019 Breakdown of variations in the market risk- weighted assets 4. IMA values for trading portfolios (MR3) MR3: IMA values for trading portfolios Item No. (Billions of yen) As of March 31, 2019 c IRC d CRM e Other f Total RWA — — — — — — — — — — — — — — — — — — — — — — — — 1,562 3.3 473 40 0 — — 12 (3) 522 3.0 1,571 Fiscal 2019 Fiscal 2018 (Millions of yen) VaR (holding period of 10 business days, one-sided confidence level of 99%) 1 Maximum value 2 Average value 3 Minimum value Period end 4 Stressed VaR (holding period of 10 business days, one-sided confidence level of 99%) 5 Maximum value 6 Average value 7 Minimum value Period end 8 Incremental risk value (one-sided confidence level of 99.9%) 9 Maximum value Average value 10 11 Minimum value Period end 12 Comprehensive risk value (one-sided confidence level of 99.9%) 13 Maximum value 14 Average value 15 Minimum value Period end 16 Floor (modified standardized measurement method) 17 18,358 12,618 8,806 16,397 42,390 30,302 22,261 30,736 — — — — — — — — — 30,565 14,441 9,587 12,930 44,514 27,643 17,644 28,908 — — — — — — — — — Note: The VaR and the stressed VaR are calculated using the historical simulation method. Specifically, they are calculated on a daily basis, assuming a one-sided confidence level of 99.0% and a one-day holding period, based on profit and loss simulation on a scenario-specific basis generated from historical data (the full valuation method, in principle), and they are adjusted to a 10-day holding period using the square root of time method. Under this method, the VaR and the stressed VaR use observation periods of four years immediately preceding, and 12 months including the stress period, respectively. 306 012_0800885852007.indd 306 2020/08/19 11:13:57 Sumitomo Mitsui Financial GroupSMBC GROUP ANNUAL REPORT 2020Basel III Information 5. Backtesting results by the internal models approach (MR4) The status of backtesting of trading for Fiscal 2019 and 2018 is as follows. “Daily gain/loss” represents the actual gain/loss incurred, and “Daily VaR” represents the daily VaR calculated using the risk measurement model with a one-day holding period. In the past 250 business days, the number of times loss exceeded VaR was 1, and the VaR model (one-sided confidence level of 99.0%) is considered to have sufficient accuracy. Daily gain/loss Daily VaR Daily gain/loss Daily VaR ( M i l l i o n s o f Y e n ) 10,000 8,000 6,000 4,000 2,000 0 -2,000 -4,000 -6,000 -8,000 -10,000 -12,000 ( M i l l i o n s o f Y e n ) 4,000 2,000 0 -2,000 -4,000 -6,000 -8,000 -10,000 -12,000 -14,000 March 2019 March 2020 March 2018 March 2019 012_0800885852007.indd 307 307 2020/08/19 11:13:57 Sumitomo Mitsui Financial GroupSMBC GROUP ANNUAL REPORT 2020Basel III Information 　 ■ Interest Rate Risk in the Banking Book 1. Overview of Risk Management Policy and Procedures Interest rate risk in the banking book is the risk to the present value of a bank’s assets and liabilities and/or the future earnings (interest income) from the rate-sensitive instruments when interest rates change. SMBC Group recognizes interest rate risk as a significant risk and manages it in an integrated manner, together with other market risks (equity position risk, etc.) (For details, please refer to pages 120 to 121). Interest rate risk management is conducted using basis point value (BPV) as a measure of the risk, which denotes the change of present value given a basis point rise in the interest rate. Appropriate limits on BPVs are set for each significant subsidiary including SMBC according to its capital and business plan, and BPVs are monitored daily for risk management. BPVs are managed not only by changing the balance and term structures of assets and liabilities, but also by using hedging instruments such as interest rate swaps and futures. 2. Calculation Method of Interest Rate Risk Interest rate risk in the banking book is measured based on the future cash flows of the bank’s assets and liabilities. Especially, the method of recognizing the dates for maturity of demand deposits (current accounts and ordinary deposit accounts that can be withdrawn at any time) and the method of estimating the time of cancellation prior to maturity of time deposits and mortgage loans affect the risk significantly. Key assumptions for measuring interest rate risk of such instruments are as follows. Method of recognizing the maturity of demand deposits The amount of the bank’s core deposits is identified as the amount of demand deposits expected to be left with the bank after 5 years (with 50% of the lowest balance during the past 5 years as the upper limit). The maturity of the core deposits is regarded to be 5 years (2.5 years on average). The maturity of the bank’s demand deposits are recognized with 5 years as the maximum term (the average is 0.7 year). Method of estimating the time of cancellation prior to maturity of time deposits and mortgage loans Cash flows of mortgage loans tend to be different from the initial scheduled ones, as customers may exercise their prepayment options to redeem early in a bonus month or as time passes. Similarly, fixed-term deposits may be canceled prior to maturity. For such instruments, interest rate risk is managed by using statistical models to estimate cash flows for each instrument, considering the seasonality, elapsed years, interest rate levels at the effective time, etc. These models are validated and reviewed regularly. 308 012_0800885852007.indd 308 2020/08/19 11:13:57 Sumitomo Mitsui Financial GroupSMBC GROUP ANNUAL REPORT 2020Basel III Information3. Interest Rate Risk Table IRRBB1 shows changes in economic value of equity (ΔEVE) and net interest income (ΔNII) in the banking book, simulated based on a set of prescribed interest rate shock scenarios. As stipulated under the Pillar 2 of Basel Framework (Supervisory Review Process), in order to identify banks that may have taken too large interest rate risk, the Japan FSA applies “materiality test” as comparing the bank’s ΔEVE with 15% of its Tier 1 capital, under a set of prescribed interest rate shock scenarios. The measurement result of SMBC Group’s ΔEVE shows that the economic value of equity declines when interest rates rise and the maximum change amount is under the prescribed parallel shock up scenario. SMBC Groups’ ΔEVE is not larger than 15% of our Tier 1 capital. As for ΔNII, net interest income declines under the prescribed parallel shock down scenario and increased under the parallel shock up scenario. Due to the assumption of zero floor on the interest rate of customer’s deposits in JPY, which limits reduction of the funding cost when interest rate down, the change amount is larger under the parallel shock down scenario. The measurement scope, the definition of each figure and the calculation assumption are as follows. Scope The consolidated subsidiaries of SMBC • ΔEVE is calculated by simple aggregation of the decrease in economic value for all currencies. • ΔNII is calculated by simple aggregation of the change amount of interest income for each currency in which the total amount of interest rate-sensitive assets and liabilities is 5% or more of the total. Definition of Each Figure and Calculation Assumption • ΔEVE Decrease in economic value (EVE, Economic Value on Equity) against interest rate shock (excluding the credit spread). • ΔNII Decrease in 1 year interest income (NII, Net Interest Income) under each the interest rate shock. It is calculated under the constant balance sheet, which means that the balance sheet does not change through a year. In each simulation, we do not allow negative interest rate for domestic yen deposits and loans in any scenario. (Millions of yen) IRRBB1: Interest rate risk Item No. Parallel up Parallel down Steepener Flattener Short rate up Short rate down 1 2 3 4 5 6 7 Maximum 8 Tier 1 capital a b c d ⊿EVE ⊿NII As of March 31, 2020 As of March 31, 2019 As of March 31, 2020 As of March 31, 2019 982,050 0 284,902 164,009 329,587 6,598 982,050 724,747 1,172 343,900 18,257 151,087 1,143 724,747 e As of March 31, 2020 (242,555) 414,974 (252,302) 405,058 414,974 405,058 f As of March 31, 2019 10,249,936 10,727,228 Note: Interest rate shocks of deposits with central banks is considered to be the same with the standardized interest rate shocks when calculating ⊿NII. 012_0800885852007.indd 309 309 2020/08/19 11:13:57 Sumitomo Mitsui Financial GroupSMBC GROUP ANNUAL REPORT 2020Basel III Information■ Operational Risk 1. Operational Risk Equivalent Amount Calculation Methodology Sumitomo Mitsui Financial Group adopted the Advanced Measurement Approach (AMA) for exposures as of March 31, 2008. The following consolidated subsidiaries have also adopted the AMA, and the remaining consolidated subsidiaries have adopted the Basic Indicator Approach (BIA). Sumitomo Mitsui Banking Corporation, Sumitomo Mitsui Card Company, Limited, The Japan Research Institute, Limited, SMBC Finance Service Co., Ltd., SMBC Guarantee Co., Ltd., SMBC Operation Service Co., Ltd., SMBC Green Service Co., Ltd., Sumitomo Mitsui Banking Corporation Europe Limited, Sumitomo Mitsui Banking Corporation (China) Limited, SMBC Nikko Securities Inc., Cedyna Financial Corporation and SMBC Consumer Finance Co., Ltd. 2. Outline of the AMA For the “Outline of the AMA,” please refer to pages 123 to 125. 3. Usage of Insurance to Mitigate Risk Sumitomo Mitsui Financial Group had not taken measures to mitigate operational risk through insurance coverage for exposures. 310 012_0800885852007.indd 310 2020/08/19 11:13:57 Sumitomo Mitsui Financial GroupSMBC GROUP ANNUAL REPORT 2020Basel III Information■ CC2: Reconciliation of regulatory capital to balance sheet Sumitomo Mitsui Financial Group, Inc. and Subsidiaries a Consolidated balance sheet as in published financial statements As of March 31, 2020 As of March 31, 2019 b (Millions of yen) c Reference to Template CC1 Reference to appended table Items (Assets) Cash and due from banks Call loans and bills bought Receivables under resale agreements Receivables under securities borrowing transactions Monetary claims bought Trading assets Money held in trust Securities Loans and bills discounted Foreign exchanges Lease receivables and investment assets Other assets Tangible fixed assets Intangible fixed assets Net defined benefit asset Deferred tax assets Customers’ liabilities for acceptances and guarantees Reserve for possible loan losses Total assets (Liabilities) Deposits Negotiable certificates of deposit Call money and bills sold Payables under repurchase agreements Payables under securities lending transactions Commercial paper Trading liabilities Borrowed money Foreign exchanges Short-term bonds Bonds Due to trust account Other liabilities Reserve for employee bonuses Reserve for executive bonuses Net defined benefit liability Reserve for executive retirement benefits Reserve for point service program Reserve for reimbursement of deposits Reserve for losses on interest repayment Reserves under the special laws Deferred tax liabilities Deferred tax liabilities for land revaluation Acceptances and guarantees Total liabilities (Net assets) Capital stock Capital surplus Retained earnings Treasury stock Total stockholders’ equity Net unrealized gains or losses on other securities Net deferred gains or losses on hedges Land revaluation excess Foreign currency translation adjustments Accumulated remeasurements of defined benefit plans Total accumulated other comprehensive income Stock acquisition rights Non-controlling interests Total net assets Total liabilities and net assets 61,768,573 896,739 8,753,816 5,005,103 4,559,429 7,361,253 353 27,128,751 82,517,609 2,063,284 219,733 8,298,393 1,450,323 753,579 230,573 26,314 9,308,882 (479,197) 219,863,518 127,042,217 10,180,435 3,740,539 13,237,913 2,385,607 1,409,249 6,084,528 15,210,894 1,461,308 379,000 9,235,639 1,811,355 7,011,967 73,868 3,362 35,777 1,270 26,576 4,687 142,890 3,145 257,384 30,111 9,308,882 209,078,615 2,339,964 692,003 6,336,311 (13,983) 9,354,296 1,371,407 82,257 36,878 (32,839) (92,030) 1,365,673 2,064 62,869 10,784,903 219,863,518 57,411,276 2,465,744 6,429,365 4,097,473 4,594,578 5,328,778 390 24,338,005 77,979,190 1,719,402 247,835 7,307,305 1,504,703 769,231 329,434 40,245 9,564,993 (468,808) 203,659,146 122,325,038 11,165,486 1,307,778 11,462,559 1,812,820 2,291,813 4,219,293 10,656,897 1,165,141 84,500 9,227,367 1,352,773 4,873,630 70,351 3,091 31,816 1,374 23,948 7,936 147,594 2,847 378,220 30,259 9,564,993 192,207,534 2,339,443 739,047 5,992,247 (16,302) 9,054,436 1,688,852 (54,650) 36,547 50,379 (7,244) 1,713,884 4,750 678,540 11,451,611 203,659,146 7-a 3-b,7-b 7-c 7-d 3-a 4 5-a 7-e 9-a 9-b 7-f 5-b 5-c 1-a 1-b 1-c 1-d 6 (a) 2,8-a 8-b 311 2020/08/19 11:13:57 Note: The regulatory scope of consolidation is the same as the accounting scope of consolidation. 012_0800885852007.indd 311 Sumitomo Mitsui Financial GroupSMBC GROUP ANNUAL REPORT 2020Basel III Information(Appended Table) 1. Stockholders’ equity (1) Consolidated balance sheet Consolidated balance sheet items Capital stock Capital surplus Retained earnings Treasury stock Total stockholders’ equity (2) Composition of capital As of March 31, 2020 2,339,964 692,003 6,336,311 (13,983) 9,354,296 As of March 31, 2019 2,339,443 739,047 5,992,247 (16,302) 9,054,436 (Millions of yen) Remarks Ref. No. 1-a 1-b 1-c 1-d (Millions of yen) Composition of capital disclosure As of March 31, 2020 As of March 31, 2019 Remarks Basel III Template No. Directly issued qualifying common share capital plus related capital surplus and retained earnings of which: capital and capital surplus of which: retained earnings of which: treasury stock (–) of which: other than the above 9,354,296 9,054,436 3,031,968 6,336,311 13,983 — 3,078,490 5,992,247 16,302 — Stockholders’ equity attributable to common shares (before adjusting national specific regulatory adjustments (earnings to be distributed)) Directly issued qualifying Additional Tier 1 instruments plus related capital surplus of which: classified as equity under applicable accounting standards and the breakdown — — Stockholders’ equity attributable to preferred shares with a loss absorbency clause upon entering into effectively bankruptcy 1a 2 1c 31a Ref. No. 2 (Millions of yen) Remarks Remarks (Millions of yen) Basel III Template No. (Millions of yen) Remarks (Millions of yen) Remarks Software and other (Millions of yen) Remarks 1b 31b 46 Ref. No. 3-a 3-b Basel III Template No. 8 9 20 24 74 Ref. No. 4 2. Stock acquisition rights (1) Consolidated balance sheet Consolidated balance sheet items Stock acquisition rights of which: Stock acquisition rights issued by bank holding company (2) Composition of capital Composition of capital disclosure Stock acquisition rights to common shares Stock acquisition rights to Additional Tier 1 instruments Stock acquisition rights to Tier 2 instruments 3. Intangible fixed assets (1) Consolidated balance sheet Consolidated balance sheet items Intangible fixed assets Securities of which: goodwill attributable to equity-method investees Income taxes related to above (2) Composition of capital Composition of capital disclosure Goodwill (including those equivalent) Other intangibles other than goodwill and mortgage servicing rights Mortgage servicing rights Amount exceeding the 10% threshold on specified items Amount exceeding the 15% threshold on specified items Mortgage servicing rights that are below the thresholds for deduction (before risk weighting) 4. Net defined benefit asset (1) Consolidated balance sheet Consolidated balance sheet items Net defined benefit asset As of March 31, 2020 As of March 31, 2019 2,064 2,064 4,750 2,539 As of March 31, 2020 As of March 31, 2019 2,064 — — 2,539 — — As of March 31, 2020 753,579 27,128,751 49,139 As of March 31, 2019 769,231 24,338,005 61,282 167,935 173,381 As of March 31, 2020 As of March 31, 2019 237,333 397,450 — — — 247,659 409,472 — — — — — As of March 31, 2020 As of March 31, 2019 230,573 329,434 Income taxes related to above 70,372 100,520 312 012_0800885852007.indd 312 2020/08/19 11:13:58 Sumitomo Mitsui Financial GroupSMBC GROUP ANNUAL REPORT 2020Basel III Information(2) Composition of capital Composition of capital disclosure Net defined benefit asset 5. Deferred tax assets (1) Consolidated balance sheet Consolidated balance sheet items Deferred tax assets Deferred tax liabilities Deferred tax liabilities for land revaluation Tax effects on intangible fixed assets Tax effects on net defined benefit asset (2) Composition of capital As of March 31, 2020 As of March 31, 2019 160,200 228,913 As of March 31, 2020 As of March 31, 2019 26,314 257,384 30,111 167,935 70,372 40,245 378,220 30,259 173,381 100,520 (Millions of yen) (Millions of yen) Remarks Remarks Basel III Template No. 15 Ref. No. 5-a 5-b 5-c (Millions of yen) Composition of capital disclosure As of March 31, 2020 As of March 31, 2019 Remarks Basel III Template No. Deferred tax assets that rely on future profitability excluding those arising from temporary differences (net of related tax liability) 3,390 2,208 Deferred tax assets arising from temporary differences (net of related tax liability) Amount exceeding the 10% threshold on specified items Amount exceeding the 15% threshold on specified items Deferred tax assets arising from temporary differences that are below the thresholds for deduction (before risk weighting) 4,128 2,605 — — — — 4,128 2,605 6. Deferred gains or losses on derivatives under hedge accounting (1) Consolidated balance sheet Consolidated balance sheet items Net deferred gains or losses on hedges (2) Composition of capital As of March 31, 2020 As of March 31, 2019 82,257 (54,650) Composition of capital disclosure As of March 31, 2020 As of March 31, 2019 This item does not agree with the amount reported on the consolidated balance sheet due to offsetting of assets and liabilities. This item does not agree with the amount reported on the consolidated balance sheet due to offsetting of assets and liabilities. (Millions of yen) (Millions of yen) Remarks Remarks Net deferred gains or losses on hedges 84,324 (52,610) Excluding those items whose valuation differences arising from hedged items are recognized as “Accumulated other comprehensive income” 10 21 25 75 Ref. No. 6 Basel III Template No. 11 7. Items associated with investments in the capital of financial institutions (1) Consolidated balance sheet (Millions of yen) Remarks Ref. No. As of March 31, 2020 As of March 31, 2019 7,361,253 5,328,778 27,128,751 82,517,609 8,298,393 24,338,005 77,979,190 7,307,305 Including trading account securities and derivatives for trading assets Including subordinated loans Including derivatives 6,084,528 4,219,293 7,011,967 4,873,630 Including trading account securities sold and derivatives for trading liabilities Including derivatives Consolidated balance sheet items Trading assets Securities Loans and bills discounted Other assets Trading liabilities Other liabilities 012_0800885852007.indd 313 7-a 7-b 7-c 7-d 7-e 7-f 313 2020/08/19 11:13:58 Sumitomo Mitsui Financial GroupSMBC GROUP ANNUAL REPORT 2020Basel III Information(2) Composition of capital (Millions of yen) Composition of capital disclosure As of March 31, 2020 As of March 31, 2019 Remarks Basel III Template No. Investments in own capital instruments Common Equity Tier 1 capital Additional Tier 1 capital Tier 2 capital Reciprocal cross-holdings in the capital of banking, financial and insurance entities Common Equity Tier 1 capital Additional Tier 1 capital Tier 2 capital and other external TLAC liabilities Investments in the capital of banking, financial and insurance entities that are outside the scope of regulatory consolidation, net of eligible short positions, where the bank does not own more than 10% of the issued share capital (amount above the 10% threshold) Common Equity Tier 1 capital Additional Tier 1 capital Tier 2 capital and other external TLAC liabilities Non-significant investments in the capital and other TLAC liabilities of other financials that are below the thresholds for deductions (before risk weighting) Significant investments in the capital of banking, financial and insurance entities that are outside the scope of regulatory consolidation (net of eligible short positions) Amount exceeding the 10% threshold on specified items Amount exceeding the 15% threshold on specified items Additional Tier 1 capital Tier 2 capital and other external TLAC liabilities Significant investments in the common stock of other financials that are below the thresholds for deductions (before risk weighting) 3,567 3,567 — 0 — — — — 4,491 4,491 — 0 — — — — 679,784 816,189 — — — — — — 679,784 816,189 1,015,803 996,894 — — 25,525 82,643 — — 25,516 50,000 907,634 921,378 8. Non-controlling interests (1) Consolidated balance sheet Consolidated balance sheet items Stock acquisition rights Non-controlling interests (2) Composition of capital As of March 31, 2020 As of March 31, 2019 2,064 62,869 4,750 678,540 Composition of capital disclosure As of March 31, 2020 As of March 31, 2019 (Millions of yen) (Millions of yen) Remarks Remarks Amount allowed in group CET1 Qualifying Additional Tier 1 instruments plus related capital surplus issued by special purpose vehicles and other equivalent entities Amount allowed in group AT1 Qualifying Tier 2 instruments plus related capital surplus issued by special purpose vehicles and other equivalent entities Amount allowed in group T2 9. Other capital instruments (1) Consolidated balance sheet Consolidated balance sheet items Borrowed money Bonds (2) Composition of capital Composition of capital disclosure Directly issued qualifying Additional Tier 1 instruments plus related capital surplus of which: classified as liabilities under applicable accounting standards Directly issued qualifying Tier 2 instruments plus related capital surplus of which: classified as liabilities under applicable accounting standards 1,155 2,181 — — 9,400 62,752 — — 1,546 15,087 After reflecting amounts eligible for inclusion (Non-Controlling Interest after adjustments) After reflecting amounts eligible for inclusion (Non-Controlling Interest after adjustments) After reflecting amounts eligible for inclusion (Non-Controlling Interest after adjustments) After reflecting amounts eligible for inclusion (Non-Controlling Interest after adjustments) After reflecting amounts eligible for inclusion (Non-Controlling Interest after adjustments) (Millions of yen) (Millions of yen) Remarks Remarks As of March 31, 2020 15,210,894 9,235,639 As of March 31, 2019 10,656,897 9,227,367 As of March 31, 2020 As of March 31, 2019 684,797 598,974 961,464 997,723 314 16 37 52 17 38 53 18 39 54 72 19 23 40 55 73 Ref. No. 8-a 8-b Basel III Template No. 5 30-31ab-32 34-35 46 48-49 Ref. No. 9-a 9-b Basel III Template No. 32 46 012_0800885852007.indd 314 2020/08/19 11:13:58 Sumitomo Mitsui Financial GroupSMBC GROUP ANNUAL REPORT 2020Basel III Information■ Linkages between Regulatory Exposure Amounts and Carrying Values in Consolidated Financial Statements Differences between Regulatory Exposure Amounts and Carrying Values in Consolidated Financial Statements and Explanations of the Factors 1. Differences between Accounting and Regulatory Scopes of Consolidation and Mapping of Consolidated Financial Statement Categories with Regulatory Risk Categories (LI1) LI1: Differences between accounting and regulatory scopes of consolidation and mapping of consolidated financial statement categories with regulatory risk categories (Millions of yen) As of March 31, 2020 a b c Carrying values as reported in published Consolidated financial statement Carrying values under scope of regulatory consolidation CR (excluding amounts relevant to d and e) d e Carrying values of items: f g CCR Securitisation (excluding amounts relevant to f) Market risk Items not subject to capital requirements or subject to deduction from capital Assets Cash and due from banks Call loans and bills bought Receivables under resale agreements Receivables under securities borrowing transactions Monetary claims bought Trading assets Money held in trust Securities Loans and bills discounted Foreign exchanges Lease receivables and investment assets Other assets Tangible fixed assets Intangible fixed assets Net defined benefit asset Deferred tax assets Customers’ liabilities for acceptances and guarantees Reserve for possible loan losses Total assets Liabilities Deposits Negotiable certificates of deposit Call money and bills sold Payables under repurchase agreements Payables under securities lending transactions Commercial paper Trading liabilities Borrowed money Foreign exchanges Short-term bonds Bonds Due to trust account Other liabilities Reserve for employee bonuses Reserve for executive bonuses Net defined benefit liability Reserve for executive retirement benefits Reserve for point service program Reserve for reimbursement of deposits Reserve for losses on interest repayment Reserve under the special laws Deferred tax liabilities Deferred tax liabilities for land revaluation Acceptances and guarantees Total liabilities 61,768,573 896,739 — — — 8,753,816 — 5,005,103 — — — — — 2,142,709 2,416,719 61,768,573 896,739 8,753,816 5,005,103 4,559,429 7,361,253 353 27,128,751 82,517,609 2,063,284 219,733 8,298,393 1,450,323 753,579 230,573 26,314 9,308,882 (479,197) 61,768,573 896,739 8,753,816 5,005,103 4,559,429 7,361,253 353 27,128,751 82,517,609 2,063,284 219,733 8,298,393 1,450,323 753,579 230,573 26,314 9,308,882 (479,197) 353 26,527,867 81,549,423 2,063,284 219,733 3,938,793 1,450,323 167,935 70,372 9,150 9,122,875 (479,197) 219,863,518 219,863,518 189,722,949 — 4,608,371 — — 40,000 — — 3,338,159 — — — — — — 21,745,451 — — — — — — — — — — 104,292 — 7,361,253 — — — 74,665 — 526,218 82,643 — 845,543 — — — — — — — 1,019,434 2,005 — — — 585,644 — — 160,200 — — 17,164 — — — — 186,007 — — — 2,044,044 7,361,253 3,702,484 127,042,217 127,042,217 10,180,435 3,740,539 13,237,913 2,385,607 1,409,249 6,084,528 15,210,894 1,461,308 379,000 9,235,639 1,811,355 7,011,967 73,868 3,362 35,777 1,270 26,576 4,687 142,890 3,145 257,384 30,111 9,308,882 209,078,615 209,078,615 10,180,435 3,740,539 13,237,913 2,385,607 1,409,249 6,084,528 15,210,894 1,461,308 379,000 9,235,639 1,811,355 7,011,967 73,868 3,362 35,777 1,270 26,576 4,687 142,890 3,145 257,384 30,111 9,308,882 — 3,437 — — — — — 8,112,816 — 1,211,329 — — — 4,072,052 — — — — — — — — — — — 2,177,365 — — — — — — — — — — — — — — — — — — — — — — 15,573,564 3,437 — — — — — — — 6,084,528 — — — — — 8,538 — — — — — — — — — — — 8,538 — 127,038,780 — 10,180,435 — 3,740,539 — 5,125,096 — 1,174,277 — 1,409,249 94,723 — 15,210,894 — 1,461,308 — 379,000 — 9,235,639 — 1,811,355 — 4,826,063 73,868 — 3,362 — 35,777 — 1,270 — 26,576 — 4,687 — 142,890 — 3,145 — 257,384 — 30,111 — — 9,308,882 6,084,528 191,575,322 012_0800885852007.indd 315 315 2020/08/19 11:13:58 Sumitomo Mitsui Financial GroupSMBC GROUP ANNUAL REPORT 2020Basel III Information LI1: Differences between accounting and regulatory scopes of consolidation and mapping of consolidated financial statement categories with regulatory risk categories Assets Cash and due from banks Call loans and bills bought Receivables under resale agreements Receivables under securities borrowing transactions Monetary claims bought Trading assets Money held in trust Securities Loans and bills discounted Foreign exchanges Lease receivables and investment assets Other assets Tangible fixed assets Intangible fixed assets Net defined benefit asset Deferred tax assets Customers’ liabilities for acceptances and guarantees Reserve for possible loan losses Total assets Liabilities Deposits Negotiable certificates of deposit Call money and bills sold Payables under repurchase agreements Payables under securities lending transactions Commercial paper Trading liabilities Borrowed money Foreign exchanges Short-term bonds Bonds Due to trust account Other liabilities Reserve for employee bonuses Reserve for executive bonuses Net defined benefit liability Reserve for executive retirement benefits Reserve for point service program Reserve for reimbursement of deposits Reserve for losses on interest repayment Reserve under the special laws Deferred tax liabilities Deferred tax liabilities for land revaluation Acceptances and guarantees Total liabilities (Millions of yen) As of March 31, 2019 a b c Carrying values as reported in published Consolidated financial statement Carrying values under scope of regulatory consolidation CR (excluding amounts relevant to d and e) e d Carrying values of items: f g CCR Securitisation (excluding amounts relevant to f) Market risk Items not subject to capital requirements or subject to deduction from capital 57,411,276 2,465,744 — — — 6,429,365 — 4,097,473 — — — — — 1,762,647 2,831,930 57,411,276 2,465,744 6,429,365 4,097,473 4,594,578 5,328,778 390 24,338,005 77,979,190 1,719,402 247,835 7,307,305 1,504,703 769,231 329,434 40,245 9,564,993 (468,808) 57,411,276 2,465,744 6,429,365 4,097,473 4,594,578 5,328,778 390 24,338,005 77,979,190 1,719,402 247,835 7,307,305 1,504,703 769,231 329,434 40,245 9,564,993 (468,808) 390 23,726,859 77,114,769 1,719,402 247,835 3,824,944 1,504,703 173,381 100,520 15,503 9,415,628 (468,808) 203,659,146 203,659,146 180,084,082 — 2,573,258 — — — — — 2,279,073 — — — — — — 15,379,171 — — — — — — — — — — 4,883 — 5,328,778 — — — 86,798 — 524,347 50,000 — 814,420 — — — — — — — 1,201,406 1,880 — — — 595,849 — — 228,913 — — 24,742 — — — — 149,365 — — — 2,192,594 5,328,778 3,252,662 122,325,038 122,325,038 11,165,486 1,307,778 11,462,559 1,812,820 2,291,813 4,219,293 10,656,897 1,165,141 84,500 9,227,367 1,352,773 4,873,630 70,351 3,091 31,816 1,374 23,948 7,936 147,594 2,847 378,220 30,259 9,564,993 192,207,534 192,207,534 11,165,486 1,307,778 11,462,559 1,812,820 2,291,813 4,219,293 10,656,897 1,165,141 84,500 9,227,367 1,352,773 4,873,630 70,351 3,091 31,816 1,374 23,948 7,936 147,594 2,847 378,220 30,259 9,564,993 — 3,245 — — — — — 8,390,797 719,063 — — — — 2,226,979 — — — — — — — — — — — 1,572,866 — — — — — — — — — — — — — — — — — — — — — — 12,909,706 3,245 — — — — — — — 4,219,293 — — — — — 1,172 — — — — — — — — — — — 1,172 — 122,321,793 — 11,165,486 — 1,307,778 — 3,071,762 — 1,093,756 — 2,291,813 28,131 — 10,656,897 — 1,165,141 — 84,500 — 9,227,367 — 1,352,773 — 3,299,590 70,351 — 3,091 — 31,816 — 1,374 — 23,948 — 7,936 — 147,594 — 2,847 — 378,220 — — 30,259 — 9,564,993 4,219,293 177,329,228 Notes: 1. Transactions in the trading book including derivative transactions extend over multiple risk categories, since they are subject to both market risks and counterparty credit risks. 2. Account titles including monetary claims boughts are subject to securitisation products if they have a characteristic of securitisation products, otherwise they are subject to CR, therefore, they extend over multiple risk categories. 3. Foreign exchange risk and commodities risk in the banking book are not included in column f “Market risk,” since it is difficult to link them with account titles. 316 012_0800885852007.indd 316 2020/08/19 11:13:58 Sumitomo Mitsui Financial GroupSMBC GROUP ANNUAL REPORT 2020Basel III Information 2. Main Sources of Differences between Regulatory Exposure Amounts and Carrying Values in Consolidated Financial Statements (LI2) LI2: Main sources of differences between regulatory exposure amounts and carrying values in consolidated financial statements amounts Item No. 1 2 3 4 5 6 7 8 9 Asset carrying value amount under scope of regulatory consolidation Liabilities carrying value amount under scope of regulatory consolidation Total net amount under regulatory scope of consolidation Off-balance sheet amounts Differences due to consideration of provisions and write-offs Differences due to derivative transactions Differences due to SFTs Other differences Regulatory exposure amounts LI2: Main sources of differences between regulatory exposure amounts and carrying values in consolidated financial statements amounts Item No. 1 2 3 4 5 6 7 8 9 Asset carrying value amount under scope of regulatory consolidation Liabilities carrying value amount under scope of regulatory consolidation Total net amount under regulatory scope of consolidation Off-balance sheet amounts Differences due to consideration of provisions and write-offs Differences due to derivative transactions Differences due to SFTs Other differences Regulatory exposure amounts As of March 31, 2020 (Millions of yen) a Total b c d e Items subject to: CR (excluding amounts relevant to c and d) CCR Securitisation (excluding amounts relevant to e) Market risk 217,819,474 189,722,949 21,745,451 3,702,484 7,361,253 17,503,293 3,437 15,573,564 8,538 6,084,528 200,316,180 189,719,512 15,235,348 9,557,920 (Note 1) 572,470 572,470 (Note 2) 6,171,886 5,260,135 — 10,716,035 (1,455,998) 654,840 226,038,877 — 10,454,983 (Note 3) — 351,268 200,201,172 (1,445,998) (10,412) 20,430,594 3,693,945 417,293 — 19,147 — — 4,130,385 1,276,725 — — — — — 1,276,725 (Millions of yen) As of March 31, 2019 a Total b c d e Items subject to: CR (excluding amounts relevant to c and d) CCR Securitisation (excluding amounts relevant to e) Market risk 201,466,551 180,084,082 15,379,171 3,252,662 5,328,778 14,878,306 3,245 12,909,706 1,172 4,219,293 186,588,245 180,080,837 13,606,383 9,252,378 (Note 1) 555,230 555,230 (Note 2) 2,469,464 3,875,495 — 6,862,613 (638,447) 864,648 207,838,675 — 6,529,139 (Note 3) — 859,587 190,748,034 (638,447) 3,558 12,239,210 3,251,489 478,509 — 10,443 — 1,503 3,741,945 1,109,485 — — — — — 1,109,485 Notes: 1. This mainly comprises exposures due to commitment lines. 2. This mainly comprises assets subject to the IRB approach added with specific reserve and partial direct write-offs. 3. This mainly comprises the aggregation of the addition of derivative liabilities and regulatory add-on amounts, and the deduction of regulatory netting effect. 012_0800885852007.indd 317 317 2020/08/19 11:13:58 Sumitomo Mitsui Financial GroupSMBC GROUP ANNUAL REPORT 2020Basel III Information Countercyclical buffer requirement by country or region ■ Countercyclical buffer requirement by country or region CCyB1: Countercyclical buffer (CCyB) requirement by country or region As of March 31, 2020 (Millions of yen, except percentages) Geographical breakdown Hong Kong France Luxembourg Subtotal Total a Applicable CCyB ratio in effect 1.00% 0.25% 0.25% b RWAs used in the computation of CCyB ratio 1,229,477 399,293 302,805 1,931,575 48,140,937 c d Bank-specific CCyB ratio CCyB amount 0.02% 14,050 (Millions of yen, except percentages) CCyB1: Countercyclical buffer (CCyB) requirement by country or region As of March 31, 2019 Geographical breakdown Hong Kong Sweden UK Subtotal Total a Applicable CCyB ratio in effect 2.50% 2.00% 1.00% b RWAs used in the computation of CCyB ratio 1,186,840 16,840 1,862,990 3,066,670 46,957,843 c d Bank-specific CCyB ratio CCyB amount 0.10% 48,637 Note: While credit risk-weighted asset shall be calculated on an ultimate risk basis where feasible, some assets including funds and other assets or portion of assets subject to standardized approach, are calculated on an obligor basis or on a country of undertaking basis. 318 012_0800885852007.indd 318 2020/08/19 11:13:58 Sumitomo Mitsui Financial GroupSMBC GROUP ANNUAL REPORT 2020Basel III Information Indicators for assessing Global Systemically Important Banks (G-SIBs) Sumitomo Mitsui Financial Group, Inc. and Subsidiaries ■ Indicators for assessing Global Systemically Important Banks (G-SIBs) GSIB1: G-SIB indicators Basel III Template No. 1 2 3 4 5 6 7 8 9 10 11 12 Cross-jurisdictional activity Size Mutual relevance Substitutability/ financial institution infrastructure Complexity Cross-jurisdictional claims Cross-jurisdictional liabilities Total exposures Intra-financial system assets Intra-financial system liabilities Securities outstanding Assets under custody Annual total amount of payments settled through settlement systems Annual total amount of underwritten transactions in debt and equity markets Total amount of notional amount of OTC derivatives and long settlement transactions with other financial institutions Level 3 assets Held-for-trading (HFT) securities and available-for-sale (AFS) securities, excluding HFT and AFS securities that meet the definition of Level 1 assets and Level 2 assets with haircuts (Millions of yen) As of March 31, 2020 As of March 31, 2019 59,438,067 42,419,213 238,863,106 35,825,017 23,122,877 24,806,153 10,935,708 52,187,827 35,256,002 220,856,829 32,216,204 18,722,769 28,193,246 11,466,654 4,150,572,853 3,431,377,752 9,959,297 9,149,209 901,817,377 778,148,994 1,029,342 1,003,465 10,625,227 10,131,349 Note: Terms in this form shall, unless otherwise prescribed separately, be used in accordance with the terminology used in the Notification as well as the Bank Holding Company Equity Capital Adequacy Notification. a. Basel III Template No. (hereinafter referred to as “Item No.” in this form) 3 “Total exposures” shall state the total amount of the following. (1) The amount of on-balance sheet assets (total assets reported in the non-consolidated balance sheet or the consolidated balance sheet, less the amount of customers’ liabilities for acceptance and guarantees, less the amounts reported with respect to (2) and (3) reported in the non-consolidated balance sheet or the consolidated balance sheet) (2) The amount of derivative transactions, etc. (referring to forward contract, swap, option, and other derivatives and long settlement transactions; hereinafter the same in (2) and (4)) (the amount of exposure calculated in respect of derivative transactions, etc. (the amount of replacement cost calculated by using current exposure method (which shall be zero if such amount turned out to be a negative value), added by the add-on amount, as well as the notional amount of the credit derivative that provides protection), added by the consideration of the margin deposited in cash in connection with derivative transactions, etc.) (3) The amount of SFTs (amount of cash receivables in SFTs added by the amount of exposure at the counterparty of transaction calculated for each unit of SFTs (which shall be zero if such amount turned out to be a negative value)) (4) The amount of off-balance sheet transactions (excluding derivative transactions, etc., and SFTs) (the amount of credit risk exposure at the counterparty of transaction, added by the amount of exposure arising from the underlying asset, as well as the amount of securitisation exposure) b. Item No.4 “Mutual relevance - Intra-financial system assets” shall state the total amount of the following balances concerning the credit granted to financial institutions, etc. (including financial instruments business operators prescribed under Article 2, Paragraph 9 of the Financial Instruments and Exchange Act, insurance companies, central counterparty, pension funds and other business operators of the similar kind; hereinafter the same in b. and c.). (1) Funds deposited with or lent to other financial institutions and undrawn committed lines extended to other financial institutions (2) Holdings of securities issued by other financial institutions (referring to secured bonds, general unsecured bonds, subordinated bonds, short-term bonds, negotiable certificates of deposit and stock; hereinafter the same in Item No. 6) (3) Net positive current exposure of SFTs with other financial institutions (which can take into account the effect of legally binding netting contracts, but cannot have a negative value) (4) The add-on amount calculated based on the amount measured at fair value and by using the current exposure method as adopted for the derivative instruments transactions and long settlement transactions with other financial institutions, without involving financial instruments markets as defined under Article 2, Paragraph 14 of the Financial Instruments and Exchange Act, and foreign financial instruments markets as defined under Article 2, Paragraph 8, Item 3(b) of the same Act (which can 012_0800885852007.indd 319 319 2020/08/19 11:13:58 Sumitomo Mitsui Financial GroupSMBC GROUP ANNUAL REPORT 2020Basel III Information take into account the effect of legally valid bilateral netting contracts, but cannot have a negative value; hereinafter collectively referred to as “financial instruments markets, etc.” in Item No. 10 and c.) c. Item No. 5 “Mutual relevance - Intra-financial system liabilities” shall state the total amount of the following balances. (1) Deposits due to, and loans obtained from other financial institutions (including undrawn committed lines) (2) Net negative current exposure of SFTs with other financial institutions (which can take into account the effect of legally valid bilateral netting contracts, but cannot exceed zero) (3) The add-on amount calculated based on the amount measured at fair value and by using the current exposure method as adopted for the derivative instruments transactions and long settlement transactions with other financial institutions, without involving financial instruments markets, etc. (which can take into account the effect of legally valid bilateral netting contracts, but cannot exceed zero) d. Item No. 8 “Substitutability/financial infrastructure – the annual total amount of payments through settlement systems” shall state the annual total amount of payments settled through the BOJ-NET, the Japanese Banks’ Payment Clearing Network and other similar settlement systems but excluding intra-group payments in the most recently ended fiscal year. e. Item No.9 “Substitutability/financial infrastructure – the annual total amount of underwritten transactions in debt and equity markets” shall state the annual total amount of transactions underwritten in debt and equity markets in the most recently ended fiscal year (referring to securities underwriting as prescribed in Article 2, Paragraph 8, Item 6 of the Financial Instruments and Exchange Act). f. Financial institutions mentioned in Item No.10 “Complexity – total amount of notional amount of OTC derivatives and long settlement transactions with other financial institutions” refer to financial institutions, etc. as defined in b. above. g. Item No.12 “Complexity – Held-for-trading (HFT) securities and available-for-sale (AFS) securities” shall state the total amount of balances of Held-for-trading (HFT) securities and available-for-sale (AFS) securities (excluding HFT and AFS securities that are considered to have high liquidity). h. In each item in this form, if there is no specific applicable amount in the submitting financial institution, the item in question shall not be deleted but just be marked with [ - ]. i. In this form, all amounts shall be stated in the designated unit herein, and any fraction less than such unit shall be rounded down. j. This form shall be prepared only by a bank subject to the uniform international standards (excluding the bank that is a consolidated subsidiary of a bank as well as the bank that is a consolidated subsidiary not of a bank but of a banking holding company, and consolidated subsidiary of a regulated foreign entity), or a holding company subject to the uniform international standards that states in Item No. 3 an equivalent to an amount in excess of 200 billion euros at the exchange rate as at the end of its most recently ended fiscal year, or that is designated by the Commissioner of the Financial Services Agency of Japan as an equivalent to a bank or a holding company subject to the uniform international standards. 320 012_0800885852007.indd 320 2020/08/19 11:13:58 Sumitomo Mitsui Financial GroupSMBC GROUP ANNUAL REPORT 2020Basel III Information■ Composition of Leverage Ratio Corresponding line # on Basel III disclosure template (Table2) Corresponding line # on Basel III disclosure template (Table1) On-balance sheet exposures (1) Items (In million yen, %) As of March 31, 2020 As of March 31, 2019 1a 1b 1c 1d 1 2 3 1 2 7 3 7 On-balance sheet exposures before deducting adjustment items Total assets reported in the consolidated balance sheet The amount of assets of subsidiaries that are not included in the scope of the leverage ratio on a consolidated basis (-) The amount of assets of subsidiaries that are included in the scope of the leverage ratio on a consolidated basis (except those included in the total assets reported in the consolidated balance sheet) The amount of assets that are deducted from the total assets reported in the consolidated balance sheet (except adjustment items) (-) The amount of adjustment items pertaining to Tier 1 capital (-) Total on-balance sheet exposures (a) 189,089,655 219,863,518 179,349,049 203,659,146 — — — — 30,773,863 24,310,096 878,104 188,211,550 999,843 178,349,206 Exposures related to derivative transactions (2) 4 5 6 7 8 9 10 11 Replacement cost associated with derivatives transactions, etc. (with the 1.4 alpha factor applied) Replacement cost associated with derivatives transactions, etc. Add-on amount for potential future exposure associated with derivatives transactions, etc. (with the 1.4 alpha factor applied) Add-on amount associated with derivatives transactions, etc. The amount of receivables arising from providing cash margin in relation to derivatives transactions, etc. The amount of receivables arising from providing collateral, provided where deducted from the consolidated balance sheet pursuant to the operative accounting framework The amount of receivables arising from providing cash margin, provided where deducted from the consolidated balance sheet pursuant to the operative accounting framework The amount of deductions of receivables (out of those arising from providing cash variation margin) (-) The amount of client-cleared trade exposures for which a bank or bank holding company acting as clearing member is not obliged to make any indemnification (-) Adjusted effective notional amount of written credit derivatives The amount of deductions from effective notional amount of written credit derivatives (-) Total exposures related to derivative transactions (b) 4 Exposures related to repo transactions (3) 12 13 14 15 16 The amount of assets related to repo transactions, etc. The amount of deductions from the assets above (line 12) (-) The exposures for counterparty credit risk for repo transactions, etc. The exposures for agent repo transaction Total exposures related to repo transactions, etc. 5 Exposures related to off-balance sheet transactions (4) 6,878,993 2,702,937 4,556,886 4,302,269 923,702 622,875 — — 151,482 97,391 900,439 744,710 591,253 541,447 12,363,828 7,580,496 13,758,920 — 459,828 10,526,838 — 731,057 (c) 14,218,749 11,257,895 17 18 19 Notional amount of off-balance sheet transactions The amount of adjustments for conversion in relation to off-balance sheet transactions (-) Total exposures related to off-balance sheet transactions 61,636,792 61,366,247 38,942,263 39,015,093 (d) 22,694,529 22,351,153 6 Leverage ratio on a consolidated basis (5) 20 21 22 8 The amount of capital (Tier 1 capital) Total exposures ((a)+(b)+(c)+(d)) Leverage ratio on a consolidated basis ((e)/(f)) (e) (f) 10,249,936 237,488,658 4.31% 10,727,228 219,538,751 4.88% Reason for the significant difference from the leverage ratio in the previous fiscal year Decrease in leverage ratio is attributable to an increase in total exposures, due to a decrease in capital mainly associated with a decrease in additional Tier 1 instruments and a decline in net unrealized gains or losses on other securities, along with an increase in on-balance sheet assets primarily comprising cash and due from banks and loans and bills discounted. 012_0800885852007.indd 321 321 2020/08/19 11:13:58 Sumitomo Mitsui Financial GroupSMBC GROUP ANNUAL REPORT 2020Basel III InformationTLAC information ■ TLAC1: TLAC composition for G-SIBs (at resolution group level) Sumitomo Mitsui Financial Group, Inc. and Subsidiaries Basel III Template No. Items (Millions of yen, except percentages) As of March 31, 2020 As of March 31, 2019 Preferred resolution strategy (1) The SPE (Single Point of Entry) resolution strategy is considered to be the preferred resolution strategy for Sumitomo Mitsui Financial Group, Inc. (SMFG) and its subsidiaries. More concretely, at the time of a stress, following the relevant authority’s determination that one or more of the material sub-groups, i.e. Sumitomo Mitsui Banking Corporation and SMBC Nikko Securities Inc., have reached the point of non-viability, losses incurred to them would be passed to SMFG, the ultimate holding company. While this could lead to a resolution of SMFG, the material sub-groups are expected to continue their business as usual under the Specified Bridge Financial Institution, etc. incorporated by the Deposit Insurance Corporation of Japan (DICJ) to which SMFG transfers its business. Regulatory capital elements of TLAC and adjustments (2) 1 2 3 4 5 6 7 8 9 10 11 Common Equity Tier 1 capital (CET1) Additional Tier 1capital (AT1) before TLAC adjustments AT1 ineligible as TLAC as issued out of subsidiaries to third parties Other adjustments AT1 instruments eligible under the TLAC framework ((B) - (C) - (D)) Tier 2 capital (T2) before TLAC adjustments Amortised portion of T2 instruments where remaining maturity > 1 year T2 capital ineligible as TLAC as issued out of subsidiaries to third parties Other adjustments T2 instruments eligible under the TLAC framework ((F) - (G) - (H) - (I)) TLAC arising from regulatory capital ((A) + (E) + (J)) Non-regulatory capital elements of TLAC (3) 12 13 14 15 16 17 External TLAC instruments issued directly by the bank and subordinated to excluded liabilities External TLAC instruments issued directly by the bank which are not subordinated to excluded liabilities but meet all other TLAC term sheet requirements of which: amount eligible as TLAC after application of the caps External TLAC instruments issued by funding vehicles prior to 1 January 2022 Eligible ex ante commitments to recapitalise a G-SIB in resolution TLAC arising from non-regulatory capital instruments before adjustments ((L) + (M)) (A) (B) (C) (D) (E) (F) (G) (H) (I) (J) (K) 9,581,264 668,672 — — 668,672 1,302,063 (249,452) — 152,042 1,399,473 11,649,410 9,654,517 1,072,710 — — 1,072,710 1,513,260 (298,938) — 176,746 1,635,453 12,362,681 (L) 4,972,597 4,147,402 (M) (N) 1,539,976 6,512,574 1,473,569 5,620,972 18 19 Non-regulatory capital elements of TLAC: adjustments (4) TLAC before deductions ((K) + (N)) Deductions of exposures between MPE resolution groups that correspond to items eligible for TLAC (not applicable to SPE G-SIBs) Deduction of investments in own other TLAC liabilities Other adjustment to TLAC TLAC after deductions ((O) - (P) - (Q) - (R)) 20 21 22 (O) (P) (Q) (R) (S) 18,161,984 17,983,653 — — — — 18,161,984 232 — 17,983,421 Risk-weighted assets and leverage exposure measure for TLAC purposes (5) 23 24 Total risk-weighted assets (RWA) Total exposures TLAC ratios and buffers (6) (T) (U) 61,599,066 237,488,658 58,942,791 219,538,751 25 25a 26 27 28 29 30 31 TLAC before deduction of CET1 specific buffer requirement (as a percentage of RWA) ((S) / (T)) TLAC (as a percentage of RWA) TLAC (as a percentage of total exposures) ((S) / (U)) CET1 available after meeting the minimum capital requirements CET1 specific buffer requirement of which: capital conservation buffer requirement of which: countercyclical buffer requirement of which: G-SIB/D-SIB additional requirement 29.48% 25.96% 7.64% 10.63% 3.52% 2.50% 0.02% 1.00% 30.50% 26.90% 8.19% 11.87% 3.60% 2.50% 0.10% 1.00% 322 012_0800885852007.indd 322 2020/08/19 11:13:58 Sumitomo Mitsui Financial GroupSMBC GROUP ANNUAL REPORT 2020Basel III Information ■ TLAC2: - Material subgroup entity - creditor ranking at legal entity level Sumitomo Mitsui Banking Corporation Basel III Template No. Items Is the resolution entity the creditor/investor? Description of creditor ranking Total capital and liabilities net of credit risk mitigation As of March 31, 2020 Creditor ranking 2 3 No Yes Additional Tier 1 instruments Yes No Tier 2 instruments *1 4 (most senior) Yes No Other internal TLAC liabilities 1 (most junior) Yes No Common share capital (Millions of yen) Sum of 1 to 4 (A) 3,545,551 — 1,185,000 — 1,010,822 770,855 5,249,352 — 11,761,581 Subset of row 3 that are excluded liabilities (B) Total capital and liabilities less excluded liabilities (A) - (B) Subset of row 5 that are eligible as TLAC 1 year ≤ residual maturity < 2 years 2 years ≤ residual maturity < 5 years 5 years ≤ residual maturity < 10 years 10 years ≤ residual maturity (excluding perpetual securities) Perpetual securities — — — — — — — — — 3,545,551 3,545,551 — — — — 1,185,000 — 1,010,822 770,855 5,249,352 — 11,761,581 — 1,185,000 — — — — — — — 1,010,822 — — 303,417 — 664,405 — 531,215 258,215 98,000 155,000 4,977,327 708,103 1,875,138 2,262,344 — 11,249,916 — 966,318 — 2,276,555 — 3,081,749 — — — 3,545,551 — 1,185,000 — — 43,000 — 131,741 — 174,741 — 20,000 — — 4,750,551 1 2 3 4 5 6 7 8 9 10 11 *1 Including eligible Tier 2 capital instruments subject to transitional arrangements SMBC Nikko Securities Inc. As of March 31, 2020 Creditor ranking Basel III Template No. 1 2 3 4 5 6 7 8 9 10 11 Items 1 (most junior) 2 Is the resolution entity the creditor/investor? Yes No Yes No Description of creditor ranking Total capital and liabilities net of credit risk mitigation Subset of row 3 that are excluded liabilities Total capital and liabilities less excluded liabilities (A) - (B) (A) (B) Subset of row 5 that are eligible as TLAC 1 year ≤ residual maturity < 2 years 2 years ≤ residual maturity < 5 years 5 years ≤ residual maturity < 10 years 10 years ≤ residual maturity (excluding perpetual securities) Perpetual securities Common share capital 467,714 — 467,714 467,714 — — — — 467,714 — — — — — — — — — Subordinated debts — — — — — — — — — — — — — — — — — — — — — — — — — — — 3 (most senior) Yes No Other internal TLAC liabilities (Millions of yen) Sum of 1 to 3 — — — — — — — — — 467,714 — 467,714 467,714 — — — — 467,714 012_0800885852007.indd 323 323 2020/08/19 11:13:58 Sumitomo Mitsui Financial GroupSMBC GROUP ANNUAL REPORT 2020Basel III Information Sumitomo Mitsui Banking Corporation Basel III Template No. Items Is the resolution entity the creditor/investor? Description of creditor ranking Total capital and liabilities net of credit risk mitigation As of March 31, 2019 Creditor ranking 2 3 No Yes Additional Tier 1 instruments *1 Yes No Tier 2 instruments *2 4 (most senior) Yes No Other internal TLAC liabilities 1 (most junior) Yes No Common share capital (Millions of yen) Sum of 1 to 4 (A) 3,545,551 — 1,100,000 173,000 1,003,250 855,912 4,155,093 — 10,832,806 Subset of row 3 that are excluded liabilities (B) Total capital and liabilities less excluded liabilities (A) - (B) Subset of row 5 that are eligible as TLAC 1 year ≤ residual maturity < 2 years 2 years ≤ residual maturity < 5 years 5 years ≤ residual maturity < 10 years 10 years ≤ residual maturity (excluding perpetual securities) Perpetual securities — — — — — — — — — 3,545,551 3,545,551 — — — — 1,100,000 173,000 1,003,250 855,912 4,155,093 — 10,832,806 — 1,100,000 — — — — — — 173,000 — — — 1,003,250 — — 950,250 782,912 243,412 339,500 175,000 4,155,093 277,500 2,006,690 1,747,190 — 10,759,806 — 520,912 — 2,346,190 — 2,872,440 — — — — 53,000 — 123,713 — 176,713 3,545,551 — 1,100,000 173,000 — 25,000 — — 4,843,551 1 2 3 4 5 6 7 8 9 10 11 *1 *2 Including eligible Tier 1 capital instruments subject to transitional arrangements Including eligible Tier 2 capital instruments subject to transitional arrangements SMBC Nikko Securities Inc. As of March 31, 2019 Creditor ranking Items 1 (most junior) 2 Is the resolution entity the creditor/investor? Yes No Yes No Description of creditor ranking Total capital and liabilities net of credit risk mitigation Subset of row 3 that are excluded liabilities Total capital and liabilities less excluded liabilities (A) - (B) (A) (B) Subset of row 5 that are eligible as TLAC 1 year ≤ residual maturity < 2 years 2 years ≤ residual maturity < 5 years 5 years ≤ residual maturity < 10 years 10 years ≤ residual maturity (excluding perpetual securities) Perpetual securities Common share capital 467,714 — 467,714 467,714 — — — — 467,714 — — — — — — — — — Subordinated debts — — — — — — — — — — — — — — — — — — — — — — — — — — — 3 (most senior) Yes No Other internal TLAC liabilities Basel III Template No. 1 2 3 4 5 6 7 8 9 10 11 324 (Millions of yen) Sum of 1 to 3 — — — — — — — — — 467,714 — 467,714 467,714 — — — — 467,714 012_0800885852007.indd 324 2020/08/19 11:13:58 Sumitomo Mitsui Financial GroupSMBC GROUP ANNUAL REPORT 2020Basel III Information ■ TLAC3: Creditor ranking of external TLAC, etc. Sumitomo Mitsui Financial Group, Inc. Basel III Template No. Items 1 Description of creditor ranking 2 3 4 5 6 7 8 9 10 Total capital and liabilities net of credit risk mitigation Subset of row 2 that are excluded liabilities *2 Total capital and liabilities less excluded liabilities (A) - (B) Subset of row 4 that are eligible as TLAC 1 year ≤ residual maturity < 2 years 2 years ≤ residual maturity < 5 years 5 years ≤ residual maturity < 10 years 10 years ≤ residual maturity (excluding perpetual securities) Perpetual securities *1 *2 Excluding those owed to group companies Conservatively estimated in light of quantitative materiality Basel III Template No. Items 1 Description of creditor ranking 2 3 4 5 6 7 8 9 10 Total capital and liabilities net of credit risk mitigation Subset of row 2 that are excluded liabilities *3 Total capital and liabilities less excluded liabilities (A) - (B) Subset of row 4 that are eligible as TLAC 1 year ≤ residual maturity < 2 years 2 years ≤ residual maturity < 5 years 5 years ≤ residual maturity < 10 years 10 years ≤ residual maturity (excluding perpetual securities) Perpetual securities *1 *2 *3 Including eligible Tier 1 capital instruments subject to transitional arrangements Excluding those owed to group companies Conservatively estimated in light of quantitative materiality (A) (B) (A) (B) (Millions of yen) As of March 31, 2020 Creditor ranking 2 3 4 (most senior) Sum of 1 to 4 Additional Tier 1 instruments 685,000 — 685,000 685,000 — — — — 685,000 Tier 2 instruments 1,010,822 — 1,010,822 1,010,822 — 303,417 664,405 43,000 — 47,116 Unsecured senior bonds *1 5,296,468 10,893,698 47,116 5,249,352 10,846,582 4,977,327 10,574,557 708,103 2,178,555 2,926,749 174,741 — 4,586,407 708,103 1,875,138 2,262,344 131,741 1 (most junior) Common share capital 3,901,407 — 3,901,407 3,901,407 — — — — 3,901,407 (Millions of yen) As of March 31, 2019 Creditor ranking 1 (most junior) 2 3 4 (most senior) Sum of 1 to 4 Common share capital 3,900,364 — 3,900,364 3,900,364 — — — — 3,900,364 Additional Tier 1 instruments *1 866,700 — 866,700 866,700 — — — — 866,700 Tier 2 instruments 3,524 Unsecured senior bonds *2 5,436,425 11,206,739 1,003,250 3,524 — 5,432,901 11,203,215 1,003,250 9,925,407 4,155,093 1,003,250 277,500 — 277,500 2,006,690 — 2,006,690 2,686,340 1,736,090 187,813 134,813 — 4,767,064 950,250 53,000 — 012_0800885852007.indd 325 325 2020/08/19 11:13:58 Sumitomo Mitsui Financial GroupSMBC GROUP ANNUAL REPORT 2020Basel III Information Liquidity Coverage Ratio Information (Consolidated) Sumitomo Mitsui Financial Group, Inc. and Subsidiaries Since March 31, 2015, the “Liquidity Coverage Ratio” (hereinafter referred to as “LCR”), the liquidity ratio regulation under the Basel III, has been introduced in Japan. In addition to the application of uniform international standards, Sumitomo Mitsui Financial Group calculates its consolidated LCR using the calculation formula stipulated in the “Criteria for Evaluating the Soundness of Liquidity Status Set Forth by a Bank Holding Company as a Benchmark for Judging the Soundness of Management of Itself and its Subsidiaries, etc., Based on the Provision of Article 52-25 of the Banking Act, and Which Are Also the Criteria to be Referred to for Judging the Soundness of Management in Banks” (Notification No. 62 issued by the Japanese Financial Services Agency in 2014; hereinafter referred to as the “LCR Notification”). ■ Disclosure of Qualitative Information about Liquidity Coverage Ratio 1. Intra-period Changes in Consolidated LCR As described on the following page, the LCR has remained stable since the introduction of the liquidity ratio regulation on March 31, 2015. 2. Assessment of Consolidated LCR The LCR Notification stipulates the minimum requirement of the LCR at 100%. The LCR of Sumitomo Mitsui Financial Group (consolidated) exceeds the minimum requirements of the LCR, having no cause for concern. In terms of the future LCR forecasts, Sumitomo Mitsui Financial Group does not expect significant deviations from the disclosed ratios. In addition, the actual LCR does not differ significantly from the initial forecast. 3. Composition of High-Quality Liquid Assets Regarding the high-quality liquid assets allowed to be included in the calculation, there are no significant changes in locations and properties of currency denominations, categories and so on. In addition, in respect of major currencies (those of which the aggregate amount of liabilities denominated in a certain currency accounts for 5% or more of Sumitomo Mitsui Financial Group’s total liabilities on the consolidated basis), there is no significant mismatch in currency denomination between the total amount of the high-quality liquid assets allowed to be included in the calculation and the amount of net cash outflows. 4. Other Information Concerning Consolidated LCR Sumitomo Mitsui Financial Group has not applied “special provisions concerning qualifying operational deposits” prescribed in Article 28 of the LCR Notification and “increased liquidity needs related to market valuation changes on derivative or other transactions simulated through Scenario Approach” prescribed in Article 37 of the LCR Notification. Meanwhile, Sumitomo Mitsui Financial Group records “cash outflows related to small-sized consolidated subsidiaries,” etc. under “cash outflows based on other contracts” prescribed in Article 59 of the LCR Notification. 326 012_0800885852007.indd 326 2020/08/19 11:13:58 Sumitomo Mitsui Financial GroupSMBC GROUP ANNUAL REPORT 2020Basel III Information■ Disclosure of Quantitative Information about Liquidity Coverage Ratio (Consolidated) Item High-Quality Liquid Assets (1) 1 Total high-quality liquid assets (HQLA) Cash Outflows (2) of which, Stable deposits of which, Less stable deposits 2 Cash outflows related to unsecured retail funding 3 4 5 Cash outflows related to unsecured wholesale funding 6 7 of which, Qualifying operational deposits of which, Cash outflows related to unsecured wholesale funding other than qualifying operational deposits and debt securities of which, Debt securities 8 9 Cash outflows related to secured funding, etc. 10 Cash outflows related to derivative transactions, etc. funding programs, credit and liquidity facilities of which, Cash outflows related to derivative transactions, etc. of which, Cash outflows related to funding programs of which, Cash outflows related to credit and liquidity facilities 11 12 13 14 Cash outflows related to contractual funding obligations, etc. 15 Cash outflows related to contingencies 16 Total cash outflows Cash Inflows (3) 17 Cash inflows related to secured lending, etc. 18 Cash inflows related to collection of loans, etc. 19 Other cash inflows 20 Total cash inflows Consolidated Liquidity Coverage Ratio (4) 21 Total HQLA allowed to be included in the calculation 22 Net cash outflows 23 Consolidated liquidity coverage ratio (LCR) 24 The number of data used to calculate the average value (In million yen, %, the number of data) Current Quarter (From 2020/1/1 To 2020/3/31) Prior Quarter (From 2019/10/1 To 2019/12/31) TOTAL UNWEIGHTED VALUE 51,568,744 15,941,070 35,627,674 67,726,008 — 65,105,452 TOTAL WEIGHTED VALUE 4,043,579 480,191 3,563,388 33,943,371 — TOTAL UNWEIGHTED VALUE 50,794,003 15,605,705 35,188,298 66,874,270 — 65,816,899 TOTAL WEIGHTED VALUE 3,989,542 470,101 3,519,441 33,383,095 — 62,864,690 29,082,053 62,138,687 28,647,512 4,861,318 4,861,318 350,450 4,735,583 4,735,583 307,937 24,553,230 8,077,163 24,259,419 7,875,925 1,757,427 428,946 22,366,857 10,795,251 70,009,855 TOTAL UNWEIGHTED VALUE 5,629,109 3,449,752 3,022,818 12,101,679 1,768,815 254,594 22,236,010 10,090,325 71,206,904 TOTAL UNWEIGHTED VALUE 5,269,553 2,912,447 3,028,887 11,210,888 1,757,427 428,946 5,890,790 8,184,009 1,314,676 55,913,247 TOTAL WEIGHTED VALUE 141,720 2,408,085 1,562,699 4,112,503 65,105,452 51,800,744 125.6% 58 1,768,815 254,594 5,852,516 7,767,822 1,346,741 54,671,061 TOTAL WEIGHTED VALUE 77,567 1,971,612 1,444,429 3,493,608 65,816,899 51,177,453 128.6% 62 Notes: 1. The data after the introduction of the liquidity ratio regulation on March 31, 2015 is available on Sumitomo Mitsui Financial Group’s website. (https://www.smfg.co.jp/english/investor/financial/basel_3.html) 2. The average values are calculated based on daily data in accordance with Notification No. 7 issued by the Japanese Financial Services Agency in 2015. Some data, such as attribute information of customers and data on consolidated subsidiaries, is updated on the monthly or quarterly basis. ■ Breakdown of High-Quality Liquid Assets Item 1 Cash and due from banks 2 Securities 3 of which, government bonds, etc. 4 5 of which, municipal bonds, etc. of which, other bonds of which, stocks 6 7 Total high-quality liquid assets (HQLA) Current Quarter (From 2020/1/1 To 2020/3/31) Prior Quarter (From 2019/10/1 To 2019/12/31) (In million yen) 55,947,151 9,158,300 6,231,772 94,096 1,093,902 1,738,529 65,105,452 57,113,873 8,703,026 5,866,175 79,380 915,737 1,841,734 65,816,899 Note: The above amounts are those of high-quality liquid assets in accordance with the liquidity ratio regulation under the Basel III and do not correspond to the financial amounts. The amounts stated are those after multiplying factors in the liquidity ratio regulation under the Basel III. 012_0800885852007.indd 327 327 2020/08/19 11:13:58 Sumitomo Mitsui Financial GroupSMBC GROUP ANNUAL REPORT 2020Basel III Information Financial Highlights Sumitomo Mitsui Banking Corporation Consolidated Year ended March 31 For the Year: 2020 2019 Ordinary income ����������������������������������������������������������� ¥ 3,469,068 Ordinary profit �������������������������������������������������������������� 770,491 Profit attributable to owners of parent ������������������������� 517,750 Comprehensive income ����������������������������������������������� 222,122 ¥ 3,369,898 894,501 617,493 548,236 At Year-End: Millions of yen 2018 ¥ 3,117,087 932,733 627,582 782,502 2017 2016 ¥ 3,014,455 829,419 543,199 687,157 ¥ 3,059,022 930,332 680,162 143,086 Total net assets ������������������������������������������������������������ ¥ 8,368,349 Total assets ������������������������������������������������������������������ 206,089,633 Total capital ratio (BIS guidelines) �������������������������������� Tier 1 capital ratio (BIS guidelines) ������������������������������� Common equity Tier 1 capital ratio 18.06% 15.80% (BIS guidelines) ���������������������������������������������������������� Number of employees �������������������������������������������������� 13.70% 57,961 ¥ 8,986,749 190,690,293 ¥ 9,090,403 182,727,495 ¥ 8,908,192 180,946,664 ¥ 9,446,193 180,408,672 20�32% 17�57% 15�17% 58,527 21�14% 18�22% 15�29% 40,058 17�77% 14�61% 12�89% 45,963 18�19% 14�58% 13�04% 54,192 Note: “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. Non-consolidated Year ended March 31 For the Year: 2020 2019 Ordinary income ����������������������������������������������������������� ¥ 2,851,162 2,110 1,412,007 808,052 Trust fees ����������������������������������������������������������������� Gross banking profit (A) ����������������������������������������������� Expenses (excluding nonrecurring losses) (B) ������������� Overhead ratio (B) / (A) ������������������������������������������������� Banking profit ��������������������������������������������������������������� Banking profit (before provision for general Millions of yen 2018 ¥ 2,540,450 2,038 1,427,924 810,752 2017 2016 ¥ 2,551,931 2,111 1,663,654 816,942 ¥ 2,277,812 2,589 1,534,271 805,483 ¥ 2,805,840 2,250 1,395,586 811,533 57.2% 586,741 58�2% 584,053 56�8% 617,171 49�1% 809,052 52�5% 728,787 reserve for possible loan losses) ����������������������������� Core banking profit ������������������������������������������������������ Core banking profit (excluding gains or losses on cancellation of investment trusts) ���������������������������� Ordinary profit �������������������������������������������������������������� Net income ������������������������������������������������������������������� 603,955 529,752 505,785 483,944 317,381 At Year-End: Total net assets ������������������������������������������������������������ ¥ 7,496,219 Total assets ������������������������������������������������������������������ 193,963,791 Deposits ����������������������������������������������������������������������� 119,973,324 Loans and bills discounted ������������������������������������������ 80,187,382 Securities ��������������������������������������������������������������������� 27,058,633 Trust assets and liabilities �������������������������������������������� 4,261,245 Loans and bills discounted �������������������������������������� 662,844 Securities ����������������������������������������������������������������� 1,164,251 Capital stock ���������������������������������������������������������������� 1,770,996 Number of shares issued (in thousands) Common stock ���������������������������������������������������� Preferred stock ���������������������������������������������������� Dividend payout ratio ��������������������������������������������������� Total capital ratio (BIS guidelines) �������������������������������� Tier 1 capital ratio (BIS guidelines) ������������������������������� Common equity Tier 1 capital ratio (BIS guidelines) �������������������������������������������������������� Number of employees �������������������������������������������������� 106,248 70 167.61% 17.61% 15.23% 13.01% 27,957 584,053 581,176 535,229 649,647 477,367 ¥ 7,962,185 179,348,654 116,091,103 76,401,807 24,336,638 3,842,641 477,094 1,330,384 1,770,996 617,171 / / 755,266 577,028 ¥ 7,921,268 170,923,146 110,243,226 73,896,163 25,916,718 4,756,748 398,772 2,358,665 1,770,996 846,711 / / 864,022 681,767 ¥ 7,417,182 162,281,729 105,590,771 75,585,256 24,342,369 6,881,408 635,206 4,156,409 1,770,996 728,787 / / 747,892 609,171 ¥ 7,756,810 153,641,430 98,839,722 69,276,735 25,602,156 3,394,170 537,839 1,305,284 1,770,996 106,248 70 73�09% 20�28% 17�37% 14�85% 28,482 106,248 70 55�22% 21�11% 18�11% 15�07% 29,192 106,248 70 32�61% 18�61% 15�05% 13�15% 29,283 106,248 70 67�02% 19�47% 15�29% 13�44% 28,002 Notes: 1. Core banking profit = Banking profit (before provision for general reserve for possible loan losses) – Gains (losses) on bonds 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, temporary staff, and executive officers who do not concurrently serve as Directors. 328 013_0800804262008.indd 328 2020/08/21 17:06:35 SMBCSMBC GROUP ANNUAL REPORT 2020Income Analysis (Consolidated) Sumitomo Mitsui Banking Corporation and Subsidiaries Operating Income, Classified by Domestic and Overseas Operations 2020 2019 Millions of yen Year ended March 31 Interest income ����������������������������������������������������� Interest expenses �������������������������������������������������� Net interest income ��������������������������������������������������� Trust fees ������������������������������������������������������������������� Fees and commissions ����������������������������������������� Fees and commissions payments ������������������������ Net fees and commissions ���������������������������������������� Trading income������������������������������������������������������ Trading losses ������������������������������������������������������� Net trading income ���������������������������������������������������� Other operating income ���������������������������������������� Other operating expenses������������������������������������� Net other operating income��������������������������������������� Domestic operations Overseas operations Elimination Total Domestic operations Overseas operations Elimination Total ¥910,696 ¥1,374,225 723,389 650,835 — 222,462 37,299 185,163 51,765 9,564 42,200 131,961 39,953 92,007 488,323 422,373 4,701 402,192 145,539 256,653 115,613 282 115,330 127,320 50,315 77,004 ¥(47,295) ¥2,237,626 1,186,005 1,051,621 4,701 614,134 179,925 434,209 157,531 — 157,531 258,749 90,269 168,479 (25,707) (21,588) — (10,520) (2,913) (7,606) (9,846) (9,846) — (531) — (531) ¥939,515 ¥1,367,558 728,751 638,806 — 222,658 29,424 193,234 37,423 6,158 31,264 117,384 49,851 67,532 475,074 464,441 4,541 404,067 137,556 266,510 48,476 4,058 44,417 108,325 30,699 77,626 ¥(66,129) ¥2,240,944 1,138,789 1,102,155 4,541 613,741 162,563 451,177 80,112 4,430 75,682 225,361 79,991 145,370 (65,036) (1,093) — (12,985) (4,417) (8,568) (5,786) (5,786) — (348) (559) 210 Notes: 1. Domestic operations comprise the operations of SMBC (excluding overseas branches) and its domestic consolidated subsidiaries. 2. Overseas operations comprise the operations of SMBC’s overseas branches and its overseas consolidated subsidiaries. 3. Inter-segment transactions are reported in the “Elimination” column. Average Balance, Interest and Average Rate of Interest-Earning Assets and Interest-Bearing Liabilities Domestic Operations Average balance Year ended March 31 Interest-earning assets ���������������������������������������������� ¥ 80,913,276 53,436,866 17,989,408 209,079 2,711,351 Loans and bills discounted ����������������������������������� Securities �������������������������������������������������������������� Call loans and bills bought ������������������������������������ Receivables under resale agreements ������������������ Receivables under securities borrowing transactions ��������������������������������������� Deposits with banks ���������������������������������������������� 955,889 1,170,334 Interest-bearing liabilities ������������������������������������������ ¥132,944,006 101,639,537 5,444,548 462,338 4,051,775 Deposits ���������������������������������������������������������������� Negotiable certificates of deposit ������������������������� Call money and bills sold �������������������������������������� Payables under repurchase agreements �������������� Payables under securities lending transactions�������������������������������������������� Commercial paper������������������������������������������������� Borrowed money ��������������������������������������������������� Bonds �������������������������������������������������������������������� 864,536 100,091 16,673,018 2,449,786 2020 Interest ¥910,696 568,589 244,886 118 (1,146) 975 19,042 ¥488,323 51,779 409 (32) 37,754 941 11 200,322 64,314 Millions of yen Average rate 1.13% 1.06 1.36 0.06 (0.04) 0.10 1.63 0.37% 0.05 0.01 (0.01) 0.93 0.11 0.01 1.20 2.63 Average balance ¥ 78,953,194 52,262,908 16,699,025 108,697 2,570,984 1,996,660 1,051,668 ¥126,163,093 97,987,896 5,778,619 95,135 2,849,200 714,190 101,122 14,370,683 3,247,123 2019 Interest ¥939,515 587,504 251,600 368 (1,450) 2,474 19,850 ¥475,074 58,866 429 505 42,895 959 11 202,805 84,543 Average rate 1�19% 1�12 1�51 0�34 (0�06) 0�12 1�89 0�38% 0�06 0�01 0�53 1�51 0�13 0�01 1�41 2�60 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 consolidated subsidiaries use weekly, monthly or quarterly balances instead. 3. “Interest-earning assets” are shown after deduction of the average balance of noninterest-earning deposits (2020, ¥48,171,886 million; 2019, ¥43,355,834 million). 013_0800804262008.indd 329 329 2020/08/21 17:06:35 SMBCSMBC GROUP ANNUAL REPORT 2020Income Analysis (Consolidated) Overseas Operations Year ended March 31 Interest-earning assets ���������������������������������������������� Loans and bills discounted ����������������������������������� Securities �������������������������������������������������������������� Call loans and bills bought ������������������������������������ Receivables under resale agreements ������������������ Receivables under securities Average balance ¥45,123,324 27,120,195 5,507,688 1,575,530 2,580,540 2020 Interest ¥1,374,225 920,531 117,254 15,746 57,573 borrowing transactions ��������������������������������������� Deposits with banks ���������������������������������������������� 24,706 4,071,134 72 76,822 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 ��������������������������������������������������� Bonds �������������������������������������������������������������������� ¥37,754,490 22,539,322 6,424,927 727,834 5,240,834 — 1,811,251 490,519 69,728 ¥ 723,389 406,428 131,442 10,573 100,259 — 31,513 18,937 2,891 Millions of yen Average rate 3.05% 3.39 2.13 1.00 2.23 0.29 1.89 1.92% 1.80 2.05 1.45 1.91 — 1.74 3.86 4.15 Average balance ¥44,163,082 26,444,159 4,954,867 2,026,876 1,857,211 12,108 4,739,001 ¥37,414,455 23,024,688 6,017,305 807,510 4,186,351 — 2,433,961 581,343 72,064 2019 Interest ¥1,367,558 915,868 103,943 16,192 39,967 37 98,262 ¥728,751 422,005 135,749 14,080 82,275 — 45,344 16,433 3,051 Average rate 3�10% 3�46 2�10 0�80 2�15 0�31 2�07 1�95% 1�83 2�26 1�74 1�97 — 1�86 2�83 4�23 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 consolidated subsidiaries use weekly, monthly or quarterly balances instead. 3. “Interest-earning assets” are shown after deduction of the average balance of noninterest-earning deposits (2020, ¥3,479,071 million; 2019, ¥3,207,665 million). Total of Domestic and Overseas Operations Average balance Year ended March 31 Interest-earning assets ���������������������������������������������� ¥124,382,905 80,411,348 23,497,097 1,784,610 5,193,065 Loans and bills discounted ����������������������������������� Securities �������������������������������������������������������������� Call loans and bills bought ������������������������������������ Receivables under resale agreements ������������������ Receivables under securities 2020 Interest ¥2,237,626 1,485,144 340,553 15,865 54,336 borrowing transactions ��������������������������������������� Deposits with banks ���������������������������������������������� 980,596 3,969,596 1,047 79,068 Interest-bearing liabilities ������������������������������������������ ¥169,045,094 122,906,987 11,869,475 1,190,173 9,193,783 Deposits ���������������������������������������������������������������� Negotiable certificates of deposit ������������������������� Call money and bills sold �������������������������������������� Payables under repurchase agreements �������������� Payables under securities lending transactions�������������������������������������������� Commercial paper������������������������������������������������� Borrowed money ��������������������������������������������������� Bonds �������������������������������������������������������������������� 864,536 1,911,343 17,017,823 2,519,514 ¥1,186,005 441,411 131,851 10,540 135,924 941 31,525 215,283 67,206 Millions of yen Average rate 1.80% 1.85 1.45 0.89 1.05 0.11 1.99 0.70% 0.36 1.11 0.89 1.48 0.11 1.65 1.27 2.67 Average balance ¥121,424,996 78,277,107 21,653,892 2,135,574 4,319,462 2019 Interest ¥2,240,944 1,481,622 354,451 16,561 36,101 2,008,768 4,639,992 2,512 101,030 ¥161,886,733 119,861,906 11,795,924 902,646 6,926,818 714,190 2,535,084 14,522,350 3,319,188 ¥1,138,789 463,791 136,178 14,586 122,755 959 45,356 197,488 87,594 Average rate 1�85% 1�89 1�64 0�78 0�84 0�13 2�18 0�70% 0�39 1�15 1�62 1�77 0�13 1�79 1�36 2�64 Notes: 1. The figures above comprise totals for domestic and overseas operations after inter-segment eliminations. 2. In principle, average balances are calculated by using daily balances. However, some consolidated subsidiaries use weekly, monthly or quarterly balances instead. 3. “Interest-earning assets” are shown after deduction of the average balance of noninterest-earning deposits (2020, ¥51,641,993 million; 2019, ¥46,553,893 million). 330 013_0800804262008.indd 330 2020/08/21 17:06:35 SMBCSMBC GROUP ANNUAL REPORT 2020Income Analysis (Consolidated) Fees and Commissions Year ended March 31 Fees and commissions ���������������������������������������������� Deposits and loans ����������������������������������������������� Remittances and transfers ������������������������������������ Securities-related business ����������������������������������� Agency ������������������������������������������������������������������ Safe deposits �������������������������������������������������������� Guarantees ������������������������������������������������������������ Investment trusts �������������������������������������������������� Millions of yen 2020 Domestic operations ¥402,192 16,975 119,894 7,581 8,312 4,347 31,077 24,099 Overseas operations Elimination ¥(10,520) (5,447) (28) (2) — — (350) — ¥222,462 131,138 21,612 37,915 — 2 9,549 40 Total ¥614,134 142,666 141,477 45,494 8,312 4,350 40,275 24,139 2019 Domestic operations ¥404,067 15,736 116,871 12,362 9,986 4,544 32,447 22,337 Overseas operations Elimination ¥(12,985) (6,138) (29) (784) — — (2,096) — ¥222,658 131,375 22,740 33,086 107 2 11,461 34 Total ¥613,741 140,973 139,582 44,664 10,094 4,547 41,812 22,371 Fees and commissions payments ����������������������������� Remittances and transfers ������������������������������������ ¥145,539 32,905 ¥ 37,299 7,817 ¥ (2,913) (124) ¥179,925 40,597 ¥137,556 31,501 ¥ 29,424 10,630 ¥ (4,417) (4) ¥162,563 42,127 Notes: 1. Domestic operations comprise the operations of SMBC (excluding overseas branches) and its domestic consolidated subsidiaries. 2. Overseas operations comprise the operations of SMBC’s overseas branches and its overseas consolidated subsidiaries. 3. Inter-segment transactions are reported in the “Elimination” column. Trading Income Year ended March 31 Trading income ���������������������������������������������������������� Gains on trading securities ����������������������������������� Gains on securities related to 2020 2019 Millions of yen Domestic operations ¥115,613 1,093 Overseas operations Elimination ¥(9,846) — ¥51,765 8,361 Total ¥157,531 9,454 Domestic operations ¥48,476 530 Overseas operations Elimination ¥(5,786) (530) ¥37,423 — trading transactions �������������������������������������������� Gains on trading-related financial derivatives ������� Others ������������������������������������������������������������������� 9,088 105,409 22 176 43,223 2 — (9,846) — 9,265 138,786 25 — 47,919 25 — 37,423 — — (5,245) (10) Total ¥80,112 — — 80,097 14 Trading losses������������������������������������������������������������ Losses on trading securities ��������������������������������� Losses on securities related to trading transactions �������������������������������������������� Losses on trading-related financial derivatives ����� Others ������������������������������������������������������������������� ¥ 282 — ¥ 9,564 — ¥(9,846) — ¥ — 282 — — 9,564 — — (9,846) — — — — — — ¥ 4,058 — ¥ 6,158 1,655 ¥(5,786) (530) ¥ 4,430 1,125 2,956 1,102 — 348 4,143 10 — (5,245) (10) 3,305 — — Notes: 1. Domestic operations comprise the operations of SMBC (excluding overseas branches) and its domestic consolidated subsidiaries. 2. Overseas operations comprise the operations of SMBC’s overseas branches and its overseas consolidated subsidiaries. 3. Inter-segment transactions are reported in the “Elimination” column. 013_0800804262008.indd 331 331 2020/08/21 17:06:35 SMBCSMBC GROUP ANNUAL REPORT 2020Assets and Liabilities (Consolidated) Sumitomo Mitsui Banking Corporation and Subsidiaries Deposits and Negotiable Certificates of Deposit Year-End Balance March 31 Domestic operations: Millions of yen 2020 2019 Liquid deposits �������������������������������������������������������������������������������������������� Fixed-term deposits ������������������������������������������������������������������������������������ Others ���������������������������������������������������������������������������������������������������������� Subtotal ������������������������������������������������������������������������������������������������������� Negotiable certificates of deposit ���������������������������������������������������������������� Total ������������������������������������������������������������������������������������������������������������� Overseas operations: Liquid deposits �������������������������������������������������������������������������������������������� Fixed-term deposits ������������������������������������������������������������������������������������ Others ���������������������������������������������������������������������������������������������������������� Subtotal ������������������������������������������������������������������������������������������������������� Negotiable certificates of deposit ���������������������������������������������������������������� Total ������������������������������������������������������������������������������������������������������������� Grand total ������������������������������������������������������������������������������������������������������ ¥ 80,651,604 17,782,431 7,207,251 105,641,287 4,231,740 ¥109,873,027 ¥ 14,626,335 7,288,271 68,101 21,982,708 6,098,695 ¥ 28,081,404 ¥137,954,431 ¥ 75,716,972 17,908,442 7,324,007 100,949,421 5,132,651 ¥106,082,073 ¥ 14,256,217 7,898,851 86,339 22,241,408 6,202,835 ¥ 28,444,244 ¥134,526,317 Notes: 1. Domestic operations comprise the operations of SMBC (excluding overseas branches) and its domestic consolidated subsidiaries. 2. Overseas operations comprise the operations of SMBC’s overseas branches and its overseas consolidated subsidiaries. 3. Liquid deposits = Current deposits + Ordinary deposits + Savings deposits + Deposits at notice 4. Fixed-term deposits represents Time deposits Balance of Loan Portfolio, Classified by Industry Year-End Balance March 31 Domestic operations: Millions of yen 2020 2019 Manufacturing���������������������������������������������������������������������������������������������� Agriculture, forestry, fisheries and mining ��������������������������������������������������� Construction ������������������������������������������������������������������������������������������������ Transportation, communications and public enterprises ���������������������������� Wholesale and retail ������������������������������������������������������������������������������������ Finance and insurance �������������������������������������������������������������������������������� Real estate, goods rental and leasing ��������������������������������������������������������� Services ������������������������������������������������������������������������������������������������������� Municipalities ����������������������������������������������������������������������������������������������� Others ���������������������������������������������������������������������������������������������������������� Subtotal ������������������������������������������������������������������������������������������������������� Overseas operations: Public sector ������������������������������������������������������������������������������������������������ Financial institutions ������������������������������������������������������������������������������������ Commerce and industry ������������������������������������������������������������������������������ Others ���������������������������������������������������������������������������������������������������������� Subtotal ������������������������������������������������������������������������������������������������������� Total ����������������������������������������������������������������������������������������������������������������� ¥ 7,264,656 271,216 753,216 5,228,310 4,393,787 5,927,258 9,302,176 4,355,912 784,273 16,234,304 ¥54,515,111 ¥ 276,493 2,093,606 23,939,816 3,455,585 ¥29,765,501 ¥84,280,613 13.33% 0.50 1.38 9.59 8.06 10.87 17.06 7.99 1.44 29.78 100.00% 0.93% 7.03 80.43 11.61 100.00% — ¥ 6,715,306 272,306 730,187 5,341,650 4,299,125 5,488,335 8,727,653 4,247,592 754,500 16,808,918 ¥53,385,577 ¥ 286,310 1,825,955 21,381,483 2,913,075 ¥26,406,824 ¥79,792,401 12�58% 0�51 1�37 10�01 8�05 10�28 16�35 7�96 1�41 31�48 100�00% 1�08% 6�92 80�97 11�03 100�00% — Notes: 1. Domestic operations comprise the operations of SMBC (excluding overseas branches) and its domestic consolidated subsidiaries. 2. Overseas operations comprise the operations of SMBC’s overseas branches and its overseas consolidated subsidiaries. 3. Japan offshore banking accounts are included in overseas operations’ accounts. 332 013_0800804262008.indd 332 2020/08/21 17:06:35 SMBCSMBC GROUP ANNUAL REPORT 2020Assets and Liabilities (Consolidated) Risk-Monitored Loans March 31 Bankrupt loans ������������������������������������������������������������������������������������������������ Non-accrual loans ������������������������������������������������������������������������������������������� Past due loans (3 months or more) ����������������������������������������������������������������� Restructured loans ������������������������������������������������������������������������������������������ Total ����������������������������������������������������������������������������������������������������������������� Amount of direct reduction ������������������������������������������������������������������������������ Notes: Definition of risk-monitored loan categories 2020 ¥ 13,964 327,080 7,036 137,542 ¥485,623 ¥ 93,142 Millions of yen 2019 ¥ 12,801 409,516 6,447 115,668 ¥544,433 ¥ 99,554 1. Bankrupt loans: Loans on which accrued interest income is not recognized, and to borrowers that are undergoing bankruptcy, corporate reorganization and rehabilitation proceedings or borrowers receiving a disposition to suspend transactions with a clearing house. 2. Non-accrual loans: 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): Loans on which the principal or interest is past due for 3 months or more, excluding loans in categories 1. and 2. 4. Restructured loans: Loans to borrowers on which terms and conditions have been amended in favor of the borrowers in order to support the borrowers’ recovery from financial difficulties and facilitate collection of loans, excluding loans in categories 1. through 3. Securities Year-End Balance March 31 Domestic operations: Millions of yen 2020 2019 Japanese government bonds ���������������������������������������������������������������������� Japanese local government bonds ������������������������������������������������������������� Japanese corporate bonds ������������������������������������������������������������������������� Japanese stocks ������������������������������������������������������������������������������������������ Others ���������������������������������������������������������������������������������������������������������� Subtotal ������������������������������������������������������������������������������������������������������� Overseas operations: Japanese government bonds ���������������������������������������������������������������������� Japanese local government bonds ������������������������������������������������������������� Japanese corporate bonds ������������������������������������������������������������������������� Japanese stocks ������������������������������������������������������������������������������������������ Others ���������������������������������������������������������������������������������������������������������� Subtotal ������������������������������������������������������������������������������������������������������� Total ����������������������������������������������������������������������������������������������������������������� ¥ 7,348,013 262,681 2,666,212 2,712,913 6,966,667 ¥19,956,489 ¥ — — 72,866 — 6,253,293 ¥ 6,326,160 ¥26,282,649 ¥ 6,514,573 99,164 2,582,014 3,434,663 5,417,732 ¥18,048,148 ¥ — — 68,226 — 5,353,247 ¥ 5,421,473 ¥23,469,621 Notes: 1. Domestic operations comprise the operations of SMBC (excluding overseas branches) and its domestic consolidated subsidiaries. 2. Overseas operations comprise the operations of SMBC’s overseas branches and its overseas consolidated subsidiaries. 3. “Others” include foreign bonds and foreign stocks. Trading Assets and Liabilities 2020 2019 Millions of yen March 31 Trading assets ����������������������������������������������������������� ¥2,741,487 ¥1,524,271 220,036 — — Trading securities �������������������������������������������������� Derivatives of trading securities ���������������������������� Securities related to trading transactions ������������� Derivatives of securities related to 119,303 2,556 — ¥(131,942) ¥4,133,816 339,339 2,556 — — — — Domestic operations Overseas operations Elimination Total Overseas operations Elimination Total Domestic operations ¥1,428,638 ¥1,044,294 369,842 — — 11,708 363 — ¥(20,108) ¥2,452,825 381,551 363 — — — — trading transactions �������������������������������������������� 28,604 Trading-related financial derivatives ��������������������� 2,543,025 Other trading assets���������������������������������������������� 47,998 19 1,298,633 5,581 — (131,942) — 28,624 3,709,715 53,579 28,120 1,344,447 43,997 0 674,451 — — (20,108) — 28,121 1,998,791 43,997 Trading liabilities �������������������������������������������������������� ¥2,512,076 ¥1,078,983 69,515 — Trading securities sold for short sales ������������������ Derivatives of trading securities ���������������������������� Securities related to trading transactions 112,471 1,976 ¥(131,942) ¥3,459,117 181,987 1,976 — — ¥1,258,988 ¥ 579,730 119,540 — 5,546 547 ¥(20,108) ¥1,818,610 125,086 547 — — sold for short sales ��������������������������������������������� — — — — — — — — Derivatives of securities related to trading transactions �������������������������������������������� 28,931 Trading-related financial derivatives ��������������������� 2,368,696 Other trading liabilities ������������������������������������������ — 9 1,009,457 — — (131,942) — 28,941 3,246,211 — 29,030 1,223,864 — 2 460,187 — — (20,108) — 29,032 1,663,943 — Notes: 1. Domestic operations comprise the operations of SMBC (excluding overseas branches) and its domestic consolidated subsidiaries. 2. Overseas operations comprise the operations of SMBC’s overseas branches and its overseas consolidated subsidiaries. 3. Inter-segment transactions are reported in the “Elimination” column. 013_0800804262008.indd 333 333 2020/08/21 17:06:35 SMBCSMBC GROUP ANNUAL REPORT 2020Income Analysis (Non-consolidated) Sumitomo Mitsui Banking Corporation Gross Banking Profit, Classified by Domestic and International Operations Millions of yen Year ended March 31 Interest income ������������������������������������������� Domestic operations ¥599,969 2020 International operations ¥1,306,302 Interest expenses ��������������������������������������� 38,291 989,888 Net interest income ���������������������������������������� Trust fees �������������������������������������������������������� Fees and commissions ������������������������������� Fees and commissions payments �������������� Net fees and commissions ����������������������������� Trading income ������������������������������������������� Trading losses ��������������������������������������������� Net trading income ����������������������������������������� Other operating income ������������������������������ Other operating expenses �������������������������� Net other operating income���������������������������� Gross banking profit ��������������������������������������� Gross banking profit rate (%) ������������������������� 561,678 2,041 323,338 140,929 182,409 1,114 — 1,114 44,419 28,969 15,449 ¥762,693 316,413 68 198,112 57,263 140,848 110,540 — 110,540 98,434 16,992 81,442 ¥ 649,314 Total ¥1,900,107 [6,164] 1,022,015 [6,164] 878,091 2,110 521,450 198,192 323,257 111,655 — 111,655 142,854 45,962 96,892 ¥1,412,007 Domestic operations ¥680,105 2019 International operations ¥1,306,346 42,009 1,000,338 638,096 2,191 325,593 132,234 193,359 556 — 556 23,802 8,490 15,312 ¥849,516 306,008 58 198,973 50,131 148,841 45,951 3,305 42,646 85,871 37,356 48,515 ¥ 546,070 Total ¥1,970,831 [15,620] 1,026,727 [15,620] 944,104 2,250 524,566 182,365 342,201 46,507 3,305 43,202 109,674 45,846 63,828 ¥1,395,586 1.06% 1.27% 1.19% 1�22% 1�10% 1�20% Notes: 1. Domestic operations include yen-denominated transactions by domestic branches, while international operations include foreign-currency-denominated transactions by domestic branches and operations by overseas branches. Yen-denominated nonresident transactions and Japan offshore banking accounts are included in international operations. 2. Figures in brackets [ ] indicate interest payments of interdepartmental lending and borrowing activities between domestic and international operations. Difference between sums of domestic and international operations and some figures in the total column due to indication on a net basis of interest from interest rate swaps and similar instruments, is included in figures in brackets [ ]. 3. Gross banking profit rate = Gross banking profit / Average balance of interest-earning assets ✕ 100 Average Balance, Interest and Average Rate of Interest-Earning Assets and Interest-Bearing Liabilities Domestic Operations Average balance Year ended March 31 Interest-earning assets ����������������������������������� ¥ 71,689,376 [4,564,882] 49,200,031 12,852,752 275,937 2,711,351 Loans and bills discounted ������������������������� Securities ���������������������������������������������������� Call loans ���������������������������������������������������� Receivables under resale agreements �������� Receivables under securities borrowing transactions ����������������������������� Bills bought ������������������������������������������������� Deposits with banks ����������������������������������� 807,427 — 9,298 Interest-bearing liabilities ������������������������������� ¥114,916,658 94,329,528 5,709,196 231,706 2,460,296 Deposits������������������������������������������������������ Negotiable certificates of deposit ��������������� Call money �������������������������������������������������� Payables under repurchase agreements ���� Payables under securities lending transactions ��������������������������������� Borrowed money ���������������������������������������� Short-term bonds ��������������������������������������� Bonds ��������������������������������������������������������� 1,243 10,484,063 — 315,249 Millions of yen 2020 Interest ¥599,969 [6,164] 440,440 118,136 (97) (1,146) 282 — 13 ¥ 38,291 6,234 408 (150) (2,475) 7 28,223 — 5,348 Average rate 0.83% 0.89 0.91 (0.03) (0.04) 0.03 — 0.14 0.03% 0.00 0.00 (0.06) (0.10) 0.56 0.26 — 1.69 Average balance ¥ 69,584,790 [2,777,146] 48,779,204 12,664,232 62,829 2,570,984 1,515,257 — 10,725 ¥107,848,148 90,417,718 6,041,635 36,302 897,869 175,193 8,555,317 — 434,144 2019 Interest ¥680,105 [15,620] 453,649 174,918 3 (1,450) 400 — 15 ¥ 42,009 7,115 429 (27) (1,364) 22 27,706 — 7,105 Average rate 0�97% 0�93 1�38 0�00 (0�05) 0�02 — 0�14 0�03% 0�00 0�00 (0�07) (0�15) 0�01 0�32 — 1�63 Notes: 1. “Interest-earning assets” are shown after deduction of the average balance of noninterest-earning deposits (2020, ¥46,959,708 million; 2019, ¥42,195,891 million). 2. Figures in brackets [ ] indicate the average balances of interdepartmental lending and borrowing activities between domestic and international operations and related interest expenses. Difference between sums of domestic and international operations and some figures in the “Total of Domestic and International Operations” due to indication on a net basis of interest from interest rate swaps and similar instruments, is included in figures in brackets [ ]. 334 013_0800804262008.indd 334 2020/08/21 17:06:35 SMBCSMBC GROUP ANNUAL REPORT 2020Income Analysis (Non-consolidated) International Operations Year ended March 31 Average balance Interest-earning assets ����������������������������������� ¥51,106,233 27,255,573 11,370,094 1,128,672 709,057 Loans and bills discounted ������������������������� Securities ���������������������������������������������������� Call loans ���������������������������������������������������� Receivables under resale agreements �������� Receivables under securities borrowing transactions ����������������������������� Deposits with banks ����������������������������������� 115,111 6,319,952 Interest-bearing liabilities ������������������������������� ¥50,248,864 [4,564,882] 21,386,813 6,414,014 947,990 5,259,016 Deposits������������������������������������������������������ Negotiable certificates of deposit ��������������� Call money �������������������������������������������������� Payables under repurchase agreements ���� Payables under securities lending transactions ��������������������������������� Commercial Paper �������������������������������������� Borrowed money ���������������������������������������� Bonds ��������������������������������������������������������� 603,448 1,120,502 6,236,349 2,161,426 2020 Interest ¥1,306,302 813,691 211,015 (2,009) 17,683 311 89,226 ¥ 989,888 [6,164] 341,501 130,711 13,464 109,125 908 17,768 174,118 59,555 Millions of yen Average rate 2.55% 2.98 1.85 (0.17) 2.49 Average balance ¥49,223,041 26,790,832 9,794,923 1,593,638 582,477 2019 Interest ¥1,306,346 845,075 170,648 (3,491) 16,891 Average rate 2�65% 3�15 1�74 (0�21) 2�90 0.27 1.41 1.96% 1.59 2.03 1.42 2.07 0.15 1.58 2.79 2.75 122,858 6,386,681 358 108,377 ¥48,831,825 [2,777,146] 22,245,705 5,781,018 1,044,194 5,174,319 ¥1,000,338 [15,620] 374,188 133,339 15,445 111,561 284,133 1,860,723 5,747,523 2,841,907 911 31,459 176,571 78,045 0�29 1�69 2�04% 1�68 2�30 1�47 2�15 0�32 1�69 3�07 2�74 Notes: 1. “Interest-earning assets” are shown after deduction of the average balance of noninterest-earning deposits (2020, ¥293,523 million; 2019, ¥134,841 million). 2. Figures in brackets [ ] indicate the average balances of interdepartmental lending and borrowing activities between domestic and international operations and related interest expenses. Difference between sums of domestic and international operations and some figures in the “Total of Domestic and International Operations” due to indication on a net basis of interest from interest rate swaps and similar instruments, is included in figures in brackets [ ]. 3. The average balance of foreign-currency-denominated transactions by domestic branches in international operations is calculated by the monthly current method, under which the TT middle rate at the end of the previous month is applied to nonexchange transactions of the month concerned. Total of Domestic and International Operations Year ended March 31 Average balance Interest-earning assets ����������������������������������� ¥118,230,727 76,455,604 24,222,846 1,404,609 3,420,409 Loans and bills discounted ������������������������� Securities ���������������������������������������������������� Call loans ���������������������������������������������������� Receivables under resale agreements �������� Receivables under securities borrowing transactions ����������������������������� Bills bought ������������������������������������������������� Deposits with banks ����������������������������������� 922,539 — 6,329,250 Interest-bearing liabilities ������������������������������� ¥160,600,640 Deposits������������������������������������������������������ 115,716,342 Negotiable certificates of deposit ��������������� 12,123,210 Call money �������������������������������������������������� 1,179,697 Payables under repurchase agreements ���� 7,719,312 Payables under securities lending transactions ��������������������������������� Commercial Paper �������������������������������������� Borrowed money ���������������������������������������� Short-term bonds ��������������������������������������� Bonds ��������������������������������������������������������� 604,691 1,120,502 16,720,413 — 2,476,676 2020 Interest ¥1,900,107 1,254,132 329,152 (2,106) 16,536 594 — 89,239 ¥1,022,015 347,736 131,120 13,313 106,649 915 17,768 202,341 — 64,904 Millions of yen Average rate 1.60% 1.64 1.35 (0.14) 0.48 Average balance ¥116,030,685 75,570,036 22,459,156 1,656,467 3,153,462 2019 Interest ¥1,970,831 1,298,725 345,566 (3,487) 15,441 Average rate 1�69% 1�71 1�53 (0�21) 0�48 0.06 — 1.40 0.63% 0.30 1.08 1.12 1.38 0.15 1.58 1.21 — 2.62 1,638,115 — 6,397,407 759 — 108,392 ¥153,902,827 112,663,423 11,822,654 1,080,496 6,072,188 ¥1,026,727 381,304 133,768 15,418 110,197 459,327 1,860,723 14,302,840 — 3,276,052 933 31,459 204,277 — 85,150 0�04 — 1�69 0�66% 0�33 1�13 1�42 1�81 0�20 1�69 1�42 — 2�59 Notes: 1. “Interest-earning assets” are shown after deduction of the average balance of noninterest-earning deposits (2020, ¥47,253,231 million; 2019, ¥42,330,733 million). 2. Figures in the table above indicate the net average balances of amounts adjusted for interdepartmental lending and borrowing activities between domestic and international operations and related interest expenses. 013_0800804262008.indd 335 335 2020/08/21 17:06:35 SMBCSMBC GROUP ANNUAL REPORT 2020Income Analysis (Non-consolidated) Breakdown of Interest Income and Interest Expenses Domestic Operations Year ended March 31 Interest income ����������������������������������������������� Loans and bills discounted ������������������������� Securities ���������������������������������������������������� Call loans ���������������������������������������������������� Receivables under resale agreements �������� Receivables under securities borrowing transactions ����������������������������� Bills bought ������������������������������������������������� Deposits with banks ����������������������������������� Interest expenses ������������������������������������������� Deposits������������������������������������������������������ Negotiable certificates of deposit ��������������� Call money �������������������������������������������������� Payables under repurchase agreements ���� Payables under securities lending transactions ��������������������������������� Borrowed money ���������������������������������������� Short-term bonds ��������������������������������������� Bonds ��������������������������������������������������������� International Operations Year ended March 31 Interest income ����������������������������������������������� Loans and bills discounted ������������������������� Securities ���������������������������������������������������� Call loans ���������������������������������������������������� Receivables under resale agreements �������� Receivables under securities borrowing transactions ����������������������������� Deposits with banks ����������������������������������� Interest expenses ������������������������������������������� Deposits������������������������������������������������������ Negotiable certificates of deposit ��������������� Call money �������������������������������������������������� Payables under repurchase agreements ���� Payables under securities lending transactions ��������������������������������� Commercial paper����������������������������������������� Borrowed money ���������������������������������������� Bonds ��������������������������������������������������������� Volume-related increase (decrease) ¥17,613 3,767 1,732 (75) (75) (187) — (2) ¥ 2,355 258 (23) (127) (1,702) (22) 5,192 — (1,945) Volume-related increase (decrease) ¥ 48,135 13,874 28,716 827 3,156 (21) (1,121) ¥ 27,915 (14,130) 12,899 (1,383) 1,757 480 (11,842) 13,648 (18,687) Total of Domestic and International Operations Year ended March 31 Interest income ����������������������������������������������� Loans and bills discounted ������������������������� Securities ���������������������������������������������������� Call loans ���������������������������������������������������� Receivables under resale agreements �������� Receivables under securities borrowing transactions ����������������������������� Bills bought ������������������������������������������������� Deposits with banks ����������������������������������� Interest expenses ������������������������������������������� Deposits������������������������������������������������������ Negotiable certificates of deposit ��������������� Call money �������������������������������������������������� Payables under repurchase agreements ���� Payables under securities lending transactions ��������������������������������� Commercial paper����������������������������������������� Borrowed money ���������������������������������������� Short-term bonds ��������������������������������������� Bonds ��������������������������������������������������������� Volume-related increase (decrease) ¥ 35,358 14,526 23,965 530 1,290 (331) — (1,143) ¥ 42,622 9,174 3,250 1,119 22,756 220 (11,842) 29,256 — (20,777) 2020 Rate-related increase (decrease) ¥(97,749) (16,976) (58,514) (25) 379 69 — 0 ¥ (6,072) (1,139) 3 4 590 6 (4,675) — 188 2020 Rate-related increase (decrease) ¥(48,180) (45,258) 11,650 654 (2,365) (25) (18,029) ¥(38,365) (18,556) (15,527) (598) (4,193) (483) (1,848) (16,100) 197 2020 Rate-related increase (decrease) ¥(106,082) (59,119) (40,380) 851 (195) 166 — (18,009) ¥ (47,334) (42,742) (5,899) (3,224) (26,304) (238) (1,848) (31,192) — 530 Millions of yen Net increase (decrease) ¥(80,135) (13,209) (56,781) (100) 303 (117) — (1) ¥ (3,717) (880) (20) (123) (1,111) (15) 517 — (1,757) Volume-related increase (decrease) ¥(20,093) (4,289) (31,523) 2 (1,450) (258) — (1) ¥ 324 369 (49) 58 (1,323) (462) 2,098 — (3,301) Millions of yen Net increase (decrease) ¥ (44) (31,384) 40,367 1,481 791 (47) (19,150) ¥(10,450) (32,687) (2,628) (1,981) (2,436) (3) (13,691) (2,452) (18,489) Volume-related increase (decrease) ¥66,823 20,246 27,943 (420) (3,101) 35 6,047 ¥47,582 13,741 2,104 33 29,738 (4,086) 4,789 21,969 (3,170) Millions of yen Net increase (decrease) ¥(70,724) (44,593) (16,414) 1,381 1,094 (165) — (19,152) ¥ (4,711) (33,567) (2,648) (2,104) (3,548) (18) (13,691) (1,935) — (20,246) Volume-related increase (decrease) ¥ 29,583 5,474 (9,399) (508) 11,859 (392) — 6,019 ¥ 22,684 13,398 (3,766) (506) 43,000 (8,820) 4,789 20,184 — (8,414) 2019 Rate-related increase (decrease) ¥(46,638) (18,762) (10,648) (8) 0 112 — 0 ¥ 2,136 (1,185) (9) (1) (40) 4 5,673 — 920 2019 Rate-related increase (decrease) ¥322,182 200,064 9,848 (994) 4,777 0 31,947 ¥285,163 139,016 47,487 7,212 41,381 (4,141) 17,423 12,081 4,463 2019 Rate-related increase (decrease) ¥293,604 191,783 5,019 (911) (11,633) 282 — 31,974 ¥313,435 138,543 53,299 7,809 26,755 134 17,423 21,639 — 7,327 Net increase (decrease) ¥(66,731) (23,052) (42,171) (5) (1,450) (145) — (1) ¥ 2,460 (816) (58) 56 (1,364) (457) 7,772 — (2,380) Net increase (decrease) ¥389,006 220,311 37,791 (1,414) 1,675 36 37,995 ¥332,745 152,758 49,591 7,245 71,120 (8,228) 22,213 34,051 1,293 Net increase (decrease) ¥323,188 197,258 (4,380) (1,420) 225 (109) — 37,993 ¥336,120 151,942 49,532 7,302 69,755 (8,685) 22,213 41,824 — (1,087) Note: Increase (decrease) attributed to both volume-related and rate-related is prorated according to proportion of change in each factor. 336 013_0800804262008.indd 336 2020/08/21 17:06:35 SMBCSMBC GROUP ANNUAL REPORT 2020 Income Analysis (Non-consolidated) Fees and Commissions Year ended March 31 Fees and commissions ����������������������������������� Deposits and loans ������������������������������������� Remittances and transfers ������������������������� Securities-related business ������������������������ Agency �������������������������������������������������������� Safe deposits ���������������������������������������������� Guarantees ������������������������������������������������� Millions of yen Domestic operations ¥323,338 13,988 98,757 6,208 6,113 4,347 13,143 2020 International operations ¥198,112 111,246 40,713 1,236 — — 17,809 Total ¥521,450 125,235 139,471 7,445 6,113 4,347 30,952 Domestic operations ¥325,593 12,730 95,877 10,038 7,577 4,544 14,232 2019 International operations ¥198,973 111,661 41,454 1,790 — — 19,064 Total ¥524,566 124,391 137,332 11,829 7,577 4,544 33,296 Fees and commissions payments ������������������ Remittances and transfers ������������������������� ¥140,929 27,460 ¥ 57,263 11,741 ¥198,192 39,202 ¥132,234 26,039 ¥ 50,131 12,122 ¥182,365 38,161 Trading Income Year ended March 31 Trading income ����������������������������������������������� Gains on trading securities ������������������������� Gains on securities related to trading transactions ���������������������������������� Gains on trading-related financial derivatives ������������������������������������������������� Others ��������������������������������������������������������� Trading losses ������������������������������������������������ Losses on trading securities ����������������������� Losses on securities related to trading transactions ���������������������������������� Losses on trading-related financial derivatives ���������������������������������� Others ��������������������������������������������������������� Millions of yen Domestic operations ¥1,114 1,093 2020 International operations ¥110,540 — Total ¥111,655 1,093 Domestic operations ¥556 530 2019 International operations ¥45,951 — Total ¥46,507 530 — — 21 9,081 9,081 101,458 0 101,458 22 ¥ — — ¥ — — — — — — — — ¥ — — — — — — — 25 ¥ — — — — — — — 45,951 — ¥ 3,305 — 45,951 25 ¥ 3,305 — 3,305 3,305 — — — — Note: Figures represent net income and loss after offsetting income against expenses. Net Other Operating Income (Expenses) Year ended March 31 Net other operating income (expenses) ��������� Gains (losses) on bonds ����������������������������� Gains (losses) on derivatives ���������������������� Gains on foreign exchange transactions ���� General and Administrative Expenses Millions of yen Domestic operations ¥15,449 (2,430) 2,535 — 2020 International operations ¥81,442 76,634 5,683 538 Total ¥96,892 74,203 8,219 538 Domestic operations ¥15,312 6,388 (2,783) — 2019 International operations ¥48,515 (3,511) (2,488) 57,576 Total ¥63,828 2,877 (5,272) 57,576 Year ended March 31 Salaries and related expenses ������������������������������������������������������������������������ Retirement benefit cost ����������������������������������������������������������������������������������� Welfare expenses �������������������������������������������������������������������������������������������� Depreciation ���������������������������������������������������������������������������������������������������� Rent and lease expenses �������������������������������������������������������������������������������� Building and maintenance expenses �������������������������������������������������������������� Supplies expenses ������������������������������������������������������������������������������������������ Water, lighting, and heating expenses������������������������������������������������������������� Traveling expenses ������������������������������������������������������������������������������������������ Communication expenses ������������������������������������������������������������������������������� Publicity and advertising expenses ����������������������������������������������������������������� Taxes, other than income taxes����������������������������������������������������������������������� Deposit insurance �������������������������������������������������������������������������������������������� Others �������������������������������������������������������������������������������������������������������������� Total ����������������������������������������������������������������������������������������������������������������� 2020 ¥284,749 (5,815) 45,664 104,452 55,662 6,290 3,853 5,073 5,778 6,187 16,053 50,214 31,578 198,309 ¥808,052 Millions of yen 2019 ¥290,697 (5,231) 45,131 103,972 59,018 7,414 4,540 5,252 6,061 6,923 14,376 48,117 30,723 194,536 ¥811,533 013_0800804262008.indd 337 337 2020/08/21 17:06:35 SMBCSMBC GROUP ANNUAL REPORT 2020Deposits (Non-consolidated) Sumitomo Mitsui Banking Corporation Deposits and Negotiable Certificates of Deposit Year-End Balance March 31 Domestic operations: Millions of yen 2020 2019 Liquid deposits �������������������������������������������������������������������������������������������� Fixed-term deposits ������������������������������������������������������������������������������������ Others ���������������������������������������������������������������������������������������������������������� Subtotal ������������������������������������������������������������������������������������������������������� Negotiable certificates of deposit ���������������������������������������������������������������� Total ������������������������������������������������������������������������������������������������������������� International operations: Liquid deposits �������������������������������������������������������������������������������������������� Fixed-term deposits ������������������������������������������������������������������������������������ Others ���������������������������������������������������������������������������������������������������������� Subtotal ������������������������������������������������������������������������������������������������������� Negotiable certificates of deposit ���������������������������������������������������������������� Total ������������������������������������������������������������������������������������������������������������� Grand total ������������������������������������������������������������������������������������������������������ ¥ 79,443,753 17,624,378 1,638,536 98,706,668 4,502,740 ¥103,209,408 ¥ 10,177,761 6,172,895 4,915,999 21,266,656 6,077,521 ¥ 27,344,178 ¥130,553,586 Notes: 1. Liquid deposits = Current deposits + Ordinary deposits + Savings deposits + Deposits at notice 2. Fixed-term deposits = Time deposits + Installment savings 77.0% ¥ 74,533,808 17,778,577 17.0 1,277,119 1.6 93,589,505 95.6 5,389,733 4.4 100.0% ¥ 98,979,238 37.2% ¥ 10,527,786 6,586,866 22.6 5,386,945 18.0 22,501,598 77.8 6,191,872 22.2 100.0% ¥ 28,693,470 ¥127,672,708 — 75�3% 18�0 1�3 94�6 5�4 100�0% 36�7% 22�9 18�8 78�4 21�6 100�0% — Average Balance Year ended March 31 Domestic operations: Millions of yen 2020 2019 Liquid deposits �������������������������������������������������������������������������������������������� Fixed-term deposits ������������������������������������������������������������������������������������ Others ���������������������������������������������������������������������������������������������������������� Subtotal ������������������������������������������������������������������������������������������������������� Negotiable certificates of deposit ���������������������������������������������������������������� Total ������������������������������������������������������������������������������������������������������������� International operations: Liquid deposits �������������������������������������������������������������������������������������������� Fixed-term deposits ������������������������������������������������������������������������������������ Others ���������������������������������������������������������������������������������������������������������� Subtotal ������������������������������������������������������������������������������������������������������� Negotiable certificates of deposit ���������������������������������������������������������������� Total ������������������������������������������������������������������������������������������������������������� Grand total ������������������������������������������������������������������������������������������������������ ¥ 75,693,379 17,749,920 886,229 94,329,528 5,709,196 ¥100,038,725 ¥ 10,133,921 6,126,164 5,126,728 21,386,813 6,414,014 ¥ 27,800,827 ¥127,839,552 ¥ 71,466,888 18,019,348 931,481 90,417,718 6,041,635 ¥ 96,459,354 ¥ 10,181,064 6,659,091 5,405,548 22,245,705 5,781,018 ¥ 28,026,724 ¥124,486,078 Notes: 1. Liquid deposits = Current deposits + Ordinary deposits + Savings deposits + Deposits at notice 2. Fixed-term deposits = Time deposits + Installment savings 3. The average balance of foreign-currency-denominated transactions by domestic branches in international operations is calculated by the monthly current method. Balance of Deposits, Classified by Type of Depositor March 31 Individual ��������������������������������������������������������������������������������������������������������� Corporate �������������������������������������������������������������������������������������������������������� Total ����������������������������������������������������������������������������������������������������������������� 2020 ¥ 49,052,970 53,131,027 ¥102,183,997 48.0% 52.0 100.0% 2019 ¥47,106,526 50,152,636 ¥97,259,162 48�4% 51�6 100�0% Millions of yen Note: The figures above exclude negotiable certificates of deposit and Japan offshore banking accounts. 338 013_0800804262008.indd 338 2020/08/21 17:06:35 SMBCSMBC GROUP ANNUAL REPORT 2020Deposits (Non-consolidated) Balance of Investment Trusts, Classified by Type of Customer March 31 Individual ��������������������������������������������������������������������������������������������������������� Corporate �������������������������������������������������������������������������������������������������������� Total ����������������������������������������������������������������������������������������������������������������� 2020 ¥1,593,388 379,675 ¥1,973,063 2019 ¥1,752,186 389,246 ¥2,141,432 Note: Balance of investment trusts is recognized on a contract basis and measured according to each fund’s net asset balance at the fiscal year-end. Millions of yen Balance of Time Deposits, Classified by Maturity March 31 Less than three months ����������������������������������������������������������������������������������� Fixed interest rates �������������������������������������������������������������������������������������� Floating interest rates ���������������������������������������������������������������������������������� Others ���������������������������������������������������������������������������������������������������������� Three — six months ���������������������������������������������������������������������������������������� Fixed interest rates �������������������������������������������������������������������������������������� Floating interest rates ���������������������������������������������������������������������������������� Others ���������������������������������������������������������������������������������������������������������� Six months — one year ����������������������������������������������������������������������������������� Fixed interest rates �������������������������������������������������������������������������������������� Floating interest rates ���������������������������������������������������������������������������������� Others ���������������������������������������������������������������������������������������������������������� One — two years ��������������������������������������������������������������������������������������������� Fixed interest rates �������������������������������������������������������������������������������������� Floating interest rates ���������������������������������������������������������������������������������� Others ���������������������������������������������������������������������������������������������������������� Two — three years ������������������������������������������������������������������������������������������� Fixed interest rates �������������������������������������������������������������������������������������� Floating interest rates ���������������������������������������������������������������������������������� Others ���������������������������������������������������������������������������������������������������������� Three years or more ���������������������������������������������������������������������������������������� Fixed interest rates �������������������������������������������������������������������������������������� Floating interest rates ���������������������������������������������������������������������������������� Others ���������������������������������������������������������������������������������������������������������� Total ����������������������������������������������������������������������������������������������������������������� Fixed interest rates �������������������������������������������������������������������������������������� Floating interest rates ���������������������������������������������������������������������������������� Others ���������������������������������������������������������������������������������������������������������� 2020 ¥10,687,089 6,216,619 1,700 4,468,770 4,108,282 3,351,521 1,800 754,961 5,282,833 4,788,235 410 494,187 1,495,344 1,302,646 3,980 188,717 1,233,834 963,279 4,859 265,695 989,888 482,885 506,439 563 ¥23,797,273 17,105,189 519,188 6,172,896 Millions of yen 2019 ¥11,297,105 6,425,547 7,800 4,863,757 4,063,914 3,283,324 4,620 775,970 5,130,177 4,625,278 4,194 500,704 1,561,296 1,384,263 2,810 174,223 1,133,375 979,728 33,945 119,702 1,179,573 477,844 564,626 137,102 ¥24,365,443 17,175,987 617,995 6,571,460 013_0800804262008.indd 339 339 2020/08/21 17:06:36 SMBCSMBC GROUP ANNUAL REPORT 2020Loans (Non-consolidated) Sumitomo Mitsui Banking Corporation Balance of Loans and Bills Discounted Year-End Balance March 31 Domestic operations: Millions of yen 2020 2019 Loans on notes �������������������������������������������������������������������������������������������� Loans on deeds ������������������������������������������������������������������������������������������� Overdrafts ���������������������������������������������������������������������������������������������������� Bills discounted ������������������������������������������������������������������������������������������� Subtotal ������������������������������������������������������������������������������������������������������� International operations: Loans on notes �������������������������������������������������������������������������������������������� Loans on deeds ������������������������������������������������������������������������������������������� Overdrafts ���������������������������������������������������������������������������������������������������� Bills discounted ������������������������������������������������������������������������������������������� Subtotal ������������������������������������������������������������������������������������������������������� Total ����������������������������������������������������������������������������������������������������������������� ¥ 225,691 40,171,297 10,231,982 38,806 ¥50,667,777 ¥ 1,428,505 27,793,181 297,917 — ¥29,519,604 ¥80,187,382 ¥ 778,382 38,876,438 10,045,587 51,559 ¥49,751,966 ¥ 1,219,916 25,218,669 211,254 — ¥26,649,840 ¥76,401,807 Average Balance Year ended March 31 Domestic operations: Millions of yen 2020 2019 Loans on notes �������������������������������������������������������������������������������������������� Loans on deeds ������������������������������������������������������������������������������������������� Overdrafts ���������������������������������������������������������������������������������������������������� Bills discounted ������������������������������������������������������������������������������������������� Subtotal ������������������������������������������������������������������������������������������������������� International operations: Loans on notes �������������������������������������������������������������������������������������������� Loans on deeds ������������������������������������������������������������������������������������������� Overdrafts ���������������������������������������������������������������������������������������������������� Bills discounted ������������������������������������������������������������������������������������������� Subtotal ������������������������������������������������������������������������������������������������������� Total ����������������������������������������������������������������������������������������������������������������� ¥ 303,641 39,264,897 9,590,833 40,658 ¥49,200,031 ¥ 1,462,915 25,566,394 226,263 — ¥27,255,573 ¥76,455,604 ¥ 365,950 38,850,821 9,517,142 45,290 ¥48,779,204 ¥ 1,377,375 25,198,453 215,003 — ¥26,790,832 ¥75,570,036 Note: The average balance of foreign-currency-denominated transactions by domestic branches in international operations is calculated by the monthly current method. Balance of Loans and Bills Discounted, Classified by Purpose March 31 Funds for capital investment ��������������������������������������������������������������������������� Funds for working capital �������������������������������������������������������������������������������� Total ����������������������������������������������������������������������������������������������������������������� 2020 ¥20,644,721 59,542,661 ¥80,187,382 25.7% 74.3 100.0% 2019 ¥20,985,244 55,416,563 ¥76,401,807 27�5% 72�5 100�0% Millions of yen Balance of Loans and Bills Discounted, Classified by Collateral Millions of yen March 31 Securities ��������������������������������������������������������������������������������������������������������� Commercial claims ������������������������������������������������������������������������������������������ Commercial goods ������������������������������������������������������������������������������������������ Real estate ������������������������������������������������������������������������������������������������������� Others �������������������������������������������������������������������������������������������������������������� Subtotal ����������������������������������������������������������������������������������������������������������� Guaranteed ������������������������������������������������������������������������������������������������������ Unsecured ������������������������������������������������������������������������������������������������������� Total ����������������������������������������������������������������������������������������������������������������� 2020 ¥ 1,819,416 1,108,314 — 6,914,460 1,898,216 11,740,408 23,257,352 45,189,621 ¥80,187,382 2019 ¥ 1,710,219 1,130,011 — 6,984,177 1,548,178 11,372,585 19,848,704 45,180,516 ¥76,401,807 340 013_0800804262008.indd 340 2020/08/21 17:06:36 SMBCSMBC GROUP ANNUAL REPORT 2020Balance of Loans and Bills Discounted, Classified by Maturity March 31 One year or less ���������������������������������������������������������������������������������������������� One — three years ������������������������������������������������������������������������������������������ Floating interest rates ���������������������������������������������������������������������������������� Fixed interest rates �������������������������������������������������������������������������������������� Three — five years ������������������������������������������������������������������������������������������� Floating interest rates ���������������������������������������������������������������������������������� Fixed interest rates �������������������������������������������������������������������������������������� Five — seven years ����������������������������������������������������������������������������������������� Floating interest rates ���������������������������������������������������������������������������������� Fixed interest rates �������������������������������������������������������������������������������������� More than seven years ������������������������������������������������������������������������������������ Floating interest rates ���������������������������������������������������������������������������������� Fixed interest rates �������������������������������������������������������������������������������������� No designated term ����������������������������������������������������������������������������������������� Floating interest rates ���������������������������������������������������������������������������������� Fixed interest rates �������������������������������������������������������������������������������������� Total ����������������������������������������������������������������������������������������������������������������� Note: Loans with a maturity of one year or less are not classified by floating or fixed interest rates. Loans (Non-consolidated) Millions of yen 2020 ¥14,584,910 14,155,126 9,929,489 4,225,637 13,489,165 10,489,184 2,999,981 6,134,963 4,729,480 1,405,482 21,293,316 19,221,910 2,071,406 10,529,900 10,529,900 — ¥80,187,382 2019 ¥13,664,684 13,468,749 10,555,003 2,913,746 11,884,345 9,119,424 2,764,921 6,036,444 4,883,153 1,153,291 21,090,740 19,289,929 1,800,810 10,256,841 10,256,841 — ¥76,401,807 Balance of Loan Portfolio, Classified by Industry March 31 Domestic operations: Millions of yen 2020 2019 Manufacturing���������������������������������������������������������������������������������������������� Agriculture, forestry, fisheries and mining ��������������������������������������������������� Construction ������������������������������������������������������������������������������������������������ Transportation, communications and public enterprises ���������������������������� Wholesale and retail ������������������������������������������������������������������������������������ Finance and insurance �������������������������������������������������������������������������������� Real estate ��������������������������������������������������������������������������������������������������� Goods rental and leasing ����������������������������������������������������������������������������� Services ������������������������������������������������������������������������������������������������������� Municipalities ����������������������������������������������������������������������������������������������� Others ���������������������������������������������������������������������������������������������������������� Subtotal ������������������������������������������������������������������������������������������������������� Overseas operations: Public sector ������������������������������������������������������������������������������������������������ Financial institutions ������������������������������������������������������������������������������������ Commerce and industry ������������������������������������������������������������������������������ Others ���������������������������������������������������������������������������������������������������������� Subtotal ������������������������������������������������������������������������������������������������������� Total ����������������������������������������������������������������������������������������������������������������� ¥ 7,193,086 257,491 753,216 5,128,181 4,385,298 7,130,276 7,621,115 1,580,709 4,279,121 784,273 15,500,557 ¥54,613,328 ¥ 174,297 1,929,564 21,485,675 1,984,517 ¥25,574,054 ¥80,187,382 13.2% 0.5 1.4 9.4 8.0 13.1 13.9 2.9 7.8 1.4 28.4 100.0% 0.7% 7.5 84.0 7.8 100.0% — ¥ 6,621,443 267,135 729,545 5,226,335 4,283,282 7,131,892 7,053,528 1,598,278 4,168,190 754,500 16,133,209 ¥53,967,341 ¥ 176,684 1,668,433 18,979,331 1,610,015 ¥22,434,465 ¥76,401,807 12�3% 0�5 1�3 9�7 7�9 13�2 13�1 3�0 7�7 1�4 29�9 100�0% 0�8% 7�4 84�6 7�2 100�0% — Notes: 1. Domestic operations represents the operations of SMBC’s domestic branches. Overseas operations represents the operations of SMBC’s overseas branches. 2. Japan offshore banking accounts are included in overseas operations’ accounts. Loans to Individuals/Small and Medium-Sized Enterprises March 31 Total domestic loans (A) ���������������������������������������������������������������������������������� Loans to individuals, and small and medium-sized enterprises (B) ���������������� (B) / (A) ������������������������������������������������������������������������������������������������������������� 2020 ¥54,613,328 33,095,033 60.6% 2019 ¥53,967,341 32,994,754 61�1% Millions of yen Notes: 1. The figures above exclude the outstanding balance of loans at overseas branches and of Japan offshore banking accounts. 2. Small and medium-sized enterprises are individuals or companies with capital stock of ¥300 million or less, or an operating staff of 300 or fewer employ- ees. (Exceptions to these capital stock and staff restrictions include wholesalers: ¥100 million or less, 100 employees or fewer; retailers: ¥50 million or less, 50 employees or fewer; and service industry companies: ¥50 million or less, 100 employees or fewer.) 013_0800804262008.indd 341 341 2020/08/21 17:06:36 SMBCSMBC GROUP ANNUAL REPORT 2020Loans (Non-consolidated) Consumer Loans Outstanding March 31 Consumer loans ���������������������������������������������������������������������������������������������� Housing loans ���������������������������������������������������������������������������������������������� Residential purpose ��������������������������������������������������������������������������������� Others ���������������������������������������������������������������������������������������������������������� 2020 ¥12,427,001 11,583,830 9,267,478 843,171 2019 ¥13,000,685 12,118,257 9,660,356 882,427 Note: Housing loans include general-purpose loans used for housing purposes as well as housing loans and apartment house acquisition loans. Millions of yen Breakdown of Reserve for Possible Loan Losses Year ended March 31, 2020 General reserve for possible loan losses������������������ Specific reserve for possible loan losses ����������������� For nonresident loans ������������������������������������������� Loan loss reserve for specific overseas countries ��� Total �������������������������������������������������������������������������� Balance at beginning of the fiscal year ¥168,006 [3,351] 102,782 [1,044] 39,712 [1,044] 0 ¥270,789 [4,395] * Reversal by reversal method Note: Figures in brackets [ ] indicate foreign exchange translation adjustments. Year ended March 31, 2019 General reserve for possible loan losses������������������ Specific reserve for possible loan losses ����������������� For nonresident loans ������������������������������������������� Loan loss reserve for specific overseas countries ��� Total �������������������������������������������������������������������������� Balance at beginning of the fiscal year ¥226,555 [(2,987)] 96,858 [(1,138)] 34,833 [(1,138)] 581 ¥323,995 [(4,126)] * Reversal by reversal method Note: Figures in brackets [ ] indicate foreign exchange translation adjustments. Millions of yen Increase during the fiscal year ¥188,572 Decrease during the fiscal year Objectives ¥ — Others ¥168,006* Balance at end of the fiscal year ¥188,572 91,128 31,049 19,371 83,411* 91,128 9,599 30,112* 31,049 0 ¥279,702 — ¥19,371 0* ¥251,418 0 ¥279,702 Millions of yen Increase during the fiscal year ¥171,358 Decrease during the fiscal year Objectives ¥ — Others ¥226,555* Balance at end of the fiscal year ¥171,358 103,826 21,053 75,804* 103,826 40,756 7,192 27,641* 40,756 0 ¥275,185 — ¥21,053 581* ¥302,941 0 ¥275,185 Write-Off of Loans Year ended March 31 Write-off of loans ��������������������������������������������������������������������������������������������� 2020 ¥19,799 2019 ¥9,245 Millions of yen Note: Write-off of loans include amount of direct reduction. Specific Overseas Loans March 31 Argentina ��������������������������������������������������������������������������������������������������������� Total ����������������������������������������������������������������������������������������������������������������� Ratio of the total amounts to total assets ������������������������������������������������������� Number of countries ���������������������������������������������������������������������������������������� Millions of yen 2020 2019 ¥8 ¥8 0.00% 1 ¥15 ¥15 0�00% 1 342 013_0800804262008.indd 342 2020/08/21 17:06:36 SMBCSMBC GROUP ANNUAL REPORT 2020Loans (Non-consolidated) Risk-Monitored Loans March 31 Bankrupt loans ������������������������������������������������������������������������������������������������ Non-accrual loans ������������������������������������������������������������������������������������������� Past due loans (3 months or more) ����������������������������������������������������������������� Restructured loans ������������������������������������������������������������������������������������������ Total ����������������������������������������������������������������������������������������������������������������� Amount of direct reduction ������������������������������������������������������������������������������ Notes: Definition of risk-monitored loan categories 2020 ¥ 12,978 305,587 4,468 90,338 ¥413,372 ¥ 78,064 Millions of yen 2019 ¥ 11,612 386,396 5,525 58,230 ¥461,765 ¥ 82,342 1. Bankrupt loans: Loans on which accrued interest income is not recognized, and to borrowers that are undergoing bankruptcy, corporate reorganization and rehabilitation proceedings or borrowers receiving a disposition to suspend transactions with a clearing house. 2. Non-accrual loans: 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): Loans on which the principal or interest is past due for 3 months or more, excluding loans in categories 1. and 2. 4. Restructured loans: Loans to borrowers on which terms and conditions have been amended in favor of the borrowers in order to support the borrowers’ recovery from financial difficulties and facilitate collection of loans, excluding loans in categories 1. through 3. Non-performing loans (NPLs) based on the Financial Reconstruction Act March 31 Bankrupt and quasi-bankrupt assets �������������������������������������������������������������� Doubtful assets ����������������������������������������������������������������������������������������������� Substandard loans ������������������������������������������������������������������������������������������ Total ����������������������������������������������������������������������������������������������������������������� Normal assets ������������������������������������������������������������������������������������������������� Grand Total ������������������������������������������������������������������������������������������������������ Amount of direct reduction ������������������������������������������������������������������������������ 2020 ¥ 72,976 260,833 94,807 428,617 92,797,390 ¥93,226,007 ¥ 95,410 Notes: Definition of NPLs categories Millions of yen 2019 ¥ 75,341 337,375 63,756 476,472 88,460,445 ¥88,936,918 ¥ 89,256 These assets are disclosed based on the provisions of Article 7 of the Financial Reconstruction Act (Act No. 132 of 1998) and classified into the 4 categories based on financial position and business performance of obligors in accordance with Article 6 of the Act. Assets in question include private place- ment bonds, loans and bills discounted, foreign exchanges, accrued interest, and suspense payment in “other assets,” customers’ liabilities for acceptances and guarantees, and securities lent under the loan for consumption or leasing agreements. 1. Bankrupt and quasi-bankrupt assets: Credits to borrowers undergoing bankruptcy, corporate reorganization, and rehabilitation proceedings, as well as claims of a similar nature 2. Doubtful assets: Credits for which final collection of principal and interest in line with original agreements is highly improbable due to deterioration of financial position and business performance, but not insolvency of the borrower 3. Substandard loans: Past due loans (3 months or more) and restructured loans, excluding 1. and 2. 4. Normal assets: Credits to borrowers with good business performance and in financial standing without identified problems and not classified into the 3 categories above Non-performing loans (NPLs) based on the Financial Reconstruction Act, and Risk-Monitored Loans Category of borrowers under self-assessment NPLs based on the Financial Reconstruction Act Risk-monitored loans Total loans Other assets Total loans Other assets Bankrupt Borrowers Effectively Bankrupt Borrowers Bankrupt and quasi-bankrupt assets Potentially Bankrupt Borrowers Doubtful assets Borrowers Requiring Caution Substandard loans Normal Borrowers (Normal assets) Bankrupt loans Non-accrual loans Past due loans (3 months or more) Restructured loans A B C C 013_0800804262008.indd 343 343 2020/08/21 17:06:36 SMBCSMBC GROUP ANNUAL REPORT 2020Loans (Non-consolidated) Classification based on Self-Assessment, and the Financial Reconstruction Act, and Write-Offs/Reserves NPLs based on the Financial Reconstruction Act Classification under self-assessment I Classification Classification II Classification III Classification IV (Billions of yen) Reserve for possible loan losses Reserve ratio Bankrupt and quasi-bankrupt assets (1) Portion of claims secured by collateral or guarantees, etc. (a) Fully reserved ¥73.0 ¥61.9 ¥11.1 Direct write-offs (Note 1) ¥16.9 (Note 2) 100% (Note 3) March 31, 2020 Category of borrowers under self-assessment Bankrupt Borrowers Effectively Bankrupt Borrowers Potentially Bankrupt Borrowers Borrowers Requiring Caution Doubtful assets (2) ¥260.8 Substandard loans (3) ¥94.8 (Claims to substandard borrowers) Normal Borrowers Normal assets ¥92,797.4 NPL ratio (5) / (4) 0.46% Total (4) ¥93,226.0 (A) = (1) + (2) + (3) ¥428.6 ( 5 ) Portion of claims secured by collateral or guarantees, etc. (b) ¥162.3 Necessary amount reserved ¥98.5 Portion of substandard loans secured by collateral or guarantees, etc. (c) ¥36.5 Claims to borrowers requiring caution, excluding claims to substandard borrowers Claims to normal borrowers Loan loss reserve for specific overseas countries Total reserve for possible loan losses (D) Specific reserve + General reserve for substandard loans Portion secured by collateral or guarantees, etc. (B) = ( a ) + (b) + (c) ¥260.7 Unsecured portion (C) = ( A ) – (B ) Specific reserve General reserve ¥74.1 (Note 2) 75.18% (Note 3) General reserve for substandard loans ¥21.3 ¥188.8 (Note 5) ¥0.0 ¥279.7 ¥112.2 ¥167.9 13.07% (Note 3) 36.74% (Note 3) 3.98% 9.32% (Note 4) [ ] 0.11% (Note 4) Reserve ratio (D) / (C) 66.81% (Note 6) Coverage ratio { ( B) + (D) } / (A) 87.00% Notes: 1. Includes amount of direct reduction totaling ¥95.4 billion. 2. Includes reserves for assets that are not subject to disclosure under the Financial Reconstruction Act. (Bankrupt/Effectively Bankrupt Borrowers: ¥5.7 billion; Potentially Bankrupt Borrowers: ¥1.9 billion) 3. Reserve ratios for claims on Bankrupt/Effectively Bankrupt Borrowers, Potentially Bankrupt Borrowers, Substandard Borrowers, and Borrowers Requiring Caution (including Substandard Borrowers): 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. Includes Specific reserve for Borrowers Requiring Caution totaling ¥0.2 billion. 6. The proportion of the reserve to the claims, excluding the portion secured by collateral or guarantees, etc. Results of off-balancing of NPLs Bankrupt and quasi-bankrupt assets ��� Doubtful assets ������������������������������������ Total ������������������������������������������������������ March 31, 2018 ➀ ¥ 80�9 283�4 ¥364�3 Fiscal 2018 New occurrences Off-balanced ¥ (36�7) (137�7) ¥(174�4) ¥ 31�1 191�7 ¥222�8 March 31, 2019 ➁ ¥ 75�3 337�4 ¥412�7 Fiscal 2019 New occurrences Off-balanced ¥ (30�0) (186�5) ¥(216�5) ¥ 27�6 110�0 ¥137�6 March 31, 2020 ➂ ¥ 73�0 260�8 ¥333�8 Billions of yen Bankrupt and quasi-bankrupt assets ��� Doubtful assets ������������������������������������ Total ������������������������������������������������������ Increase/ Decrease ➁ – ➀ ¥ (5�6) 54�0 ¥48�4 Increase/ Decrease ➂ – ➁ ¥ (2�4) (76�5) ¥(78�9) Notes: 1. The off-balancing (also known as “final disposal”) of NPLs refers to the removal of such assets from the bank’s balance sheet by way of sale, direct write-off or other means. 2. 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 fiscal 2018. Amount of ¥33.8 billion in fiscal 2019, recognized as “new occurrences” in the first half of the term, was included in the amounts off-balanced in the second half. 344 013_0800804262008.indd 344 2020/08/21 17:06:36 SMBCSMBC GROUP ANNUAL REPORT 2020 Securities (Non-consolidated) Sumitomo Mitsui Banking Corporation Balance of Securities Year-End Balance March 31 Domestic operations: Millions of yen 2020 2019 Japanese government bonds ���������������������������������������������������������������������� Japanese local government bonds ������������������������������������������������������������� Japanese corporate bonds ������������������������������������������������������������������������� Japanese stocks ������������������������������������������������������������������������������������������ Others ���������������������������������������������������������������������������������������������������������� Foreign bonds ������������������������������������������������������������������������������������������ Foreign stocks ����������������������������������������������������������������������������������������� Subtotal ������������������������������������������������������������������������������������������������������� International operations: Japanese government bonds ���������������������������������������������������������������������� Japanese local government bonds ������������������������������������������������������������� Japanese corporate bonds ������������������������������������������������������������������������� Japanese stocks ������������������������������������������������������������������������������������������ Others ���������������������������������������������������������������������������������������������������������� Foreign bonds ������������������������������������������������������������������������������������������ Foreign stocks ����������������������������������������������������������������������������������������� Subtotal ������������������������������������������������������������������������������������������������������� Total ����������������������������������������������������������������������������������������������������������������� ¥ 7,083,933 262,681 2,654,105 3,057,077 526,499 / / ¥13,584,298 ¥ — — — — 13,474,334 9,253,087 4,221,247 ¥13,474,334 ¥27,058,633 ¥ 6,252,329 99,164 2,602,228 3,814,443 765,571 / / ¥13,533,737 ¥ — — — — 10,802,901 7,134,782 3,668,118 ¥10,802,901 ¥24,336,638 Average Balance Year ended March 31 Domestic operations: Millions of yen 2020 2019 Japanese government bonds ���������������������������������������������������������������������� Japanese local government bonds ������������������������������������������������������������� Japanese corporate bonds ������������������������������������������������������������������������� Japanese stocks ������������������������������������������������������������������������������������������ Others ���������������������������������������������������������������������������������������������������������� Foreign bonds ������������������������������������������������������������������������������������������ Foreign stocks ����������������������������������������������������������������������������������������� Subtotal ������������������������������������������������������������������������������������������������������� International operations: Japanese government bonds ���������������������������������������������������������������������� Japanese local government bonds ������������������������������������������������������������� Japanese corporate bonds ������������������������������������������������������������������������� Japanese stocks ������������������������������������������������������������������������������������������ Others ���������������������������������������������������������������������������������������������������������� Foreign bonds ������������������������������������������������������������������������������������������ Foreign stocks ����������������������������������������������������������������������������������������� Subtotal ������������������������������������������������������������������������������������������������������� Total ����������������������������������������������������������������������������������������������������������������� ¥ 7,252,028 162,752 2,686,829 2,007,411 743,730 / / ¥12,852,752 ¥ — — — — 11,370,094 7,502,214 3,867,879 ¥11,370,094 ¥24,222,846 ¥ 6,971,707 53,283 2,517,314 2,195,195 926,730 / / ¥12,664,232 ¥ — — — — 9,794,923 6,355,459 3,439,463 ¥ 9,794,923 ¥22,459,156 Note: The average balance of foreign-currency-denominated transactions by domestic branches in international operations is calculated by the monthly current method. 013_0800804262008.indd 345 345 2020/08/21 17:06:36 SMBCSMBC GROUP ANNUAL REPORT 2020Securities (Non-consolidated) Balance of Securities Held, Classified by Maturity March 31 One year or less Japanese government bonds ���������������������������������������������������������������������� Japanese local government bonds ������������������������������������������������������������� Japanese corporate bonds ������������������������������������������������������������������������� Others ���������������������������������������������������������������������������������������������������������� Foreign bonds ������������������������������������������������������������������������������������������ Foreign stocks ����������������������������������������������������������������������������������������� One — three years Japanese government bonds ���������������������������������������������������������������������� Japanese local government bonds ������������������������������������������������������������� Japanese corporate bonds ������������������������������������������������������������������������� Others ���������������������������������������������������������������������������������������������������������� Foreign bonds ������������������������������������������������������������������������������������������ Foreign stocks ����������������������������������������������������������������������������������������� Three — five years Japanese government bonds ���������������������������������������������������������������������� Japanese local government bonds ������������������������������������������������������������� Japanese corporate bonds ������������������������������������������������������������������������� Others ���������������������������������������������������������������������������������������������������������� Foreign bonds ������������������������������������������������������������������������������������������ Foreign stocks ����������������������������������������������������������������������������������������� Five — seven years Japanese government bonds ���������������������������������������������������������������������� Japanese local government bonds ������������������������������������������������������������� Japanese corporate bonds ������������������������������������������������������������������������� Others ���������������������������������������������������������������������������������������������������������� Foreign bonds ������������������������������������������������������������������������������������������ Foreign stocks ����������������������������������������������������������������������������������������� Seven — ten years Japanese government bonds ���������������������������������������������������������������������� Japanese local government bonds ������������������������������������������������������������� Japanese corporate bonds ������������������������������������������������������������������������� Others ���������������������������������������������������������������������������������������������������������� Foreign bonds ������������������������������������������������������������������������������������������ Foreign stocks ����������������������������������������������������������������������������������������� More than ten years Japanese government bonds ���������������������������������������������������������������������� Japanese local government bonds ������������������������������������������������������������� Japanese corporate bonds ������������������������������������������������������������������������� Others ���������������������������������������������������������������������������������������������������������� Foreign bonds ������������������������������������������������������������������������������������������ Foreign stocks ����������������������������������������������������������������������������������������� No designated term Japanese government bonds ���������������������������������������������������������������������� Japanese local government bonds ������������������������������������������������������������� Japanese corporate bonds ������������������������������������������������������������������������� Japanese stocks ������������������������������������������������������������������������������������������ Others ���������������������������������������������������������������������������������������������������������� Foreign bonds ������������������������������������������������������������������������������������������ Foreign stocks ����������������������������������������������������������������������������������������� Total 2020 ¥ 3,387,319 2,921 160,177 2,210,080 2,206,579 380 2,689,510 7,266 547,895 955,459 920,199 481 101,020 37,691 660,686 1,312,431 1,240,586 4,851 — 6,146 529,884 725,098 695,251 9,030 454,732 195,889 224,384 1,109,262 1,061,245 6,216 451,350 12,765 531,076 3,398,949 3,129,224 184,026 — — — 3,057,077 4,289,551 — 4,016,259 Japanese government bonds ���������������������������������������������������������������������� Japanese local government bonds ������������������������������������������������������������� Japanese corporate bonds ������������������������������������������������������������������������� Japanese stocks ������������������������������������������������������������������������������������������ Others ���������������������������������������������������������������������������������������������������������� Foreign bonds ������������������������������������������������������������������������������������������ Foreign stocks ����������������������������������������������������������������������������������������� ¥ 7,083,933 262,681 2,654,105 3,057,077 14,000,834 9,253,087 4,221,247 Millions of yen 2019 ¥1,236,610 — 206,765 1,715,067 1,713,538 818 3,983,873 10,097 550,063 1,306,488 1,259,089 451 116,667 990 602,804 921,128 869,053 2,348 — 5,110 571,678 1,312,373 1,241,178 11,126 530,926 82,956 312,742 939,119 869,989 4,070 384,252 8 358,173 1,416,986 1,181,933 105,365 — — — 3,814,443 3,957,307 — 3,543,937 ¥6,252,329 99,164 2,602,228 3,814,443 11,568,472 7,134,782 3,668,118 346 013_0800804262008.indd 346 2020/08/21 17:06:36 SMBCSMBC GROUP ANNUAL REPORT 2020Ratios (Non-consolidated) Sumitomo Mitsui Banking Corporation Income Ratio Year ended March 31 Ordinary profit to total assets �������������������������������������������������������������������������� Ordinary profit to stockholders’ equity ������������������������������������������������������������ Net income to total assets ������������������������������������������������������������������������������ Net income to stockholders’ equity ���������������������������������������������������������������� 2020 0.24% 6.26 0.16 4.10 Percentage 2019 0�35% 8�18 0�26 6�01 Notes: 1. Ordinary profit (net income) to total assets = Ordinary profit (net income) / Average balance of total assets excluding customers’ liabilities for acceptances and guarantees ✕ 100 2. Ordinary profit (net income) to stockholders’ equity = (Ordinary profit (net income) – Preferred dividends) / {(Net assets at the beginning of the fiscal year – Number of shares of preferred stock outstanding at the beginning of the fiscal year ✕ Issue price) + (Net assets at the end of the fiscal year – Number of shares of preferred stock outstanding at the end of the fiscal year ✕ Issue price)} divided by 2 ✕ 100 Yield/Interest Rate Year ended March 31 Domestic operations: Percentage 2020 2019 Interest-earning assets (A) ��������������������������������������������������������������������������� Interest-bearing liabilities (B) ����������������������������������������������������������������������� (A) – (B) �������������������������������������������������������������������������������������������������������� International operations: Interest-earning assets (A) ��������������������������������������������������������������������������� Interest-bearing liabilities (B) ����������������������������������������������������������������������� (A) – (B) �������������������������������������������������������������������������������������������������������� Total: Interest-earning assets (A) ��������������������������������������������������������������������������� Interest-bearing liabilities (B) ����������������������������������������������������������������������� (A) – (B) �������������������������������������������������������������������������������������������������������� 0.83% 0.55 0.28 2.55% 2.37 0.18 1.60% 1.13 0.47 0�97% 0�60 0�37 2�65% 2�45 0�20 1�69% 1�19 0�50 Loan-Deposit Ratio March 31 Domestic operations: Loans and bills discounted (A) �������������������������������������������������������������������� Deposits (B) ������������������������������������������������������������������������������������������������� Loan-deposit ratio (%) (A) / (B) ����������������������������������������������������������������������������������������������������� Ratio by average balance for the fiscal year �������������������������������������������� International operations: Loans and bills discounted (A) �������������������������������������������������������������������� Deposits (B) ������������������������������������������������������������������������������������������������� Loan-deposit ratio (%) (A) / (B) ����������������������������������������������������������������������������������������������������� Ratio by average balance for the fiscal year �������������������������������������������� Total: Loans and bills discounted (A) �������������������������������������������������������������������� Deposits (B) ������������������������������������������������������������������������������������������������� Loan-deposit ratio (%) (A) / (B) ����������������������������������������������������������������������������������������������������� Ratio by average balance for the fiscal year �������������������������������������������� Note: Deposits include negotiable certificates of deposit. Millions of yen 2020 2019 ¥ 50,667,777 103,209,408 ¥ 49,751,966 98,979,238 49.09% 49.18 50�26% 50�56 ¥ 29,519,604 27,344,178 ¥ 26,649,840 28,693,470 107.95% 98.03 92�87% 95�59 ¥ 80,187,382 130,553,586 ¥ 76,401,807 127,672,708 61.42% 59.80 59�84% 60�70 013_0800804262008.indd 347 347 2020/08/21 17:06:36 SMBCSMBC GROUP ANNUAL REPORT 2020Ratios (Non-consolidated) Securities-Deposit Ratio March 31 Domestic operations: Securities (A) ������������������������������������������������������������������������������������������������ Deposits (B) ������������������������������������������������������������������������������������������������� Securities-deposit ratio (%) (A) / (B) ����������������������������������������������������������������������������������������������������� Ratio by average balance for the fiscal year �������������������������������������������� International operations: Securities (A) ������������������������������������������������������������������������������������������������ Deposits (B) ������������������������������������������������������������������������������������������������� Securities-deposit ratio (%) (A) / (B) ����������������������������������������������������������������������������������������������������� Ratio by average balance for the fiscal year �������������������������������������������� Total: Securities (A) ������������������������������������������������������������������������������������������������ Deposits (B) ������������������������������������������������������������������������������������������������� Securities-deposit ratio (%) (A) / (B) ����������������������������������������������������������������������������������������������������� Ratio by average balance for the fiscal year �������������������������������������������� Note: Deposits include negotiable certificates of deposit. Millions of yen 2020 2019 ¥ 13,584,298 103,209,408 ¥ 13,533,737 98,979,238 13.16% 12.84 13�67% 13�12 ¥ 13,474,334 27,344,178 ¥ 10,802,901 28,693,470 49.27% 40.89 37�64% 34�94 ¥ 27,058,633 130,553,586 ¥ 24,336,638 127,672,708 20.72% 18.94 19�06% 18�04 348 013_0800804262008.indd 348 2020/08/21 17:06:36 SMBCSMBC GROUP ANNUAL REPORT 2020Capital (Non-consolidated) Sumitomo Mitsui Banking Corporation Changes in Number of Shares Issued and Capital Stock Number of shares issued Changes Balances 106,318,401 February 16, 2010* ����������������������������������� 20,016,015 Remarks: * Allotment to third parties: Common stock: Issue price: Capitalization: 20,016,015 shares ¥48,365 ¥24,182.5 Number of Shares Issued Millions of yen Capital stock Capital reserve Changes 484,037 Balances 1,770,996 Changes 484,037 Balances 1,771,043 March 31, 2020 Common stock ��������������������������������������������������������������������������������������������������������������������������������������������������������������� Preferred stock (1st series Type 6) ��������������������������������������������������������������������������������������������������������������������������������� Total �������������������������������������������������������������������������������������������������������������������������������������������������������������������������������� Number of shares issued 106,248,400 70,001 106,318,401 Note: The shares above are not listed on any stock exchange. Principal Shareholders a. Common Stock March 31, 2020 Sumitomo Mitsui Financial Group, Inc� ���������������������������������������������������������� Number of shares 106,248,400 b. Preferred Stock (1st series Type 6) March 31, 2020 Sumitomo Mitsui Banking Corporation ����������������������������������������������������������� Number of shares 70,001 Percentage of shares outstanding 100�00% Percentage of shares outstanding 100�00% 013_0800804262008.indd 349 349 2020/08/21 17:06:36 SMBCSMBC GROUP ANNUAL REPORT 2020Others (Non-consolidated) Sumitomo Mitsui Banking Corporation Employees March 31 Number of employees ������������������������������������������������������������������������������������� Average age (years–months) ��������������������������������������������������������������������������� Average length of employment (years–months) ���������������������������������������������� Average annual salary (thousands of yen) ������������������������������������������������������� 2020 27,957 37-4 14-0 ¥8,286 2019 28,482 36-9 13-6 ¥8,203 Notes: 1. “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 do not concurrently serve as Directors. 2. “Average annual salary” includes bonus, overtime pay and other fringe benefits. 3. Overseas local staff are excluded from the above calculations other than “Number of employees.” Number of Offices March 31 Domestic network: 2020 2019 Main offices and branches �������������������������������������������������������������������������� Subbranches ����������������������������������������������������������������������������������������������� Agency ��������������������������������������������������������������������������������������������������������� Overseas network: Branches ����������������������������������������������������������������������������������������������������� Subbranches ����������������������������������������������������������������������������������������������� Representative offices ��������������������������������������������������������������������������������� Total ����������������������������������������������������������������������������������������������������������������� 515 350 1 19 22 4 911 511 382 1 19 23 4 940 Notes: 1. “Main offices and branches” includes the International Business Operations Dept. (2020, 2 branches; 2019, 2 branches), specialized deposit account branches (2020, 47 branches; 2019, 47 branches) and ATM administration branches (2020, 18 branches; 2019, 18 branches). 2. “Subbranches” includes Corporate Business Office, etc. Number of Automated Service Centers March 31 Automated service centers������������������������������������������������������������������������������ 2020 50,141 2019 50,378 Domestic Exchange Transactions Year ended March 31 Exchange for remittance: Destined for various parts of the country: Millions of yen 2020 2019 Number of accounts (thousands) ������������������������������������������������������������ Amount ���������������������������������������������������������������������������������������������������� 464,147 ¥ 573,531,737 Received from various parts of the country: Number of accounts (thousands) ������������������������������������������������������������ Amount ���������������������������������������������������������������������������������������������������� 326,166 ¥ 962,772,521 Collection: Destined for various parts of the country: Number of accounts (thousands) ������������������������������������������������������������ Amount ���������������������������������������������������������������������������������������������������� 1,638 ¥ 4,156,697 Received from various parts of the country: Number of accounts (thousands) ������������������������������������������������������������ Amount ���������������������������������������������������������������������������������������������������� Total ����������������������������������������������������������������������������������������������������������������� 605 ¥ 1,370,869 ¥1,541,831,826 437,415 ¥ 535,257,829 318,485 ¥ 932,517,945 1,771 ¥ 4,451,331 649 ¥ 2,333,608 ¥1,474,560,716 350 013_0800804262008.indd 350 2020/08/21 17:06:36 SMBCSMBC GROUP ANNUAL REPORT 2020Others (Non-consolidated) Foreign Exchange Transactions Year ended March 31 Outward exchanges: Foreign bills sold������������������������������������������������������������������������������������������ Foreign bills bought ������������������������������������������������������������������������������������� Incoming exchanges: Foreign bills payable ������������������������������������������������������������������������������������ Foreign bills receivable �������������������������������������������������������������������������������� Total ����������������������������������������������������������������������������������������������������������������� Note: The figures above include foreign exchange transactions by overseas branches. Millions of U�S� dollars 2020 $1,874,818 1,305,477 $1,074,787 40,072 $4,295,156 Breakdown of Collateral for Customers’ Liabilities for Acceptances and Guarantees Millions of yen March 31 Securities ��������������������������������������������������������������������������������������������������������� Commercial claims ������������������������������������������������������������������������������������������ Commercial goods ������������������������������������������������������������������������������������������ Real estate ������������������������������������������������������������������������������������������������������� Others �������������������������������������������������������������������������������������������������������������� Subtotal ����������������������������������������������������������������������������������������������������������� Guaranteed ������������������������������������������������������������������������������������������������������ Unsecured ������������������������������������������������������������������������������������������������������� Total ����������������������������������������������������������������������������������������������������������������� 2020 ¥ 88,378 47,917 — 54,605 62,008 ¥ 252,910 1,227,196 7,919,417 ¥9,399,524 2019 $2,171,749 1,352,488 $1,094,203 42,055 $4,660,496 2019 ¥ 111,466 57,386 — 50,416 67,462 ¥ 286,732 940,913 7,851,060 ¥9,078,706 013_0800804262008.indd 351 351 2020/08/21 17:06:36 SMBCSMBC GROUP ANNUAL REPORT 2020Trust Assets and Liabilities (Non-consolidated) Sumitomo Mitsui Banking Corporation Statements of Trust Assets and Liabilities March 31 Assets: Loans and bills discounted �������������������������������������������������������������������������� Loans on deeds ��������������������������������������������������������������������������������������� Securities ����������������������������������������������������������������������������������������������������� Japanese government bonds ������������������������������������������������������������������ Corporate bonds�������������������������������������������������������������������������������������� Japanese stocks �������������������������������������������������������������������������������������� Foreign securities������������������������������������������������������������������������������������� Others ������������������������������������������������������������������������������������������������������ Trust beneficiary right ���������������������������������������������������������������������������������� Entrusted securities ������������������������������������������������������������������������������������� Monetary claims ������������������������������������������������������������������������������������������ Monetary claims for housing loans ���������������������������������������������������������� Other monetary claims ���������������������������������������������������������������������������� Other claims ������������������������������������������������������������������������������������������������ Call loans ����������������������������������������������������������������������������������������������������� Due from banking account �������������������������������������������������������������������������� Cash and due from banks ��������������������������������������������������������������������������� Deposits with banks �������������������������������������������������������������������������������� Others ���������������������������������������������������������������������������������������������������������� Others ������������������������������������������������������������������������������������������������������ Total assets �������������������������������������������������������������������������������������������������� Liabilities: Designated money trusts����������������������������������������������������������������������������� Specified money trusts �������������������������������������������������������������������������������� Money in trusts other than money trusts ����������������������������������������������������� Securities in trusts ��������������������������������������������������������������������������������������� Monetary claims trusts �������������������������������������������������������������������������������� Composite trusts ����������������������������������������������������������������������������������������� Total liabilities ���������������������������������������������������������������������������������������������� 2020 ¥ 662,844 662,844 1,164,251 29,226 1,092,438 — 42,055 531 25,120 38,000 518,415 20,592 497,822 895 — 1,735,784 115,904 115,904 29 29 ¥4,261,245 ¥1,370,430 1,290,980 328,022 38,000 264,830 968,982 ¥4,261,245 Notes: 1. Amounts less than 1 million yen have been rounded down. 2. SMBC has no co-operative trusts under any other trust bank’s administration as of the year-end. 3. Excludes trusts whose monetary values are difficult to calculate. Millions of yen 2019 ¥ 477,094 477,094 1,330,384 38,517 1,265,810 — 26,056 — 28,278 50,000 538,047 14,893 523,154 999 — 1,291,710 126,080 126,080 46 46 ¥3,842,641 ¥1,270,266 952,323 35,015 50,000 291,991 1,243,045 ¥3,842,641 352 013_0800804262008.indd 352 2020/08/21 17:06:36 SMBCSMBC GROUP ANNUAL REPORT 2020 Basel III Information Capital Ratio and Leverage Ratio Information (Consolidated) Sumitomo Mitsui Banking Corporation and Subsidiaries ■ CC1: Composition of regulatory capital Basel III Template No. Items (Millions of yen, except percentages) a b As of March 31,2020 As of March 31,2019 c Reference to Template CC2 Common Equity Tier 1 capital: instruments and reserves (1) 1a+2-1c-26 Directly issued qualifying common share capital plus related capital surplus and retained earnings 1a 2 1c 26 of which: capital and capital surplus of which: retained earnings of which: treasury stock (–) of which: national specific regulatory adjustments (earnings to be distributed) (–) of which: other than the above 1b Stock acquisition rights to common shares 3 Accumulated other comprehensive income and other disclosed reserves 5 Common share capital issued by subsidiaries and held by third parties (amount allowed in group CET1) 7,105,013 7,120,831 3,527,284 3,622,140 — 44,411 — — 1,128,741 3,527,346 3,743,614 — 150,128 — — 1,434,667 5,182 2,181 (a) 6 Common Equity Tier 1 capital: instruments and reserves (A) 8,238,937 8,557,681 Common Equity Tier 1 capital: regulatory adjustments (2) 8+9 Total intangible assets (net of related tax liability, excluding those relating to mortgage servicing rights) 8 9 10 of which: goodwill (including those equivalent) of which: other intangibles other than goodwill and mortgage servicing rights Deferred tax assets that rely on future profitability excluding those arising from temporary differences (net of related tax liability) 11 Net deferred gains or losses on hedges 12 Shortfall of eligible provisions to expected losses 13 Securitisation gain on sale 14 Gains and losses due to changes in own credit risk on fair valued liabilities 15 Net defined benefit asset 16 Investments in own shares (excluding those reported in the Net assets section) 17 Reciprocal cross-holdings in common equity 18 Investments in the capital of banking, financial and insurance entities that are outside the scope of regulatory consolidation, net of eligible short positions, where the bank does not own more than 10% of the issued share capital (amount above the 10% threshold) 19+20+21 Amount exceeding the 10% threshold on specified items of which: significant investments in the common stock of financials of which: mortgage servicing rights of which: deferred tax assets arising from temporary differences (net of related tax liability) 19 20 21 22 Amount exceeding the 15% threshold on specified items 23 24 25 of which: significant investments in the common stock of financials of which: mortgage servicing rights of which: deferred tax assets arising from temporary differences (net of related tax liability) Regulatory adjustments applied to Common Equity Tier 1 due to insufficient Additional Tier 1 and Tier 2 to cover deductions 27 235,399 281,339 10,074 225,324 26,214 255,125 3,331 2,208 105,676 — 62,486 5,582 157,217 — — (45,242) — 60,286 3,940 225,610 3 — — — — — — — — — — — — — — — — — — — — — 28 Common Equity Tier 1 capital: regulatory adjustments (B) 569,694 528,146 Common Equity Tier 1 capital (CET1) 29 Common Equity Tier 1 capital (CET1) ((A)-(B)) (C) 7,669,242 8,029,535 014_0800885852007.indd 353 353 2020/08/11 14:18:18 SMBCSMBC GROUP ANNUAL REPORT 2020 Basel III Template No. Items Additional Tier 1 capital: instruments (3) (Millions of yen, except percentages) a b As of March 31,2020 As of March 31,2019 c Reference to Template CC2 31a Directly issued qualifying Additional Tier 1 instruments plus related capital surplus of which: classified as equity under applicable accounting standards and the breakdown 31b Stock acquisition rights to Additional Tier 1 instruments 30 32 34-35 33+35 Directly issued qualifying Additional Tier 1 instruments plus related capital surplus of which: classified as liabilities under applicable accounting standards Qualifying Additional Tier 1 instruments plus related capital surplus issued by special purpose vehicles and other equivalent entities Additional Tier 1 instruments issued by subsidiaries and held by third parties (amount allowed in group AT1) Eligible Tier 1 capital instruments subject to transitional arrangements included in Additional Tier 1 capital: instruments — — — — 1,185,000 1,100,000 — — 13,554 23,795 — 173,000 of which: instruments issued by banks and their special purpose vehicles of which: instruments issued by subsidiaries (excluding banks’ special purpose vehicles) 33 35 36 Additional Tier 1 capital: instruments (D) — — 1,198,554 173,000 — 1,296,795 Additional Tier 1 capital: regulatory adjustments 37 Investments in own Additional Tier 1 instruments 38 Reciprocal cross-holdings in Additional Tier 1 instruments 39 40 42 Investments in the capital of banking, financial and insurance entities that are outside the scope of regulatory consolidation, net of eligible short positions, where the bank does not own more than 10% of the issued common share capital of the entity (amount above the 10% threshold) Significant investments in the Additional Tier 1 capital of banking, financial and insurance entities that are outside the scope of regulatory consolidation (net of eligible short positions) Regulatory adjustments applied to Additional Tier 1 due to insufficient Tier 2 to cover deductions 43 Additional Tier 1 capital: regulatory adjustments Additional Tier 1 capital (AT1) 44 Additional Tier 1 capital ((D)-(E)) Tier 1 capital (T1 = CET1 + AT1) 45 Tier 1 capital (T1 = CET1 + AT1) ((C)+(F)) Tier 2 capital: instruments and provisions (4) — — — — — — 25,525 25,516 — — 25,525 25,516 1,173,028 1,271,279 (E) (F) (G) 8,842,271 9,300,814 46 Directly issued qualifying Tier 2 instruments plus related capital surplus of which: classified as equity under applicable accounting standards and the breakdown Stock acquisition rights to Tier 2 instruments Directly issued qualifying Tier 2 instruments plus related capital surplus of which: classified as liabilities under applicable accounting standards Qualifying Tier 2 instruments plus related capital surplus issued by special purpose vehicles and other equivalent entities 48-49 Tier 2 instruments issued by subsidiaries and held by third parties (amount allowed in group T2) Eligible Tier 2 capital instruments subject to transitional arrangements included in Tier 2: instruments and provisions 47+49 of which: instruments issued by banks and their special purpose vehicles of which: instruments issued by subsidiaries (excluding banks’ special purpose vehicles) 47 49 50 Total of general reserve for possible loan losses and eligible provisions included in Tier 2 50a 50b of which: general reserve for possible loan losses of which: eligible provisions 51 Tier 2 capital: instruments and provisions (H) — — — — 961,777 1,003,250 — — 3,471 5,921 358,595 488,222 358,595 — 23,731 8,354 15,377 1,347,576 488,222 — 7,664 7,477 187 1,505,059 354 014_0800885852007.indd 354 2020/08/11 14:18:18 SMBCSMBC GROUP ANNUAL REPORT 2020Basel III Information Basel III Template No. Items Tier 2 capital: regulatory adjustments (5) 52 Investments in own Tier 2 instruments 53 Reciprocal cross-holdings in Tier 2 instruments and other TLAC liabilities 54 55 Investments in the capital and other TLAC liabilities of banking, financial and insurance entities that are outside the scope of regulatory consolidation, net of eligible short positions, where the bank does not own more than 10% of the issued common share capital of the entity (amount above the 10% threshold) Significant investments in the capital and other TLAC liabilities of banking, financial and insurance entities that are outside the scope of regulatory consolidation (net of eligible short positions) 57 Tier 2 capital: regulatory adjustments Tier 2 capital (T2) 58 Tier 2 capital (T2) ((H)-(I)) Total capital (TC = T1 + T2) 59 Total capital (TC = T1 + T2) ((G) + (J)) Risk weighted assets (6) 60 Total risk-weighted assets (RWA) Capital ratio (consolidated) (7) (Millions of yen, except percentages) a b As of March 31,2020 As of March 31,2019 c Reference to Template CC2 — — — — — — 82,643 50,000 82,643 50,000 1,264,933 1,455,059 (I) (J) (K) 10,107,204 10,755,873 (L) 55,953,809 52,910,688 61 Common Equity Tier 1 risk-weighted capital ratio (consolidated) ((C)/(L)) 62 Tier 1 risk-weighted capital ratio (consolidated) ((G)/(L)) 63 Total risk-weighted capital ratio (consolidated) ((K)/(L)) Regulatory adjustments (8) 72 73 Non-significant investments in the capital and other TLAC liabilities of other financials that are below the thresholds for deduction (before risk weighting) Significant investments in the common stock of other financials that are below the thresholds for deduction (before risk weighting) 74 Mortgage servicing rights that are below the thresholds for deduction (before risk weighting) Deferred tax assets arising from temporary differences that are below the thresholds for deduction (before risk weighting) 75 Provisions included in Tier 2 capital: instruments and provisions (9) 76 Provisions (general reserve for possible loan losses) 77 Cap on inclusion of provisions (general reserve for possible loan losses) 78 Provisions eligible for inclusion in Tier 2 in respect of exposures subject to internal ratings-based approach (prior to application of cap) (if the amount is negative, report as “nil”) 13.70% 15.80% 18.06% 15.17% 17.57% 20.32% 199,699 289,593 561,567 567,146 — 126 8,354 26,349 15,377 — 220 7,477 29,069 187 79 Cap for inclusion of provisions in Tier 2 under internal ratings-based approach 252,170 243,795 Capital instruments subject to transitional arrangements (10) 82 Current cap on AT1 instruments subject to transitional arrangements 83 Amount excluded from AT1 due to cap (excess over cap after redemptions and maturities) (if the amount is negative, report as “nil”) 84 Current cap on T2 instruments subject to transitional arrangements 85 Amount excluded from T2 due to cap (excess over cap after redemptions and maturities) (if the amount is negative, report as “nil”) 247,571 371,357 — — 406,905 610,358 — — Items Required capital ((L) ✕ 8%) (Millions of yen) As of March 31,2020 4,476,304 As of March 31,2019 4,232,855 014_0800885852007.indd 355 355 2020/08/11 14:18:18 SMBCSMBC GROUP ANNUAL REPORT 2020Basel III Information ■ CC2: Reconciliation of regulatory capital to balance sheet Sumitomo Mitsui Banking Corporation and Subsidiaries Items (Assets) Cash and due from banks Call loans and bills bought Receivables under resale agreements Receivables under securities borrowing transactions Monetary claims bought Trading assets Money held in trust Securities Loans and bills discounted Foreign exchanges Lease receivables and investment assets Other assets Tangible fixed assets Intangible fixed assets Net defined benefit asset Deferred tax assets Customers’ liabilities for acceptances and guarantees Reserve for possible loan losses Total assets (Liabilities) Deposits Negotiable certificates of deposit Call money and bills sold Payables under repurchase agreements Payables under securities lending transactions Commercial paper Trading liabilities Borrowed money Foreign exchanges Bonds Due to trust account Other liabilities Reserve for employee bonuses Reserve for executive bonuses Net defined benefit liability Reserve for executive retirement benefits Reserve for point service program Reserve for reimbursement of deposits Deferred tax liabilities Deferred tax liabilities for land revaluation Acceptances and guarantees Total liabilities (Net assets) Capital stock Capital surplus Retained earnings Treasury stock Total stockholders’ equity Net unrealized gains or losses on other securities Net deferred gains or losses on hedges Land revaluation excess Foreign currency translation adjustments Accumulated remeasurements of defined benefit plans Total accumulated other comprehensive income Stock acquisition rights Non-controlling interests Total net assets Total liabilities and net assets a b (Millions of yen) c Consolidated balance sheet as in published financial statements As of March 31, 2020 As of March 31, 2019 Reference to Template CC1 Reference to appended table 59,991,835 1,246,739 8,243,182 957,271 4,550,644 4,133,816 0 26,282,649 84,280,613 2,057,887 219,733 4,647,291 1,341,895 320,622 226,273 26,147 7,898,071 (335,041) 206,089,633 127,623,995 10,330,435 2,920,539 10,691,772 829,729 1,409,249 3,459,117 21,820,785 1,492,634 1,942,291 1,811,355 5,032,050 36,494 1,236 4,114 617 388 4,687 381,605 30,111 7,898,071 197,721,284 1,770,996 1,966,291 3,622,140 (210,003) 7,149,425 1,125,808 103,609 36,870 (48,969) (88,577) 1,128,741 — 90,182 8,368,349 206,089,633 55,747,048 2,665,744 5,082,709 1,440,159 4,582,886 2,452,825 0 23,469,621 79,792,401 1,715,759 247,835 3,571,248 1,409,802 375,389 324,672 23,399 8,121,131 (332,343) 190,690,293 123,190,830 11,335,486 572,778 8,743,386 680,051 2,291,813 1,818,610 15,988,948 1,196,960 2,955,282 1,352,773 2,929,172 34,283 1,249 4,457 669 468 7,936 446,993 30,259 8,121,131 181,703,543 1,770,996 1,966,353 3,743,614 (210,003) 7,270,960 1,426,493 (47,281) 36,531 24,371 (5,446) 1,434,667 2,210 278,910 8,986,749 190,690,293 (a) 6-a 2-b,6-b 6-c 6-d 2-a 3 4-a 6-e 8 6-f 4-b 4-c 1-a 1-b 1-c 1-d 5 7-a 7-b Note: The regulatory scope of consolidation is the same as the accounting scope of consolidation. 356 014_0800885852007.indd 356 2020/08/11 14:18:18 SMBCSMBC GROUP ANNUAL REPORT 2020Basel III Information(Appended Table) 1. Stockholders’ equity (1) Consolidated balance sheet Consolidated balance sheet items Capital stock Capital surplus Retained earnings Treasury stock Total stockholders’ equity (2) Composition of capital As of March 31, 2020 As of March 31, 2019 1,770,996 1,770,996 1,966,291 1,966,353 3,622,140 3,743,614 (210,003) (210,003) 7,149,425 7,270,960 (Millions of yen) Remarks Ref. No. Including eligible Tier 1 capital instruments subject to transitional arrangement Including eligible Tier 1 capital instruments subject to transitional arrangement Eligible Tier 1 capital instruments subject to transitional arrangement 1-a 1-b 1-c 1-d (Millions of yen) Composition of capital disclosure As of March 31, 2020 As of March 31, 2019 Remarks Basel III Template No. Directly issued qualifying common share capital plus related capital surplus and retained earnings of which: capital and capital surplus of which: retained earnings of which: treasury stock (–) of which: other than the above 7,149,425 7,270,960 3,527,284 3,622,140 — — 3,527,346 3,743,614 — — Stockholders’ equity attributable to common shares (before adjusting national specific regulatory adjustments (earnings to be distributed)) Directly issued qualifying Additional Tier 1 instruments plus related capital surplus of which: classified as equity under applicable accounting standards and the breakdown — — Stockholders’ equity attributable to preferred shares with a loss absorbency clause upon entering into effectively bankruptcy 2. Intangible fixed assets (1) Consolidated balance sheet Consolidated balance sheet items Intangible fixed assets Securities of which: goodwill attributable to equity-method investees Income taxes related to above (2) Composition of capital Composition of capital disclosure Goodwill (including those equivalent) Other intangibles other than goodwill and mortgage servicing rights Mortgage servicing rights Amount exceeding the 10% threshold on specified items Amount exceeding the 15% threshold on specified items Mortgage servicing rights that are below the thresholds for deduction (before risk weighting) 3. Net defined benefit asset (1) Consolidated balance sheet Consolidated balance sheet items Net defined benefit asset Income taxes related to above (2) Composition of capital Composition of capital disclosure Net defined benefit asset As of March 31, 2020 320,622 26,282,649 10,074 As of March 31, 2019 375,389 23,469,621 14,211 95,298 108,261 As of March 31, 2020 As of March 31, 2019 10,074 225,324 — — — 26,214 255,125 — — — — — As of March 31, 2020 As of March 31, 2019 226,273 324,672 69,056 99,062 As of March 31, 2020 As of March 31, 2019 157,217 225,610 014_0800885852007.indd 357 1a 2 1c 31a Ref. No. 2-a 2-b Basel III Template No. 8 9 20 24 74 Ref. No. 3 (Millions of yen) Remarks (Millions of yen) Remarks Software and other (Millions of yen) Remarks Remarks (Millions of yen) Basel III Template No. 15 357 2020/08/11 14:18:18 SMBCSMBC GROUP ANNUAL REPORT 2020Basel III Information4. Deferred tax assets (1) Consolidated balance sheet Consolidated balance sheet items Deferred tax assets Deferred tax liabilities Deferred tax liabilities for land revaluation Tax effects on intangible fixed assets Tax effects on net defined benefit asset (2) Composition of capital As of March 31, 2020 As of March 31, 2019 26,147 381,605 30,111 95,298 69,056 23,399 446,993 30,259 108,261 99,062 (Millions of yen) Remarks Ref. No. 4-a 4-b 4-c (Millions of yen) Composition of capital disclosure As of March 31, 2020 As of March 31, 2019 Remarks Basel III Template No. Deferred tax assets that rely on future profitability excluding those arising from temporary differences (net of related tax liability) 3,331 2,208 Deferred tax assets arising from temporary differences (net of related tax liability) Amount exceeding the 10% threshold on specified items Amount exceeding the 15% threshold on specified items Deferred tax assets arising from temporary differences that are below the thresholds for deduction (before risk weighting) 126 — — 126 220 — — 220 5. Deferred gains or losses on derivatives under hedge accounting (1) Consolidated balance sheet Consolidated balance sheet items Net deferred gains or losses on hedges (2) Composition of capital As of March 31, 2020 As of March 31, 2019 103,609 (47,281) Composition of capital disclosure As of March 31, 2020 As of March 31, 2019 Net deferred gains or losses on hedges 105,676 (45,242) 6. Items associated with investments in the capital of financial institutions (1) Consolidated balance sheet Consolidated balance sheet items Trading assets Securities Loans and bills discounted Other assets Trading liabilities Other liabilities As of March 31, 2020 As of March 31, 2019 4,133,816 2,452,825 26,282,649 84,280,613 4,647,291 23,469,621 79,792,401 3,571,248 3,459,117 1,818,610 5,032,050 2,929,172 This item does not agree with the amount reported on the consolidated balance sheet due to offsetting of assets and liabilities. This item does not agree with the amount reported on the consolidated balance sheet due to offsetting of assets and liabilities. (Millions of yen) (Millions of yen) Remarks Remarks Excluding those items whose valuation differences arising from hedged items are recognized as “Accumulated other comprehensive income” 10 21 25 75 Ref. No. 5 Basel III Template No. 11 (Millions of yen) Remarks Ref. No. Including trading account securities and derivatives for trading assets Including subordinated loans Including derivatives Including trading account securities sold and derivatives for trading liabilities Including derivatives 6-a 6-b 6-c 6-d 6-e 6-f 358 014_0800885852007.indd 358 2020/08/11 14:18:18 SMBCSMBC GROUP ANNUAL REPORT 2020Basel III Information(2) Composition of capital (Millions of yen) Composition of capital disclosure As of March 31, 2020 As of March 31, 2019 Remarks Basel III Template No. Investments in own capital instruments Common Equity Tier 1 capital Additional Tier 1 capital Tier 2 capital Reciprocal cross-holdings in the capital of banking, financial and insurance entities Common Equity Tier 1 capital Additional Tier 1 capital Tier 2 capital and other TLAC liabilities Investments in the capital of banking, financial and insurance entities that are outside the scope of regulatory consolidation, net of eligible short positions, where the bank does not own more than 10% of the issued share capital (amount above the 10% threshold) Common Equity Tier 1 capital Additional Tier 1 capital Tier 2 capital and other TLAC liabilities Non-significant investments in the capital and other TLAC liabilities of other financials that are below the thresholds for deductions (before risk weighting) Significant investments in the capital of banking, financial and insurance entities that are outside the scope of regulatory consolidation (net of eligible short positions) Amount exceeding the 10% threshold on specified items Amount exceeding the 15% threshold on specified items Additional Tier 1 capital Tier 2 capital and other TLAC liabilities Significant investments in the common stock of other financials that are below the thresholds for deductions (before risk weighting) — — — — — — — — 3 3 — — — — — — 199,699 289,593 — — — — — — 199,699 289,593 669,736 642,662 — — 25,525 82,643 — — 25,516 50,000 561,567 567,146 7. Non-controlling interests (1) Consolidated balance sheet Consolidated balance sheet items Stock acquisition rights Non-controlling interests (2) Composition of capital As of March 31, 2020 As of March 31, 2019 — 90,182 2,210 278,910 Composition of capital disclosure As of March 31, 2020 As of March 31, 2019 (Millions of yen) (Millions of yen) Remarks Remarks Amount allowed in group CET1 Qualifying Additional Tier 1 instruments plus related capital surplus issued by special purpose vehicles and other equivalent entities Amount allowed in group AT1 Qualifying Tier 2 instruments plus related capital surplus issued by special purpose vehicles and other equivalent entities Amount allowed in group T2 8. Other capital instruments (1) Consolidated balance sheet Consolidated balance sheet items Borrowed money (2) Composition of capital Composition of capital disclosure Directly issued qualifying Additional Tier 1 instruments plus related capital surplus of which: classified as liabilities under applicable accounting standards Directly issued qualifying Tier 2 instruments plus related capital surplus of which: classified as liabilities under applicable accounting standards 5,182 2,181 — — 13,554 23,795 — — 3,471 5,921 After reflecting amounts eligible for inclusion (Non-Controlling Interest after adjustments) After reflecting amounts eligible for inclusion (Non-Controlling Interest after adjustments) After reflecting amounts eligible for inclusion (Non-Controlling Interest after adjustments) After reflecting amounts eligible for inclusion (Non-Controlling Interest after adjustments) After reflecting amounts eligible for inclusion (Non-Controlling Interest after adjustments) (Millions of yen) (Millions of yen) Remarks Remarks As of March 31, 2020 21,820,785 As of March 31, 2019 15,988,948 As of March 31, 2020 As of March 31, 2019 1,185,000 1,100,000 961,777 1,003,250 16 37 52 17 38 53 18 39 54 72 19 23 40 55 73 Ref. No. 7-a 7-b Basel III Template No. 5 30-31ab-32 34-35 46 48-49 Ref. No. 8 Basel III Template No. 32 46 014_0800885852007.indd 359 359 2020/08/11 14:18:19 SMBCSMBC GROUP ANNUAL REPORT 2020Basel III Information■ Composition of Leverage Ratio Corresponding line # on Basel III disclosure template (Table2) Corresponding line # on Basel III disclosure template (Table1) On-balance sheet exposures (1) Items (In million yen, %) As of March 31, 2020 As of March 31, 2019 1a 1b 1c 1d 1 2 3 1 2 7 3 7 On-balance sheet exposures before deducting adjustment items Total assets reported in the consolidated balance sheet The amount of assets of subsidiaries that are not included in the scope of the leverage ratio on a consolidated basis (-) The amount of assets of subsidiaries that are included in the scope of the leverage ratio on a consolidated basis (except those included in the total assets reported in the consolidated balance sheet) The amount of assets that are deducted from the total assets reported in the consolidated balance sheet (except adjustment items) (-) The amount of adjustment items pertaining to Tier 1 capital (-) Total on-balance sheet exposures (a) 182,339,952 206,089,633 172,497,155 190,690,293 — — — — 23,749,681 18,193,137 421,474 181,918,477 534,678 171,962,477 Exposures related to derivative transactions (2) 4 5 6 7 8 9 10 11 Replacement cost associated with derivatives transactions, etc. (with the 1.4 alpha factor applied) Replacement cost associated with derivatives transactions, etc. Add-on amount for potential future exposure associated with derivatives transactions, etc. (with the 1.4 alpha factor applied) Add-on amount associated with derivatives transactions, etc. The amount of receivables arising from providing cash margin in relation to derivatives transactions, etc. The amount of receivables arising from providing collateral, provided where deducted from the consolidated balance sheet pursuant to the operative accounting framework The amount of receivables arising from providing cash margin, provided where deducted from the consolidated balance sheet pursuant to the operative accounting framework The amount of deductions of receivables (out of those arising from providing cash variation margin) (-) The amount of client-cleared trade exposures for which a bank acting as clearing member is not obliged to make any indemnification (-) Adjusted effective notional amount of written credit derivatives The amount of deductions from effective notional amount of written credit derivatives (-) Total exposures related to derivative transactions (b) 4 Exposures related to repo transactions (3) 12 13 14 15 16 The amount of assets related to repo transactions, etc. The amount of deductions from the assets above (line 12) (-) The exposures for counterparty credit risk for repo transactions, etc. The exposures for agent repo transaction Total exposures related to repo transactions, etc. 5 Exposures related to off-balance sheet transactions (4) 6,246,855 2,329,551 3,661,146 3,413,858 744,315 499,696 — — 151,482 97,391 83,014 — — — 10,583,849 6,145,714 9,200,454 — 401,975 6,522,869 — 562,301 (c) 9,602,429 7,085,171 17 18 19 Notional amount of off-balance sheet transactions The amount of adjustments for conversion in relation to off-balance sheet transactions (-) Total exposures related to off-balance sheet transactions 55,713,902 55,580,884 35,281,098 35,362,496 (d) 20,432,803 20,218,388 6 Leverage ratio on a consolidated basis (5) 20 21 22 8 The amount of capital (Tier 1 capital) Total exposures ((a)+(b)+(c)+(d)) Leverage ratio on a consolidated basis ((e)/(f)) (e) (f) 8,842,271 222,537,560 3.97% 9,300,814 205,411,750 4.52% Reason for the significant difference from the leverage ratio on a consolidated basis in the previous fiscal year Decrease in leverage ratio on a consolidated basis is attributable to an increase in total exposures, due to a decrease in capital associated with a decline in net unrealized gains or losses on other securities, and a decrease in additional Tier 1 instruments, along with an increase in on-balance sheet assets primarily comprising loans and bills discounted and cash and due from banks. 360 014_0800885852007.indd 360 2020/08/11 14:18:19 SMBCSMBC GROUP ANNUAL REPORT 2020Basel III InformationLiquidity Coverage Ratio Information (Consolidated) Sumitomo Mitsui Banking Corporation and Subsidiaries Since March 31, 2015, the “Liquidity Coverage Ratio” (hereinafter referred to as “LCR”), the liquidity ratio regulation under the Basel III, has been introduced in Japan. In addition to the application of uniform international standards, SMBC calculates its consolidated LCR using the calculation formula stipulated in the “Criteria for Evaluating the Soundness of Liquidity Status Set Forth by a Bank as a Benchmark for Judging its Soundness of Management, Based on the Provision of Article 14-2 of the Banking Act” (Notification No. 60 issued by the Japanese Financial Services Agency in 2014; hereinafter referred to as the “LCR Notification”). ■ Disclosure of Qualitative Information about Liquidity Coverage Ratio 1. Intra-period Changes in Consolidated LCR As described on the following page, the LCR has remained stable since the introduction of the liquidity ratio regulation on March 31, 2015. 2. Assessment of Consolidated LCR The LCR Notification stipulates the minimum requirement of the LCR at 100%. The LCR of SMBC (consolidated) exceeds the minimum requirements of the LCR, having no cause for concern. In terms of the future LCR forecasts, SMBC does not expect significant deviations from the disclosed ratios. In addition, the actual LCR does not differ significantly from the initial forecast. 3. Composition of High-Quality Liquid Assets Regarding the high-quality liquid assets allowed to be included in the calculation, there are no significant changes in locations and properties of currency denominations, categories and so on. In addition, in respect of major currencies (those of which the aggregate amount of liabilities denominated in a certain currency accounts for 5% or more of SMBC’s total liabilities on the consolidated basis), there is no significant mismatch in currency denomination between the total amount of the high-quality liquid assets allowed to be included in the calculation and the amount of net cash outflows. 4. Other Information Concerning Consolidated LCR SMBC has not applied “special provisions concerning qualifying operational deposits” prescribed in Article 29 of the LCR Notification and “increased liquidity needs related to market valuation changes on derivative or other transactions simulated through Scenario Approach” prescribed in Article 38 of the LCR Notification. Meanwhile, SMBC records “due to trust account,” etc. under “cash outflows based on other contracts” prescribed in Article 60 of the LCR Notification. 014_0800885852007.indd 361 361 2020/08/11 14:18:19 SMBCSMBC GROUP ANNUAL REPORT 2020Basel III Information■ Disclosure of Quantitative Information about Liquidity Coverage Ratio (Consolidated) Item High-Quality Liquid Assets (1) 1 Total high-quality liquid assets (HQLA) Cash Outflows (2) of which, Stable deposits of which, Less stable deposits 2 Cash outflows related to unsecured retail funding 3 4 5 Cash outflows related to unsecured wholesale funding 6 7 of which, Qualifying operational deposits of which, Cash outflows related to unsecured wholesale funding other than qualifying operational deposits and debt securities of which, Debt securities 8 9 Cash outflows related to secured funding, etc. 10 Cash outflows related to derivative transactions, etc. funding programs, credit and liquidity facilities of which, Cash outflows related to derivative transactions, etc. of which, Cash outflows related to funding programs of which, Cash outflows related to credit and liquidity facilities 11 12 13 14 Cash outflows related to contractual funding obligations, etc. 15 Cash outflows related to contingencies 16 Total cash outflows Cash Inflows (3) 17 Cash inflows related to secured lending, etc. 18 Cash inflows related to collection of loans, etc. 19 Other cash inflows 20 Total cash inflows Consolidated Liquidity Coverage Ratio (4) 21 Total HQLA allowed to be included in the calculation 22 Net cash outflows 23 Consolidated liquidity coverage ratio (LCR) 24 The number of data used to calculate the average value (In million yen, %, the number of data) Current Quarter (From 2020/1/1 To 2020/3/31) Prior Quarter (From 2019/10/1 To 2019/12/31) TOTAL UNWEIGHTED VALUE 51,569,057 15,941,139 35,627,918 67,378,301 — 63,857,207 TOTAL WEIGHTED VALUE 4,043,605 480,193 3,563,412 33,595,357 — TOTAL UNWEIGHTED VALUE 50,794,060 15,605,762 35,188,298 66,460,732 — 64,495,445 TOTAL WEIGHTED VALUE 3,989,544 470,103 3,519,441 32,969,328 — 62,517,563 28,734,620 61,709,391 28,217,987 4,860,738 4,860,738 209,707 4,751,341 4,751,341 192,472 24,385,085 7,838,434 24,248,308 7,676,828 1,471,642 428,946 22,484,498 7,847,102 65,118,323 TOTAL UNWEIGHTED VALUE 3,202,109 3,251,582 2,119,675 8,573,366 1,519,563 254,594 22,474,151 7,216,805 67,347,605 TOTAL UNWEIGHTED VALUE 2,458,964 2,620,401 2,122,165 7,201,531 1,471,642 428,946 5,937,846 5,888,911 1,249,957 52,825,972 TOTAL WEIGHTED VALUE 123,786 2,369,650 1,048,771 3,542,207 63,857,207 49,283,765 129.5% 58 1,519,563 254,594 5,902,672 5,514,918 1,334,815 51,677,905 TOTAL WEIGHTED VALUE 71,434 1,839,301 970,240 2,880,975 64,495,445 48,796,930 132.1% 62 Notes: 1. The data after the introduction of the liquidity ratio regulation on March 31, 2015 is available on Sumitomo Mitsui Financial Group’s website. (https://www.smfg.co.jp/english/investor/financial/basel_3.html) 2. The average values are calculated based on daily data in accordance with Notification No. 7 issued by the Japanese Financial Services Agency in 2015. Some data, such as attribute information of customers and data on consolidated subsidiaries, is updated on the monthly or quarterly basis. ■ Breakdown of High-Quality Liquid Assets Item 1 Cash and due from banks 2 Securities 3 of which, government bonds, etc. 4 5 of which, municipal bonds, etc. of which, other bonds of which, stocks 6 7 Total high-quality liquid assets (HQLA) Current Quarter (From 2020/1/1 To 2020/3/31) Prior Quarter (From 2019/10/1 To 2019/12/31) (In million yen) 55,140,341 8,716,866 6,222,267 75,678 1,080,960 1,337,962 63,857,207 56,224,520 8,270,925 5,861,487 46,533 896,419 1,466,485 64,495,445 Note: The above amounts are those of high-quality liquid assets in accordance with the liquidity ratio regulation under the Basel III and do not correspond to the financial amounts. The amounts stated are those after multiplying factors in the liquidity ratio regulation under the Basel III. 362 014_0800885852007.indd 362 2020/08/11 14:18:19 SMBCSMBC GROUP ANNUAL REPORT 2020Basel III Information Capital Ratio and Leverage Ratio Information (Non-consolidated) Sumitomo Mitsui Banking Corporation ■ CC1: Composition of regulatory capital Basel III Template No. Items Common Equity Tier 1 capital: instruments and reserves (1) 1a+2-1c-26 Directly issued qualifying common share capital plus related capital surplus and retained earnings 1a 2 1c 26 of which: capital and capital surplus of which: retained earnings of which: treasury stock (–) of which: national specific regulatory adjustments (earnings to be distributed) (–) of which: other than the above 1b Stock acquisition rights to common shares 3 Valuation and translation adjustment and other disclosed reserves 6 Common Equity Tier 1 capital: instruments and reserves (A) Common Equity Tier 1 capital: regulatory adjustments (2) 8+9 Total intangible assets (net of related tax liability, excluding those relating to mortgage servicing rights) 8 9 10 of which: goodwill of which: other intangibles other than goodwill and mortgage servicing rights Deferred tax assets that rely on future profitability excluding those arising from temporary differences (net of related tax liability) 11 Net deferred gains or losses on hedges 12 Shortfall of eligible provisions to expected losses 13 Securitisation gain on sale 14 Gains and losses due to changes in own credit risk on fair valued liabilities 15 Prepaid pension cost 16 Investments in own shares (excluding those reported in the Net assets section) 17 Reciprocal cross-holdings in common equity 18 Investments in the capital of banking, financial and insurance entities that are outside the scope of regulatory consolidation, net of eligible short positions, where the bank does not own more than 10% of the issued share capital (amount above the 10% threshold) 19+20+21 Amount exceeding the 10% threshold on specified items of which: significant investments in the common stock of financials of which: mortgage servicing rights of which: deferred tax assets arising from temporary differences (net of related tax liability) 19 20 21 22 Amount exceeding the 15% threshold on specified items 23 24 25 of which: significant investments in the common stock of financials of which: mortgage servicing rights of which: deferred tax assets arising from temporary differences (net of related tax liability) Regulatory adjustments applied to Common Equity Tier 1 due to insufficient Additional Tier 1 and Tier 2 to cover deductions 27 (Millions of yen, except percentages) a b As of March 31,2020 As of March 31,2019 c Reference to Template CC2 (a) 6,166,883 6,382,096 3,335,548 2,875,747 — 44,411 — — 1,284,923 7,451,807 3,335,548 3,196,677 — 150,128 — — 1,430,047 7,812,144 162,839 164,075 — 162,839 — 164,075 — — 187,152 — 62,486 — 239,000 — — (20,578) 19,757 60,286 — 222,859 — — — — — — — — — — — — — — — — — — — — — — 28 Common Equity Tier 1 capital: regulatory adjustments (B) 651,480 446,401 Common Equity Tier 1 capital (CET1) 29 Common Equity Tier 1 capital (CET1) ((A)-(B)) (C) 6,800,327 7,365,742 014_0800885852007.indd 363 363 2020/08/11 14:18:19 SMBCSMBC GROUP ANNUAL REPORT 2020Basel III Information Basel III Template No. Items Additional Tier 1 capital: instruments (3) (Millions of yen, except percentages) a b As of March 31,2020 As of March 31,2019 c Reference to Template CC2 31a Directly issued qualifying Additional Tier 1 instruments plus related capital surplus of which: classified as equity under applicable accounting standards and the breakdown 31b Stock acquisition rights to Additional Tier 1 instruments 30 32 33+35 Directly issued qualifying Additional Tier 1 instruments plus related capital surplus of which: classified as liabilities under applicable accounting standards Qualifying Additional Tier 1 instruments plus related capital surplus issued by special purpose vehicles and other equivalent entities Eligible Tier 1 capital instruments subject to transitional arrangements included in Additional Tier 1 capital: instruments — — — — 1,185,000 1,100,000 — — — 173,000 36 Additional Tier 1 capital: instruments Additional Tier 1 capital: regulatory adjustments 37 Investments in own Additional Tier 1 instruments 38 Reciprocal cross-holdings in Additional Tier 1 instruments 39 40 42 Investments in the capital of banking, financial and insurance entities that are outside the scope of regulatory consolidation, net of eligible short positions, where the bank does not own more than 10% of the issued common share capital of the entity (amount above the 10% threshold) Significant investments in the Additional Tier 1 capital of banking, financial and insurance entities that are outside the scope of regulatory consolidation (net of eligible short positions) Regulatory adjustments applied to Additional Tier 1 due to insufficient Tier 2 to cover deductions 43 Additional Tier 1 capital: regulatory adjustments Additional Tier 1 capital (AT1) 44 Additional Tier 1 capital ((D)-(E)) Tier 1 capital (T1 = CET1 + AT1) 45 Tier 1 capital (T1 = CET1 + AT1) ((C)+(F)) Tier 2 capital: instruments and provisions (4) (D) 1,185,000 1,273,000 — — — — — — 25,525 25,516 — — 25,525 25,516 1,159,474 1,247,483 (E) (F) (G) 7,959,801 8,613,226 Directly issued qualifying Tier 2 instruments plus related capital surplus of which: classified as equity under applicable accounting standards and the breakdown Stock acquisition rights to Tier 2 instruments Directly issued qualifying Tier 2 instruments plus related capital surplus of which: classified as liabilities under applicable accounting standards Qualifying Tier 2 instruments plus related capital surplus issued by special purpose vehicles and other equivalent entities Eligible Tier 2 capital instruments subject to transitional arrangements included in Tier 2: instruments and provisions 46 47+49 50 Total of general reserve for possible loan losses and eligible provisions included in Tier 2 50a 50b of which: general reserve for possible loan losses of which: eligible provisions 51 Tier 2 capital: instruments and provisions (H) — — — — 961,777 1,003,250 — — 358,595 488,222 4,472 — 4,472 1,324,845 — — — 1,491,472 364 014_0800885852007.indd 364 2020/08/11 14:18:19 SMBCSMBC GROUP ANNUAL REPORT 2020Basel III Information Basel III Template No. Items Tier 2 capital: regulatory adjustments (5) 52 Investments in own Tier 2 instruments 53 Reciprocal cross-holdings in Tier 2 instruments and other TLAC liabilities 54 55 Investments in the capital and other TLAC liabilities of banking, financial and insurance entities that are outside the scope of regulatory consolidation, net of eligible short positions, where the bank does not own more than 10% of the issued common share capital of the entity (amount above the 10% threshold) Significant investments in the capital and other TLAC liabilities of banking, financial and insurance entities that are outside the scope of regulatory consolidation (net of eligible short positions) 57 Tier 2 capital: regulatory adjustments Tier 2 capital (T2) 58 Tier 2 capital (T2) ((H)-(I)) Total capital (TC = T1 + T2) 59 Total capital (TC = T1 + T2) ((G) + (J)) Risk weighted assets (6) 60 Total risk-weighted assets (RWA) Capital ratio (7) 61 Common Equity Tier 1 risk-weighted capital ratio ((C)/(L)) 62 Tier 1 risk-weighted capital ratio ((G)/(L)) 63 Total risk-weighted capital ratio ((K)/(L)) Regulatory adjustments (8) 72 73 Non-significant investments in the capital and other TLAC liabilities of other financials that are below the thresholds for deduction (before risk weighting) Significant investments in the common stock of other financials that are below the thresholds for deduction (before risk weighting) 74 Mortgage servicing rights that are below the thresholds for deduction (before risk weighting) Deferred tax assets arising from temporary differences that are below the thresholds for deduction (before risk weighting) 75 Provisions included in Tier 2 capital: instruments and provisions (9) 76 Provisions (general reserve for possible loan losses) 77 Cap on inclusion of provisions (general reserve for possible loan losses) 78 Provisions eligible for inclusion in Tier 2 in respect of exposures subject to internal ratings-based approach (prior to application of cap) (if the amount is negative, report as “nil”) (Millions of yen, except percentages) a b As of March 31,2020 As of March 31,2019 c Reference to Template CC2 — — — — — — 82,643 50,000 82,643 50,000 1,242,202 1,441,472 (I) (J) (K) 9,202,003 10,054,699 (L) 52,248,875 49,574,518 13.01% 15.23% 17.61% 14.85% 17.37% 20.28% 198,628 281,885 491,896 516,070 — — — 2,727 4,472 — — — 3,671 — 79 Cap for inclusion of provisions in Tier 2 under internal ratings-based approach 258,012 248,544 Capital instruments subject to transitional arrangements (10) 82 Current cap on AT1 instruments subject to transitional arrangements 83 Amount excluded from AT1 due to cap (excess over cap after redemptions and maturities) (if the amount is negative, report as “nil”) 84 Current cap on T2 instruments subject to transitional arrangements 85 Amount excluded from T2 due to cap (excess over cap after redemptions and maturities) (if the amount is negative, report as “nil”) 247,471 371,207 — — 403,448 605,172 — — Items Required capital ((L) ✕ 8%) (Millions of yen) As of March 31,2020 4,179,910 As of March 31,2019 3,965,961 014_0800885852007.indd 365 365 2020/08/11 14:18:19 SMBCSMBC GROUP ANNUAL REPORT 2020Basel III Information ■ CC2: Reconciliation of regulatory capital to balance sheet Sumitomo Mitsui Banking Corporation Items (Assets) Cash and due from banks Call loans Receivables under resale agreements Receivables under securities borrowing transactions Monetary claims bought Trading assets Securities Loans and bills discounted Foreign exchanges Other assets Tangible fixed assets Intangible fixed assets Prepaid pension cost Customers’ liabilities for acceptances and guarantees Reserve for possible loan losses Reserve for possible losses on investments Total assets (Liabilities) Deposits Negotiable certificates of deposit Call money Payables under repurchase agreements Payables under securities lending transactions Commercial paper Trading liabilities Borrowed money Foreign exchanges Bonds Due to trust account Other liabilities Reserve for employee bonuses Reserve for executive bonuses Reserve for point service program Reserve for reimbursement of deposits Deferred tax liabilities Deferred tax liabilities for land revaluation Acceptances and guarantees Total liabilities (Net assets) Capital stock Capital surplus Retained earnings Treasury stock Total stockholders’ equity Net unrealized gains or losses on other securities Net deferred gains or losses on hedges Land revaluation excess Foreign currency translation adjustments Total valuation and translation adjustments Non-controlling interests Total net assets Total liabilities and net assets a Balance sheet as in published financial statements b c d (Millions of yen) Under regulatory scope of consolidation As of March 31, 2020 As of March 31, 2019 As of March 31, 2020 As of March 31, 2019 57,971,293 645,967 5,963,377 943,940 1,562,083 3,189,980 27,058,633 80,187,382 1,896,157 4,178,263 794,957 234,707 344,481 9,399,524 (279,702) (127,256) 193,963,791 119,973,324 10,580,261 3,068,726 8,728,522 571,095 642,447 2,959,613 21,561,177 1,519,777 1,894,369 1,735,889 3,453,008 13,794 939 388 3,900 330,699 30,111 9,399,524 186,467,572 1,770,996 1,774,554 2,875,747 (210,003) 6,211,295 1,073,795 185,163 25,964 — 1,284,923 — 7,496,219 193,963,791 54,205,583 2,134,392 3,364,070 1,222,284 1,470,872 1,534,100 24,336,638 76,401,807 1,627,105 2,895,757 802,501 236,352 321,031 9,078,706 (275,185) (7,363) 179,348,654 116,091,103 11,581,605 796,761 7,364,577 418,912 1,634,811 1,348,931 15,567,626 1,213,861 2,910,794 1,292,699 1,659,172 13,285 937 468 7,425 374,529 30,259 9,078,706 171,386,468 1,770,996 1,774,554 3,196,504 (210,003) 6,532,053 1,427,008 (22,444) 25,568 — 1,430,131 — 7,962,185 179,348,654 57,971,293 645,967 5,963,377 943,940 1,562,083 3,189,980 27,058,633 80,187,382 1,896,157 4,178,263 794,957 234,707 344,481 9,399,524 (279,702) (127,256) 193,963,791 119,973,324 10,580,261 3,068,726 8,728,522 571,095 642,447 2,959,613 21,561,177 1,519,777 1,894,369 1,735,889 3,453,008 13,794 939 388 3,900 330,699 30,111 9,399,524 186,467,572 1,770,996 1,774,554 2,875,747 (210,003) 6,211,295 1,073,795 185,163 25,964 — 1,284,923 — 7,496,219 193,963,791 54,205,583 2,134,392 3,364,070 1,222,284 1,470,872 1,534,100 24,328,778 76,401,807 1,627,105 2,895,757 802,501 236,352 321,031 9,078,706 (275,185) (7,363) 179,340,794 116,084,925 11,581,605 796,761 7,364,577 418,912 1,634,811 1,348,931 15,392,856 1,213,861 2,910,794 1,292,699 1,657,565 13,285 937 468 7,425 374,529 30,259 9,078,706 171,203,913 1,770,996 1,774,554 3,196,677 (210,003) 6,532,225 1,427,008 (22,542) 25,568 13 1,430,047 174,606 8,136,880 179,340,794 Reference to Template CC1 Reference to appended table 6-a 6-b 6-c 6-d 2 3 6-e 7 6-f 4-a 4-b 1-a 1-b 1-c 1-d 5 (a) 366 014_0800885852007.indd 366 2020/08/11 14:18:19 SMBCSMBC GROUP ANNUAL REPORT 2020Basel III Information(Appended Table) 1. Stockholders’ equity (1) Balance sheet Balance sheet items Capital stock Capital surplus Retained earnings Treasury stock Total stockholders’ equity (2) Composition of capital As of March 31, 2020 As of March 31, 2019 1,770,996 1,770,996 1,774,554 1,774,554 2,875,747 3,196,677 (210,003) (210,003) 6,211,295 6,532,225 (Millions of yen) Remarks Ref. No. Including eligible Tier 1 capital instruments subject to transitional arrangement Including eligible Tier 1 capital instruments subject to transitional arrangement Eligible Tier 1 capital instruments subject to transitional arrangement 1-a 1-b 1-c 1-d (Millions of yen) Composition of capital disclosure As of March 31, 2020 As of March 31, 2019 Remarks Basel III Template No. Directly issued qualifying common share capital plus related capital surplus and retained earnings of which: capital and capital surplus of which: retained earnings of which: treasury stock (–) of which: other than the above 6,211,295 6,532,225 3,335,548 2,875,747 — — 3,335,548 3,196,677 — — Stockholders’ equity attributable to common shares (before adjusting national specific regulatory adjustments (earnings to be distributed)) Directly issued qualifying Additional Tier 1 instruments plus related capital surplus of which: classified as equity under applicable accounting standards and the breakdown — — Stockholders’ equity attributable to preferred shares with a loss absorbency clause upon entering into effectively bankruptcy 2. Intangible fixed assets (1) Balance sheet Balance sheet items Intangible fixed assets Income taxes related to above (2) Composition of capital Composition of capital disclosure Goodwill Other intangibles other than goodwill and mortgage servicing rights Mortgage servicing rights Amount exceeding the 10% threshold on specified items Amount exceeding the 15% threshold on specified items Mortgage servicing rights that are below the thresholds for deduction (before risk weighting) 3. Prepaid pension cost (1) Balance sheet Balance sheet items Prepaid pension cost Income taxes related to above (2) Composition of capital Composition of capital disclosure Prepaid pension cost As of March 31, 2020 As of March 31, 2019 234,707 236,352 71,867 72,276 As of March 31, 2020 As of March 31, 2019 — 162,839 — — — — 164,075 — — — — — As of March 31, 2020 As of March 31, 2019 344,481 321,031 105,480 98,171 As of March 31, 2020 As of March 31, 2019 239,000 222,859 Software and other Remarks Remarks Remarks Remarks (Millions of yen) (Millions of yen) (Millions of yen) (Millions of yen) Basel III Template No. 15 1a 2 1c 31a Ref. No. 2 Basel III Template No. 8 9 20 24 74 Ref. No. 3 014_0800885852007.indd 367 367 2020/08/11 14:18:19 SMBCSMBC GROUP ANNUAL REPORT 2020Basel III Information4. Deferred tax assets (1) Balance sheet Balance sheet items Deferred tax liabilities Deferred tax liabilities for land revaluation Tax effects on intangible fixed assets Tax effects on prepaid pension cost (2) Composition of capital As of March 31, 2020 As of March 31, 2019 330,699 30,111 71,867 105,480 374,529 30,259 72,276 98,171 (Millions of yen) Remarks Ref. No. 4-a 4-b (Millions of yen) Composition of capital disclosure As of March 31, 2020 As of March 31, 2019 Remarks Basel III Template No. Deferred tax assets that rely on future profitability excluding those arising from temporary differences (net of related tax liability) Deferred tax assets arising from temporary differences (net of related tax liability) Amount exceeding the 10% threshold on specified items Amount exceeding the 15% threshold on specified items Deferred tax assets arising from temporary differences that are below the thresholds for deduction (before risk weighting) — — — — — — — — — — 5. Deferred gains or losses on derivatives under hedge accounting (1) Balance sheet Balance sheet items Net deferred gains or losses on hedges (2) Composition of capital As of March 31, 2020 As of March 31, 2019 185,163 (22,542) Composition of capital disclosure As of March 31, 2020 As of March 31, 2019 Net deferred gains or losses on hedges 187,152 (20,578) 6. Items associated with investments in the capital of financial institutions (1) Balance sheet Balance sheet items Trading assets Securities Loans and bills discounted Other assets Trading liabilities Other liabilities As of March 31, 2020 As of March 31, 2019 3,189,980 1,534,100 27,058,633 80,187,382 4,178,263 24,328,778 76,401,807 2,895,757 2,959,613 1,348,931 3,453,008 1,657,565 This item does not agree with the amount reported on the balance sheet due to offsetting of assets and liabilities. This item does not agree with the amount reported on the balance sheet due to offsetting of assets and liabilities. (Millions of yen) (Millions of yen) Remarks Remarks Excluding those items whose valuation differences arising from hedged items are recognized as “Total valuation and translation adjustments” 10 21 25 75 Ref. No. 5 Basel III Template No. 11 (Millions of yen) Remarks Ref. No. Including trading account securities and derivatives for trading assets Including subordinated loans Including derivatives Including trading account securities sold and derivatives for trading liabilities Including derivatives 6-a 6-b 6-c 6-d 6-e 6-f 368 014_0800885852007.indd 368 2020/08/11 14:18:19 SMBCSMBC GROUP ANNUAL REPORT 2020Basel III Information(2) Composition of capital (Millions of yen) Composition of capital disclosure As of March 31, 2020 As of March 31, 2019 Remarks Basel III Template No. Investments in own capital instruments Common Equity Tier 1 capital Additional Tier 1 capital Tier 2 capital Reciprocal cross-holdings in the capital of banking, financial and insurance entities Common Equity Tier 1 capital Additional Tier 1 capital Tier 2 capital and other TLAC liabilities Investments in the capital of banking, financial and insurance entities that are outside the scope of regulatory consolidation, net of eligible short positions, where the bank does not own more than 10% of the issued share capital (amount above the 10% threshold) Common Equity Tier 1 capital Additional Tier 1 capital Tier 2 capital and other TLAC liabilities Non-significant investments in the capital and other TLAC liabilities of other financials that are below the thresholds for deductions (before risk weighting) Significant investments in the capital of banking, financial and insurance entities that are outside the scope of regulatory consolidation (net of eligible short positions) Amount exceeding the 10% threshold on specified items Amount exceeding the 15% threshold on specified items Additional Tier 1 capital Tier 2 capital and other TLAC liabilities Significant investments in the common stock of other financials that are below the thresholds for deductions (before risk weighting) — — — — — — — — — — — — — — — — 198,628 281,885 — — — — — — 198,628 281,885 600,065 591,586 — — 25,525 82,643 — — 25,516 50,000 491,896 516,070 7. Other capital instruments (1) Balance sheet Balance sheet items Borrowed money (2) Composition of capital Composition of capital disclosure Directly issued qualifying Additional Tier 1 instruments plus related capital surplus of which: classified as liabilities under applicable accounting standards Directly issued qualifying Tier 2 instruments plus related capital surplus of which: classified as liabilities under applicable accounting standards As of March 31, 2020 21,561,177 As of March 31, 2019 15,392,856 As of March 31, 2020 As of March 31, 2019 1,185,000 1,100,000 961,777 1,003,250 16 37 52 17 38 53 18 39 54 72 19 23 40 55 73 (Millions of yen) (Millions of yen) Remarks Remarks Ref. No. 7 Basel III Template No. 32 46 014_0800885852007.indd 369 369 2020/08/11 14:18:19 SMBCSMBC GROUP ANNUAL REPORT 2020Basel III Information■ Composition of Leverage Ratio Corresponding line # on Basel III disclosure template (Table2) Corresponding line # on Basel III disclosure template (Table1) On-balance sheet exposures (1) Items (In million yen, %) As of March 31, 2020 As of March 31, 2019 1a 1b 1 2 3 1 3 7 On-balance sheet exposures before deducting adjustment items Total assets reported in the balance sheet The amount of assets that are deducted from the total assets reported in the balance sheet (except adjustment items) (-) The amount of adjustment items pertaining to Tier 1 capital (-) Total on-balance sheet exposures (a) 171,987,707 193,963,791 162,689,001 179,340,794 21,976,084 16,651,792 427,366 171,560,340 432,209 162,256,791 Exposures related to derivative transactions (2) 4 5 6 7 8 9 10 11 Replacement cost associated with derivatives transactions, etc. (with the 1.4 alpha factor applied) Replacement cost associated with derivatives transactions, etc. Add-on amount for potential future exposure associated with derivatives transactions, etc. (with the 1.4 alpha factor applied) Add-on amount associated with derivatives transactions, etc. The amount of receivables arising from providing cash margin in relation to derivatives transactions, etc. The amount of receivables arising from providing collateral, provided where deducted from the balance sheet pursuant to the operative accounting framework The amount of receivables arising from providing cash margin, provided where deducted from the balance sheet pursuant to the operative accounting framework The amount of deductions of receivables (out of those arising from providing cash variation margin) (-) The amount of client-cleared trade exposures for which a bank acting as clearing member is not obliged to make any indemnification (-) Adjusted effective notional amount of written credit derivatives The amount of deductions from effective notional amount of written credit derivatives (-) Total exposures related to derivative transactions (b) 4 Exposures related to repo transactions (3) 12 13 14 15 16 The amount of assets related to repo transactions, etc. The amount of deductions from the assets above (line 12) (-) The exposures for counterparty credit risk for repo transactions, etc. The exposures for agent repo transaction Total exposures related to repo transactions, etc. 5 Exposures related to off-balance sheet transactions (4) 3,412,019 1,314,321 2,201,998 2,017,546 497,394 506,786 — — 225,519 283,480 — — — — 5,885,893 3,555,174 6,907,318 — 366,826 4,586,354 — 542,831 (c) 7,274,144 5,129,185 17 18 19 Leverage ratio (5) 20 21 22 6 8 Notional amount of off-balance sheet transactions The amount of adjustments for conversion in relation to off-balance sheet transactions (-) Total exposures related to off-balance sheet transactions 53,501,369 58,704,798 31,790,200 37,308,724 (d) 21,711,168 21,396,073 The amount of capital (Tier 1 capital) Total exposures ((a)+(b)+(c)+(d)) Leverage ratio ((e)/(f)) (e) (f) 7,959,801 206,431,546 3.85% 8,613,226 192,337,226 4.47% Reason for the significant difference from the leverage ratio on a non-consolidated basis in the previous fiscal year Decrease in leverage ratio on a non-consolidated basis is attributable to an increase in total exposures, due to a decrease in capital associated with a decline in net unrealized gains or losses on other securities and a decrease in retained earnings due to dividend payments, along with an increase in on-balance sheet assets primarily comprising loans and bills discounted and cash and due from banks. 370 014_0800885852007.indd 370 2020/08/11 14:18:19 SMBCSMBC GROUP ANNUAL REPORT 2020Basel III InformationLiquidity Coverage Ratio Information (Non-consolidated) Sumitomo Mitsui Banking Corporation Since March 31, 2015, the “Liquidity Coverage Ratio” (hereinafter referred to as “LCR”), the liquidity ratio regulation under the Basel III, has been introduced in Japan. In addition to the application of uniform international standards, SMBC calculates its non-consolidated LCR using the calculation formula stipulated in the “Criteria for Evaluating the Soundness of Liquidity Status Set Forth by a Bank as a Benchmark for Judging its Soundness of Management, Based on the Provision of Article 14-2 of the Banking Act” (Notification No. 60 issued by the Japanese Financial Services Agency in 2014; hereinafter referred to as the “LCR Notification”). ■ Disclosure of Qualitative Information about Liquidity Coverage Ratio 1. Intra-period Changes in Non-consolidated LCR As described on the following page, the LCR has remained stable with no significant fluctuation since the introduction of the liquidity ratio regulation on March 31, 2015. 2. Assessment of Non-consolidated LCR The LCR Notification stipulates the minimum requirement of the LCR for 2018 at 90%, and 100% from 2019 onwards. The LCR of SMBC (non-consolidated) exceeds the minimum requirements of the LCR for 2018 and for 2019 onwards, having no cause for concern. In terms of the future LCR forecasts, SMBC does not expect significant deviations from the disclosed ratios. In addition, the actual LCR does not differ significantly from the initial forecast. 3. Composition of High-Quality Liquid Assets Regarding the high-quality liquid assets allowed to be included in the calculation, there are no significant changes in locations and properties of currency denominations, categories and so on. In addition, in respect of major currencies (those of which the aggregate amount of liabilities denominated in a certain currency accounts for 5% or more of SMBC’s total liabilities on the non-consolidated basis), there is no significant mismatch in currency denomination between the total amount of the high-quality liquid assets allowed to be included in the calculation and the amount of net cash outflows. 4. Other Information Concerning Non-consolidated LCR SMBC has not applied “special provisions concerning qualifying operational deposits” prescribed in Article 29 of the LCR Notification and “increased liquidity needs related to market valuation changes on derivative or other transactions simulated through Scenario Approach” prescribed in Article 38 of the LCR Notification. Meanwhile, SMBC records “due to trust account,” etc. under “cash outflows based on other contracts” prescribed in Article 60 of the LCR Notification. 014_0800885852007.indd 371 371 2020/08/11 14:18:19 SMBCSMBC GROUP ANNUAL REPORT 2020Basel III Information■ Disclosure of Quantitative Information about Liquidity Coverage Ratio (Non-Consolidated) Item High-Quality Liquid Assets (1) 1 Total high-quality liquid assets (HQLA) Cash Outflows (2) of which, Stable deposits of which, Less stable deposits 2 Cash outflows related to unsecured retail funding 3 4 5 Cash outflows related to unsecured wholesale funding 6 7 of which, Qualifying operational deposits of which, Cash outflows related to unsecured wholesale funding other than qualifying operational deposits and debt securities of which, Debt securities 8 9 Cash outflows related to secured funding, etc. 10 Cash outflows related to derivative transactions, etc. funding programs, credit and liquidity facilities of which, Cash outflows related to derivative transactions, etc. of which, Cash outflows related to funding programs of which, Cash outflows related to credit and liquidity facilities 11 12 13 14 Cash outflows related to contractual funding obligations, etc. 15 Cash outflows related to contingencies 16 Total cash outflows Cash Inflows (3) 17 Cash inflows related to secured lending, etc. 18 Cash inflows related to collection of loans, etc. 19 Other cash inflows 20 Total cash inflows Non-Consolidated Liquidity Coverage Ratio (4) 21 Total HQLA allowed to be included in the calculation 22 Net cash outflows 23 Non-consolidated liquidity coverage ratio (LCR) 24 The number of data used to calculate the average value (In million yen, %, the number of data) Current Quarter (From 2020/1/1 To 2020/3/31) Prior Quarter (From 2019/10/1 To 2019/12/31) TOTAL UNWEIGHTED VALUE 48,883,010 15,465,940 33,417,070 64,434,658 — 58,994,905 TOTAL WEIGHTED VALUE 3,806,306 463,978 3,342,327 32,356,463 — TOTAL UNWEIGHTED VALUE 48,169,397 15,138,728 33,030,669 63,406,409 — 59,539,021 TOTAL WEIGHTED VALUE 3,757,840 454,162 3,303,678 31,526,598 — 59,480,908 27,402,712 58,604,993 26,725,182 4,953,750 4,953,750 202,346 4,801,416 4,801,416 189,089 21,927,960 6,634,858 21,810,875 6,439,096 426,396 428,946 21,072,618 6,795,280 67,014,239 TOTAL UNWEIGHTED VALUE 1,710,217 4,101,004 1,535,830 7,347,051 434,093 254,594 21,122,188 6,331,550 67,127,219 TOTAL UNWEIGHTED VALUE 1,411,727 3,607,724 1,607,791 6,627,242 426,396 428,946 5,779,516 3,659,963 1,222,015 47,881,950 TOTAL WEIGHTED VALUE 124,083 3,330,475 829,475 4,284,033 58,994,905 43,597,917 135.3% 58 434,093 254,594 5,750,409 3,380,980 1,248,136 46,541,739 TOTAL WEIGHTED VALUE 65,714 2,933,080 782,797 3,781,591 59,539,021 42,760,148 139.2% 62 Notes: 1. The data after the introduction of the liquidity ratio regulation on March 31, 2015 is available on Sumitomo Mitsui Financial Group’s website. (https://www.smfg.co.jp/english/investor/financial/basel_3.html) 2. The average values are calculated based on daily data in accordance with Notification No. 7 issued by the Japanese Financial Services Agency in 2015. Some data such as attribute information of customers, is updated on the monthly or quarterly basis. ■ Breakdown of High-Quality Liquid Assets Item 1 Cash and due from banks 2 Securities 3 of which, government bonds, etc. 4 5 of which, municipal bonds, etc. of which, other bonds of which, stocks 6 7 Total high-quality liquid assets (HQLA) Current Quarter (From 2020/1/1 To 2020/3/31) Prior Quarter (From 2019/10/1 To 2019/12/31) (In million yen) 50,845,503 8,149,402 5,762,150 75,678 973,612 1,337,962 58,994,905 51,992,957 7,546,063 5,273,656 46,533 759,388 1,466,485 59,539,021 Note: The above amounts are those of high-quality liquid assets in accordance with the liquidity ratio regulation under the Basel III and do not correspond to the financial amounts. The amounts stated are those after multiplying factors in the liquidity ratio regulation under the Basel III. 372 014_0800885852007.indd 372 2020/08/11 14:18:19 SMBCSMBC GROUP ANNUAL REPORT 2020Basel III Information Glossary ABL Abbreviation for Asset Based Lending of having movable assets as col- lateral such as accounts receivable and/or inventory. EL Abbreviation for Expected Loss Average loss expected to occur over the coming one year. Advanced Measurement Approach (AMA) Based on the operational risk measurement methods used in the internal management of financial institutions, this is a method for obtaining the operational risk equivalent amount by calculating the maximum amount of operational risk loss expected over a period of one year, with a one-sided confidence interval of 99.9%. Basic Indicator Approach (BIA) A calculation approach in which an average value for the most recent three years derived by multiplying gross profit for the financial institution as a whole by certain level (15%) is deemed to be the operational risk equivalent amount. Calculation of credit risk-weighted assets under Article 145 of the Notification Method used for calculating the credit risk-weighted assets for the fund exposure, etc. There is a method of making the total credit risk-weighted asset of individual underlying asset of funds, etc. as the relevant expo- sure of the credit risk-weighted asset; or a method of applying the risk weight determined based on the formation of underlying assets to the relevant exposure. Capital adequacy ratio notification (“the Notification”) Administrative action or written ordinance by which the Financial Services Agency officially informs Japanese banks of regulations regard- ing capital adequacy ratio. CCF Abbreviation for Credit Conversion Factor Ratio required for converting off-balance sheet items such as guarantees or derivatives into on-balance sheet credit exposure equivalents. Full revaluation approach An approach for PL simulation by repricing the financial instruments un- der each scenario. High-quality liquid assets (HQLA) Liquid assets that can be converted easily and immediately into cash to meet liquidity needs in a specified stress scenario for the subsequent 30 calendar days. Historical simulation method A method of simulating future fluctuations without the use of random numbers, by using historical data for risk factors. Internal models approach Methods of measuring market risk equivalent amount as the value at risk (VaR) calculated with models determined by each bank. Internal models method One of the methods of market-based approach using the VaR model to calculate the loss for shares held by the bank applying the Internal Ratings-Based Approach, and dividing such loss amount by 8% to obtain the credit risk-weighted asset of the equity exposure. The Internal Ratings-Based (IRB) Approach A method of calculating the risk asset by applying PD (Probability of Default) estimated internally by financial institution which conducts sophisticated risk management. There are two methods to calculate exposures to corporate client, etc.: the Advanced Internal Ratings- Based (AIRB) Approach and the Foundation Internal Ratings-Based (FIRB) Approach. The former uses self-estimated LGD and EAD values, while the latter uses LGD and EAD values designated by the authorities. CCP-related exposure Exposure to a central counterparty (CCP) that interposes itself between counterparties to contracts traded in one or more financial markets, becoming the buyer to every seller and the seller to every buyer and thereby ensuring the future performance of open contracts. LCR Notification Administrative action and written ordinance for official notification to the general public of regulations concerning the LCR of financial institutions in Japan which are decided by the Japanese Financial Services Agency based on the Basel Agreement. CDS Abbreviation for Credit Default Swap Derivative transactions which transfer the credit risk. Credit Risk Mitigation (CRM) Techniques Method of reducing credit risk by guarantees, collateral and purchase of credit derivatives, etc. Credit risk-weighted assets Total assets (lending exposures, including credit equivalent amount of off-balance sheet transactions, etc.) which is reevaluated according to the level of credit risk. Current exposure method One of the methods for calculating the credit exposure equivalents of derivative transactions, etc. Method of calculating the equivalents by adding the amount (multiplying the notional amount by certain rate, and equivalent to the future exposure fluctuation amount) to the mark-to- market replacement cost calculated by evaluating the market price of the transaction. CVA (credit value adjustment) amount Capital charges for market-price fluctuation of derivatives transaction due to deteriorated creditworthiness of a counterparty. LGD Abbreviation for Loss Given Default Percentage of loss assumed in the event of default by obligor; ratio of uncollectible amount of the exposure owned in the event of default. Market-based approach Method of calculating the risk assets of equity exposures, etc., by using the simple risk weight method or internal model method. Market risk equivalent amount Pursuant to the Basel Capital Accord, the required capital amount im- posed on the market-related risk calculated for the four risk categories of mainly the trading book: interest rates, stocks, foreign exchange and commodities. Net cash outflows Net cash flows calculated as total expected cash outflows minus total expected cash inflows in a specified stress scenario for the subsequent 30 calendar days. Object finance For providing credit for purchasing ships or aircrafts, the only source of repayments for the financing should be profits generated from the said tangible assets; and the said tangible assets serve as collaterals, and having an appreciable extent of control over the said tangible assets and profits generated from the said tangible assets. Operational risk equivalent amount Operational risk capital requirements under the Basel Capital Accord. 014_0800885852007.indd 373 373 2020/08/11 14:18:19 Sumitomo Mitsui Financial GroupSMBC GROUP ANNUAL REPORT 2020Basel III InformationSlotting criteria For risk-weighted asset calculation under the Internal Ratings-Based (IRB) Approach, it is a method of mapping the credit rating to the risk-weight in 5 levels set forth by the Financial Services Agency for Specialised Lending. Small-sized consolidated subsidiaries Consolidated subsidiaries that have extremely small impact on the level of the consolidated LCR. Specialized Lending (SL) General term used for project finance, object finance, commodity finance and lending for commercial real estate. The Standardised Approach (SA) Method of calculating risk-weighted assets by multiplying each obligor classification (corporation, financial institution, country, retail, etc.) by the risk-weight designated by the authorities. Standardised method Method of calculating market risk using formula determined by the Financial Services Agency. Underlying assets General term used for assets which serve as the source of payments for principal and interest for securitisation exposures, etc. VaR Abbreviation for Value at Risk The maximum loss that can be expected to occur with a certain degree of probability when holding a financial asset portfolio for a given amount of time. Originator The term “originator” is used in the case that we are directly or indirectly involved in the formation of underlying assets for securitisation transac- tions when we have the securitisation exposure; or the cases of provid- ing the back-up line for ABCP issued by the securitisation conduit for the purpose of obtaining exposure from the third party, or providing ABL to the securitisation conduit (as sponsor). PD Abbreviation for Probability of Default Probability of becoming default by obligor during one year. Phased rollout Under the Basel Capital Accord, it is a transition made by certain group companies planning to apply the Internal Ratings-Based Approach after the implementation of such methods on consolidated-basis. Project finance Out of credit provided for specified businesses such as electric power plants and transportation infrastructure, the only source of repayments is profits generated from the said businesses, and the collateral is tangi- ble assets of the said businesses, and having an appreciable extent of control over the said tangible assets and profits generated from the said tangible assets. Qualifying Revolving Retail Exposures (QRRE) Exposure which may fluctuate up to the upper limit set forth by an agreement according to the individual’s voluntary decision, such as card loan and credit card, etc., and the upper limit of the exposure without any collateral is 10 million yen or less. Resecuritisation transaction Out of securitisation transactions, it is a transaction with securitisa- tion exposure for part of or entire underlying assets. However, in the case that all of underlying assets is the single securitisation exposure and the transaction’s risk characteristics are substantively unchanged prior to or after the securitisation, the transaction is excluded from the resecuritisation transactions. Risk capital The amount of capital required to cover the theoretical maximum potential loss arising from risks of business operations. It differs from the minimum regulatory capital requirements, and it is being used in the risk management framework voluntarily developed by financial institutions for the purpose of internal management. Risk weight Indicator which indicates the extent of credit risk determined by the types of assets (claims) owned. Risk weight becomes higher for assets with high risk of default. Root-T rule A method of converting the term of estimating the maximum loss as VaR into short term or long term using statistical assumption. Securitisation transaction It is a transaction which stratifies the credit risk for the underlying assets into more than two exposures of senior/subordinated structure and has the quality of transferring part of or entire exposure to the third party. Servicer risk The risk of becoming unable to claim for the collectives, in cases of which bankruptcy of the supplier/servicer occurs prior to collecting receivables, in securitisation and purchased claims transactions. Simple risk weight method One of market-based approaches for calculating the risk-weighted asset amount for the equity exposure, etc. by multiplying the listed shares and unlisted shares with the risk weights of 300% and 400%, respectively. 374 014_0800885852007.indd 374 2020/08/11 14:18:19 Sumitomo Mitsui Financial GroupSMBC GROUP ANNUAL REPORT 2020Basel III InformationCompensation Sumitomo Mitsui Financial Group ■ Compensation Framework of Sumitomo Mitsui Financial Group and Its Group Companies 1. Scope of Officers, Employees and Others The scope of officers, employees and others whose compensation is subject to disclosure under the revised Cabinet Office on Disclosure of Corporate Affairs, etc. and other ordinances are as described below. (1) Scope of Officers Officers subject to compensation disclosure are directors and executive officers of Sumitomo Mitsui Financial Group during the fiscal year under review (excluding outside directors). (2) Scope of Employees and Others Employees and others subject to compensation disclosure are employees of Sumitomo Mitsui Financial Group and officers and employees of its major consolidated subsidiaries who are highly compensated and have a material influence on the business management or the assets of Sumitomo Mitsui Financial Group and its major consolidated subsidiaries. a) Scope of major consolidated subsidiaries A major consolidated subsidiary is a consolidated subsidiary of Sumitomo Mitsui Financial Group with total assets accounting for more than 2% of the total consolidated assets of Sumitomo Mitsui Financial Group and has a material influence on the management of Sumitomo Mitsui Financial Group and its group companies. Specifically, they are Sumitomo Mitsui Banking Corporation, SMBC Nikko Securities Inc., SMBC Guarantee Co., Ltd., Limited and overseas subsidiaries such as Sumitomo Mitsui Banking Corporation Europe Limited and Sumitomo Mitsui Banking Corporation (China) Limited. b) Scope of highly compensated persons A highly compensated person is an individual whose compensation paid by Sumitomo Mitsui Financial Group or its major subsidiaries is equal to or more than the base amount. The base amount of Sumitomo Mitsui Financial Group is set at ¥60 million which is based on the average amount of compensation paid to the officers of Sumitomo Mitsui Financial Group and SMBC (excluding officers appointed or retired during the fiscal year in question) over the last three fiscal years (hereinafter “executive compensation amount”) and is applied to all group companies. This is because many of the officers of Sumitomo Mitsui Financial Group also serve as officers of SMBC, and their executive compensation amount is determined according to their contribution to the group as a whole. With respect to lump-sum retirement payment for officers serving in Japan, the executive compensation amount for the fiscal year in question is “(his/her executive compensation amount – lump-sum retirement payment) + (lump-sum retirement payment/years of service)” and the executive compensation amount calculated using this formula is compared to the base amount. c) Material influence on the business management or assets of Sumitomo Mitsui Financial Group and its major consolidated subsidiaries A person has a material influence on the business management or assets of Sumitomo Mitsui Financial Group and its major consolidated subsidiaries if his/her regular transactions or regular matters managed by him/her have a substantial impact on the business management of Sumitomo Mitsui Financial Group and its group companies, or losses incurred through such actions have a significant impact on the financial situation of Sumitomo Mitsui Financial Group and its group companies. Specifically, persons having such influence are directors, corporate auditors and corporate officers of Sumitomo Mitsui Financial Group and its major consolidated subsidiaries, both domestic and overseas. 2. Names, Compositions, and Duties of the Main Bodies, Such as the Committee Responsible for Supervising Business Execution Concerning the Determination of Compensation, Its Payment and Other Related Matters (1) Establishment and Maintenance of the Compensation Committee Sumitomo Mitsui Financial Group, as a Company with a Nomination Committee, has established a Compensation Committee to resolve the “policy to determine individual remuneration for directors and executive officers,” “executive compensation programme and relevant regulations,” and “individual remuneration for Sumitomo Mitsui Financial Group’s directors and corporate executive officers.” The Compensation Committee is a body independent from the influence of business units, chaired by an outside director, with the majority of its members being also outside directors, and tasked to determine and deliberate matters related to executive compensation of Sumitomo Mitsui Financial Group and its group companies. In addition, Sumitomo Mitsui Financial Group Compensation Committee reviews and discusses executive compensation programmes/practices of group companies of Sumitomo Mitsui Financial Group and the individual remuneration for Sumitomo Mitsui Financial Group’s other executive officers. Furthermore, group companies of Sumitomo Mitsui Financial Group respect the details of the deliberations at the Compensation Committee of Sumitomo Mitsui Financial Group and determine the compensation for directors and corporate auditors within the maximum total amount of compensation approved at an ordinary general meeting of shareholders. (2) For Employees and Others The amount and type of compensation paid to the employees of Sumitomo Mitsui Financial Group and SMBC and the officers and employees of major consolidated subsidiaries are determined and paid according to the compensation policies established by the boards of directors of Sumitomo Mitsui Financial Group and its major consolidated subsidiaries. Compensation systems based on the compensation policies are designed and documented by the HR departments of respective companies, independent from the influence of business units. The compensation policies of major consolidated subsidiaries are regularly reported to the HR department of Sumitomo Mitsui Financial Group for review. The amount and type of compensation for overseas officers and employees is determined and paid under the compensation system established by the relevant office or subsidiary in accordance with local laws, regulations and employment practices. (3) Total Amount of Compensation Paid to Compensation Committee Members and Number of Compensation Committee Meetings Held Compensation Committee (Sumitomo Mitsui Financial Group) ����������������������������������������������������������������������� Compensation Committee (SMBC Nikko Securities Inc�) �������������������������������������������������������������������������������� Number of Meetings Held (April 1, 2019 to March 31, 2020) 6 2 Note: The total amount of compensation is not provided because the portion of the compensation paid to a committee member for services rendered as a committee member cannot be calculated as the amount of compensation paid is based on the committee member’s position in the company. 015_0800885852007.indd 375 375 2020/08/21 10:43:17 Sumitomo Mitsui Financial GroupSMBC GROUP ANNUAL REPORT 2020■ Assessment of Design and Operation of Compensation Structure Compensation Policies for Officers, Employees and Others (1) For Officers Sumitomo Mitsui Financial Group hereby establishes the Executive Compensation Policy (the “Policy”) in order to provide guiding principles for its Compensation Committee to determine individual remuneration for its directors and executive officers (the “Executives”). The Policy’s aim is that executive compensation pursuant to it shall provide the appropriate incentives for the Executives to pursue our Mission while materializing our medium-/long-term vision. Sumitomo Mitsui Banking Corporation, one of the Group’s main subsidiaries shall determine its executive compensations in accordance with this Policy. Executive compensation at SMBC Group shall be determined based on the following concept. I. SMBC Group’s executive compensation aims at providing appropriate incentives toward the realization of our mission and our vision. SMBC Group’s executive compensation shall reflect the changing business environment and the short-, medium-and long-term performance of the group, and shall account for the contribution to shareholder value, customer satisfaction, and realisation of sus- tainable society. Individual remuneration shall reflect the assigned roles and responsibilities as well as the performance of the respective Executive. SMBC Group shall research and review market practices, including the use of third-party surveys, in order to provide its Executives with a competitive remuneration package. SMBC Group’s executive compensation shall discourage excessive risk-taking and foster a prudent risk culture expected of a financial institution. II. III. IV. V. VI. Both external and internal regulations/guidelines on executive compensation shall be observed and respected. VII. SMBC Group shall establish appropriate governance and controls of the compensation process, and shall regularly review to update its executive compensation practices according to changing market practices and/or business environment. I. SMBC Group’s executive compensation programme (the “Programme”) shall have three components: base salary, cash bonus, and stock compensation. However, compensation for outside directors and Audit Committee members shall comprise base salary alone, in consideration of the nature of their role of management supervision. In order to hold the Executives accountable and provide them with appropriate incentives for the performance of SMBC Group, the Programme targets the variable compensation component of total remuneration at 40%, if paid at standard levels. Corresponding with performance and the business environment, the variable component could range from 0% to 150% of the standard levels, which shall be determined by corporate titles of the Executives. In order to enhance shareholding of the Executives and align their interests with shareholders, the Programme targets its stockbased compensation components at 25% of total remuneration, if paid at standard levels. II. III. IV. The above target levels shall be appropriately set in accordance with the roles, responsibilities, etc. of each Executive. V. Base salary shall be paid in cash and shall be, in principle, determined by the corporate titles of each Executive, reflecting the roles, responsibilities, etc. Annual incentives shall be determined based on the single year performance of SMBC Group and the business unit each Executive is accountable for, as well as on the performance of the respective Executive reviewed both from short-term and medium-/ long- term perspectives. Around 70% of the determined amount shall be paid in cash and the remaining 30% or so shall be paid under Stock Compensation Plan II (the “Plan II”). VI. VII. Stock compensation plans consist of three types, which are, Stock Compensation Plan I (the “Plan I”), under which the remuneration of the Executives shall be determined based on SMBC Group’s medium-term performance, etc., the Plan II, determined based on SMBC Group’s single year performance, etc. and Stock Compensation Plan III (the “Plan III”), determined based on corporate titles, etc. a. Under the stock compensation plans, the Executives shall receive remuneration via shares of Sumitomo Mitsui Financial Group common stock. The transfer of such stock shall be restricted for appropriately defined periods. b. Remuneration under Plan I shall be determined based on SMBC Group’s performance against the Medium-term Management Plan, performance of Sumitomo Mitsui Financial Group shares, and the results of customer satisfaction surveys, etc. c. Remunerations under Plan II shall be determined based on the single year performance of SMBC Group, the group company, and the business unit each Executive is accountable for, as well as on the performance of each Executive reviewed both from a short-term and medium-/long-term perspectives. Remuneration paid by restricted shares, they shall effectively act as deferred compensation. d. Remuneration under Plan III shall be determined based on corporate titles, roles, and responsibilities, etc. VIII. In the event of material amendments to the financial statements or material reputational damages caused by the Executives, IX. remunerations under the Plans could be reduced or fully forfeited. Notwithstanding the aforementioned “Compensation Programme,” executive compensation for the Executives locally appointed at overseas entities and those domiciled outside Japan shall be individually designed, not only in accordance with the basic concept above, but also with consideration to local regulations, tax regime, guidelines, and other local market practices, whilst ensuring the compensation should not incentivize for excessive risk-taking. Sumitomo Mitsui Financial Group, as a Company with a Nomination Committee, establishes a “Compensation Committee” to resolve the following: 376 015_0800885852007.indd 376 2020/08/21 10:43:17 Sumitomo Mitsui Financial GroupSMBC GROUP ANNUAL REPORT 2020Compensation  • The Policy, executive compensation programme including the aforementioned compensation programme and regulations concerning the Policy • Individual remunerations for Sumitomo Mitsui Financial Group’s directors and corporate executive officers In addition to the above, the Compensation Committee shall review and discuss the below: • The individual remuneration for Sumitomo Mitsui Financial Group’s corporate officers and other officers. • Executive compensation programmes/practices of group companies of Sumitomo Mitsui Financial Group. (2) For Employees and Others In order to link the business philosophy and strategy of the company to the roles and responsibilities of employees and others, Sumitomo Mitsui Financial Group and its major consolidated subsidiaries determine the domestic compensation taking into account their job responsibilities, business performance and other factors. Compensation for employees and others are determined by the HR departments of respective SMBC Group companies by comprehensively taking into account the surrounding business environment, performance trends, pay history and other factors. Compensation policies for overseas employees are determined following the aforementioned compensation policy for employees and others in Japan as well as in accordance with local laws, regulations and employment practices. ■ Consistency between Compensation Structure and Risk Management and Link between Compensation and Performance 1. Sumitomo Mitsui Financial Group and SMBC In determining the compensation for the officers of Sumitomo Mitsui Financial Group, the details of individual compensation for directors and executive officers are determined by the mandatory Compensation Committee, where the majority of the committee members are the outside directors. The compensation for the officers of SMBC are determined within the scope approved at a shareholders' meeting. In order to hold the Executives accountable and provide them with appropriate incentives for the performance of the group, the Programme targets the variable compensation component of total remuneration at 40%, if paid at standard levels. The Programme shall have three components: base salary, cash bonus, and stock compensation. Cash bonus shall be determined based on the annual performance of the group, as well as on the performance of the respective Executive reviewed both from short-term and medium-/long-term perspectives. Stock compensation is determined based on the progress of the Medium-term Management plan, performance of Sumitomo Mitsui Financial Group shares, and the results of customer satisfaction surveys, etc. Sumitomo Mitsui Financial Group and SMBC allot restricted stocks via the Plans to Executives to effectively defer part of executive compensation. Stock Compensation Plan I involves removal of the restriction on transfer, after the expiry of Sumitomo Mitsui Financial Group’s Medium-term Management Plan. In the event that the finalized amount of compensation falls short of the initially allocated amount, Sumitomo Mitsui Financial Group will retrieve all or part of the allotted shares at nil cost in the case the final amount falls below the initial amount. Stock Compensation Plan II involves step-by-step removal of the restriction on transfer, one third in each year over the three years following the payment. Stock Compensation Plan III involves removal of the restriction on transfer, either 30 years after payment or at the time of retirement from the position of officer. In addition, Sumitomo Mitsui Financial Group and SMBC introduced the malus (forfeiture) of restricted stock and the claw- back of vested stock allocated to the Executives under the Plans in order to restrain excessive risk-taking and foster a prudent risk culture expected of a financial institution. Provisions on malus and clawbacks are included in the Allotment Agreement and they shall be exercised in the event of material amendments to the financial statements or material reputational damage caused by the Executives after thorough review at the Compensation Committee. In addition, in determining the compensation for employees, their job responsibilities and business performance are taken into account. For variablecompensation, in order to avoid an excessive result-oriented approach, it is determined after comprehensive evaluation based on not only short-term performance results but also qualitative evaluation. Compensation is individually designed with consideration to local regulations, guidelines, and other market practices, whilst ensuring the compensation should not incentivize for excessive risk-taking. 2. Other Major Consolidated Subsidiaries The compensation for officers and employees of other major subsidiaries of Sumitomo Mitsui Financial Group are determined by comprehensively taking into account the assessment of the subsidiaries’ medium- and long-term earnings, and in the case of an overseas subsidiary, local laws, regulations and employment practices, and a compensation structure that could affect the risk management of SMBC Group has not been adopted. While terms of employment presented at the time of recruitment may include the minimum amount of compensation within a reasonable scope under local practice, the compensation structure is designed to avoid an excessive result-oriented approach. In addition, expenses for employee retention are recorded for employees of certain major consolidated subsidiaries. 015_0800885852007.indd 377 377 2020/08/21 10:43:17 Sumitomo Mitsui Financial GroupSMBC GROUP ANNUAL REPORT 2020Compensation■ Type, Total Amount Paid, and Payment Method of Compensation for Officers, Employees and Others of Sumitomo Mitsui Financial Group and Its Group Companies Compensation, etc. allocated to the applicable fiscal year Item No� 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 Number of applicable officers, employees and others Total fixed compensation (3+5+7) of which: cash compensation of which in 3: deferred amount Fixed compensation of which: amount of stock compensation or stock-linked compensation of which in 5: deferred amount of which: other compensation of which in 7: deferred amount Number of applicable officers, employees and others Total variable compensation (11+13+15) of which: cash compensation of which in 11: deferred amount of which: amount of stock compensation or stock-linked compensation of which in 13: deferred amount of which: amount of other compensation of which in 15: deferred amount Number of applicable officers, employees and others Amount of retirement allowance of which: deferred amount Number of applicable officers, employees and others Amount of other compensation of which: deferred amount Variable compensation Retirement allowance Other compensation Total compensation, etc� (2+10+18+21) (Headcount, millions of yen) (a) Officers (b) Employees and others 17 945 895 — 32 32 16 — 14 504 218 — 285 285 — — — — — — — — 1,449 150 6,442 5,863 — 404 404 173 — 150 5,283 4,538 876 745 665 — — 81 360 — 28 102 — 12,189 Notes: 1. Compensation amount includes those amounts of major consolidated subsidiaries. 2. Stock Compensation Plan III is classified as fixed compensation because the amount allotted depends on the individual’s position. Other stock compensation involves an amount of issuance prone to performance-linked fluctuations, and is thus classified as variable compensation. Special compensation, etc. (Headcount, millions of yen) (a) (b) (c) (d) (e) (f) Officers Employees and others Bonus guarantee Headcount — 55 Total amount — 359 One-off recruitment payment Headcount Total amount — — — — Additional retirement allowance Total amount Headcount — 449 — 5 ■ Other Information Regarding Compensation Structures of Sumitomo Mitsui Financial Group and its Group Companies Deferred compensation, etc. Officers Employees and others Amount of cash compensation Amount of stock compensation or stock-linked compensation Amount of other compensation Amount of cash compensation Amount of stock compensation or stock-linked compensation Amount of other compensation Total amount 378 (a) (b) Balance of deferred compensation, etc� Of the amount in (a), balance of deferred compensation, etc� subjected to adjustment or prone to fluctuations (c) With respect to post allocation compensation, amount of fluctuation after adjustment not linked to fluctuations of criteria in the applicable fiscal year (Millions of yen) (d) (e) With respect to post allocation compensation, amount of fluctuation after adjustment linked to fluctuations of criteria in the applicable fiscal year Amount of deferred compensation, etc� paid in the applicable fiscal year — 1,364 — 1,527 2,868 — 5,760 — 930 — 388 2,256 — 3,576 — — — — — — — — — — — — — — — 63 — 628 286 — 978 015_0800885852007.indd 378 2020/08/21 10:43:17 Sumitomo Mitsui Financial GroupSMBC GROUP ANNUAL REPORT 2020CompensationCompensation Sumitomo Mitsui Banking Corporation (SMBC) and Its Group Companies ■ Compensation Framework of SMBC Group 1. Scope of Officers and Employees The scope of officers, employees and others whose compensation is subject to disclosure under the revised Cabinet Office on Disclosure of Corporate Affairs, etc. and other ordinances are as described below. (1) Scope of Officers Officers subject to compensation disclosure are directors and corporate auditors of SMBC during the fiscal year under review (excluding outside directors and corporate auditors). (2) Scope of Employees and Others Employees and others subject to compensation disclosure are employees of SMBC and officers and employees of its major consolidated subsidiaries who are highly compensated and have a material influence on the business management or the assets of SMBC and its major consolidated subsidiaries. a) Scope of major consolidated subsidiaries A major consolidated subsidiary is a consolidated subsidiary of SMBC with total assets accounting for more than 2% of the total consolidated assets of SMBC and has a material influence on the management of SMBC and its group companies. Specifically, they are SMBC Guarantee Co., Ltd. and overseas subsidiaries such as Sumitomo Mitsui Banking Corporation Europe Limited and Sumitomo Mitsui Banking Corporation (China) Limited. b) Scope of highly compensated persons A highly compensated person is an individual whose compensation paid by SMBC or its major subsidiaries is equal to or more than the base amount. The base amount of SMBC is set at ¥60 million which is based on the average amount of compensation paid to the officers of Sumitomo Mitsui Financial Group and SMBC (excluding officers appointed or retired during the fiscal year in question) over the last three fiscal years (hereinafter “executive compensation amount”) and is applied to all group companies. This is because many of the officers of Sumitomo Mitsui Financial Group also serve as officers of SMBC, and their executive compensation amount is determined according to their contribution to the group as a whole. With respect to lump-sum retirement payment for officers serving in Japan, the executive compensation amount for the fiscal year in question is “(his/her executive compensation amount – lump-sum retirement payment) + (lump-sum retirement payment/years of service)” and the executive compensation amount calculated using this formula is compared to the base amount. c) Material influence on the business management or assets of SMBC and its major consolidated subsidiaries A person has a material influence on the business management or assets of SMBC and its major consolidated subsidiaries if his/her regular transactions or regular matters managed by him/her have a substantial impact on the business management of SMBC and its group companies, or losses incurred through such actions have a significant impact on the financial situation of SMBC and its group companies. Specifically, persons having such influence are directors, corporate auditors and corporate officers of SMBC and its major consolidated subsidiaries, both domestic and overseas. 2. Names, Compositions, and Duties of the Main Bodies, Such as the Committee Responsible for Supervising Business Execution Concerning the Determination of Compensation, Its Payment and Other Related Matters Determination of compensation is stated in “Compensation” of Sumitomo Mitsui Financial Group (please refer to “2. Names, Compositions, and Duties of the Main Bodies, Such as the Committee Responsible for Supervising Business Execution Concerning the Determination of Compensation, Its Payment and Other Related Matters” on page 375). ■ Assessment of Design and Operation of Compensation Structure Compensation Policy Compensation policy is stated in “Compensation” of Sumitomo Mitsui Financial Group (please refer to “Compensation Policy” on page 376). ■ Consistency between Compensation Structure and Risk Management and Link between Compensation and Performance Consistency between compensation structure and risk management and link between compensation and performance is stated in “Compensation” of Sumitomo Mitsui Financial Group (please refer to “Consistency between Compensation Structure and Risk Management and Link between Compensation and Performance” on page 377). 015_0800885852007.indd 379 379 2020/08/21 10:43:17 SMBCSMBC GROUP ANNUAL REPORT 2020■ Type, Total Amount Paid, and Payment Method of Compensation for Officers, Employees and Others of SMBC and Its Group Companies 1. Compensation Allocated in the Applicable Fiscal Year (SMBC consolidated) Item No� 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 Number of applicable officers, employees and others Total fixed compensation (3+5+7) of which: cash compensation of which in 3: deferred amount Fixed compensation of which: amount of stock compensation or stock-linked compensation of which in 5: deferred amount of which: other compensation of which in 7: deferred amount Number of applicable officers, employees and others Total variable compensation (11+13+15) of which: cash compensation of which in 11: deferred amount of which: amount of stock compensation or stock-linked compensation of which in 13: deferred amount of which: amount of other compensation of which in 15: deferred amount Number of applicable officers, employees and others Amount of retirement allowance of which: deferred amount Number of applicable officers, employees and others Amount of other compensation of which: deferred amount Variable compensation Retirement allowance Other compensation Total compensation, etc� (2+10+18+21) (Headcount, millions of yen) (a) Officers (b) Employees and others 14 770 710 — 42 42 16 — 11 381 165 — 216 216 — — — — — — — — 1,152 141 6,002 5,434 — 394 394 173 — 141 4,844 4,096 806 747 667 — — 81 360 — 28 102 — 11,311 Notes: 1. Compensation amount includes those amounts of major consolidated subsidiaries. 2. Stock Compensation Plan III is classified as fixed compensation because the amount allotted depends on the individual’s position. Other stock compensation involves an amount of issuance prone to performance-linked fluctuations, and is thus classified as variable compensation. 2. Special Compensation, Etc. (a) (b) (c) (d) (e) (f) (Headcount, millions of yen) Officers Employees and others Bonus guarantee Headcount — 55 Total amount — 359 One-off recruitment payment Headcount Total amount — — — — Additional retirement allowance Total amount Headcount — 449 — 5 380 015_0800885852007.indd 380 2020/08/21 10:43:17 SMBCSMBC GROUP ANNUAL REPORT 2020Compensation 1. Compensation Allocated in the Applicable Fiscal Year (SMBC non-consolidated) Item No� 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 Number of applicable officers, employees and others Total fixed compensation (3+5+7) of which: cash compensation of which in 3: deferred amount Fixed compensation of which: amount of stock compensation or stock-linked compensation of which in 5: deferred amount of which: other compensation of which in 7: deferred amount Number of applicable officers, employees and others Total variable compensation (11+13+15) of which: cash compensation of which in 11: deferred amount of which: amount of stock compensation or stock-linked compensation of which in 13: deferred amount of which: amount of other compensation of which in 15: deferred amount Number of applicable officers, employees and others Amount of retirement allowance of which: deferred amount Number of applicable officers, employees and others Amount of other compensation of which: deferred amount Variable compensation Retirement allowance Other compensation Total compensation, etc� (2+10+18+21) (Headcount, millions of yen) (a) Officers (b) Employees and others 14 770 710 — 42 42 16 — 11 381 165 — 216 216 — — — — — — — — 1,152 141 6,002 5,434 — 394 394 173 — 141 4,844 4,096 806 747 667 — — 81 360 — 28 102 — 11,311 Notes: 1. Compensation amount includes those amounts of major consolidated subsidiaries. 2. Stock Compensation Plan III is classified as fixed compensation because the amount allotted depends on the individual’s position. Other stock compensation involves an amount of issuance prone to performance-linked fluctuations, and is thus classified as variable compensation. 2. Special Compensation, Etc. (a) (b) Bonus guarantee Headcount — 55 Total amount — 359 Officers Employees and others (c) (d) (e) (f) (Headcount, millions of yen) One-off recruitment payment Headcount Total amount — — — — Additional retirement allowance Total amount Headcount — 449 — 5 015_0800885852007.indd 381 381 2020/08/21 10:43:17 SMBCSMBC GROUP ANNUAL REPORT 2020Compensation ■ Other Information Regarding Compensation Structures of Sumitomo Mitsui Financial Group and its Group Companies Amount of Deferred Compensation, Etc. (SMBC consolidated) Deferred compensation, etc. (a) (b) Balance of deferred compensation, etc� Of the amount in (a), balance of deferred compensation, etc� subjected to adjustment or prone to fluctuations (c) With respect to post allocation compensation, amount of fluctuation after adjustment not linked to fluctuations of criteria in the applicable fiscal year (Millions of yen) (d) (e) With respect to post allocation compensation, amount of fluctuation after adjustment linked to fluctuations of criteria in the applicable fiscal year Amount of deferred compensation, etc� paid in the applicable fiscal year Officers Employees and others Amount of cash compensation Amount of stock compensation or stock-linked compensation Amount of other compensation Amount of cash compensation Amount of stock compensation or stock-linked compensation Amount of other compensation Total amount — 1,078 — 1,360 2,963 — 5,402 — 735 — 388 2,292 — 3,415 — — — — — — — — — — — — — — — 112 — 544 232 — 888 Amount of Deferred Compensation, Etc. (SMBC non-consolidated) Deferred compensation, etc. (a) (b) Balance of deferred compensation, etc� Of the amount in (a), balance of deferred compensation, etc� subjected to adjustment or prone to fluctuations (c) With respect to post allocation compensation, amount of fluctuation after adjustment not linked to fluctuations of criteria in the applicable fiscal year (Millions of yen) (d) (e) With respect to post allocation compensation, amount of fluctuation after adjustment linked to fluctuations of criteria in the applicable fiscal year Amount of deferred compensation, etc� paid in the applicable fiscal year Officers Employees and others Amount of cash compensation Amount of stock compensation or stock-linked compensation Amount of other compensation Amount of cash compensation Amount of stock compensation or stock-linked compensation Amount of other compensation Total amount — 1,078 — 1,360 2,963 — 5,402 — 735 — 388 2,292 — 3,415 — — — — — — — — — — — — — — — 112 — 544 232 — 888 382 015_0800885852007.indd 382 2020/08/21 10:43:17 SMBCSMBC GROUP ANNUAL REPORT 2020CompensationSMBC Group Home Page https://www.smfg.co.jp/(Japanese) https://www.smfg.co.jp/english/(English) IR Information https://www.smfg.co.jp/investor/(Japanese) https://www.smfg.co.jp/english/investor/(English) Sustainability https://www.smfg.co.jp/sustainability/(Japanese) https://www.smfg.co.jp/english/sustainability/(English) To Our StakeholdersBusiness Strategies for Creating ValueCorporate Infrastructure Supporting Value CreationAbout SMBC GroupSMBC GROUP ANNUAL REPORT 2020 YEAR ENDED MARCH 31, 2020 S M B C G R O U P A N N U A L R E P O R T 2 0 2 0 Printed in Japan 

Continue reading text version or see original annual report in PDF format above