UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM20-F

(Mark One)

OR

OR

OR

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)

Takeshi MikamiJun Okahashi

1-2, Marunouchi1-chome,Chiyoda-ku, Tokyo100-0005, 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

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, 2018,2021, the following shares of capital stock were outstanding: 1,414,443,3901,374,040,061 shares of common stock (including 3,884,9683,612,302 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  ☒    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  ☒

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  ☒    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 RegulationS-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, anon-accelerated filer, or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” and “emerging growth company” in Rule12b-2 of the Exchange Act.

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 whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.  ☒

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

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 Rule12b-2 of the Exchange Act).    Yes  ☐    No  ☒

TABLE OF CONTENTS

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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. “SMBC” refers 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. References to the “SMBC Group” are to us and our 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:

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

Not applicable.

Not applicable.

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, 2021, 2020, 2019, 2018 2017, 2016, 2015 and 20142017 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.

Risks Related to the Economic and Financial Environment

Our businesses, financial condition and results of operations have been, and may continue to be, adversely affected by the COVID-19 pandemic and collateral events.

Since December 2019, COVID-19 has spread throughout the world. The COVID-19 pandemic has resulted in the implementation of numerous measures to prevent the spread of COVID-19, such as restrictions on movement and closures of schools, businesses, factories and other public and private facilities in many countries and regions. These measures have significantly affected people’s lives and business activities. Coupled with these measures, the COVID-19 pandemic has had a severe impact on both Japanese and global economic conditions. COVID-19 vaccination is considered to be an important tool to help stop the COVID-19 pandemic, and vaccination has already begun in many countries. However, there remains uncertainty whether vaccines will be produced, distributed and administered as expected, and effective against new variants of COVID-19. Even if the number of new COVID-19 cases significantly decreases in many countries including Japan, this global pandemic and its negative effects on global economic conditions may persist into the future. Even in countries that succeed in significantly reducing the number of the cases from the current outbreak, the level of economic activity may not fully recover in the short term or at all due to concerns of future waves of COVID-19 and the emergence of new variants of COVID-19 or changes in lifestyle and business practices. Therefore, the Japanese and global economy may remain volatile or continue to deteriorate.

If the Japanese and global economy remain volatile or continue to deteriorate due to the COVID-19 pandemic and collateral events, the balance of our impaired loans and credit-related costs may further increase due to deterioration in the financial condition of our customers. Additionally, disruption and volatility in financial markets may have an adverse effect on our funding activities and could subject our holdings of securities to impairment or valuation losses. Also, a decline in overall economic activity may cause us to miss business opportunities and this may adversely affect the execution of our operating strategy and our results of operations. Furthermore, since the outbreak of the COVID-19 pandemic, we have been continuing to provide services such as financing and settlement to fulfill our responsibility as a financial institution, which is a part of the social infrastructure. In carrying out that responsibility, we may be requested to provide new and additional financing to customers, and these may increase our risk assets and lead to a lower capital adequacy ratio and to additional credit-related losses. From a business operational standpoint, if our efforts to prevent the spread of COVID-19 within our workforce, such as enabling telework for employees and separating staff into two or more teams on alternating shifts, are ineffective or lead to decreased productivity and many of our employees contract the virus, such circumstances could adversely affect the operation of our businesses or force us to temporarily suspend operations. Furthermore, cyberattacks and financial crimes may increase under the new working arrangements such as expanded telework for employees.

The extent of the continuing impact of the COVID-19 pandemic on our operational and financial performance remains uncertain and will depend on many factors beyond our control, including the duration of the pandemic and further spread of the virus. To the extent that the ongoing COVID-19 pandemic adversely affects our business, results of operations and financial condition, it may also have the effect of increasing the likelihood and magnitude of the other risks described in “Item 3.D. Risk Factors.”

For detailed information on the impact of the COVID-19 pandemic on the operating environment, our results of operations and our financial condition, see “Item 5. Operating and Financial Review and Prospects.”

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 include fiscal andfactors such as monetary policies taken by the Bank of Japan (“BOJ”) and other central banks, and fiscal policies, policies on financial markets, as well as related laws, regulations and policies on financial markets.agreements adopted by governmental authorities. Those factors

include, for example, monetary easing by the Japanese consumption tax rate. The Japanese consumption tax rate was scheduled to increase from 8% to 10% in April 2017. However,BOJ and the increase inof tariffs and other protectionist trade policies of countries including the consumption tax rate to 10% was postponed until October 2019.U.S. 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 exit from the European Union, which took place on January 31, 2020, 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 ofin 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 reported value of ouravailable-for-sale equity instruments accounted for 3.0% of our total assets at March 31, 2018, approximately 88.4% of which were Japanese equity securities. This value depends mainly on prices of the instruments in the stock market. In addition, the reported value, gross unrealized gains and losses, and cost of thoseavailable-for-sale equity instruments at March 31, 2018 are described in “Item 5.A. Operating Results—Investment Securities.”

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.

We will further reduceOur equity securities portfolio mainly consists of equity instruments at fair value through other comprehensive income. The reported value of our holdingsequity instruments at fair value through other comprehensive income accounted for 2.0% of our total assets at March 31, 2021, approximately 85.5% 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, 2021 are described in “Item 5.A. Operating Results—Financial Condition—Investment Securities.”

In recent years, we have been reducing our strategic equityshareholding investments in order to reducemitigate the impact of share price fluctuations on our financial risks.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 relationships with those customers.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, 2018,2021, we had ¥8¥14 trillion of Japanese government bonds classified asavailable-for-sale financial assets, debt instruments at fair value through other comprehensive income, which accounted for approximately 4.0%6.1% 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 other investment securities. Increases in interest

Risks Related to Our Business

Failure to satisfy capital adequacy requirements could constrain our and SMBC’s operations.

We and SMBC are subject to capital adequacy requirements established by the Financial Services Agency of Japan (“FSA”). The current requirements reflect which are based on 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 being 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 ofnon-viability under the Basel III rules. In addition, securities withstep-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 apre-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 ofnon-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 ofnon-viability to qualify as Tier 2 capital, and subordinated debt securities callable at the initiative of the issuer within five years or withstep-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 SMBC 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 started to be phased in from March 2016, with the initial ratio of 0.625% reachinghas been 2.5% bysince March 2019. Under thephase-in arrangement, we are currently required to maintain 1.875% of Common Equity Tier 1 risk-weighted capital as a percentage of risk weighted assets. As a result, taking the capital conservation buffer into account at March 2021, the total minimum Common Equity Tier 1 risk-weighted capital ratio will be increased tohas been 7%, and the total minimum risk-weighted capital ratio will be increased tohas been 10.5% in March 2019.. The countercyclical buffer which started 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, the requirements for additional capital, in the form of a capital surcharge above the Basel III minimum requirement, have been applied from 2016 to those financial institutions identified by the Financial Stability Board (“FSB”) as Global Systemically Important Banks(“G-SIBs”), including us. This requirement is commonly referred to as theG-SIB capital surcharge. The FSB updates its list of G-SIBs on an annual basis. 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.

In March 2019, the requirement is fullyFSA published its guidelines for the leverage ratio applicable to banks and bank holding companies with international operations, which have been applied from March 31, 2019. Under the FSA’s guidelines for the leverage ratio, banks and bank holding companies 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. On June 30, 2020, in light of the increasing impact of the phase-inCOVID-19 requirements, we are currently requiredpandemic, the FSA published amendments to its guidelines for the leverage ratio, which mainly exclude deposits with the BOJ from the denominator for the calculation of the leverage ratio in order to maintain 0.75%harmonization with the monetary policy implemented by the BOJ and the prudential regulations for banks and other financial institutions. These amendments came into effect on June 30, 2020 and were scheduled to expire on March 31, 2021. On March 31, 2021, the FSA extended the expiry date of Common Equity Tier 1 capital as a percentage of risk-weighted assets.these amendments to March 31, 2022.

G-SIBs willare 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 ifG-SIBs fail, they will have sufficient loss absorbing and recapitalization capacity available in resolution. In November 2015, the FSB published the final TLAC standard. As aG-SIB, we will be subject to the final TLAC standard, as implemented in Japan.

final TLAC standards (“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-SIB.

At March 31, 2018,2021, 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 19.36 %,16.69 %18.61%, 16.96% and 14.50 %,16.00%, compared to the minimum required ratios of 10.655%11.52%, 8.655%9.52% and 7.155%8.02%, respectively. All theSuch minimum required ratios stated above include the capital conservation buffer of 1.875%2.5%, theG-SIB capital surcharge of 0.75%1.0% and the countercyclical buffer of 0.03%0.02%.

Our and SMBC’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 SMBC:

We and SMBC 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 SMBC’s ability to maintain capital at the required levels may be adversely affected.

OnIn December 7, 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:

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 operations, which may indirectly affect our ability to fulfill our contractual obligations or may result in restrictions on our businesses. Failure to maintain capital levels under the capital buffer requirements under Basel III and the requirement for theG-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 our 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.

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.

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. The Dodd-Frank Act as well as

We expect that the Biden Administration and the Democratically-controlled Congress will seek to implement a regulatory reform agenda that is significantly different than that of the Trump Administration. This reform agenda could include, among other post-financial crisis regulatory reforms inthings, a heightened focus on the United States have increased costs, imposed limitations on activities and resulted in an 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 loan portfolios and credit concentrations to borrowers impacted by climate change, heightened scrutiny of the U.S. financial system, but theBank Secrecy Act and anti-money laundering requirements. It is too early for us to assess which, if any of these, policies would be implemented and what their impact that the U.S. Presidential administration’s policy goalson us would be.

These and similar, or any new or proposed legislation could have on the regulatory requirements currently imposed on us remains uncertain.

Financial Instruments and Hedge Accounting—Hedge accounting—Interest Rate Benchmark Reform” to our consolidated financial statements included elsewhere in this report.

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. In addition, the development of new technologies in the “Fintech” and other sectors, along with the corresponding rise of new entrants from these sectors into the financial services industry, may further intensify competition in the business environments in which we operate. We compete with various types of financial services companies, including:

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. In addition, the development ofwith technological advances, new technologiescompetitors in the “Fintech” and other sectors, along with the corresponding rise of new entrants from these sectors into the financial services industry may further intensify competition in the business environments in which we operate,continue to emerge, and as 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.

The changesChanges in the financial environment in Japan may also have a negative effect on the Japanese financial services industry. For example, prolonged monetary easing by the Bank of Japan (“BOJ”)BOJ may continue to lower the domestic interest spreads. This may significantly affect the businesses of commercial banks in Japan, including us. 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.”

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

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

conditions of those customers may be subject to changes in the industry-specific economic conditions, including, for example, fluctuations in the prices of oil, gas and other natural resources, as well as general economic conditions. In addition, adverse region-specific economic conditions or changes in economic conditions due to unexpected incidents such as the spread of COVID-19 and collateral events 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 indebt-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 widespread pandemics such as COVID-19,large-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 0.6%0.8%, 0.7%0.5% and 0.8%0.6% at March 31, 2018, 20172021, 2020 and 2016,2019, 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, the Company has the issuer ratings ofA1/P-1 from Moody’s Japan K.K., (“Moody’s”), the issuer credit rating ofA- from S&P Global Ratings Japan Inc. (“S&P”) and the foreign and local currency issuer default ratings of A/F1 from Fitch Ratings Japan Limited (“Fitch”).Limited. 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:

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 2017,2020, we announced a newour medium-term management plan through March 2020.2023. 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 SMBC 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 SMBC Finance Service Co., Ltd. (“SMBC Finance Service”), formerly known as 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 withso-called “gray zone” interest 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 (“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 atone-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 Finance Service, 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 Finance Service, 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.

SMBC 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

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.

We maintain a SMBC Group-wide policy designed to ensure compliance with U.S. and other applicable sanctions laws and regulations. Ournon-U.S. offices engage in transactions relating to the Restricted Targets in compliance with applicable laws and regulations. These activities include or have included remittance of Japanese yen with

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 and 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, as amended, and “sectoral” sanctions on the financial, energy and defense sectors of the Russian economy.

The U.S. government has imposed targeted sanctions against individuals in China and Hong Kong pursuant to the Hong Kong Autonomy Act and Executive Order 13936, and has also imposed restrictions pursuant to Executive Order 13959, as amended, on transactions by U.S, persons in securities issued by or linked to certain Chinese companies determined to be associated with the Chinese military-industrial complex. Additionally, pursuant to the Global Magnitsky Human Rights Accountability Act and Executive Order 13818, the U.S. government has sanctioned a number of Chinese entities and individuals in connection with China’s actions with respect to the Xinjiang Uyghur Autonomous Region (“Xinjiang”), and published an advisory warning U.S. and non-U.S. companies with supply chain exposure to Xinjiang of reputational, economic, and legal risks of involvement with entities that engage in human rights abuses, including but not limited to forced labor in the manufacture of goods intended for domestic and international distribution. While the sanctions imposed under these authorities to date have not materially impacted our business, it is possible that future sanctions may have a more significant effect on us.

In February 2021, in response to the coup in Burma, President Biden issued Executive Order 14014, authorizing the imposition of targeted sanctions against individuals and entities in Burma. Pursuant to the order, OFAC has added to the SDN List a number of individuals involved in or supporting the coup, family members of such individuals, as well as a number of Burmese state-owned enterprises. If additional sanctions are imposed, it is possible that they could have an adverse impact on the operations of SMBC’s branch in Yangon or on our customers’ business involving entities in Burma.

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

We are exposed to risks associated with climate change, including the physical risks of climate change and risks from the transition to a decarbonized society.

Risks associated with climate change are subject to increasing societal, regulatory and political focus in Japan and globally. These risks include the physical risks of climate change and risks from the transition to a decarbonized society. In order to address these risks, we have begun efforts to strengthen our climate change scenario analysis and consider countermeasures at the management level. These proposed countermeasures are reported to the Management Committee and Risk Committee and reviewed by outside directors on the board of directors. However, these efforts may not be successful, and even if they are undertaken successfully, they may not be sufficient. In such a case, they may lead to an adverse effect on our financial condition and results of operations.

Physical risks of climate change arise from a number of factors and relate to specific weather events including large-scale typhoons. Despite our preparation of operation manuals and other backup measures and procedures, a large-scale disaster due to extreme weather conditions damages our employeesand branches, interfering with our business continuity. Large-scale disasters could also adversely affect the financial conditions of our customers or the value of properties pledged as collateral, resulting in an increase in our credit costs. In addition, our operating income and values of assets held may decrease due to instability in financial markets, which could also adversely affect our ability to raise financing.

There are also risks from the transition to a decarbonized society. For example, due to changes in climate change policies, tightening of environmental regulations and technological innovation to address climate change, our customers in sectors that are deemed to contribute significantly to climate change may experience declines in the value of their assets (i.e., asset stranding). In addition, our customers’ financial condition and performance could suffer from increasing costs associated with climate change response measures, which could result in an increase in our credit costs.

Moreover, amid growing interest in initiatives related to the Task Force on Climate-related Financial Disclosures (“TCFD”) and Sustainable Development Goals (“SDGs”), if our efforts and disclosure regarding corporate social responsibility are viewed as insufficient, we could suffer from increased social criticism, which could adversely affect the market price of our shares and/or the environment for our capital raising activities. For further information, see “Item 4.B. Business Overview—Sustainability Management” and “Item 4.B. Business Overview—Management of Climate-related Risk.”

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

WeOur business operations are exposedsubject to a variety of operational, legalvarious laws and regulations across the jurisdictions in which we do business. In addition, we face significant regulatory risks throughout our organization. Management of these risks requires,scrutiny and expectations with respect to, among other things, policiesgovernance, infrastructure, data and procedures to properly recordrisk management practices and verify large numbers of transactionscontrols.

We have implemented or enhanced SMBC Group-wide risk management programs and events. However, these policies and procedures may not be fully effective or sufficient.program oversight, including compliance risk management. We have also devoted significant resources to strengthening our risk management framework and the policies and procedures thereunder, 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.effective or sufficient.

Furthermore, management of risks requires, especially for compliance risk management, among other things, policies and procedures to properly record and verify large numbers of transactions and events, but deficiencies in the quality or effectiveness of our data gathering, analysis and validation processes could result in ineffective risk management practices and inaccurate reporting. Some of our methods of managing compliance risks are based upon our use of observed historical market behavior and thus may not accurately predict future risks. Violations

Ineffectiveness or insufficiency of our risk management may result in violations of laws including the Japanese antitrust and fair trade laws by us or by SMBC mayand/or failure to comply with regulatory and supervisory expectations with respect to our compliance function. As a consequence of such violations or failures, we could be subject to regulatory investigations, enforcement actions and legal proceedings, any of which could result in administrative sanctions. Furthermore, investigations, administrative actionssubstantial penalties, fines or litigation could commence in relationother sanctions and damage 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, SMBC and one of its subsidiaries contribute to financial benchmarks such as the Tokyo Interbank Offered Rate (“TIBOR”) and the London Interbank Offered Rate (“LIBOR”)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.

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

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 toof 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.

Other Risks

It may not be possible for investors to effect service of process within the United States upon us or our directors 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 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:

For example, we established the “GREEN×GLOBE Partners,” a community platform that aims to solve environmental and strivesocial issues. Through the platform, we work with customers to achieve harmony with the natural environment in our corporate activities.

Basic Philosophy Regarding the SMBC Group’s Environmental Activities

Recognizing the importance of realizingrealize a sustainable society by hosting seminars and facilitating the exchange of information concerning the environment and society, assisting participants in connecting with each other, and initiating projects that contribute to solving social issues.

Next Generation

Ensuring the sustainability of our society and economy amid the changing social environment will require the cultivation of human resources who can support society with the necessary knowledge and technologies. We are promoting sustainability by fostering the next-generation human resources and industries that will shape the society of the future together with us.

For example, we provide financial literacy education to a wide range of age groups, from children to adults, on topics such as managing household finances and loans and credit as a way to provide accurate knowledge about financial matters.

Management of Climate-related Risk

Climate-related risk refers to the risk of loss arising from climate change and is primarily divided into physical risks and transition risks. Physical risks consider how acute meteorological phenomenon and chronic climate change can directly damage physical assets or otherwise impact their value or productivity. The progress of global warming may lead to increase in acute natural disasters such as typhoons and floods, and chronic climate changes such as an increase in precipitation due to a rise in average temperature. Accordingly, there are risks that we become unable to continue our business operations due to a disaster that strikes our head office or branch offices and a risk of increased costs due to disaster countermeasures and damage restoration. In addition, there are risks such as an increase in our credit costs and a decrease in deposits associated with deterioration in customer performance and collateral damage due to natural disasters.

Transition risks consider how strengthening of policies and regulations and changes in technologies and markets can lead to changes in the value of assets, commodities and companies. The transition to a decarbonized society is resulting in a push for tighter regulations at the national and international levels, including stricter carbon emission targets and carbon tax schemes, and may also promote transformation in the industrial structure due to the introduction of new technologies and energy sources and changes in consumer preferences. An increase in carbon emission control costs and changes in the supply and demand balance for products and services cause deterioration in customer performance due to revenue decline and impairment of existing assets for some customers, and as a result, there is a risk of an increase in our credit costs. Furthermore, it may be necessary to review our business strategies such as our financing policy on sectors.

In addition, companies are required to take measures such as business model transformation and carbon emission reduction that are appropriate for a decarbonized society. Growing demand for disclosure from stakeholders and efforts to address climate change are becoming one of our most important tasks, we make continuousthe criteria for evaluation of companies. Lack of efforts to harmonize environmental preservationaddress climate change and pollution control with corporate activities,delays in orderresponding to supportdemand for information disclosure may lead to deterioration of our reputation, and, as a result, there is a risk of deterioration in our funding environment.

With the economyincreased importance and contributefocus on climate-related risk, we have continued to expand our governance of climate-related risk and integrate climate considerations into the priorities of our board of directors and senior management. For example, regular reports regarding our sustainability-related efforts, including climate-related efforts, are submitted to the betterment of society as a whole.

We and our principal SMBC Group companies have obtained ISO 14001 certification,Management Committee, Corporate Sustainability Committee, board of directors, and Risk Management Committee. Moreover, 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, CheckCSuO position was established in April 2021 as part of the group CxO framework to oversee and Act) cycle. SMBC and some ofpromote all our other SMBC Group companies adopted “Principles for Financial Action towards a Sustainable Society” in October 2011, which have been set forth for the purposes of making environmental financing widely-known and improving the quality of environmental financing.sustainability-related initiatives.

In addition, we have identified climate change risk as one of our Credit Policy,Top Risks, which describes the universalare risks that threaten to significantly impact management, and basic philosophies, guidelinesconducted scenario analyses of transition and rules for credit operations, SMBC declares its policy of prohibiting credit for problematic loans in terms of public responsibility, or extending credit for loans which mayphysical risks while also introducing policies on businesses and sectors that are likely to have a significant negative impact on the global environment and to the society. For large-scale projects which may potentially exert a major impact on the environment and society, SMBC adopts the Equator Principles, a set of guidelines developed by private-sector financial institutions for managing environmental and social risk related to financing large-scale projects, and conducts environmental and social risk assessments.

SMBC has policies for specific sectors listed below, which may have environmental and social influences such as adverse impact on human rights and climate change. These

We will continue to enhance the policies, have been reflectedexpand the scope of its scenario analysis, and monitor other measures to strengthen our risk management framework. At the same time, we will reduce risks by supporting customers attempting to transition toward a decarbonized society. Additional information about our management of climate-related risk is available on our website (the contents of which are not incorporated by reference in our Credit Policy.this annual report).

Description of Operations and Principal Activities

Wholesale Business Unit

The Wholesale Business Unit provides financing, investment management, risk hedging and settlement services as well as financialcomprehensive solutions primarily for corporate clients in Japan that respond to wide-ranging client needs in relation to financing, investment management, risk hedging, settlement, M&A and other advisory services, digital services and leasing, primarily forlarge-andmid-sized corporate clients in Japan.leasing. This business unit mainly consists of the wholesale businesses of SMBC, SMBC Trust Bank, SMFL, SMBC Nikko Securities, Sumitomo Mitsui Card and SMBC Trust Bank and SMFL.Finance Service, which changed its corporate name from Cedyna Financial Corporation upon merger with former SMBC Finance Service Co., Ltd. on July 1, 2020.

Financing and Investment Management

The Wholesale Business Unit provides financing services that include bilateral loans, syndicated loans, commitment lines, structured finance, project finance, nonrecourse loans to 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 such as deposits and investment trusts. In addition, this business unit offers a wide range of securities 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 forward exchange contracts and derivatives to meet our customers’ demand for hedging risks such as interest rate risk or foreign exchange rate risk in their transactions. This business unit also provides guarantee services includingstand-by credit, performance bond and credit guarantee services.

Settlement

The Wholesale Business Unit offers a variety of products and services including remittance, cash management, trade finance for export and import activities and supply chain finance to optimize customers’ cash flows and business flows.

Formid-sized companies and small and medium-sized enterprises, 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 full lineup of services including brokerage and asset management by SMBC Trust Bank and funding support mainly by SMBC.

Forstart-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 provide high quality solutions in areas such as business expansion and reorganization.

Digital Services

The Wholesale Business Unit supports customers’ digitalization and new business creation efforts. For example, this business unit provides convenient digital services by enhancing collaboration between digital-related services by the SMBC Group companies, such as robotic process automation and electronic contract services. In addition, this business unit launched a corporate digital platform which delivers a diverse range of financial and non-financial services including those of external partners.

Leasing

The Wholesale Business Unit provides a wide range of leasing services including equipment, operating and leveraged leasing mainly through SMFL. SMFL, is one of the major leasing companies in Japan. We have a 60%50% equity interest in SMFL while the remaining 40%50% is held by Sumitomo Corporation (“Sumitomo Corp”),Corp, anon-affiliate.non-affiliate,

On April 1, 2016, which makes 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. On September 5, 2016, GE Japan changed its corporate name to SMFL Capital Company, Limited.

We announced on November 6, 2017 that we had entered into a basic agreementour joint venture with Sumitomo CorpCorp.

SMFL had previously been our subsidiary, in which we held a 60% equity interest. In November 2018, based on the agreement concerning the reorganization of our joint leasing partnership and concluded onannounced in March 30, 2018, the final agreement regarding the reorganization, subject to the approval of foreign and domestic regulatory authorities. The completion of the reorganization is tentatively scheduled from November 2018 to January 2019. In this reorganization, we will transfertransferred a portion of our shares of SMFL, a company jointly owned by us and Sumitomo Corp, to SMFL. FollowingUpon the share transfer, our equity interest in SMFL will decreasedecreased from the current 60% to 50% while Sumitomo Corp’s equity interest will increaseincreased from 40% to 50%. As a result, SMFL will ceaseceased to be our consolidated subsidiary and will becomebecame our joint venture, and its consolidated subsidiaries SMBC Aviation Capital Limited, which belongs to the InternationalGlobal Business Unit, and SMFL Capital Company Limited will becomebecame our equity methodequity-method investees. Subsequently, in January 2019, SMFL Capital Company Limited will bewas merged into SMFL.

Retail Business Unit

The Retail Business Unit provides financial services to both consumers residing in Japan and domesticsmall-sized companies and mainly consists of the retail businesses of SMBC, SMBC Nikko SecuritiesTrust Bank and SMBC Trust BankNikko Securities, together with three consumer finance companies, Sumitomo Mitsui Card, CedynaSMBC Finance Service and SMBC Consumer Finance.

In addition,order to meet high-net-worth customers’ diverse needs for asset management, including asset succession, SMBC, SMBC Trust Bank and SMBC Nikko Securities are promoting greater collaboration in order to meet customers’ diverse needs for asset management by leveraging their respective strengths of aSMBC’s broad client base and a high advisory capability.

On January 1, 2018, SMBC Nikko Securities merged with SMBC Friend Securities Co., Ltd., which had been our wholly owned subsidiary. This merger was made for the purposecapabilities of strengthening our securities business by reinforcing consulting-type sales, enhancing productivity through the optimization of sales personnel staffing and achieving cost saving synergies through the consolidation of overlapping management infrastructure.

In addition, the Retail Business Unit, through SMBC Trust Bank offers extensive trust services tailoredand SMBC Nikko Securities. In addition, we are appointing dedicated staff to the needs ofhigh-net-worth customers such as wealth management solutions.

In November 2015, SMBC Trust Bank acquired the retail banking business of Citibank Japan Ltd., a wholly owned subsidiary of Citigroup Inc. This acquisition was made for the purpose of expanding our business model to offer additional productsgive them access to outstanding advice and services to our customers, including foreign currency investment products and global services.service.

Settlement

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

In the credit card business, Sumitomo Mitsui Card and CedynaSMBC Finance Service conduct a comprehensive credit card business with a strong brand, and offer a variety of settlement and finance services to meet diverse customer needs.

Sumitomo Mitsui Card is a leading company in Japan’s credit card industry, having introduced the Visa brand into the Japanese market. We, Sumitomo Mitsui Card, SMBCmarket, 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.

CedynaSMBC Finance Service conducts credit card, installment (such as shopping credit and automobile loan) and solution (such as collection outsourcing and factoring) businesses. On

We, Sumitomo Mitsui Card, SMBC and 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 explore 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, as a result, our equity interest in Sumitomo Mitsui Card increased from 66% to 100% on April 1, 2016,2019. Simultaneously, we made SMBC Finance Service, formerly known as Cedyna, merged with SAKURA CARD CO., LTD., which had been oura subsidiary of Sumitomo Mitsui Card, in order to provide comprehensive solutions that benefit both the business operators 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.

end-users.SMBC, Sumitomo Mitsui Card and CedynaSMBC Finance Service are leveraging their strengths to address cashless payment needs and integrate marketing and business operations.

Furthermore, SMM Auto Finance, Inc. (“SMMAF”), which became a subsidiary of SMBC in April 2008, is a provider of automobile sales financing services. However, in July 2019, SMBC sold its shares of SMMAF and as a result, SMMAF is no longer our subsidiary.

Housing Loans

The Retail Business Unit provides housing loans with a variety of terms and interest rates, including fixed-rate loans with2- to35-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 441452 SMBC branch offices, 2646 SMBC Trust Bank branch offices, 148129 SMBC Nikko Securities branch offices and 959825 SMBC Consumer Finance staffed and unstaffed branch offices at March 31, 2018.2021. Some SMBC branches provide financial consultingconsultation 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, 2018, SMBC offers its customers’ access to 56,012 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. At March 31, 2021, the number of SMBC’s ATMs was 4,558. In addition, SMBC Consumer Finance offers its customers’ access to 1,9671,692 automatic contract machines and ATMs at March 31, 2018.2021.

This business unit also offers internet banking services for consumers. At March 31, 2018,2021, SMBC’s internet banking services had approximately 1618 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 as well as over mobile phoneswith smartphones and traditional telephones.computers.

Moreover, in credit card business, there are approximately 27 million and 1650 million card holders of Sumitomo Mitsui Card and CedynaSMBC Finance Service at March 31, 2018.2021.

The Retail Business Unit is implementing an initiative to supply customers with convenientfurther enhance its simple andeasy-to-use services efficient administrative operations 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 uscenters, and over-the-counter consultation functions through the combination of full-service branches and branches specialized in individual consultation. With this initiative, we aim to reduce costs while providing customers with convenient and high quality services.

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

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

Banking Business

The InternationalGlobal 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.

At March 31, 2018, SMBC’s international network consistedIn January 2019, PT Bank Tabungan Pensiunan Nasional Tbk, previously an associate bank of 18 branches, 22sub-branchesSMBC in Indonesia, became our consolidated subsidiary upon the purchase of additional shares by SMBC. Subsequently, in February 2019, PT Bank Tabungan Pensiunan Nasional Tbk merged with PT Bank Sumitomo Mitsui Indonesia, a consolidated subsidiary of SMBC also in Indonesia, and 4 representative officesthe 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.

In April 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 SMBC Bank International plc, which changed its corporate name from Sumitomo Mitsui Banking Corporation Europe Limited with 7 offices andin October 2020, SMBC Bank EU AG, Sumitomo Mitsui Banking Corporation (China) Limited, with 16 officesPT Bank BTPN Tbk 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.

Securities Business

In overseas markets, the InternationalGlobal Business Unit provides services such as underwriting activities, Japanese stockbrokingstock brokerage 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 services such as underwriting activities and Japanese stockbrokingstock brokerage through SMBC Nikko Capital Markets Europe GmbH, Japanese stock brokerage 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 InternationalGlobal 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 of 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.

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

On June 1, 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. We pursued this acquisition based on our expectation that railcar leasing business in the United States will experience further growth and high profitability due to stable demand for rail freight transportation, which is the core infrastructure for inland logistics. Through this acquisition, we aim to expand 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.

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 Internetinternet to respond to the needs of a wider range of customers.

Other Major Business

System Development, Data Processing, Management Consulting and Economic Research

We provide financial consultation services relating to management reforms, IT, the planning and development of strategic information systems and outsourcing. We also conduct 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.

Asset Management

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

On July 29, 2016,In April 2019, Sumitomo Mitsui Asset Management (“SMAM”), our subsidiary, merged with Daiwa 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 acquiredaim to establish an additional 20% ofasset management company that combines the outstanding sharesstrengths and expertise of SMAM and increased our equity interestDSBI, and offers high quality investment management performance and services in SMAMorder to 60%. As a result, SMAM, our former associate,properly address client needs.

Others

Kansai Mirai Financial Group, Inc. (“Kansai Mirai Financial Group”), which became our subsidiary. On May 11, 2018, we announced that we had concluded a memorandum of understanding regarding a merger of SMAM and Daiwa SB Investments Ltd., our associate in April 2019, subject to the approval of regulatory authorities. We expect the merged company to enhance its investment management capabilities and business foundations, in addition to expanding the scale of its operations. The merged company is scheduled to become our subsidiary.

Others

Our associates Kansai Urban Banking Corporation (“KUBC”) and THE MINATO BANK, LTD. (“The Minato Bank”) engage2018, engages in commercial banking business in Kansai area.

Under the medium-term management plan, we have established the following three core policiespolicies: “Transformation” and “Growth” for business strategy and “Quality” for management base, in order to achieve sustainable growth and reachmake an important step towards the next stagerealization of our journey towards our vision for the next decadenew Vision of becoming “a“A trusted global financial group that, by earningsolution provider committed to the highest trustgrowth of our customers leads the growthand advancement of Japan and the Asian region.society.”

DisciplinedTransformation: Transform existing businesses

We aim to improve profitability and efficiency by engaging in business managementmodel transformation and structural cost reform among major business areas while ensuring strategic resource allocation.

WithSpecifically, mainly in the environment for financial institutions expected to remain challenging,domestic business, we aim to focus on capital,rebuild the business franchise and perform strategic reallocation of resources corresponding to the market potential and pursue the improvement of both our service quality and business productivity through branch reorganization, digitalization, and streamlining of our business administration. Furthermore, in business areas where there is growth potential, we aim to enhance our capability of providing high-quality solutions to our customers and strengthen competitiveness of our products and services by restructuring the business model and organizational structure to maximally leverage our group capability.

Growth: Seek new growth opportunities

We aim to explore new growth opportunities including non-financial business fields and generate new added value by making investments for the future to increase our profit base.

Specifically, we aim to (a) strengthen asset-light businesses such as asset management and cost efficienciespayment/transaction in response to grow our bottom-line profit in a sustainable manner, in other words to become a profitable financial institution through sustained discipline.

While maintaining our competitivenessthe structural change in the stable domesticfinancial market, we intend to allocate resources across our portfolio of businesses in order to prioritize 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(b) expand our business portfoliofranchise in Asia where medium- to long term growth is expected, and (c) develop new businesses that provide solutions utilizing data and digital technology to expand our business base for future growth. To pursue such strategy, in addition to organic growth, we aim to actively seek inorganic growth opportunities by reducinglow-margin assets whilst investing in more profitableleveraging our sufficient capital level.

Under our business strategy of “Transformation” 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.

capability 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 ROE 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 linked to financial targets within our medium-term management plan and to our stock performancecyber security. Furthermore, in order to tightenenforce sound risk-taking, we strive to sophisticate the link withrisk appetite framework and practice business performance. We also raised the ratio of stock-based compensation for executivesmanagement in order to ensure the business is well aligned with the shareholder’s perspective.

Digitalization. With the rapid advance of digitalization, wean effective and scientific manner and aim to proactively introduce new technologiesfurther enhance our governance system in overseas businesses, including risk management and promote digitalization in variouscompliance areas such as enhancing the customer experience, generating new businesses, improving productivity and efficiency, and upgrading management infrastructure. Specifically, in order to enhance the customer experience, we intend to implement advanced digital solutions such as utilizing paperless transactions at retail branches and digital contracts with corporate customers. We intend to generate new businesses through digitalization focusing on creating new platforms such as a biometric authenticationfoundation of sustainable growth of our global business. In order to improve productivity and efficiency, we intend to digitalize certain back-office operations at branches and introduce public cloud servicing, which will also lead to work style reform. Furthermore, we intend to enhance data-based management by digitalizing information and “visualizing” the management system.

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.

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

January 2019. In addition, a countercyclical buffer within a range of 0% to 2.5% of Common 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 theG-SIB capital surcharge described below have been applied from March 31, 2016.

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.

On March 27, 2020, the GHOS endorsed a set of measures to provide additional operational capacity for banks and supervisors to respond to the immediate financial stability priorities resulting from the impact of the COVID-19 pandemic on the global banking system. According to the measures, the implementation timeline of the outstanding Basel III framework, and a requirement that banks disclose their risk-weighted assets based on such standardized approaches.

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 theG-SIBs will be implemented as a Pillar 1 measurement from January 1, 2023.

In March 2019, the FSA published its guidelines for the leverage ratio applicable to banks and bank holding companies with international operations, which have been applied from March 31, 2019. Under the FSA’s guidelines for the leverage ratio, banks and bank holding companies 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. On June 30, 2020, in light of the increasing impact of the COVID-19 pandemic, the FSA published amendments to its guidelines for the leverage ratio, which mainly exclude deposits with the BOJ from the denominator for the calculation of the leverage ratio in order to maintain harmonization with the monetary policy implemented by the BOJ and the prudential regulations for banks and other financial institutions. These amendments came into force on June 30, 2020 and were scheduled to expire on March 31, 2021. On March 31, 2021, the FSA extended the expiry date of these amendments to March 31, 2022.

Liquidity Requirement

In October 2014, the FSA published its guidelines for liquidity coverage ratio (“LCR”) applicable to banks and bank holding companies 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 athirty-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 and bank holding companies 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 being phased in betweenhave been 100% since March 31, 2015 and2019.

On March 31, 2019 with an increase of 10% in each year starting from 60%.

In October 2014,2021, the BCBS issued the final standardFSA published its guidelines for the net stable funding ratio (“NSFR”), which requires applicable to banks and bank holding companies with international operations that will be applied from September 30, 2021. These guidelines are based on the full text of the NSFR standard issued by the BCBS in October 2014. NSFR is intended to require 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 fromoff-balance sheet commitments, over aone-year horizon. Under the FSA’s NSFR guidelines, banks and bank holding companies with international operations must maintain NSFR of at least 100% on both a consolidated basis and a nonconsolidated basis. The minimum NSFR was scheduled to be introduced as a minimum standard by January 1, 2018.Werequirements will be subject to the NSFR requirement, as implemented in Japan, but the FSA has not published any guidelines for the NSFR.100% from September 30, 2021.

Based on the results of the self-assessment discussed above, SMBC is required to establish a reserve for its loan portfolio in an amount SMBC considers adequate at a balance sheet date. Three categories of reserves SMBC 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 theirnon- 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 thenon-accrual loans (the borrowers of which are effectivelyvirtually bankrupt) under the Banking Act disclosure. Doubtful assets generally correspond to the higher tier portion of thenon-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 includenon-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;