MISSION &
VISION &
FIVE VALUES
“Our Group Mission,”
which serves as the foundation for all of our corporate activities,
portrays our mission toward stakeholders.
“Vision” is our medium- to long-term aim for the Group.
“Five Values” represent the core values we share with all SMBC Group employees.
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
TEAM “SMBC GROUP”
Differentiate ourselves through the speed and quality of our decision-making and service delivery.
Respect and leverage the knowledge and diverse talent of our global organization, as a team.
001
SMBC GROUP ANNUAL REPORT 2021 Editorial Policy
SMBC GROUP ANNUAL REPORT 2021 is designed to convey financial and
non-financial information about the overall picture, business strategy, and cor-
porate infrastructure of SMBC Group. It has been compiled with reference to the
International Integrated Reporting Framework issued by the International
Integrated Reporting Council (IIRC) in December 2013.
The appendix in the back of this report contains more detailed informa-
tion on the Group. Additional information on Sustainability activities can be found
on the Company’s corporate website.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This document contains “forward-looking statements” (as defined in the U.S.
Private 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 operations. 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 guaran-
tees of future performance and involve risks and uncertainties, and actual results
may differ from those expressed in or implied by such forward-looking state-
ments 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
successfully implement our business strategy through our subsidiaries, affiliates
and alliance partners; and exposure to new risks as we expand the scope of our
business. Given these and other risks and uncertainties, you should not place
undue reliance on forward-looking statements, which speak only as of the date of
this document. We undertake no obligation to update or revise any forward
looking statements.
Please refer to our most recent disclosure documents such as our
annual report on 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 uncertainties that may affect our
financial condition and our operating results, and investors’ decisions.
Scope of Report
Period covered:
FY2020 (April 2020 to March 2021)
Some subsequent information is also included.
Organizations covered:
Contents
About SMBC Group
004 History of SMBC Group
006 Financial Highlights
007 ESG Highlights
008 SMBC Group’s Value Creation Process
To Our Stakeholders
010 Message from the Group CEO
022 Message from the Group CFO
028 Round-Table Discussion with Outside Directors
032 Core Policy of the Medium-Term Management Plan
(FY2020–FY2022)
034 Response to COVID-19
Business Strategies for Creating Value
038 Group Structure
040 Retail Business Unit
044 Wholesale Business Unit
048 Global Business Unit
052 Global Markets Business Unit
056 Special Features:
Sumitomo Mitsui Financial Group and its subsidiaries and affiliates
SMBC Group’s Digital Strategies Transcending Finance
Published:
August 2021
Corporate Infrastructure Supporting Value Creation
“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
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.
070 Corporate Governance
084
Initiatives to Realize Sustainability
096 Customer-Oriented Initiatives
099
Internal Audit
100 Risk Management
104 Compliance
106 Human Resources Strategy
110
IT Strategy
112 Communication with Stakeholders
114 Financial Review
119 ESG Information
002
003
SMBC GROUP ANNUAL REPORT 2021SMBC GROUP ANNUAL REPORT 2021
About SMBC Group
History of SMBC Group
Throughout the course of its history, SMBC Group has adapted to the changing
needs of the times and shifted its businesses
while enhancing the quality of its corporate infrastructure through environmental,
social, and governance (ESG) initiatives.
(cid:26)(cid:28)(cid:28)(cid:31)(cid:27)
Birth and Growth of Comprehensive Financial Group
2001
Sumitomo Mitsui Banking Corporation formed
2002
Sumitomo Mitsui Financial Group established
2004
SMBC Consumer Finance became an equity-method affiliate
2009
SMBC Nikko Securities became a subsidiary
(cid:31)(cid:30)(cid:29)
(cid:24)
2002
Endorsement of United Nations Environment Programme
Finance Initiative
(cid:23)
2005
Establishment of Audit Committee (optional)
(cid:24) (cid:22) (cid:23)
2007
Signing of United Nations Global Compact
(cid:23)
2010
Listed on New York Stock Exchange
(cid:31)(cid:30)(cid:29)(cid:28)(cid:27)
Source of Management Enduring for Four Centuries
1590
Riemon Soga (brother-in-law of
Masatomo Sumitomo) started
copper refining business
1673
Takatoshi Mitsui opened
Mitsui Echigoya Kimono Dealer
1876
Mitsui Bank established
1895
Sumitomo Bank established
(cid:31)(cid:30)(cid:29)
Predecessor of
Sumitomo
(cid:24)
(cid:22)
Predecessor of
Mitsui
(cid:22)
1673
Innovation of business
practices (clothing sales)
1683
Important developer of
financial infrastructure
(money exchanging)
Around 1600
Development of
cutting-edge copper
refining techniques
1894
Tree planting at
deforested copper mine
site
(cid:24)
1998
Establishment of
environmental policies
(cid:26)(cid:28)(cid:31)(cid:26)(cid:27)
Expansion of the Scope of Operations and Target Markets
20122012
SMBC Aviation Capital became a subsidiary
2012
SMBC Consumer Finance became a subsidiary
2013
SMBC Trust Bank became a subsidiary
2013
Bank BTPN became an equity-method affiliate
2015
The Bank of East Asia became an equity-method affiliate
2016
Sumitomo Mitsui Asset Management became a subsidiary
(cid:31)(cid:30)(cid:29)
(cid:24)
2015
First issuance of green bond
(cid:23)
2015
Establishment of SMFG Corporate Governance Guideline
(cid:22)
2016
Endorsement of Women’s Empowerment Principles
(cid:26)(cid:28)(cid:31)(cid:25)(cid:27)
Pursuit of Sustainable Growth through Utilization of
Group Strength and Structural Reforms
2018018
Group business reorganization
• THE MINATO BANK and Kansai Urban Banking Corporation deconsolidated
• Sumitomo Mitsui Finance and Leasing deconsolidated and
converted into an equity-method affiliate
2019
Sumitomo Mitsui DS Asset Management established through merger of
Sumitomo Mitsui Asset Management and Daiwa SB Investments
2019
Bank BTPN became a subsidiary
(cid:31)(cid:30)(cid:29)
2017
Release of Statement on Human Rights
(cid:22)
(cid:22)
2017
Release of Diversity and Inclusion Statement
2017
Endorsement of recommendations of Task Force on Climate-related Financial Disclosures
(cid:24)
(cid:23)
2017
Transition to Company with Three Committees
Introduction of group-wide business units and CxO system
2018
Announcement of sector-specific financing policies
(cid:24)
(cid:22)
2019
Signing of Principles for Responsible Banking
(cid:24) (cid:22) (cid:23)
(cid:23)
(cid:24) (cid:22)
2020
Revision of Our Mission
Establishment of SMBC Group Statement on Sustainability
(cid:24) (cid:22) (cid:23)
2021
Appointment of Group CSuO and establishment of Sustainability Committee
004
005
SMBC GROUP ANNUAL REPORT 2021SMBC GROUP ANNUAL REPORT 2021About SMBC Group About SMBC Group
Financial Highlights
Profit attributable to Owners of Parent
(Billions of yen)
1,000
500
0
512.8
’16
’17
’18
’19
’20
(FY)
ESG Highlights
Return on Equity (ROE)
(Calculated using stockholders’ equity as the denominator)
Sustainability Key Performance Indicators
(%)
10
5
0
5.4
%
’16
’17
’18
’19
’20
(FY)
Environment
Amount of
Green Finance
Green Bond
Issuance
A
b
o
u
t
S
M
B
C
G
r
o
u
p
Target
FY2020 Result
Target
FY2020 Result
¥20 trillion
(From FY2020 to FY2029)
¥2.7trillion
One
issuance or more/year
One
issuance
Consolidated net business profit remained at the same level as FY2019 since the
COVID-19 pandemic had both positive and negative effects. However, profit
attributable to owners of parent decreased year on year due an increase in total
credit cost.
Overhead Ratio (OHR)
ROE was at a lower level as profit attributable to owners of parent decreased due to
the increase in total credit cost as a result of the COVID-19 pandemic.
Common Equity Tier 1 Capital Ratio (CET1 Ratio)
(Basel III fully-loaded basis)
(%)
80
60
0
62.3
%
’16
’17
’18
’19
’20
(FY)
(%)
20
15
0
16.00
%
Mar.17 Mar.18 Mar.19 Mar.20 Mar.21
While allocating resources to overseas operations, OHR showed a year-on-year
improvement as business expenses decreased due to the COVID-19 pandemic and
group-wide cost reduction efforts.
While risk-weighted assets increased from providing financial support to customers,
we maintained our CET1 ratio higher than the required level due to the growth in net
unrealized gains on other securities as stock prices increased.
Dividend per Share of Common Stock
Credit ratings (As of June 30, 2021)
(Yen)
200
100
0
190
Holding company
SMBC
Long-term Short-term Long-term Short-term
Moody’s
S&P
Fitch
R&I
JCR
A1
A-
A
A+
AA-
’16
’17
’18
’19
’20
(FY)
P-1
A1
P-1
A-1
F1
A
A
AA-
a-1+
AA
J-1+
—
F1
—
—
Community
Next Generation
Retail Deposits
in Asia
Finance
Education
Target
FY2020 Result
Target
FY2020 Result
x3
of FY2019
(By FY2022)
x2
(from FY2020 to FY2029) 132 thousand
1.5million
Human Resources
Female Managers
Childcare Leave (Male)*
Target
FY2020 Result
Target
FY2020 Result
20 %
(By FY2025) 15.8%
100 % 100 %
* Figure is for SMBC.
To enhance shareholder returns as we presented in the Medium-Term Management
Plan, we increased the FY2021 dividend forecast by ¥10 to ¥200 per share.
006
SMBC GROUP ANNUAL REPORT 2021
007
SMBC GROUP ANNUAL REPORT 2021
About SMBC Group
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
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 /
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
Cash settlements
Wealth management
Financial inclusion
Renewable energy projects
Green bond underwriting
Employees
Employees
Impacts
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
008
009
SMBC GROUP ANNUAL REPORT 2021SMBC GROUP ANNUAL REPORT 2021About SMBC Group To Our Stakeholders
MESSAGE FROM THE GROUP CEO
CONFRONTING
STRONG
HEADWINDS
Jun Ohta
Director President and Group CEO
In a Calm Sea, Everyone Is a Pilot.
010
011
domestic economy that continues to suffer from
years of anemic growth, a negative interest rate
environment, and the COVID-19 pandemic.
Furthermore, we are witnessing the increasing
presence of new competitors in the financial sector
and the increased unbundling and re-bundling of
financial and non-financial services and products.
Given this trend, while the need for financial
functions such as deposits, loans, and settlements
may remain, there is no guarantee that customers
will select traditional players such as SMBC Group
to provide them with those functions.
J apan’s financial sector, our mother market,
faces a challenging environment with
accelerating population decline and aging, a
To Our StakeholdersSMBC GROUP ANNUAL REPORT 2021SMBC GROUP ANNUAL REPORT 2021 To Our Stakeholders
MESSAGE FROM THE GROUP CEO
However, by no means does this
breakthrough, the large-scale production of
challenging business environment cause me
those vaccines was realized. Furthermore, we
to feel any pessimism. Rather, I have every
confidence that SMBC Group will continue
to grow as a global financial institution in a
sustainable manner.
What we must not forget is that
were able to resume business activities at a
level similar to that before the global health
crisis through the use of web conferencing and
other digital tools as we combated the spread
of the virus by curbing our activities while we
regardless of the business environment, there
waited for the rollout of vaccines. Humanity
will also be opportunities for growth. In recent
was essentially powerless in its efforts to
years, we saw a rapid acceleration in the pace
combat past pandemics such as the Spanish
of technological innovation and changing
customer needs, for example the shift to
Flu and SARS. Past efforts were limited to
quarantining infected individuals and placing
cashless payments in the BtoC sector and the
restrictions on the movement of people, after
global move toward electronic vehicles in the
which there was no real effective means that
automobile sector followed by advancements
could be implemented other than to wait for
toward the commercialization of self-driving
the pandemic to run its course. As you can
vehicles. At the base of such changes lie
see humanity has made great progress in its
irreversible megatrends with some examples
ability to combat pandemics and other threats.
being enhanced convenience due to the digital
The COVID-19 pandemic continues to have a
shift and increased expectations of society
toward ESG. This being the case, I expect
tremendous impact on the lives of people all
over the world, and I sincerely wish nothing
these trends to accelerate even further going
more than to see this pandemic brought to
forward. In such an operating environment,
an end at the earliest possible date, but I am
traditional industry status and sales networks
also encouraged to see humanity pooling its
will not always function as an advantage.
In fact, they could hinder innovation due to
wisdom and using innovation to minimize
economic disruption while controlling the
concerns regarding legacy and sunk costs.
spread of the virus.
However, I believe it is possible to realize
“In a calm sea, everyone is a pilot.” This
sustainable growth in a market such as Japan
is the English equivalent of the saying “Shippu
where growth in the size of the overall pie is not
ni Keiso wo Shiru” from the Book of the Later
expected if we can create alternative demand
Han in China which illustrates that people and
and other new needs while also building the
organizations that remain like a Keiso (wind
necessary platforms to address those needs.
resistant blade of grass) stand out in the face
Furthermore, advances in technology
of Shippu (strong headwinds). SMBC Group
have provided humanity with new ways of
facing and fighting threats. For example, in
terms of COVID-19, scientists from around
the world worked to identify the underlying
is facing a number of headwinds, and our
true strength as a financial institution is being
challenged. Having said this, I have no doubt
that we will overcome these headwinds and
virus and released the results of the genome
realize sustainable growth through tireless
sequence analysis online in January 2020,
a time when the virus was still limited to
parts of China. Effective vaccines were not
only developed less than one year from this
innovation and by finding new opportunities
for growth. I will share the reasons for my
confidence in a later part of my message.
Commencing Our Journey in a Storm
W e kicked-off our current Medium-
Term Management Plan last spring
during Japan’s first state of emergency. At
our seven key strategies by leveraging online
tools and enhancing marketing-related efforts
in terms of both quality and quantity. While
that time, we were not able to predict with any
our consumer finance, aircraft leasing, and
level of certainty how serious the impact of this
Asia business suffered from a slowdown in the
unknown pandemic would be. As such, we
global economy and decreased consumption
had to launch the Medium-Term Management
due to the COVID-19 pandemic, we managed
Plan in a volatile and highly uncertain business
to generate consolidated net business
environment with all SMBC Group employees
profit which was close to the FY2019 figure
having to display ingenuity on a daily basis to
thanks to the strong performance of our
carry-out their responsibilities.
wealth management and overseas securities
First, as part of the financial infrastructure
businesses. In addition, our final credit cost
on which retail and wholesale customers rely to
was lower than initially anticipated due to
support their daily business and nonbusiness
government support and liquidity support from
needs, we placed the highest priority on
banks, and our bottom line, while not at a level
providing undisrupted financial services. For
that reflects our true capabilities, exceeded
example, SMBC continued operating all of
initial expectations by a substantial amount.
its branches and ATMs while implementing
Although the COVID-19 pandemic
extensive safety precautions. Furthermore, the
continues to reap havoc around the world,
bank also enhanced online services to allow
vaccinations are steadily progressing, and
customers to perform transactions without
customers and SMBC Group are using digital
having to visit a branch. SMBC Group also
technology to adapt our corporate activities
strived to fulfill its social responsibilities as a
to the current business environment. We also
global financial institution by committing at its
now possess a much clearer picture of the
peak a total of ¥10 trillion to support domestic
impact the global health crisis is having on our
and overseas customers to overcome the
financial results. While we will continue to see
impact of the COVID-19 pandemic.
volatility in the business environment, I believe
In terms of business results, although
immediate uncertainties have cleared. Now,
I considered our progress in the first half of
not only can we clearly see the path we must
FY2020 as insufficient due to a slowdown in
follow in the short-term, we can also see an
business activities and in the execution of our
end to the disruptions caused by the COVID-19
various initiatives, in the second half of the year
pandemic.
we were able to accelerate initiatives targeting
While we will continue to see volatility
in the business environment, I believe
immediate uncertainties have cleared.
012
013
To Our StakeholdersSMBC GROUP ANNUAL REPORT 2021SMBC GROUP ANNUAL REPORT 2021 To Our Stakeholders
MESSAGE FROM THE GROUP CEO
I have no doubt that we will overcome these
headwinds and realize sustainable growth
through tireless innovation and by finding new
opportunities for growth.
No Change to the Path We Must Follow
T he path we must follow is none other
than the path laid out in the current
Medium-Term Management Plan that was
boomed before we could strengthen our
overseas securities business framework to
the extent targeted in the Medium-Term
established as the first step toward the
Management Plan. For cashless payments,
realization of our Vision: “A trusted global
the base of user clients and participating
solution provider committed to the growth
stores expanded due to the growing popularity
of our customers and the advancement of
of online shopping and touchless payment.
society.” The COVID-19 pandemic was an
We will further accelerate the strategies we
unexpected factor that was not reflected
established in the Medium-Term Management
in the original planning of the Medium-
Plan targeting such business areas as we
Term Management Plan, but certain trends
expect them to continue growing in the
we witnessed during FY2020 such as the
medium- to long-term.
acceleration of cashless payments, increased
On the other hand, our consumer finance,
momentum of ESG, and the deepening of
aircraft leasing, and Asia business were forced
geopolitical risks are trends that we had
to operate under a challenging environment in
identified prior to the COVID-19 pandemic.
FY2020. However, there is no change to those
What the global health crisis changed is the
businesses’ medium- to long-term growth
momentum and the applicable timelines of
potential, and they retain their competitive and
those trends. As such, there is no need to
strategic importance in our overall business
change the overall direction of the Medium-
strategy. In FY2021 we will turn to the offensive
Term Management Plan, and we will continue
and proactively expand our activities in those
to proceed with its execution with the utmost
markets in light of the expected normalization
confidence.
of domestic consumption and the global
Of course, we will finetune our strategies
economy.
in a flexible and precise manner based on the
While we expect for FY2022, the final
issues and strategies requiring acceleration
year of the Medium-Term Management
which became clearer due to our experiences
Plan, to be impacted to a certain degree by
during the COVID-19 pandemic.
the COVID-19 pandemic I am confident that
For example, if we look at our overseas
we can overcome the negative impact by
securities business, we can see that although
accelerating the above strategies and focusing
SMBC Nikko Securities’ gross profit for
very closely on opportunities to reduce
FY2020 was the highest since it joined SMBC
costs. We will continue our efforts to realize
Group, our competitors with more extensive
sustainable growth and there is no change
and established overseas securities business
to our goal of generating bottom-line profit of
operations were able to generate much larger
more than ¥700 billion in the final year of the
profits. The reason is that financial markets
Medium-Term Management Plan.
One Step Ahead of Customers’ Needs
I have repeatedly stressed the need to
adhere to three key themes if we are to
realize sustainable growth. These themes are
Advertising Business
A tremendous amount of payment and
credit data is accumulated in our banking,
the result of repeated deliberations aimed
securities, and consumer finance businesses.
at identifying the role SMBC Group can play,
In other words, you could say that we are one
the strengths we can leverage, and whether
large platform with finance at its base. We
we can form partnerships with players from
are currently contemplating a number of new
outside the financial sector to address issues
businesses which will allow us to leverage
in a future when the needs of customers and
this data, and in July 2021 we established
society will undergo a substantial change from
SMBC Digital Marketing, Ltd., a company
the present day.
that operates an advertising and marketing
The first theme is data oriented.
services business utilizing financial big
Information and data are very valuable
data. We will strive to create new value by
assets that are not represented on a company’s
developing a business that uses our platform
balance sheet, and businesses around the
to analyze customers’ needs and then transmit
world, not only those in the financial sector, are
information and advertisements that are
striving to monetize these assets.
believed to reflect those needs. Of course, any
The second theme is to build platforms.
concerns regarding the protection of personal
In Japan, we provide services to 43
data and the implementation of necessary
million individual customers and SMBC
security protocols will be addressed first.
extends loans to 80 thousand companies. By
leveraging this robust customer base, SMBC
Elder Business
Group can become a platformer that uses its
The SMBC Elder Program is a business
financial capabilities as foundations to provide
we launched as a result of thinking outside the
a variety of services.
traditional boundaries of the finance sector
The third theme is to become a solutions
in response to the ongoing diversification of
provider.
customers’ needs in Japan’s super-aging
We can add value which truly enhances
society. The concerns of senior citizens are not
our customers business only if we look
limited to securing sufficient funds to cover
beyond immediate services such as loans
living expenses following their retirement.
and payments. We must identify the reasons
Their concerns encompass a diverse range
for customers engaging in those services and
of matters such as inheritance, health and
provide comprehensive, top-tier solutions by
nursing care, housework, security, and their
proactively collaborating with companies from
relationship with family members. In order to
outside the financial sector if required.
offer a one-stop solution to such issues, we will
These three themes are not independent
develop a financial service focused platform
of each other, rather, they are closely
that also provides services that SMBC Group
intertwined. While all the initiatives established
does not offer, such as housekeeping and
under the Medium-Term Management Plan
security, by proactively collaborating with
reflect these themes, I will take this opportunity
players from outside the financial sector.
to share with you three examples.
014
015
To Our StakeholdersSMBC GROUP ANNUAL REPORT 2021SMBC GROUP ANNUAL REPORT 2021 To Our Stakeholders
MESSAGE FROM THE GROUP CEO
We made no change to the Multi-
franchise strategy as we continued
to search for seeds that had the
potential to blossom into future
platforms.
Expanding Our Franchise in Asia
entered into a capital partnership with Rizal
Under our Multi-franchise strategy, we
Commercial Banking Corporation, a mid-tier
are devising and implementing initiatives
commercial bank in the Philippines, while also
based upon a time span of ten or twenty years
obtaining a substantial retail finance platform
in order to build a second and third SMBC
in India, which is expected to become the
Group in Asia’s developing economies. We
most populous country in the world in the near
made three commitments when formulating
future, through our acquisition of Fullerton
our Multi-franchise strategy, which are: “We
India, a top tier nonbank that possesses a retail
will become a full-line financial services
and SME business network throughout the
provider in the target market,” “The franchise
country, as part of efforts to establish SMBC
will have a strong home-market focus with
Group franchises in each of those countries.
its foundations firmly embedded in the local
Our businesses in these countries have
economy,” and “We will not retreat even
traditionally involved the approaching of large
when faced with changes in the business
local and Japanese firms through SMBC
environment.” As such, even after COVID-19
branches. The above deals allow SMBC
spread throughout Asia, we made no change
Group to expand into the mid-tier corporate,
to the Multi-franchise strategy as we continued
SME, and fast-growing retail sectors, and
to search for seeds that had the potential to
combined with our earlier acquisition of
blossom into future platforms.
BTPN in Indonesia move us one step closer to
Such efforts allowed us to secure the
achieving our goal of establishing full-banking
opportunity to acquire a 49% stake in FE
capabilities in Asia’s developing economies.
Credit, a leading Vietnamese consumer
We will continue to pursue high quality
finance company. FE Credit has a robust retail
inorganic opportunities in a disciplined manner
business network and a highly competitive
as part of efforts to realize sustainable growth
business model, allowing us to obtain a
while also enhancing shareholder returns, a
50% market share of Vietnam’s fast growing
topic I will address later.
consumer market sector. FE Credit has also
maintained a high level of profitability with
an ROE of more than 20% and is expected
to continue experiencing robust growth
in its assets and profits. Furthermore, we
See page 051 for details.
Initiatives in Growth Fields in Asia and Other Markets
Passing On a Green Earth to Future Generations
T here is a 460 meter “The Trails of the
Earth” at Furano Field which represents
the earth’s 4.6-billion-year history. Furano
In order to pass on a green earth to future
generations, SMBC Group established a long-
term road map to enhance our climate change-
Field is led by the screenwriter Mr. Soh
related efforts. First, SMBC Group will achieve
Kuramoto, and SMBC Group has extended our
net zero greenhouse gas emissions by 2030.
support since its establishment. How long do
We will also execute ¥30 trillion of sustainable
you think Homo sapiens’ 200 thousand year
finance by 2030 to support customers’ climate
history is in the “The Trails of the Earth”?
change-related initiatives and their transition to
A mere two centimeters. When we read
a green business model. Furthermore, we will
history books it feels that the birth of humanity
commence efforts to identify the greenhouse
took place a very, very long time ago, but
gas emissions of our loan and investment
the reality is, from the earth’s perspective,
portfolio while engaging in discussions with
the history of the human race is about the
customers regarding the decarbonization
same length as your fingertip. The 200 years
of their business models as the first step to
following the Industrial Revolution, a period
realizing a carbon-neutral supply chain by
which saw the start of global warming, is a
2050. However, the expectations of society
mere 0.02 millimeters. “The Trails of the
continue to grow even as we engage in such
Earth” continues into the future and at its end
efforts, and I believe that climate change has
lies a stone monument with the words: “We
the potential to become a game changer not
are merely borrowing the earth from future
only for the financial sector but for a wide
generations.” I believe that Furano Field is
range of business sectors. We will further
trying to convey a very important message
enhance our efforts while continuing to update
through “The Trails of the Earth.” There is
our decarbonization-related procedures and
no special technique or method to realize
action plans in a flexible manner.
sustainability. Rather, there is an obvious
In order to successfully enhance our
solution, we must create a society in which
climate change-related initiatives, I would
the current generation can achieve happiness
like to stress that we must also turn our
and enjoy the benefits of economic growth
attention to the short-term and conduct calm
while also ensuring that we pass on the earth
and objective analyses of the current status
to future generations in a green, vibrant state.
of business sectors and customers, after
We must also accept that humanity, in return
for enjoying the benefits of advancements in
civilization, rapidly advanced global warming in
a time frame that is only 0.02 millimeters of the
earth’s total history.
See page 084 for details.
Initiatives to Realize Sustainability
016
017
To Our StakeholdersSMBC GROUP ANNUAL REPORT 2021SMBC GROUP ANNUAL REPORT 2021 To Our Stakeholders
MESSAGE FROM THE GROUP CEO
which we would determine the best possible
could we disrupt the steady supply of energy,
course of action that can be executed in the
we may also impede customers’ efforts to
immediate future. The consistent execution
develop technologies that could support the
of such actions must be balanced with the
decarbonization of their business models and
pursuit of long-term goals. Given our global
society. Together with our customers, we will
relationships with customers from a variety of
strive to realize the decarbonization of society
business sectors, and our role as a supplier of
while engaging in careful discussions with all
finance, the lifeblood of the modern economy,
stakeholders, paying close attention to the
we must take great care in how we address the
impact our efforts will have on businesses and
issue of climate change. If we abruptly turn to
to trends in energy transition and innovation.
and proceed down the wrong path, not only
A financial group’s most important
resource is its people, and the workplace is
an important stage where employees can
grow and pursue their aspirations.
A Work Environment Where Employees Can Realize Their Dreams
A financial group’s most important resource
is its people, and the workplace is an
important stage where employees can grow
The first is Midoriba, our internal SNS
which we launched last year. More than 20
thousand employees at SMBC have joined the
and pursue their aspirations. An important
service with 6 thousand of those employees
responsibility of a CEO is to prepare a stage
being active users who regularly post a variety
that is large enough for employees to truly
of ideas and information. Promising business
challenge themselves and to write a script
ideas receive helpful advice and constructive
that allows them to demonstrate their unique
comments regardless of age or departments.
potential, so that all employees can put on
Online communities in which employees
their best performance.
support their colleagues in pursuing challenges
In recent years, we have seen a material
are naturally developing. A number of new
change in employees’ mindsets, especially in
business ideas have already been identified as
our younger employees, with a growing number
having the potential for commercialization. We
of employees placing greater importance on
plan on introducing Midoriba to other SMBC
how their company contributes to society. All
Group companies in the future.
our employees possess various ideas and have
The second is diversity and inclusion.
the backbone to pursue new challenges. Ever
Innovation that opens the door to the future
since assuming leadership of SMBC Group, I
is the result of employees with a diverse
have urged employees to “Break the Mold,”
range of characteristics such as gender,
and I have supported employees attempting to
age, and nationality coming together to
pursue new challenges without being bound
combine their uniqueness and varied views
by precedent or fixed ideas. I have assigned
while freely collaborating with players from
management resources to employees who
outside their business sector. SMBC Group is
have stepped forward and established new
comprised of companies that possess distinct
companies for them to lead, even in cases
characteristics, and its businesses are run by
when the employee was of a junior or mid-
more than 100 thousand employees coming
level rank. So far, 10 companies have been
from diverse backgrounds spread across 40
established through my “Producing CEO”
countries and areas. We must not relax our
initiative. The purpose of this initiative is to
efforts to further accelerate our diversity-
raise employees’ motivation by instilling a
related initiatives given that customers’ needs
“I can succeed if I try” mentality, and I look
and businesses are becoming increasingly
forward to seeing the new companies grow to
diverse and global. We will strive to realize
a stage where they can contribute to SMBC
true diversity and inclusion through the
Group’s profitability or to the enhancement of
diversification of our senior management team,
customer services.
the empowerment of female employees, and
I will accelerate the following two
by supporting the balancing of professional
initiatives so that this flow of innovation will
responsibilities with life events.
become even stronger, diverse, and sustained.
Discussion with Mr. Soh Kuramoto, the founder of Furano Field
018
019
To Our StakeholdersSMBC GROUP ANNUAL REPORT 2021SMBC GROUP ANNUAL REPORT 2021 To Our Stakeholders
MESSAGE FROM THE GROUP CEO
The COVID-19 pandemic has not changed our
policy of focusing on the enhancement of SMBC
Group’s corporate value on an ongoing basis and
distributing profits to our shareholders.
Maximizing Shareholder Value
from Both Financial and Non-Financial Perspectives
T he COVID-19 pandemic has not
changed our policy of focusing on the
enhancement of SMBC Group’s corporate
opportunities for share buybacks in FY2021
while continuing to pay careful attention to the
ongoing impact of the COVID-19 pandemic
value on an ongoing basis and distributing
and movements in overseas markets given
profits to our shareholders. A progressive
our discounted share price and the fact that
dividend policy remains our principal approach
we expect to be able to maintain our capital
to shareholder returns, and our goal is to
levels at sufficient levels even after factoring in
realize a dividend payout ratio of 40% during
investments in inorganic growth opportunities.
the course of the Medium-Term Management
Furthermore, in order to increase SMBC
Plan. In FY2020 we maintained our dividend
Group’s corporate value over the medium- to
payment at ¥190 although we saw a substantial
long-term, in addition to improving ROE and
decrease in our bottom line. As a result, our
other quantitative financial metrics, it is vital
dividend payout ratio rose to 51% but by no
that we also enhance the non-financial value
means do we view this as having reached our
of SMBC Group such as data, personnel, and
goal. Our goal is to realize a dividend payout
ESG which are not reflected on our balance
ratio of 40% while achieving our target profit
sheet. We will enhance our human capital,
attributable to owners of parent of over ¥700
intellectual capital, and social capital by
billion. As a first step toward realizing this goal
accelerating sustainability-related initiatives
we increased our dividend forecast for FY2021
and the creation of a work environment that
to ¥200.
allows employees to pursue their hopes and
We will also pursue opportunities to
dreams. We will maximize the disclosure of
execute share buybacks as part of our efforts
both financial and non-financial information
to enhance shareholder returns. We decided
and engage with all of our shareholders in an
not to announce share buybacks when we
appropriate manner to minimize information
released our financial results of FY2020 in
asymmetry and decrease the cost of
May given the re-extension of Japan’s state
shareholder’s equity so that we may realize the
of emergency and other uncertainties in the
sustained growth of SMBC Group’s corporate
business environment resulting from the
value.
COVID-19 pandemic. However, we will pursue
No Such Thing as Coincidence
“H ave the heavens granted me this
mission by coincidence? No, this
is surely not the case.” This is an approximate
is clearly the latter choice, we must continue to
be the provider of essential functions without
being bound by our past track record or the
English translation of an excerpt from literature
fact that we are a bank. In order to accomplish
compiled during the Song dynasty in China
the mission we have been granted by the
and illustrates the importance of carrying out
heavens, we must identify growth opportunities
one’s duties, regardless of the circumstances.
and tirelessly innovate so that we can
Roughly 40 years have passed since I joined
contribute to customers and society through
the banking sector, and I have experienced
our financial functions.
firsthand many challenges such as the collapse
Going forward, our world will change at
of Japan’s bubble economy, Japan’s big bang
an even faster rate, and our future will hold
financial reforms, the Lehman Crisis, and
both numerous opportunities and challenges.
the current COVID-19 pandemic. However, I
SMBC Group will strive to realize further growth
never forgot the importance of carrying out my
by driving our roots even deeper and wider as
responsibilities regardless of changes in the
we press onward. I would like to ask for the
environment or the challenges I had to face.
continued support and understanding of all our
The same can be said of companies. Bill
stakeholders as I will stand at the forefront of
Gates’s quote, “Banking is necessary, banks
our efforts to overcome the strong headwinds,
are not” addresses the fundamental issue
and SMBC Group will put forth a united effort
of whether “banks” as a business format are
to overcome the challenging environment.
essential to society or whether finance as a
“function” is essential. I view this is having its
roots in the same concept as the pessimistic
theory which argues that modern society does
not require banks. However, since the answer
I will stand at the forefront
of our efforts to overcome
the strong headwinds, and
SMBC Group will put forth a
united effort to overcome the
challenging environment.
020
021
To Our StakeholdersSMBC GROUP ANNUAL REPORT 2021SMBC GROUP ANNUAL REPORT 2021 To Our Stakeholders
MESSAGE FROM THE GROUP CFO
Supporting our customers, society, and the economy
recover from the COVID-19 pandemic while allocating
our capital in a manner that balances investment for
growth and shareholder returns
Toru Nakashima
Group CFO
Director Senior Managing Executive Officer
FY2020 was a year in which the world was compelled to
address the various social issues that arose due to the
COVID-19 pandemic, the resulting changes in peoples’
mindsets and behavior, and fluctuations in financial
markets. We at SMBC Group placed the highest priority on
supporting customers, from both financial and non-financial
perspectives, while at the same time taking the necessary
steps to safeguard the wellbeing of our employees. Given
this backdrop, as the Group CFO and Group CSO I paid
close attention to the progress we were making in the
implementation of the various initiatives established under
the Medium-Term Management Plan which commenced in
April 2020. In other words, I was attempting to determine
whether the results we initially anticipated could be
produced by the seven key strategies that were established
under the core policies of “Transformation and Growth,”
the cost control-related initiatives that were meant to
expand our competitive edge in cost efficiency, and the
leveraging of our strong capital base to pursue inorganic
growth opportunities by measuring our progress according
to the pace expected under the very challenging business
Current Business Environment
(1) Overview of FY2020 Financial Results
Although we calculated that the COVID-19 pandemic
reduced consolidated net business profit by ¥100 billion,
we were still able to generate consolidated net business
profit of ¥1.084 trillion, a result similar to that of FY2019. As
we had anticipated at the start of the fiscal year, business
sectors which we consider our strengths, namely credit
cards, consumer finance, and aircraft leasing suffered due
to the COVID-19 pandemic. However, in addition to the
strong performance of our wealth management business
and our overseas securities business due to heightened
bond issuance needs, we also benefited from a fall in
expenses which we had not initially foreseen. As such, the
actual impact of the COVID-19 pandemic on consolidated
net business profit was substantially lower than the
environment brought about by the COVID-19 pandemic.
The impact the COVID-19 pandemic had on our
businesses became clear following our FY2020 financial
results. While it was difficult to determine the impact
that the Medium-Term Management Plan’s initiatives
were having in terms of actual figures given the negative
impact of the COVID-19 pandemic, FY2020 was a year in
which we were able to strengthen the profitability of our
businesses, the underlying goal of many of our efforts. It
is very encouraging to see that SMBC Group was able to
carry out its initiatives in a consistent manner, regardless
of the challenging business environment, and produce
concrete results. Accelerating this trend and proactively
transforming the various changes brought about by
the COVID-19 pandemic into business opportunities
will allow us to not only further enhance our earning
capabilities in a more robust manner in FY2021; it will
also position us to accomplish the goals we have set out
under the Medium-Term Management Plan in FY2022,
the final year of the plan.
originally forecasted amount of ¥170 billion.
While credit cost increased in both domestic and
overseas markets, thanks to the government support and
liquidity support from banks, SMBC Group’s credit cost
was ¥360.5 billion, approximately ¥90 billion lower than
originally anticipated.
As a result, we were able to achieve profit attributable
to owners of parent of ¥512.8 billion although we
proactively took steps to address future risks, for example,
recording provision for losses on interest repayments of
our consumer finance business. Once again, the COVID-19
pandemic’s actual negative impact of ¥190 billion was
substantially lower than the initially anticipated amount of
¥310 billion.
(JPY bn)
Consolidated net business profit
Total credit cost
Profit attributable to owners of parent
FY2019
Actual
1,085.0
170.6
703.9
FY2020
FY2021
Impact of COVID-19*
Original forecast
(170)
+260
(310)
Actual
(100)
+170
(190)
Actual
Impact of COVID-19*
Forecast
1,084.0
360.5
512.8
(70)
+100
(120)
1,120
300
600
* Impact of COVID-19 figures are rough estimates.
022
023
To Our StakeholdersSMBC GROUP ANNUAL REPORT 2021SMBC GROUP ANNUAL REPORT 2021 To Our Stakeholders
MESSAGE FROM THE GROUP CFO
(2) Progress of the Medium-Term Management Plan
SMBC Group focuses on business efficiency when
conducting our business operations, and we selected
profitability, efficiency, and financial soundness as three
financial targets of the current Medium-Term Management
Plan. In FY2020, although we had established a target of
8.5% for ROCET1, a metric we use to measure profitability,
we were only able to achieve a ROCET1 of 6.9% due to
a substantial decrease in profit attributable to owners of
parent. On the other hand, we were able to decrease base
expenses*1, a metric we use to measure efficiency, by
¥20 billion on a year-on-year basis due to cost reduction
measures and restrictions placed upon our business
activities due to the COVID-19 pandemic. Our CET1 ratio*2,
a metric we use to measure financial soundness, for
FY2020 was 9.8%, a figure which falls within the 9.5% (±
0.5%) range we established in response to the impact of
the COVID-19 pandemic.
*1 G&A expenses excluding cost related to investment for future growth, revenue-linked variable cost, and others.
*2 Post Basel III reforms basis, excludes OCI
Financial Targets
ROCET1
Base expenses
CET1 ratio
6.9%
Mid 7%
≥8.5%
JPY
1,530 bn
FX