SMBC GROUP ANNUAL REPORT SMBC GROUP ANNUAL REPORT 2023 2023 YEAR ENDED MARCH 31, 2023 YEAR ENDED MARCH 31, 2023 S M B C G R O U P A N N U A L R E P O R T 2 0 2 3 S M B C G R O U P A N N U A L R E P O R T 2 0 2 3 Editorial Policy SMBC GROUP ANNUAL REPORT 2023 is designed to convey financial and non-financial information about the overall picture, business strategy, and corporate 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 information 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 expecta- tions 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 “antici- pate,” “believe,” “estimate,” “expect,” “intend,” “may,” “plan,” “probability,” “risk,” “project,” “should,” “seek,” “target,” “will” and similar expressions. Such forward-looking statements are not guarantees of future performance and involve risks and uncertainties, and actual results may differ from those expressed in or implied by such forward-looking statements contained or deemed to be contained herein. The risks and uncertainties which may affect future performance include: deterioration of Japanese and global economic conditions and financial markets; declines in the value of our securities portfolio; incurrence of significant credit-related costs; our ability to 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: FY2022 (April 2022 to March 2023) Some subsequent information is also included. Organizations covered: Sumitomo Mitsui Financial Group and its subsidiaries and affiliates Published: August 2023 “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. Contents P.002 Value Creation at SMBC Group 002 A History of Standing Side-by-Side with Customers and Society 006 MISSION & VISION & FIVE VALUES 008 Message from Group CEO 018 SMBC Group’s Value Creation Process 020 Core Policies of the Medium-Term Management Plan P.040 Business Strategies for Creating Value (FY2023 - FY2025) 024 Communication with Stakeholders 026 Message from Group CFO 032 Response to Administrative Actions and Efforts to Prevent Recurrence 034 Round-Table Discussion with Outside Directors 042 Group Structure 044 Retail Business Unit 048 Wholesale Business Unit 052 Global Business Unit 056 Global Markets Business Unit 060 Using Digital to Create the Future of Finance 064 Key Measures to Drive SMBC Group’s Future Growth 066 Multi-Franchise Strategy, Overseas Securities Business 070 Olive 076 U.S. Digital Bank 080 Creating Social Value to Achieve Sustainability 090 Human Resource Strategies to Support Value Creation 098 People who Embody Our Five Values P.108 Corporate Infrastructure Supporting Value Creation 110 Corporate Governance 126 Risk Management 130 Compliance 132 Customer-Oriented Initiatives 135 IT Governance 136 Cybersecurity 138 Internal Audit 139 ESG Information 140 Financial Review SMBC GROUP ANNUAL REPORT 2023 001 Value Creation at SMBC Group Value Creation at SMBC Group Business Strategies for Creating Value Corporate Infrastructure Supporting Value Creation A History of Standing Side-by-Side with Customers and Society SMBC Group has inherited the business spirit of Mitsui and Sumitomo, creating social value while standing side-by-side with customers and society. With this spirit, we will continue to take initiative in economic growth and resolution of social issues to contribute to “Fulfilled Growth” where people feel fulfilled. MITSUI Innovation of Business Practices Achieved better life for people in the city of Edo by anticipating potential needs SUMITOMO Revitalization of Land Damaged by Copper Mines Put efforts into reforestation under the spirit, “benefit self and benefit others, private and public interests are one and the same” Supporting economic growth through proactive financing The cabinet of Hayato Ikeda, inaugurated in July 1960, launched the “Income Doubling Plan” with the goal of dou- bling per-capita national income in 10 years, and Japan entered an era of rapid economic growth, with an average GDP growth rate of 10%. Mitsui Bank and Sumitomo Bank, the predecessors of SMBC, supported this growth through the proactive supply of financing. 1967 1968 1969 Sumitomo Credit Service (now Sumitomo Mitsui Card Company) established Sogo Lease (now Sumitomo Mitsui Finance and Leas- ing) established Japan Information Services (now the Japan Research Institute) established 1960’s An Era of Economic Growth 1980’s Expanding high-risk/high-return loans with the arrival of the Bubble Economy Starting in 1983, stock and land prices consistently rose, ushering in the Bubble Economy era. Corporate earnings increased, and low interest rates and low-cost financing from capital markets allowed firms to increase upfront capital expenditures and financial operations. At the same time, the competitive environment for banks intensified, as a result of interest rate liberalization, etc. Our predecessor banks in- creased high-risk, high-return lending in order to survive, such as real estate investment and financial engineering. 1985 1985 Sumigin-Bankers Investment Management (now Sum- itomo Mitsui DS Asset Management) established Mitsui Investment Management (now Sumitomo Mitsui DS Asset Management) established 002 SMBC GROUP ANNUAL REPORT 2023 SMBC GROUP ANNUAL REPORT 2023 003 Value Creation at SMBC Group Value Creation at SMBC Group Business Strategies for Creating Value Corporate Infrastructure Supporting Value Creation A History of Standing Side-by-Side with Customers and Society The Bubble Economy bursts, bringing with it prolonged financial difficulties Expanding and strengthening group and global management 1990 1999 Mitsui Taiyo-Kobe Bank established (renamed Sakura Bank in 1992) Sakura Leasing (now Sumitomo Mitsui Finance and Leasing) established Companies that had invested excessive amounts of money in asset transactions fell into financial difficulties with the bursting of the Bubble Economy, and for the banks that had provided funding, the disposal of bad loans became a major challenge to their business. On the other hand, the “Japanese Big Bang” expanded the scope of banks’ operations in the 1990s. The financial industry began to draw up a growth strategy taking advantage of the expanded scope of business, while defending against financial instability. Sakura Bank and Sumitomo Bank also shifted toward a merger based on the principle of “together establishing a new financial business providing customers with higher value-added products and services.” In order to provide more valuable services to our customers, we strived for top-line growth by significantly expanding our operational and geographic wings in the first half of the 2010s. However, the business environment surrounding us changed dramatically with the China shock in 2015, the introduction of negative interest rates in 2016, and the resolution of Basel III finalization in 2017, and our strategy shifted from top-line growth to efficiency of capital, assets, and expenses. As our business diversified and globalized, we focused on improving the quality of corporate infrastructure through the establishment of materialities (“Environment,” “Next Generation,” and “Community”) in 2014, the formation of Five Values in the same year, and the introduction of units and CxO system in 2017. 2012 Promise becomes a subsidiary SMBC Aviation Capital becomes a subsidiary 2013 Bank BTPN becomes an equity-method affiliate Societe Generale Private Banking (now SMBC Trust Bank) becomes a subsidiary 2015 The Bank of East Asia becomes an equity-method affiliate 2016 Sumitomo Mitsui Asset Management becomes a subsidiary 2018 Sumitomo Mitsui Finance and Leasing is deconsol- idated, and becomes an equity-method affiliate 2019 Bank BTPN becomes a subsidiary Sumitomo Mitsui DS Asset Management launched 1990’s An Era of Stagnation 2000’s 2010’s The Birth of a new, advanced financial institution for the 21st century Realization of growth with quality In 2001, Sakura Bank and Sumitomo Bank merged into Sumitomo Mitsui Banking Corporation. The business base was expanded in order to provide the most valuable services to customers by adding new functions such as consumer finance and securities, after the transition to a holding com- pany structure in the following year. The non-performing loan ratio, which had weighed heavily on the business, was reduced by half after the merger, and public funds were fully repaid in 2006. Just when it at last appeared that SMBC Group had been put into an environment where we could achieve a more autonomous management strategy, the Global Financial Crisis struck. An international trend towards reviewing the financial system to prevent such a crisis accelerated, and we were forced to respond with increased capital when we had planned to proactively invest in key strategic areas. 2001 2002 2003 2004 2009 Sumitomo Mitsui Banking Corporation established Sumitomo Mitsui Financial Group established Reorganization to make Sumitomo Mitsui Card Com- pany, SMBC Leasing (now Sumitomo Mitsui Finance and Leasing), and Japan Research Institute subsidiar- ies of Sumitomo Mitsui Financial Group Promise (now SMBC Consumer Finance) becomes an equity-method affiliate Nikko Cordial Securities (now SMBC Nikko Securities) becomes a subsidiary The Medium-Term Management Plan in FY2020-2022 was launched amid the COVID-19 pandemic. SMBC Group has taken various measures to achieve our vision of becoming “a trusted global solution provider committed to the growth of our customers and advancement of society.” In particular, after achieving the CET1 ratio target in 2019, as we entered a phase where we could utilize excess capital, we actively invested in priority areas such as our multi-franchise strategy in Asia and overseas securities business. During this Medium-Term Management Plan, we revised our Mission and added “society” as one of stakeholders. Efforts on sustainability were also accelerated by the establish- ment of the Sustainability Committee and Group CSuO, as well as a Sustainability Division. An Era of Fulfilled Growth 2020’s 2021 2022 2023 Invested in ARA Asset Management Invested in RCBC Invested in Jefferies FE Credit becomes an equity-method affiliate Fullerton India (now SMFG India Credit Company) becomes a subsidiary Investment in SBI Holdings CCCMK Holdings becomes an equity-method affiliate 004 SMBC GROUP ANNUAL REPORT 2023 SMBC GROUP ANNUAL REPORT 2023 005 Value Creation at SMBC Group Value Creation at SMBC Group Business Strategies for Creating Value Corporate Infrastructure Supporting Value Creation MISSION & VISION & FIVE VALUES MISSION VISION FIVE VALUES MI SSION 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. V I SION A trusted global solution provider committed to the growth of our customers and advancement of society FI V E VALUE S 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. Practicing FIVE VALUES Five Values have been established as the basis for all employees and executives’ day-to-day decisions, and are practiced by our many employees as a source of strength for SMBC Group. The stories of five employees practicing the Five Values are shown from P.098 onwards. FIVE VALUES 2 Customer First Maho Uchiyama Elder Concierge Sumitomo Mitsui Banking Corporation P.100 FIVE VALUES 4 Speed & Quality Takuya Kondo Private Corporate Advisory III Dept. SMBC Nikko Securities P.104 FIVE VALUES 1 Integrity Natsuko Kugai Customer Service Plaza SMBC Consumer Finance P.098 FIVE VALUES 3 Proactive & Innovative Megumi Omae Strategic Planning Department, The Americas Division Manufacturers Bank & Sumitomo Mitsui Banking Corporation P.102 FIVE VALUES 5 Team “SMBC Group” Takuya Ogawa Product Planning and Development Division Sumitomo Mitsui Card Company P.106 006 SMBC GROUP ANNUAL REPORT 2023 SMBC GROUP ANNUAL REPORT 2023 007 Value Creation at SMBC Group Value Creation at SMBC Group Business Strategies for Creating Value Corporate Infrastructure Supporting Value Creation MESSAGE FROM GROUP CEO Jun Ohta Director President and Group CEO Realizing Growth with Quality F ocusing on output that makes a lasting impression on one’s memory rather than on the record books. This was my response to a query I received during an in- regardless of the business environment, we steadily carried out our various initiatives and succeeded in exceeding our original targets for consolidated net business profit and ternal seminar geared towards the preparation of the new bottom-line profit by significant amounts. In addition, we Medium-Term Management Plan (“new Plan”). An employ- laid down the cornerstones for sustainable future growth in ee wanted to know about the specific actions we needed our Asia Multi-Franchise Strategy and overseas securities to take for SMBC Group to realize “Growth with Quality.” business. A financial institution’s business is built upon customers’ Having said this, challenges also became clear. Busi- trust. Trust is not won simply because of compliance. Trust nesses which we had viewed as being part of our strength is built and maintained as the result of our daily efforts, for suffered a significant downturn during the pandemic, and example reliable operations and IT systems, and proposals we were faced with the need to transform our business that accurately address customers’ needs. The desired portfolio into an even more resilient one. Furthermore, the results will naturally come if we look beyond growing our enhancement of corporate infrastructure is our top priority financial results and focus on engaging in frank communi- given that compliance issues occurred as we were in the cations with customers and putting forth optimal solutions. process of building a Group-based governance framework. What do we need to do in order to realize such “Growth Our business environment continues to undergo with Quality?” I shared this question with SMBC Group significant change. Deglobalization and decoupling, the employees, and we have put our heads together to come end of monetary easing overseas, the further acceleration up with the answer. of digitalization, and the mitigation of climate change In the previous Medium-Term Management Plan are just some examples. Individual values are becoming (“previous Plan”), we operated under a challenging and increasingly diverse, and more people want consumption uncertain business environment, starting with COVID-19’s to include a story of resolving social issues. Technology rapid spread throughout the world, and followed by Rus- continues to evolve at a remarkable speed, and AI can now sia’s invasion of Ukraine, the sharp depreciation of the Jap- be used to create complex and natural sentences. We, the anese yen, the transition from deflation to inflation, and the users, must make sure that we are aware of the various failure of several western financial institutions. However, risks when we use such technology. 008 SMBC GROUP ANNUAL REPORT 2023 SMBC GROUP ANNUAL REPORT 2023 009 Value Creation at SMBC Group MESSAGE FROM GROUP CEO Value Creation at SMBC Group Business Strategies for Creating Value Corporate Infrastructure Supporting Value Creation No Change to Our Strategy. Ascertain the Circumstances and Revise Our Tactics Placing the Creation of Social Value as a Cornerstone of Our Actions A s you can see, we are in the midst of a paradigm shift. However, there is no change in the path we must follow. Our Vision, “A trusted global solution provider when required. I believe that the tenacious repetition of such efforts will allow us to realize “Growth with Quality.” It is with this goal that SMBC Group established the “ Building an Era of Fulfilled Growth.” In Annual Report 2022, I used this phrase to describe my aspiration for the next 30 years of my life, a period in repeated discussions at Management Committee meet- ings and Board of Director meetings regarding the actions SMBC Group must take. committed to the growth of our customers and advance- new Plan: “Plan for Fulfilled Growth.” I first used the term which follows the first 30 years represented by “growth” We received some opinions stating that it was suffi- ment of society,” was designed to illustrate SMBC Group’s “Fulfilled Growth” in Annual Report 2022. I believe that as it overlapped with an era of high economic growth in cient to create social value within the boundaries of our path to sustainable growth. Not only must we further “Fulfilled Growth” refers to a state in which people feel Japan and the following 30 years which was represented core businesses. However, society is what makes our develop our capabilities in the financial sector, but we must happiness and fulfillment by being part of a society where by “stagnation” as this was a period in which Japan battled business possible, and it is impossible for a corporation to also enhance our ability to provide high-quality solutions we experience economic growth while also working togeth- with deflation in the post-bubble economy era. realize sustainable growth if the society in which it operates in non-financial areas on a global basis, regardless of the er to address social issues. We desire to contribute to an SMBC Group has established “We contribute to a does not also grow. This is why we established “Create So- changing business environment. We will take concrete age of “Fulfilled Growth” by fulfilling our responsibilities as sustainable society by addressing environmental and so- cial Value” as a pillar of our business strategy. This reflects steps towards the realization of our Vision. a corporation and meeting our stakeholders’ expectations. cial issues” as part of our Mission, and we strive to realize our commitment to anticipating future trends and to even On the other hand, the paradigm shift also offers us “Plan for Fulfilled Growth” is a reflection of this desire. our sustainability vision of “Creating a society in which proactively undertake activities that do not immediately a chance to break free of traditional restraints and unlock The new Plan has three basic policies: “Create Social today’s generation can enjoy economic prosperity and lead to economic value. We established “Environment,” a new future. Even though we are at a major turning point Value,” “Pursue Economic Value,” and “Rebuild Corporate well-being and pass it on to future generations.” Based on “DE&I/Human Rights,” “Poverty & Inequality,” “Declining in history, we will continue to strongly push forward in the Infrastructure.” I will go into detail regarding each basic this mindset, we have contributed to advancing the reso- Birthrate & Declining Population,” and “Japan’s Regrowth” right direction while revising our tactics in a timely manner policy. See page 020 for details. Core Policies of the Medium-Term Management Plan (FY2023 - FY2025) VISION A trusted global solution provider committed to the growth of our customers and advancement of society Rebuild Corporate Infrastructure Quality builds Trust Create Social Value Contribute to “Fulfilled Growth” Growth with Quality Pursue Economic Value Transformation & Growth lution of a wide range of social issues while adapting to the as our new priority issues (materiality). We have set goals changing times. by which we can measure our success in resolving the However, the social issues that humanity faces keep priority issues and have integrated them into our business growing, with global warming, violation of human rights, strategy. and the spread of poverty and inequality being some exam- Going forward, we will implement concrete action ples. Japan is no exception, as we have fallen into a period plans that are aimed at resolving social issues, and will of extended economic stagnation, also referred to as the create a framework in which employees that want to “Lost Three Decades,” leading to the further acceleration contribute to the improvement of society can freely take of falling birthrates, an aging population, and population part. This will allow us to create an environment in which decline. each and every one of our employees can enjoy high levels Going forward, I believe that in addition to the pursuit of job satisfaction while working towards the resolution of of economic value, the generation of social value will gain social issues. SMBC Group will contribute to the realization even greater importance. Corporations that are unable to of “Fulfilled Growth” in our society by leading the resolution create social value will be viewed as no longer having the of social issues and the creation of economic growth based right to pursue economic value. Corporations that create on the philosophy of creating social value that has been social value are corporations that contribute to the fulfilled passed on from our forebears at Mitsui and Sumitomo. growth of humanity. As such, over the past year we gath- ered the views and opinions of our employees and engaged See page 080 for details. Creating Social Value to Achieve Sustainability 010 SMBC GROUP ANNUAL REPORT 2023 SMBC GROUP ANNUAL REPORT 2023 011 Value Creation at SMBC Group MESSAGE FROM GROUP CEO Value Creation at SMBC Group Business Strategies for Creating Value Corporate Infrastructure Supporting Value Creation Strive to Realize Growth That Is Not Possible Via Existing Methods SMBC Group will contribute to the realization of “Fulfilled Growth” in our society by leading the resolution of social issues and the creation of economic growth based on the philosophy of creating social value that has been passed on from our forebears at Mitsui and Sumitomo. Environment Poverty & Inequality To pass on a green earth to future generations. This is Many of you may have felt that something was out the mission and responsibility of the present generation. of place when a financial institution such as SMBC Group SMBC Group has positioned climate change and established “Poverty & Inequality” as a priority issue other sustainability-related efforts as key initiatives in its (materiality). However, “Poverty & Inequality” is not an business strategy. We are engaging in Group-wide efforts issue that is limited to developing countries. According to to support the smooth transition to a decarbonized so- the Ministry of Health, Labour and Welfare, one in seven ciety. In FY2023, we will establish 2030 medium-term children in Japan are considered to be living in relative GHG reduction targets for high GHG emitting sectors poverty. The so called “Chain of Poverty” in which the and strengthen our phase-out strategy for the coal sec- parents’ income disparity leads to their children’s income tor. However, there is no simple, straightforward method disparity is a serious problem. We must break this nega- of achieving carbon neutrality. In order to ensure a fair, tive cycle. It is with this strong belief that I decided SMBC orderly transition, the establishment of next-generation Group needed to go beyond the boundaries of our core technology is indispensable, and we must engage in businesses and tackle social issues, even though they do thorough discussions with customers to determine the not immediately lead to economic value. SMBC Group realistic route and pace up to 2050 while paying careful will collaborate with Non-Profit Organizations and non-fi- attention to each country’s unique circumstances. As a nancial institutions to provide children with educational proud member of the financial sector, SMBC Group will opportunities and opportunities to challenge themselves. do its best to contribute to the securing of stable energy Furthermore, in the Asian developing nations where supplies and long-term decarbonization by supporting SMBC has a presence, we will focus on promoting finan- customers’ efforts to transition to a carbon neutral busi- cial inclusion and the social independence of the poor ness model and develop new technologies. through microfinance and consulting. W hile pursuing a bottom-line profit in excess of ¥1 trillion by the end of the next Medium-Term Man- agement Plan (FY2028), we will target bottom-line profit Third, in our overseas businesses we will continue efforts to optimize our portfolio and drive the growth of SMBC Group through our Multi-Franchise Strategy and the U.S. market, of ¥900 billion in the new Plan as an interim goal in order which is not only the largest in the world but also is expect- to assert our standing as an international financial insti- ed to enjoy stable growth. tution with a global network. As the first step, we will even While the respective heads of our Business Units will more dynamically reduce our exposure to labor intensive, provide details regarding individual strategies, I would like inefficient businesses; low growth/unprofitable assets; and to take this opportunity to touch upon four key initiatives. assets for which the holding rationale has decreased due to changes in the business environment. We will realize re- silient business operations and enhanced capital efficiency by optimizing our business portfolio as a result of proac- tively reallocating the management resources we have secured through the aforesaid efforts to investments for growth and strengthening corporate infrastructure. We will also pave the way to reaping the benefits of our Multi-Fran- chise Strategy and other investments for growth. In regard to cost control, we will focus on reducing base expense by transforming our domestic business model, consolidating domestic Group functions, and enhancing the efficiency of overseas operations. However, this profit target does not reflect rising interest rates in Japan. If we see a material positive change in the domestic interest rate environment, we will make sure to capture the upside opportunities that arise and give serious thought to raising our target. In order to reach challenging targets that would not be possible only through existing methods, we will further evolve “Transformation & Growth” and pursue initiatives in the key strategic areas focusing on three perspectives. First, in our domestic mass retail and small and medium-sized enterprise wholesale businesses we will expand our customer base in a more effective manner and establish a stable, efficient business model through comprehensive digitalization and the enhancement of our payment business. Second, we will transform the business model of our wholesale business targeting large foreign and domestic corporations to one that is not dependent on the expansion of balance sheet, strengthen our fee busi- ness by leveraging the capabilities of Group companies, and diversify our risk solutions line-up so that we can add value to customers while also enhancing asset efficiency. 012 SMBC GROUP ANNUAL REPORT 2023 SMBC GROUP ANNUAL REPORT 2023 013 Value Creation at SMBC Group MESSAGE FROM GROUP CEO Value Creation at SMBC Group Business Strategies for Creating Value Corporate Infrastructure Supporting Value Creation A Digital-Centric Mass Retail Strategy Enhancing the Global CIB Business Jenius BankTM Multi-Franchise Strategy We will carry-out comprehensive efforts to digitalize As the Global Corporate and Investment Banking The launch of a U.S. digital banking unit was a strat- Almost ten years have passed since we announced our mass retail business. We launched a new service (CIB) business remains a critical pillar of our wholesale egy that came into being due to expatriates seconded to the Multi-Franchise Strategy in the Medium-Term Manage- called Olive in March 2023, and the application seamlessly operations, which targets large corporations, enhancing the U.S. directly approaching me regarding the matter ment Plan we launched in FY2014. During this time, we brings together various functions, such as customers’ bank our overseas securities capabilities has been a significant during a business trip to New York. Employees who were have undertaken concrete steps towards building a second accounts, credit card settlement, loan, and securities. Olive challenge. The strategic solution to this was our alliance passionately committed to seeing the project succeed and third SMBC Group in the four Asian countries which offers users one-stop services regarding payment, receipt with Jefferies, a leading U.S.-based full-service investment joined together and the project team has now grown to we expect to experience high economic growth. In the of salary, loan, and asset building. If customers use Olive bank and capital markets firm. In April 2023, we unveiled 270 members. I am delighted that we were able to launch previous Plan, we made investments in India, Vietnam, and as their main account to manage their household finances, plans to enhance our strategic capital and business alli- Jenius BankTM this year. the Philippines. Combined with Bank BTPN, our consoli- not only will they enjoy greatly enhanced convenience, ance with Jefferies. This partnership, initiated in July 2021, While there are many digital bank offerings/compet- dated subsidiary in Indonesia, we now have established the SMBC Group can hope for increased volume in deposits has now expanded into U.S. investment banking, home to itors globally, our focus is not on becoming a top player in foundations of future growth in the four target countries. and usage of credit cards. Furthermore, we will strive to the world’s largest capital markets and M&A businesses. a short period of time but on methodically implementing We are reconfirming the high potential of each respective establish a dominant platform by growing our customer As part of this expansion, we will integrate functions that a flexible strategy and leverage cutting edge technology country through the discussions we are holding with the in- base through the merger of SMBC Group’s V Point reward overlap, allowing SMBC Group to focus on lending and to provide a new financial experience. We will first focus vestee companies regarding collaborations in a wide range program with Culture Convenience Club’s T Point reward debt capital markets, while Jefferies will focus on M&A on expanding our business infrastructure by developing of businesses. Going forward, we will not limit ourselves to program, which has more than 70 million members, and by and equity capital markets. In addition, SMBC Group and a high-quality customer base and accumulating assets. realizing synergies with investee companies. Rather, we expanding services through collaborations with SBI Securi- Jefferies will conduct joint marketing activities targeted at The expansion of our business infrastructure will be ac- will also focus on realizing synergies within SMBC Group by companied by the expansion of our product line-up. We having investee companies share their expertise with each will carefully grow Jenius Bank over a ten-year period and other. The new Plan sets the stage to further enhance the develop it into a pillar that supports SMBC Group’s sustain- results produced by past initiatives. We will strive to expand able growth. our businesses on a scale that exceeds the growth of the respective countries by working together with our trusted partners to maximize the results of collaborations. See page 076 for details. U.S. Digital Bank See page 102 for details. People who Embody Our Five Values Proactive & Innovative See page 066 for details. Efforts to Achieve the Multi-Franchise Strategy ties, an online securities firm. See page 070 for details. Olive See page 106 for details. People who Embody Our Five Values Team “SMBC Group” SMBC Group’s clients. Furthermore, we plan to increase our economic ownership in Jefferies to up to 15%. I am confident that both SMBC Group and Jefferies can expe- rience growth by providing advanced financial services on a global scale and generating new business opportunities. This will be achieved by leveraging each other’s strengths in a symbiotic relationship. As true allies, we will deepen our partnership and build upon our track record of suc- cessful collaborations, standing by each other in both prosperous and challenging times, supporting one another on our shared journey towards success. See page 069 for details. Strengthening Our Overseas Securities Business In order to reach challenging targets that would not be possible only through existing methods, we will further evolve “Transformation & Growth” and pursue initiatives in the key strategic areas focusing on three perspectives. 014 SMBC GROUP ANNUAL REPORT 2023 SMBC GROUP ANNUAL REPORT 2023 015 With John Rosenfeld, President of Jenius Bank Value Creation at SMBC Group MESSAGE FROM GROUP CEO Quality builds Trust Value Creation at SMBC Group Business Strategies for Creating Value Corporate Infrastructure Supporting Value Creation Sustainable Growth of Corporate Value “ Rebuild Corporate Infrastructure” has even more importance than in the past. We established “Quality builds Trust” as a keyword of this third pillar to reflect our “Producing new CEOs” is an initiative I started in which in-house start-ups are launched by leveraging the ideas of junior and mid-tier staff. In FY2022, the project U nder the previous Plan, we increased our annual dividend by ¥50, achieving our dividend payout ratio target of 40%. We also carried out share buybacks totaling while paying careful attention to the external environment. Our share price continues to fall below a PBR (Price to Book Ratio) of one. This may be unavoidable as investors commitment to enhancing the quality of our operations saw the launch of Family Network Service, a business to a level that will allow us to win back the trust of stake- which offers family watching services though a smartphone holders we lost as a result of the Administrative Disposition application. A female employee in her 30s was named as that was issued last year. First, we will make a Group-wide CEO of the new company. I have no doubt that an era of ¥200 billion while making inorganic investments of ¥510 view Japan’s financial sector with pessimism given the billion for our future growth. I am well aware that this has long-standing economic stagnation and the ongoing nega- led to some investors raising concerns that we were allo- tive interest rate environment. However, even against such cating a disproportionate amount of assets to investments a backdrop, it is important to clearly communicate a growth effort to improve compliance with our governance and “Fulfilled Growth” can be reached if each and every one of for growth. strategy and to execute that strategy. We have placed even compliance frameworks, which are the foundations of our our employees can make a positive impact on society as a business. We will also strive to realize resilient business result of them breaking the mold by thinking outside of the operations by enhancing our ability to proactively address box and pursuing their aspirations. the risks that arise in the uncertain business environment In addition, “DE&I (Diversity, Equity and Inclusion),” by aggressively investing in IT infrastructure. Creating a workplace in which employees can pursue their hopes and dreams with positivity and confidence is a which was added as a priority issue (materiality), is a reflection of our growth strategy. SMBC Group is powered by a diverse talent pool of more than 110,000 employees key point in enhancing our corporate infrastructure. Re- spread across Japan and 38 countries and territories. Car- gardless of how much our business environment changes, rying out our duties based on a mindset of mutual respect there will be no change to the fact that our people form leads to the competitiveness of SMBC Group, and the inter- the basis of SMBC Group’s competitiveness and are our action of various values and ideas leads to innovation. In most important management resource. Ever since I was April 2023, we established the SMBC Group Talent Policy appointed Group CEO, under the slogan “Break the Mold” as part of efforts to realize a workplace where diverse pro- I have endeavored to develop a corporate culture in which fessional talents can continue to pursue challenging goals employees can transform themselves without being caught and enjoy high levels of job satisfaction. We will enhance up in fixed ideas and preconceptions. I believe that an both our global and Group-based talent pool by creating a important responsibility of a business leader is to support framework in which SMBC Group and its employees share employees proactively pursuing their hopes and aspira- a common mission, vision, and values while at the same tions and to prepare optimal conditions so that employees time committing to each other. can reach their full potential. However, there is no change to our policy of allocating greater focus on capital efficiency in the new Plan and will capital in a balanced manner between investments for enhance our ROE by optimizing our business portfolio to growth and shareholder returns over the medium- to long- improve profitability and increasing revenue by executing term based on a foundation of financial soundness. In the the Key Strategies. Furthermore, we will attempt to limit the new Plan, dividends will continue to be our principal ap- capital cost of investors by minimizing the asymmetry of proach to shareholder returns. We will maintain a progres- information as a result of proactively disclosing both finan- sive dividend policy and a dividend payout ratio of 40%. We cial and non-financial information and engaging in close aim to increase dividend payouts through bottom-line profit communications with our stakeholders. Through such growth. Although we postponed committing to a share consistent efforts, we will strive to realize the sustainable buyback in May 2023, we will actively consider the matter growth of SMBC Group’s corporate value. Dreams Make Our Future “ There is nothing like a dream to create the future.” These are the famous words of the French writer, Victor Hugo, and I feel that they make a particularly strong impres- challenges or more complex issues. Even when faced with such challenges, not giving up on one’s dreams and work- ing with colleagues to overcome those challenges will allow sion as our world suffers from increasing uncertainty. SMBC Group to become even bigger and even stronger. I As I stated at the start of my message, we continue strongly believe that the future that lies at the end of this to experience great volatility. In my New Year message to process will be one of “Fulfilled Growth.” SMBC Group, I said I wanted each and every one of our To transform SMBC Group into such an organization is employees to strive to realize their dreams and hopes both my dream and responsibility as Group CEO. I will fulfill based on a clear understanding that they are responsible this responsibility by standing at the forefront of SMBC for shaping the future. I do not want our employees to Group’s 110,000 employees as we carry out our “Plan adopt a passive attitude because of the current business for Fulfilled Growth.” I would like to ask for the continued environment. Bigger dreams may very well lead to bigger support and understanding of our stakeholders. Internal seminar for formulating the new Medium-Term Management Plan 016 SMBC GROUP ANNUAL REPORT 2023 SMBC GROUP ANNUAL REPORT 2023 017 Value Creation at SMBC Group Value Creation at SMBC Group Business Strategies for Creating Value Corporate Infrastructure Supporting Value Creation SMBC Group’s Value Creation Process SMBC Group is committed to providing solutions that meet customer needs and solve social issues by leveraging our strengths developed over many years and maximizing the power of industry-leading subsidiaries. We will return economic and social value created through business activities to stakeholders and contribute to the realization of “Fulfilled Growth.” (FY2022 Results) (FY2022 Results) Financial Infrastructure Financial Infrastructure Disciplined capital Disciplined capital management and management and high-quality asset portfolio high-quality asset portfolio Net income: ¥805.8 billion Net income: ¥805.8 billion ROCET1: 9.4% ROCET1: 9.4% CET1 ratio: 10.1% CET1 ratio: 10.1% NPL ratio: 0.80% NPL ratio: 0.80% Human Resources Human Resources Diverse, professional employees Diverse, professional employees who work as a team and who work as a team and continue to challenge themselves continue to challenge themselves Headcount: 116,000 Headcount: 116,000 Annual training cost: ¥3.95 billion Annual training cost: ¥3.95 billion Network Network A network of offices A network of offices in Japan and in Japan and 38 countries/regions 38 countries/regions Brand Brand Trust and performance Trust and performance since the foundation of since the foundation of Mitsui and Sumitomo Mitsui and Sumitomo Corporate Culture Corporate Culture Culture that allows for Culture that allows for the expression of individuality, the expression of individuality, and an attitude of contribution and an attitude of contribution to customers and society to customers and society Customer Base Customer Base A robust customer base A robust customer base grounded in longstanding grounded in longstanding relationships of trust relationships of trust Number of corporate accounts: 1 million Number of corporate accounts: 1 million Number of personal accounts: 28 million Number of personal accounts: 28 million Credit card members: 54 million Credit card members: 54 million Bank Bank Leasing Leasing Create Social Value Create Social Value Rebuild Rebuild Corporate Corporate Infrastructure Infrastructure Medium-Term Medium-Term Management Plan Management Plan in FY2023-2025 in FY2023-2025 Growth with Growth with Quality Quality (P.020) (P.020) Pursue Economic Pursue Economic Value Value Bottom-line profit Bottom-line profit ¥900 billion ¥900 billion ROCET1 ROCET1 ≧9.5% ≧9.5% Base expenses Base expenses Reduction Reduction from FY2022 from FY2022 CET1 ratio CET1 ratio c.10% c.10% Consumer Consumer Finance Finance Asset Asset Management Management Materiality and Materiality and Main KPIs Main KPIs Environment Environment Sustainable finance (P.083) Sustainable finance (P.083) (FY2020 – 2029) (FY2020 – 2029) ¥50 ¥50 trillion trillion DE&I/Human Rights DE&I/Human Rights Engagement score (P.097) Engagement score (P.097) maintain at least 70 maintain at least 70 Poverty & Inequality Poverty & Inequality Number of microfinance borrowers (P.088) Number of microfinance borrowers (P.088) +800 K people +800 K people Declining Birthrate & Aging Population Declining Birthrate & Aging Population AM/foreign currency balance (P.046) AM/foreign currency balance (P.046) ¥18 ¥18 trillion trillion Japan’s Regrowth Japan’s Regrowth Investment and loans for Investment and loans for startups (P.089) startups (P.089) ¥135 billion ¥135 billion Value provided to Value provided to stakeholders stakeholders Customers Customers More valuable More valuable services services Shareholders Shareholders Permanently increase Permanently increase shareholder value shareholder value Trust Trust Employees Employees A workplace A workplace where employees where employees can demonstrate their can demonstrate their abilities to the fullest abilities to the fullest Society Society Realization of Realization of a sustainable society a sustainable society “Fulfilled Growth” “Fulfilled Growth” People feel fulfilled as People feel fulfilled as economic growth accompanies economic growth accompanies the resolution of social issues the resolution of social issues Credit Credit Card Card Securities Securities 018 SMBC GROUP ANNUAL REPORT 2023 SMBC GROUP ANNUAL REPORT 2023 019 Value Creation at SMBC Group Value Creation at SMBC Group Business Strategies for Creating Value Corporate Infrastructure Supporting Value Creation Core Policies of the Medium-Term Management Plan (FY2023 - FY2025) The new Medium-Term Management Plan, covering the three-year period from FY2023, aims to achieve “Growth with Quality” strongly and proactively by further advancing ex- isting initiatives that leverage the Group’s collective strengths to respond to major envi- ronmental changes that could be called a paradigm shift, including the current reversal of social and economic globalization, inflation and rising interest rates in regions such as the U.S. and Europe, progress in digital transformation, and the expansion and worsening of social issues faced around the world. Core Policies The new Medium-Term Management Plan is titled the “Plan for Fulfilled Growth,” express- ing our strong desire to achieve “Growth with Quality” while fulfilling our three core policies of “Create Social Value,” “Pursue Economic Value,” and “Rebuild Corporate Infrastruc- ture” toward the Vision of becoming a “a trusted global solution provider committed to the growth of our customers and advancement of society,” which we defined in 2020. VISION A trusted global solution provider committed to the growth of our customers and advancement of society Rebuild Corporate Infrastructure Quality builds Trust Create Social Value Contribute to “Fulfilled Growth” Growth with Quality Pursue Economic Value Transformation & Growth Financial Targets In order to compete globally as a global financial institution, we will work toward goals that are not an extension of previous plans. Specifically, we aim to realize bottom-line profits of ¥1 trillion or more in the next Medium-Term Management Plan (FY2026-FY2028), and ¥900 billion in the new Medium-Term Management Plan as a milestone on the way to that target. As in the previous Medium-Term Management Plan, we have set three indicators: profitability, efficiency, and financial soundness. In particular, for ROCET1, an indicator of profitability, we will also pay close attention to ROE including OCI and aim to steadily improve capital efficiency. Previous Plan New Plan ROCET1*1 ≥9.5% Base expenses10% of domestic headcount Shift management resources Pursuit of economic value Rebuild corporate infrastructure RWA +¥11 trillion Workload +3 K IT investment +¥ 650 billion 020 SMBC GROUP ANNUAL REPORT 2023 SMBC GROUP ANNUAL REPORT 2023 021 Value Creation at SMBC Group Value Creation at SMBC Group Business Strategies for Creating Value Corporate Infrastructure Supporting Value Creation Core Policies of the Medium-Term Management Plan (FY2023 - FY2025) Create Social Value Contributing to “Fulfilled Growth” In the new Medium-Term Management Plan, SMBC Group has selected five key issues (materialities) to be proactively addressed: “Environment,” “DE&I/Human Rights,” “Poverty & Inequality,” “Declining Birthrate & Aging Population,” and “Japan’s Regrowth,” and has set ten goals for resolving these ma- terialities. With a business spirit that aims at creating social value as corporate citizens long passed down through Mitsui and Sumitomo, we will further expand our existing activities. Furthermore, we will contribute to “Fulfilled Growth” where society and people can enjoy sustainable prosperity by creating social value and returning to society. Environment DE&I/Human Rights Poverty & Inequality Declining Birthrate & Aging Population Japan’s Regrowth Support the transition to achieve a decarbonized society Contribute to the conservation and restoration of natural capital Realize a workplace where employees enjoy high job satisfaction Respect human rights throughout the supply chain Sustainable finance ¥50 trillion (FY3/21-30) Engagement score maintain at least 70 Break the cycle of poverty and inequality for the next generation Contribute to financial inclusion in developing countries Number of microfinance borrowers +800K people l s n a p n o i t c a c fi c e p s e r o m i Relieve anxiety about the 100-year life era Build user-friendly infrastructure to support a society with a declining population AM / foreign currency balance ¥18 trillion Support customers’ business model transformation Create innovation and foster new industries Investment and loans for startups ¥135 billion t n e m h s i l b a t s E Materiality identification process In light of the ever-growing and increasingly serious social issues facing the world, it has become even more important to proactively address a wide range of social issues, and aim to create social value as a corporate citizen. Based on this recognition, we have reviewed the materialities identified in 2014. Identification of social issues to be addressed We identify social issues with the potential to have a significant impact on SMBC Group and society, based on our top risks and past efforts to resolve social issues, in addition to global issues such as the SDGs and efforts by Japanese government. Discussion and examination Approximately 20,000 employees in Japan and overseas responded to a questionnaire survey conducted on “Social issues that SMBC Group should focus on.” In addition to discussions at Management Committee, Diversity Committee, and other meetings on the executive side, discussions are also held at meetings of the Board of Directors and Sustainability Committee on the supervisory side. Five materialities and ten goals have been selected based on the results of the employee survey and opinions from both the supervisory and executive sides (including opinions of external committee members). Institutional decisions KPIs associated with materiality and targets are also added and decided by the Board of Directors following deliberation by Management Committee. 1 2 3 Pursue Economic Value Transformation & Growth We will engage in continuous business model reform that reflects major changes in the environment and carry out efforts to establish franchises in strategic overseas areas while steadily realizing the benefits of existing growth investments and initiatives with the key phrase “Transformation & Growth” in continuation from the previous Medium-Term Management Plan. Through these efforts, SMBC Group will transform our business portfolio and realize robust growth in profitability that is accompanied by enhanced capital efficiency. Reform domestic business for possible interest rate hike Improve capital efficiency with B/S discipline Build global portfolio based on growth potential 1 2 3 4 5 6 7 Transformation Continuous reform of our business model Build digital-based retail business Strengthen payment business Enhance wholesale business utilizing digital technology Expand institutional investor business Strengthen global CIB and S&T Deepen and expand U.S. business Realize growth through our Multi-Franchise Strategy Growth Establish franchises in key strategic areas Rebuild Corporate Infrastructure Quality builds Trust In the previous Medium-Term Man- agement Plan, we carried out various initiatives aimed at enhancing SMBC Group’s corporate infrastructure with “Quality” as a keyword. In the new Me- dium-term Management Plan, we will engage in tireless efforts to enhance SMBC Group’s corporate infrastruc- ture and win the trust of our customers and other stakeholders with “Quality builds Trust” as a key phrase. Ⅰ Improve the quality of governance and compliance Ⅱ Ⅲ Ⅳ Sophisticate human capital management Reinforce IT infrastructure Improve risk analysis and risk control capabilities 022 SMBC GROUP ANNUAL REPORT 2023 SMBC GROUP ANNUAL REPORT 2023 023 Value Creation at SMBC Group Value Creation at SMBC Group Business Strategies for Creating Value Corporate Infrastructure Supporting Value Creation Communication with Stakeholders Basic Approach SMBC Group aims to contribute to the sustainable development of society by building relationships and providing greater value to various stakeholders: “Customers,” “Shareholders and the markets,” “Employees,” and “Society and the environment.” Engagement with Customers Value We Provide: More valuable services “Customer First,” thinking from the customer’s perspective and providing value that meets the needs of each individ- ual, is one of our Five Values, which are shared by all our Engagement with Shareholders and the Markets Value We Provide: Continuous growth of shareholder value We recognize that appropriate disclosure of corporate and management information must form the foundation of our efforts to realize shareholder value management, and strive to provide accurate understanding of our management strategies and financial situation through investor meetings after announcement of financial results, conferences and one-on-one meetings, large meetings for individual inves- tors and other activities. Parties engaging in dialogue Group CEO, Group CFO, Outside Directors, Heads of Business Units, Director in charge of Corporate Planning Department, Investor Relations Dept, etc. Engagement with Employees Value We Provide: A workplace where employees realize Engagement with Society Value We Provide: Contribution to a sustainable society full potential SMBC Group has positioned “Create Social Value” as a pil- Various initiatives, such as town hall meetings, are being lar of its management strategy and intends to engage in a implemented to foster mutual understanding between wide range of initiatives that go beyond our core business. employees and management. For example, Group CEO We emphasize dialogue with society by proactively disclos- luncheons in which employees from various Group com- ing our efforts to resolve our five materialities selected in panies participated were held six times in FY2022. A lively April 2023. exchange of ideas took place during the luncheon, with Moreover, a sustainable society cannot be achieved various new ideas and concepts being generated as em- without cooperative relationships with the various stake- ployees talked about their own dreams and goals. holders active in society. To this end, we are actively We also conduct monthly engagement surveys to involved with external parties through participation and in- visualize and analyze the state of employee engagement. volvement in various domestic and international initiatives, Results are returned to each individual and organization to as well as through implementing “GREEN x GLOBE Part- encourage independent improvement. The KPI for engage- ners,” a community of businesses that transcends organiza- ment score is set to be maintained at 70 or higher. tional barriers to address environmental and social issues. employees. In addition to daily communication with our Activities in FY2022 See page 090 for more information on our human resource strategies. See page 080 for more information on our sustainability initiatives. sales staff, we have also established points of contact to receive feedback and requests, and to listen to feedback from our customers. We strive to continuously improve our products and services based on the feedback we receive. For example, Sumitomo Mitsui Card Company released a V-point investment service in July 2022, in response to General meeting of shareholders Participants: 990* IR meetings for institutional investors and analysts 13 meetings One-on-one meetings with institutional investors and analysts 470 meetings Of which, implemented by managements Of which foreign investors Of which SR interviews 118 meetings 289 meetings 36 meetings 5 conferences 2 meetings a request that it be possible to use V-points to purchase Conferences held by securities companies mutual funds at SBI Securities. See page 132 for more information on our customer-oriented initiatives. Large meetings for individual investors * Including 603 viewers of simultaneous Internet broadcast Investor interests Financial performance and management strategy The path toward achieving the profit targets set forth in Medium-Term Management Plan Capital policy Shareholder returns policy, target of growth investment, balance between growth investment and shareholder returns Financial and economic environment Outlook on domestic and foreign interest rates and view toward financial instability abroad ESG Climate change initiatives, reduction of equity holdings, and measures to prevent recurrence of misconduct Feedback to management Quarterly reports are presented the Board of Directors and Management Committee meetings, and information is also shared regularly via e-mail. Feedback incorporated into management and disclosure • Improving of business management by business unit • Disclosing of ROE including OCI • Disclosing of future profit contributions from growth investments • Accelerating the reduction pace of equity holdings Employee-organized meetings with the Group CEO to exchange opinions 2023 IIF Sustainable Finance Summit “Huddle Fukutome” (an exchange event with the president of Sumitomo Mitsui Banking Corporation) GREEN x GLOBE Partners Events 024 SMBC GROUP ANNUAL REPORT 2023 SMBC GROUP ANNUAL REPORT 2023 025 Value Creation at SMBC Group MESSAGE FROM GROUP CFO We will realize the sustainable growth of SMBC Group’s corporate value by enhancing capital efficiency through the prompt execution of initiatives aimed at delivering “Growth with Quality.” In April 2023, I was appointed Group CFO and Group CSO. As Group CSO, I will supervise the execution of our initiatives in key strategic areas while maintaining a view of the overall strategy. At the same time, as Group CFO I will continue to oversee the optimal allocation of our management resources to ensure sound financial and capital management. I will take great care to communicate to investors information regarding SMBC Group’s strategies and businesses from both standpoints in a comprehensible manner. Fumihiko Ito Group CFO & CSO Director Senior Managing Executive Officer Value Creation at SMBC Group Business Strategies for Creating Value Corporate Infrastructure Supporting Value Creation Review of the Previous Medium-Term Management Plan In the previous Medium-Term Management Plan (“pre- SMBC Group’s history consolidated gross profit exceed- vious Plan”) we operated in a challenging and uncertain ed ¥3 trillion in FY2022. Even after booking the negative business environment due to the COVID-19 pandemic, impact of items, such as additional impairment losses Russia’s invasion of Ukraine, and various other unforeseen stemming from our aircraft leasing business and taking factors. However, regardless of such an environment, we proactive measures for the future (forward-looking provi- steadily carried out the Seven Key Strategies established sions due to uncertainties in the business environment, under “Transformation & Growth.” We also proactively impairment losses stemming for our retail branches, etc.), addressed major global trends, such as “Digital” and we were able to generate profit attributable to owners of “Green.” Recently, in the domestic market we are seeing parent of ¥805.8 billion. This represents a year-on-year an increase in demand for solutions to address the post- increase of ¥99.2 billion and is the first time to exceed COVID-19 business environment as the corporate sector ¥800 billion since FY2013. It goes without saying that we recovers from the global health crisis and becomes more exceeded our original targets by a substantial amount. active in capital investment and business reorganization. In overseas markets, we are facing an increase in capi- tal demand from customers followed by an increase in cross-selling opportunities including securities business. Not only were we able to capture significant opportunities resulting from the growth of the cashless payment mar- ket by issuing next-generation credit cards (numberless/ cardless, etc.), we also succeeded in laying down the (JPY bn) Results FY2022 YoY Consolidated net business profit Total credit cost Ordinary profit Profit attributable to owners of parent 1,276.4 210.2 1,160.9 805.8 +123.6 (64.2) +120.3 +99.2 cornerstones of our future growth. For example, we made We also achieved our original financial targets for investments in our Asia Multi-Franchise Strategy and in our overseas securities business. Due to the balanced increase in profits across the key businesses of each Business Unit, for the first time in Return on Common Equity Tier1 (ROCET1), base expens- es, and Common Equity Tier1(CET1) ratio. For ROCET1 we exceeded our target by close to 1%, a significant amount. Financial Targets of the Previous Plan ROCET1 Base expense*1 CET1 ratio*2 9.4% JPY 1,515 bn 10.1% (2) Strengthen the Internal Control System (3) Foster a Sound Corporate Culture • Strengthen supervision of management execution • Improve the effectiveness of the Three Lines Appoint a new outside director • Implement compliance training for executives • Prioritize the allocation of resources on “defense” Increase personnel in the Second and Third Line, and make IT investment of over ¥10 billion to strengthen internal control systems of Defense system Formulate and implement a target operating model by utilizing external knowledge • Reorganize compliance division Strengthen supervisory functions, and clarify roles and responsibilities • Strengthen expertise in the First and Second Line of defense • Establish the Fraudulent Trade Prevention Promote to hire outside specialists • Establish the Product and Services Council Discuss risks, issues and measures regarding products and services among the First and Second Line of defense Committee Strengthening the trade control system by discussing the risk of unfair trading among the First and Second Line • Formulate new corporate philosophy systems Restructure the existing philosophy systems to incorporate SMBC Group’s “Five Values” • Dialogue between management and employees Establish a forum for discussion on improve- ment measures, company direction, etc. (held at 271 locations in total) • Increase involvement in SMBC Nikko’s executive personnel • Establish the Group Business Management • Issue CEO message and resource allocation plan, and verify its sufficiency Department Strengthen capabilities to deal with irregulari- ties and scandals on a Group-wide basis Distribute at SMBC Group annual policy meetings and SMBC Nikko’s general manager’s meetings (4) Strengthen the Business Management System (5) Strengthen the Customer Information • Implement whistle-blowing training • Reinforce the Company’s Compliance Department structure Management System • Establish and enforce information management rules • Enhance post-event monitoring by utilizing artificial intelligence, etc. (6) Foster Awareness of Compliance • Establish a new rule for compliance training management and increase training opportunities Market manipulation cases Violation of regulations on the firewall between banking and securities operations The Company: Establish the Group Business Management Department The Company has established the Group Business Management Department with the aim of strengthen- ing the capability for emergency issues as a group. We will continue to strengthen capability for emergency issues of the eight major subsidiaries (including SMBC Nikko) by enhancing communication with them. NEW Collaboration Business Unit (First Line of defense) Group Business Management Department Collaboration CxO (Second and Third Line of defense) Business management Execute improvement plan Emergency response Examination/Instruction Business management First Line of defense Group companies Second and Third Line of defense SMBC Nikko: Formulate new corporate philosophy systems In order to ensure that the philosophy fully permeates the entire company, SMBC Nikko has restructured the existing philosophy which includes five new SMBC Nikko’s core values that encapsulate the SMBC group’s common five values. SMBC Nikko Securities Management Philosophy SMBC Group Mission Mission Value Social Mission • Connect the development of sound capital markets to realization of satisfying and fulfilling lives and society Brand Slogan • Share the Future — For Tomorrow of All Stakeholders — Vision • Formulated for each period of the Medium-Term Management plan Important Values as a professionals • Kindness and honesty • Co-existence and co-prosperity • Sustainable growth • Respect for diversity • Market integrity Incorporate Five Values SMBC Nikko: Dialogue between Management and Employees The management of SMBC Nikko has declared a strong commitment to compliance and risk manage- ment, and has enhanced bidirectional communica- tion with sales staff, conducting town hall meetings at a total of 271 locations. Members of the Management Committee will discuss opinions and suggestions from employees during bidirectional communication and will incorporate these into various measures going forward. SMBC Nikko: Reorganize compliance division The organization and operation of the compliance department have been reviewed with the aim of strengthening the internal control system. By appoint- ing vice president to oversee compliance, we have reinforced the compliance department. Furthermore, we have reorganized the compliance departments by function, aiming to clarify roles and responsibilities. Second Line of defense (Compliance Division) Head of Compliance Unit (Deputy President/Representative Director) Enhancement of the Compliance Division’s positioning Deputy Head of Compliance Unit (lawyer) Appointment of legal and compli- ance specialists Head of Compliance (General Manager of Compliance dept.) Deputy Head of Compliance Reinforcement of supervisory functions Appointment of a person with First Line management experience Each compliance department Reorganize each function 032 SMBC GROUP ANNUAL REPORT 2023 SMBC GROUP ANNUAL REPORT 2023 033 Value Creation at SMBC Group Value Creation at SMBC Group Business Strategies for Creating Value Corporate Infrastructure Supporting Value Creation Round-Table Discussion with Outside Directors The Values SMBC Group Must Embody as it Strives to Realize Sustainability Ito Today, I will ask Ms. Eriko Sakurai and Mr. Masayuki The new Plan has already started, and I feel that Matsumoto, both outside directors of Sumitomo Mitsui Fi- everyone in SMBC Group is pursuing the new Plan’s nancial Group, to share their expectations for SMBC Group strategies and initiatives with much enthusiasm. I believe taking into consideration the new Medium-Term Manage- that SMBC Group’s organizational strengths will further ment Plan (“new Plan”) that we publicly announced in increase if the new Plan is carried out with this level of May 2023. Ms. Sakurai and Mr. Matsumoto were deeply enthusiasm. involved in the preparation of the new Plan as repeated discussions took place during Board of Directors (“BOD”) Sakurai As Mr. Matsumoto shared his thoughts regard- meetings and BOD internal committee meetings over a ing the new Plan in general, I would like to first share my period of approximately one year. thoughts from my position as Chairperson of the Sustain- ability Committee given that it was this role which allowed Matsumoto I feel that the new Plan significantly differs me to take part in the preparation of the new Plan from the from past Medium-Term Management Plans in three key draft stage. Frankly speaking, the early drafts struck me areas. First, a large number of SMBC Group employees as trying to cover too many issues. It is easy to talk about of various seniority levels devoted significant time and wanting to solve social issues, actually reflecting this in effort to the preparation of the new Plan. As a result, the your corporate activities via concrete initiatives is a differ- new Plan not only takes into consideration the issues ent matter. As such, I advised that SMBC Group should and results of past Plans, it also reflects current changes narrow down and focus on selecting key issues so that in the business environment. Second, the new Plan has each and every one of its employees must have a sense of established “Create Social Value” as a new pillar on top ownership if the Group is to make concrete contributions to of “Pursue Economic Value” and “Rebuild Corporate the resolution of social issues. Infrastructure”. Third, the new Plan clearly stipulates the SMBC Group was already contributing to “Creating social issues SMBC Group will address in order to create Social Value” via various initiatives, for example holding the aforementioned social value, and its commitment to financial education seminars that have been attended by resolving those issues. As “Create Social Value” has been hundreds of thousands of high school students. It was un- established as a key pillar of the new Plan, I hope to see der such circumstances that we engaged in repeated dis- SMBC Group tackle these social issues with a strong sense cussions about how SMBC Group employees could more of responsibility and determination. consciously contribute to the resolution of social issues. 034 SMBC GROUP ANNUAL REPORT 2023 SMBC GROUP ANNUAL REPORT 2023 035 Value Creation at SMBC Group Round-Table Discussion with Outside Directors For example, when the key phrase “Fulfilled Growth” was Plan’s various initiatives while making sure that employees brought up, detailed discussions took place regarding the remain engaged. meaning of fulfillment and the actions that we needed to take within society in order to achieve growth. It was the Matsumoto I personally believe that a megabank has four first-time detailed discussions regarding such topics had key responsibilities. The first is to contribute to and take taken place within SMBC Group. responsibility for people’s livelihoods and the Japanese In addition, as I am a member of the Compensation economy. The second is to establish trust and credibility as Committee and Nomination Committee, I took part in dis- the basis of all its activities. The third is to practice sound cussions regarding how “Creating Social Value” should be business management, including in regard to revenue and reflected in determining compensation and in the selection governance. The fourth is to fairly contribute to all stake- of leaders. I provided various suggestions with the mindset holders. All four of these responsibilities must be fulfilled. that I am speaking on behalf of SMBC Group’s numerous The three basic policies established under the new Plan stakeholders so that it is able realize the theme “Create “Create Social Value,” “Pursue Economic Value,” and “Re- Social Value” in its many business activities. build Corporate Infrastructure” serve as the basis of SMBC Group’s unwavering commitment to pursue “Growth with Ito As Ms. Sakurai just said, the Sustainability Committee Quality” by fulfilling these roles. was deeply involved in the preparation of the strategies es- Value Creation at SMBC Group Business Strategies for Creating Value Corporate Infrastructure Supporting Value Creation Masayuki Matsumoto Outside Director, Sumitomo Mitsui Financial Group tablished under the new Plan. This itself is proof that SMBC Ito In regard to the third responsibility of sound business rate through our Multi-Franchise Strategy, growing our U.S. targeting growth areas as it strives to achieve the goals set Group places great importance on “Creating Social Value” management that Mr. Matsumoto spoke about, in response business, and the transformation of our domestic retail and under the new Plan. and embodies its commitment to placing this mindset at to the request from the Tokyo Stock Exchange to improve wholesale business models. the center of its actions. our PBR, SMBC Group has publicly announced that we Ito Thank you. Next, I would like to move on to SMBC On the other hand, as Mr. Matsumoto stated, it is vital will pursue ROE including OCI of 8%. As a first step, we will Matsumoto A PBR of one is a minimum goal that all Group’s efforts aimed at combating climate change, a that SMBC Group executes and brings to a successful con- pursue a PBR of one by focusing on asset and capital effi- corporates should strive to attain, and I believe that the theme that is of great interest to our stakeholders. clusion its initiatives with a strong sense of responsibility ciencies. In addition, this will be achieved from both ROE actions of the companies are consistent with this. However, and determination. I want to further elaborate on the new and PER standpoints by increasing our anticipated growth given the regulatory requirements applicable to the finan- Matsumoto When the Sustainability Committee provides Fumihiko Ito Group CFO & Group CSO, Sumitomo Mitsui Financial Group cial sector, financial companies must improve PBR while reports regarding climate change at BOD meetings, I also accumulating capital. As ROE including OCI of 8% is a am always impressed with the level of detail the reports challenging target, SMBC Group will be required to focus provide and that the reports are the result of very thorough on improving profitability via portfolio optimization and discussions. A long-term action plan is established for other concrete measures. the entire SMBC Group that adheres to global standards based on a clear and accurate understanding of the dis- Sakurai How to incorporate the Tokyo Stock Exchange’s cussions that have taken place in the Sustainability Com- request in the new Plan was the subject of much dis- mittee and the current status of climate change issues. cussion during BOD meetings. As a financial institution, While current efforts are based on this process, I believe SMBC Group must operate in a highly regulated business that SMBC Group was able to reiterate its unwavering environment, and one key point is for SMBC Group to focus on resolving sustainability-related issues by adding carefully determine in which businesses it is able to grow. “Support the transition to achieve a decarbonized society” SMBC Group’s business operations have undergone as a goal for “Environment,” a priority issue (materiality) in substantial change since I became an Outside Director the new Plan. I understand that detailed action plans are in 2015, and I will continue to pay close attention to being prepared by sorting out issues that arise from daily how SMBC Group can successfully execute its initiatives changes in the business environment while engaging in 036 SMBC GROUP ANNUAL REPORT 2023 SMBC GROUP ANNUAL REPORT 2023 037 Value Creation at SMBC Group Round-Table Discussion with Outside Directors communications with clients. I feel that this reflects SMBC by SMBC Nikko Securities (“SMBC Nikko”) in FY2022. Group’s commitment to steadily carry out its sustainabili- In response to this incident, measures were prepared ty-related plans. and implemented for the purpose of ensuring that such an incident would never occur again. These measures Sakurai I provided very in-depth suggestions focusing were prepared based on feedback from various parties, on whether SMBC Group’s internal implementation frame- including from the BOD. Could you please share with us work for addressing climate change is adequate. I have your forthright opinions regarding the incident and the spent many years at a global chemical manufacturer and progress we are making in the implementation of the it was necessary to build or upgrade factories if they were preventive measures? to become compatible with GHG reduction technology. A timeframe of several years is necessary to acquire the Matsumoto All companies, regardless of their industry land for the factory, build the factory on that land, and then or size, have essential values that must not be lost in order for production to finally start. I will pay close attention to for them to exist. For a securities company, protecting the whether SMBC Group is facing head-on the needs of each fairness of the financial market is an essential value, and business sector based on a clear understanding of their is- this incident is extremely regrettable. As part of efforts to sues, including issues such as the one which I just shared, ensure that such an incident never occurs again, in my which are difficult to see from the outside. Against such a role as Chairperson of the Audit Committee, not only did Value Creation at SMBC Group Business Strategies for Creating Value Corporate Infrastructure Supporting Value Creation Eriko Sakurai Outside Director, Sumitomo Mitsui Financial Group backdrop, I am seeing various improvements that are being I receive reports regarding the causes of the incident and Sakurai I was very grateful when I learned that Mr. Mat- work, including risk management. I make sure to voice my made to reflect feedback from onsite staff. For instance, the preventative measures, I also physically went to SMBC sumoto and other members of the Audit Committee had concerns and obtain an answer if I have any doubts regard- in addition to communicating with clients in key sectors, Nikko’s head office and met face to face with their execu- actually met and talked with both executives and employ- ing these matters. Going forward, I will continue to put forth SMBC Group is hiring staff who have actual experience tive officers. ees of SMBC Nikko. I felt that they represented the BOD my opinions and suggestions aimed at ensuring the sound working in those sectors. Furthermore, large corporations My involvement in the railroad sector spans many very strongly in dealing with this issue. I agree that a corpo- business management of SMBC Group so that it can meet possess internal frameworks aimed at GHG reduction. years, and in that sector the highest priority is placed on rate culture such as the one Mr. Matsumoto just touched stakeholders’ expectations. For example, they are able to internally calculate climate safety. As such, a “fail safe” culture, where when in doubt upon will play a key role in ensuring that such an incident change-related data. However, many SMEs do not possess the safe option is selected, is firmly embedded throughout does not repeat itself. I will continue to pay close attention Sakurai I directly speak with business leaders from the know-how required to calculate such data. SMBC the industry. I have actually experienced situations where to the progress being made regarding this issue by putting around the world and third-party experts to keep myself Group is paying close attention to a wide variety of such onsite staff protected customers’ safety and prevented forward very specific questions regarding important topics informed so that I am able to reflect what I have learned in needs and launched “Sustana” and other GHG reduction major accidents by taking the appropriate actions based such as the method used to conduct employee surveys the running of SMBC Group as one of its outside directors. services to assist clients. on this mindset. and how communications are conducted between staff I will continue to devote myself to expanding my knowl- I am also focusing on how committed top manage- Patience and perseverance are required to success- and their supervisors. I will continue to monitor the sit- edge so that I can provide input that will help SMBC Group ment is to addressing climate change, and I believe that fully instill a culture in which individuals uphold the values uation with both warmth and strictness as, looking from develop from the standpoints of sustainability and gover- incorporating “Creating Social Value” as a non-financial that are essential to the existence of their organization. within SMBC Group, I feel that SMBC Nikko is definitely nance at a level that adheres to global standards. indicator in determining executive compensation is a large I have witnessed the employees of SMBC Nikko take to changing for the better. step forward. As an Outside Director, when SMBC Group heart their CEO’s message and work together to ensure Ito As both Ms. Sakurai and Mr. Matsumoto pointed out, acquires a company though M&A, I also place particular that such an incident will never occur again. If such efforts Matsumoto At the start of today’s round-table discussion, each and every one of SMBC Nikko’s employees must work importance on its vision regarding social value and whether continue, I believe it is possible for the required culture to I mentioned that contributing to its stakeholders is one of to spread and embed a healthy risk culture in order for the it is consistently implementing initiatives aimed at address- take root. I have high hopes for SMBC Nikko as it is not un- the key responsibilities of a megabank. As the Chairperson preventive measures to succeed. We will continue to reflect ing climate change. common for a better result to be produced due to pausing and thinking about matters in the process of overcoming Ito The final topic I would like to discuss today is com- a crisis. pliance issues such as the market manipulation incident of the Audit Committee, I pay close attention to whether the opinions we receive in our business strategies as we sound business management is being promoted/preserved carry out the new Plan and strive to realize a sustainable and to various facets of SMBC Group’s governance frame- society. Thank you for your time. 038 SMBC GROUP ANNUAL REPORT 2023 SMBC GROUP ANNUAL REPORT 2023 039 Business Strategies for Creating Value Value Creation at SMBC Group Business Strategies for Creating Value Corporate Infrastructure Supporting Value Creation Business Strategies for Creating Value 042 Group Structure 044 Retail Business Unit 048 Wholesale Business Unit 052 Global Business Unit 056 Global Markets Business Unit 060 Using Digital to Create the Future of Finance 064 Key Measures to Drive SMBC Group’s Future Growth 066 Multi-Franchise Strategy, Overseas Securities Business 070 Olive 076 U.S. Digital Bank 080 Creating Social Value to Achieve Sustainability 090 Human Resource Strategies to Support Value Creation 098 People who Embody Our Five Values 040 SMBC GROUP ANNUAL REPORT 2023 SMBC GROUP ANNUAL REPORT 2023 041 Business Strategies for Creating Value Value Creation at SMBC Group Business Strategies for Creating Value Corporate Infrastructure Supporting Value Creation Group Structure SMBC Group is a global financial group that develops operations in a wide range of fields, including bank- ing, leasing, securities, credit cards, and consumer finance. Under the holding company, Sumitomo Mitsui Financial Group,we have established four business units that draft and implement Group strategies based on customer segments. For head office functions, we have clarified the managers responsible for specific areas of group-wide management and planning under the CxO system. In addition, we are taking steps to share management resources and optimize the allocation of resources. Net Business Profit by Business Unit in FY2022 Retail ¥ 221.6 billion 12 Wholesale ¥ 558.5 billion 32 Global ¥ 612.2 billion Global Markets ¥ 374.2 billion 35 21 Group-Wide Business Units and CxO System Business Business Units Units Retail Retail Wholesale Wholesale Global Global Global Markets Global Markets Banking Banking Leasing Leasing Securities Securities Credit Cards and Consumer Finance Credit Cards and Consumer Finance Other Business Other Business Sumitomo Mitsui Sumitomo Mitsui Banking Corporation Banking Corporation SMBC Trust Bank SMBC Trust Bank Sumitomo Mitsui Sumitomo Mitsui Finance and Leasing Finance and Leasing SMBC Nikko SMBC Nikko Securities Securities Sumitomo Mitsui Sumitomo Mitsui Card Company Card Company SMBC SMBC Consumer Finance Consumer Finance Japan Research Japan Research Institute Institute Sumitomo Mitsui DS Asset Sumitomo Mitsui DS Asset Management Management ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● Head Office (CxO System) Head Office (CxO System) CFO Chief Financial Officer CSO Chief Strategy Officer CRO Chief Risk Officer CCO Chief Compliance Officer CHRO Chief Human Resources Officer CIO Chief Information Officer CDIO Chief Digital Innovation Officer CSuO Chief Sustainability Officer CAE Chief Audit Executive 042 SMBC GROUP ANNUAL REPORT 2023 SMBC GROUP ANNUAL REPORT 2023 043 Business Strategies for Creating Value Value Creation at SMBC Group Business Strategies for Creating Value Corporate Infrastructure Supporting Value Creation Retail Business Unit The Retail Business Unit consists of the top-class companies in the banking, securities, credit card, and consumer finance industries. We are addressing the financial needs of all individual customers through services capitalizing on the Group’s comprehensive strength, striving to develop the No. 1 Japanese retail finance business chosen by customers. Net Business Profit by Business Unit in FY2022 Contribution to Consolidated Net Business Profit (FY2022) Retail ¥ 221.6 billion 12 Wholesale ¥ 558.5 billion 32 Gross profit (JPY bn) Expenses (JPY bn) Base expenses (JPY bn) Global Net business profit (JPY bn) ROCET1*2 ¥ 612.2 billion RwA (JPY tn) *1 Figures are after adjustments for interest rate and exchange rate impacts. *2 Figures exclude provision for losses on interest repayments, etc. 35 The Retail Business Unit possesses the leading Global Markets business foundation in Japan in its principal business areas, including wealth management, ¥ 374.2 billion payment service, and consumer finance, backed by high-quality in-person consulting capabilities and advanced payment and FY2022 Results YoY*1 1,150.2 933.3 702.2 221.6 11.0% 13.3 (14.0) +0.7 (38.1) (13.5) +0.8% +0.6 In this context, we have been quick to imple- ment measures to respond to changes in the business environment, such as expanding the functions of SMBC Direct, developing branch- es exclusively for retail customers, and intro- ducing the SMBC Elder Program. 21 finance products and services. Under the new medium-term manage- Although each business was affected ment plan, we will differentiate our wealth by the COVID-19 pandemic and other factors management business by building a group- during the previous medium-term manage- based asset management business model to ment plan, the asset management business strengthen our competitiveness and increase saw the balance of fee-based AUM increase our presence in the market. Moreover, by by ¥4 trillion more than planned, and the transforming our retail business to a digital settlement and finance business caught model based on Olive, we will expand our up with the plan with a ¥10 trillion increase customer base nationwide and provide prod- in purchase transaction volume. Card loan ucts and services on a group basis. We aim to balances, which had declined with the effects become “Japan’s No. 1 retail financial group of the COVID-19 pandemic, began to increase with a sustainable operating foundation” by year-on-year in FY2022. expanding our market share in each business, The retail business environment has also and improving convenience and reducing changed dramatically with the acceleration costs through digitalization, through the of cashless and digitalization, the shift from development of hybrid strategies that leverage savings to investment, and the increasing need “digital” and “the human touch.” to prepare for the era of the 100-year lifespan. Takashi Yamashita Senior Managing Executive Officer Head of Retail Business Unit 044 SMBC GROUP ANNUAL REPORT 2023 SMBC GROUP ANNUAL REPORT 2023 045 Business Strategies for Creating Value Retail Business Unit PRIORITY STRATEGY PRIORITY STRATEGY Building a group-wide business for high-net-worth individuals in order to become the market leader in high-net-worth individual transactions We will provide total consulting services leveraging the combined strength of the group through collaboration between banks, securities firms, and trust companies in order to meet diverse needs such as advanced portfolio proposals, inheritance and succession, and business loans. For affluent customers such as corporate own- ers, we will enhance our responsiveness and approach to customer needs and expand our market share by strengthening cooperation between corporate and retail sales and group companies. In the inheritance business, SMBC Nikko Secu- rities is strengthening its ability to respond to testa- mentary trust and estate planning needs by similarly strengthening cooperation, and the Company is moving forward with asset consolidation and acquiring transactions among the next generation. SMBC and SMBC Trust & Banking are also advancing proposals for currency diversification by utilizing the “PRESTIA” brand to address the risk of customers’ assets declining in value due to inflation, currency depreciation, and other factors. Expanding market share in the payments business In light of the acceleration of cashless and digitaliza- tion during the COVID-19 pandemic, we are promoting the standardization of mobile payment, where pay- ments, procedures, and services are completed on mobile devices. We are also aiming to attract users through convenience and benefits by enhancing added value through partnerships with non-financial services. For our business customers, we are promot- ing the introduce of multi-device “stera terminals” and “stera transit” for public transportation in order to respond to a variety of usage scenarios. We will also be improving convenience and benefit through the use of V-points, SMBC Group’s shared point system, includ- ing through external partnerships. In consumer finance, we are responding to a greater range of customer needs, such as financial needs spurred by the recovery of consumer spending and use of payment solutions and the digitalization of processes. Value Creation at SMBC Group Business Strategies for Creating Value Corporate Infrastructure Supporting Value Creation （年度） 計画 AM* & Foreign Currency Balances (JPY tn) 3-year increase +JPY 5 tn 13.0 Mar.23 Mar.24 Mar.25 Mar.26 * Mutual funds, fund wraps, etc. （年度） 計画 AM* & Foreign Currency Balances Sales Handled (JPY tn) AM* & Foreign Currency Balances (JPY tn) 20 (JPY tn) 50 15 20 40 計画 3-year increase +JPY 5 tn 3-year increase +JPY17 tn 3-year increase +JPY 5 tn 13.0 （年度） 10 15 30 20 5 10 10 0 5 0 0 30.2 13.0 Mar.23 Mar.24 Mar.25 Mar.26 ’22 ’23 ’24 ’25 (FY) Mar.23 Mar.24 Mar.25 Mar.26 Sales Handled Finance Balance (JPY tn) Sales Handled (JPY tn) 50 (JPY tn) 3 40 50 2.47 30.2 3-year increase +JPY17 tn 3-year increase +JPY 0.5 tn 3-year increase +JPY17 tn 30.2 ’22 ’23 ’24 ’25 (FY) Mar.23 Mar.24 Mar.25 Mar.26 ’22 ’23 ’24 ’25 (FY) Finance Balance (JPY tn) Finance Balance 3 (JPY tn) 2.47 3-year increase +JPY 0.5 tn 3-year increase +JPY 0.5 tn 2.47 Mar.23 Mar.24 Mar.25 Mar.26 Mar.23 Mar.24 Mar.25 Mar.26 20 15 10 5 0 30 40 2 20 30 10 1 20 0 10 0 0 3 2 2 1 1 0 0 PRIORITY STRATEGY Transformation into a digital model centered on “Olive” As cashless and digital transactions grow more pervasive, we are developing a new business model, one based on mobile-app transactions rather than in-store transactions. Through Olive, which seamlessly integrates bank account, card settlement, finance, securities, insurance, and other functions digitally, we will provide new integrated financial services to retail customers nationwide. While day-to-day procedures will be handled digitally at the customer’s convenience, the digital channel will be complemented by brick-and-mortar stores operated by a small number of staff in easily accessible business locations. We will pursue a hybrid model of digital and physical services through an “integrated group channels” approach that brings together consultants from the banking, securities, and trust sectors for high net-worth customers. For more information about Olive, see pages 070 and 106. Store (Aeon Mall Atsuta) Initiatives to Create Social Value By solving various issues related to our customers’ money, we are supporting abundant and safe lifestyles for all generations. In order to provide our customers with peace of mind and comfort in the era of 100-year lifespan, we are offering the “SMBC Elder Program” and “SMBC Digital Safety Box,” in which concierges respond to custom- ers’ non-monetary concerns and requests, and the “Family Network Service,” an information sharing appli- cation facilitating preparation against various family risks. In addition to financial services, we will continue to expand our service lineup in non-financial fields to support health, security, and a life worth living. We are also focusing on financial and economic edu- cation activities on a group basis, leveraging the knowledge and expertise of each group company. Based on the SMBC Group Statement on Sustainability, SMBC Group has set a KPI of providing financial and economic education to a total of 1.5 million people between FY2020 and FY2029. We will continue to expand the scope of the program to include schools, workplaces, and facilities for the elderly, while contributing to achieving a society in which everyone can obtain correct knowledge about money and live with peace of mind. Joint Seminar by SMBC and SMBC Consumer Finance at a High School in Ehime Prefecture 046 SMBC GROUP ANNUAL REPORT 2023 SMBC GROUP ANNUAL REPORT 2023 047 Business Strategies for Creating Value Wholesale Business Unit The Wholesale Business Unit contributes to the development of the Japanese economy by providing financial solutions that respond to the diverse needs of domestic companies in relation to financing, investment management, payments, M&A advisory, leasing and real estate brokerage services through a Group-wide effort. Net Business Profit by Business Unit in FY2022 Retail Value Creation at SMBC Group ¥ 221.6 billion 12 Business Strategies for Creating Value Corporate Infrastructure Supporting Value Creation Contribution to Consolidated Net Business Profit (FY2022) Wholesale ¥ 558.5 billion 32 Global ¥ 612.2 billion Gross profit (JPY bn) Expenses (JPY bn) Base expenses (JPY bn) Global Markets Net business profit (JPY bn) 35 ROCET1*2 ¥ 374.2 billion RwA (JPY tn) *1 Figures are after adjustments for interest rate and exchange rate impacts. *2 Figures exclude medium- to long-term foreign currency funding costs. 21 FY2022 Results YoY*1 773.7 293.3 290.0 558.5 14.6% 31.2 +22.3 (9.3) (4.3) +43.6 +3.4% +0.8 During the previous Medium-term Manage- and (2) establishing a sales structure that fully ment Plan, amid accelerating moves toward utilizes digital technology, we aim to (3) con- business restructuring by customers due to struct a high ROE business portfolio. the prolonged impact of the COVID-19 pan- We will focus on three business areas in demic and heightened geopolitical risks in particular: “growth support,” which aims to Russia and Ukraine, the Group as a whole aptly capture major financial events by supporting seized business opportunities for restructur- various growth opportunities in the corporate ing, etc. by proposing seasonal solutions, while lifecycle, such as real estate business and taking exhaustive control of expenses, result- startup support; “transformation support,” ing in a significant increase in net business which supports corporate transformation, profit. Furthermore, ROCET1 also landed high- including sustainability and digital trans- er than planned due to the promotion of high formation; and “creation of new business,” value-added and highly profitable businesses which takes on the challenges of corporate such as real estate business and LBOs, as well payment services and supply chain business- as a year-on-year decrease in credit costs. es through the creation of digital channels With the reversal of globalization, the end in order to develop future pillars of business of global monetary easing, the acceleration from new angles. of sustainability initiatives, and other para- We will contribute to the development digm-shift changes underway, it is necessary and re-growth of the Japanese economy by to move ahead with business transformation at solving our customers’ ever-changing and an even faster pace. In the new Medium-term sophisticated business challenges, growing Management Plan, by (1) creating and honing sustainably in step with them. a group edge by strengthening our expertise, Left Toru Nakashima Deputy President and Deputy President and Executive Officer Executive Officer Co-Head of Wholesale Co-Head of Wholesale Business Unit Business Unit Right Muneo Kanamaru Senior Managing Senior Managing Executive Officer Executive Officer Co-Head of Wholesale Co-Head of Wholesale Business Unit Business Unit 048 SMBC GROUP ANNUAL REPORT 2023 SMBC GROUP ANNUAL REPORT 2023 049 Business Strategies for Creating Value Wholesale Business Unit PRIORITY STRATEGY Creating and honing a group edge by strengthening expertise Consulting and execution capabilities to un- derstand and resolve increasingly complex and sophisticated customer needs while anticipating paradigm shifts will become even more important in the future. In the new Medium-term Management Plan, we will take on the challenge of creating business in new growth areas and further en- hance our consulting function by strengthening our expertise and creating new edges, while continuing to shift resources to existing growth areas such as growth support and transformation support, which were the subject of focus in the previous Medium-term Management Plan, and strengthening the group collaboration system to expand solution proposals. PRIORITY STRATEGY Establishing a sales structure that fully utilizes digital technology We aim to establish a new sales structure in order to provide higher value-added solutions and fur- ther strengthen advanced risk-taking functions. Through the timely shift of resources to growth areas, we will be strengthening both the “strong front office” and the “highly specialized solutions unit.” We will unlock resources by expanding areas of business that can be completed digitally through the creation of digital channels, data utilization and the use of AI. We will use these resources to strengthen our ability to respond to global management issues in large corporate transactions and to provide highly specialized solutions and proposals tailored to business char- acteristics in medium-sized corporate transac- tions, thereby further enhancing our ability to respond to our customers. s a e r a h t w o r g g n i t s i x E h t w o r g w e N s a e r a Growth support Real estate Startups PE fund Owner approach Transformation support Sustainability / Decarbonization Digital transformation Cashless New business creation Turnaround Group corporate settlement Asset backing / Management Supply chain Highly specialized solutions A digital approach Large enterprises Medium-sized enterprises Small and medium enterprises Sector coverage Real x Digital approach Global / Banking and securities partnership Centralized online provision of group company services New risk taking / Business creation Utilization of data / AI Digitalization of business processes Value Creation at SMBC Group Business Strategies for Creating Value Corporate Infrastructure Supporting Value Creation PRIORITY STRATEGY Building a high-ROE business portfolio Changes are also occurring in the Japanese financial market, such as expectations of higher yen interest rates from the end of 2022. While keeping these market anomalies in mind, we will carefully assess mid- to long-term trends and risks, and strategically invest assets in high-mar- gin products such as LBOs, real estate, start- ups and revitalization investment. We will also strengthen the fee business of each group com- pany by further deepening cooperation between SMBC group companies and investing manage- ment resources. In addition to these efforts to improve margins and non-asset business, we will also be taking on the challenge of asset-backed business leveraging group companies’ assets and functions. SMBC Nikko Securities SMBC Sumitomo Mitsui Card Co. Risk solution product expansion Risk-taking in high-profit areas Strengthen merchant business SMBC Trust Bank Strengthen real estate brokerage Sumitomo Mitsui Finance and Leasing Co. Strengthen non-asset business Initiatives to Create Social Value In FY2022, we established the Sustainable Solutions Division to strengthen our ability to respond to environ- mental and social issues and engage with our customers to support their decarbonization efforts. Under the new Medium-term Management Plan, we will promote the expansion of sustainable finance, engagement response, and various solutions to provide maximum support to customers who are working toward decar- bonization, and, from a long-term perspective, we will also work to create a new business that holds and sells renewable energy. In addition, to support startup companies, we will enhance our financing capabilities to accommodate our customers’ growth stages by enhancing our lending methods based on a new evaluation model and es- tablishing a new fund for startups. We will pursue economic value through the development of a unified group structure and contribute to Japan’s regrowth by revitalizing its startup ecosystems through collaboration with academia, global companies, and large corporations. Enhanced debt and equity functions SMBC Group Seed Industry Global enterprise, large enterprise, and sector collaboration e t a L Startups E a r l y Collaboration with academia Academia Middle Govern- ment Policy advocacy (JPY bn) 60 40 20 0 Startup Investment and Loan Values Three-Year Cumulative Total JPY135 bn 29 ’22 ’23 ’24 ’25 (FY) 050 SMBC GROUP ANNUAL REPORT 2023 SMBC GROUP ANNUAL REPORT 2023 051 Business Strategies for Creating Value Global Business Unit The Global Business Unit supports the global business operations of domestic and overseas customers by leveraging SMBC Group’s extensive global network and products and services in which we possess strengths. Net Business Profit by Business Unit in FY2022 Retail ¥ 221.6 billion 12 Wholesale Value Creation at SMBC Group ¥ 558.5 billion 32 Business Strategies for Creating Value Corporate Infrastructure Supporting Value Creation Contribution to Consolidated Net Business Profit (FY2022) Global ¥ 612.2 billion 35 Global Markets ¥ 374.2 billion Gross profit (JPY bn) Expenses (JPY bn) Base expenses (JPY bn) Net business profit (JPY bn) ROCET1*2 RwA (JPY tn) FY2022 Results YoY*1 21 1,205.2 637.9 598.9 612.2 10.4% 46.3 +144.4 +71.0 +57.2 +114.9 +2.2% +1.6 *1 Figures are after adjustments for interest rate and exchange rate impacts. *2 Figures exclude medium- to long-term foreign currency funding costs. During the previous Medium-term Manage- ing monitoring the growing impact of policy ment Plan, despite the business environment rate hikes in various countries on the real remaining volatile due to the COVID-19 economy and the foreign currency funding pandemic and the situation in Russia and environment. In addition, we will continue to Ukraine, we were able to significantly in- focus on new high-growth, high profitability crease gross business profit through flexible areas such as upgrading our global CIB busi- resource management. As a result, we also ness, including deepening collaboration with significantly increased net business profit and Jefferies, creating group synergies, strength- served as a growth driver for the entire group, ening the multi-franchise strategy though eco- even as we invested to expand operations, system development, and launching a digital such as strengthening our securities business bank in the U.S. and making upfront investments in our U.S. To achieve this business expansion and digital bank. diversification, it is also essential to construct We are also making steady progress with an operating structure that makes maximum initiatives aimed at mid- to long-term growth, use of the knowledge of the entire group, such as strengthening our global CIB business and to upgrade the governance system to by expanding our alliance with Jefferies, a meet our stakeholders’ high expectations. In U.S. securities firm, and increasing our in- addition, alongside addressing social issues vestments in countries in Asia that fall within in countries around the world, as a Japanese our multi-franchise strategy, and we feel that bank we also strive to provide value to Japa- these efforts have been met with a positive nese society and businesses. response. Every one of us will take ownership and Under the new Medium-term Manage- strive to achieve quality growth by unflinch- ment Plan, we will enhance our systems for ingly facing change. predicting and managing various risks, includ- Left Tetsuro Imaeda Deputy President and Executive Officer Co-Head of Global Business Unit Right Keiichiro Nakamura Senior Managing Executive Officer Co-Head of Global Business Unit 052 SMBC GROUP ANNUAL REPORT 2023 SMBC GROUP ANNUAL REPORT 2023 053 Business Strategies for Creating Value Global Business Unit PRIORITY STRATEGY PRIORITY STRATEGY Reinforcement of Global CIB and Global S&T Leveraging the team that we built under the previous Medium-term Management Plan, we will further reinforce our cross-selling capabilities by strengthening sector collaboration in terms of coverage and enhancing our ability to offer cross-product solutions that integrate banking, securities, and derivatives. One example is the strengthening of the strategic capital and busi- ness alliance with Jefferies announced in April 2023. We will be expanding our collaboration to include M&A advisory and equity-related ser- vices, and will work with Jefferies to establish a joint coverage structure. See page 069 for more information on how we are strengthening our partnership with Jefferies. We will also create a flexible portfolio after articulating the strategy for each customer segment. With the aim of building a high-quality Expand and deepen the U.S. business We have positioned the U.S., the world’s largest and most stable market, as our biggest growth driver, and will continue to expand and diversify this business. In the wholesale business, which is one area of focus, we will strengthen our global CIB business through initiatives including collabo- ration with Jefferies, etc., and also promote the use of investor funds based on our competitive edge in LBOs and infrastructure projects, etc., to expand our business efficiently. In addition, in order to flexibly capture market revenues in response to changing mar- ket conditions, we will strengthen our sales and trading operations and enter the retail business through the launch of a digital bank. See pages 076 and 102 for more information about our digital bank. client base, we will strive to acquire new cli- ents and tier-up in the sectors on which we are focused, while at the same time reducing and recycling low-profit assets such as project and trade finance, as well as assets in regions with low growth and excess competition. Net Business Profit from Overseas Securities (JPY bn) 50 Net Business Profit from Overseas Securities 40 (JPY bn) 49 49 April 2023 Strengthened capital and business partnership with Jefferies 22 April 2023 Strengthened capital and business partnership with Jefferies 22 27 27 ’19 30 50 20 40 10 30 0 20 10 ’22 ’25 (FY) Net Business Profit from Americas 0 Division (USD mn) ’19 ’22 ’25 3-year increase +500 Net Business Profit from Americas 2,500 Division 2,000 (USD mn) (FY) 1,500 2,500 1,000 2,000 500 1,500 0 1,000 500 0 1,344 3-year increase +500 CIB, etc. 1,344 CIB, etc. Digital Bank S&T AM etc. Digital Bank S&T AM etc. ’22 ’25 ’28 (FY) ’22 ’25 ’28 (FY) Value Creation at SMBC Group Business Strategies for Creating Value Corporate Infrastructure Supporting Value Creation Geopolitical risks New business areas Market fluctuations Climate change Stricter financial regulations Proactive responses to market fluctuations and overseas regulatory requirements Enhancement of corporate governance Strengthening of risk management functions Reinforcement of compliance • Integrated strengthening of global operations centered on Group CxO system • Generation of resources by diligently streamlining operations PRIORITY STRATEGY Building a resilient management foundation Given the number of rapid environmental chang- es currently taking place, we will closely monitor warning signs and build a resilient management foundation. In order to respond to the diversifi- cation of our businesses, such as the implemen- tation of our multi-franchise strategy and the opening of our digital bank in the U.S., we will vi- sualize the profitability of each business in terms of ROE and net income, and will continue to build a strong business portfolio by dynamically reviewing asset allocation in response to changes throughout the term of the Medium-term Man- agement Plan. Moreover, as our business ex- pands and diversifies, it is essential to strengthen risk management and governance systems, and upgrade operations. We will work as a single global entity to build management infrastructure that meets the needs of an increasingly complex business environment. Initiatives to Create Social Value In the previous Medium-term Management Plan, we formed specialized sustainable finance teams in each region, and worked to strengthen the Group’s overall pitching and solution capabilities through global collab- oration. In February 2023, we structured US$600 million/€700 million in multi-currency green bonds for a major U.S. chemical company to finance low-carbon hydrogen projects, including one of the world’s largest green hydrogen projects. By implementing multiple initiatives that enhance and leverage our knowledge of these advanced technologies, we have continued to maintain a strong presence and ranked second globally for green loan initiatives by value in FY2022. In the new Medium-term Management Plan, we will continue to address various key issues such as the Environment, Diversity, Equity & Inclusion (DE&I) and Human Rights, and Poverty & Inequality. In the sustain- able finance field, we will establish a global task force to accelerate the consolidation of knowledge and expertise, and develop an accompanying framework. We will also continue to expand our financial services in countries that fall within our multi-franchise strategy, including fi- nancial and economic education at Bank BTPN and rural microfinance at Fullerton India (now SMFG India Credit Company). Furthermore, as our business grows more diverse and complex, we aim to create an environment in which our professional employees throughout the world can leverage their diverse skills and values to play an ac- tive role in our operations and feel fulfilled in their work. (USD bn) 50 40 30 20 10 0 Sustainable Finance 2nd 1st 2nd ’20 ’21 ’22 (FY) League Table (Green Loan)*¹ KPI Number of microfinance borrowers*² +800 K people *1 Source: Dealogic *2 Bank BTPN Syariah, SMFG India Credit Company 054 SMBC GROUP ANNUAL REPORT 2023 SMBC GROUP ANNUAL REPORT 2023 055 Net Business Profit by Business Unit in FY2022 ¥ 221.6 billion Retail 12 Wholesale ¥ 558.5 billion 32 Global Value Creation at SMBC Group ¥ 612.2 billion Business Strategies for Creating Value Corporate Infrastructure Supporting Value Creation 35 Contribution to Consolidated Net Business Profit (FY2022) Global Markets ¥ 374.2 billion 21 Gross profit (JPY bn) Expenses (JPY bn) Base expenses (JPY bn) Net business profit (JPY bn) ROCET1*2 RwA (JPY tn) FY2022 Results YoY*1 457.8 112.5 110.0 374.2 16.7% 6.6 +49.2 +7.0 +7.8 +44.1 +1.8% +0.1 *1 Figures are after adjustments for interest rate and exchange rate impacts. *2 Figures include internal risk capital related to IRRBB (Interest-Rate Risk in the Banking Book). The Global Markets Business Unit is, as market transition from a world of low inflation and low risk professionals, committed to enhancing interest rates to an entirely different stage. risk-taking skills for our investment portfolio We achieved profitability through flexible while continuously supplying customers with rebalancing, in combination with controlling high level of value. risk in both equities and bonds. At the same To support these efforts, we are focused time, we maintained stable foreign currency on analyzing the various phenomena that oc- funding to meet the funding needs of custom- cur throughout the world based on the Three ers. Meanwhile, in sales & trading, we sought “I” s of Insight, Imagination, and Intelligence to develop a full understanding of customer in order to forecast the market trends that will needs so that we could address these needs emerge in the future. In short, we emphasize by providing optimal solutions. the capacity to discern the underlying essence The current market environment fea- of world affairs. tures ongoing uncertainty about the future. In Having risen since the second half of the addition, customer needs continue to become previous fiscal year, inflation remained high in more diverse, as indicated by the advance- FY2022 against a backdrop of various factors, ment of the digitalization trend and growing including global fragmentation. Interest rates interest in social issues. in many developed countries rose sharply, par- In order to continue to create solutions ticularly in the first half of FY2022, as central our customers will choose, even in such an banks focused on curbing inflation, but tempo- environment, under the new Medium-term rarily fell sharply in the second half of the year Management Plan, we will maintain and due to credit concerns following the collapse enhance our DNA, our strength, while striving of financial institutions in the U.S. It has been to evolve through challenges in new fields and a year of not only high volatility, but also of constant self-reformation. Business Strategies for Creating Value Global Markets Business Unit The Global Markets Business Unit offers solutions through foreign exchange, derivatives, bonds, stocks, and other marketable financial products and also undertakes asset liability management (“ALM”) operations that comprehensively control balance sheet liquidity risks and market risks. Masamichi Koike Senior Managing Executive Officer Head of Global Markets Business Unit 056 SMBC GROUP ANNUAL REPORT 2023 SMBC GROUP ANNUAL REPORT 2023 057 Business Strategies for Creating Value Global Markets Business Unit Value Creation at SMBC Group Business Strategies for Creating Value Corporate Infrastructure Supporting Value Creation PRIORITY STRATEGY Flexible portfolio management in response to market changes Overview of Portfolio Rebalancing PRIORITY STRATEGY Development of robust foreign currency funding base Turning point of trend Carefully-crafted risk control Dynamic portfolio rebalancing Turning point of trend The strength of the Global Markets Business Unit lies in its ability to dynamically adjust its portfolio to maxi- mize earnings by accurately capturing market trends through proactive observation of market fluctuations. By making use of the Three “I” s, each employ- ee collects and analyzes information with regard to various phenomena and thoroughly discusses these phenomena with others. Then, they make positions in accordance with the scenarios formulated through this work, after which they review the results and validity of these positions. The consistent application of this iterative process is the only way we can hone our ability to read the markets. Amid the current uncertain environment, we are placing an emphasis on risk control while taking on the challenge of increasing the sophistication of our portfolio management in preparation for upcoming investment opportunities. Now, market attention is be- coming focused on the BOJ’s monetary policy as well as that of other central banks, and we will seek oppor- tunities to build a portfolio with Japanese government bonds from a medium- to long-term perspective. PRIORITY STRATEGY Enhancement of capability to provide solutions through marketable financial products The Global Markets Business Unit is continuing to accelerate the development of the functions essential for responding to the risk-hedging needs associated with customers’ businesses and balance sheets and the risk-taking needs related to asset management and investment activities. Specifically, in order to meet our customers’ increasingly advanced and sophisticated needs, we are strengthening our ability to provide tailor-made proposals specific to each customer’s situation. We will continue to provide comprehensive solutions to our customers through the utilization of data and link- ages with electronic platforms for foreign exchange transactions. We will also accelerate the promotion of our securities business, particularly in the U.S. and Asia, and deepen our global collaboration to strengthen our sales system, providing a one-stop shop for a variety of products. Utilize data Identify risks Improve customer satisfaction Propose hedge solutions Tokyo U.S. Global Collaboration Fixed Income Equity Forex Expansion of Lineup Cash Securities & Repo Derivatives EMEA Asia ＄ Fed Global ALM € ECB Effects of monetary tightening Change in credit cycle ¥ Increasing Correlation BOJ • Effective management for cash flows and collaterals • Responsive strategy for medium-to long-term funding The Global Markets Business Unit is taking steps re- garding foreign currency funding to balance ensuring stability with pursuing cost efficiency so that we can continue to support customers’ businesses through lending. For this purpose, we make funding strategies by taking into account the structure of SMBC Group’s balance sheet and the market condition, along with seeking to expand our investor base and diversify funding methods. Initiatives toward these ends have included, in addition to regular foreign currency denominated straight bonds, issuing covered bonds and utilizing cross-currency repo transactions.* Going forward, we will continue to face head- winds in the funding environment, in the form of continued restrictive monetary policy in regions such as Europe and the U.S., ensuing potential credit concerns among financial institutions, and the emer- gence of geopolitical risks, but we will respond pro- actively from a long-term perspective, and promote stable balance sheet control. * Cross-currency repo transactions are forms of foreign currency funding backed by Japanese government bonds, etc. Initiatives to Create Social Value The Global Markets Business Unit regularly issues green bonds from which procured funds are only used for eco-friendly projects, such as renewable energy projects. In October 2015, we became the first Japanese private financial institution to issue U.S. dollar-denom- inated green bonds. In the years that followed, we proceeded to expand the scope of investors served with our green bonds, becoming the first private company in Japan to issue green bonds for individual investors in December 2018 and then issuing green bonds through a public offering in the U.S. in January 2021. To date, we have floated seven green bond issues in Japan and overseas, procuring a total of approximately US$3.1 billion. In these issues, we have carefully explained our sustainabil- ity initiatives to investors to foster mutual understanding. In December 2022, we also implemented our first green loan financing. SMBC Group possesses a strong track record in proj- ect finance for domestic and overseas renewable energy projects such as for solar and wind power generation. Going forward, we will continue to make further contributions to market growth and to environmental preservation as Japan’s leading issuer of green bonds. 058 SMBC GROUP ANNUAL REPORT 2023 SMBC GROUP ANNUAL REPORT 2023 059 Business Strategies for Creating Value Value Creation at SMBC Group Business Strategies for Creating Value Corporate Infrastructure Supporting Value Creation Using Digital to Create the Future of Finance The new Medium-term Management Plan sets out two directions for SMBC Group’s digital strategy: “Beyond & Connect” and “Empower Innovation,” and further develops the existing strategy with the aim of “evolving into a global digital solution provider that also creates social value by creating new businesses on the basis of the trust held in SMBC Group.” Specifically, through digital’s power to transcend and connect beyond boundaries (Beyond & Con- nect), we will work with a variety of partners to provide solutions that transcend business categories, companies, regions, etc., to further improve customer convenience and create and nurture businesses that will serve as the foundation of SMBC Group in the future. At the same time, in doing business, it is necessary to look at the state of global digitization, including in emerging economies, in the context of a complex and rapidly changing environment involv- ing a variety of events, such as the advance of technological innovation, demographic change, shifting values, and the rise of geopolitical risk. In order to respond to our customers’ ever-changing needs amid a transforming business environment, we will pivot the direction of our businesses according to the situation, transforming our business models to fit current trends. In addition, the creation of new businesses requires that we strengthen our framework for acceler- ating innovation (Empower Innovation). We will also accelerate the creation of systems to generate new seed businesses both within and without the company, by continuing our efforts to transform the com- pany culture through initiatives such as “Producing new CEOs” and internal social networking, together with the development of functions for the speedy creation of new businesses, such as establishing a corporate venture capital (CVC) arm to strengthen open innovation structures on a global basis and invest in startups. Direction of SMBC Group Digital Strategy Upgrading existing services Expansion of business areas Beyond & Connect Existing business areas SMBC Group New business areas Partners External platforms Accelerating innovation Empower Innovation Infrastructure improvements Transforming company culture Beyond & Connect 1 Expanding and Evolving Digital Services SMBC Group is expanding and visits, facilitates communication with evolving its various digital services doctors and hospitals, and enables under “Beyond & Connect,” one of sharing of medical data. These initia- the two arms of its digital strategy. tives are offered to individual custom- In this context, we are also focusing ers through partnerships with various on developing services in business companies and municipalities, areas that solve issues facing society including PARK WELLSTATE Senri as a whole and enrich lives, such as Chuo, a senior residence operated by healthcare, payments, and contracts, Mitsui Fudosan Residential. and some of our services function as infrastructure for wider society. In the medical field, we are supporting individuals to lead rich lives in the era of the 100-year lifes- pan. In March 2023, our subsidiary Plusmedi Corp. released “wellcne,” a In the payments field, in July new hospital visit support application 2023, a new company, BPORTUS, incorporating an information bank- was established through the merger ing service leveraging the trust held of two subsidiaries: NCore, which pro- in banks in terms of the safety and vides BPO services with cutting-edge security of personal data. Connecting ICT technology and know-how to the application to a medical insti- improve operational efficiency, and tution’s electronic medical record brees corporation, which provides or medical affairs system reduces PAYSLE, a paperless payment slip time and congestion during hospital service using electronic bar codes. By combining the strengths of the two companies, such as their ability to solve problems related to stream- lining billing operations and unique technological capabilities, we will accelerate the provision of efficient and convenient payment solutions that leverage digital technology. Akio Isowa Senior Managing Executive Officer Group CDIO Achieving synergies through integration 060 SMBC GROUP ANNUAL REPORT 2023 SMBC GROUP ANNUAL REPORT 2023 061 Business Strategies for Creating Value Expanding and Evolving Digital Services In the contracts fields, in July 5,000 companies already using the 2022, SMBC CLOUDSIGN, Inc., an system, it is one of the top-ranked electronic contract service provider, in Japan by number of users. Going began offering a new service called forward, we will continue to support “AI Contract Management,” which business-to-business transactions uses AI to support corporate con- by expanding functions to support tract management. With more than various aspects of contracting. Beyond & Connect 2 Initiatives for the Future In addition to our current efforts to we have started a proof-of-concept advanced technology and knowledge solve social issues, we are seeking experiment to commercialize Soul- in this field, we have established the new business opportunities in the Bound Token (SBT), which could be “Co-Creation Lab,” an open organi- Web 3.0 field, centered on tokens called non-transferable NFTs, and zation that will accelerate the study and games, to create businesses that are expected to be used for online of initiatives to implement “gaming will serve as the foundation of SMBC personal identification, etc. We have commerce,” combining games and Group in the future, and are promot- invited ideas from various depart- business. In addition, in February ing a variety of new initiatives with ments within the Company and are 2023, a basic agreement was signed partner companies. pursuing business possibilities across between 10 Japanese companies, led In the tokens field, in July 2022, the entire group. by the TBT Lab Group, to create the we began examining collaboration In the games field, we are “Japan Metaverse Economic Zone,” with HashPort Group, which has looking to provide new services in the which aims to develop the entire extensive knowledge in this field, game-x-metaverse space. Together industry by integrating real and digital chiefly with NFTs. From April 2023, with TBT Lab Group, which possesses technologies. hoops link tokyo 5th Anniversary NFT User Providing new experiences Co-Creation Lab Global Expansion Gaming Business Web 3.0/ Startup Collaboration as a collaborative partner/ participation in the Lab Providing business models in the Game x Metaverse space Value Creation at SMBC Group Business Strategies for Creating Value Corporate Infrastructure Supporting Value Creation Empower Innovation Creating Infrastructure to Advance Digital Business and Transforming Company Culture Under the other arm of the digital and third SMBC Group in Asia, with cate our digital transformation initia- strategy, Empower Innovation, we the aim of creating further added val- tives. are developing infrastructure to ue. In addition, in August 2022, a VR In May 2023, a condominium accelerate innovation and expanding space called “virtual hoops link” was management DX service born from an measures to achieve cultural trans- constructed, recreating the “hoops idea sent out by a young employee on formation. link tokyo” open innovation center in the internal social networking service In the infrastructure develop- Shibuya, and is being used for various “Midoriba,” and jointly developed with ment field, we have been developing purposes including voice and chat NTT Data NJK Corporation, became various systems, such as holding interaction, events, meetings, and the first project originating from our CDIO meetings to support the com- object displays. internal social networking service to mercialization of new digital busi- In terms of cultural transforma- be launched. A representative from nesses through rapid decision-mak- tion, we are fostering the bottom-up the Corporate Sales Division heard ing and resource allocation, and the creation of the culture required for about customers’ issues handling a establishment of open innovation creating new businesses, through series of complex condominium man- centers both in Japan and overseas. such measures including the “Mi- agement-related operations, which In a new initiative, we are aim- doriba” internal SNS, the selection of prompted the representative to take ing to create an ecosystem through young presidents for digital subsid- action on their own, embodying the partnership with startups, and in May iaries through the “Producing new idea of “breaking the mold.” In July 2023, we established the “SMBC CEOs” program, and open recruit- 2023, the president of BPORTUS, a Asia Rising Fund,” a CVC with a total ment for participation in specific new company created by the merger US$200 million together with an new business survey teams. We are of NCore and brees corporation, will incubator fund, with the primary pur- also taking measures to spread be chosen through an internal recruit- pose of investing in promising com- company culture through two digital ment process: initiatives not previous- panies and with a focus on Asia. This owned-media; “DX-link” and “Busi- ly seen at SMBC Group are steadily CVC will be linked to the multi-fran- nessNavi,” and by hosting the “SMBC taking shape, and we will continue to chise strategy of creating a second Digital Summit” event to communi- accelerate this momentum. Innovation hub Strengthen ties with local startups at the Silicon Valley Lab and Singapore office An innovation hub also present in VR: Creating virtual hoops link CDIO meeting Establish a system to support the commercialization of ideas through rapid decision-making In-house investment funds Establishment of a CVC together with an incubator fund to promote investment activities in Asia Infrastructure improvements Decision-making Business ideas CDIO Meeting Support bringing ideas to life Silicon Valley Lab virtual hoops link Creation of new businesses Transforming company culture Outbound media Communicate SMBC Group’s philosophy and digital initiatives both internally and externally Producing new CEOs Actively supporting internal startups and selecting young people to serve as presidents In-house SNS Mentoring by people with experience in new businesses, and operation of a community to support the commercialization of ideas Launch of “Condominium Management DX,” the first new business to originate from our SNS 062 SMBC GROUP ANNUAL REPORT 2023 SMBC GROUP ANNUAL REPORT 2023 063 Industrial companies/Creators ●SMBCグループの理念やデジタルの取組を社内外に 発信 Business Strategies for Creating Value Value Creation at SMBC Group Business Strategies for Creating Value Corporate Infrastructure Supporting Value Creation SPECIAL CONTENT Key Measures to Drive SMBC Group’s Future Growth P.066 1 Multi-Franchise Strategy Overseas Securities Business 2 P.070 Olive 3 P.076 U.S. Digital Bank SMBC Group has made a variety of investments to achieve growth that follows quality. In the previous Medium-Term Management Plan, we invested in local financial institutions in India, Vietnam, and the Philippines in addition to Indonesia, in which we have already invested, in order to accelerate our Multi-Franchise Strategy targeting high growth potential areas in Asia. In the U.S., we have made steady progress in building alliances that form the core of our strategy in overseas securities busi- ness, and worked to enter digital consumer banking business. In Japan, we have formed a partnership to strengthen online securities business, and that partnership also plays an important role in “Olive,” an in- tegrated financial service for retail customers. Under new Medium-Term Management Plan, we will firstly ensure that those investments become established businesses moving on the right track, and aim for their profit contribution as a growth driver through creating synergies by value up of investee companies and collaboration among SMBC Group. Bottom-line profit contribution (after amortization of goodwill) (JPY bn) 300 250 200 150 100 50 0 Invested capital: JPY 800 bn o/w JPY 510 bn invested Digital the U.S. Asia Aircraft leasing ’22 ’25 ’28 (FY) 064 SMBC GROUP ANNUAL REPORT 2023 SMBC GROUP ANNUAL REPORT 2023 065 Business Strategies for Creating Value Value Creation at SMBC Group Business Strategies for Creating Value Corporate Infrastructure Supporting Value Creation Key Measures to Drive SMBC Group’s Future Growth Indonesia Special Content 1 Multi-Franchise Strategy, Overseas Securities Business Efforts to Achieve the Multi-Franchise Strategy India In Asia, SMBC Group has positioned Indo- financial services. At the same time, we are nesia, India, Vietnam, and the Philippines committed to contributing to the further as target countries for our “multi-franchise growth of the overall Asian financial sec- strategy.” We are aiming to create a second tor and reinforcing SMBC Group’s growth and third SMBC Group by developing our strategy in Asia. full-line financial business, including retail, in In the previous Medium-Term Man- emerging Asian countries where high eco- agement Plan, we made investments and nomic growth is expected. acquisitions in our partners, laying the By deepening our cooperation with groundwork for growth in countries targeted our investment partners, we aim to build in our multi-franchise strategy, including a more granular support system for SMBC India, Vietnam, and the Philippines. This Group customers seeking to expand their has set the stage for the future platform business in Asia through the provision of development. local branch networks and a wide range of Large enterprise Corporate clients Small, medium and micro enterprises High net-worth customers Retail clients Mass and middle class I n d o n e s i a I n d a i i V e t n a m P h i l i i p p n e s 2013 24% 2014 40% 2019 92% • Commercial banking • Securities • Leasing 2021 74.9% • Real estate loans • Business loans 2022 Business partnership 2023 15% planned • Commercial banking • Digital bank 2015 35% • Auto loans • Unsecured loans • Mortgages • Unsecured loans • Credit card 2021 49% 2021 4.99% 2023 20% planned Investment ratio • Commercial banking • Auto loans • Credit card • Unsecured loans • Digital bank Vietnam The Philippines India Vietnam The Philippines In November 2021, we acquired a In October 2021, we acquired a 49% In June 2021, we executed a 4.99% 74.9% stake in Fullerton India, now stake in FE Credit, the leading local investment in RCBC, the sixth largest known as SMFG India Credit Compa- consumer finance company that local commercial bank in the Philip- ny, a non-banking entity catering to offers unsecured loans, installment pines in terms of asset size. Since the small and medium-sized enterprises financing, and credit card services, investment, we have been actively ex- and individuals. Since this invest- through SMBC Consumer Finance, ploring opportunities for collaboration ment, we have been leveraging the making it an equity method affiliate. with RCBC across a diverse range of SMBC Group’s customer base to pro- Since this investment, we have been business areas. Through our partner- vide solutions such as sales finance, extending various local financial ship with RCBC, we aim to enhance dealer finance, and workplace loans, services to SMBC Group’s customers, the convenience of local banking particularly to companies within the broadening our product and service transactions for SMBC Group cus- manufacturing industry that have lineup, and fostering collaboration to tomers and bolster our product and supply chains in India. In addition, stimulate further growth for FE Credit. service offerings. These include sus- SMBC Group strives to enhance its Moreover, we established a tainable finance and project finance presence in India and realize syner- business partnership in May 2022, for our wholesale customers, and gies through the provision of funding and a capital alliance in March 2023, wealth management as well as mass support and sharing of expertise with VPBank, a co-shareholder of FE market loans for our retail custom- accumulated both domestically and Credit and a rapidly growing com- ers. Additionally, we have initiated abroad. Furthermore, in a country like mercial bank in Vietnam. Through our collaborations on a broad spectrum India where financial services are yet partnership with VPBank, we aim to of topics, such as improving opera- to fully penetrate all regions, through further solidify our business founda- tional efficiency and leveraging digital SMFG India Credit Company, we are tion in Vietnam. This will be achieved technologies. In order to further contributing to financial inclusion by providing services to customers expedite these initiatives, we signed efforts by extending our services to who wish to expand their business an additional investment agreement rural areas where we have a strong in Vietnam, as well as by leveraging in November 2022 with the intention presence. the SMBC Group’s expertise in areas of acquiring up to a 20% stake in the such as trade finance, green finance, company. and credit cards. Multi-Franchise Strategy in ASIA 066 SMBC GROUP ANNUAL REPORT 2023 SMBC GROUP ANNUAL REPORT 2023 067 Business Strategies for Creating Value Key Measures to Drive SMBC Group’s Future Growth Further Collaboration and Synergy Creation In Indonesia, we made the local com- BTPN and establishing a framework These include convening meetings mercial bank, Bank BTPN, an equity for group collaboration. with the CEOs and key executives of method associate in 2013, which Beyond the one-on-one collabo- each of our Asian investee compa- was later consolidated and merged rations and synergies between SMBC nies and establishing the ‘SMBC Asia with PT Bank Sumitomo Mitsui Indo- Group and its investment companies, Rising Fund’, a corporate venture nesia in 2019 to acquire a full-line we are also building a network and capital entity that makes FinTech commercial banking platform. cooperative structure that includes investments to further strengthen the We plan to expedite the realiza- our investee companies, aiming to businesses of our partner companies. tion of our multi-franchise strategy in create further synergies. India, Vietnam, and the Philippines More specifically, we are imple- by fully utilizing the expertise we have menting various measures to rein- cultivated through managing Bank force SMBC Group’s platform in Asia. Initiatives to Strengthen Collaboration with Investee Companies SMBC Group is promoting collaboration among its their mutual understanding by sharing information investee companies with the aim of generating even about their individual business environments, growth greater synergies. In November 2022, we held the Asia strategies, and initiatives in the digital domain. In the Partners Executive Summit (APES) to facilitate mutual consumer finance sector, a common area of operation understanding and spark discussions about potential for all these companies, Sumitomo Mitsui Card Com- collaborations among these companies. pany and SMBC Consumer Finance presented their At APES, top management from Bank BTPN, initiatives and provided an opportunity for the investee SMFG India Credit Company, FE Credit, and RCBC companies to meet and discuss specific collaborative convened at the SMBC’s head office. They engaged in measures. Following APES, knowledge sharing has discussions with SMBC Group management to deepen advanced across various domains, and the pace of col- their understanding of the group’s vision, business laboration has accelerated, both between SMBC Group strategy, ESG initiatives, and governance policies. and its investee companies, and among the investee Further, the companies were able to enhance companies themselves. Value Creation at SMBC Group Business Strategies for Creating Value Corporate Infrastructure Supporting Value Creation Strengthening Our Overseas Securities Business One of SMBC Group’s key focus investment bank and capital markets partnerships in M&A advisory, as well areas is “strengthening Global CIB firm. In April 2023, we announced as equity and debt capital markets, and Global S&T,” with a particular plans to acquire an additional eco- primarily catering to large invest- emphasis on reinforcing our secu- nomic stake of up to 15% in Jefferies. ment-grade corporations in the U.S. rities and investment banking busi- Under an appropriate information We aim to deliver industry-lead- ness in the U.S., home to the world’s management and governance ing financial services by integrating largest capital markets and M&A framework, both firms will jointly SMBC Group’s global customer businesses. work to propose financial solutions base, lending, and debt capital In July 2021, we entered into to clients. These efforts will take markets capabilities with Jefferies’ a strategic capital and business place under the co-branding of both exceptional industry insight, M&A partnership agreement with Jeffe- firms. In addition to existing areas of advisory and equity capital markets ries, a leading U.S. based full-service collaboration, we aim to further our capabilities. SMBC Group’s Inorganic Strategy Investment Target We have set two axes: “investment to create a busi- 9.5% or more, and (3) manageable risk. Moreover, we ness platform for medium to long-term growth” and consider investment opportunities upon discussion “high asset and capital efficiency investment that can with outside directors and the CxO department, and be expected to contribute to profits in the short term.” adhere to strict discipline. In addition, we consider Investment Criteria and Discipline selling or replacing unprofitable assets or those whose strategic importance has declined. In the Based on our basic capital policy, premised on ensur- previous mid-term business plan, we terminated our ing soundness, of allocating capital in a way that bal- partnership with Eximbank in Vietnam and began a ances shareholder returns and investment for growth, partnership with VPBank. We conduct flexible reviews the three investment criteria are: (1) alignment with of our portfolio, and aim for more capital-efficient SMBC Group’s strategy, (2) an expected ROCET1 of investments. 068 SMBC GROUP ANNUAL REPORT 2023 SMBC GROUP ANNUAL REPORT 2023 069 Business Strategies for Creating Value Key Measures to Drive SMBC Group’s Future Growth Special Content 2 Olive Aiming to open the most accounts in Japan with Olive, a world-first using Visa’s new payment function See page 106 for practical examples of the FIVE VALUES of the project members. A roundtable discussion was held with members involved in the development of Olive, an integrated financial service for retail customers. Value Creation at SMBC Group Business Strategies for Creating Value Corporate Infrastructure Supporting Value Creation Ryosuke Ito Marketing Division Sumitomo Mitsui Card Company (SMCC) As project leader of “Olive,” oversees all aspects of development, product planning, and promotion. Takuya Ogawa Product Planning and Development Department Sumitomo Mitsui Card Company (SMCC) Engaged in product development for Flexible Pay, Olive’s payment function, as well as card design and UI/UX development of the application interface. Aisa Ikemoto Retail IT Strategy Department Sumitomo Mitsui Banking Corporation (SMBC) Engaged in planning and UI/UX development of the SMBC App that features Olive. Rie Sato Retail Marketing Department Sumitomo Mitsui Banking Corporation (SMBC) Engaged in product design, planning and develop- ment for Olive bank account benefits. Masaaki Kido Corporate Planning Department SBI Securities Oversees progress management, promotions etc., relating to Olive’s development on the SBI Securities side. Christopher Bishop Head of Consulting & Analytics Visa Worldwide Japan (Visa) Oversees coordination with the global development team for the delivery of the new Visa-developed payment functionality, including definition of requirements and progress management. 070 SMBC GROUP ANNUAL REPORT 2023 SMBC GROUP ANNUAL REPORT 2023 071 Business Strategies for Creating Value Key Measures to Drive SMBC Group’s Future Growth Value Creation at SMBC Group Business Strategies for Creating Value Corporate Infrastructure Supporting Value Creation Ito, SMCC: them to participate as the main digital Ito, SMCC: Ogawa, SMCC: Ito, SMCC: It brings me great pleasure to welcome brokerage. “Flexible Pay” is a world-first service in We were also very particular about the Thanks to the help of many people both all of you who have contributed to the * SBI Securities’ service to build mutual funds with Sumi- that it incorporates new payment func- design of the credit card. We worked inside and outside the Group, we were development of Olive, which launched in March 2023. Thank you all very tomo Mitsui Card Company. much. The Olive project began about Kido, SBI Securities: two and a half years ago, based on the SBI Group and SMBC Group signed a concept of offering SMBC and SMCC basic agreement on strategic capital products together in a single package, and a business partnership in April and the two companies have worked to- 2020. As part of this effort, we have gether on the question of how to make been providing partner services with this a reality. SMCC since June 2021, to offer credit Chris, Visa: tions developed by Visa, and we believe with Visa’s designers, had numerous able to launch “Olive” on schedule. For that competitors will not easily be able discussions with our in-house design- me personally, I can honestly say that I to follow suit. We are moreover confi- ers, and redid the design more than 30 am relieved that we were able to dent in both our technology and our times before it was completed. We re- successfully launch on schedule and service, as the application integrates ceived many highly positive comments that so many customers have joined so with SBI Securities, the number one on the design following the launch, and quickly. Can you tell us what your online securities firm and our superb we feel that it has become one of our thoughts were about this project? lineup of insurance products. In terms strengths. of promotions, SMCC already acquires The background to this project’s cards, V-points, and the Vpass App, For Visa, the challenge was how to the majority of its members online, and Chris, Visa: inception was the rapid digitization of with steady results. In June 2022, a improve the customer experience and is using the know-how it has accumu- There were many difficult moments banking transactions. Whereas 90% of comprehensive capital and business make cashless transactions safer and lated there to develop a combination on the development side, but we felt account openings were once handled partnership was announced between more convenient in Japan, which has of mass-media and digital advertising. a strong commitment from Mr. Ogawa in branches, in the past few years the two groups, and SBI Securities a low cashless payment ratio among With strengths in both merchandising and everyone at SMBC Group to make the percentage of accounts opened has given their full participation to the developed economies. Since we do and promotion, the odds are in our the customer experience even better. digitally has increased to more than “Olive” project. Despite being only not have direct contact with end-us- favor. 50%. To compete with online banks, about six months away from launch, ers, we believe the most effective way They have a spirit of taking on new challenges, and a culture of creating which are rapidly expanding their we were conscious that this project for us to get over our challenges is to Sato, SMBC: precedent. market share, Olive was born from the was symbolic as an integrated capital work together with our clients to drive As a megabank group, we have earned Ogawa, SMCC: idea of offering a comprehensive range and business partnership, which was a the change. This project was of great the trust of our customers over many Kido, SBI Securities: I have been involved in the launch of significance for Visa because we had the opportunity to contribute to Flexible Pay, an innovative service offered by SMBC and SMCC, our important clients even on the global level. of services from group companies and sobering thought. strong partner companies, with mobile transactions as a core premise. We have been working with SBI Securities since 2021 on projects such as “Sumitomo Mitsui Card Tsumitate-In- vestment,”* which is used by a large number of our customers. In order to develop this into “Olive,” we asked “Olive” was released on March 1, 2023 as an integrated financial service for retail customers. It is an entirely new service that seamlessly integrates bank account, card payment, finance, securities, insurance, and other functions within an application. years, and we also have a system in The SBI Group prides itself on its corpo- credit, debit, and prepaid products, so I place that allows customers to easily rate culture of taking on new challenges was conscious that Flexible Pay, which consult with us at our branch counters, with a startup spirit, and I am very integrates these products into one, is call centers, and chat rooms if they surprised that even in the huge organi- the culmination of my career. I think it encounter problems, which I think is zation that is SMBC Group, we can take was this strong desire to ensure a good an advantage that online-only banks on the challenge of providing such a product that allowed us to stick to our cannot offer. world-first service without compromise. commitment to the product and its design right until the very end. Ikemoto, SMBC: Ikemoto, SMBC: That’s right. It’s important to be close What you have both just said corre- Sato, SMBC: to our customers, and we have endeav- sponds exactly with SMBC Group’s With the help of the project’s members, ored to create a design that would be “Five Values,” and I am delighted that, my desire to absolutely succeed togeth- comfortable for both those who mainly in hearing people outside the company er, and to deliver “Olive” to our custom- use the SMBC App for account trans- talk about “Speed & Quality,” “Custom- ers as soon as possible, grew stronger actions, and those who mainly use the er First,” and “Proactive & Innovative,” each day. We were truly delighted with Vpass App for credit card transactions. our values are being conveyed. the great response following the launch, 072 SMBC GROUP ANNUAL REPORT 2023 SMBC GROUP ANNUAL REPORT 2023 073 Business Strategies for Creating Value Key Measures to Drive SMBC Group’s Future Growth Value Creation at SMBC Group Business Strategies for Creating Value Corporate Infrastructure Supporting Value Creation and we will continue to listen to our Ogawa, SMCC: members of the same team, even when Ikemoto, SMBC: Chris, Visa: Ikemoto, SMBC: customers and improve our products It is truly amazing that we have been working for different companies. There were many different opinions on Going forward, we intend to develop I check responses on social media and so that customers will continue to use able to bring forth a world first from the design and text of the application, functionality based on customer feed- respond to app store comments. We them. Japan to the world of finance. We could Kido, SBI Securities: and many things were not decided until back and needs, so that we can take receive many comments such as “it not have done it without the help of The culture in meetings did not stand the last minute. However, we were able SMBC Group’s “Flexible Pay” to the would be easier to read if the font size Ikemoto, SMBC: Visa. We are truly grateful for the on hierarchy: we could exchange frank to maintain our commitment, without next level. I’m pleased that through this project, countless times you have listened to our opinions with one other, saying things compromise, because the “Customer on the screen were a little larger.” We will continue to improve the application we have been able to add even more requests for help while you worked not like, “this is okay, this is impossible,” First” concept of valuing customers Kido, SBI Securities: closely reflecting customer feedback. superb services to the “SMBC App” and only on this project, but on so many and those discussions moved ahead was embodied in every team member, We have succeeded in creating a “Vpass App.” We will continue to make other projects around the world. smoothly. It was so hard to believe we and I believe we were able to create a system that allows customers to easily improvements, brining useful functions and great design to even more people. Kido, SBI Securities: “Olive” is a project that symbolizes the alliance between our group and SMBC group, so we were under a lot of pres- sure to make it a success. The “Olive” project has been the biggest project in my career, so I was quite nervous. Like Mr. Ito, I feel a great sense of relief now that the project is completed. Ito, SMCC: were from different companies. product that delights our customers as create an SBI Securities account by Chris, Visa: I always felt like we were working as one team. I’ve been involved in a range of projects in the past, but I think the sense of unity we had as a team on this project was remarkable. Sato, SMBC: Absolutely. During meetings, there was always an attitude of discussing “how a result. Ito, SMCC: opening an SMCC credit card or “Olive” account, but we will continue to develop the system to make it more seamless. Finally, I would like to talk about what We will also review the UI so that SMBC “Olive” is aiming for going forward. The Group customers feel more familiar with “O” in “Olive” symbolizes “circulation,” asset management, such as by provid- while “live” expresses our customer’s ing guidance on opening an SBI Secu- lives. The name “Olive” embodies the rities account together with promoting idea that our customers’ lives will flow “Olive” in SMBC storefronts. Ogawa, SMCC: more smoothly by using this product. Olives are green, like SMBC’s company Sato, SMBC: Even now, we are planning new services with the same volume as that of the ini- Looking back, as the launch date drew we can do it,” and I think the fact that color, and the design also incorporates We will listen carefully to customer tial launch. We will continue to improve Chris, Visa: closer, challenges appeared one after each company was able to maintain this our desire to become a new company, feedback at our branches, call centers, “Olive” by shortening the cycle with This was certainly a very memora- another, and at times I wondered if the mindset was a key factor in the success while preserving SMBC’s traditions and on social media, as well as to which we reflect customer feedback. ble project, both for Visa and for me project was even possible. Yet I believe of this project. and the relationship of trust with our requests from our branch employees, personally, as it is the first Visa product that one major factor in our successful from Japan, and Flexible Pay is the launch was everyone’s positive attitude, world’s first solution using Visa’s new that everyone demonstrated great pro- payment function. fessionalism in their respective roles as Flexible Pay is a world-first service by using a new feature developed by Visa that enables customer to choose credit card, debit card, and points payment (prepaid card) in a single card on an application in addition to cash card function. customers. As for numerical targets, and reliably respond to those requests. Ito, SMCC: we have set the goal of acquiring 12 million “Olive” accounts, and 5 million new cardholders per year, over the next five years. This target is premised on achieving top place for the number of accounts opened in Japan. Could you all talk about your efforts to achieve this goal? As everyone has said, there are many small improvements, and we have re- ceived customer feedback, so we would like to steadily reflect those improve- ments to make the product even better. We are planning to launch new services during FY2023, and I thank everyone for their continued support. 074 SMBC GROUP ANNUAL REPORT 2023 SMBC GROUP ANNUAL REPORT 2023 075 Business Strategies for Creating Value Key Measures to Drive SMBC Group’s Future Growth Special Content 3 U.S. Digital Bank Drive the growth of our U.S. business by providing new value through Jenius Bank See page 102 for practical examples of the FIVE VALUES of the project members. In 2023, SMBC Group launched Jenius Bank, its U.S. digital retail bank. John Rosenfeld, President of Jenius Bank, and Daisuke Tanaka, Managing Director and Joint General Manager, Strategic Planning Department, The Americas Division, discussed the background, current initiatives, and future plans for Jenius Bank. John Rosenfeld Daisuke Tanaka Jenius Bank President Head of Corporate Development, Deputy Head, Strategic Planning Dept., Americas Division Tanaka: In 2018, I was appointed to the Strategic Plan- Rosenfeld: Thank you. While I have worked in U.S. consumer ning Department, Americas Division, and the topic of growth opportunities in the U.S. market was already the subject of much discussion across the team. During such discussions, we gradually turned our attention to the idea of establishing a digital retail bank knowing that in order to realize future growth, we needed to expand into new business areas while also diversifying our USD funding capabilities. At first, we considered the possibility of investing in a U.S. regional bank. However, we banking for over twenty years, I really was not familiar with Sumitomo Mitsui Banking Corpora- tion. When Tanaka-san first approached me about joining the Jenius Bank project, I did some quick research, and I was quite impressed. I also realized that SMBC Group’s lack of presence in the U.S. consumer market could actually create some exciting competitive advantages. Tana- ka-san and I discussed how we could build the digital bank business truly from scratch, leverage some of the latest technology, and grow SMBC recognized that the importance of physical bank into a stronger bank. branches to consumers was decreasing due to digitalization. The concept of a digital bank was born based on our recognition of such issues, which in turn led to the Jenius Bank project. By positioning Jenius Bank as a division of Manufacturers Bank, a U.S. subsidiary of SMBC Group, we were able to launch Jenius Bank in a relatively short period of time by leveraging existing licenses. Furthermore, being able to work with John on the project, especially given his We would not be hampered by various obstacles and challenges that typically plague traditional banks. Traditional banks have ag- ing infrastructure and technology, extensive manual processing, and high cost branch and ATM networks, that really impede their ability to implement new digital technology. Additionally, traditional banks rely heavily upon punitive fee income to offset the high cost of their physical infrastructure, which impacts their customer experience in leading the digital bank of a major experience negatively. U.S. bank, was a big plus. Furthermore, the COVID-19 pandemic Value Creation at SMBC Group Business Strategies for Creating Value Corporate Infrastructure Supporting Value Creation accelerated the introduction of digital services ees with such diverse backgrounds that everyone in all business sectors throughout the world. The seemed to have different ways of doing things. At banking sector was no exception, and consum- first, this created some inefficiency and chal- ers selecting to substitute trips to physical bank lenges, but we recognized the benefits of diverse branches with digital services acted as a tailwind experience. We resolved this issue by creating for the establishment of Jenius Bank. “The Jenius Way.” We encouraged our team to These challenges, combined with the accel- share how they had done things in the past and erated adoption of digital services we saw during then we discussed the advantages and disadvan- the pandemic, have created an opportune time to tages of the various approaches. Together, we enter the market with a new and innovative value then decided how we would do things as a newly proposition. Since our business model does not combined team and called it “The Jenius Way”. It include the high cost of a traditional bank, we can allowed us to expedite internal decision making. pass on that saving to our customers with more I am confident that by leveraging the diversity of favorable pricing and no fees, creating a very our talent pool, we were able to produce optimal competitive offering while preserving our margins. solutions that made good use of a wide range of Tanaka: Leveraging its strengths as a digital bank, Jenius ideas and opinions. Bank has hired talent from throughout the U.S. The team became very skilled in utilizing and its approximately 270 employees perform online meeting and collaboration tools, but we the majority of their duties remotely. We devel- recognized the importance of face-to-face en- oped new ways of working remotely, which has gagements and how they led to stronger working proven to be a very compelling employee benefit, relationships. Once a month, our management while many other companies were forcing their team conducts meetings in Jenius Bank’s U.S. of- employees back into their offices. We had to be fices. In addition, we conduct biannual meetings flexible in our approach to ensure that our diverse in which approximately 100 employees in leader- talent pool could perform their duties in an effi- ship positions take part to reaffirm the direction cient and effective manner. As the project head, of strategies and strengthen existing initiatives. John always took great care to reflect employees’ Additionally, we started an all-employee call to views in our plans and operations. wrap up every week and recognize great work Rosenfeld: As we worked on the project, efficient consensus across the team. This became a very popular building between employees who were working meeting and we have maintained it to this day, remotely was the first key issue we had to over- now with about 270 people attending each week come. We had brought in so many new employ- to celebrate each other’s successes. 076 SMBC GROUP ANNUAL REPORT 2023 SMBC GROUP ANNUAL REPORT 2023 077 Business Strategies for Creating Value Key Measures to Drive SMBC Group’s Future Growth Tanaka: Many employees decided to join Jenius Bank because it was part of SMBC Group. They felt that Jenius Bank presented a unique opportunity to work in the digital bank sector using cutting- edge technology while being backed by the stable capital base of SMBC Group. The history and strength of SMBC, combined with its focus childbirth, children’s education, and the pur- on long-term sustainable growth is distinct from chase of homes and automobiles. We also plan many U.S. companies that focus more on the to expand our product line-up to meet the wealth short-term. John, how do you feel about SMBC management needs of customers that very often Group’s corporate culture? arise in later life stages. We have invested consid- Rosenfeld: SMBC Group’s Five Values resonated very strong- erable time in conducting preliminary research ly with me. “Customer First” and “Proactive & so that we are able to properly address such Innovative” play a key role in bringing the team needs. Our designs are driven by the “Voice of our together through a common mindset. These Customers.” values align perfectly with Agile ways of working Rosenfeld: Consumers have told us that they want to feel and customer-driven iterative design processes, more confident in the choices they have made which have become foundational in many of the most successful digital companies in the regarding their finances. As we dove deeper, we heard that people struggle simply to keep track world. We create a prototype of an idea, test it of all of their financial activities. On average, with consumers, refine our approach based on American consumers maintain accounts at 5.3 their feedback and then continually repeat that different banks or financial services companies, process. which is different than many other parts of the I’ve always liked to interact with people from world. This is driven by the fact that there are other countries and experience different cultures. more than 4,500 different banks in the U.S., more I’ve read books regarding Japanese business cul- than any other country. This highly competitive ture, and I was fascinated by how some of these market makes it more compelling for consumers cultural differences have driven such strong em- to shop around for different financial needs, but ployee work ethics and loyalty. Additionally, the it also leads to far more complex financial lives. approaches to build consensus, to drive sustain- Managing transactions with multiple banks can able growth, and to prioritize strength in compli- be cumbersome and make it difficult to obtain a ance and risk management over speed to market clear picture of one’s financial situation. or short-term returns, are very compelling. Tanaka: As we want to be our customers’ long-term partner, Tanaka: You brought up the key word “Customer,” and at we have placed considerable focus on our mobile Jenius Bank our target customers are individuals app as it will be the primary channel with most of that regularly use digital products and services as our customers. We are building a “hub” for our part of their everyday lives. customers that will allow them to see all of their Our vision is to become a platform that accounts across multiple banks in one place. We can meet the banking needs of our customers can then leverage this wealth of data and ad- throughout all their respective life stages. In the vanced analytics to help our customers analyze future, we will offer various products such as their spending, refinance their high-interest debt, home loans, automobile loans, and student loans and optimize their savings. This all ties back to our to meet the needs of customers for marriage, Jenius Bank purpose, “to help you live a richer life.” Value Creation at SMBC Group Business Strategies for Creating Value Corporate Infrastructure Supporting Value Creation Rosenfeld: While we all agree on the enormous power of data Tanaka: The U.S. market is enormous, and its growth ex- and the future potential of AI and machine learn- ceeds that of Japan in terms of both deposits held ing, we must not forget the significance of direct by traditional banks with physical branches and human interactions with customers. Some digital deposits held by digital banks. While many U.S. banks today do not even list a phone number on consumers remain loyal to the larger bank brands their website, instead they steer their customers due to their perception of stability, there is a tec- to automated services and chatbots. Once again, tonic shift happening that is driving consumers to we see this as an opportunity to differentiate from investigate alternatives. As we have discussed, competitors by “humanizing digital banking”. We consumers are accepting more digital-only have established a contact center where custom- services than ever before. They are also finding ers can contact a Jenius Bank expert 24 hours a that the lower-cost business models may offer day, 365 days a year by phone or chat. While this different capabilities and far more competitive is more costly than most digital and traditional rates. We intend to capitalize on those growing banks are willing to accept, we can afford to offer trends, but it may prove to be a hard nut to crack. this level of service based on the lower cost of our As such, rather than focusing on winning market infrastructure. share directly from major banks given the fluid Tanaka: With the backing of SMBC Group, Jenius Bank market conditions, we will focus on our target was able to receive significant investments from client base, present an innovative new value the very beginning. Through such investments, proposition, and develop a niche market. we are attempting to launch multiple products by Rosenfeld: I agree with Tanaka-san. It is important to main- establishing the necessary business foundations tain a long-term perspective and ensure that we in a short period of time. The start-up model remain consistent with our strategy. Specifically followed by Jenius Bank was made possible speaking, in terms of services, we will start by because we are part of a major corporation. With offering individual loans and then expand to the finance sector currently experiencing turbu- include savings accounts, checking accounts, lence, the backing of SMBC Group is a source of debit cards, and access to ATMs. We also plan on reassurance for Jenius Bank customers. further expanding our product line-up to include Rosenfeld: Technology will be one of our core strengths, as credit cards, automobile loans, home equity we are building Jenius Bank on one of the most loans, and student loans. We will bring all of this modern and proven core platforms in the world. together in an integrated customer experience Our new real-time banking core is constructed leveraging our capabilities, which will create a such that different capabilities are provided as network effect that continually increases the val- compartmentalized micro-services that commu- ue our customers realize with every new service nicate with each other through a standardized they accept from Jenius Bank. set of API messages. This allows us to “plug- Tanaka: Jenius Bank is not a project to drive SMBC and-play” new capabilities far faster and more Group’s growth just in the U.S. Rather, it is a key efficiently than almost any other bank today. project in SMBC Group’s global strategy. We will In traditional banking platforms, systems are enhance the value of the entire SMBC Group by generally siloed and hard-wired to one another, sharing the know-how and expertise we obtain making it very difficult and costly to implement from the Jenius Project with other business units. changes or take advantage of new innovation. In contrast, Jenius Bank’s new platform and archi- tecture enable us to rapidly refine our offerings as customers’ needs continue to evolve. Jenius Bank is a division of Manufacturers Bank. Member FDIC. 078 SMBC GROUP ANNUAL REPORT 2023 SMBC GROUP ANNUAL REPORT 2023 079 Business Strategies for Creating Value Value Creation at SMBC Group Business Strategies for Creating Value Corporate Infrastructure Supporting Value Creation Creating Social Value to Achieve Sustainability Achieving sustainability Create a society in which today’s generation can enjoy economic prosperity and well-being, and pass it on to future generations Creation of social value New materiality Environment DE&I/ Human rights Poverty & Inequality Declining Birthrate & Aging Population Japan’s Regrowth Expansion/worsening of social issues Changes to the metrics for measuring corporate value DNA Sustainability efforts of Mitsui and Sumitomo over long years Message from Group CSuO SMBC Group states that “we contribute to a sustainable society by addressing environmental and social issues” in its Mission. In the SMBC Group Statement on Sustainability, we commit to “creating a society in which today’s genera- tion can enjoy economic prosperity and well-being, and passing it on to future generations” so that we can solve social issues and create a better society. SMBC Group has also formulated the new Medium-Term Management Plan, the “Plan for Fulfilled Growth,” under which the creation of social value is identified as a pillar of management in light of the expansion/worsening of social issues and our impact on society being added as a factor for measuring corporate value. With the formulation of our new Medium-Term Management Plan, we revised the key issues (materiality) of SMBC Group for the first time in about a decade. Of the multitude of social issues facing the world, we have identified five issues to focus on in particular as our new materiality. These is- sues are the Environment, DE&I/Human rights, Poverty & Inequality, Declining Birthrate & Aging Population, and Japan’s Regrowth. We have also identified 10 goals for solving the five issues. In order to achieve these goals, it is important to incorporate efforts for solving our new material issues in the daily activities of SMBC Group and steadily execute those efforts. This involves enhancing dialogue within the company via internal social media and town hall meetings, as well as incorpo- rating the creation of social value in the items for evaluating business divi- sions and units, andi individual employees. Looking ahead, we will formulate detailed action plans for each material issue and endeavor to set and disclose impact-based KPIs that measure our impact on society. If we can visualize a new metric for measuring our impact and our efforts for solving social issues create a flow of money, which in turn will bring value back to us, then our efforts for creating social value will spread throughout society. In order to achieve such a society, it is important for the various constituents of society, such as government, corporations, individuals, and universities, to work together across boundaries. We at SMBC Group will contribute to building the foundation and market for such cooperation as the point of connection between our customers in diverse regions and industries across the world. SMBC Group aims to create social value in order to solve social issues while achieving economic growth, and make people living in such a society feel happy, or in other words, contribute to growth for happiness. As Group CSuO, I will make my best effort to provide leadership that enables the offi- cers and employees of SMBC Group to work together to solve social issues in accordance with our new Medium-Term Management Plan and newly defined material issues. Masayuki Takanashi Executive Officer Group CSuO 080 SMBC GROUP ANNUAL REPORT 2023 SMBC GROUP ANNUAL REPORT 2023 081 Business Strategies for Creating Value Creating Social Value to Achieve Sustainability Promoting Sustainability Sustainability Promotion System SMBC Group has established the Sustainability Committee and Corporate Sustainability Committee, responsible for supervising and executing, respectively, to continuously enhance our sustainability management. In April 2022, we also established the Sustain- ability Division in charge of planning and promoting both Value Creation at SMBC Group Business Strategies for Creating Value Corporate Infrastructure Supporting Value Creation Transition Plan to Realize Net Zero by 2050 2021 2022 2023 2024 2025 2030 2040 2050 New Medium-Term Management Plan corporate and business efforts, under the oversight of the Group CSuO. This division gathers functions and knowl- edge from across the group. Scope 1 and 2 (operational greenhouse gas emissions) 2030 Net Zero Commitment Switch to renewable energy SMBC head office Switch to renewable energy Self-owned buildings Achieve mid-term target Net Zero Board of Directors Sustainability Committee SMBC Group Management Committee Corporate Sustainability Committee Group CSuO (Chief Sustainability Officer) Sustainability Division Corporate Sustainability Department Company-wide planning and corporate responses Sustainable Solution Department Business planning and promotion Business development, solutions planning and development Efforts for Environment Efforts Relating to Climate Change SMBC Group earnestly strives to reduce greenhouse gas emissions in line with the goals of the Paris Agreement and support efforts for the transition and technical innovation of our customers, so that we can actively contribute to achieving net zero by 2050. • Governance The promotion of sustainability management at SMBC Group is the responsibility of group CxOs including the CEO, supervised by the Board of Directors, and adminis- tered under a robust governance system. In addition to our Board of Directors, internal committees such as the Sustainability Committee supervise and debate measures for tackling climate change. Concrete business strategies for tackling climate change are executed upon being deliberated and decided on in meetings such as manage- ment committees. In June 2023, we revised our executive compensation system to incorporate new quantitative ESG indicators including reduction targets for our portfolio greenhouse gas emissions in the medium-term perfor- mance-linked compensation. We are also strengthening our internal control in line with the movement for enhanc- ing sustainability-related disclosure standards. We have already completed the installment of an internal control evaluation system for TCFD disclosure. In the future, we plan to expand it to include other non-financial information such as natural capital. As further enhanced efforts are required to achieve net zero, we will accelerate our com- mitment while strengthening our functions for supervising progress. For information on our executive compensation system, see page 118. • Transition plan for achieving net zero by 2050 SMBC Group aims to achieve net zero for our own green- house gas emissions by 2030, and for our entire loan and investment portfolio by 2050. We have systemized the series of targets and actions in the transition plan. Set mid-term target Power, Coal, Oil & Gas Established phase-out strategy Scope 3 (portfolio greenhouse gas emissions) 2050 Net Zero Commitment Coal Loan balance for coal-fired power generation Loan balance for thermal coal mining Sustainable finance Orange: Published in May 2023 Set mid-term target Steel, Automobile Complete target setting for NZBA 9 sectors Achieve mid-term target Net Zero Established phase-out strategy Project finance 50% reduction from Mar. 21 Zero Balance for Project finance and Corporate finance tied to facilities Zero Balance OECD countries Zero Balance non-OECD countries ¥30 trillion to ¥50 trillion • Achieving Decarbonization via Support of Customer Transitions (1) Raised sustainable finance targets Large-scale capital investment and technical innovations for the medium to long-term reduction of greenhouse gas emissions will be essential to achieve a decarbonized soci- ety. As a financial institution, we recognize this as a busi- ness opportunity for providing new financial products and services. This is why SMBC Group has further enhanced our sustainable finance efforts, and revised our targets for FY2020 to FY2029 upwards from ¥30 trillion to ¥50 trillion. We strictly define sustainable finance in accordance with the green bond principles and social bond principles of the International Capital Market Association (ICMA). Sustainable Finance (Total) (JPY tn) Single fiscal year results KPI 50 (2) Support via decarbonization solutions We support decarbonization efforts of our customers via various solutions utilizing digital technologies. The Sustana cloud service developed by SMBC helps calculate and reduce greenhouse gas emissions by importing various types of data on the business of a customer. The service has a function for recommending reduction measures in addition to assisting disclosure, and since its launch in 2022, has been used by more than 1,000 companies. We will continue to contribute to the decarbonization of our customers by providing decarbonization support solutions that leverage the strengths of SMBC Group. 2.8 ’20 8.0 5.2 ’21 15.0 7.0 ’22 2.2 Portion considered green finance (single fiscal year) 3.4 1.4 30 10 years cumulative (2020 to 2029) (FY) 082 SMBC GROUP ANNUAL REPORT 2023 SMBC GROUP ANNUAL REPORT 2023 083 Business Strategies for Creating Value Creating Social Value to Achieve Sustainability Efforts for Environment • Efforts for Scope 3 We will sincerely strive to reduce our greenhouse gas emis- sions in line with the targets of the Paris Agreement while supporting the efforts of our customers towards transition and technical innovation. We are committed to achieving net zero for our Scope 3 emissions (portfolio greenhouse gas emissions) by the year 2050. In FY2022, we set medi- um-term reduction targets for the power, oil & gas, and coal sectors for the year 2030, in order to draw a path to these reductions. We also plan to set reduction targets for the steel and transport (automobile) sectors in FY2023, thus completing the setting of medium-term targets for the nine sectors required by the NZBA (Net-Zero Banking Alliance), an international banking initiative for achieving net zero. Phase out strategy for coal sector In order to reduce our portfolio greenhouse gas emissions, we are proceeding with efforts to make our policy for financing the coal sector stricter and formulate a phase out strategy. More specifically, we have announced that we will not support projects for expanding or creating new coal-fired power plants or thermal coal extraction busi- nesses, and set a goal of zero loan balance, as indicated in the graph on the right. • Efforts for Scope 1 and 2 SMBC Group has set a target of achieving net zero Scope 1 and 2 emissions (our operational greenhouse gas emissions) by the year 2030. In May 2023, we set new medium-term targets of a 40% reduction by FY2025 and a 55% reduction by FY2026, compared to FY2021. Major reduction efforts include switching our power use to re- newable energy. In April 2023, we completed our switch to renewable power at all our buildings in Japan and the head office buildings of our major group companies in Japan. In the future, we will further accelerate our global efforts for the entire group, including our overseas offices. Path to Scope 3 Reduction 2021 Announced commitment to net zero by 2050 2022 Set mid-term- reduction targets for power, oil & gas, and coal sectors Calculation of estimated sectoral emissions First half of FY2023 2023 Set medium-term targets for steel and automobiles sector 2024 Completion of mid-term target-setting in NZBA 9 sectors Loans for Coal-fired Power Generation During FY2023 Complete mid-term reduction target-setting in majority of Scope3 (JPY bn) Loans for Coal-fired Power Generation Approx.270 Project finance (JPY bn) Loans for Coal-fired Power Generation Approx.270 Approx.230 (JPY bn) Approx.270 Approx.230 Approx.230 Approx.80 Approx.80 Mar. 22 Approx.80 Mar. 21 Mar. 21 Mar. 22 Loans for Thermal Coal Mining Mar. 22 Mar. 21 (JPY bn) Loans for Thermal Coal Mining c.56 (JPY bn) Loans for Thermal Coal Mining c.56 (JPY bn) c.56 Corporate finance (tied to facilities) Project finance Corporate finance Project finance (tied to facilities) Corporate finance (tied to facilities) Zero balance FY3/41 (FY) Zero balance FY3/41 Zero balance (FY) FY3/41 Non-OECD countries (FY) OECD countries Non-OECD countries OECD countries Non-OECD countries OECD countries c.20 c.20 Mar. 22 c.20 Zero balance Zero balance 2030 Zero balance 2040 Zero balance (FY) Target sector Target sector Mar. 22 Target assets Target assets Target sector Target sector Mar. 22 Target sector Target sector Target assets Target assets 2030 Zero balance Thermal coal mining projects, and companies whose main business are thermal coal mining 2040 Loans (total of corporate finance and project finance) Thermal coal mining projects, and companies whose main business are 2040 thermal coal mining Thermal coal mining projects, and companies whose main business are Loans (total of corporate finance and project finance) thermal coal mining Zero balance 2030 (FY) (FY) Target assets Target assets Loans (total of corporate finance and project finance) Scope 1 and 2 results and targets (1,000 t-CO2e) Scope 1 and 2 results and targets 177 (1,000 t-CO2e) Scope 1 and 2 results and targets 167 Mid-term targets 40% reduction Mid-term targets 55% vs FY2021 reduction 40% baseline Mid-term targets vs FY2021 reduction 55% baseline 40% vs FY2021 reduction reduction baseline 55% vs FY2021 vs FY2021 reduction baseline baseline vs FY2021 baseline 2026 2025 177 (1,000 t-CO2e) 177 167 167 2021 2022 Net zero 2030 Net zero (FY) Value Creation at SMBC Group Business Strategies for Creating Value Corporate Infrastructure Supporting Value Creation • Risk management (1) Risk Appetite Framework (RAF) In order to achieve our net zero target, we manage our credit portfolio using the “Risk Appetite Framework” for risk management over the entire group. In April 2023, we added new climate related categories to the framework and added our portfolio greenhouse gas emissions as management indicators. We will manage our emissions by sector and business division in line with the 1.5°C scenario. For information on the risk appetite framework, see page 126. (2) Risk management in financing We have established a due diligence framework in order to appropriately manage the impact that our business has on the environment and society. When considering whether to invest in large-scale projects, we conduct environmental and social risk assessments based on the “Equator Prin- ciples” and utilize non-financial information such as the greenhouse emissions of the business operator and how it responds to climate related risks. Enhancement of Climate Related Risk Management • Scenario analysis In order to understand and manage the financial risks associated with climate change, we conduct scenario anal- yses of physical and transition risks. In regard to physical risks, water-related disasters are expected to account for a majority of natural disasters caused by climate change. We calculate expected water level rises and the likelihood of flooding in various climate change scenarios, and estimate additional credit related costs that will be incurred by SMBC lending to business enterprises. Regarding transi- tion risks, we use the 1.5°C scenario to estimate additional credit related costs that will be incurred by lending to sectors which are expected to be highly impacted by the transition to a decarbonized society. Through enhance- ment of analysis methods and expansion of target sectors, we will identify the financial impacts of climate change in more detail and utilize this information to improve risk management across SMBC Group. Physical Risks Hazard map AI technology including satellite imagery 2C scenario and 4C scenario (IPCC) Traditional metrics New metrics Expected increase in credit-related costs (up to 2050) (1) Portfolio management Risk-weighted assets Portfolio greenhouse gas emissions (2) Account planning Credit risk, etc. (3) Data governance Financial information + Climate-related risks Transition risk and others Non-financial information Cumulative ¥67-85 billion Transition Risks Energy Power Automobile Steel 1.5C and 3C scenarios (IEA and NGFS) Expected increase in credit-related costs (up to 2050) ¥2.5-28 billion each year Release of Transition Finance Playbook T o accelerate global decarbonization, it is essential to finance the transition of hard-to-abate sectors that have limited technical and economic alternatives for decarbonization and face challenges in the transition to a low-carbon economy. That is why in May 2023, SMBC Group released the Transition Finance Playbook, which defines criteria for supporting transition finance. This playbook was created in accordance with national/regional policies and regulations in addition to international guidelines for transition finance. For details, refer to the SMBC Group website. https://www.smfg.co.jp/english/sustainability/materiality/environment/business/pdf/tfp_en.pdf Column Transition Finance Transition Finance Playbook Playbook 084 SMBC GROUP ANNUAL REPORT 2023 2021 2022 2025 2026 2030 Net zero (FY) 2021 2022 2025 2026 2030 (FY) SMBC GROUP ANNUAL REPORT 2023 085 Business Strategies for Creating Value Creating Social Value to Achieve Sustainability Efforts for Environment Contribution to Conserving and Restoring Natural Capital We believe that in order to conserve the global environ- ment, it is essential to achieve “nature positive” results to halt and reverse the loss of natural capital, in addition to tackling climate change. To achieve this, we consider a framework for appropriately evaluating and disclosing risks and opportunities regarding natural capital, and promote various initiatives. • Release of TNFD Report In April 2023, we released the SMBC Group 2023 TNFD Report, which details our concept of natural capital. This report follows the framework recommended by TNFD to analyze the relationship between our business and natural capital and areas that we should focus on in particular, and identifies risks and opportunities to indicate the direction of our efforts regarding natural capital. • Nature Positive Initiatives FANPS* An Alliance to support companies’ efforts to strengthen nature positive initiatives Mirai Farm Akita Putting a sustainable food and agricultural management model into practice The Reforestation Fund Investing in funds which focus on afforestation of South America For details, refer to the SMBC Group website. https://www.smfg.co.jp/english/sustainability/materiality/ environment/naturalcapital/pdf/tnfd_report_e_2023.pdf * Finance Alliance for Nature Positive Solutions Column Furano Shizen Juku S MBC Group has been supporting the activities of Furano Shizen Juku led by screenwriter Soh Kura- moto since it was established. Since 2006, the Furano Shizen Juku has been involved in reforesting a closed golf course in Furano, Hokkaido and conducting a field-based environmental education program to encourage people to think about the global environment. The SMBC Group actively assists these efforts by employees volunteering to help reforesting and sponsoring a university environmental program for young people who wish to become teachers. For details, refer to the SMBC Group website. https://www.smfg.co.jp/furano/ Value Creation at SMBC Group Business Strategies for Creating Value Corporate Infrastructure Supporting Value Creation Efforts for DE&I / Human Rights Promoting DE&I More than 110,000 diverse employees work at SMBC Group in Japan and 38 other countries and regions. In order to enable employees with diverse backgrounds to flourish and build a virtuous cycle to create new social value, we have positioned DE&I/human rights as one of our materiality. For information regarding our employee DE&I, see page 096. • Pro-bono projects As one measure for achieving diverse work styles, we promote pro-bono activities. This system allows some work time to be used for such activities, and our employees can utilize the specialized knowledge and skills that they gain during work to help solving social problems, via projects linked with NPOs and other organizations. Respect for Human Rights • Basic concept of human rights SMBC Group fulfills our responsibilities for respecting human rights of all stakeholders including our customers, suppliers, employees, in accordance with our “Statement on Human Rights.” We identify various negative impacts that may have on the rights of our stakeholders and strive to prevent, mitigate, and remedy them. Fulfilling our re- sponsibilities for respecting human rights through these efforts will help us gain the trust of society, and ultimately improve our corporate value and contribute to creating positive impacts on society. SMBC Group Prevent, mitigate “negative impact” on human rights, and enable remediation Secure trust by fulfilling responsibility for human rights Various stakeholders Customers Employees Investors NGOs Suppliers • Enhancement of human rights due diligence We conduct human rights due diligence in accordance with international standards such as the “United Nations Guiding Principles on Business and Human Rights”. In specific terms, we identify and evaluate negative impacts on human rights, incorporate measures for preventing and mitigating negative impacts in our internal procedures, track and verify the effect of measures, and disclose the series of efforts, as well as building governance to support our human rights due diligence and promoting awareness within the company. Done Strengthened Strengthened Identify, analyze, and assess impact on human rights Formulate control measures in accordance with assessment Disclose series of activities Track the effectiveness of control measures Strengthened Strengthened • Disclosing information on human rights In May 2023, we published a human rights report in order to disclose appropriate and highly transparent information on our efforts for respecting human rights. Based on this report, we will continue to engage in dialogue with our stakeholders, while striving to promote further activities and expand information disclosure. For details, refer to the SMBC Group website. https://www.smfg.co.jp/english/sustainability/ group_sustainability/forrights/Human_Rights_Report_e.pdf 086 SMBC GROUP ANNUAL REPORT 2023 SMBC GROUP ANNUAL REPORT 2023 087 Business Strategies for Creating Value Creating Social Value to Achieve Sustainability Efforts to tackle Poverty & Inequality • Efforts for the next generation of children Poverty & inequality is one of the serious social issues in Japan. Children born to poor families have fewer opportu- nities for extracurricular learning and practical activities than other children and are unable to develop their innate talents. If these children cannot escape from poverty before they become adults, their children will also be born to poverty, in what is known as an intergenerational cycle of poverty. SMBC Group aims to break that cycle by collab- orating with other companies and NPOs. Poverty ratio of children in Japan: 13.5%* Opportunities for education, after school activities, and taking on challenges Overcome poverty Income disparities remain Cycle of poverty/inequality beyond generations Provide opportunities to break the negative cycle Conduct impact assessment NPOsNPOs Companies Companies *Source: Ministry of Health, Labour and Welfare • Efforts for financial inclusion We are actively involved in promoting financial inclusion with a focus on developing countries by expanding the pro- vision of financial products and services to individuals who lack bank accounts and businesses that have difficulty ob- taining financial services. For example, we provide finance to small and medium-sized businesses, expand financial solicitation to individuals without bank accounts, promote financial services that do not require a bank branch, such as mobile banking, and provide financial literacy programs. KPI Number of microfinance borrowers +800 K people • Efforts for financial literacy programs SMBC Group implements SMBC Group Financial Literacy Programs in order to create a society where everyone has correct knowledge and capabilities for decision making regarding money and can live with security. In order to further popularize financial literacy programs in Japan, we collaborated in planning the financial literacy certificate of the Kinzai Institute for Financial Affairs, as well as the joint production of textbooks. KPI Financial literacy programs provided to 1.5 million people FY2020 to FY2029 Value Creation at SMBC Group Business Strategies for Creating Value Corporate Infrastructure Supporting Value Creation Efforts to tackle Declining Birthrate & Aging Population In an age where people can live as long as 100 years, we provide customers with various types of support in addition to financial products and services, so that they can enjoy living a healthy and meaningful life. For example, we have support systems to meet the various needs of our custom- ers, including non-financial needs. Some examples are the SMBC Elder Program, which appoints dedicated concierg- es to individual elderly customers to provide both financial services such as banking and non-financial services of partner companies, as well as the Family Network Service, which enables customers to take care of elderly family members via a smartphone app. Build Prepare Eliminate financial concerns Build asset Prepare for retirement Enrich post-retirement life NISA/iDeCo Investment trust Foreign currency Insurance Borrow Mortgage/education loans Gather Convey SMBC Digital Safety Box Leave Estate clearing/will trust Secured Affluent SMBC Elder Program Introduction of nursing care facilities, etc. Support for a more prosperous life Enjoy Watch over Family Network Service Efforts for Japan’s Regrowth We make full use of our financial functions to prompt customer business model changes via diverse risk taking and efforts such as support in DX, while also contributing to new industrial development and strongly encouraging the autonomous regrowth of Japan. In order to provide finance solutions as a group in line with the growth stage of our customers, we have set a KPI for investment and loans of ¥135 billion in startups over three years. We also support the building of a startup ecosystem via entrepreneurial assistance and business matching. Column Seed Early Middle Later Debt financing Sophisticate lending method through new valuation model Learning support programs in cooperation with major educational institution and NPO S MBC Group collaborates with the Kumon Kumon style education Financial literacy program Tablets for learning, etc. Children’s home Institute Education to provide children in children’s homes with Kumon style education, financial literacy education by volunteer employ- ees, and tablets for learning. We also collaborate with Chance for Children to provide children from economically challenged families with coupons for a wide variety of extracurricular activities. In addition to financial support, SMBC Group plans to be involved in program planning and management via employee staffing and pro-bono activities at the organization. NEW Equity financing Funding SMBC Asia Rising Fund US$ 200 million Enhance value of our investees in Asia by developing businesses with growing companies NEW Growth fund Support to incubate unicorns in Japan IPO support Business Business co-creation co-creation Decarbonization Decarbonization Token business Metaverse Investment and loans for startups ¥135 billion in 3 years ¥300 million in financial support (over 3 years) Employees SMBC Group Study Coupon Cram school Lessons Innovation Support for startups Mirai Cross • Provided mentoring to 400 startups (since 2015) • Support for business collaboration Expand business matching network Support for academia Consulting / dispatching workforce 088 SMBC GROUP ANNUAL REPORT 2023 SMBC GROUP ANNUAL REPORT 2023 089 Human Resource Strategies to Support Value Creation Takashi Kobayashi Senior Managing Executive Officer Group CHRO The environment surrounding our business is changing faster than ever before, and together with the growing importance of issues such as “sustainability,” “digital,” “global,” and “compliance,” our responsibili- ties to society as a company are also increasing dramatically. In order to respond to increas- ingly complex and serious social issues and to meet increasingly diverse and sophisticated customer needs, SMBC Group has established the basic policies of “creating social value,” “pursuing economic value,” and “further strengthening our management foundations” in its new medium-term management plan beginning from FY2023. Further diversification and specialization of human resources, the most important driving force behind the execution of the new medium-term management plan, is also essential. To respond to the transformation of our business port- folio, we will make strategic efforts to build a human resources portfolio focusing on specialized personnel in fields such as digital, compliance and human resources able to drive global business. At the same time, employee values and work perspectives are diversifying alongside the transfor- mation of society, and changes in the relationship between companies and employees are increasing the mobility of human resources and intensifying competition for talent. With a view to SMBC Group’s sustainable growth, we will continue to review our ap- praisal systems and the way we treat our employees in a timely and appro- priate manner to ensure that we are an “employer of choice,” and we will further accelerate our transformation from traditional HR operating styles, including a review of operations that emphasize age-based seniority. We will further promote DE&I with an emphasis on individuals taking on challenges and growing au- tonomously to create an environment where diverse professional human resources can demonstrate the best of their abilities. We will also strive to enhance the sophistication of human resource management by establish- ing a fair evaluation system based on skills and performance. We aim to achieve a virtuous cycle in which employees repeatedly take on challenges and grow, and contribute to the development of customers and society by providing added value, thereby enhancing the corporate value of SMBC Group. As Group CHRO, I will personally take the lead in taking on challenges and transformation, and will increase opportunities for dialogue with em- ployees through town hall meetings and seminars, and for internal com- munication by the Human Resources Department, so that the vision the company and its employees are aiming for can spread throughout the group and our human resource capabilities are maximized. People in SMBC Group at a Glance*1 Number of SMBC Group employees*2 (March 31, 2023: Changes since March 31, 2020) 116,000 persons Retail Business Unit Wholesale Business Unit Global Business Unit Global Markets Business Unit Head Office Administration Unit 37,000 persons 9,000 52,000 1,000 17,000 (7,000) persons persons +1,000 persons persons +23,000 persons persons (0) persons persons (2,000) persons EMEA 3,000persons ASIA 47,000 persons JAPAN 62,000 persons +0 persons +20,000 persons (7,000) persons AMERICAS 5,000 persons +2,000 persons Male 51.9% 50s and over 25.8% Gender ratio Age Ratio Female 48.1% 40s 23.7% 20s 17.5% 30s 33.0% New graduate recruitment Percentage of female graduate hires 1,098 (Joined April 2023) persons 37.5% (Joined April 2023) Voluntary retirement rate Average years of service 4% (FY2022) 15.4 (March 2023) years Total annual training costs ¥3.95 (FY2022) billion Number of participants in training programs for young and mid-career employees 26,000 (FY2022) persons/year Experienced hire rate 30.7% (FY2022) Absenteeism*3*4 2.9% (FY2022) Average training time 21 (FY2022) hours/year *1 Unless otherwise noted, data are for employees hired in Japan by the nine major group companies *2 Group, consolidated *3 Sumitomo Mitsui Banking Corporation, non-consolidated *4 Percentage of employees with at least one day of absence or leave of absence in a year 090 091 SMBC GROUP ANNUAL REPORT 2023SMBC GROUP ANNUAL REPORT 2023Value Creation at SMBC GroupBusiness Strategies for Creating Value Corporate Infrastructure Supporting Value CreationBusiness Strategies for Creating Value Business Strategies for Creating Value Value Creation at SMBC Group Business Strategies for Creating Value Corporate Infrastructure Supporting Value Creation Human Resource Strategies to Support Value Creation Creating and Sharing SMBC Group Talent Policy In addition to changes in the management and business the best results as a team,” and “carry on, stay bold even environment, employee values have become more diverse if challenging,” based on the premise that they are mem- due to generational changes in business leaders, promo- bers of a global financial group with great responsibility to tion of female empowerment in the workplace, and the society and operate with a DE&I mindset, which actively growth of experienced hire recruitment. In line with this accepts values that differ from their own. change, the relationship between companies and employ- At the same time, we are pushing our employees who ees is shifting from one of mutual dependence to one of are working to realize these goals to achieve their dreams: choosing and being chosen. we provide an environment in which they can express their Inheriting the business spirit and culture of Mitsui and individuality, opportunities to contribute to customers and Sumitomo, which have long emphasized people, character- society by leveraging our business foundations, and sup- ized by the lines “Mitsui is its people” and “Business is peo- port for career development and growth. ple,” and in order to continue being a place where diverse In order to spread and implement this policy, we will employees can gather, grow and play active roles, SMBC be updating the criteria and items of personnel evaluations Group clearly states in the “SMBC Group Talent Policy,” in line with the SMBC Group Talent Policy, and further “what SMBC Group want employees to be” and “employee emphasize competence rather than hiring year or age for Value Proposition.” promotions and advancement. Employees are expected to “carry out their respon- sibilities as professionals,” “respect others and pursue The SMBC Group Human Capital Management Model In accordance with SMBC Group Talent Policy, we will creation of human resources portfolio that is linked to the advance measures that contribute to “1. Creating human Group’s strategies while maximizing team performance. resources portfolio that supports our strategy” and “2. We are also realizing the aspirations of our employ- Supporting employee growth and wellbeing” and “3. Max- ees by creating an environment that maximizes individual imizing team performance” for all employees in order to employee performance within teams by supporting growth maximize human resources capabilities through group and and wellbeing. global human capital management. Maximizing human resource capabilities and realizing In line with this, we will review our evaluation system, both management strategy and employees’ aspirations will compensation system, and other platforms, and further lead to achieving our management philosophy, together expand our human capital investment. For example, SMBC with the creation of both economic and social value. In is increasing its human capital investment in FY2023 by addition, one of our ten goals for creating social value, “cre- 7% compared to the previous year. Moreover, we are not ating a workplace where employees feel fulfilled in their simply increasing the amount of investment, but investing work,” increases the value that SMBC Group can provide to strategically and effectively in focused areas while verifying its employees, creating a virtuous cycle leading to further the effectiveness of the investment using various profitabil- human capital investment. ity indicators we have defined. This will ensure the achievement of management strategy by optimizing staffing and investments through the The SMBC Group Human Capital Management Model HR Initiatives Path to Value Creation SMBC Group Talent Policy What SMBC Group expects employees to be Professional Collaborative Agile Employee Value Proposition Be Yourself Make a Difference Build Your Career 1 Creating a human resources portfolio that supports our strategies Human capital investment 2 Supporting employee growth and wellbeing 3 Maximizing team performance Maximize human resources capabilities Realizing our management philosophy Realization of management strategy Realization of employees’ aspirations Economic value Social value 1. Creating a Human Resources Portfolio that Supports Our Strategy A Human Resources Portfolio to Support Business Strategy SMBC Group will upgrade its human resources portfolio management as a framework for securing the human resources needed to achieve its business strategies and re- allocating human resources to strategic areas. Specifically, the business units, which have deep business knowledge, and the human resources department, which possess- es deep human resources knowledge, work together to clarify the human talent requirements, such as experience and skills needed, for each key strategic area. Identifying gaps between the desired talent portfolio and the existing portfolio of employees belonging to each business unit, the Human Resources department expands mid-career re- cruitment and enhances hiring process for new graduates for a specific course. All employees are identified by their human resources type based on their experience and skills, and we strive to train and flexibly optimize the allocation of human resources. Leading Investment in Focus Areas To ensure the “further strengthening of our business foundations,” one of our business strategies, we will con- tinue to secure human resources, especially in the fields of Legal & Compliance, Risk Management, and IT. In order to secure human resources with skills and expertise in digital transformation and analytics to promote “business model reform in domestic market” and global skills and know- how to support overseas business development, we have identified specific talent requirements for each business in Japan, and plan to deploy a total of 1,400 employees over three years through mid-career recruitment and internal reallocation. Plan for Human Resources Investment in Focus Areas (3 years) Business strategy Further strengthening of our business foundations -Quality builds Trust- Pursuit of economic value -Transformation & Growth- Focus area Legal & Compliance, Risk Management, IT Human resources planning (3 years) +1,000 persons DX,Analytics +300 persons Global +100 persons 092 SMBC GROUP ANNUAL REPORT 2023 SMBC GROUP ANNUAL REPORT 2023 093 Business Strategies for Creating Value Value Creation at SMBC Group Business Strategies for Creating Value Corporate Infrastructure Supporting Value Creation Human Resource Strategies to Support Value Creation Acquiring Human Resources with Special Skills Recruitment of people with special expertise We hire experienced skilled persons and also strengthen course-specific recruitment for new graduates to respond career conscious candidates. For example, SMBC newly established three courses focus on data science, cyber- security and risk analysis. SMBC group is also expanding such style of recruitment. Certifying specialists We have established a system to certify employees who possess and demonstrate high levels of expertise in a par- ticular area. There are 31 fields in SMBC’s expert/specialist framework, and certified individuals are provided com- pensation depending on their level. JRI’s IT Professional Certification System certifies those with digital expertise to contribute to the strengthening the digital domain through- out the Group. Sumitomo Mitsui Card Company has further established a Digital & Marketing Skill Certification System, among other measures, to create an environment in which human resources throughout the Group can maximize performance. Alongside these efforts, we will promote the further in- dependent growth of employees with expertise, and secure and develop professionals in each field by establishing a framework that enables appropriate evaluation of expertise in each field of business, with a focus on priority areas, and a compensation system tailored to the characteristics of the business. Number of Persons Certificated Specialist Number of certified persons Mar. 22 Mar. 23 1,230 persons 1,652 persons Digital 343 persons 577 persons Investment banking 419 persons 531 persons Governance 108 persons 103 persons 2. Supporting Employee Growth and Wellbeing Securing Human Resources to Support the Group’s Development SMBC Group expects all employees to be professionals with a sense of responsibility in their respective positions who are able to provide high value-added services. To this end, we provide a wide range of growth opportunities regardless of the time, place, or type of employment, and strive to develop human resources that will support the Group’s development. Recruitment and training of human resources For new graduate recruitment in FY2022, more than 2,000 employees participated in recruitment and public relations events, providing students with opportunities to understand our operations and company culture. For new employee training, we send employees representing each department as lecturers to help new employees under- stand the wide variety of banking operations and to support their career development. We are also planning to increase the number of experienced hires, and are expanding our recruiting methods to include referral recruiting, comeback recruiting, and direct recruiting. Mid-career Recruitment-related KPIs FY2021 FY2022 Ratio (Number of hires) Ratio of management positions 20.3% (278) 15.8% 30.7% (487) 18.0% Target for FY2025 30.7% 18.0% We have also established a system for human re- source development through on-the-job training, in-service training, and self-development, and in addition to the efforts of each group company on its own, we are actively engaged in training and transfers for a wide range of talent, from new recruits through to executive officers, on a group and global basis. In FY2022, more than 10,000 people participated in group joint training, and 1,100 people participated in group joint new hire training. In addition, for global talents development who leads global business, we offer various training programs for employees from offices around the globe, including the leadership training for management-level employees delivered in partnership with The Wharton School of the University of Pennsylvania in the U.S., INSEAD in France and joint programs such as the Global Japan Program where locally hired employees are assigned to departments in Japan, with approximately 150 participants. generating innovation through the formation of personal networks and the broadening of values. Framework to Support Independent Career Development Independent career development Each employee sets his or her own career aspirations and goals, and develops his or her career independently through feedback in interviews with supervisors and 1-on- 1 opportunities. The Human Resources Department provides a total of more than 7,000 hours of communication with employ- ees annually. Among the 5,500 transfers made annually, we actively transfer mainly young employees across divi- sions and group companies, in so doing supporting career development that takes advantage of SMBC Group’s broad business foundations. We also aim to achieve the best mix of “job-based” and “membership-based” approaches, which are gaining attention in Japan, while developing a framework for career paths that allow each employee to develop his or her expertise around a specific field of work. We have various other systems in place to support employees’ independent career development and career diversification. For example, in addition to an open recruit- ment system in which employees can apply for jobs and posts within the Group, some Group companies promote the development of human resources with business skills and experience in diverse areas through an external dis- patch system in which employees gain experience outside SMBC Group for a period of time, and internal side-jobs in which employees devote part of their working hours to work in another department. Sumitomo Mitsui Card Company and SMBC Finance Services also allow side- jobs, including employment at other companies, with the aim of supporting independent pursuit of challenges and FY2020 FY2021 FY2022 Number of applicants 1,171 persons 1,595 persons 1,693 persons Pass rate 31% 32% 30% Open recruitment system External dispatch through open recruitment Use of side-job system (including internal) 7 persons 117 persons 22 persons 183 persons 19 persons 318 persons Furthermore, to support employees’ learning, we have established a system to support a portion of the cost of attending graduate school and acquiring various qual- ifications, together with a comprehensive learning portal, “SMBC Group eCampus,” which allows employees to learn necessary knowledge and skills on their own initiative, and we are expanding the content of this portal. Work-style Reform Creating an environment that fits employees’ lifestyles As the lifestyles and values of individual employees be- come increasingly diverse, SMBC Group is developing infrastructure enabling employees to work flexibly without being constrained to a particular location or set hours. We are supporting employees’ self-actualization by enabling employees to choose working styles that fit their own life- styles, including activities outside of work. Furthermore, in order to create a work environment where employees can play an active role while balancing work and childcare, we also encourage male employees to take at least 30 days of childcare leave. Working hours Place of work Operational efficiency • Flextime system • Staggered working hours • Four-day workweek • Systems to prevent overwork (System to ensure sufficient intervals between shifts, consultations with an occupational physician) • Remote working (home or satellite offices) • Workplace choice system • Digitalization of business operations (use of RPA, etc.) • Paperless operations Encouraging employee self-actualization Networking Family time Side job or concurrent positions Self-development (including systems and initiatives at some Group companies) 094 SMBC GROUP ANNUAL REPORT 2023 SMBC GROUP ANNUAL REPORT 2023 095 Business Strategies for Creating Value Value Creation at SMBC Group Business Strategies for Creating Value Corporate Infrastructure Supporting Value Creation Human Resource Strategies to Support Value Creation Employee Well-being Health management Each of our Group companies has instituted a Statement on Health Management, and under the leadership of the Chief Health Officer, the company, health insurance as- sociation, and health support center are working together to create an environment in which employees are healthy and lively. More than 1,600 employees have participated in health seminars on topics such as wellbeing and fertility treatment, as well as walking events and expanded sys- tems and training on women-specific health issues. In FY2022, a lactation room and running station for use by all SMBC Group employees was installed at SMBC’s head office and East Tower. In addition, a total of 6,222 people from 404 departments participated in walking events held by Sumitomo Mitsui Card Company and SMBC Finance Services in FY2022, leading to the establishment of exercise habits and revitalized communication. In recog- nition of these efforts, the Company has been certified as a “Health & Productivity Stock Selection 2023.” Employee asset formation initiatives As part of our efforts to create an environment in which employees can concentrate on their work, we are also making efforts to help them build their assets. In Japan, in addition to the system of property ac- cumulation savings and stock ownership plan, we have introduced a dormitory and company housing system, a group insurance system, a retirement allowance, a defined benefit pension plan (DB), and a defined contribution pension plan (company DC). We have also introduced external services that pro- vide access to a wide range of services at preferential pric- es, including accommodation, restaurants, sports facilities, certifications, childcare, and more. 3. Maximizing Team Performance Enhancing Human Resource Management and Flexible Organizational Management Group management personnel development and succession management Candidate successors are identified and systematically trained for key management positions. For example, for posts responsible for management of the Group, in addi- tion to identifying candidates available to immediately take over, we prepare training plans to fill in missing experience according to the readiness of a given candidate. We also conduct the “Group Management Personnel Exchange Program,” in which candidates are transferred between Group companies to deepen their understanding of differ- ent businesses, organizations, and climates, with a total of 20 participants each year. State of Key Posts Eligible for Successor Management Ready 89 persons Within 5 years 91 persons Future candidates 174 persons Number of candidates Approval Readiness* 3.2x 3.3x 6.4x * Number of candidates as a percentage of posts eligible Agile organizational management The Marketing Division of Sumitomo Mitsui Card Compa- ny and SMBC Finance Services are implementing agile organizations to strengthen customer responsiveness and increase speed. We have created “squads” to which the most suitable members are assigned cross-departmentally according to the mission and KPIs set to meet customer needs. Mem- bers are periodically swapped to create an environment in which a wide range of experience can be gained. Promoting Diversity and Inclusion For SMBC Group, promoting Diversity and Inclusion is the very essence of our growth strategy by which to provide greater value to our customers and achieve sustainable growth together with our stakeholders. In FY2023, our Di- versity & Inclusion Statement will be revised to incorporate the concept of “equity,” which emphasizes the provision of fair opportunities based on employees’ circumstances, and to clarify the goal of aiming to be an “innovative organiza- tion with diverse perspectives.” Gender diversity To promote women’s empowerment in the workplace, we are working to recruit women, train candidates for manage- rial positions, and provide support for career advancement and steady promotion to managerial positions. Although senior management has committed itself to promoting DE&I through regular discussions at meetings of the Board of Directors, the Management Committee, and the Diver- sity and Inclusion Committee, we recognize there remain challenges in terms of diversifying decision-making layers of the organization, and these efforts need to be advanced further. For example, in FY2015, SMBC Nikko Securities introduced a system under which executives and depart- ment managers act as mentors to support the growth of female managers (mentees) through dialogue, with the aim of producing managers with managerial perspectives, with approximately 120 mentees participating. In support of LGBTQ community, we are offering in- house employee benefits and welfare rules for same-sex partners and set up an external consultation desk respond to various work-related consultations involving gender identity and sexual orientation. At overseas offices, the Employee Resource Group (ERG), which advances enlight- enment of the LGBTQ community, hosts awareness-raising events both internally and externally, and SMBC Group also sponsors these events. In Japan, we are actively supporting the development of networks of allies through continuous aid and donations for external events and distribution of ally goods to those who have participated the events. Global diversity The group has established the Global Talents Management Council as a framework for increasing transparency of promotion of locally hired employees, and for developing talents on a global basis regardless of hired location. For example, SMBC provided career opportunities by moving across the region for more than 500 employees in FY2022, with the aim of developing talent that is broadly familiar with a range of business markets in various coun- tries and regions and who drive the growth of businesses on a global basis. Through the expansion of global mobility across regions, we will accelerate the diversity and work- place where diverse professional talents aim high regard- less of hired location. KPIs Concerning Gender and Internationality Jun. 22 Jun. 23 Target for FY2025 Target for FY2030 13.3% 20.0% 22 15 30 21 – 30 25 30% – – Mar. 22 Mar. 23 Target for FY2025 Target for FY2030 17.2% 19.1% 25% 30% Percentage of Women on the Board of Directors Number of officers Females Foreign nationals Ratio of female managers Supporting the empowerment of people with disabilities To promote understanding of how people with disabilities can play an active role in the company, we hold seminars in which athletes with disabilities affiliated with the Group take the stage, and roundtable discussions on the theme of “what is means to be truly barrier-free,” with the aim of creating a rewarding workplace for all employees. In addition, SMBC Green Service, a special subsidiary, has created a workplace environment in which all employees, including approximately 500 employees with disabilities, can work and play an active role with peace of mind in both hard and soft aspects, including the introduction of a voice transcription system and face-recognition monitors, as well as a system for rehabilitation into work and full-time em- ployment support counselors. Employee Engagement The engagement survey is used as a tool to visualize em- ployee engagement; in addition to organizational improve- ments made in each organization, monthly 1-on-1 meet- ings are used to build trust between supervisors and their juniors, and to promote both parties’ growth. This will foster an organizational culture in which employees are aware of issues and motivated to improve, are able to exercise their abilities to the fullest in their respective positions, and can take on a range of challenges. Engagement Score Trends 73 68 73 69 72 67 KPI 70 Overall Score “Challenging Culture” score ’21/3 ’22/3 ’23/3* * Expanded scope of data collection (SMBC only up to Mar 2022) 096 SMBC GROUP ANNUAL REPORT 2023 SMBC GROUP ANNUAL REPORT 2023 097 Business Strategies for Creating Value Value Creation at SMBC Group Business Strategies for Creating Value Corporate Infrastructure Supporting Value Creation People who Embody Our Five Values FIVE VALUES 1 Integrity Natsuko Kugai Customer Service Plaza SMBC Consumer Finance As a professional, always act with sincerity and a high ethical standard. I joined SMBC Consumer Finance as a new and that investment is required for building as- graduate in 2013, and since moving to the Cus- sets, as well as helping society, the economy, and tomer Service Plaza, which was located in Omiya companies develop. At the end of my seminars, I in 2016, I have been working as a speaker for the make sure to tell everyone how important it is to Financial Literacy Education Program. At first, I think about how to use and manage money. was not good at speaking in front of others, and Up until now, only SMBC Consumer Finance I remember my hands shaking when I held the was in charge of these seminars, but from FY microphone at my first seminar. 2022, we have speakers from all over SMBC Our seminars are held at junior high schools, Group. As financial professionals, we lead finan- high schools, universities, and vocational colleges cial literacy education, but the quality of our sem- across Japan, and feature both classroom learn- inars is further improved by having representa- ing and presentations where students think about tives from Sumitomo Mitsui Banking Corporation, how to use money. To get the students interested, SMBC Nikko Securities, and Sumitomo Mitsui I ask questions like “How much would it cost to Card Company talk about their respective fields have a wedding in Cinderella Castle at Disney- of expertise. All of our speakers are passionate land?” and include both quizzes and other work. about teaching students, and I was very happy to With the lowering of the legal age of adult- learn how many people in SMBC Group want to hood in April 2022, there is greater danger of be involved in financial literacy education. Of our students becoming involved in financial trouble. Five Values, I can feel Team “SMBC Group” and I This has led to requests for seminars from many believe that we all embody Integrity. schools, and I can tell that financial literacy edu- In order to achieve financial wellbeing, it cation is becoming more important. is important to gain knowledge on how to use When I hold seminars, I go through a pro- money correctly. I will continue to provide many cess of trial and error to figure out how I can people with opportunities to do so via seminars convey stories about wealth management and around the country, and I hope that I can convey how money and happiness are intertwined. I try that money is something we have to think about to teach students that money is required for living on our own. away from home and achieving one’s dreams, 098 SMBC GROUP ANNUAL REPORT 2023 SMBC GROUP ANNUAL REPORT 2023 099 Value Creation at SMBC Group Business Strategies for Creating Value Corporate Infrastructure Supporting Value Creation Business Strategies for Creating Value People who Embody Our Five Values FIVE VALUES 2 Customer First Maho Uchiyama Elder Concierge Sumitomo Mitsui Banking Corporation Always look at it from the customer’s point of view, and provide value based on their individual needs. I am currently working as an Elder Concierge in and he was thinking about moving into a nursing charge of the SMBC Elder Program service, which facility. When I visited his home, I found the house started in April 2021. In my previous job, I was in was filled with his wife’s clothes, from floor to charge of wealth management consultation for ceiling, and he could not even reach the Buddhist about 12 years, but I became ill and had to take altar on the other side. I said “You really need half a year off to recover. When I returned to work, to be able to make offerings at the altar. Maybe I found that I was no longer the main person at my your late wife brought me here so that I could do job, and had a really tough time. This was when something about this situation. Cleaning up your I decided to apply to work at Sumitomo Mitsui house would be good for your mind.” He agreed Banking Corporation, who told me to “come with to clean up the mountain of clothes and opted to confidence, as we have many opportunities for use a service from one of our business partners. you to flourish.” I ended up joining the company After doing this, he decided not to move to the as a Money Life Partner in 2018, then became an nursing facility, and continued living at home. Elder Concierge in 2021. Once a fan of radio controlled vehicles, I heard We charge our customers a monthly fee that he is now amusing himself flying drones, and for the SMBC Elder Program, so I thought that I enjoying his new lifestyle. He told me that the should not only create added value through the SMBC Elder Program changed his way of thinking service guidance and procedure support that I and his outlook on life, and that he was happy provide, but also create added value for myself. that he met me, which made me feel even more In addition to learning about the services of our satisfied about my job. partner companies that I can suggest to our I enjoy my job every day, find it fulfilling, and customers, I have also earned qualifications to am able to work independently. I am now thinking be an organization and storage advisor, as well about getting certified as a housing environment as qualifications to be an end of life counselor, coordinator. “I am an Elder Concierge that takes so that I can empathize with my customers and care of my customers” is something that I hope to think about what we can do together. be able to say with confidence. One of my customers left a particular im- pression upon me. His wife had passed away, 100 SMBC GROUP ANNUAL REPORT 2023 SMBC GROUP ANNUAL REPORT 2023 101 Business Strategies for Creating Value People who Embody Our Five Values Value Creation at SMBC Group Business Strategies for Creating Value Corporate Infrastructure Supporting Value Creation FIVE VALUES 3 Proactive & Innovative Megumi Omae Strategic Planning Department, The Americas Division Manufacturers Bank & Sumitomo Mitsui Banking Corporation Embrace new ideas and perspectives, don’t be deterred by failure. I currently work in the United States at Jenius consensus, I believe it is important to collect ac- Bank, the digital retail banking division of Manu- curate information and cooperate together while facturers Bank, where I am involved in marketing, persuading those around us. It is also important PR, and planning. to constantly confirm that the team members are I joined Sumitomo Mitsui Banking Corpora- heading in the same direction. tion in 2010, and was assigned to the Hirakata We have sessions for conveying the culture Branch in Osaka, where I did office work for of SMBC Group in periodic off-site meetings, and opening customer accounts and giving advice the Five Values are deeply entrenched in the on wealth management. Based on a desire to team at Jenius Bank, making us an organization expand my horizons, I switched my job title to that truly embodies the values of SMBC Group. I the one with broader career path in 2014, where believe that our team has high ethical standards, I was in charge of providing services for wealth as we realize the necessity of protecting the trust management and inheritance to high-net-worth built up by SMBC Group over its long years of individuals. history. I then moved to the U.S. in 2021, after jump- Every one of us is united in our desire to ing at the opportunity to apply to join a project for provide better services, and we are free to ex- launching a digital retail banking business in the press our opinions regardless of our position, country. Being involved in the launch of a new which fosters active discussion of diverse talking business is a precious opportunity, and I felt that points on a regular basis. I strive to be an interme- there was tremendous potential for digital retail diary between Jenius Bank and Sumitomo Mitsui banking in the rapidly growing U.S. market, which Banking Corporation and approach my job with a is why I decided to volunteer for the role. Despite high level of motivation, and I believe that this has my job being in the same retail banking industry helped my self-growth. This is the first time for as before, the culture and environment in the U.S. SMBC Group to launch a retail business across is completely different from that in Japan, and I the U.S. I hope that I can help create a solid foun- find this challenging yet extremely satisfying. dation and strengthen our business, while never The people working at Jenius Bank are forgetting our Proactive & Innovative spirit, so from various companies and have diverse back- that we can provide services that our customers grounds and histories. To build team member need over the long term. 102 SMBC GROUP ANNUAL REPORT 2023 SMBC GROUP ANNUAL REPORT 2023 103 Value Creation at SMBC Group Business Strategies for Creating Value Corporate Infrastructure Supporting Value Creation Business Strategies for Creating Value People who Embody Our Five Values FIVE VALUES 4 Speed & Quality Takuya Kondo Private Corporate Advisory III Dept. SMBC Nikko Securities Differentiate ourselves through the speed and quality of our decision-making and service delivery. I joined SMBC Nikko Securities in 2015, where I venture capital and other fields, the company was assigned to the Private Corporate Advisory was successfully listed. III Dept. Prior to joining SMBC Nikko Securities, I This is the third securities company that I worked at Daiwa Securities SMBC from 2009 as a have worked for, but I think it is the most custom- new graduate, then an other securities company. er-focused. Venture companies change at a rapid I have always been involved in advising private pace, and it is common for sales to double in a companies of capital policy, M&A, and Initial Pub- month or new employees to join on a weekly basis. lic Offerings (IPOs). I feel rewarded about my job Despite this environment, SMBC Nikko Securities because IPOs are a delightful solution for share- is renowned among shareholders, executives, and holders, management, employees, and business CFOs for our ability to promptly provide accurate partners (due to further corporate growth). responses to any sudden challenges that emerge. Our company has been ranked number 1 We tell our customers that IPOs are the in IPO underwriting for three consecutive years, second founding of a company. I believe that and one of our major strengths is our ability SMBC Nikko Securities is the only company to proactively take on new challenges without that can provide comprehensive assistance on preconceptions. For example, in one up-front management strategy, capital policy, and client investment type IPO project, I was involved in introductions in tandem with our customers, in reviewing the initial listing requirements for addition to consulting on internal management the Tokyo Stock Exchange Growth Market to systems required for an IPO, such as governance increase the likelihood of the company being and compliance. listed by properly explaining and appropriately Of our Five Values, I believe that “Customer disclosing the business model and path to prof- First” is extremely well established, and the basic itability. By doing so, the company could attract policy of our company aims for “Customer-Ori- investors who were aware of the risk involved, ented Business Initiative.” I believe that Speed even if the company is in the red when it is list- & Quality are required to achieve our values of ed. I discussed with the Tokyo Stock Exchange Proactive & Innovative and Customer First. about the need for the Japanese market to I hope that I can continue to support venture encourage venture companies with cutting-edge companies via the capital market to contribute technologies via up-front investment, and with to the creation of companies that flourish on the the assistance of various parties involved in global stage. 104 SMBC GROUP ANNUAL REPORT 2023 SMBC GROUP ANNUAL REPORT 2023 105 Business Strategies for Creating Value People who Embody Our Five Values Value Creation at SMBC Group Business Strategies for Creating Value Corporate Infrastructure Supporting Value Creation FIVE VALUES 5 Team “SMBC Group” Takuya Ogawa Product Planning and Development Division Sumitomo Mitsui Card Company Respect and leverage the knowledge and diverse talent of our global organization, as a team. I joined Sumitomo Mitsui Card Company as a new from many users on social media, and I felt that it graduate in 2006, where I worked in the acquiring was really worth the effort it took. of franchise stores and screening of new mem- Looking back, I believe Olive was able to bers, before being transferred to the Product be launched in time because we demonstrated Planning and Development Division, where I cur- the best of our ability in regard to all of the Five rently work. When developing the “Olive” financial Values. I would like to emphasize Team “SMBC service for individual customers, I was in charge Group” in particular. We were able to have not of overall planning and development, including only Sumitomo Mitsui Banking Corporation, product development for the flexible payment Sumitomo Mitsui Card Company and Japan Re- function and the card design. search Institute work together as one team, but The design of the Olive card started based also external companies such as SBI Securities on the concept of aiming for the ultimate in and Visa. I was happy to see our attitude carry simplicity. The first proposal we received from an over to members of other companies, and we also external designer had a good basic design, but received stimulation from those at other compa- its colors were not preferrable for the Japanese nies, which increased our sense of unity. market. I then created other proposals about Our team was able to fulfill their own roles ideas that would be appealing for our customers and responsibilities while also thinking about the in Japan, based on discussions with team mem- roles of others. We trusted each other and had bers including in-house designers. extremely good communication. I believe that this At times, I thought we had created the was the key to our success, and I respect every best design possible, only to find that the actual one of the project members. Olive is the world’s printed object differed from our expectations. first flexible payment system using Visa’s new Ultimately, five core members, including my- functions, and it has enabled us to provide new self, decided upon a design that we thought to value via unprecedented products and services. be best. The design was completed just in time I hope that I can continue working to evolve Olive for launch, and struck a good balance of being and create a service that is both convenient and simple yet refined. We received a good response impactful for our customers. 106 SMBC GROUP ANNUAL REPORT 2023 SMBC GROUP ANNUAL REPORT 2023 107 Corporate Infrastructure Supporting Value Creation Value Creation at SMBC Group Business Strategies for Creating Value Corporate Infrastructure Supporting Value Creation Corporate Infrastructure Supporting Value Creation 110 Corporate Governance 126 Risk Management 130 Compliance 132 Customer-Oriented Initiatives 135 IT Governance 136 Cybersecurity 138 Internal Audit 139 ESG Information 140 Financial Review 108 SMBC GROUP ANNUAL REPORT 2023 SMBC GROUP ANNUAL REPORT 2023 109 Corporate Infrastructure Supporting Value Creation Value Creation at SMBC Group Business Strategies for Creating Value Corporate Infrastructure Supporting Value Creation Corporate Governance Our Approach We position “Our Mission” as the universal philosophy underpinning the management of SMBC Group and as the foundation for all of our corporate activities. We are working toward effective corporate governance as we consider the strengthening and enhancement of corporate governance to be one of our top priorities in realizing “Our Mission.” Initiatives for Improving Corporate Governance 2002 Establishment of Sumitomo Mitsui Financial Group Voluntary establishment of Nominating Committee, Compensation Committee, and Risk Committee as internal committees of the Board of Directors 2005 Voluntary establishment of Audit Committee as internal committee of the Board of Directors 2006 Formulation of “Basic Policy on Internal Control Systems” through internal control resolution made based on “Our Mission” and “Code of Conduct” in order to establish frameworks for ensuring appropri- ate operations 2010 Listing of shares on the New York Stock Exchange in order to improve transparency of financial reporting, increase convenience for investors, and diversify fund procurement methods 2015 Establishment of the “SMFG Corporate Governance Guideline” Increase in the number of outside directors to five and in the number of outside corporate auditors to three 2016 2017 Strengthening of Group governance by appointing the chairman of SMBC Nikko Securities as a director of Sumitomo Mitsui Financial Group along with the president of SMBC Commencement of evaluations of the effectiveness of the Board of Directors Transition to a Company with Three Committees; increase in the number of outside directors to seven; establishment of voluntary Risk Committee together with legally mandated Nomination Committee, Compensation Committee, and Audit Committee; and appointment of outside directors as chairmen of three legally mandated committees Institution of new Group governance system through introduction of group-wide Business Units and CxO system 2019 Transition to the Company with Audit and Supervisory Committee structure by core subsidiaries SMBC and SMBC Nikko Securities Decrease in the number of directors from 17 to 15 and increase in the ratio of outside directors to 47% 2020 Appointment of an outside director as the chairman of the Risk Committee 2021 Appointment of Group CSuO Establishment of voluntary Sustainability Committee (Chaired by an outside director) 2023 Establishment of Group Business Management Department Sumitomo Mitsui Financial Group’s Corporate Governance System SMFG Group employs the Company with Three Commit- tees structure. This structure was adopted in order to establish a corporate governance system that is globally recognized and is aligned with international banking regulations and supervision requirements and to achieve enhanced oversight of the exercise of duties by the Board of Directors and expedite this exercise of duties. In addi- tion, core subsidiaries SMBC and SMBC Nikko Securities employ the Company with Audit and Supervisory Commit- tee system described in the Companies Act. Corporate Governance System Outside directors Internal non-executive directors Internal executive directors Other experts Chairmen Through the implementation of effective corporate governance systems, we aim to prevent corporate miscon- duct while also achieving ongoing growth and medium- to long-term improvements in corporate value. We realize that there is no perfect form for corporate governance struc- tures. Accordingly, we will continue working toward the strengthening and enhancement of corporate governance in order to realize higher levels of effectiveness. Other experts H i r o h d e i Y a m a g u c h i * ¹ T a t s u o Y a m a s a k i * ² Y u k a r i T a k a m u r a * ³ E i i c h i r o A d a c h i * 4 Board of Directors Focus on supervision of executive officers’ and directors’ execution of duties Directors Internal Committees Nomination Committee Compensation Committee Audit Committee Risk Committee Sustainability Committee R e p o r t i n g l i n e J u n O h t a T a k e s h i K u n b e i i T e k o K u d o i A k h i r o F u k u t o m e i F u m h k o I t o i i T o s h h i r o I s s h k i i Y o s h i y u k i G o n o M a s a y u k i M a t s u m o t o S h o z o Y a m a z a k i Y a s u y u k i K a w a s a k i i Y o s h n o b u T s u t s u i K a t s u y o s h i i S h n b o E r i k o S a k u r a i C h a r l e s D . L a k e I I J e n i f e r R o g e r s Management Committee Business execution decisions Audit Dept. Departments *1 Chairman of the Advisory Board of Nikko Research Center, Inc., former Deputy Governor of the Bank of Japan *2 Specially appointed professor of International University of Health and Welfare *3 Professor at the University of Tokyo Institute for Future Initiatives *4 Senior Counselor of The Japan Research Institute, Limited. 110 SMBC GROUP ANNUAL REPORT 2023 SMBC GROUP ANNUAL REPORT 2023 111 Corporate Infrastructure Supporting Value Creation Corporate Governance Board of Directors Role of the Board of Directors The Board of Directors of the Company is primarily respon- sible for making decisions on the matters that are within its legally mandated scope of authority, such as basic man- agement policies, as well as for overseeing the exercise of duties of executive officers and directors. Authority for execution decisions other than those legally required to be made by the Board of Directors will, in principle, be dele- gated to executive officers. The purpose for this delegation is to enhance the oversight function of the Board of Direc- tors and to expedite the exercise of duties. The Board of Directors works toward the realization of “Our Mission” and the long-term growth of corporate value and the common interests of the shareholders. Any action that may impede those objectives will be addressed with impartial decisions and response measures. Furthermore, the Board of Directors is responsible for establishing an environment that supports appropriate risk taking by executive officers. It will develop a system for ensuring the appropriateness of SMBC Group’s business operations pursuant to the Companies Act and other rel- evant legislation in order to maintain sound management. Another responsibility of the Board of Directors is to exer- cise highly effective oversight of executive officers from an independent and objective standpoint. Accordingly, the Board of Directors endeavors to appropriately evaluate company performance and reflect these evaluations in its assessment of executive officers. Composition of the Board of Directors The Board of Directors is comprised of directors with various backgrounds and diverse expertise, experience, gender and nationality. As of June 29, 2023, the Board of Directors was comprised of 15 directors, which the Company believes to be the appropriate number of directors for the Board to perform its functions most efficiently and effectively. Ten of the 15 directors did not have business execution respon- sibilities at the Company or its subsidiaries, with seven of these 10 directors being outside directors. The chairman of Sumitomo Mitsui Financial Group, who does not have business execution responsibilities, serves as the chairman of the Board of Directors. This membership ensures an objective stance toward supervising the exercise of duties by executive officers and directors. Outside directors serve as chairmen and members of the Company’s legally mandated and voluntarily estab- lished committees. When necessary, outside directors will request reports on compliance, risk management, or other matters from the relevant divisions in order to promote appropriate coordination and supervision. Number of directors 15 Non-executive directors 10 %67 Outside directors designated as independent directors Composition of the Board of Directors 7 %47 Internal directors (non-executive) 3 Internal directors (executive) 5 Deliberations on the formulation of the new Medium-Term Management Plan Focused supervision of SMBC Nikko Securities in light of the administrative action taken by the Financial Services Agency Examples of matters discussed by the Board of Directors Progress of the Medium-Term Management Plan and business plan Global compliance Digitalization efforts Sustainability initiatives Human resources measures System strategy policy Corporate governance structure Capital policy (ROE and PBR improvement) Policy for equity holdings Responding to geopolitical risks Value Creation at SMBC Group Business Strategies for Creating Value Corporate Infrastructure Supporting Value Creation Processes for selecting and dismissing directors and executive officers We expect our directors and executive officers to embody the values expressed in our management philosophy at a high level, to possess a wealth of practical experience and high levels of ability and insight, and to contribute to the further development of SMBC Group. In selecting directors, the Nominating Committee spends ample time deliberating whether a candidate can meet these expecta- tions. Where it is difficult for a director or executive officer to perform their duties effectively, the Group will consider their dismissal. For details, please see References 4 and 5 in the “SMFG Corporate Governance Guidelines.” https://www.smfg.co.jp/english/aboutus/pdf/ cg_guideline_e.pdf Succession planning for top management One of the matters discussed by the Nominating Commit- tee that directly relates to our Mission and management strategy is succession plans for the Company president (Group CEO) and the presidents of the core subsidiaries SMBC and SMBC Nikko Securities. To train and develop our future top management, we take our time systemati- cally forming a candidate pool through tough work assign- ments and third-party assessment and coaching. From within this large pool of candidates, the best candidates with the qualities required to lead a global financial group, such as broad vision and communication abilities, are selected for top management. Top management selection process Review of the succession planning process Discussion of the qualities required of top management Assessment of candidate qualifications Formation of a candidate pool and candidate development Top management selection Skills Matrix of Directors A skills matrix is developed following deliberations by the Nominating Committee as to the knowledge and experience ex- pected of directors in exercising sufficient supervisory functions as a Board of Directors of a global financial group. In 2022, IT/DX and Sustainability, which are becoming increasingly important in SMBC Group’s business strategy, were added. Appointed Corporate management Finance Global Legal affairs/ Risk management Financial accounting IT/DX Sustainability Expected knowledge and experience in particular* Takeshi Kunibe Jun Ohta Akihiro Fukutome Teiko Kudo Fumihiko Ito Toshihiro Isshiki Yoshiyuki Gono Yasuyuki Kawasaki Masayuki Matsumoto Shozo Yamazaki Yoshinobu Tsutsui Katsuyoshi Shinbo Eriko Sakurai Charles D. Lake II Jenifer Rogers 2014 2023 2021 2023 2021 2023 2021 2017 2017 2017 2017 2015 2023 2023 * The items listed in “Skills Matrix of Directors” are areas particularly expected of the relevant directors and do not represent all of the knowledge and experience possessed by the directors. 112 SMBC GROUP ANNUAL REPORT 2023 SMBC GROUP ANNUAL REPORT 2023 113 Corporate Infrastructure Supporting Value Creation Corporate Governance Support Systems for Outside Directors The Company recognizes that outside directors require an in-depth understanding of the Group’s business operations and business activities. Accordingly, we continually endeavor to supply outside directors with the information and insight on business activities that are necessary to super- vise management while also providing the oppor- tunities needed to fulfill their roles. Initiatives to support directors in FY2022 included those indicated to the right. Participation in meetings of general managers of core Group com- panies and other executive team meetings, tours of bases of Group companies, and discussions with presidents of Group companies for facilitating a greater understanding of business operations and busi- ness activities Informal meetings between outside directors and relevant depart- ments on topics including Central Bank Digital Currency and promot- ing DE&I. Explanatory forums on Board of Directors’ meeting agenda items prior to Board meetings to assist in understanding of items Study sessions led by external lecturers on topics such as information sharing regulations (firewall regulations), business and human rights, and cybersecurity Timely and effective provision of information such as details on the proceedings of internal meetings to outside directors External director-only meetings Outside Directors visit to Sumitomo Mitsui Card Company locations Outside Director Independence Standards In order for an outside director (“Outside Director”) of the Company to be classified as independent, they must not fall under, or have recently fallen under, any of the following categories: Major Business 1 Partner 2 Specialist • An entity that has the Company or SMBC as a major business partner or an executive director, officer, or other person engaged in the execution of business of such an entity. • An entity that is a major business partner of the Company or SMBC or an executive director, officer, or other person engaged in the exe- cution of business of such an entity. • A legal expert, accounting expert, or consultant who has received money or other property from the Company or SMBC averaging more than ¥10 million per year over the last three years, in addition to any compensation received as a director or corporate auditor. • A member of a Juridical Person, etc. or other organization that provides specialist services, such as a law firm, accounting firm, or con- sulting firm, which has received large amounts of money or other property from the Company or SMBC. • A person who has received–or an executive director, officer, or other person engaged in the execution of business of an entity which 3 Donations has received–on average over the last three years, donations or other payments from the Company or SMBC in excess of the greater of ¥10 million per year and 2% of the recipient’s annual revenue. 4 Major Shareholder • A major shareholder of the Company or an executive director, officer, or other person engaged in the execution of business of a major shareholder (including anyone who has been a major shareholder, or an executive director, officer, or other person engaged in the exe- cution of business of a major shareholder, within the last three years). 5 Close Relative • A close relative of any person (excluding non-material personnel) who falls under any of the following: (1) A person who falls under any of 1 through 4 above; or (2) A director, corporate auditor, executive officer, or other person engaged in the execution of business of the Company or a subsidiary thereof. Please see Reference 6 of the “SMFG Corporate Governance Guideline” for more information. https://www.smfg.co.jp/english/aboutus/pdf/cg_guideline_e.pdf Value Creation at SMBC Group Business Strategies for Creating Value Corporate Infrastructure Supporting Value Creation Internal Committees Main role Number of meetings in FY2022 (average attendance) Activities in FY2022 Nomination Committee Compensation Committee Audit Committee The Nomination Committee is responsible for preparing proposals regarding the appointment and dismissal of directors to be submitted to the general meeting of shareholders. This committee also deliberates on matters regard- ing personnel decisions pertaining to officers of the Company and major subsidiaries and the selection of successors to the presidents of the Company, SMBC, and SMBC Nikko Securities. The Compensation Committee is responsible for deciding policies for determining the com- pensation of directors and executive officers of the Company as well as compensation amounts of individual directors and executive officers of the Company based on those policies. In addition, this committee deliberates on the poli- cies for determining the compensation of the executive officers of major subsidiaries and the compensation amounts of individual executive officers of the Company. The Audit Committee is responsible for auditing the execution of duties by executive officers and directors of the Company, preparing audit reports, and determining the content of propos- als for election, dismissal, or non-reelection of the accounting auditor to be submitted to the general meeting of shareholders. Committee members appointed by this Committee are to perform audits of the operations and assets of the Company and its subsidiaries. 5 meetings (93%) 7 meetings (100%) 16 meetings (100%) Risk Committee The Risk Committee is responsible for delib- eration on matters relating to environmental and risk awareness, the operation of the Risk Appetite Framework, and the implementation of risk management systems as well as other important matters pertaining to risk manage- ment and reporting to the Board of Directors on these matters. 4 meetings (100%) Sustainability Committee The Sustainability Committee is responsible for deliberating on the progress of sustainability initiatives, including climate change initiatives, domestic and overseas sustainability trends, and other important matters related to sustain- ability. It regularly reports to, and advises, the Board or Directors. 2 meetings (100%) In anticipation of the change of SMBC president in April 2023, ongoing discussions have been held concerning succession planning. Specifically, the committee narrowed down the list of candidates based on the “qualities required for top management” discussed in FY2021, and agreed to appoint a new president. With the start of the new Medium-Term Management Plan from FY2023, we have reviewed how medium-term performance-linked remuneration is assessed. Specifically, we have investigated incorporating “Create social value” into the evaluation index as a non-financial index. The committee also discussed disciplinary actions to be taken against the officers of SMBC Nikko Securities for market manipulation and violation of the firewall regulations separating banking and securities. In accordance with the audit policy and audit plan, audited the execution of duties by direc- tors and executive officers by attending key meetings, interviewing with executive officers and directors, receiving reports from internal departments and visiting domestic and overseas offices. Provided summaries of the results of its delib- erations to the Board of Directors, and issued recommendations and opinions to executive officers, etc. where necessary. The committee deliberated the environment and risk recognition in the new Medium-Term Management Plan, including geopolitical risks, the trends and outlooks of monetary policy across Europe, the U.S., and Japan. In preparation for formulating the Medium-Term Management Plan and operational plan, the committee discussed the risk appetite and the policy for addressing risk scenarios when they materialize, based on the top risks and stress test results. The committee also engaged in discussion on SMBC Group’s risk management system, includ- ing the strengthening of group governance. The committee reviewed SMBC Group’s mate- riality, with the aim of creating social value by addressing a wide range of social issues. The committee reviewed the results of com- pany-wide efforts regarding sustainability, and discussed the policy for sustainability initiatives in the new Medium-Term Management Plan starting from FY2023. 114 SMBC GROUP ANNUAL REPORT 2023 SMBC GROUP ANNUAL REPORT 2023 115 Corporate Infrastructure Supporting Value Creation Corporate Governance Value Creation at SMBC Group Business Strategies for Creating Value Corporate Infrastructure Supporting Value Creation Evaluation of the Board of Directors’ Effectiveness Equity Holdings The “SMFG Corporate Governance Guideline” contains provisions on evaluating the effectiveness of the Board of Directors. In accordance with these provisions, annual analyses and evaluations are conducted by the Board of Directors to determine whether or not it is executing its duties in line with the guideline, and the results of these analyses and evaluations are disclosed. In FY2022, the evaluation focused on the three areas described below, which are areas for which provi- sions exist in Japan’s Corporate Governance Code and the “SMFG Corporate Governance Guideline.” All seven outside directors were asked for their opinions regarding these areas at meetings of the Board of Directors held in April and May 2023 and interviews of internal directors were conducted thereafter. Discussions were held at Board of Directors’ meetings in June based on the find- ings of these interviews with internal directors, after which analyses and evaluations were carried out to determine whether or not the Board of Directors was executing its duties in line with the “SMFG Corporate Governance Guideline.” Moreover, reviews by external specialists with expertise from developed nations are received at each stage of the evaluation process. S e l f - a s s e s s m e n t s i i i n c o r p o r a t i n g t h e o p n o n s o f o u t s i d e e x p e r t s Process Implementation overview Opinion-gathering interviews • Outside directors express their opinions at meetings of the Board of Directors • Interviews with internal directors Review of the results of evaluations • Analysis and evaluation including reviews provided by outside experts Discussion of the results of evaluations • Discussions at Board of Directors meetings Overview of Results of Evaluation of the Board of Directors’ Effectiveness In FY2022, based on appropriate actions taken to respond to the findings of the last Effectiveness Evaluation, the Board of Directors assessed the Group to be sufficiently effective, and more effective than before, as a result of efforts to increase the sophistication and effectiveness of deliberations at Board of Directors meetings. Based on the results of the latest Effective- ness Evaluation, together with the diverse opinions of the directors and the recommendations of external experts gathered through a series of processes, our Board of Directors is working to further improve effectiveness by promoting mutual under- standing between outside directors and internal officers and employees, and by discussing fundamental issues to enhance our corporate value. Role of the Board of Directors FY2022 Evaluation FY2023 Priority Issues • Steps are taken to invigorate discussions by drawing on the highly specialized expertise of the outside directors. These discussions were geared toward medium- to long-term improvements in corporate value based on the interests of various stakeholders while incorporating important matters related to business strategies to contribute to the fulfillment of “Our Mission.” • In particular, in FY2022, the Board of Directors had thorough discussions on important topics such as the formulation of the new Medium-Term Management Plan for the future of SMBC Group, and, as its holding company, focused supervision of SMBC Nikko Securities in light of an incident in which former officers and employees of the company violated Article 159, Paragraph 3 (illegal market manipulation) of the Financial Instruments and Exchange Act (the “market manipulation case”). • Based on the executive-side discussions of the Management Committee, matters related to business plans and other basic management policies as well as the status of business execution were presented and reported on several occasions. As a result, effective deliberations on these matters were able to take place and oversight functions were exercised properly. The Board of Directors will play an even more involved role based on mutual understanding between the outside directors and internal officers and employees in supervising the progress of the new Medium-Term Management Plan (Plan For Fulfilled Growth) while being aware of environmental changes including monetary policy trends, market demands regarding return on capital, geopolitical risks, and technological innovation such as generative AI, as well as in supervising efforts to respond to administrative action, etc., in response to market manipulation cases and to prevent such cases occurring again, and in exercising supervisory functions over major subsidiaries. Proceedings of the Board of Directors and Support Systems for Outside Directors • The number and content of agenda items as well as the amount of time dedicated to discussion of agenda items were more or less at the appropriate level. • Appropriate agenda management by the chairperson has facilitated the continuation of brisk discussions. • The Board of Directors continues to make flexible management decisions amid the changing operating environment. Members of the Board of Directors are provided with the information necessary for exercising their oversight function in a timely and appropriate manner. • The Company continued to provide systems for effectively supporting the Board of Directors in making management decisions through venues such as study sessions for outside directors and forums for discussions between outside directors and internal directors, executive officers, and accounting auditors, etc. Steps were taken to contribute to livelier discussions at meetings of the Board of Directors, including the provision of information about major Group companies and the setting-up of meetings, in order deepen understanding of the Group companies’ operations. We will further increase the sophistication of discussions by, for example, taking further advantage of outside directors’ knowledge, and continuing to ensure sufficient time for delibera- tion of important topics. Composition of the Board of Directors • As of June 30, 2023, the Board of Directors consisted of 15 directors, seven of whom were outside directors. Accordingly, outs ide directors represented over 40% of all directors. It was once again acknowledged that the outside directors represented a diverse range of expertise, genders, and nationalities and that the Board of Directors features an atmosphere conducive to outside directors voicing opinions regarding management. The Nominating Committee shall continue to examine and review the ideal composition of the Board of Directors in light of its role. Policy for Equity Holdings (1) In principle, SMBC Group does not hold the shares of other companies where “the rationale to hold” those shares cannot be recognized. This policy is in place in order to maintain SMBC Group’s financial soundness taking into consideration the standards of globally operating financial institutions and our proactive response to global regulation. (2) We determine “the rationale to hold” as a case where the shareholding will contribute to increasing SMBC Group’s corporate value over the medium to long term. We determine this with comprehensive consideration based on (a) the profitability - through an appropriate assessment and understanding of relevant factors, such as associated risks, costs and returns of the holding; (b) the objectives to hold - such as maintain- ing and strengthening our relationship, capital and business alliance, restructuring support, and (c)other relevant factors. (3) We examine “the rationale to hold” on a regular basis. We will sell them by taking into consideration vari- ous factors, such as market impact and the financial strategy of the issuers, where an appropriate rationale no longer exists. In the case that where we recognize there is good rationale for doing so, we will continue to hold shares. Reduction Plan for Equity Holdings SMBC Group continuously makes efforts to reduce price fluctuation risks from the point of view of maintaining a foundation that can sufficiently demonstrate its financial intermediary function even in a stressful environment in which the prices of stocks drastically fall. Based on the five-year, ¥300 billion reduction plan (FY2020–FY2024), we have reduced ¥180 billion in the three-year period up to FY2022. However, based on the recent environment surrounding equity holdings, we made a revision to accelerate the reduction plan in May 2023. Specifically, in line with the three-year Medium-Term Management Plan starting in FY2023, we extended the plan one year and added ¥80 billion to reduction amount for a reduction of ¥380 billion in six years, and set a plan to reduce ¥200 billion in the next three years. Also, this plan is set as the minimum, and we are aiming to exceed it as much as possible. In addition, we will aim to earn a good prospect of achieving the reduction of the proportion of market value of equity holdings to less than 20% of our consolidated net assets during the period of the next Me- dium-Term Management Plan. Under the new plan, we will work to further reduce equity holdings going forward. Reduction Plan of Equity Holdings State of reduction (JPY tn) Book value of domestic listed stocks*1 Market value of equity holdings*2 / consolidated net assets 6.09 Revised plan JPY (380) bn Reduction FY2020 FY2021 FY2022 ¥180 billion ¥55 billion ¥67 billion ¥58 billion Unsold accepted sales balance ¥62 billion Reduced and accepted total ¥243 billion 1.33 JPY (180) bn 1.15 JPY (200) bn 0.95 c. 30% <20% Apr.01 Mar.20 Mar.23 Mar.26 Next Medium-Term Management Plan period (FY3/27-29) *1 Excluding investments after Mar.20 for the business alliance purpose *2 Including balance of deemed held shares For details, refer to the SMBC Group website. https://www.smfg.co.jp/english/company/organization/governance/structure/hold.html 116 SMBC GROUP ANNUAL REPORT 2023 SMBC GROUP ANNUAL REPORT 2023 117 Corporate Infrastructure Supporting Value Creation Value Creation at SMBC Group Business Strategies for Creating Value Corporate Infrastructure Supporting Value Creation Corporate Governance Compensation Program To facilitate the fulfillment of Our Mission and the realization of Our Vision, SMBC Group’s medium- to long-term vision, we developed a compensation program for Directors, Corporate Executive Officers and Executive Officers (the “Executives”) and introduced Stock Compensation Plans as a part of Execu- tives’ compensation programs, for the purpose of: Executive Compensation System (FY2023) Cash compensation Stock compensation Variable compensation 1 Providing appropriately functioning incentives for Execu- tives, strengthening linkage with our short-, medium-, and long-term performance, and 2 Further aligning the interests of Executives with those of shareholders, by increasing the weight of stock compen- sation and enhancing the shareholding of our Executives. Compensation Components Payment Standards (Range of Variation) and Target Indices Payment Method Base salary Fixed compensation • Cash Bonus (cash) Bonus (Stock Compensation Plan II) Compensation determined based on SMFG’s annual performance (0%−150%) *2 Standard levels × annual performance of SMFG and SMBC, progress of initiatives towards the realization of sustainability, performance of the executive Target Index*3 Weight ESG Evaluation Weight SMBC Banking profit*4 Annual growth / Target achievement SMBC Net income (pre-tax) *5 Annual growth / Target achievement SMFG Net income*6 Annual growth / Target achievement 50% 25% 25% Progress of KPIs*7 Performances of external ESG ratings ±10% • Cash : 70% • Restricted stock : 30% Compensation determined based on SMFG’s medium-term performance, etc. (0%−150%) *8 Standard levels × SMFG’s medium-term performance, etc. Financial index Evaluation index ROCET1*9 Base expenses*10 SMFG Gross profit*11 SMFG Net income*6 Share index TSR (Total shareholder return)*12 Non-financial index Create social value*13 Qualitative evaluation Initiatives in new business areas, compliance, customer-oriented initiatives, and risk management Weight 20％ 20％ 15％ 15％ 15％ 15％ ±5％ In the case that the CET1 ratio falls below a designated level at the end of each fiscal year, Stock Compensation Plan I for the respective fiscal year becomes null and void (knock-out provision). • Restricted stock (Promotion reward plan) • Restricted stock Stock Compensation Plan I Stock Compensation Plan III ¹ * % 0 4 : n o i t a s n e p m o c e b a i r a v l f o n o i t r o P % 5 2 : n o i t a s n e p m o c d e s a b - k c o t s f o n o i t r o P *1 *2 *3 *4 Variable compensation capped at a maximum of 100% of total base salary Compensation amounts for each fiscal year determined by the Compensation Committee If the Compensation Committee recognizes any element other than the above mentioned target indexes which should be taken into consideration, the Compensation Committee will, if appropriate, judge the circumstances comprehensively and may adjust the compensation to be paid to the employee by a maximum of 5%, plus or minus. Adding collaboration incentives between each company in the Group and Sumitomo Mitsui Banking Corporation to the banking profit of Sumitomo Mitsui Banking Corporation Income before income taxes at Sumitomo Mitsui Banking Corporation The Company’s consolidated profit attributable to owners of parent Achievement of annual progress of KPIs in the “SMBC Group GREEN×GLOBE 2030,” such as the reduction of greenhouse gas emissions Compensation amounts determined by the Compensation Committee at the conclusion of the Medium-Term Management Plan Post-Basel III reforms basis, excludes net unrealized gains (losses) on other securities *5 *6 *7 *8 *9 *10 General and administrative expenses excluding “revenue-linked cost,” “prior investment cost” and others *11 The Company’s consolidated gross profit *12 The Compensation Committee determines progress of performance by relative evaluation of TSR during the term of the Group’s Medium-Term Management Plan *13 The Compensation Committee evaluates the achievement of KPIs related to the environment (FE reduction and amount of sustainability finance executed) and employees Foster a prudent risk culture expected of a financial institution Stock Compensation Plan I, Stock Compensation Plan II, and Stock Compensation Plan III are applicable to malus and claw-back provisions Executive Compensation Structure In principle, executive compensation consists of base salary, bonuses and stock compensation. The perfor- mance-linked portion, which fluctuates with the business environment and performance, accounts for approximately 40% of total compensation. Annual Performance-Linked Incentive Both the Bonus (Cash) and Stock-Compensation Plan II are paid as annual performance-linked incentives. Three per- formance indicators are used: “SMFG Net Income” which is management’s end performance, and “SMBC Banking profit” and “SMBC Net Income (pre-tax),” which indicate the profitability of SMFG’s major subsidiaries. These create a strong link between performance and executive compen- sation, ensuring that compensation functions as an appro- priate incentive for performance. FY2020-FY2022 Results: Stock Compensation Plan I Target Index Weight Actual performance Evaluation Financial Performance Share performance Qualitative evaluation ROCET1 Base expenses Gross profit Net income TSR (Total shareholder return) Customer satis- faction, ESG initia- tive, employee engagement, efforts to develop new business areas 20% 20% 20% 20% 20% 22.0% 25.0% 26.4% 23.8% 18.0% ±10% ±0%*2 115%*3 *2 Although “ESG initiative” and “Efforts to develop new business areas” progressed steadily, the Company took very seriously the market manipulation case at SMBC Nik- ko Securities Inc. and the violation of regulations on the firewall between banking and securities operations, and determined the evaluation as maximum 0%, plus or minus. *3 The final performance evaluation is determined by summing the actual performance and rounding down to the nearest whole number FY2022 Results: Bonus (Cash) & Stock Compensation Plan II Evaluation of efforts to create social value Target Index Weight SMBC Banking profit SMBC Net income (pre-tax) SMFG Net income 50% 25% 25% ESG Evaluation Weight Actual performance Performance evaluation coefficient 61.3% 30.9% 27.9% Evaluation results 121%*1 Achievement of KPIs Results of major ESG ratings ±10% +1.5% *1 The final performance evaluation coefficient is determined by summing the actual performance and the evaluation results and rounding down to the nearest whole number. Medium-Term Performance-Linked Compensation Stock Compensation I is paid as medium-term perfor- mance-linked compensation. In order to improve account- ability incentives for our medium- and long-term perfor- mance and to increase shareholder value, medium-term performance-inked compensation is calculated based on the target indices of ROCET1 and base expenses together with qualitative evaluations including “customer satisfac- tion” and “initiatives in new business fields.” Compensation programs and levels are determined by the Compensation Committee based on third-party surveys of manager compensation, economic and social trends, and the operating environment. We are incorporating an indicator evaluating efforts to create social value into executive compensation with the aim of further increasing our executives’ commitment to contributing to the realization of a sustainable society and achieving “SMBC Group GREEN×GLOBE 2030.” From FY2022, the Compensation Committee will judge performances of annual progress of KPIs in the “SMBC Group GREEN×GLOBE 2030”, such as the reduc- tion of greenhouse gas emissions, and performances of external ESG ratings. These performances will be reflected in annual performance-linked incentive by a maximum of 10%, plus or minus. “Create social value” has been incorporated in the evaluation index of the medium-term performance-linked remuneration since FY2023 as a non-financial index. Specifically, the Compensation Committee evaluates the rate of KPI achievement for environmental and employ- ee-related initiatives, as well as efforts to address the five key issues (materiality) set by SMBC Group. Ensuring Robust Business Operations We have also introduced provisions for malus (forfeiture) of restricted stock and the claw-back of vested stock allo- cated under the Stock Compensation Plans in the event of incidents occurring such as material revisions to financial statements or material damage to the reputation of the Group. We are working to restrain excessive risk-taking and foster a prudent risk culture expected of a financial institution. (employee engagement and DE&I), as well as the status of efforts to address the five key challenges set forth by the Group (“Environment,” “DE&I/Human Rights,” “Declining Birthrate & Aging Population,” “Japan’s Regrowth,” and “Poverty & Inequality”). 118 SMBC GROUP ANNUAL REPORT 2023 SMBC GROUP ANNUAL REPORT 2023 119 Corporate Infrastructure Supporting Value Creation Value Creation at SMBC Group Business Strategies for Creating Value Corporate Infrastructure Supporting Value Creation Corporate Governance SMBC Group Global Advisors SMBC Group Global Advisors (“Global Advisors”) act in an advisory capacity to the SMBC Group Management Committee by attending SMBC Group Global Advisory Meetings, which we hold on a regular basis. SMBC Group has appointed Global Advisors to provide advice to it on global business and on political and economic issues in the Americas, EMEA, and Asia. At SMBC Group Global Advisory Meetings, advisors inform the Management Committee of trends and developments in the financial sector and the political and economic environments of respective regions. Global Advisors also provide regular insight with respect to political and economic issues related to the formulation of strategies and key risks faced by SMBC Group. SMBC Group Technology Advisors SMBC Group Technology Advisory Committee meets regularly to facilitate the en- hancement of the Company’s IT-related initiatives. This committee is an advisory body in which chief technology officer-class information system representatives from domestic and overseas companies participate. Meetings of this committee are held regularly to discuss predetermined themes for the purpose of gathering suggestions and advice regarding the outlook for IT-related trends and directives for SMBC Group. In 2022, committee meetings were held covering the topics of “blockchain” and “responding to advanced technologies that will be imple- mented in society in future,” in which a range of opinions were exchanged on the current state of technology and the future outlook in light of recent social trends. Andrew N. Liveris Cesar V. Purisima Motoo Nishihara Seishi Okamoto Itaru Nishizawa 2017–2018 Executive Chairman, DowDuPont Inc. 2010–2016 Secretary of Finance of the Republic of the 2004–2017 Chairman and CEO, The Dow Chemical Company Philippines 2004–2005 Secretary of Trade and Industry of the Republic of the Philippines Corporate Executive Vice President and CTO - President of Global Innovation Business Unit NEC Corporation Corporate Executive Officer, EVP, Head of Fujitsu Research Fujitsu Limited Vice President and Executive Officer, CTO, GM of the Research & Development Group Hitachi, Ltd. Joseph Yam Paul Polman Norishige Morimoto Kenzaburo Tamaru 2017–Present A member of the Executive Council, 2018–Present Vice-Chair of the UN Global Compact CTO & VP, IBM Research & Development Director, National Technology Officer Hong Kong SAR 1993–2009 Chief Executive of the Hong Kong Monetary Authority 2009–2019 Chief Executive Officer, Unilever IBM Japan, Ltd. Microsoft Japan Co., Ltd. 120 SMBC GROUP ANNUAL REPORT 2023 SMBC GROUP ANNUAL REPORT 2023 121 Corporate Infrastructure Supporting Value Creation Corporate Governance Sumitomo Mitsui Financial Group Directors (As of June 29, 2023) Value Creation at SMBC Group Business Strategies for Creating Value Corporate Infrastructure Supporting Value Creation Chairman of the Board Director President (Representative Corporate Executive Officer) Group CEO Director President of SMBC Director Senior Managing Corporate Executive Officer Group CRO Director and Senior Managing Executive Officer of SMBC Director Senior Managing Corporate Executive Officer Group CFO, Group CSO Senior Managing Executive Officer of SMBC Director Director of SMBC Director Director Chairman of the Board (Representative Director) of SMBC Nikko Takeshi Kunibe Jun Ohta Akihiro Fukutome Teiko Kudo Fumihiko Ito Toshihiro Isshiki Yoshiyuki Gono Yasuyuki Kawasaki 1976 Joined Sumitomo Bank 2003 Executive Officer of Sumitomo Mitsui Banking Corporation (“SMBC”) 2006 Managing Executive Officer of SMBC 2007 Managing Executive Officer of the Company Director of the Company 2009 Director and Senior Managing Executive Officer of SMBC 2011 President and Chief Executive Officer of SMBC 1982 Joined Sumitomo Bank 2009 Executive Officer of SMBC 2012 Managing Executive Officer of SMBC 2013 Managing Executive Officer of the Company 1985 Joined Mitsui Bank 2014 Executive Officer of SMBC 2015 Managing Executive Officer of SMBC 2017 Resigned as Managing Executive Officer of SMBC 2014 Senior Managing Executive Officer of 2018 Chief Officer of Sales Finance the Company Senior Managing Executive Officer of SMBC Director of the Company 2015 Director and Senior Managing 2017 President of the Company Executive Officer of SMBC Resigned as Director of SMBC Director President of the Company 2019 Chairman of the Board of the Company (to present) 2021 Chairman of the Board of SMBC 2023 Resigned as Director of SMBC 2017 Director and Deputy President of the Company Resigned as Director of SMBC Director Deputy President and Corporate Executive Officer of the Company 2018 Director and Deputy President of SMBC 2019 Director President of the Company (to present) Resigned as Director of SMBC Business Group of TOYOTA MOTOR CORPORATION President of TOYOTA FINANCIAL SERVICES Co., Ltd. 2021 Retired from Chief Officer of Sales Finance Business Group of TOYOTA MOTOR CORPORATION Resigned as Director of TOYOTA FINANCIAL SERVICES Co., Ltd. Senior Managing Corporate Executive Officer of the Company Senior Managing Executive Officer of SMBC 2022 Director and Senior Managing Executive Officer of SMBC 2023 Resigned as Corporate Executive Officer of the Company President of SMBC (to present) Director of the Company (to present) 1987 Joined Sumitomo Bank 2014 Executive Officer of SMBC 2017 Managing Executive Officer of SMBC 2020 Senior Managing Executive Officer of the Company Senior Managing Executive Officer of SMBC 2021 Director and Senior Managing Executive Officer of SMBC (to present) Senior Managing Corporate Executive Officer of the Company Director Senior Managing Corporate Executive Officer of the Company (to present) 1990 Joined Sumitomo Bank 2018 Executive Officer of SMBC Executive Officer of the Company 2020 Managing Executive Officer of the Company Managing Executive Officer of SMBC 2023 Senior Managing Corporate Executive Officer of the Company Senior Managing Executive Officer of SMBC (to present) Director Senior Managing Corporate Executive Officer of the Company (to present) 1985 Joined Sumitomo Bank 2013 Executive Officer of SMBC 2015 Managing Executive Officer of SMBC 2017 Managing Executive Officer of the Company 2019 Senior Managing Executive Officer of the Company Senior Managing Executive Officer of SMBC 2021 Retired as Senior Managing Executive Officer of SMBC Director of the Company (to present) 2023 Director of SMBC (to present) 1988 Joined Sumitomo Bank 2018 Executive Officer of the Company Executive Officer of SMBC 2021 Managing Executive Officer of the Company Managing Executive Officer of SMBC 2023 Resigned as Managing Executive Officer of SMBC Director of the Company (to present) 1982 Joined Sumitomo Bank 2009 Executive Officer of SMBC 2012 Managing Executive Officer of SMBC 2013 Managing Executive Officer of the Company 2014 Senior Managing Executive Officer of the Company Senior Managing Executive Officer of SMBC 2015 Director and Senior Managing Executive Officer of SMBC 2017 Deputy President of the Company Director and Deputy President of SMBC Deputy President and Corporate Executive Officer of the Company 2018 Deputy Chairman of the Company Deputy Chairman of SMBC 2020 Retired as Deputy Chairman of the Company Retired as Deputy Chairman of SMBC Representative Director and Deputy President Executive Officer of SMBC Nikko Securities Inc. (“SMBC Nikko”) 2021 Chairman of the Board (Representative Director) of SMBC Nikko (to present) Director of the Company (to present) 122 SMBC GROUP ANNUAL REPORT 2023 SMBC GROUP ANNUAL REPORT 2023 123 Corporate Infrastructure Supporting Value Creation Corporate Governance Sumitomo Mitsui Financial Group Directors (As of June 29, 2023) Value Creation at SMBC Group Business Strategies for Creating Value Corporate Infrastructure Supporting Value Creation Director Special Advisor of Central Japan Railway Company Director Certified public accountant Director Chairman of Nippon Life Insurance Company Director Attorney at law Director Former President and Representative Director of Dow Chemical Japan Limited Director Chairman and Representative Director of Aflac Life Insurance Japan Ltd. Attorney at Law, admitted in Pennsylvania, the U.S.A. Attorney at Law, admitted in Washington, D.C. , the U.S.A. Director General Counsel Asia of Asurion Japan Holdings G.K. Attorney at Law, admitted in New York, the U.S.A. Masayuki Matsumoto Shozo Yamazaki Yoshinobu Tsutsui Katsuyoshi Shinbo Eriko Sakurai Charles D. Lake II Jenifer Rogers 1967 Joined the Japanese National Railways 1987 Joined Central Japan Railway Company 1992 Director and Manager of the Secretariat of Central Japan Railway Company 1996 Executive Director of Central Japan Railway Company 1970 Joined Tohmatsu Awoki & Co. (currently Deloitte Touche Tohmatsu LLC) 1974 Registered as a certified public accountant (to present) 1991 Representative Partner of Tohmatsu & Co. (currently Deloitte Touche Tohmatsu LLC) 1998 Senior Executive Director of Central 2010 Retired from Deloitte Touche Tohmatsu Japan Railway Company 2000 Executive Vice President and Representative Director of Central Japan Railway Company 2004 President and Representative Director of Central Japan Railway Company 2010 Vice Chairman and Representative Director of Central Japan Railway Company LLC Chairman and President of The Japanese Institute of Certified Public Accountants 2013 Advisor of The Japanese Institute of Certified Public Accountants (to present) 2014 Professor of Tohoku University Accounting School 1977 Joined Nippon Life Insurance Company 2004 Director of Nippon Life Insurance 1984 Registered as an attorney at law (to present) Company 1999 Attorney at law at Shinbo Law Office (to present) 2015 Corporate Auditor of SMBC 2017 Director of the Company (to present) Resigned as Corporate Auditor of SMBC 2007 Director and Executive Officer of Nippon Life Insurance Company Director and Managing Executive Officer of Nippon Life Insurance Company 2009 Director and Senior Managing Executive Officer of Nippon Life Insurance Company 2010 Representative Director and Senior Managing Executive Officer of Nippon Life Insurance Company 2011 President of Nippon Life Insurance Company 2017 Director of the Company (to present) 2018 Chairman of Nippon Life Insurance 2011 Resigned as Director of Central Japan 2017 Director of the Company (to present) Company (to present) Railway Company President of Japan Broadcasting Corporation 2014 Retired from Japan Broadcasting Corporation Special Advisor of Central Japan Railway Company (to present) 2015 Director of SMBC 2017 Director of the Company (to present) Retired as Director of SMBC Note: Mr. Masayuki Matsumoto, Mr. Shozo Yamazaki, Mr. Yoshinobu Tsutsui, Mr. Katsuyoshi Shinbo, Ms. Eriko Sakurai, Mr. Charles D. Lake II and Ms. Jenifer Rogers satisfy the requirements for an “outside director” under the Companies Act. See page 177 for information on SMBC’s Board of Directors, Directors, Members of the Audit and Supervisory Committee and Executive Officers. 1987 Joined Dow Corning Corporation 2008 Director of Dow Corning Toray Co., Ltd. 2009 Chairman and CEO of Dow Corning Toray Co., Ltd. 2011 Regional President -Japan/Korea of Dow Corning Corporation 2015 President and Representative Director of Dow Corning Holding Japan Co., Ltd. Director of the Company (to present) 2018 Executor, Dow Switzerland Holding GmbH, which is a Representative Partner of Dow Silicones Holding Japan G.K. Chairman and CEO of Dow Toray Co., Ltd. 2020 President and Representative Director of Dow Chemical Japan Limited 2022 Resigned as Director of Dow Chemical Japan Limited 1989 Joined Haight Gardner Poor & Havens (currently Holland & Knight LLP) 1990 Registered as an attorney at law, admitted in New York, the U.S.A. (to present) 1991 Joined The Industrial Bank of Japan Ltd. (currently Mizuho Bank, Ltd.) 1994 Joined Merrill Lynch Japan Securities Co., Ltd. (currently BofA Securities Japan Co., Ltd.) 2000 Merrill Lynch Europe Plc 2006 Merrill Lynch (Asia Pacific) Limited (currently Bank of America Corporation) (Hong Kong) 2012 Bank of America Merrill Lynch (currently Bank of America Corporation) (New York) General Counsel Asia of Asurion Asia Pacific Limited 2014 General Counsel Asia of Asurion Japan Holdings G.K. (to present) 2021 President of the American Chamber of Commerce in Japan 2023 Director of the Company (to present) 1990 Entered the Office of the U.S. Trade Representative as Special Assistant Registered as an attorney at law, admitted in Pennsylvania, the U.S.A. (to present) 1992 Director of Japan Affairs, the Office of the U.S. Trade Representative 1993 Director of Japan Affairs and Special Counsel to the Deputy U.S. Trade Representative, the Office of the U.S. Trade Representative 1995 Attorney at law at Dewey Ballantine LLP 1996 Registered as an attorney at law, admitted in Washington, D.C., the U.S.A. (to present) 1999 Vice President and Counsel of Aflac International, Inc. Vice President and Counsel of Japan Branch, American Family Life Assurance Company of Columbus (currently Aflac Life Insurance Japan Ltd.) 2001 Senior Vice President and Counsel of Japan Branch, American Family Life Assurance Company of Columbus (currently Aflac Life Insurance Japan Ltd.) Senior Vice President and General Counsel of Japan Branch, American Family Life Assurance Company of Columbus (currently Aflac Life Insurance Japan Ltd.) Deputy President of Japan Branch, American Family Life Assurance Company of Columbus (currently Aflac Life Insurance Japan Ltd.) 2003 President and Representative in Japan of Japan Branch, American Family Life Assurance Company of Columbus (currently Aflac Life Insurance Japan Ltd.) 2005 Vice Chairman and Representative in Japan of Japan Branch, American Family Life Assurance Company of Columbus (currently Aflac Life Insurance Japan Ltd.) 2008 Chairman and Representative in Japan of Japan Branch, American Family Life Assurance Company of Columbus (currently Aflac Life Insurance Japan Ltd.) 2014 President of Aflac International, Inc. (to present) 2018 Chairman and Representative Director of Aflac Life Insurance Japan Ltd. (to present) 2023 Director of the Company (to present) 124 SMBC GROUP ANNUAL REPORT 2023 SMBC GROUP ANNUAL REPORT 2023 125 Customer-Oriented Initiatives Corporate Infrastructure Supporting Value Creation Risk Management Our Approach Strengthening of compliance and risk management is positioned as a key issue in SMBC Group’s Principles of Action on Compliance and Risk. SMBC Group is therefore devoted to improving its systems in these areas in order to become a truly outstanding global group. Risk Culture In order for SMBC Group to realize and maintain a sustain- able growth in corporate value as a “Top Tier Global Finan- cial Group,” each one of our colleagues should think and judge on their own if their actions meet the expectations and requirements of customers, markets, and other stake- holders, not just if they are compliant with laws and regula- tions. SMBC Group has established “Principles of Action on Compliance and Risk” for every colleague to hold onto as a “keystone” of their daily business. The principles include “Business based on the Risk Appetite Framework” and “We will conduct business operations with risk ownership of the risks, such as credit risk, market risk, liquidity risk, operational risk, and conduct risk, that arise in our own business.” Concrete measures include internal surveys for monitoring the compliance awareness and risk sensitivity of our colleagues as well as internal training for fostering a sound risk culture. Risk Appetite Framework SMBC Group has introduced a Risk Appetite Framework for controlling group-wide risks that clarifies the types and levels of risk that we are willing to take on or are prepared to tolerate in order to grow profits (risk appetite). The Risk Appetite Framework is one of two pivots of our business management alongside business strategies. It functions as a management framework for sharing in- formation on the operating environment and risks facing SMBC Group among management and for facilitating appropriate risk taking based thereon. リスクアペタイト・フレームワークの位置付け Value Creation at SMBC Group Business Strategies for Creating Value Corporate Infrastructure Supporting Value Creation 環境・リスク認識 トップリスク リスクレジスター KRE（Key Risk Events） Risk Appetite Framework Positioning リスクアペタイト・ フレームワーク 経営管理の両輪 ストレステスト Environment/Risk View Top Risks Risk Register KRE（Key Risk Events） Two pivots of our business management Risk Appetite Framework Stress Testing 業務戦略 Business Strategies capital based on group-wide management constitution. Overall risk capital levels are thus monitored throughout the course of each fiscal year to clearly indicate risk-taking capacity and promote the sound taking of risks. In addition, specific risk appetite indicators have been set for credit risk, market risk, liquidity risk, and other risk categories to facilitate appropriate management based on a quantitative understanding of risk appetite. *2 The amount of capital required to cover the theoretical maximum potential loss arising from risks of business operations. Risk Appetite Composition Categories Top Risks Soundness Profitability Liquidity Credit Market Climate-related Operational Conduct*1 Established for each category Risk Appetite Statement Risk Appetite Measures A qualitative explanation of our approach to risk Risk Appetite Composition taking and risk management for various risk categories Quantitative Risk Appetite Measures that function as benchmarks for risks that we are considering taking and for risk/return Categories Soundness *1 Conduct risk is the risk that our conduct negatively affects customers, market integrity, effective competition, public interest, and SMBC Group’s stakeholders, through acts that violate laws and regulations or social norms. Profitability Liquidity Credit Operational Conduct*1 Market Established for each category Risk Appetite Statement Individual risk appetites have been established by strategies for each business unit as necessary based on Risk Appetite Measures the overall risk appetite of SMBC Group. Risk appetites are A qualitative explanation of our approach to risk Quantitative Risk Appetite Measures that function taking and risk management for various as benchmarks for risks that decided during the process of formulating business strat- risk categories we are considering taking and for risk/return egies and management policies. These risk appetites are set based on Top Risks that threaten to significantly impact management and on risk analyses (stress testing) that illustrate the impact if a risk should materialize. In addition, risk register and Key Risk Events (KRE) are utilized as part of a system for assessing the risks pres- ent in new and existing business activities and for verifying the adequacy of Top Risks, risk appetites, and business strategies. The outlooks for the operating environment and risks and the risk appetite situation are monitored throughout the course of the fiscal year. Risk Appetite Measures and business strategies are revised as necessary. For example, overall risk capital*2 has been selected as an indicator for risk appetite, which displays the soundness of SMBC Group. Overall risk capital is the aggregate of the risk capital amounts for each risk category. Management standards have been set for the upper limit for overall risk SMBC Group identifies risks that threaten to significantly impact management as Top Risks. The selection of Top Risks involves comprehensive screening of risk factors, evaluation of each risk scenario’s possibility of occurrence and potential impact on manage- ment, and discussion by the Risk Management Committee and the Management Committee. Top Risks are utilized to enhance risk management by being incorporated into discussions of the Risk Appetite Framework and the for- mulation of business strategies and into the creation of risk scenarios for stress testing. World economic stagnation Disasters such as large-scale earthquakes, storms, and floods Highly volatile commodity price and financial / foreign exchange markets Lack of preparedness against cyber attacks and financial crimes Sudden deterioration of the foreign currency funding conditions Changes in industrial structure due to technological innovation Japanese economic stagnation Inadequate responses to climate change risk and environmental issues Japanese fiscal instability Inadequate responses to human rights issues The U.S. - China struggle for supremacy Improper labor management Growing tensions around Russia-Ukraine conflict Misconduct such as an employee’s inappropriate behavior Unstable situations in the Middle East and Asia Inadequate improvement in the operational resilience system Political turmoil and social instability Inadequate preparedness for heightened regulatory and supervisory scrutiny Outbreak of serious infectious disease Difficulty in securing human resources Note: The above is only a portion of the risks recognized by SMBC Group. It is possible that the materialization of risks other than those listed above could have a significant impact on our management. See page 151 for Top Risks. 126 SMBC GROUP ANNUAL REPORT 2023 SMBC GROUP ANNUAL REPORT 2023 127 Corporate Infrastructure Supporting Value Creation Risk Management Stress Testing Key Risk Events At SMBC Group, we use stress testing to analyze and comprehend the impact on SMBC Group’s businesses of changes in economic or market conditions, in order to plan and execute forward-looking business strategies. In our stress testing, we prepare multiple risk scenar- ios including macroeconomic variables such as GDP, stock prices, interest rates, and foreign exchange rates based on the aforementioned Top Risks, discussions with experts and related departments. When developing business strategies, we set out sce- narios assuming stressed business environments such as serious economic recessions and market disruption for the sake of assessing risk-taking capabilities at SMBC Group and verifying whether adequate soundness can be main- tained under stress. For example, we are conducting stress testing assuming prolonged monetary tightening in the U.S. and Europe, a global credit crunch, and economic stag- nation in Japan to verify the soundness of SMBC Group’s capital and confirm the appropriate actions to be taken. During a fiscal year, we will conduct stress testing in a timely manner to assess the potential impact on our busi- ness and to take the appropriate actions in case a serious risk event occurs. In addition, we conduct detailed stress testing for in- dividual risks such as credit risk, market risk, and liquidity risk, so as to decide and review risk-taking strategies. Key Risk Events (KRE), external events that indicate the increased threat of risks, have been identified to ascertain the symptoms of the potential risks. KRE are utilized to analyze and assess how likely similar cases will occur in SMBC Group and what effects such similar cases will have on SMBC Group, and to enhance our risk management system. Operational Resilience In recent years, the risk environment surrounding financial institutions has been rapidly changing, with the emergence of pandemics and increasingly sophisticated cyberattacks, as well as reliance on IT systems and the spread of cloud service use. In response to this environment, in addition to our existing risk management framework, we recognize that one of our important responsibilities is to strengthen our ability to continue and promptly restore critical operations (operational resilience) on the assumption that business interruption may occur, and we are working on the follow- ing measures. Efforts are made to ensure effectiveness by reviewing the following cycles according to the operational and internal/ external environment. 1. Identify critical operations that could pose a significant risk We are also conducting scenario analyses on physical in the event of a disruption in service delivery and transition risks related to climate change. See page 085 for more information on our climate change risk analysis. Risk Register A risk register is formulated by each business unit for the purpose of realizing more sophisticated risk governance and enhancing business units’ risk ownership. In formulat- ing these registers, business units communicate with risk management departments to identify the risks present in their business, and these risks are reflected in business strategies after they have been evaluated and the adequa- cy of measures for controlling them has been verified. 2. Set the tolerable time for interruption to critical operations in consideration of alternative means, etc. 3. Identify management resources essential to the provision of critical operations and organize their interdependencies 4. Conduct scenario testing to verify appropriateness of resource allocation, and review periodically. Risk Management Systems Based on the recognition of the importance of risk man- agement, top management is actively involved in the risk management process, and systems are in place for verify- ing and monitoring the effectiveness and appropriateness of this process. Specifically, the groupwide basic policies for risk management and the Risk Appetites for the entire SMBC Group are determined by the Management Com- mittee and authorized by the Board of Directors. After that, the status of risk management based on these policies and risk appetites is reported to the Board of Directors by the Group CRO four times per year. Value Creation at SMBC Group Business Strategies for Creating Value Corporate Infrastructure Supporting Value Creation If the outlooks for the operating environ- SMBC Group’s Risk Management System ment and risks change drastically from the assumption in the beginning of the fiscal year, we will review the Risk Appetite for the entire group in a timely and appropriate manner with approval by the Board of Directors. We have also clarified related roles and responsibilities of relevant divisions in light of our three lines of defense. With these provi- sions in place, risk management systems have been established based on the characteristics of particular businesses, and measures are being put in place to strengthen and improve the effectiveness of these systems in accor- dance with these basic policies for risk man- agement. Furthermore, SMBC Group is strength- ening groupwide risk management systems through the Group CRO Committee and the Global CRO Committee. Three Lines of Defense The Basel Committee on Banking Supervi- sion’s “Corporate governance principles for banks” recommends “three lines of defense” as a framework for risk management and gov- ernance. Based on this framework, we have clarified the roles and responsibilities of each unit, as shown in the table on the right, and we are taking steps to achieve more effective and stronger risk management and compliance frameworks. Holding Company (Sumitomo Mitsui Financial Group) Board of Directors Risk Committee Audit Committee Management Committee External Audit Group CRO Risk Management Committee Audit Dept. ALM Committee Credit Risk Committee Group CRO Committee Global CRO Committee Departments Responsible for Risk Management Group Companies Principal Organizations Roles and Responsibilities First Line Business Units Second Line Risk Management and Compliance Departments Third Line Audit Department The Business Units shall be risk owners concerning their operations and shall be responsible for the following in accordance with the basic principles provided by Second Line. • Identification and evaluation of risks encountered in the business activities • Implementation of measures for minimizing and controlling risks • Monitoring of risks and reporting within First Line and to Second Line • Creation and fostering of a sound risk culture The Risk Management and Compliance Departments shall assume the following functions and responsibilities in order to manage the risk management and compliance systems. • Drafting and development of basic principles and frameworks concerning risk management and compliance • Oversight, monitoring, and development of training programs for First Line Independent from First Line and Second Line, the Audit Department shall assess and verify the effectiveness and appropriateness of risk management and compliance systems managed and operated by First Line and Second Line, and report these results to the Audit Committee and the Management Committee. The Department shall provide recommendations regarding identified issues / problems. Column Risk Management Initiatives Amid a Volatile Financial and Economic Environment I n FY 2022, interest rates in various countries rose as monetary policy authorities in the U.S., Europe, and other countries tightened monetary policy due to sharply rising inflation and other factors. We identified “highly volatile financial / foreign exchange markets” and “sudden deterioration of foreign currency funding conditions” as our top risks, and conducted stress testing. We discussed this at the Manage- ment Committee and the Risk Committee to determine the action for better addressing market deterioration. In the face of the market turmoil triggered by the bankruptcy of Silicon Valley Bank and the subsequent bank failures in March 2023, we analyzed our risk profile, including testing the survival period in terms of liquidity risk under the stress, and decided policy quickly, while closely communicating and coordinating with the relevant departments. We also recognize these incidents as Key Risk Events (KRE) and analyze our deposit and securities portfolios. Through these efforts, we will continue to further enhance our risk management. 128 SMBC GROUP ANNUAL REPORT 2023 SMBC GROUP ANNUAL REPORT 2023 129 Corporate Infrastructure Supporting Value Creation Value Creation at SMBC Group Business Strategies for Creating Value Corporate Infrastructure Supporting Value Creation Compliance Our Approach Compliance Systems at SMBC Group Management positions the strengthening of compliance and risk management as a key issue in enabling SMBC Group to fulfill its public mission and social responsibilities as a global financial group. We are therefore working to entrench such practices into our operations as we aim to become a truly outstanding global group. Compliance Management SMBC Group seeks to maintain a compliance system that provides appropriate instructions, guidance, and monitor- ing for compliance to ensure sound and proper business operations on a group-wide and global basis. Measures have been put in place to prevent misconduct and quickly detect inappropriate activities that have occurred to imple- ment corrective measures. SMBC Group has established the Compliance Com- mittee, which is chaired by the Group CCO responsible for overseeing matters related to compliance. This committee comprehensively examines and discusses SMBC Group’s various work processes from the perspective of compli- ance. SMBC Group has established a framework to provide specific action plans for each group company to imple- ment compliance and promote the development of compli- ance systems, and for the unified management of overseas compliance frameworks. When we receive consultations and/or reports on compliance-related matters from group companies and overseas offices, we provide suggestions and guidance as necessary to ensure complete compli- ance at the Group and Global levels. Holding Company (Sumitomo Mitsui Financial Group) Board of Directors Audit Committee Group Management Committee Audit Dept. Compliance Committee Group CCO Compliance Dept. Group Companies Initiatives for Supporting Healthy Risk Taking and Appropriate Risk Management In order for companies to coexist with society and develop sustainable growth, it is crucial to take an appropriate amount of risks and to maintain appropriate risk manage- ment, including compliance. In particular, financial institu- tions should emphasize compliance and risk management, considering its public mission and the heaviness of the social responsibility. Based on this recognition, management positions the strengthening of compliance and risk management as a key issue in enabling SMBC Group to fulfill its public mis- sion and social responsibilities. SMBC Group is therefore devoted to improving its systems in these areas in order to become a truly outstanding global group. Specifically, SMBC Group has defined the Principles of Action on Compliance and Risk to serve as guidelines for executives and employees in practicing compliance and risk management. Continuous reviews are carried out to improve compliance with these guidelines and to ensure their effectiveness. Anti-Money Laundering (AML), Countering the Financing of Terrorism (CFT) and Economic Sanctions by contacting outside professionals specializing in such matters. SMBC Group recognizes the importance of preventing money laundering and terrorist financing (ML/TF), and of compliance with regulations concerning state economic sanctions and therefore, undertakes every effort to prevent ourselves and employees, from engaging in, and/or provid- ing assistance to, the commission of ML/TF, and to comply with regulations concerning economic sanctions imposed on states. SMBC Group strictly complies with AML/CFT and eco- nomic sanctions regulations by establishing a Group Policy and by implementing effective internal control systems in each of the Group companies to ensure that our operations are sound and appropriate. The Group Policy and systems are implemented in accordance with the requirements of the relevant interna- tional organizations (e.g. the United Nations, the Financial Action Task Force Recommendations) and the laws/regu- lations of relevant countries including Japan in which the SMBC Group has operations (e.g. U.S. “Office of Foreign Assets Control Regulations”). In April 2019, SMBC entered into a written agreement with the Federal Reserve Bank of New York (the “Reserve Bank”) to improve its New York Branch’s program for compliance with the Bank Secrecy Act (“BSA”) and related U.S. anti-money laundering (“AML”) laws and regulations, which was found to be inadequate by the Reserve Bank. Furthermore, SMBC is working to improve compliance on a global basis while taking other necessary actions based on the written agreement with the Reserve Bank. Response to Anti-Social Forces SMBC Group has established a basic policy stipulating that all Group companies must unite in establishing and maintaining a system that ensures that the Group does not have any connection with anti-social forces or related individuals. Specifically, the Group strives to ensure that no busi- ness transactions are made with anti-social forces or indi- viduals. Contractual documents or terms and conditions state the exclusion of anti-social forces from any business relationship. In the event that it is discovered subsequent to the commencement of a deal or trading relationship that the opposite party belongs to or is affiliated with an antisocial force, we undertake appropriate remedial action Basic Policy for Anti-Social Forces 1. Completely sever any connections or relations from antiso- cial forces. 2. Repudiate any unjustifiable claims, and do not engage in any “backroom” deals. Further, promptly take legal action as necessary. 3. Appropriately respond as an organization to any anti-social forces by cooperating with outside professionals. Customer Information Management SMBC Group has established Group policies that set forth guidelines for the entire Group regarding proper protection and use of customer information. All Group companies adhere to these policies in developing frameworks for managing customer information. Group companies establish and disclose privacy policies for their measures regarding the proper protection and use of customer information and customer numbers. Appropriate frameworks are established based on these policies. Anti-Bribery and Corruption The SMFG Group Policies for Anti-Bribery Compliance and Ethics have been established to prevent business entertainment and the provision or receipt of anything of value that violate laws, regulations or social practices and customs. Group companies have developed frameworks to prevent bribery and corruption based on these policies. The Compliance Department conducts annual bribery and corruption risk assessments of the offices of the major Group companies to identify transaction and counterpar- ty-related risks, and to assess the effectiveness of controls. Risk assessment results are reported to the Compliance Committee, and following consultation with the companies and offices in question, appropriate risk mitigations are put in place in Group company offices identified as being at high risk. 130 SMBC GROUP ANNUAL REPORT 2023 SMBC GROUP ANNUAL REPORT 2023 131 Corporate Infrastructure Supporting Value Creation Value Creation at SMBC Group Business Strategies for Creating Value Corporate Infrastructure Supporting Value Creation Customer-Oriented Initiatives Our Approach SMBC Group companies are united in their efforts for customer experience (CX) and quality improvement in line with “Our Mission,” which states “We grow and prosper together with our customers, by providing services of greater value to them.” CX Improvement System We have established the CX Improvement Subcommittee as well as the CX Improvement Committee, through which we are advancing initiatives, reinforcing management systems, and promoting Group coordination related to customer-oriented business conduct. Outside experts are invited to serve as advisors at meetings of the CX Improve- ment Subcommittee, where information is exchanged on how to fully entrench a customer-oriented mindset. Meanwhile, the CX Improvement Committee, which shares members with the Group Management Committee, Incorporation of Customer Feedback into Management Holding Company (Sumitomo Mitsui Financial Group) CX Improvement Committee Instruct Report CX Improvement Subcommittee Verify Report / Share Group Companies Information gathering Analysis Feedback Improvement activities Customer Declaration of Compliance with ISO 10002 SMBC, SMBC Nikko Securities, and SMBC Consumer Finance have declared their intent to comply with the ISO 10002 (JIS Q 10002) international standard with regard to their processes for incorporating customer feedback into management. deliberates on concrete measures based on reports from the CX Improvement Subcommittee. The appropriateness and efficacy of customer-ori- ented business conduct is reviewed and assessed by the Audit Department, the results of which are reported regu- larly to the Audit Committee, a subcommittee of the Board of Directors, and to the Group Management Committee. Customer feedback, including complaints, is also regularly reported to the Audit Committee. Initiatives to Improve Product and Service Quality In order to provide customer-oriented products and ser- vices, SMBC Group always confirms that adequate assess- ments and responses to possible risks are taken during the planning and development stages, and that there is cus- tomer demand. We also carry out periodic quality reviews of existing services, and the CX Improvement Subcommittee, composed of external experts and relevant heads of depart- ment, reviews and discusses the efforts of each Group com- pany to improve the quality of our products and services. Customer-Oriented Business Initiative Based on the Principles for Customer-Oriented Business Conduct (a guideline on fiduciary duties) released by the Financial Services Agency, SMBC Group formulated its Basic Policy for Customer-Oriented Business Conduct and the Basic Policy for Customer-Oriented Business Conduct in the Retail Business Unit. Basic Policy for Customer-Oriented Business Conduct* (Excerpt) Initiatives for Promoting Customer-Oriented Business Conduct SMBC Group will implement the following initiatives to entrench the principles of customer-oriented business conduct into its activities. 1. Provision of Products and Services Suited to the Customer 2. Easy-to-Understand Explanation of Important Information 3. Clarification of Fees 4. Management of Conflicts of Interest 5. Frameworks for Properly Motivating Employees SMBC Group aims to facilitate the shift from savings to asset holding seen in Japan through such initiatives. Furthermore, we will period- ically disclose information on initiatives by SMBC Group based on this policy with the aim of facilitating understanding regarding these initiatives among customers. In addition, the status of initiatives and their results will be verified so that initiatives can be revised as nec- essary to improve upon operating practices. Information regarding these verifications and revisions will be disclosed. * Group companies applicable under this policy: Sumitomo Mitsui Banking Corporation; SMBC Trust Bank Ltd.; SMBC Nikko Securities Inc.; Sumitomo Mitsui DS Asset Management Company, Limited Basic Policy for Customer-Oriented Business Conduct in the Retail Business Unit Based on Sumitomo Mitsui Financial Group’s Basic Policy for Customer-Oriented Business Conduct, the Retail Busi- ness Unit shall adhere to the following conduct policies in offering service as a retail company that is responsible for providing wealth management and asset building services for individual customers. In accordance with these policies, the Retail Business Unit shall implement a plan– do– check–act (PDCA) cycle that entails disclosing specific indicators, confirming and analyzing its status in relation to these indicators, and utilizing this information in the future to improve business practices. Conduct Policies 1. Customer-Oriented Wealth Management Proposals Based on Medium- to Long-Term Diversified Investment With a focus on accurately addressing customers’ wealth management needs related to protecting or building assets, we will provide customer-oriented wealth man- agement proposals based on medium- to long-term diversified investment. Through this approach, we strive to deliver customer-oriented financial products. 2. Lineup of Customer-Oriented Products We shall constantly revise our product lineup, utilizing third-party evaluations of the products of Group com- panies and other products as necessary, in order to enhance our lineup so that we can accurately address customers’ needs related to protecting or building assets. At the same time, we will increase the amount of information provided to customers and take steps to ensure that this information is easy to understand. 3. Customer-Oriented After-Sales Services We will provide fine-tuned after-sales services to help customers continue to hold our wealth management products with peace of mind over the long term. 4. Customer-Oriented Performance Evaluation Systems We shall develop performance evaluation systems that encourage employees to engage in effective custom- er-oriented sales activities. 5. Improvement of Consulting Capabilities We shall continuously improve our consulting capa- bilities to ensure we are always capable of proposing the best possible solution for customers’ wide-ranging needs. For information on the Basic Policy for Customer-Oriented Business Conduct, please see pages 168-169. 132 SMBC GROUP ANNUAL REPORT 2023 SMBC GROUP ANNUAL REPORT 2023 133 16 Risks and returns of investment trusts with top-ranking balance 450 300 (Tens of thousands of people) Mar. 18 Mar. 19 Mar. 20 (Tens of thousands of people) Mar. 22 Mar. 23 Mar. 21 0 40 Increase in balance of investment assets (since Apr. 2013) (JPY tn) +10 +8 +6 +4 +2 Increase in balance of investment assets (since Apr. 2013) Number of Customers Using Wealth Management Products (Indicator 3) (JPY tn) We continue to increase the number of customers using +10 +0 wealth management products by working to accurately ’21 address customers’ needs related to protecting or building +8 assets. ’22 ’18 ’20 ’19 (FY) Number of customers using wealth management products (left axis) Number of customers commencing new transactions (right axis) +6 +4 (Tens of thousands of people) (Tens of thousands of people) ’18 ’19 ’20 ’21 ’22 (FY) 40 30 20 450 +2 425 +0 400 375 350 Number of customers using wealth management products (left axis) 10 325 Number of customers commencing new transactions (right axis) 425 Number of Investment Trust and Automatic Foreign Currency Number of investment trust and automatic foreign currency deposit accounts Deposit Accounts (Indicator 8) 400 30 Number of such customers who are under 50 20 To respond to the needs of customers seeking to begin ac- 375 (Tens of thousands of accounts) quiring assets, we have been aggressively proposing invest- 60 350 ment trust products that allow for small-sum investments 50 325 as well as time-dispersed investments in automatic foreign currency deposits. As a result, there has been steady 300 40 growth in the number of investment trust and automatic foreign currency deposit accounts. 30 Mar. 18 Mar. 19 Mar. 22 Mar. 23 Mar. 21 Mar. 20 10 0 (Tens of thousands of accounts) 60 0 ’18 ’19 ’20 ’21 ’22 (FY) 50 40 30 20 10 0 ’18 ’19 ’20 ’21 ’22 (FY) 20 10 Number of investment trust and automatic foreign currency deposit accounts (JPY bn) Number of such customers who are under 50 Value Creation at SMBC Group Business Strategies for Creating Value Corporate Infrastructure Supporting Value Creation IT Governance Our Approach We are strengthening resilience in order to protect unchanged value and respond to new risks associated with the provision of new value. We will pursue the dual goals of social and economic value through a continuous shift from people to IT systems, the expansion of development IT systems to support this shift, and the development and control of IT system architecture. As a financial mega-group responsible for social infrastructure, we combine stability and flexibility, leveraging digital technology to drive our business. IT Investment Strategies With the aim of fueling further growth of SMBC Group and to accelerate its digital strategy in Japan and overseas, we have increased the CEO budget by an additional 30% from the previous Medium-Term Management Plan, bringing its total value to ¥180 billion. The CEO budget can be used to make flexible investments in fields the Group CEO deems to be vital to the business. Total IT investment under the new Medium-Term Management Plan has been increased to ¥650 billion, up by ¥115 billion from the previous plan, making it possible to allocate resources with an emphasis on strategic investments, such as promoting digitalization, strengthening internal controls, reinforcing management foundations including building greater resilience, and implementing business strategies. Enhance IT infrastructure through Aggressive Investment 650 535 Of which the CEO’s budget JPY 180 bn (up JPY 45 bn) FY2020-FY2022 FY2023-FY2025 Strengthening Resilience to Support Stable IT systems Operation As we continue progress toward digitization, we are work- ing to expand both functions and services linked between internal and external systems to improve customer con- venience. Due to these increased links, however, system failure threatens to cause greater impact to customers, making stable systems operation even more important. We are taking measures to prevent failures, such as allo- cating additional resources for critical systems, predictive failure detection and preventative maintenance, while also working to strengthen resilience in the event of a failure by improving our contingency plans, systematizing manual response and upgrading training content. Use of Advanced Technology and Steady Response to New Risks Digital technology is essential to business, and we are examining a wide range of advanced technologies to use it effectively. For example, we have from an early stage focused on generative AI, a technology that interprets intent in text and generates naturally-worded sentences, and quick- ly began in-house proof-of-concept testing. In addition to reducing the time employees spend on responding to inquiries and preparing planning documents, we are promoting the widespread use of generative AI in the fields of image recognition, voice recognition, and advanced system development. In order to control AI-related risk, we ensure that internal rules, such as having employees judge the accuracy of the content of AI responses, are thoroughly enforced and reviewed as appropriate in light of the latest developments in regulations, etc. Contribute to Solving Societal Issues and Work to Create New Value to Society As part of its efforts to address the environment, which has long been a priority issue for SMBC Group, the Group is supporting its customers’ decarbonization efforts with Sus- tana, a service that visualizes greenhouse gas emissions, while SMBC Group itself is working toward net zero GHG emissions in 2030. SMBC Group’s data centers account for about a quarter of the Group’s GHG emissions in Japan, and in addition to working on measures to save energy at existing centers including AI-driven air conditioning control optimization and expansion of solar power generation facil- ities, we will further reduce environmental impact through energy conservation at the next-generation data centers we are planning. In addition, as a contribution to “Japan’s Regrowth,” SMBC Group will provide a variety of digital and IT training, which is planned and supervised by the Digital University, SMBC Group’s in-house digital and IT training organization. SMBC GROUP ANNUAL REPORT 2023 135 Corporate Infrastructure Supporting Value Creation Customer-Oriented Initiatives Disclosed Indicators* Increase in balance of investment assets 1 2 Balance of investment trusts and fund wraps 3 Number of customers using wealth management products 4 Ratio sales by wealth management product 5 Average investment trust holding period 6 Fund wrap sales and cancellation amounts 7 Amount of fixed-term foreign currency deposits 8 Number of investment trust and automatic foreign currency deposit accounts 9 Amount of investment trusts and automatic foreign currency deposits 10 Tsumitate Nisa account numbers, balances, and ratio of new users 11 By product sales amounts of lump-sum insurance products 12 Ratio of sales of investment trust products of Group companies 13 Sales amounts of investment trusts (including fund wraps) (Breakdown of monthly allocation type and others) 14 Breakdown of losses and gains by customers using investment trusts and fund wraps 15 Costs and returns of investment trusts with top-ranking balance amounts amounts 17 Foreign currency-denominated insurance investment ratings by cus- tomer 18 Foreign currency-denominated insurance costs and return by brand 19 Acquisition status of FP qualifications *as of May, 2023 Performance with Regard to Disclosed Indicators Increase in Balance of Investment Assets (Indicator 1) In FY2022, the total balance of investment assets for SMBC, SMBC Nikko Securities, and SMBC Trust Bank continued to grow due in part to the continuation of cus- tomer-oriented initiatives focused on medium- to long-term diversified investment. Increase in balance of investment assets (since Apr. 2013) (JPY tn) +10 +8 +6 +4 +2 +0 ’18 ’19 ’20 ’21 ’22 (FY) Note: Figures represent the combined total for the Retail Banking Unit of SMBC and the Retail (Private) of SMBC Nikko Securities. 134 SMBC GROUP ANNUAL REPORT 2023 Number of customers commencing new transactions (right axis) Number of customers using wealth management products (left axis) (Tens of thousands of people) (Tens of thousands of people) 40 30 20 10 0 Mar. 18 Mar. 19 Mar. 20 Mar. 21 Mar. 22 Mar. 23 Number of investment trust and automatic foreign currency deposit accounts Number of such customers who are under 50 (Tens of thousands of accounts) 450 425 400 375 350 325 300 60 50 40 30 20 10 0 ’18 ’19 ’20 ’21 ’22 (FY) Corporate Infrastructure Supporting Value Creation Value Creation at SMBC Group Business Strategies for Creating Value Corporate Infrastructure Supporting Value Creation Cybersecurity Our Approach The risk of cyber threats is growing ever more serious as a result of the accelerated digitization of financial services and changes to the surrounding environment. We will further strengthen our security measures in order to achieve a society that is resilient to cyber threats and provide safer and more secure services to our customers. Cybersecurity Management System Governance System SMBC Group considers cyber threats to be one of the most important risks to its business, and is continuously promot- ing management-led cybersecurity initiatives under the “Declaration of Cybersecurity Management.” In order to clarify the roles and responsibilities of promoting effective security measures, a specialist CISO*1 has been assigned under the Group CIO and CRO, and the Head of the System Security Planning Department is responsible for this role. The CISO promotes cybersecurity strategies in unison with management through discus- sions at meetings including the Management Committee meeting. Under the leadership of the CISO, the Company is creating a responsive posture to growing cyber threats on a group and global basis. *1 Chief Information Security Officer Incident Response System SMBC Group has established a Computer Security Incident Response Team (CSIRT)*2 and a Security Operation Center (SOC)*3 to create a response system with which to prepare for, and respond to, incidents. The CSIRT is an organization in which the System Security Planning Department, responsible exclusively for cybersecurity, plays a central role. Working to ensure preparation for cyber incidents, the CSIRT actively gathers information on attackers’ methods and vulnerabilities from both within the Group and externally, and where necessary shares this information with national government agencies as well as with external institutions such as FS-ISAC*4 in the U.S. and ISAC in Japan. SMBC Group’s Cybersecurity Governance System The SOC is organized around the Japan Research Institute and has a 24-hour, 365-day monitoring system. We are also working to further strengthen security monitor- ing on a group and global basis in cooperation with SOCs established in Europe, the U.S., and Asia. Corporate staff IT Planning Department Corporate Planning Department Public Relations Department General Affairs Department Risk Management Department Board of Directors / Management Committee Group CIO Group CRO CISO (Chief Information Security Officer) System Security Planning Dept. Group companies and offices in Japan / overseas Group companies and offices in Japan / overseas CSIRT (Computer Security Incident Response Team) Government, law enforcement agencies ISAC, industry bodies NISC FS-ISAC Metropolitan Police Department Financials ISAC Japan CEPTOAR council Etc. Etc. Security vendors, experts etc. SMBC Group has also centralized its Japanese secu- rity functions at the Cyber Fusion Center (CFC) to ensure constant and close coordination between CSIRT and SOC. *2 Computer Security Incident Response Team *3 Security Operation Center *4 Financial Services Information Sharing and Analysis Center Global Information Aggregation • Cyber Threat Information • Incident occurrence and state of response etc. Japanese Security Function Consolidation • System Security Management • Support for Group Companies • Security Measures Planning • Cyber Threat Trend Analysis • Incident Response • Security Monitoring etc. SMBC Group CFC Key Measures related to Cybersecurity Cybersecurity Measures The Company possesses a multilayered defense system that includes detection and interception of suspicious communications from the outside, as well as operation and monitoring of various security services and systems, in preparation against various cyberattacks such as unautho- rized and mass access attacks. We also expect to further mature our intelligence functions, which collect and analyze information on attack- ers’ latest tactics and trends. In addition, in preparation against possible attacks, we are working to further strengthen our cyber resilience through simulated attack exercises conducted by outside experts and regular participation in cyberattack response exercises organized by the Financial Services Agency and the ISAC. Security Awareness and Professional Development SMBC Group conducts ongoing awareness-raising activi- ties through e-mail drills and study sessions to further fos- ter a culture that encourages conscious efforts to address security measures. In terms of professional personnel, we have actively recruited career professionals and established the Cyber- security Course for new graduates recruited. We are also focusing on developing core personnel through further participation in external industry associations, sending staff to graduate schools in Japan and abroad, and sup- porting them in obtaining and maintaining professional certifications. 136 SMBC GROUP ANNUAL REPORT 2023 SMBC GROUP ANNUAL REPORT 2023 137 Corporate Infrastructure Supporting Value Creation Value Creation at SMBC Group Business Strategies for Creating Value Corporate Infrastructure Supporting Value Creation Internal Audit Our Approach As a part of SMBC Group’s internal control framework, the Internal Audit Department (the Department) verifies the effectiveness of the internal control of each business unit, risk management and compliance departments, and other departments from an independent standpoint and pursues the quality of internal audits in order to contribute to development and the highest trust across the entire SMBC Group. Purpose and Mission of Internal Audit The purpose of internal audit at SMBC Group is the ob- jective provision of assurance*1 and consulting services in accordance with the policies and plans approved by the Board of Directors but independent of management, busi- ness unit and the departments responsible for risk man- agement and compliance, in order to add value to SMBC Group and improve its operations. The mission of internal audit at SMBC Group is to grow and preserve the value of SMBC Group by providing risk-based and objective assurance, advice and insight. *1 Reviewing the adequacy and effectiveness of each process relating to governance, risk management and control processes, and providing assurance and recommenda- tions for improvement based on the results. Overview of the Internal Audit Framework The Department has been established under the Audit Committee and is independent from each Business Unit, risk management and compliance departments, and other departments. Internal audits within our Group companies are structured broadly in line with SMFG. Group CAE over- sees group-wide internal audit activities. The Department verifies the appropriateness and the effectiveness of internal control that aims to assure the appropriateness of Group operations and the soundness of assets by conducting internal audits on each department and Group entity as well as conducting on continuous mon- itoring of Group companies’ internal auditing and other activities. The activities are based on the “Group Internal Audit Charter” and the “Audit Policy and Strategy” formu- lated by the Audit Committee and the Board of Directors. Major audit findings and relevant information are regularly reported to the Audit Committee, the Board of Directors, and the Group Management Committee. Whilst the Department strives to strengthen cooperation to conduct proper audit practices through regular information exchange with external auditors. Internal Audit Framework Holding Company (Sumitomo Mitsui Financial Group) Board of Directors Audit Committee*² Group Management Committee Reporting line Group CAE Internal Audit Dept. Group Companies *2 The Audit Committee holds the right to consent regarding personnel affairs of the Group CAE. Enhancement and Effectiveness of Internal Audit The Department has adopted auditing methods in ac- cordance with the Institute of Internal Auditors (IIA) stan- dards, conducts risk-based audits, and expands the same approach to Group companies. To implement effective and efficient internal audits, the Department conducts moni- toring by attending important meetings and by obtaining internal management documents of SMFG and Group companies. In addition, the Department strives to enhance group- wide internal auditors’ expertise by gathering up-to-date internal audit practices, providing the practices to Group companies, holding training programs, and encouraging au- ditors to obtain internal auditors’ international certification. Furthermore, the Department enhances its quality assurance on a group-wide basis by both fully satisfying the IIA standards and referring to G-SIFIs leading practices ESG Information Accreditation Acquired Top Gold Rating in PRIDE index Selected as a company exercising superior Recognized as a company that stands evaluation for LGBTQ-related initiatives work with Pride health and productivity management METI, Tokyo Stock Exchange, on the forefront of sustainable growth by heightening productivity through Nippon Kenko Kaigi workstyle reforms Nikkei Support for Initiatives in Japan and Overseas As a global corporate citizen part of global society, SMBC Group is fully aware of the social impact of financial institutions, and it supports the following initiatives in Japan and overseas (the action guidelines for corporate activities and principles). ESG Indices on which Sumitomo Mitsui Financial Group is Listed SMBC Group has been included in the following major global ESG indices (as of June 30, 2023). GPIF Selected Indices 138 SMBC GROUP ANNUAL REPORT 2023 SMBC GROUP ANNUAL REPORT 2023 139 Corporate Infrastructure Supporting Value Creation Financial Review Principal Financial Data Principal Financial Data Consolidated Performance Summary Consolidated Performance Summary Consolidated gross profit Consolidated gross profit Net interest income Net interest income Net fees and commissions + Trust fees Net fees and commissions + Trust fees Net trading income + Net other operating income Net trading income + Net other operating income General and administrative expenses General and administrative expenses Overhead ratio Overhead ratio Equity in gains (losses) of affiliates Equity in gains (losses) of affiliates Consolidated net business profit Consolidated net business profit (Reference) Consolidated net business profit (old definition) (Reference) Consolidated net business profit (old definition) Total credit cost (gains) Total credit cost (gains) Gains (losses) on stock Gains (losses) on stock Other income (expenses) Other income (expenses) Ordinary profit Ordinary profit Extraordinary gains (losses) Extraordinary gains (losses) Income taxes Income taxes Profit attributable to non-controlling interests Profit attributable to non-controlling interests Profit attributable to owners of parent Profit attributable to owners of parent Consolidated Balance Sheet Summary Consolidated Balance Sheet Summary Total assets Total assets Loans and bills discounted Loans and bills discounted Securities Securities Total liabilities Total liabilities Deposits Deposits Negotiable certificates of deposit Negotiable certificates of deposit Total net assets Total net assets Shareholders’ equity Shareholders’ equity Retained earnings Retained earnings Accumulated other comprehensive income Accumulated other comprehensive income Non-controlling interests Non-controlling interests Financial Indicators Financial Indicators Total capital ratio (BIS guidelines) Total capital ratio (BIS guidelines) Tier 1 capital ratio (BIS guidelines) Tier 1 capital ratio (BIS guidelines) Common equity Tier 1 capital ratio (BIS guidelines) Common equity Tier 1 capital ratio (BIS guidelines) Dividend per share (Yen) Dividend per share (Yen) Dividend payout ratio Dividend payout ratio ROE (on a stockholders’ equity basis) ROE (on a stockholders’ equity basis) Market Data (As of the end of each fiscal year) Market Data (As of the end of each fiscal year) Nikkei Stock Average (Yen) Nikkei Stock Average (Yen) Foreign exchange rate (USD/JPY) Foreign exchange rate (USD/JPY) FY2013 FY2013 2,898.2 2,898.2 1,484.2 1,484.2 987.1 987.1 427.0 427.0 1,569.9 1,569.9 54.2% 54.2% 10.2 10.2 1,338.5 1,338.5 1,242.4 1,242.4 (49.1) (49.1) 89.2 89.2 (44.5) (44.5) 1,432.3 1,432.3 (9.6) (9.6) 458.8 458.8 128.5 128.5 835.4 835.4 161,534.4 161,534.4 68,227.7 68,227.7 27,152.8 27,152.8 152,529.4 152,529.4 94,331.9 94,331.9 13,713.5 13,713.5 9,005.0 9,005.0 6,401.2 6,401.2 3,480.1 3,480.1 878.0 878.0 1,724.0 1,724.0 15.51% 15.51% 12.19% 12.19% 10.63% 10.63% 120 120 20.3% 20.3% 13.8% 13.8% 14,828 14,828 102.88 102.88 FY2014 FY2014 2,980.4 2,980.4 1,505.2 1,505.2 999.6 999.6 475.7 475.7 1,659.3 1,659.3 55.7% 55.7% (10.6) (10.6) 1,310.5 1,310.5 - - 7.8 7.8 66.7 66.7 (48.2) (48.2) 1,321.2 1,321.2 (11.8) (11.8) 441.4 441.4 114.4 114.4 753.6 753.6 183,442.6 183,442.6 73,068.2 73,068.2 29,633.7 29,633.7 172,746.3 172,746.3 101,047.9 101,047.9 13,825.9 13,825.9 10,696.3 10,696.3 7,018.4 7,018.4 4,098.4 4,098.4 2,003.9 2,003.9 1,671.7 1,671.7 16.58% 16.58% 12.89% 12.89% 11.30% 11.30% 140 140 26.2% 26.2% 11.2% 11.2% 19,207 19,207 120.15 120.15 FY2015 FY2015 2,904.0 2,904.0 1,422.9 1,422.9 1,007.5 1,007.5 473.5 473.5 1,724.8 1,724.8 59.4% 59.4% (36.2) (36.2) 1,142.9 1,142.9 - - 102.8 102.8 69.0 69.0 (123.9) (123.9) 985.3 985.3 (5.1) (5.1) 225.0 225.0 108.4 108.4 646.7 646.7 186,585.8 186,585.8 75,066.1 75,066.1 25,264.4 25,264.4 176,138.2 176,138.2 110,668.8 110,668.8 14,250.4 14,250.4 10,447.7 10,447.7 7,454.3 7,454.3 4,534.5 4,534.5 1,459.5 1,459.5 1,531.0 1,531.0 17.02% 17.02% 13.68% 13.68% 11.81% 11.81% 150 150 32.7% 32.7% 8.9% 8.9% 16,759 16,759 112.62 112.62 FY2016 FY2016 2,920.7 2,920.7 1,358.6 1,358.6 1,017.1 1,017.1 545.0 545.0 1,812.4 1,812.4 62.1% 62.1% 24.6 24.6 1,132.9 1,132.9 - - 164.4 164.4 55.0 55.0 (17.6) (17.6) 1,005.9 1,005.9 (26.6) (26.6) 171.0 171.0 101.8 101.8 706.5 706.5 197,791.6 197,791.6 80,237.3 80,237.3 24,631.8 24,631.8 186,557.3 186,557.3 117,830.2 117,830.2 11,880.9 11,880.9 11,234.3 11,234.3 8,119.1 8,119.1 5,036.8 5,036.8 1,612.5 1,612.5 1,499.3 1,499.3 16.93% 16.93% 14.07% 14.07% 12.17% 12.17% 150 150 29.9% 29.9% 9.1% 9.1% 18,909 18,909 112.19 112.19 * SMFG changed accounting treatment for installment sales transactions in FY2020; figures for FY2019 have been restated to reflect this change. Value Creation at SMBC Group Business Strategies for Creating Value Corporate Infrastructure Supporting Value Creation FY2018 FY2018 FY2019* FY2019* FY2017 FY2017 2,981.1 2,981.1 1,390.2 1,390.2 1,070.5 1,070.5 520.3 520.3 1,816.2 1,816.2 60.9% 60.9% 39.0 39.0 1,203.8 1,203.8 - - 94.2 94.2 118.9 118.9 (64.5) (64.5) 2,846.2 2,846.2 1,331.4 1,331.4 1,064.6 1,064.6 450.2 450.2 1,715.1 1,715.1 60.3% 60.3% 61.1 61.1 1,192.3 1,192.3 - - 110.3 110.3 116.3 116.3 (63.1) (63.1) 1,164.1 1,164.1 1,135.3 1,135.3 (55.3) (55.3) 270.5 270.5 104.0 104.0 734.4 734.4 199,049.1 199,049.1 72,945.9 72,945.9 25,712.7 25,712.7 187,436.2 187,436.2 116,477.5 116,477.5 11,220.3 11,220.3 11,612.9 11,612.9 8,637.0 8,637.0 5,552.6 5,552.6 1,753.4 1,753.4 1,219.6 1,219.6 19.36% 19.36% 16.69% 16.69% 14.50% 14.50% 170 170 32.7% 32.7% 8.8% 8.8% 21,454 21,454 106.25 106.25 (11.7) (11.7) 331.4 331.4 65.5 65.5 726.7 726.7 203,659.1 203,659.1 77,979.2 77,979.2 24,338.0 24,338.0 192,207.5 192,207.5 122,325.0 122,325.0 11,165.5 11,165.5 11,451.6 11,451.6 9,054.4 9,054.4 5,992.2 5,992.2 1,713.9 1,713.9 678.5 678.5 20.76% 20.76% 18.19% 18.19% 16.37% 16.37% 180 180 34.6% 34.6% 8.2% 8.2% 21,206 21,206 111.00 111.00 2,768.6 2,768.6 1,306.9 1,306.9 1,088.1 1,088.1 373.6 373.6 1,739.6 1,739.6 62.8% 62.8% 56.1 56.1 1,085.0 1,085.0 - - 170.6 170.6 80.5 80.5 (62.8) (62.8) 932.1 932.1 (43.4) (43.4) 167.7 167.7 17.1 17.1 703.9 703.9 219,863.5 219,863.5 82,517.6 82,517.6 27,128.8 27,128.8 209,078.6 209,078.6 127,042.2 127,042.2 10,180.4 10,180.4 10,784.9 10,784.9 9,354.3 9,354.3 6,336.3 6,336.3 1,365.7 1,365.7 62.9 62.9 18.75% 18.75% 16.63% 16.63% 15.55% 15.55% 190 190 37.0% 37.0% 7.6% 7.6% 18,917 18,917 108.81 108.81 FY2020 FY2020 2,806.2 2,806.2 1,335.2 1,335.2 1,098.9 1,098.9 372.1 372.1 1,747.1 1,747.1 62.3% 62.3% 25.0 25.0 1,084.0 1,084.0 - - 360.5 360.5 92.6 92.6 (105.0) (105.0) 711.0 711.0 (38.8) (38.8) 156.3 156.3 3.1 3.1 512.8 512.8 242,584.3 242,584.3 85,132.7 85,132.7 36,549.0 36,549.0 230,685.3 230,685.3 142,026.2 142,026.2 12,570.6 12,570.6 11,899.0 11,899.0 9,513.4 9,513.4 6,492.6 6,492.6 2,313.1 2,313.1 70.8 70.8 18.61% 18.61% 16.96% 16.96% 16.00% 16.00% 190 190 50.8% 50.8% 5.4% 5.4% 29,179 29,179 110.71 110.71 FY2021 FY2021 2,945.5 2,945.5 1,528.0 1,528.0 1,205.5 1,205.5 212.0 212.0 1,821.1 1,821.1 61.8% 61.8% 28.5 28.5 1,152.9 1,152.9 - - 274.4 274.4 209.1 209.1 (46.9) (46.9) 1,040.6 1,040.6 (111.0) (111.0) 214.5 214.5 8.4 8.4 706.6 706.6 257,704.6 257,704.6 90,834.1 90,834.1 38,538.7 38,538.7 245,507.3 245,507.3 148,585.5 148,585.5 13,069.8 13,069.8 12,197.3 12,197.3 9,938.6 9,938.6 6,916.5 6,916.5 2,159.6 2,159.6 97.6 97.6 16.56% 16.56% 15.46% 15.46% 14.45% 14.45% 210 210 40.7% 40.7% 7.3% 7.3% 27,821 27,821 122.41 122.41 (JPY bn) (JPY bn) FY2022 FY2022 3,170.2 3,170.2 1,717.8 1,717.8 1,225.7 1,225.7 226.7 226.7 1,949.2 1,949.2 61.5% 61.5% 55.5 55.5 1,276.4 1,276.4 - - 210.2 210.2 155.9 155.9 (61.2) (61.2) 1,160.9 1,160.9 (62.5) (62.5) 282.1 282.1 10.5 10.5 805.8 805.8 270,428.6 270,428.6 98,404.1 98,404.1 33,213.2 33,213.2 257,637.5 257,637.5 158,770.3 158,770.3 13,025.6 13,025.6 12,791.1 12,791.1 10,308.4 10,308.4 7,423.6 7,423.6 2,372.1 2,372.1 109.5 109.5 15.98% 15.98% 14.94% 14.94% 14.02% 14.02% 240 240 40.4% 40.4% 8.0% 8.0% 28,041 28,041 133.54 133.54 140 SMBC GROUP ANNUAL REPORT 2023 SMBC GROUP ANNUAL REPORT 2023 141 Corporate Infrastructure Supporting Value Creation Financial Review Consolidated Performance Summary Consolidated gross profit increased by ¥224.7 billion year-on-year to ¥3,170.2 billion due to well-balanced profit growth in major businesses in each business unit, including the impact of the depreciation of yen, an increase in loan balances for both domestic and interna- tional corporate customers and good results of ancillary businesses, as well as strong performance in the settle- ment business. General and administrative expenses increased year-on-year mainly due to the depreciation of yen and consolidation of Fullerton India*1, as well as higher vari- able marketing cost of Sumitomo Mitsui Card Company, which is successfully increasing new customers. Equity in gains of affiliates increased due to gains on change in equity interest at The Bank of East Asia, despite addi- tional impairment losses on aircraft leased to Russia by SMBC Aviation Capital. As a result, consolidated net business profit increased by ¥123.6 billion year-on-year to ¥1,276.4 billion. Total credit cost decreased by ¥64.2 billion year- on-year to ¥210.2 billion because of the reaction to the reserves recorded for large domestic and overseas obligors in the previous consolidated fiscal year, despite recognizing forward-looking provisions to prepare for future uncertainties such as inflation or recession under interest rate hike overseas. In addition to the factors above, ordinary profit increased by ¥120.3 billion year-on-year to ¥1,160.9 billion, due to factors including the recording of gains on sales of strategic shareholdings. Profit attributable to owners of the parent in- creased by ¥99.2 billion year-on-year to ¥805.8 billion, despite recognizing impairment losses for branches at SMBC. (JPY bn) FY2022 Increase (Decrease) Consolidated gross profit General and administrative expenses Equity in gains (losses) of affiliates Consolidated net busi- ness profit Total credit cost Gains (losses) on stocks Ordinary profit Profit attributable to owners of parent 3,170.2 1,949.2 55.5 1,276.4 210.2 155.9 1,160.9 805.8 +224.7 +128.1 +27.0 +123.6 (64.2) (53.2) +120.3 +99.2 Performance of Major Group Companies (Left: FY2022 performance; Right: Year-on-year comparison) SMBC SMBC Trust Gross profit 1,699.5 +120.3 Expenses Net business profit Net income Gross profit Expenses Net business profit Net income Gross profit Expenses Net business profit Net income Gross profit Expenses Net business profit Net income 883.6 815.9 634.2 +26.4 +93.9 +87.9 58.2 36.8 21.4 17.1 SMBC Nikko*2 SMCC 263.4 325.3 (61.9) (45.7) (125.4) +0.6 (126.0) (93.8) 449.4 375.5 74.3 21.8 SMBCCF*3 SMDAM 36.1 30.3 5.8 3.3 278.4 126.7 133.6 44.1 SMFL*4 271.0 122.4 158.4 51.8 +7.4 +5.7 (16.5) (22.6) 50% +37.6 +19.2 +20.2 +16.4 Ratio of Ownership by SMFG *1 Fullerton India changed its name to SMFG India Credit Company on May 11, 2023. *2 Figures are on a managerial accounting basis including profit from overseas equity method affiliates of SMBC Nikko Securities Inc. (consolidated subsidiaries of SMFG). *3 Year-on-year comparison retroactively reflects impact of reorganization. *4 Figures are on a managerial accounting basis. Value Creation at SMBC Group Business Strategies for Creating Value Corporate Infrastructure Supporting Value Creation (JPY bn) +9.7 (7.3) +17.0 +33.0 +43.4 +35.6 +8.4 +2.0 50% (3.1) +0.1 (3.2) (2.1) Consolidated Balance Sheet Summary Loans and Bills Discounted (SMBC non-consolidated) The balances of loan and bills discounted increased by ¥6.6 trillion year-on-year to ¥94.3 trillion. This was mainly due to addressing firm demand for funds in Japan primarily from small and medium-sized enterprises (SMEs) including demand for growth capital with stimulating business activity in anticipation of the post-COVID era, as well as capturing demand for funds in overseas centered around America. Balance of Loans (JPY tn) 76.4 22.4 80.2 25.6 81.9 25.0 87.7 29.7 54.0 54.6 56.9 58.0 94.3 33.2 61.1 100 50 0 Mar.19 Mar.20 Mar.21 Mar.22 Mar.23 ■ Domestic offices (excluding Japan offshore banking accounts) ■ Overseas offices and Japan offshore banking accounts Deposits (SMBC non-consolidated) Deposits increased by ¥8.9 trillion year-on-year to ¥149.9 tril- lion. This increase was mainly due to increases in both individual and corporate deposits in Japan. Balance of Deposits (JPY tn) ■ Individuals (domestic) ■ Corporates (domestic) ■ Others 150 75 0 116.1 120.0 134.7 141.0 149.9 50.2 53.1 59.3 62.6 65.1 47.1 49.1 53.4 56.1 57.9 Mar.19 Mar.20 Mar.21 Mar.22 Mar.23 Domestic Loan-to-Deposit Spread (SMBC non-consolidated) The domestic loan-to-deposit spread, calculated by subtracting the value of deposits from the value of loans, remained virtually unchanged from the previous year at 0.83%. Domestic Loan-to-Deposit Spread FY2022 (%) FY2021 Interest earned on loans and bills discounted Interest paid on deposits, etc. Loan-to-deposit spread 1Q 2Q 3Q 4Q Yearly average Yearly average 0.83 0.84 0.81 0.82 0.83 0.84 0.00 0.00 0.00 0.00 0.00 0.83 0.84 0.81 0.82 0.83 0.00 0.84 Securities Other securities decreased by ¥5,650.0 billion year-on-year to ¥32,465.0 billion due to decrease in the amount of Japanese government bonds required to be held by SMBC for collateral purpose. Net unrealized gains on other securities decreased by ¥362.1 billion year-on-year to ¥1,915.1 billion, mainly due to lower unrealized gains resulting from progress in reducing strategic-shareholding, as well as a deterioration in unrealized profit and loss on foreign bonds due to higher interest rates overseas. Unrealized Gains (Losses) on Other Securities (JPY bn) Balance Net unrealized gains (losses) March 31, 2023 YoY March 31, 2023 YoY Stocks Bonds Others 3,345.4 (58.0) 1,944.8 13,177.5 (6,382.8) 15,942.1 +790.9 (64.2) 34.6 Total 32,465.0 (5,650.0) 1,915.1 (88.9) (14.1) (259.0) (362.1) NPLs Based on the Banking Act and Financial Reconstruction Act The balance of NPLs based on the Banking Act and the Finan- cial Reconstruction Act decreased by ¥229.7 billion year-on- year to ¥927.8 billion due to reducing the balances of some large obligors. The NPL ratio also improved by 0.28% over the previous year, reaching 0.80%. NPLs Based on the Banking Act and NPL Ratio (JPY bn) （%） 1,500 1,000 500 0 966.5 1,157.6 927.8 805.3 695.2 650.3 476.5 428.6 0.76 0.54 0.68 0.46 627.8 0.98 0.65 1.08 0.77 586.6 0.80 0.52 Mar.23 Mar.19 Mar.20 Mar.21 Mar.22 Balance: ■ Consolidated ■ SMBC non-consolidated Ratio: ■ Consolidated ■ SMBC non-consolidated 6 4 2 0 142 SMBC GROUP ANNUAL REPORT 2023 SMBC GROUP ANNUAL REPORT 2023 143 Appendix I CONTENTS Group Companies .......................................... 146 Corporate Data ............................................... 175 Risk Management ........................................... 151 Sumitomo Mitsui Financial Group, Inc. Internal Reporting Systems and Hotline for Inappropriate Accounting and Auditing Activities .................................... 167 Basic Policy for Customer-Oriented Business Conduct ........................................... 168 Support for Mid-Sized Corporations and SMEs, Vitalization of Local Regions in Japan ............ 170 Employees ....................................................... 172 Main Work-Life Balance Support System ........ 174 Directors and Executive Officers ................ 175 Sumitomo Mitsui Financial Group Organization ............................................... 176 Sumitomo Mitsui Banking Corporation Board of Directors, Directors, Members of the Audit and Supervisory Committee and Executive Officers ........................................ 177 SMBC Organization ..................................... 180 Principal Subsidiaries and Affiliates ................ 182 Principal Domestic Subsidiaries ................. 182 Principal Overseas Subsidiaries ................. 183 Principal Affiliates ........................................ 184 International Directory .................................... 185 Corporate Infrastructure Supporting Value Creation Financial Review Capital Capital Common equity Tier 1 capital increased by ¥380.6 bil- lion from the end of the previous fiscal year to ¥10,839.0 billion, primarily due to an increase in profit attributable to owners of the parent and foreign exchange effects. As a result, Tier 1 capital increased by ¥362.7 billion to ¥11,548.9 billion and total capital increased by ¥367.0 billion to ¥12,350.8 billion. Risk-Weighted Assets Risk-weighted assets increased by ¥4,935.0 billion from the end of the previous fiscal year to ¥77,285.0 billion, mainly due to an increase in loans in Japan and overseas. Capital Ratio As a result of the above, the Common Equity Tier 1 ratio, which represents the most important form of core capital, stood at 14.02%, while the total capital ratio was 15.98%. Both ratios remain adequate. Leverage Ratio Despite an increase in Tier 1 capital, the leverage ratio fell by 0.14% to 5.03%, mainly due to an increase in on-bal- ance assets, as a result of an increase in loans in Japan and overseas. External TLAC Ratio In addition to increasing our own equity capital, SMBC Group seeks to increase external TLAC capital by procuring external TLAC bonds primarily from overseas corporate bond markets. The external TLAC ratio was 25.28% on a risk-weighted asset basis and 9.72% on a total exposure basis, exceeding the mandated levels on both items. Total Capital Ratio (BIS Guidelines) (JPY bn) March 31, 2023 (A) March 31, 2022 (B) YoY (A–B) Common equity Tier 1 capital 10,839.0 10,458.4 +380.6 Additional Tier 1 capital 710.0 727.8 (17.8) Tier 1 capital Tier 2 capital Total capital 11,548.9 11,186.2 +362.7 801.9 797.5 +4.4 12,350.8 11,983.8 +367.0 Risk-weighted assets 77,285.0 72,350.1 +4,935.0 Common equity Tier 1 capital ratio Tier 1 ratio Total capital ratio 14.02% 14.94% 15.98% 14.45% 15.46% 16.56% (0.43)% (0.52)% (0.58)% Leverage Ratio Leverage ratio External TLAC Ratio 5.03% 5.17% (0.14)% Risk-weighted asset basis 25.28% 24.98% Total exposure basis 9.72% 9.54% +0.30% +0.18% Total Exposure Total exposure* 229,517.0 216,080.4 +13,436.6 * Excludes deposits with the Bank of Japan 144 SMBC GROUP ANNUAL REPORT 2023 SMBC GROUP ANNUAL REPORT 2023 145 Group Companies (as of March 31, 2023) The companies of Sumitomo Mitsui Financial Group primarily conduct commercial banking through the following financial services: leas- ing, securities, consumer finance, system development data processing, and asset management. Business Mission • We grow and prosper together with our customers, by providing services of greater value to them. • We aim to maximize our shareholders’ value through the continuous growth of our business. • We create a work environment that encourages and rewards diligent and highly motivated employees. • We contribute to a sustainable society by addressing environmental and social issues. Company Name: Sumitomo Mitsui Financial Group, Inc. Business Description: 1. Management of banking subsidiaries and other companies that can be treated as subsidiaries under the stipulations of Japan’s Banking Act as well as the performance of ancillary functions 2. Functions that can be performed by bank holding companies under the stipulations of Japan’s Banking Act Establishment: December 2, 2002 Head Office: 1-2, Marunouchi 1-chome, Chiyoda-ku, Tokyo, Japan Chairman of the Board: Takeshi Kunibe President: Jun Ohta Capital: ¥2,341.8 billion Stock Exchange Listings: Tokyo Stock Exchange (Prime Market) Nagoya Stock Exchange (Premier Market) Notes: 1. American Depositary Receipts (ADRs) are listed on the New York Stock Exchange. Credit Ratings (as of June 30, 2023) Moody’s Standard & Poor’s Fitch Ratings R&I JCR Long-term Short-term A1 A– A– A+ AA– P–1 — F1 — — Financial Information (Consolidated basis, years ended March 31) 2023 Billions of yen 2021 2022 2020 1,160�9 1,040�6 For the Year: Ordinary income �������� ¥ 6,142�1 ¥ 4,111�1 ¥ 3,902�3 ¥ 4,591�8 Ordinary profit��������� 932�0 Profit attributable to owners of parent ����� At Year-End: Net assets �������������� ¥12,791�1 ¥12,197�3 ¥ 11,899�0 ¥ 10,784�9 Total assets ������������ 270,428�5 257,704�6 242,584�3 219,863�5 Note: All amounts shown are rounded down to the nearest 100 million� 711�0 805�8 703�8 706�6 512�8 www.smbc.co.jp/global/index.html Sumitomo Mitsui Banking Corporation (“SMBC”) was established in April 2001 through the merger of the two leading banks of The Sakura Bank, Limited and The Sumitomo Bank, Limited. Sumitomo Mitsui Financial Group, Inc. was established in December 2002 as a bank holding company through a share transfer, and SMBC became a wholly owned subsidiary of Sumitomo Mitsui Financial Group. In March 2003, SMBC merged with The Wakashio Bank, Ltd. SMBC’s competitive advantages include its solid and extensive client base, the expe- ditious implementation of strategies, and also the service providing capability of its predominant Group companies. Under the management of Sumitomo Mitsui Financial Group, SMBC will unite with other SMBC Group companies in an effort to provide highly sophisticated and comprehensive financial services to clients. Company Name: Sumitomo Mitsui Banking Corporation Business Profile: Commercial banking Establishment: June 6, 1996 Head Office: 1-2, Marunouchi 1-chome, Chiyoda-ku, Tokyo, Japan President and CEO: Akihiro Fukutome (Concurrent Director at Sumitomo Mitsui Financial Group) Number of Employees: 27,839 Number of branches and other business locations: 1,756* In Japan: Branches: 524 (Including 47 specialized deposit account branches) 393 Sub-branches: 2 Banking agencies: 837 Automated service centers: 45 19 23 3 * The number of domestic branches excludes ATMs located at retail convenience stores. The number of overseas branches excludes branches that are closing and locally incorporated companies overseas. Overseas: Branches: Sub-branches: Representative offices: Credit Ratings (as of June 30, 2023) Moody’s Standard & Poor’s Fitch Ratings R&I JCR Long-term Short-term A1 A A– AA– AA P–1 A–1 F1 a–1+ J–1+ Financial Information (Consolidated basis, years ended March 31) 2023 Billions of yen 2021 2022 2020 867�8 1,125�9 For the Year: Ordinary income ������� ¥ 4,991�9 ¥ 2,990�4 ¥ 2,786�6 ¥ 3,469�0 Ordinary profit �������� 770�4 Profit attributable to owners of parent ����� At Year-End: Net assets �������������� ¥ 9,735�5 ¥ 9,219�8 ¥ 9,256�3 ¥ 8,368�3 Total assets ������������ 252,567�5 242,105�9 228,066�5 206,089�6 Note: All amounts shown are rounded down to the nearest 100 million� 534�7 517�7 807�0 568�2 406�0 www.smfg.co.jp/english/ www.smbctb.co.jp/en SMBC Trust Bank, formerly Societe General Private Banking (Japan), and Citibank’s retail banking business (Japan) now under the new “PRESTIA” brand, will celebrate 10th anniver- sary as a member of SMBC Group in October 2023. Our goal has been to contribute to our customers and society by providing compre- hensive and advanced solutions connecting three functions; “Foreign Currency, Real Estate, and Trust”. Under the new vision of “Becoming a ‘Trust Bank’ that grows together with our customers and society as a solution provider of foreign currency, real estate and trust services”, the management goal is defined as “Create the ‘Next’” in our Medium- Term Management Plan beginning from FY2023. We continue to address sustainable growth and further enhance our corporate value by realizing this vision. Sumitomo Mitsui Finance and Leasing is one of the top-class general leasing companies in Japan. We provide a range of services that help to solve our customers’ business and social issues by leveraging our expertise cul- tivated across more than 50 years in the leasing business, as well as the customer bases and networks of both SMBC Group and Sumitomo Corporation shareholders. We have launched a new Medium-Term Management Plan, the theme of which is “Pursuing our strengths as a business with a wide range of financial functions to solve social issues.” By combining the business foundations and financial functions estab- lished in the previous Medium-Term Business Plan with our industry-leading digital trans- formation capabilities, we will provide solutions unique to SMFL. We will capture further business and business opportunities to solve social issues and expand both our social and economic value. Company Name: SMBC Trust Bank Ltd. Business Profile: Commercial banking and Trust Banking Establishment: February 25, 1986 Head Office: 1-3-2, Marunouchi, Chiyoda-ku, Tokyo President and CEO: Ryuji Nishisaki Number of Employees: 1,562 Number of branches: 26 (in Japan) Financial Information (Years ended March 31) 2023 Billions of yen 2021 2022 2020 For the Year: Ordinary income ������� Ordinary profit (loss) �� Net income (loss) ������ At Year-End: Total assets �������������� ¥3,423�3 Note: All amounts shown are rounded down to the nearest 100 million� ¥ 61�0 1�0 (32�7) ¥ 86�1 23�3 17�0 ¥ 56�5 4�6 (15�9) ¥ 47�9 (7�5) (8�5) ¥3,687�1 ¥3,494�7 ¥4,125�1 www.smfl.co.jp/english/ Company Name: Sumitomo Mitsui Finance and Leasing Company, Limited Business Profile: Leasing Establishment: February 4, 1963 Head Office: Tokyo Head Office: 3-2, Marunouchi 1-chome, Chiyoda-ku, Tokyo, Japan Osaka Head Office: 3-10-19, Minami-Semba, Chuo-ku, Osaka President and CEO: Masaki Tachibana Number of Employees: 3,847 Credit Ratings (as of June 30, 2023) Standard & Poor’s R&I JCR Long-term Short-term A– AA– AA — a-1+ J–1+ Financial Information (Consolidated basis, years ended March 31) 2023 Billions of yen 2021 2022 2020 ¥2,433�5 1,438�2 41�3 45�0 ¥3,143�1 2,159�3 133�1 136�5 ¥2,939�2 1,818�5 116�2 119�4 For the Year: Leasing transaction volume ��������������������� Operating revenue ����� Operating profit ��������� Ordinary profit����������� Profit attributable to owners of parent ������� At Year-End: Total assets �������������� Notes: 1� All amounts shown are rounded down to the nearest 100 million� 2� Consolidated subsidiaries include SMBC Aviation Capital Limited� ¥2,489�2 1,513�7 89�4 90�3 ¥7,041�9 ¥6,378�7 ¥9,245�6 ¥7,795�9 33�6 35�3 50�4 61�2 146 SMBC GROUP ANNUAL REPORT 2023 SMBC GROUP ANNUAL REPORT 2023 147 Ever since our foundation in 1918 as Kawa- shimaya Shoten, SMBC Nikko Securities Inc. has over the past 100 years been supported by many clients and we have grown together with our clients. Since October 2009, when we joined Sumitomo Mitsui Financial Group, we have been redoubling our efforts to further improve our ability to assist our clients, both individual and corporate clients, and to enhance our capabilities as an integrated securities company. Our vision remains to grow with our clients and be their trusted advisor. “Share the Future” is our brand slogan and, as a firm of financial professionals, we will strive to act in the best interests of our clients by leveraging our track record of managing diverse risks and delivering innovative financial services. Since its founding in 1967, Sumitomo Mitsui Card Company, Limited, has continued to drive the development of Japan’s credit card industry as a pioneer in the issuance of the Visa Card in Japan and as a comprehensive payment service provider driving the advance of cashless payments. In April 2021, the headquarters functions of Sumitomo Mitsui Card Company and SMBC Finance Service were consolidated into the SMBC Toyosu Building. This seam- less environment will lead to increased coordination between the two companies and thereby enable them to provide even higher-quality services as the core of SMBC Group’s cashless payment strategies. Capitalizing on the transaction base, expertise, credibility, and other strengths it has accumulated as an industry leader, Sumitomo Mitsui Card Company aims to evolve beyond the provision of products and services, to grow into a digital and innovation company that is chosen by clients and which supports these clients in their various activi- ties through the integration of its credit card, installment and transaction business. Company Name: SMBC Nikko Securities Inc. Business Profile: Securities Establishment: June 15, 2009 Head Office: 3-1, Marunouchi 3-chome, Chiyoda-ku, Tokyo President and CEO: Yuichiro Kondo Number of Employees: 9,039 www.smbcnikko.co.jp/en Credit Ratings (as of June 30, 2023) Moody’s Standard & Poor’s R&I JCR Long-term Short-term A1 A AA– AA P–1 A–1 a–1+ — Financial Information (Years ended March 31) 2023 Billions of yen 2021 2022 2020 79�5 81�9 71�0 56�6 59�6 44�2 (42�0) (38�3) (32�3) For the Year: Operating revenue ����� ¥ 262�8 ¥ 333�1 ¥ 354�7 ¥ 378�0 39�0 Operating income������ 42�6 Ordinary profit����������� Net income ��������������� 32�1 At Year-End: Total assets �������������� ¥14,993�2 ¥13,979�8 ¥13,213�1 ¥12,090�9 Notes: 1� All amounts shown are rounded down to the nearest 100 million� 2� Due to a change in the method of presentation of financial income beginning from FY2021, adjusted operating revenue values are presented for prior periods� www.smbc-card.com (Japanese only) Company Name: Sumitomo Mitsui Card Company, Limited Business Profile: Credit card Establishment: December 26, 1967 Head Office: Tokyo Head Office: 2-2-31, Toyosu, Koto-ku, Tokyo Credit Rating (as of June 30, 2023) R&I Long-term Short-term AA– a–1+ Osaka Head Office: 4-5-15, Imabashi, Financial Information (Years ended March 31) Chuo-ku, Osaka President and CEO: Yukihiko Onishi Number of Employees: 2,752 2023 Billions of yen 2021 2022 2020 For the Year: Revenue from credit card operations ��������� ¥30,181�6 ¥24,715�0 ¥20,751�5 ¥20,548�5 480�8 Operating revenue ����� 50�5 Operating profit ��������� 50�8 Ordinary profit����������� 38�2 Net income (loss) ������ At Year-End: Total assets 470�5 31�0 34�1 19�8 447�5 34�5 35�3 35�8 523�5 32�8 33�0 21�8 Sumitomo Mitsui Card Company ������� ¥ 3,400�1 ¥ 2,852�2 ¥ 2,524�5 ¥ 2,257�2 SMBC Finance Service ����������������� ¥ 2,062�7 ¥ 2,382�6 ¥ 2,372�1 ¥ 2,052�2 SMBC Finance Service Co., Ltd., was formed in April 2009 through the merger of OMC Card, Inc., Central Finance Co., Ltd., and QUOQ Inc. Originally named Cedyna Financial Corpora- tion, this company assumed its current name in July 2020. In April 2021, the headquarters functions of SMBC Finance Service and Sumitomo Mitsui Card Company were consolidated into the SMBC Toyosu Building. This proximity is expected to lend itself to increased coordina- tion between the two companies and to thereby enable them to provide even high- er-quality services as the core of SMBC Group’s cashless payment strategies. Together with Sumitomo Mitsui Card Com- pany, SMBC Finance Service aims to grow into a digital and innovation company that is chosen by clients and which supports these clients in their various activities. Since its establishment in 1962, with the orig- inal goal of striving to become the leading provider of innovative financial services for individual consumers, Promise Co., Ltd., cur- rently known as SMBC Consumer Finance Co., Ltd., has been offering consumer financial services to promptly meet the diverse funding needs of our customers while keeping pace with changing lifestyle patterns by developing safe, convenient personal loan products and building the infrastructure for dealing with customer inquiries and loan applications. As an expert in the consumer finance business, SMBC Consumer Finance aspires to be the most trusted global consumer finance company by providing consistent and sincere services to our customers. www.smbc-fs.co.jp/ (Japanese only) Note: To reflect the integrated management of SMBC Finance Service and Sumitomo Mitsui Card Company, financial information for both companies is displayed in the latter’s section on the previous page� Company Name: SMBC Finance Service Co., Ltd. Business Profile: Credit card, Installment and Transaction business Establishment: September 11, 1950 Head Office: Head Office: 3-23-20, Marunouchi, Naka-ku, Nagoya Tokyo Head Office: 2-2-31, Toyosu, Koto-ku, Tokyo President and CEO: Naoki Ono Number of Employees: 2,816 www.smbc-cf.com/english/ Company Name: SMBC Consumer Finance Co., Ltd. Business Profile: Consumer lending Establishment: March 20, 1962 Head Office: 2-2-31, Toyosu, Koto-ku, Tokyo President and CEO: Ryohei Kaneko Number of Employees: 2,139 Credit Rating (as of June 30, 2023) R&I Long-term Short-term AA– — Financial Information (Years ended March 31) 2023 Billions of yen 2021 2022 2020 For the Year: Operating revenue ����� Operating profit ���������� Ordinary profit����������� Net income ��������������� At Year-End: Total assets �������������� ¥1,011�3 Note: All amounts shown are rounded down to the nearest 100 million� ¥ 180�4 40�8 40�6 52�9 ¥ 199�8 41�4 42�9 78�6 ¥ 179�3 41�2 42�0 38�8 ¥187�1 46�7 48�0 38�8 ¥1,333�0 ¥1,279�3 ¥953�5 4,754 5,437 5,239 4,986 Number of cardholders (in tens of thousands) ������������ Notes: 1� All amounts shown are rounded down to the nearest 100 million� 2� To reflect the integrated management of Sumitomo Mitsui Card Company and SMBC Finance Service, the above figures for operating revenue, operating profit, ordinary profit, and net income (loss) use internal management figures arrived at through the simple addition of the consolidated figures for both companies� (Consolidated figures for Sumitomo Mitsui Card Company do not include consolidated figures for SMBC Finance Service�) 148 SMBC GROUP ANNUAL REPORT 2023 SMBC GROUP ANNUAL REPORT 2023 149 3� From FY2019, revenue from credit card operations includes e-money transactions� 4� Number of cardholders includes the number of debit cardholders� The Japan Research Institute, Limited (“JRI”) is a comprehensive information services company with think-tank, consulting and IT solutions functions. Under the fundamental philosophy of “creat- ing new value for the client,” JRI offers concrete proposals for identifying and resolving issues together with support for enacting those solutions. JRI conducts a wide range of activities, including research and analysis of domestic and foreign economies and sharing policy pro- posals, supporting the creation of new businesses, consulting on management strat- egies and administrative reforms, planning and developing IT-based strategic data systems, as well as providing outsourcing services. Company Name: The Japan Research Institute, Limited Business Profile: Economic research, management consulting, system development and data processing Establishment: November 1, 2002 Head Office: Tokyo Head Office: 2-18-1, Higashi-Gotanda, Shinagawa-ku, Tokyo Osaka Head Office: 2-2-4, Tosabori, Nishi-ku, Osaka President and CEO: Katsunori Tanizaki Number of Employees: 2,962 www.jri.co.jp/english/ Financial Information (Years ended March 31) 2023 Billions of yen 2021 2022 2020 For the Year: Operating revenue ����� Operating profit ��������� Ordinary profit����������� Net income ��������������� At Year-End: Total assets �������������� ¥100�8 Note: All amounts shown are rounded down to the nearest 100 million� ¥214�3 4�5 5�0 3�6 ¥147�4 1�9 2�3 2�4 ¥219�7 4�0 5�0 3�5 ¥143�2 2�9 2�8 0�9 ¥105�6 ¥116�8 ¥124�3 Sumitomo Mitsui DS Asset Management Company, Limited is an asset management company that strengths in active investment and has an industry-leading investment research platform, and a global network. Sumitomo Mitsui DS Asset Management Company provides high-quality asset man- agement services that meet specific needs of its diverse client base that ranges from Japanese and non-Japanese institutional (pension funds, financial institutions, etc.) to individual investors. The company’s vision is to become the best asset management firm for better Quality of Life of its clients and all the other stakeholders. www.smd-am.co.jp/english/ Company Name: Sumitomo Mitsui DS Asset Management Company, Limited Business Profile: Investment management (discretionary/advisory) and investment trust fund management Financial Information (Years ended March 31) Establishment: July 15, 1985 Head Office: 1-17-1 Toranomon, Minato-ku, Tokyo President and CEO: Takashi Saruta Number of Employees: 806 2023 Billions of yen 2021 2022 2020 For the Year: Operating revenue ����� Operating profit ��������� Ordinary profit����������� Net income (loss) ������ At Year-End: Total assets �������������� Note: All amounts shown are rounded down to the nearest 100 million� ¥ 65�5 1�5 2�2 0�6 ¥ 72�0 3�8 3�3 2�1 ¥ 61�6 0�1 0�4 (28�9) ¥ 77�3 5�8 7�0 4�1 ¥133�6 ¥107�8 ¥113�8 ¥106�4 Risk Management Risk Management Categories SMBC Group defines the following risk management categories and conducts management of these risks accordingly. Group companies manage risk in accordance with the characteristics of their particular businesses. These risk categories are continuously reviewed and new ones may be added in response to changes in the operating environment. Credit risk Market risk Liquidity risk Credit risk is the possibility of a loss arising from a credit event, such as deterioration in the financial condition of a borrower, that causes an asset (including off-balance sheet transactions) to lose value or become worthless. Risk Category Department in Charge Credit & Investment Planning Department Market risk is the possibility that fluctuations in interest rates, foreign exchange rates, stock prices, or other market prices will change the market value of financial products, leading to a loss. Corporate Risk Management Department, Risk Management Information Department Liquidity risk is defined as uncertainty around the ability of the firm to meet debt obligations without incurring unacceptably large losses. Examples of such risk include the possible inability to meet current and future cash flow / collateral needs, both expected and unexpected. In such cases, the firm may be required to raise funds at less-than-favorable rates or be unable to raise sufficient funds for settlement. Corporate Risk Management Department, Risk Management Information Department Operational risk Operational risk is the possibility of losses arising from inadequate or failed internal processes, people, and systems or from external events (see page 141 for information on risk categories and the departments in charge). Corporate Risk Management Department, Risk Management Information Department Conduct risk Model risk Conduct risk is the risk that our conduct negatively affects customers, market integrity, effective competition, public interest, and the SMBC Group’s stakeholders through acts that violate laws and regulations or social norms. Corporate Risk Management Department, Compliance Department Model risk is the risk of potential adverse consequences or financial loss resulting from misinformed decision making based on inaccurate model outputs or using the model inappropriately. Corporate Risk Management Department Reputational risk Reputational risk refers to the risk of not meeting the expectations for high ethics, integrity, etc. by the stake- holders (that is, customers, shareholders, market, society, environment, employees, etc.) due to the business of the SMBC Group and the behavior of employees and other related parties leading to impairment of the Enterprise Value and decline in trust. General Affairs Department, Public Relations Department Top Risks Top Risks, risks that threaten to significantly impact management, recognized by SMBC Group are listed in the table below (see page 127 for information on methods of utilizing Top Risks). Top Risks Example Scenarios World economic stagnation • Global economic recession due to factors such as the reversal of the credit cycle and economic slowdown in China Highly volatile commodity price and financial / foreign exchange markets • Adverse effects of monetary tightening in major economies on the financial system and the emergence of a global financial crisis Sudden deterioration of foreign currency funding conditions • Sudden deterioration of the foreign currency funding condition due to market disruption Japanese economic stagnation • Deterioration of the economy accompanied by debt adjustments due to the shift from monetary easing, and decline in potential growth due to a decline in the labor force Japanese fiscal instability • Emergence of Japan sell-off due to increased interest payments on government debt and deteriorating public finances due to rising defense spending The U.S. - China struggle for supremacy • Deterioration of the business environment due to political conflict between the U.S. and China and growing concerns over the security environment Growing intension of Russia-Ukraine conflict • Russia’s escalation including the use of nuclear weapons, against Western countries’ enhancing support to Ukraine Unstable situations in the Middle East and Asia • Occurrence of emergency incidents due to heightened tensions in the Korean Peninsula; opposition from neighboring countries in connection with Japan’s policies Political turmoil and social instability • Social turmoil surrounding the next presidential election in the U.S.; opaque policy management due to changes in China’s leadership Outbreak of serious infectious disease • Occurrence of a pandemic due to the emergence of a virus or bacterium that is highly infectious to humans Disasters such as large-scale earthquakes, storms, and floods • Negative impact caused by the occurrence of large-scale earthquakes and volcanic eruptions, increased frequency of extreme weather events and natural disasters, and impairment of natural capital Lack of preparedness against cyber attacks and financial crimes • Increase in national-level cyber-attacks and damage to critical infrastructure, and diversification of attack methods Changes in industrial structure due to technological innovation • Decrease in our competitiveness due to the rapid digitization of financial services (fintech, digital currency, etc.) Inadequate responses to climate change risk and environmental issues • Deterioration of reputation and occurrence of stranded assets due to inadequate efforts to reduce GHG emissions and to conserve natural capital Inadequate responses to human rights issues Improper labor management • Reputational damage due to inadequate response to issues such as forced labor and racial discrimination • Reputational damage due to inadequate responses to gender issues and work-style reform Misconduct such as an employee’s inappropriate behavior • Administrative disposition or reputational damage due to inadequate actions or serious breaches of regulations by employees Inadequate improvement in the operational resilience system • Significant negative impact on customers and reputational damage due to data breaches and system failures Inadequate preparedness for heightened regulatory and supervisory scrutiny • Impact on our business due to the increasing focus on AML/CFT controls and the strengthening of financial supervision and regulation Difficulty in securing human resources • Restriction on business operations and decreased competitiveness due to a lack of headcount and specialized human resources Note: The above is only a portion of the risks recognized by SMBC Group. It is possible that the materialization of risks other than those listed above could have a significant impact on our management. 150 SMBC GROUP ANNUAL REPORT 2023 SMBC GROUP ANNUAL REPORT 2023 151 Stress Testing SMBC Group conducts stress testing for each category of risks as well as stress testing used to verify the overall soundness of comprehensive risk management practices. The level of soundness used for verifications is determined based on risk appetite com- bined with consideration for the severity of the scenario anticipated. When evaluating group-wide soundness, evaluations are made using consolidated balance sheets and consolidated statements of income, which include data from affiliates, with the goal of iden- tifying major risks to our business and asset portfolio. Specifically, scenarios are selected based on the aforementioned severity level as well as background conditions that cover all areas in which we In this manner, stress testing processes often require a variety of expertise. When selecting the background conditions for scenar- ios, expertise regarding macroeconomic conditions and geopolitical risks is required. When selecting methodologies, insight into the statistical and other mathematical analysis techniques is crucial. When calculating impacts on SMBC Group as a whole, insight into SMBC Group and the businesses of its customers must be used. Stress testing processes will thus be based on discussions and opinions of directors, members of upper management, specialists, and representatives from relevant organizations and records will be created of these discussions and opinions in order to ensure objectivity, transparency, and reproducibility. In this way, measures may face risks (e.g. an outlook encompassing the entire world). for practicing proper governance of stress testing will be applied. We also employ methodology for ensuring scenarios can be accurately reflected and for incorporating business and portfolio characteristics. Commonly used statistical methods are utilized in developing such methodologies. However, as it is necessary to estimate out- liers, we may choose the methodology that best recreates outliers rather than the methodology that offers the highest statistical accuracy. When projecting scenarios for which there are no prior examples, human judgment may be given greater weight than the results of estimates. ■ Stress Testing Process (1) Scenario Design Scenarios are designed by the Corporate Risk Management Department after compil- ing information on SMBC Group’s Top Risks and the views of related departments on such factors as future global trends. (2) Scenario Finalization Scenarios are revised as necessary based on the outcome of discussions between specialists and related departments. (3) Calculation of Impact The scenario’s impact on each financial item is estimated for analysis of the impact on such indicators as the CET1. (4) Confirmation by the Management Committee At the Management Committee, business strategies are examined based on analyses of risk impact amounts and then verified from the perspective of capital adequacy. Risk-Weighted Assets Risk-weighted assets subject to the Basel Capital Accord totaled (3) Credit Policy SMBC Group’s credit policy comprises clearly stated universal ¥77,285 billion as of March 31, 2023, up ¥4,935 billion from March and basic operating concepts, policies, and standards for credit 31, 2022. The main factors behind the increase in risk-weighted operations, in accordance with our business mission and rules of assets was an increase in our corporate credit exposure in Japan conduct. SMBC Group is promoting the understanding of and strict and overseas, as well as the effects of the depreciation of the yen on adherence to its Group credit policy among all its managers and exchange rates. ■ Risk-Weighted Assets as of March 31, 2023 employees. By fostering a culture of appropriate levels of risk-taking and providing high-value-added financial services, SMBC Group aims to enhance shareholder value and play a key contributory role (Trillions of yen) in the community. Credit risk Market risk Operational risk Floor adjustments* Total March 31, 2022 March 31, 2023 Increase (decrease) 63.2 3.0 4.3 1.7 72.3 65.0 4.4 4.8 2.9 77.2 +1.7 +1.4 +0.5 +1.2 +4.9 * Adjustments for difference between Advanced Internal Ratings-Based (AIRB) approach and Foundation Internal Ratings-Based (FIRB) approach ■ Risk Assets of Individual Business Units 2. Credit Risk Management System At SMBC Group, the Group CRO formulates credit risk manage- ment policies each year based on the group-wide basic policies for risk management. Meanwhile, the Credit & Investment Planning Department is responsible for the comprehensive management of credit risk. This department drafts and administers credit risk regu- lations, including the Group credit policies, manages non-performing loans (NPLs), and performs other aspects of credit portfolio manage- ment. We have also established the Credit Risk Committee to serve (Trillions of yen) as a body for deliberating on matters related to group-wide credit SMBC Group Credit risk Market risk Operational risk 65.0 4.4 4.8 Floor adjustments 2.9 Retail Business Unit Wholesale Business Unit Global Business Unit 10.9 20.7 29.3 Global Markets Business Unit 6.7 Credit Risk 1. Basic Approach to Credit Risk Management (1) Characteristics of Credit Risk Credit risk is characterized by the possibility of a loss arising from a credit event, such as deterioration in the financial condition of a borrower, that causes an asset (including off-balance sheet transac- tions) to lose value or become worthless. (2) Fundamental Principles for Credit Risk Management All Group companies follow the fundamental principles established by SMBC Group to assess and manage credit risk on a group-wide basis and further raise the level of accuracy and comprehensive- ness of group-wide credit risk management. Each Group company must comprehensively manage credit risk according to the nature of its business, and assess and manage credit risk of individual loans and credit portfolios quantitatively and using consistent standards. Credit risk is the most significant risk to which SMBC Group is exposed. Without effective credit risk management, the impact of the corresponding losses on operations can be overwhelming. The purposes of credit risk management is to keep credit risk exposure to a permissible level relative to capital, to maintain the soundness of group-wide assets, and to ensure returns commen- surate with risk. Doing so leads to a loan portfolio that achieves high returns on capital and assets. portfolios. At SMBC, the core bank of SMBC Group, the Credit & Investment Planning Department within the Risk Management Unit furnishes the credit risk management system and is thus responsible for the com- prehensive management of credit risk. This department drafts and administers credit policies, the internal rating system, credit authority guidelines, and credit application guidelines, and also manages NPLs and performs other aspects of credit portfolio management, including active portfolio management using credit derivatives. The department also cooperates with the Corporate Risk Management Department in quantifying credit risk (risk capital and risk-weighted assets) and controls the bank’s entire credit risk. The credit department in charge, in cooperation with branches, conducts credit risk assessments and manages credit portfolios within each credit department’s jurisdiction. The credit approval authority is determined based on the credit amount and internal grades, while credit departments focus on the analysis and manage- ment of customers and transactions with relatively high credit risk. The Credit Administration Department is responsible for handling NPLs of borrowers classified as potentially bankrupt or lower, and draws up plans for their workouts, including write-offs. It works to efficiently reduce the amount of NPLs through Group company SMBC Servicer Co., Ltd., which engages in related services, and by such means as the sell-off of claims. Through industrial and sector-specific surveys and studies of individual companies, the 152 SMBC GROUP ANNUAL REPORT 2023 SMBC GROUP ANNUAL REPORT 2023 153 Corporate Research Department works to form an accurate idea of 3. Credit Risk Management Methods the circumstances of borrower companies and quickly identify those with potentially troubled credit positions as well as promising growth companies. The Compliance Unit has in place a system of coordinating to establish systems for providing explanations to customers and develop information management practices for the purpose of cus- tomer protection and to prevent transactions with antisocial forces, among other tasks. The Internal Audit Unit, operating independently of the business units, audits asset quality, the accuracy of gradings and self- assessment, and the state of credit risk management, and reports the results directly to the Audit and Supervisory Committee and the Management Committee. SMBC has established the Credit Risk Committee as a con- sultative body to round out its oversight system for undertaking flexible and efficient control of credit risks, and ensuring the overall soundness of the bank’s loan operations. ■SMBC’s Domestic Obligor Grading System Obligor Grade Definition (1) Credit Risk Assessment and Quantification At SMBC Group, to effectively manage the risk involved in individual loans as well as the credit portfolio as a whole, we first acknowl- edge that every loan entails credit risks, assess the credit risk posed by each borrower and loan using an internal rating system, and quantify that risk for control purposes. (a) Internal Rating System There is an internal rating system for each asset control category established according to portfolio characteristics. For example, credits to corporates are assigned an “obligor grade,” which indi- cates the borrower’s creditworthiness, and/or “facility grade,” which indicates the collectibility of assets taking into account transaction conditions, such as guarantee/collateral, credit period, and tenor. An obligor grade is determined by first assigning a financial grade using a financial strength grading model and data obtained from the obli- gor’s financial statements. The financial grade is then adjusted taking into account the actual state of the obligor’s balance sheet and qualitative factors to derive the obligor grade. In the event that the borrower is domiciled overseas, internal ratings for credit are made after taking into consideration country rank, which represents an assessment of the credit quality of each country, based on its polit- ical and economic situation as well as its current account balance and external debt. The borrower categories used in self-assessment are consistent with the obligor grade categories. Borrower Category Disclosure Category Based on Financial Reconstruction Act Normal Borrowers Normal Assets Very high certainty of debt repayment High certainty of debt repayment Satisfactory certainty of debt repayment Debt repayment is likely but this could change in cases of significant changes in economic trends or business environment depending on the situation No problem with debt repayment over the short term, but not satisfactory over the mid to long term and the situation could change in cases of any changes in economic trends or business environment Currently no problem with debt repayment, but it is highly likely that this could change in cases of significant changes in economic trends or business environment 1 2 3 4 5 6 7 8 9 Close monitoring is required due to problems in meeting loan terms and conditions, sluggish/unstable business, or financial problems Borrowers Requiring Caution (Borrowers Requiring Caution identified as Substandard Borrowers) Substandard Borrowers Substandard Loans Currently not bankrupt, but experiencing business difficulties, making insufficient progress in restructuring, and highly likely to go bankrupt Though not yet legally or formally bankrupt, has serious business difficulties and rehabilitation is unlikely; thus, effectively bankrupt Obligor grades and facility grades are reviewed once a year, and whenever necessary, such as when there are changes in the credit (2) Framework for Managing Individual Loans SMBC Group strives to maintain a sound portfolio through appro- situation. There are also grading systems for loans to individuals and priate credit assessments and monitoring conducted over credit project finance and other structured finance tailored according to periods. The following framework is used for managing individual the risk characteristics of these types of assets. loans at SMBC, the core bank of SMBC Group. The Credit & Investment Planning Department centrally man- (a) Credit Assessment ages the internal rating systems and properly designs, operates, At SMBC, credit assessment of corporate loans involves a variety supervises, and validates the grading models. It validates the grad- of financial analyses, including cash flow, to predict an enterprise’s ing models and systems of main assets following the procedures capability of loan repayment and its growth prospects. These quan- manual (including those for statistical validation) once a year to titative measures, when combined with qualitative analyses of indus- ensure their effectiveness and suitability and submits reports with trial trends, the enterprise’s R&D capabilities, the competitiveness this regard. SMBC, the core bank of SMBC Group, employs a total of its products or services, and its management caliber, result in a of 21 grading models for corporate, specialized lending, and retail comprehensive credit assessment. The loan application is analyzed applications. For details on internal rating methods, please refer to in terms of the intended utilization of the funds and the repayment Appendix II. (b) Quantification of Credit Risk schedule. Thus, SMBC is able to arrive at an accurate and fair credit decision based on an objective examination of all relevant factors. Credit risk quantification refers to the process of estimating the Increasing the understandability to customers of loan conditions degree of credit risk of a portfolio or individual loan taking into and approval standards for specific borrowing purposes and loan account not just the obligor’s Probability of Default (PD) but also the categories is a part of SMBC’s ongoing review of lending practices, concentration of risk in a specific customer or industry and the loss which includes the revision of loan contract forms with the chief aim impact of fluctuations in the value of collateral, such as real estate of clarifying lending conditions utilizing financial covenants. and securities. To respond proactively and promptly to customers’ funding Specifically, first, the PD by grade, Loss Given Default (LGD), needs—particularly those of SMEs—we employ a standardized credit quality correlation among obligors, and other parameter credit risk assessment process for SMEs that uses a credit-scoring values are estimated using historical data of obligors and facilities model. With this process, we are building a regime for efficiently stored in a database to calculate the credit risk. Then, based on marketing our Business Select Loan and other SME loans. these parameters, we run a simulation of simultaneous default using In the field of housing loans for individuals, we employ a credit the Monte Carlo method to calculate our maximum loss exposure to assessment model based on credit data amassed and analyzed the estimated amount of the maximum losses that may be incurred. by SMBC over many years. This model enables our loan officers Based on these quantitative results, we allocate risk capital. to efficiently make rational decisions on housing loan applications Risk quantification is also executed for purposes such as to and to reply to the customers without delay. It also facilitates the determine the portfolio’s risk concentration, or to simulate economic effective management of credit risk as well as the flexible setting of movements (stress tests), and the results are used for making interest rates. optimal decisions across the whole range of business operations, We also provide loans to individuals who rent out properties including formulating business plans and providing a standard such as apartments. The loan applications are subjected to a against which individual credit applications are assessed. For details precise credit risk assessment process utilizing a risk assessment on internal rating methods, please refer to Appendix II. model that factors in the projected revenue from the rental business. We also provide advice to such customers on how to revise their business plans. 10 Legally or formally bankrupt 154 SMBC GROUP ANNUAL REPORT 2023 Potentially Bankrupt Borrowers Virtually Bankrupt Borrowers Bankrupt Borrowers Doubtful Assets Bankrupt and Quasi-Bankrupt Assets SMBC GROUP ANNUAL REPORT 2023 155 (b) Credit Monitoring System (c) Researching Borrowers More Rigorously and Balancing Risk At SMBC, in addition to analyzing loans at the application stage, the and Returns Credit Monitoring System is utilized to maintain an understanding Against a backdrop of drastic change in the business environment, of the circumstances surrounding the obligor in order to reassess we rigorously research borrower companies’ actual conditions. We Self-assessment is the latter stage of the obligor grading pro- cess for determining the borrower’s ability to fulfill debt obligations, and the obligor grade criteria are consistent with the categories used in self-assessment. As part of our efforts to bolster risk man- SMBC’s Standards for Write-Offs and Provisions Self-Assessment Borrower Categories Standards for Write-Offs and Provisions obligor grades and review self-assessment and credit policies so run credit operations on the basic principle of earning returns that agement throughout SMBC Group, consolidated subsidiaries carry Normal Borrowers that problems can be detected at an early stage and quick and are commensurate with the credit risk involved, and make every out self-assessment in substantially the same manner. effective action can be taken. The system includes periodic moni- effort to reduce credit and capital costs as well as general and toring carried out each time an obligor enterprise discloses financial administrative expenses. results as well as continuous monitoring performed each time credit (d) Preventing and Reducing Non-Performing Loans conditions change, as indicated in the diagram below. On NPLs and potential NPLs, we carry out regular loan reviews (3) Framework for Credit Portfolio Management In addition to managing individual loans, SMBC Group applies the following basic policies to the management of the entire credit port- folio to maintain and improve its soundness and profitability over the medium to long term. Information on the status of credit portfolio management is reported to the Management Committee and the Board of Directors and regular monitoring is performed through the Risk Appetite Framework (RAF). (a) Appropriate Risk Control within Capital to clarify handling policies and action plans, enabling it to swiftly implement measures to prevent deterioration of borrowers’ busi- ness situations, support business recoveries, collect on loans, and enhance loan security. (e) Actively Managing Portfolios We make active use of credit derivatives and other instruments to flexibly manage portfolios to stabilize credit portfolios. (4) Self-Assessment, Write-Offs and Provisions, Non-Performing Loans Disclosure To take risks within the acceptable level of capital, we set upper (a) Self-Assessment limits for overall risk capital based on the risk appetite and portfolio Self-assessment is a preparatory task for ensuring SMBC Group’s plan of each business unit and monitor credit risk capital as a break- asset quality and calculating the appropriate level of write-offs and down of overall risk capital. (b) Controlling Concentration Risk provisions. Each asset is assessed individually for its security and collectibility. Depending on the borrower’s current situation, the As the equity capital of SMBC Group may be materially impaired in borrower is assigned to one of five categories: Normal Borrowers, the event that the credit concentration risk becomes apparent, we Borrowers Requiring Caution, Potentially Bankrupt Borrowers, Vir- implement measures to manage credit toward industrial sectors with tually Bankrupt Borrowers, and Bankrupt Borrowers. Based on excessive risk concentration and introduce large exposure limit lines the borrower’s category, claims on the borrower are classified into and conduct intensive loan review for obligors with large exposure. Classification I, II, III, and IV assets according to their default and To manage country risk, we also have credit limit guidelines impairment risk levels, taking into account such factors as collateral based on each country’s creditworthiness. and guarantees. ■SMBC’s Credit Monitoring System Obligor Information Processing Registration of Financial Statements / Creation and Revision of Corporate Card Flow of Obligor Grading / Grading Outlook / Credit Policies / Action Plans / Facility Grading Assignment Non- Consolidated Financial Grade Consolidated Financial Grade Effective Financial Grade Not Flagged Flagging According to Self- Assessment Criteria Flagged Self-Assessment Logic Quantitative Assessment Financial Assessment Credit Status Qualitative Assessment Normal Borrowers Borrowers Requiring Caution Potentially Bankrupt Borrowers Virtually Bankrupt Borrowers Bankrupt Borrowers Grading Outlook Assessment Performance Trends + Qualitative Risk Factors Final Obligor Grade •Positive •Flat •Negative Determination of Credit Policies Credit Policy Segment Policy for Handling Each Individual Company Action Plan Formulation Restructuring Feasibility Basic Approach Specific Action Plan Facility Grading Assignment Borrower Categories, Defined Borrowers Requiring Caution Normal Borrowers Borrowers with good earnings performances and no significant financial problems Borrowers Requiring Caution Borrowers identified for close monitoring Potentially Bankrupt Borrowers Virtually Bankrupt Borrowers Borrowers perceived to have a high risk of falling into bankruptcy Borrowers that may not have legally or formally declared bankruptcy but are essentially bankrupt Bankrupt Borrowers Borrowers that have been legally or formally declared bankrupt Potentially Bankrupt Borrowers Asset Classifications, Defined Classification I Classification II Classification III Assets not classified under Classifications II, III, or IV Assets perceived to have an above-average risk of uncollectibility Assets for which final collection or asset value is very doubtful and which pose a high risk of incurring a loss Classification IV Assets assessed as uncollectible or worthless (b) Write-Offs and Provisions In cases in which claims have been determined to be uncollectible or deemed to be uncollectible, write-offs signify the recognition of losses on the account books with respect to such claims. Write- offs can be made either in the form of loss recognition by offsetting uncollectible amounts against corresponding balance sheet items, referred to as a direct write-off, or else by recognition of a loan loss provision on a contra-asset account in the amount deemed uncollectible, referred to as an indirect write-off. Recognition of indirect write-offs is generally known as provision for the reserve for possible loan losses. The write-off and provision standards and procedures for each self-assessment borrower category at SMBC, the core bank of SMBC Group, are shown on the right. As part of our overall measures to strengthen credit risk management throughout SMBC Group, all consolidated subsidiaries use substantially the same standards as SMBC for write-offs and provisions. The expected loss amount for the next 12 months is calculated for each grade based on the grade’s historical bankruptcy rate, and the total amount is recorded as “provision for the general reserve for possible loan losses�” These assets are divided into groups according to the level of default risk� Amounts are recorded as provisions for the general reserve in proportion to the expected losses based on the historical bankruptcy rate of each group� The groups are “claims on Substandard Borrowers” and “claims on other Borrowers Requiring Caution�” The latter group is further subdivided according to the borrower’s financial position, credit situation, and other factors� Further, when cash flows can be estimated reasonably accurately, the discounted cash flow (DCF) method is applied mainly to large claims for calculating the provision amount� A provision for the specific reserve for possible loan losses is made for the portion of Classification III assets (calculated for each borrower) not secured by collateral, guarantee, or other means� Further, when cash flows can be estimated reasonably accurately, the DCF method is applied mainly to large claims for calculating the provision amount� Classification III asset and Classification IV asset amounts for each borrower are calculated, and the full amount of Classification IV assets (deemed to be uncollectible or of no value) is written off in principle and provision for the specific reserve is made for the full amount of Classification III assets� Further, when cash flows from future reconstruction can be estimated reasonably accurately, the DCF method is applied mainly to large claims for calculating the provision amount� Virtually Bankrupt / Bankrupt Borrowers General Reserve Provisions made in accordance with general inherent default risk of loans, unrelated to specific individual loans or other claims Notes Specific Reserve Provisions made for claims that have been found uncollectible in part or in total (individually evaluated claims) Discounted Cash Flow Method SMBC uses the discounted cash flow (DCF) method to calculate the provision amounts for large claims on Substandard Borrowers or below when the cash flow from repayment of principal and inter- est received can be estimated reasonably accurately. SMBC then makes provisions equivalent to the excess of the book value of the claims over the said cash inflow discounted by the initial contractual interest rate or the effective interest rate at the time of origination. One of the major advantages of the DCF method over conven- tional methods of calculating the provision amount is that it enables effective evaluation of each individual borrower. However, as the provision amount depends on the future cash flow estimated on the basis of the borrower’s business reconstruction plan and the DCF formula input values, such as the discount rate and the probability of the borrower going into bankruptcy, SMBC makes every effort to utilize up-to-date and correct data to realize the most accurate estimates possible. Forward-Looking Provisions SMBC records general reserves in amounts deemed necessary through comprehensive judgments to prepare for future losses in accordance with forecasts for specific portfolios with a high likelihood of occurrence and that cannot be reflected in past performance or in the borrower categories of specific companies based on recent operating environment and risk trends. 156 SMBC GROUP ANNUAL REPORT 2023 SMBC GROUP ANNUAL REPORT 2023 157 (c) Non-Performing Loans Disclosure Non-Performing Loans are loans and other claims of which recov- 2. Market and Liquidity Risk Management System In accordance with the group-wide basic policies for risk manage- ery of either principal or interest appears doubtful. In disclosing ment decided upon by the Management Committee, SMBC Group Non-Performing Loans, the disclosure category is determined by determines important matters relating to the management of market the borrower categories assigned during self-assessment, and are and liquidity risks, such as basic policies and risk limits, in order to disclosed as Non-Performing Loans based on the Banking Act and manage these risks. The ALM Committee meets four times a year, the Reconstruction Act. 4. Risk Management of Marketable Credit Transactions Financial products, such as investments in funds, securitized products, and credit derivatives, that bear indirect risk arising from underlying assets such as bonds and loan obligations are considered to be exposed to both credit risk from the underlying assets as well as “market risk” and “liquidity risk” that arise from their trading as financial products. This is referred to as marketable credit risk. For these types of products, we manage credit risk by analyzing and assessing the characteristics of the underlying assets, but, for the sake of complete risk management, we also apply the methods for management of market and liquidity risks. In addition, we have established guidelines based on the charac- teristics of these types of risks and appropriately manage the risk of losses. Market and Liquidity Risks 1. Basic Approach to Market and Liquidity Risk Management (1) Definitions of Market and Liquidity Risks Market risk is the possibility that fluctuations in interest rates, foreign exchange rates, stock prices, or other market prices will change the market value of financial products, leading to a loss. Liquidity risk is defined as the uncertainty around the ability of the firm to meet debt obligations without incurring unacceptably large losses. Examples of such risk include the possible inability to meet current and future cash flow/collateral needs, both expected and unexpected. In such cases, the firm may be required to raise funds at less than favorable rates or be unable to raise sufficient funds for settlement. (2) Fundamental Principles for Market and Liquidity Risk Management SMBC Group is working to further enhance the effectiveness of its quantitative management of market and liquidity risks across the entire Group by setting allowable risk limits; ensuring the trans- parency of the risk management process; and clearly separating front-office, middle-office, and back-office operations to establish a highly efficient system of mutual checks and balances. in principle, to report on the state of market and liquidity risk man- agement and to discuss ALM operation policies. The Corporate Risk Management Department and the Risk Management Information Department which are independent of the business units that directly handle market transactions, manage market and liquidity risks in an integrated manner. These departments not only monitor the current risk situation but also regularly report to the Management Committee and the Board of Directors. Furthermore, the ALM Committee at SMBC, the core bank of SMBC Group, meets on a monthly basis to examine reports on the state of observance of limits on market and liquidity risks and to discuss ALM operation policies. 3. Market and Liquidity Risk Management Methods (1) Market Risk Management SMBC Group manages market risk by controlling amounts of value at risk (VaR), losses, and risk capital based on consideration for the Group’s shareholders’ equity and other principal indicators of the Group’s financial position and management resources and for business policies pertaining to market transactions. Market risk can be divided into various factors: foreign exchange rates, interest rates, equity prices, and option risks. SMBC Group manages each of these risk categories by employing VaR as well as supplemental indicators suitable for managing the risk of each risk factor, such as the BPV. Trading activities are market operations that gain profits by taking advantage of fluctuations of market prices in the short term or price differences among markets. We assess and manage the market risk of trading activities on a daily basis by utilizing VaR and other tools. Banking activities are market operations which gain profits by controlling interest rates and term period for assets (loans, bonds, etc.) and liabilities (deposits, etc.). In the same way as in the case of trading activities, we assess and manage the market risk of banking activities on a daily basis, utilizing VaR and other tools. The risk of interest rate fluctuation differs substantially by how The following table shows the VaR results of the Group’s trading to recognize the dates for the maturity of demand deposits (current activities during fiscal 2022. accounts and ordinary deposit accounts that can be withdrawn b. Banking activities at any time) and how to estimate the time of cancellation prior to Banking activities are market operations which gain profits by con- maturity of time deposits and consumer loans. At SMBC, the matu- trolling interest rates and term period for assets (loans, bonds, etc.) rity of demand deposits that are expected to be left with the bank and liabilities (deposits, etc.). At SMBC Group, in the same way as in for a prolonged period is regarded to be up to 5 years (2.5 years on the case of trading activities, we assess and manage the market risk average). The cancellation prior to the maturity of time deposits and of banking activities on a daily basis, utilizing VaR and other tools. consumer loans is estimated based on historical data. The following table shows the VaR results of the Group’s banking (a) Market Risks a. Trading activities Trading activities are market operations that gain profits by taking advantage of fluctuations of market prices in the short term or price differences among markets. At SMBC Group, we assess and man- age the market risk of trading activities on a daily basis by utilizing VaR and other tools. activities during fiscal 2022. ■ VaR for Trading Activities March 31, 2023 September 30, 2022 Fiscal 2022 Maximum Minimum Average (Billions of yen) March 31, 2022 Sumitomo Mitsui Financial Group (consolidated) Interest rates Foreign exchange Equities, commodities, etc. SMBC (consolidated) SMBC (non-consolidated) 27.7 37.6 23.9 11.2 11.6 5.4 28.8 63.6 56.5 13.2 12.9 5.6 31.8 84.4 75.1 17.1 15.3 7.6 25.2 21.7 13.2 9.1 10.5 3.0 28.4 63.5 50.8 13.1 12.6 5.3 25.9 59.0 42.7 12.4 10.2 2.9 Note: VaR for a one-day holding period with a one-sided confidence interval of 99.0% (computed daily using the historical simulation method (based on four years of historical observations)). ■ VaR for Banking Activities March 31, 2023 September 30, 2022 Fiscal 2022 Maximum Minimum Average (Billions of yen) March 31, 2022 Sumitomo Mitsui Financial Group (consolidated) Interest rates Equities, etc. SMBC (consolidated) SMBC (non-consolidated) 69.4 64.7 11.3 68.0 55.2 56.1 53.2 5.5 55.3 43.6 74.0 68.0 19.0 73.4 63.7 44.7 41.2 3.3 43.6 33.3 58.0 54.5 8.8 57.1 46.4 62.6 59.4 17.1 61.9 53.1 Notes: 1. VaR for a one-day holding period with a one-sided confidence interval of 99.0% (computed daily using the historical simulation method (based on four years of historical observations)). 2. The above category of “Equities, etc.” does not include equity holdings. 158 SMBC GROUP ANNUAL REPORT 2023 SMBC GROUP ANNUAL REPORT 2023 159 (b) Market Risk Volume Calculation Model can sufficiently demonstrate its financial intermediary function even in The tolerated levels of risk are set based on account funding risk management across the entire Group. Under these policies, SMBC Group uses internal models to measure VaR and stressed a stressful environment in which the prices of stocks drastically fall. status, cash management planning, economic environments, and we have been working to enhance the operational risk manage- VaR. For information on the consolidated subsidiaries that employ Based on the five-year, 300 billion yen(*) reduction plan other factors, and measures are monitored on a daily or monthly ment framework across the whole Group by establishing an effec- these internal models, please refer to the section on market risk. (FY2020–FY2024), we have reduced 180 billion yen in the three-year basis in order to limit reliance on short-term funding and appropri- tive system for identifying, assessing, controlling, and monitoring a. Presuppositions and limits of model period up to FY2022. However, based on the recent environment ately manage liquidity. material operational risks as well as a system for addressing risks In the Group’s internal VaR and stressed VaR models, various surrounding equity holdings, we made a revision to accelerate the As a framework to complement the Risk Appetite Measures, that have materialized and implementing emergency response market fluctuation scenarios are drawn up on the basis of past reduction plan in May 2023. upper limits are set in place on both a Group company basis and measures. Based on the framework of the Basel Capital Accord, data, and the historical simulation method is used to run profit- Specifically, in line with the three-year Medium-Term Management an individual branch basis with regard to funding gaps, which is we have been continuously pursuing sophisticated quantification of and-loss movement simulations that enable us to forecast probable Plan starting in FY2023, we extended the plan one year and added defined as a maturity mismatch between the source of funds and operational risks and advanced group-wide management. maximum losses. The appropriateness of the internal model is later 80 billion yen to reduction amount for a reduction of 380 billion yen use of funds. verified through back-testing. in six years, and set a plan to reduce 200 billion yen in the next three However, as this method cannot take into account major years. Also, this plan is set as the minimum, and we are aiming to market fluctuations that have not actually occurred historically, we exceed it as much as possible. In addition, we will aim to earn a supplement this method with the use of stress testing. good prospect of achieving the reduction of the proportion of market This internal model employed by SMBC Group undergoes value of equity holdings to less than 20% of our consolidated net regular auditing by an independent auditing firm to ensure that it assets during the period of the next Medium-Term Management operates appropriately. b. Validity verification process i Outline of validity verification SMBC Group uses back-testing as a method for verification of the validity of the internal model. VaR figures calculated by the internal model are compared with actual portfolio profit-and-loss figures on a given day to confirm the appropriateness of VaR calculation and the adequacy of risk capital management. ii Back-testing results Information on back-testing of trading in fiscal 2022 can be found on page 252. c. Substitute indicators SMBC Group employs, as substitute indicators, VaR wherein pre- sumptions for the model (observation periods, etc.) change. d. Changes in model from fiscal 2021 There have been no changes in the model from fiscal 2021. (c) Stress Testing The market occasionally undergoes extreme fluctuations that exceed projections. To manage market risk, therefore, it is important to run simulations of unforeseen situations that may occur in finan- cial markets (stress testing). SMBC Group conducts stress tests regularly, assuming various scenarios, and has measures in place for irregular events. (d) Management of Equity Holdings Plan. Under the new plan, we will work to further reduce equity hold- ings going forward. (*) The book value of Japanese listed stocks held by SMBC Group. ■ Composition, by Industry, of Listed Equity Portfolio (%) 30 25 20 15 10 5 0 i F s h e r i e s / F a r m n g i / F o r e s t r y i M n n g i C o n s t r u c t i o n F o o d P r o d u c t s T e x t i l e s P u p l / P a p e r C h e m c a s l i (March 31, 2023) SMBC Group’s Portfolio TOPIX Nikkei 225 P h a r m a c e u t i c a s l P e t r o e u m l / C o a l R u b b e r P r o d u c t s S t e e l l G a s s / i M n e r a s l M a c h n e r y i M e t a l P r o d u c t s N o n f e r r o u s M e t a s l l E e c t r i c M a c h n e r y i T r a n s p o r t M a c h n e r y i i i P r e c s o n M a c h n e r y i A i r T r a n s p o r t M a r i n e T r a n s p o r t O v e r l a n d T r a n s p o r t O t h e r P r o d u c t s l E e c t r i c i t y / G a s U t i l i t i e s W a r e h o u s n g i i / D s t r i b u t i o n l T e e c o m m u n c a t i o n s i l W h o e s a e l R e t a i l B a n k n g i I n s u r a n c e S e c u r i t i e s / C o m m o d i t y / F u t u r e s T r a d n g i S e r v c e s i R e a l E s t a t e O t h e r i F n a n c a i l (2) Liquidity Risk Management At SMBC Group, liquidity risk is regarded as one of the major risks. The Group’s liquidity risk management is based on a framework SMBC Group establishes risk allowance limits for total risk capital to consisting of setting Risk Appetite Measures and establishing con- control stock price fluctuation risk appropriately. Risk capital associ- tingency plans. ated with equity holdings is monitored as a component of total risk The Risk Appetite Measures are measures for selecting the types capital. More specifically, VaR (1 year holding period) computed from and levels of risk that we are willing to take on or tolerate. As the level profit-and-loss simulations based on historical market fluctuation of liquidity risk is evaluated based on cash flow and balance sheet data and aggregated fluctuation in market price from the beginning conditions, Risk Appetite Measures have been set for both of these Furthermore, contingency plans are established in preparation for emergency situations. These plans contain information on chains of command and lines of reporting as well as detailed action plans depending on the existing situation (i.e., normal, concerned, or criti- cal). Meanwhile, SMBC carries out quantitative management of alert indications based on early warning indicators established to assist the bank in promptly and systematically detecting liquidity risks. Operational Risk 1. Basic Approach to Operational Risk Management (1) Definition of Operational Risk Operational risk is the risk of loss arising from inadequate or failed internal processes, people, and systems or from external events. Specifically, the risk—which, in addition to processing risk and sys- tem risk, covers legal risk, human resources risk, tangible asset risk, and third party risk—consists of the following seven event types that may lead to the risk of loss defined in the Basel Capital Accord: (1) internal fraud, (2) external fraud, (3) employment practices and workplace safety, (4) clients, products, and business practices, (5) damage to physical assets, (6) business disruption and system failures, and (7) execution, delivery, and process management. (2) Fundamental Principles for Operational Risk Management We have set forth the policies on Operational Risk Management to define the basic rules to be observed in the conduct of operational 2. Operational Risk Management System Based on the group-wide basic policies for risk management established by Sumitomo Mitsui Financial Group, Group companies have developed an operational risk management system. At Sumitomo Mitsui Financial Group, the Management Commit- tee makes decisions on basic policies for operational risk manage- ment, and these decisions are authorized by the Board of Directors. In addition, the Corporate Risk Management Department and the Risk Management Information Department oversee the overall man- agement of operational risks and work together with departments responsible for the subcategories such as processing risks and system risks for comprehensively managing operational risks. As a brief overview, this system operates by collecting and analyzing internal loss data and Key Risk Indicators (KRI) from Group companies. In addition, the system entails comprehensively specifying scenarios involving operational risks based on the oper- ational procedures of companies that have adopted the Advanced Measurement Approach (AMA) on a regular basis and estimating the loss amount and frequency of the occurrence of such losses based on each scenario. Risk severities are quantified for each scenario. For those scenarios having high severities, risk mitigation plans will be developed and the implementation status of such risk mitigation plans will be monitored by the Corporate Risk Management Department and the Risk Management Information Department. Furthermore, Risk Category Definition Department in Charge Operational risk The risk of loss arising from inadequate or failed internal processes, people, and systems or from external events. Corporate Risk Management Processing risk System risk The risk of losses arising from the failure of directors and employees to perform administrative duties in accordance with administrative rules and procedures, or from accidents or misconduct. The risk arising from nonconformity to the business strategies, inappropriate technologies applied, changes to the development plan and delay in development when building an information system, and the risk of loss incurred due to the breakdown including those caused by cyber attack, malfunction, deficiency, or unauthorized use (unauthorized alteration, destruction, duplication, and leakage of information). Department, Risk Management Information Department Operations Planning Department System Planning Department Legal risk The risk of compensation of damages arising from insufficient legal consideration or breach of contract, or a surcharge, a forfeit or an administrative fine for infringing the laws and regulations. Compliance Department of the fiscal year are subject to risk capital management and moni- areas. These measures include Liquidity Coverage Ratio and Net Human resources risk The risk of loss arising from inappropriate labor practices, poor working environments, discriminatory conduct, an Human Resources Department tored on a daily basis. Stable Funding Ratio, a liquidity regulation; periods set for which it will SMBC Group continuously makes efforts to reduce price fluc- be possible to maintain funding levels even under stress due to deposit tuation risks from the point of view of maintaining a foundation that outflow or other factors; and the ratio that stable funding covers loans. outflow or loss of human resources, or deterioration in employee morale. Tangible asset risk The risk of loss arising from damage to tangible assets or deterioration in the operational environment caused by disasters or inadequate asset maintenance. Administrative Services Department Third party risk The risk of loss arising from damage due to negative incidents caused by third parties who have business relationship with SMBC Group. Corporate Risk Management Department 160 SMBC GROUP ANNUAL REPORT 2023 SMBC GROUP ANNUAL REPORT 2023 161 operational risks are quantified and quantitatively managed by utilizing operational risk equivalent amount and risk asset amounts. In measurement accuracy is ensured through a framework of regu- materializes. A risk management system has thus been put in place the collected internal loss data and scenarios. Risk severities are addition, steps are taken to ensure the objectivity, accuracy, and larly conducted verifications of the quantification models pre- and to ensure adequate risk management. quantified for each scenario. comprehensiveness of scenario evaluations by utilizing external post-measurement. Furthermore, as SMBC Group’s scope expands beyond the Regular reports are issued to the Group CRO on internal loss loss data and Business Environment and Internal Control Factors in Meanwhile, the operational risk equivalent amounts of other bounds of finance, we are taking steps to identify risks from new data, KRI, scenario risk severity information, and the status of risk verification processes. Group companies that do not apply the AMA are calculated perspectives and to implement management systems that match mitigation to ensure the effectiveness of risk management measures. The quantification model produces the distribution of loss according to the Basic Indicator Approach (BIA), and the opera- the extent of risks in a given area of business. SMBC Group is Moreover, our independent Internal Audit Department conducts frequency and loss severity based on the internal loss data and tional risk equivalent amounts for Sumitomo Mitsui Financial Group strengthening its risk management, beginning with high risk areas, periodic internal audits to verify that the Group’s operational risk scenario analysis results, and it also produces the loss distribution consolidated basis and SMBC consolidated basis are calculated by to assist in strengthening the risk management structure at compa- management system is functioning properly. based on said distribution of loss frequency (distribution of losses consolidating such amounts calculated based on the BIA with the nies requiring sophisticated risk management, as well as business 3. Operational Risk Management Methodology As previously defined, operational risks cover a wide range of cases, including the risks of losses due to errors in operation, system failures, and natural disasters. Also, operational risk events can occur virtually anywhere and everywhere. Thus, it is essential to check whether material operational risks have been overlooked, monitor the overall status of risks, and manage and control them. To this end, it is necessary to be able to quantify risks using a measurement methodology that can be applied to all types of oper- ational risks and to comprehensively and comparatively capture the status of and changes in potential operational risks in business pro- cesses. Also, from the viewpoint of internal control, the measure- ment methodology used to create risk mitigation measures must be such that the implementation of the measures quantitatively reduces operational risks. At the end of March 2008, SMBC Group adopted the AMA set forth by the Basel Capital Accord for calculating the operational risk equivalent amount. The approach has been utilized for the manage- ment of operational risks since then. Specifically, a model to which internal loss data and scenario anal ysis results are input has been introduced to calculate the ■ Basic Framework of Operational Risk Measurement in a year) and the distribution of loss severity (distribution of loss amount per case) by making various combinations of frequencies and amounts of losses according to the Monte Carlo simulation method. In addition, the model calculates the maximum amount of loss expected due to operational risks based on the assumption of one-sided confidence interval of 99.9% and the holding period of one year. Regarding losses on repayment of excess interest of cer- tain subsidiaries engaged in consumer finance operations, expected losses are deducted from the maximum amount of operational risk loss when calculating the operational risk equivalent amount. Operational risk equivalent amount in respect of the tangible asset damages arising from earthquakes is measured using the probability data of earthquake occurrence in each part of Japan and the distribution of loss amount from those earthquake occurrences. The measurement units are Sumitomo Mitsui Financial Group consolidated basis, SMBC consolidated basis, and SMBC non- consolidated basis. The operational risk equivalent amount based on the AMA is calculated as the simple aggregate of the amount of the seven event types set forth by the Basel Capital Accord and of tangible asset damages arising from earthquakes. However, in the case of Sumitomo Mitsui Financial Group consolidated basis, the risk of losses on repayment of excess interest is added on. The Internal Loss Data Data input Distribution of Loss Frequency Calculation of Operational Risk Equivalent Amount Using Quantification Model External Loss Data Verifi- cation Scenario Analysis Results Business Environment and Internal Control Factors ( f r e q u e n c y ) P r o b a b i l i t y o f o c c u r r e n c e 0.20 0.15 0.10 0.05 0 0 ( f r e q u e n c y ) P r o b a b i l i t y o f o c c u r r e n c e 0.30 0.25 0.20 0.15 0.10 0.05 0 0 5 10 15 20 25 30 Number of incidents / year Distribution of Loss Severity 2 4 6 8 10 Loss per incident Aggregated Loss Distribution Frequency x Severity ( f r e q u e n c y ) P r o b a b i l i t y o f o c c u r r e n c e 0.4 0.3 0.2 0.1 0 99.9% Aggregated annual loss amount operational risk equivalent amount calculated based on the AMA. partners and other areas of the supply chain. 4. Processing Risk Management Processing risk is the risk of losses arising from the failure of direc- tors and employees to perform administrative duties in accordance with administrative rules and procedures, or from accidents or misconduct. SMBC Group has clarified the divisions responsible for the over- sight functions for processing risk management, and we are working to raise the level of sophistication of our management of processing risk across the whole Group on a risk basis by establishing systems for managing the processing risks faced by Group companies, ensuring in-office inspection, minimizing losses in the event of processing risk materialization by drafting exhaustive contingency plans, and carrying out thorough quantification of the risk under management as basic principles. Basic policies for processing risk management are decided by the Management Committee and then approved by the Board of Directors. The status of processing risk management is reported to the Management Committee and the Board of Directors regularly and when necessary. These and other steps are taken to ensure that we can provide customers with high-quality services. Based on the group-wide basic policies for risk management, Group companies promote appropriate operating practices by establishing operating rules and regulations, systematizing trans- action processing, receiving guidance from business divisions, and inspecting conditions related to transaction processing. 5. System Risk Management System risk is the risk arising from nonconformity to business strat- egies, inappropriate technologies applied, changes to the develop- ment plan and delays in development when building an information system, and the risk of loss incurred due to system breakdown including those caused by cyber attack, malfunction, deficiency or unauthorized use (unauthorized alteration, destruction, duplication and leakage of information). SMBC Group has set the following as basic principles: rec- ognizing information systems as an essential part of management strategy taking into account advances in IT, minimizing system risk by updating policies and procedures, including a security policy and establishing contingency plans to minimize losses if a system risk In addition, we actively and openly incorporate various tech- nological progress to improve convenience for customers. We also strengthen our risk management structure on an ongoing basis in response to environmental changes, to deal with projected risks aris- ing from promoting digitalization in a wide range of fields, such as the creation of new businesses and boosting productivity and efficiency. As SMBC Group adopts artificial intelligence, cloud, robotic process automation, application programming interface, and other technol- ogies, manuals have been prepared with regards to items requiring compliance at the time of implementation and items for periodic monitoring as part of efforts to reinforce group-wide IT governance. The risk of cyber threats is growing increasingly serious due to greater surface area for attack caused by the accelerating digitization of financial services and growing geopolitical tensions. To prepare against these growing threats, we have established an intelligence function and security monitoring system in addition to technical mea- sures for cyber security, and we are also focusing on the training of professional personnel who will be responsible for these measures. In addition, the Company regularly participates in drills and exercises, and carries out third party evaluations of its response posture to increase their effectiveness. SMBC operates its risk management system by conducting risk assessments based on the Security Guidelines published by the Center for Financial Industry Information Systems (FISC) and by enhancing safety measures based on the results of these assess- ments. System failures at banks have the potential to heavily impact society. In addition, system risks are diversifying and growing more complex due to advances in IT and the expansion of business fields. Recognizing these facts, we have numerous measures in place for system failure prevention, including maintenance to ensure stable and uninterrupted operation, multiplexing of various systems and infrastructure, and a disaster-prevention system consisting of data centers in eastern and western Japan. In addition, we are preparing for unforeseeable circumstances through the creation of contingency plans and the implementation of system failure drills. To maintain the confidentiality of customer data and prevent leaks of information, sensitive information is encrypted, unauthorized external access is blocked, and all other possible measures are taken to secure data. 162 SMBC GROUP ANNUAL REPORT 2023 SMBC GROUP ANNUAL REPORT 2023 163 Conduct Risk Model Risk 1. Basic Approach to Conduct Risk Management 1. Basic Approach to Model Risk Management (1) Definition of Conduct Risk Conduct risk is the risk that our conduct negatively affects custom- (1) Definition of Model Risk Model risk is the risk of potential adverse consequences or financial ers, market integrity, effective competition, public interests, and the loss resulting from misinformed decision making based on inaccu- SMBC Group’s stakeholders, through acts that violate laws and rate model outputs or using the model inappropriately. regulations or social norms. (2) Fundamental Principles of Conduct Risk Management SMBC Group’s fundamental stance is that its business is not (2) Fundamental Principles of Model Risk Management SMBC Group is working to improve model risk management across the Group by adhering to basic principles such as performing man- Reputational Risk 1. Basic Approach to Reputational Risk Management (1) Definition of Reputational Risk Reputational risk refers to the risk of not meeting the expectations for high ethics, integrity, etc. by the stakeholders (that is, cus- tomers, shareholders, market, society, environment, employees, etc.) due to the business of the SMBC Group and the behavior of employees and other related parties, leading to impairment of the to negatively affect customers, market integrity, effective compe- agement based on a risk-based approach, evaluating model risk Enterprise Value and decline in trust. The matter leading to the reputational risk is discussed in the reputational risk management committee to consider various mea- sures to minimize the risk, as necessary. 3. Reputational Risk Management Methodology SMBC Group minimizes losses by adequately gathering information about the situations where reputational risk could materialize as well as taking proper measures against such situations. General Affairs Department and Public Relations Department strive to control and reduce the risk by gathering information about the situations where reputational risk could materialize and taking tition, public interests, and stakeholders. Efforts are being made and carrying out quantitative management. (2) Fundamental Principles of Reputational Risk proper measures against the reputational risk matters identified. to improve group-wide conduct risk management. Focuses of these efforts include preemptively identifying phenomena with the potential to cause significant deterioration in the trust of the Group and preventing the materialization of serious management risks by being keenly responsive to environmental changes. 2. Conduct Risk Management System Based on the group-wide basic policies for risk management, 2. Model Risk Management System SMBC Group has established a system for managing model risk based on the group-wide basic policies for risk management. The Management Committee makes decisions on basic policies for model risk management, and these decisions are authorized by the Board of Directors. Management SMBC Group has set forth the rules on Reputational Risk Management to define the basic rules to be observed in the conduct of its reputational risk management. Under these rules, SMBC Group has been working to enhance the reputational risk management framework across the whole Group by clarifying a management structure as well as management system, methodol- In addition, the Corporate Risk Management Department cen- ogies, and rules. SMBC Group has developed a conduct risk management system. trally oversees model risk management and is responsible for drafting The Management Committee makes decisions on basic policies for model risk management plans, as well as their operation, promotion conduct risk management, and these decisions are authorized by and support. The Internal Audit Department carries out regular audits the Board of Directors. In addition, the Corporate Risk Management of the efficacy of the model risk management system. Department and the Compliance Department oversee the overall management of conduct risks and promote basic conduct risk management policies, frameworks, and measures. In addition, these bodies report on circumstances pertaining to conduct risk management to the Audit Committee and Risk Committee and discuss these circumstances to ensure the effectiveness of conduct risk management. Furthermore, the Internal Audit Unit verifies and evaluates the conduct risk management system. 3. Conduct Risk Management Methodology SMBC Group mitigates and controls conduct risk by having 3. Model Risk Management Methodology SMBC Group strives to reduce model risk by implementing appropri- ate controls for each process pertaining to model development and use in preparation for the emergence of model risk resulting from a financial and economic environment beyond that anticipated when developing the model, as well as the inappropriate use of models by employees. For example, we carry out validations during the development of models or when we start to use them, and periodic validation as part of model lifecycle to prevent their obsolescence or deterioration of their accuracy. In addition, we also strive to business units identify and assess the major risks present in strengthen risk management according to model importance by their business and establish measures for controlling these risks assessing the risks present in each model. using the risk register framework. Meanwhile, risk management departments verify the appropriateness of the risks identified and assessed by business units and their control measures based on the KRE and KRI. Through this process of verification, these departments maintain close communication with business units with regard to matters such as the need to add risks or revisit assessments while checking and monitoring activities in order to improve the effectiveness of conduct risk management efforts. 2. Reputational Risk Management System Based on the group-wide basic policies for risk management, SMBC Group has developed a reputational risk management system. In addition, General Affairs Department and Public Relations Department control reputational risk management in a centralized manner and formulate and operate the plan for reputational risk man- agement, promote and provide support for related matters as well as summarize and analyze information related to reputational risk. 164 SMBC GROUP ANNUAL REPORT 2023 SMBC GROUP ANNUAL REPORT 2023 165 Glossary ALM Abbreviation for Asset Liability Management Method for comprehensive management of assets and liabilities, with appropriate controls on market risk (interest rates, exchange rates, etc.) and liquidity risk. Advanced Measurement Approach (AMA) Based on the operational risk measurement methods used in the inter- nal management of financial institutions, this is a method for obtaining the operational risk equivalent amount by calculating the maximum amount of operational risk loss expected over a period of one year, with a one-sided confidence interval of 99.9%. Back-testing A formal statistical framework that consists of verifying that actual losses are in line with projected losses. This involves systematically comparing the history of VaR forecasts with their associated portfolio returns. Basic Indicator Approach (BIA) A calculation approach in which an average value for the most recent three years derived by multiplying gross profit for the financial institution as a whole by certain level (15%) is deemed to be the operational risk equivalent amount. BPV Abbreviation for Basis Point Value Potential change in present value of financial product corresponding to 0.01-percentage-point increase in interest rates. Credit cost Average losses expected to occur during the coming year. Historical simulation method Method of simulating future fluctuations without the use of random num- bers, by using historical data for risk factors. LGD Abbreviation for Loss Given Default Percentage of loss assumed in the event of default by obligor; ratio of uncollectible amount of the exposure owned in the event of default. Monte Carlo simulation method General term used for a simulation method which uses random numbers. Operational risk equivalent amount Operational risk capital requirements under the Basel Capital Accord. PD Abbreviation for Probability of Default Probability of becoming default by obligor during one year. Present value A future amount of money that has been discounted to reflect its current value taking into account the interest rate and the extent of credit risk. Risk appetite The types and levels of risk that we are willing to take on or tolerate to drive earnings growth. Risk capital The amount of capital required to cover the theoretical maximum potential loss arising from risks of business operations. It differs from the minimum regulatory capital requirements, and it is being used in the risk management framework voluntarily developed by financial institutions for the purpose of internal management. Risk factor In the case of market risk, this would be factors such as the share price or interest rate; in the case of credit risk, this would be factors such as the economic environment. Risk-weighted assets The denominator used in the calculation of the capital ratio designed to maintain prudential standards for banks. VaR Abbreviation for Value at Risk The maximum loss that can be expected to occur with a certain degree of probability when holding a financial asset portfolio for a given amount of time. Internal Reporting Systems and Hotline for Inappropriate Accounting and Auditing Activities SMBC Group Alarm Line is intended to promote self-correction Sumitomo Mitsui Financial Group Accounting and Auditing through early detection and rectification of actions that may violate Hotline is aimed at strengthening the Group’s self-correction function laws and regulations. All Group employees can use this internal by encouraging early detection and rectification of improper actions means of reporting from inside and outside their company. In addi- relating to accounting, accounting internal controls, and auditing tion, SMBC and other Group companies have established internal at the Company and its consolidated subsidiaries. The hotline can reporting systems for their employees. be used from inside or outside the Group to report accounting and auditing irregularities. SMFG Accounting and Auditing Hotline/Designated Dispute Resolution Agencies SMFG Accounting and Auditing Hotline Designated Dispute Resolution Agencies Reports may be submitted by regular mail or e-mail to the following addresses. Mailing address: SMFG Accounting and Auditing Hotline Iwata Godo Attorneys and Counselors at Law 15th floor, Marunouchi Building 2-4-1, Marunouchi, Chiyoda-ku, Tokyo 100-6315 E-mail address: smfghotline@iwatagodo.com • The hotline accepts any alerts of inappropriate activities concerning accounting and auditing at the Company or its consolidated subsidiaries. • Anonymous reports will also be accepted. Since an investigation cannot be conducted without adequate information, please provide as much detail as possible of the circumstance. • Personal information will not be disclosed to any third parties without your consent, unless such disclosure is required by law. For the handling of any complaints received from and conflicts with our clients, SMBC has executed agreements with the Japanese Bankers Association, a designated dispute resolution agency under the Banking Act, and the Trust Companies Association of Japan, a Designated Dispute Resolution Organization under the Trust Business Act and Act on Provision, etc. of Trust Business by Financial Institutions and the specified non-profit organization of Financial Instruments Mediation Assistance Center, one of the Designated Dispute Resolution Agencies under the Financial Instruments and Exchange Act. Japanese Bankers Association: Contact information: Consultation office, Japanese Bankers Association Telephone numbers: (Japan) 0570-017109 or 03-5252-3772 Business hours: Mondays through Fridays (except public and bank holidays) 9:00 am to 5:00 pm Trust Companies Association of Japan: Contact information: Consultation office, Trust Companies Association of Japan Telephone numbers: (Japan) 0120-817335 or 03-6206-3988 Business hours: Mondays through Fridays (except public and bank holidays) 9:00 am to 5:15 pm Financial Instruments Mediation Assistance Center Contact information: Financial Instruments Mediation Telephone number: Fax: Business hours: Assistance Center (Japan) 0120-64-5005 (Japan) 03-3669-9833 Mondays through Fridays (except public and bank holidays) 9:00 am to 5:00 pm 166 SMBC GROUP ANNUAL REPORT 2023 SMBC GROUP ANNUAL REPORT 2023 167 Basic Policy for Customer-Oriented Business Conduct SMBC Group*1 has formulated the Basic Policy for Customer- relation to its sales practices for interest rate swaps. We are thus Oriented Business Conduct for its domestic asset management and committed to preventing the recurrence of such malpractice. asset formulation businesses, based on which they are promoting Accordingly, we have adopted a customer- oriented perspective in customer-oriented business conduct. pursuing sustainability throughout our management, internal control, 2. Initiatives for Promoting Customer-Oriented Business Conduct (5) Frameworks for Properly Motivating Employees Always thinking and acting based on a customer-oriented perspec- Sumitomo Mitsui Financial Group will implement the following ini- tive in the truest sense requires our employees to be properly moti- tiatives to entrench the principles of customer-oriented business vated so that they can remain dedicated and effective in their work. This policy informs our basic stance of emphasizing the dispers- and compliance systems. Through these and other efforts, we have conduct into its activities. ing of investments over the medium to long term through which endeavored to regain trust from customers and from society as a we seek to support customers in stable asset formulation. Also whole. based on this policy, Sumitomo Mitsui Financial Group and its Group Furthermore, the Customer Experience (CX) Improvement companies aim to contribute to the development of capital markets Subcommittee has been set up to incorporate customer input into that provide companies with the funds they need to grow and to management. The opinions of external experts*2 are utilized in meet- economic growth through their asset management and asset formu- ings of this committee as discussions on and verification of initiatives lation businesses. 1. SMBC Group’s Customer-Oriented Business Conduct at Group companies are carried out to promote the exercise of a customer-oriented perspective on a group-wide basis. In addition, the CX Improvement Committee, which comprises officers sitting on the Group Management Committee, holds regular discussions on As one part of “Our Mission,” it is stated that “We grow and prosper customer-oriented business conduct. together with our customers, by providing services of greater value We are convinced that the ongoing quest to provide quality to them.” Based on the spirit of this mission, we have defined our products and services based on customer needs and desires will Five Values, a list of five key words that includes “Customer First” contribute to economic growth and subsequently growth for SMBC (always think based on a customer-oriented perspective and provide Group. Everyone at SMBC Group will carry out their duties in an value based on the individual needs of customers), shared by all the earnest and just manner while exercising a high degree of special- executives and employees of SMBC Group. SMBC Group continues ized knowledge and good business ethics. SMBC Group will never to push forward with various initiatives to actualize these values. let up in its efforts to ensure that it always thinks and acts based on Sumitomo Mitsui Financial Group is fully aware of the severity a customer-oriented perspective in the truest sense as it strives to of the government penalties imposed on SMBC in April 2006 in generate the greatest profits for its customers. Five Values Customer First Always look at it from the customer’s point of view, and provide value based on their individual needs. Speed & Quality Differentiate ourselves through the speed and quality of our decision- making and service delivery. Integrity As a professional, always act with sincerity and a high ethical standard. Proactive & Innovative Embrace new ideas and perspectives, don’t be deterred by failure. Team “SMBC Group” Respect and leverage the knowledge and diverse talent of our global organization, as a team. (1) Provision of Products and Services Suited to the Customer When drawing up and underwriting financial products, we will act with an accurate understanding of customer needs, determining the ideal target customer group based on the risks and complexity of the products, in order to properly develop and select products. We will also help customers to find the ideal products and ser- vices. Our first step in this process will be to learn about our custom- ers, inquiring into their needs and goals. We will next look at their level of knowledge, investment experience, and asset portfolios so that we can propose the best possible products and services for them. If we think that a product may not be ideally suited to a custom- er’s needs based on its characteristics or risks, we will discuss this matter with the customer as necessary and refrain from proposing such products when doing so is inappropriate. (2) Easy-to-Understand Explanation of Important Information The amount of information provided to customers on the charac- teristics, risks, and fees of the products we handle as well as on the economic climate and market trends will be enhanced to help customers make informed decisions. Furthermore, we will strive to explain this information in an easy-to-understand manner. (3) Clarification of Fees Sumitomo Mitsui Financial Group receives fees from customers for the products and services it provides out of consideration for the Sumitomo Mitsui Financial Group thus develops its performance evaluation systems from a long-term perspective with the aim of encouraging customer-oriented sales activities. At the same time, we are expanding our range of training programs for promoting earnest and just work practices and higher levels of business ethics. SMBC Group aims to facilitate the shift from savings to asset holding seen in Japan through such initiatives. Furthermore, we will periodically disclose information on initiatives by SMBC Group based on this policy with the aim of facilitating understanding regarding these initiatives among customers. In addi- tion, the status of initiatives and their results will be verified so that initiatives can be revised as necessary to improve upon operating practices. Information regarding these verifications and revisions will be disclosed. *1 Sumitomo Mitsui Financial Group and its subsidiaries and affiliates are referred to collectively as “SMBC Group.” The following SMBC Group companies are subject to this policy: SMBC; SMBC Trust Bank Ltd.; SMBC Nikko Securities Inc.; Sumitomo Mitsui DS Asset Management Company, Limited *2 External experts* are invited to meetings of the CX Improvement Subcommittee to provide advice and suggestions with the aim of incor- porating a wide range of perspectives into management that includes and goes beyond input and requests from customers. * External experts (in alphabetical order) Name Position Professor Hideki Kanda Emeritus Professor, University of Tokyo, and Professor, Gakushuin University Law School need to develop and improve the quality of products and services Kumiko Bando President, Japan Legal Support Center and to supply various types of information as well as for process- ing- and infrastructure-related expenses. We will seek to provide Taku Umezawa thorough explanations of these fees that are as easy to understand Former Commissioner of the Consumer Affairs Agency and Executive Director of the Japanese Red Cross Society as possible. (4) Management of Conflicts of Interest Performing duties in an earnest and just manner based on a cus- tomer-oriented perspective entails managing any potential conflicts of interest to ensure that our operations are truly customer oriented. Based on the Management Policy Concerning Conflicts of Interest in Sumitomo Mitsui Financial Group, we have defined the types of conflicts of interest requiring management as well as the types of transactions that tend to present conflicts of interest and procedures for identifying these transactions, methods and systems for managing conflicts of interest, and the scope of Group compa- nies at which conflicts of interest should be managed. In this manner, we take steps to ensure that conflicts of interest are properly man- aged and therefore do not impede the interests of customers. 168 SMBC GROUP ANNUAL REPORT 2023 SMBC GROUP ANNUAL REPORT 2023 169 Support for Mid-Sized Corporations and SMEs, Vitalization of Local Regions in Japan Services for Corporations Through the Area Corporate Office, SMBC provides services to mid-sized corporations and SME clients. The Area Corporate Office Collaboration with Local Credit Guarantee Corporations SMBC offers Business Select Loans, a loan service that offers Demonstrating Financial Intermediary and Consulting Functions Along with its efforts to fulfill its financial intermediary function Efforts to Revitalize Communities SMBC Group works with businesses, local governments, regional banks, and others to resolve social issues facing local communities. has in place a system for providing specialized services utilizing the unsecured and unguaranteed financing, and also provides jointly smoothly, SMBC seeks to provide solutions to management issues, In FY2022, Sumitomo Mitsui Banking Corporation made a donation networks of SMBC Group companies to address customers’ funding guaranteed loans and support for using prefectural financing systems putting itself in the position of the client to devise optimum proposals to Kobe City, Hyogo Prefecture through the Corporate version of needs, wide-ranging financial needs, and management issues. We in Japan through collaboration with local credit guarantee corporations, based on the nature of the issues and the client’s stage in life. Hometown tax as part of an initiative to achieve a sustainable and are also working to support mid-sized corporations and SME clients enabling it to meet the funding needs of customers facing challenges We further propose and support the implementation of optimized decarbonized local society and to revitalize the local economy. The customers’ facing challenges such as the impact of the COVID-19 such as the past impact of the more than three years of the COVID-19 solutions to help our customers who have been affected by natural Company has also agreed a “Comprehensive Partnership Agreement pandemic over the past three years, and coping with soaring prices pandemic, and coping with soaring prices around the world. disasters, the COVID-19 pandemic, and global price hikes, rebuild for the Promotion of a Decarbonized Society,” between SMBC, around the world, by providing cash flow support to help them con- We will continue offering services to fund and support the manage- their lives and businesses. Hyogo Prefecture, Kobe Shimbun, Kobe University and the Institute tinues their businesses. ment of the mid-sized corporations and SMEs that form the backbone In addition, based on the “Guidelines for Business Revitalization, for Global Environmental Strategies, and we are making efforts to Going forward, we will continue to fulfill our social responsibility of the Japanese economy. as a financial institution by providing support based on the custom- er’s standpoint. Credit Guarantee Corporation Name Credit Guarantee Corporation of Tokyo Loans proposed by financial institutions (support for computerization of promissory notes, etc.) Credit Guarantee Corporation of Kanagawa Kanagawa Asset 200 Credit Guarantee Corporation of Osaka CS Next Guarantee Credit Guarantee Corporation of Hyogo-Ken HIYAKU Support System for Mid-Sized Corporations and SMEs SMBC Group SMBC Mid-sized corporations, SMEs, and retail customers • Loans • Management consultation • Management support • Corporate Business Offices • Area Corporate Office • Area Main Offices • Branches, etc. Affiliation • Departments of head office • External Affiliation organizations • External experts / professionals Affiliation SMBC Group Companies etc. of Small- and Medium-sized Enterprises” released in March 2022, foster the next generation of decarbonization promoters through we support our customers’ business revitalization by providing sup- industry-government-academia collaboration. In other regions, we port and advice for the formulation of business improvement plans. have signed distributorship agreements with regional banks such In addition, in order to establish financing practices that do not as Awa Bank to provide the Sustana GHG emissions calculation rely on personal guarantees, we are working to enhance methods service, thereby encouraging decarbonization efforts not only in of financing that substitute business guarantor functions, and are urban areas, but also in other regions. In March 2023, we held the earnestly taking actions in line with the contents of the Guidelines “Osaka City Public-Private Reverse Pitch,” in which issues faced on Management Guarantees, such as providing careful and specific by the government were communicated to businesses to solicit explanations tailored to customers’ individual situations when signing proposals for solving problems, in which approximately 90 busi- guarantee contracts. nesses and organizations participated. SMBC Consumer Finance, with the cooperation of North Pacific Bank, Ltd., holds financial and economic education programs at Hokkaido University with the aim of improving the students and local residents’ financial literacy. In these ways, SMBC Group will continue to leverage its all-round strengths to contribute to the revitalization of local economies. Press Conference with Hyogo Prefecture Governor Motohiko Saito Measures for Finance Facilitation SMBC’s “Basic Policy for Finance Facilitation” underlies efforts to be diligent and thorough in the provision of funding and consultation. Basic Policy for Finance Facilitation 1. Conduct appropriate review of applications submitted for a new loan or requests to modify loan conditions 2. Provide appropriate management consultation and guidance for clients and appropriate support for management improvements 3. Strive to improve the ability to assess the value of a client’s business appropriately 4. Provide appropriate and thorough explanations to clients in consultations and applications for new loans or modification of loan conditions 5. Respond appropriately and adequately to client inquiries regarding new loan and modification consultations and applications and to consulting requests or complaints 6. Liaise closely with other financial institutions involved in applications for modifying loan conditions, applications for support through public and third-party institutions, or other applications 7. Respond appropriately in respect of personal guarantees in accordance with the “Guidelines for Personal Guarantee Provided by Business Owners” 170 SMBC GROUP ANNUAL REPORT 2023 SMBC GROUP ANNUAL REPORT 2023 171 Employees SMBC March 31 Number of employees*1 Male Percentage of total Female Percentage of total Average age Male Female Average years of service Male Female Number of women in managerial positions Ratio of employees with disabilities (% of total)*2 2021 2022 2023 26,229 11,879 45.29% 14,350 54.71% 38 yrs 4 mos� 40 yrs 6 mos� 36 yrs 6 mos� 14 yrs 5 mos� 16 yrs 3 mos� 13 yrs 0 mos� 25,658 11,535 44.96% 14,123 55.04% 38 yrs 11 mos� 40 yrs 10 mos� 37 yrs 4 mos� 15 yrs 1 mos� 16 yrs 7 mos� 13 yrs 10 mos� 25,099 11,198 44.62% 13,901 55.38% 39 yrs 7 mos� 41 yrs 3 mos� 38 yrs 3 mos� 15 yrs 8 mos� 16 yrs 11 mos� 14 yrs 8 mos� 837 819 933 2.70% 2.83% 2.83% Sumitomo Mitsui Finance and Leasing March 31 Number of employees*1 2022 2021 Male Percentage of total Female Percentage of total Average age Male Female Average years of service Male Female Number of women in managerial positions Ratio of employees with disabilities (% of total)*2 2,460 1,596 64.88% 864 35.12% 42 yrs 5 mos� 43 yrs 11 mos� 39 yrs 8 mos� 15 yrs 2 mos� 16 yrs 5 mos� 13 yrs 0 mos� 2,427 1,551 63.91% 876 36.09% 42 yrs 7 mos� 44 yrs 0 mos� 40 yrs 1 mos� 15 yrs 4 mos� 16 yrs 6 mos� 13 yrs 4 mos� 2023 2,456 1,544 62.87% 912 37.13% 42 yrs 8 mos� 43 yrs 11 mos� 40 yrs 6 mos� 15 yrs 2 mos� 16 yrs 4 mos� 13 yrs 2 mos� 38 38 70 2.30% 2.41% 2.42% Sumitomo Mitsui Card March 31 Number of employees*1 2021 Male Percentage of total Female Percentage of total Average age Male Female Average years of service Male Female Number of women in managerial positions Ratio of employees with disabilities (% of total)*2 6,084 3,111 51.13% 2,973 48.87% 42 yrs 2 mos� 44 yrs 4 mos� 40 yrs 0 mos� 17 yrs 3 mos� 18 yrs 11 mos� 15 yrs 7 mos� 2022 2023 5,976 3,034 50.77% 2,942 49.23% 42 yrs 7 mos� 44 yrs 5 mos� 40 yrs 8 mos� 17 yrs 6 mos� 19 yrs 1 mos� 15 yrs 11 mos� 5,850 2,957 50.55% 2,893 49.45% 42 yrs 9 mos� 44 yrs 4 mos� 41 yrs 2 mos� 17 yrs 8 mos� 19 yrs 2 mos� 16 yrs 2 mos� 81 85 86 2.50% 2.50% 2.41% *1 The number of full-time employees, including employees seconded to other companies and organizations� The following list of employees is deducted from the total number of employees: executive officers, employees on short-term contracts, part-time employees, employees of temporary employment agencies, and locally hired employees at overseas branches� *2 As of March 1 of respective years *1 The number of full-time employees, including employees seconded to other companies and organizations� The following list of employees is deducted from the total number of employees: employees seconded from other companies and organizations, executive officers, employees on short-term contracts, part-time employees, employees of temporary employment agencies, and full-time employees of affiliates (including overseas subsidiaries)� *1 The number of full-time employees� This excludes directors, consultants, advisors, employees seconded from external companies and organizations, contract and temporary employees, part- time and specialist contract employees, as well as affiliated company employees� *2 Computed based on single month of March� Note: Includes figures for SMBC Finance Service (a wholly-owned subsidiary of SMBC Card Company)� April 1 2023 Number of new hires 363 Number of newly employed female graduates 137 Ratio of newly employed females to total new employees 36.3% 39.6% 37.7% 2022 472 187 2021 542 197 Fiscal Number of employees taking parental leave* Number of career hires* * Revised retroactively for periods prior to the change in definition� 2022 2021 2020 1,531 1,509 1,585 <556> <533> <516> 97 52 58 SMBC Trust Bank March 31 Number of employees*1 Male Percentage of total Female Percentage of total Average age Male Female Average years of service Male Female Number of women in managerial positions Ratio of employees with disabilities (% of total)*2 2021 2022 2023 2,072 993 47.92% 1,079 52.08% 43 yrs 9 mos� 44 yrs 8 mos� 43 yrs 2 mos� 9 yrs 9 mos� 8 yrs 8 mos� 11 yrs 0 mos� 1,807 881 48.75% 926 51.25% 44 yrs 4 mos� 44 yrs 8 mos� 45 yrs 1 mos� 10 yrs 10 mos� 12 yrs 3 mos� 9 yrs 5 mos� 1,723 877 50.90% 846 49.10% 44 yrs 11 mos� 46 yrs 0 mos� 43 yrs 11 mos� 10 yrs 10 mos� 9 yrs 4 mos� 12 yrs 5 mos� 76 65 59 2.42% 2.37% 2.52% *1 The number of full-time employees, including employees seconded to other companies and organizations� The number excludes employees seconded from other companies and organizations, directors, employees on short-term contracts, part-time employees, and employees of temporary employment agencies� *2 The legally mandated number of employees with disabilities had been hired as of March 31, 2023� April 1 2023 Number of new hires 23 Number of newly employed female graduates 9 Ratio of newly employed females to total new employees 33.3% 42.9% 39.1% 2022 14 6 2021 24 8 Fiscal Number of employees taking parental leave* Number of career hires* * Revised retroactively for periods prior to the change in definition� 2020 76 <36> 16 2021 45 <12> 14 2022 60 <15> 28 *2 As of March 1 of respective years April 1 2023 Number of new hires 87 Number of newly employed female graduates 40 Ratio of newly employed females to total new employees 41.9% 42.3% 46.0% 2022 71 30 2021 62 26 April 1 2023 Number of new hires 103 Number of newly employed female graduates 39 Ratio of newly employed females to total new employees 40.9% 46.8% 37.9% Note: Includes figures for SMBC Finance Service (a wholly-owned subsidiary of SMBC Card Company)� 2022 109 51 2021 115 47 Fiscal Number of employees taking parental leave* Number of career hires* * Revised retroactively for periods prior to the change in definition� 2020 44 <21> 16 2021 111 <80> 21 2022 76 <39> 52 Fiscal Number of employees taking parental leave*3 Number of career hires *3 Includes childcare leave (paid and leave-of-absence systems)� Note: Includes figures for SMBC Finance Service (a wholly-owned subsidiary of SMBC Card Company)� 2022 178 <65> 71 2021 178 <69> 46 2020 168 <59> 30 SMBC Nikko Securities March 31 Number of employees*1 2021 Male Percentage of total Female Percentage of total Average age Male Female Average years of service*2 Male Female Number of women in managerial positions Ratio of employees with disabilities (% of total)*3 9,794 6,049 61.76% 3,745 38.24% 41 yrs 5 mos� 42 yrs 4 mos� 39 yrs 8 mos� 13 yrs 7 mos� 13 yrs 7 mos� 13 yrs 7 mos� 2022 2023 9,623 5,926 61.58% 3,697 38.42% 41 yrs 6 mos� 42 yrs 5 mos� 40 yrs 0 mos� 14 yrs 2 mos� 14 yrs 1 mos� 14 yrs 2 mos� 9,306 5,701 61.26% 3,605 38.74% 42 yrs 2 mos� 43 yrs 0 mos� 40 yrs 11 mos� 14 yrs 2 mos� 14 yrs 1 mos� 14 yrs 5 mos� 183 207 215 2.61% 2.68% 2.86% *1 Excluding employees seconded to other companies, executive officers, part-time employees, dispatched employees, locally hired employees (LH) at overseas branches *2 The average years of service of applicable employees� Years of service for employees joined through the merger with SMBC Friend Securities are counted from the date of the merger� *3 As of March 31 of respective years April 1 2023 Number of new hires 299 Number of newly employed female graduates 115 Ratio of newly employed females to total new employees 36.2% 33.8% 38.5% 2022 219 74 2021 229 83 Fiscal Number of employees taking parental leave*4 Number of career hires*5 *4 Revision of the short-term childcare leave system and creation of a new special leave for childcare 2022 2021 371 580 <86> <445> <220> 72 2020 439 66 76 in FY2021� *5 Revised retroactively for periods prior to the change in definition� SMBC Consumer Finance March 31 2021 Number of employees*1 Male Percentage of total Female Percentage of total Average age Male Female Average years of service Male Female Number of women in managerial positions Ratio of employees with disabilities (% of total)*2 2,551 1,466 57.47% 1,085 42.53% 41 yrs 11 mos� 43 yrs 5 mos� 39 yrs 10 mos� 16 yrs 2 mos� 18 yrs 4 mos� 13 yrs 6 mos� 2022 2023 2,592 1,474 56.87% 1,118 43.13% 42 yrs 4 mos� 43 yrs 9 mos� 40 yrs 6 mos� 16 yrs 7 mos� 18 yrs 7 mos� 13 yrs 11 mos� 2,594 1,460 56.28% 1,134 43.72% 42 yrs 12 mos� 44 yrs 5 mos� 41 yrs 1 mos� 17 yrs 1 mos� 19 yrs 2 mos� 14 yrs 6 mos� 137 147 166 2.75% 2.75% 2.67% *1 The number of full-time employees on a non-consolidated basis, including employees seconded to other companies and organizations� The following list of employees is deducted from the total number of employees: employees seconded from other companies, locally hired employees at overseas branches, executive officers, contract employees, part-time employees, and employees of temporary employment agencies� *2 As of March 31 of respective years April 1 2023 Number of new hires 35 Number of newly employed female graduates 12 Ratio of newly employed females to total new employees 52.2% 65.3% 34.3% 2022 49 32 2021 46 24 Fiscal Number of employees taking parental leave Number of career hires 2020 35 <7> 1 2021 33 <9> 2 2022 34 <13> 1 Japan Research Institute March 31 2021 Number of employees*1*2 Male Percentage of total Female Percentage of total Average age*2 Male Female Average years of service Male Female Ratio of employees with disabilities (% of total)*2 2,571 1,893 73.63% 678 26.37% 41 yrs 1 mos� 41 yrs 8 mos� 39 yrs 7 mos� 13 yrs 1 mos� 13 yrs 5 mos� 12 yrs 3 mos� 2022 2023 2,640 1,931 73.14% 709 26.86% 41 yrs 0 mos� 41 yrs 6 mos� 39 yrs 6 mos� 13 yrs 1 mos� 13 yrs 5 mos� 12 yrs 3 mos� 2,777 2,000 72.02% 777 27.98% 40 yrs 8 mos� 41 yrs 3 mos� 39 yrs 2 mos� 12 yrs 8 mos� 13 yrs 1 mos� 11 yrs 11 mos� 2.26% 2.31% 2.16% *1 The number of full-time employees, including employees seconded to other companies and organizations� The following list of employees is deducted from the total number of employees: executive officers, advisors, employees on short-term contracts, part-time employees, employees of temporary employment agencies, locally hired employees at overseas branches, and full-time employees of affiliates� *2 As of March 31 of respective years April 1 2023 Number of new hires 168 Number of newly employed female graduates 52 Ratio of newly employed females to total new employees 30.7% 36.4% 31.0% 2022 143 52 2021 127 39 Fiscal Number of employees taking parental leave Number of career hires*3 *3 Excluding former bank employees transferred to the company 2020 43 <23> 52 2021 58 <33> 51 2022 44 <26> 134 Sumitomo Mitsui DS Asset Management March 31 Number of employees*1 2021 2022 Male Percentage of total Female Percentage of total Average age Male Female Average years of service Male Female Number of women in managerial positions 824 596 72.33% 228 27.67% 46 yrs 5 mos� 47 yrs 11 mos� 42 yrs 3 mos� 15 yrs 6 mos� 16 yrs 10 mos� 12 yrs 0 mos� 770 542 70.39% 228 29.61% 46 yrs 0 mos� 47 yrs 7 mos� 42 yrs 2 mos� 15 yrs 6 mos� 17 yrs 1 mos� 11 yrs 9 mos� 2023 747 509 68.14% 238 31.86% 46 yrs 4 mos� 47 yrs 11 mos� 43 yrs 0 mos� 12 yrs 11 mos� 13 yrs 4 mos� 11 yrs 10 mos� 9 10 11 *1 The number of full-time employees� This excludes directors, dispatched employees, and locally hired employees at overseas branches� April 1 2023 Number of new hires 20 Number of newly employed female graduates 8 Ratio of newly employed females to total new employees 50.0% 50.0% 40.0% 2022 12 6 2021 8 4 Fiscal Number of employees taking parental leave Number of career hires Note: In April 2019, Sumitomo Mitsui DS Asset Management Company, Limited, was formed through the merger of Sumitomo Mitsui Asset Management Company, Limited, and Daiwa SB Investments Ltd� 2022 24 <12> 32 2021 19 <12> 16 2020 23 <14> 5 172 SMBC GROUP ANNUAL REPORT 2023 SMBC GROUP ANNUAL REPORT 2023 173 Main Work-Life Balance Support System Parental leave Childcare leave system May be taken in installments up to the age of 18 months or maximum of 2 years in case of inability to place in daycare center 4 weeks within 8 weeks after birth (up to 28 days) May be taken in installments Until March 31 of the 6th grade (10 days per annum per child; 20 days for two or more children) Applicable for caring for sick children as well as for school events and other reasons Shorter working hours Employees can choose shorter working hours for each day or fewer days worked per week, both applicable until March 31 of the 3rd grade SMBC Restrictions on overtime Until March 31 of the 3rd grade Exemption from late-night work Until March 31 of the 3rd grade Other principal systems • Short-term childcare leave • Work relocations • Primary Work Location Registration • Career design leave system • System for rehiring former employees SMBC Trust Bank Sumitomo Mitsui Finance and Leasing May be taken in installments up to the age of 1 (Up to the age of 2 years and 2 months in case of inability to place in daycare center) 4 weeks within 8 weeks after birth (up to 28 days) May be taken in installments May be taken in installments up to the age of 1 (Up to the age of 2 in case of inability to place in daycare center) 4 weeks within 8 weeks after birth (up to 28 days) May be taken in installments Until March 31 of the 6th grade (10 days per annum per child; 20 days for two or more children) Can be acquired on a by-hour, half-day, or full-day basis Employees can work shortened hours equivalent to working a minimum of 6 hours per day until March 31 of the 6th grade Until March 31 of the 6th grade Until March 31 of the 6th grade Until the entry into elementary school (5 days per annum per child; 10 days for two or more children) Employees can reduce daily working hours to a minimum of 5 hours 30 minutes until March 31 of the 3rd grade Shortened working hour flextime system available allowing for 6�5- and 7-hour workdays Employees may reduce daily working hours in increments of 30 minutes up to 2�5 hours until March 31 of the 6th grade Until the entry into elementary school Until the entry into elementary school Until March 31 of the 6th grade Until March 31 of the 6th grade May be taken in installments up to the age of 3 4 weeks within 8 weeks after birth (up to 28 days) May be taken in installments Until March 31 of the 6th grade (5 days per annum per child; 10 days for two or more children) Can be acquired on a by-hour, half-day, or full-day basis Until March 31 of the 6th grade (40 hours per annum per child; 80 hours for two or more children) Employees can choose to reduce daily working hours by 30, 60, 90, 120, or 150 minutes or reduce the number of days worked a week until March 31 of child’s 3rd-grade year Until March 31 of the 3rd grade (SMBC Finance Service: available until starting elementary school) Until March 31 of the 3rd grade (SMBC Finance Service: available until starting elementary school) Until the entry into elementary school (5 days per annum per child; 10 days for two or more children) Employees can choose to work 5, 5�5, 6, 6�5, or 7 hours a day until March 31 of 6th grade Until the entry into junior high school Until the entry into junior high school Until March 31 of the 6th grade (5 days per annum per child; no upper limit) Employees can choose to work 4, 5, 6 or 7 hours per day until March 31 of the 3rd grade (this system can be combined with flextime) Until the entry into elementary school Until the entry into elementary school SMBC Nikko Securities Sumitomo Mitsui Card SMBC Consumer Finance Japan Research Institute Sumitomo Mitsui DS Asset Management May be taken in installments up to the age of 18 months or maximum of 2 years in case of inability to place in daycare center (SMBC Finance Service: available up to the age of three) 4 weeks within 8 weeks after birth (up to 28 days) May be taken in installments May be taken in installments up to the age of 18 months or maximum of 2 years in case of inability to place in daycare center 4 weeks within 8 weeks after birth (up to 28 days) May be taken in installments May be taken in installments up to the age of 18 months or maximum of 2 years in case of inability to place in daycare center Paid leave for the first 15 days of maternity leave 4 weeks within 8 weeks after birth (up to 28 days) May be taken in installments Maximum 28 days’ paid leave May be taken in installments up to the age for 1 year or maximum of 36 months in case of inability to place in daycare center 4 weeks within 8 weeks after birth (up to 28 days) May be taken in installments Until the entry of child into elementary school (5 days per annum per child; 10 days for two or more children) Until March 31 of the 6th grade (Employees can choose to work 5, 6, 6�5, or 7 hours a day) Until March 31 of the 6th grade Until March 31 of the 3rd grade • Leave for childbirth by spouse • Nursing care leave system (by the hour) • Annual leave in half-day increments • Teleworking system • Leave for nursing care • Shorter working hours allowed for nursing care • Paid leave for initial 28 days of childcare • Annual leave in hour increments • Flextime system • Daycare subsidies • Celebratory gifts for birth of 3rd child • Leave for accompanying spouse undergoing job relocation • Lifestyle enriching leave • Job return system system • Work Location of Choice system • Childcare expense subsidy system • Leave for nursing care • Shorter working hours allowed for nursing care • Nursing care leave system (by the hour) • Flextime system • Teleworking system • Paternity leave (3 days) • Leave for nursing care • Shorter working hours allowed for nursing care • Special leave for childbirth • Carryover leave (infertility treatment) • Half-day leave • Teleworking system • Staggered working hours • Dual-Career Support system for side work • Family care time off (by the hour) • Family support leave • Short-term childcare leave • Annual leave in hour increments • Work relocations • Short-term childcare leave • Leave for nursing care • Shorter working hours allowed for nursing care • Nursing care leave system • Half-day leave • Staggered working hours • Flextime system • Shortened working hour flextime system • Teleworking system • Life support leave system • System for rehiring former employees • Career support leave system • Short-term childcare leave • Discounted rates for daycare center • Special leave for childbirth • Nursing care leave • Special days off for nursing care • Half-day paid leave • Hourly paid leave • Amortized Holiday Reserving Policy • Side business • Long-Term Self Development Leave (by the hour) • Shorter working hours allowed for nursing care • Short-term leave for nursing care • Staggered working hours (working in shifts) • Rehiring former employees • Childcare subsidies • Teleworking system • Work relocations • Staggered working hours • Half-day paid leave • Special leave for childbirth • Childcare subsidies • Nursing care leave system (by the hour) • Shorter working hours for nursing care • Rehiring former employees • Area-limited employment system • Rehiring retirees • A grace period for job rotation • Leave for nursing care • Shorter working hours allowed for nursing care • Paid leave by the hour • Half-day paid leave • Leave for supporting return-to- work after childcare leave • Childcare subsidies • Flexibility in the work place • Flextime system • Nursing care leave • Shorter working hours (for nursing care, etc�) • Time off and shorter working hours • Days off for nursing care (by the hour) Policy a�k�a� “Challenge Leave” • Three-day and four-day workweeks • Corporate-led nursery school • Baby-sitter discount system • Special leave for childcare • Memorial leave system • Volunteering leave system • Reverse leave system • Pro bono work • Teleworking system • Flextime system • Health-purpose or anniversary leave (The below applies only to SMBC Finance Service Co�, Ltd�) • Maternity leave • Maternity work system • Short-term childcare leave • Childcare leave (2 days) • School-visiting day (2 days a year) • Rehiring of former employees who quit for childcare or care-giving reasons • Paternity leave (3 days) • Rollover of unused paid vacation • Nursing care leave (by the hour) • Adjustment of work start and end times • Career design leave system • Special leave for childbirth • Half-day leave • Leave system for receiving treatment while working • Career design leave system • Carryover leave • Side work system Corporate Data Sumitomo Mitsui Financial Group, Inc. ■ Directors and Executive Officers (as of June 30, 2023) DIRECTORS AND CORPORATE EXECUTIVE OFFICERS EXECUTIVE OFFICERS Senior Managing Executive Officers Chairman of the Board Takeshi Kunibe Director President (Representative Executive Officer) Jun Ohta Group CEO Director Akihiro Fukutome Director Senior Managing Executive Officers Teiko Kudo Group CRO Corporate Risk Management Dept., Risk Management Information Dept., Risk Management Dept., Americas Division, Credit & Investment Planning Dept. Fumihiko Ito Group CFO and Group CSO Public Relations Dept., Corporate Planning Dept., Business Development Dept., Corporate Sustainability Dept., Financial Accounting Dept., Accounting Service & Planning Dept. Digital Strategy Dept. Directors Toshihiro Isshiki Yoshiyuki Gono Yasuyuki Kawasaki Masayuki Matsumoto (1) Shozo Yamazaki (1) Yoshinobu Tsutsui (1) Katsuyoshi Shinbo (1) Eriko Sakurai (1) Charles D. Lake II (1) Jenifer Rogers (1) Deputy President and Executive Officers (Representative Executive Officers) Tetsuro Imaeda Co-Head of Global Business Unit (Head office departments (Global Business Unit), Asia Pacific Division) Toru Nakashima Co-Head of Wholesale Business Unit Senior Managing Executive Officers Masamichi Koike Head of Global Markets Business Unit Muneo Kanamaru Co-Head of Wholesale Business Unit (Head office departments (Wholesale Business Unit)) Takashi Yamashita Head of Retail Business Unit Jun Uchikawa Group CIO IT Planning Dept., System Security Planning Dept., Data Management Dept., Operations Planning Dept. Yoshihiro Hyakutome Group CCO Compliance Dept., Anti Money Laundering & Financial Crime Prevention Dept. Takeshi Mikami Group CAE Internal Audit Dept. Keiichiro Nakamura Co-Head of Global Business Unit (Americas Division, Europe, Middle East and Africa Division) Akio Isowa Group CDIO Digital Solution Division Digital Strategy Dept. Head of Digital Solution Division, Deputy Head of Wholesale Business Unit Takashi Kobayashi Group CHRO General Affairs Dept., Human Resources Dept., Quality Management Dept., Administrative Services Dept. (1) Mr. Matsumoto, Mr. Yamazaki, Mr. Tsutsui, Mr. Shinbo, Ms. Sakurai, Mr. Lake II and Ms. Rogers satisfy the requirements for an “outside director” under the Companies Act. Kotaro Hagiwara Public Relations Dept., Corporate Planning Dept., Business Development Dept., Corporate Sustainability Dept., Financial Accounting Dept., Accounting Service & Planning Dept., Digital Strategy Dept. Hirofumi Otsuka Head of Americas Division Managing Executive Officers Naoya Ishida Wholesale Business Unit Takaki Ono Transaction Business Division Eiichi Sekiguchi Wholesale Business Unit Kenichi Hida Group Deputy CCO Hideki Sakamoto Deputy Head of Wholesale Business Unit Yuichi Nishimura Co-Head of Asia Pacific Division Tatsuya Suzuki Deputy Head of Wholesale Business Unit Tetsuya Shindo Retail Business Unit Katsuyuki Tokuda Deputy Head of Retail Business Unit Head of Payments & Consumer Finance Division Kenji Hirao Deputy Head of Wholesale Business Unit Fumito Yoshioka Wholesale Business Unit Takafumi Tsuji Wholesale Business Unit (Specialized Finance Dept.) Toshihiko Umetani Deputy Head of Global Business Unit Takahiro Yazawa Deputy Head of Global Business Unit Masashi Sakamoto Deputy Head of Retail Business Unit Head of Wealth Management Division Shinichiro Watanabe Global Business Unit Yuichiro Nagayama Wholesale Business Unit Shuji Yoshioka Group Deputy CFO and Group Deputy CSO Nobuaki Nakamura Deputy Head of Global Markets Business Unit Katsufumi Uchida Head of Asia Business Development Division Nobuo Ozawa Deputy Head of Wholesale Business Unit Takashi Kakiuchi Deputy Head of Asia Pacific Division Natsuhiro Samejima Corporate Risk Management Dept., Risk Management Information Dept., Risk Management Dept., Americas Division Yukihiro Mabuchi Wholesale Business Unit Carl Adams Deputy Head of Americas Division and Functional Head (Head of Verticals) Richard A. Eisenberg Deputy Head of Americas Division and Functional Head (Head of Verticals) Rajeev Veeravalli Kannan Co-Head of Asia Pacific Division Norikazu Akedo Deputy Head of Global Markets Business Unit Akira Yamamoto Group Deputy CRO Tatsuya Shiine Group Deputy CHRO Takeya Sasaki Deputy Head of Retail Business Unit Eiichi Takasaki Credit & Investment Planning Dept. Daiji Nakata General Manager, Planning Dept., Wealth Management Division Daisuke Nakamura Wholesale Business Unit Akio Uemura Deputy Head of Asia Business Development Division and General Manager, Planning Dept., Retail Business Unit Hideo Kawafune Head of Europe, Middle East and Africa Division Takahiko Hirashima Group Deputy CCO Kazuyuki Anchi General Manager, Corporate Planning Dept. Kazuya Ikeda General Manager, Strategic Planning Dept., Global Business Unit Arihiro Nagata General Manager, Planning Dept., Global Markets Business Unit Haruyuki Yoshikawa General Manager, General Affairs Dept. Executive Officers Hideyuki Omokawa Group Deputy CSO Corporate Planning Dept. Tatsuya Okumura General Manager, Administrative Services Dept. Hideki Takamatsu General Manager, IT Planning Dept. Kenji Kawabata General Affairs Dept., Credit & Investment Planning Dept. Akihiro Kawara General Manager, Planning Dept., Global Markets Business Unit Yukiko Yoritaka Group Deputy CHRO Katsuya Fujita Deputy Head of Americas Division and Functional Head (Head of Verticals) Shinsuke Yoshioka Group Deputy CIO and Group Deputy CDIO Takeshi Kimoto General Manager, Asia Growing Markets Dept. Naoki Shiraishi General Manager, Digital Strategy Dept. Susumu Masuda Global Markets Business Unit Naoki Kanbayashi Group Deputy CAE General Manager, Internal Audit Dept. Toshihiko Kato General Manager, Planning Dept., Retail Business Unit Nobuyuki Takiguchi General Manager, Strategic Planning Dept., Europe, Middle East and Africa Division and Co-General Manager, Operations Planning Dept., Europe, Middle East and Africa Division Toshihiro Horiuchi Group Deputy CSuO Hiroshi Maeda General Manager, Quality Management Dept. Hiroshi Ibaraki General Manager, Governance Planning Dept., Global Business Unit Deborah A. Freer Functional Head (US COO) Hiroshi Tsutsui Group Deputy CIO Kazuhiro Fukuda Global Business Unit Katsuyuki Kubo Deputy Head of Americas Division Masayuki Takanashi Group CSuO Sustainability Division, Corporate Sustainability Dept., Head of Sustainability Division and General Manager, Corporate Sustainability Dept. Tamaki Shibuya Head of Transaction Business Division Hironori Shimojima Deputy Head of Asia Pacific Division Yoshihiro Kitagawa General Manager, Credit & Investment Planning Dept. Toshinori Tajima General Manager, Planning Dept., Wholesale Business Unit Hiroshi Nishimura General Manager, Strategic Planning Dept., Asia Pacific Division and Governance Planning Dept., Asia Pacific Division Masahiro Yoshimura General Manager, Business Development Dept. Takahiko Watanabe General Manager, Human Resources Dept. Lisette Lieberman Regional CCO (Americas) General Manager, Compliance Dept., Americas Division, Compliance Dept. and Functional Head (US COO) Scott A. Ashby Deputy Head of Americas Division and Functional Head (Head of Verticals) John Nolan Co-General Manager, Internal Audit Dept., Americas Division, Internal Audit Dept. and Functional Head (US CAE) Glenn Swanton Co-Regional CRO (Europe, Middle East & Africa) [REFERENCE] Group CxO/Head of Business Units (as of June 30, 2023) Group CxO Group CEO Jun Ohta Group CFO and Group CSO Fumihiko Ito Group CRO Teiko Kudo Group CCO Yoshihiro Hyakutome Group CHRO Takashi Kobayashi Group CIO Jun Uchikawa Group CDIO Akio Isowa Group CSuO Masayuki Takanashi Group CAE Takeshi Mikami Head of Business Units Head of Retail Business Unit Takashi Yamashita Co-Head of Wholesale Business Unit Toru Nakashima Co-Head of Wholesale Business Unit Muneo Kanamaru Co-Head of Global Business Unit Tetsuro Imaeda Co-Head of Global Business Unit Keiichiro Nakamura Head of Global Markets Business Unit Masamichi Koike 174 SMBC GROUP ANNUAL REPORT 2023 SMBC GROUP ANNUAL REPORT 2023 175 Sumitomo Mitsui Financial Group Organization (as of June 30, 2023) Sumitomo Mitsui Banking Corporation Board of Directors Nomination Committee Shareholders’ Meeting Compensation Committee Group Management Committee Audit Committee Office Audit Committee Risk Committee Sustainability Committee Public Relations Dept. Corporate Planning Dept. Investor Relations Dept. Productivity Management Dept. Asset Management Business Dept. Business Development Dept. Sustainability Division Corporate Sustainability Dept. *1 *1 Retail Business Unit Planning Dept., Retail Business Unit Retail Risk Management Dept. Wealth Management Division Planning Dept., Wealth Management Division Wealth Management Products Planning Dept. PRESTIA Business Planning Dept. Financial Accounting Dept. Tax Planning Dept. Channel Strategy Dept. Private Wealth Division Equity Portfolio Management Dept. Payments & Consumer Finance Division Accounting Service & Planning Dept. IT Planning Dept. System Security Planning Dept. General Affairs Dept. Planning Dept., Payments & Consumer Finance Division Card Loan Dept. Retail Marketing Dept. Group Business Management Dept. Retail IT Strategy Dept. Legal Dept. Human Resources Dept. Learning and Development Institute Diversity and Inclusion Dept. Global Human Resources Dept. Quality Management Dept. Digital Solution Division Digital Strategy Dept. *2 *2 Silicon Valley Digital Innovation Lab. Data Management Dept. Corporate Risk Management Dept. Wholesale Business Unit Planning Dept., Wholesale Business Unit Kansai Growth Strategy Dept. Specialized Finance Dept. Corporate Digital Solution Dept. Global Business Unit Strategic Planning Dept., Global Business Unit Securities Business Planning Dept., Global Business Unit Risk Management Information Dept. Governance Planning Dept., Global Business Unit *3 *3 *3 *3 *3 *3 *4 *4 *4 *5 *5 *2 Risk Management Dept., Americas Division Credit & Investment Planning Dept. Environmental and Social Risk Management Dept. Compliance Dept. Compliance Dept., Americas Division Anti Money Laundering & Financial Crime Prevention Dept. Administrative Services Dept. Secretariat Corporate Real Estate Management Dept. Operations Planning Dept. Internal Audit Dept. Internal Audit Dept., Americas Division *1 Belongs to Sustainability Division. *2 Belongs to Digital Solution Division. *3 Belongs to Wealth Management Business Division. *4 Belongs to Payments & Consumer Finance Division. *5 Belongs to Wealth Management Division and Payments & Consumer Finance Division. *6 Transaction Business Division Transaction Business Planning Dept. Transaction Product Development Dept. Americas Division Europe, Middle East and Africa Division Strategic Planning Dept., Americas Division Governance Planning Dept., Americas Division Strategic Planning Dept., Europe, Middle East and Africa Division Operations Planning Dept., Europe, Middle East and Africa Division Asia Pacific Division Strategic Planning Dept., Asia Pacific Division Governance Planning Dept., Asia Pacific Division Planning Dept., East Asia Asia Business Development Division Asia Growing Markets Dept. Global Markets Business Unit Planning Dept., Global Markets Business Unit i S u s t a n a b l e S o l u t i o n D e p t . *1 T r a n s a c t i o n B u s i n e s s D i v i s i o n *6 ■ Board of Directors, Directors, Members of the Audit and Supervisory Committee and Executive Officers DIRECTORS, MEMBERS OF THE AUDIT AND SUPERVISORY COMMITTEE Shuji Yabe Takayuki Inoue Sonosuke Kadonaga (2) Michiko Kuboyama (2) Yoriko Goto (2) Chikatomo Hodo (2) Daiken Tsunoda (2) Toshihiro Isshiki (2) Mr. Kadonaga, Ms. Kuboyama, Ms. Goto, Mr. Hodo and Mr. Tsunoda satisfy the requirements for an “outside director” under the Companies Act. (as of June 30, 2023) BOARD OF DIRECTORS Chairman of the Board Makoto Takashima President and Chief Executive Officer (Representative Director) Akihiro Fukutome* Deputy Chairman of the Board Keiji Kakumoto Located at Osaka Director and Deputy Presidents (Representative Directors) Tetsuro Imaeda* Co-Head of Global Banking Unit (Head office departments (Global Banking Unit), The Asia Pacific Division) Toru Nakashima* Co-Head of Wholesale Banking Unit Head of Global Corporate Banking Division Director and Senior Managing Executive Officers Teiko Kudo* Corporate Risk Management Dept., Risk Management Information Dept., Risk Management Depts., Americas Division, Europe, Middle East and Africa Division, Asia Pacific Division and East Asia, Credit & Investment Planning Dept., Credit Depts., Americas Division, Europe, Middle East and Africa Division and Asia Pacific Division, Global Credit Dept. Jun Uchikawa* IT Planning Dept., System Security Planning Dept., Data Management Dept., Operations Planning Dept., Inter-Market Settlement Dept. Kotaro Hagiwara* Public Relations Dept., Corporate Planning Dept., Business Development Dept., Corporate Sustainability Dept., Financial Accounting Dept., Accounting Service & Planning Dept. Digital Strategy Dept. Yoshihiro Hyakutome* Compliance Dept., Anti Money Laundering & Financial Crime Prevention Dept. Takashi Kobayashi* General Affairs Dept., Human Resources Dept., Human Resources Development Dept., Quality Management Dept., Administrative Services Dept. Directors Paul Yonamine (1) Isao Teshirogi (1) * These Directors are appointed as Executive Officers also. (1) Mr. Yonamine and Mr. Teshirogi satisfy the requirements for an “outside director” under the Companies Act. 176 SMBC GROUP ANNUAL REPORT 2023 SMBC GROUP ANNUAL REPORT 2023 177 EXECUTIVE OFFICERS Senior Managing Executive Officers Masamichi Koike Head of Global Markets & Treasury Unit Muneo Kanamaru Co-Head of Wholesale Banking Unit (Head office departments (Wholesale Banking Unit)) Corporate Advisory Division Takashi Yamashita Head of Retail Banking Unit Hiroyuki Kamimoto Deputy Head of Wholesale Banking Unit Keiichiro Nakamura Co-Head of Global Banking Unit (The Americas Division, Europe, Middle East and Africa Division) Akio Isowa Digital Solution Division Digital Strategy Dept. Head of Digital Solution Division, Deputy Head of Wholesale Banking Unit Fumihiko Ito Corporate Planning Dept. Hirofumi Otsuka Head of The Americas Division and President of SMBC Americas Holdings, Inc. Managing Executive Officers Takaki Ono Private Advisory Division, Transaction Business Division Yuichi Nishimura Co-Head of The Asia Pacific Division Katsufumi Uchida Head of Asia Business Development Division and Deputy Head of The Asia Pacific Division Rajeev Veeravalli Kannan Co-Head of The Asia Pacific Division Yoshiyuki Ogata Deputy Head of Global Corporate Banking Division Osaka Corporate Banking Division (Osaka Corporate Banking Depts. I and II) Takafumi Tsuji Head of Financial Solutions Division Hiroyuki Fukuda Deputy Head of Global Corporate Banking Division Tokyo Corporate Banking Division (Tokyo Corporate Banking Depts. I, V and VII) Nobuo Ozawa Deputy Head of Wholesale Banking Unit Head of Corporate Banking Division Takashi Kakiuchi Deputy Head of The Asia Pacific Division and President of Sumitomo Mitsui Banking Corporation (China) Limited Natsuhiro Samejima Corporate Risk Management Dept., Risk Management Information Dept., Risk Management Depts., Americas Division, Europe, Middle East and Africa Division, Asia Pacific Division and East Asia Yasuhiro Shirai Deputy Head of Global Corporate Banking Division Tokyo Corporate Banking Division (Tokyo Corporate Banking Depts. II, VIII and IX) Hideki Niiyama Deputy Head of Global Corporate Banking Division Nagoya Corporate Banking Division (Nagoya Corporate Banking Dept.) Head of Nagoya Middle Market Banking Division Yukihiro Mabuchi Deputy Head of Wholesale Banking Unit Carl Adams Deputy Head of The Americas Division and Functional Head (Head of Verticals) Stanislas Roger Deputy Head of Europe, Middle East and Africa Division and CEO of SMBC Bank EU AG Richard A. Eisenberg Deputy Head of The Americas Division, Functional Head (Head of Verticals) and Co-General Manager, Corporate and Investment Banking Coverage Dept., Americas Division Hideomi Shigematsu Deputy Head of Global Corporate Banking Division Tokyo Corporate Banking Division (Tokyo Corporate Banking Depts. III and X) Toshihiro Michioka Deputy Head of Wholesale Banking Unit (in charge of West Japan) Takeya Sasaki Deputy Head of Retail Banking Unit Eiichi Takasaki Credit & Investment Planning Dept. Deputy Head of Wholesale Banking Unit (Corporate Credit Dept., Credit Administration Dept., Trust Services Dept.) Corporate Research Dept. Daiji Nakata Deputy Head of Retail Banking Unit Daisuke Nakamura Deputy Head of Wholesale Banking Unit Tomonari Inoue Deputy Head of Global Corporate Banking Division Tokyo Corporate Banking Division (Tokyo Corporate Banking Depts. IV and VI) Akio Uemura Deputy Head of Asia Business Development Division Ichiro Okawara General Manager, Corporate Credit Dept. Seiichi Katsuyama Head of Corporate Advisory Division and Deputy Head of Financial Solutions Division Hideo Kawafune Head of Europe, Middle East and Africa Division and CEO of SMBC Bank International plc Mikiko Hyodo Deputy Head of Retail Banking Unit Kazuyuki Anchi General Manager, Corporate Planning Dept. Kazuya Ikeda General Manager, Strategic Planning Dept., Global Banking Unit Arihiro Nagata General Manager, Planning Dept., Global Markets & Treasury Unit Haruyuki Yoshikawa General Manager, General Affairs Dept. Executive Officers Antony Yates President of SMBC Nikko Capital Markets Limited Alan Krouk Deputy Head of Global Banking Unit James Fenner Deputy Head of Europe, Middle East and Africa Division Katsuya Fujita Deputy head of The Americas Division, Functional Head (Head of Verticals) and Chairman of SMBC Capital Markets, Inc. Kazuhiro Fukuda Deputy Head of Global Banking Unit Tetsuro Yoshino Internal Audit Dept., Domestic Branches Audit Dept. Tatsuya Okumura General Manager, Administrative Services Dept. Hideki Takamatsu General Manager, IT Planning Dept. Hideki Tahara Deputy Head of Corporate Advisory Division Kenji Kawabata General Affairs Dept., Credit & Investment Planning Dept. Akihiro Kawara President of SMBC Capital Markets, Inc. Tomomi Izawa Head of Higashinihon Daisan Middle Market Banking Division Toshihiko Kato General Manager, Planning Dept., Retail Banking Unit Takeshi Kimoto General Manager, Asia Growing Markets Dept. Katsuyuki Kubo Deputy Head of The Americas Division Naoki Shiraishi General Manager, Digital Strategy Dept. Honami Matsugasaki Internal Audit Dept., Domestic Branches Audit Dept. Hitoshi Ryoji Deputy Head of Financial Solutions Division Paul Derek Gibbon General Manager, Loan Capital Markets Dept., Europe, Middle East and Africa Division Yasunori Takahashi Credit Depts., Americas Division, Europe, Middle East and Africa Division and Asia Pacific Division, Global Credit Dept. Akira Masuda Deputy Head of Financial Solutions Division Hideo Uchida General Manager, Corporate Banking Dept., Asia Pacific Division Makiko Kaji General Manager, Global Markets Marketing Dept. Kyoji Tanaka Deputy Head of Retail Banking Unit Ko Aoki Deputy Head of Wholesale Banking Unit (Credit Dept., Wholesale Banking Unit), Deputy Head of Retail Banking Unit (Retail Credit Dept.) Takakazu Ishimura General Manager, Tokyo Corporate Banking Dept. I Hirokazu Sakamoto Head of Higashinihon Daini Middle Market Banking Division Yoshihiro Takami General Manager, Structured Finance Dept. Nobuyuki Takiguchi General Manager, Strategic Planning Dept., Europe, Middle East and Africa Division and Co-General Manager, Operations Planning Dept., Europe, Middle East and Africa Division Hiroshi Maeda General Manager, Quality Management Dept. Hidetaka Matsuda Head of Higashinihon Daiyon Middle Market Banking Division Hajime Yokohata General Manager, Osaka Corporate Banking Dept. I Masaru Ishibashi General Manager, Global Markets Trading Dept. Hiroshi Ibaraki General Manager, Governance Planning Dept., Global Banking Unit Hiroshi Kawamura General Manager, Tokyo Corporate Banking Dept. V Tamaki Shibuya Head of Transaction Business Division Deborah A. Freer Functional Head (US COO) Yunson Du SMBC Capital Markets, Inc. Hideyuki Omokawa Corporate Planning Dept. Deputy Head of Wholesale Banking Unit (in charge of investment business), Deputy Head of Global Banking Unit (in charge of investment business) Motonori Yuki Head of Kobe Middle Market Banking Division Goro Goda General Manager, Tokyo Corporate Banking Dept. IX Kimiaki Iritani General Manager, Strategic Corporate Business Dept. Tsuyoshi Kuzuma Head of Kyoto Hokuriku Middle Market Banking Division and General Manager, Kyoto Corporate Business Office-I Masayuki Takanashi Sustainability Division Corporate Sustainability Dept. Head of Sustainability Division and General Manager, Corporate Sustainability Dept. Takanori Ueda General Manager, Shinjuku Nishiguchi Corporate Business Office-I Shinji Kodera General Manager, Tokyo Corporate Banking Dept. IV Hironori Shimojima Deputy Head of The Asia Pacific Division Reiko Mori General Manager, Global FIG Dept. Yoshihiro Kitagawa General Manager, Credit & Investment Planning Dept. Toshinori Tajima General Manager, Planning Dept., Wholesale Banking Unit Kensuke Tanaka General Manager, Treasury Dept. Hiroshi Nishimura General Manager, Strategic Planning Dept., Asia Pacific Division and Governance Planning Dept., Asia Pacific Division Masahiro Yoshimura General Manager, Business Development Dept. Takahiko Watanabe General Manager, Human Resources Dept. Lisette Lieberman General Manager, Compliance Dept., Americas Division, Compliance Dept. and Functional Head (US COO) Anjali Mohan Co-General Manager, Legal & Compliance Dept., Asia Pacific division, Compliance Dept. John Nolan Co-General Manager, Internal Audit Dept., Americas Division, Internal Audit Dept. and Functional Head (US CAE) Elena Paitra General Manager, Corporate Banking Dept.-II, Europe, Middle East and Africa Division Glenn Swanton Co-General Manager, Risk Management Dept., Europe, Middle East and Africa Division 178 SMBC GROUP ANNUAL REPORT 2023 SMBC GROUP ANNUAL REPORT 2023 179 SMBC Organization (as of June 30, 2023) Audit and Supervisory Audit and Supervisory Committee Committee Audit and Supervisory Audit and Supervisory Committee Office Committee Office Shareholders’ Shareholders’ Meeting Meeting Board of Board of Directors Directors Management Management Committee Committee *1 Belongs to Sustainability Division. *1 Belongs to Sustainability Division. *2 Belongs to Digital Solutions Division. *2 Belongs to Digital Solutions Division. *3 Belongs to Corporate Advisory Division. *3 Belongs to Corporate Advisory Division. *4 Belongs to Financial Solutions Division. *4 Belongs to Financial Solutions Division. *5 Belongs to Private Banking Division. *5 Belongs to Private Banking Division. *6 Belongs to Global Banking Unit and Wholesale Banking Unit *6 Belongs to Global Banking Unit and Wholesale Banking Unit *7 Belongs to Asia Business Development Division. *7 Belongs to Asia Business Development Division. *8 *8 *9 *9 Private Advisory Division Private Advisory Division Succession Advisory Business Dept. Succession Advisory Business Dept. Human Resource Advisory Business Dept. Human Resource Advisory Business Dept. Defined Contribution Dept. Defined Contribution Dept. Transaction Business Division Transaction Business Division Transaction Business Planning Dept. Transaction Business Planning Dept. Transaction Products Development Dept. Transaction Products Development Dept. Transaction Banking Dept. Transaction Banking Dept. Global Advisory Dept. Global Advisory Dept. Global Business Promotion Dept. Global Business Promotion Dept. Internal Audit Unit Internal Audit Unit Internal Audit Dept. Internal Audit Dept. Internal Audit Dept., Americas Division Internal Audit Dept., Americas Division Credit Review Dept., Americas Division Credit Review Dept., Americas Division Internal Audit Dept., Europe, Middle East Internal Audit Dept., Europe, Middle East and Africa Division and Africa Division Internal Audit Dept., Asia Pacific Division Internal Audit Dept., Asia Pacific Division Domestic Branches Audit Dept. Domestic Branches Audit Dept. Corporate Staff Unit Corporate Staff Unit Public Relations Dept. Public Relations Dept. Corporate Planning Dept. Corporate Planning Dept. Productivity Management Dept. Productivity Management Dept. Asset Management Business Dept. Asset Management Business Dept. Business Development Dept. Business Development Dept. Sustainability Division Sustainability Division Corporate Sustainability Dept. Corporate Sustainability Dept. Financial Accounting Dept. Financial Accounting Dept. Tax Planning Dept. Tax Planning Dept. Equity Portfolio Management Dept. Equity Portfolio Management Dept. Accounting Service and Planning Dept. Accounting Service and Planning Dept. IT Planning Dept. IT Planning Dept. System Security Planning Dept. System Security Planning Dept. General Affairs Dept. General Affairs Dept. Group Business Management Dept. Group Business Management Dept. Legal Dept. Legal Dept. Human Resources Dept. Human Resources Dept. Learning and Development Institute Learning and Development Institute Counseling Dept. Counseling Dept. Diversity and Inclusion Dept. Diversity and Inclusion Dept. Global Human Resources Dept. Global Human Resources Dept. Human Resources Development Dept. Human Resources Development Dept. Quality Management Dept. Quality Management Dept. Customer Relations Dept. Customer Relations Dept. Digital Solution Division Digital Solution Division Digital Strategy Dept. Digital Strategy Dept. Data Management Dept. Data Management Dept. *1 *1 *1 *1 *2 *2 *2 *2 Risk Management Unit Risk Management Unit Corporate Risk Management Dept. Corporate Risk Management Dept. Risk Management Information Dept. Risk Management Information Dept. Risk Management Dept., Americas Division Risk Management Dept., Americas Division Risk Management Dept., Risk Management Dept., Europe, Middle East and Africa Division Europe, Middle East and Africa Division Risk Management Dept., Asia Pacific Division Risk Management Dept., Asia Pacific Division Risk Management Dept., East Asia Division Risk Management Dept., East Asia Division Credit & Investment Planning Dept. Credit & Investment Planning Dept. Environmental and Social Risk Management Dept. Environmental and Social Risk Management Dept. Credit Dept., Americas Division Credit Dept., Americas Division Credit Dept., Europe, Middle East and Africa Division Credit Dept., Europe, Middle East and Africa Division LBO Credit Dept., LBO Credit Dept., Europe, Middle East and Africa Division Europe, Middle East and Africa Division Credit Dept., Asia Pacific Division Credit Dept., Asia Pacific Division Global Credit Dept. Global Credit Dept. Compliance Unit Compliance Unit Compliance Dept. Compliance Dept. Compliance Dept., Americas Division Compliance Dept., Americas Division Compliance Dept., Europe, Middle East Compliance Dept., Europe, Middle East and Africa Division and Africa Division Legal and Compliance Dept., Legal and Compliance Dept., Asia Pacific Division Asia Pacific Division Anti Money Laundering & Anti Money Laundering & Financial Crime Prevention Dept. Financial Crime Prevention Dept. Corporate Services Unit Corporate Services Unit Retail Retail Banking Unit Banking Unit Wholesale Wholesale Banking Unit Banking Unit Global Global Banking Unit Banking Unit Global Markets and Global Markets and Treasury Unit Treasury Unit *10 Belongs to Retail Banking Unit, Wholesale Banking Unit *10 Belongs to Retail Banking Unit, Wholesale Banking Unit Administrative Services Dept. Administrative Services Dept. and Global Banking Unit. and Global Banking Unit. Secretariat Secretariat Corporate Real Estate Management Dept. Corporate Real Estate Management Dept. Operations Planning Dept. Operations Planning Dept. Inter-Market Settlement Dept. Inter-Market Settlement Dept. 180 SMBC GROUP ANNUAL REPORT 2023 Planning Dept., Retail Banking Unit Planning Dept., Retail Banking Unit Next W-ing Project Dept. Next W-ing Project Dept. Retail Facilitating Financing Dept. Retail Facilitating Financing Dept. Channel Strategy Dept. Channel Strategy Dept. Loan Business Dept. Loan Business Dept. Retail Risk Management Dept. Retail Risk Management Dept. Retail Anti Money Laundering Dept. Retail Anti Money Laundering Dept. Retail Compliance Dept. Retail Compliance Dept. Business Promotion Dept., Retail Banking Unit Business Promotion Dept., Retail Banking Unit PRESTIA Business Planning Dept. PRESTIA Business Planning Dept. Financial Consulting Dept., Retail Banking Unit Financial Consulting Dept., Retail Banking Unit Area Support Dept. Area Support Dept. Life Shift Solution Dept. Life Shift Solution Dept. Retail Marketing Dept., Retail Banking Unit Retail Marketing Dept., Retail Banking Unit Area Support Dept. Area Support Dept. Retail IT Strategy Dept. Retail IT Strategy Dept. Card Loan Dept. Card Loan Dept. Retail Credit Dept. Retail Credit Dept. Planning Dept., Wholesale Banking Unit Planning Dept., Wholesale Banking Unit Middle Market Facilitating Financing Dept. Middle Market Facilitating Financing Dept. Global Corporate Banking Dept. Global Corporate Banking Dept. Wholesale Business Control Dept. Wholesale Business Control Dept. Small and Medium Enterprises Planning Dept. Small and Medium Enterprises Planning Dept. Strategic Corporate Business Dept. Strategic Corporate Business Dept. Group Solution Promotion Dept. Group Solution Promotion Dept. Kansai Growth Strategy Dept. Kansai Growth Strategy Dept. Public & Financial Institutions Banking Dept., Wholesale Banking Unit Public & Financial Institutions Banking Dept., Wholesale Banking Unit Corporate Credit Dept. Corporate Credit Dept. Structured Finance Credit Dept. Structured Finance Credit Dept. Credit Dept., Wholesale Banking Unit Credit Dept., Wholesale Banking Unit Credit Administration Dept. Credit Administration Dept. Growth Business Development Dept. Growth Business Development Dept. M&A Advisory Services Dept. M&A Advisory Services Dept. Corporate Digital Solution Dept. Corporate Digital Solution Dept. Corporate Advisory Division Corporate Advisory Division Advisory Dept. I Advisory Dept. I Advisory Dept. II Advisory Dept. II Advisory Dept. III Advisory Dept. III Capital Market Dept. Capital Market Dept. Corporate Research Dept. Corporate Research Dept. Financial Solutions Division Financial Solutions Division Structured Finance Dept. Structured Finance Dept. Strategic Corporate Banking Dept. Strategic Corporate Banking Dept. Specialized Finance Dept. Specialized Finance Dept. Debt Finance Dept. Debt Finance Dept. Investment Banking Services Dept. Investment Banking Services Dept. Real Estate Finance Dept. Real Estate Finance Dept. Distribution Dept. Distribution Dept. Asset Finance Dept. Asset Finance Dept. Trust Services Dept. Trust Services Dept. Trust Business Operations Dept. Trust Business Operations Dept. Private Banking Division Private Banking Division Private Banking Planning Dept. Private Banking Planning Dept. Merchant Banking Dept. Merchant Banking Dept. Sustainable Solution Dept. Sustainable Solution Dept. Strategic Planning Dept., Global Banking Unit Strategic Planning Dept., Global Banking Unit Aviation & Maritime Strategy Dept., Global Banking Unit Aviation & Maritime Strategy Dept., Global Banking Unit Securities Business Planning Dept., Global Banking Unit Securities Business Planning Dept., Global Banking Unit Governance Planning Dept., Global Banking Unit Governance Planning Dept., Global Banking Unit Strategic Planning Dept., Americas Division Strategic Planning Dept., Americas Division Governance Planning Dept., Americas Division Governance Planning Dept., Americas Division Information Control Dept., Americas Division Information Control Dept., Americas Division Strategic Planning Dept., Europe, Middle East and Africa Division Strategic Planning Dept., Europe, Middle East and Africa Division Operations Planning Dept., Europe, Middle East and Africa Division Operations Planning Dept., Europe, Middle East and Africa Division IT & Security Planning Dept., Europe, Middle East and Africa Division IT & Security Planning Dept., Europe, Middle East and Africa Division Planning Dept., Asia Pacific Division Planning Dept., Asia Pacific Division Learning and Development Dept., Asia Learning and Development Dept., Asia Asia Innovation Centre Asia Innovation Centre Governance Planning Dept., Asia Pacific Division Governance Planning Dept., Asia Pacific Division IT Planning Dept., Asia Pacific Division IT Planning Dept., Asia Pacific Division Planning Dept., East Asia Division Planning Dept., East Asia Division Asia Business Development Division Asia Business Development Division Asia Growing Markets Dept. Asia Growing Markets Dept. *2 *2 *3 *3 *3 *3 *3 *3 *3 *3 *3 *3 *3 *3 *4 *4 *4 *4 *4 *4 *4 *4 *4 *4 *4 *4 *4 *4 *4 *4 *4 *4 *4 *4 *4 *4 *5 *5 *5 *5 *4, 6 *4, 6 *1, 6 *1, 6 *7 *7 *7 *7 Planning Dept., Global Markets and Treasury Unit Planning Dept., Global Markets and Treasury Unit Treasury Dept. Treasury Dept. Global Investment Dept. Global Investment Dept. Portfolio Investment Dept. Portfolio Investment Dept. Global Markets Trading Dept. Global Markets Trading Dept. eFX Business Promotion Dept. eFX Business Promotion Dept. Global Markets Marketing Dept. Global Markets Marketing Dept. Global Markets Solution Dept. Global Markets Solution Dept. Global Markets and Treasury Dept., Asia Pacific Division Global Markets and Treasury Dept., Asia Pacific Division Global Markets and Treasury Dept., East Asia Global Markets and Treasury Dept., East Asia *9 *9 Area Main Office Area Main Office Branch Branch Consumer Loan Promotion Office Consumer Loan Promotion Office Private Wealth Dept. Private Wealth Dept. Securities Sales Dept. Securities Sales Dept. PRESTIA Sales Dept. PRESTIA Sales Dept. Remote Marketing Dept. Remote Marketing Dept. Remote Transaction Marketing Dept. Remote Transaction Marketing Dept. Call Center Call Center Consumer Finance Promotion Office Consumer Finance Promotion Office Area Corporate Credit Business Office Area Corporate Credit Business Office Global Transaction Office Global Transaction Office E-Transaction Business Dept. E-Transaction Business Dept. *10 *10 *10 *10 Inheritance Advisory Business Dept. Inheritance Advisory Business Dept. Corporate Banking Dept. Corporate Banking Dept. Corporate Business Office Corporate Business Office Strategic Finance Promotion Office Strategic Finance Promotion Office Public Institutions Business Office Public Institutions Business Office Real Estate Corporate Business Office Real Estate Corporate Business Office Real Estate Finance Corporate Business Office Real Estate Finance Corporate Business Office Credit Business Office Credit Business Office Private Banking Dept. Private Banking Dept. Global Transaction Office Global Transaction Office E-Transaction Business Dept. E-Transaction Business Dept. *10 *10 *10 *10 Area Corporate Office Area Corporate Office Area Corporate Credit Business Office Area Corporate Credit Business Office i i P P r r i i v v a a t t e e A A d d v v s s o o r r y y D D v v s s o o n n i i i i i i Global Corporate Global Corporate Banking Division Banking Division Tokyo Corporate Banking Division Tokyo Corporate Banking Division Osaka Corporate Banking Division Osaka Corporate Banking Division Nagoya Corporate Banking Division Nagoya Corporate Banking Division Corporate Banking Corporate Banking Division Division Middle Market Banking Middle Market Banking Division Division Small and Medium Small and Medium Enterprises Banking Division Enterprises Banking Division *8 *8 T T r r a a n n s s a a c c t t i i o o n n B B u u s s n n e e s s s s D D v v s s o o n n i i i i i i i i Americas Division Americas Division Europe, Middle East Europe, Middle East and Africa Division and Africa Division Asia Pacific Division Asia Pacific Division Departments of Americas Division Departments of Americas Division Departments of Europe, Middle East Departments of Europe, Middle East and Africa Division and Africa Division Branches / Representative Offices in Branches / Representative Offices in Asia Pacific Division Asia Pacific Division Global FIG Dept. Global FIG Dept. Global Client Business Dept. Global Client Business Dept. Global Trade Finance Dept. Global Trade Finance Dept. Global Supply Chain Finance Dept. Global Supply Chain Finance Dept. Transportation Dept. Transportation Dept. Global Transaction Office Global Transaction Office E-Transaction Business Dept. E-Transaction Business Dept. *10 *10 *10 *10 Operations Service Branch Operations Service Branch Public Institutions Operations Office Public Institutions Operations Office Operations Service Office Operations Service Office Souzoku-office Sub-Branch Souzoku-office Sub-Branch Zaikei-Office Zaikei-Office SMBC GROUP ANNUAL REPORT 2023 181 Principal Subsidiaries and Affiliates (as of March 31, 2023) All companies shown hereunder are consolidated subsidiaries or affiliates of Sumitomo Mitsui Financial Group, Inc. Those printed in green ink are consolidated subsidiaries or affiliates of Sumitomo Mitsui Banking Corporation. ■ Principal Domestic Subsidiaries Note: Figures in parentheses ( ) in the voting rights columns indicate voting rights held indirectly via subsidiaries and affiliates. ■ Principal Overseas Subsidiaries Company Name Issued Capital (Millions of Yen) Percentage of SMFG’s Voting Rights (%) Percentage of SMBC’s Voting Rights (%) Date of Establishment or Investment Main Business Company Name Country Issued Capital Percentage of SMFG’s Voting Rights (%) Percentage of SMBC’s Voting Rights (%) Date of Establishment or Investment Main Business Sumitomo Mitsui Banking Corporation 1,770,996 100 SMBC Trust Bank Ltd. SMBC Nikko Securities Inc. Sumitomo Mitsui Card Company, Limited SMBC Finance Service Co., Ltd. SMBC Consumer Finance Co., Ltd. The Japan Research Institute, Limited Sumitomo Mitsui DS Asset Management Company, Limited SMBC Guarantee Co., Ltd. SMBC Mobit Co., Ltd. JAIS, Limited Alternative Investment Capital Limited NCore Co., Ltd. plus medi corp. SMBC VALUE CREATION CO., LTD. SMBC GMO PAYMENT, Inc. SMBC Venture Capital Management Co.,Ltd. SMBC Venture Capital Co., Ltd. SMBC Consulting Co., Ltd. Japan Pension Navigator Co., Ltd. SMBC ReSolutions Inc. Plari Town, Inc. SMBC Servicer Co., Ltd. SMBC Electronic Monetary Claims Recording Co., Ltd. SMBC Staff Service Co., Ltd. SMBC Learning Support Co., Ltd. SMBC PERSONNEL SUPPORT CO., LTD. SMBC OPERATION SERVICE CO., LTD. SMBC Green Service Co., Ltd. SMBC Real Estate Appraisal Service Co., Ltd. SMBC REIT Management Co., Ltd. SMBC Capital Partners Co., Ltd. 187,720 20,000 450 400 10 100 495 490 643 500 1,100 1,600 10 100 1,000 500 90 10 10 30 30 30 250 100 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 100 100 (100) (100) (100) (100) (100) (100) (100) (100) (80) (100) 87,550 0 (100) 10,000 34,000 100 100 82,843 0 (100) 140,737 10,000 100 100 2,000 50.12 (100) (100) (100) (60) — 100 — — — — — — — — — 60 Jun. 6, 1996 Commercial banking Feb. 25, 1986 Trust service and commercial banking Jun. 15, 2009 Securities Dec. 26, 1967 Credit card services Sep. 11, 1950 Credit card, installment businesses, and transaction businesses Mar. 20, 1962 Consumer loans Nov. 1, 2002 System engineering, data processing, management consulting, and economic research Dec. 1, 2002 Investment management Jul. 14, 1976 Credit guarantee May 17, 2000 Consumer lending Oct. 16, 1990 System engineering and data processing Jul. 15, 2002 Investment management and advisory services (50.99) 50.99 Apr. 1, 2004 Data processing service and e-trading consulting 96.01 (100) (60) (40) — 100 10 40 Dec. 15, 2016 Information services Feb. 20, 2019 Data processing service and e-trading consulting Nov. 2, 2015 Settlement agent Jul. 1, 2010 Management consulting services, investment management services (100) 0 (100) Sep. 22, 2005 Venture capital (100) 50 (1.63) May 1, 1981 Management consulting and seminar organizer (69.71) 69.71 Sep. 21, 2000 Defined contribution plan administrator — — 100 100 100 100 100 100 100 100 80 100 — — — Apr. 1, 2020 Real estate management May 26, 2020 Platform management and operation Mar. 11, 1999 Servicer Apr. 16, 2009 Electronic monetary claims recording Jul. 15, 1982 Temp worker dispatch services, fee-based headhunting services and contracting of human resources-related procedures May 27, 1998 Training services Apr. 15, 2002 HR related clerical services Jan. 31, 1996 Banking clerical work Mar. 15, 1990 Contract preparation of deposit survey responses Feb. 1, 1984 Collateral real estate survey and appraisal Mar. 10, 2020 Asset management Feb. 10, 2020 Investments May 1, 2017 Biometric authentication services (Polarify biometric authentication services) and e-KYC service (Polarify e-KYC) Oct. 1, 2019 Cloud-based electronic contract services Jul. 8, 2021 Advertising and marketing Polarify, Inc. 100 78.60 SMBC CLOUDSIGN, Inc. SMBC Digital Marketing, Ltd. SMBC HUMAN CAREER Co., Ltd. 50 100 150 51 66 0 (100) 100 Mar. 1, 1987 Job introduction and staffing SMBC Bank International plc Sumitomo Mitsui Banking Corporation (China) Limited U.K. China US$3,200 million CNY10.0 billion PT Bank BTPN Tbk Indonesia Rp162.982 billion SMBC Americas Holdings, Inc. Manufacturers Bank Banco Sumitomo Mitsui Brasileiro S.A. JSC Sumitomo Mitsui Rus Bank SMBC Bank EU AG Sumitomo Mitsui Banking Corporation Malaysia Berhad U.S.A. U.S.A. Brazil Russia Germany Malaysia US$2,730 US$530.786 million R$1,559.699 million RUB6.4 billion €5,100 million MYR2,452 million SMBC Leasing and Finance, Inc. U.S.A. US$4,350 SMBC Rail Services LLC U.S.A. SMBC Nikko Securities America, Inc. U.S.A. 0 US$655 SMBC Nikko Capital Markets Limited U.K. US$1,138 million SMBC Capital Markets, Inc. U.S.A. TT International Asset Management Ltd U.K. SMBC Asset Management Services (UK) Limited U.K. US$100 £92 million £240 million SMBC DIP Limited SFVI Limited SMBC, S.A.P.I. DE C.V., SOFOM, E.N.R. Cayman Islands US$1 British Virgin Islands US$9,600 Mexico MXN1,460 million SMBC International Finance N.V. Curaçao Sumitomo Mitsui Finance Dublin Limited Ireland Sakura Finance Asia Limited Hong Kong SMBC Derivative Products Limited U.K. SMBC Advisory Services Saudi Arabia LLC Saudi Arabia US$200,000 US$12 million US$65.5 million US$200 million SAR18,000,000 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 (100) (100) (100) (100) (100) (100) (100) (100) (100) 100 (100) (100) (100) (100) (100) (100) (100) (100) Fullerton India Credit Company Limited India 22,467 million rupees 74.89 (0) (100) (100) 100 100 Mar. 3, 2003 Commercial banking Apr. 27, 2009 Commercial banking (93.49) 93.49 Feb. 5, 1958 Commercial banking (100) 100 Aug. 8, 1990 Management of the US BHC and US BHC subsidiaries (100) 0 (100) Jun. 26, 1962 Commercial banking 100 Oct. 6, 1958 Commercial banking 99 (1) May 8, 2009 Commercial banking 100 100 Nov. 23, 2017 Commercial banking Dec. 22, 2010 Commercial banking 0 0 0 (100) Nov. 9, 1990 (100) May 11, 2011 Leasing, investments, deferred payment services Leasing, money lending, selling used lease property and maintenance, and other related business (80) Aug. 8, 1990 Securities, investments 84.84 Mar. 13, 1990 (100) 0 (100) Dec. 4, 1986 Derivatives and investments, securities services Derivatives and investments, leasing, securities business — — 100 100 100 100 100 100 Feb. 28, 2020 Investment management Oct. 16, 2019 Stock holding Mar. 16, 2005 Loans, buying / selling of monetary claims Jul. 30, 1997 Investments Sep. 18, 2014 Money lending business, derivatives business and services related to leasing Jun. 25, 1990 Finance Sep. 19, 1989 Finance Oct. 17, 1977 Investments 0 (100) Apr. 18, 1995 Derivatives and investments 100 — Dec. 29, 2017 Consulting Aug. 30, 1994 Money lending business (Note 1) NCore Co., Ltd. was excluded from Sumitomo Mitsui Banking Corporation’s consolidated subsidiaries following the transfer of all shares held by Sumitomo Mitsui Banking Corporation to Sumitomo Mitsui Financial Group on April 28, 2023. (Note 2) Fullerton India Credit Company Limited changed its company name to SMFG India Credit Company Limited on May 11, 2023. 182 SMBC GROUP ANNUAL REPORT 2023 SMBC GROUP ANNUAL REPORT 2023 183 Issued Capital (Millions of Yen) Percentage of SMFG’s Voting Rights (%) Percentage of SMBC’s Voting Rights (%) Date of Establishment or Investment Main Business ■ Principal Affiliates Company Name PayPay Bank Corporation PT Oto Multiartha PT Summit Oto Finance ACLEDA Bank Plc. The Bank of East Asia, Limited Sumitomo Mitsui Finance and Leasing Company, Limited 72,216 Rp928,707 million Rp2,442,060 million US$433 million HKD38,804 million 0 0 0 0 0 (46.57) (35.10) (35.10) (18.06) (21.44) 15,000 50 Sumitomo Mitsui Auto Service Company, Limited 13,636 26.16 (59.56) SMBC Aviation Capital Limited US$2,249 million 0 (100) Osaka Digital Exchange Co.,Ltd. 2,000 20 VPBank SMBC Finance Company Limited VND10,928,000 million 0 POCKET CARD CO., LTD. JSOL CORPORATION Sakura Information Systems Co., Ltd. SAKURA KCS Corporation brees corporation 14,374 5,000 600 2,054 100 China Post & Capital Fund Management Co., Ltd. CNY304 million Spring Infrastructure Capital Co., Ltd. BrainCell, Inc. Cotra Ltd. 250 300 1,700 0 0 0 0 0 0 0 0 (49) (20) (50) (49) 46.57 35.10 35.10 18.06 21.44 — — 32 — — 20 — 49 Sep. 19, 2000 Commercial banking Mar. 28, 1994 Automotive financing Sep. 20, 1990 Motorcycle financing Dec. 1, 2003 Commercial banking Nov. 14, 1918 Commercial banking Feb. 4, 1963 Leasing Feb. 21, 1981 Leasing Aug. 14, 1997 Leasing Apr. 1, 2021 Proprietary Trading System (PTS) Management Oct. 28, 2021 Consumer finance business May 25, 1982 Credit card services Jul. 3, 2006 Nov. 29, 1972 System engineering and data processing System engineering and data processing System engineering and data processing (47.45) 28.52 (1.25) Mar. 29, 1969 (49) (23.67) (24.50) 49 (25) 49 23.67 24.50 — 25 Dec. 5, 2014 Information processing services Apr. 24, 2012 Investment management Jul. 31, 2018 Investments Jun. 1, 2018 Marketing Jul. 1, 2021 Planning and operation of fund settlement infrastructure (Note) brees corporation was excluded from Sumitomo Mitsui Banking Corporation’s equity-method affiliates following the transfer of all shares held by Sumitomo Mitsui Banking Corporation to Sumitomo Mitsui Financial Group on April 28, 2023. International Directory (as of June 30, 2023) Asia and Oceania SMBC Branches and Representative Offices Hong Kong Branch 7th, 8th Floor, One International Finance Centre, 1 Harbour View Street, Central, Hong Kong Special Administrative Region, The People’s Republic of China Tel: 852-2206-2000 Hong Kong Branch Kowloon Office 19F, The Metropolis Tower, 10 Metropolis Drive, Hunghom, Kowloon, Hong Kong Tel: 852-(2206) 2000 Taipei Branch 3F, Walsin Lihwa Xinyi Building, No. 1 Songzhi Road, Xinyi District, Taipei 11047, Taiwan Tel: 886 (2) 2720-8100 Seoul Branch 12F, Mirae Asset CENTER1 Bldg. West Tower, 26, Eulji-ro 5-gil, Jung-gu Seoul, 04539, The Republic of Korea Tel: 82 (2) 6364-7000 Singapore Branch 88 Market Street, #33-01, CapitaSpring, Singapore 048948 Tel: 65-6882-0000 Sydney Branch Level 35, The Chifley Tower, 2 Chifley Square, Sydney, NSW 2000, Australia Tel: 61 (2) 9376-1800 Perth Branch Level 19, Exchange Tower, 2 The Esplanade, Perth, Western Australia 6000, Australia Tel: 61 (8) 9492-4900 Bangkok Branch 8th-10th Floor, Q.House Lumpini Building, 1 South Sathorn Road, Tungmahamek, Sathorn, Bangkok 10120, Thailand Tel: 66 (2) 353-8000 Chonburi Branch 12th Floor Harbor Mall, 12B01, 12C01 4/222 Moo 10 Sukhumvit Road, Tungsukha, Sriracha Chonburi 20230, Thailand Tel: 66-(2) 353-8000 Ho Chi Minh City Branch 15th Floor, Times Square Building, 22-36 Nguyen Hue Street, District 1, Ho Chi Minh City, Vietnam Tel: 84 (28) 3520-2525 Hanoi Branch Unit 1201, 12th Floor, Lotte Center Hanoi, 54 Lieu Giai Street, Cong Vi Ward, Ba Dinh District, Hanoi, Vietnam Tel: 84 (24) 3946-1100 Manila Branch 21st Floor, Tower One & Exchange Plaza, Ayala Triangle, Ayala Avenue, Makati City, The Philippines 1226 Tel: 63 (2) 8807100 Yangon Branch Level #5 Strand Square, No.53 Strand Road, Pabedan Township, Yangon, Myanmar Tel: 95 (1) 2307380 Yangon Branch Thilawa Front Office Room No. 103, Administration Building, Corner of Thilawa Development Road and Dagon - Thilawa Road, Thilawa SEZ, Thanlyin Township, Yangon, Myanmar Tel: 95 (1) 2309100 Labuan Branch Level 12 (B&C), Main Office Tower, Financial Park Labuan, Jalan Merdeka, 87000 Labuan, Federal Territory, Malaysia Tel: 60 (87) 410955 Labuan Branch Kuala Lumpur Office Suite 22-03, Level 22, Integra Tower, The Intermark, 348, Jalan Tun Razak, 50400 Kuala Lumpur, Malaysia Tel: 60 (3) 2176-1700 Phnom Penh Representative Office Exchange Square (7th Floor) Unit 701, No.19 and 20, Street 106, Sangkat Wat Phnom, Village 2, Khan Daun Penh, Phnom Penh, Kingdom of Cambodia Tel: 855 (23) 964-080 Mumbai Branch Unit No. 601, 6th Floor, Platina Building, Plot No. C-59, G Block, Bandra Kurla Complex, Bandra (East), Mumbai 400051, Maharashtra, India Tel: 91 (22) 6229-5000 New Delhi Branch 12&13th Floor, Hindustan Times House,18-20, Kasturba Gandhi Marg, New Delhi 110001, India Tel: 91 (11) 4768-9111 Chennai Branch 10th Floor, Chaitanya Imperial Tower, Plot No.610, 610A, 612, D. No.1/104-BB, Block A, Annasalai, Teynampet, Chennai, 600018, Tamil Nadu, India Tel: 91- (44) 6144-9999 SMBC Principal Subsidiaries/ Affiliates SMFG Network Sumitomo Mitsui Banking Corporation (China) Limited Head Office (Shanghai) 11F, Shanghai World Financial Center, 100 Century Avenue, Pudong New Area, Shanghai 200120, The People’s Republic of China Tel: 86 (21) 3860-9000 Sumitomo Mitsui Banking Corporation (China) Limited Guangzhou Branch 12F, International Finance Place, No.8 Huaxia Road, Tianhe District, Guangzhou 510623, The People’s Republic of China Tel: 86 (20) 3819-1888 Sumitomo Mitsui Banking Corporation (China) Limited Hangzhou Branch 5F, Offices At Kerry Centre, 385 Yan An Road, Gong Shu District, Hangzhou, Zhejiang Province, The People’s Republic of China Tel: 86 (571) 2889-1111 Sumitomo Mitsui Banking Corporation (China) Limited Chongqing Branch Unit1&15-18, 20/F, Tower 1, Chongqing IFS, No.1 Qingyun Road, Jiangbei District, Chongqing, The People’s Republic of China Tel: 86 (23) 8812-5300 Sumitomo Mitsui Banking Corporation (China) Limited Shenzhen Branch 23/F, Tower Two, Kerry Plaza, 1 Zhongxinsi Road, Futian District, Shenzhen 518048, The People’s Republic of China Tel: 86 (755) 2383-0980 Sumitomo Mitsui Banking Corporation (China) Limited Shenyang Branch 1606, 1 Building, Forum 66, No.1 Qingnian Street, Shenhe District, Shenyang, Liaoning Province, The People’s Republic of China Tel: 86 (24) 3128-7000 184 SMBC GROUP ANNUAL REPORT 2023 SMBC GROUP ANNUAL REPORT 2023 185 Sumitomo Mitsui Banking Corporation (China) Limited Suzhou Branch 12F, SND International Commerce Tower, No.28 Shishan Road, Suzhou New District, Suzhou, Jiangsu 215011, The People’s Republic of China Tel: 86 (512) 6606-6500 Sumitomo Mitsui Banking Corporation (China) Limited Dalian Branch Senmao Building 4F-A, 147 Zhongshan Road, Xigang District, Dalian, The People’s Republic of China Tel: 86 (411) 3905-8500 Sumitomo Mitsui Banking Corporation (China) Limited Tianjin Branch 12F, The Exchange Tower 2, 189 Nanjing Road, Heping District, Tianjin 300051, The People’s Republic of China Tel: 86 (22) 2330-6677 Sumitomo Mitsui Banking Corporation (China) Limited Beijing Branch Unit1601,16F, North Tower, Beijing Kerry Centre, No.1, Guang Hua Road, Chao Yang District, Beijing 100020, The People’s Republic of China Tel: 86 (10) 5920-4500 Sumitomo Mitsui Banking Corporation (China) Limited Kunshan Sub-Branch Room 601, Room 605-608, Building 1 Fortune Plaza, No.258 Dengyun Road, Yushan Town, Kunshan Jiangsu 215300, The People’s Republic of China Tel: 86 (512) 3687-0588 Sumitomo Mitsui Banking Corporation (China) Limited Shanghai Pilot Free Trade Zone Sub-Branch Room 15T21, 15F, Shanghai World Financial Center, 100 Century Avenue, Pudong New Area, Shanghai 200120, The People’s Republic of China Tel: 86 (21) 2067-0200 Sumitomo Mitsui Banking Corporation (China) Limited Shanghai Puxi Sub-Branch 12F, Maxdo Center, 8 XingyiRoad, Changning District, Shanghai, The People’s Republic of China Tel: 86 (21) 2219-8000 Sumitomo Mitsui Banking Corporation (China) Limited Changshu Sub-Branch 8F, Science Innovation Building (Kechuang Building) No.33 Dongnan Road, Changshu New & Hi-tech Industrial Development Zone of Jiangsu Changshu 215500, The People’s Republic of China Tel: 86 (512) 5235-5553 Sumitomo Mitsui Banking Corporation (China) Limited Suzhou Industrial Park Sub-Branch 16F, International Building, No.2, Suzhou Avenue West, Suzhou Industrial Park, Jiangsu 215021, The People’s Republic of China Tel: 86 (512) 6288-5018 PT Bank BTPN Tbk Menara BTPN, 29th Floor, CBD Mega Kuningan, Jl. Dr. Ide Anak Agung Gde Agung Kav. 5.5-5.6, Jakarta 12950, Indonesia Tel: 62 (21) 300-26200 PT Bank BTPN Syariah Tbk Menara BTPN, 12th Floor, CBD Mega Kuningan Jl. Dr. Ide Anak Agung Gde Agung Kav. 5.5-5.6, Jakarta 12950, Indonesia Tel: 62 (21) 300-26400 Sumitomo Mitsui Banking Corporation Malaysia Berhad Suite 22-03, Level 22, Integra Tower, The Intermark, 348, Jalan Tun Razak, 50400 Kuala Lumpur, Malaysia Tel: 60 (3) 2176-1500 SMBC Capital Markets (Asia) Limited 7th Floor, One International Finance Centre, 1 Harbour View Street, Central, Hong Kong Special Administrative Region, The People’s Republic of China Tel: 852-2532-8500 SMBC Nikko Securities (Hong Kong) Limited Room 607-614, 6/F, One International Finance Centre, 1 Harbour View Street, Central, Hong Kong Tel: 852-3716-7000 SMBC Nikko Securities (Hong Kong) Limited (Sydney Office) Level 35, The Chifley Tower, 2 Chifley Square, Sydney, NSW 2000, Australia Tel: 61 (2) 9376-1895 SMBC Nikko Securities (Singapore) Pte. Ltd. 88 Market Street #34-02 CapitaSpring Singapore 048948 Tel: 65-6690-441 SMBC Nikko Investment Consulting (Shanghai) Limited Room 1720, Shanghai World Financial Center, No.100 Century Avenue, Pudong New Area, Shanghai, The People’s Republic of China Tel: 86-21-3817-9000 SMBC Nikko Securities Inc., Beijing Representative Office Room 403A, 4/F, China Central Place Tower 2, No.79 Jianguo Road, Chaoyang District, Beijing Tel: 86-10-6587-2881 The Bank of East Asia, Limited 10 Des Voeux Road, Central, Hong Kong Tel: 852-3608-3608 PT Oto Multiartha Summitmas II, 18th floor, Jl. Jend. Sudirman Kav. 61-62, Jakarta 12190, Indonesia Tel: 62 (21) 522-6410 PT Summit Oto Finance Summitmas II, 8th floor, Jl. Jend. Sudirman Kav. 61-62, Jakarta 12190, Indonesia Tel: 62 (21) 252-2788 ACLEDA Bank Plc. #61, Preah Monivong Blvd., Sangkat Srah Chork, Khan Daun Penh, Phnom Penh, Kingdom of Cambodia Tel: 855 (23) 998-777 The Japan Research Institute (Shanghai) Solution Co., Ltd. Unit 17T40, 17F, Shanghai World Financial Center, 100 Century Avenue, Pudong New Area, Shanghai 200120 The People’s Republic of China Tel: 86 (21) 6841-2788 Sumitomo Mitsui Finance and Leasing (Singapore) Pte. Ltd. Singapore Branch 152 Beach Road, #05-06/08 Gateway East, Singapore 189721 Tel: 65-6224-2955 Sumitomo Mitsui Finance and Leasing (Hong Kong) Ltd. Unit 4206-8, 42/F, Dah Sing Financial Centre, 248 Queen’s Road East, Wanchai, Hong Kong Tel: 852-2523-2280 SMFL Leasing (Thailand) Co., Ltd. 30th Floor, Q. House Lumpini Building, 1 South Sathorn Road, Tungmahamek, Sathorn, Bangkok 10120, Thailand Tel: 66-2-677-7400 Sumitomo Mitsui Finance and Leasing (China) Co., Ltd. Unit 2302, TaiKoo Hui Tower 1,385 Tianhe Road, Tianhe District, Guangzhou, China Tel: 86-20-8755-0021 Shanghai Sumitomo Mitsui General Finance and Leasing Co., Ltd. 10th Floor, Pingan Riverfront Financial Center, 757 Mengzi Road, Huangpu District, Shanghai, China Tel: 86-21-5396-5522 Sumitomo Mitsui Finance and Leasing (China) Co., Ltd. Beijing Branch Unit 1001, 10F, North Tower, Beijing Kerry Centre, 1 Guanghua Road, Chaoyang District, Beijing, China Tel: 86-10-8529-7887 Shanghai Sumitomo Mitsui General Finance and Leasing Co., Ltd. Chengdu Branch Room 2002, YanLord Landmark, No.1, Section 2, Renmin South Road, Chengdu, China Tel: 86-28-8691-7181 SMFL Leasing (Malaysia) Sdn. Bhd. Suite 16D, Level 16, Vista Tower, The Intermark No. 348, Jalan Tun Razak, 50400 Kuala Lumpur, Malaysia Tel: 60-3-2710-0170 PT. SMFL Leasing Indonesia Menara BTPN, 31st Floor, Jl. Dr. Ide Anak Agung Gde Agung, Kav. 5.5 - 5.6, Mega Kuningan, Jakarta Selatan 12950, Indonesia Tel: 62-21-8062-8710 Sumitomo Mitsui Auto Leasing & Service (Thailand) Co., Ltd. 161 Nantawan Building, 17th Floor, Rajdamri Road, Lumpinee, Pathumwan, Bangkok 10330, Thailand Tel: 66-2252-9511 Summit Auto Lease Australia Pty Ltd. Unit 7, 38-46 South Street Rydalmere, NSW 2116 Australia Tel: 61 (2) 9638-7833 SMAS Auto Leasing India Private Limited Office No. 406, 4th Floor, Worldmark-2, Asset area No.8, Aerocity Hospitality District, New Delhi-110037, India Tel: 91 (11) 4828-8300 PROMISE (HONG KONG) CO., LTD. 14th Floor Luk Kwok Centre, 72 Gloucester Road, Wan Chai, Hong Kong Tel: 852 (3199) 1000 Liang Jing Co., Ltd. 9th Floor No.6, Sec 3, Min Chuan E.Rd., Taipei, Taiwan 104477,R.O.C. Tel: 886 (2) 2515-1598 PROMISE (THAILAND) CO., LTD. 159/19-20 Serm-mit Tower, Unit 1201, 12th Floor,Sukhumvit 21 (Asoke) Road, North Klongtoey, Wattana, Bangkok 10110, Thailand Tel: 66 (2) 655-8574 PROMISE (SHENZHEN) CO., LTD. 2801, 2803, 28/F, Tower A, Kingkey 100 Building, No.5016 Shennan East Road, Luohu District,Shenzhen 518000, The People’s Republic of China Tel: 86(755) 6186 5108 PROMISE (SHENYANG) CO., LTD. 5F, No.1 Yuebin Street, Shenhe District, Shenyang, Liaoning Province 110013, The People’s Republic of China Tel: 86 (24) 2250-6200 Promise Consulting Service (Shenzhen) Co., Ltd. 1406-1408, Tower A, Tianan Guoji Building, Nanhu Road Renmin South Road, Luoho District, Shenzhen 518005, The People’s Republic of China Tel: 86 (755) 3698-5100 PROMISE (TIANJIN) CO., LTD. 28F No.256 Jie-Fang Nan Road, Hexi District,Tianjin 300042, The People’s Republic of China Tel: 86 (22) 5877-8700 PROMISE (CHONGQING) CO., LTD. 1209A, No.68, Zourong Road, Yuzhong District, Chongqing, The People’s Republic of China Tel: 86 (23) 6037-5200 PROMISE (CHENGDU) CO., LTD. Level 18, Minyoun Financial Plaza, No.35 Zidong Section Dongda Street, Jinjiang District, Chengdu, 610061, The People’s Republic of China Tel: 86 (28) 6528-5000 PROMISE (WUHAN) CO., LTD. 14F, Block A, Pingan International Financial Building, 216 Gongzheng Road, Wuchang, Wuhan, Hubei, 430000, The People’s Republic of China Tel: 86 (27) 8711-6300 PROMISE (SHANGHAI) CO., LTD. Room 03-10, Floor 14, China Insurance Building No.166, East Lujiazui Road, Pudong New Area, Shanghai 200120, The People’s Republic of China Tel: 86 (21) 2066-6262 PROMISE ASSET MANAGEMENT (TAIWAN) CO., LTD. 9th Floor No.6, Sec 3, Min Chuan E.Rd., Taipei, Taiwan 104477, R.O.C. Tel: 886 (2) 2515-6369 VPBank SMBC Finance Company Limited Floor 2, REE Tower Building, No.9, Doan Van Bo Street, Ward 13, District 04, Ho Chi Minh City Tel: 84-28-3911-5212 SMCC Consulting (Shanghai) Co., Ltd. Room 971, 9F Hang Seng Bank Tower, No.1000 Lujiazui Ring Road, Pudong New District, Shanghai, People’s Republic of China Sumitomo Mitsui DS Private Fund Management (Shanghai) Co., Ltd. Suite2710B - 11, 27/F, CITIC Square, 1168 Nanjing Road West, Shanghai, 200041, China Tel: 86-(0)21-5292-5960 Sumitomo Mitsui DS Asset Management (Hong Kong) Limited 6/F, One International Finance Centre, 1 Harbour View Street, Central, Hong Kong Tel: 852-2521-8883 Sumitomo Mitsui DS Asset Management (Singapore) Pte. Ltd. 88 Market Street #33-03 CapitaSpring Singapore 048948 Tel: 65-6297-6811 186 SMBC GROUP ANNUAL REPORT 2023 SMBC GROUP ANNUAL REPORT 2023 187 The Americas SMBC Branches and Representative Offices New York Branch 277 Park Avenue, New York, NY 10172, U.S.A. Tel: 1 (212) 224-4000 Canada Branch Toronto Dominion Centre, 222 Bay Street, Suite 1400, P.O. Box 172, Toronto, Ontario M5K 1H6, Canada Tel: 1 (416) 368-4766 Cayman Branch 25 Main Street, George Town, P.O. BOX 694, Grand Cayman, Cayman Islands Los Angeles Branch 601 South Figueroa Street, Suite 1800, Los Angeles, CA 90017, U.S.A. Tel: 1 (213) 452-7800 San Francisco Branch 555 California Street, Suite 3350, San Francisco, CA 94104, U.S.A. Tel: 1 (415) 616-3000 Chicago Representative Office 300 S. Riverside Plaza, Suite 1970, Chicago, IL 60606, U.S.A. Tel: 1 (312) 796-3668 Dallas Representative Office 14241 Dallas Parkway, Suite 660, Dallas,TX 75254, U.S.A. Tel: 1 (972) 942-7000 Houston Representative Office Two Allen Center, 1200 Smith Street, Suite 1140, Houston, TX 77002, U.S.A. Tel: 1 (713) 277-3500 Silicon Valley Representative Office 101 Jefferson Drive, Menlo Park, CA 94025, U.S.A. Tel: 1 (650) 460-1669 White Plains Representative Office 1 North Lexington Avenue, 6F, 9F, 10F, White Plains, NY,10601, U.S.A. Tel: 1-914-688-4100 Mexico City Representative Office Torre Virreyes-Pedregal 24, Piso 5, Int 502-A, Col. Molino del Rey, Ciudad de Mexico, Mexico, 11040 Tel: 52 (55) 2623-0200 Leon Representative Office Plaza de la Paz #102. int.901 Puerto Interior, Silao, Guanajuato, CP36275, Mexico Tel: 52 (472) 478-0900 Bogota Representative Office Carrera 11 #79-52, Oficina 1002, Bogotá DC, Colombia Tel: 57 (1) 619-7200 Lima Representative Office Avenida Canaval y Moreyra 380, Oficina 702, San Isidro, Lima 27, Peru Tel: 51 (1) 200-3600 Santiago Representative Office Isidora Goyenechea 3000, Suite 2102, Las Condes, Santiago, Chile Tel: 56 (2) 2896-8440 SMBC Principal Subsidiaries/ Affiliates SMFG Network Manufacturers Bank 515 South Figueroa Street, Los Angeles, CA 90071, U.S.A. Tel: 1 (213) 489-6200 Banco Sumitomo Mitsui Brasileiro S.A. Avenida Paulista, 37-11 e 12 andar Sao Paulo-SP-CEP 01311-902, Brazil Tel: 55 (11) 3178-8000 SMBC Capital Markets, Inc. 277 Park Avenue, New York, NY 10172, U.S.A. Tel: 1 (212) 224-5100 SMBC Leasing and Finance, Inc. 277 Park Avenue, New York, NY 10172, U.S.A. Tel: 1 (212) 224-5200 SMBC, S.A.P.I. DE C.V., SOFOM, E.N.R. Torre Virreyes-Pedregal 24, Piso 5, Int 502-A, Col. Molino del Rey, Ciudad de Mexico, Mexico, 11040 Tel: 52-55-2623-0200 SMBC Nikko Securities America, Inc. 277 Park Avenue, New York, NY 10172, U.S.A. Tel: 1 (212) 224-5300 SMBC Nikko Securities America, Inc San Francisco Branch 555 California Street, Suite 3320, San Francisco, CA 94104, U.S.A Tel: 1-415-616-3070 SMBC Nikko Securities America, Inc. Charlotte Branch 500 East Morehead Street, Charlotte, NC 28202, U.S.A SMBC Nikko Securities Canada, Ltd. 277 Park Avenue, New York, NY 10172, U.S.A. Tel: 1-212-224-5300 JRI America, Inc. 277 Park Avenue, New York, NY 10172, U.S.A. Sumitomo Mitsui Finance and Leasing Company, Limited New York Branch 666 Third Avenue, New York, NY 10017, U.S.A. Tel: 1 (917) 542-3500 Sumitomo Mitsui DS Asset Management (USA) Inc. 300 Park Avenue, 16th Floor, New York, NY 10022, United States Tel: 1 (212) 418-3030 SMBC Americas Holdings, Inc. 251 Little Falls Drive, Wilmington, New Castle, DE 19808, U.S.A. Tel: 1 (212) 224-4000 Europe, Middle East and Africa SMBC Branches and Representative Offices London Branch 100 Liverpool Street, London EC2M 2AT, UK Tel: 44 (0) 20-4507-1000 Düsseldorf Branch Prinzenallee 7, 40549 Düsseldorf, Germany Tel: 49 (211) 36190 Brussels Branch Neo Building, Rue Montoyer 51, Box 6, 1000 Brussels, Belgium Tel: 32 (2) 551-5000 DIFC Branch-Dubai Building One, 5th Floor, Gate Precinct, Dubai International Financial Centre, PO Box 506559 Dubai, United Arab Emirates Tel: 971 (4) 428-8000 Abu Dhabi Representative Office Office No.801, Makeen Tower, Al Zahiyah, Abu Dhabi, United Arab Emirates Tel: 971 (0) 2-495-4000 Istanbul Representative Office Metrocity Is Merkezi, Kirgulu Sokak No:4 Kat:7/A D Blok, Esentepe Mahallesi, Sisli 34394, Istanbul, Republic of Turkey Tel: 90 (212) 371-5900 Doha QFC Office Office 1901, 19th Floor, Qatar Financial Centre Tower, Diplomatic Area-West bay, Doha, Qatar, P.O.Box 23769 Tel: 974-(4036)-6701 Johannesburg Representative Office Building Four, First Floor, Commerce Square, 39 Rivonia Road, Sandhurst, Sandton 2196, South Africa Tel: 27 (11) 219-5300 Cairo Representative Office 23rd Floor, Nile City Towers, North Tower, 2005C, Cornish El Nile, Ramlet Boulak, Cairo, Egypt Tel: 20 (2) 2461-9566 Tehran Representative Office First Floor, No. 17, Haghani Expressway (north side), Between Modarres & Africa, Tehran 1518858117, Iran Tel: 98 (21) 8888-4301/4302 SMBC Principal Subsidiaries/ Affiliates SMFG Network SMBC Bank International plc 100 Liverpool Street, London, EC2M 2AT, UK Tel: 44 (0) 20-4507-1000 SMBC Bank International plc Paris Branch 1/3/5 rue Paul Cézanne, 75008, Paris, France Tel: 33 (1) 44 (90) 48-00 SMBC Bank EU AG Main Tower, Neue Mainzer Str. 52-58, 60311 Frankfurt am Main, Germany Tel: 49 (69) 222298200 SMBC Bank EU AG Amsterdam Branch World Trade Center Amsterdam, Tower H, Level 15 Zuidplein 130, 1077XV, Amsterdam, The Netherlands Tel: 31 (20) 718-3888 SMBC Bank EU AG Dublin Branch IFSC House, IFSC, Dublin 1, Ireland Tel: 353 (1) 859-9300 SMBC Bank EU AG Düsseldorf Branch Prinzenallee 7, 40549 Düsseldorf, Germany Tel: 49 (211) 36190 SMBC Bank EU AG Paris Branch 1/3/5 rue Paul Cézanne - 75008 Paris, France Tel: 33- (1) 44- (90) 48-00 SMBC Bank EU AG Prague Branch International Business Centre, Pobrezni 3 186 00 Prague 8, Czech Republic Tel: 420 (295) 565-800 SMBC Bank EU AG Madrid Branch Calle Pedro Teixeira 8, Edificio Iberia Mart I, planta 4a., 28020 Madrid, Spain Tel: 34 (91) 312-7300 SMBC Bank EU AG Milan Branch Via della Spiga 30/ Via Senato 25, 20121 Milan, Italy Tel: 39 (02) 7636-1700 JSC Sumitomo Mitsui Rus Bank Presnenskaya naberezhnaya, house 10, block C, Moscow, 123112 Russian Federation Tel: 7 (495) 287-8200 SMBC Nikko capital Markets Limited 100 Liverpool Street, London, EC2M 2AT, UK Tel: 44 (20) 4507-1000 SMBC Nikko capital Markets Limited ADGM Branch 2445, 24th Floor, Al Sila Tower, Abu Dhabi Global Market Square, Al Maryah Island, Abu Dhabi, United Arab Emirates SMBC Derivative Products Limited 100 Liverpool Street, London EC2M 2AT, UK Tel: 44 (20) 4507-1000 Sumitomo Mitsui Finance Dublin Limited La Touche House, I.F.S.C., Custom House Docks, Dublin 1, Ireland Tel: 353 (1) 670-0066 JRI Europe, Limited 100 Liverpool Street, London EC2M 2AT, U.K. Tel: 44-(0)20-4507-1000 Sumitomo Mitsui DS Asset Management (UK) Limited 100 Liverpool Street, London, EC2M 2AT, United Kingdom Tel: 44 (0) 20-7507-6400 SMBC Aviation Capital Limited IFSC House, IFSC, Dublin 1, Ireland Tel: 353 (1) 859-9000 SMBC Advisory Services Saudi Arabia LLC 7th Floor Al Faisaliah Tower, P.O.Box 3333, Riyadh 12212, Kingdom of Saudi Arabia Tel: 966-11-417-5701 SMBC Leasing (UK) Limited 100 Liverpool Street, London, EC2M 2AT, UK Tel: 44 (20) 7786-1741 SMBC Nikko Bank (Luxembourg) S.A. 2, rue Hildegard von Bingen L-1282 Luxembourg, Grand Duchy of Luxembourg Tel: 352 (442) 828-1 SMBC Nikko Investment Fund Management Company S.A. 2, rue Hildegard von Bingen L-1282 Luxembourg, Grand-Duchy of Luxembourg Tel: 352-442-828-1 Sumitomo Mitsui Finance and Leasing Company, Limited London Branch 100 Liverpool Street, London, EC2M 2RH, U.K. Sumitomo Mitsui Finance and Leasing Company, Limited Dublin Branch IFSC House, IFSC, Dublin 1, Ireland Tel: (353-1-859-9000) SMBC Aero Engine Lease B.V. World Trade Center, Office Tower B / 16F, Strawinskylaan 1639, 1077 XX, Amsterdam, The Netherlands Tel: 31-20-705-4980 SMFL LCI Helicopters Limited 6 George’s Dock, IFSC, Dublin 1, Ireland DMG MORI Finance GmbH Rita-Maiburg-Strasse 40, 70794 Filderstadt, Germany Tel: 49 711 34 24 4 0-0 188 SMBC GROUP ANNUAL REPORT 2023 SMBC GROUP ANNUAL REPORT 2023 189 SMBC Bank EU AG SMBC Bank EU AG SMBC Bank EU AG SMBC Bank EU AG Dublin Branch Dublin Branch Sumitomo Mitsui Finance Sumitomo Mitsui Finance Dublin Limited Dublin Limited SMBC Aviation SMBC Aviation Capital Limited Capital Limited SMBC Bank SMBC Bank International plc International plc SMBC Nikko Capital SMBC Nikko Capital Markets Limited Markets Limited London Branch London Branch SMBC Bank EU AG SMBC Bank EU AG Amsterdam Branch Amsterdam Branch JSC Sumitomo Mitsui Rus Bank JSC Sumitomo Mitsui Rus Bank Brussels Branch Brussels Branch SMBC Bank EU AG Prague Branch SMBC Bank EU AG Prague Branch Düsseldorf Branch Düsseldorf Branch SMBC Bank EU AG Düsseldorf Branch SMBC Bank EU AG Düsseldorf Branch SMBC Leasing (UK) Limited SMBC Leasing (UK) Limited SMBC Bank EU AG Milan Branch SMBC Bank EU AG Milan Branch SMBC Bank EU AG SMBC Bank EU AG Madrid Branch Madrid Branch SMBC Bank EU AG SMBC Bank EU AG Paris Branch Paris Branch SMBC Nikko Bank SMBC Nikko Bank (Luxembourg) S.A. (Luxembourg) S.A. Istanbul Representative Office Istanbul Representative Office SMBC Bank SMBC Bank International plc International plc Paris Branch Paris Branch Cairo Representative Office Cairo Representative Office Tehran Representative Office Tehran Representative Office New Delhi Branch New Delhi Branch DIFC Branch-Dubai DIFC Branch-Dubai SMBC Advisory Services Saudi Arabia LLC SMBC Advisory Services Saudi Arabia LLC Doha QFC Office Doha QFC Office Mumbai Branch Mumbai Branch Abu Dhabi Representative Office Abu Dhabi Representative Office Chennai Branch Chennai Branch Johannesburg Representative Office Johannesburg Representative Office Perth Branch Perth Branch Sydney Branch Sydney Branch GLOBAL NETWORK GLOBAL NETWORK Asia and Oceania Asia and Oceania ■ Sumitomo Mitsui Banking Corporation (China) Limited ■ Sumitomo Mitsui Banking Corporation (China) Limited ■ Sumitomo Mitsui Banking Corporation (China) Limited ■ Sumitomo Mitsui Banking Corporation (China) Limited Head Office (Shanghai) Head Office (Shanghai) Shanghai Pilot Free Trade Zone Sub-Branch Shanghai Pilot Free Trade Zone Sub-Branch ■ Sumitomo Mitsui Banking Corporation (China) Limited ■ Sumitomo Mitsui Banking Corporation (China) Limited ■ Sumitomo Mitsui Banking Corporation (China) Limited ■ Sumitomo Mitsui Banking Corporation (China) Limited Guangzhou Branch Guangzhou Branch Shanghai Puxi Sub-Branch Shanghai Puxi Sub-Branch ■ Sumitomo Mitsui Banking Corporation (China) Limited ■ Sumitomo Mitsui Banking Corporation (China) Limited ■ Sumitomo Mitsui Banking Corporation (China) Limited ■ Sumitomo Mitsui Banking Corporation (China) Limited Hangzhou Branch Hangzhou Branch Changshu Sub-Branch Changshu Sub-Branch ■ Sumitomo Mitsui Banking Corporation (China) Limited ■ Sumitomo Mitsui Banking Corporation (China) Limited ■ Sumitomo Mitsui Banking Corporation (China) Limited ■ Sumitomo Mitsui Banking Corporation (China) Limited Chongqing Branch Chongqing Branch ■ Sumitomo Mitsui Banking Corporation (China) Limited ■ Sumitomo Mitsui Banking Corporation (China) Limited Shenzhen Branch Shenzhen Branch ■ Sumitomo Mitsui Banking Corporation (China) Limited ■ Sumitomo Mitsui Banking Corporation (China) Limited Shenyang Branch Shenyang Branch ■ Sumitomo Mitsui Banking Corporation (China) Limited ■ Sumitomo Mitsui Banking Corporation (China) Limited Suzhou Branch Suzhou Branch ■ Sumitomo Mitsui Banking Corporation (China) Limited ■ Sumitomo Mitsui Banking Corporation (China) Limited Dalian Branch Dalian Branch ■ Sumitomo Mitsui Banking Corporation (China) Limited ■ Sumitomo Mitsui Banking Corporation (China) Limited Tianjin Branch Tianjin Branch ■ Sumitomo Mitsui Banking Corporation (China) Limited ■ Sumitomo Mitsui Banking Corporation (China) Limited Beijing Branch Beijing Branch ■ Sumitomo Mitsui Banking Corporation (China) Limited ■ Sumitomo Mitsui Banking Corporation (China) Limited Kunshan Sub-Branch Kunshan Sub-Branch Suzhou Industrial Park Sub-Branch Suzhou Industrial Park Sub-Branch ■ PT Bank BTPN Tbk ■ PT Bank BTPN Tbk ■ Sumitomo Mitsui Banking Corporation Malaysia Berhad ■ Sumitomo Mitsui Banking Corporation Malaysia Berhad ■ Hong Kong Branch ■ Hong Kong Branch ■ Hong Kong Branch Kowloon Office ■ Hong Kong Branch Kowloon Office ■ Taipei Branch ■ Taipei Branch ■ Seoul Branch ■ Seoul Branch ■ Singapore Branch ■ Singapore Branch ■ Sydney Branch ■ Sydney Branch ■ Perth Branch ■ Perth Branch ■ Mumbai Branch ■ Mumbai Branch ■ New Delhi Branch ■ New Delhi Branch ■ Chennai Branch ■ Chennai Branch ■ Bangkok Branch ■ Bangkok Branch ■ Chonburi Branch ■ Chonburi Branch ■ Ho Chi Minh City Branch ■ Ho Chi Minh City Branch ■ Hanoi Branch ■ Hanoi Branch ■ Manila Branch ■ Manila Branch ■ Yangon Branch ■ Yangon Branch ■ Yangon Branch Thilawa Front Office ■ Yangon Branch Thilawa Front Office ■ Labuan Branch ■ Labuan Branch ■ Labuan Branch Kuala Lumpur Office ■ Labuan Branch Kuala Lumpur Office ■ Phnom Penh Representative Office ■ Phnom Penh Representative Office ■ SMBC Capital Markets (Asia) Limited ■ SMBC Capital Markets (Asia) Limited ■ SMBC Nikko Securities (Hong Kong) Limited ■ SMBC Nikko Securities (Hong Kong) Limited ■ SMBC Nikko Securities (Singapore) Pte. Ltd. ■ SMBC Nikko Securities (Singapore) Pte. Ltd. ■ The Bank of East Asia, Limited ■ The Bank of East Asia, Limited ■ PT Oto Multiartha ■ PT Oto Multiartha ■ PT Summit Oto Finance ■ PT Summit Oto Finance ■ ACLEDA Bank Plc. ■ ACLEDA Bank Plc. Overseas service network (as of June 30, 2023) Overseas service network (as of June 30, 2023) Total: 88 Total: 88 (including banking subsidiaries and their branches/ (including banking subsidiaries and their branches/ sub-branches/rep. offices) sub-branches/rep. offices) Consolidated subsidiary PT Bank BTPN Tbk has 292 offices. (as of June 30, 2023). Consolidated subsidiary PT Bank BTPN Tbk has 292 offices. (as of June 30, 2023). SMFG India Credit Co., Ltd has 854 offices (as of March 31, 2023). SMFG India Credit Co., Ltd has 854 offices (as of March 31, 2023). Los Angeles Branch Los Angeles Branch San Francisco Branch San Francisco Branch Silicon Valley Representative Office Silicon Valley Representative Office Shenyang Branch Shenyang Branch Beijing Branch Beijing Branch Tianjin Branch Tianjin Branch Dalian Dalian Branch Branch Seoul Seoul Branch Branch Chicago Representative Chicago Representative Office Office Canada Branch Canada Branch Manufacturers Bank Manufacturers Bank Dallas Representative Office Dallas Representative Office New York Branch New York Branch SMBC Capital Markets, Inc. SMBC Capital Markets, Inc. SMBC Leasing and Finance, Inc. SMBC Leasing and Finance, Inc. SMBC Nikko Securities America, Inc. SMBC Nikko Securities America, Inc. SMBC Americas Holdings, Inc. SMBC Americas Holdings, Inc. White Plains Representative Office White Plains Representative Office Houston Representative Office Houston Representative Office Suzhou Branch Suzhou Branch Suzhou Industrial Park Sub-Branch Suzhou Industrial Park Sub-Branch Changshu Sub-Branch Changshu Sub-Branch Chongqing Branch Chongqing Branch Kunshan Sub-Branch Kunshan Sub-Branch Head Office (Shanghai) Head Office (Shanghai) Shanghai Puxi Sub-Branch Shanghai Puxi Sub-Branch Shanghai Pilot Free Shanghai Pilot Free Trade Zone Sub-Branch Trade Zone Sub-Branch Hangzhou Hangzhou Branch Branch Guangzhou Guangzhou Branch Branch Taipei Branch Taipei Branch Hanoi Branch Hanoi Branch Shenzhen Branch Shenzhen Branch The Bank of East Asia, Limited The Bank of East Asia, Limited Hong Kong Branch Hong Kong Branch Kowloon Office Kowloon Office SMBC Capital Markets (Asia) Limited SMBC Capital Markets (Asia) Limited SMBC Nikko Securities (Hong Kong) Limited SMBC Nikko Securities (Hong Kong) Limited Yangon Branch Yangon Branch Thilawa Front Office Thilawa Front Office Bangkok Branch Bangkok Branch Chonburi Branch Chonburi Branch Manila Branch Manila Branch Phnom Penh Representative Office Phnom Penh Representative Office ACLEDA Bank Plc. ACLEDA Bank Plc. Ho Chi Minh City Branch Ho Chi Minh City Branch Sumitomo Mitsui Banking Sumitomo Mitsui Banking Corporation Malaysia Berhad Corporation Malaysia Berhad Kuala Lumpur Office Kuala Lumpur Office Labuan Branch Labuan Branch Singapore Branch Singapore Branch SMBC Nikko Securities (Singapore) Pte. Ltd. SMBC Nikko Securities (Singapore) Pte. Ltd. PT Bank BTPN Tbk PT Bank BTPN Tbk PT Oto Multiartha PT Oto Multiartha PT Summit Oto Finance PT Summit Oto Finance Indicates branch or sub-branch of Indicates branch or sub-branch of Sumitomo Mitsui Banking Corporation (China) Limited Sumitomo Mitsui Banking Corporation (China) Limited The Americas The Americas Europe, Middle East and Africa Europe, Middle East and Africa Cayman Branch Cayman Branch Mexico City Representative Office Mexico City Representative Office SMBC, S.A.P.I. DE C.V., SOFOM, E.N.R. SMBC, S.A.P.I. DE C.V., SOFOM, E.N.R. Leon Representative Office Leon Representative Office Bogota Representative Office Bogota Representative Office Lima Representative Office Lima Representative Office Banco Sumitomo Mitsui Brasileiro S.A. Banco Sumitomo Mitsui Brasileiro S.A. Santiago Representative Office Santiago Representative Office ■ SMBC Bank International plc ■ SMBC Bank International plc ■ SMBC Bank International plc Paris Branch ■ SMBC Bank International plc Paris Branch ■ SMBC Bank EU AG ■ SMBC Bank EU AG ■ SMBC Bank EU AG Amsterdam Branch ■ SMBC Bank EU AG Amsterdam Branch ■ SMBC Bank EU AG Dublin Branch ■ SMBC Bank EU AG Dublin Branch ■ SMBC Bank EU AG Düsseldorf Branch ■ SMBC Bank EU AG Düsseldorf Branch ■ SMBC Bank EU AG Paris Branch ■ SMBC Bank EU AG Paris Branch ■ SMBC Bank EU AG Prague Branch ■ SMBC Bank EU AG Prague Branch ■ SMBC Bank EU AG Madrid Branch ■ SMBC Bank EU AG Madrid Branch ■ SMBC Bank EU AG Milan Branch ■ SMBC Bank EU AG Milan Branch ■ London Branch ■ London Branch ■ Düsseldorf Branch ■ Düsseldorf Branch ■ Brussels Branch ■ Brussels Branch ■ DIFC Branch-Dubai ■ DIFC Branch-Dubai ■ Abu Dhabi Representative Office ■ Abu Dhabi Representative Office ■ Istanbul Representative Office ■ Istanbul Representative Office ■ Doha QFC Office ■ Doha QFC Office ■ Johannesburg Representative Office ■ Johannesburg Representative Office ■ Cairo Representative Office ■ Cairo Representative Office ■ Tehran Representative Office ■ Tehran Representative Office ■ JSC Sumitomo Mitsui Rus Bank ■ JSC Sumitomo Mitsui Rus Bank ■ SMBC Nikko Capital Markets Limited ■ SMBC Nikko Capital Markets Limited ■ Sumitomo Mitsui Finance Dublin Limited ■ Sumitomo Mitsui Finance Dublin Limited ■ SMBC Aviation Capital Limited ■ SMBC Aviation Capital Limited ■ SMBC Advisory Services Saudi Arabia LLC ■ SMBC Advisory Services Saudi Arabia LLC ■ SMBC Leasing (UK) Limited ■ SMBC Leasing (UK) Limited ■ SMBC Nikko Bank (Luxembourg) S.A. ■ SMBC Nikko Bank (Luxembourg) S.A. ■ New York Branch ■ New York Branch ■ San Francisco Branch ■ San Francisco Branch ■ Los Angeles Branch ■ Los Angeles Branch ■ Canada Branch ■ Canada Branch ■ Cayman Branch ■ Cayman Branch ■ Chicago Representative Office ■ Chicago Representative Office ■ Dallas Representative Office ■ Dallas Representative Office ■ Houston Representative Office ■ Houston Representative Office ■ Silicon Valley Representative Office ■ Silicon Valley Representative Office ■ White Plains Representative Office ■ White Plains Representative Office ■ Mexico City Representative Office ■ Mexico City Representative Office ■ Leon Representative Office ■ Leon Representative Office ■ Santiago Representative Office ■ Santiago Representative Office ■ Bogota Representative Office ■ Bogota Representative Office ■ Lima Representative Office ■ Lima Representative Office ■ Manufacturers Bank ■ Manufacturers Bank ■ Banco Sumitomo Mitsui Brasileiro S.A. ■ Banco Sumitomo Mitsui Brasileiro S.A. ■ SMBC Capital Markets, Inc. ■ SMBC Capital Markets, Inc. ■ SMBC Nikko Securities America, Inc. ■ SMBC Nikko Securities America, Inc. ■ SMBC Leasing and Finance, Inc. ■ SMBC Leasing and Finance, Inc. ■ SMBC, S.A.P.I. DE C.V., SOFOM, E.N.R. ■ SMBC, S.A.P.I. DE C.V., SOFOM, E.N.R. ■ SMBC Americas Holdings, Inc. ■ SMBC Americas Holdings, Inc. 190 SMBC GROUP ANNUAL REPORT 2023 SMBC GROUP ANNUAL REPORT 2023 191 Appendix II CONTENTS Financial Data Sumitomo Mitsui Financial Group SMBC Financial Highlights 194 Financial Highlights 276 Basel III Information Basel III Information Sumitomo Mitsui Financial Group SMBC Capital Ratio and Leverage Ratio Information (Consolidated) Countercyclical buffer requirement by country or region Indicators for assessing Global Systemically Important Banks (G-SIBs) TLAC information Liquidity Coverage Ratio Information (Consolidated) Net Stable Funding Ratio Information (Consolidated) 195 264 265 268 272 274 Capital Ratio and Leverage Ratio Information (Consolidated) Liquidity Coverage Ratio Information (Consolidated) Net Stable Funding Ratio Information (Consolidated) 277 286 288 Capital Ratio and Leverage Ratio Information (Non-consolidated) 290 Liquidity Coverage Ratio Information (Non- consolidated) Net Stable Funding Ratio Information (Non- consolidated) 298 300 Compensation Sumitomo Mitsui Financial Group SMBC Compensation (Consolidated) 304 Compensation 308 192 SMBC GROUP ANNUAL REPORT 2023 SMBC GROUP ANNUAL REPORT 2023 193 006_0800801372308.indd 193 006_0800801372308.indd 193 2023/08/09 13:23:39 2023/08/09 13:23:39 Sumitomo Mitsui Financial Group Financial Highlights Financial Data (Excerpt from Securities Report) of Sumitomo Mitsui Financial Group can be found on our website� URL: https://www�smfg�co�jp/english/investor/library/annual/cy2023annu_eng_smfg�html Sumitomo Mitsui Financial Group (Consolidated) Year ended March 31 For the Year: 2023 2022 Ordinary income ����������������������������������������������������������� ¥ 6,142,155 Ordinary profit �������������������������������������������������������������� 1,160,930 Profit attributable to owners of parent ������������������������� 805,842 Comprehensive income ����������������������������������������������� 1,031,712 ¥ 4,111,127 1,040,621 706,631 561,887 At Year-End: Millions of yen 2021 ¥ 3,902,307 711,018 512,812 1,465,014 2020 2019 ¥ 4,591,873 932,064 703,883 372,971 ¥ 4,804,428 1,135,300 726,681 795,191 Total net assets ������������������������������������������������������������ ¥ 12,791,106 Total assets ������������������������������������������������������������������ 270,428,564 Total capital ratio (BIS guidelines) �������������������������������� Tier 1 capital ratio (BIS guidelines) ������������������������������� Common equity Tier 1 capital ratio 15.98% 14.94% (BIS guidelines) ���������������������������������������������������������� Number of employees �������������������������������������������������� 14.02% 105,955 ¥ 12,197,331 257,704,625 ¥ 11,899,046 242,584,308 ¥ 10,784,903 219,863,518 ¥ 11,451,611 203,659,146 16�56% 15�46% 14�45% 101,023 18�61% 16�96% 16�00% 86,781 18�75% 16�63% 15�55% 86,443 20�76% 18�19% 16�37% 86,659 Notes: 1. “Number of employees” has been reported on the basis of full-time workers. “Number of employees” includes locally hired overseas staff members but excludes contract employees and temporary staff. 2. Sumitomo Mitsui Financial Group, Inc. has changed the recognition of installment-sales-related income and installment-sales-related expenses from fiscal year ended March 31, 2021, and the change in accounting policies is applied retroactively for and before the year ended March 31, 2020. As a result of comparing before and after the retroactive application, ordinary income decreased by ¥930,884 million for fiscal year ended March 31, 2019, and ¥722,440 million for fiscal year ended March 31, 2020. Sumitomo Mitsui Financial Group Basel III Information Capital Ratio and Leverage Ratio Information (Consolidated) Sumitomo Mitsui Financial Group, Inc. and Subsidiaries Regarding the calculation of the capital ratio and leverage ratio of Sumitomo Mitsui Financial Group, an external audit was performed by KPMG AZSA LLC pursuant to the Technical Practical Guidelines 4465 “Practical Guidelines on Agreed-Upon Procedures for the Capital Ratio and Leverage Ratio Calculation Framework.” The aforementioned external audit was not meant to provide a statement of opinions or conclusions on the capital ratio and leverage ratio themselves, or our internal control framework for calculating these ratios, but to present us a report on the results of the procedure performed within the scope agreed upon between the external auditor and us. It constitutes neither part of the audit of consolidated financial statements nor part of the audit of our internal control over financial reporting. “Consolidated Capital Ratio and Leverage Ratio Information” was prepared principally based on the Notification, and the terms and details in the section may differ from those in other sections of this report. ■ Scope of Consolidation 1. Consolidated Capital Ratio Calculation • Number of consolidated subsidiaries: 184 Please refer to “Principal Subsidiaries and Affiliates” on page 182 for their names and business outline. • Scope of consolidated subsidiaries for calculation of the consolidated capital ratio is based on the scope of consolidated subsidiaries for preparing consolidated financial statements. • There are no affiliates to which the proportionate consolidation method is applied. 2. Restrictions on Movement of Funds and Capital within Holding Company Group There are no special restrictions on movement of funds and capital among us and its group companies. 3. Names of companies among subsidiaries of bank-holding companies (other financial institutions), with the Basel Capital Accord required amount, and total shortfall amount Not applicable. ■ Capital Ratio Information (Consolidated) The consolidated capital ratio is calculated using the method stipulated in “Standards for Bank Holding Company to Examine the Adequacy of Its Capital Based on Assets, Etc. Held by It and Its Subsidiaries Pursuant to Article 52-25 of the Banking Act” (Notification No. 20 issued by the Japanese Financial Services Agency in 2006; hereinafter referred to as “the Notification”). In addition to the method stipulated in the Notification to calculate the consolidated capital ratio (referred to as “International Standard” in the Notification), we have adopted the Advanced Internal Ratings-Based (AIRB) approach for calculating credit risk-weighted asset amounts and the Advanced Measurement Approach (AMA) for calculating the operational risk equivalent amount. 194 SMBC GROUP ANNUAL REPORT 2023 SMBC GROUP ANNUAL REPORT 2023 195 010_0800801372308.indd 194 010_0800801372308.indd 194 2023/08/09 13:26:21 2023/08/09 13:26:21 012_0800885852308.indd 195 012_0800885852308.indd 195 2023/08/16 9:40:35 2023/08/16 9:40:35 Sumitomo Mitsui Financial Group Basel III Information Basel III Information Sumitomo Mitsui Financial Group ■ CC1: Composition of regulatory capital Basel III Template No. Items (Millions of yen, except percentages) a b As of March 31, 2023 As of March 31, 2022 c Reference to Template CC2 Basel III Template No. Items Additional Tier 1 capital: instruments (3) (Millions of yen, except percentages) a b As of March 31, 2023 As of March 31, 2022 c Reference to Template CC2 Common Equity Tier 1 capital: instruments and reserves (1) 1a+2-1c-26 Directly issued qualifying common share capital plus related capital surplus and retained earnings 1a 2 1c 26 of which: capital and capital surplus of which: retained earnings of which: treasury stock (–) of which: national specific regulatory adjustments (earnings to be distributed) (–) of which: other than the above 1b Stock acquisition rights to common shares 3 Accumulated other comprehensive income and other disclosed reserves 5 Common share capital issued by subsidiaries and held by third parties (amount allowed in group CET1) 10,140,313 9,794,672 3,036,589 7,423,600 151,798 168,077 — 1,145 2,372,074 3,035,543 6,916,468 13,402 143,936 — 1,475 2,159,606 1,404 1,231 (a) 6 Common Equity Tier 1 capital: instruments and reserves (A) 12,514,937 11,956,985 31a Directly issued qualifying Additional Tier 1 instruments plus related capital surplus of which: classified as equity under applicable accounting standards and the breakdown 31b Stock acquisition rights to Additional Tier 1 instruments 30 32 34-35 33+35 33 35 Directly issued qualifying Additional Tier 1 instruments plus related capital surplus of which: classified as liabilities under applicable accounting standards Qualifying Additional Tier 1 instruments plus related capital surplus issued by special purpose vehicles and other equivalent entities Additional Tier 1 instruments issued by subsidiaries and held by third parties (amount allowed in group AT1) Eligible Tier 1 capital instruments subject to transitional arrangements included in Additional Tier 1 capital: instruments of which: instruments issued by bank holding companies and their special purpose vehicles of which: instruments issued by subsidiaries (excluding bank holding companies’ special purpose vehicles) — — — — 766,214 733,998 — — 29,268 22,104 — — — — — — Common Equity Tier 1 capital: regulatory adjustments (2) 8+9 Total intangible assets (net of related tax liability, excluding those relating to mortgage servicing rights) 8 9 10 of which: goodwill (including those equivalent) of which: other intangibles other than goodwill and mortgage servicing rights Deferred tax assets that rely on future profitability excluding those arising from temporary differences (net of related tax liability) 11 Net deferred gains or losses on hedges 12 Shortfall of eligible provisions to expected losses 13 Securitisation gain on sale 14 Gains and losses due to changes in own credit risk on fair valued liabilities 15 Net defined benefit asset 16 Investments in own shares (excluding those reported in the Net assets section) 17 Reciprocal cross-holdings in common equity 18 Investments in the capital of banking, financial and insurance entities that are outside the scope of regulatory consolidation, net of eligible short positions, where the bank does not own more than 10% of the issued share capital (amount above the 10% threshold) 19+20+21 Amount exceeding the 10% threshold on specified items of which: significant investments in the common stock of financials of which: mortgage servicing rights of which: deferred tax assets arising from temporary differences (net of related tax liability) 19 20 21 22 Amount exceeding the 15% threshold on specified items 23 24 25 of which: significant investments in the common stock of financials of which: mortgage servicing rights of which: deferred tax assets arising from temporary differences (net of related tax liability) Regulatory adjustments applied to Common Equity Tier 1 due to insufficient Additional Tier 1 and Tier 2 to cover deductions 27 841,089 849,602 405,810 435,279 438,657 410,945 6,899 11,334 (74,959) — 52,939 47,781 489,035 7,205 — (79,373) — 56,744 23,109 432,092 4,317 — 187,705 200,779 118,285 118,285 — — — — — — — — — — — — — — — — 28 Common Equity Tier 1 capital: regulatory adjustments (B) 1,675,982 1,498,608 Common Equity Tier 1 capital (CET1) 36 Additional Tier 1 capital: instruments Additional Tier 1 capital: regulatory adjustments 37 Investments in own Additional Tier 1 instruments 38 Reciprocal cross-holdings in Additional Tier 1 instruments 39 40 42 Investments in the capital of banking, financial and insurance entities that are outside the scope of regulatory consolidation, net of eligible short positions, where the bank does not own more than 10% of the issued common share capital of the entity (amount above the 10% threshold) Significant investments in the Additional Tier 1 capital of banking, financial and insurance entities that are outside the scope of regulatory consolidation (net of eligible short positions) Regulatory adjustments applied to Additional Tier 1 due to insufficient Tier 2 to cover deductions 43 Additional Tier 1 capital: regulatory adjustments Additional Tier 1 capital (AT1) 44 Additional Tier 1 capital ((D)-(E)) Tier 1 capital (T1 = CET1 + AT1) 45 Tier 1 capital (T1 = CET1 + AT1) ((C)+(F)) Tier 2 capital: instruments and provisions (4) (D) 795,482 756,102 — — — — 2,547 2,729 82,978 25,525 — — 85,526 28,255 709,956 727,847 (E) (F) (G) 11,548,912 11,186,225 46 Directly issued qualifying Tier 2 instruments plus related capital surplus of which: classified as equity under applicable accounting standards and the breakdown Stock acquisition rights to Tier 2 instruments Directly issued qualifying Tier 2 instruments plus related capital surplus of which: classified as liabilities under applicable accounting standards Qualifying Tier 2 instruments plus related capital surplus issued by special purpose vehicles and other equivalent entities 48-49 Tier 2 instruments issued by subsidiaries and held by third parties (amount allowed in group T2) Eligible Tier 2 capital instruments subject to transitional arrangements included in Tier 2: instruments and provisions 47+49 47 49 of which: instruments issued by bank holding companies and their special purpose vehicles of which: instruments issued by subsidiaries (excluding bank holding companies’ special purpose vehicles) — — — — 766,438 753,571 — — 5,825 4,722 — — — — — — 29 Common Equity Tier 1 capital (CET1) ((A)-(B)) (C) 10,838,955 10,458,377 50 Total of general reserve for possible loan losses and eligible provisions included in Tier 2 50a 50b of which: general reserve for possible loan losses of which: eligible provisions 51 Tier 2 capital: instruments and provisions 105,858 79,073 26,784 878,121 108,729 69,589 39,139 867,023 (H) 196 SMBC GROUP ANNUAL REPORT 2023 SMBC GROUP ANNUAL REPORT 2023 197 012_0800885852308.indd 196 012_0800885852308.indd 196 2023/08/16 9:40:35 2023/08/16 9:40:35 012_0800885852308.indd 197 012_0800885852308.indd 197 2023/08/16 9:40:35 2023/08/16 9:40:35 Sumitomo Mitsui Financial Group Basel III Information Basel III Information Sumitomo Mitsui Financial Group Basel III Template No. Items Tier 2 capital: regulatory adjustments (5) 52 Investments in own Tier 2 instruments 53 Reciprocal cross-holdings in Tier 2 instruments and other TLAC liabilities 54 54a 55 Investments in the capital and other TLAC liabilities of banking, financial and insurance entities that are outside the scope of regulatory consolidation, net of eligible short positions, where the bank does not own more than 10% of the issued common share capital of the entity (amount above the 10% threshold) Investments in the other TLAC liabilities of banking, financial and insurance entities that are outside the scope of regulatory consolidation, where the bank does not own more than 10% of the issued common share capital of the entity: amount previously designated for the 5% threshold but that no longer meets the conditions Significant investments in the capital and other TLAC liabilities of banking, financial and insurance entities that are outside the scope of regulatory consolidation (net of eligible short positions) 57 Tier 2 capital: regulatory adjustments Tier 2 capital (T2) 58 Tier 2 capital (T2) ((H)-(I)) Total capital (TC = T1 + T2) 59 Total capital (TC = T1 + T2) ((G)+(J)) Risk weighted assets (6) 60 Total risk-weighted assets (RWA) Capital ratios (consolidated) and buffers (7) (Millions of yen, except percentages) a b As of March 31, 2023 As of March 31, 2022 c Reference to Template CC2 0 — 0 — 36,190 32,765 — — 40,062 36,723 76,252 69,488 801,869 797,534 (I) (J) (K) 12,350,781 11,983,759 (L) 77,285,048 72,350,071 61 Common Equity Tier 1 risk-weighted capital ratio (consolidated) ((C)/(L)) 62 Tier 1 risk-weighted capital ratio (consolidated) ((G)/(L)) 63 Total risk-weighted capital ratio (consolidated) ((K)/(L)) 64 CET1 specific buffer requirement 65 66 67 68 CET1 available after meeting the minimum capital requirements of which: capital conservation buffer requirement of which: countercyclical buffer requirement of which: G-SIB/D-SIB additional requirement Regulatory adjustments (8) 72 73 Non-significant investments in the capital and other TLAC liabilities of other financials that are below the thresholds for deduction (before risk weighting) Significant investments in the common stock of other financials that are below the thresholds for deduction (before risk weighting) 74 Mortgage servicing rights that are below the thresholds for deduction (before risk weighting) Deferred tax assets arising from temporary differences that are below the thresholds for deduction (before risk weighting) 75 Provisions included in Tier 2 capital: instruments and provisions (9) 76 Provisions (general reserve for possible loan losses) 77 Cap on inclusion of provisions (general reserve for possible loan losses) 78 Provisions eligible for inclusion in Tier 2 in respect of exposures subject to internal ratings-based approach (prior to application of cap) (if the amount is negative, report as “nil”) 14.02% 14.94% 15.98% 3.60% 2.50% 0.10% 1.00% 7.98% 14.45% 15.46% 16.56% 3.53% 2.50% 0.03% 1.00% 8.56% 1,114,494 1,065,915 1,095,724 1,044,534 — — 199,927 130,489 85,077 79,073 26,784 71,960 69,589 39,139 79 Cap for inclusion of provisions in Tier 2 under internal ratings-based approach 326,973 321,224 Capital instruments subject to transitional arrangements (10) 82 Current cap on AT1 instruments subject to transitional arrangements 83 Amount excluded from AT1 due to cap (excess over cap after redemptions and maturities) (if the amount is negative, report as “nil”) 84 Current cap on T2 instruments subject to transitional arrangements 85 Amount excluded from T2 due to cap (excess over cap after redemptions and maturities) (if the amount is negative, report as “nil”) — — — — — — — — Items Required capital ((L) ✕ 8%) 198 SMBC GROUP ANNUAL REPORT 2023 (Millions of yen) As of March 31, 2023 6,182,803 As of March 31, 2022 5,788,005 ■ Overview of RWA (OV1) OV1: Overview of RWA Basel III Template No. 1 Credit risk (CR) (excluding counterparty credit risk) 2 Of which: Standardised Approach (SA) 3 Of which: internal ratings-based (IRB) approach Of which: significant investments in commercial entities Of which: lease residual value Other assets 4 Counterparty credit risk (CCR) 5 Of which: standardised approach for counterparty credit risk (SA-CCR) Of which: current exposure method (CEM) 6 Of which: Expected Positive Exposure (EPE) Of which: Credit Valuation Adjustment (CVA) Of which: Central Counterparty (CCP) Others 7 Equity positions in banking book under market-based approach 8 Equity investments in funds – look-through approach 9 Equity investments in funds – mandate-based approach Equity investments in funds – simple approach (subject to 250% risk weight) Equity investments in funds – simple approach (subject to 400% risk weight) 10 Equity investments in funds – fall-back approach 11 Settlement risk 12 Securitisation exposures in banking book 13 Of which: securitisation IRB approach (SEC-IRBA) or internal assessment approach (IAA) 14 Of which: securitisation external ratings-based approach (SEC-ERBA) 15 Of which: securitisation standardised approach (SEC-SA) Of which: Risk weight (RW) 1250% is applied 16 Market risk 17 Of which: standardised approach (SA) 18 Of which: internal model approaches (IMA) 19 Operational risk 20 Of which: Basic Indicator Approach 21 Of which: Standardised Approach 22 Of which: Advanced Measurement Approach 23 Amounts below the thresholds for deduction (subject to 250% risk weight) RWA subject to transitional arrangements 24 Floor adjustment 25 Total (after applying scaling factors) (Millions of yen) a b c d RWA As of As of March March 31, 2022 31, 2023 48,133,282 47,216,303 3,234,291 3,650,094 40,237,209 40,298,246 — 42,158 3,641,606 5,086,633 — 1,535,455 — 2,567,540 144,150 839,486 960,416 2,209,787 — 44,598 413,050 189,538 113 1,409,040 — 36,042 4,209,936 5,247,547 — 1,503,981 — 2,594,370 284,745 864,450 847,614 2,550,305 — 85,894 550,764 271,158 255 1,311,406 Minimum capital requirements As of March 31, 2023 4,043,801 292,007 3,412,115 — 2,883 336,794 427,703 — 126,501 — 207,549 22,779 70,872 71,877 204,024 — 7,083 45,946 21,692 21 104,912 As of March 31, 2022 3,970,735 258,743 3,417,291 — 3,372 291,328 414,124 — 128,947 — 205,403 11,532 68,241 81,443 176,783 — 3,637 34,836 15,163 9 112,723 1,074,905 1,216,667 85,992 97,333 168,987 218,204 5,741 4,111 17,644 14,184 3,052,578 4,474,842 1,081,295 1,607,836 1,971,282 2,867,006 4,356,154 4,870,622 970,096 1,112,261 — — 3,386,058 3,758,360 2,937,560 3,239,127 — — 1,716,046 2,927,635 77,285,048 72,350,071 17,456 328 1,134 357,987 128,626 229,360 389,649 88,980 — 300,668 273,891 — 234,210 6,182,803 13,519 459 1,411 244,206 86,503 157,702 348,492 77,607 — 270,884 248,567 — 137,283 5,788,005 SMBC GROUP ANNUAL REPORT 2023 199 012_0800885852308.indd 198 012_0800885852308.indd 198 2023/08/16 9:40:35 2023/08/16 9:40:35 012_0800885852308.indd 199 012_0800885852308.indd 199 2023/08/16 9:40:36 2023/08/16 9:40:36 Sumitomo Mitsui Financial Group Basel III Information Basel III Information Sumitomo Mitsui Financial Group ■ Credit Quality of Assets 1. Overview of Criteria for Accounting Provisions and Write-Offs (1) Policies and Methods of Provisions and Write-Offs For “Policies and Methods of Provisions and Write-Offs,” please refer to pages 154 to 158 (Risk Management - 3. Credit Risk Management Methods - (1) Credit Risk Assessment and Quantification, (4) Self-Assessment, Write-Offs and Provisions, Non-Performing Loans Disclosure). (2) Extent of the Number of Delinquency Days of “Past Due Loans of Three Months or More” that are Allowed Not to Classify Their Loan Category as “Doubtful Assets” or Below (or Not to Judge as Loans to Parties Classified as Potentially Bankrupt Borrowers or Below) and Reasons Thereof At SMBC, as a core bank of SMBC Group, the delinquency period of past due loans of three months or more that are allowed not to classify loans as doubtful assets or below (or not to judge as loans to parties classified as potentially bankrupt borrowers or below) is generally less than six months, and they are loans to parties that are expected to improve business conditions. If there are any past due loans of six months or more, they shall be in principle classified as loans to potentially bankrupt borrowers or below. (3) Definition of Loans Whose Loan Terms and Conditions were Restructured At SMBC, as a core bank of SMBC Group, loans whose loan terms and conditions were restructured are defined as loans with interest rate reduction, deferred payment of interest, deferred repayment of principal amount, abandonment of loans, or other arrangements that are advantageous for the obligors, for the purpose of business rehabilitation or support for the obligors. Obligors with loans whose loan terms and conditions were restructured may not be classified as doubtful assets or below depending on the outlook for business conditions, financial statements and loan terms and conditions. If the borrower category deteriorates due to restructuring of loan terms and conditions, provisions will increase. (4) Key Differences in Parameters of Credit Risks Used to Calculate Provisions and Capital Ratio, Respectively SMBC, as a core bank of SMBC Group, uses Probability of Default and loan-loss ratio as parameters for calculation of provisions. Probability of Default is calculated based on the actual performance in the past of the deterioration rate for one year from each borrower category to potentially bankrupt borrowers or below (regarding the deterioration rate to potentially bankrupt borrowers, the deterioration transition rates equivalent to three accumulated years from potentially bankrupt borrowers to virtually bankrupt borrowers or below are included). For the PD used to calculate the capital ratio, deterioration to substandard borrowers or below is defined as default, and assuming a long-term average value of the default rate, conservative estimation for some portfolios is conducted, which is the major difference from the Probability of Default used to calculate provisions. Loan-loss ratio is calculated using the loan-loss amount including direct write-offs and indirect write-offs incurred during the year for each borrower category to the amount of initial existing exposure by borrower category. For details of parameters used to calculate the capital ratio, please refer to pages 206 to 207 “3. Overview of Internal Rating System (2) Parameter Estimation and Its Validation System.” 2. Credit Quality of Assets (CR1) CR1: Credit quality of assets As of March 31, 2023 As of March 31, 2022 (Millions of yen) Item No. On-balance sheet assets 1 2 Loans Securities (of which: debt securities) Other on-balance sheet assets (of which: debt-based assets) Subtotal (1+2+3) Off-balance sheet assets 4 3 a b Gross carrying values of: Defaulted exposures Non- defaulted exposures c d Allowances Net values (a+b–c) a b Gross carrying values of: Defaulted exposures Non- defaulted exposures c d Allowances Net values (a+b–c) 916,540 4,100 96,078,487 25,370,319 732,290 96,262,737 — 25,374,419 1,128,501 7,203 89,119,744 30,539,190 811,223 89,437,022 — 30,546,393 144,231 85,292,570 46,659 85,390,142 17,575 82,092,045 35,072 82,074,547 1,064,872 206,741,377 778,949 207,027,300 1,153,280 201,750,979 846,296 202,057,963 5 6 7 Total 8 Acceptances and guarantees, etc. Commitments, etc. Subtotal (5+6) 7,625 40,257 47,883 14,455,696 31,232,414 45,688,111 60,430 70,620 131,051 14,402,891 31,202,052 45,604,943 22,930 17,381 40,311 12,599,237 28,562,640 41,161,878 62,782 73,920 136,702 12,559,385 28,506,101 41,065,487 Total (4+7) 1,112,756 252,429,488 910,000 252,632,244 1,193,592 242,912,857 982,998 243,123,450 3. Changes in stock of defaulted loans and securities (of which: debt securities) (CR2) CR2: Changes in stock of defaulted loans and securities (of which: debt securities) (Millions of yen) Amount Stock of loans and securities (of which: debt securities) that were placed in defaulted status as of March 31, 2022 1,153,280 Changes in loans and securities (of which: debt securities) by factors during the current interim period Amounts defaulted Amounts returned to non-defaulted status Amounts written off Other changes 230,238 68,744 202,950 (46,951) Stock of loans and securities (of which: debt securities) that were placed in defaulted status as of March 31, 2023 (1+2-3-4+5) 1,064,872 Item No. 1 2 3 4 5 6 Note: The major factor for other changes is due to decreases in stock by collection and sale of receivables that were placed in defaulted status at the end of the previous fiscal year. CR2: Changes in stock of defaulted loans and securities (of which: debt securities) (Millions of yen) Item No. 1 2 3 4 5 6 Stock of loans and securities (of which: debt securities) that were placed in defaulted status as of March 31, 2021 Changes in loans and securities (of which: debt securities) by factors during the current interim period Amounts defaulted Amounts returned to non-defaulted status Amounts written off Other changes Amount 967,121 472,807 81,536 139,874 (65,237) Stock of loans and securities (of which: debt securities) that were placed in defaulted status as of March 31, 2022 (1+2-3-4+5) 1,153,280 Note: The major factor for other changes is due to decreases in stock by collection and sale of receivables that were placed in defaulted status at the end of the previous fiscal year. 4. Term-End Balance of Exposures by Category and Their Breakdown by Major Type of Assets (1) Exposure Balance by Type of Assets, Geographic Region and Industry (Millions of yen) As of March 31, 2023 As of March 31, 2022 Category Domestic operations (excluding offshore banking accounts) Manufacturing Agriculture, forestry, fishery and mining Construction Transport, information, communications and utilities Wholesale and retail Financial and insurance Real estate, goods rental and leasing Services Local municipal corporations Other industries Overseas operations and offshore banking accounts Sovereigns Financial institutions C&I companies Others Total Loans, commitments and other off-balance sheet exposures except derivatives Bonds Others Total Loans, commitments and other off-balance sheet exposures except derivatives Bonds Others Total 135,864,846 18,647,976 9,389,132 163,901,956 131,238,735 24,335,658 8,581,732 164,156,126 12,086,282 122,856 1,996,652 14,205,791 11,389,309 168,802 2,084,962 13,643,074 262,150 1,228,917 6,430 34,605 3,004 271,585 402,771 134,809 1,398,333 1,102,453 3,276 34,918 2,833 408,881 140,264 1,277,636 7,418,455 230,885 499,411 8,148,753 7,161,426 247,477 472,431 7,881,335 6,623,832 67,197,664 135,308 2,194,188 410,348 330,061 7,169,489 69,721,915 6,280,039 66,595,377 154,234 1,574,982 402,540 307,134 6,836,814 68,477,494 15,043,141 1,238,633 83,117 16,364,892 13,778,672 1,195,797 101,684 15,076,154 4,863,194 1,830,028 19,311,178 266,010 171,204 14,247,852 96,019 1,644 5,834,061 5,225,224 2,002,877 39,393,093 4,878,199 1,569,565 18,080,919 283,175 110,854 20,562,140 98,923 1,537 4,969,420 5,260,298 1,681,957 43,612,480 76,529,143 6,741,578 2,288,716 85,559,437 67,505,444 6,219,476 2,239,462 75,964,383 17,505,424 7,966,317 42,702,686 8,354,714 212,393,990 4,490,993 1,225,126 611,797 413,660 25,389,554 8,363 456,111 — 1,824,240 11,677,848 22,004,781 9,647,555 43,314,484 10,592,615 249,461,394 14,102,811 7,242,864 37,961,552 8,198,215 198,744,179 4,133,539 1,104,151 683,279 298,506 30,555,135 5,708 444,797 — 1,788,956 10,821,195 18,242,059 8,791,814 38,644,831 10,285,678 240,120,510 Notes: 1. The above amounts are exposures after Credit Risk Mitigation (CRM). 2. The above amounts do not include “securitisation exposures” and “credit RWA under Article 145 of the Notification.” 3. “Domestic operations” comprises the operations of us, its domestic consolidated banking subsidiaries (excluding overseas branches) and other domestic consolidated subsidiaries. “Overseas operations” comprises the operations of the overseas branches of domestic consolidated banking subsidiaries and overseas consolidated subsidiaries. 200 SMBC GROUP ANNUAL REPORT 2023 SMBC GROUP ANNUAL REPORT 2023 201 012_0800885852308.indd 200 012_0800885852308.indd 200 2023/08/16 9:40:36 2023/08/16 9:40:36 012_0800885852308.indd 201 012_0800885852308.indd 201 2023/08/16 9:40:36 2023/08/16 9:40:36 Sumitomo Mitsui Financial Group Basel III Information Basel III Information Sumitomo Mitsui Financial Group (2) Exposure Balance by Type of Assets and Residual Term (Millions of yen) 6. Term-End Balance of Exposures by Past Due Periods Less than 1 month 1 month or more to less than 2 months Fiscal 2022 2 months or more to less than 3 months 3 months or more Total 144.3 63.4 24.7 80.9 313.4 Notes: 1. Bankrupt and Quasi-Bankrupt Assets prescribed in Article 4, Paragraph 2 of the Ordinance for Enforcement of the Act on Emergency Measures for the Revitalization of Financial Functions and doubtful assets prescribed in Paragraph 3 of the said Article are excluded. Items that are not accompanied by deterioration of business conditions/cash flows are excluded. 2. (Billions of yen) Less than 1 month 1 month or more to less than 2 months Fiscal 2021 2 months or more to less than 3 months 3 months or more Total 455.9 62.1 38.2 99.9 656.2 Notes: 1. Bankrupt and Quasi-Bankrupt Assets prescribed in Article 4, Paragraph 2 of the Ordinance for Enforcement of the Act on Emergency Measures for the Revitalization of Financial Functions and doubtful assets prescribed in Paragraph 3 of the said Article are excluded. Items that are not accompanied by deterioration of business conditions/cash flows are excluded. 2. (Billions of yen) 7. Term-End Balance of Exposures of Obligors Whose Loan Conditions were Restructured for Business Rehabilitation or Support; of Which Amounts of Increased Reserves for Such Exposures and Other Amounts due to the Restructuring of the Loan Conditions Term-end balance Fiscal 2022 Of which: amounts of increased Reserves for such exposures due to the restructuring of the loan conditions Of which: other amounts Term-end balance Fiscal 2021 Of which: amounts of increased Reserves for such exposures due to the restructuring of the loan conditions (Billions of yen) Of which: other amounts 393.0 393.0 0.0 494.4 494.4 0.0 Note: Bankrupt and Quasi-Bankrupt Assets prescribed in Article 4, Paragraph 2 of the Ordinance for Enforcement of the Act on Emergency Measures for the Revitalization of Financial Functions, doubtful assets prescribed in Paragraph 3 of the said Article, and loans past due three months or more prescribed in Paragraph 4 of the said Article are excluded. Category To 1 year More than 1 year to 3 years More than 3 years to 5 years More than 5 years to 7 years More than 7 years No fixed maturity Total As of March 31, 2023 As of March 31, 2022 Loans, commitments and other off-balance sheet exposures except derivatives 59,067,939 25,907,221 22,835,840 9,114,056 23,001,636 72,467,295 212,393,990 Bonds Others Total 9,188,027 3,566,043 3,933,771 1,647,817 7,053,894 — 25,389,554 26,399 — — — — 11,651,449 11,677,848 68,282,365 29,473,265 26,769,612 10,761,873 30,055,531 84,118,745 249,461,394 Loans, commitments and other off-balance sheet exposures except derivatives 52,956,794 23,302,223 19,573,478 8,281,524 23,081,915 71,548,243 198,744,179 Bonds Others Total 10,379,103 6,169,758 3,621,204 3,282,357 7,102,711 — 30,555,135 24,942 — — — — 10,796,252 10,821,195 63,360,840 29,471,981 23,194,683 11,563,881 30,184,627 82,344,495 240,120,510 Notes: 1. The above amounts are exposures after CRM. 2. The above amounts do not include “securitisation exposures” and “credit RWA under Article 145 of the Notification.” 3. “No fixed maturity” includes exposures not classified by residual term. 5. Amounts of Reserves and Write-offs Corresponding to the Term-End Balance of Obligors’ Exposures Related to Loans Prescribed in the Provisions of Article 4, Paragraph 2 (Bankrupt and Quasi-Bankrupt Assets), Paragraph 3 (Doubtful Assets) or Paragraph 4 (Substandard Loans) of the Ordinance for Enforcement of the Act on Emergency Measures for the Revitalization of Financial Functions, as well as Breakdown by Each of the Following Categories (1) By Geographic Region Domestic operations (excluding offshore banking accounts) Overseas operations and offshore banking accounts Asia North America Other regions Total (2) By Industry Term-end balance Fiscal 2022 Term-end Reserves Write-offs for the year Term-end balance (Billions of yen) Fiscal 2021 Term-end Reserves Write-offs for the year 781.7 522.5 290.2 92.6 139.7 1,304.2 203.4 234.2 156.8 26.5 50.9 437.6 78.3 28.2 25.3 1.8 1.2 106.5 997.9 904.5 620.0 91.8 192.7 1,902.3 368.3 207.3 121.8 21.0 64.6 575.6 67.6 23.6 34.1 (0.4) (10.1) 91.2 Term-end balance Fiscal 2022 Term-end Reserves Write-offs for the year Term-end balance (Billions of yen) Fiscal 2021 Term-end Reserves Write-offs for the year Domestic operations (excluding offshore banking accounts) Manufacturing Agriculture, forestry, fishery and mining Construction Transport, information, communications and utilities Wholesale and retail Financial and insurance Real estate, goods rental and leasing Services Other industries Overseas operations and offshore banking accounts Financial institutions C&I companies Others Total 781.7 136.4 2.7 8.4 45.1 69.8 6.5 42.2 114.4 356.0 522.5 17.8 415.7 89.0 1,304.2 203.4 43.6 1.6 2.0 17.7 22.1 0.2 5.8 34.3 76.2 234.2 16.7 193.8 23.7 437.6 78.3 11.6 0.7 0.2 0.0 0.4 0.0 (0.2) (1.4) 67.1 28.2 0.0 6.4 21.9 106.5 997.9 298.5 3.8 8.6 46.8 90.4 7.9 50.4 120.1 371.4 904.5 17.0 676.7 210.8 1,902.3 368.3 184.7 0.8 2.1 15.9 36.9 0.7 7.4 36.9 82.8 207.3 15.4 159.8 32.2 575.6 67.6 (2.0) (1.0) 0.1 0.3 2.0 0.0 (0.4) (0.4) 69.0 23.6 15.3 (4.6) 12.9 91.2 Notes: 1. Term-end Reserves include partial direct write-offs (direct reduction). 2. “Domestic operations” comprises the operations of SMBC Group (excluding overseas branches) and domestic consolidated subsidiaries. “Overseas operations” comprises the operations of SMBC Group’s overseas branches and overseas consolidated subsidiaries, and the term-end balances are calculated based on the obligor’s domicile country. 202 SMBC GROUP ANNUAL REPORT 2023 SMBC GROUP ANNUAL REPORT 2023 203 012_0800885852308.indd 202 012_0800885852308.indd 202 2023/08/16 9:40:36 2023/08/16 9:40:36 012_0800885852308.indd 203 012_0800885852308.indd 203 2023/08/16 9:40:36 2023/08/16 9:40:36 Sumitomo Mitsui Financial Group Basel III Information Basel III Information Sumitomo Mitsui Financial Group ■ Internal Ratings-Based (IRB) Approach 1. Background on Determining the Scope of Application of Internal Ratings-Based (IRB) Approach When the criteria of materiality defined by us according to business characteristics and business conditions, etc. are met, in principle, the IRB approach is adopted by the unit of our asset class or by the unit of the affiliated group companies. In addition, for the asset class or group companies that meet the quantitative criteria specified by the authorities, the IRB approach is in principle adopted regardless of whether the criteria of materiality are met. For adopting the IRB approach, the Advanced Internal Ratings-Based (AIRB) approach is in principle adopted. However, for group companies which were judged unnecessary or inappropriate to adopt the AIRB approach in light of the scale, business contents, etc., the Foundation Internal Ratings-Based (FIRB) approach is adopted. 2. Scope We and the following consolidated subsidiaries have adopted the Advanced Internal Ratings-Based (AIRB) approach for exposures as of March 31, 2009. (1) Domestic Operations Sumitomo Mitsui Banking Corporation, Sumitomo Mitsui Card Company, Limited and SMBC Guarantee Co., Ltd., and SMBC Trust Bank Ltd. (2) Overseas Operations SMBC Bank International plc, Sumitomo Mitsui Banking Corporation (China) Limited, Banco Sumitomo Mitsui Brasileiro S.A., JSC Sumitomo Mitsui Rus Bank, Sumitomo Mitsui Banking Corporation Malaysia Berhad, SMBC Leasing and Finance, Inc., SMBC Capital Markets, Inc., SMBC Nikko Capital Markets Limited, SMBC Derivative Products Limited, SMBC Capital Markets (Asia) Limited, SMBC Bank EU AG, PT Bank BTPN Tbk and SMBC Leasing (UK) Limited. SMBC Finance Service Co., Ltd. has adopted the Foundation Internal Ratings-Based (FIRB) approach. Note: Directly controlled SPCs and limited partnerships for investment of consolidated subsidiaries using the AIRB approach have also adopted the AIRB approach. Further, the AIRB approach is applied to equity exposures on a group basis, including equity exposures of consolidated subsidiaries applying the standardised approach. 3. Overview of Internal Rating System (1) Rating Procedures (A) Corporate Exposures • “Corporate, sovereign and bank exposures” includes credits to domestic and overseas commercial/industrial (C&I) companies, individuals for business purposes (domestic only), sovereigns, public sector entities, and financial institutions. Business loans such as apartment construction loans are, in principle, included in “retail exposures.” However, credits of more than ¥100 million are treated as corporate exposures in accordance with the Notification. • An obligor is assigned an obligor grade by first assigning a financial grade using a financial strength grading model and data obtained from the obligor’s financial statements. The financial grade is then adjusted taking into account the actual state of the obligor’s balance sheet and qualitative factors to derive the obligor grade (for details, please refer to “Credit Risk Assessment and Quantification” on pages 154 to 155). Different rating series are used for domestic and overseas obligors — J1 ~ J10 for domestic obligors and G1 ~ G10 for overseas obligors — as shown in the table following page due to differences in actual default rate levels and portfolios’ grade distribution. Different Probability of Default (PD) values are applied also. • In addition to the above basic rating procedure which builds on the financial grade assigned at the beginning, in some cases, the obligor grade is assigned based on the parent company’s credit quality or credit ratings published by external rating agencies. The Japanese government, local authorities and other public sector entities with special basis for existence and unconventional financial statements are assigned obligor grades based on their attributes (for example, “local municipal corporations”), as the data on these obligors are not suitable for conventional grading models. Further, credits to individuals for business purposes and business loans are assigned obligor grades using grading models developed specifically for these exposures. • PDs used for calculating credit risk-weighted assets are estimated based on the default experience for each grade and taking into account the possibility of estimation errors. In addition to internal data, external data are used to estimate and validate PDs. The definition of default is the definition stipulated in the Notification (an event that would lead to an exposure being classified as “substandard loans,” “doubtful assets” or “bankrupt and quasi-bankrupt assets” occurring to the obligor). • Loss Given Defaults (LGDs) and exposure at default (EAD) used in the calculation of credit risk-weighted assets are estimated based on historical loss experience of credits in default, taking into account the possibility of estimation errors. Obligor Grade Domestic Corporate J1 J2 J3 J4 J5 J6 J7 Definition Very high certainty of debt repayment High certainty of debt repayment Satisfactory certainty of debt repayment Debt repayment is likely but this could change in cases of significant changes in economic trends or business environment depending on the situation No problem with debt repayment over the short term, but not satisfactory over the mid to long term and the situation could change in cases of any changes in economic trends or business environment Currently no problem with debt repayment, but it is highly likely that this could change in cases of significant changes in economic trends or business environment Close monitoring is required due to problems in meeting loan terms and conditions, sluggish/unstable business, or financial problems J8 J9 J7R Borrowers Requiring Caution identified as Substandard Borrowers Currently not bankrupt, but experiencing business difficulties, making insufficient progress in restructuring, and highly likely to go bankrupt Though not yet legally or formally bankrupt, has serious business difficulties and rehabilitation is unlikely; thus, effectively bankrupt Legally or formally bankrupt J10 Obligor Grade Overseas Corporate G1 G2 G3 G4 G5 G6 G7 Definition Very high certainty or high certainty of debt repayment Satisfactory certainty of debt repayment Debt repayment is likely but this could change in cases of significant changes in economic trends or business environment depending on the situation Debt repayment is likely but this could change in cases of significant changes in economic trends or business environment No problem with debt repayment over the short term, but not satisfactory over the mid to long term and the situation could change in cases of any changes in economic trends or business environment Currently no problem with debt repayment, but it is highly likely that this could change in cases of significant changes in economic trends or business environment Close monitoring is required due to problems in meeting loan terms and conditions, sluggish/unstable business, or financial problems G8 G7R Borrowers Requiring Caution identified as Substandard Borrowers Currently not bankrupt, but experiencing business difficulties, making insufficient progress in restructuring, and highly likely to go bankrupt Though not yet legally or formally bankrupt, has serious business difficulties and rehabilitation is unlikely; thus, effectively bankrupt Legally or formally bankrupt G9 G10 Borrower Category Normal Borrowers Borrowers Requiring Caution Substandard Borrowers Potentially Bankrupt Borrowers Virtually Bankrupt Borrowers Bankrupt Borrowers Borrower Category Normal Borrowers Borrowers Requiring Caution Substandard Borrowers Potentially Bankrupt Borrowers Virtually Bankrupt Borrowers Bankrupt Borrowers • “Specialized lending” is sub-classified into “project finance,” “object finance,” “commodity finance,” “income-producing real estate” (IPRE) and “high-volatility commercial real estate” (HVCRE) in accordance with the Notification. Project finance is financing of a single project, such as a power plant or transportation infrastructure, and cash flows generated by the project are the primary source of repayment. Object finance includes aircraft finance and ship finance, and IPRE and HVCRE include real estate finance (a primary example is non-recourse real estate finance). There were no commodity finance exposures as of March 31, 2023. • Each SL product is classified as either a facility assigned a PD grade and LGD grade or a facility assigned a grade based primarily on the expected loss ratio, both using grading models and qualitative assessment. The former has the same grading structure as that of corporate, and the latter has ten grade levels as with obligor grades but the definition of each grade differs from that of the obligor grade which is focused on PD. For the credit risk-weighted asset amount for the SL category, the former facility is calculated in a manner similar to corporate exposures, while the latter facility is calculated by mapping the expected loss-based facility grades to the five categories (hereinafter the “slotting criteria”) of the Notification because it does not satisfy the requirements for PD application specified in the Notification. 204 SMBC GROUP ANNUAL REPORT 2023 SMBC GROUP ANNUAL REPORT 2023 205 012_0800885852308.indd 204 012_0800885852308.indd 204 2023/08/16 9:40:36 2023/08/16 9:40:36 012_0800885852308.indd 205 012_0800885852308.indd 205 2023/08/16 9:40:36 2023/08/16 9:40:36 Sumitomo Mitsui Financial Group Basel III Information Basel III Information Sumitomo Mitsui Financial Group (B) Retail Exposures • “Residential mortgage exposures” includes mortgage loans to individuals and some real estate loans in which the property consists of both residential and commercial facilities such as a store or rental apartment units, but excludes apartment construction loans. • Mortgage loans are rated as follows. Mortgage loans are allocated to a portfolio segment with similar risk characteristics in terms of default risk determined using loan contract information, a borrower category under self-assessment in accordance with an exclusive grading model, and recovery risk at the time of default determined using Loan To Value (LTV) calculated based on the assessment value of collateral real estate. PDs and LGDs are estimated based on the default experience for each segment and taking into account the possibility of estimation errors. Further, the portfolio is subdivided based on the lapse of years from the contract date, and the effectiveness of segmentation in terms of default risk and recovery risk is validated periodically. For most portfolios, the actual default rates are lower than PD estimate values applied for the respective periods, because the long- term average value including the recession period is estimated, and also because the possibility of estimation errors is taken into account. Validation consists of two systems: “backtesting” to retrospectively compare and validate the parameter estimated value and the actual value for the respective applicable period, and “pretesting” to validate before applying the parameter for the purpose of complementing the “backtesting.” The overview for each is as follows. (a) Backtesting This is to compare the estimated value with the actual value at least once a year, and to validate that the degree of divergence is within the statistically assumed range. In case of hitting the predetermined excess criteria as a result of validation, reviews shall be taken including revising the Internal data are used to estimate and validate PDs and LGDs. The definition of default is the definition stipulated in the estimation method or rating system. Notification. • “Qualifying revolving retail exposures” includes card loans and credit card balances. • Card loans and credit card balances are rated as follows. Card loans and credit card balances are allocated to a portfolio segment with similar risk characteristics determined based, for card loans, on the credit quality of the loan guarantee company, credit limit, settlement account balance and payment history, and, for credit card balances, on repayment history and frequency of use. (b) Pretesting This is to compare and validate the estimated value to be applied and the historical value. In the case of hitting the predetermined excess criteria, the estimated value shall be conservatively corrected. The purpose is to prevent underestimation by making adjustments, if necessary. PDs and LGDs used to calculate credit risk-weighted asset amounts are estimated based on the default experience for each B. LGD segment and taking into account the possibility of estimation errors. Further, the effectiveness of segmentation in terms of default risk and recovery risk is validated periodically. Internal data are used to estimate and validate PDs and LGDs. The definition of default is the definition stipulated in the Notification. • “Other retail exposures” includes business loans such as apartment construction loans and consumer loans such as My Car Loan. • Business loans and consumer loans are rated as follows. a. Business loans are allocated to a portfolio segment with similar risk characteristics in terms of default risk determined using loan contract information, a borrower category under self-assessment in accordance with an exclusive grading model, and recovery risk determined based on LTV for business loans. PDs and LGDs are estimated based on the default experience for each segment and taking into account the possibility of estimation errors. b. Rating procedures for consumer loans depends on whether the loan is collateralized. Collateralized consumer loans are allocated to a portfolio segment using the same standards as for mortgage loans of “Residential Mortgage Exposures.” Uncollateralized consumer loans are allocated to a portfolio segment based on account history. PDs and LGDs are estimated based on the default experience for each segment and taking into account the possibility of estimation errors. Further, the effectiveness of segmentation in terms of default risk and recovery risk is validated periodically. Internal data are used to estimate and validate PDs and LGDs. The definition of default is the definition stipulated in the Notification. (C) Equity Exposures When acquiring equities subject to the PD/LGD approach, issuers are assigned obligor grades using the same rules as those of general credits to C&I companies, sovereigns and financial institutions. The obligors are monitored (for details, please refer to page 155) and their grades are revised if necessary (credit risk-weighted asset amount is set to 1.5 times when they are not monitored individually). In the case there is no credit transaction with the issuer or it is difficult to obtain financial information, internal grades are assigned using ratings of external rating agencies if it is a qualifying investment. In the case it is difficult to obtain financial information and it is not a qualifying investment, the simple risk weight method under the market-based approach is applied. (2) Parameter Estimation and Its Validation System A. PD This is defined as the probability that obligors could default over one year. PD is estimated as the expected value in the long term regardless of the business cycle using the default rate for each fiscal year based on the historical data for five consecutive fiscal years or more. In principle, the default rate for each fiscal year is measured by the initial number of target obligors as the denominator and the number of defaults occurred during the fiscal year as the numerator. For assets and ratings applicable to LDP (LDP: Low Default Portfolio), conservative PD is estimated by creating virtual rating transition data based on Monte Carlo simulation and by using the floor value proposed under Basel Capital Accord. This is defined as the ratio of loss amounts after default to the amount of receivable at the time of default. LGD is estimated as a long- term average value calculated based on historical data over seven consecutive fiscal years (for retail, five fiscal years) or more. However, in the case where a high positive correlation with the default rate is observed, LGD shall be in principle the value taking into account the possibility that the loss rate of the recession period will exceed the long-term average value, and it is estimated mainly by one of the following methods. • By taking into account the influence of the recession period on the interest rate to customers constituting the discount rate for calculating the economic loss to be used for estimation • By taking into account the influence of the recession period by modeling the relationship between the loss ratio and economic and financial indicators, etc. For the purpose of estimating LGD using economic loss based on requirement of Basel Capital Accord, discount rate is estimated using recovery cost. The averaged period from the time of default to the termination of recovery is used as discount period. As for validation, backtesting and pretesting are conducted as in A. PD. C. EAD This is defined as the amount of exposure at the time of default. EAD is estimated as a long-term average value calculated based on the historical data over seven consecutive fiscal years (for retail, five fiscal years) or more. For estimation, the possibility that the default balance may exceed the latest balance is assumed and taken into account, and EAD is estimated by one of the following methods. • By estimating the conversion factor that is the ratio of actually drawn amount to the amount associated with undrawn commitments one year before the time of default • By estimating the conversion factor that is the ratio of the average outstandings of the default borrowers to the average outstandings of the non-default borrowers of the whole limit-type credit subject to the estimation • By estimating an increased amount by comparing the initial outstandings with ones at the time of default and taking the average for each segment As for validation, backtesting and pretesting are conducted as in A. PD. 4. Percentage of EAD by Asset Class by Type of Approach for Calculating Credit RWA to Total EAD As of March 31, 2023 As of March 31, 2022 IRB approach Corporate exposures (Advanced Internal Ratings-Based (AIRB) approach) Corporate exposures (Foundation Internal Ratings-Based (FIRB) approach) Retail exposures Equity exposures Purchased receivables (AIRB approach) Purchased receivables (FIRB approach) Other assets, etc. SA Total 94.78 % 83.42 % 0.27 % 5.93 % 1.87 % 1.12 % 0.00 % 2.15 % 5.21 % 100.00 % 95.38 % 83.97 % 0.26 % 5.99 % 2.10 % 1.13 % 0.00 % 1.89 % 4.61 % 100.00 % 206 SMBC GROUP ANNUAL REPORT 2023 SMBC GROUP ANNUAL REPORT 2023 207 012_0800885852308.indd 206 012_0800885852308.indd 206 2023/08/16 9:40:36 2023/08/16 9:40:36 012_0800885852308.indd 207 012_0800885852308.indd 207 2023/08/16 9:40:36 2023/08/16 9:40:36 Sumitomo Mitsui Financial Group Basel III Information Basel III Information Sumitomo Mitsui Financial Group 5. CR Exposures by Portfolio and PD (CR6) CR6: IRB - CR exposures by portfolio and PD range Item No. PD scale (Millions of yen, %, the number of data in thousands, years) As of March 31, 2023 a On-balance sheet gross exposures b Off-balance sheet exposures pre CCF (Credit Conversion Factor) and pre CRM c d e f g h i j k l Average CCF (%) EAD post CCF and post CRM Average PD (%) Number of obligors Average LGD (%) Average maturity Credit RWA amounts RWA density (%) EL Eligible provisions 2,942 — Sovereign exposures (AIRB approach) 1 0.00 to <0.15 2 0.15 to <0.25 3 0.25 to <0.50 4 0.50 to <0.75 5 0.75 to <2.50 6 2.50 to <10.00 7 10.00 to <100.00 8 100.00 (Default) 9 Subtotal 93,633,322 641,893 47,656 12 91,561 60,383 11,100 126,344 94,612,274 152,011 171,767 9,765 — 69,840 17,214 — — 420,599 Sovereign exposures (FIRB approach) 1 0.00 to <0.15 2 0.15 to <0.25 3 0.25 to <0.50 4 0.50 to <0.75 5 0.75 to <2.50 6 2.50 to <10.00 7 10.00 to <100.00 8 100.00 (Default) 9 Subtotal — — — — — — — — — Bank exposures (AIRB approach) 5,007,954 719,404 150,391 10,000 547,721 192,480 5,600 593 6,634,145 Bank exposures (FIRB approach) 48,945 102 — 1,210 2,280 — — — 52,537 1 0.00 to <0.15 2 0.15 to <0.25 3 0.25 to <0.50 4 0.50 to <0.75 5 0.75 to <2.50 6 2.50 to <10.00 7 10.00 to <100.00 8 100.00 (Default) 9 Subtotal 1 0.00 to <0.15 2 0.15 to <0.25 3 0.25 to <0.50 4 0.50 to <0.75 5 0.75 to <2.50 6 2.50 to <10.00 7 10.00 to <100.00 8 100.00 (Default) 9 Subtotal — — — — — — — — — 1,469,203 180,362 39,981 2,526 155,635 23,557 — — 1,871,267 — — — — — — — — — Corporate exposures (AIRB approach) 1 0.00 to <0.15 2 0.15 to <0.25 3 0.25 to <0.50 4 0.50 to <0.75 5 0.75 to <2.50 6 2.50 to <10.00 7 10.00 to <100.00 8 100.00 (Default) 9 Subtotal 32,446,992 16,125,650 17,474,685 14,497,451 3,705,167 7,496,947 103,539 542,767 2,196,914 5,163,341 553,464 1,150,151 270,960 726,466 49,206 500,246 65,501,599 37,502,355 208 SMBC GROUP ANNUAL REPORT 2023 62.93 46.32 50.27 — 92.37 45.97 — — 60.05 96,065,791 717,071 25,766 12 69,790 14,565 9,865 126,344 97,029,207 — — — — — — — — — — — — — — — — — — 86.70 57.32 43.34 45.97 47.90 79.32 — — 79.56 6,797,378 811,622 147,431 11,161 552,579 162,701 4,541 593 8,488,008 — — — — — — — — — 48,945 102 — 1,210 2,280 — — — 52,537 54.49 46,608,362 54.79 22,772,210 7,856,228 53.71 585,699 51.66 5,530,634 52.55 1,267,564 53.14 759,742 56.03 469,093 100.00 54.46 85,849,536 0.00 0.15 0.38 0.74 1.42 4.15 13.24 100.00 0.13 — — — — — — — — — 0.03 0.15 0.40 0.74 1.17 4.11 17.14 100.00 0.22 0.03 0.16 — 0.74 2.21 — — — 0.14 0.05 0.16 0.34 0.73 1.40 5.99 16.09 100.00 0.97 0.4 0.2 0.0 0.0 0.0 0.0 0.0 0.0 0.7 — — — — — — — — — 0.6 0.2 0.0 0.0 0.2 0.0 0.0 0.0 1.2 0.0 0.0 — 0.0 0.1 — — — 0.1 7.2 6.2 4.1 0.7 2.5 0.7 0.3 0.3 22.2 33.40 31.41 28.16 35.00 30.65 28.93 29.84 54.76 33.41 — — — — — — — — — 29.82 28.25 28.19 35.00 31.63 26.56 30.00 79.25 29.71 45.00 45.00 — 45.00 45.00 — — — 45.00 33.65 28.58 28.99 34.40 26.19 26.40 24.33 46.29 31.29 3.7 1.9 1.2 1.0 3.2 1.5 1.0 1.0 3.7 — — — — — — — — — 2.3 1.2 0.9 1.0 1.2 1.0 0.4 1.0 2.0 5.0 5.0 — 5.0 5.0 — — — 5.0 146,695 169,520 7,646 5 50,525 12,816 12,890 58,914 459,014 — — — — — — — — — 986,019 168,624 46,905 7,155 366,716 130,810 6,413 80 1,712,726 17,362 82 — 1,769 4,027 — — — 23,242 7,381,597 2.4 5,775,865 2.2 3,012,585 2.3 394,277 2.5 3,772,093 3.2 1,218,636 2.6 911,538 2.7 155,954 2.1 2.4 22,622,549 0.15 23.64 29.67 49.63 72.39 87.98 130.66 46.63 0.47 — — — — — — — — — 14.50 20.77 31.81 64.10 66.36 80.39 141.23 13.63 20.17 35.47 81.01 — 146.22 176.65 — — — 44.23 15.83 25.36 38.34 67.31 68.20 96.13 119.97 33.24 26.35 226 353 28 0 292 173 389 69,196 70,661 — — — — — — — — — 778 365 171 28 2,103 1,776 233 470 5,928 6 0 — 4 22 — — — 33 8,043 10,450 7,911 1,491 20,927 20,893 29,705 217,189 316,611 CR6: IRB - CR exposures by portfolio and PD range Item No. PD scale (Millions of yen, %, the number of data in thousands, years) As of March 31, 2023 a On-balance sheet gross exposures b Off-balance sheet exposures pre CCF and pre CRM c Average CCF (%) d EAD post CCF and post CRM e f g h i j Average PD (%) Number of obligors Average LGD (%) Average maturity Credit RWA amounts RWA density (%) k EL l Eligible provisions Corporate exposures (FIRB approach) — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — 1 0.00 to <0.15 2 0.15 to <0.25 3 0.25 to <0.50 4 0.50 to <0.75 5 0.75 to <2.50 6 2.50 to <10.00 7 10.00 to <100.00 8 100.00 (Default) 9 Subtotal — — — — — — — — — Mid-sized corporations and small-medium enterprises (SMEs) exposures (AIRB approach) 24.93 27.11 26.12 26.65 25.98 20.60 35.92 45.54 26.72 818,090 1,271,292 1,356,274 412,121 1,161,869 159,210 78,198 156,446 5,413,504 Mid-sized corporations and SMEs exposures (FIRB approach) — — — — — — — — — 1 0.00 to <0.15 2 0.15 to <0.25 3 0.25 to <0.50 4 0.50 to <0.75 5 0.75 to <2.50 6 2.50 to <10.00 7 10.00 to <100.00 8 100.00 (Default) 9 Subtotal 1 0.00 to <0.15 2 0.15 to <0.25 3 0.25 to <0.50 4 0.50 to <0.75 5 0.75 to <2.50 6 2.50 to <10.00 7 10.00 to <100.00 8 100.00 (Default) 9 Subtotal 776,693 1,419,695 1,546,558 444,790 1,523,124 205,223 136,914 213,184 6,266,185 64,803 298,513 159,696 23,191 63,969 10,103 2,627 5,795 628,701 47.23 54.52 56.51 86.87 51.38 47.59 52.83 100.00 55.45 0.07 0.15 0.34 0.72 1.75 8.24 24.42 100.00 4.05 1.3 4.8 8.1 3.5 21.3 1.2 2.3 3.0 45.7 — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — 2.6 3.2 3.7 3.6 3.5 2.6 2.2 1.8 3.3 — — — — — — — — — 3.4 3.6 3.7 2.0 3.4 3.2 3.4 2.9 3.5 5.0 5.0 5.0 5.0 5.0 5.0 5.0 5.0 5.0 — — — — — — — — — 105,407 287,753 461,011 195,144 649,625 107,495 126,219 23,438 1,956,096 — — — — — — — — — 366,921 587,658 969,636 20,914 907,825 233,964 420,003 26,210 3,533,135 3,771,067 603,393 151,111 3,579 60,161 33,052 2,148 9,242 4,633,756 — — — — — — — — — 12.88 22.63 33.99 47.35 55.91 67.51 161.40 14.98 36.13 — — — — — — — — — 10.91 20.53 35.18 38.54 51.54 109.26 184.49 46.63 31.28 102.61 123.55 190.94 228.96 299.40 523.01 796.56 1,125.00 108.47 — — — — — — — — — 146 541 1,222 796 5,293 2,619 6,899 71,258 88,778 — — — — — — — — — 324 905 2,229 90 4,621 2,799 12,788 29,273 53,032 — — — — — — — — — 0 93,366 — 83,429 — SMBC GROUP ANNUAL REPORT 2023 209 — — — — — — — — — 0.04 0.16 0.35 0.74 1.18 4.11 15.58 100.00 1.22 0.04 0.15 0.41 0.74 1.55 8.89 24.92 100.00 0.10 — — — — — — — — — — — — — — — — — — 1.1 0.4 0.2 0.0 0.0 0.0 0.0 0.0 1.9 — — — — — — — — — 21.88 19.67 22.21 22.53 21.96 31.80 35.27 52.07 22.03 90.00 90.00 90.00 90.00 90.00 90.00 90.00 90.00 90.00 10,967 Specialized lending (SL) 1 0.00 to <0.15 2 0.15 to <0.25 3 0.25 to <0.50 4 0.50 to <0.75 5 0.75 to <2.50 6 2.50 to <10.00 7 10.00 to <100.00 8 100.00 (Default) 9 Subtotal Equity exposures 1 0.00 to <0.15 2 0.15 to <0.25 3 0.25 to <0.50 4 0.50 to <0.75 5 0.75 to <2.50 6 2.50 to <10.00 7 10.00 to <100.00 8 100.00 (Default) 9 Subtotal 3,348,460 2,592,890 2,498,862 54,253 1,792,728 266,936 288,326 93,302 10,935,760 3,675,024 488,369 79,138 1,563 20,093 6,319 269 821 4,271,600 80,085 810,476 1,272,789 — 588,769 23,310 87,257 20,664 2,883,352 3,361,496 46.35 2,862,094 51.95 2,755,888 52.05 54,253 — 1,761,163 61.07 214,130 54.99 227,656 55.39 100.00 56,209 54.17 11,292,893 — — — — — — — — — — 3,675,024 488,369 — 79,138 — 1,563 — 20,093 — 6,319 — 269 — 821 — — 4,271,600 78 383,182 012_0800885852308.indd 208 012_0800885852308.indd 208 2023/08/16 9:40:36 2023/08/16 9:40:36 012_0800885852308.indd 209 012_0800885852308.indd 209 2023/08/16 9:40:36 2023/08/16 9:40:36 Sumitomo Mitsui Financial Group Basel III Information Basel III Information Sumitomo Mitsui Financial Group (Millions of yen, %, the number of data in thousands, years) (Millions of yen, %, the number of data in thousands, years) CR6: IRB - CR exposures by portfolio and PD range Item No. PD scale As of March 31, 2023 a On-balance sheet gross exposures b Off-balance sheet exposures pre CCF and pre CRM c Average CCF (%) d EAD post CCF and post CRM e f g h i j Average PD (%) Number of obligors Average LGD (%) Average maturity Credit RWA amounts RWA density (%) k EL l Eligible provisions Purchased receivables (corporates) (the amount equivalent to default risks) (AIRB approach) 1 0.00 to <0.15 2 0.15 to <0.25 3 0.25 to <0.50 4 0.50 to <0.75 5 0.75 to <2.50 6 2.50 to <10.00 7 10.00 to <100.00 8 100.00 (Default) 9 Subtotal 1,453,903 432,523 166,977 4,981 43,848 3,649 106 4,249 2,110,239 266,886 127,816 145,865 34,666 101,131 5,022 1,768 106 683,263 99.81 99.55 100.00 100.00 100.00 100.00 100.00 100.00 99.84 1,707,106 555,738 310,355 39,594 144,504 8,639 1,874 4,308 2,772,122 0.05 0.16 0.36 0.64 1.45 5.73 60.52 100.00 0.40 7.3 5.9 10.0 4.5 17.8 0.8 0.2 0.1 46.9 35.30 32.86 43.09 61.70 55.34 51.70 63.38 72.93 37.23 Purchased receivables (corporates) (the amount equivalent to dilution risks) (AIRB approach) 1 0.00 to <0.15 2 0.15 to <0.25 3 0.25 to <0.50 4 0.50 to <0.75 5 0.75 to <2.50 6 2.50 to <10.00 7 10.00 to <100.00 8 100.00 (Default) 9 Subtotal 996,337 428,001 164,610 — 18,339 1,975 — 549 1,609,814 858 — — — — — — — 858 45.48 — — — — — — — 45.48 996,728 428,001 164,610 — 18,339 1,975 — 549 1,610,205 0.05 0.16 0.27 — 1.72 5.76 — 100.00 0.16 0.1 0.0 0.0 — 0.0 0.0 — 0.0 0.2 33.03 32.63 33.43 — 28.32 28.40 — 45.23 32.91 Purchased receivables (corporates) (the amount equivalent to default risks) (FIRB approach) 1 0.00 to <0.15 2 0.15 to <0.25 3 0.25 to <0.50 4 0.50 to <0.75 5 0.75 to <2.50 6 2.50 to <10.00 7 10.00 to <100.00 8 100.00 (Default) 9 Subtotal — — — — — — — 89 89 90 169 1,659 787 1,191 — — — 3,898 100.00 100.00 100.00 100.00 100.00 — — — 100.00 90 169 1,659 787 1,191 — — 88 3,986 0.11 0.20 0.42 0.61 1.00 — — 100.00 2.81 0.0 0.0 0.0 0.0 0.0 — — 0.0 0.1 45.00 45.00 45.00 45.00 45.00 — — 45.00 45.00 Purchased receivables (corporates) (the amount equivalent to dilution risks) (FIRB approach) 1 0.00 to <0.15 2 0.15 to <0.25 3 0.25 to <0.50 4 0.50 to <0.75 5 0.75 to <2.50 6 2.50 to <10.00 7 10.00 to <100.00 8 100.00 (Default) 9 Subtotal 86 0 1 0 0 0 — — 88 — — — — — — — — — — — — — — — — — — 86 0 1 0 0 0 — — 88 0.11 0.20 0.49 0.61 1.09 2.70 — — 0.11 Purchased receivables (retail) (the amount equivalent to default risks) 1 0.00 to <0.15 2 0.15 to <0.25 3 0.25 to <0.50 4 0.50 to <0.75 5 0.75 to <2.50 6 2.50 to <10.00 7 10.00 to <100.00 8 100.00 (Default) 9 Subtotal 4,543 2,370 1,753 244 78 — — — 8,990 — — — — 20 — — — 20 — — — — 100.00 — — — 100.00 4,543 2,370 1,753 244 98 — — — 9,010 0.08 0.20 0.34 0.60 0.95 — — — 0.19 0.0 0.0 0.0 0.0 0.0 0.0 — — 0.0 0.3 0.1 0.2 0.0 0.0 — — — 0.8 45.00 45.00 45.00 45.00 45.00 45.00 — — 45.00 65.00 65.00 50.88 64.25 63.71 — — — 62.21 1.1 1.0 1.1 1.0 1.1 1.0 1.0 1.0 1.1 1.2 1.1 1.0 — 1.0 1.0 — 1.0 1.1 1.0 1.0 1.0 1.0 1.0 — — 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0 — — 1.0 — — — — — — — — — 234,702 115,625 138,458 31,915 145,764 13,151 3,065 587 683,271 109,091 85,867 45,642 — 9,914 1,766 — 74 252,356 18 51 668 373 687 — — — 1,797 17 0 0 0 0 0 — — 18 642 624 520 125 61 — — — 1,974 13.74 20.80 44.61 80.60 100.87 152.22 163.50 13.63 24.64 10.94 20.06 27.72 — 54.06 89.41 — 13.63 15.67 19.97 30.23 40.26 47.45 57.64 — — 0.00 45.10 19.97 30.02 51.59 57.94 76.03 106.02 — — 20.61 14.13 26.32 29.68 51.55 62.92 — — — 21.91 763 309 497 156 1,131 246 713 3,142 6,960 192 222 152 — 84 34 — 248 934 0 0 3 2 5 — — 39 50 0 0 0 0 0 0 — — 0 2 3 3 0 0 — — — 10 7,672 1,378 21 0 20 CR6: IRB - CR exposures by portfolio and PD range Item No. PD scale As of March 31, 2023 a On-balance sheet gross exposures b Off-balance sheet exposures pre CCF and pre CRM c Average CCF (%) d EAD post CCF and post CRM e f g h i j Average PD (%) Number of obligors Average LGD (%) Average maturity Credit RWA amounts RWA density (%) k EL l Eligible provisions Purchased receivables (retail) (the amount equivalent to dilution risks) (AIRB approach) 1 0.00 to <0.15 2 0.15 to <0.25 3 0.25 to <0.50 4 0.50 to <0.75 5 0.75 to <2.50 6 2.50 to <10.00 7 10.00 to <100.00 8 100.00 (Default) 9 Subtotal — — — — — — — — — — — — — — — — — — Qualifying revolving retail exposures (QRRE) 1 0.00 to <0.15 2 0.15 to <0.25 3 0.25 to <0.50 4 0.50 to <0.75 5 0.75 to <2.50 6 2.50 to <10.00 7 10.00 to <100.00 8 100.00 (Default) 9 Subtotal 81,876 386,287 698,222 2,907 565,432 711,871 37,445 76,728 2,560,771 Residential mortgage exposures — — 7,434,456 813,742 735,074 — 20,041 65,530 9,068,846 1 0.00 to <0.15 2 0.15 to <0.25 3 0.25 to <0.50 4 0.50 to <0.75 5 0.75 to <2.50 6 2.50 to <10.00 7 10.00 to <100.00 8 100.00 (Default) 9 Subtotal 279,145 496,656 317,206 7,065 55,876 139,334 5,246 6,776 1,307,308 — — 4,487 858 1,490 — 594 59 7,490 — — — — — — — — — 6.41 15.75 9.12 6.32 14.23 5.49 8.92 100.00 33.79 — — 100.00 100.00 100.00 — 100.00 100.00 100.00 — — — — — — — — — 361,021 882,944 1,015,428 9,972 621,308 851,206 42,692 83,504 3,868,080 31,928 1,831 7,439,509 814,627 704,721 — 18,128 65,589 9,076,336 Other retail exposures 1 0.00 to <0.15 2 0.15 to <0.25 3 0.25 to <0.50 4 0.50 to <0.75 5 0.75 to <2.50 6 2.50 to <10.00 7 10.00 to <100.00 8 100.00 (Default) 9 Subtotal Total (all portfolios) 1 104,804 270,659 156,479 617,465 15,641 13,686 41,472 1,220,209 2 13 113 351,047 151,086 139,233 6,121 640 648,258 204,853,153 45,957,374 100.00 100.00 100.00 100.00 90.32 100.00 97.02 61.95 100.00 4 104,817 270,772 507,526 768,551 154,875 19,807 42,112 1,868,467 58.21 231,605,586 — — — — — — — — — 0.08 0.18 0.38 0.62 1.67 4.14 50.95 100.00 4.05 0.05 0.16 0.31 0.58 0.92 — 20.93 100.00 1.14 0.08 0.15 0.34 0.64 1.33 2.78 23.78 100.00 3.52 0.72 — — — — — — — — — 4,883.2 5,491.6 3,994.0 141.3 655.8 1,518.2 86.5 240.4 17,011.3 3.8 0.1 434.7 48.6 58.2 — 1.8 5.2 552.8 0.0 2.5 8.2 335.4 1,439.4 124.0 38.2 99.7 2,047.7 19,732.3 — — — — — — — — — 67.52 69.74 68.73 66.64 75.79 73.04 70.87 74.39 71.07 38.92 77.51 24.04 25.45 31.33 — 26.56 19.96 24.77 66.64 34.35 35.22 50.97 53.66 46.21 53.88 57.95 48.66 33.28 — — — — — — — — — — — — — — — — — — 12,722 61,291 125,864 1,756 262,840 656,599 73,235 92,246 1,286,558 8,074 691 992,857 179,374 269,095 — 25,983 11,713 1,487,791 0 11,957 54,891 213,666 467,719 98,185 23,667 94,264 964,351 — 39,618,642 — — — — — — — — — 3.52 6.94 12.39 17.61 42.30 77.13 171.54 110.46 33.26 25.28 37.74 13.34 22.01 38.18 — 143.32 17.85 16.39 14.01 11.40 20.27 42.09 60.85 63.39 119.48 223.83 51.61 17.10 — — — — — — — — — 205 1,131 2,678 41 7,864 25,754 15,424 62,124 115,224 6 2 5,560 1,202 2,135 — 994 13,096 23,000 0 54 331 1,670 5,557 1,978 2,526 24,405 36,523 717,750 — 121,424 24,711 29,983 759,180 210 SMBC GROUP ANNUAL REPORT 2023 SMBC GROUP ANNUAL REPORT 2023 211 012_0800885852308.indd 210 012_0800885852308.indd 210 2023/08/16 9:40:36 2023/08/16 9:40:36 012_0800885852308.indd 211 012_0800885852308.indd 211 2023/08/16 9:40:37 2023/08/16 9:40:37 Sumitomo Mitsui Financial Group Basel III Information Basel III Information Sumitomo Mitsui Financial Group (Millions of yen, %, the number of data in thousands, years) (Millions of yen, %, the number of data in thousands, years) CR6: IRB - CR exposures by portfolio and PD range Item No. PD scale As of March 31, 2022 a On-balance sheet gross exposures b Off-balance sheet exposures pre CCF (Credit Conversion Factor) and pre CRM c d e f g h i j k l Average CCF (%) EAD post CCF and post CRM Average PD (%) Number of obligors Average LGD (%) Average maturity Credit RWA amounts RWA density (%) EL Eligible provisions Sovereign exposures (AIRB approach) 1 0.00 to <0.15 2 0.15 to <0.25 3 0.25 to <0.50 4 0.50 to <0.75 5 0.75 to <2.50 6 2.50 to <10.00 7 10.00 to <100.00 8 100.00 (Default) 9 Subtotal 96,723,291 572,528 32,158 244 329,222 53,405 728 8 97,711,588 159,205 112,751 1,498 — 85,201 7,024 16,525 — 382,206 Sovereign exposures (FIRB approach) 1 0.00 to <0.15 2 0.15 to <0.25 3 0.25 to <0.50 4 0.50 to <0.75 5 0.75 to <2.50 6 2.50 to <10.00 7 10.00 to <100.00 8 100.00 (Default) 9 Subtotal — — — — — — — — — Bank exposures (AIRB approach) 4,414,736 685,316 175,179 — 759,694 32,919 2,676 248 6,070,770 Bank exposures (FIRB approach) 70,541 54 190 — 5,217 — — — 76,004 1 0.00 to <0.15 2 0.15 to <0.25 3 0.25 to <0.50 4 0.50 to <0.75 5 0.75 to <2.50 6 2.50 to <10.00 7 10.00 to <100.00 8 100.00 (Default) 9 Subtotal 1 0.00 to <0.15 2 0.15 to <0.25 3 0.25 to <0.50 4 0.50 to <0.75 5 0.75 to <2.50 6 2.50 to <10.00 7 10.00 to <100.00 8 100.00 (Default) 9 Subtotal — — — — — — — — — 1,159,053 175,015 23,351 — 174,284 4,919 — — 1,536,624 — — — — — — — — — Corporate exposures (AIRB approach) 1 0.00 to <0.15 2 0.15 to <0.25 3 0.25 to <0.50 4 0.50 to <0.75 5 0.75 to <2.50 6 2.50 to <10.00 7 10.00 to <100.00 8 100.00 (Default) 9 Subtotal 30,298,457 15,121,634 14,584,399 11,445,232 3,286,811 5,643,341 116,695 933,388 2,979,153 5,918,358 603,415 1,331,901 357,971 816,187 50,699 700,074 60,226,109 33,961,614 73.09 45.96 100.00 — 80.75 62.15 45.97 — 99,695,142 624,423 27,257 244 266,601 22,243 7,748 8 65.53 100,643,669 — — — — — — — — — — — — — — — — — — 84.04 53.23 41.31 — 45.31 70.80 — — 75.45 5,756,408 759,618 168,197 — 720,484 33,686 1,566 248 7,440,210 — — — — — — — — — 70,541 54 190 — 5,217 — — — 76,004 53.95 42,995,830 53.98 19,823,294 6,426,017 51.55 978,304 54.80 5,282,925 52.12 1,093,599 48.44 936,751 52.39 100.00 678,490 53.52 78,215,214 0.00 0.15 0.39 0.50 1.77 4.12 13.36 100.00 0.00 — — — — — — — — — 0.04 0.15 0.35 — 1.43 4.09 13.36 100.00 0.21 0.03 0.16 0.26 — 2.15 — — — 0.17 0.06 0.16 0.31 0.50 1.38 6.09 15.66 100.00 1.33 0.5 0.2 0.0 0.0 0.0 0.0 0.0 0.0 0.8 — — — — — — — — — 0.6 0.2 0.0 — 0.3 0.0 0.0 0.0 1.3 0.0 0.0 0.0 — 0.1 — — — 0.2 6.9 6.1 2.9 1.0 3.5 0.8 0.3 0.3 22.1 34.03 33.25 32.73 35.00 33.74 33.76 35.00 33.58 34.02 — — — — — — — — — 30.89 31.77 33.78 — 34.66 18.88 34.99 79.82 31.36 45.00 45.00 45.00 — 45.00 — — — 45.00 34.76 30.29 28.77 31.45 29.11 25.56 24.29 47.03 32.56 3.8 2.0 1.3 1.1 3.9 1.2 2.4 1.0 3.8 — — — — — — — — — 2.1 1.3 2.1 — 0.8 1.7 0.0 1.0 1.9 5.0 5.0 5.0 — 5.0 — — — 5.0 189,191 160,338 9,740 102 255,890 22,049 12,816 3 650,132 — — — — — — — — — 838,538 189,734 90,522 — 500,210 20,796 2,614 32 1,642,450 25,004 44 191 — 9,386 — — — 34,626 7,810,994 2.4 5,339,500 2.2 2,320,875 2.3 502,087 2.4 3,767,199 2.8 1,030,711 2.8 1,138,221 2.9 2.3 166,659 2.4 22,076,249 0.18 25.67 35.73 42.07 95.98 99.13 165.39 38.88 0.64 — — — — — — — — — 14.56 24.97 53.81 — 69.42 61.73 166.90 13.13 22.07 35.44 81.01 100.37 — 179.90 — — — 45.55 18.16 26.93 36.11 51.32 71.30 94.24 121.50 24.56 28.22 226 325 35 0 1,612 307 362 2 2,873 — — — — — — — — — 709 384 206 — 3,580 260 73 198 5,412 9 0 0 — 50 — — — 60 9,073 9,637 5,887 1,539 21,518 17,521 36,755 319,123 421,055 5,442 — 9,887 136 473,640 CR6: IRB - CR exposures by portfolio and PD range Item No. PD scale As of March 31, 2022 a On-balance sheet gross exposures b Off-balance sheet exposures pre CCF and pre CRM c Average CCF (%) d EAD post CCF and post CRM e f g h i j Average PD (%) Number of obligors Average LGD (%) Average maturity Credit RWA amounts RWA density (%) k EL l Eligible provisions Corporate exposures (FIRB approach) — — — — — — — — — — — — — — — — — — — — — — — — — 22 22 — — — — — — — 22 22 — — — — — — — 0.0 0.0 — — — — — — — 100.00 100.00 1 0.00 to <0.15 2 0.15 to <0.25 3 0.25 to <0.50 4 0.50 to <0.75 5 0.75 to <2.50 6 2.50 to <10.00 7 10.00 to <100.00 8 100.00 (Default) 9 Subtotal — — — — — — — 45.00 45.00 Mid-sized corporations and small-medium enterprises (SMEs) exposures (AIRB approach) 25.03 28.99 28.33 25.47 26.95 21.46 34.77 44.38 27.74 786,506 1,264,867 1,036,508 539,328 1,692,140 184,540 95,875 177,427 5,777,195 Mid-sized corporations and SMEs exposures (FIRB approach) — — — — — — — — — 1 0.00 to <0.15 2 0.15 to <0.25 3 0.25 to <0.50 4 0.50 to <0.75 5 0.75 to <2.50 6 2.50 to <10.00 7 10.00 to <100.00 8 100.00 (Default) 9 Subtotal 1 0.00 to <0.15 2 0.15 to <0.25 3 0.25 to <0.50 4 0.50 to <0.75 5 0.75 to <2.50 6 2.50 to <10.00 7 10.00 to <100.00 8 100.00 (Default) 9 Subtotal 774,513 1,295,368 1,160,836 595,140 2,278,120 354,651 155,218 237,281 6,851,130 20,737 186,331 75,405 7,801 222,310 130,505 1,019 6,040 650,152 49.92 57.38 50.17 50.14 57.38 55.26 59.27 100.00 56.19 0.07 0.16 0.30 0.51 1.57 8.33 24.23 100.00 4.34 1.2 4.9 5.6 3.6 28.2 1.3 2.5 3.2 51.0 — — — — — — — — — — — — — — — — — — — — — — — — — — — Specialized lending (SL) 1 0.00 to <0.15 2 0.15 to <0.25 3 0.25 to <0.50 4 0.50 to <0.75 5 0.75 to <2.50 6 2.50 to <10.00 7 10.00 to <100.00 8 100.00 (Default) 9 Subtotal Equity exposures 1 0.00 to <0.15 2 0.15 to <0.25 3 0.25 to <0.50 4 0.50 to <0.75 5 0.75 to <2.50 6 2.50 to <10.00 7 10.00 to <100.00 8 100.00 (Default) 9 Subtotal 2,694,097 2,442,460 2,043,120 67,931 1,558,543 294,445 316,005 89,265 9,505,870 3,670,673 437,422 103,772 20,760 17,228 12,284 302 1,899 4,264,344 120,291 662,790 868,846 — 406,602 68,369 119,402 12,490 2,258,793 46.32 55.09 53.04 — 59.24 66.22 49.37 100.00 54.87 2,709,030 2,716,398 1,957,947 67,931 1,503,812 248,053 290,221 50,493 9,543,888 — — — — — — — — — — 3,670,673 437,422 — 103,772 — 20,760 — 17,228 — 12,284 — 302 — 1,899 — — 4,264,344 — — — — — — — — — 0.04 0.16 0.35 0.50 1.13 4.09 14.80 100.00 1.39 0.04 0.15 0.41 0.50 1.72 7.94 24.89 100.00 0.14 — — — — — — — — — — — — — — — — — — 1.2 0.4 0.1 0.0 0.1 0.0 0.0 0.0 2.0 — — — — — — — — — 22.08 22.48 25.60 23.15 22.75 40.79 35.81 52.12 24.09 90.00 90.00 90.00 90.00 90.00 90.00 90.00 90.00 90.00 — — — — — — — 5.0 5.0 2.6 3.4 3.7 3.4 3.5 2.6 2.2 1.8 3.3 — — — — — — — — — 3.6 4.0 3.8 2.6 3.5 3.6 3.8 3.6 3.7 5.0 5.0 5.0 5.0 5.0 5.0 5.0 5.0 5.0 — — — — — — — — — 106,554 323,828 369,071 207,863 943,436 130,195 151,018 24,940 2,256,908 — — — — — — — — — 317,937 694,468 792,835 26,099 808,198 355,239 538,747 19,631 3,553,158 3,759,112 543,521 241,061 42,597 50,919 62,561 2,479 21,373 4,723,627 — — — — — — — 0.00 0.00 13.54 25.60 35.60 38.54 55.75 70.55 157.51 14.05 39.06 — — — — — — — — — 11.73 25.56 40.49 38.42 53.74 143.21 185.63 38.88 37.22 102.40 124.25 232.29 205.18 295.55 509.27 818.64 1,125.00 110.77 — — — — — — — 9 9 155 588 915 719 7,183 3,188 8,096 78,757 99,605 — — — — — — — — — 284 982 1,793 78 3,915 4,139 15,149 26,317 52,660 — — — — — — — — — 2 103,699 — 70,974 — 212 SMBC GROUP ANNUAL REPORT 2023 SMBC GROUP ANNUAL REPORT 2023 213 012_0800885852308.indd 212 012_0800885852308.indd 212 2023/08/16 9:40:37 2023/08/16 9:40:37 012_0800885852308.indd 213 012_0800885852308.indd 213 2023/08/16 9:40:37 2023/08/16 9:40:37 Sumitomo Mitsui Financial Group Basel III Information Basel III Information Sumitomo Mitsui Financial Group (Millions of yen, %, the number of data in thousands, years) (Millions of yen, %, the number of data in thousands, years) CR6: IRB - CR exposures by portfolio and PD range Item No. PD scale As of March 31, 2022 a On-balance sheet gross exposures b Off-balance sheet exposures pre CCF and pre CRM c Average CCF (%) d EAD post CCF and post CRM e f g h i j Average PD (%) Number of obligors Average LGD (%) Average maturity Credit RWA amounts RWA density (%) k EL l Eligible provisions Purchased receivables (corporates) (the amount equivalent to default risks) (AIRB approach) 1 0.00 to <0.15 2 0.15 to <0.25 3 0.25 to <0.50 4 0.50 to <0.75 5 0.75 to <2.50 6 2.50 to <10.00 7 10.00 to <100.00 8 100.00 (Default) 9 Subtotal 1,162,248 802,642 210,561 19,818 159,954 1,456 84 4,549 2,361,314 81,482 56,412 45,512 64,832 107,686 4,700 1,421 346 362,395 97.96 96.72 100.00 100.00 97.30 100.00 100.00 100.00 98.23 1,218,624 849,143 252,850 84,403 263,925 6,134 1,505 4,837 2,681,423 0.06 0.16 0.35 0.55 1.65 5.54 58.11 100.00 0.51 6.9 5.8 5.2 8.4 17.5 0.8 0.2 0.1 45.3 35.24 29.94 36.09 55.01 40.61 54.17 58.60 72.22 34.92 Purchased receivables (corporates) (the amount equivalent to dilution risks) (AIRB approach) 1 0.00 to <0.15 2 0.15 to <0.25 3 0.25 to <0.50 4 0.50 to <0.75 5 0.75 to <2.50 6 2.50 to <10.00 7 10.00 to <100.00 8 100.00 (Default) 9 Subtotal 875,005 460,898 316,960 14,030 48,262 1,013 6,478 23,581 1,746,230 3,349 8,412 — — — — — — 11,762 45.48 45.48 — — — — — — 45.48 876,528 464,724 316,960 14,030 48,262 1,013 6,478 23,581 1,751,579 0.06 0.16 0.27 0.50 1.56 8.38 13.36 100.00 1.57 0.1 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.2 32.25 31.26 29.65 35.00 27.66 34.32 25.00 40.59 31.50 Purchased receivables (corporates) (the amount equivalent to default risks) (FIRB approach) 1 0.00 to <0.15 2 0.15 to <0.25 3 0.25 to <0.50 4 0.50 to <0.75 5 0.75 to <2.50 6 2.50 to <10.00 7 10.00 to <100.00 8 100.00 (Default) 9 Subtotal — — — — — — — 102 102 60 251 514 1,862 987 37 — — 3,714 100.00 100.00 100.00 100.00 100.00 100.00 — — 100.00 60 251 514 1,862 987 37 — 100 3,815 0.07 0.20 0.33 0.57 0.99 2.82 — 100.00 3.26 0.0 0.0 0.0 0.0 0.0 0.0 — 0.0 0.0 45.00 45.00 45.00 45.00 45.00 45.00 — 45.00 45.00 Purchased receivables (corporates) (the amount equivalent to dilution risks) (FIRB approach) 1 0.00 to <0.15 2 0.15 to <0.25 3 0.25 to <0.50 4 0.50 to <0.75 5 0.75 to <2.50 6 2.50 to <10.00 7 10.00 to <100.00 8 100.00 (Default) 9 Subtotal 100 0 — 1 — 0 — — 102 — — — — — — — — — — — — — — — — — — 100 0 — 1 — 0 — — 102 0.11 0.20 — 0.52 — 2.82 — — 0.11 Purchased receivables (retail) (the amount equivalent to default risks) 1 0.00 to <0.15 2 0.15 to <0.25 3 0.25 to <0.50 4 0.50 to <0.75 5 0.75 to <2.50 6 2.50 to <10.00 7 10.00 to <100.00 8 100.00 (Default) 9 Subtotal 3,620 1,232 1,819 443 37 9 — 1 7,165 — — — — 20 — — — 20 — — — — 100.00 — — — 100.00 3,620 1,232 1,819 443 58 9 — 1 7,185 0.08 0.20 0.32 0.57 1.09 2.82 — 100.00 0.22 0.0 0.0 — 0.0 — 0.0 — — 0.0 0.0 0.0 0.1 0.0 0.0 0.0 — 0.0 0.1 45.00 45.00 — 45.00 — 45.00 — — 45.00 60.00 60.00 44.28 59.65 57.95 60.00 — 79.82 55.98 1.1 1.0 1.0 1.0 1.1 1.0 1.0 1.2 1.1 1.1 1.0 1.0 1.0 1.2 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0 — 1.0 1.0 1.0 1.0 — 1.0 — 1.0 — — 1.0 — — — — — — — — — 162,365 153,318 85,239 56,673 201,466 9,523 2,406 635 671,629 106,349 86,608 91,128 6,997 25,103 1,260 7,087 3,096 327,632 9 68 187 887 578 40 — — 1,771 20 0 — 0 — 0 — — 21 469 299 452 205 35 7 — 0 1,470 13.32 18.05 33.71 67.14 76.33 155.25 159.89 13.13 25.04 12.13 18.63 28.75 49.87 52.01 124.43 109.40 13.13 18.70 15.02 27.39 36.37 47.63 58.62 107.58 — 0.00 46.43 19.97 30.02 — 53.46 — 107.58 — — 20.51 12.96 24.30 24.88 46.30 60.76 82.92 — 13.13 20.46 337 415 317 258 1,656 175 507 3,493 7,163 199 232 254 24 198 29 216 9,573 10,728 0 0 0 4 4 0 — 45 56 0 0 — 0 — 0 — — 0 1 1 2 1 0 0 — 0 8 6,957 2,190 20 0 15 CR6: IRB - CR exposures by portfolio and PD range Item No. PD scale As of March 31, 2022 a On-balance sheet gross exposures b Off-balance sheet exposures pre CCF and pre CRM c Average CCF (%) d EAD post CCF and post CRM e f g h i j Average PD (%) Number of obligors Average LGD (%) Average maturity Credit RWA amounts RWA density (%) k EL l Eligible provisions Purchased receivables (retail) (the amount equivalent to dilution risks) (AIRB approach) 1 0.00 to <0.15 2 0.15 to <0.25 3 0.25 to <0.50 4 0.50 to <0.75 5 0.75 to <2.50 6 2.50 to <10.00 7 10.00 to <100.00 8 100.00 (Default) 9 Subtotal — — — — — — — — — — — — — — — — — — Qualifying revolving retail exposures (QRRE) 1 0.00 to <0.15 2 0.15 to <0.25 3 0.25 to <0.50 4 0.50 to <0.75 5 0.75 to <2.50 6 2.50 to <10.00 7 10.00 to <100.00 8 100.00 (Default) 9 Subtotal 75,285 336,510 553,081 2,801 539,903 662,949 30,955 71,663 2,273,152 Residential mortgage exposures — — 7,253,693 841,055 805,915 — 22,106 78,828 9,001,599 1 0.00 to <0.15 2 0.15 to <0.25 3 0.25 to <0.50 4 0.50 to <0.75 5 0.75 to <2.50 6 2.50 to <10.00 7 10.00 to <100.00 8 100.00 (Default) 9 Subtotal 261,676 444,126 298,003 6,833 48,894 132,829 3,994 6,756 1,203,115 — — 5,644 1,048 1,842 — 687 59 9,282 — — — — — — — — — 6.31 15.89 9.40 6.45 13.69 5.46 8.10 100.00 34.60 — — 100.00 100.00 100.00 — 100.00 100.00 100.00 — — — — — — — — — 336,961 780,637 851,085 9,635 588,798 795,779 34,950 78,420 3,476,268 37,966 2,358 7,259,383 842,120 770,247 — 19,916 78,888 9,010,882 Other retail exposures 1 0.00 to <0.15 2 0.15 to <0.25 3 0.25 to <0.50 4 0.50 to <0.75 5 0.75 to <2.50 6 2.50 to <10.00 7 10.00 to <100.00 8 100.00 (Default) 9 Subtotal Total (all portfolios) 1 106,436 289,482 126,554 682,910 18,674 11,425 42,977 1,278,463 2 11 159 350,326 133,694 142,131 4,352 657 631,337 201,373,972 41,011,020 100.00 100.00 100.00 100.00 88.26 100.00 95.42 67.32 100.00 4 106,448 289,641 476,881 816,605 160,806 15,778 43,634 1,909,800 57.12 224,801,607 — — — — — — — — — 0.08 0.18 0.37 0.61 1.67 3.97 49.58 100.00 4.09 0.06 0.16 0.31 0.57 0.94 — 22.42 100.00 1.31 0.08 0.16 0.36 0.66 1.35 2.82 23.13 100.00 3.52 0.81 — — — — — — — — — 4,581.6 5,042.8 3,894.5 136.6 586.6 1,447.9 70.7 191.6 15,952.6 4.4 0.2 437.5 49.9 62.4 — 2.0 6.1 562.7 0.0 2.6 8.8 336.5 1,677.8 129.2 35.7 93.9 2,284.7 18,923.6 — — — — — — — — — 68.41 70.68 69.91 67.46 76.84 74.71 71.81 75.48 72.35 39.04 63.10 24.81 26.38 32.35 — 27.63 21.18 25.64 67.46 34.52 35.47 54.38 53.59 46.66 55.25 56.48 49.47 34.29 — — — — — — — — — — — — — — — — — — 12,153 56,009 106,140 1,696 253,312 609,275 61,328 83,326 1,183,241 10,238 949 999,967 192,193 307,940 — 29,856 14,644 1,555,790 0 12,765 61,244 216,913 499,113 103,117 19,097 91,116 1,003,369 — 39,682,079 — — — — — — — — — 3.60 7.17 12.47 17.60 43.02 76.56 175.47 106.25 34.03 26.96 40.27 13.77 22.82 39.97 — 149.90 18.56 17.26 14.19 11.99 21.14 45.48 61.12 64.12 121.03 208.81 52.53 17.65 — — — — — — — — — 197 1,038 2,253 39 7,591 23,522 12,488 59,192 106,323 9 2 5,602 1,288 2,462 — 1,215 16,708 27,289 0 58 377 1,715 6,032 2,105 2,004 24,647 36,941 770,189 — 107,328 25,439 29,101 834,837 214 SMBC GROUP ANNUAL REPORT 2023 SMBC GROUP ANNUAL REPORT 2023 215 012_0800885852308.indd 214 012_0800885852308.indd 214 2023/08/16 9:40:37 2023/08/16 9:40:37 012_0800885852308.indd 215 012_0800885852308.indd 215 2023/08/16 9:40:37 2023/08/16 9:40:37 Sumitomo Mitsui Financial Group Basel III Information Basel III Information Sumitomo Mitsui Financial Group 6. Effect on Credit RWA of Credit Derivatives Used as CRM Techniques (CR7) 8. Backtesting of Probability of Default (PD) per Portfolio (CR9) CR7: IRB – Effect on credit RWA of credit derivatives used as CRM techniques Item No. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 Portfolio Sovereign exposures - FIRB Sovereign exposures - AIRB Bank exposures - FIRB Bank exposures - AIRB Corporate exposures (excluding SL) - FIRB Corporate exposures (excluding SL) - AIRB SL - FIRB SL- AIRB Retail - QRRE Retail - Residential mortgage exposures Retail - Other retail exposures Equity - FIRB Equity - AIRB Purchased receivables - FIRB Purchased receivables - AIRB Total (Millions of yen) As of March 31, 2023 As of March 31, 2022 a Pre-credit derivatives credit RWA — 385,671 23,242 1,631,397 — 24,615,146 622,798 3,647,258 1,286,558 1,487,791 964,351 — 5,481,371 1,816 937,602 41,085,004 b Actual credit RWA — 385,671 23,242 1,631,397 — 24,614,964 622,798 3,647,258 1,286,558 1,487,791 964,351 — 5,481,371 1,816 937,602 41,084,823 a Pre-credit derivatives credit RWA — 560,055 34,626 1,581,450 — 24,371,426 624,336 3,658,093 1,183,241 1,555,790 1,003,369 — 5,684,044 1,792 1,000,732 41,258,959 b Actual credit RWA — 560,055 34,626 1,581,450 — 24,371,130 624,336 3,658,093 1,183,241 1,555,790 1,003,369 — 5,684,044 1,792 1,000,732 41,258,663 7. RWA flow statements of credit risk exposures under IRB approach (CR8) CR8: RWA flow statements of credit risk exposures under IRB approach Item No. 1 2 3 4 5 6 7 8 9 RWA as of March 31, 2022 Breakdown of variations in the credit risk- weighted assets Asset size Asset quality Model updates Methodology and policy Acquisitions and disposals Foreign exchange movements Other RWA as of March 31, 2023 CR8: RWA flow statements of credit risk exposures under IRB approach Item No. 1 2 3 4 5 6 7 8 9 RWA as of March 31, 2021 Breakdown of variations in the credit risk- weighted assets Asset size Asset quality Model updates Methodology and policy Acquisitions and disposals Foreign exchange movements Other RWA as of March 31, 2022 (One hundred billions of yen) RWA amounts 412 16 (31) — — — 12 — 410 (One hundred billions of yen) RWA amounts 392 14 (8) — — — 13 — 412 CR9: IRB - Backtesting of PD per portfolio a b c External rating equivalent d e f Number of obligors Portfolio PD Range S&P Moody’s Fitch R&I JCR Weighted average PD (EAD weighted) Arithmetic average PD (by obligors) As of March 31, 2022 As of March 31, 2021 AAA~A+ Aaa~A1 AAA~A+ AAA~AA- AAA~AA- A+~BBB- A+~BBB- A~A- A~A- A2~A3 to BB+ BBB+~BB Baa1~Ba2 BBB+~BB to BB+ to BB+ BB-~B Ba3~B2 BB-~B to BB+ to BB+ to BB+ to B- to B3 to B- Corporates Qualifying re v o l v i n g retail Residential mortgage Other retail 0.00 to < 0.05 0.05 to < 0.10 0.10 to < 0.50 0.50 to < 2.50 2.50 to < 100.00 0.00 to < 0.05 0.05 to < 0.10 0.10 to < 0.50 0.50 to < 2.50 2.50 to < 100.00 0.00 to < 0.05 0.05 to < 0.10 0.10 to < 0.50 0.50 to < 2.50 2.50 to < 100.00 0.00 to < 0.05 0.05 to < 0.10 0.10 to < 0.50 0.50 to < 2.50 2.50 to < 100.00 0.00% 0.06% 0.21% 1.25% 10.54% — — 0.27% 1.59% 6.07% — — 0.30% 0.75% 22.85% — — 0.31% 1.28% 4.76% —— —— 0.02% 0.07% 0.22% 1.64% 18.41% 427 5,832 12,898 27,802 3,848 427 5,832 12,898 27,802 3,844 — — 0.22% 15,258,274 15,254,470 752,003 1.40% 739,258 1,524,535 6.68% 1,530,944 — — 636,976 150,845 2,269 — — 14,594 2,250,369 178,320 0.32% 13,342 1.17% 2,247,946 7.86% 178,429 628,545 144,161 2,007 0.30% 0.79% 23.78% —— —— —— —— (%, the number of data) g Number of defaulted obligors in the year h Of which: number of new defaulted obligors in the year i Average historical annual default rate (5 years) 0 1 23 102 640 — — 19,376 11,039 77,547 — — 623 489 246 — — 2 8,937 8,367 0 0 0 0 4 — — 3,837 2,095 3,086 — — 8 8 0 — — 0 111 289 0.02% 0.02% 0.12% 0.35% 11.66% — 0.08% 0.16% 0.68% 4.77% — — 0.11% 0.37% 9.60% — — 0.09% 0.46% 4.20% Notes: 1. IRB model presented in this table covers all models used within the scope of regulatory consolidation. 2. Applicable portfolios of each IRB model take into account the portfolio classification under Basel Capital Accord. “Corporates” include “Sovereign,” “Banks,” “Specialized lending,” “Equity (PD/LGD approach)” and “Purchased receivables (corporates),” and “Residential mortgage” and “Other retail” include “Purchased receivables (retail).” Therefore, the same classifications are used in this table. 3. A maximum of ten categories of obligor rating in the internal rating system are consolidated into five categories as PD categories. 4. For the external ratings associated with, external ratings equivalent to the PD of non-Japanese companies mainly are listed in the columns of S&P, Moody’s, and Fitch, and external ratings equivalent to the PD of Japanese companies mainly are listed in the columns of R&I and JCR. 5. The number of obligors of “Qualifying revolving retail,” “Residential mortgage” and “Other retail” states the number of receivables. 6. The proportion of credit risk-weighted assets subject to the IRB approach is that “Corporates” accounts for 89.19 percent, “Qualifying revolving retail” accounts for 2.94 percent, “Residential mortgage” accounts for 3.83 percent, and “Other retail” accounts for 2.49 percent. 216 SMBC GROUP ANNUAL REPORT 2023 SMBC GROUP ANNUAL REPORT 2023 217 012_0800885852308.indd 216 012_0800885852308.indd 216 2023/08/16 9:40:37 2023/08/16 9:40:37 012_0800885852308.indd 217 012_0800885852308.indd 217 2023/08/16 9:40:37 2023/08/16 9:40:37 Sumitomo Mitsui Financial Group Basel III Information Basel III Information Sumitomo Mitsui Financial Group 9. SL (Slotting Criteria Approach) and Equity Exposures (Market-Based Approach, etc.) (CR10) (Millions of yen, except percentages) CR10: IRB - SL (slotting criteria approach) and equity exposures (market- based approach, etc.) a b c As of March 31, 2023 d e SL (slotting criteria approach) Other than high-volatility commercial real estate (HVCRE) g h f i j k l On-balance sheet amount Off-balance sheet amount RW PF Exposure amount (EAD) CF OF IPRE Credit RWA amount Expected losses Total CR10: IRB - SL (slotting criteria approach) and equity exposures (market- based approach, etc.) a b c (Millions of yen, except percentages) As of March 31, 2022 d e SL (slotting criteria approach) Other than high-volatility commercial real estate (HVCRE) g h f i j k l On-balance sheet amount Off-balance sheet amount RW PF Exposure amount (EAD) CF OF IPRE Credit RWA amount Expected losses Total — 52,428 50% 52,428 — 24,249 — 70% 15,950 8,299 22,694 1,111 70% 23,205 126,803 7,836 90% 130,618 9,534 — 3,847 187,129 2,716 — — 64,093 115% 10,783 250% — 3,847 — — 236,833 HVCRE — — — — — 8,299 — — — — — — — — Remaining maturity Less than 2.5 years Equal to or more than 2.5 years Less than 2.5 years Equal to or more than 2.5 years Regulatory categories Strong Good Satisfactory Weak Default Total Less than 2.5 years Equal to or more than 2.5 years Less than 2.5 years Equal to or more than 2.5 years Strong Good Satisfactory Weak Default Total Regulatory categories Remaining maturity On-balance sheet amount Off-balance sheet amount RW 19,866 8,181 70% 6,321 6,537 95% 135,532 10,158 120% 68,118 — — 336,004 20,061 — — 68,613 140% 250% — — Equity exposures (market-based approach, etc.) Equity exposures subject to market-based approach Categories On-balance sheet amount Off-balance sheet amount RW — 300% 43,997 — 43,997 400% 129% — 75,418 30,856 287,621 393,896 Simple risk weight method –listed shares Simple risk weight method –unlisted shares Internal models approach Total Equity exposures subject to 100% risk weight Equity exposures subject to 100% risk weight pursuant to the provisions of Article 166, Paragraph 1 of the Notification No. 19 issued by the Japan Financial Service Agency in 2006 — — 52,428 26,214 — 24,249 16,974 — 23,205 16,243 — 96 92 — 130,618 117,557 1,044 — 10,783 — — 3,847 — — 245,132 12,400 — — 189,390 301 — 1,923 3,460 Exposure amount (EAD) Credit RWA amount Expected losses 23,627 16,539 9,326 8,860 94 37 142,639 171,167 570 86,689 — — 379,382 121,364 — — 429,176 2,427 — — 3,598 Exposure amount (EAD) Credit RWA amount 30,856 92,570 95,859 383,438 287,621 414,337 371,605 847,614 2,353 3,412 50% 3,924 — 25,991 3,399 70% 22,932 4,628 5,456 — 70% 5,456 105,885 16,657 90% 113,717 5,298 4,931 3,537 153,455 30,911 10,279 — 64,660 115% 36,194 9,657 250% — 3,537 — 195,420 HVCRE — — — — — 4,628 — — — — — — — — Remaining maturity Less than 2.5 years Equal to or more than 2.5 years Less than 2.5 years Equal to or more than 2.5 years Regulatory categories Strong Good Satisfactory Weak Default Total Less than 2.5 years Equal to or more than 2.5 years Less than 2.5 years Equal to or more than 2.5 years Strong Good Satisfactory Weak Default Total Regulatory categories Remaining maturity On-balance sheet amount Off-balance sheet amount RW 1,590 2,355 70% 16,119 12,349 95% 114,778 23,079 120% 72,547 — — 321,071 22,430 — — 91,736 140% 250% — — Equity exposures (market-based approach, etc.) Equity exposures subject to market-based approach Categories On-balance sheet amount Off-balance sheet amount RW — 300% 400% 61% — 21,249 122,618 143,867 67,923 86,685 509,387 663,996 Simple risk weight method –listed shares Simple risk weight method –unlisted shares Internal models approach Total Equity exposures subject to 100% risk weight Equity exposures subject to 100% risk weight pursuant to the provisions of Article 166, Paragraph 1 of the Notification No. 19 issued by the Japan Financial Service Agency in 2006 — — 3,924 1,962 — — 27,561 19,292 110 — 5,456 3,819 21 — 113,717 102,345 909 — 36,194 9,657 — — 3,537 — 200,049 41,624 24,144 — 193,188 1,013 772 1,768 4,596 Exposure amount (EAD) Credit RWA amount Expected losses 2,672 1,870 21,795 20,706 10 87 125,884 151,061 503 88,451 — — 370,918 123,832 — — 422,979 2,476 — — 3,606 Exposure amount (EAD) Credit RWA amount 86,685 260,055 77,692 310,768 632,005 796,383 389,592 960,416 106,166 23,675 95% 117,099 111,244 468 116,035 31,522 95% 132,113 125,507 528 — 100% — — — 100% — — 218 SMBC GROUP ANNUAL REPORT 2023 SMBC GROUP ANNUAL REPORT 2023 219 012_0800885852308.indd 218 012_0800885852308.indd 218 2023/08/16 9:40:38 2023/08/16 9:40:38 012_0800885852308.indd 219 012_0800885852308.indd 219 2023/08/16 9:40:38 2023/08/16 9:40:38 Sumitomo Mitsui Financial Group Basel III Information Basel III Information Sumitomo Mitsui Financial Group 10. Credit Risk-Weighted Assets under Article 145 of the Notification Exposures under Article 145 of the Notification include investments to funds. In the case of such exposures, in principle, each underlying asset of the fund is assigned an obligor grade to calculate the asset’s credit risk-weighted asset amount and the amounts are totaled to derive the credit risk-weighted asset amount of the fund. When it is difficult to calculate the credit risk-weighted asset amount of individual underlying assets, the weighted average of the risk weight of individual underlying assets is calculated, where risk weight of 250%/ 400% is applied if the result of such calculation proved to be 250%/400% or less, while 1,250% is applied otherwise. Calculation method Look-through approach Mandate-based approach Simple approach (subject to 250% risk weight) Simple approach (subject to 400% risk weight) Fall-back approach As of March 31, 2023 As of March 31, 2022 (Millions of yen) 1,056,257 — 34,357 137,691 21,408 1,337,001 — 17,839 103,262 15,163 ■ Standardised Approach 1. Scope The following consolidated subsidiaries have adopted the standardised approach for exposures as of March 31, 2023 (i.e. consolidated subsidiaries not listed in the “Internal Ratings-Based (IRB) Approach: 1. Scope” on page 204). (1) Consolidated Subsidiaries Planning to Adopt Phased Rollout of the AIRB Approach SMBC Consumer Finance Co., Ltd. (2) Consolidated Subsidiaries Planning to Adopt Phased Rollout of the FIRB Approach SMBC Nikko Securities Inc. (3) Other Consolidated Subsidiaries These are consolidated subsidiaries judged not to be significant in terms of credit risk management based on the type of business, scale, and other factors. These subsidiaries will adopt the standardised approach on a permanent basis. 2. Credit Risk-Weighted Asset Calculation Methodology A 100% risk weight is applied to claims on corporates in accordance with Article 45 of the Notification, and risk weights corresponding to country risk scores published by the Organization for Economic Co-operation and Development (OECD) are applied to claims on sovereigns and financial institutions. 3. CR Exposure and Credit Risk Mitigation (CRM) Effects (CR4) (Millions of yen, except percentages) CR4: SA – CR exposure and CRM effects As of March 31, 2023 a b c d e f Item No. 1 2 3 4 5 6 7 8 9 10 11 Asset classes Cash Government of Japan and Bank of Japan (BOJ) Foreign central governments and foreign central banks Bank for International Settlements, etc. Local governments of Japan Foreign non-central government public sector entities (PSEs) Multilateral development banks (MDBs) Japan Finance Organization for Municipalities (JFM) Government- affiliated agencies of Japan The three local public corporations Banks entities and financial instruments business operators engaged in Type I Financial Instruments Business 12 Corporates 13 14 15 SMEs and retail Residential mortgage loans Real estate acquisition activities Past due loans (three months or more),etc. (excluding residential mortgage loans) Past due loans (three months or more) (residential mortgage loans) Bills in the course of collection Guaranteed by credit guarantee associations, etc. Guaranteed by Regional Economy Vitalization Corporation of Japan (REVIC), etc. Investments, etc. (excluding significant investments) Total 16 17 18 19 20 21 22 Exposures pre-CCF and pre-CRM Exposures post-CCF and post-CRM Off-balance sheet amount — On-balance sheet amount 30,923 Off-balance sheet amount — On-balance sheet amount 30,923 3,832,051 2,212,839 10 126,273 3,965 1,392 — 96,971 — 1,216,433 906,830 1,980,133 209,296 — — — — — — — — — — — 348,485 945,356 — — 3,832,051 2,212,839 10 126,273 3,965 1,392 — 96,971 — 1,216,433 893,080 1,980,133 209,296 — Credit RWA amount RWA density 0 0 0.00% 0.00% 42,135 1.90% 0 0 0.00% 0.00% 793 20.00% 0 — 0.00% — 9,697 10.00% — — 295,453 24.28% — — — — — — — — — — 116,774 629,180 — — 1,050,444 1,956,985 73,253 — 104.01% 75.00% 35.00% — 155,899 170 155,715 170 221,261 141.93% 69 — — — — — — — — — 69 — — — — — — — — — 69 — — — — 100.00% — — — — 10,773,090 1,294,012 10,759,156 746,125 3,650,094 31.72% 220 SMBC GROUP ANNUAL REPORT 2023 SMBC GROUP ANNUAL REPORT 2023 221 012_0800885852308.indd 220 012_0800885852308.indd 220 2023/08/16 9:40:38 2023/08/16 9:40:38 012_0800885852308.indd 221 012_0800885852308.indd 221 2023/08/16 9:40:38 2023/08/16 9:40:38 Sumitomo Mitsui Financial Group Basel III Information Basel III Information Sumitomo Mitsui Financial Group (Millions of yen, except percentages) 4. CR Exposures by Asset Classes and Risk Weights (CR5) CR4: SA – CR exposure and CRM effects As of March 31, 2022 a b c d e f Exposures pre-CCF and pre-CRM Exposures post-CCF and post-CRM Off-balance sheet amount — On-balance sheet amount 27,088 Off-balance sheet amount — On-balance sheet amount 27,088 Item No. 1 2 3 4 5 6 7 8 9 10 11 Asset classes Cash Government of Japan and Bank of Japan (BOJ) Foreign central governments and foreign central banks Bank for International Settlements, etc. Local governments of Japan Foreign non-central government public sector entities (PSEs) Multilateral development banks (MDBs) Japan Finance Organization for Municipalities (JFM) Government- affiliated agencies of Japan The three local public corporations Banks entities and financial instruments business operators engaged in Type I Financial Instruments Business 12 Corporates 13 14 15 SMEs and retail Residential mortgage loans Real estate acquisition activities Past due loans (three months or more),etc. (excluding residential mortgage loans) Past due loans (three months or more) (residential mortgage loans) Bills in the course of collection Guaranteed by credit guarantee associations, etc. Guaranteed by Regional Economy Vitalization Corporation of Japan (REVIC), etc. Investments, etc. (excluding significant investments) Total 16 17 18 19 20 21 22 2,753,076 2,018,063 9 54,550 4,112 1,381 — 92,682 — 1,429,248 764,321 1,726,816 189,189 — — — — — — — — — — — 285,007 927,241 — — 2,753,076 2,018,063 9 54,550 4,112 1,381 — 92,682 — 1,429,248 762,644 1,726,816 189,189 5 Credit RWA amount RWA density 0 0 0.00% 0.00% 2,789 0.13% 0 0 0.00% 0.00% 822 20.00% 0 — 0.00% — 9,268 10.00% — — 336,063 23.51% — — — — — — — — — — 89,546 619,562 — — 874,057 1,759,784 66,216 5 102.56% 75.00% 35.00% 100.00% 129,396 226 129,167 226 185,186 143.11% 97 — — — — — — — — — 97 — — — — — — — — — 97 — — — — 100.00% — — — — 9,190,035 1,212,475 9,188,135 709,335 3,234,291 32.67% CR5: SA – CR exposures by asset classes and risk weights Item No. Asset classes Risk weight As of March 31, 2023 a b c d f CR exposure amounts (post-CCF and CRM) g h e (Millions of yen) i j k 0% 10% 20% 35% 50% 75% 100% 150% 250% 1250% Total 1 Cash 2 Government of Japan and BOJ 3 4 Foreign central governments and foreign central banks Bank for International Settlements, etc. 30,923 3,832,051 2,128,569 10 5 Local governments of Japan 126,273 6 Foreign non-central government PSEs 7 MDBs 8 JFM 9 10 11 Government- affiliated agencies of Japan The three local public corporations Banks and financial instruments business operators engaged in Type I Financial Instruments Business 12 Corporates 13 SMEs and retail 14 Residential mortgage loans 15 Real estate acquisition activities Past due loans (three months or more), etc. (excluding residential mortgage loans) Past due loans (three months or more) (residential mortgage loans) 16 17 18 Bills in the course of collection 19 20 21 Guaranteed by credit guarantee associations, etc. Guaranteed by REVIC of Japan, etc. Investments, etc. (excluding significant investments) — 1,392 — — — — 3,669 — — — — — — — — — — — — — — — — — 96,971 — — — — — — 3,965 — — — — — 1,125,692 — — — — — — — — — — — — — 84,270 — — — — — — — 40,851 — — — — — — — — — — — — — — — — — — — — — 49,889 — — — — — — — — — — 1,161 — — — — — 209,296 — — — 2,609,313 — — — — — 1,005,024 — — — — — — — — — — — — — — — 7,303 — — — — — — — — — — — 10,526 138,055 69 — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — 30,923 — 3,832,051 — 2,212,839 — — — — — — — 10 126,273 3,965 1,392 — 96,971 — — 1,216,433 — 1,009,855 — 2,609,313 209,296 — — — — 155,885 — — — — — 69 — — — — — 11,505,282 22 Total 6,122,890 96,971 1,130,818 209,296 132,425 2,609,313 1,065,510 138,055 222 SMBC GROUP ANNUAL REPORT 2023 SMBC GROUP ANNUAL REPORT 2023 223 012_0800885852308.indd 222 012_0800885852308.indd 222 2023/08/16 9:40:38 2023/08/16 9:40:38 012_0800885852308.indd 223 012_0800885852308.indd 223 2023/08/16 9:40:38 2023/08/16 9:40:38 Sumitomo Mitsui Financial Group Basel III Information Basel III Information Sumitomo Mitsui Financial Group As of March 31, 2022 a b c d f CR exposure amounts (post-CCF and CRM) g h e (Millions of yen) i j k ■ Credit Risk Mitigation (CRM) Techniques 1. Overview of Risk Characteristics, Risk Management Policy, Risk Management Procedures and Risk Management System In calculating credit risk-weighted asset amounts, we take into account credit risk mitigation (CRM) techniques. Specifically, amounts are adjusted for eligible financial or real estate collateral, guarantees, and credit derivatives. The methods and scope of these adjustments and methods of management are as follows. 0% 10% 20% 35% 50% 75% 100% 150% 250% 1250% Total CR5: SA – CR exposures by asset classes and risk weights Item No. Asset classes Risk weight 1 Cash 2 Government of Japan and BOJ 3 4 Foreign central governments and foreign central banks Bank for International Settlements, etc. 27,088 2,753,076 2,012,483 9 5 Local governments of Japan 54,550 6 Foreign non-central government PSEs 7 MDBs 8 JFM 9 11 10 Government- affiliated agencies of Japan The three local public corporations Banks and financial instruments business operators engaged in Type I Financial Instruments Business 12 Corporates 13 SMEs and retail 14 Residential mortgage loans 15 Real estate acquisition activities Past due loans (three months or more), etc. (excluding residential mortgage loans) Past due loans (three months or more) (residential mortgage loans) 16 17 18 Bills in the course of collection 19 20 21 Guaranteed by credit guarantee associations, etc. Guaranteed by REVIC of Japan, etc. Investments, etc. (excluding significant investments) — 1,381 — — — — 2,073 — — — 32 — — — — — — — — — — — — — 92,682 — — — — — — 4,112 — — — — — — — — — — — — — — — — 5,579 — — — — — — — — — — — — — — — — — — — — — — — — — — — — 1,332,961 — 53,631 — 42,655 — 3,953 — — — 189,189 — — — — 2,346,378 — — — — — 846,164 — — 5 — — — — — — — — — — — — — — — — — — — — — — — — — — — 8,716 — — — — — — — — — — — 277 120,366 97 — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — 27,088 — 2,753,076 — 2,018,063 — — — — — — — 9 54,550 4,112 1,381 — 92,682 — — 1,429,248 — 852,191 — 2,346,378 — 189,189 5 — — 129,393 — — — — — 97 — — — — — 9,897,470 22 Total 4,850,697 92,682 1,341,026 189,189 67,927 2,346,378 889,200 120,366 Note: As the sum of the respective risk weight of the original obligor and the original obligee are applied for the risk weight for loan participation transactions by a bank adopting the SA, the credit RWA amount calculated by summing up the exposure amount multiplied by the corresponding risk weights in the above table does not match with the credit RWA amount shown in column e of CR4 (SA-CR exposure and CRM effects). (1) Scope and Management A. Collateral (Eligible Financial or Real Estate Collateral) SMBC designates deposits and securities as eligible financial collateral, and land and buildings as eligible real estate collateral. Real estate collateral is evaluated by taking into account its fair value, appraisal value, and current condition, as well as our lien position. Real estate collateral must maintain sufficient collateral value in the event security rights must be exercised due to delinquency. However, during the period from acquiring the rights to exercising the rights, the property may deteriorate or suffer damage from earthquakes or other natural disasters, or there may be changes in the lien position due to, for example, attachment or establishment of liens by a third party. Therefore, the regular monitoring of collateral is implemented according to the type of property and the type of security interest. B. Guarantees and Credit Derivatives Guarantors are sovereigns, municipal corporations, credit guarantee corporations and other public entities, financial institutions, and C&I companies. Counterparties to credit derivative transactions are mostly domestic and overseas banks and securities companies. Credit risk-weighted asset amounts are calculated taking into account credit risk mitigation of guarantees and credit derivatives acquired from entities with sufficient ability to provide protection such as sovereigns, municipal corporations and other public sector entities of comparable credit quality, and financial institutions and C&I companies with sufficient credit ratings. (2) Concentration of Credit Risk and Market Risk under Credit Risk Mitigation Techniques There is a framework in place for controlling concentration of risk in obligors with large exposures which includes large exposure limit lines, risk concentration monitoring, and reporting to the Credit Risk Committee (please refer to pages 153 to 158). Further, exposures to these obligors are monitored on a group basis, taking into account risk concentration in their parent companies in cases that exposures to the obligors are guaranteed by the parent companies for risk mitigation. In addition, when marketable financial products (for example, credit derivatives) are used as credit risk mitigants, market risk generated by these products is controlled by setting upper limits. As credit risk mitigation techniques, eligible real estate collateral and guarantees have shown a certain effect. 2. Credit Risk Mitigation Techniques (CR3) CR3: CRM techniques Item No. a b As of March 31, 2023 c Exposures unsecured Exposures secured Exposures secured by collateral (Millions of yen) d Exposures secured by financial guarantees e Exposures secured by credit derivatives 1 2 3 4 5 Loans Securities (of which: Debt securities) Other on-balance sheet assets (of which: debt-based assets) Total (1+2+3) Of which: defaulted 66,405,972 29,856,764 13,274,199 10,516,994 32,138 24,985,159 389,260 134,580 10,685 85,006,276 383,866 11,101 259,468 176,397,408 814,442 30,629,891 250,429 13,419,881 83,170 10,787,148 46,275 — — 32,138 — 224 SMBC GROUP ANNUAL REPORT 2023 SMBC GROUP ANNUAL REPORT 2023 225 012_0800885852308.indd 224 012_0800885852308.indd 224 2023/08/16 9:40:38 2023/08/16 9:40:38 012_0800885852308.indd 225 012_0800885852308.indd 225 2023/08/16 9:40:38 2023/08/16 9:40:38 Sumitomo Mitsui Financial Group Basel III Information Basel III Information Sumitomo Mitsui Financial Group CR3: CRM techniques Item No. a b As of March 31, 2022 c Exposures unsecured Exposures secured Exposures secured by collateral (Millions of yen) d Exposures secured by financial guarantees e Exposures secured by credit derivatives 1 2 3 4 5 Loans Securities (of which: Debt securities) Other on-balance sheet assets (of which: debt-based assets) Total (1+2+3) Of which: defaulted 60,030,223 29,406,799 13,027,563 10,461,219 17,845 30,046,627 499,766 163,865 21,749 81,729,726 344,821 6,750 295,726 171,806,576 912,770 30,251,386 240,510 13,198,178 93,617 10,778,695 43,855 — — 17,845 — ■ Counterparty Credit Risk 1. Overview of Risk Characteristics Counterparty credit risk is actualized when counterparties become default in a condition where derivative transactions, etc. have a positive value, and risks fluctuate according to the credit quality of counterparties and related market indicators. 2. Risk Management Policy and Procedures (1) Risk Management Policy For counterparty credit risks, credit limits are set according to the frameworks of credit management in each SMBC Group company. For transactions with CCP, credit risks are managed after validating the financial base and the default management process, etc. (2) Policy on Collateral Security and Impact of Deterioration of Our Credit Quality Collateralized derivative is a CRM technique in which collateral is delivered or received regularly in accordance with replacement cost. The Group conducts collateralized derivative transactions as necessary, thereby reducing credit risk. In the event our credit quality deteriorates, however, the counterparty may demand additional collateral, but its impact is deemed to be insignificant. (3) Netting Netting is another CRM technique, and “close-out netting” is the main type of netting. In close-out netting, when a default event, such as bankruptcy, occurs to the counterparty, all claims against, and obligations to, the counterparty, regardless of maturity and currency, are netted out to create a single claim or obligation. Close-out netting is applied to foreign exchange and swap transactions covered under a master agreement with a net-out clause or other means of securing legal effectiveness, and the effect of CRM is taken into account only for such claims and obligations. 3. Amount of Counter Party Credit Risk (CCR) Exposure by Approach (CCR1) CCR1: Amount of CCR exposure by approach Item No. 1 2 3 4 5 6 SA-CCR CEM Expected exposure method (IMM) Simple approach for CRM Comprehensive approach for CRM Exposure fluctuation estimation model Total CCR1: Amount of CCR exposure by approach Item No. 1 2 3 4 5 6 SA-CCR CEM Expected exposure method (IMM) Simple approach for CRM Comprehensive approach for CRM Exposure fluctuation estimation model Total As of March 31, 2023 a Replacement cost b PFE c Effective EPE (EEPE) — 2,402,391 — 3,857,731 d Alpha used for computing regulatory EAD 1.4 — — As of March 31, 2022 a Replacement cost b PFE c Effective EPE (EEPE) — 2,971,841 — 3,002,516 d Alpha used for computing regulatory EAD 1.4 — — (Millions of yen) f RWA — 1,503,981 — — 864,450 e EAD post- CRM — 6,260,123 — — 8,324,288 — — 2,368,432 (Millions of yen) e EAD post- CRM — 5,974,358 — — 6,735,277 f RWA — 1,535,455 — — 839,486 — — 2,374,942 226 SMBC GROUP ANNUAL REPORT 2023 SMBC GROUP ANNUAL REPORT 2023 227 012_0800885852308.indd 226 012_0800885852308.indd 226 2023/08/16 9:40:38 2023/08/16 9:40:38 012_0800885852308.indd 227 012_0800885852308.indd 227 2023/08/16 9:40:38 2023/08/16 9:40:38 Sumitomo Mitsui Financial Group Basel III Information Basel III Information Sumitomo Mitsui Financial Group 4. CVA Capital Charge (CCR2) CCR2: CVA risk capital charge As of March 31, 2023 As of March 31, 2022 (Millions of yen) a EAD post- CRM Total portfolios subject to the advanced CVA capital charge — (i) VaR component (including the 3×multiplier) (ii) Stressed VaR component (including the 3×multiplier) Total portfolios subject to the standardised CVA capital charge Total subject to the CVA capital charge 5,735,518 5,735,518 b RWA (Amount calculated by dividing CVA capital charge by 8%) — — — 2,594,370 2,594,370 a EAD post- CRM — 5,439,583 5,439,583 b RWA (Amount calculated by dividing CVA capital charge by 8%) — — — 2,567,540 2,567,540 Item No. 1 2 3 4 5 5. CCR Exposures by Regulatory Portfolio and Risk Weights (CCR3) CCR3: CCR exposures by regulatory portfolio and risk weights Item No. Risk weight 1 2 3 Regulatory porfolio Government of Japan and BOJ Foreign central governments and foreign central banks Bank for International Settlements, etc. Local governments of Japan Foreign non-central government PSEs 6 MDBs 7 4 5 JFM Government- affiliated agencies of Japan The three local public corporations Banks and financial instruments business operators engaged in Type I Financial Instruments Business 8 9 10 11 Corporates 12 SMEs and retail 13 Other than the above 14 Total As of March 31, 2023 a b c d e Credit equivalent amounts (post-CRM) f (Millions of yen) g h i 8 9 10 11 Corporates SMEs and retail 12 13 Other than the above 14 Total 0% 10% 20% 50% 75% 100% 150% Others Total 191,331 — — 1,057 — — — — — — — — — 192,389 — — — — — — — — — — — — — — — — — — — 419,720 — — — — — — — 419,720 — — — — — — — — — 227 — — — 227 — — — — — — — — — — — — — — — — — — — — — 511,671 — 72,721 584,393 72,229 — 72,229 — — — — — — — — — — — — — — — 191,331 — — — — — — — — — — 1,057 — — — — — — 419,947 — 511,671 72,229 — 72,721 — — 1,268,959 CCR3: CCR exposures by regulatory portfolio and risk weights Item No. Risk weight 1 2 3 Regulatory porfolio Government of Japan and BOJ Foreign central governments and foreign central banks Bank for International Settlements, etc. Local governments of Japan Foreign non-central government PSEs 6 MDBs 7 5 4 JFM Government- affiliated agencies of Japan The three local public corporations Banks and financial instruments business operators engaged in Type I Financial Instruments Business As of March 31, 2022 a b c d e Credit equivalent amounts (post-CRM) f (Millions of yen) g h i 0% 10% 20% 50% 75% 100% 150% Others Total 34,480 — — 1,104 — — — — — — — — — 35,584 — — — — — — — — — — — — — — — — — — — 827,290 — — — — — — — 827,290 — — — — — — — — — 322 — — — 322 — — — — — — — — — — — — — — — — — — — — — 567,905 — 83,122 651,027 79,383 — 79,383 — — — — — — — — — — — — — — — — — — — — — — — 34,480 — — 1,104 — — — — — — 827,613 — 567,905 79,383 — — 83,122 — 1,593,609 228 SMBC GROUP ANNUAL REPORT 2023 SMBC GROUP ANNUAL REPORT 2023 229 012_0800885852308.indd 228 012_0800885852308.indd 228 2023/08/16 9:40:38 2023/08/16 9:40:38 012_0800885852308.indd 229 012_0800885852308.indd 229 2023/08/16 9:40:38 2023/08/16 9:40:38 Sumitomo Mitsui Financial Group Basel III Information Basel III Information Sumitomo Mitsui Financial Group 6. IRB Approach – CCR Exposures by Portfolio and PD Scale (CCR4) (Millions of yen, %, the number of data in thousands, years) CCR4: IRB - CCR exposures by portfolio and PD scale As of March 31, 2023 CCR4: IRB - CCR exposures by portfolio and PD scale As of March 31, 2023 (Millions of yen, %, the number of data in thousands, years) a b c EAD post- CRM Average PD (%) Number of obligors d Average LGD (%) e f g Average maturity Credit RWA RWA density (%) a b c EAD post- CRM Average PD (%) Number of obligors d Average LGD (%) e f g Average maturity Credit RWA RWA density (%) Item No. PD scale Corporate exposures (AIRB approach) 773,434 148,880 3 2,858 — — — — 925,176 — — — — — — — — — 6,386,190 847,877 1,783 — 90,487 — — — 7,326,339 — — — — — — — — — 0.00 0.15 0.48 0.74 — — — — 0.02 — — — — — — — — — 0.03 0.15 0.37 — 1.38 — — — 0.06 — — — — — — — — — 0.3 0.0 0.0 0.0 0.0 — — — 0.4 — — — — — — — — — 28.5 2.2 0.0 0.0 0.3 0.0 — — 31.2 — — — — — — — — — 9.66 10.84 35.00 1.00 — — — — 9.83 — — — — — — — — — 20.72 11.53 32.98 — 5.46 — — — 19.47 — — — — — — — — — 1.5 0.5 1.0 3.2 — — — — 1.4 — — — — — — — — — 1.8 1.3 2.3 — 0.2 — — — 1.7 — — — — — — — — — 549 7,079 1 75 — — — — 7,706 — — — — — — — — — 617,464 136,054 848 — 11,447 — — — 765,815 — — — — — — — — — 0.07 4.75 39.67 2.64 — — — — 0.83 — — — — — — — — — 9.66 16.04 47.58 — 12.65 — — — 10.45 — — — — — — — — — 1 2 3 4 5 6 7 8 9 0.00 to <0.15 0.15 to <0.25 0.25 to <0.50 0.50 to <0.75 0.75 to <2.50 2.50 to <10.00 10.00 to <100.00 100.00 (Default) Subtotal Corporate exposures (FIRB approach) 1 2 3 4 5 6 7 8 9 0.00 to <0.15 0.15 to <0.25 0.25 to <0.50 0.50 to <0.75 0.75 to <2.50 2.50 to <10.00 10.00 to <100.00 100.00 (Default) Subtotal 3,117,081 1,192,759 208,887 6,711 125,219 21,694 2,453 107 4,674,915 — — — — — — — — — Mid-sized corporations and SMEs exposures (AIRB approach) 1 2 3 4 5 6 7 8 9 0.00 to <0.15 0.15 to <0.25 0.25 to <0.50 0.50 to <0.75 0.75 to <2.50 2.50 to <10.00 10.00 to <100.00 100.00 (Default) Subtotal 11,391 18,354 19,723 4,114 3,499 639 42 58 57,822 Mid-sized corporations and SMEs exposures (FIRB approach) 1 2 3 4 5 6 7 8 9 0.00 to <0.15 0.15 to <0.25 0.25 to <0.50 0.50 to <0.75 0.75 to <2.50 2.50 to <10.00 10.00 to <100.00 100.00 (Default) Subtotal — — — — — — — — — 0.04 0.15 0.36 0.74 1.21 8.35 23.15 100.00 0.17 — — — — — — — — — 0.07 0.16 0.35 0.74 1.92 8.95 23.81 100.00 0.57 — — — — — — — — — 51.0 24.8 14.2 1.1 2.9 0.9 0.0 0.0 95.3 — — — — — — — — — 1.8 4.1 4.1 0.9 3.4 0.1 0.0 0.0 14.9 — — — — — — — — — 17.48 23.69 32.72 35.00 31.14 34.26 33.86 51.66 20.22 — — — — — — — — — 33.90 32.84 34.72 35.00 34.83 35.02 35.00 46.13 34.00 — — — — — — — — — 1.5 2.2 2.7 2.6 1.9 2.2 1.3 1.7 1.7 — — — — — — — — — 3.5 3.6 3.7 2.8 2.6 4.0 3.4 3.5 3.5 — — — — — — — — — 232,383 292,501 101,593 4,469 83,831 29,565 4,281 40 748,666 — — — — — — — — — 2,679 5,988 9,835 2,478 2,554 908 72 7 24,525 — — — — — — — — — 7.45 24.52 48.63 66.58 66.94 136.28 174.46 37.57 16.01 — — — — — — — — — 23.52 32.62 49.86 60.24 73.01 141.98 170.95 13.63 42.41 — — — — — — — — — Item No. PD scale Sovereign exposures (AIRB approach) 1 2 3 4 5 6 7 8 9 0.00 to <0.15 0.15 to <0.25 0.25 to <0.50 0.50 to <0.75 0.75 to <2.50 2.50 to <10.00 10.00 to <100.00 100.00 (Default) Subtotal Sovereign exposures (FIRB approach) 1 2 3 4 5 6 7 8 9 0.00 to <0.15 0.15 to <0.25 0.25 to <0.50 0.50 to <0.75 0.75 to <2.50 2.50 to <10.00 10.00 to <100.00 100.00 (Default) Subtotal Bank exposures (AIRB approach) 1 2 3 4 5 6 7 8 9 0.00 to <0.15 0.15 to <0.25 0.25 to <0.50 0.50 to <0.75 0.75 to <2.50 2.50 to <10.00 10.00 to <100.00 100.00 (Default) Subtotal Bank exposures (FIRB approach) 1 2 3 4 5 6 7 8 9 0.00 to <0.15 0.15 to <0.25 0.25 to <0.50 0.50 to <0.75 0.75 to <2.50 2.50 to <10.00 10.00 to <100.00 100.00 (Default) Subtotal 230 SMBC GROUP ANNUAL REPORT 2023 SMBC GROUP ANNUAL REPORT 2023 231 012_0800885852308.indd 230 012_0800885852308.indd 230 2023/08/16 9:40:38 2023/08/16 9:40:38 012_0800885852308.indd 231 012_0800885852308.indd 231 2023/08/16 9:40:38 2023/08/16 9:40:38 Sumitomo Mitsui Financial Group Basel III Information Basel III Information Sumitomo Mitsui Financial Group CCR4: IRB - CCR exposures by portfolio and PD scale As of March 31, 2023 CCR4: IRB - CCR exposures by portfolio and PD scale As of March 31, 2022 (Millions of yen, %, the number of data in thousands, years) (Millions of yen, %, the number of data in thousands, years) PD scale Item No. SL 1 2 3 4 5 6 7 8 9 0.00 to <0.15 0.15 to <0.25 0.25 to <0.50 0.50 to <0.75 0.75 to <2.50 2.50 to <10.00 10.00 to <100.00 100.00 (Default) Subtotal Equity exposures 1 2 3 4 5 6 7 8 9 0.00 to <0.15 0.15 to <0.25 0.25 to <0.50 0.50 to <0.75 0.75 to <2.50 2.50 to <10.00 10.00 to <100.00 100.00 (Default) Subtotal Other retail exposures 0.00 to <0.15 0.15 to <0.25 0.25 to <0.50 0.50 to <0.75 0.75 to <2.50 2.50 to <10.00 10.00 to <100.00 100.00 (Default) Subtotal Total (sum of portfolios) 1 2 3 4 5 6 7 8 9 a b c EAD post- CRM Average PD (%) Number of counterparties d Average LGD (%) e f g Average maturity Credit RWA RWA density (%) 33,872 145,048 104,682 — 40,458 4,389 2,130 617 331,198 0.04 0.15 0.35 — 1.09 4.11 15.79 100.00 0.66 — — — — — — — — — — — — — — — — — — 13,315,452 — — — — — — — — — — — — — — — — — — 0.11 0.1 0.5 2.0 — 0.2 0.0 0.0 0.0 3.1 — — — — — — — — — — — — — — — — — — 145.1 7.95 16.75 17.73 — 16.00 51.49 48.37 54.77 16.80 — — — — — — — — — — — — — — — — — — 19.06 4.7 4.7 4.7 — 4.4 4.9 4.8 4.9 4.7 — — — — — — — — — 1.8 2,760 31,162 33,735 — 16,929 8,576 5,644 287 99,096 — — — — — — — — — — — — — — — — — — 1,645,809 8.14 21.48 32.22 — 41.84 195.38 264.99 46.63 29.92 — — — — — — — — — — — — — — — — — — 12.36 Item No. PD scale Sovereign exposures (AIRB approach) 1 2 3 4 5 6 7 8 9 0.00 to <0.15 0.15 to <0.25 0.25 to <0.50 0.50 to <0.75 0.75 to <2.50 2.50 to <10.00 10.00 to <100.00 100.00 (Default) Subtotal Sovereign exposures (FIRB approach) 1 2 3 4 5 6 7 8 9 0.00 to <0.15 0.15 to <0.25 0.25 to <0.50 0.50 to <0.75 0.75 to <2.50 2.50 to <10.00 10.00 to <100.00 100.00 (Default) Subtotal Bank exposures (AIRB approach) 1 2 3 4 5 6 7 8 9 0.00 to <0.15 0.15 to <0.25 0.25 to <0.50 0.50 to <0.75 0.75 to <2.50 2.50 to <10.00 10.00 to <100.00 100.00 (Default) Subtotal Bank exposures (FIRB approach) 1 2 3 4 5 6 7 8 9 0.00 to <0.15 0.15 to <0.25 0.25 to <0.50 0.50 to <0.75 0.75 to <2.50 2.50 to <10.00 10.00 to <100.00 100.00 (Default) Subtotal a b c EAD post- CRM Average PD (%) Number of obligors d Average LGD (%) e f g Average maturity Credit RWA RWA density (%) 327,300 62,469 1,339 3 11,306 — — — 402,420 — — — — — — — — — 6,342,965 820,555 935 — 45,988 0 — — 7,210,443 — — — — — — — — — 0.00 0.15 0.26 0.50 2.27 — — — 0.09 — — — — — — — — — 0.04 0.15 0.31 — 1.67 4.09 — — 0.06 — — — — — — — — — 0.4 0.0 0.0 0.0 0.0 — — — 0.5 — — — — — — — — — 23.5 3.3 0.1 — 0.2 0.0 — — 27.3 — — — — — — — — — 10.14 33.13 1.07 35.00 1.02 — — — 13.42 — — — — — — — — — 17.65 18.53 35.26 — 5.33 35.00 — — 17.68 — — — — — — — — — 1.3 0.3 4.7 1.0 1.0 — — — 1.1 — — — — — — — — — 1.1 1.4 1.8 — 0.2 1.0 — — 1.2 — — — — — — — — — 618 8,360 30 1 316 — — — 9,327 — — — — — — — — — 430,467 163,213 378 — 5,620 0 — — 599,679 — — — — — — — — — 0.18 13.38 2.24 40.57 2.80 — — — 2.31 — — — — — — — — — 6.78 19.89 40.42 — 12.22 114.94 — — 8.31 — — — — — — — — — 232 SMBC GROUP ANNUAL REPORT 2023 SMBC GROUP ANNUAL REPORT 2023 233 012_0800885852308.indd 232 012_0800885852308.indd 232 2023/08/16 9:40:39 2023/08/16 9:40:39 012_0800885852308.indd 233 012_0800885852308.indd 233 2023/08/16 9:40:39 2023/08/16 9:40:39 Sumitomo Mitsui Financial Group Basel III Information Basel III Information Sumitomo Mitsui Financial Group CCR4: IRB - CCR exposures by portfolio and PD scale As of March 31, 2022 CCR4: IRB - CCR exposures by portfolio and PD scale As of March 31, 2022 (Millions of yen, %, the number of data in thousands, years) (Millions of yen, %, the number of data in thousands, years) a b c EAD post- CRM Average PD (%) Number of obligors d Average LGD (%) e f g Average maturity Credit RWA RWA density (%) Item No. PD scale Corporate exposures (AIRB approach) 1 2 3 4 5 6 7 8 9 0.00 to <0.15 0.15 to <0.25 0.25 to <0.50 0.50 to <0.75 0.75 to <2.50 2.50 to <10.00 10.00 to <100.00 100.00 (Default) Subtotal Corporate exposures (FIRB approach) 1 2 3 4 5 6 7 8 9 0.00 to <0.15 0.15 to <0.25 0.25 to <0.50 0.50 to <0.75 0.75 to <2.50 2.50 to <10.00 10.00 to <100.00 100.00 (Default) Subtotal 1,805,759 886,930 107,310 4,852 163,236 10,679 2,877 2,143 2,983,789 — — — — — — — — — Mid-sized corporations and SMEs exposures (AIRB approach) 1 2 3 4 5 6 7 8 9 0.00 to <0.15 0.15 to <0.25 0.25 to <0.50 0.50 to <0.75 0.75 to <2.50 2.50 to <10.00 10.00 to <100.00 100.00 (Default) Subtotal 55,759 6,542 4,158 3,890 6,187 521 13 189 77,261 Mid-sized corporations and SMEs exposures (FIRB approach) 1 2 3 4 5 6 7 8 9 0.00 to <0.15 0.15 to <0.25 0.25 to <0.50 0.50 to <0.75 0.75 to <2.50 2.50 to <10.00 10.00 to <100.00 100.00 (Default) Subtotal — — — — — — — — — 0.05 0.15 0.35 0.50 1.09 5.21 20.10 100.00 0.26 — — — — — — — — — 0.08 0.16 0.26 0.50 1.37 8.90 24.89 100.00 0.53 — — — — — — — — — 50.9 22.8 8.2 1.6 4.3 0.5 0.1 0.0 88.8 — — — — — — — — — 1.9 3.9 1.8 1.6 3.3 0.1 0.0 0.0 13.0 — — — — — — — — — 22.14 31.10 34.66 32.42 33.86 33.18 33.98 38.89 25.97 — — — — — — — — — 12.35 34.79 34.85 33.87 34.98 33.94 35.00 64.70 18.63 — — — — — — — — — 1.6 3.3 3.1 3.2 1.9 2.0 2.0 1.6 2.2 — — — — — — — — — 0.3 3.5 3.7 3.8 4.0 4.1 2.3 4.6 1.2 — — — — — — — — — 185,308 310,565 62,943 2,819 113,684 12,413 4,974 556 693,265 — — — — — — — — — 2,779 2,191 1,795 2,285 4,747 680 20 24 14,525 — — — — — — — — — 10.26 35.01 58.65 58.10 69.64 116.23 172.88 25.96 23.23 — — — — — — — — — 4.98 33.49 43.16 58.74 76.72 130.46 158.51 13.13 18.80 — — — — — — — — — PD scale Item No. SL 1 2 3 4 5 6 7 8 9 0.00 to <0.15 0.15 to <0.25 0.25 to <0.50 0.50 to <0.75 0.75 to <2.50 2.50 to <10.00 10.00 to <100.00 100.00 (Default) Subtotal Equity exposures 1 2 3 4 5 6 7 8 9 0.00 to <0.15 0.15 to <0.25 0.25 to <0.50 0.50 to <0.75 0.75 to <2.50 2.50 to <10.00 10.00 to <100.00 100.00 (Default) Subtotal Other retail exposures 0.00 to <0.15 0.15 to <0.25 0.25 to <0.50 0.50 to <0.75 0.75 to <2.50 2.50 to <10.00 10.00 to <100.00 100.00 (Default) Subtotal Total (sum of portfolios) 1 2 3 4 5 6 7 8 9 a b c EAD post- CRM Average PD (%) Number of counterparties d Average LGD (%) e f g Average maturity Credit RWA RWA density (%) 70,018 192,568 101,573 197 56,622 13,712 7,055 361 442,110 0.04 0.15 0.35 0.50 1.14 4.09 14.31 100.00 0.74 — — — — — — — — — — — — — — — — — — 11,116,026 — — — — — — — — — — — — — — — — — — 0.14 0.2 0.5 1.9 0.0 0.2 0.1 0.0 0.0 3.1 — — — — — — — — — — — — — — — — — — 132.9 17.83 21.84 20.99 35.00 24.47 47.74 42.75 40.62 22.50 — — — — — — — — — — — — — — — — — — 19.95 4.6 4.7 4.7 1.4 4.7 4.7 4.7 4.8 4.7 — — — — — — — — — 1.6 10,311 54,132 38,062 87 38,379 24,639 16,206 140 181,960 — — — — — — — — — — — — — — — — — — 1,498,757 14.72 28.11 37.47 44.36 67.78 179.69 229.72 38.88 41.15 — — — — — — — — — — — — — — — — — — 13.48 234 SMBC GROUP ANNUAL REPORT 2023 SMBC GROUP ANNUAL REPORT 2023 235 012_0800885852308.indd 234 012_0800885852308.indd 234 2023/08/16 9:40:39 2023/08/16 9:40:39 012_0800885852308.indd 235 012_0800885852308.indd 235 2023/08/16 9:40:39 2023/08/16 9:40:39 Sumitomo Mitsui Financial Group Basel III Information Basel III Information Sumitomo Mitsui Financial Group 7. Composition of Collateral for CCR Exposure (CCR5) 9. RWA flow statements of CCR exposures under the Expected exposure method (IMM) (CCR7) (Millions of yen) Not applicable. 10. Exposures to Central Counterparties (CCR8) CCR8: Exposures to central counterparties (CCP) Item No. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Exposures to qualifying central counterparties (QCCPs) (total) Exposures for trades at QCCPs (excluding initial margin and default fund contributions); of which (i) OTC derivatives (ii) Exchange-traded derivatives (iii) SFTs (iv) Netting sets where cross-product netting has been approved Segregated initial margin Non-segregated initial margin Pre-funded default fund contributions Unfunded default fund contributions Exposures to non-QCCPs (total) Exposures for trades at non-QCCPs (excluding initial margin and default fund contributions); of which (i) OTC derivatives (ii) Exchange-traded derivatives (iii) SFTs (iv) Netting sets where cross-product netting has been approved Segregated initial margin Non-segregated initial margin Pre-funded default fund contributions Unfunded default fund contributions (Millions of yen) As of March 31, 2023 As of March 31, 2022 a EAD to CCP (post-CRM) b RWA a EAD to CCP (post-CRM) b RWA 158,031 129,483 3,784,452 75,696 2,908,794 3,075,359 666,754 42,338 — — 381,938 202,805 — 517,076 394,002 106,782 16,290 — — 3 — — 61,507 13,341 846 — 7,638 74,696 — 126,714 126,710 88,186 22,233 16,290 — 3 — — 2,433,329 432,718 42,746 — — 265,354 189,627 — 20,187 6,906 13,280 — — — 0 — — 58,301 48,666 8,779 854 — 5,307 65,875 — 14,666 14,666 6,906 7,759 — — 0 — — CCR5: Composition of collateral for CCR exposure As of March 31, 2023 Item No. 1 2 3 4 5 6 7 8 9 Cash (domestic currency) Cash (other currencies) Domestic sovereign debt Other sovereign debt Government agency debt Corporate bonds Equity securities Other collateral Total a b c d e f Collateral used in derivative transactions Fair value of collateral received Fair value of posted collateral Segregated Unsegregated Segregated Unsegregated Collateral used in securities financing transactions (SFTs) Fair value of Fair value of posted collateral collateral received 12,837 103 292 992 6 5,576 5,939 — 25,748 230,100 632,101 52,392 183,265 — — — — 1,097,859 — — — — — — — — — 171,595 474,897 125,658 72,289 — — — — 844,441 6,123,681 5,054,287 4,169,561 2,789,246 521,855 5,929,154 2,150,791 — 26,738,578 8,235,330 6,599,823 6,472,875 3,974,426 19,854 474,996 804,390 — 26,581,697 (Millions of yen) CCR5: Composition of collateral for CCR exposure As of March 31, 2022 a b c d e f Item No. 1 2 3 4 5 6 7 8 9 Cash (domestic currency) Cash (other currencies) Domestic sovereign debt Other sovereign debt Government agency debt Corporate bonds Equity securities Other collateral Total Collateral used in derivative transactions Fair value of collateral received Fair value of posted collateral Segregated Unsegregated Segregated Unsegregated 11,720 41 1,130 1,163 158 5,284 4,687 — 24,187 58,864 262,432 179,495 72,162 — — — — 572,954 — — — — — — — — — 615,276 480,909 1,707 — — — — — 1,097,893 Collateral used in securities financing transactions (SFTs) Fair value of Fair value of posted collateral collateral received 8,937,625 5,591,725 6,088,798 2,232,531 891,860 94,588 3,038,195 5,148 26,880,472 9,712,771 1,998,023 9,647,647 5,031,358 25,207 210,256 1,743,593 — 28,368,859 8. Credit Derivative Transaction Exposures (CCR6) CCR6: Credit derivative transaction exposures Item No. Notionals 1 2 3 4 5 6 Single-name credit default swaps Index credit default swaps Total return swaps Credit options Other credit derivatives Total notionals Fair values 7 8 Positive fair value (asset) Negative fair value (liability) (Millions of yen) As of March 31, 2023 As of March 31, 2022 a Protection bought b Protection sold a Protection bought b Protection sold 400,301 845,493 — 120,186 — 1,365,980 608,659 748,559 — — — 1,357,219 465,905 910,056 — 85,687 — 1,461,648 601,039 625,379 — — — 1,226,418 4,724 12,923 12,718 10,094 11,197 246,617 164,206 14,229 236 SMBC GROUP ANNUAL REPORT 2023 SMBC GROUP ANNUAL REPORT 2023 237 012_0800885852308.indd 236 012_0800885852308.indd 236 2023/08/16 9:40:39 2023/08/16 9:40:39 012_0800885852308.indd 237 012_0800885852308.indd 237 2023/08/16 9:40:39 2023/08/16 9:40:39 Sumitomo Mitsui Financial Group Basel III Information Basel III Information Sumitomo Mitsui Financial Group ■ Securitisation Transactions 1. Overview of Risk Characteristics Securitisation exposures have, in addition to credit risk and market risk, the following intrinsic risks, which are properly managed based on the nature of each risk. (1) Dilution Risk Means the risk of a decrease in purchased receivables due to cancellation or termination of the original contract for the purchased receiv- ables, or netting of debts between the original obligor and the original obligee. (2) Servicer Risk A. Commingling Risk Means the risk of uncollectible funds, which should be collected from the underlying assets, due to the bankruptcy of the servicer before the delivery of the funds collected from the obligor of the receivables. B. Performance Risk Means the risk of difficulty in maintenance and collection due to the servicer’s failure to properly and accurately perform its clerical duties and procedures. (3) Liquidity Risk Means the risk that cash flows related to the underlying assets may be insufficient for paying the principal and interest of the securitisa- tion exposure due to a timing mismatch between the securitisation conduit’s receipt of the cash flows related to the underlying assets and payment of the securitisation exposure of the principal and interest, etc. (4) Fraud Risk Means the risk of a decrease in or complete loss of the receivables subject to collection due to a fraud, prejudicial or other malicious act by a customer or a third-party obligor. 2. Overview of Risk Management Policy and Procedures Definition of securitisation exposure has been clarified in order to properly identify, measure, evaluate and report risks, and a risk management department, independent of business units, has been established to centrally manage risks from recognizing securitisation exposures to measuring, evaluating and reporting risks. Securitisation transactions are subject to the following policies. • Undertake those which allow separate assessment of underlying short-term assets by making credit decisions on individual underlying assets. • Undertake those which cover short-term receivables, etc., by creating a framework mainly to estimate the default rate of the underlying assets based on the historical loan-loss ratio and ensure that they have sufficient subordination. • Undertake others such as those requiring special management by implementing additional management, such as an analysis of the market environment. Particularly, with respect to securitisation transactions backed by retail loans whose creditworthiness is relatively inferior, such as subprime loans in the U.S., the Group deals only with transactions that are sufficiently structured by taking into account not only the above policies, but others such as the underlying asset selection criteria of the originator and the average life. The Group shall basically not conduct resecuritisation transactions. Its policy is to conduct securitisation transactions by verifying effectiveness in mitigating credit risk through the use of the asset transfer type or synthetic type securitisation transactions covering domestic and foreign exposures and using them as underlying exposures if securitisation transactions are used as an approach for credit risk mitigation. The Group takes one of the following positions for securitisation transactions. • Originator (a direct or indirect originator of underlying assets or a sponsor of an ABCP conduit or a similar program that acquires exposures from third-party entities) • Investor • Others (for example, provider of swap for preventing a mismatch between the dividend on trust beneficiary rights and cash flows generated by underlying assets on which the rights are issued) 3. Name of Securitisation Conduit and Whether or Not It Possesses Securitisation Exposure Related to Securitisation Transactions, as well as Names of Subsidiaries and Affiliated Companies of us Which Hold Securitisation Exposures Related to Securitisation Transactions Conducted by us and we Engage in the Management of the Company or Provides Advice In order to undertake securitisation transactions related to third-party assets, the Group mainly uses a special purpose company (SPC) as a securitisation conduit. • Manhattan Asset Funding Company LLC • Chelsea Capital Corporation • Forest Corporation • Spur Funding Corporation • Deccan Funding GK • Taeguk Funding Designated Activity Company • Feathertop Funding Limited Excluding consolidated subsidiaries, subsidiaries or affiliated companies holding securitisation exposures related to the security transactions conducted by the Holding Company Group are as follows: • PayPay Bank Corporation 4. Name of Securitisation Conduit that Provides Non-Contractual Credit Enhancement, etc. and Impacts on Capital by Such Non- Contractual Credit Enhancement, etc. for Each Securitisation Conduit Not applicable. 5. Accounting Policy on Securitisation Transactions The recognition of the generation and extinguishment of financial assets and financial liabilities associated with securitisation transactions and the valuation and accounting treatment thereof are mainly governed by the “Accounting Standard for Financial Instruments” (ASBJ Statement No. 10). 6. Names of Qualifying External Ratings Agencies In order to calculate the amount of credit risk weighted asset for securitisation exposure with the external ratings-based approach or the stan- dardised approach, or to calculate the amount of market risk associated with specific risk, the risk weights are determined by mapping the ratings of qualifying rating agencies to the risk weights stipulated in the Notification. The qualifying rating agencies are Rating and Invest- ment Information, Inc. (R&I), Japan Credit Rating Agency, Ltd. (JCR), Moody’s Investors Service, Inc. (Moody’s), S&P Global Ratings (S&P), and Fitch Ratings Ltd. (Fitch). When more than one rating is available for an exposure, the second smallest risk weight is used, in accordance with the Notification. 7. Securitisation Exposures in the Banking Book (SEC1) SEC1: Securitisation exposures in the banking book As of March 31, 2023 (Millions of yen) Item No. Type of underlying asset 1 2 3 4 5 6 7 8 9 10 11 Retail (total) - of which Residential mortgage Credit card Other retail exposures Re-securitisation Wholesale (total) - of which Loans to corporates Commercial mortgage Lease and receivables Other wholesale Re-securitisation c b a Bank acts as originator f e d Bank acts as sponsor Traditional Synthetic Subtotal Traditional Synthetic Subtotal Traditional Synthetic Subtotal i h g Bank acts as investor 423,084 423,084 — — — 228,117 228,117 — — — — — 423,084 872,771 — 872,771 1,408,177 — 1,408,177 — — 423,084 — — 60,000 — 812,771 — — — — — — 60,000 — 812,771 — — — 358,947 272,935 776,295 — — 358,947 — 272,935 — 776,295 — — 5 5 — — — — 228,122 688,106 — 688,106 2,197,777 — 2,197,777 — 228,122 — — — 605,079 83,026 — — — — 1,931,250 — 1,134 — — 179,099 — 605,079 86,293 83,026 — — — — — 1,931,250 — 1,134 — 179,099 86,293 — — — 238 SMBC GROUP ANNUAL REPORT 2023 SMBC GROUP ANNUAL REPORT 2023 239 012_0800885852308.indd 238 012_0800885852308.indd 238 2023/08/16 9:40:39 2023/08/16 9:40:39 012_0800885852308.indd 239 012_0800885852308.indd 239 2023/08/16 9:40:39 2023/08/16 9:40:39 Sumitomo Mitsui Financial Group Basel III Information Basel III Information Sumitomo Mitsui Financial Group SEC1: Securitisation exposures in the banking book As of March 31, 2022 (Millions of yen) 9. Securitisation Exposures in the Banking Book and Associated Regulatory Capital Requirements (Bank Acting as Originator or as Sponsor) (SEC3) (Millions of yen) As of March 31, 2023 a b c d e f g h Total Traditional securitisation (subtotal) Securitisation Retail underlying Wholesale Re- securitisation Senior Non-senior SEC3: Securitisation exposures in the banking book and associated capital regulatory requirements (bank acting as originator or sponsor) (1/2) Item No. Exposure values (by RW bands) 1 2 3 4 5 ≤20% RW >20% to 50% RW >50% to 100% RW >100% to <1250% RW 1250% RW Exposure values (by regulatory approach) 6 7 8 9 SEC-IRBA or IAA SEC-ERBA SEC-SA 1250% RW 1,533,766 1,533,766 1,533,766 276,143 276,143 256,214 256,214 145,497 145,497 457 457 276,143 256,214 145,497 462 671,075 249,733 234,420 140,626 — 2,095,625 2,095,620 2,095,620 1,250,887 34,719 10,248 — 106,210 10,248 — 106,210 10,248 — 106,210 10,248 — Credit RWA amounts (by regulatory approach) 10 11 12 13 SEC-IRBA or IAA SEC-ERBA SEC-SA 1250% RW 650,715 28,742 4,111 — 650,652 28,742 4,111 — 650,652 28,742 4,111 — 497,349 8,055 4,111 — Capital charge after cap (by regulatory approach) 14 15 16 17 SEC-IRBA or IAA SEC-ERBA SEC-SA 1250% RW 52,057 2,299 328 — 52,052 2,299 328 — 52,052 2,299 328 — 39,787 644 328 — 862,690 26,410 21,793 4,871 457 844,732 71,491 — — 153,302 20,686 — — 12,264 1,654 — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — Item No. Type of underlying asset 1 2 3 4 5 6 7 8 9 10 11 Retail (total) - of which Residential mortgage Credit card Other retail exposures Re-securitisation Wholesale (total) - of which Loans to corporates Commercial mortgage Lease and receivables Other wholesale Re-securitisation a c b Bank acts as originator d f e Bank acts as sponsor Traditional Synthetic Subtotal Traditional Synthetic Subtotal Traditional Synthetic Subtotal g i h Bank acts as investor 453,676 453,676 — — — 190,216 190,216 — — — — — 453,676 686,473 — 686,473 1,217,831 — 1,217,831 — — 453,676 3,060 — — — 683,413 — — — — — 3,060 — — 683,413 — — — 388,042 295,418 534,370 — — 388,042 — 295,418 — 534,370 — — 190,222 731,519 — 731,519 1,829,165 — 1,829,165 5 5 — — — — 2,562 190,222 — — — 723,956 5,000 — — — — — — — 723,956 5,000 — — — 2,562 1,558,955 1,411 161,106 107,691 — — 1,558,955 — 1,411 — 161,106 — 107,691 — — (Millions of yen) 8. Securitisation Exposures in the Trading Book (SEC2) SEC2: Securitisation exposures in the trading book As of March 31, 2023 Item No. Type of underlying asset 1 2 3 4 5 6 7 8 9 10 11 Retail (total) - of which Residential mortgage Credit card Other retail exposures Re-securitisation Wholesale (total) - of which Loans to corporates Commercial mortgage Lease and receivables Other wholesale Re-securitisation a c b Bank acts as originator d f e Bank acts as sponsor Traditional Synthetic Subtotal Traditional Synthetic Subtotal Traditional Synthetic Subtotal g i h Bank acts as investor — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — 27,671 — 27,671 — 26,372 — — 1,299 — — — — — — — — — 5,322 5,322 — — — — — 26,372 — — 1,299 — — — — — — — — — 5,322 5,322 — — — — (Millions of yen) SEC2: Securitisation exposures in the trading book As of March 31, 2022 Item No. Type of underlying asset 1 2 3 4 5 6 7 8 9 10 11 Retail (total) - of which Residential mortgage Credit card Other retail exposures Re-securitisation Wholesale (total) - of which Loans to corporates Commercial mortgage Lease and receivables Other wholesale Re-securitisation a c b Bank acts as originator d f e Bank acts as sponsor Traditional Synthetic Subtotal Traditional Synthetic Subtotal Traditional Synthetic Subtotal g i h Bank acts as investor — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — 12,056 — 12,056 — — 587 — — 11,468 — — — — 587 — — 11,468 — — — 19,739 — 19,739 — 6,227 — 13,448 64 — — — — — — 6,227 — 13,448 64 — — — — — 240 SMBC GROUP ANNUAL REPORT 2023 SMBC GROUP ANNUAL REPORT 2023 241 012_0800885852308.indd 240 012_0800885852308.indd 240 2023/08/16 9:40:39 2023/08/16 9:40:39 012_0800885852308.indd 241 012_0800885852308.indd 241 2023/08/16 9:40:39 2023/08/16 9:40:39 Sumitomo Mitsui Financial Group Basel III Information Basel III Information Sumitomo Mitsui Financial Group SEC3: Securitisation exposures in the banking book and associated regulatory capital requirements (bank acting as originator or sponsor) (2/2) Item No. (Millions of yen) As of March 31, 2023 i j k l m n o Synthetic securitisation (subtotal) Securitisation Retail underlying Wholesale Re- securitisation Senior Non-senior Exposure values (by RW bands) 1 2 3 4 5 ≤20% RW >20% to 50% RW >50% to 100% RW >100% to <1250% RW 1250% RW Exposure values (by regulatory approach) 6 7 8 9 SEC-IRBA or IAA SEC-ERBA SEC-SA 1250% RW Credit RWA amounts (by regulatory approach) 10 11 12 13 SEC-IRBA or IAA SEC-ERBA SEC-SA 1250% RW Capital requirement values (by regulatory approach) 14 15 16 17 SEC-IRBA or IAA SEC-ERBA SEC-SA 1250% RW — — — — 5 5 — — — 63 — — — 5 — — — — — — — 5 5 — — — 63 — — — 5 — — — — — — — — — — — — — — — — — — — — — — — — 5 5 — — — 63 — — — 5 — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — (Millions of yen) As of March 31, 2022 a b c d e f g h Total Traditional securitisation (subtotal) Securitisation Retail underlying Wholesale Re- securitisation Senior Non-senior SEC3: Securitisation exposures in the banking book and associated capital regulatory requirements (bank acting as originator or sponsor) (1/2) Item No. Exposure values (by RW bands) 1 2 3 4 5 ≤20% RW >20% to 50% RW >50% to 100% RW >100% to <1250% RW 1250% RW Exposure values (by regulatory approach) 6 7 8 9 SEC-IRBA or IAA SEC-ERBA SEC-SA 1250% RW 1,161,851 1,161,851 1,161,851 435,492 435,492 255,873 255,873 208,282 208,282 385 385 435,492 255,873 208,282 391 452,931 364,062 227,124 96,031 — 1,893,846 1,893,840 1,893,840 1,063,912 64,531 11,706 — 156,339 11,706 — 156,339 11,706 — 156,339 11,706 — Credit RWA amounts (by regulatory approach) 10 11 12 13 SEC-IRBA or IAA SEC-ERBA SEC-SA 1250% RW 833,257 41,163 5,741 — 833,184 41,163 5,741 — 833,184 41,163 5,741 — 438,883 14,217 5,741 — Capital charge after cap (by regulatory approach) 14 15 16 17 SEC-IRBA or IAA SEC-ERBA SEC-SA 1250% RW 66,660 3,293 459 — 66,654 3,293 459 — 66,654 3,293 459 — 35,110 1,137 459 — 708,920 71,429 28,748 112,250 385 829,928 91,807 — — 394,300 26,945 — — 31,544 2,155 — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — 242 SMBC GROUP ANNUAL REPORT 2023 SMBC GROUP ANNUAL REPORT 2023 243 012_0800885852308.indd 242 012_0800885852308.indd 242 2023/08/16 9:40:39 2023/08/16 9:40:39 012_0800885852308.indd 243 012_0800885852308.indd 243 2023/08/16 9:40:39 2023/08/16 9:40:39 Sumitomo Mitsui Financial Group Basel III Information Basel III Information Sumitomo Mitsui Financial Group (Millions of yen) 10. Securitisation Exposures in the Banking Book Associated Capital Requirements SEC3: Securitisation exposures in the banking book and associated regulatory capital requirements (bank acting as originator or sponsor) (2/2) Item No. As of March 31, 2022 i j k l m n o Synthetic securitisation (subtotal) Securitisation Retail underlying Wholesale Re- securitisation Senior Non-senior Exposure values (by RW bands) 1 2 3 4 5 ≤20% RW >20% to 50% RW >50% to 100% RW >100% to <1250% RW 1250% RW Exposure values (by regulatory approach) 6 7 8 9 SEC-IRBA or IAA SEC-ERBA SEC-SA 1250% RW Credit RWA amounts (by regulatory approach) 10 11 12 13 SEC-IRBA or IAA SEC-ERBA SEC-SA 1250% RW Capital requirement values (by regulatory approach) 14 15 16 17 SEC-IRBA or IAA SEC-ERBA SEC-SA 1250% RW — — — — 5 5 — — — 73 — — — 5 — — — — — — — 5 5 — — — 73 — — — 5 — — — — — — — — — — — — — — — — — — — — — — — — 5 5 — — — 73 — — — 5 — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — (Bank Acting as Investor) (SEC4) SEC4: Securitisation exposures in the banking book and associated capital requirements (bank acting as investor) (1/2) Item No. Exposure values (by RW bands) 1 2 3 4 5 ≤20% RW >20% to 50% RW >50% to 100% RW >100% to <1250% RW 1250% RW Exposure values (by regulatory approach) 6 7 8 9 SEC-IRBA or IAA SEC-ERBA SEC-SA 1250% RW As of March 31, 2023 (Millions of yen) a b c d e f g h Total Traditional securitisation (subtotal) Securitisation Retail underlying Wholesale Re- securitisation Senior Non-senior 3,421,361 3,421,361 3,421,361 1,382,524 2,038,837 66,770 74,720 16,315 1,134 70,476 95,271 17,710 1,134 70,476 95,271 17,710 1,134 70,476 95,271 17,710 1,134 3,706 20,551 1,395 — 2,963,084 2,963,084 2,963,084 1,035,412 1,927,672 268,970 641,736 — — 1,134 1,134 641,736 — 1,134 641,736 — 1,134 372,765 — — Credit RWA amounts (by regulatory approach) 10 11 12 13 SEC-IRBA or IAA SEC-ERBA SEC-SA 1250% RW 424,189 189,462 — 14,184 424,189 189,462 — 14,184 424,189 189,462 — 14,184 134,050 72,860 — — 290,139 116,602 — 14,184 Capital charge after cap (by regulatory approach) 14 15 16 17 SEC-IRBA or IAA SEC-ERBA SEC-SA 1250% RW 33,935 15,157 — 1,134 33,935 15,157 — 1,134 33,935 15,157 — 1,134 10,724 5,828 — — 23,211 9,328 — 1,134 — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — 244 SMBC GROUP ANNUAL REPORT 2023 SMBC GROUP ANNUAL REPORT 2023 245 012_0800885852308.indd 244 012_0800885852308.indd 244 2023/08/16 9:40:40 2023/08/16 9:40:40 012_0800885852308.indd 245 012_0800885852308.indd 245 2023/08/16 9:40:40 2023/08/16 9:40:40 Sumitomo Mitsui Financial Group Basel III Information Basel III Information Sumitomo Mitsui Financial Group SEC4: Securitisation exposures in the banking book and associated capital requirements (bank acting as investor) (2/2) Item No. As of March 31, 2023 (Millions of yen) i j k l m n o Synthetic securitisation (subtotal) Securitisation Retail underlying Wholesale Re- securitisation Senior Non-senior Exposure values (by RW bands) 1 2 3 4 5 ≤20% RW >20% to 50% RW >50% to 100% RW >100% to <1250% RW 1250% RW Exposure values (by regulatory approach) 6 7 8 9 SEC-IRBA or IAA SEC-ERBA SEC-SA 1250% RW Credit RWA amounts (by regulatory approach) 10 11 12 13 SEC-IRBA or IAA SEC-ERBA SEC-SA 1250% RW Capital charge after cap (by regulatory approach) 14 15 16 17 SEC-IRBA or IAA SEC-ERBA SEC-SA 1250% RW — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — SEC4: Securitisation exposures in the banking book and associated capital requirements (bank acting as investor) (1/2) Item No. Exposure values (by RW bands) 1 2 3 4 5 ≤20% RW >20% to 50% RW >50% to 100% RW >100% to <1250% RW 1250% RW Exposure values (by regulatory approach) As of March 31, 2022 (Millions of yen) a b c d e f g h Total Traditional securitisation (subtotal) Securitisation Retail underlying Wholesale Re- securitisation Senior Non-senior 2,920,953 2,920,953 2,920,953 1,130,337 1,790,616 6,364 17,518 13,254 1,411 84,735 24,202 15,693 1,411 78,370 6,684 2,438 — 84,735 24,202 15,693 1,411 84,735 24,202 15,693 1,411 6 7 8 9 SEC-IRBA or IAA SEC-ERBA SEC-SA 1250% RW 2,497,149 2,497,149 2,497,149 548,435 548,435 — — 1,411 1,411 548,435 — 1,411 847,892 1,649,256 178,497 369,938 — — 1,411 — Credit RWA amounts (by regulatory approach) 10 11 12 13 SEC-IRBA or IAA SEC-ERBA SEC-SA 1250% RW 383,409 127,824 — 17,644 383,409 127,824 — 17,644 383,409 127,824 — 17,644 131,865 72,896 — — 251,544 54,928 — 17,644 Capital charge after cap (by regulatory approach) 14 15 16 17 SEC-IRBA or IAA SEC-ERBA SEC-SA 1250% RW 30,672 10,225 — 1,411 30,672 10,225 — 1,411 30,672 10,225 — 1,411 10,549 5,831 — — 20,123 4,394 — 1,411 — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — 246 SMBC GROUP ANNUAL REPORT 2023 SMBC GROUP ANNUAL REPORT 2023 247 012_0800885852308.indd 246 012_0800885852308.indd 246 2023/08/16 9:40:40 2023/08/16 9:40:40 012_0800885852308.indd 247 012_0800885852308.indd 247 2023/08/16 9:40:40 2023/08/16 9:40:40 Sumitomo Mitsui Financial Group Basel III Information Basel III Information Sumitomo Mitsui Financial Group (Millions of yen) ■ Equity Exposures 1. Overview of Risk Management Policy and Procedures Securities in the banking book are properly managed, for example, by setting upper limits on the allowable amount of risk under the market or credit risk management framework selected according to their holding purpose and risk characteristics. For securities held as “available-for-sale securities,” the upper limits are also set in terms of price fluctuation risk and default risk. In addition, regarding stocks of subsidiaries, assets and liabilities of subsidiaries are categorized into corresponding risk categories and risk-managed on a consolidated basis, in light of the upper limits set for each risk. As for stocks of affiliates, risks related to gains and losses from investments are managed with the upper limits. The limits are established within the maximum amount of overall risk capital, taking into account the financial and business situations of SMBC Group. 2. Valuation of Securities and Other Significant Accounting Policies Stocks of non-consolidated subsidiaries and affiliates not accounted for by the equity method are carried at amortized cost using the moving- average method. Available-for-sale securities are carried at their market prices (cost of securities sold is calculated using primarily the moving-average method), and those with no available market prices are carried at cost using the moving-average method. Net unrealized gains (losses) on available-for-sale securities and net of income taxes are reported as a component of “net assets.” SEC4: Securitisation exposures in the banking book and associated capital requirements (bank acting as investor) (2/2) Item No. As of March 31, 2022 i j k l m n o Synthetic securitisation (subtotal) Securitisation Retail underlying Wholesale Re- securitisation Senior Non-senior Exposure values (by RW bands) 1 2 3 4 5 ≤20% RW >20% to 50% RW >50% to 100% RW >100% to <1250% RW 1250% RW Exposure values (by regulatory approach) 6 7 8 9 SEC-IRBA or IAA SEC-ERBA SEC-SA 1250% RW Credit RWA amounts (by regulatory approach) 10 11 12 13 SEC-IRBA or IAA SEC-ERBA SEC-SA 1250% RW Capital charge after cap (by regulatory approach) 14 15 16 17 SEC-IRBA or IAA SEC-ERBA SEC-SA 1250% RW — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — 248 SMBC GROUP ANNUAL REPORT 2023 SMBC GROUP ANNUAL REPORT 2023 249 012_0800885852308.indd 248 012_0800885852308.indd 248 2023/08/16 9:40:40 2023/08/16 9:40:40 012_0800885852308.indd 249 012_0800885852308.indd 249 2023/08/16 9:40:40 2023/08/16 9:40:40 Sumitomo Mitsui Financial Group Basel III Information Basel III Information Sumitomo Mitsui Financial Group ■ Market Risk 1. Scope The following approaches are used to calculate market risk equivalent amounts. (1) Internal Models Method General market risk of SMBC, SMBC Bank International plc, SMBC Bank EU AG, Sumitomo Mitsui Banking Corporation (China) Limited, SMBC Capital Markets, Inc., SMBC Nikko Capital Markets Limited, SMBC Derivative Products Limited, and SMBC Capital Markets (Asia) Limited (2) Standardized Measurement Method • Specific risk • General market risk of consolidated subsidiaries other than SMBC, SMBC Bank International plc, SMBC Bank EU AG, Sumitomo Mitsui Banking Corporation (China) Limited, SMBC Capital Markets, Inc., SMBC Nikko Capital Markets Limited, SMBC Derivative Products Limited, and SMBC Capital Markets (Asia) Limited • A portion of general market risk of SMBC 2. Market Risk under standardised approach (MR1) MR1: Market risk under standardised approach Item No. 1 2 3 4 5 6 7 8 9 Interest rate risk (general and specific) Equity risk (general and specific) Foreign exchange risk Commodity risk Options Simplified approach Delta-plus method Scenario approach Specific risk related to securitisation exposures Total 3. RWA flow statements of market risk exposures under an IMA (MR2) MR2: RWA flow statements of market risk exposures under an IMA Item No. 1a 1b 1c 2 3 4 5 6 7 8a 8b 8c RWA as of March 31, 2022 Ratio of 1a / 1c RWA at end of March 31, 2022 Movement in risk levels Model updates/ changes Methodology and policy Acquisitions and disposals Foreign exchange movements Other RWA at end of March 31, 2023 Breakdown of variations in the market risk- weighted assets Ratio of 8c / 8a RWA as of March 31, 2023 a VaR 542 2.5 210 54 — — — 3 18 286 3.4 1,001 b Stressed VaR 1,429 2.3 602 86 — — — (4) — 684 2.7 1,865 (Millions of yen) As of March 31, 2023 RWA (Amounts calculated by dividing risk equivalent amounts by 8%) 711,369 600,099 44,410 0 As of March 31, 2022 RWA (Amounts calculated by dividing risk equivalent amounts by 8%) 630,810 199,056 124,600 429 — 78,546 — 173,410 1,607,836 — 108,768 — 17,628 1,081,295 (Billions of yen) As of March 31, 2023 c IRC d CRM e Other f Total RWA — — — — — — — — — — — — — — — — — — — — — — — — 1,971 2.4 813 141 — — — (1) 18 971 2.9 2,867 a VaR 390 3.0 130 71 — — — 20 (11) 210 2.5 542 b Stressed VaR 1,216 2.7 434 (14) — — — 182 — 602 2.3 1,429 MR2: RWA flow statements of market risk exposures under an IMA Item No. 1a 1b 1c 2 3 4 5 6 7 8a 8b 8c RWA as of March 31, 2021 Ratio of 1a / 1c RWA at end of March 31, 2021 Movement in risk levels Model updates/ changes Methodology and policy Acquisitions and disposals Foreign exchange movements Other RWA at end of March 31, 2022 Ratio of 8c / 8a RWA as of March 31, 2022 Breakdown of variations in the market risk- weighted assets 4. IMA values for trading portfolios (MR3) MR3: IMA values for trading portfolios Item No. (Billions of yen) As of March 31, 2022 c IRC d CRM e Other f Total RWA — — — — — — — — — — — — — — — — — — — — — — — — 1,607 2.8 564 57 — — — 202 (11) 813 2.4 1,971 Fiscal 2022 Fiscal 2021 (Millions of yen) VaR (holding period of 10 business days, one-sided confidence level of 99%) 1 Maximum value 2 Average value 3 Minimum value Period end 4 Stressed VaR (holding period of 10 business days, one-sided confidence level of 99%) 5 Maximum value 6 Average value 7 Minimum value Period end 8 Incremental risk value (one-sided confidence level of 99.9%) 9 Maximum value Average value 10 11 Minimum value Period end 12 Comprehensive risk value (one-sided confidence level of 99.9%) 13 Maximum value 14 Average value 15 Minimum value Period end 16 Floor (modified standardized measurement method) 17 31,912 23,331 14,784 22,944 85,369 50,753 35,967 54,793 — — — — — — — — — 17,841 12,256 8,392 16,849 59,603 39,090 20,654 39,505 — — — — — — — — — Note: The VaR and the stressed VaR are calculated using the historical simulation method. Specifically, they are calculated on a daily basis, assuming a one-sided confidence level of 99.0% and a one-day holding period, based on profit and loss simulation on a scenario-specific basis generated from historical data (the full valuation method, in principle), and they are adjusted to a 10-day holding period using the square root of time method. Under this method, the VaR and the stressed VaR use observation periods of four years immediately preceding, and 12 months including the stress period, respectively. 250 SMBC GROUP ANNUAL REPORT 2023 SMBC GROUP ANNUAL REPORT 2023 251 012_0800885852308.indd 250 012_0800885852308.indd 250 2023/08/16 9:40:40 2023/08/16 9:40:40 012_0800885852308.indd 251 012_0800885852308.indd 251 2023/08/16 9:40:40 2023/08/16 9:40:40 Sumitomo Mitsui Financial Group Basel III Information Basel III Information Sumitomo Mitsui Financial Group 5. Backtesting results by the internal models approach (MR4) The status of backtesting of trading for Fiscal 2022 and 2021 is as follows. “Daily gain/loss” represents the actual gain/loss incurred, and “Daily VaR” represents the daily VaR calculated using the risk measurement model with a one-day holding period. In the past 250 business days, the number of times loss exceeded VaR was 0, and the VaR model (one-sided confidence level of 99.0%) is considered to have sufficient accuracy. Daily gain/loss Daily VaR Daily gain/loss Daily VaR ( M i l l i o n s o f Y e n ) 10,000 5,000 0 -5,000 -10,000 -15,000 -20,000 ( M i l l i o n s o f Y e n ) 4,000 2,000 0 -2,000 -4,000 -6,000 -8,000 -10,000 March 2022 March 2023 March 2021 March 2022 ■ Interest Rate Risk in the Banking Book 1. Overview of Risk Management Policy and Procedures Interest rate risk in the banking book is the risk to the present value of a bank’s assets and liabilities and/or the future earnings (interest income) from the rate-sensitive instruments when interest rates change. SMBC Group recognizes interest rate risk as a significant risk and manages it in an integrated manner, together with other market risks (equity position risk, etc.) (For details, please refer to pages 158 to 159). Interest rate risk management is conducted using basis point value (BPV) as a measure of the risk, which denotes the change of present value given a basis point rise in the interest rate. Appropriate limits on BPVs are set for each significant subsidiary including SMBC according to its capital and business plan, and BPVs are monitored daily for risk management. BPVs are managed not only by changing the balance and term structures of assets and liabilities, but also by using hedging instruments such as interest rate swaps and futures. 2. Calculation Method of Interest Rate Risk Interest rate risk in the banking book is measured based on the future cash flows of the bank’s assets and liabilities. Especially, the method of recognizing the maturity of demand deposits (current accounts and ordinary deposit accounts that can be withdrawn at any time) and the method of estimating the time of cancellation prior to maturity of time deposits and mortgage loans affect the risk significantly. Key assumptions for measuring interest rate risk of such instruments are as follows. Method of recognizing the maturity of demand deposits The amount of the bank’s core deposits is identified as the amount of demand deposits expected to be left with the bank after 5 years (with 50% of the lowest balance during the past 5 years as the upper limit). The maturity of the core deposits is regarded to be 5 years as the maximum term (2.5 years on average). The maturity of the bank’s demand deposits is regarded to be 5 years as the maximum term (0.8 year on average). Method of estimating the time of cancellation prior to maturity of time deposits and mortgage loans Cash flows of mortgage loans tend to be different from the initial scheduled ones, as customers may exercise their prepayment options to redeem early in a bonus month or as time passes. Similarly, time deposits may be canceled prior to maturity. For such instruments, interest rate risk is managed by using statistical models to estimate cash flows for each instrument, considering the seasonality, elapsed years, interest rate levels at the effective time, etc. These models are validated and reviewed regularly. 252 SMBC GROUP ANNUAL REPORT 2023 SMBC GROUP ANNUAL REPORT 2023 253 012_0800885852308.indd 252 012_0800885852308.indd 252 2023/08/16 9:40:40 2023/08/16 9:40:40 012_0800885852308.indd 253 012_0800885852308.indd 253 2023/08/16 9:40:40 2023/08/16 9:40:40 Sumitomo Mitsui Financial Group Basel III Information Basel III Information Sumitomo Mitsui Financial Group ■ Operational Risk 1. Operational Risk Equivalent Amount Calculation Methodology Sumitomo Mitsui Financial Group adopted the Advanced Measurement Approach (AMA) for exposures as of March 31, 2008. The following consolidated subsidiaries have also adopted the AMA, and the remaining consolidated subsidiaries have adopted the Basic Indicator Approach (BIA). Sumitomo Mitsui Banking Corporation, Sumitomo Mitsui Card Company, Limited, The Japan Research Institute, Limited, SMBC Finance Service Co., Ltd., SMBC Guarantee Co., Ltd., SMBC Operation Service Co., Ltd., SMBC Green Service Co., Ltd., SMBC Bank International plc, Sumitomo Mitsui Banking Corporation (China) Limited, SMBC Nikko Securities Inc., and SMBC Consumer Finance Co., Ltd. 2. Outline of the AMA For the “Outline of the AMA,” please refer to pages 161 to 163. 3. Usage of Insurance to Mitigate Risk Sumitomo Mitsui Financial Group had not taken measures to mitigate operational risk through insurance coverage for exposures. 3. Interest Rate Risk Table IRRBB1 shows changes in economic value of equity (ΔEVE) and net interest income (ΔNII) in the banking book, simulated based on a set of prescribed interest rate shock scenarios. As stipulated under the Pillar 2 of Basel Framework (Supervisory Review Process), in order to identify banks that may have taken too large interest rate risk, the Japan FSA applies “materiality test” as comparing the bank’s ΔEVE with 15% of its Tier 1 capital, under a set of prescribed interest rate shock scenarios. The measurement result of SMBC Group’s ΔEVE shows that the economic value of equity declines when interest rates rise and the maximum change amount is under the prescribed parallel shock up scenario. SMBC Groups’ ΔEVE is 2.5% of our Tier 1 capital, not larger than 15%. As for ΔNII, net interest income declines under the prescribed parallel shock down scenario and increases under the parallel shock up scenario. Due to the assumption of zero floor on the interest rate of customer’s deposits in JPY, which limits reduction of the funding cost when interest rate down, the change amount is larger under the parallel shock down scenario. The measurement scope, the definition of each figure and the calculation assumption are as follows. Scope The consolidated subsidiary banks of SMBC • ΔEVE is calculated by simple aggregation of the decrease in economic value for all currencies. • ΔNII is calculated by simple aggregation of the change amount of interest income for each currency ( JPY and USD) which covers 5% or more of the total amount of interest rate-sensitive assets and liabilities. Definition of Each Figure and Calculation Assumption • ΔEVE Decrease in economic value (EVE, Economic Value on Equity) against interest rate shock (excluding the credit spread). • ΔNII Decrease in 1 year interest income (NII, Net Interest Income) under each the interest rate shock. It is calculated under the constant balance sheet, which means that the balance sheet does not change through a year. In each simulation, we do not allow negative interest rate for domestic yen deposits and loans in any scenario. (Millions of yen) IRRBB1: Interest rate risk Item No. Parallel up Parallel down Steepener Flattener Short rate up Short rate down 1 2 3 4 5 6 7 Maximum 8 Tier 1 capital a b c d ⊿EVE ⊿NII As of March 31, 2023 As of March 31, 2022 As of March 31, 2023 As of March 31, 2022 287,092 85,466 165,125 36,163 64,628 67,412 287,092 446,108 3,324 256,565 133,193 201,194 50,896 446,108 e As of March 31, 2023 (462,516) 664,372 (339,392) 546,591 546,591 664,372 f As of March 31, 2022 11,548,912 11,186,225 Note: Interest rate shocks of deposits with central banks is considered to be the same with the standardized interest rate shocks when calculating ⊿NII. 254 SMBC GROUP ANNUAL REPORT 2023 SMBC GROUP ANNUAL REPORT 2023 255 012_0800885852308.indd 254 012_0800885852308.indd 254 2023/08/16 9:40:40 2023/08/16 9:40:40 012_0800885852308.indd 255 012_0800885852308.indd 255 2023/08/16 9:40:40 2023/08/16 9:40:40 Sumitomo Mitsui Financial Group Basel III Information Basel III Information Sumitomo Mitsui Financial Group ■ CC2: Reconciliation of regulatory capital to balance sheet Sumitomo Mitsui Financial Group, Inc. and Subsidiaries Items (Assets) Cash and due from banks Call loans and bills bought Receivables under resale agreements Receivables under securities borrowing transactions Monetary claims bought Trading assets Money held in trust Securities Loans and bills discounted Foreign exchanges Lease receivables and investment assets Other assets Tangible fixed assets Intangible fixed assets Net defined benefit asset Deferred tax assets Customers’ liabilities for acceptances and guarantees Reserve for possible loan losses Total assets (Liabilities) Deposits Negotiable certificates of deposit Call money and bills sold Payables under repurchase agreements Payables under securities lending transactions Commercial paper Trading liabilities Borrowed money Foreign exchanges Short-term bonds Bonds Due to trust account Other liabilities Reserve for employee bonuses Reserve for executive bonuses Net defined benefit liability Reserve for executive retirement benefits Reserve for point service program Reserve for reimbursement of deposits Reserve for losses on interest repayment Reserves under the special laws Deferred tax liabilities Deferred tax liabilities for land revaluation Acceptances and guarantees Total liabilities (Net assets) Capital stock Capital surplus Retained earnings Treasury stock Total stockholders’ equity Net unrealized gains or losses on other securities Net deferred gains or losses on hedges Land revaluation excess Foreign currency translation adjustments Accumulated remeasurements of defined benefit plans Total accumulated other comprehensive income Stock acquisition rights Non-controlling interests Total net assets Total liabilities and net assets a Consolidated balance sheet as in published financial statements As of March 31, 2023 As of March 31, 2022 b (Millions of yen) c Reference to Template CC1 Reference to appended table 75,913,960 5,684,812 5,785,945 5,576,612 5,558,287 8,751,204 12,957 33,213,165 98,404,137 1,942,764 226,302 13,243,899 1,494,527 897,848 704,654 74,084 13,693,771 (750,369) 270,428,564 158,770,253 13,025,555 2,569,055 16,772,716 1,521,271 2,349,956 8,066,745 13,674,830 1,465,847 424,000 10,365,003 2,413,464 11,923,748 96,254 3,307 35,449 1,133 28,659 10,845 128,378 3,902 265,354 27,952 13,693,771 257,637,458 2,342,537 694,052 7,423,600 (151,798) 10,308,391 1,373,521 (13,293) 35,005 843,614 133,226 2,372,074 1,145 109,495 12,791,106 270,428,564 74,792,123 1,965,134 6,035,507 5,649,632 5,370,377 7,351,878 310 38,538,724 90,834,056 2,812,104 228,608 10,175,873 1,457,254 898,817 623,045 66,720 11,722,239 (817,784) 257,704,625 148,585,460 13,069,796 1,129,999 19,359,965 1,580,580 1,866,366 6,377,968 18,877,990 1,216,893 442,000 9,808,107 2,443,873 8,415,621 89,894 4,064 40,864 1,087 25,000 5,767 135,084 3,902 275,570 29,193 11,722,239 245,507,293 2,341,878 693,664 6,916,468 (13,402) 9,938,608 1,632,080 (80,061) 36,320 450,143 121,123 2,159,606 1,475 97,641 12,197,331 257,704,625 7-a 3-b,7-b 7-c 7-d 3-a 4 5-a 7-e 9-a 9-b 7-f 5-b 5-c 1-a 1-b 1-c 1-d 6 (a) 2,8-a 8-b (Appended Table) 1. Stockholders’ equity (1) Consolidated balance sheet Consolidated balance sheet items Capital stock Capital surplus Retained earnings Treasury stock Total stockholders’ equity (2) Composition of capital As of March 31, 2022 As of March 31, 2023 2,342,537 2,341,878 693,664 7,423,600 6,916,468 (13,402) 10,308,391 9,938,608 (151,798) 694,052 (Millions of yen) Remarks Ref. No. 1-a 1-b 1-c 1-d (Millions of yen) Composition of capital disclosure As of March 31, 2023 As of March 31, 2022 Remarks Basel III Template No. Directly issued qualifying common share capital plus related capital surplus and retained earnings 10,308,391 9,938,608 of which: capital and capital surplus of which: retained earnings of which: treasury stock (–) of which: other than the above Directly issued qualifying Additional Tier 1 instruments plus related capital surplus of which: classified as equity under applicable accounting standards and the breakdown 3,036,589 7,423,600 151,798 — 3,035,543 6,916,468 13,402 — — — 2. Stock acquisition rights (1) Consolidated balance sheet Consolidated balance sheet items Stock acquisition rights of which: Stock acquisition rights issued by bank holding company As of March 31, 2023 As of March 31, 2022 1,145 1,145 1,475 1,475 (2) Composition of capital Composition of capital disclosure Stock acquisition rights to common shares Stock acquisition rights to Additional Tier 1 instruments Stock acquisition rights to Tier 2 instruments 3. Intangible fixed assets (1) Consolidated balance sheet Consolidated balance sheet items Intangible fixed assets Securities of which: goodwill attributable to equity- method investees As of March 31, 2023 As of March 31, 2022 1,145 1,475 — — — — As of March 31, 2023 As of March 31, 2022 897,848 898,817 33,213,165 38,538,724 128,509 122,801 Income taxes related to above 185,267 172,017 Stockholders’ equity attributable to common shares (before adjusting national specific regulatory adjustments (earnings to be distributed)) Stockholders’ equity attributable to preferred shares with a loss absorbency clause upon entering into effectively bankruptcy (Millions of yen) Remarks (Millions of yen) Remarks (Millions of yen) Remarks 1a 2 1c 31a Ref. No. 2 Basel III Template No. 1b 31b 46 Ref. No. 3-a 3-b (2) Composition of capital Composition of capital disclosure Goodwill (including those equivalent) Other intangibles other than goodwill and mortgage servicing rights Mortgage servicing rights Amount exceeding the 10% threshold on specified items Amount exceeding the 15% threshold on specified items Mortgage servicing rights that are below the thresholds for deduction (before risk weighting) As of March 31, 2023 As of March 31, 2022 405,810 438,657 (Millions of yen) Remarks Basel III Template No. 8 435,279 410,945 Software and other — — — — — — — — 9 20 24 74 Note: The regulatory scope of consolidation is the same as the accounting scope of consolidation. 256 SMBC GROUP ANNUAL REPORT 2023 SMBC GROUP ANNUAL REPORT 2023 257 012_0800885852308.indd 256 012_0800885852308.indd 256 2023/08/16 9:40:40 2023/08/16 9:40:40 012_0800885852308.indd 257 012_0800885852308.indd 257 2023/08/16 9:40:41 2023/08/16 9:40:41 Sumitomo Mitsui Financial Group Basel III Information Basel III Information Sumitomo Mitsui Financial Group 4. Net defined benefit asset (1) Consolidated balance sheet Consolidated balance sheet items Net defined benefit asset As of March 31, 2023 As of March 31, 2022 704,654 623,045 Income taxes related to above 215,618 190,952 (2) Composition of capital Composition of capital disclosure Net defined benefit asset 5. Deferred tax assets (1) Consolidated balance sheet Consolidated balance sheet items Deferred tax assets Deferred tax liabilities Deferred tax liabilities for land revaluation Tax effects on intangible fixed assets Tax effects on net defined benefit asset (2) Composition of capital As of March 31, 2023 489,035 As of March 31, 2022 432,092 As of March 31, 2023 As of March 31, 2022 74,084 265,354 27,952 66,720 275,570 29,193 185,267 215,618 172,017 190,952 (Millions of yen) Remarks Ref. No. 4 (Millions of yen) Remarks Basel III Template No. 15 (Millions of yen) Remarks Ref. No. 5-a 5-b 5-c (Millions of yen) Composition of capital disclosure As of March 31, 2023 As of March 31, 2022 Remarks Basel III Template No. Deferred tax assets that rely on future profitability excluding those arising from temporary differences (net of related tax liability) 6,899 11,334 Deferred tax assets arising from temporary differences (net of related tax liability) 199,927 130,489 This item does not agree with the amount reported on the consolidated balance sheet due to offsetting of assets and liabilities. This item does not agree with the amount reported on the consolidated balance sheet due to offsetting of assets and liabilities. Amount exceeding the 10% threshold on specified items Amount exceeding the 15% threshold on specified items Deferred tax assets arising from temporary differences that are below the thresholds for deduction (before risk weighting) — — — — 199,927 130,489 6. Deferred gains or losses on derivatives under hedge accounting (1) Consolidated balance sheet Consolidated balance sheet items Net deferred gains or losses on hedges As of March 31, 2023 As of March 31, 2022 (13,293) (80,061) (2) Composition of capital Composition of capital disclosure As of March 31, 2023 As of March 31, 2022 Net deferred gains or losses on hedges (74,959) (79,373) 7. Items associated with investments in the capital of financial institutions (1) Consolidated balance sheet (Millions of yen) (Millions of yen) Remarks Remarks Excluding those items whose valuation differences arising from hedged items are recognized as “Accumulated other comprehensive income” Ref. No. 6 Basel III Template No. 11 (Millions of yen) Remarks Ref. No. Consolidated balance sheet items Trading assets Securities Loans and bills discounted Other assets Trading liabilities Other liabilities 258 SMBC GROUP ANNUAL REPORT 2023 As of March 31, 2023 As of March 31, 2022 8,751,204 7,351,878 Including trading account securities and derivatives for trading assets 33,213,165 38,538,724 98,404,137 90,834,056 Including subordinated loans 13,243,899 10,175,873 Including derivatives 8,066,745 11,923,748 6,377,968 Including trading account securities sold and derivatives for trading liabilities 8,415,621 Including derivatives 10 21 25 75 7-a 7-b 7-c 7-d 7-e 7-f As of March 31, 2023 As of March 31, 2022 Remarks Basel III Template No. (Millions of yen) (2) Composition of capital Composition of capital disclosure Investments in own capital instruments Common Equity Tier 1 capital Additional Tier 1 capital Tier 2 capital Reciprocal cross-holdings in the capital of banking, financial and insurance entities Common Equity Tier 1 capital Additional Tier 1 capital Tier 2 capital and other TLAC liabilities Investments in the capital of banking, financial and insurance entities that are outside the scope of regulatory consolidation, net of eligible short positions, where the bank does not own more than 10% of the issued share capital (amount above the 10% threshold) 7,205 7,205 — 0 — — — — 4,317 4,317 — 0 — — — — 1,340,937 1,302,189 Common Equity Tier 1 capital Additional Tier 1 capital Tier 2 capital and other TLAC liabilities Non-significant investments in the capital and other TLAC liabilities of other financials that are below the thresholds for deductions (before risk weighting) 187,705 2,547 36,190 200,779 2,729 32,765 1,114,494 1,065,915 Significant investments in the capital of banking, financial and insurance entities that are outside the scope of regulatory consolidation (net of eligible short positions) Amount exceeding the 10% threshold on specified items Amount exceeding the 15% threshold on specified items Additional Tier 1 capital Tier 2 capital and other TLAC liabilities Significant investments in the common stock of other financials that are below the thresholds for deductions (before risk weighting) 1,337,050 1,106,783 118,285 — 82,978 40,062 — — 25,525 36,723 1,095,724 1,044,534 16 37 52 17 38 53 18 39 54 72 19 23 40 55 73 8. Non-controlling interests (1) Consolidated balance sheet Consolidated balance sheet items Stock acquisition rights Non-controlling interests (2) Composition of capital As of March 31, 2023 As of March 31, 2022 1,145 109,495 1,475 97,641 (Millions of yen) Remarks (Millions of yen) Composition of capital disclosure As of March 31, 2023 As of March 31, 2022 Remarks Amount allowed in group CET1 1,404 1,231 Qualifying Additional Tier 1 instruments plus related capital surplus issued by special purpose vehicles and other equivalent entities — — Amount allowed in group AT1 29,268 22,104 Qualifying Tier 2 instruments plus related capital surplus issued by special purpose vehicles and other equivalent entities — — Amount allowed in group T2 5,825 4,722 After reflecting amounts eligible for inclusion (Non-Controlling Interest after adjustments) After reflecting amounts eligible for inclusion (Non-Controlling Interest after adjustments) After reflecting amounts eligible for inclusion (Non-Controlling Interest after adjustments) After reflecting amounts eligible for inclusion (Non-Controlling Interest after adjustments) After reflecting amounts eligible for inclusion (Non-Controlling Interest after adjustments) Ref. No. 8-a 8-b Basel III Template No. 5 30-31ab-32 34-35 46 48-49 SMBC GROUP ANNUAL REPORT 2023 259 012_0800885852308.indd 258 012_0800885852308.indd 258 2023/08/16 9:40:41 2023/08/16 9:40:41 012_0800885852308.indd 259 012_0800885852308.indd 259 2023/08/16 9:40:41 2023/08/16 9:40:41 Sumitomo Mitsui Financial Group Basel III Information Basel III Information Sumitomo Mitsui Financial Group 9. Other capital instruments (1) Consolidated balance sheet Consolidated balance sheet items Borrowed money Bonds Total (2) Composition of capital As of March 31, 2023 As of March 31, 2022 13,674,830 18,877,990 9,808,107 10,365,003 24,039,833 28,686,097 (Millions of yen) Remarks Ref. No. 9-a 9-b (Millions of yen) Composition of capital disclosure As of March 31, 2023 As of March 31, 2022 Remarks Basel III Template No. Directly issued qualifying Additional Tier 1 instruments plus related capital surplus of which: classified as liabilities under applicable accounting standards Directly issued qualifying Tier 2 instruments plus related capital surplus of which: classified as liabilities under applicable accounting standards 766,214 733,998 766,438 753,571 32 46 ■ Linkages between Regulatory Exposure Amounts and Carrying Values in Consolidated Financial Statements Differences between Regulatory Exposure Amounts and Carrying Values in Consolidated Financial Statements and Explanations of the Factors 1. Differences between Accounting and Regulatory Scopes of Consolidation and Mapping of Consolidated Financial Statement Categories with Regulatory Risk Categories (LI1) LI1: Differences between accounting and regulatory scopes of consolidation and mapping of consolidated financial statement categories with regulatory risk categories (Millions of yen) As of March 31, 2023 a b c Carrying values as reported in published Consolidated financial statement Carrying values under scope of regulatory consolidation CR (excluding amounts relevant to d and e) d e Carrying values of items: f g CCR Securitisation (excluding amounts relevant to f) (Note 2) Market risk (Note 3) Items not subject to capital requirements or subject to deduction from capital 3,392,899 5,684,812 5,785,945 5,576,612 5,558,287 8,751,204 12,957 — — — 5,785,945 — 5,576,612 — — — — — 2,165,387 75,913,960 75,913,960 75,913,960 5,684,812 5,684,812 5,785,945 5,576,612 5,558,287 8,751,204 12,957 — — — — — — — — — — 104,098 — 8,751,204 — 4,255,026 — — — — 329,773 — — 1,060,822 40,062 — — 1,669,723 — — — — — — — — — 1,090,002 5,384 6,795,876 — — — — 712,580 — — — 489,035 — — — 40,016 — — — — — 461 — — — — — 2,805,569 8,751,204 4,901,780 270,428,564 270,428,564 235,915,675 22,413,460 1,942,764 226,302 (750,369) (750,369) 1,494,527 897,848 704,654 74,084 Assets Cash and due from banks Call loans and bills bought Receivables under resale agreements Receivables under securities borrowing transactions Monetary claims bought Trading assets (Note 1) Money held in trust 12,957 Securities 33,213,165 33,213,165 31,822,569 Loans and bills discounted 98,404,137 98,404,137 96,694,351 Foreign exchanges 1,942,764 1,942,764 Lease receivables and investment assets 226,302 226,302 Other assets 5,352,635 13,243,899 13,243,899 Tangible fixed assets 1,494,527 1,494,527 Intangible fixed assets 185,267 897,848 Net defined benefit asset 215,618 704,654 Deferred tax assets 34,067 74,084 Customers’ liabilities for acceptances and guarantees 13,693,771 13,693,771 13,693,310 Reserve for possible loan losses (750,369) Total assets Liabilities Deposits Negotiable certificates of deposit Call money and bills sold Payables under repurchase agreements Payables under securities lending transactions Commercial paper Trading liabilities Borrowed money Foreign exchanges Short-term bonds Bonds Due to trust account Other liabilities Reserve for employee bonuses Reserve for executive bonuses Net defined benefit liability Reserve for executive retirement benefits Reserve for point service program Reserve for reimbursement of deposits Reserve for losses on interest repayment Reserve under the special laws Deferred tax liabilities Deferred tax liabilities for land revaluation Acceptances and guarantees Total liabilities 158,770,253 158,770,253 13,025,555 13,025,555 2,569,055 16,772,716 16,772,716 1,521,271 2,349,956 8,066,745 13,674,830 13,674,830 1,465,847 424,000 10,365,003 10,365,003 2,413,464 11,923,748 11,923,748 96,254 3,307 35,449 1,133 28,659 10,845 128,378 3,902 265,354 27,952 13,693,771 13,693,771 257,637,458 257,637,458 96,254 3,307 35,449 1,133 28,659 10,845 128,378 3,902 265,354 27,952 1,521,271 2,349,956 8,066,745 1,465,847 424,000 2,413,464 2,569,055 — 2,928 — — — — — 8,373,336 — 1,327,441 — — — 4,779,599 — — — — — — — — — — — 3,456,398 — — — — — — — — — — — — — — — — — — — — — — 2,928 17,936,775 — 158,767,325 — — 13,025,555 — — 2,569,055 — — 8,399,380 — — 193,830 — — 2,349,956 — 395,649 — 8,066,745 — 13,674,830 — — 1,465,847 — — 424,000 — — 10,365,003 — — 2,413,464 — — 8,467,349 — 96,254 — — 3,307 — — 35,449 — — 1,133 — — 28,659 — — — 10,845 — 128,378 — — — 3,902 — 265,354 — — 27,952 — — — — 13,693,771 — 8,066,745 236,806,256 260 SMBC GROUP ANNUAL REPORT 2023 SMBC GROUP ANNUAL REPORT 2023 261 012_0800885852308.indd 260 012_0800885852308.indd 260 2023/08/16 9:40:41 2023/08/16 9:40:41 012_0800885852308.indd 261 012_0800885852308.indd 261 2023/08/16 9:40:41 2023/08/16 9:40:41 Sumitomo Mitsui Financial Group Basel III Information Basel III Information Sumitomo Mitsui Financial Group (Millions of yen) 2. Main Sources of Differences between Regulatory Exposure Amounts and Carrying Values in Consolidated Financial Statements LI1: Differences between accounting and regulatory scopes of consolidation and mapping of consolidated financial statement categories with regulatory risk categories As of March 31, 2022 a b c Carrying values as reported in published Consolidated financial statement Carrying values under scope of regulatory consolidation CR (excluding amounts relevant to d and e) e d Carrying values of items: f g CCR Securitisation (excluding amounts relevant to f) (Note 2) Market risk (Note 3) Items not subject to capital requirements or subject to deduction from capital 74,792,123 1,965,134 6,035,507 5,649,632 5,370,377 7,351,878 310 38,538,724 90,834,056 2,812,104 228,608 10,175,873 1,457,254 898,817 623,045 66,720 11,722,239 (817,784) Assets 74,792,123 Cash and due from banks 1,965,134 Call loans and bills bought 6,035,507 Receivables under resale agreements 5,649,632 Receivables under securities borrowing transactions 5,370,377 Monetary claims bought 7,351,878 Trading assets (Note 1) 310 Money held in trust 38,538,724 Securities 90,834,056 Loans and bills discounted 2,812,104 Foreign exchanges 228,608 Lease receivables and investment assets 10,175,873 Other assets 1,457,254 Tangible fixed assets 898,817 Intangible fixed assets 623,045 Net defined benefit asset Deferred tax assets 66,720 Customers’ liabilities for acceptances and guarantees 11,722,239 (817,784) Reserve for possible loan losses Total assets Liabilities Deposits Negotiable certificates of deposit Call money and bills sold Payables under repurchase agreements Payables under securities lending transactions Commercial paper Trading liabilities Borrowed money Foreign exchanges Short-term bonds Bonds Due to trust account Other liabilities Reserve for employee bonuses Reserve for executive bonuses Net defined benefit liability Reserve for executive retirement benefits Reserve for point service program Reserve for reimbursement of deposits Reserve for losses on interest repayment Reserve under the special laws Deferred tax liabilities Deferred tax liabilities for land revaluation Acceptances and guarantees Total liabilities 13,069,796 1,129,999 19,359,965 1,580,580 1,866,366 6,377,968 18,877,990 1,216,893 442,000 9,808,107 2,443,873 8,415,621 89,894 4,064 40,864 1,087 25,000 5,767 135,084 3,902 275,570 29,193 11,722,239 148,585,460 148,585,460 13,069,796 1,129,999 19,359,965 1,580,580 1,866,366 6,377,968 18,877,990 1,216,893 442,000 9,808,107 2,443,873 8,415,621 89,894 4,064 40,864 1,087 25,000 5,767 135,084 3,902 275,570 29,193 11,722,239 245,507,293 245,507,293 74,792,123 1,965,134 3,242,722 — — — 6,035,507 — 5,649,632 — — — — — 2,127,655 — — — — — — — — — — 87,129 — 7,351,878 — 3,629,942 — — — — 148,327 — — 1,025,539 36,723 — — 1,114,983 — — — — — — — — — 1,027,561 28 4,054,583 — — — — 726,800 — — — 432,092 — — — 53,996 — — — — — 387 — — — — — 2,512,631 7,351,878 4,268,595 19,369,666 310 37,364,857 89,682,349 2,812,104 228,608 5,093,699 1,457,254 172,017 190,952 12,724 11,721,852 (817,784) 257,704,625 257,704,625 227,918,926 — 2,690 — — — — — 12,318,326 — 1,528,379 — — — 3,200,262 — — — — — — — — — — — 2,585,681 — — — — — — — — — — — — — — — — — — — — — — 19,632,649 2,690 — — — — — — — 6,377,968 — — — — — 165 — — — — — — — — — — — 165 — 148,582,769 — 13,069,796 — 1,129,999 — 7,041,639 — 52,200 — 1,866,366 183,179 — 18,877,990 — 1,216,893 — 442,000 — 9,808,107 — 2,443,873 — 5,829,773 89,894 — 4,064 — 40,864 — 1,087 — 25,000 — 5,767 — 135,084 — 3,902 — 275,570 — — 29,193 — 11,722,239 6,377,968 222,877,260 (LI2) LI2: Main sources of differences between regulatory exposure amounts and carrying values in consolidated financial statements amounts Item No. 1 2 3 4 5 6 7 8 9 Asset carrying value amount under scope of regulatory consolidation Liabilities carrying value amount under scope of regulatory consolidation Total net amount under regulatory scope of consolidation Off-balance sheet amounts Differences due to consideration of provisions and write-offs Differences due to derivative transactions Differences due to SFTs Other differences Regulatory exposure amounts LI2: Main sources of differences between regulatory exposure amounts and carrying values in consolidated financial statements amounts Item No. 1 2 3 4 5 6 7 8 9 Asset carrying value amount under scope of regulatory consolidation Liabilities carrying value amount under scope of regulatory consolidation Total net amount under regulatory scope of consolidation Off-balance sheet amounts Differences due to consideration of provisions and write-offs Differences due to derivative transactions Differences due to SFTs Other differences Regulatory exposure amounts As of March 31, 2023 (Millions of yen) a Total b c d e Items subject to: CR (excluding amounts relevant to c and d) CCR Securitisation (excluding amounts relevant to e) Market risk 267,622,995 235,915,675 22,413,460 4,901,780 8,751,204 20,831,201 2,928 17,936,775 — 8,066,745 246,791,794 235,912,746 21,588,505 13,660,974 (Note 1) 859,820 859,820 (Note 2) 4,476,685 7,022,364 — 7,865,093 (688,168) 231,294 276,648,339 — 8,670,123 (Note 3) — 241,610 250,675,152 (688,168) (10,316) 19,470,688 4,901,780 905,166 — 11,093 — — 5,818,040 684,458 — — — — — 684,458 (Millions of yen) As of March 31, 2022 a Total b c d e Items subject to: CR (excluding amounts relevant to c and d) CCR Securitisation (excluding amounts relevant to e) Market risk 255,191,993 227,918,926 19,369,666 4,268,595 7,351,878 22,630,033 2,690 19,632,649 165 6,377,968 232,561,960 227,916,236 18,645,139 12,227,177 (Note 1) 922,221 922,221 (Note 2) (262,983) 5,587,886 — 7,944,895 3,143,353 533,179 263,750,748 — 7,600,880 (Note 3) — 508,716 241,574,351 3,143,353 24,462 16,093,599 4,268,429 830,075 — 10,384 — — 5,108,888 973,909 — — — — — 973,909 Notes: 1. Transactions in the trading book including derivative transactions extend over multiple risk categories, since they are subject to both market risks and counterparty credit risks. 2. Account titles including monetary claims boughts are subject to securitisation products if they have a characteristic of securitisation products, otherwise they are subject to CR, therefore, they extend over multiple risk categories. 3. Foreign exchange risk and commodities risk in the banking book are not included in column f “Market risk,” since it is difficult to link them with account titles. Notes: 1. This mainly comprises exposures due to commitment lines. 2. This mainly comprises assets subject to the IRB approach added with specific reserve and partial direct write-offs. 3. This mainly comprises the aggregation of the addition of derivative liabilities and regulatory add-on amounts, and the deduction of regulatory netting effect. 262 SMBC GROUP ANNUAL REPORT 2023 SMBC GROUP ANNUAL REPORT 2023 263 012_0800885852308.indd 262 012_0800885852308.indd 262 2023/08/16 9:40:41 2023/08/16 9:40:41 012_0800885852308.indd 263 012_0800885852308.indd 263 2023/08/16 9:40:41 2023/08/16 9:40:41 Sumitomo Mitsui Financial Group Basel III Information Basel III Information Sumitomo Mitsui Financial Group Countercyclical buffer requirement by country or region Indicators for assessing Global Systemically Important Banks (G-SIBs) Sumitomo Mitsui Financial Group, Inc. and Subsidiaries ■ Countercyclical buffer requirement by country or region ■ Indicators for assessing Global Systemically Important Banks (G-SIBs) CCyB1: Countercyclical buffer (CCyB) requirement by country or region GSIB1: G-SIB indicators (Millions of yen, except percentages) As of March 31, 2023 Geographical breakdown Australia Germany Hong Kong Luxembourg Sweden U.K. Subtotal Total a Applicable CCyB ratio in effect 1.00% 0.75% 1.00% 0.50% 1.00% 1.00% b RWAs used in the computation of CCyB ratio 951,173 616,014 1,529,589 487,357 40,071 2,933,276 6,557,480 57,404,494 c d Bank-specific CCyB ratio CCyB amount 0.10% 61,597 (Millions of yen, except percentages) CCyB1: Countercyclical buffer (CCyB) requirement by country or region As of March 31, 2022 Geographical breakdown Hong Kong Luxembourg Subtotal Total a Applicable CCyB ratio in effect 1.00% 0.50% b RWAs used in the computation of CCyB ratio 1,608,333 343,523 1,951,856 55,344,904 c d Bank-specific CCyB ratio CCyB amount 0.03% 17,800 Note: While credit risk-weighted asset shall be calculated on an ultimate risk basis where feasible, some assets including funds and other assets or portion of assets subject to standardized approach, are calculated on an obligor basis or on a country of undertaking basis. Basel III Template No. 1 2 3 4 5 6 7 8 9 10 11 12 13 Cross-jurisdictional activity Size Mutual relevance Substitutability/ financial institution infrastructure Complexity Cross-jurisdictional claims Cross-jurisdictional liabilities Total exposures Intra-financial system assets Intra-financial system liabilities Securities outstanding Assets under custody Annual total amount of payments settled through settlement systems Annual total amount of underwritten transactions in debt and equity markets Total amount of trading volume Total amount of notional amount of OTC derivatives and long settlement transactions with other financial institutions Level 3 assets Held-for-trading (HFT) securities and available-for-sale (AFS) securities, excluding HFT and AFS securities that meet the definition of Level 1 assets and Level 2 assets with haircuts (Millions of yen) As of March 31, 2023 As of March 31, 2022 86,194,529 73,695,197 291,673,049 51,152,083 25,471,036 33,447,629 16,110,817 73,516,381 67,596,129 278,082,730 42,247,617 22,611,775 30,555,904 14,481,827 5,454,562,907 4,344,694,781 5,084,242 11,135,703 102,325,402 125,298,442 1,603,772,144 1,085,323,445 506,004 495,618 12,007,752 12,004,699 Note: Terms in this form shall, unless otherwise prescribed separately, be used in accordance with the terminology used in the Notification as well as the Bank Holding Company Equity Capital Adequacy Notification. a. Basel III Template No. (hereinafter referred to as “Item No.” in this form) 3 “Total exposures” shall state the total amount of the following. (1) The amount of on-balance sheet assets (total assets reported in the non-consolidated balance sheet or the consolidated balance sheet, less the amount of customers’ liabilities for acceptance and guarantees, less the amounts reported with respect to (2) and (3) reported in the non-consolidated balance sheet or the consolidated balance sheet) (2) The amount of derivative transactions, etc. (referring to forward contract, swap, option, and other derivatives and long settlement transactions; hereinafter the same in (2) and (4)) (the amount of exposure calculated in respect of derivative transactions, etc. (the amount of replacement cost calculated by using current exposure method or the standardized approach for counterparty credit risk (SA-CCR) (which shall be zero if such amount turned out to be a negative value), added by the add-on amount, as well as the notional amount of the credit derivative that provides protection), added by the consideration of the margin deposited in cash in connection with derivative transactions, etc.) (3) The amount of SFTs (amount of cash receivables in SFTs added by the amount of exposure at the counterparty of transaction calculated for each unit of SFTs (which shall be zero if such amount turned out to be a negative value)) (4) The amount of off-balance sheet transactions (excluding derivative transactions, etc., and SFTs) (the amount of credit risk exposure at the counterparty of transaction, added by the amount of exposure arising from the underlying asset, as well as the amount of securitisation exposure) b. Item No.4 “Mutual relevance - Intra-financial system assets” shall state the total amount of the following balances concerning the credit granted to financial institutions, etc. (including financial instruments business operators prescribed under Article 2, Paragraph 9 of the Financial Instruments and Exchange Act, insurance companies, central counterparty, pension funds and other business operators of the similar kind; hereinafter the same in b. and c.). (1) Funds deposited with or lent to other financial institutions and undrawn committed lines extended to other financial institutions (2) Holdings of securities issued by other financial institutions (referring to secured bonds, general unsecured bonds, subordinated bonds, short-term bonds, negotiable certificates of deposit and stock; hereinafter the same in Item No. 6) (3) Net positive current exposure of SFTs with other financial institutions (which can take into account the effect of legally binding netting contracts, but cannot have a negative value) (4) The add-on amount calculated based on the amount measured at fair value and by using the current exposure method or SA-CCR as adopted for the derivative instruments transactions and long settlement transactions with other financial institutions, without involving financial instruments markets as defined under Article 2, Paragraph 14 of the Financial 264 SMBC GROUP ANNUAL REPORT 2023 SMBC GROUP ANNUAL REPORT 2023 265 012_0800885852308.indd 264 012_0800885852308.indd 264 2023/08/16 9:40:42 2023/08/16 9:40:42 012_0800885852308.indd 265 012_0800885852308.indd 265 2023/08/16 9:40:42 2023/08/16 9:40:42 Sumitomo Mitsui Financial Group Basel III Information Basel III Information Sumitomo Mitsui Financial Group Instruments and Exchange Act, and foreign financial instruments markets as defined under Article 2, Paragraph 8, Item 3(b) of the same Act (which can take into account the effect of legally valid bilateral netting contracts, but cannot have a negative value; hereinafter collectively referred to as “financial instruments markets, etc.” in Item No. 11 and c.) c. Item No. 5 “Mutual relevance - Intra-financial system liabilities” shall state the total amount of the following balances. (1) Deposits due to, and loans obtained from other financial institutions (including undrawn committed lines) (2) Net negative current exposure of SFTs with other financial institutions (which can take into account the effect of legally valid bilateral netting contracts, but cannot exceed zero) (3) The add-on amount calculated based on the amount measured at fair value and by using the current exposure method or SA-CCR as adopted for the derivative instruments transactions and long settlement transactions with other financial institutions, without involving financial instruments markets, etc. (which can take into account the effect of legally valid bilateral netting contracts, but cannot exceed zero) d. Item No. 8 “Substitutability/financial infrastructure – the annual total amount of payments through settlement systems” shall state the annual total amount of payments settled through the BOJ-NET, the Japanese Banks’ Payment Clearing Network and other similar settlement systems but excluding intra-group payments in the most recently ended fiscal year. e. Item No.9 “Substitutability/financial infrastructure – the annual total amount of underwritten transactions in debt and equity markets” shall state the annual total amount of transactions underwritten in debt and equity markets in the most recently ended fiscal year (referring to securities underwriting as prescribed in Article 2, Paragraph 8, Item 6 of the Financial Instruments and Exchange Act). f. Item No. 10 “Substitutability/financial infrastructure – Total amount of trading volume” shall state the annual total amount of trading volume of securities (gross basis) in the most recently ended fiscal year. g. Financial institutions mentioned in Item No. 11 “Complexity – Total amount of notional amount of OTC derivatives and long settlement transactions with other financial institutions” refer to financial institutions, etc. as defined in b. above. h. Item No.13 “Complexity – Held-for-trading (HFT) securities and available-for-sale (AFS) securities” shall state the total amount of balances of Held-for-trading (HFT) securities and available-for-sale (AFS) securities (excluding HFT and AFS securities that are considered to have high liquidity). i. In each item in this form, if there is no specific applicable amount in the submitting financial institution, the item in question shall not be deleted but just be marked with [ - ]. j. In this form, all amounts shall be stated in the designated unit herein, and any fraction less than such unit shall be rounded down. k. This form shall be prepared only by a bank subject to the uniform international standards (excluding a bank that is a consolidated subsidiary of a bank as well as a bank that is a consolidated subsidiary not of a bank but of a banking holding company, and a consolidated subsidiary of a regulated foreign entity), or a holding company subject to the uniform international standards that states in Item No. 3 an equivalent to an amount in excess of 200 billion euros at the exchange rate as at the end of its most recently ended fiscal year, or that is designated by the Commissioner of the Financial Services Agency of Japan as an equivalent to a bank or a holding company subject to the uniform international standards. ■ Composition of Leverage Ratio Corresponding line # on Basel III disclosure template (Table2) Corresponding line # on Basel III disclosure template (Table1) Items On-balance sheet exposures (1) (In million yen, %) As of March 31, 2023 As of March 31, 2022 1a 1b 1c 1d 1 2 3 1 2 7 3 7 On-balance sheet exposures before deducting adjustment items Total assets reported in the consolidated balance sheet The amount of assets of subsidiaries that are not included in the scope of the leverage ratio on a consolidated basis (-) The amount of assets of subsidiaries that are included in the scope of the leverage ratio on a consolidated basis (except those included in the total assets reported in the consolidated balance sheet) The amount of assets that are deducted from the total assets reported in the consolidated balance sheet (except adjustment items) (-) The amount of adjustment items pertaining to Tier 1 capital (-) Total on-balance sheet exposures (a) 175,221,153 210,008,235 166,341,091 197,228,681 — — — — 34,787,082 30,887,589 1,735,746 173,485,406 1,526,382 164,814,709 Exposures related to derivative transactions (2) 4 5 6 7 8 9 10 11 Replacement cost associated with derivatives transactions, etc. (with the 1.4 alpha factor applied) Replacement cost associated with derivatives transactions, etc. Add-on amount for potential future exposure associated with derivatives transactions, etc. (with the 1.4 alpha factor applied) Add-on amount associated with derivatives transactions, etc. The amount of receivables arising from providing cash margin in relation to derivatives transactions, etc. The amount of receivables arising from providing collateral, provided where deducted from the consolidated balance sheet pursuant to the operative accounting framework The amount of receivables arising from providing cash margin, provided where deducted from the consolidated balance sheet pursuant to the operative accounting framework The amount of deductions of receivables (out of those arising from providing cash variation margin) (-) The amount of client-cleared trade exposures for which a bank or bank holding company acting as clearing member is not obliged to make any indemnification (-) Adjusted effective notional amount of written credit derivatives The amount of deductions from effective notional amount of written credit derivatives (-) Total exposures related to derivative transactions (b) 4 Exposures related to repo transactions (3) 12 13 14 15 16 The amount of assets related to repo transactions, etc. The amount of deductions from the assets above (line 12) (-) The exposures for counterparty credit risk for repo transactions, etc. The exposures for agent repo transaction Total exposures related to repo transactions, etc. 5 Exposures related to off-balance sheet transactions (4) 17 18 19 Notional amount of off-balance sheet transactions The amount of adjustments for conversion in relation to off-balance sheet transactions (-) Total exposures related to off-balance sheet transactions 6 Leverage ratio on a consolidated basis (5) 20 21 22 8 The amount of capital (Tier 1 capital) Total exposures ((a)+(b)+(c)+(d)) Leverage ratio on a consolidated basis ((e)/(f)) Minimum leverage ratio requirement Applicable leverage buffer requirement Leverage ratio on a consolidated basis (including deposits with the Bank of Japan) (6) (d) (e) (f) Total exposures The amount of deposits with the Bank of Japan Total exposures (including deposits with the Bank of Japan) Leverage ratio on a consolidated basis (including deposits with the Bank of Japan) ((e)/(f’)) (f) (f’) 4,790,390 3,527,325 5,435,663 981,452 5,084,780 1,111,871 — — 145,156 457,683 1,330,211 1,168,020 11,224,540 11,362,558 — 453,886 1,226,418 1,099,912 9,392,799 11,685,139 — 1,137,324 81,463,037 75,178,234 48,472,455 46,127,804 32,990,581 29,050,429 11,548,912 229,516,974 5.03% 3.00% 0.50% 229,516,974 60,420,329 289,937,303 11,186,225 216,080,403 5.17% 3.00% 216,080,403 60,475,944 276,556,348 3.98% 4.04% (c) 11,816,444 12,822,464 266 SMBC GROUP ANNUAL REPORT 2023 SMBC GROUP ANNUAL REPORT 2023 267 012_0800885852308.indd 266 012_0800885852308.indd 266 2023/08/16 9:40:42 2023/08/16 9:40:42 012_0800885852308.indd 267 012_0800885852308.indd 267 2023/08/16 9:40:42 2023/08/16 9:40:42 Sumitomo Mitsui Financial Group Basel III Information Basel III Information Sumitomo Mitsui Financial Group TLAC information ■ TLAC2: - Material subgroup entity - creditor ranking at legal entity level Sumitomo Mitsui Banking Corporation ■ TLAC1: TLAC composition for G-SIBs (at resolution group level) Sumitomo Mitsui Financial Group, Inc. and Subsidiaries Basel III Template No. Items (Millions of yen, except percentages) As of March 31, 2023 As of March 31, 2022 Preferred resolution strategy (1) The SPE (Single Point of Entry) resolution strategy is considered to be the preferred resolution strategy for Sumitomo Mitsui Financial Group, Inc. (SMFG) and its subsidiaries. More concretely, at the time of a stress, following the relevant authority’s determination that one or more of the material sub-groups, i.e. Sumitomo Mitsui Banking Corporation and SMBC Nikko Securities Inc., have reached the point of non-viability, losses incurred to them would be passed to SMFG, the ultimate holding company. While this could lead to a resolution of SMFG, the material sub-groups are expected to continue their business as usual under the Specified Bridge Financial Institution, etc. incorporated by the Deposit Insurance Corporation of Japan (DICJ) to which SMFG transfers its business. Regulatory capital elements of TLAC and adjustments (2) 1 2 3 4 5 6 7 8 9 10 11 Common Equity Tier 1 capital (CET1) Additional Tier 1capital (AT1) before TLAC adjustments AT1 ineligible as TLAC as issued out of subsidiaries to third parties Other adjustments AT1 instruments eligible under the TLAC framework ((B) - (C) - (D)) Tier 2 capital (T2) before TLAC adjustments Amortised portion of T2 instruments where remaining maturity > 1 year T2 capital ineligible as TLAC as issued out of subsidiaries to third parties Other adjustments T2 instruments eligible under the TLAC framework ((F) - (G) - (H) - (I)) TLAC arising from regulatory capital ((A) + (E) + (J)) Non-regulatory capital elements of TLAC (3) (A) (B) (C) (D) (E) (F) (G) (H) (I) (J) (K) 12 13 14 15 16 17 External TLAC instruments issued directly by the bank and subordinated to excluded liabilities (L) External TLAC instruments issued directly by the bank which are not subordinated to excluded liabilities but meet all other TLAC term sheet requirements Of which: amount eligible as TLAC after application of the caps External TLAC instruments issued by funding vehicles prior to 1 January 2022 Eligible ex ante commitments to recapitalise a G-SIB in resolution TLAC arising from non-regulatory capital instruments before adjustments ((L) + (M)) Non-regulatory capital elements of TLAC: adjustments (4) 18 19 20 21 22 TLAC before deductions ((K) + (N)) Deductions of exposures between MPE resolution groups that correspond to items eligible for TLAC (not applicable to SPE G-SIBs) Deduction of investments in own other TLAC liabilities Other adjustment to TLAC TLAC after deductions ((O) - (P) - (Q) - (R)) Risk-weighted assets and leverage exposure measure for TLAC purposes (5) 23 24 Total risk-weighted assets (RWA) Total exposures TLAC ratios and buffers (6) 25 25a 26 27 28 29 30 31 TLAC before deduction of CET1 specific buffer requirement (as a percentage of RWA) ((S) / (T)) TLAC (as a percentage of RWA) TLAC (as a percentage of total exposures) ((S) / (U)) CET1 available after meeting the minimum capital requirements CET1 specific buffer requirement of which: capital conservation buffer requirement of which: countercyclical buffer requirement of which: G-SIB/D-SIB additional requirement 10,838,955 10,458,377 709,956 727,847 — 29,268 680,688 801,869 (373,829) — 5,825 — 22,104 705,743 797,534 (242,608) — 4,722 1,169,873 1,035,421 12,689,517 12,199,542 6,930,885 5,896,263 (M) (N) (O) (P) (Q) (R) (S) (T) (U) 2,704,976 9,635,862 2,532,252 8,428,515 22,325,379 20,628,057 — 315 — — — — 22,325,063 20,628,057 77,285,048 72,350,071 229,516,974 216,080,403 28.88% 25.28% 9.72% 7.98% 3.60% 2.50% 0.10% 1.00% 28.51% 24.98% 9.54% 8.56% 3.53% 2.50% 0.03% 1.00% Basel III Template No. Items 1 2 3 4 5 6 7 8 9 10 11 Is the resolution entity the creditor/investor? Description of creditor ranking Total capital and liabilities net of credit risk mitigation Subset of row 3 that are excluded liabilities (B) Total capital and liabilities less excluded liabilities ((A)-(B)) Subset of row 5 that are eligible as TLAC 1 year ≤ residual maturity < 2 years 2 years ≤ residual maturity < 5 years 5 years ≤ residual maturity < 10 years 10 years ≤ residual maturity (excluding perpetual securities) Perpetual securities As of March 31, 2023 Creditor ranking 2 3 No Yes Additional Tier 1 instruments Yes No Tier 2 instruments 4 (most senior) Yes No Other internal TLAC liabilities 1 (most junior) Yes No Common share capital (Millions of yen) Sum of 1 to 4 (A) 3,545,551 — 1,267,000 — 1,140,483 — 7,385,780 — 13,338,814 — — — — — — — — — — 1,267,000 — 1,140,483 — 7,385,780 — 13,338,814 3,545,551 3,545,551 — — — — 1,267,000 — — — — — — — — — 3,545,551 — 1,267,000 — 1,140,483 346,695 — 347,000 — 333,279 — — — 113,509 — — 6,808,792 — 789,388 — 3,429,669 — 2,023,061 — 12,761,826 — 1,136,083 — 3,776,669 — 2,356,340 — — 566,673 — 680,182 — — 4,812,551 SMBC Nikko Securities Inc. As of March 31, 2023 Creditor ranking Basel III Template No. 1 2 3 4 5 6 7 8 9 10 11 Items 1 (most junior) 2 Is the resolution entity the creditor/investor? Yes No Yes No Description of creditor ranking Total capital and liabilities net of credit risk mitigation Subset of row 3 that are excluded liabilities Total capital and liabilities less excluded liabilities ((A)-(B)) (A) (B) Subset of row 5 that are eligible as TLAC 1 year ≤ residual maturity < 2 years 2 years ≤ residual maturity < 5 years 5 years ≤ residual maturity < 10 years 10 years ≤ residual maturity (excluding perpetual securities) Perpetual securities Common share capital 467,714 — 467,714 467,714 — — — — 467,714 — — — — — — — — — Subordinated debts — — — — — — — — — — — — — — — — — — — — — — — — — — — 3 (most senior) Yes No Other internal TLAC liabilities (Millions of yen) Sum of 1 to 3 — — — — — — — — — 467,714 — 467,714 467,714 — — — — 467,714 TLAC (as a percentage of total exposures) (including deposits with the Bank of Japan) (7) Total exposures The amount of deposits with the Bank of Japan Total exposures (including deposits with the Bank of Japan) (U) 229,516,974 216,080,403 60,420,329 60,475,944 (U’) 289,937,303 276,556,348 TLAC (as a percentage of total exposures) (including deposits with the Bank of Japan) ((S)/(U’)) 7.69% 7.45% 268 SMBC GROUP ANNUAL REPORT 2023 SMBC GROUP ANNUAL REPORT 2023 269 012_0800885852308.indd 268 012_0800885852308.indd 268 2023/08/16 9:40:42 2023/08/16 9:40:42 012_0800885852308.indd 269 012_0800885852308.indd 269 2023/08/16 9:40:42 2023/08/16 9:40:42 Sumitomo Mitsui Financial Group Basel III Information Basel III Information Sumitomo Mitsui Financial Group Sumitomo Mitsui Banking Corporation Basel III Template No. Items Is the resolution entity the creditor/investor? Description of creditor ranking As of March 31, 2022 Creditor ranking 2 3 No Yes Additional Tier 1 instruments Yes No Tier 2 instruments 4 (most senior) Yes No Other internal TLAC liabilities 1 (most junior) Yes No Common share capital (Millions of yen) Sum of 1 to 4 Total capital and liabilities net of credit risk mitigation (A) 3,545,551 — 1,235,000 Subset of row 3 that are excluded liabilities (B) Total capital and liabilities less excluded liabilities ((A)-(B)) Subset of row 5 that are eligible as TLAC 1 year ≤ residual maturity < 2 years 2 years ≤ residual maturity < 5 years 5 years ≤ residual maturity < 10 years 10 years ≤ residual maturity (excluding perpetual securities) Perpetual securities — — — 3,545,551 3,545,551 — — — — 1,235,000 — 1,235,000 — — — — — — — — — 3,545,551 — 1,235,000 — — — — — — — — — 996,519 — 6,834,878 — 12,611,948 — — — — — 996,519 996,519 — 574,217 318,253 104,048 — — 6,834,878 — 12,611,948 — 5,898,275 — 530,502 — 2,758,104 — 2,084,896 — 11,675,346 — 530,502 — 3,332,322 — 2,403,149 — — 524,771 — 628,820 — — 4,780,551 1 2 3 4 5 6 7 8 9 10 11 SMBC Nikko Securities Inc. As of March 31, 2022 Creditor ranking Basel III Template No. 1 2 3 4 5 6 7 8 9 10 11 Items 1 (most junior) 2 Is the resolution entity the creditor/investor? Yes No Yes No Description of creditor ranking Total capital and liabilities net of credit risk mitigation Subset of row 3 that are excluded liabilities Total capital and liabilities less excluded liabilities ((A)-(B)) (A) (B) Subset of row 5 that are eligible as TLAC 1 year ≤ residual maturity < 2 years 2 years ≤ residual maturity < 5 years 5 years ≤ residual maturity < 10 years 10 years ≤ residual maturity (excluding perpetual securities) Perpetual securities Common share capital 467,714 — 467,714 467,714 — — — — 467,714 — — — — — — — — — Subordinated debts — — — — — — — — — — — — — — — — — — — — — — — — — — — 3 (most senior) Yes No Other internal TLAC liabilities (Millions of yen) Sum of 1 to 3 — — — — — — — — — 467,714 — 467,714 467,714 — — — — 467,714 ■ TLAC3: Creditor ranking of external TLAC, etc. Sumitomo Mitsui Financial Group, Inc. Basel III Template No. Items 1 Description of creditor ranking 2 3 4 5 6 7 8 9 10 Total capital and liabilities net of credit risk mitigation Subset of row 2 that are excluded liabilities *2 Total capital and liabilities less excluded liabilities ((A)-(B)) Subset of row 4 that are eligible as TLAC 1 year ≤ residual maturity < 2 years 2 years ≤ residual maturity < 5 years 5 years ≤ residual maturity < 10 years 10 years ≤ residual maturity (excluding perpetual securities) Perpetual securities *1 Excluding those owed to group companies *2 Conservatively estimated in light of quantitative materiality Sumitomo Mitsui Financial Group, Inc. Basel III Template No. Items 1 Description of creditor ranking 2 3 4 5 6 7 8 9 10 Total capital and liabilities net of credit risk mitigation Subset of row 2 that are excluded liabilities *2 Total capital and liabilities less excluded liabilities ((A)-(B)) Subset of row 4 that are eligible as TLAC 1 year ≤ residual maturity < 2 years 2 years ≤ residual maturity < 5 years 5 years ≤ residual maturity < 10 years 10 years ≤ residual maturity (excluding perpetual securities) Perpetual securities *1 Excluding those owed to group companies *2 Conservatively estimated in light of quantitative materiality (A) (B) 1 (most junior) Common share capital 3,906,550 — 3,906,550 3,906,550 — — — — 3,906,550 (A) (B) 1 (most junior) Common share capital 3,905,233 — 3,905,233 3,905,233 — — — — 3,905,233 (Millions of yen) As of March 31, 2023 Creditor ranking 2 3 4 (most senior) Sum of 1 to 4 Additional Tier 1 instruments 767,000 — 767,000 767,000 — — — — 767,000 Tier 2 instruments 1,140,483 — 1,140,483 1,140,483 346,695 347,000 333,279 113,509 — 64,304 Unsecured senior bonds *1 7,585,036 13,399,070 64,304 7,520,731 13,334,765 6,943,743 12,757,777 1,205,583 3,813,408 2,381,667 683,567 — 4,673,550 858,888 3,466,408 2,048,388 570,058 (Millions of yen) As of March 31, 2022 Creditor ranking 2 3 4 (most senior) Sum of 1 to 4 Additional Tier 1 instruments 735,000 — 735,000 735,000 — — — — 735,000 Tier 2 instruments 996,519 — 996,519 996,519 — 574,217 318,253 104,048 — 50,392 Unsecured senior bonds *1 6,889,809 12,526,562 50,392 6,839,417 12,476,169 5,902,814 11,539,567 530,502 3,333,833 2,403,149 631,848 — 4,640,233 530,502 2,759,616 2,084,896 527,799 270 SMBC GROUP ANNUAL REPORT 2023 SMBC GROUP ANNUAL REPORT 2023 271 012_0800885852308.indd 270 012_0800885852308.indd 270 2023/08/16 9:40:42 2023/08/16 9:40:42 012_0800885852308.indd 271 012_0800885852308.indd 271 2023/08/16 9:40:42 2023/08/16 9:40:42 Sumitomo Mitsui Financial Group Basel III Information Basel III Information Sumitomo Mitsui Financial Group Liquidity Coverage Ratio Information (Consolidated) Sumitomo Mitsui Financial Group, Inc. and Subsidiaries Since March 31, 2015, the “Liquidity Coverage Ratio” (hereinafter referred to as “LCR”), the liquidity ratio regulation under the Basel III, has been introduced in Japan. In addition to the application of uniform international standards, Sumitomo Mitsui Financial Group calculates its consolidated LCR using the calculation formula stipulated in the “Criteria for Evaluating the Soundness of Liquidity Status Set Forth by a Bank Holding Company as a Benchmark for Judging the Soundness of Management of Itself and its Subsidiaries, etc., Based on the Provision of Article 52-25 of the Banking Act, and Which Are Also the Criteria to be Referred to for Judging the Soundness of Management in Banks” (Notification No. 62 issued by the Japanese Financial Services Agency in 2014; hereinafter referred to as the “Liquidity Ratio Notification”). ■ Disclosure of Qualitative Information about Liquidity Coverage Ratio 1. Intra-period Changes in Consolidated LCR As described on the following page, the LCR has remained stable since the introduction of the liquidity ratio regulation on March 31, 2015. 2. Assessment of Consolidated LCR The Liquidity Ratio Notification stipulates the minimum requirement of the LCR at 100%. The LCR of Sumitomo Mitsui Financial Group (consolidated) exceeds the minimum requirements of the LCR, having no cause for concern. In terms of the future LCR forecasts, Sumitomo Mitsui Financial Group does not expect significant deviations from the disclosed ratios. In addition, the actual LCR does not differ significantly from the initial forecast. 3. Composition of High-Quality Liquid Assets Regarding the high-quality liquid assets allowed to be included in the calculation, there are no significant changes in locations and properties of currency denominations, categories and so on. In addition, in respect of major currencies (those of which the aggregate amount of liabilities denominated in a certain currency accounts for 5% or more of Sumitomo Mitsui Financial Group’s total liabilities on the consolidated basis), there is no significant mismatch in currency denomination between the total amount of the high-quality liquid assets allowed to be included in the calculation and the amount of net cash outflows. 4. Other Information Concerning Consolidated LCR Sumitomo Mitsui Financial Group has not applied “special provisions concerning qualifying operational deposits” prescribed in Article 28 of the Liquidity Ratio Notification and “increased liquidity needs related to market valuation changes on derivative or other transactions simulated through Scenario Approach” prescribed in Article 37 of the Liquidity Ratio Notification. Meanwhile, Sumitomo Mitsui Financial Group records “due to trust account,” etc. under “cash outflows based on other contracts” prescribed in Article 59 of the Liquidity Ratio Notification. ■ Disclosure of Quantitative Information about Liquidity Coverage Ratio (Consolidated) Item High-Quality Liquid Assets (1) 1 Total high-quality liquid assets (HQLA) Cash Outflows (2) of which, Stable deposits of which, Less stable deposits 2 Cash outflows related to unsecured retail funding 3 4 5 Cash outflows related to unsecured wholesale funding 6 7 of which, Qualifying operational deposits of which, Cash outflows related to unsecured wholesale funding other than qualifying operational deposits and debt securities of which, Debt securities 8 9 Cash outflows related to secured funding, etc. 10 Cash outflows related to derivative transactions, etc. funding programs, credit and liquidity facilities of which, Cash outflows related to derivative transactions, etc. of which, Cash outflows related to funding programs of which, Cash outflows related to credit and liquidity facilities 11 12 13 14 Cash outflows related to contractual funding obligations, etc. 15 Cash outflows related to contingencies 16 Total cash outflows Cash Inflows (3) 17 Cash inflows related to secured lending, etc. 18 Cash inflows related to collection of loans, etc. 19 Other cash inflows 20 Total cash inflows Consolidated Liquidity Coverage Ratio (4) 21 Total HQLA allowed to be included in the calculation 22 Net cash outflows 23 Consolidated liquidity coverage ratio (LCR) 24 The number of data used to calculate the average value (In million yen, %, the number of data) Current Quarter (From 2023/1/1 To 2023/3/31) Prior Quarter (From 2022/10/1 To 2022/12/31) TOTAL UNWEIGHTED VALUE 61,179,680 19,349,431 41,830,248 91,220,784 — 80,150,918 TOTAL WEIGHTED VALUE 4,766,056 582,405 4,183,650 46,429,418 — TOTAL UNWEIGHTED VALUE 60,870,757 19,176,770 41,693,987 91,315,452 — 79,404,764 TOTAL WEIGHTED VALUE 4,747,364 577,352 4,170,012 46,423,484 — 84,423,623 39,632,257 85,023,797 40,131,829 6,797,161 6,797,161 293,877 6,291,654 6,291,654 288,727 34,835,137 12,144,525 35,621,538 12,430,452 2,183,937 420,341 32,230,858 12,336,029 82,387,279 TOTAL UNWEIGHTED VALUE 7,951,685 14,665,456 4,657,445 27,274,587 2,399,495 357,150 32,864,892 11,507,657 83,476,054 TOTAL UNWEIGHTED VALUE 7,091,061 14,228,592 4,767,112 26,086,766 2,183,937 420,341 9,540,247 9,226,027 1,950,039 74,809,944 TOTAL WEIGHTED VALUE 858,311 9,705,732 2,830,310 13,394,354 80,150,918 61,415,590 130.5% 60 2,399,495 357,150 9,673,806 8,795,102 2,223,081 74,908,213 TOTAL WEIGHTED VALUE 834,733 9,494,856 2,893,902 13,223,492 79,404,764 61,684,720 128.7% 62 Notes: 1. The data after the introduction of the liquidity ratio regulation on March 31, 2015 is available on Sumitomo Mitsui Financial Group’s website. (https://www.smfg.co.jp/english/investor/financial/basel_3.html) 2. The average values are calculated based on daily data in accordance with Notification No. 7 issued by the Japanese Financial Services Agency in 2015. Some data, such as attribute information of customers and data on consolidated subsidiaries, is updated on the monthly or quarterly basis. ■ Breakdown of High-Quality Liquid Assets Item 1 Cash and due from banks 2 Securities 3 of which, government bonds, etc. 4 5 of which, municipal bonds, etc. of which, other bonds of which, stocks 6 7 Total high-quality liquid assets (HQLA) Current Quarter (From 2023/1/1 To 2023/3/31) Prior Quarter (From 2022/10/1 To 2022/12/31) (In million yen) 72,771,661 7,379,257 4,390,198 204,398 877,544 1,907,115 80,150,918 71,732,711 7,672,052 4,654,372 210,739 876,485 1,930,453 79,404,764 Note: The above amounts are those of high-quality liquid assets in accordance with the liquidity ratio regulation under the Basel III and do not correspond to the financial amounts. The amounts stated are those after multiplying factors in the liquidity ratio regulation under the Basel III. 272 SMBC GROUP ANNUAL REPORT 2023 SMBC GROUP ANNUAL REPORT 2023 273 012_0800885852308.indd 272 012_0800885852308.indd 272 2023/08/16 9:40:42 2023/08/16 9:40:42 012_0800885852308.indd 273 012_0800885852308.indd 273 2023/08/16 9:40:42 2023/08/16 9:40:42 Sumitomo Mitsui Financial Group Basel III Information Basel III Information Sumitomo Mitsui Financial Group Net Stable Funding Ratio Information (Consolidated) Sumitomo Mitsui Financial Group, Inc. and Subsidiaries Since September 30, 2021, the “Net Stable Funding Ratio” (hereinafter referred to as “NSFR”), the liquidity ratio regulation under the Basel III, has been introduced in Japan. In addition to the application of uniform international standards, Sumitomo Mitsui Financial Group calculates its consolidated NSFR using the calculation formula stipulated in the “Criteria for Evaluating the Soundness of Liquidity Status Set Forth by a Bank Holding Company as a Benchmark for Judging the Soundness of Management of Itself and its Subsidiaries, etc., Based on the Provision of Article 52-25 of the Banking Act, and Which Are Also the Criteria to be Referred to for Judging the Soundness of Management in Banks” (Notification No. 62 issued by the Japanese Financial Services Agency in 2014; hereinafter referred to as the “Liquidity Ratio Notification”). ■ Disclosure of Qualitative Information about Net Stable Funding Ratio 1. Intra-period Changes in Consolidated NSFR As described on the following page, the NSFR has remained stable since the introduction of the liquidity ratio regulation on September 30, 2021. 2. Special Provisions Pertaining to Interdependent Assets and Liabilities Sumitomo Mitsui Financial Group has not applied the “special provisions pertaining to interdependent assets and liabilities” prescribed in Article 99 of the Liquidity Ratio Notification to its NSFR. 3. Other Information Concerning Consolidated NSFR The Liquidity Ratio Notification stipulates the minimum requirement of the NSFR at 100%. The NSFR of Sumitomo Mitsui Financial Group (consolidated) exceeds the minimum requirements of the NSFR, having no cause for concern. In terms of the future NSFR forecasts, Sumitomo Mitsui Financial Group does not expect significant deviations from the disclosed ratios. In addition, the actual NSFR does not differ significantly from the initial forecast. ■ Disclosure of Quantitative Information about Net Stable Funding Ratio (Consolidated) Item Current Quarter (From 2023/1/1 To 2023/3/31) Prior Quarter (From 2022/10/1 To 2022/12/31) Unweighted value by residual maturity Unweighted value by residual maturity No maturity < 6 months 6 months to < 1 year ≥ 1 year Weighted value No maturity < 6 months 6 months to < 1 year ≥ 1 year Weighted value (In million yen, %) Available stable funding (ASF) items (1) 1 Capital; of which: 12,718,109 Common Equity Tier 1 capital, Additional Tier 1 capital and Tier 2 capital (excluding the proportion of Tier 2 instruments with residual maturity of less than one year) before the application of capital deductions Other capital instruments that are not included in the above category 2 3 4 Funding from retail and small business customers; of which: Stable deposits 5 6 Less stable deposits 7 Wholesale funding; of which: 8 Operational deposits 9 Other wholesale funding 10 Liabilities with matching interdependent assets 11 Other liabilities; of which: 12 Derivative liabilities All other liabilities and equity not included in the above categories 13 14 Total available stable funding Required stable funding (RSF) items (2) 15 HQLA 16 Deposits held at financial institutions for operational purposes Loans, repo transactions-related assets, securities and other similar assets; of which: Loans to- and repo transactions with- financial institutions (secured by level 1 HQLA) Loans to- and repo transactions with- financial institutions (not included in item 18) Loans and repo transactions- related assets (not included in item 18, 19 and 22); of which: With a risk weight of less than or equal to 35% under the Standardised Approach for credit risk Residential mortgages; of which: With a risk weight of less than or equal to 35% under the Standardised Approach for credit risk 24 Securities that are not in default and do not qualify as HQLA and other similar assets 25 Assets with matching interdependent liabilities 17 18 19 20 21 22 23 0 0 0 12,718,109 0 61,494,865 37,883 19,665,960 41,828,905 69,030,012 — 69,030,012 0 37,883 61,647,438 — 61,647,438 — — 723,401 11,483,564 723,401 11,483,564 317,900 29,016 0 0 0 0 1,844,262 14,562,371 12,402,115 1,470,433 14,188,542 12,402,115 373,829 373,829 0 0 0 0 24,687 56,387,459 61,668,050 37,687 0 0 0 0 1,871,819 14,273,935 1,529,204 13,931,320 342,614 342,614 0 56,541,691 0 0 5,610,102 — 5,610,102 0 24,687 20,082,693 — 20,082,693 18,682,662 37,704,797 59,913,915 — 59,913,915 20,130,532 41,537,517 65,243,911 — 65,243,911 0 37,687 61,935,035 — 61,935,035 0 0 4,475,965 — 4,475,965 0 0 17,101,072 — 17,101,072 19,124,006 37,417,685 54,588,077 — 54,588,077 — 0 0 0 — 692,525 411,185 281,340 — — — 72,997 1,045,378 11,408,918 72,997 1,045,378 11,408,918 130,936,744 3,483,332 0 173,458 393,134 33,893 — 0 0 0 — 831,919 596,135 235,784 — 73,448 73,448 125,477,152 2,935,973 0 213,513 1,548,415 37,729,957 9,825,672 72,135,457 79,782,792 1,685,137 39,864,863 9,306,190 72,490,204 80,780,331 0 7,083,651 13,812 32,259 55,236 0 6,828,354 24,074 3,052 40,289 242,403 6,592,154 2,381,538 11,736,943 14,001,492 375,415 8,312,547 2,248,322 11,770,395 14,403,452 889,227 22,724,631 6,555,772 46,403,796 53,670,594 897,196 23,296,993 6,283,139 46,666,229 54,195,931 726 3,527,273 346,258 1,180,461 1,873,962 147 3,350,126 301,164 1,293,116 1,999,202 0 0 292,222 290,990 10,624,058 8,002,447 159,199 158,961 6,598,039 4,447,806 0 0 291,306 290,906 10,538,905 7,943,873 158,331 157,937 6,526,512 4,400,367 416,784 1,037,297 583,558 3,338,399 4,053,022 412,525 1,135,660 459,746 3,511,622 4,196,784 — — — — — — — — — — 274 SMBC GROUP ANNUAL REPORT 2023 SMBC GROUP ANNUAL REPORT 2023 275 012_0800885852308.indd 274 012_0800885852308.indd 274 2023/08/16 9:40:42 2023/08/16 9:40:42 012_0800885852308.indd 275 012_0800885852308.indd 275 2023/08/16 9:40:43 2023/08/16 9:40:43 26 Other assets; of which: 3,812,248 1,469,644 91,507 15,350,413 19,574,153 3,343,731 1,407,190 88,364 15,271,687 19,027,356 29 27 28 Physical traded commodities, including gold Assets posted as initial margin for derivative contracts and contributions to default funds of CCPs (including those that are not recorded on consolidated balance sheet) Derivative assets Derivative liabilities (before deduction of variation margin posted) All other assets not included in the above categories 32 Off-balance sheet items 33 Total required stable funding 34 Consolidated net stable funding ratio (NSFR) 30 31 0 0 0 0 1,085,792 922,923 1,133,010 963,059 0 0 235,962 235,962 0 0 262,144 262,144 3,812,248 1,469,644 91,507 14,028,658 18,415,267 3,343,731 1,407,190 88,364 13,876,532 17,802,153 118,576,027 2,428,914 105,442,652 124.1% 115,951,984 2,433,315 105,390,490 119.0% SMBC Financial Highlights Financial Data (Excerpt from Securities Report) of Sumitomo Mitsui Banking Corporation can be found on our website� URL: https://www�smfg�co�jp/english/investor/library/annual/cy2023annu_eng_smfg�html Sumitomo Mitsui Banking Corporation Consolidated Year ended March 31 For the Year: 2023 2022 Ordinary income ����������������������������������������������������������� ¥ 4,991,948 Ordinary profit �������������������������������������������������������������� 1,125,928 Profit attributable to owners of parent ������������������������� 807,042 Comprehensive income ����������������������������������������������� 952,014 ¥ 2,990,450 867,849 568,244 327,943 At Year-End: Millions of yen 2021 ¥ 2,786,647 534,722 406,093 1,238,547 2020 2019 ¥ 3,469,068 770,491 517,750 222,122 ¥ 3,369,898 894,501 617,493 548,236 Total net assets ������������������������������������������������������������ ¥ 9,735,509 Total assets ������������������������������������������������������������������ 252,567,523 Total capital ratio (BIS guidelines) �������������������������������� Tier 1 capital ratio (BIS guidelines) ������������������������������� Common equity Tier 1 capital ratio 15.34% 14.15% (BIS guidelines) ���������������������������������������������������������� Number of employees �������������������������������������������������� 12.43% 59,399 ¥ 9,219,858 242,105,934 ¥ 9,256,369 228,066,567 ¥ 8,368,349 206,089,633 ¥ 8,986,749 190,690,293 15�78% 14�53% 12�67% 58,041 17�72% 15�89% 13�98% 58,127 18�06% 15�80% 13�70% 57,961 20�32% 17�57% 15�17% 58,527 Note: “Number of employees” has been reported on the basis of full-time workers. “Number of employees” includes locally hired overseas staff members but excludes contract employees and temporary staff. Basel III Information Capital Ratio and Leverage Ratio Information (Consolidated) Sumitomo Mitsui Banking Corporation and Subsidiaries ■ CC1: Composition of regulatory capital Basel III Template No. Items SMBC (Millions of yen, except percentages) a b As of March 31,2023 As of March 31,2022 c Reference to Template CC2 Common Equity Tier 1 capital: instruments and reserves (1) 1a+2-1c-26 Directly issued qualifying common share capital plus related capital surplus and retained earnings 1a 2 1c 26 of which: capital and capital surplus of which: retained earnings of which: treasury stock (–) of which: national specific regulatory adjustments (earnings to be distributed) (–) of which: other than the above 1b Stock acquisition rights to common shares 3 Accumulated other comprehensive income and other disclosed reserves 5 Common share capital issued by subsidiaries and held by third parties (amount allowed in group CET1) 7,694,942 7,351,294 3,526,676 4,239,771 — 71,505 — — 1,821,091 3,527,198 3,867,551 — 43,455 — — 1,695,697 1,404 1,231 (a) 6 Common Equity Tier 1 capital: instruments and reserves (A) 9,517,439 9,048,223 Non-consolidated Year ended March 31 For the Year: 2023 2022 Ordinary income ����������������������������������������������������������� ¥ 4,133,627 2,451 1,699,474 883,603 Trust fees ����������������������������������������������������������������� Gross banking profit (A) ����������������������������������������������� Expenses (excluding nonrecurring losses) (B) ������������� Overhead ratio (B) / (A) ������������������������������������������������� Banking profit ¥ 2,477,287 2,254 1,579,178 857,233 Millions of yen 2021 ¥ 2,283,356 2,076 1,481,662 816,488 2020 2019 ¥ 2,851,162 2,110 1,412,007 808,052 ¥ 2,805,840 2,250 1,395,586 811,533 52.0% 54�3% 55�1% 57�2% 58�2% (before provision for general reserve for possible loan losses) �������������������������������������������������������������� Core banking profit ������������������������������������������������������ Core banking profit (excluding gains or losses on cancellation of investment trusts) ���������������������������� Banking profit ��������������������������������������������������������������� Ordinary profit �������������������������������������������������������������� Net income ������������������������������������������������������������������� At Year-End: 815,871 902,618 863,278 797,003 865,797 634,154 Total net assets ������������������������������������������������������������ ¥ 7,394,955 Total assets ������������������������������������������������������������������ 235,337,464 Deposits ����������������������������������������������������������������������� 149,948,880 Loans and bills discounted ������������������������������������������ 94,307,397 Securities ��������������������������������������������������������������������� 32,210,394 Trust assets and liabilities �������������������������������������������� 5,108,905 Loans and bills discounted �������������������������������������� 1,070,590 Securities in trust account (excluding 721,944 764,309 722,805 715,731 745,950 546,294 665,173 585,189 551,401 502,679 436,062 338,036 603,955 529,752 505,785 586,741 483,944 317,381 584,053 581,176 535,229 584,053 649,647 477,367 ¥ 7,546,483 227,964,729 141,015,245 87,671,294 38,238,579 4,622,304 751,760 ¥ 8,065,866 215,846,732 134,685,582 81,937,725 36,487,225 4,484,901 671,654 ¥ 7,496,219 193,963,791 119,973,324 80,187,382 27,058,633 4,261,245 662,844 ¥ 7,962,185 179,348,654 116,091,103 76,401,807 24,336,638 3,842,641 477,094 performance-guarantee crypto-assets �������������� — — — — — Electronically recorded transferable rights on securities in trust account ����������������������������������� Capital stock ���������������������������������������������������������������� — 1,770,996 — 1,770,996 — 1,770,996 — 1,770,996 — 1,770,996 Number of shares issued (in thousands) Common stock ���������������������������������������������������� Preferred stock ���������������������������������������������������� Dividend payout ratio ��������������������������������������������������� Total capital ratio (BIS guidelines) �������������������������������� Tier 1 capital ratio (BIS guidelines) ������������������������������� Common equity Tier 1 capital ratio (BIS guidelines) �������������������������������������������������������� Number of employees �������������������������������������������������� 106,248 70 73.46% 13.97% 12.63% 10.81% 27,839 106,248 70 70�61% 14�77% 13�49% 11�53% 27,851 106,248 70 77�79% 16�96% 15�08% 13�09% 28,104 106,248 70 167�61% 17�61% 15�23% 13�01% 27,957 106,248 70 73�09% 20�28% 17�37% 14�85% 28,482 Notes: 1. Core banking profit = Banking profit (Before provision of general reserve for possible loan losses) – Gains (losses) on bonds 2. “Number of employees” has been reported on the basis of full-time workers. “Number of employees” includes locally hired overseas staff members but excludes contract employees, temporary staff, and executive officers who do not concurrently serve as Directors. electronically recorded transferable rights on securities in trust account) ��������������������������������� Crypto-assets in trust account and 900,799 889,179 922,114 1,164,251 1,330,384 27 Common Equity Tier 1 capital: regulatory adjustments (2) 8+9 Total intangible assets (net of related tax liability, excluding those relating to mortgage servicing rights) 8 9 10 of which: goodwill (including those equivalent) of which: other intangibles other than goodwill and mortgage servicing rights Deferred tax assets that rely on future profitability excluding those arising from temporary differences (net of related tax liability) 11 Net deferred gains or losses on hedges 12 Shortfall of eligible provisions to expected losses 13 Securitisation gain on sale 14 Gains and losses due to changes in own credit risk on fair valued liabilities 15 Net defined benefit asset 16 Investments in own shares (excluding those reported in the Net assets section) 17 Reciprocal cross-holdings in common equity 18 Investments in the capital of banking, financial and insurance entities that are outside the scope of regulatory consolidation, net of eligible short positions, where the bank does not own more than 10% of the issued share capital (amount above the 10% threshold) 19+20+21 Amount exceeding the 10% threshold on specified items of which: significant investments in the common stock of financials of which: mortgage servicing rights of which: deferred tax assets arising from temporary differences (net of related tax liability) 19 20 21 22 Amount exceeding the 15% threshold on specified items 23 24 25 of which: significant investments in the common stock of financials of which: mortgage servicing rights of which: deferred tax assets arising from temporary differences (net of related tax liability) Regulatory adjustments applied to Common Equity Tier 1 due to insufficient Additional Tier 1 and Tier 2 to cover deductions 254,563 228,199 3,801 250,761 6,003 222,195 1,292 4,452 (77,631) — 52,939 45,592 485,094 — — (73,356) — 56,744 22,099 427,347 — — — — — — — — — — — — — — — — — — — — — — 28 Common Equity Tier 1 capital: regulatory adjustments (B) 761,851 665,487 Common Equity Tier 1 capital (CET1) 29 Common Equity Tier 1 capital (CET1) ((A)-(B)) (C) 8,755,588 8,382,735 276 SMBC GROUP ANNUAL REPORT 2023 SMBC GROUP ANNUAL REPORT 2023 277 013_0800804262308.indd 276 013_0800804262308.indd 276 2023/08/09 13:40:31 2023/08/09 13:40:31 014_0800885852308.indd 277 014_0800885852308.indd 277 2023/08/10 15:00:26 2023/08/10 15:00:26 SMBC Basel III Information Basel III Information SMBC Basel III Template No. Items Additional Tier 1 capital: instruments (3) (Millions of yen, except percentages) a b As of March 31,2023 As of March 31,2022 c Reference to Template CC2 31a Directly issued qualifying Additional Tier 1 instruments plus related capital surplus of which: classified as equity under applicable accounting standards and the breakdown 31b Stock acquisition rights to Additional Tier 1 instruments 30 32 34-35 33+35 Directly issued qualifying Additional Tier 1 instruments plus related capital surplus of which: classified as liabilities under applicable accounting standards Qualifying Additional Tier 1 instruments plus related capital surplus issued by special purpose vehicles and other equivalent entities Additional Tier 1 instruments issued by subsidiaries and held by third parties (amount allowed in group AT1) Eligible Tier 1 capital instruments subject to transitional arrangements included in Additional Tier 1 capital: instruments — — — — 1,267,000 1,235,000 — — 23,597 20,588 — — of which: instruments issued by banks and their special purpose vehicles of which: instruments issued by subsidiaries (excluding banks’ special purpose vehicles) 33 35 36 Additional Tier 1 capital: instruments (D) — — 1,290,597 — — 1,255,588 Additional Tier 1 capital: regulatory adjustments 37 Investments in own Additional Tier 1 instruments 38 Reciprocal cross-holdings in Additional Tier 1 instruments 39 40 42 Investments in the capital of banking, financial and insurance entities that are outside the scope of regulatory consolidation, net of eligible short positions, where the bank does not own more than 10% of the issued common share capital of the entity (amount above the 10% threshold) Significant investments in the Additional Tier 1 capital of banking, financial and insurance entities that are outside the scope of regulatory consolidation (net of eligible short positions) Regulatory adjustments applied to Additional Tier 1 due to insufficient Tier 2 to cover deductions 43 Additional Tier 1 capital: regulatory adjustments Additional Tier 1 capital (AT1) 44 Additional Tier 1 capital ((D)-(E)) Tier 1 capital (T1 = CET1 + AT1) 45 Tier 1 capital (T1 = CET1 + AT1) ((C)+(F)) Tier 2 capital: instruments and provisions (4) — — — — — — 82,978 25,525 — — 82,978 25,525 1,207,618 1,230,062 (E) (F) (G) 9,963,206 9,612,798 46 Directly issued qualifying Tier 2 instruments plus related capital surplus of which: classified as equity under applicable accounting standards and the breakdown Stock acquisition rights to Tier 2 instruments Directly issued qualifying Tier 2 instruments plus related capital surplus of which: classified as liabilities under applicable accounting standards Qualifying Tier 2 instruments plus related capital surplus issued by special purpose vehicles and other equivalent entities 48-49 Tier 2 instruments issued by subsidiaries and held by third parties (amount allowed in group T2) Eligible Tier 2 capital instruments subject to transitional arrangements included in Tier 2: instruments and provisions 47+49 of which: instruments issued by banks and their special purpose vehicles of which: instruments issued by subsidiaries (excluding banks’ special purpose vehicles) 47 49 50 Total of general reserve for possible loan losses and eligible provisions included in Tier 2 50a 50b of which: general reserve for possible loan losses of which: eligible provisions 51 Tier 2 capital: instruments and provisions (H) — — — — 766,614 753,772 — — 4,491 4,365 — — — — 108,065 17,293 90,771 879,171 — — 102,903 11,647 91,255 861,041 Basel III Template No. Items Tier 2 capital: regulatory adjustments (5) 52 Investments in own Tier 2 instruments 53 Reciprocal cross-holdings in Tier 2 instruments and other TLAC liabilities 54 55 Investments in the capital and other TLAC liabilities of banking, financial and insurance entities that are outside the scope of regulatory consolidation, net of eligible short positions, where the bank does not own more than 10% of the issued common share capital of the entity (amount above the 10% threshold) Significant investments in the capital and other TLAC liabilities of banking, financial and insurance entities that are outside the scope of regulatory consolidation (net of eligible short positions) 57 Tier 2 capital: regulatory adjustments Tier 2 capital (T2) 58 Tier 2 capital (T2) ((H)-(I)) Total capital (TC = T1 + T2) 59 Total capital (TC = T1 + T2) ((G)+(J)) Risk weighted assets (6) 60 Total risk-weighted assets (RWA) Capital ratios (consolidated) (7) (Millions of yen, except percentages) a b As of March 31,2023 As of March 31,2022 c Reference to Template CC2 — — — — — — 40,062 36,723 40,062 36,723 839,109 824,318 (I) (J) (K) 10,802,315 10,437,117 (L) 70,401,996 66,120,492 61 Common Equity Tier 1 risk-weighted capital ratio (consolidated) ((C)/(L)) 62 Tier 1 risk-weighted capital ratio (consolidated) ((G)/(L)) 63 Total risk-weighted capital ratio (consolidated) ((K)/(L)) Regulatory adjustments (8) 72 73 Non-significant investments in the capital and other TLAC liabilities of other financials that are below the thresholds for deduction (before risk weighting) Significant investments in the common stock of other financials that are below the thresholds for deduction (before risk weighting) 74 Mortgage servicing rights that are below the thresholds for deduction (before risk weighting) Deferred tax assets arising from temporary differences that are below the thresholds for deduction (before risk weighting) 75 Provisions included in Tier 2 capital: instruments and provisions (9) 76 Provisions (general reserve for possible loan losses) 77 Cap on inclusion of provisions (general reserve for possible loan losses) 78 Provisions eligible for inclusion in Tier 2 in respect of exposures subject to internal ratings-based approach (prior to application of cap) (if the amount is negative, report as “nil”) 12.43% 14.15% 15.34% 12.67% 14.53% 15.78% 532,660 623,375 597,865 534,426 — — 48,842 27,386 17,293 30,464 90,771 11,647 23,965 91,255 79 Cap for inclusion of provisions in Tier 2 under internal ratings-based approach 296,379 292,945 Capital instruments subject to transitional arrangements (10) 82 Current cap on AT1 instruments subject to transitional arrangements 83 Amount excluded from AT1 due to cap (excess over cap after redemptions and maturities) (if the amount is negative, report as “nil”) 84 Current cap on T2 instruments subject to transitional arrangements 85 Amount excluded from T2 due to cap (excess over cap after redemptions and maturities) (if the amount is negative, report as “nil”) — — — — — — — — Items Required capital ((L) ✕ 8%) (Millions of yen) As of March 31,2023 5,632,159 As of March 31,2022 5,289,639 278 SMBC GROUP ANNUAL REPORT 2023 SMBC GROUP ANNUAL REPORT 2023 279 014_0800885852308.indd 278 014_0800885852308.indd 278 2023/08/10 15:00:26 2023/08/10 15:00:26 014_0800885852308.indd 279 014_0800885852308.indd 279 2023/08/10 15:00:26 2023/08/10 15:00:26 SMBC Basel III Information Basel III Information SMBC ■ CC2: Reconciliation of regulatory capital to balance sheet Sumitomo Mitsui Banking Corporation and Subsidiaries Items (Assets) Cash and due from banks Call loans and bills bought Receivables under resale agreements Receivables under securities borrowing transactions Monetary claims bought Trading assets Money held in trust Securities Loans and bills discounted Foreign exchanges Lease receivables and investment assets Other assets Tangible fixed assets Intangible fixed assets Net defined benefit asset Deferred tax assets Customers’ liabilities for acceptances and guarantees Reserve for possible loan losses Total assets (Liabilities) Deposits Negotiable certificates of deposit Call money and bills sold Payables under repurchase agreements Payables under securities lending transactions Commercial paper Trading liabilities Borrowed money Foreign exchanges Bonds Due to trust account Other liabilities Reserve for employee bonuses Reserve for executive bonuses Net defined benefit liability Reserve for executive retirement benefits Reserve for point service program Reserve for reimbursement of deposits Deferred tax liabilities Deferred tax liabilities for land revaluation Acceptances and guarantees Total liabilities (Net assets) Capital stock Capital surplus Retained earnings Treasury stock Total stockholders’ equity Net unrealized gains or losses on other securities Net deferred gains or losses on hedges Land revaluation excess Foreign currency translation adjustments Accumulated remeasurements of defined benefit plans Total accumulated other comprehensive income Non-controlling interests Total net assets Total liabilities and net assets a b c (Millions of yen) Consolidated balance sheet as in published financial statements As of March 31, 2023 As of March 31, 2022 Reference to Template CC1 Reference to appended table 73,403,912 6,374,812 4,603,145 1,612,415 5,549,887 4,084,755 0 32,074,167 99,823,911 1,940,736 226,302 8,753,186 1,337,805 354,939 698,974 57,428 12,278,891 (607,747) 252,567,523 159,251,139 13,252,060 786,055 14,194,027 438,094 2,320,969 4,234,268 22,246,521 1,496,765 681,821 2,413,464 8,811,706 52,102 1,623 6,367 596 1,140 10,845 325,598 27,952 12,278,891 242,832,013 1,770,996 1,965,682 4,239,771 (210,003) 7,766,447 972,941 (15,964) 35,005 697,887 131,222 1,821,091 147,969 9,735,509 252,567,523 72,742,334 3,265,134 3,856,984 1,874,221 5,363,980 3,780,424 0 37,465,859 92,472,845 2,799,157 228,608 6,312,402 1,297,011 314,145 616,206 52,543 10,342,818 (678,743) 242,105,934 149,249,696 13,460,296 704,999 16,350,836 305,779 1,856,909 2,788,884 26,887,509 1,265,002 812,303 2,443,873 5,980,727 44,526 1,497 10,985 580 870 5,767 343,017 29,193 10,342,818 232,886,075 1,770,996 1,966,205 3,867,551 (210,003) 7,394,750 1,253,370 (74,044) 36,320 361,502 118,548 1,695,697 129,411 9,219,858 242,105,934 (a) 6-a 2-b,6-b 6-c 6-d 2-a 3 4-a 6-e 8-a 8-b 6-f 4-b 4-c 1-a 1-b 1-c 1-d 5 7-b Note: The regulatory scope of consolidation is the same as the accounting scope of consolidation. (Appended Table) 1. Stockholders’ equity (1) Consolidated balance sheet Consolidated balance sheet items Capital stock Capital surplus Retained earnings Treasury stock Total stockholders’ equity (2) Composition of capital As of March 31, 2023 As of March 31, 2022 1,770,996 1,770,996 1,965,682 1,966,205 4,239,771 3,867,551 (210,003) (210,003) 7,766,447 7,394,750 (Millions of yen) Remarks Ref. No. Including eligible Tier 1 capital instruments subject to transitional arrangement Including eligible Tier 1 capital instruments subject to transitional arrangement Eligible Tier 1 capital instruments subject to transitional arrangement 1-a 1-b 1-c 1-d (Millions of yen) Composition of capital disclosure As of March 31, 2023 As of March 31, 2022 Remarks Basel III Template No. Directly issued qualifying common share capital plus related capital surplus and retained earnings 7,766,447 7,394,750 of which: capital and capital surplus of which: retained earnings of which: treasury stock (–) of which: other than the above Directly issued qualifying Additional Tier 1 instruments plus related capital surplus of which: classified as equity under applicable accounting standards and the breakdown 2. Intangible fixed assets (1) Consolidated balance sheet Consolidated balance sheet items Intangible fixed assets Securities of which: goodwill attributable to equity- method investees 3,526,676 4,239,771 — — 3,527,198 3,867,551 — — — — As of March 31, 2023 As of March 31, 2022 354,939 314,145 32,074,167 37,465,859 3,801 6,003 Income taxes related to above 104,177 91,950 Stockholders’ equity attributable to common shares (before adjusting national specific regulatory adjustments (earnings to be distributed)) Stockholders’ equity attributable to preferred shares with a loss absorbency clause upon entering into effectively bankruptcy (Millions of yen) Remarks 1a 2 1c 31a Ref. No. 2-a 2-b As of March 31, 2023 As of March 31, 2022 3,801 6,003 (Millions of yen) Remarks Basel III Template No. 8 (2) Composition of capital Composition of capital disclosure Goodwill (including those equivalent) Other intangibles other than goodwill and mortgage servicing rights Mortgage servicing rights Amount exceeding the 10% threshold on specified items Amount exceeding the 15% threshold on specified items Mortgage servicing rights that are below the thresholds for deduction (before risk weighting) 3. Net defined benefit asset (1) Consolidated balance sheet 250,761 222,195 Software and other — — — — — — — — Consolidated balance sheet items Net defined benefit asset As of March 31, 2023 As of March 31, 2022 698,974 616,206 Income taxes related to above 213,879 188,858 (Millions of yen) Remarks 9 20 24 74 Ref. No. 3 280 SMBC GROUP ANNUAL REPORT 2023 SMBC GROUP ANNUAL REPORT 2023 281 014_0800885852308.indd 280 014_0800885852308.indd 280 2023/08/10 15:00:26 2023/08/10 15:00:26 014_0800885852308.indd 281 014_0800885852308.indd 281 2023/08/10 15:00:26 2023/08/10 15:00:26 SMBC Basel III Information Basel III Information SMBC (2) Composition of capital Composition of capital disclosure Net defined benefit asset 4. Deferred tax assets (1) Consolidated balance sheet Consolidated balance sheet items Deferred tax assets Deferred tax liabilities Deferred tax liabilities for land revaluation Tax effects on intangible fixed assets Tax effects on net defined benefit asset (2) Composition of capital As of March 31, 2023 As of March 31, 2022 485,094 427,347 (Millions of yen) Remarks Basel III Template No. 15 As of March 31, 2023 As of March 31, 2022 57,428 325,598 27,952 52,543 343,017 29,193 104,177 213,879 91,950 188,858 (Millions of yen) Remarks Ref. No. 4-a 4-b 4-c (Millions of yen) Composition of capital disclosure As of March 31, 2023 As of March 31, 2022 Remarks Basel III Template No. Deferred tax assets that rely on future profitability excluding those arising from temporary differences (net of related tax liability) 1,292 4,452 Deferred tax assets arising from temporary differences (net of related tax liability) Amount exceeding the 10% threshold on specified items Amount exceeding the 15% threshold on specified items Deferred tax assets arising from temporary differences that are below the thresholds for deduction (before risk weighting) 48,842 27,386 — — — — 48,842 27,386 5. Deferred gains or losses on derivatives under hedge accounting (1) Consolidated balance sheet Consolidated balance sheet items Net deferred gains or losses on hedges As of March 31, 2023 As of March 31, 2022 (15,964) (74,044) (2) Composition of capital Composition of capital disclosure As of March 31, 2023 As of March 31, 2022 Net deferred gains or losses on hedges (77,631) (73,356) 6. Items associated with investments in the capital of financial institutions (1) Consolidated balance sheet This item does not agree with the amount reported on the consolidated balance sheet due to offsetting of assets and liabilities. This item does not agree with the amount reported on the consolidated balance sheet due to offsetting of assets and liabilities. 10 21 25 75 (Millions of yen) (Millions of yen) Remarks Remarks Excluding those items whose valuation differences arising from hedged items are recognized as “Accumulated other comprehensive income” Ref. No. 5 Basel III Template No. 11 (Millions of yen) Remarks Ref. No. Consolidated balance sheet items Trading assets Securities Loans and bills discounted Other assets Trading liabilities Other liabilities As of March 31, 2023 As of March 31, 2022 4,084,755 3,780,424 Including trading account securities and derivatives for trading assets 32,074,167 37,465,859 99,823,911 92,472,845 Including subordinated loans 8,753,186 6,312,402 Including derivatives 4,234,268 8,811,706 2,788,884 Including trading account securities sold and derivatives for trading liabilities 5,980,727 Including derivatives 6-a 6-b 6-c 6-d 6-e 6-f As of March 31, 2023 As of March 31, 2022 Remarks Basel III Template No. (Millions of yen) (2) Composition of capital Composition of capital disclosure Investments in own capital instruments Common Equity Tier 1 capital Additional Tier 1 capital Tier 2 capital Reciprocal cross-holdings in the capital of banking, financial and insurance entities Common Equity Tier 1 capital Additional Tier 1 capital Tier 2 capital and other TLAC liabilities Investments in the capital of banking, financial and insurance entities that are outside the scope of regulatory consolidation, net of eligible short positions, where the bank does not own more than 10% of the issued share capital (amount above the 10% threshold) Common Equity Tier 1 capital Additional Tier 1 capital Tier 2 capital and other TLAC liabilities Non-significant investments in the capital and other TLAC liabilities of other financials that are below the thresholds for deductions (before risk weighting) Significant investments in the capital of banking, financial and insurance entities that are outside the scope of regulatory consolidation (net of eligible short positions) Amount exceeding the 10% threshold on specified items Amount exceeding the 15% threshold on specified items Additional Tier 1 capital Tier 2 capital and other TLAC liabilities Significant investments in the common stock of other financials that are below the thresholds for deductions (before risk weighting) 7. Non-controlling interests (1) Consolidated balance sheet Consolidated balance sheet items Non-controlling interests (2) Composition of capital Composition of capital disclosure — — — — — — — — — — — — — — — — 532,660 623,375 — — — — — — 532,660 623,375 720,906 596,675 — — — — 82,978 40,062 25,525 36,723 597,865 534,426 As of March 31, 2023 As of March 31, 2022 147,969 129,411 As of March 31, 2023 As of March 31, 2022 (Millions of yen) (Millions of yen) Remarks Remarks Amount allowed in group CET1 1,404 1,231 Qualifying Additional Tier 1 instruments plus related capital surplus issued by special purpose vehicles and other equivalent entities — — Amount allowed in group AT1 23,597 20,588 Qualifying Tier 2 instruments plus related capital surplus issued by special purpose vehicles and other equivalent entities — — Amount allowed in group T2 4,491 4,365 After reflecting amounts eligible for inclusion (Non-Controlling Interest after adjustments) After reflecting amounts eligible for inclusion (Non-Controlling Interest after adjustments) After reflecting amounts eligible for inclusion (Non-Controlling Interest after adjustments) After reflecting amounts eligible for inclusion (Non-Controlling Interest after adjustments) After reflecting amounts eligible for inclusion (Non-Controlling Interest after adjustments) 16 37 52 17 38 53 18 39 54 72 19 23 40 55 73 Ref. No. 7-b Basel III Template No. 5 30-31ab-32 34-35 46 48-49 282 SMBC GROUP ANNUAL REPORT 2023 SMBC GROUP ANNUAL REPORT 2023 283 014_0800885852308.indd 282 014_0800885852308.indd 282 2023/08/10 15:00:27 2023/08/10 15:00:27 014_0800885852308.indd 283 014_0800885852308.indd 283 2023/08/10 15:00:27 2023/08/10 15:00:27 SMBC Basel III Information Basel III Information SMBC 8. Other capital instruments (1) Consolidated balance sheet Consolidated balance sheet items Borrowed money Bonds Total (2) Composition of capital Composition of capital disclosure Directly issued qualifying Additional Tier 1 instruments plus related capital surplus of which: classified as liabilities under applicable accounting standards Directly issued qualifying Tier 2 instruments plus related capital surplus of which: classified as liabilities under applicable accounting standards As of March 31, 2023 As of March 31, 2022 22,246,521 26,887,509 812,303 22,928,343 27,699,812 681,821 As of March 31, 2023 As of March 31, 2022 1,267,000 1,235,000 766,614 753,772 (Millions of yen) Remarks Ref. No. 8-a 8-b (Millions of yen) Remarks Basel III Template No. 32 46 ■ Composition of Leverage Ratio Corresponding line # on Basel III disclosure template (Table2) Corresponding line # on Basel III disclosure template (Table1) Items On-balance sheet exposures (1) (In million yen, %) As of March 31, 2023 As of March 31, 2022 1a 1b 1c 1d 1 2 3 1 2 7 3 7 On-balance sheet exposures before deducting adjustment items Total assets reported in the consolidated balance sheet The amount of assets of subsidiaries that are not included in the scope of the leverage ratio on a consolidated basis (-) The amount of assets of subsidiaries that are included in the scope of the leverage ratio on a consolidated basis (except those included in the total assets reported in the consolidated balance sheet) The amount of assets that are deducted from the total assets reported in the consolidated balance sheet (except adjustment items) (-) The amount of adjustment items pertaining to Tier 1 capital (-) Total on-balance sheet exposures (a) 166,362,969 193,518,055 159,674,384 182,384,803 — — — — 27,155,086 22,710,418 823,929 165,539,040 685,525 158,988,858 Exposures related to derivative transactions (2) 4 5 6 7 8 9 10 11 Replacement cost associated with derivatives transactions, etc. (with the 1.4 alpha factor applied) Replacement cost associated with derivatives transactions, etc. Add-on amount for potential future exposure associated with derivatives transactions, etc. (with the 1.4 alpha factor applied) Add-on amount associated with derivatives transactions, etc. The amount of receivables arising from providing cash margin in relation to derivatives transactions, etc. The amount of receivables arising from providing collateral, provided where deducted from the consolidated balance sheet pursuant to the operative accounting framework The amount of receivables arising from providing cash margin, provided where deducted from the consolidated balance sheet pursuant to the operative accounting framework The amount of deductions of receivables (out of those arising from providing cash variation margin) (-) The amount of client-cleared trade exposures for which a bank acting as clearing member is not obliged to make any indemnification (-) Adjusted effective notional amount of written credit derivatives The amount of deductions from effective notional amount of written credit derivatives (-) Total exposures related to derivative transactions (b) 4 4,065,961 3,052,855 4,495,701 3,989,441 864,127 975,368 — — 145,156 465,971 73,650 — 44,354 — 9,354,284 7,596,048 6,215,561 — 299,578 5,731,206 — 251,370 Exposures related to repo transactions (3) 12 13 14 15 16 The amount of assets related to repo transactions, etc. The amount of deductions from the assets above (line 12) (-) The exposures for counterparty credit risk for repo transactions, etc. The exposures for agent repo transaction Total exposures related to repo transactions, etc. 5 Exposures related to off-balance sheet transactions (4) 17 18 19 Notional amount of off-balance sheet transactions The amount of adjustments for conversion in relation to off-balance sheet transactions (-) Total exposures related to off-balance sheet transactions 6 Leverage ratio on a consolidated basis (5) 20 21 22 8 The amount of capital (Tier 1 capital) Total exposures ((a)+(b)+(c)+(d)) Leverage ratio on a consolidated basis ((e)/(f)) Minimum leverage ratio requirement Leverage ratio on a consolidated basis (including deposits with the Bank of Japan) (6) Total exposures The amount of deposits with the Bank of Japan Total exposures (including deposits with the Bank of Japan) Leverage ratio on a consolidated basis (including deposits with the Bank of Japan) ((e)/(f’)) (c) 6,515,139 5,982,576 75,774,180 69,458,000 45,111,909 42,604,277 30,662,270 26,853,722 9,963,206 212,070,734 4.69% 3.00% 212,070,734 59,049,467 271,120,202 9,612,798 199,421,206 4.82% 3.00% 199,421,206 59,721,131 259,142,337 3.67% 3.70% (d) (e) (f) (f) (f’) 284 SMBC GROUP ANNUAL REPORT 2023 SMBC GROUP ANNUAL REPORT 2023 285 014_0800885852308.indd 284 014_0800885852308.indd 284 2023/08/10 15:00:27 2023/08/10 15:00:27 014_0800885852308.indd 285 014_0800885852308.indd 285 2023/08/10 15:00:27 2023/08/10 15:00:27 SMBC Basel III Information Basel III Information SMBC Liquidity Coverage Ratio Information (Consolidated) Sumitomo Mitsui Banking Corporation and Subsidiaries Since March 31, 2015, the “Liquidity Coverage Ratio” (hereinafter referred to as “LCR”), the liquidity ratio regulation under the Basel III, has been introduced in Japan. In addition to the application of uniform international standards, SMBC calculates its consolidated LCR using the calculation formula stipulated in the “Criteria for Evaluating the Soundness of Liquidity Status Set Forth by a Bank as a Benchmark for Judging its Soundness of Management, Based on the Provision of Article 14-2 of the Banking Act” (Notification No. 60 issued by the Japanese Financial Services Agency in 2014; hereinafter referred to as the “Liquidity Ratio Notification”). ■ Disclosure of Qualitative Information about Liquidity Coverage Ratio 1. Intra-period Changes in Consolidated LCR As described on the following page, the LCR has remained stable since the introduction of the liquidity ratio regulation on March 31, 2015. 2. Assessment of Consolidated LCR The Liquidity Ratio Notification stipulates the minimum requirement of the LCR at 100%. The LCR of SMBC (consolidated) exceeds the minimum requirements of the LCR, having no cause for concern. In terms of the future LCR forecasts, SMBC does not expect significant deviations from the disclosed ratios. In addition, the actual LCR does not differ significantly from the initial forecast. 3. Composition of High-Quality Liquid Assets Regarding the high-quality liquid assets allowed to be included in the calculation, there are no significant changes in locations and properties of currency denominations, categories and so on. In addition, in respect of major currencies (those of which the aggregate amount of liabilities denominated in a certain currency accounts for 5% or more of SMBC’s total liabilities on the consolidated basis), there is no significant mismatch in currency denomination between the total amount of the high-quality liquid assets allowed to be included in the calculation and the amount of net cash outflows. 4. Other Information Concerning Consolidated LCR SMBC has not applied “special provisions concerning qualifying operational deposits” prescribed in Article 29 of the Liquidity Ratio Notification and “increased liquidity needs related to market valuation changes on derivative or other transactions simulated through Scenario Approach” prescribed in Article 38 of the Liquidity Ratio Notification. Meanwhile, SMBC records “due to trust account,” etc. under “cash outflows based on other contracts” prescribed in Article 60 of the Liquidity Ratio Notification. ■ Disclosure of Quantitative Information about Liquidity Coverage Ratio (Consolidated) Item High-Quality Liquid Assets (1) 1 Total high-quality liquid assets (HQLA) Cash Outflows (2) of which, Stable deposits of which, Less stable deposits 2 Cash outflows related to unsecured retail funding 3 4 5 Cash outflows related to unsecured wholesale funding 6 7 of which, Qualifying operational deposits of which, Cash outflows related to unsecured wholesale funding other than qualifying operational deposits and debt securities of which, Debt securities 8 9 Cash outflows related to secured funding, etc. 10 Cash outflows related to derivative transactions, etc. funding programs, credit and liquidity facilities of which, Cash outflows related to derivative transactions, etc. of which, Cash outflows related to funding programs of which, Cash outflows related to credit and liquidity facilities 11 12 13 14 Cash outflows related to contractual funding obligations, etc. 15 Cash outflows related to contingencies 16 Total cash outflows Cash Inflows (3) 17 Cash inflows related to secured lending, etc. 18 Cash inflows related to collection of loans, etc. 19 Other cash inflows 20 Total cash inflows Consolidated Liquidity Coverage Ratio (4) 21 Total HQLA allowed to be included in the calculation 22 Net cash outflows 23 Consolidated liquidity coverage ratio (LCR) 24 The number of data used to calculate the average value (In million yen, %, the number of data) Current Quarter (From 2023/1/1 To 2023/3/31) Prior Quarter (From 2022/10/1 To 2022/12/31) TOTAL UNWEIGHTED VALUE 61,179,751 19,349,485 41,830,265 90,957,552 — 78,518,496 TOTAL WEIGHTED VALUE 4,766,059 582,406 4,183,652 46,164,754 — TOTAL UNWEIGHTED VALUE 60,870,837 19,176,830 41,694,007 91,516,907 — 77,855,627 TOTAL WEIGHTED VALUE 4,747,368 577,354 4,170,014 46,623,860 — 84,338,876 39,546,079 85,336,461 40,443,414 6,618,675 6,618,675 137,940 6,180,445 6,180,445 142,636 34,609,764 11,851,365 35,454,454 12,181,522 1,845,585 420,341 32,343,837 8,954,089 78,086,576 TOTAL UNWEIGHTED VALUE 3,013,872 15,764,663 3,452,595 22,231,131 2,096,001 357,150 33,001,302 8,350,390 79,134,419 TOTAL UNWEIGHTED VALUE 2,879,226 14,945,294 3,769,357 21,593,878 1,845,585 420,341 9,585,438 6,309,664 1,821,550 71,051,335 TOTAL WEIGHTED VALUE 106,042 11,161,766 1,798,551 13,066,360 78,518,496 57,984,975 135.4% 60 2,096,001 357,150 9,728,370 6,044,471 2,095,533 71,835,392 TOTAL WEIGHTED VALUE 67,123 10,547,455 2,005,317 12,619,896 77,855,627 59,215,495 131.4% 62 Notes: 1. The data after the introduction of the liquidity ratio regulation on March 31, 2015 is available on Sumitomo Mitsui Financial Group’s website. (https://www.smfg.co.jp/english/investor/financial/basel_3.html) 2. The average values are calculated based on daily data in accordance with Notification No. 7 issued by the Japanese Financial Services Agency in 2015. Some data, such as attribute information of customers and data on consolidated subsidiaries, is updated on the monthly or quarterly basis. ■ Breakdown of High-Quality Liquid Assets Item 1 Cash and due from banks 2 Securities 3 of which, government bonds, etc. 4 5 of which, municipal bonds, etc. of which, other bonds of which, stocks 6 7 Total high-quality liquid assets (HQLA) Current Quarter (From 2023/1/1 To 2023/3/31) Prior Quarter (From 2022/10/1 To 2022/12/31) (In million yen) 71,815,706 6,702,790 4,369,849 115,629 869,527 1,347,783 78,518,496 70,791,062 7,064,564 4,640,745 185,908 870,959 1,366,950 77,855,627 Note: The above amounts are those of high-quality liquid assets in accordance with the liquidity ratio regulation under the Basel III and do not correspond to the financial amounts. The amounts stated are those after multiplying factors in the liquidity ratio regulation under the Basel III. 286 SMBC GROUP ANNUAL REPORT 2023 SMBC GROUP ANNUAL REPORT 2023 287 014_0800885852308.indd 286 014_0800885852308.indd 286 2023/08/10 15:00:27 2023/08/10 15:00:27 014_0800885852308.indd 287 014_0800885852308.indd 287 2023/08/10 15:00:27 2023/08/10 15:00:27 SMBC Basel III Information Basel III Information SMBC Net Stable Funding Ratio Information (Consolidated) Sumitomo Mitsui Banking Corporation and Subsidiaries Since September 30, 2021, the “Net Stable Funding Ratio” (hereinafter referred to as “NSFR”), the liquidity ratio regulation under the Basel III, has been introduced in Japan. In addition to the application of uniform international standards, SMBC calculates its consolidated NSFR using the calculation formula stipulated in the “Criteria for Evaluating the Soundness of Liquidity Status Set Forth by a Bank as a Benchmark for Judging its Soundness of Management, Based on the Provision of Article 14-2 of the Banking Act” (Notification No. 60 issued by the Japanese Financial Services Agency in 2014; hereinafter referred to as the “Liquidity Ratio Notification”). ■ Disclosure of Qualitative Information about Net Stable Funding Ratio 1. Intra-period Changes in Consolidated NSFR As described on the following page, the NSFR has remained stable since the introduction of the liquidity ratio regulation on September 30, 2021. 2. Special Provisions Pertaining to Interdependent Assets and Liabilities SMBC has not applied the “special provisions pertaining to interdependent assets and liabilities” prescribed in Article 101 of the Liquidity Ratio Notification to its NSFR. 3. Other Information Concerning Consolidated NSFR The Liquidity Ratio Notification stipulates the minimum requirement of the NSFR at 100%. The NSFR of SMBC (consolidated) exceeds the minimum requirements of the NSFR, having no cause for concern. In terms of the future NSFR forecasts, SMBC does not expect significant deviations from the disclosed ratios. In addition, the actual NSFR does not differ significantly from the initial forecast. ■ Disclosure of Quantitative Information about Net Stable Funding Ratio (Consolidated) Item Available stable funding (ASF) items (1) 1 Capital; of which: Common Equity Tier 1 capital, Additional Tier 1 capital and Tier 2 capital (excluding the proportion of Tier 2 instruments with residual maturity of less than one year) before the application of capital deductions Other capital instruments that are not included in the above category 2 3 4 Funding from retail and small business customers; of which: Stable deposits 5 6 Less stable deposits 7 Wholesale funding; of which: 8 Operational deposits 9 Other wholesale funding 10 Liabilities with matching interdependent assets 11 Other liabilities; of which: 12 Derivative liabilities All other liabilities and equity not included in the above categories 13 14 Total available stable funding Required stable funding (RSF) items (2) 15 HQLA 16 Deposits held at financial institutions for operational purposes Loans, repo transactions-related assets, securities and other similar assets; of which: Loans to- and repo transactions with- financial institutions (secured by level 1 HQLA) Loans to- and repo transactions with- financial institutions (not included in item 18) Loans and repo transactions- related assets (not included in item 18, 19 and 22); of which: With a risk weight of less than or equal to 35% under the Standardised Approach for credit risk Residential mortgages; of which: With a risk weight of less than or equal to 35% under the Standardised Approach for credit risk 24 Securities that are not in default and do not qualify as HQLA and other similar assets 25 Assets with matching interdependent liabilities 17 18 19 20 21 22 23 Current Quarter (From 2023/1/1 To 2023/3/31) Prior Quarter (From 2022/10/1 To 2022/12/31) Unweighted value by residual maturity Unweighted value by residual maturity No maturity < 6 months 6 months to < 1 year ≥ 1 year Weighted value No maturity < 6 months 6 months to < 1 year ≥ 1 year Weighted value (In million yen, %) 9,617,033 9,617,033 0 0 0 0 61,510,742 37,883 19,681,837 41,828,905 69,537,380 — 69,537,380 0 37,883 55,372,729 — 55,372,729 — — 802,710 4,517,587 802,710 4,517,587 317,900 29,016 0 0 0 0 2,444,042 12,061,076 9,173,127 2,070,174 11,687,207 9,173,127 373,868 373,868 0 0 0 0 24,687 56,402,542 61,675,534 37,687 0 0 0 0 0 0 5,465,886 — 5,465,886 0 24,687 19,879,733 — 19,879,733 18,697,745 37,704,797 59,655,637 — 59,655,637 20,130,591 41,544,943 65,535,019 — 65,535,019 0 37,687 57,586,889 — 57,586,889 0 0 4,330,130 — 4,330,130 — 0 0 0 — 894,690 701,452 193,238 — — — 118,476 1,128,670 4,361,561 118,476 1,128,670 4,361,561 128,237,733 2,863,005 0 173,458 393,134 33,893 — 0 0 0 2,325,565 11,498,692 1,982,859 11,155,986 342,705 342,705 0 56,548,429 0 0 16,959,961 — 16,959,961 — 1,078,679 938,173 19,124,061 37,424,368 54,390,968 — 54,390,968 — 121,511 140,505 121,511 122,559,601 2,706,479 0 213,513 1,548,545 37,683,253 10,268,519 69,221,030 77,883,555 1,685,192 40,324,132 9,564,493 69,956,569 79,266,461 0 4,751,498 13,812 51,622 89,656 0 4,081,277 24,074 3,052 68,393 242,534 9,348,002 2,838,124 10,461,698 13,368,048 375,469 11,792,942 2,517,695 10,723,504 14,013,362 889,227 21,962,713 6,545,211 45,052,240 52,494,030 897,196 22,728,144 6,273,113 45,358,730 53,051,741 726 2,784,708 346,258 1,180,461 1,861,178 147 2,795,620 301,164 1,293,116 1,978,570 0 0 292,222 290,990 10,624,058 8,002,447 159,199 158,961 6,598,039 4,447,806 0 0 291,306 290,906 10,538,905 7,943,873 158,331 157,937 6,526,512 4,400,367 416,784 1,328,816 580,379 3,031,409 3,929,371 412,525 1,430,460 458,702 3,332,375 4,189,089 — — — — — — — — — — 26 Other assets; of which: 3,805,991 934,490 91,507 7,680,326 11,921,967 3,301,577 794,524 88,364 7,671,495 11,477,851 27 29 28 Physical traded commodities, including gold Assets posted as initial margin for derivative contracts and contributions to default funds of CCPs (including those that are not recorded on consolidated balance sheet) Derivative assets Derivative liabilities (before deduction of variation margin posted) All other assets not included in the above categories 32 Off-balance sheet items 33 Total required stable funding 34 Consolidated net stable funding ratio (NSFR) 30 31 0 0 0 0 923,316 784,818 0 0 230,373 230,373 953,783 810,716 0 0 153,375 153,375 3,805,991 934,490 91,507 6,526,636 10,906,775 3,301,577 794,524 88,364 6,564,336 10,513,759 112,878,664 2,279,288 95,121,276 134.8% 110,235,400 2,282,782 95,947,088 127.7% 288 SMBC GROUP ANNUAL REPORT 2023 SMBC GROUP ANNUAL REPORT 2023 289 014_0800885852308.indd 288 014_0800885852308.indd 288 2023/08/10 15:00:27 2023/08/10 15:00:27 014_0800885852308.indd 289 014_0800885852308.indd 289 2023/08/10 15:00:27 2023/08/10 15:00:27 SMBC Basel III Information Basel III Information SMBC Capital Ratio and Leverage Ratio Information (Non-consolidated) Sumitomo Mitsui Banking Corporation ■ CC1: Composition of regulatory capital Basel III Template No. Items Common Equity Tier 1 capital: instruments and reserves (1) 1a+2-1c-26 Directly issued qualifying common share capital plus related capital surplus and retained earnings 1a 2 1c 26 of which: capital and capital surplus of which: retained earnings of which: treasury stock (–) of which: national specific regulatory adjustments (earnings to be distributed) (–) of which: other than the above 1b Stock acquisition rights to common shares 3 Valuation and translation adjustment and other disclosed reserves 6 Common Equity Tier 1 capital: instruments and reserves (A) Common Equity Tier 1 capital: regulatory adjustments (2) 8+9 Total intangible assets (net of related tax liability, excluding those relating to mortgage servicing rights) 8 9 10 of which: goodwill of which: other intangibles other than goodwill and mortgage servicing rights Deferred tax assets that rely on future profitability excluding those arising from temporary differences (net of related tax liability) 11 Net deferred gains or losses on hedges 12 Shortfall of eligible provisions to expected losses 13 Securitisation gain on sale 14 Gains and losses due to changes in own credit risk on fair valued liabilities 15 Prepaid pension cost 16 Investments in own shares (excluding those reported in the Net assets section) 17 Reciprocal cross-holdings in common equity 18 Investments in the capital of banking, financial and insurance entities that are outside the scope of regulatory consolidation, net of eligible short positions, where the bank does not own more than 10% of the issued share capital (amount above the 10% threshold) 19+20+21 Amount exceeding the 10% threshold on specified items of which: significant investments in the common stock of financials of which: mortgage servicing rights of which: deferred tax assets arising from temporary differences (net of related tax liability) 19 20 21 22 Amount exceeding the 15% threshold on specified items 23 24 25 of which: significant investments in the common stock of financials of which: mortgage servicing rights of which: deferred tax assets arising from temporary differences (net of related tax liability) Regulatory adjustments applied to Common Equity Tier 1 due to insufficient Additional Tier 1 and Tier 2 to cover deductions 27 (Millions of yen, except percentages) a b As of March 31,2023 As of March 31,2022 c Reference to Template CC2 (a) 6,540,958 6,371,952 3,335,548 3,276,915 — 71,505 — — 782,492 7,323,450 3,335,548 3,079,860 — 43,455 — — 1,131,074 7,503,027 198,417 173,276 — 198,417 — 173,276 0 — (344,457) — 52,939 32,631 344,352 — — (182,290) — 56,744 16,670 297,060 — — — — — — — — — — — — — — — — — — — — — — Basel III Template No. Items Additional Tier 1 capital: instruments (3) (Millions of yen, except percentages) a b As of March 31,2023 As of March 31,2022 c Reference to Template CC2 31a Directly issued qualifying Additional Tier 1 instruments plus related capital surplus of which: classified as equity under applicable accounting standards and the breakdown 31b Stock acquisition rights to Additional Tier 1 instruments 30 32 33+35 Directly issued qualifying Additional Tier 1 instruments plus related capital surplus of which: classified as liabilities under applicable accounting standards Qualifying Additional Tier 1 instruments plus related capital surplus issued by special purpose vehicles and other equivalent entities Eligible Tier 1 capital instruments subject to transitional arrangements included in Additional Tier 1 capital: instruments — — — — 1,267,000 1,235,000 — — — — 36 Additional Tier 1 capital: instruments Additional Tier 1 capital: regulatory adjustments 37 Investments in own Additional Tier 1 instruments 38 Reciprocal cross-holdings in Additional Tier 1 instruments 39 40 42 Investments in the capital of banking, financial and insurance entities that are outside the scope of regulatory consolidation, net of eligible short positions, where the bank does not own more than 10% of the issued common share capital of the entity (amount above the 10% threshold) Significant investments in the Additional Tier 1 capital of banking, financial and insurance entities that are outside the scope of regulatory consolidation (net of eligible short positions) Regulatory adjustments applied to Additional Tier 1 due to insufficient Tier 2 to cover deductions 43 Additional Tier 1 capital: regulatory adjustments Additional Tier 1 capital (AT1) 44 Additional Tier 1 capital ((D)-(E)) Tier 1 capital (T1 = CET1 + AT1) 45 Tier 1 capital (T1 = CET1 + AT1) ((C)+(F)) Tier 2 capital: instruments and provisions (4) (D) 1,267,000 1,235,000 — — — — — — 82,978 25,525 — — 82,978 25,525 1,184,021 1,209,474 (E) (F) (G) 8,223,587 8,351,039 Directly issued qualifying Tier 2 instruments plus related capital surplus of which: classified as equity under applicable accounting standards and the breakdown Stock acquisition rights to Tier 2 instruments Directly issued qualifying Tier 2 instruments plus related capital surplus of which: classified as liabilities under applicable accounting standards Qualifying Tier 2 instruments plus related capital surplus issued by special purpose vehicles and other equivalent entities Eligible Tier 2 capital instruments subject to transitional arrangements included in Tier 2: instruments and provisions 46 47+49 50 Total of general reserve for possible loan losses and eligible provisions included in Tier 2 50a 50b of which: general reserve for possible loan losses of which: eligible provisions 51 Tier 2 capital: instruments and provisions (H) — — — — 766,614 753,772 — — 148,246 — 148,246 914,860 — — 75,445 — 75,445 829,217 28 Common Equity Tier 1 capital: regulatory adjustments (B) 283,884 361,462 Common Equity Tier 1 capital (CET1) 29 Common Equity Tier 1 capital (CET1) ((A)-(B)) (C) 7,039,566 7,141,565 290 SMBC GROUP ANNUAL REPORT 2023 SMBC GROUP ANNUAL REPORT 2023 291 014_0800885852308.indd 290 014_0800885852308.indd 290 2023/08/10 15:00:28 2023/08/10 15:00:28 014_0800885852308.indd 291 014_0800885852308.indd 291 2023/08/10 15:00:28 2023/08/10 15:00:28 SMBC Basel III Information Basel III Information SMBC Basel III Template No. Items Tier 2 capital: regulatory adjustments (5) 52 Investments in own Tier 2 instruments 53 Reciprocal cross-holdings in Tier 2 instruments and other TLAC liabilities 54 55 Investments in the capital and other TLAC liabilities of banking, financial and insurance entities that are outside the scope of regulatory consolidation, net of eligible short positions, where the bank does not own more than 10% of the issued common share capital of the entity (amount above the 10% threshold) Significant investments in the capital and other TLAC liabilities of banking, financial and insurance entities that are outside the scope of regulatory consolidation (net of eligible short positions) 57 Tier 2 capital: regulatory adjustments Tier 2 capital (T2) 58 Tier 2 capital (T2) ((H)-(I)) Total capital (TC = T1 + T2) 59 Total capital (TC = T1 + T2) ((G)+(J)) Risk weighted assets (6) 60 Total risk-weighted assets (RWA) Capital ratios (7) 61 Common Equity Tier 1 risk-weighted capital ratio ((C)/(L)) 62 Tier 1 risk-weighted capital ratio ((G)/(L)) 63 Total risk-weighted capital ratio ((K)/(L)) Regulatory adjustments (8) 72 73 Non-significant investments in the capital and other TLAC liabilities of other financials that are below the thresholds for deduction (before risk weighting) Significant investments in the common stock of other financials that are below the thresholds for deduction (before risk weighting) 74 Mortgage servicing rights that are below the thresholds for deduction (before risk weighting) Deferred tax assets arising from temporary differences that are below the thresholds for deduction (before risk weighting) 75 Provisions included in Tier 2 capital: instruments and provisions (9) 76 Provisions (general reserve for possible loan losses) 77 Cap on inclusion of provisions (general reserve for possible loan losses) 78 Provisions eligible for inclusion in Tier 2 in respect of exposures subject to internal ratings-based approach (prior to application of cap) (if the amount is negative, report as “nil”) 79 Cap for inclusion of provisions in Tier 2 under internal ratings-based approach Capital instruments subject to transitional arrangements (10) 82 Current cap on AT1 instruments subject to transitional arrangements 83 Amount excluded from AT1 due to cap (excess over cap after redemptions and maturities) (if the amount is negative, report as “nil”) 84 Current cap on T2 instruments subject to transitional arrangements 85 Amount excluded from T2 due to cap (excess over cap after redemptions and maturities) (if the amount is negative, report as “nil”) Items Required capital ((L) ✕ 8%) (Millions of yen, except percentages) a b As of March 31,2023 As of March 31,2022 c Reference to Template CC2 — — — — — — 40,062 36,723 40,062 36,723 874,798 792,494 (I) (J) (K) 9,098,386 9,143,534 (L) 65,103,047 61,895,306 10.81% 12.63% 13.97% 11.53% 13.49% 14.77% 526,616 591,649 271,975 297,088 — 61 — — — 5,010 — 2,638 148,246 75,445 291,919 293,978 — — — — — — — — (Millions of yen) As of March 31,2023 5,208,243 As of March 31,2022 4,951,624 ■ CC2: Reconciliation of regulatory capital to balance sheet Sumitomo Mitsui Banking Corporation Items (Assets) Cash and due from banks Call loans Receivables under resale agreements Receivables under securities borrowing transactions Monetary claims bought Trading assets Securities Loans and bills discounted Foreign exchanges Other assets Tangible fixed assets Intangible fixed assets Prepaid pension cost Customers’ liabilities for acceptances and guarantees Reserve for possible loan losses Total assets (Liabilities) Deposits Negotiable certificates of deposit Call money Payables under repurchase agreements Payables under securities lending transactions Commercial paper Trading liabilities Borrowed money Foreign exchanges Bonds Due to trust account Other liabilities Reserve for employee bonuses Reserve for executive bonuses Reserve for point service program Reserve for reimbursement of deposits Deferred tax liabilities Deferred tax liabilities for land revaluation Acceptances and guarantees Total liabilities (Net assets) Capital stock Capital surplus Retained earnings Treasury stock Total stockholders’ equity Net unrealized gains or losses on other securities Net deferred gains or losses on hedges Land revaluation excess Total valuation and translation adjustments Total net assets Total liabilities and net assets Note: The regulatory balance sheet is the same as the accounting balance sheet. a b c (Millions of yen) Balance sheet as in published financial statements As of March 31, 2023 As of March 31, 2022 Reference to Template CC1 Reference to appended table 70,818,701 5,285,838 1,437,595 1,598,124 1,944,291 2,379,930 32,210,394 94,307,397 1,824,364 7,129,287 737,253 285,986 496,328 15,405,856 (523,888) 235,337,464 149,948,880 12,929,824 774,968 12,041,367 370,514 1,292,198 1,643,213 21,905,262 1,516,160 641,410 2,277,046 6,991,747 13,542 1,202 1,140 9,998 150,223 27,952 15,405,856 227,942,508 1,770,996 1,774,554 3,276,915 (210,003) 6,612,463 1,040,472 (282,793) 24,813 782,492 7,394,955 235,337,464 70,840,809 2,234,818 1,645,410 1,863,080 2,290,607 2,025,767 38,238,579 87,671,294 2,721,735 5,291,974 766,477 249,750 428,164 12,285,466 (589,208) 227,964,729 141,015,245 13,108,797 680,893 14,626,237 305,779 1,229,180 1,558,679 26,700,215 1,339,163 720,847 2,321,699 4,255,764 12,584 1,150 870 4,974 221,503 29,193 12,285,466 220,418,246 1,770,996 1,774,554 3,079,860 (210,003) 6,415,408 1,288,414 (182,902) 25,563 1,131,074 7,546,483 227,964,729 (a) 6-a 6-b 6-c 6-d 2 3 6-e 7-a 7-b 6-f 4-a 4-b 1-a 1-b 1-c 1-d 5 292 SMBC GROUP ANNUAL REPORT 2023 SMBC GROUP ANNUAL REPORT 2023 293 014_0800885852308.indd 292 014_0800885852308.indd 292 2023/08/10 15:00:28 2023/08/10 15:00:28 014_0800885852308.indd 293 014_0800885852308.indd 293 2023/08/10 15:00:28 2023/08/10 15:00:28 SMBC Basel III Information Basel III Information SMBC (Appended Table) 1. Stockholders’ equity (1) Balance sheet Balance sheet items Capital stock Capital surplus Retained earnings Treasury stock Total stockholders’ equity (2) Composition of capital As of March 31, 2023 As of March 31, 2022 1,770,996 1,770,996 1,774,554 1,774,554 3,276,915 3,079,860 (210,003) (210,003) 6,612,463 6,415,408 (Millions of yen) Remarks Ref. No. Including eligible Tier 1 capital instruments subject to transitional arrangement Including eligible Tier 1 capital instruments subject to transitional arrangement Eligible Tier 1 capital instruments subject to transitional arrangement 1-a 1-b 1-c 1-d (Millions of yen) Composition of capital disclosure As of March 31, 2023 As of March 31, 2022 Remarks Basel III Template No. Directly issued qualifying common share capital plus related capital surplus and retained earnings 6,612,463 6,415,408 of which: capital and capital surplus of which: retained earnings of which: treasury stock (–) of which: other than the above Directly issued qualifying Additional Tier 1 instruments plus related capital surplus of which: classified as equity under applicable accounting standards and the breakdown 3,335,548 3,276,915 — — 3,335,548 3,079,860 — — — — Stockholders’ equity attributable to common shares (before adjusting national specific regulatory adjustments (earnings to be distributed)) Stockholders’ equity attributable to preferred shares with a loss absorbency clause upon entering into effectively bankruptcy 2. Intangible fixed assets (1) Balance sheet Balance sheet items Intangible fixed assets As of March 31, 2023 As of March 31, 2022 285,986 249,750 (Millions of yen) Remarks 1a 2 1c 31a Ref. No. 2 Income taxes related to above 87,569 76,473 (2) Composition of capital Composition of capital disclosure Goodwill Other intangibles other than goodwill and mortgage servicing rights Mortgage servicing rights Amount exceeding the 10% threshold on specified items Amount exceeding the 15% threshold on specified items Mortgage servicing rights that are below the thresholds for deduction (before risk weighting) 3. Prepaid pension cost (1) Balance sheet Balance sheet items Prepaid pension cost As of March 31, 2023 As of March 31, 2022 — — (Millions of yen) Remarks Basel III Template No. 8 198,417 173,276 Software and other — — — — — — — — As of March 31, 2023 As of March 31, 2022 496,328 428,164 (Millions of yen) Remarks 9 20 24 74 Ref. No. 3 Income taxes related to above 151,975 131,104 (2) Composition of capital Composition of capital disclosure Prepaid pension cost As of March 31, 2023 As of March 31, 2022 344,352 297,060 (Millions of yen) Remarks Basel III Template No. 15 4. Deferred tax assets (1) Balance sheet Balance sheet items Deferred tax liabilities Deferred tax liabilities for land revaluation Tax effects on intangible fixed assets Tax effects on prepaid pension cost (2) Composition of capital As of March 31, 2023 As of March 31, 2022 150,223 27,952 221,503 29,193 87,569 151,975 76,473 131,104 (Millions of yen) Remarks Ref. No. 4-a 4-b (Millions of yen) Composition of capital disclosure As of March 31, 2023 As of March 31, 2022 Remarks Basel III Template No. Deferred tax assets that rely on future profitability excluding those arising from temporary differences (net of related tax liability) Deferred tax assets arising from temporary differences (net of related tax liability) Amount exceeding the 10% threshold on specified items Amount exceeding the 15% threshold on specified items Deferred tax assets arising from temporary differences that are below the thresholds for deduction (before risk weighting) 0 61 — — 61 — — — — — 5. Deferred gains or losses on derivatives under hedge accounting (1) Balance sheet Balance sheet items Net deferred gains or losses on hedges (2) Composition of capital As of March 31, 2023 (282,793) As of March 31, 2022 (182,902) Composition of capital disclosure As of March 31, 2023 As of March 31, 2022 Net deferred gains or losses on hedges (344,457) (182,290) 6. Items associated with investments in the capital of financial institutions (1) Balance sheet This item does not agree with the amount reported on the balance sheet due to offsetting of assets and liabilities. This item does not agree with the amount reported on the balance sheet due to offsetting of assets and liabilities. 10 21 25 75 (Millions of yen) (Millions of yen) Remarks Remarks Excluding those items whose valuation differences arising from hedged items are recognized as “Total valuation and translation adjustments” Ref. No. 5 Basel III Template No. 11 (Millions of yen) Remarks Ref. No. Balance sheet items Trading assets Securities Loans and bills discounted Other assets Trading liabilities Other liabilities As of March 31, 2023 As of March 31, 2022 2,379,930 2,025,767 Including trading account securities and derivatives for trading assets 32,210,394 38,238,579 94,307,397 87,671,294 Including subordinated loans 7,129,287 5,291,974 Including derivatives 1,643,213 6,991,747 1,558,679 Including trading account securities sold and derivatives for trading liabilities 4,255,764 Including derivatives 6-a 6-b 6-c 6-d 6-e 6-f 294 SMBC GROUP ANNUAL REPORT 2023 SMBC GROUP ANNUAL REPORT 2023 295 014_0800885852308.indd 294 014_0800885852308.indd 294 2023/08/10 15:00:28 2023/08/10 15:00:28 014_0800885852308.indd 295 014_0800885852308.indd 295 2023/08/10 15:00:28 2023/08/10 15:00:28 SMBC Basel III Information Basel III Information SMBC (Millions of yen) ■ Composition of Leverage Ratio (2) Composition of capital Composition of capital disclosure Investments in own capital instruments Common Equity Tier 1 capital Additional Tier 1 capital Tier 2 capital Reciprocal cross-holdings in the capital of banking, financial and insurance entities Common Equity Tier 1 capital Additional Tier 1 capital Tier 2 capital and other TLAC liabilities Investments in the capital of banking, financial and insurance entities that are outside the scope of regulatory consolidation, net of eligible short positions, where the bank does not own more than 10% of the issued share capital (amount above the 10% threshold) Common Equity Tier 1 capital Additional Tier 1 capital Tier 2 capital and other TLAC liabilities Non-significant investments in the capital and other TLAC liabilities of other financials that are below the thresholds for deductions (before risk weighting) Significant investments in the capital of banking, financial and insurance entities that are outside the scope of regulatory consolidation (net of eligible short positions) Amount exceeding the 10% threshold on specified items Amount exceeding the 15% threshold on specified items Additional Tier 1 capital Tier 2 capital and other TLAC liabilities Significant investments in the common stock of other financials that are below the thresholds for deductions (before risk weighting) 7. Other capital instruments (1) Balance sheet Balance sheet items Borrowed money Bonds Total (2) Composition of capital As of March 31, 2023 As of March 31, 2022 Remarks Basel III Template No. — — — — — — — — — — — — — — — — 526,616 591,649 — — — — — — 526,616 591,649 395,016 359,337 — — — — 82,978 40,062 25,525 36,723 271,975 297,088 16 37 52 17 38 53 18 39 54 72 19 23 40 55 73 As of March 31, 2023 As of March 31, 2022 21,905,262 26,700,215 720,847 22,546,672 27,421,062 641,410 (Millions of yen) Remarks Ref. No. 7-a 7-b (Millions of yen) Composition of capital disclosure As of March 31, 2023 As of March 31, 2022 Remarks Basel III Template No. Directly issued qualifying Additional Tier 1 instruments plus related capital surplus of which: classified as liabilities under applicable accounting standards Directly issued qualifying Tier 2 instruments plus related capital surplus of which: classified as liabilities under applicable accounting standards 1,267,000 1,235,000 766,614 753,772 32 46 Corresponding line # on Basel III disclosure template (Table2) Corresponding line # on Basel III disclosure template (Table1) Items On-balance sheet exposures (1) (In million yen, %) As of March 31, 2023 As of March 31, 2022 1a 1b 1 2 3 1 3 7 On-balance sheet exposures before deducting adjustment items Total assets reported in the balance sheet The amount of assets that are deducted from the total assets reported in the balance sheet (except adjustment items) (-) The amount of adjustment items pertaining to Tier 1 capital (-) Total on-balance sheet exposures (a) 151,924,241 177,795,337 148,005,600 169,370,816 25,871,095 21,365,216 625,749 151,298,492 495,863 147,509,736 Exposures related to derivative transactions (2) 4 5 6 7 8 9 10 11 Replacement cost associated with derivatives transactions, etc. (with the 1.4 alpha factor applied) Replacement cost associated with derivatives transactions, etc. Add-on amount for potential future exposure associated with derivatives transactions, etc. (with the 1.4 alpha factor applied) Add-on amount associated with derivatives transactions, etc. The amount of receivables arising from providing cash margin in relation to derivatives transactions, etc. The amount of receivables arising from providing collateral, provided where deducted from the balance sheet pursuant to the operative accounting framework The amount of receivables arising from providing cash margin, provided where deducted from the balance sheet pursuant to the operative accounting framework The amount of deductions of receivables (out of those arising from providing cash variation margin) (-) The amount of client-cleared trade exposures for which a bank acting as clearing member is not obliged to make any indemnification (-) Adjusted effective notional amount of written credit derivatives The amount of deductions from effective notional amount of written credit derivatives (-) Total exposures related to derivative transactions (b) 4 1,984,843 1,823,389 3,326,932 799,059 2,623,161 1,075,654 — — 99,504 688,742 — — — — 6,011,330 4,833,463 3,035,720 — 239,786 3,508,491 — 209,839 Exposures related to repo transactions (3) 12 13 14 15 16 The amount of assets related to repo transactions, etc. The amount of deductions from the assets above (line 12) (-) The exposures for counterparty credit risk for repo transactions, etc. The exposures for agent repo transaction Total exposures related to repo transactions, etc. 5 Exposures related to off-balance sheet transactions (4) 17 18 19 Leverage ratio (5) 20 21 22 6 8 Notional amount of off-balance sheet transactions The amount of adjustments for conversion in relation to off-balance sheet transactions (-) Total exposures related to off-balance sheet transactions The amount of capital (Tier 1 capital) Total exposures ((a)+(b)+(c)+(d)) Leverage ratio ((e)/(f)) Minimum leverage ratio requirement Leverage ratio (including deposits with the Bank of Japan) (6) Total exposures The amount of deposits with the Bank of Japan Total exposures (including deposits with the Bank of Japan) Leverage ratio (including deposits with the Bank of Japan) ((e)/(f’)) (c) 3,275,507 3,718,330 70,838,317 81,550,515 39,153,765 52,501,700 31,684,551 29,048,815 8,223,587 192,269,881 4.27% 3.00% 192,269,881 57,542,126 249,812,008 3.29% 8,351,039 185,110,346 4.51% 3.00% 185,110,346 58,593,913 243,704,259 3.42% (d) (e) (f) (f) (f’) 296 SMBC GROUP ANNUAL REPORT 2023 SMBC GROUP ANNUAL REPORT 2023 297 014_0800885852308.indd 296 014_0800885852308.indd 296 2023/08/10 15:00:28 2023/08/10 15:00:28 014_0800885852308.indd 297 014_0800885852308.indd 297 2023/08/10 15:00:28 2023/08/10 15:00:28 SMBC Basel III Information Basel III Information SMBC Liquidity Coverage Ratio Information (Non-consolidated) Sumitomo Mitsui Banking Corporation Since March 31, 2015, the “Liquidity Coverage Ratio” (hereinafter referred to as “LCR”), the liquidity ratio regulation under the Basel III, has been introduced in Japan. In addition to the application of uniform international standards, SMBC calculates its non-consolidated LCR using the calculation formula stipulated in the “Criteria for Evaluating the Soundness of Liquidity Status Set Forth by a Bank as a Benchmark for Judging its Soundness of Management, Based on the Provision of Article 14-2 of the Banking Act” (Notification No. 60 issued by the Japanese Financial Services Agency in 2014; hereinafter referred to as the “Liquidity Ratio Notification”). ■ Disclosure of Qualitative Information about Liquidity Coverage Ratio 1. Intra-period Changes in Non-consolidated LCR As described on the following page, the LCR has remained stable since the introduction of the liquidity ratio regulation on March 31, 2015. 2. Assessment of Non-consolidated LCR The Liquidity Ratio Notification stipulates the minimum requirement of the LCR at 100%. The LCR of SMBC exceeds the minimum requirements of the LCR, having no cause for concern. In terms of the future LCR forecasts, SMBC does not expect significant deviations from the disclosed ratios. In addition, the actual LCR does not differ significantly from the initial forecast. 3. Composition of High-Quality Liquid Assets Regarding the high-quality liquid assets allowed to be included in the calculation, there are no significant changes in locations and properties of currency denominations, categories and so on. In addition, in respect of major currencies (those of which the aggregate amount of liabilities denominated in a certain currency accounts for 5% or more of SMBC’s total liabilities), there is no significant mismatch in currency denomination between the total amount of the high-quality liquid assets allowed to be included in the calculation and the amount of net cash outflows. 4. Other Information Concerning Non-consolidated LCR SMBC has not applied “special provisions concerning qualifying operational deposits” prescribed in Article 29 of the Liquidity Ratio Notification and “increased liquidity needs related to market valuation changes on derivative or other transactions simulated through Scenario Approach” prescribed in Article 38 of the Liquidity Ratio Notification. Meanwhile, SMBC records “due to trust account,” etc. under “cash outflows based on other contracts” prescribed in Article 60 of the Liquidity Ratio Notification. ■ Disclosure of Quantitative Information about Liquidity Coverage Ratio (Non-Consolidated) Item High-Quality Liquid Assets (1) 1 Total high-quality liquid assets (HQLA) Cash Outflows (2) of which, Stable deposits of which, Less stable deposits 2 Cash outflows related to unsecured retail funding 3 4 5 Cash outflows related to unsecured wholesale funding 6 7 of which, Qualifying operational deposits of which, Cash outflows related to unsecured wholesale funding other than qualifying operational deposits and debt securities of which, Debt securities 8 9 Cash outflows related to secured funding, etc. 10 Cash outflows related to derivative transactions, etc. funding programs, credit and liquidity facilities of which, Cash outflows related to derivative transactions, etc. of which, Cash outflows related to funding programs of which, Cash outflows related to credit and liquidity facilities 11 12 13 14 Cash outflows related to contractual funding obligations, etc. 15 Cash outflows related to contingencies 16 Total cash outflows Cash Inflows (3) 17 Cash inflows related to secured lending, etc. 18 Cash inflows related to collection of loans, etc. 19 Other cash inflows 20 Total cash inflows Non-Consolidated Liquidity Coverage Ratio (4) 21 Total HQLA allowed to be included in the calculation 22 Net cash outflows 23 Non-consolidated liquidity coverage ratio (LCR) 24 The number of data used to calculate the average value (In million yen, %, the number of data) Current Quarter (From 2023/1/1 To 2023/3/31) Prior Quarter (From 2022/10/1 To 2022/12/31) TOTAL UNWEIGHTED VALUE 57,765,469 18,828,281 38,937,187 86,246,864 — 70,823,624 TOTAL WEIGHTED VALUE 4,459,193 564,848 3,894,344 44,088,998 — TOTAL UNWEIGHTED VALUE 57,449,310 18,647,167 38,802,142 86,824,411 — 69,984,803 TOTAL WEIGHTED VALUE 4,440,242 559,415 3,880,827 44,674,151 — 79,669,435 37,511,568 80,673,098 38,522,837 6,577,429 6,577,429 137,940 6,151,313 6,151,313 142,636 30,713,064 10,378,354 31,290,996 10,452,030 767,705 420,341 29,525,016 8,630,597 79,179,825 TOTAL UNWEIGHTED VALUE 957,276 16,192,531 2,223,445 19,373,252 787,705 357,150 30,146,140 8,106,941 80,387,988 TOTAL UNWEIGHTED VALUE 1,067,210 15,229,605 2,446,635 18,743,451 767,705 420,341 9,190,306 4,694,900 1,747,753 65,507,140 TOTAL WEIGHTED VALUE 60,272 11,926,675 1,385,816 13,372,765 70,823,624 52,134,375 135.8% 60 787,705 357,150 9,307,174 4,439,636 2,021,169 66,169,867 TOTAL WEIGHTED VALUE 41,850 11,224,146 1,411,889 12,677,886 69,984,803 53,491,980 130.8% 62 Notes: 1. The data after the introduction of the liquidity ratio regulation on March 31, 2015 is available on Sumitomo Mitsui Financial Group’s website. (https://www.smfg.co.jp/english/investor/financial/basel_3.html) 2. The average values are calculated based on daily data in accordance with Notification No. 7 issued by the Japanese Financial Services Agency in 2015. Some data such as attribute information of customers, is updated on the monthly or quarterly basis. ■ Breakdown of High-Quality Liquid Assets Item 1 Cash and due from banks 2 Securities 3 of which, government bonds, etc. 4 5 of which, municipal bonds, etc. of which, other bonds of which, stocks 6 7 Total high-quality liquid assets (HQLA) Current Quarter (From 2023/1/1 To 2023/3/31) Prior Quarter (From 2022/10/1 To 2022/12/31) (In million yen) 65,616,580 5,207,044 3,337,964 74,709 446,586 1,347,783 70,823,624 64,354,797 5,630,005 3,804,778 143,986 314,290 1,366,950 69,984,803 Note: The above amounts are those of high-quality liquid assets in accordance with the liquidity ratio regulation under the Basel III and do not correspond to the financial amounts. The amounts stated are those after multiplying factors in the liquidity ratio regulation under the Basel III. 298 SMBC GROUP ANNUAL REPORT 2023 SMBC GROUP ANNUAL REPORT 2023 299 014_0800885852308.indd 298 014_0800885852308.indd 298 2023/08/10 15:00:28 2023/08/10 15:00:28 014_0800885852308.indd 299 014_0800885852308.indd 299 2023/08/10 15:00:29 2023/08/10 15:00:29 SMBC Basel III Information Basel III Information SMBC Net Stable Funding Ratio Information (Non-consolidated) Sumitomo Mitsui Banking Corporation Since September 30, 2021, the “Net Stable Funding Ratio” (hereinafter referred to as “NSFR”), the liquidity ratio regulation under the Basel III, has been introduced in Japan. In addition to the application of uniform international standards, SMBC calculates its non-consolidated NSFR using the calculation formula stipulated in the “Criteria for Evaluating the Soundness of Liquidity Status Set Forth by a Bank as a Benchmark for Judging its Soundness of Management, Based on the Provision of Article 14-2 of the Banking Act” (Notification No. 60 issued by the Japanese Financial Services Agency in 2014; hereinafter referred to as the “Liquidity Ratio Notification”). ■ Disclosure of Qualitative Information about Net Stable Funding Ratio 1. Intra-period Changes in Non-consolidated NSFR As described on the following page, the NSFR has remained stable since the introduction of the liquidity ratio regulation on September 30, 2021. 2. Special Provisions Pertaining to Interdependent Assets and Liabilities SMBC has not applied the “special provisions pertaining to interdependent assets and liabilities” prescribed in Article 101 of the Liquidity Ratio Notification to its NSFR. 3. Other Information Concerning Non-consolidated NSFR The Liquidity Ratio Notification stipulates the minimum requirement of the NSFR at 100%. The NSFR of SMBC (non-consolidated) exceeds the minimum requirements of the NSFR, having no cause for concern. In terms of the future NSFR forecasts, SMBC does not expect significant deviations from the disclosed ratios. In addition, the actual NSFR does not differ significantly from the initial forecast. ■ Disclosure of Quantitative Information about Net Stable Funding Ratio (Non-consolidated) Item Available stable funding (ASF) items (1) 1 Capital; of which: Common Equity Tier 1 capital, Additional Tier 1 capital and Tier 2 capital (excluding the proportion of Tier 2 instruments with residual maturity of less than one year) before the application of capital deductions Other capital instruments that are not included in the above category 2 3 4 Funding from retail and small business customers; of which: Stable deposits 5 6 Less stable deposits 7 Wholesale funding; of which: 8 Operational deposits 9 Other wholesale funding 10 Liabilities with matching interdependent assets 11 Other liabilities; of which: 12 Derivative liabilities All other liabilities and equity not included in the above categories 13 14 Total available stable funding Required stable funding (RSF) items (2) 15 HQLA 16 Deposits held at financial institutions for operational purposes Loans, repo transactions-related assets, securities and other similar assets; of which: Loans to- and repo transactions with- financial institutions (secured by level 1 HQLA) Loans to- and repo transactions with- financial institutions (not included in item 18) Loans and repo transactions- related assets (not included in item 18, 19 and 22); of which: With a risk weight of less than or equal to 35% under the Standardised Approach for credit risk Residential mortgages; of which: With a risk weight of less than or equal to 35% under the Standardised Approach for credit risk 24 Securities that are not in default and do not qualify as HQLA and other similar assets 25 Assets with matching interdependent liabilities 17 18 19 20 21 22 23 Current Quarter (From 2023/1/1 To 2023/3/31) Prior Quarter (From 2022/10/1 To 2022/12/31) Unweighted value by residual maturity Unweighted value by residual maturity No maturity < 6 months 6 months to < 1 year ≥ 1 year Weighted value No maturity < 6 months 6 months to < 1 year ≥ 1 year Weighted value (In million yen, %) 7,394,955 7,394,955 0 0 0 0 57,936,395 37,883 19,097,901 38,838,494 68,132,136 — 68,132,136 0 37,883 49,404,973 — 49,404,973 — — 872,026 1,553,904 0 0 0 0 0 0 5,290,107 — 5,290,107 — 2,524 872,026 1,553,904 2,524 329,735 0 0 2,484,223 9,879,179 7,025,006 2,110,355 9,505,311 7,025,006 373,868 373,868 0 0 0 0 24,695 53,156,441 58,147,184 37,687 0 0 0 0 2,380,508 9,405,515 2,037,802 9,062,809 342,705 342,705 0 53,344,449 0 24,695 19,801,110 — 19,801,110 18,143,006 35,013,435 56,867,665 — 56,867,665 19,561,277 38,585,907 63,866,174 — 63,866,174 0 37,687 51,806,161 — 51,806,161 0 0 4,103,123 — 4,103,123 0 0 16,907,905 — 16,907,905 18,583,213 34,761,235 51,406,623 — 51,406,623 — 11,577 11,577 0 0 — — — 1,262 1,129,949 1,677,188 1,262 1,129,949 1,677,188 119,904,549 2,847,314 164,867 414,795 0 — 0 0 0 — 0 0 0 — 0 0 114,156,588 2,685,090 0 207,397 1,513,028 33,860,902 9,455,543 66,020,875 73,863,596 1,592,048 37,139,916 9,024,591 66,197,721 74,775,000 0 1,974,750 5,542 0 2,771 0 1,750,504 0 0 6,435 231,235 11,043,763 2,903,814 11,493,136 14,667,703 294,599 13,918,733 2,714,004 11,733,681 15,307,343 865,008 19,278,512 5,805,311 41,416,700 47,779,705 884,923 19,808,319 5,611,029 41,160,944 47,828,858 726 2,140,746 319,619 948,512 1,372,676 147 2,015,704 298,151 995,664 1,391,327 0 0 292,102 290,846 10,416,813 7,867,606 159,189 158,928 6,390,795 4,313,075 0 0 291,296 290,875 10,334,580 7,811,041 158,321 157,906 6,322,187 4,267,535 416,784 1,271,773 450,028 2,694,225 3,545,809 412,525 1,371,062 408,682 2,968,515 3,821,321 — — — — — — — — — — 26 Other assets; of which: 7,884,646 461,276 81,100 2,867,123 11,130,938 7,872,859 537,636 74,423 2,930,077 11,087,337 29 28 27 Physical traded commodities, including gold Assets posted as initial margin for derivative contracts and contributions to default funds of CCPs (including those that are not recorded on consolidated balance sheet) Derivative assets Derivative liabilities (before deduction of variation margin posted) All other assets not included in the above categories 32 Off-balance sheet items 33 Total required stable funding 34 Non-Consolidated net stable funding ratio (NSFR) 30 31 0 0 0 0 548,216 465,984 0 0 100,493 100,493 522,952 444,509 50,120 50,120 109,015 109,015 7,884,646 461,276 81,100 2,218,413 10,564,460 7,872,859 537,636 74,423 2,247,989 10,483,692 110,972,819 2,166,577 90,173,294 132.9% 108,676,241 2,189,870 90,944,697 125.5% 300 SMBC GROUP ANNUAL REPORT 2023 SMBC GROUP ANNUAL REPORT 2023 301 014_0800885852308.indd 300 014_0800885852308.indd 300 2023/08/10 15:00:29 2023/08/10 15:00:29 014_0800885852308.indd 301 014_0800885852308.indd 301 2023/08/10 15:00:29 2023/08/10 15:00:29 Basel III Information Sumitomo Mitsui Financial Group Slotting criteria For risk-weighted asset calculation under the Internal Ratings-Based (IRB) Approach, it is a method of mapping the credit rating to the risk-weight in 5 levels set forth by the Financial Services Agency for Specialised Lending. Specialized Lending (SL) General term used for project finance, object finance, commodity finance and lending for commercial real estate. The Standardised Approach (SA) Method of calculating risk-weighted assets by multiplying credit equivalent amounts by the risk-weight designated by the authorities for each obligor classification (corporates, financial institution, sovereign, retail, etc.). Standardised method Method of calculating market risk using formula determined by the Financial Services Agency. Underlying assets General term used for assets which serve as the source of payments for principal and interest for securitisation exposures, etc. VaR Abbreviation for Value at Risk The maximum loss that can be expected to occur with a certain degree of probability when holding a financial asset portfolio for a given amount of time. Sumitomo Mitsui Financial Group Basel III Information Glossary ABL Abbreviation for Asset Based Lending of having movable assets as col- lateral such as accounts receivable and/or inventory. EL Abbreviation for Expected Loss Average loss expected to occur over the coming one year. Advanced Measurement Approach (AMA) Based on the operational risk measurement methods used in the internal management of financial institutions, this is a method for obtaining the operational risk equivalent amount by calculating the maximum amount of operational risk loss expected over a period of one year, with a one-sided confidence interval of 99.9%. Basic Indicator Approach (BIA) A calculation approach in which an average value for the most recent three years derived by multiplying gross profit for the financial institution as a whole by certain level (15%) is deemed to be the operational risk equivalent amount. Calculation of credit risk-weighted assets under Article 145 of the Notification Method used for calculating the credit risk-weighted assets for the fund exposure, etc. There is a method of making the total credit risk-weighted asset of individual underlying asset of funds, etc. as the relevant expo- sure of the credit risk-weighted asset; or a method of applying the risk weight determined based on the formation of underlying assets to the relevant exposure. Capital adequacy ratio notification (“the Notification”) Administrative action or written ordinance by which the Financial Services Agency officially informs Japanese banks of regulations regard- ing capital adequacy ratio. CCF Abbreviation for Credit Conversion Factor Ratio required for converting off-balance sheet items such as guarantees or derivatives into on-balance sheet credit exposure equivalents. Full revaluation approach An approach for PL simulation by repricing the financial instruments un- der each scenario. High-quality liquid assets (HQLA) Liquid assets that can be converted easily and immediately into cash to meet liquidity needs in a specified stress scenario for the subsequent 30 calendar days. Historical simulation method A method of simulating future fluctuations without the use of random numbers, by using historical data for risk factors. Internal models approach Methods of measuring market risk equivalent amount as the value at risk (VaR) calculated with models determined by each bank. Internal models method One of the methods of market-based approach using the VaR model to calculate the loss for shares held by the bank applying the Internal Ratings-Based Approach, and dividing such loss amount by 8% to obtain the credit risk-weighted asset of the equity exposure. The Internal Ratings-Based (IRB) Approach A method of calculating the risk asset by applying PD (Probability of Default) estimated internally by financial institution which conducts sophisticated risk management. There are two methods to calculate exposures to corporate client, etc.: the Advanced Internal Ratings- Based (AIRB) Approach and the Foundation Internal Ratings-Based (FIRB) Approach. The former uses self-estimated LGD and EAD values, while the latter uses LGD and EAD values designated by the authorities. CCP-related exposure Exposure to a central counterparty (CCP) that interposes itself between counterparties to contracts traded in one or more financial markets, becoming the buyer to every seller and the seller to every buyer and thereby ensuring the future performance of open contracts. Liquidity Ratio Notification Administrative action and written ordinance for official notification to the general public of regulations concerning the LCR and NSFR of financial institutions in Japan which are decided by the Japanese Financial Ser- vices Agency based on the Basel Agreement. CDS Abbreviation for Credit Default Swap Derivative transactions which transfer the credit risk. Credit Risk Mitigation (CRM) Techniques Method of reducing credit risk by guarantees, collateral and purchase of credit derivatives, etc. Credit risk-weighted assets Total assets (lending exposures, including credit equivalent amount of off-balance sheet transactions, etc.) which is reevaluated according to the level of credit risk. Current exposure method One of the methods for calculating the credit exposure equivalents of derivative transactions, etc. Method of calculating the equivalents by adding the amount (multiplying the notional amount by certain rate, and equivalent to the future exposure fluctuation amount) to the mark-to- market replacement cost calculated by evaluating the market price of the transaction. CVA (credit value adjustment) amount Capital charges for market-price fluctuation of derivatives transaction due to deteriorated creditworthiness of a counterparty. LGD Abbreviation for Loss Given Default Percentage of loss assumed in the event of default by obligor; ratio of uncollectible amount of the exposure owned in the event of default. Market-based approach Method of calculating the risk assets of equity exposures, etc., by using the simple risk weight method or internal model method. Market risk equivalent amount Pursuant to the Basel Capital Accord, the required capital amount im- posed on the market-related risk calculated for the four risk categories of mainly the trading book: interest rates, stocks, foreign exchange and commodities. Net cash outflows Net cash flows calculated as total expected cash outflows minus total expected cash inflows in a specified stress scenario for the subsequent 30 calendar days. Object finance For providing credit for purchasing ships or aircrafts, the only source of repayments for the financing should be profits generated from the said tangible assets; and the said tangible assets serve as collaterals, and having an appreciable extent of control over the said tangible assets and profits generated from the said tangible assets. Operational risk equivalent amount Operational risk capital requirements under the Basel Capital Accord. Originator The term “originator” is used in the case that we are directly or indirectly involved in the formation of underlying assets for securitisation transac- tions when we have the securitisation exposure; or the cases of provid- ing the back-up line for ABCP issued by the securitisation conduit for the purpose of obtaining exposure from the third party, or providing ABL to the securitisation conduit (as sponsor). PD Abbreviation for Probability of Default Probability of becoming default by obligor during one year. Phased rollout Under the Basel Capital Accord, it is a transition made by certain group companies planning to apply the Internal Ratings-Based Approach after the implementation of such methods on consolidated-basis. Project finance Out of credit provided for specified businesses such as electric power plants and transportation infrastructure, the only source of repayments is profits generated from the said businesses, and the collateral is tangi- ble assets of the said businesses, and having an appreciable extent of control over the said tangible assets and profits generated from the said tangible assets. Qualifying Revolving Retail Exposures (QRRE) Exposure which may fluctuate up to the upper limit set forth by an agreement according to the individual’s voluntary decision, such as card loan and credit card, etc., and the upper limit of the exposure without any collateral is 10 million yen or less. Resecuritisation transaction Out of securitisation transactions, it is a transaction with securitisa- tion exposure for part of or entire underlying assets. However, in the case that all of underlying assets is the single securitisation exposure and the transaction’s risk characteristics are substantively unchanged prior to or after the securitisation, the transaction is excluded from the resecuritisation transactions. Risk capital The amount of capital required to cover the theoretical maximum potential loss arising from risks of business operations. It differs from the minimum regulatory capital requirements, and it is being used in the risk management framework voluntarily developed by financial institutions for the purpose of internal management. Risk weight Indicator which indicates the extent of credit risk determined by the types of assets (claims) owned. Risk weight becomes higher for assets with high risk of default. Square-root-of-time rule A method of converting the maximum loss estimated as value at risk (VaR) for a specific holding period into the maximum loss for a shorter or longer time period using statistical assumption. Securitisation transaction It is a transaction which stratifies the credit risk for the underlying assets into more than two exposures of senior/subordinated structure and has the quality of transferring part of or entire exposure to the third party. Servicer risk The risk of becoming unable to claim for the collectives, in cases of which bankruptcy of the supplier/servicer occurs prior to collecting receivables, in securitisation and purchased claims transactions. Simple risk weight method One of market-based approaches for calculating the risk-weighted asset amount for the equity exposure, etc. by multiplying the listed shares and unlisted shares with the risk weights of 300% and 400%, respectively. 302 SMBC GROUP ANNUAL REPORT 2023 SMBC GROUP ANNUAL REPORT 2023 303 014_0800885852308.indd 302 014_0800885852308.indd 302 2023/08/10 15:00:29 2023/08/10 15:00:29 014_0800885852308.indd 303 014_0800885852308.indd 303 2023/08/10 15:00:29 2023/08/10 15:00:29 Sumitomo Mitsui Financial Group Compensation Sumitomo Mitsui Financial Group ■ Compensation Framework of Sumitomo Mitsui Financial Group and Its Group Companies 1. Scope of Officers, Employees and Others The scope of officers, employees and others whose compensation is subject to disclosure under the revised Cabinet Office on Disclosure of Corporate Affairs, etc. and other ordinances are as described below. (1) Scope of Officers Officers subject to compensation disclosure are directors and executive officers of Sumitomo Mitsui Financial Group during the fiscal year under review (excluding outside directors). (2) Scope of Employees and Others Employees and others subject to compensation disclosure are employees of Sumitomo Mitsui Financial Group and officers and employees of its major consolidated subsidiaries who are highly compensated and have a material influence on the business management or the assets of Sumitomo Mitsui Financial Group and its major consolidated subsidiaries. a) Scope of major consolidated subsidiaries A major consolidated subsidiary is a consolidated subsidiary of Sumitomo Mitsui Financial Group with total assets accounting for more than 2% of the total consolidated assets of Sumitomo Mitsui Financial Group and has a material influence on the management of Sumitomo Mitsui Financial Group and its group companies. Specifically, they are Sumitomo Mitsui Banking Corporation, SMBC Nikko Securities Inc., SMBC Guarantee Co., Ltd., Limited and overseas subsidiaries such as SMBC Bank International plc, and Sumitomo Mitsui Banking Corporation (China) Limited. b) Scope of highly compensated persons A highly compensated person is an individual whose compensation paid by Sumitomo Mitsui Financial Group or its major subsidiaries is equal to or more than the base amount. The base amount of Sumitomo Mitsui Financial Group is set at ¥60 million which is based on the average amount of compensation paid to the officers of Sumitomo Mitsui Financial Group and SMBC (excluding officers appointed or retired during the fiscal year in question) over the last three fiscal years (hereinafter “executive compensation amount”) and is applied to all group companies. This is because many of the officers of Sumitomo Mitsui Financial Group also serve as officers of SMBC, and their executive compensation amount is determined according to their contribution to the group as a whole. With respect to lump-sum retirement payment for officers serving in Japan, the executive compensation amount for the fiscal year in question is “(his/her executive compensation amount – lump-sum retirement payment) + (lump-sum retirement payment/years of service)” and the executive compensation amount calculated using this formula is compared to the base amount. c) Material influence on the business management or assets of Sumitomo Mitsui Financial Group and its major consolidated subsidiaries A person has a material influence on the business management or assets of Sumitomo Mitsui Financial Group and its major consolidated subsidiaries if his/her regular transactions or regular matters managed by him/her have a substantial impact on the business management of Sumitomo Mitsui Financial Group and its group companies, or losses incurred through such actions have a significant impact on the financial situation of Sumitomo Mitsui Financial Group and its group companies. Specifically, persons having such influence are directors, corporate auditors and corporate officers of Sumitomo Mitsui Financial Group and its major consolidated subsidiaries, both domestic and overseas. 2. Names, Compositions, and Duties of the Main Bodies, Such as the Committee Responsible for Supervising Business Execution Concerning the Determination of Compensation, Its Payment and Other Related Matters (1) Establishment and Maintenance of the Compensation Committee Sumitomo Mitsui Financial Group, as a Company with a Nomination Committee, has established a Compensation Committee to resolve the “policy to determine individual remuneration for directors and executive officers,” “executive compensation programme and relevant regulations,” and “individual remuneration for Sumitomo Mitsui Financial Group’s directors and corporate executive officers.” The Compensation Committee is a body independent from the influence of business units, chaired by an outside director, with the majority of its members being also outside directors, and tasked to determine and deliberate matters related to executive compensation of Sumitomo Mitsui Financial Group and its group companies. In addition, Sumitomo Mitsui Financial Group Compensation Committee reviews and discusses executive compensation programmes/practices of group companies of Sumitomo Mitsui Financial Group and the individual remuneration for Sumitomo Mitsui Financial Group’s other executive officers. Furthermore, group companies of Sumitomo Mitsui Financial Group respect the details of the deliberations at the Compensation Committee of Sumitomo Mitsui Financial Group and determine the compensation for directors and corporate auditors within the maximum total amount of compensation approved at an ordinary general meeting of shareholders. (2) For Employees and Others The amount and type of compensation paid to the employees of Sumitomo Mitsui Financial Group and SMBC and the officers and employees of major consolidated subsidiaries are determined and paid according to the compensation policies established by the boards of directors of Sumitomo Mitsui Financial Group and its major consolidated subsidiaries. Compensation systems based on the compensation policies are designed and documented by the HR departments of respective companies, independent from the influence of business units. The compensation policies of major consolidated subsidiaries are regularly reported to the HR department of Sumitomo Mitsui Financial Group for review. The amount and type of compensation for overseas officers and employees is determined and paid under the compensation system established by the relevant office or subsidiary in accordance with local laws, regulations and employment practices. (3) Total Amount of Compensation Paid to Compensation Committee Members and Number of Compensation Committee Meetings Held Compensation Committee (Sumitomo Mitsui Financial Group) ����������������������������������������������������������������������� Compensation Committee (SMBC Nikko Securities Inc�) �������������������������������������������������������������������������������� Number of Meetings Held (April 1, 2022 to March 31, 2023) 7 4 Note: The total amount of compensation is not provided because the portion of the compensation paid to a committee member for services rendered as a committee member cannot be calculated as the amount of compensation paid is based on the committee member’s position in the company. 304 SMBC GROUP ANNUAL REPORT 2023 Compensation Sumitomo Mitsui Financial Group ■ Assessment of Design and Operation of Compensation Structure Compensation Policies for Officers, Employees and Others (1) For Officers Sumitomo Mitsui Financial Group hereby establishes the Executive Compensation Policy (the “Policy”) in order to provide guiding principles for its Compensation Committee to determine individual remuneration for its directors and executive officers (the “Executives”). The Policy’s aim is that executive compensation pursuant to it shall provide the appropriate incentives for the Executives to pursue our Mission while materializing our medium-/long-term vision. Executive compensation at SMBC Group shall be determined based on the following concept. I. SMBC Group’s executive compensation aims at providing appropriate incentives toward the realization of our mission and our vi- sion. SMBC Group’s executive compensation shall reflect the changing business environment and the short-, medium-and long-term performance of the group, and shall account for the contribution to shareholder value, customer satisfaction, and realisation of sus- tainable society. Individual remuneration shall reflect the assigned roles and responsibilities as well as the performance of the respective Executive. SMBC Group shall research and review market practices, including the use of third-party surveys, in order to provide its Executives with a competitive remuneration package. SMBC Group’s executive compensation shall discourage excessive risk-taking and foster a prudent risk culture expected of a finan- cial institution. II. III. IV. V. VI. Both external and internal regulations/guidelines on executive compensation shall be observed and respected. VII. SMBC Group shall establish appropriate governance and controls of the compensation process, and shall regularly review to update its executive compensation practices according to changing market practices and/or business environment. I. SMBC Group’s executive compensation programme (the “Programme”) shall have three components: base salary, cash bonus, and stock compensation. However, compensation for outside directors and Audit Committee members shall comprise base salary alone, in consideration of the nature of their role of management supervision. In order to hold the Executives accountable and provide them with appropriate incentives for the performance of the group, the Programme targets the variable compensation component of total remuneration at 40%, if paid at standard levels. Corresponding with performance of SMBC Group and the degree of contribution to realization of a sustainable society, the variable component could range from 0% to 150% of the standard levels, which shall be determined by corporate titles of the Executives. In order to enhance shareholding of the Executives and align their interests with shareholders, the Programme targets its stock- based compensation components at 25% of total remuneration, if paid at standard levels. II. III. VI. IV. The above target levels shall be appropriately set in accordance with the roles, responsibilities, etc. of each Executive. V. Base salary shall be periodically paid in cash and shall be, in principle, determined by the corporate titles of each Executive, reflect- ing the roles, responsibilities, etc. Annual incentives shall be determined based on the performance of previous fiscal year of SMBC Group and the business unit each Execu- tive is accountable for, the degree of contribution to realization of a sustainable society, as well as on the performance of each Executive re- viewed both from short-term and medium-/long-term perspectives. 70% of the determined amount shall be, in principle, paid as a cash bonus and the remaining 30% shall be paid under Stock Compensation Plan II (annual performance share plan). a. Weight by each target index is as follows: SMBC Banking profit*1 SMBC Net income (Pre-Tax)*2 SMFG Net income*3 Annual growth/Target achievement Annual growth/Target achievement Annual growth/Target achievement Target index Weight 50% 25% 25% *1 Adding cooperated profit and loss recorded by SMBC Group companies, etc. in a managerial accounting basis to business profit at Sumitomo Mitsui Banking Corporation. *2 Income before income taxes at Sumitomo Mitsui Banking Corporation. *3 The Group’s profit attributable to owners of parent. * If the Compensation Committee recognizes any element other than the above mentioned target indexes which should be taken into consideration, the Compensation Committee will, if appropriate, judge the circumstances comprehensively and may adjust the compensation to be paid to the employee by a maximum of 5%, plus or minus. b. The degree of contribution to realization of a sustainable society shall be reflected as an adjustment to the score determined in a., by a maximum of 10%, plus or minus, based on the annual progress of KPIs and results of major ESG ratings. VII. Stock compensation plans consist of Stock Compensation Plan I (the “Plan I”), under which the remuneration of the Executives shall be determined based on the Group’s medium-term performance, etc., Stock Compensation Plan II (the “Plan II”), determined based on the Group’s annual performance, etc. and Stock Compensation Plan III (the “Plan III”), determined based on corporate ti- tles, etc. a. Under the stock compensation plans, the Executives shall receive remuneration via shares of the Company’s common stock. The transfer of such stock shall be restricted for appropriately defined periods. b. Remuneration under Plan I shall be determined based on the Group’s performance against the Medium-Term Management Plan, performance of the Company’s shares, and the percentage of achievement of KPIs with respect to creating social value after the term the Group’s Medium-Term Management Plan ends. 70% of the evaluation index is determined based on financial index (Medium-Term Management Plan target), 15% is determined based on share index, and 15% is determined based on non-finan- cial index. Weight by each evaluation index is as follows: Evaluation index *1, 2, 3 Financial index Share index Non-financial index ROCET1*4 Base expense*5 Gross profit*6 Net income TSR (Total shareholder return) Create social value Weight 20% 20% 15% 15% 15% 15% *1 The Compensation Committee determines the evaluation with respect to “Create social value” based on the percentage of achievement of KPIs related to the environ- ment (FE reduction and amount of sustainability financing provided) and employees (employee engagement and DE&I) as well as the progress of initiatives with re- spect to the materialities identified by the Group (“Environment,” “DE&I/Human Rights,” “Declining Birthrate & Aging Population,” “Japan’s Regrowth,” and “Poverty & Inequality”). SMBC GROUP ANNUAL REPORT 2023 305 015_0800885852308.indd 304 015_0800885852308.indd 304 2023/08/18 17:09:30 2023/08/18 17:09:30 015_0800885852308.indd 305 015_0800885852308.indd 305 2023/08/18 17:09:31 2023/08/18 17:09:31 Sumitomo Mitsui Financial Group Compensation Compensation Sumitomo Mitsui Financial Group *2 (Qualitative evaluation) The Compensation Committee determines the score of maximum 5% plus or minus such figure taking into account comprehensively two items, which are “Initiatives in new business areas” and “Compliance, customer-oriented initiatives, and risk management.” *3 (Knock-out provision) In case “CET1 ratio (Post-Basel III reforms basis, excludes net unrealized gains (losses) on other securities)” falls below a designated level at the end of each fiscal year, “Plan I” for the respective fiscal year becomes null and void. *4 Post-Basel III reforms basis, excludes net unrealized gains (losses) on other securities *5 General and administrative expenses excluding “revenue-linked cost,” “prior investment cost” and others *6 The Company’s consolidated gross profit c. Remunerations under Plan II shall be determined based on the performance of the previous fiscal year of SMBC Group and the business unit each Executive is accountable for, the contribution to a sustainable society, as well as on the performance of each Executive reviewed both from a short-term and medium-/long-term perspectives. Remuneration paid by restricted shares, they shall effectively act as deferred compensation. d. Remuneration under Plan III shall be determined based on corporate titles, roles, and responsibilities, etc. VIII. In the event of material amendments to the financial statements or material reputational damages caused by the Executives, IX. remunerations under the Plans could be reduced or fully forfeited. Notwithstanding the above, if the Compensation Committee determines that it is not appropriate to apply the above matters due to the role of an Executive in each Group company or other reasonable circumstances, or if the Compensation Committee determines that it is not appropriate to apply the above matters to an Executive domiciled outside Japan, compensation shall be designed on an individual basis and determined not only in accordance with the above Core Principles, but also with consideration to local regulations, guidelines, and other local market practices, whilst ensuring the compensation should not incentivize for excessive risk-taking. Sumitomo Mitsui Financial Group, as a Company with a Nomination Committee, establishes a “Compensation Committee” to resolve the following: • The Policy, executive compensation programme including the aforementioned compensation programme and regulations concern- ing the Policy • Individual remunerations for Sumitomo Mitsui Financial Group’s directors and corporate executive officers In addition to the above, the Compensation Committee shall review and discuss the below: • The individual remuneration for Sumitomo Mitsui Financial Group’s corporate officers and other officers. • Executive compensation programmes/practices of group companies of Sumitomo Mitsui Financial Group. (2) For Employees and Others In order to link the business philosophy and strategy of the company to the roles and responsibilities of employees and others, Sumitomo Mitsui Financial Group and its major consolidated subsidiaries determine the domestic compensation taking into account their job responsibilities, business performance and other factors. Compensation for employees and others are determined by the HR departments of respective SMBC Group companies by comprehensively taking into account the surrounding business environment, performance trends, pay history and other factors. Compensation policies for overseas employees are determined following the aforementioned compensation policy for employees and others in Japan as well as in accordance with local laws, regulations and employment practices. ■ Consistency between Compensation Structure and Risk Management and Link between Compensation and Performance 1. Sumitomo Mitsui Financial Group and SMBC In determining the compensation for the officers of Sumitomo Mitsui Financial Group, the details of individual compensation for directors and executive officers are determined by the mandatory Compensation Committee, where the majority of the committee members are the outside directors. The compensation for the officers of SMBC are determined within the scope approved at a shareholders’ meeting with the President, delegated by the Board of Directors, determining the details of compensation for each individual, reflecting the assigned roles and responsibilities as well as achievements at SMBC, in light of the deliberations of the SMFG Compensation Committee. In order to hold the Executives accountable and provide them with appropriate incentives for the performance of the group, the Programme targets the variable compensation component of total remuneration at 40%, if paid at standard levels. The Programme shall have three components: base salary, cash bonus, and stock compensation. Cash bonus shall be determined and paid each fiscal year based on the Group’s performance in the previous year, as well as on the performance of the respective Executive reviewed both from short-term and medium-/long-term perspectives. Stock compensation is determined and paid based on the progress of targets during the period of the Medium-term Management plan, performance of Sumitomo Mitsui Financial Group shares, and the results of customer satisfaction surveys, etc. Sumitomo Mitsui Financial Group and SMBC allot restricted stocks via the Plans to Executives to effectively defer part of executive compensation. Stock Compensation Plan I involves removal of the restriction on transfer, after the expiry of Sumitomo Mitsui Financial Group’s Medium-term Management Plan. In the event that the finalized amount of compensation falls short of the initially allocated amount, Sumitomo Mitsui Financial Group will retrieve all or part of the allotted shares at nil cost in the case the final amount falls below the initial amount. Stock Compensation Plan II involves step-by-step removal of the restriction on transfer, one third in each year over the three years following the payment. Stock Compensation Plan III involves removal of the restriction on transfer, either 30 years after payment or at the time of retirement from the position of officer. In addition, Sumitomo Mitsui Financial Group and SMBC introduced the malus (forfeiture) of restricted stock and the claw- back of vested stock allocated to the Executives under the Plans in order to restrain excessive risk-taking and foster a prudent risk culture expected of a financial institution. Provisions on malus and clawbacks are included in the Allotment Agreement and they shall be exercised in the event of material amendments to the financial statements or material reputational damage caused by the Executives after thorough review at the Compensation Committee. In addition, in determining the compensation for employees, their job responsibilities and business performance are taken into account. For variablecompensation, in order to avoid an excessive result-oriented approach, it is determined after comprehensive evaluation based on not only short-term performance results but also qualitative evaluation. Compensation is individually designed with consideration to local regulations, guidelines, and other market practices, whilst ensuring the compensation should not incentivize for excessive risk-taking. 2. Other Major Consolidated Subsidiaries The compensation for officers and employees of other major subsidiaries of Sumitomo Mitsui Financial Group are determined by comprehensively taking into account the assessment of the subsidiaries’ medium- and long-term earnings, and in the case of an overseas subsidiary, local laws, regulations and employment practices, and a compensation structure that could affect the risk management of SMBC Group has not been adopted. While terms of employment presented at the time of recruitment may include the minimum amount of compensation within a reasonable scope under local practice, the compensation structure is designed to avoid an excessive result-oriented approach. In addition, expenses for employee retention are recorded for em- ployees of certain major consolidated subsidiaries. ■ Type, Total Amount Paid, and Payment Method of Compensation for Officers, Employees and Others of Sumitomo Mitsui Financial Group and Its Group Companies Compensation, etc. allocated to the applicable fiscal year Item No� 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 Number of applicable officers, employees and others Total fixed compensation (3+5+7) of which: cash compensation of which in 3: deferred amount Fixed compensation of which: amount of stock compensation or stock-linked compensation of which in 5: deferred amount of which: other compensation of which in 7: deferred amount Number of applicable officers, employees and others Total variable compensation (11+13+15) of which: cash compensation of which in 11: deferred amount of which: amount of stock compensation or stock-linked compensation of which in 13: deferred amount of which: amount of other compensation of which in 15: deferred amount Number of applicable officers, employees and others Amount of retirement allowance of which: deferred amount Number of applicable officers, employees and others Amount of other compensation of which: deferred amount Variable compensation Retirement allowance Other compensation Total compensation, etc� (2+10+18+21) (Headcount, millions of yen) (a) Officers (b) Employees and others 19 1,142 1,039 — 62 62 40 — 16 752 350 — 402 402 — — — — — — — — 1,895 440 19,677 18,971 — 384 384 321 — 440 16,610 14,990 3,308 1,619 1,002 — — 365 1,574 27 29 345 — 38,208 Notes: 1. Compensation amount includes those amounts of major consolidated subsidiaries. 2. Stock Compensation Plan III is classified as fixed compensation because the amount allotted depends on the individual’s position. Other stock compensation involves an amount of issuance prone to performance-linked fluctuations, and is thus classified as variable compensation. Special compensation, etc. (Headcount, millions of yen) (a) (b) (c) (d) (e) (f) Officers Employees and others Bonus guarantee Headcount — 32 Total amount — 1,744 One-off recruitment payment Headcount Total amount — 21 — 4 Additional retirement allowance Total amount Headcount — 288 — 8 ■ Other Information Regarding Compensation Structures of Sumitomo Mitsui Financial Group and its Group Companies Deferred compensation, etc. (a) Balance of deferred compensation, etc� Officers Employees and others Amount of cash compensation Amount of stock compensation or stock-linked compensation Amount of other compensation Amount of cash compensation Amount of stock compensation or stock-linked compensation Amount of other compensation Total amount — 1,666 — 4,998 3,491 12 10,169 (b) Of the amount in (a), balance of deferred compensation, etc� subjected to adjustment or prone to fluctuations — (c) With respect to post allocation compensation, amount of fluctuation after adjustment not linked to fluctuations of criteria in the applicable fiscal year — 1,359 — 752 3,424 12 5,548 — — — — — — (d) With respect to post allocation compensation, amount of fluctuation after adjustment linked to fluctuations of criteria in the applicable fiscal year (Millions of yen) (e) Amount of deferred compensation, etc� paid in the applicable fiscal year — — — — — — — — 192 — 1,518 635 10 2,356 306 SMBC GROUP ANNUAL REPORT 2023 SMBC GROUP ANNUAL REPORT 2023 307 015_0800885852308.indd 306 015_0800885852308.indd 306 2023/08/18 17:09:31 2023/08/18 17:09:31 015_0800885852308.indd 307 015_0800885852308.indd 307 2023/08/18 17:09:31 2023/08/18 17:09:31 SMBC Compensation Sumitomo Mitsui Banking Corporation (SMBC) and Its Group Companies ■ Compensation Framework of SMBC Group 1. Scope of Officers and Employees The scope of officers, employees and others whose compensation is subject to disclosure under the revised Cabinet Office on Disclosure of Corporate Affairs, etc. and other ordinances are as described below. (1) Scope of Officers ■ Assessment of Design and Operation of Compensation Structure Compensation Policy Compensation Policies for Officers, Employees and Others Officers subject to compensation disclosure are directors and corporate auditors of SMBC during the fiscal year under review. (1) For Officers Compensation SMBC (2) Scope of Employees and Others Employees and others subject to compensation disclosure are employees of SMBC and officers and employees of its major consolidated subsidiaries who are highly compensated and have a material influence on the business management or the assets of SMBC and its major consolidated subsidiaries. a) Scope of major consolidated subsidiaries A major consolidated subsidiary is a consolidated subsidiary of SMBC with total assets accounting for more than 2% of the total consolidated assets of SMBC and has a material influence on the management of SMBC and its group companies. Specifically, they are SMBC Guarantee Co., Ltd. and overseas subsidiaries such as SMBC Bank International plc and Sumitomo Mitsui Banking Corporation (China) Limited. b) Scope of highly compensated persons A highly compensated person is an individual whose compensation paid by SMBC or its major subsidiaries is equal to or more than the base amount. The base amount of SMBC is set at ¥60 million which is based on the average amount of compensation paid to the officers of Sumitomo Mitsui Financial Group and SMBC (excluding officers appointed or retired during the fiscal year in question) over the last three fiscal years (hereinafter “executive compensation amount”) and is applied to all group companies. This is because many of the officers of Sumitomo Mitsui Financial Group also serve as officers of SMBC, and their executive compensation amount is determined according to their contribution to the group as a whole. With respect to lump-sum retirement payment for officers serving in Japan, the executive compensation amount for the fiscal year in question is “(his/her executive compensation amount – lump-sum retirement payment) + (lump-sum retirement payment/years of service)” and the executive compensation amount calculated using this formula is compared to the base amount. c) Material influence on the business management or assets of SMBC and its major consolidated subsidiaries A person has a material influence on the business management or assets of SMBC and its major consolidated subsidiaries if his/her regular transactions or regular matters managed by him/her have a substantial impact on the business management of SMBC and its group companies, or losses incurred through such actions have a significant impact on the financial situation of SMBC and its group companies. Specifically, persons having such influence are directors, corporate auditors and corporate officers of SMBC and its major consolidated subsidiaries, both domestic and overseas. 2. Names, Compositions, and Duties of the Main Bodies, Such as the Committee Responsible for Supervising Business Execution Concerning the Determination of Compensation, Its Payment and Other Related Matters (1) Determination of compensation for officers Compensation for SMBC’s Directors (excluding members of the Audit and Supervisory Committee) is determined within the limit approved at a shareholders’ meeting with the President, delegated by the Board of Directors, determining the amount of compensation for each individual, reflecting the assigned roles and responsibilities as well as achievements at SMBC, in light of the deliberations of the SMFG Compensation Committee. The details of the above determination are reported to SMBC’s Audit and Supervisory Committee. Individual compensation for Directors who are members of the Audit and Supervisory Committee is determined within the scope approved at a shareholders’ meeting, through discussion by Directors who are members of the Audit and Supervisory Committee. (2) Determination of compensation for employees Compensation for employees is stated in “Compensation” of Sumitomo Mitsui Financial Group (please refer to “2. Names, Compositions, and Duties of the Main Bodies, Such as the Committee Responsible for Supervising Business Execution Concerning the Determination of Compensation, Its Payment and Other Related Matters (2) For Employees and Others” on page 304). Sumitomo Mitsui Banking Corporation hereby establishes the Executive Compensation Policy (the “Policy”) in order to provide guiding principles for its Compensation Committee to determine individual remuneration for its directors and executive officers (the “Executives”). The Policy’s aim is that executive compensation pursuant to it shall provide the appropriate incentives for the Executives to pursue our Group Mission while materializing our medium-/long-term vision. Executive compensation at SMBC shall be determined based on the following concept. I. II. III. IV. V. SMBC Group’s executive compensation aims at providing appropriate incentives toward the realization of our mission and our vision. SMBC Group’s executive compensation shall reflect the changing business environment and the short-, medium- and long-term performance of the group, and shall account for the contribution to shareholder value, customer satisfaction, and realization of sustainable society. Individual remuneration shall reflect the assigned roles and responsibilities as well as the performance of the respective Executive. SMBC Group shall research and review market practices, including the use of third-party surveys, in order to provide its Executives with a competitive remuneration package. SMBC Group’s executive compensation shall discourage excessive risk-taking and foster a prudent risk culture expected of a financial institution. Both external and internal regulations/guidelines on executive compensation shall be observed and respected. VI. VII. SMBC Group shall establish appropriate governance and controls of the compensation process, and shall regularly review to update its executive compensation practices according to changing market practices and/or business environment. I. II. III. IV. V. VI. SMBC Group’s executive compensation programme (the “Programme”) shall have three components: base salary, cash bonus, and stock compensation. However, compensation for outside directors and Audit Committee members shall comprise base salary alone, in consideration of the nature of their role of management supervision. In order to hold the Executives accountable and provide them with appropriate incentives for the performance of the group, the Programme targets the variable compensation component of total remuneration at 40%, if paid at standard levels. Corresponding with performance of SMBC Group and the degree of contribution to realization of a sustainable society, the variable component could range from 0% to 150% of the standard levels, which shall be determined by corporate titles of the Executives. In order to enhance shareholding of the Executives and align their interests with shareholders of Sumitomo Mitsui Financial Group (“SMFG”), the parent, the Programme targets its stock-based compensation components of SMFG stocks at 25% of total remuneration, if paid at standard levels. The above target levels shall be appropriately set in accordance with the roles, responsibilities, etc. of each Executive. Base salary shall be periodically paid in cash and shall be, in principle, determined by the corporate titles of each Executive, reflecting the roles, responsibilities, etc. Annual incentives shall be determined based on the performance of previous fiscal year of SMBC Group and the business unit each Executive is accountable for, the degree of contribution to realization of a sustainable society, as well as on the performance of each Executive reviewed both from short-term and medium-/long-term perspectives. 70% of the determined amount shall be, in principle, paid as a cash bonus and the remaining 30% shall be paid under Stock Compensation Plan II (annual performance share plan). a. Weight by each target index is as follows: 308 SMBC GROUP ANNUAL REPORT 2023 Target index SMBC Banking profit*1 SMBC Net income (Pre-Tax)*2 SMFG Net income*3 Annual growth/Target achievement Annual growth/Target achievement Annual growth/Target achievement Weight 50% 25% 25% *1 Adding cooperated profit and loss recorded by SMBC Group companies, etc. in a managerial accounting basis to business profit at and Sumitomo Mitsui Banking Corporation. *2 Income before income taxes at Sumitomo Mitsui Banking Corporation. *3 The Group’s profit attributable to owners of parent. * If the SMFG Compensation Committee recognizes any element other than the above mentioned target indexes which should be taken into consideration, the SMFG Compensation Committee will, if appropriate, judge the circumstances comprehensively and may adjust the compensation to be paid to the employee by a maximum of 5%, plus or minus. SMBC GROUP ANNUAL REPORT 2023 309 015_0800885852308.indd 308 015_0800885852308.indd 308 2023/08/18 17:09:31 2023/08/18 17:09:31 015_0800885852308.indd 309 015_0800885852308.indd 309 2023/08/18 17:09:31 2023/08/18 17:09:31 SMBC Compensation Compensation SMBC b. The degree of contribution to realization of a sustainable society shall be reflected as an adjustment to the score determined in a., by a maximum of 10%, plus or minus, based on the annual progress of KPIs and results of major ESG ratings. VII. Stock compensation plans consist of Stock Compensation Plan I (the “Plan I”), under which the remuneration of the Executives shall be determined based on the Group’s medium-term performance, etc., Stock Compensation Plan II (the “Plan II”), determined based on the Group’s annual performance, etc. and Stock Compensation Plan III (the “Plan III”), determined based on corporate ti- tles, etc. a. Under the stock compensation plans, the Executives shall receive remuneration via shares of the SMFG’s common stock. The transfer of such stock shall be restricted for appropriately defined periods. b. Remuneration under Plan I shall be determined based on the Group’s performance against the Medium-Term Management Plan, performance of the Company’s shares, and the percentage of achievement of KPIs with respect to creating social value after the term the Group’s Medium-Term Management Plan ends. 70% of the evaluation index is determined based on financial index (Medium-Term Management Plan target), 15% is determined based on share index, and 15% is determined based on non-finan- cial index. Weight by each evaluation index is as follows: Evaluation index *1, 2, 3 Financial index Share index Non-financial index ROCET1*4 Base expense*5 Gross profit*6 Net income TSR (Total shareholder return) Create social value Weight 20% 20% 15% 15% 15% 15% *1 The Compensation Committee determines the evaluation with respect to “Create social value” based on the percentage of achievement of KPIs related to the environ- ment (FE reduction and amount of sustainability financing provided) and employees (employee engagement and DE&I) as well as the progress of initiatives with re- spect to the materialities identified by the Group (“Environment,” “DE&I/Human Rights,” “Declining Birthrate & Aging Population,” “Japan’s Regrowth,” and “Poverty & Inequality”). *2 (Qualitative evaluation) The Compensation Committee determines the score of maximum 5% plus or minus such figure taking into account comprehensively two items, which are “Initiatives in new business areas” and “Compliance, customer-oriented initiatives, and risk management.” *3 (Knock-out provision) In case “CET1 ratio (Post-Basel III reforms basis, excludes net unrealized gains (losses) on other securities)” falls below a designated level at the end of each fiscal year, “Plan I” for the respective fiscal year becomes null and void. *4 Post-Basel III reforms basis, excludes net unrealized gains (losses) on other securities *5 General and administrative expenses excluding “revenue-linked cost,” “prior investment cost” and others *6 The Company’s consolidated gross profit c. Remunerations under Plan II shall be determined based on the performance of the previous fiscal year of SMBC Group and the business unit each Executive is accountable for, the contribution to a sustainable society, as well as on the performance of each Executive reviewed both from a short-term and medium-/long-term perspectives. Remuneration paid by restricted shares, they shall effectively act as deferred compensation. d. Remuneration under Plan III shall be determined based on corporate titles, roles, and responsibilities, etc. VIII. In the event of material amendments to the financial statements or material reputational damages caused by the Executives, remu- IX. nerations under the Plans could be reduced or fully forfeited. Notwithstanding the above, if the SMFG Compensation Committee determines that it is not appropriate to apply the above matters due to the role of an Executive in each Group company or other reasonable circumstances, or if the SMFG Compensation Committee deter- mines that it is not appropriate to apply the above matters to an Executive domiciled outside Japan, compensation shall be designed on an individual basis and determined not only in accordance with the above Core Principles, but also with consideration to local regulations, guidelines, and other local market practices, whilst ensuring the compensation should not incentivize for excessive risk-taking. I. This Policy is determined at SMBC’s Board of Directors in light of the “Executive Compensation Policy” determined by SMFG Compensation Committee. Compensation for SMBC’s Directors (excluding members of the Audit and Supervisory Committee) is determined within the limit approved at a shareholders’ meeting with the President, delegated by the Board of Directors, determining the amount of compensa- tion for each individual, reflecting the assigned roles and responsibilities as well as achievements at SMBC, in light of the delibera- tions of the SMFG Compensation Committee. The details of the determination in II above are reported to SMBC Audit and Supervisory Committee. The specific amount, payment period, and method of compensation for SMBC’s executive officers is determined by the President, reflecting the assigned roles and responsibilities as well as achievements at SMBC. Individual compensation for Directors who are members of the Audit and Supervisory Committee is determined within the limit approved at a shareholders’ meeting, through discussion by Directors who are members of the Audit and Supervisory Committee. II. III. IV. V. ■ Type, Total Amount Paid, and Payment Method of Compensation for Officers, Employees and Others of SMBC and Its Group Companies 1. Compensation Allocated in the Applicable Fiscal Year (SMBC consolidated) Item No� 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 Number of applicable officers, employees and others Total fixed compensation (3+5+7) of which: cash compensation of which in 3: deferred amount Fixed compensation of which: amount of stock compensation or stock-linked compensation of which in 5: deferred amount of which: other compensation of which in 7: deferred amount Number of applicable officers, employees and others Total variable compensation (11+13+15) of which: cash compensation of which in 11: deferred amount of which: amount of stock compensation or stock-linked compensation of which in 13: deferred amount of which: amount of other compensation of which in 15: deferred amount Number of applicable officers, employees and others Amount of retirement allowance of which: deferred amount Number of applicable officers, employees and others Amount of other compensation of which: deferred amount Variable compensation Retirement allowance Other compensation Total compensation, etc� (2+10+18+21) (Headcount, millions of yen) (a) Officers (b) Employees and others 17 977 879 — 54 54 43 — 14 591 277 — 314 314 — — — — — — — — 1,569 436 19,373 18,689 — 364 364 318 — 436 16,483 14,850 3,283 1,633 1,016 — — 364 1,547 — 29 345 — 37,749 Notes: 1. Compensation amount includes those amounts of major consolidated subsidiaries. 2. Stock Compensation Plan III is classified as fixed compensation because the amount allotted depends on the individual’s position. Other stock compensation involves an amount of issuance prone to performance-linked fluctuations, and is thus classified as variable compensation. 2. Special Compensation, Etc. (a) (b) Bonus guarantee Headcount — 32 Total amount — 1,744 Officers Employees and others (c) (d) (e) (f) (Headcount, millions of yen) One-off recruitment payment Headcount Total amount — 21 — 4 Additional retirement allowance Total amount Headcount — 288 — 8 ■ Consistency between Compensation Structure and Risk Management and Link between Compensation and Performance Consistency between compensation structure and risk management and link between compensation and performance is stated in “Compensation” of Sumitomo Mitsui Financial Group (please refer to “Consistency between Compensation Structure and Risk Management and Link between Compensation and Performance” on page 306). 310 SMBC GROUP ANNUAL REPORT 2023 SMBC GROUP ANNUAL REPORT 2023 311 015_0800885852308.indd 310 015_0800885852308.indd 310 2023/08/18 17:09:31 2023/08/18 17:09:31 015_0800885852308.indd 311 015_0800885852308.indd 311 2023/08/18 17:09:31 2023/08/18 17:09:31 SMBC Compensation Compensation SMBC 1. Compensation Allocated in the Applicable Fiscal Year (SMBC non-consolidated) ■ Other Information Regarding Compensation Structures of Sumitomo Mitsui Financial Group and its Group (Headcount, millions of yen) (a) Officers (b) Employees and others Companies Amount of Deferred Compensation, Etc. (SMBC consolidated) Deferred compensation, etc. Item No� 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 Number of applicable officers, employees and others Total fixed compensation (3+5+7) of which: cash compensation of which in 3: deferred amount Fixed compensation of which: amount of stock compensation or stock-linked compensation of which in 5: deferred amount of which: other compensation of which in 7: deferred amount Number of applicable officers, employees and others Total variable compensation (11+13+15) of which: cash compensation of which in 11: deferred amount of which: amount of stock compensation or stock-linked compensation of which in 13: deferred amount of which: amount of other compensation of which in 15: deferred amount Number of applicable officers, employees and others Amount of retirement allowance of which: deferred amount Number of applicable officers, employees and others Amount of other compensation of which: deferred amount Variable compensation Retirement allowance Other compensation Total compensation, etc� (2+10+18+21) 17 977 879 — 54 54 43 — 14 591 277 — 314 314 — — — — — — — — 1,569 436 19,373 18,689 — 364 364 318 — 436 16,483 14,850 3,283 1,633 1,016 — — 364 1,547 — 29 345 — 37,749 Notes: 1. Compensation amount includes those amounts of major consolidated subsidiaries. 2. Stock Compensation Plan III is classified as fixed compensation because the amount allotted depends on the individual’s position. Other stock compensation involves an amount of issuance prone to performance-linked fluctuations, and is thus classified as variable compensation. 2. Special Compensation, Etc. (a) (b) Bonus guarantee Headcount — 32 Total amount — 1,744 Officers Employees and others (c) (d) (e) (f) (Headcount, millions of yen) One-off recruitment payment Headcount Total amount — 21 — 4 Additional retirement allowance Total amount Headcount — 288 — 8 (a) (b) Balance of deferred compensation, etc� Of the amount in (a), balance of deferred compensation, etc� subjected to adjustment or prone to fluctuations (c) With respect to post allocation compensation, amount of fluctuation after adjustment not linked to fluctuations of criteria in the applicable fiscal year (Millions of yen) (d) (e) With respect to post allocation compensation, amount of fluctuation after adjustment linked to fluctuations of criteria in the applicable fiscal year Amount of deferred compensation, etc� paid in the applicable fiscal year Officers Employees and others Amount of cash compensation Amount of stock compensation or stock-linked compensation Amount of other compensation Amount of cash compensation Amount of stock compensation or stock-linked compensation Amount of other compensation Total amount — 1,380 — 4,815 3,588 12 9,796 — 1,155 — 752 3,468 12 5,388 — — — — — — — — — — — — — — — 157 — 1,518 642 10 2,328 Amount of Deferred Compensation, Etc. (SMBC non-consolidated) Deferred compensation, etc. (a) (b) Balance of deferred compensation, etc� Of the amount in (a), balance of deferred compensation, etc� subjected to adjustment or prone to fluctuations (c) With respect to post allocation compensation, amount of fluctuation after adjustment not linked to fluctuations of criteria in the applicable fiscal year (Millions of yen) (d) (e) With respect to post allocation compensation, amount of fluctuation after adjustment linked to fluctuations of criteria in the applicable fiscal year Amount of deferred compensation, etc� paid in the applicable fiscal year Officers Employees and others Amount of cash compensation Amount of stock compensation or stock-linked compensation Amount of other compensation Amount of cash compensation Amount of stock compensation or stock-linked compensation Amount of other compensation Total amount — 1,380 — 4,815 3,588 12 9,796 — 1,155 — 752 3,468 12 5,388 — — — — — — — — — — — — — — — 157 — 1,518 642 10 2,328 312 SMBC GROUP ANNUAL REPORT 2023 SMBC GROUP ANNUAL REPORT 2023 313 015_0800885852308.indd 312 015_0800885852308.indd 312 2023/08/18 17:09:31 2023/08/18 17:09:31 015_0800885852308.indd 313 015_0800885852308.indd 313 2023/08/18 17:09:31 2023/08/18 17:09:31 SMBC Group Home Page https://www.smfg.co.jp (Japanese) Medium-Term Management Plan https://www.smfg.co.jp/company/strategy/ (Japanese) https://www.smfg.co.jp/english/ (English) https://www.smfg.co.jp/english/company/strategy/ (English) Investor Relations https://www.smfg.co.jp/investor/ (Japanese) https://www.smfg.co.jp/english/investor/ (English) Beyond SMBC Group https://www.smfg.co.jp/beyond/ Sustainability https://www.smfg.co.jp/sustainability/ (Japanese) https://www.smfg.co.jp/english/sustainability/ (English) DX-link https://www.smfg.co.jp/dx_link/ 015_0800885852308.indd 314 015_0800885852308.indd 314 2023/08/18 17:09:31 2023/08/18 17:09:31 015_0800885852308.indd 315 015_0800885852308.indd 315 2023/08/18 17:09:31 2023/08/18 17:09:31 SMBC GROUP ANNUAL REPORT SMBC GROUP ANNUAL REPORT 2023 2023 YEAR ENDED MARCH 31, 2023 YEAR ENDED MARCH 31, 2023 S M B C G R O U P A N N U A L R E P O R T 2 0 2 3 S M B C G R O U P A N N U A L R E P O R T 2 0 2 3