Sumitomo Mitsui Financial Group Inc
Annual Report 2022

Plain-text annual report

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 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. VISION A trusted global solution provider committed to the growth of our customers and advancement of society FIVE VALUES 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. 001 SMBC GROUP ANNUAL REPORT 2022Executives of SMBC Nikko Securities Inc (SMBC Nikko Securities) were recently arrested and indicted on charges of violating the Financial Instruments and Exchange Act. SMBC Nikko Securities was also indicted on the same charges. On behalf of SMBC Group, I extend my deepest apologies to our customers and all other impacted parties for causing great concern and inconvenience. We take these developments very seriously and will fully devote our resources to restoring the trust of customers and other stakeholders by supporting SMBC Nikko Securities in developing and implementing preventive measures that reflect the findings of investigations undertaken by the investigation committee established by SMBC Nikko Securities. Jun Ohta Director President and Group CEO Contents Value creation at SMBC Group 004 006 008 018 020 021 022 028 036 042 History of SMBC Group SMBC Group’s Value Creation Process Message from Group CEO Core Policy of the Medium-Term Management Plan (FY2020–FY2022) Financial Highlights ESG Highlights Message from the Group CFO Special Contents: Our Inorganic Strategy to Realize Sustainable Growth Round-Table Discussion with Outside Directors Communication with Stakeholders Business Strategies for Creating Value 046 048 052 056 060 064 072 084 Group Structure Retail Business Unit Wholesale Business Unit Global Business Unit Global Markets Business Unit Opening up the Future of Finance through Digital Creating Value through Sustainability Initiatives Human Resource Strategies Supporting Value Creation Corporate Infrastructure Supporting Value Creation 090 Corporate Governance 106 Risk Management 110 Compliance 112 Customer-Oriented Initiatives 115 Internal Audit 116 IT Governance 118 Financial Review 123 ESG Information 002 003 SMBC GROUP ANNUAL REPORT 2022SMBC GROUP ANNUAL REPORT 2022 History of SMBC Group The roots of SMBC Group trace back more than four hundred years. Drawing from the business spirit inherited from the pioneers at Mitsui and Sumitomo, SMBC Group has adapted to the changing needs of the times and shifted its businesses while enhancing the quality of its corporate infrastructure through sustainability initiatives. (cid:31)(cid:30)(cid:29)(cid:31)(cid:28) Expansion of the Scope of Operations and Target Markets 2012 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) 2015 First issuance of green bond (cid:26) (cid:25) 2015 Establishment of SMFG Corporate Governance Guideline 2016 Endorsement of Women’s Empowerment Principles (cid:24) (cid:31)(cid:30)(cid:30)(cid:29)(cid:28) 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:26) 2002 Endorsement of United Nations Environment Programme Finance Initiative (cid:25) 2005 Establishment of voluntary Audit Committee (cid:26) (cid:24) (cid:25) 2007 Signing of United Nations Global Compact (cid:25) 2010 Listed on New York Stock Exchange 004 (cid:31)(cid:30)(cid:29)(cid:27)(cid:28) Pursuit of Sustainable Growth through Utilization of Group Strength and Structural Reforms 2018 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) (cid:24) 2017 Release of Statement on Human Rights (cid:24) 2017 Release of Diversity and Inclusion Statement (cid:26) 2017 Endorsement of recommendations of Task Force on Climate-related Financial Disclosures (cid:25) 2017 Transition to Company with Three Committees Introduction of group-wide business units and CxO system (cid:26) (cid:24) 2018 Announcement of sector-specific financing policies (cid:26) (cid:24) (cid:25) 2019 Signing of Principles for Responsible Banking (cid:31)(cid:30)(cid:31)(cid:30)(cid:28) Creating economic and social value by achieving growth with quality and sustainability 2021 Investment for growth in Asia in 2021 • Fullerton India became a consolidated subsidiary • FE Credit became an equity method affiliate • Investment in RCBC Strengthening the foundations of business • Investment in Jefferies • Investment in ARA Asset Management 2022 Investment in SBI Holdings (cid:31)(cid:30)(cid:29) (cid:25) (cid:26) (cid:24) 2020 Revision of Our Mission Establishment of SMBC Group Statement on Sustainability (cid:26) (cid:24) (cid:25) 2021 Appointment of Group CSuO and establishment of Sustainability Committee (cid:26) 2021 Commitment to achieving net zero emissions across investment and loan portfolio by 2050 (cid:26) 2021 Participation in NZBA, TSVCM and PCAF (cid:26) 2022 Participation in the TNFD Forum (cid:26) (cid:24) 2022 Establishment of SMBC Group Environmental and Social Framework 005 Value Creation at SMBC GroupValue Creation at SMBC GroupBusiness Strategies for Creating ValueCorporate Infrastructure Supporting Value CreationSMBC GROUP ANNUAL REPORT 2022SMBC GROUP ANNUAL REPORT 2022SMBC Group’s Value Creation Process SMBC Group defines sustainability as “creating a society in which today’s generation can enjoy economic prosperity and well-being, and pass it on to future generations.” SMBC Group has identified “Environment,” “Community” and “Next Generation” as priority issues (Materiality). In carrying out our Medium-Term Management Plan and achieving our KPIs in line with these priority issues, SMBC Group will generate social and economic value, and give back to all our stakeholders. ⑥ Value Cycle It also further enhances intangible assets that are a source of this value, creating a virtuous cycle. Value is returned to stakeholders by growing SMBC Group’s corporate value. Dialog with stakeholders Investment for growth Capital policy P042 P025 P028 Our businesses not only produce economic value, but also work to bring about the society SMBC Group seeks to create, and influence the way our customers and other stakeholders think and act. ⑤ Impact Creating economic value Creating social value 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 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 ④ Outcome FY2022 Financial Targets Preservation of a healthy environment ROCET1 (cid:15458)8.5% CET1 ratio c. 10% ● Meeting the target of 1.5℃ scenario and achieving a carbon-neutral society ● Reducing the risk of natural disasters Base expenses Bottom-line profit <2019results ¥730 billion Creation of a society in which everyone can live with peace of mind ● Providing financial infrastructure that can be accessed with peace of mind ● Bringing about a prosperous society through credit creation Fostering of people and industries that will shape the future ● Driving technology and innovation P022 P072 Four Business Units draw up and put in place business strategies for each customer segment consistent with these three priority issues: “Environment,” “Community” and “Next Generation.” Sustainability & Digital is integrated into our business activities as an issue to be addressed cross-functionally by all Business Units. IMPACT Society / Customers Society / Customers Shareholders OUTCOME OUTPUT Employees Employees SMBC Group’s Business Activities Creation and intermediation of value Sustainability and Digital Business Unit Retail Wholesale Global Global Market Three Priority Issues Environment Community Next Generation Financial Capital 006 Human Capital Intellectual Capital Social and Relationship Capital INPUT Compliance Corporate governance Risk management ③ Output Implementation of the Medium-Term Management Plan Retail Wholesale Global Global Market Balance of fee-based AUM Amount of Sustainable Finance Revenue from multi-franchise strategy target countries Green bonds ¥18trillion (+¥3 trillion) Credit card sales handled ¥31trillion (+¥10 trillion) Total ¥1.4 trillion Number of companies providing digital solutions for corporate clients 10,000 companies +15 % Retail deposits in Asia 3x Issue at least Once per year Sustainability Digital P018 Business Activities / Models② We conduct our business activities by drawing on SMBC Group’s intangible assets, including its brand and customer base cultivated over the course of the company’s more than 400-year history, together with its robust financial capital. ① Input Robust financials Group history Human Resources IT P118 P004 P084 P116 007 Value Creation at SMBC GroupValue Creation at SMBC GroupBusiness Strategies for Creating ValueCorporate Infrastructure Supporting Value CreationSMBC GROUP ANNUAL REPORT 2022SMBC GROUP ANNUAL REPORT 2022The World in 2050 W hen I was born in 1958, Japan had entered a period of high economic growth. was present in what seemed like all corners of the country. Japan’s economy continued to grow at MESSAGE FROM GROUP CEO BUILDING AN ERA OF FULFILLED GROWTH Jun Ohta Director President and Group CEO The construction of Tokyo Tower a brisk pace after I entered the had just been completed and workforce and in the late 1980s consumer electronics were the economy entered a phase quickly becoming a regular part that would later be referred to as of Japanese family life. In 1964, “Japan’s bubble economy.” The Tokyo hosted the Summer Olympic economy continued to expand until Games and the Tokaido Shinkansen 1991, and so the first 30 years of opened. I still vividly remember my life coincided with a period of the excitement and energy that economic growth and prosperity. 008 SMBC GROUP ANNUAL REPORT 2022 009 Value Creation at SMBC GroupValue Creation at SMBC GroupBusiness Strategies for Creating ValueCorporate Infrastructure Supporting Value CreationSMBC GROUP ANNUAL REPORT 2022MESSAGE FROM GROUP CEO However, the bubble economy The question now is: “What optimistic perspective, we can say eventually collapsed, leading to a plunge in the values of stocks, real estate, and a wide array of sort of era will the next 30 years that we are entering an era that be?” I expect peoples’ values and is not an extension of the past. lifestyles to undergo discontinuous Japan’s economy, even though it other assets. Financial institutions change based on digitalization, has languished over the past 30 were faced with not only a sudden climate change, and a range of years, could break free of traditional slowdown in the macroeconomy other keywords. If we look at our restraints and unlock a new future. but also with plummeting collateral current environment, we can I want to make the next 30 valuations. For many years we see that long-term trends are years an era of “fulfilled growth.” struggled with the disposal of the undergoing a paradigm shift: Going forward, the metrics used I strongly believe that we will be able to reach even higher goals by pursuing quantitative growth that is accompanied by heightened quality in the next Medium-Term Management Plan. Quantitative Growth Accompanied by Heightened Quality T he current Medium-Term Management Plan was launched in the spring of 2020, just In order to realize our Vision, In FY2021, the second year we will pursue quantitative of the current Medium-Term growth that is accompanied by Management Plan, we managed resulting non-performing loans. from deflation to inflation, from to measure corporate value will as the COVID-19 pandemic was heightened quality. When an to exceed our annual target and Japan’s economy could not shake consistently low-interest rates change. Pursuing economic causing havoc and disruption all organization ceases to pursue the prior year’s results for both off sluggish growth and deflation; to rising interest rates, and from value will no longer be sufficient over the world. In my FY2020 Group growth, it stagnates and morale net business profit and bottom- this led to the “Lost Decade” globalization to deglobalization. to enhance corporate value. A CEO Message, I stressed that SMBC falls. I want to make SMBC Group line profit. We produced these becoming the “Lost Two Decades” Trends that had continued over the corporation’s contributions to Group would overcome the impact a lively, high-energy organization solid results regardless of the fact which eventually became the “Lost past few decades are reversing, generating social value will become of the unexpected pandemic and that enables junior level employees that we faced unforeseen negative Three Decades.” The 30 years of the causing disruption in the process. ever more important in increasing worked to drive our Group to greater to pursue challenges in a variety factors arising from the Russia- midway stage of my life coincided We are entering a complex, corporate value. Corporations that heights through the evolution of our of sectors with a sense of purpose Ukraine conflict: impairment losses with a period of stagnation in Japan. unpredictable era. If we adopt an generate social value are those business model. However, we are and excitement. This positive in our aircraft leasing business and which contribute to the fulfilled growth of the global community. On the other hand, corporations that are unable to create social value will eventually be viewed as no longer having the right to pursue economic value. now experiencing another major energy will help drive SMBC increased credit costs. I believe unforeseen event: Russia’s invasion Group’s future growth over the this demonstrates that the path of Ukraine. next 30 years. Keeping firmly we are following is the right one. However, even in this in mind that the nature of the In addition, we have succeeded discontinuous paradigm shift, risks we face will change, we in laying the foundations of our there is no change to the path we will review our portfolio with the sustained future growth through must follow. Our Vision, “A trusted goal of enhancing both asset and inorganic deals in the Asia retail 2050, approximately 30 years global solution provider committed capital efficiencies, and establish and overseas securities businesses. from now, is also the target year set by the global community to achieve carbon neutrality and a decarbonized society. As you can see, 2050 is a major milestone for humankind, and I will share with you what SMBC Group will do to contribute to the global community’s fulfilled growth. to the growth of our customers robust financial foundations by In FY2022, the final year of the and advancement of society,” carrying out thorough, consistent current Medium-Term Management was designed to illustrate SMBC cost control measures. At the Plan, we will bring the Plan to a strong Group’s path to sustained growth. same time, we will allocate the finish while laying the foundations for Not only must we further develop necessary management resources the next Medium-Term Management our capabilities in the financial in a disciplined manner to business Plan. In terms of the bottom-line sector, we must also enhance areas that contain sufficient profit, we have set a target of ¥730 our ability to provide high-quality growth potential. In addition, we billion, a figure above our original solutions in non-financial areas on will enhance our management target. However, I strongly believe a global basis. Going forward, it is foundations by strengthening that we will be able to reach even essential that we further enhance our governance frameworks so higher goals by pursuing quantitative our focus on realizing our Vision. that SMBC Group can realize growth that is accompanied by sustained growth in an uncertain heightened quality in the next environment. Medium-Term Management Plan. 010 011 Value Creation at SMBC GroupValue Creation at SMBC GroupBusiness Strategies for Creating ValueCorporate Infrastructure Supporting Value CreationSMBC GROUP ANNUAL REPORT 2022SMBC GROUP ANNUAL REPORT 2022MESSAGE FROM GROUP CEO Three Themes I n order to realize sustained growth, we must expand the range and enhance the in our revenue by establishing a expected vigorous expansion in economies by expanding the scope markets with SMBC Group’s client solutions, which are financial second and third SMBC Group in personal consumption. We will of our business and becoming a base and financing functions. solutions that can be embedded Asia’s developing economies so offer a diverse product and service comprehensive financial group in These collaborations are already in the platforms of non-financial sophistication and quality of our that we can share in the benefits of lineup that reflects the needs of those local markets. producing results. For example, we partner corporations. solutions. We are engaging in their rapid growth. each economy’s growth stage, various initiatives based on the In FY2021, as part of our starting with motorcycle loans, then three themes that were established Multi-Franchise Strategy, in branching out into automobile and under the current Medium- addition to our existing investments mortgage loans, and finally offering Enhance our Overseas Securities Business have been able to close deals with For example, we provide clients with which SMBC Group payment, financing, and other had not been able to develop a financial services to social media business relationship. We will chat, e-commerce, and flea market Term Management Plan: “Data in Indonesia, we acquired stakes multi-purpose loans and credit Our overseas securities further accelerate the growth of our applications that individual customers Orientated,” “Building Platforms,” in local financial institutions in cards. business is an area in which we are overseas securities business and view on a daily basis via their and “Solutions Provider.” I would India, Vietnam, and the Philippines In April 2022, with the goal lagging behind our competitors. Our expanding our collaborations with smartphones. Our services are also now like to take this opportunity to with the aim of establishing the of maximizing the impact of our competitors managed to generate Jefferies will be an important part of embedded in the platforms of MaaS share a few distinct examples with foundations of our sustained investments we established the significant revenue from vibrant this effort. you. growth. Going forward, we will focus Asia Business Development bond markets during COVID-19 on post-merger integration (PMI) Division to strengthen PMI, while we were unable to capture Embedded Solutions businesses and the cashless payment tools used by retail stores. As we operate behind the scenes when providing financial Expand our Asia Franchise and developing these investments governance, and other facets of into strong, robust pillars that can our management framework in sufficient opportunities. Our partnership with With the digitalization of services through such platforms, When I visit the developing support our future growth. regard to our investee companies. Jefferies is of great importance society gaining even more speed, users usually do not realize the economies of Asia, I am met with While we are already servicing The division is also expected to as it will allow us to grow in the it is no longer sufficient for us to role we are playing. However, by energy and vibrancy. Scenes that large corporations in those support our organic growth and U.S. market by strengthening our leverage the extraordinary volume allowing the financial platforms remind me of Japan when I was a countries, establishing a presence help optimize our collaborations business portfolio. We commenced of financial data we possess and of non-financial firms to provide child. I believe a country’s financial in the retail sector and becoming a and synergies with investee collaborations in Sub Investment- our robust client base to develop customers with safe and secure sector is closely correlated with its full-line financial services provider companies. We will continue efforts Grade, global M&A, and the and provide financial platforms. services, we are contributing to the GDP, and for some time now I have will allow us to best capture to replicate our growth trajectory healthcare sector, combining We must also focus on developing spread of cashless payments. wanted to realize ‘J-curve’ growth the countries’ growth given the in Japan in Asia’s developing Jefferies’ deep knowledge of capital and providing embedded financial See page 028 for details. Our Inorganic Strategy to Realize Sustainable Growth See page 064 for details. Opening up the Future of Finance through Digital I have wanted to realize ‘J-curve’ growth in our revenue by establishing a second and third SMBC Group in Asia’s developing economies so that we can share in the benefits of their rapid growth. 012 013 Value Creation at SMBC GroupValue Creation at SMBC GroupBusiness Strategies for Creating ValueCorporate Infrastructure Supporting Value CreationSMBC GROUP ANNUAL REPORT 2022SMBC GROUP ANNUAL REPORT 2022 MESSAGE FROM GROUP CEO Realize Sustainability in a Sustainable Manner Employees Pursuing Challenges Becomes the Strength of SMBC Group A lthough Japan was full of energy and vibrancy during its period of high economic postwar investment portfolio by 2050. forward, we will continue to support In May 2022, we established a customers’ decarbonization efforts medium-term financed emissions while increasing SMBC Group’s O ur people are the basis of SMBC Group’s competitiveness, and they are constrained by the boundaries of leads to the creation of new ideas, SMBC Group. I believe that the which in turn leads to results that future success of the financial exceed expectations. Under the growth, I clearly remember that the reduction target for the power corporate value by providing a the most valuable management sector depends on each and every strong commitment of the senior nights were very dark and quiet. sector. wide range of sustainability-related resource that a financial group can one of our employees having big management team, the promotion The other day, an article written by However, there is no simple, solutions that include financing, possess. Since becoming Group ambitions and thinking outside the of diversity and inclusion at SMBC the famous Japanese screenwriter straightforward method of realizing bond underwriting, leasing, and Mr. Soh Kuramoto was published carbon neutrality. A sudden advisory services. for which the title can be roughly withdrawal of credit facilities will Our corporate color is green. translated as “Old Man, Turn Off not only disrupt the stable supply As part of efforts to cement our CEO, under the slogan “Break the mold,” I have endeavored to develop a corporate culture that encourages employees to box when pursuing those ambitions. Group will be accelerated. The The pursuit of those ambitions will empowerment of women is an also serve as a new source of power area of particular focus. We have to drive SMBC Group forward into set targets for female managers the Lights and Return to Blissful of power, but it could very well position as a green financial pursue their aspirations and the future. (20% of all managers) and female Poverty” (BUNGEISHUNJU June). negatively impact the development institution that is firmly committed ambitions without being bound I am also working to realize executive officers (25 people) to be It was a public critique by Mr. of new decarbonization to contributing to the realization by preconceptions. I also believe a truly diverse and inclusive reached by FY2025. Furthermore, Kuramoto of what he viewed as a technologies. Merely reducing our of a sustainable society, in April that a willingness and desire to workplace by breaking through tendency of old people in Japan loan portfolio in certain sectors 2022 we consolidated the various change at an organizational level the differences of nationality, SMBC Group overseas and domestic offices celebrate to excessively focus on how the does not address the heart of the sustainability-related functions has developed over the past three gender, culture, and mindset. I was International Women’s Day as economy is performing. This he issue. Together with our customers, located throughout SMBC Group years. seconded to Singapore in 2002, part of efforts to develop a more felt was in strict contrast to the we must carefully determine a to form the Sustainability Division. More than 10 corporations and my department was made up inclusive, diverse culture. concern shown by young people realistic decarbonization route The Sustainability Division is staffed have been established by giving of about 50 staff, of whom only In addition, we will strengthen around the world regarding climate and pace up to 2050 while paying by more than 100 employees and shape to the ideas of junior four were Japanese. The rest were our investments in human capital. change. The mindset in which close attention to each country’s is responsible for the full line of and mid-tier staff through my locally hired employees of more For example, the total payment we pass the world on to the next circumstances. As a proud member sustainability operations at SMBC CEO production project. In fact, than 10 different nationalities. The increase rate for SMBC employees, generation in the same or better of the financial community, SMBC Group, from strategic planning some corporations are already team was truly diverse in terms which reflects salary increases, condition as when we inherited it is Group will do our best to contribute to providing customers with generating profit. I have informed of culture and mindset. At first, I promotions and bonuses, will the fundamental concept behind to the decarbonization of society sustainability-related solutions. these strong-spirited CEOs that I struggled to build consensus in be approximately 4%. In order sustainability, and it is an essential by supporting customers’ efforts We will continue with efforts to support them in pursuing an IPO, such a diverse team. However, I to create a more comfortable factor in the pursuit of happiness. to transition to a carbon neutral contribute to the realization of a and that I want them to engage in soon experienced firsthand that working environment, we will In order to pass our green business model and develop new sustainable society by addressing further challenges without being combining various ways of thinking allocate more resources to earth on to future generations, we technologies. issues such as climate change, at SMBC Group are strengthening Having said this, climate human rights, biodiversity our efforts to tackle climate change. change is one of the various conservation, and economic In May 2021, we established the paradigm shifts the world is facing, growth. Through such initiatives Roadmap Addressing Climate and also represents a major we will realize sustainability in a Change, a long-term action plan opportunity. We have set a KPI sustainable manner. to realize a carbon neutral society. to execute sustainable financing In the roadmap, SMBC Group equivalent to ¥30 trillion between committed to reducing the GHG FY2020 to FY2029. We have emissions of our group companies successfully captured increasing to net zero by 2030, and in August demand for such products, and in of the same year we committed FY2021 we executed ¥5.4 trillion to realizing a carbon neutral loan/ of sustainable financing. Going See page 072 for details. Creating Value through Sustainability Initiatives online training programs, the professional development of senior management and specialist staff, career path development, reskilling, and our healthcare framework. Through such efforts, we will create a virtuous cycle, in which personnel will be empowered to create new social value. See page 084 for details. Human Resource Strategies Supporting Value Creation 014 015 Value Creation at SMBC GroupValue Creation at SMBC GroupBusiness Strategies for Creating ValueCorporate Infrastructure Supporting Value CreationSMBC GROUP ANNUAL REPORT 2022SMBC GROUP ANNUAL REPORT 2022MESSAGE FROM GROUP CEO The Sustained Growth of Shareholder Value R ealizing the sustained growth of a corporation’s value and passing on that value program. SMBC Group’s capital ROE from both the numerator remains at sufficient levels, even and denominator by ensuring after taking into consideration our that our growth strategy produces to its shareholders is a CEO’s inorganic investments, and will be the desired financial results and responsibility. While SMBC Group’s applied in a balanced manner to applying firm discipline to improve progressive dividend policy will fund investments for growth and capital efficiency. remain our principal approach to shareholder returns. In addition to increasing enhancing shareholder returns, we While we have enhanced shareholder value from a financial will also execute share buybacks shareholder returns, our PBR (Price perspective, we will leverage our in a flexible manner. In FY2022, to Book Ratio) remains mired at non-financial assets to increase we set a bottom line target of ¥730 approximately 0.4. We consistently SMBC Group’s corporate value over billion, a target which exceeds the underperformed our competitors the medium to long term. First, in initial target set under the Medium- in this metric during FY2021, and order to consistently increase the Term Management Plan, and we this is an issue that I take very value of personnel, data, and other increased our dividend forecast by seriously. The key reason for our assets that are not shown on our ¥10 to ¥220, achieving our goal of lagging share price is that we have balance sheet, we will accelerate a 40% dividend payout ratio. This not been able to convince investors investments in digitalization and means that during the three years of our vision of sustained growth. human capital. Then, we will covered by the current Medium- An increasing number of people engage with all our stakeholders Term Management Plan, SMBC are adopting a pessimistic view after maximizing disclosure of Group has increased its dividend of the financial sector in Japan ESG and other non-financial payment by ¥30 per share and given the country’s accelerating information, in order to minimize total dividend amount by ¥90 decline in birth rate and population, information asymmetry. We will billion. We will place a buying stagnating economy, and ongoing strive to realize the sustained order in the ¥100 billion share negative interest rate policy. growth of SMBC Group’s corporate buyback program established However, I have no doubt that the value by providing greater Take Care of the Matters at Hand and Wait for an Opportunity to Present Itself I would like to conclude this year’s message by sharing with you the thoughts of Liu Bei, a macroenvironment remains building an even stronger business highly volatile due to Russia’s portfolio by improving capital, asset, invasion of Ukraine and a number and expense efficiencies. in November 2021 once that is expansion of our Asia franchise and information transparency, so that famous historic figure during the of other factors. Furthermore, we SMBC Group will contribute deemed to be appropriate. At the enhancement of our overseas investors are able to forecast SMBC Three Kingdoms Period of China. are also facing climate change, to the world’s fulfilled growth as the same time, we will carefully securities business, both themes Group’s performance with greater He stressed the importance of digitalization, and other irreversible we realize quantitative growth that consider the macroenvironment which I discussed earlier, will form confidence, and by decreasing the carefully taking care of matters paradigm shifts. In terms of is accompanied by heightened to determine the plausibility of the foundations of SMBC Group’s cost of shareholder’s equity. that you can actually control and internal matters, it is imperative for quality by patiently gathering our establishing a new share buyback sustained growth. We will increase SMBC Group will contribute to the world’s fulfilled growth as we realize quantitative growth that is accompanied by heightened quality. patiently waiting for an opportunity SMBC Group to regain any loss of strength and consistently capturing to present itself. When I was customer trust or confidence that new business opportunities. I rereading my favorite book the may have resulted from the recent would like to ask for the continued other day, I felt this applied to incident in our Group as quickly as support and understanding of all SMBC Group’s situation right now. possible. In such an environment, our stakeholders as I stand at the Although we are seeing we will enhance our governance forefront of SMBC Group’s more a gradual recovery from the and other internal control than 110,000 employees in our COVID-19 pandemic, the global frameworks while at the same time efforts to realize this vision. 016 017 Value Creation at SMBC GroupValue Creation at SMBC GroupBusiness Strategies for Creating ValueCorporate Infrastructure Supporting Value CreationSMBC GROUP ANNUAL REPORT 2022SMBC GROUP ANNUAL REPORT 2022Core Policy of the Medium-Term Management Plan (FY2020-FY2022) Vision A trusted global solution provider committed to the growth of our customers and advancement of society Core Policy Transform existing businesses Seek new growth opportunities Elevate quality in all aspects Business strategy Management base Financial Targets 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 the denominator to CET1 in line with CET1 ratio target Pursue both cost reduction and growth investment Post-Basel III reforms basis (excl.OCI) FY2019 results Business Strategies – Transformation & Growth – Previous Plan Current Medium-Term Management Plan Discipline Focus Improve efficiency Accumulate capital Increase profit by drastic optimization and remodeling businesses Use capital for organic growth Invest for future growth Use capital for inorganic growth Seven Key Strategies 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 Management Base – Quality – 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 018 019 9.5%9.8%JPY 1,530 bn(vs. FY2016 +JPY 70 bn)Value Creation at SMBC GroupValue Creation at SMBC GroupBusiness Strategies for Creating ValueCorporate Infrastructure Supporting Value CreationSMBC GROUP ANNUAL REPORT 2022SMBC GROUP ANNUAL REPORT 2022Financial Highlights ESG Highlights Corporate Infrastructure Supporting Value Creation Sustainability Key Performance Indicators Environment Amount of Green Finance Green Bond Issuance Target FY2021 Result Target FY2021 Result ¥20 trillion (From FY2020 to FY2029) 7.5 ¥ trillion one issuance or more/ year one issuance Community Next Generation Retail Deposits in Asia Financial Literacy Education Target x 3 of Dec. 2019 (By Dec. 2022) FY2021 Result Target FY2021 Result x2.5 1.5 million (from FY2020 to FY2029) 298 thousand Human Resources Female Managers Childcare Leave (Male)* Target FY2021 Result Target FY2021 Result 20 % (By FY2025) 17.0 % 100 % 100 * Figure is for SMBC. % Credit ratings (As of June 30, 2022) 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 A1 — F1 — — A A AA- AA P-1 A-1 F1 a-1+ J-1+ 020 021 2105001,000706.67.3(FY)0105608061.814.5’17’18’19’20’21(FY)0(FY)015200’18/3’19/3’20/3’21/3’22/3125250’17’18’19’20’21’17’18’19’20’21(FY)0’17’18’19’20’21Despite a certain degree of negative impact from the conflict in Russia and Ukraine, consolidated gross profit increased due to strong growth in the Retail, Wholesale, and Global Business Units and increased gains from sales of strategic shareholdings.(Billions of yen)%%%An increase in consolidated net business profit, decrease in total credit cost and increased gains on stocks led to a significant year-on-year improvement in profit attributable to owners of parent. (%)Business expenses decreased year-on-year mainly because of successful group-wide cost control initiatives, despite recovery of spending after the COVID-19 pandemic and depreciation of the yen.Overhead Ratio (OHR)(%)(%)To enhance shareholder returns as we presented in the Medium-Term ManagementPlan, we increased the FY2022 dividend forecast by ¥10 to ¥200 per share.Dividend per Share of Common Stock(Yen)While CET1 ratio decreased from the previous fiscal year due to the promotion of inorganic strategies and a decrease in unrealized gains on other securities, we continue to maintain a level higher than required.Common Equity Tier 1 Capital Ratio (CET1 Ratio) (Basel III fully-loaded basis)Profit Attributable to Owners of ParentReturn on Equity (ROE)(Calculated using stockholders’ equity as the denominator)Value Creation at SMBC GroupValue Creation at SMBC GroupBusiness Strategies for Creating ValueSMBC GROUP ANNUAL REPORT 2022SMBC GROUP ANNUAL REPORT 2022MESSAGE FROM GROUP CFO We will deliver steady growth by bringing the Medium-Term Management Plan to a strong conclusion while increasing corporate value by further improving capital efficiency and proactively disclosing information On February 24, 2022, Russia invaded Ukraine. At that time, very few people had imagined that Russia would launch a full-scale invasion of Ukraine. There was approximately one month left in our fiscal year, and my attention had already started to turn towards FY2022. Suddenly, I was faced with a slew of unforeseen issues that had to be addressed by the end of March. I instructed my team to take the necessary financial measures after carefully considering the scope of the arising issues while disclosing the status of our Russia business in a proactive, timely manner as part of our efforts to reduce the market’s concern. SMBC Group was the first Japanese financial group to disclose details of its Russia exposure, an act for which we received positive feedback from investors and Toru Nakashima Group CFO & CSO Director Senior Managing Executive Officer analysts. I also carefully considered if our initiatives in their existing state were appropriate given the increased uncertainty in our business environment, for example, rising global inflation and interest rates. Although March was a very hectic month, when I look back over the entire FY2021 it was a year in which I was able to confirm that our business was steadily recovering from the enormous impact of COVID-19 and that we had returned to our originally planned trajectory of growth. As Group CFO, I have also paid close attention to whether the management resources allocated under the Medium-Term Management Plan were producing the anticipated results. As Group CSO, I have carefully reviewed the initiatives established under the seven key strategies based on our core policies of “Transformation and Growth” while reviewing and revising our digital and green initiatives, and those related to other accelerating trends, to ensure they are being carried out at an appropriate pace. In addition, we have laid foundations for our future growth by making several investments for inorganic growth. As a result, in our financial results for FY2021 we were able to generate strong growth in bottom-line profit while putting aside sufficient capital buffers as a precautionary measure. Unfortunately, the performance of our stock price throughout the year was by no means satisfactory. While the uncertain business environment will continue in FY2022, not only will we achieve the final financial targets established under the Medium-Term Management Plan, we will also plant the seeds of further growth with the next Medium-Term Management Plan in mind and enhance our capital efficiency, which includes accelerating the reduction of our strategic shareholdings so that we can improve our PBR. Progress of the Medium-Term Management Plan (1) Overview of FY2021 Results and Targets for FY2022 Although increased credit costs and impairment losses stemming from our aircraft leasing business due to the Russia-Ukraine conflict had a negative impact of approximately ¥100 billion on profit attributable to owners of parent for FY2021, we were still able to generate a final figure of ¥706.6 billion. This number not only exceeds our FY2020 result by ¥193.8 billion, it also exceeds the revised target we announced when releasing our financial results for the first half of FY2021. The key factors behind this were strong growth in consolidated net business profit thanks to the recovery of business activities from the disruptions of COVID-19, and the steady execution of initiatives established under the Medium-Term Management Plan by our Business Units, in addition to a major increase in gains on stocks due to the sale of strategic shareholdings. For FY2022 we have set targets of ¥1,235 billion for consolidated net business profit and ¥730 billion for profit attributable to owners of parent. These numbers are in line with our promise made at the time of the Medium-Term Management Plan’s release to increase consolidated net business profit by ¥100 billion and increase bottom-line profit by a minimum of 10% during the next three years, excluding one-time factors. Increasing net consolidated business profit by more than ¥80 billion on a year-on- year basis in this uncertain business environment is a very challenging target, but by no means an impossible one given the steady recovery of economic activities from COVID-19 and the steady progress of the Medium-Term Management Plan’s initiatives. In terms of credit cost, loan loss provisions, including forward-looking ones, in relation to our Russia exposure are at this time deemed sufficient. As Group CFO I will strive to achieve our goal of ¥730 billion for profit attributable to owners of parent for FY2022 to bring our Medium-Term Management Plan to a strong conclusion. (JPY bn) Results FY2021 YoY Target FY2022 Consolidated net business profit 1,152.9 +68.9 1,235 Total credit cost Ordinary profit 274.4 (86.1) 210 1,040.6 +329.6 1,060 Profit attributable to owners of parent 706.6 +193.8 730 022 023 Value Creation at SMBC GroupValue Creation at SMBC GroupBusiness Strategies for Creating ValueCorporate Infrastructure Supporting Value CreationSMBC GROUP ANNUAL REPORT 2022SMBC GROUP ANNUAL REPORT 2022MESSAGE FROM GROUP CFO Financial Impact of the Russia-Ukraine Conflict In FY2021, increased credit costs and impairment losses stemming from our aircraft leasing business due to the Russia-Ukraine conflict had a negative impact of approximately ¥100 billion on our bottom-line profit. For our aircraft leasing business, we booked impairment losses equivalent to approximately half the book value of the leased aircraft, resulting in a negative impact on consolidated net business profit of ¥47 billion. We are processing insurance claims in order to minimize the impact of the said impairment losses on our financials. In terms of credit cost, we booked costs of ¥75 billion (equivalent to more than 30% of our exposure to Russian borrowers). This figure includes a buffer in case of further deteriorations in the creditworthiness of impacted customers. In FY2022, we will pay careful attention to developments in the conflict and take necessary actions in a timely manner considering the volatility of the situation; upside scenarios resulting from a de-escalation in the conflict, and further downside scenarios are both possible. We are producing solid results for our three financial metrics established in the Medium-Term Management Plan to measure profitability, efficiency, and financial soundness. We will continue to focus on business efficiency when conducting business operations. Financial Targets (2) Seven Key Strategies In addition to the prolonged impact of COVID-19, we are experiencing a number of other scenarios, such as the Russia-Ukraine conflict and rising global inflation, that we did not foresee when planning the current Medium-Term Management Plan. However, these events, rather than requiring fundamental changes to our Plan, have in fact accelerated anticipated trends. We must bring our various initiatives to an early conclusion so that we do not fall behind. In FY2021, we focused on addressing new customer needs that were arising in a post-COVID-19 world while implementing initiatives to address issues that had become visible in the changing business environment. For example, in our wealth management business SMBC Group companies worked closely together to strengthen our product design capabilities, approach to customers, and online sales. In our payment business, we captured the growth of the cashless payment market by focusing on expanding the customer base of “stera,” our cashless payment platform, and issuing next-generation credit cards. In addition, in our domestic wholesale business there was increased demand for solutions to address issues in business restructuring, real estate business, and other needs which became apparent due to COVID-19, while in our overseas business we introduced products offering high margins in order to enhance capital and asset efficiencies. We are also carrying out initiatives aimed at realizing medium- to long-term growth by concluding investments and partnerships in our Asia retail business, overseas ROCET1 Base expenses*¹ CET1 ratio*² 8.6% ≥8.5% JPY 1,530 bn JPY 1,510 bn JPY 1,520 bn 9.8% 10.0% c.10% 6.9%

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