UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 20-F

 

 

(Mark One)

 

¨

REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g)OF THE SECURITIES EXCHANGE ACT OF 1934

OR

 

x

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

 

For the fiscal year ended March 31, 20162019

OR

 

¨

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

 

For the transition period from                     to                     

OR

 

¨

SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

 

Date of event requiring this shell company report

Commission file number: 001-34919

Kabushiki Kaisha Mitsui Sumitomo Financial Group

(Exact name of Registrant as specified in its charter)

SUMITOMO MITSUI FINANCIAL GROUP, INC.

(Translation of registrant’s name into English)

 

Japan  1-2, Marunouchi 1-chome, Chiyoda-ku, Tokyo 100-0005,  Japan
(Jurisdiction of incorporation or organization)  (Address of principal executive offices)

Takeshi MikamiMasahiko Tsutsui

1-2, Marunouchi 1-chome, Chiyoda-ku, Tokyo 100-0005, Japan

Telephone: +81-3-3282-8111         Facsimile: +81-3-4333-9954

(Name, telephone, e-mail and/or facsimile number and address of company contact person)

Securities registered or to be registered pursuant to Section 12(b) of the Act

 

Title of Each Class

 

Trading Symbol(s)

Name of Each Exchange on which registered

American Depositary Shares

SMFGThe New York Stock Exchange

Common stock, without par value

 The New York Stock Exchange*

 

*

Not for trading, but only in connection with the listing of the American Depositary Shares, each American Depositary Share representing 1/5 of one share of the registrant’s common stock.

Securities registered or to be registered pursuant to Section 12(g) of the Act:

None

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:

None

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report.

At March 31, 2016,2019, the following shares of capital stock were outstanding: 1,414,055,6251,399,401,420 shares of common stock (including 46,830,8823,800,918 shares of common stock held by the registrant and its consolidated subsidiaries and equity-method associates as treasury stock).

 

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes  x    No  ¨

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.    Yes  ¨    No  x

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ¨    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer.filer, or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer, and large accelerated filer”“emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large Accelerated Filer  x Accelerated Filer  ¨ Non-accelerated Filer  ¨Emerging Growth Company  ☐

If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 13(a) of the Exchange Act.    ☐

† The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

 

U.S. GAAP  ¨  International Financial Reporting Standards as issued by the International Accounting Standards Board  x  Other  ¨

If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.    Item 17  ¨    Item 18  ¨

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

 

 

 


TABLE OF CONTENTS

 

        Page 

Certain Defined Terms, Conventions and Presentation of Financial Information

   1 

Cautionary Statement Regarding Forward-Looking Statements

   2 

PART I

   3 
 Item 1.  Identity of Directors, Senior Management and Advisers   3 
 Item 2.  Offer Statistics and Expected Timetable   3 
 Item 3.  Key Information   3 
     3.A.  Selected Financial Data   3 
     3.B.  Capitalization and Indebtedness   54 
     3.C.  Reasons for the Offer and Use of Proceeds   54 
     3.D.  Risk Factors   54 
 Item 4.  Information on the Company   19 
     4.A.  History and Development of the Company   19 
     4.B.  Business Overview   20 
     4.C.  Organizational Structure   55 
     4.D.  Property, Plant and Equipment   57 
 Item 4A.  Unresolved Staff Comments   58 
 Item 5.  Operating and Financial Review and Prospects   58 
     5.A.  Operating Results   6765 
     5.B.  Liquidity and Capital Resources   109101 
     5.C.  Research, Development, Patents and Licenses   114106 
     5.D.  Trend Information   114106 
     5.E.  Off-Balance Sheet Arrangements   114106 
     5.F.  Tabular Disclosure of Contractual Obligations   115108 
     5.G.  Safe Harbor   115108 
 Item 6.  Directors, Senior Management and Employees   115108 
     6.A.  Directors and Senior Management   115108 
     6.B.  Compensation   123117 
     6.C.  Board Practices   123118 
     6.D.  Employees121
    6.E.Share Ownership122
Item 7.Major Shareholders and Related Party Transactions126
    7.A.Major Shareholders126
    7.B.Related Party Transactions126
    7.C.Interests of Experts and Counsel127
Item 8.Financial Information   127 
     6.E.8.A.  Share OwnershipConsolidated Statements and Other Financial Information127
    8.B.Significant Changes   128 
 Item 7.Major Shareholders and Related Party Transactions130
    7.A.Major Shareholders130
    7.B.Related Party Transactions131
    7.C.Interests of Experts and Counsel131
Item 8.Financial Information131
    8.A.Consolidated Statements and Other Financial Information131
    8.B.Significant Changes132
Item 9.  The Offer and Listing   132128 
     9.A.  Offer and Listing Details   132128 
     9.B.  Plan of Distribution   134128 
     9.C.  Markets   134128 
     9.D.  Selling Shareholders   134128 
     9.E.  Dilution   135128 
     9.F.  Expenses of the Issue   135128 
 Item 10.  Additional Information   135129 
     10.A.  Share Capital   135129 
     10.B.  Memorandum and Articles of Incorporation   135129 
     10.C.  Material Contracts   145139 
     10.D.  Exchange Controls   145139 

 

i


        Page 
     10.E.  Taxation   146140 
     10.F.  Dividends and Paying Agents   150144 
     10.G.  Statement by Experts   150144 
     10.H.  Documents on Display   151144 
     10.I.  Subsidiary Information   151145 
 Item 11.  Quantitative and Qualitative Disclosures about Credit, Market and Other Risk   151145 
 Item 12.  Description of Securities other than Equity Securities   164159 
     12.A.  Debt Securities   164159 
     12.B.  Warrants and Rights   164159 
     12.C.  Other Securities   164159 
     12.D.  American Depositary Shares   164159 

PART II

   166161 
 Item 13.  Defaults, Dividend Arrearages and Delinquencies   166161 
 Item 14.  Material Modifications to the Rights of Security Holders and Use of Proceeds161
Item 15.Controls and Procedures161
Item 16A.Audit Committee Financial Expert162
Item 16B.Code of Ethics162
Item 16C.Principal Accountant Fees and Services162
Item 16D.Exemptions from the Listing Standards for the Audit Committee163
Item 16E.Purchases of Equity Securities by the Issuer and Affiliated Purchasers163
Item 16F.Change in Registrant’s Certifying Accountant164
Item 16G.Corporate Governance164
Item 16H.Mine Safety Disclosure165

PART III

   166 
 Item 15.17.  Controls and ProceduresFinancial Statements   166 
 Item 16A.18.  Audit Committee Financial ExpertStatements   167
Item 16B.Code of Ethics167
Item 16C.Principal Accountant Fees and Services168
Item 16D.Exemptions from the Listing Standards for the Audit Committee168
Item 16E.Purchases of Equity Securities by the Issuer and Affiliated Purchasers169
Item 16F.Change in Registrant’s Certifying Accountant169
Item 16G.Corporate Governance169
Item 16H.Mine Safety Disclosure171

PART III

172
Item 17.Financial Statements172
Item 18.Financial Statements172166 
 Item 19.  Exhibits   172166 

Signatures

   173168 

Selected Statistical Data

   A-1 

Index to Consolidated Financial Statements

   F-1 

 

ii


CERTAIN DEFINED TERMS, CONVENTIONS AND

PRESENTATION OF FINANCIAL INFORMATION

As used in this annual report, unless the context otherwise requires, “SMFG,“we,” “us,” “our,” the “Company,” “we,” “us,” “our”“SMFG” and similar terms refer to Sumitomo Mitsui Financial Group, Inc. as well as to its subsidiaries, as the context requires. References to the “Group” are to us and our subsidiaries and affiliates taken as a whole. “SMBC” and “the Bank” referrefers to Sumitomo Mitsui Banking Corporation, which is one of our commercial banking subsidiaries, or to Sumitomo Mitsui Banking Corporation and its subsidiaries taken as a whole, depending on the context. The Bank isReferences to the “SMBC Group” are to us and our main subsidiary.subsidiaries and affiliates taken as a whole.

In this annual report, all of our financial information is presented on a consolidated basis, unless we state otherwise. As used in this annual report, “IFRS” means International Financial Reporting Standards as issued by the International Accounting Standards Boards (“IASB”) and “Japanese GAAP” means accounting principles generally accepted in Japan. Our consolidated financial information in this annual report has been prepared in accordance with IFRS, except for the risk-weighted capital ratios, the segment results of operation and some other specifically identified information, which are prepared in accordance with Japanese banking regulations or Japanese GAAP. Unless otherwise stated or the context otherwise requires, all financial information contained in this annual report is expressed in Japanese yen.

Our fiscal year ends on March 31.

Unless otherwise specified or required by the context: references to “days” are to calendar days; references to “years” are to calendar years and to “fiscal years” are to our fiscal years ending on March 31; references to “$,” “dollars” and “U.S. dollars” are to United States dollars; references to “euros” and “€” are to the currency of those member states of the European Union which are participating in the European Economic and Monetary Union pursuant to the Treaty on European Union; references to “£” and “British pounds sterling” are to the currency of the United Kingdom; and references to “yen” and “¥” are to Japanese yen. Unless otherwise specified, when converting currencies into yen we use our median exchange rates for buying and selling spot dollars, or other currencies, by telegraphic transfer against yen as determined at the end of the relevant fiscal period.

Unless otherwise indicated, in this annual report, where information is presented in millions, billions or trillions of yen or thousands, millions or billions of dollars, amounts of less than one thousand, one million, one billion or one trillion, as the case may be, have been rounded. Accordingly, the total of figures presented in columns or otherwise may not equal the total of the individual items. Except for capital ratios, which have been truncated, percentage data, unless we state otherwise have been subjected to rounding adjustments for the convenience of the reader.

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This annual report contains statements that constitute “forward-looking statements” within the meaning of Section 21E of the U.S. Securities Exchange Act of 1934, as amended (“Securities Exchange Act of 1934”). When included in this annual report, the words “anticipate,” “believe,” “estimate,” “expect,” “intend,” “may,” “plan,” “probability,” “risk,” “project,” “should,” “seek,” “target,” “will” and similar expressions, among others, identify forward-looking statements. You can also identify forward-looking statements in the discussions of strategy, plans or intentions. Such statements, which include, but are not limited to, statements contained in “Item 3. Key Information—Risk Factors,” “Item 5. Operating and Financial Review and Prospects” and “Item 11. Quantitative and Qualitative Disclosures about Credit, Market and Other Risk,” reflect our current views with respect to future events and are inherently subject to risks, uncertainties and assumptions, including the risk factors described in this annual report. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those described here as anticipated, believed, estimated, expected or intended.

The U.S. Private Securities Litigation Reform Act of 1995 provides a “safe harbor” for forward-looking information to encourage companies to provide prospective information about themselves. We rely on this safe harbor in making these forward-looking statements.

Forward-looking statements are not guarantees of future performance and involve risks and uncertainties, and actual results may differ from those in the forward-looking statements as a result of various factors, and the differences may be material. Potential risks and uncertainties include, without limitation, the following:

 

deterioration of Japanese and global economic conditions and financial markets;

 

constraints on our operations due to capital adequacy requirements;

declines in the value of our securities portfolio;

 

changes in the level or volatility of market rates or prices;

 

constraints on our operations due to capital adequacy requirements;

problems of other financial institutions;

adverse regulatory developments or changes in government policies;

incurrence of significant credit-related costs;

 

a significant downgrade of our credit ratings;

 

exposure to new risks as we expand the scope of our business;

our ability to successfully implement our business strategy through our subsidiaries, affiliates and alliance partners;

exposure to new risks as we expand the scope of our business;

 

the industry specific risks of the consumer finance industry;

 

the recoverability of deferred tax assets;

 

litigation and regulatory proceedings;

insufficient liquidity;

problems of other financial institutions; and

 

adverselitigation and regulatory developments or changes in government policies.proceedings.

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 the filing of this annual report. We expressly disclaim any obligation to update or to announce publicly any revision to any of the forward-looking statements contained in this annual report to reflect any changes in events, conditions, circumstances or other developments upon which any such statement is based. The information contained in this annual report identifies important factors in addition to those referred to above that could cause differences in our actual results.

PART I

 

Item 1.

Identity of Directors, Senior Management and Advisers

Not applicable.

 

Item 2.

Offer Statistics and Expected Timetable

Not applicable.

 

Item 3.

Key Information

3.A.    SELECTED FINANCIAL DATA

Selected Financial Data

The following selected financial data at and for each of the five fiscal years ended March 31, 2019, 2018, 2017, 2016 2015, 2014, 2013 and 20122015 have been derived from our consolidated financial statements. You should read this data together with “Item 5. Operating and Financial Review and Prospects” and our consolidated financial statements included elsewhere in this annual report.

 

 For the fiscal year ended and at March 31,  For the fiscal year ended and at March 31, 
 2016 2015 2014 2013 2012  2019(1) 2018 2017 2016 2015 
 (In millions, except per share data)  (In millions, except per share data) 

Consolidated income statement data:

          

Interest income

 ¥    1,872,584   ¥    1,782,621   ¥    1,714,044   ¥    1,725,723   ¥    1,710,331   ¥    2,406,350  ¥    2,144,070  ¥    1,900,261  ¥    1,872,584  ¥    1,782,621 

Interest expense

  431,101    371,107    320,511    321,570    313,631   1,101,875  733,969  502,338  431,101  371,107 
 

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

Net interest income

  1,441,483    1,411,514    1,393,533    1,404,153    1,396,700   1,304,475  1,410,101  1,397,923  1,441,483  1,411,514 
 

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

Fee and commission income

  1,031,680    1,002,766    1,003,169    948,685    869,407   1,101,777  1,131,364  1,066,412  1,031,680  1,002,766 

Fee and commission expense

  131,381    129,253    127,959    127,054    132,562   178,351  178,867  181,573  131,381  129,253 
 

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

Net fee and commission income

  900,299    873,513    875,210    821,631    736,845   923,426  952,497  884,839  900,299  873,513 
 

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

Net trading income

  462,682    127,759    135,218    105,302    182,296   320,302  270,464  183,963  462,682  127,759 

Net income from financial assets at fair value through profit or loss

  12,260    22,678    58,586    15,794    33,734  

Net income (loss) from financial assets at fair value through profit or loss

 54,655  (667 2,018  12,260  22,678 

Net investment income

  375,229    371,064    332,265    223,404    239,365   93,922  424,097  305,327  375,229  371,064 

Other income

  496,273    525,905    429,541    324,403    245,563   505,666  755,855  573,825  496,273  525,905 
 

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

Total operating income

  3,688,226    3,332,433    3,224,353    2,894,687    2,834,503   3,202,446  3,812,347  3,347,895  3,688,226  3,332,433 
 

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

Impairment charges (reversals) on financial assets

  148,356    90,138    (14,275  270,145    284,310  

Impairment charges on financial assets

 119,686  136,808  212,967  148,356  90,138 
 

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

Net operating income

  3,539,870    3,242,295    3,238,628    2,624,542    2,550,193   3,082,760  3,675,539  3,134,928  3,539,870  3,242,295 
 

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

General and administrative expenses

  1,706,263    1,621,897    1,522,990    1,447,116    1,374,540   1,715,368  1,813,121  1,752,135  1,706,263  1,621,897 

Other expenses

  538,963    505,614    428,780    287,896    238,937   575,657  792,765  531,759  538,963  505,614 
 

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

Operating expenses

  2,245,226    2,127,511    1,951,770    1,735,012    1,613,477   2,291,025  2,605,886  2,283,894  2,245,226  2,127,511 
 

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

Share of post-tax profit (loss) of associates and joint ventures

  31,056    18,124    19,454    19,593    (25,004

Share of post-tax profit of associates and joint ventures

 40,157  49,323  29,318  31,056  18,124 
 

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

Profit before tax

  1,325,700    1,132,908    1,306,312    909,123    911,712   831,892  1,118,976  880,352  1,325,700  1,132,908 
 

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

Income tax expense

  372,878    409,947    414,076    255,300    460,779   184,306  229,378  139,766  372,878  409,947 
 

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

Net profit

 ¥952,822   ¥722,961   ¥892,236   ¥653,823   ¥450,933   ¥647,586  ¥889,598  ¥740,586  ¥952,822  ¥722,961 
 

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

  For the fiscal year ended and at March 31, 
  2016  2015  2014  2013  2012 
  (In millions, except per share data) 

Profit attributable to:

     

Shareholders of Sumitomo Mitsui Financial Group, Inc.

 ¥843,920   ¥614,070   ¥766,388   ¥535,976   ¥338,260  

Non-controlling interests

  106,129    108,891    125,848    117,847    112,673  

Other equity instruments holders

  2,773    —      —      —      —    

Earnings per share:

     

Basic

 ¥617   ¥449   ¥561   ¥396   ¥244  

Diluted

  617    449    561    395    243  

Weighted average number of common shares in issue (in thousands of shares)

      1,367,229        1,367,258      1,366,186        1,353,926        1,387,405  

Dividends per share in respect of each fiscal year:

     

Common stock

 ¥155   ¥125   ¥125   ¥100   ¥100  
 $1.38   $1.04   $1.22   $1.06   $1.22  

Preferred stock (Type 6)(1)

 ¥—     ¥—     ¥—     ¥—     ¥44,250  
 $—     $—     $—     $—     $539  

Consolidated statement of financial position data:

     

Total assets

 ¥180,172,652   ¥179,181,466   ¥158,631,041   ¥147,770,475   ¥141,824,796  

Loans and advances

  88,862,371    86,971,716    81,244,982    75,987,057    72,536,813  

Total liabilities

  169,130,553    168,160,616    149,215,851    139,210,786    134,407,940  

Deposits

  125,940,797    115,833,980    108,370,494    101,021,413    92,853,566  

Borrowings

  9,914,129    11,217,052    8,463,363    6,475,543    10,412,858  

Debt securities in issue

  10,829,612    11,051,431    8,769,094    7,950,020    7,377,742  

Total equity

  11,042,099    11,020,850    9,415,190    8,559,689    7,416,856  

Capital stock

  2,337,896    2,337,896    2,337,896    2,337,896    2,337,896  

  For the fiscal year ended and at March 31, 
  2019(1)  2018  2017  2016  2015 
  (In millions, except per share data) 

Profit attributable to:

     

Shareholders of Sumitomo Mitsui Financial Group, Inc.

 ¥541,932  ¥759,998  ¥627,870  ¥843,920  ¥614,070 

Non-controlling interests

  93,779   119,878   104,787   106,129   108,891 

Other equity instruments holders

  11,875   9,722   7,929   2,773   —   

Earnings per share:

     

Basic

 ¥388  ¥539  ¥459  ¥617  ¥449 

Diluted

  387   538   458   617   449 

Weighted average number of common shares in issue
(in thousands of shares)

      1,397,599       1,410,442       1,369,231       1,367,229       1,367,258 

Dividends per share in respect of each fiscal year:

     

Common stock

 ¥175  ¥155  ¥150  ¥155  ¥125 
 $1.58  $1.46  $1.34  $1.38  $1.04 

Consolidated statement of financial position data:

     

Total assets

 ¥195,503,623  ¥ 192,175,566  ¥191,150,981  ¥180,172,652  ¥179,181,466 

Loans and advances

  90,682,938   85,129,070   95,273,845   88,862,371   86,971,716 

Total liabilities

  183,730,177   179,679,767   179,263,698   169,130,553   168,160,616 

Deposits

  134,404,652   128,461,527   130,295,290   125,940,797   115,833,980 

Borrowings

  12,167,858   10,652,481   12,245,943   9,914,129   11,217,052 

Debt securities in issue

  11,171,209   10,569,117   11,165,623   10,829,612   11,051,431 

Total equity

  11,773,446   12,495,799   11,887,283   11,042,099   11,020,850 

Capital stock

  2,339,443   2,338,743   2,337,896   2,337,896   2,337,896 

 

(1)

On April 1, 2011,2018, we acquiredadopted IFRS 9 “Financial Instruments” and cancelled allIFRS 15 “Revenue from Contracts with Customers” retrospectively by adjusting the consolidated statement of financial position at the outstanding Type 6 preferred stock.

Exchange Rates

We maintain our accounts in yen. The following table sets forth for the indicated periods the median exchange rates for buyingdate of initial application, and selling spot dollars by telegraphic transfer against yen as determined by the Bank, expressed in Japanese yen per $1.00.

   High   Low   Period end   Average(1) 
   (Yen per dollar) 

Fiscal year ended March 31,

        

2012

  ¥85.47    ¥75.99    ¥82.13    ¥78.98  

2013

   96.45     77.57     94.01     83.31  

2014

   105.37     92.91     102.88     100.47  

2015

   121.59     101.25     120.15     110.61  

2016

   125.51     111.17     112.62     120.12  

Most recent six months:

        

December

   123.30     120.21     120.53     121.86  

January

   120.81     117.05     120.81     118.34  

February

   121.17     111.98     113.61     115.08  

March

   113.96     111.17     112.62     113.03  

April

   112.39     107.99     109.77     109.84  

May

   110.94     106.46     110.94     109.13  

June (through June 15, 2016)

   110.64     106.06     106.06     107.50  

(1)Average exchange rates have been calculatednot restated comparatives as permitted by usingIFRS 9 and IFRS 15. See Note 2 “Summary of Significant Accounting Policies—New and Amended Accounting Standards Adopted by the average of the exchange rates on the last day of each month during a fiscal year, except for the monthly average rates, which represent the averages of the exchange rates for each day of the relevant months.SMBC Group” to our consolidated financial statements included elsewhere in this report.

The median exchange rate quotation by the Bank for buying and selling spot dollars by telegraphic transfer against yen on June 15, 2016 was ¥106.06 = $1.00.

These exchange rates are reference rates and are neither necessarily the rates used to calculate ratios nor the rates used to convert dollars to yen in the consolidated financial statements included elsewhere in this annual report.

3.B.    CAPITALIZATION AND INDEBTEDNESS

Not applicable.

3.C.    REASONS FOR THE OFFER AND USE OF PROCEEDS

Not applicable.

3.D.    RISK FACTORS

Investing in our securities involves risks. You should carefully consider the risks described below as well as all the other information in this annual report, including, but not limited to, our consolidated financial statements and related notes included elsewhere in this annual report and “Item 11. Quantitative and Qualitative Disclosures about Credit, Market and Other Risk.” Our business, operating results and financial condition could be adversely affected by any factors, including, but not limited to, those discussed below. The trading prices of our securities could also decline due to any of these factors including, but not limited to, those discussed below. Moreover, this annual report contains forward-looking statements that involve risks and uncertainties. Our actual results could also differ from those anticipated in these forward-looking statements as a result of various

factors, including, but not limited to, the risks faced by us described below and elsewhere in this annual report. See “Cautionary Statement Regarding Forward-Looking Statements.” Forward-looking statements in this section are made only as of the filing date of this annual report.

Risks Related to the Economic and Financial Environment

We may be adversely affected if Japanese and global economic conditions and financial markets deteriorate.

Our financial condition and results of operations are materially affected by general economic conditions and financial markets in Japan and foreign countries, which would be influenced by the changes of various factors. These includefactors such as fiscal and monetary policies, andpolicies on financial markets, as well as related laws, regulations and policies on financial markets. Those factors include, foragreements. One example is the scheduled increase in the Japanese consumption tax rate. The Japanese consumption tax rate increased from 5% tothe current rate of 8% in April 2014 and was scheduled to further increase to 10% in April 2017. However, Japan’s Prime Minister announced in June 2016 that the increaseOctober 2019. Other examples include changes in the consumption tax ratetrade policies of countries including the U.S, which could contribute to 10% would be postponed until October 2019. In order to proceed withincreases in production costs and supply chain disruptions across the postponement, the Consumption Tax Act and related laws must be amended.broader economy. Furthermore, geopolitical instability in various parts of the world, including North Africa, the Middle East, Asia and Eastern Europe, and material changes in regional economic or political unions or associations between countries, including, for example,such as the United Kingdom’s potential exit from the European Union, as a result of the referendum held on June 23, 2016,which is scheduled to take place by October 31, 2019, could also contribute to economic instability in those and other regions, whichregions. Such regional economic instability could adversely affect Japanese and global economic conditions.

The deterioration of Japanese and global economic conditions, or financial market turmoil, could result in a worsening of our liquidity and capital conditions, an increase in our credit costs, and an increasea decrease in impairmentthe fair values of our investment securities and, as a result, adversely affect our business, financial condition and results of operations.

Future declines of securities prices on Japanese stock markets or other global markets could cause us to experience realized and unrealized losses on our equity securities portfolio, which could negatively affect our financial condition, results of operations and regulatory capital position.

The value of a listed equity security is measured at its market price. Declines in the Japanese stock markets or other global markets could result in realized and unrealized losses on the securities in our equity securities portfolio, adversely affecting our results of operations and financial condition.

Our regulatory capital position and that of SMBC depend in part on the fair value of our equity securities portfolio. Substantial declines in the Japanese stock markets or other global markets would negatively affect our and SMBC’s capital positions, and limit SMBC’s ability to make distributions to us.

Our equity securities portfolio mainly consists of equity instruments at fair value through other comprehensive income. The reported value of our equity instruments at fair value through other comprehensive income accounted for 2.1% of our total assets at March 31, 2019, approximately 89.4% of which were Japanese equity securities. This value depends mainly on prices of the instruments in the stock market. In addition, the reported value, and gross unrealized gains and losses of those equity instruments at fair value through other comprehensive income at March 31, 2019 are described in “Item 5.A. Operating Results—Financial Condition—Investment Securities.”

In recent years, we have been reducing our strategic shareholding investments in order to mitigate the impact of share price fluctuations on our financial base. Any further disposal by us of equity holdings of our customers’ shares could in turn cause our customers to dispose of their equity holdings of our shares, which could adversely affect the market price of our shares.

Changes in the levels or volatility of market rates or prices could adversely affect our financial condition and results of operations.

We engage in trading and investing activities dealing with various kinds of financial instruments such as bonds, equities, currencies, derivatives and funds. For example, we have substantial investments in debt securities. At March 31, 2019, we had ¥5 trillion of Japanese government bonds classified as debt instruments at fair value through other comprehensive income, which accounted for approximately 2.6% of our total assets.

Our financial condition and results of operations could be adversely affected by actual changes or volatility in interest rates, foreign exchange rates and market prices of investment securities. Increases in interest rates could substantially decrease the value of our fixed income portfolio, and any unexpected changes in yield curves could adversely affect the value of our bond and interest rate derivative positions, resulting in lower-than-expected revenues from trading and investment activities. Market volatility may also result in significant realized and unrealized losses on such instruments. Furthermore, the downgrading of investment securities by credit rating agencies may also cause declines in the value of our securities portfolio.

Risks Related to Our Business

Failure to satisfy capital adequacy requirements could constrain our and the Bank’sSMBC’s operations.

We and the BankSMBC are subject to capital adequacy requirements established by the Financial Services Agency of Japan (“FSA”). The current requirements reflect the principal risk-weighted capital measures of the Basel III rules text published by the Basel Committee on Banking Supervision (“BCBS”) in December 2010 and are beingwere phased in from March 2013 to March 2019. Compared to the previous requirements, the current requirements increase both the quality and quantity of the risk-weighted capital base.

With respect to the quality of the capital base, certain capital instruments, including existing preferred securities and subordinated debt, are eligible for inclusion as Tier 1 capital or Tier 2 capital only for the prescribed 10-year phase-out period. Preferred stocks convertible into common stocks no longer qualify as Common Equity Tier 1 capital but would qualify as Additional Tier 1 capital if they satisfy certain requirements including the requirement of loss absorbency at the point of non-viability under the Basel III rules. In addition, securities with step-up clauses will no longer qualify as Additional Tier 1 capital, and if the relevant security is classified as a liability for accounting purposes, it must satisfy the requirement of loss absorbency at a pre-specified trigger point, which must be 5.125% or more of Common Equity Tier 1 risk-weighted capital ratio as well as the aforementioned requirement of loss absorbency at the point of non-viability to qualify as Additional Tier 1 capital. With respect to Tier 2 capital, under the Basel III rules, the relevant security must satisfy the requirement of loss absorbency at the point of non-viability to qualify as Tier 2 capital, and subordinated debt securities callable at the initiative of the issuer within five years or with step-up clauses can no longer qualify as Tier 2 capital.

With respect to the quantity of the capital base, the minimum Common Equity Tier 1 risk-weighted capital ratiosratio and minimum risk-weighted capital ratio applicable to us and the BankSMBC have been 4.5% and 8% respectively since March 2015. Moreover, we are required to hold a capital conservation buffer to withstand future periods of stress and a countercyclical buffer as additional capital to reduce the buildup of systemic risk in periods and locations of excessive credit growth. The capital conservation buffer is beingstarted to be phased in from March 2016, with the currentinitial ratio of 0.625% reachingand reached 2.5% byin March 2019. As a result, taking the capital conservation buffer into account, the total minimum Common Equity Tier 1 risk-weighted capital ratio will be increased tois 7%, and the total minimum risk-weighted capital ratio will be increased tois 10.5% inat March 2019. The countercyclical buffer, which is beingstarted to be phased in from March 2016, is calculated as the weighted average of the buffers in effect in the jurisdictions to which we have credit exposure, with a maximum of 2.5% when fully implemented infrom March 2019.

In addition, in November 2014 and 2015, we and other organizations were identified by the Financial Stability Board (“FSB”) as Global Systemically Important Financial Institutions (“G-SIFIs”). The list of G-SIFIs is updated each year in November, and the requirements for additional capital, in the form of a capital surcharge above the Basel III minimum requirement, have been applied from 2016 initially to those financial institutions identified in November 2014by the Financial

Stability Board (“FSB”) as G-SIFIs.Global Systemically Important Banks (“G-SIBs”), including us. This requirement is commonly referred to as the G-SIFIG-SIB capital surcharge. Based on the list, we will behave been required to maintain an additional 1% of Common Equity Tier 1 capital as a percentage of risk-weighted assets whenfrom 2019.

On March 15, 2019, the requirement is fullyFSA published its guidelines for the leverage ratio applicable to banks with international operations, which have been applied from March 31, 2019. Under the phase-in requirements, weFSA’s guidelines for the leverage ratio, banks with international operations must maintain a leverage ratio of at least 3% on both a consolidated basis and a nonconsolidated basis from March 31, 2019.

G-SIBs are currently required to maintain 0.25% of Common Equity Tier 1 capital as a percentage of risk-weighted assets. G-SIFIs will also be subject to a global standard for Total Loss-Absorbing Capacity (“TLAC”), which defines certain minimum requirements for total loss-absorbing capacity so that if G-SIFIsG-SIBs fail, they will have sufficient loss absorbing and recapitalization capacity available in resolution. In November 2015, the FSB published the final TLAC standard. Asstandards (“FSB’s TLAC Standards”) and, in March 2019, the FSA published its regulatory guidelines and related documents for the implementation of the TLAC standards in Japan (“Japanese TLAC Standards”) to which we are subject as a G-SIFI, we will be subject to the final TLAC standard, as implemented in Japan.G-SIB.

At March 31, 2016,2019, on a consolidated basis, our total risk-weighted capital ratio, Tier 1 risk-weighted capital ratio and Common Equity Tier 1 risk-weighted capital ratio were 17.02%20.76%, 13.68%18.19% and 11.81%,16.37 %, compared to the minimum required ratios of 8.875%11.6%, 6.875%9.6% and 5.375%8.1%, respectively. All theSuch minimum required ratios stated above include the capital conservation buffer of 0.625% and2.5%, the G-SIFIG-SIB capital surcharge of 0.25%, but exclude1.0% and the countercyclical buffer requirements.of 0.1%.

Our and the Bank’sSMBC’s capital ratios could decline as a result of decreases in Tier 1 and Tier 2 capital or increases in risk-weighted assets. The following circumstances, among others, could reduce our risk-weighted capital ratio and that of the Bank:SMBC:

 

declines in the value of securities;

 

inability to refinance existing subordinated debt obligations or preferred securities eligible for inclusion as Tier 1 capital or Tier 2 capital only for the phase-out period with those qualified as regulatory capital under the new capital adequacy requirements which phased in from March 2013; and

 

increases in risk-weighted assets resulting from business growth, strategic investments, borrower downgrades, or changes in parameters such as probability of default (“PD”). or regulatory reforms.

We and the BankSMBC have adopted the advanced internal rating-based (“IRB”) approach for measuring exposure to credit risk and the advanced measurement approach (“AMA”) to measure exposure to operational risk. If the FSA revokes its approval of such implementation or otherwise changes its approach to measure capital adequacy ratios, our and the Bank’sSMBC’s ability to maintain capital at the required levels may be adversely affected.

In December 2017, the Group of Central Bank Governors and Heads of Supervision (the “GHOS”) endorsed the outstanding Basel III regulatory reforms. The endorsed reforms include the following elements:

a revised standardized approach for credit risk;

revisions to the internal ratings-based approach for credit risk;

revisions to the credit valuation adjustment framework;

a revised standardized approach for operational risk;

revisions to the measurement of the leverage ratio and a leverage ratio buffer for G-SIBs; and

revisions to the capital floor.

We will be subject to the final Basel III reform, as implemented in Japan.

If our or SMBC’s capital ratios fall below required levels, the FSA may require us or SMBC to take a variety of corrective actions, including withdrawal from all international operations or suspension of all or part of our and the Bank’s operations, which may indirectly affect our or the Bank’s ability to fulfill our and the Bank’s contractual obligations or may result in restrictions on our and the Bank’s businesses. Failure to maintain capital levels under the capital buffer requirements under Basel III and the requirement for the G-SIFIG-SIB capital surcharge will result in restrictions on capital distributions, such as dividends, share buybacks, discretionary payments on other Tier 1 capital instruments and bonuses. In addition, some of the Bank’sour and SMBC’s domestic and overseas subsidiaries are also subject to local capital ratio requirements. Failure of those subsidiaries to meet local requirements may result in administrative actions or sanctions imposed by local regulatory authorities.

Future declinesWe may incur losses as a result of securitiesfinancial difficulties of counterparties and other financial institutions.

We regularly execute transactions with counterparties in the financial services industry. Many of these transactions expose us to credit risk in the event of deterioration of creditworthiness of a counterparty or client. With respect to secured transactions, our credit risk may be exacerbated when the collateral cannot be foreclosed on or is liquidated at prices on Japanese stock marketsnot sufficient to recover the full amount of the loan or other global marketsexposures due to us. Losses from our investments in and loans to other financial institutions could cause us to experience impairment lossesmaterially and unrealized losses on our equity securities portfolio, which could negativelyadversely affect our business, financial condition and results of operations and regulatory capital position.

The reported value ofoperations. We may also be requested to participate in providing assistance to distressed financial institutions that are not our available-for-sale equity instruments accounted for 2.9% of our total assets at March 31, 2016, approximately 89.0% of which were Japanese equity securities. This value depends mainly on

prices of the instruments in the stock market.subsidiaries. In addition, if the reported value, gross unrealized gains and losses, and costfunds collected by the Deposit Insurance Corporation of those available-for-sale equity instruments at March 31, 2016Japan (“DIC”) are described in “Item 5.A. Operating Results—Investment Securities.”

A listed equity security is impaired primarily based on its market price. Ifinsufficient to insure the deposits of failed Japanese banks, the insurance premiums that we conclude that a particular security is impaired, we calculatepay to the impairment loss based on the market price of that security at the end of the relevant period. Declines in the Japanese stock markets or other global markets could result in further losses from impairment of the securities in our equity securities portfolio or sales of these securities, adversely affecting our results of operations and financial condition.

Our regulatory capital position and that of the Bank depend in part on the fair value of our equity securities portfolio. Substantial declines in the Japanese stock markets or other global markets would negatively affect our and the Bank’s capital positions, and limit the Bank’s ability to make distributions to us.

WeDIC will further reduce our holdings of equity securities in order to reduce financial risks. Any disposal by us of equity holdings of our customers’ shareslikely be increased, which could adversely affect our relationships with those customers.business and results of operations.

Adverse regulatory developments or changes in government policies could have a negative impact on our results of operations.

Our businesses are subject to extensive regulation and associated regulatory risks, including the effects of changes in the laws, regulations, policies, voluntary codes of practice and interpretations in Japan and the other jurisdictions in which we operate. Those changes and their effects on us are unpredictable and beyond our control.

Changes in the levels or volatility of market rates or prices couldregulatory environment may adversely affect our financial condition and results of operations. In particular, the financial crisis in 2008 has led to calls for significant financial reform measures, and various governments are at different stages of enacting or implementing legislation that affects financial institutions.

WeIn response to the turmoil following the financial crisis, regulatory authorities reviewed and revised capital adequacy guidelines, particularly in relation to quality of capital and accounting standards; such revisions could adversely affect our capital ratios. In December 2010, the BCBS published the Basel III rules text, setting out certain changes to capital requirements which include raising the quality of banks’ capital bases, enhancing risk coverage, inhibiting leverage, reducing pro-cyclicality and introducing liquidity regulation, many of which have been fully applied or phased-in in Japan based on the Basel III implementation schedule.

The FSA had issued guidelines on its inspection of financial institutions called the Financial Inspection Manual. The FSA’s inspection of banks have been based on the FSA’s Financial Inspection Manual and related guidelines, which were revised or amended from time to time. On June 29, 2018, the FSA published a report on its supervisory approaches and transformation. Based on the report, the FSA introduced its new supervisory approaches. The FSA also announced its transformation, which included repealing the FSA’s Financial Inspection Manual in or after April 2019. Our compliance with changes in the FSA’s inspection process under the new supervisory approaches could result in an increase in our administrative expenses, which could have an adverse effect on our results of operations and financial condition.

The FSA and regulatory authorities in the United States and other jurisdictions, along with the United Nations and the Financial Action Task Force, have in recent years made the prevention of money laundering and terrorism financing a focus of governmental policy relating to financial institutions. In April 2019, SMBC and its New York branch entered into a written agreement with the Federal Reserve Bank of New York requiring SMBC and its New York branch to address certain deficiencies relating to the New York branch’s anti-money laundering and economic sanctions compliance program. SMBC and its New York branch are required, among other things, to implement corrective measures and submit periodic progress reports to the Federal Reserve Bank of New York. If we fail to comply with the terms of the written agreement, we may become subject to monetary penalties and other regulatory sanctions, which could have a material adverse effect on us. Further, as a result of the deficiencies identified in the written agreement, we no longer meet the requirements to be treated as a financial holding company, and, pending completion of a remediation plan designed to meet these requirements, we are currently subject to restrictions in our ability to engage in trading and investing activities dealing with various kindscertain new categories of financial instrumentsactivities in the United States and to make acquisitions of companies engaged in activities in the United States. If we fail to correct the conditions giving rise to such restrictions within the prescribed period of time, we may be required to divest or terminate certain business activities in the United States, which could adversely affect our operations and impair our ability to implement our business plans. Although we are committed to improving compliance with laws and regulations relating to anti-money laundering and economic sanctions, we will continue to be subject to ongoing inspection by the regulatory authorities in the United States and other jurisdictions. Any adverse regulatory action or change in regulatory focus, whether as bonds, equities, currencies,a result of inspections or regulatory developments, may negatively affect our banking operations, cause harm to our reputation, and result in expensive remediation, monetary penalties and other regulatory sanctions.

The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the “Dodd-Frank Act”) provides a broad framework for significant regulatory changes across most areas of U.S. financial regulations. The Dodd-Frank Act addresses, among other issues, systemic risk oversight, bank capital standards, the resolution of failing systemically significant financial institutions, over-the-counter (“OTC”) derivatives, the ability of banking entities to engage in proprietary trading activities and funds. For example, weinvest in hedge funds and private equity funds, consumer and investor protection, and securitization. The Dodd-Frank Act as well as other post-financial crisis regulatory reforms in the United States have substantial investmentsincreased costs, imposed limitations on activities and resulted in debt securities. At March 31, 2016, we had ¥7 trillionan increased intensity in regulatory enforcement and fines across the banking and financial services sector. The current U.S. Presidential administration has expressed different policy goals with respect to regulation of Japanese government bonds classified as available-for-salethe U.S. financial assets, which accounted for approximately 3.6% ofsystem, but the impact that the U.S. Presidential administration’s policy goals or any new or proposed legislation could have on the regulatory requirements currently imposed on us remains uncertain.

Significant regulatory developments could adversely affect our total assets.

Our financial conditioncapital ratios and results of operations. For further details, see “Item 4.B. Business Overview—Regulations in Japan, Regulations in the United States, and Regulations in Other Jurisdictions.” Since changes in regulation or fiscal or other policies and their effects are unpredictable and beyond our control, we may not be able to comply with those changes at all times, despite our efforts, or may have to incur increased costs or make changes to our operations in order to do so. Any such failures to comply with those changes could be adversely affected by actual changesresult in administrative or volatility in interest rates, foreign exchange rates and market prices of other investment securities. Increases in interest rates could substantially decrease the valuejudicial proceedings against us, including suspension of our fixed income portfolio,business and any unexpected changes in yield curvesfinancial penalties, which could materially and adversely affect our business, reputation, results of operations and financial condition.

Changes in the valuecompetitive and financial environment and financial systems could have a negative effect on the financial services industry and us.

Deregulation of the financial system, consolidation among financial institutions, diversification within the financial services industry, and the expanded presence of foreign financial institutions and investors have made the Japanese financial services market highly competitive. Moreover, competition in overseas markets has intensified due to global consolidation, convergence and alliances among financial institutions. We compete with various types of financial services companies, including:

banking groups, including Japan’s other major banking groups;

government-controlled and government-affiliated entities;

regional banking institutions;

major investment banks; and

non-bank financial institutions.

Increased competition in Japan may put downward pressure on prices for our bondfinancial services, cause us to lose market share or require us to incur additional expenses in order to remain competitive. Internationally, various forms of financial support provided by foreign governments to foreign banks and interest rate derivative positions, resultingother financial institutions may reduce the cost of capital to those institutions and otherwise give them competitive advantages. In addition, the development of new technologies in lower-than-expected revenuesthe “Fintech” and other sectors, along with the corresponding rise of new entrants from tradingthese sectors into the financial services industry, may further intensify competition in the business environments in which we operate, and investment activities. Market volatilityas a result, we may be forced to adapt our business to compete more effectively. There can be no assurance that we will be able to respond effectively to current or future competition.

Changes in the financial environment in Japan may also resulthave a negative effect on the Japanese financial services industry. For example, prolonged monetary easing by the Bank of Japan (“BOJ”) may continue to lower domestic interest spreads. This may significantly affect the businesses of commercial banks in significant unrealized losses or impairment lossesJapan, including us. For further information on such instruments. Furthermore, the downgradingBOJ’s monetary policy measures, see “Item 5. Operating and Financial Review and Prospects—Overview—Factors Affecting Results of investment securities by credit rating agencies may also cause declines in the value of our securities portfolio.Operation.”

Adverse economic conditions and deterioration of the financial conditions of our customers could increase our credit costs.

Our non-performing loans (“NPLs”) and credit costs for corporate and individual customers may increase significantly if:

 

domestic or global economic conditions worsen or do not improve;

 

our customers do not repay their loans, due to reasons including deterioration of their financial conditions; and

 

the value of collateral declines.

We have substantial exposure to corporate customers in the following sectors: real estate and goods rental and leasing, manufacturing, wholesale and retail, transportation, communications and public enterprises, wholesale and retail, and services, including electric utilities, and to individual customers mainly through housing loans. The financial conditions of those customers may be subject to changes in the industry-specific economic conditions, including, for example, fluctuations in the prices of oil, and gas and other natural resource prices,resources, as well as general economic conditions. In addition, adverse region-specific economic conditions could worsen our customers’ financial conditions or could decrease the value of our collateral provided to us in such regions. As a result, we may be required to record increases in our allowance for loan losses.

Moreover, for certain borrowers, we may choose to engage in debt-for-equity swaps or provide partial debt write-offs, additional financing or other forms of assistance as an alternative to exercising our full legal rights as a creditor if we believe that doing so may increase our ultimate recoverable amount of the loan. We may be required to, or choose to, provide new or additional financing to customers who may incur unexpected liabilities, have difficulty in the future in continuing operations, encounter difficulties or need to devote significant resources to repair their infrastructures, as a result of natural disasters or other calamities.

In addition, changes in laws or government policies may have an adverse impact on the rights of creditors. For example, the Government of Japan has provided or may provide in the future government guarantees and

other government support measures in response to the financial crisis or other unexpected incidents such as the Great East Japan Earthquake of March 2011large-scale natural disasters and any subsequent collateral events. Even if our current or future loans to borrowers have received or will receive any government support measures, it is unclear to what extent those loans will benefit, directly or indirectly, from the current or any future government guarantees or support measures.

In addition, our NPLs may increase and there may be additional credit costs if we fail to accurately estimate the incurredexpected losses in our loan portfolio. These estimates require difficult, subjective and complex judgments such as credit evaluation of our borrowers, valuation of collateral and forecasts of economic conditions.

The ratio of impaired loans and advances to the total loans and advances, both net of allowance for loan losses, were 0.8%0.6%, 1.0%0.6% and 1.3%0.7% at March 31, 2016, 20152019, 2018 and 2014,2017, respectively. For further information, see “Item 5.A. Operating Results—Financial Condition—Loans and Advances.”

A significant downgrade of our credit ratings could have a negative effect on us.

At the date of this annual report, SMFGthe Company has the long-term senior unsecured ratingissuer ratings of A1A1/P-1 from Moody’s Japan K.K., (“Moody’s”), the issuer credit rating of A- from Standard & Poor’sS&P Global Ratings Japan K.K.,Inc. (“S&P”) and the foreign and local currency issuer default ratings of A/F1 from Fitch Ratings Japan Limited (“Fitch”). There can be no assurance that these ratings will be maintained.

A material downgrade of our credit ratings may have various effects including, but not limited to, the following:

 

we may have to accept less favorable terms in our transactions with counterparties, including capital raising activities, or may be unable to enter into certain transactions;

 

foreign regulatory bodies may impose restrictions on our overseas operations;

 

existing agreements or transactions may be cancelled; and

 

we may be required to provide additional collateral in connection with derivatives transactions.

Any of these or other effects of a downgrade of our credit ratings could have a negative impact on the profitability of our treasury and other operations, and could adversely affect our regulatory capital position, liquidity position, financial condition and results of operations. For more information about our credit ratings, see “Item 5.B. Liquidity and Capital Resources.”

We face significant challenges in achieving the goals of our business strategy, and our business may not be successful.

In May 2014,2017, we and the Bank announced a newour medium-term management plan through March 2017.2020. We believe that we have targeted appropriate business areas. However, our initiatives to offer new products and services and to increase sales of our existing products and services may not succeed, if market conditions do not stabilize, market opportunities develop more slowly than expected, our initiatives have less potential than we

envisioned originally or the profitability of these products and services is undermined by competitive pressures. Consequently, we may be unable to achieve or maintain profitability in our targeted business areas.

In order to implement our business strategy successfully, we need to hire and train qualified personnel continuously and in a proactive manner, as well as to attract and retain employees with professional experience and specialized product knowledge. However, we face competition from other commercial banks, investment banks, consumer finance companies and other financial services providers in hiring highly competent employees. There can be no assurance that we will succeed in attracting, integrating and retaining appropriately qualified personnel.

We are exposed to new risks as we expand our businesses, the range of our products and services, and geographic scope of our businesses overseas.

As part of our business strategies we have expanded and may continue to expand our businesses or our range of products and services beyond our core business, commercial banking. This could expose us to new risks, such as adverse regulatory changes, more competition or deterioration in the operating environments that affect those businesses, products and services. Some of those risks could be types with which we have no or only limited experience. As a result, our risk management systems may prove to be insufficient and may not be effective in all cases or to the degree required.

In accordance with our strategy to further increase our presence in the international financial markets, we may continue to expand the scale of our overseas businesses, especially in emerging economies, notably Asian countries and regions. The expansion of our overseas businesses may further increase our exposure to risks of adverse developments in foreign economies and markets, including interest rate and foreign exchange rate risk, regulatory risk and political risk. Our overseas expansion also exposes us to the compliance risks and the credit and market risks specific to the countries and regions in which we operate, including the risk of deteriorating conditions in the credit profile of overseas borrowers.

Failure of our business strategies through our subsidiaries, affiliates and other business alliance partners could negatively affect our financial condition and results of operations, including impairment losses on goodwill or investments.

Aligned with our business strategies, we have made and may undertake acquisition of a subsidiary, investments in affiliates and other business alliance partners, and reorganization within ourSMBC Group companies. It is uncertain whether we will receive the expected benefits from those business strategies, due to any adverse regulatory changes, worsening of economic conditions, increased competition or other factors that may negatively affect the related business activities. Furthermore, unanticipated costs and liabilities may be incurred in connection with those business strategies, including liabilities from the claims related to the businesses prior to our business alliances, and cost from actions by regulatory authorities.

When we acquire a subsidiary, we may recognize goodwill and intangible assets. Impairment losses on goodwill or intangible assets in connection with acquisitions must be recognized when the recoverable amount of goodwill or intangible assets of the business is lower than the carrying amount at the time of impairment testing, which is performed annually or whenever there is an indication that the goodwill or intangible assets may be impaired.

We account for some of our investments in affiliates under the equity method. Therefore, net losses incurred by equity method investees may cause us to record our share of the net losses. Furthermore, we may lose the capital which we have invested in business alliances or may incur impairment losses on securities acquired in such alliances. We may also be required under contractual or other arrangements to provide financial support, including credit support and equity investments, to business alliance partners in the future. Additionally, we may also incur credit costs from our credit exposure to such partners.

We are exposed to the industry specific risks of the consumer finance industry.

Changes in the legal environment have severely and adversely affected the business performance of consumer lending and credit card companies. We have exposures to the risks specific to the consumer finance industry through our subsidiaries, including Cedyna Financial Corporation (“Cedyna”) and SMBC Consumer Finance Co., Ltd. (“SMBC Consumer Finance”).

Consumer lending and credit card companies had offered unsecured personal loans, which included loans with so-called “gray zone” interest in excess of the maximum rate prescribed by the Interest Rate Restriction Act (ranging

(ranging from 15% to 20%) up to the 29.2% maximum rate permitted under the Act Regulating the Receipt of Contributions, Receipt of Deposits and Interest Rates (“Contributions Act”). However, amendments to laws regulating moneylenders, which increased the authority of government regulators, prohibited gray zone interest and introduced an upper limit on aggregate credit extensions to an individual by moneylenders at one-third of the borrower’s annual income, were promulgated in 2006 and became fully effective in June 2010. After the promulgation of such amendments, Cedyna, SMBC Consumer Finance and other companies engaged in related business reduced their interest rates on loans in preparation for the prohibition of gray zone interest. As a consequence, margins earned by those companies, as well as the amounts of loans extended, decreased.

In addition, as a result of court decisions unfavorable to those companies, claims for refunds of amounts paid in excess of the applicable maximum allowed rate by the Interest Rate Restriction Act have increased substantially. Although Cedyna, SMBC Consumer Finance and other subsidiaries have each recorded a provision for claims for refunds of gray zone interest on loans, we may be required to recognize additional losses if such provisions are determined to be insufficient, and the additional losses could have an adverse effect on our results of operations and financial condition.

Inability to generate sufficient future taxable profits or adverse changes to tax laws, regulatory requirements or accounting standards could have a negative impact on the recoverability of certain deferred tax assets.

We recognize deferred tax assets relating to tax losses carried forward and deductible temporary differences only to the extent that it is probable that future taxable profit will be available against which the tax losses carried forward and the temporary differences can be utilized. The deferred tax assets are quantified on the basis of currently enacted tax rates and accounting standards and are subject to change as a result of future changes to tax laws or the rules for computing taxable profits and allowable losses. Failure to generate sufficient future taxable profits or changes in tax laws or accounting standards may reduce our estimated recoverable amount of net deferred tax assets. Such a reduction could have an adverse effect on our financial condition and results of operations.

Declines in returns on our plan assets or revised actuarial assumptions for retirement benefits may adversely affect our financial condition and results of operations.

The BankSMBC and some of our other subsidiaries have various defined benefit plans. We have experienced in the past, and may experience in the future, declines in returns on plan assets and changes in the discount rates and other actuarial assumptions. If returns on plan assets decrease, or if we revise the discount rates and other assumptions, the deficit of the impacted defined benefit plan may increase and adversely affect our financial condition and results of operations. Because more thanapproximately half of our plan assets are composed of equity instruments, the plan assets are greatly affected by volatility in the prices of equity securities. Substantial declines in the prices for publicly traded Japanese stocks would negatively affect our plan assets. For further information, see Note 23 “Retirement Benefits” to our consolidated financial statements included elsewhere in this annual report.

Our liquidity could be adversely affected by actual or perceived weaknesses in our businesses and by factors we cannot control, such as a general decline in the level of business activity in the financial services sector.

We need liquidity to maintain our lending activities, meet deposit withdrawals, pay our operating expenses and pay interest on and principal of debt and dividends on capital stock. Adverse market and economic conditions in the domestic and global economies may limit or adversely affect our access to liquidity required to operate our business. If our counterparties or the markets are reluctant to finance our operations due to factors including actual or perceived weaknesses in our businesses as a result of large losses, changes in our credit ratings, or a general decline in the level of business activity in the financial services sector, we may be unable to meet our payment obligations when they become due or only be able to meet them with funding obtained on

unfavorable terms. Circumstances unrelated to our businesses and outside of our control, such as, but not limited to, adverse economic conditions, disruptions in the financial markets or negative developments concerning other financial institutions perceived to be comparable to us, may also limit or adversely affect our ability to replace maturing liabilities in a timely manner. Without sufficient liquidity, we will be forced to curtail our operations, which could adversely affect our business, results of operations and financial condition.

Sales of our shares by us may have an adverse effect on the market price of our shares and may dilute existing shareholders.

We may issue shares from the unissued portion of our authorized share capital and sell shares held as treasury stock, generally without a shareholder vote. Sales of shares in the future may be at prices below prevailing market prices and may be dilutive.

Our business relies on our information technology systems, which are at risk of being damaged or failing as a result of various incidents including cyberattacks, and their failure could harm our relationships with customers or adversely affect our provision of services to customers.

In all aspects of our business, we use information technology systems to deliver services to and execute transactions on behalf of our customers as well as for back-office operations. We therefore depend on the capacity and reliability of the electronic and information technology systems supporting our operations. We may encounter service disruptions in the future, owing to failures of these information technology systems. Our information technology systems are subject to damageat risk of being damaged or incapacitationfailing as a result of quality problems, human errors, natural disasters, power losses, sabotage, computer viruses, acts of terrorism, cyber attackscyberattacks and similar events. While

In particular, cybersecurity risks for financial institutions have significantly increased in recent years. This is partly because of the continuous introduction of new technologies and the use of the internet and telecommunications technologies as well as the elaboration of the cyberattacks, which include computer viruses, malicious code, phishing attacks or other security breaches. As we rely on information technology systems in our business and our receipt and handling of confidential personal information from our customers, any impairment, compromise or destruction of such systems may interfere with, or temporarily prevent us from, continuing our operations. In addition, we also face indirect cybersecurity risks relating to our customers and other third parties, including counterparties in the financial services industry. As a result of increasing consolidation, interdependence and complexity of financial entities and technology systems, a technology failure or cyberattack could have a material impact on counterparties or other market participants, including us. Any third-party technology failure or cyberattack could adversely affect our ability to execute transactions or deliver services to our clients effectively. For example, vulnerabilities in third-party technology systems may be exploited in ways that increase the risk our information technology systems are exposed to cyberattacks.

Accordingly, we have taken steps to protect information technology systems from thosethese risks, including by establishing data recovery capability and functionality, and to address all contingencies that could arise in the event of a major disruption of services. Particularly, we have adopted our “Declaration of Cyber Security Management” in order to further strengthen our cybersecurity capabilities. In this declaration, our management recognizes cybersecurity as a major management issue and takes a leadership role in implementing measures such as allocating appropriate resources based on discussions at the meetings of the Management Committee and the board of directors, establishing a special department and manual for emergencies and enhancing security measures for our services including internet banking services.

However, these measures may not be sufficient.sufficient, especially considering the increasing frequency and sophistication of recent cyberattacks. In addition, we may not be prepared to address all contingencies that could arise in the event of a major disruption of services. The failure to address such contingencies could harm our relationships with customers or adversely affect our provision of services to customers.

We handle personal information obtained from our individual and corporate customers in relation to our banking, securities, consumer lending, credit card, asset management and other businesses. The systems we have implemented to protect the confidentiality of personal information, including those designed to meet the strict requirements of the Act on the Protection of Personal Information, may not be effective in preventing disclosure of personal information by unauthorized access from a third party. Leakage of personal information could expose us to demands for compensation or lawsuits for ensuing economic losses or emotional distress, administrative actions or sanctions, additional expenses associated with making necessary changes to our systems and reputational harm. As a result, our business, financial condition and results of operations could be materially and adversely affected.

Our risk management policies and procedures may not adequately address unidentified or unanticipated risks.

We are exposed to a variety of operational, legal and regulatory risks throughout our organization. Management of these risks requires, among other things, policies and procedures to properly record and verify large numbers of transactions and events. However, these policies and procedures may not be fully effective or sufficient. We have devoted significant resources to strengthening our risk management policies and procedures and expect to continue doing so in the future. Nevertheless, particularly in light of the continuing evolution of our operations and expansion into new areas, our policies and procedures designed to identify, monitor and manage risks may not be fully effective. Some of our methods of managing risks are based upon our use of observed historical market behavior and thus may not accurately predict future risks. Violations of laws including the Japanese antitrust and fair trade laws by us or by the Bank may result in administrative sanctions. Furthermore, investigations, administrative actions or litigation could commence in relation to violations, which may involve costs and may result in deterioration of our reputation.

Fraud, misconduct or other unlawful behavior by directors, officers and employees or third parties could subject us to losses and regulatory sanctions.

We are exposed to potential losses resulting from fraud, misconduct and other unlawful behavior by directors, officers and employees. Directors, officers and employees may bind us to transactions that exceed authorized limits or present unacceptable risks, hide from us and from our customers unauthorized activities, improperly use confidential information or otherwise abuse customer confidences. Third parties may engage in fraudulent activities, including fraudulent use of bank accounts or the use of false identities to open accounts for money laundering, tax evasion or other illegal purposes. Third parties could also use stolen or forged ATM cards, engage in credit card fraud or transfer funds illegally through online banking fraud, and we may be required to indemnify victims of such fraud for related losses. In the broad range of businesses in which we engage, fraud, misconduct and other unlawful behavior are difficult to prevent or detect. In addition, with or without actual

fraud, misconduct and other unlawful behavior by directors, officers and employees, investigations, administrative actions or litigation could commence in relation to them. Furthermore, we may not be able to recover the losses caused by these activities, including possible deterioration of our reputation.

Transactions involving Iran and other countries designated by the U.S. Department of State as state sponsors of terrorism orand targets that are subject to U.S. or other U.S. economicfinancial sanctions may lead some potential customers and investors to avoid doing business with us or investing in our securities or may limit our business operations.

U.S. law generally prohibits or substantially restricts U.S. persons from doing business with countries, designated by the U.S. Department of State as state sponsors of terrorism (“Designated Countries”), which currently are Iran, Sudan and Syria. Under U.S. law, there are similar prohibitions or restrictions on dealings with countries, a region and persons that are the subject of other U.S. economic sanctions administered by the U.S. Department of the Treasury’s Office of Foreign Assets Control (“OFAC”) or other agencies (collectively with(“Restricted Targets” which include Iran, North Korea, Syria, Cuba and the Designated Countries,Crimea region of Ukraine). Other applicable financial sanctions are administered by the “Restricted Targets”).Ministry of Finance of Japan and authorities in other countries.

We maintain a SMBC Group-wide policy designed to ensure compliance with U.S. and other applicable U.S.sanctions laws and regulations. This policy, which covers the Bank and our banking subsidiaries that provide financial services globally, prohibits the new extension of credit to Iranian entities. Our non-U.S. offices engage in transactions relating to the Restricted Targets on a limited basis and in compliance with applicable laws and regulations. These activities include or have included remittance of Japanese yen with respect to our customers’ export or import transactions, maintenance of correspondent banking accounts with Iranian banks, including the Central Bank of Iran, and the payment of fees in Japanese yen to certain Iranian banks in connection with performance bonds issued in the past by the BankSMBC through these Iranian banks related to our customers’ projects in Iran. All such transactions were permissible and not subject to secondary sanctions under applicable laws and regulations at the times they were engaged in. SMBC has discontinued activities that have become impermissible or subject to secondary sanctions as a result of changes in applicable laws and regulations. See “Item 4.B. Business Overview-Regulations in the United States-Laws Prohibiting Money Laundering and Terrorist Financing-U.S. Sanctions Targeting Iran Related Activities.” The performance bonds expired and have not been renewed, but the BankSMBC continues to be obligated to pay certain fees to the Iranian banks. In addition, we maintain a representative office in Iran that mainly performs an information-collecting function.function and liaising with non-designated Iranian financial institutions and non-SDN Iranian parties on behalf of our non-U.S. offices.

We do not believe that our operations relating to the Restricted Targets materially affect our business, financial condition or results of operations. A limited number of potential violations of U.S. economic sanctions

by the Bank wereSMBC have been identified and voluntarily disclosed to OFAC. These transactions resulted from inadvertent operational errors or the lack of familiarity of some personnel of the Bank with the requirements of the relevant regulations in the past, or from the inherent limitation on information about underlying transactions that can be obtained in the course of normal banking operations. Sinceoperations, inadvertent operational errors, or from the discoverylack of these potential violations wefamiliarity of some personnel of SMBC with the requirements of the relevant regulations in the past. We have furthercontinuously strengthened our SMBC Group-wide OFAC and other financial sanctions compliance program in an effort to prevent the recurrence of such potential violations. We settled some of the voluntarily disclosed potential violations with OFAC whileand the others remain unsettled.were closed without a penalty. However, in light of the inadvertent nature of such potential violations and the degree to which our strengthened OFAC compliance program aims to mitigate the risk of potential violations, we do not believe that our settlement with OFAC, or any possible penalties that OFAC may impose with respect to the other potential violations that remain unsettled, will have a material impact on our reputation, financial condition or results of operations, or on the prices of our securities.

We are aware of initiatives by U.S. states and U.S. institutional investors, such as pension funds, to adopt laws, regulations or policies prohibiting transactions with or investment in, or requiring divestment from, entities engaged in certain business with Iran and other Designated Countries.Restricted Targets. It is possible that such laws and initiatives may result in our inability to enter into transactions with those entities that are subject to such prohibitions or to retain or acquire such entities as customers or investors in our securities.

In recent years, the U.S. government implemented a number of sanctions targeting non-U.S. persons for activities undertaken outside the United States (“secondary sanctions”) that involve specific sanctions targets or certain activities including, among other things, certain transactions related to Iran’s energy, petrochemical, shipping or shipbuilding sectors. Pursuant to the July 14, 2015 Joint Comprehensive Plan of Action (“JCPOA”) agreed to by the five permanent members of the United Nations Security Council plus Germany (the “P5+1”) and

Iran, with the European Union, on January 16, 2016 (“Implementation Day”), the United States lifted U.S. nuclear-related secondary sanctions targeting Iran. Even after Implementation Day, certain secondary sanctions remainremained in effect, including those targeting significant transactions involving Iranian or Iran-related Specially Designated Nationals and Blocked Persons (“SDNs”). However, in 2018, the United States terminated its participation in the JCPOA. At November 5, 2018, following the conclusion of certain “wind-down” periods, all U.S. sanctions (both primary and secondary) that had been waived or lifted under the JCPOA have been re-imposed and are fully effective. In accordance with applicable laws and regulations, the BankSMBC intends to provide certain services, including settlement services in connection with customers’ trade transactions between Japan and Iran, to the extent that such activities are not targeted by remainingU.S. secondary sanctions. For more details of relevant laws and regulations, see “Item 4.B. Business Overview—Regulations in the United States—Laws Prohibiting Money Laundering and Terrorist Financing.”

In addition, the U.S. government hasand authorities in other countries have enacted a series of Ukraine-related sanctions, including those under the U.S. Ukraine-Related Sanctions Regulations, the U.S. Ukraine Freedom Support Act of 2014 and “sectoral” sanctions on the financial, energy and defense sectors of the Russian economy.

The laws, regulations and sanctions referenced above or similar legislative or regulatory developments in the U.S., Japan or other jurisdictions where applicable, may further limit our business operations. If we were determined to have engaged in activities targeted by certain U.S. statutes, Executive Orders or regulations, we could lose our ability to open or maintain correspondent or payable-through accounts with U.S. financial institutions, among other potential sanctions. In addition, depending on sociopolitical developments, even though we take measures designed to ensure compliance with applicable laws and regulations, our reputation may suffer due to our association with the Restricted Targets. The above circumstances could have a significant adverse effect on our business or the prices of our securities.

Our business operations are exposed to risks of natural disasters, terrorism, pandemics and other calamities.

Our business operations are subject to the risks of natural disasters, terrorism, pandemics, blackouts, geopolitical incidents and other calamities, any of which could impair our business operations. Despite our preparation of operation manuals and other backup measures and procedures, such calamities could cause us to suspend operations and could adversely affect our businesses, financial condition and results of operations. Large-scale natural disasters such as the Great East Japan Earthquake of March 2011 and any subsequent collateral events, may adversely affect economic conditions in general, the financial conditions of our corporate and individual customers and stock market prices, or cause other negative effects, any or all of which could materially and adversely affect our financial condition and results of operations owing to, for example, an associated increase in the amount of credit-related costs or an increase in losses related to our holdings of securities.

Our risk management policies and procedures may not adequately address unidentified or unanticipated risks.

We are exposed to a variety of operational, legal and regulatory risks throughout our organization. Management of these risks requires, among other things, policies and procedures to properly record and verify large numbers of transactions and events. However, these policies and procedures may not be fully effective or sufficient. We have devoted significant resources to strengthening our risk management policies and procedures and expect to continue doing so in the future. Nevertheless, particularly in light of the continuing evolution of our operations and expansion into new areas, our policies and procedures designed to identify, monitor and manage risks may not be fully effective. Some of our methods of managing risks are based upon our use of observed historical market behavior and thus may not accurately predict future risks. Violations of laws including the Japanese antitrust and fair trade laws by us or by SMBC may result in administrative sanctions. Furthermore, investigations, administrative actions or litigation could commence in relation to violations, which may involve costs and may result in deterioration of our reputation.

Our business could be adversely affected by litigation and regulatory proceedings globally.

We conduct business in many locations in and outside of Japan. We face the risk of litigation and regulatory proceedings in connection with our operations. For example, if we engage in activities targeted by certain U.S. sanctions, this could result in the imposition of monetary penalties or other restrictions by the U.S. government against us. Lawsuits and regulatory actions may result in penalties or settlements of very large indeterminate amounts or limit our operations, and costs to defend either could be substantial. Moreover, the BankSMBC and one of its subsidiaries contribute to financial benchmarks such as the Tokyo Interbank Offered Rate (“TIBOR”) and the London Interbank Offered Rate (“LIBOR”) for certain specific currencies. These benchmarks are widely referenced in jurisdictions in which we operate and do not operate. We face or may face some investigations, litigation and regulatory proceedings, and an adverse regulatory decision, judgment or ruling, including in jurisdictions we do not operate in, could have a material adverse effect on our business, results of operations and financial condition.

Risks Related to Our Industry

Our liquidity could be adversely affected by actual or perceived weaknesses in our businesses and by factors we cannot control, such as a general decline in the level of business activity in the financial services sector.

We need liquidity to maintain our lending activities, meet deposit withdrawals, pay our operating expenses and pay interest on and principal of debt and dividends on capital stock. Adverse market and economic conditions in the domestic and global economies may limit or adversely affect our access to liquidity required to operate our business. If our counterparties or the markets are reluctant to finance our operations due to factors including actual or perceived weaknesses in our businesses as a result of large losses, changes in our credit ratings, or a general decline in the level of business activity in the financial services sector, we may be unable to meet our payment obligations when they become due or only be able to meet them with funding obtained on unfavorable terms. Circumstances unrelated to our businesses and outside of our control, such as, but not limited to, adverse economic conditions, disruptions in the financial markets or negative developments concerning other financial institutions perceived to be comparable to us, may also limit or adversely affect our ability to replace maturing liabilities in a timely manner. Without sufficient liquidity, we will be forced to curtail our operations, which could adversely affect our business, results of operations and financial condition.

We may incur losses as a result of financial difficulties of counterparties and other financial institutions.

We regularly execute transactions with counterparties in the financial services industry. Many of these transactions expose us to credit risk in the event of deterioration of creditworthiness of a counterparty or client. With respect to secured transactions, our credit risk may be exacerbated when the collateral cannot be foreclosed on or is liquidated at prices not sufficient to recover the full amount of the loan or other exposures due to us. Losses from our investments in and loans to other financial institutions could materially and adversely affect our business, financial condition and results of operations. We may also be requested to participate in providing assistance to distressed financial institutions that are not our subsidiaries. In addition, if the funds collected by the Deposit Insurance Corporation of Japan (“DIC”) are insufficient to insure the deposits of failed Japanese banks, the insurance premiums that we pay to the DIC will likely be increased, which could adversely affect our business and results of operations.

Adverse regulatory developments or changes in government policies could have a negative impact on our results of operations.

Our businesses are subject to extensive regulation and associated regulatory risks, including the effects of changes in the laws, regulations, policies, voluntary codes of practice and interpretations in Japan and the other jurisdictions in which we operate. Those changes and their effects on us are unpredictable and beyond our control.

Changes in the regulatory environment may adversely affect our financial condition and results of operations. In particular, the financial crisis has led to calls for significant financial reform measures, and various governments are at different stages of enacting legislation that will affect financial institutions.

In response to the financial and economic turmoil, regulatory authorities have been reviewing and revising capital adequacy guidelines, particularly in relation to quality of capital and accounting standards; such revisions could adversely affect our capital ratios. In December 2010, the BCBS published the Basel III rules text, setting out certain changes to capital requirements which include raising the quality of banks’ capital bases, enhancing risk coverage, inhibiting leverage, reducing pro-cyclicality and introducing liquidity regulation, many of which have been fully applied or phased-in in Japan based on the Basel III implementation schedule.

The FSA’s Financial Inspection Manual for financial institutions and related guidelines are revised or amended from time to time. Our implementation of any such changes could result in an increase in our administrative expenses, which could have an adverse effect on our results of operations and financial condition.

The FSA and regulatory authorities in the United States and other jurisdictions, along with the United Nations, have in recent years made the prevention of money laundering and terrorism financing a focus of governmental policy relating to financial institutions. Any regulatory action or change in regulatory focus, whether as a result of inspections or regulatory developments, may negatively affect our banking operations and may require expensive remediation.

The Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”), which was enacted in July 2010, provides a broad framework for significant regulatory changes across most areas of U.S. financial regulations. The Dodd-Frank Act addresses, among other issues, systemic risk oversight, bank capital standards, the resolution of failing systemically significant financial institutions, over-the-counter (“OTC”) derivatives, the ability of banking entities to engage in proprietary trading activities and invest in hedge funds and private equity funds, consumer and investor protection, and securitization. Implementation of the Dodd-Frank Act is taking place through detailed rulemaking over multiple years by various regulators.

These and similar, or any other kind of significant regulatory developments could adversely affect our capital ratios and results of operations. For further details, see “Item 4.B. Business Overview—Regulations in

Japan, Regulations in the United States, and Regulations in Other Jurisdictions.” Since those changes in regulation or fiscal or other policies and their effects are unpredictable and beyond our control, we may not be able to comply with those changes at all times, despite our efforts. Any such failures could result in administrative or judicial proceedings against us, including suspension of our business and financial penalties, which could materially adversely affect our business, reputation, results of operations and financial condition.

Changes in the competitive and financial environment and financial systems could have a negative effect on the financial services industry and us.

Deregulation of the financial system, consolidation among financial institutions, diversification within the financial services industry, and the expanded presence of foreign financial institutions and investors have made the Japanese financial services market highly competitive. Moreover, competition in overseas markets has intensified due to global consolidation, convergence and alliances among financial institutions. We compete with various types of financial services companies, including:

banking groups, including Japan’s other major banking groups;

government-controlled and government-affiliated entities;

regional banking institutions;

major investment banks; and

non-bank financial institutions.

Government measures implemented to stabilize the market and changes in the regulatory framework as well as other government actions may affect our competitive position. The Japan Post Bank Co., Ltd. (“Japan Post Bank”) is a government-controlled entity due to its status as a subsidiary of Japan Post Holdings Co., Ltd. (“Japan Post Holdings”), and one of the world’s largest deposit-taking financial institutions. Under the Postal Privatization Act, Japan Post Bank is required to receive prior approval of the Government of Japan to expand its business until Japan Post Holdings disposes of at least half of the shares of Japan Post Bank. Japan Post Holdings disposed approximately 11% of its shares of Japan Post Bank and Japan Post Bank was listed on the Tokyo Stock Exchange in November 2015, as the first phase of the plan for Japan Post Holdings to gradually dispose of its shares of Japan Post Bank down to around 50% ownership.

Increased competition in Japan may put downward pressure on prices for our financial services, cause us to lose market share or require us to incur additional expenses in order to remain competitive. Internationally, various forms of financial support provided by foreign governments to foreign banks and other financial institutions may reduce the cost of capital to those institutions and otherwise give them competitive advantages. There can be no assurance that we will be able to respond effectively to current or future competition.

The changes in the financial environment in Japan may also have a negative effect on the Japanese financial services industry. For example, changes in the monetary policy measures of the Bank of Japan (“BOJ”), including the expansion of the negative interest rate policy, may result in a further decrease in interest rates in Japan. This may lower the domestic interest spreads and significantly affect the businesses of commercial banks in Japan, including us, and have other unforeseen side effects on the functioning of and competition within Japan’s financial markets. For further information on the BOJ’s monetary policy measures, see “Item 5. Operating and Financial Review and Prospects—Overview—Factors Affecting Results of Operation.”

Damage to our reputation may have an adverse effect on our business and results of operations.

Maintaining our reputation is vital to our ability to attract and maintain customers, investors and employees. Our reputation could be damaged through a variety of circumstances, including, among others, fraud or other misconduct or unlawful behavior by directors, officers or employees, systems failures, compliance failures,

investigations, adverse litigation judgments or regulatory decisions, or unfavorable outcomes of governmental inspections. Negative media coverage of Japan’s financial services industry or us, even if inaccurate or not applicable to us, may have a materially adverse effect on our brand image and may undermine depositor confidence, thereby affecting our businesses and results of operations. For example, actual or rumored

investigations of us or our directors, officers or employees, or actual or rumored litigation or regulatory proceedings, or media coverage of the same, may have a material adverse effect on our reputation and could negatively affect the prices of our securities. Actions by the financial services industry generally or by certain members in the industry can also adversely affect customers’ confidence on the financial services industry. Such reputational harm could also lead to a decreased customer base, reduced revenues and higher operating costs.

Other Risks

Our failure to establish, maintain and apply adequate internal controls over financial reporting could negatively impact investor confidence in the reliability of our financial statements.

In order to operate as a global financial institution, it is essential for us to have effective internal controls, corporate compliance functions, and accounting systems to manage our assets and operations.

As a New York Stock Exchange (“NYSE”)-listed company and a registrant with the U.S. Securities and Exchange Commission (“SEC”) under section 404 of the U.S. Sarbanes-Oxley Act of 2002, our management is required to assess the effectiveness of our internal control over financial reporting and disclose whether such internal controls are effective. Our independent registered public accounting firm has to conduct an audit to evaluate and then render an opinion on the effectiveness of our internal control over financial reporting. The Financial Instruments and Exchange Act of Japan (“FIEA”) also requires companies listed on a Japanese stock exchange, such as us, to file, together with their annual securities reports required by the FIEA, audited internal control reports assessing the effectiveness of their internal controls over financial reporting.

We have established internal controls over financial reporting, as well as rules for evaluating those controls, in order to provide reasonable assurance of the reliability of our financial reporting and the preparation of financial statements. However, these controls may not prevent or detect errors. Any evaluation of effectiveness to future periods is subject to the risks that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. To the extent any issues are identified through the foregoing processes, there can be no assurance that we will be able to resolve them in a timely manner or at all. If this occurs, our reputation may be damaged, which could lead to a decline in investor confidence in us.

Our business operations are exposed to risks of natural disasters, terrorism, pandemics and other calamities.Other Risks

Our business operations are subject to the risks of natural disasters, terrorism, pandemics, blackouts, geopolitical incidents and other calamities, any of which could impair our business operations. Despite our preparation of operation manuals and other backup measures and procedures, such calamities could cause us to suspend operations and could adversely affect our businesses, financial condition and results of operations. Massive natural disasters such as the Great East Japan Earthquake and any subsequent collateral events, may adversely affect economic conditions in general, the financial conditions of our corporate and individual customers and stock market prices, or cause other negative effects, any or all of which could materially and adversely affect our financial condition and results of operations owing to, for example, an associated increase in the amount of credit-related costs or an increase in losses related to our holdings of securities.

Sales of our shares by us or the Bank may have an adverse effect on the market price of our shares and may dilute existing shareholders.

We may issue shares from the unissued portion of our authorized share capital and sell shares held as treasury stock, generally without a shareholder vote. In addition, the Bank may sell any of our shares that it holds. Sales of shares in the future may be at prices below prevailing market prices and may be dilutive.

It may not be possible for investors to effect service of process within the United States upon us or our directors corporate auditors or senior management, or to enforce against us or those persons judgments obtained in U.S. courts predicated upon the civil liability provisions of the U.S. federal or state securities laws.

We are a joint stock corporation incorporated under the laws of Japan. Almost all of our directors corporate auditors and senior management reside outside the United States. Many of our assets and the assets of these persons are located in Japan and elsewhere outside the United States. It may not be possible, therefore, for U.S. investors to affecteffect service of process within the United States upon us or these persons or to enforce, against us or these persons, judgments obtained in U.S. courts predicated upon the civil liability provisions of the federal or state securities laws. We believe that there is doubt as to the enforceability in Japan, in original actions or in actions to enforce judgments of U.S. courts, of claims predicated solely upon the U.S. federal or state securities laws mainly because the Civil Execution Act of Japan requires Japanese courts to deny requests for the enforcement of judgments of foreign courts if foreign judgments fail to satisfy the requirements prescribed by the Civil Execution Act, including requirements that:

 

the jurisdiction of the foreign court be recognized under laws, regulations, treaties or conventions;

 

proper service of process be made on relevant defendants, or relevant defendants be given appropriate protection if such service is not received;

 

the judgment and proceedings of the foreign court not be repugnant to public policy as applied in Japan; and

there exist reciprocity as to the recognition by a court of the relevant foreign jurisdiction of a final judgment of a Japanese court.

Judgments obtained in U.S. courts, predicated upon the civil liability provisions of the U.S. federal or state securities laws, may not satisfy these requirements.

As a holder of our American Depositary Shares (“ADSs”), you have fewer rights than a shareholder of record in our shareholder register because you must act through the depositary to exercise these rights.

The rights of our shareholders under Japanese law to take actions such as voting their shares, receiving dividends and distributions, bringing derivative actions, examining our accounting books and records and exercising appraisal rights are available only to our shareholders of record. Because the depositary, through its custodian, is the record holder of the shares underlying the ADSs, only the depositary can exercise shareholder rights relating to the deposited shares. ADS holders will not be able to directly bring a derivative action, examine our accounting books and records or exercise appraisal rights.

Pursuant to the deposit agreement among us, the depositary and the holders and beneficial owners of ADSs, the depositary will endeavor to exercise voting and other rights associated with shares underlying ADSs in accordance with instructions given by ADS holders, and the depositary will also pay to ADS holders dividends and distributions collected from us. However, the depositary is permitted under the deposit agreement to exercise reasonable discretion in carrying out those instructions or in making distributions, and is not liable for failure to carry out instructions or make distributions as long as it acts in good faith. Therefore, ADS holders may not be able to exercise voting or other rights associated with the shares underlying ADSs in the manner that they intend,

or may lose some or all of the value of dividends or distributions collected from us. Moreover, the deposit agreement may be amended or terminated by us and the depositary without any reason, or consent from or notice to ADS holders. As a result, ADS holders may not be able to exercise rights in connection with the deposited shares exercised in the way they wish or at all.

ADS holders are dependent on the depositary for certain communications from us. We send to the depositary most of our communications to ADS holders in Japanese. ADS holders may not receive all of our communications in the same manner as or on an equal basis with shareholders of record in our shareholder register.

 

Item 4.

Information on the Company

4.A.    HISTORY AND DEVELOPMENT OF THE COMPANY

Legal and Commercial Name

Our legal name is Sumitomo Mitsui Financial Group, Inc. Our commercial name is Sumitomo Mitsui Financial Group.

Date of Incorporation

We were established in December 2002.

Domicile and Legal Form

We are a joint stock corporation incorporated with limited liability under the laws of Japan. Our address is: Sumitomo Mitsui Financial Group, Inc., 1-2, Marunouchi 1-chome, Chiyoda-ku, Tokyo 100-0005, Japan. Our telephone number is: +81-3-3282-8111.

History and Development

We were established in December 2002 as a holding company for the SMBC Group through a statutory share transfer (kabushiki-iten) of all of the outstanding equity securities of the former SMBC in exchange for our newly issued securities. Upon our formation and completion of the statutory share transfer, the former SMBC became our direct, wholly owned subsidiary. The BankSMBC was established in March 2003 through the merger of the former SMBC with Wakashio Bank, which was established in 1996 as a subsidiary of Sakura Bank. The former SMBC was established in April 2001 through the merger of Sumitomo Bank and Sakura Bank, which was established through the merger of Taiyo Kobe Bank and Mitsui Bank in 1990. Mitsui and Sumitomo started their banking businesses in 1876 and 1895, respectively. The origins of both banking businesses can be traced back to the seventeenth century.

Information Concerning the Principal Capital Expenditures and Divestitures

OnIn April 1, 2016, Sumitomo Mitsui Finance and Leasing Company, Limited (“SMFL”) acquired General Electric Company (“GE”) group’s leasing business in Japan for ¥181 billion by acquiring a 100% equity interest in GE Japan GK (“GE Japan”). The acquired leasing business is comprised mainly of equipment/asset leasing, small-ticket leasing, and automotive leasing. In September 2016, GE Japan changed its corporate name to SMFL Capital Company, Limited (“SMFL Capital Company”).

On November 28, 2018, based on the agreement concerning the reorganization of our joint leasing partnership announced in March 2018, we transferred a portion of our shares of SMFL, a company jointly owned by us and Sumitomo Corporation (“Sumitomo Corp”), to SMFL. Upon the share transfer, our equity interest in SMFL decreased from 60% to 50% while Sumitomo Corp’s equity interest increased from 40% to 50%. As a result, SMFL ceased to be our consolidated subsidiary and became our joint venture, and its consolidated subsidiaries SMBC Aviation Capital Limited and SMFL Capital Company became the SMBC Group’s equity-method investees. Subsequently, on January 1, 2019, SMFL Capital Company was merged into SMFL.

Public Takeover Offers

Not applicable.

Available Information

The SEC maintains a website athttps://www.sec.gov that contains reports and proxy information regarding issuers that file electronically with the SEC. Some of the information may also be found on our website athttps://www.smfg.co.jp.

4.B.    BUSINESS OVERVIEW

Overview

We are athe holding company that directly owns 100%for the SMBC Group. The SMBC Group is comprised of the issued and outstanding shares of the Bank, one of the largest commercial banks in Japan. We are one of the three largest banking groups in Japan with an established presence across all of the consumer and corporate banking sectors. Our subsidiaries in our Commercial Banking segment include, in addition to the Bank,SMBC, SMBC Trust Bank Ltd. (“SMBC Trust Bank”), Kansai Urban Banking Corporation (“KUBC”), THE MINATO BANK, LTD. (“The Minato Bank”), Sumitomo Mitsui Banking Corporation Europe Limited (“SMBC Europe”), and Sumitomo Mitsui Banking Corporation (China) Limited (“SMBC (China)”). Our subsidiaries also include SMFL, in our Leasing segment; SMBC Nikko Securities Inc. (“SMBC Nikko Securities”) and SMBC Friend Securities Co., Ltd. (“SMBC Friend Securities”) in our Securities segment; and Sumitomo Mitsui Card Company, Limited (“Sumitomo Mitsui Card”), Cedyna andFinancial Corporation (“Cedyna”), SMBC Consumer Finance Co., Ltd. (“SMBC Consumer Finance”), The Japan Research Institute, Limited (“The Japan Research Institute”), Sumitomo Mitsui DS Asset Management Company, Limited (“SMDAM”) and other subsidiaries and affiliates. We are one of the three largest financial groups in our Consumer Finance segment.Japan and offer a diverse range of financial services, including commercial banking, leasing, securities, consumer finance and other services. See “Item 4.C. Organizational Structure.”

In March 2018, with the aim of enhancing our corporate group’s brand value, we announced that “SMBC” would be designated as our corporate group’s master brand from April 2018. In line with this change, our

corporate group, which was formerly referred to as the “Sumitomo Mitsui Financial Group” or its acronym “SMFG,” is now referred to as the “SMBC Group.” “Sumitomo Mitsui Financial Group” continues to be used as the holding company’s name.

Management Philosophy

Our SMBC Group-wide management philosophy is as follows:

 

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; and

 

we create a work environment that encourages and rewards diligent and highly-motivated employees.

In addition to our SMBC Group-wide management philosophy, we have also established a code of conduct. Our code of conduct is designed to be a guideline for the conduct of our directors, officers and employees in the realization of our SMBC Group-wide management philosophy in all areas. Our code of conduct is as follows:

 

to strive to increase shareholder value whilst also maintaining healthy relationships with customers, employees and other stakeholders. To give utmost consideration to the trust which people have in the Bank,firm, to abide by all laws and regulations, to maintain a high ethical standard, and to act fairly and sincerely;

 

to continue improving our knowledge and capability and, at the same time, to raise our productivity in order to provide superior financial services at competitive prices;

 

to establish a top brand global bankfinancial group by understanding the needs of each customer and by providing valuable services which meet those needs;

 

to be selective and focused in the implementation of our business strategy, to define and develop the competitive advantages which we have over our competitors and, by allocating managerial resources strategically to those businesses, to become a top player in our selected markets;

 

to be creative, proactive and courageous in order to be in a leading position in all business areas and always a step ahead of our competitors;

 

to build a strong organization based on market practice and sound principles whilst reflecting our diverse values. To delegate internal authority under an efficient and effective management system which facilitates speedy decision-making and execution; and

 

to support our business growth and the growthdevelopment of our businessemployees by setting challenging targets for our staff and employing results-basedwithin an evaluation and compensation systems.framework which emphasizes their capabilities and achievements.

Environment

We recognize preservation of the environment as one of our most important management objectives and strive to achieve harmony with the natural environment in our corporate activities.

Basic Philosophy Regarding the SMBC Group’s Environmental Activities

Recognizing the importance of realizing a sustainable society as one of our most important tasks, we make continuous efforts to harmonize environmental preservation and pollution control with corporate activities, in order to support the economy and contribute to the betterment of society as a whole.

We and our principal SMBC Group companies have obtained ISO 14001 certification, the international standard for environmental management systems. Every year we set environmental objectives which we systematically pursue through environmental activities based on a PDCA (Plan, Do, Check and Act)plan-do-check-act cycle. The Bank and some of

We announced our other Group companies adopted “Principles for Financial Action towards a Sustainable Society” in October 2011, which have been set forthsupport for the purposesTask Force on Climate-related Financial Disclosures at the “One Planet Summit” held in Paris in December 2017. We will conduct business in a manner that contributes to the growth of making environmental financing widely-knownboth our customers and improvingsociety, and will further enhance our actions towards climate change.

Furthermore, in February 2019, we endorsed the qualityPrinciples for Responsible Banking, proposed by the United Nations Environment Programme Finance Initiative. We are currently accelerating our sustainability management by bolstering traditional corporate social responsibility activities.

In our Credit Policy, which describes the universal and basic philosophies, guidelines and rules for credit operations, SMBC declares its policy of environmental financing.

The Bank made its head office “carbon neutral”prohibiting credit for problematic loans in terms of public responsibility, or extending credit for loans which may have a significant negative impact on the global environment and requires land pledged as collateral to undergo soil contaminationthe society. For large-scale projects which may potentially exert a major impact on the environment and asbestos risk assessment. In addition, we also applysociety, SMBC adopts the “EquatorEquator Principles, a set of guidelines fordeveloped by private-sector financial institutions to assessfor managing environmental and manage social and environmental impactsrisk related to the financing of large-scale development projects, when we financeand conducts environmental and social risk assessments.

SMBC has policies for specific sectors listed below, which may have environmental and social influences such projects.as adverse impact on human rights and climate change. These policies have been reflected in our Credit Policy.

Coal-fired power plants;

Palm oil plantation developments;

Deforestation;

Cluster munitions and other slaughter weapons manufacturing; and

Soil contamination and asbestos.

Description of Operations and Principal Activities

Commercial BankingWholesale Business Unit

We offer commercial banking services to a wide range of customers including large corporations, mid-sized companies, small-sized companies, individuals, governments and governmental entities mainly through the Bank. The Bank has solid franchises in both corporate and consumer banking in Japan. The Bank has long-standing and close business relationships with many companies listed on the First Section of the Tokyo Stock Exchange and long historical relationships with the so-called Sumitomo Group and Mitsui Group companies.

The BankWholesale Business Unit provides an extensive range of corporatefinancing, investment management, risk hedging and consumer bankingsettlement services in Japan and wholesale banking services overseas. In Japan, the Bank accepts deposits from, makes loans to, extends guarantees to and provides other products and services to corporations, individuals, governments and governmental entities. The Bank offers financing solutions through loan syndication, structured finance and project finance to large corporate customers in the domestic and overseas markets, as well as a variety of financing optionsfinancial solutions that respond to domestic mid-sized companies, small-sized companieswide-ranging client needs in relation to M&A and individuals. The Bank also underwrites and deals in bonds issued by or guaranteed by the Government of Japan and local government authorities, and acts in various administrative andother advisory capacities for select types of corporate and government bonds. Internationally, the Bank operates through a network of branches, representative offices, subsidiaries and affiliates to provide loan syndication, project finance and cash management services and participateleasing, primarily for large-and mid-sized corporate clients in international securities markets.Japan. This business unit mainly consists of the wholesale businesses of SMBC, SMBC Trust Bank, SMFL and SMBC Nikko Securities.

Financing and Investment Management

The Bank conducts its primary banking business through its four business units: the Wholesale BankingBusiness Unit the Retail Banking Unit, the International Banking Unit and the Treasury Unit. In addition to the four business units, the Investment Banking Unit, the Corporate Advisory Division, the Private Advisory Division and the Transaction Business Division of the Bank provide a broad range of financial products, services and solutions to address sophisticated and diverse issues and needs of the Bank’s customers. The Corporate Advisory Division operates within the Wholesale Banking Unit, and the Private Advisory Division operates within the Wholesale Banking Unit and the Retail Banking Unit, while the Transaction Business Division operates within the Wholesale Banking Unit, the Retail Banking Unit and the International Banking Unit. Further, the Bank has the Corporate Staff Unit, the Corporate Services Unit, the Compliance Unit, the Risk Management Unit and the Internal Audit Unit.

The Bank’s Wholesale Banking Unit

The Bank’s Wholesale Banking Unit aims to offer business solutions for the increasingly complex and diverse management issues that are faced by large Japanese corporations, including listed companies and

mid-sized companies, and, together with certain of our Group companies, provides a wide range of financial products and services targeting those corporations and companies, through 178 sales channels of the Bank at March 31, 2016. The financial products andfinancing services that this business unit provides include deposits,bilateral loans, including syndicated loans, commitment lines, structured finance, andproject finance, nonrecourse loans settlementto and investments in corporate customers directly or through private equity funds, securitization, debt and equity underwriting and corporate bond trustee and registrar services.

The Wholesale Business Unit also provides investment management services cash management, leasing, factoring, management information systems consulting, collectionsuch as deposits and investment banking services. This business unit also provides the following products and services:

Services for Globalizing Corporations. In light of the recent overseas expansion trend, the Bank focuses on offering products and services whereby the Bank assists those customers entering new markets, especially in China and other Asian countries, and accommodates an increase in their international trade operations.

Loan Products and Services to Promote Socially Responsible Activities. The Bank provides a variety of loan products and services designed for corporate clients engaging in socially responsible activities. These activities include environmentally friendly activities, improvement of eating habits, development of agricultural and fishery industries, and development of risk management systems for emergency situations. The Bank evaluates their socially responsible activities and offers loans with certain conditions incorporating the results of its evaluation. Furthermore, in connection with these loans, the Bank provides advice in relation to the client’s socially responsible initiatives.

Services to Promote B-to-B Transactions. The Bank, with its subsidiaries and affiliates, provides various internet settlement services to meet its customers’ needs. The Bank has promoted these services to stimulate greater demand for its solutions business. Using these services, corporate customers are able to transfer money more easily and effectively, and also utilize foreign exchange services to transfer funds to and from their overseas counterparts in foreign currencies.

The Bank’s Retail Banking Unit

The Bank’s Retail Banking Unit provides financial services to both consumers residing in Japan and domestic small-sized companies.

For consumers,trusts. In addition, this business unit offers a wide range of financialsecurities products including structured bonds and subordinated bonds to corporate clients through SMBC and SMBC Nikko Securities.

Risk Hedging

The Wholesale Business Unit provides various risk hedging services including personal bank accounts, deposit productsforward exchange contracts and derivatives to meet our customers’ demand for hedging risks such as ordinary deposits, time deposits andinterest rate risk or foreign currency deposits, and the following products and services through various channels:

Housing Loans. Housing loans, which are principally secured by collateral or supported by guarantees, are one of the primary products offered by this business unit. The Bank provides housing loans with a variety of terms and interest rates, including 2- to 35-year term, fixed-rate loans, to meet diversified customer needs. For instance, the Bank offers a housing loan combined with an insurance policy that covers the repayment of the outstanding loan balanceexchange rate risk in the event the borrower is diagnosed with certain diseases.

Investment Trust. The Bank, as a broker, provides a variety of investment trust products with varying risk-return profiles that are developed and managed by experienced asset management companies within Japan and overseas. Also, the Bank, together with its subsidiary SMBC Nikko Securities, offers discretionary investment management services.

Insurance Products. The Bank, as an agent, offers pension-type insurance, whereby customers who make all premium payments are able to receive annuity payments when they reach a certain age. The Bank, as an agent, also sells a wide range of insurance products, including medical insurance, juvenile insurance, home fire insurance, single-premium whole life insurance and level-premium life insurance.

Consumer Finance Services. The Bank offers a variety of consumer loan products such as unsecured card loan products to its individual customers.

In addition, the Bank is promoting the collaboration with its subsidiary SMBC Nikko Securities to meet customers’ diverse needs for asset management by leveraging their respective strengths of a broad client base and a high advisory capability.

The operations are mainly conducted through a large and well developed branch network. The Bank had a domestic network consisting of 440 branch offices at March 31, 2016, most of which were located in the Tokyo and Osaka regions. Some branches provide financial consulting services for asset management and housing loans during extended hours, including weekday evenings, weekends and national holidays, for the convenience of individual customers.

The Bank also operates an extensive network of ATMs in Japan. At March 31, 2016, the Bank offers its customers’ access to 53,284 ATMs, some of which are the Bank’s ATMs and the majority of which are ATMs made available through arrangements with other ATM providers such as convenience store chains.

transactions. This business unit also provides guarantee services including stand-by credit, performance bond and credit guarantee services.

Settlement

The Wholesale Business Unit offers internet bankinga variety of products and services including remittance, cash management, trade finance for consumers. At March 31, 2016,export and import activities and supply chain finance to optimize customers’ cash flows and business flows.

M&A and Other Advisory Services

The Wholesale Business Unit responds to customers’ diversifying business strategies and management issues by providing solutions custom-tailored to their business characteristics and growth stage.

The Wholesale Business Unit caters to large corporate clients in their global business activities by leveraging the Bank’s internet banking services had approximately 14 million registered users. The users are able to transfer funds, perform balance inquiries, make time depositscollective strength of SMBC Group companies. For example, SMBC and foreign currency deposits, and buy and sell investment trusts overSMBC Nikko Securities support the internet, as well as over the mobile phone or the traditional telephone.entire deal process of cross-border M&A projects on a collaborative basis.

For small-sizedmid-sized companies, the Wholesale Business Unit provides a wide range of financial services including direct investment, LBO financing, debt restructuring, support for initial public offering and M&A advisory to enhance our customers’ corporate value, working in conjunction with private equity funds as necessary. In real estate and related businesses, this business unit provides a wide arrayfull lineup of financial productsservices including brokerage and servicesasset management by SMBC Trust Bank and funding support mainly by SMBC.

For start-up companies, the Wholesale Business Unit offers support in accordance with clients’ stage of growth such as management consulting, venture investment, financing and support for initial public offerings.

For clients considering business overseas, the Wholesale Business Unit provides tailored information on local laws and regulations and on Japanese companies already present in target countries. For clients who already have business overseas, each SMBC Group company collaborates to comprehensively addressprovide high quality solutions in the same place business owners’ needs as both corporate managers and individualsareas such as business expansion and asset succession.reorganization.

Leasing

The Bank also offers wealth management services to its customers in collaboration with SMBC Trust Bank, SMBC Nikko Securities and Barclays PLC (“Barclays”). For further information on alliance with Barclays, see “—Other Major Group Companies and Alliances—Alliance with Barclays PLC.”

The Bank’s International BankingWholesale Business Unit

The Bank’s International Banking Unit mainly supports companies, financial institutions, sovereign/quasi-sovereign entities outside Japan, and multinational companies operating in Japan. This business unit provides a variety of tailored products and services to meet customer and market requirements, including loans, deposits, clearing services, trade finance, project finance, loan syndication and global cash management services.

At March 31, 2016, the Bank’s international network consisted of 17 branches, 17 sub-branches and 5 representative offices and the Bank seeks to meet customers’ needs globally, together with the network of the Bank’s foreign banking subsidiaries such as SMBC Europe with 7 offices and SMBC (China) with 15 offices, and foreign banking associates including PT Bank Tabungan Pensiunan Nasional Tbk, The Bank of East Asia, Limited, ACLEDA Bank Plc. and Vietnam Export Import Commercial Joint Stock Bank.

Based on our strategy of expanding our businesses globally, the Bank has been promoting strategic alliances to enhance products and services with leading financial institutions such as Barclays and Kotak Mahindra Bank Limited. Additionally, in order to further expand our business in the U.S., we and the Bank obtained financial holding company status under the U.S. Bank Holding Company Act of 1956, as amended (“Bank Holding Company Act”), on May 7, 2013, which allows the expansion of the scope of services to provide in the U.S., including underwriting and trading of securities and providing other investment banking services.

The Bank’s Treasury Unit

The Bank’s Treasury Unit operates in the domestic and international money, foreign exchange, securities and derivatives markets to serve customer needs and the Bank’s own asset and liability management requirements.

To further expand the Bank’s customer base, this business unit also seeks to provide specialized solutions and enhance customer service capabilities in market transactions through the following activities:

providing a variety of products from traditional money and foreign exchange transactions to derivative transactions; and

developing channels such as an internet banking site providing foreign exchange transactions to satisfy a variety of requirements and orders from customers.

Others

The Bank also engages in the following business activities through its business units:

Payment Services. The Bank handles money remittances for municipalities, public and private corporations and individuals in Japan and overseas. Domestic remittance services are significant in Japan, where checks are rarely used and money remittance is a major means of payment. The Bank also handles the collection for its customers of promissory notes, bills of exchange and checks.

Foreign Exchange. The Bank engages in a variety of foreign exchange transactions, including foreign currency exchange, overseas transfers and trade finance for export and import activities.

The following unit or divisions provide a broadwide range of financial products,leasing services including equipment, operating and solutions to address sophisticated and diverse issues and needs of the Bank’s customers.

Investment Banking Unit. The Investment Banking Unit provides a broad range of sophisticated financial products and services, as follows:

Customized Financial Services and Financing Solutions. The Bank provides a wide range of innovative financial services and financing solutions to its corporate clients, including loan syndication, structured finance, project finance, acquisition financing such as LBO and MBO financing, non-recourse real estate finance, securitization, derivatives and M&A advisory.

Securities Intermediary Services for Corporate Clients. The Bank provides corporate clients with securities intermediary services, and offers structured bonds, subordinated bonds and other products to corporate clients in cooperation with SMBC Nikko Securities.

Corporate Bond Trust Services. The Bank serves as a trustee or co-trustee of corporate mortgage bonds. The Bank also serves as a commissioned company for bondholders and as a fiscal and paying agent for unsecured bonds that are issued and publicly offered by domestic and foreign customers. In this role, the Bank also advises issuers about market conditions and provides administrative services on behalf of issuers.

Other Trust Services. The Bank offers other trust services to its customers, including monetary claims trusts for asset securitizations and trusts for structured finance.

Principal Investments. The Bank, directly orleveraged leasing mainly through private equity funds, invests in corporate customers seeking to restructure or reorganize themselves or expand their businesses.

Solutions Related to Growing Industrial Sectors. The Bank provides a wide range of solutions to corporate customers addressing businesses related to growing industrial sectors, such as environmental, infrastructure, water, new energy, agriculture, health care, and robot industries.

Corporate Advisory Division. The Corporate Advisory Division complements our service lineup for both listed and non-listed companies, providing financial solutions for the increasingly sophisticated and diverse management issues faced by corporate clients. This division provides a centralized information platform that maintains the Bank’s accumulated information and knowledge concerning a wide range of industries. Leveraging this centralized information platform, this division provides the Bank’s customers with proposals for strategic initiatives to help enhance their corporate value. This

division establishes a separate team for each project and works in cooperation with the Bank’s other departments and our Group companies, including SMFL, and SMBC Nikko Securities. This division aims to offer comprehensive solutions for M&A, strategic investment, business alliances and other management issues.

Private Advisory Division. The Private Advisory Division addresses areas where the needs of individuals and corporate clients overlap, including private banking, corporate employees business, business succession and asset succession consulting for business owners and high-net-worth individuals.

Transaction Business Division. The Transaction Business Division complements our transaction and financing services, including cash management, settlement, foreign exchange and supply chain finance for our corporate clients. This division aims to offer a variety of products and services to capture customers’ cash flows and business flows.

In addition to the Bank, our domestic banking subsidiaries include SMBC Trust Bank, KUBC and The Minato Bank. SMBC Trust Bank, which became our wholly owned subsidiary in October 2013, offers extensive trust services tailored to the needs of customers, such as wealth management solutions. On November 1, 2015, SMBC Trust Bank acquired the retail banking business of Citibank Japan Ltd. (“Citibank Japan”), a wholly owned subsidiary of Citigroup Inc. Through this acquisition, SMBC Trust Bank is expanding its business model to offer additional products and services to its customers, including foreign currency investment products and global services. KUBC and The Minato Bank are regional financial institutions based in Kansai area and provide commercial banking services to corporations and individuals.

Our domestic banking associate is The Japan Net Bank, Limited (“The Japan Net Bank”), which, as an internet bank, provides internet-based services such as deposits, loans and investment products. The Japan Net Bank, which had been our subsidiary, became our associate in April 2014 due to a decrease in our proportion of voting rights.

Our foreign banking subsidiaries include SMBC Europe, SMBC (China), Manufacturers Bank, Sumitomo Mitsui Banking Corporation of Canada, Banco Sumitomo Mitsui Brasileiro S.A., JSC Sumitomo Mitsui Rus Bank, PT Bank Sumitomo Mitsui Indonesia and Sumitomo Mitsui Banking Corporation Malaysia Berhad.

Our foreign banking associates include PT Bank Tabungan Pensiunan Nasional Tbk, The Bank of East Asia, Limited, one of the largest commercial banks in Hong Kong, which became our associate in March 2015, ACLEDA Bank Plc., the largest bank in Cambodia, which became our associate in September 2015, and Vietnam Export Import Commercial Joint Stock Bank.

Leasing

Sumitomo Mitsui Finance and Leasing Company, Limited

Sumitomo Mitsui Finance and Leasing Company, Limited (“SMFL”), one of the major leasing companies in Japan, provides a variety of leasing services including equipment, operating, leveraged and aircraft leasing. The aircraft leasing business was integrated into SMBC Aviation Capital, a subsidiary of SMFL, in 2013.Japan. We have a 60%50% equity interest in SMFL while the remaining 40%50% is held by Sumitomo Corporation,Corp, a non-affiliate.non-affiliate, which makes SMFL our joint venture with Sumitomo Corp. SMFL had previously been our subsidiary, in which we held a 60% equity interest, but our equity interest was reduced as part of the reorganization of our joint leasing partnership on November 28, 2018.

OnIn April 1, 2016, SMFL acquired GE group’s leasing business in Japan by acquiring a 100% equity interest in GE Japan. The acquired leasing business is comprised mainly of equipment/asset leasing, small-ticket leasing and automotive leasing. Through this acquisition,In September 2016, GE Japan changed its corporate name to SMFL Capital Company.

On November 28, 2018, based on the agreement concerning the reorganization of our joint leasing partnership announced in March 2018, we aim to upgrade the marketing strategies and sales capabilities by leveraging GE Japan’s know-how developed under GE, and offertransferred a wide rangeportion of financial solutions by enhancing the combined client baseour shares of SMFL, a company jointly owned by us and GE Japan.

Others

In additionSumitomo Corp, to SMFL. Upon the share transfer, our equity interest in SMFL decreased from 60% to 50% while Sumitomo Corp’s equity interest increased from 40% to 50%. As a result, SMFL ceased to be our consolidated subsidiary and became our joint venture, and its consolidated subsidiaries SMBC Aviation Capital Limited, which belongs to the aboveInternational Business Unit, and SMFL Capital Company became our equity-method investees. Subsequently, on January 1, 2019, SMFL Capital Company was merged into SMFL.

Retail Business Unit

The Retail Business Unit provides financial services to both consumers residing in Japan and domestic small-sized companies our U.S. subsidiaryand mainly consists of the retail businesses of SMBC, LeasingSMBC Trust Bank and Finance, Inc. engages in the leasing business. Our associateSMBC

Nikko Securities together with three consumer finance companies, Sumitomo Mitsui Auto Service Company, Limited engages in the auto leasing business.Card, Cedyna and SMBC Consumer Finance.

Securities

SMBC Nikko Securities Inc.

As one of the major Japanese securities companies, SMBC Nikko Securities Inc. (“SMBC Nikko Securities”), our wholly owned subsidiary,This business unit offers a wide range of financial products and services for consumers, including wealth management, settlement services, consumer finance and housing loans, in order to address the financial needs of all individual customers.

Wealth Management

The Retail Business Unit offers a variety of financial services including personal bank accounts, deposit products such as ordinary deposits, time deposits and foreign currency deposits, investment consultationtrust, equity, bond and administrative services to its individual and corporate customers in Japan. For individual customers,insurance products.

In addition, SMBC Nikko Securities provides consulting services to meet diversified asset management needs at 123 branches nationwide at March 31, 2016, and a widely used online trading tool. For corporate customers, it also offers trading capabilities and financial products, debt and equity underwriting, and M&A advisory services, mainly in Japan.

SMBC Nikko Securities, together with its overseas network, SMBC Nikko Securities (Hong Kong) Limited, SMBC Nikko Securities (Singapore) Pte. Ltd., SMBC Nikko Capital Markets Limited and SMBC Nikko Securities America, Inc. (“are promoting greater collaboration in order to meet customers’ diverse needs for asset management by leveraging their respective strengths of a broad client base and a high advisory capability.

In January 2018, SMBC Nikko Securities America”), seeks to provide financial services such as brokerage services of Japanese stocks and M&A advisory services to clients on a global basis. To strengthen our cross-border M&A and other advisory services to Japanese companies, SMBC Nikko Securities, the Bank and Moelis & Company, a global investment bank headquartered in New York, established a business alliance in March 2011. In February 2012, we invested approximately $93 million in Moelis & Company to enhance the existing business alliance.

merged with SMBC Friend Securities Co., Ltd.

SMBC Friend Securities Co., Ltd. (“SMBC Friend Securities”),which had been our wholly owned subsidiary, is a full-line securities company focusing on retail business. SMBC Friend Securities has a nationwide network that offers services tailored tosubsidiary. This merger was made for the needspurpose of its clients and offers online financial consulting services.

On May 12, 2016, we announced our plan to merge SMBC Nikko Securities and SMBC Friend Securities in January 2018. We expect the merger will strengthenstrengthening our securities business by reinforcing consulting typeconsulting-type sales, enhancing productivity through the optimization of sales personnel staffing and achieving cost saving synergies resulting fromthrough the consolidation of overlapping management infrastructure.

In addition, the Retail Business AllianceUnit, through SMBC Trust Bank, offers foreign currency investment products, global services and extensive trust services tailored to the needs of customers, such as wealth management solutions.

Settlement

The Retail Business Unit conducts credit card, installment and solution businesses and provides customers with Citigroup Inc.secure and convenient payment methods.

In May 2009, we entered intothe credit card business, Sumitomo Mitsui Card and Cedyna conduct a strategiccomprehensive credit card business alliance with Citigroup Inc. (“Citigroup”) centering ona strong brand, and offer a variety of collaborative activities between SMBC Nikko Securitiessettlement and Citigroup. As part of this alliance, Citigroup provides us with accessfinance services to its global corporate and investment banking networks, including sales and trading and M&A services. The long-standing relationship between Citigroup and the former Nikko Cordial Securities Inc. in the origination and distribution of financial products in Japan and globally is being upheld with SMBC Nikko Securities.

Consumer Finance

Sumitomo Mitsui Card Company, Limitedmeet diverse customer needs.

Sumitomo Mitsui Card Company, Limited (“Sumitomo Mitsui Card”) is a leading company in Japan’s credit card industry, having introduced the Visa brand into the Japanese market. Sumitomo Mitsui Card conducts a comprehensive credit card business with a strong brand,market and offers a variety of settlement and finance services to meet diverse customer needs.

We, Sumitomo Mitsui Card, the Bank and NTT DoCoMo, Inc. (“NTT DoCoMo”) formed a strategic business and capital alliance in credit payment service. We have a 66% equity interest in Sumitomo Mitsui Card, while the remaining 34% is held by NTT DoCoMo. Pursuant to the alliance, Sumitomo Mitsui Card offers a credit payment service using NTT DoCoMo’s mobile phones equipped with contactless IC chips.

In addition, Sumitomo Mitsui Card issues a variety of affiliated credit cards in cooperation with partners including, but not limited to, railway companies, airline companies, department stores and online retailers to satisfy both these partners’ and cardholders’ needs. Sumitomo Mitsui Card also provides services for customers such as travelers and retailers both in Japan and China, in alliance from 2005, with China UnionPay Co., Ltd., a bankcard association in China.

Cedyna Financial Corporation

Cedyna Financial Corporation (“Cedyna”), our wholly owned subsidiary, conducts credit card, installment (such as shopping credit and automobile loan) and solution (such as collection outsourcing and factoring) businesses.

In April 2014,2016, Cedyna transferred its own collection outsourcingmerged with SAKURA CARD CO., LTD., which had been our subsidiary and engaged in the credit card business, to further enhance its capability to meet the wide range of customer needs and deliver higher value-added products and services.

We, Sumitomo Mitsui Card, SMBC Finance Service Co., Ltd., its wholly owned subsidiary that provides collection outsourcingand NTT DoCoMo, Inc. (“NTT DoCoMo”) formed a strategic business and capital alliance in credit payment services in 2005. In September 2018, we entered into an agreement for new business cooperation with NTT DoCoMo to further expand credit payment services and has strong customer baseexplore new ways of collaboration in areas such as FinTech. Based on this agreement, we acquired an additional 34% of the outstanding shares of Sumitomo Mitsui Card from NTT DoCoMo and, internet settlement know-how,as a result, our equity interest in Sumitomo Mitsui Card increased from 66% to 100% on April 1, 2019. Simultaneously, we made Cedyna a subsidiary of Sumitomo Mitsui Card in order to strengthen its competitive edge by taking advantageprovide comprehensive solutions that benefit both the business operators and end-users. SMBC, Sumitomo Mitsui Card and Cedyna are leveraging their strengths to address cashless payment needs and integrate marketing and business operations.

Consumer Finance

The Retail Business Unit offers a variety of scaleconsumer loan products including unsecured card loan products mainly through SMBC and promoting streamlining.

SMBC Consumer Finance Co., Ltd.

SMBC Consumer Finance Co., Ltd. (“SMBC Consumer Finance”), our wholly owned subsidiary, is a core entity in our consumer lending business. It provides consumer loans, together with its wholly owned subsidiary Mobit Co., LTD., that consist mainlyto meet the wide range of unsecured loans to individuals, and conducts other business including loan guarantee business.individual customers’ demand for funds. Also, SMBC Consumer Finance guarantees certain consumer loans made by the Bank.

OthersSMBC and other financial institutions.

In addition, to the above companies, our subsidiary Sakura CardSMBC and SMBC Mobit Co., Ltd.LTD., (“SMBC Mobit”) which was merged into Cedyna on April 1, 2016, and our associate Pocket Card Co., Ltd. engageis a wholly owned subsidiary of SMBC Consumer Finance engaged in the card loan business, are strengthening their partnership. For example, a loan card from SMBC Mobit can be applied for or received through automated contract machines in SMBC branch offices.

Housing Loans

The Retail Business Unit provides housing loans with a variety of terms and interest rates, including fixed-rate loans with 2- to 35-year terms, to meet diversified customer needs. As an example of a product addressing a specific customer need, this business unit offers a housing loan combined with an insurance policy that covers the repayment of the outstanding loan balance in the event the borrower is diagnosed with certain diseases. Housing loans are principally secured by collateral or supported by guarantees.

The Retail Business Unit operations are mainly conducted through a large and well developed branch network. We had a domestic network consisting of 443 SMBC branch offices, 25 SMBC Trust Bank branch offices, 142 SMBC Nikko Securities branch offices and 951 SMBC Consumer Finance staffed and unstaffed branch offices at March 31, 2019. Some SMBC branches provide financial consulting services for asset management and housing loans during extended hours, including weekday evenings, weekends and national holidays, for the convenience of individual customers.

The Retail Business Unit also operates an extensive network of ATMs in Japan. At March 31, 2019, SMBC offers its customers’ access to 56,812 ATMs, some of which are SMBC’s ATMs and the majority of which are ATMs made available through arrangements with other ATM providers such as convenience store chains. SMBC Consumer Finance offers its customers’ access to 1,950 automatic contract machines and ATMs at March 31, 2019.

This business unit also offers internet banking services for consumers. At March 31, 2019, SMBC’s internet banking services had approximately 17 million registered users. The users are able to transfer funds, perform balance inquiries, make time deposits and foreign currency deposits, and buy and sell investment trusts over the internet with smartphones and computers.

Moreover, in credit card business, there are approximately 29 million and 16 million card holders of Sumitomo Mitsui Card and Cedyna at March 31, 2019.

The Retail Business Unit is implementing an initiative to supply customers with convenient and easy-to-use services by utilizing digital technologies and expand consulting space for individual clients at SMBC branches, while pushing ahead with digitalization of administrative processes and the transfer of administrative functions of branches to administration centers. These reforms will enable us to reduce costs while providing customers with convenient and high quality services.

The Retail Business Unit promotes digitalization in a variety of areas, including promotion of use of debit cards and credit cards that address cashless payment needs, a smartphone application that allows our customers to easily and seamlessly view information on transactions with SMBC and Sumitomo Mitsui Card, an automated chat service utilizing artificial intelligence and a biometric authentication platform.

This business unit also provides private banking and asset succession consulting for high-net-worth individuals.

For small-sized companies, this business unit provides a wide array of financial products and services to comprehensively address business owners’ needs as both corporate managers and individuals such as business and asset succession.

International Business Unit

The International Business Unit supports the global businesses of a diverse range of clients, such as Japanese companies operating overseas, non-Japanese companies, financial institutions, and government agencies and public corporations of various countries. This business unit mainly consists of the international businesses of SMBC, SMBC Trust Bank, SMFL, SMBC Nikko Securities and their foreign subsidiaries. At March 31, 2019, we have global network of 131 overseas offices.

Banking Business

The International Business Unit provides a variety of tailored products and services to meet customer and market requirements, including loans, deposits, clearing services, trade finance, project finance, loan syndication, derivatives and global cash management services.

On January 30, 2019, PT Bank Tabungan Pensiunan Nasional Tbk, previously an associate bank of SMBC in Indonesia, became our consolidated subsidiary upon the purchase of additional shares by SMBC. Subsequently, on February 1, 2019, PT Bank Tabungan Pensiunan Nasional Tbk merged with PT Bank Sumitomo Mitsui Indonesia, a consolidated subsidiary of SMBC also in Indonesia, and the merged company changed its corporate name to PT Bank BTPN Tbk. This merger was made for the purpose of operating a full-fledged commercial banking business in Indonesia that serves both the wholesale and retail segments and further developing our franchise to offer broader financial services to our customers.

On April 1, 2019, we commenced full operations of SMBC Bank EU AG, a banking subsidiary established in Germany, to retain our ability to respond flexibly to changes in the political and economic environment in Europe, including the United Kingdom’s exit from the European Union. Through SMBC Bank EU AG and our other existing networks, we continue to provide clients with sustained and stable financial services while expanding the range of our services.

SMBC seeks to meet customers’ needs globally, together with the network of SMBC’s foreign banking subsidiaries such as Sumitomo Mitsui Banking Corporation Europe Limited, SMBC Bank EU AG, Sumitomo Mitsui Banking Corporation (China) Limited, PT Bank BTPN Tbk and foreign banking associates, including The Bank of East Asia, Limited, ACLEDA Bank Plc. and Vietnam Export Import Commercial Joint Stock Bank.

Securities Business

In overseas markets, the International Business Unit provides services such as underwriting activities, Japanese stockbroking and M&A advisory through SMBC Nikko Capital Markets Limited and SMBC Nikko Securities America, Inc., which are subsidiaries of SMBC in the United Kingdom and the United States respectively. In addition, this business unit provides Japanese stockbroking and M&A advisory services through SMBC Nikko Securities (Hong Kong) Limited and SMBC Nikko Securities (Singapore) Pte. Ltd., and M&A advisory related services through SMBC Nikko Investment Consulting (Shanghai) Limited. Together with other SMBC Nikko Securities’ subsidiaries and affiliates, this business unit offers high quality financial services to clients on a global basis.

Leasing Business

The International Business Unit provides a variety of leasing services related to the construction machinery, transportation equipment, industrial machinery, medical equipment and other categories mainly through SMFL’s

offices overseas. This business unit also offers aircraft leasing services through SMBC Aviation Capital Limited, a subsidiary SMM Autoof SMFL, and railcar leasing services through SMBC Rail Services LLC, which is a railcar operating leasing company and a subsidiary of SMBC Leasing and Finance, Inc. engages

For detailed information on the reorganization of our joint leasing partnership, see “Wholesale Business Unit—Leasing” in automobile sale financing.this section.

In June 2017, we, through SMBC Rail Services LLC, acquired all membership interests of American Railcar Leasing LLC, one of the leading railcar leasing companies in the United States. This acquisition was made for the purpose of expanding our railcar leasing business and services by further enhancing our fleet portfolio to appropriately meet diverse needs of clients in a wide range of industries.

Global Markets Business Unit

The Global Markets Business Unit offers solutions through foreign exchange products, derivatives, bonds, stocks and other marketable financial products and also undertakes asset liability management operations, which help comprehensively control balance sheet liquidity risks and interest rate risks. This business unit consists of the Treasury Unit of SMBC and the Product Unit of SMBC Nikko Securities.

Asset Liability Management and Portfolio Management

The Global Markets Business Unit maintains high profitability and stability by establishing a portfolio with highly liquid products and focusing on products for which investment appetite is high, and by carrying out portfolio rebalancing in a nimble and dynamic manner in response to changes in market conditions.

Foreign Currency Funding

To support our overseas businesses, this business unit strives to improve the stability of our foreign currency funding by diversifying funding methods and expanding the scope of investors we target. At the same time, this business unit keeps appropriate control of the balance sheet in response to international financial regulations.

Sales and Trading

The Global Markets Business Unit provides detailed information on market conditions and economic trends to address customers’ hedging and asset management needs, expands its product lineup in foreign exchange, derivative, bond, stock and other products and supplies timely solutions to increase customer satisfaction and SMBC Group earnings.

In addition, this business unit encourages the use of electronic transactions such as its electronic foreign exchange execution platform available via the internet to respond to the needs of a wider range of customers.

Other Major Group CompaniesBusiness

System Development, Data Processing, Management Consulting and AlliancesEconomic Research

The Japan Research Institute, Limited

The Japan Research Institute, Limited (“The Japan Research Institute”) is our wholly owned subsidiary that providesWe provide financial consultation services onrelating to management reform,reforms, IT, the planning and development of strategic information systems and outsourcing. ItWe also conductsconduct diverse activities including domestic and international economic research and analysis, policy recommendations and business incubation. We offer these services mainly through The Japan Research Institute.

AllianceAsset Management

We engage in the investment advisory and investment trust management businesses.

In July 2016, we acquired an additional 20% of the outstanding shares of Sumitomo Mitsui Asset Management (“SMAM”). As a result, our equity interest in SMAM increased from 40% to 60% and SMAM, our former associate, became our subsidiary. On April 1, 2019, SMAM merged with Barclays PLCDaiwa SB Investments Ltd. (“DSBI”), previously our associate, to form SMDAM. Our equity interest in SMDAM resulting from the merger is 50.1%, and as such, SMDAM is our subsidiary. Through the merger, we aim to establish an asset management company that combines the strengths and expertise of SMAM and DSBI, and offers high quality investment management performance and services in order to properly address client needs.

Barclays PLCOthers

Our associate Kansai Mirai Financial Group, Inc. (“Barclays”Kansai Mirai Financial Group”) engages in commercial banking business in Kansai area.

In March 2017, we announced our plan to integrate Kansai Urban Banking Corporation (“KUBC”), THE MINATO BANK, LTD. (“The Minato Bank”), previously our subsidiaries, and The Kinki Osaka Bank, Ltd. (“The Kinki Osaka Bank”), which is a regional financial institution based in Kansai area and a wholly owned subsidiary of Resona Holdings, Inc. (“Resona Holdings”), a financial holding company head quartered in Japan. As part of this business integration, KUBC and The Minato Bank ceased to be our subsidiaries and became our equity-method associates. In addition, on April 1, 2018, the three banks became wholly owned subsidiaries of Kansai Mirai Financial Group, an intermediate holding company established by Resona Holdings, and Kansai Mirai Financial Group became our equity-method associate. On April 1, 2019, KUBC was merged into The Kinki Osaka Bank and the merged company changed its corporate name to Kansai Mirai Bank, have allied to explore joint business development opportunities, and in April 2010, Barclays, the Bank and SMBC Nikko Securities established a division in SMBC Nikko Securities to provide wealth management services to high-net-worth individuals in Japan. In May 2010, the Bank entered into a business alliance agreement with Absa Bank Limited, a group company of Barclays, regarding collaboration on services to Japanese companies in South Africa and other African countries. We have intensified our management-level communications with Barclays regarding, for example, the effects of strengthened regulation of the global banking industry. The Bank believes these initiatives will yield mutual benefits and will facilitate business expansion for us in targeted growth business areas, both foreign and domestic.

Limited.

Credit Loss Protection Agreement with Goldman Sachs

To expand its overseas portfolio and revenue, the BankSMBC entered into agreements with Goldman Sachs in 2003 to provide credit protection to Goldman Sachs’ extension of credit to their investment grade clients in exchange for receiving a proportion of the fees and interest income from the borrowers. In connection with the agreements, Goldman Sachs established certain wholly owned subsidiaries (“William Street Entities”) that might make credit commitments and extensions. Goldman Sachs entered into credit loss protection arrangements with the BankSMBC in order to hedge in part the credit risk to its investment in the William Street Entities. The Bank,SMBC, through its Cayman Islands branch, would issue letters of credit in exchange for fees equal to a portion of the fees and interest to be paid by the borrowers to the William Street Entities. The first letter of credit (“FLC”), was issued in 2003 in a maximum available amount of $1 billion, and is available over a 20-year period, subject to early termination or extension. Also, from time to time over a 20-year period, subject to early termination or extension and other conditions, upon the request of Goldman Sachs, the Bank hasSMBC issued letters of credit and may issue one or more additional letters of credit (each a second letter of credit (“SLC Series”) exposing the BankSMBC to risk rated BBB/Baa2 or higher in an aggregate maximum available amount of $1.125$0.75 billion). Goldman Sachs may draw on the letters of credit in the event that Goldman Sachs realizes certain losses (“Specified Losses”), with respect to loan commitments or loans extended thereunder that Goldman Sachs has entered into with specified borrowers approved by the BankSMBC and Goldman Sachs.

Under the FLC, Goldman Sachs is entitled to draw from time to time amounts equal to approximately 95% of Specified Losses, up to an aggregate stated amount of $1 billion. Under the SLC Series, Goldman Sachs is entitled, subject to certain conditions, to draw from time to time amounts equal to approximately 70% of Specified Losses above specified loss thresholds, up to an aggregate stated amount of $1.125$0.75 billion. Goldman Sachs has made a small number of drawdowns under the FLC in accordance with its terms.

In connection with these credit arrangements, the BankSMBC pays Goldman Sachs an administration fee based on the aggregate amount of commitments covered by the FLC.

The credit loss protection arrangements contain a number of provisions that give the BankSMBC some control over the determination of borrowers to which it has potential exposure under the FLC and any SLC Series:

 

Goldman Sachs may make credit commitments covered by the arrangements only to borrowers approved by the Bank.SMBC.

 

Unless the BankSMBC and Goldman Sachs agree otherwise, the borrowers covered by the FLC and any SLC Series that are rated by both of the two major rating agencies must be rated investment grade by at least one, and borrowers that are rated only by one of the two major rating agencies must be rated investment grade by that rating agency. If neither of the two major rating agencies rates a borrower, then further credit to the borrower shall no longer be covered by the FLC or any SLC Series, if the BankSMBC and Goldman Sachs determine the borrower’s credit conditions are lower than investment grade.

 

If the ratings of an approved borrower fall below investment grade in the judgment of both major rating agencies (or, if a borrower is rated investment grade by only one agency, and that agency downgrades the borrower below investment grade), further credit to that borrower will no longer be covered by these arrangements, unless the BankSMBC and Goldman Sachs otherwise agree.

On the fifth, tenth and fifteenth anniversaries of the transaction, the Bank has the right to cause Goldman Sachs to stop extending new credit to borrowers the Bank deems to have become “unbankable.” Unbankable borrowers are those who have investment grade ratings from the two major rating agencies but are deemed by the Bank to be below BB- and below Ba3 based on the Bank’s application of rating agency methodologies and criteria. If Goldman Sachs disagrees with the Bank, the matter is to be referred to arbitration, and a suspension is effective unless and until an arbitrator rules in favor of Goldman Sachs.

The Bank,SMBC, through a separate bankruptcy-remote Cayman Islands subsidiary, has collateralizedcollateralizes the obligations on the FLC and a portion of the SLC Series by buying $1.723 billion of Goldman Sachs demand notes and pledging those demand notes to Goldman Sachs. If Goldman Sachs activates an SLC Series that is not collateralized, the BankSMBC through its Cayman Islands subsidiary will be required to purchase and pledge additional Goldman Sachs demand notes with a principal amount equal to the stated amount of that SLC Series. Subject to certain conditions, the BankSMBC has the right to substitute as collateral high quality liquid securities for the Goldman Sachs demand notes.

These arrangements are designed to collateralize the Bank’sSMBC’s obligations in the event the Bank’sSMBC’s Cayman Islands branch fails to perform on the FLC or any SLC Series, including as a result of our insolvency or the insolvency of the BankSMBC or the Bank’sSMBC’s Cayman Islands branch.

If Goldman Sachs’ credit rating, as determined by either of the two major credit rating agencies, falls below investment grade, Goldman Sachs is obligated to provide collateral to the BankSMBC to support Goldman Sachs’ obligations under the Goldman Sachs demand notes. After an initial 15-year period under the letters of credit, the BankIn November 2018, SMBC and Goldman Sachs will negotiate in good faithagreed not to extend the 20-year terms of the letter of credit arrangements for one additional five-year term.arrangements. Before the expiration of the initial 20-year term, in certain circumstances, the letter of credit arrangements with the BankSMBC may be terminated by the BankSMBC or Goldman Sachs, in which event Goldman Sachs would be obligated to prepay any outstanding demand notes. In circumstances related primarily to the creditworthiness of the BankSMBC or a breach of its representations or covenants, Goldman Sachs may draw on the letters of credit for early termination amounts of up to the remaining undrawn or available amount on the letters of credit. In connection with draws on the letters of credit of early termination amounts, Goldman Sachs would have to prepay any outstanding demand notes. Goldman Sachs also would be obligated to pay the BankSMBC on the originally scheduled expiration date of the letter of credit arrangements an amount equal to the early termination amounts minus the losses that would have been reimbursed under the letters of credit had they not terminated early.

Management Policies

With the completion of the previousIn May 2017, we announced our medium-term management plan, “SMFG Next Stage” (currently “SMBC Group Next Stage”), for the three yearsthree-years through March 31, 2014,2020. By combining the SMBC Group’s strengths with more focused business management, objectiveswe aim to be the financial institution of which werechoice for our customers, to aim for top quality in strategic business areasachieve sustainable growth and to establish a solid financial baseenhance corporate value through the provision of products and corporate infrastructureservices that add value to meetour customers. Under the challenges of financial regulations and the highly competitive environment, we and the Bank announced in May 2014 our vision for the next decade and the new management goals for the three-year medium-term management plan, through March 2017.

Vision forwe have established the Next Decade

Our vision forfollowing three core policies in order to achieve sustainable growth and reach the next decade, in viewstage of the changing business environment, includingour journey towards our mid-long term vision of becoming “a global financial group that leads the growth of Asia’s emerging countries, the agingJapan and shrinking Japanese population and global financial regulatory reform, is to become a global financial group that,Asia by earning the highest trust of our customers, leadcustomers.”

Disciplined business management

With the growth of Japan and the Asian region. Specifically,environment for financial institutions expected to remain challenging, we aim to achieve the following three points.

We aimfocus on capital, asset, and cost efficiencies to grow our bottom-line profit in a sustainable manner, in other words to become a truly Asia-centricprofitable financial institution. Strengthening through sustained discipline.

While maintaining our business in Asia is the key strategy for realizing our vision in view of the high medium- to long-term growth potential of Asia’s emerging countries. We will proactively invest our resourcescompetitiveness in the regionstable domestic market, we intend to allocate resources across our portfolio of businesses in order to becomeprioritize business fields which enhance capital efficiency. In addition, as risk-weighted assets are expected to increase on the back of tightening of international financial regulations, we intend to further strengthen control of our risk-weighted assets. Specifically, by assessing risks based on our risk appetite framework, we intend to seek to recalibrate our business portfolio by reducing low-margin assets whilst investing in more profitable and asset-efficient businesses.

Meanwhile, we intend to optimize workflows and share infrastructures among SMBC Group companies by fully utilizing digital technology. Specifically, we intend to enhance productivity on an SMBC Group-wide basis by reorganizing our retail branches and group structure such as through the merging of our security subsidiaries.

Focus on our strengths to generate growth

Based on our core competencies and the opportunities we see for growth we have identified the following “Seven Core Business Areas” which we wish to prioritize as shown below:

Hold the number one retail banking franchise in Japan;

Build on our lead position in the Japanese medium-sized enterprise market;

Increase market share in Corporate & Investment Banking in key global markets;

Establish a leading financial grouptop-tier position in Asia.product lines where we are competitive globally;

We

Accelerate our “Asia-centric” strategy;

Strengthen sales and trading capability; and

Develop asset-light businesses: trust banking and asset management.

In addition to strengthening our domestic businesses, where we possess competitive advantages and can make steady profits, we aim to developimplement growth strategies in international businesses and global products which are based on the best-in-class earnings basestrengths we have. Further, we aim to generate new strengths that will contribute to our future growth.

Integration across the SMBC Group and globally to achieve sustainable growth

Governance and management structure to maximize our business potential.We transitioned from a company with a board of auditors to a company with three statutory committees in Japanorder to enhance our corporate governance system as a Global Systemically Important Financial Institution in June 2017. To maximize business opportunities on an SMBC Group-wide and global basis, we have established SMBC Group-wide business units and introduced a Group Chief Officers system (“CxO system”). JapanSpecifically, we intend to seek to meet the needs of a wide range of clients by executing strategies and strengthening services on an SMBC Group-wide basis. Further, we intend to optimize resource allocation by sharing management resources, for example by exchanging employees among SMBC Group companies. In addition, we intend to control the allocation of human resources and IT investment on an SMBC Group-wide basis by enhancing the capabilities of our planning and management functions. In order to support these initiatives, we intend to introduce management frameworks, such as setting return on equity targets for each business unit, and improved management information systems. In addition, we have revised the executive pay system by introducing stock-based compensation which is a mature market but there are opportunitieslinked to financial targets within our medium-term

management plan and to our stock performance in order to tighten the market segments andlink with business performance. We also raised the ratio of stock-based compensation for executives in order to ensure the business is well aligned with the shareholder’s perspective.

Digitalization. With the rapid advance of digitalization, we aim to proactively contributeintroduce new technologies and promote digitalization in various areas such as enhancing the customer experience, generating new businesses, improving productivity and efficiency, and upgrading management infrastructure. Specifically, in order to enhance the revitalization of the Japanese economy by investing our resources in such growth areas and taking appropriate risks. At the same time,customer experience, we intend to capture a high market shareimplement advanced digital solutions such as utilizing paperless transactions at retail branches and build a solid earnings base by implementing specific strategies for enhancing our capability to meet our clients’ needs.

We aim to realize true globalization and continue to evolve our business model.digital contracts with corporate customers. We intend to expand our global franchisegenerate new businesses through digitalization focusing on creating new platforms such as a biometric authentication business. In order to improve productivity and implement measures to realize the true globalization of our corporate infrastructure that supports our growth. At the same time,efficiency, we intend to continuedigitalize certain back-office operations at branches and introduce public cloud servicing, which will also lead to evolve our business model by anticipating changes in our business environment, both domestic and international.

Three-Year Management Goals

In the three years ending March 2017, we aim to further evolve our client-centric business models, revise our portfolio structure, and enhance our client base with speed in order to achieve the sustainable growth of our top-line profit and further increase our enterprise value. We also set the following four goals for our three-year medium-term management plan as the first step toward realizing our vision.

Develop and evolve client-centric business models for main domestic and international businesses. The needs of our clients are becoming more diverse and sophisticated, and we are implementing a number of initiatives to meet their needs. We have revised our client segmentation and are implementing strategies and evolving business models accordingly, and allocating resources from the perspective of group optimization.

Large corporate business strategy. The activities of our large corporate clients are becoming more global, and cross-border, and accordingly, their financial needs are becoming bigger and more complex. We are creating a unique business model, Global-Corporate and Investment Banking(“G-CIB”) model, to meet their needs, thereby enhancing our client base and top-line profit.

Middle market and small and medium-sized enterprise business strategy. In the middle and small and medium-sized enterprise markets, where we have a number of strengths, we have revised the client segmentation and grouped clients based on attributes in order to fully meet the financial needs of each individual company. Further, under the newly launched Area system, we aim to comprehensively address needs of business owners both as corporate managers and as individuals, through one-stop-services.

Consumer banking business strategy. The financial needs of individuals are changing, under the circumstances of the accelerated shift from savings to investment, the arrival of the great era of inheritance, and changing lifestyles. We intend to meet their needs by implementing strategies based on a new client segmentation on a Group-wide basis and achieve the top business base in Japan.

Consumer finance and credit card business strategy. In the consumer finance business, we aim to expand the variety of our client base and achieve an overwhelming share in the domestic market through the integrated operation of the planning and promotion functions of SMBC and SMBC Consumer Finance. In the credit card business, we intend to reinforce our top-line profit by leveraging the strengths of Sumitomo Mitsui Card and Cedyna as bank-based and retail-based credit card companies, respectively. At the same time, we intend to pursue cost synergies by managing the business on a group basis through measures such as integrating the management platforms of the Group’s credit card companies.

International business strategy. In our international business, we intend to shift our business model in order to achieve sustainable growth by improving the efficiency of assets while depending less on lending volume. At the same time, we intend to enhance our global franchise. Specifically, we aim to strengthen multi-faceted transactions with globally operating non-Japanese corporate clients. To this end, we are enhancing our product line-up and promoting cross-selling by strengthening the transaction banking business, and revising our client coverage to a more global-based framework. Further, we will create a highly profitable asset portfolio by diversifying and flexibly rebalancing our portfolio.

Institutional investor business strategy. We intend to create a new business model to meet the needs of institutional investors by establishing a Group-wide framework, centered on the Bank and SMBC Nikko Securities, enhancing our ability to provide products to institutional investors and strengthening our capability to source, underwrite and distribute deals domestically and internationally.

IT and transaction banking business strategy. Information and communication technology (“ICT”) and transaction banking business are necessary underpinnings for creating new businesses, and we intend to offer new leading-edge services through various measures, including alliances with leading players in ICT.

Build a platform for realizing Asia-centric operations and capture growth opportunities. We aim to become a global financial group that, by earning the highest trust of our customers, leads the growth of Japan and the Asian region. This is our vision for the next decade and, to this end, we aim to steadily create a business platform in Asia, with the enhancement of our Asia business as the principal strategy for the whole group, and prioritize the allocation of resources, including human resources and infrastructure, to Asia.

Realize sustainable growth of top-line profit while maintaining soundness and profitability. Underpinned by the stable financial base built during the previous years,work style reform. Furthermore, we intend to focus more on growth inenhance data-based management by digitalizing information and “visualizing” the three-year medium-term management plan. We intend to achieve sustainable growth of our top-line profit by developing and evolving our business models and allocating resources to growth fields while continuing to focus on maintaining soundness and profitability.

Upgrade corporate infrastructure to support our next stage of growth. Our business is expanding globally and on a Group-wide basis, and we intend to strengthen our management platform to support our business growth. Specifically, we intend to globalize our organization and human resources and intensify group management. To this end, we recently established “Global Human Resources Department.” We also recently established “Diversity and Inclusion Committee” to promote diversity as we believe diversity is a source of competitiveness. We are also upgrading our risk management system.

Our basic policies forFor the fiscal year ending March 31, 2017,2020, the final year of our medium-term management plan, the basic policy of the SMBC Group is “Realize a strong finish to the final year of the three-yearcurrent medium-term management plan are as follows: “focusand undertake initiatives that will deliver sustainable growth, with a view to the next medium-term management plan.” By completing the initiatives based on bottom-line profit by strengthening efforts to improve profitability and efficiency, while maximizing efforts to realize the key initiatives set inthree core policies under the medium-term management plan, we aim to be the financial institution of choice for our customers, to achieve sustainable growth, and grow our top line profit”to enhance corporate value by providing value-added products and “run a strict risk-sensitive operation given the current uncertain business environment, while pursuing new business opportunities by responding to changes in a proactive and innovative manner.”services.

Revenues by Region

The following table sets forth the percentage of our total operating income under IFRS for the fiscal years ended March 31, 2016, 2015,2019, 2018, and 2014,2017, based on the total operating income of our offices in the indicated regions. For each of the periods presented, we earned three-quartersmore than half of our total operating income in Japan, where we compete with other major Japanese banking groups and financial service providers. We earned the remainder in the Americas, Europe and Middle East, and Asia and Oceania, where we mainly compete with global financial institutions.

 

   For the fiscal year ended March 31, 
   2016  2015  2014 

Region:

    

Japan

   77  76  78

Foreign:

    

Americas

   5  5  6

Europe and Middle East

   10  11  9

Asia and Oceania (excluding Japan)

   8  8  7
  

 

 

  

 

 

  

 

 

 

Total

   100  100  100
  

 

 

  

 

 

  

 

 

 

   For the fiscal year ended March 31, 
   2019  2018  2017 

Region:

    

Japan

   66  70  70

Foreign:

    

Americas

   10  9  9

Europe and Middle East

   12  13  12

Asia and Oceania (excluding Japan)

   12  8  9
  

 

 

  

 

 

  

 

 

 

Total

   100  100  100
  

 

 

  

 

 

  

 

 

 

Seasonality

Our business is not materially affected by seasonality.

Sources and Availability of Raw Materials

We are not reliant on any particular source of raw materials.

Marketing Channels

See “—Description of Operations and Principal Activities” for a discussion of our marketing channels.

Regulations in Japan

Our businesses are subject to extensive regulation, including the effects of changes in the laws, regulations, policies, voluntary codes of practice and interpretations in Japan. On the other hand, deregulation of banking activities in Japan, and more generally of the Japanese financial system, has proceeded, which has made the Japanese banking industry highly competitive.

Supervisory and regulatory authorities

Pursuant to the Banking Act, the FSA has the authority in Japan to supervise banks, bank holding companies and banks’ principal shareholders, meaning bank shareholders having 20% (or 15% in some cases) or more of the voting rights of a bank. The BOJ also has supervisory authority over banks in Japan based primarily on its contractual agreements and transactions with Japanese banks. Only companies licensed by the Prime Minister are defined as banks under the Banking Act, and licenses may be granted only to akabushiki kaisha, a joint stock corporation, with paid-up capital of ¥2 billion or more.

The Financial Services Agency of Japan

The Prime Minister has supervisory authority over banks in Japan, which is generally delegated to the Financial Services Agency of Japan (“FSA”) except for matters prescribed by cabinet order. The Minister for Financial Services has the power to direct the FSA. Under the Banking Act, the FSA has supervisory control over banks, bank holding companies and banks’ principal shareholders in Japan, except for matters to which the Prime Minister retains authority.

The FSA’s authority includes granting and revoking of operating licenses, and approving business activities such as becoming a principal shareholder, establishment of subsidiaries or overseas offices, mergers, corporate splits or business transfers, and dissolutions or discontinuations of business by existing banks, etc.

The FSA may also instruct a Japanese bank to suspend its business or to remove directors if the bank violates laws, other regulations or their articles of incorporation or commits acts contrary to public policy. The FSA may also direct a Japanese bank in financial difficulty to take certain actions, such as holding certain property in Japan for the protection of depositors. Under the prompt corrective action (“PCA”) system, the FSA may take corrective actions in the case of capital deterioration of financial institutions.

The Ministry of Finance and the FSA have introduced a number of regulatory measures into the banking sector in Japan to secure sound management of banks, as well as measures to increase the transparency of the regulatory process, such as bank holding company regulations, single customer credit limits, disclosure regulations, regulations regarding reserves for loan losses and inspections.

The Banking Act authorizes the FSA to inspect banks and bank holding companies in Japan at any time and with any frequency. Such inspections are conducted by officials from the FSA’s Inspection Department. The

FSA monitors the financial soundness of banks and the status and performance of their control systems and reviews their compliance with laws and regulations. The FSA hashad issued guidelines on its inspection of financial institutions called the Financial Inspection Manual. The Financial Inspection Manual itself does not have the force of law, but the FSA’s inspections of banks arehave been based on the Financial Inspection Manual, which emphasizesemphasized the need for bank self-assessment rather than assessment based on the advice of the government authority and risk management by each bank instead of a mere assessment of its assets. In December, 2017, the FSA published a report on its supervisory approaches and transformation, which was revised on June 29, 2018. Based on the report, the FSA introduced its new supervisory approaches, which include expanding the scope of its supervisory approaches from a backward-looking, element-by-element compliance check to substantive, forward-looking and holistic analysis and judgment. The FSA also announced its transformation, which included repealing the FSA’s Financial Inspection Manual in or after April 2019. Following an inspection, the FSA may exercise its authority over a bank under the Banking Act to suspend or terminate its banking business.

The Ministry of Finance

The Ministry of Finance conducts examinations of banks in relation to foreign exchange transactions under the Foreign Exchange and Foreign Trade Act.

The Bank of Japan

The Bank of Japan (“BOJ”) is the central bank of Japan and serves as the principal instrument for the execution of Japan’s monetary policy. The BOJ implements monetary policy mainly by adjusting its basic loan rate, open market operations and imposing deposit reserve requirements. All banks in Japan maintain deposits with the BOJ and rely substantially upon obtaining borrowings from and rediscounting bills with the BOJ. Moreover, most banks in Japan maintain current accounts under agreements with the BOJ pursuant to which the BOJ can conclude a contract with the BankSMBC concerning on-site examinations. BOJ supervision is intended to support the effective execution of monetary policy, while FSA supervision aims to maintain the sound operations of banks in Japan and promote the security of depositors. Through its examinations, the BOJ seeks to identify problems at an early stage and give corrective guidance where necessary.

Regulations Regarding Capital Adequacy and Liquidity

Capital Adequacy Requirement

In 1988, the BCBS issued the Basel Capital Accord. The Basel Capital Accord sets minimum risk-weighted capital ratios for the purpose of maintaining sound management of banks which have international operations. The minimum risk-weighted capital ratio required was 8% on both a consolidated and nonconsolidated basis. In 2004, the BCBS issued the amended Basel Capital Accord (“Basel II”), which includes detailed measurement of credit risk, the addition of operational risk, a supervisory review process and market discipline through disclosure. These amendments did not change the minimum risk-weighted capital ratio of 8% applicable to banks with international operations (including the Bank)SMBC). These rules took effect in Japan in 2007, and since 2008, banks are able to apply the advanced IRB approach for credit risk and the AMA for operational risk.

In July 2009, the BCBS approved a final package of measures to enhance certain elements of the Basel II framework, which includes an increase of the risk weights of resecuritization instruments and revisions of certain trading book rules (referred to as “Basel 2.5”), and the FSA’s capital adequacy guidelines which reflect such framework have been applied in Japan from December 2011.

In September 2009, the Group of Central Bank Governors and Heads of Supervision (the “GHOS”)GHOS reached an agreement on several key measures to strengthen regulation of the banking sector, and in December 2009 the BCBS published a consultative document entitled “Strengthening the resilience of the banking sector” containing proposals on these measures centering on several core areas. The BCBS’ proposals focused on raising the quality, consistency and transparency of the regulatory capital base through measures including a requirement that the predominant form of Tier 1 capital must be common shares and retained earnings; limitations on the use of hybrid instruments with an incentive to redeem; a requirement that regulatory adjustments, including deductions of the amount of net deferred tax assets which rely on the future profitability of a bank, be applied to common equity generally; and a requirement for additional disclosure regarding regulatory capital levels.

The BCBS’ proposals also cover the following key areas:

 

strengthening the risk coverage of the capital framework;

 

introducing a leverage ratio as a supplementary measure to the Basel II risk-based framework with a view to migrating to a Pillar 1 (minimum capital requirement) treatment based on appropriate review and calibration (for further information, see “Leverage Ratio” below);

 

introducing measures to promote the build-up of capital buffers in good times that can be drawn upon in periods of stress; and

introducing minimum liquidity standards for internationally active banks that include a 30-day liquidity coverage ratio requirement underpinned by a longer-term structural liquidity ratio (for further information, see “Liquidity Requirement” below).

In July 2010, the GHOS reached a broad agreement on the overall design of the BCBS’ capital and liquidity reform package. In addition, in August 2010, the BCBS issued for consultation a proposal to enhance the loss absorbency function of regulatory capital. In September 2010, the GHOS announced a substantial strengthening of existing capital requirements. The framework of the proposed reform was endorsed by the G-20 leaders at their Seoul summit in November 2010.

These capital reforms increased the minimum common equity requirement from 2% to 4.5% and will require banks to hold a capital conservation buffer of 2.5% to withstand future periods of stress, bringing the total common equity requirement to 7%. The Tier 1 capital requirement also increased from 4% to 6% (increasing to 8.5% when included together with the above capital conservation buffer). The total capital requirement remains atincreased from 8% but will increase to 10.5% with the capital conservation buffer byin January 2019. In addition, a countercyclical buffer within a range of 0% to 2.5% of common equity or other fully loss-absorbingCommon Equity Tier 1 capital has been implemented according to national circumstances. The GHOS also agreed on transitional arrangements for implementing the new standards. Under the transitional arrangements, these new capital requirements are being phased in between January 1, 2013 and January 1, 2019. In December 2010, the BCBS published the new Basel III rules text. To reflect changes made by the BCBS, the FSA changed its capital adequacy guidelines. The FSA’s changes have mostly been applied from March 31, 2013, which generally reflect the main measures of the minimum capital requirements of the BCBS that started to be phased in on January 1, 2013 and will behave been fully applied from March 2019. The FSA’s changes which reflect capital buffer requirements under Basel III and the G-SIFIG-SIB capital surcharge described below have been applied from March 31, 2016.

In September 2013, the BCBS and the International Organization of Securities Commissions (“IOSCO”) released the final framework for margin requirements for non-centrally cleared derivatives (“2013 framework”). This framework will require high quality liquid assets to be posted as margin on non-centrally cleared derivative transactions, which could adversely affect our liquidity position. The requirements were originally planned to be phased in over a four-year period beginning in December 2015 with the largest, most active and most systemically important participants in the derivatives market, including us. In March 2015, the BCBS and IOSCO released revisions to the 2013 framework, which delay the beginning of the phase-in period for collecting and posting initial margin on non-centrally cleared trades from December 2015 to September 2016. The full phase-in schedule has been adjusted to reflect this nine-month delay. The revisions also institute a six-month phase-in period of the requirement to exchange variation margin, beginning in September 2016.

In addition to the above-mentioned minimum capital requirements and capital buffer requirements under Basel III, organizations identified by the FSB as G-SIFIs,G-SIBs, which as of November 2014 and 2015 includedincludes us, are required to maintain an additional 1% to 2.5% of common equityCommon Equity Tier 1 capital as a percentage of risk-weighted assets based on the organization’s size, interconnectedness, substitutability, complexity and cross-jurisdictional activity as determined by the FSB. This requirement is commonly referred to as the G-SIFI capital surcharge. The G-SIFIG-SIB capital surcharge requirement is beingstarted to be phased in from January 2016 toand has been fully implemented from January 2019. The amount of G-SIFIG-SIB capital surcharge that applieshas applied to us from 2019 based on the FSB’s determination as of November 2014 and 2015 will beis 1% of risk-weighted assets when the requirement is fully applied from 2019.assets. The FSB updates its list of G-SIFIsG-SIBs on an annual basis.

G-SIFIs willG-SIBs are also be subject to a global standard for TLAC, which establishes a minimum requirementrequirements for loss-absorbing and recapitalization capacity available in resolution at G-SIFIs,G-SIBs, to ensure that they can be resolved in an orderly manner without putting public funds at risk. In November 2015, as part of its agenda to address risks arising from G-SIFIs,G-SIBs, the FSB published the finalFSB’s TLAC standard.Standards. The finalFSB’s TLAC standard definesStandards define certain minimum requirements for instruments and liabilities so that if a G-SIFIG-SIB fails, it will have sufficient loss-absorbing and recapitalization capacity available to ensure that it can be resolved in an orderly manner which minimizes potential impact on financial stability, maintains the continuity of critical functions and avoids exposing public funds to loss.

In addition, in April 2016,March 2019, the FSA published a paper entitled “The FSA’s Approachthe Japanese TLAC Standards. The Japanese TLAC Standards apply to IntroduceCovered SIBs, which includes (i) Japanese G-SIBs, which are designated as G-SIBs by the TLAC Framework” (“FSA’s Approach”) which describesFSA in accordance with the FSA’s approach fordesignation by the introduction of TLAC requirementsFSB, such as us, and (ii) any domestic systemically important bank in Japan although it remains subject(Japanese D-SIB) that has been deemed to change based on future international discussions. Accordingbe in particular need for a cross-border resolution arrangement and as having particular systemic significance to the FSA’s Approach, the preferred resolution strategy for G-SIFIs in Japan is Single Point of Entry resolution, in which resolution powers areJapanese financial system if it fails. The Japanese TLAC Standards were applied to Japanese G-SIBs from March 31, 2019.

Under the top-level entity of a banking groupFSB’s TLAC standards and the Japanese TLAC Standards, entities designated by a single national resolution authority, although the actual measures to be taken will be determined on a case-by-case basis considering the actual condition of the relevant Japanese G-SIFI in crisis. To implement this Single Point of Entry resolution strategy effectively, the FSA plans as an entity that would enter into domestic resolution proceedings for Japanese G-SIBs, or the Domestic Resolution Entities, are required:

to require bank holding companies of JapaneseG-SIFIs, which will be the resolution entities, to (i) meet thecertain minimum external TLAC requirements provided under the FSB’s TLAC standard (being at least 16% of their risk-weighted assets starting from March 2019 and at least 18% of their risk-weighted assets starting from March 2022),2022 as well as at least 6% of their Basel III leverage ratio denominator starting from March 31, 2019 and (ii)at least 6.75% starting from March 31, 2022); and

to cause theirany material subsidiaries that areor material sub-groups in Japan designated as systemically important by the FSA, including but not limitedor any foreign subsidiaries that are subject to certain material sub-groups as provided inTLAC or similar requirements by the FSB’s TLAC standard,relevant foreign authorities, to maintain a certain level of capital and debt that is recognized by the FSA as having loss-absorbing and recapitalization capacity (“internal TLAC, in order that losses incurred at the material sub-group can be absorbed by the bank holding company through such internal TLAC with the involvement of the FSA. TLAC”).

In addition, according to the FSA’s Approach, Japanese G-SIFIsTLAC Standards, Japanese G-SIBs are expected to be allowed to count the Japan’s deposit insurance fund reserves in an amount equivalent to 2.5% of their risk-weighted assets from March 2019 and 3.5% of their risk-weighted assets from March 2022 as external TLAC.

The finalFSB’s TLAC standardStandards also prescribesprescribe a minimum TLAC requirement of at least 6% of the resolution group’s Basel III leverage ratio denominator starting from March 31, 2019, increasing to at least 6.75% starting from March 31, 2022, and according to the FSA’s Approach,Japanese TLAC Standards, the same external TLAC requirements on the leverage ratio basis are planned to be required for bank holding companies of Japanese G-SIFIs. The leverage ratio-based minimum TLAC requirement does not require application of any capital buffers. As a G-SIFI, we will beG-SIBs including us.

In our case, the FSA designated SMFG as our Domestic Resolution Entity, which makes SMFG subject to the finalexternal TLAC standard,requirements. The FSA also designated SMBC and SMBC Nikko Securities as implementedour material subsidiaries in Japan, for which we are required to maintain a certain level of internal TLAC.

In the FSA’s explanatory paper entitled “The FSA’s Approach to Introduce the TLAC Framework,” which was published in April 2016 and revised in April 2018, the FSA has identified Single Point of Entry (“SPE”) resolution, in which resolution powers are applied to the ultimate holding company of a banking group by a single national resolution authority, as the preferred strategy for resolving currently designated G-SIBs in Japan. Under a possible model for SPE resolution of Japanese G-SIBs described in the Japanese TLAC Standards, if, with respect to a material subsidiary of a Japanese G-SIB that is designated as systemically important by the FSA, the FSA issues to the Domestic Resolution Entity of the Japanese G-SIB an order concerning the restoration of financial soundness, including recapitalization of, and restoration of liquidity to, such material subsidiary, such material subsidiary’s internal TLAC instruments will be written off or, if applicable, converted into equity in accordance with the applicable contractual loss-absorption provisions of such internal TLAC instruments. The FSA may issue such an order pursuant to Article 52-33, Paragraph 1 of the Banking Act upon its determination that the material subsidiary is non-viable due to a material deterioration in its financial condition after recognizing that its liabilities exceed or are likely to exceed its assets, or that it has suspended or is likely to suspend payment of its obligations.

Furthermore, as a disincentive for G-SIFIsG-SIBs facing the maximum G-SIFIG-SIB capital surcharge to “increase materially their global systemic importance in the future,” an additional 1% capital surcharge could be applied. So long as we are identified as a G-SIFI,G-SIB, we are also subject to stronger supervisory mandates and higher supervisory expectations for risk management functions, data aggregation capabilities, risk governance and internal controls. The substance of this heightened supervision has not yet been fixed, but we anticipate that at a minimum any rules will contain more stringent reporting requirements and impose common frameworks for data aggregation and internal risk management processes on G-SIFIs.G-SIBs.

Because we have been identified as a G-SIFI,G-SIB, we are also subject to, among other things, resolution-related requirements described in the FSB’s “Key Attributes of Effective Resolution Regimes for Financial Institutions.” In particular, the FSB has required the initial group of G-SIFIsG-SIBs to have in place a recovery and resolution plan, including a group-level plan, containing various specified elements, to be subject to regular resolvability assessments. Under the Comprehensive Guidelines for Supervision of Financial Instruments Business Operators, etc., issued by the FSA, as part of crisis management, financial institutions identified as G-SIFIsG-SIBs must prepare and submit a recovery plan, which includes a description of events that would trigger implementation of the recovery plan and the analysis of the recovery options to the FSA, and the FSA must prepare the resolution plan for each G-SIFI.G-SIB.

In December 2014,2017, the BCBS published GHOS endorsed the outstanding Basel III regulatory reforms. The endorsed reforms include the following elements:

a consultative document onrevised standardized approach for credit risk;

revisions to the designinternal ratings-based approach for credit risk, where the use of the most advanced internally modeled approaches for low-default portfolios will be limited;

revisions to the credit valuation adjustment framework, including the removal of the internally modeled approach and the introduction of a capital floor frameworkrevised standardized approach;

a revised standardized approach for operational risk, which will replace the current transitionalexisting standardized approaches and the advanced measurement approach;

revisions to the measurement of the leverage ratio and a leverage ratio buffer for G-SIBs; and

revisions to the capital floor, under which banks’ risk-weighted assets must be no lower than 72.5% of total risk-weighted assets as calculated using only the standardized approaches under the revised Basel III framework, and a requirement that banks disclose their risk-weighted assets based on such standardized approaches.

The revised framework, other than revisions to the Basel I standard with a capital floor, based onwill take effect from January 1, 2022. The revisions to the Basel II/III standard. The proposed frameworkcapital floor will be based on the finalized versionphased in from January 1, 2022, with an initial capital floor of the standardized approach, which is also being revised. The GHOS is planning to review the BCBS’ proposals on the design50%, and calibration of capital floors at or around the end of 2016.

In April 2016, the BCBS issued standards for interest rate risk in the banking book (“IRRBB”) which adopts an enhanced Pillar 2 approach for IRRBB. The standards revise the BCBS’ guidance set out in its 2004 Principles for the management and supervision of interest rate risk, which lays out the BCBS’ expectations for banks’ identification, measurement, monitoring and control of IRRBB as well as the banks’ supervision, to reflect changes in market and supervisory practices since the principles were first published in 2004. The revised standards are expected to be implementedwill reach 72.5% by 2018.January 1, 2027.

Our securities subsidiaries in Japan are also subject to capital adequacy requirements under the FIEA. Under the requirements, securities firms must maintain a minimum capital adequacy ratio of 120% on a nonconsolidated basis and must file periodic reports with the Commissioner of the FSA or the Director-General of the appropriate Local Finance Bureau, and also publicly disclose their capital adequacy ratio on a quarterly basis. In addition, securities firms whose total assets exceed ¥1,000 billion are required to maintain this minimum capital adequacy ratio on a consolidated basis. This requirement on a consolidated basis is applied in addition to and in a manner similar to the requirements on a nonconsolidated basis referred to above. Failure to meet the capital adequacy requirements will trigger mandatory regulatory action. For example, in the case of the requirement on a nonconsolidated basis, a securities firm with a capital adequacy ratio of greater than 120%, but less than 140% will be required to file daily reports with the Commissioner of the FSA or the Director-General of the appropriate Local Finance Bureau. A securities firm with a capital adequacy ratio of less than 120% may be ordered to change its business conduct, place its property in trust or be subject to other supervisory orders, as the relevant authorities deem appropriate. A securities firm with a capital adequacy ratio of less than 100% may be subject to temporary suspension of all or part of its business operations or cancellation of its license to act as a securities broker and dealer.

The capital adequacy ratio for securities firms is defined as the ratio of adjusted capital to a quantified total of business risks, which include market risks, counterparty risks and operational risks (e.g., risks in carrying out daily business activities, such as administrative problems with securities transactions and clerical mistakes) quantified in the manner specified by a rule promulgated under the FIEA. Adjusted capital is defined as net worth less illiquid assets, as determined in accordance with Japanese GAAP. Net worth consists mainly of stated capital, additional paid-in capital, retained earnings, reserves for securities transactions, certain allowances for doubtful current accounts, net unrealized gains (losses) in the market value of investment securities, and subordinated debt. Illiquid assets generally include non-current market assets, certain deposits and advances, and prepaid expenses.

In May 2010, the FIEA was amended, introducing a minimum capital adequacy requirement on a consolidated basis applicable to securities firms whose total assets exceed ¥1,000 billion. This requirement on a consolidated basis is applied in addition to and in a manner similar to the requirements on a nonconsolidated basis referred to above. These amendments became effective from April 2011.

Leverage Ratio

In March 2015, the FSA published its leverage ratio guidelines which have been applied from March 31, 2015 to help ensure broad and adequate capture of both on- and off-balance sheet sources of leverage for

internationally active banks. The FSA’s leverage ratio guidelines are based on the text of the leverage ratio framework and disclosure requirements issued by the BCBS in January 2014. Any final adjustmentsFrom January 1, 2013 to January 1, 2017, the definitionBCBS monitored banks’ leverage ratio data to assess whether the design and calibration of theits indicated minimum leverage ratio were scheduled to be made by the BCBS by 2017, with a view to migrate to a Pillar 1 treatment on January 1, 2018, based on appropriate review and calibration.of 3% was appropriate.

In January 2016, the GHOS agreed that the leverage ratio should be based on a Tier 1 definition of capital and should comprise a minimum level of 3%,. In December 2017, the definition and the GHOS discussed additional requirements for G-SIFIs. The GHOS is planning to finalize the calibration in 2016 to allow sufficient time forof the leverage ratio were revised as part of the revised Basel III reforms. Under the revised Basel III reforms, in addition to meeting the minimum leverage ratio, G-SIBs are required to meet a leverage ratio buffer, which will take the form of a Tier 1 capital buffer set at 50% of the applicable G-SIB capital surcharge. Various refinements were also made to the definition of the leverage ratio exposure measure. The leverage ratio requirements under the definition based on the framework issued by the BCBS in January 2014 were implemented as a Pillar 1 measurement from January 2018, and those under the revised definition and the leverage ratio buffer requirement for G-SIBs will be implemented as a Pillar 1 measure bymeasurement from January 1, 2018.

2022.

On March 15, 2019, the FSA published its guidelines for the leverage ratio applicable to banks with international operations, which have been applied from March 31, 2019. Under the FSA’s guidelines for the leverage ratio, banks with international operations must maintain a leverage ratio of at least 3% on both a consolidated basis and a nonconsolidated basis from March 31, 2019.

Liquidity Requirement

In October 2014, the FSA published its guidelines for liquidity coverage ratio (“LCR”) applicable to banks with international operations that have been applied from March 31, 2015. These guidelines are based on the full text of the LCR standard issued by the BCBS in January 2013. LCR is intended to promote resilience to potential liquidity disruptions over a thirty-day horizon and help ensure that global banks have sufficient, unencumbered, high-quality liquid assets to offset the net cash outflows they could encounter under an acute short-term stress scenario. Under the FSA’s LCR guidelines, banks with international operations must maintain LCR of at least 100% on both a consolidated basis and a nonconsolidated basis, while thebasis. The minimum LCR requirements are beingwere phased in betweenfrom March 31, 2015 and March 31, 2019 with an increase of 10% in each year starting from 60%., and reached 100% on March 31, 2019.

In October 2014, the BCBS issued the final standard for the net stable funding ratio (“NSFR”), which requires a minimum amount of stable sources of funding at a bank relative to the liquidity profiles of the bank’s assets, as well as the potential for contingent liquidity needs arising from off-balance sheet commitments, over a one-year horizon. The NSFR iswas scheduled to be introduced as a minimum standard by January 1, 2018. In June 2018, the FSA published its guidelines for the NSFR applicable to banks with international operations, including us. The FSA at one point announced that the guidelines were to be applicable from March 31, 2019 but the introduction of the NSFR has been postponed.

Self-Assessment, Reserves and Related Disclosure

Financial institutions, including the Bank,SMBC, are required to establish self-assessment programs to, among other things, analyze their assets giving due consideration to accounting principles and other applicable rules and to classify their assets into categories taking into account the likelihood of repayment and the risk of impairment to the value of the assets. These classifications determine whether an addition to or reduction in reserves or write-offs is necessary.

Pursuant to the Japanese Institute of Certified Public Accountants (“JICPA”) guidelines, the outcome of each financial institution’s self-assessment leads to substantially all of a bank’s loans and other claims on customers being analyzed by classifying obligors into five categories: (1) normal borrowers; (2) borrowers requiring caution; (3) potentially bankrupt borrowers; (4) effectively bankrupt borrowers; and (5) bankrupt borrowers. The reserve for possible loan losses is then calculated based on the obligor categories.

FSA guidelines require banks to classify their assets not only by the five categories of obligor but also by four categories of quality. The BankSMBC has adopted its own internal guidelines for self-assessment which conform to guidelines currently in effect and comply with the PCA system requirements.

Based on the results of the self-assessment discussed above, the BankSMBC is required to establish a reserve for its loan portfolio in an amount the BankSMBC considers adequate at a balance sheet date. Three categories of reserves the BankSMBC establishes, for statutory purposes, along with the Accounting Standards for Banks issued by the Japanese Bankers Association, are a general reserve, a specific reserve and a reserve for specific overseas loan losses.

Under the Banking Act, banks and bank holding companies must disclose their non- and under-performing loans (consolidated and nonconsolidated) as risk-monitored loans. Risk-monitored loans are classified into four categories: (1) bankrupt loans, (2) non-accrual loans, (3) past due loans (three months or more) and (4) restructured loans. Banks and bank holding companies are required to submit to the FSA annual reports on their business including the amount of risk-monitored loans. Banks and bank holding companies must disclose their financial statements on an annual basis. The financial statements consist of the balance sheet and income statement, and explanatory documents regarding business and asset conditions, each prepared under the Banking Act both on a nonconsolidated and consolidated basis.

Independent of the Banking Act disclosure regulations, the Act Concerning Emergency Measures for the Revitalization of Financial Functions requires banks to disclose their loans and their other problem assets. Under this law, assets are classified into four categories: (1) bankrupt and quasi-bankrupt assets, (2) doubtful assets,

(3) substandard assets and (4) normal assets. Generally, bankrupt and quasi-bankrupt assets correspond to the total of bankrupt loans and the lower tier of the non-accrual loans (the borrowers of which are effectively bankrupt) under the Banking Act disclosure. Doubtful assets generally correspond to the higher tier portion of the non-accrual loans (the borrowers of which are not, but have the potential to become, bankrupt). The substandard assets generally correspond to the total of the restructured loans and past due loans (three months or more). Bankrupt and quasi-bankrupt assets and doubtful assets also include non-loan assets, for example, securities lending, foreign exchange, accrued interest, advanced payments and customers’ liabilities for acceptances and guarantees.

Prompt Corrective Action System

Under the Prompt Corrective Action (“PCA”) system, the FSA may take corrective actions depending upon the extent of capital deterioration of a financial institution. The FSA may require a bank to submit and implement a capital reform plan, if;

 

the total risk-weighted capital ratio of a bank with international operations becomes less than 8% but not less than 4%;

 

the Common Equity Tier 1 risk-weighted capital ratio becomes less than 4.5% but not less than 2.25%; or

 

the Tier 1 risk-weighted capital ratio becomes less than 6% but not less than 3%; or

the leverage ratio becomes less than 3% but not less than 1.5%.

The FSA may order a bank to (1) submit and implement a plan for improving its capital; (2) prohibit or restrict the payment of dividends to shareholders or bonuses to officers; (3) reduce assets or restrict any increase in assets; (4) prohibit or restrict the acceptance of deposits under terms less advantageous than ordinary terms; (5) reduce the business of some offices; (6) eliminate some offices other than the head office; (7) reduce or prevent the launching of non-banking businesses; or (8) take certain other actions, if;

 

the total risk-weighted capital ratio of a bank with international operations declines to less than 4% but not less than 2%;

 

the Common Equity Tier 1 risk-weighted capital ratio becomes less than 2.25% but not less than 1.13%; or

the Tier 1 risk-weighted capital ratio becomes less than 3% but not less than 1.5%; or

the leverage ratio becomes less than 1.5% but not less than 0.75% (in this case, the FSA may order a bank to take actions described in (1) and (3) to (8) of the paragraph above).

The FSA may order a bank to conduct any one of the following: (1) a capital increase; (2) a substantial reduction in its business; (3) a merger; or (4) abolishment of its banking business, if;

 

the total risk-weighted capital ratio of a bank with international operations declines to less than 2% but not less than 0%;

 

the Common Equity Tier 1 risk-weighted capital ratio becomes less than 1.13% but not less than 0%; or

 

the Tier 1 risk-weighted capital ratio becomes less than 1.5% but not less than 0%; or

the leverage ratio becomes less than 0.75% but not less than 0%.

The FSA may order the bank to suspend all or part of its business, if

the total risk-weighted capital ratio, the Common Equity Tier 1 risk-weighted capital ratio or Tier 1 risk-weighted capital ratio of a bank with international operations declines below 0%; or

the leverage ratio declines below 0%.

The FSA may take actions similar to the actions the FSA may take with respect to a bank, if;

 

the total risk-weighted capital ratio of a bank holding company that holds a bank with international operations declines to levels below 8%;

the Common Equity Tier 1 risk-weighted capital ratio declines to levels below 4.5%; or

 

the Tier 1 risk-weighted capital ratio declines to levels below 6%.

Prompt Warning System

The prompt warning system currently in effect allows the FSA to take precautionary measures to maintain and promote the sound operation of financial institutions before those financial institutions become subject to the PCA system. These measures include requiring a financial institution to reform: (1) profitability, if deemed necessary to improve profitability based upon a fundamental profit index; (2) credit risk management, if deemed necessary to reform management of credit risk based upon the degree of large credit concentration and other circumstances; (3) stability, if deemed necessary to reform management of market and other risks based upon, in particular, the effect of securities price fluctuations; and (4) cash flow management, if deemed necessary to reform management of liquidity risks based upon deposit trends and level of reserve for liquidity.

Restrictions on Capital Distributions

Under the FSA’s capital adequacy guidelines and related ordinances, if a bank fails to maintain capital levels under the capital buffer requirements in accordance with Basel III and the G-SIFIG-SIB capital surcharge, the FSA may order a bank to submit and implement a reasonable capital distribution constraint plan to restore the capital levels. This plan shall include restrictions on capital distributions, such as dividends, share buybacks, discretionary payments on other Tier 1 capital instruments and bonuses, in such amount as determined depending on the degree of insufficiency of such requirements.

Regulations for Stabilizing the Financial System

Deposit Insurance System

The Deposit Insurance Act was enacted to protect depositors when deposit-taking institutions fail to meet their obligations. The Deposit Insurance Corporation of Japan (“DIC”) implements the law and is supervised by the Prime Minister and the Minister of Finance. Subject to limited exceptions, the Prime Minister’s authority is delegated to the FSA Commissioner.

From April 20112017 to March 2014,2018, the DIC received annual insurance premiums from member deposit-taking financial institutions amounting to 0.107% of deposits that bear no interest, are redeemable upon demand and are used by depositors primarily for payment and settlement purposes, and 0.082% of other deposits. From April 2014, they amounted to 0.108% and 0.081%, respectively. For the fiscal years ended March 31, 2013 through 2015, a certain amount was reimbursed to the member institutions each fiscal year because there were no failures of insured deposit-taking financial institutions. From April 2015, annual insurance premiums amounted to 0.054%0.049% of deposits primarily for payment and settlement purposes and 0.041%0.036% of deposits for other deposits.deposits, and from April 2018 to March 2019, they amounted to 0.046% and 0.033%, respectively. Furthermore, from April 2019, they amounted to 0.045% and 0.032% respectively.

Premiums held by the DIC may be either deposited at deposit-taking institutions or used to purchase marketable securities. The insurance money may be paid out to depositors in case of a suspension of repayments of deposits, banking license revocation, dissolution or bankruptcy of a bank. Payouts are generally limited to a maximum of ¥10 million of principal amount together with any interest accrued with respect to each depositor. Only non-interest-bearing deposits that are redeemable upon demand and used by depositors primarily for payment and settlement functions are protected in full.

City banks (including the Bank)SMBC), regional banks (including member banks of the second association of regional banks), trust banks, credit associations, credit cooperatives, labor banks and Japan Post Bank participate in the deposit insurance system on a compulsory basis.

The Deposit Insurance Act also provides a permanent system for resolving failed deposit-taking institutions.

The basic method for resolving a failed deposit-taking institution under the Deposit Insurance Act is cessation of the business by paying insurance money to depositors up to the principal amount of ¥10 million plus accrued interest per depositor, or pay-off or transfer of the business to another deposit-taking institution, with financial assistance provided within the cost of pay-off. Under the Deposit Insurance Act, transfer of business is regarded as the primary method. In order to affect a prompt transfer of business, the following framework has been established:

 

a Financial Reorganization Administrator is appointed by the FSA Commissioner and takes control of the management and assets of the failed deposit-taking institution. The administrator is expected to diligently search for a deposit-taking institution which will succeed to the business of the failed institution;

 

if no successor deposit-taking institution can be immediately found, a “bridge bank” will be established by the DIC for the purpose of temporarily maintaining the operations of the failed deposit-taking institution, and the bridge bank will seek to transfer the failed deposit-taking institution’s assets to another deposit-taking institution or dissolve the failed deposit-taking institution; and

 

in order to facilitate or encourage a deposit-taking institution to succeed to a failed business, financial aid may be provided by the DIC to any successor deposit-taking institution to enhance its capital after succession or to indemnify it for losses incurred as a result of the succession.

Where it is anticipated that the failure of a deposit-taking institution may cause an extremely grave problem in maintaining the financial order in Japan or the region where the deposit-taking institution is operating, the following exceptional measures may be taken following deliberation by Japan’s Financial Crisis Response Council:

 

  

the DIC may subscribe for shares or other instruments issued by the relevant deposit-taking institution or the holding company thereof and require the institution to submit to the DIC a plan to reestablish sound management (Item 1 measures) (dai ichigo sochi);

 

  

once the deposit-taking institution fails, financial aid exceeding the cost of pay-off may be available to the institution (Item 2 measures) (dai nigo sochi); and

 

  

if the failed institution is a bank and the problem cannot be avoided by other measures, then the DIC may acquire all of the shares of the bank (Item 3 measures) (dai sango sochisochi).

In order to fund the above-mentioned activities, the DIC may borrow from financial institutions or issue bonds which may be guaranteed by the Government of Japan.

In addition, on June 12, 2013, a bill to amend the Deposit Insurance Act which includes establishment of a new orderly resolution regime of financial institutions was enacted and became effective on March 6, 2014. Financial institutions including banks, securities companies and insurance companies and their holding companies will be subject to the new resolution regime that includes, among others, the following features.

Under the new resolution regime, where the Prime Minister recognizes that the failure of a financial institution which falls into either of (a) or (b) below may cause significant disruption in the financial markets or other financial systems in Japan if measures described in (a) (specified Item 1 measures) (tokutei dai ichigo sochi) or measures described in (b) (specified Item 2 measures) (tokutei dai nigo sochi) are not taken, the Prime Minister may confirm that any of the following measures need to be applied to the financial institution following deliberation by Japan’s Financial Crisis Response Council:

(a) if the financial institution is not a financial institution whose liabilities exceed its assets, which means it is unable to fully perform its obligations with its assets, the DIC shall supervise the operation of business and management and disposal of assets of that financial institution, and may provide it with loans or guarantees necessary to avoid the risk of significant disruption in the financial systems in Japan, or subscribe for shares or subordinated bonds of, or lend subordinated loans to, the financial institution, taking into consideration the financial condition of the financial institution;

(b) if the financial institution is a financial institution whose liabilities exceed or are likely to exceed its assets or which has suspended or is likely to suspend payment of its obligations, the DIC shall supervise the operation of business and management and disposal of assets of that financial institution and may provide financial aid necessary to assist a merger, business transfer, corporate split or other reorganization in respect to such failed financial institution; and

if a measure set out in (b) above is determined to be taken with respect to a financial institution, the Prime Minister may order that the financial institution’s operations of business and management and disposal of assets be placed under the special control of the DIC. The business or liabilities of the financial institution subject to the special supervision by the DIC as set forth above may also be transferred to a “bridge bank” established by the DIC for the purpose of the temporary maintenance and continuation of operations of, or repayment of the liabilities of, such financial institution, and the bridge bank will seek to transfer the financial institution’s business or liabilities to another financial institution or dissolve the financial institution. The financial aid provided by the DIC to assist a merger, business transfer, corporate split or other reorganization in respect to the financial institution set out in (b) above may take the form of a monetary grant, loan or deposit of funds, purchase of assets, guarantee or assumption of debts, subscription of preferred stock or subordinated bonds, subordinated loan, or loss sharing.

The expenses for implementation of the measures for these crisis management operations will be borne by the financial industry; provided, however, the Government of Japan may provide subsidies to the DIC within the limit to be specified in the government budget in cases where it is likely to cause extremely serious hindrance to the maintenance of the credit system in Japan or significant turmoil in the financial market or other financial system of Japan if such expenses are to be borne only by the financial industry.

OnIn March 6, 2014, the FSA made an announcement clarifying the requirement of loss absorbency at the point of non-viability for additional Tier 1 instruments and Tier 2 instruments under Basel III issued by banks and bank holding companies. According to the announcement, (i) additional Tier 1 instruments and Tier 2 instruments under Basel III issued by a bank must be written-down or converted into common shares when the Prime Minister of Japan confirms (nintei) that the above-described “Item 2 measures (dai nigo sochi),” “Item 3 measures (dai sango sochi),” or “specified Item 2 measures (tokutei dai nigo sochi)” need to be applied to the bank and (ii) additional Tier 1 instruments and Tier 2 instruments under Basel III issued by a bank holding company must be written-down or converted into common shares when the Prime Minister of Japan confirms (nintei) that the above-described “specified Item 2 measures (tokutei dai nigo sochi)” need to be applied to the

bank holding company. The FSA also stated in the announcement that the trigger event for loss absorbency at the point of non-viability with respect to such instruments should be construed in accordance with the then effective financial crisis response framework for banks and bank holding companies that have failed or are likely to fail, since the purpose of such write-down or conversion required under Basel III is to ensure that all classes of these capital instruments fully absorb losses at the point of non-viability before taxpayers are exposed to loss.

Special Measures Act Concerning Facilitation of Reorganization by Financial Institutions, Etc.

Under the Special Measures Act Concerning Facilitation of Reorganization by Financial Institutions, Etc.: (1) for one year after the merger or transfer of the entire business of a deposit-taking institution, the maximum amount to be covered by the deposit insurance will be ¥10 million multiplied by the number of parties to the merger or business transfer; and (2) the procedures are simplified to a certain extent in connection with the transfer of an entire business or a merger with another deposit-taking institution by a deposit-taking institution that is made in accordance with a management base-strengthening plan that has been approved by the Government of Japan.

Single Customer Credit Limit

The Banking Act restricts the aggregate amount of credit and loans that may be extended to any single customer in order to avoid the excessive concentration of credit risks and promote the fair and extensive use of

bank credit. To tighten the restrictions under Japanese law to meet international standards, the Banking Act and the related cabinet order were amended in June 2013 and October 2014, respectively and those amendments became effective in December 2014. As a result of the amendments, the credit limit of bank holding companies, banks or bank groups for any single customer, including certain of the customer’s affiliates, was lowered from 40% to 25% of the total qualifying capital of the bank holding company, bank or bank group, with certain adjustments.

Restrictions on Activities of a Bank Holding Company

Under the Banking Act, a bank holding company is prohibited from carrying on any business other than management of its subsidiaries and other incidental businesses. A bank holding company may have any of the following as a subsidiary: a bank, a securities company, an insurance company or a foreign subsidiary that engages in the banking, securities or insurance business. In addition, a bank holding company may have as a subsidiary any company that engages in finance-related business, such as a credit card company, a leasing company or an investment advisory company. Certain companies that are designated by ministerial ordinance as those that cultivate new business fields may also become the subsidiary of a bank holding company.

An amendment to the Banking Act was promulgated in June 2016. Among other things, the amendment (1) requires a bank holding company to enhance group management, by measures including establishment of a basic policy of such group, coordination of conflicts of interest among group companies, development of a group compliance system and others; (2) permits a bank holding company or a group company, with prior approval of the Government of Japan, to manage certain businesses of other group companies that are common and duplicative; and (3) permits a bank or a bank holding company, with prior approval of the government, to hold voting rights of companies conducting businesses that contribute to or are expected to contribute to the sophistication of the banking business or the enhancement of customer convenience by utilizing information technology or other technologies, regardless of the shareholding restriction described below. The amendment is scheduled to becomebecame effective by Junefrom April 2017.

Restriction on Aggregate Shareholdings by a Bank

The Act Concerning Restriction on Shareholdings by Banks requires Japanese banks and their qualified subsidiaries to limit the aggregate market value (excluding unrealized gains, if any) of their equity securities

holdings to an amount equal to 100% of their consolidated Tier 1 capital, with adjustments, in order to reduce exposure to stock price fluctuations. Treasury shares, shares issued by subsidiaries, shares not listed on any stock exchange or not registered with any OTC market, shares held as trust assets, and shares acquired through debt-for-equity swaps in restructuring transactions are excluded from this limitation. In order to facilitate the disposition of shares of listed stocks held by banks while preventing adverse effects caused by sales of large amounts of shares in a short period of time, share purchases by the Banks’ Shareholdings Purchase Corporation of listed shares have been restarted from March 2009.

Shareholding Restrictions Applicable to a Bank Holding Company and a Bank

The provision of the Act on Prohibition of Private Monopolization and Maintenance of Fair Trade which prohibits banks from holding more than 5% of the voting rights of non-financial companies in Japan does not apply to bank holding companies. However, the Banking Act generally prohibits a bank holding company and its subsidiaries, on an aggregated basis, from holding more than 15% of the voting rights of certain types of companies which are not permitted to become subsidiaries of bank holding companies. Also, the Banking Act generally prohibits a bank and its subsidiaries, on an aggregated basis, from holding more than 5% of the voting rights of certain types of companies which are not permitted to become subsidiaries of banks.

Examination and Reporting Applicable to Shareholders of a Bank

The FSA may request the submission of reports or other materials from a bank and/or its bank holding company, or inspect the bank and/or the bank holding company, if necessary, in order to secure the sound and appropriate operation of the business of a bank.

Under the Banking Act, a person who desires to hold 20% (in some exceptional cases, 15%) or more of the voting rights of a bank is required to obtain advance approval of the FSA Commissioner. In addition, the FSA may request the submission of reports or materials from, or may conduct an inspection of, any principal shareholder who holds 20% (in some exceptional cases, 15%) or more of the voting rights of a bank if the FSA deems the action necessary in order to secure the sound and appropriate operation of the business of the bank. Under limited circumstances, the FSA may order the principal shareholder to take such measures as the FSA deems necessary.

Furthermore, any person who becomes a holder of more than 5% of the voting rights of a bank holding company or a bank must report the ownership of the voting rights to the Director General of the relevant local finance bureau within five business days. This requirement is separate from the significant shareholdings report required under the FIEA. In addition, a similar report must be made in respect of any subsequent change of 1% or more in any previously reported holding or in respect of any change in material matters set out in reports previously filed, with some exceptions.

Regulations for Protection of Customers

Protection of Personal Information

The Act on the Protection of Personal Information and related rules, regulations and guidelines impose requirements on businesses that use databases containing personal information, including appropriate custody of personal information and restrictions on information sharing with third parties.

Act on Sales, Etc. of Financial Products

Due to deregulatory measures in the banking and other financial services industries, more financial products, including highly structured and other complicated products, may now be marketed to a broad base of customers. The Act on Sales, Etc. of Financial Products was enacted to better protect customers from incurring

unexpected losses as a result of purchasing these financial products. Under this law, sellers of financial products have a duty to their potential customers to explain important matters (i.e., the nature and magnitude of risk involved) regarding the financial products that they sell. If a seller fails to comply with the duty, the loss in value of the purchased investment product due to the failure to explain is refutably presumed to be the amount of the customer’s loss. An amendment to this law, together with other related laws including the FIEA, became effective in September 2007. The amended law enlarges the scope of the duty of financial services providers to inform customers of important matters related to the financial products that they offer.

Act Concerning Protection of Depositors and Relief for Victims of Certain Types of Fraud

The Act Concerning Protection of Depositors from Illegal Withdrawals Made by Forged or Stolen Cards requires financial institutions to establish internal systems to prevent illegal withdrawals of deposits made using forged or stolen bank cards. The law also requires financial institutions to compensate depositors for any amount illegally withdrawn using forged or stolen bankcards, subject to certain conditions.

The Act Concerning Payment of Dividends for Relief of Damages from Funds in Account used in connection with Crimes requires that financial institutions take appropriate measures against various crimes including the closing of accounts used in connection with fraud and other crimes. The law also requires financial institutions to make, in accordance with specified procedures, payments from funds collected from the closed accounts to victims of certain crimes.

Laws Prohibiting Money Laundering and Terrorist Financing

Act on Prevention of Transfer of Criminal Proceeds

Under the Act on Prevention of Transfer of Criminal Proceeds, which addresses money laundering and terrorism concerns, financial institutions and certain other entities, such as credit card companies, are required to perform customer identification, submit suspicious transaction reports and keep records of their transactions.

Foreign Exchange and Foreign Trade Act of Japan

Under the Foreign Exchange and Foreign Trade Act, SMBC is required to confirm that necessary permission from the relevant authorities is obtained by the customer or obtain necessary permission itself, for certain transaction involving targets who are designated under the law and the relevant orders thereunder including North Korea or Iran.

Act on Special Measures Concerning International Terrorist Assets-Freezing, etc. Conducted by the Government Taking into Consideration United Nations Security Council Resolution 1267, etc.

Under the Act on Special Measures Concerning International Terrorist Assets-Freezing, etc. Conducted by the Government Taking into Consideration United Nations Security Council Resolution 1267, etc., SMBC is generally prohibited to conduct certain transactions including donating or lending of money, securities or real estates or refunding of deposit with International Terrorist, who are designated under the law.

Other Regulations Related to Our Business

Financial Instruments and Exchange Act of Japan

The Financial Instruments and Exchange Act of Japan (“FIEA”) regulates the securities industry and most aspects of securities transactions in Japan, including public offerings, private placements and secondary trading of securities, ongoing disclosure by securities issuers, tender offers for securities, organization and operation of securities exchanges and self-regulatory organizations and registration of securities companies. The Prime Minister has the authority to regulate the securities industry and securities companies, which authority is

delegated to the FSA Commissioner under the FIEA. The Securities and Exchange Surveillance Commission, an external agency of the FSA, is independent from the Agency’s other bureaus and is vested with authority to conduct day-to-day monitoring of the securities markets and to investigate irregular activities that hinder fair trading of securities, including inspection of securities companies as well as banks in connection with their securities business. Furthermore, the FSA Commissioner delegates certain authority to the Director General of the Local Finance Bureau to inspect local securities companies and their branches. A violation of applicable laws and regulations may result in various administrative sanctions, including revocation of registration or authorization, suspension of business or an order to discharge any Director or Executive Officer who has failed to comply with applicable laws and regulations. Securities companies are also subject to the rules and regulations of the Japanese stock exchanges and the Japan Securities Dealers Association, a self-regulatory organization of securities companies.

An amendment to the FIEA was promulgated in September 2012 in order to, among other things, facilitate the establishment of a “Comprehensive Exchange,” in which securities, financial derivatives and commodity derivatives are traded comprehensively. It enables Financial Instruments Exchanges to trade commodity derivatives to enhance user convenience. The FSA conducts supervision of the “Comprehensive Exchange.” The amendment with regard to the “Comprehensive Exchange” became effective on March 11, 2014.

Regulation of the Consumer Finance Business

In order to resolve the problems of heavily indebted borrowers and to effect proper regulation of the consumer finance business, in June 2010, maximum legal interest rates were reduced to levels prescribed by the Interest Rate Restriction Act, ranging from 15% to 20%, and gray zone interest, which is interest on loans in excess of rates prescribed by the Interest Rate Restriction Act up to the 29.2% maximum rate permitted under the Contributions Act, was abolished. Judicial decisions have strictly interpreted the conditions under which consumer finance companies may retain gray zone interest. As a result, claims for refunds of gray zone interest increased substantially. Amendments to the Money Lending Business Act provide an additional upper limit on aggregate borrowings by an individual from all moneylenders over which moneylenders may not extend further loans, as well as stricter regulation and supervision of moneylender activities.

Installment Sales Act

In order to ensure the fairness of transactions with respect to installment and other sales, prevent damage to consumers and manage credit card numbers, the Installment Sales Act imposes requirements on those who conduct installment sales businesses. In June 2008, revisions to the Installment Sales Act were enacted, most of which became effective in December 2009. The revisions impose more stringent and expanded requirements for credit card companies, including, among other things: (1) wider coverage of installment sales under the regulations; (2) measures to prevent inappropriate extensions of credit for certain credit transactions; (3) measures to prevent excessive lending for certain credit transactions that include requirements to investigate

the payment ability of consumers by use of designated credit information organizations and prohibition of execution of credit agreements that exceed the payment ability of consumers; and (4) measures to protect certain information, such as credit numbers.

Base Erosion and Profit Shifting (BEPS)

In July 2013, the Organization for Economic Co-operation and Development (“OECD”) published the Action Plan on Base Erosion and Profit Shifting (“BEPS”) in order to prevent exploiting of gaps and mismatches in tax rules and artificial shifting of profits to low or no-tax locations. In October 2015, the OECD published the final package of measures for a comprehensive, coherent and coordinated reform of the international tax rules for 15 key areas. These measures will apply once they are implemented either in domestic laws or in the network of bilateral tax treaties. Some of the deliverables published by the OECD have been partially reflected to Japanese tax regulations by the tax reforms adopted from 2015 through 2019 and to certain several bilateral tax treaties to which Japan is a party through the implementation of the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting in Japan.

Common Reporting Standard (CRS)

In order to prevent tax evasion and avoidance through offshore financial accounts, the OECD developed the Common Reporting Standards (“CRS”), which calls on jurisdictions to obtain information on financial accounts

of non-residents from their financial institutions and automatically exchange that information with other jurisdictions. From the perspective of implementation of the exchange of information based on CRS, the Act on Special Provisions of the Income Tax Act, the Corporation Tax Act and the Local Tax Act Incidental to Enforcement of Tax Treaties as well as the cabinet and ministerial ordinances thereunder has been amended as part of the tax reform adoptedof 2015, which became effective on January 1, 2017, and those who open a financial account with a financial institution located in 2015Japan must submit a self-certification indicating the name of the jurisdiction of residence, etc. From 2018, each financial institution must report information pertaining to financial accounts of specific non-residents and 2016.the information is automatically exchanged with tax administrations of each jurisdiction on an annual basis.

Deregulation

The developments toward deregulation of the financial system including those described below have made the Japanese banking industry highly competitive.

Deregulation of Bank Engagement in the Securities Business

The gradual relaxation of the restrictions under the Securities and Exchange Act allowed banks to engage in the following business lines, after taking appropriate registration measures with the FSA:

 

underwriting and dealing in Japanese government bonds, Japanese municipal bonds, Japanese government guaranteed bonds, commercial paper and certain bonds issued by special purpose companies;

 

selling beneficiary certificates of investment trusts and securities issued by an investment company; and

 

dealing in listed or OTC securities or derivatives transactions as well as in the securities intermediary business.

In addition, amendments to the FIEA and the Banking Act relating to firewalls and conflicts of interest between banks, securities companies and insurance companies became effective on June 1, 2009. The amendment relating to firewalls abolished the ban on certain officers and employees from holding concurrent posts in banks, securities companies and insurance companies, and relaxed restrictions on the transfer of non-public customer information. On the other hand, the amendment relating to conflicts of interest requires those financial institutions, including banks, to implement proper information management procedures and to develop appropriate internal systems to prevent customer interests from being unfairly harmed through trading by the companies or by other companies within their group. For example, the companies may be required to create information barriers between departments and monitor how it executes transactions with customers.

Deregulation of Insurance Products

The gradual deregulation of the financial services industry permitted banks in Japan to offer an increased variety of insurance products, including pension-type insurance to the full range, as an agent.

Privatization of Japan Post Holdings Co., Ltd.’s subsidiaries

In December 2014, under the Postal Privatization Act, Japan Post Holdings Co., Ltd. (“Japan Post Holdings”), a joint stock corporation that holds shares of operating companies, published a plan for the listing of Japan Post Holdings, Japan Post Bank, one of the world’s largest deposit-taking institutions, and Japan Post

Insurance Co., Ltd. (“Japan Post Insurance”) and the gradual disposition of its shares of Japan Post Bank and Japan Post Insurance down to approximately 50% ownership. In November 2015, each of Japan Post Holdings, Japan Post Bank and Japan Post Insurance publicly offered approximately 11% of their outstanding shares,

respectively, and they were listed on the Tokyo Stock Exchange. Japan Post Bank is required to receive prior approval of the Government of Japan to expand its business until Japan Post Holdings disposes of at least half of the shares of Japan Post Bank.

Regulations in the United States

As a result of its operations in the United States, the BankCompany and SMFGSMBC are subject to extensive federal and state banking and securities supervision and regulation. The BankSMBC engages in U.S. banking activities directly through its branches in Los Angeles, San Francisco and New York and through its representative officeoffices in Houston. The BankHouston, Dallas, Silicon Valley and Chicago. SMBC also controls a U.S. banking subsidiary, Manufacturers Bank, and a U.S. broker-dealer subsidiary, SMBC Nikko Securities America.America, Inc. Through a reorganization of our existing U.S. operations, the Company and SMBC established a new U.S. bank holding company, SMBC Americas Holdings, Inc. (“SMBCAH”), a wholly-owned direct subsidiary of SMBC at January 1, 2019. SMBCAH is currently the holding company for Manufacturers Bank, SMBC Nikko Securities America, Inc. and certain other U.S. subsidiaries. The establishment of SMBCAH will enhance the Company and SMBC’s U.S. corporate governance capabilities by centralizing the supervision and management of its U.S. operations and bring together its primary U.S.-based banking, securities, capital markets and other subsidiaries under the new holding company.

The Bank’sSMBC’s New York branch is supervised by the Federal Reserve Bank of New York and the New York State Department of Financial Services, but its deposits are not insured (or eligible to be insured) by the Federal Deposit Insurance Corporation (“FDIC”). The Bank’sSMBC’s Los Angeles and San Francisco branches are supervised by the Federal Reserve Bank of San Francisco and the California Department of Business Oversight, but their deposits are not insured (or eligible to be insured) by the FDIC. The Bank’sSMBC’s representative offices in Houston and in Dallas are subject to regulation and examination by the Federal Reserve Bank of Dallas and the Texas Department of Banking. SMBC’s representative office in HoustonSilicon Valley is subject to regulation and examination by the Texas Department of Banking and the Federal Reserve Bank of Dallas.

San Francisco and the California Department of Business Oversight. The Bank and SMFG are qualifying foreign banking organizations under the U.S. International Banking Act of 1978, as amended (“International Banking Act”), and as such areSMBC’s representative office in Chicago is subject to regulation as bank holding companies under the Bank Holding Company Act. Additionally, the Bank and SMFG are bank holding companies by virtue of their ownership of Manufacturers Bank. As a result, the Bank, SMFG and their U.S. operations are subject to regulation, supervision and examination by the Federal Reserve Board as their U.S. “umbrella supervisor.”Bank of Chicago and the Illinois Department of Financial and Professional Regulation.

Manufacturers Bank is a California state-chartered bank with FDIC-insured deposits that is not a member of the Federal Reserve System. As a state non-member bank the deposits of which are insured by the FDIC,such, Manufacturers Bank is subject to regulation, supervision and examination by the FDIC and the California Department of Business Oversight.

In orderThe Company, SMBC and SMBCAH are bank holding companies by virtue of their ownership of Manufacturers Bank, and as such are subject to further expand our business in the U.S., we and the Bank obtained financial holding company status under the Bank Holding Company Act on May 7, 2013, which authorizes the expansion of the scope of services we provide in the U.S., including the underwriting1956, as amended (“Bank Holding Company Act”) and trading of securitiesare subject to regulation, supervision and other investment banking services.

Restrictions on Business Activities

As described below, federal and state banking laws and regulations restrict the Bank’s and SMFG’s ability to engage, directly or indirectly through subsidiaries, in certain activities in the United States.

The Bank and SMFG are required to obtain the prior approval ofexamination by the Federal Reserve Board before directly or indirectly acquiring the ownership or control of more than 5% of any class of voting shares ofas their U.S. banks, certain other depository institutions“umbrella supervisor.” The Company, SMBC and bank or depository institution holding companies. Under the Bank Holding Company Act and the Federal Reserve Board regulations, the Bank isSMBCAH are required to serve as a sourcesources of financial strength to Manufacturers Bank. In addition,

Restrictions on Business Activities

The Bank Holding Company Act imposes restrictions on the Bank’sCompany and SMBC’s U.S. banking operations (including Manufacturersnon-banking operations. Bank and the Bank’s U.S. branches) are also restricted from engaging in certain “tying” arrangements involving products and services.

Asholding companies that elect to be treated as financial holding companies, we,such as the BankCompany, SMBC and the companies under our controlSMBCAH are permitted to engage in a broader range of activities in the U.S. and abroad than permitted for bank holding companies and their subsidiaries.United States, however. Unless otherwise limited by the Federal Reserve Board, financial holding companies generally can engage, directly or indirectly in the U.S. and abroad, in financial activities, either de novo or by acquisition, by providing after-the-fact notice to the Federal Reserve Board. These financial activities include underwriting, dealing and dealingmaking markets in securities, insurance underwriting and brokerage and making merchant banking investments in non-financial companies for a limited period of time, as long as the financial holding company does not directly or indirectly manage the non-financial companies’ day-to-day activities, and the financial holding company’s banking subsidiaries engage only in permitted cross-marketing with the non-financial companies. If we or the Bank cease

The Company and SMBC elected to qualifybe treated as financial holding companies in May 2013, and SMBCAH elected to be treated as a financial holding company upon becoming a U.S. bank holding company in January 2019. As financial holding companies, the Company, SMBC and SMBCAH are subject to additional regulatory requirements. For example, the Company, SMBC, SMBCAH and Manufacturers Bank, as our U.S. insured depository institution subsidiary, must be “well capitalized” and “well managed,” including maintenance of examination ratings that are at least satisfactory. In April 2019, SMBC and its New York branch entered into a written agreement with the Federal Reserve Bank of New York requiring SMBC and its New York branch to address certain deficiencies relating to the New York branch’s anti-money laundering and economic sanctions compliance program. SMBC and its New York branch are required, among other things, to implement corrective measures and submit periodic progress reports to the Federal Reserve Bank of New York. In addition, as a result of the deficiencies identified in the written agreement, we couldno longer meet the requirements to be barred fromtreated as a financial holding company, and, pending completion of a remediation plan designed to meet these requirements, we are currently subject to restrictions in our ability to engage in certain new categories of financial activities in the United States and to make acquisitions of companies engaged in activities in the United States. Divestiture or acquisitions,termination of certain business activities in the U.S. may also be required as a consequence of failure to correct the conditions giving rise to such restrictions within the prescribed period of time.

Under the Bank Holding Company Act, the Company, SMBC and haveSMBCAH are also required to discontinueobtain the broader rangeprior approval of activities permitted to financialthe Federal Reserve Board before directly or indirectly acquiring the ownership or control of more than 5% of any class of voting shares of U.S. banks, certain other depository institutions and bank or depository institution holding companies. In addition, SMBC’s U.S. banking operations (including Manufacturers Bank and SMBC’s U.S. branches) are also restricted from engaging in certain “tying” arrangements involving products and services.

Other Prudential Restrictions

The Bank’sSMBC’s U.S. branches and Manufacturers Bank are subject to requirements and restrictions under U.S. federal and state law, including requirements to maintain reserves against deposits, restrictions on the types and amounts of loans that may be made and limitations on the types of investments that may be made and the types of services that may be offered. Various consumer laws and regulations also affect the operations of Manufacturers Bank, and to a limited extent, the Bank’sSMBC’s New York and California branches.

In addition, under U.S. federal banking laws, state-chartered banks (such as Manufacturers Bank) and state-licensed branches and agencies of foreign banks (such as the Bank’sSMBC’s New York branch) may not, as a general matter, engage as a principal in any type of activity not permissible for their federally chartered or licensed counterparts, unless (i) in the case of state-chartered banks, the FDIC determines that the additional activity would pose no significant risk to the FDIC’s Deposit Insurance Fund and is consistent with sound banking practices and (ii) in the case of state-licensed branches and agencies of foreign banks, the Federal Reserve Board determines that the additional activity is consistent with sound banking practices. The U.S. federal banking laws also subject state branches and agencies of foreign banks to the same single-borrower lending limits that apply to federal branches or agencies, which are substantially similar to the lending limits applicable to national banks. For the Bank’sSMBC’s U.S. branches, these single-borrower lending limits are based on the worldwide capital of the Bank.SMBC.

Under the International Banking Act, the Federal Reserve Board may terminate the activities of any U.S. office of a foreign bank if it determines (i) that the foreign bank is not subject to comprehensive supervision on a consolidated basis in its home country (unless the home country is making demonstrable progress toward establishing such supervision), (ii) that there is reasonable cause to believe that such foreign bank or its affiliate has violated the law or engaged in an unsafe or unsound banking practice in the United States and, as a result of such violation or practice, the continued operation of the U.S. office would be inconsistent with the public interest or with the purposes of federal banking laws, or (iii) for a foreign bank that presents a risk to the stability of the United States financial system, the home country of the foreign bank has not adopted, or made demonstrable progress toward adopting, an appropriate system of financial regulation to mitigate such risk.

There are various qualitative and quantitative restrictions on the extent to which SMFGthe Company and its subsidiaries can borrow or otherwise obtain credit from its U.S. bank subsidiary, Manufacturers Bank or engage in certain other transactions involving that subsidiary. In general, these transactions must be on terms that would ordinarily be offered by Manufacturers Bank to unaffiliated entities, and credit transactions must be secured by designated amounts of specified collateral. In addition, certain transactions, such as certain purchases by Manufacturers Bank from the BankSMBC or its non-bank subsidiaries, are subject to volume limitations. Effective in July 2012, the Dodd-Frank Act (discussed below) subjects credit exposure arising from derivative transactions, securities borrowing and lending transactions, and repurchase/reverse repurchase agreements to these collateral and volume transactions limitations.

U.S. Financial Regulatory Reform

Regulatory Requirements applicable to Financial Holding Companies

As financial holding companies, weBoth the scope of the U.S. laws and regulations and the Bankintensity of supervision have increased in recent years, in response to the financial crisis as well as other factors such as technological and market changes. Regulatory enforcement and fines have also increased across the banking and financial services sector. Many of these changes have occurred as a result of the Dodd-Frank Act and its implementing regulations, most of which are subjectnow in place, and have resulted in or are anticipated to result in additional costs and impose certain limitations on our and SMBC’s business activities. The current U.S. Presidential administration has expressed different policy goals with respect to financial regulation, but the impact that such U.S. Presidential administration’s policy goals or any new or proposed legislation could have on the regulatory requirements. For example, we, the Bank and Manufacturers Bank, which is our U.S. insured depository institution subsidiary, must be “well capitalized,” meaning maintenance of a Tier 1 risk-based capital ratio of at least 6% and a totalrisk-based capital ratio of at least 10% under the revised capital standards of Basel III, which became effectiverequirements currently imposed on January 1, 2015 in the U.S. In addition, we, the Bank and Manufacturers Bank must be “well managed,” including maintenance of examination ratings that are at least satisfactory. Further, the Bank is also required to be well capitalized and well managed under its home country standards, which must be comparable to those required for a U.S. bank. Failure to comply with such requirements would require us and SMBC remains uncertain. In May 2018, President Trump signed into law the Bank to prepare a remediation plan, and we would not be able to undertake new business activities or acquisitions based on our status as a financial holding company during any period of noncompliance without the prior approval of the Federal Reserve Board. Divestiture or termination of certain business activities in the U.S. may also be required as a consequence of failure to correct such conditions within 180 days.

Regulations for Stabilizing the Financial System

Dodd-Frank Wall Street Reform and Consumer Protection Act

The Dodd-Frank Wall Street ReformEconomic Growth, Regulatory Relief, and Consumer Protection Act, (“Dodd-Frank Act”) provides a broad framework forwhich is the first significant regulatory changes across most areas of U.S. financial regulation. The Dodd-Frank Act addresses, among other issues, systemic risk oversight, bank capital standards, the resolution of failing systemically significant financial institutions, OTC derivatives, the ability of banking entities to engage in proprietary trading activities and invest in hedge funds and private equity funds, consumer and investor protection, hedge fund registration, and securitization.

Implementationlegislative reform of the Dodd-FrankDodd Frank Act. Although this legislation makes changes to several major provisions of the Dodd Frank Act, is taking place through detailed rulemaking over multiple years by various regulators, includingthe changes mainly relate to smaller U.S. banks and to U.S. bank holding companies, and have limited effect upon the SMBC Group.

In 2013, the Federal Reserve Board, the SEC, the Office of the Comptroller of the Currency (“OCC”), the Federal Reserve Board, the SEC, the FDIC, and the Commodity Futures Trading Commission (“CFTC”), the Financial Stability Oversight Council and the Consumer Financial Protection Bureau.

In December 2013, the Federal Reserve Board, the SEC, the OCC, the FDIC, and the CFTC adopted final rules implementing what is known as the “Volcker Rule.” The final rules requirerestrict the ability of banking entities, such as us and SMBC, to conform to certain restrictions onengage as principal in proprietary trading activities, hedge fund andor sponsor, invest in, or retain investments in certain private equity, fund activities and certain other enumerated investment restrictions,hedge or similar funds, but contain a number of exclusions and exemptions that substantially limit theirthe final rules’ extraterritorial reach. Concurrently, with the release of the final rules in December 2013, the Federal Reserve Board issued an order extending the conformance period until July 21, 2015. During the conformance period, banking entities must engage in good-faith efforts to conform their activities and investments to the requirements of the final rules by the conformance deadline. In December 2014, the Federal Reserve Board extended the conformance period to July 21, 2016 for certain investments in and relationships with hedge funds and private equity funds that were in place as of December 31, 2013, and announced its intention to further extend this conformance period until July 21, 2017. Although complying with the final rules could result in additional costs, or restrict or otherwise affect the way we conduct our business, the impact remains uncertain.

The Dodd-Frank Act provides regulators with tools to impose greater capital, leverage and liquidity requirements and other prudential standards, particularly for financial institutions that pose significant systemic risk and large bank holding companies with assets of $50 billion or more.companies. In imposing heightened prudential standards on non-U.S. financial institutions such as us and the Bank,SMBC, the Federal Reserve Board is directed to take into account the principle of national treatment and equality of competitive opportunity, and the extent to which the non-U.S. bank holding company is subject to comparable home country standards.

On February 18,In 2014, the Federal Reserve Board adopted final rules that will apply enhanced prudential standards to the U.S. operations of large non-U.S. banking organizations (“EPS Rules”), including us. The final rules, effective

July 1, 2016, willEPS Rules require each of certain large non-U.S. banking organizations, such as us, to certify that it is subject to home country capital standards that are broadly consistent with the Basel capital framework, including Basel III; conduct home country capital stress tests that are comparable to U.S. standards; comply with a qualitativecertain liquidity framework,requirements, including, among other things, a U.S. liquidity buffer requirement for its U.S. branches and agencies based on the results of internal liquidity stress testing; and establish a U.S. risk committee that understandsperiodically reviews the risk management policies and oversees the risk management framework of its U.S. operations and has a general understanding of the risk management practices of the U.S. operations.

Under the final rules, The EPS Rules also require non-U.S. banking organizations with combined U.S. assets (excluding assets held by its U.S. branches and agencies) of $50 billion or more, will beare required to establish a separately capitalized top-tier U.S. intermediate holding company. However, thisThis requirement willdoes not apply to us. Althoughus because we do not meet this threshold, but we have established SMBCAH in consideration of this requirement. The Federal Reserve Board proposed rules have been released, amendments to

the EPS Rules in April 2019, but we do not expect the proposed amendments, if implemented, to significantly change the requirements under the EPS Rules that are currently applicable to us.

In June 2018, as part of the implementation of the EPS Rules, the Federal Reserve Board published a final rules forrule implementing single counterparty credit limitslimits. Under the final rule, our combined U.S. operations will be subject to an aggregate net credit exposure limit to any major counterparty, which includes other G-SIBs, of 15% of SMBC’s Tier 1 capital, and an aggregate net credit exposure limit to any other counterparty of 25% of SMBC’s Tier 1 capital. Unless otherwise notified by the Federal Reserve Board, we may comply with the final rule by certifying to the Federal Reserve Board that we comply with a home country regime on a consolidated basis that is comparable to the Large Exposures Framework published by the Basel Committee. We must comply with the final rule by January 1, 2020. Although a proposed rule has been released, a final rule for an early remediation haveframework applicable to foreign banking organizations has yet to be promulgated.

Effective in July 2011, theThe Dodd-Frank Act removed a longstanding prohibition on the payment of interest on demand deposits by Manufacturers Bank and the Bank’sSMBC’s three branches in the United States. In addition, the Dodd-Frank Act requires that the lending limits take into account credit exposure arising from derivative transactions and securities lending, securities borrowing, and repurchase agreements and reverse repurchase agreements with counterparties. In June 2013, the OCC adopted the final rules that implement these new lending limits, and compliance with these new lending limits is required for our New York, Los Angeles, and San Francisco branches from October 1, 2013,must comply with these limits, in addition to existing state lending limits that apply to the branches. Additionally, as a California state-chartered bank, Manufacturers Bank is subject to state lending limits, which also apply to credit exposure arising from derivative transactions.

Furthermore, theThe Dodd-Frank Act also provides for an extensive framework for the regulation of OTC derivatives, including mandatory clearing, exchange trading and transaction reporting of certain OTC derivatives. In October 2012, the final joint rules of the CFTC and the SEC that further define “swap” and “security based swap” became effective. As a result, certain entities are required to register with the CFTC as “swap dealers” or “major swap participants” and our subsidiary, SMBC Capital Markets, Inc., became provisionally registered as a swap dealer on or around December 31, 2012. While some of the U.S. swaps requirements are already final and effective, others are subject to further rulemaking or deferred compliance dates. Mandatory clearing, trade execution and reporting requirements for swaps took effect in 2013. Registration as a security-based swap dealer is not required until the first half of 2013.SEC finalizes certain security-based swap rules that are still in proposed form.

Furthermore, the Dodd-Frank Act requires the SEC to establish rules requiring issuers with listed securities, which may include non-U.S. private issuers such as us, to establish a “clawback” policy to recoup previously awarded compensation in the event of an accounting restatement. The Dodd-Frank Act also grants the SEC discretionary rule-making authority to impose a new fiduciary standard on brokers, dealers and investment advisers, and expands the extraterritorial jurisdiction of U.S. courts over actions brought by the SEC or the United States with respect to violations of the antifraud provisions in the Securities Act of 1933, the Securities Exchange Act of 1934 and the Investment Advisers Act of 1940.

Laws Prohibiting Money Laundering and Terrorist Financing

The Bank Secrecy Act / USA PATRIOT Act of 2001

The Bank Secrecy Act, as amended by the USA PATRIOT Act of 2001 (“PATRIOT Act”) contains measures to prevent and detect the financing of terrorism and international money laundering by imposing significant compliance and due diligence obligations, creating crimes, providing for penalties and expanding the extraterritorial jurisdiction of the United States. The Bank Secrecy Act, as amended, imposes anti-money laundering compliance obligations on U.S. financial institutions, including the U.S. offices of foreign banks. The passage of the PATRIOT Act and other events have resulted in heightened scrutiny of compliance with the Bank Secrecy Act and anti-money laundering rules by federal and state regulatory and law enforcement authorities. Certain provisions of the PATRIOT Act expired in June 2015 and were extended in part by the USA FREEDOM Act of 2015, enacted onin June 2015.

U.S. Sanctions Targeting Iran Related Activities

In JulyStarting in 2010, the U.S. government enacted legislation designed to restrict economicimplemented various sanctions targeting non-U.S. parties that engage in specified Iran-related activities. Various statutes, Executive Orders and financial transactions with Iran, i.e.,regulations, including the Comprehensive Iran Sanctions, Accountability and Divestment Act of 2010 (“CISADA”), which, as(which, among other things, amended authorizedthe Iran Sanctions Act of 1996, Section 1245 of the National Defense Authorization Act for Fiscal Year 2012, the Iran Threat Reduction and Syria Human Rights Act of 2012, and the Iran Freedom and Counter-Proliferation Act of 2012, authorize the imposition of sanctions against non-U.S. financial institutions, such as us, if they are determined by the U.S. Secretary of the Treasuryon parties that engage in, among other things, certain activities relating to have facilitated “significant transactions”Iran’s energy, petroleum, metals, shipping or providedshipbuilding sectors or that facilitate “significant” transactions or provide “significant financial services” for certain Iran-linked individuals or entities or the Islamic Revolutionary Guard Corps. Non-U.S. financial institutions that engage in sanctionable activity could lose their ability

Prior to open or maintain correspondent or payable-through accountsU.S. withdrawal from the JCPOA the United States along with U.S. financial institutions, among other possible sanctions.

In December 2011,the European Union provided Iran with certain sanctions relief. On Implementation Day, the U.S. government adopted Section 1245 of the National Defense Authorization Act for Fiscal Year 2012 (“2012 NDAA”), which broadened the range of sanctionable transactions to include conducting or facilitating “significant financial transactions” with the Central Bank of Iran or other Iranian financial institutions designated for sanctions under the International Emergency Economic Powers Act in connection with Iran’s weapons of mass destruction proliferation or support for international terrorism. Following Implementation Day, this sanction no longer applies to significant financial transactions with the Central Bank of Iran.

In addition, in July 2012,revoked certain Iran-related Executive Order 13622 was issued, which, as amended, authorized the U.S. Secretary of the Treasury, in consultation with the U.S. Secretary of State, to impose correspondent account sanctions on any foreign financial institution that knowingly conducted or facilitated a significant financial transaction with the National Iranian Oil Company or Naftiran Intertrade Company, or that knowingly conducted or facilitated a significant transaction for the purchase, acquisition, sale, transport or marketing of petroleum, petroleum products or petrochemical productsOrders, temporarily waived certain statutory provisions and removed various individuals and entities from Iran, with certain exceptions. On Implementation Day, Executive Order 13622 was revoked by Executive Order 13716.

Further, in August 2012, the President signed the Iran Threat Reduction and Syria Human Rights Act of 2012 into law, which strengthened sanctions on Iran, especially those aimed at third-country nationals who engaged in certain business with Iran, and included measures relating to human rights abuses in Iran and Syria. It authorized the imposition of secondary sanctions penalties on non-U.S. persons found to have engaged in specified activities relating to Iran.

In addition, the Iran Freedom and Counter-Proliferation Act of 2012 (“IFCA”), which is included in the U.S. National Defense Authorization Act for Fiscal Year 2013, imposed, among other things, new sanctions against the energy, shipping and shipbuilding sectors of Iran, as well as Iranian port operators, and the sale, supply or transfer to or from Iran of certain precious and other metals and materials. Executive Order 13645 targeted, among other things, the automotive sector of Iran and transactions in Iran’s currency, the rial. The IFCA and Executive Order 13645 provided for the imposition of sanctions on persons, including foreign financial institutions, that knowingly engaged in activities related to the sectors and conduct targeted by the IFCA and Executive Order 13645, and activities that involved certain Iranian persons included on the Specially Designated Nationals and Blocked Persons List (the “SDN List”) maintained by OFAC. On Implementation Day, Executive Order 13645 was revoked by Executive Order 13716. Also on Implementation Day, the United States waived the imposition ofHowever, certain correspondent or payable-through account sanctions under the IFCA, and committed to refrain from imposing certain discretionary blocking sanctions under the IFCA. It continues to be sanctionable under the IFCA to knowingly conduct or facilitate significant financial transactions on behalf of any Iranian person on the SDN List.

The U.S. Secretary of State announced on March 20, 2012 that Japan was among a number of countries that had significantly reduced the volume of crude oil purchases from Iran, and that therefore the 2012 NDAA sanctions would not apply to Japanese financial institutions for a period of 180 days, which period could be renewed based on ongoing reductions in crude oil purchases from Iran (“NDAA Exception”). The NDAA

Exception was renewed on September 14, 2012, March 13, 2013, and September 6, 2013. The NDAA Exception, which was subject to certain restrictions, also exempted Japanese financial institutions from sanctions under certain provisions of Executive Order 13622, the IFCA, and Executive Order 13645.

On January 20, 2014, the U.S. government issued certain temporary sanctions waivers as part of the November 24, 2013 Joint Plan of Action (“JPOA”) among the P5 + 1 and Iran (“JPOA Waivers”). While in effect, the JPOA Waivers superseded the NDAA Exception, which expired on March 5, 2014. The effective period of the JPOA Waivers (“JPOA Relief Period”) was originally from January 20, 2014 through July 20, 2014, but was successively extended through July 13, 2015. Pursuant to the JPOA Waivers, the U.S. government agreed not to seek reductions in the volume of Iranian crude oil purchased by current authorized purchasers, including Japan, during the JPOA Relief Period. Additionally, pursuant to the JPOA Waivers, non-U.S. financial institutions, such as us, that engaged in certain transactions initiated and completed during the JPOA Relief Period relating to exports of Iranian petrochemical products, petroleum and petroleum products, Iran’s automotive sector, Iran’s trade in gold and precious metals, and the supply and installation of certain spare parts and services for civil aircraft in Iran would not be targeted for secondary sanctions under U.S. law. On July 14, 2015, the sanctions relief provided for in the JPOA was further extended.

As part of the JPOA, the P5 + 1 and Iran agreed on a process to authorize or facilitate the release in installments over the initial JPOA Relief Period (January 20, 2014 through July 20, 2014) of $4.2 billion of Iran’s restricted funds held in banks outside Iran and outside the United States, contingent on Iran fulfilling its commitments under the JPOA. The United States Government worked with non-U.S. financial institutions to implement the release of such funds to Iran. As part of the extension of the JPOA Relief Period to November 24, 2014, the P5 + 1 agreed to allow Iran access to an additional $2.8 billion of its restricted assets in installments. According to the U.S. Treasury Department, the P5+1 fulfilled their commitments to facilitate the release of $4.2 billion during the initial JPOA Relief Period and to facilitate the release of a further $2.8 billion through November 24, 2014. Further, as part of a further extension of the JPOA Relief Period, the P5 + 1 agreed to facilitate the release in installments of an additional $4.9 billion of Iran’s restricted funds during the period beginning on November 25, 2014, and ending on June 30, 2015. In addition, the JPOA, among other things, established a financial channel to facilitate humanitarian trade for Iran’s domestic needs using Iranian oil revenues held abroad. For a description of the remittances the Bank conducted in connection with the export of humanitarian goods to Iran under applicable laws and regulations, see “—Disclosure Pursuant to Section 13(r) of the Securities Exchange Act of 1934.”

In April 2015, the parties to the JPOA reached an understanding on the framework for the JCPOA. In May 2015, President Obama signed into law the Iran Nuclear Agreement Review Act of 2015, which established a mechanism for Congressional review of any new agreement reached between the United States and Iran related to Iran’s nuclear program.

On July 14, 2015, the P5 + 1 and Iran, with the European Union, agreed on the final text of the JCPOA. The JCPOA established a framework for providing Iran with phased sanctions relief upon verification that Iran had implemented key nuclear commitments. Under the JCPOA, U.S. sanctions relief is provided through the suspension and eventual termination of nuclear-related secondary sanctions, which began on Implementation Day, January 16, 2016, when the International Atomic Energy Agency verified that Iran had implemented key nuclear-related measures described in the JCPOA. As noted above, certain U.S. sanctions authorities targeting Iran and targeting certain Iran-related transactions and activities were revoked or waived on January 16, 2016.

Even after Implementation Day, certain secondary sanctions remainremained in effect, including those targeting significant transactions involving Iranian or Iran-related SDNs or the Islamic Revolutionary Guard Corps. Non-U.S.

On August 6, 2018, President Trump issued Executive Order 13846, which reinstated provisions of certain Executive Orders that had been revoked in January 2016 to implement the JCPOA. Executive Order 13846 also added authorities to impose blocking or correspondent account sanctions on foreign financial institutions providing support or services to, or facilitating significant financial transactions on behalf of, certain sanctioned persons and expands the menu of available sanctions for certain significant transactions related to Iran involving petroleum, petroleum products and petrochemical products.

On November 5, 2018, following certain wind-down periods, the United States fully re-imposed sanctions (both primary and secondary) that engagehad been waived or lifted under the JCPOA. On the same day, OFAC added back to the SDN List a number of parties that had been removed on Implementation Day from the list. Persons engaged in transactions targeted byactivities involving Iran face exposure to secondary sanctions could lose their ability to open or maintain correspondent or payable-through accounts withenforcement actions under U.S. financial institutions, among other possible restrictive measures.law. It is the Bank’sSMBC’s policy not to conduct activities targeted by remaining secondary sanctions.

PursuantAs part of the reinstatement of full sanctions on Iran, the United States has resumed efforts to reduce Iran’s crude oil sales, backed by the potential threat of correspondent account sanctions targeting foreign financial institutions. On November 5, 2018, the U.S. government announced that Japan was one of eight countries determined by the U.S. State Department to have significantly reduced purchases of crude oil from Iran and therefore granted a “significant reduction exception” authorizing, among other things, financial institutions based in those countries to engage in certain transactions related to the JCPOA, there also remainspurchase of petroleum or petroleum products from Iran for a possibility that, if Iran is foundperiod of 180 days, without the risk of sanctions. On May 2, 2019, the significant reduction exceptions granted to bethese eight countries, including Japan, expired without further extension.

On May 8, 2019, President Trump issued Executive Order 13871, which imposes sanctions with respect to Iran’s iron, steel, aluminum and copper sectors (collectively, the “metals” sector). Executive Order 13871 substantially broadens the scope of sanctionable activity relating to Iran’s metals sector, including adding authority to impose blocking sanctions on persons determined to have knowingly engaged in non-compliance with its commitments under the JCPOA,certain significant transactions, and correspondent or payable-through account sanctions thaton foreign financial institutions determined to have been waivedconducted or lifted, including nuclear-related secondary sanctions, could be re-imposed.facilitated certain significant financial transactions, involving Iran’s metals sector or metals and metal products from Iran.

Ukraine Freedom Support Act of 2014, as Amended

In order to deter the Russian government from further destabilizing and invading Ukraine, the U.S. government enacted H.R. 5859, the Ukraine Freedom Support Act of 2014 (signed into law on December 18, 2014). Among

other things, the act, as amended by the Countering America’s Adversaries Through Sanctions Act authorizesof 2017 (signed into law in August, 2017), mandates prohibitions or strict limitations on the opening or maintaining of correspondent or payable-through accounts in the United States by non-U.S. financial institutions determined by the U.S. government (i) to have knowingly engaged in on or after December 18, 2014 in significant transactions involving certain activities described in the Act,act, including those involving individuals or entities on whom sanctions are imposed pursuant to the Actact for making a significant investment in a project for the extraction of deepwater, Arctic offshore or shale formation crude oil in Russia, or (ii) to have knowingly facilitated, on or after June 16, 2015, a significant financial transaction on behalf of any Russian individual or entity included on the SDN List pursuant to Ukraine-related sanction programs.

Foreign Account Tax Compliance Act

Provisions of the U.S. tax law commonly referred to as the Foreign Account Tax Compliance Act (“FATCA”), which became effective on July 1, 2014, aimaims to prevent U.S. persons from hiding their financial assets or evading their U.S. federal income tax obligations by the use of offshore accounts. A foreign financial institution that has entered into an agreement with the U.S. Internal Revenue Service (“IRS”) pursuant to which it agrees to comply with FATCA, referred to as a “participating foreign financial institution” (“PFFI”), is required to perform specified due diligence, reporting and withholding functions (a “PFFI agreement”). Specifically, under FATCA, a PFFI is required to ascertain the U.S. status of customers through specified due diligence and report certain information annually to the IRS. In cases where customers are not compliant with FATCA, PFFIs are obligated to carry out specified reporting and withholding procedures as prescribed. The consequences for foreign financial institutions that are not compliant with FATCA include being subjected to a 30% withholding tax on certain withholdable payments from U.S. sources and reporting to the IRS.

The United States entered into intergovernmental agreements or reached agreements in substance with more than 100 countries in furtherance of the objectives of FATCA, which modify the operation of FATCA with respect to financial institutions located in those countries. On June 11, 2013 theThe United States and Japan have entered into an intergovernmental agreement to facilitate the implementation of FATCA pursuant to which Japanese financial institutions (such as us and certain of ourSMBC Group companies) are directed by the Japanese authorities to register with the IRS and fulfill obligations consistent with those required under a PFFI agreement. We haveare registered with the IRS to becomeas a PFFI. We are committed to complying with FATCA as a PFFI and abiding by the terms of our PFFI agreement with the IRS within the jurisdictions in which we operate and in accordance with the time frame set out by the IRS. We intend to closely monitor FATCA developments and evolving industry practices to ensure continued compliance with FATCA moving forward.FATCA.

Other Regulations in the United States

In the United States, the Bank’sSMBC’s U.S.-registered broker-dealer subsidiary, SMBC Nikko Securities America, Inc. is regulated by the SEC. Broker-dealers are subject to regulations that cover all aspects of the securities business, including:

 

sales methods;

 

trade practices among broker-dealers;

 

use and safekeeping of customers’ funds and securities;

capital structure;

 

record-keeping;

 

the financing of customers’ purchases; and

 

the conduct of directors, officers and employees.

In addition, SMBC Nikko Securities America, Inc. is a member of and regulated by the Financial Industry Regulatory Authority and is regulated by the individual state securities authorities in the states in which it

operates. The U.S. government agencies and self-regulatory organizations, as well as state securities authorities in the United States having jurisdiction over the Bank’sSMBC’s U.S. broker-dealer affiliates, are empowered to conduct administrative proceedings that can result in censure, fine, the issuance of cease-and-desist orders or the suspension or expulsion of a broker-dealer or its directors, officers or employees.

Regulations in Other Jurisdictions

Elsewhere in the world, our operations are subject to regulation and control by local central banks and monetary authorities.

Disclosure Pursuant to Section 13(r) of the Securities Exchange Act of 1934

Section 13(r) of the Securities Exchange Act of 1934, as amended, requires an issuer to disclose whether it or any of its affiliates knowingly engaged in certain activities or transactions relating to Iran or with individuals or entities designated by the U.S. government under specified Executive Orders, even if those activities are not prohibited by U.S. law and are conducted outside the United States by non-U.S. affiliates. During the twelve months ended March 31, 2016,2019, one affiliate of SMFG, SMBC, engaged in activities subject to disclosure under Section 13(r). SMBC conducted these activities consistent with its internal policies and procedures, the policies and procedures of SMFG, and applicable laws and regulations, and to the extent they are not sanctionable under U.S. secondary sanctions. SMBC has discontinued activities that have become impermissible or subject to secondary sanctions as a result of changes in applicable laws and regulations.

SMBC issued letters of credit and provided remittance and other settlement services in connection with customers’ trade transactions between Japan and Iran. These transactions principally involved the importation of oil into Japan or exportation of civilian commercial products from Japan and were conducted with Iranian banks, including the Central Bank of Iran and one other bank owned by the Government of Iran. Under certain exceptions and U.S. sanctions relief measures granted to Japanese financial institutions, SMBC supported a Japanese importing company by paying bills of exchange in connection with imports of crude oil from an Iranian oil company owned by the Government of Iran that was, at the time of certain of theIran. These transactions designated under Executive Order 13382 but that was removed fromdid not involve entities or other persons on the SDN List on January 16, 2016. These transactionsand did not involve the settlement of U.S. dollar-denominated payments cleared through U.S. banks. SMBC has informed SMFG that it intends to continue to engage in these types of transactions only to the extent permitted under applicable regulations and to the extent they are not sanctionable under U.S. secondary sanctions. For the twelve months ended March 31, 2016,2019, the gross revenue related to these transactions was ¥8.7¥20.4 million, representing about 0.0003%0.0006% of SMFG’s total interest and fee income. SMFG does not allocate direct costs to interest and fee income and therefore does not calculate net profits with respect to these transactions.

In addition, in accordance with applicable laws, regulations and sanctions relief measures (including sanctions relief under the JPOA, while it was in effect), SMBC has conducted certain settlement services related to humanitarian trade with Iran. We are voluntarily disclosing such transactions, although we do not believe those transactions are subject to disclosure under Section 13(r) of the Securities Exchange Act of 1934. The JPOA/JCPOA provide for the establishment of a financial channel to facilitate humanitarian trade for Iran’s domestic needs using Iranian oil revenues held abroad. The overall framework to provide these services is based on an agreement between the U.S. and Japanese authorities and was reviewed by U.S. and Japanese authorities for compliance with applicable laws and regulations. The services provided under the framework are permitted

under certain conditions; the remittances are required to be processed in Japanese yen through a “Special Purpose Account” for humanitarian trade; and the sellers of the humanitarian goods, namely food, agricultural products, medicines and medical devices, are limited to Japanese entities and entities permitted by U.S. regulators. To facilitate the export of humanitarian goods to Iran, at the request of U.S. and Japanese regulators and with the written authorization of the U.S. government, SMBC has provided remittances in connection with the export of humanitarian goods to Iran starting in March 2014. These transactions were conducted through the use of yen accounts maintained with SMBC in Japan by a Government of Iran owned Iranian financial institution. These transactions did not involve U.S. dollars or clearing services of U.S. banks for the settlement of payments. SMBC intends to continue to provide these remittance and other settlement services in connection with the export of humanitarian goods to Iran to the extent that U.S. and Japanese regulators continue to make such requests, and that the services are permitted under applicable laws and regulations.

In the past, SMBC has issued performance bonds and advance payment bonds that supported various projects, including the construction of petroleum plants in Iran. Some of these performance bonds had counterparties that were entities controlled by the Government of Iran. AllSome of these performance bonds have matured, and SMBC has not renewed and will not renew them unless permitted under applicable regulations and to the extent they are not sanctionable under U.S. secondary sanctions, but SMBC continues to have obligations under the matured performance bonds until they are returned or cancelled by the beneficiaries. SMBC has also received fees from its customers on whose behalf it issued the performance bonds. For the twelve months ended March 31, 2016,2019, the gross revenue relating to these transactions was ¥29.7¥2.1 million, representing less than 0.0011%0.0001% of SMFG’s total interest and fee income. As noted above, SMFG does not allocate direct costs to interest and fee income and therefore does not calculate net profits with respect to these transactions. SMBC has informed SMFG that it intends to continue to accept fee income from its customers for whose account the performance bonds were issued and to pay the relevant fees to the Iranian banks, to the extent authorized by the Ministry of Finance of Japan or otherwise permitted under applicable regulations, until the bonds are returned or cancelled. However, SMBC strongly urges the relevant customers to ask the beneficiaries to agree to return or cancel thesethe matured performance bonds.

SMBC has frozen an account of an Iranian bank designated under Executive Order 13224 pursuant to Japanese foreign exchange laws, and has frozen the U.S. dollar accounts of all Iranian banks. SMBC still

maintains two Japanese yen accounts of government-owned Iranian banks, including an account for the Central Bank of Iran, and certain transactions described in this disclosure were conducted through the use of such accounts. These transactions were conducted in accordance with Japanese law, and we do not believe that the transactions were sanctionable under U.S. sanctions due to the exception for Japanese financial institutions under the 2012 NDAA and waivers pursuant to the JCPOA or JPOA that were in effect at the time the transactions occurred. ForSMBC has discontinued activities that have become impermissible or subject to secondary sanctions as a descriptionresult of changes in applicable laws and regulations, including transactions involving the exception under the 2012 NDAA and JCPOA/JPOA Waivers described in this paragraph, see “—Regulations in the United States—Laws Prohibiting Money Laundering and Terrorist Financing.”Central Bank of Iran whose account has been frozen. The gross revenue attributable to the accounts of government-owned Iranian banks for the twelve months ended March 31, 2016,2019, was less than ¥0.1¥5.0 million, representing less thanabout 0.0001% of SMFG’s total interest and fee income. SMFG does not allocate direct costs to interest and fee income and therefore does not calculate net profits with respect to these transactions. SMBC has informed SMFG that it intends to continue to maintain the Iranian accounts described above only to the extent permitted under applicable laws and regulations.regulations and to the extent the activities are not targeted by secondary sanctions.

As of the date of this annual report, to our knowledge, there is no other activity for the twelve months ended March 31, 20162019 that requires disclosure under Section 13(r) of the Securities Exchange Act of 1934.

4.C.     ORGANIZATIONAL STRUCTURE

The following chart presents our corporate structure summary at March 31, 2016.2019.

 

LOGOLOGO

 

(1)

These companies are our associates.associates or joint ventures.

(2)Cedyna Financial Corporation

Chart indicates the classification of SMBC Group companies into each of SMBC Group-wide business segments.

(3)

Sumitomo Mitsui Asset Management Company, Limited merged with SAKURA CARD CO., LTD.Daiwa SB Investments Ltd. on April 1, 2016.2019, to form Sumitomo Mitsui DS Asset Management Company, Limited.

As the ultimate holding company of the SMBC Group, we are responsible for:

 

group strategy and management;

 

group resource allocation;

group financial accounting;

 

investor relations;

 

capital strategy;

 

group IT strategy;

 

HR management for group executives;

 

group risk management, internal control and compliance;

 

compensation schemes; and

 

efficiently harmonizing our operations on a SMBC Group-wide basis.

Principal Subsidiaries

Our principal subsidiaries at March 31, 20162019 are shown in the list below. We consolidate all entities that we control. We control an entity when we are exposed, or have rights, to variable returns from our involvement with the entity and have the ability to affect those returns through our power over the entity.

Principal domestic subsidiaries

 

Company Name

 Proportion
of Ownership
Interest(1)
 Proportion
of Voting
Rights(1)
 

Main Business

 Proportion
of Ownership
Interest(1)
 Proportion
of Voting
Rights(1)
 

Main Business

 (%) (%)  (%) (%) 

Sumitomo Mitsui Banking Corporation

  100.0    100.0   Commercial banking  100.0   100.0  Commercial banking

SMBC Trust Bank Ltd.

  100.0    100.0   Trust Banking  100.0   100.0  Trust Banking

THE MINATO BANK, LTD.

  6.0    46.4(2)(3)  Commercial banking

Kansai Urban Banking Corporation

  59.8    60.1   Commercial banking

SMBC Guarantee Co., Ltd.

  100.0    100.0   Credit guarantee  100.0   100.0  Credit guarantee

Sumitomo Mitsui Finance and Leasing Company, Limited

  60.0    60.0   Leasing

SMBC Nikko Securities Inc.

  100.0    100.0   Securities 100.0  100.0  Securities

SMBC Friend Securities Co., Ltd.

  100.0    100.0   Securities

Sumitomo Mitsui Card Company, Limited

  65.9    65.9   Credit card

Cedyna Financial Corporation(4)

  100.0    100.0   Credit card and consumer credit

Sumitomo Mitsui Card Company, Limited(2)

  65.9   65.9  Credit card

Cedyna Financial Corporation

 100.0  100.0  Credit card and consumer credit

SMBC Consumer Finance Co., Ltd.

  100.0    100.0   Consumer lending  100.0   100.0  Consumer lending

SAKURA CARD CO., LTD.(4)

  100.0    100.0   Credit card

Mobit Co., LTD.

  100.0    100.0   Consumer lending

SMBC Mobit Co., Ltd.

  100.0   100.0  Consumer lending

SMM Auto Finance, Inc.

  51.0    51.0   Automobile sales financing  51.0   51.0  Automobile sales financing

SMBC Finance Service Co., Ltd.

  100.0    100.0   Collecting agent and factoring 100.0  100.0  Collecting agent and factoring

The Japan Research Institute, Limited

  100.0    100.0   System development, data processing, management consulting and economic research  100.0   100.0  System development, data processing, management consulting and economic research

SAKURA KCS Corporation

  50.2    50.2   System engineering and data processing

Financial Link Co., Ltd.

  100.0    100.0   Data processing service and consulting

Sumitomo Mitsui Asset Management Company, Limited(3)

 

 

51.1

 

 

 

51.1

 

 

Investment advisory and investment trust management

NCore Co., Ltd.

  51.0   51.0  Data processing service and consulting

SMBC Venture Capital Co., Ltd.

  40.0    40.0(3)  Venture capital  40.0   40.0(4)  Venture capital

SMBC Consulting Co., Ltd.

  100.0    100.0   Management consulting and information services  98.3   98.3  Management consulting and information services

Japan Pension Navigator Co., Ltd.

  69.7    69.7   Operational management of defined contribution pension plans  69.7   69.7  Operational management of defined contribution pension plans

 

(1)

Percentages of proportion of ownership interest and proportion of voting rights have been truncated.

(2)

We have a 6.0% direct holding in THE MINATO BANK, LTD., and can control a further 40.4%acquired an additional 34.1% of the voting rights held by the Bank’s retirement benefit trust under contractual agreements between the Bankoutstanding shares of Sumitomo Mitsui Card Company, Limited on April 1, 2019 and, the retirement benefit trust.as a result, it became our wholly owned subsidiary.

(3)These companies are

Sumitomo Mitsui Asset Management Company, Limited merged with Daiwa SB Investments Ltd. on April 1, 2019, to form Sumitomo Mitsui DS Asset Management Company, Limited.

(4)

This company is accounted for as subsidiaries,a subsidiary, despite our holdings of less than 50% of the voting rights, because we are able to govern the financial and operating policies of these companiesthis company under a statute or an agreement, or by delegating the majority of the members of the board of directors.agreement.

(4)Cedyna Financial Corporation merged with SAKURA CARD CO., LTD. on April 1, 2016.

Principal foreign subsidiaries

 

Company Name

  Country of
Incorporation
  Proportion
of Ownership
Interest(1)
   Proportion
of Voting
Rights(1)
   Main Business  Country of
Incorporation
  Proportion
of Ownership
Interest(1)
   Proportion
of Voting
Rights(1)
   Main Business
     (%)   (%)         (%)   (%)    

Sumitomo Mitsui Banking Corporation Europe Limited

  U.K.   100.0     100.0    Commercial banking  U.K.   100.0    100.0   Commercial banking

Sumitomo Mitsui Banking Corporation (China) Limited

  China   100.0     100.0    Commercial banking  China   100.0    100.0   Commercial banking

PT Bank BTPN Tbk

  Indonesia   98.4    98.4   Commercial banking

SMBC Americas Holdings, Inc.

  U.S.A.   100.0    100.0   Bank holding company

Manufacturers Bank

  U.S.A.   100.0     100.0    Commercial banking  U.S.A.   100.0    100.0   Commercial banking

Sumitomo Mitsui Banking Corporation of Canada

  Canada   100.0     100.0    Commercial banking

Banco Sumitomo Mitsui Brasileiro S.A.

  Brazil   100.0     100.0    Commercial banking  Brazil   100.0    100.0   Commercial banking

JSC Sumitomo Mitsui Rus Bank

  Russia   100.0     100.0    Commercial banking  Russia   100.0    100.0   Commercial banking

PT Bank Sumitomo Mitsui Indonesia

  Indonesia   98.4     98.4    Commercial banking

SMBC Bank EU AG

  Germany   100.0    100.0   Commercial banking

Sumitomo Mitsui Banking Corporation Malaysia Berhad

  Malaysia   100.0     100.0    Commercial banking  Malaysia   100.0    100.0   Commercial banking

SMBC Leasing and Finance, Inc.

  U.S.A.   100.0     100.0    Leasing  U.S.A.   100.0    100.0   Leasing

SMBC Aviation Capital Limited

  Ireland   90.0     90.0    Leasing

SMBC Nikko Securities America, Inc.

  U.S.A.   100.0     100.0    Securities  U.S.A.   100.0    100.0   Securities

SMBC Nikko Capital Markets Limited

  U.K.   100.0     100.0    Securities  U.K.   100.0    100.0   Securities

SMBC Capital Markets, Inc.

  U.S.A.   100.0     100.0    Derivatives  U.S.A.   100.0    100.0   Derivatives

 

(1)

Percentages of proportion of ownership interest and proportion of voting rights have been truncated.

4.D.    PROPERTY, PLANT AND EQUIPMENT

The assets for rent we own for the purpose of operating leases mainly consist of aircraft for the leasing business. We own or lease the land and buildings in which we conduct our business. Most of the property that we operate in Japan is owned by us to be used by our branches. In contrast, our international operations are conducted out of leased premises. Our head office building in Marunouchi is leased from a third party. Our largest property is the Bank’sSMBC’s East Tower in Marunouchi, with a net carrying value of ¥175¥170 billion, including the land and building, at March 31, 2016.2019.

The following table shows the net carrying amount of our tangible fixed assets at March 31, 2016.2019.

 

   At March 31, 20162019 
   (In millions) 

Assets for rent

  ¥1,545,360564,461 

Land

   512,819464,097 

Buildings

   375,679338,500 

Leased assets

   7,55825,549 

Others

   149,535115,179 
  

 

 

 

Total

  ¥2,590,9511,507,786 
  

 

 

 

For more information, see Note 12 “Property, Plant and Equipment” and Note 38 “Assets Pledged and Received as Collateral” to our consolidated financial statements included elsewhere in this annual report.

The total area of land related to our material office and other properties at March 31, 20162019 was approximately 722,000657,000 square meters for owned land and approximately 15,00014,000 square meters for leased land.

We are not aware of any material environmental issues that may affect the utilization of our assets.

Item 4A.

Unresolved Staff Comments

None.

 

Item 5.

Operating and Financial Review and Prospects

The discussion below should be read together with “Item 3.A. Selected Financial Data” and our consolidated financial statements and related notes included elsewhere in this annual report. Unless otherwise indicated, we present our information on a consolidated basis.

OVERVIEW

Operating Environment

Our results of operations and financial condition are significantly affected by developments in Japan as well as the global economy.

For the fiscal year ended March 31, 2016, 2019, the Japanese economy continued to recover gradually, supported by an increase in capital investments by businesses, since corporate earnings and business sentiment continued to improve, and the recovery of private consumption reflecting the improvement in the employment and income situation.

Japanese gross domestic product (“GDP”) increased by 0.8%,0.7% for the fiscal year ended March 31, 2019, compared with a decreasean increase of 0.9%1.9% in the previous fiscal year, based on data published in June 20162019 by the Cabinet Office of the Government of Japan. Japan’s core consumer price index (“CPI”) increased by 0.8% for the same period, compared with an increase of 0.7% in the previous fiscal year, based on data published in April 2019 by the Statistics Bureau in the Ministry of Internal Affairs and Communications of Japan.

For the period from April to June 2015, theThe following table presents quarter-on-quarter growth raterates of Japanese GDP was minus 0.4%, primarily due to a decline in exports of goodsduring the fiscal year ended March 31, 2019 and services affected by the slowdown of emerging economies. However, 2018.

   For the fiscal year ended March 31, 
   2019  2018 
   1Q  2Q  3Q  4Q  1Q  2Q  3Q  4Q 

GDP

   0.6  (0.6%)   0.5  0.6  0.5  0.6  0.3  (0.1%) 

Japanese GDP increased by 0.4% on a quarter-on-quarter basistemporarily declined for the period from July to September 2015, reflecting improvements2018, primarily due to decreases in the private consumption, private investment and exports of goods and services. For the period from October to December 2015, Japanese GDP decreased by 0.4% on a quarter-on-quarter basis with private consumption decreasing. Thereafter, for the period from January to March 2016, Japanese GDP increased by 0.5% on a quarter-on-quarter basis.

Private consumption, which accounts for about 58% of Japanese GDP, decreased by 0.2% for the fiscal year ended March 31, 2016. It decreased by 0.8% on a quarter-on-quarter basis for the period from April to June 2015. However, it then showed some resilience, reflecting the gradual improvement in the employment and income situation. For the period from July to September 2015, private consumption increased by 0.5% on a quarter-on-quarter basis. For the period from October to December 2015, it decreased by 0.8% on a quarter-on-quarter basis. Thereafter, for the period from January to March 2016, it increased by 0.6% on a quarter-on-quarter basis.

Private investment, which accounts for about 16% of Japanese GDP, consists of capital investments by business and private residential investments. Capital investments by business increased by 2.0% for the fiscal year ended March 31, 2016. For the period from April to June 2015, they decreased by 1.2% on a quarter-on-quarter basis. Thereafter, they increased, on a quarter-on-quarter basis, by 0.8% for the period from July to September 2015 and by 1.3% for the period from October to December 2015, reflecting the improvement in corporate earnings. Then, for the period from January to March 2016, they decreased by 0.7% on a quarter-on-quarter basis. Private residential investments increased by 2.4% for the fiscal year ended March 31, 2016. For the periods from April to June 2015 and July to September 2015, they increased, on a quarter-on-quarter basis, by 2.2% and 1.7% respectively, reflecting the steady improvement in the employment and income situation. However, for the period from October to December 2015, private residential investments decreased by 1.0% on a quarter-on-quarter basis. Then, for the period from January to March 2016, they decreased by 0.7% on a quarter-on-quarter basis.

Changes in private inventories contributed 0.3 percentage points to Japanese GDP growth for the fiscal year ended March 31, 2016. For the period from April to June 2015, they contributed 0.3 percentage points to Japanese GDP growth on a quarter-on-quarter basis, but negatively impacted Japanese GDP growth by 0.1 percentage points on a quarter-on-quarter basis for the period from July to September 2015. Thereafter, changes

in private inventories pulled down Japanese GDP growth, on a quarter-on-quarter basis, by 0.2 percentage points for the period from October to December 2015 and by 0.1 percentage points for the period from January to March 2016, respectively.

The ratio of exports of goods and services to Japanese GDP was about 17%,businesses and exports of goods and services, increased by 0.4% for the fiscal year ended March 31, 2016. For the period from April to June 2015, exports of goodsreflecting natural disasters such as heavy rains, typhoons and services decreased by 4.8% on a quarter-on-quarter basis,earthquakes. Thereafter, it recovered primarily due to an increase in capital investments by businesses and the slowdownrecovery of emerging economies, notably China. Although exports of goods and services increased by 2.6% on a quarter-on-quarter basis for the period from July to September 2015, they decreased by 0.8% on a quarter-on-quarter basis for the period from October to December 2015. Thereafter, for the period from January to March 2016, they increased by 0.6% on a quarter-on-quarter basis.

The ratio of imports of goods and services to Japanese GDP was about 15%, and imports of goods and services decreased by 0.1% for the fiscal year ended March 31, 2016. For the period from April to June 2015, imports of goods and services decreased by 2.5% on a quarter-on-quarter basis. Thereafter, they increased by 1.7% on a quarter-on-quarter basis for the period from July to September 2015, reflecting the robust domestic demand, although they decreased by 1.1% on a quarter-on-quarter basis for the period from October to December 2015. Thereafter, for the period from January to March 2016, they decreased by 0.4% on a quarter-on-quarter basis.

Industrial production, as a whole, was flat throughout the fiscal year ended March 31, 2016.private consumption.

The employment situation improvedcontinued to improve during the fiscal year ended March 31, 2016.2019, reflecting a growing labor shortage. The active job openings-to-applicants ratio continued to improve as a whole.steadily improve. In addition, the unemployment rate remained relatively low, and it was 3.2%2.5% in March 2016, a decrease of 0.2% from2019, the same month of the previous year,as in March 2018, based on the Labor Force Survey by the Statistics Bureau in the Ministry of Internal Affairs and Communications. ForCommunications of Japan. Compensation of employees increased by 2.1% for the periods from April to June 2015 and July to September 2015,fiscal year ended March 31, 2019, reflecting the current employment situation. This was the fourth consecutive year that compensation of employees increased, on a quarter-on-quarter basis, by 0.1% and 0.8%, respectively. Thereafter, for the periods from October to December 2015 and January to March 2016, it increased, on a quarter-on-quarter basis, by 0.5% and 1.3%, respectively.increased.

Further, according to Teikoku Databank, a research institution in Japan, there were approximately 8,4008,100 corporate bankruptcies in Japan during the fiscal year ended March 31, 2016,2019, a decrease of 7.0%2.8% from the previous fiscal year, involving approximately ¥1.9¥1.6 trillion in total liabilities, an increasea decrease of 1.0%40.0% from the previous fiscal year.

In

Interest rates in Japanese financial and capital markets are affected by the monetary policy measures of the Bank of Japan (“BOJ”). In 2016, in addition to the existing provision of ample funds, the BOJ introduced “quantitative and qualitative monetary easing with a negative interest rate” and “quantitative and qualitative monetary easing with yield curve control.” Under this policy framework, the BOJ would keep short-term interest rates down by maintaining its policy of applying a negative interest rate of minus 0.1% to certain excess reserves of financial institutions held at the BOJ. Moreover, the BOJ indicated it would purchase Japanese government bonds so that the yield of the 10-year Japanese government bonds would be close to around 0% to control long-term interest rates. In July 2018, the BOJ decided to introduce forward guidance for policy rates which states that the BOJ intends to maintain the current extremely low levels of short- and long-term interest rates for an extended period of time, which the BOJ clarified in April 2019 to mean at least through around spring 2020, and to conduct market operations as well as asset purchases in a more flexible manner, with a view to persistently continuing with powerful monetary easing. Under such circumstances, the uncollateralized overnight call rate, which is the benchmark short-term interest rate, remained at relatively low levels duringnegative for the fiscal year ended March 31, 2016, due to the ongoing provision of ample funds by the BOJ. In particular, following the introduction of a negative interest rate policy by the BOJ in February 2016 as part of the BOJ’s quantitative and qualitative monetary easing, it further declined.2019. The yield on newly issued Japanese government bonds with a maturity of 10 years, which is the benchmark long-term interest rate, remainedwas at relatively low levels, declining to minus 0.029%around 0% for the same period.

The yen depreciated against the U.S. dollar from ¥106.19 at March 31, 2016, due30, 2018 to ¥ 110.75 at March 29, 2019, according to the introduction ofstatistical data published by the negative interest rate policy mentioned above.BOJ.

The Nikkei Stock Average, which is a price-weighted average of 225 stocks listed on the Tokyo Stock Exchange First Section, rose from ¥19,206.99¥21,454.30 at March 31, 201530, 2018 to ¥20,868.03¥24,270.62 at June 24, 2015,October 2, 2018, its highest closing level since December 1996, reflecting the improvement in corporate earnings.November 1991. However, it then dropped to ¥16,758.67below the ¥20,000 level at the beginning of January 2019, and it reached ¥21,205.81 at March 31, 2016, reflecting29, 2019.

According to the sudden fallMinistry of Land, Infrastructure, Transport and Tourism of Japan, the average residential land prices in Japan increased by 0.6% in year 2018, compared with an increase of 0.3% in the Chinese stock market and other factors.previous year.

The yen appreciated against the U.S. dollar from ¥120.21 at March 31, 2015global economy, as a whole, continued to ¥112.43 at March 31, 2016, according to the statistical data published by the BOJ.

As for the global economyrecover gradually for the fiscal year ended March 31, 2016, economies2019, although it showed some signs of developed countries such asslowing down toward the end of the fiscal year.

For the fiscal year ended March 31, 2019, the U.S. economy expanded, supported by robust private consumption reflecting the strong employment and certainincome situation. The European countries continued to recovereconomy was gradually despite a slowdown inpicking up, but showed some signs of slowing down toward the paceend of growth of emerging economies.

The U.S.the fiscal year. On the other hand, the Chinese economy continued to recoverslow down gradually, but the economic stimulus measures by the Chinese government were starting to halt the economic slowdown toward the end of the fiscal year. The growth momentum in other Asian economies, as a whole, gradually headed toward recovery for the fiscal year ended March 31, 2016, supported by robust household spending, although the corporate sector was relatively weak. The European economy continued to steadily recover for the fiscal year ended March 31, 2016. On the other hand, the growth momentum in China and other Asian economies continued to be slow for the fiscal year ended March 31, 2016. For further information on exposures to certain European countries, see “Item 5.A. Operating Results—Financial Condition—Exposures to Selected European Countries.”2019.

In addition to economic factors and conditions, we expect that our results of operations and financial condition will be significantly affected by regulatory trends.

To address perceived weaknesses in financial regulation revealed by the global financial crisis, regulatory authorities in Japan and foreign countries have been and may continue taking significant steps to enhance regulation of the financial sector. The BCBS and other international bodies are leading efforts to formulate enhanced regulations, including in the areas of capital adequacy and liquidity. The BCBS publishedtrends such as Japanese TLAC Standards, the Basel III rules text in December 2010, reflecting agreement on global regulatory standards on capital adequacyreforms and liquidity of internationally active banks. The new rules started to be phased in on January 1, 2013 and will be fully applied from January 2019. To reflect the principal risk-weighted capital measures of the Basel III rules text, the FSA has promulgated new capital adequacy requirements which started to be phased in on March 31, 2013 and will be fully applied from March 31, 2019. For a more detailed description of the capital adequacy rules based on Basel III, see “Item 4.B. Business Overview—Regulations in Japan.”

In the United States, the Dodd-Frank Act which was enacted in July 2010, provides a broad framework for significant regulatory changes across most areas of U.S. financial regulation. The Dodd-Frank Act addresses, among other issues, systemic risk oversight, bank capital standards, the resolution of failing systemically significant U.S. financial institutions, OTC derivatives, the ability of banking entities to engage in proprietary trading activities and invest in hedge funds and private equity funds, consumer and investor protection, hedge fund registration, and securitization. For a more detailed description of the Dodd-Frank Act, see “Item 4.B. Business Overview—Regulations in the United States.”

Act. For a more detailed description of regulations to which we are subject, risks associated with regulatory development and our management policy under this environment, see “Item 3.D. Risk Factors—Risks Related to Our Business, and Risks Related to Our Industry,” “Item 4.B. Business Overview—Regulations in Japan, Regulations in the United States, Regulations in Other Jurisdictions and Description of Operations and Principal Activities—Management Policies.”

Factors Affecting Results of Operation

Income (Loss)

We have three principal sources of operating income: net interest income, net fee and commission income, and net income from trading/investment securities.

Net Interest Income. Net interest income, or the difference between interest income and interest expense, is determined by:

 

the amount of interest-earning assets and interest-bearing liabilities;

 

the interest spread;

 

the general level of interest rates; and

 

the proportion of interest-earning assets to interest-bearing liabilities.

Our principal interest-earning assets are loans and advances, investment securities, and deposits with banks. Our principal interest-bearing liabilities are deposits, borrowings and debt securities in issue. The interest income and expense on trading assets and liabilities and financial assets at fair value through profit or loss are not included in net interest income. Our net interest income is earned mainly by the Bank. The BankSMBC. SMBC controls its exposure to interest rate fluctuations through asset and liability management operations.

The Bank,SMBC, like other banks in Japan, makes most domestic loans based on a short-term interest rate, the TIBOR, or a short-term prime rate, which are generally intended to reflect its cost of short-term yen funding. The Bank’s short-term prime rate isfunding and significantly affected mainly by changes in the policy interest rates set by the BOJ, which is an uncollateralized overnight call rate.monetary policy of the BOJ.

Prime rates in Japan have been relatively stable since 2000. This is mainly because short-term interest rates, for example, the three-month TIBOR, have declined to nearly zero, and prime rates, which are adjusted according to changes in short-term interest rates, had little room for further decline. The BOJ lowered its target for the uncollateralized overnight call rate from 0.5% to 0.3%announced in October 20082014 the expansion of its “quantitative and by an additional 0.2 percentage points to 0.1%qualitative monetary easing” introduced in April 2013, and in December 20082015 the introduction of “supplementary measures for quantitative and qualitative monetary easing,” in order to address market conditions. Following these policy interest rate changes, we lowered our short-term prime rate by 0.2 percentage points from 1.675% to 1.475% in January 2009 and our ordinary deposit rate by 0.02 percentage points from 0.04% to 0.02% in September 2010. In October 2010, the BOJ lowered its target for the uncollateralized overnight call rate to a range of 0% to 0.1% to pursue a virtual zero interest rate policy. In February 2012, the BOJ clarified its monetary policy stance to enhance monetary easing, with the aim of achieving the goal of 1% year-on-year rate of increase in the consumer price index (“CPI”). Moreover, in January 2013, the BOJ decided to setachieve the price stability target atof 2% in terms of the year-on-year rate of increase in the CPI and pursue aggressive monetary easing.CPI. In order to achieve the price stability target at the earliest possible time, the BOJ announced in April 2013 the introduction of “quantitative and qualitative monetary easing” including doubling the monetary base and the amounts outstanding of Japanese government bonds as well as exchange-traded funds in two years. In addition, the BOJ announced on October 31, 2014 the expansion of its “quantitative and qualitative monetary easing” and on December 18, 2015 the introduction of “supplementary measures for quantitative and qualitative monetary easing.” On January 29, 2016, the BOJ announced the introduction of “quantitative and qualitative monetary easing with a negative interest rate” (“negative interest rate policy”), and began to implement a negative interest rate policy onin February 16, 2016. Under the negative interest rate policy, the BOJ has adopted a multi-tier system where the outstanding balance of each financial institution’s current account at the BOJ is divided into three tiers, to each of which a positive interest rate, a zero interest rate and a negative interest rate of minus 0.1 percent are applied, respectively. After these policy interest rate changes, the BankSMBC lowered its ordinary deposit rate by 0.019 percentage points from 0.02% to 0.001% in February 2016. Thereafter, in September 2016, the BOJ announced the introduction of “quantitative and qualitative monetary easing with yield curve control.” Under this policy framework, the BOJ indicated it would purchase Japanese government bonds so that the yield of the 10-year Japanese government bonds would be close to around 0% to control long-term interest rates. In addition, the BOJ would keep short-term interest rates down by maintaining its policy of applying a negative interest rate of minus 0.1% to certain excess reserves of financial institutions held at the BOJ. In July 2018, the BOJ decided to introduce forward guidance for policy rates which states that the BOJ intends to maintain the current extremely low levels of short- and long-term interest rates for an extended period of time, which the BOJ clarified in April 2019 to mean at least through around spring 2020, and to conduct market operations as well as asset purchases in a more flexible manner, with a view to persistently continuing with powerful monetary easing.

The following table sets forth the Bank’sSMBC’s short-term prime rate, three-month TIBOR, ordinary deposit rate, long-term prime rate and ten-year swap rate, at the dates indicated:

 

  At March 31,   At March 31, 
  2016 2015 2014   2019 2018 2017 

Short-term prime rate

   1.475  1.475  1.475   1.475 1.475 1.475

Three-month TIBOR

   0.099    0.172    0.212     0.069  0.069  0.057 

Ordinary deposit rate

   0.001    0.020    0.020     0.001  0.001  0.001 

Long-term prime rate

   0.950    1.150    1.200     1.000  1.000  0.950 

Ten-year swap rate

   0.149    0.576    0.825     0.111  0.261  0.265 

It is difficult to earn a wide interest spread when interest rates are at a low level, as they currently are in Japan. When interest rates rise from extremely low levels, interest spreads at commercial banks generally

increase. However, interest spreads may temporarily decrease immediately after an increase in interest rates because it may take time for banks to increase lending rates correspondingly, in contrast to their funding rates. After an adjustment period, lending rates generally also increase and banks are able to secure a wider interest

spread than in a low interest rate environment. Conversely, interest spreads may temporarily increase immediately after a decrease in interest rates because it may take time for banks to decrease lending rates correspondingly, in contrast to their funding rates. After an adjustment period, lending rates generally also decrease and banks generally are not able to maintain a wide interest spread. While various factors may affect the level of net interest income, generally the loan-to-deposit interest spread increases when short-term interest rates rise, particularly in the current low interest-rate environment.

Net Fee and Commission Income. We earn fees and commissions from a variety of services. The primary components of the Bank’sSMBC’s net fee and commission income are fees and commissions related to money remittances and transfers, investment trusts sales, loans (such as loan commitment fees and loan arrangement fees)syndication fees for arranging loans), securities transactions (such as bond trustee fees and bond recording agency fees), and guarantees and acceptances. Other fees and commissions include fees from investment banking and electronic banking.

In addition, we earn a significant amount of fees and commissions fromon transactions in our credit card business,businesses, conducted through Sumitomo Mitsui Card and Cedyna, and fromfees and commissions on transactions in our securities business,businesses, conducted through SMBC Nikko Securities and SMBC Friend Securities. The principal components of Sumitomo Mitsui Card’s and Cedyna’s fees and commissions are membership fees from retailers and annual cardholder membership fees,cardholders, while those of SMBC Nikko Securities’ and SMBC Friend Securities’ fees and commissions are subscription and agent commissions from investment trusts sales and underwriting commissions.fees.

The principal factors affecting fees and commissions are the demand for the services provided, the fees charged for those services and fees charged by competitors for similar services. The volume of services provided also affects profitability, as our fee businesses have significant economies of scale. In order to diversify sources of revenue and enhance return on assets, we are expanding our fees and commissions businesses, including sales of investment trusts and life insurance products, and investment banking businesses.

Net Income from Trading/Investment Securities. We undertake significant trading activities involving a variety of financial instruments, including derivatives. Our income from these activities is subject to volatility caused by, among other things, changes in interest rates, foreign exchange rates, equity prices or other market variables. Any unexpected change in interest rates could affect the fair value of our interest rate derivative positions and our net income from trading activities. Net trading income consists of margins made on market-making and our customer business as well as changes in fair value of trading assets and liabilities and derivative financial instruments. It also includes net interest and dividend income on these instruments.

We have substantial investments in debt securities as available-for-sale financial assets.instruments measured at fair value through other comprehensive income. In particular, Japanese government bonds represent a significant part of our bond portfolio. We also own debt securities denominated in foreign currencies, principally the U.S. dollars. We also have investments in equity securities as available-for-sale financial assets,instruments measured at fair value through other comprehensive income, which includeconsist primarily of our strategic shareholding investments in stocks issued by our customers. Net investment income includes the gains and losses arising from the sales or redemptions of available-for-sale financial assetsdebt instruments measured at fair value through other comprehensive income and the dividend income earned from available-for-sale equity instruments.instruments measured at fair value through other comprehensive income. Increases in interest rates or declines in equity prices could substantially decrease the fair value of our available-for-sale financial assets.those instruments.

Operating income from other than these three principal sources mentioned above is included in “Net income from financial assets at fair value through profit or loss” or “Other income.” Net income from financial assets at fair value through profit or loss includes gains and losses arising from sales and the change in the fair value of the financial instruments such as investment trusts or hybrid instruments classified as financial assets at fair value through profit or loss. It also includes interest and dividend income on these instruments. Other income consists primarily of income from operating leases conducted by SMFL and income related to IT solution services.

Expenses

Impairment Charges on Financial Assets. We adopted the expected credit losses (“ECL”) model introduced by IFRS 9. The ECL model requires that impairment losses be measured by using reasonable and supportable information including forecasts of future economic conditions and in an unbiased and probability-weighted manner. Our impairment charges are recorded primarily due to impairment on loans and advances and on investment securities.advances.

Impairment charges on loans and advances are affected by the economic environment and financial conditions of borrowers. During periods of economic slowdown, corporate and individual borrowers are generally more likely to suffer credit rating downgrades, or become delinquent or default on their borrowings. The slowdown in the domestic or global economy may increase credit costs relating to a wide range of industries.

Declines in market prices for domestic and foreign investment securities may result in our recording impairment charges. We assess at the end of each reporting period whether there is any objective evidence that a financial asset or a group of financial assets is impaired. In the case of equity instruments classified as available-for-sale, a significant or prolonged decline in the fair value of the instrument below its cost is also considered to be such evidence in determining whether the assets are impaired. If any such evidence exists for available-for-sale financial assets, the cumulative loss, measured as the difference between the cost and the current fair value less any impairment charges on that financial asset previously recognized in profit or loss, is removed from equity and recognized in profit or loss.

General and Administrative Expenses. General and administrative expenses consist primarily of personnel expenses (salaries and related expenses), depreciation and amortization expenses, and other expenses (rent and lease expenses, premiums for deposit insurance, publicity and advertising expenses, and communication expenses).

Other Expenses. Other expenses consist primarily of cost of operating leases, costs related to IT solution services and IT systems, losses on disposal of property, plant and equipment, and other intangible assets, and impairment losses of property, plant and equipment.

Unrealized Gains or Losses on Investment Securities Portfolio

Changes in the fair value of domestic and foreign investment securities result in an increase or a decrease in unrealized gains or losses on available-for-sale financial assets.investment securities measured at fair value through other comprehensive income. Unrealized gains or losses arising from changes in the fair value of the investmentsdebt instruments in these securities are recognized directly in equity, until they are derecognized or impaired. Unrealized gains or losses arising from changes in the fair value of the equity instruments in these securities are recognized directly in equity, and amounts presented in equity are not subsequently transferred to profit or loss.

Most of our domestic equity instruments consist of publicly traded Japanese stocks. The Nikkei Stock Average increased by 29.5%13.5% from ¥14,827.83¥18,909.26 at March 31, 2014,2017, to ¥19,206.99¥21,454.30 at March 31, 2015,30, 2018, and decreased by 12.7%1.2% to ¥16,758.67¥21,205.81 at March 31, 2016.29, 2019. At March 31, 2016,2019, we had net unrealized gains on domestic equity securities of ¥2,348,888¥2,129,048 million, a decrease of ¥682,838¥795,543 million from ¥3,031,726¥2,924,591 million at March 31, 2015.2018. For more information, see “Item 5.A. Operating Results—Financial Condition—Investment Securities.”

Strengthening of Equity Capital

In response to the imposition of more stringent regulatory capital requirements, we have been taking a proactive approach to managing our risk-weighted capital ratio by focusing on increasing qualifying capital, including by building up our retained earnings, identifying risks, and controlling risk-weighted assets.

Foreign Currency Fluctuations

The average exchange rate used to convert dollars to yen in the consolidated financial statements included elsewhere in this annual report for the fiscal year ended March 31, 20162019 was ¥120.16¥110.92 per $1.00, compared to the

previous fiscal year’s average exchange rate of ¥109.76¥110.86 per $1.00. The percentage of revenue we earned from our foreign operations for the fiscal years ended March 31, 20162019 and 20152018 was 23%34% and 24%30%, respectively. For more information, see “Item 4.B. Business Overview—Revenues by Region.”

Critical Accounting Estimates and Judgments

Our financial position and results of operations are influenced by estimates and judgments that management employs in the course of preparation of our consolidated financial statements. We identified the following areas

of significant accounting policies to be particularly sensitive in terms of estimates and judgments made by management. Estimates and judgments are continually evaluated based on historical experience and other factors, including expectations of future events that are believed to be reasonable.

Allowance for Loan Losses

Allowance for loan losses represents management’s estimate of the losses incurred in the loan portfolios at the end of each reporting period. Management exercises judgments in making assumptions and estimations when calculating the allowance for loan losses on both individually and collectively assessed loans.

The allowance for loan losses is measured under the ECL model, where the allowance will be recognized as an amount equal to the expected credit losses over the lifetime of a loan, in case it has experienced a significant increase in credit risk since initial recognition. The measurement of the allowance requires a number of significant judgments to be applied, such as:

determining criteria for individually significant impaired loans is estimatedincrease in credit risk;

measuring ECL by management based onchoosing appropriate models and assumptions;

incorporating forward-looking information; and

estimating the expected future cash flows by taking into account factors such as historical loss information, the appropriateness of the borrower’s business plan or operational improvement plan, the status of progress of its plan, the overall support from financial institutions, and the realizable value of any collateral held. The allowance for loan losses is the difference between the carrying amount of a loan and the discounted present value of expected future cash flows that are estimated by management. The actual future cash flows may differ from the estimates by management and consequently may cause actual loan losses to differ from the reported allowance for loan losses.

The allowance for loan losses for impaired loans that are not individually significant and non-impaired loans is collectively calculated based on the historical loss experience for loans which have similar credit risk characteristics to those in the current loan portfolio using statistical methods. These statistical methods are subject to estimation uncertainty. In normal circumstances, the use of statistical methods evidenced by historical information provides the most objective methodology in assessing inherent losses on loans with similar credit risk characteristics. However, in certain circumstances, the use of historical loss experience alone may not be representative of current loss experiences and as a result it may provide less relevant information about the loss incurred in a given portfolio at the end of the reporting period, particularly in a situation where there have been changes in economic conditions. In these circumstances, we make a judgment to update the historical loss experience based on the most recent loss information, taking into account, among others, the effect of the current economic environment. To estimate the allowance for loan losses for non-impaired loans, which reflects incurred but not yet identified losses for the period between the impairment occurring and the loss being identified, management develops assumptions and methodologies to estimate the loss identification period.

Management estimates and judgments may change from time to time as the economic environment changes or new information becomes available. Changes in these estimates and judgments will result in a different allowance for loan losses and may have a direct impact on impairment charges. Impairment charges on loans and advances amounting to ¥118,750¥122,927 million and ¥79,552¥126,623 million were recognized for the fiscal years ended March 31, 20162019 and 2015 respectively, whereas previously recognized impairment charges on loans and advances amounting to ¥25,806 million were reversed for the fiscal year ended March 31, 2014.2018, respectively.

Fair Value of Financial Instruments

Some of our financial instruments are measured at fair value, with changes in fair value recognized in profit or loss, such as trading assets and liabilities, financial assets at fair value through profit or loss, and derivative financial instruments. Available-for-sale financial assets are also measuredinstruments and investment securities at fair value with changes in fair value reported inthrough other comprehensive income.

The fair value of a financial instrument is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Our financial assets and liabilities measured at fair value are mostly valued based on quoted prices in active markets, or using valuation techniques that incorporate inputs, other than quoted market prices, that are observable either directly or indirectly in the market, including dealers’ quotes. We principally use valuation techniques that are commonly used by market participants to price the instruments. To the extent practical, the valuation models make maximum use of observable data. However, for certain financial assets and liabilities, the fair values are measured by using valuation techniques with significant unobservable inputs. In such cases, significant management estimates are made, resulting in a less objective measurement of fair value.

The risk management departments in each subsidiary regularly review significant valuation methodologies and recalibrate model parameters and inputs, both observable and unobservable, in an effort to ensure an appropriate estimation of fair value has been made. Where significant management judgments are required in valuation, we establish a valuation control framework to validate the valuation models and fair values calculated based on such valuation models. Under the framework, the accounting department is responsible for ensuring that the accounting policies and procedures to determine the fair values are in compliance with the relevant accounting standards.

If the fair value at the trade date, which is measured using a valuation technique with significant unobservable inputs, differs from the transaction price, any gain or loss on the trade date is adjusted to be deferred. Management judgment is required to determine whether significant unobservable inputs exist in the valuation technique.

The financial assets and liabilities are classified into one of three levels within a fair value hierarchy based on the inputs used in the fair value measurement. The three levels of the fair value hierarchy are as follows:

 

  

Level 1. Quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date;

 

  

Level 2. Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly; and

 

  

Level 3. Significant unobservable inputs for the asset or liability.

Management judgment is involved in determining the level of hierarchy to which each financial instrument should be categorized and in periodical assessments of market liquidity for inputs and price transparency.

In addition to the fair value hierarchy disclosure, we provide a sensitivity analysis of the impact on the Level 3 financial instruments carried at fair value by using reasonably possible alternatives for the unobservable parameters in Note 43 “Fair Value of Financial Assets and Liabilities” to our consolidated financial statements included elsewhere in this annual report. The determination of reasonably possible alternatives requires significant management judgment.

Impairment of Available-for-sale Financial Assets

Available-for-sale financial assets are measured at fair value with changes in fair value reported in available-for-sale financial assets reserve as a separate component of equity until the financial assets are either derecognized or become impaired. If there is objective evidence of impairment as a result of loss events which have an impact on the estimated future cash flows of the financial assets that can be reliably estimated, the cumulative loss previously recognized in equity is removed and recognized in profit or loss as an impairment charge.

We exercise judgment in determining whether there is objective evidence of occurrence of loss events which result in a decrease in estimated future cash flows. The estimation of future cash flows also requires judgment. In

the assessment of impairment of available-for-sale equity instruments, we also consider whether there has been a significant or prolonged decline in fair value below their cost. The determination of what is a significant or prolonged decline requires management judgment.

Impairment may occur when there is objective evidence of deterioration in the financial conditions of the investee, industry and sector performance, or changes in operating and financing cash flows. The determination of impairment in this respect also includes significant management judgment.

Management estimates and judgments may change from time to time upon future events that may or may not occur and changes in these estimates and judgments could adversely affect the carrying amounts of available-for-sale financial assets. Impairment charges on available-for-sale financial assets reclassified from equity to profit or loss totaled ¥29,606 million, ¥10,586 million and ¥11,531 million for the fiscal years ended March 31, 2016, 2015 and 2014, respectively.

Impairment of Goodwill

Goodwill is tested for impairment at least annually and whenever events or changes in circumstances indicate that it may be impaired. The first step of the impairment test is identifying the cash-generating units (“CGUs”), which represent the smallest identifiable groups of assets that generate cash inflows that are largely independent of the cash inflows from other assets or groups of assets. Goodwill is then allocated to the CGUs, considering how the goodwill is recognized and other relevant factors.

In the impairment test, the carrying amount of the CGU to which goodwill is allocated is compared against its recoverable amount, which is the higher of its fair value less costs to sell and its value in use. Such recoverable amounts are determined based on significant management judgments and assumptions.

We determine the recoverable amount using the estimated future cash flows, pre-tax discount rates, growth rates and other factors. The estimation of future cash flows inherently reflects management judgments, even though such forecasts are prepared taking into account actual past performance and external economic data. The pre-tax discount rates and growth rates may be significantly affected by market interest rates or other market conditions, which are beyond management’s control, and therefore significant management judgments are made to determine these assumptions.

These management judgments are made based on the facts and circumstances at the time of the impairment test, and may vary depending on the situation and time. Changes in management judgments may result in different impairment test results and different impairment losses recognized. For the fiscal years ended March 31, 2016, 20152019 and 2014,2018, impairment losses on goodwill were ¥1,124¥62,624 million nil and nil,¥28,607 million, respectively.

Provision for Interest Repayment

Provision for interest repayment represents management’s estimate of future claims for the refund of gray zone interest, taking into account historical experience such as the number of customer claims for a refund, the amount of repayments and the characteristics of customers, and the length of the period during which claims are expected to be received in the future.

Management estimates and judgments may change from time to time as the legal environment and market conditions change or new information becomes available. Changes in these estimates and judgments could affect the balance of provision for interest repayment. Provision for interest repayment is recorded in provisions as a liability, and it totaled ¥229,422¥148,409 million and ¥166,715¥145,179 million at March 31, 20162019 and 2015,2018, respectively.

Retirement Benefits

We have defined benefit plans such as defined benefit pension plans andlump-sum severance indemnity plans. The present value of the defined benefit obligation is calculated based on actuarial valuations that are dependent upon a number of assumptions, including discount rates, mortality rates and future salary (benefit) increases. The discount rates are equivalent to market yields of AA credit-rated corporate bonds that have terms to maturity approximating those of the related obligations. Future mortality rates are based on the official mortality table generally used for actuarial assumptions in Japan. Other assumptions used for the calculation of the defined benefit obligation are based on historical records. Due to the long-term nature of these plans, such estimates are subject to significant uncertainty. While we believe that these assumptions are appropriate, any change in these assumptions will impact actuarial gains and losses, as well as the present value of the defined benefit obligations and the net retirement benefit expense for each period. Actuarial gains and losses arising from experience adjustments and changes in actuarial assumptions in the year, and return on plan assets excluding interest income are recognized in other comprehensive income and are never reclassified to profit or loss.

The difference between the fair value of the plan assets and the present value of the defined benefit obligation at the end of the reporting period is recognized as assets and liabilities in the consolidated statement of financial position. When this calculation for each plan results in a benefit to us, the recognized asset is limited to the present value of any economic benefits available in the form of refunds from the plan or reductions in future contributions to the plan. An economic benefit is available to us, if it is realizable during the life of the plan or on settlement of the plan obligation. The net total of assets and liabilities in the consolidated statement of financial position amounted to net assets of ¥177,112¥232,456 million and ¥332,674¥279,567 million at March 31, 20162019 and 2015,2018, respectively.

Deferred Tax Assets

We recognize deferred tax assets relating to tax losses carried forward and deductible temporary differences, only to the extent that it is probable that future taxable profit will be available against which the tax losses carried forward and the deductible temporary differences can be utilized. This assessment requires significant management judgments and assumptions. Future taxable profit is estimated based on, among other relevant factors, forecasted results of operations, which are based on historical financial performance and the business plans that management believes to be prudent and feasible. While we carefully assess the realization of tax losses carried forward and deductible temporary differences, the actual taxable profit in the future may be less than the forecast. The deferred tax assets amounted to ¥115,314¥37,073 million and ¥117,500¥19,436 million in the consolidated statement of financial position at March 31, 20162019 and 2015,2018, respectively, while the net total of deferred tax assets and liabilities amounted to net liabilities of ¥220,574¥230,292 million and ¥446,305¥378,305 million at March 31, 20162019 and 2015,2018, respectively.

New and Amended Accounting Standards and Recent Accounting Pronouncements

See “New and Amended Accounting Standards Adopted by the SMFGSMBC Group” and “Recent Accounting Pronouncements” under Note 2 “Summary of Significant Accounting Policies” to our consolidated financial statements included elsewhere in this annual report.

5.A.    OPERATING RESULTS

For discussion about our operating results for the fiscal year ended March 31, 2017, including certain comparative discussion of the fiscal years ended March 31, 2018 and 2017, please refer to “Item 5. Operating and Financial Review and Prospectus—5.A. Operating Results” in our annual report on Form20-F filed on June 28, 2018.

Under the economic and financial circumstances described in “Item 5. Operating and Financial Review and Prospects—Overview—Operating Environment,” we made a profit through our commercial banking and other

financial services businesses. Our total operating income increaseddecreased by ¥355,793¥609,901 million from ¥3,332,433¥3,812,347 million for the fiscal year ended March 31, 20152018 to ¥3,688,226¥3,202,446 million for the fiscal year ended March 31, 2016,2019, primarily due to an increasedecreases in net tradinginvestment income and other income. Our net profit increaseddecreased by ¥229,861¥242,012 million from ¥722,961¥889,598 million for the fiscal year ended March 31, 20152018 to ¥952,822¥647,586 million for the fiscal year ended March 31, 2016,2019, due to the increasedecrease in total operating income described above, which was partially offset by increasesa decrease in impairment charges on financial assets and operating expenses.

Our total assets increased by ¥991,186¥3,328,057 million from ¥179,181,466¥192,175,566 million at March 31, 20152018 to ¥180,172,652¥195,503,623 million at March 31, 2016,2019, primarily due to increases in cash and deposits with banks and loans and advances, which were partially offset by a decrease in investment securities.assets held for sale.

Our total liabilities increased by ¥969,937¥4,050,410 million from ¥168,160,616¥179,679,767 million at March 31, 20152018 to ¥169,130,553¥183,730,177 million at March 31, 2016, primarily due to an increase in deposits.

Our total equity increased by ¥21,249 million from ¥11,020,850 million at March 31, 2015 to ¥11,042,099 million at March 31, 2016,2019, primarily due to increases in retained earningsdeposits and equity attributable to other equity instruments holders,borrowings, which were partially offset by a decrease in other reserves.liabilities directly associated with the assets held for sale.

Our total equity decreased by ¥722,353 million from ¥12,495,799 million at March 31, 2018 to ¥11,773,446 million at March 31, 2019, primarily due to a decrease innon-controlling interests, which was partially offset by an increase in retained earnings.

Operating Results

The following table presents information as to our income, expenses and net profit for the fiscal years ended March 31, 2016, 20152019 and 2014.2018.

 

  For the fiscal year ended March 31,   For the fiscal year ended
March 31,
 
  2016   2015   2014   2019(1)   2018 
  (In millions, except per share data)   

(In millions, except per

share data)

 

Interest income

  ¥1,872,584    ¥1,782,621    ¥1,714,044    ¥2,406,350   ¥2,144,070 

Interest expense

   431,101     371,107     320,511     1,101,875    733,969 
  

 

   

 

   

 

   

 

   

 

 

Net interest income

   1,441,483     1,411,514     1,393,533     1,304,475    1,410,101 
  

 

   

 

   

 

   

 

   

 

 

Fee and commission income

   1,031,680     1,002,766     1,003,169     1,101,777    1,131,364 

Fee and commission expense

   131,381     129,253     127,959     178,351    178,867 
  

 

   

 

   

 

   

 

   

 

 

Net fee and commission income

   900,299     873,513     875,210     923,426    952,497 
  

 

   

 

   

 

   

 

   

 

 

Net trading income

   462,682     127,759     135,218     320,302    270,464 

Net income from financial assets at fair value through profit or loss

   12,260     22,678     58,586  

Net income (loss) from financial assets at fair value through profit or loss

   54,655    (667

Net investment income

   375,229     371,064     332,265     93,922    424,097 

Other income

   496,273     525,905     429,541     505,666    755,855 
  

 

   

 

   

 

   

 

   

 

 

Total operating income

   3,688,226     3,332,433     3,224,353     3,202,446    3,812,347 
  

 

   

 

   

 

   

 

   

 

 

Impairment charges (reversals) on financial assets

   148,356     90,138     (14,275

Impairment charges on financial assets

   119,686    136,808 
  

 

   

 

   

 

   

 

   

 

 

Net operating income

   3,539,870     3,242,295     3,238,628     3,082,760    3,675,539 
  

 

   

 

   

 

   

 

   

 

 

General and administrative expenses

   1,706,263     1,621,897     1,522,990     1,715,368    1,813,121 

Other expenses

   538,963     505,614     428,780     575,657    792,765 
  

 

   

 

   

 

   

 

   

 

 

Operating expenses

   2,245,226     2,127,511     1,951,770     2,291,025    2,605,886 
  

 

   

 

   

 

   

 

   

 

 

Share of post-tax profit of associates and joint ventures

   31,056     18,124     19,454     40,157    49,323 
  

 

   

 

   

 

   

 

   

 

 

Profit before tax

   1,325,700     1,132,908     1,306,312     831,892    1,118,976 
  

 

   

 

   

 

   

 

   

 

 

Income tax expense

   372,878     409,947     414,076     184,306    229,378 
  

 

   

 

   

 

   

 

   

 

 

Net profit

  ¥952,822    ¥722,961    ¥892,236    ¥647,586   ¥889,598 
  

 

   

 

   

 

   

 

   

 

 

Profit attributable to:

          

Shareholders of Sumitomo Mitsui Financial Group, Inc.

  ¥843,920    ¥614,070    ¥766,388    ¥541,932   ¥759,998 

Non-controlling interests

   106,129     108,891     125,848     93,779    119,878 

Other equity instruments holders

   2,773     —       —       11,875    9,722 

Earnings per share:

          

Basic

  ¥617.25    ¥449.13    ¥560.97    ¥387.76   ¥538.84 

Diluted

   616.83     448.86     560.68     387.49    538.43 

Fiscal Year Ended March 31, 2016 Compared to Fiscal Year Ended March 31, 2015
(1)

On April 1, 2018, we adopted IFRS 9 and IFRS 15 retrospectively by adjusting the consolidated statement of financial position at the date of initial application, and have not restated comparatives as permitted by IFRS 9 and IFRS 15. See Note 2 “Summary of Significant Accounting Policies—New and Amended Accounting Standards Adopted by the SMBC Group” to our consolidated financial statements included elsewhere in this report.

Total operating income increaseddecreased by ¥355,793¥609,901 million, or 11%16%, from ¥3,332,433¥3,812,347 million for the fiscal year ended March 31, 20152018 to ¥3,688,226¥3,202,446 million for the fiscal year ended March 31, 2016,2019, primarily due to increasesdecreases in net tradinginvestment income of ¥334,923¥330,175 million and other income of ¥250,189 million. Although impairment charges on financial assets increased,decreased, net operating income also increaseddecreased by ¥297,575¥592,779 million from ¥3,242,295¥3,675,539 million for the fiscal year ended March 31, 20152018 to ¥3,539,870¥3,082,760 million for the fiscal year ended March 31, 2016, due to the increase in total operating income described above.2019.

Net profit increaseddecreased by ¥229,861¥242,012 million from ¥722,961¥889,598 million for the fiscal year ended March 31, 20152018 to ¥952,822¥647,586 million for the fiscal year ended March 31, 2016,2019, as a result of the increasedecrease in net operating income described above, which was partially offset by increasesa decrease in general and administrative expenses and other expenses.

Fiscal Year Ended March 31, 2015 Compared to Fiscal Year Ended March 31, 2014

Total operating income increased by ¥108,080 million, or 3%, from ¥3,224,353 million for the fiscal year ended March 31, 2014 to ¥3,332,433 million for the fiscal year ended March 31, 2015, primarily due to increases in net investment income of ¥38,799 million and other income of ¥96,364 million as discussed in detail below. Although impairment charges on financial assets increased, net operating income also increased by ¥3,667 million from ¥3,238,628 million for the fiscal year ended March 31, 2014 to ¥3,242,295 million for the fiscal year ended March 31, 2015, due to the increase in total operating income described above.

Net profit decreased by ¥169,275 million from ¥892,236 million for the fiscal year ended March 31, 2014 to ¥722,961 million for the fiscal year ended March 31, 2015, as a result of increases in general and administrative expenses and other expenses.

Net Interest Income

The following tables show the average balances of our statement of financial position items, related interest income, interest expense, net interest income and average rates for the fiscal years ended March 31, 2016, 20152019 and 2014.2018.

 

 For the fiscal year ended March 31,  For the fiscal year ended March 31, 
 2016 2015 2014  2019 2018 
 Average
balance(3)
 Interest
income
 Average
rate
 Average
balance(3)
 Interest
income
 Average
rate
 Average
balance(3)
 Interest
income
 Average
rate
  Average
balance(3)
 Interest
income
 Average
rate
 Average
balance(3)
 Interest
income
 Average
rate
 
 (In millions, except percentages)  (In millions, except percentages) 

Interest-earning assets:

               

Interest-earning deposits with other banks:

               

Domestic offices

 ¥768,976   ¥4,771    0.62 ¥741,738   ¥4,548    0.61 ¥609,023   ¥2,807    0.46 ¥997,310  ¥3,573  0.36 ¥848,242  ¥4,536  0.53

Foreign offices

  5,786,836    35,701    0.62  5,892,983    37,348    0.63  6,027,100    34,521    0.57 4,696,278  100,225  2.13 4,873,905  73,681  1.51
 

 

  

 

   

 

  

 

   

 

  

 

   

 

  

 

   

 

  

 

  

Total

  6,555,812    40,472    0.62  6,634,721    41,896    0.63  6,636,123    37,328    0.56 5,693,588  103,798  1.82 5,722,147  78,217  1.37
 

 

  

 

   

 

  

 

   

 

  

 

   

 

  

 

   

 

  

 

  

Call loans and bills bought:

         

Call loans and bills bought, reverse repurchase agreements and cash collateral on securities borrowed:

      

Domestic offices

  147,992    861    0.58  226,409    1,177    0.52  273,903    1,583    0.58 8,829,374  14,879  0.17 8,201,699  14,975  0.18

Foreign offices

  967,442    20,967    2.17  972,643    17,429    1.79  1,154,049    16,559    1.43 3,138,663  39,908  1.27 2,952,589  44,408  1.50
 

 

  

 

   

 

  

 

   

 

  

 

   

 

  

 

   

 

  

 

  

Total

  1,115,434    21,828    1.96  1,199,052    18,606    1.55  1,427,952    18,142    1.27 11,968,037  54,787  0.46 11,154,288  59,383  0.53
 

 

  

 

   

 

  

 

   

 

  

 

   

 

  

 

   

 

  

 

  

Reverse repurchase agreements and cash collateral on securities borrowed:

         

Domestic offices

  6,675,810    10,763    0.16  4,766,205    7,875    0.17  3,749,260    7,339    0.20

Foreign offices

  741,623    11,248    1.52  726,427    9,146    1.26  419,274    7,631    1.82
 

 

  

 

   

 

  

 

   

 

  

 

  

Total

  7,417,433    22,011    0.30  5,492,632    17,021    0.31  4,168,534    14,970    0.36
 

 

  

 

   

 

  

 

   

 

  

 

  

Held-to-maturity investments(1):

         

Domestic offices

  2,964,539    12,880    0.43  4,086,502    20,509    0.50  5,238,921    30,303    0.58
 

 

  

 

   

 

  

 

   

 

  

 

  

Total

  2,964,539    12,880    0.43  4,086,502    20,509    0.50  5,238,921    30,303    0.58
 

 

  

 

   

 

  

 

   

 

  

 

  

Available-for-sale financial assets(1):

         

Investment securities(1):

      

Domestic offices

  10,878,176    38,701    0.36  10,385,945    32,703    0.31  12,119,698    35,539    0.29 8,977,937  65,854  0.73 10,584,200  47,297  0.45

Foreign offices

  2,425,249    33,331    1.37  2,250,294    29,282    1.30  1,780,684    19,956    1.12 4,258,283  87,061  2.04 3,406,370  54,998  1.61
 

 

  

 

   

 

  

 

   

 

  

 

   

 

  

 

   

 

  

 

  

Total

  13,303,425    72,032    0.54  12,636,239    61,985    0.49  13,900,382    55,495    0.40 13,236,220  152,915  1.16 13,990,570  102,295  0.73
 

 

  

 

   

 

  

 

   

 

  

 

   

 

  

 

   

 

  

 

  

Loans and advances(2):

               

Domestic offices

  63,177,259    1,091,538    1.73  62,005,587    1,099,119    1.77  61,524,516    1,138,102    1.85 60,973,779  1,007,977  1.65 68,551,116  1,093,584  1.60

Foreign offices

  26,272,983    611,823    2.33  23,292,666    523,485    2.25  19,553,229    419,704    2.15 29,646,844  1,086,873  3.67 28,121,904  810,591  2.88
 

 

  

 

   

 

  

 

   

 

  

 

   

 

  

 

   

 

  

 

  

Total

  89,450,242    1,703,361    1.90  85,298,253    1,622,604    1.90  81,077,745    1,557,806    1.92 90,620,623  2,094,850  2.31 96,673,020  1,904,175  1.97
 

 

  

 

   

 

  

 

   

 

  

 

   

 

  

 

   

 

  

 

  

Total interest-earning assets:

               

Domestic offices

  84,612,752    1,159,514    1.37  82,212,386    1,165,931    1.42  83,515,321    1,215,673    1.46 79,778,400  1,092,283  1.37 88,185,257  1,160,392  1.32

Foreign offices

  36,194,133    713,070    1.97  33,135,013    616,690    1.86  28,934,336    498,371    1.72 41,740,068  1,314,067  3.15 39,354,768  983,678  2.50
 

 

  

 

   

 

  

 

   

 

  

 

   

 

  

 

   

 

  

 

  

Total

 ¥120,806,885   ¥1,872,584    1.55 ¥115,347,399   ¥1,782,621    1.55 ¥112,449,657   ¥1,714,044    1.52 ¥121,518,468  ¥2,406,350  1.98 ¥127,540,025  ¥2,144,070  1.68
 

 

  

 

   

 

  

 

   

 

  

 

   

 

  

 

   

 

  

 

  

  For the fiscal year ended March 31, 
  2016  2015  2014 
  Average
balance(3)
  Interest
expense
  Average
rate
  Average
balance(3)
  Interest
expense
  Average
rate
  Average
balance(3)
  Interest
expense
  Average
rate
 
  (In millions, except percentages) 

Interest-bearing liabilities:

         

Deposits:

         

Domestic offices

 ¥78,458,170   ¥48,032    0.06 ¥74,397,836   ¥49,356    0.07 ¥72,376,165   ¥48,446    0.07

Foreign offices

  22,838,530    154,280    0.68  21,263,919    116,211    0.55  17,014,587    91,944    0.54
 

 

 

  

 

 

   

 

 

  

 

 

   

 

 

  

 

 

  

Total

  101,296,700    202,312    0.20  95,661,755    165,567    0.17  89,390,752    140,390    0.16
 

 

 

  

 

 

   

 

 

  

 

 

   

 

 

  

 

 

  

Call money and bills sold:

         

Domestic offices

  2,199,407    1,524    0.07  2,040,724    1,504    0.07  1,497,244    1,222    0.08

Foreign offices

  663,310    4,059    0.61  877,127    2,510    0.29  651,839    2,261    0.35
 

 

 

  

 

 

   

 

 

  

 

 

   

 

 

  

 

 

  

Total

  2,862,717    5,583    0.20  2,917,851    4,014    0.14  2,149,083    3,483    0.16
 

 

 

  

 

 

   

 

 

  

 

 

   

 

 

  

 

 

  

Repurchase agreements and cash collateral on securities lent:

         

Domestic offices

  7,172,312    8,582    0.12  5,584,584    6,091    0.11  4,167,460    4,558    0.11

Foreign offices

  2,009,593    6,523    0.32  1,455,125    3,829    0.26  990,721    2,989    0.30
 

 

 

  

 

 

   

 

 

  

 

 

   

 

 

  

 

 

  

Total

  9,181,905    15,105    0.16  7,039,709    9,920    0.14  5,158,181    7,547    0.15
 

 

 

  

 

 

   

 

 

  

 

 

   

 

 

  

 

 

  

Borrowings:

         

Domestic offices

  10,251,890    56,353    0.55  9,170,288    54,915    0.60  5,879,723    50,833    0.86

Foreign offices

  823,446    15,850    1.92  790,516    16,122    2.04  787,217    17,433    2.21
 

 

 

  

 

 

   

 

 

  

 

 

   

 

 

  

 

 

  

Total

  11,075,336    72,203    0.65  9,960,804    71,037    0.71  6,666,940    68,266    1.02
 

 

 

  

 

 

   

 

 

  

 

 

   

 

 

  

 

 

  

Debt securities in issue:

         

Domestic offices

  7,999,705    120,285    1.50  7,000,273    109,960    1.57  6,223,653    92,481    1.49

Foreign offices

  3,044,714    14,887    0.49  2,819,687    9,829    0.35  2,355,748    7,636    0.32
 

 

 

  

 

 

   

 

 

  

 

 

   

 

 

  

 

 

  

Total

  11,044,419    135,172    1.22  9,819,960    119,789    1.22  8,579,401    100,117    1.17
 

 

 

  

 

 

   

 

 

  

 

 

   

 

 

  

 

 

  

Other interest-bearing liabilities:

         

Domestic offices

  93,104    676    0.73  96,873    731    0.75  90,049    689    0.77

Foreign offices

  1,960    50    2.55  3,025    49    1.62  2,898    19    0.66
 

 

 

  

 

 

   

 

 

  

 

 

   

 

 

  

 

 

  

Total

  95,064    726    0.76  99,898    780    0.78  92,947    708    0.76
 

 

 

  

 

 

   

 

 

  

 

 

   

 

 

  

 

 

  

Total interest-bearing liabilities:

         

Domestic offices

  106,174,588    235,452    0.22  98,290,578    222,557    0.23  90,234,294    198,229    0.22

Foreign offices

  29,381,553    195,649    0.67  27,209,399    148,550    0.55  21,803,010    122,282    0.56
 

 

 

  

 

 

   

 

 

  

 

 

   

 

 

  

 

 

  

Total

 ¥135,556,141   ¥431,101    0.32 ¥125,499,977   ¥371,107    0.30 ¥112,037,304   ¥320,511    0.29
 

 

 

  

 

 

   

 

 

  

 

 

   

 

 

  

 

 

  

Net interest income and interest rate spread

  ¥1,441,483    1.23  ¥1,411,514    1.25  ¥1,393,533    1.23
  

 

 

  

 

 

   

 

 

  

 

 

   

 

 

  

 

 

 

  For the fiscal year ended March 31, 
  2019  2018 
  Average
balance(3)
  Interest
expense
  Average
rate
  Average
balance(3)
  Interest
expense
  Average
rate
 
  (In millions, except percentages) 

Interest-bearing liabilities:

      

Deposits:

      

Domestic offices

 ¥83,791,727  ¥59,234   0.07 ¥87,138,742  ¥44,941   0.05

Foreign offices

  27,283,476   542,131   1.99  25,413,734   337,812   1.33
 

 

 

  

 

 

   

 

 

  

 

 

  

Total

  111,075,203   601,365   0.54  112,552,476   382,753   0.34
 

 

 

  

 

 

   

 

 

  

 

 

  

Call money and bills sold, repurchase agreements and cash collateral on securities lent and other interest-bearing liabilities:

      

Domestic offices

  8,115,332   39,636   0.49  10,964,003   17,600   0.16

Foreign offices

  4,610,162   97,606   2.12  5,030,541   53,646   1.07
 

 

 

  

 

 

   

 

 

  

 

 

  

Total

  12,725,494   137,242   1.08  15,994,544   71,246   0.45
 

 

 

  

 

 

   

 

 

  

 

 

  

Borrowings:

      

Domestic office

  10,787,234   73,299   0.68  11,331,752   61,460   0.54

Foreign offices

  977,662   33,934   3.47  983,616   27,736   2.82
 

 

 

  

 

 

   

 

 

  

 

 

  

Total

  11,764,896   107,233   0.91  12,315,368   89,196   0.72
 

 

 

  

 

 

   

 

 

  

 

 

  

Debt securities in issue:

      

Domestic offices

  9,880,220   203,423   2.06  9,298,368   166,769   1.79

Foreign offices

  2,698,608   52,612   1.95  2,180,438   24,005   1.10
 

 

 

  

 

 

   

 

 

  

 

 

  

Total

  12,578,828   256,035   2.04  11,478,806   190,774   1.66
 

 

 

  

 

 

   

 

 

  

 

 

  

Total interest-bearing liabilities:

      

Domestic offices

  112,574,513   375,592   0.33  118,732,865   290,770   0.24

Foreign offices

  35,569,908   726,283   2.04  33,608,329   443,199   1.32
 

 

 

  

 

 

   

 

 

  

 

 

  

Total

 ¥148,144,421  ¥1,101,875   0.74 ¥152,341,194  ¥733,969   0.48
 

 

 

  

 

 

   

 

 

  

 

 

  

Net interest income and interest rate spread

  ¥1,304,475   1.24  ¥1,410,101   1.20
  

 

 

  

 

 

   

 

 

  

 

 

 

 

(1)

Taxable investment securities andnon-taxable investment securities are not disclosed separately because the aggregate effect of these average balances and interest income would not be material. In addition, the yields ontax-exempt obligations have not been calculated on a tax equivalent basis because the effect of such calculation would not be material.

(2)

Loans and advances include impaired loans and advances. The amortized portion of net loan origination fees (costs) is included in interest income on loans and advances.

(3)

Average balances are generally based on a daily average. Weekly,month-end orquarter-end averages are used for certain average balances where it is not practical to obtain applicable daily averages. The allocations of amounts between domestic and foreign are based on the location of the office.

The following tables show changes in our interest income, interest expense and net interest income based on changes in volume and changes in rate for the fiscal year ended March 31, 20162019 compared to the fiscal year ended March 31, 2015, and those for the fiscal year ended March 31, 2015 compared to the fiscal year ended March 31, 2014.2018.

 

  Fiscal year ended March 31, 2016
compared to

fiscal year ended March 31, 2015
Increase / (decrease)
 Fiscal year ended March 31, 2015
compared to

fiscal year ended March 31, 2014
Increase / (decrease)
   Fiscal year ended March 31, 2019
compared to
fiscal year ended March 31, 2018
Increase / (decrease)
 
  Volume Rate Net change Volume Rate Net change   Volume Rate Net change 
  (In millions)   (In millions) 

Interest income:

           

Interest-earning deposits with other banks:

           

Domestic offices

  ¥168   ¥55   ¥223   ¥690   ¥1,051   ¥1,741    ¥700  ¥(1,663 ¥(963

Foreign offices

   (663  (984  (1,647  (779  3,606    2,827     (2,772 29,316  26,544 
  

 

  

 

  

 

  

 

  

 

  

 

   

 

  

 

  

 

 

Total

   (495  (929  (1,424  (89  4,657    4,568     (2,072 27,653  25,581 
  

 

  

 

  

 

  

 

  

 

  

 

   

 

  

 

  

 

 

Call loans and bills bought:

       

Call loans and bills bought, reverse repurchase agreements and cash collateral on securities borrowed:

    

Domestic offices

   (443  127    (316  (258  (148  (406   1,093  (1,189 (96

Foreign offices

   (94  3,632    3,538    (2,845  3,715    870     2,666  (7,166 (4,500
  

 

  

 

  

 

  

 

  

 

  

 

   

 

  

 

  

 

 

Total

   (537  3,759    3,222    (3,103  3,567    464     3,759  (8,355 (4,596
  

 

  

 

  

 

  

 

  

 

  

 

   

 

  

 

  

 

 

Reverse repurchase agreements and cash collateral on securities borrowed:

       

Domestic offices

   3,080    (192  2,888    1,837    (1,301  536  

Foreign offices

   195    1,907    2,102    4,379    (2,864  1,515  
  

 

  

 

  

 

  

 

  

 

  

 

 

Total

   3,275    1,715    4,990    6,216    (4,165  2,051  
  

 

  

 

  

 

  

 

  

 

  

 

 

Held-to-maturity investments:

       

Domestic offices

   (5,090  (2,539  (7,629  (6,117  (3,677  (9,794
  

 

  

 

  

 

  

 

  

 

  

 

 

Total

   (5,090  (2,539  (7,629  (6,117  (3,677  (9,794
  

 

  

 

  

 

  

 

  

 

  

 

 

Available-for-sale financial assets:

       

Investment securities:

    

Domestic offices

   1,582    4,416    5,998    (5,262  2,426    (2,836   (8,110 26,667  18,557 

Foreign offices

   2,347    1,702    4,049    5,785    3,541    9,326     15,487  16,576  32,063 
  

 

  

 

  

 

  

 

  

 

  

 

   

 

  

 

  

 

 

Total

   3,929    6,118    10,047    523    5,967    6,490     7,377  43,243  50,620 
  

 

  

 

  

 

  

 

  

 

  

 

   

 

  

 

  

 

 

Loans and advances:

           

Domestic offices

   20,525    (28,106  (7,581  8,841      (47,824  (38,983   (124,191 38,584  (85,607

Foreign offices

   68,923    19,415    88,338    83,406    20,375    103,781     45,907  230,375  276,282 
  

 

  

 

  

 

  

 

  

 

  

 

   

 

  

 

  

 

 

Total

   89,448    (8,691  80,757    92,247    (27,449     64,798     (78,284 268,959  190,675 
  

 

  

 

  

 

  

 

  

 

  

 

   

 

  

 

  

 

 

Total interest income:

           

Domestic offices

   19,822    (26,239  (6,417  (269  (49,473  (49,742   (130,508 62,399  (68,109

Foreign offices

     70,708       25,672       96,380       89,946    28,373    118,319     61,288  269,101  330,389 
  

 

  

 

  

 

  

 

  

 

  

 

   

 

  

 

  

 

 

Total

  ¥90,530   ¥(567 ¥89,963   ¥89,677   ¥(21,100 ¥68,577    ¥(69,220 ¥331,500  ¥262,280 
  

 

  

 

  

 

  

 

  

 

  

 

   

 

  

 

  

 

 

   Fiscal year ended March 31, 2016
compared to
fiscal year ended March 31, 2015

Increase / (decrease)
  Fiscal year ended March 31, 2015
compared to
fiscal year ended March 31, 2014

Increase / (decrease)
 
   Volume  Rate  Net change  Volume  Rate  Net change 
   (In millions) 

Interest expense:

       

Deposits:

       

Domestic offices

  ¥2,730   ¥(4,054 ¥(1,324 ¥1,415   ¥(505 ¥910  

Foreign offices

   9,149    28,920    38,069    23,342    925    24,267  
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Total

   11,879    24,866    36,745    24,757    420    25,177  
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Call money and bills sold:

       

Domestic offices

   111    (91  20    394    (112  282  

Foreign offices

   (744  2,293    1,549    698    (449  249  
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Total

   (633  2,202    1,569    1,092    (561  531  
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Repurchase agreements and cash collateral on securities lent:

       

Domestic offices

   1,867    624    2,491    1,559    (26  1,533  

Foreign offices

   1,649    1,045    2,694    1,249    (409  840  
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Total

   3,516    1,669    5,185    2,808    (435  2,373  
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Borrowings:

       

Domestic offices

   6,173    (4,735  1,438    22,744    (18,662  4,082  

Foreign offices

   655    (927  (272  73    (1,384  (1,311
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Total

   6,828    (5,662  1,166    22,817    (20,046  2,771  
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Debt securities in issue:

       

Domestic offices

   15,158    (4,833  10,325    12,006    5,473    17,479  

Foreign offices

   840    4,218    5,058    1,579    614    2,193  
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Total

   15,998    (615  15,383    13,585    6,087    19,672  
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Other interest-bearing liabilities:

       

Domestic offices

   (28  (27  (55  52    (10  42  

Foreign offices

   (21  22    1    1    29    30  
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Total

   (49  (5  (54  53    19    72  
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Total interest expense:

       

Domestic offices

   26,011    (13,116  12,895    38,170      (13,842  24,328  

Foreign offices

   11,528       35,571    47,099    26,942    (674  26,268  
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Total

  ¥37,539   ¥22,455   ¥59,994   ¥65,112   ¥(14,516 ¥50,596  
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Net interest income:

       

Domestic offices

  ¥(6,189 ¥(13,123 ¥(19,312 ¥(38,439 ¥(35,631 ¥(74,070

Foreign offices

     59,180    (9,899     49,281       63,004    29,047       92,051  
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Total

  ¥52,991   ¥(23,022 ¥29,969   ¥24,565   ¥(6,584 ¥17,981  
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

   Fiscal year ended March 31, 2019
compared to
fiscal year ended March 31, 2018
Increase / (decrease)
 
   Volume  Rate  Net change 
   (In millions) 

Interest expense:

    

Deposits:

    

Domestic offices

  ¥(1,732 ¥16,025  ¥14,293 

Foreign offices

   26,461   177,858   204,319 
  

 

 

  

 

 

  

 

 

 

Total

   24,729   193,883   218,612 
  

 

 

  

 

 

  

 

 

 

Call money and bills sold, repurchase agreements and cash collateral on securities lent and other interest-bearing liabilities:

    

Domestic offices

   (5,610  27,646   22,036 

Foreign offices

   (4,844  48,804   43,960 
  

 

 

  

 

 

  

 

 

 

Total

   (10,454  76,450   65,996 
  

 

 

  

 

 

  

 

 

 

Borrowings:

    

Domestic offices

   (3,060  14,899   11,839 

Foreign offices

   (169  6,367   6,198 
  

 

 

  

 

 

  

 

 

 

Total

   (3,229  21,266   18,037 
  

 

 

  

 

 

  

 

 

 

Debt securities in issue:

    

Domestic offices

   10,876   25,778   36,654 

Foreign offices

   6,736   21,871   28,607 
  

 

 

  

 

 

  

 

 

 

Total

   17,612   47,649   65,261 
  

 

 

  

 

 

  

 

 

 

Total interest expense:

    

Domestic offices

   474   84,348   84,822 

Foreign offices

   28,184   254,900   283,084 
  

 

 

  

 

 

  

 

 

 

Total

  ¥28,658  ¥339,248  ¥367,906 
  

 

 

  

 

 

  

 

 

 

Net interest income:

    

Domestic offices

  ¥(130,982 ¥(21,949 ¥(152,931

Foreign offices

   33,104   14,201   47,305 
  

 

 

  

 

 

  

 

 

 

Total

  ¥(97,878 ¥(7,748 ¥(105,626
  

 

 

  

 

 

  

 

 

 

Fiscal Year Ended March 31, 2016 Compared to Fiscal Year Ended March 31, 2015

Interest Income

Our interest income increased by ¥89,963¥262,280 million, or 5%12%, from ¥1,782,621¥2,144,070 million for the fiscal year ended March 31, 20152018 to ¥1,872,584¥2,406,350 million for the fiscal year ended March 31, 2016,2019, primarily due to an increase in interest income on loans and advances. Interest income on loans and advances increased by ¥80,757¥190,675 million, or 5%10%, from ¥1,622,604¥1,904,175 million for the fiscal year ended March 31, 20152018 to ¥1,703,361¥2,094,850 million for the fiscal year ended March 31, 2016.2019, primarily due to performance in our foreign offices. Interest income on loans and advances at foreign offices increased by ¥88,338¥276,282 million, or 17%34%, from ¥523,485¥810,591 million for the fiscal year ended March 31, 20152018 to ¥611,823¥1,086,873 million for the fiscal year ended March 31, 2016,2019, due to an increaseincreases in both the average balancesrate and volume of loans to foreign customers, reflecting our allocation of assets primarily to the United States.customers. Interest income on loans and advances at domestic offices decreased by ¥7,581¥85,607 million, or 1%8%, from ¥1,099,119¥1,093,584 million for the fiscal year ended March 31, 20152018 to ¥1,091,538¥1,007,977 million for the fiscal year ended March 31, 2016,2019, primarily due to a decrease in volume reflecting the average rate reflecting continuing intense competition inexclusion of loans and advances made by KUBC and The Minato Bank, both of which had been our subsidiaries but became our equity-method associates for the commercial banking industry.fiscal year ended March 31, 2018.

Interest Expense

Our interest expense increased by ¥59,994¥367,906 million, or 16%50%, from ¥371,107¥733,969 million for the fiscal year ended March 31, 20152018 to ¥431,101¥1,101,875 million for the fiscal year ended March 31, 2016,2019, primarily due to increasesan increase in interest expense on deposits and debt securities in issue.deposits. Our interest expense on deposits increased by ¥36,745¥218,612 million, or 22%57%, from ¥165,567¥382,753 million for the fiscal year ended March 31, 20152018 to ¥202,312¥601,365 million for the fiscal year ended March 31, 2016,2019, primarily due to an increase at foreign offices.offices reflecting increases in both the average rate and volume.

Net Interest expense on debt securities in issue increasedIncome

Our net interest income decreased by ¥15,383¥105,626 million, or 13%7%, from ¥119,789¥1,410,101 million for the fiscal year ended March 31, 20152018 to ¥135,172¥1,304,475 million for the fiscal year ended March 31, 2016, primarily due to an increase in average balances.

Net Interest Income

Our net interest income increased by ¥29,969 million, or 2%, from ¥1,411,514 million for the fiscal year ended March 31, 2015 to ¥1,441,483 million for the fiscal year ended March 31, 2016.2019. The net interest income increaseddecreased primarily due to an increasea decrease in interest income on loans and advances at domestic offices, which was partially offset by increasesan increase in thenet interest expense on deposits and debt securities in issue.income at foreign offices.

From the fiscal year ended March 31, 20152018 to March 31, 2016,2019, the average rate on loans and advances at domestic offices decreasedincreased by 0.040.05 percentage points from 1.77%1.60% to 1.73%, primarily due to the continuing intense competition in the commercial banking industry.1.65%. The average rate on loans and advances at foreign offices increased by 0.080.79 percentage points from 2.25%2.88% to 2.33%3.67%. As a result, the total for loans and advances was 1.90%, the same level as that of the previous year. On the other hand, the average rate on deposits at domestic offices slightly decreasedincreased by 0.010.34 percentage points from 0.07%1.97% to 0.06%, and the average rate on deposits at foreign offices increased by 0.13 percentage points from 0.55% to 0.68%, resulting in the total for deposits increasing by 0.03 percentage points from 0.17% to 0.20%.

Fiscal Year Ended March 31, 2015 Compared to Fiscal Year Ended March 31, 2014

Interest Income

Our interest income increased by ¥68,577 million, or 4%, from ¥1,714,044 million for the fiscal year ended March 31, 2014 to ¥1,782,621 million for the fiscal year ended March 31, 2015. This increase reflected an increase in interest income on loans and advances, which was partially offset by a decrease in interest income on held-to-maturity investments. Interest income on loans and advances increased by ¥64,798 million, or 4%, from ¥1,557,806 million for the fiscal year ended March 31, 2014 to ¥1,622,604 million for the fiscal year ended March 31, 2015. Interest income on loans and advances at foreign offices increased by ¥103,781 million, or 25%, from ¥419,704 million for the fiscal year ended March 31, 2014 to ¥523,485 million for the fiscal year ended

March 31, 2015, due to an increase in the average balances of loans to foreign customers, reflecting our allocation of assets primarily to Asian countries and the United States. Interest income on loans and advances at domestic offices decreased by ¥38,983 million, or 3%, from ¥1,138,102 million for the fiscal year ended March 31, 2014 to ¥1,099,119 million for the fiscal year ended March 31, 2015, due to a decrease in average rate reflecting increasing competition in the commercial banking industry. Interest income on held-to-maturity investments decreased by ¥9,794 million, or 32%, from ¥30,303 million for the fiscal year ended March 31, 2014 to ¥20,509 million for the fiscal year ended March 31, 2015, due to a decrease in average balances at our domestic offices reflecting a decrease in investments in Japanese government bonds.

Interest Expense

Our interest expense increased by ¥50,596 million, from ¥320,511 million for the fiscal year ended March 31, 2014 to ¥371,107 million for the fiscal year ended March 31, 2015, primarily due to increases in interest expense on deposits and debt securities in issue. Our interest expense on deposits increased by ¥25,177 million, or 18%, from ¥140,390 million for the fiscal year ended March 31, 2014 to ¥165,567 million for the fiscal year ended March 31, 2015, primarily due to an increase at foreign offices. Interest expense on debt securities in issue increased by ¥19,672 million, or 20%, from ¥100,117 million for the fiscal year ended March 31, 2014 to ¥119,789 million for the fiscal year ended March 31, 2015, primarily due to an increase in average balances.

Net Interest Income

Our net interest income increased by ¥17,981 million, or 1%, from ¥1,393,533 million for the fiscal year ended March 31, 2014 to ¥1,411,514 million for the fiscal year ended March 31, 2015. The net interest income increased primarily due to an increase in interest income on loans and advances, which was partially offset by increases in the interest expense on deposits and debt securities in issue.

From the fiscal year ended March 31, 2014 to March 31, 2015, the average rate on loans and advances at domestic offices decreased by 0.08 percentage points from 1.85% to 1.77%, primarily due to the increasing competition in the commercial banking industry. The average rate on loans and advances at foreign offices increased by 0.10 percentage points from 2.15% to 2.25%, resulting in the total for loans and advances decreasing by 0.02 percentage points from 1.92% to 1.90%2.31%. On the other hand, the average rate on deposits at domestic offices was 0.07%increased by 0.20 percentage points from 0.34% to 0.54%, the same level as that of the previous fiscal year, andprimarily due to an increase in the average rate on deposits at foreign offices slightly increased by 0.010.66 percentage points from 0.54%1.33% to 0.55%, resulting in the total for deposits increasing slightly by 0.01 percentage points from 0.16% to 0.17%1.99%.

Net Fee and Commission Income

The following table sets forth our net fee and commission income for the periods shown.

 

 For the fiscal year ended March 31, 
 For the fiscal year ended March 31,  2019 2018 
 2016 2015 2014      
 (In millions)  (In millions) 

Fee and commission income from:

     

Loans

 ¥121,934   ¥103,486   ¥109,788   ¥118,225  ¥120,998 

Credit card business

  253,136    245,133    234,060   290,034  289,509 

Guarantees

  55,618    51,794    45,229   63,112  62,934 

Securities-related business

  133,019    130,164    137,184   142,870  147,016 

Deposits

  14,882    14,976    18,234   12,650  16,169 

Remittances and transfers

  133,110    129,465    130,864   139,625  140,621 

Safe deposits

  5,511    5,748    5,832   4,546  5,224 

Trust fees

  3,619    2,833    2,421   4,629  3,854 

Investment trusts

  116,057    147,021    159,424   127,762  154,419 

Agency

  16,432    16,854    17,966   11,417  16,577 

Others

  178,362    155,292    142,167   186,907  174,043 
 

 

  

 

  

 

  

 

  

 

 

Total fee and commission income

  1,031,680    1,002,766    1,003,169   1,101,777  1,131,364 
 

 

  

 

  

 

  

 

  

 

 

Fee and commission expense from:

     

Remittances and transfers

  38,358    36,669    36,413   42,150  40,214 

Guarantees

  3,071    3,012    1,607   1,572  3,750 

Others

  89,952    89,572    89,939   134,629  134,903 
 

 

  

 

  

 

  

 

  

 

 

Total fee and commission expense

  131,381    129,253    127,959   178,351  178,867 
 

 

  

 

  

 

  

 

  

 

 

Net fee and commission income

 ¥900,299   ¥873,513   ¥875,210   ¥923,426  ¥952,497 
 

 

  

 

  

 

  

 

  

 

 

Fiscal Year Ended March 31, 2016 Compared to Fiscal Year Ended March 31, 2015

Fee and commission income increaseddecreased by ¥28,914¥29,587 million, or 3%, from ¥1,002,766¥1,131,364 million for the fiscal year ended March 31, 20152018 to ¥1,031,680¥1,101,777 million for the fiscal year ended March 31, 2016.2019. Primary sources of fee and commission income are fees obtained through our credit card business, fees obtained through securities-related business, remittance and transfer fees, fees and commissions obtained through securities-related business,investment trusts, and loan transaction fees, and investment trust sales commissions.fees. The increasedecrease in fee and commission income was primarily due to increasesa decrease in loan transaction fees and fees obtained through our credit card business.investment trust sales commissions reflecting the decline in stock prices in the second half of the fiscal year ended March 31, 2019.

Fee and commission expense was ¥131,381¥178,351 million for the fiscal year ended March 31, 2016, increased2019, slightly decreased by ¥2,128¥516 million or 2%, from ¥129,253¥178,867 million for the fiscal year ended March 31, 2015.2018.

As a result, net fee and commission income increaseddecreased by ¥26,786¥29,071 million, or 3%, from ¥873,513¥952,497 million for the fiscal year ended March 31, 20152018 to ¥900,299¥923,426 million for the fiscal year ended March 31, 2016.2019.

Fiscal Year Ended March 31, 2015 Compared to Fiscal Year Ended March 31, 2014

Fee and commission income slightly decreased by ¥403 million from ¥1,003,169 million for the fiscal year ended March 31, 2014 to ¥1,002,766 million for the fiscal year ended March 31, 2015. Primary sources of fee and commission income are fees obtained through our credit card business, investment trust sales commissions, fees obtained through securities-related business, remittance and transfer fees, and loan transaction fees. Investment trust sales commissions and fees and commissions from securities-related business decreased, reflecting the relatively stable Japanese stock market in the first half of the fiscal year ended March 31, 2015, which was partially offset by an increase in fees obtained through our credit card business.

Fee and commission expense was ¥129,253 million for the fiscal year ended March 31, 2015, increased by ¥1,294 million, or 1%, from ¥127,959 million for the fiscal year ended March 31, 2014.

As a result, net fee and commission income slightly decreased by ¥1,697 million from ¥875,210 million for the fiscal year ended March 31, 2014 to ¥873,513 million for the fiscal year ended March 31, 2015.

Net Income (Loss) from Trading, Financial Assets at Fair Value Through Profit or Loss and Investment Securities

The following table sets forth our net income (loss) from trading, financial assets at fair value through profit or loss and investment securities for the periods shown.

 

   For the fiscal year ended March 31, 
   2016  2015  2014 
   (In millions) 

Net trading income:

    

Interest rate

  ¥240,763   ¥248,372   ¥184,859  

Foreign exchange

   204,349    (136,708  (81,154

Equity

   18,019    499    10,496  

Credit

   (2,641  16,970    20,983  

Others

   2,192    (1,374  34  
  

 

 

  

 

 

  

 

 

 

Total net trading income

  ¥462,682   ¥127,759   ¥135,218  
  

 

 

  

 

 

  

 

 

 

Net income from financial assets at fair value through profit or loss:

    

Net income from debt instruments

  ¥11,311   ¥13,123   ¥53,142  

Net income from equity instruments

   949    9,555    5,444  
  

 

 

  

 

 

  

 

 

 

Total net income from financial assets at fair value through profit or loss

  ¥12,260   ¥22,678   ¥58,586  
  

 

 

  

 

 

  

 

 

 

Net investment income:

    

Net gain (loss) from disposal of debt instruments

  ¥71,641   ¥45,193   ¥(1,753

Net gain from disposal of equity instruments

   175,494    190,570    225,185  

Dividend income

   128,094    135,301    108,833  
  

 

 

  

 

 

  

 

 

 

Total net investment income

  ¥375,229   ¥371,064   ¥332,265  
  

 

 

  

 

 

  

 

 

 

Fiscal Year Ended March 31, 2016 Compared to Fiscal Year Ended March 31, 2015

  For the fiscal year ended March 31, 
  2019  2018 
       
  (In millions) 

Net trading income:

  

Interest rate

 ¥176,352  ¥128,137 

Foreign exchange

  92,835   87,322 

Equity

  46,576   48,047 

Credit

  3,667   5,735 

Others

  872   1,223 
 

 

 

  

 

 

 

Total net trading income

 ¥320,302  ¥270,464 
 

 

 

  

 

 

 

Net income (loss) from financial assets at fair value through profit or loss:

  

Net income (loss) from debt instruments

 ¥53,048  ¥(1,775

Net income from equity instruments

  1,607   1,108 
 

 

 

  

 

 

 

Total net income (loss) from financial assets at fair value through profit or loss

 ¥54,655  ¥(667
 

 

 

  

 

 

 

Net investment income:

  

Net gain from disposal of debt instruments

 ¥6,072  ¥4,187 

Net gain from disposal of equity instruments

  —     281,036 

Dividend income

  87,850   138,874 
 

 

 

  

 

 

 

Total net investment income

 ¥93,922  ¥424,097 
 

 

 

  

 

 

 

Net trading income, which includes income and losses from trading assets and liabilities and derivative financial instruments, increased by ¥334,923¥49,838 million from ¥127,759¥270,464 million for the fiscal year ended March 31, 20152018 to ¥462,682¥320,302 million for the fiscal year ended March 31, 2016.2019. The increase was primarily due to a shift from net trading loss toan increase in net trading income from foreign exchangeinterest rate related transactions related to the “economic hedges.”

We have carried out hedging transactions mainly to hedge the interest rate risk of financial assets and liabilities and the foreign exchange risk of foreign currency denominated assets and liabilities. Of those hedges, the economic hedges are economically effective for risk management but are not accounted for as hedge accounting under IFRS as they do not meetIFRS.

As for the conditions for hedge accounting under IFRS. Hedgedeconomic hedges against the interest rate risk, hedged items include loans, borrowings and debt securities in issue, and hedging instruments related toare derivative financial instruments such as interest rate swaps. The economic hedges against the economic hedgesforeign exchange risk are classified into three types: (1) net investments in foreign subsidiaries and associatesoperations hedged by using foreign currency denominated financial liabilities such as deposits and borrowings, and derivative financial instruments, (2) foreign currency denominated equity instruments classified as available-for-sale financial assetsmeasured at fair value through other comprehensive income hedged by using foreign currency denominated financial liabilities, and (3) foreign currency denominated financial assets and liabilities, such as loans and deposits hedged by using derivative financial instruments such as currency swaps.

As thoseThe economic hedge transactions may lead to accounting mismatches (i.e., when the gains or losses on the hedged items and hedging instruments do not arise at the same time, or the hedged items and hedging instruments do not offset each other either in profit or loss, or in other comprehensive income),. Accordingly, large fluctuations in interest rates and/or large depreciations or appreciations of the yen against other currencies may result in significant fluctuations toin net trading income from interest rate related transactions and/or foreign exchange transactions.

The above-mentioned shift from net trading loss toincrease in net trading income from foreign exchangeinterest rate related transactions related to the economic hedges was primarily due to an appreciationincrease in fair values of interest rate hedging instruments for the economic hedges, reflecting a decrease in U.S. interest rates during the fiscal year ended March 31, 2016 versus a depreciation during the previous fiscal year of the yen against the U.S. dollar. The yen appreciated against the U.S. dollar by 7.53-yen from ¥120.15 at March 31, 2015 to ¥112.62 at March 31, 2016, whereas the yen depreciated by 17.27-yen from ¥102.88 at March 31, 2014 to ¥120.15 at March 31, 2015. For further information about the yen exchange rates, see “Item 3. Key Information—3.A. Selected Financial Data—Exchange Rates.”2019.

Net income (loss) from financial assets at fair value through profit or loss decreasedincreased by ¥10,418¥55,322 million from ¥22,678a net loss of ¥667 million for the fiscal year ended March 31, 20152018 to ¥12,260a net income of ¥54,655 million for the fiscal year ended March 31, 2016, primarily due to a decrease in gains arising from sales and changes in the fair value of equity instruments.

Net investment income increased by ¥4,165 million from ¥371,064 million for the fiscal year ended March 31, 2015 to ¥375,229 million for the fiscal year ended March 31, 2016.2019. This was primarily due to an increasethe adoption of IFRS 9 from April 1, 2018. With the adoption of IFRS 9, some of our financial assets classified asavailable-for-sale financial assets and loans and receivables under IAS 39 “Financial Instruments: Recognition and Measurement” were reclassified into financial assets measured at fair value through profit or loss. The changes in fair values, interest and dividends from such financial assets were included in net gains from sales of bonds, which was partially offset by a decrease in net gains from sales of equity index-linked investment trusts.

Fiscal Year Ended March 31, 2015 Compared to Fiscal Year Ended March 31, 2014

Net trading income which includes income and losses from trading assets and liabilities and derivative financial instruments, decreased by ¥7,459 million from ¥135,218 million for the fiscal year ended March 31, 2014 to ¥127,759 million for the fiscal year ended March 31, 2015. The decrease was due to an increase in net trading loss from foreign exchange transactions and a decrease in net trading income from equity related transactions and other transactions in spite of an increase in net trading income from interest rate related transactions.

The increase in net trading loss from foreign exchange transactions was primarily due to an increase in the impact of the depreciation of the yen against the U.S. dollar on gains or losses arising from foreign exchange transactions related to the economic hedges as described in the previous section.

The yen exchange rate against the U.S. dollar was ¥120.15, ¥102.88 and ¥94.01 at March 31, 2015, 2014 and 2013, respectively. This resulted in the 17.27-yen depreciation of the yen against the U.S. dollar during the fiscal year ended March 31, 2015, which was larger than the 8.87-yen depreciation during the previous fiscal year. Therefore, this contributed to the increase in the impact of the depreciation of the yen against the U.S. dollar mentioned above. For further information about the yen exchange rates, see “Item 3. Key Information—3.A. Selected Financial Data—Exchange Rates.”

On the other hand, net trading income from interest rate related transactions increased primarily due to an increase in income related to fixed income products.

Net income(loss) from financial assets at fair value through profit or loss under IFRS 9. This resulted in a significant increase of net income (loss) from financial assets at fair value through profit or loss.

Net investment income decreased by ¥35,908¥330,175 million from ¥58,586¥424,097 million for the fiscal year ended March 31, 20142018 to ¥22,678¥93,922 million for the fiscal year ended March 31, 2015, primarily due to a decrease in the fair value of debt instruments.

Net investment income increased by ¥38,799 million from ¥332,265 million for the fiscal year ended March 31, 2014 to ¥371,064 million for the fiscal year ended March 31, 2015.2019. This was primarily due to the adoption of IFRS 9 from April 1, 2018. With the adoption of IFRS 9, some of our financial assets classified asavailable-for-sale financial assets under IAS 39 were reclassified into financial assets measured at fair value through profit or loss. Any profit or loss from such financial assets was included in net income (loss) from financial assets at fair value through profit or loss under IFRS 9. Additionally, we made an increaseirrevocable election at initial recognition for particular equity instruments to present subsequent changes in fair values in other comprehensive income, which are not subsequently transferred to profit or loss. Accordingly, net gains from salesthe disposal of bonds, which was partially offset bysuch equity instruments were no longer recognized in profit or loss after the adoption of IFRS 9. This resulted in a significant decrease of net investment income.

For further information about the impact of the adoption of IFRS 9, see Note 2 “Summary of Significant Accounting Policies” to our consolidated financial statements included elsewhere in net gains from sales of listed stocks.this report.

Other Income

The following table sets forth our other income for the periods shown.

 

                                                   
   For the fiscal year ended March 31, 
   2016   2015   2014 
   (In millions) 

Income from operating leases

  ¥206,561    ¥179,632    ¥148,211  

Income related to disposal of assets leased

   155,280     183,590     149,448  

Income related to IT solution services

   33,991     35,506     41,043  

Gains on disposal of property, plant and equipment, and other intangible assets

   3,714     538     2,634  

Reversal of impairment losses of investments in associates and joint ventures

   4,847     —       —    

Gains on step acquisition of subsidiaries

   118     —       1,565  

Gains on step acquisition of associates and joint ventures

   1,714     37,997     —    

Others

   90,048     88,642     86,640  
  

 

 

   

 

 

   

 

 

 

Total other income

  ¥496,273    ¥525,905    ¥429,541  
  

 

 

   

 

 

   

 

 

 

Fiscal Year Ended March 31, 2016 Compared to Fiscal Year Ended March 31, 2015

  For the fiscal year ended March 31, 
  2019  2018 
  (In millions) 

Income from operating leases

 ¥235,044  ¥276,850 

Income related to disposal of assets leased

  112,344   322,673 

Income related to IT solution services

  33,828   29,172 

Gains on disposal of property, plant and equipment, and other intangible assets

  541   852 

Reversal of impairment losses of investments in associates and joint ventures

  2,402   8,123 

Others

  121,507   118,185 
 

 

 

  

 

 

 

Total other income

 ¥505,666  ¥755,855 
 

 

 

  

 

 

 

Other income decreased by ¥29,632¥250,189 million, or 6%33%, from ¥525,905¥755,855 million for the fiscal year ended March 31, 20152018 to ¥496,273¥505,666 million for the fiscal year ended March 31, 2016. The decrease was2019, primarily due to decreases in gains on step acquisition of associates and joint ventures and income related to the disposal of assets leased which was partially offset by an increase inand income from operating leases.

Fiscal Year Ended March 31, 2015 Compared to Fiscal Year Ended March 31, 2014

Other income increased by ¥96,364 million, or 22%, from ¥429,541 million for the fiscal year ended March 31, 2014 to ¥525,905 million for the fiscal year ended March 31, 2015. The increase was primarily due to increases in income from operating leases and income related to disposal of assets leased.

Impairment Charges on Financial Assets

The following table sets forth our impairment charges (reversals) on financial assets for the periods shown.

 

                                                   
   For the fiscal year ended March 31, 
   2016   2015   2014 
   (In millions) 

Loans and advances

  ¥118,750    ¥79,552    ¥(25,806

Available-for-sale financial assets

   29,606     10,586        11,531  
  

 

 

   

 

 

   

 

 

 

Total impairment charges (reversals) on financial assets

  ¥148,356    ¥  90,138    ¥(14,275
  

 

 

   

 

 

   

 

 

 
  For the fiscal year ended March 31, 
  2019(1)  2018(2) 
  (In millions) 

Loans and advances

 ¥122,927  ¥126,623 

Loan commitments

  (9,771  —   

Financial guarantees

  6,529   —   

Investment securities(3)

  1   10,185 
 

 

 

  

 

 

 

Total impairment charges on financial assets

 ¥119,686  ¥136,808 
 

 

 

  

 

 

 

Fiscal Year Ended March 31, 2016 Compared to Fiscal Year Ended March 31, 2015

(1)

For the fiscal year ended March 31, 2019, impairment charges on the financial assets above are determined in accordance with IFRS 9.

(2)

For the fiscal year ended March 31, 2018, impairment charges on loans and advances and investment securities were determined in accordance with IAS 39, while losses for loan commitments and financial guarantee contracts were determined in accordance with IAS 37 “Provisions, Contingent Liabilities and Contingent Assets.”

(3)

Investment securities, which were formerlyavailable-for-sale financial assets under IAS 39, include debt instruments measured at fair value through other comprehensive income and those measured at amortized cost under IFRS 9.

Our impairment charges on financial assets consist of losses relating to loans and advances, loan commitments, financial guarantee contracts and available-for-sale financial assets.investment securities. Impairment charges on loans and advancesthese financial assets are mainly affected by the economic environment and financial conditions of borrowers. On the other hand, impairment charges on available-for-sale financial assets are mainly affected by not only the economic environment and financial conditions of issuers but the fair value of the financial instruments, such as market prices on stock markets in the case of equity instruments.borrowers or issuers.

Impairment charges on loans and advances increasedfinancial assets decreased by ¥39,198¥17,122 million from ¥79,552¥136,808 million for the fiscal year ended March 31, 20152018 to ¥118,750¥119,686 million for the fiscal year ended March 31, 2016,2019. Equity instruments classified asavailable-for-sale financial assets under IAS 39 are not subject to impairment requirements under IFRS 9 and thus have no impact on impairment charges for the fiscal year ended March 31, 2019. The decrease in impairment charges of loans and advances was primarily due to an increasea decrease in impairment charges on loans and advances to our foreign customers.

the provision for loan losses reflecting the reversal of allowance for loan losses of certain large borrowers resulting from improvement of their financial performance. For detailed information on provision for loan losses, see “—Financial Condition—Allowance for Loan Losses.”

Impairment charges on available-for-sale financial assets increased by ¥19,020 million from ¥10,586 million for the fiscal year ended March 31, 2015 to ¥29,606 million for the fiscal year ended March 31, 2016, primarily due to an increase in impairment charges on foreign investment trusts and publicly traded Japanese stocks.

In determining the amount of impairment charges, we consider whether there is objective evidence of impairment as a result of loss events, such as any significant financial difficulty of the issuer. Our assessments of issuers are focused by industry and geographical area, taking into consideration the adverse impact of any specific issues such as significant changes in the technological, market, economic or legal environment of the issuer indicating that the cost of our investment may not be recovered. Additionally, in the case of available-for-sale equity instruments, we take into consideration whether there has been a significant or prolonged decline in the fair value of the equity instruments below their cost.

For the fiscal year ended March 31, 2016, the types of securities on which the impairment charges were recognized included investments in limited partnerships, investment trusts and listed stocks.

For detailed information on our available-for-sale financial assets, which include a diversified portfolio of domestic equity instruments, see “—Financial Condition—Investment Securities.”

Fiscal Year Ended March 31, 2015 Compared to Fiscal Year Ended March 31, 2014

For the fiscal year ended March 31, 2015, impairment charges on loans and advances amounting to ¥79,552 million were recognized, whereas previously recognized impairment charges on loans and advances amounting to ¥25,806 million were reversed for the fiscal year ended March 31, 2014.

For detailed information on provision for loan losses, see “—Financial Condition—Allowance for Loan Losses.”

Impairment charges on available-for-sale financial assets decreased by ¥945 million from ¥11,531 million for the fiscal year ended March 31, 2014 to ¥10,586 million for the fiscal year ended March 31, 2015. The types of securities on which the impairment charges were recognized for the fiscal year ended March 31, 2015 included investments in limited partnerships and listed stocks.

For detailed information on our available-for-sale financial assets, which include a diversified portfolio of domestic equity instruments, see “—Financial Condition—Investment Securities.”

General and Administrative Expenses

The following table sets forth our general and administrative expenses for the periods shown.

 

   For the fiscal year ended March 31, 
   2016   2015   2014 
   (In millions) 

Personnel expenses

  ¥785,547    ¥749,480    ¥706,376  

Depreciation and amortization

   157,672     146,233     137,742  

Rent and lease expenses

   117,482     116,745     113,314  

Building and maintenance expenses

   13,966     10,068     8,886  

Supplies expenses

   16,628     14,865     15,482  

Communication expenses

   36,634     35,126     35,017  

Publicity and advertising expenses

   79,453     68,481     56,791  

Taxes and dues

   76,695     67,913     57,782  

Outsourcing expenses

   91,837     91,189     88,072  

Premiums for deposit insurance

   36,175     56,789     54,532  

Office equipment expenses

   47,621     47,318     40,388  

Others

   246,553     217,690     208,608  
  

 

 

   

 

 

   

 

 

 

Total general and administrative expenses

  ¥1,706,263    ¥1,621,897    ¥1,522,990  
  

 

 

   

 

 

   

 

 

 

Fiscal Year Ended March 31, 2016 Compared to Fiscal Year Ended March 31, 2015

   For the fiscal year ended March 31, 
   2019   2018 
   (In millions) 

Personnel expenses

  ¥803,821   ¥864,396 

Depreciation and amortization

   168,564    171,043 

Rent and lease expenses

   112,660    117,400 

Building and maintenance expenses

   10,254    11,167 

Supplies expenses

   16,252    16,902 

Communication expenses

   35,030    38,171 

Publicity and advertising expenses

   63,669    80,464 

Taxes and dues

   82,792    83,976 

Outsourcing expenses

   100,495    96,733 

Premiums for deposit insurance

   35,555    37,938 

Office equipment expenses

   47,139    54,708 

Others

   239,137    240,223 
  

 

 

   

 

 

 

Total general and administrative expenses

  ¥1,715,368   ¥1,813,121 
  

 

 

   

 

 

 

General and administrative expenses increaseddecreased by ¥84,366¥97,753 million, or 5%, from ¥1,621,897¥1,813,121 million for the fiscal year ended March 31, 20152018 to ¥1,706,263¥1,715,368 million for the fiscal year ended March 31, 2016,2019. This was primarily due to increases in expenses related to overseas business development including an increase in our overseas staff and expensesthe exclusion of SMBC Trust Bank, reflecting the acquisition of the retail banking business of Citibank Japan in November 2015.

Fiscal Year Ended March 31, 2015 Compared to Fiscal Year Ended March 31, 2014

Generalgeneral and administrative expenses increased by ¥98,907 million, or 6%, from ¥1,522,990 millionof KUBC and The Minato Bank, which ceased to be our subsidiaries and became our equity-method associates for the fiscal year ended March 31, 2014 to ¥1,621,897 million for2018, and the fiscal year ended March 31, 2015, primarily due to increases in expenses related to overseas business development including an increase in our overseas staff, expenses to enhance operating income from our securities and credit card businesses, and taxes and dues reflecting the consumption tax increase.SMBC Group-wide expense control initiatives.

Other Expenses

The following table sets forth our other expenses for the periods shown.

 

   For the fiscal year ended March 31, 
   2016   2015   2014 
   (In millions) 

Cost of operating leases

  ¥95,440    ¥87,206    ¥72,268  

Cost related to disposal of assets leased

   140,083     171,707     146,196  

Cost related to IT solution services and IT systems

   90,563     84,300     75,173  

Provision for interest repayment

   141,024     64,195     49,764  

Losses on disposal of property, plant and equipment, and other intangible assets

   4,302     6,703     6,763  

Impairment losses of property, plant and equipment

   4,237     5,108     3,157  

Impairment losses of intangible assets

   1,278     4     193  

Losses on sale of investments in subsidiaries and associates

   24     2,221     —    

Impairment losses of investments in associates and joint ventures

   17,306     4,631     4,686  

Others

   44,706     79,539     70,580  
  

 

 

   

 

 

   

 

 

 

Total other expenses

  ¥   538,963    ¥   505,614    ¥   428,780  
  

 

 

   

 

 

   

 

 

 

Fiscal Year Ended March 31, 2016 Compared to Fiscal Year Ended March 31, 2015

   For the fiscal year ended March 31, 
   2019   2018 
   (In millions) 

Cost of operating leases

  ¥120,412   ¥144,708 

Cost related to disposal of assets leased

   101,218    310,460 

Cost related to IT solution services and IT systems

   96,727    92,975 

Provision for interest repayment

   47,293    49,879 

Losses on disposal of property, plant and equipment, and other intangible assets

   4,596    4,913 

Impairment losses of property, plant and equipment

   5,906    27,816 

Impairment losses of intangible assets

   66,665    35,666 

Losses on sale of investments in subsidiaries and associates

   2,677    28,250 

Impairment losses of investments in associates and joint ventures

   50,679    19,851 

Losses on step acquisition of subsidiaries

   25,744    —   

Others

   53,740    78,247 
  

 

 

   

 

 

 

Total other expenses

  ¥575,657   ¥792,765 
  

 

 

   

 

 

 

Other expenses increaseddecreased by ¥33,349¥217,108 million, or 7%27%, from ¥505,614¥792,765 million for the fiscal year ended March 31, 20152018 to ¥538,963¥575,657 million for the fiscal year ended March 31, 2016,2019, primarily due to increases in provision for interest repayment, impairment losses of investments in associates and joint ventures, and cost of operating leases, which was partially offset by a decreasedecreases in cost related to disposal of assets leased.leased and cost of operating leases.

Share ofFiscal Year Ended March 31, 2015 Compared to Fiscal Year Ended March 31, 2014Post-tax Profit of Associates and Joint Ventures

Other expenses increasedShare ofpost-tax profit of associates and joint ventures decreased by ¥76,834¥9,166 million or 18%, from ¥428,780¥49,323 million for the fiscal year ended March 31, 20142018 to ¥505,614¥40,157 million for the fiscal year ended March 31, 2015, primarily due to increases in cost of operating leases and cost related to disposal of assets leased.

Share of Post-tax Profit of Associates and Joint Ventures

Fiscal Year Ended March 31, 2016 Compared to Fiscal Year Ended March 31, 2015

Share of post-tax profit of associates and joint ventures increased by ¥12,932 million from ¥18,124 million for the fiscal year ended March 31, 2015 to ¥31,056 million for the fiscal year ended March 31, 2016.2019. This was primarily due to the inclusion of our share of the profit ofbecause The Bank of East Asia, Limited, which becameis our equity-method associate, in March 2015.

Fiscal Year Ended March 31, 2015 Compared to Fiscal Year Ended March 31, 2014

Sharerecognized gains on sale of post-tax profit of associates and joint ventures decreased by ¥1,330 million from ¥19,454 million for the fiscal year ended March 31, 2014 to ¥18,124 million for the fiscal year ended March 31, 2015. This was primarily due to the exclusion of our share of the profit of Mobit Co., LTD., which had been our equity-method associate but became ourits subsidiary in March 2014, and a decrease in our share of the profit from the investment business of associates and joint ventures.previous fiscal year. The decrease was partially offset by the effectimpact of The Japan Net Bank, which had been our subsidiary but becameSumitomo Mitsui Finance and Leasing Company, Limited having become our equity-method associate in April 2014.joint venture on November 28, 2018.

Income Tax Expense

Fiscal Year Ended March 31, 2016 Compared to Fiscal Year Ended March 31, 2015

Income tax expense decreased by ¥37,069¥45,072 million from ¥409,947¥229,378 million for the fiscal year ended March 31, 20152018 to ¥372,878¥184,306 million for the fiscal year ended March 31, 2016. The decrease was2019, primarily due to a decrease in current tax expenses resulting from a decrease in taxable income and changesthe adoption of IFRS 9 from April 1, 2018. Under IFRS 9, gains and losses arising from the disposal of particular equity instruments previously included in Japanese corporationnet investment income are no longer recognized in profit or loss. Accordingly, the current tax rates, which was partially offset by an increaseexpense related to the disposal of these equity instruments is also not recognized in deferred tax expense. Regardingprofit or loss. For further information on the changes in Japanese corporation tax rates,adoption of IFRS 9, see Note 22 “Deferred Income Tax”2 “Summary of Significant Accounting Policies—New and Amended Accounting Standards Adopted by the SMBC Group” to our consolidated financial statements included elsewhere in this annual report.

Fiscal Year Ended March 31, 2015 Compared to Fiscal Year Ended March 31, 2014

Income tax expense decreased by ¥4,129 million from ¥414,076 million for the fiscal year ended March 31, 2014 to ¥409,947 million for the fiscal year ended March 31, 2015, due to a decrease in deferred tax expense. The decrease was primarily due to a decrease in a reversal of deductible temporary differences attributable to loans and advances. The decrease was partially offset by an increase in deferred tax expense associated with a decrease of net deferred tax assets which resulted from changes in Japanese corporation tax rates.

Business Segment Analysis

Our business segment information is prepared based on the internal reporting system utilized by our management to assess the performance of our business segments under Japanese GAAP. We have four main business segments: Commercial Banking, Leasing, Securitiesthe Wholesale Business Unit, the Retail Business Unit, the International Business Unit and Consumer Finance,the Global Markets Business Unit, with the remaining operations recorded in Others. The Commercial Banking segment covers the Bank, which accounts for the major portion of our total assetsHead office account and revenue, other domestic banking subsidiaries, such as SMBC Trust Bank, KUBC and The Minato Bank, as well as foreign banking subsidiaries, such as SMBC Europe, SMBC (China) and Manufacturers Bank. We have SMFL in the Leasing segment, SMBC Nikko Securities and SMBC Friend Securities in the Securities segment and Sumitomo Mitsui Card, Cedyna and SMBC Consumer Finance in the Consumer Finance segment. Since the Bank has a significant impact on our overall performance, its performance is reported to management in more detail by each business unit based on customer market.others.

The Bank conducts its primary banking business through its four business units: the Wholesale Banking Unit, the Retail Banking Unit, the International Banking Unit and the Treasury Unit. In addition to the four business units, the Investment Banking Unit, the Corporate Advisory Division, the Private Advisory Division and the Transaction Business Division of the Bank provide a broad range of financial products, services and solutions to address sophisticated and diverse issues and needs of the Bank’s customers. The Corporate Advisory Division operates within the Wholesale Banking Unit, and the Private Advisory Division operates within the Wholesale Banking Unit and the Retail Banking Unit, while the Transaction Business Division operates within the Wholesale Banking Unit, the Retail Banking Unit and the International Banking Unit. The revenues and expenses of these units and divisions are generally allocated to each business unit. OrganizationalOur organizational charts of SMFG and the Bank are provided in “Item 4.C. Organizational Structure.” Since figures reported to management are prepared under Japanese GAAP, the segment information does not agree to figures in the consolidated financial statements under IFRS. This difference is addressed in Note 4 “Segment Analysis—Reconciliation of Segmental Results of Operations to Consolidated Income Statement”Statements” to our consolidated financial statements included elsewhere in this annual report.

Segmental Results of OperationOperations

For the fiscal year ended March 31, 2016:2019:

 

  Commercial Banking 
  SMBC  Others(2)  Total 
  Wholesale
Banking Unit
  Retail
Banking Unit
  International
Banking Unit
  Treasury
Unit
  Others  SMBC Total       
  (In billions) 

Gross profit

 ¥545.3   ¥372.8   ¥356.0   ¥293.6   ¥(33.4 ¥1,534.3   ¥303.0   ¥1,837.3  

Net interest income

  300.1    302.0    225.4    168.2    27.9    1,023.6    174.4    1,198.0  

Net non-interest income

  245.2    70.8    130.6    125.4    (61.3  510.7    128.6    639.3  

General and administrative expenses and others

  (205.1  (354.1  (116.5  (29.1  (100.7  (805.5  (218.9  (1,024.4
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Consolidated net business profit(1)(7)

 ¥340.2   ¥18.7   ¥239.5   ¥264.5   ¥(134.1 ¥728.8   ¥84.1   ¥812.9  
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 
  Wholesale
Business
Unit(3)
  Retail
Business
Unit
  International
Business
Unit(3)
  Global Markets
Business
Unit
  Head office
account and
others(3)
  Total 
  (In billions) 

Consolidated gross profit(1)

 ¥784.9  ¥1,281.6  ¥689.6  ¥333.6  ¥(243.5 ¥2,846.2 

General and administrative expenses

  (345.1  (1,021.4  (333.4  (54.2  39.0   (1,715.1

Others(2)

  45.1   14.4   38.9   19.1   (56.3  61.2 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Consolidated net business profit

 ¥484.9  ¥274.6  ¥395.1  ¥298.5  ¥(260.8 ¥1,192.3 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

  Leasing  Securities  Consumer Finance  Others  Total 
  SMFL(3)  Total(4)  SMBC
Nikko
Securities(5)
  SMBC
Friend
Securities
  Total(4)  Sumitomo
Mitsui
Card
  Cedyna(6)  SMBC
Consumer
Finance(3)
  Total(4)       
  (In billions) 

Gross profit

 ¥142.8   ¥162.6   ¥316.3   ¥43.8   ¥357.1   ¥208.5   ¥165.2   ¥233.4   ¥611.5   ¥(64.5 ¥2,904.0  

Net interest income

  17.9    22.9    1.6    1.5    4.6    13.6    23.7    157.0    188.9    8.6    1,423.0  

Net non-interest income

  124.9    139.7    314.7    42.3    352.5    194.9    141.5    76.4    422.6    (73.1  1,481.0  

General and administrative expenses and others

  (62.1  (67.1  (255.8  (38.8  (307.2  (157.1  (124.2  (104.8  (397.2  34.8    (1,761.1
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Consolidated net business profit(1)(7)

 ¥80.7   ¥95.5   ¥60.5   ¥5.0   ¥49.9   ¥51.4   ¥41.0   ¥128.6   ¥214.3   ¥(29.7 ¥1,142.9  
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Consolidated Gross Profit by Business Segment

(For the fiscal year ended March 31, 2016)2019)

 

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For the fiscal year ended March 31, 2015:2018:

 

  Commercial Banking 
  SMBC  Others(2)  Total 
  Wholesale
Banking Unit
  Retail
Banking Unit
  International
Banking Unit
  Treasury
Unit
  Others  SMBC Total       
  (In billions) 

Gross profit

 ¥555.4   ¥386.8   ¥345.3   ¥354.0   ¥(7.2 ¥1,634.3   ¥289.4   ¥1,923.7  

Net interest income

  315.8    313.2    227.8    212.4    52.2    1,121.4    171.3    1,292.7  

Net non-interest income

  239.6    73.6    117.5    141.6    (59.4  512.9    118.1    631.0  

General and administrative expenses and others

  (206.8  (350.1  (106.6  (25.9  (101.8  (791.2  (203.0  (994.2
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Consolidated net business profit(1)(7)

 ¥348.6   ¥36.7   ¥238.7   ¥328.1   ¥(109.0 ¥843.1   ¥86.4   ¥929.5  
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

  Leasing  Securities  Consumer Finance  Others  Total 
  SMFL(3)  Total(4)  SMBC
Nikko
Securities(5)
  SMBC
Friend
Securities
  Total(4)  Sumitomo
Mitsui
Card
  Cedyna(6)  SMBC
Consumer
Finance(3)
  Total(4)       
  (In billions) 

Gross profit

 ¥137.0   ¥149.3   ¥346.3   ¥50.4   ¥393.9   ¥196.4   ¥164.2   ¥215.5   ¥576.9   ¥(63.4 ¥2,980.4  

Net interest income

  19.3    24.4    1.5    1.2    3.8    13.6    25.9    149.0    178.7    5.6    1,505.2  

Net non-interest income

  117.7    124.9    344.8    49.2    390.1    182.8    138.3    66.5    398.2    (69.0  1,475.2  

General and administrative expenses and others

  (56.5  (60.8  (248.7  (40.0  (301.9  (146.0  (121.7  (96.1  (381.9  68.9    (1,669.9
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Consolidated net business profit(1)(7)

 ¥80.5   ¥88.5   ¥97.6   ¥10.4   ¥92.0   ¥50.4   ¥42.5   ¥119.4   ¥195.0   ¥5.5   ¥1,310.5  
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

For the fiscal year ended March 31, 2014:

  Commercial Banking 
 SMBC  Others(2)  Total 
  Wholesale
Banking Unit
  Retail
Banking Unit
  International
Banking Unit
  Treasury
Unit
  Others  SMBC Total       
  (In billions) 

Gross profit

 ¥558.5   ¥405.4   ¥296.0   ¥325.5   ¥(27.3 ¥1,558.1   ¥249.1   ¥1,807.2  

Net interest income

  323.4    321.3    174.6    225.2    20.4    1,064.9    171.1    1,236.0  

Net non-interest income

  235.1    84.1    121.4    100.3    (47.7  493.2    78.0    571.2  

General and administrative expenses and others

  (200.7  (336.4  (89.1  (22.9  (96.6  (745.7  (195.6  (941.3
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Consolidated net business profit(1)(7)

 ¥357.8   ¥69.0   ¥206.9   ¥302.6   ¥(123.9 ¥812.4   ¥53.5   ¥865.9  
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

  Leasing  Securities  Consumer Finance  Others  Total 
  SMFL(3)  Total(4)  SMBC
Nikko
Securities(5)
  SMBC
Friend
Securities
  Total(4)  Sumitomo
Mitsui
Card
  Cedyna(6)  SMBC
Consumer
Finance(3)
  Total(4)       
  (In billions) 

Gross profit

 ¥127.9   ¥138.4   ¥339.3   ¥58.2   ¥397.8   ¥189.9   ¥167.6   ¥181.8   ¥540.1   ¥14.7   ¥2,898.2  

Net interest income

  29.1    35.2    0.2    1.4    2.7    13.9    28.3    124.4    156.6    53.7    1,484.2  

Net non-interest income

  98.8    103.2    339.1    56.8    395.1    176.0    139.3    57.4    383.5    (39.0  1,414.0  

General and administrative expenses and others

  (52.9  (54.4  (235.3  (42.5  (292.0  (139.6  (123.6  (73.0  (352.8  80.8    (1,559.7
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Consolidated net business profit(1)(7)

 ¥75.0   ¥84.0   ¥104.0   ¥15.7   ¥105.8   ¥50.3   ¥44.0   ¥108.8   ¥187.3   ¥95.5   ¥1,338.5  
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 
  Wholesale
Business
Unit
  Retail
Business
Unit
  International
Business
Unit
  Global Markets
Business
Unit
  Head office
account and
others
  Total 
  (In billions) 

Consolidated gross profit(1)

 ¥772.9  ¥1,311.7  ¥632.0  ¥356.2  ¥(91.7 ¥2,981.1 

General and administrative expenses

  (347.9  (1,027.7  (280.7  (53.9  (106.0  (1,816.2

Others(2)

  53.7   15.6   46.9   17.5   (94.8  38.9 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Consolidated net business profit

 ¥478.7  ¥299.6  ¥398.2  ¥319.8  ¥(292.5 ¥1,203.8 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

 

(1)

Consolidated net business profit = Gross profit (*) – General and administrative expenses + share of profit or loss of equity-method associates.

(*)Grossgross profit = (Interest income – Interest expenses) + Trust fees + (Fee and commission income – Fee and commission expenses) + (Trading income – Trading losses) + (Other operating income – Other operating expenses).

(2)Others

“Others” includes share of profit or loss of equity-method associates and joint ventures and cooperated profit and loss, that is, profit and loss double-accounted for in Commercial Banking consist of SMFG’s banking subsidiaries except SMBC, such as SMBC Trust Bank, KUBC, The Minato Bank, SMBC Europe and SMBC (China).the managerial accounting.

(3)The figures represent

Sumitomo Mitsui Finance and Leasing Company, Limited (“SMFL”) became our joint venture from our consolidated figuressubsidiary on November 28, 2018. However, for managerial accounting purposes, the full year results of respective companies.

(4)Total under each business segment, except Commercial Banking, includes the aggregationSMFL were included in those of the Wholesale Business Unit and the International Business Unit, while its results after it became our joint venture were deducted from those of Head office account and others. For consistency with financial results, our share of the operating units that were not separately identified.
(5)The figures are the sumprofit of SMBC Nikko Securities (nonconsolidated basis) and its overseas securities subsidiaries.
(6)The figures represent Cedyna’s consolidated figures excluding insignificant subsidiaries.
(7)The Group’s total credit cost (reversal) for the fiscal years ended March 31, 2016, 2015 and 2014 were ¥102.8 billion, ¥7.8 billion and ¥(49.1) billion, respectively, of which ¥10.3 billion, ¥(68.3) billion and ¥(116.5) billion were for Commercial Banking, ¥(1.5) billion, ¥(6.1) billion and ¥(0.9) billion were for Leasing, ¥(0.2) billion, ¥(0.2) billion and nil were for Securities and ¥91.4 billion, ¥78.8 billion and ¥66.8 billion were for Consumer Finance. Total credit costs include gains on recoveries of written-off claims. The Group’s total credit costs (reversal) are not includedSMFL as our joint venture recognized in the consolidated net business profit.income statement was included in others in the Head office account and others.

Commercial Banking

Fiscal Year Ended March 31, 2016 Compared to Fiscal Year Ended March 31, 2015

Our consolidated netThe following are explanations of our results of operations by business profit from our Commercial Banking segment decreased by ¥117 billion from ¥930 billion for the fiscal year ended March 31, 2015 to ¥813 billion2019. It also includes the changes from the previous fiscal year, which are adjusted by eliminating the impact of factors such as changes in interest rates and exchange rates that may distort the comparison.

Wholesale Business Unit

Consolidated gross profit for the fiscal year ended March 31, 2016.2019 was ¥785 billion and increased by ¥1 billion on an adjusted basis compared to the fiscal year ended March 31, 2018. This was primarily due to an increase innon-interest income, resulting from the expansion of investment banking business in SMBC Nikko Securities Inc. and the transformation of the profit structure in SMBC, which was partially offset by a decrease in net interest income on loans reflecting the impact of the BOJ’s negative interest rate policy and an increasethe continuing intense competition in generalthe commercial banking industry.

General and administrative expenses.

The Bank’s Wholesale Banking Unit

Both gross profit and consolidated net business profit from the Bank’s Wholesale Banking Unit decreased by ¥10 billion and ¥9 billion from ¥555 billion and ¥349 billionexpenses for the fiscal year ended March 31, 2015 to ¥5452019 was ¥345 billion and ¥340increased by ¥1 billion on an adjusted basis compared to the fiscal year ended March 31, 2018.

Others for the fiscal year ended March 31, 2016, respectively. The decrease2019 was primarily due to¥45 billion.

As a decrease in net interest income, which was partially offset by an increase in net non-interest income. Net interest income decreased primarily due to a decrease in the interest rate spreads for loans as a result, of the increasing lending competition in the commercial banking industry in Japan, although loans to domestic companies increased. Net non-interest income increased primarily due to an increase in fees and commissionsrelated to loan syndication and structured finance.

The Bank’s Retail Banking Unit

Both gross profit and consolidated net business profit from the Bank’s Retail Banking Unit decreased by ¥14 billion and ¥18 billion from ¥387 billion and ¥37 billion for the fiscal year ended March 31, 2015 to ¥3732019 was ¥485 billion and ¥19decreased by ¥5 billion on an adjusted basis compared to the fiscal year ended March 31, 2018.

Retail Business Unit

Consolidated gross profit for the fiscal year ended March 31, 2016, respectively. Net interest income decreased primarily due to a decrease in the balance of housing loans, reflecting the intense competition in the housing loan market in Japan.

The Bank’s International Banking Unit

Both gross profit and consolidated net business profit from the Bank’s International Banking Unit increased by ¥112019 was ¥1,282 billion and ¥1decreased by ¥26 billion from ¥345 billion and ¥239 billion foron an adjusted basis compared to the fiscal year ended March 31, 2015 to ¥356 billion and ¥240 billion for the fiscal year ended March 31, 2016, respectively. Net non-interest income increased due to an increase in commissions related to loan transactions, reflecting our allocation of assets primarily to the United States. The increase in gross profit was partially offset by an increase in general and administrative expenses related to overseas business development.

The Bank’s Treasury Unit

Both gross profit and consolidated net business profit from the Bank’s Treasury Unit decreased by ¥60 billion and ¥63 billion from ¥354 billion and ¥328 billion for the fiscal year ended March 31, 2015 to ¥294 billion and ¥265 billion for the fiscal year ended March 31, 2016, respectively.2018. This was primarily due to a decrease in netnon-interest income from equity related transactions, reflecting the negative trend in the market.wealth management business reflecting lower investment appetite because of a slowdown in the market environment, although the credit card business and consumer finance business steadily grew due to the expansion of credit card sales volume and the capture of financing needs of individual customers, respectively.

Fiscal Year Ended March 31, 2015 Compared to Fiscal Year Ended March 31, 2014

Our consolidated net business profit from our Commercial Banking segment increased by ¥64 billion from ¥866 billionGeneral and administrative expenses for the fiscal year ended March 31, 20142019 was ¥1,021 billion and decreased by ¥5 billion on an adjusted basis compared to ¥930 billionthe fiscal year ended March 31, 2018.

Others for the fiscal year ended March 31, 2015. This2019 was due to an increase in gross profit, which was partially offset by an increase in general and administrative expenses.¥14 billion.

The Bank’s Wholesale Banking Unit

Both gross profit andAs a result, consolidated net business profit from the Bank’s Wholesale Banking Unit decreased by ¥4 billion and ¥9 billion from ¥559 billion and ¥358 billion for the fiscal year ended March 31, 2014 to

¥5552019 was ¥275 billion and ¥349decreased by ¥22 billion on an adjusted basis compared to the fiscal year ended March 31, 2018.

International Business Unit

Consolidated gross profit for the fiscal year ended March 31, 2015, respectively. Net interest income decreased2019 was ¥690 billion and increased by ¥31 billion on an adjusted basis compared to the fiscal year ended March 31, 2018. This was primarily due to a decreasegrowth innon-asset related income such as deposits, foreign exchange and derivatives, and the interest rate spreads for loans as a resultpromotion of the increasing lending competition in the commercial banking industry in Japan, although loans to domestic companies increased.origination & distribution business model.

The Bank’s Retail Banking Unit

Both gross profitGeneral and consolidated net business profit from the Bank’s Retail Banking Unit decreased by ¥18 billion and ¥32 billion from ¥405 billion and ¥69 billionadministrative expenses for the fiscal year ended March 31, 2014 to ¥3872019 was ¥333 billion and ¥37increased by ¥22 billion on an adjusted basis compared to the fiscal year ended March 31, 2018. This was primarily due to increases in expenses related to overseas business development as well as the merger of PT Bank Tabungan Pensiunan Nasional Tbk and PT Bank Sumitomo Mitsui Indonesia.

Others for the fiscal year ended March 31, 2015, respectively. Net interest income2019 was ¥39 billion and decreased primarily dueby ¥5 billion on an adjusted basis compared to a decreasethe fiscal year ended March 31, 2018. This was because The Bank of East Asia, Limited, which is our equity-method associate, recognized gains on sale of its subsidiary in the interest rate spreads for and the balance of housing loans, reflecting the increasing competition in the housing loan market in Japan. Non-interest income decreased primarily due toprevious fiscal year.

As a decrease in fees and commissions related to investment trusts.

The Bank’s International Banking Unit

Both gross profit andresult, consolidated net business profit from the Bank’s International Banking Unit increased by ¥49 billion and ¥32 billion from ¥296 billion and ¥207 billion for the fiscal year ended March 31, 2014 to ¥3452019 was ¥395 billion and ¥239increased by ¥4 billion on an adjusted basis compared to the fiscal year ended March 31, 2018.

Global Markets Business Unit

Consolidated gross profit for the fiscal year ended March 31, 2015, respectively. Net interest income2019 was ¥334 billion and increased due toby ¥5 billion on an increase in the balance of loansadjusted basis compared to the foreign customers, reflecting our allocation of assets primarily to Asian countries and the United States. The increase in gross profit was partially offset by an increase in generalfiscal year ended March 31, 2018. SMBC steadily achieved earnings amid volatile operating environment through nimble portfolio management.

General and administrative expenses related to overseas business development.

The Bank’s Treasury Unit

Both gross profit and consolidated net business profit from the Bank’s Treasury Unit increased by ¥28 billion and ¥25 billion from ¥326 billion and ¥303 billion for the fiscal year ended March 31, 2014 to ¥3542019 was ¥54 billion and ¥328 billionremained the same on an adjusted basis compared to the fiscal year ended March 31, 2018.

Others for the fiscal year ended March 31, 2015, respectively. This2019 was primarily due to an increase in profits from equity index-linked investment trusts and sales of bonds.¥19 billion.

Leasing

Fiscal Year Ended March 31, 2016 Compared to Fiscal Year Ended March 31, 2015

Both gross profit andAs a result, consolidated net business profit in our Leasing segment increased by ¥14 billion and ¥7 billion from ¥149 billion and ¥89 billion for the fiscal year ended March 31, 2015 to ¥1632019 was ¥299 billion and ¥96increased by ¥6 billion foron an adjusted basis compared to the fiscal year ended March 31, 2016, respectively. This was primarily due to an increase in net non-interest income, which was partially offset by an increase in general and administrative expenses of SMFL.2018.

Fiscal Year Ended March 31, 2015 Compared to Fiscal Year Ended March 31, 2014

Both gross profit and consolidated net business profit in our Leasing segment increased by ¥11 billion and ¥5 billion from ¥138 billion and ¥84 billion for the fiscal year ended March 31, 2014 to ¥149 billion and ¥89 billion for the fiscal year ended March 31, 2015, respectively. Although net interest income decreased, net non-interest income increased primarily due to an increase in net non-interest income of SMFL.

Securities

Fiscal Year Ended March 31, 2016 Compared to Fiscal Year Ended March 31, 2015

Both gross profit and consolidated net business profit in our Securities segment decreased by ¥37 billion and ¥42 billion from ¥394 billion and ¥92 billion for the fiscal year ended March 31, 2015 to ¥357 billion and ¥50 billion for the fiscal year ended March 31, 2016, respectively. This was primarily due to a decrease in net non-interest income of SMBC Nikko Securitiesmainly as a result of a decrease in sales of foreign currency bonds and investment trusts.

Fiscal Year Ended March 31, 2015 Compared to Fiscal Year Ended March 31, 2014

Both gross profit and consolidated net business profit in our Securities segment decreased by ¥4 billion and ¥14 billion from ¥398 billion and ¥106 billion for the fiscal year ended March 31, 2014 to ¥394 billion and ¥92 billion for the fiscal year ended March 31, 2015, respectively. This was primarily due to an increase in general and administrative expenses of SMBC Nikko Securities associated with its business development and a decrease in net non-interest income of SMBC Friend Securities.

Consumer Finance

Fiscal Year Ended March 31, 2016 Compared to Fiscal Year Ended March 31, 2015

Both gross profit and consolidated net business profit in our Consumer Finance segment increased by ¥35 billion and ¥19 billion from ¥577 billion and ¥195 billion for the fiscal year ended March 31, 2015 to ¥612 billion and ¥214 billion for the fiscal year ended March 31, 2016, respectively. This was primarily due to an increase in gross profit of Sumitomo Mitsui Card and SMBC Consumer Finance, which was partially offset by an increase in general and administrative expenses attributable to those companies.

Fiscal Year Ended March 31, 2015 Compared to Fiscal Year Ended March 31, 2014

Both gross profit and consolidated net business profit in our Consumer Finance segment increased by ¥37 billion and ¥8 billion from ¥540 billion and ¥187 billion for the fiscal year ended March 31, 2014 to ¥577 billion and ¥195 billion for the fiscal year ended March 31, 2015, respectively. This was primarily due to increases in the gross profit and consolidated net business profit of SMBC Consumer Finance.

Financial Condition

Assets

Our total assets increased by ¥991,186¥3,328,057 million from ¥179,181,466¥192,175,566 million at March 31, 20152018 to ¥180,172,652¥195,503,623 million at March 31, 2016,2019. The increase was primarily due to increases in cash and deposits with banks and loans and advances, which were partially offset by a decrease in investment securities.assets held for sale.

Our assets at March 31, 20162019 and 20152018 were as follows.

 

   At March 31, 
   2016   2015 
   (In millions) 

Cash and deposits with banks

  ¥43,144,654    ¥40,112,783  

Call loans and bills bought

   1,291,366     1,326,965  

Reverse repurchase agreements and cash collateral on securities borrowed

   8,236,516     7,218,498  

Trading assets

   3,615,092     3,243,185  

Derivative financial instruments

   5,290,825     6,471,203  

Financial assets at fair value through profit or loss

   1,611,877     1,785,684  

Investment securities

   19,865,347     24,239,656  

Loans and advances

   88,862,371     86,971,716  

Investments in associates and joint ventures

   702,264     619,814  

Property, plant and equipment

   2,590,951     2,496,497  

Intangible assets

   1,048,093     975,995  

Other assets

   3,654,448     3,485,123  

Current tax assets

   143,534     116,847  

Deferred tax assets

   115,314     117,500  
  

 

 

   

 

 

 

Total assets

  ¥180,172,652    ¥179,181,466  
  

 

 

   

 

 

 

   At March 31, 
   2019   2018 
   (In millions) 

Cash and deposits with banks

  ¥57,763,441   ¥54,696,069 

Call loans and bills bought

   2,465,745    1,881,880 

Reverse repurchase agreements and cash collateral on securities borrowed

   10,345,994    8,491,703 

Trading assets

   2,767,691    3,169,123 

Derivative financial instruments

   3,382,574    3,885,271 

Financial assets at fair value through profit or loss

   2,641,416    1,547,672 

Investment securities

   17,825,027    20,495,075 

Loans and advances

   90,682,938    85,129,070 

Investments in associates and joint ventures

   1,038,823    730,414 

Property, plant and equipment

   1,507,786    1,510,132 

Intangible assets

   821,785    835,902 

Other assets

   4,079,814    4,043,908 

Current tax assets

   143,459    87,961 

Deferred tax assets

   37,073    19,436 

Assets held for sale

   57    5,651,950 
  

 

 

   

 

 

 

Total assets

  ¥195,503,623   ¥192,175,566 
  

 

 

   

 

 

 

Loans and Advances

Our main operating activity is the lending business. We make loans and extend other types of credit principally to corporate and individual customers in Japan and to corporate and sovereign customers in foreign countries.

At March 31, 2016,2019, our loans and advances were ¥88,862,371¥90,682,938 million, or 49%46% of total assets, representing an increase of ¥1,890,655¥5,553,868 million, or 2%7%, from ¥86,971,716¥85,129,070 million at March 31, 2015.2018. The increase in loans and advances was due to increases in both those to both domestic customers and foreign customers. The increase in loans and advances to our domestic customers was primarily due to an increase in the demand for financing including that of cross-border M&A deals supported by the improvement in corporate earnings.to large corporations. The increase in loans and advances to our foreign customers was primarily due to our allocation of assets toan increase in those in the United States.States and the Asian countries.

Domestic

Through the BankSMBC and other banking andnon-bank subsidiaries, we make loans to a broad range of industrial, commercial and individual customers in Japan. The following table shows our outstanding loans and advances to customers whose domiciles are in Japan, classified by industry, before deducting the allowance for loan losses, and adjusting unearned income, unamortizedpremiums-net and deferred loanfees-net at the dates indicated.

 

  At March 31,   At March 31, 
  2016   2015   2019   2018 
  (In millions)   (In millions) 

Manufacturing

  ¥8,298,576    ¥8,061,654    ¥8,522,451   ¥7,961,620 

Agriculture, forestry, fisheries and mining

   184,314     171,855     288,099    145,957 

Construction

   1,169,900     1,150,616     918,617    947,765 

Transportation, communications and public enterprises

   5,258,899     5,175,949     5,596,935    5,424,054 

Wholesale and retail

   5,548,103     5,664,385     5,281,596    5,288,767 

Finance and insurance

   2,684,865     2,869,967     3,129,666    2,777,862 

Real estate and goods rental and leasing

   9,587,757     8,766,724     10,126,531    9,017,664 

Services

   4,960,352     4,776,706     4,328,173    4,255,228 

Municipalities

   1,374,306     1,353,949     866,373    1,000,286 

Lease financing

   2,212,048     2,211,773     9,030    14,629 

Consumer(1)

   18,935,521     18,817,259     16,187,195    16,363,489 

Others(2)

   2,989,278     3,211,240     4,601,499    4,633,306 
  

 

   

 

   

 

   

 

 

Total domestic

  ¥63,203,919    ¥62,232,077    ¥59,856,165   ¥57,830,627 
  

 

   

 

   

 

   

 

 

 

(1)

The balance in Consumer mainly consists of housing loans. The housing loan balances amounted to ¥13,984,755¥11,216,711 million and ¥14,087,453¥11,482,678 million at March 31, 20162019 and 2015,2018, respectively.

(2)

The balance in Others includes loans and advances to the Government of Japan.

Foreign

The following table shows the outstanding loans and advances to our customers whose domiciles are not in Japan, classified by industry, before deducting the allowance for loan losses, and adjusting unearned income, unamortizedpremiums-net and deferred loanfees-net at the dates indicated.

 

  At March 31,   At March 31, 
  2016   2015   2019   2018 
  (In millions)   (In millions) 

Public sector

  ¥236,290    ¥164,495    ¥360,875   ¥372,008 

Financial institutions

   4,067,764     3,880,655     5,382,130    4,496,646 

Commerce and industry

   20,451,545     20,010,729     23,285,374    21,023,885 

Lease financing

   357,072     308,128     344,958    357,660 

Others

   1,481,455     1,375,624     2,316,816    1,779,101 
  

 

   

 

   

 

   

 

 

Total foreign

  ¥26,594,126    ¥25,739,631    ¥31,690,153   ¥28,029,300 
  

 

   

 

   

 

   

 

 

Allowance for Loan Losses

We calculate the allowance for loan losses using the latest assignment of obligor grades (our internal credit rating) and supplementary data such as the borrowers’ operating cash flows, realizable value of collateral and recent economic conditions.

Fiscal Year Ended For the fiscal year ended March 31, 2016 Compared2019, we adopted ECL model for the measurement of allowance for loan losses introduced by IFRS 9. For additional information, see Note 2 “Summary of Significant Accounting Policies” to Fiscal Year Ended March 31, 2015our consolidated financial statements included elsewhere in this annual report.

For the fiscal year ended March 31, 2016,2019, the allowance for loan losses decreased by ¥70,835¥46,632 million, or 9%7%, from ¥793,552¥651,620 million at March 31, 2015the beginning of the period to ¥722,717¥604,988 million at March 31, 2016.the end of the period. The balance of the allowance for loan losses increases when the provision for loan losses is recognized and decreases when charge-offs are recognized through the sales of loans and write-offs. As we recorded a provision for loan losses of ¥118,750¥122,927 million and charge-offs of ¥193,649¥180,254 million for the fiscal year ended March 31, 2016, and2019, charge-offs exceeded the provision for loan losses and the overall allowance for loan losses decreased.

The provision for loan losses increaseddecreased by ¥39,198¥3,696 million from ¥79,552¥126,623 million for the fiscal year ended March 31, 20152018 to ¥118,750¥122,927 million for the fiscal year ended March 31, 2016.2019. The increasedecrease was primarily due to an increasea decrease in the provision for loan losses related to our foreign customers, especially resource-related companies, reflecting a decrease in natural resource prices.the reversal of allowance for loan losses of certain large borrowers resulting from improvement of their financial performance.

Charge-offs decreased by ¥56,247¥4,806 million from the previous fiscal year to ¥193,649¥180,254 million for the fiscal year ended March 31, 2016.2019. Charge-offs of domestic loans and advances decreased by ¥67,232¥22,030 million compared to the previous fiscal year to ¥173,431¥139,496 million for the fiscal year ended March 31, 2016, primarily due2019. This was because KUBC and The Minato Bank ceased to a decrease in charge-offs related to customers frombe our subsidiaries and became our equity-method associates for the real estate and goods rental and leasing, and wholesale and retail industries.fiscal year ended March 31, 2018. Charge-offs of foreign loans and advances increased by ¥10,985¥17,224 million compared to the previous fiscal year to ¥20,218¥40,758 million for the fiscal year ended March 31, 2016.

Fiscal Year Ended March 31, 2015 Compared to Fiscal Year Ended March 31, 2014

For the fiscal year ended March 31, 2015, the allowance for loan losses decreased by ¥157,113 million, or 17%, from ¥950,665 million at March 31, 2014 to ¥793,552 million at March 31, 2015. As we recorded a provision for loan losses of ¥79,552 million and charge-offs of ¥249,896 million for the fiscal year ended March 31, 2015, and charge-offs exceeded the provision for loan losses, the overall allowance for loan losses decreased.

Charge-offs decreased by ¥52,785 million from the previous fiscal year to ¥249,896 million for the fiscal year ended March 31, 2015. Charge-offs of domestic loans and advances decreased by ¥42,371 million compared

to the previous fiscal year to ¥240,663 million for the fiscal year ended March 31, 2015,2019, primarily due to a decreasean increase in charge-offs related to customers from the real estatecommerce and goods rental and leasing, and construction industries. Charge-offs of foreign loans and advances decreased by ¥10,414 million compared to the previous fiscal year to ¥9,233 million for the fiscal year ended March 31, 2015.industry.

The following table shows our allowance for loan losses for each of the periods indicated.

 

  For the fiscal year ended March 31,   For the fiscal year ended March 31, 
  2016 2015   2014   2019 2018 
  (In millions)   (In millions) 

Allowance for loan losses at beginning of period(1)

  ¥793,552   ¥950,665    ¥1,262,478    ¥651,620  ¥680,456 

Provision (credit) for loan losses

   118,750    79,552     (25,806

Provision for loan losses

   122,927  126,623 

Charge-offs:

        

Domestic

   173,431    240,663     283,034     139,496  161,526 

Foreign

   20,218    9,233     19,647     40,758  23,534 
  

 

  

 

   

 

   

 

  

 

 

Total

   193,649    249,896     302,681     180,254  185,060 
  

 

  

 

   

 

   

 

  

 

 

Recoveries:

        

Domestic

   9,477    9,517     9,293     9,767  9,658 

Foreign

   871    380     362     1,275  574 
  

 

  

 

   

 

   

 

  

 

 

Total

   10,348    9,897     9,655     11,042  10,232 
  

 

  

 

   

 

   

 

  

 

 

Net charge-offs

   183,301    239,999     293,026     169,212  174,828 

Others(1)(2)

   (6,284  3,334     7,019     (347 (140,575
  

 

  

 

   

 

   

 

  

 

 

Allowance for loan losses at end of period

  ¥722,717   ¥793,552    ¥950,665    ¥604,988  ¥491,676 
  

 

  

 

   

 

   

 

  

 

 

 

(1)

Allowance for loan losses at the beginning of period for the fiscal year ended March 31, 2019 is calculated under IFRS 9. For additional information, refer to Note 2 “Summary of Significant Accounting Policies” to our consolidated financial statements included elsewhere in this annual report.

(2)

Others mainly include foreign exchange translationsthe exclusion of the allowance for loans and advances made by KUBC and The Minato Bank, both of which had been our subsidiaries but became our equity-method associates, and the exclusion of the allowance for loans and advances made by SMFL which were reclassified as assets held for sale during the fiscal yearsyear ended March 31, 2016, 2015 and 2014.2018.

Impaired Loans and Advances

A portion of the total domestic and foreign loans and advances consists of impaired loans and advances, which are comprised of “potentially bankrupt, effectively bankrupt and bankrupt (loans and advances),” “past due three months or more (loans),” “restructured (loans)” and “other impaired (loans and advances).” The loans and advances for which management has serious doubts about the ability of the borrowers to comply in the near future with the repayment terms are wholly included in impaired loans and advances.

“Potentially bankrupt, effectively bankrupt and bankrupt (loans and advances)” comprise loans and advances to borrowers that are perceived to have a high risk of falling into bankruptcy, may not have been legally or formally declared bankrupt but are essentially bankrupt, or have been legally or formally declared bankrupt.

Loans classified as “past due three months or more (loans)” represent those loans that are three months or more past due as to principal or interest, which are not included in “potentially bankrupt, effectively bankrupt and bankrupt (loans and advances).”

The category “restructured (loans)” comprises loans not included above for which the terms of the loans have been modified to grant concessions because of problems with the borrower.

“Other impaired (loans and advances)” represent impaired loans and advances, which are not included in “potentially bankrupt, effectively bankrupt and bankrupt (loans and advances),” “past due three months or more (loans),” or “restructured (loans),” but for which information about credit problems cause management to classify them as impaired loans and advances.

The following table shows the distribution of impaired loans and advances by “potentially bankrupt, effectively bankrupt and bankrupt (loans and advances),” “past due three months or more (loans),” “restructured (loans)”and “other impaired (loans and advances)” at March 31, 20162019 and 20152018 by domicile and type of industry of the borrowers. At March 31, 2016,2019, gross impaired loans and advances were ¥1,352,587¥882,018 million, a decreasean increase of ¥245,515¥3,150 million from ¥1,598,102¥878,868 million at March 31, 2015.2018. The ratio of gross impaired loans and advances to the outstanding loans and advances before deducting the allowance for loan losses, and adjusting unearned income, unamortizedpremiums-net and deferred loanfees-net was 1.5%1.0% at March 31, 2016, a decrease of 0.3 percentage points from 1.8%2019, which was the same as that at March 31, 2015.2018.

 

   At March 31, 
   2016  2015 
   (In millions) 

Potentially bankrupt, effectively bankrupt and bankrupt (loans and advances):

   

Domestic:

   

Manufacturing

  ¥119,318   ¥149,686  

Agriculture, forestry, fisheries and mining

   2,843    7,146  

Construction

   25,932    36,903  

Transportation, communications and public enterprises

   38,008    52,168  

Wholesale and retail

   125,241    156,753  

Finance and insurance

   8,302    9,551  

Real estate and goods rental and leasing

   133,324    198,714  

Services

   126,781    161,384  

Lease financing

   16,122    18,522  

Consumer

   213,931    223,464  

Others

   32,503    43,443  
  

 

 

  

 

 

 

Total domestic

   842,305    1,057,734  
  

 

 

  

 

 

 

Foreign:

   

Public sector

   31    14  

Financial institutions

   28    19,720  

Commerce and industry

   148,475    146,821  

Lease financing

   11,104    8,969  

Others

   5,682    6,152  
  

 

 

  

 

 

 

Total foreign

   165,320    181,676  
  

 

 

  

 

 

 

Total

   1,007,625    1,239,410  
  

 

 

  

 

 

 

Past due three months or more (loans):

   

Domestic

   21,861    23,586  

Foreign

   7,962    398  
  

 

 

  

 

 

 

Total

   29,823    23,984  
  

 

 

  

 

 

 

Restructured (loans):

   

Domestic

   164,035    144,628  

Foreign

   22,401    43,330  
  

 

 

  

 

 

 

Total

   186,436    187,958  
  

 

 

  

 

 

 

Other impaired (loans and advances):

   

Domestic

   126,211    140,858  

Foreign

   2,492    5,892  
  

 

 

  

 

 

 

Total

   128,703    146,750  
  

 

 

  

 

 

 

Gross impaired loans and advances

   1,352,587    1,598,102  
  

 

 

  

 

 

 

Less: Allowance for loan losses for impaired loans and advances

   (613,510  (699,207
  

 

 

  

 

 

 

Net impaired loans and advances

  ¥739,077   ¥898,895  
  

 

 

  

 

 

 

   At March 31, 
   2019  2018 
   (In millions) 

Potentially bankrupt, effectively bankrupt and bankrupt (loans and advances):

   

Domestic:

   

Manufacturing

  ¥98,260  ¥62,322 

Agriculture, forestry, fisheries and mining

   6,229   6,369 

Construction

   15,762   10,439 

Transportation, communications and public enterprises

   30,691   15,494 

Wholesale and retail

   74,865   74,332 

Finance and insurance

   8,266   3,021 

Real estate and goods rental and leasing

   29,999   32,634 

Services

   56,861   50,858 

Consumer

   159,375   157,221 

Others

   21,120   23,081 
  

 

 

  

 

 

 

Total domestic

   501,428   435,771 
  

 

 

  

 

 

 

Foreign:

   

Financial institutions

   180   30 

Commerce and industry

   109,453   144,975 

Others

   24,409   22,383 
  

 

 

  

 

 

 

Total foreign

   134,042   167,388 
  

 

 

  

 

 

 

Total

   635,470   603,159 
  

 

 

  

 

 

 

Past due three months or more (loans):

   

Domestic

   24,781   21,649 

Foreign

   2,525   —   
  

 

 

  

 

 

 

Total

   27,306   21,649 
  

 

 

  

 

 

 

Restructured (loans):

   

Domestic

   127,316   136,582 

Foreign

   18,624   17,567 
  

 

 

  

 

 

 

Total

   145,940   154,149 
  

 

 

  

 

 

 

Other impaired (loans and advances):

   

Domestic

   66,285   93,175 

Foreign

   7,017   6,736 
  

 

 

  

 

 

 

Total

   73,302   99,911 
  

 

 

  

 

 

 

Gross impaired loans and advances

   882,018   878,868 
  

 

 

  

 

 

 

Less: Allowance for loan losses for impaired loans and advances

   (354,448  (369,386
  

 

 

  

 

 

 

Net impaired loans and advances

  ¥527,570  ¥509,482 
  

 

 

  

 

 

 

In addition to the discussion in this section, see Note 45 “Financial Risk Management—Credit Risk” to our consolidated financial statements included elsewhere in this annual report.

Investment Securities

Our investment securities, including available-for-sale financial assetsdebt instruments at amortized cost, debt instruments at fair value through other comprehensive income and held-to-maturity investments, equity instruments at fair value through other comprehensive income,

totaled ¥19,865,347¥17,825,027 million at March 31, 2016,2019, a decrease of ¥4,374,309¥2,670,048 million, or 18%13%, from ¥24,239,656¥20,495,075 million at March 31, 2015.2018. Our investment securities consisted ofheld-to-maturity investments andavailable-for-sale financial assets at March 31, 2018. The decrease in our investment securities was primarily due to a decrease in our holdings of Japanese government bonds, and the reclassification of some financial assets classified asavailable-for-sale domestic bonds. financial assets under IAS 39 to financial assets measured at fair value through profit or loss under IFRS 9. The decrease was partially offset by an increase in our holdings of U.S. Treasury securities. For more information about the impact of the adoption of IFRS 9, see Note 2 “Summary of Significant Accounting Policies—Effect of Adoption of New and Amended Accounting Standards” and “Summary of Significant Accounting Policies—Financial Assets” to our consolidated financial statements included elsewhere in this report.

Our bond portfolio is principally held for asset and liability management purposes. Our bond portfolio mostly consisted of Japanese government bonds, U.S. Treasury securities and foreign bonds issued by other governments and official institutions.

Our held-to-maturity investmentsdebt instruments at amortized cost amounted to ¥2,267,542¥318,914 million at March 31, 2016,2019, a decrease of ¥1,129,353¥53,545 million, or 33%14%, from ¥3,396,895¥372,459 million at March 31, 2015,2018. Our debt instruments at amortized cost were classified asheld-to-maturity investments under IAS 39 at March 31, 2018. The decrease was primarily due to redemptions at maturity of Japanese government bonds, which are the principal componentswas partially offset by an increase in our holdings of our held-to-maturity investments portfolio.foreign bonds issued by other governments and official institutions.

Domestic available-for-sale financial assets included ¥6,867,292 million of domestic debt instruments at March 31, 2016, a decrease of ¥2,806,408 million, or 29%, from ¥9,673,700fair value through other comprehensive income amounted to ¥5,455,863 million at March 31, 2015.2019, a decrease of ¥2,573,073 million, or 32%, from ¥8,028,936 million at March 31, 2018. Our domestic debt instruments were classified asavailable-for-sale financial assets under IAS 39 at March 31, 2018. The decrease was primarily due to a decrease in our holdings of Japanese government bonds. Moreover, we manage the average duration of our Japanese government bonds to be short, and Japanese government bonds with a maturity of less than a year and those with a maturity of less than five years accounted for 24% and 96%, respectively,82% of our total Japanese government bonds at March 31, 2016. As for our foreign available-for-sale financial assets, we had ¥5,482,618 million of2019. Our foreign debt instruments which was an increaseat fair value through other comprehensive income, most of ¥742,870 million, or 16%, from ¥4,739,748 million at March 31, 2015. Most of our foreign debt instruments, including mortgage-backed securities,which are issued or guaranteed by foreign governments, government agencies or official institutions.institutions, amounted to ¥7,877,358 million at March 31, 2019, an increase of ¥1,623,588 million, or 26%, from ¥6,253,770 million at March 31, 2018. Our foreign debt instruments were classified asavailable-for-sale financial assets under IAS 39 at March 31, 2018. The increase was primarily due to an increase in our holdings of mortgage-backed securitiesU.S. Treasury and other U.S. government agency bonds. Net unrealized losses on our foreign debt instruments amounted to ¥36,603 million at March 31, 2019, as compared to net unrealized losses of Government National Mortgage Association.¥165,863 million at March 31, 2018. This was primarily due to a decrease in U.S. interest rates. Of our foreign debt instruments, 55%59% had a maturity of less than five years.

We had ¥4,668,299¥3,729,120 million of domestic equity instruments and ¥579,596¥443,772 million of foreign equity instruments at March 31, 2016.2019, for which we made an irrevocable election at initial recognition to present subsequent changes in fair value in other comprehensive income under IFRS 9. These equity instruments were classified asavailable-for-sale financial assets under IAS 39 at March 31, 2018. Our domestic equity instruments, which consisted principally of publicly traded Japanese stocks and included common and preferred stocks issued by our customers, decreased by ¥1,008,072¥1,432,614 million, or 18%28%, from ¥5,676,371¥5,161,734 million at March 31, 2015. Net unrealized gains on our domestic2018. Our foreign equity instruments also decreased by ¥682,838¥234,404 million, or 23%35%, from ¥3,031,726¥678,176 million at March 31, 2015 to ¥2,348,888 million at March 31, 2016. The decrease was2018. These decreases were primarily due to a decline in the market pricesadoption of these stocks in a market environment where,IFRS 9 from April 1, 2018. With the adoption of IFRS 9, some of financial assets classified as described in “Item 5. Operating and Financial Review and Prospects—Overview—Operating Environment,” the Nikkei Stock Average dropped from ¥19,206.99available-for-sale financial assets under IAS 39 were reclassified as financial assets measured at March 31, 2015 to ¥16,758.67 at March 31, 2016. Net unrealized gains on our foreign equity instruments decreased by ¥113,138 million,fair value through profit or 36%, from ¥317,718 million at March 31, 2015 to ¥204,580 million at March 31, 2016.loss.

We recognize the risks associated with our equity portfolio, owing to its volatility, and have been actively looking to minimize the negative effect of holding a large equity portfolio through economic hedging and derivative transactions.

We have no transactions pursuant to repurchase agreements, securities lending transactions or other transactions involving the transfer of financial assets with an obligation to repurchase such transferred assets that are treated as sales for accounting purposes.

The following tables show the amortized cost, gross unrealized gains and losses and fair value of our investment securities, which are classified as debt instruments at amortized cost, debt instruments at fair value through other comprehensive income and equity instruments at fair value through other comprehensive income at March 31, 2019 andheld-to-maturity investments andavailable-for-sale financial assets at March 31, 2016, 20152018 and 2014.2017.

 

 At March 31, 2016  At March 31, 2019 
 Amortized
cost
 Gross unrealized
gains
 Gross unrealized
losses
 Fair value  Amortized
cost(1)
 Gross unrealized
gains
 Gross unrealized
losses
 Fair value 
 (In millions)  (In millions) 

Held-to-maturity investments:

    

Debt instruments at amortized cost:

    

Domestic:

        

Japanese government bonds

 ¥2,241,491   ¥16,574   ¥—     ¥2,258,065   ¥280,246  ¥890  ¥—    ¥281,136 

Japanese municipal bonds

  20,849    26    3    20,872    —     —     —     —   

Japanese corporate bonds

  5,202    28    —      5,230    —     —     —     —   
 

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

Total domestic

  2,267,542    16,628    3    2,284,167   280,246  890   —    281,136 
 

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

Foreign

  —      —      —      —    

Foreign:

    

U.S. Treasury and other U.S. government agency bonds

  —     —     —     —   

Bonds issued by other governments and official institutions

 36,827  106  39  36,894 

Other debt instruments

 1,841   —     —    1,841 
 

 

  

 

  

 

  

 

 

Total foreign

 38,668  106  39  38,735 
 

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

Total

 ¥2,267,542   ¥16,628   ¥3   ¥2,284,167   ¥318,914  ¥996  ¥39  ¥319,871 
 

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

Available-for-sale financial assets:

    

Debt instruments at fair value through other comprehensive income:

    

Domestic:

        

Japanese government bonds

 ¥6,481,951   ¥47,906   ¥1,282   ¥6,528,575   ¥5,005,649  ¥22,285  ¥239  ¥5,027,695 

Japanese municipal bonds

  31,081    157    17    31,221   98,427  742  5  99,164 

Japanese corporate bonds

  303,894    3,687    85    307,496   325,130  3,848   —    328,978 
 

 

  

 

  

 

  

 

 

Total domestic debt instruments

  6,816,926    51,750    1,384    6,867,292  

Equity instruments

  2,319,411    2,385,454    36,566    4,668,299  

Other debt instruments

 26   —     —    26 
 

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

Total domestic

  9,136,337    2,437,204    37,950    11,535,591   5,429,232  26,875  244  5,455,863 
 

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

Foreign:

        

U.S. Treasury and other U.S. government agency bonds

  2,243,096    5,237    2,203    2,246,130   4,469,336  28,497  71,198  4,426,635 

Bonds issued by other governments and official institutions

  2,130,938    10,107    2,052    2,138,993   2,112,607  10,590  1,790  2,121,407 

Mortgage-backed securities

  978,315    6,692    486    984,521   1,047,183  9,739  12,935  1,043,987 

Other debt instruments

  112,312    713    51    112,974   284,835  664  170  285,329 
 

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

Total foreign debt instruments

  5,464,661    22,749    4,792    5,482,618  

Equity instruments

  375,016    227,025    22,445    579,596  
 

 

  

 

  

 

  

 

 

Total foreign

  5,839,677    249,774    27,237    6,062,214   7,913,961  49,490  86,093  7,877,358 
 

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

Total

 ¥14,976,014   ¥2,686,978   ¥65,187   ¥17,597,805   ¥13,343,193  ¥76,365  ¥86,337  ¥13,333,221 
 

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

Equity instruments at fair value through other comprehensive income:

    

Domestic

 ¥1,600,072  ¥2,221,660  ¥92,612  ¥3,729,120 

Foreign

 95,989  368,511  20,728  443,772 
 

 

  

 

  

 

  

 

 

Total

 ¥1,696,061  ¥2,590,171  ¥113,340  ¥4,172,892 
 

 

  

 

  

 

  

 

 

(1)

Amortized cost for equity instruments at fair value through other comprehensive income represents the difference between the fair value and gross unrealized gains or losses.

  At March 31, 2015 
  Amortized
cost
  Gross unrealized
gains
  Gross unrealized
losses
  Fair value 
  (In millions) 

Held-to-maturity investments:

    

Domestic:

    

Japanese government bonds

 ¥3,282,787   ¥20,441   ¥—     ¥3,303,228  

Japanese municipal bonds

  67,843    222    —      68,065  

Japanese corporate bonds

  46,265    174    —      46,439  
 

 

 

  

 

 

  

 

 

  

 

 

 

Total domestic

  3,396,895    20,837    —      3,417,732  
 

 

 

  

 

 

  

 

 

  

 

 

 

Foreign

  —      —      —      —    
 

 

 

  

 

 

  

 

 

  

 

 

 

Total

 ¥3,396,895   ¥20,837   ¥—     ¥3,417,732  
 

 

 

  

 

 

  

 

 

  

 

 

 

Available-for-sale financial assets:

    

Domestic:

    

Japanese government bonds

 ¥9,376,173   ¥17,318   ¥3,532   ¥9,389,959  

Japanese municipal bonds

  51,882    281    13    52,150  

Japanese corporate bonds

  229,726    1,928    63    231,591  
 

 

 

  

 

 

  

 

 

  

 

 

 

Total domestic debt instruments

  9,657,781    19,527    3,608    9,673,700  

Equity instruments

  2,644,645    3,033,813    2,087    5,676,371  
 

 

 

  

 

 

  

 

 

  

 

 

 

Total domestic

  12,302,426    3,053,340    5,695    15,350,071  
 

 

 

  

 

 

  

 

 

  

 

 

 

Foreign:

    

U.S. Treasury and other U.S. government agency bonds

  2,064,938    2,497    5,392    2,062,043  

Bonds issued by other governments and official institutions

  2,178,318    27,976    632    2,205,662  

Mortgage-backed securities

  257,277    231    408    257,100  

Other debt instruments

  213,815    1,621    493    214,943  
 

 

 

  

 

 

  

 

 

  

 

 

 

Total foreign debt instruments

  4,714,348    32,325    6,925    4,739,748  

Equity instruments

  435,224    317,801    83    752,942  
 

 

 

  

 

 

  

 

 

  

 

 

 

Total foreign

  5,149,572    350,126    7,008    5,492,690  
 

 

 

  

 

 

  

 

 

  

 

 

 

Total

 ¥17,451,998   ¥3,403,466   ¥12,703   ¥20,842,761  
 

 

 

  

 

 

  

 

 

  

 

 

 

  At March 31, 2018 
  Amortized
cost
  Gross unrealized
gains
  Gross unrealized
losses
  Fair value 
  (In millions) 

Held-to-maturity investments:

    

Domestic:

    

Japanese government bonds

 ¥372,459  ¥2,138  ¥—    ¥374,597 

Japanese municipal bonds

  —     —     —     —   

Japanese corporate bonds

  —     —     —     —   
 

 

 

  

 

 

  

 

 

  

 

 

 

Total domestic

  372,459   2,138   —     374,597 
 

 

 

  

 

 

  

 

 

  

 

 

 

Foreign

  —     —     —     —   
 

 

 

  

 

 

  

 

 

  

 

 

 

Total

 ¥372,459  ¥2,138  ¥—    ¥374,597 
 

 

 

  

 

 

  

 

 

  

 

 

 

Available-for-sale financial assets:

    

Domestic:

    

Japanese government bonds

 ¥7,675,028  ¥14,554  ¥4,279  ¥7,685,303 

Japanese municipal bonds

  47,079   49   96   47,032 

Japanese corporate bonds

  295,503   1,221   123   296,601 
 

 

 

  

 

 

  

 

 

  

 

 

 

Total domestic debt instruments

  8,017,610   15,824   4,498   8,028,936 

Equity instruments

  2,237,143   2,946,737   22,146   5,161,734 
 

 

 

  

 

 

  

 

 

  

 

 

 

Total domestic

  10,254,753   2,962,561   26,644   13,190,670 
 

 

 

  

 

 

  

 

 

  

 

 

 

Foreign:

    

U.S. Treasury and other U.S. government agency bonds

  3,387,109   1,723   142,186   3,246,646 

Bonds issued by other governments and official institutions

  2,192,099   4,203   8,852   2,187,450 

Mortgage-backed securities

  509,104   31   20,952   488,183 

Other debt instruments

  331,321   507   337   331,491 
 

 

 

  

 

 

  

 

 

  

 

 

 

Total foreign debt instruments

  6,419,633   6,464   172,327   6,253,770 

Equity instruments

  342,155   340,366   4,345   678,176 
 

 

 

  

 

 

  

 

 

  

 

 

 

Total foreign

  6,761,788   346,830   176,672   6,931,946 
 

 

 

  

 

 

  

 

 

  

 

 

 

Total

 ¥17,016,541  ¥3,309,391  ¥203,316  ¥20,122,616 
 

 

 

  

 

 

  

 

 

  

 

 

 

  At March 31, 2014 
  Amortized
cost
  Gross unrealized
gains
  Gross unrealized
losses
  Fair value 
  (In millions) 

Held-to-maturity investments:

    

Domestic:

    

Japanese government bonds

 ¥4,330,877   ¥32,095   ¥125   ¥4,362,847  

Japanese municipal bonds

  102,580    847    2    103,425  

Japanese corporate bonds

  94,797    1,306    27    96,076  
 

 

 

  

 

 

  

 

 

  

 

 

 

Total domestic

  4,528,254    34,248    154    4,562,348  
 

 

 

  

 

 

  

 

 

  

 

 

 

Foreign

  —      —      —      —    
 

 

 

  

 

 

  

 

 

  

 

 

 

Total

 ¥4,528,254   ¥34,248   ¥154   ¥4,562,348  
 

 

 

  

 

 

  

 

 

  

 

 

 

Available-for-sale financial assets:

    

Domestic:

    

Japanese government bonds

 ¥8,242,654   ¥19,212   ¥57   ¥8,261,809  

Japanese municipal bonds

  125,095    736    27    125,804  

Japanese corporate bonds

  512,904    2,519    143    515,280  
 

 

 

  

 

 

  

 

 

  

 

 

 

Total domestic debt instruments

  8,880,653    22,467    227    8,902,893  

Equity instruments

  2,444,269    2,032,382    6,404    4,470,247  
 

 

 

  

 

 

  

 

 

  

 

 

 

Total domestic

  11,324,922    2,054,849    6,631    13,373,140  
 

 

 

  

 

 

  

 

 

  

 

 

 

Foreign:

    

U.S. Treasury and other U.S. government agency bonds

  1,891,918    194    20,355    1,871,757  

Bonds issued by other governments and official institutions

  1,215,260    1,478    541    1,216,197  

Mortgage-backed securities

  256,389    108    14,848    241,649  

Other debt instruments

  239,757    2,527    484    241,800  
 

 

 

  

 

 

  

 

 

  

 

 

 

Total foreign debt instruments

  3,603,324    4,307    36,228    3,571,403  

Equity instruments

  364,387    216,625    811    580,201  
 

 

 

  

 

 

  

 

 

  

 

 

 

Total foreign

  3,967,711    220,932    37,039    4,151,604  
 

 

 

  

 

 

  

 

 

  

 

 

 

Total

 ¥15,292,633   ¥2,275,781   ¥43,670   ¥17,524,744  
 

 

 

  

 

 

  

 

 

  

 

 

 

  At March 31, 2017 
  Amortized
cost
  Gross unrealized
gains
  Gross unrealized
losses
  Fair value 
  (In millions) 

Held-to-maturity investments:

    

Domestic:

    

Japanese government bonds

 ¥1,160,751  ¥6,865  ¥—    ¥1,167,616 

Japanese municipal bonds

  7,463   12   —     7,475 

Japanese corporate bonds

  5,205   23   —     5,228 
 

 

 

  

 

 

  

 

 

  

 

 

 

Total domestic

  1,173,419   6,900   —     1,180,319 
 

 

 

  

 

 

  

 

 

  

 

 

 

Foreign

  —     —     —     —   
 

 

 

  

 

 

  

 

 

  

 

 

 

Total

 ¥1,173,419  ¥6,900  ¥—    ¥1,180,319 
 

 

 

  

 

 

  

 

 

  

 

 

 

Available-for-sale financial assets:

    

Domestic:

    

Japanese government bonds

 ¥5,704,875  ¥23,952  ¥6,153  ¥5,722,674 

Japanese municipal bonds

  83,253   77   550   82,780 

Japanese corporate bonds

  361,656   2,459   565   363,550 
 

 

 

  

 

 

  

 

 

  

 

 

 

Total domestic debt instruments

  6,149,784   26,488   7,268   6,169,004 

Equity instruments

  2,421,507   2,699,446   3,324   5,117,629 
 

 

 

  

 

 

  

 

 

  

 

 

 

Total domestic

  8,571,291   2,725,934   10,592   11,286,633 
 

 

 

  

 

 

  

 

 

  

 

 

 

Foreign:

    

U.S. Treasury and other U.S. government agency bonds

  3,565,748   2,352   99,837   3,468,263 

Bonds issued by other governments and official institutions

  1,687,959   512   18,618   1,669,853 

Mortgage-backed securities

  646,206   33   12,610   633,629 

Other debt instruments

  183,327   300   606   183,021 
 

 

 

  

 

 

  

 

 

  

 

 

 

Total foreign debt instruments

  6,083,240   3,197   131,671   5,954,766 

Equity instruments

  362,671   296,706   258   659,119 
 

 

 

  

 

 

  

 

 

  

 

 

 

Total foreign

  6,445,911   299,903   131,929   6,613,885 
 

 

 

  

 

 

  

 

 

  

 

 

 

Total

 ¥15,017,202  ¥3,025,837  ¥142,521  ¥17,900,518 
 

 

 

  

 

 

  

 

 

  

 

 

 

The following tables show the fair value and gross unrealized losses of our investment securities, aggregated by the length of time that the individual securities have been in a continuous unrealized loss position at March 31, 2016, 20152019, 2018 and 2014.2017. None of theavailable-for-sale equity instruments included in the tables have been in a continuous unrealized loss position for twelve months or more at March 31, 2018 and 2017, since a significant or prolonged decline in the fair value of anavailable-for-sale equity instrument below its cost is considered to be an objective evidence of impairment and in such case the unrealized losses are reclassified from equity to profit or loss.loss under IAS 39.

 

                                                                                                                        
 At March 31, 2016  At March 31, 2019 
 Less than twelve months Twelve months or more Total  Less than twelve months Twelve months or more Total 
 Fair value Gross
unrealized
losses
 Fair value Gross
unrealized
losses
 Fair value Gross
unrealized
losses
  Fair value Gross
unrealized
losses
 Fair value Gross
unrealized
losses
 Fair value Gross
unrealized
losses
 
 (In millions)  (In millions) 

Held-to-maturity investments:

      

Debt instruments at amortized cost:

      

Domestic:

            

Japanese government bonds

 ¥—     ¥—     ¥—     ¥—     ¥—     ¥—     ¥—    ¥—    ¥—    ¥—    ¥—    ¥—   

Japanese municipal bonds

  4,386    3    —      —      4,386    3    —     —     —     —     —     —   

Japanese corporate bonds

  —      —      —      —      —      —      —     —     —     —     —     —   
 

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

Total domestic

  4,386    3    —      —      4,386    3    —     —     —     —     —     —   
 

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

Foreign

  —      —      —      —      —      —    

Foreign:

      

U.S. Treasury and other U.S. government agency bonds

  —     —     —     —     —     —   

Bonds issued by other governments and official institutions

 2,999  39   —     —    2,999  39 

Other debt instruments

  —     —     —     —     —     —   
 

 

  

 

  

 

  

 

  

 

  

 

 

Total foreign

 2,999  39   —     —    2,999  39 
 

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

Total

 ¥4,386   ¥3   ¥—     ¥—     ¥4,386   ¥3   ¥2,999  ¥39  ¥—    ¥—    ¥2,999  ¥39 
 

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

Available-for-sale financial assets:

      

Debt instruments at fair value through other comprehensive income:

      

Domestic:

            

Japanese government bonds

 ¥675,693   ¥1,282   ¥—     ¥—     ¥675,693   ¥1,282   ¥—    ¥—    ¥296,652  ¥239  ¥296,652  ¥239 

Japanese municipal bonds

  3,893    16    775    1    4,668    17    —     —    9,555  5  9,555  5 

Japanese corporate bonds

  42,692    82    860    3    43,552    85    —     —     —     —     —     —   
 

 

  

 

  

 

  

 

  

 

  

 

 

Total domestic debt instruments

  722,278    1,380    1,635    4    723,913    1,384  

Equity instruments

  425,494    36,566    —      —      425,494    36,566  

Other debt instruments

  —     —     —     —     —     —   
 

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

Total domestic

  1,147,772    37,946    1,635    4    1,149,407    37,950    —     —    306,207  244  306,207  244 
 

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

Foreign:

            

U.S. Treasury and other U.S. government agency bonds

  857,102    2,164    22,474    39    879,576    2,203   907,418  8,721  1,316,145  62,477  2,223,563  71,198 

Bonds issued by other
governments and official
institutions

  938,377    2,012    32,063    40    970,440    2,052   1,217,502  959  132,139  831  1,349,641  1,790 

Mortgage-backed securities

  8,294    44    12,013    442    20,307    486   412  1  432,651  12,934  433,063  12,935 

Other debt instruments

  44,965    30    2,077    21    47,042    51   138,685  111  11,930  59  150,615  170 
 

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

Total foreign debt
instruments

  1,848,738    4,250    68,627    542    1,917,365    4,792  

Equity instruments

  160,245    22,445    —      —      160,245    22,445  
 

 

  

 

  

 

  

 

  

 

  

 

 

Total foreign

  2,008,983    26,695    68,627    542    2,077,610    27,237   2,264,017  9,792  1,892,865  76,301  4,156,882  86,093 
 

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

Total

 ¥    3,156,755   ¥    64,641   ¥    70,262   ¥    546   ¥    3,227,017   ¥    65,187   ¥2,264,017  ¥9,792  ¥2,199,072  ¥76,545  ¥4,463,089  ¥86,337 
 

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

Equity instruments at fair value through other comprehensive income:

      

Domestic

 ¥137,946  ¥31,563  ¥147,991  ¥61,049  ¥285,937  ¥92,612 

Foreign

  —    2  20,970  20,726  20,970  20,728 
 

 

  

 

  

 

  

 

  

 

  

 

 

Total

 ¥    137,946  ¥    31,565  ¥    168,961  ¥    81,775  ¥    306,907  ¥    113,340 
 

 

  

 

  

 

  

 

  

 

  

 

 

                                                                                                                                                            
  At March 31, 2015 
  Less than twelve months  Twelve months or more  Total 
  Fair value  Gross
unrealized
losses
  Fair value  Gross
unrealized
losses
  Fair value  Gross
unrealized
losses
 
  (In millions) 

Held-to-maturity investments:

      

Domestic:

      

Japanese government bonds

 ¥—     ¥—     ¥—     ¥—     ¥—     ¥—    

Japanese municipal bonds

  —      —      —      —      —      —    

Japanese corporate bonds

  —      —      —      —      —      —    
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Total domestic

  —      —      —      —      —      —    
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Foreign

  —      —      —      —      —      —    
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Total

 ¥—     ¥—     ¥—     ¥—     ¥—     ¥—    
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Available-for-sale financial assets:

      

Domestic:

      

Japanese government bonds

 ¥2,067,924   ¥3,531   ¥22   ¥1   ¥2,067,946   ¥3,532  

Japanese municipal bonds

  1,550    8    1,476    5    3,026    13  

Japanese corporate bonds

  36,668    61    498    2    37,166    63  
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Total domestic debt instruments

  2,106,142    3,600    1,996    8    2,108,138    3,608  

Equity instruments

  37,689    2,087    —      —      37,689    2,087  
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Total domestic

  2,143,831    5,687    1,996    8    2,145,827    5,695  
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Foreign:

      

U.S. Treasury and other U.S. government agency bonds

  387,664    2,535    441,641    2,857    829,305    5,392  

Bonds issued by other governments and official institutions

  633,935    604    23,507    28    657,442    632  

Mortgage-backed securities

  —      —      15,208    408    15,208    408  

Other debt instruments

  89,627    110    1,909    383    91,536    493  
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Total foreign debt instruments

  1,111,226    3,249    482,265    3,676    1,593,491    6,925  

Equity instruments

  5,066    83    —      —      5,066    83  
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Total foreign

  1,116,292    3,332    482,265    3,676    1,598,557    7,008  
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Total

 ¥    3,260,123   ¥      9,019   ¥    484,261   ¥    3,684   ¥    3,744,384   ¥    12,703  
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

  At March 31, 2018 
  Less than twelve months  Twelve months or more  Total 
  Fair value  Gross
unrealized
losses
  Fair value  Gross
unrealized
losses
  Fair value  Gross
unrealized
losses
 
  (In millions) 

Held-to-maturity investments:

      

Domestic:

      

Japanese government bonds

 ¥2,001  ¥—    ¥—    ¥—    ¥2,001  ¥—   

Japanese municipal bonds

  —     —     —     —     —     —   

Japanese corporate bonds

  —     —     —     —     —     —   
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Total domestic

  2,001   —     —     —     2,001   —   
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Foreign

  —     —     —     —     —     —   
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Total

 ¥2,001  ¥—    ¥—    ¥—    ¥2,001  ¥—   
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Available-for-sale financial assets:

      

Domestic:

      

Japanese government bonds

 ¥2,847,250  ¥559  ¥1,353,121  ¥3,720  ¥4,200,371  ¥4,279 

Japanese municipal bonds

  964   1   31,916   95   32,880   96 

Japanese corporate bonds

  6,801   2   72,061   121   78,862   123 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Total domestic debt instruments

  2,855,015   562   1,457,098   3,936   4,312,113   4,498 

Equity instruments

  506,969   22,146   —     —     506,969   22,146 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Total domestic

  3,361,984   22,708   1,457,098   3,936   4,819,082   26,644 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Foreign:

      

U.S. Treasury and other U.S. government agency bonds

  1,509,509   41,946   1,229,979   100,240   2,739,488   142,186 

Bonds issued by other governments and official institutions

  1,039,848   739   219,608   8,113   1,259,456   8,852 

Mortgage-backed securities

  1,124   1   482,141   20,951   483,265   20,952 

Other debt instruments

  141,058   161   17,269   176   158,327   337 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Total foreign debt instruments

  2,691,539   42,847   1,948,997   129,480   4,640,536   172,327 

Equity instruments

  65,105   4,345   —     —     65,105   4,345 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Total foreign

  2,756,644   47,192   1,948,997   129,480   4,705,641   176,672 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Total

 ¥    6,118,628  ¥    69,900  ¥    3,406,095  ¥    133,416  ¥    9,524,723  ¥    203,316 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

  At March 31, 2014 
  Less than twelve months  Twelve months or more  Total 
  Fair value  Gross
unrealized
losses
  Fair value  Gross
unrealized
losses
  Fair value  Gross
unrealized
losses
 
  (In millions) 

Held-to-maturity investments:

      

Domestic:

      

Japanese government bonds

 ¥—     ¥—     ¥269,649   ¥125   ¥269,649   ¥125  

Japanese municipal bonds

  1,882    2    —      —      1,882    2  

Japanese corporate bonds

  6,585    19    1,208    8    7,793    27  
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Total domestic

  8,467    21    270,857    133    279,324    154  
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Foreign

  —      —      —      —      —      —    
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Total

 ¥8,467   ¥21   ¥270,857   ¥133   ¥279,324   ¥154  
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Available-for-sale financial assets:

      

Domestic:

      

Japanese government bonds

 ¥35,592   ¥57   ¥22   ¥—     ¥35,614   ¥57  

Japanese municipal bonds

  4,740    18    2,277    9    7,017    27  

Japanese corporate bonds

  48,777    74    22,476    69    71,253    143  
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Total domestic debt instruments

  89,109    149    24,775    78    113,884    227  

Equity instruments

  123,013    6,404    —      —      123,013    6,404  
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Total domestic

  212,122    6,553    24,775    78    236,897    6,631  
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Foreign:

      

U.S. Treasury and other U.S. government agency bonds

  1,095,165    15,531    97,688    4,824    1,192,853    20,355  

Bonds issued by other governments and official institutions

  540,015    541    —      —      540,015    541  

Mortgage-backed securities

  224,568    14,846    426    2    224,994    14,848  

Other debt instruments

  25,733    444    51,751    40    77,484    484  
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Total foreign debt instruments

  1,885,481    31,362    149,865    4,866    2,035,346    36,228  

Equity instruments

  13,704    811    —      —      13,704    811  
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Total foreign

  1,899,185    32,173    149,865    4,866    2,049,050    37,039  
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Total

 ¥    2,111,307   ¥    38,726   ¥    174,640   ¥    4,944   ¥    2,285,947   ¥    43,670  
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

  At March 31, 2017 
  Less than twelve months  Twelve months or more  Total 
  Fair value  Gross
unrealized
losses
  Fair value  Gross
unrealized
losses
  Fair value  Gross
unrealized
losses
 
  (In millions) 

Held-to-maturity investments:

      

Domestic:

      

Japanese government bonds

 ¥—    ¥—    ¥—    ¥—    ¥—    ¥—   

Japanese municipal bonds

  —     —     —     —     —     —   

Japanese corporate bonds

  —     —     —     —     —     —   
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Total domestic

  —     —     —     —     —     —   
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Foreign

  —     —     —     —     —     —   
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Total

 ¥—    ¥—    ¥—    ¥—    ¥—    ¥—   
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Available-for-sale financial assets:

      

Domestic:

      

Japanese government bonds

 ¥1,427,268  ¥6,153  ¥—    ¥—    ¥1,427,268  ¥6,153 

Japanese municipal bonds

  68,154   543   2,383   7   70,537   550 

Japanese corporate bonds

  126,267   560   2,307   5   128,574   565 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Total domestic debt instruments

  1,621,689   7,256   4,690   12   1,626,379   7,268 

Equity instruments

  170,399   3,324   —     —     170,399   3,324 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Total domestic

  1,792,088   10,580   4,690   12   1,796,778   10,592 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Foreign:

      

U.S. Treasury and other U.S. government agency bonds

  1,590,352   40,549   685,367   59,288   2,275,719   99,837 

Bonds issued by other governments and official institutions

  1,238,536   18,587   60,616   31   1,299,152   18,618 

Mortgage-backed securities

  618,451   12,370   10,317   240   628,768   12,610 

Other debt instruments

  61,230   350   6,182   256   67,412   606 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Total foreign debt instruments

  3,508,569   71,856   762,482   59,815   4,271,051   131,671 

Equity instruments

  10,105   258   —     —     10,105   258 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Total foreign

  3,518,674   72,114   762,482   59,815   4,281,156   131,929 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Total

 ¥    5,310,762  ¥    82,694  ¥    767,172  ¥    59,827  ¥    6,077,934  ¥    142,521 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Trading Assets

The following table shows our trading assets at March 31, 20162019 and 2015.2018. Our trading assets were ¥3,615,092¥2,767,691 million at March 31, 2016, an increase2019, a decrease of ¥371,907¥401,432 million from ¥3,243,185¥3,169,123 million at March 31, 2015.2018. The increasedecrease was primarily due to an increasea decrease in our holdings of Japanese government bonds.

 

  At March 31,   At March 31, 
  2016   2015   2019   2018 
  (In millions)   (In millions) 

Debt instruments

  ¥3,174,309    ¥2,618,593    ¥2,480,903   ¥2,841,148 

Equity instruments

   440,783     624,592     286,788    327,975 
  

 

   

 

   

 

   

 

 

Total trading assets

  ¥3,615,092    ¥3,243,185    ¥    2,767,691   ¥    3,169,123 
  

 

   

 

   

 

   

 

 

Financial Assets at Fair Value Through Profit or Loss

The following table shows the fair value of our financial assets at fair value through profit or loss at March 31, 20162019 and 2015.2018. The fair value was ¥1,611,877¥2,641,416 million at March 31, 2016, a decrease2019, an increase of ¥173,807¥1,093,744 million from ¥1,785,684¥1,547,672 million at March 31, 2015.2018. The decreaseincrease was primarily due to a decreasethe reclassification of some of our financial assets classified asavailable-for-sale financial assets under IAS 39 into financial assets measured at fair value through profit or loss with the adoption of IFRS 9 at April 1, 2018. For more information about the impact of the adoption of IFRS 9, see Note 2 “Summary of Significant Accounting Policies—New and Amended Accounting Standards Adopted by the SMBC Group” to our consolidated financial statements included elsewhere in our holdings of equity instruments.this annual report.

 

  At March 31,   At March 31, 
  2016   2015   2019   2018 
  (In millions)   (In millions) 

Debt instruments

  ¥1,582,571    ¥1,654,259    ¥2,620,686   ¥1,528,921 

Equity instruments

   29,306     131,425     20,730    18,751 
  

 

   

 

   

 

   

 

 

Total financial assets at fair value through profit or loss

  ¥1,611,877    ¥1,785,684    ¥    2,641,416   ¥    1,547,672 
  

 

   

 

   

 

   

 

 

Exposures to Selected European Countries

The following tables show exposures to Greece, Italy, Ireland, Portugal and Spain at March 31, 2016 and 2015. Our exposures to those countries consisted mainly of loans, trade financing, leases, guarantees and unused commitments to large corporations, and project finance transactions. All figures in this subsection are based on the data collected for our internal risk management.

   At March 31, 2016 
   Sovereign   Financial
institutions
   Non-financial
corporations
   Total 
   (In billions) 

Greece

  ¥—      ¥—      ¥6.3    ¥6.3  

Italy

   —       7.1     284.0     291.1  

Ireland

   —       —       368.5     368.5  

Portugal

   —       —       5.9     5.9  

Spain

   0.9     0.2     271.7     272.8  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total

  ¥0.9    ¥7.3    ¥936.4    ¥944.6  
  

 

 

   

 

 

   

 

 

   

 

 

 

   At March 31, 2015 
   Sovereign   Financial
institutions
   Non-financial
corporations
   Total 
   (In billions) 

Greece

  ¥—      ¥—      ¥7.6    ¥7.6  

Italy

   —       0.9     221.9     222.8  

Ireland

   —       —       236.0     236.0  

Portugal

   —       —       6.1     6.1  

Spain

   2.3     0.2     260.5     263.0  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total

  ¥2.3    ¥1.1    ¥732.1    ¥735.5  
  

 

 

   

 

 

   

 

 

   

 

 

 

Liabilities

Our total liabilities increased by ¥969,937¥4,050,410 million from ¥168,160,616¥179,679,767 million at March 31, 20152018 to ¥169,130,553¥183,730,177 million at March 31, 2016,2019, primarily due to an increaseincreases in deposits.deposits and borrowings.

The following table shows our liabilities at March 31, 20162019 and 2015.2018.

 

  At March 31,   At March 31, 
  2016   2015   2019   2018 
  (In millions)   (In millions) 

Deposits

  ¥125,940,797    ¥115,833,980    ¥134,404,652   ¥128,461,527 

Call money and bills sold

   1,220,456     5,873,124     1,307,779    1,190,929 

Repurchase agreements and cash collateral on securities lent

   6,839,474     8,820,083     12,887,249    12,022,593 

Trading liabilities

   2,197,673     2,193,400     1,998,694    2,143,899 

Derivative financial instruments

   5,086,083     6,739,787     3,051,773    3,498,016 

Borrowings

   9,914,129     11,217,052     12,167,858    10,652,481 

Debt securities in issue

   10,829,612     11,051,431     11,171,209    10,569,117 

Provisions

   262,401     207,624     194,818    188,267 

Other liabilities

   6,410,733     5,548,965     6,131,739    6,882,740 

Current tax liabilities

   93,307     111,365     147,041    55,516 

Deferred tax liabilities

   335,888     563,805     267,365    397,741 

Liabilities directly associated with the assets held for sale

   —      3,616,941 
  

 

   

 

   

 

   

 

 

Total liabilities

  ¥169,130,553    ¥168,160,616    ¥183,730,177   ¥179,679,767 
  

 

   

 

   

 

   

 

 

Deposits

We offer a wide range of standard banking accounts through the offices of our banking subsidiaries in Japan, includingnon-interest-bearing demand deposits, interest-bearing demand deposits, deposits at notice, time deposits and negotiable certificates of deposit. Domestic deposits, approximately 80%79% of total deposits, are our principal source of funds for our domestic operations. The deposits in the domestic offices of our banking subsidiaries are principally from individuals and private corporations, with the balance from governmental bodies (including municipal authorities), and financial institutions.

The Bank’sSMBC’s foreign offices accept deposits mainly in U.S. dollars, but also in yen and other currencies, and are active participants in the Euro-currency market as well as the United States domestic money market. Foreign deposits mainly consist of stable types of deposits, such as deposits at notice, time deposits, and negotiable certificates of deposit. These deposits typically pay interest determined with reference to market rates such as LIBOR.

Our deposit balances at March 31, 20162019 were ¥125,940,797¥134,404,652 million, an increase of ¥10,106,817¥5,943,125 million, or 9%5%, from ¥115,833,980¥128,461,527 million at March 31, 2015,2018, primarily due to increasesan increase in interest-bearing demand deposits at domestic offices and time deposits and deposits at notice at foreign offices, reflecting our efforts to expand and diversify our foreign currency funding sources for overseas business development.offices.

The following table shows a breakdown of our domestic and foreign offices’ deposits at the dates indicated.

 

  At March 31,   At March 31, 
  2016   2015   2019   2018 
  (In millions)   (In millions) 

Domestic offices:

        

Non-interest-bearing demand deposits

  ¥17,566,123    ¥15,387,795    ¥21,376,082   ¥20,370,064 

Interest-bearing demand deposits

   44,975,104     40,593,134     53,490,445    49,580,166 

Deposits at notice

   874,581     821,717     853,344    855,978 

Time deposits

   22,921,709     24,186,585     17,885,860    18,185,591 

Negotiable certificates of deposit

   6,451,869     5,705,862     4,962,651    5,408,021 

Others

   7,242,800     5,736,495     7,317,912    7,338,619 
  

 

   

 

   

 

   

 

 

Total domestic offices

   100,032,186     92,431,588     105,886,294    101,738,439 
  

 

   

 

   

 

   

 

 

Foreign offices:

        

Non-interest-bearing demand deposits

   1,097,531     862,698     1,218,145    1,241,450 

Interest-bearing demand deposits

   1,865,098     1,448,643     2,714,951    2,574,099 

Deposits at notice

   8,819,990     7,968,300     10,316,612    9,499,686 

Time deposits

   6,222,716     4,897,880     7,875,029    7,469,541 

Negotiable certificates of deposit

   7,797,966     8,120,036     6,202,836    5,812,264 

Others

   105,310     104,835     190,785    126,048 
  

 

   

 

   

 

   

 

 

Total foreign offices

   25,908,611     23,402,392     28,518,358    26,723,088 
  

 

   

 

   

 

   

 

 

Total deposits

  ¥125,940,797    ¥115,833,980    ¥134,404,652   ¥128,461,527 
  

 

   

 

   

 

   

 

 

Borrowings

Borrowings include short-termunsubordinated borrowings, unsubordinated and subordinated long-term borrowings, liabilities associated with securitization transactions of our own assets, and lease obligations. At March 31, 2016,2019, our borrowings were ¥9,914,129¥12,167,858 million, a decreasean increase of ¥1,302,923¥1,515,377 million, or 12%14%, from ¥11,217,052¥10,652,481 million at March 31, 2015,2018, primarily due to a decreasean increase in short-term borrowings.

At March 31, 2016, our short-term borrowings accounted for 31% of our total borrowings, and our long-term borrowings accounted for 57% of our totalunsubordinated borrowings.

The following table shows the balances with respect to our borrowings at March 31, 20162019 and 2015.2018.

 

   At March 31, 
   2016   2015 
   (In millions) 

Short-term borrowings

  ¥3,073,509    ¥6,746,249  

Long-term borrowings:

    

Unsubordinated

   5,312,744     2,947,573  

Subordinated

   295,200     317,461  

Liabilities associated with securitization transactions

   1,126,985     1,103,929  

Lease obligations

   105,691     101,840  
  

 

 

   

 

 

 

Total borrowings

  ¥    9,914,129    ¥  11,217,052  
  

 

 

   

 

 

 

For more information, see Note 18 “Borrowings” to our consolidated financial statements included elsewhere in this annual report, which sets forth summaries of short- and long-term borrowings with their contractual interest rates and currencies.

   At March 31, 
   2019  2018 
   (In millions) 

Unsubordinated borrowings

  ¥10,632,213  ¥9,158,844 

Subordinated borrowings

   273,819   279,749 

Liabilities associated with securitization transactions

   1,231,447    1,204,722  

Lease obligations

   30,379   9,166 
  

 

 

  

 

 

 

Total borrowings

  ¥  12,167,858  ¥  10,652,481 
  

 

 

  

 

 

 

Debt Securities in Issue

Debt securities in issue at March 31, 20162019 were ¥10,829,612¥11,171,209 million, a decreasean increase of ¥221,819¥602,092 million, or 2%6%, from ¥11,051,431¥10,569,117 million at March 31, 2015,2018, primarily due to a decrease in commercial paper, which was partially offset by an increase in senior bonds reflecting our efforts to expand foreign currency funding sources.

 

  At March 31,   At March 31, 
  2016   2015   2019 2018 
  (In millions)   (In millions) 

Commercial paper

  ¥4,169,515    ¥4,813,902    ¥2,440,515  ¥2,467,645 

Bonds

   4,819,155     4,461,425     7,135,367  6,490,965 

Subordinated bonds

   1,840,942     1,776,104     1,595,327   1,610,507  
  

 

   

 

   

 

  

 

 

Total debt securities in issue

  ¥10,829,612    ¥11,051,431    ¥  11,171,209  ¥  10,569,117 
  

 

   

 

   

 

  

 

 

For additional information, see Note 19 “Debt Securities in Issue” to our consolidated financial statements included elsewhere in this annual report, which sets forth summaries of debt securities in issue with their contractual interest rates and currencies.

In the normal course of business, we enter into contractual obligations that require future cash payments. “Item 5.F. Tabular Disclosure of Contractual Obligations” sets forth a summary of our contractual cash obligations at March 31, 2016.2019.

Total Equity

Our total equity increaseddecreased by ¥21,249¥722,353 million from ¥11,020,850¥12,495,799 million at March 31, 20152018 to ¥11,042,099¥11,773,446 million at March 31, 2016, primarily due to increases in retained earnings, which mainly reflected our net profit, and equity attributable to other equity instruments holders. Equity attributable to other equity instruments holders consisted of perpetual subordinated bonds qualified as Additional Tier 1 capital and classified as equity under IFRS. The increase was partially offset by a decrease in other reserves,2019, primarily due to a decrease in available-for-sale financial assets reserve reflectingnon-controlling interests, which was partially offset by an increase in retained earnings. The decrease innon-controlling interests was mainly due to the redemption of preferred securities, disposal of a declinepart of our equity interest in market prices of domestic equity instruments.SMFL, which had been our subsidiary but became our joint venture, and transactions withnon-controlling interests shareholders. The increase in retained earnings mainly reflected our net profit. For more information, see Note 24 “Shareholders’ Equity” and Note 25 “Non-controlling“Non-controlling Interests and Equity Attributable to Other Equity Instruments Holders” to our consolidated financial statements included elsewhere in this annual report.

In addition to the above, with the adoption of IFRS 9, impairment losses recognized under IAS 39 on equity instruments whose subsequent changes in fair value were presented in other comprehensive income under IFRS 9 were reclassified from retained earnings to other reserves at April 1, 2018, which resulted in an increase in retained earnings and a decrease in other reserves. For more information about the impact of the adoption of IFRS 9, see Note 2 “Summary of Significant Accounting Policies—New and Amended Accounting Standards Adopted by the SMBC Group” to our consolidated financial statements included elsewhere in this report.

  At March 31, 
  2016  2015 
  (In millions) 

Capital stock

 ¥2,337,896   ¥2,337,896  

Capital surplus

  863,503    862,971  

Retained earnings

  4,186,683    3,554,688  

Other reserves

  1,991,955    2,759,084  

Treasury stock

  (175,381  (175,261
 

 

 

  

 

 

 

Equity attributable to shareholders of Sumitomo Mitsui Financial Group, Inc.

  9,204,656    9,339,378  

Non-controlling interests

  1,537,548    1,681,472  

Equity attributable to other equity instruments holders

  299,895    —    
 

 

 

  

 

 

 

Total equity

 ¥11,042,099   ¥11,020,850  
 

 

 

  

 

 

 

  At March 31, 
  2019  2018 
  (In millions) 

Capital stock

 ¥2,339,443  ¥2,338,743 

Capital surplus

  726,012   863,505 

Retained earnings

  5,715,101   5,149,193 

Treasury stock

  (16,302  (12,493
 

 

 

  

 

 

 

Equity excluding other reserves

  8,764,254   8,338,948 

Other reserves

  1,916,366   2,324,349 
 

 

 

  

 

 

 

Equity attributable to shareholders of Sumitomo Mitsui Financial Group, Inc.

  10,680,620   10,663,297 

Non-controlling interests

  494,123   1,232,980 

Equity attributable to other equity instruments holders

  598,703   599,522 
 

 

 

  

 

 

 

Total equity

 ¥  11,773,446  ¥  12,495,799 
 

 

 

  

 

 

 

Reconciliation with Japanese GAAP

Our consolidated financial statements are prepared in accordance with IFRS as summarized in Note 2 “Summary of Significant Accounting Policies” to our consolidated financial statements included elsewhere in this annual report. These policies differ in some respects from Japanese GAAP. UnderFor reporting under the FIEA and Japanese banking regulations, we reportprepare our annual financial results prepared underin accordance with Japanese GAAP. To show the major reconciling items between our IFRS and Japanese GAAP consolidated financial statements, we have provided below, with respect to our most recent fiscal year, a reconciliation of consolidated net profit and total equity under IFRS with those amounts under Japanese GAAP.

 

  At and for the fiscal year ended
March 31, 2016
  At and for the fiscal year ended
March 31, 2019
 
      Total equity         Net profit      Total equity Net profit 
  (In millions)  (In millions) 

IFRS

  ¥11,042,099   ¥952,822   ¥11,773,446  ¥647,586 

Differences arising from different accounting for:

     

1. Scope of consolidation

   119,152    3,099   131,976  (89

2. Derivative financial instruments

   133,716    (173,126 109,660  (31,270

3. Investment securities

   (256,751  (56,615 (281,966 129,523 

4. Loans and advances

   25,417    35,154   298,965  23,212 

5. Investments in associates and joint ventures

   (86,246  (53,443 (33,881 86,468 

6. Property, plant and equipment

   (9,261  (1,333 (10,287 1,192 

7. Lease accounting

   (539  1,462   2,189  1,433 

8. Defined benefit plans

   (32,151  (6,632 59,900  51,371 

9. Deferred tax assets

   (35,371  51,191   (56,355 (8,062

10. Foreign currency translation

   —      (61,680  —    (1,340

11. Classification of equity and liability

   (302,535  (5,412 (602,783 (11,949

Others

   (151,244  (27,004 142,334  (42,481

Tax effect of the above

   1,383    96,640   (81,586 (53,439
  

 

  

 

  

 

  

 

 

Japanese GAAP

  ¥10,447,669   ¥755,123   ¥11,451,612  ¥792,155 
  

 

  

 

  

 

  

 

 

The explanations below summarize certain differences between IFRS and Japanese GAAP that may be significant. The paragraphs below refer to the corresponding items as set forth in the table above.

1.

Scope of consolidation

Under Japanese GAAP, we consolidate an entity when we effectively control the decision making body of the entity’s operating and financing policies. Control is generally presumed to exist when we own more than half of the voting power, or own from 40% to 50% of the voting power and certain facts exist indicating control. Certain entities established for securitization are presumed not to be controlled. Under IFRS, we consolidate an entity when we control the entity. Control is generally presumed to exist when we are exposed, or have rights, to variable returns from our involvement with the entity and have the ability to affect those returns through our power over the entity. The existence and effect of potential voting rights that are deemed to be substantive are taken into account when assessing the control. When assessing control of an entity under IFRS, we apply a single consolidation model to all types of entities, irrespective of their nature. This results in a difference in the scope of consolidation between Japanese GAAP and IFRS. Most significantly, certain entities designed for special purpose such as securitization, usually in the form of trusts under the Trust Act of Japan, are not consolidated under Japanese GAAP but consolidated under IFRS. Accordingly, both the cumulative gains on transfers of financial assets to these securitization vehicles and amortization of our retained subordinate interest under Japanese GAAP were not recognized under IFRS due to consolidation of such vehicles.

 

2.

Derivative financial instruments

Under Japanese GAAP, an embedded derivative shall beis separately accounted for when the host contract may suffer losses arising from the embedded derivative. Also, an entity may separately account for an embedded

derivative if the entity manages it separately, even though the criteria for separation are not fully met. Under IFRS, when a hybrid contract contains a host that is not a financial asset, an embedded derivative shall beis separated from the host contract and accounted for as a derivative if, and only if, its economic characteristics and risks are not closely related to those of the host contract. Accordingly, certain embedded derivatives that are separately accounted for under Japanese GAAP but do not meet the criteria for separation under IFRS are adjusted such that they are combined with the host contract, and vice versa. In addition, theThe separation of the embedded derivatives from the host contract is adjusted so as not to result in any gain or loss at initial recognition under IFRS. On the other hand, under IFRS, when a hybrid contract contains a host that is a financial asset, an embedded derivative is not separately accounted for from the host.

We apply hedge accounting under Japanese GAAP. However, IFRS imposes onerous documentation and effectiveness testing requirements on entities wishing to apply hedge accounting. The result of these requirements is that it is more difficult to achievethe qualifying criteria for certain hedge accounting under IFRS are more rigorous than those under Japanese GAAP,GAAP. Therefore, except for fair value hedge accounting and hedge accounting for net investments in foreign operations we apply under IFRS, the effects of hedge accounting under Japanese GAAP have therefore been reversed under IFRS.

Japanese GAAP and IFRS require OTC derivatives to be measured at fair value. In principle, there is no significant difference in the definitions of fair value, but in practice there is diversity in the application of valuation techniques used for fair value under Japanese GAAP and IFRS. Therefore to meet the requirements of fair value under IFRS, adjustments have been made to the fair values under Japanese GAAP to reflect credit risk adjustments for OTC derivatives. Certain guarantees under Japanese GAAP do not meet the definition of a financial guarantee under IFRS but meet that of a derivative. These guarantees are measured at fair value and the change in fair value is recognized in the consolidated income statement under IFRS.

 

3.

Investment securities

Under Japanese GAAP, certainCertain financial assets classified as available-for-sale under Japanese GAAP, such as unlisted stocks, are measured at cost. However, under IFRS available-for-sale financial assets (and financial assets at fair value through profit or loss) should be measured at fair value. The fair value ofunder IFRS. For those financial instruments, where there is no quoted price in an active market, the fair value is determined by using valuation techniques. In addition, the fair values of certain financial instruments under Japanese GAAP have been adjusted in order to meet the requirements of fair value under IFRS. For example, we use the last 1-month average of the closing transaction prices for the fair value measurement of available-for-sale financial assets (listed stocks) under Japanese GAAP, whereas closing spot prices are used under IFRS. Additionally

Under Japanese GAAP, the changes in fair value of available-for-sale financial assets are recognized in other comprehensive income and subsequently transferred to profit or loss on their disposal. Under IFRS, we

made an irrevocable election for some equity instruments to present subsequent changes in fair value in other comprehensive income. The changes in fair value of those equity instruments presented in other comprehensive income are not subsequently transferred to profit or loss. Some available-for-sale financial assets under IFRS, we classify certain hybrid instrumentsJapanese GAAP, including investment funds, are classified as financial assets measured at fair value through profit or loss, as weand therefore the changes in their fair values are unable to measure the embedded derivative separately from its host contract although it is required to separate the embedded derivative from the host contract. Accordingly, the change in fair value of such hybrid instruments is recognized in profit or loss.

Under Japanese GAAP, we recognize impairment of available-for-sale equity instruments if the decline in fair value below the cost, less previously recognized impairment loss is in general 50% or more. Under IFRS, we assess whether there is objective evidence that available-for-sale equity instruments are impaired, including a significant or prolonged decline in the fair value below cost and other qualitative impairment indicators. Additionally, under Japanese GAAP, we reverse impairment losses recognized in a previous interim period, whereas the reversal of the impairment losses on equity instruments is not allowed under IFRS.

 

4.

Loans and advances

Under Japanese GAAP, the reserveallowance for possible loan losses is calculated based on credit assessments at the end of the reporting period. A collective allowance is calculated using historical loss experience, based on historical results according to the obligor grade. The allowance for specifically identified significant loans is calculated by the discounted cash flow (“DCF”) method, which is based on the present value of reasonably estimated cash flows discounted at the original contractual interest rate of the relevant loan. The reserve for possible loan losses forFor the remaining loans, an individual allowance is collectively calculated using the historical loss experience, or individually calculated based on the estimated uncollectible amount considering the historical loss experience and the recoveries from collateral, guarantees and any other collectible cash flows. The historical loss experience for 1 year or 3 years, according to

Under IFRS, measurement of ECL depends on whether the obligor grade, is calculated basically basedcredit risk on the averaged historical results offinancial asset has increased significantly since initial recognition. If there is not a significant increase in credit risk on that financial asset since initial recognition, an allowance is measured at least the past three years. Under IFRS, thean amount equal to 12-month expected credit losses. Otherwise, an allowance is measured at an amount equal to lifetime expected credit losses. The allowance for loan losses for individually significant impaired loans is calculated by the DCF method based on the best estimatepresent value of estimated future cash flows discounted at the financial asset’s original

effective interest rate, which differs from the calculation of the DCF method under Japanese GAAP. The scope of the loans that are subject to the DCF method under IFRS is wider than that under Japanese GAAP. The allowance for loan losses for the remaining loans is collectively calculated by homogeneous group using statistical methods based on the historical loss experience and incorporating the effect of the time value of money. A qualitative analysis based on related economic factors is then performed to reflect theECL are measured in a way that reflects not only past events, but also current conditions at the endand forecasts of the reporting period. The allowance for the non-impaired loan losses is calculated as incurred but not yet identified losses for the period between the impairment occurring and the loss being identified, which are different from the expected losses under Japanese GAAP.

future economic conditions. Under Japanese GAAP, loan origination fees and costs are generally recognized in the consolidated income statement as incurred. Under IFRS, loan origination fees and costs that are incremental and directly attributable to the origination of a loan are deferred and thus, included in the calculation of the effective interest rate.

Under both Japanese GAAP and IFRS, undrawn loan commitments are not recognized in the consolidated statement of financial position. Provisionoff-balance sheet. Provisions for the credit risk on these commitments is included as part of the reserve for possible loan losses. Under IFRS,undrawn loan commitments are not recognizedmeasured in the consolidated statement of financial position and a provisionway similar to those for the expected losses to usloans drawn down in relation to the loan commitments is measured based on IAS 37 “Provisions, Contingent Liabilities and Contingent Assets.”accordance with each standard. Under Japanese GAAP, all guarantee contracts are accounted for by accruing both asset and liability accounts at the nominal guarantee amount. A provision for the credit risk of the guarantee is calculated using the same method as the reserve for possible loan losses and is included as part of it.losses. Under IFRS, a financial guarantee contract is specifically defined in IAS 39 “Financial Instruments: Recognition and Measurement” as a contract that requires the issuer to make specified payments to reimburse the holder for a loss it incurs because a specified debtor fails to make payment when due in accordance with the original or modified terms of the debt instruments. Financial guarantees are initially recognized at fair value and subsequently measured at the higher of the amount of the loss allowance determined in accordance with IAS 37ECL or the amount initially recognized (i.e., fair value) less, when appropriate, the cumulative amortizationamount of income recognized in accordance with IAS 18 “Revenue.”the principles of IFRS 15.

 

5.

Investments in associates and joint ventures

Under Japanese GAAP, although goodwill related to investments in associates and joint ventures is included in the carrying amount of the investments, we are required to recognize and measure impairment losses only on goodwill separately from the investments if impairment indicators for the goodwill are identified. Under IFRS, for investments in associates and joint ventures, if we identify objective evidence of impairment, the entire carrying amount of the investment is tested for impairment since goodwill is not separately recognized on the initial acquisition of the investment. Additionally, the net profit of associates and joint ventures is adjusted for differences between Japanese GAAP and IFRS in accordance with our accounting policy prior to applying the equity method under IFRS.

 

6.

Property, plant and equipment

For certain assets that are depreciated using the declining balance method under Japanese GAAP, we apply the straight-line method of depreciation to those assets under IFRS as we consider that the straight-line method

most closely reflects the expected pattern of consumption of the future economic benefits embodied in those assets. Additionally under IFRS, residual values of assets are reviewed at least at the end of each reporting period. After reviews of all categories of property, plant and equipment, the residual values of assets are considered to be zero under IFRS, whereas residual values are assigned to certain assets under Japanese GAAP.

 

7.

Lease accounting

We account for finance lease transactions without a transfer of ownership commencing before April 1, 2008 as operating leases under Japanese GAAP. However, such accounting treatment is not allowed under IFRS. Thus, we made certain adjustments for those transactions in order to comply with the accounting treatment under IFRS. From the fiscal year beginning after April 1, 2008, a new Japanese GAAP standard for lease accounting became effective,

which removed the differences for finance leases (with or without a transfer of ownership) between Japanese GAAP and IFRS. Therefore, no adjustment is needed for finance lease transactions entered into after April 1, 2008.

 

8.

Defined benefit plans

Under Japanese GAAP, the present value of the defined benefit obligation is discounted by the rates based onmeasured using the market yields of long-term Japanese government bonds.bonds as discount rates. Additionally, the discount rates for the previous reporting period can be used for the current reporting period, if the change in the present value of the defined benefit obligation caused by a change in the discount rates from the previous reporting period to the current reporting period is less than 10%. Under IFRS, the present value of the defined benefit obligation is measured by discounting the estimated timing and amount of benefit payments using the discount rates are determined byreflecting market yields on high quality corporate bonds at the end of each reporting period.

Under Japanese GAAP, the expected rates of return on plan assets for the previous reporting period can be used for the current reporting period, unless the impact of the profit or loss for the current reporting period is considered to be significant. Under IFRS, the interest cost and expected return on plan assets are replaced with a net interest amount which is calculated by applying the discount rate to the net defined benefit liability (asset).

Under Japanese GAAP, the actuarial gains and losses are recognized in other comprehensive income, and are amortized using the straight-line method. Under IFRS, actuarial gains and losses arising from experience adjustments and changes in actuarial assumptions in the year, and return on plan assets excluding interest income are recognized in other comprehensive income and are never reclassified to profit and loss.

Under Japanese GAAP, past service costs are recognized in other comprehensive income and are amortized using the straight-line method. Under IFRS, past service costs are recognized immediately in the consolidated income statement.

 

9.

Deferred tax assets

Under Japanese GAAP, we recognize deferred tax assets to the extent that the realization of the tax benefit is highly probable based on the schedule. Under IFRS, deferred tax assets are recognized to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilized. For example, deferred tax assets for deductible temporary differences relating to impairment of financial instruments of which the timing of the reversal is difficult to estimate cannot be recognized under Japanese GAAP, whereas they can be recognized under IFRS to the extent that it is probable that future taxable profit will be available.

 

10.

Foreign currency translation

Under Japanese GAAP, the income statement items of foreign operations are translated into Japanese yen, our presentation currency, using the (spot) closing rate, whereas under IFRS they are translated into the

presentation currency using the exchange rate at the dates of the transactions or, if the exchange rates do not fluctuate significantly, at average exchange rates. In addition, under Japanese GAAP, certain foreign operations’ monetary items denominated in foreign currencies are translated into Japanese yen using the exchange rate at the end of the reporting period. However, under IFRS the monetary items for which settlement is neither planned nor likely to occur in the foreseeable future are translated using the exchange rates at the dates of initial transactions.

 

11.

Classification of equity and liability

Under Japanese GAAP, a financial instrument is generally classified as an equity instrument or a financial liability in light of its legal form. Under IFRS, a financial instrument or its component parts are classified as equity instruments or financial liabilities in accordance with the substance of the contractual arrangement and the definitions of financial liabilities and equity instruments. A financial instrument is classified as a financial liability if there is a contractual obligation to deliver cash or another financial asset other than a fixed number of equity shares in exchange for a fixed amount of cash or another financial asset. In the absence of such a contractual obligation, the financial instrument is classified as an equity instrument.

5.B.    LIQUIDITY AND CAPITAL RESOURCES

We consistently endeavor to enhance the management of our liquidity profile and strengthen our capital base to meet our customers’ loan requirements and deposit withdrawals and respond to unforeseen situations such as adverse movements in stock, foreign currency, interest rate and other markets, or changes in general domestic or international conditions.

Liquidity

We derive funding for our operations both from domestic and international sources. Our domestic funding is derived primarily from deposits placed with the BankSMBC by its corporate and individual customers, and also from call money (inter-bank), bills sold (inter-bank promissory notes), repurchase agreements, borrowings, and negotiable certificates of deposit issued by the BankSMBC to domestic and international customers. Our international sources of funds are principally from deposits from corporate customers and inter-bank market,foreign central banks, negotiable certificates of deposit, bonds, commercial paper, and also from repurchase agreements and cash collateral on securities lent. We closely monitor maturity gaps and foreign exchange exposure in order to manage our liquidity profile.

As shown in the following table, total deposits increased by ¥10,106,817¥5,943,125 million, or 9%5%, from ¥115,833,980¥128,461,527 million at March 31, 20152018 to ¥125,940,797¥134,404,652 million at March 31, 2016.2019. The balance of deposits at March 31, 20162019 exceeded the balance of loans and advances by ¥37,078,426¥43,721,714 million, primarily due to the stable deposit base in Japan. Ourloan-to-deposit ratio (total loans and advances divided by total deposits) in the same period was 71%67%, which contributed greatly to the reduction of our liquidity risk. Our balances of large-denomination domestic yen time deposits are stable due to the historically high rollover rate of our corporate customers and individual depositors.

 

  At March 31, 
  At March 31,   2019  ��2018 
  2016   2015         
  (In millions)   (In millions) 

Loans and advances

  ¥88,862,371    ¥86,971,716    ¥90,682,938   ¥85,129,070 

Deposits

   125,940,797     115,833,980     134,404,652    128,461,527 

We have invested the excess balance of deposits against loans and advances primarily in marketable securities and other highly liquid assets, such as Japanese government bonds. The Bank’sSMBC’s Treasury Unit actively monitors the movement of interest rates and maturity profile of its bond portfolio as part of the Bank’sSMBC’s overall risk management. The bonds can be used to enhance liquidity. When needed, they can be used as collateral for call money or other money market funding or short-term borrowings from the BOJ.

Secondary sources of liquidity include short-term debts, such as call money, bills sold, and commercial paper issued at an inter-bank or other wholesale markets. We also issue long-term debts, including both senior and subordinated debts, as additional sources of liquidity. With short- and long-term debts, we can diversify our funding sources, effectively manage our funding costs and enhance our capital adequacy ratios when appropriate.

We source our funding in foreign currencies primarily from financial institutions, general corporations, and institutional investors, through short- and long-term financing. Even if we encounter declines in our credit quality or that of Japan in the future, we expect to be able to purchase foreign currencies in sufficient amounts using the yen funds raised through our domestic customer base. As further measures to support our foreign currency liquidity, we hold foreign debt securities, maintain credit lines and swap facilities denominated in foreign currencies, and pledge collateral to the U.S. Federal Reserve Bank.

We maintain management and control systems to support our ability to access liquidity on a stable and cost-effective basis. For further information, see “Item 11. Quantitative and Qualitative Disclosures about Credit, Market and Other Risk—Market Risk and Liquidity Risk—Framework for Market and Liquidity Risk Management.”

We believe we are able to access such sources of liquidity on a stable and flexible basis by keeping credit ratings at a high level. The following table shows credit ratings assigned to SMFGthe Company by Moody’s, S&P and Fitch at May 31, 2016:2019:

 

At May 31, 20162019

Moody’s

  

S&P

  

Fitch

Long-term(1)

  

Outlook

  

Short-term

  

Long-term

  

Outlook

  

Short-term

  

Long-term

  

Outlook

  

Short-term

A1

  S  —  P-1  A-  SP  —    A  S  F1

(1)On March 1, 2016, Moody’s assigned the long-term senior unsecured rating of A1 to SMFG.

The following table shows credit ratings assigned to the BankSMBC by Moody’s, S&P and Fitch at May 31, 2016:2019:

 

At May 31, 20162019

Moody’s

  

S&P

  

Fitch

Long-term

  

Outlook

  

Short-term

  

Long-term

  

Outlook

  

Short-term

  

Long-term

  

Outlook

  

Short-term

A1

  S  P-1  A  SP  A-1  A  S  F1

We are assigned credit ratings by major domestic and international credit rating agencies. Credit ratings do not constitute recommendations to purchase, sell or hold a security, and rating agencies may review or indicate an intention to review ratings at any time. While the methodology and rating system vary among rating agencies, credit ratings are generally based on information provided by us or independent sources, and can be influenced by the credit ratings of Japanese government bonds and broader views of the Japanese financial system. Any downgrade in or withdrawal of these credit ratings, or any adverse change in these ratings relative to other financial institutions, could increase our borrowing costs, reduce our access to the capital markets and otherwise negatively affect our ability to raise funds, which in turn could have a negative impact on our liquidity position.

The FSA’s guidelines published by FSA for LCR applicable to banks with international operations are based on the full text of the LCR standard issued by the BCBS in January 2013. Under these guidelines, banks with international operations must maintain LCR of at least 100% on both a consolidated basis and a nonconsolidated basis, while thebasis. The minimum LCR requirements are beingwere phased in betweenfrom March 31, 2015 and March 31, 2019 with an increase of 10% in each year starting from 60%., and reached 100% on March 31, 2019. The following table shows the LCRs of SMFGthe Company and the BankSMBC for the fiscal yearthree months ended March 31, 2016.2019. Each figure is calculated based on our financial statements prepared in accordance with Japanese GAAP, as required by the FSA’s LCR guidelines.

   For the fiscal yearthree months
ended March 31, 20162019(1)
 

SMFG (consolidated)

   115.2131.4

SMBC (consolidated)

   120.4134.6

SMBC (nonconsolidated)

   122.7138.8

 

(1)

Under the FSA’s LCR guidelines, LCR is set as the three-month average of the daily LCRs for the three months ended March 31, 2019, which is calculated by dividing the month-end average balance of high-quality liquid assets at the end of January, February and March 2016 by the monthly average amount of total net cash outflows on a daily basis for the same three months.

For further information, see “Item 4.B. Business Overview—Regulations in Japan—Regulations Regarding Capital Adequacy and Liquidity—Liquidity Requirement.”

Capital Management

With regard to capital management, we strictly abide by the capital adequacy guidelines set by the FSA. Japan’s capital adequacy guidelines are based on the Basel Capital Accord, which was proposed by the BCBS for uniform application to all banks which have international operations in industrialized countries. Japan’s capital

adequacy guidelines may be different from those of central banks or supervisory bodies of other countries because they have been designed by the FSA to suit the Japanese banking environment. Our banking subsidiaries outside of Japan are also subject to the local capital ratio requirements.

Each figure for the FSA capital adequacy guidelines is calculated based on our financial statements prepared under Japanese GAAP.

The FSA capital adequacy guidelines permit Japanese banks to choose from the standardized approach (“SA”), the foundation IRB approach and the advanced IRB approach for credit risk, and the basic indicator approach (“BIA”), the standardized approach (“TSA”) and the AMA for operational risk. To be eligible to adopt the foundation IRB approach or the advanced IRB approach for credit risk, and the TSA or the AMA for operational risk, a Japanese bank must establish advanced risk management systems and receive prior approval from the FSA.

We and the BankSMBC have adopted the advanced IRB approach since March 31, 2009 and the AMA since March 31, 2008.

In December 2010, the BCBS published the new Basel III rules text to implement the Basel III framework, which sets out higher and better-quality capital, better risk coverage, the introduction of a leverage ratio as a backstop to the risk-based requirement, measures to promote thebuild-up of capital that can be drawn down in periods of stress, and the introduction of two global liquidity standards. The main measures of the minimum capital requirements in the Basel III framework began on January 1, 2013 and will behave been fully applied from January 1, 2019.

These capital reforms increase the minimum common equity requirement from 2% to 4.5% and require banks to hold a capital conservation buffer, which is beingstarted to be phased in from January 2016 with the initial ratio of 0.625% reachingand reached 2.5% byin January 2019, to withstand future periods of stress, bringing the total common equity requirement to 7%. The Tier 1 capital requirement willwas also be increased from 4% to 6%, resulting in a total requirement of 8.5% when combined with the above-mentioned capital conservation buffer. The total capital requirement remains at the existing level ofincreased from 8% but will increase to 10.5% byin January 2019 due to the full phasing in of the capital conservation buffer. Furthermore, a countercyclical buffer within a range of 0% to 2.5% of common equity or other fullyloss-absorbing capital has been implemented according to national circumstances. The GHOS also agreed on transitional arrangements for implementing the new requirements.

In addition to the above-mentioned minimum capital requirements and capital buffer requirements under Basel III, organizations identified by the FSB as G-SIFIs,G-SIBs, which as of November 2014 and 2015 includedincludes us, are required to maintain an

additional 1% to 2.5% of Common Equity Tier 1 capital as a percentage of risk-weighted assets, which is commonly referred to as theG-SIB capital surcharge, based on the organization’s size, interconnectedness, substitutability, complexity and cross-jurisdictional activity as determined by the FSB. The amount of G-SIFIG-SIB capital surcharge that applies to us based on the FSB’s determination as of November 2014 and 2015 will beis 1% of risk-weighted assets when the requirements are fully applied from 2019. Under the phase-in arrangement of the G-SIFI capital surcharge requirement, we are currently required to maintain 0.25% of Common Equity Tier 1 capital as a percentage of risk-weighted assets.

To reflect the Basel III framework, the FSA changed its capital adequacy guidelines. Under the FSA capital adequacy guidelines, the new capital requirements are being phased in from March 31, 2013 through March 31, 2019. The minimum Common Equity Tier 1 capital requirement and Tier 1 capital requirement hashave been 4.5% and 6%, respectively since March 2015. The capital conservation buffer, countercyclical buffer and the G-SIFIG-SIB capital surcharge are beingstarted to be phased in from March 31, 2016 under the FSA capital adequacy guidelines.

In December 2017, the GHOS endorsed the outstanding Basel III regulatory reforms. For further details regarding the finalized Basel III reforms, see “Item 4.B. Business Overview—Regulations in Japan—Regulations Regarding Capital Adequacy and Liquidity—Capital Adequacy Requirement.”

In March 2015, the FSA published its leverage ratio guidelines, which have been applied from March 31, 2015, to help ensure broad and adequate capture of bothon- andoff-balance sheet sources of leverage for internationally active banks. The FSA’s leverage ratio guidelines are based on the text of the leverage ratio

framework and disclosure requirements issued by the BCBS in January 2014.

Under the text of the leverage ratio framework, the BCBS indicated the minimum leverage ratio as 3% and have continued monitoring bank’smonitored banks’ leverage ratio data in order to assess whether the design and calibration of a minimum leverage ratio of 3% is appropriate from January 1, 2013 to January 1, 2017. Any final adjustments to

In December 2017, the definition and calibrationrequirements of the leverage ratio were scheduledrevised as part of the finalized Basel III reforms, under which the leverage ratio is to be based on a Tier 1 definition of capital and with the minimum leverage ratio of 3%. Under the finalized Basel III reforms,G-SIBs are required to meet a leverage ratio buffer, which will take the form of a Tier 1 capital buffer set at 50% of the applicableG-SIB capital surcharge. Various refinements were also made to the definition of the leverage ratio exposure measure. The leverage ratio requirements under the definition based on the framework issued by the BCBS by 2017, with a view to migrate toin January 2014 were implemented as a Pillar 1 (minimum capital requirement) treatment onmeasurement from January 2018, and those under the revised definition and the leverage ratio buffer requirement forG-SIBs will be implemented as a Pillar 1 measurement from January 1, 2018, based2022.

On March 15, 2019, the FSA published its guidelines for the leverage ratio applicable to banks with international operations, which have been applied from March 31, 2019. Under the FSA’s guidelines for the leverage ratio, banks with international operations must maintain a leverage ratio of at least 3% on appropriate reviewboth a consolidated basis and calibration. For further information, see “Item 4.B. Business Overview—Regulations in Japan—Regulations Regarding Capital Adequacy and Liquidity—Leverage Ratio.”a nonconsolidated basis from March 31, 2019.

The table below presents our total risk-weighted capital ratio,ratios, total capital, and risk-weighted assets and leverage ratio under Japanese GAAP at March 31, 2016,2019, based on the Basel III rules.

 

   At March 31, 20162019 
   (In billions, except
percentages)
 

SMFG Consolidated:

Total risk-weighted capital ratio (consolidated)

   17.0220.76

Tier 1 risk-weighted capital ratio (consolidated)

   13.6818.19

Common Equity Tier 1 risk-weighted capital ratio (consolidated)

   11.8116.37

Total capital (Common Equity Tier 1 capital + Additional Tier 1 capital + Tier 2 capital)

  ¥11,235.912,240.5 

Tier 1 capital (Common Equity Tier 1 capital + Additional Tier 1 capital)

   9,031.710,727.2 

Common Equity Tier 1 capital

   7,796.59,654.5 

Risk-weighted assets

   66,011.658,942.8 

The amount of minimum total capital requirements(1)

   5,280.94,715.4 

Leverage ratio

   4.614.88

(1)

The amount of minimum total capital requirements is calculated by multiplying risk-weighted assets by 8%.

Common Equity Tier 1 capital consists primarily of capital stock, capital surplus and retained earnings relating to common shares, and minoritynon-controlling interests that meet the criteria set forth in the FSA capital adequacy guidelines for inclusion in Common Equity Tier 1 capital.

MinorityNon-controlling interests arising from the issue of common shares by a fully consolidated subsidiary of a bank may receive recognition in Common Equity Tier 1 capital only if: (1) the instrument giving rise to the minoritynon-controlling interest would, if issued by the bank, meet all of the criteria set forth in the FSA capital adequacy guidelines for classification as common shares for regulatory capital purposes; and (2) the subsidiary that issued the instrument is itself a bank or other financial institution subject to similar capital adequacy guidelines.

Minority interests that will no longer qualify as Common Equity Tier 1 capital, additional Tier 1 capital, or Tier 2 capital under Basel III are being phased out beginning March 31, 2014 by increments of 20% and will be fully phased out by March 31, 2018.

Regulatory adjustments such as goodwill and other intangibles, deferred tax assets, investment in the common equity capital of banking financial and insurance entities and defined benefit pension fund assets and liabilities are to be applied mainly to the calculation of Common Equity Tier 1 capital in the form of a deduction. Such regulatory adjustments are being phased in from March 31, 2014 through March 31, 2018.

Additional Tier 1 capital consists primarily of preferred securities and perpetual subordinated bonds.

Tier 2 capital consists primarily of subordinated debt securities.

Capital instruments such as preferred securities and subordinated debt issued on or after March 31, 2013 must meet the new requirements to be included in regulatory capital. Capital instruments issued prior to March 31, 2013 that do not meet the requirements set forth in the FSA capital adequacy guidelines no longer qualify as additionalAdditional Tier 1 or Tier 2 capital. However, if those capital instruments meet the requirements for transitional arrangements set forth in such guidelines, they can qualify as additionalAdditional Tier 1 or Tier 2 capital

during thephase-out period beginning March 31, 2013. The remaining balance of thosenon-qualifying capital instruments recognized as additionalAdditional Tier 1 or Tier 2 capital will beare being reduced in annual 10% increments and will be fully phased out by March 31, 2022.

At March 31, 2016, our consolidated total capital was ¥11,236 billion, Tier 1 capital was ¥9,032 billion, and Common Equity Tier 1 capital was ¥7,797 billion. Our total risk-weighted assets at March 31, 2016 were ¥66,012 billion.

On a consolidated basis, our total risk-weighted capital ratio was 17.02%, Tier 1 risk-weighted capital ratio was 13.68%, Common Equity Tier 1 risk-weighted capital ratio was 11.81% and leverage ratio was 4.61% at March 31, 2016.

Our capital position and the Bank’sSMBC’s capital position depend in part on the fair market value of our investment securities portfolio, since unrealized gains and losses are included in the amount of regulatory capital. At March 31, 2013, unrealized gains and losses were counted as Tier 2 capital and Additional Tier 1 capital, respectively, but started to be counted as Common Equity Tier 1 capital from March 31, 2014 by increments of 20% and will behave been fully counted as Common Equity Tier 1 capital fromsince March 31, 2018. Since our other securities (including money held in trust) with a readily ascertainable market value included unrealized gains and losses, substantial fluctuations in the Japanese stock markets may affect our capital position and the capital position of the Bank.SMBC.

In addition, our capital position and the Bank’sSMBC’s capital position would be negatively affected if deferred tax assets cannot be recognized. Under Japanese GAAP, a company will lose its ability to recognize deferred tax assets if, in principle, it has substantial amounts of negative annual taxable income for each of past three consecutive years and current fiscal year, and is expected to have significant negative taxable income in the following fiscal year.

Set forth below are tablesis a table of risk-weighted capital ratios, total capital, risk-weighted assets and leverage ratio of the BankSMBC at March 31, 20162019 on a consolidated and nonconsolidated basis.

 

   At March 31, 20162019 
   (In billions, except
percentages)
 

SMBC Consolidated:

Total risk-weighted capital ratio (consolidated)

   18.1920.32

Tier 1 risk-weighted capital ratio (consolidated)

   14.5817.57

Common Equity Tier 1 risk-weighted capital ratio (consolidated)

   13.0415.17

Total capital (Common Equity Tier 1 capital + Additional Tier 1 capital + Tier 2 capital)

  ¥10,475.610,755.9 

Tier 1 capital (Common Equity Tier 1 capital + Additional Tier 1 capital)

   8,396.69,300.8 

Common Equity Tier 1 capital

   7,507.28,029.5 

Risk-weighted assets

   57,558.152,910.7 

The amount of minimum total capital requirements(1)

   4,604.64,232.9 

Leverage ratio

   4.434.52

SMBC Nonconsolidated:

  At March 31, 2016
(In billions, except
percentages)

Total risk-weighted capital ratio (nonconsolidated)

   19.4720.28

Tier 1 risk-weighted capital ratio (nonconsolidated)

   15.2917.37

Common Equity Tier 1 risk-weighted capital ratio (nonconsolidated)

   13.4414.85

Total capital (Common Equity Tier 1 capital + Additional Tier 1 capital + Tier 2 capital)

  ¥9,706.710,054.7 

Tier 1 capital (Common Equity Tier 1 capital + Additional Tier 1 capital)

   7,619.58,613.2 

Common Equity Tier 1 capital

   6,701.77,365.7 

Risk-weighted assets

   49,829.249,574.5 

The amount of minimum total capital requirements(1)

   3,986.33,966.0 

(1)

The amount of minimum total capital requirements is calculated by multiplying risk-weighted assets by 8%.

Our securities subsidiariessubsidiary in Japan, SMBC Nikko Securities and SMBC Friend Securities, areis also subject to capital adequacy requirements under the FIEA described in “Item 4.B. Business Overview—Regulations in Japan—Regulations Regarding Capital Adequacy and Liquidity.” At March 31, 2016,2019, the capital adequacy ratios were 395.9%ratio was 386.4% for SMBC Nikko Securities, and 1,042.4% for SMBC Friend Securities, and sufficiently above the 140%, below which level theyit would be required to file daily reports with the Commissioner of the FSA.

5.C.    RESEARCH, DEVELOPMENT, PATENTS AND LICENSES

We did not conduct any significant research and development activities for the fiscal year ended March 31, 2016.2019. However, there are certain research and development activities conducted by subsidiaries in charge of systems development and information processing for our information system infrastructure.

5.D.    TREND INFORMATION

Our trend information is contained elsewhere in this annual report, including but not limited to “Item 4.B. Business Overview,” and “—A. Operating Results,” and “—B. Liquidity and Capital Resources” in this Item.

5.E.    OFF-BALANCE SHEET ARRANGEMENTS

To meet our customers’ financing needs, we engage in various types ofoff-balance sheet arrangements in the ordinary course of business.

Our arrangements include loan commitments, financial guarantees and other credit-related contingent liabilities. Loan commitment contracts on overdrafts and loans are agreements to lend up to a prescribed amount to customers, as long as there is no violation of any condition established in the contracts. Financial guarantees are contracts that require the issuer to make specified payments to reimburse the holder for a loss it incurs because a specified debtor fails to make payments when due in accordance with the terms of the debt instrument. Other credit-related contingent liabilities include performance bonds, which are contracts that provide compensation if another party fails to perform the contractual obligation.

The table below shows the nominal amounts of undrawn loan commitments, and financial guarantees and other credit-related contingent liabilities at March 31, 20162019 and 2015.2018.

 

  At March 31,   At March 31, 
  2016   2015   2019   2018 
  (In millions)   (In millions) 

Loan commitments

  ¥58,026,597    ¥53,665,583    ¥62,724,820   ¥60,107,128 

Financial guarantees and other credit-related contingent liabilities

   7,349,903     7,076,536     9,409,066    8,426,245 
  

 

   

 

   

 

   

 

 

Total

  ¥65,376,500    ¥60,742,119    ¥72,133,886   ¥68,533,373 
  

 

   

 

   

 

   

 

 

The nominal amounts of theseoff-balance sheet instruments generally represent the maximum potential amounts of future payments without consideration of possible recoveries under recourse provisions or from collateral held. For example, since many of these loan commitments are expected to expire without being drawn down, the total amount of unused commitments does not necessarily represent an actual future cash flow requirement. Many of these loan commitments include clauses under which we can reject an application from customers or reduce the contract amounts in cases where economic conditions change, we need to secure claims, or some other significant event occurs. In addition, we may request the customers to pledge collateral such as premises and securities at the time of the contracts, and take necessary measures such as monitoring customers’ financial positions, revising contracts when the need arises and securing claims after the contracts are made. We regularly review the credit quality of the customer based on our risk management system as set forth in “Item 11. Quantitative and Qualitative Disclosures about Credit, Market and Other Risk” and Note 45 “Financial Risk Management” to our consolidated financial statements included elsewhere in this annual report.

In addition to the above-mentionedoff-balance sheet arrangements, some of the SMBC Group’soff-balance sheet arrangements are related to activities of structured entities. For further information, see Note 48 “Structured Entities” to our consolidated financial statements included elsewhere in this annual report.

5.F.    TABULAR DISCLOSURE OF CONTRACTUAL OBLIGATIONS

In the normal course of business, we enter into contractual obligations that require future cash payments. The following table sets forth a summary of our contractual cash obligations at March 31, 2016.2019.

 

 At March 31, 2016  At March 31, 2019 
 Due in
one year or less
 Due from
one year to
three years
 Due from
three years to
five years
 Due after
five years
 Total(1)  Due in one year
or less
 Due from
one year to
three years
 Due from
three years to
five years
 Due after
five years
 Total(1) 
 (In millions)    (In millions)     

Time deposits

 ¥    24,145,343   ¥      3,332,606   ¥        738,900   ¥        903,879   ¥  29,120,728   ¥    21,841,987  ¥      2,763,038  ¥        510,193  ¥        645,005  ¥  25,760,223 

Negotiable certificate of deposits

  13,729,266    426,912    90,529    3,128    14,249,835   10,605,811  508,675  51,001   —    11,165,487 

Borrowings

  5,921,898    829,855    757,557    2,297,931    9,807,241   8,705,860  721,554  666,649  2,041,699  12,135,762 

Debt securities in issue

  5,147,473    1,693,961    1,504,307    2,503,234    10,848,975   3,527,585  2,472,492  1,885,833  3,301,299  11,187,209 

Capital (finance) lease obligation

  24,373    42,598    33,324    9,710    110,005   8,478  12,024  7,368  5,322  33,192 

Operating lease obligation

  42,254    62,859    41,940    108,603    255,656   47,600  77,606  55,114  140,011  320,331 

Purchase obligation(2)

  195,285    362,177    1,203,560    1,119,385    2,880,407   54,612  64,309  4,289   —    123,210 
 

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

Total

 ¥49,205,892   ¥6,750,968   ¥4,370,117   ¥6,945,870   ¥67,272,847   ¥44,791,933  ¥6,619,698  ¥3,180,447  ¥6,133,336  ¥60,725,414 
 

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

 

(1)

The amount of interest on debt instruments is not included in the maturity table above due to its insignificance.

(2)

Purchase obligation in the above table includes the contractual commitments to purchase aircraft to be leased to customers and to purchase goods or services of construction and information technology that are binding on us for the payment of more than ¥100  million. The contractual commitments to purchase aircraft are based upon fixed price agreements with the manufacturers, an element of which are adjusted for inflation and include price escalation formulas, but are also subject to agreed price concessions where applicable.

5.G.    SAFE HARBOR

See the discussion under “Cautionary Statement Regarding Forward-Looking Statements.”

 

Item 6.

Directors, Senior Management and Employees

6.A.    DIRECTORS AND SENIOR MANAGEMENT

Directors and Senior Management

We have adopted a company with three statutory committees system of corporate governance. Under the Companies Act, a company with three statutory committees is required to have a nominating committee, an audit committee and Corporate Auditors

Under our corporate governance system, oura compensation committee, each of which consisting of members of the board of directors is responsible for supervisingand of which the businessmajority of the members must be outside directors. In addition to the three statutory committees, we have voluntarily established our risk committee. Also, under the Companies Act, a company with three statutory committees must have one or more corporate executive officers elected by resolution of the board of directors. Corporate executive officers decide on the execution of the operations of the Group as a whole, and has established fourcompany that were delegated to them by resolution of the board committees to enhance the effectiveness of governance by ourdirectors. The board of directors in exercising itsdecides on the execution of operations of the company, including basic management responsibilities. Those committees are:

policy, and supervises the risk committee;

the auditing committee;

the compensation committee; and

the nominating committee.

For more information, see “Item 6.C. Board Practices.”execution of duties by corporate executive officers.

Our board of directors is comprised of fourteenfifteen directors, fiveseven of whom are outside directors as defined under the Companies Act, andAct. In addition, our board of directors has elected eleven corporate auditors is comprised of six corporate auditors, three of whom are outside corporate auditors as defined under the Companies Act.

executive officers.

For more information, see “Item 6.C. Board Practices.”

Directors

At June 29, 2016,27, 2019, the following personsdirectors held the indicated positions with us:

 

Name

(Date of birth)

 

Current positions and

principal outside positions

 

Business experience

Expiration of
current term as
director or
corporate auditor

Masayuki OkuTakeshi Kunibe
(December 2, 1944)March 8, 1954)

 

Chairman of the Board and Director of the Company

 

April 19681976

 

Joined Sumitomo Bank

 

At the close of the annual general meeting of shareholders to be held for the fiscal year ending March 31, 2017.
 June 1994

Director of Sumitomo Bank

November 1998

Managing Director of Sumitomo Bank

June 1999

Managing Director and Managing Executive Officer of Sumitomo Bank

January 2001

Senior Managing Director and Senior Managing Executive Officer of Sumitomo Bank

April 2001

Senior Managing Director and Senior Managing Executive Officer of the Bank

December 2002

Resigned as Director of the Bank

December 2002

Senior Managing Director of the Company

June 2003

Retired as Director of the Company

Deputy President and Executive Officer of the Bank

June 2005

Chairman of the Board and Director of the Company (to present)

President and Chief Executive Officer of the Bank

April 2011Resigned as Director of the Bank

Koichi Miyata
(November 16, 1953)

President and Representative Director of the Company

Director of the Bank

April 1976

Joined Mitsui Bank

At the close of the annual general meeting of shareholders to be held for the fiscal year ending March 31, 2018.
June 2003 

Executive Officer of the BankSMBC

 

 

October 2006

Managing Executive Officer of SMBC

April 2007

 

Managing Executive Officer of the BankCompany

 

 

June 2007

Director of the Company

April 2009

 

Director and Senior Managing Executive Officer of SMBC

April 2011

President and Chief Executive Officer of SMBC

April 2017

President of the Company

Resigned as Director of SMBC

June 2017

Director President of the Company

April 2019

Chairman of the Board of the Company (to present)

Jun Ohta
(February 12, 1958)

Director President of the Company
(Representative Corporate Executive Officer)

Group Chief Executive Officer, or CEO

April 1982

Joined Sumitomo Bank

 

 

April 2009

Executive Officer of SMBC

 

April 2012

Managing Executive Officer of SMBC

April 20102013

Managing Executive Officer of the Company

April 2014

 

Senior Managing Executive Officer of the Company

 

 

Senior Managing Executive Officer of SMBC

June 20102014

 

Director of the Company

 

 

April 20112015

 

Director and Senior Managing Executive Officer of SMBC

April 2017

Director and Deputy President of the Company

Resigned as Director of SMBC

June 2017

Director Deputy President and Corporate Executive Officer of the Company

March 2018

Director and Deputy President of SMBC

April 2019

Director President of the Company (to present)

 

  

Resigned as Director of the Bank (to present)

SMBC

Takeshi KunibeMakoto Takashima
(March 8, 1954)31, 1958)

 

Director of the Company

 

President and Chief Executive Officer of the BankSMBC

 

April 19761982

 

Joined Sumitomo Bank

 

At the close of the annual general meeting of shareholders to be held for the fiscal year ending March 31, 2017.
 June 2003

April 2009

 

Executive Officer of the BankSMBC

 

 October 2006

April 2012

 

Managing Executive Officer of SMBC

April 2014

Senior Managing Executive Officer of SMBC

December 2016

Director and Senior Managing Executive Officer of SMBC

April 2017

President of SMBC (to present)

June 2017

Director of the Company (to present)

Name

(Date of birth)

Current positions and

principal outside positions

Business experience

Haruyuki Nagata
(February 20, 1963)

Director Senior Managing Corporate Executive Officer of the Company

Group Chief Risk Officer, or CRO

Officer in charge of Corporate Risk Management Department and Credit & Investment Planning Department

Director and Senior Managing Executive Officer of SMBC

April 1985

Joined Mitsui Bank

 

 

April 2011

General Manager of Financial Accounting Department of the Company

 

April 2013

Executive Officer of SMBC

April 20072015

Managing Executive Officer of SMBC

April 2016

 

Managing Executive Officer of the Company

 

 June 2007

March 2018

 

Director and Managing Executive Officer of the Company (to present)SMBC

 

 

April 20092018

 

Director and Senior Managing Executive Officer of the BankSMBC (to present)

 

 

April 2011

President and Chief Executive Officer of the Bank (to present)

Name

(Date of birth)2019

 

Current positions and

principal outside positions

Business experience

Expiration of
current term as
director or
corporate auditor

Yujiro Ito
(August 3, 1955)

Representative Director of the Company

Officer in charge of General Affairs Department and Human Resources Department

Director and Deputy President of the Bank

April 1979

Joined Sumitomo Bank

At the close of the annual general meeting of shareholders to be held for the fiscal year ending March 31, 2017.
June 2005

Executive Officer of the Bank

April 2009

Senior Managing Executive Officer of the Bank

April 2011

ManagingCorporate Executive Officer of the Company

 

 

June 2019

 

Director andSenior Managing Corporate Executive Officer of the Bank

June 2011

Director of the Company (to present)

 

April 2012

Director and Senior Managing Executive Officer of the Bank

April 2014Director and Deputy President of the Bank (to present)

Kozo OginoToru Nakashima
(May 9, 1958)September 14, 1963)

 

Director of the Company

Officer in charge of Audit Department

Director and Senior Managing Executive Officer of the Bank

April 1981

Joined Mitsui Bank

At the close of the annual general meeting of shareholders to be held for the fiscal year ending March 31, 2017.
April 2010

Executive Officer of the Bank

April 2011

Managing Executive Officer of the Bank

April 2013

ManagingCorporate Executive Officer of the Company

 

June 2013

Director of the Company (to present)

April 2014DirectorGroup Chief Financial Officer, or CFO, and Senior Managing ExecutiveGroup Chief Strategy Officer, of the Bank (to present)

Jun Ohta
(February 12, 1958)

Director of the Companyor CSO

 

Officer in charge of Public Relations Department, Corporate Planning Department, Financial Accounting Department and Subsidiaries & Affiliates Department, IT Innovation Department and Transaction Business Planning Department

 

Director and Senior Managing Executive Officer of the BankSMBC

 

April 19821986

 

Joined Sumitomo Bank

 

At the close of the annual general meeting of shareholders to be held for the fiscal year ending March 31, 2018.
 

April 2009

Executive Officer of the Bank2013

May 2009 

General Manager of Investment BankingConsumer Business Planning Department of the Company

 

 

April 2014

Executive Officer of SMBC

 

April 2015

General Manager of Corporate Planning Department of the Company

April 20122016

 

Managing Executive Officer of the BankSMBC

 

 

April 20132017

 

Managing Executive Officer of the Company

 

 

March 2019

Director and Managing Executive Officer of SMBC

 

April 20142019

 

Senior Managing Corporate Executive Officer of the Company

 

Director and Senior Managing Executive Officer of the BankSMBC (to present)

 

 

June 20142019

 

Director Senior Managing Corporate Executive Officer of the Company (to present)

 

April 2015Director and Senior Managing Executive Officer of the Bank (to present)

Name

(Date of birth)

Current positions and

principal outside positions

Business experience

Expiration of
current term as
director or
corporate auditor

Katsunori TanizakiAtsuhiko Inoue
(April 12,July 3, 1957)

 

Director of the Company

 

Officer in chargeDirector of IT Planning Department and Data Management Department

Director and Senior Managing Executive Officer of the Bank

SMBC

 

April 19821981

 

Joined Sumitomo Bank

 

At the close of the annual general meeting of shareholders to be held for the fiscal year ending March 31, 2017.
 

April 20102008

 

Executive Officer of the BankSMBC

 

 

April 2011

General Manager of IT Planning Department of the Company

April 2013 

Managing Executive Officer of the BankSMBC

 

 

April 20152014

 

Senior Managing Executive Officer of the Company

 

  

Director and Senior Managing Executive Officer of the Bank (to present)SMBC

 

 

June 2015

Director of the Company (to present)

Koichi Noda
(May 11, 1960)2014

 

Director of the Company

 

Officer in chargeApril 2015

Resigned as Director of Corporate Risk Management Departmentthe Company

 

Director and Senior Managing Executive Officer of the BankSMBC

June 2019

 

Director of the Company (to present)

Director of SMBC (to present)

Toru Mikami
(August 27, 1960)

Director of the Company

April 19831984

 

Joined Sumitomo Bank

 

 At the close

April 2006

General Manager of the annual general meetingLegal Department of shareholders to be held for the fiscal year ending March 31, 2018.SMBC

 

April 20112013

 

Executive OfficerCo-General Manager of the Bank

April 2014

Managing Executive Officer of the Bank

April 2016

Senior Managing Executive OfficerGeneral Affairs Department of the Company

 

 

April 2015

Senior Manager of Head Office of SMBC

 

June 2015

 

Director and Senior Managing Executive OfficerStanding Corporate Auditor of the Bank (to present)Company

 

 

June 20162017

 

Director of the Company (to present)

Name

(Date of birth)

Current positions and

principal outside positions

Business experience

Tetsuya Kubo
(September 24, 1953)

 

Director of the Company

 

Representative Director, and Chairman of the Board of SMBC Nikko Securities Inc. (“
(“SMBC Nikko Securities”)

 

April 1976

 

Joined Sumitomo Bank

 

At the close of the annual general meeting of shareholders to be held for the fiscal year ending March 31, 2018.
 

June 2003

 

Executive Officer of the BankSMBC

 

 

July 2006

 

Managing Executive Officer of the BankSMBC

 

 

April 2008

 

Managing Executive Officer of the Company

 

 

April 2009

 

Senior Managing Executive Officer of the Company

 

Director and Senior Managing Executive Officer of the BankSMBC

 

 

April 2011

 

Deputy President and Executive Officer of the Company

 

Director and Deputy President of the BankSMBC

 

Executive Director of SMBC Nikko Securities

 

 

June 2011

 

Director of the Company

 

 

March 2013

 

Resigned as Director of the Company

 

Resigned as Director of the BankSMBC

 

 

April 2013

 

Representative Director, President & CEO of SMBC Nikko Securities

 

 

April 2016

 

Representative Director, and Chairman of the Board of SMBC Nikko Securities (to present)

 

 

June 2016

 

Director of the Company (to present)

 

Name

Masayuki Matsumoto(1)
(Date of birth)
April 14, 1944)

 

Current positions and

principal outside positions

Business experience

Expiration of
current term as
director or
corporate auditor

Yoshinori Yokoyama(1)
(September 16, 1942)

Director of the Company

Special Advisor of Central Japan Railway Company

 

April 19661967

 

Joined Mayekawa Kunio Associates, Architects & Engineersthe Japanese National Railways

 

 At the close of the annual general meeting of shareholders to be held for the fiscal year ending March 31, 2018.
September 1973

April 1987

 

Joined Davis Brody & AssociatesCentral Japan Railway Company

 

 September 1975

June 2004

 

Joined McKinsey &President and Representative Director of Central Japan Railway Company Inc.

 

 July 1987

April 2010

 

Vice Chairman and Representative Director (Senior Partner) of McKinsey &Central Japan Railway Company Inc.

 

 

January 2011

 

Resigned as Director of Central Japan Railway Company

January 2011

 June 2002

President of Japan Broadcasting Corporation

January 2014

 

Retired from McKinsey & Company, Inc.Japan Broadcasting Corporation

 

April 2014

 

Special Advisor of Central Japan Railway Company (to present)

June 20022015

 

Director of ORIX CorporationSMBC

 

April 2003 

Corporate Auditor of Industrial Revitalization Corporation of Japan

June 20062017

 

Director of the Company (to present)

 

Director of the Bank

  June 2015

Resigned as Director of the Bank

Kuniaki Nomura(1)
(June 13, 1945)

Director of the Company

April 1970

Registered as an attorney at law (to present)

Attorney at law at Yanagida Law Office (currently, Yanagida & Partners)

At the close of the annual general meeting of shareholders to be held for the fiscal year ending March 31, 2017.
June 2009

Director of the Company (to present)

Director of the Bank

June 2009

Attorney at law at Nomura & Partners (to present)

June 2015 

Retired as Director of the BankSMBC

 

Arthur M. Mitchell(1)
(July 23, 1947)

 

Director of the Company

 

July 1976

 

Registered as an attorney at law, admitted in New York, the U.S.A. (to present)

 

 At the close of the annual general meeting of shareholders to be held for the fiscal year ending March 31, 2017.

January 2003

 

General Counsel of the Asian Development Bank

 

 

September 2007

 

Joined White & Case LLP

 

  

January 2008

 

Registered as Foreign Attorney in Japan (to present)

 

Registered Foreign Attorney in Japan at White & Case LLP (to present)

 

  

June 2015

 

Director of the Company (to present)

 

Masaharu KohnoName

(Date of birth)

Current positions and

principal outside positions

Business experience

Shozo Yamazaki(1)
(December 21,September 12, 1948)

 Director of the Company 

November 1970

Joined Tohmatsu Awoki & Co. (currently Deloitte Touche Tohmatsu LLC)

September 1974

Registered as a certified public accountant (to present)

July 1991

Representative Partner of Tohmatsu & Co. (currently Deloitte Touche Tohmatsu LLC)

June 2010

Retired from Deloitte Touche Tohmatsu LLC

July 2010

Chairman and President of The Japanese Institute of Certified Public Accountants

July 2013

Advisor of The Japanese Institute of Certified Public Accountants (to present)

April 2014

Professor of Tohoku University Accounting School

June 2017

Director of the Company (to present)

Masaharu Kohno(1)
(December 21, 1948)

Director of the Company

April 1973

 

Joined Ministry of Foreign Affairs of Japan

 

At the close of the annual general meeting of shareholders to be held for the fiscal year ending March 31, 2017.
 

August 2005

 

Director-General of Foreign Policy Bureau in Ministry of Foreign Affairs of Japan

 

 

January 2007

 

Deputy Minister for Foreign Affairs (in charge of economy) of Ministry of Foreign Affairs of Japan

 

 

February 2009

 

Ambassador of Japan to Russia

 

 

May 2009

 

Ambassador of Japan to Russia, Armenia, Turkmenistan and Belarus

 

 

March 2011

 

Ambassador of Japan to Italy

 

 �� 

May 2011

 

Ambassador of Japan to Italy, Albania, San Marino and Malta

 

  

September 2014

 

Retired from office

 

  

June 2015

 

Director of the Company (to present)

 

Yoshinobu Tsutsui(1)
(January 30, 1954)

Director of the Company

Chairman of Nippon Life Insurance Company

April 1977

Joined Nippon Life Insurance Company

July 2004

Director of Nippon Life Insurance Company

January 2007

Director and Executive Officer of Nippon Life Insurance Company

 

March 2007

Director and Managing Executive Officer of Nippon Life Insurance Company

March 2009

Director and Senior Managing Executive Officer of Nippon Life Insurance Company

March 2010

Representative Director and Senior Managing Executive Officer of Nippon Life Insurance Company

April 2011

President of Nippon Life Insurance Company

June 2017

Director of the Company (to present)

April 2018

Chairman of Nippon Life Insurance Company (to present)

Katsuyoshi Shinbo(1)
(April 8, 1955)

Director of the Company

April 1984

Registered as an attorney at law (to present)

November 1999

Attorney at law at Shinbo Law Office (currently Shinbo & Partners) (to present)

June 2015

Corporate Auditor of SMBC

June 2017

Director of the Company (to present)

Resigned as Corporate Auditor of SMBC

Name

(Date of birth)

 

Current positions and

principal outside positions

 

Business experience

Expiration of
current term as
director or
corporate auditor

Eriko Sakurai(1)
(November 16, 1960)

 

Director of the Company

 

Chairman and Chief Executive OfficerCEO of Dow Corning Toray Co., Ltd.

 

Regional President -Japan/KoreaExecutor, Dow Switzerland Holding GmbH, which is a Representative Partner of Dow Corning Corporation

Chairman and Representative Director of Dow Corning Korea Ltd.

President and Representative Director of Dow CorningSilicones Holding Japan Co., Ltd.G.K.

 

June 1987

 

Joined Dow Corning Corporation

 

At the close of the annual general meeting of shareholders to be held for the fiscal year ending March 31, 2017.
 

May 2008

 

Director of Dow Corning Toray Co., Ltd.

 

 

March 2009

 

Chairman and Chief Executive OfficerCEO of Dow Corning Toray Co., Ltd. (to present)

 

 

May 2011

 

Regional President -Japan/Korea of Dow Corning Corporation (to present)

 

 December 2011

Chairman and Representative Director of Dow Corning Korea Ltd. (to present)

February 2015

 

President and Representative Director of Dow Corning Holding Japan Co., Ltd. (to present)

 

 

June 2015

 

Director of the Company (to present)

 

 

Toshiyuki Teramoto
(September 15, 1958)May 2018

 

Corporate AuditorExecutor, Dow Switzerland Holding GmbH, which is a Representative Partner of the Company

Corporate Auditor of the Bank

April 1981

Joined Mitsui Bank

At the close of the annual general meeting of shareholders to be held for the fiscal year ending March 31, 2020.
April 2008

Executive Officer of the Bank

April 2011

Managing Executive Officer of the Bank

April 2014

Director and Senior Managing Executive Officer of the Bank

April 2015

Senior Managing Executive Officer of the Company

June 2015

Director of the Company

April 2016

Director of the Bank

June 2016

Resigned as Director of the Company

Retired as Director of the Bank

Corporate Auditor of the Company (to present)

Corporate Auditor of the BankDow Silicones Holding Japan G.K. (to present)

 

 

Kazuhiko Nakao
(July 1, 1959)June 2018

 

Corporate AuditorChairman and CEO of the Company

April 1982

Joined Taiyo Kobe Bank

At the close of the annual general meeting of shareholders to be held for the fiscal year ending March 31, 2018.
April 2010

General Manager of Himeji Corporate Business Office of the Bank

April 2011

Senior General Manager of Himeji Corporate Business Office of the Bank

April 2012

Co-General Manager of General Affairs Department of the Company

Senior General Manager of Administrative Services Department of the Bank

April 2014

Senior General Manager of Head Office of the Bank

June 2014

Corporate Auditor of the CompanyDow Toray Co., Ltd. (to present)

Name

(Date of birth)

Current positions and

principal outside positions

Business experience

Expiration of
current term as
director or
corporate auditor

Toru Mikami
(August 27, 1960)

Corporate Auditor of the Company

April 1984

Joined Sumitomo Bank

At the close of the annual general meeting of shareholders to be held for the fiscal year ending March 31, 2019.
April 2006

General Manager of Legal Department of the Bank

April 2013

Co-General Manager of General Affairs Department of the Company

April 2015

Senior Manager of Head Office of the Bank

June 2015

Corporate Auditor of the Company (to present)

Ikuo Uno(2)
(January 4, 1935)

Corporate Auditor of the Company

March 1959Joined Nippon Life Insurance CompanyAt the close of the annual general meeting of shareholders to be held for the fiscal year ending March 31, 2017.

Executive Advisor to the Board of Nippon Life Insurance Company

April 1997

President of Nippon Life Insurance Company

April 2005

Chairman of the Board and Representative Director of Nippon Life Insurance Company

June 2005

Corporate Auditor of the Company (to present)

June 2006

Corporate Auditor of the Bank

April 2011

Director and Executive Advisor to the Board of Nippon Life Insurance Company

July 2011

Executive Advisor to the Board of Nippon Life Insurance Company

June 2015

Resigned as Corporate Auditor of the Bank

July 2015

Executive Advisor to the Board of Nippon Life Insurance Company (to present)

Satoshi Itoh(2)
(July 25, 1942)

Corporate Auditor of the Company

January 1967

Joined Tokyo Office of Arthur Andersen & Co.

At the close of the annual general meeting of shareholders to be held for the fiscal year ending March 31, 2017.
December 1970

Registered as a certified public accountant (to present)

September 1978

Partner of Arthur Andersen & Co.

October 1993

Representative Partner of Asahi & Co. (currently, KPMG AZSA LLC)

August 2001

Retired from Arthur Andersen & Co.

Retired from Asahi & Co. (currently, KPMG AZSA LLC)

April 2002

Special Professor at Chuo University Graduate School of International Accounting

March 2007

Retired as Special Professor from Chuo University Graduate School of International Accounting

June 2009

Corporate Auditor of the Company (to present)

Corporate Auditor of the Bank

June 2015

Resigned as Corporate Auditor of the Bank

Name

(Date of birth)

Current positions and

principal outside positions

Business experience

Expiration of
current term as
director or
corporate auditor

Rokuro Tsuruta(2)
(June 16, 1943)

Corporate Auditor of the Company

April 1970

Appointed as a Prosecutor at Tokyo District Public Prosecutors Office

At the close of the annual general meeting of shareholders to be held for the fiscal year ending March 31, 2020.
April 2005

Superintending Prosecutor of Nagoya High Public Prosecutors Office

June 2006

Retired from his position as Prosecutor

July 2006

Registered as an attorney at law (to present)

October 2006

Professor at Chiba University Law School

September 2008

Retired from his position as Professor at Chiba University Law School

April 2009

Professor at Surugadai University Law School

March 2012

Retired from his position as Professor at Surugadai University Law School

June 2012

Corporate Auditor of the Company (to present)

Corporate Auditor of the Bank

June 2015Resigned as Corporate Auditor of the Bank

 

(1)

Messrs. and Ms. Yokoyama, Nomura,Matsumoto, Mitchell, Yamazaki, Kohno, Tsutsui, Shinbo and Sakurai satisfy the requirements for an “outside director” under the Companies Act.

Corporate Executive Officers

At June 27, 2019, the following corporate executive officers held the indicated positions with us:

(2)Messrs. Uno, Itoh

Name
(Date of birth)

Current positions and Tsuruta satisfy

principal outside positions

Business experience

Jun Ohta
(February 12, 1958)

See “Directors” under this Item 6.A.

See “Directors” under this Item 6.A.

Gotaro Michihiro
(March 30, 1959)

Deputy President and Corporate Executive Officer of the requirements for an “outside corporate auditor”Company
(Representative Corporate Executive Officer)

Director and Deputy President of SMBC

Co-Head of Wholesale Business Unit

April 1983

Joined Sumitomo Bank

April 2012

Executive Officer of SMBC

April 2013

Managing Executive Officer of SMBC

April 2017

Senior Managing Executive Officer of the Company

Senior Managing Executive Officer of SMBC

March 2019

Director and Senior Managing Executive Officer of SMBC

April 2019

Deputy President and Corporate Executive Officer of the Company (to present)

Director and Deputy President of SMBC (to present)

Masahiko Oshima
(September 13, 1960)

Deputy President and Corporate Executive Officer of the Company
(Representative Corporate Executive Officer)

Director and Deputy President of SMBC

Head of International Business Unit

April 1984

Joined Mitsui Bank

April 2012

Executive Officer of SMBC

April 2014

Managing Executive Officer of SMBC

March 2017

Director and Managing Executive Officer of SMBC

April 2017

Director and Senior Managing Executive Officer of SMBC

April 2018

Senior Managing Corporate Executive Officer of the Company

Senior Managing Executive Officer of SMBC

March 2019

Director and Senior Managing Executive Officer of SMBC

April 2019

Deputy President and Corporate Executive Officer of the Company (to present)

Director and Deputy President of SMBC (to present)

Name
(Date of birth)

Current positions and

principal outside positions

Business experience

Toshikazu Yaku
(March 3, 1962)

Deputy President and Corporate Executive
Officer of the Company
(Representative Corporate Executive Officer)

Group Chief Compliance Officer, or CCO, and Group Chief Human Resources Officer, or CHRO

Officer in charge of Human Resources Department, Quality Management Department, General Affairs Department and Administrative Services Department

Director and Deputy President of SMBC

April 1984

Joined Sumitomo Bank

April 2012

General Manager of Human Resources Department of the Company

Executive Officer of SMBC

April 2014

Managing Executive Officer of SMBC

April 2016

Managing Executive Officer of the Company

March 2017

Director and Managing Executive Officer of SMBC

April 2017

Senior Managing Executive Officer of the Company

Director and Senior Managing Executive Officer of SMBC

June 2017

Director Senior Managing Corporate Executive Officer of the Company

April 2019

Director Deputy President and Corporate Executive Officer of the Company

Director and Deputy President of SMBC (to present)

June 2019

Deputy President and Corporate Executive Officer of the Company (to present)

Katsunori Tanizaki
(April 12, 1957)

Senior Managing Corporate Executive Officer of the Company

Group Chief Digital Innovation Officer, or CDIO

Officer in charge of IT Innovation Department

Senior Managing Executive Officer of SMBC

April 1982

Joined Sumitomo Bank

April 2010

Executive Officer of SMBC

April 2013

Managing Executive Officer of SMBC

April 2015

Senior Managing Executive Officer of the Company

Director and Senior Managing Executive Officer of SMBC

June 2015

Director of the Company

April 2017

Director and Senior Managing Executive Officer of the Company

June 2017

Director Senior Managing Corporate Executive Officer of the Company

April 2019

Senior Managing Executive Officer of SMBC (to present)

June 2019

Senior Managing Corporate Executive Officer of the Company (to present)

Naoki Tamura
(July 9, 1961)

Senior Managing Corporate Executive Officer of the Company

Senior Managing Executive Officer of SMBC

Head of Retail Business Unit

April 1984

Joined Sumitomo Bank

April 2012

Co-General Manager of Corporate Risk Management Department of the Company

Executive Officer of SMBC

April 2015

Managing Executive Officer of SMBC

April 2017

Managing Executive Officer of the Company

April 2018

Senior Managing Corporate Executive Officer of the Company (to present)

Senior Managing Executive Officer of SMBC (to present)

Name
(Date of birth)

Current positions and

principal outside positions

Business experience

Hiroshi Munemasa
(February 1, 1962)

Senior Managing Corporate Executive Officer of the Company

Senior Managing Executive Officer of SMBC

Head of Global Markets Business Unit

April 1985

Joined Sumitomo Bank

April 2013

Executive Officer of SMBC

April 2015

Managing Executive Officer of SMBC

April 2017

Managing Executive Officer of the Company

June 2017

Managing Corporate Executive Officer of the Company

April 2018

Senior Managing Corporate Executive Officer of the Company (to present)

Senior Managing Executive Officer of SMBC (to present)

Kimio Matsuura
(February 4, 1960)

Senior Managing Corporate Executive Officer of the Company

Senior Managing Executive Officer of SMBC

Co-Head of Wholesale Business Unit

April 1984

Joined Sumitomo Bank

April 2012

Executive Officer of SMBC

April 2014

Managing Executive Officer of SMBC

April 2017

Senior Managing Executive Officer of SMBC (to present)

April 2018

Senior Managing Executive Officer of the Company

April 2019

Senior Managing Corporate Executive Officer of the Company (to present)

Haruyuki Nagata
(February 20, 1963)

See “Directors” under this Item 6.A.

See “Directors” under this Item 6.A.

Toru Nakashima
(September 14, 1963)

See “Directors” under this Item 6.A.

See “Directors” under this Item 6.A.

Shoji Masuda
(July 22, 1963)

Managing Corporate Executive Officer of the Companies Act.Company

Group Chief Information Officer, or CIO

Officer in charge of IT Planning Department, Data Management Department and Operations Planning Department

Director and Managing Executive Officer of SMBC

April 1987

Joined Sumitomo Bank

April 2014

General Manager of IT Planning Department of the Company

General Manager of IT Planning Department of SMBC

April 2016

Executive Officer of SMBC

April 2017

Executive Officer of the Company

April 2018

Managing Executive Officer of the Company

Managing Executive Officer of SMBC

March 2019

Director and Managing Executive Officer of SMBC (to present)

April 2019

Managing Corporate Executive Officer of the Company (to present)

For more information, see “Item 6.C. Board Practices.”

Familial Relationships

There are no familial relationships between any of the directors and corporate auditorsexecutive officers listed above.

Arrangements and Understandings

There is no arrangement or understanding with any major shareholder, customer, supplier or other party, pursuant to which any of the directors and corporate auditorsexecutive officers listed above were selected as a director or member of corporate auditors.executive officers.

6.B.    COMPENSATION

The aggregate amounts of compensation paid by us during the fiscal year ended March 31, 20162019 to our directors and to our corporate auditorsexecutive officers were ¥808¥524 million and ¥199¥881 million, respectively.

The following table sets forth the details of individual compensation, disclosed pursuant to the provision of the FIEA and related ordinance, by SMFG and its subsidiaries in amounts equal to or exceeding ¥100 million during the fiscal year ended March 31, 2016:2019:

 

  Compensation   Compensation 

Director

  Aggregate
amount
   Paid by   Annual salary   Stock option   Bonus   Aggregate
amount
   Paid by  Annual salary   Stock
compensation
   Bonus 
  (In millions)(1)   

 

(In millions)(1)

 

Masayuki Oku

  ¥119     SMFG    ¥86    ¥10    ¥23  
     SMBC     —       —       —    

Koichi Miyata

  ¥126     SMFG    ¥70    ¥9    ¥19    ¥139   SMFG  ¥39   ¥11   ¥18 
     SMBC     21     1     3      SMBC   39    12    18 

Takeshi Kunibe

  ¥126     SMFG    ¥21    ¥1    ¥3    ¥145   SMFG  ¥84   ¥23   ¥36 

Makoto Takashima

  ¥160   SMFG  ¥14   ¥—     ¥—   
     SMBC     70     9     19      SMBC   82    26    36 

Jun Ohta

  ¥102   SMFG  ¥29   ¥9   ¥13 
    SMBC   32    5    12 

 

(1)

Amounts less than one million yen have been truncated.

CompensationIn June 2017, we transitioned from a board of corporate auditors governance system to a company with three statutory committees: a nominating committee, an audit committee and a compensation committee. The compensation committee is responsible for our directors, including bonuses and incentive stock options, must be approved at our general meeting of shareholders, unless otherwise providedestablishing policy in our articles of incorporation. The shareholders’ approval may specifyregard to the upper limit of the aggregate amountdetermination of compensation or calculation methods, but if compensation includes benefits in kind, the shareholders’ approval must include the description of such benefits. Similarly, compensation to our corporate auditors must be approved by our shareholders at our general meeting of shareholders unless otherwise specified in our articles of incorporation. Our articles of incorporation currently do not have such provisions with respect to compensation for directors and corporate auditors.

Compensation for anexecutive officers. In addition, the committee determines the contents of the compensation of the individual directordirectors and corporate auditor is determined by our board of directors and by consultation among our corporate auditors, respectively,executive officers in accordance with this policy. For more information, see “Item 6.C. Board Practices.”

In July 2017, our internal rulescompensation committee resolved to revise our executive compensation policy and to introduce new stock compensation plans that utilize restricted stock, while discontinuing the issuance of new stock options. The plans allot shares of restricted stock to directors (excluding outside directors), corporate executive officers, and executive officers of SMFG, directors (excluding outside directors) and executive officers, etc. of SMBC and representative corporate executive officers of certain of our standard practicesubsidiaries, in order to (a) provide more appropriate incentives for executives by strengthening linkages with SMFG’s short-, medium- and long-term performance, and (b) further align the interests of approval atexecutives with those of shareholders, increase the weight of stock compensation, and enhance the shareholding of our general meetingexecutives.

Prior to the revision of shareholders. To ensure objectivity in the process of determining suchour executive compensation bonuses andpolicy discussed above, we had introduced compensation-type stock options to our board of directors and the board of directors of the Bank, we have formed a compensation committee in which an outside director serves as the chairman of the committee.

In June 2010, a shareholders resolution was passed at the general meeting of shareholders to introduce a stock option compensation program to certain directors and corporate auditors in connection with the abolition of their retirement benefit program. Following such resolution, we granted stock options for certain directors, corporate auditors, and executive officers of the CompanySMFG and the Bank on August 13, 2010. Because the resolution also abolished the retirement benefit program for our corporate directors and auditors, no amounts were set aside for the payment of any retirement benefitsSMBC (“SMFG Stock Acquisition Rights”), which served as an incentive for them duringto further contribute to the fiscal year ended March 31, 2016. equity appreciation and achieve better corporate performance through sharing the benefits and risks of the share price performance with our shareholders.

For additionalmore information about compensation plans utilizing restricted stock and stock option plans, see “Item 6.E. Share Ownership” or Note 39 “Share-Based Payment” to our consolidated financial statements included elsewhere in this annual report.

6.C.    BOARD PRACTICES

General

The Companies Act permits three types of governance systems for large public companies. The first system is for companies with a nominating committee, an audit committee and a compensation committee,board of corporate auditors, and the second one is for companies with an audit and supervisory committee. The last one is for companies with three statutory committees: a board of corporate auditors. nominating committee, an audit committee and a compensation committee.

We employ thehad previously employed a board of corporate auditors governance system. PursuantIn order to Article 4 offurther enhance our

articles of incorporation, we maintain a solid corporate governance system, consisting of a general meeting of shareholders, individual directors, a board of directors, individual corporate auditors, a board of corporate auditors and an accounting auditor as its primary components.

Our articles of incorporation provide for a board of directors consisting of not fewer than three directors. We currently have fourteen directors. Our board of directors has ultimate responsibility for the administration of our affairs.

By resolution, our board of directors elects representative directors from the directors who are severally authorizedwe transitioned to represent us. Our board of directors may elect directors with titles (yakutsuki-torishimariyaku), and executive officers with titles (yakutsuki-shikkoyakuin), and may elect or remove executive officers and other important employees by resolution. In addition, our board of directors may assign or change the designation of the duties of the directors and executive officers by resolution.

Our president executes business affairs in accordance with resolutions adopted by the board of directors. Our deputy presidents, senior managing directors and managing directors assist the president in the management of our day-to-day operations. Our chairman serves as the chairman of and presides over our board of directors. This is done in order to separate the role of our president, whose responsibility is to exercise overall supervision of our business activities and other group companies, from the role of our chairman.

The Companies Act requires a resolution of the board of directors for a company to execute important business strategies, including acquiring and disposing of material assets; borrowing substantial amounts of money; establishing, changing or abolishing branch offices or other material corporate organizations; issuing bonds; establishing internal control systems; and exempting directors and corporate auditors from liability to the Companywith three statutory committees in accordance with applicable laws and regulations.June, 2017.

Under the Companies Act, a Companycompany with a Board of Corporate Auditorsthree statutory committees is not obligatedrequired to have anya nominating committee, an audit committee and a compensation committee, each of which consisting of members of the board of directors and of which the majority of the members must be outside directors ordirectors. In addition to have any audit, nomination or compensation committees. However, we have five outside directors as part of our efforts to enhance corporate governance. In addition,the three statutory committees, we have voluntarily established our auditing, risk compensation and nominating committees to enhance the effectiveness of our board of directors. To ensure the compliance of our execution of our business operations with legal regulations and generally accepted practices, the outside directors are selected from among experts (including certified public accountants, lawyers and persons with consulting or business management experience).committee.

“Outside director” means a director of any corporation who satisfies all of the following requirements: (a) a person who is not an executive director, corporate executive officer (shikkoyaku), or an employee, including a manager (“Executive Director, etc.”), and has not been an Executive Director, etc. of such corporation or any of its subsidiaries for the ten years prior to assuming his/her office; (b) if the person has been a director, accounting advisor or corporate auditor of such corporation or any of its subsidiaries (excluding a person who has been an Executive Director, etc.) at any time within the ten years prior to assuming his/her office, a person who has not been an Executive Director, etc. of such corporation or any of its subsidiaries for the ten years prior to assuming his/her office as director, accounting advisor, or corporate auditor; (c) a person who is not a parent corporation or any entity which is prescribed by the applicable Ordinance of the Ministry of Justice as a person who controls the management of the corporation (excluding entities who are juridical persons) (“parent corporation, etc.”) of such corporation (limited to a natural person) or director or corporate executive officer (shikkoyaku), or other employee, including a manager, of a parent corporation, etc.; (d) a person who is not an Executive Director, etc. of a subsidiary or any entity which is prescribed by the applicable Ordinance of the Ministry of Justice as the juridical person for which management is controlled by the person other than the corporation (“subsidiary, etc.”) of a parent corporation, etc. of such corporation; and (e) a person who is not a spouse or relative within the second degree of kinship of a director or corporate executive officer (shikkoyaku), manager, or other important employee of such corporation, or its parent corporation, etc. (limited to a natural person).

To ensure the compliance of our execution of our business operations with legal regulations and generally accepted practices, the outside directors are selected from among experts (including certified public accountants, lawyers and persons with consulting or business management experience).

UnderAlso, under the Companies Act, a corporationcompany with a board of corporate auditors shallthree statutory committees must have threeone or more corporate auditors, half or more of whom shall be outside corporate auditors. The board of corporate auditors shall appoint full-time corporate auditors from among the corporate auditors.

“Outside corporate auditor” means a corporate auditor of any corporation who satisfies all of the following requirements: (a) a person who has not been a director, accounting advisor (kaikei-sanyo) or executive officer (shikkoyaku), or an employee, including a manager, of such corporation or any of its subsidiaries for the ten years prior to assuming his/her office; (b) in cases where a person who has been a corporate auditor of such corporation or its subsidiary at any time within the ten years prior to assuming his/her office, the person has not been a director, accounting advisor or executive officer (shikkoyaku), or an employee including a manager, of such corporation or its subsidiary for the ten years prior to assuming his/her office as corporate auditor; (c) a person who is not a parent corporation, etc. of such corporation (limited to a natural person) or director or executive officer (shikkoyaku) or an employee, including a manager, of a parent corporation, etc.; (d) a person who is not an Executive Director, etc. of a subsidiary, etc. of a parent corporation, etc. of such corporation; and (e) a person who is not a spouse or relative within the second degree of kinship of a director, manager, or other important employee of such corporation, or its parent corporation, etc. (limited to a natural person).

We have six corporate auditors, three of whom are outside corporate auditors. The auditors monitor the execution of business operations of us and our subsidiariesofficers elected by attending meetingsresolution of the board of directors and receiving reportsdirectors. Corporate executive officers decide on the execution of the operations fromof the directors and others. They also review documents relatingcompany that were delegated to important decisions and receive reports from the internal audit departments, representatives of our subsidiaries and our accounting auditor.

Our corporate auditors (who are not required to be and most of whom are not certified public accountants) have a statutory duty to examine the financial statements and business reports submittedthem by the board of directors to the general meeting of shareholders. They also have the duty to supervise the administration of our affairs by the directors in accordance with the auditing policy and rules prescribed by resolutionsresolution of the board of directors.

Pursuant to Article 4 of our articles of incorporation, we maintain a corporate auditors.governance system consisting of a general meeting of shareholders, individual directors, a board of directors, a nominating committee, an audit committee, a compensation committee, corporate executive officers and an accounting auditor as its primary components.

Board of directors

Our articles of incorporation provide for a board of directors consisting of not fewer than three directors. We currently have fifteen directors. All directors and corporate auditors are elected by our shareholders at a general meeting of

shareholders. The term of office of a director shall expireexpires upon conclusion of the annualordinary general meeting of shareholders to be held for the last fiscal year ending within two yearsone year after the election of the director. The term of office of a corporate auditor shall expire upon conclusion of the annual general meeting of shareholders to be held for the last fiscal year ending within four years after the election of the corporate auditor. Directors and corporate auditors may serve any number of consecutive terms.

As mentioned above,By resolution, our board of directors elects or removes corporate executive officers and representative executive officers. Our board of directors may elect directors with titles (yakutsuki-torishimariyaku) and corporate executive officers with titles (yakutsuki-shikkoyaku) and assign or change the committeesdesignation of the duties of corporate executive officers by resolution. In addition, our board of directors elects or removes members of each statutory committee.

The Companies Act requires the board of directors to decide on the execution of operations of a company, including basic management policy, and supervise the execution of duties by corporate executive officers. In addition, the board of directors may, by resolution of the same, delegate decisions on the execution of the operations to corporate executive officers, to the extent permitted by the Companies Act.

Nominating committee

The nominating committee determines the contents of proposals regarding the election and dismissal of directors to be submitted to a general meeting of shareholders. The committee also deliberates on matters regarding personnel decisions pertaining to officers of the Company and our major subsidiaries and the selection of successors to the presidents of the Company and SMBC.

Under the Companies Act, we are required to have a nominating committee that consists of members of our board of directors, were created to enhance effectiveness of governance by our board of directors to oversee our operations.

The auditing committee is responsible for matters relating to internal audits on a Group-wide basis, under delegated authority from the board of directors. Such matters include internal auditing policies and control systems for the Group, the Company and the Bank, and other important auditing issuesmajority of the Group. The committee regularly reports tomembers must be outside directors. Currently, the board of directors.

The chairman of the auditingnominating committee is Kuniaki Nomura,Yoshinobu Tsutsui, who is an outside director. Other outside directors on the auditing committee are Yoshinori Yokoyama and Masaharu Kohno. Other directors on the auditingnominating committee are Masayuki Oku,Matsumoto, Arthur M. Mitchell, Masaharu Kohno and Eriko Sakurai. The other director on the nominating committee is Takeshi Kunibe, the chairman of the board.

Audit committee

The audit committee is responsible for auditing the execution of duties by corporate executive officers and directors, preparing audit reports and determining the contents of proposals regarding the election or dismissal of, or refusal to reelect, accounting auditors under the Companies Act to be submitted to a general meeting of shareholders. In addition, the committee inspects our operations and assets, and those of our major subsidiaries.

Under the Companies Act, we are required to have an audit committee that consists of members of our board of directors, Koichi Miyata, our president, Takeshi Kunibe, president and chief executive officerthe majority of the Bank and Kozo Ogino,members must be outside directors. Currently, the officer in chargechairman of the audit department.committee is Masayuki Matsumoto, who is an outside director. Other outside directors on the audit committee are Shozo Yamazaki and Katsuyoshi Shinbo. Other directors on the audit committee are Atsuhiko Inoue and Toru Mikami.

Compensation committee

The compensation committee is responsible for matters relatingestablishing policy in regard to the determination of compensation of our directors and corporate executive officers. In addition, the committee determines the contents of the compensation of the individual directors and corporate executive officers in accordance with this policy. The committee also deliberates on the policies for determining the compensation of directors and officers of our major subsidiaries, and the contents of compensation of individual executive officers of both the CompanyCompany.

Under the Companies Act, we are required to have a compensation committee that consists of members of our board of directors, and the Bank, under delegated authority frommajority of the board ofmembers must be outside directors. Such matters includeCurrently, the determination of bonuses and stock option awards. The compensation committee seeks to determine appropriate levels of compensation in a transparent and objective manner. The committee reports to the board of directors.

The chairman of the compensation committee is Yoshinori Yokoyama,Katsuyoshi Shinbo, who is an outside director. Other outside directors on the compensation committee are Kuniaki Nomura, Arthur M. Mitchell, Masaharu KohnoYoshinobu Tsutsui and Eriko Sakurai. Other directors on the compensation committee are Masayuki Oku, chairman of our board of directors, Koichi Miyata, our president, and Takeshi Kunibe, president and chief executive officer of the Bank.

In addition, the risk committee supervises and reports to our board of directors on material Group-wide risk management and compliance issues. The nominating committee supervises and reports to our board of directors on the selection of directors of both the Company and the Bank, issues related to selection of candidates for directorships, the appointment of managing directors and the appointment of representative directors and other material director personnel issues.

These committees are each composed of six to eight members including the chairman of the board, and Jun Ohta, our president.

Risk committee

In addition to the three statutory committees mentioned above, we have voluntarily established our risk committee. The committee is responsible for on matters relating to environmental and risk awareness, the operation of our risk appetite framework, and the implementation of risk management systems as well as other important matters pertaining to risk management and reporting to the board of directors on these matters.

Corporate executive officers

Under the Companies Act, a company with three statutory committees must have one or more outsidecorporate executive officers. We currently have eleven corporate executive officers. All corporate executive officers are elected by our directors at a board of directors meeting. The term of office of a corporate executive officer expires upon conclusion of the first board of directors meeting called after conclusion of the ordinary general meeting of shareholders for the last business year ending within one year from the time of their election. The board of directors shall appoint representative executive officers from among the corporate executive officers.

Our President and Group Chief Executive Officer (“CEO”) executes business affairs in certain cases,accordance with resolutions adopted by the president. Outside directors are appointed to all these committees to facilitateboard of directors. Our deputy presidents and executive officers, senior managing corporate governance from an objective perspective. As noted above, becauseexecutive officers and managing executive officers assist the need for objectivity is particularly acutePresident and Group CEO in the casemanagement of our day-to-day operations. Our chairman of the auditing committee,board serves as the compensation committeechairman of and presides over our board of directors. This is done in order to separate the nominating committee,role of our president, whose responsibility is to exercise overall supervision of our business activities and SMBC Group companies, from the chairmanshiprole of these committees is assigned to outside directors.our chairman.

At the operational level, we have created the Management Committee to act as the top decision-making body with respect to business administration and management supervision of the entire the SMBC Group. The committee, composed of directorsone or more corporate executive officers, the president of SMBC, the president of SMBC Nikko Securities and the person designated by our president,President and Group CEO considers important matters relating to the execution of business in accordance with the basic policies set by the board of directors and based on discussions held by the committee members.

Corporate Governance Practices

For the purpose of protecting the interests of shareholders in general, some Japanese securities exchanges, including the Tokyo Stock Exchange, requires a listed company to have, from amongst its outside directors or outside corporate auditors, at least one independent director or corporate auditor who does not have conflicting interests with shareholders as specified under the rule. All companies on these securities exchanges are required to report the name of such independent director or corporate auditor, which is disclosed to the public. In addition, the Japan’s Corporate Governance Code (“Corporate Governance Code”) formulated by the Tokyo Stock Exchange, which establishes fundamental principles for effective corporate governance at listed companies in Japan and took effect in June 2015, provides that listed companies should appoint at least two independent directors. The independence standard for such independent directors will be determined by the subject listed company taking into consideration the independence standards of the Japanese stock exchanges. WeIn consideration of the Corporate Governance Code, we also established the SMFG Corporate Governance Guideline in consideration of the content of the Corporate Governance Code and such Corporate Governance Guidelinewhich provides that one-third or more of the directors, and at least two of them, will be elected as independent outside directors. We designated all fiveseven outside directors and all three outside corporate auditors as independent directors and independent corporate auditors, respectively.

Exemption from Liability

Under the Companies Act and our articles of incorporation, we may exempt our non-executive directors and corporate auditors from liabilities to us arising in connection with their failure to execute their duties, within the limits stipulated by applicable laws and regulations. Pursuant to such authority, we have entered into a liability limitation agreement with each non-executive directors and corporate auditor which limits the maximum amount of their liability to the Company arising in connection with a failure to execute their duties to the greater of either ¥10 million or the minimum liability amount prescribed in applicable laws.

Corporate Governance Practicesdirectors.

Companies listed on the NYSE, must comply with certain corporate governance standards provided under Section 303A of the NYSE Listed Company Manual. However, NYSE-listed companies that are foreign private issuers, including us, are permitted to follow home country practices in lieu of certain provisions of Section 303A

if such foreign private issuers meet certain criteria. See “Item 16.G.16G. Corporate Governance” for a summary of significant ways in which our corporate governance practices differ from those required to be followed by NYSE-listed U.S. companies.

Independent Registered Public Accounting Firm

We are required to appoint an independent registered public accounting firm, whose appointment is approved at a general meeting of shareholders. The independent registered public accounting firm has the statutory duty to examine the financial statements prepared in accordance with

Exemption from Liability

Under the Companies Act and approvedour articles of incorporation, we may exempt our non-executive directors, etc. from liabilities to us arising in connection with their failure to execute their duties, within the limits stipulated by applicable laws and regulations. Pursuant to such authority, we have entered into a liability limitation agreement with each outside director, etc. which limits the boardmaximum amount of directors, and report its opinion thereontheir liability to the designated corporate auditors andCompany arising in connection with a failure to execute their duties to the designated directors for notification togreater of either ¥10 million or the shareholders. Examination by independent registered public accounting firm of our financial statements is also required for the purpose of the securities report filed through the Kanto Local Finance Bureau to the Prime Minister for public inspectionminimum liability amount prescribed in accordance with the FIEA. Our independent registered public accounting firm for these purposes is KPMG AZSA LLC (“KPMG AZSA”).applicable laws.

Benefits upon Termination of Employment

Neither we nor our subsidiaries maintain any directors’ service contracts providing for benefits upon termination of employment.

6.D.    EMPLOYEES

At March 31, 2016, 20152019, 2018 and 2014,2017, on a consolidated basis, we had approximately 73,700, 68,700,86,700, 73,000 and 66,50077,200 employees, respectively, including locally hired staff in our foreign offices but excluding temporary employees. We also had an average of approximately 16,300,13,100 temporary employees during the fiscal year ended March 31, 2016.2019.

The following tables show our full-time employees at March 31, 20162019 on a consolidated basis under Japanese GAAP broken down based on business segment and geographical location:

 

   Percentage of full-time
employees at
March 31, 20162019
 

Business segment:

  

Commercial Banking(1)Wholesale Business Unit

   529

LeasingRetail Business Unit

   439 

SecuritiesInternational Business Unit

   1533 

Consumer FinanceGlobal Markets Business Unit

   151 

OthersHead office account and others

   1418 
  

 

 

 

Total

   100
  

 

 

 

 

(1)The number of employees of the Bank represents 38% of the number of our employees on a consolidated basis. Further, the number of employees in the Bank’s Wholesale Banking Unit, Retail Banking Unit, International Banking Unit, Treasury Unit and Others represent 7%, 16%, 6%, 1% and 8% of the number of our employees on a consolidated basis, respectively.

   Percentage of full-time
employees at
March 31, 20162019
 

Location:

  

Japan

   8867

Americas

   3 

Europe and Middle East

   2 

Asia and Oceania

   728 
  

 

 

 

Total

   100
  

 

 

 

Most of theour employees of the Bank are members of the Sumitomo Mitsui Banking Corporation Workers’ Union,workers’ unions, which negotiatesnegotiate with the Bankmanagement concerning remuneration and working conditions. The union is affiliated with the Federation of City Bank Workers’ Unions. The Bank considers itsWe consider our labor relations to be excellent.good.

We consider our level of remuneration, fringe benefits (including an employee share ownership program), working conditions and other allowances, which include lump-sum payments and annuities to employees upon retirement, to be generally competitive with those offered by other large enterprises in Japan.

6.E.    SHARE OWNERSHIP

Shareholdings by Directors and Senior Management and Corporate Auditors

The following table shows the number of shares of our common stock owned by our directors and corporate auditorsexecutive officers at June 29, 2016:27, 2019:

 

   Number of shares owned 

Directors and corporate auditors:executive officers:

  

Masayuki Oku

17,900

Koichi Miyata

14,500

Takeshi Kunibe

   14,288

Yujiro Ito

9,222

Kozo Ogino

8,00053,910 

Jun Ohta

   6,80021,343 

Katsunori TanizakiMakoto Takashima

   6,70027,566 

Koichi NodaHaruyuki Nagata

   3,90017,213

Toru Nakashima

8,599

Atsuhiko Inoue

18,451

Toru Mikami

1,500 

Tetsuya Kubo

   7,7318,531 

Yoshinori YokoyamaMasayuki Matsumoto

   —  

Kuniaki Nomura

—  800 

Arthur M. Mitchell

   —  400

Shozo Yamazaki

400 

Masaharu Kohno

   —   

Eriko SakuraiYoshinobu Tsutsui

   —   

Toshiyuki TeramotoKatsuyoshi Shinbo

   7,900800 

Kazuhiko NakaoEriko Sakurai

   1,1001,300 

Toru MikamiGotaro Michihiro

   50018,476 

Ikuo UnoMasahiko Oshima

   —  18,276 

Satoshi ItohToshikazu Yaku

   —  17,576 

Rokuro TsurutaKatsunori Tanizaki

   —  16,751

Naoki Tamura

16,763

Hiroshi Munemasa

15,058

Kimio Matsuura

18,398

Shoji Masuda

8,589 

None of our directors or corporate auditorsexecutive officers is the owner of more than one percent of our common stock, and no director or corporate auditorexecutive officers has voting rights with respect to our common stock that are different from any other holder of our common stock.

Stock Option Plans and Other Remuneration for Directors and Senior Management

In June 2010, a resolution was passed at the general meeting of shareholders to introduce a stock option compensation program for directors, corporate auditors and executive officers of the Company and the Bank (“SMFG Stock Acquisition Rights”). This serves to incentivize grantees to further contribute to the equity appreciation and improved corporate performance through a sharing of the benefits and risks of share price performance of our shares. These changes reflected a review of our compensation system and the elimination of retirement benefits for directors, corporate auditors and executive officers.Option Plans

The following table provides an overview of the significant terms and conditions of the SMFG Stock Acquisition Rights, that we issued prior to the revision of our stock option plans:executive compensation policy in July 2017 (discussed below):

 

  Date of
resolution
 

Number of grantees

 

Shares granted

 

Exercise period

 

Exercise price

SMFG Stock Acquisition Rights
(1st (1st series)

 July 28, 2010 82 directors, corporate auditors and executive officers of the CompanySMFG and the BankSMBC 102,600 shares of common stock of the Company August 13, 2010
to August 12,
2040
 ¥1 per share granted upon exercise of each stock acquisition right, multiplied by the number of shares granted

SMFG Stock Acquisition Rights
(2nd (2nd series)

 July 29, 2011 85 directors, corporate auditors and executive officers of the CompanySMFG and the BankSMBC 268,200 shares of common stock of the Company August 16, 2011 to August 15, 2041 ¥1 per share granted upon exercise of each stock acquisition right, multiplied by the number of shares granted

SMFG Stock Acquisition Rights
(3rd (3rd series)

 July 30, 2012 85 directors, corporate auditors and executive officers of the CompanySMFG and the BankSMBC 280,500 shares of common stock of the Company August 15, 2012 to August 14, 2042 ¥1 per share granted upon exercise of each stock acquisition right, multiplied by the number of shares granted

SMFG Stock Acquisition Rights
(4th (4th series)

 July 29, 2013 82 directors, corporate auditors and executive officers of the CompanySMFG and the BankSMBC 115,700 shares of common stock of the Company August 14, 2013 to August 13, 2043 ¥1 per share granted upon exercise of each stock acquisition right, multiplied by the number of shares granted

SMFG Stock Acquisition Rights
(5th (5th series)

 July 30, 2014 82 directors, corporate auditors and executive officers of the CompanySMFG and the BankSMBC 121,900 shares of common stock of the Company August 15, 2014 to August 14, 2044 ¥1 per share granted upon exercise of each stock acquisition right, multiplied by the number of shares granted

SMFG Stock Acquisition Rights
(6th (6th series)

 July 31, 2015 83 directors, corporate auditors and executive officers of the CompanySMFG and the BankSMBC 132,400 shares of common stock of the Company August 18, 2015 to August 17, 2045 ¥1 per share granted upon exercise of each stock acquisition right, multiplied by the number of shares granted

Date of
resolution

Number of grantees

Shares granted

Exercise period

Exercise price

SMFG Stock Acquisition Rights (7th series)

July 26, 201689 directors, corporate auditors and executive officers of SMFG and SMBC201,200 shares of common stock of the CompanyAugust 15, 2016 to August 14, 2046¥1 per share granted upon exercise of each stock acquisition right, multiplied by the number of shares granted

Compensation Plans Utilizing Restricted Stock

In July 2017, our compensation committee resolved to revise our executive compensation policy and to introduce new stock compensation plans that utilize restricted stock, while discontinuing the issuance of new stock options.

The plans consist of Stock Compensation Plan I (“Plan I”), which determines remuneration primarily based on our medium-term performance, Stock Compensation Plan II (“Plan II”), which determines remuneration primarily based on our annual performance and Stock Compensation Plan III (“Plan III”), which determines remuneration primarily based on corporate title.

Plan I (medium-term performance share plan) has an evaluation period of three years starting from the fiscal year ended March 31, 2018, corresponding with the our medium-term management plan. Executives are initially allotted shares of restricted stock equivalent to the monetary amount determined based on the executive’s corporate title. After the completion of the evaluation period, our compensation committee will review the progress of our medium-term management plan, performance of our common stock, and results of customer satisfaction surveys and other factors, to determine a final amount to be released from transfer restrictions. In case the final amount falls below the initial amount, we will retrieve all or part of the allotted shares at no cost.

Under Plan II (annual performance share plan), executives are allotted shares of restricted stock equivalent to a certain portion of the monetary amount determined based on the annual performance of SMFG and SMBC, as well as on the individual performance of the executives reviewed both from short-term and medium-to-long-term perspectives. The remainder will be paid to the executives as a cash bonus. Transfer restrictions on these shares are released evenly over the three-year period following the year of allotment.

Under Plan III (promotion reward plan), executives are allotted shares of restricted stock equivalent to pre-determined compensation amounts per title, reflecting the increased responsibilities derived from promotions. Restrictions shall apply to the shares until the earlier of 30 years from allotment or when the executive retires from office.

The eligible executives for the plans are directors (excluding outside directors), corporate executive officers and executive officers of SMFG, directors (excluding outside directors) and executive officers etc. of SMBC and representative corporate executive officers of certain of our subsidiaries.

The allotment agreements that we enter into with executives under the plans restrict disposal of the allotted shares in any manner, including transfers of ownership or granting of security interest and, also provide that we may retrieve all or part of the allotted shares at no cost in case the our compensation committee reaches certain decisions such as the non-achievement of financial targets. The agreements also include provisions for forfeiture and claw-back of vested stock in order to restrain excessive risk-taking and foster a prudent risk culture expected of a financial institution.

The following table provides details of the issuance and allotment of new shares under our stock compensation plans:

Date of issue

Issue price

Class and total number of

shares issued

Allottees and number of

shares to be allotted

July 26, 2017

¥4,372 per share387,765 shares of common stock of the Company

Directors of SMFG: 7 persons 36,278 shares

Corporate executive officers of SMFG: 4 persons 12,863 shares

Executive officers of SMFG: 27 persons 47,077 shares

Directors of SMBC: 10 persons 71,703 shares

Executive officers, etc. of SMBC: 59 persons 219,844 shares

August 3, 2018

¥4,287 per share326,330 shares of common stock of the Company

Directors of SMFG : 6 persons 8,388 shares

Corporate executive officers of SMFG: 5 persons 3,852 shares

Executive officers of SMFG: 42 persons 25,544 shares

Directors of SMFG’s subsidiaries: 16 persons 35,289 shares

Executive officers, etc. of SMFG’s subsidiaries: 85 persons 253,257 shares

Employee Stock Ownership Associations

We have employee stock ownership associations in Japan for our the Bank’s and otherour subsidiaries’ employees. Members of the employee stock ownership associations set aside certain amounts from their monthly

salary to purchase our common stock through the relevant employee stock ownership association. The administrator of each association makes open-market purchases of our common stock for the account of the association on a monthly basis. We the Bank and otherour subsidiaries contribute matching funds equivalent to 5% of the amount purchased by the relevant association. At March 31, 2016,2019, none of the employee stock ownership associations held more than 1% of our common stock.

Item 7.

Major Shareholders and Related Party Transactions

7.A.    MAJOR SHAREHOLDERS

Major Shareholders

Our major shareholders, appearing on our register of common shareholders at March 31, 2016,2019, were as follows:

 

  Number of
shares held(3)
   Percentage
of shares
issued(1)(3)
   Number of
shares held(2)
   Percentage
of shares
issued(1)(2)
 

Name:

        

The Master Trust Bank of Japan, Ltd. (Trust Account)

   82,697,100    5.92

Japan Trustee Services Bank, Ltd. (Trust Account)

   71,063,600     5.02   82,028,200    5.87

The Master Trust Bank of Japan, Ltd. (Trust Account)

   51,171,600     3.61

Sumitomo Mitsui Banking Corporation(2)

   42,820,924     3.02

STATE STREET BANK AND TRUST COMPANY 505223

   35,764,641     2.52

NATSCUMCO

   40,320,314    2.88

Japan Trustee Services Bank, Ltd. (Trust Account 9)

   27,917,100     1.97   38,808,100    2.78

THE BANK OF NEW YORK MELLON SA/NV 10

   27,518,378     1.94

NATSCUMCO

   24,593,200     1.73

STATE STREET BANK AND TRUST COMPANY 505001

   19,426,073     1.37

Japan Trustee Services Bank, Ltd. (Trust Account 5)

   27,285,700    1.95

SSBTC CLIENT OMNIBUS ACCOUNT

   27,109,403    1.94

JP MORGAN CHASE BANK 385151

   24,345,470    1.74

JP Morgan Securities Japan Co., Ltd.

   22,885,621    1.63

Japan Trustee Services Bank, Ltd. (Trust Account 7)

   22,298,600    1.59

STATE STREET BANK WEST CLIENT—TREATY 505234

   18,341,126     1.29   20,483,327    1.46

STATE STREET BANK AND TRUST COMPANY

   17,518,902     1.23

 

(1)

Percentages are calculated based on the total number of shares of common stock then issued, includingexcluding our treasury stock, and have been truncated to the nearest second decimal point.

(2)Pursuant to Article 67 of the Enforcement Ordinance of the Company Act, our subsidiary Sumitomo Mitsui Banking Corporation is not entitled to exercise the voting rights of our common shares it holds.
(3)In January 2015, we received a copy of

On September 25, 2018, Mizuho Securities Co., Ltd. submitted a filing made by BlackRock Japan Co., Ltd. withto the Kanto Local Finance Bureau on January 21, 2015 indicating that BlackRock JapanMizuho Securities Co., Ltd. and its affiliates held 5.01%70,765,251 shares of our common stock, representing 5.06% of our outstanding common stock at January 15, 2015. We are aware ofSeptember 14, 2018. On February 7, 2019, BlackRock, Inc. filed a Schedule 13G/A filing made by BlackRock Inc.13G with the SEC, on January 27, 2016 indicating that BlackRock, Inc. and its subsidiaries beneficially held 76,216,13988,215,852 shares of our common stock, representing 5.4%6.3% of our outstanding common stock at December 31, 2015. However, we have not confirmed2018. On April 19, 2019, Sumitomo Mitsui Trust Asset Management Co., Ltd. submitted a filing to the statusKanto Local Finance Bureau indicating that Sumitomo Mitsui Trust Asset Management Co., Ltd. and its affiliate held 70,915,700 shares of these shareholdingsour common stock, representing 5.07% of our outstanding common stock at March 31, 2016.April 15, 2019

Our major shareholders do not have different voting rights.

Shareholders in the United States

Because some of our common stock was held by brokers or other nominees, the number of shares held by and the number of beneficiary holders with addresses in the United States is not fully ascertainable. At March 31, 2016,2019, there were 248245 record holders of our common stock with addresses in the United States, whose shareholdings represented approximately 21%19% of our outstanding common stock on that date.

Control of the Company

To our knowledge, we are not directly or indirectly owned or controlled by any another corporation(s), by any foreign government or by any other natural or legal person(s), severally or jointly.

Arrangements for Change in Control of the Company

We know of no arrangements the operation of which may at a later time result in a change of control.

7.B.    RELATED PARTY TRANSACTIONS

We and our banking subsidiaries had, and expect to have in the future, banking transactions and other transactions in the ordinary course of business with our related parties. For the fiscal year ended March 31, 2016, 2019,

such transactions included, but were not limited to, loans, deposits and guarantees. Furthermore, such transactions were immaterial and were made at prevailing market rates, terms and conditions, and did not involve more than the normal risk of collectibility or present other unfavorable features.

During the fiscal year ended March 31, 2016,2019, none of our directors or corporate auditors or the Bank’s directors,executive officers, and none of the close members of their respective families, had any transactions that were material or any transactions that were unusual in their nature or conditions, involving goods, services or tangible or intangible assets, to which we were a party, and no such transactions were proposed at March 31, 2016.2019. During the fiscal year ended March 31, 2016,2019, we made no loans to our directors or corporate auditors or the Bank’s directorsexecutive officers other than those that were made in the ordinary course of business, on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with other persons, and did not involve more than the normal risk of collectibility or present other unfavorable features.

7.C.    INTERESTS OF EXPERTS AND COUNSEL

Not applicable.

 

Item 8.

Financial Information

8.A.    CONSOLIDATED STATEMENTS AND OTHER FINANCIAL INFORMATION

Financial Statements

All relevant financial statements are attached hereto. See “Item 18. Financial Statements.” See “Item 5.A. Operating Results—Reconciliation with Japanese GAAP” for a reconciliation of consolidated net profit and total equity for the fiscal year ended March 31, 20162019 under IFRS, with those amounts under Japanese GAAP.

Export Sales

Not applicable.

Legal Proceedings

We are party to routine litigation incidental to our business, none of which is currently expected to have a material adverse effect on our financial condition or results of operations. However, there can be no assurance that an adverse decision in one or more of these lawsuits will not have a material adverse effect.

Dividend Policy and Dividends

The declaration, payment and determination of any year-end dividend are subject to the approval of shareholders of our common stock at our general meeting of shareholders and to statutory restrictions. The declaration, payment and determination of the amount of any interim dividend require a resolution of our board of directors and are subject to statutory restrictions. Dividend payments are made to shareholders or pledgees of record at the record dates for each payment. March 31 is the record date for year-end dividends and September 30 is the record date for interim dividends. The payment of year-end and interim dividends on common stock is subject to prior payment of dividends on our preferred stock, if any.

We have a basic policy of pursuing the sustainable growth ofenhancing shareholder value and increasing the dividend per share in a stablesustainable manner by achieving higher profitabilitybalancing financial soundness, return to shareholders, and investment for growth. We adopt a progressive dividend policy, which does not reduce dividends and at least maintains or increases dividends each year, supported by our sustainable earnings growth, through growth investments withand seek to achieve a focusdividend payout ratio of 40% on capital efficiency, while enhancing retained earnings to maintain financial soundness.a consolidated net profit basis under Japanese GAAP during the period of the next medium-term management plan.

The following table shows historical aggregate dividend payments per share of our common stock for each of the fiscal years from the fiscal year ended March 31, 20142017 through the fiscal year ended March 31, 2016:2019:

 

    Dividend per share 
   Paid(1)   Declared(2) 

Fiscal year ended March 31,

    

2014

  ¥120    ¥125  

2015

   140     125  

2016

   150     155  
   Dividend per share 
   Paid(1)   Declared(2) 

Fiscal year ended March 31,

    

2017

  ¥150   ¥150 

2018

   170    155 

2019

   180    175 

 

(1)

Dividend per share based on dividends in respect of each fiscal year including dividends proposed after current fiscal year-end but not recognized in the financial statements and excluding dividends in respect of the previous fiscal year declared in current fiscal year.

(2)

Dividend per share based on dividends declared and recognized in the financial statements during each fiscal year.

8.B.    SIGNIFICANT CHANGES

Except as otherwise described in this annual report, no significant change in our financial position has occurred since the date of the financial statements included elsewhere in this annual report.

 

Item 9.

The Offer and Listing

9.A.    OFFER AND LISTING DETAILS

Offering Details

Not applicable.

Price History of the Shares

Market Price InformationTrading Markets for Our American Depositary Shares

The following table sets forth, for the periods indicated, the high and low trading prices, and average daily trading volume for our ADSs on the NYSE since the fiscal year ended March 31, 2012.

                                    
   Price per ADS   Average daily
trading volume
 
   High   Low   
   (In dollars)   (Number of
shares)
 

Fiscal year ended March 31, except quarter and month data:

      

2012

  $7.06    $5.12     432,531  

2013

   9.46     5.55     888,210  

2014

   10.59     7.32     1,600,359  

2015:

      

First quarter

   8.83     7.59     1,319,744  

Second quarter

   8.61     7.90     1,195,001  

Third quarter

   8.42     6.95     2,062,355  

Fourth quarter

   8.24     6.74     2,494,071  

Full year

   8.83     6.74     1,760,924  

2016:

      

First quarter

   9.25     7.74     2,405,701  

Second quarter

   9.28     7.26     1,206,089  

Third quarter

   8.49     7.40     1,202,063  

Fourth quarter

   7.69     5.01     4,154,861  

Full year

   9.28     5.01     2,218,760  

Most recent six months:

      

December

   7.84     7.40     1,292,301  

January

   7.69     6.50     2,480,876  

February

   6.11     5.01     7,330,455  

March

   6.49     5.60     2,713,672  

April

   6.88     5.57     2,153,048  

May

   6.44     5.86     1,356,421  

June (through June 15, 2016)

   6.36     5.65     1,859,022  

Market Price Information for Our Shares

See “Item 9.C. Markets” for information on the stock exchanges on which our common stock is listed.

The following table sets forth, for the periods indicated, the high and low trading prices, and average daily trading volume for our common stock since the fiscal year ended March 31, 2012 on the Tokyo Stock Exchange.

                                    
   Price per shares   Average daily
trading volume
 
   High   Low   
   (In yen)   (Number of
shares)
 

Fiscal year ended March 31, except quarter and month data:

      

2012

  ¥2,933    ¥2,003     8,339,526  

2013

   4,255     2,231     7,228,299  

2014

   5,470     3,545     9,052,026  

2015:

      

First quarter

   4,608     3,800     8,256,444  

Second quarter

   4,537     3,978     5,746,754  

Third quarter

   4,699     3,823     7,553,595  

Fourth quarter

   4,915     3,902     8,954,048  

Full year

   4,915     3,800     7,609,582  

2016:

      

First quarter

   5,747     4,530     8,901,549  

Second quarter

   5,770     4,388     8,516,021  

Third quarter

   5,220     4,471     6,910,602  

Fourth quarter

   4,640     2,820     12,667,405  

Full year

   5,770     2,820     9,245,903  

Most recent six months:

      

December

   4,833     4,471     6,848,652  

January

   4,640     3,781     10,014,458  

February

   3,745     2,820     17,532,850  

March

   3,802     3,126     10,535,455  

April

   3,895     3,035     10,725,845  

May

   3,617     3,207     7,180,289  

June (through June 15, 2016)

   3,602     3,022     8,428,764  

9.B.    PLAN OF DISTRIBUTION

Not applicable.

9.C.    MARKETS

The primary trading market for our common stock is the Tokyo Stock Exchange (First Section), and our common stock is also listed on the Nagoya Stock Exchange (First Section). Our common stock is quoted under the Securities Code “8316.” Our common stock is not listed on any stock exchange outside of Japan.

Our ADSs have been listed on the NYSE since November 1, 2010 and are quoted under the ticker symbol “SMFG.”

9.D.    SELLING SHAREHOLDERS

Not applicable.

9.E.    DILUTION

Not applicable.

9.F.    EXPENSES OF THE ISSUE

Not applicable.

Item 10.

Additional Information

10.A.    SHARE CAPITAL

Not applicable.

10.B.    MEMORANDUM AND ARTICLES OF INCORPORATION

Set out below is information concerning our share capital, including a summary of provisions of our articles of incorporation and share handling regulations and of the Companies Act relating to joint stock corporations (kabushiki-kaisha) and related legislation, each as currently in effect.

Register and Entry, Objects and Purposes of the Company

The Company is a joint stock corporation (kabushiki-kaisha) incorporated in Japan under the Companies Act (kaishaho) of Japan. It is registered in the commercial register (shogyo-tokibo) maintained by the Chiyoda Branch Office of the Tokyo Bureau of Legal Affairs.

Article 2 of our articles of incorporation provides that our purpose is to engage in the following business activities:

 

management of banks and other corporations which are permitted to become, or to be established as, subsidiaries under the Banking Act and any business incidental thereto; and

 

in addition to the businesses provided in the foregoing item, any business in which a bank holding company is permitted to engage under the Banking Act.

Provisions Relating to Directors

With respectWe have adopted a company with three statutory committees system of corporate governance. The Companies Act requires the board of directors to decide on the execution of operations of a company, including basic management policy, and supervise the execution of duties by corporate executive officers. In addition, the board of directors may delegate decisions on the execution of the operations to corporate executive officers, to the extent permitted by the Companies Act. The Companies Act and our articles of incorporation, bylaws and associated internal rules issued pursuant to the articles provide in summary as follows:

 

a director is not entitled to vote on a proposal or arrangement or contract in which the director has a special interest;

 

the aggregate remuneration foramount of compensation to each of our directors areis determined at a general meetingby the compensation committee, which consists of shareholders and, within the upper limit approved at the general meetingmembers of shareholders, our board of directors, will determine the amountmajority of compensation for each director; our board of directors may, by its resolution, leave such decision to the discretion of our representative director;whom must be outside directors;

 

the board of directors has authority to approve transactions between the directors and us;

 

there are no provisions requiring the mandatory retirement of directors at a specified age; and

 

share ownership is not required in order to be eligible to serve as a director.

Rights, Preferences and Restrictions of the Shares

A joint stock corporation is a legal entity incorporated under the Companies Act. The rights of shareholders of a joint stock corporation are represented by shares of stock in the corporation, and shareholders’ liability is limited to the amount of the subscription for the shares.

We may issue shares within our authorized but unissued share capital following a resolution by our board of directors. An increase in our authorized share capital requires an amendment of our articles of incorporation, which generally requires approval of our common and preferred shareholders, if any.

Common Stock

General

On January 5, 2009, a central clearing system of shares of Japanese listed companies was enacted underUnder the Act Concerning Book-Entry Transfer of Corporate Bonds, Shares and Other Securities (“(“Book-Entry Transfer Act”) and, the shares of all Japanese companies listed on any Japanese stock exchange, including our shares, becameare subject to thisa central clearing system and all share certificates of companies thenshares of Japanese listed in Japan became null and void on the effective date of the Book-Entry Transfer Act.companies.

Under the clearing system, a person must have an account at an account managing institution or at Japan Securities Depository Center, Inc. (“JASDEC”) in order to purchase, hold, sell or otherwise dispose of listed shares. Account managing institutions include financial instruments traders (i.e., securities companies), banks, trust companies and certain other financial institutions which meet the requirements prescribed by the Book-Entry Transfer Act, and only those financial institutions that meet further stringent requirements of the Book-Entry Transfer Act can open accounts directly at JASDEC. Under the Book-Entry Transfer Act, any transfer of shares is effected through book entry, and title to the shares passes to the transferee at the time when the transferred number of the shares is recorded in the transferee’s account at an account managing institution. The holder of an account at an account managing institution is presumed to be the legal owner of the shares held in such account.

Under the Companies Act and the Book-Entry Transfer Act, in order to assert shareholders’ rights against us, a shareholder’s name and address must be registered in our register of shareholders, except in limited circumstances. Under the clearing system, such registration is made upon our receipt of the necessary information from JASDEC. Nonresidents of Japan or non-Japanese corporations without a permanent establishment in Japan (“Nonresident Shareholders”) are required to appoint a standing proxy in Japan or provide a mailing address in Japan. Each Nonresident Shareholder must give notice of a standing proxy or a mailing address to the relevant account managing institution. That notice will be forwarded to us through JASDEC. Japanese securities companies and commercial banks customarily act as standing proxies and provide related services for standard fees. Notices from us to Nonresident Shareholders are delivered to standing proxies or their mailing addresses in Japan.

Our transfer agent is Sumitomo Mitsui Trust Bank, Limited.

Distributions of Surplus

As a holding company, we expect that most of our cash flow will come from dividends that the BankSMBC pays us. Under some circumstances, various statutory or contractual provisions may restrict the dividends the BankSMBC can pay us. For example, if the BankSMBC does not have sufficient distributable amounts, it will be unable to pay dividends and we, in turn, may be unable to pay dividends on shares of our common stock. Therefore, our ability to pay dividends mainly depends on the financial performance of our principal operating subsidiary, the Bank.SMBC.

Under the Companies Act, distribution of cash or other assets by a joint stock corporation to its shareholders, including dividends, takes the form of distributions of surplus (as described in “—Restriction on Distributions of Surplus”). We are permitted to make distributions of surplus to our shareholders any number of times per fiscal year, subject to limitations described in “—Restriction on Distributions of Surplus.” Distributions of surplus are required in principle to be authorized by a resolution of a general meeting of shareholders. Distributions of surplus are, however, permitted pursuant to a resolution of the board of directors if:

 

 (1)

our articles of incorporation so provide (our current articles of incorporation do not have a provision to that effect);

 (2)

the normal term of office of our directors is no longer than one year (our current articles of incorporation provide that the normal term of office of our directors expires upon the close of the general meeting of shareholders to be held for the last fiscal year ending within two yearsone year after the election); and

 (3)

our nonconsolidated annual financial statements and certain documents for the latest fiscal year fairly present our assets and profit or loss, as required by an ordinance of the Ministry of Justice.

In an exception to the above rule, even if the requirements described in (1) through (3) are not met, we are permitted to make distributions of surplus in cash to our shareholders by resolutions of the board of directors once per fiscal year if our articles of incorporation so provide. Our current articles of incorporation provide for distributions of surplus as interim dividends, the record date for which is September 30 of each year.

Distributions of surplus may be made in cash or in kind in proportion to the number of shares of common stock held by each shareholder. A resolution of a general meeting of shareholders or by the board of directors authorizing a distribution of surplus must specify the kind and aggregate book value of assets to be distributed, the manner of allocation of the assets to shareholders, and the effective date of the distribution. If a distribution of surplus is to be made in kind, we may, pursuant to a resolution of a general meeting of shareholders or by the board of directors, grant the right to our shareholders to require us to make the distribution in cash instead of in kind. If that right is not granted to shareholders, then the relevant distribution of surplus must be approved by a special resolution of a general meeting of shareholders.

Under our articles of incorporation, the record dates for annual dividends and interim dividends are March 31 and September 30, respectively, in each year. In Japan, both “ex-dividend date”“ex-dividend” date (the date from which purchasers at shares through Japanese stock exchanges will not be entitled to the dividends to be paid to registered shareholders as any record date) and the record date for dividends precede the date of determination of the amount of the dividend to be paid. The ex-dividend dateprice of the shares of common stock generally goes ex-dividend on the second business day prior to the record date. However, in connection with the settlement period of shares listed on any stock exchange in Japan being scheduled to be shortened, the ex-dividend date for any dividend, the record date of which is generallyon or after July 18, 2019 is expected to be changed to the thirdfirst business day prior to the record date. Under our articles of incorporation, we are not obligated to pay any distributions of surplus to be made in cash which have not been received after five years from the commencement date of those distributions.

Restriction on Distributions of Surplus

Payment of dividends on shares of common stock is also subject to the prior payment of dividends on shares of preferred stock, if any. In the event we pay an interim dividend on shares of our common stock, the interim dividend payment is also subject to the prior payment of interim dividends on the shares of preferred stock, if any.

When we make a distribution of surplus, we must set aside in our capital reserve or retained earnings reserve an amount equal to one-tenth of the amount of surplus so distributed as required by an ordinance of the Ministry of Justice.

The amount of surplus at any given time must be calculated in accordance with the following formula:

A + B + C + D – (E + F + G)

In the above formula:

 

“A”

  =  the total amount of other capital surplus and other retained earnings, each being the amount that appears on our nonconsolidated balance sheet as of the end of the last fiscal year;

“B”

  =  if we have disposed of treasury stock after the end of the last fiscal year, the amount of the consideration for that treasury stock received by us less the book value thereof;

“C”

  =  if we have reduced our stated capital after the end of the last fiscal year, the amount of that reduction less the portion thereof that has been transferred to capital reserve or retained earnings reserve, if any:

“D”

  =  if we have reduced our capital reserve or retained earnings reserve after the end of the last fiscal year, the amount of that reduction less the portion thereof that has been transferred to stated capital, if any:

“E”

  =  if we have cancelled treasury stock after the end of the last fiscal year, the book value of that treasury stock;

“F”

  =  if we have distributed surplus to our shareholders after the end of the last fiscal year, the total book value of the surplus so distributed; and

“G”

  =  other amounts set forth in an ordinance of the Ministry of Justice, including:

 

if we have reduced surplus and increased our stated capital, capital reserve or retained earnings reserve after the end of the last fiscal year, the amount of that reduction; and

 

if we have distributed surplus to shareholders after the end of the last fiscal year, the amount set aside in our capital reserve or retained earnings reserve, if any, as required by ordinances of the Ministry of Justice.

The aggregate book value of surplus distributed by us may not exceed a prescribed distributable amount as calculated on the effective date of the distribution. Our prescribed distributable amount at any given time shall be the amount of surplus less the aggregate of (a) the book value of our treasury stock, (b) the amount of consideration for any treasury stock we disposed of after the end of the last fiscal year, (c) the sum of net unrealized losses on other securities and unrealized losses on land valuation, and (d) other amounts set forth in an ordinance of the Ministry of Justice, including (if the sum of one-half of our goodwill and deferred assets exceeds the total of the stated capital, capital reserve and retained earnings reserve, each being the amount in our nonconsolidated balance sheet at the end of the last fiscal year) all or a certain part of the exceeding amount as calculated in accordance with the ordinances of the Ministry of Justice. If we have prepared interim financial statements in accordance with the ordinances of the Ministry of Justice as described below, and if the interim financial statements have been approved by the board of directors or (if so required) by a general meeting of shareholders, then the prescribed distributable amount must be adjusted to take into account the amount of profit or loss, and the amount of consideration for any of our treasury stock disposed of by us, during the period for which the interim financial statements have been prepared. We will be permitted to prepare nonconsolidated interim financial statements consisting of a balance sheet at any date subsequent to the end of the last fiscal year and an income statement for the period from the first day of the current fiscal year to the date of the balance sheet. Interim financial statements so prepared by us must be audited by our corporate auditors and/oraudit committee and accounting auditors, as required by an ordinance of the Ministry of Justice.

Voting Rights

Holders of shares of common stock have one voting right for each unit of shares held by them. Except as otherwise provided by law or by our articles of incorporation, a resolution can be adopted at a general meeting of

shareholders by the holder of a majority of the total number of the voting rights represented at the meeting. In our articles of incorporation the quorum to elect directors and corporate auditors is one-third of the total number of voting rights. Our shareholders are not entitled to cumulative voting in the election of directors. Our shareholders may cast their

votes by mail or via the internet. Our shareholders may also exercise their voting rights through proxies, provided that the proxies are also holders of shares with voting rights.

The Companies Act provides that certain important matters shall be approved by a special resolution of a general meeting of shareholders. Under our articles of incorporation, the quorum for a special resolution is one-third of the total number of voting rights and the approval of at least two-thirds of the voting rights represented at the meeting is required for adopting a special resolution. Important matters include:

 

amending the articles of incorporation (except for amendments that may be authorized by the board of directors under the Companies Act);

 

reducing stated capital which meets certain requirements, with some exceptions;

 

removing a corporate auditor;

dissolving, merging or consolidating requiring shareholders’ approval;

 

  

establishing a parent and a wholly owned subsidiary relationship by way of a share transfer ((kabushiki-iten) or share exchange (kabushiki-kokan) requiring shareholders’ approval;

 

transferring the whole or a substantial part of our business;

 

transferring all or part of the shares of a subsidiary which meets certain requirements;

 

taking over the whole business of another company requiring shareholders’ approval;

 

corporate split requiring shareholders’ approval;

 

consolidating shares of common stock;

 

acquiring shares of common stock from a specific shareholder other than one of our subsidiaries;

 

issuing or transferring new shares or existing shares held by us as treasury stock to persons other than the shareholders at a specially favorable price;

 

issuing stock acquisition rights (including those incorporated in bonds with stock acquisition rights) to persons other than the shareholders under specially favorable conditions;

 

exempting some liability of a director or corporate auditor;executive officer; and

 

distributing surplus in-kind if shareholders are not granted the right to require us to make a distribution in cash instead of in-kind.

Capital and Reserves

When we issue new shares, the amount of the cash or assets paid or contributed by subscribers for new shares (with some exceptions) is required to be accounted for as stated capital, although we may account for an amount not exceeding one-half of the cash or assets as capital reserve by resolutions of the board of directors.

We may reduce our capital reserve or retained earnings reserve generally by resolution of a general meeting of shareholders. We may account for the whole or any part of the reduction as stated capital if we so decide by the same resolution. On the other hand, we may reduce our stated capital generally by special resolution of a general meeting of shareholders and may account for the whole or any part of the reduction as capital reserve if we so decide by the same resolution. We may reduce our surplus and increase either (1) stated capital or (2) capital reserve and/or retained earnings reserve by the same amount, in either case by resolution of a general meeting of shareholders.

Stock Splits

We may at any time split our outstanding shares of common stock into a greater number of shares of common stock by resolution of the board of directors. When a stock split is to be made, so long as our only class

of outstanding stock is the common stock, we may increase the number of authorized shares in the same ratio as that of the stock split by amending our articles of incorporation. We may effect such an amendment by resolution of the board of directors without shareholder approval.

We must give public notice of a stock split, specifying the record date therefore, not less than two weeks prior to the record date.

Unit Share System

We have a unit share system, under which 100 shares of our common stock constitute one unit. Under the unit share system, shareholders have one voting right for each unit of shares held by them at a general meeting of shareholders, and shares constituting a fractional unit carry no voting rights. Under our articles of incorporation, the holders of shares constituting a fractional unit do not have shareholder rights except for those specified in the Companies Act or an ordinance of the Ministry of Justice, which include the rights (1) to receive dividends, (2) to receive cash or other assets in case of consolidation or split of shares, share exchange or share transfer, or merger, or (3) to be allotted rights to subscribe for free new shares and stock acquisition rights when those rights are granted to shareholders. We may cease to use the unit share system by amendment to the articles of incorporation without shareholders’ approval even though amendments to the articles of incorporation generally require a special resolution of the general meeting of shareholders.

A holder of shares of our common stock constituting less than one unit may at any time request us to purchase those shares. In addition, a holder of shares of our common stock constituting less than one unit may at any time request us to sell to it the number of shares necessary to raise its share ownership to a whole unit. Under the clearing system operated by JASDEC, such request must be made through the financial institution where the shareholder has opened its account.

The price at which shares of our common stock constituting less than one unit will be purchased or sold by us pursuant to such request will be equal to either (a) the closing price of shares of our common stock reported by the Tokyo Stock Exchange on the day when such request is received by our transfer agent, or (b) if no sale takes place on the Tokyo Stock Exchange on that day, the price at which sale of such shares is executed on the Tokyo Stock Exchange immediately thereafter. Pursuant to our share handling regulations, an amount equal to the applicable brokerage commission will be deducted from the price so determined.

Under the new clearing system, shares constituting less than one unit are transferable. Under the rules of the Japanese stock exchanges, however, shares constituting less than one unit do not comprise a trading unit, except in limited circumstances, and accordingly, may not be sold on the Japanese stock exchanges.

Liquidation Rights

In the event of our liquidation, the assets remaining after payment of all debts, liquidation expenses, taxes and required distribution payments to preferred shareholders, if any, will be distributed among shareholders of common stock in proportion to the respective number of shares which they hold. For liquidation preference for residual assets to the holders of preferred stock, see “—Preferred Stock—Liquidation Rights.”

Redemption Provisions and Sinking Fund Provisions

Our common stock has no redemption provisions or sinking fund provisions.

Liability to Further Calls or Assessments

Our shares of common stock outstanding, including shares represented by the ADSs, are fully paid and nonassessable.

Legal Restrictions on Acquisitions of Shares

The FIEA and its related regulations require any person who has become solely or jointly a beneficial holder of more than 5% of the total issued shares of capital stock of a company listed on any Japanese stock exchange, to file with the director of an appropriate local finance bureau of the Ministry of Finance within five business days a report concerning the shareholdings. With some exceptions, a similar report must also be filed in respect of any subsequent change of 1% or more in those holdings or any change in material matters set out in reports previously filed. For this purpose, shares issuable to a holder upon conversion of convertible securities or exercise of share subscription warrants or stock acquisition rights are taken into account in determining both the number of shares held by such holder and the issuer’s total issued share capital. Copies of each report must also be furnished to all the Japanese stock exchanges on which the shares are listed.

Under the Banking Act, a person who desires to hold 20% (in some exceptional cases, 15%) or more of the voting rights of a bank is required to obtain advance approval of the FSA Commissioner. In addition, any person who becomes a holder of more than 5% of the voting rights of a bank holding company or a bank must report the ownership of the voting rights to the director of an appropriate local finance bureau within five business days. This requirement is separate from the significant shareholdings report required under the FIEA. See “Item 4.B. Business Overview—Regulations in Japan—Regulations for Stabilizing the Financial System—Examination and Reporting Applicable to Shareholders of a Bank.”

Subscription Rights

Holders of shares of our common stock have no preemptive rights. Authorized but unissued shares of common stock may be issued at the times, and upon the terms the board of directors determines, subject to the limitations as to the issuance of new shares of common stock at a specially favorable price mentioned in “—Voting Rights” above. The board of directors may, however, determine that the holders of shares of common stock be given subscription rights to new shares of common stock, in which case they must be given on uniform terms to all holders of shares of common stock at a record date of which not less than two weeks’ prior public notice must be given. Each of the shareholders to whom subscription rights is given must also be given at least two weeks’ prior notice of the date on which the rights expire.

Stock Acquisition Rights

We may issue stock acquisition rights (shinkabu-yoyakuken). Holders of stock acquisition rights are entitled to acquire shares from us upon payment of the applicable exercise price and subject to other terms and conditions thereof. We may also issue bonds with stock acquisition rights (shinkabu-yoyakuken-tsuki-shasai). The issuance of stock acquisition rights and bonds with stock acquisition rights may be authorized by the board of directors unless it is made under specially favorable conditions, as described in “—Voting Rights.”

Record Date

March 31 is the record date for the payment of year-end dividends and the determination of shareholders entitled to vote at the annualordinary general meeting of shareholders. September 30 is the record date for payment of interim dividends. In addition, by a resolution ofdetermination by corporate executive officers under the authority delegated by the board of directors and after giving at least two weeks’ prior public notice, we may at any time set a record date in order to determine the shareholders who are entitled to certain rights pertaining to the common stock.

Under the Book-Entry Transfer Act, we are required to give notice of each record date to JASDEC at least two weeks prior to such record date. JASDEC is required to give us notice of the names and addresses of our shareholders, the numbers of shares held by them, and other relevant information at a record date promptly after we set it.

Our Acquisition of Our Own Shares of Common Stock

We may acquire shares of our common stock (1) by way of purchase on any Japanese stock exchange on which shares of our common stock are listed, or by way of tender offer (in either case, pursuant to an ordinary resolution of a general meeting of shareholders or a resolution of the board of directors), (2) from a specific shareholder other than any of our subsidiaries (pursuant to a special resolution of a general meeting of shareholders), or (3) from any of our subsidiaries (pursuant to a resolution of the board of directors). In the case of (2) above, any other shareholder may make a request to a director, at least five days prior to the relevant general meeting of shareholders, to include the shareholder as a seller in the proposed purchase. However, that right is not available if the purchase price or any other consideration to be received by the relevant specific shareholder does not exceed the then market price of the shares to be purchased from the shareholder.

The total amount of the purchase price of shares of common stock may not exceed the prescribed distributable amount, as described in “—Common Stock—Restriction on Distributions of Surplus.”

We may hold the shares of common stock acquired, and may generally dispose of or cancel those shares by resolution of the board of directors.

Disposal of Shares of Our Common Stock Held by Shareholders Whose Location Is Unknown

We are not required to send notices to a shareholder if notices have failed to arrive for five consecutive years or more at his or her address in our register of shareholders unless we are notified of a new address. If the shareholder also fails to receive distributions of surplus on the shares for five or more consecutive years at his or her address in our register of shareholders or otherwise as specified, then we may in general dispose of those shares at their then-market price and hold or deposit the proceeds of that disposal on behalf of that shareholder.

Preferred Stock

The following is a summary of information concerning provisions of our articles of incorporation.

General

At the date of this annual report, under our articles of incorporation, we are authorized to issue 167,000 shares of Type 5 preferred stock, 167,000 shares of Type 7 preferred stock, 115,000 shares of Type 8 preferred stock and 115,000 shares of Type 9 preferred stock. In June 2013, our articles of incorporation were amended to delete the provisions regarding Type 6 preferred stock, as these provisions have become unnecessary.

In March 2005, we issued 70,001 shares of our 1st series Type 6 preferred stock for an aggregate issue price of ¥210 billion. The Type 6 preferred stock was allocated using a third-party allocation of shares at a price of ¥3,000,000 per share, ¥1,500,000 of which was accounted for as stated capital. Sumitomo Life Insurance Company acquired 23,334 shares, Nippon Life Insurance Company acquired 20,000 shares, Mitsui Life Insurance Company, Limited, which was renamed Taiju Life Insurance Company Limited on April 1, 2019, acquired 16,667 shares and Mitsui Sumitomo Insurance Company, Limited acquired 10,000 shares. On April 1, 2011, we acquired and cancelled all of the outstanding 1st series Type 6 preferred stock.

At the date of this annual report, we have no preferred stock outstanding. The following is a summary of the relevant provisions of our articles of incorporation regarding preferred stock.

Preferred Dividends

Our articles of incorporation provide that, if we pay dividends, we must pay cash dividends to holders of shares of our preferred stock in preference to the holders of our common stock. If preferred interim dividends stipulated in our articles of incorporation were paid during the relevant fiscal year, the amount of the preferred interim dividends shall be subtracted from the amount of annual preferred dividends.

Our failure to declare annual preferred dividends in full in respect of any fiscal year on a series of preferred stock gives the holders of that preferred stock certain voting rights.

Liquidation Rights

In the event of our voluntary or involuntary liquidation, holders of our preferred stock will be entitled, equally in rank as among themselves and in preference over shares of our common stock, to receive out of our residual assets upon liquidation a distribution of ¥3,000,000 per share.

Preferred stockholders are not entitled to any further dividends or other participation or distribution of our residual assets upon our liquidation.

Voting Rights

Our articles of incorporation provide that holders of preferred stock are only entitled to receive notice of, and to vote at, a general meeting of shareholders;

 

from the commencement of our annualordinary general meeting of shareholders if an agenda for approval to declare a preferred dividend is not submitted to the meeting; or

 

from the close of our annualordinary general meeting of shareholders if a proposed resolution to declare a preferred dividend is not approved at the meeting.

In both cases, these rights of our preferred stockholders lapse when a resolution of a general meeting of shareholders declaring a preferred dividend is approved.

The Companies Act provides that a separate resolution of a meeting of the holders of the preferred stock is required in order to approve certain matters which would prejudice their interests, including;

 

amendments to the articles of incorporation to add new classes of shares to be issued, alter the terms of the shares or increase the number of shares or authorized number of any class of shares, with certain exceptions;

 

consolidations or splits of shares;

 

dividends of shares or stock acquisition rights to shareholders without any consideration;

 

grants of preemptive rights for new shares or stock acquisition rights;

 

amalgamations or mergers;

 

certain corporate splits;

 

share exchanges;

 

share transfers; and

 

other matters set forth in the articles of incorporation.

Except for the amendments described above, the articles of incorporation may expressly permit certain of the above matters to be approved without a separate resolution. Our articles of incorporation do not include that express permission.

Ranking

If issued, the outstanding shares of our preferred stock would rankpari passu with each other as to participation in our profits or assets, including dividends and distributions of residual assets upon our liquidation.

Unless holders of our preferred stock give approval, we may not create or issue any other shares ranking in priority in terms of the right to receive distributions of surplus or the right to receive distributions of residual assets or otherwise in priority to the preferred stock already issued. However, without obtaining the consent of holders of the preferred stock, we may issue other preferred stock rankingpari passu with the preferred stock already issued as to the order of participation in our profits or assets, carrying rights to preferred dividends, or terms of conversion that our board of directors may determine, subject to limitations set forth in our articles of incorporation and the Companies Act.

Purchase or Redemption of Preferred Stock

Subject to the requirements of the Companies Act, we may purchase out of our prescribed distributable amounts any shares of our preferred stock outstanding at any time and cancel that preferred stock. In June 2013, we amended our articles of incorporation in order to qualify our preferred stock for inclusion in our regulatory capital in accordance with the new FSA capital adequacy guidelines based on the Basel III framework. Under the amended articles of incorporation, we will acquire our outstanding preferred stock without consideration or in exchange for common stock if we become non-viable.

Mandatory Redemption Provisions and Sinking Fund Provisions

Our articles of incorporation do not provide any mandatory redemption provisions and sinking fund provisions.

Stock Splits

Our articles of incorporation provide that no stock split shall be made to the preferred stock unless otherwise provided for in any law or regulation.

Subscription Rights

Our articles of incorporation provide that we shall not grant holders of preferred stock any right to subscribe for new shares or stock acquisition rights.

Conditions to Change Shareholders’ Rights

Our articles of incorporation do not specify what actions or quorums are required to change the rights of holders of our stock.

General Meeting of Shareholders

Our annualordinary general meeting of shareholders is held within three months after the end of each fiscal year. In addition, we may hold an extraordinary general meeting of shareholders whenever necessary. Notice of a general meeting of shareholders stating the place, the time and the purpose thereof, and certain matters set forth in the Companies Act and in ordinances of the Ministry of Justice, must be given to each holder of shares of common stock with voting rights (or to the standing proxy or mailing address in Japan of a nonresident shareholder) at least two weeks prior to the date set for the meeting. The record date for an annualordinary general meeting of shareholders is March 31 of each year.

Any shareholder or group of shareholders holding at least three percent of the total outstanding voting rights, for a continuous period of six months or longer, may require the convocation of a general meeting of

shareholders for a particular purpose. Unless such a general meeting of shareholders is convened promptly, or a convocation notice of a meeting which is to be held not later than eight weeks from the day of such demand is dispatched, the requiring shareholders may, upon obtaining court approval, convene such general meeting of shareholders.

Any shareholder holding at least 300 voting rights or one percent of our total number of voting rights for six months or longer may propose a matter to be considered at a general meeting of shareholders by submitting a written request to a director at least eight weeks prior to the date of the meeting. Any of the minimum percentages, time periods and number of voting rights necessary for exercising the minority shareholder rights described above may be decreased or shortened if our articles of incorporation so provide. Our articles of incorporation currently do not include any of those provisions.

To attend a general meeting of shareholders in person or by proxy, shareholders must provide proof of identity upon request. Shareholders may appoint a proxy by a written power of attorney for the meeting. Such proxy must be one of our shareholders with voting rights.

Limitations on the Rights to Hold Our Common Stock by Foreign Investors

There are no specific limitations imposed by the laws of Japan, our articles of incorporation, or our other constituent documents, on the rights of nonresidents or foreign shareholders to hold or exercise voting rights on our shares of common stock or preferred stock. For additionalmore information, See “Common Stock—Voting Rights.”

Anti-Change in Control Provisions

There is no provision in our articles of incorporation that would have the effect of delaying, deferring or preventing a change in control of us, and that would operate only with respect to a merger, consolidation, acquisition or corporate restructuring involving us.

Provisions Governing Changes in the Company’s Capital

We have no conditions more stringent than are required by law imposed by our articles of incorporation governing changes in capital.

10.C.    MATERIAL CONTRACTS

All contracts that we are currently a party to, or were a party to during our two most recently completed fiscal years up to the date of this annual report, were entered into in the ordinary course of business or were otherwise immaterial.

10.D.    EXCHANGE CONTROLS

Japanese Foreign Exchange Regulations

The Foreign Exchange and Foreign Trade Act of Japan, and the cabinet orders and ministerial ordinances, collectively known as the Foreign Exchange Act, set forth, among other things, the regulations relating to the receipt by nonresidents of Japan of payment with respect to our shares, and the acquisition and holding of our shares by nonresidents of Japan and foreign investors, both as defined below.

Nonresidents of Japan are individuals who are not residents in Japan and corporations whose principal offices are located outside Japan. Generally, branches and offices of nonresident corporations located in Japan are regarded as residents of Japan while the branches and offices of Japanese corporations located outside Japan are regarded as nonresidents of Japan.

“Foreign investors” are defined as:

 

individuals not residing in Japan;

 

corporations which are organized under the laws of foreign countries or whose principal offices are located outside Japan;

corporations of which 50% or more of the voting rights are held, directly or indirectly, by individuals not residing in Japan and/or corporations which are organized under the laws of foreign countries or whose principal offices are located outside Japan; and

 

corporations, a majority of officers (or a majority of officers having the power of representation) of which are individuals not residing in Japan.

Acquisition of Shares

In general, a nonresident who acquires our shares from a resident of Japan is not subject to any prior filing requirement, although the Foreign Exchange Act authorizes the Minister of Finance of Japan and the Ministers responsible for the business to require a prior submission for any such acquisition in certain limited circumstances.

If a foreign investor acquires shares of our common stock, and, together with parties who have a special relationship with such foreign investor, holds 10% or more of the issued shares of our common stock as a result of the acquisition, the foreign investor must file a report of the acquisition with the Minister of Finance and any other competent minister by the fifteenth day of the month immediately following the month to which the date of such acquisition belongs.

Except for the general limitation under Japanese antitrust and antimonopoly regulations against shareholdings in the capital stock of a Japanese corporation, which lead or may lead to a restraint of trade or monopoly, and general limitations under the Companies Act or our articles of incorporation on the rights of shareholders applicable, regardless of residence or nationality, there is no limitation under Japanese law and regulations applicable to us, or under our articles of incorporation on the rights of nonresident or foreign shareholders to hold or exercise voting rights on our shares.

Dividends and Proceeds of Sale

Under the Foreign Exchange Act, dividends paid on, and the proceeds of sales in Japan of, shares held by nonresidents of Japan, may, in general, be converted into any foreign currency and repatriated abroad. The acquisition of our shares by nonresidents by way of a stock split is not, in general, subject to any notification or reporting requirements.

10.E.    TAXATION

Japanese Taxation

The following is a summary of the principal Japanese national tax consequences to owners of shares of our common stock or ADSs representing shares of our common stock who are Nonresident Shareholders. The statements regarding Japanese tax laws set forth below are based on the laws and treaties currently in force and as interpreted by the Japanese tax authorities at the date of this annual report and are subject to changes in the applicable Japanese law or tax treaties, conventions or agreements, or in the interpretation thereof, occurring after that date. This summary does not include all possible tax considerations which may apply to a particular investor and potential investors are advised to satisfy themselves as to the overall tax consequences of the acquisition, ownership and disposition of shares of our common stock or ADSs, including specifically the tax consequences under Japanese law, the laws of the jurisdiction of which they are resident, and any tax treaty, convention or agreement between Japan and their country of residence, by consulting their own tax advisors.

For the purpose of Japanese taxation, a Nonresident Shareholder of ADSs will generally be treated as the owner of the shares underlying the ADSs, which may be evidenced by one or more American Depositary Receipts (“ADRs”).

Generally, a Nonresident Shareholder of shares of our common stock or ADSs will be subject to Japanese income tax collected by way of withholding on dividends we pay. Stock splits are, in general, not subject to Japanese income tax or corporation tax.

In the absence of any applicable tax treaty, convention or agreement reducing the maximum rate of Japanese withholding tax or allowing exemption from Japanese withholding tax, the rate of Japanese withholding tax applicable to dividends paid by a Japanese corporation to Nonresident Shareholders is generally 20.42%. However, with respect to dividends paid on listed shares issued by a Japanese corporation (including shares of our common stock or ADSs) to Nonresident Shareholders, except for any individual shareholder who owns 3% or more of the total number of shares issued by the relevant Japanese corporation, the aforementioned 20.42% withholding tax rate is reduced to 15.315% for dividends due and payable on or before December 31, 2037. Due to the imposition of a special additional withholding tax (2.1% of the original withholding tax amount) to secure funds for reconstruction from the Great East Japan Earthquake, the original withholding tax rate of 15% and 20%, as applicable, has been effectively increased, respectively, to 15.315% and 20.42%, during the period beginning on January 1, 2013 and ending on December 31, 2037.

At the date of this annual report, Japan has income tax treaties in force, whereby the above-mentioned withholding tax rate is reduced, generally, to 15% for portfolio investors, with, among others, Belgium (until 2019), Canada, Denmark, Finland, Germany, Iceland, Ireland, Italy, Luxembourg, New Zealand, Norway, Singapore and Spain, while the income tax treaties with, among others, Australia, Austria, Belgium (from 2020), France, Hong Kong, the Netherlands, Portugal, Sweden, Switzerland, the United Kingdom and the United States generally reduce the withholding tax rate to 10% for portfolio investors. In addition, under the income tax treaty between Japan and the United States, dividends paid to pension funds which are qualified U.S. residents eligible to enjoy treaty benefits are exempt from Japanese income taxation by way of withholding or otherwise unless the dividends are derived from the carrying on of a business, directly or indirectly, by those pension funds. Under the income tax treaties with the Netherlands, Switzerland and the United Kingdom, similar treatment will be applied to dividends. Under Japanese tax law, any reduced maximum rate applicable under a tax treaty will be available when the maximum rate is below the rate otherwise applicable under Japanese tax law referred to in the preceding paragraph with respect to the dividends to be paid by us on shares of common stock or ADSs. A Nonresident Shareholder of shares of our common stock who is entitled, under any tax treaty, to a reduced rate of Japanese withholding tax, or exemption therefrom, as the case may be, is required to submit an Application Form for Income Tax Convention Regarding Relief from Japanese Income Tax and Special Income Tax for Reconstruction on Dividends (together with any other required forms and documents) in advance, through the withholding agent, to the relevant tax authority before payment of dividends. A standing proxy for a Nonresident Shareholder may provide the application services. See “Item 10.B. Memorandum and Articles of Incorporation—Common Stock—General.” In addition, a simplified special filing procedure is available for Nonresident Shareholders to claim treaty benefits of exemption from or reduction of Japanese withholding tax by submitting a Special Application Form for Income Tax Convention Regarding Relief from Japanese Income Tax and Special Income Tax for Reconstruction on Dividends of Listed Stocks (together with any other required forms and documents). With respect to ADSs, this reduced rate or exemption will be applicable to Nonresident Shareholders of ADSs if the Depositary or its agent submits two Application Forms (one before payment of dividends and the other within eight months after the record date concerning such payment of dividends), together with certain other documents. To claim this reduced rate or exemption, Nonresident Shareholders of ADSs will be required to file a proof of taxpayer status, residence and beneficial ownership, as applicable, and to provide other information or documents as may be required by the Depositary. A Nonresident Shareholder who is entitled, under any applicable tax treaty, to a reduced rate of Japanese withholding tax below the rate otherwise applicable under Japanese tax law mentioned above, or exemption therefrom, as the case may be, but fails to submit the required application in advance may nevertheless be entitled to claim a refund from the relevant Japanese tax authority of withholding taxes withheld in excess of the

rate under an applicable tax treaty (if the Nonresident Shareholder is entitled to a reduced treaty rate under the applicable tax treaty) or the full amount of tax withheld (if the Nonresident Shareholder is entitled to an exemption under the applicable tax treaty), as the case may be, by complying with certain subsequent filing procedures. We do not assume any responsibility to

ensure withholding at the reduced treaty rate, or exemption therefrom, for shareholders who would be so eligible under an applicable tax treaty but where the required procedures as stated above are not followed.

Gains derived from the sale outside Japan of shares of our common stock or ADSs by a Nonresident Shareholder who is a portfolio investor are, in general, not subject to Japanese income tax or corporation tax.

Any deposits or withdrawals of shares of our common stock by a Nonresident Shareholder in exchange for ADSs are, in general, not subject to Japanese income or corporation tax.

Japanese inheritance and gift taxes at progressive rates may be payable by an individual who has acquired shares of our common stock or ADSs from another individual as a legatee, heir or donee, even if the individual is not a Japanese resident.

Potential investors should consult with their own tax advisors regarding the Japanese tax consequences of the ownership and disposition of shares of common stock or ADSs in light of their particular situations.

United States Federal Income Taxation

The following is a discussion of material U.S. federal income tax consequences to the U.S. Holders described below of owning and disposing of shares or ADSs, but it does not purport to be a comprehensive description of all the tax considerations that may be relevant to a particular person’s decision to hold the shares or ADSs. This discussion does not address U.S. state, local or non-U.S. tax consequences. As used herein, a U.S. Holder is a person that, for U.S. federal income tax purposes, is a beneficial owner of shares or ADSs that is, for U.S. federal income tax purposes:and is: (1) a citizen or individual resident of the United States; (2) a corporation, or other entity taxable as a corporation, created or organized in or under the laws of the United States, any state therein or the District of Columbia; or (3) an estate or trust the income of which is subject to U.S. federal income taxation regardless of its source.

The discussion applies only to U.S. Holders who hold the shares or ADSs as capital assets for U.S. federal income tax purposes. The discussion does not address any alternative minimum or Medicare contribution tax consequences, nor does it address all of the tax consequences which may be applicable to special classes of holders, such as:

 

certain financial institutions;

 

insurance companies;

 

dealers and certain traders in securities;

 

persons holding shares or ADSs as part of a hedge, straddle, conversion or other integrated transaction;

 

persons whose functional currency for U.S. federal income tax purposes is not the U.S. dollar;

 

regulated investment companies;

 

real estate investment trusts;

 

partnerships or other entities classified as partnerships for U.S. federal income tax purposes;

 

persons liable for the alternative minimum tax;

tax-exempt entities, “individual retirement accounts” or “Roth IRAs”;

 

persons who acquired our shares or ADSs pursuant to the exercise of an employee stock option or otherwise as compensation;

persons holding shares or ADSs that own or are deemed to own 10% or more of our voting stock; or

 

persons holding shares or ADSs in connection with a trade or business conducted outside the United States.

If a partnership holds shares or ADSs, the tax treatment of a partner will generally depend upon the status of the partner and the activities of the partnership. Partnerships holding shares or ADSs, and partners in such partnerships, should consult their own tax advisors.

This discussion is based on the Internal Revenue Code of 1986, as amended, administrative pronouncements, judicial decisions and final, temporary and proposed United States Treasury regulations, as well as the double taxation treaty between Japan and the United States (“Treaty”) all as of the date hereof. These laws are subject to change, possibly on a retroactive basis. It is also based in part on representations by the Depositary and assumes that each obligation under the Deposit Agreement and any related agreement or undertaking will be performed in accordance with its terms.

In general, a U.S. Holder who owns ADSs will be treated as the owner of the underlying shares represented by those ADSs for U.S. federal income tax purposes. Accordingly, no gain or loss will be recognized if a U.S. Holder exchanges ADSs for the underlying shares represented by those ADSs.

The U.S. Treasury has expressed concern that parties to whom ADSs are released before shares are delivered to the depositary, or intermediaries in the chain of ownership between holders and the issuer of the security underlying the ADSs, may be taking actions that are inconsistent with the claiming of foreign tax credits by holders of ADSs. These actions would also be inconsistent with the claiming of the reduced rate of tax, described below, applicable to dividends received by certain noncorporate holders. Accordingly, the creditability of Japanese taxes, and the availability of the reduced tax rate for dividends received by certain noncorporate U.S. Holders, each described below, could be affected by actions taken by such parties or intermediaries.

U.S. Holders should consult their own tax advisors concerning the U.S. federal, state, local and non-U.S. tax consequences of owning and disposing of shares or ADSs in their particular circumstances.

This discussion assumes that we are not, and will not become, a passive foreign investment company (a “PFIC”), as described below.

Taxation of Distributions

Distributions received by a U.S. Holder on shares or ADSs, including the amount of any Japanese taxes withheld, other than certain pro rata distributions of shares, will constitute foreign-source dividend income to the extent paid out of our current or accumulated earnings and profits (as determined under U.S. federal income tax principles). Because we do not maintain calculations of our earnings and profits under U.S. federal income tax principles, we expect that distributions generally will be reported to a U.S. Holder as dividends. The amount of the dividend a U.S. Holder will be required to include in income will equal the U.S. dollar value of the yen dividend, calculated by reference to the exchange rate in effect on the date the payment is received by the holder, or in the case of ADSs, by the Depositary, regardless of whether the payment is converted into U.S. dollars on the date of receipt. If the dividend is converted into U.S. dollars on the date of receipt, the U.S. Holder generally should not be required to recognize foreign currency gain or loss in respect of the dividend payment. A U.S. Holder may have foreign currency gain or loss if the dividend is converted into U.S. dollars after the date of receipt. Any foreign currency gain or loss realized by a U.S. Holder on a sale or other disposition of yen will be U.S.-source ordinary income or loss. Corporate U.S. Holders will not be entitled to claim a dividends-received deduction with respect to our dividends. Subject to applicable limitations, and the discussion above regarding concerns expressed by the U.S. Treasury, dividends received from us by certain noncorporate U.S. Holders may be taxable at favorable rates. Noncorporate U.S. Holders should consult their own tax advisors to determine whether they are subject to any special rules that limit their ability to be taxed at these favorable rates.

Subject to applicable restrictions and limitations that vary depending upon the U.S. Holder’s circumstances and the discussion above regarding concerns expressed by the U.S. Treasury Japanese taxes withheld from dividends on shares or ADSs (at a rate not exceeding the applicable rate provided by the Treaty in the case of a

U.S. Holder who is eligible for the Treaty’s benefits) will be creditable against the U.S. Holder’s U.S. federal income tax liability. Instead of claiming a credit, a U.S. Holder may elect to deduct such Japanese taxes in computing its taxable income, subject to generally applicable limitations. The limitation on foreign taxes eligible for credit is calculated separately with respect to two categories of income, passive income and general income. The rules governing foreign tax credits are complex. Instead of claiming a credit, a U.S. Holder may elect to deduct such Japanese taxes in computing its taxable income, subject to generally applicable limitations. U.S. Holders should consult their own tax advisors regarding the availability of foreign tax credits and deductions in their particular circumstances.

Sale and Other Disposition of the Shares or ADSs

A U.S. Holder will generally recognize capital gain or loss on the sale or other disposition of shares or ADSs, which will be long-term capital gain or loss if the U.S. Holder has held the shares or ADSs for more than one year. The amount of the U.S. Holder’s gain or loss will equal the difference between the amount realized on the sale or other disposition and the U.S. Holder’s tax basis in the shares or ADSs, each as determined in U.S. dollars. The deductibility of capital losses is subject to limitations. Any gain or loss will generally be U.S.-source gain or loss for foreign tax credit purposes.

PFIC Rules

Based upon certain proposed Treasury regulations that are not yet in effect, but are generally proposed to become effective for taxable years beginning after December 31, 1994, we believe that we were not a PFIC for U.S. federal income tax purposes for our taxable year ended March 31, 2016.2019. However, since proposed Treasury regulations may not be finalized in their current form, and since PFIC status depends upon the composition of our income and assets and the market value of our assets from time to time, there can be no assurance that we will not be a PFIC for any taxable year. If we were a PFIC for any taxable year during which a U.S. Holder held shares, certain adverse U.S. federal income tax consequences could apply to the U.S. Holder.

Information Reporting and Backup Withholding

Payments of dividends and sales proceeds that are made within the United States or through certainU.S.-related financial intermediaries may be subject to information reporting and backup withholding unless the U.S. Holder is an exempt recipient or, in the case of backup withholding, the U.S. Holder provides a correct taxpayer identification number and certifies that no loss of exemption from backup withholding has occurred. The amount of any backup withholding from a payment to a U.S. Holder will be allowed as a credit against the U.S. Holder’s U.S. federal income tax liability and may entitle the U.S. Holder to a refund, provided that the required information is timely furnished to the Internal Revenue Service.

Certain U.S. Holders who are individuals (or entities closely held by individuals) may be required to report information relating to their ownership of an interest in certain foreign financial assets, including stock of a non-U.S. person, generally on Form 8938, subject to exceptions (including an exception for stock held throughin a U.S.financial account, in which case the account may be reportable if maintained by a non-U.S. financial institution). U.S. Holders should consult their tax advisors regarding their reporting obligations with respect to the shares or ADSs.

10.F.    DIVIDENDS AND PAYING AGENTS

Not applicable.

10.G.    STATEMENT BY EXPERTS

Not applicable.

10.H.    DOCUMENTS ON DISPLAY

We are subject to the reporting requirements of the Securities Exchange Act of 1934. In accordance with these requirements, we file annual reports on Form 20-F and furnish periodic reports on Form 6-K with the SEC.

These materials, including this annual report and the exhibits thereto, may be inspected and copied at the SEC’s Public Reference Room at Room 1580, 100 F Street, N.E., Washington, D.C. 20549. The public may obtain information on the operation of the SEC’s Public Reference Rooma website maintained by calling the SEC in the United States at 1-800-SEC-0330. The SEC also maintains a website at http:https://www.sec.gov that contains reports and proxy information regarding issuers that file electronically with the SEC.. Some of the information may also be found on our website at http:https://www.smfg.co.jp.www.smfg.co.jp.

10.I.    SUBSIDIARY INFORMATION

Not applicable.

 

Item 11.

Quantitative and Qualitative Disclosures about Credit, Market and Other Risk

Quantitative and Qualitative Information about Risk Management

BasicOur Approach

AsWe introduced our Risk Appetite Framework (“RAF”) to ensure that risk and return levels are appropriate. RAF is the framework for controlling SMBC group-wide risks, which clarifies the types and levels of risk that we are willing to take on or are prepared to tolerate (risk appetite) in order to grow profits based on an accurate view of the operating environment and the risks. Accordingly, RAF is one of two pivots of our business management alongside business strategy.

Risk Appetite Framework

RAF is the framework for controlling SMBC Group-wide risks, which 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). We have defined risk appetites for specific risk categories and have created documents detailing policies with regard to RAF as well as information on specific risk appetites. Individual risk appetites have been established for specific business units or strategies as necessary based on our overall risk appetite.

We have a Risk Appetite Statement that provides a qualitative explanation of our approach to risk taking and risk management for each category: soundness, profitability, liquidity, credit, market, operational and conduct. We also have quantitative measures (i.e. Risk Appetite Measures) that function as benchmarks for risks that we are considering taking and for risk / return.

Operation of Risk Appetite Framework

The process of formulating business strategies and policies for each fiscal year entails setting risk appetites. These risk appetites are set by the Management Committee and the Board of Directors based on consideration of the current and future operating environment, Top Risks that threaten to significantly impact management, and risk analyses (stress testing) that illustrate the impact if a risk should be realized.

The outlooks for the operating environment and risks, including Top Risks, are continuously updated over the course of the fiscal year and the risk appetite situation is monitored regularly. Risk Appetite Measures and business strategies are revised as necessary. Three risk management levels are set for Risk Appetite Measures, which are monitored accordingly.

Comprehensive Risk Management

The risks needing to be managed have been defined as credit risk, market risk, liquidity risk, and operational risk. Appropriate management of these risks is practiced. In addition, SMBC 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 financial services industry increase in diversityoperating environment.

Thorough assessments of the operating environment and complexity,risks, including Top Risks, are carried out to ensure effective operation of RAF, after which risks are managed systematically through frameworks for risk management (identifying, measuring,analysis via stress testing and controlling risk) has never been more important in the management of a financial institution. We have established a basic approach to be employed in risk management and include these in the manual entitled Policies on Comprehensive Risk Management. The fundamental principles are as follows:capital management.

Risk management on a Group-wide basis. Various risks taken at the Group companies are managed on a consolidated basis according to the nature of their business and significance in conformity with the relevant laws and regulations.

Risk management based on quantification. The risks are quantitatively managed according to the relevant risk characteristics after specifying the scope of quantification.

Ensuring consistency with the business strategy. Risk management is consistent with the business strategy.

System for check and balance. The risk management framework is developed to ensure effective check and balance function for business operations.

Measures for emergencies and critical situations. Necessary measures are developed by assuming situations and scenarios as to materialization of risk which would have a significant impact on the business and financial management of the Group.

Verification of the actual situation. The actual risk management process is verified by the Internal Audit Unit.

Types of Risk to Bebe Managed

We classify risk into the following categories:

Credit Risk. Credit risk is the possibility of a loss arising from a credit event, such as deterioration in the financial condition of a borrower, that causes an asset (including off-balance sheet transactions) to lose value or become worthless.

Market Risk. Market risk is the possibility that fluctuations in interest rates, foreign exchange rates, stock prices or stockother market prices will change the market value of financial products, leading to a loss.

Liquidity Risk. Liquidity risk is the risk that there may be difficulties in raising funds needed for settlements, as a result of the mismatching of uses of funds and sources of funds or unexpected outflows of funds, which may make it necessary to raise funds at higher rates than normal.

Operational Risk(including Processing Risk and System Risk). Operational risk is the possibility of losses arising from inadequate or failed internal processes, people, and systems or from external events.

Processing RiskTop Risks. Processing

We identify those risks that threaten to significantly impact management as Top Risks.

The selection of Top Risks involves comprehensive screening of risk is thefactors, evaluation of each risk scenario’s possibility of losses arising from negligent processing by employees, accidents or unauthorized activities.

System Risk. System risk is the possibility of losses arising from failure, malfunction, or unauthorized use of computer systems.

Risk Management System

The Group-wide basic policies for risk management are determined by the Management Committee, which consists of designated board members,occurrence and they are authorized by the board of directors.

The policies also include fundamental principles for each risk category, which each Group company has to follow when establishing its own risk management system. The Corporate Risk Management Department, in cooperation with the Corporate Planning Department, performs risk management according to the above policies. In addition, the Internal Audit Department is responsible for the independent review of risk management within the Group.

Risk management systems are in place at individual Group companies and they have been established in accordance with the Group-wide basic policies for riskpotential impact on management, and implementation guidance provideddiscussion by us. Based on these policies and guidance, each Group company implements guidelines and establishes processes for risk management. On an ongoing basis, these processes and risks are monitored by us.

For example, at the Bank, specific departments have been appointed to oversee the handling of the four risk categories listed above, in addition to the risks associated with settlement. Each risk category is managed taking into account the particular characteristics of that category. In addition, the Risk Management Unit has been established—independent of the business units—and the risk management system has been strengthened by consolidating the functions for managing risks—credit, market, liquidity, operational and settlement—into the Risk Management Unit and enhancing our across-the-board risk monitoring ability. One board member is assigned to oversee the Risk Management Unit comprising the Corporate Risk Management Department and the Credit & Investment Planning Department. The Corporate Risk Management Department—the unit’s planning department—seeks to manage all categories of risk in cooperation with the Corporate Planning Department. Moreover the Internal Audit Unit—independent of all business units—conducts periodic audits to ensure that the management system is functioning properly.

The decision-making process for addressing the risks at the operating level is also strengthened by the Credit Risk Management Committee and the Market Risk Management Committee, whichCommittee. Top Risks are subcommitteesutilized to enhance risk management by being incorporated into discussions of RAF and the Management Committeeformulation of business strategies and into the Bank.creation of risk scenarios for stress testing.

Integrated Risk ManagementStress Testing

Risk Capital-Based ManagementWe use stress testing for the development and implementation of forward-looking business strategies, seeking to analyze and comprehend the impact on our businesses of changes in economic or market conditions.

In orderour stress testing, we formulate multiple risk scenarios based on the aforementioned Top Risks, discussions with experts and related departments, and macroeconomic indicators such as GDP, stock prices, interest rates, and foreign exchange rates.

When developing business strategies, we formulate scenarios assuming stressed business environments such as serious economic recessions and market disruption to maintain a balance betweenassess risk-taking capabilities at the SMBC Group and verify whether adequate soundness can be maintained under stress.

In addition, we conduct detailed stress testing of credit risk, market risk, and return,liquidity risk, based on which we employdevelop and revise strategies for risk taking.

Risk Capital Management

In managing credit risk, market risk, and operational risk affecting the entire SMBC Group, we apply a uniform standard, risk capital-based management method. We measure “risk capital”capital based on value at risk (“VaR”), for use in monitoring and other specific measures as a uniform basic measures of credit, market and operational risks,managing risks. This standard is applied while taking into account the special characteristics of each type of risk and of the business activitiesbusinesses of eachSMBC Group company.

companies.

We then allocateSpecific risk capital to eachmeasures include setting upper limits for risk exposure based on SMBC Group-wide and business unit to keep the total exposure to variousrisk appetite and SMBC Group-wide management constitution. Each business unit operates

business operation within that limit. Through these precautions, we practice management that maintains an appropriate balance between risks within the scope of our resources, i.e., capital. The allocation to each unit is determined by the Management Committee and authorized by the board of directors. In this framework, risk capital includes credit concentration risk and interest rate risk in the banking book, which are taken into account under Pillar 2 of the Basel Capital Accord. In addition, we conduct risk capital-based management activities on a consolidated basis, including each Group company.

Liquidity risk is managedreturns based on a framework consisting of setting upper limit for funding gaps, maintaining highly liquid supplementary funding sourcescomprehensive perspective and establishing contingency plans. Other risk categories are managed with procedures closely attuned to the nature of the risk, as described in the following paragraphs.secure sufficient financial soundness.

Disclosures of the objectives, policies and processes to manage each risk and the methods used to measure each risk have been included in “Credit Risk,” “Market Risk and Liquidity Risk,” “Operational Risk, Processing Risk and System Risk” and “Other“Operational Risk.”

Stress TestsRisk Management System

InTop management plays an active role in the current volatile business environment, stress testsrisk management process out of recognition for the importance of risk management. The SMBC Group-wide basic policies for risk management are essential to analyze and estimate the effects of stress events brought aboutdetermined by the economic recession and market turbulence. When establishing our medium-term management plan or annual business plan, we conduct stress testing to appraise the likely financial impact on the Group, so that we can prepare actions in advance to deal with emerging stress events as they occur.

Stress testing consists of four processes: scenario design, scenario setting, estimation of the impact on financial items, and reporting to the Management Committee and Boardbefore being authorized by the board of Directors. directors.

In line with these basic policies for risk management, the scenario design process, we create some scenarios such as a global economic slowdown or a sharp increase in Japanese government bond rates based on the economic environment and global trends at the time, including those on macroeconomic indicators such as Japanese GDP, stock prices, interest rates and foreign exchange rates, via discussions of the future trends in the global situation with related departments. In the scenario setting process,functions for managing major risks are consolidated within the Risk Management Unit, which is independent from business units. In addition, the Internal Audit Dept. conducts internal audits on the status of risk management to verify that risk is appropriately managed.

Risk management systems are in place at individual SMBC Group companies that have been established based on the characteristics of their particular businesses and in accordance with the basic policies. Furthermore, we are strengthening SMBC Group-wide risk management systems through the Group CRO Committee, which consists of the Group CRO and risk management representatives from strategically important SMBC Group companies.

Three Lines of Defense

The Basel Committee on Banking Supervision’s “Corporate governance principles for banks” recommends “three lines of defense” as a framework for risk management and governance. Based on this framework, we have defined our three lines of defense with the aim of achieving more effective and stronger risk management and compliance systems through the clarification of roles and responsibilities.

Our three lines of defense are as follows:

First Line. 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 unitsactivities

Implementation of the Bank discuss the scenariosmeasures for minimizing and the scenarios may be revised as necessary. In the estimationcontrolling risks

Monitoring of the impact on financial items process, we estimate the financial impact under the scenariosrisks and analyze their impact on financial items such as the common equity Tier 1 ratios. After these three processes, the scenariosreporting within First Line and impact on financial items are reported to the Management CommitteeSecond Line

Creation and Boardfostering of Directors.

Furthermore, the Bank has in place a system enabling flexible control of operations at a time of sudden changes in its business environment.sound risk culture

Second Line. The Risk Management Unit and other relevant business units regularly hold joint meetingsCompliance Departments shall assume the following functions and responsibilities in order to share understandingmanage the risk management and compliance systems.

Drafting and development of macro-environment, assume hypothetical stress events that might affect our business operation,basic principles and consider appropriate responses to those stress events.

Risk Appetite Framework

We aim to fulfill our Group-wideframeworks concerning risk management philosophy to “maximize our shareholders’ value throughand compliance

Oversight, monitoring, and development of training programs for First Line

Third Line. Independent from First Line and Second Line, the continuous growth of our business.” To this end, we consider it important to categorizeInternal Audit Dept. shall assess and quantitatively determineverify the typeseffectiveness and levelsappropriateness of risk we are willingmanagement and compliance systems managed and operated by First Line and Second Line, and report these results to take on or tolerate to drive earnings growth (risk appetite), and secure an appropriate return. We have developed and implemented a risk appetite framework which is recognized as being as important as business strategy in the Group. We have also formulated and distributed internally a document that sets out our approach and specific risk appetites.

Furthermore, to quantitatively grasp the risk appetite, we set risk appetite indicators from each category: financial soundness, profitability, liquidity, credit, market and operational and others (including processing, system and compliance). The risk appetite indicators are decided and monitored by the ManagementAudit Committee and the Board of Directors.Management Committee. The Department shall provide recommendations regarding identified issues or problems.

Implementation of Basel Regulation

Basel III is an international agreement on minimum capital, leverage, liquidity and other requirements applicable to internationally active banks. The Basel III capital framework was implemented in Japan from March 31, 2013 pursuant to revised capital adequacy guidelines adopted by the FSA, subject to the phase-in of some requirements, as contemplated by Basel III.

The framework of Basel III is a continuation of Basel II, with multiple approaches to calculating capital requirements; we adopted the advanced IRB approach for credit risk from March 31, 2009, and the AMA for operational risk from March 31, 2008.

Details of relevant initiatives are provided below, and detailedDetailed information on our capital ratioratios is provided in the discussion on Capital Ratio Informationincluded in “Item 4.B. Business Overview—Regulations in Japan—Regulations Regarding Capital Adequacy and Liquidity” and “Item 5.B. Liquidity and Capital Resources—Capital Management.”

Credit Risk

Credit risk is the risk of incurring losses from decline or loss of the value of an asset (including off-balance sheet items) that is caused by a credit event including but not limited to the deterioration of financial condition of a borrower. Overseas credits transactions also entail country risk, which is closely related to credit risk. Country risk is the risk of incurring losses caused by changes in political or economic conditions. Credit exposures arise primarily from lending activities such as loans and advances, acquiring investment securities, derivative transactions, and off-balance sheet transactions such as unused portion of loan commitments.

Credit Risk Management System

Credit risk is the most significant risk to which we are exposed. The purpose of credit risk management is to keep the credit risk exposure to a permissible level relative to capital, to maintain the quality of assets and to ensure returns commensurate with risk.

OnAt the SMBC Group, the Group CRO formulates credit risk management policies each year on the basis of SMBC Group-wide basic policies for risk management. The Credit & Investment Planning Department, responsible for the comprehensive management ourof credit risk, drafts and administers credit risk regulations including the SMBC Group credit policies, manages non-performing loans (“NPLs”), and performs other aspects of credit portfolio management. Also, the Credit Risk Committee deliberates on matters related to SMBC Group-wide credit portfolios. SMBC Group companies follow the fundamental principles established by us to assess and manage credit risk. Each of ourSMBC Group companies manages credit risk according to the nature of its business, and assesses and manages the credit risks of individual loans and credit portfolios quantitatively, using consistent standards.

At the Bank,SMBC, our significant banking subsidiary, the Credit & Investment Planning Department within the Risk Management Unit is responsible for the comprehensive management of credit risk. This department drafts and administers credit policies, the internal rating system, credit authority guidelines, and credit application guidelines, and manages NPLs, including impaired loans, and other aspects of credit portfolio management. The department also cooperates with the Corporate Risk Management Department in quantifying credit risk (risk capital and risk-weighted assets) and controls the Bank’sSMBC’s entire credit risk. Further, the Credit Portfolio Management Department within the Credit & Investment Planning Department strives to stabilize the credit portfolio and manage the risk through credit derivatives, loan asset sales and other instruments.

The credit departments of SMBC within each business unit conduct credit risk management for loans handled by their unitsits unit and manage their units’ portfolios.portfolios of its unit. The credit limits they use are based on the baseline amounts that the Credit & Investment Planning Department establishes for each grading category, with particular attention

paid to evaluating and managing customers or loans perceived to have particularly high credit risk. The Corporate Research Department engages in research on industries and analyzes the business and financial conditions of borrower enterprises to detect early signs of problems or growth potential.

The Credit Administration Department is responsible for handling NPLs of borrowers classified as potentially bankrupt or lower, and formulates plans for workouts, including write-offs, and corporate rehabilitation. The department closely liaises with SMBC Servicer Co., Ltd., ouran SMBC Group company, which engages in related services to efficiently reduce the amount of NPLs, including through the sale of loans.

The Internal Audit Unit of SMBC, operating independently of the business units, audits asset quality, accuracy of grading and state of credit risk management, and reports the results directly to the board of directors and the Management Committee.

The BankSMBC has established the Credit Risk Committee to undertake control of credit risk and to ensure the overall soundness of the loan operations.

Credit Risk Management Methods

To effectively manage the risk involved in individual loans as well as itsthe credit portfolio as a whole, the Bankwe first acknowledgesacknowledge that every loan entails credit risk, assessesassess the credit risk posed by each borrower and loan using an internal rating system, and quantifiesquantify that risk for control purposes.

Credit Risk Evaluation

TheAt SMBC, the Credit & Investment Planning Department manages an internal rating system for each asset control category set according to portfolio characteristics. For example, credits to commercial and industrial (“C&I”) companies, individuals for business purposes (domestic only), sovereigns, public sector entities, and financial institutions are assigned an “obligor grade,” which indicates the borrower’s creditworthiness, and/or “facility grade,” which indicates the collectability of assets taking into account the transaction conditions such as guarantee/collateral, and tenor. The business units determine an obligor grade by first assigning a financial grade using a financial strength grading model and data obtained from the obligor’s financial statements, including net worth and cash flows. The financial grade is then adjusted taking into account the actual state of the obligor’s financial position and qualitative factors to derive the obligor grade. The qualitative factors mainly include the expected future cash flows taking into account factors such as historical loss information, the appropriateness of the borrower’s business plan or operational improvement plan, the status of progress of its plan, and the overall support from financial institutions. In the event that the borrower is domiciled overseas, internal ratings for credit are made after taking into consideration the country rank, which represents an assessment of the credit quality of each country based on its political and economic situation, as well as its current account balance and external debt. Obligor grades and facility grades are reviewed once a year and as otherwise necessary, such as when there are changes in the credit situation. Our subsidiaries carry out credit risk evaluations in line with the Bank.SMBC.

There are also grading systems for loans to individuals such as housing loans and structured finance including project finance, where the repayment source is limited to the cash flows generated by a particular business or asset. For example, the obligor grade of housing loans is determined taking into account various relevant factors such as proportion of the repayment to revenue, proportion of down payment to the value and past due information.

The Credit & Investment Planning Department of SMBC centrally manages the internal rating systems, and designs, operates, supervises and validates the grading models. It validates the grading models (including statistical validation) of main assets following the procedure manual once a year to ensure their effectiveness and suitability.

Quantification of Credit Risk

CreditAt SMBC, credit risk quantification refers to the process of estimating the degree of credit risk of a portfolio or individual loan taking into account not just the obligor’s PD,probability of default (“PD”), but also the concentration of risk in a specific customer or industry and the loss impact of fluctuations in the value of collateral, such as real estate and securities.

Specifically, the PD by grade, loss given default (“LGD”), credit quality correlation among obligors, and other parameter values are estimated using the historical data of obligors and facilities stored in a database to calculate the credit risk. Then, based on these parameters, the BankSMBC runs a simulation of simultaneous default using the Monte Carlo Simulation to calculate the Bank’sSMBC’s maximum loss exposure to the estimated amount of the maximum losses that may be incurred. Based on these quantitative results, the BankSMBC allocates risk capital.

Risk quantification is also executed for purposes such as to determine the portfolio’s risk concentration or to simulate economic movements (stress tests), and the results are used for making optimal decisions across the whole range of business operations, including formulating business plans and providing a standard against which individual credit applications are assessed.

Credit Assessment

At the Bank,SMBC, the credit assessment of corporate loans involves a variety of financial analyses, including cash flows, to predict an enterprise’s capability of loan repayment and its growth prospects. These quantitative measures, when combined with qualitative analyses of industrial trends, the enterprise’s research and development capabilities, the competitiveness of its products or services, and its management caliber, result in a comprehensive credit assessment. The loan application is analyzed in terms of the intended utilization of the funds and the repayment schedule. In the assessment of housing loans for individuals, the BankSMBC employs a credit assessment model based on credit data amassed and analyzed by the BankSMBC over many years, taking into account various relevant factors including proportion of the repayment to revenue, proportion of down payment to the value and past due information.

Credit Monitoring

At the Bank,SMBC, in addition to analyzing loans at the application stage, the Credit Monitoring System is utilized to reassess obligor grades, and review credit policies for each obligor so that problems can be detected at an early stage, and quick and effective action can be taken. The system includes annual monitoring that is carried out each time the financial results of the obligor enterprise are obtained, as well as ad-hoc monitoring that is performed each time credit conditions change.

Credit Portfolio Management

Risk-Taking Within the Scope of Capital

To keep the credit risk exposure to a permissible level relative to capital, the Bank’s Corporate Risk Management Department of the Company sets a credit risk capital limit for internal control purposes. Under this limit, sub-limits are set for each business unit. The Corporate Risk Management Department conducts monthly monitoring to make sure that these limits are being followed.

Controlling Concentration Risk

OnceAs our equity capital may be materially impaired in the event that the credit concentration risk is realized,becomes apparent, the equity capital of the Bank may be materially impaired. The Bank’s Credit & Investment Planning Department of the Company therefore takes measures to manage concentration risks, such as introducing large exposure limits and conducting intensive loan reviews for obligors with large exposures, with an increased focus on industrial sectors with an excessive concentration of credit risk. Further, to manage country risk, theSMBC’s Credit Management Department of the International Banking Unit has credit limit guidelines based on each country’s creditworthiness.

Toward Active Portfolio Management

The Bank’sSMBC’s Credit Portfolio Management Department makes use of credit derivatives, loan asset sales, and other instruments to proactively and flexibly manage its portfolio to stabilize credit risk.

Market Risk and Liquidity Risk

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. The purpose of market risk management is to keep the market risk exposure to a permissible level relative to capital.

Liquidity risk is defined as the uncertainty around our ability to meet our debt obligations without incurring unacceptably large losses. An example of such risk is the possible inability to meet our current and future cash flow/collateral needs, both expected and unexpected. In such cases, we may be required to raise funds at less than favorable rates or be unable to raise sufficient funds for settlement. The purpose of liquidity risk management is to ensure that we are in a position to address itsour liquidity obligations through monitoring the liquidity gap between assets and liabilities, and by maintaining highly liquid supplementary funding resources.

On the basis of the SMBC Group-wide basic policies for risk management, we have a quantitative management process to control market and liquidity risks on aan SMBC Group-wide basis by setting allowable risk limits by company. We at least annually review and identify which companies primarily carry the market and liquidity risks within the SMBC Group. We set permissible levels and upper limits of risk for each identified company in consideration of those companies’ business plans. We ensure that each identified company establishes a risk management system that is appropriate to the risks it faces, and has built-in transparent risk management processes which clearly separatingseparates front, office, middle office and back office operations, and establishingestablishes a control system of mutual checks and balances.

Framework for Market and Liquidity Risk Management

The board of directors authorizes important matters relating to the management of market and liquidity risks, such as the basic policies and risk limits, which are decided by the Management Committee.

Additionally, at the Bank, the The Corporate Risk Management Department, which is independent of the business units that directly handle market transactions, manages market and liquidity risks in an integrated manner. The Corporate Risk Management Department is the planning department of the Risk Management Unit, which is independent of the business units that directly handle market transactions, and not only monitors the current risk situations but also reports regularly to the Management Committee and the board of directors. Furthermore,

Additionally, the Bank’s Asset Liability Management (“ALM”) Committee meets on a quarterly basis to examine reports on the state of market and liquidity risk management and to discuss our ALM operation policies. Furthermore, SMBC’s ALM Committee meets on a monthly basis to examine reports on the state of observance of the Bank’sSMBC’s limits on market and liquidity risks and to review and discuss the Bank’sSMBC’s ALM operations.

To prevent unforeseen processing errors as well as fraudulent transactions, it is important to establish aUnder the SMBC Group’s internal audit system, of checks on the business units (front office). At the Bank, both the processing departments (back office) and the administrative departments (middle office) conduct the checks. In addition, the Internal Audit Unit of the Bankinternal audits are also periodically performs internal auditsperformed to verify that the risk management framework is functioning properly.

Market Risk Management Methods

Market Risk Management Process

We manage market risk derived from trading activities and non-trading activities, including strategic equity investmentshareholding investments and other transactions within the risk capital limit, which is determined by taking into account our shareholders’ equity and other principal indicators of our financial position. We also establish an upper limit on VaR and losses within the risk capital limits.

Our market risk can be divided into various factors: interest rates, foreign exchange rates, equity prices and option risks. We manage each of these risks by employing the VaR method as well as supplemental indicators suitable for managing each risk, such as the basis point value (“BPV”).

VaR is the largest predicted loss that is possible given a fixed confidence interval. For example, our VaR indicates the largest loss that is possible for a holding period of one day and a confidence interval of 99.0%. BPV is the amount of change in assessed value as a result of a one-basis-point (0.01%) movement in interest rates.

Market Risk Measurement Techniques—Value at Risk

The principal SMBC Group companies’ internal VaR model makes use of historical data to prepare scenarios for market fluctuations and, by conducting simulations of gains and losses on a net position basis, the model estimates the maximum losses that may occur. The VaR calculation method we employ for both trading and non-trading activities is based mainly on the following:

 

the historical simulation method;

 

a one-sided confidence interval of 99.0%;

 

a one-day holding period (a one-year holding period for the strategic equityshareholding investment portfolio); and

 

an observation period of four years (ten years for the strategic equityshareholding investment portfolio).

This method is reviewed periodically and refined, if necessary.

The relationship between the VaR calculated withby the model and the actual profit and loss data is back-tested periodically. The back-testing results for the Group’s trading accounts during the fiscal year ended March 31, 2016 are shown below. A data point below the diagonal line indicates a loss in excess of the predicted VaR for that day; however, thereThere were no significant excess losses as within the previous year. This demonstrates thatback-testing results including the Group’strading accounts. The back-testing results are reviewed by management, which also monitors the ongoing suitability of the VaR model, with a one-sided confidence interval of 99.0%, is sufficiently reliable.model.

Back-Testing Results (Trading Book—SMFG consolidated)

Marginal Profit or Loss (in ¥100 million)

LOGO

VaR (in ¥100 million)

Trading Activities

Most of our trading activity is undertaken to accommodate the needs of commercial banking customers for interest rate and foreign exchange transactions. However, some interest rate and foreign exchange rate positions are taken using derivatives and other on-balance sheet instruments with the objective of earning a profit from favorable movements in market rates. The overall objective of managing market risk is to avoid unexpected losses due to changes in market prices.

Non-trading Activities

The market risk for non-trading activity arises principally from the interest rate risk of our ALM operations, or banking, including loans, debt investment securities, deposits, and long- and short-term borrowings, and from the equity risk of our strategic shareholding investments. ALM operations are regularly reviewed and discussed by the ALM Committee so as not to be heavily exposed to market fluctuations. Strategic equityshareholding investment is a portfolio that consists principally of publicly traded Japanese equities. This portfolio, like that of other financial institutions in Japan, has historically included shares of our customers.

VaR Summary for the Fiscal Years Ended March 31, 20162019 and 20152018

The following tables show our VaR by risk category and these figures are prepared based on the internal reporting provided to management.

Our material market risk exposure categories consist of interest rate risk, foreign exchange risk, equities and commodities risk and others. The section headed “VaR for Trading Activity” shows our VaR for instruments

entered into for trading purposes and the VaR model for the trading book includes principal consolidated subsidiaries. The section headed “VaR for Non-Trading Activity” shows our VaR for instruments entered into for purposes other than trading purposes. “Strategic EquityShareholding Investment” in the “VaR for Non-Trading Activity” section is a portfolio that consists principally of publicly traded Japanese equities. This portfolio, like that of other financial institutions in Japan, has historically included shares of our customers.

VaR for Trading Activity

The aggregate VaR for our total trading activities at March 31, 2016 was ¥11.0 billion, a decrease from ¥14.5 billion at March 31, 2015 primarily due to a decrease in the net risk exposure of equities.

 

   Interest rate
risk
   Foreign
exchange risk
   Equities and
commodities
risk
   Others   Total(1) 
   (In billions) 

For the fiscal year ended March 31, 2016:

          

SMBC Consolidated

          

Maximum

  ¥15.8    ¥3.7    ¥5.9    ¥1.7    ¥21.4  

Minimum

   6.3     0.3     0.5     0.8     8.6  

Daily average

   10.0     1.4     1.8     1.2     13.3  

At March 31, 2016

   7.6     1.1     1.1     1.3     10.4  

SMFG Consolidated

          

Maximum

  ¥16.5    ¥3.7    ¥6.2    ¥1.7    ¥22.5  

Minimum

   7.0     0.3     0.7     0.8     9.6  

Daily average

   10.6     1.4     2.0     1.2     14.2  

At March 31, 2016

   8.1     1.1     1.2     1.3     11.0  

  Interest rate
risk
   Foreign
exchange risk
   Equities and
commodities
risk
   Others   Total(1)   Interest rate
risk
   Foreign
exchange risk
   Equities and
commodities
risk
   Others   Total(1) 
  (In billions)   (In billions) 

For the fiscal year ended March 31, 2015:

          

For the fiscal year ended March 31, 2019:

          

SMBC Consolidated

                    

Maximum

  ¥11.9    ¥3.6    ¥9.6    ¥1.1    ¥19.0    ¥5.7   ¥6.2   ¥3.2   ¥4.6   ¥13.5 

Minimum

   4.6     0.7     3.1     0.6     8.9     2.3    3.0    0.0    3.0    5.7 

Daily average

   6.7     1.7     5.9     0.8     13.9     4.0    4.1    0.8    3.8    7.6 

At March 31, 2015

   6.5     1.3     5.9     1.0     13.8  

At March 31, 2019

   4.5    4.7    0.1    3.8    6.6 

SMFG Consolidated

                    

Maximum

  ¥12.5    ¥3.6    ¥9.9    ¥1.1    ¥20.2    ¥19.0   ¥6.9   ¥17.1   ¥4.6   ¥33.0 

Minimum

   5.4     0.7     3.2     0.6     9.9     8.5    3.2    1.7    3.0    14.7 

Daily average

   7.4     1.7     6.2     0.8     14.8     12.8    4.4    3.9    3.8    19.7 

At March 31, 2015

   7.2     1.3     6.0     1.0     14.5  

At March 31, 2019

   10.5    5.1    3.9    3.8    16.4 
  Interest rate
risk
   Foreign
exchange risk
   Equities and
commodities
risk
   Others   Total(1) 
  (In billions) 

For the fiscal year ended March 31, 2018:

          

SMBC Consolidated

          

Maximum

  ¥3.2   ¥4.3   ¥3.9   ¥3.6   ¥11.2 

Minimum

   1.3    1.2    0.0    1.4    3.5 

Daily average

   2.1    2.4    1.5    2.3    7.2 

At March 31, 2018

   2.6    3.6    0.0    3.2    8.1 

SMFG Consolidated

          

Maximum

  ¥30.9   ¥5.0   ¥11.4   ¥3.6   ¥39.5 

Minimum

   6.7    1.5    4.3    1.4    14.5 

Daily average

   12.3    3.0    6.3    2.3    22.1 

At March 31, 2018

   11.3    4.3    4.3    3.2    21.5 

 

(1)

Total for “Maximum,” “Minimum,” and “Daily average” represent the maximum, minimum and daily average of the total of the trading book. For certain subsidiaries, we employ the standardized method and/or the historical simulation method for the VaR calculation method.

VaR for Non-trading Activity

 

  

Banking

The aggregate VaR for our total banking activities at March 31, 2016 was ¥34.0 billion, a decrease from ¥39.0 billion at March 31, 2015 primarily due to a decrease in the net risk exposure of equities.

   Interest rate
risk
   Foreign
exchange risk
   Equities and
commodities
risk
   Others   Total(1) 
   (In billions) 

For the fiscal year ended March 31, 2016:

          

SMBC Consolidated

          

Maximum

  ¥26.2    ¥0.0    ¥34.5    ¥0.0    ¥48.0  

Minimum

   13.8     0.0     17.4     0.0     23.1  

Daily average

   20.0     0.0     28.7     0.0     37.8  

At March 31, 2016

   18.3     0.0     27.4     0.0     33.6  

SMFG Consolidated

          

Maximum

  ¥26.9    ¥0.0    ¥34.6    ¥0.0    ¥48.9  

Minimum

   14.1     0.0     17.5     0.0     23.5  

Daily average

   20.8     0.0     28.7     0.0     38.7  

At March 31, 2016

   18.7     0.0     27.5     0.0     34.0  

  Interest rate
risk
   Foreign
exchange risk
   Equities and
commodities
risk
   Others   Total(1)   Interest rate
risk
   Foreign
exchange risk
   Equities and
commodities
risk
   Others   Total(1) 
  (In billions)   (In billions) 

For the fiscal year ended March 31, 2015:

          

For the fiscal year ended March 31, 2019:

          

SMBC Consolidated

                    

Maximum

  ¥23.7    ¥0.0    ¥40.3    ¥0.0    ¥45.1    ¥37.4   ¥0.0   ¥33.7   ¥0.0   ¥48.4 

Minimum

   13.6     0.0     28.4     0.0     35.6     27.4    0.0    17.8    0.0    36.0 

Daily average

   18.2     0.0     33.7     0.0     40.7     31.1    0.0    24.3    0.0    40.4 

At March 31, 2015

   16.8     0.0     31.0     0.0     37.8  

At March 31, 2019

   37.2    0.0    19.8    0.0    43.9 

SMFG Consolidated

                    

Maximum

  ¥24.6    ¥0.0    ¥40.4    ¥0.0    ¥46.1    ¥38.4   ¥0.0   ¥33.7   ¥0.0   ¥50.6 

Minimum

   14.4     0.0     28.5     0.0     36.6     28.4    0.0    17.8    0.0    37.0 

Daily average

   19.2     0.0     33.8     0.0     41.7     33.0    0.0    24.3    0.0    42.3 

At March 31, 2015

   18.0     0.0     31.1     0.0     39.0  

At March 31, 2019

   38.2    0.0    19.8    0.0    44.8 
  Interest rate
risk
   Foreign
exchange risk
   Equities and
commodities
risk
   Others   Total(1) 
  (In billions) 

For the fiscal year ended March 31, 2018:

          

SMBC Consolidated

          

Maximum

  ¥31.5   ¥0.0   ¥39.9   ¥0.0   ¥54.5 

Minimum

   25.2    0.0    21.5    0.0    38.0 

Daily average

   27.4    0.0    30.4    0.0    44.4 

At March 31, 2018

   31.3    0.0    28.1    0.0    45.7 

SMFG Consolidated

          

Maximum

  ¥34.0   ¥0.0   ¥39.9   ¥0.0   ¥57.0 

Minimum

   27.8    0.0    21.6    0.0    40.8 

Daily average

   30.2    0.0    30.5    0.0    47.2 

At March 31, 2018

   33.7    0.0    28.1    0.0    48.2 

 

(1)

Total for “Maximum,” “Minimum,” and “Daily average” represent the maximum, minimum and daily average of the total of the banking book.

  

Strategic EquityShareholding Investment

The aggregate VaR for our strategic equity investment at March 31, 2016 was ¥1,387.6 billion, a decrease from ¥1,447.7 billion at March 31, 2015 primarily due to a decrease in the fair value of the strategic equity investment portfolio.

 

   Equities risk 
   (In billions) 

For the fiscal year ended March 31, 2016:2019:

  

SMBC Consolidated

  

Maximum

  ¥1,529.51,430.4 

Minimum

   1,132.5980.0 

Daily average

   1,397.71,246.6 

At March 31, 20162019

   1,247.01,006.3 

SMFG Consolidated

  

Maximum

  ¥1,677.11,622.5 

Minimum

   1,259.21,114.8 

Daily average

   1,542.11,414.6 

At March 31, 20162019

   1,387.61,156.0 

   Equities risk 
   (In billions) 

For the fiscal year ended March 31, 2015:2018:

  

SMBC Consolidated

  

Maximum

  ¥1,500.41,622.9 

Minimum

   1,067.91,309.8 

Daily average

   1,261.91,456.6 

At March 31, 20152018

   1,400.51,389.4 

SMFG Consolidated

  

Maximum

  ¥1,549.11,855.9 

Minimum

   1,105.31,488.1 

Daily average

   1,304.31,664.2 

At March 31, 20152018

   1,447.71,603.6 

Stress Tests

The market occasionally undergoes extreme fluctuations that exceed projections. Therefore, to manage market risk, it is important to run simulations of situations that may occur only once in many years, or so-called stress tests. To prepare for unexpected market swings, the Bank performswe perform stress tests on a monthly basis based on various scenarios.

The limitations of the VaR methodology include the following:

 

The use of historical data as a proxy for estimating future events may underestimate the probability of extreme market movements. Past market movement is not necessarily a good indicator of future events;

 

The use of a holding period assumes that all positions can be liquidated or hedged in that period of time. This assumption does not fully capture the market risk arising during periods of illiquidity, when liquidation or hedging in that period of time may not be possible;

 

The use of a confidence level neither takes account of, nor makes any statement about, any losses that might occur beyond this level of confidence; and

 

VaR does not capture all of the complex effects of the risk factors on the value of positions and portfolios and could underestimate potential losses.

Additional Information for Certain Risks

Interest Rate Risk

To supplement the above limitations of VaR methodologies, the SMBC Group adopts various indices to measure and monitor the sensitivity of interest rates, including delta, gamma and vega risks. The SMBC Group considers BPV as one of the most significant indices to manage interest rate risk. BPV is the amount of change in the value to the banking and trading book as a result of a one-basis-point (0.01%) movement in interest rates. The principal SMBC Group companies use BPV to monitor interest rate risk, not only on a net basis, but also by term to prevent the concentration of interest rate risk in a specific period. The table “Outlier Ratio” presented below is one of the sensitivity analyses for interest rate risk concerning the banking book using the BPV approach. In addition, as previously addressed, the SMBC Group enhances the risk management methods of VaR and BPV by using them in combination with back-testing and stress tests.

Interest rate risk substantially changes depending on the method used for recognizing the expected maturity dates of demand deposits that can be withdrawn at any time or the method used for estimating the timing of cancellation prior to maturity of time deposits and consumer housing loans. At the Bank,SMBC, the maturity of demand deposits that are expected to be left with the BankSMBC for a prolonged period is regarded to be at the longest five years (2.5 years on average), and the cancellation prior to maturity of time deposits and consumer housing loans is estimated based on historical data.

Outlier Ratio

InBased on the eventstandards for interest rate risk in the banking book issued by the BCBS in April 2016, the FSA revised the related regulatory guidelines pertaining to monitoring of interest rate risks in the banking book in December 2017. The revised disclosure requirements with respect to the changes in economic value of a bank declines by more than 20% of total capitalequity (“DEVE”) and changes in net interest income (“DNII”) in the banking book as a result of interest rate shocks that bank would fall into the categoryhave been applied from March 31, 2018. The tables below presentDEVE andDNII of “outlier bank,” as stipulated under Pillar 2 of the Basel Capital Accord. This ratio, known as the outlier ratio, was 2.1% for the BankSMBC and SMFG on a consolidated basis at March 31, 2016, substantially below the 20% criterion. The2019 and 2018, respectively.

DEVE is defined as a decline in economic value as a result of an interest rate shock. It is calculated by multiplying the interest rate sensitivity (excluding credit spread) and interest rate change. The FSA implements a “materiality test” to identify banks taking excessive interest rate risks. Under the materiality test, the FSA monitors the ratio ofDEVE to Tier 1 capital based on a set of prescribed interest rate shock scenarios. The threshold applied by the outlier framework ofFSA is 15% and the Bankratios for SMBC on a consolidated basis at March 31, 2019 and 2018 were 7.8% and 4.8%, respectively and those for SMFG on a consolidated basis at March 31, 2019 and 2018 were 6.8% and 4.2%, respectively.

DNII is showndefined as a decline in the following table.interest income over a rolling 12-month period as a result of an interest rate shock. It is calculated assuming a constant balance sheet over a forward-looking rolling 12-month period.

 

   At March 31, 
   2016  2015 
   (In billions, except percentages) 

SMBC Consolidated

   

Total

  ¥215.0   ¥132.6  

Impact of yen interest rates

   48.0    21.2  

Impact of U.S. dollar interest rates

   109.7    57.4  

Impact of euro interest rates

   40.1    25.5  

Percentage of total capital

   2.1  1.3
   At March 31, 2019  At March 31, 2018 
   DEVE   DNII  DEVE   DNII 
   (In billions) 

SMBC Consolidated

       

Parallel shock up

  ¥724.7   ¥(252.3 ¥450.8   ¥(283.2

Parallel shock down

   1.2    405.1   0.0    433.6 

Steepener shock

   343.9    —     234.6    —   

Flattener shock

   18.3    —     14.5    —   

Short rate shock up

   151.1    —     69.9    —   

Short rate shock down

   1.1    —     0.2    —   

Maximum

   724.7    405.1   450.8    433.6 

   At March 31, 2019   At March 31, 2018 
   (In billions) 

Tier 1 Capital

  ¥9,300.8   ¥9,423.7 

   At March 31, 2019  At March 31, 2018 
   DEVE   DNII  DEVE   DNII 
   (In billions) 

SMFG Consolidated

       

Parallel shock up

  ¥724.7   ¥(252.3 ¥450.8   ¥(283.2

Parallel shock down

   1.2    405.1   0.0    433.6 

Steepener shock

   343.9    —     234.6    —   

Flattener shock

   18.3    —     14.5    —   

Short rate shock up

   151.1    —     69.9    —   

Short rate shock down

   1.1    —     0.2    —   

Maximum

   724.7    405.1   450.8    433.6 

   At March 31, 2019   At March 31, 2018 
   (In billions) 

Tier 1 Capital

  ¥10,727.2   ¥10,610.2 

 

Note:Decline

DEVE andDNII are calculated by currency and the results are aggregated across the various currencies. ForDNII, only Japanese yen and U.S. dollars are included in economic value is the decline ofcalculation. These are the present value of a banking portfolio aftermaterial currencies where interest rate shocks (1stsensitive assets and 99th percentileliabilities are more than 5% of observed interest rate changes using a one-year holding periodtotal assets and an observation period of five years).liabilities.

Foreign Exchange Risk

The principal SMBC Group companies set risk limits for each currency to manage the concentration of the foreign currency position. The foreign exchange risk is immaterial as shown above in VaR by risk category.

Strategic EquityShareholding Investment Risk

We establish limits on allowable risk for strategic equityshareholding investments, and monitor the observance of those limits to keep stock price fluctuation risk within acceptable parameters. We have been reducing our strategic equityshareholding investments, and the balance is within a permitted level, which is less than 100% of our consolidated Tier 1 Capital. See “Item 4.B. Business Overview—Regulations in Japan—Regulations for Stabilizing the Financial System—Restriction on Aggregate Shareholdings by a Bank.”

Liquidity Risk Management Methods

We and the Bank regard liquidity risk as one of the major risks and we identify our Group companies which have significantrisks. Our liquidity risk. Each of our identified Group companies, including the Bank, establishes a fundamental risk management framework. For example, the Bank manages liquidity riskis based on a framework consisting of setting upper limits for “funding gaps,” maintaining highly liquid supplementary funding sourcesRisk Appetite Measures and establishing contingency plans.

AThe Risk Appetite Measures are measures for selecting the types and levels of risk that we are willing to take on or tolerate. As the level of liquidity risk is evaluated based on cash flow and balance sheet conditions, Risk Appetite Measures have been set for both of these areas. These measures include the Liquidity Coverage Ratio, a liquidity regulation, as well as a measure of the periods for which it will be possible to maintain funding gaplevels even under stress due to deposit outflows or other factors, and the ratio which shows how much the stable funding covers the funding for loans and other assets.

The tolerated levels of risk are set based on account funding status, cash management planning, economic environments and other factors, and measures are monitored on a daily or monthly basis in order to limit reliance on short-term funding and appropriately manage liquidity.

As a framework to complement the Risk Appetite Measures, upper limits are set in place on both an SMBC Group company basis and individual branch basis with regard to funding gaps, which is defined as a maturity mismatch between athe source of funds and the use of funds. The Bank actively manages this funding gap by setting limits on the size of gaps over a given time horizon and limiting reliance on short-term funding. These limits are established on both a Bank-wide basis and individual branch basis, taking into account cash management planning, systemic factors and funding status, among other factors. Additionally, funding gap limits are set for individual currencies if necessary. The Bank actively monitors funding gaps on a daily basis. Further, stress tests are regularly carried out by simulating the impact triggered, for example, by the outflow of deposits or having difficulties in funding from money markets, in order to thoroughly comprehend the amount required to fund when the liquidity risk is realized. Additionally, funding liquidity is maintained by holding assets, such as U.S. government bonds, which can be immediately converted to cash, or establishing borrowing facilities to be used as supplementary funding sources in an emergency, in order to smoothly raise the required funds even during market disruption.

Furthermore, contingency plans are developed to respond to the liquidity risk when being realized, by creatingestablished in preparation for emergency situations. These plans contain information on chains of command and lines of reporting as well as detailed action plans such as lowering the upper limit for the funding gap, depending on the existing situation (i.e., normal, concerned, or critical)crisis). Meanwhile, SMBC carries out quantitative management of alert indications based on early warning indicators established to assist the bank in promptly and the respective circumstances.systematically detecting liquidity risks.

Operational Risk Processing Risk and System Risk

Operational risk is the possibility of losses arising from inadequate or failed internal processes, people and systems or from external events. Specifically, it covers processing risk, system risk, legal risk, human resources risk, reputational risk and tangible asset risk. We have prepared operational risk management regulations to define the basic rules to be observed across ourSMBC Group. Under these regulations, we are working to raise the level of sophistication of our management of operational risk across the groupSMBC Group by providing an effective framework for the identification, assessment, control and monitoring of significant risk factors and by establishing a system for executing contingency and business continuity plans.

Processing risk is the possibility of losses arising from negligent processing by directors and employees, and from accidents or unauthorized activities.misconducts. We recognize that all operations entailhave clarified the divisions responsible for the oversight functions for processing risk. Werisk management, and we are therefore, working to raise the level of sophistication of our management of processing risk across the whole SMBC Group by establishing systems for managing the processing risks faced by SMBC Group companies, ensuring that each branch conducts its own regular investigations of processing risk;in-office inspection, minimizing losses in the event of processing errors or negligencerisk materialization by drafting exhaustive contingency plans;plans, and carrying out thorough quantification of the risk under management.management as basic principles.

System risk is the possibility of a lossrisk arising from nonconformity to the failure,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 cyberattack, malfunction, deficiency or unauthorized use (unauthorized alteration, destruction, duplication and leakage of computer systems.the information). We recognize that reliable computerhave set the following as basic principles: recognizing information systems areas an essential for the effective implementationpart of management strategy. We strive to minimizestrategy taking into account advances in IT, minimizing system risk by adopting and implementing risk managementdrafting regulations and specific management standards, including(including a security policy. We also havepolicy) and establishing contingency plans with the goal of minimizingto minimize losses in the event ofif a system failure. To prevent computer system breakdowns, we have also implemented numerous measures, including the duplication of various systems and infrastructures, maintaining the Bank’s computer system to facilitate steady, uninterrupted operation, and establishing a disaster-prevention system consisting of computer centers in eastern and western Japan.risk materializes.

Other Risk

Settlement risk is the possibility of a loss arising from a transaction that cannot be settled as planned. As this risk crosses over numerous categories of risk, including credit, liquidity, processing and system risks, it is required to appropriately manage according to characteristics of such risks.

Item 12.

Description of Securities other than Equity Securities

12.A.    DEBT SECURITIES

Not applicable.

12.B.    WARRANTS AND RIGHTS

Not applicable.

12.C.    OTHER SECURITIES

Not applicable.

12.D.    AMERICAN DEPOSITARY SHARES

Under the terms of the deposit agreement, an ADSsADS holder may have to pay the following service fees to the depositary:

 

Service

  

Fees

Issuance of ADSs

  Up to U.S. 5¢ per ADS issued

Cancellation of ADSs

  Up to U.S. 5¢ per ADS canceled

Distribution of cash dividends or other cash distributions

  Up to U.S. 5¢ per ADS held
Distribution of ADSs pursuant to stock dividends, free stock distributions or exercises of rights  Up to U.S. 5¢ per ADS held
Distribution of securities other than ADSs or rights to purchase additional ADSs  Up to U.S. 5¢ per ADS held

Depositary services

  Up to U.S. 5¢ per ADS held on the applicable record date(s) established by the depositary

An ADS holder will also be responsible for paying certain fees and expenses incurred by the depositary and certain taxes and governmental charges such as:

 

taxes (including applicable interest and penalties) and other governmental charges;

 

the registration fees applicable to transfers of shares or other deposited securities to or from the name of the custodian, the depositary or any nominees upon the making of deposits or withdrawals, respectively;

 

the cable, telex and facsimile transmission and delivery expenses expressly provided in the deposit agreement to be at the expense of the person depositing or withdrawing shares or holders and beneficial owners of ADSs;

 

the expenses and charges incurred by the depositary in the conversion of foreign currency;

 

the fees and expenses incurred by the depositary in connection with compliance with exchange control regulations and other regulatory requirements applicable to shares, deposited securities, ADSs and ADRs; and

 

the fees and expenses incurred by the depositary, the custodian or any nominee in connection with the servicing or delivery of deposited securities.

Depositary fees payable upon the issuance and cancellation of ADSs are typically paid to the depositary by the brokers (on behalf of their clients) receiving the newly issued ADSs from the depositary and by the brokers (on behalf of their clients) delivering the ADSs to the depositary for cancellation. The brokers in turn charge these transaction fees to their clients.

Citibank, N.A., as depositary, has agreed to reimburse SMFGthe Company for certain expenses SMFGthe Company incurs in connection with its ADR program, subject to certain ceilings. During the fiscal year ended March 31, 2016,2019, we received $400,224.17$325,006.76 as reimbursement for such expenses.

PART II

 

Item 13.

Defaults, Dividend Arrearages and Delinquencies

None.

 

Item 14.

Material Modifications to the Rights of Security Holders and Use of Proceeds

None.

 

Item 15.

Controls and Procedures

Disclosure Controls and Procedures

We carried out an evaluation under the supervision and with the participation of our management, including Koichi Miyata,Jun Ohta, our President and Representative Director,Group Chief Executive Officer, and Jun Ohta,Toru Nakashima, our Director,Senior Managing Corporate Executive Officer and Group Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934) at March 31, 2016.2019. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable, not absolute, assurance of achieving their control objectives. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Based upon the evaluation referred to above, Mr. MiyataOhta and Mr. OhtaNakashima concluded that the design and operation of our disclosure controls and procedures at March 31, 20162019 were effective to provide reasonable assurance that information required to be disclosed in the reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.

Management’s Annual Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934. Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with IFRS. Our internal control over financial reporting includes those policies and procedures that:

 

 (i)

pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets;

 

 (ii)

provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with IFRS, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and

 

 (iii)

provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Our management evaluated the effectiveness of our internal control over financial reporting at March 31, 20162019 based on the criteria established in “Internal Control—Integrated Framework (2013)” issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on the evaluation, management has concluded that we maintained effective internal control over financial reporting at March 31, 2016.2019.

The effectiveness of our internal control over financial reporting at March 31, 20162019 has been audited by KPMG AZSA, our independent registered public accounting firm, as stated in their report appearing on page F-4.

Changes in Internal Control Over Financial Reporting

There have been no changes in our internal control over financial reporting that occurred during the period covered by this annual report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

Item 16A.

Audit Committee Financial Expert

Our board of corporate auditorsdirectors has determined that Mr. Satoshi ItohShozo Yamazaki is an “audit committee financial expert” as defined in Item 16A.16A of Form 20-F and is “independent” as defined in the listing standards of the NYSE. Mr. Itoh, an outside corporate auditor under the Companies Act, has spent most of his career auditing Japanese corporations as a certified public accountant and was a special professor at Chuo University Graduate School of International Accounting from April 2002 to March 2007.

 

Item 16B.

Code of Ethics

We have adopted a code of ethics, which is comprised of internal rules included in our business ethics and compliance manual, each of which applies to all our directors, officers and other employees.

Our business ethics are commonly applicable principles of Corporate Social Responsibility (“CSR”) in which observance of the compliance system is regarded as very important. Our compliance manual sets forth the necessity of adherence to our management philosophy and code of conduct by our directors, officers and other employees, and the roles and responsibilities of our employees, compliance officers, Compliance Division and others in the event of a breach of the compliance rules.

This manual was created to identify, and to promote compliance by our directors, officers and other employees with relevant laws and regulations in conjunction with our management philosophy and code of conduct and compliance rules. This manual also sets forth the procedures regarding the handling of conflicts of interest for our directors and the promotion of conduct that meets our management philosophy and code of conduct and compliance rules for employees. For a detailed discussion of our management philosophy and code of conduct, see “Item 4.B. Business Overview—Management Philosophy.”

A copy of the sections of our business ethics and compliance manual equivalent to the “code of ethics” (as defined in paragraph (b) of Item 16B.16B of Form 20-F) is attached as Exhibit 11 to this annual report.

There were no material changes to the code of ethicsour internal compliance rules during the fiscal year ended March 31, 2016.2019. No waivers of the business ethics and compliance manual have been granted to any of our directors, officers or other employees, during the fiscal year ended March 31, 2016.

2019.

Item 16C.

Principal Accountant Fees and Services

Fees for Services Provided by KPMG AZSA and its Affiliates

The aggregate fees billed by KPMG AZSA, our independent registered public accounting firm, and its affiliates, for the fiscal years ended March 31, 20162019 and 20152018 are presented in the following table:

 

  For the fiscal year ended
March 31,
   For the fiscal year ended
March 31,
 
  2016   2015   2019   2018 
  (In millions)   (In millions) 

Audit fees(1)

  ¥4,496    ¥4,087    ¥5,392   ¥5,275 

Audit-related fees(2)

   234     160     251    227 

Tax fees(3)

   208     151     104    190 

All other fees(4)

   4     12     33    90 
  

 

   

 

   

 

   

 

 

Total

  ¥4,942    ¥4,410    ¥5,780   ¥5,782 
  

 

   

 

   

 

   

 

 

 

(1)

Audit fees primarily include fees for the audit of our and our subsidiaries’ annual financial statements and fees for the services that are normally provided in connection with our statutory and regulatory filings.

(2)

Audit-related fees primarily include fees for attestation and related services that are not reported under audit fees.

(3)

Tax fees primarily include fees for tax compliance, assistance with preparation of tax return filings and tax advisory services.

(4)

All other fees primarily include fees for advisory services in relation to the examinationresearch for accounting policies in our branches.the practices of internal audit function among overseas financial institutions.

Pre-Approval Policies and Procedures

Pursuant to Rule 2-01(c)(7) of Regulation S-X, our board of corporate auditorsaudit committee pre-approves all engagements with KPMG AZSA and its affiliates. Under the policies and procedures established by our board of corporate auditors, SMFGaudit committee, the

Company and its subsidiaries must apply to our board of corporate auditorsaudit committee for pre-approval on either a periodic basis twice a year for services expected to be performed in the coming months or case-by-case basis before entering into the engagement with KPMG AZSA and its affiliates to perform audit and permitted non-audit services.

Pre-approval is granted by our board of corporate auditorsaudit committee prior to entering into the engagement. Additionally, if necessary, full-time corporate auditorsaudit committee members may consider any case-by-case application forpre-approval on behalf of our board of corporate auditorsaudit committee prior to the next scheduled boardaudit committee meeting. Suchpre-approvals made by full-time corporate auditorsaudit committee members are reported to our board of corporate auditorsaudit committee at the next scheduled boardaudit committee meeting.

Fees approved pursuant to the procedures described in paragraph 2-01(c)(7)(i)(C) of Regulation S-X, which provides for an exception to the general requirement for pre-approval in certain circumstances, were none for the fiscal years ended March 31, 20162019 and 2015.2018.

 

Item 16D.

Exemptions from the Listing Standards for the Audit Committee

We do not have an audit committee defined under the Securities Exchange Act of 1934. We are relying on the general exemption contained in Rule 10A-3(c)(3) under the Securities Exchange Act of 1934, which provides an exemption from the NYSE’s listing standards relating to audit committees for foreign companies that have a board of corporate auditors that meets the requirements set forth in Rule 10A-3(c)(3). Our reliance onRule 10A-3(c)(3) does not, in our opinion, materially adversely affect the ability of our board of corporate auditors to act independently and to satisfy the other requirements of Rule 10A-3.

Not applicable.

Item 16E.

Purchases of Equity Securities by the Issuer and Affiliated Purchasers

The following table sets forth purchases of our common stock by us and our affiliated purchasers during the fiscal year ended March 31, 2016:2019:

 

  Total number of
shares purchased(1)
  Average price
paid per share
  Total number of
shares purchased
as part of
publicly
announced plans
or programs
  Maximum
number of shares
that may yet be
purchased under
the plans
or programs
 

April 1 to April 30, 2015

  3,538   ¥4,801    —      —    

May 1 to May 31, 2015

  3,724    5,301    —      —    

June 1 to June 30, 2015

  4,053    5,527    —      —    

July 1 to July 31, 2015

  5,271    5,456    —      —    

August 1 to August 31, 2015

  3,510    5,424    —      —    

September 1 to September 30, 2015

  1,301    4,760    —      —    

October 1 to October 31, 2015

  2,070    4,752    —      —    

November 1 to November 30, 2015

  2,246    4,944    —      —    

December 1 to December 31, 2015

  6,085    4,636    —      —    

January 1 to January 31, 2016

  3,912    4,451    —      —    

February 1 to February 29, 2016

  1,587    3,524    —      —    

March 1 to March 31, 2016

  1,816    3,492    —      —    
 

 

 

  

 

 

  

 

 

  

 

 

 

Total

  39,113   ¥4,899    —      —    
 

 

 

  

 

 

  

 

 

  

 

 

 
  Total number of
shares purchased(1)
  Average price
paid per share
  Total number of
shares purchased
as part of

publicly
announced plans
or programs(2)
  Maximum
number of shares
that may yet be
purchased under
the plans
or programs(2)
 

April 1 to April 30, 2018

  1,276  ¥4,469   —     —   

May 1 to May 31, 2018

  5,370,292   4,643   5,368,500   14,631,500 

June 1 to June 30, 2018

  10,000,855   4,508   9,999,800   4,631,700 

July 1 to July 31, 2018

  2,344   4,313   —     —   

August 1 to August 31, 2018

  2,466   4,425   —     —   

September 1 to September 30, 2018

  1,997   4,422   —     —   

October 1 to October 31, 2018

  2,336   4,544   —     —   

November 1 to November 30, 2018

  1,507   4,355   —     —   

December 1 to December 31, 2018

  2,220   3,974   —     —   

January 1 to January 31, 2019

  1,713   3,792   —     —   

February 1 to February 28, 2019

  1,682   3,997   —     —   

March 1 to March 31, 2019

  1,840   3,942   —     —   
 

 

 

  

 

 

  

 

 

  

 

 

 

Total

  15,390,528  ¥4,555   15,368,300   —   
 

 

 

  

 

 

  

 

 

  

 

 

 

 

(1)

A total of 39,11322,228 shares were purchased other than through a publicly announced plan or program during the fiscal year ended March 31, 2016,2019, due to our purchases of shares constituting less than one unit from registered holders of such shares at the current market prices of those shares.

(2)

On May 14, 2018, we announced that our board of directors resolved to repurchase shares of our common stock and cancel all the repurchased shares. The resolution authorized the repurchase of up to the lesser of (i) an aggregate of 20,000,000 shares of our common stock and (ii) an aggregate of ¥70 billion between May 15, 2018 and July 31, 2018. On June 19, 2018, we completed the repurchase, acquiring 15,368,300 shares of our common stock for ¥70 billion in aggregate. We cancelled all of the repurchased shares on August 20, 2018.

On May 15, 2019, the Company’s board of directors resolved to repurchase shares of its common stock and cancel all the repurchased shares. The resolution authorized the repurchase of up to the lesser of (i) an aggregate

of 32,000,000 shares of its common stock and (ii) an aggregate of ¥100 billion between May 16, 2019 and August 30, 2019. The cancellation of the repurchased shares is scheduled on September 20, 2019. During May 2019, the Company entered into contracts to repurchase 5,922,400 shares of common stock for ¥23 billion in aggregate.

 

Item 16F.

Change in Registrant’s Certifying Accountant

None.

 

Item 16G.

Corporate Governance

Companies listed on the NYSE must comply with certain corporate governance standards provided under Section 303A of the NYSE Listed Company Manual. However, NYSE-listed companies that are foreign private issuers, including us, are permitted to follow home country practices in lieu of certain provisions of Section 303A if such foreign private issuers meet certain criteria. We rely on the exemption for home country practices concerning the listing of our ADSs on the NYSE. On May 12, 2016,

Under the Companies Act, we announced we had started preparationsare required to transform intohave a Companycorporate governance system with (i) a board of corporate auditors, (ii) an audit and supervisory committee, or (iii) three statutory committees: a nominating committee, an audit committee and a compensation committee. We have adopted a company with three Committees from the current Company with a Boardstatutory committees system of Corporate Auditors in order to further enhance our corporate governance framework. The transition is subject to approval by our ordinary general meeting of shareholders scheduled in June 2017.governance.

Foreign private issuers listed on the NYSE are required to provide to their U.S. investors a brief, general summary of the significant differences of corporate governance practices that differ from U.S. companies under NYSE listing standards. The following is a summary of the significant ways in which our corporate governance practices differ from NYSE standards followed by U.S. companies:

 

U.S. companies listed on the NYSE are required to have a majority of directors that meet the independence requirements under Section 303A of the NYSE’s Listed Company Manual. Under the Companies Act, we are required to have three statutory committees consisting of members of our board of directors, of which the majority must be outside directors. Currently, seven of our fifteen directors are outside directors who meet the requirements under the Companies Act.

U.S. companies listed on the NYSE are required to have an audit committee composed entirely of independent directors. Under the Companies Act, of Japan, we are required to have a corporate governance system based on (i) a board of corporate auditors, (ii) a nominating committee, an audit committee and a compensation committee,that consists of three or (iii) an audit and supervisory committee. We adopt a corporate governance system based on amore members of our board of corporate auditors. The basic functiondirectors, of which the majority must be outside directors. Currently, three of the board of corporate auditors is similar to that of independent directors, including those who arefive members of the

our audit committee of a NYSE-listed U.S. company, i.e., to monitor the performance of the directors and review and express opinions on the method of auditing by the independent registered public accounting firm and on such accounting firm’s audit reports for the protection of the company’s shareholders. Under the Companies Act, we are required to have at least half of our corporate auditors be outside corporate auditors who meet the independence requirements under the Companies Act. Currently, three of our six corporate auditors are outside corporate auditors that meet such independence requirements. In addition, none of the corporate auditors may at the same time be directors, managers or employees of the company or any of its subsidiaries, or accounting advisors or executive officers (shikkoyaku) of such subsidiaries. While the Companies Act does not require corporate auditors to have expertise in accounting or other special knowledge and experience, one of our corporate auditors is a certified public accountant in Japan. We rely on an exemption from the audit committee requirements imposed by Rule 10A-3 of the Securities Exchange Act of 1934, which is available to foreign private issuers with a board of auditors (or similar body) meeting specified criteria. With respect to our board of corporate auditors, the criteria that we meet include the following:

responsible, to the extent permitted by law, for the appointment, retention and supervision of the work of an independent registered public accounting firm engaged for the purpose of preparing or issuing an audit report or performing other audit, review or attestation services for us;

subject to procedures for the receipt, retention and treatment of complaints and the confidential, anonymous submission of concerns by employees regarding the status of our internal control system on accounting and financial reporting and internal and external audits;

each corporate auditor has the authority to engage independent counsel and other advisers if such engagement is necessary to carry out his or her duties; and

each corporate auditor has the ability to require us to pay any and all expenses necessary for carrying out his or her duties.

Under the Companies Act, companies that adopt a corporate governance system based on a board of corporate auditors, such as us, are not required to maintain directors that are outside directors whothat meet the independence requirements under the Companies Act. However, fiveOur audit committee satisfies the requirements of our fourteen directors are outside directors who meet such requirements.Rule 10A-3 under the Exchange Act, including the independence requirements thereunder.

 

A NYSE-listed U.S. company is required to have a nominating/corporate governance committee and a compensation committee, all of which must be composed entirely of independent directors. The members of the compensation committee must satisfy additional requirements set forth in Section 303A.02(a)(ii) of the NYSE Listed Company Manual. A compensation committee must also have the authority to, in its sole discretion, retain or obtain the advice of a compensation consultant, independent legal counsel or other adviser. This authority is subject to the committee’s consideration of certain criteria set forth in Section 303A.05(c) of the NYSE Listed Company Manual regarding the independence of the adviser. WhileUnder the Companies Act, we a company which has corporate auditors, are not required to establish a nominating committee orand a compensation committee, undereach of which consisting of at least three directors and of which the Companies Act, we voluntarily established similar committees, which have six and eightmajority of the members respectively,must be outside directors. Currently, five of whom on eachthe six members of our nominating committee and four of the six members of compensation committee are outside directors to advisewho meet the board of directors on these matters in order to ensure transparency and impartiality in matters of personnel decisions affecting the board of directors and directors’ compensation.

A NYSE-listed U.S. company must hold regularly scheduled executive sessions where participants are limited to non-management directors. Underrequirements under the Companies Act, Japanese corporations are not obliged to hold executive sessions where participants are limited to non-management directors.Act.

The Companies Act requires that the aggregate amount of remuneration to be paid to all directors and the aggregate amount of remuneration to be paid to all corporate auditors to be determined by a resolution of a general meeting of shareholders, unless their remuneration is provided for in the articles of incorporation. Based on the above resolution, the distribution of remuneration among directors is

broadly delegated to our board of directors, which takes into consideration the advisory opinion by the compensation committee, and the distribution of remuneration among corporate auditors is determined by consultation among our corporate auditors.

 

A NYSE-listed U.S. company must adopt a code of business conduct and ethics and must post the code on its website. While we are not required to adopt such code under Japanese law or the rules of stock exchanges in Japan on which we are listed, we maintain our code of conduct as our standard for corporate conduct to be observed by our directors, officers and employees.

exchanges in Japan on which we are listed, we maintain our code of conduct and ethics as our standard for corporate conduct to be observed by our directors, officers and employees.

 

A NYSE-listed U.S. company must adopt corporate governance guidelines and must post the guidelines on its website. While we are not required to adopt such guidelines under Japanese law, the rules of the stock exchanges in Japan on which we are listed, including the Tokyo Stock Exchange, require listed companies, including us, to comply with the principles of the Corporate Governance Code established by those stock exchanges and, in cases of noncompliance with some or all of the principles, to disclose the reasons for such noncompliance. In May 2015, weWe established the SMFG Corporate Governance Guideline, in consideration of the Corporate Governance Code, to present our basic views and guidelines on corporate governance and improve our corporate governance system. OurThe SMFG Corporate Governance Guideline is available on our website at http:https://www.smfg.co.jp.

A NYSE-listed U.S. company must hold regularly scheduled executive sessions where participants are limited to non-management directors. While we are not required to hold such sessions under the Companies Act, the SMFG Corporate Governance Guideline provides that our outside directors, who are neither executive directors, executive corporate officers or employees, will endeavor to exchange information and develop a shared awareness among them regarding matters relating to the corporate governance and business of SMBC Group from an independent and objective standpoint. The SMFG Corporate Governance Guideline further provides, as a concrete way of exchanging information and developing this shared awareness, that outside directors may hold meetings that only outside directors may attend, as necessary.

 

A NYSE-listed U.S. company must generally obtain shareholder approval with respect to any equity compensation plan, subject to limited exemptions. Under the Companies Act, companies with three statutory committees such as us are not required to obtain shareholder approval with respect to equity compensation plans. In this case, the compensation committee is required to establish policies in regard to the determination of Japan, the adoptioncompensation of anthe directors and corporate executive officers, including stock compensation plans that utilize restricted stock, and determines the compensation of the individual directors and corporate executive officers in accordance with such policies. For details of the equity compensation plan including stock option-based plans for directors and corporate auditors requires shareholder approval. In order to issue stock options, a public company such asintroduced by us, must obtain the approval of its board of directors, unless stock options are granted on preferential terms to the recipient, in which case it must obtain shareholder approval by a “special resolution” of a general meeting of shareholders. Under our articles of incorporation, the quorum for such a special resolution of our shareholders is at least one-third of the total number of voting rights of all of shareholders, and approval by at least two-thirds of the number of voting rights represented at the meeting is required.

We obtained shareholder approval at our June 2010 general meeting of shareholders to introduce stock compensation-type stock options to our directors and corporate auditors. Under the terms resolved at the meeting we may issue stock options to our directors and corporate auditors as part of their remuneration upon the approval of our board of directors unless stock options are issued on preferential terms to the recipient. For additional information, see “Item 6.E. Share Ownership.”

 

Item 16H.

Mine Safety Disclosure

Not applicable.

PART III

 

Item 17.

Financial Statements

We have responded to Item 18 in lieu of this item.

 

Item 18.

Financial Statements

The information required by this item is set forth in our consolidated financial statements starting on pagepage F-1 of this annual report.

 

Item 19.

Exhibits

We have filed the following documents as exhibits to this document:

 

Exhibit 1.1  Articles of Incorporation of Sumitomo Mitsui Financial Group, Inc., as amended on June  29, 2016
Exhibit 1.2Regulations of Board of Directors of Sumitomo Mitsui Financial Group, Inc., as amended on October 1, 2015
Exhibit 1.3Share Handling Regulations of Sumitomo Mitsui Financial Group, Inc., as amended on April 1, 2012,2017, incorporated by reference from our annual report on Form 20-F (Commission file number 001-34919) filed on July 23, 2012June 29, 2017
Exhibit 1.2Regulations of the Board of Directors of Sumitomo Mitsui Financial Group, Inc., as amended on June 29, 2017, incorporated by reference from our annual report onForm 20-F (Commission file number 001-34919) filed on June 29, 2017
Exhibit 1.3Share Handling Regulations of Sumitomo Mitsui Financial Group, Inc., as amended on June 29, 2017, incorporated by reference from our annual report on Form 20-F (Commission file number 001-34919) filed on June 29, 2017
Exhibit 2.1  Form of Deposit Agreement among the registrant, Citibank, N.A., as Depositary, and all owners and holders from time to time of American Depositary Shares issued thereunder, incorporated by reference from our registration statement on Form 20-F (Commission file number001-34919) filed on October 20, 2010
Exhibit 2.2Description of our common stock, incorporated by reference from “Item 10.B Memorandum and Articles of Incorporation” of this annual report
Exhibit 2.3Description of our American Depositary Shares, incorporated by reference from “Item  12.D American Depositary Shares” of our registration statement on Form 20-F (Commission file number 001-34919) filed on October 20, 2010
Exhibit 8  List of subsidiaries of Sumitomo Mitsui Financial Group, Inc., at March 31, 20162019
Exhibit 11  Code of Ethics of Sumitomo Mitsui Financial Group, Inc., as amended on June 22, 2018, incorporated by reference from our annual report on Form 20-F (File No.(Commission File number 001-34919) filed on July 29, 2011June 28, 2018
Exhibit 12.1  CEO Certification Required by Rule 13a-14(a) (17 CFR 240.13a-14(a))
Exhibit 12.2  CFO Certification Required by Rule 13a-14(a) (17 CFR 240.13a-14(a))
Exhibit 13.1  Certification Required by Rule 13a-14(b) (17 CFR 240.13a-14(b)) and Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. 1350)
Exhibit 13.2  Certification Required by Rule 13a-14(b) (17 CFR 240.13a-14(b)) and Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. 1350)
Exhibit 15.1  Consent of Independent Registered Public Accounting Firm
Exhibit 101. INSXBRL Instance Document
Exhibit 101. SCHXBRL Taxonomy Extension Schema

Exhibit 101. CALXBRL Taxonomy Extension Calculation Linkbase
Exhibit 101. DEFXBRL Taxonomy Extension Definition Linkbase
Exhibit 101. LABXBRL Taxonomy Extension Label Linkbase
Exhibit 101. PREXBRL Taxonomy Extension Presentation Linkbase

We have not included as exhibits certain instruments with respect to our long-term debt. The total amount of our long-term debt securities or that of our subsidiaries, authorized under any instrument does not exceed 10% of our total assets. We hereby agree to furnish to the SEC, upon its request, a copy of any instrument defining the rights of holders of our long-term debt or that of our subsidiaries for which consolidated or unconsolidated financial statements are required to be filed.

SIGNATURES

The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.

 

Sumitomo Mitsui Financial Group, Inc.
By:   /s/ Koichi MiyataJun Ohta
 Name: Koichi MiyataJun Ohta
 Title: President and Representative DirectorGroup Chief Executive Officer

Date: June 29, 201627, 2019

SELECTED STATISTICAL DATA

 

I.

Distribution of Assets, Liabilities and Equity; Interest Rates and Interest Differential

Average Statements of Financial Positions, Interest and Average Rates

The following tables show the average balances of our statement of financial positions items and related interest and average interest rates for the fiscal years ended March 31, 2016, 20152019, 2018 and 2014.2017. Average balances are generally based on a daily average. Weekly,month-end orquarter-end averages are used for certain average balances where it is not practical to obtain the applicable daily averages. The average balances determined by such methods are considered to be representative of our operations. The allocation of amounts between domestic and foreign is based on the location of the office.

 

                                                                                                                                                                                             
 For the fiscal year ended March 31,  For the fiscal year ended March 31, 
 2016 2015 2014  2019 2018 2017 
 Average
balance
 Interest
income
 Average
rate
 Average
balance
 Interest
income
 Average
rate
 Average
balance
 Interest
income
 Average
rate
  Average
balance
 Interest
income
 Average
rate
 Average
balance
 Interest
income
 Average
rate
 Average
balance
 Interest
income
 Average
rate
 
 (In millions, except percentages)  (In millions, except percentages) 

Interest-earning assets:

                  

Interest-earning deposits with other banks:

                  

Domestic offices

  ¥            768,976    ¥       4,771    0.62%    ¥       741,738    ¥       4,548    0.61%    ¥         609,023    ¥       2,807    0.46%   ¥       997,310  ¥       3,573  0.36%  ¥       848,242  ¥       4,536  0.53%  ¥       762,460  ¥       4,099  0.54% 

Foreign offices

  5,786,836    35,701    0.62%    5,892,983    37,348    0.63%    6,027,100    34,521    0.57%   4,696,278  100,225  2.13%  4,873,905  73,681  1.51%  4,617,409  41,671  0.90% 
 

 

  

 

   

 

  

 

   

 

  

 

   

 

  

 

   

 

  

 

   

 

  

 

  

Total

  6,555,812    40,472    0.62%    6,634,721    41,896    0.63%    6,636,123    37,328    0.56%   5,693,588  103,798  1.82%  5,722,147  78,217  1.37%  5,379,869  45,770  0.85% 
 

 

  

 

   

 

  

 

   

 

  

 

   

 

  

 

   

 

  

 

   

 

  

 

  

Call loans and bills bought:

         

Call loans and bills bought, reverse repurchase agreements and cash collateral on securities borrowed:

         

Domestic offices

  147,992    861    0.58%    226,409    1,177    0.52%    273,903    1,583    0.58%   8,829,374  14,879  0.17%  8,201,699  14,975  0.18%  7,519,895  12,618  0.17% 

Foreign offices

  967,442    20,967    2.17%    972,643    17,429    1.79%    1,154,049    16,559    1.43%   3,138,663  39,908  1.27%  2,952,589  44,408  1.50%  2,313,426  29,048  1.26% 
 

 

  

 

   

 

  

 

   

 

  

 

   

 

  

 

   

 

  

 

   

 

  

 

  

Total

  1,115,434    21,828    1.96%    1,199,052    18,606    1.55%    1,427,952    18,142    1.27%   11,968,037  54,787  0.46%  11,154,288  59,383  0.53%  9,833,321  41,666  0.42% 
 

 

  

 

   

 

  

 

   

 

  

 

   

 

  

 

   

 

  

 

   

 

  

 

  

Reverse repurchase agreements and cash collateral on securities borrowed:

         

Trading assets(1) and financial assets at fair value through profit or loss(2):

         

Domestic offices

  6,675,810    10,763    0.16%    4,766,205    7,875    0.17%    3,749,260    7,339    0.20%   4,110,955  20,240  0.49%  4,130,209  1,920  0.05%  4,417,478  8,751  0.20% 

Foreign offices

  741,623    11,248    1.52%    726,427    9,146    1.26%    419,274    7,631    1.82%   367,638  6,178  1.68%  176,888  2,857  1.62%  119,777  1,869  1.56% 
 

 

  

 

   

 

  

 

   

 

  

 

   

 

  

 

   

 

  

 

   

 

  

 

  

Total

  7,417,433    22,011    0.30%    5,492,632    17,021    0.31%    4,168,534    14,970    0.36%   4,478,593  26,418  0.59%  4,307,097  4,777  0.11%  4,537,255  10,620  0.23% 
 

 

  

 

   

 

  

 

   

 

  

 

   

 

  

 

   

 

  

 

   

 

  

 

  

Trading assets(1):

         

Domestic offices

  3,500,759    21,259    0.61%    3,284,505    24,313    0.74%    2,967,303    25,770    0.87%  

Foreign offices

  85,204    1,240    1.46%    84,006    1,661    1.98%    43,857    525    1.20%  
 

 

  

 

   

 

  

 

   

 

  

 

  

Total

  3,585,963    22,499    0.63%    3,368,511    25,974    0.77%    3,011,160    26,295    0.87%  
 

 

  

 

   

 

  

 

   

 

  

 

  

Financial assets at fair value through profit or loss(2):

         

Domestic offices

  1,629,644    4,425    0.27%    1,672,433    (4,373  (0.26%  1,788,442    16,534    0.92%  
 

 

  

 

   

 

  

 

   

 

  

 

  

Held-to-maturity investments(3):

         

Domestic offices

  2,964,539    12,880    0.43%    4,086,502    20,509    0.50%    5,238,921    30,303    0.58%  
 

 

  

 

   

 

  

 

   

 

  

 

  

Available-for-sale financial assets(3):

         

Investment securities(3):

         

Domestic offices

  10,878,176    38,701    0.36%    10,385,945    32,703    0.31%    12,119,698    35,539    0.29%   8,977,937  65,854  0.73%  10,584,200  47,297  0.45%  9,287,257  48,317  0.52% 

Foreign offices

  2,425,249    33,331    1.37%    2,250,294    29,282    1.30%    1,780,684    19,956    1.12%   4,258,283  87,061  2.04%  3,406,370  54,998  1.61%  2,945,084  39,031  1.33% 
 

 

  

 

   

 

  

 

   

 

  

 

   

 

  

 

   

 

  

 

   

 

  

 

  

Total

  13,303,425    72,032    0.54%    12,636,239    61,985    0.49%    13,900,382    55,495    0.40%   13,236,220  152,915  1.16%  13,990,570  102,295  0.73%  12,232,341  87,348  0.71% 
 

 

  

 

   

 

  

 

   

 

  

 

   

 

  

 

   

 

  

 

   

 

  

 

  

Loans and advances(4):

                  

Domestic offices

  63,177,259    1,091,538    1.73%    62,005,587    1,099,119    1.77%    61,524,516    1,138,102    1.85%   60,973,779  1,007,977  1.65%  68,551,116  1,093,584  1.60%  66,948,344  1,082,058  1.62% 

Foreign offices

  26,272,983    611,823    2.33%    23,292,666    523,485    2.25%    19,553,229    419,704    2.15%   29,646,844  1,086,873  3.67%  28,121,904  810,591  2.88%  25,298,515  643,419  2.54% 
 

 

  

 

   

 

  

 

   

 

  

 

   

 

  

 

   

 

  

 

   

 

  

 

  

Total

  89,450,242    1,703,361    1.90%    85,298,253    1,622,604    1.90%    81,077,745    1,557,806    1.92%   90,620,623  2,094,850  2.31%  96,673,020  1,904,175  1.97%  92,246,859  1,725,477  1.87% 
 

 

  

 

   

 

  

 

   

 

  

 

   

 

  

 

   

 

  

 

   

 

  

 

  

Total interest-earning assets:

                  

Domestic offices

  89,743,155    1,185,198    1.32%    87,169,324    1,185,871    1.36%    88,271,066    1,257,977    1.43%   83,889,355  1,112,523  1.33%  92,315,466  1,162,312  1.26%  88,935,434  1,155,843  1.30% 

Foreign offices

  36,279,337    714,310    1.97%    33,219,019    618,351    1.86%    28,978,193    498,896    1.72%   42,107,706  1,320,245  3.14%  39,531,656  986,535  2.50%  35,294,211  755,038  2.14% 
 

 

  

 

   

 

  

 

   

 

  

 

   

 

  

 

   

 

  

 

   

 

  

 

  

Total

  126,022,492    ¥1,899,508    1.51%    120,388,343    ¥1,804,222    1.50%    117,249,259    ¥1,756,873    1.50%   125,997,061  ¥2,432,768  1.93%  131,847,122  ¥2,148,847  1.63%  124,229,645  ¥1,910,881  1.54% 
 

 

  

 

   

 

  

 

   

 

  

 

   

 

  

 

   

 

  

 

   

 

  

 

  

Non-interest-earning assets:

                  

Cash and due from banks

  32,203,057      24,523,995      13,653,126     49,068,465    47,107,953    37,551,682   

Other non-interest-earning assets

  20,359,043      19,075,392      15,647,012     19,893,981    21,130,470    20,498,864   

Allowance for loan losses

  (778,386    (873,853    (1,157,839   (644,019   (653,162   (676,296  
 

 

    

 

    

 

    

 

    

 

    

 

   

Total non-interest-earning assets

  51,783,714      42,725,534      28,142,299     68,318,427    67,585,261    57,374,250   
 

 

    

 

    

 

    

 

    

 

    

 

   

Total assets

  ¥177,806,206      ¥163,113,877      ¥145,391,558     ¥194,315,488    ¥199,432,383    ¥181,603,895   
 

 

    

 

    

 

    

 

    

 

    

 

   

Total assets attributable to foreign offices

  24.5    23.6    22.3   25.5   23.9   23.4  

                                                                                                                                                                                             
  For the fiscal year ended March 31, 
  2016  2015  2014 
  Average
balance
  Interest
expense
  Average
rate
  Average
balance
  Interest
expense
  Average
rate
  Average
balance
  Interest
expense
  Average
rate
 
  (In millions, except percentages) 

Interest-bearing liabilities:

         

Deposits:

         

Domestic offices

  ¥       78,458,170    ¥     48,032    0.06%    ¥  74,397,836    ¥     49,356    0.07%    ¥     72,376,165    ¥     48,446    0.07%  

Foreign offices

  22,838,530    154,280    0.68%    21,263,919    116,211    0.55%    17,014,587    91,944    0.54%  
 

 

 

  

 

 

   

 

 

  

 

 

   

 

 

  

 

 

  

Total

  101,296,700    202,312    0.20%    95,661,755    165,567    0.17%    89,390,752    140,390    0.16%  
 

 

 

  

 

 

   

 

 

  

 

 

   

 

 

  

 

 

  

Call money and bills sold:

         

Domestic offices

  2,199,407    1,524    0.07%    2,040,724    1,504    0.07%    1,497,244    1,222    0.08%  

Foreign offices

  663,310    4,059    0.61%    877,127    2,510    0.29%    651,839    2,261    0.35%  
 

 

 

  

 

 

   

 

 

  

 

 

   

 

 

  

 

 

  

Total

  2,862,717    5,583    0.20%    2,917,851    4,014    0.14%    2,149,083    3,483    0.16%  
 

 

 

  

 

 

   

 

 

  

 

 

   

 

 

  

 

 

  

Repurchase agreements and cash collateral on securities lent:

         

Domestic offices

  7,172,312    8,582    0.12%    5,584,584    6,091    0.11%    4,167,460    4,558    0.11%  

Foreign offices

  2,009,593    6,523    0.32%    1,455,125    3,829    0.26%    990,721    2,989    0.30%  
 

 

 

  

 

 

   

 

 

  

 

 

   

 

 

  

 

 

  

Total

  9,181,905    15,105    0.16%    7,039,709    9,920    0.14%    5,158,181    7,547    0.15%  
 

 

 

  

 

 

   

 

 

  

 

 

   

 

 

  

 

 

  

Trading liabilities(1):

         

Domestic offices

  2,243,856    17,241    0.77%    2,197,851    19,634    0.89%    1,916,419    20,341    1.06%  

Foreign offices

  25,565    483    1.89%    27,840    830    2.98%    9,123    120    1.32%  
 

 

 

  

 

 

   

 

 

  

 

 

   

 

 

  

 

 

  

Total

  2,269,421    17,724    0.78%    2,225,691    20,464    0.92%    1,925,542    20,461    1.06%  
 

 

 

  

 

 

   

 

 

  

 

 

   

 

 

  

 

 

  

Borrowings:

         

Domestic offices

  10,251,890    56,353    0.55%    9,170,288    54,915    0.60%    5,879,723    50,833    0.86%  

Foreign offices

  823,446    15,850    1.92%    790,516    16,122    2.04%    787,217    17,433    2.21%  
 

 

 

  

 

 

   

 

 

  

 

 

   

 

 

  

 

 

  

Total

  11,075,336    72,203    0.65%    9,960,804    71,037    0.71%    6,666,940    68,266    1.02%  
 

 

 

  

 

 

   

 

 

  

 

 

   

 

 

  

 

 

  

Debt securities in issue:

         

Domestic offices

  7,999,705    120,285    1.50%    7,000,273    109,960    1.57%    6,223,653    92,481    1.49%  

Foreign offices

  3,044,714    14,887    0.49%    2,819,687    9,829    0.35%    2,355,748    7,636    0.32%  
 

 

 

  

 

 

   

 

 

  

 

 

   

 

 

  

 

 

  

Total

  11,044,419    135,172    1.22%    9,819,960    119,789    1.22%    8,579,401    100,117    1.17%  
 

 

 

  

 

 

   

 

 

  

 

 

   

 

 

  

 

 

  

Other interest-bearing liabilities:

         

Domestic offices

  93,104    676    0.73%    96,873    731    0.75%    90,049    689    0.77%  

Foreign offices

  1,960    50    2.55%    3,025    49    1.62%    2,898    19    0.66%  
 

 

 

  

 

 

   

 

 

  

 

 

   

 

 

  

 

 

  

Total

  95,064    726    0.76%    99,898    780    0.78%    92,947    708    0.76%  
 

 

 

  

 

 

   

 

 

  

 

 

   

 

 

  

 

 

  

Total interest-bearing liabilities:

         

Domestic offices

  108,418,444    252,693    0.23%    100,488,429    242,191    0.24%    92,150,713    218,570    0.24%  

Foreign offices

  29,407,118    196,132    0.67%    27,237,239    149,380    0.55%    21,812,133    122,402    0.56%  
 

 

 

  

 

 

   

 

 

  

 

 

   

 

 

  

 

 

  

Total

  137,825,562    ¥   448,825    0.33%    127,725,668    ¥   391,571    0.31%    113,962,846    ¥   340,972    0.30%  
 

 

 

  

 

 

   

 

 

  

 

 

   

 

 

  

 

 

  

Non-interest-bearing liabilities:

         

Non-interest-bearing demand deposits

  14,715,274      13,440,486      12,772,713    

Other non-interest-bearing liabilities

  12,999,027      11,834,101      11,168,374    
 

 

 

    

 

 

    

 

 

   

Total non-interest-bearing liabilities

  27,714,301      25,274,587      23,941,087    
 

 

 

    

 

 

    

 

 

   

Total equity

  12,266,343      10,113,622      7,487,625    
 

 

 

    

 

 

    

 

 

   

Total equity and liabilities

  ¥177,806,206      ¥163,113,877      ¥145,391,558    
 

 

 

    

 

 

    

 

 

   

Total liabilities attributable to foreign offices

  20.5    20.0    18.1  

Net interest income and interest rate spread

   ¥1,450,683    1.18%     ¥1,412,651    1.19%     ¥1,415,901    1.20%  
  

 

 

  

 

 

   

 

 

  

 

 

   

 

 

  

 

 

 

Net interest income as a percentage of total interest-earning assets

    1.15%      1.17%      1.21%  
   

 

 

    

 

 

    

 

 

 

  For the fiscal year ended March 31, 
  2019  2018  2017 
  Average
balance
  Interest
expense
  Average
rate
  Average
balance
  Interest
expense
  Average
rate
  Average
balance
  Interest
expense
  Average
rate
 
  (In millions, except percentages) 

Interest-bearing liabilities:

         

Deposits:

         

Domestic offices

  ¥  83,791,727   ¥     59,234   0.07%   ¥  87,138,742   ¥     44,941   0.05%   ¥  82,738,015   ¥     35,881   0.04% 

Foreign offices

  27,283,476   542,131   1.99%   25,413,734   337,812   1.33%   23,383,002   213,147   0.91% 
 

 

 

  

 

 

   

 

 

  

 

 

   

 

 

  

 

 

  

Total

  111,075,203   601,365   0.54%   112,552,476   382,753   0.34%   106,121,017   249,028   0.23% 
 

 

 

  

 

 

   

 

 

  

 

 

   

 

 

  

 

 

  

Call money and bills sold, repurchase agreements and cash collateral on securities lent and other interest-bearing liabilities:

         

Domestic offices

  8,115,332   39,636   0.49%   10,964,003   17,600   0.16%   7,848,363   6,287   0.08% 

Foreign offices

  4,610,162   97,606   2.12%   5,030,541   53,646   1.07%   3,704,286   20,251   0.55% 
 

 

 

  

 

 

   

 

 

  

 

 

   

 

 

  

 

 

  

Total

  12,725,494   137,242   1.08%   15,994,544   71,246   0.45%   11,552,649   26,538   0.23% 
 

 

 

  

 

 

   

 

 

  

 

 

   

 

 

  

 

 

  

Trading liabilities(1):

         

Domestic offices

  1,764,784   23,772   1.35%   2,038,711   6,086   0.30%   2,015,061   10,839   0.54% 

Foreign offices

  106,563   2,770   2.60%   77,691   1,922   2.47%   52,065   616   1.18% 
 

 

 

  

 

 

   

 

 

  

 

 

   

 

 

  

 

 

  

Total

  1,871,347   26,542   1.42%   2,116,402   8,008   0.38%   2,067,126   11,455   0.55% 
 

 

 

  

 

 

   

 

 

  

 

 

   

 

 

  

 

 

  

Borrowings:

         

Domestic offices

  10,787,234   73,299   0.68%   11,331,752   61,460   0.54%   8,113,368   58,772   0.72% 

Foreign offices

  977,662   33,934   3.47%   983,616   27,736   2.82%   847,353   21,063   2.49% 
 

 

 

  

 

 

   

 

 

  

 

 

   

 

 

  

 

 

  

Total

  11,764,896   107,233   0.91%   12,315,368   89,196   0.72%   8,960,721   79,835   0.89% 
 

 

 

  

 

 

   

 

 

  

 

 

   

 

 

  

 

 

  

Debt securities in issue:

         

Domestic offices

  9,880,220   203,423   2.06%   9,298,368   166,769   1.79%   8,320,124   130,613   1.57% 

Foreign offices

  2,698,608   52,612   1.95%   2,180,438   24,005   1.10%   2,193,406   16,324   0.74% 
 

 

 

  

 

 

   

 

 

  

 

 

   

 

 

  

 

 

  

Total

  12,578,828   256,035   2.04%   11,478,806   190,774   1.66%   10,513,530   146,937   1.40% 
 

 

 

  

 

 

   

 

 

  

 

 

   

 

 

  

 

 

  

Total interest-bearing liabilities:

         

Domestic offices

  114,339,297   399,364   0.35%   120,771,576   296,856   0.25%   109,034,931   242,392   0.22% 

Foreign offices

  35,676,471   729,053   2.04%   33,686,020   445,121   1.32%   30,180,112   271,401   0.90% 
 

 

 

  

 

 

   

 

 

  

 

 

   

 

 

  

 

 

  

Total

  150,015,768   ¥1,128,417   0.75%   154,457,596   ¥   741,977   0.48%   139,215,043   ¥   513,793   0.37% 
 

 

 

  

 

 

   

 

 

  

 

 

   

 

 

  

 

 

  

Non-interest-bearing liabilities:

         

Non-interest-bearing demand deposits

  21,058,921     19,997,470     17,736,696   

Othernon-interest-bearing liabilities

  11,429,942     11,490,957     12,230,267   
 

 

 

    

 

 

    

 

 

   

Totalnon-interest-bearing liabilities

  32,488,863     31,488,427     29,966,963   
 

 

 

    

 

 

    

 

 

   

Total equity

  11,810,857     13,486,360     12,421,889   
 

 

 

    

 

 

    

 

 

   

Total equity and liabilities

  ¥194,315,488     ¥199,432,383     ¥181,603,895   
 

 

 

    

 

 

    

 

 

   

Total liabilities attributable to foreign offices

  21.8    20.2    20.2  

Net interest income and interest rate spread

   ¥1,304,351   1.18%    ¥1,406,870   1.15%    ¥1,397,088   1.17% 
  

 

 

  

 

 

   

 

 

  

 

 

   

 

 

  

 

 

 

Net interest income as a percentage of total interest-earning assets

    1.04%     1.07%     1.12% 
   

 

 

    

 

 

    

 

 

 

 

(1)

The net amount of interest income on trading assets and interest expense on trading liabilities is reported as net trading income in our consolidated income statement.

(2)

Interest income on financial assets at fair value through profit or loss is reported in net income from financial assets at fair value through profit or loss in our consolidated income statement.

(3)

Taxable investment securities andnon-taxable investment securities are not disclosed separately because the aggregate effect of these average balances and interest income would not be material. In addition, the yields ontax-exempt obligations have not been calculated on a tax equivalent basis because the effect of such calculation would not be material.

(4)

Loans and advances include impaired loans and advances. The amortized portion of net loan origination fees is included in interest income on loans and advances.

Analysis of Net Interest Income

The following tables show the changes to our net interest income attributable to changes in the volume and changes in the rates for the fiscal year ended March 31, 20162019 compared to the fiscal year ended March 31, 20152018 and for the fiscal year ended March 31, 20152018 compared to the fiscal year ended March 31, 2014.2017.

Changes attributable to the combined impact of changes in the rates and the volume have been allocated proportionately to the changes in the volume and changes in the rates.

 

 Fiscal year ended March 31, 2016
compared to
fiscal year ended March 31, 2015
Increase / (decrease)
 Fiscal year ended March 31, 2015
compared to
fiscal year ended March 31, 2014
Increase / (decrease)
   Fiscal year ended March 31, 2019
compared to
fiscal year ended March 31, 2018
Increase / (decrease)
 Fiscal year ended March 31, 2018
compared to
fiscal year ended March 31, 2017
Increase / (decrease)
 
 Volume Rate Net change Volume Rate Net change   Volume Rate Net change Volume Rate Net change 
 (In millions)   (In millions) 

Interest income:

             

Interest-earning deposits with other banks:

             

Domestic offices

 ¥168   ¥55   ¥223   ¥690   ¥1,051   ¥1,741    ¥700  ¥(1,663 ¥(963 ¥456  ¥(19 ¥437 

Foreign offices

  (663  (984  (1,647  (779  3,606    2,827     (2,772 29,316  26,544  2,427  29,583  32,010 
 

 

  

 

  

 

  

 

  

 

  

 

   

 

  

 

  

 

  

 

  

 

  

 

 

Total

  (495  (929  (1,424  (89  4,657    4,568     (2,072 27,653  25,581  2,883  29,564  32,447 
 

 

  

 

  

 

  

 

  

 

  

 

   

 

  

 

  

 

  

 

  

 

  

 

 

Call loans and bills bought:

      

Call loans and bills bought, reverse repurchase agreements and cash collateral on securities borrowed:

       

Domestic offices

  (443  127    (316  (258  (148  (406   1,093  (1,189 (96 1,200  1,157  2,357 

Foreign offices

  (94  3,632    3,538    (2,845  3,715    870     2,666  (7,166 (4,500 8,961  6,399  15,360 
 

 

  

 

  

 

  

 

  

 

  

 

   

 

  

 

  

 

  

 

  

 

  

 

 

Total

  (537  3,759    3,222    (3,103  3,567    464     3,759  (8,355 (4,596 10,161  7,556  17,717 
 

 

  

 

  

 

  

 

  

 

  

 

   

 

  

 

  

 

  

 

  

 

  

 

 

Reverse repurchase agreements and cash collateral on securities borrowed:

      

Trading assets(1) and financial assets at fair value through profit or loss(2):

       

Domestic offices

  3,080    (192  2,888    1,837    (1,301  536     (10 18,330  18,320  (540 (6,291 (6,831

Foreign offices

  195    1,907    2,102    4,379    (2,864  1,515     3,201  120  3,321  923  65  988 
 

 

  

 

  

 

  

 

  

 

  

 

   

 

  

 

  

 

  

 

  

 

  

 

 

Total

  3,275    1,715    4,990    6,216    (4,165  2,051     3,191  18,450  21,641  383  (6,226 (5,843
 

 

  

 

  

 

  

 

  

 

  

 

   

 

  

 

  

 

  

 

  

 

  

 

 

Trading assets(1):

      

Domestic offices

  1,524    (4,578  (3,054  2,588    (4,045  (1,457

Foreign offices

  23    (444  (421  665    471    1,136  
 

 

  

 

  

 

  

 

  

 

  

 

 

Total

  1,547    (5,022  (3,475  3,253    (3,574  (321
 

 

  

 

  

 

  

 

  

 

  

 

 

Financial assets at fair value through profit or loss(2):

      

Domestic offices

  (108  8,906    8,798    (1,001  (19,906  (20,907
 

 

  

 

  

 

  

 

  

 

  

 

 

Held-to-maturity investments:

      

Domestic offices

  (5,090  (2,539  (7,629  (6,117  (3,677  (9,794
 

 

  

 

  

 

  

 

  

 

  

 

 

Available-for-sale financial assets:

      

Investment securities:

       

Domestic offices

  1,582    4,416    5,998    (5,262  2,426    (2,836   (8,110 26,667  18,557  6,282  (7,302 (1,020

Foreign offices

  2,347    1,702    4,049    5,785    3,541    9,326     15,487  16,576  32,063  6,686  9,281  15,967 
 

 

  

 

  

 

  

 

  

 

  

 

   

 

  

 

  

 

  

 

  

 

  

 

 

Total

  3,929    6,118    10,047    523    5,967    6,490     7,377  43,243  50,620  12,968  1,979  14,947 
 

 

  

 

  

 

  

 

  

 

  

 

   

 

  

 

  

 

  

 

  

 

  

 

 

Loans and advances:

             

Domestic offices

  20,525    (28,106  (7,581  8,841    (47,824  (38,983   (124,191 38,584  (85,607 25,753  (14,227 11,526 

Foreign offices

  68,923    19,415    88,338    83,406    20,375    103,781     45,907  230,375  276,282  76,079  91,093  167,172 
 

 

  

 

  

 

  

 

  

 

  

 

   

 

  

 

  

 

  

 

  

 

  

 

 

Total

  89,448    (8,691  80,757    92,247    (27,449  64,798     (78,284 268,959  190,675  101,832  76,866  178,698 
 

 

  

 

  

 

  

 

  

 

  

 

   

 

  

 

  

 

  

 

  

 

  

 

 

Total interest income:

             

Domestic offices

  21,238    (21,911  (673  1,318    (73,424  (72,106   (130,518 80,729  (49,789 33,151  (26,682 6,469 

Foreign offices

  70,731    25,228        95,959      90,611        28,844      119,455     64,489  269,221  333,710  95,076  136,421  231,497 
 

 

  

 

  

 

  

 

  

 

  

 

   

 

  

 

  

 

  

 

  

 

  

 

 

Total

 ¥91,969   ¥3,317   ¥95,286   ¥91,929   ¥(44,580 ¥47,349    ¥(66,029 ¥349,950  ¥283,921  ¥128,227  ¥109,739  ¥237,966 
 

 

  

 

  

 

  

 

  

 

  

 

   

 

  

 

  

 

  

 

  

 

  

 

 

  Fiscal year ended March 31, 2016
compared to
fiscal year ended March 31, 2015
Increase / (decrease)
  Fiscal year ended March 31, 2015
compared to
fiscal year ended March 31, 2014
Increase / (decrease)
 
  Volume  Rate  Net change  Volume  Rate  Net change 
  (In millions) 

Interest expense:

      

Deposits:

      

Domestic offices

 ¥2,730   ¥(4,054 ¥(1,324 ¥1,415   ¥(505 ¥910  

Foreign offices

  9,149    28,920    38,069    23,342    925    24,267  
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Total

  11,879    24,866      36,745      24,757    420    25,177  
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Call money and bills sold:

      

Domestic offices

  111    (91  20    394    (112  282  

Foreign offices

  (744  2,293    1,549    698    (449  249  
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Total

  (633  2,202    1,569    1,092    (561  531  
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Repurchase agreements and cash collateral on securities lent:

      

Domestic offices

  1,867    624    2,491    1,559    (26  1,533  

Foreign offices

  1,649    1,045    2,694    1,249    (409  840  
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Total

  3,516    1,669    5,185    2,808    (435  2,373  
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Trading liabilities(1):

      

Domestic offices

  402    (2,795  (2,393  2,754    (3,461  (707

Foreign offices

  (63  (284  (347  440    270    710  
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Total

  339    (3,079  (2,740  3,194    (3,191  3  
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Borrowings:

      

Domestic offices

  6,173    (4,735  1,438    22,744    (18,662  4,082  

Foreign offices

  655    (927  (272  73    (1,384  (1,311
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Total

  6,828    (5,662  1,166    22,817    (20,046  2,771  
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Debt securities in issue:

      

Domestic offices

  15,158    (4,833  10,325    12,006    5,473    17,479  

Foreign offices

  840    4,218    5,058    1,579    614    2,193  
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Total

  15,998    (615  15,383    13,585    6,087    19,672  
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Other interest-bearing liabilities:

      

Domestic offices

  (28  (27  (55  52    (10  42  

Foreign offices

  (21  22    1    1    29    30  
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Total

  (49  (5  (54  53    19    72  
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Total interest expense:

      

Domestic offices

  26,413    (15,911  10,502    40,924    (17,303  23,621  

Foreign offices

  11,465    35,287    46,752    27,382    (404  26,978  
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Total

 ¥37,878   ¥19,376   ¥57,254   ¥68,306   ¥(17,707 ¥50,599  
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Net interest income:

      

Domestic offices

 ¥(5,175 ¥(6,000 ¥(11,175 ¥(39,606 ¥(56,121 ¥(95,727

Foreign offices

  59,266    (10,059      49,207    63,229    29,248        92,477  
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Total

 ¥54,091   ¥(16,059 ¥38,032   ¥23,623   ¥  (26,873 ¥(3,250
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

   Fiscal year ended March 31, 2019
compared to
fiscal year ended March 31, 2018
Increase / (decrease)
  Fiscal year ended March 31, 2018
compared to
fiscal year ended March 31, 2017
Increase / (decrease)
 
   Volume  Rate  Net change  Volume  Rate  Net change 
   (In millions) 

Interest expense:

       

Deposits:

       

Domestic offices

  ¥(1,732 ¥16,025  ¥14,293  ¥1,837  ¥7,223  ¥9,060 

Foreign offices

   26,461   177,858   204,319   19,830   104,835   124,665 
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Total

   24,729   193,883   218,612   21,667   112,058   133,725 
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Call money and bills sold, repurchase agreements and cash collateral on securities lent and other interest-bearing liabilities:

       

Domestic offices

   (5,610  27,646   22,036   3,201   8,112   11,313 

Foreign offices

   (4,844  48,804   43,960   9,189   24,206   33,395 
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Total

   (10,454  76,450   65,996   12,390   32,318   44,708 
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Trading liabilities(1):

       

Domestic offices

   (928  18,614   17,686   126   (4,879  (4,753

Foreign offices

   746   102   848   405   901   1,306 
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Total

   (182  18,716   18,534   531   (3,978  (3,447
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Borrowings:

       

Domestic offices

   (3,060  14,899   11,839   19,619   (16,931  2,688 

Foreign offices

   (169  6,367   6,198   3,639   3,034   6,673 
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Total

   (3,229  21,266   18,037   23,258   (13,897  9,361 
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Debt securities in issue:

       

Domestic offices

   10,876   25,778   36,654   16,340   19,816   36,156 

Foreign offices

   6,736   21,871   28,607   (97  7,778   7,681 
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Total

   17,612   47,649   65,261   16,243   27,594   43,837 
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Total interest expense:

       

Domestic offices

   (454  102,962   102,508   41,123   13,341   54,464 

Foreign offices

   28,930   255,002   283,932   32,966   140,754   173,720 
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Total

  ¥28,476  ¥357,964  ¥386,440  ¥74,089  ¥154,095  ¥228,184 
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Net interest income:

       

Domestic offices

  ¥(130,064 ¥(22,233 ¥(152,297 ¥(7,972 ¥(40,023 ¥(47,995

Foreign offices

   35,559   14,219   49,778   62,110   (4,333  57,777 
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Total

  ¥(94,505 ¥(8,014 ¥(102,519 ¥54,138  ¥(44,356 ¥9,782 
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

 

(1)

The net amount of interest income on trading assets and interest expense on trading liabilities is reported as net trading income in our consolidated income statement.

(2)

Interest income on financial assets at fair value through profit or loss is reported in net income from financial assets at fair value through profit or loss in our consolidated income statement.

II.

Investment Portfolio

The information as to the value of debt instruments at amortized cost and debt instruments at fair value through other comprehensive income at March 31, 2019, andheld-to-maturity investments andavailable-for-sale financial assets at March 31, 2016, 20152018 and 20142017 is presented on “Item 5.A. Operating Results—Financial Condition—Investment Securities.”

The following table shows the book values, maturities and weighted average yields of held-to-maturity investmentsdebt instruments at amortized cost and available-for-sale financial assets, excluding equitydebt instruments at fair value through other comprehensive income at March 31, 2016.2019. Weighted average yields are calculated based on amortized cost. Yields ontax-exempt obligations have not been calculated on a tax equivalent basis because the effect of such a calculation would not be material.

 

  Not later than
one year
  Later than one year
and not later than
five years
  Later than five years
and not later than
ten years
  Later than
ten years
  Total 
  Amount  Yield  Amount  Yield  Amount  Yield  Amount  Yield  Amount  Yield 
  (In millions, except percentages) 

Held-to-maturity investments:

          

Domestic:

          

Japanese government bonds

 ¥1,080,472    0.43 ¥1,161,019    0.32 ¥—      —     ¥—      —     ¥2,241,491    0.37

Japanese municipal bonds

  13,361    0.35  7,488    0.11  —      —      —      —      20,849    0.27

Japanese corporate bonds

  —      —      5,202    0.25  —      —      —      —      5,202    0.25
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

  

Total domestic

  1,093,833    0.43  1,173,709    0.32  —      —      —      —      2,267,542    0.37
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

  

Foreign:

          

U.S. Treasury and other U.S. government agency bonds

  —      —      —      —      —      —      —      —      —      —    

Bonds issued by other governments and official institutions

  —      —      —      —      —      —      —      —      —      —    

Other debt instruments

  —      —      —      —      —      —      —      —      —      —    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

  

Total foreign

  —      —      —      —      —      —      —      —      —      —    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

  

Total

 ¥1,093,833    0.43 ¥1,173,709    0.32 ¥—      —     ¥—      —     ¥2,267,542    0.37
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

  

Available-for-sale financial assets:

          

Domestic:

          

Japanese government bonds

 ¥1,549,001    0.11 ¥4,714,941    0.05 ¥11,736    0.44 ¥252,897    0.55 ¥6,528,575    0.09

Japanese municipal bonds

  12,590    0.84  14,483    0.39  4,109    0.26  39    1.96  31,221    0.56

Japanese corporate bonds

  43,966    0.43  164,522    0.38  50,434    0.37  48,574    0.80  307,496    0.45
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

  

Total domestic

  1,605,557    0.12  4,893,946    0.07  66,279    0.37  301,510    0.59  6,867,292    0.11
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

  

Foreign:

          

U.S. Treasury and other U.S. government agency bonds

  507,831    0.41  918,533    0.98  819,766    1.65  —      —      2,246,130    1.10

Bonds issued by other governments and official institutions

  1,262,272    1.03  217,771    3.24  396,968    0.70  261,982    0.62  2,138,993    1.14

Mortgage-backed securities(1)

  —      —      —      —      5    2.42  984,516    3.05  984,521    3.05

Other debt instruments

  68,695    1.67  39,829    2.87  3,377    1.24  1,073    0.23  112,974    2.07
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

  

Total foreign

  1,838,798    0.88  1,176,133    1.46  1,220,116    1.34  1,247,571    2.54  5,482,618    1.48
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

  

Total

 ¥3,444,355    0.53 ¥6,070,079    0.34 ¥1,286,395    1.30 ¥1,549,081    2.16 ¥12,349,910    0.72
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

  

(1)Foreign mortgage-backed securities primarily consist of securities of Government National Mortgage Association, which are guaranteed by the U.S. government.
  Not later than
one year
  Later than
one year and
not later than
five years
  Later than
five years and
not later than
ten years
  Later than
ten years
  Total 
  Amount  Yield  Amount  Yield  Amount  Yield  Amount  Yield  Amount  Yield 
  (In millions, except percentages) 

Debt instruments at amortized cost:

          

Domestic:

          

Japanese government bonds

 ¥20,003   1.34 ¥260,243   0.04 ¥—     —    ¥—     —    ¥280,246   0.13

Japanese municipal bonds

  —     —     —     —     —     —     —     —     —     —   

Japanese corporate bonds

  —     —     —     —     —     —     —     —     —     —   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

  

Total domestic

  20,003   1.34  260,243   0.04  —     —     —     —     280,246   0.13
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

  

Foreign:

          

U.S. Treasury and other U.S. government agency bonds

  —     —     —     —     —     —     —     —     —     —   

Bonds issued by other governments and official institutions

  25,068   7.28  11,291   7.00  468   6.13  —     —     36,827   7.18

Other debt instruments

  1,841   6.52  —     —     —     —     —     —     1,841   6.52
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

  

Total foreign

  26,909   7.23  11,291   7.00  468   6.13  —     —     38,668   7.15
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

  

Total

 ¥46,912   4.72 ¥271,534   0.33 ¥468   6.13 ¥—     —    ¥318,914   0.98
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

  

Debt instruments at fair value through other comprehensive income:

          

Domestic:

          

Japanese government bonds

 ¥352,291   0.10 ¥3,760,226   (0.07%)  ¥530,926   0.00 ¥384,252   0.39 ¥5,027,695   (0.02%) 

Japanese municipal bonds

  —     —     11,088   0.09  88,067   0.15  9   2.00  99,164   0.15

Japanese corporate bonds

  5,704   0.11  72,842   0.06  45,261   0.20  205,171   0.65  328,978   0.45

Other debt instruments

  26   0.00  —     —     —     —     —     —     26   0.00
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

  

Total domestic

  358,021   0.10  3,844,156   (0.06%)   664,254   0.03  589,432   0.48  5,455,863   0.01
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

  

Foreign:

          

U.S. Treasury and other U.S. government agency bonds

  423,821   1.00  2,325,397   2.08  1,677,417   1.94  —     —     4,426,635   1.92

Bonds issued by other governments and official institutions

  1,381,944   1.31  260,572   2.86  327,176   0.61  151,715   0.55  2,121,407   1.34

Mortgage-backed securities

  —     —     —     —     197   2.80  1,043,790   3.38  1,043,987   3.38

Other debt instruments

  218,175   4.45  22,801   2.04  44,353   0.71  —     —     285,329   3.68
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

  

Total foreign

  2,023,940   1.59  2,608,770   2.15  2,049,143   1.71  1,195,505   3.03  7,877,358   2.00
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

  

Total

 ¥2,381,961   1.36 ¥6,452,926   0.83 ¥2,713,397   1.30 ¥1,784,937   2.20 ¥13,333,221   1.07
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

  

Excluding securities of the U.S. government and U.S. government agencies and corporations and Japanese government bonds, there are no investments in any individual issuers held in our investment portfolio which exceeded 10% of shareholders’ equity in the consolidated statement of financial position at March 31, 2016.2019.

III.

Loan Portfolio

The following table shows our outstanding loans and advances by the domicile and industry type of the borrowers at March 31, 2019, 2018, 2017, 2016 2015, 2014, 2013 and 2012.2015. The classification of loans and advances by industry is based on the industry segment loan classification as defined by the Bank of Japan (“BOJ”) for regulatory reporting purposes.

 

  At March 31,   At March 31, 
  2016 2015 2014 2013 2012   2019 2018 2017 2016 2015 
  (In millions)   (In millions) 

Domestic:

            

Manufacturing

  ¥8,298,576   ¥8,061,654   ¥8,018,568   ¥8,071,044   ¥8,462,004    ¥8,522,451  ¥7,961,620  ¥9,578,147  ¥8,298,576  ¥8,061,654 

Agriculture, forestry, fisheries and mining

   184,314    171,855    177,012    164,420    152,128     288,099  145,957  174,021  184,314  171,855 

Construction

   1,169,900    1,150,616    1,152,388    1,167,115    1,284,882     918,617  947,765  1,151,989  1,169,900  1,150,616 

Transportation, communications and public enterprises

   5,258,899    5,175,949    5,086,361    4,708,870    4,414,102     5,596,935  5,424,054  5,365,225  5,258,899  5,175,949 

Wholesale and retail

   5,548,103    5,664,385    5,505,570    5,388,032    5,480,393     5,281,596  5,288,767  5,721,005  5,548,103  5,664,385 

Finance and insurance

   2,684,865    2,869,967    2,537,347    2,715,862    2,170,776     3,129,666  2,777,862  2,844,546  2,684,865  2,869,967 

Real estate and goods rental and leasing

   9,587,757    8,766,724    8,117,000    8,145,769    7,982,741     10,126,531  9,017,664  10,101,846  9,587,757  8,766,724 

Services

   4,960,352    4,776,706    4,855,536    4,404,359    4,076,818     4,328,173  4,255,228  4,885,247  4,960,352  4,776,706 

Municipalities

   1,374,306    1,353,949    1,279,010    1,270,981    1,234,355     866,373  1,000,286  1,216,211  1,374,306  1,353,949 

Lease financing

   2,212,048    2,211,773    2,133,760    2,058,284    2,056,972     9,030  14,629  2,706,641  2,212,048  2,211,773 

Consumer(1)

   18,935,521    18,817,259    19,086,241    18,834,079    19,185,574     16,187,195  16,363,489  19,096,755  18,935,521  18,817,259 

Others

   2,989,278    3,211,240    3,159,438    3,341,636    4,155,960     4,601,499  4,633,306  5,178,461  2,989,278  3,211,240 
  

 

  

 

  

 

  

 

  

 

   

 

  

 

  

 

  

 

  

 

 

Total domestic

   63,203,919    62,232,077    61,108,231    60,270,451    60,656,705     59,856,165  57,830,627  68,020,094  63,203,919  62,232,077 
  

 

  

 

  

 

  

 

  

 

   

 

  

 

  

 

  

 

  

 

 

Foreign:

            

Public sector

   236,290    164,495    163,685    121,611    130,426     360,875  372,008  299,746  236,290  164,495 

Financial institutions

   4,067,764    3,880,655    3,450,482    2,500,624    2,012,751     5,382,130  4,496,646  4,588,001  4,067,764  3,880,655 

Commerce and industry

   20,451,545    20,010,729    16,435,047    13,502,283    10,364,685     23,285,374  21,023,885  21,041,905  20,451,545  20,010,729 

Lease financing

   357,072    308,128    267,394    208,099    191,966     344,958  357,660  404,658  357,072  308,128 

Others

   1,481,455    1,375,624    947,826    793,653    706,175     2,316,816  1,779,101  1,836,322  1,481,455  1,375,624 
  

 

  

 

  

 

  

 

  

 

   

 

  

 

  

 

  

 

  

 

 

Total foreign

   26,594,126    25,739,631    21,264,434    17,126,270    13,406,003     31,690,153  28,029,300  28,170,632  26,594,126  25,739,631 
  

 

  

 

  

 

  

 

  

 

   

 

  

 

  

 

  

 

  

 

 

Gross loans and advances

   89,798,045    87,971,708    82,372,665    77,396,721    74,062,708     91,546,318  85,859,927  96,190,726  89,798,045  87,971,708 

Adjust: Unearned income, unamortized premiums-net and deferred loan fees-net

   (212,957  (206,440  (177,018  (147,186  (144,731   (258,392 (239,181 (236,425 (212,957 (206,440

Less: Allowance for loan losses

   (722,717  (793,552  (950,665  (1,262,478  (1,381,164   (604,988 (491,676 (680,456 (722,717 (793,552
  

 

  

 

  

 

  

 

  

 

   

 

  

 

  

 

  

 

  

 

 

Net loans and advances

  ¥88,862,371   ¥86,971,716   ¥81,244,982   ¥75,987,057   ¥72,536,813  

Carrying amount

  ¥90,682,938  ¥85,129,070  ¥95,273,845  ¥88,862,371  ¥86,971,716 
  

 

  

 

  

 

  

 

  

 

   

 

  

 

  

 

  

 

  

 

 

 

(1)

The balance in Consumer mainly consists of housing loans. The housing loan balances amounted to ¥11,216,711 million, ¥11,482,678 million, ¥13,766,771 million, ¥13,984,755 million ¥14,087,453 million, ¥14,420,225 million, ¥14,520,154 million and ¥14,574,702¥14,087,453 million at March 31, 2019, 2018, 2017, 2016 and 2015, 2014, 2013 and 2012, respectively.

Maturities and Sensitivities of Loans and Advances to Changes in Interest Rates

The following table shows the maturities of loans and advances by the domicile and industry type of the borrower at March 31, 2016.2019.

 

 Maturity  Maturity 
 Not later than
one year
 Later than one
year and not later
than five years
 Later than five
years
 Total  Not later than
one year
 Later than one
year and not later
than five years
 Later than five
years
 Total 
 (In millions)  (In millions) 

Domestic:

        

Manufacturing

 ¥4,659,409   ¥2,798,987   ¥840,180   ¥8,298,576   ¥4,157,830  ¥3,049,729  ¥1,314,892  ¥8,522,451 

Agriculture, forestry, fisheries and mining

  41,078    104,579    38,657    184,314   46,529  59,089  182,481  288,099 

Construction

  663,794    377,251    128,855    1,169,900   462,442  351,693  104,482  918,617 

Transportation, communications and public enterprises

  1,436,061    2,797,106    1,025,732    5,258,899   2,177,290  2,057,239  1,362,406  5,596,935 

Wholesale and retail

  3,030,344    2,037,420    480,339    5,548,103   2,837,410  1,960,483  483,703  5,281,596 

Finance and insurance

  1,885,815    629,164    169,886    2,684,865   1,448,695  1,157,070  523,901  3,129,666 

Real estate and goods rental and leasing

  2,308,833    4,210,380    3,068,544    9,587,757   2,498,842  3,966,263  3,661,426  10,126,531 

Services

  1,757,837    1,946,431    1,256,084    4,960,352   1,205,824  1,907,297  1,215,052  4,328,173 

Municipalities

  561,606    472,629    340,071    1,374,306   316,348  357,461  192,564  866,373 

Lease financing

  718,585    1,275,154    218,309    2,212,048   650  2,655  5,725  9,030 

Consumer

  3,506,063    4,342,926    11,086,532    18,935,521   3,695,994  4,269,040  8,222,161  16,187,195 

Others

  534,104    750,080    1,705,094    2,989,278   1,944,552  1,047,688  1,609,259  4,601,499 
 

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

Total domestic

  21,103,529    21,742,107    20,358,283    63,203,919   20,792,406  20,185,707  18,878,052  59,856,165 
 

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

Foreign:

        

Public sector

  17,092    143,891    75,307    236,290   12,605  285,440  62,830  360,875 

Financial institutions

  1,731,437    1,805,642    530,685    4,067,764   2,245,524  2,579,025  557,581  5,382,130 

Commerce and industry

  6,316,998    9,501,993    4,632,554    20,451,545   7,660,193  10,704,134  4,921,047  23,285,374 

Lease financing

  62,349    175,748    118,975    357,072   67,154  211,860  65,944  344,958 

Others

  506,333    838,710    136,412    1,481,455   733,182  1,110,214  473,420  2,316,816 
 

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

Total foreign

  8,634,209    12,465,984    5,493,933    26,594,126   10,718,658  14,890,673  6,080,822  31,690,153 
 

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

Total

 ¥29,737,738   ¥34,208,091   ¥25,852,216   ¥89,798,045   ¥31,511,064  ¥35,076,380  ¥24,958,874  ¥91,546,318 
 

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

The above loans and advances due after one year which had predetermined interest rates and floating or adjustable interest rates at March 31, 20162019 are shown below:

 

   Domestic   Foreign   Total 
   (In millions) 

Predetermined rate

  ¥13,334,489    ¥2,308,422    ¥15,642,911  

Floating or adjustable rate

   28,765,901     15,651,495     44,417,396  
  

 

 

   

 

 

   

 

 

 

Total

  ¥42,100,390    ¥17,959,917    ¥60,060,307  
  

 

 

   

 

 

   

 

 

 

   Domestic   Foreign   Total 
   (In millions) 

Predetermined rate

  ¥11,965,651   ¥2,601,469   ¥14,567,120 

Floating or adjustable rate

   27,098,108    18,370,026    45,468,134 
  

 

 

   

 

 

   

 

 

 

Total

  ¥39,063,759   ¥20,971,495   ¥60,035,254 
  

 

 

   

 

 

   

 

 

 

Impaired Loans and Advances

Our credit risk elements analyzed by categories for loans and advances differ from those required by the U.S. Securities and Exchange Commission. Our impaired loans and advances are comprised of “potentially bankrupt, effectively bankrupt and bankrupt (loans and advances),” “past due three months or more (loans),” “restructured (loans)” and “other impaired (loans and advances).” “Potentially bankrupt, effectively bankrupt and bankrupt (loans and advances)” comprises of loans and advances to the borrowers that are perceived to have a high risk of falling into bankruptcy, may not have been legally or formally declared bankrupt but are essentially bankrupt, or have been legally or formally declared bankrupt. Loans classified as “past due three months or more

(loans)” represent those loans that are three months or more past due as to principal or interest, which are not included in “potentially bankrupt, effectively bankrupt and bankrupt (loans and advances).” The category “restructured (loans)” comprises of loans not included above for which the terms of the loans have been modified to grant concessions because of problems with the borrower. Examples of modifications to grant concessions include reductions of the original interest rate, deferrals of interest payments, deductions of the contractual repayment amounts and extensions of principal repayments such as the extension of the repayment date and the suspension of contracted repayments. “Other impaired (loans and advances)” represent impaired loans and advances, which are not included in “potentially bankrupt, effectively bankrupt and bankrupt (loans and advances),” “past due three months or more (loans),” or “restructured (loans),” but for which information about credit problems cause management to classify them as impaired loans and advances. All loans and advances for which management has serious doubts about the ability of the borrowers to comply in the near future with the repayment terms are included in impaired loans and advances.

An allowance is recorded if there is objective evidence of impairment and the carrying value of the loans and advances exceeds the present value of their estimated future cash flows discounted at the original effective interest rate. Cash receipts on impaired loans and advances are recorded as a credit to the balance of loans and advances on the statement of financial position. To the extent that cash receipts are different from expectations built into the calculation of the recoverable amount of the loans and advances, the amount of allowance for loan losses is revised. In accordance with IFRS, the accrual of interest as per the contractual terms is discontinued when loans and advances are determined to be impaired. Interest income recognized in the consolidated income statement on impaired loans and advances represents the accretion of the net present value of the written down amount due to the passage of time based on the original effective interest rate of the loans and advances.

The following table shows the distribution of impaired loans and advances by “potentially bankrupt, effectively bankrupt and bankrupt (loans and advances),” “past due three months or more (loans),” “restructured (loans),” and “other impaired (loans and advances)” at March 31, 2019, 2018, 2017, 2016 2015, 2014, 2013 and 20122015 by the domicile and industry type of the borrowers.

 

 At March 31,  At March 31, 
 2016 2015 2014 2013 2012  2019 2018 2017 2016 2015 
 (In millions)  (In millions) 

Potentially bankrupt, effectively bankrupt and bankrupt (loans and advances):

          

Domestic:

          

Manufacturing

 ¥119,318   ¥149,686   ¥183,257   ¥215,600   ¥187,982   ¥98,260  ¥62,322  ¥106,178  ¥119,318  ¥149,686 

Agriculture, forestry, fisheries and mining

  2,843    7,146    3,251    5,210    5,295   6,229  6,369  2,250  2,843  7,146 

Construction

  25,932    36,903    69,144    101,255    118,413   15,762  10,439  24,430  25,932  36,903 

Transportation, communications and public enterprises

  38,008    52,168    56,782    109,449    68,768   30,691  15,494  23,692  38,008  52,168 

Wholesale and retail

  125,241    156,753    208,491    232,779    225,399   74,865  74,332  104,472  125,241  156,753 

Finance and insurance

  8,302    9,551    13,378    15,822    13,350   8,266  3,021  4,135  8,302  9,551 

Real estate and goods rental and leasing

  133,324    198,714    291,665    449,163    499,485   29,999  32,634  126,179  133,324  198,714 

Services

  126,781    161,384    192,191    203,197    213,142   56,861  50,858  91,943  126,781  161,384 

Lease financing

  16,122    18,522    21,079    17,030    10,742    —     —    7,513  16,122  18,522 

Consumer

  213,931    223,464    238,563    270,060    312,181   159,375  157,221  194,721  213,931  223,464 

Others

  32,503    43,443    59,812    69,859    67,174   21,120  23,081  25,059  32,503  43,443 
 

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

Total domestic

  842,305    1,057,734    1,337,613    1,689,424    1,721,931   501,428  435,771  710,572  842,305  1,057,734 
 

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

Foreign:

          

Public sector

  31    14    14    14    14    —     —     —    31  14 

Financial institutions

  28    19,720    2,647    6,191    19,383   180  30  29  28  19,720 

Commerce and industry

  148,475    146,821    131,254    178,022    162,509   109,453  144,975  157,227  148,475  146,821 

Lease financing

  11,104    8,969    8,623    7,522    4,140    —     —    11,892  11,104  8,969 

Others

  5,682    6,152    4,566    2,271    3,019   24,409  22,383  23,890  5,682  6,152 
 

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

Total foreign

  165,320    181,676    147,104    194,020    189,065   134,042  167,388  193,038  165,320  181,676 
 

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

Total

  1,007,625    1,239,410    1,484,717    1,883,444    1,910,996   635,470  603,159  903,610  1,007,625  1,239,410 
 

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

Past due three months or more (loans):

          

Domestic

  21,861    23,586    25,959    27,102    32,069   24,781  21,649  20,808  21,861  23,586 

Foreign

  7,962    398    437    557    1,130   2,525   —    11,449  7,962  398 
 

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

Total

  29,823    23,984    26,396    27,659    33,199   27,306  21,649  32,257  29,823  23,984 
 

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

Restructured (loans):

          

Domestic

  164,035    144,628    247,351    337,494    390,060   127,316  136,582  155,100  164,035  144,628 

Foreign

  22,401    43,330    37,475    29,650    24,644   18,624  17,567  25,741  22,401  43,330 
 

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

Total

  186,436    187,958    284,826    367,144    414,704   145,940  154,149  180,841  186,436  187,958 
 

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

Other impaired (loans and advances):

          

Domestic

  126,211    140,858    152,873    204,775    255,615   66,285  93,175  103,777  126,211  140,858 

Foreign

  2,492    5,892    1    119    2,588   7,017  6,736  8,203  2,492  5,892 
 

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

Total

  128,703    146,750    152,874    204,894    258,203   73,302  99,911  111,980  128,703  146,750 
 

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

Gross impaired loans and advances

  1,352,587    1,598,102    1,948,813    2,483,141    2,617,102   882,018  878,868  1,228,688  1,352,587  1,598,102 
 

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

Less: Allowance for loan losses for impaired loans and advances

  (613,510  (699,207  (857,095  (1,144,130  (1,234,299 (354,448 (369,386 (532,451 (613,510 (699,207
 

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

Net impaired loans and advances

 ¥739,077   ¥898,895   ¥1,091,718   ¥1,339,011   ¥1,382,803   ¥527,570  ¥509,482  ¥696,237  ¥739,077  ¥898,895 
 

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

Interest Foregone on Impaired Loans and Advances

Interest income which would have been accrued at the original terms on domestic impaired loans and advances during the fiscal year ended March 31, 20162019 was ¥33.8¥20.4 billion, of which ¥19.0¥10.4 billion was included in profit or loss for the fiscal year then ended. Interest income which would have been accrued at the original terms on foreign impaired loans and advances during the fiscal year ended March 31, 20162019 was ¥3.1¥6.0 billion, of which ¥1.5¥3.9 billion was included in profit or loss for the fiscal year then ended.

Cross-border Outstanding

Cross-border outstandings are defined as loans, acceptances, interest-earning deposits with other banks, other interest-earning investments and any other monetary assets denominated in Japanese yen or othernon-local currencies. Local currency outstandings are netted out from cross-border outstandings. This cross-border disclosure is based on the reports to the BOJ required under Japanese foreign exchange-related laws. The following tables list the countrycountries for which cross-border outstandings exceeded 0.75% of consolidated total assets at March 31, 20162019, 2018 and 2015. There were no cross-border outstandings to borrowers in any foreign country which in total exceeded 0.75% of consolidated total assets at March 31, 2014.2017.

 

   At March 31, 2016 
   Public
institutions
   Banks   Others   Total   % of total
assets
  Undrawn
commitments
 
   (In millions, except percentages) 

United Kingdom

  ¥1,852    ¥556,271    ¥1,215,588    ¥1,773,711     0.98 ¥1,422,058  
   At March 31, 2019 
   Public
institutions
   Banks   Others   Total   % of total
assets
  Undrawn
commitments
 
   (In millions, except percentages) 

United Kingdom

  ¥9,498   ¥238,794   ¥1,449,225   ¥1,697,517    0.87 ¥975,850 

United States

  ¥406,416   ¥215,237   ¥1,317,859   ¥1,939,512    0.99 ¥343,973 
   At March 31, 2018 
   Public
institutions
   Banks   Others   Total   % of total
assets
  Undrawn
commitments
 
   (In millions, except percentages) 

United Kingdom

  ¥5,507   ¥222,918   ¥1,425,584   ¥1,654,009    0.86 ¥1,242,180 
   At March 31, 2017 
   Public
institutions
   Banks   Others   Total   % of total
assets
  Undrawn
commitments
 
   (In millions, except percentages) 

United Kingdom

  ¥4,403   ¥275,243   ¥1,451,955   ¥1,731,601    0.91 ¥1,560,865 

   At March 31, 2015 
   Public
institutions
   Banks   Others   Total   % of total
assets
  Undrawn
commitments
 
   (In millions, except percentages) 

United Kingdom

  ¥7,483    ¥775,915    ¥1,007,531    ¥1,790,929     0.99 ¥1,155,306  

Loan Concentrations

At March 31, 2016,2019, there were no concentrations of loans and advances to a single industry group of borrowers, as defined by the BOJ industry segment loan and advance classifications, which exceeded 10% of our consolidated total loans and advances, except for loans and advances in a category disclosed in the table of outstanding loans and advances above.

IV.

Summary of Loan Loss Experience

The following table shows an analysis of our loan loss experience by the borrowers’ domicile and industry type for the fiscal years ended March 31, 2019, 2018, 2017, 2016 2015, 2014, 2013 and 2012.2015.

 

  For the fiscal year ended March 31, 
  2016 2015 2014 2013 2012   For the fiscal year ended March 31, 
  (In millions, except percentages)   2019 2018 2017 2016 2015 
  (In millions, except percentages) 

Allowance for loan losses at beginning of period

  ¥793,552   ¥950,665   ¥1,262,478   ¥1,381,164   ¥1,587,133    ¥651,620  ¥680,456  ¥722,717  ¥793,552  ¥950,665 

Provision (credit) for loan losses

   118,750    79,552    (25,806  138,375    144,022  

Provision for loan losses

   122,927  126,623  141,457  118,750  79,552 

Charge-offs:

            

Domestic:

            

Manufacturing

   20,992    26,516    25,610    16,037    46,229     9,642  6,439  9,712  20,992  26,516 

Agriculture, forestry, fisheries and mining

   33    112    187    553    173     282  1,772  388  33  112 

Construction

   6,407    8,593    20,958    7,848    14,204     1,159  1,478  1,810  6,407  8,593 

Transportation, communications and public enterprises

   5,891    8,662    5,309    7,062    11,296     1,556  1,609  9,731  5,891  8,662 

Wholesale and retail

   14,824    27,357    27,944    18,062    64,492     10,315  10,998  13,293  14,824  27,357 

Finance and insurance

   423    1,117    533    354    679     96  121  16  423  1,117 

Real estate and goods rental and leasing

   21,017    54,003    73,025    36,003    61,683     4,291  12,947  6,246  21,017  54,003 

Services

   14,396    21,143    30,970    17,325    35,498     4,784  9,548  5,731  14,396  21,143 

Lease financing

   651    1,433    1,582    3,689    3,319     637  511  454  651  1,433 

Consumer

   87,969    88,795    93,616    127,804    64,329     104,748  112,265  102,383  87,969  88,795 

Others

   828    2,932    3,300    6,400    4,705     1,986  3,838  7,609  828  2,932 
  

 

  

 

  

 

  

 

  

 

   

 

  

 

  

 

  

 

  

 

 

Total domestic

   173,431    240,663    283,034    241,137    306,607     139,496 �� 161,526  157,373  173,431  240,663 
  

 

  

 

  

 

  

 

  

 

   

 

  

 

  

 

  

 

  

 

 

Foreign:

            

Financial institutions

   —      1,017    599    4,063    14,784     4,492   —     —     —    1,017 

Commerce and industry

   13,236    4,571    14,959    13,735    33,173     24,637  13,529  24,658  13,236  4,571 

Lease financing

   3    167    1,292    2,060    38     1,055  24  177  3  167 

Others

   6,979    3,478    2,797    3,203    623     10,574  9,981  8,300  6,979  3,478 
  

 

  

 

  

 

  

 

  

 

   

 

  

 

  

 

  

 

  

 

 

Total foreign

   20,218    9,233    19,647    23,061    48,618     40,758  23,534  33,135  20,218  9,233 
  

 

  

 

  

 

  

 

  

 

   

 

  

 

  

 

  

 

  

 

 

Total

   193,649    249,896    302,681    264,198    355,225     180,254  185,060  190,508  193,649  249,896 
  

 

  

 

  

 

  

 

  

 

   

 

  

 

  

 

  

 

  

 

 

Recoveries:

            

Domestic:

            

Manufacturing

   80    62    12    14    252     1  27  61  80  62 

Agriculture, forestry, fisheries and mining

   2   —    5   —     —   

Construction

   6    17    16    21    64     5  5  6  6  17 

Transportation, communications and public enterprises

   5    14    3    12    52     —    1  62  5  14 

Wholesale and retail

   45    72    19    22    328     —    28  86  45  72 

Finance and insurance

   2    1    —      19    3     —    1   —    2  1 

Real estate and goods rental and leasing

   55    47    20    19    283     —    2  1  55  47 

Services

   61    63    33    16    142     12  38  40  61  63 

Consumer

   9,223    9,234    9,186    9,976    3,453     9,739  9,535  9,571  9,223  9,234 

Others

   —      7    4    4    18     8  21  20   —    7 
  

 

  

 

  

 

  

 

  

 

   

 

  

 

  

 

  

 

  

 

 

Total domestic

   9,477    9,517    9,293    10,103    4,595     9,767  9,658  9,852  9,477  9,517 
  

 

  

 

  

 

  

 

  

 

   

 

  

 

  

 

  

 

  

 

 

Foreign:

            

Financial institutions

   109    —      25    2    3     —     —    15  109   —   

Commerce and industry

   335    14    3    18    187     560  17  5  335  14 

Others

   427    366    334    313    17     715  557  425  427  366 
  

 

  

 

  

 

  

 

  

 

   

 

  

 

  

 

  

 

  

 

 

Total foreign

   871    380    362    333    207     1,275  574  445  871  380 
  

 

  

 

  

 

  

 

  

 

   

 

  

 

  

 

  

 

  

 

 

Total

   10,348    9,897    9,655    10,436    4,802     11,042  10,232  10,297  10,348  9,897 
  

 

  

 

  

 

  

 

  

 

   

 

  

 

  

 

  

 

  

 

 

Net charge-offs

   183,301    239,999    293,026    253,762    350,423     169,212  174,828  180,211  183,301  239,999 

Others(1)

   (6,284  3,334    7,019    (3,299  432     (347 (140,575 (3,507 (6,284 3,334 
  

 

  

 

  

 

  

 

  

 

   

 

  

 

  

 

  

 

  

 

 

Allowance for loan losses at end of period

  ¥722,717   ¥793,552   ¥950,665   ¥1,262,478   ¥1,381,164    ¥604,988  ¥491,676  ¥680,456  ¥722,717  ¥793,552 
  

 

  

 

  

 

  

 

  

 

   

 

  

 

  

 

  

 

  

 

 

Ratio of net charge-offs to average loans outstanding during the period

   0.20  0.28  0.36  0.34  0.47   0.19 0.18 0.20 0.20 0.28

Allowance for loan losses applicable to foreign activities:

            

Balance at beginning of period

  ¥100,783   ¥73,030   ¥74,868   ¥87,344   ¥108,612    ¥153,167  ¥128,347  ¥134,664  ¥100,783  ¥73,030 
  

 

  

 

  

 

  

 

  

 

   

 

  

 

  

 

  

 

  

 

 

Balance at end of period

  ¥134,664   ¥100,783   ¥73,030   ¥74,868   ¥87,344    ¥155,114  ¥114,306  ¥128,347  ¥134,664  ¥100,783 
  

 

  

 

  

 

  

 

  

 

   

 

  

 

  

 

  

 

  

 

 

Provision for loan losses

  ¥60,002   ¥32,712   ¥10,462   ¥1,692   ¥30,675    ¥46,597  ¥19,872  ¥29,699  ¥60,002  ¥32,712 
  

 

  

 

  

 

  

 

  

 

   

 

  

 

  

 

  

 

  

 

 

 

(1)

Others mainly include foreign exchange translationsthe exclusion of the allowance for loans and advances made by KUBC and The Minato Bank, both of which had been our subsidiaries but became our equity-method associates, and the exclusion of the allowance for loans and advances made by SMFL which were reclassified as assets held for sale during the fiscal year ended March 31, 2018. The amount for the fiscal years ended March 31, 2017, 2016 and 2015 and 2014, whereas the amount for the fiscal year ended March 31, 2013 mainly includes foreign exchange translations as well as the exclusion of the allowance for loan losses related to ORIX Credit Corporations, as the Bank transferred all of its shares of ORIX Credit Corporation to ORIX Corporation in June 2012.translations.

The following table shows an allocation of the allowance for loan losses by the borrower’s domicile and industry type at March 31, 2019, 2018, 2017, 2016 2015, 2014, 2013 and 2012.2015.

 

 At March 31,  At March 31, 
 2016 2015 2014 2013 2012  2019 2018 2017 2016 2015 
 Amount % of
loans in
each
category
to total
loans
 Amount % of
loans in
each
category
to total
loans
 Amount % of
loans in
each
category
to total
loans
 Amount % of
loans in
each
category
to total
loans
 Amount % of
loans in
each
category
to total
loans
  Amount % of
loans in
each
category
to total
loans
 Amount % of
loans in
each
category
to total
loans
 Amount % of
loans in
each
category
to total
loans
 Amount % of
loans in
each
category
to total
loans
 Amount % of
loans in
each
category
to total
loans
 
 (In millions, except percentages)  (In millions, except percentages) 

Domestic:

                  

Manufacturing

 ¥63,720    9.24 ¥82,938    9.16 ¥113,463    9.73 ¥140,424    10.43 ¥126,773    11.43 ¥35,358  9.31 ¥67,511  9.27 ¥101,936  9.96 ¥63,720  9.24 ¥82,938  9.16

Agriculture, forestry, fisheries and mining

  2,712    0.21  2,673    0.20  3,310    0.21  3,968    0.21  4,374    0.21 6,335  0.31 6,047  0.17 2,251  0.18 2,712  0.21 2,673  0.20

Construction

  15,212    1.30  22,532    1.31  40,289    1.40  63,032    1.51  69,605    1.73 7,888  1.00 4,171  1.10 14,142  1.20 15,212  1.30 22,532  1.31

Transportation, communications and public enterprises

  25,119    5.86  30,555    5.88  27,196    6.17  50,789    6.08  47,723    5.96 24,133  6.11 8,431  6.32 16,237  5.58 25,119  5.86 30,555  5.88

Wholesale and retail

  73,230    6.18  84,941    6.44  116,862    6.68  151,075    6.96  159,740    7.40 48,883  5.77 45,321  6.16 54,896  5.95 73,230  6.18 84,941  6.44

Finance and insurance

  6,886    2.99  7,990    3.26  11,209    3.08  12,373    3.51  14,045    2.93 5,134  3.42 3,183  3.24 3,982  2.96 6,886  2.99 7,990  3.26

Real estate and goods rental and leasing

  94,669    10.68  127,205    9.97  194,706    9.85  312,614    10.53  338,162    10.78 25,635  11.06 14,650  10.50 85,813  10.50 94,669  10.68 127,205  9.97

Services

  60,735    5.52  77,829    5.43  96,465    5.89  132,377    5.69  144,984    5.50 42,172  4.73 32,690  4.96 52,282  5.08 60,735  5.52 77,829  5.43

Municipalities

  1    1.53  1    1.54  1    1.55  1    1.64  2    1.67  —    0.95  —    1.17  —    1.26 1  1.53 1  1.54

Lease financing

  11,567    2.46  13,600    2.51  14,487    2.59  17,151    2.66  11,942    2.78  —    0.01  —    0.02 4,114  2.81 11,567  2.46 13,600  2.51

Consumer

  208,274    21.09  208,661    21.39  215,882    23.17  250,282    24.33  315,211    25.90 233,287  17.68 177,013  19.06 194,964  19.85 208,274  21.09 208,661  21.39

Others

  25,928    3.32  33,844    3.65  43,765    3.87  53,524    4.32  61,259    5.61 21,049  5.03 18,353  5.38 21,492  5.38 25,928  3.32 33,844  3.65
 

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

Total domestic

  588,053    70.38  692,769    70.74  877,635    74.19  1,187,610    77.87  1,293,820    81.90 449,874  65.38 377,370  67.35 552,109  70.71 588,053  70.38 692,769  70.74
 

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

Foreign:

                    

Public sector

  105    0.26  48    0.19  303    0.20  209    0.16  568    0.18 522  0.39 75  0.43 88  0.31 105  0.26 48  0.19

Financial institutions

  3,347    4.53  1,871    4.41  3,325    4.19  5,454    3.23  15,217    2.72 10,660  5.88 2,386  5.24 3,186  4.77 3,347  4.53 1,871  4.41

Commerce and industry

  117,671    22.78  86,007    22.75  60,646    19.95  63,261    17.45  64,014    13.99 120,748  25.44 92,255  24.49 108,076  21.88 117,671  22.78 86,007  22.75

Lease financing

  3,998    0.40  4,654    0.35  3,285    0.32  3,195    0.27  4,324    0.26 1,342  0.38 1,828  0.42 6,713  0.42 3,998  0.40 4,654  0.35

Others

  9,543    1.65  8,203    1.56  5,471    1.15  2,749    1.02  3,221    0.95 21,842  2.53 17,762  2.07 10,284  1.91 9,543  1.65 8,203  1.56
 

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

Total foreign

  134,664    29.62  100,783    29.26  73,030    25.81  74,868    22.13  87,344    18.10 155,114  34.62 114,306  32.65 128,347  29.29 134,664  29.62 100,783  29.26
 

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

Total

 ¥722,717    100.00 ¥793,552    100.00 ¥950,665    100.00 ¥1,262,478    100.00 ¥1,381,164    100.00 ¥604,988  100.00 ¥491,676  100.00 ¥680,456  100.00 ¥722,717  100.00 ¥793,552  100.00
 

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

V.

Deposits

The following table shows the average amount of, and the average rate paid on, the following deposit categories for the fiscal years ended March 31, 2016, 20152019, 2018 and 2014.2017.

 

 For the fiscal year ended March 31,  For the fiscal year ended March 31, 
 2016 2015 2014  2019 2018 2017 
 Average
amount
 Average
rate
 Average
amount
 Average
rate
 Average
amount
 Average
rate
  Average
amount
 Average
rate
 Average
amount
 Average
rate
 Average
amount
 Average
rate
 
 (In millions, except percentages)  (In millions, except percentages) 

Domestic offices:

            

Non-interest-bearing demand deposits

 ¥13,840,697    —     ¥12,747,566    —     ¥12,258,970    —     ¥19,831,261   —    ¥18,803,822   —    ¥16,791,818   —   

Interest-bearing demand deposits

  42,036,200    0.02  38,953,418    0.02  37,248,316    0.02 51,984,345  0.00 51,369,924  0.00 46,984,288  0.00

Deposits at notice

  779,789    0.02  747,898    0.03  809,233    0.03 935,063  0.00 998,707  0.00 906,703  0.00

Time deposits

  23,703,225    0.10  24,202,595    0.10  24,962,120    0.10 18,129,683  0.04 22,202,905  0.06 22,678,544  0.07

Negotiable certificates of deposit

  7,027,345    0.08  5,969,374    0.09  5,385,616    0.11 5,526,250  0.01 5,919,870  0.01 6,064,857  0.02

Others

  4,911,611    0.23  4,524,551    0.24  3,970,880    0.22 7,216,386  0.70 6,647,336  0.45 6,103,623  0.30
 

 

   

 

   

 

   

 

   

 

   

 

  

Total domestic offices

  92,298,867     87,145,402     84,635,135    103,622,988   105,942,564   99,529,833  
 

 

   

 

   

 

   

 

   

 

   

 

  

Foreign offices:

            

Non-interest-bearing demand deposits

  874,577    —      692,920    —      513,743    —     1,227,660   —    1,193,648   —    944,878   —   

Interest-bearing demand deposits

  1,859,753    0.33  1,277,325    0.26  1,062,723    0.16 2,852,999  1.27 2,645,695  0.84 2,524,336  0.40

Deposits at notice

  8,598,461    0.32  7,285,133    0.29  5,896,158    0.30 10,390,633  1.60 9,332,778  0.94 8,212,986  0.52

Time deposits

  5,277,263    1.40  3,672,870    1.46  2,730,564    1.42 7,818,323  2.59 6,930,572  1.98 6,266,975  1.53

Negotiable certificates of deposit

  6,973,391    0.66  8,922,100    0.42  7,210,274    0.45 6,086,906  2.24 6,366,473  1.41 6,249,295  1.02

Others

  129,662    0.83  106,491    1.09  114,868    1.04 134,615  0.98 138,216  0.49 129,410  0.48
 

 

   

 

   

 

   

 

   

 

   

 

  

Total foreign offices

  23,713,107     21,956,839     17,528,330    28,511,136   26,607,382   24,327,880  
 

 

   

 

   

 

   

 

   

 

   

 

  

Total

 ¥116,011,974    ¥109,102,241    ¥102,163,465    ¥132,134,124   ¥132,549,946   ¥123,857,713  
 

 

   

 

   

 

   

 

   

 

   

 

  

Deposits at notice represent interest-bearing demand deposits which require the depositor to give two or more daysdays’ notice in advance of withdrawal.

The total amount of deposits by foreign depositors included in domestic offices for the fiscal years ended March 31, 2016, 20152019, 2018 and 20142017 were ¥1,915,610¥2,460,264 million, ¥1,748,689¥2,303,112 million and ¥1,318,749¥2,078,931 million, respectively.

At March 31, 2016,2019, the balances and remaining maturities of time deposits and negotiable certificates of deposit issued by domestic offices in amounts of ¥10 million (approximately $88,794$90,090 at the median exchange rate for buying and selling spot dollars for yen by telegraphic transfer as determined by the BankSMBC at the end of the current fiscal year) or more and total foreign deposits issued in amounts of $100,000 or more are shown in the following table.

 

  Time deposits   Negotiable
certificates of
deposit
   Total   Time deposits   Negotiable
certificates of
deposit
   Total 
      (In millions)       (In millions) 

Domestic offices:

            

Not later than three months

  ¥3,034,809    ¥5,375,113    ¥8,409,922    ¥2,544,105   ¥4,122,696   ¥6,666,801 

Later than three months and not later than six months

   1,432,205     684,780     2,116,985     1,288,907    706,437    1,995,344 

Later than six months and not later than one year

   4,693,648     276,565     4,970,213     3,949,975    62,518    4,012,493 

Later than one year

   2,543,158     115,412     2,658,570     1,735,164    71,000    1,806,164 
  

 

   

 

   

 

   

 

   

 

   

 

 

Total

  ¥11,703,820    ¥6,451,870    ¥18,155,690    ¥9,518,151   ¥4,962,651   ¥14,480,802 
  

 

   

 

   

 

   

 

   

 

   

 

 

Foreign offices

  ¥6,230,519    ¥7,797,956    ¥14,028,475  

Foreign offices:

  ¥7,840,571   ¥6,202,836   ¥14,043,407 
  

 

   

 

   

 

   

 

   

 

   

 

 

VI.

Return on Equity and Assets

The following table shows the ratio of return on equity and assets for the fiscal years ended March 31, 2016, 20152019, 2018 and 2014.2017.

 

  For the fiscal year ended March 31,   For the fiscal year ended March 31, 
  2016 2015 2014   2019 2018 2017 

Return on average total assets

   0.5  0.4  0.5   0.3 0.4 0.3

Return on average shareholders’ equity

   8.1  7.3  14.0   5.3 6.6 6.0

Dividends payout ratio(1):

        

Basic

   25.1  27.8  22.3   45.1 28.8 32.7

Diluted

   25.1  27.8  22.3        45.2      28.8      32.7

Average shareholders’ equity to average total assets

   5.8  5.1  3.8   5.2 5.8 5.8

 

(1)

Dividends declared per common share as a percentage of net profit per share.

VII.

Short-Term Borrowings

The following table shows certain additional information with respect to our short-term borrowings for the fiscal years ended March 31, 2016, 20152019, 2018 and 2014.2017.

 

  For the fiscal year ended March 31,   For the fiscal year ended March 31, 
  2016 2015 2014   2019 2018 2017 
  (In millions, except percentages)   (In millions, except percentages) 

Call money, and payables under repurchase agreements and securities lending transactions:

        

Average balance outstanding during the period

  ¥12,044,622   ¥9,957,560   ¥7,307,264    ¥12,591,665  ¥15,868,395  ¥11,453,458 

Maximum balance outstanding at any month-end during the period

   16,507,993    14,693,207    11,153,504     15,706,407  19,435,458  15,172,714 

Balance at end of period

   8,059,930    14,693,207    11,153,504     14,195,028  13,213,522  11,512,526 

Weighted average interest rate during the period

   0.17  0.14  0.15   1.07 0.44 0.23

Weighted average interest rate on balance at end of period

   0.16  0.11  0.10   1.05 0.74 0.34

Commercial paper:

        

Average balance outstanding during the period

   4,555,927    4,223,418    3,659,627     3,590,252  3,390,092  3,456,337 

Maximum balance outstanding at any month-end during the period

   5,301,064    4,839,788    3,843,285     2,934,756  3,671,388  4,095,896 

Balance at end of period

   4,169,515    4,813,902    3,669,912     2,440,515  2,467,645  3,518,346 

Weighted average interest rate during the period

   0.28  0.21  0.21   1.27 0.56 0.44

Weighted average interest rate on balance at end of period

   0.38  0.24  0.22   1.85 1.30 0.54

Short-term borrowings:

        

Average balance outstanding during the period

   4,757,270    5,342,390    1,945,575     4,093,115  6,442,910  4,091,095 

Maximum balance outstanding at any month-end during the period

   5,501,614    6,802,740    3,092,892     5,591,581  7,522,143  7,546,496 

Balance at end of period

   3,073,509    6,746,249    3,092,892     5,591,581  3,943,140  7,546,496 

Weighted average interest rate during the period

   0.17  0.18  0.38   0.26 0.10 0.16

Weighted average interest rate on balance at end of period

   0.20  0.14  0.22   0.18 0.20 0.09

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

The following consolidated financial statements and the reports thereon by its independent registered public accounting firm are filed as part of this annual report:

 

   Page 

Report of Independent Registered Public Accounting Firm

   F-3 

Consolidated Financial Statements

  

Consolidated StatementStatements of Financial Position at March  31, 20162019 and 20152018

F-5

Consolidated Income Statement for the Fiscal Years Ended March 31, 2016, 2015 and 2014

   F-6 

Consolidated StatementIncome Statements for the Fiscal Years Ended March  31, 2019, 2018 and 2017

F-7

Consolidated Statements of Comprehensive Income
for the Fiscal Years Ended March 31, 2016, 20152019, 2018 and 20142017

   F-7F-8 

Consolidated StatementStatements of Changes in Equity
for the Fiscal Years Ended March 31, 2016, 20152019, 2018 and 20142017

   F-8F-9 

Consolidated StatementStatements of Cash Flows
for the Fiscal Years Ended March 31, 2016, 20152019, 2018 and 20142017

   F-9F-11 

Notes to Consolidated Financial Statements

   F-10F-12 

1   General Information

   F-10F-12 

2   Summary of Significant Accounting Policies

   F-10F-12 

3   Critical Accounting Estimates and Judgments

   F-28F-40 

4   Segment Analysis

   F-31F-43 

5   Cash and Deposits with Banks

   F-38F-47 

6   Trading Assets

   F-39F-48 

7   Derivative Financial Instruments and Hedge Accounting

   F-39F-48 

8   Financial Assets at Fair Value Through Profit or Loss

F-42

9     Investment Securities

F-43

10   Loans and Advances

F-44

11   Investments in Associates and Joint Ventures

F-46

12   Property, Plant and Equipment

F-47

13   Leases

F-48

14   Intangible Assets

F-50

15   Other Assets

   F-54 

16   Deposits9   Investment Securities

F-54

17   Trading Liabilities

   F-55 

18   Borrowings10  Loans and Advances

F-56

19   Debt Securities in Issue

F-57

20   Provisions

F-58

21   Other Liabilities

   F-59 

22   Deferred Income Tax11  Investments in Associates and Joint Ventures

   F-59F-60 

23   Retirement Benefits12  Property, Plant and Equipment

F-61

13  Leases

   F-62 

24   Shareholders’ Equity14  Intangible Assets

   F-67F-64 

15  Other Assets

F-68

16  Deposits

F-68

17  Trading Liabilities

F-68

18  Borrowings

F-69

19  Debt Securities in Issue

F-69

20  Provisions

F-71

21  Other Liabilities

F-72

22  Deferred Income Tax

F-72

23  Retirement Benefits

F-75

24  Shareholders’ Equity

F-80

25  Non-Controlling Interests and Equity Attributable to Other Equity Instruments Holders

   F-69F-83 

26  Net Interest Income

   F-71F-85 

27  Net Fee and Commission Income

   F-72F-86 

28  Net Trading Income

   F-72F-87 

29  Net Income (Loss) from Financial Assets at Fair Value Through Profit or Loss

   F-73F-87 

30  Net Investment Income

   F-73F-87 

31  Other Income

   F-73F-88 

32  Impairment Charges on Financial Assets

   F-74F-88 

33  General and Administrative Expenses

   F-74F-89 

34  Other Expenses

   F-74F-89 

35  Income Tax Expense

   F-75F-90 

Report of Independent Registered Public Accounting Firm

TheTo the Shareholders and Board of Directors and Shareholders

Sumitomo Mitsui Financial Group, Inc.:

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated statementstatements of financial position of Sumitomo Mitsui Financial Group, Inc. and subsidiaries (the “SMFG Group”“Group”) as of March 31, 20162019 and 2015, and2018, the related consolidated income statement and consolidated statements of comprehensive income, changes in equity and cash flows for each of the years in the three-year period ended March 31, 2016. These consolidated2019 and the related notes (collectively, the “consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States)statements”). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the SMFG Group as of March 31, 20162019 and 2015,2018, and the results of theirits operations and theirits cash flows for each of the years in the three-year period ended March 31, 2016,2019, in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), Sumitomo Mitsui Financial Group, Inc.’sthe Group’s internal control over financial reporting as of March 31, 2016,2019, based on criteria established inInternal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, (COSO), and our report dated June 27, 201625, 2019 expressed an unqualified opinion on the effectiveness of the Company’sGroup’s internal control over financial reporting.

Basis for Opinion

These consolidated financial statements are the responsibility of the Group’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Group in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

/s/ KPMG AZSA LLC

We have served as the Group’s auditor since 1976.

Tokyo, Japan

June 27, 201625, 2019

Report of Independent Registered Public Accounting Firm

TheTo the Shareholders and Board of Directors and Shareholders

Sumitomo Mitsui Financial Group, Inc.:

Opinion on Internal Control Over Financial Reporting

We have audited Sumitomo Mitsui Financial Group, Inc.’s and subsidiaries’ (the “Group”) internal control over financial reporting as of March 31, 2016,2019, based on criteria established inInternal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Sumitomo Mitsui FinancialCommission. In our opinion, the Group Inc.’smaintained, in all material respects, effective internal control over financial reporting as of March 31, 2019, based on criteria established inInternal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated statements of financial position of the Group as of March 31, 2019 and 2018, and the related consolidated income statement and consolidated statements of comprehensive income, changes in equity and cash flows for each of the years in the three-year period ended March 31, 2019, and the related notes (collectively, the “consolidated financial statements”), and our report dated June 25, 2019 expressed an unqualified opinion on those consolidated financial statements.

Basis for Opinion

The Group’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control over Financial Reporting, included in Item 15 “Controls and Procedures” of the accompanying Form 20-F.Reporting. Our responsibility is to express an opinion on Sumitomo Mitsui Financial Group Inc.’sthe Group’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Group in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States).PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control Over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, Sumitomo Mitsui Financial Group, Inc. maintained, in all material respects, effective internal control over financial reporting as of March 31, 2016, based on criteria established in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated statement of financial position of Sumitomo Mitsui Financial Group, Inc. and subsidiaries as of March 31, 2016 and 2015, and the related consolidated income statement and consolidated statements of comprehensive income, changes in equity and cash flows for each of the years in the three-year period ended March 31, 2016, and our report dated June 27, 2016 expressed an unqualified opinion on those consolidated financial statements.

/s/ KPMG AZSA LLC

Tokyo, Japan

June 27, 201625, 2019

CONSOLIDATED FINANCIAL STATEMENTS

Consolidated StatementStatements of Financial Position

 

     At March 31,       At March 31, 
  Note  2016 2015   Note   2019 2018 
     (In millions)       (In millions) 

Assets:

     

Assets:

     

Cash and deposits with banks

  5  ¥43,144,654   ¥40,112,783     5   ¥57,763,441  ¥54,696,069 

Call loans and bills bought

     1,291,366    1,326,965       2,465,745  1,881,880 

Reverse repurchase agreements and cash collateral on securities borrowed

     8,236,516    7,218,498       10,345,994  8,491,703 

Trading assets

  6   3,615,092    3,243,185     6    2,767,691  3,169,123 

Derivative financial instruments

  7   5,290,825    6,471,203     7    3,382,574  3,885,271 

Financial assets at fair value through profit or loss

  8   1,611,877    1,785,684     8    2,641,416  1,547,672 

Investment securities

  9   19,865,347    24,239,656     9    17,825,027  20,495,075 

Loans and advances

  10   88,862,371    86,971,716     10    90,682,938  85,129,070 

Investments in associates and joint ventures

  11   702,264    619,814     11    1,038,823  730,414 

Property, plant and equipment

  12   2,590,951    2,496,497     12    1,507,786  1,510,132 

Intangible assets

  14   1,048,093    975,995     14    821,785  835,902 

Other assets

  15   3,654,448    3,485,123     15    4,079,814  4,043,908 

Current tax assets

     143,534    116,847       143,459  87,961 

Deferred tax assets

  22   115,314    117,500     22    37,073  19,436 

Assets held for sale

   50    57  5,651,950 
    

 

  

 

     

 

  

 

 

Total assets

    ¥180,172,652   ¥179,181,466      ¥195,503,623  ¥192,175,566 
    

 

  

 

     

 

  

 

 

Liabilities:

          

Deposits

  16  ¥125,940,797   ¥115,833,980     16   ¥134,404,652  ¥128,461,527 

Call money and bills sold

     1,220,456    5,873,124       1,307,779  1,190,929 

Repurchase agreements and cash collateral on securities lent

     6,839,474    8,820,083       12,887,249  12,022,593 

Trading liabilities

  17   2,197,673    2,193,400     17    1,998,694  2,143,899 

Derivative financial instruments

  7   5,086,083    6,739,787     7    3,051,773  3,498,016 

Borrowings

  18   9,914,129    11,217,052     18    12,167,858  10,652,481 

Debt securities in issue

  19   10,829,612    11,051,431     19    11,171,209  10,569,117 

Provisions

  20   262,401    207,624     20    194,818  188,267 

Other liabilities

  21   6,410,733    5,548,965     21    6,131,739  6,882,740 

Current tax liabilities

     93,307    111,365       147,041  55,516 

Deferred tax liabilities

  22   335,888    563,805     22    267,365  397,741 

Liabilities directly associated with the assets held for sale

   50    —    3,616,941 
    

 

  

 

     

 

  

 

 

Total liabilities

     169,130,553    168,160,616       183,730,177  179,679,767 
    

 

  

 

     

 

  

 

 

Equity:

          

Capital stock

  24   2,337,896    2,337,896     24    2,339,443  2,338,743 

Capital surplus

  24   863,503    862,971     24    726,012  863,505 

Retained earnings

  24   4,186,683    3,554,688     24    5,715,101  5,149,193 

Treasury stock

   24    (16,302 (12,493
    

 

  

 

 

Equity excluding other reserves

     8,764,254  8,338,948 

Other reserves

  24   1,991,955    2,759,084     24    1,916,366  2,324,349 

Treasury stock

  24   (175,381  (175,261
    

 

  

 

     

 

  

 

 

Equity attributable to shareholders of Sumitomo Mitsui Financial Group, Inc.

     9,204,656    9,339,378       10,680,620  10,663,297 

Non-controlling interests

  25   1,537,548    1,681,472     25    494,123  1,232,980 

Equity attributable to other equity instruments holders

  25   299,895    —       25    598,703  599,522 
    

 

  

 

     

 

  

 

 

Total equity

     11,042,099    11,020,850       11,773,446  12,495,799 
    

 

  

 

     

 

  

 

 

Total equity and liabilities

    ¥180,172,652   ¥179,181,466      ¥195,503,623  ¥192,175,566 
    

 

  

 

     

 

  

 

 

 

The accompanying notes are an integral part of the Consolidated Financial Statements.

Consolidated Income StatementStatements

 

     For the fiscal year ended March 31,       For the fiscal year ended March 31, 
  Note  2016   2015   2014   Note   2019 2018 2017 
     (In millions, except per share data)       (In millions, except per share data) 

Interest income

    ¥1,872,584    ¥1,782,621    ¥1,714,044      ¥  2,406,350  ¥ 2,144,070  ¥1,900,261 

Interest expense

     431,101     371,107     320,511       1,101,875  733,969  502,338 
    

 

   

 

   

 

     

 

  

 

  

 

 

Net interest income

  26   1,441,483     1,411,514     1,393,533     26    1,304,475   1,410,101   1,397,923  
    

 

   

 

   

 

     

 

  

 

  

 

 

Fee and commission income

     1,031,680     1,002,766     1,003,169       1,101,777  1,131,364  1,066,412 

Fee and commission expense

     131,381     129,253     127,959       178,351  178,867  181,573 
    

 

   

 

   

 

     

 

  

 

  

 

 

Net fee and commission income

  27   900,299     873,513     875,210     27    923,426  952,497  884,839 
    

 

   

 

   

 

     

 

  

 

  

 

 

Net trading income

  28   462,682     127,759     135,218     28    320,302  270,464  183,963 

Net income from financial assets at fair value through profit or loss

  29   12,260     22,678     58,586  

Net income (loss) from financial assets at fair value through profit or loss

   29    54,655  (667 2,018  

Net investment income

  30   375,229     371,064     332,265     30    93,922  424,097  305,327 

Other income

  31   496,273     525,905     429,541     31    505,666  755,855  573,825 
    

 

   

 

   

 

     

 

  

 

  

 

 

Total operating income

     3,688,226     3,332,433     3,224,353       3,202,446  3,812,347  3,347,895 
    

 

   

 

   

 

     

 

  

 

  

 

 

Impairment charges (reversals) on financial assets

  32   148,356     90,138     (14,275

Impairment charges on financial assets

   32    119,686  136,808  212,967 
    

 

   

 

   

 

     

 

  

 

  

 

 

Net operating income

     3,539,870     3,242,295     3,238,628       3,082,760   3,675,539  3,134,928 
    

 

   

 

   

 

     

 

  

 

  

 

 

General and administrative expenses

  33   1,706,263     1,621,897     1,522,990     33    1,715,368  1,813,121  1,752,135 

Other expenses

  34   538,963     505,614     428,780     34    575,657  792,765  531,759 
    

 

   

 

   

 

     

 

  

 

  

 

 

Operating expenses

     2,245,226     2,127,511     1,951,770       2,291,025  2,605,886  2,283,894 
    

 

   

 

   

 

     

 

  

 

  

 

 

Share of post-tax profit of associates and joint ventures

     31,056     18,124     19,454       40,157  49,323  29,318 
    

 

   

 

   

 

     

 

  

 

  

 

 

Profit before tax

     1,325,700     1,132,908     1,306,312       831,892  1,118,976  880,352 
    

 

   

 

   

 

     

 

  

 

  

 

 

Income tax expense

  35   372,878     409,947     414,076     35    184,306  229,378  139,766 
    

 

   

 

   

 

     

 

  

 

  

 

 

Net profit

    ¥952,822    ¥722,961    ¥892,236      ¥647,586  ¥889,598  ¥740,586 
    

 

   

 

   

 

     

 

  

 

  

 

 

Profit attributable to:

              

Shareholders of Sumitomo Mitsui Financial Group, Inc.

    ¥843,920    ¥614,070    ¥766,388      ¥541,932  ¥759,998  ¥627,870 

Non-controlling interests

     106,129     108,891     125,848       93,779  119,878  104,787 

Other equity instruments holders

     2,773     —       —         11,875  9,722  7,929 

Earnings per share:

              

Basic

  36  ¥617.25    ¥449.13    ¥560.97     36   ¥387.76  ¥538.84  ¥458.56 

Diluted

  36   616.83     448.86     560.68     36    387.49  538.43  458.18 

 

The accompanying notes are an integral part of the Consolidated Financial Statements.

Consolidated StatementStatements of Comprehensive Income

 

 For the fiscal year ended March 31,   For the fiscal year ended March 31, 
 2016 2015 2014   2019 2018 2017 
 (In millions)   (In millions) 

Net profit

 ¥952,822   ¥722,961   ¥892,236    ¥647,586  ¥889,598  ¥740,586 

Other comprehensive income:

       

Items that will not be reclassified to profit or loss:

       

Remeasurements of defined benefit plans:

       

Gains (losses) arising during the period, before tax

  (154,273  181,638    214,242     (40,329 73,662  8,134 

Equity instruments at fair value through other comprehensive income:

    

Gains (losses) arising during the period, before tax

   (128,138  —     —   

Share of other comprehensive income (loss) of associates and joint ventures

  558    192    (581   3,711  58  (462

Income tax relating to items that will not be reclassified

  48,550    (58,081  (76,596   61,453  (22,492 (2,315
 

 

  

 

  

 

   

 

  

 

  

 

 

Total items that will not be reclassified to profit or loss, net of tax

  (105,165  123,749    137,065     (103,303 51,228  5,357 

Items that may be reclassified subsequently to profit or loss:

       

Available-for-sale financial assets:

       

Gains (losses) arising during the period, before tax

  (551,572  1,392,139    589,766     —    582,435  371,438 

Reclassification adjustments for (gains) losses included in net profit, before tax

  (217,529  (232,281  (212,001   —    (275,038 (109,990

Debt instruments at fair value through other comprehensive income:

    

Gains (losses) arising during the period, before tax

   150,074   —     —   

Reclassification adjustments for (gains) losses included in net profit, before tax

   (6,071  —     —   

Exchange differences on translating foreign operations:

       

Gains (losses) arising during the period, before tax

  (219,904  301,796    271,619     22,517  (75,409 (24,063

Reclassification adjustments for (gains) losses included in net profit, before tax

  8    (2,164  (1,311   (37,247 49  (4

Share of other comprehensive income (loss) of associates and joint ventures

  (14,362  5,562 ��  (4,710   (4,410 7,827  (21,140

Income tax relating to items that may be reclassified

  308,623    (301,129  (151,443   (43,746 (96,246 (80,074
 

 

  

 

  

 

   

 

  

 

  

 

 

Total items that may be reclassified subsequently to profit or loss, net of tax

  (694,736  1,163,923    491,920     81,117  143,618  136,167 
 

 

  

 

  

 

   

 

  

 

  

 

 

Other comprehensive income (loss), net of tax

  (799,901  1,287,672    628,985     (22,186 194,846  141,524 
 

 

  

 

  

 

   

 

  

 

  

 

 

Total comprehensive income

 ¥152,921   ¥2,010,633   ¥1,521,221    ¥625,400   ¥1,084,444   ¥882,110  
 

 

  

 

  

 

   

 

  

 

  

 

 

Total comprehensive income attributable to:

       

Shareholders of Sumitomo Mitsui Financial Group, Inc.

 ¥76,791   ¥1,826,328   ¥1,342,044    ¥577,998  ¥948,250  ¥769,957 

Non-controlling interests

  73,357    184,305    179,177     35,527  126,472  104,224 

Other equity instruments holders

  2,773    —      —       11,875  9,722  7,929 

 

The accompanying notes are an integral part of the Consolidated Financial Statements.

Consolidated StatementStatements of Changes in Equity

 

                                                                                                                                                                                                                                                                                                                                                
 Capital
stock
 Capital
surplus
 Retained
earnings
 Remeasure-
ments of
defined
benefit
plans
 Available-
for-sale
financial
assets
 Exchange
differences
on
translating
foreign
operations
 Treasury
stock
 Equity
attributable
to SMFG’s
shareholders
 Non-
controlling
interests
 Equity
attributable
to
other equity
instruments
holders
 Total equity  Equity excluding other reserves Other reserves         
 (In millions)  Capital
stock
 Capital
surplus
 Retained
earnings
 Treasury
stock
 Remeasure-
ments of
defined
benefit
plans
reserve
 Available-
for-sale
financial
assets
reserve
 Financial
instruments at
fair value
through other
comprehensive
income reserve
 Exchange
differences
on
translating
foreign
operation
reserve
 Equity
attributable
to SMFG’s
shareholders
 Non-
controlling
interests
 Equity
attributable to
other equity
instruments
holders
 Total equity 

Balance at
April 1, 2013

 ¥2,337,896   ¥862,305   ¥2,515,956   ¥(138,013 ¥1,159,215   ¥(50,032 ¥(227,373 ¥6,459,954   ¥2,099,735   ¥—     ¥8,559,689  

Comprehensive income:

           

Net profit

  —      —      766,388    —      —      —      —      766,388    125,848    —      892,236  

Other comprehensive income

  —      —      —      136,031    238,235    201,390    —      575,656    53,329    —      628,985  
 

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  (In millions)   

Total comprehensive income

  —      —      766,388    136,031    238,235    201,390    —      1,342,044    179,177    —      1,521,221  
 

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

Acquisition and disposal of subsidiaries and businesses-net

  —      —      —      —      —      —      —      —      (2  —      (2

Transaction with non-controlling interest shareholders

  —      —      200    —      —      —      —      200    (1,743  —      (1,543

Dividends to shareholders

  —      —      (169,973  —      —      —      —      (169,973  (95,215  —      (265,188

Redemption of preferred securities

  —      —      —      —      —      —      —      —      (451,458  —      (451,458

Purchase of treasury stock

  —      —      —      —      —      —      (501  (501  —      —      (501

Sale of treasury stock

  —      —      —      —      —      —      52,759    52,759    —      —      52,759  

Loss on
sale of treasury stock

  —      (281  —      —      —      —      —      (281  —      —      (281

Others

  —      494    —      —      —      —      —      494    —      —      494  
 

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

Balance at
March 31, 2014

  2,337,896    862,518    3,112,571    (1,982  1,397,450    151,358    (175,115  7,684,696    1,730,494    —      9,415,190  
 

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

Comprehensive income:

           

Net profit

  —      —      614,070    —      —      —      —      614,070    108,891    —      722,961  

Other comprehensive income

  —      —      —      122,298    837,186    252,774    —      1,212,258    75,414    —      1,287,672  
 

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

Total comprehensive income

  —      —      614,070    122,298    837,186    252,774    —      1,826,328    184,305    —      2,010,633  
 

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

Acquisition and disposal of subsidiaries and businesses-net

  —      —      —      —      —      —      —      —      (31,678  —      (31,678

Transaction with non-controlling interest shareholders

  —      —      (1,045  —      —      —      —      (1,045  948    —      (97

Dividends to shareholders

  —      —      (170,908  —      —      —      —      (170,908  (78,097  —      (249,005

Redemption of preferred securities

  —      —      —      —      —      —      —      —      (124,500  —      (124,500

Purchase of treasury stock

  —      —      —      —      —      —      (161  (161  —      —      (161

Sale of treasury stock

  —      —      —      —      —      —      15    15    —      —      15  

Gains on sale of treasury stock

  —      2    —      —      —      —      —      2    —      —      2  

Others

  —      451    —      —      —      —      —      451    —      —      451  
 

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

Balance at March 31, 2015

  2,337,896    862,971 ��  3,554,688    120,316    2,234,636    404,132    (175,261  9,339,378    1,681,472    —      11,020,850  
 

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

Balance at March 31, 2016

 ¥2,337,896  ¥863,503  ¥4,186,683  ¥(175,381 ¥18,985  ¥1,756,634  ¥—    ¥216,336  ¥9,204,656  ¥1,537,548  ¥299,895  ¥11,042,099 

Comprehensive income:

                       

Net profit

  —      —      843,920    —      —      —      —      843,920    106,129    2,773    952,822    —     —     627,870   —     —     —     —     —     627,870   104,787   7,929   740,586 

Other comprehensive income

  —      —      —      (101,331  (478,002  (187,796  —      (767,129  (32,772  —      (799,901  —     —     —     —     3,789   173,260   —     (34,962  142,087   (563  —     141,524 
 

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

Total comprehensive income

  —      —      843,920    (101,331  (478,002  (187,796  —      76,791    73,357    2,773    152,921    —     —     627,870   —     3,789   173,260   —     (34,962  769,957   104,224   7,929   882,110 
 

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

Issuance of other equity instruments

  —      —      —      —      —      —      —      —      —      299,895    299,895    —     —     —     —     —     —     —     —     —     —     149,916   149,916 

Acquisition and disposal of subsidiaries and businesses-net

  —      —      —      —      —      —      —      —      1,371    —      1,371    —     —     —     —     —     —     —     —     —     14,888   —     14,888 

Transaction with non-controlling interest shareholders

  —      —      (3  —      —      —      —      (3  58    —      55    —     —     26   —     —     —     —     —     26   437   —     463 

Dividends to shareholders

  —      —      (211,922  —      —      —      —      (211,922  (76,710  —      (288,632  —     —     (205,083  —     —     —     —     —     (205,083  (65,956  —     (271,039

Coupons on other equity instruments

  —      —      —      —      —      —      —      —      —      (2,773  (2,773  —     —     —     —     —     —     —     —     —     —     (7,929  (7,929

Redemption of preferred securities

  —      —      —      —      —      —      —      —      (142,000  —      (142,000  —     —     —     —     —     —     —     —     —     (86,140  —     (86,140

Purchase of treasury stock

  —      —      —      —      —      —      (192  (192  —      —      (192  —     —     —     (100  —     —     —     —     (100  —     —     (100

Sale of treasury stock

  —      —      —      —      —      —      72    72    —      —      72    —     —     —     162,568   —     —     —     —     162,568   —     —     162,568 

Loss on sale of treasury stock

  —      (18  —      —      —      —      —      (18  —      —      (18  —     (2  —     —     —     —     —     —     (2  —     —     (2

Others

  —      550    —      —      —      —      —      550    —      —      550    —     551   —     —     —     —     —     —     551   —     (102  449 
 

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

Balance at March 31, 2016

 ¥2,337,896   ¥863,503   ¥4,186,683   ¥18,985   ¥1,756,634   ¥216,336   ¥(175,381 ¥9,204,656   ¥1,537,548   ¥299,895   ¥11,042,099  

Balance at March 31, 2017

  2,337,896   864,052   4,609,496   (12,913  22,774   1,929,894   —     181,374   9,932,573   1,505,001   449,709   11,887,283 
 

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

Comprehensive income:

            

Net profit

  —     —     759,998   —     —     —     —     —     759,998   119,878   9,722   889,598 

Other comprehensive income

  —     —     —     —     51,273   192,366   —     (55,387  188,252   6,594   —     194,846 
 

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

Total comprehensive income

  —     —     759,998   —     51,273   192,366   —     (55,387  948,250   126,472   9,722   1,084,444 
 

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

Issuance of shares under
share-based payment
transactions

  847   848   —     —     —     —     —     —     1,695   —     —     1,695 

Issuance of other equity
instruments

  —     —     —     —     —     —     —     —     —     —     149,916   149,916 

Acquisition and disposal of
subsidiaries and
businesses-net

  —     —     (1,190  —     1,190   —     —     —     —     (204,257  —     (204,257

Transaction with
non-controlling interest
shareholders

  —     —     62   —     —     —     —     —     62   2,440   —     2,502 

Dividends to shareholders

  —     —     (218,596  —     —     —     —     —     (218,596  (61,676  —     (280,272

Coupons on other equity
instruments

  —     —     —     —     —     —     —     —     —     —     (9,722  (9,722

Redemption of preferred
securities

  —     —     —     —     —     —     —     —     —     (135,000  —     (135,000

Purchase of treasury stock

  —     —     —     (142  —     —     —     —     (142  —     —     (142

Sale of treasury stock

  —     —     —     562   —     —     —     —     562   —     —     562 

Loss on sale of treasury stock

  —     (41  —     —     —     —     —     —     (41  —     —     (41

Share-based payment
transactions

  —     (1,354  —     —     —     —     —     —     (1,354  —     —     (1,354

Others

  —     —     (577  —     865   —     —     —     288   —     (103  185 
 

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

Balance at March 31, 2018

 ¥2,338,743  ¥863,505  ¥5,149,193  ¥(12,493 ¥76,102  ¥2,122,260  ¥—    ¥125,987  ¥10,663,297  ¥1,232,980  ¥599,522  ¥12,495,799 
 

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

                                                                                                                                                                                                                                                                                                                                                
  Equity excluding other reserves  Other reserves             
  Capital
stock
  Capital
surplus
  Retained
earnings
  Treasury
stock
  Remeasure-
ments of
defined
benefit
plans
reserve
  Available-
for-sale
financial
assets
reserve
  Financial
instruments at
fair value
through other
comprehensive
income reserve
  Exchange
differences
on
translating
foreign
operation
reserve
  Equity
attributable
to SMFG’s
shareholders
  Non-
controlling
interests
  Equity
attributable to
other equity
instruments
holders
  Total equity 
  (In millions)    

Balance at March 31, 2018

 ¥2,338,743  ¥863,505  ¥5,149,193  ¥(12,493 ¥76,102  ¥2,122,260  ¥—    ¥125,987  ¥10,663,297  ¥1,232,980  ¥599,522  ¥12,495,799 

Effect of changes in
accounting policies

  —     —     270,414   —     —     (2,122,260  1,718,937   —     (132,909  250   —     (132,659
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Balance at April 1, 2018

  2,338,743   863,505   5,419,607   (12,493  76,102   —     1,718,937   125,987   10,530,388   1,233,230   599,522   12,363,140 

Comprehensive income:

            

Net profit

  —     —     541,932   —     —     —     —     —     541,932   93,779   11,875   647,586 

Other comprehensive
income

  —     —     —     —     (27,109  —     75,828   (12,653  36,066   (58,252  —     (22,186
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Total comprehensive
income

  —     —     541,932   —     (27,109  —     75,828   (12,653  577,998   35,527   11,875   625,400 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Issuance of shares under share-
based payment
transactions

  700   699   —     —     —     —     —     —     1,399   —     —     1,399 

Acquisition and disposal of
subsidiaries and
businesses-net

  —     —     —     —     —     —     —     —     —     (306,444  —     (306,444

Transaction with
non-controlling interest
shareholders

  —     (113,736  —     —     —     —     —     —     (113,736  (91,767  —     (205,503

Dividends to shareholders

  —     —     (245,577  —     —     —     —     —     (245,577  (77,184  —     (322,761

Coupons on other equity
instruments

  —     —     —     —     —     —     —     —     —     —     (11,875  (11,875

Redemption of preferred
securities

  —     —     —     —     —     —     —     —     —     (299,239  —     (299,239

Purchase of treasury stock

  —     —     —     (70,094  —     —     —     —     (70,094  —     —     (70,094

Sale of treasury stock

  —     —     —     363   —     —     —     —     363   —     —     363 

Loss on sale of treasury stock

  —     (68  —     —     —     —     —     —     (68  —     —     (68

Cancellation of treasury stock

  —     (24,218  (41,704  65,922   —     —     —     —     —     —     —     —   

Share-based payment
transactions

  —     (129  —     —     —     —     —     —     (129  —     —     (129

Transfer from other reserves
to retained earnings

  —     —     40,726   —     23,432   —     (64,158  —     —     —     —     —   

Others

  —     (41  117   —     —     —     —     —     76   —     (819  (743
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Balance at March 31, 2019

 ¥2,339,443  ¥726,012  ¥5,715,101  ¥(16,302 ¥72,425  ¥—    ¥1,730,607  ¥113,334  ¥10,680,620  ¥494,123  ¥598,703  ¥11,773,446 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

 

The accompanying notes are an integral part of the Consolidated Financial Statements.

Consolidated StatementStatements of Cash Flows

 

 For the fiscal year ended March 31,  For the fiscal year ended March 31, 
2016 2015 2014  2019 2018 2017 
(In millions)  (In millions) 

Operating Activities:

      

Profit before tax

 ¥1,325,700   ¥1,132,908   ¥1,306,312   ¥831,892  ¥1,118,976  ¥880,352 

Adjustments for:

      

Gains on financial assets at fair value through profit or loss and investment securities

  (235,415  (247,825  (270,587 (5,888 (274,371 (112,008

Foreign exchange (gains) losses

  556,073    (726,632  (761,173

Provision (credit) for loan losses

  118,750    79,552    (25,806

Foreign exchange losses

 181,023  16,612  241,570 

Provision for loan losses

 122,927  126,623  141,457 

Depreciation and amortization

  255,971    240,760    219,090   218,915  310,179  301,638 

Share of post-tax profit of associates and joint ventures

  (31,056  (18,124  (19,454 (40,157 (49,323 (29,318

Net changes in assets and liabilities:

      

Net (increase) decrease of term deposits with original maturities over three months

  (11,071  6,550    112,857   199,313  (210,821 (57,503

Net (increase) decrease of call loans and bills bought

  (18,233  41,149    227,311   (596,424 4,436  (640,331

Net increase of reverse repurchase agreements and cash collateral on securities borrowed

  (1,040,858  (2,817,147  (361,364

Net increase of loans and advances

  (2,258,824  (5,340,732  (4,769,916

Net (increase) decrease of reverse repurchase agreements and cash collateral on securities borrowed

 (1,862,136 372,563  (698,940

Net (increase) decrease of loans and advances

 (3,368,911 354,622  (6,267,726

Net change of trading assets and liabilities and derivative financial instruments

  (837,291  744,344    (110,124 (901,481 283,731  (250,579

Net increase of deposits

  8,230,157    7,334,698    6,867,342   5,129,513  5,881,032  4,505,200 

Net increase (decrease) of call money and bills sold

  (4,615,144  1,657,077    1,084,038   126,395  (778,412 911,525 

Net increase (decrease) of repurchase agreements and cash collateral on securities lent

  (1,974,347  1,704,138    516,851  

Net increase (decrease) of other unsubordinated borrowings and debt securities in issue

  (1,499,201  4,757,098    2,927,607  

Net increase of repurchase agreements and cash collateral on securities lent

 879,734  2,735,586  2,610,655 

Net increase of other unsubordinated borrowings and debt securities in issue

 2,073,280  991,110  2,437,331 

Income taxes paid—net

  (297,767  (363,548  (398,612 (283,761 (105,880 (337,299

Other operating activities—net

  420,231    (382,082  439,940   81,599  395,318  104,575 
 

 

  

 

  

 

  

 

  

 

  

 

 

Net cash and cash equivalents provided by (used in) operating activities

  (1,912,325  7,802,184    6,984,312  

Net cash and cash equivalents provided by operating activities

 2,785,833  11,171,981  3,740,599 
 

 

  

 

  

 

  

 

  

 

  

 

 

Investing Activities:

      

Purchases of financial assets at fair value through profit or loss and investment securities

 (25,077,310  —     —   

Proceeds from sale of financial assets at fair value through profit or loss and investment securities

 17,705,865   —     —   

Proceeds from maturities of financial assets at fair value through profit or loss and investment securities

 8,922,752   —     —   

Purchases of financial assets at fair value through profit or loss and available-for-sale financial assets

  (25,968,442  (34,878,497  (18,538,588  —    (22,488,127 (19,640,194

Proceeds from sale of financial assets at fair value through profit or loss and available-for sale financial assets

  22,597,455    27,710,948    26,780,780  

Proceeds from sale of financial assets at fair value through profit or loss andavailable-for-sale financial assets

  —    13,384,847  13,460,988 

Proceeds from maturities of financial assets at fair value through profit or loss and available-for-sale financial assets

  6,072,497    5,429,814    5,870,597    —    6,265,527  6,604,279 

Purchases of held-to-maturity investments

  (266,243  —      (8,185  —    (2,001  —   

Proceeds from maturities of held-to-maturity investments

  1,394,921    1,102,109    1,314,846    —    792,358  1,093,887 

Acquisitions of subsidiaries and businesses, net of cash and cash equivalents acquired

  2,249,594    (58  37,600   37,966  (160,862 (199,356

Investments in associates and joint ventures

  (62,334  (101,181  (149,182 (102,830 (7,744 (16,494

Disposal of subsidiaries and businesses, net of cash and cash equivalents disposed

 157,507  (852,179  —   

Proceeds from sale of investments in associates and joint ventures

  762    5,470    —     101,359  19,415  14,696 

Purchases of property, plant and equipment, and investment properties

  (529,151  (572,984  (462,966 (508,835 (710,838 (491,444

Purchases of intangible assets

  (158,888  (144,404  (127,567 (139,305 (136,100 (145,001

Proceeds from sale of property, plant and equipment, investment properties and intangible assets

  148,650    187,463    158,069   104,403  302,027  169,027 

Other investing activities—net

  6,697    (66,438  674   (2  —    1,192 
 

 

  

 

  

 

  

 

  

 

  

 

 

Net cash and cash equivalents provided by (used in) investing activities

  5,485,518    (1,327,758  14,876,078   1,201,570  (3,593,677 851,580 
 

 

  

 

  

 

  

 

  

 

  

 

 

Financing Activities:

      

Proceeds from issuance of subordinated borrowings

  18,000    40,011    —    

Redemption of subordinated borrowings

  (40,262  (5,000  (32,000 (8,000 (10,000 (11,000

Proceeds from issuance of subordinated bonds

  276,949    314,927    2,111    —    104,866  244,315 

Redemption of subordinated bonds

  (186,785  (288,274  (349,884 (26,721 (180,034 (371,640

Redemption of preferred securities

  (142,000  (124,500  (451,458 (299,239 (135,000 (86,887

Proceeds from issuance of other equity instruments

  299,895    —      —      —    149,916  149,887 

Dividends paid to shareholders of Sumitomo Mitsui Financial Group, Inc.

  (211,952  (170,918  (169,984 (245,595 (218,569 (205,078

Dividends paid to non-controlling interest shareholders

  (76,744  (77,970  (95,462 (77,180 (62,529 (65,860

Coupons paid to other equity instruments holders

  (2,773  —      —     (11,875 (9,722 (7,929

Purchase of treasury stock and proceeds from sale of treasury stock—net

  (137  (143  60,166   (69,800 379  179,657 

Purchase of other equity instruments and proceeds from sale of other equity instruments—net

 (819 (103 (102

Transactions with non-controlling interest shareholders—net

  156    (479  (1,566 7,837  (6 386 
 

 

  

 

  

 

  

 

  

 

  

 

 

Net cash and cash equivalents used in financing activities

  (65,653  (312,346  (1,038,077 (731,392 (360,802 (174,251
 

 

  

 

  

 

  

 

  

 

  

 

 

Effect of exchange rate changes on cash and cash equivalents

  (489,331  748,432    654,346   44,062  (45,865 (300,075
 

 

  

 

  

 

  

 

  

 

  

 

 

Net increase of cash and cash equivalents

  3,018,209    6,910,512    21,476,659   3,300,073  7,171,637  4,117,853 

Cash and cash equivalents at beginning of period

  39,108,757    32,198,245    10,721,586   53,416,456  46,244,819  42,126,966 
 

 

  

 

  

 

  

 

  

 

  

 

 

Cash and cash equivalents at end of period

 ¥42,126,966   ¥39,108,757   ¥32,198,245   ¥56,716,529  ¥53,416,456  ¥46,244,819 
 

 

  

 

  

 

  

 

  

 

  

 

 

Net cash and cash equivalents provided by (used in) operating activities includes:

   

Net cash and cash equivalents provided by operating activities includes:

   

Interest and dividends received

 ¥1,996,686   ¥1,913,148   ¥1,854,970   ¥2,501,705  ¥2,249,000  ¥2,025,371 

Interest paid

  421,765    355,253    319,504   1,056,903  711,432  484,362 

 

The accompanying notes are an integral part of the Consolidated Financial Statements.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

1

GENERAL INFORMATION

Sumitomo Mitsui Financial Group, Inc. (“SMFG”(the “Company” or “SMFG”) was established on December 2, 2002, as a holding company for Sumitomo Mitsui Banking Corporation (“SMBC”) and its subsidiaries through a statutory share transfer (kabushiki-iten) of all of the outstanding equity securities of SMBC in exchange for SMFG’sthe Company’s newly issued securities. SMFGThe Company is a joint stock corporation with limited liability (Kabushiki Kaisha) incorporated under the Companies Act of Japan (“Companies Act”). Upon the formation of SMFGthe Company and the completion of the statutory share transfer, SMBC became a direct, wholly owned subsidiary of SMFG. SMFGthe Company. The Company has a primary listing on the Tokyo Stock Exchange (First Section), with further listing on the Nagoya Stock Exchange (First Section). SMFG’sThe Company’s American Depositary Shares are listed on the New York Stock Exchange.

SMFGThe Company and its subsidiaries (the “SMFG“SMBC Group”) offer a diverse range of financial services, including commercial banking, leasing, securities, consumer finance and other services.

The accompanying consolidated financial statements have been authorized for issue by the Management Committee on June 27, 2016.25, 2019.

 

2

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The principal accounting policies applied in the preparation of the consolidated financial statements are set out below. These policies have been consistently applied to all the fiscal years presented, unless otherwise stated.

Basis of Preparation

Compliance with International Financial Reporting Standards

The consolidated financial statements of the SMFGSMBC Group have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”).

Basis of measurement

The consolidated financial statements have been prepared under the historical cost basis except for the following:

 

trading assets and liabilities are measured at fair value;

 

derivative financial instruments are measured at fair value;

 

financial assets at fair value through profit or loss are measured at fair value;

 

investment securities at fair value through other comprehensive income(available-for-sale financial assets at March 31, 2018) are measured at fair value; and

 

liabilities and the assets recognized in consolidated statementstatements of financial position in respect of defined benefit plans are the present value of the defined benefit obligation less the fair value of plan assets.

Functional and presentation currency

The consolidated financial statements are presented in Japanese yen, which is also SMFG’sthe Company’s functional currency. All financial information presented in Japanese yen has been rounded to the nearest million, except as otherwise indicated.

Critical accounting estimates and judgments

The preparation of the consolidated financial statements in accordance with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise judgment in the process of applying the accounting policies. Actual results may differ from these estimates. The notes to the consolidated financial statements set out areas involving a higher degree of judgment or complexity, or areas where assumptions are significant to the consolidated financial statements, such as allowance for loan losses (Notes 10, 32), fair value of financial instruments (Note 43), impairment of available-for-sale financial assets (Notes 9, 32), impairment of goodwill (Note 14), provision for interest repayment (Note 20), retirement benefits (Note 23) and deferred tax assets (Note 22).

Refer to Note 3 “Critical Accounting Estimates and Judgments” for further information.

New and Amended Accounting Standards Adopted by the SMFGSMBC Group

During the fiscal year ended March 31, 2016,2019, a number of amendments to standards have become effective; however, they have not resulted in any material changes to the SMFGSMBC Group’s accounting policies.policies, except as described below.

ConsolidationIFRS 15 “Revenue from Contracts with Customers”

On April 1, 2018, the SMBC Group adopted IFRS 15 “Revenue from Contracts with Customers.” IFRS 15 replaces IAS 18 “Revenue,” IAS 11 “Construction Contracts,” IFRIC 13 “Customer Loyalty Programmes” and other related interpretations. IFRS 15 is applied to all contracts with customers except for leases, financial instruments and insurance contracts.

The core principle of IFRS 15 is to recognize revenue to depict the transfer of goods or services to customers in amounts that reflect the consideration (that is, payment) to which the entity expects to be entitled in exchange for those goods or services. IFRS 15 also requires enhanced disclosures about revenue, provides guidance for transactions that were not previously addressed comprehensively and improves guidance for multiple-element arrangements.

IFRS 15 presents a single, principles-based five-step model that applies to all contracts with customers. IFRS 15 requires the SMBC Group to capitalize the incremental costs of obtaining a contract with a customer and the costs incurred in fulfilling a contract with a customer if the SMBC Group expects to recover those costs.

The SMBC Group adopted the standard retrospectively by adjusting the consolidated statement of financial position at the date of initial application, and has not restated comparatives as permitted by IFRS 15. For further information, see “Fee and commission income” in this note.

IFRS 9 “Financial Instruments”

On April 1, 2018, the SMBC Group adopted IFRS 9 “Financial Instruments,” which is the comprehensive standard to replace IAS 39 “Financial Instruments: Recognition and Measurement.” It contains the following new requirements for classification and measurement of financial assets and liabilities, impairment of financial assets and hedge accounting. The SMBC Group adopted the standard retrospectively by adjusting the consolidated statement of financial position at the date of initial application, and has not restated comparatives as permitted by IFRS 9.

Classification and measurement of financial assets

IFRS 9 requires all financial assets, including entire hybrid instruments, to be classified into three measurement categories, namely, amortized cost, fair value through other comprehensive income (“FVOCI”) and fair value through profit or loss (“FVPL”), based on the business model within which they are held and their contractual cash flow characteristics. For further information, see “Financial Assets” in this note.

Classification and measurement of financial liabilities

IFRS 9 maintains most of the requirements in IAS 39 regarding the classification and measurement of financial liabilities. However, with the new requirements of IFRS 9, if an entity designates a financial liability as at fair value through profit or loss, the amount of change in its fair value that is attributable to changes in own credit risk of that liability would be presented in other comprehensive income, rather than profit or loss. The SMBC Group does not apply such fair value designation to any of its financial liabilities and therefore is not affected by the new requirement. For further information, see “Financial Liabilities” in this note.

Impairment of financial assets

IFRS 9 introduces the expected credit losses (“ECL”) model, which is a new model for the recognition of impairment losses, to replace the incurred loss model in IAS 39. The impairment requirements apply to financial assets measured at amortized cost, and debt instruments at FVOCI, lease receivables, certain loan commitments and financial guarantee contracts. Under the ECL model, an entity is required to account for expected credit losses from initial recognition of financial instruments, and to recognize, where necessary, full lifetime ECL on a timely basis. Under the ECL model impairment losses are recognized earlier than the incurred loss model. For further information, see “Impairment of Financial Assets” in this note.

Hedge accounting

IFRS 9 introduces a new hedge accounting model, together with corresponding disclosures about risk management activities. The standard aligns hedge accounting more closely with risk management activities and adopts a more principle-based approach than under IAS 39. The SMBC Group applies IFRS 9 hedge accounting, although IFRS 9 includes an accounting policy choice to continue with IAS 39 hedge accounting. For further information, see “Hedge Accounting” in this note and Note 7 “Derivative Financial Instruments and Hedge Accounting—Hedge accounting.”

Effect of Adoption of New and Amended Accounting Standards

The following table presents the effect of the adoption of IFRS 15 and IFRS 9 on the SMBC Group’s consolidated financial statements, showing separately the changes arising from reclassification and any associated remeasurement, and the impact of increased impairment. The SMBC Group adopted the standards retrospectively by adjusting the consolidated statement of financial position at the date of initial application, and has not restated comparatives as permitted by IFRS 15 and IFRS 9.

                                                                                                                                                                                              
  At March 31,
2018
  Effect of adoption of
IFRS 15
  Effect of adoption of IFRS 9  At April 1,
2018
 
  Classification
and

measurement/
Presentation
  Impairment 
  (In millions) 

Assets:

     

Cash and deposits with banks

 ¥54,696,069  ¥—    ¥(50,597 ¥—    ¥54,645,472 

Call loans and bills bought

  1,881,880   —     —     —     1,881,880 

Reverse repurchase agreements and cash collateral on securities borrowed

  8,491,703   —     —     —     8,491,703 

Trading assets

  3,169,123   —     —     —     3,169,123 

Derivative financial instruments

  3,885,271   —     —     —     3,885,271 

Financial assets at fair value through profit or loss

  1,547,672   —     1,562,703   —     3,110,375 

Investment securities

  20,495,075   —     (1,347,917  —     19,147,158 

Loans and advances

  85,129,070   —     (163,934  (159,944  84,805,192 

Investments in associates and joint ventures

  730,414   —     —     —     730,414 

Property, plant and equipment

  1,510,132   —     —     —     1,510,132 

Intangible assets

  835,902   —     —     —     835,902 

Other assets(1)(2)

  4,043,908   21,662   (106,673  —     3,958,897 

Current tax assets

  87,961   —     —     —     87,961 

Deferred tax assets

  19,436   (423  —     179   19,192 

Assets held for sale

  5,651,950   —     —     (3,237  5,648,713 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Total assets

 ¥      192,175,566  ¥21,239  ¥(106,418 ¥(163,002 ¥       191,927,385 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Liabilities:

     

Deposits

 ¥128,461,527  ¥—    ¥—    ¥—    ¥128,461,527 

Call money and bills sold

  1,190,929   —     —     —     1,190,929 

Repurchase agreements and cash collateral on securities lent

  12,022,593   —     —     —     12,022,593 

Trading liabilities

  2,143,899   —     —     —     2,143,899 

Derivative financial instruments

  3,498,016   —     —     —     3,498,016 

Borrowings

  10,652,481   —     —     —     10,652,481 

Debt securities in issue

  10,569,117   —     —     —     10,569,117 

Provisions

  188,267   1,858   —     23,125   213,250 

Other liabilities(2)

  6,882,740   (1,858  (106,612  25,021   6,799,291 

Current tax liabilities

  55,516   —     —     —     55,516 

Deferred tax liabilities

  397,741   6,405   59   (63,520  340,685 

Liabilities directly associated with the assets held for sale

  3,616,941   —     —     —     3,616,941 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Total liabilities

  179,679,767   6,405   (106,553  (15,374  179,564,245 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Equity:

     

Capital stock

  2,338,743   —     —     —     2,338,743 

Capital surplus

  863,505   —     —     —     863,505 

Retained earnings(3)

  5,149,193   10,776                403,458   (143,820  5,419,607 

Treasury stock

  (12,493  —     —     —     (12,493
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Equity excluding other reserves

  8,338,948   10,776   403,458   (143,820  8,609,362 

Other reserves(3)

  2,324,349   —     (403,323  —     1,921,026 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Equity attributable to shareholders of Sumitomo Mitsui Financial Group, Inc.

  10,663,297   10,776   135   (143,820  10,530,388 

Non-controlling interests

  1,232,980   4,058   —     (3,808  1,233,230 

Equity attributable to other equity instruments holders

  599,522   —     —     —     599,522 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Total equity

  12,495,799   14,834   135   (147,628  12,363,140 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Total equity and liabilities

 ¥192,175,566   ¥21,239   ¥    (106,418 ¥(163,002 ¥191,927,385  
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

(1)

Following the adoption of IFRS 15, certain costs of obtaining and fulfilling a contract with a credit card customer, previously recognized within “General and administrative expenses,” are capitalized as a cost to obtain asset and recognized within “Other assets.” Expense will be recognized as a result of the amortization of these capitalized costs over the expected life of the credit card. The impact of IFRS 15 adoption for the SMBC Group is not material.

(2)

Following the adoption of IFRS 9, certain receivables for future premiums and unearned revenue related to financial guarantees decreased by the same amount without any impact on total equity.

(3)

Impairment losses recognized under IAS 39 on equity instruments for which the SMBC Group made an irrevocable election at initial recognition to present subsequent changes in fair value in other comprehensive income under IFRS 9 were, in principle, reclassified from retained earnings to other reserves at April 1, 2018. However, of those impairment losses, the amounts above the threshold to qualify for a tax deduction in previous years were not reclassified from retained earnings to other reserves at April 1, 2018.

IFRS 9 classification and measurement

The following table provides an overview of the impact of the changes to total assets under classification and measurement of financial assets, and impairment.

                                                                                                                                    
  

Classification

under IAS 39(1)

 

Classification

under IFRS 9(1)

 At March 31,
2018
  Classification
and Presentation
  Measurement
and Impairment
  At April 1,
2018
 
      (In millions) 

Cash and deposits with banks(2)

   ¥54,696,069  ¥(50,597 ¥—    ¥54,645,472 
 L&R AC  54,645,472   —     —     54,645,472 
 L&R FVPL  45,824   (45,824  —     —   
 FVPL FVPL  4,773   (4,773  —     —   

Call loans and bills bought

 L&R AC  1,881,880   —     —     1,881,880 

Reverse repurchase agreements and cash collateral on
securities borrowed

 L&R AC  8,491,703   —     —     8,491,703 

Trading assets

 FVPL FVPL  3,169,123   —     —     3,169,123 

Derivative financial instruments

 FVPL FVPL  3,885,271   —     —     3,885,271 

Financial assets at fair value through profit or loss(2)(3)(4)

    1,547,672   1,562,509   194   3,110,375 
 FVPL FVPL  1,547,672   10,530   —     1,558,202 
 L&R FVPL  —     206,650   194   206,844 
 AFS FVPL  —     1,345,329   —     1,345,329 

Investment securities(2)(4)(5)(6)

    20,495,075   (1,347,917  —     19,147,158 
 HTM AC  372,459   —     —     372,459 
 AFS FVPL  1,345,329   (1,345,329  —     —   
 AFS FVOCI  18,774,699   —     —     18,774,699 
 FVPL FVPL  2,588   (2,588  —     —   

Loans and advances(2)(3)

    85,129,070   (163,934  (159,944  84,805,192 
 L&R AC  84,965,136   —     (159,944  84,805,192 
 L&R FVPL  160,765   (160,765  —     —   
 FVPL FVPL  3,169   (3,169  —     —   

Other financial assets(7)(8)

    3,598,642   (106,673  —     3,491,969 
 L&R AC  3,598,581   (106,612  —     3,491,969 
 L&R FVPL  61   (61  —     —   

Financial assets included in
assets held for sale(4)(6)

    3,208,771   —     (3,237  3,205,534 
 L&R AC  3,098,196   —     (3,237  3,094,959 
 AFS FVOCI  69,884   —     —     69,884 
 AFS FVPL  38,998   —     —     38,998 
 FVPL FVPL  1,693   —     —     1,693 

(1)

In “Classification under IAS 39,” FVPL, HTM, L&R and AFS represent fair value through profit or loss,held-to-maturity, loans and receivables andavailable-for-sale, respectively. In “Classification under IFRS 9,” AC, FVOCI and FVPL represent amortized cost, fair value through other comprehensive income and fair value through profit or loss, respectively.

(2)

Certain deposits with banks, loans and advances, and investment securities are hybrid instruments, which consist of host contracts and embedded derivatives. These host contracts were classified as L&R or AFS, while the embedded derivatives were separately accounted for and classified as FVPL, if certain criteria were met under IAS 39. These hybrid instruments are classified in their entirety as FVPL if they do not meet the conditions for solely payments of principal and interest (“SPPI”) under IFRS 9. The separated embedded derivatives were presented together with the host contracts in the consolidated statement of financial position under IAS 39. The entire hybrid instruments are presented as “Financial assets at fair value through profit or loss” in the consolidated statement of financial position under IFRS 9.

(3)

Certain loans and advances which were classified as L&R under IAS 39 are classified as FVPL under IFRS 9 if they do not meet the conditions for SPPI or they are held within a business model whose objective is not to hold those assets to collect contractual cash flows, but to hold those assets for sale. Those loans and advances include subordinated loans and syndicated loans held for sale. They are presented as “Financial assets at fair value through profit or loss” in the consolidated statement of financial position under IFRS 9.

(4)

Financial assets which do not meet the conditions for SPPI, such as investment funds, classified as AFS under IAS 39, are classified as FVPL under IFRS 9. They are presented as “Financial assets at fair value through profit or loss” in the consolidated statement of financial position under IFRS 9, except for the financial assets held by Sumitomo Mitsui Finance and Leasing Company, Limited (“SMFL”) which are presented as “Assets held for sale” in the consolidated statement of financial position.

(5)

Certain debt instruments which were classified as AFS under IAS 39 are classified as FVOCI under IFRS 9 if they meet the conditions for SPPI and are held within a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets. Those debt instruments include Japanese government bonds and U.S. Treasury securities.

(6)

The SMBC Group made an irrevocable election at initial recognition for certainnon-trading equity instruments, which were classified as AFS under IAS 39, to present subsequent changes in fair value in other comprehensive income under IFRS 9. The fair values of such instruments were ¥4,586,730 million at April 1, 2018. The financial assets held by SMFL are presented as “Assets held for sale” in the consolidated statement of financial position.

(7)

“Other financial assets” consist of assets that meet the definition of financial assets but are not presented in any of the other line items.

(8)

Following the adoption of IFRS 9, certain receivables for future premiums and unearned revenue related to financial guarantees decreased by the same amount without any impact on total equity.

IFRS 9 impairment

The following table reconciles the closing impairment allowance for loans and receivables in accordance with IAS 39 and provisions for loan commitments and financial guarantee contracts in accordance with IAS 37 “Provisions, contingent liabilities and contingent assets” at March 31, 2018 to the opening ECL allowance determined in accordance with IFRS 9 at April 1, 2018.

   At March 31, 2018
(IAS 39/IAS 37)
   Remeasurement   At April 1, 2018
(IFRS 9)(4)
 
   (In millions) 

Loans and advances(1)

  ¥491,676   ¥159,944   ¥651,620 

Loan commitments(2)

   4,374    23,125    27,499 

Financial guarantees(3)

   1,498    25,021    26,519 

(1)

“Loans and advances” mainly includes allowances for loans and advances. It also includes allowance for undrawn components of loan commitments issued to retail customers for which cannot be separately identified from that for the drawn components, and that for other financial assets measured at amortized cost.

(2)

The ECL allowance is measured for loan commitments issued to wholesale customers.

(3)

“Financial guarantees” represents the amount of the provision or ECL allowance in excess of the unearned revenues related to financial guarantees.

(4)

The result of the ECL calculation for debt instruments at FVOCI at April 1, 2018 was not material.

Consolidation

Subsidiaries

Subsidiaries are all entities controlled by the SMFGSMBC Group. The SMFGSMBC Group controls an entity when it is exposed, or has rights, to variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. The SMFGSMBC Group considers all facts and circumstances whether it controls an entity.

Where the relevant activities are directed through voting or similar rights, the SMFGSMBC Group considers that it controls an entity if it has the existing rights that give it the current ability to direct the operating and financing policies of the entity, in general by having a shareholding of more than 50% of the voting rights. The existence and effect of potential voting rights that are deemed to be substantive are taken into account when assessing whether the SMFGSMBC Group controls another entity.

Where the voting rights are not the dominant factor in deciding who controls the entity, the assessment of control is more complex and requires greater use of judgment. The SMFGSMBC Group assesses whether it controls an entity considering all facts and circumstances, such as the purpose and design of the entity, the relevant activities and how to make decisions about those activities.

The SMFGSMBC Group also determines whether it is acting as an agent or a principal in assessing whether it has control of another entity. An agent is a party primarily engaged to act on behalf and for the benefit of another party or parties and therefore does not control the entity. To make such judgments, the SMFGSMBC Group considers the overall relationship, especially all of the following factors: the scope of its decision-making authority over the entity, the rights held by other parties, the remuneration to which it is entitled in accordance with the remuneration agreement, and its exposure to variability of returns from other interests that it holds in the entity.

The SMFGSMBC Group reassesses whether it controls an entity if facts and circumstances indicate that there are changes to one or more of the elements of control.

Subsidiaries are fully consolidated from the date on which the SMFGSMBC Group obtains control. They are deconsolidated from the date on which the SMFGSMBC Group loses control.

The acquisition method is used to account for the business combinations including the acquisition of subsidiaries by the SMFGSMBC Group. The consideration transferred in a business combination is measured at fair

value, which is calculated as the sum of the acquisition-date fair values of the assets transferred, the liabilities incurred and the equity interests issued. Identifiable assets acquired and liabilities assumed in a business combination are measured initially at their fair values at the acquisition date. The SMFGSMBC Group’s previously held equity interest in the acquiree is remeasured at fair value at the acquisition date and any gain or loss is recognized in profit or loss. For each business combination, the SMFGSMBC Group measures anynon-controlling interest in the acquiree either at fair value or at thenon-controlling interest’s proportionate share of the acquiree’s identifiable net assets. The excess of the aggregate of the consideration transferred, the amount of anynon-controlling interest and the acquisition-date fair value of the SMFGSMBC Group’s previously held equity interest in the acquiree over the net of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed is recorded as goodwill in the consolidated statementstatements of financial position. If the aggregate of the consideration transferred, the amount of anynon-controlling interest and the acquisition-date fair value of the SMFGSMBC Group’s previously held equity interest in the acquiree is less than the net of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed, the difference is recognized immediately in the consolidated income statement.statements.

Inter-company transactions, balances and unrealized gains on transactions between the SMFGSMBC Group companies are eliminated on consolidation. Unrealized losses are also eliminated unless the transaction provides evidence of impairment of the asset transferred. The accounting policies of subsidiaries have been adjusted where necessary to ensure consistency with the accounting policies adopted by the SMFGSMBC Group.

Non-controlling interests

Changes in the SMFGSMBC Group’s ownership interest in a subsidiary that do not result in a loss of control are accounted for as equity transactions.

Interests in the equity of subsidiaries not attributable to the SMFGSMBC Group are reported in the consolidated statementstatements of financial position as a separate component of equity asnon-controlling interests. Profits or losses attributable tonon-controlling interests are separately reported in the consolidated income statement.statements.

Associates and joint ventures

An associate is an entity over which the SMFGSMBC Group has significant influence, but does not control the financial and operating policy decisions of the entity. Significant influence is generally presumed to exist when the SMFGSMBC Group holds 20% or more, but less than 50%, of the voting rights.

Entities that are jointly controlled by more than one party, including the SMFGSMBC Group, may be determined to be a joint venture.

The SMFGSMBC Group accounts for investments in associates and joint ventures using the equity method from the date on which they become associates or joint ventures. The SMFGSMBC Group discontinues the use of the equity method from the date on which the SMFGSMBC Group ceases to have significant influence or joint control over the investees.

Under the equity method, the SMFGSMBC Group’s investments in associates and joint ventures are initially recognized at cost. The carrying amount of the investments are subsequently increased or decreased to recognize the SMFGSMBC Group’s share of the post-acquisition profit or loss of the associate or joint venture and other movements included directly in the equity of the associate or joint venture. The SMFGSMBC Group’s share of the results of associates and joint ventures is based on the financial statements of its associates and joint ventures, adjusted to conform with the accounting policies of the SMFGSMBC Group. Profits on transactions between the SMFGSMBC Group and its associates and joint ventures are eliminated to the extent of the SMFGSMBC Group’s interest in the associates or joint ventures. Losses are also eliminated to the extent of the SMFGSMBC Group’s interest in the associates or joint ventures unless the transaction provides evidence of impairment in the asset transferred.

The carrying amounts of the investments in associates and joint ventures include goodwill (net of any accumulated impairment loss) arising on the acquisition of the interests in the entities. Because goodwill arising on the acquisition of the interest in an associate or joint venture is not separately recognized, it is not tested for impairment separately. Instead, the entire carrying amount of the investment in an associate or joint venture is tested for impairment as a single asset by comparing its recoverable amount, which is the higher of value in use and fair value less costs to sell, with its carrying amount, whenever there is any objective evidence that the investment is impaired. An impairment loss recognized in prior periods for the investment is reversed only if there has been a change in the estimates used to determine the recoverable amount of the investment since the last impairment loss was recognized. If this is the case, the carrying amount of the investment is increased to its recoverable amount. That increase is a reversal of an impairment loss.

When the SMFGSMBC Group’s share of losses in an associate or joint venture exceeds the SMFGSMBC Group’s carrying amount of the investment, the SMFGSMBC Group does not recognize further losses, unless it has a binding obligation or has made payments on behalf of the entity.

Segment Reporting

The SMFGSMBC Group determines its operating segments based on the management approach, which requires operating segments to be identified on the basis of internal reports about components of the entity that are regularly reviewed by management, in order to allocate resources to a segment and to assess its performance.

Foreign Currency Translation

Items included in the financial statements of each of the SMFGSMBC Group companies are measured using the currency of the primary economic environment in which the company operates (“the functional currency”). The consolidated financial statements are presented in Japanese yen, which is also SMFG’sthe Company’s functional currency.

Transactions and balances

Foreign currency transactions that are denominated or settled in a foreign currency are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Monetary items denominated in foreign currencies are translated using the exchange rate at the end of the reporting period. Foreign exchange gains and losses resulting from the retranslation and settlement of monetary items are recognized in the consolidated income statement. statements.Non-monetary items that are measured at fair value in a foreign currency are translated into the functional currency using the exchange rate at the date the fair value is determined. Translation differences on non-monetarycertain of these items, such as equity instruments measured at fair value through other comprehensive income, which were classified asavailable-for-sale financial assets under IAS 39 at March 31, 2018, are not included in the consolidated income statementstatements but are recognized directly in equity.Non-monetary items that are measured at historical cost in a foreign currency are translated into the functional currency using the exchange rate at the date of the initial transaction.

Foreign operations

The assets and liabilities of foreign operations are translated into the presentation currency of the SMFGSMBC Group using the exchange rate at the end of the reporting period, and their income statements are translated using the exchange rates at the dates of the transactions or average exchange rates where these approximate to actual rates.

The exchange differences arising on the translation of a foreign operation are included in other comprehensive income within equity and subsequently included in profit or loss on fullthe disposal or partial disposal of the operation.

Financial Assets

Regular way purchases and sales of financial assets are recognized and derecognized on the trade date—the date on which the SMBC Group commits to purchase or sell the assets. Financial assets are derecognized when the contractual rights to receive cash flows from the financial assets have expired or where the SMBC Group has transferred substantially all the risks and rewards of ownership of the financial assets at a consolidated level. The SMBC Group consolidates all subsidiaries in accordance with IFRS 10 “Consolidated Financial Statements” before determining derecognition of financial assets.

Accounting policies applied from April 1, 2018

IFRS 9 requires all financial assets, including entire hybrid instruments, to be classified into three measurement categories, namely, amortized cost, fair value through other comprehensive income (“FVOCI”) and fair value through profit or loss (“FVPL”), based on the business model within which they are held and their contractual cash flow characteristics.

The SMBC Group has assessed the business models based on facts and circumstances at a portfolio level. Factors that are considered in determining the business model include policies and objectives for the relevant portfolio, how the performance and risks of the portfolio are managed, evaluated and reported to management, and the level of sales activity.

The SMBC Group has assessed the contractual cash flow characteristics of financial assets with reference to whether the contractual cash flows are solely payments of principal and interest (“SPPI”). Principal is defined as the fair value of the financial asset at initial recognition but it may change over the life of the financial asset as amounts are repaid. Interest is defined as consideration for the time value of money and the credit risk associated with the principal amount outstanding during a particular period of time. It can also include consideration for other basic lending risks such as liquidity risk and costs such as administrative costs associated with holding the financial asset for a particular period of time, as well as a profit margin. In assessing whether the contractual cash flows meet the conditions for SPPI, the SMBC Group considers the contractual terms of the financial asset. This includes assessing whether the financial asset contains a contractual term that could change the contractual cash flows so that it would not meet the conditions for SPPI, including leverage features, contingent events that would change the amount or timing of cash flows, contractual terms that limit the SMBC Group’s claim to cash flows from specified assets, and features that modify consideration of the time value of money.

Financial assets measured at amortized cost

Financial assets are measured at amortized cost if they are held within a business model whose objective is to hold the assets in order to collect contractual cash flows, and their contractual cash flows are SPPI. These financial assets are mainly included in “Loans and advances” and also in “Investment securities” in the consolidated statements of financial position. They are initially recognized at fair value plus transaction costs that are directly attributable to the acquisition of the financial assets, and are subsequently measured at amortized cost using the effective interest method. Interest income on these financial assets using the effective interest method is recognized in “Net interest income” in the consolidated income statements.

Financial assets measured at fair value through other comprehensive income

Financial assets are measured at FVOCI if they are held within a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets, and their contractual cash flows are SPPI. Financial assets measured at FVOCI are included in “Investment securities” in the consolidated statements of financial position. They are initially recognized at fair value plus transaction costs that are directly attributable to the acquisition of the financial assets, and are subsequently measured at fair value. Gains and losses arising from changes in the fair value of these financial assets are recognized in other comprehensive income, until they are derecognized. At the time of derecognition, the cumulative gains or losses previously recognized in other comprehensive income are reclassified to profit or loss and are recognized in “Net investment income” in the consolidated income statements. Interest income calculated using the effective interest method, foreign currency gains and losses, and impairment gains and losses are recognized in “Net interest income,” “Net trading income” and “Impairment charges on financial assets” in the consolidated income statements, respectively.

In addition, the SMBC Group makes an irrevocable election at initial recognition, for particularnon-trading equity instruments that would otherwise be measured at FVPL, to present subsequent changes in fair value in other comprehensive income. These financial assets are also included in “Investment securities” in the consolidated statements of financial position. They are initially recognized at fair value plus transaction costs that are directly attributable to the acquisition of the financial asset, and are subsequently measured at fair value. Amounts presented in other comprehensive income are not subsequently transferred to profit or loss. Dividend income on equity instruments included in these financial assets is recognized in “Net investment income” in the consolidated income statements when the entity’s right to receive payment of the dividend is established.

Financial assets measured at fair value through profit or loss

Any financial assets that do not meet the criteria of amortized cost or FVOCI are classified as FVPL, unless the SMBC Group makes an irrevocable election fornon-trading equity instruments to be measured at FVOCI. Financial assets of the SMBC Group classified as FVPL consist of financial assets held for trading, derivatives and financial assets mandatorily measured at FVPL.

Financial assets are classified as held for trading and are included in “Trading assets” in the consolidated statements of financial position, if they are acquired principally for the purpose of selling in the near term or if they are part of a portfolio of identified financial instruments that are managed together and for which there is evidence of a recent actual pattern of short-term profit-taking.

Derivatives which are not designated as hedging instruments are classified as held for trading, and all derivatives are included in “Derivative financial instruments” in the consolidated statements of financial position. All derivatives are carried as assets when the fair value is positive and as liabilities when the fair value is negative.

Financial assets mandatorily measured at FVPL, other than those held for trading and derivatives, are included in “Financial assets at fair value through profit or loss” in the consolidated statements of financial position.

The financial assets mentioned above are initially recognized at fair value with transaction costs being recognized in profit or loss, and are subsequently measured at fair value. Gains and losses arising from changes in the fair values of trading assets and derivatives held for trading, and interest and dividend income on trading assets are included in “Net trading income” in the consolidated income statements. Gains or losses arising from financial assets mandatorily measured at FVPL are included in “Net income (loss) from financial assets at fair value through profit or loss” in the consolidated income statements.

Additionally, financial assets measured at amortized cost or FVOCI can be designated at initial recognition to be measured at FVPL in order to eliminate or significantly reduce a measurement or recognition inconsistency. The SMBC Group does not make this designation.

Accounting policies applied until March 31, 2018

At initial recognition, the financial assets of the SMFGSMBC Group arewere classified into one of the following categories: trading assets, derivative financial instruments, financial assets at fair value through profit or loss, loans and receivables,held-to-maturity investments andavailable-for-sale financial assets.

Regular way purchasesTrading assets

Financial assets were classified as held for trading and saleswere included in “Trading assets” in the consolidated statements of financial position, if they were acquired principally for the purpose of selling in the near term or if they were part of a portfolio of identified financial instruments that were managed together and for which there was evidence of a recent actual pattern of short-term profit-taking. Trading assets were initially recognized at fair value with transaction costs being recognized in the consolidated income statements, and were subsequently measured at fair value. Gains and losses arising from changes in the fair values of trading assets derivativeand net interest and dividend income on trading assets were included in “Net trading income” in the consolidated income statements.

Derivative financial instruments

Derivatives which were not designated as hedging instruments were classified as held for trading, and all derivatives were included in “Derivative financial instruments” in the consolidated statements of financial position. All derivatives were carried as assets when the fair value was positive and as liabilities when the fair value was negative. Derivatives were initially recognized at fair value with transaction costs being recognized in the consolidated income statements, and were subsequently measured at fair value. Gains and losses arising from changes in the fair values of derivatives held for trading, except for gains and losses on hedging instruments were included in “Net trading income” in the consolidated income statements.

The derivative component of a hybrid instrument containing both a derivative andnon-derivative component (“host contract”) was referred to as an embedded derivative. Certain embedded derivatives were accounted for as separate derivatives, when their economic characteristics and risks were not closely related to those of the host contract, a separate instrument with the same terms as the embedded derivative would meet the definition of a derivative and the hybrid instrument was not carried at fair value through profit or loss. These embedded derivatives were measured at fair value and were presented in the consolidated statements of financial position together with the host contract.

Financial assets at fair value through profit or loss

Financial assets, other than those held for trading, were classified as financial assets at fair value through profit or loss held-to-maturity investments and available-for-salewere included in “Financial assets at fair value through profit or loss” in the consolidated statements of financial position, if they met one of the following criteria, and were so designated by management:

the designation eliminated or significantly reduced a measurement or recognition inconsistency;

a group of financial assets are recognizedwas managed and its performance was evaluated on the trade date—the date on which the SMFG Group commits to purchase or sell the assets.

Financial assets are derecognized when the rights to receive cash flows from the financial assets have expired or where the SMFG Group has transferred substantially all the risks and rewards of ownership at a consolidated level. The SMFG Group consolidates all subsidiariesfair value basis in accordance with IFRS 10 “Consolidateda documented risk management or investment strategy; or

the instrument contained one or more embedded derivatives unless (a) the embedded derivative did not significantly modify the cash flows that otherwise would have been required by the contract or (b) it was clear with little or no analysis that separation was prohibited.

In addition, the SMBC Group classified the entire hybrid instrument at fair value through profit or loss when the SMBC Group was required to separate an embedded derivative from its host contract, but was unable to measure the embedded derivative separately either at acquisition or at the end of a subsequent reporting period. Financial Statements” before determining derecognitionassets at fair value through profit or loss were initially recognized at fair value with transaction costs being recognized in the consolidated income statements, and were subsequently measured at fair value. Gains and losses arising from changes in the fair value of such financial assets were included in “Net income (loss) from financial assets at fair value through profit or loss” in the consolidated income statements.

Loans and receivables

Loans and receivables werenon-derivative financial assets with fixed or determinable payments that were not quoted in an active market, other than:

those that the SMBC Group intended to sell immediately or in the near term, which were classified as held for trading, and those that the SMBC Group upon initial recognition designated as at fair value through profit or loss;

those that the SMBC Group upon initial recognition classified asavailable-for-sale; or

those for which the SMBC Group might not recover substantially all of its initial investment, other than because of credit deterioration.

The financial assets classified as loans and receivables were mainly included in “Loans and advances” in the consolidated statements of financial assets under IAS 39 “Financial Instruments: Recognitionposition. Loans and Measurement.”receivables were initially recognized at fair value plus directly attributable transaction costs, and were subsequently measured at amortized cost using the effective interest method.

Held-to-maturity investments

Held-to-maturity investments werenon-derivative financial assets quoted in an active market with fixed or determinable payments and fixed maturities that the SMBC Group had the positive intention and ability to hold to maturity. If the SMBC Group had been to sell other than an insignificant amount ofheld-to-maturity investments, the remaining investments in this category would have been reclassified asavailable-for-sale financial assets.Held-to-maturity investments were initially recognized at fair value plus directly attributable transaction costs, and were subsequently measured at amortized cost using the effective interest method.

TradingAvailable-for-sale financial assets

Available-for-sale financial assets werenon-derivative financial assets that were classified asavailable-for-sale at initial recognition or were not classified into any of the other categories described above.Available-for-sale financial assets were initially recognized at fair value plus directly attributable transaction costs, and were subsequently measured at fair value.

Gains and losses arising from changes in the fair value ofavailable-for-sale financial assets were recognized in other comprehensive income, until they were derecognized or impaired. At that time, the cumulative gain or loss previously recognized in other comprehensive income was recognized in the consolidated income statements. However, interest income calculated using the effective interest method and foreign currency gains and losses on monetary assets classified asavailable-for-sale were recognized in the consolidated income statements. Dividends onavailable-for-sale equity instruments were recognized in the consolidated income statements when the entity’s right to receive payment was established.

Financial assetsLiabilities

Financial liabilities, except for financial liabilities measured at fair value through profit or loss, are mainly included in “Deposits,” “Borrowings,” and “Debt securities in issue” in the consolidated statements of financial

position. They are initially recognized at fair value, net of transaction costs that are directly attributable to the issue of the financial liabilities, and are subsequently measured at amortized cost using the effective interest method. Interest expense on these financial liabilities measured at amortized cost using the effective interest method is recognized in “Net interest income” in the consolidated income statements.

Financial liabilities measured at fair value through profit or loss consist of financial liabilities held for trading and derivatives whose fair values are negative.

Financial liabilities are classified as held for trading and included in “Trading assets” in the consolidated statement of financial position, if they are acquired or incurred principally for the purpose of selling or repurchasing in the near term or if they are part of a portfolio of identified financial instruments that are managed together and for which there is evidence of a recent actual pattern of short-term profit-taking. Financial liabilities held for trading are included in “Trading liabilities” in the consolidated statements of financial position. Trading assetsliabilities are initially recognized at fair value with transaction costs being recognized in the consolidated income statement,profit or loss, and are subsequently measured at fair value. Gains and losses arising from changes in the fair values of trading assetsliabilities and interest expense on trading liabilities are included in “Net trading income” in the consolidated income statement.statements.

Derivative financial instruments

Derivatives are also classified as held for trading and included in “Derivative financial instruments” inFor derivatives other than the consolidated statementcomponent of financial position. The SMFG Group does not apply hedge accounting under IFRS. All derivatives are carried ashybrid instrument, refer to “Financial assets when the fair value is positive and as liabilities when the fair value is negative. Derivatives are initially recognizedmeasured at fair value with transaction costs being recognizedthrough profit or loss” in the consolidated income statement, and subsequently measured at fair value. Gains and losses arisingsection “Financial Assets—Accounting policies applied from changes in the fair values of derivatives are included in “Net trading income” in the consolidated income statement.April 1, 2018.”

The derivative component of a hybrid instrument containing both a derivative andnon-derivative component (“host contract”) is referred to as an embedded derivative. Certain embedded derivatives are accounted for as separate derivatives, when their economic characteristics and risks are not closely related to those of the host contract, a separate instrument with the same terms as the embedded derivative would meet the definition of a derivative and the hybrid instrument is not carried at fair value through profit or loss. These embedded derivatives are measured at fair value, andwhile the host contracts are measured at amortized cost. These embedded derivatives are presented in the consolidated statementstatements of financial position together with the host contract.

Financial assetsFollowing the adoption of IFRS 9 from April 1, 2018, if a financial liability is designated as at fair value through profit or loss,

Financial assets, other than those held for trading, are classified as financial assets at the amount of change in its fair value through profit or loss and are includedthat is attributable to changes in “Financial assets at fair value through profit or loss” in the consolidated statementown credit risk of financial position, if they meet one of the following criteria, and are so designated by management:

the designation eliminates or significantly reduces a measurement or recognition inconsistency;

a group of financial assets is managed and its performance is evaluated on a fair value basis in accordance with a documented risk management or investment strategy; or

the instrument contains one or more embedded derivatives unless (a) the embedded derivative does not significantly modify the cash flows that otherwiseliability would be required by the contract or (b) it is clear with little or no analysis that separation is prohibited.

In addition, the SMFG Group classifies the entire hybrid instrument at fair value through profit or loss when the SMFG Group is required to separate an embedded derivative from its host contract, but is unable to measure the embedded derivative separately either at acquisition or at the end of a subsequent reporting period. Financial assets at fair value through profit or loss are initially recognized at fair value with transaction costs being recognized in the consolidated income statement, and subsequently measured at fair value. Gains and losses arising from changes in the fair value of such financial assets are included in “Net income from financial assets at fair value through profit or loss” in the consolidated income statement.

Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market, other than:

those that the SMFG Group intends to sell immediately or in the near term, which are classified as held for trading, and those that the SMFG Group upon initial recognition designates as at fair value through profit or loss;

those that the SMFG Group upon initial recognition classifies as available-for-sale; or

those for which the SMFG Group may not recover substantially all of its initial investment, other than because of credit deterioration.

The financial assets classified as loans and receivables are mainly included in “Loans and advances” in the consolidated statement of financial position. Loans and receivables are initially recognized at fair value plus directly attributable transaction costs, and are subsequently measured at amortized cost using the effective interest method.

When the SMFG Group is the lessor in a lease agreement that transfers substantially all of the risks and rewards incidental to ownership of the asset to the lessee, the arrangement is classified as a finance lease and a receivable equal to the net investment in the lease is recognized and presented within “Loans and advances” in the consolidated statement of financial position.

Held-to-maturity investments

Held-to-maturity investments are non-derivative financial assets quoted in an active market with fixed or determinable payments and fixed maturities that the SMFG Group has the positive intention and ability to hold to maturity. If the SMFG Group were to sell other than an insignificant amount of held-to-maturity investments, the remaining investments in this category would be reclassified as available-for-sale financial assets. Held-to-maturity investments are initially recognized at fair value plus directly attributable transaction costs, and are subsequently measured at amortized cost using the effective interest method.

Available-for-sale financial assets

Available-for-sale financial assets are non-derivative financial assets that are classified as available-for-sale at initial recognition or are not classified into any of the other categories described above. Available-for-sale financial assets are initially recognized at fair value plus directly attributable transaction costs, and are subsequently measured at fair value.

Gains and losses arising from changes in the fair value of available-for-sale financial assets are recognized in other comprehensive income, until they are derecognizedrather than profit or impaired. At that time, the cumulative gain or loss

previously recognized in other comprehensive income is recognized in the consolidated income statement. However, interest income calculated using the effective interest method and foreign currency gains and losses on monetary assets classified as available-for-sale are recognized in the consolidated income statement. Dividends on available-for-sale equity instruments are recognized in the consolidated income statement when the entity’s right to receive payment is established.

Financial Liabilities

Financial liabilities, except for held for trading and derivatives, are initially recognized at fair value net of transaction costs incurred, including premiums, discounts and issuance costs, and subsequently measured at amortized cost based on the effective interest method. Financial liabilities carried at amortized cost are mainly “Deposits,” “Borrowings,” and “Debt securities in issue” included in the consolidated statement of financial position.

Financial liabilities held for trading and derivatives are initially measured at fair value with transaction costs being recognized in the consolidated income statement, and subsequently measured at fair value. Financial liabilities held for trading and derivatives are mainly included in “Trading liabilities” and “Derivative financial instruments,” respectively, in the consolidated statement of financial position.loss. The SMBC Group does not make this designation.

Financial liabilities are derecognized when they have been redeemed or otherwise extinguished.

Hedge Accounting

The SMFGSMBC Group does not applyapplies fair value hedge accounting under IAS 39.started from the fiscal year ended March 31, 2019 and hedge accounting of net investments in foreign operations, in order to reflect the effect of risk management activities on its consolidated financial statements to mitigate the risk of changes in fair values of certain equity instruments elected to be measured at FVOCI and the foreign currency risk of exchange differences arising from the translation of net investments in foreign operations, respectively. For further information about hedge accounting, see Note 7 “Derivative Financial Instruments and Hedge Accounting—Hedge accounting.”

Fair value hedges

The SMBC Group designates equity derivatives as hedging instruments. Both the effective portion and ineffective portion of changes in the fair value of the hedging instruments are recognized in other comprehensive income, and amounts presented in other comprehensive income are not subsequently transferred to profit or loss.

Hedges of net investments in foreign operations

The SMBC Group designates currency derivatives and foreign currency denominated financial liabilities as hedging instruments. The effective portion of the gain or loss on the hedging instruments is recognized in other comprehensive income, whereas the ineffective portion of the gain or loss on the hedging instruments is recognized in “Net trading income” in the consolidated income statements. The cumulative gain or loss recognized in other comprehensive income is reclassified to profit or loss on the disposal or partial disposal of foreign operations.

Offsetting Financial Instruments

Financial assets and liabilities are offset and the net amount is reported in the consolidated statementstatements of financial position, only if the SMFGSMBC Group currently has a legally enforceable right to set off the recognized amounts and intends to settle on a net basis or to realize the asset and settle the liability simultaneously. In all other situations, they are presented on a gross basis.

Fair Value Measurement

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. In determining the fair value, the SMFGSMBC Group gives the highest priority to a quoted price in an active market for identical assets or liabilities. A market is regarded as active if transactions for the asset or liability take place with sufficient frequency and volume to provide pricing information on an ongoing basis. If there is no active market for the asset or liability, the SMFGSMBC Group uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure the fair value, maximizing the use of relevant observable inputs and minimizing the use of unobservable inputs. In cases where the SMFGSMBC Group manages a group of financial assets and financial liabilities on the basis of its net credit risk exposure, the fair value of the group of financial assets and financial liabilities is measured on the basis of the price that would be received to sell a net long position (i.e., an asset) or paid to transfer a net short position (i.e., a liability) for the credit risk exposure provided that certain criteria set forth in IFRS 13 “Fair Value Measurement” are met. Details of fair value measurement are described in Note 43 “Fair Value of Financial Assets and Liabilities.”

Recognition of Deferred Day One Profit and Loss

The best evidence of the fair value of a financial instrument at initial recognition is normally the transaction price (i.e., the fair value of the consideration given or received). However, if the fair value at initial recognition is

not evidenced by a quoted price in an active market for an identical asset or liability nor based on a valuation technique that uses only data from observable markets, the difference between the fair value at initial recognition and the transaction price, commonly referred to as “day one profit and loss,” is not recognized as a gain or loss but is adjusted to be deferred.

The SMFGSMBC Group didhas certain financial instruments, such as derivatives, hybrid financial instruments and certain loans and advances classified as FVPL where fair value is determined using valuation techniques for which not have any significantall inputs are observable in a market. Such a financial instrument is initially recognized at the transaction price which may be different from the fair value, and the day one profit and loss is not recognized as a gain or loss.

The timing of recognition of the deferred day one profit and loss foris determined on an instrument by instrument basis. It is either amortized over the fiscal years ended March 31, 2016 and 2015.life of the transaction, deferred until fair value of the instrument can be determined using data from observable markets, or realized through settlement of the instrument.

Repurchase and Reverse Repurchase Agreements, and Securities Borrowing and Lending Agreements

In the ordinary course of business, the SMFGSMBC Group lends or sells securities under agreements to repurchase them at a predetermined price on a future date (“repos”). Since substantially all the risks and rewards of

ownership are retained by the SMFGSMBC Group, the securities remain on the consolidated statementstatements of financial position and a liability is recorded in respect of the consideration received. On the other hand, the SMFGSMBC Group borrows or purchases securities under agreements to resell them at a predetermined price on a future date (“reverse repos”). Since the SMFGSMBC Group does not retain the risks and rewards of ownership of the financial assets, these transactions are treated as collateralized loans and the securities are not included in the consolidated statementstatements of financial position.

The SMBC Group measures repos and reverse repos at amortized cost. The difference between the sale and purchase price is accrued over the life of the transactions. Securities lent to counterparties remain on the consolidated statementstatements of financial position. Securities borrowed are not recognized in the consolidated statementstatements of financial position, unless these are sold to third parties, at which point the obligation to repurchase the securities is recorded as a trading liabilitymeasured at fair value and included in “Trading liabilities” in the consolidated statements of financial position and any subsequent gain or loss is included in “Net trading income” in the consolidated income statement.statements.

For the fiscal years ended March 31, 20162019 and 2015,2018, there were no transactions pursuant to repurchase agreements, securities lending transactions or other transactions involving the transfer of financial assets with an obligation to repurchase such transferred assets that were treated as sales and hence derecognized for accounting purposes.

Impairment of Financial Assets

LoansAccounting policies applied from April 1, 2018

IFRS 9 introduces the ECL model for the recognition of impairment losses. The ECL model applies to financial assets measured at amortized cost, and advancesdebt instruments at FVOCI, lease receivables, certain loan commitments and held-to-maturity investmentsfinancial guarantee contracts. Under the ECL model, an entity is required to account for expected credit losses from initial recognition of financial instruments and to recognize full lifetime expected losses on a timely basis.

Determining significant increase in credit risk

At the end of each reporting period, the SMFG Group assesses whether there is any objective evidence thatdate, credit risk on a financial asset is assessed and a loss allowance is measured at an amount equal to the ECL resulting from default events that are possible within the next 12 months, if the credit risk has not increased significantly since initial recognition (“Stage 1”). A loss allowance is measured at an amount equal to the ECL resulting from all possible default events over the expected life of the financial assets which are assessed to have experienced a significant increase in credit risk since initial recognition (“Stage 2”) or the credit-impaired financial assets (“Stage 3”). The expected life of a groupfinancial asset is the maximum contractual period over which it is exposed to credit risk. However, for certain revolving facilities including both a loan and an undrawn component, such as retail overdrafts and credit card facilities, the contractual ability to demand repayment and cancel the undrawn commitment does not limit the exposure to credit losses to the contractual notice period. The expected life of these revolving facilities is derived from the behavioral life calculated based on historical data.

Assessments on significant increases in credit risk are performed on an individual financial asset basis. The SMBC Group performs ECL recognition and measurement on a collective basis or an individual basis using reasonable and supportable information that is available without undue cost or effort, such as asset type, credit risk ratings, collateral collectability,past-due status and other relevant characteristics of financial instruments.

The SMBC Group determines whether there has been a significant increase in credit risk by comparing the risk of a default occurring on a financial instrument at the reporting date with that at the date of initial recognition, based on quantitative and qualitative assessments. As for the quantitative assessment, the SMBC Group measures increase of probability of default (“PD”) since initial recognition. If an obligor gets downgraded

to a certain degree which reflects an increase of PD exceeding the threshold defined, a significant increase in credit risk is recognized. For example, origination obligor grade getting down by one to four grades is taken as a significant increase in credit risk where PD has increased since initial recognition. Numbers of obligor grade deterioration taken to identify significant increase in credit risk depend on credit quality at origination. The origination obligor grade with lower credit rating takes less downgrades to identify significant increase in credit risk than those with higher credit rating, due to the difference in increase of PD. Refer to Note 45 “Financial Risk Management” for information on obligor grading system of SMBC. As for the qualitative assessment, the SMBC Group evaluates credit risk characteristics of financial assets in accordance with the SMBC Group’s credit risk management practices. For example, certain financial assets that meet high credit risk criteria are transferred to Stage 2 from Stage 1. Moreover, financial assets whose principal and/or interest payments are more than 30 days past due are transferred to Stage 2. If there is impaired.no longer any observation of a significant increase in credit risk, the financial instrument will be transferred to Stage 1.

Determining credit-impaired financial assets

A financial asset or a group of financial assets is impairedcredit-impaired and impairment losses are incurred only if there is objective evidence of impairment as a result ofclassified to Stage 3 when one or more events that occurred after the initial recognition of the asset (a “loss event”) and that loss event (or events) has anhave a detrimental impact on the estimated future cash flows of thethat financial asset or group of financial assets that can be reliably estimated.

have occurred. The criteria that the SMFGSMBC Group uses to determine that therea financial asset is objective evidence of an impairment losscredit-impaired include:

 

significant financial difficulty of an issuer or an obligor;borrower;

 

a default or delinquency as more than 90 days past due in interest or principal payments;

 

restructuring of a financial asset by the SMFGSMBC Group due to the borrower’s financial difficulties on terms that the SMFG Group would not otherwise consider;difficulties;

 

indications that a borrower or issuer will enter bankruptcy; and

 

the disappearance of an active market for a securitythat financial asset because of the borrower’s financial difficulties; anddifficulties.

other observable data relatingIf a financial asset is no longer credit-impaired, it will be transferred to a groupStage 2 or Stage 1.

The definition of default used for ECL recognition and measurement is consistent with that used for the SMBC Group’s internal credit risk management purposes. The SMBC Group manages credit risk with an internal credit rating system, which is consisted of the borrower categories to substandard borrowers, potentially bankrupt borrowers, effectively bankrupt borrowers, and bankrupt borrowers defined as default for ECL application (see Note 45 “Financial Risk Management”).

Purchased or originated credit-impaired financial assets such(“POCI”) are financial assets considered credit-impaired at the time of initial recognition. They are measured at fair value on initial recognition and therefore no credit loss allowance is initially recognized. Subsequently, lifetime expected credit losses for POCI are measured as adversethe difference between the financial asset’s amortized cost and the present value of future cash flows discounted at the financial asset’s credit-adjusted effective interest rate determined at initial recognition. Moreover, changes in the payment statuslifetime expected credit losses are recognized as impairment charges.

Measurement of borrowers or issuers in the group, or national or local economic conditions that correlate with defaults in the group.Expected Credit Losses

The SMFGSMBC Group first assesses whether objective evidencemeasures ECL of impairment exists individually fora financial assets that are individually significant, and individually or collectively for financial assets that are not individually significant. If the SMFG Group determines that no objective evidence of impairment exists for an individually assessed financial asset, whether significant or not, it includes the asset in a groupway that reflect an unbiased and probability-weighted amount, the time value of money, and reasonable and supportable information that is available at the reporting date about past events, current conditions and forecasts of future economic conditions.

The ECL models have been built by leveraging the PD, loss given default (“LGD”) and exposure at default (“EAD”) used in the Basel III regulatory framework, for instance by adjusting certain conservative factors in those PDs and LGDs. For financial assets with similar credit risk characteristicsat Stage 1 and collectively assesses them for impairment. Assets that are individually assessed for impairmentStage 2, the SMBC Group uses the12-month PDs

developed to measure12-month ECL and for which an impairment loss is or continuesthe lifetime PDs developed to be recognized are not included in the collective assessment of impairment.

The allowance for individually significant impairedmeasure lifetime ECL respectively, and considers forward-looking macroeconomics information. For financial assets is measured byat Stage 3, the SMBC Group applies the discounted cash flow (“DCF”) method whichfor individually significant credit-impaired financial assets. For credit-impaired financial assets that are not individually significant, the SMBC Group applies the same formula used for Stage 2 with PD set at 100%. For portfolios where the above ECL models are not applicable, the SMBC Group adjusts historical data, such as credit loss experience, with current observable data to reflect the effects of current conditions and forecasts to reflect the possible effect of future conditions.

The DCF method is used to calculatemeasure the ECL, which is the difference between the financial asset’s carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the financial asset’s original effective interest rate. If financial assets have a variable interest rate, the discount rate for measuring any impairment loss is the effective interest rate determined under the contract, for the current period. The estimated future cash flows are individually calculated taking into account factors including historical loss information, the appropriateness of the borrower’s business plan or operational improvement plan, the status of progress of its plan, the overall support from financial institutions, and the realizable value of any collateral held.

The SMBC Group incorporates forward looking information into the ECL measurement by obligor grading, macroeconomics factors and additional ECL adjustment if any. Obligor-specific forward-looking information is reflected in the obligor grade as a qualitative assessment. Refer to Note 45 “Financial Risk Management” for information on obligor grading system of the SMBC Group. To incorporate forward-looking information into the ECL models, the SMBC Group introduces an approach based on multiple scenarios. In this approach, three scenarios (base, upside and downside scenarios) are modelled to ensure an unbiased ECL calculation. Information considered in the development of the base scenario is aligned with information used for strategic planning, budgeting and risk management of the SMBC Group, and includes not only internal information but external information including economic data and forecasts publicly provided by Japanese governmental bodies, research institutes of the private-sector and international organizations conducting economic analysis and projections. The downside scenario is the adverse scenario and based on the stressed business environments such as serious economic recession and financial market disruption. Both the downside scenario and the upside scenario, which is the favorable scenario, are developed based on the premises of the base scenario and the past macroeconomic experiences. The SMBC Group has lower weights for the downside scenario and the upside scenario compared with the base scenario. Furthermore, additional ECL adjustment is applied in cases where known or expected risk factors or information have not been specifically considered in the ECL model and thus the ECL does not fully reflect current circumstances, events or conditions at relevant portfolio level.

The SMBC Group has identified the key macroeconomic drivers impacting on credit risks and losses in each major portfolio of financial assets and has estimated relationships between those key drivers and credit risks and losses using an analysis of historical data. For domestic and foreign loans to wholesale customers, the key drivers for credit risks and losses are the Japanese and global gross domestic product (“GDP”). For domestic loans to retail customers, the Japanese unemployment rate is applied as the key driver. Outcomes of the analysis are incorporated into PD for ECL recognition and measurement in a probability-weighted way.

ECLs are recognized through loss allowance accounts. Changes in the carrying amount of the loss allowance accounts are recognized as an impairment gain or loss and included in “Impairment charges on financial assets” in the consolidated income statement.

If a financial asset is determined to be uncollectible, it is written off against the related allowance for loan impairment. Uncollectible financial assets are normally written off when there is no reasonable expectation of further recovery after any collateral is foreclosed and the amount of the loss has been determined. Those assets primarily include loans to borrowers that have been legally or formally declared bankrupt and borrowers that may not have been legally or formally declared bankrupt but are essentially bankrupt.

If contractual terms of a loan have been modified, it is required to recalculate the gross carrying amount of that loan and recognize a modification gain or loss in profit or loss. Moreover, it is required to assess whether

there has been a significant increase since initial recognition and the SMBC Group conducts analysis to monitor the change in credit risk subsequent to modification. However, if the new contractual terms are considered substantially different from the existing contractual terms, a new loan will be recognized at fair value and the existing loan will be derecognized.

Accounting policies applied until March 31, 2018

Loans and advances andheld-to-maturity investments

At the end of each reporting period, the SMBC Group assessed whether there was any objective evidence that a financial asset or a group of financial assets was impaired.

A financial asset or a group of financial assets was impaired and impairment losses were incurred only if there was objective evidence of impairment as a result of one or more events that had occurred after the initial recognition of the asset (a “loss event”) and that loss event (or events) had an impact on the estimated future cash flows of the financial asset or group of financial assets that could be reliably estimated.

The criteria that the SMBC Group used to determine that there was objective evidence of an impairment loss included:

significant financial difficulty of an issuer or an obligor;

a default or delinquency in interest or principal payments;

restructuring of a financial asset by the SMBC Group due to the borrower’s financial difficulties on terms that the SMBC Group would have not otherwise considered;

indications that a borrower or issuer would enter bankruptcy;

disappearance of an active market for a security because of the borrower’s financial difficulties; and

other observable data relating to a group of assets, such as adverse changes in the payment status of borrowers or issuers in the group, or national or local economic conditions that correlated with defaults in the group.

The SMBC Group first assessed whether objective evidence of impairment existed individually for financial assets that were individually significant, and individually or collectively for financial assets that were not individually significant. If the SMBC Group determined that no objective evidence of impairment existed for an individually assessed financial asset, whether significant or not, it included the asset in a group of financial assets with similar credit risk characteristics and collectively assessed them for impairment. Assets that were individually assessed for impairment and for which an impairment loss was or continued to be recognized were not included in the collective assessment of impairment.

The allowance for individually significant impaired financial assets was measured by DCF method, which was used to calculate the difference between the financial asset’s carrying amount and the present value of estimated future cash flows (excluding future credit losses that had not been incurred) discounted at the financial asset’s original effective interest rate. If financial assets had a variable interest rate, the discount rate for measuring any impairment loss was the effective interest rate determined under the contract, for the current period. The estimated future cash flows were individually calculated taking into account factors including historical loss information, the appropriateness of the borrower’s business plan or operational improvement plan, the status of progress of its plan, the overall support from financial institutions, and the realizable value of any collateral held.

The collective allowance for financial assets iswas classified into two types: (1) the allowance for impaired financial assets that arewere not individually significant, and (2) the allowance fornon-impaired financial assets,

which reflectsreflected incurred but not yet identified (“IBNI”) losses for the period between the impairment occurring and the loss being identified. The collective allowance iswas estimated by applying historical loss experience to groups of homogenous loans. The historical loss experience data includesincluded the number of borrowers for whom objective evidence of impairment hashad been identified for the most recent rollingone-year period, and the amount ultimately recovered from impaired financial assets. The SMFGSMBC Group hashad collected and accumulated historical data on amounts ultimately recovered from impaired financial assets. The homogeneous groups arewere determined on the basis of similar credit risk characteristics. For every group, the SMFGSMBC Group’s grading processes arewere established considering asset type, industry, geographical location, collateral type,past-due status and other relevant characteristics (see Note 45 “Financial Risk Management”).characteristics. These characteristics arewere relevant to the estimation of future cash flows for groups of such assets as being indicative of the debtors’ ability to pay all amounts due according to the contractual terms of the assets being evaluated. Historical loss experience iswas adjusted on the basis of current observable data, including bankruptcy trends after the occurrence of significant events which had had a negative effect on the global economy and the economies in which a large portion of the SMFGSMBC Group’s assets arewere located, to reflect the effects of current conditions that didhad not affectaffected the period on which the historical loss experience iswas based and to remove the effects of conditions in the historical period that dodid not currently exist.

The carrying amount of the asset iswas reduced by the impairment loss either directly or through the use of an allowance account. Changes in the carrying amount of the allowance account arewere recognized in the consolidated income statement. If, in a subsequent period, the amount of the impairment loss decreasesdecreased and the decrease cancould be related objectively to an event occurring after the impairment washad been recognized (such as an improvement in the debtor’s credit rating), the previously recognized impairment loss iswas reversed by adjusting the allowance account. The amount of the reversal iswas recognized in “Impairment charges on financial assets” in the consolidated income statement.

If a financial asset iswas determined to be uncollectible, it iswas written off against the related allowance account. Uncollectible financial assets arewere normally written off when there iswas no reasonable expectation of further recovery after any collateral iswas foreclosed and the amount of the loss hashad been determined. Those assets primarily includeincluded loans forto borrowers that havehad been legally or formally declared bankrupt and borrowers that maymight not have been legally or formally declared bankrupt but arewere essentially bankrupt.

Loans and advances that would have otherwise bebeen past due or impaired, but whose terms havehad been renegotiated without providing any financial concessions, arewere not classified as impaired loans and advances as the terms of the

renegotiated loans and advances dodid not result in a decrease in the net present value of the loan discounted at its original effective interest rate. TheA collective allowance iswas estimated for these loans and advances by including them in homogenous groups on the basis of applying the SMFGSMBC Group’s grading process, taking into account the renegotiation and their consequent higher risk status. These loans and advances arewere continually assessed for impairment until maturity or derecognition.

In addition, provisions for loan commitments arewere calculated where it iswas probable that the SMFGSMBC Group willwould incur a loss and recognized in other provisions (see Note 20 “Provisions”).provisions.

Available-for-sale financial assets

At the end of each reporting period, the SMFGSMBC Group assessesassessed whether there iswas objective evidence that a financial asset or a group of financial assets iswas impaired. In the case of equity instruments classified asavailable-for-sale, a significant or prolonged decline in the fair value of the instruments below cost iswas also considered in determining whether the assets arewere impaired. In the case of debt instruments classified asavailable-for-sale, impairment iswas assessed based on the same criteria as for loans and advances andheld-to-maturity investments. If any objective evidence of impairment existsexisted foravailable-for-sale financial assets, the cumulative loss—measured as the difference between the cost and the current fair value, less any impairment loss on that financial asset previously recognized in profit or loss—iswas removed from equity and recognized in the consolidated income statement.

Impairment losses recognized in the consolidated income statement on equity instruments classified asavailable-for-sale are were not reversed through the consolidated income statement. For debt instruments classified asavailable-for-sale, if the fair value recoversrecovered in a subsequent period and it cancould be objectively associated with an event occurring after the impairment loss washad been recognized in the consolidated income statement, the impairment loss iswas reversed through the consolidated income statement.

Property, Plant and Equipment

All property, plant and equipment are stated at cost less accumulated depreciation and accumulated impairment losses, if any. Additions and subsequent expenditures are capitalized only to the extent that they enhance the future economic benefits expected to be derived from the assets. Repairs and maintenance costs are expensed as incurred.

Land is not depreciated. Depreciation of other assets is calculated using the straight-line method to allocate their cost to their residual values over their estimated useful lives, as follows:

 

Buildings: 7–50 years;

 

Leased assets: the shorter of the lease term and the estimated useful life, which is principallygenerally 5–20 years; and

 

Assets for rent (including assets for aircraft leasing business) and others: 2–40 years.

The residual values and useful lives are reviewed and adjusted, if appropriate, at the end of each reporting period. Gains and losses on disposal are determined by comparing the proceeds with the carrying amount. These are included in “Other income” and “Other expenses” in the consolidated income statement.statements.

Intangible Assets

Goodwill

Goodwill represents the excess of the aggregate of the consideration transferred, the amount of anynon-controlling interest and the acquisition-date fair value of the SMFGSMBC Group’s previously held equity interest in the

acquiree over the net of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed, and is initially recognized at the date of acquisition. Goodwill is allocated to cash-generating units for the purpose of impairment testing. A cash-generating unit is the smallest identifiable group of assets that generates cash inflows that are largely independent of cash inflows from other assets or groups of assets. Impairment testing is performed at least annually and whenever there is an indication that the cash-generating unit may be impaired. When the SMFGSMBC Group disposes of all or part of a cash-generating unit to which goodwill is allocated, the goodwill associated with the cash-generating unit is included in the carrying amount of the cash-generating unit when determining the gain or loss on disposal.

Software

Purchased software is carried at cost less accumulated amortization and accumulated impairment losses, if any.

Expenditure on internally generated software is recognized as an asset if the SMFGSMBC Group can demonstrate its intention and ability to complete the development and use the software in a manner that will generate future economic benefits and it can reliably measure the costs to complete the development. Internally generated software is carried at capitalized cost less accumulated amortization and accumulated impairment losses, if any. Costs associated with maintaining software are expensed as incurred.

Software is amortized using the straight-line method over the estimated useful life, which is generally five5 to 10 years.

Contractual customer relationships and trademarks

Contractual customer relationships and trademarks acquired in a business combination are recognized at fair value at the acquisition date. Contractual customer relationships and trademarks are carried at cost less accumulated amortization or impairment losses, if any. Contractual customer relationships and trademarks are amortized using the straight-line method over their estimated useful lives, ofwhich are generally 10 to 20 years.

Other intangible assets

Other intangible assets primarily consist of leasehold rights. They are recognized only when the SMFGSMBC Group legally obtains the rights and can reliably measure the fair value. Leasehold rights have an indefinite useful life and they are not amortized but are tested for impairment annually.

Impairment ofNon-Financial Assets

Non-financial assets are reviewed for impairment at the end of each reporting period and whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. If any such indication exists, the asset’s recoverable amount is estimated. An impairment loss is recognized in the consolidated income statementstatements if the asset’s carrying amount is greater than its estimated recoverable amount. The recoverable amount is estimated as the higher of the asset’s fair value less costs to sell and value in use. Value in use is the present value of the future cash flows expected to be derived from the asset. In addition, irrespective of whether there is any indication of impairment, intangible assets that have an indefinite useful life are tested for impairment annually.

For the purposes of conducting impairment reviews, assets are grouped into cash-generating units to which the assets belong.Non-financial assets other than impaired goodwill are reviewed for possible reversal of the impairment loss at the end of each reporting period. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortization, if no impairment loss had been recognized.

LeasesAssets Held for Sale

Non-current assets, or disposal groups comprising assets and liabilities, are classified as held for sale if their carrying amount will be recovered principally through sale rather than through continuing use. In order to be classified as held for sale, the assets or disposal groups must be available for immediate sale in their present condition and their sale must be highly probable. Such assets or disposal groups are generally measured at the lower of their carrying amount and fair value less costs to sell.

Leases

As lessee

A lease agreement in which the lessor does not transfer to the lessee substantially all the risks and rewards of ownership of assets is classified as an operating lease. The leases entered into by the SMFGSMBC Group as a lessee are primarily operating leases. Operating lease payments, net of lease incentives received from the lessor, are recognized in the consolidated income statementstatements on a straight-line basis over the lease term.

A lease agreement in which the lessor transfers to the lessee substantially all the risks and rewards of ownership of assets, with or without ultimate legal title, is classified as a finance lease. For finance leases, the SMFGSMBC Group initially recognizes the leased asset at the lower of the fair value of the asset or the present value of the minimum lease payments. Subsequent to initial recognition, assets are accounted for in accordance with the accounting policy applicable to those assets. The corresponding liability to the lessor is recognized as a lease obligation within “Borrowings” in the consolidated statementstatements of financial position. Interest expense is recognized over the term of the lease based on the interest rate implicit in the lease so as to give a constant rate of interest on the remaining balance of the liability.

As lessor

When the SMFGSMBC Group acts as a lessor in an operating lease, the assets for rent are included in “Property, plant and equipment” in the consolidated statementstatements of financial position and are depreciated over their expected useful lives on a basis consistent with similar assets in property, plant and equipment. Income from operating leases (net of any incentives given to the lessee) is recognized on a straight-line basis over the lease term and included in “Other income” in the consolidated income statement.statements. Initial direct costs incurred in negotiating and arranging an operating lease are added to the carrying amount of the leased assets and recognized as an expense on a straight-line basis over the lease term.

When the SMFGSMBC Group is a lessor in a finance lease, the leased assets are derecognized and the present value of the future lease payments is recognized as a lease receivable within “Loans and advances” in the consolidated statementstatements of financial position. The difference between the gross receivables, i.e., undiscounted future cash flows, and the present value of the receivables is recognized as unearned finance income. Finance income is recognized over the lease term based on a pattern reflecting a constant periodic rate of return on the net investment in the finance lease.

Sale and leaseback

For sale and leaseback transactions leading to an operating lease, and the transaction took place at fair value, any profit or loss is recognized immediately. If the sale price is at or below fair value, any profit or loss is recognized immediately. However, if the loss is compensated for by future rentals at a below market price, the loss is deferred and amortized over the period that the asset is expected to be used. If the sale price is above fair value, any profit is deferred and amortized over the useful life of the asset. If the fair value of the asset is less than the carrying value of the asset at the date of transaction, that difference is recognized immediately as a loss on the sale.

Cash and Cash Equivalents

For the purposes of the consolidated statementstatements of cash flows, cash and cash equivalents include cash on hand, demand deposits, and other short-term highly liquid financial assets with original maturities of three months or less, which are subject to insignificant risk of changes in their fair value.

Provisions

A provision is recognized if, as a result of a past event, the SMFGSMBC Group has a present legal or constructive obligation that can be estimated reliably and it is probable that an outflow of economic benefits will be required to settle the obligation. Provisions are determined by discounting the expected future cash flows at apre-tax rate that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the liability.

Financial Guarantee Contracts

Financial guarantee contracts are contracts that require the issuer to make specified payments to reimburse the holder for a loss it incurs becausewhen a specified debtor fails to make payments when due in accordance with the original or modified terms of a debt instrument. Such financial guarantees are given to banks, financial institutions and other bodies on behalf of customers to secure loans, overdrafts and other banking facilities. Financial guarantees are initially recognized at fair value on the date the guarantee is given.

SubsequentAccounting policies applied from April 1, 2018

Financial guarantees are subsequently measured at the higher of the loss allowance and the amount initially recognized less the cumulative income recognized at the reporting date, and is included in “Other liabilities” in the consolidated statements of financial position. Any change in the loss allowance relating to initial recognition,financial guarantee contracts is included in “Impairment charges on financial assets” in the SMFG Group’s liabilities under suchconsolidated income statements.

Accounting policies applied until March 31, 2018

Financial guarantees arewere subsequently measured at the higher of the initial measurement, less amortization calculated to recognize in the consolidated income statementstatements the fee income earned over the guarantee period, and the best estimate of the expenditure required to settle any financial obligation arising at the end of the reporting period. These estimates are determined based on experience of similar transactions and history of past losses, supplemented by the judgment of management.

Any increase in the liability relating to financial guarantee contracts iswas included in “Other expenses” in the consolidated income statement.statements.

Employee Benefits

The SMFGSMBC Group operates various retirement benefit plans and other employee benefit plans.

Retirement benefits

The SMFGSMBC Group has defined benefit plans, such as defined benefit pension plans andlump-sum severance indemnity plans, and defined contribution plans.

Defined benefit plans

The liabilities and the assets recognized in the consolidated statementstatements of financial position in respect of defined benefit plans are the present value of the defined benefit obligation less the fair value of plan assets.

The present value of the defined benefit obligation is calculated annually by qualified actuaries. In calculating the present value of the defined benefit obligations, the related current service cost, and past service cost, the SMFGSMBC Group attributes the retirement benefits to years of service under the benefit formula. The present value of the defined benefit obligation is determined by discounting the estimated future cash outflows using market yields of AA credit-rated corporate bonds that have terms to maturity approximating those of the related obligations. In cases where there is no deep market in corporate bonds with a sufficiently long maturity to match the estimated maturity of the benefit payments, the SMFGSMBC Group uses current market rates of the appropriate term to discount shorter term payments and estimates the discount rates for longer maturities by extrapolating current market rates along the yield curve.

Actuarial gains and losses arising from experience adjustments and changes in actuarial assumptions in the year, and return on plan assets excluding interest income are recognized in other comprehensive income and are never reclassified to profit or loss.

Past service costs are recognized immediately in the consolidated income statement.statements.

When the calculations above result in a benefit to the SMFGSMBC Group, the recognized asset is limited to the present value of any economic benefits available in the form of any refunds from the plan or reductions in future contributions to the plan. An economic benefit is available to the SMFGSMBC Group if it is realizable during the life of the plan or on settlement of the plan obligations.

Defined contribution plans

Contributions to defined contribution plans are recognized as an expense in the consolidated income statementstatements when they are due.

Other long-term employee benefits

The SMFGSMBC Group’s net obligation with respect to long-term employee benefits other than retirement benefits is the amount of future benefit that employees have earned in return for their service in the current and

prior periods; that benefit is discounted to determine its present value and the fair value of any related assets is deducted. The discount rates are market yields of AA credit-rated corporate bonds that have terms to maturity approximating those of the related obligations. The calculation of obligations is performed using the projected unit credit method. Any actuarial gains or losses and past service costs are recognized in the consolidated income statementstatements in the period in which they arise.

Short-term employee benefits

Short-term employee benefits, such as salaries, paid absences and other benefits are accounted for on an accrual basis over the period in which employees have provided services. Bonuses are recognized to the extent that the SMFGSMBC Group has a present obligation to its employees that can be measured reliably.

Income Tax

Income tax expense comprises current and deferred taxes. Income tax expense is recognized in the consolidated income statementstatements except for that related to items recognized directly in equity. In such case, the income tax expense is recognized in equity.

Current tax is the expected tax payable or receivable on the taxable profit or loss for the fiscal year.

Deferred taxes are recognized, using the balance sheet liability method, for temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. Deferred taxes are determined using tax rates (and laws) that have been enacted or substantially enacted by the end of the reporting period and are expected to apply when the related deferred tax assets are realized or the deferred tax liabilities are settled.

Deferred tax assets principally arise from tax losses carried forward, impairment of investment securities and loans, and the allowance for loan losses.

Deferred taxes are not recognized for the following temporary differences: (a) the initial recognition of goodwill; (b) the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable profit or loss; and (c) the temporary differences associated with investments in subsidiaries, associates, and joint ventures, when the parent investor is able to control the timing of the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future.

Deferred tax assets relating to tax losses carried forward and deductible temporary differences are recognized, only to the extent that it is probable that future taxable profit will be available against which the tax losses carried forward and the deductible temporary differences can be utilized.

Debt and equity securities in issue

On initial recognition, financial instruments issued by the SMFGSMBC Group are classified in accordance with the substance of the contractual agreement as financial liabilities where the contractual arrangement results in the SMFGSMBC Group having an obligation to either deliver cash or another financial asset to the holder, or to satisfy the obligation other than by delivering a fixed number of equity shares in exchange for a fixed amount of cash or another financial asset. The instruments or their components are classified as equity where they do not meet the definition of a liability and show evidence of a residual interest in the entity’s assets after deducting all of its liabilities. Compound financial instruments that contain both liability and equity elements are accounted for separately with the equity component being assigned the residual amount after deducting from the entire value of the compound financial instrument the fair value of the liability component which has been determined separately.

Shareholders’ Equity

Stock issuance costs

Incremental costs directly attributable to the issuance of new shares or options including those issued as a result of a business combination transaction are deducted from the proceeds and shown in equity, net of tax.

Dividends on common stock and preferred stock

Dividends on common stock and preferred stock are recognized in equity in the period in which they are approved by the shareholders. Dividends for the fiscal year that are declared after the reporting period are described in Note 40 “Dividends Per Share.”

Treasury stock

Where SMFGthe Company or any other member of the SMBC Group companies purchase SMFG’sthe Company’s common or preferred stock, the consideration paid is deducted from equity as treasury stock until they are cancelled or sold. No gain or loss is recognized on the purchase, sale, or cancellation of SMFG’sthe Company’s own equity instruments and the consideration paid or received is recognized in equity.

Interest Income and Expense

Interest income and expense for all financial instruments, except for those classified as held for trading and financial assets at fair value through profit or loss, are recognized in “Interest income” and “Interest expense” in the consolidated income statementstatements using the effective interest method.

The effective interest method is a method of calculating the amortized cost of a financial asset or a financial liability and of allocating the interest income or interest expense over the relevant period.

The effective interest rate is the rate that discounts the estimated future cash payments or receipts through the expected life of the financial instrument or, when appropriate, a shorter period to the netgross carrying amount of thea financial asset or to the amortised cost of a financial liability. When calculating the effective interest rate, the SMFGSMBC Group estimates cash flows, considering the contractual terms of the financial instrument but not including future credit losses.ECL. The calculation includes fees and points paid or received between parties to the contract that are an integral part of the effective interest rate of the financial instrument, transaction costs and other premiums or discounts.

OnceThe effective interest method is used for calculating interest income by applying the effective interest rate to the gross carrying amount of a financial asset or a group of similarasset. However, for credit-impaired financial assets has been written down as a result of an impairment loss,subsequent to initial recognition, interest income is thereafter recognized usingcalculated by applying the effective interest rate of interest used to discount the future cash flows for the purpose of measuring the impairment loss. For financial assets measured at amortized cost of the interest rate is the original effective interest rate.

financial assets.

Fee and Commission Income

Accounting policies applied from April 1, 2018

The SMBC Group recognizes fee and commission income in accordance with the five-step model. This model requires the SMBC Group to (i) identify the contract with a customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, (iv) allocate the transaction price to the performance obligations in the contract and (v) recognize revenue when (or as) the entity satisfies a performance obligation.

Fee and commission income arises from a diverse range of services that the SMBC Group provides to its customers. Fee and commission income can be divided into two categories: fee and commission income from

transaction services which is recognized at the point in time when the transaction takes place, and fee and commission income from services which is recognized over the time as the services are provided. Fee and commission income from transaction services includes fees on credit card business, fees and commissions on the securities business, underwriting fees, brokerage fees, investment trusts sales commissions, fees on funds transfer and collection services, loan syndication fees for arranging a loan and fee and commission income from other services. Fee and commission income from services that are provided over a period of time includes fiduciary fees, investment fund management fees, loan commitments fees from which specific lending is unlikely to be drawn down and fee and commission income from other services.

Accounting policies applied until March 31, 2018

Fee and commission income includes fee and commission income arising from a diverse range of services that the SMFGSMBC Group provides to its customers. Fee and commission income can be divided into two categories: fee and commission income from providing transaction services, and fee and commission income earned from services that are provided over a certain period of time. Fee and commission income earned from providing transaction services is recognized when the service has been completed or the event has occurred. This fee and commission income includes fees on funds transfer and collection services, service charges from deposit accounts, fees and commissions on the securities business, underwriting fees, brokerage fees, and fee and commission income from other services. Fee and commission income earned from services over a period of time is recognized over that service period. This fee and commission income includes fees on credit-related businesses, investment fund businesses, and fee and commission income from other services. Loan commitment fees, together with the related direct cost, for loans that are likely to be drawn down are deferred and recognized as an adjustment to the effective interest rate on the loan. Loan commitment fees are recognized over the term of the commitment period when it is unlikely that a loan will be drawn down.

Net Trading Income

Net trading income consists of margins made on market-making and customer business, as well as changes in fair value of trading assets and liabilities and derivative financial instruments, caused by movements in interest rates, exchange rates, equity prices and other market variables. It also includes net interest and dividend income on trading assets and liabilities.

Net Income (Loss) from Financial Assets at Fair Value through Profit or Loss

Net income (loss) from financial assets at fair value through profit or loss includes all gains and losses arising from changes in the fair value of these financial assets mandatorily measured at FVPL other than trading assets and salesderivative financial instruments, disposal of such assets, and interest and dividend income on these financial assets.

Net Investment Income

Accounting policies applied from April 1, 2018

Net investment income includes gains and losses on the disposal of debt instruments measured at fair value through other comprehensive income, and dividend income from equity instruments measured at fair value through other comprehensive income.

Accounting policies applied until March 31, 2018

Net investment income included gains and losses on the disposal ofavailable-for-sale financial assets, and dividends fromavailable-for-sale equity instruments.

Earnings Per Share

The SMFGSMBC Group presents basic and diluted earnings per share (“EPS”) data for its common stock. Basic EPS is calculated by dividing the profit or loss attributable to common shareholders of the SMFGSMBC Group by the weighted average number of common stock outstanding during the period. Diluted EPS is determined by adjusting the profit or loss attributable to common shareholders and the weighted average number of common stock outstanding for the effects of all dilutive potential common stock including share options and other convertible instruments.

Recent Accounting Pronouncements

The SMFGSMBC Group is currently assessing the impact of the following standards, amendments to standards, and interpretations that are not yet effective and have not been early adopted:

Accounting for Acquisitions of Interests in Joint Operations (Amendments to IFRS 11)

In May 2014, the IASB published amendments to IFRS 11 “Joint Arrangements,” which provides new guidance on how to account for the acquisition of an interest in a joint operation that constitutes a business. The amendments require the acquirer in such acquisitions to apply all of the principles on business combinations accounting in IFRS 3 “Business Combinations” and other IFRSs except for those principles that conflict with the

guidance in IFRS 11. The amendments are effective for annual periods beginning on or after January 1, 2016 and are not expected to have a material impact on the SMFG Group’s consolidated financial statements.

Clarification of Acceptable Methods of Depreciation and Amortisation (Amendments to IAS 16 and IAS 38)

In May 2014, the IASB published amendments to IAS 16 “Property, Plant and Equipment” and IAS 38 “Intangible Assets” to clarify that the use of revenue-based methods to calculate the depreciation of an asset is not appropriate because revenue generated by an activity that includes the use of an asset generally reflects factors other than the consumption of the economic benefits embodied in the asset. The amendments are effective for annual periods beginning on or after January 1, 2016 and are not expected to have a material impact on the SMFG Group’s consolidated financial statements.

Agriculture: Bearer Plants (Amendments to IAS 16 and IAS 41)

In June 2014, the IASB published amendments to IAS 16 and IAS 41 “Agriculture” to change the financial reporting for bearer plants, such as grape vines, rubber trees and oil palms. The amendments require bearer plants to be accounted for in the same way as property, plant and equipment, and include them within the scope of IAS 16 instead of IAS 41. The amendments are effective for annual periods beginning on or after January 1, 2016 and are not expected to have a material impact on the SMFG Group’s consolidated financial statements.

Equity Method in Separate Financial Statements (Amendments to IAS 27)

In August 2014, the IASB published the narrow-scope amendments to IAS 27 “Separate Financial Statements” to allow an entity to use the equity method to account for investments in subsidiaries, joint ventures and associates in its separate financial statements. The amendments are effective for annual periods beginning on or after January 1, 2016 and are not expected to have a material impact on the SMFG Group’s consolidated financial statements.

Sale or Contribution of Assets between an Investor and its Associate or Joint Venture (Amendments to IFRS 10 and IAS 28)

In September 2014, the IASB issued the narrow-scope amendments to IFRS 10 and IAS 28 “Investments in Associates and Joint Ventures” to address an acknowledged inconsistency between the requirements in IFRS 10 and those in IAS 28, in dealing with the sale or contribution of assets between an investor and its associate or joint venture. The effective date of applying the amendments was January 1, 2016 when they were originally issued, however, in December 2015, the IASB issuedEffective Date of Amendments to IFRS 10 and IAS 28 to remove the effective date and indicated that a new effective date will be determined at a future date when it has finalized revisions, if any, that result from its research project on the equity accounting. The SMFG Group is currently evaluating the potential impact that the adoption of the amendments will have on its consolidated financial statements.

Annual Improvements to IFRSs 2012-2014 Cycle

In September 2014, the IASB issued Annual Improvements to IFRSs 2012-2014 Cycle, which is a collection of amendments to four IFRSs. The IASB uses the annual improvements process to make necessary, but non-urgent, amendments to IFRSs that will not be included as part of any other project. The amendments are effective for annual periods beginning on or after January 1, 2016 and are not expected to have a material impact on the SMFG Group’s consolidated financial statements.

Disclosure Initiative (Amendments to IAS 1)

In December 2014, the IASB issued amendments to IAS 1 “Presentation of Financial Statements” as part of its major initiative to improve presentation and disclosure in financial reports. The amendments are designed to

encourage entities to apply professional judgment in determining what information to disclose in their financial statements. The amendments are effective for annual periods beginning on or after January 1, 2016.

Investment Entities: Applying the Consolidated Exception (Amendments to IFRS 10, IFRS 12 and IAS 28)

In December 2014, the IASB issued narrow-scope amendments to IFRS 10, IFRS 12 “Disclosure of Interests in Other Entities” and IAS 28 to introduce minor clarifications to the requirements when accounting for investment entities. The amendments also provide relief in particular circumstances, which will reduce the costs of applying the standards. The amendments are effective for annual periods beginning on or after January 1, 2016 and are not expected to have a material impact on the SMFG Group’s consolidated financial statements.

Recognition of Deferred Tax Assets for Unrealized Losses (Amendments to IAS 12)

In January 2016, the IASB issued narrow-scope amendments to IAS 12 “Income Taxes” to clarify the requirements on recognition of deferred tax assets for unrealized losses related to debt instruments measured at fair value. The amendments are effective for annual periods beginning on or after January 1, 2017. The SMFGSMBC Group is currently evaluating the potential impact that the adoption of the amendments will have on its consolidated financial statements.

Disclosure Initiative (Amendments to IAS 7)

In January 2016, the IASB issued amendments to IAS 7 “Statement of Cash Flows,” which require an entity to provide disclosures that enable users of financial statements to evaluate changes in liabilities arising from financing activities, including changes from cash flows and non-cash changes. The amendments are effective for annual periods beginning on or after January 1, 2017.

IFRS 15 “Revenue from Contracts with Customers”

In May 2014, the IASB published IFRS 15 “Revenue from Contracts with Customers” to establish principles for reporting useful information to users of financial statements about the nature, amount, timing and uncertainty of revenue and cash flows arising from an entity’s contract with customers. The core principle of IFRS 15 is to recognize revenue to depict the transfer of goods or services to customers in amounts that reflect the consideration (that is, payment) to which the entity expects to be entitled in exchange for those goods or services. IFRS 15 also requires enhanced disclosures about revenue, provides guidance for transactions that were not previously addressed comprehensively and improves guidance for multiple-element arrangements. In April 2016, the IASB issuedClarifications to IFRS 15 Revenue from Contracts with Customers, which clarifies some requirements and provides additional transitional relief for entities that are implementing the standard. The effective date of applying IFRS 15 was January 1, 2017 when it was originally issued, however, in September 2015, the IASB issuedEffective Date of IFRS 15 (Amendments to IFRS 15), which defers the effective date to annual periods beginning on or after January 1, 2018. The SMFG Group is currently evaluating the potential impact that the adoption of the standard will have on its consolidated financial statements.

IFRS 9 “Financial Instruments”

In July 2014, the IASB published IFRS 9 “Financial Instruments,” which is the comprehensive standard to replace IAS 39. The standard contains the following new requirements for classification and measurement of financial assets and liabilities, impairment of financial assets and hedge accounting:

Classification and measurement. The standard requires all financial assets to be classified into three categories, namely, amortized cost, fair value through other comprehensive income (“FVOCI”) and fair value through profit or loss (“FVPL”), based on the business model within which they are held and their contractual cash flow characteristics. A financial asset is measured at amortized cost if the asset is held within a business

model whose objective is to hold the asset in order to collect contractual cash flows, and the asset’s contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest (“SPPI”) on the principal amount outstanding. Financial assets are measured at FVOCI if they are held within a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets, and SPPI requirements are met. Any financial assets that do not meet the criteria of amortized cost or FVOCI should be classified as FVPL. The standard also requires financial assets that contain embedded derivatives to be classified in their entirety rather than being subject to bifurcation requirements. The standard maintains most of the requirements in IAS 39 regarding the classification and measurement of financial liabilities. However, with the new requirements, if an entity chooses to measure a financial liability at fair value, the amount of change in its fair value that is attributable to changes in the credit risk of that liability will be presented in other comprehensive income, rather than in profit or loss.

Impairment. The standard introduces the expected credit loss model, which is a new model for the recognition of impairment losses, to replace the incurred credit loss model in IAS 39. Under the expected credit loss model, an entity is required to account for expected credit losses from when financial instruments are first recognized and to recognize full lifetime expected losses on a more timely basis. An expected credit loss model will result in the recognition of impairment losses earlier than an incurred loss model.

Hedge Accounting. The standard introduces a new hedge accounting model, together with corresponding disclosures about risk management activity for those applying hedge accounting. The hedge accounting requirements in IFRS 9 align hedge accounting more closely with risk management and establish a more principle-based approach to hedge accounting.

The standard is effective for annual periods beginning on or after January 1, 2018. The SMFG Group is currently evaluating the potential impact that the adoption of the standard will have on its consolidated financial statements.

Classification and Measurement of Share-based Payment Transactions (Amendments to IFRS 2)

In June 2016, the IASB issued narrow-scope amendments to IFRS 2 “Share-based Payment” to clarify how to account for certain types of share-based payment transactions. The amendments are effective for annual periods beginning on or after January 1, 2018. The SMFG Group is currently evaluating the potential impact that the adoption of the amendments will have on its consolidated financial statements.

IFRS 16 “Leases”

In January 2016, the IASB published IFRS 16 “Leases,” which sets out the principles for the recognition, measurement, presentation and disclosure of leases, replacing IAS 17 “Leases.” The standard introduces a single lessee accounting model and eliminates the classification of leases as either operating leases or finance leases, requiring a lessee to recognize assets and liabilities. A lessor continues to classify its leases as operating leases or finance leases, and to account for them differently. The standard is effective for annual periods beginning on or after January 1, 2019.

The SMFGSMBC Group will recognize a lease liability measured at the present value of remaining cash flows on the lease. The corresponding right of use asset will be calculated at an amount equal to the lease liability adjusted by the amount of prepaid or accrued lease payments related to that lease. The primary impact of IFRS 16 adoption is expected to be where the SMBC Group is a lessee in contracts for land and buildings which wereoff-balance sheet under IAS 17. The SMBC Group expects to apply a modified retrospective approach, without restatement of comparative figures. On April 1, 2019, assets and liabilities are expected to increase by approximately ¥400 billion and ¥400 billion, respectively. This estimate is based on accounting policies, assumptions, judgments and estimation techniques that remain subject to change until the SMBC Group finalizes its financial statements for the fiscal year ending March 31, 2020. There is no material impact on shareholders’ equity.

IFRIC 23 “Uncertainty over Income Tax Treatments”

In June 2017, the IASB published IFRIC 23 “Uncertainty over Income Tax Treatments,” which clarifies how to apply the recognition and measurement requirements in IAS 12 “Income Taxes” when there is uncertainty over income tax treatments. IAS 12 specifies how to account for current and deferred tax, but not how to reflect

the effects of uncertainty. This interpretation adds to the requirements in IAS 12 by specifying how to reflect the effects of uncertainty in accounting for income taxes. The interpretation is effective for annual periods beginning on or after January 1, 2019 and is not expected to have a material impact on the SMBC Group’s consolidated financial statements.

Prepayment Features with Negative Compensation (Amendments to IFRS 9)

In October 2017, the IASB issued amendments to IFRS 9 to allow entities to measure particular prepayable financial assets with negative compensation at amortized cost or at fair value through other comprehensive income instead of at fair value through profit or loss, if a specified condition is met. The amendments are effective for annual periods beginning on or after January 1, 2019 and are not expected to have a material impact on the SMBC Group’s consolidated financial statements.

Long-term Interests in Associates and Joint Ventures (Amendments to IAS 28)

In October 2017, the IASB issued amendments to IAS 28 to clarify that entities account for long-term interests in an associate or joint venture, to which the equity method is not applied, using IFRS 9. The amendments are effective for annual periods beginning on or after January 1, 2019 and are not expected to have a material impact on the SMBC Group’s consolidated financial statements.

Annual Improvements to IFRSs 2015-2017 Cycle

In December 2017, the IASB issued Annual Improvements to IFRSs 2015-2017 Cycle, which is a collection of amendments to four IFRSs. These are amendments that either clarify the wording in the standard or correct relatively minor oversights or conflicts between existing requirements of the standards. These improvements include the amendments effective for annual periods beginning on or after January 1, 2019 and are not expected to have a material impact on the SMBC Group’s consolidated financial statements.

Plan Amendment, Curtailment or Settlement (Amendments to IAS 19)

In February 2018, the IASB issued amendments to IAS 19 “Employee Benefits” to clarify how to determine current service cost and net interest for the period after a change to a defined benefit plan. When a change to a plan such as an amendment, curtailment or settlement takes place, IAS 19 requires an entity to remeasure its net defined benefit liability or asset. The amendments require an entity to use the updated assumptions from this remeasurement to determine current service cost and net interest for the remainder of the reporting period after the change to the plan. The amendments are effective for annual periods beginning on or after January 1, 2019 and are not expected to have a material impact on the SMBC Group’s consolidated financial statements.

Definition of a Business (Amendments to IFRS 3)

In October 2018, the IASB issued amendments to IFRS 3 “Business Combinations” to clarify the definition of a business, with the objective of assisting entities to determine whether a transaction should be accounted for as a business combination or as an asset acquisition. The amended definition emphasizes that the output of a business is to provide goods and services to customers, whereas the previous definition focused on returns in the form of dividends, lower costs or other economic benefits to investors and others. The amendments are effective for annual periods beginning on or after January 1, 2020. The SMBC Group is currently evaluating the potential impact that the adoption of the amendments will have on its consolidated financial statements.

Definition of Material (Amendments to IAS 1 and IAS 8)

In October 2018, the IASB issued amendments to IAS 1 “Presentation of Financial Statements” and IAS 8 “Accounting Policies, Changes in Accounting Estimates and Errors” to clarify the definition of material and how

it should be applied by including in the definition guidance that had featured elsewhere in IFRS. The updated definition of material makes it easier for entities to decide whether information should be included in their financial statements. The amendments are effective for annual periods beginning on or after January l, 2020.

IFRS 17 “Insurance Contracts”

In May 2017, the IASB published IFRS 17 “Insurance Contracts,” which establishes principles for the recognition, measurement, presentation and disclosure of insurance contracts, replacing IFRS 4 “Insurance Contracts.” IFRS 4 provided entities dispensation to carry on accounting for insurance contracts using national accounting standards, resulting in a multitude of different approaches. IFRS 17 requires all insurance contracts to be accounted for in a consistent manner. Insurance obligations will be accounted for by using present values instead of historical cost. The standard is currently effective for annual periods beginning on or after January 1, 2021. The IASB has voted on delaying the mandatory application date by one year but it has not been approved yet. The SMBC Group is currently evaluating the potential impact that the adoption of the standard will have on its consolidated financial statements.

 

3

CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS

The consolidated financial statements are influenced by estimates and management judgment, which necessarily have to be made in the course of preparation of the consolidated financial statements. Estimates and judgments are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances, and which are continually evaluated.

Allowance for Loan Losses

The allowance for loan losses is measured under the ECL model which requires the use of complex models and significant assumptions about future economic conditions and credit behavior. A number of significant judgments are also required in applying the accounting requirements for measuring ECL, such as:

determining criteria for a significant increase in credit risk since initial recognition;

measuring ECL by choosing appropriate models and assumptions;

incorporating forward-looking information; and

estimating the expected future cash flows by taking into account factors such as historical loss information, the appropriateness of the borrower’s business plan or operational improvement plan, the status of progress of its plan, the overall support from financial institutions, and the realizable value of any collateral held.

Management estimates and judgments may change from time to time as the economic environment changes or new information becomes available. Changes in these estimates and judgments will result in a different allowance for loan losses and may have a direct impact on impairment charges.

Impairment charges on loans and advances amounting to ¥122,927 million, ¥126,623 million and ¥141,457 million were recognized for the fiscal years ended March 31, 2019, 2018 and 2017, respectively. For additional information, refer to Note 10 “Loans and Advances” and Note 32 “Impairment Charges on Financial Assets.”

Fair Value of Financial Instruments

The fair values of financial instruments where no active market exists or where quoted prices are not otherwise available are determined by using valuation techniques. In these cases, inputs to valuation techniques are based on observable data with respect to similar financial instruments or by using models. Where observable

inputs are not available, the fair value is estimated based on appropriate assumptions that a market participant would take into account. Where valuation techniques (for example, models) are used to determine fair values, they are validated and periodically reviewed. The SMBC Group certifies significant valuation models before they are used, and calibrates them to ensure that outputs reflect actual data and comparative market prices. To the extent practical, models use only observable data; however, inputs such as credit risk (both own and counterparty), volatilities and correlations require management to make estimates. Changes in assumptions about these factors could affect the fair values of these financial instruments. More details about the SMBC Group’s valuation techniques, significant unobservable inputs used in determining fair values and sensitivity analyses are given in Note 43 “Fair Value of Financial Assets and Liabilities.”

Impairment of Goodwill

Goodwill is tested for impairment on an annual basis or more frequently if events or changes in circumstances indicate that it may not be recoverable. If any such indication exists, then its recoverable amount is estimated. The process to determine the recoverable amount is inherently uncertain because such recoverable amount is determined based on a number of management estimates and judgments. The SMBC Group determines the recoverable amount using the estimated future cash flows,pre-tax discount rates, growth rates, and other factors. The estimation of future cash flows inherently reflects management judgments, even though such forecasts are prepared taking into account actual performance and external economic data. Thepre-tax discount rates and growth rates may be significantly affected by market interest rates or other market conditions, which are beyond management’s control, and therefore significant management judgments are made to determine these assumptions. These management judgments are made based on the facts and circumstances at the time of the impairment test, and may vary depending on the situation and the time. Changes in management judgments may result in different impairment test results and different impairment amounts recognized. For the fiscal years ended March 31, 2019, 2018 and 2017, impairment losses on goodwill were ¥62,624 million, ¥28,607 million and ¥74,616 million, respectively. For additional information, refer to Note 14 “Intangible Assets.”

Provision for Interest Repayment

Provision for interest repayment represents management’s estimate of future claims for the refund ofso-called “gray zone interest” (interest on loans in excess of the maximum rate prescribed by the Interest Rate Restriction Act (ranging from 15% to 20%) up to the 29.2% maximum rate permitted under the Act Regulating the Receipt of Contributions, Receipt of Deposits and Interest Rates), taking into account historical experience such as the number of customer claims for a refund, the amount of repayments and the characteristics of customers, and the length of the period during which claims are expected to be received in the future.

Management estimates and judgments may change from time to time as the legal environment and market conditions change or new information becomes available. Changes in these estimates and judgments could affect the balance of provision for interest repayment. Provision for interest repayment is recorded in provisions as a liability, and it totaled ¥148,409 million and ¥145,179 million at March 31, 2019 and 2018, respectively. For additional information, refer to Note 20 “Provisions.”

Retirement Benefits

The SMBC Group has defined benefit plans such as defined benefit pension plans andlump-sum severance indemnity plans. The present value of the defined benefit obligation is calculated based on actuarial valuations that are dependent upon a number of assumptions, including discount rates, mortality rates and future salary (benefit) increases. The discount rates are equivalent to market yields of AA credit-rated corporate bonds that have terms to maturity approximating those of the related obligations. Future mortality rates are based on the official mortality table generally used for actuarial assumptions in Japan. Other assumptions used for the calculation of the defined benefit obligation are based on historical records. Due to the long-term nature of these plans, such estimates are subject to significant uncertainty. Any change in these assumptions will impact

actuarial gains and losses, as well as the present value of the defined benefit obligations and the net retirement benefit expense for each period. Actuarial gains and losses arising from experience adjustments and changes in actuarial assumptions in the year, and return on plan assets excluding interest income are recognized in other comprehensive income and are never reclassified to profit or loss.

The difference between the fair value of the plan assets and the present value of the defined benefit obligation at the end of the reporting period is recognized as assets and liabilities in the consolidated statements of financial position. When this calculation for each plan results in a benefit to the SMBC Group, the recognized asset is limited to the present value of any economic benefits available in the form of refunds from the plan or reductions in future contributions to the plan. An economic benefit is available to the SMBC Group, if it is realizable during the life of the plan or on settlement of the plan obligation. The net total of assets and liabilities in the consolidated statements of financial position amounted to net assets of ¥232,456 million and ¥279,567 million at March 31, 2019 and 2018, respectively. For additional information, refer to Note 23 “Retirement Benefits.”

Deferred Tax Assets

Deferred tax assets relating to tax losses carried forward and deductible temporary differences are recognized, only to the extent that it is probable that future taxable profit will be available against which the tax losses carried forward and the deductible temporary differences can be utilized. This assessment requires significant management estimates and judgments. Future taxable profit is estimated based on, among other relevant factors, forecasted results of operations, which are based on historical financial performance and the business plans that management believes to be prudent and feasible. While the SMBC Group carefully assesses the realization of tax losses carried forward and deductible temporary differences, the actual taxable profit in the future may be less than the forecast. The deferred tax assets amounted to ¥37,073 million and ¥19,436 million in the consolidated statements of financial position at March 31, 2019 and 2018, respectively, while the net total of deferred tax assets and liabilities amounted to net liabilities of ¥230,292 million and ¥378,305 million at March 31, 2019 and 2018, respectively. For additional information, refer to Note 22 “Deferred Income Tax.”

Critical accounting estimates and judgments applied until March 31, 2018

Allowance for Loan Losses

Allowance for loan losses represents management’s estimate of the losses incurred in the loan portfolios at the end of each reporting period. Management exercises judgment in making assumptions and estimations when calculating the allowance for loan losses on both individually and collectively assessed loans.

The allowance for loan losses for individually significant impaired loans is estimated by management based on the expected future cash flows, taking into account factors such as historical loss information, the appropriateness of the borrower’s business plan or operational improvement plan, the status of progress of its plan, the overall support from financial institutions, and the realizable value of any collateral held. The allowance for loan losses for the remaining loans is collectively estimated by grouping financial assets into portfolios on the basis of similar credit risk characteristics and using the historical loss experience for these portfolios adjusted for the effect of the current economic environment. To assess the losses on the loan portfolios where loss events have occurred but not yet been identified, management develops assumptions and methodologies to estimate the loss identification period.

Management estimates and judgments may change from time to time as the economic environment changes or new information becomes available. Changes in these estimates and judgments will result in a different allowance for loan losses and may have a direct impact on impairment charges. Impairment charges on loans and advances amounting to ¥118,750 million and ¥79,552 million were recognized for the fiscal years ended March 31, 2016 and 2015, respectively, whereas previously recognized impairment charges on loans and advances amounting to ¥25,806 million were reversed for the fiscal year ended March 31, 2014. For additional information, refer to Note 10 “Loans and Advances” and Note 32 “Impairment Charges onofAvailable-for-sale Financial Assets.”Assets

Fair Value of Financial InstrumentsAvailable-for-sale

The fair values of financial instruments where no active market exists or where quoted prices are not otherwise available are determined by using valuation techniques. In these cases, inputs to valuation techniques are based on observable data with respect to similar financial instruments or by using models. Where observable inputs are not available, the fair value is estimated based on appropriate assumptions that a market participant would take into account. Where valuation techniques (for example, models) are used to determine fair values, they are validated and periodically reviewed. The SMFG Group certifies significant valuation models before they are used, and calibrates them to ensure that outputs reflect actual data and comparative market prices. To the extent practical, models use only observable data; however, inputs such as credit risk (both own and counterparty), volatilities and correlations require management to make estimates. Changes in assumptions about these factors could affect the fair values of these financial instruments. More details about the SMFG Group’s valuation techniques, significant unobservable inputs used in determining fair values and sensitivity analyses are given in Note 43 “Fair Value of Financial Assets and Liabilities.”

Impairment of Available-for-sale Financial Assets

Available-for-sale financial assets are impaired if there is objective evidence of impairment as a result of loss events. The SMFGSMBC Group exercises judgment in determining whether there is objective evidence of occurrence of loss events, which result in a decrease in estimated future cash flows of the financial assets. The

estimation of future cash flows also requires judgment. In the assessment of impairment ofavailable-for-sale equity instruments, the SMFGSMBC Group also considers whether there has been a significant or prolonged decline in fair value below their cost. The determination of what is a significant or prolonged decline requires management judgment.

Impairment may occur when there is objective evidence of deterioration in the financial conditions of the investee, industry and sector performance, or changes in operating and financing cash flows. The determination of impairment in this respect also includes significant management judgment.

Management estimates and judgments may change from time to time based upon future events that may or may not occur and changes in these estimates and judgments could adversely affect the carrying amounts of available-for-sale financial assets. Impairment charges on available-for-sale financial assets totaled ¥29,606 million, ¥10,586 million and ¥11,531 million for the fiscal years ended March 31, 2016, 2015 and 2014, respectively. For additional information, refer to Note 9 “Investment Securities” and Note 32 “Impairment Charges on Financial Assets.”

Impairment of Goodwill

Goodwill is tested for impairment on an annual basis or more frequently if events or changes in circumstances indicate that it may not be recoverable. If any such indication exists, then its recoverable amount is estimated. The process to determine the recoverable amount is inherently uncertain because such recoverable amount is determined based on a number of management estimates and judgments. The SMFG Group determines the recoverable amount using the estimated future cash flows, pre-tax discount rates, growth rates, and other factors. The estimation of future cash flows inherently reflects management judgments, even though such forecasts are prepared taking into account actual performance and external economic data. The pre-tax discount rates and growth rates may be significantly affected by market interest rates or other market conditions, which are beyond management’s control, and therefore significant management judgments are made to determine these assumptions. These management judgments are made based on the facts and circumstances at the time of the impairment test, and may vary depending on the situation and the time. Changes in management judgments may result in different impairment test results and different impairment amounts recognized. For the fiscal years ended March 31, 2016, 2015 and 2014, impairment losses on goodwill were ¥1,124 million, nil and nil, respectively. For additional information, refer to Note 14 “Intangible Assets.”

Provision for Interest Repayment

Provision for interest repayment represents management’s estimate of future claims for the refund of so-called “gray zone interest” (interest on loans in excess of the maximum rate prescribed by the Interest Rate Restriction Act (ranging from 15% to 20%) up to the 29.2% maximum rate permitted under the Act Regulating the Receipt of Contributions, Receipt of Deposits and Interest Rates), taking into account historical experience such as the number of customer claims for a refund, the amount of repayments and the characteristics of customers, and the length of the period during which claims are expected to be received in the future.

Management estimates and judgments may change from time to time as the legal environment and market conditions change or new information becomes available. Changes in these estimates and judgments could affect the balance of provision for interest repayment. Provision for interest repayment is recorded in provisions as a liability, and it totaled ¥229,422 million and ¥166,715 million at March 31, 2016 and 2015, respectively. For additional information, refer to Note 20 “Provisions.”

Retirement Benefits

The SMFG Group has defined benefit plans such as defined benefit pension plans and lump-sum severance indemnity plans. The present value of the defined benefit obligation is calculated based on actuarial valuations that are dependent upon a number of assumptions, including discount rates, mortality rates and future salary (benefit) increases. The discount rates are equivalent to market yields of AA credit-rated corporate bonds that have terms to maturity approximating those of the related obligations. Future mortality rates are based on the official mortality table generally used for actuarial assumptions in Japan. Other assumptions used for the calculation of the defined benefit obligation are based on historical records. Due to the long-term nature of these plans, such estimates are subject to significant uncertainty. Any change in these assumptions will impact actuarial gains and losses, as well as the present value of the defined benefit obligations and the net retirement benefit expense for each period. Actuarial gains and losses arising from experience adjustments and changes in actuarial assumptions in the year, and return on plan assets excluding interest income are recognized in other comprehensive income and are never reclassified to profit or loss.

The difference between the fair value of the plan assets and the present value of the defined benefit obligation at the end of the reporting period is recognized as assets and liabilities in the consolidated statement of financial position. When this calculation for each plan results in a benefit to the SMFG Group, the recognized asset is limited to the present value of any economic benefits available in the form of refunds from the plan or reductions in future contributions to the plan. An economic benefit is available to the SMFG Group, if it is realizable during the life of the plan or on settlement of the plan obligation. The net total of assets and liabilities in the consolidated statement of financial position amounted to net assets of ¥177,112 million and ¥332,674 million at March 31, 2016 and 2015, respectively. For additional information, refer to Note 23 “Retirement Benefits.”

Deferred Tax Assets

Deferred tax assets relating to tax losses carried forward and deductible temporary differences are recognized, only to the extent that it is probable that future taxable profit will be available against which the tax losses carried forward and the deductible temporary differences can be utilized. This assessment requires significant management estimates and judgments. Future taxable profit is estimated based on, among other relevant factors, forecasted results of operations, which are based on historical financial performance and the business plans that management believes to be prudent and feasible. While the SMFG Group carefully assesses the realization of tax losses carried forward and deductible temporary differences, the actual taxable profit in the future may be less than the forecast. The deferred tax assets amounted to ¥115,314 million and ¥117,500 million in the consolidated statement of financial position at March 31, 2016 and 2015, respectively, while the net total of deferred tax assets and liabilities amounted to net liabilities of ¥220,574 million and ¥446,305 million at March 31, 2016 and 2015, respectively. For additional information, refer to Note 22 “Deferred Income Tax.”

 

4

SEGMENT ANALYSIS

Business Segments

The SMFGSMBC Group’s business segment information is prepared based on the internal reporting system utilized by management to assess the performance of its business segments.

The SMFGSMBC Group has four main business segments: Commercial Banking, Leasing, Securities,the Wholesale Business Unit, the Retail Business Unit, the International Business Unit and Consumer Finance,the Global Markets Business Unit, with the remaining operations recorded in Others. Head office account and others.

Wholesale Business Unit

The Wholesale Business Unit provides financing, investment management, risk hedging, and settlement services as well as financial solutions that respond to wide-ranging client needs in relation to M&A and other advisory services and leasing, primarily forlarge-andmid-sized corporate clients in Japan. This business segment information covers SMBC, which accounts for the major portionunit mainly consists of the SMFG Group’s total assetswholesale businesses of SMBC, SMBC Trust Bank Ltd. (“SMBC Trust Bank”) and revenue, in Commercial Banking, Sumitomo Mitsui Finance and Leasing Company, Limited (“SMFL”) in Leasing,and SMBC Nikko Securities Inc. (“SMBC Nikko Securities”) and SMBC Friend Securities Co., Ltd. (“SMBC Friend Securities”) in Securities, and Sumitomo Mitsui Card Company, Limited (“Sumitomo Mitsui Card”), Cedyna Financial Corporation (“Cedyna”) and SMBC Consumer Finance Co., Ltd. (“SMBC Consumer Finance”) in Consumer Finance..

Commercial BankingRetail Business Unit

SMBC represents the majority of the Commercial Banking segment, and the remainder includes domestic banking subsidiaries, such as SMBC Trust Bank Ltd. (“SMBC Trust Bank”), Kansai Urban Banking Corporation (“KUBC”) and THE MINATO BANK, LTD. (“The Minato Bank”), as well as foreign subsidiaries, such as Sumitomo Mitsui Banking Corporation Europe Limited (“SMBC Europe”), Sumitomo Mitsui Banking Corporation (China) Limited (“SMBC (China)”) and Manufacturers Bank. Since SMBC has a significant impact on the overall performance of the SMFG Group, its performance is reported to management in more detail by dividing it into four business units by customer market: the Wholesale Banking Unit, the Retail Banking Unit, the International Banking Unit and the Treasury Unit. In addition to the four business units, the Investment Banking Unit, the Corporate Advisory Division, the Private Advisory Division and the Transaction Business Division of SMBC provide a broad range of financial products, services and solutions to address sophisticated

and diverse issues and needs of SMBC’s customers. The Corporate Advisory Division operates within the Wholesale Banking Unit, and the Private Advisory Division operates within the Wholesale Banking Unit and the Retail Banking Unit, while the Transaction Business Division operates within the Wholesale Banking Unit, the Retail Banking Unit and the International Banking Unit. The revenues and expenses of these units and divisions are generally allocated to each business unit.

SMBC’s Wholesale Banking Unit

SMBC’s Wholesale Banking Unit aims to offer business solutions for the increasingly complex and diverse management issues that are faced by large Japanese corporations, including listed companies and mid-sized companies, and, together with certain of the SMFG Group companies, provides a wide range of financial products and services targeting those corporations and companies, through its sales channels. The financial products and services that this business unit provides include deposits, loans including syndicated loans, commitment lines, structured finance and nonrecourse loans, settlement services, cash management, leasing, factoring, management information systems consulting, collection and investment banking services.

SMBC’s Retail Banking Unit

SMBC’s Retail Banking Unit provides financial services to both consumers residing in Japan and domesticsmall-sized companies. For consumers, this companies, and mainly consists of the retail business of SMBC, SMBC Trust Bank and SMBC Nikko Securities together with three consumer finance companies, Sumitomo Mitsui Card Company, Limited, Cedyna Financial Corporation and SMBC Consumer Finance Co., Ltd. This business unit offers a wide range of financialproducts and services for consumers, including personal bank accounts,wealth management, settlement services, consumer finance and housing loans, and investment trusts, and provides pension-type insurance products and life insurance products as an agent.in order to address the financial needs of all individual customers. Forsmall-sized companies, this business unit provides a wide array of financial products and services to comprehensively address in the same place business owners’ needs as both corporate managers and individuals such as business and asset succession.

SMBC’s International BankingBusiness Unit

SMBC’sThe International BankingBusiness Unit mainly supports the global businesses of a diverse range of clients, such as Japanese companies operating overseas,non-Japanese companies, financial institutions, sovereign/quasi-sovereign entities outside Japan, and multinational companies operating in Japan. This business unit has branches in the Americas, Europegovernment agencies and Middle East, and Asia and Oceania regions, forming a global network.public corporations of various countries. This business unit provides a variety of tailored products and services to meet customer and market requirements, including loans, deposits, clearing services, trade finance, project finance, loan syndication, andderivatives, global cash management services.services, leasing and securities business such as underwriting activities. This business unit mainly consists of the international businesses of SMBC, SMBC Trust Bank, SMFL, SMBC Nikko Securities and their foreign subsidiaries.

SMBC’s TreasuryGlobal Markets Business Unit

SMBC’s TreasuryThe Global Markets Business Unit operates in the domestic and international money,offers solutions through foreign exchange securitiesproducts, derivatives, bonds, stocks, and derivatives markets to serve customer needsother marketable financial products and SMBC’s ownalso undertakes asset liability management requirements. To further expand SMBC’s customer base, thisoperations, which

help comprehensively control balance sheet liquidity risks and interest rate risks. This business unit also seeks to provide specialized solutionsconsists of the Treasury Unit of SMBC and enhance customer service capabilities in market transactions through providing a varietythe Product Unit of products from traditional moneySMBC Nikko Securities.

Head office account and foreign exchange transactions to derivative transactions.others

SMBC’s Others

SMBC’s Others representsThe Head office account and others represent the difference between the aggregate of SMBC’s four business units and SMBC as a whole. SMBC’s Others includes the profit and loss amounts related to the Corporate StaffWholesale Business Unit, the Corporate ServicesRetail Business Unit, the Compliance Unit, the Risk ManagementInternational Business Unit and the Internal AuditGlobal Markets Business Unit, which do not belong to any of the four business units. Those amounts mainly consist of administrative expenses related to the headquarters operations and profit or loss on the activities related to capital management.

Leasing

Leasing mainly consists of SMFL, SMBC Leasing and Finance, Inc., a U.S. subsidiary, and Sumitomo Mitsui Auto Service Company Limited, an associate of the SMFG Group. SMFL is one of the major leasing companies in Japan and provides a variety of leasing services including equipment, operating, leveraged and aircraft leasing.

Securities

Securities mainly consists of SMBC Nikko Securities and SMBC Friend Securities. SMBC Nikko Securities is one of the major Japanese securities brokers and offers a wide range of financial products, investment consultation and administration services to its individual and corporate customers in Japan. For individual customers, SMBC Nikko Securities provides consulting services to meet diversified asset management needs and an online trading tool. For corporate customers, it offers trading capabilities and financial products, debt and equity underwriting, and M&A advisory services, mainly in Japan. SMBC Friend Securities is a full-line securities company focusing on retail business in Japan.

Consumer Finance

Consumer Finance mainly consists of Sumitomo Mitsui Card, Cedyna and SMBC Consumer Finance. Sumitomo Mitsui Card is a leading company in the domestic credit card industry, having introduced the Visa brand into the Japanese market. Sumitomo Mitsui Card conducts a comprehensive credit card business and offers a variety of settlement and financing services. Cedyna conducts credit card, installment (such as shopping credit and automobile loan) and solution (such as collection and factoring) businesses. SMBC Consumer Finance provides consumer loans that consist mainly of unsecured loans to individuals, and engages in other business including a loan guarantee business.

SMFG’s Others

SMFG’s Others represents the difference between the aggregate of Commercial Banking, Leasing, Securities, and Consumer Finance segments, and the SMFGSMBC Group as a whole. It mainly consists of profit or loss from SMFG on a stand-alone basis,administrative expenses related to headquarters operations, other subsidiaries and equity-method associates and joint ventures, including The Japan Research Institute, Limited.Limited and Sumitomo Mitsui DS Asset Management Company, Limited, which was formed through the merger of Sumitomo Mitsui Asset Management Company, Limited and Daiwa SB Investments Ltd., on April 1, 2019. It also includes internal transactions between the SMFGSMBC Group companies, which are eliminated in the consolidated financial statements.

Measurement of Segment Profit or Loss

The business segment information is prepared under the management approach. Consolidated net business profit is used as a profit indicator of banks in Japan. Consolidated net business profit of each segment is calculated by deducting general and administrative expenses (i.e., the total of personnel expense,non-personnel expense and tax, excluding nonrecurring factors)tax), and by adding or deducting others (i.e., share of profit or loss of equity-method associates and joint ventures and cooperated profit and loss based on internal managerial accounting) to or from consolidated gross profits (i.e., the total of net interest income, trust fees, net fee and commission income, net trading income and net other operating income). While the SMFGSMBC Group’s disclosure complies with the requirements on segment information in accordance with IFRS, the figures reported to management and disclosed herein are prepared under accounting principles generally accepted in Japan (“Japanese GAAP”). Consequently, the business segment information does not agree with the figures in the consolidated financial statements under IFRS. These differences are addressed in the “Reconciliation of Segmental Results of Operations to Consolidated Income Statement.Statements.

Information regarding the total assets of each segment is not used by management in deciding how to allocate resources and assess performance. Accordingly, total assets are not included in the business segment information.

Segmental Results of OperationOperations

For the fiscal year ended March 31, 2016:2019:

 

  Commercial Banking 
  SMBC  Others(2)  Total 
  Wholesale
Banking Unit
  Retail
Banking Unit
  International
Banking Unit
  Treasury
Unit
  Others  SMBC Total       
  (In billions) 

Gross profit

 ¥545.3   ¥372.8   ¥356.0   ¥293.6   ¥(33.4 ¥1,534.3   ¥303.0   ¥1,837.3  

Net interest income

  300.1    302.0    225.4    168.2    27.9    1,023.6    174.4    1,198.0  

Net non-interest income

  245.2    70.8    130.6    125.4    (61.3  510.7    128.6    639.3  

General and administrative expenses and others

  (205.1  (354.1  (116.5  (29.1  (100.7  (805.5  (218.9  (1,024.4
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Consolidated net business profit(1)(7)

 ¥340.2   ¥18.7   ¥239.5   ¥264.5   ¥(134.1 ¥728.8   ¥84.1   ¥812.9  
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

  Leasing  Securities  Consumer Finance  Others  Total 
  SMFL(3)  Total(4)  SMBC
Nikko
Securities(5)
  SMBC
Friend
Securities
  Total(4)  Sumitomo
Mitsui
Card
  Cedyna(6)  SMBC
Consumer
Finance(3)
  Total(4)       
  (In billions) 

Gross profit

 ¥142.8   ¥162.6   ¥316.3   ¥43.8   ¥357.1   ¥208.5   ¥165.2   ¥233.4   ¥611.5   ¥(64.5 ¥2,904.0  

Net interest income

  17.9    22.9    1.6    1.5    4.6    13.6    23.7    157.0    188.9    8.6    1,423.0  

Net non-interest income

  124.9    139.7    314.7    42.3    352.5    194.9    141.5    76.4    422.6    (73.1  1,481.0  

General and administrative expenses and others

  (62.1  (67.1  (255.8  (38.8  (307.2  (157.1  (124.2  (104.8  (397.2  34.8    (1,761.1
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Consolidated net business profit(1)(7)

 ¥80.7   ¥95.5   ¥60.5   ¥5.0   ¥49.9   ¥51.4   ¥41.0   ¥128.6   ¥214.3   ¥(29.7 ¥1,142.9  
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

For the fiscal year ended March 31, 2015:

  Commercial Banking 
 SMBC  Others(2)  Total 
  Wholesale
Banking Unit
  Retail
Banking Unit
  International
Banking Unit
  Treasury
Unit
  Others  SMBC Total       
  (In billions) 

Gross profit

 ¥555.4   ¥386.8   ¥345.3   ¥354.0   ¥(7.2 ¥1,634.3   ¥289.4   ¥1,923.7  

Net interest income

  315.8    313.2    227.8    212.4    52.2    1,121.4    171.3    1,292.7  

Net non-interest income

  239.6    73.6    117.5    141.6    (59.4  512.9    118.1    631.0  

General and administrative expenses and others

  (206.8  (350.1  (106.6  (25.9  (101.8  (791.2  (203.0  (994.2
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Consolidated net business profit(1)(7)

 ¥348.6   ¥36.7   ¥238.7   ¥328.1   ¥(109.0 ¥843.1   ¥86.4   ¥929.5  
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

  Leasing  Securities  Consumer Finance  Others  Total 
  SMFL(3)  Total(4)  SMBC
Nikko
Securities(5)
  SMBC
Friend
Securities
  Total(4)  Sumitomo
Mitsui
Card
  Cedyna(6)  SMBC
Consumer
Finance(3)
  Total(4)       
  (In billions) 

Gross profit

 ¥137.0   ¥149.3   ¥346.3   ¥50.4   ¥393.9   ¥196.4   ¥164.2   ¥215.5   ¥576.9   ¥(63.4 ¥2,980.4  

Net interest income

  19.3    24.4    1.5    1.2    3.8    13.6    25.9    149.0    178.7    5.6    1,505.2  

Net non-interest income

  117.7    124.9    344.8    49.2    390.1    182.8    138.3    66.5    398.2    (69.0  1,475.2  

General and administrative expenses and others

  (56.5  (60.8  (248.7  (40.0  (301.9  (146.0  (121.7  (96.1  (381.9  68.9    (1,669.9
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Consolidated net business profit(1)(7)

 ¥80.5   ¥88.5   ¥97.6   ¥10.4   ¥92.0   ¥50.4   ¥42.5   ¥119.4   ¥195.0   ¥5.5   ¥1,310.5  
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

For the fiscal year ended March 31, 2014:

  Commercial Banking 
 SMBC  Others(2)  Total 
  Wholesale
Banking Unit
  Retail
Banking Unit
  International
Banking Unit
  Treasury
Unit
  Others  SMBC Total       
  (In billions) 

Gross profit

 ¥558.5   ¥405.4   ¥296.0   ¥325.5   ¥(27.3 ¥1,558.1   ¥249.1   ¥1,807.2  

Net interest income

  323.4    321.3    174.6    225.2    20.4    1,064.9    171.1    1,236.0  

Net non-interest income

  235.1    84.1    121.4    100.3    (47.7  493.2    78.0    571.2  

General and administrative expenses and others

  (200.7  (336.4  (89.1  (22.9  (96.6  (745.7  (195.6  (941.3
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Consolidated net business profit(1)(7)

 ¥357.8   ¥69.0   ¥206.9   ¥302.6   ¥(123.9 ¥812.4   ¥53.5   ¥865.9  
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

  Leasing  Securities  Consumer Finance  Others  Total 
  SMFL(3)  Total(4)  SMBC
Nikko
Securities(5)
  SMBC
Friend
Securities
  Total(4)  Sumitomo
Mitsui
Card
  Cedyna(6)  SMBC
Consumer
Finance(3)
  Total(4)       
  (In billions) 

Gross profit

 ¥127.9   ¥138.4   ¥339.3   ¥58.2   ¥397.8   ¥189.9   ¥167.6   ¥181.8   ¥540.1   ¥14.7   ¥2,898.2  

Net interest income

  29.1    35.2    0.2    1.4    2.7    13.9    28.3    124.4    156.6    53.7    1,484.2  

Net non-interest income

  98.8    103.2    339.1    56.8    395.1    176.0    139.3    57.4    383.5    (39.0  1,414.0  

General and administrative expenses and others

  (52.9  (54.4  (235.3  (42.5  (292.0  (139.6  (123.6  (73.0  (352.8  80.8    (1,559.7
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Consolidated net business profit(1)(7)

 ¥75.0   ¥84.0   ¥104.0   ¥15.7   ¥105.8   ¥50.3   ¥44.0   ¥108.8   ¥187.3   ¥95.5   ¥1,338.5  
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 
   Wholesale
Business
Unit(3)
  Retail
Business
Unit
  International
Business
Unit(3)
  Global Markets
Business
Unit
  Head office
account and
others(3)
  Total 
   (In billions) 

Consolidated gross profit(1)

  ¥784.9  ¥1,281.6  ¥689.6  ¥333.6  ¥(243.5 ¥2,846.2 

General and administrative expenses

   (345.1  (1,021.4  (333.4  (54.2  39.0   (1,715.1

Others(2)

   45.1   14.4   38.9   19.1   (56.3  61.2 
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Consolidated net business profit

  ¥484.9  ¥274.6  ¥395.1  ¥298.5  ¥(260.8 ¥1,192.3 
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 
For the fiscal year ended March 31, 2018:

 

 
   Wholesale
Business
Unit
  Retail
Business
Unit
  International
Business
Unit
  Global Markets
Business
Unit
  Head office
account and
others
  Total 
   (In billions) 

Consolidated gross profit(1)

  ¥772.9  ¥1,311.7  ¥632.0  ¥356.2  ¥(91.7 ¥2,981.1 

General and administrative expenses

   (347.9  (1,027.7  (280.7  (53.9  (106.0  (1,816.2

Others(2)

   53.7   15.6   46.9   17.5   (94.8  38.9 
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Consolidated net business profit

  ¥478.7  ¥299.6  ¥398.2  ¥319.8  ¥(292.5 ¥1,203.8 
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 
For the fiscal year ended March 31, 2017:

 

 
   Wholesale
Business
Unit
  Retail
Business
Unit
  International
Business
Unit
  Global Markets
Business
Unit
  Head office
account and
others
  Total 
   (In billions) 

Consolidated gross profit(1)

  ¥776.4  ¥1,313.9  ¥566.1  ¥346.8  ¥(82.5 ¥2,920.7 

General and administrative expenses

   (344.8  (1,041.1  (241.2  (50.2  (135.1  (1,812.4

Others(2)

   45.6   12.1   38.5   8.2   (79.8  24.6 
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Consolidated net business profit

  ¥477.2  ¥284.9  ¥363.4  ¥304.8  ¥(297.4 ¥1,132.9 
  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

 

(1)

Consolidated net businessgross profit = Gross profit (*) - General(Interest income – Interest expenses) + Trust fees + (Fee and administrative expensescommission income – Fee and commission expenses) + (Trading income – Trading losses) + (Other operating income – Other operating expenses).

(2)

“Others” includes share of profit or loss of equity-method associates.

(*)Gross profit = (Interest income - Interest expenses) + Trust fees + (Fee and commission income - Fee and commission expenses) + (Trading income - Trading losses) + (Other operating income - Other operating expenses).

(2)Othersassociates and joint ventures and cooperated profit and loss, that is, profit and loss double-accounted for in Commercial Banking consist of SMFG’s banking subsidiaries except SMBC, such as SMBC Trust Bank, KUBC, The Minato Bank, SMBC Europe and SMBC (China).the managerial accounting.

(3)The figures represent

Sumitomo Mitsui Finance and Leasing Company, Limited (“SMFL”) became a joint venture from a consolidated figures of respective companies.

(4)Total under each business segment, except Commercial Banking, includes the aggregationsubsidiary of the SMBC Group on November 28, 2018. However, for managerial accounting purposes, the full year results of SMFL were included in those of the Wholesale Business Unit and the International Business Unit, while its results after it became a joint venture of the SMBC Group were deducted from those of Head office account and others. For consistency with financial results, the operating units that were not separately identified.
(5)The figures areSMBC Group’s share of the sumprofit of SMBC Nikko Securities (nonconsolidated basis) and its overseas securities subsidiaries.
(6)The figures represent Cedyna’s consolidated figures excluding insignificant subsidiaries.
(7)The SMFG Group’s total credit cost (reversal) for the fiscal years ended March 31, 2016, 2015 and 2014 were ¥102.8 billion, ¥7.8 billion and ¥(49.1) billion, respectively, of which ¥10.3 billion, ¥(68.3) billion and ¥(116.5) billion were for Commercial Banking, ¥(1.5) billion, ¥(6.1) billion and ¥(0.9) billion were for Leasing, ¥(0.2) billion, ¥(0.2) billion and nil were for Securities and ¥91.4 billion, ¥78.8 billion and ¥66.8 billion were for Consumer Finance. Total credit costs include gains on recoveries of written-off claims. The SMFG Group’s total credit costs (reversal) are not includedSMFL as our joint venture recognized in the consolidated net business profit.income statement was included in others in the Head office account and others.

Reconciliation of Segmental Results of Operations to Consolidated Income StatementStatements

The figures provided in the tables above are calculated by aggregating the figures used for management reporting under Japanese GAAP for each segment. The total amount of consolidated net business profit that is calculated by each segment based on the internal managerial data is reconciled to profit before tax reported in the consolidated financial statements under IFRS as shown in the following table:

 

                                                      
  For the fiscal year ended March 31,   For the fiscal year ended March 31, 
  2016 2015 2014   2019 2018 2017 
  (In billions)   (In billions) 

Consolidated net business profit

  ¥1,142.9   ¥1,310.5   ¥1,338.5    ¥1,192.3  ¥1,203.8  ¥1,132.9 

Differences between management reporting and Japanese GAAP:

        

Total credit costs(1)

   (102.8  (7.8  49.1     (110.3  (94.2  (164.4

Gains on equity instruments

   69.0    66.7    89.2     116.3   118.9   55.0 

Others

   (128.9  (60.0  (54.1

Extraordinary gains or losses and others

   (74.7  (119.6  (44.2
  

 

  

 

  

 

   

 

  

 

  

 

 

Profit before tax under Japanese GAAP

   980.2    1,309.4    1,422.7     1,123.6   1,108.9   979.3 
  

 

  

 

  

 

   

 

  

 

  

 

 

Differences between IFRS and Japanese GAAP:

    

Differences between Japanese GAAP and IFRS:

    

Scope of consolidation

   (3.1  (3.9  (10.8   0.1   (1.6  (12.0

Derivative financial instruments

   173.1    (84.5  (70.8   31.3   (20.7  (110.9

Investment securities

   56.6    10.2    6.2     (129.5  68.8   (8.8

Loans and advances

   (35.2  (116.3  (36.7   (23.2  (33.5  (0.7

Investments in associates and joint ventures

   53.4    23.6    4.9     (86.5  (1.6  (15.9

Property, plant and equipment

   1.3    (1.0  3.1     (1.2  1.0   1.3 

Lease accounting

   (1.5  (2.0  (3.1   (1.4  (0.5  (3.7

Defined benefit plans

   6.6    3.1    19.8     (51.4  (13.2  22.9 

Foreign currency translation

   61.7    (23.1  (45.9   1.3   12.7   3.6 

Classification of equity and liability

   5.4    —      —       11.9   14.1   8.4 

Others

   27.2    17.4    16.9     (43.1  (15.4  16.9 
  

 

  

 

  

 

   

 

  

 

  

 

 

Profit before tax under IFRS

  ¥1,325.7   ¥1,132.9   ¥1,306.3    ¥831.9   ¥1,119.0   ¥880.4  
  

 

  

 

  

 

   

 

  

 

  

 

 

On April 1, 2018, the SMBC Group adopted IFRS 9 and IFRS 15 retrospectively by adjusting the consolidated statement of financial position at the date of initial application, and has not restated comparatives as permitted by IFRS 9 and IFRS 15. Therefore, the accounting standards under IFRS for the fiscal year ended March 31, 2019 are different from those for the fiscal years ended March 31, 2018 and 2017, when calculating the differences in profit before tax between Japanese GAAP and IFRS. See Note 2 “Summary of Significant Accounting Policies” for further information on accounting changes.

(1)A positive figure indicates net reversal of credit costs.

Information about Geographical Areas

The following table shows the total operating income in accordance with IFRS by the main geographical areas. The SMFGSMBC Group’s services are provided to domestic and foreign clients on a worldwide basis. These include transactions where SMBC’s branches in Japan may deal with customers located in foreign countries and where SMBC’s overseas branches may provide services to Japanese companies.

To identify income attributed to each geographical area for the purposes of this disclosure, they are aggregated based on the geographical location of the booking entity, with the assumption that transactions booked in booking entities are deemed to have occurred in their respective geographical areas.

 

                                                                                                            
  For the fiscal year ended March 31,   For the fiscal year ended March 31, 
  2016 2015 2014   2019 2018 2017 
  (In millions)   (In millions) 

Domestic(1)

    

Domestic(1):

    

Japan

  ¥2,840,058   ¥2,536,539   ¥2,525,836    ¥2,114,145  ¥2,670,858  ¥2,356,627 
  

 

  

 

  

 

   

 

  

 

  

 

 

Total domestic

   2,840,058    2,536,539    2,525,836     2,114,145   2,670,858   2,356,627 
  

 

  

 

  

 

   

 

  

 

  

 

 

Foreign(1)(2):

        

Americas

   196,399    172,050    187,435     315,531   350,118   313,742 

Europe and Middle East

   352,232    350,105    280,187     371,413    484,807    401,320  

Asia and Oceania

   299,537    273,739    230,895     401,357   306,564   276,206 
  

 

  

 

  

 

   

 

  

 

  

 

 

Total foreign

   848,168    795,894    698,517     1,088,301   1,141,489   991,268 
  

 

  

 

  

 

   

 

  

 

  

 

 

Total operating income(3)

  ¥3,688,226   ¥3,332,433   ¥3,224,353    ¥3,202,446   ¥3,812,347   ¥3,347,895  
  

 

  

 

  

 

   

 

  

 

  

 

 

 

(1)

The geographical segmentation is determined based on the degrees of the following factors: geographic proximity, similarity of economic activities and relationship of business activities among regions.

(2)

Americas includes the United States, Brazil, Canada and others; Europe and Middle East include the United Kingdom, Germany, France and others; Asia and Oceania include China, Singapore, Australia and others except Japan.

(3)

Total operating income comprises net interest income, net fee and commission income, net trading income, net income (loss) from financial assets at fair value through profit or loss, net investment income and other income.

 

5

CASH AND DEPOSITS WITH BANKS

Cash and deposits with banks at March 31, 20162019 and 20152018 consisted of the following:

 

                                                                        
  At March 31,   At March 31, 
  2016 2015   2019 2018 
  (In millions)   (In millions) 

Cash

  ¥965,189   ¥1,173,880    ¥1,062,952  ¥703,138 

Deposits with banks

   42,179,465    38,938,903     56,700,489   53,992,931 
  

 

  

 

   

 

  

 

 

Total cash and deposits with banks

  ¥43,144,654   ¥40,112,783    ¥57,763,441   ¥54,696,069  
  

 

  

 

   

 

  

 

 

The reconciliation of cash and cash equivalents used for the purposes of the consolidated statementstatements of cash flows at March 31, 2016, 20152019, 2018 and 20142017 is shown as follows:

 

                                                      
   At March 31, 
   2016  2015  2014 
   (In millions) 

Cash and deposits with banks

  ¥43,144,654   ¥40,112,783   ¥33,208,724  

Less: term deposits with original maturities over three months

   (597,960  (581,743  (609,503

Less: cash segregated as deposits and others

   (419,728  (422,283  (400,976
  

 

 

  

 

 

  

 

 

 

Cash and cash equivalents

  ¥42,126,966   ¥39,108,757   ¥32,198,245  
  

 

 

  

 

 

  

 

 

 

                                                      
   At March 31, 
   2019  2018  2017 
   (In millions) 

Cash and deposits with banks

  ¥57,763,441  ¥54,696,069  ¥47,330,155 

Less: term deposits with original maturities over three months

   (532,784  (627,837  (606,795

Less: cash segregated as deposits and others

   (514,128  (667,099  (478,541

Add: cash and cash equivalents included in assets held for sale

   —     15,323   —   
  

 

 

  

 

 

  

 

 

 

Cash and cash equivalents

  ¥56,716,529  ¥53,416,456  ¥46,244,819 
  

 

 

  

 

 

  

 

 

 

Private depository institutions in Japan are required to maintain certain minimum reserve funds with the Bank of Japan, based on average deposit balances and certain other factors. There are similar reserve deposit requirements for the SMFGSMBC Group’s foreign offices engaged in banking businesses in foreign countries. At March 31, 2016, 20152019, 2018 and 2014,2017, the reserves atreserve funds required to be maintained by the central banks, including those minimum reserve funds,SMBC Group, which were included in cash and cash equivalents, amounted to ¥36,020,569¥1,784,466 million, ¥31,593,178¥1,689,340 million and ¥25,737,152¥1,644,684 million, respectively.

 

6

TRADING ASSETS

Trading assets at March 31, 20162019 and 20152018 consisted of the following:

 

                                    
  At March 31,   At March 31, 
  2016   2015   2019   2018 
  (In millions)   (In millions) 

Debt instruments

  ¥3,174,309    ¥2,618,593    ¥2,480,903   ¥2,841,148 

Equity instruments

   440,783     624,592     286,788    327,975 
  

 

   

 

   

 

   

 

 

Total trading assets

  ¥3,615,092    ¥3,243,185    ¥2,767,691   ¥3,169,123 
  

 

   

 

   

 

   

 

 

Trading debt instruments mainly consist of Japanese government bonds. Trading equity instruments mainly consist of publicly traded Japanese stocks and investment funds.stocks.

 

7

DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGE ACCOUNTING

Derivative financial instruments include futures, forwards, swaps, options and other types of derivative contracts, which are transactions listed on exchanges orover-the-counter (“OTC”) transactions. In the normal course of business, the SMFGSMBC Group enters into a variety of derivatives for trading and risk management purposes. The SMFGSMBC Group uses derivatives for trading activities, which include facilitating customer transactions, market-making and arbitrage activities. The SMFGSMBC Group also uses derivatives to reduce its exposures to market and credit risks as part of its asset and liability management, but does not apply hedge accounting.management.

Derivatives are financial instruments that derive their value from the price of underlying items such as interest rates, foreign exchange rates, equities, bonds, commodities, credit spreads and other indices. The SMFGSMBC Group’s derivative financial instruments mainly consist of interest rate derivatives and currency derivatives. Interest rate derivatives include interest rate swaps, interest rate futuresoptions and interest rate swaptions.futures. Currency derivatives include foreign exchange forward transactions, currency swaps and currency options.

The tables below represent the derivative financial instruments by type and purpose of derivatives at March 31, 20162019 and 2015.2018.

 

 At March 31, 2016  At March 31, 2019 
 Trading Risk Management(1)  Trading Risk Management(1) 
 Notional
amounts
 Assets Liabilities Notional
amounts
 Assets Liabilities  Notional
amounts
 Assets Liabilities Notional
amounts
 Assets Liabilities 
 (In millions)  (In millions) 

Interest rate derivatives

 ¥624,009,304   ¥2,507,089   ¥2,516,295   ¥49,612,909   ¥820,725   ¥760,503   ¥779,291,352  ¥1,738,231  ¥1,484,122  ¥51,692,181  ¥270,514  ¥340,931 

Futures

  126,458,648    92,629    97,929    935,860    176    854   63,332,406  44,812  46,428  2,220,000   —    149 

Listed Options

  34,227,948    6,632    380    —      —      —     134,733,142  24,131  2,593   —     —     —   

Forwards

  15,838,272    164    375    —      —      —     54,486,370  642  939   —     —     —   

Swaps

  396,311,398    2,294,931    2,255,616    48,478,874    816,199    759,635   444,347,278  1,561,977  1,290,977  49,315,116  267,094  340,752 

OTC Options

  51,173,038    112,733    161,995    198,175    4,350    14   82,392,156  106,669  143,185  157,065  3,420  30 

Currency derivatives

  97,093,252    1,615,618    1,379,134    10,203,718    283,651    335,457   132,054,681  1,167,833  935,956  10,260,443  119,077  176,822 

Futures

  691    17    —      —      —      —     3,942  22   —     —     —     —   

Listed Options

  —      —      —      —      —      —      —     —     —     —     —     —   

Forwards

  56,831,767    932,937    926,924    502,194    12,007    2,910   79,268,300  488,211  415,097  2,246,274  18,370  57,069 

Swaps

  33,597,294    553,104    297,358    9,701,524    271,644    332,547   46,014,820  594,144  441,257  8,014,169  100,707  119,753 

OTC Options

  6,663,500    129,560    154,852    —      —      —     6,767,619  85,456  79,602   —     —     —   

Equity derivatives

  1,971,463    32,536    60,122    9,929    352    40   3,048,195  61,761  96,140  48,511  1,856  30 

Futures

  1,089,827    3,469    7,036    —      —      —     933,068  4,418  2,313   —     —     —   

Listed Options

  357,609    8,523    19,476    —      —      —     1,259,343  29,384  56,854   —     —     —   

Forwards

  11,960    502    17    —      —      —      —     —     —     —     —     —   

Swaps

  66,213    78    12,696    9,929    352    40   119,145  654  8,477  48,511  1,856  30 

OTC Options

  445,854    19,964    20,897    —      —      —     736,639  27,305  28,496   —     —     —   

Commodity derivatives

  215,945    24,515    23,758    —      —      —     225,655  7,517  5,848   —     —     —   

Futures

  15,300    678    891    —      —      —     28,823  445  415   —     —     —   

Listed Options

  —      —      —      —      —      —      —     —     —     —     —     —   

Forwards

  —      —      —      —      —      —      —     —     —     —     —     —   

Swaps

  166,312    23,136    21,227    —      —      —     183,117  7,006  5,019   —     —     —   

OTC Options

  34,333    701    1,640    —      —      —     13,715  66  414   —     —     —   

Credit derivatives

  1,447,243    6,339    10,774  �� —      —      —     1,562,100  15,785  11,924   —     —     —   
 

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

Total derivative financial instruments

 ¥724,737,207   ¥4,186,097   ¥3,990,083   ¥59,826,556   ¥1,104,728   ¥1,096,000   ¥916,181,983  ¥   2,991,127  ¥    2,533,990  ¥ 62,001,135  ¥       391,447  ¥       517,783 
 

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

  At March 31, 2015 
  Trading  Risk Management(1) 
  Notional
amounts
  Assets  Liabilities  Notional
amounts
  Assets  Liabilities 
  (In millions) 

Interest rate derivatives

 ¥687,138,214   ¥3,619,256   ¥3,692,925   ¥58,945,067   ¥758,978   ¥722,234  

Futures

  149,155,836    79,448    91,667    10,731,918    —      5,071  

Listed Options

  36,729,312    7,097    151    —      —      —    

Forwards

  13,617,468    3    139    —      —      —    

Swaps

  448,821,964    3,446,290    3,490,754    48,070,491    758,745    717,017  

OTC Options

  38,813,634    86,418    110,214    142,658    233    146  

Currency derivatives

  95,450,773    1,840,958    1,739,303    7,661,419    173,920    491,857  

Futures

  81,429    181    —      —      —      —    

Listed Options

  —      —      —      —      —      —    

Forwards

  62,599,181    1,266,650    1,399,095    822,103    12,714    8,327  

Swaps

  26,890,783    444,330    150,459    6,839,316       161,206    483,530  

OTC Options

  5,879,380    129,797    189,749    —      —      —    

Equity derivatives

  2,139,981    44,862    53,864    184,354    1,687    15,010  

Futures

  1,274,309    7,649    12,272    118,376    1,687    —    

Listed Options

  323,588    11,546    16,412    —      —      —    

Forwards

  50,198    908    281    —      —      —    

Swaps

  32,130    67    1,341    65,978    —      15,010  

OTC Options

  459,756    24,692    23,558    —      —      —    

Commodity derivatives

  247,769    19,580    19,465    —      —      —    

Futures

  29,706    1,829    2,466    —      —      —    

Listed Options

  —      —      —      —      —      —    

Forwards

  —      —      —      —      —      —    

Swaps

  193,438    17,481    16,128    —      —      —    

OTC Options

  24,625    270    871    —      —      —    

Credit derivatives

  1,271,457    11,962    5,129    —      —      —    
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Total derivative financial instruments

 ¥786,248,194   ¥5,536,618   ¥5,510,686   ¥66,790,840   ¥934,585   ¥1,229,101  
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

  At March 31, 2018 
  Trading  Risk Management(1) 
  Notional
amounts
  Assets  Liabilities  Notional
amounts
  Assets  Liabilities 
  (In millions) 

Interest rate derivatives

 ¥676,464,541  ¥1,771,745  ¥1,639,850  ¥69,550,646  ¥300,376  ¥333,182 

Futures

  78,295,049   28,689   28,871   18,269,263   5,534   1,167 

Listed Options

  66,989,307   4,538   722   —     —     —   

Forwards

  25,030,851   274   994   —     —     —   

Swaps

  429,498,805   1,651,945   1,500,361   51,131,039   294,842   329,446 

OTC Options

  76,650,529   86,299   108,902   150,344   —     2,569 

Currency derivatives

  120,282,459   1,439,993   1,293,900   7,986,176   283,248   112,322 

Futures

  689   —     19   —     —     —   

Listed Options

  —     —     —     —     —     —   

Forwards

  74,380,475   759,993   708,645   1,866,249   49,440   24,929 

Swaps

  39,668,889   577,350   490,014   6,119,927   233,808   87,393 

OTC Options

  6,232,406   102,650   95,222   —     —     —   

Equity derivatives

  3,354,789   71,344   105,194   2,219   —     155 

Futures

  829,262   5,946   9,747   —     —     —   

Listed Options

  1,779,546   42,209   68,341   —     —     —   

Forwards

  7,564   745   208   —     —     —   

Swaps

  77,015   186   8,171   2,219   —     155 

OTC Options

  661,402   22,258   18,727   —     —     —   

Commodity derivatives

  161,539   6,516   4,948   —     —     —   

Futures

  20,902   402   464   —     —     —   

Listed Options

  —     —     —     —     —     —   

Forwards

  —     —     —     —     —     —   

Swaps

  128,467   6,052   3,974   —     —     —   

OTC Options

  12,170   62   510   —     —     —   

Credit derivatives

  1,320,297   12,049   8,465   —     —     —   
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Total derivative financial instruments

 ¥801,583,625  ¥   3,301,647  ¥   3,052,357  ¥ 77,539,041  ¥       583,624  ¥       445,659 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

 

(1)

Derivative financial instruments categorized as “Risk Management” are used for economic hedging, such as managing the exposure to changes in fair value of the loan portfolio, and are identified as hedgeshedging instruments under Japanese GAAP, butGAAP. Under IFRS, the SMFGSMBC Group does not applyapplies hedge accounting under IFRS.for certain equity instruments elected to be measured at FVOCI and net investments in foreign operations, and derivative financial instruments designated as hedging instruments are also categorized as “Risk Management.”

Credit derivativesHedge accounting

The SMFGSMBC Group applies fair value hedge accounting and hedge accounting of net investments in foreign operations in order to reflect the effect of risk management activities on its consolidated financial statements.

Fair value hedges

The SMBC Group applies fair value hedge accounting to mitigate the risk of changes in the fair value of certain equity instruments elected to be measured at FVOCI. Changes in the fair value of those equity instruments would have an impact on the equity of the SMBC Group if it did not apply the hedge accounting.

The SMBC Group designates as hedging instruments equity derivatives with underlying instruments identical to the hedged items and establishes a hedge ratio by aligning the number of shares of hedged items with that of equity derivatives used as hedging instruments. The SMBC Group assesses hedge effectiveness and calculates hedge ineffectiveness by comparing changes in the fair value of the hedged items with those of the

hedging instruments. The sources of hedge ineffectiveness that is expected to arise from these hedging relationships are due to the effect of the counterparty or the SMBC Group’s own credit risk on the fair value of the equity derivatives and interest rate risk on the equity derivatives. There are no other sources of hedge ineffectiveness in the hedging relationships. Both the effective portion and ineffective portion of changes in the fair value of the hedging instruments are recognized in other comprehensive income, and amounts presented in other comprehensive income are not subsequently transferred to profit or loss.

The table below represents the amounts related to items designated as hedging instruments at March 31, 2019.

   

Line item in the consolidated
statements of financial
position where the hedging
instrument is included

  At March 31, 2019   For the fiscal year
ended March 31, 2019
 
  Nominal
amounts
   Carrying amounts   Change in value used
for calculating hedge
ineffectiveness
 
  Assets   Liabilities 
          (In millions)     

Equity swaps

  Derivative financial instruments  ¥48,511   ¥1,856   ¥30   ¥14,860 

The amounts related to items designated as hedged items at March 31, 2019 were as follows:

   Line item in the consolidated
statements of financial
position where the hedged
item is included
  At March 31, 2019   For the fiscal year
ended March 31, 2019
 
 
   Change in value used
for calculating hedge
ineffectiveness
 
   Carrying amounts 
      (In millions) 

Equity instruments at fair value through other comprehensive income

  Investment securities  ¥45,847   ¥(14,376

The accumulated amount of fair value hedge adjustments on the hedged items was a loss of ¥14,376 million at March 31, 2019. There was no balance remaining in the consolidated statements of financial position for any hedged items that had ceased to be adjusted for hedging gains and losses at March 31, 2019.

Hedge ineffectiveness was included in “Other comprehensive income—Equity instruments at fair value through other comprehensive income” in the consolidated statements of comprehensive income and amounted to a profit of ¥484 million for the fiscal year ended March 31, 2019.

Hedges of net investments in foreign operations

The SMBC Group applies hedge accounting of net investments in foreign operations to mitigate the foreign currency risk of exchange differences arising from the translation of net investments in foreign operations. The SMBC Group hedges the risk of changes in its equity, arising from the movement in the U.S. dollar exchange rate or other exchange rates against Japanese yen. Changes in foreign exchange rates would have an impact on the equity of the SMBC Group if it did not apply the hedge accounting.

The SMBC Group designates as hedging instruments foreign exchange forward contracts and foreign currency denominated financial liabilities. When the hedging instruments are foreign exchange forward contracts, the SMBC Group establishes a hedge ratio where the notional amounts on the foreign exchange forward contracts match the carrying amount of the hedged items. The SMBC Group designates as hedging instruments only the changes in the fair value of the spot element of the foreign exchange forward contracts, and assesses hedge effectiveness and calculates hedge ineffectiveness by comparing the changes in the carrying amounts of the hedging instruments that are attributable to a change in the spot rate with the changes in the net investments in foreign operations due to a movement in the spot rate. Therefore, the only sources of hedge ineffectiveness that is expected to arise from these hedging relationships are due to the effect of the counterparty

or the SMBC Group’s own credit risk on the changes in the fair value of the hedging instruments. There are no other sources of hedge ineffectiveness in these hedge relationships.

When the hedging instruments are foreign currency denominated financial liabilities, the SMBC Group designates them as hedging instruments to the extent that the amounts do not exceed those of the hedged items, and establishes the hedge ratio by aligning the amounts of the hedging instruments with those of the hedged items. The SMBC Group assesses hedge effectiveness and calculates hedge ineffectiveness by comparing the changes in the carrying amounts of the liabilities that are attributable to a change in the spot rate with the changes in the net investments in foreign operations due to a movement in the spot rate. Therefore, no hedge ineffectiveness arises.

The effective portion of the gain or loss on the hedging instruments is recognized in other comprehensive income, whereas the ineffective portion of the gain or loss on the hedging instruments is recognized in “Net trading income” in the consolidated income statements. The cumulative gain or loss recognized in other comprehensive income is reclassified to profit or loss on the disposal or partial disposal of the foreign operations. On the other hand, changes in the fair value of the forward element of the foreign exchange forward contracts are recognized in “Net trading income” in the consolidated income statements because the SMBC Group designates as hedging instruments only the changes in the fair value of the spot element of the foreign exchange forward contracts, as stated above.

The table below represents the amounts related to items designated as hedging instruments at March 31, 2019.

   

Line item in the consolidated
statements of financial
position where the hedging
instrument is included

  At March 31, 2019   For the fiscal year
ended March 31, 2019
 
   Nominal
amounts
   Carrying amounts   Change in value used
for calculating hedge
ineffectiveness
 
  Assets   Liabilities 
          (In millions)     

Foreign exchange forward contracts

  Derivative financial instruments   ¥2,243,501   ¥18,370   ¥56,850   ¥(18,574

Foreign currency denominated financial liabilities

  

Debt securities in issue, Borrowings, Deposits

   192,039    —      192,039    (7,378

The amounts related to items designated as hedged items for the fiscal year ended March 31, 2019 were as follows:

   For the fiscal year ended
March 31, 2019
  At March 31, 2019 
   Change in value used for
calculating hedge
ineffectiveness
  Translating foreign
operations reserve
 
   (In millions) 

USD foreign operations

  ¥34,244  ¥(6,714

HKD foreign operations

   9,468   (4,638

EUR foreign operations

   (19,297  13,288 

Other foreign operations

   1,537   5,871 
  

 

 

  

 

 

 

Total

  ¥25,952  ¥7,807 
  

 

 

  

 

 

 

Note:

There was no balance remaining in the translating foreign operations reserve from hedging relationships for which hedge accounting is no longer applied at March 31, 2019.

Changes in the translating foreign operations reserve of ¥25,952 million were offset by hedges of net investment in foreign operations for the fiscal year ended March 31, 2019. There was no hedge ineffectiveness recognized in “Net trading income” for the fiscal year ended March 31, 2019.

The amounts relating to items designated as hedging instruments at March 31, 2018 were as follows:

   At March 31, 2018 
   Notional amounts   Assets   Liabilities 
   (In millions) 

Currency derivatives

  ¥1,866,249   ¥49,440   ¥24,929 

Note:

The carrying amounts of foreign currency denominated financial liabilities designated as hedging instruments at March 31, 2018 were ¥208,294 million.

There was no hedge ineffectiveness recognized in “Net trading income” for the fiscal year ended March 31, 2018.

Credit derivatives

The SMBC Group enters into credit derivatives to manage the risk of its commercial banking credit portfolio containing loans by hedging economically, as well as diversifying the credit exposure in the portfolio, and to undertake credit loss protection transactions based on the needs from customers as financial intermediation. The tables below provide information regarding the notional amounts and the fair value of credit derivatives by purpose of transactions at March 31, 20162019 and 2015.2018.

 

   At March 31, 2016 
   Protection purchased   Protection sold 
   Notional
amounts
   Assets   Liabilities   Notional
amounts
   Assets   Liabilities 
   (In millions) 

Managing the SMFG Group’s credit risk portfolio

  ¥497,447    ¥600    ¥3,540    ¥631,891    ¥2,686    ¥4,576  

Facilitating client transactions

   132,275     375     1,756     185,630       2,678     902  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

  ¥629,722    ¥975    ¥5,296    ¥817,521    ¥5,364    ¥5,478  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

  At March 31, 2015   At March 31, 2019 
  Protection purchased   Protection sold   Protection purchased   Protection sold 
  Notional
amounts
   Assets   Liabilities   Notional
amounts
   Assets   Liabilities   Notional
amounts
   Assets   Liabilities   Notional
amounts
   Assets   Liabilities 
  (In millions)   (In millions) 

Managing the SMFG Group’s credit risk portfolio

  ¥414,093    ¥60    ¥3,387    ¥519,772    ¥7,732    ¥62  

Managing the SMBC Group’s credit risk portfolio

  ¥549,794   ¥1,258   ¥6,547   ¥873,197   ¥13,700   ¥3,877 

Facilitating client transactions

   115,759     117     1,508     221,833     4,053        172     88,602    154    1,359    50,507    673    141 
  

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

 

Total

  ¥529,852    ¥177    ¥4,895    ¥741,605    ¥11,785    ¥234    ¥638,396   ¥1,412   ¥7,906   ¥923,704   ¥14,373   ¥4,018 
  

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

 
  At March 31, 2018 
  Protection purchased   Protection sold 
  Notional
amounts
   Assets   Liabilities   Notional
amounts
   Assets   Liabilities 
  (In millions) 

Managing the SMBC Group’s credit risk portfolio

  ¥442,991   ¥220   ¥5,950   ¥684,080   ¥10,615   ¥751 

Facilitating client transactions

   106,352    87    1,732    86,874    1,127    32 
  

 

   

 

   

 

   

 

   

 

   

 

 

Total

  ¥549,343   ¥307   ¥7,682   ¥770,954   ¥11,742   ¥783 
  

 

   

 

   

 

   

 

   

 

   

 

 

The following table summarizes the notional amounts of the SMFGSMBC Group’s credit derivative portfolio by type of counterparty at March 31, 20162019 and 2015.2018.

 

  At March 31, 2016   At March 31, 2015   At March 31, 2019   At March 31, 2018 
  Protection
purchased
   Protection
sold
   Protection
purchased
   Protection
sold
   Protection
purchased
   Protection
sold
   Protection
purchased
   Protection
sold
 
  (In millions)   (In millions) 

Banks and broker-dealers

  ¥629,722    ¥817,521    ¥499,569    ¥741,605    ¥626,896   ¥923,704   ¥537,843   ¥770,954 

Insurance and other financial guaranty firms

   —       —       30,283     —       11,500    —      11,500    —   
  

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

 

Total

  ¥629,722    ¥817,521    ¥529,852    ¥741,605    ¥638,396   ¥923,704   ¥549,343   ¥770,954 
  

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

 

8

FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS

Financial assets at fair value through profit or loss at March 31, 20162019 and 20152018 consisted of the following:

 

  At March 31,   At March 31, 
  2016   2015   2019   2018 
  (In millions)   (In millions) 

Debt instruments

  ¥1,582,571    ¥1,654,259    ¥2,620,686   ¥1,528,921 

Equity instruments

   29,306     131,425     20,730    18,751 
  

 

   

 

   

 

   

 

 

Total financial assets at fair value through profit or loss

  ¥1,611,877    ¥1,785,684    ¥2,641,416   ¥1,547,672 
  

 

   

 

   

 

   

 

 

The SMFG Group classifies the entire hybrid instrument asDebt instruments in financial assets at fair value through profit or loss mainly consist ofnon-trading bonds and investment funds which do not meet the conditions for SPPI. Equity instruments in financial assets at fair value through profit or loss mainly consist ofnon-trading stocks held by the venture capital investment subsidiary.

Financial assets at fair value through profit or loss at March 31, 2018 consisted of the following debt and equity instruments. The debt instruments mainly consisted of the entire hybrid instruments when the SMFGSMBC Group iswas required to separate an embedded derivative from its host contract, but iswas unable to measure the embedded derivative separately either at acquisition or at the end of a subsequent reporting period.

The SMFG Group also classifies certain financial assetsequity instruments mainly consisted of those held by athe venture capital investment subsidiary as financial assets at fair value through profit or loss.subsidiary. These financial assets areinstruments were managed and their performance iswas evaluated on a fair value basis in accordance with a documented risk management or investment strategy.

9

INVESTMENT SECURITIES

InvestmentThe following tables show the amount of investment securities, which consist of debt instruments at amortized cost, debt instruments at fair value through other comprehensive income and equity instruments at fair value through other comprehensive income at March 31, 20162019, and 2015held-to-maturity investments andavailable-for-sale financial assets at March 31, 2018.

At March 31,
2019
(In millions)

Debt instruments at amortized cost:

Domestic:

Japanese government bonds

¥280,246

Total domestic

280,246

Foreign:

U.S. Treasury and other U.S. government agency bonds

—  

Bonds issued by other governments and official institutions

36,827

Other debt instruments

1,841

Total foreign

38,668

Total debt instruments at amortized cost

¥318,914

Debt instruments at fair value through other comprehensive income:

Domestic:

Japanese government bonds

¥5,027,695

Japanese municipal bonds

99,164

Japanese corporate bonds

328,978

Other debt instruments

26

Total domestic

5,455,863

Foreign:

U.S. Treasury and other U.S. government agency bonds

4,426,635

Bonds issued by other governments and official institutions

2,121,407

Mortgage-backed securities

1,043,987

Other debt instruments

285,329

Total foreign

7,877,358

Total debt instruments at fair value through other comprehensive income

¥13,333,221

Equity instruments at fair value through other comprehensive income:

Domestic equity instruments

¥3,729,120

Foreign equity instruments

443,772

Total equity instruments at fair value through other comprehensive income

¥4,172,892

Total investment securities

¥17,825,027

At March 31,
2018
(In millions)

Held-to-maturity investments:

Domestic:

Japanese government bonds

¥372,459

Totalheld-to-maturity investments

¥372,459

Available-for-sale financial assets:

Domestic:

Japanese government bonds

¥7,685,303

Japanese municipal bonds

47,032

Japanese corporate bonds

296,601

Total domestic debt instruments

8,028,936

Equity instruments

5,161,734

Total domestic

13,190,670

Foreign:

U.S. Treasury and other U.S. government agency bonds

3,246,646

Bonds issued by other governments and official institutions

2,187,450

Mortgage-backed securities

488,183

Other debt instruments

331,491

Total foreign debt instruments

6,253,770

Equity instruments

678,176

Total foreign

6,931,946

Totalavailable-for-sale financial assets

¥20,122,616

Total investment securities

¥20,495,075

Designation of equity instruments as at fair value through other comprehensive income

The SMBC Group designates equity instruments, which are issued by its customers and not held for trading, as at fair value through other comprehensive income. Those equity instruments are held to establish, maintain, and strengthen business ties with those customers. Equity instruments at fair value through other comprehensive income at March 31, 2019 consisted of the following:

 

   At March 31, 
   2016   2015 
   (In millions) 

Held-to-maturity investments:

    

Domestic:

    

Japanese government bonds

  ¥2,241,491    ¥3,282,787  

Japanese municipal bonds

   20,849     67,843  

Japanese corporate bonds

   5,202     46,265  
  

 

 

   

 

 

 

Total domestic

   2,267,542     3,396,895  
  

 

 

   

 

 

 

Total held-to-maturity investments

  ¥2,267,542    ¥3,396,895  
  

 

 

   

 

 

 

Available-for-sale financial assets:

    

Domestic:

    

Japanese government bonds

  ¥6,528,575    ¥9,389,959  

Japanese municipal bonds

   31,221     52,150  

Japanese corporate bonds

   307,496     231,591  
  

 

 

   

 

 

 

Total domestic debt instruments

   6,867,292     9,673,700  

Equity instruments

   4,668,299     5,676,371  
  

 

 

   

 

 

 

Total domestic

   11,535,591     15,350,071  
  

 

 

   

 

 

 

Foreign:

    

U.S. Treasury and other U.S. government agency bonds

   2,246,130     2,062,043  

Bonds issued by other governments and official institutions

   2,138,993     2,205,662  

Mortgage-backed securities

   984,521     257,100  

Other debt instruments

   112,974     214,943  
  

 

 

   

 

 

 

Total foreign debt instruments

   5,482,618     4,739,748  

Equity instruments

   579,596     752,942  
  

 

 

   

 

 

 

Total foreign

   6,062,214     5,492,690  
  

 

 

   

 

 

 

Total available-for-sale financial assets

  ¥17,597,805    ¥20,842,761  
  

 

 

   

 

 

 

Total investment securities

  ¥19,865,347    ¥24,239,656  
  

 

 

   

 

 

 

At March 31,
2019
(In millions)

Listed

¥3,453,493

Unlisted

719,399

Total equity instruments at fair value through other comprehensive income

¥4,172,892

The investments in the listed equity instruments at fair value through other comprehensive income at March 31, 2019 mainly consisted of the following:

At March 31,
2019
(In millions)

TOYOTA MOTOR CORPORATION

¥   252,568

DAIKIN INDUSTRIES, LTD.

116,730

East Japan Railway Company

87,245

Central Japan Railway Company

85,614

Kotak Mahindra Bank Limited

70,472

Sumitomo Realty & Development Co., Ltd.

63,113

KUBOTA CORPORATION

57,592

DAIWA HOUSE INDUSTRY CO., LTD.

56,716

West Japan Railway Company

53,370

FUJIFILM Holdings Corporation

52,747

KOMATSU LTD.

45,847

Asahi Group Holdings, Ltd.

45,145

Japan Exchange Group, Inc.

44,534

MITSUI & CO., LTD.

44,109

NIPPON PAINT HOLDINGS CO., LTD.

43,499

DAIICHI SANKYO COMPANY, LIMITED

42,908

NIDEC CORPORATION

42,531

TAISHO PHARMACEUTICAL HOLDINGS CO., LTD.

42,506

Mitsui Fudosan Co., Ltd.

41,285

Seven & i Holdings Co., Ltd.

41,065

SG HOLDINGS CO., LTD.

40,635

BRIDGESTONE CORPORATION

38,394

Murata Manufacturing Co., Ltd.

37,628

ASAHI KASEI CORPORATION

34,722

NIPPON STEEL & SUMITOMO METAL CORPORATION(1)

34,161

KOITO MANUFACTURING CO., LTD.

34,126

Shionogi & Co., Ltd.

31,487

ITOCHU Corporation

29,104

Recruit Holdings Co., Ltd.

28,449

Chubu Electric Power Company, Incorporated

25,830

Tokyo Electric Power Company Holdings, Incorporated

25,149

Stanley Electric Co., Ltd.

24,131

DAIFUKU CO., LTD.

23,503

At March 31,
2019
(In millions)

Makita Corporation

22,361

Oji Holdings Corporation

21,756

GMO Payment Gateway, Inc.

19,663

TORAY INDUSTRIES, INC.

19,102

Idemitsu Kosan Co., Ltd.

19,054

The Kansai Electric Power Company, Incorporated

18,161

SHIMANO INC.

18,000

MINEBEA MITSUMI Inc.

17,002

TOHO GAS CO., LTD.

16,422

HOUSE FOODS GROUP INC.

16,323

KAJIMA CORPORATION

15,966

Mazda Motor Corporation

15,924

TOYOTA TSUSHO CORPORATION

15,320

BROTHER INDUSTRIES, LTD.

15,152

SUMITOMO CHEMICAL COMPANY, LIMITED

15,051

Hankyu Hanshin Holdings, Inc.

14,865

Sanwa Holdings Corporation

14,809

Others

1,421,647

Total listed equity instruments at fair value through other comprehensive income

¥3,453,493

(1)

NIPPON STEEL & SUMITOMO METAL CORPORATION changed its trade name to NIPPON STEEL CORPORATION on April 1, 2019.

Disposal of equity instruments at fair value through other comprehensive income

The SMBC Group sold equity instruments measured at fair value through other comprehensive income mainly in order to mitigate the impact of share price fluctuations on the SMBC Group’s financial base. The fair value of the equity instruments measured at fair value through other comprehensive income at the date of derecognition and the cumulative gain on disposal for the fiscal year ended March 31, 2019 were as follows:

For the fiscal year ended
March 31, 2019
(In millions)

Fair value of the equity instruments at fair value through other comprehensive income at the date of derecognition

¥275,410

Cumulative gain on disposal

93,574

The SMBC Group transferred the cumulative gain or loss related to the equity instruments that were derecognized or whose significant fair value decline reduced income tax expense for the current reporting period from “Other reserves” to “Retained earnings.” The transferred amount was ¥64,012 million for the fiscal year ended March 31, 2019.

10

LOANS AND ADVANCES

The following are the principal components oftable presents loans and advances at March 31, 20162019 and 2015 by industry classification.2018.

 

   At March 31, 
   2016  2015 
   (In millions) 

Domestic:

   

Manufacturing

  ¥8,298,576   ¥8,061,654  

Agriculture, forestry, fisheries and mining

   184,314    171,855  

Construction

   1,169,900    1,150,616  

Transportation, communications and public enterprises

   5,258,899    5,175,949  

Wholesale and retail

   5,548,103    5,664,385  

Finance and insurance

   2,684,865    2,869,967  

Real estate and goods rental and leasing

   9,587,757    8,766,724  

Services

   4,960,352    4,776,706  

Municipalities

   1,374,306    1,353,949  

Lease financing

   2,212,048    2,211,773  

Consumer(1)

   18,935,521    18,817,259  

Others

   2,989,278    3,211,240  
  

 

 

  

 

 

 

Total domestic

   63,203,919    62,232,077  
  

 

 

  

 

 

 

Foreign:

   

Public sector

   236,290    164,495  

Financial institutions

   4,067,764    3,880,655  

Commerce and industry

   20,451,545    20,010,729  

Lease financing

   357,072    308,128  

Others

   1,481,455    1,375,624  
  

 

 

  

 

 

 

Total foreign

   26,594,126    25,739,631  
  

 

 

  

 

 

 

Gross loans and advances

   89,798,045    87,971,708  

Adjust: Unearned income, unamortized premiums—net and deferred loan fees—net

   (212,957  (206,440

Less: Allowance for loan losses

   (722,717  (793,552
  

 

 

  

 

 

 

Net loans and advances

  ¥88,862,371   ¥86,971,716  
  

 

 

  

 

 

 

(1)The balance in Consumer mainly consists of housing loans. The housing loan balances amounted to ¥13,984,755 million and ¥14,087,453 million at March 31, 2016 and 2015, respectively.

  At March 31, 2019  At March 31,
2018
 
  12-month
ECL
  Lifetime ECL
not credit-
impaired
  Lifetime ECL
credit-impaired
  Total  Total 
  (In millions) 

Loans and advances at amortized cost:

     

Gross loans and advances

 ¥89,073,539  ¥1,590,761  ¥882,018  ¥91,546,318  ¥85,859,927 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Adjust: Unearned income, unamortized premiums—net and deferred loan fees—net

     (258,392  (239,181
    

 

 

  

 

 

 

Less: Allowance for loan losses

  (158,094  (92,446  (354,448  (604,988  (491,676
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Carrying amount

    ¥90,682,938  ¥85,129,070 
    

 

 

  

 

 

 

Reconciliation of allowance for loan losses is as follows:

 

  For the fiscal year ended March 31,  For the fiscal year ended March 31, 
  2016 2015 2014  2019 2018 2017 
  (In millions, except percentages)  (In millions) 

Allowance for loan losses at beginning of period(1)

  ¥793,552   ¥950,665   ¥1,262,478   ¥651,620  ¥680,456  ¥722,717 

Provision (credit) for loan losses

   118,750    79,552    (25,806

Provision for loan losses

 122,927  126,623  141,457 

Charge-offs:

       

Domestic

   173,431    240,663    283,034   139,496  161,526  157,373 

Foreign

   20,218    9,233    19,647   40,758  23,534  33,135 
  

 

  

 

  

 

  

 

  

 

  

 

 

Total

   193,649    249,896    302,681   180,254  185,060  190,508 
  

 

  

 

  

 

  

 

  

 

  

 

 

Recoveries:

       

Domestic

   9,477    9,517    9,293   9,767  9,658  9,852 

Foreign

   871    380    362   1,275  574  445 
  

 

  

 

  

 

  

 

  

 

  

 

 

Total

   10,348    9,897    9,655   11,042  10,232  10,297 
  

 

  

 

  

 

  

 

  

 

  

 

 

Net charge-offs

   183,301    239,999    293,026   169,212  174,828  180,211 

Others(1)(2)

   (6,284  3,334    7,019   (347 (140,575 (3,507
  

 

  

 

  

 

  

 

  

 

  

 

 

Allowance for loan losses at end of period

  ¥722,717   ¥793,552   ¥950,665   ¥604,988  ¥491,676  ¥680,456 
  

 

  

 

  

 

  

 

  

 

  

 

 

Ratio of net charge-offs to average loans outstanding during the period

   0.20  0.28  0.36

Allowance for loan losses applicable to foreign activities:

       

Balance at beginning of period

  ¥100,783   ¥73,030   ¥74,868   ¥153,167  ¥128,347  ¥134,664 
  

 

  

 

  

 

  

 

  

 

  

 

 

Balance at end of period

  ¥134,664   ¥100,783   ¥73,030   ¥155,114  ¥114,306  ¥128,347 
  

 

  

 

  

 

  

 

  

 

  

 

 

Provision for loan losses

  ¥60,002   ¥32,712   ¥10,462   ¥46,597  ¥19,872  ¥29,699 
  

 

  

 

  

 

  

 

  

 

  

 

 

 

(1)

Allowance for loan losses at the beginning of period for the fiscal year ended March 31, 2019 is calculated under IFRS 9. For additional information, refer to Note 2 “Summary of Significant Accounting Policies.”

(2)

Others mainly include foreign exchange translationsthe exclusion of the allowance for loans and advances made by Kansai Urban Banking Corporation (“KUBC”) and THE MINATO BANK, LTD. (“The Minato Bank”), both of which had been the Company’s subsidiaries but became its equity-method associates, and the exclusion of the allowance for loans and advances made by SMFL which was reclassified as assets held for sale during the fiscal year ended March 31, 2018. The amount for the fiscal yearsyear ended March 31, 2016, 2015 and 2014.2017 mainly includes foreign exchange transactions.

For additional information on movements in impairment allowance for the fiscal year ended March 31, 2019, refer to Note 45 “Financial Risk Management”.

11

INVESTMENTS IN ASSOCIATES AND JOINT VENTURES

The following table presents the SMFGSMBC Group’s principal associates and joint venture at March 31, 2016.2019. Investments in associates and joint ventures of the SMFGSMBC Group are accounted for using the equity method unless they are held for sale.

 

Company Name

 Country of
Incorporation
 Proportion
of  Ownership
Interest(1)
 Proportion
of Voting
Rights(1)
 

Main Business

 Country of
Incorporation
 Proportion
of Ownership
Interest(1)
   Proportion
of Voting
Rights(1)
 

Main Business

 (%) (%)    (%)   (%) 

Principal Associates

         

Kansai Mirai Financial Group, Inc.

 Japan  15.5    23.5(2)  Bank holding company

The Japan Net Bank, Limited

 Japan  41.1    41.1   Internet banking Japan  46.5    46.5  Internet banking

PT Bank Tabungan Pensiunan Nasional Tbk

 Indonesia  40.4    40.4   Commercial banking

The Bank of East Asia, Limited

 China  18.1    18.1   Commercial banking China  19.5    19.5  Commercial banking

ACLEDA Bank Plc.

 Cambodia  18.2    18.2   Commercial banking Cambodia  18.2    18.2  Commercial banking

Vietnam Export Import Commercial Joint Stock Bank

 Vietnam  15.0    15.0   Commercial banking Vietnam  15.0    15.0  Commercial banking

Sumitomo Mitsui Auto Service Company, Limited

 Japan  33.9    33.9   Leasing Japan  21.9    21.9  Leasing

NEC Capital Solutions Limited

 Japan  25.0    25.0   Leasing

SMBC Aviation Capital Limited

 Ireland  32.0    32.0  Leasing

POCKET CARD CO., LTD.

 Japan  35.5    35.5   Credit card Japan  20.0    20.0  Credit card

SAKURA KCS Corporation

  Japan   29.7    29.7  System engineering and data processing

JSOL Corporation

 Japan  50.0    50.0   System development and data processing  Japan   50.0    50.0  System development and data processing

Sakura Information Systems Co., Ltd.

 Japan  49.0    49.0   System engineering and data processing  Japan   49.0    49.0  System engineering and data processing

Daiwa SB Investments Ltd.

 Japan  43.9    43.9   Investment advisory and investment trust management

Sumitomo Mitsui Asset Management Company, Limited

 

Japan

 

 

40.0

  

 

 

40.0

  

 

Investment advisory and investment trust management

Daiwa SB Investments Ltd.(3)

  Japan   48.9    48.9  Investment advisory and investment trust management

China Post & Capital Fund Management Co., Ltd.

 

China

 

 

24.0

  

 

 

24.0

  

 

Investment advisory and investment trust management

  


China

   23.6    23.6  Investment advisory and investment trust management

Principal Joint Venture

         

Daiwa Securities SMBC Principal Investments Co., Ltd.

 

Japan

 

 

40.0

  

 

 

40.0

  

 

Investments, fund management

Sumitomo Mitsui Finance and Leasing Company, Limited

  


Japan

   50.0    50.0  Leasing

 

(1)

Percentages of proportion of ownership interest and proportion of voting rights have been truncated.

(2)

The SMBC Group has a 15.6% direct holding in Kansai Mirai Financial Group, Inc., and can exercise a further 7.9% of the voting rights held by SMBC’s retirement benefit trust under contractual agreements between SMBC and the retirement benefit trust.

(3)

Daiwa SB Investments Ltd. was merged with Sumitomo Mitsui Asset Management Company, Limited on April 1, 2019, to form Sumitomo Mitsui DS Asset Management Company, Limited.

The SMFGSMBC Group accounts for certain investees, including The Bank of East Asia, Limited, ACLEDA Bank Plc. and Vietnam Export Import Commercial Joint Stock Bank, as associates regardless of its below 20% holdings of the voting rights to these investees, since the SMFGSMBC Group has the ability to exercise significant influence over these investees through participation in the policy making process at the meeting of the board of directors, the provision of essential technical information, or other relevant agreements or relationships.

On the other hand, the SMFGSMBC Group accounts for certain investees as available-for-sale financial assets at fair value through other comprehensive income or financial assets at fair value through profit or loss regardless of its 20% or more holdings of the voting rights to these investees becausewhen the SMFGSMBC Group has contracts or arrangements with other investors by which the SMFGSMBC Group loses the power to exert significant influence over such investees.

The SMFGSMBC Group has interests in a number of associates and joint ventures, none of which are regarded as individually material. The following table summarizes, in aggregate, the financial information of all individually immaterial associates and joint ventures that are accounted for using the equity method:

 

  At and for the fiscal year ended
March 31,
   At and for the fiscal year ended
March 31,
 
  2016 2015           2019                 2018         
  (In millions)   (In millions) 

Carrying amount of investments in associates and joint ventures

  ¥702,264   ¥619,814    ¥1,038,823  ¥730,414 

Share of:

      

Profit from continuing operations

   31,056    18,124     40,157  49,323 

Other comprehensive income (loss)

   (13,804  5,754     (699 7,885 

Total comprehensive income

   17,252    23,878     39,458  57,208 

There are no significant restrictions on the ability of associates or joint ventures to transfer funds to the SMFGSMBC Group in the form of cash dividends, repayment of loans and advances.

 

12

PROPERTY, PLANT AND EQUIPMENT

The table below shows the changes in property, plant and equipment for the fiscal years ended March 31, 20162019 and 2015.2018.

 

 Assets for
rent
 Land Buildings Leased
assets
 Others Total  Assets for
rent
 Land Buildings Leased
assets
 Others Total 
 (In millions)  (In millions) 

Cost

 ¥1,338,742   ¥473,454   ¥644,824   ¥16,205   ¥421,569   ¥2,894,794   ¥2,086,804  ¥520,078  ¥774,233  ¥17,837  ¥425,728  ¥3,824,680 

Accumulated depreciation and impairment losses

  (180,324  (5,648  (354,350  (7,675  (267,870  (815,867 (427,888 (5,586 (403,426 (10,650 (291,075 (1,138,625
 

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

Net carrying amount at April 1, 2014

  1,158,418    467,806    290,474    8,530    153,699    2,078,927  

Net carrying amount at April 1, 2017

 1,658,916  514,492  370,807  7,187  134,653  2,686,055 
 

 

  

 

  

 

  

 

  

 

  

 

 

Additions

 415,397  44  30,144  1,775  54,951  502,311 

Acquisition of subsidiaries and businesses

 304,233   —     —     —    24  304,257 

Disposals(1)

 (1,640,222 (52,327 (33,796 (660 (10,064 (1,737,069

Depreciation

 (91,906  —    (21,344 (2,061 (30,663 (145,974

Impairment losses

  —    (2,446 (25,203 (136 (31 (27,816

Exchange differences

 (66,033 (4 (284 (3 (506 (66,830

Others

 302  (192 11,673  47  (16,632 (4,802
 

 

  

 

  

 

  

 

  

 

  

 

 

Net carrying amount

 580,687  459,567  331,997  6,149  131,732  1,510,132 
 

 

  

 

  

 

  

 

  

 

  

 

 

Cost

 607,769  466,046  738,023  17,373  413,945  2,243,156 

Accumulated depreciation and impairment losses

 (27,082 (6,479 (406,026 (11,224 (282,213 (733,024
 

 

  

 

  

 

  

 

  

 

  

 

 

Net carrying amount at March 31, 2018

 580,687  459,567  331,997  6,149  131,732  1,510,132 
 

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

Additions

  357,920    27,162    34,459    1,809    71,179    492,529   18,584  355  30,998  1,307  39,203  90,447 

Acquisition of subsidiaries and businesses

  —      —      —      —      —      —      —    6,998  1,710   —    5,340  14,048 

Disposals

  (106,934  (2,021  (1,618  (48  (1,260  (111,881 (6,009 (2,167 (1,458 (216 (2,615 (12,465

Depreciation

  (64,380  —      (21,879  (1,940  (30,939  (119,138 (18,597  —    (22,173 (1,683 (27,183 (69,636

Impairment losses

  —      (228  (4,867  —      (13  (5,108  —    (774 (4,936  —    (196 (5,906

Exchange differences

  173,251    13    909    11    2,032    176,216   (9,667 95  228   —    268  (9,076

Others

  (11,566  —      5,163    6    (8,651  (15,048 (537 23  2,134  19,992  (31,370 (9,758
 

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

Net carrying amount

  1,506,709    492,732    302,641    8,368    186,047    2,496,497   564,461  464,097  338,500  25,549  115,179  1,507,786 
 

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

Cost

  1,747,839    497,772    679,567    16,693    466,584    3,408,455   609,763  469,095  746,687  60,158  394,308  2,280,011 

Accumulated depreciation and impairment losses

  (241,130  (5,040  (376,926  (8,325  (280,537  (911,958 (45,302 (4,998 (408,187 (34,609 (279,129 (772,225
 

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

Net carrying amount at March 31, 2015

  1,506,709    492,732    302,641    8,368    186,047    2,496,497  

Net carrying amount at March 31, 2019

 ¥564,461  ¥464,097  ¥338,500  ¥25,549  ¥115,179  ¥1,507,786 
 

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

Additions

  306,788    24,072    29,196    1,936    77,378    439,370  

Acquisition of subsidiaries and businesses

  —      —      1,175    —      615    1,790  

Disposals

  (108,452  (3,727  (1,567  (14  (1,781  (115,541

Depreciation

  (68,189  —      (23,145  (2,727  (31,054  (125,115

Impairment losses

  —      (1,009  (3,222  —      (6  (4,237

Exchange differences

  (78,630  (6  (744  (4  (1,395  (80,779

Others

  (12,866  757    71,345    (1  (80,269  (21,034
 

 

  

 

  

 

  

 

  

 

  

 

 

Net carrying amount

  1,545,360    512,819    375,679    7,558    149,535    2,590,951  
 

 

  

 

  

 

  

 

  

 

  

 

 

Cost

  1,833,990    518,564    760,244    16,741    431,178    3,560,717  

Accumulated depreciation and impairment losses

  (288,630  (5,745  (384,565  (9,183  (281,643  (969,766
 

 

  

 

  

 

  

 

  

 

  

 

 

Net carrying amount at March 31, 2016

 ¥1,545,360   ¥512,819   ¥375,679   ¥7,558   ¥149,535   ¥2,590,951  
 

 

  

 

  

 

  

 

  

 

  

 

 

(1)

Disposals include property, plant and equipment owned by SMFL reclassified as “Assets held for sale” during the fiscal year ended March 31, 2018. In addition, Disposals include property, plant and equipment related to KUBC and The Minato Bank, both of which had been the Company’s subsidiaries but became its equity method associates in March, 2018.

The impairment losses on property, plant and equipment are included in “Other expenses” in the consolidated income statement.statements.

The SMFGSMBC Group had ¥2,798,483¥62,027 million and ¥2,801,802¥2,626 million of contractual commitments to acquire property, plant and equipment at March 31, 20162019 and 2015,2018, respectively.

The carrying amount of items of property, plant and equipment on which there was a restriction on title was ¥8,139¥25,549 million and ¥9,299¥6,149 million at March 31, 20162019 and 2015, respectively.

The carrying amount of items of property, plant and equipment pledged as security for liabilities was ¥9,557 million and ¥9,970 million at March 31, 2016 and 2015,2018, respectively.

 

13

LEASES

As Lessee

The SMFGSMBC Group leases land and buildings, office equipment, and other tangible and intangible assets from third parties under finance leases or operating leases.

Carrying amount of assets held under finance leases

The carrying amount of assets held under finance leases at March 31, 20162019 and 20152018 consisted of the following:

 

  At March 31,   At March 31, 
  2016   2015   2019   2018 
  (In millions)   (In millions) 

Tangible assets:

        

Land and buildings

  ¥3,689    ¥4,082    ¥2,520   ¥2,837 

Other tangible assets(1)

   3,869     4,286     23,029    3,312 
  

 

   

 

   

 

   

 

 

Total(2)

   7,558     8,368     25,549    6,149 
  

 

   

 

   

 

   

 

 

Intangible assets:

        

Software

   269     307     991    144 
  

 

   

 

   

 

   

 

 

Total(3)

  ¥    7,827    ¥    8,675    ¥26,540   ¥6,293 
  

 

   

 

   

 

   

 

 

 

(1)

Other tangible assets include mainly equipment, machinery and vehicles.

(2)

Cross-reference to Leased assets in Note 12 “Property, Plant and Equipment.”

(3)The SMFG Group has sublet leased assets classified as finance leases (the carrying amount of those assets is not included in table above). Future minimum sublease payments related to sublet leased assets are included in finance lease commitments.

Finance lease commitments

The total of future minimum lease payments and their present value under finance leases at March 31, 20162019 and 20152018 were as follows:

 

  At March 31,   At March 31, 
  2016 2015   2019 2018 
  (In millions)   (In millions) 

Not later than one year

  ¥24,373   ¥21,905    ¥8,478  ¥2,567 

Later than one year and not later than five years

   75,922    64,747     19,392  4,664 

Later than five years

   9,710    19,389     5,322  3,086 
  

 

  

 

   

 

  

 

 

Total

   110,005    106,041     33,192  10,317 

Less: Future interest charges

   (4,314  (4,201   (2,813 (1,151
  

 

  

 

   

 

  

 

 

Present value of finance lease commitments(1)

  ¥105,691   ¥101,840    ¥30,379  ¥9,166 
  

 

  

 

   

 

  

 

 

 

(1)

Present value of finance lease commitments is included in “Borrowings” in the consolidated statementstatements of financial position. See Note 18 “Borrowings.”

At March 31, 2016 and 2015, the total amounts of future minimum sublease payments to be received under non-cancellable subleases were ¥80,992 million and ¥66,400 million, respectively.

Operating lease commitments

The total amounts of future minimum lease payments undernon-cancellable operating leases at March 31, 20162019 and 20152018 were as follows:

 

  At March 31,   At March 31, 
  2016   2015   2019   2018 
  (In millions)   (In millions) 

Not later than one year

  ¥42,254    ¥44,637    ¥47,600   ¥42,329 

Later than one year and not later than five years

   104,799     113,256     132,720    129,298 

Later than five years

   108,603     126,404     140,011    121,419 
  

 

   

 

   

 

   

 

 

Total future minimum lease payments under non-cancellable operating leases

  ¥255,656    ¥284,297    ¥320,331   ¥293,046 
  

 

   

 

   

 

   

 

 

For the fiscal years ended March 31, 2016, 20152019, 2018 and 2014, ¥50,8012017, ¥52,465 million, ¥46,591¥50,561 million and ¥45,572¥49,047 million were recognized as expenses in respect of operating lease and sublease agreements, of which ¥50,278¥52,155 million, ¥46,328¥50,058 million and ¥45,508¥48,527 million related to minimum lease payments, and ¥523¥310 million, ¥263¥503 million and ¥64¥520 million related to sublease payments, respectively. Lease expenses recognized in respect of lease and sublease agreements are included in “General and administrative expenses” in the consolidated income statement.statements.

As Lessor

The SMFGSMBC Group leases assets to third parties under finance leases or operating leases, including machinery, equipment, aircraft, vessel and property.

Finance lease receivable

The gross investment in the lease, unearned finance income, present value of the minimum lease payments receivable and unguaranteed residual values under finance leases at March 31, 20162019 and 20152018 were as follows:

 

  At March 31, 2016 
  Gross investment
in the lease
  Unearned
finance
income
  Present value of
the minimum
lease payments
receivable(1)
  Unguaranteed
residual  values(1)
 
  (In millions) 

Not later than one year

 ¥834,652   ¥71,785   ¥762,867   ¥18,067  

Later than one year and not later than five years

  1,468,368    110,766    1,357,602    93,300  

Later than five years

  310,089    36,445    273,644    63,640  
 

 

 

  

 

 

  

 

 

  

 

 

 

Total

 ¥2,613,109   ¥218,996   ¥2,394,113   ¥175,007  
 

 

 

  

 

 

  

 

 

  

 

 

 

 At March 31, 2015  At March 31, 2019 
 Gross investment
in the lease
 Unearned
finance
income
 Present value of
the minimum
lease payments
receivable(1)
 Unguaranteed
residual  values(1)
  Gross
investment in
the lease
 Unearned
finance

income
 Present value
of the
minimum lease
payments
receivable(1)
 Unguaranteed
residual
values(1)
 
 (In millions)  (In millions) 

Not later than one year

 ¥846,429   ¥76,587   ¥769,842   ¥39,597   ¥65,963  ¥13,053  ¥52,910  ¥14,894 

Later than one year and not later than five years

  1,402,363    112,891    1,289,472    88,810   214,042  26,713  187,329  27,186 

Later than five years

  295,901    34,213    261,688    70,492   57,589  10,202  47,387  24,282 
 

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

Total

 ¥2,544,693   ¥223,691   ¥2,321,002   ¥198,899   ¥337,594  ¥49,968  ¥287,626  ¥66,362 
 

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 
 At March 31, 2018 
 Gross
investment in
the lease
 Unearned
finance

income
 Present value
of the
minimum lease
payments
receivable(1)
 Unguaranteed
residual
values(1)
 
 (In millions) 

Not later than one year

 ¥54,501  ¥13,470  ¥41,031  ¥6,483 

Later than one year and not later than five years

 227,793  29,746  198,047  43,206 

Later than five years

 73,979  11,574  62,405  21,117 
 

 

  

 

  

 

  

 

 

Total

 ¥356,273  ¥54,790  ¥301,483  ¥70,806 
 

 

  

 

  

 

  

 

 

 

(1)

Present value of the minimum lease payments receivable and unguaranteed residual values are included in “Loans and advances” in the consolidated statementstatements of financial position.

Accumulated allowance for uncollectible minimum lease payments receivable amounting to ¥1,342 million was ¥15,565 million and ¥18,254 millionmeasured under IFRS 9 at March 31, 20162019. Accumulated allowance for uncollectible minimum lease payments receivable amounting to ¥1,828 million was measured under IAS 39 at March 31, 2018. For information on IFRS 9 and 2015, respectively.IAS 39, refer to Note 2 “Summary of Significant Accounting Policies.”

Operating lease receivable

The total amounts of the future minimum lease payments receivable undernon-cancellable operating leases at March 31, 20162019 and 20152018 were as follows:

 

  At March 31,   At March 31, 
  2016   2015   2019   2018 
  (In millions)   (In millions) 

Not later than one year

  ¥186,114    ¥165,897    ¥35,937   ¥38,072 

Later than one year and not later than five years

   642,387     548,945     67,235    70,813 

Later than five years

   576,463     478,063     18,007    18,857 
  

 

   

 

   

 

   

 

 

Total

  ¥1,404,964    ¥1,192,905    ¥121,179   ¥127,742 
  

 

   

 

   

 

   

 

 

 

14

INTANGIBLE ASSETS

Goodwill

The table below shows the changes in goodwill by business segment for the fiscal years ended March 31, 20162019 and 2015.2018.

 

  Commercial
Banking
 Leasing Securities Consumer
Finance
   Others Total   Wholesale
Business Unit
 Retail
Business Unit
   International
Business Unit
 Head office
account and
others
 Total 
  (In millions)         (In millions)     

Gross amount of goodwill

  ¥27,237   ¥114,991   ¥256,936   ¥63,418    ¥1,958   ¥464,540    ¥2,417  ¥63,418   ¥13,047  ¥435,338  ¥514,220 

Accumulated impairment losses

   —      —      (10,067  —       (1,958  (12,025   —     —      —    (87,765 (87,765
  

 

  

 

  

 

  

 

   

 

  

 

   

 

  

 

   

 

  

 

  

 

 

Net carrying amount at April 1, 2014

   27,237    114,991    246,869    63,418     —      452,515  

Net carrying amount at March 31, 2017

   2,417  63,418    13,047  347,573  426,455 
  

 

  

 

  

 

  

 

   

 

  

 

   

 

  

 

   

 

  

 

  

 

 

Acquisitions

   —      —      —      —       —      —    

Disposals(1)

   —     —      —    (11,197 (11,197

Impairment losses

   (956  —      (4,292 (23,359 (28,607

Reclassification to assets held for sale(2)

   (1,461  —      (8,166 (102,710 (112,337

Exchange differences

   —      1,534    —      —       —      1,534     —     —      (589  —    (589
  

 

  

 

  

 

  

 

   

 

  

 

   

 

  

 

   

 

  

 

  

 

 

Net carrying amount

   27,237    116,525    246,869    63,418     —      454,049     —    63,418    —    210,307  273,725 

Gross amount of goodwill

   27,237    116,525    256,936    63,418     1,958    466,074     956  63,418    4,292  321,431  390,097 

Accumulated impairment losses

   —      —      (10,067  —       (1,958  (12,025   (956  —      (4,292 (111,124 (116,372
  

 

  

 

  

 

  

 

   

 

  

 

   

 

  

 

   

 

  

 

  

 

 

Net carrying amount at March 31, 2015

   27,237    116,525    246,869    63,418     —      454,049  

Net carrying amount at March 31, 2018

   —    63,418    —    210,307  273,725 
  

 

  

 

  

 

  

 

   

 

  

 

   

 

  

 

   

 

  

 

  

 

 

Acquisitions(1)

   8,443    —      —      —       —      8,443  

Acquisitions(3)

   —     —      4,707   —    4,707 

Impairment losses

   (1,124  —      —      —       —      (1,124   —     —      —    (62,624 (62,624

Exchange differences

   —      (581  —      —       —      (581
  

 

  

 

  

 

  

 

   

 

  

 

   

 

  

 

   

 

  

 

  

 

 

Net carrying amount

   34,556    115,944    246,869    63,418     —      460,787     —    63,418    4,707  147,683  215,808 

Gross amount of goodwill

   35,680    115,944    256,936    63,418     1,958    473,936     956  63,418    8,999  321,431  394,804 

Accumulated impairment losses

   (1,124  —      (10,067  —       (1,958  (13,149   (956  —      (4,292 (173,748 (178,996
  

 

  

 

  

 

  

 

   

 

  

 

   

 

  

 

   

 

  

 

  

 

 

Net carrying amount at March 31, 2016

  ¥34,556   ¥115,944   ¥246,869   ¥63,418    ¥—     ¥460,787  

Net carrying amount at March 31, 2019

  ¥—    ¥63,418   ¥4,707  ¥147,683  ¥215,808 
  

 

  

 

  

 

  

 

   

 

  

 

   

 

  

 

   

 

  

 

  

 

 

 

(1)

“Disposals” in Head office account and others includes amount of goodwill relating to Kansai Urban Banking Corporation (“KUBC”) which ceased to be the SMBC Group’s consolidated subsidiary and became the SMBC Group’s associate during the fiscal year ended March 31, 2018. In addition, on April 1, 2018, KUBC became a wholly owned subsidiary of Kansai Mirai Financial Group, an intermediate holding company, and Kansai Mirai Financial Group became our equity-method associate.

(2)

The SMFGSMBC Group reclassified goodwill of ¥112,337 million allocated to Sumitomo Mitsui Finance and Leasing Company, Limited (“SMFL”) and its subsidiaries to assets held for sale at March 31, 2018. For additional information, refer to Note 50 “Assets and Disposal Groups Held for Sale.”

(3)

The SMBC Group recognized goodwill of ¥8,443¥4,707 million in Commercial BankingInternational Business Unit resulting from the acquisition of the retail banking business of Citibank Japan Ltd in November 2015.PT Bank Tabungan Pensiunan Nasional Tbk on January 30, 2019. For additional information, refer to Note 49 “Acquisitions.”

The SMBC Group has four main business segments: the Wholesale Business Unit, the Retail Business Unit, the International Business Unit and the Global Markets Business Unit, with the remaining operations recorded in the Head office account and others.

Impairment testing of goodwill

Allocating goodwill to cash-generating units

For the purpose of impairment testing, goodwill is allocated to cash-generating units or group of cash-generating units, which represent the lowest level within the entity at which goodwill is monitored for internal purposes.

At March 31, 20162019, the SMFGSMBC Group allocated goodwill to the Retail Business Unit of SMBC Trust Bank and KUBC within Commercial BankingConsumer Finance Co., Ltd. (“SMBC Consumer Finance”) amounting to ¥23,359¥56,692 million and ¥11,197 million, respectively, to SMFL within Leasingthe Head office account and others of SMBC Nikko Securities Inc. (“SMBC Nikko Securities”) and Sumitomo Mitsui Asset Management Company, Limited (“SMAM”) amounting to ¥102,710¥109,629 million and ¥38,053 million, respectively.

At March 31, 2018, the SMBC Group allocated goodwill to the Retail Business Unit of SMBC Consumer Finance amounting to ¥56,692 million and to the Head office account and others of SMBC Nikko Securities and SMBC Friend Securities within SecuritiesSMAM amounting to ¥172,253 million and ¥74,616million, respectively, and to SMBC Consumer Finance within Consumer Finance amounting to ¥56,692 million.

At March 31, 2015 the SMFG Group allocated goodwill to SMBC Trust Bank and KUBC within Commercial Banking amounting to ¥16,040¥38,053 million, and ¥11,197 million, respectively, to SMFL within Leasing amounting to ¥102,710 million, to SMBC Nikko Securities and SMBC Friend Securities within Securities amounting to ¥172,253 million and ¥74,616 million, respectively, and to SMBC Consumer Finance within Consumer Finance amounting to ¥56,692 million.respectively.

The aggregate amounts of other goodwill were ¥19,960¥11,434 million and ¥20,541¥6,727 million at March 31, 20162019 and 2015,2018, respectively, and they were not considered individually significant.

Timing of impairment tests

The SMFGSMBC Group performs impairment tests at least annually and whenever there is an indication that the cash-generating unit may be impaired.

Recoverable amount of cash-generating units

To determine whether an impairment loss shall be recognized, the carrying amount of a cash-generating unit is compared to its recoverable amount. The recoverable amount of a cash-generating unit is the higher of its fair value less costs to sell and its value in use.

Fair value less costs to sell: The fair value less costs to sell is determined using an observable market price in the active market or unobservable inputs for the cash-generating unit in the active market at the date of the impairment test. The SMBC Group determined the recoverable amount of SMFL for the fiscal year ended March 31, 2018, based on the fair value less costs to sell.

Value in use: The value in use is determined based on discounted future cash flows, which are based on the financial plans which have been approved by management and which are valid when the impairment test is performed. The financial plans are prepared taking into account the current economic and regulatory environment, direction of the regulation and business forecasts of the individual cash-generating units.

The SMFGSMBC Group determined the recoverable amounts of the primary cash-generating units based on the value in use.use other than the recoverable amount of SMFL for the fiscal year ended March 31, 2018,

The financial plans, which are used to estimate the cash flow projections of the cash-generating units, cover three to five years. The cash flow projections beyond the period covered by the financial plans are extrapolated by applying the appropriate growth rates in perpetuity.

Key assumptions used in impairment testing

The key assumptions used for the value in use calculations for the fiscal years ended March 31, 20162019 and 20152018 were as follows:

 

            SMBC        
Trust

Bank(1)
   KUBC SMFL SMBC
Nikko
Securities
 SMBC
Friend
Securities
 SMBC
Consumer
Finance
   SMBC Trust Bank  SMBC
Nikko
Securities
 SMBC
Consumer
Finance
 SMAM 

For the fiscal year ended March 31, 2016:

          
Corporate
Business
 Retail
Banking(1)
  SMBC
Nikko
Securities
 SMBC
Consumer
Finance
 SMAM 
   

Pre-tax discount rate

     7.84%/5.63%     5.27  6.55  7.53  6.72  9.87   —     —    8.90 11.37 8.95

Growth rate

     1.00%     1.00  1.00  1.00  1.00  1.00   —     —    1.00 1.00 1.00

For the fiscal year ended March 31, 2015:

          

For the fiscal year ended March 31, 2018:

      

Pre-tax discount rate

     8.48%/   —        6.62  7.53  9.73  8.36  11.01   12.61 9.91 11.42 11.20 9.01

Growth rate

     1.00%     1.00  1.00  1.00  1.00  1.00   1.00 1.00 1.00 1.00 1.00

 

(1)

The retail banking business which SMBC Trust Bank acquired from Citibank Japan Ltd., in November 2015 is identified as a cash-generating unit separated from the existing business.Retail Banking.

Management considers that thepre-tax discount rates and the growth rates are the most sensitive key assumptions to determine the value in use of the cash-generating units.

Pre-tax discount rate: Thepre-tax discount rates used to estimate the discounted cash flow of the primary cash-generating units are determined based on the Capital Asset Pricing Model (“CAPM”). The risk-free interest rate, the market risk premium and the beta factor that are used in the CAPM are determined based on market data and other external sources of information. The beta factor is determined based on a respective group of peer companies of the cash-generating units.

Growth rate: The growth rates used to estimate the cash flow projections beyond the period covered by the financial plans, which shall cover a maximum period of five years, are determined based on the expected long-term inflation rate and long-term average growth rates for the industries. The growth rate does not exceed the long-term growth rate for the industry in which the cash-generating unit operates.

Management believes that there were no reasonably possible changes in any of the key assumptions that would lead to the recoverable amounts of the cash-generating units being below these carrying amounts for the fiscal years ended March 31, 20162019 and 2015.

2018.

Recognition of Impairment Losses

Other intangible assetsIf the recoverable amount of the cash-generating unit is less than its carrying amount, the carrying amount of the cash-generating unit is reduced to its recoverable amount, and this reduction is recognized as impairment loss of goodwill.

The recoverable amount of SMBC Nikko Securities was determined based on the value in use. For the fiscal year ended March 31, 2019, the value in use of SMBC Nikko Securities decreased to less than its carrying amount, primarily due to the revision of the business plan considering the recent business performance. As a result, the SMBC Group recognized an impairment loss of ¥62,624 million on the goodwill relating to SMBC Nikko Securities, for the fiscal year ended March 31, 2019.

The recoverable amount of SMBC Trust Bank was determined based on the value in use. For the fiscal year ended March 31, 2018, the value in use of SMBC Trust Bank decreased to less than its carrying amount, primarily due to the revision of the business plan and the key assumptions. As a result, the SMBC Group recognized an impairment loss of ¥23,359 million, equal to the total carrying amount of the goodwill relating to the SMBC Trust Bank, for the fiscal year ended March 31, 2018.

The impairment losses on goodwill are included in “Other expenses” in the consolidated income statements.

Other

intangible assets

The table below shows the changes in other intangible assets for the fiscal years ended March 31, 20162019 and 2015.2018.

 

 Internally
generated
software
 Purchased
software
 Contractual
customer
relationships
 Trademarks Other
intangibles
 Total  Internally
generated
software
 Purchased
software
 Contractual
customer
relationships
 Trademarks Other
intangibles
 Total 
 (In millions)  (In millions) 

Cost

 ¥589,779   ¥206,158   ¥163,630   ¥41,828   ¥28,318   ¥1,029,713   ¥648,463  ¥372,531  ¥248,977  ¥46,116  ¥64,487  ¥1,380,574 

Accumulated amortization and impairment losses

  (390,634  (77,052  (36,474  (17,641  (4,681  (526,482 (356,326 (232,834 (78,513 (30,263 (12,525 (710,461
 

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

Net carrying amount at April 1, 2014

  199,145    129,106    127,156    24,187    23,637    503,231  

Net carrying amount at April 1, 2017

 292,137  139,697  170,464  15,853  51,962  670,113 
 

 

  

 

  

 

  

 

  

 

  

 

 

Additions

 93,977  40,024   —     —    2,169  136,170 

Acquisition of subsidiaries and businesses

  —    222   —     —     —    222 

Disposals(1)

 (8,420 (11,928 (57,987  —    (1,844 (80,179

Amortization

 (84,662 (43,818 (20,192 (4,280 (4,473 (157,425

Impairment losses

  —     —    (1,830  —    (5,229 (7,059

Exchange differences

 142  (731  —     —    (29 (618

Others

 343  2,099   —     —    (1,489 953 
 

 

  

 

  

 

  

 

  

 

  

 

 

Net carrying amount

 293,517  125,565  90,455  11,573  41,067  562,177 
 

 

  

 

  

 

  

 

  

 

  

 

 

Cost

 650,632  340,593  172,950  46,116  54,024  1,264,315 

Accumulated amortization and impairment losses

 (357,115 (215,028 (82,495 (34,543 (12,957 (702,138
 

 

  

 

  

 

  

 

  

 

  

 

 

Net carrying amount at March 31, 2018

 293,517  125,565  90,455  11,573  41,067  562,177 
 

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

Additions

  92,210    47,242    —      —      8,487    147,939   93,834  38,518   —     —    3,802  136,154 

Acquisition of subsidiaries and businesses

  —      —      —      —      —      —     3,705  252  12,845  9,706  30,919  57,427 

Disposals

  (277  (3,941  —      —      (5,237  (9,455 (3,020 (1,637  —     —    (540 (5,197

Amortization

  (62,027  (38,072  (10,826  (4,183  (2,770  (117,878 (88,322 (41,798 (11,226 (4,401 (3,532 (149,279

Impairment losses

  —      —      —      —      (4  (4  —     —     —    (4,020 (21 (4,041

Exchange differences

  968    270    —      —      966    2,204   53  522   —     —    22  597 

Others

  3,704    (9,112  —      —      1,317    (4,091 2,314  7,632   —     —    (1,807 8,139 
 

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

Net carrying amount

  233,723    125,493    116,330    20,004    26,396    521,946   302,081  129,054  92,074  12,858  69,910  605,977 
 

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

Cost

  638,644    212,731    163,630    41,828    33,678    1,090,511   697,480  358,130  185,795  55,822  87,607  1,384,834 

Accumulated amortization and impairment losses

  (404,921  (87,238  (47,300  (21,824  (7,282  (568,565 (395,399 (229,076 (93,721 (42,964 (17,697 (778,857
 

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

Net carrying amount at March 31, 2015

  233,723    125,493    116,330    20,004    26,396    521,946  

Net carrying amount at March 31, 2019

 ¥302,081  ¥129,054  ¥92,074  ¥12,858  ¥69,910  ¥605,977 
 

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

Additions

  110,352    46,191    —      —      2,496    159,039  

Acquisition of subsidiaries and businesses

  —      234    9,320    —      27,487    37,041  

Disposals

  (290  (1,073  —      —      (633  (1,996

Amortization

  (70,358  (38,241  (11,021  (4,183  (3,069  (126,872

Impairment losses

  —      —      —      —      (154  (154

Exchange differences

  (98  (665  —      —      (289  (1,052

Others

  480    2,524    —      —      (3,650  (646
 

 

  

 

  

 

  

 

  

 

  

 

 

Net carrying amount

  273,809    134,463    114,629    15,821    48,584    587,306  
 

 

  

 

  

 

  

 

  

 

  

 

 

Cost

  710,902    227,035    172,950    41,828    58,368    1,211,083  

Accumulated amortization and impairment losses

  (437,093  (92,572  (58,321  (26,007  (9,784  (623,777
 

 

  

 

  

 

  

 

  

 

  

 

 

Net carrying amount at March 31, 2016

 ¥273,809   ¥134,463   ¥114,629   ¥15,821   ¥48,584   ¥587,306  
 

 

  

 

  

 

  

 

  

 

  

 

 

(1)

Disposals include other intangible assets owned by SMFL reclassified as “Assets held for sale” during the fiscal year ended March 31, 2018.

The impairment losses on other intangible assets are included in “Other expenses” and the amortization expenses of other intangible assets are included in “General and administrative expenses” in the consolidated income statement.statements.

The SMFGSMBC Group had ¥1,733 millionnil and ¥2,770¥383 million of contractual commitments to acquire intangible assets at March 31, 20162019 and 2015,2018, respectively.

The amounts of research and development expenditure recognized as expenses for the fiscal years ended March 31, 2016, 20152019, 2018 and 20142017 were ¥207¥167 million, ¥171¥84 million and ¥160¥89 million, respectively, and they were included in “General and administrative expenses” in the consolidated income statement.statements.

Other intangibles at March 31, 20162019 and 20152018 include leasehold rights, amounting to ¥7,068¥5,517 million and ¥7,434¥5,436 million, respectively, which are rights to use land for the purpose of owning the buildings. Since the SMFGSMBC Group has a long history of renewal, these contracts are not expected to be terminated in the foreseeable future. Leasehold rights are expected to generate cash flows for an indefinite period of time. They are not amortized but are tested for impairment annually, irrespective of whether there is any indication of impairment.

15

OTHER ASSETS

Other assets at March 31, 20162019 and 20152018 consisted of the following:

 

  At March 31,   At March 31, 
  2016   2015   2019   2018 
  (In millions)   (In millions) 

Prepaid expenses

  ¥62,900    ¥54,519    ¥78,475   ¥49,300 

Accrued income

   361,481     370,625     385,051    416,210 

Receivables from brokers, dealers and customers for securities transactions

   1,101,591     1,367,720     1,159,479    1,175,495 

Cash collateral provided for derivative and other financial transactions

   811,300     341,901     1,537,672        1,560,972 

Retirement benefit assets

   232,621     379,188     268,483    316,455 

Security deposits

   115,714     120,303     92,867    99,247 

Investment properties(1)

   348,122     293,554  

Others

   620,719     557,313     557,787    426,229 
  

 

   

 

   

 

   

 

 

Total other assets

  ¥    3,654,448    ¥    3,485,123    ¥4,079,814   ¥4,043,908 
  

 

   

 

   

 

   

 

 

 

(1)Investment properties are carried at cost less accumulated depreciation and accumulated impairment losses. The fair values of investment properties were ¥370,384 million and ¥306,720 million at March 31, 2016 and 2015, respectively. The fair values were mainly determined based on market values provided by independent valuation appraisers having the appropriate recognized professional qualifications and recent experience in the locations and categories of properties being valued. Rental income from investment properties was ¥20,879 million, ¥19,076 million and ¥15,195 million for the fiscal years ended March 31, 2016, 2015 and 2014, respectively.

16

DEPOSITS

Deposits at March 31, 20162019 and 20152018 consisted of the following:

 

  At March 31,   At March 31, 
  2016   2015   2019   2018 
  (In millions)   (In millions) 

Non-interest-bearing demand deposits

  ¥18,663,654    ¥16,250,493    ¥22,594,227   ¥21,611,514 

Interest-bearing demand deposits

   46,840,202     42,041,777     56,205,396    52,154,265 

Deposits at notice

   9,694,571     8,790,017     11,169,956    10,355,664 

Time deposits

   29,144,425     29,084,465     25,760,889    25,655,132 

Negotiable certificates of deposit

   14,249,835     13,825,898     11,165,487    11,220,285 

Others(1)

   7,348,110     5,841,330     7,508,697    7,464,667 
  

 

   

 

   

 

   

 

 

Total deposits

  ¥125,940,797    ¥115,833,980    ¥134,404,652   ¥128,461,527 
  

 

   

 

   

 

   

 

 

 

(1)

Others include, among other items, foreign currency deposits in domestic offices and Japanese yen accounts held by foreign depositors in domestic offices.

17

TRADING LIABILITIES

Trading liabilities at March 31, 20162019 and 20152018 consisted of the following:

 

  At March 31,   At March 31, 
  2016   2015   2019   2018 
  (In millions)   (In millions) 

Debt instruments “short position”

  ¥2,184,408    ¥2,175,313    ¥1,835,860   ¥2,008,711 

Equity instruments “short position”

   13,265     18,087            162,834           135,188 
  

 

   

 

   

 

   

 

 

Total trading liabilities

  ¥    2,197,673    ¥    2,193,400    ¥1,998,694   ¥2,143,899 
  

 

   

 

   

 

   

 

 

Trading liabilities include the instruments classified as held for trading. Trading debt instruments mainly consist of Japanese government bonds. Trading equity instruments mainly consist of publicly traded Japanese stocks.

18

BORROWINGS

Short-term borrowings and long-term borrowings (with original maturities of more than one year)Borrowings at March 31, 20162019 and 20152018 consisted of the following:

 

     At March 31, 
  Interest rate  2016  2015 
     (In millions) 

SMFG:

   

Long-term borrowings:

   

Subordinated

   

Fixed rate borrowing, payable in Japanese yen,
due 2024-2031

  0.56%-1.27%   ¥49,000   ¥31,000  

SMBC:

   

Short-term borrowings

  0.00%-0.88%    2,095,696    5,652,752  

Long-term borrowings:

   

Unsubordinated

   

Fixed rate borrowing, payable in Japanese yen,
due 2015-2028

  0.10%-6.10%    2,424,818    15,893  

Fixed rate borrowing, payable in United States dollars,
due 2019-2025

  2.36%-3.45%    45,048    36,045  

Floating rate borrowing, payable in Japanese yen,
due 2016-2036

  (0.17%)-0.16%    125,526    158,403  

Floating rate borrowing, payable in United States dollars,
due 2015-2033

  0.35%-2.00%    749,117    683,049  

Other fixed or floating rate borrowing,
due 2017-2045

  0.07%-3.50%    92,403    89,053  

Subordinated

   

Fixed rate borrowing, payable in Japanese yen,
due 2015-2027

  1.28%-4.50%    231,000    261,000  
  

 

 

  

 

 

 

Total SMBC

   5,763,608    6,896,195  
  

 

 

  

 

 

 

Other subsidiaries:

   

Short-term borrowings

  0.06%-9.36%    977,813    1,093,497  

Long-term borrowings:

   

Unsubordinated

   

Fixed rate borrowing, payable in Japanese yen,
due 2015-2042

  0.00%-2.67%    565,402    477,201  

Fixed rate borrowing, payable in United States dollars,
due 2015-2023

  0.39%-5.96%    154,840    136,380  

Fixed rate borrowing, payable in Chinese yuan,
due 2015-2019

  2.40%-6.15%    30,063    21,852  

Fixed rate borrowing, payable in Thai baht,
due 2015-2021

  2.20%-4.03%    9,334    24,173  

Floating rate borrowing, payable in Japanese yen,
due 2015-2040

  0.06%-11.75%    523,588    712,734  

Floating rate borrowing, payable in United States dollars,
due 2015-2027

  0.40%-3.31%    505,150    519,842  

Floating rate borrowing, payable in euros,
due 2018

  1.00%-1.96%    48,435    28,252  

Floating rate borrowing, payable in Chinese yuan,
due 2015-2019

  2.50%-6.77%    8,835    26,585  

Other fixed or floating rate borrowing,
due 2015-2043

  0.58%-11.79%    30,185    18,111  

Subordinated

   

Fixed rate borrowing, payable in Japanese yen,
due 2021

  1.35%          5,200    5,200  

Fixed rate borrowing, payable in United States dollars,
due 2018

  7.62%-7.72%    —      9,011  

Floating rate borrowing, payable in Japanese yen,
due 2015-2025

  1.92%-2.65%    10,000    11,250  
  

 

 

  

 

 

 

Total other subsidiaries

   2,868,845    3,084,088  
  

 

 

  

 

 

 

Liabilities associated with securitization transactions:

   

Fixed rate borrowing, payable in Japanese yen,
due 2016-2049

  0.09%-2.70%    1,028,089    1,006,806  

Floating rate borrowing, payable in Japanese yen,
due 2017-2033

  0.25%-1.78%    89,907    86,647  

Floating rate borrowing, payable in United States dollars,
due 2019-2020

  0.99%-1.55%    8,989    10,476  
  

 

 

  

 

 

 

Total liabilities associated with securitization transactions

   1,126,985    1,103,929  
  

 

 

  

 

 

 

Lease obligations

  —      105,691    101,840  
  

 

 

  

 

 

 

Total borrowings

  ¥9,914,129   ¥11,217,052  
  

 

 

  

 

 

 
   At March 31, 
  2019   2018 
   (In millions) 

Unsubordinated borrowings

  ¥  10,632,213   ¥9,158,844 

Subordinated borrowings

   273,819    279,749 

Liabilities associated with securitization transactions

   1,231,447    1,204,722 

Lease obligations

   30,379    9,166 
  

 

 

   

 

 

 

Total borrowings

  ¥12,167,858   ¥  10,652,481 
  

 

 

   

 

 

 

The interest rates shown in the above table are the contractual rates in effect at March 31, 2016 and 2015, and thus do not represent the actual effective interest rates. Maturity information for certain subordinated borrowings is based on the date of callable options.

19

DEBT SECURITIES IN ISSUE

Debt securities in issue at March 31, 20162019 and 20152018 consisted of the following:

 

      At March 31, 
   

Interest rate

  2016   2015 
      (In millions) 

SMFG:

      

Bonds:

      

Bonds, payable in United States dollars,

      

due 2021-2026

  2.32%-3.78%  ¥441,257    ¥    

Subordinated bonds:

      

Subordinated bonds, payable in Japanese yen,

      

due 2024-2030

  0.59%-1.33%   409,062     134,200  

Subordinated bonds, payable in United States dollars,

      

due 2024

  4.44%   196,718     209,789  
    

 

 

   

 

 

 

Total SMFG

     1,047,037     343,989  
    

 

 

   

 

 

 

SMBC:

      

Commercial paper

  (0.36%)-1.16%   1,979,511     2,575,587  

Bonds:

      

Bonds, payable in Japanese yen,

      

due 2015-2019

  (0.04%)-0.69%   389,815     766,307  

Bonds, payable in United States dollars,

      

due 2015-2045

  0.57%-4.30%   2,597,629     2,558,292  

Bonds, payable in euros,

      

due 2017-2023

  0.09%-2.75%   443,004     258,533  

Bonds, payable in Australian dollars,

      

due 2016-2025

  2.97%-4.13%   126,808     137,981  

Bonds, payable in British pounds sterling,

      

due 2016

  1.11%          44,503  

Bonds, payable in Hong Kong dollars,

      

due 2020-2025

  2.09%-2.92%   34,349     13,392  

Subordinated bonds:

  

Subordinated bonds, payable in Japanese yen,

      

due 2015-2035

  0.87%-2.97%   890,497     949,438  

Subordinated bonds, payable in United States dollars,

      

due 2022-Perpetual

  4.85%-5.63%   168,207     217,208  

Subordinated bonds, payable in euros,

      

due 2020-Perpetual

  4.00%-4.38%   94,158     139,269  
    

 

 

   

 

 

 

Total SMBC

     6,723,978     7,660,510  
    

 

 

   

 

 

 

Other subsidiaries:

      

Commercial paper

  (0.00%)-0.77%   2,190,004     2,238,315  

Bonds:

      

Bonds, payable in Japanese yen,

      

due 2015-2046

  0.01%-19.20%   737,765     650,056  

Bonds, payable in United States dollars,

      

due 2015-2036

  0.01%-5.00%   3,295     1,458  

Bonds, payable in Chinese yuan,

      

due 2015-2016

  0.00%-5.80%   36,365     30,903  

Bonds, payable in Indonesian rupiah,

      

due 2018

  9.85%   8,778         

Bonds, payable in Australian dollars,

      

due 2019

  0.01%   90         

Subordinated bonds:

  

Subordinated bonds, payable in Japanese yen,

      

due 2016-Perpetual

  2.19%-4.50%   82,300     126,200  
    

 

 

   

 

 

 

Total other subsidiaries

     3,058,597     3,046,932  
    

 

 

   

 

 

 

Total debt securities in issue

    ¥10,829,612    ¥11,051,431  
    

 

 

   

 

 

 
       At March 31, 
   Interest rate   2019   2018 
       (In millions) 

SMFG:

      

Bonds:

      

Bonds, payable in United States dollars, due2021-2048

   2.06%-4.31%   ¥3,209,483   ¥2,583,513 

Bonds, payable in euros, due 2022-2033

   0.12%-1.72%    553,053    509,987 

Bonds, payable in Australian dollars, due 2022-2028

   3.04%-4.13%    183,049    179,367 

Bonds, payable in Hong Kong dollars, due 2028

   3.54%    4,242    —   

Subordinated bonds:

      

Subordinated bonds, payable in Japanese yen, due 2024-2030

   0.30%-1.33%    756,572    757,999 

Subordinated bonds, payable in United States dollars,

due 2024

   4.44%    191,741    185,426 
    

 

 

   

 

 

 

Total SMFG

     4,898,140    4,216,292 
    

 

 

   

 

 

 

SMBC:

      

Commercial paper

   (0.50%)-2.86%    1,634,812    1,521,437 

Bonds:

      

Bonds, payable in Japanese yen,

due 2018-2019

   0.25%-0.33%    50,000    99,000 

Bonds, payable in United States dollars,

due 2018-2045

   1.67%-4.30%    1,660,610    2,072,295 

Bonds, payable in euros,

due 2020-2023

   0.19%-2.75%    429,544    260,236 

Bonds, payable in Australian dollars,

due 2018-2025

   2.90%-4.13%    40,913    63,572 

Bonds, payable in Hong Kong dollars,

due 2020-2025

   2.09%-2.92%    33,427    32,009 

Bonds, payable in Thai baht,

due 2019-2021

   2.00%-2.66%    33,155    25,575 

Bonds, payable in Great Britain pound,

due 2020

   1.19%    36,258    —   

Subordinated bonds:

      

Subordinated bonds, payable in Japanese yen,

due 2019-2026

   1.43%-2.80%    362,777    385,522 

Subordinated bonds, payable in United States dollars,

due 2022

   4.85%    166,090    158,912 

Subordinated bonds, payable in euros,

due 2020

   4.00%    93,147    97,648 
    

 

 

   

 

 

 

Total SMBC

     4,540,733    4,716,206 
    

 

 

   

 

 

 

       At March 31, 
   Interest rate   2019   2018 
       (In millions) 

Other subsidiaries:

      

Commercial paper

   0.00%-2.80%    805,703    946,208 

Bonds:

      

Bonds, payable in Japanese yen,

due 2018-2049

     0.01%-21.00%    702,312    616,267 

Bonds, payable in United States dollars,

due 2018-2037

   0.01%-4.45%    48,143    24,599 

Bonds, payable in euros,

due 2023

   0.10%-0.55%    124,451    —   

Bonds, payable in Indonesian rupiah,

due2018-2020

   7.50%-9.85%    19,487    19,081 

Bonds, payable in Australian dollars,

due2019-2031

     0.01%-3.00%    2,075    1,896 

Bonds, payable in Turkish lira,

due2019-2023

   0.01%-15.00%    5,165    3,568 

Subordinated bonds:

      

Subordinated bonds, payable in Japanese yen,

due 2019-2028

   4.00%-4.15%    25,000    25,000 
    

 

 

   

 

 

 

Total other subsidiaries

     1,732,336    1,636,619 
    

 

 

   

 

 

 

Total debt securities in issue

    ¥11,171,209   ¥10,569,117 
    

 

 

   

 

 

 

Interest rates represent the contractual interest rates that were applied at March 31, 20162019 and 2015,2018, and thus do not represent the actual effective interest rates.

The following table presents the movement in Subordinated bonds for the fiscal year ended March 31, 2019 and 2018.

   For the fiscal year ended
March 31,
 
   2019  2018 
   (In millions) 

Subordinated bonds at beginning of period(1)

  ¥1,610,507  ¥1,707,025 

Cash flows:

   

Proceeds from issuance of subordinated bonds

   —     104,866 

Redemption of subordinated bonds

   (26,721  (180,034

Non-cash changes:

   

Foreign exchange translations

   10,803   (11,138

Others(2)

   738   (10,212
  

 

 

  

 

 

 

Subordinated bonds at end of period(1)

  ¥1,595,327  ¥1,610,507 
  

 

 

  

 

 

 

(1)

The balances are comprised of subordinated bonds issued by SMFG, SMBC and other subsidiaries.

(2)

Others mainly include changes arising from losing control of SMFG’s subsidiaries for the fiscal year ended March 31, 2018.

20

PROVISIONS

The following table presents movements by class of provisions for the fiscal years ended March 31, 20162019 and 2015.2018.

 

 Provision for
interest repayment
 Other provisions Total   Provision for
interest repayment
 Other provisions Total 
 (In millions)   (In millions) 

Balance at April 1, 2014

 ¥189,993   ¥35,480   ¥225,473  

Balance at April 1, 2017

  ¥157,333  ¥37,367  ¥194,700 

Additional provisions

  64,837    17,121    81,958     50,500  28,537  79,037 

Amounts used

  (87,473  (11,310  (98,783   (61,961 (14,902 (76,863

Unused amounts reversed

  (752  (514  (1,266   (479 (3,247 (3,726

Amortization of discount and effect of change in discount rate

  110    246    356     (142 209  67 

Acquisition of subsidiaries and businesses

  —      —      —    

Others

  —      (114  (114   (72 (4,876 (4,948
 

 

  

 

  

 

   

 

  

 

  

 

 

Balance at March 31, 2015

  166,715    40,909    207,624  

Balance at March 31, 2018

   145,179  43,088  188,267 
 

 

  

 

  

 

   

 

  

 

  

 

 

Balance at April 1, 2018(1)

  ¥145,179  ¥68,071  ¥213,250 

Additional provisions

  141,000    10,431    151,431     47,000  7,040  54,040 

Amounts used

  (78,317  (19,176  (97,493   (44,063 (18,576 (62,639

Unused amounts reversed

  (735  (339  (1,074   (106 (10,277 (10,383

Amortization of discount and effect of change in discount rate

  759    218    977     399  158  557 

Acquisition of subsidiaries and businesses

  —      929    929  

Others

  —      7    7     —    (7 (7
 

 

  

 

  

 

   

 

  

 

  

 

 

Balance at March 31, 2016

 ¥229,422   ¥32,979   ¥262,401  

Balance at March 31, 2019

  ¥148,409  ¥46,409  ¥194,818 
 

 

  

 

  

 

   

 

  

 

  

 

 

Provision for Interest Repayment

(1)

The balance of “Other provisions” at April 1, 2018 increased from that at March 31, 2018, primarily due to the increase of the balance of provision for loan commitments as a result of the IFRS 9 adoption. For additional information, refer to Note 2 “Summary of Significant Accounting Policies.”

Provision

for Interest Repayment

Japan has two laws restricting interest rates on loans. The Interest Rate Restriction Act sets the maximum interest rates on loans ranging from 15% to 20%. The Act Regulating the Receipt of Contributions, Receipt of Deposits and Interest Rates capped the interest rate on loans at 29.2% up to June 2010. Interest rates on loans greater than the range of15-20% but below the maximum allowable of 29.2% were called “gray zone interest,” and many consumer lending and credit card companies were charging interest in this zone.

In January 2006, judicial decisions strictly interpreted the conditions under which consumer finance companies may retain gray zone interest. As a result, claims for refunds of gray zone interest have increased, and consumer lending and credit card companies have recorded a provision for claims for refunds of gray zone interest.

In December 2006, the Government of Japan made amendments to laws regulating money lenders to implement regulatory reforms affecting the consumer finance industry. As a result, in June 2010, the maximum legal interest rates on loans were reduced to the range of15-20%, and gray zone interest was abolished.

The provision for interest repayment is calculated by estimating the future claims for the refund of gray zone interest, taking into account historical experience such as the number of customer claims for a refund, the amount of repayments and the characteristics of customers, and the length of the period during which claims are expected to be received in the future. Of these historical experiences, the number of customer claims for the refund has a significant effect on the amount of the provision, and the historical number of customer claims to the

SMFG SMBC Group was 13784 thousand, 13994 thousand and 132127 thousand for the fiscal years ended March 31, 2016, 20152019, 2018 and 2014,2017, respectively. The timing of the settlement of these claims is uncertain.

The increase in the provision for interest repayment for the fiscal year ended March 31, 20162019 was primarily due to an increase in additional provisions as a result of reflecting the recent trends in the number of customer claims for the refund to the estimation of the future claims for the refund.refund, which was partially offset by the use of the provision during the year.

Other Provisions

Other

Provisions

Other provisions include asset retirement obligations and provisions for loan commitments, reimbursement of deposits, loan commitments,point programs, product warranties and litigation claims. Most of these provisions occurred in the normal course of business and none of them were individually significant at March 31, 20162019 and 2015.2018.

 

21

OTHER LIABILITIES

Other liabilities at March 31, 20162019 and 20152018 consisted of the following:

 

                                    
  At March 31,   At March 31, 
  2016   2015   2019 2018 
  (In millions)   (In millions) 

Accrued expenses

  ¥258,464    ¥252,420    ¥360,258  ¥313,226 

Unearned income

   159,888     161,355     129,414   133,478 

Financial guarantees and other credit-related contingent liabilities

   143,961     149,609     43,117   119,170 

Due to trust account

   944,542     718,134     1,228,223   1,328,271 

Payables to brokers, dealers and customers for securities transactions

   1,757,429     1,605,743     828,758   1,737,919 

Payables related to credit card services

   522,688     503,811     703,845   640,487 

Obligations from factoring transactions

   452,043     411,146     587,960   566,284 

Retirement benefit liabilities

   55,509     46,514     36,027   36,888 

Guarantee deposits received

   561,088     240,765        497,379      701,177 

Others

   1,555,121     1,459,468     1,716,758    1,305,840  
  

 

   

 

   

 

  

 

 

Total other liabilities

  ¥6,410,733    ¥5,548,965    ¥6,131,739  ¥6,882,740 
  

 

   

 

   

 

  

 

 

 

22

DEFERRED INCOME TAX

The changes of net deferred tax assets and liabilities for the fiscal years ended March 31, 20162019 and 20152018 were as follows:

 

                                    
  For the fiscal year ended
March 31,
   For the fiscal year ended
March 31,
 
  2016 2015   2019 2018 
  (In millions)   (In millions) 

At beginning of period(1)

  ¥(446,305 ¥(2,010  ¥(321,493 ¥(238,240

Deferred tax expense

   (125,832  (87,109

Deferred tax benefit (expense)

   (10,623  (1,036

Deferred tax relating to other comprehensive income:

      

Remeasurements of defined benefit plans reserve

   48,550    (58,081   12,407   (22,492

Available-for-sale financial assets reserve

   289,599    (298,884

Available-for-sale financial asset reserve

      (99,383

Financial instruments at fair value through other comprehensive income reserve

      108,090    

Exchange differences on translating foreign operations reserve

   19,024    (2,245   474   3,137 

Acquisition and disposal of subsidiaries and businesses

   702    (216   (16,391  (17,196

Reclassification to assets held for sale(2)

      (5,540

Exchange differences and others

   (6,312  2,240     (2,756         2,445 
  

 

  

 

   

 

  

 

 

At end of period

  ¥(220,574 ¥(446,305  ¥(230,292 ¥(378,305
  

 

  

 

   

 

  

 

 

(1)

The net deferred tax assets and liabilities at the beginning of period for the fiscal year ended March 31, 2019 are calculated under IFRS 9 and IFRS 15. For additional information, refer to Note 2 “Summary of Significant Accounting Policies.”

(2)

The SMBC Group reclassified net deferred tax assets of ¥5,540 million allocated to Sumitomo Mitsui Finance and Leasing Company, Limited and its subsidiaries to assets held for sale at March 31, 2018. For additional information, refer to Note 50 “Assets and Disposal Groups Held for Sale.”

The deferred tax assets and liabilities at March 31, 20162019 and 20152018 were attributable to the following items:

 

                                    
  At March 31,   At March 31, 
2016 2015   2019 2018 
(In millions)   (In millions) 

Deferred tax assets:

    

Loans and advances

  ¥238,665   ¥270,981    ¥286,752  ¥206,928 

Derivative financial instruments

   48,821   59,530 

Tax losses carried forward

   29,164    28,755     44,518   24,082 

Provision for interest repayment

   37,845   36,779 

Retirement benefits

   19,796    14,228     10,254   9,204 

Derivative financial instruments

   18,024    38,252  

Investment securities

   1,329    849     754   1,243 

Other deductible temporary differences

   148,977    199,394     112,092   152,891 
  

 

  

 

   

 

  

 

 

Total deferred tax assets

   455,955    552,459     541,036   490,657 
  

 

  

 

   

 

  

 

 

Deferred tax liabilities:

      

Investment securities

   459,478    747,533     572,369   680,425 

Goodwill and intangible assets

   85,759    90,012     71,265   81,076 

Property, plant and equipment

   51,039    52,919     57,607   28,786 

Lease transactions

   19,132    23,000     10,381   10,866 

Retirement benefits

   4,054    38,012     3,224   19,484 

Other taxable temporary differences

   57,067    47,288     56,482   48,325 
  

 

  

 

   

 

  

 

 

Total deferred tax liabilities

   676,529    998,764        771,328      868,962 
  

 

  

 

   

 

  

 

 

Net deferred tax liabilities(1)

  ¥(220,574 ¥(446,305  ¥(230,292 ¥(378,305
  

 

  

 

   

 

  

 

 

 

(1)

Deferred tax assets and deferred tax liabilities are offset in the consolidated statementstatements of financial position if the entity has a legally enforceable right to set off current tax assets against current tax liabilities, and the deferred tax assets and the deferred tax liabilities relate to income taxes levied by the same taxation authority on the same taxable entity.

On March 31, 2014, the Government of Japan promulgated to repeal the Act on Special Measures Concerning Securing Necessary Financial Resources for Funding the Restoration from the Great East Japan Earthquake, which initially imposed a 10% of corporation surtax, one year earlier than its initial plan. In addition, on March 31, 2014, the Government of Japan promulgated (i) an amendment to the Local Tax Act and (ii) the Local Corporate Tax Law. Those laws (i) reduce local inhabitant tax by 4.4%, but adversely (ii) impose newly enacted 4.4% local corporation tax. As a result, the effective statutory tax rate (including local taxes) of SMFG was reduced to 35.6% for the fiscal year beginning April 1, 2014.

On March 31, 2015, the Government of Japan promulgated (i) an amendment to the Corporation Tax Act and (ii) the Local Tax Act. Those laws (i) reduce the Japanese national corporation tax rate by 1.6 percentage points from the fiscal year beginning April 1, 2015 and (ii) reduce the enterprise tax rate by 1.2 percentage points from the fiscal year beginning April 1, 2015 and additionally reduce it by 1.2 percentage points from the fiscal year beginning April 1, 2016. As a result, the effective statutory tax rate of SMFG was 33.1% during the fiscal year beginning April 1, 2015 and was expected to be 32.3% for the fiscal years beginning April 1, 2016.

On March 31, 2016, the Government of Japan promulgated (i) an amendment to the Corporation Tax Act and (ii) the Local Tax Act. Those laws (i) reduce the Japanese national corporation tax rate by 0.5 percentage points from the fiscal year beginning April 1, 2016 and additionally reduce by 0.2 percentage points from the fiscal year beginning April 1, 2018, and (ii) reduce the enterprise tax rate by 1.2 percentage points from the fiscal year beginning April 1, 2016. As a result, the effective statutory tax rate of SMFGthe Company was reduced from 32.3% to 30.9% during the two fiscal years beginning April 1, 2016 through March 31, 2018 is further reducedand from 30.9% to 30.9% from 32.3% and is expected to be 30.6% for the fiscal years beginning April 1, 2018. The SMFGSMBC Group measured deferred tax assets and liabilities at the rates that were expected to apply to the period when the assets are realized or the liabilities are settled,

settled.

On December 22, 2016, the Company applied to the Commissioner of the National Tax Agency for permission to adopt the consolidatedcorporate-tax system in Japan from the fiscal year beginning April 1, 2017. Accordingly, the Company and its wholly owned domestic subsidiaries started to recognize the deferred tax assets based on the tax rate that had been enacted or substantively enactedconsolidatedcorporate-tax system at March 31, 2016. Accordingly,2017. Under the consolidatedcorporate-tax system, the taxable profits or losses on a consolidated basis are calculated by aggregating those of the parent company and its wholly owned domestic subsidiaries (a “tax consolidated group”), and any unused tax losses carried forward, except for certain specified consolidated tax losses carried forward, by one company can be used by another company within the tax rate changes in Japan increasedconsolidated group for Japanese national corporation tax purposes. Therefore, the deferred tax expense by ¥30 billion forassets relating to deductible temporary differences and tax losses carried forward were recognized on a consolidated basis, but only to the fiscal year ended March 31, 2016.extent that it is probable that future consolidated taxable profits will be available against which the deductible temporary differences and tax losses carried forward can be utilized.

The deferred tax assets of the SMFG Group consistCompany and its wholly owned domestic subsidiaries, which adopted the consolidatedcorporate-tax system, consisted mainly of the deferred tax assets of SMBC.those for loans and advances. The deferred tax assets of SMBC mainly consisted of deferred tax assets for

loans and advances which were generally related to the accumulated losses from the impairment of these assets which would be deductible for tax purposes in future periods. SMBC considersThe Company and its wholly owned domestic subsidiaries consider that it will be able to use most of the deductible temporary differences will be able to be used based mainly on future taxable profitprofits on a consolidated basis. The future taxable profits are estimated based on among other relevant factors, forecasted results of operations, which are based onreflect historical financial performance and the business plans that management believes to be prudent and feasible. In SMFG’sthe Company’s other subsidiaries, deferred tax assets relating to tax losses carried forward and deductible temporary differences are recognized only to the extent that it is probable that future taxable profit will be available against which the tax losses carried forward and the deductible temporary differences can be utilized. No deferred tax assets were recognized in SMFG and certain SMFG subsidiaries forof the tax losses carried forward projected to expire, orCompany for the deductible temporary differences estimated not to be realized, or for the tax losses carried forward projected to expire due to the uncertainty of sufficient future taxable profit.

The following table shows the amounts of deductible temporary differences and tax losses carried forward by expiration date at March 31, 20162019 and 20152018 for which no deferred tax assets were recognized.

 

  At March 31,   At March 31, 
  2016   2015   2019   2018 
  (In millions)   (In millions) 

Deductible temporary differences

  ¥422,782    ¥576,614     ¥ 414,953   ¥445,649 

Tax losses carried forward which will expire in 1 year

   2,486     —       153,865    224,298 

2 years

   112,416     5,588     250,892    209,109 

3 years

   201,100     115,155     63,571    252,812 

�� 4 years

   150,003     200,938  

4 years

   56,043    70,222 

5 years

   252,080     154,326     47,562    140,879 

6 years

   70,620     251,319     26,276    59,791 

7 years

   59,812     70,870     13,231    44,575 

8 years

   48,712     60,710     60,093    16,279 

9 years and thereafter

   38,578     40,823  

9 years

       59,367 

10 years and thereafter

   146,206    367 
  

 

   

 

   

 

   

 

 

Total deductible temporary differences and tax losses carried forward

  ¥1,358,589    ¥1,476,343  

Total deductible temporary differences and tax losses carried forward(1)

  ¥1,232,692   ¥1,523,348 
  

 

   

 

   

 

   

 

 

(1)

Under the consolidatedcorporate-tax system, the Company and its wholly owned domestic subsidiaries recognized deferred tax assets relating to deductible temporary differences and tax losses carried forward on a consolidated basis for Japanese national corporation tax purposes and on a stand-alone basis for Japanese local corporation tax purposes. There are deductible temporary differences and tax losses carried forward on which deferred tax assets are recognized for Japanese national corporation tax purposes, but on which no deferred tax assets are recognized for Japanese local corporation tax purposes. These deductible temporary differences and tax losses carried forward amounted to ¥405,615 million and ¥421,319 million at March 31, 2019 and 2018, respectively.

In addition to the above table, the SMFGSMBC Group does not recognize deferred tax assets for deductible temporary differences related to investments in subsidiaries, associates and joint ventures where SMFGthe Company has no intention to reverse these differences in the foreseeable future. The amount of those deductible temporary differences was ¥1,159¥810 billion and ¥894¥818 billion at March 31, 20162019 and 2015,2018, respectively. At March 31, 2014, most of the deductible temporary differences were associated with investments in SMBC, which resulted from a statutory share transfer made at the establishment of SMFG in December 2002. Since the carrying amount of the investments in SMBC exceeded the tax base, resulting from an increase in SMBC’s net assets, there were no deductible temporary differences associated with the investments in SMBC at March 31, 2016.

At March 31, 20162019 and 2015,2018, the amount of taxable temporary differences associated with investments in subsidiaries, associates and joint ventures for which deferred tax liabilities had not been recognized was ¥1,283¥2,334 billion and ¥1,583¥2,041 billion, respectively. SMFGThe Company can control the timing of reversal of the temporary differences and it is probable that they will not be reversed in the foreseeable future.

Deferred tax expense for the fiscal years ended March 31, 20162019 and 20152018 was attributable to the following temporary differences and tax losses carried forward:

 

  For the fiscal year ended
March 31,
   For the fiscal year ended
March 31,
 
  2016 2015   2019 2018 
  (In millions)   (In millions) 

Property, plant and equipment

  ¥(28,338 ¥(1,137

Investment securities

   25,226  (34,881

Goodwill and intangible assets

   22,451  7,809 

Tax losses carried forward

   21,016  (3,448

Derivative financial instruments

  ¥(30,588 ¥(21,193   (10,110 9,296 

Loans and advances

   (29,582  (50,374   (7,956 6,092 

Retirement benefits

   (8,952  (8,653   5,102  (2,604

Goodwill and intangible assets

   6,064    5,023  

Provision for interest repayment

   1,066  (3,840

Lease transactions

   3,879    1,537     278  5,223 

Tax losses carried forward

   1,157    (16,282

Investment securities

   (1,075  (41,035

Property, plant and equipment

   228    (3,638

Other temporary differences—net

   (66,963  47,506     (39,358 16,454 
  

 

  

 

   

 

  

 

 

Total deferred tax expense

  ¥(125,832 ¥(87,109

Total deferred tax benefit (expense)

  ¥(10,623 ¥(1,036
  

 

  

 

   

 

  

 

 

 

23

RETIREMENT BENEFITS

Defined Benefit Plans

SMBC and some of SMFG’sthe Company’s other subsidiaries have various defined benefit plans such as defined benefit pension plans andlump-sum severance indemnity plans, which define the amount of benefits that an employee will receive on or after retirement, usually based on one or more factors, such as age, years of service, compensation, classes and earned points based on service.

SMBC’s defined benefit plans account for the vast majority of the defined benefit obligations and plan assets in the SMFGSMBC Group. SMBC has a corporate defined benefit pension plan and alump-sum severance indemnity plan.

Defined benefit pension plans

SMBC’s corporate defined benefit pension plan is a funded defined benefit pension plan, which is regulated by the Corporate Defined Benefit Pension Plan Law, one of the Japanese pension laws. Benefits are paid in exchange for services rendered by employees who worked for more than a specified period considering their years of service and the degree of their contribution to SMBC.

SMBC’s pension fund is a special entity established in accordance with the pension laws, and SMBC has an obligation to make contributions to it. It has a board of directors which consists of an equal number of members elected from both the management and employees of SMBC. These board members have a fiduciary duty to administer and manage the pension fund.

The objective of SMBC’s pension fund is to earn a return over the long term which is sufficient to pay future benefits to participants of the corporate defined benefit pension plan, including pension benefit plans,lump-sum indemnity plans for bereaved families, and other lump sum indemnity plans. To achieve this, SMBC’s pension fund annually sets investment guidelines including asset allocation composed of equities, bonds and other appropriate financial assets according to the funding status. Investment decisions for its assets are made in accordance with these guidelines.

The Corporate Defined Benefit Pension Plan Law requires a pension fund to review the assumptions and remeasure the required contribution at least every fifth fiscal year, in order to ensure that it maintains sufficient

assets for future benefit payments. On the other hand, the present value of the defined benefit obligation is calculated annually based on actuarial valuations that are dependent upon a number of assumptions, including discount rates, mortality rates and future salary (benefit) increases, in accordance with IAS 19 “Employee Benefits.” Other types of defined benefit pension plans operated by the SMFGSMBC Group are generally established and operated in the same manner as described above.

Lump-sum severance indemnity plans

SMBC and some of SMFG’sthe Company’s other subsidiaries havelump-sum severance indemnity plans under which their employees are provided withlump-sum cash payments upon leaving the company. While funding of these plans is not required under Japanese pension laws, some of these plans are funded with assets held by retirement benefit trusts.

SMBC and a number of SMFG’sthe Company’s other subsidiaries in Japan established retirement benefit trusts and contributed some of their marketable securities to these trusts in order to isolate these assets for retirement benefits by entering into contracts with trust banks. Retirement benefit trusts are voluntary funds that are used either to contribute assets to the pension funds or to directly settle retirement benefits. Among the SMFGSMBC Group, retirement benefit trusts are set up for the defined benefit pension plans, as well as for thelump-sum severance indemnity plans.

The assets belonging to the retirement benefit trusts are available to be used only to pay or fund retirement benefits, and practically held by an entity that is legally separated from the SMFGSMBC Group. Therefore, they are not available to the SMFGSMBC Group’s creditors even in bankruptcy and cannot be returned to the SMFGSMBC Group, unless either the remaining assets are sufficient to meet all the related obligations or the entities (funds) reimburse to the SMFGSMBC Group the retirement benefits which are already paid by the SMFGSMBC Group. Therefore, these assets are accounted for as plan assets.

The following tables provide detailed information for the defined benefit plans.

The amounts of the retirement benefit liabilities and the retirement benefit assets recognized in the consolidated statementstatements of financial position at March 31, 20162019 and 20152018 were determined as follows:

 

  At March 31,   At March 31, 
  2016 2015   2019 2018 
  (In millions)   (In millions) 

Present value of unfunded obligations

  ¥(43,554 ¥(42,004  ¥(30,237 ¥(30,082

Present value of funded obligations

   (1,133,536  (1,043,532   (1,157,946 (1,143,589

Fair value of plan assets

   1,354,202    1,418,210     1,420,639  1,453,238 
  

 

  

 

   

 

  

 

 

Net retirement benefit assets (liabilities)

  ¥177,112   ¥332,674    ¥232,456  ¥279,567 
  

 

  

 

   

 

  

 

 

Of which retirement benefit liabilities included in “Other liabilities”

  ¥(55,509 ¥(46,514  ¥(36,027 ¥(36,888

Of which retirement benefit assets included in “Other assets”

  ¥232,621   ¥379,188    ¥268,483  ¥316,455 

The movements in the defined benefit obligations for the fiscal years ended March 31, 20162019 and 20152018 were as follows:

 

  For the fiscal year ended
March 31,
   For the fiscal year ended
March 31,
 
  2016 2015   2019 2018 
  (In millions)   (In millions) 

At beginning of period

  ¥1,085,536   ¥1,038,615    ¥1,173,671  ¥1,239,784 

Current service cost

   35,032    31,921     38,540  40,387 

Interest cost

   11,987    14,067     8,008  8,637 

Actuarial losses—demographic assumptions

   7,326    8,893  

Actuarial losses—financial assumptions

   75,115    33,154  

Actuarial losses (gains)—demographic assumptions

   (394 15,485 

Actuarial losses —financial assumptions

   23,197  5,896 

Actuarial losses—experience

   4,342    9,083     2,652  2,519 

Benefits paid

   (42,192  (40,949   (42,495 (44,433

Lump-sum payments

   (10,543  (10,250   (13,605 (24,109

Past service cost

   (32  60     108  (44

Acquisition and disposal of subsidiaries and businesses

   13,360    (157

Acquisition of subsidiaries and businesses

   5,186   —   

Others(1)

   (2,841  1,099     (6,685 (70,451
  

 

  

 

   

 

  

 

 

At end of period

  ¥1,177,090   ¥1,085,536    ¥1,188,183  ¥1,173,671 
  

 

  

 

   

 

  

 

 

(1)

Others mainly include the exclusion of the defined benefit obligations related to KUBC and The Minato Bank, both of which had been the Company’s subsidiaries but became its equity-method associates, and the exclusion of the defined benefit obligations related to SMFL which was reclassified as assets held for sale during the fiscal year ended March 31, 2018.

The movements in the fair value of plan assets for the fiscal years ended March 31, 20162019 and 20152018 were as follows:

 

  For the fiscal year ended
March 31,
   For the fiscal year ended
March 31,
 
  2016 2015   2019 2018 
  (In millions)   (In millions) 

At beginning of period

  ¥1,418,210   ¥1,160,733    ¥1,453,238  ¥1,432,556 

Interest income

   15,540    15,816     9,805  10,090 

Return on plan assets excluding interest income

   (67,490  232,768     (14,874 97,433 

Contributions by employer

   45,305    48,963     15,101  19,208 

Benefits paid

   (42,192  (40,949   (42,495 (44,433

Lump-sum payments(1)

   (24,398  —    

Acquisition and disposal of subsidiaries and businesses

   12,282    —    

Others

   (3,055  879  

Acquisition of subsidiaries and businesses

   6,191   —   

Others(1)

   (6,327 (61,616
  

 

  

 

   

 

  

 

 

At end of period

  ¥1,354,202   ¥1,418,210    ¥1,420,639  ¥1,453,238 
  

 

  

 

   

 

  

 

 

 

(1)Lump-sum payments indicate

Others mainly include the amountexclusion of the fair value of plan assets returnedrelated to KUBC and The Minato Bank, both of which had been the SMFG Group fromCompany’s subsidiaries but became its equity-method associates, and the retirement benefit trustsexclusion of the fair value of plan assets related to reimburseSMFL which was reclassified as assets held for sale during the lump-sum payments already paid by the SMFG group.fiscal year ended March 31, 2018.

The amounts recognized in “General and administrative expenses” in the consolidated income statementstatements for the fiscal years ended March 31, 2016, 20152019, 2018 and 20142017 were as follows:

 

  For the fiscal year ended March 31,   For the fiscal year ended March 31, 
  2016 2015 2014   2019 2018 2017 
  (In millions)   (In millions) 

Current service cost

  ¥35,032   ¥31,921   ¥32,150    ¥  38,540  ¥40,387  ¥40,030 

Net interest cost

   (3,553  (1,749  1,326     (1,797 (1,453 (1,153

Past service cost

   (32  60    (345   108  (44 (3
  

 

  

 

  

 

   

 

  

 

  

 

 

Total

  ¥31,447   ¥30,232   ¥33,131    ¥36,851  ¥  38,890  ¥     38,874 
  

 

  

 

  

 

   

 

  

 

  

 

 

The plan assets at March 31, 20162019 and 20152018 were composed as follows:

 

  At March 31,  At March 31, 
  2016   2015  2019 2018 
  Quoted in
active
markets
   Other   Total   Quoted in
active
markets
   Other   Total  Quoted in
active
markets
 Other Total Quoted in
active
markets
 Other Total 
  (In millions)  (In millions) 

Plan assets retained in the pension funds:

                  

Equity instruments

  ¥248,717    ¥152,768    ¥401,485    ¥277,152    ¥147,366    ¥424,518   ¥226,372  ¥138,937  ¥365,309  ¥286,542  ¥148,439  ¥434,981 

Debt instruments

   120,985     248,526     369,511     148,895     154,955     303,850   16,124  233,025  249,149  36,290  205,320  241,610 

General account of life insurance companies

   —       60,431     60,431     —       58,357     58,357   250  39,463  39,713  356  45,089  45,445 

Other short-term assets

   30,884     30,482     61,366     3,635     89,177     92,812  

Other investments and short-term assets

 33,055  217,344  250,399  45,252  170,476  215,728 

Plan assets retained in the retirement benefit trusts:

                  

Japanese equity instruments

   429,455     698     430,153     466,875     577     467,452   466,612  1,593  468,205  468,319  1,542  469,861 

Other short-term assets

   26,136     5,120     31,256     374     70,847     71,221   38,278  9,586  47,864  36,340  9,273  45,613 
  

 

   

 

   

 

   

 

   

 

   

 

  

 

  

 

  

 

  

 

  

 

  

 

 

Total

  ¥856,177    ¥498,025    ¥1,354,202    ¥896,931    ¥521,279    ¥1,418,210   ¥780,691  ¥639,948  ¥1,420,639  ¥873,099   ¥580,139   ¥1,453,238  
  

 

   

 

   

 

   

 

   

 

   

 

  

 

  

 

  

 

  

 

  

 

  

 

 

The assets in the pension funds included common stocks issued by the SMFGSMBC Group at March 31, 20162019 and 2015.2018. The amounts of these stocks were not significant.

The assets in retirement benefit trusts were primarily composed of Japanese equity instruments. Most of the plan assets held by the SMFGSMBC Group are invested in Japanese equity and debt instruments. Accordingly, the SMFGSMBC Group may be exposed to market risk arising from the domestic markets.

The SMFGSMBC Group retained the voting rights of some of these equity instruments with fair values of ¥385,959¥456,497 million and ¥422,619¥457,217 million (28.5%(32.1% and 29.8%31.5% of the total fair values of plan assets) at March 31, 20162019 and 2015,2018, respectively. The assets in retirement benefit trusts included common stocks issued by SMFG’s subsidiary (The Minato Bank) with a fair value of ¥24,991 million and ¥46,009 million (1.8% and 3.2% of the total fair values of plan assets) at March 31, 2016 and 2015, respectively. The SMFG Group retained the voting rights of these stocks (40.4% of the voting rights of The Minato Bank, for all periods presented). Refer to Note 47 “Principal Subsidiaries” for further information.

The principal actuarial assumptions used at March 31, 2016, 20152019, 2018 and 20142017 were as follows:

 

   At March 31, 
       2016          2015          2014     

Discount rates

   0.6  1.1  1.4

Expected rates of salary (benefit) increases

   5.9  6.0  6.4
   At March 31, 
   2019  2018  2017 

Discount rates

     0.5    0.7    0.7

All assumptionsDiscount rates are weighted on the basis of the defined benefit obligations.

The assumptions for future mortality are based on the official mortality table generally used for actuarial assumptions in Japan. Under the mortality table, used at March 31, 2016, 20152019, 2018 and 2014,2017, the current average remaining life expectancy of an individual retiring at age 60 was 23 years 23 years, and 23 years for males respectively, and 28 years, 28 years and 28 years for females, respectively.females.

The sensitivity analyses of the effect of changes in key assumptions on the defined benefit obligations at March 31, 20162019 and 20152018 were as follows:

 

  At March 31,   At March 31, 
  2016 2015   2019 2018 
  Increase/(decrease) Increase/(decrease)   Increase/(decrease) Increase/(decrease) 
  (In millions)   (In millions) 

Discount rates:

      

Increase by 50 bps

  ¥(65,424 ¥(57,955  ¥(74,405 ¥(73,146

Decrease by 50 bps

   73,823    65,095     84,546  83,014 

Expected rates of salary (benefit) increases:

   

Increase by 50 bps

  ¥90   ¥82  

Decrease by 50 bps

   (88  (80

Average life expectancy at age 60:

   

Increase of one year

  ¥39,661  ¥38,291 

Each increase and decrease in the table above assumes that only one assumption is changed, with all other assumptions remaining unchanged. In practice, however, changes in multiple assumptions may occur in a mutually interrelated manner.

The weighted average durations of defined benefit plans for the fiscal years ended March 31, 2016, 20152019, 2018 and 20142017 were as follows:

 

  At March 31,   At March 31, 
      2016           2015           2014       2019 2018 2017 
      (Years)       (Years) 

Lump-sum severance indemnity plans

   12.8     12.0     12.1     12.7  12.8  12.9 

Defined benefit pension plans

   17.6     17.2     16.6     18.9     18.9      18.2    

Funding Policy for Plan Assets

The pension funds review the funding status of plan assets every year. If any funding deficit is identified, a measure to cover such deficit will be implemented, for example, by increasing the amount of contributions by the employer.

Expected contribution

Expected contributions to the defined benefit plans for the fiscal year ending March 31, 20172020 are ¥46,372¥20,208 million.

Defined Contribution Plans

Defined

Contribution Plans

Some of SMFG’sthe Company’s subsidiaries provide defined contribution plans. The amounts recognized as expenses for the defined contribution plans were ¥7,258¥10,862 million, ¥6,463¥10,769 million and ¥5,936¥9,621 million for the fiscal years ended March 31, 2016, 20152019, 2018 and 2014,2017, respectively, which were included in “General and administrative expenses” in the consolidated income statement.statements.

Employees’ Pension Insurance Plan

Employees’

Pension Insurance Plan

In Japan, the Government of Japan operates the Employees’ Pension Insurance Plan which covers most of the private entities’ employees. The amounts of contributions charged to expense for the Employees’ Pension Insurance Plan were ¥40,173¥39,232 million, ¥37,574¥42,694 million and ¥33,849¥43,650 million for the fiscal years ended March 31, 2016, 20152019, 2018 and 2014,2017, respectively, which were included in “General and administrative expenses” in the consolidated income statement.statements.

24

SHAREHOLDERS’ EQUITY

Common Stock

The changes in the number of issued shares of common stock and common stock held by SMFGthe Company or its subsidiaries during the fiscal years ended March 31, 2016, 20152019, 2018 and 20142017 were as follows:

 

  For the fiscal year ended March 31,   For the fiscal year ended March 31, 
  2016   2015   2014   2019 2018 2017 
  Outstanding   In treasury   Outstanding   In treasury   Outstanding   In treasury   Outstanding In treasury Outstanding   In treasury Outstanding   In treasury 

At beginning of period

   1,414,055,625     46,814,201     1,414,055,625     46,781,669     1,414,055,625     60,179,376     1,414,443,390  3,884,968  1,414,055,625    4,028,883  1,414,055,625    46,830,882 

Net change

   —       16,681     —       32,532     —       (13,397,707)(1)    (15,041,970 (84,050 387,765    (143,915  —      (42,801,999)(1) 
  

 

   

 

   

 

   

 

   

 

   

 

   

 

  

 

  

 

   

 

  

 

   

 

 

At end of period

   1,414,055,625     46,830,882     1,414,055,625     46,814,201     1,414,055,625     46,781,669     1,399,401,420  3,800,918  1,414,443,390    3,884,968  1,414,055,625    4,028,883 
  

 

   

 

   

 

   

 

   

 

   

 

   

 

  

 

  

 

   

 

  

 

   

 

 

 

(1)

Includes a decrease of 13,498,04042,820,864 shares through the sale of SMFGthe Company’s shares held by SMBC and other subsidiary.SMBC.

The total number of authorized shares of common stock was 3,000 million at March 31, 20162019 and 20152018 with no stated value. All issued shares are fully paid. The details of the stock options outstanding to subscribe forand the restricted shares of SMFG common stockoutstanding are described in Note 39 “Share-Based Payment.”

Preferred StockOn May 14, 2018, the Company’s board of directors resolved to repurchase shares of its common stock and cancel all the repurchased shares. The resolution authorized the repurchase of up to the lesser of (i) an aggregate of 20,000,000 shares of its common stock and (ii) an aggregate of ¥70 billion between May 15, 2018 and July 31, 2018. On June 19, 2018, the Company completed the repurchase, acquiring 15,368,300 shares of its common stock for ¥70 billion in aggregate. The Company cancelled all of the repurchased shares on August 20, 2018.

On May 15, 2019, the Company’s board of directors resolved to repurchase shares of its common stock and cancel all the repurchased shares. The resolution authorized the repurchase of up to the lesser of (i) an aggregate of 32,000,000 shares of its common stock and (ii) an aggregate of ¥100 billion between May 16, 2019 and August 30, 2019. The cancellation of the repurchased shares is scheduled on September 20, 2019. During May 2019, the Company entered into contracts to repurchase 5,922,400 shares of common stock for ¥23 billion in aggregate.

Preferred

Stock

The following table shows the number of shares of preferred stock at March 31, 20162019 and 2015.2018.

 

  At March 31, 2016   At March 31, 2015   At March 31, 2019   At March 31, 2018 
  Authorized   Issued   Authorized   Issued   Authorized   Issued   Authorized   Issued 

Type 5 preferred stock

   167,000     —       167,000     —       167,000    —      167,000    —   

Type 7 preferred stock

   167,000     —       167,000     —       167,000    —      167,000    —   

Type 8 preferred stock

   115,000     —       115,000     —       115,000    —      115,000    —   

Type 9 preferred stock

   115,000     —       115,000     —       115,000    —      115,000    —   

All the preferred stocks have no stated value. There was no movement in preferred stock during the fiscal years ended March 31, 2016, 20152019, 2018 and 2014.2017.

Capital stock, Capital surplus and Treasury stock

Capital

stock, Capital surplus and Treasury stock

“Capital stock” represents share capital under the Companies Act adjusted by the amount corresponding to the preferred stock which is accounted for as a liability under IFRS. Purchases of treasury stock are recognized at cost in “Treasury stock.” Any additionalpaid-in capital, net gains or losses on the sale of treasury stock, and other changes in equity resulting from transactions with shareholders except for dividends are included in “Capital surplus.”

Restriction

Restriction

on the Payment of Dividends

The amount of the capital surplus and retained earnings of SMFGthe Company that can be paid out as dividends is subject to restrictions under the Companies Act. These amounts are calculated based on SMFG’sthe Company’s nonconsolidated statement of financial position prepared in accordance with Japanese GAAP. Therefore, the adjustments made to prepare the IFRS consolidated financial statements have no impact on the calculation. The total amount that SMFGthe Company can pay out as a dividend was ¥1,373¥1,782 billion at March 31, 2016.2019.

Other than the restriction by the Companies Act, SMFGthe Company is required to maintain a risk-weighted capital ratio as per the Banking Act of Japan (“Banking Act”). The detail of the restriction is described in Note 45 “Financial Risk Management.” Therefore, SMFGthe Company would not be able to pay a dividend if the ratio were to fall below the minimum amount as a result of the payment of the dividends.

Since SMFGthe Company is a holding company, its earnings rely mostly on dividend income from SMBC, and SMFG’sthe Company’s other subsidiaries and associates. SMBC is subject to some restrictions on its dividend payment by the Companies Act and the Banking Act, similar to those applied to SMFG.the Company’s.

Other Reserves

Other

Reserves

Remeasurements of defined benefit plans reserve

Remeasurements of the defined benefit plans reserve includes the accumulated actuarial gains and losses arising from experience adjustments and changes in actuarial assumptions, and return on plan assets excluding interest income.

The movements of remeasurements of the defined benefit plans reserve for the fiscal years ended March 31, 2016, 20152019, 2018 and 20142017 were as follows:

 

  For the fiscal year ended March 31,   For the fiscal year ended March 31, 
  2016 2015 2014   2019 2018 2017 
  (In millions)   (In millions) 

At beginning of period

  ¥120,316   ¥(1,982 ¥(138,013  ¥76,102  ¥22,774  ¥18,985 

Gains (losses) arising during the period, before tax

   (154,273  181,638    214,242     (40,329 73,662  8,134 

Income tax (expense) benefit for changes arising during the period

   48,550    (58,081  (76,596   12,407  (22,492 (2,315

Amount attributable to non-controlling interests

   3,834    (1,451  (1,034   53  45  (1,568

Share of other comprehensive income (loss) of associates and joint ventures

   558    192    (581   760  58  (462

Transfer from other reserves to retained earnings

   23,432  2,055   —   
  

 

  

 

  

 

   

 

  

 

  

 

 

At end of period

  ¥18,985   ¥120,316   ¥(1,982  ¥72,425  ¥     76,102  ¥     22,774 
  

 

  

 

  

 

   

 

  

 

  

 

 

Available-for-sale financial assets reserve

Theavailable-for-sale financial assets reserve includesincluded the accumulated gains and losses ofavailable-for-sale financial assets excluding the amount reclassified to profit or loss when the assets are derecognized or impaired.impaired under IAS 39. Following the adoption of IFRS 9 on April 1, 2018, accumulated gains and losses previously recognized in theavailable-for-sale financial assets reserve are primarily recorded in the financial instruments at fair value through other comprehensive income reserves.

The movements of theavailable-for-sale financial assets reserve for the fiscal years ended March 31, 2016, 20152018 and 20142017 were as follows:

 

  For the fiscal year ended March 31,   For the fiscal year ended
March 31,
 
  2016 2015 2014   2018 2017 
  (In millions)   (In millions) 

At beginning of period

  ¥2,234,636   ¥1,397,450   ¥1,159,215    ¥1,929,894  ¥1,756,634 

Gains (losses) arising during the period, before tax

   (551,572  1,392,139    589,766     582,435  371,438 

Income tax (expense) benefit for changes arising during the period

   217,723    (381,512  (214,636   (184,128 (116,277

Reclassification adjustments for (gains) losses included in net profit, before tax

   (217,529  (232,281  (212,001   (275,038 (109,990

Income tax benefit for reclassification adjustments

   71,876    82,628    80,364     84,745  33,658 

Amount attributable to non-controlling interests

   2,251    (25,297  (5,507   (15,653 (3,971

Share of other comprehensive income (loss) of associates and joint ventures

   (751  1,509    249     5  (1,598
  

 

  

 

  

 

   

 

  

 

 

At end of period

  ¥1,756,634   ¥2,234,636   ¥1,397,450    ¥2,122,260  ¥1,929,894 
  

 

  

 

  

 

   

 

  

 

 

Financial instruments at fair value through other comprehensive income reserve

The financial instruments at fair value through other comprehensive income (“FVOCI”) reserve includes the accumulated gains and losses of debt instruments measured at FVOCI and equity instruments measured at FVOCI under IFRS 9. The accumulated gains and losses related to debt instruments measured at FVOCI are reclassified to profit or loss when the assets are derecognized or impaired. The accumulated gains and losses related to equity instruments measured at FVOCI are transferred to retained earnings when the assets are derecognized. In addition, when the decline in the fair value of an equity instrument measured at FVOCI is above the threshold to qualify for a tax deduction, the accumulated losses related to the equity instrument are transferred to retained earnings.

The movements of the financial instruments at FVOCI reserve for the fiscal years ended March 31, 2019 were as follows:

For the fiscal
year ended
March 31,
2019
(In millions)

At beginning of period(1)

¥1,718,937

Gains (losses) arising during the period, before tax

21,936

Income tax (expense) benefit for changes arising during the period

2,982

Reclassification adjustments for (gains) losses included in net profit, before tax

(6,071

Income tax benefit for reclassification adjustments

1,844

Amount attributable tonon-controlling interests

53,769

Share of other comprehensive income (loss) of associates and joint ventures

1,368

Transfer from other reserves to retained earnings

(64,158

At end of period

¥1,730,607

(1)

The financial instruments at FVOCI reserve at beginning of period for the fiscal year ended March 31, 2019 is calculated under IFRS 9. For additional information, refer to Note 2 “Summary of Significant Accounting Policies.”

Exchange differences on translating foreign operations reserve

Exchange differences on translating the foreign operations reserve includes foreign exchange differences arising from the translation of the net assets of foreign operations from their functional currencies to the SMFGSMBC Group’s presentation currency, Japanese yen.

The movements of exchange differences on translating the foreign operations reserve for the fiscal years ended March 31, 2016, 20152019, 2018 and 20142017 were as follows:

 

  For the fiscal year ended March 31,  For the fiscal year ended March 31, 
  2016 2015 2014  2019 2018 2017 
  (In millions)  (In millions) 

At beginning of period

  ¥404,132   ¥151,358   ¥(50,032 ¥125,987  ¥181,374  ¥216,336 

Gains (losses) arising during the period, before tax

   (219,904  301,796    271,619   22,517  (75,409 (24,063

Income tax (expense) benefit for changes arising during the period

   19,027    (3,015  (17,967 343  3,152  2,544 

Reclassification adjustments for (gains) losses included in net profit, before tax

   8    (2,164  (1,311 (37,247 49  (4

Income tax (expense) benefit for reclassification adjustments

   (3  770    796   131  (15 1 

Amount attributable to non-controlling interests

   26,687    (48,666  (46,788 4,430  9,014  6,102 

Share of other comprehensive income (loss) of associates and joint ventures

   (13,611  4,053    (4,959 (2,827 7,822  (19,542
  

 

  

 

  

 

  

 

  

 

  

 

 

At end of period

  ¥216,336   ¥404,132   ¥151,358   ¥113,334  ¥125,987  ¥181,374 
  

 

  

 

  

 

  

 

  

 

  

 

 

 

25

NON-CONTROLLING INTERESTS AND EQUITY ATTRIBUTABLE TO OTHER EQUITY INSTRUMENTS HOLDERS

Non-controlling interests

Non-controlling interests at March 31, 20162019 and 20152018 consisted of the following:

 

   At March 31, 
   2016   2015 
   (In millions) 

Preferred securities issued by subsidiaries

  ¥961,998    ¥1,124,297  

Others

   575,550     557,175  
  

 

 

   

 

 

 

Total non-controlling interests

  ¥1,537,548    ¥1,681,472  
  

 

 

   

 

 

 

  At March 31, 
  2019  2018 
  (In millions) 

Preferred securities issued by subsidiaries

 ¥436,500  ¥730,153 

Others

  57,623   502,827 
 

 

 

  

 

 

 

Totalnon-controlling interests

 ¥   494,123  ¥1,232,980 
 

 

 

  

 

 

 

Preferred securities issued by subsidiaries

Preferred securities issued by subsidiaries consisted of the following:

 

   

Redemption at
the option of

Issuer(1)

  At March 31, 
     2016   2015 
      (In millions) 

SMFG Preferred Capital USD 1 Limited
(non-cumulative step-up perpetual preferred securities)

  January 2017  ¥73,106    ¥77,994  

SMFG Preferred Capital GBP 1 Limited
(non-cumulative step-up perpetual preferred securities)

  January 2017   11,905     13,097  

SMFG Preferred Capital JPY 1 Limited
(non-cumulative perpetual preferred securities)

  January 2018   135,000     135,000  

SMFG Preferred Capital USD 3 Limited
(non-cumulative step-up perpetual preferred securities)

  July 2018   152,037     162,203  

SMFG Preferred Capital GBP 2 Limited
(non-cumulative step-up perpetual preferred securities)

  January 2029   40,450     44,503  

SMFG Preferred Capital JPY 2 Limited

      

Series A (non-cumulative step-up perpetual preferred securities)

  January 2019   113,000     113,000  

Series B (non-cumulative perpetual preferred securities)

  July 2019   140,000     140,000  

Series C (non-cumulative perpetual preferred securities)

  January 2016   —       140,000  

Series E (non-cumulative perpetual preferred securities)

  July 2019   33,000     33,000  

Series F (non-cumulative perpetual preferred securities)

  January 2016   —       2,000  

SMFG Preferred Capital JPY 3 Limited

      

Series A (non-cumulative step-up perpetual preferred securities)

  January 2020   99,000     99,000  

Series B (non-cumulative perpetual preferred securities)

  January 2020   164,500     164,500  
    

 

 

   

 

 

 

Preferred securities issued by subsidiaries

    ¥961,998    ¥1,124,297  
    

 

 

   

 

 

 
  Redemption at
the option of
Issuer(1)
 At March 31, 
  2019  2018 
    (In millions) 

SMFG Preferred Capital USD 3 Limited
(non-cumulativestep-up perpetual preferred securities)

 July 2018 ¥—    ¥143,438 

SMFG Preferred Capital GBP 2 Limited
(non-cumulativestep-up perpetual preferred securities)

 January 2029  —     37,215 

SMFG Preferred Capital JPY 2 Limited

   

Series A(non-cumulativestep-up perpetual preferred securities)

 January 2019  —     113,000 

Series B(non-cumulative perpetual preferred securities)

 July 2019  140,000   140,000 

Series E(non-cumulative perpetual preferred securities)

 July 2019  33,000   33,000 

SMFG Preferred Capital JPY 3 Limited

   

Series A(non-cumulativestep-up perpetual preferred securities)

 January 2020  99,000   99,000 

Series B(non-cumulative perpetual preferred securities)

 January 2020  164,500   164,500 
  

 

 

  

 

 

 

Preferred securities issued by subsidiaries

  ¥   436,500  ¥   730,153 
  

 

 

  

 

 

 

 

(1)

Subject to the prior approval of the Financial Services Agency of Japan (“FSA”), preferred securities are redeemable at any dividend payment date on and after a specific month in principle and the month shown in this column is such a specific month of each preferred security.

Others

Others represent the equity in the SMFGSMBC Group’s subsidiaries not attributable, directly or indirectly, to the SMFGSMBC Group. They were not considered individually material to the SMFGSMBC Group at March 31, 20162019 and 2015.2018.

Equity attributable to other equity instruments holders

Equity

attributable to other equity instruments holders

Equity attributable to other equity instruments holders at March 31, 20162019 and 20152018 consisted of the following:

 

      At March 31, 
      2016   2015 
      (In millions) 

Perpetual subordinated bonds

    ¥299,895    ¥          —    
    

 

 

   

 

 

 

Total equity attributable to other equity instruments holders

    ¥299,895    ¥—    
    

 

 

   

 

 

 

   At March 31, 
   2019   2018 
   (In millions) 

Perpetual subordinated bonds

  ¥598,703   ¥599,522 
  

 

 

   

 

 

 

Total equity attributable to other equity instruments holders

  ¥   598,703   ¥   599,522 
  

 

 

   

 

 

 

In July 2015, SMFG issued three series of perpetual subordinated bonds, which amounted to ¥300,000 million in aggregate, raising ¥299,895 million after deducting issuance costs. These bonds are BaselIII-compliant Additional Tier 1 capital instruments and are classified as equity under IFRS.

The bonds bear a fixed rate of interest until the first call date. After the first call date, they will bear floating rate of interest unless they are redeemed. SMFG may at any time and in its sole discretion, elect to cancel any interest payment. If cancelled, interest payments arenon-cumulative and will not increase to compensate for any short-fall in interest payments in any previous year.

These bonds are undated, have no final maturity date and may be redeemed at SMFG’s option, in whole, but not in part, on the first call date or any interest payment dates thereafter subject to prior confirmation of the FSA.

The principal amount of the bonds may be written down upon the occurrence of certain trigger events. For example, if the Common Equity Tier 1 capital ratio falls below 5.125% (“Capital Ratio Event”), the principal amount required to fully restore the Common Equity Tier 1 capital ratio above 5.125% will be written down.

The principal amount of the bonds which has been written down due to a Capital Ratio Event may be reinstated at SMFG’s option, subject to prior confirmation of the Financial Services Agency of JapanFSA that the Common Equity Tier 1 capital ratio remains at a sufficiently high level after giving effect to such reinstatement.

26

NET INTEREST INCOME

Net interest income for the fiscal years ended March 31, 2016, 20152019, 2018 and 20142017 consisted of the following:

 

  For the fiscal year ended March 31,   For the fiscal year ended March 31, 
  2016   2015   2014   2019   2018   2017 
      (In millions)       (In millions) 

Interest income from:

            

Deposits with banks

  ¥40,472    ¥41,896    ¥37,328    ¥103,798   ¥78,217   ¥45,770 

Call loans and bills bought

   21,828     18,606     18,142     16,400    19,362    12,065 

Reverse repurchase agreements and cash collateral on securities borrowed

   22,011     17,021     14,970     38,387    40,021    29,601 

Investment securities

   84,912     82,494     85,798     152,915    102,295    87,348 

Loans and advances

   1,703,361     1,622,604     1,557,806     2,094,850    1,904,175    1,725,477 
  

 

   

 

   

 

   

 

   

 

   

 

 

Total interest income

   1,872,584     1,782,621     1,714,044     2,406,350    2,144,070    1,900,261 
  

 

   

 

   

 

   

 

   

 

   

 

 

Interest expense from:

            

Deposits

   202,312     165,567     140,390     601,365    382,753    249,028 

Call money and bills sold

   5,583     4,014     3,483     14,212    8,763    5,286 

Repurchase agreements and cash collateral on securities lent

   15,105     9,920     7,547     120,984    61,341    20,623 

Borrowings

   72,203     71,037     68,266     107,233    89,196    79,835 

Debt securities in issue

   135,172     119,789     100,117     256,035    190,774    146,937 

Others

   726     780     708     2,046    1,142    629 
  

 

   

 

   

 

   

 

   

 

   

 

 

Total interest expense

   431,101     371,107     320,511     1,101,875    733,969    502,338 
  

 

   

 

   

 

   

 

   

 

   

 

 

Net interest income

  ¥1,441,483    ¥1,411,514    ¥1,393,533    ¥1,304,475   ¥1,410,101   ¥1,397,923 
  

 

   

 

   

 

   

 

   

 

   

 

 

Interest income recorded on impaired financial assets was ¥20,545 million, ¥23,478¥18,886 million and ¥32,638¥16,892 million for the fiscal years ended March 31, 2016, 20152018 and 2014,2017, respectively.

27

NET FEE AND COMMISSION INCOME

Net fee and commission income for the fiscal years ended March 31, 2016, 20152019, 2018 and 20142017 consisted of the following:

 

  For the fiscal year ended March 31,   For the fiscal year ended March 31, 
  2016   2015   2014   2019   2018   2017 
      (In millions)       (In millions) 

Fee and commission income from:

            

Loans

  ¥121,934    ¥103,486    ¥109,788    ¥118,225   ¥120,998   ¥128,305 

Credit card business

   253,136     245,133     234,060     290,034    289,509    261,253 

Guarantees

   55,618     51,794     45,229     63,112    62,934    58,221 

Securities-related business

   133,019     130,164     137,184     142,870    147,016    146,655 

Deposits

   14,882     14,976     18,234     12,650    16,169    15,929 

Remittances and transfers

   133,110     129,465     130,864     139,625    140,621    138,029 

Safe deposits

   5,511     5,748     5,832     4,546    5,224    5,414 

Trust fees

   3,619     2,833     2,421     4,629    3,854    3,607 

Investment trusts

   116,057     147,021     159,424     127,762    154,419    126,590 

Agency

   16,432     16,854     17,966     11,417    16,577    16,753 

Others

   178,362     155,292     142,167     186,907    174,043    165,656 
  

 

   

 

   

 

   

 

   

 

   

 

 

Total fee and commission income

   1,031,680     1,002,766     1,003,169     1,101,777    1,131,364    1,066,412 
  

 

   

 

   

 

   

 

   

 

   

 

 

Fee and commission expense from:

            

Remittances and transfers

   38,358     36,669     36,413     42,150    40,214    39,419 

Guarantees

   3,071     3,012     1,607     1,572    3,750    3,434 

Others

   89,952     89,572     89,939     134,629    134,903    138,720 
  

 

   

 

   

 

   

 

   

 

   

 

 

Total fee and commission expense

   131,381     129,253     127,959     178,351    178,867    181,573 
  

 

   

 

   

 

   

 

   

 

   

 

 

Net fee and commission income

  ¥900,299    ¥873,513    ¥875,210    ¥923,426   ¥952,497   ¥884,839 
  

 

   

 

   

 

   

 

   

 

   

 

 

Fee and commission income can be mainly disaggregated into credit card business, securities-related business, investment trusts, remittances and transfers and loans by types of services. Fees obtained through credit card business principally arise in the Retail Business Unit. Fees obtained through securities-related business principally arise in the Wholesale Business Unit, the Retail Business Unit and the International Business Unit. Fees and commissions obtained through investment trusts principally arise in the Retail Business Unit and Head office account and others, which include the investment advisory and investment trust management businesses. Remittance and transfer fees principally arise in the Wholesale Business Unit, the Retail Business Unit and the International Business Unit. Loan transaction fees principally arise in the Wholesale Business Unit and the International Business Unit.

28

NET TRADING INCOME

Net trading income for the fiscal years ended March 31, 2016, 20152019, 2018 and 20142017 consisted of the following:

 

  For the fiscal year ended March 31,   For the fiscal year ended March 31, 
  2016   2015   2014   2019   2018   2017 
  (In millions)   (In millions) 

Interest rate

  ¥240,763    ¥248,372    ¥184,859    ¥176,352   ¥128,137   ¥79,650 

Foreign exchange

   204,349     (136,708   (81,154   92,835    87,322    51,143 

Equity

   18,019     499     10,496     46,576    48,047    39,478 

Credit

   (2,641   16,970     20,983     3,667    5,735    13,063 

Others

   2,192     (1,374   34     872    1,223    629 
  

 

   

 

   

 

   

 

   

 

   

 

 

Total net trading income

  ¥462,682    ¥127,759    ¥135,218    ¥   320,302   ¥   270,464   ¥   183,963 
  

 

   

 

   

 

   

 

   

 

   

 

 

Net trading income includes income and losses from trading assets and liabilities, and derivative financial instruments.

29

NET INCOME (LOSS) FROM FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS

Net income (loss) from financial assets at fair value through profit or loss for the fiscal years ended March 31, 2016, 20152019, 2018 and 20142017 consisted of the following:

 

   For the fiscal year ended March 31, 
   2016   2015   2014 
   (In millions) 

Net income from debt instruments

  ¥  11,311    ¥  13,123    ¥  53,142  

Net income from equity instruments

   949     9,555     5,444  
  

 

 

   

 

 

   

 

 

 

Total net income from financial assets at fair value through profit or loss

  ¥12,260    ¥22,678    ¥58,586  
  

 

 

   

 

 

   

 

 

 
   For the fiscal year ended March 31, 
   2019   2018   2017 
   (In millions) 

Net income (loss) from debt instruments(1)

  ¥53,048   ¥(1,775  ¥428 

Net income from equity instruments

   1,607           1,108           1,590 
  

 

 

   

 

 

   

 

 

 

Total net income (loss) from financial assets at fair value through profit or loss

  ¥      54,655    ¥(667  ¥2,018 
  

 

 

   

 

 

   

 

 

 

 

(1)

Following the adoption of IFRS 9, net income (loss) from debt instruments includes all gains and losses arising mainly from financial assets which do not meet the conditions for SPPI.

30

NET INVESTMENT INCOME

Net investment income for the fiscal years ended March 31, 2016, 20152019, 2018 and 20142017 consisted of the following:

 

  For the fiscal year ended March 31,   For the fiscal year ended March 31, 
2016   2015   2014  2019   2018   2017 
(In millions)  (In millions) 

Net gain (loss) from disposal of debt instruments

  ¥71,641    ¥45,193    ¥(1,753

Net gain from disposal of debt instruments

  ¥6,072   ¥4,187   ¥39,484 

Net gain from disposal of equity instruments(1)

   175,494     190,570     225,185     —      281,036    142,016 

Dividend income

   128,094     135,301     108,833     87,850    138,874    123,827 
  

 

   

 

   

 

   

 

   

 

   

 

 

Total net investment income

  ¥375,229    ¥371,064    ¥332,265    ¥      93,922    ¥       424,097   ¥   305,327 
  

 

   

 

   

 

   

 

   

 

   

 

 

 

(1)

Following the adoption of IFRS 9, net gain from disposal of equity instruments elected to be measured at FVOCI is not transferred to profit or loss.

Dividend income from equity instruments at fair value through other comprehensive income which were derecognized during the fiscal year ended March 31, 2019 was ¥2,524 million.

31

OTHER INCOME

Other income for the fiscal years ended March 31, 2016, 20152019, 2018 and 20142017 consisted of the following:

 

  For the fiscal year ended March 31,   For the fiscal year ended March 31, 
2016   2015   2014   2019 2018 2017 
(In millions)   (In millions) 

Income from operating leases

  ¥206,561    ¥179,632    ¥148,211    ¥235,044  ¥276,850  ¥250,460 

Income related to disposal of assets leased

   155,280     183,590     149,448     112,344  322,673  152,564 

Income related to IT solution services

   33,991     35,506     41,043     33,828  29,172  37,678 

Gains on disposal of property, plant and equipment, and other intangible assets

   3,714     538     2,634     541  852  937 

Reversal of impairment losses of investments in associates and joint ventures

   4,847     —       —       2,402  8,123   —   

Gains on step acquisition of subsidiaries

   118     —       1,565     —     —    20,344 

Gains on step acquisition of associates and joint ventures

   1,714     37,997     —    

Others

   90,048     88,642     86,640     121,507  118,185  111,842 
  

 

   

 

   

 

   

 

  

 

  

 

 

Total other income

  ¥496,273    ¥525,905    ¥429,541    ¥     505,666   ¥     755,855   ¥     573,825 
  

 

   

 

   

 

   

 

  

 

  

 

 

32

IMPAIRMENT CHARGES ON FINANCIAL ASSETS

Impairment charges (reversals) on financial assets for the fiscal years ended March 31, 2016, 20152019, 2018 and 20142017 consisted of the following:

 

   For the fiscal year ended March 31, 
   2016   2015   2014 
  (In millions) 

Loans and advances(1)

  ¥118,750    ¥79,552    ¥(25,806

Available-for-sale financial assets

   29,606     10,586     11,531  
  

 

 

   

 

 

   

 

 

 

Total impairment charges (reversals) on financial assets

  ¥   148,356    ¥     90,138    ¥   (14,275
  

 

 

   

 

 

   

 

 

 
   For the fiscal year ended March 31, 
   2019(1)  2018(2)  2017(2) 
   (In millions) 

Loans and advances

  ¥122,927  ¥126,623  ¥141,457 

Loan commitments

   (9,771  —     —   

Financial guarantees

   6,529   —     —   

Investment securities(3)

   1   10,185   71,510 
  

 

 

  

 

 

  

 

 

 

Total impairment charges on financial assets

  ¥     119,686  ¥     136,808   ¥     212,967 
  

 

 

  

 

 

  

 

 

 

 

(1)Cross-reference to provision (credit)

For the fiscal year ended March 31, 2019, impairment charges on the financial assets are determined in accordance with IFRS 9.

(2)

For the fiscal years ended March 31, 2018 and 2017, impairment charges on loans and advances and investment securities were determined in accordance with IAS 39, while losses for loan lossescommitments and financial guarantee contracts were determined in the table of reconciliation of allowance for loan losses in Note 10 “Loansaccordance with IAS 37.

(3)

Investment securities, which were formerlyavailable-for-sale financial assets under IAS 39, include debt instruments measured at FVOCI and Advances.”those measured at amortized cost under IFRS 9.

33

GENERAL AND ADMINISTRATIVE EXPENSES

General and administrative expenses for the fiscal years ended March 31, 2016, 20152019, 2018 and 20142017 consisted of the following:

 

                                                      
  For the fiscal year ended March 31,   For the fiscal year ended March 31, 
2016   2015   2014   2019 2018 2017 
    (In millions)       (In millions) 

Personnel expenses

  ¥785,547    ¥749,480    ¥706,376    ¥803,821  ¥864,396  ¥833,755 

Depreciation and amortization

   157,672     146,233     137,742     168,564   171,043   172,496 

Rent and lease expenses

   117,482     116,745     113,314     112,660   117,400   115,425 

Building and maintenance expenses

   13,966     10,068     8,886     10,254   11,167   10,657 

Supplies expenses

   16,628     14,865     15,482     16,252   16,902   16,694 

Communication expenses

   36,634     35,126     35,017     35,030   38,171   37,250 

Publicity and advertising expenses

   79,453     68,481     56,791     63,669   80,464   79,570 

Taxes and dues

   76,695     67,913     57,782     82,792   83,976   85,967 

Outsourcing expenses

   91,837     91,189     88,072     100,495   96,733   96,063 

Premiums for deposit insurance

   36,175     56,789     54,532     35,555   37,938   38,180 

Office equipment expenses

   47,621     47,318     40,388     47,139   54,708   49,127 

Others

   246,553     217,690     208,608     239,137   240,223   216,951 
  

 

   

 

   

 

   

 

  

 

  

 

 

Total general and administrative expenses

  ¥1,706,263    ¥1,621,897    ¥1,522,990    ¥1,715,368   ¥1,813,121   ¥1,752,135 
  

 

   

 

   

 

   

 

  

 

  

 

 

 

34

OTHER EXPENSES

Other expenses for the fiscal years ended March 31, 2016, 20152019, 2018 and 20142017 consisted of the following:

 

  For the fiscal year ended March 31,   For the fiscal year ended March 31, 
2016   2015   2014   2019   2018   2017 
(In millions)   (In millions) 

Cost of operating leases

  ¥95,440    ¥87,206    ¥72,268    ¥120,412   ¥144,708   ¥126,320 

Cost related to disposal of assets leased

   140,083     171,707     146,196     101,218    310,460    140,255 

Cost related to IT solution services and IT systems

   90,563     84,300     75,173     96,727    92,975    92,247 

Provision for interest repayment

   141,024     64,195     49,764     47,293    49,879    11,439 

Losses on disposal of property, plant and equipment, and other intangible assets

   4,302     6,703     6,763     4,596    4,913    6,041 

Impairment losses of property, plant and equipment

   4,237     5,108     3,157     5,906    27,816    6,396 

Impairment losses of intangible assets

   1,278     4     193     66,665    35,666    74,788 

Losses on sale of investments in subsidiaries and associates

   24     2,221     —       2,677    28,250    —   

Impairment losses of investments in associates and joint ventures

   17,306     4,631     4,686     50,679    19,851    14,941 

Losses on step acquisition of subsidiaries

   25,744    —      —   

Others

   44,706     79,539     70,580     53,740    78,247    59,332 
  

 

   

 

   

 

   

 

   

 

   

 

 

Total other expenses

  ¥   538,963    ¥   505,614    ¥   428,780    ¥575,657   ¥792,765   ¥531,759 
  

 

   

 

   

 

   

 

   

 

   

 

 

35

INCOME TAX EXPENSE

The detail of income tax expense for the fiscal years ended March 31, 2016, 20152019, 2018 and 20142017 was as follows:

 

  For the fiscal year ended March 31,   For the fiscal year ended March 31, 
  2016   2015   2014   2019 2018 2017 
  (In millions)   (In millions) 

Current tax:

          

Charge for period(1)

  ¥247,046    ¥322,838    ¥288,269    ¥173,683  ¥228,342  ¥260,234 

Deferred tax:

          

Origination and reversal of temporary differences

   130,072     19,378     134,121     17,460  66,875  12,391 

Change in the write-down of deferred tax assets on the current fiscal year income tax expense

   (34,000   (7,240   (21,246   (6,837 (63,194 (132,859

Changes in Japanese corporation tax rates(1)

   29,760     74,971     12,932  

Changes in tax rates and others(2)

   —    (2,645  —   
  

 

   

 

   

 

   

 

  

 

  

 

 

Total deferred tax expense

   125,832     87,109     125,807  

Total deferred tax expense (benefit)

   10,623  1,036  (120,468
  

 

   

 

   

 

   

 

  

 

  

 

 

Total income tax expense

  ¥372,878    ¥409,947    ¥414,076    ¥184,306  ¥229,378  ¥139,766 
  

 

   

 

   

 

   

 

  

 

  

 

 

 

(1)See Note 22 “Deferred Income Tax”

As a result of the adoption of IFRS 9, the current income tax expense of ¥103,264 million was recognized directly in equity for further information on changesthe fiscal year ended March 31, 2019.

(2)

The amount for the fiscal year ended March 31, 2018 mainly includes the effect of change in Japanese corporationU.S. federal income tax rates.rate which was changed from 36% to 21% effective January 1, 2018.

The following table shows the reconciliations of the effective income tax rates for the fiscal years ended March 31, 2016, 20152019, 2018 and 2014.2017.

 

  For the fiscal year ended March 31,   For the fiscal year ended March 31, 
  2016 2015 2014   2019 2018 2017 
  (In millions, except percentages)   (In millions, except percentages) 

Profit before tax

  ¥1,325,700   ¥1,132,908   ¥1,306,312    ¥831,892  ¥1,118,976  ¥880,352 

Income tax expense

   372,878    409,947    414,076     184,306  229,378  139,766 

Effective income tax rate

   28.1  36.2  31.7   22.2 20.5 15.9

Statutory tax rate in Japan(1)

   33.1  35.6  38.0

Effective statutory tax rate in Japan(1)

   30.6 30.9 30.9

Nontaxable dividends received

   (4.8%)  (0.8%)  (1.0%) 

Non-Japanese earnings

   (2.7%)   (3.8%)   (3.6%)    (3.0%)  (3.6%)  (1.9%) 

Effect of the change in the write-down of deferred tax assets on the current fiscal year income tax expense

   (2.6%)   (0.6%)   (1.6%) 

Changes in Japanese corporation tax rates

   2.2  6.6  1.0

Tax impact of share of post-tax (profit) loss in associates and joint ventures

   (0.8%)   (0.5%)   (0.6%) 

Nontaxable dividends received

   (0.5%)   (2.4%)   (1.6%) 

Tax impact of impairment losses and reversal of impairment losses for investments in associates and joint ventures—net

   0.3  0.2  0.1   1.8 0.3 0.5

Tax impact of share ofpost-tax profit in associates and joint ventures

   (1.5%)  (1.4%)  (1.0%) 

Gains on step acquisition of subsidiaries and associates and joint ventures which were not taxable

   —      (0.1%)   —       1.0  —    (0.7%) 

Effect of the change in the write-down of deferred tax assets on the current fiscal year income tax expense(2)

   (0.8%)  (5.7%)  (15.1%) 

Tax impact of impairment losses of goodwill

   —    0.8 2.6

Others—net

   (0.9%)   1.2  —       (1.1%)   —    1.6
  

 

  

 

  

 

   

 

  

 

  

 

 

Effective income tax rate

   28.1  36.2  31.7   22.2 20.5 15.9
  

 

  

 

  

 

   

 

  

 

  

 

 

 

(1)

The effective statutory tax rate in Japan for the fiscal year ended March 31, 20162019 is the aggregate of the effective corporation tax rate of 22.5%23.2%, the effective local corporatecorporation tax rate of 1.0%, the effective inhabitant tax rate of 3.7%3.8% and the effective enterprise tax rate of 5.9%2.6%, which is payable by corporate entities on taxable profits under the tax laws in Japan. The effective corporation tax rate wasand the effective enterprise tax rate were changed from 23.7%23.4% and 26.1%2.7%, which were applied to the fiscal years ended March 31, 20152018 and 2014,2017, respectively.

(2)

The effective inhabitant tax rate and the effective enterprise tax rate were changed from 4.9% and 7.0%, respectively, which were applied to the fiscal years ended March 31, 2015 and 2014. The effective local corporation tax rate of 1.0% was newly applied toeffect for the fiscal year ended March 31, 2016. The statutory2017 was primarily due to the reversal of the write-down of deferred tax rateassets at March 31, 2017 in accordance with the application to the Commissioner of the National Tax Agency for permission to adopt the consolidatedcorporate-tax system in Japan has been changed from the fiscal year beginning April 1, 2016 reflecting the changes in Japanese corporation tax rates as mentioned in2017. For further information, see Note 22 “Deferred Income Tax.”

36

EARNINGS PER SHARE

The following table shows the income and share data used in the basic and diluted earnings per share calculations for the fiscal years ended March 31, 2016, 20152019, 2018 and 2014.2017.

 

  For the fiscal year ended March 31,   For the fiscal year ended March 31, 
  2016 2015 2014   2019 2018 2017 
  (In millions, except number of shares and
per share data)
   (In millions, except number of shares and
per share data)
 

Basic:

        

Profit attributable to shareholders of SMFG

  ¥843,920   ¥614,070   ¥766,388  

Profit attributable to shareholders of the Company

  ¥541,932  ¥759,998  ¥627,870 

Weighted average number of common stock in issue (in thousands of shares)

   1,367,229    1,367,258    1,366,186     1,397,599  1,410,442  1,369,231 
  

 

  

 

  

 

 
  

 

  

 

  

 

 

Basic earnings per share

  ¥617.25   ¥449.13   ¥560.97    ¥387.76  ¥538.84  ¥458.56 

Diluted:

        

Profit attributable to the common shareholders of SMFG

  ¥843,920   ¥614,070   ¥766,388  

Profit attributable to the common shareholders of the Company

  ¥541,932  ¥759,998  ¥627,870 

Impact of dilutive potential ordinary shares issued by subsidiaries

   (1  (1  (1   (19 (10 (11
  

 

  

 

  

 

   

 

  

 

  

 

 

Net profit used to determine diluted earnings per share

  ¥843,919   ¥614,069   ¥766,387    ¥541,913  ¥759,988  ¥627,859 
  

 

  

 

  

 

   

 

  

 

  

 

 

Weighted average number of common stock in issue (in thousands of shares)

   1,367,229    1,367,258    1,366,186     1,397,599  1,410,442  1,369,231 

Adjustments for stock options (in thousands of shares)

   928    816    699     924  1,052  1,093 
  

 

  

 

  

 

   

 

  

 

  

 

 

Weighted average number of common stock for diluted earnings per share (in thousands of shares)

   1,368,157    1,368,074    1,366,885     1,398,523  1,411,494  1,370,324 
  

 

  

 

  

 

   

 

  

 

  

 

 

Diluted earnings per share

  ¥616.83   ¥448.86   ¥560.68    ¥387.49  ¥538.43  ¥458.18 

 

37

TRANSFERS OF FINANCIAL ASSETS

In the normal course of business, the SMFGSMBC Group transfers financial assets mainly through repurchase agreements, securities lending transactions and securitizations. Depending on the nature of the transactions, the transfers may either result in financial assets being derecognized or continuing to be recognized on the consolidated statementstatements of financial position.

Full derecognition occurs when the SMFGSMBC Group transfers its contractual rights to receive cash flows from financial assets, or retains the contractual rights to receive the cash flows, but assumes a contractual obligation to pay the cash flows to another party, and transfers substantially all the risks and rewards of ownership, including credit risk, prepayment risk and interest rate risk. Derecognition does not occur when the SMFGSMBC Group retains substantially all the risks and rewards of ownership of the financial assets, where the contractual rights to receive cash flows from the financial assets are transferred, or the rights are retained but obligations to pay the cash flows are assumed.

The following tables show the carrying amounts and fair values of transferred financial assets that did not qualify for derecognition and their associated financial liabilities at March 31, 20162019 and 2015:2018:

 

  At March 31, 2016   At March 31, 2019 
  Repurchase
agreements and
securities lending
transactions
   Loans and advances   Repurchase
agreements and
securities lending
transactions
   Loans and advances 
  Residential
mortgages
   Corporate
loans
   Others   Residential
mortgages
   Corporate
loans
   Others(1) 
  (In millions)   (In millions) 

Carrying amount of assets

  ¥3,779,078    ¥1,278,100    ¥1,045,161    ¥62,853    ¥7,631,722   ¥1,478,989   ¥778,559   ¥—   

Carrying amount of associated liabilities

   3,793,528     1,027,050     1,041,981     49,509     6,530,794    1,189,055    770,434    —   

For those liabilities that have recourse only to the transferred assets:

                

Fair value of assets

  ¥—      ¥1,469,579    ¥1,049,491    ¥63,584    ¥—     ¥1,663,279   ¥781,864   ¥—   

Fair value of associated liabilities

   —       1,099,771     1,042,590     49,778     —      1,240,199    770,605    —   
  

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

 

Net position

  ¥—      ¥369,808    ¥6,901    ¥13,806    ¥—     ¥423,080   ¥11,259   ¥—   
  

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

 
  At March 31, 2015   At March 31, 2018 
  Repurchase
agreements and
securities lending
transactions
   Loans and advances   Repurchase
agreements and
securities lending
transactions
   Loans and advances 
  Residential
mortgages
   Corporate
loans
   Others   Residential
mortgages
   Corporate
loans
   Others(1) 
  (In millions)   (In millions) 

Carrying amount of assets

  ¥5,692,247    ¥1,277,623    ¥967,408    ¥59,776    ¥7,730,783   ¥1,432,966   ¥857,690   ¥49,151 

Carrying amount of associated liabilities

   4,525,235     1,038,648     964,022     47,105     7,271,817    1,154,831    853,207    40,584 

For those liabilities that have recourse only to the transferred assets:

                

Fair value of assets

  ¥—      ¥1,465,851    ¥971,374    ¥60,323    ¥—     ¥1,615,329   ¥861,824   ¥48,254 

Fair value of associated liabilities

   —       1,116,452     964,989     47,364     —      1,207,899    853,551    40,870 
  

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

 

Net position

  ¥—      ¥349,399    ¥6,385    ¥12,959    ¥—     ¥407,430   ¥8,273   ¥7,384 
  

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

 

(1)

Others included loans and advances reclassified as assets held for sale and liabilities directly associated with the assets held for sale related to SMFL at March 31, 2018. SMFL became our joint venture on November 28, 2018. For additional information, refer to Note 50 “Assets and Disposal Groups Held for Sale.”

Repurchase Agreements and Securities Lending Transactions

The SMFGSMBC Group lends or sells securities under agreements to repurchase them at a predetermined price on a future date. Since substantially all the risks and rewards of ownership of the securities are retained by the SMFGSMBC Group, the securities remain on the consolidated statementstatements of financial position and their associated financial liabilities are recorded. The recourse of the counterparties to their associated financial liabilities is not limited to the underlying securities.

Loans and Advances

The SMFGSMBC Group transfers its loans and advances, including residential mortgages and corporate loans, mainly to bankruptcy-remote structured entities for securitizations whereby the structured entities issue debt securities to the SMFGSMBC Group for subordinated tranches and to investors for senior tranches. The investors have only recourse to the underlying financial assets due to their bankruptcy-remoteness. Since the SMFGSMBC Group retains substantially all the risks and rewards of ownership, the transferred financial assets do not qualify for derecognition. The SMFGSMBC Group therefore continues to recognize these transferred financial assets as loans and advances, and recognizes their associated financial liabilities arising from issuing debt securities to investors on the consolidated statementstatements of financial position.

38

ASSETS PLEDGED AND RECEIVED AS COLLATERAL

Assets Pledged

The carrying amounts of assets pledged as collateral at March 31, 20162019 and 20152018 were as follows:

 

  At March 31,   At March 31, 
  2016   2015   2019   2018 
  (In millions)   (In millions) 

Cash and deposits with banks(1)

  ¥91,690    ¥75,678    ¥48,937   ¥32,010 

Call loans and bills bought

   433,224     478,457  

Trading assets

   2,544,777     1,715,157     2,111,979    2,423,002 

Financial assets at fair value through profit or loss

   1,570,904     1,615,640     1,208,409    1,518,748 

Debt instruments at amortized cost

   280,246    —   

Debt instruments at fair value through other comprehensive income

   9,140,006    —   

Equity instruments at fair value through other comprehensive income

   184,417    —   

Held-to-maturity investments

   1,991,865     3,359,911     —      365,450 

Available-for-sale financial assets

   8,078,808     11,307,019     —      10,648,468 

Loans and advances

   2,856,201     3,088,983  

Property, plant and equipment

   9,557     9,970  

Other assets

   1,072,516     622,583  

Loans and advances(1)

   10,118,591    11,019,253 

Other assets(1)

   1,738,945    1,825,987 
  

 

   

 

   

 

   

 

 

Total

  ¥18,649,542    ¥22,273,398    ¥24,831,530   ¥27,832,918 
  

 

   

 

   

 

   

 

 

(1)

At March 31, 2018, cash and deposits with banks, loans and advances, and other assets include those of SMFL, which were classified as assets held for sale. For additional information, refer to Note 50 “Assets and Disposal Groups Held for Sale.”

The SMFGSMBC Group pledges assets as collateral to secure payables under repurchase agreements, securities lending transactions and securitizations, borrowings or for cash settlements, margins on derivative transactions and certain other purposes. These transactions are conducted under terms that are usual and customary to standard contracts.

Unsecured loanedLoaned securities for which the borrowers have the right to sell or repledge were ¥3,785,582¥7,649,435 million and ¥5,921,103¥7,731,243 million at March 31, 20162019 and 2015,2018, respectively.

For the reserve funds with the Bank of Japan and other reserve deposits for foreign offices maintained by the SMFGSMBC Group, refer to Note 5 “Cash and Deposits with Banks.”

Assets Received as Collateral

Under certain transactions, including reverse repurchase agreements, securities borrowing, and discounting of bills, the SMFGSMBC Group is permitted to resell or repledge the collateral held in the absence of default by the owner of the collateral. These transactions are conducted under terms that are usual and customary for standard contracts. The fair values of securities and bills accepted as collateral were ¥11,947,873¥13,461,458 million and ¥10,152,888¥12,218,264 million at March 31, 20162019 and 2015,2018, respectively. As to the securities received in the reverse repurchase agreements and securities borrowing transactions, the SMFGSMBC Group has the obligation to return equivalent securities upon completion of the transactions. The fair value of securities sold or repledged to others was ¥7,369,021¥9,166,534 million and ¥5,084,579¥8,839,133 million at March 31, 20162019 and 2015,2018, respectively.

39

SHARE-BASED PAYMENT

Stock Option Plans

SMFG hashad introduced compensation-type stock options to directors, corporate auditors, and executive officers of SMFG and SMBC (“SMFG Stock Acquisition Rights”). This serves, which served as an incentive for them to further contribute to the equity appreciation and achieve better corporate performance through sharing the benefits and risks of the share price performance with the shareholders. The following table provides an overview of the significant terms and conditions of the stock option plan.

 

  

Title of grantees

 

Exercise period

 

Requisite service

period

 

Method of settlement

SMFG Stock Acquisition Rights

 Directors, corporate auditors and executive officers of SMFG and SMBC Not exceeding 30 years from the date of allocation of stock acquisition rights(1) One year from the date of the ordinary general meeting of shareholders of SMFG to the closing of the next ordinary general meeting of shareholders of SMFG Common stock of SMFG

 

(1)

A stock acquisition rights holder can exercise the rights from the day they are relieved of their positions either as a director, a corporate auditor or an executive officer (“Start of Exercise Date”) to 20 years from the Start of Exercise Date.

The number and the weighted average exercise prices of stock options for the fiscal years ended on March 31, 20162019 and 20152018 were as follows:

 

                                                                                                                                
  For the fiscal year ended March 31,   For the fiscal year ended March 31, 
  2016   2015   2019   2018 
  Number  of
options(1)
 Weighted
average
exercise price
   Number  of
options(1)
 Weighted
average
exercise price
   Number of
options(1)
 Weighted
average
exercise price
   Number of
options(1)
 Weighted
average
exercise price
 

Outstanding at beginning of period

   873,200   ¥1     752,800   ¥1     1,003,000  ¥1    1,180,000  ¥1 

Granted

   132,400    1     121,900    1  

Exercised

   (20,400  1     (1,200  1     (103,600 1    (174,700 1 

Forfeited or expired

   (800  1     (300  1     —     —      (2,300 1 
  

 

  

 

   

 

  

 

   

 

  

 

   

 

  

 

 

Outstanding at end of period

   984,400   ¥1     873,200   ¥1     899,400  ¥1    1,003,000  ¥1 
  

 

  

 

   

 

  

 

   

 

  

 

   

 

  

 

 

Exercisable at end of period

   346,300   ¥1     217,800   ¥1     498,600  ¥1    463,100  ¥1 

 

(1)

Number of options is the number of SMFG’s common stock granted by the exercise of stock options.

In June 2017, SMFG and SMBC resolved to discontinue the issuance of new stock options. Thereafter, SMFG has not issued any new stock options.

The weighted average stock price at the date of exercise was ¥4,361¥4,391 and ¥4,084¥4,245 for the fiscal years ended March 31, 20162019 and 2015,2018, respectively.

Summarized information about stock options outstanding at March 31, 20162019 and 20152018 was as follows:

 

                                                                                                                                                                
       At March 31, 
       2016   2015 
   Exercise
price
   Number of
options
   Remaining
contractual lives
in years
   Number of
options
   Remaining
contractual lives
in years
 

SMFG Stock Acquisition Rights

  ¥1     984,400     26.7     873,200     27.3  
       At March 31, 
       2019   2018 
   Exercise
price
   Number of
options
   Remaining
contractual lives
in years
   Number of
options
   Remaining
contractual lives
in years
 

SMFG Stock Acquisition Rights

  ¥1    899,400    24.3    1,003,000    25.3 

The amounts of stock options recognized as expenses were measured based on the fair value of stock options granted, which were ¥595 million and ¥451was ¥135 million for the fiscal years ended March 31, 20162018 and 2015,included in “General and administrative expenses” in the consolidated income statements.

Compensation Plans Utilizing Restricted Stock

In July 2017, the SMFG compensation committee resolved to revise the executive compensation policy and to introduce new stock compensation plans that utilize restricted stock.

The plans consist of Stock Compensation Plan I (“Plan I”), which determines remuneration primarily based on the medium-term performance, Stock Compensation Plan II (“Plan II”), which determines remuneration primarily based on the annual performance and Stock Compensation Plan III (“Plan III”), which determines remuneration primarily based on corporate title.

Plan I (medium-term performance share plan) has an evaluation period of three years starting from the fiscal year ended March 31, 2018, corresponding with the medium-term management plan. Executives are initially allotted shares of restricted stock equivalent to the monetary amount determined based on the executive’s corporate title. After the completion of the evaluation period, the compensation committee will review the progress of the medium-term management plan, performance of SMFG’s common stock, and results of customer satisfaction surveys and other factors, to determine the final amount to be released from transfer restrictions. In case the final amount falls below the initial amount, SMFG will retrieve all or part of the allotted shares at no cost.

Under Plan II (annual performance share plan), executives are allotted shares of restricted stock equivalent to a certain portion of the monetary amount determined based on the annual performance of SMFG and SMBC, as well as on the individual performance of the executives reviewed both from short-term andmedium-to-long-term perspectives. The remainder will be paid to the executives as a cash bonus. Transfer restrictions on these shares are released evenly over the three-year period following the year of allotment.

Under Plan III (promotion reward plan), executives are allotted shares of restricted stock equivalent topre-determined compensation amounts per title, reflecting the increased responsibilities derived from promotions. Restrictions shall apply to the shares until the earlier of 30 years from allotment or when the executive retires from office.

The eligible executives for the plans are directors (excluding outside directors), corporate executive officers and executive officers of SMFG, directors (excluding outside directors) and executive officers, etc. of SMBC and representative corporate executive officers of certain of our subsidiaries.

As part of the new policy, SMFG and SMBC introduced provisions for forfeiture and claw-back of vested stock under the plans in order to restrain excessive risk-taking and foster a prudent risk culture expected of a financial institution.

The number of restricted shares and the fair value of restricted shares at the measurement date for the fiscal year ended March 31, 2019 and 2018 were as follows:

   For the fiscal year ended
March 31,
 
   2019  2018 

Outstanding at beginning of period

   387,765   —   

Allotted

   326,330   387,765 

Released

   (11,892  —   

Forfeited

   —     —   
  

 

 

  

 

 

 

Outstanding at end of period

   702,203   387,765 
  

 

 

  

 

 

 

Fair value at measurement date

  ¥4,287  ¥4,372 
  

 

 

  

 

 

 

The fair value of restricted shares is based on the market price of SMFG common stock. If any granted conditions exist, the terms and conditions upon which the shares were granted, are taken into account when estimating both the number of shares expected to vest and the fair value of the shares granted. The amount of restricted shares recognized as expenses was measured based on the fair value of the restricted shares granted, which were ¥1,240 million and ¥803 million for the fiscal year ended March 31, 2019 and 2018, respectively, and included in “General and administrative expenses” in the consolidated income statement. The fair value of stock options was measured using Black-Scholes option-pricing model.statements.

The following table represents the fair value of stock options and the assumptions used to measure the fair value.

   For the fiscal year ended March 31, 
           2016                  2015         

Fair value at measurement date

  ¥4,904   ¥3,661  

Stock price

  ¥5,473   ¥4,115  

Exercise price

  ¥1   ¥1  

Expected volatility(1)

   27.38  28.16

Expected remaining lives (in years)(2)

   4    4  

Expected dividends per share(3)

  ¥150   ¥120  

Risk free interest rate(4)

   0.05  0.11

 

(1)Calculated based on the actual stock prices during the 4 years from August 19, 2011 to August 18, 2015 and August 16, 2010 to August 15, 2014 for the fiscal years ended March 31, 2016 and 2015, respectively.
(2)The average expected remaining life could not be estimated rationally due to insufficient amount of data. Therefore, it was estimated based on average remaining service life of directors of SMFG and SMBC.
(3)Expected dividends are based on the estimated dividends to be paid in next twelve months from the date of grant.
(4)Japanese government bond yield corresponding to the average expected remaining life.

40

DIVIDENDS PER SHARE

The dividends recognized by the SMFGSMBC Group for the fiscal years ended March 31, 2016, 20152019, 2018 and 20142017 were as follows:

 

  Dividends per share   Aggregate amount   Dividends per share   Aggregate amount 
  (In yen)   (In millions)   (In yen)   (In millions) 

For the fiscal year ended March 31, 2016:

    

For the fiscal year ended March 31, 2019:

    

Common stock

  ¥155    ¥211,922    ¥175   ¥245,577 

For the fiscal year ended March 31, 2015:

    

For the fiscal year ended March 31, 2018:

    

Common stock

  ¥125    ¥170,908    ¥155   ¥218,596 

For the fiscal year ended March 31, 2014:

    

For the fiscal year ended March 31, 2017:

    

Common stock

  ¥125    ¥169,973    ¥150   ¥205,083 

SMFGThe Company proposed to the shareholders the distribution of a dividend of ¥75¥95 per share of common stock totaling ¥105,753¥132,582 million in respect of the fiscal year ended March 31, 2016. The amount includes ¥3,212 million of dividends distributed to SMFG’s subsidiary.2019. The dividend is subject to the approval at the general meeting of shareholders on June 29, 2016.27, 2019. The consolidated financial statements for the fiscal year ended March 31, 20162019 do not include this dividend.

 

41

CONTINGENCY AND CAPITAL COMMITMENTS

Legal Proceedings

The SMFGSMBC Group is engaged in various legal proceedings in Japan and a number of overseas jurisdictions, involving claims by and against it, which arise in the normal course of business. The SMFGSMBC Group does not expect that the outcome of these proceedings will have a significant adverse effect on the consolidated financial statements of the SMFGSMBC Group. The SMFGSMBC Group has recorded adequate provisions with respect to litigation arising out of normal business operations. The SMFGSMBC Group has not disclosed any contingent liability associated with these legal actions because it cannot reliably be estimated.

Capital Commitments

At March 31, 20162019 and 2015,2018, the SMFGSMBC Group had ¥2,798,483¥62,027 million and ¥2,801,802¥2,626 million, respectively, of contractual commitments to acquire property, plant and equipment including aircraft for leasing

business. The contractual commitments to purchase aircraft are based upon fixed price agreements with the manufacturers, an element of which are adjusted for inflation and include price escalation formulas, but are also subject to agreed price concessions where applicable.equipment. In addition, the SMFGSMBC Group had ¥1,733 millionnil and ¥2,770¥383 million of contractual commitments to acquire intangible assets, such as software at March 31, 20162019 and 2015,2018, respectively. The SMFGSMBC Group’s management is confident that future net revenues and funding will be sufficient to cover these commitments.

Loan Commitments and Financial Guarantees and Other Credit-related Contingent Liabilities

Loan commitment contracts on overdrafts and loans are agreements to lend up to a prescribed amount to customers, as long as there is no violation of any condition established in the contracts. SinceHowever, since many of these loan commitments are expected to expire without being drawn down, the total amount of unused commitments does not necessarily represent an actual future cash flow requirement. Many of these loan commitments include clauses under which the SMFGSMBC Group can reject an application from customers or reduce the contract amounts in cases where economic conditions change, the SMFGSMBC Group needs to secure claims, or some other significant event occurs.

Financial Guarantees and Other Credit-related Contingent Liabilities

Financial guarantees are contracts that require the issuer to make specified payments to reimburse the holder for a loss it incurs because a specified debtor fails to make payments when due in accordance with the terms of the debt instrument. Other credit-related contingent liabilities include performance bonds, which are contracts that provide compensation if another party fails to perform the contractual obligation.

The table below shows the nominal amounts of undrawn loan commitments, and financial guarantees and other credit-related contingent liabilities at March 31, 20162019 and 2015.2018.

 

  At March 31,   At March 31, 
  2016   2015   2019   2018 
  (In millions)   (In millions) 

Loan commitments

  ¥58,026,597    ¥53,665,583    ¥62,724,820   ¥60,107,128 

Financial guarantees and other credit-related contingent liabilities

   7,349,903     7,076,536     9,409,066    8,426,245 
  

 

   

 

   

 

   

 

 

Total

  ¥65,376,500    ¥60,742,119    ¥72,133,886   ¥68,533,373 
  

 

   

 

   

 

   

 

 

42

ANALYSIS OF FINANCIAL ASSETS AND LIABILITIES BY MEASUREMENT BASIS

On April 1, 2018, the SMBC Group adopted IFRS 9, which is the comprehensive standard to replace IAS 39. After initial recognition, financial assets and liabilities are measured either at fair value or amortized cost, within the measurement categories as defined in IAS 39.IFRS 9. The summary of significant accounting policies in Note 2 describes how these categories of financial assets and liabilities are measured, and how income and expenses are recognized either in profit or loss, or in other comprehensive income. The following tables present the carrying amounts of the financial assets and liabilities, by category and by line item, of the consolidated statementstatements of financial position.

 

 At March 31, 2016  At March 31, 2019 
 Financial
assets and
liabilities at
fair value
through profit
or loss
 Held-to-maturity
investments
 Loans and
receivables
 Available-for-sale
financial assets
 Financial
liabilities
measured at
amortized cost
 Total  Financial assets and
liabilities at fair value
through profit or loss
 Financial assets and
liabilities at amortized
cost
 Debt instruments at
fair value through
other comprehensive
income
 Equity instruments at
fair value through
other comprehensive
income
 Total 
 (In millions)  (In millions) 

Financial assets:

           

Cash and deposits with banks(1)

 ¥6,384   ¥—     ¥43,138,270   ¥—     ¥—     ¥43,144,654   ¥—    ¥57,763,441  ¥—    ¥—    ¥57,763,441 

Call loans and bills bought

  —      —      1,291,366    —      —      1,291,366    —    2,465,745   —     —    2,465,745 

Reverse repurchase agreements and cash collateral on securities borrowed

  —      —      8,236,516    —      —      8,236,516    —    10,345,994   —     —    10,345,994 

Trading assets

  3,615,092    —      —      —      —      3,615,092   2,767,691   —     —     —    2,767,691 

Derivative financial instruments

  5,290,825    —      —      —      —      5,290,825   3,382,574   —     —     —    3,382,574 

Financial assets at fair value through profit or loss

  1,611,877    —      —      —      —      1,611,877   2,641,416   —     —     —    2,641,416 

Investment securities(1)

  310    2,267,542    —      17,597,495    —      19,865,347    —    318,914  13,333,221  4,172,892  17,825,027 

Loans and advances(1)

  4,610    —      88,857,761    —      —      88,862,371    —    90,682,938   —     —    90,682,938 

Other financial assets(2)(1)

  —      —      2,764,315    —      —      2,764,315    —    3,609,129   —     —    3,609,129 
 

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

Total

 ¥10,529,098   ¥2,267,542   ¥144,288,228   ¥17,597,495   ¥—     ¥174,682,363   ¥8,791,681  ¥165,186,161  ¥13,333,221  ¥4,172,892  ¥191,483,955 
 

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

Financial liabilities:

           

Deposits(1)(2)

 ¥23,697   ¥—     ¥—     ¥—     ¥125,917,100   ¥125,940,797   ¥666  ¥134,403,986  ¥—    ¥—    ¥134,404,652 

Call money and bills sold

  —      —      —      —      1,220,456    1,220,456    —    1,307,779   —     —    1,307,779 

Repurchase agreements and cash collateral on securities lent

  —      —      —      —      6,839,474    6,839,474    —    12,887,249   —     —    12,887,249 

Trading liabilities

  2,197,673    —      —      —      —      2,197,673   1,998,694   —     —     —    1,998,694 

Derivative financial instruments

  5,086,083    —      —      —      —      5,086,083   3,051,773   —     —     —    3,051,773 

Borrowings(1)(2)

  1,198    —      —      —      9,912,931    9,914,129   1,716  12,166,142   —     —    12,167,858 

Debt securities in issue(1)(2)

  (8,045  —      —      —      10,837,657    10,829,612   (4,676 11,175,885   —     —    11,171,209 

Other financial liabilities(2)(1)

  —      —      —      —      5,935,511    5,935,511    —    5,596,513   —     —    5,596,513 
 

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

Total

 ¥7,300,606   ¥—     ¥—     ¥—     ¥160,663,129   ¥167,963,735   ¥5,048,173  ¥177,537,554  ¥—    ¥—    ¥182,585,727 
 

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

  At March 31, 2015 
  Financial
assets and
liabilities at
fair value
through profit
or loss
  Held-to-maturity
investments
  Loans and
receivables
  Available-for-sale
financial assets
  Financial
liabilities
measured at
amortized cost
  Total 
  (In millions) 

Financial assets:

      

Cash and deposits with banks

 ¥—     ¥—     ¥40,112,783   ¥—     ¥—     ¥40,112,783  

Call loans and bills bought

  —      —      1,326,965    —      —      1,326,965  

Reverse repurchase agreements and cash collateral on securities borrowed

  —      —      7,218,498    —      —      7,218,498  

Trading assets

  3,243,185    —      —      —      —      3,243,185  

Derivative financial instruments

  6,471,203    —      —      —      —      6,471,203  

Financial assets at fair value through profit or loss

  1,785,684    —      —      —      —      1,785,684  

Investment securities

  —      3,396,895    —      20,842,761    —      24,239,656  

Loans and advances(1)

  3,422    —      86,968,294    —      —      86,971,716  

Other financial assets(2)

  —      —      2,565,725    —      —      2,565,725  
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Total

 ¥11,503,494   ¥3,396,895   ¥138,192,265   ¥20,842,761   ¥—     ¥173,935,415  
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Financial liabilities:

      

Deposits(1)

 ¥19,043   ¥—     ¥—     ¥—     ¥115,814,937   ¥115,833,980  

Call money and bills sold

  —      —      —      —      5,873,124    5,873,124  

Repurchase agreements and cash collateral on securities lent

  —      —      —      —      8,820,083    8,820,083  

Trading liabilities

  2,193,400    —      —      —      —      2,193,400  

Derivative financial instruments

  6,739,787    —      —      —      —      6,739,787  

Borrowings(1)

  900    —      —      —      11,216,152    11,217,052  

Debt securities in issue(1)

  21,206    —      —      —      11,030,225    11,051,431  

Other financial liabilities(2)

  —      —      —      —      5,020,005    5,020,005  
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Total

 ¥8,974,336   ¥—     ¥—     ¥—     ¥157,774,526   ¥166,748,862  
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

  At March 31, 2018 
  Financial
assets and
liabilities at
fair value
through profit
or loss
  Held-to-maturity
investments
  Loans and
receivables
  Available-for-sale
financial assets
  Financial
liabilities
measured at
amortized cost
  Total 
  (In millions) 

Financial assets:

      

Cash and deposits with banks(3)

 ¥4,773  ¥—    ¥54,691,296  ¥—    ¥—    ¥54,696,069 

Call loans and bills
bought

  —     —     1,881,880   —     —     1,881,880 

Reverse repurchase agreements and cash collateral on securities borrowed

  —     —     8,491,703   —     —     8,491,703 

Trading assets

  3,169,123   —     —     —     —     3,169,123 

Derivative financial instruments

  3,885,271   —     —     —     —     3,885,271 

Financial assets at fair value through profit or loss

  1,547,672   —     —     —     —     1,547,672 

Investment securities(3)

  2,588   372,459   —     20,120,028   —     20,495,075 

Loans and advances(3)

  3,169   —     85,125,901   —     —     85,129,070 

Other financial assets(1)

  —     —     3,598,642   —     —     3,598,642 

Financial assets included in assets held for sale

  1,693   —     3,098,196   108,882   —     3,208,771 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Total

 ¥8,614,289  ¥372,459  ¥156,887,618  ¥20,228,910  ¥—    ¥186,103,276 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Financial liabilities:

      

Deposits(3)

 ¥13,929  ¥—    ¥—    ¥—    ¥128,447,598  ¥128,461,527 

Call money and bills sold

  —     —     —     —     1,190,929   1,190,929 

Repurchase agreements and cash collateral on securities lent

  —     —     —     —     12,022,593   12,022,593 

Trading liabilities

  2,143,899   —     —     —     —     2,143,899 

Derivative financial instruments

  3,498,016   —     —     —     —     3,498,016 

Borrowings(3)

  1,198   —     —     —     10,651,283   10,652,481 

Debt securities in
issue(3)

  (7,635  —     —     —     10,576,752   10,569,117 

Other financial liabilities(1)

  —     —     —     —     6,691,042   6,691,042 

Financial liabilities included in liabilities directly associated with the assets held for sale

  5,971   —     —     —     3,371,556   3,377,527 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Total

 ¥5,655,378  ¥—    ¥—    ¥—    ¥172,951,753  ¥178,607,131 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

 

(1)

Other financial assets and liabilities comprise of those included in other assets and liabilities, which meet the definition of a financial asset and liability.

(2)

Embedded derivatives, which are separately accounted for, but presented together with the host contract in the consolidated statementstatements of financial position under IFRS 9, are disclosed in this table within the category of “Financial assets and liabilities at fair value through profit or loss.” Although the separated embedded derivatives may have a positive or a negative fair value, they have been presented in this table as liabilities to be consistent with the line of the host contract.

(3)

Embedded derivatives, which were separately accounted for, but presented together with the host contract in the consolidated statements of financial position under IAS 39, are disclosed in this table within the category of “Financial assets and liabilities at fair value through profit or loss.” Although the separated embedded derivatives had a positive or a negative fair value, they have been presented in this table as assets or liabilities to be consistent with the line of the host contract.

(2)Other financial assets and liabilities comprise of those included in other assets and liabilities, which meet the definition of a financial asset and liability.

43

FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair values stated below represent the best estimates based on a range of methods and assumptions. In determining the fair value of financial assets and liabilities, the SMFGSMBC Group gives the highest priority to a quoted market price in an active market. If such prices are not available, it establishes fair value using valuation techniques. The valuation techniques, if used, make maximum use of observable inputs, and rely as little as possible on unobservable inputs.

Financial Assets and Liabilities Carried at Fair Value

Valuation Process

The SMFGSMBC Group undertakes a valuation process based on its valuation control framework, which governs internal control standards, methodologies and procedures to ensure that the fair values are determined or validated independently of the front office.

The SMFGSMBC Group uses valuation techniques commonly used by market participants to price the financial instruments and they have been demonstrated to provide reliable estimates of prices obtained in actual market transactions. The valuation techniques include the DCF method, option pricing models and reference to the current fair value of another instrument that is substantially the same. Key adjustments, such as liquidity risk and credit risk adjustments are also taken into account to derive fair values.

Where valuation techniques are used to determine fair values, they are validated and reviewed. In principal subsidiaries, their risk management departments, which are independent from the business units, review significant valuation methodologies at least once a year, and recalibrate model parameters and inputs by comparing fair values derived from the valuation techniques to the external market data such as broker quotes. Where the data obtained from third partythird-party sources such as brokers and pricing service providers are utilized in determining fair values, those departments also examine those data, taking into account the consistency among the different sources, the aging of the data and other factors. In addition, accounting departments in those principal subsidiaries are responsible for ensuring that the accounting policies and procedures to determine fair values are in compliance with relevant accounting standards.

Fair Value Hierarchy

Financial assets and liabilities measured at fair value are classified into one of three levels within a fair value hierarchy based on the inputs used in the fair value measurement. The three levels of the fair value hierarchy are as follows:

 

quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date (Level 1);

 

inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly (Level 2); and

 

significant unobservable inputs for the asset or liability (Level 3).

The following tables present the carrying amounts of financial assets and liabilities carried at fair value based on the three levels of the fair value hierarchy at March 31, 20162019 and 2015.2018.

 

 At March 31, 2016   At March 31, 2019 
 Level 1(2) Level 2(2) Level 3 Total   Level 1(1)   Level 2(1) Level 3 Total 
 (In millions)   (In millions) 

Financial assets:

       

Trading assets:

                                                                                      

Debt instruments

 ¥2,513,327   ¥660,982   ¥—     ¥3,174,309    ¥2,091,355   ¥389,548  ¥—    ¥2,480,903 

Equity instruments

  440,686    97    —      440,783     281,030    5,758   —    286,788 
 

 

  

 

  

 

  

 

   

 

   

 

  

 

  

 

 

Total trading assets

  2,954,013    661,079    —      3,615,092     2,372,385    395,306   —    2,767,691 
 

 

  

 

  

 

  

 

   

 

   

 

  

 

  

 

 

Derivative financial instruments:

          

Interest rate derivatives

  99,437    3,228,377    —      3,327,814     68,942    1,939,591  212  2,008,745 

Currency derivatives

  17    1,899,201    51    1,899,269     22    1,286,614  274  1,286,910 

Equity derivatives

  11,992    20,697    199    32,888     33,802    25,579  4,236  63,617 

Commodity derivatives

  678    23,837    —      24,515     445    7,072   —    7,517 

Credit derivatives

  —      6,339    —      6,339     —      10,236  5,549  15,785 
 

 

  

 

  

 

  

 

   

 

   

 

  

 

  

 

 

Total derivative financial instruments

  112,124    5,178,451    250    5,290,825     103,211    3,269,092  10,271  3,382,574 
 

 

  

 

  

 

  

 

   

 

   

 

  

 

  

 

 

Financial assets at fair value through profit or loss:

          

Debt instruments

  —      1,570,904    11,667    1,582,571  

Debt instruments(2)

   223,832    1,834,718  562,136  2,620,686 

Equity instruments

  1,555    157    27,594    29,306     1,810    209  18,711  20,730 
 

 

  

 

  

 

  

 

   

 

   

 

  

 

  

 

 

Total financial assets at fair value through profit or loss

  1,555    1,571,061    39,261    1,611,877     225,642    1,834,927  580,847  2,641,416 
 

 

  

 

  

 

  

 

   

 

   

 

  

 

  

 

 

Available-for-sale financial assets:

    

Investment securities at fair value through other comprehensive income:

      

Japanese government bonds

  6,528,575    —      —      6,528,575     5,027,695    —     —    5,027,695 

U.S. Treasury and other U.S. government agency bonds

  2,246,130    —      —      2,246,130     4,426,635    —     —    4,426,635 

Other debt instruments

  819,353    2,753,830    2,022    3,575,205     646,806    3,232,085   —    3,878,891 
  

 

   

 

  

 

  

 

 

Total debt instruments

   10,101,136    3,232,085   —    13,333,221 
  

 

   

 

  

 

  

 

 

Equity instruments

  3,801,218    657,351    789,326    5,247,895     3,749,430    11,115  412,347  4,172,892 
 

 

  

 

  

 

  

 

   

 

   

 

  

 

  

 

 

Total available-for-sale financial assets

  13,395,276    3,411,181    791,348    17,597,805  
 

 

  

 

  

 

  

 

 

Others(1)

  —      10,994    —      10,994  

Total investment securities at fair value through other comprehensive income

   13,850,566    3,243,200  412,347  17,506,113 
 

 

  

 

  

 

  

 

   

 

   

 

  

 

  

 

 

Total

 ¥16,462,968   ¥10,832,766   ¥830,859   ¥28,126,593    ¥16,551,804   ¥8,742,525  ¥1,003,465  ¥26,297,794 
 

 

  

 

  

 

  

 

   

 

   

 

  

 

  

 

 

Financial liabilities:

          

Trading liabilities:

          

Debt instruments

 ¥2,138,362   ¥46,046   ¥—     ¥2,184,408    ¥1,777,666   ¥58,194  ¥—    ¥1,835,860 

Equity instruments

  6,611    6,654    —      13,265     66,896    95,938   —    162,834 
 

 

  

 

  

 

  

 

   

 

   

 

  

 

  

 

 

Total trading liabilities

  2,144,973    52,700    —      2,197,673     1,844,562    154,132   —    1,998,694 
 

 

  

 

  

 

  

 

   

 

   

 

  

 

  

 

 

Derivative financial instruments:

          

Interest rate derivatives

  99,163    3,177,635    —      3,276,798     49,170    1,775,883   —    1,825,053 

Currency derivatives

  —      1,714,545    46    1,714,591     —      1,112,769  9  1,112,778 

Equity derivatives

  26,512    33,438    212    60,162     59,166    37,004   —    96,170 

Commodity derivatives

  891    22,867    —      23,758     415    5,433   —    5,848 

Credit derivatives

  —      7,640    3,134    10,774     —      11,370  554  11,924 
 

 

  

 

  

 

  

 

   

 

   

 

  

 

  

 

 

Total derivative financial instruments

  126,566    4,956,125    3,392    5,086,083     108,751    2,942,459  563  3,051,773 
 

 

  

 

  

 

  

 

   

 

   

 

  

 

  

 

 

Others(1)

  —      15,610    1,240    16,850  

Others(3)

   —      (1,859 (435 (2,294
 

 

  

 

  

 

  

 

   

 

   

 

  

 

  

 

 

Total

 ¥2,271,539   ¥5,024,435   ¥4,632   ¥7,300,606    ¥1,953,313   ¥3,094,732  ¥128  ¥5,048,173 
 

 

  

 

  

 

  

 

   

 

   

 

  

 

  

 

 

  At March 31, 2015 
  Level 1(2)  Level 2(2)  Level 3  Total 
  (In millions) 

Financial assets:

 

Trading assets:

    

Debt instruments

 ¥1,701,872   ¥916,721   ¥—     ¥2,618,593  

Equity instruments

  624,300    292    —      624,592  
 

 

 

  

 

 

  

 

 

  

 

 

 

Total trading assets

  2,326,172    917,013    —      3,243,185  
 

 

 

  

 

 

  

 

 

  

 

 

 

Derivative financial instruments:

    

Interest rate derivatives

  86,545    4,291,689    —      4,378,234  

Currency derivatives

  181    2,014,697    —      2,014,878  

Equity derivatives

  20,882    25,494    173    46,549  

Commodity derivatives

  1,829    17,751    —      19,580  

Credit derivatives

  —      5,606    6,356    11,962  
 

 

 

  

 

 

  

 

 

  

 

 

 

Total derivative financial instruments

  109,437    6,355,237    6,529    6,471,203  
 

 

 

  

 

 

  

 

 

  

 

 

 

Financial assets at fair value through profit or loss:

    

Debt instruments

  —      1,615,741    38,518    1,654,259  

Equity instruments

  3,455    1,056    126,914    131,425  
 

 

 

  

 

 

  

 

 

  

 

 

 

Total financial assets at fair value through profit or loss

  3,455    1,616,797    165,432    1,785,684  
 

 

 

  

 

 

  

 

 

  

 

 

 

Available-for-sale financial assets:

    

Japanese government bonds

  9,389,959    —      —      9,389,959  

U.S. Treasury and other U.S. government agency bonds

  2,062,043    —      —      2,062,043  

Other debt instruments

  1,088,733    1,865,627    7,086    2,961,446  

Equity instruments

  4,365,355    1,149,156    914,802    6,429,313  
 

 

 

  

 

 

  

 

 

  

 

 

 

Total available-for-sale financial assets

  16,906,090    3,014,783    921,888    20,842,761  
 

 

 

  

 

 

  

 

 

  

 

 

 

Others(1)

  —      3,422    —      3,422  
 

 

 

  

 

 

  

 

 

  

 

 

 

Total

 ¥19,345,154   ¥11,907,252   ¥1,093,849   ¥32,346,255  
 

 

 

  

 

 

  

 

 

  

 

 

 

Financial liabilities:

    

Trading liabilities:

    

Debt instruments

 ¥2,124,548   ¥50,765   ¥—     ¥2,175,313  

Equity instruments

  18,087    —      —      18,087  
 

 

 

  

 

 

  

 

 

  

 

 

 

Total trading liabilities

  2,142,635    50,765    —      2,193,400  
 

 

 

  

 

 

  

 

 

  

 

 

 

Derivative financial instruments:

    

Interest rate derivatives

  96,889    4,318,270    —      4,415,159  

Currency derivatives

  —      2,231,160    —      2,231,160  

Equity derivatives

  28,684    40,190    —      68,874  

Commodity derivatives

  2,466    16,999    —      19,465  

Credit derivatives

  —      5,129    —      5,129  
 

 

 

  

 

 

  

 

 

  

 

 

 

Total derivative financial instruments

  128,039    6,611,748    —      6,739,787  
 

 

 

  

 

 

  

 

 

  

 

 

 

Others(1)

  —      39,937    1,212    41,149  
 

 

 

  

 

 

  

 

 

  

 

 

 

Total

 ¥2,270,674   ¥6,702,450   ¥1,212   ¥8,974,336  
 

 

 

  

 

 

  

 

 

  

 

 

 

   At March 31, 2018 
   Level 1(1)   Level 2(1)   Level 3   Total 
   (In millions) 

Financial assets:

        

Trading assets:

                                                                                    

Debt instruments

  ¥2,424,460   ¥416,688   ¥—     ¥2,841,148 

Equity instruments

   307,942    20,033    —      327,975 
  

 

 

   

 

 

   

 

 

   

 

 

 

Total trading assets

   2,732,402    436,721    —      3,169,123 
  

 

 

   

 

 

   

 

 

   

 

 

 

Derivative financial instruments:

        

Interest rate derivatives(4)

   38,760    2,033,894    —      2,072,654 

Currency derivatives(4)

   —      1,724,387    14    1,724,401 

Equity derivatives

   48,154    21,310    1,880    71,344 

Commodity derivatives

   402    6,114    —      6,516 

Credit derivatives

   —      7,382    4,667    12,049 
  

 

 

   

 

 

   

 

 

   

 

 

 

Total derivative financial instruments

   87,316    3,793,087    6,561    3,886,964 
  

 

 

   

 

 

   

 

 

   

 

 

 

Financial assets at fair value through profit or loss:

        

Debt instruments

   —      1,518,778    10,143    1,528,921 

Equity instruments

   541    153    18,057    18,751 
  

 

 

   

 

 

   

 

 

   

 

 

 

Total financial assets at fair value through profit or loss

   541    1,518,931    28,200    1,547,672 
  

 

 

   

 

 

   

 

 

   

 

 

 

Available-for-sale financial assets:

        

Japanese government bonds

   7,685,303    —      —      7,685,303 

U.S. Treasury and other U.S. government agency bonds

   3,246,646    —      —      3,246,646 

Other debt instruments

   700,500    2,650,103    154    3,350,757 

Equity instruments(4)

   4,307,274    797,166    844,352    5,948,792 
  

 

 

   

 

 

   

 

 

   

 

 

 

Totalavailable-for-sale financial assets

   15,939,723    3,447,269    844,506    20,231,498 
  

 

 

   

 

 

   

 

 

   

 

 

 

Others(5)

   —      7,942    —      7,942 
  

 

 

   

 

 

   

 

 

   

 

 

 

Total

  ¥18,759,982   ¥9,203,950   ¥879,267   ¥28,843,199 
  

 

 

   

 

 

   

 

 

   

 

 

 

Financial liabilities:

        

Trading liabilities:

        

Debt instruments

  ¥1,948,602   ¥60,109   ¥—     ¥2,008,711 

Equity instruments

   33,174    102,014    —      135,188 
  

 

 

   

 

 

   

 

 

   

 

 

 

Total trading liabilities

   1,981,776    162,123    —      2,143,899 
  

 

 

   

 

 

   

 

 

   

 

 

 

Derivative financial instruments:

        

Interest rate derivatives(4)

   30,760    1,947,673    —      1,978,433 

Currency derivatives(4)

   19    1,406,759    14    1,406,792 

Equity derivatives

   78,088    27,261    —      105,349 

Commodity derivatives

   464    4,484    —      4,948 

Credit derivatives

   —      8,043    422    8,465 
  

 

 

   

 

 

   

 

 

   

 

 

 

Total derivative financial instruments

   109,331    3,394,220    436    3,503,987 
  

 

 

   

 

 

   

 

 

   

 

 

 

Others(5)

   —      6,659    833    7,492 
  

 

 

   

 

 

   

 

 

   

 

 

 

Total

  ¥2,091,107   ¥3,563,002   ¥1,269   ¥5,655,378 
  

 

 

   

 

 

   

 

 

   

 

 

 

 

(1)Embedded

Transfers between levels of the fair value hierarchy are deemed to have occurred at the beginning of the period. There were no significant transfers between Level 1 and Level 2 for the fiscal years ended March 31, 2019 and 2018.

(2)

Since the adoption of IFRS 9, certain loans and advances, which were not carried at fair value and presented as “Loans and advances” in the consolidated statements of financial position under IAS 39 at March 31, 2018, are carried at fair value and presented as “Financial assets at fair value through profit or loss—Debt instruments.”

(3)

At March 31, 2019, derivatives embedded in financial liabilities are separately accounted for, but presented together with the host contract in the consolidated statement of financial position. In this table, the embedded derivatives whose host contracts are carried at amortized cost are presented within Others. Although the separated embedded derivatives may have a positive or a negative fair value, they have been presented in this table as liabilities to be consistent with the host contract. The separated embedded derivatives are measured at fair value using the valuation techniques described in “Derivative financial instruments” below.

(4)

Interest rate derivatives and currency derivatives presented as derivative financial instruments (financial assets) include those at SMFL, which are reclassified as assets held for sale in the consolidated statement of financial position, of ¥533 million and ¥1,160 million, respectively. These derivative financial instruments are categorized within Level 2. Equity instruments which are presented asavailable-for-sale financial assets include those at SMFL, which are reclassified as assets held for sale, of which ¥56,447 million, ¥5,225 million and ¥47,210 million are categorized within Level 1, Level 2 and Level 3, respectively. Interest rate derivatives and currency derivatives presented as derivative financial instruments (financial liabilities) include those at SMFL, which are reclassified as liabilities directly associated with the assets held for sale, of ¥5,401 million and ¥570 million, respectively. These derivative financial instruments are categorized within Level 2. For additional information, refer to Note 50 “Assets and Disposal Groups Held for Sale.”

(5)

At March 31, 2018, derivatives embedded in financial assets or liabilities are separately accounted for, but presented together with the host contract in the consolidated statement of financial position. In this table, the embedded derivatives whose host contracts are carried at amortized cost are presented within Others, while the remaining are presented within the same category as the host contract. Although the separated embedded derivatives may have a positive or a negative fair value, they have been presented in this table as assets or liabilities to be consistent with the host contract. The separated embedded derivatives are measured at fair value using the valuation techniques described in “Derivative financial instruments” below.

(2)Transfers between levels of the fair value hierarchy are deemed to have occurred at the beginning of the period. There were no significant transfers between Level 1 and Level 2 for the fiscal years ended March 31, 2016 and 2015.

The following tables present reconciliations from the beginning to the ending balances for financial assets and liabilities carried at fair value and categorized within Level 3 of the fair value hierarchy for the fiscal years ended March 31, 20162019 and 2015.2018.

 

                                                                                                    
 At April 1,
2015
  Total gains (losses) Purchases  Sales  Settlements(1)  Transfers into
Level 3(3)
  Transfers out
of Level 3(3)
  At March 31,
2016
  Changes in
unrealized gains
(losses) included in
profit  or loss related
to assets
and liabilities held at
March 31, 2016
  At April 1,
2018(1)
  Total gains (losses)  Purchases(2) Sales(2) Settlement(3) Transfers into
Level 3(4)
 Transfers out of
Level 3(4)
 At March 31,
2019
 Changes in
unrealized gains
(losses) included in
profit or loss related
to assets
and liabilities held at
March 31, 2019
 
 Included in
profit or loss
 Included in
other
comprehensive
income
  Included in
profit or loss
 Included in
other
comprehensive
income
 
 (In millions)  (In millions) 

Derivative financial instruments—net:

                    

Interest rate derivatives—net

 ¥—    ¥145  ¥—    ¥72  ¥(5 ¥—    ¥—    ¥—    ¥212   ¥212 

Currency derivatives—net

 ¥—     ¥44   ¥—     ¥—     ¥(39 ¥—     ¥—     ¥—     ¥5   ¥43    —    70   —    195   —     —     —     —    265  70 

Equity derivatives—net

  173    253    —      82    (521  —      —      —      (13  278   1,880  5,165   —    927  (3,736  —     —     —    4,236  3,071 

Credit derivatives—net

  6,356    (1,577  289    —      —      (8,202  —      —      (3,134  (1,577 4,245  5,640  142   —     —    (5,032  —     —    4,995  5,660 
 

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

Total derivative financial instruments—net

  6,529    (1,280  289    82    (560  (8,202  —      —      (3,142  (1,256 6,125  11,020  142  1,194  (3,741 (5,032  —     —    9,708  9,013 
 

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

Financial assets at fair value through profit or loss:

          

Financial assets at fair value through profit or loss(5):

          

Debt instruments

  38,518    6,881    —      195    (33,877  (50  —      —      11,667    1,770   536,357  (193 24  256,214  (123,589 (106,677  —     —    562,136  819 

Equity instruments

  126,914    (1,146  —      3,836    (1,222  (100,104  90    (774  27,594    (1,140 16,981  (1,734  —    5,519  (709 (672 74  (748 18,711  (2,037
 

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

Total financial assets at fair value through profit or loss

  165,432    5,735    —      4,031    (35,099  (100,154  90    (774  39,261    630   553,338  (1,927 24  261,733  (124,298 (107,349 74  (748 580,847  (1,218
 

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

Available-for-sale financial assets:

          

Investment securities at fair value through other comprehensive income:

          

Debt instruments

  7,086    14    (160  166    —      (5,084  —      —      2,022    15   154   —     —     —     —     —     —    (154  —     —   

Equity instruments

  914,802    28,730    (80,287  84,896    (62,463  (93,759  242    (2,835  789,326    (9,611 479,975   —    (43,355 7,569  (8,804 (21,088  —    (1,950 412,347   —   
 

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

Total available-for-sale financial assets

  921,888    28,744    (80,447  85,062    (62,463  (98,843  242    (2,835  791,348    (9,596

Total investment securities at fair value through other comprehensive income

 480,129   —    (43,355 7,569  (8,804 (21,088  —    (2,104 412,347   —   
 

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

Others(4)—liabilities:

  (1,212  (29  —      —      —      —      —      1    (1,240  (720

Others(6)—liabilities:

 (833 1,226   —     —     —     —    42   —    435  1,159 
 

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

Total

 ¥1,092,637   ¥33,170   ¥(80,158 ¥89,175   ¥(98,122 ¥(207,199 ¥332   ¥(3,608 ¥826,227   ¥(10,942 ¥1,038,759  ¥10,319  ¥(43,189 ¥270,496  ¥(136,843 ¥ (133,469 ¥ 116   ¥(2,852 ¥1,003,337  ¥8,954 
 

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 
 At April 1,
2014
  Total gains (losses) Purchases(2)  Sales  Settlements(1)(2)  Transfers into
Level 3(3)
  Transfers out
of Level 3(3)
  At March 31,
2015
  Changes in
unrealized gains
(losses) included in
profit  or loss related
to assets
and liabilities held
at March 31, 2015
 
 Included in
profit or loss
 Included in
other
comprehensive
income
 
 (In millions) 

Trading assets:

          

Equity instruments

 ¥86,473   ¥18,504   ¥—     ¥866   ¥(4,309 ¥(101,534 ¥—     ¥—     ¥—     ¥—    
 

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

Total trading assets

  86,473    18,504    —      866    (4,309  (101,534  —      —      —      —    
 

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

Derivative financial instruments—net:

          

Interest rate derivatives—net

  629    —      —      —      —      (629  —      —      —      —    

Equity derivatives—net

  118    47    —      25    —      —      —      (17  173    61  

Credit derivatives—net

  (2,406  17,082    226    —      —      (8,546  —      —      6,356    17,082  
 

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

Total derivative financial instruments—net

  (1,659  17,129    226    25    —      (9,175  —      (17  6,529    17,143  
 

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

Financial assets at fair value through profit or loss:

          

Debt instruments

  49,611    7,777    —      50    —      (18,912  —      (8  38,518    7,777  

Equity instruments

  140,071    (1,471  —      2,519    (442  (7,537  3    (6,229  126,914    (1,603
 

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

Total financial assets at fair value through profit or loss

  189,682    6,306    —      2,569    (442  (26,449  3    (6,237  165,432    6,174  
 

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

Available-for-sale financial assets:

          

Debt instruments

  9,445    (643  60    —      —      (1,776  —      —      7,086    (465

Equity instruments

  718,624    3,792    62,031    206,887    (12,663  (45,908  9    (17,970  914,802    (7,269
 

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

Total available-for-sale financial assets

  728,069    3,149    62,091    206,887    (12,663  (47,684  9    (17,970  921,888    (7,734
 

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

Others(4)—liabilities:

  —      (1,212  —      —      —      —      —      —      (1,212  (1,212
 

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

Total

 ¥1,002,565   ¥43,876   ¥62,317   ¥210,347   ¥(17,414 ¥(184,842 ¥12   ¥(24,224 ¥1,092,637   ¥14,371  
 

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

                                                                                                    
  At April 1,
2017
  Total gains (losses)   Purchases     Sales      Settlement(7)  Transfers into
Level 3(4)
  Transfers out of
Level 3(4)
  At March 31,
2018
  Changes in
unrealized gains
(losses) included in
profit or loss related
to assets
and liabilities held at
March 31, 2018
 
  Included in
profit or loss
  Included in
other
comprehensive
income
 
  (In millions) 

Derivative financial instruments—net:

          

Interest rate derivatives—net

 ¥2  ¥(45 ¥—    ¥43  ¥—    ¥—    ¥—    ¥—    ¥—    ¥—   

Currency derivatives—net

  1   (1  —     —     —     —     —     —     —     (1

Equity derivatives—net

         1,327      1,106   —     474   (1,027  —     —     —     1,880   1,499 

Credit derivatives—net

  2,731   8,103   (158  —     —     (6,456  25   —     4,245   8,103 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Total derivative financial instruments—net

  4,061   9,163   (158  517   (1,027  (6,456  25   —     6,125   9,601 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Financial assets at fair value through
profit or loss:

          

Debt instruments

  12,053   (1,731  —     —     —     (149  —     (30  10,143   (1,731

Equity instruments

  14,286   378   —     4,915   (648  (102  —     (772  18,057   109 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Total financial assets at fair value through profit or loss

  26,339   (1,353  —     4,915   (648  (251  —     (802  28,200   (1,622
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Available-for-sale financial assets(5):

          

Debt instruments

  526   1,600   (13  —     (1,613  (346  —     —     154   (13

Equity instruments(8)

  836,252   (3,612  46,367   68,241   (8,480  (73,897  624   (21,143  844,352   (6,380
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Totalavailable-for-sale financial assets

  836,778   (2,012   46,354    68,241   (10,093     (74,243  624   (21,143  844,506   (6,393
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Others(6)—liabilities:

  303   (812  —     —     —     —     (324  —     (833  (856
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Total

 ¥867,481  ¥4,986  ¥46,196  ¥  73,673  ¥  (11,768 ¥(80,950 ¥325  ¥(21,945 ¥   877,998  ¥730 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

 

(1)Settlements

Changes arising from reclassification and any associated remeasurement have been made to reflect the adoption of IFRS 9.

(2)

Purchases and sales of debt instruments at fair value through profit or loss mainly include those of loans and advances which are held within a business model whose objective is not to hold those assets to collect contractual cash flows, but to hold those assets for sale.

(3)

For the fiscal year ended March 31, 2019, settlements for equity instruments include redemption of preferred stocks, receipt of cash distributions which represent a return of investment, andequity instruments. Settlements also include reclassification from available-for-saledebt instruments at fair value through profit or loss and equity instruments at fair value through other comprehensive income to investments in associates and joint ventures as a result of applying the equity method.method for SMFL.

(2)(4)Financial instruments held by certain consolidated investment funds had been classified as trading assets and categorized within Level 3 until March 31, 2015. These funds were deconsolidated at March 31, 2015 and investments in the funds are classified as available-for-sale equity instruments categorized within Level 3. The effects of these events are included in settlements of trading assets and purchases of available-for-sale equity instruments.

(3)Transfers between levels of the fair value hierarchy are deemed to have occurred at the beginning of the period. For the fiscal yearyears ended March 31, 20162019 and 2015,2018, transfers out of Level 3 amounted to ¥3,608¥2,852 million and ¥24,224¥21,945 million, respectively,respectively. These transfers out of Level 3 are primarily due to an increase in observability of certain private equity investments.

(4)(5)

Financial assets which do not meet the conditions for SPPI, such as investment funds, classified asavailable-for-sale financial assets under IAS 39, are classified as financial assets at fair value through profit or loss under IFRS 9.

(6)

Embedded derivatives are separately accounted for, but presented together with the host contract in the consolidated statementstatements of financial position. In this table,these tables, the embedded derivatives whose host contracts are carried at amortized cost are presented within Others, while the remaining are presented within the same category as the host contract.Others. Although the separated embedded derivatives may have a positive or a negative fair value, they have been presented in this tablethese tables as assets or liabilities to be consistent with the host contract.

(7)

For the fiscal year ended March 31, 2018, settlements for equity instruments include redemption of preferred stocks, receipt of cash distributions which represent a return of investment, and reclassification fromavailable-for-sale equity instruments under IAS 39 to investments in associates and joint ventures as a result of applying the equity method.

(8)

Equity instruments which are presented asavailable-for-sale financial assets include those at SMFL, which are reclassified as assets held for sale in the consolidated statement of financial position.

The following table presents total gains or losses included in profit or loss for the Level 3 financial assets and liabilities, and changes in unrealized gains or losses included in profit or loss related to those financial assets and liabilities held at March 31, 20162019 and 20152018 by line item of the consolidated income statement.statements.

 

  Total gains (losses)
included in profit or
loss for the  fiscal year

ended March 31,
  Changes in
unrealized gains
(losses) included in
profit or loss related
to assets and
liabilities held at
March 31,
 
  2016  2015  2016  2015 
  (In millions) 

Net interest income

 ¥204   ¥78   ¥—     ¥—    

Net trading income (loss)

  (1,025  33,878    (1,486  15,466  

Net income from financial assets at fair value through profit or loss

  5,735    6,306    630    6,174  

Net investment income

  35,424    11,201    —      —    

Other income

  2,939    —      —      —    

Impairment charges on financial assets

  (10,107  (7,587  (10,086  (7,269
 

 

 

  

 

 

  

 

 

  

 

 

 

Total

 ¥33,170   ¥43,876   ¥(10,942 ¥14,371  
 

 

 

  

 

 

  

 

 

  

 

 

 
   Total gains (losses)
included in profit or
loss for the fiscal year
ended March 31,
  Changes in
unrealized gains
(losses) included in
profit or loss related

to assets
and liabilities held at
March 31,
 
   2019  2018  2019  2018 
   (In millions) 

Net interest income

  ¥2,357  ¥1,273  ¥2,113  ¥762 

Net trading income

   9,889   7,064   8,059   7,970 

Net income (loss) from financial assets at fair value through profit or loss

   (1,927  (1,353  (1,218  (1,622

Net investment income

      4,399       

Impairment charges on financial assets(1)

      (6,397     (6,380
  

 

 

  

 

 

  

 

 

  

 

 

 

Total

  ¥10,319  ¥4,986  ¥8,954  ¥730 
  

 

 

  

 

 

  

 

 

  

 

 

 

(1)

Impairment charges on debt instruments categorized within Level 3 are nil for the fiscal year ended March 31, 2019. Equity instruments classified asavailable-for-sale financial assets under IAS 39 at March 31, 2018 are not subject to impairment requirements under IFRS 9 and thus there is no impact on impairment charges for the fiscal year ended March 31, 2019.

The aggregate deferred day one profit yet to be recognized in profit or loss at the beginning and end of the fiscal year ended March 31, 2019 and reconciliation of changes in the balances were as follows:

For the fiscal year ended
March 31, 2019
(In millions)

Balance at beginning of period(1)

¥7,408

Increase due to new trades

2,054

Reduction due to redemption, sales or passage of time

(4,177

Balance at end of period

¥5,285

(1)

Deferred day one profit or loss is disclosed for the fiscal year ended March 31, 2019, reflecting the adoption of IFRS 9. The SMBC Group did not have any significant deferred day one profit and loss for the fiscal year ended at March 31, 2018.

The SMBC Group has entered into transactions where the fair value is determined using valuation techniques for which not all inputs are observable in the market. The difference between the transaction price and the fair value that would be determined at initial recognition using a valuation technique is referred to as “day one profit and loss,” which is not recognized immediately in the consolidated income statement. The table above shows the day one profit or loss balances, all of which are derived from financial assets at fair value through profit or loss. The release to profit or loss results from the realization due to redemption or sales, and the amortization of the deferred day one profit or loss with the passage of time over the life of the instruments.

Valuation Techniques

Financial instruments which are classified as trading assets and liabilities, derivative financial instruments, financial assets at fair value through profit or loss, and available-for-sale financial assetsinvestment securities at fair value through other comprehensive income are measured at fair value in the consolidated statementstatements of financial position. These instruments are measured at fair value using a quoted market price, if they are traded in an active market, or, for others, using the fair value measurement techniques as discussed below.

Trading assets and trading liabilities

Debt and equity instruments traded in an active market are measured at fair value using a quoted market price in such a market and they are categorized within Level 1. If a quoted market price is not available, they are measured by using a price quoted by a third party, such as a pricing service or broker, or by reference to the current fair value of another instrument that is substantially the same, based on inputs such as prices obtained from brokers, observable interest rates and spreads. These financial instruments are categorized within Level 2. Debt instruments measured at fair value using the DCF method, where primary inputs are observable interest rates and credit spreads, inferred from the prevailing market rates, are also categorized within Level 2.

Until March 31, 2015, financial instruments held by certain consolidated investment funds classified as trading assets had been measured at fair value determined based on net asset value per share, which included significant unobservable inputs, and categorized within Level 3. These funds were deconsolidated at March 31, 2015 and investments in the funds are classified as available-for-sale equity instruments categorized within Level 3.

Derivative financial instruments (including embedded derivatives)

Listed derivatives (including interest rates, bonds, currencies, stocks and commodities) are measured at fair value using the settlement price announced by the major exchange on which transactions are traded because the settlement price in the exchange reflects the most current transaction price, and is readily and regularly available from the exchange. Listed derivatives are categorized within Level 1.

OTC derivatives (non-exchange-traded(non-exchange-traded derivatives), including embedded derivatives that are separately accounted for from the host contracts, are measured at fair value using valuation techniques such as the present value of estimated future cash flows and option pricing models, generally based on observable interest rates, foreign exchange, commodities, stock prices and other factors as inputs. The valuation models for some transactions, such as yield curve spread options and equity options, use inputs which are not directly observable in the market, including historical correlation coefficients and historical volatilities. However, as the impact of these unobservable inputs is insignificant to the fair value for most of the transactions, the SMFGSMBC Group categorizes the majority of those transactions within Level 2.

The credit loss protection scheme which the SMFGSMBC Group offers to Goldman Sachs (“GS”) is considered to be a credit derivative, where the underlying reference entities are the American and European corporate entities covered in the commitment line portfolio of the GS group. The fair value of this derivative is determined using an ordinary collateralized debt obligation (“CDO”) pricing model, commonly used in the financial markets. The SMFGSMBC Group takes some portions of the positions in subordinated and mezzanine tranches, which covers the first and second credit losses from the portfolio. The major inputs for this derivative are credit default swap (“CDS”) spread rates, correlation ratios of CDS indices for similar portfolios, and the expected additional commitment withdrawal ratio. Although CDS spread rates and correlation ratios are observable in an active market or available from brokers, this whole scheme is categorized within Level 3 as the expected additional withdrawal ratio, which is considered to be a significant input, is not observable in the market.

In addition, the fair value of OTC derivatives incorporates both counterparty credit risk in relation to OTC derivative assets and own credit risk in relation to OTC derivative liabilities. The SMFGSMBC Group calculates the credit risk adjustments by applying the probability of default that reflects the counterparty’s or its own credit risk to the OTC derivative exposures and multiplying the result by the loss expected in the event of default. For the probability of default, the SMFGSMBC Group uses observable market data, where possible. The OTC derivative exposures used are determined taking into consideration the effect of master netting agreements and collateral. As the SMFGSMBC Group manages the OTC derivatives on the basis of its net credit risk exposure, the credit risk adjustments of those OTC derivatives are measured on a portfolio basis in accordance with the exception set forth in IFRS 13.

Financial assets at fair value through profit or loss

The majority of instrumentsNon-trading bonds in this category are debt instruments measured at fair value, using a valuation technique based on the observable prices in the market and they are categorized within Level 2.

Some equity and debt instruments in this category are hybrid instruments which have both equity and debt features. These include preferred stocks which are measured at fair value using various valuation models, such as the Monte Carlo Simulation, if they are indexed to the market prices in a stock exchange. These valuation models use the historical volatility of the listed stocks as an input, which are not observable in the market, resulting in these instruments being categorized within Level 3. Other types of preferred stocks and other non-hybrid equity instruments are evaluated using valuation techniques for unlisted stocks, which are normally used for private equity investments. The SMFG Group calculates the fair values of these instruments based on the market approach using market multiples or others in which significant unobservable inputs are used. These instruments are categorized within Level 3.

Available-for-sale financial assets

Debt instruments are measured at fair value using a quoted market price and categorized within Level 1 if they are traded in an active market. Debt instruments are categorized within Level 2 if they are measured at fair value using a price quoted by a third party, such as a pricing service or broker, or by reference to the current fair value of another bond that is substantially the same based on inputs such as prices obtained from brokers, observable interest rates and spreads. Some debt instruments are measured at fair value using the DCF method in which significant unobservable inputs are used, and categorized within Level 3.

As for equity instruments, listed stocks are measured at fair value based on the market price at a stock exchange and categorized within Level 1 if they are traded in an active market. Unlisted common and preferred stocks in this category are measured at fair value using valuation techniques, similar to those described in “Financial assets at fair value through profit or loss” above. Publicly traded investment trusts and funds are measured at fair value using the market price and are categorized within Level 1 if they are traded in an active market. Instruments whose prices are not available in the market, such as privately offered investment trusts, are measured at fair value based on the unit price, which is usually regarded as an exit price, obtained from the fund administrator or investment management firm. In such a case, these investment trusts and funds are categorized within Level 2. Other investment funds included in financial assets at fair value through profit or loss, such as private equity funds and real estate investment funds, are generally measured at fair value based on net asset value, which includes significant unobservable inputs. These funds are categorized within Level 3.

Certain loans and advances are measured at fair value using discounted cash flow models taking into account certain factors including counterparties’ credit ratings, pledged collateral and market interest rates, which include significant unobservable inputs, and are categorized within Level 3.

Some equity and debt instruments in this category are hybrid instruments which have both equity and debt features. These include preferred stocks which are measured at fair value using the Monte Carlo Simulation valuation model, if they are indexed to the market prices in a stock exchange. The valuation model uses the historical volatility of the listed stocks as an input, which are not observable in the market, resulting in these instruments being categorized within Level 3. Other types of preferred stocks and othernon-hybrid equity instruments are evaluated using valuation techniques for unlisted stocks, which are normally used for private equity investments. The SMBC Group calculates the fair values of these instruments based on the market approach using market multiples or others in which significant unobservable inputs are used. These instruments are categorized within Level 3.

Since the adoption of IFRS 9, the classification and measurement of some financial instruments have changed. The investment trusts and funds mentioned above, which were previously classified asavailable-for-sale financial assets under IAS 39, are classified as financial assets measured at FVPL. The valuation techniques used for these instruments have not changed. Certain loans and advances, which were previously carried at amortized cost under IAS 39, are carried at fair value. The valuation techniques to determine the fair value have not changed from those used for fair value disclosure of these loans and advances under IAS 39 in this note.

Investment securities at fair value through other comprehensive income

Debt instruments are measured at fair value using a quoted market price and categorized within Level 1 if they are traded in an active market. Debt instruments are categorized within Level 2 if they are measured at fair value using a price quoted by a third party, such as a pricing service or broker, or by reference to the current fair value of another bond that is substantially the same based on inputs such as prices obtained from brokers, observable interest rates and spreads.

As for equity instruments, listed stocks are measured at fair value based on the market price at a stock exchange and categorized within Level 1 if they are traded in an active market. Unlisted common and preferred stocks in this category are measured at fair value based on the market approach using market multiples or others in which significant unobservable inputs are used. These instruments are categorized within Level 3.

Since the adoption of IFRS 9, the classification and measurement of some financial instruments have changed. Debt instruments and equity instruments described in the section “Investment securities at fair value through other comprehensive income,” were previously mentioned in the section“available-for-sale financial assets” under IAS 39. Those valuation techniques used for these instruments have not changed.

Significant Unobservable Inputs

The following tables present quantitative information about significant unobservable inputs used in fair value measurement for Level 3 financial assets and liabilities at March 31, 20162019 and 2015.2018.

 

  At March 31, 2016  At March 31, 2019
  Fair value 

Valuation technique(s)(1)

 

Significant unobservable inputs(1)

 Range of  inputs(1)  Fair value 

Valuation technique(s)(1)

 

Significant unobservable inputs(1)

 

Range of inputs(1)

  (In millions)    (In millions) 

Financial assets:

         

Derivative financial instruments:

         

Interest rate derivatives

 ¥212  Option model Interest rate to interest rate correlation 53%-100%

Currency derivatives

  ¥51   Option model Foreign exchange volatility  12%-19%   274  Option model Foreign exchange volatility 8%-14%
   Interest rate to interest rate correlation 69%-83%

Equity derivatives

   199   Option model Equity volatility  25%-55%   4,236  Option model Equity volatility 22%-81%
   Equity to equity correlation 45%-94%
   Quanto correlation  (28)%-42%

Credit derivatives

 5,549  CDO pricing model Additional withdrawal ratio 47%
    Equity to equity correlation  61%-83%     Credit Default model Quanto correlation 15%-90%

Financial assets at fair value through profit or loss:

         

Debt instruments

   11,667   Monte Carlo Simulation Equity volatility  26%-38%   562,136  Monte Carlo Simulation Equity volatility 10%-42%
  DCF model Probability of default rate 0%-41%
   Loss given default rate 20%-100%
   Net asset value(3) —   —  

Equity instruments

   27,594   Market multiples Price/Earnings multiple  8.4x-26.7x   18,711  Market multiples Price/Earnings multiple 7.5x-13.4x
    EV/EBITDA multiple  4.0x     EV/EBITDA multiple 4.8x
    Liquidity discount  0%-20%     Liquidity discount 0%-20%
   See note (2) below —    —      See note (2) below —   —  

Available-for-sale financial assets:

     

Debt instruments

   2,022   DCF method Discount margin  7%  

Investment securities at fair value through other comprehensive income:

                            

Equity instruments

   789,326   Market multiples Price/Book value multiple  0.7x-2.0x   412,347  Market multiples Price/Book value multiple 0.2x-2.3x
    Price/Earnings multiple  8.9x-47.9x  
    EV/EBITDA multiple  6.9x-16.9x  
    Price/Embedded value multiple  0.3x  
    Liquidity discount  20%     Price/Earnings multiple 7.9x-31.3x
   Monte Carlo Simulation Equity volatility  33%-53%     EV/EBITDA multiple 6.3x-14.4x
   Net asset value(3) —    —       Liquidity discount 20%
   See note (2) below —    —       See note (2) below —   —  

Financial liabilities:

         

Derivative financial instruments:

         

Currency derivatives

  ¥46   Option model Foreign exchange volatility  12%-19%   ¥9  Option model Foreign exchange volatility 9%-14%

Equity derivatives

   212   Option model Equity volatility  43%-54%  

Credit derivatives

   3,134   CDO pricing model Additional withdrawal ratio  49%   554  Credit Default model Quanto correlation 20%-30%

Others(4)

   1,240   Option model Equity volatility  40%-51%   (435 Option model Equity volatility 29%-44%
    Equity to equity correlation  53%-92%     Equity to equity correlation 45%-94%
    Interest rate to interest rate correlation  20%-100%     Interest rate to interest rate correlation 22%-100%
   Quanto correlation (28)%-59%
   Credit Default model Quanto correlation 15%-90%

   At March 31, 2015 
   Fair value  

Valuation technique(s)(1)

 

Significant unobservable inputs(1)

 Range of  inputs(1) 
   (In millions)        

Financial assets:

     

Derivative financial instruments:

     

Equity derivatives

  ¥173   Option model Equity volatility  13%-45%  

Credit derivatives

   6,356   CDO pricing model Additional withdrawal ratio  50%  

Financial assets at fair value through profit or loss:

     

Debt instruments

   38,518   Monte Carlo Simulation Equity volatility  25%-26%  
   Market multiples Price/Embedded value multiple  0.5x  
    Liquidity discount  10%  

Equity instruments

   126,914   Market multiples Price/Earnings multiple  8.4x-17.7x  
    EV/EBITDA multiple  6.6x  
    Liquidity discount  0%-20%  
   See note (2) below —    —    

Available-for-sale financial assets:

     

Debt instruments

   7,086   DCF method Discount margin  1%  

Equity instruments

   914,802   Market multiples Price/Book value multiple  0.8x-2.2x  
    Price/Earnings multiple  10.9x-35.2x  
    EV/EBITDA multiple  6.0x-18.6x  
    Price/Embedded value multiple  0.5x  
    Liquidity discount  10%-20%  
   Monte Carlo Simulation Equity volatility  28%-55%  
   Net asset value(3) —    —    
   See note (2) below —    —    

Financial liabilities:

     

Others(4)

  ¥1,212   Option model Interest rate to interest rate correlation  42%-100%  

  At March 31, 2018
  Fair value  

Valuation technique(s)(1)

 

Significant unobservable inputs(1)

 

Range of inputs(1)

  (In millions)       

Financial assets:

    

Derivative financial instruments:

    

Currency derivatives

 ¥14  Option model Foreign exchange volatility 10%-14%

Equity derivatives

  1,880  Option model Equity volatility 11%-52%
       Equity to equity correlation 45%-94%

Credit derivatives

  4,667  CDO pricing model Additional withdrawal ratio 48%
     Credit Default model Quanto correlation 15%-90%

Financial assets at fair value through profit or loss:

    

Debt instruments

  10,143  Monte Carlo Simulation Equity volatility 12%-25%

Equity instruments

  18,057  Market multiples Price/Earnings multiple 8.3x-19.5x
       EV/EBITDA multiple 8.7x
       Liquidity discount 0%-20%
     See note (2) below —   —  

Available-for-sale financial assets:

    

Debt instruments

  154  DCF method Discount margin 8%

Equity instruments(5)

  844,352   Market multiples Price/Book value multiple 0.3x-2.4x
       Price/Earnings multiple 11.7x-31.4x
       EV/EBITDA multiple 5.4x-16.8x
       Liquidity discount 20%
     Monte Carlo Simulation Equity volatility 42%-51%
     Net asset value(3) —   —  
     See note (2) below —   —  

Financial liabilities:

    

Derivative financial instruments:

                            

Currency derivatives

 ¥14  Option model Foreign exchange volatility 10%-14%

Credit derivatives

  422  Credit Default model Quanto correlation 20%-30%

Others(4)

  833  Option model Equity volatility 23%-38%
       Equity to equity correlation 45%-94%
       Interest rate to interest rate correlation 31%-100%
     Credit Default model Quanto correlation 15%-90%

 

(1)

Valuation techniques and unobservable inputs for insignificant Level 3 financial assets and liabilities are excluded.

(2)

Fair values of certain equity instruments such as unlisted stocks are estimated on the basis of an analysis of the investee’s financial position and results, risk profile, prospects and other factors. A range of key inputs is not provided in the table as it is not practical to do so given the nature of such valuation techniques.

(3)

The SMFGSMBC Group has determined that the net asset value represents fair values of certain investment funds.

(4)

Embedded derivatives are separately accounted for, but presented together with the host contract in the consolidated statementstatements of financial position. In this table,these tables, the embedded derivatives whose host contracts are carried at amortized cost are presented within Others, while the remaining are presented within the same category as the host contract.Others. Although the separated embedded derivatives may have a positive or a negative fair value, they have been presented in this tablethese tables as assets or liabilities to be consistent with the host contract.

(5)

Equity instruments which are classified asavailable-for-sale financial assets include those at SMFL, which are reclassified as assets held for sale in the consolidated statement of financial position.

Volatility

Volatility represents a measure of how much a particular instrument, parameter or index is expected to change in value over time. Equity volatility and foreign exchange volatility refer to the related listed stocks and the related foreign exchange rates, respectively. These volatilities are used in the valuation techniques of preferred stocks and derivatives containing optionality, and estimated based on historical data or information provided by third-party sources, together with other analytical techniques. In general, a significant increase in the volatility in isolation would result in a significantly higher fair value measurement.

Correlation

Correlation represents a measure of the relationship between the movements of two variables, which is expressed as a number between plus and minus one. A positive correlation indicates that two variables move in the same direction while a negative correlation indicates that they move in opposite directions. Correlations could be any combination of variables such as interest rates, foreign exchange rates, CDS spread and stock price movements. Thus, both same-asset correlation and cross-asset correlation are used. Interest rate correlation refers tobetween two different tenors is an example of same-asset correlations while quanto correlation which is the correlation between two interestforeign exchange rates and another variable is an example of different tenors, whereas equity correlation refers to the correlation between stock price movements of different stocks.cross-asset correlation. These correlations are used in the valuation techniques of complex derivatives and estimated based on historical data. In

general, a significant increase in the correlation in isolation would result in either a significantly higher or lower fair value measurement, depending on the terms of the instruments.

Volatility

Price/Earnings, price/bookVolatility represents a measure of how much a particular instrument, parameter or index is expected to change in value and price/embedded value multiples

Price/Earnings (“P/E”) multiple representsover time. The volatilities used in the ratiovaluation of some type of derivative instruments with optionality refer to the potential change in price or level of the underlying interest rates, foreign exchange rates or equity value toinstruments. The volatilities of underlying listed stocks are used in the net income, while price/book value (“P/B”) multiple represents the ratiovaluation of the equity value to the book value. Embedded value, which takes into account the future cash flows in addition to the net asset value, is applied instead of the book value for a certain unlisted company.preferred stocks containing optionality. These multiplesvolatilities are estimated based on comparable listed companies.historical data or information provided by third-party sources, together with other analytical techniques. In general, a significant increase in the P/E multiple, P/B multiple or price/embedded value multiplevolatility in isolation would result in a significantly higher fair value measurement.

EV/EBITDA multiple

EV/EBITDA multiple represents the ratio of the enterprise value (“EV”) to earnings before interest, taxes, depreciation and amortization (“EBITDA”), where the EV is the aggregate value of equity and debt minus cash and cash equivalents. The multiple is estimated based on comparable listed companies. In general, a significant increase in the EV/EBITDA multiple in isolation would result in a significantly higher fair value measurement.

Liquidity discount

A liquidity discount is primarily applied in the valuation techniques for unlisted stocks to reflect the fact that these stocks are not actively traded. In general, a significant increase in the liquidity discount in isolation would result in a significantly lower fair value measurement.

Discount margin

Discount margin represents a spread used in estimating future cash flows in a DCF method to reflect the uncertainty of the cash flows that market participants would consider. In general, a significant increase in the discount margin in isolation would result in a significantly lower fair value measurement.

Additional withdrawal ratio

Additional withdrawal ratio represents the expected additional withdrawal ratio of unfunded commitment lines in the reference portfolio (mainly revolving credit facilities for commercial paper backup) concerning the credit loss protection scheme offered to GS. The expected additional withdrawal ratio is estimated based on historical data of actual funded amounts at default for similar portfolios. In general, a significant increase in the additional withdrawal ratio in isolation would have a significant unfavorable impact (i.e., an increase in derivative liabilities or a decrease in derivative assets) on the fair value measurement.

Probability of default and loss given default rates

Probability of default rate represents the probability of default that reflects the counterparty’s credit risk while loss given default rate represents the loss expected in the event of default. Those are estimated based on historical experiences. In general, a significant increase in probability of default rate or loss given default rate in isolation would result in a significantly lower fair value measurement.

Price/Earnings, price/book value multiples

Price/Earnings (“P/E”) multiple represents the ratio of the equity value to the net income, while price/book value (“P/B”) multiple represents the ratio of the equity value to the book value. These multiples are estimated based on comparable listed companies. In general, a significant increase in the P/E multiple or P/B multiple in isolation would result in a significantly higher fair value measurement.

EV/EBITDA multiple

EV/EBITDA multiple represents the ratio of the enterprise value (“EV”) to earnings before interest, taxes, depreciation and amortization (“EBITDA”), where the EV is the aggregate value of equity and debt minus cash and cash equivalents. The multiple is estimated based on comparable listed companies. In general, a significant increase in the EV/EBITDA multiple in isolation would result in a significantly higher fair value measurement.

Liquidity discount

A liquidity discount is primarily applied in the valuation techniques for unlisted stocks to reflect the fact that these stocks are not actively traded. In general, a significant increase in the liquidity discount in isolation would result in a significantly lower fair value measurement.

Discount margin

Discount margin represents a spread used in estimating future cash flows in a DCF method to reflect the uncertainty of the cash flows that market participants would consider. In general, a significant increase in the discount margin in isolation would result in a significantly lower fair value measurement.

Sensitivity Analysis

The fair value of certain financial assets and liabilities are measured using valuation techniques based on inputs such as prices and rates that are not observable in the market. The following tables present the impact of the valuation sensitivity, if these inputs fluctuate to the extent deemed reasonable and the volatility of such inputs has a significant impact on the fair value.

 

 At March 31, 2019 
 At March 31, 2016  Total fair value
measured using
valuation
techniques
  Effect recorded in
profit or loss
 Effect recorded
directly in equity
 
 Total fair value
measured using
valuation
techniques
  Effect recorded in
profit or loss
 Effect recorded
directly in equity
  Favorable
changes
 Unfavorable
changes
 Favorable
changes
 Unfavorable
changes
 
 Favorable
changes
 Unfavorable
changes
 Favorable
changes
 Unfavorable
changes
  (In millions) 
 (In millions) 

Financial assets:

          

Derivative financial instruments:

          

Interest rate derivatives

 ¥212  ¥2  ¥14  ¥—    ¥—   

Currency derivatives

 ¥51   ¥175   ¥1   ¥—     ¥—     274  14  21   —     —   

Equity derivatives

  199    104    65    —      —     4,236  541  530   —     —   

Credit derivatives

 5,549  2,008  5,904   —     —   

Financial assets at fair value through profit or loss:

          

Debt instruments

  11,667    —      —      —      —     562,136  4,038  11,636   —     —   

Equity instruments

  27,594    240    225    —      —     18,711  34  34   —     —   

Available-for-sale financial assets:

     

Debt instruments

  2,022    —      —      123    107  

Investment securities at fair value through other comprehensive income:

     

Equity instruments

  789,326    —      —      20,286    19,682   412,347   —     —    11,843  10,848 

Financial liabilities:

          

Derivative financial instruments:

          

Currency derivatives

 ¥46   ¥4   ¥172   ¥—     ¥—     ¥9  ¥1  ¥1  ¥—    ¥—   

Equity derivatives

  212    212    705    —      —    

Credit derivatives

  3,134    3,176    21,196    —      —     554  32  32   —     —   

Others(1)

  1,240    3,321    878    —      —     (435 1,651  2,650   —     —   
 At March 31, 2015 
 Total fair value
measured using
valuation
techniques
  Effect recorded in
profit or loss
 Effect recorded
directly in equity
 
 Favorable
changes
 Unfavorable
changes
 Favorable
changes
 Unfavorable
changes
 
 (In millions) 

Financial assets:

     

Derivative financial instruments:

     

Equity derivatives

 ¥173   ¥147   ¥42   ¥—     ¥—    

Credit derivatives

  6,356    2,971    14,594    —      —    

Financial assets at fair value through profit or loss:

     

Debt instruments

  38,518    2,877    2,877    —      —    

Equity instruments

  126,914    171    171    —      —    

Available-for-sale financial assets:

     

Debt instruments

  7,086    —      —      148    122  

Equity instruments

  914,802    —      —      30,461    30,143  

Financial liabilities:

     

Others(1)

 ¥1,212   ¥370   ¥1,651   ¥—     ¥—    

  At March 31, 2018 
  Total fair value
measured using
valuation
techniques
  Effect recorded in
profit or loss
  Effect recorded
directly in equity
 
  Favorable
changes
  Unfavorable
changes
  Favorable
changes
  Unfavorable
changes
 
  (In millions) 

Financial assets:

     

Derivative financial instruments:

     

Currency derivatives

 ¥14  ¥80  ¥1  ¥—    ¥—   

Equity derivatives

  1,880   271   310   —     —   

Credit derivatives

  4,667   4,515   11,765   —     —   

Financial assets at fair value through profit or loss:

     

Debt instruments

  10,143   278   —     —     —   

Equity instruments

  18,057   361   336   —     —   

Available-for-sale financial assets:

     

Debt instruments

  154   —     —     4   2 

Equity instruments(2)

  844,352   —     —     26,835   25,290 

Financial liabilities:

     

Derivative financial instruments:

     

Currency derivatives

 ¥14  ¥2  ¥80  ¥—    ¥—   

Credit derivatives

  422   35   35   —     —   

Others(1)

  833   1,375   3,090   —     —   

 

(1)

Embedded derivatives are separately accounted for, but presented together with the host contract in the consolidated statementstatements of financial position. In this table,these tables, the embedded derivatives whose host contracts are carried at amortized cost are presented within Others, while the remaining are presented within the same category as the host contract.Others. Although the separated embedded derivatives may have a positive or a negative fair value, they have been presented in this tablethese tables as assets or liabilities to be consistent with the host contract.

(2)

Equity instruments which are classified asavailable-for-sale financial assets include those at SMFL, which are reclassified as assets held for sale in the consolidated statement of financial position.

Derivative financial instruments (including embedded derivatives)

With respect to the credit loss protection scheme offered to GS, the anticipated losses will vary significantly depending on the expected additional withdrawal ratio of unfunded commitment lines in the reference portfolio. The tables above present the estimates of the impact of changing the expected additional withdrawal ratio from an optimistic (favorable) scenario to a pessimistic (unfavorable) scenario. For the other derivative instruments, including embedded derivatives that are separately accounted for from host contracts, that use correlation or volatility in the valuation techniques, the impact resulting from using a reasonable range of those inputs is estimated where it is expected to be significant.

Financial assets at fair value through profit or loss / Available-for-sale financial assets

With respect to preferred stocks convertible into listed stocks, for which historical volatilities of related listed stocks are used in the valuation techniques, the impact resulting from using a reasonable range for the volatility is statistically estimated where it is expected to be significant. With respect to unlisted stockscertain loans and advances, for which the probability of default and loss given default rates are measured at fair value based on a market approach,used in the valuation techniques, the impact of changing the market multiples withinresulting from using a reasonable range (±10%)of those inputs is estimated.estimated where it is expected to be significant. Certain investment funds classified as available-for-sale equity instruments are measured at fair value determined based on net asset value per share, which includes significant unobservable inputs. Since those funds are managed by value at risk (“VaR”) based on historical gain or loss data, the impact of the valuation sensitivity is estimated using aone-day VaR of the portfolio.

portfolio, based on aone-sided confidence interval of 99.0%.

Since the adoption of IFRS 9, the classification and measurement of some financial instruments have changed. The investment funds mentioned above were previously classified asavailable-for-sale under IAS 39. The loans and advances mentioned in this section were previously carried at amortized cost under IAS 39. The calculation method of sensitivity analysis of those investment funds has not changed.

Investment securities at fair value through other comprehensive income

With respect to unlisted stocks which are measured at fair value based on a market approach, the impact of changing the market multiples within a reasonable range (±10%) is estimated.

Since the adoption of IFRS 9, the classification and measurement of some financial instruments have changed. Unlisted stocks described in the section “Investment securities at fair value through other comprehensive income” were mentioned in the section“Available-for-sale financial assets” at March 31, 2018. The calculation method of sensitivity analysis of those instruments has not changed.

Financial Assets and Liabilities Not Carried at Fair Value

The tables below present the carrying amounts and fair values by level within the fair value hierarchy, as described in “Financial Assets and Liabilities Carried at Fair Value—Fair Value Hierarchy,” of financial assets and liabilities not carried at fair value on the SMFGSMBC Group’s consolidated statementstatements of financial position at March 31, 20162019 and 2015.2018.

 

 At March 31, 2016    At March 31, 2019 
 Carrying
amount
  Fair value     Carrying
amount
  Fair value 
 Notes Total Level 1 Level 2 Level 3  Notes Total Level 1 Level 2 Level 3 
 (In millions)  (In millions) 

Financial assets:

            

Cash and deposits with banks

 a ¥  43,144,654   ¥  43,143,523   ¥  42,126,966   ¥1,016,557   ¥—     a  ¥57,763,441  ¥57,766,549  ¥56,716,529  ¥1,050,020  ¥ 

Call loans and bills bought:

            

Call loans

 a  1,283,758    1,283,925    —      1,283,925    —     a  2,459,098  2,459,774     2,459,774    

Bills bought

 a  7,608    7,600    —      7,600    —     a  6,647  6,645     6,645    

Reverse repurchase agreements and cash collateral on securities borrowed

 a  8,236,516    8,236,532    —      8,236,532    —     a  10,345,994  10,345,889     10,345,889    

Investment securities:

            

Held-to-maturity investments

 b  2,267,542    2,284,167    2,284,167    —      —    

Debt instruments at amortized cost

 b  318,914  319,871  281,136  38,735    

Loans and advances

 a  88,862,371    91,821,054    —      379,871    91,441,183   a  90,682,938  93,451,467     290,997  93,160,470 

Other financial assets

 a  2,764,315    2,760,963    —      2,594,415    166,548   a  3,609,129  3,606,414     3,551,947  54,467 

Financial liabilities:

            

Deposits:

            

Non-interest-bearing deposits, demand deposits and deposits at notice

 c ¥75,198,427   ¥75,199,277   ¥—     ¥75,199,277   ¥—     c  ¥89,969,579  ¥89,970,579  ¥  ¥89,970,579  ¥ 

Other deposits

 c  50,742,370    50,753,241    —      50,753,241    —     c  44,435,073  44,435,139     44,435,139    

Call money and bills sold:

            

Call money

 c  1,220,456    1,220,455    —      1,220,455    —     c  1,307,779  1,307,710     1,307,710    

Bills sold

 c  —      —      —      —      —     c                

Repurchase agreements and cash collateral on securities lent

 c  6,839,474    6,839,474    —      6,839,474    —     c  12,887,249  12,887,249     12,887,249    

Borrowings

 c  9,914,129    10,058,456    —      10,052,176    6,280   c  12,167,858  12,268,394     12,244,136  24,258 

Debt securities in issue

 c  10,829,612    11,042,995    —      10,993,728    49,267   c  11,171,209  11,304,119     11,037,252  266,867 

Other financial liabilities

 c  5,935,511    5,935,212    —      5,791,251    143,961   c  5,596,513  5,596,506     5,553,389  43,117 

    At March 31, 2015 
    Carrying
amount
  Fair value 
  Notes  Total  Level 1  Level 2  Level 3 
    (In millions) 

Financial assets:

      

Cash and deposits with banks

 a ¥  40,112,783   ¥  40,112,558   ¥  39,108,757   ¥  1,003,801   ¥—    

Call loans and bills bought:

      

Call loans

 a  1,301,680    1,301,817    —      1,301,817    —    

Bills bought

 a  25,285    25,263    —      25,263    —    

Reverse repurchase agreements and cash collateral on securities borrowed

 a  7,218,498    7,220,169    —      7,220,169    —    

Investment securities:

      

Held-to-maturity investments

 b  3,396,895    3,417,732    3,417,732    —      —    

Loans and advances

 a  86,971,716    89,506,551    —      328,670    89,177,881  

Other financial assets

 a  2,565,725    2,561,487    —      2,391,088    170,399  

Financial liabilities:

      

Deposits:

      

Non-interest-bearing deposits, demand deposits and deposits at notice

 c ¥67,082,287   ¥67,085,473   ¥—     ¥67,085,473   ¥—    

Other deposits

 c  48,751,693    48,757,109    —      48,757,109    —    

Call money and bills sold:

      

Call money

 c  5,873,124    5,873,118    —      5,873,118    —    

Bills sold

 c  —      —      —      —      —    

Repurchase agreements and cash collateral on securities lent

 c  8,820,083    8,820,083    —      8,820,083    —    

Borrowings

 c  11,217,052    11,350,636    —      11,345,162    5,474  

Debt securities in issue

 c  11,051,431    11,272,771    —      11,114,139    158,632  

Other financial liabilities

 c  5,020,005    5,018,766    —      4,869,157    149,609  

     At March 31, 2018 
     Carrying
amount
  Fair value 
  Notes  Total  Level 1  Level 2  Level 3 
  (In millions) 

Financial assets:

      

Cash and deposits with banks

  a  ¥54,696,069  ¥54,708,231  ¥53,401,133  ¥1,307,098  ¥—   

Call loans and bills bought:

      

Call loans

  a   1,858,802   1,859,176   —     1,859,176   —   

Bills bought

  a   23,078   23,051   —     23,051   —   

Reverse repurchase agreements and cash collateral on securities borrowed

  a   8,491,703   8,491,858   —     8,491,858   —   

Investment securities:

      

Held-to-maturity investments

  d   372,459   374,597   374,597   —     —   

Loans and advances

  a   85,129,070   87,538,646   —     258,673   87,279,973 

Other financial assets

  a   3,598,642   3,595,216   —     3,429,143   166,073 

Financial assets included in assets held for sale

  a   3,098,196   3,224,902   3,824   84,058   3,137,020 

Financial liabilities:

      

Deposits:

      

Non-interest-bearing deposits, demand deposits and deposits at notice

  c  ¥84,121,443  ¥84,121,124  ¥—    ¥84,121,124  ¥—   

Other deposits

  c   44,340,084   44,339,583   —     44,339,583   —   

Call money and bills sold:

      

Call money

  c   1,190,929   1,190,936   —     1,190,936   —   

Bills sold

  c   —     —     —     —     —   

Repurchase agreements and cash collateral on securities lent

  c   12,022,593   12,022,593   —     12,022,593   —   

Borrowings

  c   10,652,481   10,761,610   —     10,739,893   21,717 

Debt securities in issue

  c   10,569,117   10,767,745   —     10,587,917   179,828 

Other financial liabilities

  c   6,691,042   6,691,016   —     6,571,846   119,170 

Financial liabilities included in liabilities directly associated with the assets held for sale

  c   3,371,556   3,380,139   —     3,380,139   —   

 

Notes:

a.

Note that some of the financial assets in this category include embedded derivatives, which are separately accounted for, but presented together with the host contract at March 31, 2018.
  (i)  The carrying amounts of deposits with banks without maturity and loans with no specified repayment dates represent a reasonable estimate of fair value, considering the nature of these financial instruments.
  (ii)  Financial assets with a remaining maturity of six months or less: The carrying amounts represent a reasonable estimate of fair value.
  (iii)  Financial assets with a remaining maturity of more than six months: Except for impaired loans and advances, the fair values are mostly determined using discounted cash flow models taking into account certain factors including counterparties’ credit ratings, pledged collateral, and market interest rates. The fair values of impaired loans and advances are generally determined by discounting the estimated future cash flows over the time period they are expected to be recovered, and may be based on the appraisal value of underlying collateral as appropriate.
b.The fair values of debt instruments at amortized cost are determined using quoted prices in active markets or observable inputs other than quoted prices in active markets.
c.  Note that some of the financial assetsliabilities in this category include embedded derivatives, which are separately accounted for, but presented together with the host contract.contract at March 31, 2019 and 2018.

b.

The fair values for held-to-maturity investments are determined using quoted prices in active markets.

c.

  (i)  The carrying amounts of demand deposits and deposits without maturity represent a reasonable estimate of fair value, considering the nature of these financial instruments.

  (ii)  Financial liabilities with a remaining maturity of six months or less: The carrying amounts represent a reasonable estimate of fair value.
  (iii)  Financial liabilities with a remaining maturity of more than six months: The fair values are, in principle, based on the present values of future cash flows calculated using the refinancing rate applied to the same type of instruments for similar remaining maturities. The fair values of debt securities in issue are based on the present values of future cash flows calculated using the rate derived from yields of bonds issued by SMFG, SMBC and other subsidiaries and publicly offered subordinated bonds published by securities firms.

d.

  Note that someThe fair values of the financial liabilitiesheld-to-maturity investments are determined using quoted prices in this category include embedded derivatives, which are separately accounted for, but presented together with the host contract.active markets.

44

OFFSETTING OF FINANCIAL ASSETS AND LIABILITIES

The following tables present the information about the impact of offsetting of financial assets and liabilities in the consolidated statementstatements of financial position in accordance with the criteria described in Note 2 “Summary of Significant Accounting Policies,” as well as the impact of netting of financial instruments that are subject to enforceable master netting arrangements or similar agreements but do not qualify for the offsetting criteria at March 31, 20162019 and 2015.2018.

 

 At March 31, 2016  At March 31, 2019 
 Gross amounts
of recognized
financial assets
and  liabilities
  Gross amounts
offset in statement
of financial
position(1)(2)
  Net amounts
presented in
statement of
financial  position
  Related amounts not offset in
statement of financial position(3)
 Net amounts  Gross amounts
of recognized
financial assets
and liabilities
 Gross amounts
offset in statements
of financial
position(1)
 Net amounts
presented in
statements of
financial position
  Related amounts not offset in
statements of financial position(2)
   
 Financial
instruments(4)
 Cash collateral  Financial
instruments(3)
 Cash collateral Net amounts 
 (In millions)  (In millions) 

Financial assets(5):

      

Financial assets(4):

      

Reverse repurchase agreements and cash collateral on securities borrowed

 ¥8,467,868   ¥(231,352 ¥8,236,516   ¥(8,226,208 ¥—     ¥10,308   ¥11,462,683  ¥(1,116,689 ¥10,345,994  ¥(10,243,455 ¥—    ¥102,539 

Derivative financial instruments

  6,826,303    (1,535,478  5,290,825    (3,098,883  (367,063  1,824,879   3,881,854  (499,280 3,382,574  (1,798,712 (316,886 1,266,976 
 

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

Total

 ¥15,294,171   ¥(1,766,830 ¥13,527,341   ¥(11,325,091 ¥(367,063 ¥1,835,187   ¥15,344,537  ¥(1,615,969 ¥13,728,568  ¥(12,042,167 ¥(316,886 ¥1,369,515 
 

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

Financial liabilities(5):

      

Financial liabilities(4):

      

Repurchase agreements and cash collateral on securities lent

 ¥7,070,826   ¥(231,352 ¥6,839,474   ¥(6,830,800 ¥—     ¥8,674   ¥14,003,938  ¥(1,116,689 ¥12,887,249  ¥(12,885,505 ¥—    ¥1,744 

Derivative financial instruments

  6,671,250    (1,585,167  5,086,083    (3,102,895  (656,294  1,326,894   3,643,981  (592,208 3,051,773  (1,803,566 (472,156 776,051 
 

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

Total

 ¥13,742,076   ¥(1,816,519 ¥11,925,557   ¥(9,933,695 ¥(656,294 ¥1,335,568   ¥17,647,919  ¥(1,708,897 ¥15,939,022  ¥(14,689,071 ¥(472,156 ¥777,795 
 

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 
 At March 31, 2015 
 Gross amounts
of recognized
financial assets
and  liabilities
  Gross amounts
offset in statement
of financial
position(1)
  Net amounts
presented in
statement of
financial  position
  Related amounts not offset in
statement of financial position(3)
 Net amounts 
 Financial
instruments(4)
 Cash collateral 
 (In millions) 

Financial assets(5):

      

Reverse repurchase agreements and cash collateral on securities borrowed

 ¥7,218,498   ¥—     ¥7,218,498   ¥(7,202,069 ¥—     ¥16,429  

Derivative financial instruments

  6,825,760    (354,557  6,471,203    (4,570,657  (280,102  1,620,444  
 

 

  

 

  

 

  

 

  

 

  

 

 

Total

 ¥14,044,258   ¥(354,557 ¥13,689,701   ¥(11,772,726 ¥(280,102 ¥1,636,873  
 

 

  

 

  

 

  

 

  

 

  

 

 

Financial liabilities(5):

      

Repurchase agreements and cash collateral on securities lent

 ¥8,820,083   ¥—     ¥8,820,083   ¥(8,805,131 ¥—     ¥14,952  

Derivative financial instruments

  7,162,759    (422,972  6,739,787    (4,685,870  (730,600  1,323,317  
 

 

  

 

  

 

  

 

  

 

  

 

 

Total

 ¥15,982,842   ¥(422,972 ¥15,559,870   ¥(13,491,001 ¥(730,600 ¥1,338,269  
 

 

  

 

  

 

  

 

  

 

  

 

 

  At March 31, 2018 
  Gross amounts
of recognized
financial assets
and liabilities
  Gross amounts
offset in statements
of financial
position(1)
  Net amounts
presented in
statements of
financial position
  Related amounts not offset in
statements of financial position(2)
    
  Financial
instruments(3)
  Cash collateral  Net amounts 
  (In millions) 

Financial assets(4):

      

Reverse repurchase agreements and cash collateral on securities borrowed

 ¥9,346,594  ¥(854,891 ¥8,491,703  ¥(8,458,707 ¥—    ¥32,996 

Derivative financial instruments

  4,729,842   (844,571  3,885,271   (1,999,343  (479,814  1,406,114 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Total

 ¥14,076,436  ¥(1,699,462 ¥12,376,974  ¥(10,458,050 ¥(479,814 ¥1,439,110 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Financial liabilities(4):

      

Repurchase agreements and cash collateral on securities lent

 ¥12,877,484  ¥(854,891 ¥12,022,593  ¥(12,019,290 ¥—    ¥3,303 

Derivative financial instruments

  4,526,765   (1,028,749  3,498,016   (2,009,835  (587,693  900,488 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Total

 ¥17,404,249  ¥(1,883,640 ¥15,520,609  ¥(14,029,125 ¥(587,693 ¥903,791 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

 

(1)

Amounts offset for derivative financial instruments include cash collateral.

(2)Amounts offset in the consolidated statement of financial position increased at March 31, 2016 primarily due to a revision of contracts with a central counterparty in this fiscal year, which resulted in them qualifying for offsetting based on the criteria set forth in IAS 32.
(3)

The amounts of financial instruments and cash collateral have been limited to the net amounts presented in the consolidated statementstatements of financial position so as not to include any over-collateralization.

(3)

Financial instruments includenon-cash collateral at fair value.

(4)Financial instruments include non-cash collateral at fair value.
(5)

Financial assets and liabilities include amounts that are both subject to and not subject to enforceable master netting arrangements or similar agreements.

The “Gross amounts offset in statementstatements of financial position” column in the above tables represents the impact of offsetting of financial assets and liabilities in the consolidated statementstatements of financial position in accordance with the offsetting criteria. The SMFGSMBC Group presents financial assets and liabilities on a net basis in

the consolidated statementstatements of financial position only if it currently has a legally enforceable right to set off the recognized amounts and intends to settle on a net basis or realize the asset and settle the liability simultaneously.

The “Related amounts not offset in statementstatements of financial position” column comprises (1) financial assets and liabilities subject to netting arrangements, such as the International Swaps and Derivatives Association’s (“ISDA”) Master Agreement, master repurchase agreements and master securities lending agreements, which allow all the outstanding transactions with a particular counterparty to be set off only if the event of default or other predetermined events occur, and (2) cash andnon-cash collateral related to those transactions.

 

45

FINANCIAL RISK MANAGEMENT

The SMFGSMBC Group classifies risks into the following categories: credit risk, market risk, liquidity risk and operational risk (including processing risk and system risk).risk. This note presents information about the SMFGSMBC Group’s exposure to credit risk, market risk, and liquidity risk, and its policies and processes for measuring and managing these risks.

Risk Management System

The SMFG Group has established a basic approach for risk management. This basic approach includes establishing Group-wide basic policies for riskTop management providing all necessary implementation guidance to the SMFG Group companies and monitoringplays an active role in the risk management procedures implemented by all Group companies to ensure their practices meetprocess out of recognition for the relevant standards.

importance of risk management. The SMBC Group-wide basic policies for risk management are determined by the Management Committee which consists of designated Board Members, and such policies arebefore being authorized by the Boardboard of Directors. Thedirectors.

In line with these basic policies include the following:

Risk management on a Group-wide basis. Various risks taken at the SMFG Group companies are managed on a consolidated basis according to the nature of their business and significance in conformity with the relevant laws and regulations.

Risk management based on quantification. The risks are quantitatively managed according to the relevant risk characteristics after specifying the scope of quantification.

Ensuring consistency with the business strategy. Risk management is consistent with the business strategy.

System for check and balance. The risk management framework is developed to ensure effective check and balance function for business operations.

Measures for emergencies and critical situations. Necessary measures are developed by assuming situations and scenarios as to materialization of risk which would have a significant impact on the business and financial management of the SMFG Group.

Verification of the actual situation. The actual risk management process is verified by the Internal Audit Unit.

The policies also include fundamental principles for each risk category, which each SMFG Group company has to follow when establishing its own risk management, system. The Corporatethe functions for managing major risks are consolidated within the Risk Management Department, in cooperation with the Corporate Planning Department, performs risk management according to the above policies.Unit, which is independent from business units. In addition, the Internal Audit Department is responsible forDept. conducts internal audits on the independent reviewstatus of risk management within the SMFG Group.to verify that risk is appropriately managed.

Risk management systems are in place at the individual SMFGSMBC Group companies andthat have been established based on the characteristics of their particular businesses and in accordance with the Group-wide basic policies forpolicies. Furthermore, the SMBC Group is strengthening SMBC Group-wide risk management and implementation guidance provided by SMFG. Based on these policies and guidance, each SMFGsystems through the Group company implements guidelines and establishes processes for risk management. On an ongoing basis, these processes and risks are monitored by SMFG.

For example, at SMBC, specific departments have been appointed to oversee the handlingChief Risk Officer (“CRO”) Committee, which consists of the four risk categories listed above, in addition to the risks associated with settlement. Each risk category is managed taking into account, the particular characteristics of that category. In addition, the Risk Management Unit has been established—independent of the business units—Group CRO and the risk management system has been strengthened by consolidating the functions for managing risks—credit, market, liquidity, operational and settlement—into the Risk Management Unit and enhancing SMBC’s across-the-board risk monitoring ability. One board member is assigned to oversee the Risk Management Unit comprising the Corporate Risk Management Department and Credit & Investment Planning Department. The Corporate Risk Management Department—the unit’s planning department—seeks to manage all categories of risk in cooperation with the Corporate Planning Department. Moreover, the Internal Audit Unit—independent of all business units—conducts periodic audits to ensure that the management system is functioning properly.representatives from strategically important SMBC Group companies.

The decision-making process for addressing the risks at the operating level is also strengthened by the Credit Risk Management Committee and the Market Risk Management Committee, which are subcommittees of the Management Committee of SMBC.

The diagram below represents the risk management system of the SMFG Group and SMBC.SMBC Group.

 

LOGO

LOGO

Risk Capital-BasedCapital Management

In order to maintain a balance betweenmanaging credit risk, market risk, and return,operational risk affecting the SMFGentire SMBC Group, employsthe SMBC Group applies a uniform standard, risk capital-based management method. The SMFG Group measures “risk capital”capital based on VaRvalue at risk (“VaR”), for use in monitoring and other specific measures such as uniform basic measures of credit, market and operational risks,managing risks. This standard is applied while taking into account the special characteristics of each type of risk and of the business activitiesbusinesses of each SMFGSMBC Group company.

The SMFG Group then allocatescompanies. Specific risk capital to eachmeasures include setting upper limits for risk exposure based on SMBC Group-wide and business unit to keeprisk appetite and SMBC Group-wide management constitution. Each business unit operates business operation within that limit. Through these precautions, the total exposure to variousSMBC Group practices management that maintains an appropriate balance between risks within the scope of the SMFG Group’s resources, i.e., capital. The allocation to each unit is determined by the Management Committee and authorized by the Board of Directors. In this framework, risk capital includes credit concentration risk and interest rate risk in the banking book, which are taken into account under Pillar 2 of the Basel Capital Accord. In addition, the SMFG Group conducts risk capital management activitiesreturns based on a consolidated basis, including each SMFG Group company.

comprehensive perspective and secures sufficient financial soundness.

Credit Risk

Credit risk is the risk of incurring losses from decline or loss of the value of an asset (including off-balance sheet items) that is caused by a credit event including but not limited to the deterioration of financial condition of a borrower. Overseas credits transactions also entail country risk, which is closely related to credit risk. Country risk is the risk of incurring losses caused by changes in political or economic conditions. Credit exposures arise primarily from lending activities such as loans and advances, acquiring investment securities, derivative transactions, and off-balance sheet transactions such as unused portion of loan commitments.

Credit risk management system

Credit risk is the most significant risk to which the SMFGSMBC Group is exposed. The purpose of credit risk management is to keep the credit risk exposure to a permissible level relative to capital, to maintain the quality of assets and to ensure returns commensurate with risk.

On

At the SMBC Group, the Group CRO formulates credit risk management policies each year on the basis of Group-wide basic policies for risk management. The Credit & Investment Planning Department, responsible for the comprehensive management of credit risk, drafts and administers credit risk regulations including the SMFGGroup credit policies, manages non-performing loans (“NPLs”), and performs other aspects of credit portfolio management. Also, the Credit Risk Committee deliberates on matters related to Group-wide credit portfolios. The SMBC Group companies follow the fundamental principles established by the SMFGSMBC Group to assess and manage credit risk. Each SMFGof SMBC Group companycompanies manages credit risk according to the nature of its business, and assesses and manages the credit risks of individual loans and credit portfolios quantitatively, using consistent standards.

The following chart shows the credit risk management system of SMBC, the SMFGSMBC Group’s significant banking subsidiary.

 

LOGO

LOGO

At SMBC, the Credit & Investment Planning Department within the Risk Management Unit is responsible for the comprehensive management of credit risk. This department drafts and administers credit policies, the internal rating system, credit authority guidelines, and credit application guidelines, and manages non-performing loans (“NPLs”),NPLs, including impaired loans, and other aspects of credit portfolio management. The department also cooperates with

the Corporate Risk Management Department in quantifying credit risk (risk capital and risk-weighted assets) and controls SMBC’s entire credit risk. Further, the Credit Portfolio Management Department within the Credit & Investment Planning Department strives to stabilize the credit portfolio and manage the risk through credit derivatives, loan asset sales and other instruments.

The credit departments of SMBC within each business unit conduct credit risk management for loans handled by their unitsits unit and manage their units’ portfolios.portfolios of its unit. The credit limits they use are based on the baseline amounts that the Credit & Investment Planning Department establishes for each grading category, with particular attention paid to evaluating and managing customers or loans perceived to have particularly high credit risk. The Corporate Research Department engages in research on industries and analyzes the business and financial conditions of borrower enterprises to detect early signs of problems or growth potential.

The Credit Administration Department is responsible for handling NPLs of borrowers classified as potentially bankrupt or lower, and formulates plans for workouts, including write-offs, and corporate rehabilitation. The department closely liaises with SMBC Servicer Co., Ltd., an SMFGSMBC Group company, which engages in related services to efficiently reduce the amount of NPLs, including through the sale of loans.

The Internal Audit Unit of SMBC, operating independently of the business units, audits asset quality, accuracy of grading and state of credit risk management, and reports the results directly to the board of directors and the Management Committee.

SMBC has established the Credit Risk Committee to undertake control of credit risk and to ensure the overall soundness of the loan operations.

Credit risk management methods

To effectively manage the risk involved in individual loans as well as the credit portfolio as a whole, the SMBC Group first acknowledges that every loan entails credit risk, assesses the credit risk posed by each borrower and loan using an internal rating system, and quantifies that risk for control purposes.

Credit risk evaluation

TheAt SMBC, the Credit & Investment Planning Department manages an internal rating system for each asset control category set according to portfolio characteristics. For example, credits to commercial and industrial (“C&I”) companies, individuals for business purposes (domestic only), sovereigns, public sector entities, and financial institutions are assigned an “obligor grade,” which indicates the borrower’s creditworthiness, and/or “facility grade,” which indicates the collectability of assets taking into account the transaction conditions such as guarantee/collateral, and tenor. The business units determine an obligor grade by first assigning a financial grade using a financial strength grading model and data obtained from the obligor’s financial statements, including net worth and cash flows. The financial grade is then adjusted taking into account the actual state of the obligor’s financial position and qualitative factors to derive the obligor grade. The qualitative factors mainly include the expected future cash flows taking into account factors such as historical loss information, the appropriateness of the borrower’s business plan or operational improvement plan, the status of progress of its plan, and the overall support from financial institutions. In the event that the borrower is domiciled overseas, internal ratings for credit are made after taking into consideration the country rank, which represents an assessment of the credit quality of each country based on its political and economic situation, as well as its current account balance and external debt. Obligor grades and facility grades are reviewed once a year and as otherwise necessary, such as when there are changes in the credit situation. The SMFGSMBC Group’s subsidiaries carry out credit risk evaluations in line with SMBC.

The table below shows the corporate obligor grading system of SMBC.

 

Obligor Grade

 

Definition

 

Borrower Category

Domestic (C&I), etc. Overseas (C&I), etc.

J1

 G1 Very high certainty of debt repayment Normal
Borrowers

J2

 G2 High certainty of debt repayment

J3

 G3 Satisfactory certainty of debt repayment

J4

 

G4

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

J5

 

G5

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

J6

 

G6

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

J7

 

G7

 

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

 

Borrowers
Requiring
Caution

J7R

 

G7R

 

Obligors with loans that are more than three months past due or with restructured loans within the “Borrowers Requiring Caution” category

 

Substandard
Borrowers

J8

 

G8

 

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

 

Potentially
Bankrupt
Borrowers

J9

 

G9

 

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

 

Effectively
Bankrupt
Borrowers

J10

 

G10

 

Legally or formally bankrupt

 

Bankrupt
Borrowers

There are also grading systems for loans to individuals such as housing loans and structured finance including project finance, where the repayment source is limited to the cash flows generated by a particular business or asset. For example, the obligor grade of housing loans is determined taking into account various relevant factors such as proportion of the repayment to revenue, proportion of down payment to the value and past due information.

The Credit & Investment Planning Department of SMBC centrally manages the internal rating systems, and designs, operates, supervises and validates the grading models. It validates the grading models (including statistical validation) of main assets following the procedure manual once a year to ensure their effectiveness and suitability.

Quantification of credit risk

CreditAt SMBC, credit risk quantification refers to the process of estimating the degree of credit risk of a portfolio or individual loan taking into account not just the obligor’s probability of default (“PD”), but also the concentration of risk in a specific customer or industry and the loss impact of fluctuations in the value of collateral, such as real estate and securities.

Specifically, the PD by grade, loss given default (“LGD”), credit quality correlation among obligors, and other parameter values are estimated using the historical data of obligors and facilities stored in a database to calculate the credit risk. Then, based on these parameters, SMBC runs a simulation of simultaneous default using the Monte Carlo Simulation to calculate SMBC’s maximum loss exposure to the estimated amount of the maximum losses that may be incurred. Based on these quantitative results, SMBC allocates risk capital.

Risk quantification is also executed for purposes such as to determine the portfolio’s risk concentration or to simulate economic movements (stress tests), and the results are used for making optimal decisions across the whole range of business operations, including formulating business plans and providing a standard against which individual credit applications are assessed.

Credit assessment

At SMBC, the credit assessment of corporate loans involves a variety of financial analyses, including cash flows, to predict an enterprise’s capability of loan repayment and its growth prospects. These quantitative measures, when combined with qualitative analyses of industrial trends, the enterprise’s research and development capabilities, the competitiveness of its products or services, and its management caliber, result in a comprehensive credit assessment. The loan application is analyzed in terms of the intended utilization of the funds and the repayment schedule. In the assessment of housing loans for individuals, SMBC employs a credit assessment model based on credit data amassed and analyzed by SMBC over many years, taking into account various relevant factors including proportion of the repayment to revenue, proportion of down payment to the value and past due information.

Credit monitoring

At SMBC, in addition to analyzing loans at the application stage, the Credit Monitoring System is utilized to reassess obligor grades, and review credit policies for each obligor so that problems can be detected at an early stage, and quick and effective action can be taken. The system includes annual monitoring that is carried out each time the financial results of the obligor enterprise are obtained, as well as ad-hoc monitoring that is performed each time credit conditions change.

Credit portfolio management

Risk-taking within the scope of capital

To keep the credit risk exposure to a permissible level relative to capital, SMBC’sthe Corporate Risk Management Department of the Company sets a credit risk capital limit for internal control purposes. Under this limit, sub-limits are set for each business unit. The Corporate Risk Management Department conducts monthly monitoring to make sure that these limits are being followed.

Controlling concentration risk

OnceAs the SMBC Group’s equity capital may be materially impaired in the event that the credit concentration risk is realized,becomes apparent, the equity capital of SMBC may be materially impaired. SMBC’s Credit & Investment Planning Department of the Company therefore takes measures to manage concentration risks, such as introducing large exposure limits and conducting intensive loan reviews for obligors with large exposures, with an increased focus on industrial sectors with an excessive concentration of credit risk. Further, to manage country risk, theSMBC’s Credit Management Department of the International Banking Unit has credit limit guidelines based on each country’s creditworthiness.

Toward active portfolio management

SMBC’s Credit Portfolio Management Department makes use of credit derivatives, loan asset sales, and other instruments to proactively and flexibly manage its portfolio to stabilize credit risk.

Maximum exposure to credit risk before collateral held or other credit enhancements

The following table shows the maximum exposure to credit risk before taking into account any collateral held or other credit enhancements at March 31, 20162019 and 2015.2018.

 

  At March 31,   At March 31, 
  2016   2015   2019   2018 
  (In millions)   (In millions) 

Credit risk exposures relating to assets on the consolidated statement of financial position:

    

Credit risk exposures relating to assets on the consolidated statements of financial position:

    

Deposits with banks

  ¥42,179,465    ¥38,938,903    ¥56,700,489   ¥53,992,931 

Call loans and bills bought

   1,291,366     1,326,965     2,465,745    1,881,880 

Reverse repurchase agreements and cash collateral on securities borrowed

   8,236,516     7,218,498     10,345,994    8,491,703 

Trading assets

   3,174,309     2,618,593     2,480,903    2,841,148 

Derivative financial instruments

   5,290,825     6,471,203     3,382,574    3,885,271 

Financial assets at fair value through profit or loss

   1,582,571     1,654,259     2,620,686    1,528,921 

Investment securities:

        

Held-to-maturity investments

   2,267,542     3,396,895  

Available-for-sale financial assets

   12,349,910     14,413,448  

Debt instruments at amortized cost (At March 31, 2018: Held-to-maturity investments)

   318,914    372,459 

Debt instruments at FVOCI (At March 31, 2018: Available-for-sale financial assets)

   13,333,221    14,282,706 

Loans and advances

   88,862,371     86,971,716     90,682,938    85,129,070 

Other financial assets

   2,764,315     2,565,725     3,609,129    3,598,642 

Financial assets included in assets held for sale

   —      3,099,888 

Credit risk exposures relating to off-balance sheet items(1):

        

Loan commitments

   58,026,597     53,665,583     62,724,820    60,107,128 

Financial guarantees and other credit-related contingent liabilities

   7,349,903     7,076,536     9,409,066    8,426,245 
  

 

   

 

   

 

   

 

 

Total

  ¥233,375,690    ¥226,318,324    ¥258,074,479   ¥247,637,992 
  

 

   

 

   

 

   

 

 

 

(1)

The off-balance sheet items represent the nominal amounts of undrawn loan commitments, financial guarantees and other credit-related contingent liabilities.

Based on the table above, excluding loan commitments (refer to Note 41 “Contingency and Capital Commitments”), the majority of the total exposure to credit risk is derived from “Loans and advances” and “Available-for-sale“Debt instruments at FVOCI (At March 31, 2018: Available-for-sale financial assets.assets).

Collateral and other credit enhancements

The SMFGSMBC Group considers the acquisition of collateral and guarantees as a secondary repayment source to further enhance loan recovery and minimize credit risk. Based on the assessment of a borrower’s real financial condition and potential future cash flows, the SMFGSMBC Group shall analyze the borrower’s repayment ability and require sufficient collateral in the form of an asset or third-party obligation. This serves to mitigate the inherent credit risk in the exposure, by either improving recoveries in the event of a default or transferring the borrower’s obligation to guarantors. Collateral received is mainly segregated into (1) financial collateral such as cash, deposits and securities, (2) real estate collateral such as land and buildings, and (3) guarantees received from sovereigns, municipal corporations, credit guarantee corporations and other public entities, financial institutions, and other companies.

The SMFGSMBC Group’s credit risk management is mainly based on an analysis of the repayment ability from the cash flows of the borrower’s business performance, and the collateral and other credit enhancements are considered as secondary repayment sources in the SMFGSMBC Group’s business practice. At the time of the primary lending decision, the SMFGSMBC Group evaluates the collateral on an individual borrower basis to consider its

financial effect for mitigating credit risk. The frequencyre-evaluation of subsequentthe collateral reviews is dependentand other credit enhancements will be performed regularly, depending on the borrower’s creditworthiness. In case there is a significant change in the borrower’s repayment ability due to a

deterioration in its creditworthiness and/or its cash flows, the SMFGSMBC Group may utilize the collateral and other credit enhancements as a source of repayment. In such circumstances

The following table shows the re-evaluationfinancial effect of the collateral and other credit enhancements will be performed regularly.on impaired loans and advances at March 31, 2019. The maximum collateral amounts included in the disclosure are limited to the carrying value of loans and advances where the credit exposure is over-collateralized.

At March 31, 2019
(In millions)

Impaired loans and advances

¥882,018

Financial effect of collateral and other credit enhancements

325,896

The following table shows the financial effect of collateral and other credit enhancements on loans and advances for borrowers requiring caution and impaired loans and advances at March 31, 2016 and 2015.2018. The maximum collateral amounts included in the disclosure are limited to the carrying value of loans and advances where the credit exposure is over-collateralized.

 

   At March 31, 
   2016  2015 
   (In millions) 

Loans and advances for borrowers requiring caution and impaired loans and advances

  ¥  3,436,118   ¥  3,916,948  

Financial effect of collateral and other credit enhancements

   1,539,900    1,827,023  
At March 31, 2018
(In millions)

Loans and advances for borrowers requiring caution and impaired loans and advances

¥1,965,681

Financial effect of collateral and other credit enhancements

959,015

Concentration of risks of loans and advances with credit risk exposure

An analysis of concentrations of credit risk from loans and advances by geographical sector and industry sector at March 31, 20162019 and 20152018 is shown below. The concentration by geographical sector is measured based on the domicile of the borrower.

Geographical sector

 

  At March 31,   At March 31, 
  2016 2015   2019 2018 
  (In millions)   (In millions) 

Domestic

  ¥63,203,919   ¥62,232,077    ¥59,856,165  ¥57,830,627 

Foreign:

      

Americas

   10,722,157    9,587,777     12,382,463  11,221,244 

Europe

   4,982,442    4,699,266     5,988,133  4,949,471 

Asia

   7,603,424    8,549,341     9,720,884  8,423,747 

Others

   3,286,103    2,903,247     3,598,673  3,434,838 
  

 

  

 

   

 

  

 

 

Total foreign

   26,594,126    25,739,631     31,690,153  28,029,300 
  

 

  

 

   

 

  

 

 

Gross loans and advances

   89,798,045    87,971,708     91,546,318  85,859,927 

Adjust: Unearned income, unamortized premiums—net and deferred loan
fees—net

   (212,957  (206,440   (258,392 (239,181

Less: Allowance for loan losses

   (722,717  (793,552   (604,988 (491,676
  

 

  

 

   

 

  

 

 

Net loans and advances

  ¥88,862,371   ¥86,971,716  

Carrying amount

  ¥90,682,938  ¥85,129,070 
  

 

  

 

   

 

  

 

 

Industry sector

 

                                                  
  At March 31,   At March 31, 
  2016 2015   2019 2018 
  (In millions)   (In millions) 

Domestic:

      

Manufacturing

  ¥8,298,576   ¥8,061,654    ¥8,522,451  ¥7,961,620 

Agriculture, forestry, fisheries and mining

   184,314    171,855     288,099  145,957 

Construction

   1,169,900    1,150,616     918,617  947,765 

Transportation, communications and public enterprises

   5,258,899    5,175,949     5,596,935  5,424,054 

Wholesale and retail

   5,548,103    5,664,385     5,281,596  5,288,767 

Finance and insurance

   2,684,865    2,869,967     3,129,666  2,777,862 

Real estate and goods rental and leasing

   9,587,757    8,766,724     10,126,531  9,017,664 

Services

   4,960,352    4,776,706     4,328,173  4,255,228 

Municipalities

   1,374,306    1,353,949     866,373  1,000,286 

Lease financing

   2,212,048    2,211,773     9,030  14,629 

Consumer(1)

   18,935,521    18,817,259     16,187,195  16,363,489 

Others

   2,989,278    3,211,240     4,601,499  4,633,306 
  

 

  

 

   

 

  

 

 

Total domestic

   63,203,919    62,232,077     59,856,165  57,830,627 
  

 

  

 

   

 

  

 

 

Foreign:

      

Public sector

   236,290    164,495     360,875  372,008 

Financial institutions

   4,067,764    3,880,655     5,382,130  4,496,646 

Commerce and industry

   20,451,545    20,010,729     23,285,374  21,023,885 

Lease financing

   357,072    308,128     344,958  357,660 

Others

   1,481,455    1,375,624     2,316,816  1,779,101 
  

 

  

 

   

 

  

 

 

Total foreign

   26,594,126    25,739,631     31,690,153  28,029,300 
  

 

  

 

   

 

  

 

 

Gross loans and advances

   89,798,045    87,971,708     91,546,318  85,859,927 

Adjust: Unearned income, unamortized premiums—net and deferred loan
fees—net

   (212,957  (206,440   (258,392 (239,181

Less: Allowance for loan losses

   (722,717  (793,552   (604,988 (491,676
  

 

  

 

   

 

  

 

 

Net loans and advances

  ¥88,862,371   ¥86,971,716  

Carrying amount

  ¥90,682,938  ¥85,129,070 
  

 

  

 

   

 

  

 

 

 

(1)

The balance in Consumer mainly consists of housing loans. The housing loan balances amounted to ¥13,984,755¥11,216,711 million and ¥14,087,453¥11,482,678 million at March 31, 20162019 and 2015,2018, respectively.

The following tables show a disaggregation of the structured finance loans and advances balances, where the repayment source is limited to the cash flows generated by a particular business or asset, and the balances of secured or unsecured consumer loans at March 31, 20162019 and 2015.2018. These loans and advances are included in the preceding tables.

Structured finance:

 

                                                  
  At March 31,   At March 31, 
  2016 2015   2019   2018 
  (In millions)   (In millions) 

Real estate finance

  ¥1,971,892   ¥1,896,194    ¥2,493,748   ¥2,421,408 

Project finance

   3,326,624    2,988,040     3,978,779    3,976,222 

Other structured finance

   360,583    332,132     387,400    374,430 
  

 

  

 

   

 

   

 

 

Total structured finance

  ¥  5,659,099   ¥  5,216,366    ¥  6,859,927   ¥  6,772,060 
  

 

  

 

   

 

   

 

 

Consumer:

 

                                                  
  At March 31,   At March 31, 
  2016 2015   2019   2018 
  (In millions)   (In millions) 

Secured loans(1)

  ¥15,100,882   ¥15,193,732    ¥12,008,728   ¥12,255,845 

Unsecured loans

   3,834,639    3,623,527     4,178,467    4,107,644 
  

 

  

 

   

 

   

 

 

Total consumer

  ¥18,935,521   ¥18,817,259    ¥16,187,195   ¥16,363,489 
  

 

  

 

   

 

   

 

 

 

(1)

The secured loans and advances mainly represent housing loans. The housing loan balances amounted to ¥13,984,755¥11,216,711 million and ¥14,087,453¥11,482,678 million at March 31, 20162019 and 2015,2018, respectively.

Credit quality analysis

The following tables set out information about the gross carrying amount of financial assets and the exposure to credit risk on loan commitments and financial guarantee contracts by stage allocation and internal rating grades of SMBC. Refer to Note 2 “Summary of Significant Accounting Policies” for information on stage allocation. Also refer to Note 45 “Financial Risk Management” for information on obligor grading system of SMBC.

   At March 31, 2019 
   12-month
ECL
  Lifetime ECL
not credit-
impaired
  Lifetime ECL
credit-impaired
  Total 
   (In millions) 

Loans and advances at amortized cost:

     

Normal

     

J1-6

  ¥38,708,431  ¥191,177  ¥—    ¥38,899,608 

G1-6

   24,350,586   508,277   —     24,858,863 

Japanese government and local municipal corporations

   3,137,657   —     —     3,137,657 

Other(1)

   22,876,865   75,598   —     22,952,463 

Requiring caution

     

J7

   —     460,319   —     460,319 

G7

   —     171,441   —     171,441 

Other(1)

   —     183,949   —     183,949 

Impaired(2)

   —     —     882,018   882,018 
  

 

 

  

 

 

  

 

 

  

 

 

 

Gross loans and advances

   89,073,539   1,590,761   882,018   91,546,318 

Adjust: Unearned income, unamortized premiums—net and deferred loan fees—net

      (258,392

Less: Allowance for loan losses

   (158,094  (92,446  (354,448  (604,988
  

 

 

  

 

 

  

 

 

  

 

 

 

Carrying amount

     ¥90,682,938 
     

 

 

 

(1)

The balance of “Other” includes housing loans, which amounted to ¥11,084,927 million and ¥28,018 million for the borrower category of Normal and Requiring Caution, respectively.

(2)

“Impaired” refers to loans and advances related to borrowers with obligor grades not higher than 7R.

Modified loans and advances that were subject to lifetime ECL measurement amounted to ¥28,908 million for the fiscal year ended March 31, 2019. The net modification gain or loss is not material.

   At March 31, 2019 
   12-month
ECL
  Lifetime ECL
not credit-
impaired
  Lifetime ECL
credit-impaired
  Total 
   (In millions) 

Loan commitments and Financial Guarantees(1):

     

Gross carrying amount

  ¥28,842,267   ¥383,828   ¥13,435   ¥29,239,530  

Allowance for off-balance sheet items

   36,795   18,289   5,761   60,845 

(1)

Loan commitments are the undrawn components of loan commitments on which ECL can be separately identified from those on the drawn components.

Movements in ECL allowance

The following tables show reconciliations from the opening balance to the closing balance of the ECL allowance by class of financial instrument.

  For the fiscal year ended March 31, 
  2019  2018 
  12-month
ECL
  Lifetime ECL
not credit-
impaired
  Lifetime ECL
credit-impaired
  Total  Total 
  (In millions) 

Loans and advances at amortized cost(1):

     

Balance at April 1

 ¥164,515  ¥130,701  ¥356,404  ¥    651,620  ¥680,456 

Transfer to 12-month ECL

  832   (805  (27  —     —   

Transfer to lifetime ECL not credit-impaired

  (1,599  4,845   (3,246  —     —   

Transfer to lifetime ECL credit-impaired

  (1,966  (10,507  12,473   —     —   
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Net transfers between stages

  (2,733  (6,467  9,200   —     —   

Provision (credit) for loan losses(2)

  (4,265  (31,744  158,936   122,927   126,623 

Charge-offs(3)

  —     —     180,254   180,254   185,060 

Recoveries

  —     —     11,042   11,042   10,232 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Net charge-offs

  —     —     169,212   169,212   174,828 

Others

  577   (44  (880  (347  (140,575
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Balance at March 31

 ¥      158,094  ¥92,446  ¥354,448  ¥604,988  ¥491,676 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

(1)

“Loans and advances at amortized cost” includes allowance for undrawn components of loan commitments issued to retail customers which cannot be separately identified from that for the drawn components.

(2)

The decrease of allowance of lifetime ECL not credit-impaired is primarily due to certain large borrowers’ improvement of their financial performance.

(3)

Charge-offs for lifetime ECL credit-impaired are primarily related to those for consumer loans.

   For the fiscal year ended March 31, 2019 
   12-month
ECL
  Lifetime ECL
not credit-
impaired
  Lifetime ECL
credit-impaired
  Total 
   (In millions) 

Loan commitments and financial guarantees(1):

     

Balance at April 1

  ¥35,543  ¥  23,311  ¥  6,225  ¥       65,079 

Net transfers between stages

   (28  (228  256   —   

Provision (credit) for off-balance sheet items

            2,272   (4,794  (720  (3,242

Others

   (992  —     —     (992
  

 

 

  

 

 

  

 

 

  

 

 

 

Balance at March 31

  ¥36,795  ¥18,289  ¥5,761  ¥60,845 
  

 

 

  

 

 

  

 

 

  

 

 

 

(1)

ECL allowance for loan commitments is that for the undrawn components of loan commitments, which can be separately identified from that for the drawn components.

Loans and advances by credit quality categoryat March 31, 2018

Loans and advances are summarized as follows:

 

                                                  
   At March 31, 
   2016  2015 
   (In millions) 

Neither past due nor impaired

  ¥88,300,045   ¥86,206,087  

Past due but not impaired

   145,413    167,519  

Impaired(1)

   1,352,587    1,598,102  
  

 

 

  

 

 

 

Gross loans and advances

   89,798,045    87,971,708  

Adjust: Unearned income, unamortized premiums—net and deferred loan
fees—net

   (212,957  (206,440

Less: Allowance for loan losses

   (722,717  (793,552
  

 

 

  

 

 

 

Net loans and advances

  ¥88,862,371   ¥86,971,716  
  

 

 

  

 

 

 
At March 31,
2018
(In millions)

Neither past due nor impaired

¥84,856,335

Past due but not impaired

124,724

Impaired(1)

878,868

Gross loans and advances

85,859,927

Adjust: Unearned income, unamortized premiums—net and deferred loan fees—net

(239,181

Less: Allowance for loan losses

(491,676

Carrying amount

¥85,129,070

 

(1)

Loans and advances to borrowers who are classified in the borrower categories of substandard borrowers, potentially bankrupt borrowers, effectively bankrupt borrowers, and bankrupt borrowers described in the obligor grading system represent impaired loans and advances.

Loans and advances neither past due nor impaired

The following tables show the credit quality of the portfolio of loans and advances that were neither past due nor impaired, by geography and by industry based on the corporate obligor grading system of SMBC at March 31, 2016 and 2015.2018. Since the internal rating system of SMBC’s consumer portfolio differs from the corporate obligor grading system, the balances of loans and advances to consumers are included in the grade category of “Other.” Additionally, as the SMFGSMBC Group’s subsidiaries are adopting various internal rating systems which differ from SMBC, the grade category of “Other” also includes some balances of loans and advances held by those subsidiaries.

 

 At March 31, 2016  At March 31, 2018 
 Normal Requiring Caution    Normal Requiring Caution   
 J 1-3 J 4-6 Japanese
government
and local
municipal
corporations
 Other J 7 Other Total  J 1-3 J 4-6 Japanese
government
and local
municipal
corporations
 Other J 7 Other Total 
 (In millions)  (In millions) 

Domestic:

        

Manufacturing

 ¥4,079,745   ¥2,312,983   ¥—     ¥1,482,203   ¥249,514   ¥30,678   ¥8,155,123   ¥4,275,861  ¥2,190,117  ¥—    ¥1,196,566  ¥199,616  ¥22,681  ¥7,884,841 

Agriculture, forestry, fisheries and mining

  120,102    40,283    1,836    4,773    13,935    488    181,417   81,900  42,892  13,973  207  599   —    139,571 

Construction

  256,807    486,372    —      340,084    40,480    15,971    1,139,714   319,394  468,222   —    119,439  26,779  459  934,293 

Transportation, communications and public enterprises

  2,806,799    1,854,794    130,276    331,062    69,273    18,964    5,211,168   4,069,995  1,066,246  86,932  133,132  46,657  148  5,403,110 

Wholesale and retail

  2,100,074    2,339,099    —      762,215    148,212    33,427    5,383,027   2,333,434  2,399,747   —    297,583  155,584  1,421  5,187,769 

Finance and insurance

  1,771,768    344,988    3,777    541,677    1,192    12,959    2,676,361   1,801,410  349,934  2,785  618,935  1,630  5  2,774,699 

Real estate and goods rental and leasing

  4,835,253    2,931,969    60,172    1,379,394    123,198    97,519    9,427,505   5,696,289  3,082,764  13,696  95,634  87,218  7  8,975,608 

Services

  1,205,281    2,389,434    368,595    675,641    124,808    42,776    4,806,535   1,599,011  2,355,545  37,693  94,218  96,498  115  4,183,080 

Municipalities

  —      —      1,196,218    162,416    —      15,672    1,374,306    —     —    1,000,286   —     —     —    1,000,286 

Lease financing

  —      —      —      2,175,270    —      20,149    2,195,419    —     —     —    14,629   —     —    14,629 

Consumer(1)

  —      —      —      18,262,468    3,706    205,149    18,471,323    —    234   —    15,900,425  1,669  73,180  15,975,508 

Others

  75,001    2,054,174    240,406    430,588    134,481    2,130    2,936,780   53,633  2,057,571  1,685,694  728,206  69,005  680  4,594,789 
 

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

Total domestic

  17,250,830    14,754,096    2,001,280    26,547,791    908,799    495,882    61,958,678   20,230,927  14,013,272  2,841,059  19,198,974  685,255  98,696  57,068,183 
 

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 
 G 1-3 G 4-6  Other G 7 Other Total  G 1-3 G 4-6 —   Other G 7 Other Total 

Foreign:

              

Public sector

  186,590    43,537    —      5,786    —      346    236,259   191,678  81,448   —    97,890  30  941  371,987 

Financial institutions

  2,336,134    265,339    —      1,430,931    —      26,149    4,058,553   2,381,927  338,659   —    1,752,693   —    7,891  4,481,170 

Commerce and industry

  13,183,703    2,299,987    —      4,132,695    452,172    160,373    20,228,930   14,009,273  2,425,819   —    4,114,066  222,395  53,793  20,825,346 

Lease financing

  —      —      —      333,664    —      12,138    345,802   23,290   —     —    330,406   —    3,964  357,660 

Others

  961,363    176,170    —      317,251    5,496    11,543    1,471,823   1,194,334  161,795   —    383,463  9,964  2,433  1,751,989 
 

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

Total foreign

  16,667,790    2,785,033    —      6,220,327    457,668    210,549    26,341,367   17,800,502  3,007,721   —    6,678,518  232,389  69,022  27,788,152 
 

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

Total

 ¥33,918,620   ¥17,539,129   ¥2,001,280   ¥32,768,118   ¥1,366,467   ¥706,431   ¥88,300,045   ¥38,031,429  ¥17,020,993  ¥2,841,059  ¥25,877,492  ¥917,644  ¥167,718  ¥84,856,335 
 

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

 

(1)

The balance in the grade category of “Other” in Consumer includes housing loans, which amounted to ¥13,679,846¥11,302,350 million and ¥87,006¥51,189 million for the borrower category of Normal and Requiring Caution, respectively.

  At March 31, 2015 
  Normal  Requiring Caution    
  J 1-3  J 4-6  Japanese
government
and local
municipal
corporations
  Other  J 7  Other  Total 
  (In millions) 

Domestic:

 

Manufacturing

 ¥3,843,395   ¥2,265,065   ¥—     ¥1,493,017   ¥250,386   ¥40,969   ¥7,892,832  

Agriculture, forestry, fisheries and mining

  124,546    30,655    1,336    5,509    2,101    529    164,676  

Construction

  177,536    504,951    —      333,352    71,238    19,556    1,106,633  

Transportation, communications and public enterprises

  2,560,712    1,981,485    128,491    343,328    80,017    21,401    5,115,434  

Wholesale and retail

  2,052,654    2,478,098    —      735,796    170,310    38,242    5,475,100  

Finance and insurance

  1,848,302    414,844    4,317    574,410    1,541    14,368    2,857,782  

Real estate and goods rental and leasing

  3,660,159    3,293,563    73,853    1,240,569    163,554    106,891    8,538,589  

Services

  1,101,414    2,135,296    491,781    629,407    184,536    49,106    4,591,540  

Municipalities

  —      —      1,181,671    155,528    —      16,750    1,353,949  

Lease financing

  —      —      —      2,172,824    —      19,841    2,192,665  

Consumer(1)

  —      30    —      18,100,141    3,245    233,405    18,336,821  

Others

  20,437    2,031,238    506,805    410,493    172,733    3,517    3,145,223  
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Total domestic

  15,389,155    15,135,225    2,388,254    26,194,374    1,099,661    564,575    60,771,244  
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 
  G 1-3  G 4-6    Other  G 7  Other  Total 

Foreign:

       

Public sector

  86,490    42,137    —      34,310    —      1,544    164,481  

Financial institutions

  2,461,053    210,771    —      1,124,623    5,054    23,504    3,825,005  

Commerce and industry

  13,364,752    2,369,304    —      3,457,416    455,691    134,666    19,781,829  

Lease financing

  —      —      —      286,219    —      12,839    299,058  

Others

  872,088    136,065    —      342,176    394    13,747    1,364,470  
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Total foreign

  16,784,383    2,758,277    —      5,244,744    461,139    186,300    25,434,843  
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Total

 ¥32,173,538   ¥17,893,502   ¥2,388,254   ¥31,439,118   ¥1,560,800   ¥750,875   ¥86,206,087  
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

(1)The balance in the grade category of “Other” in Consumer includes housing loans, which amounted to ¥13,756,579 million and ¥94,374 million for the borrower category of Normal and Requiring Caution, respectively.

Loans and advances past due but not impaired

The SMFGSMBC Group assesses the credit quality of loans and advances taking into account past due information on a borrower basis, and does not comprehensively collate the data related to the age analysis of loans and advances that were past due but not impaired on an individual basis. The aggregate balances of loans and

advances of borrowers with one or more facilities, where any of the facilities are past due for less than three months but not impaired as at March 31, 2016 and 20152018 were ¥173,749 million and ¥196,804¥163,902 million, respectively. Those aggregate balances therefore include individual loans and advances which are not past due. Thus, in the tables below, the SMFGSMBC Group provides the amount of loans and advances where the final payment at contractual maturity is past due, by geography and by industry, at March 31, 2016 and 2015.2018. For reference, since all the loans and advances that are past due over three months are treated as impaired, those loans and advances are not included in the tables below.

 

  At March 31, 2016 
  Past due up to
1 month
  Past due
1-2  months
  Past due
2-3  months
  Total 
  (In millions) 

Domestic:

    

Manufacturing

 ¥889   ¥70   ¥20   ¥979  

Agriculture, forestry, fisheries and mining

  47    —      —      47  

Construction

  598    276    40    914  

Transportation, communications and public enterprises

  428    7    2    437  

Wholesale and retail

  3,419    399    55    3,873  

Finance and insurance

  161    35    —      196  

Real estate and goods rental and leasing

  472    288    907    1,667  

Services

  3,557    323    136    4,016  

Lease financing

  321    10    47    378  

Consumer

  43,644    14,159    20,505    78,308  

Others

  2    12    —      14  
 

 

 

  

 

 

  

 

 

  

 

 

 

Total domestic

  53,538    15,579    21,712    90,829  
 

 

 

  

 

 

  

 

 

  

 

 

 

Foreign:

    

Financial institutions

  600    2,176    3,915    6,691  

Commerce and industry

  7,925    2,031    33,987    43,943  

Others

  2,249    1,242    459    3,950  
 

 

 

  

 

 

  

 

 

  

 

 

 

Total foreign

  10,774    5,449    38,361    54,584  
 

 

 

  

 

 

  

 

 

  

 

 

 

Total

 ¥64,312   ¥21,028   ¥60,073   ¥145,413  
 

 

 

  

 

 

  

 

 

  

 

 

 

  At March 31, 2018 
  Past due up to
1 month
  Past due
1-2 months
  Past due
2-3 months
  Total 
  (In millions) 

Domestic:

    

Manufacturing

 ¥476  ¥50  ¥—    ¥526 

Agriculture, forestry, fisheries and mining

  —     —     —     —   

Construction

  1   10   51   62 

Transportation, communications and public enterprises

  45   —     —     45 

Wholesale and retail

  2,240   318   21   2,579 

Finance and insurance

  65   76   —     141 

Real estate and goods rental and leasing

  73   44   —     117 

Services

  245   —     —     245 

Lease financing

  —     —     —     —   

Consumer

  55,020   10,298   3,378   68,696 

Others

  2,791   44   21   2,856 
 

 

 

  

 

 

  

 

 

  

 

 

 

Total domestic

  60,956   10,840   3,471   75,267 
 

 

 

  

 

 

  

 

 

  

 

 

 

Foreign:

    

Financial institutions

  11,934   165   1,548   13,647 

Commerce and industry

  14,822   2,705   13,554   31,081 

Others

  2,402   1,676   651   4,729 
 

 

 

  

 

 

  

 

 

  

 

 

 

Total foreign

  29,158   4,546   15,753   49,457 
 

 

 

  

 

 

  

 

 

  

 

 

 

Total

 ¥90,114  ¥15,386  ¥19,224  ¥124,724 
 

 

 

  

 

 

  

 

 

  

 

 

 

  At March 31, 2015 
  Past due up to
1 month
  Past due
1-2  months
  Past due
2-3  months
  Total 
  (In millions) 

Domestic:

    

Manufacturing

 ¥1,617   ¥41   ¥56   ¥1,714  

Agriculture, forestry, fisheries and mining

  13    —      20    33  

Construction

  630    118    74    822  

Transportation, communications and public enterprises

  480    42    9    531  

Wholesale and retail

  4,262    351    138    4,751  

Finance and insurance

  597    73    1,957    2,627  

Real estate and goods rental and leasing

  679    49    248    976  

Services

  1,771    234    140    2,145  

Lease financing

  359    19    92    470  

Consumer

  43,124    19,926    16,890    79,940  

Others

  4    13    1    18  
 

 

 

  

 

 

  

 

 

  

 

 

 

Total domestic

  53,536    20,866    19,625    94,027  
 

 

 

  

 

 

  

 

 

  

 

 

 

Foreign:

    

Financial institutions

  1,266    1,058    32,911    35,235  

Commerce and industry

  7,428    4,538    21,289    33,255  

Others

  3,620    1,112    270    5,002  
 

 

 

  

 

 

  

 

 

  

 

 

 

Total foreign

  12,314    6,708    54,470    73,492  
 

 

 

  

 

 

  

 

 

  

 

 

 

Total

 ¥65,850   ¥27,574   ¥74,095   ¥167,519  
 

 

 

  

 

 

  

 

 

  

 

 

 

Impaired loans and advances

The following table shows the impaired loans and advances, by geography and by industry, at March 31, 2016 and 2015.2018.

 

   At March 31, 
   2016  2015 
   (In millions) 

Domestic:

   

Manufacturing

  ¥142,474   ¥167,108  

Agriculture, forestry, fisheries and mining

   2,850    7,146  

Construction

   29,272    43,161  

Transportation, communications and public enterprises

   47,294    59,984  

Wholesale and retail

   161,203    184,534  

Finance and insurance

   8,308    9,558  

Real estate and goods rental and leasing

   158,585    227,159  

Services

   149,801    183,021  

Lease financing

   16,251    18,638  

Consumer

   385,890    400,498  

Others

   52,484    65,999  
  

 

 

  

 

 

 

Total domestic

   1,154,412    1,366,806  
  

 

 

  

 

 

 

Foreign:

   

Public sector

   31    14  

Financial institutions

   2,520    20,415  

Commerce and industry

   178,672    195,645  

Lease financing

   11,270    9,070  

Others

   5,682    6,152  
  

 

 

  

 

 

 

Total foreign

   198,175    231,296  
  

 

 

  

 

 

 

Total impaired loans and advances before allowance for loan losses

   1,352,587    1,598,102  
  

 

 

  

 

 

 

Less: Allowance for loan losses for impaired loans and advances

   (613,510  (699,207
  

 

 

  

 

 

 

Net impaired loans and advances

  ¥739,077   ¥898,895  
  

 

 

  

 

 

 
At March 31,
2018
(In millions)

Domestic:

Manufacturing

¥76,253

Agriculture, forestry, fisheries and mining

6,386

Construction

13,410

Transportation, communications and public enterprises

20,899

Wholesale and retail

98,419

Finance and insurance

3,022

Real estate and goods rental and leasing

41,939

Services

71,903

Lease financing

—  

Consumer

319,285

Others

35,661

Total domestic

687,177

At March 31,
2018
(In millions)

Foreign:

Public sector

21

Financial institutions

1,829

Commerce and industry

167,458

Lease financing

—  

Others

22,383

Total foreign

191,691

Total impaired loans and advances before allowance for loan losses

878,868

Less: Allowance for loan losses for impaired loans and advances

(369,386

Net impaired loans and advances

¥509,482

Renegotiated loans and advances at March 31, 2018

The following table shows loans and advances at March 31 2016 and 20152018 that would otherwise be past due or impaired, but whose terms have been renegotiated without providing any financial concessions. These loans and advances are mainly classified as requiring caution in the table of “Loans and advances neither past due nor impaired” in the section “Loans and advances by credit quality category.”

The SMFGSMBC Group continually assesses the creditworthiness of a borrower for whom terms of the loans and advances have been renegotiated, taking into account the actual state of the borrower’s financial position and qualitative factors. Further details are described in “Credit risk evaluation” in the section “Credit risk management methods.” Loans and advances whose terms have been renegotiated and financial concessions have been provided are reported as impaired and included in the table of “Impaired loans and advances” in the section “Loans and advances by credit quality category.”

 

   At March 31, 
   2016   2015 
   (In millions) 

Renegotiated loans and advances

  ¥516,434    ¥664,973  
At March 31,
2018
(In millions)

Renegotiated loans and advances

¥292,466

Trading assets, financial assets at fair value through profit or loss and investment securities

The following table shows an analysis of trading assets, financial assets at fair value through profit or loss held-to-maturityand debt instruments at amortized cost (held-to-maturity investments at March 31, 2018) and available-for-saleat fair value through other comprehensive income (available-for-sale financial assets at March 31, 2018) based on the external rating system at March 31, 20162019 and 2015,2018, excluding instruments with equity instruments.features. Collateral is generally not obtained directly from the issuers.

 

                                                                                                            
  At March 31, 2016   At March 31, 2019 
  Trading assets   Financial assets at
fair value through
profit or loss
   Held-to-maturity
investments
   Available-for-sale
financial assets
   Total   Trading assets(1)   Financial assets at
fair value through
profit or loss(1)
   Debt instruments at
amortized cost(1)(2)
   Debt instruments at
fair  value through
other comprehensive
income(1)(2)
 
  (In millions)   (In millions) 

AAA

  ¥380,538    ¥—      ¥—      ¥3,849,722    ¥4,230,260    ¥242,984   ¥12,537   ¥—     ¥6,520,641 

AA- to AA+

   2,543,308     1,570,904     2,267,542     7,869,813     14,251,567     1,907,495    1,254,294    280,246    5,930,057 

A- to A+

   188,014     —       —       122,019     310,033     182,306    29,233    203    235,065 

Lower than A-

   58,580     —       —       481,594     540,174     80,851    165,108    38,387    642,091 

Unrated

   3,869     11,667     —       26,762     42,298     4,652    568    78    15,313 
  

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

 

Total

  ¥3,174,309    ¥1,582,571    ¥2,267,542    ¥12,349,910    ¥19,374,332    ¥2,418,288   ¥1,461,740   ¥318,914   ¥13,343,167 
  

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

 

Impaired available-for-sale financial assets with a carrying amount of ¥1,276 million at March 31, 2016 are included in the table above.

 

   At March 31, 2015 
   Trading assets   Financial assets at
fair value through
profit or loss
   Held-to-maturity
investments
   Available-for-sale
financial assets
   Total 
   (In millions) 

AAA

  ¥460,501    ¥—      ¥—      ¥3,009,194    ¥3,469,695  

AA- to AA+

   1,865,555     1,615,640     3,396,895     10,729,868     17,607,958  

A- to A+

   275,434     —       —       216,447     491,881  

Lower than A-

   15,612     —       —       436,979     452,591  

Unrated

   1,491     38,619     —       20,960     61,070  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

  ¥2,618,593    ¥1,654,259    ¥3,396,895    ¥14,413,448    ¥22,083,195  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
(1)

The amounts represent fair value for trading assets and financial assets at fair value through profit or loss, whereas they represent the gross carrying amount for debt instruments at amortized cost and at fair value through other comprehensive income.

(2)

There were no debt instruments at amortized cost or debt instruments at fair value through other comprehensive income subject to lifetime ECL at March 31, 2019.

There are no impaired available-for-sale financial assets at March 31, 2015 in the table above.

                                                                                                            
   At March 31, 2018 
   Trading assets(1)   Financial assets at
fair value through
profit or loss(1)
   Held-to-maturity
investments(1)
   Available-for-sale
financial assets(1)(2)
 
   (In millions) 

AAA

  ¥190,650   ¥—     ¥—     ¥4,865,723 

AA- to AA+

   2,399,644    1,518,748    372,459    8,538,879 

A- to A+

   192,943    —      —      276,042 

Lower than A-

   56,458    —      —      532,626 

Unrated

   1,453    10,173    —      69,436 
  

 

 

   

 

 

   

 

 

   

 

 

 

Total

  ¥2,841,148   ¥1,528,921   ¥372,459   ¥14,282,706 
  

 

 

   

 

 

   

 

 

   

 

 

 

(1)

The amounts represent carrying amounts.

(2)

Impaired available-for-sale financial assets with a carrying amount of ¥154 million at March 31, 2018 are included.

Credit risk from derivative financial instruments

The SMFGSMBC Group maintains control limits on derivative positions, by both amount and term. At any one time, the amount subject to credit risk is limited to the fair value of derivative financial instruments that are favorable to the SMFGSMBC Group (i.e., assets where their fair value is positive).

The SMFGSMBC Group’s credit risk from derivatives is mitigated where possible through netting agreements whereby derivative assets and liabilities with the same counterparty can be offset. Netting agreements, such as the ISDA master agreement, allow the netting of obligations arising under all of the derivative transactions that the agreement covers upon the counterparty’s default, regardless of maturity and currency, resulting in a single net claim against the counterparty. The SMFGSMBC Group’s credit risk is also mitigated by collateral arrangements through the credit support annex, resulting in collateral delivered or received regularly based on the replacement costs of derivatives.

Market Risk and Liquidity Risk

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. The purpose of market risk management is to keep the market risk exposure to a permissible level relative to capital.

Liquidity risk is defined as the uncertainty around the ability to meet debt obligations without incurring unacceptably large losses. An example of such risk is the possible inability to meet current and future cash flow/collateral needs, both expected and unexpected. In such cases, the SMFGSMBC Group may be required to raise funds at less than favorable rates or be unable to raise sufficient funds for settlement. The purpose of liquidity risk management is to ensure that the SMFGSMBC Group is in a position to address its liquidity obligations through monitoring the liquidity gap between assets and liabilities, and by maintaining highly liquid supplementary funding resources.

On the basis of the SMBC Group-wide basic policies for risk management, the SMFGSMBC Group has a quantitative management process to control market and liquidity risks on aan SMBC Group-wide basis by setting allowable risk limits by company. The SMFGSMBC Group at least annually reviews and identifies which companies primarily carry the market and liquidity risks within the SMBC Group. The SMFGSMBC Group sets permissible levels

and upper limits of risk for each identified company in consideration of those companies’ business plans. The SMFGSMBC Group ensures that each identified company establishes a risk management system that is appropriate to the risks it faces, and has built-in transparent risk management processes which clearly separating front, office, middle office and back office operations, and establishingestablishes a control system of mutual checks and balances.

Framework for market and liquidity risk management

The Boardboard of Directorsdirectors authorizes important matters relating to the management of market and liquidity risks, such as the basic policies and risk limits, which are decided by the Management Committee.

Additionally, at SMBC, the The Corporate Risk Management Department, which is independent of the business units that directly handle market transactions, manages market and liquidity risks in an integrated manner. The Corporate Risk Management Department is the planning department of the Risk Management Unit, which is independent of the business units that directly handle market transactions, and not only monitors the current risk situations but also reports regularly to the Management Committee and the Boardboard of Directors. Furthermore, SMBC’sdirectors.

Additionally, the Asset Liability Management (“ALM”) Committee meets on a quarterly basis to examine reports on the state of market and liquidity risk management and to discuss the Group’s ALM operation policies. Furthermore, SMBC’s ALM Committee meets on a monthly basis to examine reports on the state of observance of SMBC’s limits on market and liquidity risks, and to review and discuss SMBC’s ALM operations.

To prevent unforeseen processing errors as well as fraudulent transactions, it is important to establish aUnder the SMBC Group’s internal audit system, of checks on the business units (front office). At SMBC, both the processing departments (back office) and the administrative departments (middle office) conduct the checks. In addition, the Internal Audit Unit of SMBCinternal audits are also periodically performs internal auditsperformed to verify that the risk management framework is functioning properly.

The following chart shows the market and liquidity risk management system of SMBC.

 

LOGOLOGO

Market risk management methods

The SMFGSMBC Group manages market risk derived from trading activities and non-trading activities, including strategic equity investmentshareholding investments and other transactions within the risk capital limit which is determined by taking into account SMFG’s shareholders’ equity and other principal indicators of the financial position. The SMFGSMBC Group also establishes an upper limit on VaR and losses within the risk capital limits.

The SMFGSMBC Group’s market risk can be divided into various factors: interest rates, foreign exchange rates, equity prices and option risks. The SMFGSMBC Group manages each of these risks by employing the VaR method as well as supplemental indicators suitable for managing each risk, such as the basis point value (“BPV”).

VaR is the largest predicted loss that is possible given a fixed confidence interval. For example, the SMFGSMBC Group’s VaR indicates the largest loss that is possible for a holding period of one day and a confidence interval of 99.0%. BPV is the amount of change in assessed value as a result of a one-basis-point (0.01%) movement in interest rates.

Value at risk

The principal SMFGSMBC Group companies’ internal VaR model makes use of historical data to prepare scenarios for market fluctuations and, by conducting simulations of gains and losses on a net position basis, the model estimates the maximum losses that may occur. The VaR calculation method the SMFGSMBC Group employs for both trading and non-trading activities is based mainly on the following:

 

the historical simulation method;

 

a one-sided confidence interval of 99.0%;

a one-day holding period (a one-year holding period for the strategic equityshareholding investment portfolio); and

 

an observation period of four years (ten years for the strategic equityshareholding investment portfolio).

This method is reviewed periodically and refined, if necessary.

The relationship between the VaR calculated withby the model and the actual profit and loss data is back-tested periodically. There were no significant excess losses in the back-testing results including the trading accounts. The back-testing results are reviewed by management, which also monitors the ongoing suitability of the VaR model.

The following tables show the SMFGSMBC Group’s VaR by risk category and these figures are prepared based on the internal reporting provided to management. The SMFGSMBC Group’s material market risk exposure categories consist of interest rate risk, foreign exchange risk, equities and commodities risk and others. The section headed “VaR for Trading Activity” shows VaR for instruments entered into for trading purposes and the VaR model for the trading book includes principal consolidated subsidiaries. The section headed “VaR for Non-Trading Activity” shows VaR for instruments entered into for purposes other than trading purposes. “Strategic EquityShareholding Investment” in the “VaR for Non-Trading Activity” section is a portfolio that consists principally of publicly traded Japanese equities. This portfolio, like that of other financial institutions in Japan, has historically included shares of the SMFGSMBC Group’s customers.

 

 (a)

VaR for Trading Activity

The aggregate VaR for the SMFG Group’s total trading activities at March 31, 2016 was ¥11.0 billion, a decrease from ¥14.5 billion at March 31, 2015 primarily due to a decrease in the net risk exposure of equities.

 Interest rate
risk
 Foreign
exchange risk
 Equities and
commodities
risk
 Others Total(1)  Interest rate
risk
 Foreign
exchange risk
 Equities and
commodities
risk
 Others Total(1) 
 (In billions)  (In billions) 

For the fiscal year ended March 31, 2016:

     

For the fiscal year ended March 31, 2019:

     

SMBC Consolidated

          

Maximum

 ¥15.8   ¥3.7   ¥5.9   ¥1.7   ¥21.4   ¥5.7  ¥6.2  ¥3.2  ¥4.6  ¥13.5 

Minimum

  6.3    0.3    0.5    0.8    8.6   2.3  3.0  0.0  3.0  5.7 

Daily average

  10.0    1.4    1.8    1.2    13.3   4.0  4.1  0.8  3.8  7.6 

At March 31, 2016

  7.6    1.1    1.1    1.3    10.4  

At March 31, 2019

 4.5  4.7  0.1  3.8  6.6 

SMFG Consolidated

          

Maximum

 ¥16.5   ¥3.7   ¥6.2   ¥1.7   ¥22.5   ¥19.0  ¥6.9  ¥17.1  ¥4.6  ¥33.0 

Minimum

  7.0    0.3    0.7    0.8    9.6   8.5  3.2  1.7  3.0  14.7 

Daily average

  10.6    1.4    2.0    1.2    14.2   12.8  4.4  3.9  3.8  19.7 

At March 31, 2016

  8.1    1.1    1.2    1.3    11.0  

At March 31, 2019

 10.5  5.1  3.9  3.8  16.4 
 Interest rate
risk
 Foreign
exchange risk
 Equities and
commodities
risk
 Others Total(1)  Interest rate
risk
 Foreign
exchange risk
 Equities and
commodities
risk
 Others Total(1) 
 (In billions)  (In billions) 

For the fiscal year ended March 31, 2015:

     

For the fiscal year ended March 31, 2018:

     

SMBC Consolidated

          

Maximum

 ¥11.9   ¥3.6   ¥9.6   ¥1.1   ¥19.0   ¥3.2  ¥4.3  ¥3.9  ¥3.6  ¥11.2 

Minimum

  4.6    0.7    3.1    0.6    8.9   1.3  1.2  0.0  1.4  3.5 

Daily average

  6.7    1.7    5.9    0.8    13.9   2.1  2.4  1.5  2.3  7.2 

At March 31, 2015

  6.5    1.3    5.9    1.0    13.8  

At March 31, 2018

 2.6  3.6  0.0  3.2  8.1 

SMFG Consolidated

          

Maximum

 ¥12.5   ¥3.6   ¥9.9   ¥1.1   ¥20.2   ¥30.9  ¥5.0  ¥11.4  ¥3.6  ¥39.5 

Minimum

  5.4    0.7    3.2    0.6    9.9   6.7  1.5  4.3  1.4  14.5 

Daily average

  7.4    1.7    6.2    0.8    14.8   12.3  3.0  6.3  2.3  22.1 

At March 31, 2015

  7.2    1.3    6.0    1.0    14.5  

At March 31, 2018

 11.3  4.3  4.3  3.2  21.5 

 

(1)

Total for “Maximum,” “Minimum,” and “Daily average” represent the maximum, minimum and daily average of the total of the trading book. For certain subsidiaries, the SMFGSMBC Group employs the standardized method and/or the historical simulation method for the VaR calculation method.

 (b)

VaR for Non-Trading Activity

 

 (i)

Banking

The aggregate VaR for the SMFG Group’s total banking activities at March 31, 2016 was ¥34.0 billion, a decrease from ¥39.0 billion at March 31, 2015 primarily due to a decrease in the net risk exposure of equities.

  Interest rate
risk
  Foreign
exchange risk
  Equities and
commodities
risk
  Others  Total(1) 
  (In billions) 

For the fiscal year ended March 31, 2019:

     

SMBC Consolidated

     

Maximum

 ¥37.4  ¥0.0  ¥33.7  ¥0.0  ¥48.4 

Minimum

  27.4   0.0   17.8   0.0   36.0 

Daily average

  31.1   0.0   24.3   0.0   40.4 

At March 31, 2019

  37.2   0.0   19.8   0.0   43.9 

SMFG Consolidated

     

Maximum

 ¥38.4  ¥0.0  ¥33.7  ¥0.0  ¥50.6 

Minimum

  28.4   0.0   17.8   0.0   37.0 

Daily average

  33.0   0.0   24.3   0.0   42.3 

At March 31, 2019

  38.2   0.0   19.8   0.0   44.8 

 

  Interest rate
risk
  Foreign
exchange risk
  Equities and
commodities
risk
  Others  Total(1) 
  (In billions) 

For the fiscal year ended March 31, 2016:

     

SMBC Consolidated

     

Maximum

 ¥26.2   ¥0.0   ¥34.5   ¥0.0   ¥48.0  

Minimum

  13.8    0.0    17.4    0.0    23.1  

Daily average

  20.0    0.0    28.7    0.0    37.8  

At March 31, 2016

  18.3    0.0    27.4    0.0    33.6  

SMFG Consolidated

     

Maximum

 ¥26.9   ¥0.0   ¥34.6   ¥0.0   ¥48.9  

Minimum

  14.1    0.0    17.5 ��  0.0    23.5  

Daily average

  20.8    0.0    28.7    0.0    38.7  

At March 31, 2016

  18.7    0.0    27.5    0.0    34.0  

 Interest rate
risk
 Foreign
exchange risk
 Equities and
commodities
risk
 Others Total(1)  Interest rate
risk
 Foreign
exchange risk
 Equities and
commodities
risk
 Others Total(1) 
 (In billions)  (In billions) 

For the fiscal year ended March 31, 2015:

     

For the fiscal year ended March 31, 2018:

     

SMBC Consolidated

          

Maximum

 ¥23.7   ¥0.0   ¥40.3   ¥0.0   ¥45.1   ¥31.5  ¥0.0  ¥39.9  ¥0.0  ¥54.5 

Minimum

  13.6    0.0    28.4    0.0    35.6   25.2  0.0  21.5  0.0  38.0 

Daily average

  18.2    0.0    33.7    0.0    40.7   27.4  0.0  30.4  0.0  44.4 

At March 31, 2015

  16.8    0.0    31.0    0.0    37.8  

At March 31, 2018

 31.3  0.0  28.1  0.0  45.7 

SMFG Consolidated

          

Maximum

 ¥24.6   ¥0.0   ¥40.4   ¥0.0   ¥46.1   ¥34.0  ¥0.0  ¥39.9  ¥0.0  ¥57.0 

Minimum

  14.4    0.0    28.5    0.0    36.6   27.8  0.0  21.6  0.0  40.8 

Daily average

  19.2    0.0    33.8    0.0    41.7   30.2  0.0  30.5  0.0  47.2 

At March 31, 2015

  18.0    0.0    31.1    0.0    39.0  

At March 31, 2018

 33.7  0.0  28.1  0.0  48.2 

 

(1)

Total for “Maximum,” “Minimum,” and “Daily average” represent the maximum, minimum and daily average of the total of the banking book.

 (ii)

Strategic EquityShareholding Investment

The aggregate VaR for the SMFG Group’s strategic equity investment at March 31, 2016 was ¥1,387.6 billion, a decrease from ¥1,447.7 billion at March 31, 2015 primarily due to a decrease in the fair value of the strategic equity investment portfolio.

 

   Equities risk 
   (In billions) 

For the fiscal year ended March 31, 2016:2019:

  

SMBC Consolidated

  

Maximum

  ¥1,529.51,430.4 

Minimum

   1,132.5980.0 

Daily average

   1,397.71,246.6 

At March 31, 20162019

   1,247.01,006.3 

SMFG Consolidated

  

Maximum

  ¥1,677.11,622.5 

Minimum

   1,259.21,114.8 

Daily average

   1,542.11,414.6 

At March 31, 20162019

   1,387.61,156.0 

   Equities risk 
   (In billions) 

For the fiscal year ended March 31, 2015:2018:

  

SMBC Consolidated

  

Maximum

  ¥1,500.41,622.9 

Minimum

   1,067.91,309.8 

Daily average

   1,261.91,456.6 

At March 31, 20152018

   1,400.51,389.4 

SMFG Consolidated

  

Maximum

  ¥1,549.11,855.9 

Minimum

   1,105.31,488.1 

Daily average

   1,304.31,664.2 

At March 31, 20152018

   1,447.71,603.6 

Stress tests

The market occasionally undergoes extreme fluctuations that exceed projections. Therefore, to manage market risk, it is important to run simulations of situations that may occur only once in many years, or so-called stress tests. To prepare for unexpected market swings, the SMBC Group performs stress tests on a monthly basis based on various scenarios.

The limitations of the VaR methodology include the following:

 

The use of historical data as a proxy for estimating future events may underestimate the probability of extreme market movements. Past market movement is not necessarily a good indicator of future events;

 

The use of a holding period assumes that all positions can be liquidated or hedged in that period of time. This assumption does not fully capture the market risk arising during periods of illiquidity, when liquidation or hedging in that period of time may not be possible;

 

The use of a confidence level neither takes account of, nor makes any statement about, any losses that might occur beyond this level of confidence; and

 

VaR does not capture all of the complex effects of the risk factors on the value of positions and portfolios and could underestimate potential losses.

Additional information for the certain risks

 

 (a)

Interest rate risk

To supplement the above limitations of VaR methodologies, the SMFGSMBC Group adopts various indices to measure and monitor the sensitivity of interest rates, including delta, gamma and vega risks. The SMFGSMBC Group considers BPV as one of the most significant indices to manage interest rate risk. BPV is the amount of change in the value to the banking and trading book as a result of a one-basis-point (0.01%) movement in interest rates. The principal SMFGSMBC Group companies use BPV to monitor interest rate risk, not only on a net basis, but also by term to prevent the concentration of interest rate risk in a specific period. The table “Outlier ratio” presented below is one of the sensitivity analyses for interest rate risk concerning the banking book using the BPV approach. In addition, as previously addressed, the SMFGSMBC Group enhances the risk management methods of VaR and BPV by using them in combination withback-testing and stress tests.

Interest rate risk substantially changes depending on the method used for recognizing the expected maturity dates of demand deposits that can be withdrawn at any time, or the method used for estimating the timing of cancellation prior to maturity of time deposits and consumer housing loans. At SMBC, the maturity of demand deposits that are expected to be left with the bank for a prolonged period is regarded to be, at the longest, five years (2.5 years on average), and the cancellation prior to maturity of time deposits and consumer housing loans is estimated based on historical data.

InBased on the eventnew standards for interest rate risk in the banking book issued by the Basel Committee on Banking Supervision (“BCBS”) in April 2016, the FSA revised the related regulatory guidelines pertaining to monitoring of interest rate risks in the banking book in December 2017. The revised disclosure requirements with respect to the changes in economic value of a bank declines by more than 20% of total capitalequity (“DEVE”) in the banking book as a result of interest rate shocks that bank would fall intohave been applied from March 31, 2018.DEVE is defined as a decline in economic value as a result of an interest rate shock. It is calculated by multiplying the categoryinterest rate sensitivity (excluding credit spread) and interest rate change. The FSA implements a “materiality test” to identify banks taking excessive interest rate risks. Under the materiality test, the FSA monitors the ratio of “outlier bank,” as stipulated under Pillar 2DEVE to Tier 1 capital based on a set of prescribed interest rate shock scenarios. The threshold applied by the Basel Capital Accord. This ratio, known asFSA is 15% and the outlier ratio, was 2.1%ratios for SMBC on a consolidated basis at March 31, 2016, substantially below the 20% criterion. The decline in economic value based on the outlier framework of SMBC2019 and 2018 were 7.8% and 4.8%, respectively and those for SMFG on a consolidated basis is shown in the following table.at March 31, 2019 and 2018 were 6.8% and 4.2%, respectively.

   At March 31, 
   2016  2015 
   (In billions, except percentages) 

SMBC Consolidated

   

Total

  ¥215.0   ¥132.6  

Impact of yen interest rates

   48.0    21.2  

Impact of U.S. dollar interest rates

   109.7    57.4  

Impact of euro interest rates

   40.1    25.5  

Percentage of total capital

   2.1  1.3

Note:Decline in economic value is the decline of the present value of a banking portfolio after interest rate shocks (1st and 99th percentile of observed interest rate changes using a one-year holding period and an observation period of five years).

 

 (b)

Foreign exchange risk

The principal SMFGSMBC Group companies set risk limits for each currency to manage the concentration of the foreign currency position. The foreign exchange risk is immaterial as shown above in VaR by risk category.

 

 (c)

Strategic equityshareholding investment risk

The SMFGSMBC Group establishes limits on allowable risk for strategic equityshareholding investments and monitors the observance of those limits to keep stock price fluctuation risk within acceptable parameters. The SMFGSMBC Group has been reducing its strategic equityshareholding investments, and the balance is within a permitted level, which is less than 100% of the SMFGSMBC Group’s Tier 1 Capital.

Liquidity risk management methods

The SMFGAt SMBC Group, and SMBC regard liquidity risk is regarded as one of the major risks, and the SMFG Group identifies group companies which have significantrisks. The Group’s liquidity risk. Each of the identified group companies, including SMBC, establishes a fundamental risk management framework. For example, SMBC manages liquidity riskis based on a framework consisting of setting upper limits for “funding gaps,” maintaining highly liquid supplementary funding sourcesRisk Appetite Measures and establishing contingency plans.

AThe Risk Appetite Measures are measures for selecting the types and levels of risk that we are willing to take on or tolerate. As the level of liquidity risk is evaluated based on cash flow and balance sheet conditions, Risk Appetite Measures have been set for both of these areas. These measures include the Liquidity Coverage Ratio, a liquidity regulation, as well as a measure of the periods for which it will be possible to maintain funding gap

levels even under stress due to deposit outflows or other factors, and the ratio which shows how much the stable funding covers the funding for loans and other assets.

The tolerated levels of risk are set based on account funding status, cash management planning, economic environments and other factors, and measures are monitored on a daily or monthly basis in order to limit reliance on short-term funding and appropriately manage liquidity.

As a framework to complement the Risk Appetite Measures, upper limits are set in place on both a Group company basis and an individual branch bases with regard to funding gaps, which is defined as a maturity mismatch between athe source of funds and the use of funds. SMBC actively manages this funding gap by setting limits on the size of gaps over a given time horizon and limiting reliance on short-term funding. These limits are established on both a SMBC-wide basis and individual branch basis, taking into account cash management planning, systemic factors, and funding status, among other factors. Additionally, funding gap limits are set for individual currencies if necessary. SMBC actively monitors funding gaps on a daily basis. Further, stress tests are regularly carried out by simulating the impact triggered, for example, by the outflow of deposits or having difficulties in funding from money markets, in order to thoroughly comprehend the amount required to fund when the liquidity risk is realized. Additionally, funding liquidity is maintained by holding assets, such as U.S. government bonds, which can be immediately converted to cash, or establishing borrowing facilities to be used as supplementary funding sources in an emergency, in order to smoothly raise the required funds even during market disruption.

Furthermore, contingency plans are developed to respond to the liquidity risk when being realized, by creatingestablished in preparation for emergency situations. These plans contain information on chains of command and lines of reporting as well as detailed action plans such as lowering the upper limit for the funding gap, depending on the existing situation (i.e., normal, concerned, or critical)crisis). Meanwhile, SMBC carries out quantitative management of alert indications based on early warning indicators established to assist the bank in promptly and the respective circumstances.systematically detecting liquidity risks.

Maturity analysis of financial liabilities at March 31, 20162019 and 20152018

The following tables show a maturity analysis of the contractual undiscounted cash flows for financial liabilities at March 31, 20162019 and 2015.2018. The amount of interest on debt instruments is not included in the maturity tables below due to its insignificance.

 

 At March 31, 2016  At March 31, 2019 
 On demand Not later than
three months
 Later than
three months
and not later
than one year
 Later than
one year and
not later than
three years
 Later than
three years and
not later than
five years
 Later than
five years
 Total  On demand Not later than
three months
 Later than
three months
and not later
than one year
 Later than
one year and
not later than
three years
 Later than
three years and
not later than
five years
 Later than
five years
 Total 
 (In millions)  (In millions) 

Non-derivative financial instruments:

              

Deposits

 ¥70,422,036   ¥34,168,661   ¥15,628,231   ¥3,914,994   ¥864,321   ¥918,857   ¥125,917,100   ¥86,004,575  ¥30,361,892  ¥13,281,352  ¥3,488,163  ¥605,331  ¥662,673  ¥134,403,986 

Call money and bills sold

  28,646    1,188,985    1,566    1,259    —      —      1,220,456    —    1,276,943  30,836   —     —     —    1,307,779 

Repurchase agreements and cash collateral on securities lent

  1,501    6,795,980    41,993    —      —      —      6,839,474   146,936  12,740,313   —     —     —     —    12,887,249 

Trading liabilities

  2,197,673    —      —      —      —      —      2,197,673   1,998,694   —     —     —     —     —    1,998,694 

Borrowings

  41,248    3,466,175    2,414,475    829,855    757,557    2,297,931    9,807,241   210,667  523,079  7,972,114  721,554  666,649  2,041,699  12,135,762 

Debt securities in issue

  —      3,943,641    1,203,832    1,693,961    1,504,307    2,503,234    10,848,975    —    2,206,942  1,320,643  2,472,492  1,885,833  3,301,299  11,187,209 

Lease payable

  —      6,161    18,212    42,598    33,324    9,710    110,005    —    2,220  6,258  12,024  7,368  5,322  33,192 

Other financial liabilities

  1,898,916    3,924,652    17,561    16,148    13,624    64,610    5,935,511   2,461,381  3,128,040  4,474   —     —    2,618  5,596,513 

Off balance sheet items:

              

Loan commitments

  58,026,597    —      —      —      —      —      58,026,597   62,724,820   —     —     —     —     —    62,724,820 

Financial guarantee contracts

  7,349,903    —      —      —      —      —      7,349,903   9,409,066   —     —     —     —     —    9,409,066 
 

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

Total non-derivative financial instruments

 ¥139,966,520   ¥53,494,255   ¥19,325,870   ¥6,498,815   ¥3,173,133   ¥5,794,342   ¥228,252,935   ¥162,956,139  ¥50,239,429  ¥22,615,677  ¥6,694,233  ¥3,165,181  ¥6,013,611  ¥251,684,270 
 

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

Derivative financial instruments

 ¥5,086,083   ¥—     ¥—     ¥—     ¥—     ¥—     ¥5,086,083   ¥3,051,773  ¥—    ¥—    ¥—    ¥—    ¥—    ¥3,051,773 
 

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

  At March 31, 2015 
  On demand  Not later than
three months
  Later than
three months
and not later
than one year
  Later than
one year and
not later than
three years
  Later than
three years and
not later than
five years
  Later than
five years
  Total 
  (In millions) 

Non-derivative financial instruments:

       

Deposits

 ¥62,276,711   ¥32,080,713   ¥15,994,708   ¥3,961,005   ¥653,803   ¥847,997   ¥115,814,937  

Call money and bills sold

  19,926    5,843,087    10,111    —      —      —      5,873,124  

Repurchase agreements and cash collateral on securities lent

  1,458    8,818,625    —      —      —      —      8,820,083  

Trading liabilities

  2,193,400    —      —      —      —      —      2,193,400  

Borrowings

  87,714    3,577,107    3,691,319    665,327    926,245    2,166,598    11,114,310  

Debt securities in issue

  —      4,434,310    1,402,856    1,799,923    942,988    2,461,070    11,041,147  

Lease payable

  —      5,614    16,291    35,407    29,340    19,389    106,041  

Other financial liabilities

  1,370,975    3,315,104    203,328    20,163    15,119    95,316    5,020,005  

Off balance sheet items:

       

Loan commitments

  53,665,583    —      —      —      —      —      53,665,583  

Financial guarantee contracts

  7,076,536    —      —      —      —      —      7,076,536  
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Total non-derivative financial instruments

 ¥126,692,303   ¥58,074,560   ¥21,318,613   ¥6,481,825   ¥2,567,495   ¥5,590,370   ¥220,725,166  
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Derivative financial instruments

 ¥6,739,787   ¥—     ¥—     ¥—     ¥—     ¥—     ¥6,739,787  
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

  At March 31, 2018 
  On demand  Not later than
three months
  Later than
three months
and not later
than one year
  Later than
one year and
not later than
three years
  Later than
three years and
not later than
five years
  Later than
five years
  Total 
  (In millions) 

Non-derivative financial instruments:

       

Deposits

 ¥79,239,076  ¥31,907,636  ¥12,755,005  ¥3,189,790  ¥701,374  ¥654,717  ¥128,447,598 

Call money and bills sold

  47,942   1,141,653   1,334   —     —     —     1,190,929 

Repurchase agreements and cash collateral on securities lent

  20,833   12,001,760   —     —     —     —     12,022,593 

Trading liabilities

  2,143,899   —     —     —     —     —     2,143,899 

Borrowings

  61,205   435,708   6,765,228   601,326   652,481   2,126,169   10,642,117 

Debt securities in issue

  —     2,407,601   950,334   1,818,271   2,185,578   3,227,737   10,589,521 

Lease payable

  —     683   1,884   2,999   1,665   3,086   10,317 

Other financial liabilities

  2,554,069   4,129,478   4,342   139   —     3,014   6,691,042 

Off balance sheet items:

       

Loan commitments

  60,107,128   —     —     —     —     —     60,107,128 

Financial guarantee contracts

  8,426,245   —     —     —     —     —     8,426,245 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Total non-derivative financial instruments

 ¥152,600,397  ¥52,024,519  ¥20,478,127  ¥5,612,525  ¥3,541,098  ¥6,014,723  ¥240,271,389 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Derivative financial instruments

 ¥3,498,016  ¥—    ¥—    ¥—    ¥—    ¥—    ¥3,498,016 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

 

Notes:

1.

Embedded derivatives which are separately accounted for, but presented together with the host contract in the consolidated statementstatements of financial position are not included in the contractual tables above as they relate to the interest cash flow of the host contract, which are also not included in the tables above.

2.

Derivative financial instruments are recorded at fair value and included in the column “On demand.” These instruments are not used for hedging under IAS 39 and the fair value represents the cash flow on demand.

Balance of loans and advances, and deposits at March 31, 20162019 and 20152018

The following table presents the balance of loans and advances, and deposits at March 31, 20162019 and 2015.2018. The balance of deposits, which was mainly composed of individual customer deposits at March 31, 20162019 and 2015,2018, exceeded the balance of loans and advances at the same time due to the stable deposit base in Japan.

 

  At March 31,   At March 31, 
  2016   2015   2019   2018 
  (In millions)   (In millions) 

Loans and advances

  ¥88,862,371    ¥86,971,716    ¥90,682,938   ¥85,129,070 

Deposits

   125,940,797     115,833,980     134,404,652    128,461,527 

The following table presents a breakdown of deposits by domestic and foreign offices. Domestic inter-bank money wasis classified as “Call money and bills sold” and not included in “Deposits” in the consolidated statementstatements of financial position. Over half of domestic deposits wasis composed of individual customer deposits.

 

  At March 31,   At March 31, 
  2016   2015   2019   2018 
  (In millions)   (In millions) 

Domestic offices:

        

Non-interest-bearing demand deposits

  ¥17,566,123    ¥15,387,795    ¥21,376,082   ¥20,370,064 

Interest-bearing demand deposits

   44,975,104     40,593,134     53,490,445    49,580,166 

Deposits at notice

   874,581     821,717     853,344    855,978 

Time deposits

   22,921,709     24,186,585     17,885,860    18,185,591 

Negotiable certificates of deposit

   6,451,869     5,705,862     4,962,651    5,408,021 

Others

   7,242,800     5,736,495     7,317,912    7,338,619 
  

 

   

 

   

 

   

 

 

Total domestic offices

   100,032,186     92,431,588     105,886,294    101,738,439 
  

 

   

 

   

 

   

 

 

Foreign offices:

        

Non-interest-bearing demand deposits

   1,097,531     862,698     1,218,145    1,241,450 

Interest-bearing demand deposits

   1,865,098     1,448,643     2,714,951    2,574,099 

Deposits at notice

   8,819,990     7,968,300     10,316,612    9,499,686 

Time deposits

   6,222,716     4,897,880     7,875,029    7,469,541 

Negotiable certificates of deposit

   7,797,966     8,120,036     6,202,836    5,812,264 

Others

   105,310     104,835     190,785    126,048 
  

 

   

 

   

 

   

 

 

Total foreign offices

   25,908,611     23,402,392     28,518,358    26,723,088 
  

 

   

 

   

 

   

 

 

Total deposits

  ¥125,940,797    ¥115,833,980    ¥134,404,652   ¥128,461,527 
  

 

   

 

   

 

   

 

 

Capital Management

The SMFGSMBC Group manages its capital by taking into consideration regulatory compliance and business development.

The SMFGSMBC Group’s capital management objectives are to maintain sufficient capital resources to meet the capital adequacy requirements and to maintain a strong capital base to support the development of its business.

External regulatory capital requirement

The SMFGSMBC Group, SMFGthe Company and its principal banking subsidiaries in Japan rigidly abide by the capital adequacy guidelines set by the FSA in managing its capital. Japan’s capital adequacy guidelines are based on the Basel Capital Accord, which was proposed by the Basel Committee on Banking Supervision (“BCBS”)BCBS for uniform application to all banks which have international operations in industrialized countries. Japan’s capital adequacy guidelines may be different from those of central banks or supervisory bodies of other countries because the FSA designed them to suit the Japanese banking environment. The SMFGSMBC Group’s banking subsidiaries outside of Japan are also subject to the local capital ratio requirements.

In December 2010, the BCBS published the new Basel III rules text to implement the Basel III framework, which sets out higher and better-quality capital, better risk coverage, the introduction of a leverage ratio as a backstop to the risk-based requirement, measures to promote the build-up of capital that can be drawn down in periods of stress, and the introduction of two global liquidity standards. The main measures of the minimum capital requirements in the Basel III framework began on January 1, 2013 and will behave been fully applied from January 1, 2019.

These capital reforms increase the minimum common equity requirement from 2% to 4.5% and require banks to hold a capital conservation buffer, which is beingstarted to be phased in from January 2016 with the initial ratio of 0.625% reachingand reached 2.5% byin January 2019, to withstand future periods of stress, bringing the total common equity requirement to 7%. The Tier 1 capital requirement willwas also be increased from 4% to 6%, resulting in a total requirement of 8.5% when combined with the above-mentioned conservation buffer. The total capital requirement remains at the existing level ofincreased from 8% but will increase to 10.5% byin January 2019 due to the full phasing in of the capital conservation buffer. Furthermore, a countercyclical buffer within a range of 0% to 2.5% of common equity or other fully loss-absorbing capital has been implemented according to national circumstances. The Group of Central Bank Governors and Heads of Supervision also agreed on transitional arrangements for implementing the new requirements.

In addition to the above-mentioned minimum capital requirements and capital buffer requirements under Basel III, organizations identified by the Financial Stability Board (“FSB”) as Global Systemically Important Financial InstitutionsBanks (“G-SIFIs”G-SIBs”), which as of November 2014 and 2015 included us,includes the SMBC Group, are required to maintain an additional 1% to 2.5% of Common Equity Tier 1 capital as a percentage of risk-weighted assets, which is commonly referred to as theG-SIB capital surcharge, based on the organization’s size, interconnectedness, substitutability, complexity and cross-jurisdictional activity as determined by the FSB. The amount of G-SIFIG-SIB capital surcharge that applies to the SMFGSMBC Group based on the FSB’s determination as of November 2014 and 2015 will beis 1% of risk-weighted assets when the requirements are fully applied from 2019. Under the phase-in arrangement of the G-SIFI capital surcharge requirement, the SMFG Group is currently required to maintain 0.25% of Common Equity Tier 1 capital as a percentage of risk-weighted assets.

To reflect the Basel III framework, the FSA changed its capital adequacy guidelines. Under the FSA capital adequacy guidelines, the new capital requirements are being phased in from March 31, 2013 through March 31, 2019. The minimum Common Equity Tier 1 capital requirement and Tier 1 capital requirement hashave been 4.5% and 6%, respectively since March, 2015. The capital conservation buffer, countercyclical buffer and the G-SIFIG-SIB capital surcharge are beingstarted to be phased in from March 31, 2016 under the FSA capital adequacy guidelines.

In accordance with the changes of the FSA capital adequacy guidelines, the SMFGSMBC Group changed its classification of capital into three tiers, referred to as Common Equity Tier 1 capital, Additional Tier 1 capital and Tier 2 capital as follows:

Common Equity Tier 1 capital consists primarily of capital stock, capital surplus and retained earnings relating to common shares, and minoritynon-controlling interests that meet the criteria for inclusion in Common Equity Tier 1 capital.

Additional Tier 1 capital consists primarily of preferred securities and perpetual subordinated bonds.

Tier 2 capital consists primarily of subordinated debt securities.

The capital adequacy guidelines permit Japanese banks to choose from the standardized approach (“SA”), the foundation Internal Ratings-Based (“IRB”) approach and the advanced IRB approach for credit risk, and the basic indicator approach (“BIA”), the standardized approach (“TSA”) and the Advanced Measurement Approach (“AMA”) for operational risk. To be eligible to adopt the foundation IRB approach or the advanced IRB approach for credit risk, and TSA or AMA for operational risk, a Japanese bank must establish advanced risk management systems and receive prior approval from the FSA.

Adopting these approved approaches, the SMFGSMBC Group sets a target minimum total capital ratio of 8.0% on the SMFG Group’s consolidated basis, and both SMBC consolidated and nonconsolidated basis, and has complied with all externally imposed capital requirements throughout the period.

Failure of a Japanese bank, bank holding company or other financial institution to maintain the required risk-weighted capital ratios, may result in administrative actions or sanctions imposed by the FSA.

Regulatory capital

The table below presents the SMFGSMBC Group’s total capital ratio, total capital and risk-weighted assets under Japanese GAAP at March 31, 20162019 and 20152018 based on the Basel III rules.

 

  At March 31,   At March 31, 
  2016 2015   2019 2018 
  (In billions, except percentages)   (In billions, except percentages) 

Total risk-weighted capital ratio (consolidated)

   17.02  16.58

Tier 1 risk-weighted capital ratio (consolidated)

   13.68  12.89

Common Equity Tier 1 risk-weighted capital ratio (consolidated)

   11.81  11.30

SMFG Consolidated:

   

Total risk-weighted capital ratio

   20.76 19.36

Tier 1 risk-weighted capital ratio

   18.19 16.69

Common Equity Tier 1 risk-weighted capital ratio

   16.37 14.50

Total capital (Common Equity Tier 1 capital + Additional Tier 1 capital + Tier 2 capital)

  ¥11,235.9   ¥10,965.9    ¥12,240.5  ¥12,304.1 

Tier 1 capital (Common Equity Tier 1 capital + Additional Tier 1 capital)

   9,031.7    8,528.6     10,727.2  10,610.2 

Common Equity Tier 1 capital

   7,796.5    7,476.5     9,654.5  9,217.4 

Risk-weighted assets

   66,011.6    66,136.8     58,942.8  63,540.3 

The amount of minimum capital requirements

   5,280.9    5,290.9  

The amount of minimum total capital requirements(1)

   4,715.4  5,083.2 

 

(1)

The amount of minimum total capital requirements is calculated by multiplying risk-weighted assets by 8%.

46

RELATED-PARTY TRANSACTIONS

Transactions with Related Parties

The SMFGSMBC Group considers that its related parties include subsidiaries, associates, joint ventures, key management personnel and close family members of key management personnel. Any transactions between the SMFGSMBC Group and its subsidiaries meet the definition of related-party transactions. However, because these transactions are eliminated on consolidation, they are not disclosed as related-party transactions. Transactions between the SMFGSMBC Group and its associates and joint ventures qualify as related-party transactions, and all of these transactionsrelated parties are conducted on substantially the same terms as third-party transactions.

The transaction amounts included in the accounts, in aggregate, by category of related party were as follows:

Transactions with associates, and joint ventures and other entities

 

  At March 31,   At March 31, 
  2016   2015   2019(1)   2018 
  (In millions)   (In millions) 

Assets:

        

Loans and advances

  ¥225,970    ¥244,620    ¥1,661,149   ¥222,890 

Others

   7,931     12,954     89,534    39,254 

Liabilities:

        

Deposits

  ¥273,636    ¥161,595    ¥178,076   ¥267,289 

Others

   12,513     30,036     78,540    29,049 

 

  For the fiscal year ended March 31,   For the fiscal year ended March 31, 
  2016   2015   2014   2019(1)   2018   2017 
  (In millions)   (In millions) 

Income statement:

      

Income statements:

      

Income (interest income, fee and commission income, and others)

  ¥34,135    ¥23,952    ¥19,608    ¥38,713   ¥15,665   ¥17,433 

Expense (interest expense and others)

   19,169     20,322     19,124     25,799    15,601    17,411 

(1)

On November 28, 2018, Sumitomo Mitsui Finance and Leasing Company, Limited (“SMFL”), which had been the Company’s subsidiary, became the Company’s joint venture. As a result, the transactions with SMFL and its subsidiaries were included in the line items.

Financial guarantees issued by the SMFGSMBC Group for its associates at March 31, 20162019 and 20152018 were ¥51,256¥338,679 million and ¥42,361¥99,673 million, respectively.

Loan commitments to associates and joint ventures at March 31, 20162019 and 20152018 were ¥134,198¥1,360,802 million and ¥148,494¥125,015 million, respectively.

Transactions with key management personnel and their close family members

Key management personnel are those persons having authority and responsibility for planning, directing and controlling the activities of the SMFGSMBC Group, directly or indirectly. The SMFGSMBC Group considers the members of the Boardboard of Directorsdirectors and corporate executive officers of SMFG and SMBC to constitute key management personnel for the purpose of this disclosure required under IAS 24 “Related Party Disclosures.” Before SMFG transitioned to a company with three statutory committees on June 29, 2017, the SMBC Group considered the members of the board of directors of SMFG and SMBC to constitute the key management personnel.

 

  At March 31,   At March 31, 
  2016   2015   2019   2018 
  (In millions)   (In millions) 

Assets:

        

Loans and advances

  ¥31    ¥1    ¥—     ¥2 

Liabilities:

        

Deposits

  ¥1,828    ¥2,195    ¥    1,631   ¥    1,612 

Others

   89     73     94    94 

Compensation of Key Management Personnel

The following table presents the compensation expenses of key management personnel.

 

  For the fiscal year ended March 31,   For the fiscal year ended March 31, 
  2016   2015   2014   2019   2018   2017 
  (In millions)   (In millions) 

Short-term employee benefits

  ¥    1,161    ¥    1,463    ¥    1,232    ¥    1,102   ¥    1,135   ¥    1,157 

Share-based compensation

   214     251     206     304    295    204 

The details of the share-based compensation plan are described in Note 39 “Share-Based Payment.”

There were no post-employment benefits, other long-term benefits and termination benefits for the fiscal years ended March 31, 2016, 20152019, 2018 and 2014.

2017.

47

PRINCIPAL SUBSIDIARIES

Principal Subsidiaries

The SMFGSMBC Group’s principal subsidiaries at March 31, 20162019 are shown in the list below. The SMFGSMBC Group consolidates all entities that the SMFGSMBC Group controls. The SMFGSMBC Group controls an entity when the SMFGSMBC Group is exposed, or has rights, to variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity.

Principal domestic subsidiaries

 

Company Name

  Proportion of
Ownership
Interest(1)
   Proportion of
Voting Rights(1)
 

Main Business

  Proportion of
Ownership
Interest(1)
   Proportion of
Voting Rights(1)
 

Main Business

  (%)   (%)   (%)   (%) 

Sumitomo Mitsui Banking Corporation

   100.0     100.0   Commercial banking   100.0    100.0  Commercial banking

SMBC Trust Bank Ltd.

   100.0     100.0   Trust banking   100.0    100.0  Trust banking

THE MINATO BANK, LTD.

   6.0     46.4(2)  Commercial banking

Kansai Urban Banking Corporation

   59.8     60.1   Commercial banking

SMBC Guarantee Co., Ltd.

   100.0     100.0   Credit guarantee   100.0    100.0  Credit guarantee

Sumitomo Mitsui Finance and Leasing Company, Limited

   60.0     60.0   Leasing

SMBC Nikko Securities Inc.

   100.0     100.0   Securities   100.0    100.0  Securities

SMBC Friend Securities Co., Ltd.

   100.0     100.0   Securities

Sumitomo Mitsui Card Company, Limited

   65.9     65.9   Credit card

Cedyna Financial Corporation(3)

   100.0     100.0   Credit card and consumer credit

Sumitomo Mitsui Card Company, Limited(2)

   65.9    65.9  Credit card

Cedyna Financial Corporation

   100.0    100.0  Credit card and consumer credit

SMBC Consumer Finance Co., Ltd.

   100.0     100.0   Consumer lending   100.0    100.0  Consumer lending

SAKURA CARD CO., LTD.(3)

   100.0     100.0   Credit card

Mobit Co., LTD.

   100.0     100.0   Consumer lending

SMBC Mobit Co., Ltd.

   100.0    100.0  Consumer lending

SMM Auto Finance, Inc.

   51.0     51.0   Automobile sales financing   51.0    51.0  Automobile sales financing

SMBC Finance Service Co., Ltd.

   100.0     100.0   Collecting agent and factoring   100.0    100.0  Collecting agent and factoring

The Japan Research Institute, Limited

   100.0     100.0   System development, data processing, management consulting and economic research   100.0    100.0  System development, data processing, management consulting and economic research

SAKURA KCS Corporation

   50.2     50.2   System engineering and data processing

Financial Link Co., Ltd.

   100.0     100.0   Data processing service and consulting

Sumitomo Mitsui Asset Management Company, Limited(3)

  

 

51.1

 

  

 

51.1

 

 

Investment advisory and investment trust management

NCore Co., Ltd.

   51.0    51.0  Data processing service and consulting

SMBC Venture Capital Co., Ltd.

   40.0     40.0   Venture capital   40.0    40.0  Venture capital

SMBC Consulting Co., Ltd.

   100.0     100.0   Management consulting and information services   98.3    98.3  Management consulting and information services

Japan Pension Navigator Co., Ltd.

   69.7     69.7   Operational management of defined contribution pension plans   69.7    69.7  Operational management of defined contribution pension plans

 

(1)

Percentages of proportion of ownership interest and proportion of voting rights have been truncated.

(2)The SMFG Group has a 6.0% direct holding in THE MINATO BANK, LTD., and can control a further 40.4%

We acquired an additional 34.1% of the voting rights held by SMBC’s retirement benefit trust under contractual agreements betweenoutstanding shares of Sumitomo Mitsui Card Company, Limited on April 1, 2019 and, as a result, it became the SMBC and the retirement benefit trust.Group’s wholly owned subsidiary.

(3)Cedyna Financial Corporation

Sumitomo Mitsui Asset Management Company, Limited merged with SAKURA CARD CO., LTD.Daiwa SB Investments Ltd. on April 1, 2016.2019, to form Sumitomo Mitsui DS Asset Management Company, Limited.

Principal foreign subsidiaries

 

Company Name

  Country of
Incorporation
  Proportion of
Ownership
Interest(1)
   Proportion of
Voting Rights(1)
   

Main Business

  Country of
Incorporation
  Proportion of
Ownership
Interest(1)
   Proposition
of Voting
Rights(1)
   

Main Business

     (%)   (%)         (%)   (%)    

Sumitomo Mitsui Banking Corporation Europe Limited

  U.K.   100.0     100.0    Commercial banking  U.K.   100.0    100.0   Commercial banking

Sumitomo Mitsui Banking Corporation (China) Limited

  China   100.0     100.0    Commercial banking  China   100.0    100.0   Commercial banking

PT Bank BTPN Tbk

  Indonesia   98.4    98.4   Commercial banking

SMBC Americas Holdings, Inc.

  U.S.A.   100.0    100.0   Bank holding company

Manufacturers Bank

  U.S.A.   100.0     100.0    Commercial banking  U.S.A.   100.0    100.0   Commercial banking

Sumitomo Mitsui Banking Corporation of Canada

  Canada   100.0     100.0    Commercial banking

Banco Sumitomo Mitsui Brasileiro S.A.

  Brazil   100.0     100.0    Commercial banking

Banco Sumitomo Mitsui Brasileiro S.A

  Brazil   100.0    100.0   Commercial banking

JSC Sumitomo Mitsui Rus Bank

  Russia   100.0     100.0    Commercial banking  Russia   100.0    100.0   Commercial banking

PT Bank Sumitomo Mitsui Indonesia

  Indonesia   98.4     98.4    Commercial banking

SMBC Bank EU AG

  Germany   100.0    100.0   Commercial banking

Sumitomo Mitsui Banking Corporation Malaysia Berhad

  Malaysia   100.0     100.0    Commercial banking  Malaysia   100.0    100.0   Commercial banking

SMBC Leasing and Finance, Inc.

  U.S.A.   100.0     100.0    Leasing  U.S.A.   100.0    100.0   Leasing

SMBC Aviation Capital Limited

  Ireland   90.0     90.0    Leasing

SMBC Nikko Securities America, Inc.

  U.S.A.   100.0     100.0    Securities  U.S.A.   100.0    100.0   Securities

SMBC Nikko Capital Markets Limited

  U.K.   100.0     100.0    Securities  U.K.   100.0    100.0   Securities

SMBC Capital Markets, Inc.

  U.S.A.   100.0     100.0    Derivatives  U.S.A.   100.0    100.0   Derivatives

 

(1)

Percentages of proportion of ownership interest and proportion of voting rights have been truncated.

THE MINATO BANK, LTD. and SMBC Venture Capital Co., Ltd. areis accounted for as subsidiaries, despite the SMFGSMBC Group’s holdings of less than 50% of the voting rights, because the SMFGSMBC Group is able to govern the financial and operating policies of these companiesthis company under a statute or an agreement, or by delegating the majority of the members of the board of directors.agreement.

The SMFGSMBC Group does not control some entities despite the fact that the SMFGSMBC Group holds more than 50% of their share capital, because the SMFGSMBC Group has entered into agreements with other investors to share or give those investors the power to govern the entities’ financial and operating policies over these investees.

Some of the SMFGSMBC Group’s subsidiaries may be subject to restrictions on the ability to transfer funds to SMFGthe Company in the form of cash dividends or to repay loans or advances, which include capital adequacy requirements imposed by the governments and central banks, and the Companies Act restrictions relating to dividends. In addition, the SMFGSMBC Group pledges assets as collateral to secure payables under repurchase agreements, securities lending transactions and securitizations, borrowings or for cash settlements, margins on derivative transactions and certain other purposes. The details of assets pledged are described in Note 38 “Assets Pledged and Received as Collateral.”

 

48

STRUCTURED ENTITIES

A structured entity is an entity that has been designed so that voting or similar rights are not the dominant factor in deciding who controls the entity. It often has some or all of the following features or attributes:

 

restricted activities;

 

a narrow and well-defined objective;

 

insufficient equity to permit the structured entity to finance its activities without subordinated financial support; or

 

financing in the form of multiple contractually linked instruments to investors that create concentrations of credit or other risks (tranches).

During the normal course of business, the SMFGSMBC Group engages in numerous transactions involving structured entities. These structured entities are primarily used to provide the SMFGSMBC Group and its clients with efficient access to funds or investment opportunities, mainly through securitizations, investment funds and structured finance.

Consolidated Structured Entities

Structured entities are consolidated if they are controlled by the SMFGSMBC Group in accordance with the accounting policy as described in Note 2 “Summary of Significant Accounting Policies.”

The consolidated structured entities include asset backed commercial paper (“ABCP”) conduits which purchase financial assets such as trade accounts receivable and lease receivables by issuing commercial paper to third-party investors. The SMFGSMBC Group has contractual agreements to provide liquidity and credit enhancement facilities which can be utilized by those structured entities upon their request.

At March 31, 20162019 and 2015,2018, the consolidated ABCP conduits had total assets of ¥933,890¥728,778 million and ¥910,023¥807,780 million, respectively. The total notional amounts of the liquidity and credit enhancement facilities provided by the SMFGSMBC Group to the consolidated ABCP conduits at March 31, 20162019 and 20152018 were ¥1,165,463¥1,050,986 million and ¥1,101,988¥1,129,257 million, respectively, all of which were undrawn.

The SMFGSMBC Group did not provide any financial or other support, without having a contractual obligation to do so, to consolidated structured entities during the fiscal years ended March 31, 20162019 and 2015.2018.

Unconsolidated Structured Entities

The following tables represent the carrying amounts of the SMFGSMBC Group’s interests in unconsolidated structured entities recognized in its consolidated statementstatements of financial position by line item and the maximum exposure to loss from its interests at March 31, 20162019 and 2015.2018.

 

  At March 31, 2016  At March 31, 2019 
  Securitizations   Investment
funds
   Structured
finance
   Others   Total  Securitizations Investment
funds
 Structured
finance
 Others Total 
  (In millions)  (In millions) 

Interests in unconsolidated structured entities recognized in:

               

Trading assets

  ¥—      ¥170,696    ¥—      ¥—      ¥170,696   ¥16,581  ¥39,614  ¥—    ¥—    ¥56,195 

Financial assets at fair value through profit or loss

   —       —       —       —       —     8,637  871,368  144,297   —    1,024,302 

Investment securities

   11,443     906,367     60,633     546     978,989   15,108  27,002   —    473  42,583 

Loans and advances

   1,609,435     —       4,601,526     533,445     6,744,406   2,213,496   —    5,489,334  533,196  8,236,026 
  

 

   

 

   

 

   

 

   

 

  

 

  

 

  

 

  

 

  

 

 

Total

  ¥1,620,878    ¥1,077,063    ¥4,662,159    ¥533,991    ¥7,894,091   ¥2,253,822  ¥937,984  ¥5,633,631  ¥533,669  ¥9,359,106 
  

 

   

 

   

 

   

 

   

 

  

 

  

 

  

 

  

 

  

 

 

Maximum exposure to loss from interests in unconsolidated structured entities

  ¥1,913,474    ¥1,079,080    ¥5,618,144    ¥712,415    ¥9,323,113   ¥3,110,451  ¥944,487  ¥6,597,207  ¥712,798  ¥11,364,943 

   At March 31, 2015 
   Securitizations   Investment
funds
   Structured
finance
   Others   Total 
   (In millions) 

Interests in unconsolidated structured entities recognized in:

          

Trading assets

  ¥—      ¥192,057    ¥—      ¥—      ¥192,057  

Financial assets at fair value through profit or loss

   —       —       —       100,000     100,000  

Investment securities

   5,996     1,457,674     59,190     5,485     1,528,345  

Loans and advances

   1,351,933     —       4,078,942     367,706     5,798,581  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

  ¥1,357,929    ¥1,649,731    ¥4,138,132    ¥473,191    ¥7,618,983  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Maximum exposure to loss from interests in unconsolidated structured entities

  ¥1,586,349    ¥1,649,731    ¥4,831,148    ¥604,315    ¥8,671,543  

  At March 31, 2018 
  Securitizations  Investment
funds
  Structured
finance
  Others  Total 
  (In millions) 

Interests in unconsolidated structured entities recognized in:

     

Trading assets

 ¥10,157  ¥68,639  ¥—    ¥—    ¥78,796 

Investment securities

  64,113   1,055,971   51,018   479   1,171,581 

Loans and advances

  1,921,725   —     5,202,253   400,549   7,524,527 

Assets held for sale

  32,755   —     81,494   —     114,249 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Total

 ¥2,028,750  ¥1,124,610  ¥5,334,765  ¥401,028  ¥8,889,153 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Maximum exposure to loss from interests in unconsolidated structured entities

 ¥2,925,137  ¥1,126,551  ¥6,296,368  ¥538,660  ¥10,886,716 

An interest in a structured entity refers to contractual and non-contractual involvement that exposes the SMFGSMBC Group to variability of returns from the performance of the structured entity. Such interests include the holding of equity or debt instruments as well as the provision of loans, loan commitments and guarantees. Interest rate and currency derivatives that expose the SMFGSMBC Group mainly to market risk, or CDS that are designed to transfer risk from the SMFGSMBC Group to a structured entity are not regarded as an interest in a structured entity since they do not expose the SMFGSMBC Group to variability of returns from the performance of the structured entity. These derivatives are therefore not included in the tables above.

The maximum exposure to loss from the SMFGSMBC Group’s interests in unconsolidated structured entities represents the maximum amount of potential loss to which the SMFGSMBC Group is exposed through its involvement with unconsolidated structured entities. It is determined by the SMFGSMBC Group’s carrying amounts and the notional amounts of loan commitments and guarantees, without considering the probability of loss being incurred, or effects of collateral or other credit protection.

The SMFGSMBC Group did not provide any financial or other support, without having a contractual obligation to do so, to unconsolidated structured entities during the fiscal years ended March 31, 20162019 and 2015.2018.

Securitizations

SecuritizationStructured entities for this product are established to securitize third-parties’ assets which mainly consist of auto loan receivables, residential and commercial mortgage loans and trade accounts receivable.receivables. These entities purchase those assets through loans or notes issued with multiple tranches. The SMFGSMBC Group provides loans and loan commitments to these entities or holds senior notes issued by them, in some cases with credit loss protection through guarantees or other credit enhancements provided by the sellers.

Investment Funds

InvestmentThese funds are established for providing investment opportunities to investors by pooling money from them and investing mainly in equity and debt instruments based on a predetermined investment policy. The SMFGSMBC Group has invested in a number of these funds.

Structured Finance

Project finance

In project finance, structuredStructured entities for this product are typically established to raise funds for projects such as the development of electric power plants and transportation infrastructure, and the production of natural resources. The SMFG Group provides loans and loan commitments, which are secured by the cash flows generated by the projects, to these entities as part of a syndication of lenders.

Real estate finance

Real estate financing entities are established to raise funds in connection withresources, the development andor acquisition of real estate properties, and the purchase of certain equipment such as office buildings and logistics facilities.vessels or aircrafts for lease transactions. The SMFGSMBC Group provides financing to these structured entities mainly in the form of senior loans, and loan commitments, or notes, which are typically secured by the entities’ assets.

Lease finance

Lease financing entities are established to purchaseassets or build certain equipment such as a vessel or an aircraft which is subsequently leased to lessees to be used in their core business. The SMFG Group provides loans to these entities, which are secured by lease receivables from the lessees and in some cases guaranteed by the equity holders.

Acquisition finance

In acquisition finance, structured entities are established by either third-party companies or management of target companies to acquire the equity shares of the target companies. The purchase of the target companies’ shares is financed by debt provided mainly by financial institutions and equity raised by the acquirer. The SMFG Group provides loans to these entities, which are secured by the cash flows from the target companies.generated primarily by entities’ projects.

Others

The SMFGSMBC Group provides financing to other types of structured entities such as third-party structured entities and repackaging vehicles to facilitate its clients’ funding requirements. The SMFGSMBC Group provides loans and loan commitments to these entities.

Sponsored Unconsolidated Structured Entities with No Interest Held by the SMBC Group

In addition to the unconsolidated structured entities in which the SMFGThe SMBC Group has an interest, the SMFG Group also sponsors certain structured entities in which it has no interest. The SMFGSMBC Group is deemed to be a sponsor of a structured entity when the SMFGSMBC Group takes a leading role in determining its purpose and design, and has beenwhile providing operational support to ensure its continued operation.

The carrying amount of assets transferred to and income received from such sponsored unconsolidated structured entities where the SMFG Group did not have an interest at the end of the reporting periods, were not significantwas ¥24,478 million and ¥23,901 million for the fiscal years ended March 31, 20162019 and 2015.2018, respectively. The majority of the income was management fees included in “Fee and commission income” and was from investment funds managed by SMAM, the SMBC Group’s asset management subsidiary. The carrying amount of assets transferred to these entities, which mainly consisted of investment funds, was ¥1,361,979 million and ¥1,640,396 million for the fiscal years ended March 31, 2019 and 2018, respectively.

 

49

ACQUISITIONS

Fiscal YearsYear Ended March 31, 20162019

Retail banking business of Citibank Japan Ltd.PT Bank Tabungan Pensiunan Nasional Tbk

On November 1, 2015,January 30, 2019, SMBC, Trust Bank, the SMFGSMBC Group’s wholly owned subsidiary, acquired an additional share of PT Bank Tabungan Pensiunan Nasional Tbk, previously an associate bank of SMBC in Indonesia. As a result of the retailacquisition, the SMBC Group increased its equity interest in PT Bank Tabungan Pensiunan Nasional Tbk from 40.58% to 98.50% and obtained control of PT Bank Tabungan Pensiunan Nasional Tbk. Subsequently, on February 1, 2019, PT Bank Tabungan Pensiunan Nasional Tbk merged with PT Bank Sumitomo Mitsui Indonesia, a consolidated subsidiary of SMBC also in Indonesia, and the merged company changed its corporate name to PT Bank BTPN Tbk. This merger was made for the purpose of operating a full-fledged commercial banking business of Citibank Japan Ltd. (“Citibank Japan”), a wholly owned subsidiary of Citigroup Inc. SMBC Trust Bank allocatedin Indonesia and further developing its non-voting stocks to Citibank Japan as consideration, and SMBC, SMFG’s wholly owned subsidiary, acquired them in cash. Through this acquisition, SMBC Trust Bank is expanding its business modelfranchise to offer additional products andbroader financial services including foreign currency investment products and global services. This acquisition is expected to enable the SMFG Group to expand its customer base, enhance its foreign currency funding source and improve the service capability of the Group as a whole.customers.

The fair values of assets and liabilities of the retail banking business of Citibank JapanBTPN at the date of acquisition and the consideration paid were as follows:

 

   At November 1, 2015January 30, 2019 
   (In millions) 

Assets:

  

Cash and deposits with banks

  ¥        2,296,107149,331

Loans and advances

522,918

Intangible assets

57,803 

All other assets

   110,978107,471 
  

 

 

 

Total assets

  ¥2,407,085837,523 
  

 

 

 

Liabilities:

  

Deposits

  ¥2,361,908538,529 

All other liabilities

   8,620104,817 
  

 

 

 

Total liabilities

  ¥2,370,528643,346

Net assets

194,177

Non-controlling interests measured at their proportionate share of the identifiable net assets and others

(9,494) 
  

 

 

 

Net assets acquired

   36,557184,683 

Goodwill

   8,4434,707 
  

 

 

 

Consideration

  ¥45,000189,390 
  

 

 

 

Consideration:

  

Fair value of consideration transferredCash

  ¥45,000111,365

Fair value of the equity interest in BTPN held before the acquisition

78,025 
  

 

 

 

Total

  ¥45,000189,390 
  

 

 

 

Acquisition related costs recognized as an expense in “General and administrative expenses” in the consolidated income statement

  ¥286776 
  

 

 

 

The fair value of the financial assets acquired included ¥522,918 million of loans and advances.

The gross contractual amounts receivable were ¥517,840 million, of which ¥12,404 million were expected to be uncollectible.

The goodwill was attributable to the profitability of the acquired business and the synergies expected to arise after the acquisition. TheNone of the goodwill and other intangible assets of ¥40,683 million arerecognized is expected to be deductible for Japanincome tax purposes.

The SMBC Group recognized a loss of ¥25,744 million on this step acquisition, which was included in “Other expenses” in the consolidated income statements.

The revenue and profit or loss since the acquisition date to March 31, 20162019 and pro forma financial information relating to the retail banking business of Citibank JapanPT Bank Tabungan Pensiunan Nasional Tbk are immaterial to the consolidated financial statements.

Cash consideration paid and cash acquired by obtaining control of the subsidiaries and businesses

The total amount of cash consideration paid and cash acquired by obtaining control of subsidiaries and businesses during the fiscal year ended March 31, 20162019 were as follows:

 

   For the fiscal year ended
March 31, 20162019
 
   (In millions) 

Cash consideration paid

  ¥(46,923111,365

Cash and cash equivalents transferred as a result of the acquisitions

   2,296,517149,331 
  

 

 

 

Cash consideration paid, net of cash and cash equivalents acquired by obtaining control of the subsidiaries and businesses

  ¥        2,249,59437,966 
  

 

 

 

The amounts of assets and liabilities other than cash or cash equivalents in these subsidiaries and businesses were ¥175,263¥688,192 million and ¥2,430,332¥643,346 million, respectively.

Fiscal Year Ended March 31, 20152018

American Railcar Leasing LLC

On June 1, 2017, the SMBC Group, through SMBC Rail Services LLC, the Company’s railcar operating leasing subsidiary, acquired all membership interests of American Railcar Leasing LLC (“ARL”), one of the leading railcar leasing companies in the United States. The SMBC Group pursued this acquisition based on its expectation that the railcar leasing business in the United States will experience further growth and 2014high profitability due to stable demand for rail freight transportation, which is the core infrastructure for inland logistics. Through this acquisition, the SMBC Group aims to expand its railcar leasing business and services by further enhancing its fleet portfolio to appropriately meet diverse needs of clients in a wide range of industries.

ThereThe fair values of assets and liabilities of ARL at the date of acquisition and the consideration paid were no material acquisitions that were accounted for as business combinations duringfollows:

At June 1, 2017
(In millions)

Assets:

Property, plant and equipment

¥        304,257

All other assets

15,719

Total assets

¥319,976

Liabilities:

Borrowings

¥147,523

All other liabilities

1,947

Total liabilities

¥149,470

Net assets acquired

170,506

Goodwill

—  

Consideration

¥170,506

Consideration:

Cash

¥170,506

Total

¥170,506

Acquisition related costs recognized as an expense in “General and administrative expenses” in the consolidated income statement

¥1,264

The revenue and profit or loss since the fiscal year endedacquisition date to March 31, 20152018 and 2014.

pro forma financial information relating to ARL are immaterial to the consolidated financial statements.

The amount of cash consideration paid relating to ARL, net of cash and cash equivalents acquired amounting to ¥9,644 million, was ¥160,862 million.

After the Fiscal Year Ended March 31, 20162017

GE Japan GK (currently merged into SMFL)

On April 1, 2016, SMFL acquired General Electric Company (“GE”) group’s leasing business in Japan by acquiring a 100% equity interest in GE Japan GK (“GE Japan”). The acquired leasing business is comprised mainly of equipment/asset leasing, small-ticket leasing, and automotive leasing. Through thisThis acquisition was made for the SMFG Group aim to upgradepurpose of upgrading the SMBC Group’s marketing strategies and sales capabilities by leveraging GE Japan’s know-how developed under GE, and offeroffering a wide range of financial solutions by enhancing the combined client base of SMFL and GE Japan.

The fair values of assets and liabilities of GE Japan at the date of acquisition and the consideration for this transaction consistedpaid were as follows:

At April 1, 2016
(In millions)

Assets:

Loans and advances

¥        470,538

All other assets

203,069

Total assets

¥673,607

Liabilities:

Borrowings

¥436,537

All other liabilities

58,134

Total liabilities

¥494,671

Net assets

¥178,936

Non-controlling interests measured at their proportionate share of the identifiable net assets

(394

Net assets acquired

178,542

Goodwill

2,417

Consideration

¥180,959

Consideration:

Cash

¥180,959

Total

¥180,959

Acquisition related costs recognized as an expense in “General and administrative expenses”
in the consolidated income statement

¥752

The fair value of a cash payment amountingthe financial assets acquired included ¥470,668 million of loans and receivables to ¥181 billion.

Further information could not be disclosed as the initial accounting for the business combination is yetcustomers. The gross contractual amounts receivable were ¥488,335 million, of which ¥21,692 million were expected to be finalized dueuncollectible.

The goodwill was attributable to proximitythe profitability of the acquired business and the synergies expected to arise after the acquisition. None of the goodwill recognized is expected to be deductible for income tax purposes.

GE Japan’s net profit since the acquisition date to March 31, 2017 was ¥8,041 million.

Sumitomo Mitsui Asset Management Company, Limited

On July 29, 2016, the SMBC Group acquired an additional 20% of the outstanding shares of Sumitomo Mitsui Asset Management Company, Limited (“SMAM”) and increased its equity interest in SMAM to 60%. As a result, the SMBC Group obtained control of SMAM. This acquisition was made for the purpose of enhancing the SMBC Group’s services to comprehensively meet its clients’ needs for asset management.

The fair values of assets and liabilities of SMAM at the date of authorizationacquisition and the consideration paid were as follows:

At July 29, 2016
(In millions)

Assets:

Cash and deposits with banks

¥        15,411

Trading assets

12,030

Intangible assets

14,555

All other assets

11,007

Total assets

¥53,003

Liabilities

¥14,995

Net assets

¥38,008

Non-controlling interests measured at their proportionate share of the identifiable net assets

(15,203

Net assets acquired

22,805

Goodwill

38,053

Consideration

¥60,858

Consideration:

Cash

¥20,286

Fair value of the equity interest in SMAM held before the acquisition 35,902

40,572

Total

¥60,858

Acquisition related costs recognized as an expense in “General and administrative expenses”
in the consolidated income statement

¥8

The goodwill was attributable to the profitability of the acquired business and the synergies expected to arise after the acquisition. None of the goodwill recognized is expected to be deductible for issueincome tax purposes.

As a result of remeasuring the previously held interest to fair value, the SMBC Group recognized a gain of ¥20,344 million, which was included in “Other income” in the consolidated income statement.

The revenue and profit or loss since the acquisition date to March 31, 2017 is immaterial to the consolidated financial statements.

Pro forma financial information

It is estimated that the SMBC Group would have reported a total operating income of ¥3,358,377 million and a net profit of ¥741,214 million for the fiscal year ended March 31, 2017 if all acquisitions had occurred on April 1, 2016.

Cash consideration paid and cash acquired by obtaining control of the subsidiaries

The total amount of cash consideration paid and cash acquired by obtaining control of subsidiaries during the fiscal year ended March 31, 2017 were as follows:

 

For the fiscal year ended
March 31, 2017
(In millions)

Cash consideration paid

¥(201,245

Cash and cash equivalents transferred as a result of the acquisitions

1,889

Cash consideration paid, net of cash and cash equivalents acquired by obtaining control of the subsidiaries

¥(199,356

The amounts of assets and liabilities other than cash or cash equivalents in these subsidiaries were ¥724,721 million and ¥509,666 million, respectively.

50

ASSETS AND DISPOSAL GROUPS HELD FOR SALE

The table below shows non-current assets and disposal groups held for sale at March 31, 2019 and 2018.

   At March 31, 
   2019   2018 
   (In millions) 

Assets held for sale:

    

Loans and advances(1)

  ¥—     ¥3,010,314 

Property, plant and equipment

               57    1,435,637 

Intangible assets

   —      179,358 

All other assets

   —      1,026,641 
  

 

 

   

 

 

 

Total

   57    5,651,950(2) 
  

 

 

   

 

 

 

Liabilities directly associated with the assets held for sale:

    

Borrowings

   —      1,631,681 

Debt securities in issue

   —      1,422,402 

All other liabilities

   —      562,858 
  

 

 

   

 

 

 

Total

  ¥—     ¥3,616,941(2) 
  

 

 

   

 

 

 

(1)

The balance in Loans and advances mainly consists of lease financing.

(2)

The assets and liabilities of Sumitomo Mitsui Finance and Leasing Company, Limited (“SMFL”) were classified as held for sale during the fiscal year ended March 31, 2018.

Other reserves relating to non-current assets and disposal groups held for sale at March 31, 2019 and 2018 were nil and ¥52,146 million, respectively.

Reorganization of joint leasing partnership

On November 6, 2017, the SMBC Group announced that it had entered into a basic agreement with Sumitomo Corporation (“Sumitomo Corp”) concerning the reorganization of its joint leasing partnership, subject to the approval of foreign and domestic regulatory authorities. The final agreement regarding the reorganization was concluded on March 30, 2018 and in this reorganization, the Company planned to reduce its equity interest in SMFL from 60% to 50% and Sumitomo Corp planned to increase its equity interest in SMFL from 40% to 50%. As a result, SMFL would cease to be the Company’s consolidated subsidiary and would become its joint venture, and SMFL’s consolidated subsidiaries SMBC Aviation Capital Limited and SMFL Capital Company, Limited would become the SMBC Group’s equity method investees. Based on the facts and circumstances, the

SMBC Group determined that the reorganization within one year was considered highly probable and therefore the assets and liabilities of SMFL and its subsidiaries were classified as held for sale during the fiscal year ended March 31, 2018.

On November 28, 2018, based on the final agreement described above, the SMBC Group transferred a portion of its shares of SMFL to SMFL. The SMBC Group received a cash consideration of ¥176,284 million for losing control of SMFL and its subsidiaries. The total amount of cash and cash equivalents in these companies was ¥15,411 million. The SMBC Group recognized gains of ¥47,887 million associated with the loss of control of these companies, of which ¥10,251 million was attributable to remeasuring the interests retained in these companies at fair value. These were included in “Other income” in the consolidated income statements.

51

CURRENT AND NON-CURRENT DISTINCTION

The following tables present an analysis of financial assets and liabilities, excluding cash and deposits with banks, trading assets and liabilities, and derivative financial instruments, financial assets included in assets held for sale and financial liabilities included in liabilities directly associated with the assets held for sale, by amounts recovered or settled, not more than twelve months or more than twelve months, at March 31, 20162019 and 2015.2018.

 

 At March 31, 2016  At March 31, 2019 
 Amounts recovered or settled    Amounts recovered or settled   
 Not more than
twelve months
 More than
twelve months
 Total  Not more than
twelve months
 More than
twelve months
 Total 
 (In millions)  (In millions) 

Assets:

      

Call loans and bills bought

 ¥1,235,296   ¥56,070   ¥1,291,366   ¥2,416,538  ¥49,207  ¥2,465,745 

Reverse repurchase agreements and cash collateral on securities borrowed

  8,157,904    78,612    8,236,516   10,273,844  72,150  10,345,994 

Financial assets at fair value through profit or loss

  —   ��  1,611,877    1,611,877   871,333  1,770,083  2,641,416 

Investment securities:

      

Held-to-maturity investments

  1,093,833    1,173,709    2,267,542  

Available-for-sale financial assets

  3,444,355    14,153,450    17,597,805  

Debt instruments at amortized cost

 46,912  272,002  318,914 

Debt instruments at fair value through other comprehensive income

 2,381,961  10,951,260  13,333,221 

Equity instruments at fair value through other comprehensive income

  —    4,172,892  4,172,892 

Loans and advances

  29,410,283    59,452,088    88,862,371   31,176,468  59,506,470  90,682,938 

Other financial assets

  2,645,489    118,826    2,764,315   3,507,199  101,930  3,609,129 

Liabilities:

      

Deposits

 ¥120,219,012   ¥5,721,785   ¥125,940,797   ¥129,647,380  ¥4,757,272  ¥134,404,652 

Call money and bills sold

  1,219,197    1,259    1,220,456   1,307,779   —    1,307,779 

Repurchase agreements and cash collateral on securities lent

  6,839,474    —      6,839,474   12,887,249   —    12,887,249 

Borrowings

  5,945,391    3,968,738    9,914,129   8,713,483  3,454,375  12,167,858 

Debt securities in issue

  5,147,326    5,682,286    10,829,612   3,521,706  7,649,503  11,171,209 

Other financial liabilities

  5,841,129    94,382    5,935,511   5,593,895  2,618  5,596,513 

  At March 31, 2015 
  Amounts recovered or settled    
  Not more than
twelve months
  More than
twelve months
  Total 
  (In millions) 

Assets:

   

Call loans and bills bought

 ¥1,272,267   ¥54,698   ¥1,326,965  

Reverse repurchase agreements and cash collateral on securities borrowed

  7,096,618    121,880    7,218,498  

Financial assets at fair value through profit or loss

  —      1,785,684    1,785,684  

Investment securities:

   

Held-to-maturity investments

  1,393,712    2,003,183    3,396,895  

Available-for-sale financial assets

  3,759,843    17,082,918    20,842,761  

Loans and advances

  29,400,474    57,571,242    86,971,716  

Other financial assets

  2,434,897    130,828    2,565,725  

Liabilities:

   

Deposits

 ¥110,352,284   ¥5,481,696   ¥115,833,980  

Call money and bills sold

  5,873,124    —      5,873,124  

Repurchase agreements and cash collateral on securities lent

  8,820,083    —      8,820,083  

Borrowings

  7,377,283    3,839,769    11,217,052  

Debt securities in issue

  5,837,235    5,214,196    11,051,431  

Other financial liabilities

  4,889,407    130,598    5,020,005  

  At March 31, 2018 
  Amounts recovered or settled    
  Not more than
twelve months
  More than
twelve months
  Total 
  (In millions) 

Assets:

   

Call loans and bills bought

 ¥1,802,317  ¥79,563  ¥1,881,880 

Reverse repurchase agreements and cash collateral on securities borrowed

  8,418,341   73,362   8,491,703 

Financial assets at fair value through profit or loss

  205,525   1,342,147   1,547,672 

Investment securities:

   

Held-to-maturity investments

  92,033   280,426   372,459 

Available-for-sale financial assets

  5,034,184   15,088,432   20,122,616 

Loans and advances

  29,469,067   55,660,003   85,129,070 

Other financial assets

  3,490,685   107,957   3,598,642 

Liabilities:

   

Deposits

 ¥123,901,761  ¥4,559,766  ¥128,461,527 

Call money and bills sold

  1,190,929   —     1,190,929 

Repurchase agreements and cash collateral on securities lent

  12,022,593   —     12,022,593 

Borrowings

  7,264,455   3,388,026   10,652,481 

Debt securities in issue

  3,356,401   7,212,716   10,569,117 

Other financial liabilities

  6,687,889   3,153   6,691,042 

 

5152

CONDENSED FINANCIAL INFORMATION OF REGISTRANT (SMFG)

Condensed StatementStatements of Financial Position

 

  At March 31,   At March 31, 
  2016   2015   2019   2018 
  (In millions)   (In millions) 

Assets:

        

Deposits with SMBC

  ¥502,450    ¥201,862    ¥434,005   ¥251,681 

Investments in SMBC

   5,166,345     5,175,789     4,613,790    4,613,844 

Loans to SMBC

   1,406,565     376,263     6,258,343    5,537,801 

Investments in other subsidiaries and associates

   994,817     985,374  

Investments in other subsidiaries, associates and joint ventures

   1,477,703    1,548,012 

Other assets

   12,104     7,418     93,112    90,605 

Current tax assets

   110,953     102,967     118,878    67,414 
  

 

   

 

   

 

   

 

 

Total assets

  ¥8,193,234    ¥6,849,673    ¥12,995,831   ¥12,109,357 
  

 

   

 

   

 

   

 

 

Liabilities and equity:

        

Short-term borrowings from SMBC

  ¥1,228,030    ¥1,228,030    ¥1,228,030   ¥1,228,030 

Long-term borrowings

   49,000     31,000     234,223    199,221 

Debt securities in issue due to other subsidiaries

   275,300     267,974     284,297    280,880 

Debt securities in issue

   1,047,037     343,989     4,898,140    4,216,292 

Other liabilities

   10,804     9,223     52,813    47,001 
  

 

   

 

   

 

   

 

 

Total liabilities

   2,610,171     1,880,216     6,697,503    5,971,424 
  

 

   

 

   

 

   

 

 

Shareholders’ equity

   5,285,632     4,969,457     5,702,082    5,541,687 

Other equity instruments holders’ equity

   297,431     —       596,246    596,246 
  

 

   

 

   

 

   

 

 

Total equity

   5,583,063     4,969,457     6,298,328    6,137,933 
  

 

   

 

   

 

   

 

 

Total equity and liabilities

  ¥8,193,234    ¥6,849,673    ¥  12,995,831   ¥  12,109,357 
  

 

   

 

   

 

   

 

 

Condensed Income StatementStatements

 

   For the fiscal year ended March 31, 
   2016  2015  2014 
   (In millions) 

Income:

    

Interest income from SMBC

  ¥18,313   ¥9,641   ¥46  

Dividends from SMBC

   522,636    485,449    190,397  

Dividends from other subsidiaries and associates

   20,508    18,649    16,436  

Fees and commission income from subsidiaries

   16,622    13,800    13,476  

Other income

   234    98    96  
  

 

 

  

 

 

  

 

 

 

Total income

   578,313    527,637    220,451  
  

 

 

  

 

 

  

 

 

 

Expense:

    

Interest expense to SMBC

   5,753    5,895    6,171  

Interest expense to other subsidiaries

   12,780    16,170    16,468  

Interest expense

   12,814    8,886    —    

Operating and other expense

   9,868    10,712    8,790  
  

 

 

  

 

 

  

 

 

 

Total expense

   41,215    41,663    31,429  
  

 

 

  

 

 

  

 

 

 

Profit before tax

   537,098    485,974    189,022  

Income tax expense

   4    4    4  
  

 

 

  

 

 

  

 

 

 

Net profit

  ¥537,094   ¥485,970   ¥189,018  
  

 

 

  

 

 

  

 

 

 

Profit attributable to:

    

Shareholders

   534,321    485,970    189,018  

Other equity instruments holders

   2,773    —      —    

 

Condensed Statement of Cash Flows

 

  

 
   For the fiscal year ended March 31, 
   2016  2015  2014 
   (In millions) 

Operating Activities:

    

Profit before tax

  ¥537,098   ¥485,974   ¥189,022  

Income taxes paid—net

   (7,980  (60,722  (9,146

Other operating activities—net

   (3,019  (641  286  
  

 

 

  

 

 

  

 

 

 

Net cash and cash equivalents provided by operating activities

   526,099    424,611    180,162  
  

 

 

  

 

 

  

 

 

 

Investing Activities:

    

Loans provided to SMBC

   (1,073,640  (346,268  —    

Other investing activities—net

   (76  (35  (191
  

 

 

  

 

 

  

 

 

 

Net cash and cash equivalents used in investing activities

   (1,073,716  (346,303  (191
  

 

 

  

 

 

  

 

 

 

Financing Activities:

    

Proceeds from issuance of long-term borrowings

   18,000    31,000    —    

Proceeds from issuance of debt securities

   754,274    315,268    —    

Redemption of debt securities

   —      (126,200  —    

Proceeds from issuance of other equity instruments

   297,431    —      —    

Dividends paid to shareholders

   (218,589  (176,271  (176,281

Coupons paid to other equity instruments holders

   (2,773  —      —    

Purchases of treasury stock and proceeds from sale of treasury stock—net

   (138  (144  (481
  

 

 

  

 

 

  

 

 

 

Net cash and cash equivalents provided by (used in) financing activities

   848,205    43,653    (176,762
  

 

 

  

 

 

  

 

 

 

Net increase of cash and cash equivalents

   300,588    121,961    3,209  

Cash and cash equivalents at beginning of period

   201,862    79,901    76,692  
  

 

 

  

 

 

  

 

 

 

Cash and cash equivalents at end of period

  ¥502,450   ¥201,862   ¥79,901  
  

 

 

  

 

 

  

 

 

 
   For the fiscal year ended March 31, 
   2019  2018  2017 
   (In millions) 

Income:

    

Interest income from SMBC

  ¥145,075  ¥99,100  ¥52,938 

Dividends from SMBC

   325,333   223,334   408,419 

Dividends from other subsidiaries, associates and joint ventures

   46,473   33,668   20,428 

Fees and commission income from subsidiaries

   5,666   10,226   20,706 

Other income

   106,712   217   178 
  

 

 

  

 

 

  

 

 

 

Total income

   629,259   366,545   502,669 
  

 

 

  

 

 

  

 

 

 

Expense:

    

Interest expense to SMBC

   4,298   4,298   4,474 

Interest expense to other subsidiaries

   13,663   16,309   13,039 

Interest expense

   128,360   89,699   45,223 

Operating and other expense

   24,857   21,525   12,165 
  

 

 

  

 

 

  

 

 

 

Total expense

   171,178   131,831   74,901 
  

 

 

  

 

 

  

 

 

 

Profit before tax

   458,081   234,714   427,768 

Income tax expense

   (28,517  (7,085  (33,344
  

 

 

  

 

 

  

 

 

 

Net profit

  ¥486,598  ¥241,799  ¥461,112 
  

 

 

  

 

 

  

 

 

 

Profit attributable to:

    

Shareholders

   474,723   232,077   453,183 

Other equity instruments holders

   11,875   9,722   7,929 

Condensed Statements of Cash Flows

   For the fiscal year ended March 31, 
   2019  2018  2017 
   (In millions) 

Operating Activities:

    

Profit before tax

  ¥458,081  ¥234,714  ¥427,768 

Income taxes paid—net

   (17,440  35,010   23,427 

Other operating activities—net

   (108,622  (3,736  (4,580
  

 

 

  

 

 

  

 

 

 

Net cash and cash equivalents provided by operating activities

   332,019   265,988   446,615 
  

 

 

  

 

 

  

 

 

 

Investing Activities:

    

Loans provided to SMBC

   (626,746  (2,241,774  (1,972,253

Proceeds from sale of investment in subsidiaries

   184,122   —     —   

Other investing activities—net

   (6,548  (13,833  (5
  

 

 

  

 

 

  

 

 

 

Net cash and cash equivalents used in investing
activities

   (449,172  (2,255,607  (1,972,258
  

 

 

  

 

 

  

 

 

 

Financing Activities:

    

Proceeds from issuance of long-term borrowings

   35,002   66,415   83,806 

Proceeds from issuance of debt securities

   591,744   1,525,271   1,738,267 

Proceeds from issuance of other equity instruments

   —     149,080   149,081 

Dividends paid to shareholders

   (245,595  (218,569  (211,501

Coupons paid to other equity instruments holders

   (11,875  (9,722  (7,929

Purchases of treasury stock and proceeds from sale of treasury stock—net

   (69,799  380   (86
  

 

 

  

 

 

  

 

 

 

Net cash and cash equivalents provided by financing activities

   299,477   1,512,855   1,751,638 
  

 

 

  

 

 

  

 

 

 

Net increase of cash and cash equivalents

   182,324   (476,764  225,995 

Cash and cash equivalents at beginning of period

   251,681   728,445   502,450 
  

 

 

  

 

 

  

 

 

 

Cash and cash equivalents at end of period

  ¥434,005  ¥251,681  ¥728,445 
  

 

 

  

 

 

  

 

 

 

Investments in subsidiaries, associates and associatesjoint ventures

Investments in subsidiaries, associates and associatesjoint ventures are stated at cost. SMFGThe Company recognizes dividend income from subsidiaries and associatesthese companies when its right to receive payment is established.

Investments in other subsidiaries, associates and associates includejoint ventures included equity investments in SMFL, SMBC FriendNikko Securities Inc., SMFG Card & Credit, Inc., SMBC Consumer Finance Co., Ltd., Sumitomo Mitsui Asset Management Company, Limited (“SMAM”), Sumitomo Mitsui Finance and Leasing Company, Limited (“SMFL”) and others at March 31, 20162019, and 2015.SMBC Nikko Securities Inc., SMFG Card & Credit, Inc., SMBC Consumer Finance Co., Ltd., SMAM, SMFL and others at March 31, 2018. On April 1, 2019, SMAM merged with Daiwa SB Investments Ltd., previously our associate, to form Sumitomo Mitsui DS Asset Management Company, Limited. These companies are incorporated in Japan, and the proportion of ownership interest of SMFGthe Company in these companies was the same as described in Note 11 “Investments in Associates and Joint Ventures,” and Note 47 “Principal Subsidiaries.”

On November 28, 2018, the Company transferred a portion of its shares of SMFL to SMFL. As a result of the share transfer, SMFL ceased to be the Company’s subsidiary and became its joint venture. The gains recognized by the Company regarding to the share transfer were included in “Other income” in the condensed income statements for the fiscal year ended, March 31, 2019.

Long-term obligations

SMFGThe Company had perpetual subordinated bonds of ¥267 billion and ¥267 billion outstanding to its subsidiary, SMFG Preferred Capital JPY 3 Limited, at March 31, 20162019 and 2015,2018, respectively. The interest rates of these bonds are fixed until January 2020, which range from 4.0% to 4.5% per annum, and will be floating thereafter. SMFG Preferred Capital JPY 3 Limited issued preferred securities to purchase these bonds.

SMFGThe Company had subordinated long-term borrowings amounting to ¥49 billion and ¥31¥49 billion at March 31, 20162019 and 2015,2018, respectively, and had unsubordinated long-term borrowings amounting to ¥185 billion and to ¥150 billion at March 31, 2019 and 2018, respectively. SMFGThe Company also had subordinated bonds amounting to ¥607¥954 billion and ¥345¥945 billion, including ¥1¥5 billion and ¥1¥2 billion outstanding to its subsidiary, at March 31, 20162019 and 2015, respectively. In addition, during the fiscal year ended March 31, 2016, SMFG issued2018, respectively, and had senior bonds amounting to ¥449¥3,962 billion and ¥3,285 billion, including ¥8¥12 billion and ¥12 billion outstanding to its subsidiary.subsidiary, at March 31, 2019 and 2018, respectively. For additional information, refer to Note 18 “Borrowings” and Note 19 “Debt Securities in Issue.”

Guarantees

SMFGThe Company provided guarantee of ¥224¥234 billion and ¥259¥298 billion at March 31, 20162019 and 2015,2018, respectively, to the Deposit Protection Fund of the Association of German Banks with regard to the deposits of the SMBC Dusseldorf branch.

EXHIBIT INDEX

 

Exhibit number

F-158

Description of Exhibit

Exhibit 1.1Articles of Incorporation of Sumitomo Mitsui Financial Group, Inc., as amended on June 29, 2016 (English translation)
Exhibit 1.2Regulations of Board of Directors of Sumitomo Mitsui Financial Group, Inc., as amended on October 1, 2015 (English translation)
Exhibit 1.3Share Handling Regulations of Sumitomo Mitsui Financial Group, Inc., as amended on April 1, 2012 (English translation)*
Exhibit 2.1Form of Deposit Agreement among the registrant, Citibank, N.A., as Depositary, and all owners and holders from time to time of American Depositary Shares issued thereunder**
Exhibit 8List of subsidiaries of Sumitomo Mitsui Financial Group, Inc., at March 31, 2016
Exhibit 11Code of Ethics of Sumitomo Mitsui Financial Group, Inc.***
Exhibit 12.1CEO Certification Required by Rule 13a-14(a) (17 CFR 240.13a-14(a))
Exhibit 12.2CFO Certification Required by Rule 13a-14(a) (17 CFR 240.13a-14(a))
Exhibit 13.1Certification Required by Rule 13a-14(b) (17 CFR 240.13a-14(b)) and Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. 1350)
Exhibit 13.2Certification Required by Rule 13a-14(b) (17 CFR 240.13a-14(b)) and Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. 1350)
Exhibit 15.1Consent of Independent Registered Public Accounting Firm

*Incorporated by reference to our annual report on Form 20-F (File No. 001-34919) filed on July 23, 2012.
**Incorporated by reference to our registration statement on Form 20-F (File No. 001-34919) filed on October 20, 2010.
***Incorporated by reference to our annual report on Form 20-F (File No. 001-34919) filed on July 29, 2011.