Sumitomo Mitsui Financial (SMFG) 20-F 2020 FY Annual report (foreign)

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM20-F

(Mark One)

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

OR

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

For the fiscal year ended March 31, 2020

OR

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

For the transition period from                to                

OR

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

Date of event requiring this shell company report

Commission file number:001-34919

Kabushiki Kaisha Mitsui Sumitomo Financial Group

(Exact name of Registrant as specified in its charter)

SUMITOMO MITSUI FINANCIAL GROUP, INC.

(Translation of registrant’s name into English)

Japan	1-2, Marunouchi1-chome,Chiyoda-ku, Tokyo100-0005, Japan
(Jurisdiction of incorporation or organization)	(Address of principal executive offices)

Masahiko Tsutsui

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

Title of Each Class	Trading Symbol(s)	Name of Each Exchange on which registered
American Depositary Shares	SMFG	The New York Stock Exchange
Common stock, without par value*

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

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

None

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

None

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

At March 31, 2020, the following shares of capital stock were outstanding: 1,373,171,556 shares of common stock (including 3,645,043 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 every Interactive Data File required to be submitted 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 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.

Large Accelerated Filer  ☒ Accelerated Filer  ☐ Non-accelerated Filer  ☐ Emerging Growth Company  ☐

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

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

Indicate by check mark 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:

U.S. GAAP  ☐ International Financial Reporting Standards as issued by the International Accounting Standards Board  ☒ Other  ☐

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

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule12b-2 of the Exchange Act).    Yes  ☐    No  ☒

TABLE OF CONTENTS

			Page
Certain Defined Terms, Conventions and Presentation of Financial Information				1
Cautionary Statement Regarding Forward-Looking Statements				2
PART I				3
	Item 1.	Identity of Directors, Senior Management and Advisers		3
	Item 2.	Offer Statistics and Expected Timetable		3
	Item 3.	Key Information		3
	3.A.	Selected Financial Data		3
	3.B.	Capitalization and Indebtedness		4
	3.C.	Reasons for the Offer and Use of Proceeds		4
	3.D.	Risk Factors		4
	Item 4.	Information on the Company		21
	4.A.	History and Development of the Company		21
	4.B.	Business Overview		22
	4.C.	Organizational Structure		56
	4.D.	Property, Plant and Equipment		58
	Item 4A.	Unresolved Staff Comments		59
	Item 5.	Operating and Financial Review and Prospects		59
	5.A.	Operating Results		69
	5.B.	Liquidity and Capital Resources		101
	5.C.	Research, Development, Patents and Licenses		106
	5.D.	Trend Information		106
	5.E.	Off-Balance Sheet Arrangements		106
	5.F.	Tabular Disclosure of Contractual Obligations		107
	5.G.	Safe Harbor		108
	Item 6.	Directors, Senior Management and Employees		108
	6.A.	Directors and Senior Management		108
	6.B.	Compensation		118
	6.C.	Board Practices		119
	6.D.	Employees		123
	6.E.	Share Ownership		124
	Item 7.	Major Shareholders and Related Party Transactions		128
	7.A.	Major Shareholders		128
	7.B.	Related Party Transactions		128
	7.C.	Interests of Experts and Counsel		129
	Item 8.	Financial Information		129
	8.A.	Consolidated Statements and Other Financial Information		129
	8.B.	Significant Changes		130
	Item 9.	The Offer and Listing		130
	9.A.	Offer and Listing Details		130
	9.B.	Plan of Distribution		130
	9.C.	Markets		130
	9.D.	Selling Shareholders		130
	9.E.	Dilution		130
	9.F.	Expenses of the Issue		130
	Item 10.	Additional Information		131
	10.A.	Share Capital		131
	10.B.	Memorandum and Articles of Incorporation		131
	10.C.	Material Contracts		141
	10.D.	Exchange Controls		141

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			Page
	10.E.	Taxation		145
	10.F.	Dividends and Paying Agents		149
	10.G.	Statement by Experts		149
	10.H.	Documents on Display		149
	10.I.	Subsidiary Information		149
	Item 11.	Quantitative and Qualitative Disclosures about Credit, Market and Other Risk		150
	Item 12.	Description of Securities other than Equity Securities		164
	12.A.	Debt Securities		164
	12.B.	Warrants and Rights		164
	12.C.	Other Securities		164
	12.D.	American Depositary Shares		164
PART II				166
	Item 13.	Defaults, Dividend Arrearages and Delinquencies		166
	Item 14.	Material Modifications to the Rights of Security Holders and Use of Proceeds		166
	Item 15.	Controls and Procedures		166
	Item 16A.	Audit Committee Financial Expert		167
	Item 16B.	Code of Ethics		167
	Item 16C.	Principal Accountant Fees and Services		167
	Item 16D.	Exemptions from the Listing Standards for the Audit Committee		168
	Item 16E.	Purchases of Equity Securities by the Issuer and Affiliated Purchasers		168
	Item 16F.	Change in Registrant’s Certifying Accountant		169
	Item 16G.	Corporate Governance		169
	Item 16H.	Mine Safety Disclosure		170
PART III				171
	Item 17.	Financial Statements		171
	Item 18.	Financial Statements		171
	Item 19.	Exhibits		171
Signatures				173
Selected Statistical Data				A-1
Index to Consolidated Financial Statements				F-1

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CERTAIN DEFINED TERMS, CONVENTIONS AND

PRESENTATION OF FINANCIAL INFORMATION

As used in this annual report, unless the context otherwise requires, “we,” “us,” “our,” the “Company,” “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.

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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENT

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:

• the lasting effects of the 2019 novel coronavirus disease(COVID-19) pandemic and collateral events;

• deterioration of Japanese and global economic conditions and financial markets;

• declines in the value of our securities portfolio;

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

• constraints on our operations due to capital adequacy requirements;

• problems of other financial institutions;

• adverse regulatory developments or changes in government policies;

• incurrence of significant credit-related costs;

• a significant downgrade of our credit ratings;

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

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

• the industry specific risks of the consumer finance industry;

• the recoverability of deferred tax assets;

• insufficient liquidity; and

• litigation and regulatory proceedings.

Given these and other risks and uncertainties, you should not place undue reliance on forward-looking statements, which speak only as of the date of the filing of this annual report. We expressly disclaim any obligation to update or to announce publicly any revision to any of the forward-looking statements contained in this annual report to reflect any changes in events, conditions, circumstances or other developments upon which any such statement is based. The information contained in this annual report identifies important factors in addition to those referred to above that could cause differences in our actual results.

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PART I

Item 1. Identity of Directors, Senior Management and Advisers

Not applicable.

Item 2. Offer Statistics and Expected Timetable

Not applicable.

Item 3. Key Information

3.A.    SELECTED FINANCIAL DATA

Selected Financial Data

The following selected financial data at and for each of the five fiscal years ended March 31, 2020, 2019, 2018, 2017 and 2016 have been derived from our consolidated financial statements. You should read this data together with “Item 5. Operating and Financial Review and Prospects” and our consolidated financial statements included elsewhere in this annual report.

	For the fiscal year ended and at March 31,
	2020(1)			2019		2018			2017		2016
	(In millions, except per share data)
Consolidated income statement data:
Interest income	¥	2,407,045		¥	2,406,350	¥	2,144,070		¥	1,900,261	¥	1,872,584
Interest expense		1,090,730			1,137,430		771,907			540,518		467,276
Net interest income		1,316,315			1,268,920		1,372,163			1,359,743		1,405,308
Fee and commission income		1,147,132			1,101,777		1,131,364			1,066,412		1,031,680
Fee and commission expense		203,822			178,351		178,867			181,573		131,381
Net fee and commission income		943,310			923,426		952,497			884,839		900,299
Net trading income		134,069			320,302		270,464			183,963		462,682
Net income (loss) from financial assets at fair value through profit or loss		(21,939	)		54,655		(667	)		2,018		12,260
Net investment income		176,464			93,922		424,097			305,327		375,229
Other income		155,631			505,666		755,855			573,825		496,273
Total operating income		2,703,850			3,166,891		3,774,409			3,309,715		3,652,051
Impairment charges on financial assets		259,938			119,686		136,808			212,967		148,356
Net operating income		2,443,912			3,047,205		3,637,601			3,096,748		3,503,695
General and administrative expenses		1,696,386			1,679,813		1,775,183			1,713,955		1,670,088
Other expenses		488,806			575,657		792,765			531,759		538,963
Operating expenses		2,185,192			2,255,470		2,567,948			2,245,714		2,209,051
Share ofpost-tax profit of associates and joint ventures		24,031			40,157		49,323			29,318		31,056
Profit before tax		282,751			831,892		1,118,976			880,352		1,325,700
Income tax expense		51,768			184,306		229,378			139,766		372,878
Net profit	¥	230,983		¥	647,586	¥	889,598		¥	740,586	¥	952,822

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	For the fiscal year ended and at March 31,
	2020(1)		2019		2018		2017		2016
	(In millions, except per share data)
Profit attributable to:
Shareholders of Sumitomo Mitsui Financial Group, Inc.	¥	200,052	¥	541,932	¥	759,998	¥	627,870	¥	843,920
Non-controlling interests		18,567		93,779		119,878		104,787		106,129
Other equity instruments holders		12,364		11,875		9,722		7,929		2,773
Earnings per share:
Basic	¥	145	¥	388	¥	539	¥	459	¥	617
Diluted		145		387		538		458		617
Weighted average number of common shares in issue (in thousands of shares)		1,375,118		1,397,599		1,410,442		1,369,231		1,367,229
Dividends per share in respect of each fiscal year:
Common stock	¥	185	¥	175	¥	155	¥	150	¥	155
	$	1.70	$	1.58	$	1.46	$	1.34	$	1.38
Consolidated statement of financial position data:
Total assets	¥	212,158,463	¥	195,503,623	¥	192,175,566	¥	191,150,981	¥	180,172,652
Loans and advances		94,671,818		90,682,938		85,129,070		95,273,845		88,862,371
Total liabilities		201,223,585		183,730,177		179,679,767		179,263,698		169,130,553
Deposits		138,431,418		134,404,652		128,461,527		130,295,290		125,940,797
Borrowings		17,121,362		12,167,858		10,652,481		12,245,943		9,914,129
Debt securities in issue		10,985,048		11,171,209		10,569,117		11,165,623		10,829,612
Total equity		10,934,878		11,773,446		12,495,799		11,887,283		11,042,099
Capital stock		2,339,965		2,339,443		2,338,743		2,337,896		2,337,896

(1) On April 1, 2019, we adopted IFRS 16 “Leases” retrospectively by adjusting the consolidated statement of financial position at the date of initial application, and have not restated comparatives as permitted by IFRS 16. See Note 2 “Summary of Significant Accounting Policies—New and Amended Accounting Standards Adopted by the Group” to our consolidated financial statements included elsewhere in this report.

3.B.    CAPITALIZATION AND INDEBTEDNESS

Not applicable.

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

Not applicable.

3.D.    RISK FACTORS

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

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

Risks Related to the Economic and Financial Environment

Our operations have been, and may continue to be, adversely affected by theCOVID-19 pandemic and collateral events.

Since December 2019,COVID-19 has spread rapidly throughout the world. TheCOVID-19 pandemic has impacted many countries resulting in the implementation of numerous measures to prevent the spread ofCOVID-19, such as restrictions on movement, including travel bans, quarantines, andshelter-in-place orders as well asnon-binding “voluntary restraint” measures urging residents to stay at home, and closures of schools, businesses, factories and other public and private facilities. These measures have significantly affected people’s lives and business activities, and have contributed to declines in consumer spending and stagnant business operations. Coupled with these measures, theCOVID-19 pandemic has had a severe impact on both Japanese and global economic conditions including the rapid deterioration of corporate performance and significant disruption and volatility in financial and commodity markets. Even if the number of newCOVID-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 ofCOVID-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 theCOVID-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 theCOVID-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 ofCOVID-19 within our workforce, such as by 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 theCOVID-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 ongoingCOVID-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 theCOVID-19 pandemic on the operating environment, our results of operations and our financial condition, see “Item 5. Operating and Financial Review and Prospects.”

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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 such as fiscal and monetary policies, policies on financial markets, as well as related laws, regulations and agreements. One example is the increase in the Japanese consumption tax rate from 8% to 10% in October 2019. Other examples include changes in the trade policies of countries including the U.S, which could contribute to increases in production costs and supply chain disruptions across the broader economy. Furthermore, geopolitical instability in various parts of the world, including North Africa, the Middle East, Asia and Eastern Europe, and material changes in regional economic or political unions or associations between countries, such as the United Kingdom’s exit from the European Union, which took place on January 31, 2020, could contribute to economic instability in those and other regions. 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 a decrease in the fair values of our investment securities and, as a result, adversely affect our business, financial condition and results of operations.

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

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

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

Our equity securities portfolio mainly consists of equity instruments at fair value through other comprehensive income. The reported value of our equity instruments at fair value through other comprehensive income accounted for 1.6% of our total assets at March 31, 2020, approximately 86.7% 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, 2020 are described in “Item 5.A. Operating Results—Financial Condition—Investment Securities.”

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

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

We engage in trading and investing activities dealing with various kinds of financial instruments such as bonds, equities, currencies, derivatives and funds. For example, we have substantial investments in debt securities. At March 31, 2020, we had ¥7 trillion of Japanese government bonds classified as debt instruments at fair value through other comprehensive income, which accounted for approximately 3.2% of our total assets.

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

Risks Related to Our Business

Failure to satisfy capital adequacy requirements could constrain our and 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 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 were 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 prescribed10-yearphase-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 ratio 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 has been 2.5% since March 2019. As a result, taking the capital conservation buffer into account at March 2020, the total minimum Common Equity Tier 1 risk-weighted capital ratio has been 7%, and the total minimum risk-weighted capital ratio has been 10.5%. The countercyclical buffer 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% from 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 ofG-SIBs on an annual basis. Based on the list, we have been required to maintain an additional 1% of Common Equity Tier 1 capital as a percentage of risk-weighted assets from 2019.

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.

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G-SIBs are also 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 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 aG-SIB.

At March 31, 2020, 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 18.75%, 16.63% and 15.55 %, compared to the minimum required ratios of 11.52%, 9.52% and 8.02%, respectively. Such minimum required ratios include the capital conservation buffer of 2.5%, theG-SIB capital surcharge of 1.0% and the countercyclical buffer of 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:

• declines in the value of securities;

• inability to refinance existing subordinated debt obligations or preferred securities eligible for inclusion as Tier 1 capital or Tier 2 capital only for the prescribed10-yearphase-out period with those qualified as regulatory capital under the new capital adequacy requirements which phased in from March 2013; and

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

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.

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

• a revised standardized approach for credit risk;

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

• revisions to the credit valuation adjustment framework;

• a revised standardized approach for operational risk;

• revisions to the measurement of the leverage ratio and a leverage ratio buffer forG-SIBs; and

• revisions to the capital floor.

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

If our or SMBC’s capital ratios fall below required levels, the FSA may require us or SMBC to take a variety of corrective actions, including withdrawal from all international operations or suspension of all or part of our 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.

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

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

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

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

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

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

The FSA’s inspection of banks was previously based on guidelines set forth in the FSA’s Financial Inspection Manual and related guidelines, which were revised or amended from time to time. In June 2018, the FSA published a report on its supervisory approaches and transformation. Based on the report, the FSA introduced its new supervisory approaches, which led to the FSA’s repeal of the Financial Inspection Manual on December 18, 2019. Our compliance with changes in the FSA’s inspection process under the new supervisory approaches could result in an increase in our administrative expenses, which could have an adverse effect on our results of operations and financial condition.

The FSA and regulatory authorities in the United States and other jurisdictions, along with the United Nations and the Financial Action Task Force, have in recent years made the prevention of money laundering and terrorism financing a focus of governmental policy relating to financial institutions. In April 2019, SMBC and its New York branch entered into a written agreement with the Federal Reserve Bank of New York requiring SMBC and its New York branch to address certain deficiencies relating to the New York branch’s anti-money laundering and economic sanctions compliance program. SMBC and its New York branch are required, among other things, to implement corrective measures and submit periodic progress reports to the Federal Reserve Bank of New York. If we fail to comply with the terms of the written agreement, we may become subject to monetary penalties and other regulatory sanctions, which could have a material adverse effect on us. Further, as a result of the deficiencies identified in the written agreement, we no longer meet the requirements to be treated as a financial holding company, and, pending completion of a remediation plan designed to meet these requirements,

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we are currently subject to restrictions in our ability to engage in certain new categories of financial activities in the United States and to make acquisitions of companies engaged in activities in the United States. If we fail to correct the conditions giving rise to such restrictions within the prescribed period of time, we may be required to divest or terminate certain business activities in the United States, which could adversely affect our operations and impair our ability to implement our business plans. Although we are committed to improving compliance with laws and regulations relating to anti-money laundering and economic sanctions, we will continue to be subject to ongoing inspection by the regulatory authorities in the United States and other jurisdictions. Any adverse regulatory action or change in regulatory focus, whether as a result of inspections or regulatory developments, may negatively affect our banking operations, cause harm to our reputation, and result in expensive remediation, monetary penalties and other regulatory sanctions.

The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the “Dodd-Frank Act”) provides a broad framework for significant regulatory changes across most areas of U.S. financial regulations. The Dodd-Frank Act addresses, among other issues, systemic risk oversight, bank capital standards, the resolution of failing systemically significant financial institutions,over-the-counter (“OTC”) derivatives, the ability of banking entities to engage in proprietary trading activities and invest in hedge funds and private equity funds, consumer and investor protection, and securitization. The Dodd-Frank Act as well as other post-financial crisis regulatory reforms in the United States have 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 the U.S. financial system, but the impact that the U.S. Presidential administration’s policy goals or any new or proposed legislation could have on the regulatory requirements currently imposed on us remains uncertain.

Significant regulatory developments could adversely affect our capital ratios and results of operations. For further details, see “Item 4.B. Business Overview—Regulations in Japan, Regulations in the United States, and Regulations in Other Jurisdictions.” Since changes in regulation or fiscal or other policies and their effects are unpredictable and beyond our control, we may not be able to comply with those changes at all times, despite our efforts, or may have to incur increased costs or make changes to our operations in order to do so. Any such failures to comply with those changes could result in administrative or judicial proceedings against us, including suspension of our business and financial penalties, which could materially and adversely affect our business, reputation, results of operations and financial condition.

The transition away from and discontinuation of LIBOR and other interest rate benchmarks could have a negative impact on our results of operations.

For several years, global regulators and central banks have been pursuing international efforts to reform interest rate benchmarks, such as the London Interbank Offered Rate (“LIBOR”). In July 2017, the UK Financial Conduct Authority (“FCA”), which regulates LIBOR, announced that the FCA will no longer persuade or compel banks to submit rates for the calculation of LIBOR after 2021. Accordingly, it appears highly likely that LIBOR will be discontinued as early as January 1, 2021. We have identified a significant number of assets and liabilities linked to LIBOR and other interest rate benchmarks, across businesses that require transition to alternative reference rates.

The transition away from and discontinuation of LIBOR and other interest rate benchmarks, uncertainty as to the availability and/or suitability of alternative reference rates, and differences between LIBOR, and other interest rate benchmarks and alternative reference rates may have a material adverse effect on financial markets and market participants, including us. Accordingly, we have taken, and are continuing to take, necessary steps to proactively address the transition, including developing internal systems and infrastructure to transition to alternative reference rates.

However, we face the risks that our actions to address the transition, including developing internal systems and infrastructure, may be delayed or may not be successful. Even if our actions are undertaken successfully,

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they may not be sufficient to address the transition and may lead to a negative impact on our customers. For example, our customers may consider that the advice and information that we prepare and provide is inadequate and/or inaccurate. Moreover, the valuation of certain of our financial assets and liabilities may change, and the inability of existing hedged and hedging transactions to meet the hedge relationship designation requirements could lead to an increase in profit and loss volatility. All of these could adversely affect our results of operations and financial condition. For further details, see Note 2 “Summary of Significant Accounting Policies—New and Amended Accounting Standards Adopted by the Group—Interest Rate Benchmark Reform (Amendments to IFRS 9, IAS 39 and IFRS 7)” and Note 7 “Derivative 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:

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

• government-controlled and government-affiliated entities;

• regional banking institutions;

• major investment banks;

• non-bank financial institutions; and

• other firms that are engaged in providing similar products and services.

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, with technological advances, new competitors in the financial services industry 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.

Changes 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”) may continue to lower 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:

• domestic or global economic conditions worsen or do not improve;

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

• the value of collateral declines.

We have substantial exposure to corporate customers in the following sectors: real estate and goods rental and leasing, manufacturing, transportation, communications and public enterprises, wholesale and retail, and services, including electric utilities, and to individual customers mainly through housing loans. The financial conditions of those customers may be subject to changes in the industry-specific economic conditions, including, for example, fluctuations in the prices of oil, 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 ofCOVID-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 asCOVID-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 expected 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 0.5%, 0.6% and 0.6% at March 31, 2020, 2019 and 2018, 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”). There can be no assurance that these ratings will be maintained.

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

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

• foreign regulatory bodies may impose restrictions on our overseas operations;

• existing agreements or transactions may be cancelled; and

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

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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 2020, we announced our medium-term management plan through March 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.

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

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

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

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

Consumer lending and credit card companies had offered unsecured personal loans, which included loans 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 Consumer Finance and other companies engaged in related business reduced their interest rates on loans in preparation for the prohibition of gray zone interest. As a consequence, margins earned by those companies, as well as the amounts of loans extended, decreased.

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

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

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

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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 condition and results of operations. Because approximately half of our plan assets are composed of equity instruments, the plan assets are greatly affected by volatility in the prices of equity securities. Substantial declines in the prices for publicly traded Japanese stocks would negatively affect our plan assets. For further information, see Note 23 “Retirement Benefits” to our consolidated financial statements included elsewhere in this annual report.

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

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

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

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

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

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

In particular, cybersecurity risks for financial institutions have significantly increased in recent years. This is partly because of the continuous introduction of new technologies and the use of the internet and telecommunications technologies as well as the elaboration of the cyberattacks, which include computer viruses, malicious code, phishing attacks or other security breaches. As we rely on information technology systems in our business and our receipt and handling of confidential personal information from our customers, any impairment,

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compromise or destruction of such systems may interfere with, or temporarily prevent us from, continuing our operations. In addition, we also face indirect cybersecurity risks relating to our customers and other third parties, including counterparties in the financial services industry. As a result of increasing consolidation, interdependence and complexity of financial entities and technology systems, a technology failure or cyberattack could have a material impact on counterparties or other market participants, including us. Any third-party technology failure or cyberattack could adversely affect our ability to execute transactions or deliver services to our clients effectively. For example, vulnerabilities in third-party technology systems may be exploited in ways that increase the risk our information technology systems are exposed to cyberattacks.

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

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

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

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

We are exposed to potential losses resulting from fraud, misconduct and other unlawful behavior by directors, officers and employees. Directors, officers and employees may bind us to transactions that exceed authorized limits or present unacceptable risks, hide from us and from our customers unauthorized activities, improperly use confidential information or otherwise abuse customer confidences. Third parties may engage in fraudulent activities, including fraudulent use of bank accounts or the use of false identities to open accounts for money laundering, tax evasion or other illegal purposes. Third parties could also use stolen or forged ATM cards, engage in credit card fraud or transfer funds illegally through online banking fraud, and we may be required to indemnify victims of such fraud for related losses. In the broad range of businesses in which we engage, fraud, misconduct and other unlawful behavior are difficult to prevent or detect. In addition, with or without actual fraud, misconduct and other unlawful behavior by directors, officers and employees, investigations, administrative actions or litigation could commence in relation to them. Furthermore, we may not be able to recover the losses caused by these activities, including possible deterioration of our reputation.

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Transactions involving Iran and other countries and targets that are subject to U.S. or other financial sanctions may lead some potential customers and investors to avoid doing business with us or investing in our securities or may limit our business operations.

U.S. law generally prohibits or substantially restricts U.S. persons from doing business with countries, a region and persons that are the subject of sanctions administered by the U.S. Department of the Treasury’s Office of Foreign Assets Control (“OFAC”) or other agencies (“Restricted Targets” which include Iran, North Korea, Syria, Cuba and the Crimea region of Ukraine). Other applicable financial sanctions are administered by the Ministry of Finance of Japan and authorities in other countries.

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

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

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

In recent years, the U.S. government implemented a number of sanctions targetingnon-U.S. persons for activities undertaken outside the United States (“secondary sanctions”) that involve specific sanctions targets or certain activities including, among other things, certain transactions related to Iran’s energy, petrochemical, shipping or shipbuilding sectors. Pursuant to the July 14, 2015 Joint Comprehensive Plan of Action (“JCPOA”) agreed to by the five permanent members of the United Nations Security Council plus Germany and Iran, with the European Union, on January 16, 2016 (“Implementation Day”), the United States lifted U.S. nuclear-related

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

In addition, the U.S. government 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 and “sectoral” sanctions on the financial, energy and defense sectors of the Russian economy.

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

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

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

We are exposed to risks associated with climate change, including the physical risk of climate change and risk from the transition to alow-carbon society.

Risks associated with climate change are subject to increasing societal, regulatory and political focus in Japan and globally. These risks include the physical risk of climate change and risk from the transition to alow-carbon 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

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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 alow-carbon 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 Disclosure (“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.”

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

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

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

We conduct business in many locations in and outside of Japan. We face the risk of litigation and regulatory proceedings in connection with our operations. For example, if we engage in activities targeted by certain U.S. sanctions, this could result in the imposition of monetary penalties or other restrictions by the U.S. government against us. Lawsuits and regulatory actions may result in penalties or settlements of very large indeterminate amounts or limit our operations, and costs to defend either could be substantial. Moreover, SMBC and one of its subsidiaries contribute to financial benchmarks such as the Tokyo Interbank Offered Rate (“TIBOR”) and the 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 misconduct or unlawful behavior by directors, officers or employees, systems failures, compliance failures,

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investigations, adverse litigation judgments or regulatory decisions, or unfavorable outcomes of governmental inspections. Adverse publicity or negative information regarding Japan’s financial services industry or us that may be published or broadcast by the media or posted on social media,non-mainstream news services or other parts of the internet, even if inaccurate or not applicable to us, may have a materially adverse effect on our brand image and undermine depositor confidence, thereby affecting our businesses and results of operations. For example, actual or rumored investigations of us or our directors, officers or employees, or actual or rumored litigation or regulatory proceedings, or media coverage of the same, may have a material adverse effect on our reputation and could negatively affect the prices of our securities. Actions by the financial services industry generally or by certain members in the industry can also adversely affect customers’ confidence on the financial services industry. Such reputational harm could also lead to a decreased customer base, reduced revenues and higher operating costs.

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

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

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

We have established internal controls over financial reporting, as well as rules for evaluating those controls, in order to provide reasonable assurance of the reliability of our financial reporting and the preparation of financial statements. However, these controls may not prevent or detect errors. Any evaluation of effectiveness of 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 effect service of process within the United States upon us or these persons or to enforce, against us or these persons, judgments obtained in U.S. courts predicated upon the civil liability provisions of the federal or state securities laws. We believe that there is doubt as to the enforceability in Japan, in original actions or in actions to enforce judgments of U.S. courts, of claims predicated solely upon the U.S. federal or state securities laws mainly because the Civil Execution Act of Japan requires Japanese courts to deny requests for the enforcement of judgments of foreign courts if foreign judgments fail to satisfy the requirements prescribed by the Civil Execution Act, including requirements that:

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

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

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

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

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

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

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

Pursuant to the deposit agreement among us, the depositary and the holders and beneficial owners of ADSs, the depositary will endeavor to exercise voting and other rights associated with shares underlying ADSs in accordance with instructions given by ADS holders, and the depositary will also pay to ADS holders dividends and distributions collected from us. However, the depositary is permitted under the deposit agreement to exercise reasonable discretion in carrying out those instructions or in making distributions, and is not liable for failure to carry out instructions or make distributions as long as it acts in good faith. Therefore, ADS holders may not be able to exercise voting or other rights associated with the shares underlying ADSs in the manner that they intend, or may lose some or all of the value of dividends or distributions collected from us. Moreover, the deposit agreement may be amended or terminated by us and the depositary without any reason, or consent from or notice to ADS holders. As a result, ADS holders may not be able to exercise rights in connection with the deposited shares exercised in the way they wish or at all.

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

Item 4. Information on the Company

4.A.    HISTORY AND DEVELOPMENT OF THE COMPANY

Legal and Commercial Name

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

Date of Incorporation

We were established in December 2002.

Domicile and Legal Form

We are a joint stock corporation incorporated with limited liability under the laws of Japan. Our address is: Sumitomo Mitsui Financial Group, Inc.,1-2, Marunouchi1-chome,Chiyoda-ku, Tokyo100-0005, Japan. Our telephone number is:+81-3-3282-8111.

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History and Development

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

Information Concerning the Principal Capital Expenditures and Divestitures

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

Public Takeover Offers

Not applicable.

Available Information

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

4.B.    BUSINESS OVERVIEW

Overview

We are the holding company for the SMBC Group. The SMBC Group is comprised of SMBC, SMBC Trust Bank Ltd. (“SMBC Trust Bank”), SMFL, SMBC Nikko Securities Inc. (“SMBC Nikko Securities”), Sumitomo Mitsui Card Company, Limited (“Sumitomo Mitsui Card”), Cedyna Financial Corporation (“Cedyna”), SMBC Consumer Finance Co., Ltd. (“SMBC Consumer Finance”), The Japan Research Institute, Limited (“The Japan Research Institute”), Sumitomo Mitsui DS Asset Management Company, Limited (“SMDAM”) and other subsidiaries and affiliates. We are one of the three largest financial groups in Japan and offer a diverse range of financial services, including commercial banking, leasing, securities, consumer finance and other services. See “Item 4.C. Organizational Structure.”

In March 2018, with the aim of enhancing our corporate group’s brand value, we announced that “SMBC” would be designated as our corporate group’s master brand from April 2018. In line with this change, our corporate group, which was formerly referred to as the “Sumitomo Mitsui Financial Group” or its acronym “SMFG,” is now referred to as the “SMBC Group.” “Sumitomo Mitsui Financial Group” continues to be used as the holding company’s name.

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Our Mission, Vision and Values

Our “Mission” is a universal guide for our group management and positioned as the anchor for our corporate action. We also set forth our “Vision” of the mid to long term goals and “Five Values” as the core values to be shared by all executives and employees.

On April 1, 2020, we made a revision of our Mission to add “We contribute to a sustainable society by addressing environmental and social issues” so that it reflects our commitment to fulfilling our social responsibilities by further enhancing our various initiatives, not only limited to financial services.

After the revision, our Mission, Vision and Five Values are as follows.

Mission

• We grow and prosper together with our customers, by providing services of greater value to them.

• We aim to maximize our shareholders’ value through the continuous growth of our business.

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

• We contribute to a sustainable society by addressing environmental and social issues.

Vision

• A trusted global solution provider committed to the growth of our customers and advancement of society.

Five Values

• Integrity: As a professional, always act with sincerity and a high ethical standard.

• Customer First: Always look at it from the customer’s point of view, and provide value based on their individual needs.

• Proactive & Innovative: Embrace new ideas and perspectives, don’t be deterred by failure.

• Speed & Quality: Differentiate ourselves through the speed and quality of our decision-making and service delivery.

• Team “SMBC Group”: Respect and leverage the knowledge and diverse talent of our global organization, as a team.

Sustainability Management

The world is currently facing a range of social issues. In particular, environmental challenges such as addressing climate change have become priority issues globally. In response to these social and environmental challenges, the public and private sectors have implemented various initiatives aimed at realizing a sustainable society, with growing interest in the SDGs set by the United Nations General Assembly in 2015 and environment, social, and governance (“ESG”) investing.

Given this backdrop, in September 2019, we signed the Principles for Responsible Banking, which were proposed by the United Nations Environment Programme Finance Initiative as a framework for the sustainable banking system of the future.

In April 2020, we defined sustainability as “creating a society in which today’s generation can enjoy economic prosperity and well-being, and pass it on to future generations” and established the “SMBC Group

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Statement on Sustainability,” as the basic principles upon which our efforts to realize a sustainable society will be based. To realize sustainability as well as to accelerate sustainability management, we also established “SMBC Group GREEN×GLOBE 2030,” aten-year plan toward 2030. It includes our external and internal initiatives such as promotion of “green finance” and enhancement of employees’ awareness of sustainability.

Based on the statement and plan, we are dedicated to our priority issues, focusing especially on the “Environment” as a corporate citizen that protects the green earth, as well as on the “Community” and the “Next generation” as a member of society.

Environment

We seek to promote environmental business to address environmental risks and reduce environment impacts. For example, we help promote the spread of renewable energy by providing “green finance” to solar and wind power generation projects.

In December 2017, we announced our support for the TCFD, and in April 2019, disclosed our approach to climate change for each of the four basic disclosure items recommended by the TCFD, namely “Governance,” “Strategy,” “Risk Management” and “Metrics and Targets.” We are strengthening our climate change risk management framework, and enhancing our climate change scenario analysis and disclosures in response to the TCFD recommendation.

We introduced and disclosed policies for businesses in the sectors listed below, which are regarded as having significant impacts on the environment and society. We proactively monitor and reassess them in consideration of the external environment.

• Coal-fired power generation

• Hydroelectric power generation

• Oil and gas

• Coal mining

• Tobacco manufacturing

• Nature conservation areas

• Palm oil plantation development

• Deforestation

• Manufacturing of cluster bombs and other weapons of destruction

Community

We provide support in areas such as finance, where we can take advantage of our business operations in order to build our society, in which people can live with a sense of assurance and make our cities and towns safe. For example, we have launched “SDGs social loan.” These loans are meant to provide funding to projects that help resolve social issues. We work together with our customers to resolve social issues through a scheme entailing impact reports that measure impacts on society and third-party evaluations.

Next Generation

We offer financial and economic education for all generations, from children to adults, as part of our efforts in order to support the growth of the next generation for the development of a sustainable society. For example, we provide financial and career education to enhance the life skills of children, and hold finance and economics education seminars on topics such as managing household finances and loans and credit as a way to provide accurate knowledge about financial matters.

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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 financial solutions that respond to wide-ranging client needs in relation to M&A and other advisory services and leasing, primarily forlarge-andmid-sized corporate clients in Japan. This business unit mainly consists of the wholesale businesses of SMBC, SMBC Trust Bank, SMFL and SMBC Nikko Securities.

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.

M&A and Other Advisory Services

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

The Wholesale Business Unit caters to large corporate clients in their global business activities by leveraging the collective strength of SMBC Group companies. For example, SMBC and SMBC Nikko Securities support the entire deal process of cross-border M&A projects on a collaborative basis.

Formid-sized companies, the Wholesale Business Unit provides a wide range of financial services including direct investment, LBO financing, debt restructuring, support for initial public offering and M&A advisory to enhance our customers’ corporate value, working in conjunction with private equity funds as necessary. In real estate and related businesses, this business unit provides a 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.

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Leasing

The Wholesale Business Unit provides a wide range of leasing services including equipment, operating and leveraged leasing mainly through SMFL, one of the major leasing companies in Japan. We have a 50% equity interest in SMFL while the remaining 50% is held by Sumitomo Corp, anon-affiliate, which makes SMFL our joint venture with Sumitomo Corp.

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 announced in March 2018, we transferred a portion of our shares of SMFL, a company jointly owned by us and Sumitomo Corp, to SMFL. Upon the share transfer, our equity interest in SMFL decreased from 60% to 50% while Sumitomo Corp’s equity interest increased from 40% to 50%. As a result, SMFL ceased to be our consolidated subsidiary and became our joint venture, and its consolidated subsidiaries SMBC Aviation Capital Limited, which belongs to the International Business Unit, and SMFL Capital Company became our equity-method investees. Subsequently, in January 2019, SMFL Capital Company was merged into SMFL.

Retail Business Unit

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

This business unit offers a wide range of products and services for consumers, including wealth management, settlement services, consumer finance and housing loans, in order to address the financial needs of all individual customers.

Wealth Management

The Retail Business Unit offers a variety of financial services including personal bank accounts, deposit products such as ordinary deposits, time deposits and foreign currency deposits, investment trust, equity, bond and insurance products.

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

In January 2018, SMBC Nikko Securities merged with SMBC Friend Securities Co., Ltd., which had been our wholly owned subsidiary. This merger was made for the purpose 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 foreign currency investment products, global services and extensive trust services tailored to the needs of customers, such as wealth management solutions.

Settlement

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

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

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

Cedyna conducts credit card, installment (such as shopping credit and automobile loan) and solution (such as collection outsourcing and factoring) businesses.

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, 2019. Simultaneously, we made Cedyna a subsidiary of Sumitomo Mitsui Card in order to provide comprehensive solutions that benefit both the business operators andend-users. SMBC, Sumitomo Mitsui Card and Cedyna are leveraging their strengths to address cashless payment needs and integrate marketing and business operations.

Sumitomo Mitsui Card, together with GMO Payment Gateway, Inc. and Visa Worldwide Japan, Co., Ltd., has built a next-generation payment platform for business operators, and commenced full operations in October 2019. It provides aone-stop solution combining payment systems of real and online stores, and also integrates the payment center that processes the payment data and the network that delivers the processed payment data to each business operator.

Consumer Finance

The Retail Business Unit offers a variety of consumer loan products including unsecured card loan products mainly through SMBC and SMBC Consumer Finance to meet the wide range of individual customers’ demand for funds. Also, SMBC Consumer Finance guarantees certain consumer loans made by SMBC and other financial institutions.

In addition, SMBC and SMBC Mobit Co., LTD., (“SMBC Mobit”) which is a wholly owned subsidiary of SMBC Consumer Finance engaged in the card loan business, are strengthening their partnership. For example, a loan card from SMBC Mobit can be applied for or received through automated contract machines in SMBC branch offices.

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 447 SMBC branch offices, 25 SMBC Trust Bank branch offices, 141 SMBC Nikko Securities branch offices and 929 SMBC Consumer Finance staffed and unstaffed branch offices at March 31, 2020. Some SMBC branches provide financial consulting services for asset management and housing loans during extended hours, including weekday evenings, weekends and national holidays, for the convenience of individual customers.

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The Retail Business Unit also operates an extensive network of ATMs in Japan. At March 31, 2020, SMBC offers its customers’ access to 56,176 ATMs, some of which are SMBC’s ATMs and the majority of which are ATMs made available through arrangements with other ATM providers such as convenience store chains. SMBC Consumer Finance offers its customers’ access to 1,908 automatic contract machines and ATMs at March 31, 2020.

This business unit also offers internet banking services for consumers. At March 31, 2020, SMBC’s internet banking services had approximately 17 million registered users. The users are able to transfer funds, perform balance inquiries, make time deposits and foreign currency deposits, and buy and sell investment trusts over the internet with smartphones and computers.

Moreover, in credit card business, there are approximately 50 million card holders of Sumitomo Mitsui Card and Cedyna at March 31, 2020.

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

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

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

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

International Business Unit

The International Business Unit supports the global businesses of a diverse range of clients, such as Japanese companies operating overseas,non-Japanese companies, financial institutions, and government agencies and public corporations of various countries. This business unit mainly consists of the international businesses of SMBC, SMBC Trust Bank, SMFL, SMBC Nikko Securities and their foreign subsidiaries. At March 31, 2020, we have global network of 137 overseas offices.

Banking Business

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

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

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

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

Securities Business

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

Leasing Business

The International Business Unit provides a variety of leasing services related to the construction machinery, transportation equipment, industrial machinery, medical equipment and other categories mainly through SMFL’s offices overseas. This business unit also offers aircraft leasing services through SMBC Aviation Capital Limited, a subsidiary 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.

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

Global Markets Business Unit

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

Asset Liability Management and Portfolio Management

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

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Foreign Currency Funding

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

Sales and Trading

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

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

Other Major 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 April 1, 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 aim to establish an asset management company that combines the strengths and expertise of SMAM and DSBI, and offers high quality investment management performance and services in order to properly address client needs.

Others

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

In March 2017, we announced our plan to integrate Kansai Urban Banking Corporation (“KUBC”), THE MINATO BANK, LTD. (“The Minato Bank”), previously our subsidiaries, and The Kinki Osaka Bank, Ltd. (“The Kinki Osaka Bank”), which is a regional financial institution based in Kansai area and a wholly owned subsidiary of Resona Holdings, Inc. (“Resona Holdings”), a financial holding company head quartered in Japan. As part of this business integration, KUBC and The Minato Bank ceased to be our subsidiaries and became our equity-method associates. In addition, in April 2018, the three banks became wholly owned subsidiaries of Kansai Mirai Financial Group, an intermediate holding company established by Resona Holdings, and Kansai Mirai Financial Group became our equity-method associate. On April 1, 2019, KUBC was merged into The Kinki Osaka Bank and the merged company changed its corporate name to Kansai Mirai Bank, Limited.

Management Policies

In May 2017, we announced our medium-term management plan, “SMFG Next Stage” (currently “SMBC Group Next Stage”), for the three years through March 2020. Under the medium-term management plan, we

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established the three core policies: “disciplined business management,” “focus on our strengths to generate growth” and “integration across the SMBC Group and globally to achieve sustainable growth” in order to achieve sustainable growth and reach the next stage of our journey towards ourmid-long term vision of becoming “a global financial group that leads the growth of Japan and Asia by earning the highest trust of our customers.”

During the fiscal year ended on March 31, 2020, the last year of the medium-term management plan, we set the basic policy as “Realize a strong finish to the final year of the current medium-term management plan and undertake initiatives that will deliver sustainable growth, with a view to the next medium-term management plan” and carried out various initiatives based on the three core policies above to become the financial group of choice for our customers.

On May 15, 2020, we announced our new medium-term management plan for the three years through March 2023. In the medium-term management plan, we aim to pursue a major reform of our business model and explore new businesses to overcome the dynamic change of the business environment. Thereby, we aim at providing solutions for the problems and challenges of our customers and society and pursue sustainable growth in order to further enhance our corporate value.

Under the medium-term management plan, we have established the following three core policies: “Transformation” and “Growth” for business strategy and “Quality” for management base, in order to make an important step towards the realization of our new Vision of becoming “A trusted global solution provider committed to the growth of our customers and advancement of society.”

Transformation: Transform existing businesses

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

Specifically, mainly in the domestic business, we aim to 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 includingnon-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 payment/transaction in response to the structural change in the financial market, (b) expand our business franchise 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 leveraging our sufficient capital level.

Under our business strategy of “Transformation” and “Growth”, we have identified “Seven Key Strategies” as shown below:

• Pursue sustainable growth of wealth management business;

• Improve productivity and strengthen solutions in the domestic wholesale business;

• Enhance overseas corporate and investment banking business to improve asset/capital efficiency;

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• Hold the number one position in payment business;

• Enhance asset-light business on a global basis;

• Expand franchise in Asia and strengthen digital banking; and

• Develop digital solutions for corporate clients.

Quality: Elevate quality in all aspects

We aim to make a consistent effort to enhance our management system and corporate infrastructure as a global financial institution to fulfill the expectations of our stakeholders.

Specifically, as a basic management policy, we continue to ensure our customer-oriented approach and at the same time, we aim to take further actions such as promoting green finance and financial education programs to contribute to a sustainable society. In addition, we aim to continue to sophisticate human resource management and development to have employees perform at their full potential, and we aim to develop flexible and robust IT infrastructure in order to create new added value through digitalization and strengthen the capability of cyber security. Furthermore, in order to enforce sound risk-taking, we strive to sophisticate the risk appetite framework and practice business management in an effective and scientific manner and aim to further enhance our governance system in overseas businesses, including risk management and compliance areas as a foundation of sustainable growth of our global business.

Revenues by Region

The following table sets forth the percentage of our total operating income under IFRS for the fiscal years ended March 31, 2020, 2019, and 2018, based on the total operating income of our offices in the indicated regions. For each of the periods presented, we earned more than half of our total operating income in Japan, where we compete with other major Japanese banking groups and financial service providers. We earned the remainder in the Americas, Europe and Middle East, and Asia and Oceania, where we mainly compete with global financial institutions.

	For the fiscal year ended March 31,
	2020			2019			2018
Region:
Japan		66	%		66	%		70	%
Foreign:
Americas		10	%		10	%		9	%
Europe and Middle East		7	%		12	%		13	%
Asia and Oceania (excluding Japan)		17	%		12	%		8	%
Total		100	%		100	%		100	%

Seasonality

Our business is not materially affected by seasonality.

Sources and Availability of Raw Materials

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

Marketing Channels

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

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Regulations in Japan

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

Supervisory and regulatory authorities

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

The Financial Services Agency of Japan

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

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

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

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

The Banking Act authorizes the FSA to inspect banks and bank holding companies in Japan at any time and with any frequency. The FSA monitors the financial soundness of banks and the status and performance of their control systems and reviews their compliance with laws and regulations. The FSA had issued guidelines on its inspection of financial institutions called the Financial Inspection Manual. The Financial Inspection Manual itself does not have the force of law, but the FSA’s inspections of banks have been based on the Financial Inspection Manual, which emphasized the need for bank self-assessment rather than assessment based on the advice of the government authority and risk management by each bank instead of a mere assessment of its assets. In December, 2017, the FSA published a report on its supervisory approaches and transformation, which was revised in June, 2018. Based on the report, the FSA introduced its new supervisory approaches, which include expanding the scope of its supervisory approaches from a backward-looking,element-by-element compliance check to substantive, forward-looking and holistic analysis and judgment, leading to the FSA’s repeal of the Financial Inspection Manual on December 18, 2019. Following an inspection, the FSA may exercise its authority over a bank under the Banking Act to suspend or terminate its banking business.

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The Ministry of Finance

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

The Bank of Japan

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

Regulations Regarding Capital Adequacy and Liquidity

Capital Adequacy Requirement

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

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

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

The BCBS’ proposals also cover the following key areas:

• strengthening the risk coverage of the capital framework;

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

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

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• introducing minimum liquidity standards for internationally active banks that include a30-day liquidity coverage ratio requirement underpinned by a longer-term structural liquidity ratio (for further information, see “Liquidity Requirement” below).

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

These capital reforms were phased in from January 2013 to January 2019. The minimum common equity requirement, the minimum Tier 1 capital requirement and the total minimum capital requirement have been 4.5%, 6% and 8% respectively since January 2015. Moreover, banks have been required to hold a capital conservation buffer of 2.5% to withstand future periods of stress since January 2019. As a result, taking the capital conservation buffer into account, the minimum common equity requirement, the minimum Tier 1 capital requirement and the total minimum capital requirement have been 7%, 8.5% and 10.5% respectively since 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. 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 have 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 2016.

In addition to the above-mentioned minimum capital requirements and capital buffer requirements under Basel III, organizations identified by the FSB asG-SIBs, which includes us, are required to maintain an additional 1% to 2.5% of Common Equity Tier 1 capital as a percentage of risk-weighted assets based on the organization’s size, interconnectedness, substitutability, complexity and cross-jurisdictional activity as determined by the FSB. The amount ofG-SIB capital surcharge that has applied to us from 2019 based on the FSB’s determination is 1% of risk-weighted assets. The FSB updates its list ofG-SIBs on an annual basis.

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

In March 2019, the FSA published the Japanese TLAC Standards. The Japanese TLAC Standards apply to Covered SIBs, which includes (i) JapaneseG-SIBs, which are designated asG-SIBs by the FSA in accordance with the designation by the FSB, such as us, and (ii) any domestic systemically important bank in Japan (JapaneseD-SIB) that has been deemed to be in particular need for a cross-border resolution arrangement and as having particular systemic significance to the Japanese financial system if it fails. The Japanese TLAC Standards were applied to JapaneseG-SIBs from March 31, 2019.

Under the FSB’s TLAC standards and the Japanese TLAC Standards, entities designated by the FSA as an entity that would enter into domestic resolution proceedings for JapaneseG-SIBs, or the Domestic Resolution Entities, are required:

• to meet certain minimum external TLAC requirements (being at least 16% of their risk-weighted assets starting from March 2019 and at least 18% of their risk-weighted assets starting from March 2022 as

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well as at least 6% of their Basel III leverage ratio denominator starting from March 31, 2019 and at least 6.75% starting from March 31, 2022); and

• to cause any material subsidiaries or materialsub-groups in Japan designated as systemically important by the FSA, or any foreign subsidiaries that are subject to TLAC or similar requirements by the relevant foreign authorities, to maintain a certain level of capital and debt that is recognized as having loss-absorbing and recapitalization capacity (“internal TLAC”).

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

The FSB’s TLAC Standards also prescribe a minimum TLAC requirement of at least 6% of the resolution group’s Basel III leverage ratio denominator starting from March 31, 2019, increasing to at least 6.75% starting from March 31, 2022, and according to the Japanese TLAC Standards, the same external TLAC requirements on the leverage ratio basis are required for bank holding companies of JapaneseG-SIBs including us.

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

In the FSA’s explanatory paper entitled “The FSA’s Approach to Introduce the TLAC Framework,” which was published in April 2016 and revised in April 2018, the FSA has identified Single Point of Entry (“SPE”) resolution, in which resolution powers are applied to the ultimate holding company of a banking group by a single national resolution authority, as the preferred strategy for resolving currently designatedG-SIBs in Japan. Under a possible model for SPE resolution of JapaneseG-SIBs described in the Japanese TLAC Standards, if, with respect to a material subsidiary of a JapaneseG-SIB that is designated as systemically important by the FSA, the FSA issues to the Domestic Resolution Entity of the JapaneseG-SIB an order concerning the restoration of financial soundness, including recapitalization of, and restoration of liquidity to, such material subsidiary, such material subsidiary’s internal TLAC instruments will be written off or, if applicable, converted into equity in accordance with the applicable contractual loss-absorption provisions of such internal TLAC instruments. The FSA may issue such an order pursuant to Article52-33, Paragraph 1 of the Banking Act upon its determination that the material subsidiary isnon-viable due to a material deterioration in its financial condition after recognizing that its liabilities exceed or are likely to exceed its assets, or that it has suspended or is likely to suspend payment of its obligations.

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

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

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

• a revised standardized approach for credit risk;

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

• revisions to the credit valuation adjustment framework, including the removal of the internally modeled approach and the introduction of a revised standardized approach;

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

• revisions to the measurement of the leverage ratio and a leverage ratio buffer forG-SIBs; and

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

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 ofCOVID-19 on the global banking system. According to the measures, the implementation timeline of the outstanding Basel III standards has been deferred by one year.The revised framework, other than revisions to the capital floor, will take effect from January 1, 2023. The revisions to the capital floor will be phased in from January 1, 2023, with an initial capital floor of 50%, and will reach 72.5% by January 1, 2028. On March 30, 2020, in light of the above changes, the FSA announced its plan to defer the implementation of Basel III standards in Japan by one year, to March 31, 2023.

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

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

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Leverage Ratio

In March 2015, the FSA published its leverage ratio guidelines which have been applied from March 31, 2015 to help ensure broad and adequate capture of bothon- andoff-balance sheet sources of leverage for internationally active banks. The FSA’s leverage ratio guidelines are based on the text of the leverage ratio framework and disclosure requirements issued by the BCBS in January 2014. From January 1, 2013 to January 1, 2017, the BCBS monitored banks’ leverage ratio data to assess whether the design and calibration of its indicated minimum leverage ratio of 3% was appropriate.

In January 2016, the GHOS agreed that the leverage ratio should be based on a Tier 1 definition of capital and should comprise a minimum level of 3%. In December 2017, the definition and requirements of the leverage ratio were revised as part of the revised Basel III reforms. Under the revised Basel III reforms, in addition to meeting the minimum leverage ratio,G-SIBs are required to meet a leverage ratio buffer, which will take the form of a Tier 1 capital buffer set at 50% of the applicableG-SIB capital surcharge. Various refinements were also made to the definition of the leverage ratio exposure measure. The leverage ratio requirements under the definition based on the framework issued by the BCBS 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 forG-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.

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. The minimum LCR requirements have been 100% since March 31, 2019.

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

Self-Assessment, Reserves and Related Disclosure

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

Pursuant to the Japanese Institute of Certified Public Accountants (“JICPA”) guidelines, the outcome of each financial institution’s self-assessment leads to substantially all of a bank’s loans and other claims on

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customers being analyzed by classifying obligors into five categories: (1) normal borrowers; (2) borrowers requiring caution; (3) potentially bankrupt borrowers; (4) effectively bankrupt borrowers; and (5) bankrupt borrowers. The reserve for possible loan losses is then calculated based on the obligor categories.

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

Based on the results of the self-assessment discussed above, 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 effectively 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;

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

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

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

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

The FSA may order a bank to (1) submit and implement a plan for improving its capital; (2) prohibit or restrict the payment of dividends to shareholders or bonuses to officers; (3) reduce assets or restrict any increase in assets; (4) prohibit or restrict the acceptance of deposits under terms less advantageous than ordinary terms;

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(5) reduce the business of some offices; (6) eliminate some offices other than the head office; (7) reduce or prevent the launching ofnon-banking businesses; or (8) take certain other actions, if;

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

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

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

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

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

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

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

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

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

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

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

• the leverage ratio declines below 0%.

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

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

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

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

Prompt Warning System

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

Restrictions on Capital Distributions

Under the FSA’s capital adequacy guidelines and related ordinances, if a bank fails to maintain capital levels under the capital buffer requirements in accordance with Basel III and theG-SIB capital surcharge, the FSA may order a bank to submit and implement a reasonable capital distribution constraint plan to restore the

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capital levels. This plan shall include restrictions on capital distributions, such as dividends, share buybacks, discretionary payments on other Tier 1 capital instruments and bonuses, in such amount as determined depending on the degree of insufficiency of such requirements.

Regulations for Stabilizing the Financial System

Deposit Insurance System

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

From April 2018 to March 2019, the DIC received annual insurance premiums from member deposit-taking institutions amounting to 0.046% of deposits primarily for payment and settlement purposes and 0.033% of deposits for other deposits, and from April 2019 to March 2020, they amounted to 0.045% and 0.032%, respectively. Furthermore, from April 2020, they amounted to 0.045% and 0.031% respectively.

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

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

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

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

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

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

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

Where it is anticipated that the failure of a deposit-taking institution may cause an extremely grave problem in maintaining the financial order in Japan or the region where the deposit-taking institution is operating, the

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following exceptional measures may be taken following deliberation by Japan’s Financial Crisis Response Council:

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

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

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

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

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

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

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

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

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

The expenses for implementation of the measures for these crisis management operations will be borne by the financial industry; provided, however, the Government of Japan may provide subsidies to the DIC within the

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limit to be specified in the government budget in cases where it is likely to cause extremely serious hindrance to the maintenance of the credit system in Japan or significant turmoil in the financial market or other financial system of Japan if such expenses are to be borne only by the financial industry.

In March 2014, the FSA made an announcement clarifying the requirement of loss absorbency at the point ofnon-viability for additional Tier 1 instruments and Tier 2 instruments under Basel III issued by banks and bank holding companies. According to the announcement, (i) additional Tier 1 instruments and Tier 2 instruments under Basel III issued by a bank must be written-down or converted into common shares when the Prime Minister of Japan confirms (nintei) that the above-described “Item 2 measures (dai nigo sochi),” “Item 3 measures (dai sango sochi),” or “specified Item 2 measures (tokutei dai nigo sochi)” need to be applied to the bank and (ii) additional Tier 1 instruments and Tier 2 instruments under Basel III issued by a bank holding company must be written-down or converted into common shares when the Prime Minister of Japan confirms (nintei) that the above-described “specified Item 2 measures (tokutei dai nigo sochi)” need to be applied to the bank holding company. The FSA also stated in the announcement that the trigger event for loss absorbency at the point ofnon-viability with respect to such instruments should be construed in accordance with the then effective financial crisis response framework for banks and bank holding companies that have failed or are likely to fail, since the purpose of such write-down or conversion required under Basel III is to ensure that all classes of these capital instruments fully absorb losses at the point ofnon-viability before taxpayers are exposed to loss.

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

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

Single Customer Credit Limit

The Banking Act restricts the aggregate amount of credit and loans that may be extended to any single customer in order to avoid the excessive concentration of credit risks and promote the fair and extensive use of bank credit. To tighten the restrictions under Japanese law to meet international standards, the amendment to the Banking Act and the related cabinet order were promulgated on October 30, 2019, and this amendment became effective on April 1, 2020. As a result of the amendment, the credit limit of bank holding companies, banks or bank groups for any single customer, is 25% of the Tier 1 capital of the bank holding company, bank or bank group, with certain adjustments.

Restrictions on Activities of a Bank Holding Company

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

An amendment to the Banking Act was promulgated in June 2016. Among other things, the amendment (1) requires a bank holding company to enhance group management, by measures including establishment of a basic policy of such group, coordination of conflicts of interest among group companies, development of a group

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compliance system and others; (2) permits a bank holding company or a group company, with prior approval of the Government of Japan, to manage certain businesses of other group companies that are common and duplicative; and (3) permits a bank or a bank holding company, with prior approval of the government, to hold voting rights of companies conducting businesses that contribute to or are expected to contribute to the sophistication of the banking business or the enhancement of customer convenience by utilizing information technology or other technologies, regardless of the shareholding restriction described below. The amendment became effective from April 2017.

Restriction on Aggregate Shareholdings by a Bank

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

Shareholding Restrictions Applicable to a Bank Holding Company and a Bank

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

Examination and Reporting Applicable to Shareholders of a Bank

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

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

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

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Regulations for Protection of Customers

Protection of Personal Information

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

Act on Sales, Etc. of Financial Products

Due to deregulatory measures in the banking and other financial services industries, more financial products, including highly structured and other complicated products, may now be marketed to a broad base of customers. The Act on Sales, Etc. of Financial Products was enacted to better protect customers from incurring unexpected losses as a result of purchasing these financial products. Under this law, sellers of financial products have a duty to their potential customers to explain important matters (i.e., the nature and magnitude of risk involved) regarding the financial products that they sell. If a seller fails to comply with the duty, the loss in value of the purchased investment product due to the failure to explain is refutably presumed to be the amount of the customer’s loss. An amendment to this law, together with other related laws including the FIEA, became effective in September 2007. The amended law enlarges the scope of the duty of financial services providers to inform customers of important matters related to the financial products that they offer.

On June 12, 2020, certain amendments to the Act on Sales, Etc. of Financial Products were promulgated, and will become effective within one and a half years from the date of promulgation. Per these amendments, the name of the law will be changed to “the Act on Provision of Financial Services.” The amendments introduce a registration scheme for “financial services intermediary businesses.” Through a single registration as a financial services intermediary business, registrants will be able to provide intermediary services for each of banking, securities and insurance. The amendments to the law will not require any provider of financial services intermediary business to belong to a specific financial institution, but will impose certain regulations to protect customers, including limitations on the type of services that they may provide and prohibitions on the acceptance of assets of customers and lodging a security deposit.

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

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

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

Laws Prohibiting Money Laundering and Terrorist Financing

Act on Prevention of Transfer of Criminal Proceeds

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

Foreign Exchange and Foreign Trade Act of Japan

Under the Foreign Exchange and Foreign Trade Act, SMBC is required to confirm that necessary permission from the relevant authorities is obtained by the customer or obtain necessary permission itself, for

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certain transaction involving targets who are designated under the law and the relevant orders thereunder including North Korea or Iran.

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

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

Other Regulations Related to Our Business

Financial Instruments and Exchange Act of Japan

The Financial Instruments and Exchange Act of Japan (“FIEA”) regulates the securities industry and most aspects of securities transactions in Japan, including public offerings, private placements and secondary trading of securities, ongoing disclosure by securities issuers, tender offers for securities, organization and operation of securities exchanges and self-regulatory organizations and registration of securities companies. The Prime Minister has the authority to regulate the securities industry and securities companies, which authority is delegated to the FSA Commissioner under the FIEA. The Securities and Exchange Surveillance Commission, an external agency of the FSA, is independent from the Agency’s other bureaus and is vested with authority to conductday-to-day monitoring of the securities markets and to investigate irregular activities that hinder fair trading of securities, including inspection of securities companies as well as banks in connection with their securities business. Furthermore, the FSA Commissioner delegates certain authority to the Director General of the Local Finance Bureau to inspect local securities companies and their branches. A violation of applicable laws and regulations may result in various administrative sanctions, including revocation of registration or authorization, suspension of business or an order to discharge any Director or Executive Officer who has failed to comply with applicable laws and regulations. Securities companies are also subject to the rules and regulations of the Japanese stock exchanges and the Japan Securities Dealers Association, a self-regulatory organization of securities companies.

Regulation of the Consumer Finance Business

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

Installment Sales Act

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

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(3) measures to prevent excessive lending for certain credit transactions that include requirements to investigate the payment ability of consumers by use of designated credit information organizations and prohibition of execution of credit agreements that exceed the payment ability of consumers; and (4) measures to protect certain information, such as credit numbers.

Base Erosion and Profit Shifting (BEPS)

In July 2013, the Organization for EconomicCo-operation and Development (“OECD”) published the Action Plan on Base Erosion and Profit Shifting (“BEPS”) in order to prevent exploiting of gaps and mismatches in tax rules and artificial shifting of profits to low orno-tax locations. In October 2015, the OECD published the final package of measures for a comprehensive, coherent and coordinated reform of the international tax rules for 15 key areas. These measures will apply once they are implemented either in domestic laws or in the network of bilateral tax treaties. Some of the deliverables published by the OECD have been partially reflected to Japanese tax regulations by the tax reforms adopted from 2015 through 2020 and to certain several bilateral tax treaties to which Japan is a party through the implementation of the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting in Japan.

Common Reporting Standard (CRS)

In order to prevent tax evasion and avoidance through offshore financial accounts, the OECD developed the Common Reporting Standards (“CRS”), which calls on jurisdictions to obtain information on financial accounts ofnon-residents from their financial institutions and automatically exchange that information with other jurisdictions. From the perspective of implementation of the exchange of information based on CRS, the Act on Special Provisions of the Income Tax Act, the Corporation Tax Act and the Local Tax Act Incidental to Enforcement of Tax Treaties as well as the cabinet and ministerial ordinances thereunder has been amended as part of the tax reform of 2015, which became effective on January 1, 2017, and those who open a financial account with a financial institution located in Japan must submit a self-certification indicating the name of the jurisdiction of residence, etc. From 2018, each financial institution must report information pertaining to financial accounts of specificnon-residents and the information is automatically exchanged with tax administrations of each jurisdiction on an annual basis.

Deregulation

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

Deregulation of Bank Engagement in the Securities Business

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

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

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

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

In addition, amendments to the FIEA and the Banking Act relating to firewalls and conflicts of interest between banks, securities companies and insurance companies became effective on June 1, 2009. The

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

Deregulation of Insurance Products

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

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

In December 2014, under the Postal Privatization Act, Japan Post Holdings Co., Ltd. (“Japan Post Holdings”), a joint stock corporation that holds shares of operating companies, published a plan for the listing of Japan Post Holdings, Japan Post Bank, one of the world’s largest deposit-taking institutions, and Japan Post Insurance Co., Ltd. (“Japan Post Insurance”) and the gradual disposition of its shares of Japan Post Bank and Japan Post Insurance down to approximately 50% ownership. In November 2015, each of Japan Post Holdings, Japan Post Bank and Japan Post Insurance publicly offered approximately 11% of their outstanding shares, respectively, and they were listed on the Tokyo Stock Exchange. Japan Post Bank is required to receive prior approval of the Government of Japan to expand its business until Japan Post Holdings disposes of at least half of the shares of Japan Post Bank.

Regulations in the United States

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

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

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

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The Company, SMBC and SMBCAH are bank holding companies by virtue of their ownership of Manufacturers Bank, and as such are subject to the U.S. Bank Holding Company Act of 1956, as amended (“Bank Holding Company Act”), and are subject to regulation, supervision and examination by the Federal Reserve Board as their U.S. “umbrella supervisor.” The Company, SMBC and SMBCAH are required to serve as sources of financial strength to Manufacturers Bank.

Restrictions on Business Activities

The Bank Holding Company Act imposes restrictions on the Company and SMBC’s U.S. non-banking operations. Bank holding companies that elect to be treated as financial holding companies, such as the Company, SMBC and SMBCAH are, however, permitted to engage in a broader range of activities in the United States. Unless otherwise limited by the Federal Reserve Board, financial holding companies generally can engage, directly or indirectly in the U.S. and abroad, in financial activities, either de novo or by acquisition, by providingafter-the-fact notice to the Federal Reserve Board. These financial activities include underwriting, dealing and making markets in securities, insurance underwriting and brokerage and making merchant banking investments innon-financial companies for a limited period of time, as long as the financial holding company does not directly or indirectly manage thenon-financial companies’day-to-day activities, and the financial holding company’s banking subsidiaries engage only in permitted cross-marketing with thenon-financial companies.

The Company and SMBC elected to be treated as financial holding companies in May 2013, and SMBCAH elected to be treated as a financial holding company upon becoming a U.S. bank holding company in January 2019. The Company, SMBC, SMBCAH and Manufacturers Bank, as our U.S. insured depository institution subsidiary, are required to be “well capitalized” and “well managed,” including maintenance of examination ratings that are at least satisfactory, in order for the Company, SMBC, and SMBCAH to continue to be treated as financial holding companies. In April 2019, SMBC and its New York branch entered into a written agreement with the Federal Reserve Bank of New York requiring SMBC and its New York branch to address certain deficiencies relating to the New York branch’s anti-money laundering and economic sanctions compliance program. SMBC and its New York branch are required, among other things, to implement corrective measures and submit periodic progress reports to the Federal Reserve Bank of New York. In addition, as a result of the deficiencies identified in the written agreement, we no longer meet the requirements to be treated as a financial holding company, and, pending completion of a remediation plan designed to meet these requirements, we are currently subject to restrictions in our ability to engage in certain new categories of financial activities in the United States and to make acquisitions of companies engaged in activities in the United States. Divestiture or termination of certain business activities in the U.S. may also be required as a consequence of failure to correct the conditions giving rise to such restrictions within the prescribed period of time.

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

Other Prudential Restrictions

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

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

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

There are various qualitative and quantitative restrictions on the extent to which the Company and its subsidiaries can borrow or otherwise obtain credit from Manufacturers Bank or engage in certain other transactions involving that subsidiary. In general, these transactions must be on terms that would ordinarily be offered by Manufacturers Bank to unaffiliated entities, and credit transactions must be secured by designated amounts of specified collateral. In addition, certain transactions, such as certain purchases by Manufacturers Bank from SMBC or itsnon-bank subsidiaries, are subject to volume limitations. Credit exposure arising from derivative transactions, securities borrowing and lending transactions, and repurchase/reverse repurchase agreements is subject to these collateral and volume transactions limitations.

U.S. Financial Regulatory Reform

Both the scope of the U.S. laws and regulations and the intensity of supervision have increased in recent years, in response to the financial crisis as well as other factors such as technological and market changes. Regulatory enforcement and fines have also increased across the banking and financial services sector. Many of these changes have occurred as a result of the Dodd-Frank Act and its implementing regulations and have resulted in additional costs and impose certain limitations on our and SMBC’s business activities. More recently, President Trump issued an executive order in 2017 that sets forth principles for financial regulatory and legislative reform of the federal financial regulatory framework, and there have been several statutory and regulatory initiatives aimed at providing relief for the financial services industry. In May 2018, President Trump signed into law the Economic Growth, Regulatory Relief, and Consumer Protection Act (“EGRRCPA”), which is the first significant legislative reform of the Dodd Frank Act. Among other things and as discussed below, EGRRCPA revised the thresholds for total consolidated assets at which certain enhanced prudential standards apply to bank holding companies and foreign banking organizations.

We are subject to the Volcker Rule, which restricts the ability of banking entities, such as us and SMBC, to engage as principal in proprietary trading activities, or sponsor, invest in, or retain investments in certain private equity, hedge or similar funds, but a number of exclusions and exemptions limit the Volcker Rule’s extraterritorial reach. In the second half of 2019, rules were adopted amending certain aspects of the Volcker Rule, including the Volcker Rule definition of proprietary trading and certain compliance program requirements. In January 2020, additional amendments were proposed to the covered funds portion of the Volcker Rule and a final rule implementing the proposal was adopted in June 2020.

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Under the Dodd-Frank Act, the Federal Reserve Board has imposed greater capital, leverage and liquidity requirements and other heightened prudential standards for bank holding companies and foreign banking organizations that exceed certain thresholds. In imposing heightened prudential standards on foreign banking organizations such as us and SMBC, the Federal Reserve Board is directed to take into account the principle of national treatment and equality of competitive opportunity, and the extent to which thenon-U.S. bank holding company is subject to comparable home country standards.

In 2014, the Federal Reserve Board adopted rules that apply enhanced prudential standards to the large foreign banking organizations (“EPS Rules”), including us. The EPS Rules require certain foreign banking organizations, such as us, to certify that they are subject to home country capital standards that are broadly consistent with the Basel capital framework, including Basel III; conduct home country capital stress tests that are comparable to U.S. standards; comply with a certain liquidity requirements, including, among other things, a U.S. liquidity buffer requirement for its U.S. branches and agencies based on the results of internal liquidity stress testing; and establish a U.S. risk committee that periodically reviews the risk management policies and oversees the risk management framework of its U.S. operations. The EPS Rules also require foreign banking organizations with combined U.S. assets (excluding assets held by its U.S. branches and agencies) of $50 billion or more to establish a separately capitalizedtop-tier U.S. intermediate holding company. We are not subject to this requirement because we do not meet this threshold, but we have established SMBCAH in consideration of this requirement. The Federal Reserve Board finalized amendments to the EPS Rules in October 2019 implementing EGRRCPA’s revisions to the thresholds for total consolidated assets at which the enhanced prudential standards apply (“Tailoring Amendments”), but the Tailoring Amendments did not significantly change the requirements under the EPS Rules that are applicable to us.

In June 2018, as part of the implementation of the EPS Rules, the Federal Reserve Board published a rule, which was subsequently amended by the Tailoring Amendments, implementing single counterparty credit limits (“SCCL”) applicable to the U.S. operations of certain foreign banking organizations, such as us. The SCCL rule in general imposes limitations on net credit exposures to individual counterparties (aggregated based on affiliation) as a percentage of Tier 1 capital. We may comply with the SCCL rule by certifying to the Federal Reserve Board that we comply with a home country regime (“Home Country SCCL”) on a consolidated basis that is consistent with the Large Exposures Framework published by the Basel Committee going forward. New Japanese Home Country SCCL, which was implemented from April 1, 2020, is intended to be consistent with the Large Exposures Framework, and we intend to comply with the Federal Reserve Board’s SCCL rule through substituted compliance. Although a proposed rule has been released, a final rule for an early remediation framework applicable to foreign banking organizations has yet to be promulgated.

The Dodd-Frank Act removed a longstanding prohibition on the payment of interest on demand deposits that was applicable to banking entities such as Manufacturers Bank and SMBC’s three branches in the United States. In addition, Manufacturers Bank and SMBC’s three branches in the United States are subject to federal lending limits that take into account credit exposure arising from derivative transactions and securities lending, securities borrowing, and repurchase agreements and reverse repurchase agreements with counterparties as well as state lending limits.

The Dodd-Frank Act also provides for an extensive framework for the regulation of OTC derivatives, including mandatory clearing, exchange trading and transaction reporting of certain OTC derivatives. In addition, certain entities are required to register with the CFTC as “swap dealers” or “major swap participants” or with the SEC as “security-based swap dealers” or “major security-based swap participants.” Our subsidiary, SMBC Capital Markets, Inc., is provisionally registered as a swap dealer. There are various mandatory clearing, trade execution and reporting requirements for swaps. We do not currently expect to register any entity with the SEC as a security-based swap dealer or major security-based swap participant.

Furthermore, the Dodd-Frank Act requires the SEC to establish rules requiring issuers with listed securities, which may includenon-U.S. private issuers such as us, to establish a “clawback” policy to recoup previously

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awarded compensation in the event of an accounting restatement. The Dodd-Frank Act also expands the extraterritorial jurisdiction of U.S. courts over actions brought by the SEC or the United States with respect to violations of the antifraud provisions in the Securities Act of 1933, the Securities Exchange Act of 1934 and the Investment Advisers Act of 1940.

Laws Prohibiting Money Laundering and Terrorist Financing

The Bank Secrecy Act/USA PATRIOT Act of 2001

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

U.S. Sanctions Targeting Iran Related Activities

Starting in 2010, the U.S. government implemented various sanctions targetingnon-U.S. parties that engage in specified Iran-related activities. Various statutes, Executive Orders and regulations, including the Comprehensive Iran Sanctions, Accountability and Divestment Act of 2010 (which, among other things, amended the Iran Sanctions Act of 1996, Section 1245 of the National Defense Authorization Act for Fiscal Year 2012, the Iran Threat Reduction and Syria Human Rights Act of 2012, and the Iran Freedom and Counter-Proliferation Act of 2012, authorize the imposition of sanctions on parties that engage in, among other things, certain activities relating to Iran’s energy, petroleum, metals, shipping or shipbuilding sectors or that facilitate “significant” transactions or provide “significant financial services” for certain Iran-linked individuals or entities or the Islamic Revolutionary Guard Corps.

Prior to U.S. withdrawal from the JCPOA the United States along with the European Union provided Iran with certain sanctions relief. On Implementation Day, the U.S. government revoked certain Iran-related Executive Orders, temporarily waived certain statutory provisions and removed various individuals and entities from the Specially Designated Nationals and Blocked Persons List (the “SDN List”) maintained by OFAC. However, certain U.S. secondary sanctions targeting Iran remained in effect, including those targeting significant transactions involving Iranian or Iran-related SDNs or the Islamic Revolutionary Guard Corps.

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

In November 2018, following certain wind-down periods, the United States fullyre-imposed sanctions (both primary and secondary) that had been waived or lifted under the JCPOA. On the same day, OFAC added back to the SDN List a number of parties that had been removed on Implementation Day from the list. Persons engaged in targeted activities involving Iran face exposure to secondary sanctions or enforcement actions under U.S. law. It is SMBC’s policy not to conduct activities targeted by secondary sanctions.

As part of the reinstatement of full sanctions on Iran, the United States has resumed efforts to reduce Iran’s crude oil sales, backed by the potential threat of correspondent account sanctions targeting foreign financial

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institutions. In November 2018, the U.S. government announced that Japan was one of eight countries determined by the U.S. State Department to have significantly reduced purchases of crude oil from Iran and therefore granted a “significant reduction exception” authorizing, among other things, financial institutions based in those countries to engage in certain transactions related to the purchase of petroleum or petroleum products from Iran for a period of 180 days, without the risk of sanctions. In May 2019, the significant reduction exceptions granted to these eight countries, including Japan, expired without further extension.

In May 2019, President Trump issued Executive Order 13871, which authorizes the imposition of sanctions with respect to Iran’s iron, steel, aluminum and copper sectors (collectively, the “metals” sector). Executive Order 13871 substantially broadens the scope of sanctionable activity relating to Iran’s metals sector, including adding authority to impose blocking sanctions on persons determined to have knowingly engaged in certain significant transactions, and correspondent or payable-through account sanctions on foreign financial institutions determined to have conducted or facilitated certain significant financial transactions, involving Iran’s metals sector or metals and metal products from Iran.

On January 10, 2020, President Trump issued Executive Order 13902, which authorizes the imposition of blocking sanctions on persons operating in the construction, mining, manufacturing, or textiles sectors of the Iranian economy, as well as other sectors identified by the Secretary of the Treasury in the future, as well as on persons determined to have knowingly engaged in certain significant transactions involving the specified sectors. The order also authorizes the imposition of correspondent or payable-through account sanctions on foreign financial institutions determined to have conducted or facilitated certain significant financial transactions.

Ukraine Freedom Support Act of 2014, as Amended

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

Foreign Account Tax Compliance Act

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

The United States entered into intergovernmental agreements or reached agreements in substance with more than 100 countries in furtherance of the objectives of FATCA, which modify the operation of FATCA with

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respect to financial institutions located in those countries. The United States and Japan have entered into an intergovernmental agreement to facilitate the implementation of FATCA pursuant to which Japanese financial institutions (such as us and certain of SMBC Group companies) are directed by the Japanese authorities to register with the IRS and fulfill obligations consistent with those required under a PFFI agreement. We are registered with the IRS as a PFFI. We are committed to complying with FATCA as a PFFI and abiding by the terms of our PFFI agreement with the IRS within the jurisdictions in which we operate and in accordance with the time frame set out by the IRS. We closely monitor FATCA developments and evolving industry practices to ensure continued compliance with FATCA.

Other Regulations in the United States

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

• sales methods;

• trade practices among broker-dealers;

• use and safekeeping of customers’ funds and securities;

• capital structure;

• record-keeping;

• the financing of customers’ purchases; and

• the conduct of directors, officers and employees.

In addition, SMBC Nikko Securities America, Inc. is a member of and regulated by the Financial Industry Regulatory Authority and is regulated by the individual state securities authorities in the states in which it operates. The U.S. government agencies and self-regulatory organizations, as well as state securities authorities in the United States having jurisdiction over SMBC’s U.S. broker-dealer affiliates, are empowered to conduct administrative proceedings that can result in censure, fine, the issuance ofcease-and-desist orders or the suspension or expulsion of a broker-dealer or its directors, officers or employees.

Regulations in Other Jurisdictions

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

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

Section 13(r) of the Securities Exchange Act of 1934, as amended, requires an issuer to disclose whether it or any of its affiliates knowingly engaged in certain activities or transactions relating to Iran or with individuals or entities designated by the U.S. government under specified Executive Orders, even if those activities are not prohibited by U.S. law and are conducted outside the United States by non-U.S. affiliates. During the twelve months ended March 31, 2020, one affiliate of SMFG, SMBC, engaged in activities subject to disclosure under Section 13(r). SMBC conducted these activities consistent with its internal policies and procedures, the policies and procedures of SMFG, and applicable laws and regulations, and to the extent they are not sanctionable under U.S. secondary sanctions. SMBC has discontinued activities that have become impermissible or subject to secondary sanctions as a result of changes in applicable laws and regulations.

SMBC provided remittance and other settlement services in connection with customers’ trade transactions between Japan and Iran. These transactions principally involved the exportation of civilian commercial products

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including medical devices from Japan and were conducted with an Iranian bank owned by the Government of Iran. These transactions did not involve entities or other persons on the SDN List and did not involve the settlement of U.S. dollar-denominated payments cleared through U.S. banks. SMBC has informed SMFG that it intends to continue to engage in these types of transactions only to the extent permitted under applicable regulations and to the extent they are not sanctionable under U.S. secondary sanctions. For the twelve months ended March 31, 2020, the gross revenue related to these transactions was ¥1.1 million, representing less than 0.0001% of SMFG’s total interest and fee income. SMFG does not allocate direct costs to interest and fee income and therefore does not calculate net profits with respect to these transactions.

SMBC has issued performance bonds and advance payment bonds that supported various projects, including the construction of petroleum plants in Iran. Some of these bonds had counterparties that were entities controlled by the Government of Iran. Some of these bonds have matured, and SMBC has not renewed and will not renew them unless permitted under applicable regulations and to the extent they are not sanctionable under U.S. secondary sanctions, but SMBC continues to have obligations under the matured performance bonds until they are returned or cancelled by the beneficiaries. SMBC has also received fees from its customers on whose behalf it issued the performance bonds. For the twelve months ended March 31, 2020, the gross revenue relating to these transactions was ¥1.6 million, representing less than 0.0001% of SMFG’s total interest and fee income. As noted above, SMFG does not allocate direct costs to interest and fee income and therefore does not calculate net profits with respect to these transactions. SMBC has informed SMFG that it intends to continue to accept fee income from its customers for whose account the performance bonds were issued and to pay the relevant fees to the Iranian banks, to the extent authorized by the Ministry of Finance of Japan or otherwise permitted under applicable regulations, until the bonds are returned or cancelled. However, SMBC strongly urges the relevant customers to ask the beneficiaries to agree to return or cancel the matured performance bonds.

SMBC has frozen an account of an Iranian bank designated under Executive Order 13224 pursuant to Japanese foreign exchange laws, and has frozen the U.S. dollar accounts of all Iranian banks. SMBC still maintains Japanese yen accounts of government-owned Iranian banks, including an account for the Central Bank of Iran and certain transactions described in this disclosure were conducted through the use of one of such accounts. These transactions were conducted in accordance with Japanese law, and we do not believe that the transactions were sanctionable under U.S. sanctions that were in effect at the time the transactions occurred. SMBC has discontinued activities that have become impermissible or subject to secondary sanctions as a result of changes in applicable laws and regulations, including transactions involving the Central Bank of Iran whose account has been frozen. In April 2019, prior to the designation of the Central Bank of Iran under Executive Order 13224 and the freezing of its account, SMBC processed two fund transfers involving the account of the Central Bank of Iran, one of which also involved another Iranian government-owned bank. The transfers were conducted in accordance with Japanese law, and we do not believe that they were sanctionable under U.S. sanctions that were in effect at the time the transactions occurred. These transfers did not generate any revenue or profit for SMBC.

The gross revenue attributable to the accounts of government-owned Iranian banks for the twelve months ended March 31, 2020, was ¥3.4 million, representing less than 0.0001% of SMFG’s total interest and fee income. SMFG does not allocate direct costs to interest and fee income and therefore does not calculate net profits with respect to these transactions. SMBC has informed SMFG that it intends to continue to maintain the Iranian accounts described above only to the extent permitted under applicable laws and regulations and to the extent the activities are not targeted by secondary sanctions.

As of the date of this annual report, to our knowledge, there is no other activity for the twelve months ended March 31, 2020 that requires disclosure under Section 13(r) of the Securities Exchange Act of 1934.

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4.C.     ORGANIZATIONAL STRUCTURE

The following chart presents our corporate structure summary at March 31, 2020.

(1) These companies are our associates or joint ventures.

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

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

• group strategy and management;

• group resource allocation;

• group financial accounting;

• investor relations;

• capital strategy;

• group IT strategy;

• HR management for group executives;

• group risk management, internal control and compliance;

• compensation schemes; and

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

Principal Subsidiaries

Our principal subsidiaries at March 31, 2020 are shown in the list below. We consolidate all entities that we control. We control an entity when we are exposed, or have rights, to variable returns from our involvement with the entity and have the ability to affect those returns through our power over the entity.

Principal domestic subsidiaries

Company Name	Proportion of Ownership Interest(1)		Proportion of Voting Rights(1)			Main Business
	(%)		(%)
Sumitomo Mitsui Banking Corporation		100.0		100.0		Commercial banking
SMBC Trust Bank Ltd.		100.0		100.0		Trust Banking
SMBC Guarantee Co., Ltd.		100.0		100.0		Credit guarantee
SMBC Nikko Securities Inc.		100.0		100.0		Securities
Sumitomo Mitsui Card Company, Limited		100.0		100.0		Credit card
Cedyna Financial Corporation		100.0		100.0		Credit card and consumer credit
SMBC Consumer Finance Co., Ltd.		100.0		100.0		Consumer lending
SMBC Mobit Co., Ltd.		100.0		100.0		Consumer lending
SMBC Finance Service Co., Ltd.		100.0		100.0		Collecting agent and factoring
The Japan Research Institute, Limited		100.0		100.0		System development, data processing, management consulting and economic research
Sumitomo Mitsui DS Asset Management Company, Limited		50.1		50.1		Investment advisory and investment trust management
NCore Co., Ltd.		51.0		51.0		Data processing service and consulting
SMBC Venture Capital Co., Ltd.		40.0		40.0	(2)	Venture capital
SMBC Consulting Co., Ltd.		98.3		98.3		Management consulting and information services
Japan Pension Navigator Co., Ltd.		69.7		69.7		Operational management of defined contribution pension plans

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

(2) This company is accounted for as a subsidiary, despite our holdings of less than 50% of the voting rights, because we are able to govern the financial and operating policies of this company under a statute or an agreement.

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Principal foreign subsidiaries

Company Name	Country of Incorporation	Proportion of Ownership Interest(1)		Proportion of Voting Rights(1)		Main Business
		(%)		(%)
Sumitomo Mitsui Banking Corporation Europe Limited	U.K.		100.0		100.0	Commercial banking
Sumitomo Mitsui Banking Corporation (China) Limited	China		100.0		100.0	Commercial banking
PT Bank BTPN Tbk(2)	Indonesia		98.4		93.5	Commercial banking
SMBC Americas Holdings, Inc.	U.S.A.		100.0		100.0	Bank holding company
Manufacturers Bank	U.S.A.		100.0		100.0	Commercial banking
Banco Sumitomo Mitsui Brasileiro S.A.	Brazil		100.0		100.0	Commercial banking
JSC Sumitomo Mitsui Rus Bank	Russia		100.0		100.0	Commercial banking
SMBC Bank EU AG	Germany		100.0		100.0	Commercial banking
Sumitomo Mitsui Banking Corporation Malaysia Berhad	Malaysia		100.0		100.0	Commercial banking
SMBC Leasing and Finance, Inc.	U.S.A.		100.0		100.0	Leasing
SMBC Nikko Securities America, Inc.	U.S.A.		100.0		100.0	Securities
SMBC Nikko Capital Markets Limited	U.K.		100.0		100.0	Securities
SMBC Capital Markets, Inc.	U.S.A.		100.0		100.0	Derivatives
TT International Asset Management Ltd	U.K.		100.0		100.0	Investment advisory and investment trust management

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

(2) During the fiscal year ended March 31, 2020, we disposed of 4.9% equity interest in PT Bank BTPN Tbk to a third party investor. The disposal was undertaken to ensure that PT Bank BTPN Tbk is compliant with the free float requirement under the Indonesia Stock Exchange’s Rule. We had also entered into a commercial arrangement where the economic exposure resulting from the disposal is being retained. Therefore the disposal has not resulted in a decrease in our ownership interests.

4.D.    PROPERTY, PLANT AND EQUIPMENT

We own or lease the land and buildings in which we conduct our business. Most of the property that we operate in Japan is owned by us to be used by our branches. In contrast, our international operations are conducted out of leased premises. Our head office building in Marunouchi is leased from a third party. Our largest property is SMBC’s East Tower in Marunouchi, with a net carrying value of ¥168 billion, including the land and building, at March 31, 2020.

The following table shows the net carrying amount of our tangible fixed assets at March 31, 2020.

	At March 31, 2020
	(In millions)
Assets for rent	¥	466,460
Land		462,486
Buildings		334,928
Right of use assets		376,758
Others		123,979
Total	¥	1,764,611

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

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The total area of land related to our material office and other properties at March 31, 2020 was approximately 652,000 square meters for owned land and approximately 14,000 square meters for leased land.

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

Item 4A. Unresolved Staff Comments

None.

Item 5. Operating and Financial Review and Prospects

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

OVERVIEW

Operating Environment

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

For the first half of the fiscal year ended March 31, 2020, the Japanese economy continued to recover gradually, primarily due to the recovery of private consumption reflecting the good employment and improvement trend in the income situations, although exports of goods and services, and industrial production were weak reflecting the slowdown of certain foreign economies, notably China. However, for the second half of the fiscal year ended March 31, 2020, the Japanese economy turned worse, reflecting the impact of natural disasters such as typhoons, the consumption tax increase in October 2019, and the spread ofCOVID-19 near the end of the fiscal year.

Japanese gross domestic product (“GDP”) was flat for the fiscal year ended March 31, 2020, compared with an increase of 0.3% in the previous fiscal year, based on data published in June 2020 by the Cabinet Office of the Government of Japan. Japan’s core consumer price index (“CPI”), which includes oil products but excludes fresh food prices, increased by 0.6% for the same period, compared with an increase of 0.8% in the previous fiscal year, based on data published in April 2020 by the Statistics Bureau in the Ministry of Internal Affairs and Communications of Japan.

The following table presentsquarter-on-quarter growth rates of Japanese GDP during the fiscal year ended March 31, 2019 and 2020.

	For the fiscal year ended March 31,
	2019												2020
	1Q			2Q			3Q			4Q			1Q			2Q			3Q			4Q
Japanese GDP		0.4	%		(0.8	%)		0.6	%		0.6	%		0.5	%		0.0	%		(1.9	%)		(0.6	%)

Japanese GDP increased for the period from April to June 2019, primarily because private consumption increased, supported by the good employment situation, and the steady improvement trend in the income situation. However, thequarter-on-quarter growth rate of Japanese GDP was negative for the period from October to December 2019, primarily due to a decrease in private consumption caused by the consumption tax increase and natural disasters such as typhoons. Furthermore, for the period from January to March 2020, thequarter-on-quarter growth rate of Japanese GDP was also negative, primarily due to decreases in private consumption resulting from the voluntary restraint on social and business activities and exports of goods and services caused by a decline in demand from inbound tourists, affected by the spread ofCOVID-19.

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The employment situation continued to improve until the spread ofCOVID-19, and it weakened toward the end of the fiscal year. The active jobopenings-to-applicants ratio remained at a high level until being affected byCOVID-19, and it declined toward the end of the fiscal year. The unemployment rate remained low, and it was 2.5% in March 2020, the same as in March 2019, based on data published in April 2020 by the Statistics Bureau in the Ministry of Internal Affairs and Communications of Japan. Compensation of employees increased by 1.0% for the fiscal year ended March 31, 2020. This was the fifth consecutive year that the compensation of employees increased.

Further, according to Teikoku Databank, a research institution in Japan, there were approximately 8,500 corporate bankruptcies in Japan during the fiscal year ended March 31, 2020, an increase of 5.3% from the previous fiscal year, involving approximately ¥1.2 trillion in total liabilities, a decrease of 21.6% from the previous fiscal year.

Interest rates in Japanese financial and capital markets are affected by the monetary policy measures of the Bank of Japan (“BOJ”). In February 2016, in addition to the existing provision of ample funds, the BOJ introduced “quantitative and qualitative monetary easing with a negative interest rate.” Thereafter, the BOJ announced the introduction of a new policy framework, “quantitative and qualitative monetary easing with yield curve control” in September 2016. Under this policy framework, the BOJ would keep short-term interest rates down by maintaining its policy of applying a negative interest rate of minus 0.1% to certain excess reserves of financial institutions held at the BOJ. Moreover, the BOJ indicated it would purchase Japanese government bonds so that the yield of the10-year Japanese government bonds would be close to around 0% to control long-term interest rates. In July 2018, the BOJ decided to introduce forward guidance for policy rates with a view to persistently continuing with powerful monetary easing. Further, on October 31, 2019, the BOJ amended its forward guidance to indicate that it expects short- and long-term interest rates to remain at or below their present levels so long as the BOJ believes it is necessary to pay close attention to the possibility of a loss in momentum toward achieving its 2% price stability target. Thereafter, on March 16, 2020, the BOJ announced “enhancement of monetary easing in light of the impact of the outbreak of COVID-19.” The BOJ stated in this announcement that it decided to enhance monetary easing with a view to doing its utmost to ensure smooth corporate financing and maintaining stability in financial markets, thereby preventing firms’ and households’ sentiment from deteriorating. Under such circumstances, the uncollateralized overnight call rate, which is the benchmark short-term interest rate, remained negative for the fiscal year ended March 31, 2020. The yield on newly issued Japanese government bonds with a maturity of 10 years, which is the benchmark long-term interest rate, declined to around minus 0.3% in August 2019, but temporarily increased to the 0.1% level in March 2020 primarily due to an increasing demand for funds caused by the spread of COVID-19. Thereafter, on April 27, 2020 and May 22, 2020, the BOJ decided to further enhance monetary easing taking into account the negative impact of theCOVID-19 pandemic on Japanese economic conditions.

The yen appreciated against the U.S. dollar from ¥110.75 at March 29, 2019 to ¥108.42 at March 31, 2020, according to the statistical data published by the BOJ.

The Nikkei Stock Average, which is a price-weighted average of 225 stocks listed on the Tokyo Stock Exchange First Section, rose from ¥21,205.81 at March 29, 2019 to the ¥24,000 level in January 2020. However, it dropped to ¥16,552.83 at March 19, 2020, reflecting the concerns about the potential deterioration of economies and corporate performance caused by the spread ofCOVID-19. Thereafter, it recovered to ¥18,917.01 at March 31, 2020.

According to a report published by the Ministry of Land, Infrastructure, Transport and Tourism of Japan, the average residential land price and the average commercial land price in Japan increased by 0.6% and 2.8%, respectively, in calendar year 2019.

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The global economy, as a whole, continued to recover gradually, although European and certain Asian economies were weak for the first half of the fiscal year ended March 31, 2020. However, toward the end of the fiscal year, the global economy slowed sharply primarily due to the restraint on economic activity caused byCOVID-19.

The U.S. economy gradually expanded for the first half of the fiscal year ended March 31, 2020, supported by robust private consumption reflecting the strong employment and income situation, although manufacturing was weak. For the second half of the fiscal year, it continued to expand gradually, but it fell sharply toward the end of the fiscal year primarily due to a decrease in private consumption affected bystay-at-home orders in March 2020 in response to the spread ofCOVID-19. Economic growth in Europe, notably Germany, slowed down for the first half of the fiscal year ended March 31, 2020. It continued to slow down for the second half of the fiscal year, and the impact ofCOVID-19 further worsened the European economy toward the end of the fiscal year. The Chinese economy continued to slow down gradually for the first half of the fiscal year ended March 31, 2020. Supported by policies such as subsidies and tax cuts, for the second half of the fiscal year it showed some signs of bottoming out, but it continued to deteriorate due to the impact ofCOVID-19, followed by apick-up toward the end of the fiscal year. The growth momentum in other Asian economies gradually headed toward recovery for the first half of the fiscal year. Then, Asian economies other than China slowed down as a whole, and toward the end of the fiscal year the economic slowdown accelerated, affected byCOVID-19.

In addition to economic factors and conditions, we expect that our results of operations and financial condition will be significantly affected by regulatory trends such as Japanese TLAC Standards, the Basel III reforms and the Dodd-Frank Act. For a more detailed description of regulations to which we are subject, risks associated with regulatory development and our management policy under this environment, see “Item 3.D. Risk Factors—Risks Related to Our Business,” “Item 4.B. Business Overview—Regulations in Japan, Regulations in the United States, Regulations in Other Jurisdictions and Description of Operations and Principal Activities—Management Policies.”

SMBC Group’s response toCOVID-19

Since December 2019,COVID-19 has spread rapidly throughout the world. TheCOVID-19 pandemic has impacted many countries resulting in the implementation of numerous measures to prevent the spread ofCOVID-19, such as restrictions on movement, including travel bans, quarantines, andshelter-in-place orders as well asnon-binding “voluntary restraint” measures urging residents to stay at home, and closures of schools, businesses, factories and other public and private facilities. These measures have significantly affected people’s lives and business activities, and have contributed to declines in consumer spending and stagnant business operations. Coupled with these measures, theCOVID-19 pandemic has had a severe impact on both Japanese and global economic conditions including the rapid deterioration of corporate performance and significant disruption and volatility in financial and commodity markets. In Japan, a state of emergency was declared in April 2020 in response to theCOVID-19 pandemic, and economic activity shrank as a result of requests for voluntary restraint on movement and business closure requests to commercial facilities in all prefectures. Under these circumstances, the Japanese government approved “Emergency Economic Measures in Response toCOVID-19” to protect the lives and lifestyles of the public and move toward economic recovery, with a view to maintaining employment, continuing business and supporting people’s lives. The state of emergency in Japan was lifted in all prefectures in May 2020, and many other countries also have started to resume economic activities. However, it is difficult to predict the evolution ofCOVID-19 and its impact on the global economy including the effect of various measures made by each government. Therefore, the extent of the continuing impact on our operational and financial performance remains uncertain.

Considering the significant impact on people’s lives and the economy caused byCOVID-19, we strive to ensure the health and safety of our customers and employees. Furthermore, the SMBC Group supports our customers through financial services and is committed to contributing to local communities and society including support of the medical industry.

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Support for Customers through Financial Services

For our clients, the SMBC Group, as a financial institution which is a part of the social infrastructure, fulfills our responsibility by continuing to provide services such as financing and settlement. We have kept all SMBC branches open and ATMs remain accessible in Japan, and are also working to upgrade our online services so that our customers can complete various transactions without coming to our branches. For individual customers in Japan, in order to respond to urgent financial needs, we have established special loans and introduced flexible credit examination procedures. On the other hand, for corporate customers, we have established special funds to extend credit, and offer flexible responses to requests for new loans and changes in loan terms and conditions, by waiving fees on certain loan services forsmall-sized companies that offer unsecured and unguaranteed financing, and providing flexibility by reviewing credit processes. In addition to the above, we are planning to launch a new investment fund to support medical-related venture companies in Japan in order to contribute to solving social issues that have become apparent due to the spread ofCOVID-19.

Prevention of the Spread of Infection and Initiatives for Continuous Business Operation

For employees, in addition to maintaining employment and salary, we promote teleworking capabilities and conduct operations by separating staff into two or more teams on alternating shifts. By thoroughly implementing infection prevention and control measures in branches and offices, we are continuing our operations while preventing infection among employees. We are also giving consideration to the health and mental of our employees by establishing a consultation counter to support employees who have health and mental concerns.

Contributing to Local Communities and Society

In order to contribute to the soundness of the local community and society, we are providing donations to support medical institutions, education and welfare, and cultural & artistic activities. One example that has already been implemented is a donation to the “Center for iPS Cell Research and Application, Kyoto University (CiRA)” to support research activities including the development of drugs to treat new viruses. In addition, SMBC is carrying out a campaign called “SMBC at HOME” through which SMBC aims to make donations to battleCOVID-19 in response to the number of individual and corporate customers using certain of SMBC’s internet banking services.

Factors Affecting Results of Operation

Income (Loss)

We have three principal sources of operating income: net interest income, net fee and commission income, and net income from trading/financial assets at fair value through profit or loss/investment securities.

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

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

• the interest spread;

• the general level of interest rates; and

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

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

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SMBC, like other banks in Japan, makes most domestic loans based on a short-term interest rate, the TIBOR, or a short-term prime rate, which are generally intended to reflect its cost of short-term yen funding and significantly affected by the monetary policy of the BOJ.

The BOJ announced in October 2014 the expansion of its “quantitative and qualitative monetary easing” introduced in April 2013, and in December 2015 the introduction of “supplementary measures for quantitative and qualitative monetary easing,” in order to achieve the price stability target of 2% in terms of theyear-on-year rate of increase in the CPI. In January 2016, the BOJ announced the introduction of “quantitative and qualitative monetary easing with a negative interest rate” (“negative interest rate policy”), and began to implement a negative interest rate policy in February 2016. Under the negative interest rate policy, the BOJ has adopted a multi-tier system where the outstanding balance of each financial institution’s current account at the BOJ is divided into three tiers, to each of which a positive interest rate, a zero interest rate and a negative interest rate of minus 0.1 percent are applied, respectively. After these policy interest rate changes, SMBC lowered its ordinary deposit rate by 0.019 percentage points from 0.02% to 0.001% in February 2016. Thereafter, in September 2016, the BOJ announced the introduction of “quantitative and qualitative monetary easing with yield curve control.” Under this policy framework, the BOJ would keep short-term interest rates down by maintaining its policy of applying a negative interest rate of minus 0.1% to certain excess reserves of financial institutions held at the BOJ. Moreover, the BOJ indicated it would purchase Japanese government bonds so that the yield of the10-year Japanese government bonds would be close to around 0% to control long-term interest rates. In July 2018, the BOJ decided to introduce forward guidance for policy rates with a view to persistently continuing with powerful monetary easing. Further, on October 31, 2019, the BOJ amended its forward guidance to indicate that it expects short- and long-term interest rates to remain at or below their present levels so long as the BOJ believes it is necessary to pay close attention to the possibility of a loss in momentum toward achieving its 2% price stability target. Thereafter, on March 16, 2020, April 27, 2020 and May 22, 2020, taking into account the negative impact of theCOVID-19 pandemic on Japanese economic conditions, the BOJ decided to further enhance monetary easing, with a view to doing its utmost to ensure smooth corporate financing and maintaining stability in financial markets.

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

	At March 31,
	2020			2019			2018
Short-term prime rate		1.475	%		1.475	%		1.475	%
Three-month TIBOR		0.069			0.069			0.069
Ordinary deposit rate		0.001			0.001			0.001
Long-term prime rate		0.950			1.000			1.000
Ten-year swap rate		0.014			0.111			0.261

It is difficult to earn a wide interest spread when interest rates are at a low level, as they currently are in Japan. When interest rates rise from extremely low levels, interest spreads at commercial banks generally increase. However, interest spreads may temporarily decrease immediately after an increase in interest rates because it may take time for banks to increase lending rates correspondingly, in contrast to their funding rates. After an adjustment period, lending rates generally also increase and banks are able to secure a wider interest spread than in a low interest rate environment. Conversely, interest spreads may temporarily increase immediately after a decrease in interest rates because it may take time for banks to decrease lending rates correspondingly, in contrast to their funding rates. After an adjustment period, lending rates generally also decrease and banks generally are not able to maintain a wide interest spread.

Net Fee and Commission Income. We earn fees and commissions from a variety of services. The primary components of SMBC’s net fee and commission income are fees and commissions related to money remittances and transfers, investment trusts sales, loans (such as loan commitment fees and loan syndication fees for

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arranging loans), securities transactions (such as bond trustee fees and bond recording agency fees), and guarantees and acceptances. Other fees and commissions include fees from investment banking and electronic banking.

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

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

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

We have a variety of financial assets at fair value through profit or loss including investment trusts and hybrid instruments. Net income from financial assets at fair value through profit or loss includes gains and losses arising from sales and changes in the fair value of these financial instruments, and interest and dividend income on these instruments. The fair values of those instruments such as investment trusts and hybrid instruments are subject to volatility caused by changes in equity prices and interest rates.

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

Expenses

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

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

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General and Administrative Expenses. General and administrative expenses consist primarily of personnel expenses (salaries and related expenses), depreciation and amortization expenses, and other expenses (outsourcing expenses, publicity and advertising expenses, and communication expenses).

Unrealized Gains or Losses on Investment Securities Portfolio

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

Most of our domestic equity instruments consist of publicly traded Japanese stocks. The Nikkei Stock Average decreased by 1.2% from ¥21,454.30 at March 30, 2018, to ¥21,205.81 at March 29, 2019, and decreased by 10.8% to ¥18,917.01 at March 31, 2020. At March 31, 2020, we had net unrealized gains on domestic equity securities of ¥1,564,351 million, a decrease of ¥564,697 million from ¥2,129,048 million at March 31, 2019. For more information, see “Item 5.A. Operating Results—Financial Condition—Investment Securities.”

Strengthening of Equity Capital

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

Foreign Currency Fluctuations

The average exchange rate used to convert dollars to yen in the consolidated financial statements included elsewhere in this annual report for the fiscal year ended March 31, 2020 was ¥ 108.71 per $1.00, compared to the previous fiscal year’s average exchange rate of ¥110.92 per $1.00. The percentage of revenue we earned from our foreign operations for the fiscal years ended March 31, 2020 and 2019 was 34%. For more information, see “Item 4.B. Business Overview—Revenues by Region.”

Critical Accounting Estimates and Judgments

Our financial position and results of operations are influenced by estimates and judgments that management employs in the course of preparation of our consolidated financial statements. We identified the following areas of significant accounting policies to be particularly sensitive in terms of estimates and judgments made by management. Estimates and judgments are continually evaluated based on historical experience and other factors, including expectations of future events that are believed to be reasonable.

Allowance for Loan Losses

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

• qualitative assessment in determining obligor grades;

• determining criteria for significant increase in credit risk;

• measuring ECL by choosing appropriate models and assumptions;

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• incorporating forward-looking information into the ECL measurement by obligor grading, macroeconomic factors, and additional ECL adjustments if the current circumstances, events or conditions at relevant portfolio level are not fully reflected in the ECL model; and

• estimating the expected future cash flows by taking into account factors such as historical loss information, the appropriateness of the borrower’s business plan or operational improvement plan, the status of progress of its plan, the overall support from financial institutions, and the realizable value of any collateral held.

For the fiscal year ended March 31, 2020, the obligor grading, macroeconomic factors and additional ECL adjustment used to determine the final ECL reflected the current and forward-looking impact of theCOVID-19 pandemic. The obligor grades were reviewed based on the most recent information available as appropriate. The estimates of the key macroeconomic drivers for measuring the ECL were updated reflecting the recent economic forecasts. Growth rates of Japanese and global GDP during the calendar year 2019 were 1.3% and 2.9%, respectively, and the Japanese and global economy may have been expected to grow at about the same level if it had not been for theCOVID-19 pandemic. However, the outbreak ofCOVID-19 significantly exacerbated Japanese and global economic conditions towards the end of the fiscal year and, as a result, research institutes and international institutions lowered their forecasts of growth rates of Japanese and global GDP. We also assumed that the Japanese and global economy will decline significantly in the first half of 2020, and the negative impact of theCOVID-19 pandemic is expected to remain throughout the fiscal year ending March 31, 2021, although the Japanese and global economy will gradually pick up thereafter and recover from the fiscal year ending March 31, 2022. We understand there is significant uncertainty in predicting the severity and duration of theCOVID-19 pandemic and its impact on world economies. However, based on the above forecasts of economic conditions, the growth rates of Japanese and global GDP for the fiscal year ending March 31, 2021, which are the key macroeconomic drivers impacting on credit risks and losses, are expected to be around minus 2% to minus 3% and those were used in estimating the ECL. Furthermore, we considered the credit risk of some portfolios on which the decline in market prices such as oil prices would have a material adverse impact but where the impact was not fully incorporated in the ECL model. Given the decline in oil prices toward the end of the fiscal year, we evaluated the forward-looking impact on credit risks and losses of the portfolios significantly affected by the decline, and made an additional ECL adjustment. As a result of these evaluations of the forward-looking inputs for the ECL, the provision for loan losses for the fiscal year ended March 31, 2020 increased by ¥124.3 billion.

Management estimates and judgments may change from time to time as the economic environment changes or new information becomes available. Changes in these estimates and judgments will result in a different allowance for loan losses and may have a direct impact on impairment charges. Allowance for loan losses amounting to ¥706,405 million and ¥604,988 million were recognized for the fiscal years ended March 31, 2020 and 2019, respectively.

Fair Value of Financial Instruments

Some of our financial instruments are measured at fair value, such as trading assets and liabilities, financial assets at fair value through profit or loss, derivative financial instruments and investment securities at fair value through other comprehensive income.

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

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measured by using valuation techniques with significant unobservable inputs. In such cases, significant management estimates are made, resulting in a less objective measurement of fair value.

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

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

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

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

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

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

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

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

Impairment of Goodwill

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

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

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

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These management judgments are made based on the facts and circumstances at the time of the impairment test, and may vary depending on the situation and time. Changes in management judgments may result in different impairment test results and different impairment losses recognized. For the fiscal years ended March 31, 2020 and 2019, impairment losses on goodwill were nil and ¥62,624 million, respectively.

Impairment of Other Intangible Assets

We have other intangible assets, not including goodwill, which consist of software, contractual customer relationships, trademarks and others. These are divided into other amortizing intangible assets and othernon-amortizing intangible assets. Other amortizing intangible assets are tested for impairment if events or changes in circumstances indicate that it may not be recoverable at the end of each reporting period. Othernon-amortizing intangible assets are tested for impairment on an annual basis or more frequently if events or changes in circumstances indicate that it may not be recoverable. If any such indication exists, then its recoverable amount is estimated. The process to determine the recoverable amount is inherently uncertain because such recoverable amount is determined based on a number of management estimates and judgments as described in “—Impairment of Goodwill.” Changes in management judgments may result in different impairment test results and different impairment amounts recognized. For the fiscal years ended March 31, 2020 and 2019, impairment losses on other intangible assets were ¥28,689 million and ¥4,041 million, respectively.

Provision for Interest Repayment

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

Management estimates and judgments may change from time to time as the legal environment and market conditions change or new information becomes available. Changes in these estimates and judgments could affect the balance of provision for interest repayment. Provision for interest repayment is recorded in provisions as a liability, and it totaled ¥143,429 million and ¥148,409 million at March 31, 2020 and 2019, respectively.

Retirement Benefits

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

The difference between the fair value of the plan assets and the present value of the defined benefit obligation at the end of the reporting period is recognized as assets and liabilities in the consolidated statement of financial position. When this calculation for each plan results in a benefit to us, the recognized asset is limited to the present value of any economic benefits available in the form of refunds from the plan or reductions in future contributions to the plan. An economic benefit is available to us, if it is realizable during the life of the plan or on

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settlement of the plan obligation. The net total of assets and liabilities in the consolidated statement of financial position amounted to net assets of ¥129,976 million and ¥232,456 million at March 31, 2020 and 2019, respectively.

Deferred Tax Assets

We recognize deferred tax assets relating to tax losses carried forward and deductible temporary differences, only to the extent that it is probable that future taxable profit will be available against which the tax losses carried forward and the deductible temporary differences can be utilized. This assessment requires significant management judgments and assumptions. Future taxable profit is estimated based on, among other relevant factors, forecasted results of operations, which are based on historical financial performance and the business plans that management believes to be prudent and feasible. While we carefully assess the realization of tax losses carried forward and deductible temporary differences, the actual taxable profit in the future may be less than the forecast. The deferred tax assets amounted to ¥102,198 million and ¥37,073 million in the consolidated statement of financial position at March 31, 2020 and 2019, respectively, while the net total of deferred tax assets and liabilities amounted to net assets of ¥36,015 million at March 31, 2020 and net liabilities of ¥230,292 million at March 31, 2019, respectively.

New and Amended Accounting Standards and Recent Accounting Pronouncements

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

5.A.    OPERATING RESULTS

For discussion about our operating results for the fiscal year ended March 31, 2018, including certain comparative discussion of the fiscal years ended March 31, 2019 and 2018, please refer to “Item 5. Operating and Financial Review and Prospectus—5.A. Operating Results” in our annual report on Form20-F filed on June 27, 2019.

On April 1, 2019, we adopted IFRS 16 “Leases” retrospectively by adjusting the consolidated statement of financial position at the date of initial application, and have not restated comparatives as permitted by IFRS 16. See Note 2 “Summary of Significant Accounting Policies—New and Amended Accounting Standards Adopted by the Group” to our consolidated financial statements included elsewhere in this report.

Under the economic and financial circumstances described in “Item 5. Operating and Financial Review and Prospects—Overview—Operating Environment,” we made a profit through our commercial banking and other financial services businesses. Our total operating income decreased by ¥463,041 million from ¥3,166,891 million for the fiscal year ended March 31, 2019 to ¥2,703,850 million for the fiscal year ended March 31, 2020, primarily due to decreases in net trading income and other income, which were partially offset by an increase in net investment income. Our net profit decreased by ¥416,603 million from ¥647,586 million for the fiscal year ended March 31, 2019 to ¥230,983 million for the fiscal year ended March 31, 2020, due to the decrease in total operating income described above and an increase in impairment charges on financial assets, which were partially offset by decreases in operating expenses and income tax expense.

Our total assets increased by ¥16,654,840 million from ¥195,503,623 million at March 31, 2019 to ¥212,158,463 million at March 31, 2020, primarily due to increases in cash and deposits with banks, investment securities and loans and advances.

Our total liabilities increased by ¥17,493,408 million from ¥183,730,177 million at March 31, 2019 to ¥201,223,585 million at March 31, 2020, primarily due to increases in deposits and borrowings.

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Our total equity decreased by ¥838,568 million from ¥11,773,446 million at March 31, 2019 to ¥10,934,878 million at March 31, 2020, primarily due to decreases in other reserves andnon-controlling interests.

Operating Results

The following table presents information as to our income, expenses and net profit for the fiscal years ended March 31, 2020 and 2019.

	For the fiscal year ended March 31,
	2020			2019
	(In millions, except per share data)
Interest income	¥	2,407,045		¥	2,406,350
Interest expense		1,090,730			1,137,430
Net interest income		1,316,315			1,268,920
Fee and commission income		1,147,132			1,101,777
Fee and commission expense		203,822			178,351
Net fee and commission income		943,310			923,426
Net trading income		134,069			320,302
Net income (loss) from financial assets at fair value through profit or loss		(21,939	)		54,655
Net investment income		176,464			93,922
Other income		155,631			505,666
Total operating income		2,703,850			3,166,891
Impairment charges on financial assets		259,938			119,686
Net operating income		2,443,912			3,047,205
General and administrative expenses		1,696,386			1,679,813
Other expenses		488,806			575,657
Operating expenses		2,185,192			2,255,470
Share ofpost-tax profit of associates and joint ventures		24,031			40,157
Profit before tax		282,751			831,892
Income tax expense		51,768			184,306
Net profit	¥	230,983		¥	647,586
Profit attributable to:
Shareholders of Sumitomo Mitsui Financial Group, Inc.	¥	200,052		¥	541,932
Non-controlling interests		18,567			93,779
Other equity instruments holders		12,364			11,875
Earnings per share:
Basic	¥	145.48		¥	387.76
Diluted		145.39			387.49

Total operating income decreased by ¥463,041 million, or 15%, from ¥3,166,891 million for the fiscal year ended March 31, 2019 to ¥2,703,850 million for the fiscal year ended March 31, 2020, primarily due to decreases in net trading income of ¥186,233 million and other income of ¥350,035 million, which were partially offset by an increase in net investment income of ¥82,542 million. In addition, due to an increase in impairment charges on financial assets, net operating income also decreased by ¥603,293 million from ¥3,047,205 million for the fiscal year ended March 31, 2019 to ¥2,443,912 million for the fiscal year ended March 31, 2020.

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Net profit decreased by ¥416,603 million from ¥647,586 million for the fiscal year ended March 31, 2019 to ¥230,983 million for the fiscal year ended March 31, 2020, as a result of the decrease in net operating income described above, which was partially offset by decreases in operating expenses and income tax expense.

Net Interest Income

The following tables show the average balances of our statement of financial position items, related interest income, interest expense, net interest income and average rates for the fiscal years ended March 31, 2020 and 2019.

	For the fiscal year ended March 31,
	2020							2019
	Average balance(3)		Interest income		Average rate			Average balance(3)		Interest income		Average rate
	(In millions, except percentages)
Interest-earning assets:
Interest-earning deposits with other banks:
Domestic offices	¥	1,061,849	¥	3,099		0.29	%	¥	997,310	¥	3,573		0.36	%
Foreign offices		3,994,229		78,493		1.97	%		4,696,278		100,225		2.13	%
Total		5,056,078		81,592		1.61	%		5,693,588		103,798		1.82	%
Call loans and bills bought, reverse repurchase agreements and cash collateral on securities borrowed:
Domestic offices		9,167,833		17,540		0.19	%		8,829,374		14,879		0.17	%
Foreign offices		3,032,754		51,881		1.71	%		3,138,663		39,908		1.27	%
Total		12,200,587		69,421		0.57	%		11,968,037		54,787		0.46	%
Investment securities(1):
Domestic offices		11,245,654		75,026		0.67	%		8,977,937		65,854		0.73	%
Foreign offices		4,832,026		103,804		2.15	%		4,258,283		87,061		2.04	%
Total		16,077,680		178,830		1.11	%		13,236,220		152,915		1.16	%
Loans and advances(2):
Domestic offices		60,498,334		937,419		1.55	%		60,973,779		1,007,977		1.65	%
Foreign offices		31,467,410		1,139,783		3.62	%		29,646,844		1,086,873		3.67	%
Total		91,965,744		2,077,202		2.26	%		90,620,623		2,094,850		2.31	%
Total interest-earning assets:
Domestic offices		81,973,670		1,033,084		1.26	%		79,778,400		1,092,283		1.37	%
Foreign offices		43,326,419		1,373,961		3.17	%		41,740,068		1,314,067		3.15	%
Total	¥	125,300,089	¥	2,407,045		1.92	%	¥	121,518,468	¥	2,406,350		1.98	%

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	For the fiscal year ended March 31,
	2020							2019
	Average balance(3)		Interest expense		Average rate			Average balance(3)		Interest expense		Average rate
	(In millions, except percentages)
Interest-bearing liabilities:
Deposits:
Domestic offices	¥	85,668,767	¥	51,976		0.06	%	¥	83,791,727	¥	59,234		0.07	%
Foreign offices		27,197,901		530,823		1.95	%		27,283,476		542,131		1.99	%
Total		112,866,668		582,799		0.52	%		111,075,203		601,365		0.54	%
Call money and bills sold, repurchase agreements and cash collateral on securities lent and other interest- bearing liabilities:
Domestic offices		11,218,806		33,745		0.30	%		8,115,332		39,636		0.49	%
Foreign offices		5,063,872		112,479		2.22	%		4,610,162		97,606		2.12	%
Total		16,282,678		146,224		0.90	%		12,725,494		137,242		1.08	%
Borrowings:
Domestic office		11,958,700		61,238		0.51	%		10,787,234		73,299		0.68	%
Foreign offices		600,321		31,187		5.20	%		977,662		33,934		3.47	%
Total		12,559,021		92,425		0.74	%		11,764,896		107,233		0.91	%
Debt securities in issue:
Domestic offices		9,419,223		197,749		2.10	%		9,880,220		203,423		2.06	%
Foreign offices		1,883,920		34,724		1.84	%		2,698,608		52,612		1.95	%
Total		11,303,143		232,473		2.06	%		12,578,828		256,035		2.04	%
Premiums for deposit insurance(4):
Domestic offices		—		34,866		—			—		34,387		—
Foreign offices		—		1,943		—			—		1,168		—
Total		—		36,809		—			—		35,555		—
Total interest-bearing liabilities:
Domestic offices		118,265,496		379,574		0.32	%		112,574,513		409,979		0.36	%
Foreign offices		34,746,014		711,156		2.05	%		35,569,908		727,451		2.05	%
Total	¥	153,011,510	¥	1,090,730		0.71	%	¥	148,144,421	¥	1,137,430		0.77	%
Net interest income and interest rate spread			¥	1,316,315		1.21	%			¥	1,268,920		1.21	%

(1) Taxable investment securities andnon-taxable investment securities are not disclosed separately because the aggregate effect of these average balances and interest income would not be material. In addition, the yields ontax-exempt obligations have not been calculated on a tax equivalent basis because the effect of such calculation would not be material.

(2) Loans and advances include impaired loans and advances. The amortized portion of net loan origination fees (costs) is included in interest income on loans and advances.

(3) Average balances are generally based on a daily average. Weekly,month-end orquarter-end averages are used for certain average balances where it is not practical to obtain applicable daily averages. The allocations of amounts between domestic and foreign are based on the location of the office.

(4) For the fiscal year ended March 31, 2020, premiums for deposit insurance have been reclassified from “General and administrative expense” to “Interest expense.” Comparative amounts have been reclassified to conform to the current presentation.

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The following tables show changes in our interest income, interest expense and net interest income based on changes in volume and changes in rate for the fiscal year ended March 31, 2020 compared to the fiscal year ended March 31, 2019.

	Fiscal year ended March 31, 2020 compared to fiscal year ended March 31, 2019 Increase / (decrease)
	Volume			Rate			Net change
	(In millions)
Interest income:
Interest-earning deposits with other banks:
Domestic offices	¥	221		¥	(695	)	¥	(474	)
Foreign offices		(14,206	)		(7,526	)		(21,732	)
Total		(13,985	)		(8,221	)		(22,206	)
Call loans and bills bought, reverse repurchase agreements and cash collateral on securities borrowed:
Domestic offices		592			2,069			2,661
Foreign offices		(1,386	)		13,359			11,973
Total		(794	)		15,428			14,634
Investment securities:
Domestic offices		15,528			(6,356	)		9,172
Foreign offices		12,155			4,588			16,743
Total		27,683			(1,768	)		25,915
Loans and advances:
Domestic offices		(7,791	)		(62,767	)		(70,558	)
Foreign offices		66,070			(13,160	)		52,910
Total		58,279			(75,927	)		(17,648	)
Total interest income:
Domestic offices		8,550			(67,749	)		(59,199	)
Foreign offices		62,633			(2,739	)		59,894
Total	¥	71,183		¥	(70,488	)	¥	695

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	Fiscal year ended March 31, 2020 compared to fiscal year ended March 31, 2019 Increase / (decrease)
	Volume			Rate			Net change
	(In millions)
Interest expense:
Deposits:
Domestic offices	¥	1,288		¥	(8,546	)	¥	(7,258	)
Foreign offices		(1,698	)		(9,610	)		(11,308	)
Total		(410	)		(18,156	)		(18,566	)
Call money and bills sold, repurchase agreements and cash collateral on securities lent and other interest-bearing liabilities:
Domestic offices		12,279			(18,170	)		(5,891	)
Foreign offices		9,925			4,948			14,873
Total		22,204			(13,222	)		8,982
Borrowings:
Domestic offices		7,363			(19,424	)		(12,061	)
Foreign offices		(15,942	)		13,195			(2,747	)
Total		(8,579	)		(6,229	)		(14,808	)
Debt securities in issue:
Domestic offices		(9,627	)		3,953			(5,674	)
Foreign offices		(15,131	)		(2,757	)		(17,888	)
Total		(24,758	)		1,196			(23,562	)
Premiums for deposit insurance:
Domestic offices		479			—			479
Foreign offices		775			—			775
Total		1,254			—			1,254
Total interest expense:
Domestic offices		11,782			(42,187	)		(30,405	)
Foreign offices		(22,071	)		5,776			(16,295	)
Total	¥	(10,289	)	¥	(36,411	)	¥	(46,700	)
Net interest income:
Domestic offices	¥	(3,232	)	¥	(25,562	)	¥	(28,794	)
Foreign offices		84,704			(8,515	)		76,189
Total	¥	81,472		¥	(34,077	)	¥	47,395

Interest Income

Our interest income slightly increased by ¥695 million from ¥2,406,350 million for the fiscal year ended March 31, 2019 to ¥2,407,045 million for the fiscal year ended March 31, 2020, primarily due to an increase in interest income on investment securities, which was partially offset by a decrease in interest income on loans and advances. Interest income on investment securities increased by ¥25,915 million, or 17%, from ¥152,915 million for the fiscal year ended March 31, 2019 to ¥178,830 million for the fiscal year ended March 31, 2020, primarily due to an increase in volume of mortgage-backed securities and Japanese government bonds. On the other hand, interest income on loans and advances decreased due to a decrease in interest income at domestic offices while that at foreign offices increased. Interest income on loans and advances at domestic offices decreased by ¥70,558 million, or 7%, from ¥1,007,977 million for the fiscal year ended March 31, 2019 to ¥937,419 million for the fiscal year ended March 31, 2020, primarily due to a decrease in average rate of loans to domestic customers. Interest income on loans and advances at foreign offices increased by ¥52,910 million, or 5%, from

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¥1,086,873 million for the fiscal year ended March 31, 2019 to ¥1,139,783 million for the fiscal year ended March 31, 2020, primarily due to an increase in volume of loans to foreign customers.

Interest Expense

Our interest expense decreased by ¥46,700 million, or 4%, from ¥1,137,430 million for the fiscal year ended March 31, 2019 to ¥1,090,730 million for the fiscal year ended March 31, 2020, primarily due to a decrease in interest expense on debt securities in issue. Our interest expense on debt securities in issue decreased by ¥23,562 million, or 9%, from ¥256,035 million for the fiscal year ended March 31, 2019 to ¥232,473 million for the fiscal year ended March 31, 2020, primarily due to a decrease at foreign offices reflecting decreases in both volume and the average rate.

Net Interest Income

Our net interest income increased by ¥47,395 million, or 4%, from ¥1,268,920 million for the fiscal year ended March 31, 2019 to ¥1,316,315 million for the fiscal year ended March 31, 2020. The net interest income increased primarily due to increases in interest income on loans and advances at foreign offices and investment securities, and a decrease in interest expense on debt securities in issue, which were partially offset by a decrease in interest income on loans and advances at domestic offices.

From the fiscal year ended March 31, 2019 to March 31, 2020, the average rate on loans and advances at domestic offices decreased by 0.10 percentage points from 1.65% to 1.55%. The average rate on loans and advances at foreign offices decreased by 0.05 percentage points from 3.67% to 3.62%. As a result, the total for loans and advances decreased by 0.05 percentage points from 2.31% to 2.26%. On the other hand, the average rate on deposits decreased by 0.02 percentage points from 0.54% to 0.52%, primarily due to a decrease in the average rate on deposits at foreign offices by 0.04 percentage points from 1.99% to 1.95%. As a result,total net interest rate spread was the same level as that of the previous fiscal year.

Net Fee and Commission Income

The following table sets forth our net fee and commission income for the periods shown.

	For the fiscal year ended March 31,
	2020		2019
	(In millions)
Fee and commission income from:
Loans	¥	123,472	¥	118,225
Credit card business		304,238		290,034
Guarantees		67,846		63,112
Securities-related business		149,837		142,870
Deposits		14,045		12,650
Remittances and transfers		141,617		139,625
Safe deposits		4,349		4,546
Trust fees		4,680		4,629
Investment trusts		150,349		127,762
Agency		9,612		11,417
Others		177,087		186,907
Total fee and commission income		1,147,132		1,101,777
Fee and commission expense from:
Remittances and transfers		40,601		42,150
Others		163,221		136,201
Total fee and commission expense		203,822		178,351
Net fee and commission income	¥	943,310	¥	923,426

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Fee and commission income increased by ¥45,355 million, or 4%, from ¥1,101,777 million for the fiscal year ended March 31, 2019 to ¥1,147,132 million for the fiscal year ended March 31, 2020. Primary sources of fee and commission income are fees obtained through our credit card business, fees obtained through securities-related business, remittance and transfer fees, fees and commissions obtained through investment trusts, and loan transaction fees. The increase in fee and commission income was primarily due to increases in fees and commissions obtained through investment trusts and the income from the credit card business reflecting the increase in payments through credit cards.

Fee and commission expense was ¥203,822 million for the fiscal year ended March 31, 2020, increased by ¥25,471 million from ¥178,351 million for the fiscal year ended March 31, 2019.

As a result, net fee and commission income increased by ¥19,884 million, or 2%, from ¥923,426 million for the fiscal year ended March 31, 2019 to ¥943,310 million for the fiscal year ended March 31, 2020.

Net Income (Loss) from Trading, Financial Assets at Fair Value Through Profit or Loss and Investment Securities

The following table sets forth our net income (loss) from trading, financial assets at fair value through profit or loss and investment securities for the periods shown.

	For the fiscal year ended March 31,
	2020			2019
	(In millions)
Net trading income:
Interest rate	¥	149,420		¥	176,352
Foreign exchange		(78,541	)		92,835
Equity		59,388			46,576
Credit		2,495			3,667
Others		1,307			872
Total net trading income	¥	134,069		¥	320,302
Net income (loss) from financial assets at fair value through profit or loss:
Net income (loss) from debt instruments	¥	(23,557	)	¥	53,048
Net income from equity instruments		1,618			1,607
Total net income (loss) from financial assets at fair value through profit or loss	¥	(21,939	)	¥	54,655
Net investment income:
Net gain from disposal of debt instruments	¥	96,624		¥	6,072
Dividend income		79,840			87,850
Total net investment income	¥	176,464		¥	93,922

Net trading income, which includes income and losses from trading assets and liabilities and derivative financial instruments, decreased by ¥186,233 million from ¥320,302 million for the fiscal year ended March 31, 2019 to ¥134,069 million for the fiscal year ended March 31, 2020. The decrease was primarily due to a decrease in net trading income from foreign exchange transactions and interest rate related transactions related to the “economic hedges.” The decrease in net trading income from foreign exchange transactions was primarily due to a decrease in fair values of currency derivatives resulting from fluctuations of U.S. interest rates during the fiscal year ended March 31, 2020.

We have carried out hedging transactions mainly to hedge the interest rate risk of financial assets and liabilities and the foreign exchange risk of foreign currency denominated assets and liabilities. Of those hedges, economic hedges are economically effective for risk management but are not accounted for as hedge accounting under IFRS.

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As for the economic hedges against the interest rate risk, hedged items include loans and deposits and hedging instruments are derivative financial instruments such as interest rate swaps. As for the economic hedges against the foreign exchange risk, hedged items are foreign currency denominated assets and liabilities and hedging instruments are currency derivatives. The economic hedge transactions may lead to accounting mismatches (i.e., when the gains or losses on the hedged items and hedging instruments do not arise at the same time, or the hedged items and hedging instruments do not offset each other either in profit or loss, or in other comprehensive income), and may result in significant fluctuations in net trading income.

Net income (loss) from financial assets at fair value through profit or loss decreased by ¥76,594 million from a net income of ¥54,655 million for the fiscal year ended March 31, 2019 to a net loss of ¥21,939 million for the fiscal year ended March 31, 2020. This was primarily due to a decrease in net gains from sales and changes in the fair value of equity index-linked investment trusts. The equity markets in Japan and overseas were negatively affected by the spread ofCOVID-19 near the end of the period.

Net investment income increased by ¥82,542 million from ¥93,922 million for the fiscal year ended March 31, 2019 to ¥176,464 million for the fiscal year ended March 31, 2020. This was primarily due to an increase in net gains from sales of bonds.

Impairment Charges on Financial Assets

The following table sets forth our impairment charges (reversals) on financial assets for the periods shown.

	For the fiscal year ended March 31,
	2020			2019
	(In millions)
Loans and advances	¥	249,478		¥	122,927
Loan commitments		11,011			(9,771	)
Financial guarantees		(551	)		6,529
Investment securities		—			1
Total impairment charges on financial assets	¥	259,938		¥	119,686

Our impairment charges on financial assets consist of losses relating to loans and advances, loan commitments, financial guarantee contracts and investment securities. Impairment charges on these financial assets are mainly affected by the economic environment and financial conditions of borrowers or issuers.

Impairment charges on financial assets increased by ¥140,252 million from ¥119,686 million for the fiscal year ended March 31, 2019 to ¥259,938 million for the fiscal year ended March 31, 2020, primarily due to an increase in impairment charges on loans and advances. The increase was primarily due to the incorporation of forward-looking macroeconomic information reflecting the impact ofCOVID-19 on the Japanese and global economy and the decline in oil prices into the ECL measurement. For detailed information on provision for loan losses, see “—Financial Condition—Allowance for Loan Losses.”

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General and Administrative Expenses

The following table sets forth our general and administrative expenses for the periods shown.

	For the fiscal year ended March 31,
	2020		2019
	(In millions)
Personnel expenses	¥	787,880	¥	803,821
Depreciation and amortization(1)		258,516		168,564
Rent and lease expenses(1)		—		112,660
Building and maintenance expenses		8,864		10,254
Supplies expenses		15,506		16,252
Communication expenses		34,213		35,030
Publicity and advertising expenses		73,483		63,669
Taxes and dues		84,364		82,792
Outsourcing expenses		109,100		100,495
Office equipment expenses		51,283		47,139
Others		273,177		239,137
Total general and administrative expenses	¥	1,696,386	¥	1,679,813

(1) On April 1, 2019, we adopted IFRS 16 retrospectively by adjusting the consolidated statement of financial position at the date of initial application, and have not restated comparatives as permitted by IFRS 16. IFRS 16 requires a lessee to recognize a right of use asset and its depreciation and amortization over the lease term, instead of rent and lease expenses. For additional information, refer to Note 2 “Summary of Significant Accounting Policies” to our consolidated financial statements included elsewhere in this report.

General and administrative expenses increased by ¥16,573 million, or 1%, from ¥1,679,813 million for the fiscal year ended March 31, 2019 to ¥1,696,386 million for the fiscal year ended March 31, 2020. This was primarily due to increases in expenses related to business development in overseas operations and the credit card business, which was partially offset by the exclusion of the general and administrative expenses of SMFL, which ceased to be our subsidiary and became our joint venture in November 2018.

Share ofPost-tax Profit of Associates and Joint Ventures

Share ofpost-tax profit of associates and joint ventures decreased by ¥16,126 million from ¥40,157 million for the fiscal year ended March 31, 2019 to ¥24,031 million for the fiscal year ended March 31, 2020, primarily due to a decrease in our share of the profit of foreign associates and joint ventures.

Income Tax Expense

Income tax expense decreased by ¥132,538 million from ¥184,306 million for the fiscal year ended March 31, 2019 to ¥51,768 million for the fiscal year ended March 31, 2020, primarily due to a decrease in deferred tax expense resulting from an increase of deductible temporary differences attributable to loans and advances and derivative financial instruments.

Business Segment Analysis

Our business segment information is prepared based on the internal reporting system utilized by our management to assess the performance of our business segments under Japanese GAAP. We have four main business segments: the Wholesale Business Unit, the Retail Business Unit, the International Business Unit and the Global Markets Business Unit, with the remaining operations recorded in Head office account and others.

Our organizational charts are provided in “Item 4.C. Organizational Structure.” Since figures reported to management are prepared under Japanese GAAP, the segment information does not agree to figures in the consolidated financial statements under IFRS. This difference is addressed in Note 4 “Segment Analysis—Reconciliation of Segmental Results of Operations to Consolidated Income Statements” to our consolidated financial statements included elsewhere in this annual report.

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Segmental Results of Operations

For the fiscal year ended March 31, 2020:

	Wholesale Business Unit			Retail Business Unit			International Business Unit			Global Markets Business Unit			Head office account and others			Total
	(In billions)
Consolidated gross profit(1)	¥	641.5		¥	1,257.7		¥	667.1		¥	421.6		¥	(219.3	)	¥	2,768.6
General and administrative expenses		(284.4	)		(1,025.2	)		(350.6	)		(56.2	)		(23.2	)		(1,739.6	)
Others(2)		52.1			2.0			54.7			33.4			(86.2	)		56.0
Consolidated net business profit	¥	409.2		¥	234.5		¥	371.2		¥	398.8		¥	(328.7	)	¥	1,085.0

Consolidated Gross Profit by Business Segment

(For the fiscal year ended March 31, 2020)

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For the fiscal year ended March 31, 2019:

	Wholesale Business Unit(3)			Retail Business Unit			International Business Unit(3)			Global Markets Business Unit			Head office account and others(3)			Total
	(In billions)
Consolidated gross profit(1)	¥	784.9		¥	1,281.6		¥	689.6		¥	333.6		¥	(243.5	)	¥	2,846.2
General and administrative expenses		(345.1	)		(1,021.4	)		(333.4	)		(54.2	)		39.0			(1,715.1	)
Others(2)		45.1			14.4			38.9			19.1			(56.3	)		61.2
Consolidated net business profit	¥	484.9		¥	274.6		¥	395.1		¥	298.5		¥	(260.8	)	¥	1,192.3

(1) Consolidated gross profit = (Interest income – Interest expenses) + Trust fees + (Fee and commission income – Fee and commission expenses) + (Trading income – Trading losses) + (Other operating income – Other operating expenses).

(2) “Others” includes share of profit or loss of equity-method associates and joint ventures and cooperated profit and loss, that is, profit and loss double-accounted for in the managerial accounting.

(3) SMFL became our joint venture from our consolidated subsidiary in November 2018. However, for managerial accounting purposes, the full year results of SMFL were included in those of the Wholesale Business Unit and the International Business Unit, while its results after it became our joint venture were deducted from those of Head office account and others. For consistency with financial results, our share of the profit of SMFL as our joint venture recognized in the consolidated income statement was included in others in the Head office account and others.

The following are explanations of our results of operations by business segment for the fiscal year ended March 31, 2020. It also includes the changes from the previous fiscal year, which are adjusted by eliminating the impact of factors such as changes in interest rates and exchange rates that may distort the comparison.

Wholesale Business Unit

Consolidated gross profit for the fiscal year ended March 31, 2020 was ¥642 billion and decreased by ¥7 billion on an adjusted basis compared to the fiscal year ended March 31, 2019. This was primarily due to decreases innon-interest income, which was partially offset by an increase in income on loans of SMBC through high value-added loans with higher spreads such as financing of M&A deals.

General and administrative expenses for the fiscal year ended March 31, 2020 was ¥284 billion and decreased by ¥2 billion on an adjusted basis compared to the fiscal year ended March 31, 2019.

Others for the fiscal year ended March 31, 2020 was ¥52 billion.

As a result, consolidated net business profit for the fiscal year ended March 31, 2020 was ¥409 billion and decreased by ¥1 billion on an adjusted basis compared to the fiscal year ended March 31, 2019.

Retail Business Unit

Consolidated gross profit for the fiscal year ended March 31, 2020 was ¥1,258 billion and decreased by ¥10 billion on an adjusted basis compared to the fiscal year ended March 31, 2019. This was primarily due to a decrease innon-interest income in the wealth management businesses reflecting lower investment appetite because of a slowdown in the market environment, although the payment businesses and consumer finance businesses steadily grew.

General and administrative expenses for the fiscal year ended March 31, 2020 was ¥1,025 billion and increased by ¥5 billion on an adjusted basis compared to the fiscal year ended March 31, 2019. This was primarily due to an increase in revenue-linked variable cost caused by the expansion of the payment businesses, which was partially offset by cost reductions resulting from branch reorganization.

Others for the fiscal year ended March 31, 2020 was ¥2 billion.

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As a result, consolidated net business profit for the fiscal year ended March 31, 2020 was ¥235 billion and decreased by ¥14 billion on an adjusted basis compared to the fiscal year ended March 31, 2019.

International Business Unit

Consolidated gross profit for the fiscal year ended March 31, 2020 was ¥667 billion and increased by ¥26 billion on an adjusted basis compared to the fiscal year ended March 31, 2019. This was primarily due to increases in income on loans resulting from the expansion of overseas assets,non-interest income such as foreign exchange and derivatives, and income from securities businesses through steady progress in collaboration between banking and securities businesses.

General and administrative expenses for the fiscal year ended March 31, 2020 was ¥351 billion and increased by ¥20 billion on an adjusted basis compared to the fiscal year ended March 31, 2019. This was primarily due to increases in expenses related to overseas business development as well as regulatory compliance costs.

Others for the fiscal year ended March 31, 2020 was ¥55 billion.

As a result, consolidated net business profit for the fiscal year ended March 31, 2020 was ¥371 billion and increased by ¥3 billion on an adjusted basis compared to the fiscal year ended March 31, 2019.

Global Markets Business Unit

Consolidated gross profit for the fiscal year ended March 31, 2020 was ¥422 billion and increased by ¥61 billion on an adjusted basis compared to the fiscal year ended March 31, 2019. This was primarily due to the recognition of gains on sales of bonds through nimble portfolio management dealing with the decline in overseas interest rates.

General and administrative expenses for the fiscal year ended March 31, 2020 was ¥56 billion and increased by ¥3 billion on an adjusted basis compared to the fiscal year ended March 31, 2019.

Others for the fiscal year ended March 31, 2020 was ¥33 billion.

As a result, consolidated net business profit for the fiscal year ended March 31, 2020 was ¥399 billion and increased by ¥60 billion on an adjusted basis compared to the fiscal year ended March 31, 2019.

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Financial Condition

Assets

Our total assets increased by ¥16,654,840 million from ¥195,503,623 million at March 31, 2019 to ¥212,158,463 million at March 31, 2020. The increase was primarily due to increases in cash and deposits with banks, investment securities and loans and advances.

Our assets at March 31, 2020 and 2019 were as follows.

	At March 31,
	2020		2019
	(In millions)
Cash and deposits with banks	¥	62,471,453	¥	57,763,441
Call loans and bills bought		898,256		2,465,745
Reverse repurchase agreements and cash collateral on securities borrowed		13,745,996		10,345,994
Trading assets		2,785,016		2,767,691
Derivative financial instruments		6,279,801		3,382,574
Financial assets at fair value through profit or loss		1,478,356		2,641,416
Investment securities		21,864,386		17,825,027
Loans and advances		94,671,818		90,682,938
Investments in associates and joint ventures		826,736		1,038,823
Property, plant and equipment		1,764,611		1,507,786
Intangible assets		835,477		821,785
Other assets		4,272,630		4,079,871
Current tax assets		161,729		143,459
Deferred tax assets		102,198		37,073
Total assets	¥	212,158,463	¥	195,503,623

Loans and Advances

Our main operating activity is the lending business. We make loans and extend other types of credit principally to corporate and individual customers in Japan and to corporate and sovereign customers in foreign countries.

At March 31, 2020, our loans and advances were ¥94,671,818 million, or 45% of total assets, representing an increase of ¥3,988,880 million, or 4%, from ¥90,682,938 million at March 31, 2019. The increase in loans and advances was primarily due to an increase in those to foreign customers. The increase in loans and advances to foreign customers was primarily due to an increase in loans and advances to our foreign customers in the United States, Asia and Europe.

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Domestic

Through SMBC and other banking andnon-bank subsidiaries, we make loans to a broad range of industrial, commercial and individual customers in Japan. The following table shows our outstanding loans and advances to customers whose domiciles are in Japan, classified by industry, before deducting the allowance for loan losses, and adjusting unearned income, unamortizedpremiums-net and deferred loanfees-net at the dates indicated.

	At March 31,
	2020		2019
	(In millions)
Manufacturing	¥	8,787,566	¥	8,522,451
Agriculture, forestry, fisheries and mining		280,233		288,099
Construction		919,043		918,617
Transportation, communications and public enterprises		5,637,560		5,596,935
Wholesale and retail		5,375,802		5,281,596
Finance and insurance		3,217,545		3,129,666
Real estate and goods rental and leasing		10,666,446		10,126,531
Services		4,452,195		4,328,173
Municipalities		839,878		866,373
Lease financing		8,380		9,030
Consumer(1)		15,691,638		16,187,195
Others(2)		4,308,469		4,601,499
Total domestic	¥	60,184,755	¥	59,856,165

(1) The balance in Consumer mainly consists of housing loans. The housing loan balances amounted to ¥10,913,869 million and ¥11,216,711 million at March 31, 2020 and 2019, respectively.

(2) The balance in Others includes loans and advances to the Government of Japan.

Foreign

The following table shows the outstanding loans and advances to our customers whose domiciles are not in Japan, classified by industry, before deducting the allowance for loan losses, and adjusting unearned income, unamortizedpremiums-net and deferred loanfees-net at the dates indicated.

	At March 31,
	2020		2019
	(In millions)
Public sector	¥	335,071	¥	360,875
Financial institutions		6,220,956		5,382,130
Commerce and industry		25,597,599		23,285,374
Lease financing		309,531		344,958
Others		2,994,838		2,316,816
Total foreign	¥	35,457,995	¥	31,690,153

Allowance for Loan Losses

We calculate the allowance for loan losses using the latest assignment of obligor grades (our internal credit rating) and supplementary data such as the borrowers’ operating cash flows, realizable value of collateral and recent economic conditions.

For the fiscal year ended March 31, 2020, the allowance for loan losses increased by ¥101,417 million, or 17%, from ¥604,988 million at the beginning of the period to ¥706,405 million at the end of the period.

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The balance of the allowance for loan losses increases when a provision for loan losses is recognized and decreases when charge-offs are recognized through the sales of loans and write-offs. As we recorded a provision for loan losses of ¥249,478 million and charge-offs of ¥153,992 million for the fiscal year ended March 31, 2020, the provision for loan losses exceeded charge-offs and the overall allowance for loan losses increased.

The provision for loan losses increased by ¥126,551 million from ¥122,927 million for the fiscal year ended March 31, 2019 to ¥249,478 million for the fiscal year ended March 31, 2020. The increase was primarily due to the incorporation of forward-looking macroeconomic information reflecting the impact ofCOVID-19 on the Japanese and global economy and the decline in oil prices into the ECL measurement.

Charge-offs decreased by ¥26,262 million from the previous fiscal year to ¥153,992 million for the fiscal year ended March 31, 2020. Charge-offs of domestic loans and advances decreased by ¥13,168 million compared to the previous fiscal year to ¥126,328 million for the fiscal year ended March 31, 2020. Charge-offs of foreign loans and advances decreased by ¥13,094 million compared to the previous fiscal year to ¥27,664 million for the fiscal year ended March 31, 2020.

The following table shows our allowance for loan losses for each of the periods indicated.

	For the fiscal year ended March 31,
	2020			2019
	(In millions)
Allowance for loan losses at beginning of period	¥	604,988		¥	651,620
Provision for loan losses		249,478			122,927
Charge-offs(1):
Domestic		126,328			139,496
Foreign		27,664			40,758
Total		153,992			180,254
Recoveries:
Domestic		10,096			9,767
Foreign		2,317			1,275
Total		12,413			11,042
Net charge-offs		141,579			169,212
Others(2)		(6,482	)		(347	)
Allowance for loan losses at end of period	¥	706,405		¥	604,988

(1) Charge-offs consist of losses from the sales of loans and write-offs.

(2) Others mainly include foreign exchange translations for the fiscal year ended March 31, 2020.

Impaired Loans and Advances

A portion of the total domestic and foreign loans and advances consists of impaired loans and advances, which are comprised of “potentially bankrupt, effectively bankrupt and bankrupt (loans and advances),” “past due three months or more (loans),” “restructured (loans)” and “other impaired (loans and advances).” The loans and advances for which management has serious doubts about the ability of the borrowers to comply in the near future with the repayment terms are wholly included in impaired loans and advances.

“Potentially bankrupt, effectively bankrupt and bankrupt (loans and advances)” comprise loans and advances to borrowers that are perceived to have a high risk of falling into bankruptcy, may not have been legally or formally declared bankrupt but are essentially bankrupt, or have been legally or formally declared bankrupt.

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Loans classified as “past due three months or more (loans)” represent those loans that are three months or more past due as to principal or interest, which are not included in “potentially bankrupt, effectively bankrupt and bankrupt (loans and advances).”

The category “restructured (loans)” comprises loans not included above for which the terms of the loans have been modified to grant concessions because of problems with the borrower.

“Other impaired (loans and advances)” represent impaired loans and advances, which are not included in “potentially bankrupt, effectively bankrupt and bankrupt (loans and advances),” “past due three months or more (loans),” or “restructured (loans),” but for which information about credit problems cause management to classify them as impaired loans and advances.

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The following table shows the distribution of impaired loans and advances by “potentially bankrupt, effectively bankrupt and bankrupt (loans and advances),” “past due three months or more (loans),” “restructured (loans)” and “other impaired (loans and advances)” at March 31, 2020 and 2019 by domicile and type of industry of the borrowers. At March 31, 2020, gross impaired loans and advances were ¥845,329 million, a decrease of ¥36,689 million from ¥882,018 million at March 31, 2019. The ratio of gross impaired loans and advances to the outstanding loans and advances before deducting the allowance for loan losses, and adjusting unearned income, unamortizedpremiums-net and deferred loanfees-net was 0.9% at March 31, 2020, a decrease of 0.1 percentage points from 1.0% at March 31, 2019.

	At March 31,
	2020			2019
	(In millions)
Potentially bankrupt, effectively bankrupt and bankrupt (loans and advances):
Domestic:
Manufacturing	¥	44,640		¥	98,260
Agriculture, forestry, fisheries and mining		7,648			6,229
Construction		10,008			15,762
Transportation, communications and public enterprises		35,562			30,691
Wholesale and retail		67,810			74,865
Finance and insurance		5,556			8,266
Real estate and goods rental and leasing		28,189			29,999
Services		44,040			56,861
Consumer		162,881			159,375
Others		19,475			21,120
Total domestic		425,809			501,428
Foreign:
Financial institutions		29			180
Commerce and industry		137,438			109,453
Others		9,118			24,409
Total foreign		146,585			134,042
Total		572,394			635,470
Past due three months or more (loans):
Domestic		27,923			24,781
Foreign		—			2,525
Total		27,923			27,306
Restructured (loans):
Domestic		144,034			127,316
Foreign		42,123			18,624
Total		186,157			145,940
Other impaired (loans and advances):
Domestic		52,020			66,285
Foreign		6,835			7,017
Total		58,855			73,302
Gross impaired loans and advances		845,329			882,018
Less: Allowance for loan losses for impaired loans and advances		(355,737	)		(354,448	)
Net impaired loans and advances	¥	489,592		¥	527,570

In addition to the discussion in this section, see Note 45 “Financial Risk Management—Credit Risk” to our consolidated financial statements included elsewhere in this annual report.

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Investment Securities

Our investment securities, including debt instruments at amortized cost, debt instruments at fair value through other comprehensive income and equity instruments at fair value through other comprehensive income, totaled ¥21,864,386 million at March 31, 2020, an increase of ¥4,039,359 million, or 23%, from ¥17,825,027 million at March 31, 2019. The increase in our investment securities was primarily due to increases in our holdings of mortgage-backed securities and Japanese government bonds, which were partially offset by a decline in the fair value of our domestic equity instruments.

Our bond portfolio is principally held for asset and liability management purposes. It mostly consisted of Japanese government bonds, U.S. Treasury securities and bonds issued or guaranteed by foreign governments, government agencies or official institutions.

Our debt instruments at amortized cost amounted to ¥320,771 million at March 31, 2020, an increase of ¥1,857 million, or 1%, from ¥318,914 million at March 31, 2019, primarily due to an increase in our holdings of Japanese municipal bonds, which was partially offset by redemptions at maturity of Japanese government bonds.

Domestic debt instruments at fair value through other comprehensive income amounted to ¥7,605,053 million at March 31, 2020, an increase of ¥2,149,190 million, or 39%, from ¥5,455,863 million at March 31, 2019. The increase was primarily due to an increase in our holdings of Japanese government bonds. As for our foreign debt instruments at fair value through other comprehensive income, we had ¥10,449,111 million of foreign debt instruments at March 31, 2020, which was an increase of ¥2,571,753 million, or 33%, from ¥7,877,358 million at March 31, 2019. Most of our foreign debt instruments, including mortgage-backed securities, are issued or guaranteed by foreign governments, government agencies or official institutions. The increase was primarily due to an increase in our holdings of mortgage-backed securities. Net unrealized gains on our foreign debt instruments amounted to ¥235,111 million at March 31, 2020, as compared to net unrealized losses of ¥36,603 million at March 31, 2019. This was primarily due to a decrease in U.S. interest rates.

We had ¥3,024,731 million of domestic equity instruments and ¥464,720 million of foreign equity instruments at March 31, 2020, for which we made an irrevocable election at initial recognition to present subsequent changes in fair value in other comprehensive income under IFRS 9. Our domestic equity instruments, which consisted principally of publicly traded Japanese stocks and included common and preferred stocks issued by our customers, decreased by ¥704,389 million, or 19%, from ¥3,729,120 million at March 31, 2019. Net unrealized gains on our domestic equity instruments decreased by ¥564,697 million, or 27%, from ¥2,129,048 million at March 31, 2019 to ¥1,564,351 million at March 31, 2020. The decrease was primarily due to a decline in the fair value of publicly traded Japanese stocks. Net unrealized gains on our foreign equity instruments decreased by ¥14,119 million, or 4%, from ¥347,783 million at March 31, 2019 to ¥333,664 million at March 31, 2020, mainly reflecting unfavorable conditions in overseas stock markets.

We recognize the risks associated with our equity portfolio, owing to its volatility, and have been actively looking to minimize the negative effect of holding a large equity portfolio through economic hedging and derivative transactions.

We have no transactions pursuant to repurchase agreements, securities lending transactions or other transactions involving the transfer of financial assets with an obligation to repurchase such transferred assets that are treated as sales for accounting purposes.

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The following tables show the amortized cost, gross unrealized gains and losses, and fair value of our investment securities, which are classified as debt instruments at amortized cost, debt instruments at fair value through other comprehensive income and equity instruments at fair value through other comprehensive income at March 31, 2020 and 2019, andheld-to-maturity investments andavailable-for-sale financial assets at March 31, 2018.

	At March 31, 2020
	Amortized cost(1)		Gross unrealized gains		Gross unrealized losses			Fair value
	(In millions)
Debt instruments at amortized cost:
Domestic:
Japanese government bonds	¥	260,079	¥	207	¥	—		¥	260,286
Japanese municipal bonds		22,300		1		67			22,234
Japanese corporate bonds		—		—		—			—
Total domestic		282,379		208		67			282,520
Foreign:
U.S. Treasury and other U.S. government agency bonds		—		—		—			—
Bonds issued by other governments and official institutions		37,358		145		—			37,503
Other debt instruments		1,034		—		—			1,034
Total foreign		38,392		145		—			38,537
Total	¥	320,771	¥	353	¥	67		¥	321,057
Debt instruments at fair value through other comprehensive income:
Domestic:
Japanese government bonds	¥	6,791,514	¥	5,725	¥	12,171		¥	6,785,068
Japanese municipal bonds		240,558		355		531			240,382
Japanese corporate bonds		579,508		1,655		1,870			579,293
Other debt instruments		310		—		—			310
Total domestic		7,611,890		7,735		14,572			7,605,053
Foreign:
U.S. Treasury and other U.S. government agency bonds		4,347,608		147,078		—	��		4,494,686
Bonds issued by other governments and official institutions		2,941,222		10,340		20,756			2,930,806
Mortgage-backed securities		2,708,432		99,481		100			2,807,813
Other debt instruments		216,738		593		1,525			215,806
Total foreign		10,214,000		257,492		22,381			10,449,111
Total	¥	17,825,890	¥	265,227	¥	36,953		¥	18,054,164
Equity instruments at fair value through other comprehensive income:
Domestic	¥	1,460,380	¥	1,693,714	¥	129,363		¥	3,024,731
Foreign		131,056		361,501		27,837			464,720
Total	¥	1,591,436	¥	2,055,215	¥	157,200		¥	3,489,451

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	At March 31, 2019
	Amortized cost(1)		Gross unrealized gains		Gross unrealized losses		Fair value
	(In millions)
Debt instruments at amortized cost:
Domestic:
Japanese government bonds	¥	280,246	¥	890	¥	—	¥	281,136
Japanese municipal bonds		—		—		—		—
Japanese corporate bonds		—		—		—		—
Total domestic		280,246		890		—		281,136
Foreign:
U.S. Treasury and other U.S. government agency bonds		—		—		—		—
Bonds issued by other governments and official institutions		36,827		106		39		36,894
Other debt instruments		1,841		—		—		1,841
Total foreign		38,668		106		39		38,735
Total	¥	318,914	¥	996	¥	39	¥	319,871
Debt instruments at fair value through other comprehensive income:
Domestic:
Japanese government bonds	¥	5,005,649	¥	22,285	¥	239	¥	5,027,695
Japanese municipal bonds		98,427		742		5		99,164
Japanese corporate bonds		325,130		3,848		—		328,978
Other debt instruments		26		—		—		26
Total domestic		5,429,232		26,875		244		5,455,863
Foreign:
U.S. Treasury and other U.S. government agency bonds		4,469,336		28,497		71,198		4,426,635
Bonds issued by other governments and official institutions		2,112,607		10,590		1,790		2,121,407
Mortgage-backed securities		1,047,183		9,739		12,935		1,043,987
Other debt instruments		284,835		664		170		285,329
Total foreign		7,913,961		49,490		86,093		7,877,358
Total	¥	13,343,193	¥	76,365	¥	86,337	¥	13,333,221
Equity instruments at fair value through other comprehensive income:
Domestic	¥	1,600,072	¥	2,221,660	¥	92,612	¥	3,729,120
Foreign		95,989		368,511		20,728		443,772
Total	¥	1,696,061	¥	2,590,171	¥	113,340	¥	4,172,892

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	At March 31, 2018
	Amortized cost		Gross unrealized gains		Gross unrealized losses		Fair value
	(In millions)
Held-to-maturity investments:
Domestic:
Japanese government bonds	¥	372,459	¥	2,138	¥	—	¥	374,597
Japanese municipal bonds		—		—		—		—
Japanese corporate bonds		—		—		—		—
Total domestic		372,459		2,138		—		374,597
Foreign		—		—		—		—
Total	¥	372,459	¥	2,138	¥	—	¥	374,597
Available-for-sale financial assets:
Domestic:
Japanese government bonds	¥	7,675,028	¥	14,554	¥	4,279	¥	7,685,303
Japanese municipal bonds		47,079		49		96		47,032
Japanese corporate bonds		295,503		1,221		123		296,601
Total domestic debt instruments		8,017,610		15,824		4,498		8,028,936
Equity instruments		2,237,143		2,946,737		22,146		5,161,734
Total domestic		10,254,753		2,962,561		26,644		13,190,670
Foreign:
U.S. Treasury and other U.S. government agency bonds		3,387,109		1,723		142,186		3,246,646
Bonds issued by other governments and official institutions		2,192,099		4,203		8,852		2,187,450
Mortgage-backed securities		509,104		31		20,952		488,183
Other debt instruments		331,321		507		337		331,491
Total foreign debt instruments		6,419,633		6,464		172,327		6,253,770
Equity instruments		342,155		340,366		4,345		678,176
Total foreign		6,761,788		346,830		176,672		6,931,946
Total	¥	17,016,541	¥	3,309,391	¥	203,316	¥	20,122,616

(1) “Amortized cost” for equity instruments at fair value through other comprehensive income represents the difference between the fair value and gross unrealized gains or losses.

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The following tables show the fair value and gross unrealized losses of our investment securities, aggregated by the length of time that the individual securities have been in a continuous unrealized loss position at March 31, 2020, 2019 and 2018. None of theavailable-for-sale equity instruments included in the tables have been in a continuous unrealized loss position for twelve months or more at March 31, 2018, since a significant or prolonged decline in the fair value of anavailable-for-sale equity instrument below its cost is considered to be an objective evidence of impairment and in such case the unrealized losses are reclassified from equity to profit or loss under IAS 39 “Financial Instruments: Recognition and Measurement.”

	At March 31, 2020
	Less than twelve months				Twelve months or more				Total
	Fair value		Gross unrealized losses		Fair value		Gross unrealized losses		Fair value		Gross unrealized losses
	(In millions)
Debt instruments at amortized cost:
Domestic:
Japanese government bonds	¥	—	¥	—	¥	—	¥	—	¥	—	¥	—
Japanese municipal bonds		18,532		67		—		—		18,532		67
Japanese corporate bonds		—		—		—		—		—		—
Total domestic		18,532		67		—		—		18,532		67
Foreign:
U.S. Treasury and other U.S. government agency bonds		—		—		—		—		—		—
Bonds issued by other governments and official institutions		—		—		—		—		—		—
Other debt instruments		—		—		—		—		—		—
Total foreign		—		—		—		—		—		—
Total	¥	18,532	¥	67	¥	—	¥	—	¥	18,532	¥	67
Debt instruments at fair value through other comprehensive income:
Domestic:
Japanese government bonds	¥	4,367,384	¥	12,171	¥	—	¥	—	¥	4,367,384	¥	12,171
Japanese municipal bonds		153,889		527		9,556		4		163,445		531
Japanese corporate bonds		295,318		1,870		—		—		295,318		1,870
Other debt instruments		—		—		—		—		—		—
Total domestic		4,816,591		14,568		9,556		4		4,826,147		14,572
Foreign:
U.S. Treasury and other U.S. government agency bonds		32,089		—		—		—		32,089		—
Bonds issued by other governments and official institutions		1,453,583		20,756		—		—		1,453,583		20,756
Mortgage-backed securities		1,800		6		6,268		94		8,068		100
Other debt instruments		88,192		1,228		10,584		297		98,776		1,525
Total foreign		1,575,664		21,990		16,852		391		1,592,516		22,381
Total	¥	6,392,255	¥	36,558	¥	26,408	¥	395	¥	6,418,663	¥	36,953
Equity instruments at fair value through other comprehensive income:
Domestic	¥	144,382	¥	46,162	¥	139,484	¥	83,201	¥	283,866	¥	129,363
Foreign		45,541		1,216		15,024		26,621		60,565		27,837
	¥	189,923	¥	47,378	¥	154,508	¥	109,822	¥	344,431	¥	157,200

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	At March 31, 2019
	Less than twelve months				Twelve months or more				Total
	Fair value		Gross unrealized losses		Fair value		Gross unrealized losses		Fair value		Gross unrealized losses
	(In millions)
Debt instruments at amortized cost:
Domestic:
Japanese government bonds	¥	—	¥	—	¥	—	¥	—	¥	—	¥	—
Japanese municipal bonds		—		—		—		—		—		—
Japanese corporate bonds		—		—		—		—		—		—
Total domestic		—		—		—		—		—		—
Foreign:
U.S. Treasury and other U.S. government agency bonds		—		—		—		—		—		—
Bonds issued by other governments and official institutions		2,999		39		—		—		2,999		39
Other debt instruments		—		—		—		—		—		—
Total foreign		2,999		39		—		—		2,999		39
Total	¥	2,999	¥	39	¥	—	¥	—	¥	2,999	¥	39
Debt instruments at fair value through other comprehensive income:
Domestic:
Japanese government bonds	¥	—	¥	—	¥	296,652	¥	239	¥	296,652	¥	239
Japanese municipal bonds		—		—		9,555		5		9,555		5
Japanese corporate bonds		—		—		—		—		—		—
Other debt instruments		—		—		—		—		—		—
Total domestic		—		—		306,207		244		306,207		244
Foreign:
U.S. Treasury and other U.S. government agency bonds		907,418		8,721		1,316,145		62,477		2,223,563		71,198
Bonds issued by other governments and official institutions		1,217,502		959		132,139		831		1,349,641		1,790
Mortgage-backed securities		412		1		432,651		12,934		433,063		12,935
Other debt instruments		138,685		111		11,930		59		150,615		170
Total foreign		2,264,017		9,792		1,892,865		76,301		4,156,882		86,093
Total	¥	2,264,017	¥	9,792	¥	2,199,072	¥	76,545	¥	4,463,089	¥	86,337
Equity instruments at fair value through other comprehensive income:
Domestic	¥	137,946	¥	31,563	¥	147,991	¥	61,049	¥	285,937	¥	92,612
Foreign		—		2		20,970		20,726		20,970		20,728
Total	¥	137,946	¥	31,565	¥	168,961	¥	81,775	¥	306,907	¥	113,340

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	At March 31, 2018
	Less than twelve months				Twelve months or more				Total
	Fair value		Gross unrealized losses		Fair value		Gross unrealized losses		Fair value		Gross unrealized losses
	(In millions)
Held-to-maturity investments:
Domestic:
Japanese government bonds	¥	2,001	¥	—	¥	—	¥	—	¥	2,001	¥	—
Japanese municipal bonds		—		—		—		—		—		—
Japanese corporate bonds		—		—		—		—		—		—
Total domestic		2,001		—		—		—		2,001		—
Foreign		—		—		—		—		—		—
Total	¥	2,001	¥	—	¥	—	¥	—	¥	2,001	¥	—
Available-for-sale financial assets:
Domestic:
Japanese government bonds	¥	2,847,250	¥	559	¥	1,353,121	¥	3,720	¥	4,200,371	¥	4,279
Japanese municipal bonds		964		1		31,916		95		32,880		96
Japanese corporate bonds		6,801		2		72,061		121		78,862		123
Total domestic debt instruments		2,855,015		562		1,457,098		3,936		4,312,113		4,498
Equity instruments		506,969		22,146		—		—		506,969		22,146
Total domestic		3,361,984		22,708		1,457,098		3,936		4,819,082		26,644
Foreign:
U.S. Treasury and other U.S. government agency bonds		1,509,509		41,946		1,229,979		100,240		2,739,488		142,186
Bonds issued by other governments and official institutions		1,039,848		739		219,608		8,113		1,259,456		8,852
Mortgage-backed securities		1,124		1		482,141		20,951		483,265		20,952
Other debt instruments		141,058		161		17,269		176		158,327		337
Total foreign debt instruments		2,691,539		42,847		1,948,997		129,480		4,640,536		172,327
Equity instruments		65,105		4,345		—		—		65,105		4,345
Total foreign		2,756,644		47,192		1,948,997		129,480		4,705,641		176,672
Total	¥	6,118,628	¥	69,900	¥	3,406,095	¥	133,416	¥	9,524,723	¥	203,316

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Trading Assets

The following table shows our trading assets at March 31, 2020 and 2019. Our trading assets were ¥2,785,016 million at March 31, 2020, an increase of ¥17,325 million from ¥2,767,691 million at March 31, 2019. The increase was primarily due to an increase in our holdings of Japanese government bonds.

	At March 31,
	2020		2019
	(In millions)
Debt instruments	¥	2,545,703	¥	2,480,903
Equity instruments		239,313		286,788
Total trading assets	¥	2,785,016	¥	2,767,691

Financial Assets at Fair Value Through Profit or Loss

The following table shows the fair value of our financial assets at fair value through profit or loss at March 31, 2020 and 2019. The fair value was ¥1,478,356 million at March 31, 2020, a decrease of ¥1,163,060 million from ¥2,641,416 million at March 31, 2019. The decrease was primarily due to a decrease in our holdings ofnon-trading bonds.

	At March 31,
	2020		2019
	(In millions)
Debt instruments	¥	1,454,387	¥	2,620,686
Equity instruments		23,969		20,730
Total financial assets at fair value through profit or loss	¥	1,478,356	¥	2,641,416

Liabilities

Our total liabilities increased by ¥17,493,408 million from ¥183,730,177 million at March 31, 2019 to ¥201,223,585 million at March 31, 2020, primarily due to increases in deposits and borrowings.

The following table shows our liabilities at March 31, 2020 and 2019.

	At March 31,
	2020		2019
	(In millions)
Deposits	¥	138,431,418	¥	134,404,652
Call money and bills sold		3,740,540		1,307,779
Repurchase agreements and cash collateral on securities lent		15,455,782		12,887,249
Trading liabilities		2,018,484		1,998,694
Derivative financial instruments		5,555,201		3,051,773
Borrowings		17,121,362		12,167,858
Debt securities in issue		10,985,048		11,171,209
Provisions		200,053		194,818
Other liabilities		7,601,355		6,131,739
Current tax liabilities		48,159		147,041
Deferred tax liabilities		66,183		267,365
Total liabilities	¥	201,223,585	¥	183,730,177

Deposits

We offer a wide range of standard banking accounts through the offices of our banking subsidiaries in Japan, includingnon-interest-bearing demand deposits, interest-bearing demand deposits, deposits at notice, time deposits and negotiable certificates of deposit. Domestic deposits, approximately 80% of total deposits, are our principal source of funds for our domestic operations. The deposits in the domestic offices of our banking subsidiaries are principally from individuals and private corporations, governmental bodies (including municipal authorities), and financial institutions.

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SMBC’s foreign offices accept deposits mainly in U.S. dollars, but also in yen and other currencies, and are active participants in the Euro-currency market as well as the United States domestic money market. Foreign deposits mainly consist of stable types of deposits, such as deposits at notice, time deposits, and negotiable certificates of deposit.

Our deposit balances at March 31, 2020 were ¥138,431,418 million, an increase of ¥4,026,766 million, or 3%, from ¥134,404,652 million at March 31, 2019, primarily due to increases innon-interest-bearing demand deposits and interest-bearing demand deposits at domestic offices.

The following table shows a breakdown of our domestic and foreign offices’ deposits at the dates indicated.

	At March 31,
	2020		2019
	(In millions)
Domestic offices:
Non-interest-bearing demand deposits	¥	23,804,054	¥	21,376,082
Interest-bearing demand deposits		56,650,510		53,490,445
Deposits at notice		779,514		853,344
Time deposits		17,759,453		17,885,860
Negotiable certificates of deposit		4,081,741		4,962,651
Others		7,198,447		7,317,912
Total domestic offices		110,273,719		105,886,294
Foreign offices:
Non-interest-bearing demand deposits		1,503,721		1,218,145
Interest-bearing demand deposits		3,122,179		2,714,951
Deposits at notice		9,989,980		10,316,612
Time deposits		7,264,055		7,875,029
Negotiable certificates of deposit		6,098,695		6,202,836
Others		179,069		190,785
Total foreign offices		28,157,699		28,518,358
Total deposits	¥	138,431,418	¥	134,404,652

Borrowings

Borrowings include unsubordinated borrowings, subordinated borrowings, liabilities associated with securitization transactions of our own assets, and lease liabilities. At March 31, 2020, our borrowings were ¥17,121,362 million, an increase of ¥4,953,504 million, or 41%, from ¥12,167,858 million at March 31, 2019. The increase was primarily due to an increase in unsubordinated borrowings reflecting the effect of additional monetary easing by the BOJ.

The following table shows the balances with respect to our borrowings at March 31, 2020 and 2019.

	At March 31,
	2020		2019
	(In millions)
Unsubordinated borrowings	¥	15,208,696	¥	10,632,213
Subordinated borrowings		254,064		273,819
Liabilities associated with securitization transactions		1,272,714		1,231,447
Lease liabilities(1)		385,888		30,379
Total borrowings	¥	17,121,362	¥	12,167,858

(1) Lease liabilities at March 31, 2020 and March 31, 2019 are recognized and measured under IFRS 16 and IAS 17 “Leases,” respectively. For additional information, refer to Note 2 “Summary of Significant Accounting Policies” to our consolidated financial statements included elsewhere in this report.

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Debt Securities in Issue

Debt securities in issue at March 31, 2020 were ¥10,985,048 million, a decrease of ¥186,161 million, or 2%, from ¥11,171,209 million at March 31, 2019, primarily due to a decrease in commercial paper, which was partially offset by an increase in unsubordinated bonds.

	At March 31,
	2020		2019
	(In millions)
Commercial paper	¥	1,736,702	¥	2,440,515
Unsubordinated bonds		7,693,431		7,135,367
Subordinated bonds		1,554,915		1,595,327
Total debt securities in issue	¥	10,985,048	¥	11,171,209

For additional information, see Note 19 “Debt Securities in Issue” to our consolidated financial statements included elsewhere in this annual report, which sets forth summaries of debt securities in issue with their contractual interest rates and currencies.

In the normal course of business, we enter into contractual obligations that require future cash payments. “Item 5.F. Tabular Disclosure of Contractual Obligations” sets forth a summary of our contractual cash obligations at March 31, 2020.

Total Equity

Our total equity decreased by ¥838,568 million from ¥11,773,446 million at March 31, 2019 to ¥10,934,878 million at March 31, 2020, primarily due to decreases innon-controlling interests and other reserves. The decrease innon-controlling interests was mainly due to the redemption of preferred securities. The decrease in other reserves was primarily due to a decrease in financial instruments at fair value through other comprehensive income reserve reflecting a decline in the fair value of domestic equity instruments. For more information, see Note 24 “Shareholders’ Equity” and Note 25“Non-controlling Interests and Equity Attributable to Other Equity Instruments Holders” to our consolidated financial statements included elsewhere in this annual report.

	At March 31,
	2020			2019
	(In millions)
Capital stock	¥	2,339,965		¥	2,339,443
Capital surplus		728,551			726,012
Retained earnings		5,609,854			5,715,101
Treasury stock		(13,984	)		(16,302	)
Equity excluding other reserves		8,664,386			8,764,254
Other reserves		1,525,720			1,916,366
Equity attributable to shareholders of Sumitomo Mitsui Financial Group, Inc.		10,190,106			10,680,620
Non-controlling interests		60,296			494,123
Equity attributable to other equity instruments holders		684,476			598,703
Total equity	¥	10,934,878		¥	11,773,446

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Reconciliation with Japanese GAAP

Our consolidated financial statements are prepared in accordance with IFRS as summarized in Note 2 “Summary of Significant Accounting Policies” to our consolidated financial statements included elsewhere in this annual report. These policies differ in some respects from Japanese GAAP. For reporting under the FIEA and Japanese banking regulations, we prepare our annual financial results in accordance with Japanese GAAP. To show the major reconciling items between our IFRS and Japanese GAAP consolidated financial statements, we have provided below, with respect to our most recent fiscal year, a reconciliation of consolidated net profit and total equity under IFRS with those amounts under Japanese GAAP.

	At and for the fiscal year ended March 31, 2020
	Total equity			Net profit
	(In millions)
IFRS	¥	10,934,878		¥	230,983
Differences arising from different accounting for:
1.   Scope of consolidation		143,699			3,311
2.   Derivative financial instruments		496,548			163,268
3.   Investment securities		(321,480	)		115,282
4.   Loans and advances		404,342			115,950
5.   Investments in associates and joint ventures		142,014			190,839
6.   Property, plant and equipment		20,561			30,546
7.   Lease accounting		1,762			(383	)
8.   Defined benefit plans		60,060			32,646
9.   Deferred tax assets		(68,207	)		13,313
10. Foreign currency translation		—			(11,900	)
11. Classification of equity and liability		(689,111	)		(12,731	)
Others		(111,174	)		(20,933	)
Tax effect of the above		(228,988	)		(129,229	)
Japanese GAAP	¥	10,784,904		¥	720,962

The explanations below summarize certain differences between IFRS and Japanese GAAP that may be significant. The paragraphs below refer to the corresponding items as set forth in the table above.

1. Scope of consolidation

Under Japanese GAAP, we consolidate an entity when we effectively control the decision making body of the entity’s operating and financing policies. Control is generally presumed to exist when we own more than half of the voting power, or own from 40% to 50% of the voting power and certain facts exist indicating control. Certain entities established for securitization are presumed not to be controlled. Under IFRS, we consolidate an entity when we control the entity. Control is generally presumed to exist when we are exposed, or have rights, to variable returns from our involvement with the entity and have the ability to affect those returns through our power over the entity. The existence and effect of potential voting rights that are deemed to be substantive are taken into account when assessing the control. When assessing control of an entity under IFRS, we apply a single consolidation model to all types of entities, irrespective of their nature. This results in a difference in the scope of consolidation between Japanese GAAP and IFRS. Most significantly, certain entities designed for special purpose such as securitization, usually in the form of trusts under the Trust Act of Japan, are not consolidated under Japanese GAAP but consolidated under IFRS. Accordingly, both the cumulative gains on transfers of financial assets to these securitization vehicles and amortization of our retained subordinate interest under Japanese GAAP were not recognized under IFRS due to consolidation of such vehicles.

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2. Derivative financial instruments

Under Japanese GAAP, an embedded derivative is separately accounted for when the host contract may suffer losses arising from the embedded derivative. Also, an entity may separately account for an embedded derivative if the entity manages it separately, even though the criteria for separation are not fully met. Under IFRS, when a hybrid contract contains a host that is not a financial asset, an embedded derivative is separated from the host contract and accounted for as a derivative if, and only if, its economic characteristics and risks are not closely related to those of the host contract. The separation of the embedded derivatives from the host contract is adjusted so as not to result in any gain or loss at initial recognition under IFRS. On the other hand, under IFRS, when a hybrid contract contains a host that is a financial asset, an embedded derivative is not separately accounted for from the host.

We apply hedge accounting under Japanese GAAP. However, the qualifying criteria for certain hedge accounting under IFRS are more rigorous than those under Japanese GAAP. Therefore, except for fair value hedge accounting and hedge accounting for net investments in foreign operations we apply under IFRS, the effects of hedge accounting under Japanese GAAP have been reversed under IFRS.

Japanese GAAP and IFRS require OTC derivatives to be measured at fair value. In principle, there is no significant difference in the definitions of fair value, but in practice there is diversity in the application of valuation techniques used for fair value under Japanese GAAP and IFRS. Therefore to meet the requirements of fair value under IFRS, adjustments have been made to the fair values under Japanese GAAP to reflect credit risk adjustments for OTC derivatives. Certain guarantees under Japanese GAAP do not meet the definition of a financial guarantee under IFRS but meet that of a derivative. These guarantees are measured at fair value and the change in fair value is recognized in the consolidated income statement under IFRS.

3. Investment securities

Certain financial assets classified asavailable-for-sale under Japanese GAAP, such as unlisted stocks, are measured at fair value under IFRS. For those financial instruments, where there is no quoted price in an active market, the fair value is determined by using valuation techniques. In addition, the fair values of certain financial instruments under Japanese GAAP have been adjusted in order to meet the requirements of fair value under IFRS. For example, we use the last1-month average of the closing transaction prices for the fair value measurement ofavailable-for-sale financial assets (listed stocks) under Japanese GAAP, whereas closing spot prices are used under IFRS.

Under Japanese GAAP, the changes in fair value ofavailable-for-sale financial assets are recognized in other comprehensive income and subsequently transferred to profit or loss on their disposal. Under IFRS, we made an irrevocable election for some equity instruments to present subsequent changes in fair value in other comprehensive income. The changes in fair value of those equity instruments presented in other comprehensive income are not subsequently transferred to profit or loss. Someavailable-for-sale financial assets under Japanese GAAP, including investment funds, are classified as financial assets measured at fair value through profit or loss, and therefore the changes in their fair values are recognized in profit or loss under IFRS.

4. Loans and advances

Under Japanese GAAP, the allowance for loan losses is calculated based on credit assessments at the end of the reporting period. A collective allowance is calculated using historical loss experience based on historical results according to the obligor grade, adding forward looking information as appropriate. The allowance for specifically identified significant loans is calculated by the discounted cash flow (“DCF”) method, which is based on the present value of reasonably estimated cash flows discounted at the original contractual interest rate of the relevant loan. For the remaining loans, an individual allowance is calculated based on the estimated uncollectible amount considering historical loss experience and the recoveries from collateral, guarantees and any other collectible cash flows.

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Under IFRS, measurement of ECL depends on whether the credit risk on the financial asset has increased significantly since initial recognition. If there is not a significant increase in credit risk on that financial asset since initial recognition, an allowance is measured at an amount equal to12-month expected credit losses. Otherwise, an allowance is measured at an amount equal to lifetime expected credit losses. The allowance for loan losses for individually significant impaired loans is calculated by the DCF method based on the present value of estimated future cash flows discounted at the financial asset’s original effective interest rate, which differs from the calculation of the DCF method under Japanese GAAP. The scope of loans that are subject to the DCF method under IFRS is wider than that under Japanese GAAP. ECL are measured in a way that reflects not only past events, but also current conditions and forecasts of future economic conditions. Under Japanese GAAP, loan origination fees and costs are generally recognized in the consolidated income statement as incurred. Under IFRS, loan origination fees and costs that are incremental and directly attributable to the origination of a loan are deferred and thus, included in the calculation of the effective interest rate.

Under both Japanese GAAP and IFRS, undrawn loan commitments areoff-balance sheet. Provisions for undrawn loan commitments are measured in a way similar to those for loans drawn down in accordance with each standard. Under Japanese GAAP, all guarantee contracts are accounted for by accruing both asset and liability accounts at the nominal guarantee amount. A provision for the credit risk of the guarantee is calculated using the same method as the reserve for possible loan losses. Under IFRS, financial guarantees are initially recognized at fair value and subsequently measured at the higher of the amount of the loss allowance determined in accordance with ECL or the amount initially recognized less, when appropriate, the cumulative amount of income recognized in accordance with the principles of IFRS 15.

5. Investments in associates and joint ventures

Under Japanese GAAP, although goodwill related to investments in associates and joint ventures is included in the carrying amount of the investments, we are required to recognize and measure impairment losses only on goodwill separately from the investments if impairment indicators for the goodwill are identified. Under IFRS, for investments in associates and joint ventures, if we identify objective evidence of impairment, the entire carrying amount of the investment is tested for impairment since goodwill is not separately recognized on the initial acquisition of the investment. Additionally, the net profit of associates and joint ventures is adjusted for differences between Japanese GAAP and IFRS in accordance with our accounting policy prior to applying the equity method under IFRS.

6. Property, plant and equipment

For certain assets that are depreciated using the declining balance method under Japanese GAAP, we apply the straight-line method of depreciation to those assets under IFRS as we consider that the straight-line method most closely reflects the expected pattern of consumption of the future economic benefits embodied in those assets. Additionally under IFRS, residual values of assets are reviewed at least at the end of each reporting period. After reviews of all categories of property, plant and equipment, the residual values of assets are considered to be zero under IFRS, whereas residual values are assigned to certain assets under Japanese GAAP.

Furthermore, under IFRS, when any indication that assets may be impaired exists, the recoverable amount of an asset shall be determined. If the recoverable amount of an asset is less than its carrying amount, the carrying amount of the asset shall be reduced to its recoverable amount and an impairment loss is recognized to the extent that the carrying amount of the asset exceeds its recoverable amount. On the other hand, under Japanese GAAP, when there is an indicator of impairment, whether impairment exists shall be determined by comparing the carrying amount of the asset to the undiscounted future cash flow. Then, if the undiscounted cash flows are lower than the carrying amount, the carrying amount is not considered to be recoverable and an impairment loss is recognized for the difference between the carrying amount and the recoverable amount.

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7. Lease accounting

Under Japanese GAAP, a lease transaction as a lessee is classified as either a finance lease or an operating lease. Finance leases are recognized as assets and liabilities in statements of financial position, so there is no significant difference from IFRS. On the other hand, a lessee does not recognize assets and liabilities for operating leases. Operating lease payments are recognized in the consolidated income statements on a straight-line basis over the lease term. Under IFRS, a single lessee accounting model, whereby a lessee accounts for all leases in the same way, requires a lessee to recognize a right of use asset representing its right to use the underlying leased asset and a lease liability representing its obligation to make lease payments at the commencement date. After the commencement date, a right of use asset is measured applying the straight-line method of depreciation, and a lease liability is measured by increasing the carrying amount to reflect interest and reducing the carrying amount to reflect the lease payments.

8. Defined benefit plans

Under Japanese GAAP, the present value of the defined benefit obligation is measured using the market yields of long-term Japanese government bonds as discount rates. Additionally, the discount rates for the previous reporting period can be used for the current reporting period, if the change in the present value of the defined benefit obligation caused by a change in the discount rates from the previous reporting period to the current reporting period is less than 10%. Under IFRS, the present value of the defined benefit obligation is measured by discounting the estimated timing and amount of benefit payments using the discount rates reflecting market yields on high quality corporate bonds at the end of each reporting period.

Under Japanese GAAP, the expected rates of return on plan assets for the previous reporting period can be used for the current reporting period, unless the impact of the profit or loss for the current reporting period is considered to be significant. Under IFRS, the interest cost and expected return on plan assets are replaced with a net interest amount which is calculated by applying the discount rate to the net defined benefit liability (asset).

Under Japanese GAAP, the actuarial gains and losses are recognized in other comprehensive income, and are amortized using the straight-line method. Under IFRS, actuarial gains and losses arising from experience adjustments and changes in actuarial assumptions in the year, and return on plan assets excluding interest income are recognized in other comprehensive income and are never reclassified to profit and loss.

Under Japanese GAAP, past service costs are recognized in other comprehensive income and are amortized using the straight-line method. Under IFRS, past service costs are recognized immediately in the consolidated income statement.

9. Deferred tax assets

Under Japanese GAAP, we recognize deferred tax assets to the extent that the realization of the tax benefit is highly probable based on the schedule. Under IFRS, deferred tax assets are recognized to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilized. For example, deferred tax assets for deductible temporary differences relating to impairment of financial instruments of which the timing of the reversal is difficult to estimate cannot be recognized under Japanese GAAP, whereas they can be recognized under IFRS to the extent that it is probable that future taxable profit will be available.

10. Foreign currency translation

Under Japanese GAAP, the income statement items of foreign operations are translated into Japanese yen, our presentation currency, using the (spot) closing rate, whereas under IFRS they are translated into the presentation currency using the exchange rate at the dates of the transactions or, if the exchange rates do not fluctuate significantly, at average exchange rates. In addition, under Japanese GAAP, certain foreign operations’ monetary items denominated in foreign currencies are translated into Japanese yen using the exchange rate at the

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end of the reporting period. However, under IFRS the monetary items for which settlement is neither planned nor likely to occur in the foreseeable future are translated using the exchange rates at the dates of initial transactions.

11. Classification of equity and liability

Under Japanese GAAP, a financial instrument is generally classified as an equity instrument or a financial liability in light of its legal form. Under IFRS, a financial instrument or its component parts are classified as equity instruments or financial liabilities in accordance with the substance of the contractual arrangement and the definitions of financial liabilities and equity instruments. A financial instrument is classified as a financial liability if there is a contractual obligation to deliver cash or another financial asset other than a fixed number of equity shares in exchange for a fixed amount of cash or another financial asset. In the absence of such a contractual obligation, the financial instrument is classified as an equity instrument.

5.B.     LIQUIDITY AND CAPITAL RESOURCES

We consistently endeavor to enhance the management of our liquidity profile and strengthen our capital base to meet our customers’ loan requirements and deposit withdrawals and respond to unforeseen situations such as adverse movements in stock, foreign currency, interest rate and other markets, or changes in general domestic or international conditions.

Liquidity

We derive funding for our operations both from domestic and international sources. Our domestic funding is derived primarily from deposits placed with SMBC by its corporate and individual customers, and also from call money (inter-bank), bills sold (inter-bank promissory notes), repurchase agreements, borrowings, and negotiable certificates of deposit issued by SMBC to domestic and international customers. Our international sources of funds are principally from deposits from corporate customers and foreign central banks, negotiable certificates of deposit, bonds, commercial paper, and also from repurchase agreements and cash collateral on securities lent. We closely monitor maturity gaps and foreign exchange exposure in order to manage our liquidity profile.

As shown in the following table, total deposits increased by ¥4,026,766 million, or 3%, from ¥134,404,652 million at March 31, 2019 to ¥138,431,418 million at March 31, 2020. The balance of deposits at March 31, 2020 exceeded the balance of loans and advances by ¥43,759,600 million, primarily due to the stable deposit base in Japan. Ourloan-to-deposit ratio (total loans and advances divided by total deposits) in the same period was 68%, which contributed greatly to the reduction of our liquidity risk. Our balances of large-denomination domestic yen time deposits are stable due to the historically high rollover rate of our corporate customers and individual depositors.

	At March 31,
	2020		2019
	(In millions)
Loans and advances	¥	94,671,818	¥	90,682,938
Deposits		138,431,418		134,404,652

We have invested the excess balance of deposits against loans and advances primarily in marketable securities and other highly liquid assets, such as Japanese government bonds. SMBC’s Treasury Unit actively monitors the movement of interest rates and maturity profile of its bond portfolio as part of SMBC’s overall risk management. The bonds can be used to enhance liquidity. When needed, they can be used as collateral for call money or other money market funding or short-term borrowings from the BOJ.

Secondary sources of liquidity include short-term debts, such as call money, bills sold, and commercial paper issued at an inter-bank or other wholesale markets. We also issue long-term debts, including both senior and subordinated debts, as additional sources of liquidity. With short- and long-term debts, we can diversify our funding sources, effectively manage our funding costs and enhance our capital adequacy ratios when appropriate.

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We source our funding in foreign currencies primarily from financial institutions, general corporations, and institutional investors, through short- and long-term financing. Even if we encounter declines in our credit quality or that of Japan in the future, we expect to be able to purchase foreign currencies in sufficient amounts using the yen funds raised through our domestic customer base. As further measures to support our foreign currency liquidity, we hold foreign debt securities, maintain credit lines and swap facilities denominated in foreign currencies, and pledge collateral to the U.S. Federal Reserve Bank.

We maintain management and control systems to support our ability to access liquidity on a stable and cost-effective basis. For further information, see “Item 11. Quantitative and Qualitative Disclosures about Credit, Market and Other Risk—Market Risk and Liquidity Risk—Framework for Market and Liquidity Risk Management.”

We believe we are able to access such sources of liquidity on a stable and flexible basis by keeping credit ratings at a high level. The following table shows credit ratings assigned to the Company by Moody’s, S&P and Fitch at May 31, 2020:

At May 31, 2020
Moody’s			S&P			Fitch
Long-term	Outlook	Short-term	Long-term	Outlook	Short-term	Long-term	Outlook	Short-term
A1	S	P-1	A-	S	—	A	N	F1

The following table shows credit ratings assigned to SMBC by Moody’s, S&P and Fitch at May 31, 2020:

At May 31, 2020
Moody’s			S&P			Fitch
Long-term	Outlook	Short-term	Long-term	Outlook	Short-term	Long-term	Outlook	Short-term
A1	S	P-1	A	S	A-1	A	N	F1

We are assigned credit ratings by major domestic and international credit rating agencies. Credit ratings do not constitute recommendations to purchase, sell or hold a security, and rating agencies may review or indicate an intention to review ratings at any time. While the methodology and rating system vary among rating agencies, credit ratings are generally based on information provided by us or independent sources, and can be influenced by the credit ratings of Japanese government bonds and broader views of the Japanese financial system. Any downgrade in or withdrawal of these credit ratings, or any adverse change in these ratings relative to other financial institutions, could increase our borrowing costs, reduce our access to the capital markets and otherwise negatively affect our ability to raise funds, which in turn could have a negative impact on our liquidity position.

The guidelines published by the FSA for LCR applicable to banks and bank holding companies with international operations are based on the full text of the LCR standard issued by the BCBS in January 2013. Under these 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. The following table shows the LCRs of the Company and SMBC for the three months ended March 31, 2020. Each figure is calculated based on our financial statements prepared in accordance with Japanese GAAP, as required by the FSA’s LCR guidelines.

	For the three months ended March 31, 2020(1)
SMFG (consolidated)		125.6	%
SMBC (consolidated)		129.5	%
SMBC (nonconsolidated)		135.3	%

(1) Under the FSA’s LCR guidelines, LCR is set as the three-month average of the daily LCRs for the three months ended March 31, 2020, which is calculated by dividing the balance of high-quality liquid assets by the total net cash outflows on a daily basis for the same three months.

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For further information, see “Item 4.B. Business Overview—Regulations in Japan—Regulations Regarding Capital Adequacy and Liquidity—Liquidity Requirement.”

Capital Management

With regard to capital management, we strictly abide by the capital adequacy guidelines set by the FSA. Japan’s capital adequacy guidelines are based on the Basel Capital Accord, which was proposed by the BCBS for uniform application to all banks which have international operations in industrialized countries. Japan’s capital adequacy guidelines may be different from those of central banks or supervisory bodies of other countries because they have been designed by the FSA to suit the Japanese banking environment. Our banking subsidiaries outside of Japan are also subject to the local capital ratio requirements.

Each figure for the FSA capital adequacy guidelines is calculated based on our financial statements prepared under Japanese GAAP.

The FSA capital adequacy guidelines permit Japanese banks to choose from the standardized approach (“SA”), the foundation IRB approach and the advanced IRB approach for credit risk, and the basic indicator approach (“BIA”), the standardized approach (“TSA”) and the AMA for operational risk. To be eligible to adopt the foundation IRB approach or the advanced IRB approach for credit risk, and the TSA or the AMA for operational risk, a Japanese bank must establish advanced risk management systems and receive prior approval from the FSA.

We and SMBC have adopted the advanced IRB approach since March 31, 2009 and the AMA since March 31, 2008.

In December 2010, the BCBS published the new Basel III rules text to implement the Basel III framework, which sets out higher and better-quality capital, better risk coverage, the introduction of a leverage ratio as a backstop to the risk-based requirement, measures to promote thebuild-up of capital that can be drawn down in periods of stress, and the introduction of two global liquidity standards. The main measures of the minimum capital requirements in the Basel III framework began on January 1, 2013 and have been fully applied from January 1, 2019.

These capital reforms increase the minimum common equity requirement from 2% to 4.5% and require banks to hold a capital conservation buffer, which started to be phased in from January 2016 with the initial ratio of 0.625% and reached 2.5% in January 2019, to withstand future periods of stress, bringing the total common equity requirement to 7%. The Tier 1 capital requirement was also increased from 4% to 6%, resulting in a total requirement of 8.5% when combined with the above-mentioned capital conservation buffer. The total capital requirement increased from 8% to 10.5% in January 2019 due to the full phasing in of the capital conservation buffer. Furthermore, a countercyclical buffer within a range of 0% to 2.5% of common equity or other fully loss-absorbing capital has been implemented according to national circumstances.

In addition to the above-mentioned minimum capital requirements and capital buffer requirements under Basel III, organizations identified by the FSB asG-SIBs, which includes us, are required to maintain an additional 1% to 2.5% of Common Equity Tier 1 capital as a percentage of risk-weighted assets, which is commonly referred to as theG-SIB capital surcharge, based on the organization’s size, interconnectedness, substitutability, complexity and cross-jurisdictional activity as determined by the FSB. The amount ofG-SIB capital surcharge that applies to us based on the FSB’s determination is 1%.

To reflect the Basel III framework, the FSA changed its capital adequacy guidelines. The minimum Common Equity Tier 1 capital requirement and Tier 1 capital requirement have been 4.5% and 6%, respectively since March 2015. The capital conservation buffer, countercyclical buffer and theG-SIB capital surcharge started to be phased in from March 31, 2016 and have been fully applied from March 31, 2019 under the FSA capital adequacy guidelines.

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In December 2017, the GHOS endorsed the outstanding Basel III regulatory reforms. For further details regarding the finalized Basel III reforms, see “Item 4.B. Business Overview—Regulations in Japan—Regulations Regarding Capital Adequacy and Liquidity—Capital Adequacy Requirement.”

In March 2015, the FSA published its leverage ratio guidelines, which have been applied from March 31, 2015, to help ensure broad and adequate capture of bothon- andoff-balance sheet sources of leverage for internationally active banks. The FSA’s leverage ratio guidelines are based on the text of the leverage ratio framework and disclosure requirements issued by the BCBS in January 2014.

Under the text of the leverage ratio framework, the BCBS indicated the minimum leverage ratio as 3% and monitored banks’ leverage ratio data in order to assess whether the design and calibration of a minimum leverage ratio of 3% is appropriate from January 1, 2013 to January 1, 2017.

In December 2017, the definition and requirements of the leverage ratio were revised as part of the finalized Basel III reforms, under which the leverage ratio is to be based on a Tier 1 definition of capital and with the minimum leverage ratio of 3%. Under the finalized Basel III reforms,G-SIBs are required to meet a leverage ratio buffer, which will take the form of a Tier 1 capital buffer set at 50% of the applicableG-SIB capital surcharge. Various refinements were also made to the definition of the leverage ratio exposure measure. The leverage ratio requirements under the definition based on the framework issued by the BCBS 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 forG-SIBs will be implemented as a Pillar 1 measurement from January 1, 2023.

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

The table below presents our risk-weighted capital ratios, total capital, risk-weighted assets and leverage ratio under Japanese GAAP at March 31, 2020, based on the Basel III rules.

	At March 31, 2020
	(In billions, except percentages)
SMFG Consolidated:
Total risk-weighted capital ratio		18.75	%
Tier 1 risk-weighted capital ratio		16.63	%
Common Equity Tier 1 risk-weighted capital ratio		15.55	%
Total capital (Common Equity Tier 1 capital + Additional Tier 1 capital + Tier 2 capital)	¥	11,552.0
Tier 1 capital (Common Equity Tier 1 capital + Additional Tier 1 capital)		10,249.9
Common Equity Tier 1 capital		9,581.3
Risk-weighted assets		61,599.1
The amount of minimum total capital requirements(1)		4,927.9
Leverage ratio		4.31	%

(1) The amount of minimum total capital requirements is calculated by multiplying risk-weighted assets by 8%.

Common Equity Tier 1 capital consists primarily of capital stock, capital surplus and retained earnings relating to common shares, andnon-controlling interests that meet the criteria set forth in the FSA capital adequacy guidelines for inclusion in Common Equity Tier 1 capital.

Non-controlling interests arising from the issue of common shares by a fully consolidated subsidiary of a bank may receive recognition in Common Equity Tier 1 capital only if: (1) the instrument giving rise to the

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non-controlling interest would, if issued by the bank, meet all of the criteria set forth in the FSA capital adequacy guidelines for classification as common shares for regulatory capital purposes; and (2) the subsidiary that issued the instrument is itself a bank or other financial institution subject to similar capital adequacy guidelines.

Regulatory adjustments such as goodwill and other intangibles, deferred tax assets, investment in the common equity capital of banking financial and insurance entities and defined benefit pension fund assets and liabilities are applied mainly to the calculation of Common Equity Tier 1 capital in the form of a deduction.

Additional Tier 1 capital consists primarily of preferred securities and perpetual subordinated bonds.

Tier 2 capital consists primarily of subordinated debt securities.

Capital instruments such as preferred securities and subordinated debt issued on or after March 31, 2013 must meet the new requirements to be included in regulatory capital. Capital instruments issued prior to March 31, 2013 that do not meet the requirements set forth in the FSA capital adequacy guidelines no longer qualify as Additional Tier 1 or Tier 2 capital. However, if those capital instruments meet the requirements for transitional arrangements set forth in such guidelines, they can qualify as Additional Tier 1 or Tier 2 capital during thephase-out period beginning March 31, 2013. The remaining balance of thosenon-qualifying capital instruments recognized as Additional Tier 1 or Tier 2 capital are being reduced in annual 10% increments and will be fully phased out by March 31, 2022.

Our capital position and SMBC’s capital position depend in part on the fair market value of our investment securities portfolio, since unrealized gains and losses are included in the amount of regulatory capital. At March 31, 2013, unrealized gains and losses were counted as Tier 2 capital and Additional Tier 1 capital, respectively, but started to be counted as Common Equity Tier 1 capital from March 31, 2014 by increments of 20% and have been fully counted as Common Equity Tier 1 capital since March 31, 2018. Since our other securities (including money held in trust) with a readily ascertainable market value included unrealized gains and losses, substantial fluctuations in the Japanese stock markets may affect our capital position and the capital position of SMBC.

In addition, our capital position and SMBC’s capital position would be negatively affected if deferred tax assets cannot be recognized. Under Japanese GAAP, a company will lose its ability to recognize deferred tax assets if, in principle, it has substantial amounts of negative annual taxable income for each of past three consecutive years and current fiscal year, and is expected to have significant negative taxable income in the following fiscal year.

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Set forth below is a table of risk-weighted capital ratios, total capital, risk-weighted assets and leverage ratio of SMBC at March 31, 2020 on a consolidated and nonconsolidated basis.

	At March 31, 2020
	(In billions, except percentages)
SMBC Consolidated:
Total risk-weighted capital ratio		18.06	%
Tier 1 risk-weighted capital ratio		15.80	%
Common Equity Tier 1 risk-weighted capital ratio		13.70	%
Total capital (Common Equity Tier 1 capital + Additional Tier 1 capital + Tier 2 capital)	¥	10,107.2
Tier 1 capital (Common Equity Tier 1 capital + Additional Tier 1 capital)		8,842.3
Common Equity Tier 1 capital		7,669.2
Risk-weighted assets		55,953.8
The amount of minimum total capital requirements(1)		4,476.3
Leverage ratio		3.97	%
SMBC Nonconsolidated:
Total risk-weighted capital ratio		17.61	%
Tier 1 risk-weighted capital ratio		15.23	%
Common Equity Tier 1 risk-weighted capital ratio		13.01	%
Total capital (Common Equity Tier 1 capital + Additional Tier 1 capital + Tier 2 capital)	¥	9,202.0
Tier 1 capital (Common Equity Tier 1 capital + Additional Tier 1 capital)		7,959.8
Common Equity Tier 1 capital		6,800.3
Risk-weighted assets		52,248.9
The amount of minimum total capital requirements(1)		4,179.9

(1) The amount of minimum total capital requirements is calculated by multiplying risk-weighted assets by 8%.

Our securities subsidiary in Japan, SMBC Nikko Securities is also subject to capital adequacy requirements under the FIEA described in “Item 4.B. Business Overview—Regulations in Japan—Regulations Regarding Capital Adequacy and Liquidity.” At March 31, 2020, the capital adequacy ratio was 318.7% for SMBC Nikko Securities, and sufficiently above 140%, below which level it would be required to file daily reports with the Commissioner of the FSA.

5.C.    RESEARCH, DEVELOPMENT, PATENTS AND LICENSES

We did not conduct any significant research and development activities for the fiscal year ended March 31, 2020. However, there are certain research and development activities for our information system infrastructure.

5.D.    TREND INFORMATION

Our trend information is contained elsewhere in this annual report, including but not limited to “Item 4.B. Business Overview,” and “—A. Operating Results,” and “—B. Liquidity and Capital Resources” in this Item.

5.E.    OFF-BALANCE SHEET ARRANGEMENTS

To meet our customers’ financing needs, we engage in various types ofoff-balance sheet arrangements in the ordinary course of business.

Our arrangements include loan commitments, financial guarantees and other credit-related contingent liabilities. Loan commitment contracts on overdrafts and loans are agreements to lend up to a prescribed amount to customers, as long as there is no violation of any condition established in the contracts. Financial guarantees

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are contracts that require the issuer to make specified payments to reimburse the holder for a loss it incurs because a specified debtor fails to make payments when due in accordance with the terms of the debt instrument. Other credit-related contingent liabilities include performance bonds, which are contracts that provide compensation if another party fails to perform the contractual obligation.

The table below shows the nominal amounts of undrawn loan commitments, and financial guarantees and other credit-related contingent liabilities at March 31, 2020 and 2019.

	At March 31,
	2020		2019
	(In millions)
Loan commitments	¥	62,151,698	¥	62,724,820
Financial guarantees and other credit-related contingent liabilities		9,204,996		9,409,066
Total	¥	71,356,694	¥	72,133,886

The nominal amounts of theseoff-balance sheet instruments generally represent the maximum potential amounts of future payments without consideration of possible recoveries under recourse provisions or from collateral held. For example, since many of these loan commitments are expected to expire without being drawn down, the total amount of unused commitments does not necessarily represent an actual future cash flow requirement. Many of these loan commitments include clauses under which we can reject an application from customers or reduce the contract amounts in cases where economic conditions change, we need to secure claims, or some other significant event occurs. In addition, we may request the customers to pledge collateral such as premises and securities at the time of the contracts, and take necessary measures such as monitoring customers’ financial positions, revising contracts when the need arises and securing claims after the contracts are made. We regularly review the credit quality of the customer based on our risk management system as set forth in “Item 11. Quantitative and Qualitative Disclosures about Credit, Market and Other Risk” and Note 45 “Financial Risk Management” to our consolidated financial statements included elsewhere in this annual report.

In addition to the above-mentionedoff-balance sheet arrangements, some of the SMBC Group’soff-balance sheet arrangements are related to activities of structured entities. For further information, see Note 48 “Structured Entities” to our consolidated financial statements included elsewhere in this annual report.

5.F.    TABULAR DISCLOSURE OF CONTRACTUAL OBLIGATIONS

In the normal course of business, we enter into contractual obligations that require future cash payments. The following table sets forth a summary of our contractual cash obligations at March 31, 2020.

	At March 31, 2020
	Due in one year or less		Due from one year to three years		Due from three years to five years		Due after five years		Total(1)
					(In millions)
Time deposits	¥	21,283,965	¥	2,729,175	¥	445,095	¥	570,314	¥	25,028,549
Negotiable certificate of deposits		9,488,289		674,432		17,715		—		10,180,436
Borrowings		10,404,756		2,527,554		1,923,192		1,872,774		16,728,276
Debt securities in issue		3,048,055		2,241,586		1,916,987		3,512,194		10,718,822
Lease liabilities		78,719		107,638		68,788		145,722		400,867
Purchase obligation(2)		88,030		13,326		771		804		102,931
Total	¥	44,391,814	¥	8,293,711	¥	4,372,548	¥	6,101,808	¥	63,159,881

(1) The amount of interest on debt instruments is not included in the maturity table above due to its insignificance.

(2) Purchase obligation in the above table includes the contractual commitments to purchase goods or services of construction and information technology that are binding on us for the payment of more than ¥100 million.

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5.G.    SAFE HARBOR

See the discussion under “Cautionary Statement Regarding Forward-Looking Statements.”

Item 6. Directors, Senior Management and Employees 

6.A.    DIRECTORS AND SENIOR MANAGEMENT

Directors and Senior Management

We have adopted a company with three statutory committees system of corporate governance. Under the Companies Act, a company with three statutory committees is required to have a nominating committee, an audit committee and a compensation committee, each of which consisting of members of the board of directors and of which the majority of the members must be outside directors. In addition to the three statutory committees, we have voluntarily established our risk committee. Also, under the Companies Act, a company with three statutory committees must have one or more corporate executive officers elected by resolution of the board of directors. Corporate executive officers decide on the execution of the operations of the company that were delegated to them by resolution of the board of directors. The board of directors decides on the execution of operations of the company, including basic management policy, and supervises the execution of duties by corporate executive officers.

Our board of directors is comprised of fifteen directors, seven of whom are outside directors as defined under the Companies Act. In addition, our board of directors has elected thirteen corporate executive officers.

For more information, see “Item 6.C. Board Practices.”

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Directors

At June 26, 2020, the following directors held the indicated positions with us:

Name (Date of birth)	Current positions and principal outside positions	Business experience
Takeshi Kunibe (March 8, 1954)	Chairman of the Board of the Company	April 1976	Joined Sumitomo Bank
		June 2003	Executive Officer of SMBC
		October 2006	Managing Executive Officer of SMBC
		April 2007	Managing Executive Officer of the Company
		June 2007	Director of the Company
		April 2009	Director and Senior Managing Executive Officer of SMBC
		April 2011	President and Chief Executive Officer of SMBC
		April 2017	President of the Company
			Resigned as Director of SMBC
		June 2017	Director President of the Company
		April 2019	Chairman of the Board of the Company (to present)
Jun Ohta (February 12, 1958)	Director President of the Company (Representative Corporate Executive Officer) Group Chief Executive Officer, or CEO	April 1982	Joined Sumitomo Bank
		April 2009	Executive Officer of SMBC
		April 2012	Managing Executive Officer of SMBC
		April 2013	Managing Executive Officer of the Company
		April 2014	Senior Managing Executive Officer of the Company
			Senior Managing Executive Officer of SMBC
		June 2014	Director of the Company
		April 2015	Director and Senior Managing Executive Officer of SMBC
		April 2017	Director and Deputy President of the Company
			Resigned as Director of SMBC
		June 2017	Director Deputy President and Corporate Executive Officer of the Company
		March 2018	Director and Deputy President of SMBC
		April 2019	Director President of the Company (to present)
			Resigned as Director of SMBC
Makoto Takashima (March 31, 1958)	Director of the Company	April 1982	Joined Sumitomo Bank
	President of SMBC	April 2009	Executive Officer of SMBC
		April 2012	Managing Executive Officer of SMBC
		April 2014	Senior Managing Executive Officer of SMBC
		December 2016	Director and Senior Managing Executive Officer of SMBC
		April 2017	President of SMBC (to present)
		June 2017	Director of the Company (to present)

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Name (Date of birth)	Current positions and principal outside positions	Business experience
Haruyuki Nagata (February 20, 1963)	Director Senior Managing Corporate Executive Officer of the Company Group Chief Risk Officer, or CRO Officer in charge of Corporate Risk Management Department, Risk Management Department, Americas Division and Credit & Investment Planning Department Director and Senior Managing Executive Officer of SMBC	April 1985	Joined Mitsui Bank
		April 2011	General Manager of Financial Accounting Department of the Company
		April 2013	Executive Officer of SMBC
		April 2015	Managing Executive Officer of SMBC
		April 2016	Managing Executive Officer of the Company
		March 2018	Director and Managing Executive Officer of SMBC
		April 2018	Director and Senior Managing Executive Officer of SMBC (to present)
		April 2019	Senior Managing Corporate Executive Officer of the Company
		June 2019	Director Senior Managing Corporate Executive Officer of the Company (to present)
Toru Nakashima (September 14, 1963)	Director Senior Managing Corporate Executive Officer of the Company Group Chief Financial Officer, or CFO, and Group Chief Strategy Officer, or CSO Officer in charge of Public Relations Department, Corporate Planning Department, Business Development Department and Financial Accounting Department Director and Senior Managing Executive Officer of SMBC	April 1986	Joined Sumitomo Bank
		April 2014	Executive Officer of SMBC
		April 2015	General Manager of Corporate Planning Department of the Company
		April 2016	Managing Executive Officer of SMBC
		April 2017	Managing Executive Officer of the Company
		March 2019	Director and Managing Executive Officer of SMBC
		April 2019	Senior Managing Corporate Executive Officer of the Company
			Director and Senior Managing Executive Officer of SMBC (to present)
		June 2019	Director Senior Managing Corporate Executive Officer of the Company (to present)
Atsuhiko Inoue (July 3, 1957)	Director of the Company Director of SMBC	April 1981	Joined Sumitomo Bank
		April 2008	Executive Officer of SMBC
		April 2011	Managing Executive Officer of SMBC
		April 2014	Senior Managing Executive Officer of the Company
			Director and Senior Managing Executive Officer of SMBC
		June 2014	Director of the Company
		April 2015	Resigned as Director of the Company
			Senior Managing Executive Officer of SMBC
		June 2019	Director of the Company (to present)
			Director of SMBC (to present)
Toru Mikami (August 27, 1960)	Director of the Company	April 1984	Joined Sumitomo Bank
		April 2006	General Manager of Legal Department of SMBC
		April 2013	Co-General Manager of General Affairs Department of the Company
		April 2015	Senior Manager of Head Office of SMBC
		June 2015	Standing Corporate Auditor of the Company
		June 2017	Director of the Company (to present)

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Name (Date of birth)	Current positions and principal outside positions	Business experience
Yoshihiko Shimizu (December 3, 1955)	Director of the Company Representative Director, Chairman of SMBC Nikko Securities Inc. (“SMBC Nikko Securities”)	April 1978	Joined Sumitomo Bank
		April 2004	Executive Officer of SMBC
		April 2008	Managing Executive Officer of SMBC
		April 2010	Director and Senior Managing Executive Officer of SMBC
		April 2012	Director and Deputy President of SMBC
		April 2014	Director and Deputy Chairman of SMBC
		May 2015	Resigned as Director of SMBC
		June 2015	Advisor of SMBC Nikko Securities
		September 2015	Representative Director, Deputy President of SMBC Nikko Securities
		April 2016	Representative Director, President & CEO of SMBC Nikko Securities
		April 2020	Representative Director, Chairman of SMBC Nikko Securities (to present)
		June 2020	Director of the Company (to present)
Masayuki Matsumoto(1) (April 14, 1944)	Director of the Company Special Advisor of Central Japan Railway Company	April 1967	Joined the Japanese National Railways
		April 1987	Joined Central Japan Railway Company
		June 2004	President and Representative Director of Central Japan Railway Company
		April 2010	Vice Chairman and Representative Director of Central Japan Railway Company
		January 2011	Resigned as Director of Central Japan Railway Company
		January 2011	President of Japan Broadcasting Corporation
		January 2014	Retired from Japan Broadcasting Corporation
		April 2014	Special Advisor of Central Japan Railway Company (to present)
		June 2015	Director of SMBC
		June 2017	Director of the Company (to present)
			Retired as Director of SMBC
Arthur M. Mitchell(1) (July 23, 1947)	Director of the Company	July 1976	Registered as an attorney at law, admitted in New York, the U.S.A. (to present)
		January 2003	General Counsel of the Asian Development Bank
		September 2007	Joined White & Case LLP
		January 2008	Registered as Foreign Attorney in Japan (to present)
			Registered Foreign Attorney in Japan at White & Case LLP (to present)
		June 2015	Director of the Company (to present)

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Name (Date of birth)	Current positions and principal outside positions	Business experience
Shozo Yamazaki(1) (September 12, 1948)	Director of the Company	November 1970	Joined Tohmatsu Awoki & Co. (currently Deloitte Touche Tohmatsu LLC)
		September 1974	Registered as a certified public accountant (to present)
		July 1991	Representative Partner of Tohmatsu & Co. (currently Deloitte Touche Tohmatsu LLC)
		June 2010	Retired from Deloitte Touche Tohmatsu LLC
		July 2010	Chairman and President of The Japanese Institute of Certified Public Accountants
		July 2013	Advisor of The Japanese Institute of Certified Public Accountants (to present)
		April 2014	Professor of Tohoku University Accounting School
		June 2017	Director of the Company (to present)
Masaharu Kohno(1) (December 21, 1948)	Director of the Company	April 1973	Joined Ministry of Foreign Affairs of Japan
		August 2005	Director-General of Foreign Policy Bureau in Ministry of Foreign Affairs of Japan
		January 2007	Deputy Minister for Foreign Affairs (in charge of economy) of Ministry of Foreign Affairs of Japan
		February 2009	Ambassador of Japan to Russia
		May 2009	Ambassador of Japan to Russia, Armenia, Turkmenistan and Belarus
		March 2011	Ambassador of Japan to Italy
		May 2011	Ambassador of Japan to Italy, Albania, San Marino and Malta
		September 2014	Retired from office
		June 2015	Director of the Company (to present)
Yoshinobu Tsutsui(1) (January 30, 1954)	Director of the Company Chairman of Nippon Life Insurance Company	April 1977	Joined Nippon Life Insurance Company
		July 2004	Director of Nippon Life Insurance Company
		January 2007	Director and Executive Officer of Nippon Life Insurance Company
		March 2007	Director and Managing Executive Officer of Nippon Life Insurance Company
		March 2009	Director and Senior Managing Executive Officer of Nippon Life Insurance Company
		March 2010	Representative Director and Senior Managing Executive Officer of Nippon Life Insurance Company
		April 2011	President of Nippon Life Insurance Company
		June 2017	Director of the Company (to present)
		April 2018	Chairman of Nippon Life Insurance Company (to present)
Katsuyoshi Shinbo(1) (April 8, 1955)	Director of the Company	April 1984	Registered as an attorney at law (to present)
		November 1999	Attorney at law at Shinbo Law Office (currently Shinbo & Partners) (to present)
		June 2015	Corporate Auditor of SMBC
		June 2017	Director of the Company (to present)
			Resigned as Corporate Auditor of SMBC

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Name (Date of birth)	Current positions and principal outside positions	Business experience
Eriko Sakurai(1) (November 16, 1960)	Director of the Company Chairman and CEO of Dow Toray Co., Ltd. Executor, Dow Switzerland Holding GmbH, which is a Representative Partner of Dow Silicones Holding Japan G.K.	June 1987	Joined Dow Corning Corporation
		May 2008	Director of Dow Corning Toray Co., Ltd.
		March 2009	Chairman and CEO of Dow Corning Toray Co., Ltd.
		May 2011	Regional President -Japan/Korea of Dow Corning Corporation
		February 2015	President and Representative Director of Dow Corning Holding Japan Co., Ltd.
		June 2015	Director of the Company (to present)
		May 2018	Executor, Dow Switzerland Holding GmbH, which is a Representative Partner of Dow Silicones Holding Japan G.K. (to present)
		June 2018	Chairman and CEO of Dow Toray Co., Ltd. (to present)

(1) Messrs. and Ms. Matsumoto, Mitchell, Yamazaki, Kohno, Tsutsui, Shinbo and Sakurai satisfy the requirements for an “outside director” under the Companies Act.

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Corporate Executive Officers

At June 26, 2020, the following corporate executive officers held the indicated positions with us:

Name (Date of birth)	Current positions and principal outside positions	Business experience
Jun Ohta (February 12, 1958)	See “Directors” under this Item 6.A.	See “Directors” under this Item 6.A.
Gotaro Michihiro (March 30, 1959)	Deputy President and Corporate Executive Officer of the Company (Representative Corporate Executive Officer) Co-Head of Wholesale Business Unit Director and Deputy President of SMBC	April 1983	Joined Sumitomo Bank
		April 2012	Executive Officer of SMBC
		April 2013	Managing Executive Officer of SMBC
		April 2017	Senior Managing Executive Officer of the Company
			Senior Managing Executive Officer of SMBC
		March 2019	Director and Senior Managing Executive Officer of SMBC
		April 2019	Deputy President and Corporate Executive Officer of the Company (to present)
			Director and Deputy President of SMBC (to present)
Masahiko Oshima (September 13, 1960)	Deputy President and Corporate Executive Officer of the Company (Representative Corporate Executive Officer) Head of Global Business Unit (former International Business Unit) Director and Deputy President of SMBC	April 1984	Joined Mitsui Bank
		April 2012	Executive Officer of SMBC
		April 2014	Managing Executive Officer of SMBC
		March 2017	Director and Managing Executive Officer of SMBC
		April 2017	Director and Senior Managing Executive Officer of SMBC
		April 2018	Senior Managing Corporate Executive Officer of the Company
			Senior Managing Executive Officer of SMBC
		March 2019	Director and Senior Managing Executive Officer of SMBC
		April 2019	Deputy President and Corporate Executive Officer of the Company (to present)
			Director and Deputy President of SMBC (to present)

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Name (Date of birth)	Current positions and principal outside positions	Business experience
Toshikazu Yaku (March 3, 1962)	Deputy President and Corporate Executive Officer of the Company (Representative Corporate Executive Officer) Group Chief Human Resources Officer, or CHRO Officer in charge of General Affairs Department, Human Resources Department, Quality Management Department and Administrative Services Department Director and Deputy President of SMBC	April 1984	Joined Sumitomo Bank
		April 2012	General Manager of Human Resources Department of the Company
			Executive Officer of SMBC
		April 2014	Managing Executive Officer of SMBC
		April 2016	Managing Executive Officer of the Company
		March 2017	Director and Managing Executive Officer of SMBC
		April 2017	Senior Managing Executive Officer of the Company
			Director and Senior Managing Executive Officer of SMBC
		June 2017	Director Senior Managing Corporate Executive Officer of the Company
		April 2019	Director Deputy President and Corporate Executive Officer of the Company
			Director and Deputy President of SMBC (to present)
		June 2019	Deputy President and Corporate Executive Officer of the Company (to present)
Katsunori Tanizaki (April 12, 1957)	Senior Managing Corporate Executive Officer of the Company Group Chief Digital Innovation Officer, or CDIO Officer in charge of Digital Solution Division and Digital Strategy Department Senior Managing Executive Officer of SMBC	April 1982	Joined Sumitomo Bank
		April 2010	Executive Officer of SMBC
		April 2013	Managing Executive Officer of SMBC
		April 2015	Senior Managing Executive Officer of the Company
			Director and Senior Managing Executive Officer of SMBC
		June 2015	Director of the Company
		April 2017	Director and Senior Managing Executive Officer of the Company
		June 2017	Director Senior Managing Corporate Executive Officer of the Company
		April 2019	Senior Managing Executive Officer of SMBC (to present)
		June 2019	Senior Managing Corporate Executive Officer of the Company (to present)
Naoki Tamura (July 9, 1961)	Senior Managing Corporate Executive Officer of the Company Head of Retail Business Unit Senior Managing Executive Officer of SMBC	April 1984	Joined Sumitomo Bank
		April 2012	Co-General Manager of Corporate Risk Management Department of the Company
			Executive Officer of SMBC
		April 2015	Managing Executive Officer of SMBC
		April 2017	Managing Executive Officer of the Company
		April 2018	Senior Managing Corporate Executive Officer of the Company (to present)
			Senior Managing Executive Officer of SMBC (to present)

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Name (Date of birth)	Current positions and principal outside positions	Business experience
Kimio Matsuura (February 4, 1960)	Senior Managing Corporate Executive Officer of the Company Co-Head of Wholesale Business Unit Senior Managing Executive Officer of SMBC	April 1984	Joined Sumitomo Bank
		April 2012	Executive Officer of SMBC
		April 2014	Managing Executive Officer of SMBC
		April 2017	Senior Managing Executive Officer of SMBC (to present)
		April 2018	Senior Managing Executive Officer of the Company
		April 2019	Senior Managing Corporate Executive Officer of the Company (to present)
Haruyuki Nagata (February 20, 1963)	See “Directors” under this Item 6.A.	See “Directors” under this Item 6.A.
Toru Nakashima (September 14, 1963)	See “Directors” under this Item 6.A.	See “Directors” under this Item 6.A.
Tetsuro Imaeda (May 2, 1962)	Senior Managing Corporate Executive Officer of the Company Group Chief Compliance Officer, or CCO Officer in charge of Compliance Department Director and Senior Managing Executive Officer of SMBC	April 1986	Joined Sumitomo Bank
		April 2014	Executive Officer of SMBC
		September 2016	Managing Executive Officer of SMBC
		April 2017	Managing Executive Officer of the Company
		April 2020	Senior Managing Executive Officer of the Company
			Senior Managing Executive Officer of SMBC
		May 2020	Senior Managing Corporate Executive Officer of the Company (to present)
			Director and Senior Managing Executive Officer of SMBC (to present)
Fumiharu Kozuka (December 8, 1961)	Senior Managing Corporate Executive Officer of the Company Group Chief Audit Executive, or CAE Officer in charge of Audit Department	April 1986	Joined Mitsui Bank
		April 2015	Executive Officer of SMBC
		April 2017	Managing Executive Officer of SMBC
		March 2019	Director and Managing Executive Officer of SMBC
		April 2019	Director and Senior Managing Executive Officer of SMBC
		April 2020	Senior Managing Corporate Executive Officer of the Company (to present)
			Resigned as Director of SMBC
Masamichi Koike (October 25, 1963)	Senior Managing Corporate Executive Officer of the Company Head of Global Markets Business Unit Senior Managing Executive Officer of SMBC	April 1987	Joined Taiyo Kobe Bank
		April 2015	Executive Officer of SMBC
		July 2017	Executive Officer of the Company
		April 2018	Managing Executive Officer of the Company
			Managing Executive Officer of SMBC
		April 2020	Senior Managing Corporate Executive Officer of the Company (to present)
			Senior Managing Executive Officer of SMBC (to present)

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Name (Date of birth)	Current positions and principal outside positions	Business experience
Shoji Masuda (July 22, 1963)	Senior Managing Corporate Executive Officer of the Company Group Chief Information Officer, or CIO Officer in charge of IT Planning Department, System Security Planning Department, Data Management Department and Operations Planning Department Director and Senior Managing Executive Officer of SMBC	April 1987	Joined Sumitomo Bank
		April 2014	General Manager of IT Planning Department of the Company
			General Manager of IT Planning Department of SMBC
		April 2016	Executive Officer of SMBC
		April 2017	Executive Officer of the Company
		April 2018	Managing Executive Officer of the Company
			Managing Executive Officer of SMBC
		March 2019	Director and Managing Executive Officer of SMBC
		April 2019	Managing Corporate Executive Officer of the Company
		April 2020	Senior Managing Corporate Executive Officer of the Company (to present)
			Director and Senior Managing Executive Officer of SMBC (to present)

Familial Relationships

There are no familial relationships between any of the directors and corporate executive officers listed above.

Arrangements and Understandings

There is no arrangement or understanding with any major shareholder, customer, supplier or other party, pursuant to which any of the directors and corporate executive officers listed above were selected as a director or member of corporate executive officers.

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6.B.    COMPENSATION

The aggregate amounts of compensation paid by us during the fiscal year ended March 31, 2020 to our directors and to our corporate executive officers were ¥533 million and ¥989 million, respectively.

The following table sets forth the details of individual compensation, disclosed pursuant to the provision of the FIEA and related ordinance, by SMFG and its subsidiaries in amounts equal to or exceeding ¥100 million during the fiscal year ended March 31, 2020:

	Compensation
Director	Aggregate amount		Paid by		Annual salary		Stock compensation		Bonus
	(In millions)(1)
Takeshi Kunibe	¥	138		SMFG	¥	79	¥	23	¥	35
Makoto Takashima	¥	150		SMFG	¥	14	¥	—	¥	—
				SMBC		76		23		35
Jun Ohta	¥	137		SMFG	¥	80	¥	19	¥	35
				SMBC		—		1		—

(1) Amounts less than one million yen have been truncated.

In June 2017, we transitioned from a board of corporate auditors governance system to a company with three statutory committees: a nominating committee, an audit committee and a compensation committee. The compensation committee is responsible for establishing policy in regard to the determination of compensation of our directors and corporate executive officers. In addition, the committee determines the contents of the compensation of the individual directors and corporate executive officers in accordance with this policy. For more information, see “Item 6.C. Board Practices.”

In July 2017, our compensation committee resolved to revise our executive compensation policy and to introduce new stock compensation plans that utilize restricted stock, while discontinuing the issuance of new stock options. The plans allot shares of restricted stock to directors (excluding outside directors), corporate executive officers, and executive officers of SMFG, directors (excluding outside directors) and executive officers, etc. of SMBC and representative corporate executive officers of certain of our subsidiaries, in order to (a) provide more appropriate incentives for executives by strengthening linkages with SMFG’s short-, medium- and long-term performance, and (b) further align the interests of executives with those of shareholders, increase the weight of stock compensation, and enhance the shareholding of our executives.

Prior to the revision of our executive compensation policy discussed above, we had introduced compensation-type stock options to directors, corporate auditors, and executive officers of SMFG and SMBC (“SMFG Stock Acquisition Rights”), which served as an incentive for them to further contribute to the equity appreciation and achieve better corporate performance through sharing the benefits and risks of the share price performance with our shareholders.

For more information about compensation plans utilizing restricted stock and stock option plans, see “Item 6.E. Share Ownership” or Note 39 “Share-Based Payment” to our consolidated financial statements included elsewhere in this annual report.

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6.C.    BOARD PRACTICES

General

The Companies Act permits three types of governance systems for large public companies. The first system is for companies with a board of corporate auditors, and the second one is for companies with an audit and supervisory committee. The last one is for companies with three statutory committees: a nominating committee, an audit committee and a compensation committee.

We had previously employed a board of corporate auditors governance system. In order to further enhance our solid corporate governance system, we transitioned to a company with three statutory committees in June, 2017.

Under the Companies Act, a company with three statutory committees is required to have a nominating committee, an audit committee and a compensation committee, each of which consisting of members of the board of directors and of which the majority of the members must be outside directors. In addition to the three statutory committees, we have voluntarily established our risk committee.

“Outside director” means a director of any corporation who satisfies all of the following requirements: (a) a person who is not an executive director, corporate executive officer (shikkoyaku), or an employee, including a manager (“Executive Director, etc.”), and has not been an Executive Director, etc. of such corporation or any of its subsidiaries for the ten years prior to assuming his/her office; (b) if the person has been a director, accounting advisor or corporate auditor of such corporation or any of its subsidiaries (excluding a person who has been an Executive Director, etc.) at any time within the ten years prior to assuming his/her office, a person who has not been an Executive Director, etc. of such corporation or any of its subsidiaries for the ten years prior to assuming his/her office as director, accounting advisor, or corporate auditor; (c) a person who is not a parent corporation or any entity which is prescribed by the applicable Ordinance of the Ministry of Justice as a person who controls the management of the corporation (excluding entities who are juridical persons) (“parent corporation, etc.”) of such corporation (limited to a natural person) or director or corporate executive officer (shikkoyaku), or other employee, including a manager, of a parent corporation, etc.; (d) a person who is not an Executive Director, etc. of a subsidiary or any entity which is prescribed by the applicable Ordinance of the Ministry of Justice as the juridical person for which management is controlled by the person other than the corporation (“subsidiary, etc.”) of a parent corporation, etc. of such corporation; and (e) a person who is not a spouse or relative within the second degree of kinship of a director or corporate executive officer (shikkoyaku), manager, or other important employee of such corporation, or its parent corporation, etc. (limited to a natural person).

To ensure the compliance of our execution of our business operations with legal regulations and generally accepted practices, the outside directors are selected from among experts (including certified public accountants, lawyers and persons with consulting or business management experience).

Also, under the Companies Act, a company with three statutory committees must have one or more corporate executive officers elected by resolution of the board of directors. Corporate executive officers decide on the execution of the operations of the company that were delegated to them by resolution of the board of directors.

Pursuant to Article 4 of our articles of incorporation, we maintain a corporate governance system consisting of a general meeting of shareholders, individual directors, a board of directors, a nominating committee, an audit committee, a compensation committee, corporate executive officers and an accounting auditor as its primary components.

Board of directors

Our articles of incorporation provide for a board of directors consisting of not fewer than three directors. We currently have fifteen directors. All directors are elected by our shareholders at a general meeting of

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shareholders. The term of office of a director expires upon conclusion of the ordinary general meeting of shareholders to be held for the last fiscal year ending within one year after the election of the director. Directors may serve any number of consecutive terms.

By resolution, our board of directors elects or removes corporate executive officers and representative executive officers. Our board of directors may elect directors with titles (yakutsuki-torishimariyaku) and corporate executive officers with titles (yakutsuki-shikkoyaku) and assign or change the designation of the duties of corporate executive officers by resolution. In addition, our board of directors elects or removes members of each statutory committee.

The Companies Act requires the board of directors to decide on the execution of operations of a company, including basic management policy, and supervise the execution of duties by corporate executive officers. In addition, the board of directors may, by resolution of the same, delegate decisions on the execution of the operations to corporate executive officers, to the extent permitted by the Companies Act.

Our board of directors held 12 meetings during the fiscal year ended March 31, 2020. The average attendance rate was 100%.

Nominating committee

The nominating committee determines the contents of proposals regarding the election and dismissal of directors to be submitted to a general meeting of shareholders. The committee also deliberates on matters regarding personnel decisions pertaining to officers of the Company and our major subsidiaries and the selection of successors to the presidents of the Company and SMBC.

Under the Companies Act, we are required to have a nominating committee that consists of members of our board of directors, and the majority of the members must be outside directors. Currently, the chairman of the nominating committee is Yoshinobu Tsutsui, who is an outside director. Other outside directors on the nominating committee are Masayuki Matsumoto, Arthur M. Mitchell, Masaharu Kohno and Eriko Sakurai. The other director on the nominating committee is Takeshi Kunibe, the chairman of the board.

Our nominating committee held 5 meetings during the fiscal year ended March 31, 2020. The average attendance rate was 97%.

Audit committee

The audit committee is responsible for auditing the execution of duties by corporate executive officers and directors, preparing audit reports and determining the contents of proposals regarding the election or dismissal of, or refusal to reelect, accounting auditors under the Companies Act to be submitted to a general meeting of shareholders. In addition, the committee inspects our operations and assets, and those of our major subsidiaries.

Under the Companies Act, we are required to have an audit committee that consists of members of our board of directors, and the majority of the members must be outside directors. Currently, the chairman of the audit committee is Masayuki Matsumoto, who is an outside director. Other outside directors on the audit committee are Shozo Yamazaki and Katsuyoshi Shinbo. Other directors on the audit committee are Atsuhiko Inoue and Toru Mikami.

Our audit committee held 15 meetings during the fiscal year ended March 31, 2020. The average attendance rate was 100%.

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Compensation committee

The compensation committee is responsible for establishing policy in regard to the determination of compensation of our directors and corporate executive officers. In addition, the committee determines the contents of the compensation of the individual directors and corporate executive officers in accordance with this policy. The committee also deliberates on the policies for determining the compensation of directors and officers of our major subsidiaries, and the contents of compensation of individual executive officers of the Company.

Under the Companies Act, we are required to have a compensation committee that consists of members of our board of directors, and the majority of the members must be outside directors. Currently, the chairman of the compensation committee is Katsuyoshi Shinbo, who is an outside director. Other outside directors on the compensation committee are Arthur M. Mitchell, Yoshinobu Tsutsui and Eriko Sakurai. Other directors on the compensation committee are Takeshi Kunibe, the chairman of the board, and Jun Ohta, our president.

Our compensation committee held 6 meetings during the fiscal year ended March 31, 2020. The average attendance rate was 97%.

Risk committee

In addition to the three statutory committees mentioned above, we have voluntarily established our risk committee. The committee is responsible for on matters relating to environmental and risk awareness, the operation of our risk appetite framework, and the implementation of risk management systems as well as other important matters pertaining to risk management and reporting to the board of directors on these matters.

Corporate executive officers

Under the Companies Act, a company with three statutory committees must have one or more corporate executive officers. We currently have thirteen corporate executive officers. All corporate executive officers are elected by our directors at a board of directors meeting. The term of office of a corporate executive officer expires upon conclusion of the first board of directors meeting called after conclusion of the ordinary general meeting of shareholders for the last business year ending within one year from the time of their election. The board of directors shall appoint representative executive officers from among the corporate executive officers.

Our President and Group Chief Executive Officer (“CEO”) executes business affairs in accordance with resolutions adopted by the board of directors. Our deputy presidents and executive officers, senior managing corporate executive officers and managing executive officers assist the President and Group CEO in the management of ourday-to-day operations. Our chairman of the board serves as the chairman of and presides over our board of directors. This is done in order to separate the role of our president, whose responsibility is to exercise overall supervision of our business activities and SMBC Group companies, from the role of our chairman.

At the operational level, we have created the Management Committee to act as the top decision-making body with respect to business administration and management supervision of the entire SMBC Group. The committee is chaired by the President and Group CEO with other members including our corporate executive officers and other officers designated by the President and Group CEO. The President and Group CEO considers important matters relating to the execution of business in accordance with the basic policies set by the board of directors and based on discussions held by the committee members.

Corporate Governance Practices

For the purpose of protecting the interests of shareholders in general, some Japanese securities exchanges, including the Tokyo Stock Exchange, requires a listed company to have, from amongst its outside directors or

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outside corporate auditors, at least one independent director or corporate auditor who does not have conflicting interests with shareholders as specified under the rule. All companies on these securities exchanges are required to report the name of such independent director or corporate auditor, which is disclosed to the public. In addition, the Japan’s Corporate Governance Code (“Corporate Governance Code”) formulated by the Tokyo Stock Exchange, which establishes fundamental principles for effective corporate governance at listed companies in Japan and took effect in June 2015, provides that listed companies should appoint at least two independent directors. The independence standard for such independent directors will be determined by the subject listed company taking into consideration the independence standards of the Japanese stock exchanges. In consideration of the Corporate Governance Code, we also established the SMFG Corporate Governance Guideline which provides thatone-third or more of the directors, and at least two of them, will be elected as independent outside directors. We designated all seven outside directors as independent directors.

Companies listed on the NYSE, must comply with certain corporate governance standards provided under Section 303A of the NYSE Listed Company Manual. However, NYSE-listed companies that are foreign private issuers, including us, are permitted to follow home country practices in lieu of certain provisions of Section 303A if such foreign private issuers meet certain criteria. See “Item 16G. Corporate Governance” for a summary of significant ways in which our corporate governance practices differ from those required to be followed by NYSE-listed U.S. companies.

Exemption from Liability

Under the Companies Act and our articles of incorporation, we may exempt ournon-executive directors, etc. from liabilities to us arising in connection with their failure to execute their duties, within the limits stipulated by applicable laws and regulations. Pursuant to such authority, we have entered into a liability limitation agreement with each outside director, etc. which limits the maximum amount of their liability to the Company arising in connection with a failure to execute their duties to the greater of either ¥10 million or the minimum liability amount prescribed in applicable laws.

Benefits upon Termination of Employment

Neither we nor our subsidiaries maintain any directors’ service contracts providing for benefits upon termination of employment.

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6.D.    EMPLOYEES

At March 31, 2020, 2019 and 2018, on a consolidated basis, we had approximately 86,400, 86,700 and 73,000 employees, respectively, including locally hired staff in our foreign offices but excluding temporary employees. We also had an average of approximately 11,900 temporary employees during the fiscal year ended March 31, 2020.

The following tables show our full-time employees at March 31, 2020 on a consolidated basis under Japanese GAAP broken down based on business segment and geographical location:

	Percentage of full-time employees at March 31, 2020
Business segment:
Wholesale Business Unit		9	%
Retail Business Unit		38
International Business Unit		34
Global Markets Business Unit		1
Head office account and others		18
Total		100	%

	Percentage of full-time employees at March 31, 2020
Location:
Japan		66	%
Americas		3
Europe and Middle East		2
Asia and Oceania		29
Total		100	%

More than half of our employees are members of workers’ unions, which negotiate with management concerning remuneration and working conditions. We consider our labor relations to be good.

We consider our level of remuneration, fringe benefits (including an employee share ownership program), working conditions and other allowances, which includelump-sum payments and annuities to employees upon retirement, to be generally competitive with those offered by other large enterprises in Japan.

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6.E.    SHARE OWNERSHIP

Shareholdings by Directors and Senior Management

The following table shows the number of shares of our common stock owned by our directors and corporate executive officers at June 26, 2020:

	Number of shares owned
Directors and corporate executive officers:
Takeshi Kunibe		58,331
Jun Ohta		25,715
Makoto Takashima		31,187
Haruyuki Nagata		19,492
Toru Nakashima		15,914
Atsuhiko Inoue		20,907
Toru Mikami		1,800
Yoshihiko Shimizu		12,799
Masayuki Matsumoto		1,500
Arthur M. Mitchell		700
Shozo Yamazaki		700
Masaharu Kohno		—
Yoshinobu Tsutsui		—
Katsuyoshi Shinbo		1,500
Eriko Sakurai		2,200
Gotaro Michihiro		21,050
Masahiko Oshima		20,757
Toshikazu Yaku		20,119
Katsunori Tanizaki		19,045
Naoki Tamura		18,619
Kimio Matsuura		19,954
Tetsuro Imaeda		8,187
Fumiharu Kozuka		20,404
Masamichi Koike		11,117
Shoji Masuda		10,341

None of our directors or corporate executive officers is the owner of more than one percent of our common stock, and no director or corporate executive officers has voting rights with respect to our common stock that are different from any other holder of our common stock.

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Stock Option Plans and Other Remuneration for Directors and Senior Management

Stock Option Plans

The following table provides an overview of the significant terms and conditions of the SMFG Stock Acquisition Rights, that we issued prior to the revision of our executive compensation policy in July 2017 (discussed below):

	Date of resolution	Number of grantees	Shares granted	Exercise period	Exercise price
SMFG Stock Acquisition Rights (1st series)	July 28, 2010	82 directors, corporate auditors and executive officers of SMFG and SMBC	102,600 shares of common stock of the Company	August 13, 2010 to August 12, 2040	¥1 per share granted upon exercise of each stock acquisition right, multiplied by the number of shares granted
SMFG Stock Acquisition Rights (2nd series)	July 29, 2011	85 directors, corporate auditors and executive officers of SMFG and SMBC	268,200 shares of common stock of the Company	August 16, 2011 to August 15, 2041	¥1 per share granted upon exercise of each stock acquisition right, multiplied by the number of shares granted
SMFG Stock Acquisition Rights (3rd series)	July 30, 2012	85 directors, corporate auditors and executive officers of SMFG and SMBC	280,500 shares of common stock of the Company	August 15, 2012 to August 14, 2042	¥1 per share granted upon exercise of each stock acquisition right, multiplied by the number of shares granted
SMFG Stock Acquisition Rights (4th series)	July 29, 2013	82 directors, corporate auditors and executive officers of SMFG and SMBC	115,700 shares of common stock of the Company	August 14, 2013 to August 13, 2043	¥1 per share granted upon exercise of each stock acquisition right, multiplied by the number of shares granted
SMFG Stock Acquisition Rights (5th series)	July 30, 2014	82 directors, corporate auditors and executive officers of SMFG and SMBC	121,900 shares of common stock of the Company	August 15, 2014 to August 14, 2044	¥1 per share granted upon exercise of each stock acquisition right, multiplied by the number of shares granted
SMFG Stock Acquisition Rights (6th series)	July 31, 2015	83 directors, corporate auditors and executive officers of SMFG and SMBC	132,400 shares of common stock of the Company	August 18, 2015 to August 17, 2045	¥1 per share granted upon exercise of each stock acquisition right, multiplied by the number of shares granted

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	Date of resolution	Number of grantees	Shares granted	Exercise period	Exercise price
SMFG Stock Acquisition Rights (7th series)	July 26, 2016	89 directors, corporate auditors and executive officers of SMFG and SMBC	201,200 shares of common stock of the Company	August 15, 2016 to August 14, 2046	¥1 per share granted upon exercise of each stock acquisition right, multiplied by the number of shares granted

Compensation Plans Utilizing Restricted Stock

In July 2017, our compensation committee resolved to revise our executive compensation policy and to introduce new stock compensation plans that utilize restricted stock, while discontinuing the issuance of new stock options.

The plans consist of Stock Compensation Plan I (“Plan I”), which determines remuneration primarily based on our medium-term performance, Stock Compensation Plan II (“Plan II”), which determines remuneration primarily based on our annual performance and Stock Compensation Plan III (“Plan III”), which determines remuneration primarily based on corporate title.

Plan I (medium-term performance share plan) has an evaluation period of three years, corresponding with our medium-term management plan. Executives are initially allotted shares of restricted stock equivalent to the monetary amount determined based on the executive’s corporate title. After the completion of the evaluation period, our compensation committee reviews the progress of our medium-term management plan, performance of our common stock, and results of customer satisfaction surveys and other factors, to determine a final amount to be released from transfer restrictions. In case the final amount falls below the initial amount, we retrieve all or part of the allotted shares at no cost.

Under Plan II (annual performance share plan), executives are allotted shares of restricted stock equivalent to a certain portion of the monetary amount determined based on the annual performance of SMFG and SMBC, as well as on the individual performance of the executives reviewed both from short-term andmedium-to-long-term perspectives. The remainder is paid to the executives as a cash bonus. Transfer restrictions on these shares are released evenly over the three-year period following the year of allotment.

Under Plan III (promotion reward plan), executives are allotted shares of restricted stock equivalent topre-determined compensation amounts per title, reflecting the increased responsibilities derived from promotions. Restrictions shall apply to the shares until the earlier of 30 years from allotment or when the executive retires from office.

The eligible executives for the plans are directors (excluding outside directors), corporate executive officers and executive officers of SMFG, directors (excluding outside directors) and executive officers etc. of SMBC and representative corporate executive officers of certain of our subsidiaries.

The allotment agreements that we enter into with executives under the plans restrict disposal of the allotted shares in any manner, including transfers of ownership or granting of security interest and, also provide that we may retrieve all or part of the allotted shares at no cost in case the our compensation committee reaches certain decisions such as thenon-achievement of financial targets. The agreements also include provisions for forfeiture and claw-back of vested stock in order to restrain excessive risk-taking and foster a prudent risk culture expected of a financial institution.

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The following table provides details of the issuance and allotment of new shares under our stock compensation plans:

Date of issue	Issue price	Class and total number of shares issued	Allottees and number of shares to be allotted
July 26, 2017	¥4,372 per share	387,765 shares of common stock of the Company	Directors of SMFG: 7 persons 36,278 shares Corporate executive officers of SMFG: 4 persons 12,863 shares Executive officers of SMFG: 27 persons 47,077 shares Directors of SMBC: 10 persons 71,703 shares Executive officers, etc. of SMBC: 59 persons 219,844 shares
August 3, 2018	¥4,287 per share	326,330 shares of common stock of the Company	Directors of SMFG : 6 persons 8,388 shares Corporate executive officers of SMFG: 5 persons 3,852 shares Executive officers of SMFG: 42 persons 25,544 shares Directors of SMFG’s subsidiaries: 16 persons 35,289 shares Executive officers, etc. of SMFG’s subsidiaries: 85 persons 253,257 shares
July 29, 2019	¥3,828 per share	272,536 shares of common stock of the Company	Directors of SMFG : 7 persons 9,926 shares Corporate executive officers of SMFG: 6 persons 4,191 shares Executive officers of SMFG: 37 persons 27,419 shares Directors of SMFG’s subsidiaries: 14 persons 25,879 shares Executive officers, etc. of SMFG’s subsidiaries: 91 persons 205,121 shares

Employee Stock Ownership Associations

We have employee stock ownership associations in Japan for our and our subsidiaries’ employees. Members of the employee stock ownership associations set aside certain amounts from their monthly salary to purchase our common stock through the relevant employee stock ownership association. The administrator of each association makes open-market purchases of our common stock for the account of the association on a monthly basis. We and our subsidiaries contribute matching funds equivalent to 5% of the amount purchased by the relevant association. At March 31, 2020, none of the employee stock ownership associations held more than 1% of our common stock.

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Item 7. Major Shareholders and Related Party Transactions

7.A.    MAJOR SHAREHOLDERS

Major Shareholders

Our major shareholders, appearing on our register of common shareholders at March 31, 2020, were as follows:

	Number of shares held(2)		Percentage of shares issued(1)(2)
Name:
The Master Trust Bank of Japan, Ltd. (Trust Account)		97,156,600		7.09	%
Japan Trustee Services Bank, Ltd. (Trust Account)		78,332,600		5.71	%
Japan Trustee Services Bank, Ltd. (Trust Account 9)		40,332,600		2.94	%
Japan Trustee Services Bank, Ltd. (Trust Account 7)		29,320,200		2.14	%
NATSCUMCO		28,121,342		2.05	%
Japan Trustee Services Bank, Ltd. (Trust Account 5)		27,785,900		2.02	%
JP MORGAN CHASE BANK 385151		26,387,481		1.92	%
SSBTC CLIENT OMNIBUS ACCOUNT.		25,409,243		1.85	%
STATE STREET BANK WEST CLIENT—TREATY 505234		19,353,327		1.41	%
Barclays Securities Japan Limited		18,484,174		1.34	%

(1) Percentages are calculated based on the total number of shares of common stock then issued, excluding our treasury stock, and have been truncated to the nearest second decimal point.

(2) On February 6, 2020, BlackRock, Inc. filed a Schedule 13G with the SEC, indicating that BlackRock, Inc. and its subsidiaries beneficially held 84,195,306 shares of our common stock, representing 6.1% of our outstanding common stock at December 31, 2019. On April 7, 2020, Nomura Securities Co., Ltd. submitted a filing to the Kanto Local Finance Bureau indicating that Nomura Securities Co., Ltd. and its affiliate held 70,759,192 shares of our common stock, representing 5.15% of our outstanding common stock at March 31, 2020. On June 4, 2020, Sumitomo Mitsui Trust Asset Management Co., Ltd. submitted a filing to the Kanto Local Finance Bureau indicating that Sumitomo Mitsui Trust Asset Management Co., Ltd. and its affiliate held 75,961,300 shares of our common stock, representing 5.53% of our outstanding common stock at May 29, 2020.

Our major shareholders do not have different voting rights.

Shareholders in the United States

Because some of our common stock was held by brokers or other nominees, the number of shares held by and the number of beneficiary holders with addresses in the United States is not fully ascertainable. At March 31, 2020, there were 258 record holders of our common stock with addresses in the United States, whose shareholdings represented approximately 18% of our outstanding common stock on that date.

Control of the Company

To our knowledge, we are not directly or indirectly owned or controlled by any another corporation(s), by any foreign government or by any other natural or legal person(s), severally or jointly.

Arrangements for Change in Control of the Company

We know of no arrangements the operation of which may at a later time result in a change of control.

7.B.    RELATED PARTY TRANSACTIONS

We and our banking subsidiaries had, and expect to have in the future, banking transactions and other transactions in the ordinary course of business with our related parties. For the fiscal year ended March 31, 2020,

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such transactions included, but were not limited to, loans, deposits and guarantees. Furthermore, such transactions were immaterial and were made at prevailing market rates, terms and conditions, and did not involve more than the normal risk of collectibility or present other unfavorable features.

During the fiscal year ended March 31, 2020, none of our directors or corporate executive officers, and none of the close members of their respective families, had any transactions that were material or any transactions that were unusual in their nature or conditions, involving goods, services or tangible or intangible assets, to which we were a party, and no such transactions were proposed at March 31, 2020. During the fiscal year ended March 31, 2020, we made no loans to our directors or corporate executive officers other than those that were made in the ordinary course of business, on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with other persons, and did not involve more than the normal risk of collectibility or present other unfavorable features.

7.C.    INTERESTS OF EXPERTS AND COUNSEL

Not applicable.

Item 8. Financial Information

8.A.    CONSOLIDATED STATEMENTS AND OTHER FINANCIAL INFORMATION

Financial Statements

All relevant financial statements are attached hereto. See “Item 18. Financial Statements.” See “Item 5.A. Operating Results—Reconciliation with Japanese GAAP” for a reconciliation of consolidated net profit and total equity for the fiscal year ended March 31, 2020 under IFRS, with those amounts under Japanese GAAP.

Export Sales

Not applicable.

Legal Proceedings

We are party to routine litigation incidental to our business, none of which is currently expected to have a material adverse effect on our financial condition or results of operations. However, there can be no assurance that an adverse decision in one or more of these lawsuits will not have a material adverse effect.

Dividend Policy and Dividends

The declaration, payment and determination of anyyear-end dividend are subject to the approval of shareholders of our common stock at our general meeting of shareholders and to statutory restrictions. The declaration, payment and determination of the amount of any interim dividend require a resolution of our board of directors and are subject to statutory restrictions. Dividend payments are made to shareholders or pledgees of record at the record dates for each payment. March 31 is the record date foryear-end dividends and September 30 is the record date for interim dividends. The payment ofyear-end and interim dividends on common stock is subject to prior payment of dividends on our preferred stock, if any.

We have a basic policy of enhancing shareholder value in a sustainable manner by balancing financial soundness, return to shareholders, and investment for growth. We adopt a progressive dividend policy, which does not reduce dividends and at least maintains or increases dividends each year, supported by our sustainable earnings growth, and seek to achieve a dividend payout ratio of 40% on a consolidated net profit basis under Japanese GAAP by the end of the current medium-term management plan.

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The following table shows historical aggregate dividend payments per share of our common stock for each of the fiscal years from the fiscal year ended March 31, 2018 through the fiscal year ended March 31, 2020:

	Dividend per share
	Paid(1)		Declared(2)
Fiscal year ended March 31,
2018	¥	170	¥	155
2019		180		175
2020		190		185

(1) Dividend per share based on dividends in respect of each fiscal year including dividends proposed after current fiscalyear-end but not recognized in the financial statements and excluding dividends in respect of the previous fiscal year declared in current fiscal year.

(2) Dividend per share based on dividends declared and recognized in the financial statements during each fiscal year.

8.B.    SIGNIFICANT CHANGES

Except as otherwise described in this annual report, no significant change in our financial position has occurred since the date of the financial statements included elsewhere in this annual report.

Item 9. The Offer and Listing

9.A.    OFFER AND LISTING DETAILS 

Offering Details

Not applicable.

Trading Markets for Our Shares

See “Item 9.C. Markets” for information on the stock exchanges on which our common stock is listed.

9.B.    PLAN OF DISTRIBUTION

Not applicable.

9.C.    MARKETS

The primary trading market for our common stock is the Tokyo Stock Exchange (First Section), and our common stock is also listed on the Nagoya Stock Exchange (First Section). Our common stock is quoted under the Securities Code “8316.” Our common stock is not listed on any stock exchange outside of Japan.

Our ADSs have been listed on the NYSE since November 1, 2010 and are quoted under the ticker symbol “SMFG.”

9.D.    SELLING SHAREHOLDERS

Not applicable.

9.E.    DILUTION

Not applicable.

9.F.    EXPENSES OF THE ISSUE

Not applicable.

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Item 10. Additional Information

10.A.    SHARE CAPITAL

Not applicable.

10.B.    MEMORANDUM AND ARTICLES OF INCORPORATION

Set out below is information concerning our share capital, including a summary of provisions of our articles of incorporation and share handling regulations and of the Companies Act relating to joint stock corporations (kabushiki-kaisha) and related legislation, each as currently in effect.

Register and Entry, Objects and Purposes of the Company

The Company is a joint stock corporation (kabushiki-kaisha) incorporated in Japan under the Companies Act (kaishaho) of Japan. It is registered in the commercial register (shogyo-tokibo) maintained by the Chiyoda Branch Office of the Tokyo Bureau of Legal Affairs.

Article 2 of our articles of incorporation provides that our purpose is to engage in the following business activities:

• management of banks and other corporations which are permitted to become, or to be established as, subsidiaries under the Banking Act and any business incidental thereto; and

• in addition to the businesses provided in the foregoing item, any business in which a bank holding company is permitted to engage under the Banking Act.

Provisions Relating to Directors

We have adopted a company with three statutory committees system of corporate governance. The Companies Act requires the board of directors to decide on the execution of operations of a company, including basic management policy, and supervise the execution of duties by corporate executive officers. In addition, the board of directors may delegate decisions on the execution of the operations to corporate executive officers, to the extent permitted by the Companies Act. The Companies Act and our articles of incorporation, bylaws and associated internal rules issued pursuant to the articles provide in summary as follows:

• a director is not entitled to vote on a proposal or arrangement or contract in which the director has a special interest;

• the amount of compensation to each of our directors is determined by the compensation committee, which consists of members of our board of directors, the majority of whom must be outside directors;

• the board of directors has authority to approve transactions between the directors and us;

• there are no provisions requiring the mandatory retirement of directors at a specified age; and

• share ownership is not required in order to be eligible to serve as a director.

Rights, Preferences and Restrictions of the Shares

A joint stock corporation is a legal entity incorporated under the Companies Act. The rights of shareholders of a joint stock corporation are represented by shares of stock in the corporation, and shareholders’ liability is limited to the amount of the subscription for the shares.

We may issue shares within our authorized but unissued share capital following a resolution by our board of directors. An increase in our authorized share capital requires an amendment of our articles of incorporation, which generally requires approval of our common and preferred shareholders, if any.

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Common Stock

General

Under the Act Concerning Book-Entry Transfer of Corporate Bonds, Shares and Other Securities (“Book-Entry Transfer Act”), the shares of all Japanese companies listed on any Japanese stock exchange, including our shares, are subject to a central clearing system of shares of Japanese listed companies.

Under the clearing system, a person must have an account at an account managing institution or at Japan Securities Depository Center, Inc. (“JASDEC”) in order to purchase, hold, sell or otherwise dispose of listed shares. Account managing institutions include financial instruments traders (i.e., securities companies), banks, trust companies and certain other financial institutions which meet the requirements prescribed by the Book-Entry Transfer Act, and only those financial institutions that meet further stringent requirements of the Book-Entry Transfer Act can open accounts directly at JASDEC. Under the Book-Entry Transfer Act, any transfer of shares is effected through book entry, and title to the shares passes to the transferee at the time when the transferred number of the shares is recorded in the transferee’s account at an account managing institution. The holder of an account at an account managing institution is presumed to be the legal owner of the shares held in such account.

Under the Companies Act and the Book-Entry Transfer Act, in order to assert shareholders’ rights against us, a shareholder’s name and address must be registered in our register of shareholders, except in limited circumstances. Under the clearing system, such registration is made upon our receipt of the necessary information from JASDEC. Nonresidents of Japan ornon-Japanese corporations without a permanent establishment in Japan (“Nonresident Shareholders”) are required to appoint a standing proxy in Japan or provide a mailing address in Japan. Each Nonresident Shareholder must give notice of a standing proxy or a mailing address to the relevant account managing institution. That notice will be forwarded to us through JASDEC. Japanese securities companies and commercial banks customarily act as standing proxies and provide related services for standard fees. Notices from us to Nonresident Shareholders are delivered to standing proxies or their mailing addresses in Japan.

Our transfer agent is Sumitomo Mitsui Trust Bank, Limited.

Distributions of Surplus

As a holding company, we expect that most of our cash flow will come from dividends that SMBC pays us. Under some circumstances, various statutory or contractual provisions may restrict the dividends SMBC can pay us. For example, if SMBC does not have sufficient distributable amounts, it will be unable to pay dividends and we, in turn, may be unable to pay dividends on shares of our common stock. Therefore, our ability to pay dividends mainly depends on the financial performance of our principal operating subsidiary, SMBC.

Under the Companies Act, distribution of cash or other assets by a joint stock corporation to its shareholders, including dividends, takes the form of distributions of surplus (as described in “—Restriction on Distributions of Surplus”). We are permitted to make distributions of surplus to our shareholders any number of times per fiscal year, subject to limitations described in “—Restriction on Distributions of Surplus.” Distributions of surplus are required in principle to be authorized by a resolution of a general meeting of shareholders. Distributions of surplus are, however, permitted pursuant to a resolution of the board of directors if:

(1) our articles of incorporation so provide (our current articles of incorporation do not have a provision to that effect);

(2) the normal term of office of our directors is no longer than one year (our current articles of incorporation provide that the normal term of office of our directors expires upon the close of the general meeting of shareholders to be held for the last fiscal year ending within one year after the election); and

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(3) our nonconsolidated annual financial statements and certain documents for the latest fiscal year fairly present our assets and profit or loss, as required by an ordinance of the Ministry of Justice.

In an exception to the above rule, even if the requirements described in (1) through (3) are not met, we are permitted to make distributions of surplus in cash to our shareholders by resolutions of the board of directors once per fiscal year if our articles of incorporation so provide. Our current articles of incorporation provide for distributions of surplus as interim dividends, the record date for which is September 30 of each year.

Distributions of surplus may be made in cash or in kind in proportion to the number of shares of common stock held by each shareholder. A resolution of a general meeting of shareholders or by the board of directors authorizing a distribution of surplus must specify the kind and aggregate book value of assets to be distributed, the manner of allocation of the assets to shareholders, and the effective date of the distribution. If a distribution of surplus is to be made in kind, we may, pursuant to a resolution of a general meeting of shareholders or by the board of directors, grant the right to our shareholders to require us to make the distribution in cash instead of in kind. If that right is not granted to shareholders, then the relevant distribution of surplus must be approved by a special resolution of a general meeting of shareholders.

Under our articles of incorporation, the record dates for annual dividends and interim dividends are March 31 and September 30, respectively, in each year. In Japan, both“ex-dividend” date (the date from which purchasers at shares through Japanese stock exchanges will not be entitled to the dividends to be paid to registered shareholders as any record date) and the record date for dividends precede the date of determination of the amount of the dividend to be paid. The price of the shares of common stock generally goesex-dividend on the first business day prior to the record date. Theex-dividend date used to be the second business day prior to the record date, but the settlement period of shares listed on any stock exchange in Japan has been shortened, and theex-dividend date for any dividend, the record date of which is on or after July 18, 2019 was changed to the first business day prior to the record date. Under our articles of incorporation, we are not obligated to pay any distributions of surplus to be made in cash which have not been received after five years from the commencement date of those distributions.

Restriction on Distributions of Surplus

Payment of dividends on shares of common stock is also subject to the prior payment of dividends on shares of preferred stock, if any. In the event we pay an interim dividend on shares of our common stock, the interim dividend payment is also subject to the prior payment of interim dividends on the shares of preferred stock, if any.

When we make a distribution of surplus, we must set aside in our capital reserve or retained earnings reserve an amount equal toone-tenth of the amount of surplus so distributed as required by an ordinance of the Ministry of Justice.

The amount of surplus at any given time must be calculated in accordance with the following formula:

A + B + C + D – (E + F + G)

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In the above formula:

“A”	=	the total amount of other capital surplus and other retained earnings, each being the amount that appears on our nonconsolidated balance sheet as of the end of the last fiscal year;
“B”	=	if we have disposed of treasury stock after the end of the last fiscal year, the amount of the consideration for that treasury stock received by us less the book value thereof;
“C”	=	if we have reduced our stated capital after the end of the last fiscal year, the amount of that reduction less the portion thereof that has been transferred to capital reserve or retained earnings reserve, if any:
“D”	=	if we have reduced our capital reserve or retained earnings reserve after the end of the last fiscal year, the amount of that reduction less the portion thereof that has been transferred to stated capital, if any:
“E”	=	if we have cancelled treasury stock after the end of the last fiscal year, the book value of that treasury stock;
“F”	=	if we have distributed surplus to our shareholders after the end of the last fiscal year, the total book value of the surplus so distributed; and
“G”	=	other amounts set forth in an ordinance of the Ministry of Justice, including:

• if we have reduced surplus and increased our stated capital, capital reserve or retained earnings reserve after the end of the last fiscal year, the amount of that reduction; and

• if we have distributed surplus to shareholders after the end of the last fiscal year, the amount set aside in our capital reserve or retained earnings reserve, if any, as required by ordinances of the Ministry of Justice.

The aggregate book value of surplus distributed by us may not exceed a prescribed distributable amount as calculated on the effective date of the distribution. Our prescribed distributable amount at any given time shall be the amount of surplus less the aggregate of (a) the book value of our treasury stock, (b) the amount of consideration for any treasury stock we disposed of after the end of the last fiscal year, (c) the sum of net unrealized losses on other securities and unrealized losses on land valuation, and (d) other amounts set forth in an ordinance of the Ministry of Justice, including (if the sum ofone-half of our goodwill and deferred assets exceeds the total of the stated capital, capital reserve and retained earnings reserve, each being the amount in our nonconsolidated balance sheet at the end of the last fiscal year) all or a certain part of the exceeding amount as calculated in accordance with the ordinances of the Ministry of Justice. If we have prepared interim financial statements in accordance with the ordinances of the Ministry of Justice as described below, and if the interim financial statements have been approved by the board of directors or (if so required) by a general meeting of shareholders, then the prescribed distributable amount must be adjusted to take into account the amount of profit or loss, and the amount of consideration for any of our treasury stock disposed of by us, during the period for which the interim financial statements have been prepared. We will be permitted to prepare nonconsolidated interim financial statements consisting of a balance sheet at any date subsequent to the end of the last fiscal year and an income statement for the period from the first day of the current fiscal year to the date of the balance sheet. Interim financial statements so prepared by us must be audited by our audit committee and accounting auditors, as required by an ordinance of the Ministry of Justice.

Voting Rights

Holders of shares of common stock have one voting right for each unit of shares held by them. Except as otherwise provided by law or by our articles of incorporation, a resolution can be adopted at a general meeting of shareholders by the holder of a majority of the total number of the voting rights represented at the meeting. In our articles of incorporation the quorum to elect directors isone-third of the total number of voting rights. Our shareholders are not entitled to cumulative voting in the election of directors. Our shareholders may cast their

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votes by mail or via the internet. Our shareholders may also exercise their voting rights through proxies, provided that the proxies are also holders of shares with voting rights.

The Companies Act provides that certain important matters shall be approved by a special resolution of a general meeting of shareholders. Under our articles of incorporation, the quorum for a special resolution isone-third of the total number of voting rights and the approval of at leasttwo-thirds of the voting rights represented at the meeting is required for adopting a special resolution. Important matters include:

• amending the articles of incorporation (except for amendments that may be authorized by the board of directors under the Companies Act);

• reducing stated capital which meets certain requirements, with some exceptions;

• dissolving, merging or consolidating requiring shareholders’ approval;

• establishing a parent and a wholly owned subsidiary relationship by way of a share transfer (kabushiki-iten) or share exchange (kabushiki-kokan) requiring shareholders’ approval;

• transferring the whole or a substantial part of our business;

• transferring all or part of the shares of a subsidiary which meets certain requirements;

• taking over the whole business of another company requiring shareholders’ approval;

• corporate split requiring shareholders’ approval;

• consolidating shares of common stock;

• acquiring shares of common stock from a specific shareholder other than one of our subsidiaries;

• issuing or transferring new shares or existing shares held by us as treasury stock to persons other than the shareholders at a specially favorable price;

• issuing stock acquisition rights (including those incorporated in bonds with stock acquisition rights) to persons other than the shareholders under specially favorable conditions;

• exempting some liability of a director or corporate executive officer; and

• distributing surplusin-kind if shareholders are not granted the right to require us to make a distribution in cash instead ofin-kind.

Capital and Reserves

When we issue new shares, the amount of the cash or assets paid or contributed by subscribers for new shares (with some exceptions) is required to be accounted for as stated capital, although we may account for an amount not exceedingone-half of the cash or assets as capital reserve by resolutions of the board of directors.

We may reduce our capital reserve or retained earnings reserve generally by resolution of a general meeting of shareholders. We may account for the whole or any part of the reduction as stated capital if we so decide by the same resolution. On the other hand, we may reduce our stated capital generally by special resolution of a general meeting of shareholders and may account for the whole or any part of the reduction as capital reserve if we so decide by the same resolution. We may reduce our surplus and increase either (1) stated capital or (2) capital reserve and/or retained earnings reserve by the same amount, in either case by resolution of a general meeting of shareholders.

Stock Splits

We may at any time split our outstanding shares of common stock into a greater number of shares of common stock by resolution of the board of directors. When a stock split is to be made, so long as our only class

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of outstanding stock is the common stock, we may increase the number of authorized shares in the same ratio as that of the stock split by amending our articles of incorporation. We may effect such an amendment by resolution of the board of directors without shareholder approval.

We must give public notice of a stock split, specifying the record date therefore, not less than two weeks prior to the record date.

Unit Share System

We have a unit share system, under which 100 shares of our common stock constitute one unit. Under the unit share system, shareholders have one voting right for each unit of shares held by them at a general meeting of shareholders, and shares constituting a fractional unit carry no voting rights. Under our articles of incorporation, the holders of shares constituting a fractional unit do not have shareholder rights except for those specified in the Companies Act or an ordinance of the Ministry of Justice, which include the rights (1) to receive dividends, (2) to receive cash or other assets in case of consolidation or split of shares, share exchange or share transfer, or merger, or (3) to be allotted rights to subscribe for free new shares and stock acquisition rights when those rights are granted to shareholders. We may cease to use the unit share system by amendment to the articles of incorporation without shareholders’ approval even though amendments to the articles of incorporation generally require a special resolution of the general meeting of shareholders.

A holder of shares of our common stock constituting less than one unit may at any time request us to purchase those shares. In addition, a holder of shares of our common stock constituting less than one unit may at any time request us to sell to it the number of shares necessary to raise its share ownership to a whole unit. Under the clearing system operated by JASDEC, such request must be made through the financial institution where the shareholder has opened its account.

The price at which shares of our common stock constituting less than one unit will be purchased or sold by us pursuant to such request will be equal to either (a) the closing price of shares of our common stock reported by the Tokyo Stock Exchange on the day when such request is received by our transfer agent, or (b) if no sale takes place on the Tokyo Stock Exchange on that day, the price at which sale of such shares is executed on the Tokyo Stock Exchange immediately thereafter. Pursuant to our share handling regulations, an amount equal to the applicable brokerage commission will be deducted from the price so determined.

Under the new clearing system, shares constituting less than one unit are transferable. Under the rules of the Japanese stock exchanges, however, shares constituting less than one unit do not comprise a trading unit, except in limited circumstances, and accordingly, may not be sold on the Japanese stock exchanges.

Liquidation Rights

In the event of our liquidation, the assets remaining after payment of all debts, liquidation expenses, taxes and required distribution payments to preferred shareholders, if any, will be distributed among shareholders of common stock in proportion to the respective number of shares which they hold. For liquidation preference for residual assets to the holders of preferred stock, see “—Preferred Stock—Liquidation Rights.”

Redemption Provisions and Sinking Fund Provisions

Our common stock has no redemption provisions or sinking fund provisions.

Liability to Further Calls or Assessments

Our shares of common stock outstanding, including shares represented by the ADSs, are fully paid and nonassessable.

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Legal Restrictions on Acquisitions of Shares

The FIEA and its related regulations require any person who has become solely or jointly a beneficial holder of more than 5% of the total issued shares of capital stock of a company listed on any Japanese stock exchange, to file with the director of an appropriate local finance bureau of the Ministry of Finance within five business days a report concerning the shareholdings. With some exceptions, a similar report must also be filed in respect of any subsequent change of 1% or more in those holdings or any change in material matters set out in reports previously filed. For this purpose, shares issuable to a holder upon conversion of convertible securities or exercise of share subscription warrants or stock acquisition rights are taken into account in determining both the number of shares held by such holder and the issuer’s total issued share capital. Copies of each report must also be furnished to all the Japanese stock exchanges on which the shares are listed.

Under the Banking Act, a person who desires to hold 20% (in some exceptional cases, 15%) or more of the voting rights of a bank is required to obtain advance approval of the FSA Commissioner. In addition, any person who becomes a holder of more than 5% of the voting rights of a bank holding company or a bank must report the ownership of the voting rights to the director of an appropriate local finance bureau within five business days. This requirement is separate from the significant shareholdings report required under the FIEA. See “Item 4.B. Business Overview—Regulations in Japan—Regulations for Stabilizing the Financial System—Examination and Reporting Applicable to Shareholders of a Bank.”

Subscription Rights

Holders of shares of our common stock have no preemptive rights. Authorized but unissued shares of common stock may be issued at the times, and upon the terms the board of directors determines, subject to the limitations as to the issuance of new shares of common stock at a specially favorable price mentioned in “—Voting Rights” above. The board of directors may, however, determine that the holders of shares of common stock be given subscription rights to new shares of common stock, in which case they must be given on uniform terms to all holders of shares of common stock at a record date of which not less than two weeks’ prior public notice must be given. Each of the shareholders to whom subscription rights is given must also be given at least two weeks’ prior notice of the date on which the rights expire.

Stock Acquisition Rights

We may issue stock acquisition rights (shinkabu-yoyakuken). Holders of stock acquisition rights are entitled to acquire shares from us upon payment of the applicable exercise price and subject to other terms and conditions thereof. We may also issue bonds with stock acquisition rights (shinkabu-yoyakuken-tsuki-shasai). The issuance of stock acquisition rights and bonds with stock acquisition rights may be authorized by the board of directors unless it is made under specially favorable conditions, as described in “—Voting Rights.”

Record Date

March 31 is the record date for the payment ofyear-end dividends and the determination of shareholders entitled to vote at the ordinary general meeting of shareholders. September 30 is the record date for payment of interim dividends. In addition, by determination by corporate executive officers under the authority delegated by the board of directors and after giving at least two weeks’ prior public notice, we may at any time set a record date in order to determine the shareholders who are entitled to certain rights pertaining to the common stock.

Under the Book-Entry Transfer Act, we are required to give notice of each record date to JASDEC at least two weeks prior to such record date. JASDEC is required to give us notice of the names and addresses of our shareholders, the numbers of shares held by them, and other relevant information at a record date promptly after we set it.

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Our Acquisition of Our Own Shares of Common Stock

We may acquire shares of our common stock (1) by way of purchase on any Japanese stock exchange on which shares of our common stock are listed, or by way of tender offer (in either case, pursuant to an ordinary resolution of a general meeting of shareholders or a resolution of the board of directors), (2) from a specific shareholder other than any of our subsidiaries (pursuant to a special resolution of a general meeting of shareholders), or (3) from any of our subsidiaries (pursuant to a resolution of the board of directors). In the case of (2) above, any other shareholder may make a request to a director, at least five days prior to the relevant general meeting of shareholders, to include the shareholder as a seller in the proposed purchase. However, that right is not available if the purchase price or any other consideration to be received by the relevant specific shareholder does not exceed the then market price of the shares to be purchased from the shareholder.

The total amount of the purchase price of shares of common stock may not exceed the prescribed distributable amount, as described in “—Common Stock—Restriction on Distributions of Surplus.”

We may hold the shares of common stock acquired, and may generally dispose of or cancel those shares by resolution of the board of directors.

Disposal of Shares of Our Common Stock Held by Shareholders Whose Location Is Unknown

We are not required to send notices to a shareholder if notices have failed to arrive for five consecutive years or more at his or her address in our register of shareholders unless we are notified of a new address. If the shareholder also fails to receive distributions of surplus on the shares for five or more consecutive years at his or her address in our register of shareholders or otherwise as specified, then we may in general dispose of those shares at their then-market price and hold or deposit the proceeds of that disposal on behalf of that shareholder.

Preferred Stock

The following is a summary of information concerning provisions of our articles of incorporation.

General

At the date of this annual report, under our articles of incorporation, we are authorized to issue 167,000 shares of Type 5 preferred stock, 167,000 shares of Type 7 preferred stock, 115,000 shares of Type 8 preferred stock and 115,000 shares of Type 9 preferred stock. In June 2013, our articles of incorporation were amended to delete the provisions regarding Type 6 preferred stock, as these provisions have become unnecessary.

In March 2005, we issued 70,001 shares of our 1st series Type 6 preferred stock for an aggregate issue price of ¥210 billion. The Type 6 preferred stock was allocated using a third-party allocation of shares at a price of ¥3,000,000 per share, ¥1,500,000 of which was accounted for as stated capital. Sumitomo Life Insurance Company acquired 23,334 shares, Nippon Life Insurance Company acquired 20,000 shares, Mitsui Life Insurance Company, Limited, which was renamed Taiju Life Insurance Company Limited on April 1, 2019, acquired 16,667 shares and Mitsui Sumitomo Insurance Company, Limited acquired 10,000 shares. On April 1, 2011, we acquired and cancelled all of the outstanding 1st series Type 6 preferred stock.

At the date of this annual report, we have no preferred stock outstanding. The following is a summary of the relevant provisions of our articles of incorporation regarding preferred stock.

Preferred Dividends

Our articles of incorporation provide that, if we pay dividends, we must pay cash dividends to holders of shares of our preferred stock in preference to the holders of our common stock. If preferred interim dividends stipulated in our articles of incorporation were paid during the relevant fiscal year, the amount of the preferred interim dividends shall be subtracted from the amount of annual preferred dividends.

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Our failure to declare annual preferred dividends in full in respect of any fiscal year on a series of preferred stock gives the holders of that preferred stock certain voting rights.

Liquidation Rights

In the event of our voluntary or involuntary liquidation, holders of our preferred stock will be entitled, equally in rank as among themselves and in preference over shares of our common stock, to receive out of our residual assets upon liquidation a distribution of ¥3,000,000 per share.

Preferred stockholders are not entitled to any further dividends or other participation or distribution of our residual assets upon our liquidation.

Voting Rights

Our articles of incorporation provide that holders of preferred stock are only entitled to receive notice of, and to vote at, a general meeting of shareholders;

• from the commencement of our ordinary general meeting of shareholders if an agenda for approval to declare a preferred dividend is not submitted to the meeting; or

• from the close of our ordinary general meeting of shareholders if a proposed resolution to declare a preferred dividend is not approved at the meeting.

In both cases, these rights of our preferred stockholders lapse when a resolution of a general meeting of shareholders declaring a preferred dividend is approved.

The Companies Act provides that a separate resolution of a meeting of the holders of the preferred stock is required in order to approve certain matters which would prejudice their interests, including;

• amendments to the articles of incorporation to add new classes of shares to be issued, alter the terms of the shares or increase the number of shares or authorized number of any class of shares, with certain exceptions;

• consolidations or splits of shares;

• dividends of shares or stock acquisition rights to shareholders without any consideration;

• grants of preemptive rights for new shares or stock acquisition rights;

• amalgamations or mergers;

• certain corporate splits;

• share exchanges;

• share transfers; and

• other matters set forth in the articles of incorporation.

Except for the amendments described above, the articles of incorporation may expressly permit certain of the above matters to be approved without a separate resolution. Our articles of incorporation do not include that express permission.

Ranking

If issued, the outstanding shares of our preferred stock would rankpari passu with each other as to participation in our profits or assets, including dividends and distributions of residual assets upon our liquidation.

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Unless holders of our preferred stock give approval, we may not create or issue any other shares ranking in priority in terms of the right to receive distributions of surplus or the right to receive distributions of residual assets or otherwise in priority to the preferred stock already issued. However, without obtaining the consent of holders of the preferred stock, we may issue other preferred stock rankingpari passu with the preferred stock already issued as to the order of participation in our profits or assets, carrying rights to preferred dividends, or terms of conversion that our board of directors may determine, subject to limitations set forth in our articles of incorporation and the Companies Act.

Purchase or Redemption of Preferred Stock

Subject to the requirements of the Companies Act, we may purchase out of our prescribed distributable amounts any shares of our preferred stock outstanding at any time and cancel that preferred stock. In June 2013, we amended our articles of incorporation in order to qualify our preferred stock for inclusion in our regulatory capital in accordance with the new FSA capital adequacy guidelines based on the Basel III framework. Under the amended articles of incorporation, we will acquire our outstanding preferred stock without consideration or in exchange for common stock if we becomenon-viable.

Mandatory Redemption Provisions and Sinking Fund Provisions

Our articles of incorporation do not provide any mandatory redemption provisions and sinking fund provisions.

Stock Splits

Our articles of incorporation provide that no stock split shall be made to the preferred stock unless otherwise provided for in any law or regulation.

Subscription Rights

Our articles of incorporation provide that we shall not grant holders of preferred stock any right to subscribe for new shares or stock acquisition rights.

Conditions to Change Shareholders’ Rights

Our articles of incorporation do not specify what actions or quorums are required to change the rights of holders of our stock.

General Meeting of Shareholders

Our ordinary general meeting of shareholders is held within three months after the end of each fiscal year. In addition, we may hold an extraordinary general meeting of shareholders whenever necessary. Notice of a general meeting of shareholders stating the place, the time and the purpose thereof, and certain matters set forth in the Companies Act and in ordinances of the Ministry of Justice, must be given to each holder of shares of common stock with voting rights (or to the standing proxy or mailing address in Japan of a nonresident shareholder) at least two weeks prior to the date set for the meeting. The record date for an ordinary general meeting of shareholders is March 31 of each year.

Any shareholder or group of shareholders holding at least three percent of the total outstanding voting rights, for a continuous period of six months or longer, may require the convocation of a general meeting of shareholders for a particular purpose. Unless such a general meeting of shareholders is convened promptly, or a convocation notice of a meeting which is to be held not later than eight weeks from the day of such demand is dispatched, the requiring shareholders may, upon obtaining court approval, convene such general meeting of shareholders.

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Any shareholder holding at least 300 voting rights or one percent of our total number of voting rights for six months or longer may propose a matter to be considered at a general meeting of shareholders by submitting a written request to a director at least eight weeks prior to the date of the meeting. Any of the minimum percentages, time periods and number of voting rights necessary for exercising the minority shareholder rights described above may be decreased or shortened if our articles of incorporation so provide. Our articles of incorporation currently do not include any of those provisions.

To attend a general meeting of shareholders in person or by proxy, shareholders must provide proof of identity upon request. Shareholders may appoint a proxy by a written power of attorney for the meeting. Such proxy must be one of our shareholders with voting rights.

Limitations on the Rights to Hold Our Common Stock by Foreign Investors

There are no specific limitations imposed by the laws of Japan, our articles of incorporation, or our other constituent documents, on the rights of nonresidents or foreign shareholders to hold or exercise voting rights on our shares of common stock or preferred stock. For more information, See “Common Stock—Voting Rights.”

Anti-Change in Control Provisions

There is no provision in our articles of incorporation that would have the effect of delaying, deferring or preventing a change in control of us, and that would operate only with respect to a merger, consolidation, acquisition or corporate restructuring involving us.

Provisions Governing Changes in the Company’s Capital

We have no conditions more stringent than are required by law imposed by our articles of incorporation governing changes in capital.

10.C.    MATERIAL CONTRACTS

All contracts that we are currently a party to, or were a party to during our two most recently completed fiscal years up to the date of this annual report, were entered into in the ordinary course of business or were otherwise immaterial.

10.D.    EXCHANGE CONTROLS

Japanese Foreign Exchange Regulations

The following is a general summary of major Japanese foreign exchange controls regulations applicable to holders of shares of our common stock or voting rights thereunder who are “Foreign investors,” as described below. The statements regarding Japanese foreign exchange controls regulations set forth below are based on the laws and regulations in force and as interpreted by the Japanese authorities as of the date of this registration statement and are subject to subsequent changes in the applicable Japanese laws or interpretations thereof. This summary is not exhaustive of all possible foreign exchange controls considerations that may apply to a particular investor, and potential investors are advised to satisfy themselves as to the overall foreign exchange controls consequences of the acquisition, ownership and disposition of shares of our common stock or voting rights thereunder by consulting their own advisors.

The Foreign Exchange and Foreign Trade Act of Japan, (the “FEFTA”), and the cabinet orders and ministerial ordinances, collectively known as the Foreign Exchange Act, set forth, among other things, the regulations relating to the receipt by nonresidents of Japan of payment with respect to our shares, and the acquisition and holding of our shares by nonresidents of Japan and foreign investors, both as defined below.

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Nonresidents of Japan are individuals who are not residents in Japan and corporations whose principal offices are located outside Japan. Generally, branches and offices of nonresident corporations located in Japan are regarded as residents of Japan while the branches and offices of Japanese corporations located outside Japan are regarded as nonresidents of Japan.

“Foreign investors” are defined as:

(i) individuals not residing in Japan;

(ii) corporations which are organized under the laws of foreign countries or whose principal offices are located outside Japan;

(iii) corporations of which 50% or more of the voting rights are held, directly or indirectly, by individuals not residing in Japan and/or corporations which are organized under the laws of foreign countries or whose principal offices are located outside Japan; and

(iv) partnerships under the Civil Code of Japan (Act No. 89 of 1896, as amended) established to invest in corporations, limited partnerships for investment under the Limited Partnership Act for Investment of Japan (Act No. 90 of 1998, as amended), or any other similar partnerships under foreign law, of which (a) 50% or more of the total contributions are made by individuals and/or corporations falling within (i), (ii), (iii) above and/or (v) below or any other persons prescribed under the Foreign Exchange Act or (b) a majority of the general partners are individuals and/or corporations falling within (i), (ii), (iii) above and/or (v) below or any other persons prescribed under the Foreign Exchange Act; and

(v) corporations, a majority of officers (or a majority of officers having the power of representation) of which are individuals not residing in Japan.

Acquisition of Shares

In general, a nonresident who acquires our shares from a resident of Japan is not subject to any prior filing requirement, although the Foreign Exchange Act authorizes the Minister of Finance of Japan and the Ministers responsible for the business to require a prior submission for any such acquisition in certain limited circumstances.

Except for the general limitation under Japanese antitrust and antimonopoly regulations against shareholdings in the capital stock of a Japanese corporation, which lead or may lead to a restraint of trade or monopoly, and general limitations under the Companies Act or our articles of incorporation on the rights of shareholders applicable, regardless of residence or nationality, there is no limitation under Japanese law and regulations applicable to us, or under our articles of incorporation on the rights of nonresident or foreign shareholders to hold or exercise voting rights on our shares.

Inward Direct Investment in Shares of Listed Companies

For the purpose of the regulations in connection with the “inward direct investment” under the Foreign Exchange Act, Japanese listed companies are classified into the following categories:

(i) companies engaged only in the businesses other than certain businesses (the “Designated Businesses”) designated by the Foreign Exchange Act as Designated Businesses;

(ii) companies engaged in the certain Designated Businesses designated by the Foreign Exchange Act as core sector businesses (the “Core Sector Designated Businesses”); and

(iii) corporations engaged in the Designated Businesses other than the Core Sector Designated Businesses (the“Non-Core Sector Designated Businesses”).

For reference purposes only, the Minister of Finance publishes, and may update from time to time, a list that classifies Japanese listed companies into the above categories, and according to the list published by the Minister

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of Finance as of May 8, 2020, businesses which are currently engaged by the Company is classified as category (ii) i.e., the Core Sector Designated Businesses above.

Definition of Inward Direct Investment

If a foreign investor acquires shares or voting rights of a Japanese company that is listed on a Japanese stock exchange and, as a result of the acquisition, the foreign investor, in combination with any existing holdings, directly or indirectly holds 1% or more of the issued shares or the total number of voting rights of the relevant company, such acquisition constitutes an “inward direct investment.” In addition, acquisition of the authority to exercise, or instruct to exercise, voting rights held by other shareholders that results in the foreign investor, in combination with any existing shareholding, directly or indirectly holding 1% or more of the total number of voting rights of the relevant company, constitutes an “inward direct investment.”

In addition to the acquisitions of shares or voting rights described above, if a foreign investor (i) is granted the authority to exercise proxy voting rights on behalf of other shareholders of the relevant company regarding certain matters which may control substantially or have material influence on the management of such company such as the election or removal of directors or (ii) obtains consent from another foreign investor holding the voting rights of the relevant company to exercise the voting rights of such company jointly, and, in each case, as a result of these arrangements, the number of the voting rights directly or indirectly held by the foreign investor, including the total number of the voting rights subject to such proxy, or the sum of the number of the voting rights directly or indirectly held by the foreign investor and such other foreign investors subject to such joint voting agreement, as the case may be, is 10% or more of the total number of voting rights of the relevant company, each such arrangement regarding voting rights (“voting arrangement”) constitutes an “inward direct investment.” Additionally, if a foreign investor who directly or indirectly holds 1% or more of the total voting rights of a Japanese listed company, at the general meeting of shareholders, consents to certain proposals having material influence on the management of such company such as (i) election of such foreign investor or its related persons (as defined in the Foreign Exchange Act) as directors or corporate auditors of the relevant company or (ii) transfer or discontinuation of its business, such consent will also constitute an “inward direct investment.”

Prior Notification Requirements

If a foreign investor intends to consummate an acquisition of shares or voting rights of a Japanese listed company that constitutes an “inward direct investment” as described above, in certain circumstances, such as where the foreign investor is in a country that is not listed on an exemption schedule in the Foreign Exchange Act or where that Japanese company is engaged in the Designated Businesses, prior notification of the relevant inward direct investment must be filed with the Minister of Finance and any other competent Ministers.

However, a foreign investor seeking to acquire shares or voting rights of a Japanese listed company or the authority to exercise, either directly or through instructions, voting rights held by other shareholders that constitutes an “inward direct investment” may be eligible for the exemptions, if certain conditions are met.

In the case of an acquisition of shares or voting rights or the authority to exercise, voting rights of a Japanese listed company that is engaged in the Core Sector Designated Businesses, which are currently engaged by the Company, the foreign investor may be exempted from the prior notification requirement, if, as a result of such acquisition, the foreign investor directly or indirectly holds less than 10% of the total number of issued shares or voting rights of the relevant company, and such foreign investor complies with the following conditions:

(i) the foreign investor or its closely-related persons (as defined in the Foreign Exchange Act) will not become directors or corporate auditors of the relevant company;

(ii) the foreign investor will not make certain proposals (as prescribed in the Foreign Exchange Act) at the general meeting of shareholders, including transfer or discontinuation of the Designated Businesses of the relevant company;

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(iii) the foreign investor will not accessnon-public technical information in relation to the Designated Businesses of the relevant company, or take certain other actions that may lead to the leak of suchnon-public technical information (as prescribed in the Foreign Exchange Act);

(iv) the foreign investor will not attend, or not cause any persons designated by it to attend, meetings of the relevant company’s board of directors, or meetings of committees having authority to make important decisions, in respect of the Core Sector Designated Businesses of the relevant company; and

(v) the foreign investor will not make, or not cause any persons designated by it to make, proposals to such board or committees or their members in writing or electronic form requesting any response or actions by certain deadlines in respect of the Core Sector Designated Businesses of the relevant company.

Notwithstanding the above, if a foreign investor falls under a category of disqualified investors designated by the Foreign Exchange Act (including (a) investors who have records of certain sanctions due to violations of the FEFTA and (b) certain investors who are state-owned enterprises or other related entities excluding those who are accredited by the Minister of Finance), in no event may such foreign investor be eligible for the exemptions described above. On the other hand, if a foreign investor, excluding the disqualified investors described in the foregoing sentence, falls under a category of certain foreign financial institutions (as prescribed in the Foreign Exchange Act) and complies with the conditions for the exemption (i) through (iii) above, such foreign investor may be eligible for the exemptions, even if the acquisition results in such foreign investor’s directly or indirectly holding 10% or more of the total number of issued shares or voting rights of the corporation engaged in the Core Sector Designated Businesses.

In addition, if a foreign investor intends to make a voting arrangement with respect to a Japanese listed company engaged in the Designated Businesses or consents to a proposal at the general meeting of shareholders of such company, in each case, that constitutes an “inward direct investment” as described above, in certain circumstances, prior notification of the relevant inward direct investment must be filed with the Minister of Finance and any other competent Ministers. However, the exemptions from the prior notification requirements may be available in the cases where the relevant voting arrangement is regarding matters other than certain matters which may control substantially or have material influence on the management of the relevant company, such as the election or removal of directors, which would have required prior notification.

Procedures for Prior Notification

If such prior notification is filed, the proposed inward direct investment may not be consummated until after 30 days have passed from the date of filing, although this screening period may be shortened to two weeks unless such Ministers deem it necessary to review the proposed inward direct investment. The Ministers may extend the screening period up to five months if they deem it necessary to review the proposed inward direct investment and may recommend any modification or abandonment of the proposed inward direct investment and, if the foreign investor does not accept such recommendation, the Ministers may order the modification or abandonment of such inward direct investment. In addition, if the Ministers consider the proposed inward direct investment to be an inward direct investment that is likely to cause damage to the national security of Japan and, if a foreign investor (i) consummates such inward direct investment without filing the prior notification described above; (ii) consummates such inward direct investment before the expiration of the screening period described above; (iii) in connection with such inward direct investment, makes false statements in the prior notification described above; or (iv) does not follow the recommendation or order issued by the Ministers to modify or abandon such inward direct investment, the Ministers may order such foreign investor to dispose of all or part of the shares acquired or take other measures.

Post Facto Reporting Requirements

A foreign investor who consummates an inward direct investment as described above through an acquisition of shares or voting rights or the authority to exercise, directly or through instructions, voting rights of a Japanese

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listed company that is engaged in the Designated Businesses, but is not subject to the prior notification requirements described above due to the exemptions from such prior notification requirements, in general, must file a report of the relevant inward direct investment with the Minister of Finance and any other competent Ministers having jurisdiction over such Japanese company within 45 days of such inward direct investment when, as a result of such acquisition, the foreign investor (excluding, in the cases of (i) and (ii) below, a foreign investor who falls under a category of certain foreign financial institutions (as prescribed in the Foreign Exchange Act)) directly or indirectly holds (i) 1% or more but less than 3% of the total number of issued shares or voting rights, for the first time, (ii) 3% or more but less than 10% of the total number of issued shares or voting rights, for the first time, or (iii) 10% or more of the total number of issued shares or voting rights.

Dividends and Proceeds of Sale

Under the Foreign Exchange Act, dividends paid on, and the proceeds of sales in Japan of, shares held by nonresidents of Japan, may, in general, be converted into any foreign currency and repatriated abroad. The acquisition of our shares by nonresidents by way of a stock split is not, in general, subject to any notification or reporting requirements.

10.E.    TAXATION

Japanese Taxation

The following is a summary of the principal Japanese national tax consequences to owners of shares of our common stock or ADSs representing shares of our common stock who are Nonresident Shareholders. The statements regarding Japanese tax laws set forth below are based on the laws and treaties currently in force and as interpreted by the Japanese tax authorities at the date of this annual report and are subject to changes in the applicable Japanese law or tax treaties, conventions or agreements, or in the interpretation thereof, occurring after that date. This summary does not include all possible tax considerations which may apply to a particular investor and potential investors are advised to satisfy themselves as to the overall tax consequences of the acquisition, ownership and disposition of shares of our common stock or ADSs, including specifically the tax consequences under Japanese law, the laws of the jurisdiction of which they are resident, and any tax treaty, convention or agreement between Japan and their country of residence, by consulting their own tax advisors.

For the purpose of Japanese taxation, a Nonresident Shareholder of ADSs will generally be treated as the owner of the shares underlying the ADSs, which may be evidenced by one or more American Depositary Receipts (“ADRs”).

Generally, a Nonresident Shareholder of shares of our common stock or ADSs will be subject to Japanese income tax collected by way of withholding on dividends we pay. Stock splits are, in general, not subject to Japanese income tax or corporation tax.

In the absence of any applicable tax treaty, convention or agreement reducing the maximum rate of Japanese withholding tax or allowing exemption from Japanese withholding tax, the rate of Japanese withholding tax applicable to dividends paid by a Japanese corporation to Nonresident Shareholders is generally 20.42%. However, with respect to dividends paid on listed shares issued by a Japanese corporation (including shares of our common stock or ADSs) to Nonresident Shareholders, except for any individual shareholder who owns 3% or more of the total number of shares issued by the relevant Japanese corporation, the aforementioned 20.42% withholding tax rate is reduced to 15.315% for dividends due and payable on or before December 31, 2037. Due to the imposition of a special additional withholding tax (2.1% of the original withholding tax amount) to secure funds for reconstruction from the Great East Japan Earthquake, the original withholding tax rate of 15% and 20%, as applicable, has been effectively increased, respectively, to 15.315% and 20.42%, during the period beginning on January 1, 2013 and ending on December 31, 2037.

At the date of this annual report, Japan has income tax treaties in force, whereby the above-mentioned withholding tax rate is reduced, generally, to 15% for portfolio investors, with, among others, Canada, Denmark,

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Finland, Germany, Iceland, Ireland, Italy, Luxembourg, New Zealand, Norway, Singapore and Spain, while the income tax treaties with, among others, Australia, Austria, Belgium, France, Hong Kong, the Netherlands, Portugal, Sweden, Switzerland, the United Kingdom and the United States generally reduce the withholding tax rate to 10% for portfolio investors. In addition, under the income tax treaty between Japan and the United States, dividends paid to pension funds which are qualified U.S. residents eligible to enjoy treaty benefits are exempt from Japanese income taxation by way of withholding or otherwise unless the dividends are derived from the carrying on of a business, directly or indirectly, by those pension funds. Under the income tax treaties with Austria, Belgium, Denmark, Iceland, the Netherlands, Switzerland and the United Kingdom, similar treatment will be applied to dividends. Under Japanese tax law, any reduced maximum rate applicable under a tax treaty will be available when the maximum rate is below the rate otherwise applicable under Japanese tax law referred to in the preceding paragraph with respect to the dividends to be paid by us on shares of common stock or ADSs. A Nonresident Shareholder of shares of our common stock who is entitled, under any tax treaty, to a reduced rate of Japanese withholding tax, or exemption therefrom, as the case may be, is required to submit an Application Form for Income Tax Convention Regarding Relief from Japanese Income Tax and Special Income Tax for Reconstruction on Dividends (together with any other required forms and documents) in advance, through the withholding agent, to the relevant tax authority before payment of dividends. A standing proxy for a Nonresident Shareholder may provide the application services. See “Item 10.B. Memorandum and Articles of Incorporation—Common Stock—General.” In addition, a simplified special filing procedure is available for Nonresident Shareholders to claim treaty benefits of exemption from or reduction of Japanese withholding tax by submitting a Special Application Form for Income Tax Convention Regarding Relief from Japanese Income Tax and Special Income Tax for Reconstruction on Dividends of Listed Stocks (together with any other required forms and documents). With respect to ADSs, this reduced rate or exemption will be applicable to Nonresident Shareholders of ADSs if the Depositary or its agent submits two Application Forms (one before payment of dividends and the other within eight months after the record date concerning such payment of dividends), together with certain other documents. To claim this reduced rate or exemption, Nonresident Shareholders of ADSs will be required to file a proof of taxpayer status, residence and beneficial ownership, as applicable, and to provide other information or documents as may be required by the Depositary. A Nonresident Shareholder who is entitled, under any applicable tax treaty, to a reduced rate of Japanese withholding tax below the rate otherwise applicable under Japanese tax law mentioned above, or exemption therefrom, as the case may be, but fails to submit the required application in advance may nevertheless be entitled to claim a refund from the relevant Japanese tax authority of withholding taxes withheld in excess of the rate under an applicable tax treaty (if the Nonresident Shareholder is entitled to a reduced treaty rate under the applicable tax treaty) or the full amount of tax withheld (if the Nonresident Shareholder is entitled to an exemption under the applicable tax treaty), as the case may be, by complying with certain subsequent filing procedures. We do not assume any responsibility to ensure withholding at the reduced treaty rate, or exemption therefrom, for shareholders who would be so eligible under an applicable tax treaty but where the required procedures as stated above are not followed.

Gains derived from the sale outside Japan of shares of our common stock or ADSs by a Nonresident Shareholder who is a portfolio investor are, in general, not subject to Japanese income tax or corporation tax.

Any deposits or withdrawals of shares of our common stock by a Nonresident Shareholder in exchange for ADSs are, in general, not subject to Japanese income or corporation tax.

Japanese inheritance and gift taxes at progressive rates may be payable by an individual who has acquired shares of our common stock or ADSs from another individual as a legatee, heir or donee, even if the individual is not a Japanese resident.

Potential investors should consult with their own tax advisors regarding the Japanese tax consequences of the ownership and disposition of shares of common stock or ADSs in light of their particular situations.

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United States Federal Income Taxation

The following is a discussion of material U.S. federal income tax consequences to the U.S. Holders described below of owning and disposing of shares or ADSs, but it does not purport to be a comprehensive description of all the tax considerations that may be relevant to a particular person’s decision to hold the shares or ADSs. This discussion does not address U.S. state, local ornon-U.S. tax consequences. As used herein, a U.S. Holder is a person that, for U.S. federal income tax purposes, is a beneficial owner of shares or ADSs and is: (1) a citizen or individual resident of the United States; (2) a corporation, or other entity taxable as a corporation, created or organized in or under the laws of the United States, any state therein or the District of Columbia; or (3) an estate or trust the income of which is subject to U.S. federal income taxation regardless of its source.

The discussion applies only to U.S. Holders who hold the shares or ADSs as capital assets for U.S. federal income tax purposes. The discussion does not address any alternative minimum or Medicare contribution tax consequences, nor does it address all of the tax consequences which may be applicable to special classes of holders, such as:

• certain financial institutions;

• insurance companies;

• dealers and certain traders in securities;

• persons holding shares or ADSs as part of a hedge, straddle, conversion or other integrated transaction;

• persons whose functional currency for U.S. federal income tax purposes is not the U.S. dollar;

• regulated investment companies;

• real estate investment trusts;

• partnerships or other entities classified as partnerships for U.S. federal income tax purposes;

• tax-exempt entities, “individual retirement accounts” or “Roth IRAs”;

• persons who acquired our shares or ADSs pursuant to the exercise of an employee stock option or otherwise as compensation;

• persons holding shares or ADSs that own or are deemed to own 10% or more of our stock (by vote or value); or

• persons holding shares or ADSs in connection with a trade or business conducted outside the United States.

If a partnership holds shares or ADSs, the tax treatment of a partner will generally depend upon the status of the partner and the activities of the partnership. Partnerships holding shares or ADSs, and partners in such partnerships, should consult their own tax advisors.

This discussion is based on the Internal Revenue Code of 1986, as amended, administrative pronouncements, judicial decisions and final, temporary and proposed United States Treasury regulations, as well as the double taxation treaty between Japan and the United States (“Treaty”) all as of the date hereof. These laws are subject to change, possibly on a retroactive basis. It is also based in part on representations by the Depositary and assumes that each obligation under the Deposit Agreement and any related agreement or undertaking will be performed in accordance with its terms.

In general, a U.S. Holder who owns ADSs will be treated as the owner of the underlying shares represented by those ADSs for U.S. federal income tax purposes. Accordingly, no gain or loss will be recognized if a U.S. Holder exchanges ADSs for the underlying shares represented by those ADSs.

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The U.S. Treasury has expressed concern that parties to whom ADSs are released before shares are delivered to the depositary, or intermediaries in the chain of ownership between holders and the issuer of the security underlying the ADSs, may be taking actions that are inconsistent with the claiming of foreign tax credits by holders of ADSs. These actions would also be inconsistent with the claiming of the reduced rate of tax, described below, applicable to dividends received by certain noncorporate holders. Accordingly, the creditability of Japanese taxes, and the availability of the reduced tax rate for dividends received by certain noncorporate U.S. Holders, each described below, could be affected by actions taken by such parties or intermediaries.

U.S. Holders should consult their own tax advisors concerning the U.S. federal, state, local andnon-U.S. tax consequences of owning and disposing of shares or ADSs in their particular circumstances.

This discussion assumes that we are not, and will not become, a passive foreign investment company (a “PFIC”), as described below.

Taxation of Distributions

Distributions received by a U.S. Holder on shares or ADSs, including the amount of any Japanese taxes withheld, other than certain pro rata distributions of shares, will constitute foreign-source dividend income to the extent paid out of our current or accumulated earnings and profits (as determined under U.S. federal income tax principles). Because we do not maintain calculations of our earnings and profits under U.S. federal income tax principles, we expect that distributions generally will be reported to a U.S. Holder as dividends. The amount of the dividend a U.S. Holder will be required to include in income will equal the U.S. dollar value of the yen dividend, calculated by reference to the exchange rate in effect on the date the payment is received by the holder, or in the case of ADSs, by the Depositary, regardless of whether the payment is converted into U.S. dollars on the date of receipt. If the dividend is converted into U.S. dollars on the date of receipt, the U.S. Holder generally should not be required to recognize foreign currency gain or loss in respect of the dividend payment. A U.S. Holder may have foreign currency gain or loss if the dividend is converted into U.S. dollars after the date of receipt. Any foreign currency gain or loss realized by a U.S. Holder on a sale or other disposition of yen will be U.S.-source ordinary income or loss. Corporate U.S. Holders will not be entitled to claim a dividends-received deduction with respect to our dividends. Subject to applicable limitations, and the discussion above regarding concerns expressed by the U.S. Treasury, dividends received from us by certain noncorporate U.S. Holders may be taxable at favorable rates. Noncorporate U.S. Holders should consult their own tax advisors to determine whether they are subject to any special rules that limit their ability to be taxed at these favorable rates.

Subject to applicable restrictions and limitations that vary depending upon the U.S. Holder’s circumstances and the discussion above regarding concerns expressed by the U.S. Treasury Japanese taxes withheld from dividends on shares or ADSs (at a rate not exceeding the applicable rate provided by the Treaty in the case of a U.S. Holder who is eligible for the Treaty’s benefits) will be creditable against the U.S. Holder’s U.S. federal income tax liability. The limitation on foreign taxes eligible for credit is calculated separately with respect to two categories of income, passive income and general income. The rules governing foreign tax credits are complex. Instead of claiming a credit, a U.S. Holder may elect to deduct such Japanese taxes in computing its taxable income, subject to generally applicable limitations. An election to deduct foreign taxes instead of claiming foreign tax credits must apply to all foreign taxes paid or accrued in the taxable year. U.S. Holders should consult their own tax advisors regarding the availability of foreign tax credits and deductions in their particular circumstances.

Sale and Other Disposition of the Shares or ADSs

A U.S. Holder will generally recognize capital gain or loss on the sale or other disposition of shares or ADSs, which will be long-term capital gain or loss if the U.S. Holder has held the shares or ADSs for more than one year. The amount of the U.S. Holder’s gain or loss will equal the difference between the amount realized on

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the sale or other disposition and the U.S. Holder’s tax basis in the shares or ADSs, each as determined in U.S. dollars. The deductibility of capital losses is subject to limitations. Any gain or loss will generally beU.S.-source gain or loss for foreign tax credit purposes.

PFIC Rules

Based upon certain proposed Treasury regulations that are not yet in effect, but are generally proposed to become effective for taxable years beginning after December 31, 1994, we believe that we were not a PFIC for U.S. federal income tax purposes for our taxable year ended March 31, 2020. However, since proposed Treasury regulations may not be finalized in their current form, and since PFIC status depends upon the composition of our income and assets and the market value of our assets from time to time, there can be no assurance that we will not be a PFIC for any taxable year. If we were a PFIC for any taxable year during which a U.S. Holder held shares, certain adverse U.S. federal income tax consequences could apply to the U.S. Holder.

Information Reporting and Backup Withholding

Payments of dividends and sales proceeds that are made within the United States or through certain U.S.-related financial intermediaries may be subject to information reporting and backup withholding unless the U.S. Holder is an exempt recipient or, in the case of backup withholding, the U.S. Holder provides a correct taxpayer identification number and certifies that no loss of exemption from backup withholding has occurred. The amount of any backup withholding from a payment to a U.S. Holder will be allowed as a credit against the U.S. Holder’s U.S. federal income tax liability and may entitle the U.S. Holder to a refund, provided that the required information is timely furnished to the Internal Revenue Service.

Certain U.S. Holders who are individuals (or entities closely held by individuals) may be required to report information relating to their ownership of an interest in certain foreign financial assets, including stock of anon-U.S. person, generally on Form 8938, subject to exceptions (including an exception for stock held in a financial account, in which case the account may be reportable if maintained by anon-U.S. financial institution). U.S. Holders should consult their tax advisors regarding their reporting obligations with respect to the shares or ADSs.

10.F.    DIVIDENDS AND PAYING AGENTS

Not applicable.

10.G.    STATEMENT BY EXPERTS

Not applicable.

10.H.    DOCUMENTS ON DISPLAY

We are subject to the reporting requirements of the Securities Exchange Act of 1934. In accordance with these requirements, we file annual reports on Form20-F and furnish periodic reports on Form6-K with the SEC.

These materials, including this annual report and the exhibits thereto, may be inspected at a website maintained by the SEC athttps://www.sec.gov. Some of the information may also be found on our website athttps://www.smfg.co.jp/english/.

10.I.    SUBSIDIARY INFORMATION

Not applicable.

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Item 11. Quantitative and Qualitative Disclosures about Credit, Market and Other Risk

Quantitative and Qualitative Information about Risk Management

Risk Culture

In order for us to realize and maintain a sustainable growth in corporate value, each one of our directors, officers and other employees should think and judge on their own if their actions meet the expectations and requirements of customers, markets, and other stakeholders, not just if they are compliant with laws and regulations. We have established “Principles of Action on Compliance and Risk” in order for all our directors, officers and other employees to hold onto as a “keystone” of their daily business. The principle includes “Business based on the Risk Appetite Framework” and “Business operations which give a high priority to the management of risks such as credit risk, market risk, liquidity risk and operational risk.” Concrete measures include internal surveys for monitoring the compliance awareness and risk sensitivity of our directors, officers and other employees as well as internal training for fostering a sound risk culture.

Risk Appetite Framework

We have introduced a Risk Appetite Framework (“RAF”) for controlling SMBC Group-wide risks, that clarifies the types and levels of risk that we are willing to take on or are prepared to tolerate (risk appetite) in order to grow profits. RAF is one of two pivots of our business management alongside business strategies. It functions as a management framework for sharing information on the operating environment and risks facing us among management and for facilitating appropriate risk taking based thereon. Individual risk appetites have been established for specific business units or strategies as necessary based on our overall risk appetite.

We have a Risk Appetite Statement that provides a qualitative explanation of our approach to risk taking and risk management for each category: soundness, profitability, liquidity, credit, market, operational and conduct. We also have quantitative measures (i.e., Risk Appetite Measures) that function as benchmarks for risks that we are considering taking and for risk / return.

Risk appetites are decided during the process of formulating business strategies and management policies. These risk appetites are set based on Top Risks that threaten to significantly impact management and on risk analyses (stress testing) that illustrate the impact if a risk should materialize. In addition, risk register and Key Risk Events (“KRE”) are utilized in verifying the adequacy of Top Risks, risk appetites, and business strategies.

The outlooks for the operating environment and risks and the risk appetite situation are monitored throughout the course of the fiscal year. Risk Appetite Measures and business strategies are revised as necessary. Three risk management levels are set for Risk Appetite Measures, which are monitored accordingly.

In addition, we apply a uniform standard, risk capital based on value at risk (“VaR”), which is used to set upper limits for risk exposure based on SMBC Group-wide management constitution. Each business unit operates their business within that limit.

Types of Risk to be Managed

We classify risk into the following categories:

Credit Risk. Credit risk is the possibility of a loss arising from a credit event, such as deterioration in the financial condition of a borrower, that causes an asset (includingoff-balance sheet transactions) to lose value or become worthless.

Market Risk. Market risk is the possibility that fluctuations in interest rates, foreign exchange rates, stock prices or other market prices will change the market value of financial products, leading to a loss.

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Liquidity Risk. Liquidity risk is the risk that there may be difficulties in raising funds needed for settlements, as a result of the mismatching of uses of funds and sources of funds or unexpected outflows of funds, which may make it necessary to raise funds at higher rates than normal.

Operational Risk. Operational risk is the possibility of losses arising from inadequate or failed internal processes, people, and systems or from external events.

Top Risks

We identify those risks that threaten to significantly impact management as Top Risks.

The selection of Top Risks involves comprehensive screening of risk factors, evaluation of each risk scenario’s possibility of occurrence and potential impact on management, and discussion by the Risk Management Committee and the Management Committee. Top Risks are utilized to enhance risk management by being incorporated into discussions of RAF and the formulation of business strategies and into the creation of risk scenarios for stress testing.

Stress Testing

We use stress testing to analyze and comprehend the impact on our businesses of changes in economic or market conditions, in order to plan and execute forward-looking business strategies.

In our stress testing, we prepare multiple risk scenarios including macroeconomic variables such as GDP, stock prices, interest rates, and foreign exchange rates based on the aforementioned Top Risks, discussions with experts and related departments.

When developing business strategies, we set out scenarios assuming stressed business environments such as serious economic recessions and market disruption for the sake of assessing risk-taking capabilities at the SMBC Group and verifying whether adequate soundness can be maintained under stress.

In addition, we conduct detailed stress testing for individual risks such as credit risk, market risk, and liquidity risk, so as to decide and review risk-taking strategies.

Risk Register

A risk register is formulated by each business unit for the purpose of realizing more sophisticated risk governance and enhancing business units’ risk ownership. In formulating these registers, business units communicate with risk management departments to identify the risks present in their business, and these risks are reflected in business strategies after they have been evaluated and the adequacy of measures for controlling them has been verified.

Key Risk Events

KRE, external events that indicate the increased threat of risks, have been identified to ascertain the symptoms of the potential risks. KRE are utilized to analyze and assess how likely similar cases will occur in our businesses and what effects such similar cases will have on us, and to enhance our risk management system.

Risk Capital Management

In managing credit risk, market risk, and operational risk affecting the entire SMBC Group, we apply a uniform standard, risk capital based on VaR, for use in monitoring and managing risks. This standard is applied while taking into account the characteristics of each risk and of the businesses of SMBC Group companies.

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Specific risk capital measures include setting upper limits for risk exposure based on SMBC Group-wide and business unit risk appetite and SMBC Group-wide management constitution. Each business unit operates business operation within that limit. Through these precautions, we practice management that maintains an appropriate balance between risks and returns based on a comprehensive perspective and secure sufficient financial soundness.

Disclosures of the objectives, policies and processes to manage each risk and the methods used to measure each risk have been included in “Credit Risk,” “Market Risk and Liquidity Risk” and “Operational Risk.”

Risk Management System

Based on the recognition of the importance of risk management, the SMBC Group-wide basic policies for risk management are determined by the Management Committee before being authorized by the board of directors in order to have top management play an active role in the risk management process.

In accordance with these basic policies for risk management, three lines of defense have been defined, and we have clarified related roles and responsibilities. Risk management systems have been established based on the characteristics of particular businesses, and measures are being put in place to strengthen and improve the effectiveness of these systems.

Furthermore, we are strengthening SMBC Group-wide risk management systems through the Group Chief Risk Officer (“CRO”) Committee and the Global CRO committee.

Three Lines of Defense

The Basel Committee on Banking Supervision’s “Corporate governance principles for banks” recommends “three lines of defense” as a framework for risk management and governance. Based on this framework, we have defined our three lines of defense with the aim of achieving more effective and stronger risk management and compliance systems through the clarification of roles and responsibilities.

Our three lines of defense are as follows:

First Line. The business units shall be risk owners concerning their operations and shall be responsible for the following in accordance with the basic principles provided by Second Line.

• Identification and evaluation of risks encountered in the business activities

• Implementation of measures for minimizing and controlling risks

• Monitoring of risks and reporting within First Line and to Second Line

• Creation and fostering of a sound risk culture

Second Line.The Risk Management and Compliance Departments shall assume the following functions and responsibilities in order to manage the risk management and compliance systems.

• Drafting and development of basic principles and frameworks concerning risk management and compliance

• Oversight, monitoring, and development of training programs for First Line

Third Line. Independent from First Line and Second Line, the Audit Dept. shall assess and verify the effectiveness and appropriateness of risk management and compliance systems managed and operated by First Line and Second Line, and report these results to the Audit Committee and the Management Committee. The Department shall provide recommendations regarding identified issues or problems.

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Implementation of Basel Regulation

Basel III is an international agreement on minimum capital, leverage, liquidity and other requirements applicable to internationally active banks. The Basel III capital framework was implemented in Japan from March 31, 2013 pursuant to revised capital adequacy guidelines adopted by the FSA, subject to thephase-in of some requirements, as contemplated by Basel III.

The framework of Basel III is a continuation of Basel II, with multiple approaches to calculating capital requirements; we adopted the advanced IRB approach for credit risk from March 31, 2009, and the AMA for operational risk from March 31, 2008.

Detailed information on our capital ratios is included in “Item 4.B. Business Overview—Regulations in Japan—Regulations Regarding Capital Adequacy and Liquidity” and “Item 5.B. Liquidity and Capital Resources—Capital Management.”

Credit Risk

Credit risk is the risk of incurring losses from decline or loss of the value of an asset (includingoff-balance sheet items) that is caused by a credit event including but not limited to the deterioration of financial condition of a borrower. Overseas credits transactions also entail country risk, which is closely related to credit risk. Country risk is the risk of incurring losses caused by changes in political or economic conditions. Credit exposures arise primarily from lending activities such as loans and advances, acquiring investment securities, derivative transactions, andoff-balance sheet transactions such as unused portion of loan commitments.

Credit Risk Management System

Credit risk is the most significant risk to which we are exposed. The purpose of credit risk management is to keep the credit risk exposure to a permissible level relative to capital, to maintain the quality of assets and to ensure returns commensurate with risk.

At the SMBC Group, the Group CRO formulates credit risk management policies each year on the basis of SMBC Group-wide basic policies for risk management. The Credit & Investment Planning Department, responsible for the comprehensive management of credit risk, drafts and administers credit risk regulations including the SMBC Group credit policies, managesnon-performing loans (“NPLs”), and performs other aspects of credit portfolio management. Also, the Credit Risk Committee deliberates on matters related to SMBC Group-wide credit portfolios. SMBC Group companies follow the fundamental principles established by us to assess and manage credit risk. Each of SMBC Group companies manages credit risk according to the nature of its business, and assesses and manages the credit risks of individual loans and credit portfolios quantitatively, using consistent standards.

At SMBC, our significant banking subsidiary, the Credit & Investment Planning Department within the Risk Management Unit is responsible for the comprehensive management of credit risk. This department drafts and administers credit policies, the internal rating system, credit authority guidelines, and credit application guidelines, and manages NPLs, including impaired loans, and other aspects of credit portfolio management. The department also cooperates with the Corporate Risk Management Department in quantifying credit risk (risk capital and risk-weighted assets) and controls SMBC’s entire credit risk. Further, the Credit Portfolio Management Department within the Credit & Investment Planning Department strives to stabilize the credit portfolio and manage the risk through credit derivatives, loan asset sales and other instruments.

The credit departments of SMBC within each business unit conduct credit risk management for loans handled by its unit and manage portfolios of its unit. The credit limits they use are based on the baseline amounts that the Credit & Investment Planning Department establishes for each grading category, with particular attention

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paid to evaluating and managing customers or loans perceived to have particularly high credit risk. The Corporate Research Department engages in research on industries and analyzes the business and financial conditions of borrower enterprises to detect early signs of problems or growth potential. The Credit Administration Department is responsible for handling NPLs of borrowers classified as potentially bankrupt or lower, and formulates plans for workouts, including write-offs, and corporate rehabilitation. The department closely liaises with SMBC Servicer Co., Ltd., an SMBC Group company, which engages in related services to efficiently reduce the amount of NPLs, including through the sale of loans.

The Internal Audit Unit of SMBC, operating independently of the business units, audits asset quality, accuracy of grading and state of credit risk management, and reports the results directly to the board of directors and the Management Committee.

SMBC has established the Credit Risk Committee to undertake control of credit risk and to ensure the overall soundness of the loan operations.

Credit Risk Management Methods

To effectively manage the risk involved in individual loans as well as the credit portfolio as a whole, we first acknowledge that every loan entails credit risk, assess the credit risk posed by each borrower and loan using an internal rating system, and quantify that risk for control purposes.

Credit Risk Evaluation

At SMBC, the Credit & Investment Planning Department manages an internal rating system for each asset control category set according to portfolio characteristics. For example, credits to commercial and industrial (“C&I”) companies, individuals for business purposes (domestic only), sovereigns, public sector entities, and financial institutions are assigned an “obligor grade,” which indicates the borrower’s creditworthiness, and/or “facility grade,” which indicates the collectability of assets taking into account the transaction conditions such as guarantee/collateral, and tenor. The business units determine an obligor grade by first assigning a financial grade using a financial strength grading model and data obtained from the obligor’s financial statements, including net worth and cash flows. The financial grade is then adjusted taking into account the actual state of the obligor’s financial position and qualitative factors to derive the obligor grade. The qualitative factors mainly include the expected future cash flows taking into account factors such as historical loss information, the appropriateness of the borrower’s business plan or operational improvement plan, the status of progress of its plan, and the overall support from financial institutions. In the event that the borrower is domiciled overseas, internal ratings for credit are made after taking into consideration the country rank, which represents an assessment of the credit quality of each country based on its political and economic situation, as well as its current account balance and external debt. Obligor grades and facility grades are reviewed once a year and as otherwise necessary, such as when there are changes in the credit situation. Our subsidiaries carry out credit risk evaluations in line with SMBC.

There are also grading systems for loans to individuals such as housing loans and structured finance including project finance, where the repayment source is limited to the cash flows generated by a particular business or asset. For example, the obligor grade of housing loans is determined taking into account various relevant factors such as proportion of the repayment to revenue, proportion of down payment to the value and past due information.

The Credit & Investment Planning Department of SMBC centrally manages the internal rating systems, and designs, operates, supervises and validates the grading models. It validates the grading models (including statistical validation) of main assets following the procedure manual once a year to ensure their effectiveness and suitability.

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Quantification of Credit Risk

At SMBC, credit risk quantification refers to the process of estimating the degree of credit risk of a portfolio or individual loan taking into account not just the obligor’s probability of default (“PD”), but also the concentration of risk in a specific customer or industry and the loss impact of fluctuations in the value of collateral, such as real estate and securities.

Specifically, the PD by grade, loss given default (“LGD”), credit quality correlation among obligors, and other parameter values are estimated using the historical data of obligors and facilities stored in a database to calculate the credit risk. Then, based on these parameters, SMBC runs a simulation of simultaneous default using the Monte Carlo Simulation to calculate SMBC’s maximum loss exposure to the estimated amount of the maximum losses that may be incurred. Based on these quantitative results, SMBC allocates risk capital.

Risk quantification is also executed for purposes such as to determine the portfolio’s risk concentration or to simulate economic movements (stress tests), and the results are used for making optimal decisions across the whole range of business operations, including formulating business plans and providing a standard against which individual credit applications are assessed.

Credit Assessment

At SMBC, the credit assessment of corporate loans involves a variety of financial analyses, including cash flows, to predict an enterprise’s capability of loan repayment and its growth prospects. These quantitative measures, when combined with qualitative analyses of industrial trends, the enterprise’s research and development capabilities, the competitiveness of its products or services, and its management caliber, result in a comprehensive credit assessment. The loan application is analyzed in terms of the intended utilization of the funds and the repayment schedule. In the assessment of housing loans for individuals, SMBC employs a credit assessment model based on credit data amassed and analyzed by SMBC over many years, taking into account various relevant factors including proportion of the repayment to revenue, proportion of down payment to the value and past due information.

Credit Monitoring

At SMBC, in addition to analyzing loans at the application stage, the Credit Monitoring System is utilized to reassess obligor grades, and review credit policies for each obligor so that problems can be detected at an early stage, and quick and effective action can be taken. The system includes annual monitoring that is carried out each time the financial results of the obligor enterprise are obtained, as well asad-hoc monitoring that is performed each time credit conditions change.

Credit Portfolio Management

Risk-Taking Within the Scope of Capital

To keep the credit risk exposure to a permissible level relative to capital, the Corporate Risk Management Department of the Company sets a credit risk capital limit for internal control purposes. Under this limit,sub-limits are set for each business unit. The Corporate Risk Management Department conducts monthly monitoring to make sure that these limits are being followed.

Controlling Concentration Risk

As our equity capital may be materially impaired in the event that the credit concentration risk becomes apparent, the Credit & Investment Planning Department of the Company therefore takes measures to manage concentration risks, such as introducing large exposure limits and conducting intensive loan reviews for obligors with large exposures, with an increased focus on industrial sectors with an excessive concentration of credit risk. Further, to manage country risk, SMBC’s Credit Department of the International Banking Unit has credit limit guidelines based on each country’s creditworthiness.

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Toward Active Portfolio Management

SMBC’s Credit Portfolio Management Department makes use of credit derivatives, loan asset sales, and other instruments to proactively and flexibly manage its portfolio to stabilize credit risk.

Market Risk and Liquidity Risk

Market risk is the possibility that fluctuations in interest rates, foreign exchange rates, stock prices or other market prices will change the market value of financial products, leading to a loss. The purpose of market risk management is to keep the market risk exposure to a permissible level relative to capital.

Liquidity risk is defined as the uncertainty around our ability to meet our debt obligations without incurring unacceptably large losses. An example of such risk is the possible inability to meet our current and future cash flow/collateral needs, both expected and unexpected. In such cases, we may be required to raise funds at less than favorable rates or be unable to raise sufficient funds for settlement. The purpose of liquidity risk management is to ensure that we are in a position to address our liquidity obligations through monitoring the liquidity gap between assets and liabilities, and by maintaining highly liquid supplementary funding resources.

On the basis of the SMBC Group-wide basic policies for risk management, we have a quantitative management process to control market and liquidity risks on an SMBC Group-wide basis by setting allowable risk limits by company. We at least annually review and identify which companies primarily carry the market and liquidity risks within us. We set permissible levels and upper limits of risk for each identified company in consideration of those companies’ business plans. We ensure that each identified company establishes a risk management system that is appropriate to the risks it faces, and hasbuilt-in transparent risk management processes which clearly separates front, middle and back office operations, and establishes a control system of mutual checks and balances.

Framework for Market and Liquidity Risk Management

The board of directors authorizes important matters relating to the management of market and liquidity risks, such as the basic policies and risk limits, which are decided by the Management Committee. The Corporate Risk Management Department, which is independent of the business units that directly handle market transactions, manages market and liquidity risks in an integrated manner. The Corporate Risk Management Department not only monitors the current risk situations but also reports regularly to the Management Committee and the board of directors.

Additionally, the Asset Liability Management (“ALM”) Committee meets on a quarterly basis to examine reports on the state of market and liquidity risk management and to discuss our ALM operation policies. Furthermore, SMBC’s ALM Committee meets on a monthly basis to examine reports on the state of observance of SMBC’s limits on market and liquidity risks and to discuss SMBC’s ALM operations.

Under our internal audit system, internal audits are also periodically performed to verify that the risk management framework is functioning properly.

Market Risk Management Methods

Market Risk Management Process

We manage market risk derived from trading activities andnon-trading activities, including strategic shareholding investments and other transactions within the risk capital limit, which is determined by taking into account our shareholders’ equity and other principal indicators of our financial position. We also establish an upper limit on VaR and losses within the risk capital limits.

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Our market risk can be divided into various factors: interest rates, foreign exchange rates, equity prices and option risks. We manage each of these risks by employing the VaR method as well as supplemental indicators suitable for managing each risk, such as the basis point value (“BPV”).

VaR is the largest predicted loss that is possible given a fixed confidence interval. For example, our VaR indicates the largest loss that is possible for a holding period of one day and a confidence interval of 99.0%. BPV is the amount of change in assessed value as a result of aone-basis-point (0.01%) movement in interest rates.

Market Risk Measurement Techniques—Value at Risk

The principal SMBC Group companies’ internal VaR model makes use of historical data to prepare scenarios for market fluctuations and, by conducting simulations of gains and losses on a net position basis, the model estimates the maximum losses that may occur. The VaR calculation method we employ for both trading andnon-trading activities is based mainly on the following:

• the historical simulation method;

• aone-sided confidence interval of 99.0%;

• aone-day holding period (aone-year holding period for the strategic shareholding investment portfolio); and

• an observation period of four years (ten years for the strategic shareholding investment portfolio).

This method is reviewed periodically and refined, if necessary.

The relationship between the VaR calculated by the model and the actual profit and loss data is back-tested periodically. There were no significant excess losses in the back-testing results including the trading accounts. The back-testing results are reviewed by management, which also monitors the ongoing suitability of the VaR model.

Trading Activities

Most of our trading activity is undertaken to accommodate the needs of commercial banking customers for interest rate and foreign exchange transactions. However, some interest rate and foreign exchange rate positions are taken using derivatives and otheron-balance sheet instruments with the objective of earning a profit from favorable movements in market rates. The overall objective of managing market risk is to avoid unexpected losses due to changes in market prices.

Non-trading Activities

The market risk fornon-trading activity arises principally from the interest rate risk of our ALM operations, or banking, including loans, debt investment securities, deposits, and long- and short-term borrowings, and from the equity risk of our strategic shareholding investments. ALM operations are regularly reviewed and discussed by the ALM Committee so as not to be heavily exposed to market fluctuations. Strategic shareholding investment is a portfolio that consists principally of publicly traded Japanese equities. This portfolio, like that of other financial institutions in Japan, has historically included shares of our customers.

VaR Summary for the Fiscal Years Ended March 31, 2020 and 2019

The following tables show our VaR by risk category and these figures are prepared based on the internal reporting provided to management.

Our material market risk exposure categories consist of interest rate risk, foreign exchange risk, equities and commodities risk and others. The section headed “VaR for Trading Activity” shows our VaR for instruments

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entered into for trading purposes and the VaR model for the trading book includes principal consolidated subsidiaries. The section headed “VaR forNon-Trading Activity” shows our VaR for instruments entered into for purposes other than trading purposes. “Strategic Shareholding Investment” in the “VaR forNon-Trading Activity” section is a portfolio that consists principally of publicly traded Japanese equities. This portfolio, like that of other financial institutions in Japan, has historically included shares of our customers.

VaR for Trading Activity

	Interest rate risk		Foreign exchange risk		Equities and commodities risk		Others		Total(1)
	(In billions)
For the fiscal year ended March 31, 2020:
SMBC Consolidated
Maximum	¥	6.0	¥	9.6	¥	2.9	¥	4.7	¥	10.2
Minimum		3.7		4.0		0.0		2.6		6.2
Daily average		4.5		5.6		0.7		4.0		7.3
At March 31, 2020		5.4		8.9		0.0		2.6		6.4
SMFG Consolidated
Maximum	¥	13.7	¥	10.6	¥	9.4	¥	4.7	¥	22.4
Minimum		9.2		4.4		1.6		2.6		13.8
Daily average		10.6		6.2		3.7		4.0		16.7
At March 31, 2020		12.6		9.5		2.4		2.6		16.2
	Interest rate risk		Foreign exchange risk		Equities and commodities risk		Others		Total(1)
	(In billions)
For the fiscal year ended March 31, 2019:
SMBC Consolidated
Maximum	¥	5.7	¥	6.2	¥	3.2	¥	4.6	¥	13.5
Minimum		2.3		3.0		0.0		3.0		5.7
Daily average		4.0		4.1		0.8		3.8		7.6
At March 31, 2019		4.5		4.7		0.1		3.8		6.6
SMFG Consolidated
Maximum	¥	19.0	¥	6.9	¥	17.1	¥	4.6	¥	33.0
Minimum		8.5		3.2		1.7		3.0		14.7
Daily average		12.8		4.4		3.9		3.8		19.7
At March 31, 2019		10.5		5.1		3.9		3.8		16.4

(1) Total for “Maximum,” “Minimum,” and “Daily average” represent the maximum, minimum and daily average of the total of the trading book. For certain subsidiaries, we employ the standardized method and/or the historical simulation method for the VaR calculation method.

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VaR forNon-trading Activity

• Banking

	Interest rate risk		Foreign exchange risk		Equities and commodities risk		Others		Total(1)
	(In billions)
For the fiscal year ended March 31, 2020:
SMBC Consolidated
Maximum	¥	46.8	¥	0.0	¥	30.2	¥	0.0	¥	51.5
Minimum		32.7		0.0		10.8		0.0		35.6
Daily average		40.6		0.0		20.4		0.0		44.3
At March 31, 2020		45.4		0.0		15.4		0.0		49.6
SMFG Consolidated
Maximum	¥	47.6	¥	0.0	¥	30.2	¥	0.0	¥	52.4
Minimum		33.6		0.0		10.8		0.0		36.5
Daily average		41.5		0.0		20.4		0.0		45.1
At March 31, 2020		46.2		0.0		15.4		0.0		50.5
	Interest rate risk		Foreign exchange risk		Equities and commodities risk		Others		Total(1)
	(In billions)
For the fiscal year ended March 31, 2019:
SMBC Consolidated
Maximum	¥	37.4	¥	0.0	¥	33.7	¥	0.0	¥	48.4
Minimum		27.4		0.0		17.8		0.0		36.0
Daily average		31.1		0.0		24.3		0.0		40.4
At March 31, 2019		37.2		0.0		19.8		0.0		43.9
SMFG Consolidated
Maximum	¥	38.4	¥	0.0	¥	33.7	¥	0.0	¥	50.6
Minimum		28.4		0.0		17.8		0.0		37.0
Daily average		33.0		0.0		24.3		0.0		42.3
At March 31, 2019		38.2		0.0		19.8		0.0		44.8

(1) Total for “Maximum,” “Minimum,” and “Daily average” represent the maximum, minimum and daily average of the total of the banking book.

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• Strategic Shareholding Investment

	Equities risk
	(In billions)
For the fiscal year ended March 31, 2020:
SMBC Consolidated
Maximum	¥	1,030.0
Minimum		717.4
Daily average		941.3
At March 31, 2020		808.2
SMFG Consolidated
Maximum	¥	1,180.6
Minimum		840.5
Daily average		1,092.7
At March 31, 2020		942.4
	Equities risk
	(In billions)
For the fiscal year ended March 31, 2019:
SMBC Consolidated
Maximum	¥	1,430.4
Minimum		980.0
Daily average		1,246.6
At March 31, 2019		1,006.3
SMFG Consolidated
Maximum	¥	1,622.5
Minimum		1,114.8
Daily average		1,414.6
At March 31, 2019		1,156.0

Stress Tests

The market occasionally undergoes extreme fluctuations that exceed projections. Therefore, to manage market risk, it is important to run simulations of situations that may occur only once in many years, orso-called stress tests. To prepare for unexpected market swings, we perform stress tests on a monthly basis based on various scenarios.

The limitations of the VaR methodology include the following:

• The use of historical data as a proxy for estimating future events may underestimate the probability of extreme market movements. Past market movement is not necessarily a good indicator of future events;

• The use of a holding period assumes that all positions can be liquidated or hedged in that period of time. This assumption does not fully capture the market risk arising during periods of illiquidity, when liquidation or hedging in that period of time may not be possible;

• The use of a confidence level neither takes account of, nor makes any statement about, any losses that might occur beyond this level of confidence; and

• VaR does not capture all of the complex effects of the risk factors on the value of positions and portfolios and could underestimate potential losses.

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Additional Information for Certain Risks

Interest Rate Risk

To supplement the above limitations of VaR methodologies, the SMBC Group adopts various indices to measure and monitor the sensitivity of interest rates, including delta, gamma and vega risks. The SMBC Group considers BPV as one of the most significant indices to manage interest rate risk. BPV is the amount of change in the value to the banking and trading book as a result of aone-basis-point (0.01%) movement in interest rates. The principal SMBC Group companies use BPV to monitor interest rate risk, not only on a net basis, but also by term to prevent the concentration of interest rate risk in a specific period. In addition, as previously addressed, the SMBC Group enhances the risk management methods of VaR and BPV by using them in combination with back-testing and stress tests.

Interest rate risk substantially changes depending on the method used for recognizing the expected maturity dates of demand deposits that can be withdrawn at any time or the method used for estimating the timing of cancellation prior to maturity of time deposits and consumer housing loans. At SMBC, the maturity of demand deposits that are expected to be left with SMBC for a prolonged period is regarded to be at the longest five years (2.5 years on average), and the cancellation prior to maturity of time deposits and consumer housing loans is estimated based on historical data.

Based on the standards for interest rate risk in the banking book issued by the BCBS in April 2016, the FSA revised the related regulatory guidelines pertaining to monitoring of interest rate risks in the banking book in December 2017. The revised disclosure requirements with respect to the changes in economic value of equity (“DEVE”) and changes in net interest income (“DNII”) in the banking book as a result of interest rate shocks have been applied from March 31, 2018. The tables below presentDEVE andDNII of SMBC and SMFG on a consolidated basis at March 31, 2020 and 2019, respectively.

DEVE is defined as a decline in economic value as a result of an interest rate shock. It is calculated by multiplying the interest rate sensitivity (excluding credit spread) and interest rate change. The FSA implements a “materiality test” to identify banks taking excessive interest rate risks. Under the materiality test, the FSA monitors the ratio ofDEVE to Tier 1 capital based on a set of prescribed interest rate shock scenarios. The threshold applied by the FSA is 15% and the ratios for SMBC on a consolidated basis at March 31, 2020 and 2019 were 11.1% and 7.8%, respectively and those for SMFG on a consolidated basis at March 31, 2020 and 2019 were 9.6% and 6.8%, respectively.

DNII is defined as a decline in interest income over a rolling12-month period as a result of an interest rate shock. It is calculated assuming a constant balance sheet over a forward-looking rolling12-month period.

	At March 31, 2020					At March 31, 2019
	DEVE		DNII			DEVE		DNII
	(In billions)
SMBC Consolidated
Parallel shock up	¥	982.1	¥	(242.6	)	¥	724.7	¥	(252.3	)
Parallel shock down		0.0		415.0			1.2		405.1
Steepener shock		284.9		—			343.9		—
Flattener shock		164.0		—			18.3		—
Short rate shock up		329.6		—			151.1		—
Short rate shock down		6.6		—			1.1		—
Maximum		982.1		415.0			724.7		405.1

	At March 31, 2020		At March 31, 2019
	(In billions)
Tier 1 Capital	¥	8,886.7	¥	9,300.8

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	At March 31, 2020					At March 31, 2019
	DEVE		DNII			DEVE		DNII
	(In billions)
SMFG Consolidated
Parallel shock up	¥	982.1	¥	(242.6	)	¥	724.7	¥	(252.3	)
Parallel shock down		0.0		415.0			1.2		405.1
Steepener shock		284.9		—			343.9		—
Flattener shock		164.0		—			18.3		—
Short rate shock up		329.6		—			151.1		—
Short rate shock down		6.6		—			1.1		—
Maximum		982.1		415.0			724.7		405.1

	At March 31, 2020		At March 31, 2019
	(In billions)
Tier 1 Capital	¥	10,249.9	¥	10,727.2

Note: DEVE andDNII are calculated by currency and the results are aggregated across the various currencies. ForDNII, only Japanese yen and U.S. dollars are included in the calculation. These are the material currencies where interest rate sensitive assets and liabilities are more than 5% of total assets and liabilities.

Foreign Exchange Risk

The principal SMBC Group companies set risk limits for each currency to manage the concentration of the foreign currency position. The foreign exchange risk is immaterial as shown above in VaR by risk category.

Strategic Shareholding Investment Risk

We establish limits on allowable risk for strategic shareholding investments, and monitor the observance of those limits to keep stock price fluctuation risk within acceptable parameters. We have been reducing our strategic shareholding investments, and the balance is within a permitted level, which is less than 100% of our consolidated Tier 1 Capital. See “Item 4.B. Business Overview—Regulations in Japan—Regulations for Stabilizing the Financial System—Restriction on Aggregate Shareholdings by a Bank.”

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Liquidity Risk Management Methods

We regard liquidity risk as one of the major risks. Our liquidity risk management is based on a framework consisting of setting Risk Appetite Measures and establishing contingency plans.

The Risk Appetite Measures are measures for selecting the types and levels of risk that we are willing to take on or tolerate. As the level of liquidity risk is evaluated based on cash flow and balance sheet conditions, Risk Appetite Measures have been set for both of these areas. These measures include the Liquidity Coverage Ratio, a liquidity regulation, as well as a measure of the periods for which it will be possible to maintain funding levels even under stress due to deposit outflows or other factors, and the ratio which shows how much the stable funding covers the funding for loans and other assets.

The tolerated levels of risk are set based on account funding status, cash management planning, economic environments and other factors, and measures are monitored on a daily or monthly basis in order to limit reliance on short-term funding and appropriately manage liquidity.

As a framework to complement the Risk Appetite Measures, upper limits are set in place on both an SMBC Group company basis and individual branch basis with regard to funding gaps, which is defined as a maturity mismatch between the source of funds and use of funds.

Furthermore, contingency plans are established in preparation for emergency situations. These plans contain information on chains of command and lines of reporting as well as detailed action plans depending on the existing situation (i.e., normal, concerned, or crisis). Meanwhile, SMBC carries out quantitative management of alert indications based on early warning indicators established to assist the bank in promptly and systematically detecting liquidity risks.

Operational Risk

Operational risk is the possibility of losses arising from inadequate or failed internal processes, people and systems or from external events. Specifically, it covers processing risk, system risk, legal risk, human resources risk, reputational risk, tangible asset risk and third party risk. We have prepared operational risk management regulations to define the basic rules to be observed across SMBC Group. Under these regulations, we are working to raise the level of sophistication of our management of operational risk across the SMBC Group by providing an effective framework for the identification, assessment, control and monitoring of significant risk factors and by establishing a system for executing contingency and business continuity plans.

Processing risk is the possibility of losses arising from negligent processing by directors and employees, and from accidents or misconducts. We have clarified the divisions responsible for the oversight functions for processing risk management, and we are working to raise the level of sophistication of our management of processing risk across the whole SMBC Group by establishing systems for managing the processing risks faced by SMBC Group companies, ensuringin-office inspection, minimizing losses in the event of processing risk materialization by drafting exhaustive contingency plans, and carrying out thorough quantification of the risk under management as basic principles.

System risk is the risk arising from nonconformity to the management strategy, inappropriate technologies applied, changes to the development plan and delay in development when building an information system, and the risk of loss incurred due to system failure, malfunction, deficiency or unauthorized use (unauthorized alteration, destruction, duplication and leakage of the information), including those caused by cyber-attack. We have set the following as basic principles: recognizing information systems as an essential part of management strategy taking into account advances in IT, minimizing system risk by drafting regulations and specific management standards, (including a security policy) and establishing contingency plans to minimize losses if a system risk materializes.

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Item 12. Description of Securities other than Equity Securities

12.A.    DEBT SECURITIES

Not applicable.

12.B.    WARRANTS AND RIGHTS

Not applicable.

12.C.    OTHER SECURITIES

Not applicable.

12.D.    AMERICAN DEPOSITARY SHARES

Under the terms of the deposit agreement, an ADS holder may have to pay the following service fees to the depositary:

Service	Fees
Issuance of ADSs	Up to U.S. 5¢ per ADS issued
Cancellation of ADSs	Up to U.S. 5¢ per ADS canceled
Distribution of cash dividends or other cash distributions	Up to U.S. 5¢ per ADS held
Distribution of ADSs pursuant to stock dividends, free stock distributions or exercises of rights	Up to U.S. 5¢ per ADS held
Distribution of securities other than ADSs or rights to purchase additional ADSs	Up to U.S. 5¢ per ADS held
Depositary services	Up to U.S. 5¢ per ADS held on the applicable record date(s) established by the depositary

An ADS holder will also be responsible for paying certain fees and expenses incurred by the depositary and certain taxes and governmental charges such as:

• taxes (including applicable interest and penalties) and other governmental charges;

• the registration fees applicable to transfers of shares or other deposited securities to or from the name of the custodian, the depositary or any nominees upon the making of deposits or withdrawals, respectively;

• the cable, telex and facsimile transmission and delivery expenses expressly provided in the deposit agreement to be at the expense of the person depositing or withdrawing shares or holders and beneficial owners of ADSs;

• the expenses and charges incurred by the depositary in the conversion of foreign currency;

• the fees and expenses incurred by the depositary in connection with compliance with exchange control regulations and other regulatory requirements applicable to shares, deposited securities, ADSs and ADRs; and

• the fees and expenses incurred by the depositary, the custodian or any nominee in connection with the servicing or delivery of deposited securities.

Depositary fees payable upon the issuance and cancellation of ADSs are typically paid to the depositary by the brokers (on behalf of their clients) receiving the newly issued ADSs from the depositary and by the brokers (on behalf of their clients) delivering the ADSs to the depositary for cancellation. The brokers in turn charge these transaction fees to their clients.

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Citibank, N.A., as depositary, has agreed to reimburse the Company for certain expenses the Company incurs in connection with its ADR program, subject to certain ceilings. During the fiscal year ended March 31, 2020, we received $215,537.11 as reimbursement for such expenses.

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PART II

Item 13. Defaults, Dividend Arrearages and Delinquencies

None.

Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds

None.

Item 15. Controls and Procedures

Disclosure Controls and Procedures

We carried out an evaluation under the supervision and with the participation of our management, including Jun Ohta, our President and Group Chief Executive Officer, and Toru Nakashima, our Senior Managing Corporate Executive Officer and Group Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule13a-15(e) under the Securities Exchange Act of 1934) at March 31, 2020. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable, not absolute, assurance of achieving their control objectives. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Based upon the evaluation referred to above, Mr. Ohta and Mr. Nakashima concluded that the design and operation of our disclosure controls and procedures at March 31, 2020 were effective to provide reasonable assurance that information required to be disclosed in the reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.

Management’s Annual Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rule13a-15(f) under the Securities Exchange Act of 1934. Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with IFRS. Our internal control over financial reporting includes those policies and procedures that:

(i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets;

(ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with IFRS, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and

(iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Our management evaluated the effectiveness of our internal control over financial reporting at March 31, 2020 based on the criteria established in “Internal Control—Integrated Framework (2013)” issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on the evaluation, management has concluded that we maintained effective internal control over financial reporting at March 31, 2020.

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The effectiveness of our internal control over financial reporting at March 31, 2020 has been audited by KPMG AZSA, our independent registered public accounting firm, as stated in their report appearing on pageF-4.

Changes in Internal Control Over Financial Reporting

There have been no changes in our internal control over financial reporting that occurred during the period covered by this annual report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Although we have implemented various initiatives for continuous business operation in response to theCOVID-19 pandemic, including enabling most of our employees to telework, apart from those who need to work at their office for smooth operations, we believe these initiatives have not had a significant impact on our internal control over financial reporting.

Item 16A. Audit Committee Financial Expert

Our board of directors has determined that Mr. Shozo Yamazaki is an “audit committee financial expert” as defined in Item 16A of Form20-F and is “independent” as defined in the listing standards of the NYSE.

Item 16B. Code of Ethics

We have adopted a code of ethics, which is comprised of internal rules included in our business ethics and compliance manual, each of which applies to all our directors, officers and other employees.

On April 1, 2020, we revised our previous internal rules, reflecting the revision of our Mission (see “Item 4.B. Business Overview—Our Mission, Vision and Values”).

A copy of the sections of our business ethics and compliance manual equivalent to the “code of ethics” (as defined in paragraph (b) of Item 16B of Form20-F) is attached as Exhibit 11 to this annual report.

No waivers of the business ethics and compliance manual have been granted to any of our directors, officers or other employees, during the fiscal year ended March 31, 2020.

Item 16C. Principal Accountant Fees and Services

Fees for Services Provided by KPMG AZSA and its Affiliates

The aggregate fees billed by KPMG AZSA, our independent registered public accounting firm, and its affiliates, for the fiscal years ended March 31, 2020 and 2019 are presented in the following table:

	For the fiscal year ended March 31,
	2020		2019
	(In millions)
Audit fees(1)	¥	5,352	¥	5,392
Audit-related fees(2)		292		251
Tax fees(3)		57		104
All other fees(4)		35		33
Total	¥	5,736	¥	5,780

(1) Audit fees primarily include fees for the audit of our and our subsidiaries’ annual financial statements and fees for the services that are normally provided in connection with our statutory and regulatory filings.

(2) Audit-related fees primarily include fees for attestation and related services that are not reported under audit fees.

(3) Tax fees primarily include fees for tax compliance, assistance with preparation of tax return filings and tax advisory services.

(4) All other fees include fees for advisory services in relation to new accounting standards gap analysis.

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Pre-Approval Policies and Procedures

Pursuant to Rule2-01(c)(7) of RegulationS-X, our audit committeepre-approves all engagements with KPMG AZSA and its affiliates. Under the policies and procedures established by our audit committee, the Company and its subsidiaries must apply to our audit committee forpre-approval on either a periodic basis twice a year for services expected to be performed in the coming months orcase-by-case basis before entering into the engagement with KPMG AZSA and its affiliates to perform audit and permittednon-audit services.

Pre-approval is granted by our audit committee prior to entering into the engagement. Additionally, if necessary, full-time audit committee members may consider anycase-by-case application forpre-approval on behalf of our audit committee prior to the next scheduled audit committee meeting. Suchpre-approvals made by full-time audit committee members are reported to our audit committee at the next scheduled audit committee meeting.

Fees approved pursuant to the procedures described in paragraph2-01(c)(7)(i)(C) of RegulationS-X, which provides for an exception to the general requirement forpre-approval in certain circumstances, were none for the fiscal years ended March 31, 2020 and 2019.

Item 16D. Exemptions from the Listing Standards for the Audit Committee

Not applicable.

Item 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers

The following table sets forth purchases of our common stock by us and our affiliated purchasers during the fiscal year ended March 31, 2020:

		Total number of shares purchased(1)		Average price paid per share		Total number of shares purchased as part of publicly announced plans or programs(2)		Maximum number of shares that may yet be purchased under the plans or programs(2)
April 1 to April 30, 2019			1,462	¥	4,010		—		—
May 1 to May 31, 2019			4,341,650		3,834		4,340,200		27,659,800
June 1 to June 30, 2019			9,472,935		3,779		9,471,900		18,187,900
July 1 to July 31, 2019			5,482,344		3,827		5,479,400		12,708,500
August 1 to August 31, 2019			7,212,689		3,690		7,210,900		5,497,600
September 1 to September 30, 2019			1,785		3,647		—		—
October 1 to October 31, 2019			1,971		3,720		—		—
November 1 to November 30, 2019			941		3,949		—		—
December 1 to December 31, 2019			3,251		4,055		—		—
January 1 to January 31, 2020			3,032		3,976		—		—
February 1 to February 29, 2020			2,217		3,871		—		—
March 1 to March 31, 2020			1,430		3,133		—		—
	��
Total			26,525,707	¥	3,774		26,502,400		—

(1) A total of 23,307 shares were purchased other than through a publicly announced plan or program during the fiscal year ended March 31, 2020, due to our purchases of shares constituting less than one unit from registered holders of such shares at the current market prices of those shares.

(2) On May 15, 2019, we announced that our board of directors resolved to repurchase shares of our common stock and cancel all the repurchased shares. The resolution authorized the repurchase of up to the lesser of (i) an aggregate of 32,000,000 shares of our common stock and (ii) an aggregate of ¥100 billion between May 16, 2019 and August 30, 2019. On August 9, 2019, we completed the repurchase, acquiring 26,502,400 shares of our common stock for ¥100 billion in aggregate. We cancelled all of the repurchased shares on September 20, 2019.

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Item 16F. Change in Registrant’s Certifying Accountant

None.

Item 16G. Corporate Governance

Companies listed on the NYSE must comply with certain corporate governance standards provided under Section 303A of the NYSE Listed Company Manual. However, NYSE-listed companies that are foreign private issuers, including us, are permitted to follow home country practices in lieu of certain provisions of Section 303A if such foreign private issuers meet certain criteria. We rely on the exemption for home country practices concerning the listing of our ADSs on the NYSE.

Under the Companies Act, we are required to have a corporate governance system with (i) a board of corporate auditors, (ii) an audit and supervisory committee, or (iii) three statutory committees: a nominating committee, an audit committee and a compensation committee. We have adopted a company with three statutory committees system of corporate governance.

Foreign private issuers listed on the NYSE are required to provide to their U.S. investors a brief, general summary of the significant differences of corporate governance practices that differ from U.S. companies under NYSE listing standards. The following is a summary of the significant ways in which our corporate governance practices differ from NYSE standards followed by U.S. companies:

• U.S. companies listed on the NYSE are required to have a majority of directors that meet the independence requirements under Section 303A of the NYSE’s Listed Company Manual. Under the Companies Act, we are required to have three statutory committees consisting of members of our board of directors, of which the majority must be outside directors. Currently, seven of our fifteen directors are outside directors who meet the requirements under the Companies Act.

• U.S. companies listed on the NYSE are required to have an audit committee composed entirely of independent directors. Under the Companies Act, we are required to have an audit committee that consists of three or more members of our board of directors, of which the majority must be outside directors. Currently, three of the five members of our audit committee are outside directors that meet the requirements under the Companies Act. Our audit committee satisfies the requirements of Rule10A-3 under the Exchange Act, including the independence requirements thereunder.

• A NYSE-listed U.S. company is required to have a nominating/corporate governance committee and a compensation committee, all of which must be composed entirely of independent directors. The members of the compensation committee must satisfy additional requirements set forth in Section 303A.02(a)(ii) of the NYSE Listed Company Manual. A compensation committee must also have the authority to, in its sole discretion, retain or obtain the advice of a compensation consultant, independent legal counsel or other adviser. This authority is subject to the committee’s consideration of certain criteria set forth in Section 303A.05(c) of the NYSE Listed Company Manual regarding the independence of the adviser. Under the Companies Act, we are required to establish a nominating committee and a compensation committee, each of which consisting of at least three directors and of which the majority of the members must be outside directors. Currently, five of the six members of our nominating committee and four of the six members of compensation committee are outside directors who meet the requirements under the Companies Act.

• A NYSE-listed U.S. company must adopt a code of business conduct and ethics and must post the code on its website. While we are not required to adopt such code under Japanese law or the rules of stock exchanges in Japan on which we are listed, we maintain our code of conduct and ethics as our standard for corporate conduct to be observed by our directors, officers and employees.

• A NYSE-listed U.S. company must adopt corporate governance guidelines and must post the guidelines on its website. While we are not required to adopt such guidelines under Japanese law, the

169

rules of the stock exchanges in Japan on which we are listed, including the Tokyo Stock Exchange, require listed companies, including us, to comply with the principles of the Corporate Governance Code established by those stock exchanges and, in cases of noncompliance with some or all of the principles, to disclose the reasons for such noncompliance. We established the SMFG Corporate Governance Guideline, in consideration of the Corporate Governance Code, to present our basic views and guidelines on corporate governance and improve our corporate governance system. The SMFG Corporate Governance Guideline is available on our website athttps://www.smfg.co.jp/english/.

• A NYSE-listed U.S. company must hold regularly scheduled executive sessions where participants are limited tonon-management directors. While we are not required to hold such sessions under the Companies Act, the SMFG Corporate Governance Guideline provides that our outside directors, who are neither executive directors, executive corporate officers or employees, will endeavor to exchange information and develop a shared awareness among them regarding matters relating to the corporate governance and business of SMBC Group from an independent and objective standpoint. The SMFG Corporate Governance Guideline further provides, as a concrete way of exchanging information and developing this shared awareness, that outside directors may hold meetings that only outside directors may attend, as necessary.

• A NYSE-listed U.S. company must generally obtain shareholder approval with respect to any equity compensation plan, subject to limited exemptions. Under the Companies Act, companies with three statutory committees such as us are not required to obtain shareholder approval with respect to equity compensation plans. In this case, the compensation committee is required to establish policies in regard to the determination of the compensation of the directors and corporate executive officers, including stock compensation plans that utilize restricted stock, and determines the compensation of the individual directors and corporate executive officers in accordance with such policies. For details of the equity compensation plan introduced by us, see “Item 6.E. Share Ownership.”

Item 16H. Mine Safety Disclosure

Not applicable.

170

PART III

Item 17. Financial Statements

We have responded to Item 18 in lieu of this item.

Item 18. Financial Statements

The information required by this item is set forth in our consolidated financial statements starting onpage F-1 of this annual report.

Item 19. Exhibits

We have filed the following documents as exhibits to this document:

Exhibit 1.1	Articles of Incorporation of Sumitomo Mitsui Financial Group, Inc., as amended on June  29, 2017, incorporated by reference from our annual report on Form20-F (Commission file number001-34919) filed on June 29, 2017
Exhibit 1.2	Regulations of the Board of Directors of Sumitomo Mitsui Financial Group, Inc., as amended on June 29, 2017, incorporated by reference from our annual report onForm 20-F (Commission file number001-34919) filed on June 29, 2017
Exhibit 1.3	Share Handling Regulations of Sumitomo Mitsui Financial Group, Inc., as amended on June  29, 2017, incorporated by reference from our annual report on Form20-F (Commission file number001-34919) filed on June 29, 2017
Exhibit 2.1	Form of Deposit Agreement among the registrant, Citibank, N.A., as Depositary, and all owners and holders from time to time of American Depositary Shares issued thereunder, incorporated by reference from our registration statement on Form20-F (Commission file number001-34919) filed on October 20, 2010
Exhibit 2.2	Description of our common stock, incorporated by reference from “Item 10.B Memorandum and Articles of Incorporation” of this annual report
Exhibit 2.3	Description of our American Depositary Shares, incorporated by reference from “Item  12.D American Depositary Shares” of our registration statement on Form20-F (Commission file number001-34919) filed on October 20, 2010
Exhibit 8	List of subsidiaries of Sumitomo Mitsui Financial Group, Inc., at March 31, 2020
Exhibit 11	Code of Ethics of Sumitomo Mitsui Financial Group, Inc., as amended on April 1, 2020
Exhibit 12.1	CEO Certification Required by Rule13a-14(a) (17 CFR240.13a-14(a))
Exhibit 12.2	CFO Certification Required by Rule13a-14(a) (17 CFR240.13a-14(a))
Exhibit 13.1	Certification Required by Rule13a-14(b) (17 CFR240.13a-14(b)) and Section  1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. 1350)
Exhibit 13.2	Certification Required by Rule13a-14(b) (17 CFR240.13a-14(b)) and Section  1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. 1350)
Exhibit 15.1	Consent of Independent Registered Public Accounting Firm
Exhibit 101. INS	XBRL Instance Document
Exhibit 101. SCH	XBRL Taxonomy Extension Schema
Exhibit 101. CAL	XBRL Taxonomy Extension Calculation Linkbase

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Exhibit 101. DEF	XBRL Taxonomy Extension Definition Linkbase
Exhibit 101. LAB	XBRL Taxonomy Extension Label Linkbase
Exhibit 101. PRE	XBRL Taxonomy Extension Presentation Linkbase

We have not included as exhibits certain instruments with respect to our long-term debt. The total amount of our long-term debt securities or that of our subsidiaries, authorized under any instrument does not exceed 10% of our total assets. We hereby agree to furnish to the SEC, upon its request, a copy of any instrument defining the rights of holders of our long-term debt or that of our subsidiaries for which consolidated or unconsolidated financial statements are required to be filed.

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SIGNATURES

The registrant hereby certifies that it meets all of the requirements for filing on Form20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.

Sumitomo Mitsui Financial Group, Inc.
By:	/s/ Jun Ohta
	Name:	Jun Ohta
	Title:	President and Group Chief Executive Officer

Date: June 26, 2020

173

SELECTED STATISTICAL DATA

I. Distribution of Assets, Liabilities and Equity; Interest Rates and Interest Differential

Average Statements of Financial Positions, Interest and Average Rates

The following tables show the average balances of our statement of financial positions items and related interest and average interest rates for the fiscal years ended March 31, 2020, 2019 and 2018. Average balances are generally based on a daily average. Weekly,month-end orquarter-end averages are used for certain average balances where it is not practical to obtain the applicable daily averages. The average balances determined by such methods are considered to be representative of our operations. The allocation of amounts between domestic and foreign is based on the location of the office.

	For the fiscal year ended March 31,
	2020								2019								2018
	Average balance			Interest income		Average rate			Average balance			Interest income		Average rate			Average balance			Interest income		Average rate
	(In millions, except percentages)
Interest-earning assets:
Interest-earning deposits with other banks:
Domestic offices	¥	1,061,849		¥	3,099		0.29	%	¥	997,310		¥	3,573		0.36	%	¥	848,242		¥	4,536		0.53	%
Foreign offices		3,994,229			78,493		1.97	%		4,696,278			100,225		2.13	%		4,873,905			73,681		1.51	%
Total		5,056,078			81,592		1.61	%		5,693,588			103,798		1.82	%		5,722,147			78,217		1.37	%
Call loans and bills bought, reverse repurchase agreements and cash collateral on securities borrowed:
Domestic offices		9,167,833			17,540		0.19	%		8,829,374			14,879		0.17	%		8,201,699			14,975		0.18	%
Foreign offices		3,032,754			51,881		1.71	%		3,138,663			39,908		1.27	%		2,952,589			44,408		1.50	%
Total		12,200,587			69,421		0.57	%		11,968,037			54,787		0.46	%		11,154,288			59,383		0.53	%
Trading assets(1) and financial assets at fair value through profit or loss(2):
Domestic offices		3,724,806			14,737		0.40	%		4,110,955			20,240		0.49	%		4,130,209			1,920		0.05	%
Foreign offices		352,514			6,641		1.88	%		367,638			6,178		1.68	%		176,888			2,857		1.62	%
Total		4,077,320			21,378		0.52	%		4,478,593			26,418		0.59	%		4,307,097			4,777		0.11	%
Investment securities(3):
Domestic offices		11,245,654			75,026		0.67	%		8,977,937			65,854		0.73	%		10,584,200			47,297		0.45	%
Foreign offices		4,832,026			103,804		2.15	%		4,258,283			87,061		2.04	%		3,406,370			54,998		1.61	%
Total		16,077,680			178,830		1.11	%		13,236,220			152,915		1.16	%		13,990,570			102,295		0.73	%
Loans and advances(4):
Domestic offices		60,498,334			937,419		1.55	%		60,973,779			1,007,977		1.65	%		68,551,116			1,093,584		1.60	%
Foreign offices		31,467,410			1,139,783		3.62	%		29,646,844			1,086,873		3.67	%		28,121,904			810,591		2.88	%
Total		91,965,744			2,077,202		2.26	%		90,620,623			2,094,850		2.31	%		96,673,020			1,904,175		1.97	%
Total interest-earning assets:
Domestic offices		85,698,476			1,047,821		1.22	%		83,889,355			1,112,523		1.33	%		92,315,466			1,162,312		1.26	%
Foreign offices		43,678,933			1,380,602		3.16	%		42,107,706			1,320,245		3.14	%		39,531,656			986,535		2.50	%
Total		129,377,409		¥	2,428,423		1.88	%		125,997,061		¥	2,432,768		1.93	%		131,847,122		¥	2,148,847		1.63	%
Non-interest-earning assets:
Cash and due from banks		54,559,835								49,068,465								47,107,953
Othernon-interest-earning assets		18,351,183								19,893,981								21,130,470
Allowance for loan losses		(616,134	)							(644,019	)							(653,162	)
Totalnon-interest-earning assets		72,294,884								68,318,427								67,585,261
Total assets	¥	201,672,293							¥	194,315,488							¥	199,432,383
Total assets attributable to foreign offices		25.8	%							25.5	%							23.9	%

A-1

	For the fiscal year ended March 31,
	2020							2019							2018
	Average balance			Interest expense		Average rate		Average balance			Interest expense		Average rate		Average balance			Interest expense		Average rate
	(In millions, except percentages)
Interest-bearing liabilities:
Deposits:
Domestic offices	¥	85,668,767		¥	51,976		0.06%	¥	83,791,727		¥	59,234		0.07%	¥	87,138,742		¥	44,941		0.05%
Foreign offices		27,197,901			530,823		1.95%		27,283,476			542,131		1.99%		25,413,734			337,812		1.33%
Total		112,866,668			582,799		0.52%		111,075,203			601,365		0.54%		112,552,476			382,753		0.34%
Call money and bills sold, repurchase agreements and cash collateral on securities lent and other interest-bearing liabilities:
Domestic offices		11,218,806			33,745		0.30%		8,115,332			39,636		0.49%		10,964,003			17,600		0.16%
Foreign offices		5,063,872			112,479		2.22%		4,610,162			97,606		2.12%		5,030,541			53,646		1.07%
Total		16,282,678			146,224		0.90%		12,725,494			137,242		1.08%		15,994,544			71,246		0.45%
Trading liabilities(1):
Domestic offices		2,018,747			20,532		1.02%		1,764,784			23,772		1.35%		2,038,711			6,086		0.30%
Foreign offices		96,575			2,810		2.91%		106,563			2,770		2.60%		77,691			1,922		2.47%
Total		2,115,322			23,342		1.10%		1,871,347			26,542		1.42%		2,116,402			8,008		0.38%
Borrowings:
Domestic offices		11,958,700			61,238		0.51%		10,787,234			73,299		0.68%		11,331,752			61,460		0.54%
Foreign offices		600,321			31,187		5.20%		977,662			33,934		3.47%		983,616			27,736		2.82%
Total		12,559,021			92,425		0.74%		11,764,896			107,233		0.91%		12,315,368			89,196		0.72%
Debt securities in issue:
Domestic offices		9,419,223			197,749		2.10%		9,880,220			203,423		2.06%		9,298,368			166,769		1.79%
Foreign offices		1,883,920			34,724		1.84%		2,698,608			52,612		1.95%		2,180,438			24,005		1.10%
Total		11,303,143			232,473		2.06%		12,578,828			256,035		2.04%		11,478,806			190,774		1.66%
Premiums for deposit insurance(5):
Domestic offices		—			34,866		—		—			34,387		—		—			37,000		—
Foreign offices		—			1,943		—		—			1,168		—		—			938		—
Total		—			36,809		—		—			35,555		—		—			37,938		—
Total interest-bearing liabilities:
Domestic offices		120,284,243			400,106		0.33%		114,339,297			433,751		0.38%		120,771,576			333,856		0.28%
Foreign offices		34,842,589			713,966		2.05%		35,676,471			730,221		2.05%		33,686,020			446,059		1.32%
Total		155,126,832		¥	1,114,072		0.72%		150,015,768		¥	1,163,972		0.78%		154,457,596		¥	779,915		0.50%
Non-interest-bearing liabilities:
Non-interest-bearing demand deposits		22,833,077							21,058,921							19,997,470
Othernon-interest-bearing liabilities		12,095,455							11,429,942							11,490,957
Totalnon-interest-bearing liabilities		34,928,532							32,488,863							31,488,427
Total equity		11,616,929							11,810,857							13,486,360
Total equity and liabilities	¥	201,672,293						¥	194,315,488						¥	199,432,383
Total liabilities attributable to foreign offices		20.8	%						21.8	%						20.2	%
Net interest income and interest rate spread				¥	1,314,351		1.16%				¥	1,268,796		1.15%				¥	1,368,932		1.13%
Net interest income as a percentage of total interest-earning assets							1.02%							1.01%							1.04%

(1) The net amount of interest income on trading assets and interest expense on trading liabilities is reported as net trading income in our consolidated income statement.

(2) Interest income on financial assets at fair value through profit or loss is reported in net income from financial assets at fair value through profit or loss in our consolidated income statement.

(3) Taxable investment securities andnon-taxable investment securities are not disclosed separately because the aggregate effect of these average balances and interest income would not be material. In addition, the yields ontax-exempt obligations have not been calculated on a tax equivalent basis because the effect of such calculation would not be material.

(4) Loans and advances include impaired loans and advances. The amortized portion of net loan origination fees is included in interest income on loans and advances.

(5) For the fiscal year ended March 31, 2020, premiums for deposit insurance have been reclassified from “General and administrative expense” to “Interest expense.” Comparative amounts have been reclassified to conform to the current presentation.

A-2

Analysis of Net Interest Income

The following tables show the changes to our net interest income attributable to changes in the volume and changes in the rates for the fiscal year ended March 31, 2020 compared to the fiscal year ended March 31, 2019 and for the fiscal year ended March 31, 2019 compared to the fiscal year ended March 31, 2018.

Changes attributable to the combined impact of changes in the rates and the volume have been allocated proportionately to the changes in the volume and changes in the rates.

	Fiscal year ended March 31, 2020 compared to fiscal year ended March 31, 2019 Increase / (decrease)									Fiscal year ended March 31, 2019 compared to fiscal year ended March 31, 2018 Increase / (decrease)
	Volume			Rate			Net change			Volume			Rate			Net change
	(In millions)
Interest income:
Interest-earning deposits with other banks:
Domestic offices	¥	221		¥	(695	)	¥	(474	)	¥	700		¥	(1,663	)	¥	(963	)
Foreign offices		(14,206	)		(7,526	)		(21,732	)		(2,772	)		29,316			26,544
Total		(13,985	)		(8,221	)		(22,206	)		(2,072	)		27,653			25,581
Call loans and bills bought, reverse repurchase agreements and cash collateral on securities borrowed:
Domestic offices		592			2,069			2,661			1,093			(1,189	)		(96	)
Foreign offices		(1,386	)		13,359			11,973			2,666			(7,166	)		(4,500	)
Total		(794	)		15,428			14,634			3,759			(8,355	)		(4,596	)
Trading assets(1) and financial assets at fair value through profit or loss(2):
Domestic offices		(1,775	)		(3,728	)		(5,503	)		(10	)		18,330			18,320
Foreign offices		(262	)		725			463			3,201			120			3,321
Total		(2,037	)		(3,003	)		(5,040	)		3,191			18,450			21,641
Investment securities:
Domestic offices		15,528			(6,356	)		9,172			(8,110	)		26,667			18,557
Foreign offices		12,155			4,588			16,743			15,487			16,576			32,063
Total		27,683			(1,768	)		25,915			7,377			43,243			50,620
Loans and advances:
Domestic offices		(7,791	)		(62,767	)		(70,558	)		(124,191	)		38,584			(85,607	)
Foreign offices		66,070			(13,160	)		52,910			45,907			230,375			276,282
Total		58,279			(75,927	)		(17,648	)		(78,284	)		268,959			190,675
Total interest income:
Domestic offices		6,775			(71,477	)		(64,702	)		(130,518	)		80,729			(49,789	)
Foreign offices		62,371			(2,014	)		60,357			64,489			269,221			333,710
Total	¥	69,146		¥	(73,491	)	¥	(4,345	)	¥	(66,029	)	¥	349,950		¥	283,921

A-3

	Fiscal year ended March 31, 2020 compared to fiscal year ended March 31, 2019 Increase / (decrease)									Fiscal year ended March 31, 2019 compared to fiscal year ended March 31, 2018 Increase / (decrease)
	Volume			Rate			Net change			Volume			Rate			Net change
	(In millions)
Interest expense:
Deposits:
Domestic offices	¥	1,288		¥	(8,546	)	¥	(7,258	)	¥	(1,732	)	¥	16,025		¥	14,293
Foreign offices		(1,698	)		(9,610	)		(11,308	)		26,461			177,858			204,319
Total		(410	)		(18,156	)		(18,566	)		24,729			193,883			218,612
Call money and bills sold, repurchase agreements and cash collateral on securities lent and other interest-bearing liabilities:
Domestic offices		12,279			(18,170	)		(5,891	)		(5,610	)		27,646			22,036
Foreign offices		9,925			4,948			14,873			(4,844	)		48,804			43,960
Total		22,204			(13,222	)		8,982			(10,454	)		76,450			65,996
Trading liabilities(1):
Domestic offices		3,118			(6,358	)		(3,240	)		(928	)		18,614			17,686
Foreign offices		(273	)		313			40			746			102			848
Total		2,845			(6,045	)		(3,200	)		(182	)		18,716			18,534
Borrowings:
Domestic offices		7,363			(19,424	)		(12,061	)		(3,060	)		14,899			11,839
Foreign offices		(15,942	)		13,195			(2,747	)		(169	)		6,367			6,198
Total		(8,579	)		(6,229	)		(14,808	)		(3,229	)		21,266			18,037
Debt securities in issue:
Domestic offices		(9,627	)		3,953			(5,674	)		10,876			25,778			36,654
Foreign offices		(15,131	)		(2,757	)		(17,888	)		6,736			21,871			28,607
Total		(24,758	)		1,196			(23,562	)		17,612			47,649			65,261
Premiums for deposit insurance:
Domestic offices		479			—			479			(2,613	)		—			(2,613	)
Foreign offices		775			—			775			230			—			230
Total		1,254			—			1,254			(2,383	)		—			(2,383	)
Total interest expense:
Domestic offices		14,900			(48,545	)		(33,645	)		(3,067	)		102,962			99,895
Foreign offices		(22,344	)		6,089			(16,255	)		29,160			255,002			284,162
Total	¥	(7,444	)	¥	(42,456	)	¥	(49,900	)	¥	26,093		¥	357,964		¥	384,057
Net interest income:
Domestic offices	¥	(8,125	)	¥	(22,932	)	¥	(31,057	)	¥	(127,451	)	¥	(22,233	)	¥	(149,684	)
Foreign offices		84,715			(8,103	)		76,612			35,329			14,219			49,548
Total	¥	76,590		¥	(31,035	)	¥	45,555		¥	(92,122	)	¥	(8,014	)	¥	(100,136	)

(1) The net amount of interest income on trading assets and interest expense on trading liabilities is reported as net trading income in our consolidated income statement.

(2) Interest income on financial assets at fair value through profit or loss is reported in net income from financial assets at fair value through profit or loss in our consolidated income statement.

A-4

II. Investment Portfolio

The information as to the value of debt instruments at amortized cost and debt instruments at fair value through other comprehensive income at March 31, 2020 and 2019, andheld-to-maturity investments andavailable-for-sale financial assets at March 31, 2018 is presented on “Item 5.A. Operating Results—Financial Condition—Investment Securities.”

The following table shows the book values, maturities and weighted average yields of debt instruments at amortized cost and debt instruments at fair value through other comprehensive income at March 31, 2020. Weighted average yields are calculated based on amortized cost. Yields ontax-exempt obligations have not been calculated on a tax equivalent basis because the effect of such a calculation would not be material.

	Not later than one year					Later than one year and not later than five years					Later than five years and not later than ten years					Later than ten years					Total
	Amount		Yield			Amount		Yield			Amount		Yield			Amount		Yield			Amount		Yield
	(In millions, except percentages)
Debt instruments at amortized cost:
Domestic:
Japanese government bonds	¥	260,079		0.04	%	¥	—		—		¥	—		—		¥	—		—		¥	260,079		0.04	%
Japanese municipal bonds		—		—			—		—			22,300		0.09	%		—		—			22,300		0.09	%
Japanese corporate bonds		—		—			—		—			—		—			—		—			—		—
Total domestic		260,079		0.04	%		—		—			22,300		0.09	%		—		—			282,379		0.04	%
Foreign:
U.S. Treasury and other U.S. government agency bonds		—		—			—		—			—		—			—		—			—		—
Bonds issued by other governments and official institutions		26,930		5.25	%		10,032		7.12	%		396		6.32	%		—		—			37,358		5.76	%
Other debt instruments		423		6.95	%		611		7.08	%		—		—			—		—			1,034		7.03	%
Total foreign		27,353		5.27	%		10,643		7.12	%		396		6.32	%		—		—			38,392		5.79	%
Total	¥	287,432		0.53	%	¥	10,643		7.12	%	¥	22,696		0.20	%	¥	—		—		¥	320,771		0.73	%
Debt instruments at fair value through other comprehensive income:
Domestic:
Japanese government bonds	¥	3,088,455		(0.06	%)	¥	2,790,530		(0.22	%)	¥	454,732		(0.06	%)	¥	451,351		0.24	%	¥	6,785,068		(0.11	%)
Japanese municipal bonds		2,922		0.34	%		44,958		0.00	%		179,736		0.09	%		12,766		0.17	%		240,382		0.08	%
Japanese corporate bonds		13,834		0.19	%		114,909		0.05	%		73,774		0.14	%		376,776		0.38	%		579,293		0.28	%
Other debt instruments		310		0.00	%		—		—			—		—			—		—			310		0.00	%
Total domestic		3,105,521		(0.06	%)		2,950,397		(0.21	%)		708,242		0.00	%		840,893		0.30	%		7,605,053		(0.06	%)
Foreign:
U.S. Treasury and other U.S. government agency bonds		880,226		2.09	%		2,563,782		1.46	%		971,345		1.12	%		79,333		1.94	%		4,494,686		1.52	%
Bonds issued by other governments and official institutions		1,483,420		0.96	%		581,321		2.54	%		623,199		0.27	%		242,866		0.12	%		2,930,806		1.05	%
Mortgage-backed securities(1)		—		—			—		—			162		2.41	%		2,807,651		2.87	%		2,807,813		2.87	%
Other debt instruments		109,575		1.33	%		62,544		1.65	%		33,498		0.82	%		10,189		1.17	%		215,806		1.33	%
Total foreign		2,473,221		1.38	%		3,207,647		1.67	%		1,628,204		0.78	%		3,140,039		2.61	%		10,449,111		1.72	%
Total	¥	5,578,742		0.58	%	¥	6,158,044		0.75	%	¥	2,336,446		0.54	%	¥	3,980,932		2.11	%	¥	18,054,164		0.89	%

(1) Foreign mortgage-backed securities primarily consist of securities of U.S. government-sponsored enterprises and securities guaranteed by the U.S. government.

Excluding securities of the U.S. government and U.S. government agencies and corporations and Japanese government bonds, there are no investments in any individual issuers held in our investment portfolio which exceeded 10% of shareholders’ equity in the consolidated statement of financial position at March 31, 2020.

A-5

III. Loan Portfolio

The following table shows our outstanding loans and advances by the domicile and industry type of the borrowers at March 31, 2020, 2019, 2018, 2017 and 2016. The classification of loans and advances by industry is based on the industry segment loan classification as defined by the Bank of Japan (“BOJ”) for regulatory reporting purposes.

	At March 31,
	2020			2019			2018			2017			2016
	(In millions)
Domestic:
Manufacturing	¥	8,787,566		¥	8,522,451		¥	7,961,620		¥	9,578,147		¥	8,298,576
Agriculture, forestry, fisheries and mining		280,233			288,099			145,957			174,021			184,314
Construction		919,043			918,617			947,765			1,151,989			1,169,900
Transportation, communications and public enterprises		5,637,560			5,596,935			5,424,054			5,365,225			5,258,899
Wholesale and retail		5,375,802			5,281,596			5,288,767			5,721,005			5,548,103
Finance and insurance		3,217,545			3,129,666			2,777,862			2,844,546			2,684,865
Real estate and goods rental and leasing		10,666,446			10,126,531			9,017,664			10,101,846			9,587,757
Services		4,452,195			4,328,173			4,255,228			4,885,247			4,960,352
Municipalities		839,878			866,373			1,000,286			1,216,211			1,374,306
Lease financing		8,380			9,030			14,629			2,706,641			2,212,048
Consumer(1)		15,691,638			16,187,195			16,363,489			19,096,755			18,935,521
Others		4,308,469			4,601,499			4,633,306			5,178,461			2,989,278
Total domestic		60,184,755			59,856,165			57,830,627			68,020,094			63,203,919
Foreign:
Public sector		335,071			360,875			372,008			299,746			236,290
Financial institutions		6,220,956			5,382,130			4,496,646			4,588,001			4,067,764
Commerce and industry		25,597,599			23,285,374			21,023,885			21,041,905			20,451,545
Lease financing		309,531			344,958			357,660			404,658			357,072
Others		2,994,838			2,316,816			1,779,101			1,836,322			1,481,455
Total foreign		35,457,995			31,690,153			28,029,300			28,170,632			26,594,126
Gross loans and advances		95,642,750			91,546,318			85,859,927			96,190,726			89,798,045
Adjust: Unearned income, unamortizedpremiums-net and deferred loanfees-net		(264,527	)		(258,392	)		(239,181	)		(236,425	)		(212,957	)
Less: Allowance for loan losses		(706,405	)		(604,988	)		(491,676	)		(680,456	)		(722,717	)
Carrying amount	¥	94,671,818		¥	90,682,938		¥	85,129,070		¥	95,273,845		¥	88,862,371

(1) The balance in Consumer mainly consists of housing loans. The housing loan balances amounted to ¥10,913,869 million, ¥11,216,711 million, ¥11,482,678 million, ¥13,766,771 million and ¥13,984,755 million at March 31, 2020, 2019, 2018, 2017 and 2016, respectively.

A-6

Maturities and Sensitivities of Loans and Advances to Changes in Interest Rates

The following table shows the maturities of loans and advances by the domicile and industry type of the borrower at March 31, 2020.

	Maturity
	Not later than one year		Later than one year and not later than five years		Later than five years		Total
	(In millions)
Domestic:
Manufacturing	¥	4,151,837	¥	3,114,672	¥	1,521,057	¥	8,787,566
Agriculture, forestry, fisheries and mining		59,927		44,143		176,163		280,233
Construction		492,273		314,021		112,749		919,043
Transportation, communications and public enterprises		1,957,858		2,227,518		1,452,184		5,637,560
Wholesale and retail		2,926,226		1,763,884		685,692		5,375,802
Finance and insurance		1,591,555		1,160,379		465,611		3,217,545
Real estate and goods rental and leasing		2,244,250		4,487,497		3,934,699		10,666,446
Services		1,296,912		1,829,745		1,325,538		4,452,195
Municipalities		344,613		302,042		193,223		839,878
Lease financing		669		2,869		4,842		8,380
Consumer		3,608,818		4,145,625		7,937,195		15,691,638
Others		1,674,717		1,135,286		1,498,466		4,308,469
Total domestic		20,349,655		20,527,681		19,307,419		60,184,755
Foreign:
Public sector		87,662		189,089		58,320		335,071
Financial institutions		2,589,590		3,106,349		525,017		6,220,956
Commerce and industry		9,111,193		11,309,907		5,176,499		25,597,599
Lease financing		31,826		228,044		49,661		309,531
Others		1,093,882		1,348,125		552,831		2,994,838
Total foreign		12,914,153		16,181,514		6,362,328		35,457,995
Total	¥	33,263,808	¥	36,709,195	¥	25,669,747	¥	95,642,750

The above loans and advances due after one year which had predetermined interest rates and floating or adjustable interest rates at March 31, 2020 are shown below:

	Domestic		Foreign		Total
	(In millions)
Predetermined rate	¥	12,759,413	¥	2,749,553	¥	15,508,966
Floating or adjustable rate		27,075,687		19,794,289		46,869,976
Total	¥	39,835,100	¥	22,543,842	¥	62,378,942

Impaired Loans and Advances

Our credit risk elements analyzed by categories for loans and advances differ from those required by the U.S. Securities and Exchange Commission. Our impaired loans and advances are comprised of “potentially bankrupt, effectively bankrupt and bankrupt (loans and advances),” “past due three months or more (loans),” “restructured (loans)” and “other impaired (loans and advances).” “Potentially bankrupt, effectively bankrupt and bankrupt (loans and advances)” comprises of loans and advances to the borrowers that are perceived to have a high risk of falling into bankruptcy, may not have been legally or formally declared bankrupt but are essentially

A-7

bankrupt, or have been legally or formally declared bankrupt. Loans classified as “past due three months or more (loans)” represent those loans that are three months or more past due as to principal or interest, which are not included in “potentially bankrupt, effectively bankrupt and bankrupt (loans and advances).” The category “restructured (loans)” comprises of loans not included above for which the terms of the loans have been modified to grant concessions because of problems with the borrower. Examples of modifications to grant concessions include reductions of the original interest rate, deferrals of interest payments, deductions of the contractual repayment amounts and extensions of principal repayments such as the extension of the repayment date and the suspension of contracted repayments. “Other impaired (loans and advances)” represent impaired loans and advances, which are not included in “potentially bankrupt, effectively bankrupt and bankrupt (loans and advances),” “past due three months or more (loans),” or “restructured (loans),” but for which information about credit problems cause management to classify them as impaired loans and advances. All loans and advances for which management has serious doubts about the ability of the borrowers to comply in the near future with the repayment terms are included in impaired loans and advances.

An allowance is recorded if there is objective evidence of impairment and the carrying value of the loans and advances exceeds the present value of their estimated future cash flows discounted at the original effective interest rate. Cash receipts on impaired loans and advances are recorded as a credit to the balance of loans and advances on the statement of financial position. To the extent that cash receipts are different from expectations built into the calculation of the recoverable amount of the loans and advances, the amount of allowance for loan losses is revised. In accordance with IFRS, the accrual of interest as per the contractual terms is discontinued when loans and advances are determined to be impaired. Interest income recognized in the consolidated income statement on impaired loans and advances represents the accretion of the net present value of the written down amount due to the passage of time based on the original effective interest rate of the loans and advances.

A-8

The following table shows the distribution of impaired loans and advances by “potentially bankrupt, effectively bankrupt and bankrupt (loans and advances),” “past due three months or more (loans),” “restructured (loans),” and “other impaired (loans and advances)” at March 31, 2020, 2019, 2018, 2017 and 2016 by the domicile and industry type of the borrowers.

	At March 31,
	2020			2019			2018			2017			2016
	(In millions)
Potentially bankrupt, effectively bankrupt and bankrupt (loans and advances):
Domestic:
Manufacturing	¥	44,640		¥	98,260		¥	62,322		¥	106,178		¥	119,318
Agriculture, forestry, fisheries and mining		7,648			6,229			6,369			2,250			2,843
Construction		10,008			15,762			10,439			24,430			25,932
Transportation, communications and public enterprises		35,562			30,691			15,494			23,692			38,008
Wholesale and retail		67,810			74,865			74,332			104,472			125,241
Finance and insurance		5,556			8,266			3,021			4,135			8,302
Real estate and goods rental and leasing		28,189			29,999			32,634			126,179			133,324
Services		44,040			56,861			50,858			91,943			126,781
Lease financing		—			—			—			7,513			16,122
Consumer		162,881			159,375			157,221			194,721			213,931
Others		19,475			21,120			23,081			25,059			32,503
Total domestic		425,809			501,428			435,771			710,572			842,305
Foreign:
Public sector		—			—			—			—			31
Financial institutions		29			180			30			29			28
Commerce and industry		137,438			109,453			144,975			157,227			148,475
Lease financing		—			—			—			11,892			11,104
Others		9,118			24,409			22,383			23,890			5,682
Total foreign		146,585			134,042			167,388			193,038			165,320
Total		572,394			635,470			603,159			903,610			1,007,625
Past due three months or more (loans):
Domestic		27,923			24,781			21,649			20,808			21,861
Foreign		—			2,525			—			11,449			7,962
Total		27,923			27,306			21,649			32,257			29,823
Restructured (loans):
Domestic		144,034			127,316			136,582			155,100			164,035
Foreign		42,123			18,624			17,567			25,741			22,401
Total		186,157			145,940			154,149			180,841			186,436
Other impaired (loans and advances):
Domestic		52,020			66,285			93,175			103,777			126,211
Foreign		6,835			7,017			6,736			8,203			2,492
Total		58,855			73,302			99,911			111,980			128,703
Gross impaired loans and advances		845,329			882,018			878,868			1,228,688			1,352,587
Less: Allowance for loan losses for impaired loans and advances		(355,737	)		(354,448	)		(369,386	)		(532,451	)		(613,510	)
Net impaired loans and advances	¥	489,592		¥	527,570		¥	509,482		¥	696,237		¥	739,077

A-9

Interest Foregone on Impaired Loans and Advances

Interest income which would have been accrued at the original terms on domestic impaired loans and advances during the fiscal year ended March 31, 2020 was ¥20.3 billion, of which ¥10.3 billion was included in profit or loss for the fiscal year then ended. Interest income which would have been accrued at the original terms on foreign impaired loans and advances during the fiscal year ended March 31, 2020 was ¥7.3 billion, of which ¥4.5 billion was included in profit or loss for the fiscal year then ended.

Cross-border Outstanding

Cross-border outstandings are defined as loans, acceptances, interest-earning deposits with other banks, other interest-earning investments and any other monetary assets denominated in Japanese yen or othernon-local currencies. Local currency outstandings are netted out from cross-border outstandings. This cross-border disclosure is based on the reports to the BOJ required under Japanese foreign exchange-related laws. The following tables list the countries for which cross-border outstandings exceeded 0.75% of consolidated total assets at March 31, 2020, 2019 and 2018.

	At March 31, 2020
	Public institutions		Banks		Others		Total		% of total assets			Undrawn commitments
	(In millions, except percentages)
United Kingdom	¥	7,403	¥	361,505	¥	1,356,994	¥	1,725,902		0.81	%	¥	872,223
United States	¥	374,289	¥	236,470	¥	1,783,450	¥	2,394,209		1.13	%	¥	417,552

	At March 31, 2019
	Public institutions		Banks		Others		Total		% of total assets			Undrawn commitments
	(In millions, except percentages)
United Kingdom	¥	9,498	¥	238,794	¥	1,449,225	¥	1,697,517		0.87	%	¥	975,850
United States	¥	406,416	¥	215,237	¥	1,317,859	¥	1,939,512		0.99	%	¥	343,973

	At March 31, 2018
	Public institutions		Banks		Others		Total		% of total assets			Undrawn commitments
	(In millions, except percentages)
United Kingdom	¥	5,507	¥	222,918	¥	1,425,584	¥	1,654,009		0.86	%	¥	1,242,180

Loan Concentrations

At March 31, 2020, there were no concentrations of loans and advances to a single industry group of borrowers, as defined by the BOJ industry segment loan and advance classifications, which exceeded 10% of our consolidated total loans and advances, except for loans and advances in a category disclosed in the table of outstanding loans and advances above.

A-10

IV. Summary of Loan Loss Experience

The following table shows an analysis of our loan loss experience by the borrowers’ domicile and industry type for the fiscal years ended March 31, 2020, 2019, 2018, 2017 and 2016.

	For the fiscal year ended March 31,
	2020			2019			2018			2017			2016
	(In millions, except percentages)
Allowance for loan losses at beginning of period	¥	604,988		¥	651,620		¥	680,456		¥	722,717		¥	793,552
Provision for loan losses		249,478			122,927			126,623			141,457			118,750
Charge-offs:
Domestic:
Manufacturing		7,374			9,642			6,439			9,712			20,992
Agriculture, forestry, fisheries and mining		22			282			1,772			388			33
Construction		845			1,159			1,478			1,810			6,407
Transportation, communications and public enterprises		579			1,556			1,609			9,731			5,891
Wholesale and retail		6,435			10,315			10,998			13,293			14,824
Finance and insurance		2,236			96			121			16			423
Real estate and goods rental and leasing		923			4,291			12,947			6,246			21,017
Services		9,795			4,784			9,548			5,731			14,396
Lease financing		—			637			511			454			651
Consumer		97,655			104,748			112,265			102,383			87,969
Others		464			1,986			3,838			7,609			828
Total domestic		126,328			139,496			161,526			157,373			173,431
Foreign		27,664			40,758			23,534			33,135			20,218
Total		153,992			180,254			185,060			190,508			193,649
Recoveries:
Domestic:
Manufacturing		2			1			27			61			80
Agriculture, forestry, fisheries and mining		—			2			—			5			—
Construction		—			5			5			6			6
Transportation, communications and public enterprises		—			—			1			62			5
Wholesale and retail		4			—			28			86			45
Finance and insurance		—			—			1			—			2
Real estate and goods rental and leasing		16			—			2			1			55
Services		—			12			38			40			61
Consumer		10,074			9,739			9,535			9,571			9,223
Others		—			8			21			20			—
Total domestic		10,096			9,767			9,658			9,852			9,477
Foreign		2,317			1,275			574			445			871
Total		12,413			11,042			10,232			10,297			10,348
Net charge-offs		141,579			169,212			174,828			180,211			183,301
Others(1)		(6,482	)		(347	)		(140,575	)		(3,507	)		(6,284	)
Allowance for loan losses at end of period	¥	706,405		¥	604,988		¥	491,676		¥	680,456		¥	722,717
Ratio of net charge-offs to average loans outstanding during the period		0.15	%		0.19	%		0.18	%		0.20	%		0.20	%
Allowance for loan losses applicable to foreign activities:
Balance at beginning of period	¥	155,114		¥	153,167		¥	128,347		¥	134,664		¥	100,783
Balance at end of period	¥	258,143		¥	155,114		¥	114,306		¥	128,347		¥	134,664
Provision for loan losses	¥	134,657		¥	46,597		¥	19,872		¥	29,699		¥	60,002

(1) Others mainly include foreign exchange translations for the fiscal years ended March 31, 2020, 2017 and 2016. The amount for the fiscal year ended March 31, 2018 mainly includes the exclusion of the allowance for loans and advances made by KUBC and The Minato Bank, both of which had been our subsidiaries but became our equity-method associates, and the exclusion of the allowance for loans and advances made by SMFL which was reclassified as assets held for sale.

A-11

The following table shows an allocation of the allowance for loan losses by the borrower’s domicile and industry type at March 31, 2020, 2019, 2018, 2017 and 2016.

	At March 31,
	2020					2019					2018					2017					2016
	Amount		% of loans in each category to total loans			Amount		% of loans in each category to total loans			Amount		% of loans in each category to total loans			Amount		% of loans in each category to total loans			Amount		% of loans in each category to total loans
	(In millions, except percentages)
Domestic:
Manufacturing	¥	36,263		9.19	%	¥	35,358		9.31	%	¥	67,511		9.27	%	¥	101,936		9.96	%	¥	63,720		9.24	%
Agriculture, forestry, fisheries and mining		7,132		0.29	%		6,335		0.31	%		6,047		0.17	%		2,251		0.18	%		2,712		0.21	%
Construction		5,346		0.96	%		7,888		1.00	%		4,171		1.10	%		14,142		1.20	%		15,212		1.30	%
Transportation, communications and public enterprises		29,631		5.89	%		24,133		6.11	%		8,431		6.32	%		16,237		5.58	%		25,119		5.86	%
Wholesale and retail		52,874		5.62	%		48,883		5.77	%		45,321		6.16	%		54,896		5.95	%		73,230		6.18	%
Finance and insurance		2,319		3.36	%		5,134		3.42	%		3,183		3.24	%		3,982		2.96	%		6,886		2.99	%
Real estate and goods rental and leasing		22,638		11.15	%		25,635		11.06	%		14,650		10.50	%		85,813		10.50	%		94,669		10.68	%
Services		35,386		4.66	%		42,172		4.73	%		32,690		4.96	%		52,282		5.08	%		60,735		5.52	%
Municipalities		—		0.88	%		—		0.95	%		—		1.17	%		—		1.26	%		1		1.53	%
Lease financing		—		0.01	%		—		0.01	%		—		0.02	%		4,114		2.81	%		11,567		2.46	%
Consumer		240,047		16.41	%		233,287		17.68	%		177,013		19.06	%		194,964		19.85	%		208,274		21.09	%
Others		16,626		4.51	%		21,049		5.03	%		18,353		5.38	%		21,492		5.38	%		25,928		3.32	%
Total domestic		448,262		62.93	%		449,874		65.38	%		377,370		67.35	%		552,109		70.71	%		588,053		70.38	%
Foreign:
Public sector		898		0.35	%		522		0.39	%		75		0.43	%		88		0.31	%		105		0.26	%
Financial institutions		23,610		6.50	%		10,660		5.88	%		2,386		5.24	%		3,186		4.77	%		3,347		4.53	%
Commerce and industry		207,723		26.76	%		120,748		25.44	%		92,255		24.49	%		108,076		21.88	%		117,671		22.78	%
Lease financing		502		0.32	%		1,342		0.38	%		1,828		0.42	%		6,713		0.42	%		3,998		0.40	%
Others		25,410		3.14	%		21,842		2.53	%		17,762		2.07	%		10,284		1.91	%		9,543		1.65	%
Total foreign		258,143		37.07	%		155,114		34.62	%		114,306		32.65	%		128,347		29.29	%		134,664		29.62	%
Total	¥	706,405		100.00	%	¥	604,988		100.00	%	¥	491,676		100.00	%	¥	680,456		100.00	%	¥	722,717		100.00	%

A-12

V. Deposits

The following table shows the average amount of, and the average rate paid on, the following deposit categories for the fiscal years ended March 31, 2020, 2019 and 2018.

	For the fiscal year ended March 31
	2020					2019					2018
	Average amount		Average rate			Average amount		Average rate			Average amount		Average rate
	(In millions, except percentages)
Domestic offices:
Non-interest-bearing demand deposits	¥	21,526,454		—		¥	19,831,261		—		¥	18,803,822		—
Interest-bearing demand deposits		54,861,069		0.00	%		51,984,345		0.00	%		51,369,924		0.00	%
Deposits at notice		816,445		0.00	%		935,063		0.00	%		998,707		0.00	%
Time deposits		17,871,438		0.04	%		18,129,683		0.04	%		22,202,905		0.06	%
Negotiable certificates of deposit		5,259,480		0.01	%		5,526,250		0.01	%		5,919,870		0.01	%
Others		6,860,335		0.65	%		7,216,386		0.70	%		6,647,336		0.45	%
Total domestic offices		107,195,221					103,622,988					105,942,564
Foreign offices:
Non-interest-bearing demand deposits		1,306,623		—			1,227,660		—			1,193,648		—
Interest-bearing demand deposits		3,010,904		1.24	%		2,852,999		1.27	%		2,645,695		0.84	%
Deposits at notice		9,900,813		1.52	%		10,390,633		1.60	%		9,332,778		0.94	%
Time deposits		7,540,045		2.77	%		7,818,323		2.59	%		6,930,572		1.98	%
Negotiable certificates of deposit		6,572,168		2.02	%		6,086,906		2.24	%		6,366,473		1.41	%
Others		173,971		1.15	%		134,615		0.98	%		138,216		0.49	%
Total foreign offices		28,504,524					28,511,136					26,607,382
Total	¥	135,699,745				¥	132,134,124				¥	132,549,946

Deposits at notice represent interest-bearing demand deposits which require the depositor to give two or more days’ notice in advance of withdrawal.

The total amount of deposits by foreign depositors included in domestic offices for the fiscal years ended March 31, 2020, 2019 and 2018 were ¥2,206,185 million, ¥2,460,264 million and ¥2,303,112 million, respectively.

At March 31, 2020, the balances and remaining maturities of time deposits and negotiable certificates of deposit issued by domestic offices in amounts of ¥10 million (approximately $91,903 at the median exchange rate for buying and selling spot dollars for yen by telegraphic transfer as determined by SMBC at the end of the current fiscal year) or more and total foreign deposits issued in amounts of $100,000 or more are shown in the following table.

	Time deposits		Negotiable certificates of deposit		Total
	(In millions)
Domestic offices:
Not later than three months	¥	2,547,396	¥	3,817,445	¥	6,364,841
Later than three months and not later than six months		1,241,580		66,853		1,308,433
Later than six months and not later than one year		4,029,649		137,443		4,167,092
Later than one year		1,709,006		60,000		1,769,006
Total	¥	9,527,631	¥	4,081,741	¥	13,609,372
Foreign offices:	¥	7,187,668	¥	6,098,695	¥	13,286,363

A-13

VI. Return on Equity and Assets

The following table shows the ratio of return on equity and assets for the fiscal years ended March 31, 2020, 2019 and 2018.

	For the fiscal year ended March 31,
	2020			2019			2018
Return on average total assets		0.1	%		0.3	%		0.4	%
Return on average shareholders’ equity		1.9	%		5.3	%		6.6	%
Dividends payout ratio(1):
Basic		127.2	%		45.1	%		28.8	%
Diluted		127.2	%		45.2	%		28.8	%
Average shareholders’ equity to average total assets		5.3	%		5.2	%		5.8	%

(1) Dividends declared per common share as a percentage of net profit per share.

VII. Short-Term Borrowings

The following table shows certain additional information with respect to our short-term borrowings for the fiscal years ended March 31, 2020, 2019 and 2018.

	For the fiscal year ended March 31,
	2020			2019			2018
	(In millions, except percentages)
Call money, and payables under repurchase agreements and securities lending transactions:
Average balance outstanding during the period	¥	16,147,869		¥	12,591,665		¥	15,868,395
Maximum balance outstanding at anymonth-end during the period		19,745,293			15,706,407			19,435,458
Balance at end of period		19,196,322			14,195,028			13,213,522
Weighted average interest rate during the period		0.88	%		1.07	%		0.44	%
Weighted average interest rate on balance at end of period		0.17	%		1.05	%		0.74	%
Commercial paper:
Average balance outstanding during the period		2,160,939			3,590,252			3,390,092
Maximum balance outstanding at anymonth-end during the period		2,476,441			2,934,756			3,671,388
Balance at end of period		1,736,702			2,440,515			2,467,645
Weighted average interest rate during the period		1.46	%		1.27	%		0.56	%
Weighted average interest rate on balance at end of period		1.01	%		1.85	%		1.30	%
Short-term borrowings:
Average balance outstanding during the period		6,755,141			4,093,115			6,442,910
Maximum balance outstanding at anymonth-end during the period		10,184,282			5,591,581			7,522,143
Balance at end of period		10,184,282			5,591,581			3,943,140
Weighted average interest rate during the period		0.12	%		0.26	%		0.10	%
Weighted average interest rate on balance at end of period		0.18	%		0.18	%		0.20	%

A-14

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

The following consolidated financial statements and the reports thereon by its independent registered public accounting firm are filed as part of this annual report:

	Page
Report of Independent Registered Public Accounting Firm		F-3
Consolidated Financial Statements		F-8
Consolidated Statements of Financial Position at March  31, 2020 and 2019		F-8
Consolidated Income Statements for the Fiscal Years Ended March  31, 2020, 2019 and 2018		F-9
Consolidated Statements of Comprehensive Income for the Fiscal Years Ended March 31, 2020, 2019 and 2018		F-10
Consolidated Statements of Changes in Equity for the Fiscal Years Ended March 31, 2020, 2019 and 2018		F-11
Consolidated Statements of Cash Flows for the Fiscal Years Ended March 31, 2020, 2019 and 2018		F-13
Notes to Consolidated Financial Statements		F-14
1   General Information		F-14
2   Summary of Significant Accounting Policies		F-14
3   Critical Accounting Estimates and Judgments		F-40
4   Segment Analysis		F-44
5   Cash and Deposits with Banks		F-48
6   Trading Assets		F-49
7   Derivative Financial Instruments and Hedge Accounting		F-49
8   Financial Assets at Fair Value Through Profit or Loss		F-57
9   Investment Securities		F-58
10  Loans and Advances		F-62
11  Investments in Associates and Joint Ventures		F-64
12  Property, Plant and Equipment		F-66
13  Leases		F-67
14  Intangible Assets		F-71
15  Other Assets		F-75
16  Deposits		F-75
17  Trading Liabilities		F-76
18  Borrowings		F-76
19  Debt Securities in Issue		F-77
20  Provisions		F-78
21  Other Liabilities		F-79
22  Deferred Income Tax		F-80
23  Retirement Benefits		F-82
24  Shareholders’ Equity		F-87
25  Non-Controlling Interests and Equity Attributable to Other Equity Instruments Holders		F-90
26  Net Interest Income		F-92
27  Net Fee and Commission Income		F-93
28  Net Trading Income		F-93
29  Net Income (Loss) from Financial Assets at Fair Value Through Profit or Loss		F-94
30  Net Investment Income		F-94
31  Other Income		F-95
32  Impairment Charges on Financial Assets		F-95
33  General and Administrative Expenses		F-96
34  Other Expenses		F-96
35  Income Tax Expense		F-97

F-1

	Page
36  Earnings Per Share		F-98
37  Transfers of Financial Assets		F-98
38  Assets Pledged and Received as Collateral		F-100
39  Share-Based Payment		F-101
40  Dividends Per Share		F-103
41  Contingency and Capital Commitments		F-103
42  Analysis of Financial Assets and Liabilities by Measurement Basis		F-105
43  Fair Value of Financial Assets and Liabilities		F-107
44  Offsetting of Financial Assets and Liabilities		F-122
45  Financial Risk Management		F-123
46  Related-Party Transactions		F-146
47  Principal Subsidiaries		F-147
48  Structured Entities		F-149
49  Acquisitions		F-151
50  Current andNon-Current Distinction		F-156
51  Condensed Financial Information of Registrant (SMFG)		F-157

F-2

Report of Independent Registered Public Accounting Firm

To the Shareholders and Board of Directors

Sumitomo Mitsui Financial Group, Inc.:

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated statements of financial position of Sumitomo Mitsui Financial Group, Inc. and subsidiaries (the Group) as of March 31, 2020 and 2019, the related consolidated income statement and consolidated statements of comprehensive income, changes in equity and cash flows for each of the years in the three-year period ended March 31, 2020 and the related notes (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Group as of March 31, 2020 and 2019, and the results of its operations and its cash flows for each of the years in the three-year period ended March 31, 2020, in conformity with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Group’s internal control over financial reporting as of March 31, 2020, based on criteria established inInternal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated June 24, 2020 expressed an unqualified opinion on the effectiveness of the Group’s internal control over financial reporting.

Basis for Opinion

These consolidated financial statements are the responsibility of the Group’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Group in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Assessment of the allowance for loan losses

As discussed in Notes 2, 3, 10 and 45 to the consolidated financial statements, the Group’s allowance for loan losses (ALL) was ¥ 706,405 million on gross loans and advances of ¥ 95,642,750 million as of March 31, 2020.

F-3

Included in such balances are corporate loans of Sumitomo Mitsui Banking Corporation (SMBC), a commercial banking subsidiary. The ALL for SMBC’s corporate loans is estimated based on the expected credit loss (ECL), utilizing internal credit ratings (obligor grades), and incorporating forward looking information into the ECL measurement by obligor grading through a qualitative assessment, macroeconomic factors, and additional ALL adjustments. For individually significant credit-impaired financial assets, a discounted cash flow (DCF) method is used to estimate the ALL.

We identified the assessment of the ALL for SMBC’s corporate loans as a critical audit matter because of the significant measurement uncertainty and complex judgment involved. Specifically, complex and subjective auditor judgment was required to evaluate (1) the qualitative assessment in the obligor grading, including the assessment of obligor-specific forward-looking information, (2) the methodologies and key assumptions and inputs underlying the adjustments to incorporate macroeconomic factors and portfolio-specific risk factors considering the impact on credit risk from COVID-19 outbreak and coinciding oil price decline, and (3) the projection of multiple cash flow scenarios and probability allocation for the DCF method.

The primary procedures we performed to address the critical audit matter included the following. We tested certain internal controls over SMBC’s ALL process for its corporate loans to (1) approve the ALL methodologies and assess the obligor grading methods, (2) evaluate the individual obligor grading, including the qualitative assessment, (3) determine the methodologies and key assumptions and inputs underlying the adjustments to incorporate macroeconomic factors and portfolio-specific risk factors, and (4) evaluate the projection of multiple cash flow scenarios and probability allocation for the DCF method. In addition, we:

• assessed for compliance with IFRSs the methodologies used in the ALL estimate; and

• involved credit risk professionals with specialized industry knowledge and skills who assisted in evaluating the obligor grading methods through the assessment of the consistency of the obligor grades with external ratings, and the capability of default prediction.

We evaluated the qualitative assessment of the obligor grading by analyzing the obligor-specific forward-looking information, such as the feasibility of business plan and liquidity position forecast, for a selection of SMBC’s corporate customers including those being affected by the COVID-19 outbreak and coinciding oil price decline. We evaluated the adjustments to the ALL to incorporate macroeconomic factors and portfolio-specific risk factors including the credit risk implications from the COVID-19 outbreak and coinciding oil price decline through:

• assessing the methodologies, such as macroeconomic scenario analysis and portfolio-specific credit impact estimation; and

• assessing the key assumptions and inputs underlying the adjustments by reviewing available external data on relevant macroeconomic factors such as GDP outlook, and market indices including oil price.

We assessed, for a selection of obligors, the multiple cash flow scenarios and probability allocation for the DCF method through the assessment of obligor restructuring plans and related progress.

Intangible assets impairment assessment related to the retail banking business of SMBC Trust Bank, Ltd.

As discussed in Notes 2, 3 and 14 to the consolidated financial statements, the Group’s intangible assets were ¥ 835,477 million as of March 31, 2020, which included ¥ 591,650 million of other intangible assets. All of the carrying value of other intangible assets related to the acquisition of the retail banking business of Citibank Japan Ltd. by SMBC Trust bank Ltd, (SMBC Trust Bank) (the SMBC Trust Bank’s retail banking business unit) was impaired as of March 31, 2020 and an impairment loss of ¥28,679 million related to the other intangible assets was recorded for the fiscal year ended March 31, 2020.

F-4

The Group performs other intangible assets impairment testing whenever events or changes in circumstances indicate that the carrying amount of the cash-generating unit may not be recoverable. To determine whether an impairment shall be recognized, the carrying amount of a cash-generating unit is compared to its recoverable amount. If the recoverable amount of the cash-generating unit is less than its carrying amount, the carrying amount of the cash-generating unit is reduced to its recoverable amount, and this reduction is recognized as an impairment loss. The recoverable amount of a cash-generating unit is the higher of its fair value less costs to sell and its value in use. The value in use is determined based on the estimated future cash flows and pre-tax discount rate for the cash-generating unit.

We identified the estimation of the value in use for the SMBC Trust Bank’s retail banking business unit in the intangible assets impairment assessment as a critical audit matter because it involved a high degree of complex and subjective auditor judgment in assessing the key assumptions, including future cash flows and pre-tax discount rate, used in the value in use estimation. The estimates of future cash flows inherently reflected management judgments, and the pre-tax discount rate may be significantly affected by market interest rates and other market conditions. Also, as SMBC Trust Bank revised its business plan considering the recent market conditions, there was a higher degree of subjectivity of the estimated future cash flows and pre-tax discount rate, which therefore required greater auditor judgment.

The primary procedures we performed to address the critical audit matter included the following. We tested certain internal controls over the development of the future cash flows and pre-tax discount rate used to calculate the value in use. We assessed the estimated future cash flows used to calculate the value in use estimate by comparing the Group’s revenue forecasts in the prior year to the actual results to evaluate the Group’s ability to accurately forecast. We evaluated the estimated future cash flows from the SMBC Trust Bank’s retail banking business unit by considering the actual financial performance in the past, the current and forecasted market environment, the economic trends and the regulatory environment. In addition, we involved valuation professionals with specialized industry knowledge and skills to evaluate the pre-tax discount rate used to calculate the value in use by considering standard methods used for retail banks, historical market data, and current market conditions and environment.

/s/ KPMG AZSA LLC

We have served as the Group’s auditor since 1976.

Tokyo, Japan

June 24, 2020

F-5

Report of Independent Registered Public Accounting Firm

To the Shareholders and Board of Directors

Sumitomo Mitsui Financial Group, Inc.:

Opinion on Internal Control Over Financial Reporting

We have audited Sumitomo Mitsui Financial Group, Inc. and subsidiaries’ (the Group) internal control over financial reporting as of March 31, 2020, based on criteria established inInternal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. In our opinion, the Group maintained, in all material respects, effective internal control over financial reporting as of March 31, 2020, based on criteria established inInternal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated statements of financial position of the Group as of March 31, 2020 and 2019, and the related consolidated income statement and consolidated statements of comprehensive income, changes in equity and cash flows for each of the years in the three-year period ended March 31, 2020, and the related notes (collectively, the consolidated financial statements), and our report dated June 24, 2020 expressed an unqualified opinion on those consolidated financial statements.

Basis for Opinion

The Group’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Group’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Group in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control Over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

F-6

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ KPMG AZSA LLC

Tokyo, Japan

June 24, 2020

F-7

CONSOLIDATED FINANCIAL STATEMENTS

Consolidated Statements of Financial Position

			At March 31,
	Note		2020			2019
			(In millions)
Assets:
Cash and deposits with banks		5	¥	62,471,453		¥	57,763,441
Call loans and bills bought				898,256			2,465,745
Reverse repurchase agreements and cash collateral on securities borrowed				13,745,996			10,345,994
Trading assets		6		2,785,016			2,767,691
Derivative financial instruments		7		6,279,801			3,382,574
Financial assets at fair value through profit or loss		8		1,478,356			2,641,416
Investment securities		9		21,864,386			17,825,027
Loans and advances		10		94,671,818			90,682,938
Investments in associates and joint ventures		11		826,736			1,038,823
Property, plant and equipment		12		1,764,611			1,507,786
Intangible assets		14		835,477			821,785
Other assets		15		4,272,630			4,079,871
Current tax assets				161,729			143,459
Deferred tax assets		22		102,198			37,073
Total assets			¥	212,158,463		¥	195,503,623
Liabilities:
Deposits		16	¥	138,431,418		¥	134,404,652
Call money and bills sold				3,740,540			1,307,779
Repurchase agreements and cash collateral on securities lent				15,455,782			12,887,249
Trading liabilities		17		2,018,484			1,998,694
Derivative financial instruments		7		5,555,201			3,051,773
Borrowings		18		17,121,362			12,167,858
Debt securities in issue		19		10,985,048			11,171,209
Provisions		20		200,053			194,818
Other liabilities		21		7,601,355			6,131,739
Current tax liabilities				48,159			147,041
Deferred tax liabilities		22		66,183			267,365
Total liabilities				201,223,585			183,730,177
Equity:
Capital stock		24		2,339,965			2,339,443
Capital surplus		24		728,551			726,012
Retained earnings		24		5,609,854			5,715,101
Treasury stock		24		(13,984	)		(16,302	)
Equity excluding other reserves				8,664,386			8,764,254
Other reserves		24		1,525,720			1,916,366
Equity attributable to shareholders of Sumitomo Mitsui Financial Group, Inc.				10,190,106			10,680,620
Non-controlling interests		25		60,296			494,123
Equity attributable to other equity instruments holders		25		684,476			598,703
Total equity				10,934,878			11,773,446
Total equity and liabilities			¥	212,158,463		¥	195,503,623

The accompanying notes are an integral part of the Consolidated Financial Statements.

F-8

Consolidated Income Statements

			For the fiscal year ended March 31,
	Note		2020			2019		2018
			(In millions, except per share data)
Interest income			¥	2,407,045		¥	2,406,350	¥	2,144,070
Interest expense				1,090,730			1,137,430		771,907
Net interest income		26		1,316,315			1,268,920		1,372,163
Fee and commission income				1,147,132			1,101,777		1,131,364
Fee and commission expense				203,822			178,351		178,867
Net fee and commission income		27		943,310			923,426		952,497
Net trading income		28		134,069			320,302		270,464
Net income (loss) from financial assets at fair value through profit or loss		29		(21,939	)		54,655		(667	)
Net investment income		30		176,464			93,922		424,097
Other income		31		155,631			505,666		755,855
Total operating income				2,703,850			3,166,891		3,774,409
Impairment charges on financial assets		32		259,938			119,686		136,808
Net operating income				2,443,912			3,047,205		3,637,601
General and administrative expenses		33		1,696,386			1,679,813		1,775,183
Other expenses		34		488,806			575,657		792,765
Operating expenses				2,185,192			2,255,470		2,567,948
Share ofpost-tax profit of associates and joint ventures				24,031			40,157		49,323
Profit before tax				282,751			831,892		1,118,976
Income tax expense		35		51,768			184,306		229,378
Net profit			¥	230,983		¥	647,586	¥	889,598
Profit attributable to:
Shareholders of Sumitomo Mitsui Financial Group, Inc.			¥	200,052		¥	541,932	¥	759,998
Non-controlling interests				18,567			93,779		119,878
Other equity instruments holders				12,364			11,875		9,722
Earnings per share:
Basic		36	¥	145.48		¥	387.76	¥	538.84
Diluted		36		145.39			387.49		538.43

The accompanying notes are an integral part of the Consolidated Financial Statements.

F-9

Consolidated Statements of Comprehensive Income

	For the fiscal year ended March 31,
	2020			2019			2018
	(In millions)
Net profit	¥	230,983		¥	647,586		¥	889,598
Other comprehensive income:
Items that will not be reclassified to profit or loss:
Remeasurements of defined benefit plans:
Gains (losses) arising during the period, before tax		(88,950	)		(40,329	)		73,662
Equity instruments at fair value through other comprehensive income:
Gains (losses) arising during the period, before tax		(507,362	)		(128,138	)		—
Share of other comprehensive income (loss) of associates and joint ventures		(3,746	)		3,711			58
Income tax relating to items that will not be reclassified		181,202			61,453			(22,492	)
Total items that will not be reclassified to profit or loss, net of tax		(418,856	)		(103,303	)		51,228
Items that may be reclassified subsequently to profit or loss:
Available-for-sale financial assets:
Gains (losses) arising during the period, before tax		—			—			582,435
Reclassification adjustments for (gains) losses included in net profit, before tax		—			—			(275,038	)
Debt instruments at fair value through other comprehensive income:
Gains (losses) arising during the period, before tax		329,196			150,074			—
Reclassification adjustments for (gains) losses included in net profit, before tax		(96,624	)		(6,071	)		—
Exchange differences on translating foreign operations:
Gains (losses) arising during the period, before tax		(78,742	)		22,517			(75,409	)
Reclassification adjustments for (gains) losses included in net profit, before tax		204			(37,247	)		49
Share of other comprehensive income (loss) of associates and joint ventures		(7,859	)		(4,410	)		7,827
Income tax relating to items that may be reclassified		(68,152	)		(43,746	)		(96,246	)
Total items that may be reclassified subsequently to profit or loss, net of tax		78,023			81,117			143,618
Other comprehensive income (loss), net of tax		(340,833	)		(22,186	)		194,846
Total comprehensive income (loss)	¥	(109,850	)	¥	625,400		¥	1,084,444
Total comprehensive income (loss) attributable to:
Shareholders of Sumitomo Mitsui Financial Group, Inc.	¥	(138,071	)	¥	577,998		¥	948,250
Non-controlling interests		15,857			35,527			126,472
Other equity instruments holders		12,364			11,875			9,722

The accompanying notes are an integral part of the Consolidated Financial Statements.

F-10

Consolidated Statements of Changes in Equity

	Equity excluding other reserves											Other reserves
	Capital stock		Capital surplus			Retained earnings			Treasury stock			Remeasure- ments of defined benefit plans reserve			Available- for-sale financial assets reserve			Financial instruments at fair value through other comprehensive income reserve			Exchange differences on translating foreign operation reserve			Equity attributable to SMFG’s shareholders			Non- controlling interests			Equity attributable to other equity instruments holders			Total equity
	(In millions)
Balance at March 31, 2017	¥	2,337,896	¥	864,052		¥	4,609,496		¥	(12,913)		¥	22,774		¥	1,929,894		¥	—		¥	181,374		¥	9,932,573		¥	1,505,001		¥	449,709		¥	11,887,283
Comprehensive income:
Net profit		—		—			759,998			—			—			—			—			—			759,998			119,878			9,722			889,598
Other comprehensive income		—		—			—			—			51,273			192,366			—			(55,387	)		188,252			6,594			—			194,846
Total comprehensive income		—		—			759,998			—			51,273			192,366			—			(55,387	)		948,250			126,472			9,722			1,084,444
Issuance of shares under share-based payment transactions		847		848			—			—			—			—			—			—			1,695			—			—			1,695
Issuance of other equity instruments		—		—			—			—			—			—			—			—			—			—			149,916			149,916
Acquisition and disposal of subsidiaries andbusinesses-net		—		—			(1,190	)		—			1,190			—			—			—			—			(204,257	)		—			(204,257	)
Transaction withnon-controlling interest shareholders		—		—			62			—			—			—			—			—			62			2,440			—			2,502
Dividends to shareholders		—		—			(218,596	)		—			—			—			—			—			(218,596	)		(61,676	)		—			(280,272	)
Coupons on other equity instruments		—		—			—			—			—			—			—			—			—			—			(9,722	)		(9,722	)
Redemption of preferred securities		—		—			—			—			—			—			—			—			—			(135,000	)		—			(135,000	)
Purchase of treasury stock		—		—			—			(142	)		—			—			—			—			(142	)		—			—			(142	)
Sale of treasury stock		—		—			—			562			—			—			—			—			562			—			—			562
Loss on sale of treasury stock		—		(41	)		—			—			—			—			—			—			(41	)		—			—			(41	)
Share-based payment transactions		—		(1,354	)		—			—			—			—			—			—			(1,354	)		—			—			(1,354	)
Others		—		—			(577	)		—			865			—			—			—			288			—			(103	)		185
Balance at March 31, 2018		2,338,743		863,505			5,149,193			(12,493	)		76,102			2,122,260			—			125,987			10,663,297			1,232,980			599,522			12,495,799
Effect of changes in accounting policies		—		—			270,414			—			—			(2,122,260	)		1,718,937			—			(132,909	)		250			—			(132,659	)
Balance at April 1, 2018		2,338,743		863,505			5,419,607			(12,493	)		76,102			—			1,718,937			125,987			10,530,388			1,233,230			599,522			12,363,140
Comprehensive income:
Net profit		—		—			541,932			—			—			—			—			—			541,932			93,779			11,875			647,586
Other comprehensive income (loss)		—		—			—			—			(27,109	)		—			75,828			(12,653	)		36,066			(58,252	)		—			(22,186	)
Total comprehensive income		—		—			541,932			—			(27,109	)		—			75,828			(12,653	)		577,998			35,527			11,875			625,400
Issuance of shares under share-based payment transactions		700		699			—			—			—			—			—			—			1,399			—			—			1,399
Acquisition and disposal of subsidiaries andbusinesses-net		—		—			—			—			—			—			—			—			—			(306,444	)		—			(306,444	)
Transaction withnon-controlling interest shareholders		—		(113,736	)		—			—			—			—			—			—			(113,736	)		(91,767	)		—			(205,503	)
Dividends to shareholders		—		—			(245,577	)		—			—			—			—			—			(245,577	)		(77,184	)		—			(322,761	)
Coupons on other equity instruments		—		—			—			—			—			—			—			—			—			—			(11,875	)		(11,875	)
Redemption of preferred securities		—		—			—			—			—			—			—			—			—			(299,239	)		—			(299,239	)
Purchase of treasury stock		—		—			—			(70,094	)		—			—			—			—			(70,094	)		—			—			(70,094	)
Sale of treasury stock		—		—			—			363			—			—			—			—			363			—			—			363
Loss on sale of treasury stock		—		(68	)		—			—			—			—			—			—			(68	)		—			—			(68	)
Cancellation of treasury stock		—		(24,218	)		(41,704	)		65,922			—			—			—			—			—			—			—			—
Share-based payment transactions		—		(129	)		—			—			—			—			—			—			(129	)		—			—			(129	)
Transfer from other reserves to retained earnings		—		—			40,726			—			23,432			—			(64,158	)		—			—			—			—			—
Others		—		(41	)		117			—			—			—			—			—			76			—			(819	)		(743	)
Balance at March 31, 2019	¥	2,339,443	¥	726,012		¥	5,715,101		¥	(16,302	)	¥	72,425		¥	—		¥	1,730,607		¥	113,334		¥	10,680,620		¥	494,123		¥	598,703		¥	11,773,446

F-11

	Equity excluding other reserves											Other reserves
	Capital stock		Capital surplus			Retained earnings			Treasury stock			Remeasure- ments of defined benefit plans reserve			Available- for-sale financial assets reserve		Financial instruments at fair value through other comprehensive income reserve			Exchange differences on translating foreign operation reserve			Equity attributable to SMFG’s shareholders			Non- controlling interests			Equity attributable to other equity instruments holders			Total equity
	(In millions)
Balance at March 31, 2019	¥	2,339,443	¥	726,012		¥	5,715,101		¥	(16,302	)	¥	72,425		¥	—	¥	1,730,607		¥	113,334		¥	10,680,620		¥	494,123		¥	598,703		¥	11,773,446
Comprehensive income:
Net profit		—		—			200,052			—			—			—		—			—			200,052			18,567			12,364			230,983
Other comprehensive income (loss)		—		—			—			—			(62,284	)		—		(190,765	)		(85,074	)		(338,123	)		(2,710	)		—			(340,833	)
Total comprehensive income (loss)		—		—			200,052			—			(62,284	)		—		(190,765	)		(85,074	)		(138,071	)		15,857			12,364			(109,850	)
Issuance of shares under share-based payment transactions		522		522			—			—			—			—		—			—			1,044			—			—			1,044
Issurance of other equity instruments		—		—			—			—			—			—		—			—			—			—			84,951			84,951
Acquisition and disposal of subsidiaries andbusinesses-net		—		—			—			—			—			—		—			—			—			5,936			—			5,936
Transaction withnon-controlling interest shareholders		—		498			—			—			—			—		—			—			498			11			—			509
Dividends to shareholders		—		—			(255,835	)		—			—			—		—			—			(255,835	)		(16,921	)		—			(272,756	)
Coupons on other equity instruments		—		—			—			—			—			—		—			—			—			—			(12,364	)		(12,364	)
Redemption of preferred securities		—		—			—			—			—			—		—			—			—			(436,500	)		—			(436,500	)
Purchase of treasury stock		—		—			—			(100,089	)		—			—		—			—			(100,089	)		—			—			(100,089	)
Sale of treasury stock		—		—			—			733			—			—		—			—			733			—			—			733
Loss on sale of treasury stock		—		—			(250	)		—			—			—		—			—			(250	)		—			—			(250	)
Cancellation of treasury stock		—		—			(101,674	)		101,674			—			—		—			—			—			—			—			—
Share-based payment transactions		—		1,565			—			—			—			—		—			—			1,565			(1,610	)		—			(45	)
Transfer from other reserves to retained earnings		—		—			52,523			—			(12,694	)		—		(39,829	)		—			—			—			—			—
Others		—		(46	)		(63	)		—			—			—		—			—			(109	)		(600	)		822			113
Balance at March 31, 2020	¥	2,339,965	¥	728,551		¥	5,609,854		¥	(13,984	)	¥	(2,553	)	¥	—	¥	1,500,013		¥	28,260		¥	10,190,106		¥	60,296		¥	684,476		¥	10,934,878

The accompanying notes are an integral part of the Consolidated Financial Statements.

F-12

Consolidated Statements of Cash Flows

	For the fiscal year ended March 31,
	2020			2019			2018
	(In millions)
Operating Activities:
Profit before tax	¥	282,751		¥	831,892		¥	1,118,976
Adjustments for:
Gains on financial assets at fair value through profit or loss and investment securities		(42,600	)		(5,888	)		(274,371	)
Foreign exchange losses		179,888			181,023			16,612
Provision for loan losses		249,478			122,927			126,623
Depreciation and amortization		317,074			218,915			310,179
Share ofpost-tax profit of associates and joint ventures		(24,031	)		(40,157	)		(49,323	)
Net changes in assets and liabilities:
Net (increase) decrease of term deposits with original maturities over three months		(255,988	)		199,313			(210,821	)
Net (increase) decrease of call loans and bills bought		1,509,361			(596,424	)		4,436
Net (increase) decrease of reverse repurchase agreements and cash collateral on securities borrowed		(3,428,875	)		(1,862,136	)		372,563
Net (increase) decrease of loans and advances		(4,528,736	)		(3,368,911	)		354,622
Net change of trading assets and liabilities and derivative financial instruments		(142,660	)		(901,481	)		283,731
Net increase of deposits		4,375,139			5,129,513			5,881,032
Net increase (decrease) of call money and bills sold		2,462,341			126,395			(778,412	)
Net increase of repurchase agreements and cash collateral on securities lent		2,588,673			879,734			2,735,586
Net increase of other unsubordinated borrowings and debt securities in issue		4,517,188			2,073,280			991,110
Income taxes paid—net		(285,779	)		(283,761	)		(105,880	)
Other operating activities—net		1,014,624			81,599			395,318
Net cash and cash equivalents provided by operating activities		8,787,848			2,785,833			11,171,981
Investing Activities:
Purchases of financial assets at fair value through profit or loss and investment securities		(34,178,930	)		(25,077,310	)		—
Proceeds from sale of financial assets at fair value through profit or loss and investment securities		23,114,463			17,705,865			—
Proceeds from maturities of financial assets at fair value through profit or loss and investment securities		8,274,856			8,922,752			—
Purchases of financial assets at fair value through profit or loss andavailable-for-sale financial assets		—			—			(22,488,127	)
Proceeds from sale of financial assets at fair value through profit or loss andavailable-for-sale financial assets		—			—			13,384,847
Proceeds from maturities of financial assets at fair value through profit or loss andavailable-for-sale financial assets		—			—			6,265,527
Purchases ofheld-to-maturity investments		—			—			(2,001	)
Proceeds from maturities ofheld-to-maturity investments		—			—			792,358
Acquisitions of the subsidiaries and businesses, net of cash and cash equivalents acquired		(15,942	)		37,966			(160,862	)
Investments in associates and joint ventures		(2,860	)		(102,830	)		(7,744	)
Disposal of subsidiaries and businesses, net of cash and cash equivalents disposed		26,799			157,507			(852,179	)
Proceeds from sale of investments in associates and joint ventures		1,947			101,359			19,415
Purchases of property, plant and equipment, and investment properties		(83,949	)		(508,835	)		(710,838	)
Purchases of intangible assets		(147,939	)		(139,305	)		(136,100	)
Proceeds from sale of property, plant and equipment, investment properties and intangible assets		19,119			104,403			302,027
Other investing activities—net		(283	)		(2	)		—
Net cash and cash equivalents provided by (used in) investing activities		(2,992,719	)		1,201,570			(3,593,677	)
Financing Activities:
Redemption of subordinated borrowings		(8,000	)		(8,000	)		(10,000	)
Proceeds from issuance of subordinated bonds		54,303			—			104,866
Redemption of subordinated bonds		(113,000	)		(26,721	)		(180,034	)
Redemption of preferred securities		(436,500	)		(299,239	)		(135,000	)
Proceeds from issuance of other equity instruments		84,951			—			149,916
Dividends paid to shareholders of Sumitomo Mitsui Financial Group, Inc.		(255,771	)		(245,595	)		(218,569	)
Dividends paid tonon-controlling interest shareholders		(16,921	)		(77,180	)		(62,529	)
Coupons paid to other equity instruments holders		(12,364	)		(11,875	)		(9,722	)
Purchase of treasury stock and proceeds from sale of treasury stock—net		(99,605	)		(69,800	)		379
Purchase of other equity instruments and proceeds from sale of other equity instruments—net		822			(819	)		(103	)
Transactions withnon-controlling interest shareholders—net		(234,159	)		7,837			(6	)
Net cash and cash equivalents used in financing activities		(1,036,244	)		(731,392	)		(360,802	)
Effect of exchange rate changes on cash and cash equivalents		(271,873	)		44,062			(45,865	)
Net increase of cash and cash equivalents		4,487,012			3,300,073			7,171,637
Cash and cash equivalents at beginning of period		56,716,529			53,416,456			46,244,819
Cash and cash equivalents at end of period	¥	61,203,541		¥	56,716,529		¥	53,416,456
Net cash and cash equivalents provided by operating activities includes:
Interest and dividends received	¥	2,543,771		¥	2,501,705		¥	2,249,000
Interest paid		1,111,439			1,092,458			749,369

The accompanying notes are an integral part of the Consolidated Financial Statements.

F-13

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1 GENERAL INFORMATION

Sumitomo Mitsui Financial Group, Inc. (the “Company” or “SMFG”) was established on December 2, 2002, as a holding company for Sumitomo Mitsui Banking Corporation (“SMBC”) and its subsidiaries through a statutory share transfer (kabushiki-iten) of all of the outstanding equity securities of SMBC in exchange for the Company’s newly issued securities. The Company is a joint stock corporation with limited liability (Kabushiki Kaisha) incorporated under the Companies Act of Japan (“Companies Act”). Upon the formation of the Company and the completion of the statutory share transfer, SMBC became a direct, wholly owned subsidiary of the Company. The Company has a primary listing on the Tokyo Stock Exchange (First Section), with further listing on the Nagoya Stock Exchange (First Section). The Company’s American Depositary Shares are listed on the New York Stock Exchange.

The Company and its subsidiaries (the “Group”) offer a diverse range of financial services, including commercial banking, leasing, securities, consumer finance and other services together with its associates and joint ventures.

The accompanying consolidated financial statements have been authorized for issue by the Management Committee on June 24, 2020.

2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The principal accounting policies applied in the preparation of the consolidated financial statements are set out below. These policies have been consistently applied to all the fiscal years presented, unless otherwise stated.

Basis of Preparation

Compliance with International Financial Reporting Standards

The consolidated financial statements of the Group have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”).

Basis of measurement

The consolidated financial statements have been prepared under the historical cost basis except for the following:

• trading assets and liabilities are measured at fair value;

• derivative financial instruments are measured at fair value;

• financial assets at fair value through profit or loss are measured at fair value;

• investment securities at fair value through other comprehensive income(available-for-sale financial assets at March 31, 2018) are measured at fair value; and

• liabilities and the assets recognized in consolidated statements of financial position in respect of defined benefit plans are the present value of the defined benefit obligation less the fair value of plan assets.

Functional and presentation currency

The consolidated financial statements are presented in Japanese yen, which is also the Company’s functional currency. All financial information presented in Japanese yen has been rounded to the nearest million, except as otherwise indicated.

F-14

Critical accounting estimates and judgments

The preparation of the consolidated financial statements in accordance with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise judgment in the process of applying the accounting policies. Actual results may differ from these estimates. The notes to the consolidated financial statements set out areas involving a higher degree of judgment or complexity, or areas where assumptions are significant to the consolidated financial statements, such as allowance for loan losses (Notes 10, 32), fair value of financial instruments (Note 43), impairment of intangible assets (Note 14), provision for interest repayment (Note 20), retirement benefits (Note 23) and deferred tax assets (Note 22).

Refer to Note 3 “Critical Accounting Estimates and Judgments” for further information.

New and Amended Accounting Standards Adopted by the Group

During the fiscal year ended March 31, 2020, a number of amendments to standards have become effective; however, they have not resulted in any material changes to the Group’s accounting policies, except as described below.

IFRS 16 “Leases”

On April 1, 2019, the Group adopted IFRS 16 “Leases,” which replaces IAS 17 “Leases” and other related interpretations.

IFRS 16 eliminates a lessee’s classification of leases as either operating leases or finance leases and introduces a single lessee accounting model, requiring a lessee to recognize a lease liability and right of use asset. A lessor continues to classify its leases as operating leases or finance leases, and to account for them differently.

The primary impact of IFRS 16 adoption is where the Group is a lessee in contracts for land and buildings which wereoff-balance sheet under IAS 17. The recognition and measurement of leases that the Group previously classified as finance leases as a lessee has not changed on the transition to IFRS 16. The Group’s accounting as a lessor under IFRS 16 has not substantially changed from its approach under IAS 17.

Effect of Adoption of IFRS 16

The Group adopted the standard retrospectively using the modified retrospective approach by adjusting the consolidated statement of financial position at the date of initial application, and has not restated comparatives as permitted by IFRS 16. In this approach, a lease liability was measured at the present value of the remaining lease payments, discounted using the Group’s incremental borrowing rate at April 1, 2019. The Group applied the following transition options available under the approach:

• measuring a right of use asset at an amount equal to the lease liability, adjusted by the amount of any prepaid or accrued lease payments related to that lease;

• relying on previous assessments on whether leases are onerous as an alternative to performing an impairment review; and

• using hindsight in determining the lease term where the contract contains options to extend or terminate the lease.

The Group also elected to apply the practical expedient to grandfather the assessment of which transactions are leases. The Group applied IFRS 16 only to contracts that were previously identified as leases. Contracts that were not identified as leases under IAS 17 were not reassessed for whether there is a lease under IFRS 16.

F-15

The following table shows the effect of the adoption of IFRS 16 on the Group’s consolidated financial statements.

	(In millions)
Effect of adoption of IFRS 16 on consolidated statement of financial position
Assets:
Property, plant and equipment	¥	380,632
Intangible assets		11,755
Other assets		(3,790	)
Total assets	¥	388,597
Liabilities:
Borrowings		388,612
Other liabilities		(15	)
Total liabilities	¥	388,597
Total equity		—
Total equity and liabilities	¥	388,597

The following table reconciles the operating lease commitments disclosed in the Group’s consolidated financial statements under IAS 17 at March 31, 2019 to the lease liabilities recognized under IFRS 16 at April 1, 2019.

	(In millions)
Operating lease commitments at March 31, 2019	¥	320,331
Adjustments as a result of a different treatment of extension and termination options		82,550
Discounted at a weighted average rate of 0.55% at April 1, 2019		(14,269	)
Lease liabilities due to the adoption of IFRS 16, recognized at April 1, 2019		388,612
Lease liabilities from finance leases at March 31, 2019		30,379
Total lease liabilities recognized at April 1, 2019	¥	418,991

Interest Rate Benchmark Reform (Amendments to IFRS 9, IAS 39 and IFRS 7)

In September 2019, the IASB issued “Interest Rate Benchmark Reform: Amendments to IFRS 9, IAS 39 and IFRS 7.” Interest rate benchmark reform gives rise to uncertainties about the timing or the amount of interest rate benchmark-based cash flows of hedged items or of hedging instruments. As a response, the IASB issued in September 2019 “Interest Rate Benchmark Reform: Amendments to IFRS 9, IAS 39 and IFRS 7” that provide temporary relief from applying specific hedge accounting requirements to hedging relationships directly affected by interest rate benchmark reform. The reliefs aim to ensure that the interest rate benchmark reform does not result in the discontinuance of hedge accounting. The amendments are effective for annual periods beginning on or after January 1, 2020 with early adoption permitted. The Group has elected to early adopt the amendments retrospectively from April 1, 2019. For further information, see “Hedge Accounting” in this note and Note 7 “Derivative Financial Instruments and Hedge Accounting—Hedge accounting.”

Consolidation

Subsidiaries

Subsidiaries are all entities controlled by the Group. The Group controls an entity when it is exposed, or has rights, to variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. The Group considers all facts and circumstances whether it controls an entity.

F-16

Where the relevant activities are directed through voting or similar rights, the Group considers that it controls an entity if it has the existing rights that give it the current ability to direct the operating and financing policies of the entity, in general by having a shareholding of more than 50% of the voting rights. The existence and effect of potential voting rights that are deemed to be substantive are taken into account when assessing whether the Group controls another entity.

Where the voting rights are not the dominant factor in deciding who controls the entity, the assessment of control is more complex and requires greater use of judgment. The Group assesses whether it controls an entity considering all facts and circumstances, such as the purpose and design of the entity, the relevant activities and how to make decisions about those activities.

The Group also determines whether it is acting as an agent or a principal in assessing whether it has control of another entity. An agent is a party primarily engaged to act on behalf and for the benefit of another party or parties and therefore does not control the entity. To make such judgments, the Group considers the overall relationship, especially all of the following factors: the scope of its decision-making authority over the entity, the rights held by other parties, the remuneration to which it is entitled in accordance with the remuneration agreement, and its exposure to variability of returns from other interests that it holds in the entity.

The Group reassesses whether it controls an entity if facts and circumstances indicate that there are changes to one or more of the elements of control.

Subsidiaries are fully consolidated from the date on which the Group obtains control. They are deconsolidated from the date on which the Group loses control.

The acquisition method is used to account for the business combinations including the acquisition of subsidiaries by the Group. The consideration transferred in a business combination is measured at fair value, which is calculated as the sum of the acquisition-date fair values of the assets transferred, the liabilities incurred and the equity interests issued. Identifiable assets acquired and liabilities assumed in a business combination are measured initially at their fair values at the acquisition date. The Group’s previously held equity interest in the acquiree is remeasured at fair value at the acquisition date and any gain or loss is recognized in profit or loss. For each business combination, the Group measures anynon-controlling interest in the acquiree either at fair value or at thenon-controlling interest’s proportionate share of the acquiree’s identifiable net assets. The excess of the aggregate of the consideration transferred, the amount of anynon-controlling interest and the acquisition-date fair value of the Group’s previously held equity interest in the acquiree over the net of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed is recorded as goodwill in the consolidated statements of financial position. If the aggregate of the consideration transferred, the amount of anynon-controlling interest and the acquisition-date fair value of the Group’s previously held equity interest in the acquiree is less than the net of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed, the difference is recognized immediately in the consolidated income statements.

Inter-company transactions, balances and unrealized gains on transactions between the Group companies are eliminated on consolidation. Unrealized losses are also eliminated unless the transaction provides evidence of impairment of the asset transferred. The accounting policies of subsidiaries have been adjusted where necessary to ensure consistency with the accounting policies adopted by the Group.

Non-controlling interests

Changes in the Group’s ownership interest in a subsidiary that do not result in a loss of control are accounted for as equity transactions.

Interests in the equity of subsidiaries not attributable to the Group are reported in the consolidated statements of financial position as a separate component of equity asnon-controlling interests. Profits or losses attributable tonon-controlling interests are separately reported in the consolidated income statements.

F-17

Associates and joint ventures

An associate is an entity over which the Group has significant influence, but does not control the financial and operating policy decisions of the entity. Significant influence is generally presumed to exist when the Group holds 20% or more, but less than 50%, of the voting rights.

Entities that are jointly controlled by more than one party, including the Group, may be determined to be a joint venture.

The Group accounts for investments in associates and joint ventures using the equity method from the date on which they become associates or joint ventures. The Group discontinues the use of the equity method from the date on which the Group ceases to have significant influence or joint control over the investees.

Under the equity method, the Group’s investments in associates and joint ventures are initially recognized at cost. The carrying amount of the investments are subsequently increased or decreased to recognize the Group’s share of the post-acquisition profit or loss of the associate or joint venture and other movements included directly in the equity of the associate or joint venture. The Group’s share of the results of associates and joint ventures is based on the financial statements of its associates and joint ventures, adjusted to conform with the accounting policies of the Group. Profits on transactions between the Group and its associates and joint ventures are eliminated to the extent of the Group’s interest in the associates or joint ventures. Losses are also eliminated to the extent of the Group’s interest in the associates or joint ventures unless the transaction provides evidence of impairment in the asset transferred.

The carrying amounts of the investments in associates and joint ventures include goodwill (net of any accumulated impairment loss) arising on the acquisition of the interests in the entities. Because goodwill arising on the acquisition of the interest in an associate or joint venture is not separately recognized, it is not tested for impairment separately. Instead, the entire carrying amount of the investment in an associate or joint venture is tested for impairment as a single asset by comparing its recoverable amount, which is the higher of value in use and fair value less costs to sell, with its carrying amount, whenever there is any objective evidence that the investment is impaired. An impairment loss recognized in prior periods for the investment is reversed only if there has been a change in the estimates used to determine the recoverable amount of the investment since the last impairment loss was recognized. If this is the case, the carrying amount of the investment is increased to its recoverable amount. That increase is a reversal of an impairment loss.

When the Group’s share of losses in an associate or joint venture exceeds the Group’s carrying amount of the investment, the Group does not recognize further losses, unless it has a binding obligation or has made payments on behalf of the entity.

Segment Reporting

The Group determines its operating segments based on the management approach, which requires operating segments to be identified on the basis of internal reports about components of the entity that are regularly reviewed by management, in order to allocate resources to a segment and to assess its performance.

Foreign Currency Translation

Items included in the financial statements of each of the Group companies are measured using the currency of the primary economic environment in which the company operates (“the functional currency”). The consolidated financial statements are presented in Japanese yen, which is also the Company’s functional currency.

Transactions and balances

Foreign currency transactions that are denominated or settled in a foreign currency are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Monetary items

F-18

denominated in foreign currencies are translated using the exchange rate at the end of the reporting period. Foreign exchange gains and losses resulting from the retranslation and settlement of monetary items are recognized in the consolidated income statements.Non-monetary items that are measured at fair value in a foreign currency are translated into the functional currency using the exchange rate at the date the fair value is determined. Translation differences on certain of these items, such as equity instruments measured at fair value through other comprehensive income, which were classified asavailable-for-sale financial assets under IAS 39 “Financial Instruments: Recognition and Measurement” at March 31, 2018, are not included in the consolidated income statements but are recognized directly in equity.Non-monetary items that are measured at historical cost in a foreign currency are translated into the functional currency using the exchange rate at the date of the initial transaction.

Foreign operations

The assets and liabilities of foreign operations are translated into the presentation currency of the Group using the exchange rate at the end of the reporting period, and their income statements are translated using the exchange rates at the dates of the transactions or average exchange rates where these approximate to actual rates.

The exchange differences arising on the translation of a foreign operation are included in other comprehensive income within equity and subsequently included in profit or loss on the disposal or partial disposal of the operation.

Financial Assets

Regular way purchases and sales of financial assets are recognized and derecognized on the trade date—the date on which the Group commits to purchase or sell the assets. Financial assets are derecognized when the contractual rights to receive cash flows from the financial assets have expired or where the Group has transferred substantially all the risks and rewards of ownership of the financial assets at a consolidated level. The Group consolidates all subsidiaries in accordance with IFRS 10 “Consolidated Financial Statements” before determining derecognition of financial assets.

Accounting policies applied from April 1, 2018

IFRS 9 “Financial Instruments” requires all financial assets, including entire hybrid instruments, to be classified into three measurement categories, namely, amortized cost, fair value through other comprehensive income (“FVOCI”) and fair value through profit or loss (“FVPL”), based on the business model within which they are held and their contractual cash flow characteristics.

The Group has assessed the business models based on facts and circumstances at a portfolio level. Factors that are considered in determining the business model include policies and objectives for the relevant portfolio, how the performance and risks of the portfolio are managed, evaluated and reported to management, and the level of sales activity.

The Group has assessed the contractual cash flow characteristics of financial assets with reference to whether the contractual cash flows are solely payments of principal and interest (“SPPI”). Principal is defined as the fair value of the financial asset at initial recognition but it may change over the life of the financial asset as amounts are repaid. Interest is defined as consideration for the time value of money and the credit risk associated with the principal amount outstanding during a particular period of time. It can also include consideration for other basic lending risks such as liquidity risk and costs such as administrative costs associated with holding the financial asset for a particular period of time, as well as a profit margin. In assessing whether the contractual cash flows meet the conditions for SPPI, the Group considers the contractual terms of the financial asset. This includes assessing whether the financial asset contains a contractual term that could change the contractual cash flows so that it would not meet the conditions for SPPI, including leverage features, contingent events that would change the amount or timing of cash flows, contractual terms that limit the Group’s claim to cash flows from specified assets, and features that modify consideration of the time value of money.

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Financial assets measured at amortized cost

Financial assets are measured at amortized cost if they are held within a business model whose objective is to hold the assets in order to collect contractual cash flows, and their contractual cash flows are SPPI. These financial assets are mainly included in “Loans and advances” and also in “Investment securities” in the consolidated statements of financial position. They are initially recognized at fair value plus transaction costs that are directly attributable to the acquisition of the financial assets, and are subsequently measured at amortized cost using the effective interest method. Interest income on these financial assets using the effective interest method is recognized in “Net interest income” in the consolidated income statements.

Financial assets measured at fair value through other comprehensive income

Financial assets are measured at FVOCI if they are held within a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets, and their contractual cash flows are SPPI. Financial assets measured at FVOCI are included in “Investment securities” in the consolidated statements of financial position. They are initially recognized at fair value plus transaction costs that are directly attributable to the acquisition of the financial assets, and are subsequently measured at fair value. Gains and losses arising from changes in the fair value of these financial assets are recognized in other comprehensive income, until they are derecognized. At the time of derecognition, the cumulative gains or losses previously recognized in other comprehensive income are reclassified to profit or loss and are recognized in “Net investment income” in the consolidated income statements. Interest income calculated using the effective interest method, foreign currency gains and losses, and impairment gains and losses are recognized in “Net interest income,” “Net trading income” and “Impairment charges on financial assets” in the consolidated income statements, respectively.

In addition, the Group makes an irrevocable election at initial recognition, for particularnon-trading equity instruments that would otherwise be measured at FVPL, to present subsequent changes in fair value in other comprehensive income. These financial assets are also included in “Investment securities” in the consolidated statements of financial position. They are initially recognized at fair value plus transaction costs that are directly attributable to the acquisition of the financial asset, and are subsequently measured at fair value. Amounts presented in other comprehensive income are not subsequently transferred to profit or loss. Dividend income on equity instruments included in these financial assets is recognized in “Net investment income” in the consolidated income statements when the entity’s right to receive payment of the dividend is established.

Financial assets measured at fair value through profit or loss

Any financial assets that do not meet the criteria of amortized cost or FVOCI are classified as FVPL, unless the Group makes an irrevocable election fornon-trading equity instruments to be measured at FVOCI. Financial assets of the Group classified as FVPL consist of financial assets held for trading, derivatives and financial assets mandatorily measured at FVPL.

Financial assets are classified as held for trading and are included in “Trading assets” in the consolidated statements of financial position, if they are acquired principally for the purpose of selling in the near term or if they are part of a portfolio of identified financial instruments that are managed together and for which there is evidence of a recent actual pattern of short-term profit-taking.

Derivatives which are not designated as hedging instruments are classified as held for trading, and all derivatives are included in “Derivative financial instruments” in the consolidated statements of financial position. All derivatives are carried as assets when the fair value is positive and as liabilities when the fair value is negative.

Financial assets mandatorily measured at FVPL, other than those held for trading and derivatives, are included in “Financial assets at fair value through profit or loss” in the consolidated statements of financial position.

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The financial assets mentioned above are initially recognized at fair value with transaction costs being recognized in profit or loss, and are subsequently measured at fair value. Gains and losses arising from changes in the fair values of trading assets and derivatives held for trading, and interest and dividend income on trading assets are included in “Net trading income” in the consolidated income statements. Gains or losses arising from financial assets mandatorily measured at FVPL are included in “Net income (loss) from financial assets at fair value through profit or loss” in the consolidated income statements.

Additionally, financial assets measured at amortized cost or FVOCI can be designated at initial recognition to be measured at FVPL in order to eliminate or significantly reduce a measurement or recognition inconsistency. The Group does not make this designation.

Accounting policies applied until March 31, 2018

At initial recognition, the financial assets of the Group were classified into one of the following categories: trading assets, derivative financial instruments, financial assets at fair value through profit or loss, loans and receivables, held-to-maturity investments and available-for-sale financial assets.

Trading assets

Financial assets were classified as held for trading and were included in “Trading assets” in the consolidated statements of financial position, if they were acquired principally for the purpose of selling in the near term or if they were part of a portfolio of identified financial instruments that were managed together and for which there was evidence of a recent actual pattern of short-term profit-taking. Trading assets were initially recognized at fair value with transaction costs being recognized in the consolidated income statements, and were subsequently measured at fair value. Gains and losses arising from changes in the fair values of trading assets and net interest and dividend income on trading assets were included in “Net trading income” in the consolidated income statements.

Derivative financial instruments

Derivatives which were not designated as hedging instruments were classified as held for trading, and all derivatives were included in “Derivative financial instruments” in the consolidated statements of financial position. All derivatives were carried as assets when the fair value was positive and as liabilities when the fair value was negative. Derivatives were initially recognized at fair value with transaction costs being recognized in the consolidated income statements, and were subsequently measured at fair value. Gains and losses arising from changes in the fair values of derivatives held for trading, except for gains and losses on hedging instruments were included in “Net trading income” in the consolidated income statements.

The derivative component of a hybrid instrument containing both a derivative and non-derivative component (“host contract”) was referred to as an embedded derivative. Certain embedded derivatives were accounted for as separate derivatives, when their economic characteristics and risks were not closely related to those of the host contract, a separate instrument with the same terms as the embedded derivative would meet the definition of a derivative and the hybrid instrument was not carried at fair value through profit or loss. These embedded derivatives were measured at fair value and were presented in the consolidated statements of financial position together with the host contract.

Financial assets at fair value through profit or loss

Financial assets, other than those held for trading, were classified as financial assets at fair value through profit or loss and were included in “Financial assets at fair value through profit or loss” in the consolidated statements of financial position, if they met one of the following criteria, and were so designated by management:

• the designation eliminated or significantly reduced a measurement or recognition inconsistency;

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• a group of financial assets was managed and its performance was evaluated on a fair value basis in accordance with a documented risk management or investment strategy; or

• the instrument contained one or more embedded derivatives unless (a) the embedded derivative did not significantly modify the cash flows that otherwise would have been required by the contract or (b) it was clear with little or no analysis that separation was prohibited.

In addition, the Group classified the entire hybrid instrument at fair value through profit or loss when the Group was required to separate an embedded derivative from its host contract, but was unable to measure the embedded derivative separately either at acquisition or at the end of a subsequent reporting period. Financial assets at fair value through profit or loss were initially recognized at fair value with transaction costs being recognized in the consolidated income statements, and were subsequently measured at fair value. Gains and losses arising from changes in the fair value of such financial assets were included in “Net income (loss) from financial assets at fair value through profit or loss” in the consolidated income statements.

Loans and receivables

Loans and receivables were non-derivative financial assets with fixed or determinable payments that were not quoted in an active market, other than:

• those that the Group intended to sell immediately or in the near term, which were classified as held for trading, and those that the Group upon initial recognition designated as at fair value through profit or loss;

• those that the Group upon initial recognition classified as available-for-sale; or

• those for which the Group might not recover substantially all of its initial investment, other than because of credit deterioration.

The financial assets classified as loans and receivables were mainly included in “Loans and advances” in the consolidated statements of financial position. Loans and receivables were initially recognized at fair value plus directly attributable transaction costs, and were subsequently measured at amortized cost using the effective interest method.

Held-to-maturity investments

Held-to-maturity investments were non-derivative financial assets quoted in an active market with fixed or determinable payments and fixed maturities that the Group had the positive intention and ability to hold to maturity. If the Group had been to sell other than an insignificant amount of held-to-maturity investments, the remaining investments in this category would have been reclassified as available-for-sale financial assets. Held-to-maturity investments were initially recognized at fair value plus directly attributable transaction costs, and were subsequently measured at amortized cost using the effective interest method.

Available-for-sale financial assets

Available-for-sale financial assets were non-derivative financial assets that were classified as available-for-sale at initial recognition or were not classified into any of the other categories described above. Available-for-sale financial assets were initially recognized at fair value plus directly attributable transaction costs, and were subsequently measured at fair value.

Gains and losses arising from changes in the fair value of available-for-sale financial assets were recognized in other comprehensive income, until they were derecognized or impaired. At that time, the cumulative gain or loss previously recognized in other comprehensive income was recognized in the consolidated income statements. However, interest income calculated using the effective interest method and foreign currency gains and losses on monetary assets classified as available-for-sale were recognized in the consolidated income statements. Dividends on available-for-sale equity instruments were recognized in the consolidated income statements when the entity’s right to receive payment was established.

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Financial Liabilities

Financial liabilities, except for financial liabilities measured at fair value through profit or loss, are mainly included in “Deposits,” “Borrowings,” and “Debt securities in issue” in the consolidated statements of financial position. They are initially recognized at fair value, net of transaction costs that are directly attributable to the issue of the financial liabilities, and are subsequently measured at amortized cost using the effective interest method. Interest expense on these financial liabilities measured at amortized cost using the effective interest method is recognized in “Net interest income” in the consolidated income statements.

Financial liabilities measured at fair value through profit or loss consist of financial liabilities held for trading and derivatives whose fair values are negative.

Financial liabilities are classified as held for trading if they are incurred principally for the purpose of repurchasing in the near term or if they are part of a portfolio of identified financial instruments that are managed together and for which there is evidence of a recent actual pattern of short-term profit-taking. Financial liabilities held for trading are included in “Trading liabilities” in the consolidated statements of financial position. Trading liabilities are initially recognized at fair value with transaction costs being recognized in profit or loss, and are subsequently measured at fair value. Gains and losses arising from changes in the fair values of trading liabilities and interest expense on trading liabilities are included in “Net trading income” in the consolidated income statements.

For derivatives other than the component of hybrid instrument, refer to “Financial assets measured at fair value through profit or loss.”

The derivative component of a hybrid instrument containing both a derivative andnon-derivative component (“host contract”) is referred to as an embedded derivative. Certain embedded derivatives are accounted for as separated derivatives, when their economic characteristics and risks are not closely related to those of the host contract, a separated instrument with the same terms as the embedded derivative would meet the definition of a derivative and the hybrid instrument is not carried at fair value through profit or loss. These embedded derivatives are measured at fair value, while the host contracts are measured at amortized cost. These embedded derivatives are presented in the consolidated statements of financial position together with the host contract.

If a financial liability is designated as at fair value through profit or loss, the amount of change in its fair value that is attributable to changes in own credit risk of that liability would be presented in other comprehensive income, rather than profit or loss. The Group does not make this designation.

Financial liabilities are derecognized when they have been redeemed or otherwise extinguished.

Hedge Accounting

The Group applies fair value hedge accounting and hedge accounting of net investments in foreign operations, in order to reflect the effect of risk management activities on its consolidated financial statements.

Fair value hedges

On April 1, 2019, the Group started to apply fair value hedge accounting in order to reflect in its consolidated financial statements the effect of risk management activities to mitigate the risk of changes in the fair value of certain fixed rate debt securities in issue and borrowings arising from changes in interest rates. The Group designates interest rate swaps as hedging instruments. Changes in fair values of hedging instruments are recognized in the consolidated income statements, together with changes in fair value of the hedged item attributable to the hedged risk. The fair value changes adjust the carrying amount of the hedged item. If the hedge no longer meets the criteria for hedge accounting for reasons other than the derecognition of the hedged item, the

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adjustment to the carrying amount of the hedged item for which the effective interest method is used is amortized to profit or loss over the period to maturity of the hedged item. When the hedged item is derecognized, the adjustment is recognized immediately in the consolidated income statements.

The Group also applies fair value hedge accounting in order to reflect in its consolidated financial statements the effect of risk management activities to mitigate the risk of changes in fair values of certain equity instruments elected to be measured at FVOCI. The Group designates equity derivatives as hedging instruments. Both the effective portion and ineffective portion of changes in the fair value of the hedging instruments are recognized in other comprehensive income, and amounts presented in other comprehensive income are not subsequently transferred to profit or loss.

Hedges of net investments in foreign operations

The Group applies hedge accounting of net investments in foreign operations in order to reflect in its consolidated financial statements the effect of risk management activities to mitigate the foreign currency risk of exchange differences arising from the translation of net investments in foreign operations. The Group designates currency derivatives and foreign currency denominated financial liabilities as hedging instruments. The effective portion of the gain or loss on the hedging instruments is recognized in other comprehensive income, whereas the ineffective portion of the gain or loss on the hedging instruments is recognized in “Net trading income” in the consolidated income statements. The cumulative gain or loss recognized in other comprehensive income is reclassified to profit or loss on the disposal or partial disposal of foreign operations.

For further information about hedge accounting, see Note 7 “Derivative Financial Instruments and Hedge Accounting—Hedge accounting.”

Interest Rate Benchmark Reform

The Group has elected to early adopt “Interest Rate Benchmark Reform, Amendments to IFRS 9, IAS 39 and IFRS 7” for the fiscal year ended March 31, 2020. The amendments provide reliefs from applying specific hedge accounting requirements to hedging relationships directly affected by the interest rate benchmark reform only if the reform gives rise to uncertainties. The reliefs aim to ensure that the interest rate benchmark reform does not result in the discontinuance of hedge accounting. In accordance with the transition provisions, the amendments have been adopted retrospectively to hedging relationships that existed at the beginning of the reporting period or were designated thereafter. The reliefs adopted by the Group are described below.

- Prospective assessments

The Group has assumed that the interest rate benchmarks on which the hedged risk or the cash flows of the hedging instrument is based are not altered as a result of the interest rate benchmark reform in assessing whether there is an economic relationship between the hedged item and the hedging instrument.

- Hedge of anon-contractually specified benchmark component of an interest rate

The Group has assessed whether anon-contractually specified benchmark component of interest rate risk designated as a hedged item is separately identifiable only at the inception of the hedging relationship.

Offsetting Financial Instruments

Financial assets and liabilities are offset and the net amount is reported in the consolidated statements of financial position, only if the Group currently has a legally enforceable right to set off the recognized amounts and intends to settle on a net basis or to realize the asset and settle the liability simultaneously. In all other situations, they are presented on a gross basis.

Fair Value Measurement

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. In determining the fair value, the Group gives

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the highest priority to a quoted price in an active market for identical assets or liabilities. A market is regarded as active if transactions for the asset or liability take place with sufficient frequency and volume to provide pricing information on an ongoing basis. If there is no active market for the asset or liability, the Group uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure the fair value, maximizing the use of relevant observable inputs and minimizing the use of unobservable inputs. In cases where the Group manages a group of financial assets and financial liabilities on the basis of its net credit risk exposure, the fair value of the group of financial assets and financial liabilities is measured on the basis of the price that would be received to sell a net long position (i.e., an asset) or paid to transfer a net short position (i.e., a liability) for the credit risk exposure provided that certain criteria set forth in IFRS 13 “Fair Value Measurement” are met. Details of fair value measurement are described in Note 43 “Fair Value of Financial Assets and Liabilities.”

Recognition of Deferred Day One Profit and Loss

The best evidence of the fair value of a financial instrument at initial recognition is normally the transaction price (i.e., the fair value of the consideration given or received). However, if the fair value at initial recognition is not evidenced by a quoted price in an active market for an identical asset or liability nor based on a valuation technique that uses only data from observable markets, the difference between the fair value at initial recognition and the transaction price, commonly referred to as “day one profit and loss,” is not recognized as a gain or loss but is adjusted to be deferred.

The Group has certain financial instruments, such as derivatives, hybrid financial instruments and certain loans and advances classified as FVPL where fair value is determined using valuation techniques for which not all inputs are observable in a market. Such a financial instrument is initially recognized at the transaction price which may be different from the fair value, and the day one profit and loss is not recognized as a gain or loss.

The timing of recognition of the deferred day one profit and loss is determined on an instrument by instrument basis. It is either amortized over the life of the transaction, deferred until fair value of the instrument can be determined using data from observable markets, or realized through settlement of the instrument.

Repurchase and Reverse Repurchase Agreements, and Securities Borrowing and Lending Agreements

In the ordinary course of business, the Group lends or sells securities under agreements to repurchase them at a predetermined price on a future date (“repos”). Since substantially all the risks and rewards of ownership are retained by the Group, the securities remain on the consolidated statements of financial position and a liability is recorded in respect of the consideration received. On the other hand, the Group borrows or purchases securities under agreements to resell them at a predetermined price on a future date (“reverse repos”). Since the Group does not retain the risks and rewards of ownership of the financial assets, these transactions are treated as collateralized loans and the securities are not included in the consolidated statements of financial position.

The Group measures repos and reverse repos at amortized cost. The difference between the sale and purchase price is accrued over the life of the transactions. Securities lent to counterparties remain on the consolidated statements of financial position. Securities borrowed are not recognized in the consolidated statements of financial position, unless these are sold to third parties, at which point the obligation to repurchase the securities is measured at fair value and included in “Trading liabilities” in the consolidated statements of financial position and any subsequent gain or loss is included in “Net trading income” in the consolidated income statements.

For the fiscal years ended March 31, 2020 and 2019, there were no transactions pursuant to repurchase agreements, securities lending transactions or other transactions involving the transfer of financial assets with an obligation to repurchase such transferred assets that were treated as sales and hence derecognized for accounting purposes.

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Impairment of Financial Assets

Accounting policies applied from April 1, 2018

IFRS 9 introduces the ECL model for the recognition of impairment losses. The ECL model applies to financial assets measured at amortized cost, and debt instruments at FVOCI, lease receivables, certain loan commitments and financial guarantee contracts. Under the ECL model, an entity is required to account for expected credit losses from initial recognition of financial instruments and to recognize full lifetime expected losses on a timely basis.

Determining significant increase in credit risk

At each reporting date, credit risk on a financial asset is assessed and a loss allowance is measured at an amount equal to the ECL resulting from default events that are possible within the next 12 months, if the credit risk has not increased significantly since initial recognition (“Stage 1”). A loss allowance is measured at an amount equal to the ECL resulting from all possible default events over the expected life of the financial assets which are assessed to have experienced a significant increase in credit risk since initial recognition (“Stage 2”) or the credit-impaired financial assets (“Stage 3”). The expected life of a financial asset is the maximum contractual period over which it is exposed to credit risk. However, for certain revolving facilities including both a loan and an undrawn component, such as retail overdrafts and credit card facilities, the contractual ability to demand repayment and cancel the undrawn commitment does not limit the exposure to credit losses to the contractual notice period. The expected life of these revolving facilities is derived from the behavioral life calculated based on historical data.

Assessments on significant increases in credit risk are performed on an individual financial asset basis. The Group performs ECL recognition and measurement on a collective basis or an individual basis using reasonable and supportable information that is available without undue cost or effort, such as asset type, credit risk ratings, collateral collectability,past-due status and other relevant characteristics of financial instruments.

The Group determines whether there has been a significant increase in credit risk by comparing the risk of a default occurring on a financial instrument at the reporting date with that at the date of initial recognition, based on quantitative and qualitative assessments. As for the quantitative assessment, the Group measures increase of probability of default (“PD”) since initial recognition. If an obligor gets downgraded to a certain degree which reflects an increase of PD exceeding the threshold defined, a significant increase in credit risk is recognized. For example, origination obligor grade getting down by one to four grades is taken as a significant increase in credit risk where PD has increased since initial recognition. Numbers of obligor grade deterioration taken to identify significant increase in credit risk depend on credit quality at origination. The origination obligor grade with lower credit rating takes less downgrades to identify significant increase in credit risk than those with higher credit rating, due to the difference in increase of PD. Refer to Note 45 “Financial Risk Management” for information on obligor grading system of SMBC. As for the qualitative assessment, the Group evaluates credit risk characteristics of financial assets in accordance with the Group’s credit risk management practices. For example, certain financial assets that meet high credit risk criteria are transferred to Stage 2 from Stage 1. Moreover, financial assets whose principal and/or interest payments are more than 30 days past due are transferred to Stage 2. If there is no longer any observation of a significant increase in credit risk, the financial instrument will be transferred to Stage 1.

Determining credit-impaired financial assets

A financial asset is credit-impaired and classified to Stage 3 when one or more events that have a detrimental impact on the estimated future cash flows of that financial asset have occurred. The criteria that the Group uses to determine that a financial asset is credit-impaired include:

• significant financial difficulty of an issuer or a borrower;

• a default or delinquency as more than 90 days past due in interest or principal payments;

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• restructuring of a financial asset by the Group due to the borrower’s financial difficulties;

• indications that a borrower or issuer will enter bankruptcy; and

• the disappearance of an active market for that financial asset because of the borrower’s financial difficulties.

If a financial asset is no longer credit-impaired, it will be transferred to Stage 2 or Stage 1.

The definition of default used for ECL recognition and measurement is consistent with that used for the Group’s internal credit risk management purposes. The Group manages credit risk with an internal credit rating system, which is consisted of the borrower categories to substandard borrowers, potentially bankrupt borrowers, effectively bankrupt borrowers, and bankrupt borrowers defined as default for ECL application (see Note 45 “Financial Risk Management”).

Purchased or originated credit-impaired financial assets (“POCI”) are financial assets considered credit-impaired at the time of initial recognition. They are measured at fair value on initial recognition and therefore no credit loss allowance is initially recognized. Subsequently, lifetime expected credit losses for POCI are measured as the difference between the financial asset’s amortized cost and the present value of future cash flows discounted at the financial asset’s credit-adjusted effective interest rate determined at initial recognition. Moreover, changes in lifetime expected credit losses are recognized as impairment charges.

Measurement of Expected Credit Losses

The Group measures ECL of a financial asset in a way that reflect an unbiased and probability-weighted amount, the time value of money, and reasonable and supportable information that is available at the reporting date about past events, current conditions and forecasts of future economic conditions.

The ECL models have been built by leveraging the PD, loss given default (“LGD”) and exposure at default (“EAD”) used in the Basel III regulatory framework, for instance by adjusting certain conservative factors in those PDs and LGDs. For financial assets at Stage 1 and Stage 2, the Group uses the12-month PDs developed to measure12-month ECL and the lifetime PDs developed to measure lifetime ECL respectively, and considers forward-looking macroeconomic information. For financial assets at Stage 3, the Group applies the discounted cash flow (“DCF”) method for individually significant credit-impaired financial assets. For credit-impaired financial assets that are not individually significant, the Group applies the same formula used for Stage 2 with PD set at 100%. For portfolios where the above ECL models are not applicable, the Group adjusts historical data, such as credit loss experience, with current observable data to reflect the effects of current conditions and forecasts to reflect the possible effect of future conditions.

The DCF method is used to measure the ECL, which is the difference between the financial asset’s carrying amount and the present value of estimated future cash flows discounted at the financial asset’s original effective interest rate. If financial assets have a variable interest rate, the discount rate for measuring any impairment loss is the effective interest rate determined under the contract, for the current period. The estimated future cash flows are individually calculated taking into account factors including historical loss information, the appropriateness of the borrower’s business plan or operational improvement plan, the status of progress of its plan, the overall support from financial institutions, and the realizable value of any collateral held. Cash flows are probability-weighted by reference to different scenarios.

The Group incorporates forward-looking information into the ECL measurement by obligor grading, macroeconomic factors and additional ECL adjustment as appropriate. Obligor-specific forward-looking information is reflected in the obligor grade as a qualitative assessment. Refer to Note 45 “Financial Risk Management” for information on obligor grading system of the Group. To incorporate forward-looking information into the ECL models, the Group introduces an approach based on multiple scenarios. In this

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approach, three scenarios (base, upside and downside scenarios) are modelled to ensure an unbiased ECL calculation. Information considered in the development of the base scenario is aligned with information used for strategic planning, budgeting and risk management of the Group, and includes not only internal information but external information including economic data and forecasts publicly provided by Japanese governmental bodies, research institutes of the private-sector and international organizations conducting economic analysis and projections. The downside scenario is the adverse scenario and based on the stressed business environments such as serious economic recession and financial market disruption. Both the downside scenario and the upside scenario, which is the favorable scenario, are developed based on the premises of the base scenario and the past macroeconomic experiences. The Group has lower weights for the downside scenario and the upside scenario compared with the base scenario. Furthermore, additional ECL adjustment is applied in cases where known or expected risk factors or information have not been specifically considered in the ECL model and thus the ECL does not fully reflect current circumstances, events or conditions at relevant portfolio level.

The Group has identified the key macroeconomic drivers impacting on credit risks and losses in each major portfolio of financial assets and has estimated relationships between those key drivers and credit risks and losses using an analysis of historical data. For domestic and foreign loans to wholesale customers, the key drivers for credit risks and losses are the Japanese and global gross domestic product (“GDP”). For domestic loans to retail customers, the Japanese unemployment rate is applied as the key driver. Outcomes of the analysis are incorporated into PD for ECL recognition and measurement in a probability-weighted way.

ECLs are recognized through loss allowance accounts. Changes in the carrying amount of the loss allowance accounts are recognized as an impairment gain or loss and included in “Impairment charges on financial assets” in the consolidated income statement.

If a financial asset is determined to be uncollectible, it is written off against the related allowance for loan impairment. Uncollectible financial assets are normally written off when there is no reasonable expectation of further recovery after any collateral is foreclosed and the amount of the loss has been determined. Those assets primarily include loans to borrowers that have been legally or formally declared bankrupt and borrowers that may not have been legally or formally declared bankrupt but are essentially bankrupt.

If contractual terms of a loan have been modified, it is required to recalculate the gross carrying amount of that loan and recognize a modification gain or loss in profit or loss. Moreover, it is required to assess whether there has been a significant increase since initial recognition and the Group conducts analysis to monitor the change in credit risk subsequent to modification. However, if the new contractual terms are considered substantially different from the existing contractual terms, a new loan will be recognized at fair value and the existing loan will be derecognized.

Accounting policies applied until March 31, 2018

Loans and advances andheld-to-maturity investments

At the end of each reporting period, the Group assessed whether there was any objective evidence that a financial asset or a group of financial assets was impaired.

A financial asset or a group of financial assets was impaired and impairment losses were incurred only if there was objective evidence of impairment as a result of one or more events that had occurred after the initial recognition of the asset (a “loss event”) and that loss event (or events) had an impact on the estimated future cash flows of the financial asset or group of financial assets that could be reliably estimated.

The criteria that the Group used to determine that there was objective evidence of an impairment loss included:

• significant financial difficulty of an issuer or an obligor;

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• a default or delinquency in interest or principal payments;

• restructuring of a financial asset by the Group due to the borrower’s financial difficulties on terms that the Group would have not otherwise considered;

• indications that a borrower or issuer would enter bankruptcy;

• disappearance of an active market for a security because of the borrower’s financial difficulties; and

• other observable data relating to a group of assets, such as adverse changes in the payment status of borrowers or issuers in the group, or national or local economic conditions that correlated with defaults in the group.

The Group first assessed whether objective evidence of impairment existed individually for financial assets that were individually significant, and individually or collectively for financial assets that were not individually significant. If the Group determined that no objective evidence of impairment existed for an individually assessed financial asset, whether significant or not, it included the asset in a group of financial assets with similar credit risk characteristics and collectively assessed them for impairment. Assets that were individually assessed for impairment and for which an impairment loss was or continued to be recognized were not included in the collective assessment of impairment.

The allowance for individually significant impaired financial assets was measured by DCF method, which was used to calculate the difference between the financial asset’s carrying amount and the present value of estimated future cash flows (excluding future credit losses that had not been incurred) discounted at the financial asset’s original effective interest rate. If financial assets had a variable interest rate, the discount rate for measuring any impairment loss was the effective interest rate determined under the contract, for the current period. The estimated future cash flows were individually calculated taking into account factors including historical loss information, the appropriateness of the borrower’s business plan or operational improvement plan, the status of progress of its plan, the overall support from financial institutions, and the realizable value of any collateral held.

The collective allowance for financial assets was classified into two types: (1) the allowance for impaired financial assets that were not individually significant, and (2) the allowance fornon-impaired financial assets, which reflected incurred but not yet identified (“IBNI”) losses for the period between the impairment occurring and the loss being identified. The collective allowance was estimated by applying historical loss experience to groups of homogenous loans. The historical loss experience data included the number of borrowers for whom objective evidence of impairment had been identified for the most recent rollingone-year period, and the amount ultimately recovered from impaired financial assets. The Group had collected and accumulated historical data on amounts ultimately recovered from impaired financial assets. The homogeneous groups were determined on the basis of similar credit risk characteristics. For every group, the Group’s grading processes were established considering asset type, industry, geographical location, collateral type,past-due status and other relevant characteristics. These characteristics were relevant to the estimation of future cash flows for groups of such assets as being indicative of the debtors’ ability to pay all amounts due according to the contractual terms of the assets being evaluated. Historical loss experience was adjusted on the basis of current observable data, including bankruptcy trends after the occurrence of significant events which had had a negative effect on the global economy and the economies in which a large portion of the Group’s assets were located, to reflect the effects of current conditions that had not affected the period on which the historical loss experience was based and to remove the effects of conditions in the historical period that did not currently exist.

The carrying amount of the asset was reduced by the impairment loss either directly or through the use of an allowance account. Changes in the carrying amount of the allowance account were recognized in the consolidated income statement. If, in a subsequent period, the amount of the impairment loss decreased and the decrease could be related objectively to an event occurring after the impairment had been recognized (such as an improvement in the debtor’s credit rating), the previously recognized impairment loss was reversed by adjusting the allowance account. The amount of the reversal was recognized in “Impairment charges on financial assets” in the consolidated income statement.

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If a financial asset was determined to be uncollectible, it was written off against the related allowance account. Uncollectible financial assets were normally written off when there was no reasonable expectation of further recovery after any collateral was foreclosed and the amount of the loss had been determined. Those assets primarily included loans to borrowers that had been legally or formally declared bankrupt and borrowers that might not have been legally or formally declared bankrupt but were essentially bankrupt.

Loans and advances that would have otherwise been past due or impaired, but whose terms had been renegotiated without providing any financial concessions, were not classified as impaired loans and advances as the terms of the renegotiated loans and advances did not result in a decrease in the net present value of the loan discounted at its original effective interest rate. A collective allowance was estimated for these loans and advances by including them in homogenous groups on the basis of applying the Group’s grading process, taking into account the renegotiation and their consequent higher risk status. These loans and advances were continually assessed for impairment until maturity or derecognition.

In addition, provisions for loan commitments were calculated where it was probable that the Group would incur a loss and recognized in other provisions.

Available-for-sale financial assets

At the end of each reporting period, the Group assessed whether there was objective evidence that a financial asset or a group of financial assets was impaired. In the case of equity instruments classified asavailable-for-sale, a significant or prolonged decline in the fair value of the instruments below cost was also considered in determining whether the assets were impaired. In the case of debt instruments classified asavailable-for-sale, impairment was assessed based on the same criteria as for loans and advances andheld-to-maturity investments. If any objective evidence of impairment existed foravailable-for-sale financial assets, the cumulative loss—measured as the difference between the cost and the current fair value, less any impairment loss on that financial asset previously recognized in profit or loss—was removed from equity and recognized in the consolidated income statement.

Impairment losses recognized in the consolidated income statement on equity instruments classified asavailable-for-sale were not reversed through the consolidated income statement. For debt instruments classified asavailable-for-sale, if the fair value recovered in a subsequent period and it could be objectively associated with an event occurring after the impairment loss had been recognized in the consolidated income statement, the impairment loss was reversed through the consolidated income statement.

Property, Plant and Equipment

All property, plant and equipment are stated at cost less accumulated depreciation and accumulated impairment losses, if any. Additions and subsequent expenditures are capitalized only to the extent that they enhance the future economic benefits expected to be derived from the assets. Repairs and maintenance costs are expensed as incurred.

Land is not depreciated. Depreciation of other assets is calculated using the straight-line method to allocate their cost to their residual values over their estimated useful lives, as follows:

• Buildings: 7–50 years;

• Right of use assets: the shorter of the lease term and the estimated useful life, which is generally 1–20 years; and

• Assets for rent and others: 2–40 years.

The residual values and useful lives are reviewed and adjusted, if appropriate, at the end of each reporting period. Gains and losses on disposal are determined by comparing the proceeds with the carrying amount. These are included in “Other income” and “Other expenses” in the consolidated income statements.

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Intangible Assets

Goodwill

Goodwill represents the excess of the aggregate of the consideration transferred, the amount of anynon-controlling interest and the acquisition-date fair value of the Group’s previously held equity interest in the acquiree over the net of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed, and is initially recognized at the date of acquisition. Goodwill is allocated to cash-generating units for the purpose of impairment testing. A cash-generating unit is the smallest identifiable group of assets that generates cash inflows that are largely independent of cash inflows from other assets or groups of assets. Impairment testing is performed at least annually and whenever there is an indication that the cash-generating unit may be impaired. When the Group disposes of all or part of a cash-generating unit to which goodwill is allocated, the goodwill associated with the cash-generating unit is included in the carrying amount of the cash-generating unit when determining the gain or loss on disposal.

Software

Purchased software is carried at cost less accumulated amortization and accumulated impairment losses, if any.

Expenditure on internally generated software is recognized as an asset if the Group can demonstrate its intention and ability to complete the development and use the software in a manner that will generate future economic benefits and it can reliably measure the costs to complete the development. Internally generated software is carried at capitalized cost less accumulated amortization and accumulated impairment losses, if any. Costs associated with maintaining software are expensed as incurred.

Software is amortized using the straight-line method over the estimated useful life, which is generally 5 to 10 years.

Contractual customer relationships and trademarks

Contractual customer relationships and trademarks acquired in a business combination are recognized at fair value at the acquisition date. Contractual customer relationships and trademarks are carried at cost less accumulated amortization or impairment losses, if any. Contractual customer relationships and trademarks are amortized using the straight-line method over their estimated useful lives, which are generally 10 to 20 years.

Other intangible assets

Other intangible assets primarily consist of leasehold rights. They are recognized only when the Group legally obtains the rights and can reliably measure the fair value. Leasehold rights have an indefinite useful life and they are not amortized but are tested for impairment annually.

Impairment ofNon-Financial Assets

Non-financial assets are reviewed for impairment at the end of each reporting period and whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. If any such indication exists, the asset’s recoverable amount is estimated. An impairment loss is recognized in the consolidated income statements if the asset’s carrying amount is greater than its estimated recoverable amount. The recoverable amount is estimated as the higher of the asset’s fair value less costs to sell and value in use. Value in use is the present value of the future cash flows expected to be derived from the asset. In addition, irrespective of whether there is any indication of impairment, intangible assets that have an indefinite useful life are tested for impairment annually.

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For the purposes of conducting impairment reviews, assets are grouped into cash-generating units to which the assets belong.Non-financial assets other than impaired goodwill are reviewed for possible reversal of the impairment loss at the end of each reporting period. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortization, if no impairment loss had been recognized.

Assets Held for Sale

Non-current assets, or disposal groups comprising assets and liabilities, are classified as held for sale if their carrying amount will be recovered principally through sale rather than through continuing use. In order to be classified as held for sale, the assets or disposal groups must be available for immediate sale in their present condition and their sale must be highly probable. Such assets or disposal groups are generally measured at the lower of their carrying amount and fair value less costs to sell.

Leases

Accounting policies applied from April 1, 2019

The Group assesses whether the contract is, or contains, a lease at the inception of a contract. A lease is a contract that conveys the right to control the use of an identified asset for a period of time in exchange for consideration.

As lessee

At the commencement date, the Group recognizes a lease liability and measures it at the present value of the lease payments that are not paid at that date. The lease payments are discounted using the interest rate implicit in the lease, or the Group’s incremental borrowing rate if the interest rate implicit in the lease cannot be readily determined. After the commencement date, the Group measures the lease liability by increasing the carrying amount to reflect interest on the lease liability and reducing the carrying amount to reflect the lease payments made. The lease liabilities are included in “Borrowings” in the consolidated statement of financial position.

The Group also recognizes a right of use asset and measures it at cost at the commencement date. The cost of the right of use asset comprises the amount of the initial measurement of the lease liability, any lease payments made at or before the commencement date, less any lease incentives received and any initial direct costs incurred.

After the commencement date, the Group measures the right of use asset applying a cost model. The right of use asset is depreciated from the commencement date to the earlier of the end of the useful life of the right of use asset or the end of the lease term. The lease term is determined as thenon-cancellable period of a lease together with both periods covered by an option to extend the lease if the Group is reasonably certain to exercise that option and an option to terminate the lease if the Group is reasonably certain not to exercise that option. The right of use asset is included in “Property, plant and equipment” and “Intangible assets” in the consolidated statement of financial position, and it is presented within the same line item as that within which the corresponding underlying assets would be presented if they were owned.

As lessor

A lease is classified as a finance lease if it transfers substantially all the risks and rewards incidental to ownership of an underlying asset. A lease is classified as an operating lease if it does not transfer substantially all the risks and rewards incidental to ownership of an underlying asset.

When the Group acted as a lessor in an operating lease, the underlying assets were included in “Property, plant and equipment” in the consolidated statements of financial position and were depreciated over their expected useful lives on a basis consistent with similar assets in property, plant and equipment. Lease payment

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from operating leases as income was recognized on a straight-line basis over the lease term and included in “Other income” in the consolidated income statements. Initial direct costs incurred in obtaining an operating lease were added to the carrying amount of the underlying assets and recognized as an expense on a straight-line basis over the lease term.

When the Group was a lessor in a finance lease, the lease receivables were recognized at an amount equal to the net investment in the lease and included in “Loans and advances” in the consolidated statements of financial position. Finance income was recognized over the lease term based on a pattern reflecting a constant periodic rate of return on the net investment in the finance lease and included in “Interest income” in the consolidated income statements.

Sale and leaseback

A sale and leaseback qualifies as a sale if the buyer-lessor obtains control of the underlying asset. The seller-lessee measures a right of use asset arising from the leaseback at the proportion of the previous carrying amount of the asset that relates to the right of use retained. The seller-lessee recognizes only the amount of any gain or loss that relates to the rights transferred to the buyer-lessor. If the fair value of the consideration for the sale of an asset does not equal the fair value of the asset or if the lease payments are not at market rates, the difference is accounted for as either a prepayment of lease payments (if the purchase price is below market terms) or an additional financing (if the purchase price is above market terms) to measure the sale proceeds at fair value.

Accounting policies applied until March 31, 2019

As lessee

A lease agreement in which the lessor did not transfer to the lessee substantially all the risks and rewards of ownership of assets was classified as an operating lease. The leases entered into by the Group as a lessee were primarily operating leases. Operating lease payments, net of lease incentives received from the lessor, were recognized in the consolidated income statements on a straight-line basis over the lease term.

A lease agreement in which the lessor transferred to the lessee substantially all the risks and rewards of ownership of assets, with or without ultimate legal title, was classified as a finance lease. For finance leases, the Group initially recognized the leased asset at the lower of the fair value of the asset or the present value of the minimum lease payments. Subsequent to initial recognition, assets were accounted for in accordance with the accounting policy applicable to those assets. The corresponding liability to the lessor was recognized as a lease obligation within “Borrowings” in the consolidated statements of financial position. Interest expense was recognized over the term of the lease based on the interest rate implicit in the lease so as to give a constant rate of interest on the remaining balance of the liability.

As lessor

When the Group acted as a lessor in an operating lease, the assets for rent were included in “Property, plant and equipment” in the consolidated statements of financial position and were depreciated over their expected useful lives on a basis consistent with similar assets in property, plant and equipment. Income from operating leases (net of any incentives given to the lessee) was recognized on a straight-line basis over the lease term and included in “Other income” in the consolidated income statements. Initial direct costs incurred in negotiating and arranging an operating lease were added to the carrying amount of the leased assets and recognized as an expense on a straight-line basis over the lease term.

When the Group was a lessor in a finance lease, the leased assets were derecognized and the present value of the future lease payments was recognized as a lease receivable within “Loans and advances” in the consolidated statements of financial position. The difference between the gross receivables, i.e., undiscounted

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future cash flows, and the present value of the receivables was recognized as unearned finance income. Finance income was recognized over the lease term based on a pattern reflecting a constant periodic rate of return on the net investment in the finance lease.

Sale and leaseback

For sale and leaseback transactions leading to an operating lease, and the transaction took place at fair value, any profit or loss was recognized immediately. If the sale price was at or below fair value, any profit or loss was recognized immediately. However, if the loss was compensated for by future rentals at a below market price, the loss was deferred and amortized over the period that the asset was expected to be used. If the sale price was above fair value, any profit was deferred and amortized over the useful life of the asset. If the fair value of the asset was less than the carrying value of the asset at the date of transaction, that difference was recognized immediately as a loss on the sale.

Cash and Cash Equivalents

For the purposes of the consolidated statements of cash flows, cash and cash equivalents include cash on hand, demand deposits, and other short-term highly liquid financial assets with original maturities of three months or less, which are subject to insignificant risk of changes in their fair value.

Provisions

A provision is recognized if, as a result of a past event, the Group has a present legal or constructive obligation that can be estimated reliably and it is probable that an outflow of economic benefits will be required to settle the obligation. Provisions are determined by discounting the expected future cash flows at apre-tax rate that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the liability.

Financial Guarantee Contracts

Financial guarantee contracts are contracts that require the issuer to make specified payments to reimburse the holder for a loss it incurs when a specified debtor fails to make payments due in accordance with the original or modified terms of a debt instrument. Such financial guarantees are given to banks, financial institutions and other bodies on behalf of customers to secure loans, overdrafts and other banking facilities. Financial guarantees are initially recognized at fair value on the date the guarantee is given.

Accounting policies applied from April 1, 2018

Financial guarantees are subsequently measured at the higher of the loss allowance and the amount initially recognized less the cumulative income recognized at the reporting date, and is included in “Other liabilities” in the consolidated statements of financial position. Any change in the loss allowance relating to financial guarantee contracts is included in “Impairment charges on financial assets” in the consolidated income statements.

Accounting policies applied until March 31, 2018

Financial guarantees were subsequently measured at the higher of the initial measurement, less amortization calculated to recognize in the consolidated income statements the fee income earned over the guarantee period, and the best estimate of the expenditure required to settle any financial obligation arising at the end of the reporting period. Any increase in the liability relating to financial guarantee contracts was included in “Other expenses” in the consolidated income statements.

Employee Benefits

The Group operates various retirement benefit plans and other employee benefit plans.

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Retirement benefits

The Group has defined benefit plans, such as defined benefit pension plans andlump-sum severance indemnity plans, and defined contribution plans.

Defined benefit plans

The liabilities and the assets recognized in the consolidated statements of financial position in respect of defined benefit plans are the present value of the defined benefit obligation less the fair value of plan assets.

The present value of the defined benefit obligation is calculated annually by qualified actuaries. In calculating the present value of the defined benefit obligations, the related current service cost, and past service cost, the Group attributes the retirement benefits to years of service under the benefit formula. The present value of the defined benefit obligation is determined by discounting the estimated future cash outflows using market yields of AA credit-rated corporate bonds that have terms to maturity approximating those of the related obligations. In cases where there is no deep market in corporate bonds with a sufficiently long maturity to match the estimated maturity of the benefit payments, the Group uses current market rates of the appropriate term to discount shorter term payments and estimates the discount rates for longer maturities by extrapolating current market rates along the yield curve.

Actuarial gains and losses arising from experience adjustments and changes in actuarial assumptions in the year, and return on plan assets excluding interest income are recognized in other comprehensive income and are never reclassified to profit or loss.

Past service costs are recognized immediately in the consolidated income statements.

When the calculations above result in a benefit to the Group, the recognized asset is limited to the present value of any economic benefits available in the form of any refunds from the plan or reductions in future contributions to the plan. An economic benefit is available to the Group if it is realizable during the life of the plan or on settlement of the plan obligations.

Defined contribution plans

Contributions to defined contribution plans are recognized as an expense in the consolidated income statements when they are due.

Other long-term employee benefits

The Group’s net obligation with respect to long-term employee benefits other than retirement benefits is the amount of future benefit that employees have earned in return for their service in the current and prior periods; that benefit is discounted to determine its present value and the fair value of any related assets is deducted. The discount rates are market yields of AA credit-rated corporate bonds that have terms to maturity approximating those of the related obligations. The calculation of obligations is performed using the projected unit credit method. Any actuarial gains or losses and past service costs are recognized in the consolidated income statements in the period in which they arise.

Short-term employee benefits

Short-term employee benefits, such as salaries, paid absences and other benefits are accounted for on an accrual basis over the period in which employees have provided services. Bonuses are recognized to the extent that the Group has a present obligation to its employees that can be measured reliably.

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Income Tax

Income tax expense comprises current and deferred taxes. Income tax expense is recognized in the consolidated income statements except for that related to items recognized directly in equity. In such case, the income tax expense is recognized in equity.

Current tax is the expected tax payable or receivable on the taxable profit or loss for the fiscal year.

Deferred taxes are recognized, using the balance sheet liability method, for temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. Deferred taxes are determined using tax rates (and laws) that have been enacted or substantially enacted by the end of the reporting period and are expected to apply when the related deferred tax assets are realized or the deferred tax liabilities are settled.

Deferred tax assets principally arise from tax losses carried forward, impairment of investment securities and loans, and the allowance for loan losses.

Deferred taxes are not recognized for the following temporary differences: (a) the initial recognition of goodwill; (b) the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable profit or loss; and (c) the temporary differences associated with investments in subsidiaries, associates, and joint ventures, when the parent investor is able to control the timing of the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future.

Deferred tax assets relating to tax losses carried forward and deductible temporary differences are recognized, only to the extent that it is probable that future taxable profit will be available against which the tax losses carried forward and the deductible temporary differences can be utilized.

Debt and equity securities in issue

On initial recognition, financial instruments issued by the Group are classified in accordance with the substance of the contractual agreement as financial liabilities where the contractual arrangement results in the Group having an obligation to either deliver cash or another financial asset to the holder, or to satisfy the obligation other than by delivering a fixed number of equity shares in exchange for a fixed amount of cash or another financial asset. The instruments or their components are classified as equity where they do not meet the definition of a liability and show evidence of a residual interest in the entity’s assets after deducting all of its liabilities. Compound financial instruments that contain both liability and equity elements are accounted for separately with the equity component being assigned the residual amount after deducting from the entire value of the compound financial instrument the fair value of the liability component which has been determined separately.

Shareholders’ Equity

Stock issuance costs

Incremental costs directly attributable to the issuance of new shares or options including those issued as a result of a business combination transaction are deducted from the proceeds and shown in equity, net of tax.

Dividends on common stock and preferred stock

Dividends on common stock and preferred stock are recognized in equity in the period in which they are approved by the shareholders. Dividends for the fiscal year that are declared after the reporting period are described in Note 40 “Dividends Per Share.”

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Treasury stock

Where the Company or any other member of the Group companies purchase the Company’s common or preferred stock, the consideration paid is deducted from equity as treasury stock until they are cancelled or sold. No gain or loss is recognized on the purchase, sale, or cancellation of the Company’s own equity instruments and the consideration paid or received is recognized in equity.

Interest Income and Expense

Interest income and expense for all financial instruments, except for those classified as financial assets at fair value through profit or loss, are recognized in “Interest income” and “Interest expense” in the consolidated income statements using the effective interest method.

The effective interest method is a method of calculating the amortized cost of a financial asset or a financial liability and of allocating the interest income or interest expense over the relevant period.

The effective interest rate is the rate that discounts the estimated future cash payments or receipts through the expected life of the financial instrument or, when appropriate, a shorter period to the gross carrying amount of a financial asset or to the amortised cost of a financial liability. When calculating the effective interest rate, the Group estimates cash flows, considering the contractual terms of the financial instrument but not including ECL. The calculation includes fees and points paid or received between parties to the contract that are an integral part of the effective interest rate of the financial instrument, transaction costs and other premiums or discounts.

The effective interest method is used for calculating interest income by applying the effective interest rate to the gross carrying amount of a financial asset. However, for credit-impaired financial assets subsequent to initial recognition, interest income is calculated by applying the effective interest rate to the amortized cost of the financial assets.

Fee and Commission Income

Accounting policies applied from April 1, 2018

The Group recognizes fee and commission income in accordance with the five-step model. This model requires the Group to (i) identify the contract with a customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, (iv) allocate the transaction price to the performance obligations in the contract and (v) recognize revenue when (or as) the entity satisfies a performance obligation.

Fee and commission income arises from a diverse range of services that the Group provides to its customers. Fee and commission income can be divided into two categories: fee and commission income from transaction services which is recognized at the point in time when the transaction takes place, and fee and commission income from services which is recognized over the time as the services are provided. Fee and commission income from transaction services includes fees on credit card business, fees and commissions on the securities business, underwriting fees, brokerage fees, investment trusts sales commissions, fees on funds transfer and collection services, loan syndication fees for arranging a loan and fee and commission income from other services. Fee and commission income from services that are provided over a period of time includes fiduciary fees, investment fund management fees, loan commitments fees from which specific lending is unlikely to be drawn down and fee and commission income from other services.

Accounting policies applied until March 31, 2018

Fee and commission income includes fee and commission income arising from a diverse range of services that the Group provides to its customers. Fee and commission income can be divided into two categories: fee and commission income from providing transaction services, and fee and commission income earned from services

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that are provided over a certain period of time. Fee and commission income earned from providing transaction services is recognized when the service has been completed or the event has occurred. This fee and commission income includes fees on funds transfer and collection services, service charges from deposit accounts, fees and commissions on the securities business, underwriting fees, brokerage fees, and fee and commission income from other services. Fee and commission income earned from services over a period of time is recognized over that service period. This fee and commission income includes fees on credit-related businesses, investment fund businesses, and fee and commission income from other services. Loan commitment fees, together with the related direct cost, for loans that are likely to be drawn down are deferred and recognized as an adjustment to the effective interest rate on the loan. Loan commitment fees are recognized over the term of the commitment period when it is unlikely that a loan will be drawn down.

Net Trading Income

Net trading income consists of margins made on market-making and customer business, as well as changes in fair value of trading assets and liabilities and derivative financial instruments, caused by movements in interest rates, exchange rates, equity prices and other market variables. It also includes net interest and dividend income on trading assets and liabilities.

Net Income (Loss) from Financial Assets at Fair Value through Profit or Loss

Net income (loss) from financial assets at fair value through profit or loss includes all gains and losses arising from changes in the fair value of financial assets mandatorily measured at FVPL other than trading assets and derivative financial instruments, disposal of such assets, and interest and dividend income on these financial assets.

Net Investment Income

Accounting policies applied from April 1, 2018

Net investment income includes gains and losses on the disposal of debt instruments measured at fair value through other comprehensive income, and dividend income from equity instruments measured at fair value through other comprehensive income.

Accounting policies applied until March 31, 2018

Net investment income included gains and losses on the disposal ofavailable-for-sale financial assets, and dividends fromavailable-for-sale equity instruments.

Earnings Per Share

The Group presents basic and diluted earnings per share (“EPS”) data for its common stock. Basic EPS is calculated by dividing the profit or loss attributable to common shareholders of the Group by the weighted average number of common stock outstanding during the period. Diluted EPS is determined by adjusting the profit or loss attributable to common shareholders and the weighted average number of common stock outstanding for the effects of all dilutive potential common stock including share options and other convertible instruments.

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Recent Accounting Pronouncements

The Group is currently assessing the impact of the following standards, amendments to standards, and interpretations that are not yet effective and have not been early adopted:

Sale or Contribution of Assets between an Investor and its Associate or Joint Venture (Amendments to IFRS 10 and IAS 28)

In September 2014, the IASB issued the narrow-scope amendments to IFRS 10 and IAS 28 “Investments in Associates and Joint Ventures” to address an acknowledged inconsistency between the requirements in IFRS 10 and those in IAS 28, in dealing with the sale or contribution of assets between an investor and its associate or joint venture. The effective date of applying the amendments was January 1, 2016 when they were originally issued, however, in December 2015, the IASB issuedEffective Date of Amendments to IFRS 10 and IAS 28 to remove the effective date and indicated that a new effective date will be determined at a future date when it has finalized revisions, if any, that result from its research project on the equity accounting. The Group is currently evaluating the potential impact that the adoption of the amendments will have on its consolidated financial statements.

Definition of a Business (Amendments to IFRS 3)

In October 2018, the IASB issued amendments to IFRS 3 “Business Combinations” to clarify the definition of a business, with the objective of assisting entities to determine whether a transaction should be accounted for as a business combination or as an asset acquisition. The amended definition emphasizes that the output of a business is to provide goods and services to customers, whereas the previous definition focused on returns in the form of dividends, lower costs or other economic benefits to investors and others. The amendments are effective for annual periods beginning on or after January 1, 2020 and are not expected to have a material impact on the Group’s consolidated financial statements.

Definition of Material (Amendments to IAS 1 and IAS 8)

In October 2018, the IASB issued amendments to IAS 1 “Presentation of Financial Statements” and IAS 8 “Accounting Policies, Changes in Accounting Estimates and Errors” to clarify the definition of material and how it should be applied by including in the definition guidance that had featured elsewhere in IFRS. The updated definition of material makes it easier for entities to decide whether information should be included in their financial statements. The amendments are effective for annual periods beginning on or after January 1, 2020.

Covid-19-Related Rent Concessions (Amendment to IFRS 16)

In May 2020, the IASB issued an amendment to IFRS 16 to make it easier for lessees to account forcovid-19-related rent concessions such as rent holidays and temporary rent reductions. The amendment exempts lessees to assess whether rent concessions occurring as a direct consequence of the covid-19 pandemic are lease modifications and allows lessees to account for such rent concessions as if they were not lease modifications. The amendment is effective for annual periods beginning on or after June 1, 2020 and is not expected to have a material impact on the Group’s consolidated financial statements.

Classification of Liabilities as Current orNon-current (Amendments to IAS 1)

In January 2020, the IASB issued narrow-scope amendments to IAS 1 to clarify how to classify debt and other liabilities as current ornon-current. The amendments make it easier for entities to determine whether, in the statement of financial position, debt and other liabilities with an uncertain settlement date should be classified as current ornon-current. Although the amendments have not been issued yet, the IASB has proposed to defer the mandatory application date to January 1, 2023. The Group is currently evaluating the potential impact that the adoption of the standard will have on its consolidated financial statements.

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Reference to the Conceptual Framework (Amendments to IFRS 3)

In May 2020, the IASB issued narrow-scope amendments to IFRS 3 to update a reference in IFRS 3 to the “Conceptual Framework for Financial Reporting” without changing the accounting requirements for business combinations. The amendments are effective for annual periods beginning on or after January l, 2022. The Group is currently evaluating the potential impact that the adoption of the amendments will have on its consolidated financial statements.

Property, Plant and Equipment: Proceeds before Intended Use (Amendments to IAS 16)

In May 2020, the IASB issued narrow-scope amendments to IAS 16 “Property, Plant and Equipment.” The amendments prohibit an entity from deducting from the cost of property, plant and equipment amounts received from selling items produced while the entity is preparing the asset for its intended use. Instead, an entity will recognize such sales proceeds and related cost in profit or loss. The amendments are effective for annual periods beginning on or after January l, 2022. The Group is currently evaluating the potential impact that the adoption of the amendments will have on its consolidated financial statements.

Onerous Contracts: Cost of Fulfilling a Contract (Amendments to IAS 37)

In May 2020, the IASB issued narrow-scope amendments to IAS 37 “Provisions, Contingent Liabilities and Contingent Assets” to specify which costs an entity includes when assessing whether a contract will beloss-making. The amendments are effective for annual periods beginning on or after January l, 2022. The Group is currently evaluating the potential impact that the adoption of the amendments will have on its consolidated financial statements.

Annual Improvements to IFRSs 2018–2020

In May 2020, the IASB issued Annual Improvements to IFRSs 2018-2020, which is amendments to IFRS 1 “First-time Adoption of International Financial Reporting Standards,” IFRS 9. IAS 41 “Agriculture” and the “Illustrative Examples” accompanying IFRS 16. These are minor amendments that clarify, simplify or remove redundant wordings in the standards. The amendments are effective for annual periods beginning on or after January l, 2022. The Group is currently evaluating the potential impact that the adoption of the amendments will have on its consolidated financial statements.

IFRS 17 “Insurance Contracts”

In May 2017, the IASB published IFRS 17 “Insurance Contracts,” which establishes principles for the recognition, measurement, presentation and disclosure of insurance contracts, replacing IFRS 4 “Insurance Contracts.” IFRS 4 provided entities dispensation to carry on accounting for insurance contracts using national accounting standards, resulting in a multitude of different approaches. IFRS 17 requires all insurance contracts to be accounted for in a consistent manner. Insurance obligations will be accounted for by using present values instead of historical cost. The standard is currently effective for annual periods beginning on or after January 1, 2021. Although the amendments have not been issued yet, the IASB has decided to defer the mandatory application date to January 1, 2023. The Group is currently evaluating the potential impact that the adoption of the standard will have on its consolidated financial statements.

3 CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS

The consolidated financial statements are influenced by estimates and management judgment, which necessarily have to be made in the course of preparation of the consolidated financial statements. Estimates and judgments are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances, and which are continually evaluated.

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Allowance for Loan Losses

The allowance for loan losses is measured under the ECL model which requires the use of complex models and significant assumptions about future economic conditions and credit behavior. A number of significant judgments are also required in applying the accounting requirements for measuring ECL, such as:

• qualitative assessment in determining obligor grades;

• determining criteria for a significant increase in credit risk since initial recognition;

• measuring ECL by choosing appropriate models and assumptions;

• incorporating forward-looking information into the ECL measurement by obligor grading, macroeconomic factors, and additional ECL adjustments if the current circumstances, events or conditions at relevant portfolio level are not fully reflected in the ECL model; and

• estimating the expected future cash flows by taking into account factors such as historical loss information, the appropriateness of the borrower’s business plan or operational improvement plan, the status of progress of its plan, the overall support from financial institutions, and the realizable value of any collateral held.

For the fiscal year ended March 31, 2020, the obligor grading, macroeconomic factors and additional ECL adjustment used to determine the final ECL reflected the current and forward-looking impact of the COVID-19 pandemic. The obligor grades were reviewed based on the most recent information available as appropriate. The estimates of the key macroeconomic drivers for measuring the ECL were updated reflecting the recent economic forecasts. Growth rates of Japanese and global GDP during the calendar year 2019 were 1.3% and 2.9%, respectively, and the Japanese and global economy may have been expected to grow at about the same level if it had not been for the COVID-19 pandemic. However, the outbreak of COVID-19 significantly exacerbated Japanese and global economic conditions towards the end of the fiscal year and, as a result, research institutes and international institutions lowered their forecasts of growth rates of Japanese and global GDP. The Group also assumed that the Japanese and global economy will decline significantly in the first half of 2020, and the negative impact of the COVID-19 pandemic is expected to remain throughout the fiscal year ending March 31, 2021, although the Japanese and global economy will gradually pick up thereafter and recover from the fiscal year ending March 31, 2022. The Group understands there is significant uncertainty in predicting the severity and duration of the COVID-19 pandemic and its impact on world economies. However, based on the above forecasts of economic conditions, the growth rates of Japanese and global GDP for the fiscal year ending March 31, 2021, which are the key macroeconomic drivers impacting on credit risks and losses, are expected to be around minus 2% to minus 3% and those were used in estimating the ECL. Furthermore, the Group considered the credit risk of some portfolios on which the decline in market prices such as oil prices would have a material adverse impact but where the impact was not fully incorporated in the ECL model. Given the decline in oil prices toward the end of the fiscal year, the Group evaluated the forward-looking impact on credit risks and losses of the portfolios significantly affected by the decline, and made an additional ECL adjustment. As a result of these evaluations of the forward-looking inputs for the ECL, the provision for loan losses for the fiscal year ended March 31, 2020 increased by ¥124.3 billion.

Management estimates and judgments may change from time to time as the economic environment changes or new information becomes available. Changes in these estimates and judgments will result in a different allowance for loan losses and may have a direct impact on impairment charges.

Allowance for loan losses amounting to ¥706,405 million and ¥604,988 million were recognized for the fiscal years ended March 31, 2020 and 2019, respectively. For additional information, refer to Note 10 “Loans and Advances.”

Fair Value of Financial Instruments

The fair values of financial instruments where no active market exists or where quoted prices are not otherwise available are determined by using valuation techniques. In these cases, inputs to valuation techniques

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are based on observable data with respect to similar financial instruments or by using models. Where observable inputs are not available, the fair value is estimated based on appropriate assumptions that a market participant would take into account. Where valuation techniques (for example, models) are used to determine fair values, they are validated and periodically reviewed. The Group certifies significant valuation models before they are used, and calibrates them to ensure that outputs reflect actual data and comparative market prices. To the extent practical, models use only observable data; however, inputs such as credit risk (both own and counterparty), volatilities and correlations require management to make estimates. Changes in assumptions about these factors could affect the fair values of these financial instruments. More details about the Group’s valuation techniques, significant unobservable inputs used in determining fair values and sensitivity analyses are given in Note 43 “Fair Value of Financial Assets and Liabilities.”

Impairment of Intangible Assets

Impairment of goodwill

Goodwill is tested for impairment on an annual basis or more frequently if events or changes in circumstances indicate that it may not be recoverable. If any such indication exists, then its recoverable amount is estimated. The process to determine the recoverable amount is inherently uncertain because such recoverable amount is determined based on a number of management estimates and judgments. The Group determines the recoverable amount using the estimated future cash flows,pre-tax discount rates, growth rates, and other factors. The estimation of future cash flows inherently reflects management judgments, even though such forecasts are prepared taking into account actual performance and external economic data. Thepre-tax discount rates and growth rates may be significantly affected by market interest rates or other market conditions, which are beyond management’s control, and therefore significant management judgments are made to determine these assumptions. These management judgments are made based on the facts and circumstances at the time of the impairment test, and may vary depending on the situation and the time. Changes in management judgments may result in different impairment test results and different impairment amounts recognized. For the fiscal years ended March 31, 2020, 2019 and 2018, impairment losses on goodwill were nil, ¥62,624 million and ¥28,607 million, respectively. For additional information, refer to Note 14 “Intangible Assets.”

Impairment of other intangible assets

The Group has other intangible assets, not including goodwill, which consist of software, contractual customer relationships, trademarks and others. These are divided into other amortizing intangible assets and othernon-amortizing intangible assets. Other amortizing intangible assets are tested for impairment if events or changes in circumstances indicate that it may not be recoverable at the end of each reporting period. Othernon-amortizing intangible assets are tested for impairment on an annual basis or more frequently if events or changes in circumstances indicate that it may not be recoverable. If any such indication exists, then its recoverable amount is estimated. The process to determine the recoverable amount is inherently uncertain because such recoverable amount is determined based on a number of management estimates and judgments as described in “—Impairment of goodwill.” Changes in management judgments may result in different impairment test results and different impairment amounts recognized. For the fiscal years ended March 31, 2020, 2019 and 2018, impairment losses on other intangible assets were ¥28,689 million, ¥4,041 million and ¥7,059 million, respectively. For additional information, refer to Note 14 “Intangible Assets.”

Provision for Interest Repayment

Provision for interest repayment represents management’s estimate of future claims for the refund ofso-called “gray zone interest” (interest on loans in excess of the maximum rate prescribed by the Interest Rate Restriction Act (ranging from 15% to 20%) up to the 29.2% maximum rate permitted under the Act Regulating the Receipt of Contributions, Receipt of Deposits and Interest Rates), taking into account historical experience such as the number of customer claims for a refund, the amount of repayments and the characteristics of customers, and the length of the period during which claims are expected to be received in the future.

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Management estimates and judgments may change from time to time as the legal environment and market conditions change or new information becomes available. Changes in these estimates and judgments could affect the balance of provision for interest repayment. Provision for interest repayment is recorded in provisions as a liability, and it totaled ¥143,429 million and ¥148,409 million at March 31, 2020 and 2019, respectively. For additional information, refer to Note 20 “Provisions.”

Retirement Benefits

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

The difference between the fair value of the plan assets and the present value of the defined benefit obligation at the end of the reporting period is recognized as assets and liabilities in the consolidated statements of financial position. When this calculation for each plan results in a benefit to the Group, the recognized asset is limited to the present value of any economic benefits available in the form of refunds from the plan or reductions in future contributions to the plan. An economic benefit is available to the Group, if it is realizable during the life of the plan or on settlement of the plan obligation. The net total of assets and liabilities in the consolidated statements of financial position amounted to net assets of ¥129,976 million and ¥232,456 million at March 31, 2020 and 2019, respectively. For additional information, refer to Note 23 “Retirement Benefits.”

Deferred Tax Assets

Deferred tax assets relating to tax losses carried forward and deductible temporary differences are recognized, only to the extent that it is probable that future taxable profit will be available against which the tax losses carried forward and the deductible temporary differences can be utilized. This assessment requires significant management estimates and judgments. Future taxable profit is estimated based on, among other relevant factors, forecasted results of operations, which are based on historical financial performance and the business plans that management believes to be prudent and feasible. While the Group carefully assesses the realization of tax losses carried forward and deductible temporary differences, the actual taxable profit in the future may be less than the forecast. The deferred tax assets amounted to ¥102,198 million and ¥37,073 million in the consolidated statements of financial position at March 31, 2020 and 2019, respectively, while the net total of deferred tax assets and liabilities amounted to net assets of ¥36,015 million at March 31, 2020 and net liabilities of ¥230,292 million at March 31, 2019, respectively. For additional information, refer to Note 22 “Deferred Income Tax.”

Critical accounting estimates and judgments applied until March 31, 2018

Allowance for Loan Losses

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

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The allowance for loan losses for individually significant impaired loans is estimated by management based on the expected future cash flows, taking into account factors such as historical loss information, the appropriateness of the borrower’s business plan or operational improvement plan, the status of progress of its plan, the overall support from financial institutions, and the realizable value of any collateral held. The allowance for loan losses for the remaining loans is collectively estimated by grouping financial assets into portfolios on the basis of similar credit risk characteristics and using the historical loss experience for these portfolios adjusted for the effect of the current economic environment. To assess the losses on the loan portfolios where loss events have occurred but not yet been identified, management develops assumptions and methodologies to estimate the loss identification period.

Impairment ofAvailable-for-sale Financial Assets

Available-for-sale financial assets are impaired if there is objective evidence of impairment as a result of loss events. The Group exercises judgment in determining whether there is objective evidence of occurrence of loss events, which result in a decrease in estimated future cash flows of the financial assets. The estimation of future cash flows also requires judgment. In the assessment of impairment ofavailable-for-sale equity instruments, the Group also considers whether there has been a significant or prolonged decline in fair value below their cost. The determination of what is a significant or prolonged decline requires management judgment.

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

4 SEGMENT ANALYSIS

Business Segments

The Group’s business segment information is prepared based on the internal reporting system utilized by management to assess the performance of its business segments.

The Group has four main business segments: the Wholesale Business Unit, the Retail Business Unit, the International Business Unit and the Global Markets Business Unit, with the remaining operations recorded in Head office account and others.

Wholesale Business Unit

The Wholesale Business Unit provides financing, investment management, risk hedging, and settlement services as well as financial solutions that respond to wide-ranging client needs in relation to M&A and other advisory services and leasing, primarily forlarge-andmid-sized corporate clients in Japan. This business unit mainly consists of the wholesale businesses of SMBC, SMBC Trust Bank Ltd. (“SMBC Trust Bank”), Sumitomo Mitsui Finance and Leasing Company, Limited (“SMFL”) and SMBC Nikko Securities Inc. (“SMBC Nikko Securities”).

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 business of SMBC, SMBC Trust Bank and SMBC Nikko Securities together with three consumer finance companies, Sumitomo Mitsui Card Company, Limited, Cedyna Financial Corporation and SMBC Consumer Finance Co., Ltd. This business unit offers a wide range of products and services for consumers, including wealth management, settlement services, consumer finance and housing loans, in order to address the financial needs of all individual customers. Forsmall-sized companies, this business unit provides a wide array of financial products and services to comprehensively address business owners’ needs as both corporate managers and individuals such as business and asset succession.

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International Business Unit

The International Business Unit supports the global businesses of a diverse range of clients, such as Japanese companies operating overseas,non-Japanese companies, financial institutions, and government agencies and public corporations of various countries. This business unit 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, global cash management services, leasing and securities business such as underwriting activities. This business unit mainly consists of the international businesses of SMBC, SMBC Trust Bank, SMFL, SMBC Nikko Securities and their foreign subsidiaries.

Global Markets Business Unit

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

Head office account and others

The Head office account and others represent the difference between the aggregate of the Wholesale Business Unit, the Retail Business Unit, the International Business Unit and the Global Markets Business Unit, and the Group as a whole. It mainly consists of administrative expenses related to headquarters operations and profit or loss from other subsidiaries including The Japan Research Institute, Limited and Sumitomo Mitsui DS Asset Management Company, Limited, which was formed through the merger of Sumitomo Mitsui Asset Management Company, Limited and Daiwa SB Investments Ltd., on April 1, 2019. It also includes internal transactions between the Group companies, which are eliminated in the consolidated financial statements.

Measurement of Segment Profit or Loss

The business segment information is prepared under the management approach. Consolidated net business profit is used as a profit indicator of banks in Japan. Consolidated net business profit of each segment is calculated by deducting general and administrative expenses (i.e., the total of personnel expense,non-personnel expense and tax), and by adding or deducting others (i.e., share of profit or loss of equity-method associates and joint ventures and cooperated profit and loss based on internal managerial accounting) to or from consolidated gross profits (i.e., the total of net interest income, trust fees, net fee and commission income, net trading income and net other operating income). The consolidated gross profits and general and administrative expenses of each segment are prepared for management accounting purposes and not generated solely by aggregating figures prepared under financial accounting. While the Group’s disclosure complies with the requirements on segment information in accordance with IFRS, the figures reported to management and disclosed herein are prepared under accounting principles generally accepted in Japan (“Japanese GAAP”). Consequently, the business segment information does not agree with the figures in the consolidated financial statements under IFRS. These differences are addressed in the “Reconciliation of Segmental Results of Operations to Consolidated Income Statements.”

Information regarding the total assets of each segment is not used by management in deciding how to allocate resources and assess performance. Accordingly, total assets are not included in the business segment information.

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Segmental Results of Operations

For the fiscal year ended March 31, 2020:

	Wholesale Business Unit			Retail Business Unit			International Business Unit			Global Markets Business Unit			Head office account and others			Total
	(In billions)
Consolidated gross profit(1)	¥	641.5		¥	1,257.7		¥	667.1		¥	421.6		¥	(219.3	)	¥	2,768.6
General and administrative expenses		(284.4	)		(1,025.2	)		(350.6	)		(56.2	)		(23.2	)		(1,739.6	)
Others(2)		52.1			2.0			54.7			33.4			(86.2	)		56.0
Consolidated net business profit	¥	409.2		¥	234.5		¥	371.2		¥	398.8		¥	(328.7	)	¥	1,085.0
For the fiscal year ended March 31, 2019:
	Wholesale Business Unit(3)			Retail Business Unit			International Business Unit(3)			Global Markets Business Unit			Head office account and others(3)			Total
	(In billions)
Consolidated gross profit(1)	¥	784.9		¥	1,281.6		¥	689.6		¥	333.6		¥	(243.5	)	¥	2,846.2
General and administrative expenses		(345.1	)		(1,021.4	)		(333.4	)		(54.2	)		39.0			(1,715.1	)
Others(2)		45.1			14.4			38.9			19.1			(56.3	)		61.2
Consolidated net business profit	¥	484.9		¥	274.6		¥	395.1		¥	298.5		¥	(260.8	)	¥	1,192.3
For the fiscal year ended March 31, 2018:
	Wholesale Business Unit			Retail Business Unit			International Business Unit			Global Markets Business Unit			Head office account and others			Total
	(In billions)
Consolidated gross profit(1)	¥	772.9		¥	1,311.7		¥	632.0		¥	356.2		¥	(91.7	)	¥	2,981.1
General and administrative expenses		(347.9	)		(1,027.7	)		(280.7	)		(53.9	)		(106.0	)		(1,816.2	)
Others(2)		53.7			15.6			46.9			17.5			(94.8	)		38.9
	��
Consolidated net business profit	¥	478.7		¥	299.6		¥	398.2		¥	319.8		¥	(292.5	)	¥	1,203.8

(1) Consolidated gross profit = (Interest income – Interest expenses) + Trust fees + (Fee and commission income – Fee and commission expenses) + (Trading income – Trading losses) + (Other operating income – Other operating expenses).

(2) “Others” includes share of profit or loss of equity-method associates and joint ventures and cooperated profit and loss, that is, profit and loss double-accounted for in the managerial accounting.

(3) Sumitomo Mitsui Finance and Leasing Company, Limited (“SMFL”) became a joint venture from a consolidated subsidiary of the Group on November 28, 2018. However, for managerial accounting purposes, the full year results of SMFL were included in those of the Wholesale Business Unit and the International Business Unit, while its results after it became a joint venture of the Group were deducted from those of Head office account and others. For consistency with financial results, the Group’s share of the profit of SMFL as our joint venture recognized in the consolidated income statement was included in others in the Head office account and others.

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Reconciliation of Segmental Results of Operations to Consolidated Income Statements

The figures provided in the tables above are calculated by aggregating the figures used for management reporting under Japanese GAAP for each segment. The total amount of consolidated net business profit that is calculated by each segment based on the internal managerial data is reconciled to profit before tax reported in the consolidated financial statements under IFRS as shown in the following table:

	For the fiscal year ended March 31,
	2020			2019			2018
	(In billions)
Consolidated net business profit	¥	1,085.0		¥	1,192.3		¥	1,203.8
Differences between management reporting and Japanese GAAP:
Total credit costs		(170.6	)		(110.3	)		(94.2	)
Gains on equity instruments		80.5			116.3			118.9
Extraordinary gains or losses and others		(106.3	)		(74.7	)		(119.6	)
Profit before tax under Japanese GAAP		888.6			1,123.6			1,108.9
Differences between Japanese GAAP and IFRS:
Scope of consolidation		(3.3	)		0.1			(1.6	)
Derivative financial instruments		(163.3	)		31.3			(20.7	)
Investment securities		(115.3	)		(129.5	)		68.8
Loans and advances		(116.0	)		(23.2	)		(33.5	)
Investments in associates and joint ventures		(190.8	)		(86.5	)		(1.6	)
Property, plant and equipment		(30.5	)		(1.2	)		1.0
Lease accounting		0.4			(1.4	)		(0.5	)
Defined benefit plans		(32.6	)		(51.4	)		(13.2	)
Foreign currency translation		11.9			1.3			12.7
Classification of equity and liability		12.7			11.9			14.1
Others		21.0			(43.1	)		(15.4	)
Profit before tax under IFRS	¥	282.8		¥	831.9		¥	1,119.0

On April 1, 2018, the Group adopted IFRS 9 and IFRS 15 retrospectively by adjusting the consolidated statement of financial position at the date of initial application, and has not restated comparatives as permitted by IFRS 9 and IFRS 15. Therefore, the accounting standards under IFRS for the fiscal years ended March 31, 2020 and 2019 are different from those for the fiscal year ended March 31, 2018, when calculating the differences in profit before tax between Japanese GAAP and IFRS. In addition, on April 1, 2019, the Group adopted IFRS 16 retrospectively by adjusting the consolidated statement of financial position at the date of initial application, and has not restated comparatives as permitted by IFRS 16. Therefore, the accounting standards under IFRS for the fiscal year ended March 31, 2020 are different from those for the fiscal years ended March 31, 2019 and 2018, when calculating the differences in profit before tax between Japanese GAAP and IFRS. See Note 2 “Summary of Significant Accounting Policies” for further information on accounting changes.

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Information about Geographical Areas

The following table shows the total operating income in accordance with IFRS by the main geographical areas. The Group’s services are provided to domestic and foreign clients on a worldwide basis. These include transactions where SMBC’s branches in Japan may deal with customers located in foreign countries and where SMBC’s overseas branches may provide services to Japanese companies.

To identify income attributed to each geographical area for the purposes of this disclosure, they are aggregated based on the geographical location of the booking entity, with the assumption that transactions booked in booking entities are deemed to have occurred in their respective geographical areas.

	For the fiscal year ended March 31,
	2020		2019(4)		2018(4)
	(In millions)
Domestic(1):
Japan	¥	1,791,910	¥	2,079,758	¥	2,633,858
Total domestic		1,791,910		2,079,758		2,633,858
Foreign(1)(2):
Americas		277,017		315,419		350,010
Europe and Middle East		194,441		371,413		484,807
Asia and Oceania		440,482		400,301		305,734
Total foreign		911,940		1,087,133		1,140,551
Total operating income(3)	¥	2,703,850	¥	3,166,891	¥	3,774,409

(1) The geographical segmentation is determined based on the degrees of the following factors: geographic proximity, similarity of economic activities and relationship of business activities among regions.

(2) Americas includes the United States, Brazil, Canada and others; Europe and Middle East include the United Kingdom, Germany, France and others; Asia and Oceania include China, Singapore, Australia and others except Japan.

(3) Total operating income comprises net interest income, net fee and commission income, net trading income, net income (loss) from financial assets at fair value through profit or loss, net investment income and other income.

(4) For the fiscal year ended March 31, 2020, premiums for deposit insurance have been reclassified from “General and administrative expense” to “Interest expense.” Comparative amounts have been reclassified to conform to the current presentation.

5 CASH AND DEPOSITS WITH BANKS

Cash and deposits with banks at March 31, 2020 and 2019 consisted of the following:

	At March 31,
	2020		2019
	(In millions)
Cash	¥	844,886	¥	1,062,952
Deposits with banks		61,626,567		56,700,489
Total cash and deposits with banks	¥	62,471,453	¥	57,763,441

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The reconciliation of cash and cash equivalents used for the purposes of the consolidated statements of cash flows at March 31, 2020, 2019 and 2018 is shown as follows:

	At March 31,
	2020			2019			2018
	(In millions)
Cash and deposits with banks	¥	62,471,453		¥	57,763,441		¥	54,696,069
Less: term deposits with original maturities over three months		(532,703	)		(532,784	)		(627,837	)
Less: cash segregated as deposits and others		(735,209	)		(514,128	)		(667,099	)
Add: cash and cash equivalents included in assets held for sale		—			—			15,323
Cash and cash equivalents	¥	61,203,541		¥	56,716,529		¥	53,416,456

Private depository institutions in Japan are required to maintain certain minimum reserve funds with the Bank of Japan, based on average deposit balances and certain other factors. There are similar reserve deposit requirements for the Group’s foreign offices engaged in banking businesses in foreign countries. At March 31, 2020, 2019 and 2018, the reserve funds required to be maintained by the Group, which were included in cash and cash equivalents, amounted to ¥1,705,352 million, ¥1,784,466 million and ¥1,689,340 million, respectively.

6 TRADING ASSETS

Trading assets at March 31, 2020 and 2019 consisted of the following:

	At March 31,
	2020		2019
	(In millions)
Debt instruments	¥	2,545,703	¥	2,480,903
Equity instruments		239,313		286,788
Total trading assets	¥	2,785,016	¥	2,767,691

Trading debt instruments mainly consist of Japanese government bonds. Trading equity instruments mainly consist of publicly traded Japanese stocks.

7 DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGE ACCOUNTING

Derivative financial instruments include futures, forwards, swaps, options and other types of derivative contracts, which are transactions listed on exchanges orover-the-counter (“OTC”) transactions. In the normal course of business, the Group enters into a variety of derivatives for trading and risk management purposes. The Group uses derivatives for trading activities, which include facilitating customer transactions, market-making and arbitrage activities. The Group also uses derivatives to reduce its exposures to market and credit risks as part of its asset and liability management.

Derivatives are financial instruments that derive their value from the price of underlying items such as interest rates, foreign exchange rates, equities, bonds, commodities, credit spreads and other indices. The Group’s derivative financial instruments mainly consist of interest rate derivatives and currency derivatives. Interest rate derivatives include interest rate swaps, interest rate options and interest rate futures. Currency derivatives include foreign exchange forward transactions, currency swaps and currency options.

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The tables below represent the derivative financial instruments by type and purpose of derivatives at March 31, 2020 and 2019.

	At March 31, 2020
	Trading						Risk Management(1)
	Notional amounts		Assets		Liabilities		Notional amounts		Assets		Liabilities
	(In millions)
Interest rate derivatives	¥	893,588,637	¥	3,446,719	¥	2,982,015	¥	53,625,724	¥	664,807	¥	500,374
Futures		38,049,894		51,843		50,545		1,577,745		438		124
Listed Options		165,280,570		48,277		11,465		—		—		—
Forwards		124,681,480		616		—		—		—		—
Swaps		465,412,015		3,123,501		2,729,662		51,896,189		638,744		500,250
OTC Options		100,164,678		222,482		190,343		151,790		25,625		—
Currency derivatives		141,416,221		1,858,803		1,783,476		12,204,471		184,981		110,985
Futures		4,500		—		7		—		—		—
Listed Options		—		—		—		—		—		—
Forwards		78,698,264		862,105		843,072		1,983,357		20,587		26,515
Swaps		54,931,441		869,766		823,957		10,221,114		164,394		84,470
OTC Options		7,782,016		126,932		116,440		—		—		—
Equity derivatives		3,049,786		82,305		143,084		41,556		8,861		—
Futures		1,158,638		14,348		20,418		—		—		—
Listed Options		1,101,352		31,352		69,630		—		—		—
Forwards		2,615		449		—		—		—		—
Swaps		119,965		3,111		21,499		41,556		8,861		—
OTC Options		667,216		33,045		31,537		—		—		—
Commodity derivatives		169,734		16,823		14,715		—		—		—
Futures		7,134		181		389		—		—		—
Listed Options		—		—		—		—		—		—
Forwards		—		—		—		—		—		—
Swaps		158,139		16,496		13,647		—		—		—
OTC Options		4,461		146		679		—		—		—
Credit derivatives		2,285,271		16,502		20,552		—		—		—
Total derivative financial instruments	¥	1,040,509,649	¥	5,421,152	¥	4,943,842	¥	65,871,751	¥	858,649	¥	611,359

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	At March 31, 2019
	Trading						Risk Management(1)
	Notional amounts		Assets		Liabilities		Notional amounts		Assets		Liabilities
	(In millions)
Interest rate derivatives	¥	779,291,352	¥	1,738,231	¥	1,484,122	¥	51,692,181	¥	270,514	¥	340,931
Futures		63,332,406		44,812		46,428		2,220,000		—		149
Listed Options		134,733,142		24,131		2,593		—		—		—
Forwards		54,486,370		642		939		—		—		—
Swaps		444,347,278		1,561,977		1,290,977		49,315,116		267,094		340,752
OTC Options		82,392,156		106,669		143,185		157,065		3,420		30
Currency derivatives		132,054,681		1,167,833		935,956		10,260,443		119,077		176,822
Futures		3,942		22		—		—		—		—
Listed Options		—		—		—		—		—		—
Forwards		79,268,300		488,211		415,097		2,246,274		18,370		57,069
Swaps		46,014,820		594,144		441,257		8,014,169		100,707		119,753
OTC Options		6,767,619		85,456		79,602		—		—		—
Equity derivatives		3,048,195		61,761		96,140		48,511		1,856		30
Futures		933,068		4,418		2,313		—		—		—
Listed Options		1,259,343		29,384		56,854		—		—		—
Forwards		—		—		—		—		—		—
Swaps		119,145		654		8,477		48,511		1,856		30
OTC Options		736,639		27,305		28,496		—		—		—
Commodity derivatives		225,655		7,517		5,848		—		—		—
Futures		28,823		445		415		—		—		—
Listed Options		—		—		—		—		—		—
Forwards		—		—		—		—		—		—
Swaps		183,117		7,006		5,019		—		—		—
OTC Options		13,715		66		414		—		—		—
Credit derivatives		1,562,100		15,785		11,924		—		—		—
Total derivative financial instruments	¥	916,181,983	¥	2,991,127	¥	2,533,990	¥	62,001,135	¥	391,447	¥	517,783

(1) Derivative financial instruments categorized as “Risk Management” are used for economic hedging, such as managing the exposure to changes in fair value of the loan portfolio, and are identified as hedging instruments under Japanese GAAP. Under IFRS, the Group applies hedge accounting for certain fixed rate debt securities in issue and borrowings, certain equity instruments elected to be measured at FVOCI and net investments in foreign operations, and derivative financial instruments designated as hedging instruments are also categorized as “Risk Management.”

Hedge accounting

The Group applies fair value hedge accounting and hedge accounting of net investments in foreign operations in order to reflect the effect of risk management activities on its consolidated financial statements.

Fair value hedges

The Group applies fair value hedge accounting to mitigate the risk of changes in the fair value of certain fixed rate debt securities in issue and borrowings arising from changes in the interest rate benchmarks, and the risk of changes in the fair value of certain equity instruments elected to be measured at FVOCI. Changes in the fair value of the liabilities arising from changes in the interest rates would not be recognized in profit or loss and those of the equity derivatives would be recognized in profit or loss if it did not apply the hedge accounting. For more information about the interest rate benchmarks to which the Group’s hedging relationships are exposed, see “Interest Rate Benchmark Reform” in this note.

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For fair value hedge of interest rate risk, the Group hedges interest rate risk only to the extent of interest rate benchmarks because the changes in fair value of certain fixed rate debt securities in issue and borrowings are significantly influenced by changes in the interest rate benchmarks. The Group designates as hedging instruments interest rate swaps and establishes a hedge ratio by matching the notional of the derivative financial instruments with the principal amount of the hedged items. The Group assesses hedge effectiveness qualitatively by considering whether the critical terms of the hedged items and hedging instruments closely align and quantitatively by comparing changes in the fair value of the hedged items arising from changes in the interest rate benchmarks with those of the hedging instruments. Hedge ineffectiveness may arise from basis risk, timing differences between the hedged items and hedging instruments and the effect of the counterparty or the Group’s own credit risk on the fair value of the interest rate swaps, which is not reflected in the fair value of the hedged item attributable to the change in interest rate benchmarks. There are no other sources of hedge ineffectiveness in the hedging relationships. The gain or loss on the hedging instrument is recognized in “Net trading income” in the consolidated income statements. The hedging gain or loss on the hedged item adjusts the carrying amount of the hedged item, and is recognized in “Net trading income” in the consolidated income statements. If the hedge no longer meets the criteria for hedge accounting for reasons other than the derecognition of the hedged item, the adjustment to the carrying amount of the hedged item for which the effective interest method is used is amortized to profit or loss over the period to maturity of the hedged item. When the hedged item is derecognized, the adjustment is recognized immediately in the consolidated income statements.

For fair value hedge of stock price risk, the Group designates as hedging instruments equity derivatives with underlying instruments identical to the hedged items and establishes a hedge ratio by aligning the number of shares of hedged items with that of equity derivatives used as hedging instruments. The Group assesses hedge effectiveness qualitatively by considering whether the critical terms of the hedged items and hedging instruments closely align and quantitatively by comparing changes in the fair value of the hedged items with those of the hedging instruments. Hedge ineffectiveness may arise from the effect of the counterparty or the Group’s own credit risk on the fair value of the equity derivatives and interest rate risk on the equity derivatives. There are no other sources of hedge ineffectiveness in the hedging relationships. Both the effective portion and ineffective portion of changes in the fair value of the hedging instruments are recognized in other comprehensive income, and amounts presented in other comprehensive income are not subsequently transferred to profit or loss. The tables below represent the amounts related to items designated as hedging instruments at March 31, 2020 and 2019.

	Line item in the consolidated statements of financial position where the hedging instrument is included	At March 31, 2020						For the fiscal year ended March 31, 2020
		Notional amounts(1)		Carrying amounts				Change in value used for calculating hedge ineffectiveness
				Assets		Liabilities
		(In millions)
Interest rate risk
Interest rate swaps	Derivative financial instruments	¥	5,723,327	¥	366,092	¥	—	¥	350,446
Stock price risk
Equity swaps	Derivative financial instruments		41,556		8,861		—		13,889

(1) At March 31, 2020, the notional amount of interest rate swaps with remaining maturities more than 12 months that are designated hedging instruments against interest rate risk is ¥5,156,729 million out of ¥5,723,327 million in total, and that of equity swaps with remaining maturities more than 12 months that are designated hedging instruments against stock price risk is ¥41,556 million, equal to the total notional amount.

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	Line item in the consolidated statements of financial position where the hedging instrument is included	At March 31, 2019						For the fiscal year ended March 31, 2019
		Notional amounts(1)		Carrying amounts				Change in value used for calculating hedge ineffectiveness
				Assets		Liabilities
		(In millions)
Stock price risk
Equity swaps	Derivative financial instruments	¥	48,511	¥	1,856	¥	30	¥	14,860

(1) At March 31, 2019, the notional amount of equity swaps with remaining maturities more than 12 months that are designated hedging instruments against stock price risk is ¥48,511 million, equal to the total notional amount.

The amounts related to items designated as hedged items at March 31, 2020 and 2019 were as follows:

	Line item in the consolidated statements of financial position where the hedged item is included	At March 31, 2020		For the fiscal year ended March 31, 2020
		Carrying amounts		Change in value used for calculating hedge ineffectiveness
		(In millions)
Interest rate risk
Debt securities in issue	Debt securities in issue	¥	5,983,893	¥	(335,998	)
Borrowings	Borrowings		78,573		(6,712	)
Stock price risk
Equity instruments at fair value through other comprehensive income	Investment securities		31,721		(14,126	)
	Line item in the consolidated statements of financial position where the hedged item is included	At March 31, 2019		For the fiscal year ended March 31, 2019
		Carrying amounts		Change in value used for calculating hedge ineffectiveness
		(In millions)
Stock price risk
Equity instruments at fair value through other comprehensive income	Investment securities	¥	45,847	¥	(14,376	)

As for interest rate risk, the accumulated amount of fair value hedge adjustments on the hedged items was a loss of ¥342,710 million at March 31, 2020. There was no balance remaining in the consolidated statements of financial position for any hedged items that had ceased to be adjusted for hedging gains and losses at March 31, 2020. As for stock price risk, the accumulated amount of fair value hedge adjustments on the hedged items were a loss of ¥28,502 million and a loss of ¥14,376 million at March 31, 2020 and 2019, respectively. There were no balances remaining in the consolidated statements of financial position for any hedged items that had ceased to be adjusted for hedging gains and losses at March 31, 2020 and 2019.

As for interest rate risk, hedge ineffectiveness was included in “Net trading income” in the consolidated income statements, and amounted to a profit of ¥7,736 million for the fiscal year ended March 31, 2020. As for stock price risk, hedge ineffectiveness was included in “Other comprehensive income—Equity instruments at fair value through other comprehensive income” in the consolidated statements of comprehensive income, and amounted to a loss of ¥237 million and a profit of ¥484 million for the fiscal years ended March 31, 2020 and 2019, respectively.

Interest Rate Benchmark Reform

Interest rate benchmark reform has been undertaken globally to replace or reform interest rate benchmarks such as interbank offered rates (“IBORs”) with alternative rates. This reform gives rise to uncertainties about the

F-53

timing or the amount of interest rate benchmark-based cash flows of hedged items or of hedging instruments. As a response, the IASB issued in September 2019 “Interest Rate Benchmark Reform: Amendments to IFRS 9, IAS 39 and IFRS 7” that provide temporary relief from applying specific hedge accounting requirements to hedging relationships directly affected by interest rate benchmark reform. The reliefs aim to ensure that the interest rate benchmark reform does not result in the discontinuance of hedge accounting.

The Group’s fair value hedge relationships where IBOR-linked derivatives are designated as hedging instruments are directly affected by the interest rate benchmark reform. The hedging instruments offset the risk exposure the Group aims to manage through hedge relationships. USD Libor is the significant interest rate benchmark to which hedging relationships are exposed. The notional amounts of hedging instruments directly affected by the interest rate benchmark reform were ¥4,586,214 million at March 31, 2020.

In applying the reliefs provided by the amendments, the Group has assumed it is too early to reliably estimate when interest rate benchmark uncertainty will be resolved for all benchmarks in the scope of the amendments at March 31, 2020.

The Group put in place a Group-wide IBOR transition project team in May 2019 involving all the Group’s business lines and functions. This project team’s objective is providing smooth and efficient global coordination for the transition from IBOR to alternative reference rates, expected to take place by the end of 2021. The project team has formed working groups and work streams based on each region’s background for the IBOR transition project, while taking into consideration the common objective and achievement globally.

Hedges of net investments in foreign operations

The Group applies hedge accounting of net investments in foreign operations to mitigate the foreign currency risk of exchange differences arising from the translation of net investments in foreign operations. The Group hedges the risk of changes in its equity, arising from the movement in the U.S. dollar exchange rate or other exchange rates against Japanese yen. Changes in foreign exchange rates would have an impact on the equity of the Group if it did not apply the hedge accounting.

The Group designates as hedging instruments foreign exchange forward contracts and foreign currency denominated financial liabilities. When the hedging instruments are foreign exchange forward contracts, the Group establishes a hedge ratio where the notional amounts on the foreign exchange forward contracts match the carrying amount of the hedged items. The Group designates as hedging instruments only the changes in the fair value of the spot element of the foreign exchange forward contracts, and assesses hedge effectiveness and calculates hedge ineffectiveness by comparing the changes in the carrying amounts of the hedging instruments that are attributable to a change in the spot rate with the changes in the net investments in foreign operations due to a movement in the spot rate. Therefore, the only sources of hedge ineffectiveness that is expected to arise from these hedging relationships are due to the effect of the counterparty or the Group’s own credit risk on the changes in the fair value of the hedging instruments. There are no other sources of hedge ineffectiveness in these hedge relationships.

When the hedging instruments are foreign currency denominated financial liabilities, the Group designates them as hedging instruments to the extent that the amounts do not exceed those of the hedged items, and establishes the hedge ratio by aligning the amounts of the hedging instruments with those of the hedged items. The Group assesses hedge effectiveness and calculates hedge ineffectiveness by comparing the changes in the carrying amounts of the liabilities that are attributable to a change in the spot rate with the changes in the net investments in foreign operations due to a movement in the spot rate. Therefore, no hedge ineffectiveness arises.

The effective portion of the gain or loss on the hedging instruments is recognized in other comprehensive income, whereas the ineffective portion of the gain or loss on the hedging instruments is recognized in “Net trading income” in the consolidated income statements. The cumulative gain or loss recognized in other comprehensive income is reclassified to profit or loss on the disposal or partial disposal of the foreign operations. On the other hand, changes in the fair value of the forward element of the foreign exchange forward contracts are

F-54

recognized in “Net trading income” in the consolidated income statements because the Group designates as hedging instruments only the changes in the fair value of the spot element of the foreign exchange forward contracts, as stated above.

The tables below represents the amounts related to items designated as hedging instruments at March 31, 2020 and 2019.

	Line item in the consolidated statements of financial position where the hedging instrument is included	At March 31, 2020						For the fiscal year ended March 31, 2020
		Nominal amounts		Carrying amounts				Change in value used for calculating hedge ineffectiveness
				Assets		Liabilities
		(In millions)
Foreign exchange forward contracts	Derivative financial instruments	¥	1,943,931	¥	19,864	¥	26,515	¥	29,625
Foreign currency denominated financial liabilities	Debt securities in issue, Borrowings, Deposits		180,178		—		180,178		1,844
	Line item in the consolidated statements of financial position where the hedging instrument is included	At March 31, 2019						For the fiscal year ended March 31, 2019
		Nominal amounts		Carrying amounts				Change in value used for calculating hedge ineffectiveness
				Assets		Liabilities
		(In millions)
Foreign exchange forward contracts	Derivative financial instruments	¥	2,243,501	¥	18,370	¥	56,850	¥	(18,574	)
Foreign currency denominated financial liabilities	Debt securities in issue, Borrowings, Deposits		192,039		—		192,039		(7,378	)

The amounts related to items designated as hedged items for the fiscal years ended March 31, 2020 and 2019 were as follows:

	For the fiscal year ended March 31, 2020			At March 31, 2020
	Change in value used for calculating hedge ineffectiveness			Translating foreign operations reserve
	(In millions)
USD foreign operations	¥	(14,341	)	¥	(12,376	)
HKD foreign operations		(1,671	)		(6,308	)
EUR foreign operations		(22,556	)		(4,083	)
Other foreign operations		7,099			8,893
Total	¥	(31,469	)	¥	(13,874	)

	For the fiscal year ended March 31, 2019			At March 31, 2019
	Change in value used for calculating hedge ineffectiveness			Translating foreign operations reserve
	(In millions)
USD foreign operations	¥	34,244		¥	(6,714	)
HKD foreign operations		9,468			(4,638	)
EUR foreign operations		(19,297	)		13,288
Other foreign operations		1,537			5,871
Total	¥	25,952		¥	7,807

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The balances remaining in the foreign currency translation reserve from hedging relationships for which hedge accounting is no longer applied were ¥16,761 and nil at March 31, 2020 and 2019, respectively.

Changes in the translating foreign operations reserve of ¥31,469 million and ¥25,952 million were offset by hedges of net investment in foreign operations for the fiscal years ended March 31, 2020 and 2019, respectively. There were no hedge ineffectiveness recognized in “Net trading income” for the fiscal years ended March 31, 2020 and 2019.

Credit derivatives

The Group enters into credit derivatives to manage the risk of its commercial banking credit portfolio containing loans by hedging economically, as well as diversifying the credit exposure in the portfolio, and to undertake credit loss protection transactions based on the needs from customers as financial intermediation. The tables below provide the notional amounts and the fair value of credit derivatives by purpose of transactions at March 31, 2020 and 2019.

	At March 31, 2020
	Protection purchased						Protection sold
	Notional amounts		Assets		Liabilities		Notional amounts		Assets		Liabilities
	(In millions)
Managing the Group’s credit risk portfolio	¥	960,225	¥	9,954	¥	5,290	¥	1,193,827	¥	4,957	¥	14,470
Facilitating client transactions		88,702		1,320		528		42,517		271		264
Total	¥	1,048,927	¥	11,274	¥	5,818	¥	1,236,344	¥	5,228	¥	14,734
	At March 31, 2019
	Protection purchased						Protection sold
	Notional amounts		Assets		Liabilities		Notional amounts		Assets		Liabilities
	(In millions)
Managing the Group’s credit risk portfolio	¥	549,794	¥	1,258	¥	6,547	¥	873,197	¥	13,700	¥	3,877
Facilitating client transactions		88,602		154		1,359		50,507		673		141
Total	¥	638,396	¥	1,412	¥	7,906	¥	923,704	¥	14,373	¥	4,018

The following table summarizes the notional amounts of the Group’s credit derivative portfolio by type of counterparty at March 31, 2020 and 2019.

	At March 31, 2020				At March 31, 2019
	Protection purchased		Protection sold		Protection purchased		Protection sold
	(In millions)
Banks and broker-dealers	¥	1,037,427	¥	1,234,344	¥	626,896	¥	923,704
Insurance and other financial guaranty firms		11,500		2,000		11,500		—
Total	¥	1,048,927	¥	1,236,344	¥	638,396	¥	923,704

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8 FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS

Financial assets at fair value through profit or loss at March 31, 2020 and 2019 consisted of the following:

	At March 31,
	2020		2019
	(In millions)
Debt instruments	¥	1,454,387	¥	2,620,686
Equity instruments		23,969		20,730
Total financial assets at fair value through profit or loss	¥	1,478,356	¥	2,641,416

Debt instruments in financial assets at fair value through profit or loss mainly consist of investment funds andnon-trading bonds which do not meet the conditions for SPPI. Equity instruments in financial assets at fair value through profit or loss mainly consist ofnon-trading stocks held by the venture capital investment subsidiary.

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9 INVESTMENT SECURITIES

The following table shows the amount of investment securities, which consist of debt instruments at amortized cost, debt instruments at fair value through other comprehensive income and equity instruments at fair value through other comprehensive income at March 31, 2020 and 2019.

	At March 31,
	2020		2019
	(In millions)
Debt instruments at amortized cost:
Domestic:
Japanese government bonds	¥	260,079	¥	280,246
Japanese municipal bonds		22,300		—
Total domestic		282,379		280,246
Foreign:
Bonds issued by other governments and official institutions(1)		37,358		36,827
Other debt instruments		1,034		1,841
Total foreign		38,392		38,668
Total debt instruments at amortized cost	¥	320,771	¥	318,914
Debt instruments at fair value through other comprehensive income:
Domestic:
Japanese government bonds	¥	6,785,068	¥	5,027,695
Japanese municipal bonds		240,382		99,164
Japanese corporate bonds		579,293		328,978
Other debt instruments		310		26
Total domestic		7,605,053		5,455,863
Foreign:
U.S. Treasury and other U.S. government agency bonds		4,494,686		4,426,635
Bonds issued by other governments and official institutions(1)		2,930,806		2,121,407
Mortgage-backed securities		2,807,813		1,043,987
Other debt instruments		215,806		285,329
Total foreign		10,449,111		7,877,358
Total debt instruments at fair value through other comprehensive income	¥	18,054,164	¥	13,333,221
Equity instruments at fair value through other comprehensive income:
Domestic equity instruments	¥	3,024,731	¥	3,729,120
Foreign equity instruments		464,720		443,772
Total equity instruments at fair value through other comprehensive income	¥	3,489,451	¥	4,172,892
Total investment securities	¥	21,864,386	¥	17,825,027

(1) Excludes U.S. Treasury and other U.S. government agency bonds.

F-58

Designation of equity instruments as at fair value through other comprehensive income

The Group designates equity instruments, which are issued by its customers and not held for trading, as at fair value through other comprehensive income. Those equity instruments are held to establish, maintain, and strengthen business ties with those customers. Equity instruments at fair value through other comprehensive income at March 31, 2020 and 2019 consisted of the following:

	At March 31,
	2020		2019
	(In millions)
Listed	¥	2,770,473	¥	3,453,493
Unlisted		718,978		719,399
Total equity instruments at fair value through other comprehensive income	¥	3,489,451	¥	4,172,892

The investments in the listed equity instruments at fair value through other comprehensive income at March 31, 2020 and 2019 mainly consisted of the following:

	At March 31, 2020
	(In millions)
TOYOTA MOTOR CORPORATION	¥	253,113
DAIKIN INDUSTRIES, LTD.		118,530
East Japan Railway Company		61,377
Kotak Mahindra Bank Limited		61,215
FUJIFILM Holdings Corporation		56,991
NIPPON PAINT HOLDINGS CO., LTD.		56,598
DAIICHI SANKYO COMPANY, LIMITED		50,911
KUBOTA CORPORATION		49,742
Central Japan Railway Company		49,208
West Japan Railway Company		47,334
DAIWA HOUSE INDUSTRY CO., LTD.		43,154
Japan Exchange Group, Inc.		42,332
Ares Management Corporation		40,825
MITSUI & CO., LTD.		38,590
Murata Manufacturing Co., Ltd.		37,355
Sumitomo Realty & Development Co., Ltd.		36,263
Seven & i Holdings Co., Ltd.		35,165
NIDEC CORPORATION		34,006
ITOCHU Corporation		32,592
SG HOLDINGS CO., LTD.		32,420
KOMATSU LTD.		31,721
BRIDGESTONE CORPORATION		29,907
Asahi Group Holdings, Ltd.		28,178
DAIFUKU CO., LTD.		27,951
Shionogi & Co., Ltd.		24,433
Mitsui Fudosan Co., Ltd.		24,284
TAISHO PHARMACEUTICAL HOLDINGS CO., LTD.		19,945
KOITO MANUFACTURING CO., LTD.		19,893
ASAHI KASEI CORPORATION		19,430
Makita Corporation		19,229
GMO Payment Gateway, Inc.		18,962
Oji Holdings Corporation		18,336
Chubu Electric Power Company, Incorporated		18,225

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	At March 31, 2020
	(In millions)
Stanley Electric Co., Ltd.		17,294
MINEBEA MITSUMI Inc.		16,501
TOHO GAS CO., LTD.		16,191
SHIMANO INC.		15,440
OLYMPUS CORPORATION		15,147
NISSIN FOODS HOLDINGS CO., LTD.		14,580
Tokyo Electric Power Company Holdings, Incorporated		13,545
The Kansai Electric Power Company, Incorporated		13,393
Sekisui House, Ltd.		13,325
Hankyu Hanshin Holdings, Inc.		13,020
Idemitsu Kosan Co., Ltd.		12,744
OMRON Corporation		12,331
NIPPON STEEL CORPORATION		12,112
TORAY INDUSTRIES, INC.		11,970
Sotetsu Holdings, Inc.		11,354
Odakyu Electric Railway Co., Ltd.		11,169
BROTHER INDUSTRIES, LTD.		11,129
Others		1,061,013
Total listed equity instruments at fair value through other comprehensive income	¥	2,770,473

	At March 31, 2019
	(In millions)
TOYOTA MOTOR CORPORATION	¥	252,568
DAIKIN INDUSTRIES, LTD.		116,730
East Japan Railway Company		87,245
Central Japan Railway Company	��	85,614
Kotak Mahindra Bank Limited		70,472
Sumitomo Realty & Development Co., Ltd.		63,113
KUBOTA CORPORATION		57,592
DAIWA HOUSE INDUSTRY CO., LTD.		56,716
West Japan Railway Company		53,370
FUJIFILM Holdings Corporation		52,747
KOMATSU LTD.		45,847
Asahi Group Holdings, Ltd.		45,145
Japan Exchange Group, Inc.		44,534
MITSUI & CO., LTD.		44,109
NIPPON PAINT HOLDINGS CO., LTD.		43,499
DAIICHI SANKYO COMPANY, LIMITED		42,908
NIDEC CORPORATION		42,531
TAISHO PHARMACEUTICAL HOLDINGS CO., LTD.		42,506
Mitsui Fudosan Co., Ltd.		41,285
Seven & i Holdings Co., Ltd.		41,065
SG HOLDINGS CO., LTD.		40,635
BRIDGESTONE CORPORATION		38,394
Murata Manufacturing Co., Ltd.		37,628
ASAHI KASEI CORPORATION		34,722
NIPPON STEEL & SUMITOMO METAL CORPORATION(1)		34,161
KOITO MANUFACTURING CO., LTD.		34,126
Shionogi & Co., Ltd.		31,487

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	At March 31, 2019
	(In millions)
ITOCHU Corporation		29,104
Recruit Holdings Co., Ltd.		28,449
Chubu Electric Power Company, Incorporated		25,830
Tokyo Electric Power Company Holdings, Incorporated		25,149
Stanley Electric Co., Ltd.		24,131
DAIFUKU CO., LTD.		23,503
Makita Corporation		22,361
Oji Holdings Corporation		21,756
GMO Payment Gateway, Inc.		19,663
TORAY INDUSTRIES, INC.		19,102
Idemitsu Kosan Co., Ltd.		19,054
The Kansai Electric Power Company, Incorporated		18,161
SHIMANO INC.		18,000
MINEBEA MITSUMI Inc.		17,002
TOHO GAS CO., LTD.		16,422
HOUSE FOODS GROUP INC.		16,323
KAJIMA CORPORATION		15,966
Mazda Motor Corporation		15,924
TOYOTA TSUSHO CORPORATION		15,320
BROTHER INDUSTRIES, LTD.		15,152
SUMITOMO CHEMICAL COMPANY, LIMITED		15,051
Hankyu Hanshin Holdings, Inc.		14,865
Sanwa Holdings Corporation		14,809
Others		1,421,647
Total listed equity instruments at fair value through other comprehensive income	¥	3,453,493

(1) NIPPON STEEL & SUMITOMO METAL CORPORATION changed its trade name to NIPPON STEEL CORPORATION on April 1, 2019.

Disposal of equity instruments at fair value through other comprehensive income

The Group sold equity instruments measured at fair value through other comprehensive income mainly in order to mitigate the impact of share price fluctuations on the Group’s financial base. The fair value of the equity instruments measured at fair value through other comprehensive income at the date of derecognition and the cumulative gain on disposal for the fiscal years ended March 31, 2020 and 2019 were as follows:

	For the fiscal year ended March 31,
	2020		2019
	(In millions)
Fair value of the equity instruments at fair value through other comprehensive income at the date of derecognition	¥	210,047	¥	275,410
Cumulative gain on disposal		94,443		93,574

The Group transferred the cumulative gain or loss related to the equity instruments that were derecognized or whose significant fair value decline reduced income tax expense for the current reporting period from “Other reserves” to “Retained earnings.” The transferred amount was ¥39,750 million and ¥64,012 million for the fiscal years ended March 31, 2020 and 2019, respectively.

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10 LOANS AND ADVANCES

The following tables present loans and advances at March 31, 2020 and 2019.

	At March 31, 2020
	12-month ECL			Lifetime ECL not credit- impaired			Lifetime ECL credit-impaired			Total
	(In millions)
Loans and advances at amortized cost:
Gross loans and advances	¥	92,997,331		¥	1,800,090		¥	845,329		¥	95,642,750
Adjust: Unearned income, unamortized premiums—net and deferred loan fees—net											(264,527	)
Less: Allowance for loan losses		(203,286	)		(147,382	)		(355,737	)		(706,405	)
Carrying amount										¥	94,671,818

	At March 31, 2019
	12-month ECL			Lifetime ECL not credit- impaired			Lifetime ECL credit-impaired			Total
	(In millions)
Loans and advances at amortized cost:
Gross loans and advances	¥	89,073,539		¥	1,590,761		¥	882,018		¥	91,546,318
Adjust: Unearned income, unamortized premiums—net and deferred loan fees—net											(258,392	)
Less: Allowance for loan losses		(158,094	)		(92,446	)		(354,448	)		(604,988	)
Carrying amount										¥	90,682,938

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Reconciliation of allowance for loan losses is as follows:

	For the fiscal year ended March 31,
	2020			2019			2018
	(In millions)
Allowance for loan losses at beginning of period(1)	¥	604,988		¥	651,620		¥	680,456
Provision for loan losses		249,478			122,927			126,623
Charge-offs(2):
Domestic		126,328			139,496			161,526
Foreign		27,664			40,758			23,534
Total		153,992			180,254			185,060
Recoveries:
Domestic		10,096			9,767			9,658
Foreign		2,317			1,275			574
Total		12,413			11,042			10,232
Net charge-offs		141,579			169,212			174,828
Others(3)		(6,482	)		(347	)		(140,575	)
Allowance for loan losses at end of period	¥	706,405		¥	604,988		¥	491,676
Allowance for loan losses applicable to foreign activities:
Balance at beginning of period	¥	155,114		¥	153,167		¥	128,347
Balance at end of period	¥	258,143		¥	155,114		¥	114,306
Provision for loan losses	¥	134,657		¥	46,597		¥	19,872

(1) Allowance for loan losses at the beginning of period for the fiscal year ended March 31, 2019 is calculated under IFRS 9. For additional information, refer to Note 2 “Summary of Significant Accounting Policies.”

(2) Charge-offs consist of losses from the sales of loans and write-offs.

(3) Others mainly include foreign exchange translations for the fiscal year ended March 31, 2020. The amount for the fiscal year ended March 31, 2018 mainly includes the exclusion of the allowance for loans and advances made by Kansai Urban Banking Corporation (“KUBC”) and THE MINATO BANK, LTD. (“The Minato Bank”), both of which had been the Company’s subsidiaries but became its equity-method associates, and the exclusion of the allowance for loans and advances made by SMFL which was reclassified as assets held for sale.

For additional information on movements in impairment allowance for the fiscal years ended March 31, 2020 and 2019, refer to Note 45 “Financial Risk Management.”

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11 INVESTMENTS IN ASSOCIATES AND JOINT VENTURES

The following table presents the Group’s principal associates and joint venture at March 31, 2020. Investments in associates and joint ventures of the Group are accounted for using the equity method unless they are held for sale.

Company Name	Country of Incorporation		Proportion of Ownership Interest(1)		Proportion of Voting Rights(1)			Main Business
			(%)		(%)
Principal Associates
Kansai Mirai Financial Group, Inc.		Japan		15.5		23.5	(2)	Bank holding company
The Japan Net Bank, Limited		Japan		46.5		46.5		Internet banking
The Bank of East Asia, Limited		China		19.5		19.5		Commercial banking
ACLEDA Bank Plc.		Cambodia		18.2		18.2		Commercial banking
Vietnam Export Import Commercial Joint Stock Bank		Vietnam		15.0		15.0		Commercial banking
Sumitomo Mitsui Auto Service Company, Limited		Japan		21.9		21.9		Leasing
SMBC Aviation Capital Limited		Ireland		32.0		32.0		Leasing
POCKET CARD CO., LTD.		Japan		20.0		20.0		Credit card
SAKURA KCS Corporation		Japan		29.7		29.7		System engineering and data processing
JSOL Corporation		Japan		50.0		50.0		System development and data processing
Sakura Information Systems Co., Ltd.		Japan		49.0		49.0		System engineering and data processing
China Post & Capital Fund Management Co., Ltd.		China		23.6		23.6		Investment advisory and investment trust management
Principal Joint Venture
Sumitomo Mitsui Finance and Leasing Company, Limited		Japan		50.0		50.0		Leasing

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

(2) The Group has a 15.6% direct holding in Kansai Mirai Financial Group, Inc., and can exercise a further 7.9% of the voting rights held by SMBC’s retirement benefit trust under contractual agreements between SMBC and the retirement benefit trust.

The Group accounts for certain investees, including The Bank of East Asia, Limited, ACLEDA Bank Plc. and Vietnam Export Import Commercial Joint Stock Bank, as associates regardless of its below 20% holdings of the voting rights to these investees, since the Group has the ability to exercise significant influence over these investees through participation in the policy making process at the meeting of the board of directors, the provision of essential technical information, or other relevant agreements or relationships.

On the other hand, the Group accounts for certain investees as financial assets at fair value through other comprehensive income or financial assets at fair value through profit or loss regardless of its 20% or more holdings of the voting rights to these investees when the Group has contracts or arrangements with other investors by which the Group loses the power to exert significant influence over such investees.

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The Group has interests in a number of associates and joint ventures, none of which are regarded as individually material. The following table summarizes, in aggregate, the financial information of all individually immaterial associates and joint ventures that are accounted for using the equity method:

	At and for the fiscal year ended March 31,
	2020			2019
	(In millions)
Carrying amount of investments in associates and joint ventures	¥	826,736		¥	1,038,823
Share of:
Profit from continuing operations		24,031			40,157
Other comprehensive income (loss)		(11,605	)		(699	)
Total comprehensive income		12,426			39,458

There are no significant restrictions on the ability of associates or joint ventures to transfer funds to the Group in the form of cash dividends, repayment of loans and advances.

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12 PROPERTY, PLANT AND EQUIPMENT

The table below shows the changes in property, plant and equipment for the fiscal years ended March 31, 2020 and 2019.

	Assets for rent			Land			Buildings			Right of use assets / Leased assets(1)			Others			Total
	(In millions)
Cost	¥	607,769		¥	466,046		¥	738,023		¥	17,373		¥	413,945		¥	2,243,156
Accumulated depreciation and impairment losses		(27,082	)		(6,479	)		(406,026	)		(11,224	)		(282,213	)		(733,024	)
Net carrying amount at April 1, 2018		580,687			459,567			331,997			6,149			131,732			1,510,132
Additions		18,584			355			30,998			1,307			39,203			90,447
Acquisition of subsidiaries and businesses		—			6,998			1,710			—			5,340			14,048
Disposals		(6,009	)		(2,167	)		(1,458	)		(216	)		(2,615	)		(12,465	)
Depreciation		(18,597	)		—			(22,173	)		(1,683	)		(27,183	)		(69,636	)
Impairment losses		—			(774	)		(4,936	)		—			(196	)		(5,906	)
Exchange differences		(9,667	)		95			228			—			268			(9,076	)
Others		(537	)		23			2,134			19,992			(31,370	)		(9,758	)
Net carrying amount		564,461			464,097			338,500			25,549			115,179			1,507,786
Cost		609,763			469,095			746,687			60,158			394,308			2,280,011
Accumulated depreciation and impairment losses		(45,302	)		(4,998	)		(408,187	)		(34,609	)		(279,129	)		(772,225	)
Net carrying amount at March 31, 2019		564,461			464,097			338,500			25,549			115,179			1,507,786
Adjustment on adoption of IFRS 16		—			—			—			380,632			—			380,632
Cost		609,763			469,095			746,687			440,790			394,308			2,660,643
Accumulated depreciation and impairment losses		(45,302	)		(4,998	)		(408,187	)		(34,609	)		(279,129	)		(772,225	)
Net carrying amount at April 1, 2019		564,461			464,097			338,500			406,181			115,179			1,888,418
Additions		18,700			355			16,862			66,621			50,297			152,835
Acquisition of subsidiaries and businesses		—			1			226			787			95			1,109
Disposals		(14,600	)		(3,921	)		(847	)		(2,664	)		(929	)		(22,961	)
Depreciation		(17,990	)		—			(23,114	)		(92,991	)		(23,073	)		(157,168	)
Impairment losses		(69,796	)		(432	)		(8,098	)		(3	)		(1,618	)		(79,947	)
Exchange differences		(8,028	)		(1,093	)		(514	)		(2,783	)		(1,705	)		(14,123	)
Others		(6,287	)		3,479			11,913			1,610			(14,267	)		(3,552	)
Net carrying amount		466,460			462,486			334,928			376,758			123,979			1,764,611
Cost		571,346			467,636			759,576			484,431			414,212			2,697,201
Accumulated depreciation and impairment losses		(104,886	)		(5,150	)		(424,648	)		(107,673	)		(290,233	)		(932,590	)
Net carrying amount at March 31, 2020	¥	466,460		¥	462,486		¥	334,928		¥	376,758		¥	123,979		¥	1,764,611

(1) Right of use assets from April 1, 2019 are recognized and measured under IFRS 16 and Leased assets until March 31, 2019 were recognized and measured under IAS 17. For additional information, refer to Note 2 “Summary of Significant Accounting Policies.”

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The impairment losses on property, plant and equipment are included in “Other expenses” in the consolidated income statements.

The Group had ¥48,707 million and ¥62,027 million of contractual commitments to acquire property, plant and equipment at March 31, 2020 and 2019, respectively.

Recognition of Impairment Losses

For the fiscal year ended March 31, 2020, the market and economic environment adversely affected the profitability of the railcar leasing business in the United States, and led the Group to recognize impairment losses of ¥69,796 million on the railcars to be leased. To determine whether they might be impaired, the Group identified the cash-generating units based on similarities in the nature and use in the railcar leasing business. The recoverable amount of those impaired assets was principally determined based on the value in use. The discount rate used to estimate the recoverable amount of the assets for rent was approximately 6%.

13 LEASES

As Lessee

The Group leases land and buildings, office equipment, and other tangible and intangible assets from third parties under lease contracts.

Right of use assets

The carrying amount of right of use assets at March 31, 2020 and April 1, 2019 consisted of the following:

	Land and buildings		Other tangible assets(1)		Intangible assets(2)		Total
	(In millions)
Net carrying amount at April 1, 2019	¥	373,410	¥	32,771	¥	12,745	¥	418,926
Depreciation		81,291		11,700		3,154		96,145
Net carrying amount at March 31, 2020		344,624		32,134		9,210		385,968

(1) Other tangible assets include mainly office equipment, machinery and vehicles.

(2) Intangible assets include mainly software.

The additions of right of use assets for the fiscal year ended March 31, 2020 were ¥67,685 million. The Group leases mainly land and buildings for its head offices and branches.

Lease liabilities

The maturity analysis of lease liabilities at March 31, 2020 was as follows:

	At March 31, 2020
	(In millions)
Not later than one year	¥	78,719
Later than one year and not later than five years		176,426
Later than five years		145,722
Total		400,867
Less: Future interest charges		(14,979	)
Lease liabilities(1)	¥	385,888

(1) Lease liabilities is included in “Borrowings” in the consolidated statements of financial position. See Note 18 “Borrowings.”

For the fiscal year ended March 31, 2020, ¥2,896 million was recognized as interests on lease liabilities and ¥98,728 million was recognized as total cash outflow for leases.

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Carrying amount of assets held under finance leases at March 31, 2019

The carrying amount of assets held under finance leases at March 31, 2019 consisted of the following:

	At March 31, 2019
	(In millions)
Tangible assets:
Land and buildings	¥	2,520
Other tangible assets(1)		23,029
Total(2)		25,549
Intangible assets:
Software		991
Total	¥	26,540

(1) Other tangible assets include mainly equipment, machinery and vehicles.

(2) Cross-reference to Leased assets in Note 12 “Property, Plant and Equipment.”

Finance lease commitments at March 31, 2019

The total of future minimum lease payments and their present value under finance leases at March 31, 2019 were as follows:

	At March 31, 2019
	(In millions)
Not later than one year	¥	8,478
Later than one year and not later than five years		19,392
Later than five years		5,322
Total		33,192
Less: Future interest charges		(2,813	)
Present value of finance lease commitments(1)	¥	30,379

(1) Present value of finance lease commitments is included in “Borrowings” in the consolidated statements of financial position. See Note 18 “Borrowings.”

Operating lease commitments at March 31, 2019

The total amounts of future minimum lease payments undernon-cancellable operating leases at March 31, 2019 were as follows:

	At March 31, 2019
	(In millions)
Not later than one year	¥	47,600
Later than one year and not later than five years		132,720
Later than five years		140,011
Total future minimum lease payments undernon-cancellable operating leases	¥	320,331

For the fiscal years ended March 31, 2019 and 2018, ¥52,465 million and ¥50,561 million were recognized as expenses in respect of operating lease and sublease agreements, of which ¥52,155 million and ¥50,058 million related to minimum lease payments, and ¥310 million and ¥503 million related to sublease payments, respectively. Lease expenses recognized in respect of lease and sublease agreements are included in “General and administrative expenses” in the consolidated income statements.

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As Lessor

The Group leases assets to third parties under finance leases or operating leases, including machinery, equipment, aircraft, vessel and property.

Finance lease receivable

The maturity analysis of the lease payments receivable, showing the undiscounted lease payments to be received at March 31, 2020 was as follows:

	At March 31, 2020
	Undiscounted lease payments		Unearned finance income		Discounted lease payments(1)		Unguaranteed residual values(1)
	(In millions)
Not later than one year	¥	40,225	¥	10,544	¥	29,681	¥	2,814
Later than one year and not later than two years		104,817		9,528		95,289		15,211
Later than two years and not later than three years		33,160		6,565		26,595		2,670
Later than three years and not later than four years		27,542		4,660		22,882		1,102
Later than four years and not later than five years		58,947		3,446		55,501		11,663
Later than five years		45,724		6,123		39,601		14,902
Total	¥	310,415	¥	40,866	¥	269,549	¥	48,362

(1) Discounted lease payments and unguaranteed residual values are included in “Loans and advances” in the consolidated statements of financial position.

Accumulated allowance for net investment in the lease amounting to ¥502 million was measured under IFRS 9 at March 31, 2020. For the fiscal year ended March 31, 2020, ¥11,268 million was recognized as finance income on net investment in the lease.

Operating lease receivable

The total amounts of the future minimum lease payments receivable undernon-cancellable operating leases at March 31, 2020 were as follows:

	At March 31, 2020
	(In millions)
Not later than one year	¥	31,499
Later than one year and not later than two years		24,137
Later than two years and not later than three years		16,935
Later than three years and not later than four years		11,799
Later than four years and not later than five years		7,148
Later than five years		12,636
Total	¥	104,154

For the fiscal year ended March 31, 2020, ¥40,588 million was recognized as income from operating leases.

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Finance lease receivable at March 31, 2019

The gross investment in the lease, unearned finance income, present value of the minimum lease payments receivable and unguaranteed residual values under finance leases at March 31 2019 were as follows:

	At March 31, 2019
	Gross investment in the lease		Unearned finance income		Present value of the minimum lease payments receivable(1)		Unguaranteed residual values(1)
	(In millions)
Not later than one year	¥	65,963	¥	13,053	¥	52,910	¥	14,894
Later than one year and not later than five years		214,042		26,713		187,329		27,186
Later than five years		57,589		10,202		47,387		24,282
Total	¥	337,594	¥	49,968	¥	287,626	¥	66,362

(1) Present value of the minimum lease payments receivable and unguaranteed residual values are included in “Loans and advances” in the consolidated statements of financial position.

Accumulated allowance for uncollectible minimum lease payments receivable amounting to ¥1,342 million was measured under IFRS 9 at March 31, 2019.

Operating lease receivable at March 31, 2019

The total amounts of the future minimum lease payments receivable undernon-cancellable operating leases at March 31 2019 were as follows:

	At March 31, 2019
	(In millions)
Not later than one year	¥	35,937
Later than one year and not later than five years		67,235
Later than five years		18,007
Total	¥	121,179

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14 INTANGIBLE ASSETS

Goodwill

The table below shows the changes in goodwill by business segment for the fiscal years ended March 31, 2020 and 2019.

	Retail Business Unit			International Business Unit			Head office account and others			Total
	(In millions)
Gross amount of goodwill(1)	¥	63,418		¥	—		¥	210,307		¥	273,725
Accumulated impairment losses(1)		—			—			—			—
Net carrying amount at March 31, 2018		63,418			—			210,307			273,725
Acquisitions		—			4,707			—			4,707
Impairment losses		—			—			(62,624	)		(62,624	)
Net carrying amount		63,418			4,707			147,683			215,808
Gross amount of goodwill(1)		63,418			4,707			210,307			278,432
Accumulated impairment losses(1)		—			—			(62,624	)		(62,624	)
Net carrying amount at March 31, 2019		63,418			4,707			147,683			215,808
Acquisitions(2)		—			—			31,647			31,647
Disposals		(1,466	)		—			—			(1,466	)
Exchange differences		—			(843	)		(1,319	)		(2,162	)
Net carrying amount		61,952			3,864			178,011			243,827
Gross amount of goodwill(1)		61,952			3,864			240,635			306,451
Accumulated impairment losses(1)		—			—			(62,624	)		(62,624	)
Net carrying amount at March 31, 2020	¥	61,952		¥	3,864		¥	178,011		¥	243,827

(1) The goodwill which all amounts have been impaired is excluded from gross amount of goodwill and accumulated impairment losses.

(2) The Group recognized goodwill of ¥17,022 million in Head office account and others resulting from the acquisition of Daiwa SB Investments Ltd. on April 1, 2019. For additional information, refer to Note 49 “Acquisitions.”

The Group has four main business segments: the Wholesale Business Unit, the Retail Business Unit, the International Business Unit and the Global Markets Business Unit, with the remaining operations recorded in the Head office account and others.

Impairment testing of goodwill

Allocating goodwill to cash-generating units

For the purpose of impairment testing, goodwill is allocated to cash-generating units or group of cash-generating units, which represent the lowest level within the entity at which goodwill is monitored for internal purposes.

At March 31, 2020, the Group allocated goodwill to the Retail Business Unit of SMBC Consumer Finance Co., Ltd. (“SMBC Consumer Finance”) amounting to ¥56,692 million and to the Head office account and others of SMBC Nikko Securities Inc. (“SMBC Nikko Securities”) and Sumitomo Mitsui DS Asset Management Company, Limited (“SMDAM”) amounting to ¥109,629 million and ¥55,076 million, respectively.

At March 31, 2019, the Group allocated goodwill to the Retail Business Unit of SMBC Consumer Finance amounting to ¥56,692 million and to the Head office account and others of SMBC Nikko Securities and SMDAM amounting to ¥109,629 million and ¥38,053 million, respectively.

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The aggregate amounts of other goodwill were ¥22,430 million and ¥11,434 million at March 31, 2020 and 2019, respectively, and they were not considered individually significant.

Timing of impairment tests

The Group performs impairment tests at least annually and whenever there is an indication that the cash-generating unit may be impaired.

Recoverable amount of cash-generating units

To determine whether an impairment loss shall be recognized, the carrying amount of a cash-generating unit is compared to its recoverable amount. The recoverable amount of a cash-generating unit is the higher of its fair value less costs to sell and its value in use.

Fair value less costs to sell: The fair value less costs to sell is determined using an observable market price in the active market or unobservable inputs for the cash-generating unit at the date of the impairment test.

Value in use: The value in use is determined based on discounted future cash flows, which are based on the financial plans which have been approved by management and which are valid when the impairment test is performed. The financial plans are prepared taking into account the current economic and regulatory environment, direction of the regulation and business forecasts of the individual cash-generating units. The Group determined the recoverable amounts of the primary cash-generating units based on the value in use.

The financial plans, which are used to estimate the cash flow projections of the cash-generating units, cover three to five years. The cash flow projections beyond the period covered by the financial plans are extrapolated by applying the appropriate growth rates in perpetuity.

Key assumptions used in impairment testing

The key assumptions used for the value in use calculations for the fiscal years ended March 31, 2020 and 2019 were as follows:

	SMBC Nikko Securities			SMBC Consumer Finance			SMDAM
For the fiscal year ended March 31, 2020:
Pre-tax discount rate		9.60	%		9.28	%		7.61	%
Growth rate		1.00	%		1.00	%		1.00	%
For the fiscal year ended March 31, 2019:
Pre-tax discount rate		8.90	%		11.37	%		8.95	%
Growth rate		1.00	%		1.00	%		1.00	%

Management considers that thepre-tax discount rates and the growth rates are the most sensitive key assumptions to determine the value in use of the cash-generating units.

Pre-tax discount rate: Thepre-tax discount rates used to estimate the discounted cash flow of the primary cash-generating units are determined based on the Capital Asset Pricing Model (“CAPM”). The risk-free interest rate, the market risk premium and the beta factor that are used in the CAPM are determined based on market data and other external sources of information. The beta factor is determined based on a respective group of peer companies of the cash-generating units.

Growth rate: The growth rates used to estimate the cash flow projections beyond the period covered by the financial plans, which shall cover a maximum period of five years, are determined based on the expected

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long-term inflation rate and long-term average growth rates for the industries. The growth rate does not exceed the long-term growth rate for the industry in which the cash-generating unit operates.

Management believes that there were no reasonably possible changes in any of the key assumptions that would lead to the recoverable amounts of the cash-generating units being below these carrying amounts for the fiscal years ended March 31, 2020 and 2019.

Recognition of Impairment Losses

If the recoverable amount of the cash-generating unit is less than its carrying amount, the carrying amount of the cash-generating unit is reduced to its recoverable amount, and this reduction is recognized as impairment loss of goodwill.

The recoverable amount of SMBC Nikko Securities was determined based on the value in use. For the fiscal year ended March 31, 2019, the value in use of SMBC Nikko Securities decreased to less than its carrying amount, primarily due to the revision of the business plan considering the recent business performance. As a result, the Group recognized an impairment loss of ¥62,624 million on the goodwill relating to SMBC Nikko Securities for the fiscal year ended March 31, 2019.

The impairment losses on goodwill are included in “Other expenses” in the consolidated income statements.

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Other intangible assets

The table below shows the changes in other intangible assets for the fiscal years ended March 31, 2020 and 2019.

	Internally generated software			Purchased software			Contractual customer relationships			Trademarks			Other intangibles(1)			Total
	(In millions)
Cost	¥	650,632		¥	340,593		¥	172,950		¥	46,116		¥	54,024		¥	1,264,315
Accumulated amortization and impairment losses		(357,115	)		(215,028	)		(82,495	)		(34,543	)		(12,957	)		(702,138	)
Net carrying amount at April 1, 2018		293,517			125,565			90,455			11,573			41,067			562,177
Additions		93,834			38,518			—			—			3,802			136,154
Acquisition of subsidiaries and businesses		3,705			252			12,845			9,706			30,919			57,427
Disposals		(3,020	)		(1,637	)		—			—			(540	)		(5,197	)
Amortization		(88,322	)		(41,798	)		(11,226	)		(4,401	)		(3,532	)		(149,279	)
Impairment losses		—			—			—			(4,020	)		(21	)		(4,041	)
Exchange differences		53			522			—			—			22			597
Others		2,314			7,632			—			—			(1,807	)		8,139
Net carrying amount		302,081			129,054			92,074			12,858			69,910			605,977
Cost		697,480			358,130			185,795			55,822			87,607			1,384,834
Accumulated amortization and impairment losses		(395,399	)		(229,076	)		(93,721	)		(42,964	)		(17,697	)		(778,857	)
Net carrying amount at March 31, 2019		302,081			129,054			92,074			12,858			69,910			605,977
Adjustment on adoption of IFRS 16		—			—			—			—			11,755			11,755
Cost		697,480			358,130			185,795			55,822			99,362			1,396,589
Accumulated amortization and impairment losses		(395,399	)		(229,076	)		(93,721	)		(42,964	)		(17,697	)		(778,857	)
Net carrying amount at April 1, 2019		302,081			129,054			92,074			12,858			81,665			617,732
Additions		97,895			42,435			—			—			8,673			149,003
Acquisition of subsidiaries and businesses		—			165			4,271			—			20,082			24,518
Disposals		(241	)		(1,792	)		—			—			(1,543	)		(3,576	)
Amortization		(90,154	)		(44,129	)		(11,652	)		(2,741	)		(10,616	)		(159,292	)
Impairment losses		—			(8	)		(7,262	)		—			(21,419	)		(28,689	)
Exchange differences		(174	)		(2,613	)		(2,334	)		(1,475	)		(4,463	)		(11,059	)
Others		(2,349	)		10,237			—			—			(4,875	)		3,013
Net carrying amount		307,058			133,349			75,097			8,642			67,504			591,650
Cost		726,459			379,524			187,705			54,329			116,951			1,464,968
Accumulated amortization and impairment losses		(419,401	)		(246,175	)		(112,608	)		(45,687	)		(49,447	)		(873,318	)
Net carrying amount at March 31, 2020	¥	307,058		¥	133,349		¥	75,097		¥	8,642		¥	67,504		¥	591,650

(1) Other intangibles include Right of use assets from April 1, 2019 which are recognized and measured under IFRS 16 and Leased assets until March 31, 2019 which were recognized and measured under IAS 17. For additional information, refer to Note 2 “Summary of Significant Accounting Policies.”

Other intangible assets related to the acquisition of the retail banking business of Citibank Japan Ltd were tested for impairment because changes in the market conditions indicated that the carrying amount of these assets might not be recoverable at March 31, 2020. The cash-generating unit of these assets was SMBC Trust Bank’s retail banking business unit. In the impairment test, the carrying amount of SMBC Trust Bank’s retail banking

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business unit was compared against its recoverable amount. The recoverable amount determined based on the value in use was less than its carrying amount, primarily due to the revision of the business plan. As a result, the Group recognized an impairment loss of ¥28,679 million, equal to the total carrying amount of these intangible assets for the fiscal year ended March 31, 2020. Thepre-tax discount rate used to estimate the value in use of SMBC Trust Bank’s retail banking business unit was approximately 8%.

The impairment losses on other intangible assets are included in “Other expenses” and the amortization expenses of other intangible assets are included in “General and administrative expenses” in the consolidated income statements.

The amounts of research and development expenditure recognized as expenses for the fiscal years ended March 31, 2020, 2019 and 2018 were ¥78 million, ¥167 million and ¥84 million, respectively, and they were included in “General and administrative expenses” in the consolidated income statements.

Other intangibles at March 31, 2020 and 2019 include leasehold rights, amounting to ¥6,423 million and ¥5,517 million, respectively, which are rights to use land for the purpose of owning the buildings. Since the Group has a long history of renewal, these contracts are not expected to be terminated in the foreseeable future. Leasehold rights are expected to generate cash flows for an indefinite period of time. They are not amortized but are tested for impairment annually, irrespective of whether there is any indication of impairment.

15 OTHER ASSETS

Other assets at March 31, 2020 and 2019 consisted of the following:

	At March 31,
	2020		2019
	(In millions)
Prepaid expenses	¥	65,129	¥	78,475
Accrued income		330,654		385,051
Receivables from brokers, dealers and customers for securities transactions		1,221,414		1,159,479
Cash collateral provided for derivative and other financial transactions		2,121,025		1,537,672
Retirement benefit assets		168,962		268,483
Security deposits		88,518		92,867
Others		276,928		557,844
Total other assets	¥	4,272,630	¥	4,079,871

16 DEPOSITS

Deposits at March 31, 2020 and 2019 consisted of the following:

	At March 31,
	2020		2019
	(In millions)
Non-interest-bearing demand deposits	¥	25,307,775	¥	22,594,227
Interest-bearing demand deposits		59,772,689		56,205,396
Deposits at notice		10,769,494		11,169,956
Time deposits		25,023,508		25,760,889
Negotiable certificates of deposit		10,180,436		11,165,487
Others(1)		7,377,516		7,508,697
Total deposits	¥	138,431,418	¥	134,404,652

(1) Others include, among other items, foreign currency deposits in domestic offices and Japanese yen accounts held by foreign depositors in domestic offices.

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17 TRADING LIABILITIES

Trading liabilities at March 31, 2020 and 2019 consisted of the following:

	At March 31,
	2020		2019
	(In millions)
Debt instruments “short position”	¥	1,915,687	¥	1,835,860
Equity instruments “short position”		102,797		162,834
Total trading liabilities	¥	2,018,484	¥	1,998,694

Trading liabilities include the instruments classified as held for trading. Trading debt instruments mainly consist of Japanese government bonds. Trading equity instruments mainly consist of publicly traded Japanese stocks.

18 BORROWINGS

Borrowings at March 31, 2020 and 2019 consisted of the following:

	At March 31,
	2020		2019
	(In millions)
Unsubordinated borrowings	¥	15,208,696	¥	10,632,213
Subordinated borrowings		254,064		273,819
Liabilities associated with securitization transactions		1,272,714		1,231,447
Lease liabilities(1)		385,888		30,379
Total borrowings	¥	17,121,362	¥	12,167,858

(1) Lease liabilities at March 31, 2020 and 2019 are recognized and measured under IFRS 16 and IAS 17, respectively. For additional information, refer to Note 2 “Summary of Significant Accounting Policies.”

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19 DEBT SECURITIES IN ISSUE

Debt securities in issue at March 31, 2020 and 2019 consisted of the following:

		At March 31,
	Interest rate	2020		2019
		(In millions)
SMFG:
Bonds:
Bonds, payable in United States dollars, due2021-2048	2.06%-4.31%	¥	4,357,548	¥	3,209,483
Bonds, payable in euros, due 2022-2033	0.00%-1.72%		761,597		553,053
Bonds, payable in Australian dollars, due 2022-2028	1.66%-4.13%		199,201		183,049
Bonds, payable in Hong Kong dollars, due 2028	3.54%		4,581		4,242
Subordinated bonds:
Subordinated bonds, payable in Japanese yen, due 2024-2030	0.30%-1.33%		724,332		756,572
Subordinated bonds, payable in United States dollars, due 2024-2029	3.20%-4.44%		262,856		191,741
Total SMFG			6,310,115		4,898,140
SMBC:
Commercial paper	(0.46%)-2.86%		642,377		1,634,812
Bonds:
Bonds, payable in Japanese yen, due 2019	0.25%		—		50,000
Bonds, payable in United States dollars, due 2019-2045	1.88%-4.30%		859,470		1,660,610
Bonds, payable in euros, due 2020-2023	0.09%-2.75%		411,895		429,544
Bonds, payable in Australian dollars, due 2019-2025	2.90%-3.88%		20,227		40,913
Bonds, payable in Hong Kong dollars, due 2020-2025	2.09%-2.92%		33,908		33,427
Bonds, payable in Thai baht, due 2019-2021	2.00%-2.66%		19,980		33,155
Bonds, payable in Great Britain pound, due 2020	0.82%-1.19%		33,338		36,258
Subordinated bonds:
Subordinated bonds, payable in Japanese yen, due 2019-2026	1.43%-2.21%		289,899		362,777
Subordinated bonds, payable in United States dollars, due 2022	4.85%		168,386		166,090
Subordinated bonds, payable in euros, due 2020	4.00%		89,442		93,147
Total SMBC			2,568,922		4,540,733
Other subsidiaries:
Commercial paper	0.00%-2.85%		1,094,325		805,703
Bonds:
Bonds, payable in Japanese yen, due 2019-2050	0.01%-20.00%		483,329		702,312
Bonds, payable in United States dollars, due 2019-2037	0.01%-11.40%		206,552		48,143
Bonds, payable in euros, due 2023-2029	0.10%-0.55%		268,512		124,451
Bonds, payable in Indonesian rupiah, due 2019-2024	7.50%-8.25%		21,067		19,487
Bonds, payable in Australian dollars, due 2020-2031	0.01%-3.00%		1,290		2,075
Bonds, payable in Turkish lira, due 2019-2023	0.01%-15.00%		4,081		5,165
Bonds, payable in Chinese yuan, due 2020	0.00%		6,855		—
Subordinated bonds:
Subordinated bonds, payable in Japanese yen, due 2019-2028	4.00%-4.15%		20,000		25,000
Total other subsidiaries			2,106,011		1,732,336
Total debt securities in issue		¥	10,985,048	¥	11,171,209

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Interest rates represent the contractual interest rates that were applied at March 31, 2020 and 2019, and thus do not represent the actual effective interest rates.

The following table presents the movement in Subordinated bonds for the fiscal years ended March 31, 2020 and 2019.

	For the fiscal year ended March 31,
	2020			2019
	(In millions)
Subordinated bonds at beginning of period(1)	¥	1,595,327		¥	1,610,507
Cash flows:
Proceeds from issuance of subordinated bonds		54,303			—
Redemption of subordinated bonds		(113,823	)		(26,721	)
Non-cash changes:
Foreign exchange translations		(10,900	)		10,803
Others		30,008			738
Subordinated bonds at end of period(1)	¥	1,554,915		¥	1,595,327

(1) The balances are comprised of subordinated bonds issued by SMFG, SMBC and other subsidiaries.

20 PROVISIONS

The following table presents movements by class of provisions for the fiscal years ended March 31, 2020 and 2019.

	Provision for interest repayment			Other provisions			Total
	(In millions)
Balance at April 1, 2018	¥	145,179		¥	68,071		¥	213,250
Additional provisions		47,000			7,040			54,040
Amounts used		(44,063	)		(18,576	)		(62,639	)
Unused amounts reversed		(106	)		(10,277	)		(10,383	)
Amortization of discount and effect of change in discount rate		399			158			557
Others		—			(7	)		(7	)
Balance at March 31, 2019		148,409			46,409			194,818
Additional provisions		39,000			19,614			58,614
Amounts used		(43,674	)		(9,577	)		(53,251	)
Unused amounts reversed		(29	)		(106	)		(135	)
Amortization of discount and effect of change in discount rate		(277	)		157			(120	)
Others		—			127			127
Balance at March 31, 2020	¥	143,429		¥	56,624		¥	200,053

Provision for Interest Repayment

Japan has two laws restricting interest rates on loans. The Interest Rate Restriction Act sets the maximum interest rates on loans ranging from 15% to 20%. The Act Regulating the Receipt of Contributions, Receipt of Deposits and Interest Rates capped the interest rate on loans at 29.2% up to June 2010. Interest rates on loans greater than the range of15-20% but below the maximum allowable of 29.2% were called “gray zone interest,” and many consumer lending and credit card companies were charging interest in this zone.

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In January 2006, judicial decisions strictly interpreted the conditions under which consumer finance companies may retain gray zone interest. As a result, claims for refunds of gray zone interest have increased, and consumer lending and credit card companies have recorded a provision for claims for refunds of gray zone interest.

In December 2006, the Government of Japan made amendments to laws regulating money lenders to implement regulatory reforms affecting the consumer finance industry. As a result, in June 2010, the maximum legal interest rates on loans were reduced to the range of15-20%, and gray zone interest was abolished.

The provision for interest repayment is calculated by estimating the future claims for the refund of gray zone interest, taking into account historical experience such as the number of customer claims for a refund, the amount of repayments and the characteristics of customers, and the length of the period during which claims are expected to be received in the future. Of these historical experiences, the number of customer claims for the refund has a significant effect on the amount of the provision, and the historical number of customer claims to the Group was 95 thousand, 84 thousand and 94 thousand for the fiscal years ended March 31, 2020, 2019 and 2018, respectively. The timing of the settlement of these claims is uncertain.

The decrease in the provision for interest repayment for the fiscal year ended March 31, 2020 was primarily due to the use of the provision during the year, which was partially offset by additional provisions as a result of the estimation of the future claims for the refund.

Other Provisions

Other provisions include asset retirement obligations and provisions for loan commitments, reimbursement of deposits, point programs, product warranties and litigation claims. Most of these provisions occurred in the normal course of business and none of them were individually significant at March 31, 2020 and 2019.

21 OTHER LIABILITIES

Other liabilities at March 31, 2020 and 2019 consisted of the following:

	At March 31,
	2020		2019
	(In millions)
Accrued expenses	¥	338,626	¥	360,258
Unearned income		121,416		129,414
Financial guarantees and other credit-related contingent liabilities		42,515		43,117
Due to trust account		1,379,220		1,228,223
Payables to brokers, dealers and customers for securities transactions		1,712,641		828,758
Payables related to credit card services		636,032		703,845
Obligations from factoring transactions		506,202		587,960
Retirement benefit liabilities		38,986		36,027
Guarantee deposits received		1,130,839		497,379
Others		1,694,878		1,716,758
Total other liabilities	¥	7,601,355	¥	6,131,739

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22 DEFERRED INCOME TAX

The changes of net deferred tax assets and liabilities for the fiscal years ended March 31, 2020 and 2019 were as follows:

	For the fiscal year ended March 31,
	2020			2019
	(In millions)
At beginning of period	¥	(230,292	)	¥	(321,493	)
Deferred tax benefit (expense)		151,292			(10,623	)
Deferred tax relating to other comprehensive income:
Remeasurements of defined benefit plans reserve		27,028			12,407
Financial instruments at fair value through other comprehensive income reserve		96,170			108,090
Exchange differences on translating foreign operations reserve		2,226			474
Acquisition and disposal of subsidiaries and businesses		(6,438	)		(16,391	)
Exchange differences and others		(3,971	)		(2,756	)
At end of period	¥	36,015		¥	(230,292	)

The deferred tax assets and liabilities at March 31, 2020 and 2019 were attributable to the following items:

	At March 31,
	2020		2019
	(In millions)
Deferred tax assets:
Loans and advances	¥	349,058	¥	286,752
Derivative financial instruments		95,917		48,821
Tax losses carried forward		68,678		44,518
Retirement benefits		42,719		10,254
Provision for interest repayment		39,928		37,845
Investment securities		216		754
Other deductible temporary differences		121,580		112,092
Total deferred tax assets		718,096		541,036
Deferred tax liabilities:
Investment securities		477,168		572,369
Goodwill and intangible assets		64,574		71,265
Property, plant and equipment		56,992		57,607
Lease transactions		8,845		10,381
Retirement benefits		3,110		3,224
Other taxable temporary differences		71,392		56,482
Total deferred tax liabilities		682,081		771,328
Net deferred tax assets (liabilities)(1)	¥	36,015	¥	(230,292	)

(1) Deferred tax assets and deferred tax liabilities are offset in the consolidated statements of financial position if the entity has a legally enforceable right to set off current tax assets against current tax liabilities, and the deferred tax assets and the deferred tax liabilities relate to income taxes levied by the same taxation authority on the same taxable entity.

On March 31, 2016, the Government of Japan promulgated (i) an amendment to the Corporation Tax Act and (ii) the Local Tax Act. Those laws (i) reduce the Japanese national corporation tax rate by 0.5 percentage points from the fiscal year beginning April 1, 2016 and additionally reduce by 0.2 percentage points from the fiscal year beginning April 1, 2018, and (ii) reduce the enterprise tax rate by 1.2 percentage points from the fiscal year beginning April 1, 2016. As a result, the effective statutory tax rate of the Company was reduced from

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32.3% to 30.9% during the two fiscal years beginning April 1, 2016 through March 31, 2018 and from 30.9% to 30.6% for the fiscal years beginning April 1, 2018. The Group measured deferred tax assets and liabilities at the rates that were expected to apply to the period when the assets are realized or the liabilities are settled.

The Company has adopted the consolidatedcorporate-tax system in Japan.Under the consolidatedcorporate-tax system, the taxable profits or losses on a consolidated basis are calculated by aggregating those of the parent company and its wholly owned domestic subsidiaries (a “tax consolidated group”), and any unused tax losses carried forward, except for certain specified consolidated tax losses carried forward, by one company can be used by another company within the tax consolidated group for Japanese national corporation tax purposes. Therefore, the deferred tax assets relating to deductible temporary differences and tax losses carried forward were recognized on a consolidated basis, but only to the extent that it is probable that future consolidated taxable profits will be available against which the deductible temporary differences and tax losses carried forward can be utilized.

On March 31, 2020, the Government of Japan promulgated an amendment to the Corporation Tax Act, which revised the consolidatedcorporate-tax system and shifted to the group aggregation system. Under the group aggregation system, each company in the tax group will individually file its own tax returns while maintaining certain system to aggregate profits and losses within the group company. The amendments are effective for fiscal years beginning on or after April 1, 2022 and there are not expected to have a material impact on the Group’s consolidated financial statements.

The deferred tax assets of the Company and its wholly owned domestic subsidiaries, which adopted the consolidatedcorporate-tax system, consisted mainly of those for loans and advances. The deferred tax assets for loans and advances were generally related to the accumulated losses from the impairment of these assets which would be deductible for tax purposes in future periods. The Company and its wholly owned domestic subsidiaries consider that most of the deductible temporary differences will be able to be used based mainly on future taxable profits on a consolidated basis. The future taxable profits are estimated based on forecasted results of operations, which reflect historical financial performance and the business plans that management believes to be prudent and feasible. In the Company’s other subsidiaries, deferred tax assets relating to deductible temporary differences are recognized only to the extent that it is probable that future taxable profit will be available against which the deductible temporary differences can be utilized. No deferred tax assets were recognized in certain subsidiaries of the Company for the deductible temporary differences estimated not to be realized, or for the tax losses carried forward projected to expire due to the uncertainty of sufficient future taxable profit.

The following table shows the amounts of deductible temporary differences and tax losses carried forward by expiration date at March 31, 2020 and 2019 for which no deferred tax assets were recognized.

	At March 31,
	2020		2019
	(In millions)
Deductible temporary differences	¥	232,242	¥	414,953
Tax losses carried forward which will expire in 1 year		220,969		153,865
2 years		63,570		250,892
3 years		49,388		63,571
4 years		37,702		56,043
5 years		23,082		47,562
6 years		13,120		26,276
7 years		60,027		13,231
8 years		—		60,093
9 years		137,046		—
10 years and thereafter		54,174		146,206
Total deductible temporary differences and tax losses carried forward(1)	¥	891,320	¥	1,232,692

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(1) Under the consolidatedcorporate-tax system, the Company and its wholly owned domestic subsidiaries recognized deferred tax assets relating to deductible temporary differences and tax losses carried forward on a consolidated basis for Japanese national corporation tax purposes and on a stand-alone basis for Japanese local corporation tax purposes. There are deductible temporary differences and tax losses carried forward on which deferred tax assets are recognized for Japanese national corporation tax purposes, but on which no deferred tax assets are recognized for Japanese local corporation tax purposes. These deductible temporary differences and tax losses carried forward amounted to ¥229,883 million and ¥405,615 million at March 31, 2020 and 2019, respectively.

In addition to the above table, the Group does not recognize deferred tax assets for deductible temporary differences related to investments in subsidiaries, associates and joint ventures where the Company has no intention to reverse these differences in the foreseeable future. The amount of those deductible temporary differences was ¥1.471 billion and ¥810 billion at March 31, 2020 and 2019, respectively.

At March 31, 2020 and 2019, the amount of taxable temporary differences associated with investments in subsidiaries, associates and joint ventures for which deferred tax liabilities had not been recognized was ¥1,777 billion and ¥2,334 billion, respectively. The Company can control the timing of reversal of the temporary differences and it is probable that they will not be reversed in the foreseeable future.

Deferred tax expense for the fiscal years ended March 31, 2020 and 2019 was attributable to the following temporary differences and tax losses carried forward:

	For the fiscal year ended March 31,
	2020			2019
	(In millions)
Loans and advances	¥	65,549		¥	(7,956	)
Derivative financial instruments		47,115			(10,110	)
Tax losses carried forward		24,769			21,016
Goodwill and intangible assets		13,552			22,451
Retirement benefits		5,131			5,102
Provision for interest repayment		2,083			1,066
Lease transactions		1,373			278
Investment securities		720			25,226
Property, plant and equipment		556			(28,338	)
Other temporary differences—net		(9,556	)		(39,358	)
Total deferred tax benefit (expense)	¥	151,292		¥	(10,623	)

23 RETIREMENT BENEFITS

Defined Benefit Plans

SMBC and some of the Company’s other subsidiaries have various defined benefit plans such as defined benefit pension plans andlump-sum severance indemnity plans, which define the amount of benefits that an employee will receive on or after retirement, usually based on one or more factors, such as age, years of service, compensation, classes and earned points based on service.

SMBC’s defined benefit plans account for the vast majority of the defined benefit obligations and plan assets in the Group. SMBC has a corporate defined benefit pension plan and alump-sum severance indemnity plan.

Defined benefit pension plans

SMBC’s corporate defined benefit pension plan is a funded defined benefit pension plan, which is regulated by the Corporate Defined Benefit Pension Plan Law, one of the Japanese pension laws. Benefits are paid in exchange for services rendered by employees who worked for more than a specified period considering their years of service and the degree of their contribution to SMBC.

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SMBC’s pension fund is a special entity established in accordance with the pension laws, and SMBC has an obligation to make contributions to it. It has a board of directors which consists of an equal number of members elected from both the management and employees of SMBC. These board members have a fiduciary duty to administer and manage the pension fund.

The objective of SMBC’s pension fund is to earn a return over the long term which is sufficient to pay future benefits to participants of the corporate defined benefit pension plan, including pension benefit plans,lump-sum indemnity plans for bereaved families, and other lump sum indemnity plans. To achieve this, SMBC’s pension fund annually sets investment guidelines including asset allocation composed of equities, bonds and other appropriate financial assets according to the funding status. Investment decisions for its assets are made in accordance with these guidelines.

The Corporate Defined Benefit Pension Plan Law requires a pension fund to review the assumptions and remeasure the required contribution at least every fifth fiscal year, in order to ensure that it maintains sufficient assets for future benefit payments. On the other hand, the present value of the defined benefit obligation is calculated annually based on actuarial valuations that are dependent upon a number of assumptions, including discount rates, mortality rates and future salary (benefit) increases, in accordance with IAS 19 “Employee Benefits.” Other types of defined benefit pension plans operated by the Group are generally established and operated in the same manner as described above.

Lump-sum severance indemnity plans

SMBC and some of the Company’s other subsidiaries havelump-sum severance indemnity plans under which their employees are provided withlump-sum cash payments upon leaving the company. While funding of these plans is not required under Japanese pension laws, some of these plans are funded with assets held by retirement benefit trusts.

SMBC and a number of the Company’s other subsidiaries in Japan established retirement benefit trusts and contributed some of their marketable securities to these trusts in order to isolate these assets for retirement benefits by entering into contracts with trust banks. Retirement benefit trusts are voluntary funds that are used either to contribute assets to the pension funds or to directly settle retirement benefits. Among the Group, retirement benefit trusts are set up for the defined benefit pension plans, as well as for thelump-sum severance indemnity plans.

The assets belonging to the retirement benefit trusts are available to be used only to pay or fund retirement benefits, and practically held by an entity that is legally separated from the Group. Therefore, they are not available to the Group’s creditors even in bankruptcy and cannot be returned to the Group, unless either the remaining assets are sufficient to meet all the related obligations or the entities (funds) reimburse to the Group the retirement benefits which are already paid by the Group. Therefore, these assets are accounted for as plan assets.

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The following tables provide detailed information for the defined benefit plans.

The amounts of the retirement benefit liabilities and the retirement benefit assets recognized in the consolidated statements of financial position at March 31, 2020 and 2019 were determined as follows:

	At March 31,
	2020			2019
	(In millions)
Present value of unfunded obligations	¥	(32,696	)	¥	(30,237	)
Present value of funded obligations		(1,155,401	)		(1,157,946	)
Fair value of plan assets		1,318,073			1,420,639
Net retirement benefit assets (liabilities)	¥	129,976		¥	232,456
Of which retirement benefit liabilities included in “Other liabilities”	¥	(38,986	)	¥	(36,027	)
Of which retirement benefit assets included in “Other assets”	¥	168,962		¥	268,483

The movements in the defined benefit obligations for the fiscal years ended March 31, 2020 and 2019 were as follows:

	For the fiscal year ended March 31,
	2020			2019
	(In millions)
At beginning of period	¥	1,188,183		¥	1,173,671
Current service cost		37,775			38,540
Interest cost		6,826			8,008
Actuarial losses (gains)—demographic assumptions		8,089			(394	)
Actuarial losses—financial assumptions		757			23,197
Actuarial losses—experience		2,592			2,652
Benefits paid		(43,636	)		(42,495	)
Lump-sum payments		(12,443	)		(13,605	)
Past service cost		—			108
Acquisition of subsidiaries and businesses		1,252			5,186
Others		(1,298	)		(6,685	)
At end of period	¥	1,188,097		¥	1,188,183

The movements in the fair value of plan assets for the fiscal years ended March 31, 2020 and 2019 were as follows:

	For the fiscal year ended March 31,
	2020			2019
	(In millions)
At beginning of period	¥	1,420,639		¥	1,453,238
Interest income		8,080			9,805
Return on plan assets excluding interest income		(77,512	)		(14,874	)
Contributions by employer		13,145			15,101
Benefits paid		(43,636	)		(42,495	)
Acquisition of subsidiaries and businesses		—			6,191
Others		(2,643	)		(6,327	)
At end of period	¥	1,318,073		¥	1,420,639

F-84

The amounts recognized in “General and administrative expenses” in the consolidated income statements for the fiscal years ended March 31, 2020, 2019 and 2018 were as follows:

	For the fiscal year ended March 31,
	2020			2019			2018
	(In millions)
Current service cost	¥	37,775		¥	38,540		¥	40,387
Net interest cost		(1,254	)		(1,797	)		(1,453	)
Past service cost		—			108			(44	)
Total	¥	36,521		¥	36,851		¥	38,890

The plan assets at March 31, 2020 and 2019 were composed as follows:

	At March 31,
	2020						2019
	Quoted in active markets		Other		Total		Quoted in active markets		Other		Total
	(In millions)
Plan assets retained in the pension funds:
Equity instruments	¥	184,621	¥	138,692	¥	323,313	¥	226,372	¥	138,937	¥	365,309
Debt instruments		21,326		174,030		195,356		16,124		233,025		249,149
General account of life insurance companies		124		39,697		39,821		250		39,463		39,713
Other investments and short-term assets		47,496		243,834		291,330		33,055		217,344		250,399
Plan assets retained in the retirement benefit trusts:
Japanese equity instruments		416,923		1,470		418,393		466,612		1,593		468,205
Other short-term assets		40,254		9,606		49,860		38,278		9,586		47,864
Total	¥	710,744	¥	607,329	¥	1,318,073	¥	780,691	¥	639,948	¥	1,420,639

The assets in the pension funds included common stocks issued by the Group at March 31, 2020 and 2019. The amounts of these stocks were not significant.

The assets in retirement benefit trusts were primarily composed of Japanese equity instruments. Most of the plan assets held by the Group are invested in Japanese equity and debt instruments. Accordingly, the Group may be exposed to market risk arising from the domestic markets.

The Group retained the voting rights of some of these equity instruments with fair values of ¥406,305 million and ¥456,497 million (30.8% and 32.1% of the total fair values of plan assets) at March 31, 2020 and 2019, respectively.

The principal actuarial assumptions used at March 31, 2020, 2019 and 2018 were as follows:

	At March 31,
	2020			2019			2018
Discount rates		0.5	%		0.5	%		0.7	%

Discount rates are weighted on the basis of the defined benefit obligations.

F-85

The assumptions for future mortality are based on the official mortality table generally used for actuarial assumptions in Japan. Under the mortality table, used at March 31, 2020, 2019 and 2018, the current average remaining life expectancy of an individual retiring at age 60 was 23 years for males and 28 years for females.

The sensitivity analyses of the effect of changes in key assumptions on the defined benefit obligations at March 31, 2020 and 2019 were as follows:

	At March 31,
	2020			2019
	Increase/(decrease)			Increase/(decrease)
	(In millions)
Discount rates:
Increase by 50 bps	¥	(75,446	)	¥	(74,405	)
Decrease by 50 bps		85,951			84,546
Average life expectancy at age 60:
Increase of one year	¥	40,012		¥	39,661

Each increase and decrease in the table above assumes that only one assumption is changed, with all other assumptions remaining unchanged. In practice, however, changes in multiple assumptions may occur in a mutually interrelated manner.

The weighted average durations of defined benefit plans for the fiscal years ended March 31, 2020, 2019 and 2018 were as follows:

	At March 31,
	2020		2019		2018
	(Years)
Lump-sum severance indemnity plans		10.5		12.7		12.8
Defined benefit pension plans		17.5		18.9		18.9

Funding Policy for Plan Assets

The pension funds review the funding status of plan assets every year. If any funding deficit is identified, a measure to cover such deficit will be implemented, for example, by increasing the amount of contributions by the employer.

Expected contribution

Expected contributions to the defined benefit plans for the fiscal year ending March 31, 2021 are ¥11,932 million.

Defined Contribution Plans

SMBC and some of the Company’s other subsidiaries provide defined contribution plans. The amounts recognized as expenses for the defined contribution plans were ¥11,139 million, ¥10,862 million and ¥10,769 million for the fiscal years ended March 31, 2020, 2019 and 2018, respectively, which were included in “General and administrative expenses” in the consolidated income statements.

Employees’ Pension Insurance Plan

In Japan, the Government of Japan operates the Employees’ Pension Insurance Plan which covers most of the private entities’ employees. The amounts of contributions charged to expense for the Employees’ Pension Insurance Plan were ¥37,990 million, ¥39,232 million and ¥42,694 million for the fiscal years ended March 31, 2020, 2019 and 2018, respectively, which were included in “General and administrative expenses” in the consolidated income statements.

F-86

24 SHAREHOLDERS’ EQUITY

Common Stock

The changes in the number of issued shares of common stock and common stock held by the Company or its subsidiaries during the fiscal years ended March 31, 2020, 2019 and 2018 were as follows:

	For the fiscal year ended March 31,
	2020						2019						2018
	Outstanding			In treasury			Outstanding			In treasury			Outstanding		In treasury
At beginning of period		1,399,401,420			3,800,918			1,414,443,390			3,884,968			1,414,055,625		4,028,883
Net change		(26,229,864	)		(155,875	)		(15,041,970	)		(84,050	)		387,765		(143,915	)
At end of period		1,373,171,556			3,645,043			1,399,401,420			3,800,918			1,414,443,390		3,884,968

The total number of authorized shares of common stock was 3,000 million at March 31, 2020 and 2019 with no stated value. All issued shares are fully paid. The details of the stock options and the restricted shares outstanding are described in Note 39 “Share-Based Payment.”

On May 14, 2018, the Company’s board of directors resolved to repurchase shares of its common stock and cancel all the repurchased shares. The resolution authorized the repurchase of up to the lesser of (i) an aggregate of 20,000,000 shares of its common stock and (ii) an aggregate of ¥70 billion between May 15, 2018 and July 31, 2018. On June 19, 2018, the Company completed the repurchase, acquiring 15,368,300 shares of its common stock for ¥70 billion in aggregate. The Company cancelled all of the repurchased shares on August 20, 2018.

On May 15, 2019, the Company’s board of directors resolved to repurchase shares of its common stock and cancel all the repurchased shares. The resolution authorized the repurchase of up to the lesser of (i) an aggregate of 32,000,000 shares of its common stock and (ii) an aggregate of ¥100 billion between May 16, 2019 and August 30, 2019. On August 9, 2019, the Company completed the repurchase, acquiring 26,502,400 shares of its common stock for ¥100 billion in aggregate. The Company cancelled all of the repurchased shares on September 20, 2019.

Preferred Stock

The following table shows the number of shares of preferred stock at March 31, 2020 and 2019.

	At March 31, 2020				At March 31, 2019
	Authorized		Issued		Authorized		Issued
Type 5 preferred stock		167,000		—		167,000		—
Type 7 preferred stock		167,000		—		167,000		—
Type 8 preferred stock		115,000		—		115,000		—
Type 9 preferred stock		115,000		—		115,000		—

All the preferred stocks have no stated value. There was no movement in preferred stock during the fiscal years ended March 31, 2020, 2019 and 2018.

Capital stock, Capital surplus and Treasury stock

“Capital stock” represents share capital under the Companies Act adjusted by the amount corresponding to the preferred stock which is accounted for as a liability under IFRS. Purchases of treasury stock are recognized at cost in “Treasury stock.” Any additionalpaid-in capital, net gains or losses on the sale of treasury stock, and other changes in equity resulting from transactions with shareholders except for dividends are included in “Capital surplus.”

F-87

Restriction on the Payment of Dividends

The amount of the capital surplus and retained earnings of the Company that can be paid out as dividends is subject to restrictions under the Companies Act. These amounts are calculated based on the Company’s nonconsolidated statement of financial position prepared in accordance with Japanese GAAP. Therefore, the adjustments made to prepare the IFRS consolidated financial statements have no impact on the calculation. The total amount that the Company can pay out as a dividend was ¥2,063 billion at March 31, 2020.

Other than the restriction by the Companies Act, the Company is required to maintain a risk-weighted capital ratio as per the Banking Act of Japan (“Banking Act”). The detail of the restriction is described in Note 45 “Financial Risk Management.” Therefore, the Company would not be able to pay a dividend if the ratio were to fall below the minimum amount as a result of the payment of the dividends.

Since the Company is a holding company, its earnings rely mostly on dividend income from SMBC, and the Company’s other subsidiaries and associates. SMBC is subject to some restrictions on its dividend payment by the Companies Act and the Banking Act, similar to those applied to the Company’s.

Other Reserves

Remeasurements of defined benefit plans reserve

Remeasurements of the defined benefit plans reserve includes the accumulated actuarial gains and losses arising from experience adjustments and changes in actuarial assumptions, and return on plan assets excluding interest income.

The movements of remeasurements of the defined benefit plans reserve for the fiscal years ended March 31, 2020, 2019 and 2018 were as follows:

	For the fiscal year ended March 31,
	2020			2019			2018
	(In millions)
At beginning of period	¥	72,425		¥	76,102		¥	22,774
Gains (losses) arising during the period, before tax		(88,950	)		(40,329	)		73,662
Income tax (expense) benefit for changes arising during the period		27,028			12,407			(22,492	)
Amount attributable tonon-controlling interests		(29	)		53			45
Share of other comprehensive income (loss) of associates and joint ventures		(333	)		760			58
Transfer from other reserves to retained earnings		(12,694	)		23,432			2,055
At end of period	¥	(2,553	)	¥	72,425		¥	76,102

Available-for-sale financial assets reserve

Theavailable-for-sale financial assets reserve included the accumulated gains and losses ofavailable-for-sale financial assets excluding the amount reclassified to profit or loss when the assets are derecognized or impaired under IAS 39. Following the adoption of IFRS 9 on April 1, 2018, accumulated gains and losses previously recognized in theavailable-for-sale financial assets reserve are primarily recorded in the financial instruments at fair value through other comprehensive income reserves.

F-88

The movements of theavailable-for-sale financial assets reserve for the fiscal year ended March 31, 2018 were as follows:

	For the fiscal year ended March 31,
	2018
	(In millions)
At beginning of period	¥	1,929,894
Gains (losses) arising during the period, before tax		582,435
Income tax (expense) benefit for changes arising during the period		(184,128	)
Reclassification adjustments for (gains) losses included in net profit, before tax		(275,038	)
Income tax benefit for reclassification adjustments		84,745
Amount attributable tonon-controlling interests		(15,653	)
Share of other comprehensive income (loss) of associates and joint ventures		5
At end of period	¥	2,122,260

Financial instruments at fair value through other comprehensive income reserve

The financial instruments at fair value through other comprehensive income (“FVOCI”) reserve includes the accumulated gains and losses of debt instruments measured at FVOCI and equity instruments measured at FVOCI under IFRS 9. The accumulated gains and losses related to debt instruments measured at FVOCI are reclassified to profit or loss when the assets are derecognized or impaired. The accumulated gains and losses related to equity instruments measured at FVOCI are transferred to retained earnings when the assets are derecognized. In addition, when the decline in the fair value of an equity instrument measured at FVOCI is above the threshold to qualify for a tax deduction, the accumulated losses related to the equity instrument are transferred to retained earnings.

The movements of the financial instruments at FVOCI reserve for the fiscal years ended March 31, 2020 and 2019 were as follows:

	For the fiscal year ended March 31,
	2020			2019
	(In millions)
At beginning of period	¥	1,730,607		¥	1,718,937
Gains (losses) arising during the period, before tax		(178,166	)		21,936
Income tax (expense) benefit for changes arising during the period		54,206			2,982
Reclassification adjustments for (gains) losses included in net profit, before tax		(96,624	)		(6,071	)
Income tax benefit for reclassification adjustments		29,590			1,844
Amount attributable tonon-controlling interests		(2	)		53,769
Share of other comprehensive income (loss) of associates and joint ventures		231			1,368
Transfer from other reserves to retained earnings		(39,829	)		(64,158	)
At end of period	¥	1,500,013		¥	1,730,607

Exchange differences on translating foreign operations reserve

Exchange differences on translating the foreign operations reserve includes foreign exchange differences arising from the translation of the net assets of foreign operations from their functional currencies to the Group’s presentation currency, Japanese yen.

F-89

The movements of exchange differences on translating the foreign operations reserve for the fiscal years ended March 31, 2020, 2019 and 2018 were as follows:

	For the fiscal year ended March 31,
	2020			2019			2018
	(In millions)
At beginning of period	¥	113,334		¥	125,987		¥	181,374
Gains (losses) arising during the period, before tax		(78,742	)		22,517			(75,409	)
Income tax (expense) benefit for changes arising during the period		2,288			343			3,152
Reclassification adjustments for (gains) losses included in net profit, before tax		204			(37,247	)		49
Income tax (expense) benefit for reclassification adjustments		(62	)		131			(15	)
Amount attributable tonon-controlling interests		2,741			4,430			9,014
Share of other comprehensive income (loss) of associates and joint ventures		(11,503	)		(2,827	)		7,822
At end of period	¥	28,260		¥	113,334		¥	125,987

25 NON-CONTROLLING INTERESTS AND EQUITY ATTRIBUTABLE TO OTHER EQUITY INSTRUMENTS HOLDERS

Non-controlling interests

Non-controlling interests at March 31, 2020 and 2019 consisted of the following:

	At March 31,
	2020		2019
	(In millions)
Preferred securities issued by subsidiaries	¥	—	¥	436,500
Others		60,296		57,623
Totalnon-controlling interests	¥	60,296	¥	494,123

Preferred securities issued by subsidiaries

Preferred securities issued by subsidiaries consisted of the following:

	Redemption at the option of Issuer		At March 31,
			2020		2019
			(In millions)
SMFG Preferred Capital JPY 2 Limited
Series B(non-cumulative perpetual preferred securities)		July 2019	¥	—	¥	140,000
Series E(non-cumulative perpetual preferred securities)		July 2019		—		33,000
SMFG Preferred Capital JPY 3 Limited
Series A(non-cumulativestep-up perpetual preferred securities)		January 2020		—		99,000
Series B(non-cumulative perpetual preferred securities)		January 2020		—		164,500
Preferred securities issued by subsidiaries			¥	—	¥	436,500

Others

Others represent the equity in the Group’s subsidiaries not attributable, directly or indirectly, to the Group. They were not considered individually material to the Group at March 31, 2020 and 2019.

F-90

Equity attributable to other equity instruments holders

Equity attributable to other equity instruments holders at March 31, 2020 and 2019 consisted of the following:

	At March 31,
	2020		2019
	(In millions)
Perpetual subordinated bonds	¥	684,476	¥	598,703
Total equity attributable to other equity instruments holders	¥	684,476	¥	598,703

SMFG issued perpetual subordinated bonds, which are BaselIII-compliant Additional Tier 1 capital instruments and are classified as equity under IFRS.

The bonds bear a fixed rate of interest until the first call date. After the first call date, they will bear floating rate of interest unless they are redeemed. SMFG may at any time and in its sole discretion, elect to cancel any interest payment. If cancelled, interest payments arenon-cumulative and will not increase to compensate for any short-fall in interest payments in any previous year.

These bonds are undated, have no final maturity date and may be redeemed at SMFG’s option, in whole, but not in part, on the first call date or any interest payment dates thereafter subject to prior confirmation of the Financial Services Agency of Japan (“FSA”).

The principal amount of the bonds may be written down upon the occurrence of certain trigger events. For example, if the Common Equity Tier 1 capital ratio falls below 5.125% (“Capital Ratio Event”), the principal amount required to fully restore the Common Equity Tier 1 capital ratio above 5.125% will be written down.

The principal amount of the bonds which has been written down due to a Capital Ratio Event may be reinstated at SMFG’s option, subject to prior confirmation of the FSA that the Common Equity Tier 1 capital ratio remains at a sufficiently high level after giving effect to such reinstatement.

F-91

26 NET INTEREST INCOME

Net interest income for the fiscal years ended March 31, 2020, 2019 and 2018 consisted of the following:

	For the fiscal year ended March 31,
	2020		2019		2018
	(In millions)
Interest income from:
Deposits with banks	¥	81,592	¥	103,798	¥	78,217
Call loans and bills bought		16,556		16,400		19,362
Reverse repurchase agreements and cash collateral on securities borrowed		52,865		38,387		40,021
Investment securities		178,830		152,915		102,295
Loans and advances		2,077,202		2,094,850		1,904,175
Total interest income		2,407,045		2,406,350		2,144,070
Interest expense from:
Deposits		582,799		601,365		382,753
Call money and bills sold		10,483		14,212		8,763
Repurchase agreements and cash collateral on securities lent		132,389		120,984		61,341
Borrowings		92,425		107,233		89,196
Debt securities in issue		232,473		256,035		190,774
Premiums for deposit insurance(1)		36,809		35,555		37,938
Others		3,352		2,046		1,142
Total interest expense		1,090,730		1,137,430		771,907
Net interest income	¥	1,316,315	¥	1,268,920	¥	1,372,163

(1) For the fiscal year ended March 31, 2020, premiums for deposit insurance have been reclassified from “General and administrative expense” to “Interest expense.” Comparative amounts have been reclassified to conform to the current presentation.

Interest income recorded on impaired financial assets was ¥18,886 million for the fiscal year ended March 31, 2018.

F-92

27 NET FEE AND COMMISSION INCOME

Net fee and commission income for the fiscal years ended March 31, 2020, 2019 and 2018 consisted of the following:

	For the fiscal year ended March 31,
	2020		2019		2018
	(In millions)
Fee and commission income from:
Loans	¥	123,472	¥	118,225	¥	120,998
Credit card business		304,238		290,034		289,509
Guarantees		67,846		63,112		62,934
Securities-related business		149,837		142,870		147,016
Deposits		14,045		12,650		16,169
Remittances and transfers		141,617		139,625		140,621
Safe deposits		4,349		4,546		5,224
Trust fees		4,680		4,629		3,854
Investment trusts		150,349		127,762		154,419
Agency		9,612		11,417		16,577
Others		177,087		186,907		174,043
Total fee and commission income		1,147,132		1,101,777		1,131,364
Fee and commission expense from:
Remittances and transfers		40,601		42,150		40,214
Others		163,221		136,201		138,653
Total fee and commission expense		203,822		178,351		178,867
Net fee and commission income	¥	943,310	¥	923,426	¥	952,497

Fee and commission income can be mainly disaggregated into credit card business, securities-related business, investment trusts, remittances and transfers and loans by types of services. Fees obtained through credit card business principally arise in the Retail Business Unit. Fees obtained through securities-related business principally arise in the Wholesale Business Unit, the Retail Business Unit and the International Business Unit. Fees and commissions obtained through investment trusts principally arise in the Retail Business Unit and Head office account and others, which include the investment advisory and investment trust management businesses. Remittance and transfer fees principally arise in the Wholesale Business Unit, the Retail Business Unit and the International Business Unit. Loan transaction fees principally arise in the Wholesale Business Unit and the International Business Unit.

28 NET TRADING INCOME

Net trading income for the fiscal years ended March 31, 2020, 2019 and 2018 consisted of the following:

	For the fiscal year ended March 31,
	2020			2019		2018
	(In millions)
Interest rate	¥	149,420		¥	176,352	¥	128,137
Foreign exchange		(78,541	)		92,835		87,322
Equity		59,388			46,576		48,047
Credit		2,495			3,667		5,735
Others		1,307			872		1,223
Total net trading income	¥	134,069		¥	320,302	¥	270,464

Net trading income includes income and losses from trading assets and liabilities, and derivative financial instruments.

F-93

29 NET INCOME (LOSS) FROM FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS

Net income (loss) from financial assets at fair value through profit or loss for the fiscal years ended March 31, 2020, 2019 and 2018 consisted of the following:

	For the fiscal year ended March 31,
	2020			2019		2018
	(In millions)
Net income (loss) from debt instruments(1)	¥	(23,557	)	¥	53,048	¥	(1,775	)
Net income from equity instruments		1,618			1,607		1,108
Total net income (loss) from financial assets at fair value through profit or loss	¥	(21,939	)	¥	54,655	¥	(667	)

(1) Following the adoption of IFRS 9, net income (loss) from debt instruments includes all gains and losses arising mainly from financial assets which do not meet the conditions for SPPI.

30 NET INVESTMENT INCOME

Net investment income for the fiscal years ended March 31, 2020, 2019 and 2018 consisted of the following:

	For the fiscal year ended March 31,
	2020		2019		2018
	(In millions)
Net gain from disposal of debt instruments	¥	96,624	¥	6,072	¥	4,187
Net gain from disposal of equity instruments(1)		—		—		281,036
Dividend income		79,840		87,850		138,874
Total net investment income	¥	176,464	¥	93,922	¥	424,097

(1) Following the adoption of IFRS 9, net gain from disposal of equity instruments elected to be measured at FVOCI is not transferred to profit or loss.

Dividend income from equity instruments at fair value through other comprehensive income which were derecognized during the fiscal years ended March 31, 2020 and 2019 were ¥1,555 million and ¥2,524 million, respectively.

F-94

31 OTHER INCOME

Other income for the fiscal years ended March 31, 2020, 2019 and 2018 consisted of the following:

	For the fiscal year ended March 31,
	2020		2019		2018
	(In millions)
Income from operating leases	¥	40,337	¥	235,044	¥	276,850
Income related to disposal of assets leased		2,744		112,344		322,673
Income related to IT solution services		19,880		33,828		29,172
Gains on disposal of property, plant and equipment, and other intangible assets		1,862		541		852
Reversal of impairment losses of investments in associates and joint ventures		—		2,402		8,123
Gains on step acquisition of subsidiaries		22,040		—		—
Others		68,768		121,507		118,185
Total other income	¥	155,631	¥	505,666	¥	755,855

32 IMPAIRMENT CHARGES ON FINANCIAL ASSETS

Impairment charges (reversals) on financial assets for the fiscal years ended March 31, 2020, 2019 and 2018 consisted of the following:

	For the fiscal year ended March 31,
	2020(1)			2019(1)			2018(2)
	(In millions)
Loans and advances	¥	249,478		¥	122,927		¥	126,623
Loan commitments		11,011			(9,771	)		—
Financial guarantees		(551	)		6,529			—
Investment securities(3)		—			1			10,185
Total impairment charges on financial assets	¥	259,938		¥	119,686		¥	136,808

(1) For the fiscal years ended March 31, 2020 and 2019, impairment charges on the financial assets are determined in accordance with IFRS 9.

(2) For the fiscal year ended March 31, 2018, impairment charges on loans and advances and investment securities were determined in accordance with IAS 39, while losses for loan commitments and financial guarantee contracts were determined in accordance with IAS 37.

(3) Investment securities, which were formerlyavailable-for-sale financial assets under IAS 39, include debt instruments measured at FVOCI and those measured at amortized cost under IFRS 9.

F-95

33 GENERAL AND ADMINISTRATIVE EXPENSES

General and administrative expenses for the fiscal years ended March 31, 2020, 2019 and 2018 consisted of the following:

	For the fiscal year ended March 31,
	2020		2019		2018
	(In millions)
Personnel expenses	¥	787,880	¥	803,821	¥	864,396
Depreciation and amortization(1)		258,516		168,564		171,043
Rent and lease expenses(1)		—		112,660		117,400
Building and maintenance expenses		8,864		10,254		11,167
Supplies expenses		15,506		16,252		16,902
Communication expenses		34,213		35,030		38,171
Publicity and advertising expenses		73,483		63,669		80,464
Taxes and dues		84,364		82,792		83,976
Outsourcing expenses		109,100		100,495		96,733
Office equipment expenses		51,283		47,139		54,708
Others		273,177		239,137		240,223
Total general and administrative expenses	¥	1,696,386	¥	1,679,813	¥	1,775,183

(1) On April 1, 2019, the Group adopted IFRS 16 retrospectively by adjusting the consolidated statement of financial position at the date of initial application, and has not restated comparatives as permitted by IFRS 16. IFRS 16 requires a lessee to recognize a right of use asset and its depreciation and amortization over the lease term, instead of rent and lease expenses. For additional information, refer to Note 2 “Summary of Significant Accounting Policies.”

34 OTHER EXPENSES

Other expenses for the fiscal years ended March 31, 2020, 2019 and 2018 consisted of the following:

	For the fiscal year ended March 31,
	2020		2019		2018
	(In millions)
Cost of operating leases	¥	26,380	¥	120,412	¥	144,708
Cost related to disposal of assets leased		—		101,218		310,460
Cost related to IT solution services and IT systems		85,872		96,727		92,975
Provision for interest repayment		38,694		47,293		49,879
Losses on disposal of property, plant and equipment, and other intangible assets		1,937		4,596		4,913
Impairment losses of property, plant and equipment		79,947		5,906		27,816
Impairment losses of intangible assets		28,689		66,665		35,666
Losses on sale of investments in subsidiaries and associates		—		2,677		28,250
Impairment losses of investments in associates and joint ventures(1)		174,782		50,679		19,851
Losses on step acquisition of subsidiaries		—		25,744		—
Others		52,505		53,740		78,247
Total other expenses	¥	488,806	¥	575,657	¥	792,765

(1) For the fiscal year ended March 31, 2020, the Group recognized an impairment loss of ¥133,122 million on investments in associates and joint ventures, due to the decline in the stock price of its equity-method associate, The Bank of East Asia, Limited.

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35 INCOME TAX EXPENSE

The detail of income tax expense for the fiscal years ended March 31, 2020, 2019 and 2018 was as follows:

	For the fiscal year ended March 31,
	2020			2019			2018
	(In millions)
Current tax:
Charge for period(1)	¥	203,060		¥	173,683		¥	228,342
Deferred tax:
Origination and reversal of temporary differences		(94,773	)		17,460			66,875
Change in the write-down of deferred tax assets on the current fiscal year income tax expense		(56,519	)		(6,837	)		(63,194	)
Changes in tax rates and others(2)		—			—			(2,645	)
Total deferred tax expense (benefit)		(151,292	)		10,623			1,036
Total income tax expense	¥	51,768		¥	184,306		¥	229,378

(1) As a result of the adoption of IFRS 9, the current income tax expense of ¥12,374 million and ¥103,264 million were recognized directly in equity for the fiscal years ended March 31, 2020 and 2019, respectively.

(2) The amount for the fiscal year ended March 31, 2018 mainly includes the effect of change in U.S. federal income tax rate which was changed from 36% to 21% effective January 1, 2018.

The following table shows the reconciliations of the effective income tax rates for the fiscal years ended March 31, 2020, 2019 and 2018.

	For the fiscal year ended March 31,
	2020			2019			2018
	(In millions, except percentages)
Profit before tax	¥	282,751		¥	831,892		¥	1,118,976
Income tax expense		51,768			184,306			229,378
Effective income tax rate		18.3	%		22.2	%		20.5	%
Effective statutory tax rate in Japan(1)		30.6	%		30.6	%		30.9	%
Effect of the change in the write-down of deferred tax assets on the current fiscal year income tax expense		(20.0	%)		(0.8	%)		(5.7	%)
Tax impact of impairment losses and reversal of impairment losses for investments in associates and joint ventures—net		18.9	%		1.8	%		0.3	%
Non-Japanese earnings		(4.4	%)		(3.0	%)		(3.6	%)
Nontaxable dividends received		(3.3	%)		(4.8	%)		(0.8	%)
Tax impact of share of post-tax profit in associates and joint ventures		(2.6	%)		(1.5	%)		(1.4	%)
Gains on step acquisition of subsidiaries and associates and joint ventures which were not taxable		(2.4	%)		1.0	%		—
Tax impact of impairment losses of goodwill		—			—			0.8	%
Others—net		1.5	%		(1.1	%)		—
Effective income tax rate		18.3	%		22.2	%		20.5	%

(1) The effective statutory tax rate in Japan for the fiscal year ended March 31, 2020 and 2019 is the aggregate of the effective corporation tax rate of 23.2%, the effective local corporation tax rate of 1.0%, the effective inhabitant tax rate of 3.8% and the effective enterprise tax rate of 2.6%, which is payable by corporate entities on taxable profits under the tax laws in Japan. The effective corporation tax rate and the effective enterprise tax rate were changed from 23.4% and 2.7%, which were applied to the fiscal years ended March 31, 2018.

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36 EARNINGS PER SHARE

The following table shows the income and share data used in the basic and diluted earnings per share calculations for the fiscal years ended March 31, 2020, 2019 and 2018.

	For the fiscal year ended March 31,
	2020			2019			2018
	(In millions, except number of shares and per share data)
Basic:
Profit attributable to shareholders of the Company	¥	200,052		¥	541,932		¥	759,998
Weighted average number of common stock in issue (in thousands of shares)		1,375,118			1,397,599			1,410,442
Basic earnings per share	¥	145.48		¥	387.76		¥	538.84
Diluted:
Profit attributable to the common shareholders of the Company	¥	200,052		¥	541,932		¥	759,998
Impact of dilutive potential ordinary shares issued by subsidiaries		(3	)		(19	)		(10	)
Net profit used to determine diluted earnings per share	¥	200,049		¥	541,913		¥	759,988
Weighted average number of common stock in issue (in thousands of shares)		1,375,118			1,397,599			1,410,442
Adjustments for stock options (in thousands of shares)		802			924			1,052
Weighted average number of common stock for diluted earnings per share (in thousands of shares)		1,375,920			1,398,523			1,411,494
Diluted earnings per share	¥	145.39		¥	387.49		¥	538.43

37 TRANSFERS OF FINANCIAL ASSETS

In the normal course of business, the Group transfers financial assets mainly through repurchase agreements, securities lending transactions and securitizations. Depending on the nature of the transactions, the transfers may either result in financial assets being derecognized or continuing to be recognized on the consolidated statements of financial position.

Full derecognition occurs when the Group transfers its contractual rights to receive cash flows from financial assets, or retains the contractual rights to receive the cash flows, but assumes a contractual obligation to pay the cash flows to another party, and transfers substantially all the risks and rewards of ownership, including credit risk, prepayment risk and interest rate risk. Derecognition does not occur when the Group retains substantially all the risks and rewards of ownership of the financial assets, where the contractual rights to receive cash flows from the financial assets are transferred, or the rights are retained but obligations to pay the cash flows are assumed.

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The following tables show the carrying amounts and fair values of transferred financial assets that did not qualify for derecognition and their associated financial liabilities at March 31, 2020 and 2019:

	At March 31, 2020
	Repurchase agreements and securities lending transactions		Loans and advances
			Residential mortgages		Corporate loans
	(In millions)
Carrying amount of assets	¥	8,068,054	¥	1,545,664	¥	1,083,861
Carrying amount of associated liabilities		7,911,064		1,234,536		761,080
For those liabilities that have recourse only to the transferred assets:
Fair value of assets	¥	—	¥	1,740,057	¥	1,088,121
Fair value of associated liabilities		—		1,286,803		761,128
Net position	¥	—	¥	453,254	¥	326,993
	At March 31, 2019
	Repurchase agreements and securities lending transactions		Loans and advances
			Residential mortgages		Corporate loans
	(In millions)
Carrying amount of assets	¥	7,631,722	¥	1,478,989	¥	778,559
Carrying amount of associated liabilities		6,530,794		1,189,055		770,434
For those liabilities that have recourse only to the transferred assets:
Fair value of assets	¥	—	¥	1,663,279	¥	781,864
Fair value of associated liabilities		—		1,240,199		770,605
Net position	¥	—	¥	423,080	¥	11,259

Repurchase Agreements and Securities Lending Transactions

The Group lends or sells securities under agreements to repurchase them at a predetermined price on a future date. Since substantially all the risks and rewards of ownership of the securities are retained by the Group, the securities remain on the consolidated statements of financial position and their associated financial liabilities are recorded. The recourse of the counterparties to their associated financial liabilities is not limited to the underlying securities.

Loans and Advances

The Group transfers its loans and advances, including residential mortgages and corporate loans, mainly to bankruptcy-remote structured entities for securitizations whereby the structured entities issue debt securities to the Group for subordinated tranches and to investors for senior tranches. The investors have only recourse to the underlying financial assets due to their bankruptcy-remoteness. Since the Group retains substantially all the risks and rewards of ownership, the transferred financial assets do not qualify for derecognition. The Group therefore continues to recognize these transferred financial assets as loans and advances, and recognizes their associated financial liabilities arising from issuing debt securities to investors on the consolidated statements of financial position.

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38 ASSETS PLEDGED AND RECEIVED AS COLLATERAL

Assets Pledged

The carrying amounts of assets pledged as collateral at March 31, 2020 and 2019 were as follows:

	At March 31,
	2020		2019
	(In millions)
Cash and deposits with banks	¥	90,656	¥	48,937
Trading assets		2,020,520		2,111,979
Financial assets at fair value through profit or loss		303,608		1,208,409
Debt instruments at amortized cost		258,079		280,246
Debt instruments at fair value through other comprehensive income		13,405,374		9,140,006
Equity instruments at fair value through other comprehensive income		3,138		184,417
Loans and advances		10,793,479		10,118,591
Other assets		2,359,282		1,738,945
Total	¥	29,234,136	¥	24,831,530

The Group pledges assets as collateral to secure payables under repurchase agreements, securities lending transactions and securitizations, borrowings or for cash settlements, margins on derivative transactions and certain other purposes. These transactions are conducted under terms that are usual and customary to standard contracts.

Loaned securities for which the borrowers have the right to sell or repledge were ¥8,072,646 million and ¥7,649,435 million at March 31, 2020 and 2019, respectively.

For the reserve funds with the Bank of Japan and other reserve deposits for foreign offices maintained by the Group, refer to Note 5 “Cash and Deposits with Banks.”

Assets Received as Collateral

Under certain transactions, including reverse repurchase agreements, securities borrowing, and discounting of bills, the Group is permitted to resell or repledge the collateral held in the absence of default by the owner of the collateral. These transactions are conducted under terms that are usual and customary for standard contracts. The fair values of securities and bills accepted as collateral were ¥16,962,246 million and ¥13,461,458 million at March 31, 2020 and 2019, respectively. As to the securities received in the reverse repurchase agreements and securities borrowing transactions, the Group has the obligation to return equivalent securities upon completion of the transactions. The fair value of securities sold or repledged to others was ¥12,935,265 million and ¥9,166,534 million at March 31, 2020 and 2019, respectively.

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39 SHARE-BASED PAYMENT

Stock Option Plans

SMFG had introduced compensation-type stock options to directors, corporate auditors, and executive officers of SMFG and SMBC (“SMFG Stock Acquisition Rights”), which served as an incentive for them to further contribute to the equity appreciation and achieve better corporate performance through sharing the benefits and risks of the share price performance with the shareholders. The following table provides an overview of the significant terms and conditions of the stock option plan.

	Title of grantees	Exercise period	Requisite service period	Method of settlement
SMFG Stock Acquisition Rights	Directors, corporate auditors and executive officers of SMFG and SMBC	Not exceeding 30 years from the date of allocation of stock acquisition rights(1)	One year from the date of the ordinary general meeting of shareholders of SMFG to the closing of the next ordinary general meeting of shareholders of SMFG	Common stock of SMFG

(1) A stock acquisition rights holder can exercise the rights from the day they are relieved of their positions either as a director, a corporate auditor or an executive officer (“Start of Exercise Date”) to 20 years from the Start of Exercise Date.

The number and the weighted average exercise prices of stock options for the fiscal years ended March 31, 2020 and 2019 were as follows:

	For the fiscal year ended March 31,
	2020					2019
	Number of options(1)			Weighted average exercise price		Number of options(1)			Weighted average exercise price
Outstanding at beginning of period		899,400		¥	1		1,003,000		¥	1
Exercised		(176,900	)		1		(103,600	)		1
Outstanding at end of period		722,500		¥	1		899,400		¥	1
Exercisable at end of period		390,800		¥	1		498,600		¥	1

(1) Number of options is the number of SMFG’s common stock granted by the exercise of stock options.

In June 2017, SMFG and SMBC resolved to discontinue the issuance of new stock options. Thereafter, SMFG has not issued any new stock options.

The weighted average stock price at the date of exercise was ¥3,598 and ¥4,391 for the fiscal years ended March 31, 2020 and 2019, respectively.

Summarized information about stock options outstanding at March 31, 2020 and 2019 was as follows:

			At March 31,
			2020				2019
	Exercise price		Number of options		Remaining contractual lives in years		Number of options		Remaining contractual lives in years
SMFG Stock Acquisition Rights	¥	1		722,500		23.4		899,400		24.3

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Compensation Plans Utilizing Restricted Stock

In July 2017, the SMFG compensation committee resolved to revise the executive compensation policy and to introduce new stock compensation plans that utilize restricted stock.

The plans consist of Stock Compensation Plan I (“Plan I”), which determines remuneration primarily based on the medium-term performance, Stock Compensation Plan II (“Plan II”), which determines remuneration primarily based on the annual performance and Stock Compensation Plan III (“Plan III”), which determines remuneration primarily based on corporate title.

Plan I (medium-term performance share plan) has an evaluation period of three years, corresponding with SMFG’s medium-term management plan. Executives are initially allotted shares of restricted stock equivalent to the monetary amount determined based on the executive’s corporate title. After the completion of the evaluation period, the compensation committee reviews the progress of the medium-term management plan, performance of SMFG’s common stock, and results of customer satisfaction surveys and other factors, to determine the final amount to be released from transfer restrictions. In case the final amount falls below the initial amount, SMFG retrieves all or part of the allotted shares at no cost.

Under Plan II (annual performance share plan), executives are allotted shares of restricted stock equivalent to a certain portion of the monetary amount determined based on the annual performance of SMFG and SMBC, as well as on the individual performance of the executives reviewed both from short-term andmedium-to-long-term perspectives. The remainder is paid to the executives as a cash bonus. Transfer restrictions on these shares are released evenly over the three-year period following the year of allotment.

Under Plan III (promotion reward plan), executives are allotted shares of restricted stock equivalent topre-determined compensation amounts per title, reflecting the increased responsibilities derived from promotions. Restrictions shall apply to the shares until the earlier of 30 years from allotment or when the executive retires from office.

The eligible executives for the plans are directors (excluding outside directors), corporate executive officers and executive officers of SMFG, directors (excluding outside directors) and executive officers, etc. of SMBC and representative corporate executive officers of certain of our subsidiaries.

As part of the executive compensation policy, SMFG and SMBC introduced provisions for forfeiture and claw-back of vested stock under the plans in order to restrain excessive risk-taking and foster a prudent risk culture expected of a financial institution.

The number of restricted shares and the fair value of restricted shares at the measurement date for the fiscal years ended March 31, 2020 and 2019 were as follows:

	For the fiscal year ended March 31,
	2020			2019
Outstanding at beginning of period		702,203			387,765
Allotted		272,536			326,330
Released		(51,314	)		(11,892	)
Outstanding at end of period		923,425			702,203
Fair value at measurement date	¥	3,828		¥	4,287

The fair value of restricted shares is based on the market price of SMFG common stock. If any granted conditions exist, the terms and conditions upon which the shares were granted, are taken into account when estimating both the number of shares expected to vest and the fair value of the shares granted. The amount of

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restricted shares recognized as expenses was measured based on the fair value of the restricted shares granted, which were ¥1,260 million and ¥1,240 million for the fiscal year ended March 31, 2020 and 2019, respectively, and included in “General and administrative expenses” in the consolidated income statements.

40 DIVIDENDS PER SHARE

The dividends recognized by the Company for the fiscal years ended March 31, 2020, 2019 and 2018 were as follows:

	Dividends per share		Aggregate amount
	(In yen)		(In millions)
For the fiscal year ended March 31, 2020:
Common stock	¥	185	¥	255,835
For the fiscal year ended March 31, 2019:
Common stock	¥	175	¥	245,577
For the fiscal year ended March 31, 2018:
Common stock	¥	155	¥	218,596

The Company proposed to the shareholders the distribution of a dividend of ¥100 per share of common stock totaling ¥136,952 million in respect of the fiscal year ended March 31, 2020. The dividend is subject to the approval at the general meeting of shareholders on June 26 2020. The consolidated financial statements for the fiscal year ended March 31, 2020 do not include this dividend.

41 CONTINGENCY AND CAPITAL COMMITMENTS

Legal Proceedings

The Group is engaged in various legal proceedings in Japan and a number of overseas jurisdictions, involving claims by and against it, which arise in the normal course of business. The Group does not expect that the outcome of these proceedings will have a significant adverse effect on the consolidated financial statements of the Group. The Group has recorded adequate provisions with respect to litigation arising out of normal business operations. The Group has not disclosed any contingent liability associated with these legal actions because it cannot reliably be estimated.

Capital Commitments

At March 31, 2020 and 2019, the Group had ¥48,707 million and ¥62,027 million, respectively, of contractual commitments to acquire property, plant and equipment. The Group’s management is confident that future net revenues and funding will be sufficient to cover these commitments.

Loan Commitments and Financial Guarantees and Other Credit-related Contingent Liabilities

Loan commitment contracts on overdrafts and loans are agreements to lend up to a prescribed amount to customers, as long as there is no violation of any condition established in the contracts. However, since many of these loan commitments are expected to expire without being drawn down, the total amount of unused commitments does not necessarily represent an actual future cash flow requirement. Many of these loan commitments include clauses under which the Group can reject an application from customers or reduce the contract amounts in cases where economic conditions change, the Group needs to secure claims, or some other significant event occurs.

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Financial guarantees are contracts that require the issuer to make specified payments to reimburse the holder for a loss it incurs because a specified debtor fails to make payments when due in accordance with the terms of the debt instrument. Other credit-related contingent liabilities include performance bonds, which are contracts that provide compensation if another party fails to perform the contractual obligation.

The table below shows the nominal amounts of undrawn loan commitments, and financial guarantees and other credit-related contingent liabilities at March 31, 2020 and 2019.

	At March 31,
	2020		2019
	(In millions)
Loan commitments	¥	62,151,698	¥	62,724,820
Financial guarantees and other credit-related contingent liabilities		9,204,996		9,409,066
Total	¥	71,356,694	¥	72,133,886

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42 ANALYSIS OF FINANCIAL ASSETS AND LIABILITIES BY MEASUREMENT BASIS

After initial recognition, financial assets and liabilities are measured either at fair value or amortized cost, within the measurement categories as defined in IFRS 9. The summary of significant accounting policies in Note 2 describes how these categories of financial assets and liabilities are measured, and how income and expenses are recognized either in profit or loss, or in other comprehensive income. The following tables present the carrying amounts of the financial assets and liabilities, by category and by line item, of the consolidated statements of financial position.

	At March 31, 2020
	Financial assets and liabilities at fair value through profit or loss			Financial assets and liabilities at amortized cost		Debt instruments at fair value through other comprehensive income		Equity instruments at fair value through other comprehensive income		Total
	(In millions)
Financial assets:
Cash and deposits with banks	¥	—		¥	62,471,453	¥	—	¥	—	¥	62,471,453
Call loans and bills bought		—			898,256		—		—		898,256
Reverse repurchase agreements and cash collateral on securities borrowed		—			13,745,996		—		—		13,745,996
Trading assets		2,785,016			—		—		—		2,785,016
Derivative financial instruments		6,279,801			—		—		—		6,279,801
Financial assets at fair value through profit or loss		1,478,356			—		—		—		1,478,356
Investment securities		—			320,771		18,054,164		3,489,451		21,864,386
Loans and advances		—			94,671,818		—		—		94,671,818
Other financial assets(1)		—			4,229,678		—		—		4,229,678
Total	¥	10,543,173		¥	176,337,972	¥	18,054,164	¥	3,489,451	¥	208,424,760
Financial liabilities:
Deposits(2)	¥	(5,041	)	¥	138,436,459	¥	—	¥	—	¥	138,431,418
Call money and bills sold		—			3,740,540		—		—		3,740,540
Repurchase agreements and cash collateral on securities lent		—			15,455,782		—		—		15,455,782
Trading liabilities		2,018,484			—		—		—		2,018,484
Derivative financial instruments		5,555,201			—		—		—		5,555,201
Borrowings(2)		624			17,120,738		—		—		17,121,362
Debt securities in issue(2)		(53,669	)		11,038,717		—		—		10,985,048
Other financial liabilities(1)		537			7,149,714		—		—		7,150,251
Total	¥	7,516,136		¥	192,941,950	¥	—	¥	—	¥	200,458,086

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	At March 31, 2019
	Financial assets and liabilities at fair value through profit or loss			Financial assets and liabilities at amortized cost		Debt instruments at fair value through other comprehensive income		Equity instruments at fair value through other comprehensive income		Total
	(In millions)
Financial assets:
Cash and deposits with banks	¥	—		¥	57,763,441	¥	—	¥	—	¥	57,763,441
Call loans and bills bought		—			2,465,745		—		—		2,465,745
Reverse repurchase agreements and cash collateral on securities borrowed		—			10,345,994		—		—		10,345,994
Trading assets		2,767,691			—		—		—		2,767,691
Derivative financial instruments		3,382,574			—		—		—		3,382,574
Financial assets at fair value through profit or loss		2,641,416			—		—		—		2,641,416
Investment securities		—			318,914		13,333,221		4,172,892		17,825,027
Loans and advances		—			90,682,938		—		—		90,682,938
Other financial assets(1)		—			3,609,129		—		—		3,609,129
Total	¥	8,791,681		¥	165,186,161	¥	13,333,221	¥	4,172,892	¥	191,483,955
Financial liabilities:
Deposits(2)	¥	666		¥	134,403,986	¥	—	¥	—	¥	134,404,652
Call money and bills sold		—			1,307,779		—		—		1,307,779
Repurchase agreements and cash collateral on securities lent		—			12,887,249		—		—		12,887,249
Trading liabilities		1,998,694			—		—		—		1,998,694
Derivative financial instruments		3,051,773			—		—		—		3,051,773
Borrowings(2)		1,716			12,166,142		—		—		12,167,858
Debt securities in issue(2)		(4,676	)		11,175,885		—		—		11,171,209
Other financial liabilities(1)		—			5,596,513		—		—		5,596,513
Total	¥	5,048,173		¥	177,537,554	¥	—	¥	—	¥	182,585,727

(1) Other financial assets and liabilities comprise of those included in other assets and liabilities, which meet the definition of a financial asset and liability.

(2) Embedded derivatives, which are separately accounted for, but presented together with the host contract in the consolidated statements of financial position under IFRS 9, are disclosed in this table within the category of “Financial assets and liabilities at fair value through profit or loss.” Although the separated embedded derivatives may have a positive or a negative fair value, they have been presented in this table as liabilities to be consistent with the line of the host contract.

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43 FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair values stated below represent the best estimates based on a range of methods and assumptions. In determining the fair value of financial assets and liabilities, the Group gives the highest priority to a quoted market price in an active market. If such prices are not available, it establishes fair value using valuation techniques. The valuation techniques, if used, make maximum use of observable inputs, and rely as little as possible on unobservable inputs.

Financial Assets and Liabilities Carried at Fair Value

Valuation Process

The Group undertakes a valuation process based on its valuation control framework, which governs internal control standards, methodologies and procedures to ensure that the fair values are determined or validated independently of the front office.

The Group uses valuation techniques commonly used by market participants to price the financial instruments and they have been demonstrated to provide reliable estimates of prices obtained in actual market transactions. The valuation techniques include the DCF method, option pricing models and reference to the current fair value of another instrument that is substantially the same. Key adjustments, such as liquidity risk and credit risk adjustments are also taken into account to derive fair values.

Where valuation techniques are used to determine fair values, they are validated and reviewed. In principal subsidiaries, their risk management departments, which are independent from the business units, review significant valuation methodologies at least once a year, and recalibrate model parameters and inputs by comparing fair values derived from the valuation techniques to the external market data such as broker quotes. Where the data obtained from third-party sources such as brokers and pricing service providers are utilized in determining fair values, those departments also examine those data, taking into account the consistency among the different sources, the aging of the data and other factors. In addition, accounting departments in those principal subsidiaries are responsible for ensuring that the accounting policies and procedures to determine fair values are in compliance with relevant accounting standards.

Fair Value Hierarchy

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

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

• inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly (Level 2); and

• significant unobservable inputs for the asset or liability (Level 3).

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The following tables present the carrying amounts of financial assets and liabilities carried at fair value based on the three levels of the fair value hierarchy at March 31, 2020 and 2019.

	At March 31, 2020
	Level 1(1)		Level 2(1)			Level 3			Total
	(In millions)
Financial assets:
Trading assets:
Debt instruments	¥	2,191,635	¥	354,068		¥	—		¥	2,545,703
Equity instruments		234,725		4,588			—			239,313
Total trading assets		2,426,360		358,656			—			2,785,016
Derivative financial instruments:
Interest rate derivatives		100,558		4,009,820			1,148			4,111,526
Currency derivatives		—		2,032,117			11,667			2,043,784
Equity derivatives		45,699		20,951			24,516			91,166
Commodity derivatives		181		16,642			—			16,823
Credit derivatives		—		15,819			683			16,502
Total derivative financial instruments		146,438		6,095,349			38,014			6,279,801
Financial assets at fair value through profit or loss:
Debt instruments		209,545		682,019			562,823			1,454,387
Equity instruments		2,497		356			21,116			23,969
Total financial assets at fair value through profit or loss		212,042		682,375			583,939			1,478,356
Investment securities at fair value through other comprehensive income:
Japanese government bonds		6,785,068		—			—			6,785,068
U.S. Treasury and other U.S. government agency bonds		4,494,686		—			—			4,494,686
Other debt instruments		746,557		6,027,853			—			6,774,410
Total debt instruments		12,026,311		6,027,853			—			18,054,164
Equity instruments		3,073,776		8,285			407,390			3,489,451
Total investment securities at fair value through other comprehensive income		15,100,087		6,036,138			407,390			21,543,615
Total	¥	17,884,927	¥	13,172,518		¥	1,029,343		¥	32,086,788
Financial liabilities:
Trading liabilities:
Debt instruments	¥	1,880,605	¥	35,082		¥	—		¥	1,915,687
Equity instruments		50,773		52,024			—			102,797
Total trading liabilities		1,931,378		87,106			—			2,018,484
Derivative financial instruments:
Interest rate derivatives		62,135		3,416,391			3,863			3,482,389
Currency derivatives		8		1,863,217			31,236			1,894,461
Equity derivatives		90,048		10,790			42,246			143,084
Commodity derivatives		389		14,326			—			14,715
Credit derivatives		—		19,126			1,426			20,552
Total derivative financial instruments		152,580		5,323,850			78,771			5,555,201
Others(2)(3)		—		(6,534	)		(51,015	)		(57,549	)
Total	¥	2,083,958	¥	5,404,422		¥	27,756		¥	7,516,136

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	At March 31, 2019
	Level 1(1)		Level 2(1)		Level 3			Total
	(In millions)
Financial assets:
Trading assets:
Debt instruments	¥	2,091,355	¥	389,548	¥	—		¥	2,480,903
Equity instruments		281,030		5,758		—			286,788
Total trading assets		2,372,385		395,306		—			2,767,691
Derivative financial instruments(4):
Interest rate derivatives		68,942		1,938,460		1,343			2,008,745
Currency derivatives		22		1,273,915		12,973			1,286,910
Equity derivatives		33,802		12,226		17,589			63,617
Commodity derivatives		445		7,072		—			7,517
Credit derivatives		—		10,236		5,549			15,785
Total derivative financial instruments		103,211		3,241,909		37,454			3,382,574
Financial assets at fair value through profit or loss(4):
Debt instruments		223,832		1,818,774		578,080			2,620,686
Equity instruments		1,810		209		18,711			20,730
Total financial assets at fair value through profit or loss		225,642		1,818,983		596,791			2,641,416
Investment securities at fair value through other comprehensive income:
Japanese government bonds		5,027,695		—		—			5,027,695
U.S. Treasury and other U.S. government agency bonds		4,426,635		—		—			4,426,635
Other debt instruments		646,806		3,232,085		—			3,878,891
Total debt instruments		10,101,136		3,232,085		—			13,333,221
Equity instruments		3,749,430		11,115		412,347			4,172,892
Total investment securities at fair value through other comprehensive income		13,850,566		3,243,200		412,347			17,506,113
Total	¥	16,551,804	¥	8,699,398	¥	1,046,592		¥	26,297,794
Financial liabilities:
Trading liabilities:
Debt instruments	¥	1,777,666	¥	58,194	¥	—		¥	1,835,860
Equity instruments		66,896		95,938		—			162,834
Total trading liabilities		1,844,562		154,132		—			1,998,694
Derivative financial instruments(4):
Interest rate derivatives		49,170		1,770,701		5,182			1,825,053
Currency derivatives		—		1,078,331		34,447			1,112,778
Equity derivatives		59,166		6,977		30,027			96,170
Commodity derivatives		415		5,433		—			5,848
Credit derivatives		—		11,370		554			11,924
Total derivative financial instruments		108,751		2,872,812		70,210			3,051,773
Others(2)(4)		—		2,704		(4,998	)		(2,294	)
Total	¥	1,953,313	¥	3,029,648	¥	65,212		¥	5,048,173

(1) Transfers between levels of the fair value hierarchy are deemed to have occurred at the beginning of the period. There were no significant transfers between Level 1 and Level 2 for the fiscal years ended March 31, 2020 and 2019.

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(2) Derivatives embedded in financial liabilities are separately accounted for, but presented together with the host contract in the consolidated statements of financial position. In these tables, the embedded derivatives whose host contracts are carried at amortized cost are presented within others. Although the separated embedded derivatives may have a positive or a negative fair value, they have been presented in these tables as liabilities to be consistent with the host contract. The separated embedded derivatives are measured at fair value using the valuation techniques described in “Derivative financial instruments” below.

(3) Contingent consideration liabilities arising from business combinations, which are measured at fair value using discounted cash flow models, are presented as others.

(4) As part of risk management, the Group enters into transactions to offset the profit or loss of certain financial instruments, including embedded derivatives. Therefore, there is no net impact on profit or loss from these financial instruments and the related transactions, regardless of whether the inputs used in the fair value measurements of them are observable or unobservable. Accordingly, the Group recognized that the unobservable inputs used were not significant to the entire fair value measurements of them and therefore categorized these financial instruments and related transactions within Level 2. From March 31, 2020, the Group determines the significance of unobservable inputs used in the fair value measurements for each individual financial instrument and related transaction, regardless of whether the profit or loss is offset, as a change in accounting policy. As a result, ¥27,183 million of derivative financial instruments (financial assets), ¥15,944 million of financial assets at fair value through profit or loss, ¥69,647 million of derivative financial instruments (financial liabilities) and ¥(4,563) million of others (financial liabilities) were reclassified from Level 2 to Level 3 at March 31, 2019. There is no impact on the Group’s consolidated statements of financial position nor consolidated income statements.

The following tables present reconciliations from the beginning to the ending balances for financial assets and liabilities carried at fair value and categorized within Level 3 of the fair value hierarchy for the fiscal years ended March 31, 2020 and 2019.

	At April 1, 2019			Total gains (losses)						Purchases			Sales			Settlement(1)			Transfers into Level 3(2)		Transfers out of Level 3(2)			At March 31, 2020			Changes in unrealized gains (losses) included in profit or loss related to assets and liabilities held at March 31, 2020
				Included in profit or loss			Included in other comprehensive income
	(In millions)
Derivative financial instruments—net:
Interest rate derivatives—net	¥	(3,839	)	¥	2,376		¥	—		¥	49		¥	(1,301	)	¥	—		¥	—	¥	—		¥	(2,715	)	¥	996
Currency derivatives—net		(21,474	)		774			—			1,183			(52	)		—			—		—			(19,569	)		(3,530	)
Equity derivatives—net		(12,438	)		(5,135	)		—			6,090			(6,247	)		—			—		—			(17,730	)		(11,843	)
Credit derivatives—net		4,995			(3,405	)		(89	)		—			—			(2,244	)		—		—			(743	)		(3,520	)
Total derivative financial instruments—net		(32,756	)		(5,390	)		(89	)		7,322			(7,600	)		(2,244	)		—		—			(40,757	)		(17,897	)
Financial assets at fair value through profit or loss:
Debt instruments		578,080			23,842			(2	)		229,573			(175,793	)		(92,334	)		—		(543	)		562,823			24,721
Equity instruments		18,711			(1,321	)		—			6,761			(1,075	)		(1,410	)		10		(560	)		21,116			(1,770	)
Total financial assets at fair value through profit or loss		596,791			22,521			(2	)		236,334			(176,868	)		(93,744	)		10		(1,103	)		583,939			22,951
Investment securities at fair value through other comprehensive income:
Equity instruments		412,347			—			(9,967	)		9,447			(3,683	)		(718	)		365		(401	)		407,390			—
Total investment securities at fair value through other comprehensive income		412,347			—			(9,967	)		9,447			(3,683	)		(718	)		365		(401	)		407,390			—
Others(3)—liabilities:		4,998			46,546			—			(341	)		—			—			—		(188	)		51,015			41,115
Total	¥	981,380		¥	63,677		¥	(10,058	)	¥	252,762		¥	(188,151	)	¥	(96,706	)	¥	375	¥	(1,692	)	¥	1,001,587		¥	46,169

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	At April 1, 2018			Total gains (losses)						Purchases		Sales			Settlement(1)			Transfers into Level 3(2)		Transfers out of Level 3(2)			At March 31, 2019			Changes in unrealized gains (losses) included in profit or loss related to assets and liabilities held at March 31, 2019
				Included in profit or loss			Included in other comprehensive income
	(In millions)
Derivative financial instruments(4)—net:
Interest rate derivatives—net	¥	(8,880	)	¥	4,974		¥	—		¥	72	¥	(5	)	¥	—		¥	—	¥	—		¥	(3,839	)	¥	4,928
Currency derivatives—net		(27,423	)		5,780			—			233		(64	)		—			—		—			(21,474	)		6,099
Equity derivatives—net		(5,378	)		4,532			—			5,994		(17,586	)		—			—		—			(12,438	)		944
Credit derivatives—net		4,245			5,640			142			—		—			(5,032	)		—		—			4,995			5,660
Total derivative financial instruments—net		(37,436	)		20,926			142			6,299		(17,655	)		(5,032	)		—		—			(32,756	)		17,631
Financial assets at fair value through profit or loss(4):
Debt instruments		552,779			(3,365	)		24			259,425		(123,589	)		(106,677	)		—		(517	)		578,080			(2,353	)
Equity instruments		16,981			(1,734	)		—			5,519		(709	)		(672	)		74		(748	)		18,711			(2,037	)
Total financial assets at fair value through profit or loss		569,760			(5,099	)		24			264,944		(124,298	)		(107,349	)		74		(1,265	)		596,791			(4,390	)
Investment securities at fair value through other comprehensive income:
Debt instruments		154			—			—			—		—			—			—		(154	)		—			—
Equity instruments		479,975			—			(43,355	)		7,569		(8,804	)		(21,088	)		—		(1,950	)		412,347			—
Total investment securities at fair value through other comprehensive income		480,129			—			(43,355	)		7,569		(8,804	)		(21,088	)		—		(2,104	)		412,347			—
Others(3)(4)—liabilities:		7,661			(3,003	)		—			349		—			—			42		(51	)		4,998			(3,806	)
Total	¥	1,020,114		¥	12,824		¥	(43,189	)	¥	279,161	¥	(150,757	)	¥	(133,469	)	¥	116	¥	(3,420	)	¥	981,380		¥	9,435

(1) For the fiscal year ended March 31, 2020 and 2019, settlements for equity instruments include receipt of cash distributions which represent a return of equity instruments. For the fiscal year ended March 31, 2019, settlements also include reclassification from debt instruments at fair value through profit or loss and equity instruments at fair value through other comprehensive income to investments in joint ventures as a result of applying the equity method for SMFL.

(2) Transfers between levels of the fair value hierarchy are deemed to have occurred at the beginning of the period. For the fiscal years ended March 31, 2020 and 2019, transfers out of Level 3 amounted to ¥1,692 million and ¥3,420 million, respectively. These transfers out of Level 3 are primarily due to an increase in observability of certain private equity investments.

(3) Embedded derivatives are separately accounted for, but presented together with the host contract in the consolidated statements of financial position. In these tables, the embedded derivatives whose host contracts are carried at amortized cost are presented within others. Although the separated embedded derivatives may have a positive or a negative fair value, they have been presented in these tables as liabilities to be consistent with the host contract.

(4) Certain financial instruments including embedded derivatives were reclassified between levels of the fair value hierarchy, as described in the tables presenting the carrying amounts of financial assets and liabilities carried at fair value in “Fair Value Hierarchy.” As a result, the amounts of derivative financial instruments—net at April 1, 2018 decreased by ¥43,561 million, while those of financial assets at fair value through profit or loss and others at April 1, 2018 increased by ¥16,422 million and ¥8,494 million, respectively. The amounts of derivative financial instruments—net at March 31, 2019 decreased by ¥42,464 million, while those of financial assets at fair value through profit or loss and others at March 31, 2019 increased by ¥15,944 million and ¥4,563 million, respectively.

F-111

The following table presents total gains or losses included in profit or loss for the Level 3 financial assets and liabilities, and changes in unrealized gains or losses included in profit or loss related to those financial assets and liabilities held at March 31, 2020 and 2019 by line item of the consolidated income statements.

	Total gains (losses) included in profit or loss for the fiscal year ended March 31,					Changes in unrealized gains (losses) included in profit or loss related to assets and liabilities held at March 31,
	2020		2019			2020		2019
	(In millions)
Net interest income	¥	8,674	¥	7,858		¥	5,620	¥	7,121
Net trading income		32,429		10,065			17,545		6,704
Net income (loss) from financial assets at fair value through profit or loss		22,521		(5,099	)		22,951		(4,390	)
Other income		53		—			53		—
Total	¥	63,677	¥	12,824		¥	46,169	¥	9,435

The aggregate deferred day one profit yet to be recognized in profit or loss at the beginning and end of the fiscal years ended March 31, 2020 and 2019 and reconciliation of changes in the balances were as follows:

	For the fiscal year ended March 31,
	2020			2019
	(In millions)
Balance at beginning of period	¥	5,285		¥	7,408
Increase due to new trades		3,904			2,054
Reduction due to redemption, sales or passage of time		(3,110	)		(4,177	)
Balance at end of period	¥	6,079		¥	5,285

The Group has entered into transactions where the fair value is determined using valuation techniques for which not all inputs are observable in the market. The difference between the transaction price and the fair value that would be determined at initial recognition using a valuation technique is referred to as “day one profit and loss,” which is not recognized immediately in the consolidated income statement. The table above shows the day one profit and loss balances, all of which are derived from financial assets at fair value through profit or loss. The release to profit or loss results from the realization due to redemption or sales, and the amortization of the deferred day one profit and loss with the passage of time over the life of the instruments.

Valuation Techniques

Financial instruments which are classified as trading assets and liabilities, derivative financial instruments, financial assets at fair value through profit or loss, and investment securities at fair value through other comprehensive income are measured at fair value in the consolidated statements of financial position. These instruments are measured at fair value using a quoted market price, if they are traded in an active market, or, for others, using the fair value measurement techniques as discussed below.

Trading assets and trading liabilities

Debt and equity instruments traded in an active market are measured at fair value using a quoted market price in such a market and they are categorized within Level 1. If a quoted market price is not available, they are measured by using a price quoted by a third party, such as a pricing service or broker, or by reference to the current fair value of another instrument that is substantially the same, based on inputs such as prices obtained

F-112

from brokers, observable interest rates and spreads. These financial instruments are categorized within Level 2. Debt instruments measured at fair value using the DCF method, where primary inputs are observable interest rates and credit spreads, inferred from the prevailing market rates, are also categorized within Level 2.

Derivative financial instruments (including embedded derivatives)

Listed derivatives (including interest rates, bonds, currencies, stocks and commodities) are measured at fair value using the settlement price announced by the major exchange on which transactions are traded because the settlement price in the exchange reflects the most current transaction price, and is readily and regularly available from the exchange. Listed derivatives are categorized within Level 1.

OTC derivatives(non-exchange-traded derivatives), including embedded derivatives that are separately accounted for from the host contracts, are measured at fair value using valuation techniques such as the present value of estimated future cash flows and option pricing models, generally based on observable interest rates, foreign exchange, commodities, stock prices and other factors as inputs. The valuation models for some transactions, such as yield curve spread options and equity options, use inputs which are not directly observable in the market, including historical correlation coefficients and historical volatilities. If the impact of these unobservable inputs is significant to the fair value for those transactions, the Group categorizes the transactions within Level 3.

The credit loss protection scheme which the Group offers to Goldman Sachs (“GS”) is considered to be a credit derivative, where the underlying reference entities are the American and European corporate entities covered in the commitment line portfolio of the GS group. The fair value of this derivative is determined using an ordinary collateralized debt obligation (“CDO”) pricing model, commonly used in the financial markets. The Group takes some portions of the positions in subordinated and mezzanine tranches, which covers the first and second credit losses from the portfolio. The major inputs for this derivative are credit default swap (“CDS”) spread rates, correlation ratios of CDS indices for similar portfolios, and the expected additional commitment withdrawal ratio. Although CDS spread rates and correlation ratios are observable in an active market or available from brokers, this whole scheme is categorized within Level 3 as the expected additional withdrawal ratio, which is considered to be a significant input, is not observable in the market.

In addition, the fair value of OTC derivatives incorporates both counterparty credit risk in relation to OTC derivative assets and own credit risk in relation to OTC derivative liabilities. The Group calculates the credit risk adjustments by applying the probability of default that reflects the counterparty’s or its own credit risk to the OTC derivative exposures and multiplying the result by the loss expected in the event of default. For the probability of default, the Group uses observable market data, where possible. The OTC derivative exposures used are determined taking into consideration the effect of master netting agreements and collateral. As the Group manages the OTC derivatives on the basis of its net credit risk exposure, the credit risk adjustments of those OTC derivatives are measured on a portfolio basis in accordance with the exception set forth in IFRS 13.

Financial assets at fair value through profit or loss

Non-trading bonds in this category are measured at fair value, using a valuation technique based on the observable prices in the market and they are categorized within Level 2.

Publicly traded investment trusts and funds are measured at fair value using the market price and are categorized within Level 1 if they are traded in an active market. Instruments whose prices are not available in the market, such as privately offered investment trusts, are measured at fair value based on the unit price, which is usually regarded as an exit price, obtained from the fund administrator or investment management firm. In such a case, these investment trusts and funds are categorized within Level 2. Other investment funds included in financial assets at fair value through profit or loss, such as private equity funds and real estate investment funds, are generally measured at fair value based on net asset value, which includes significant unobservable inputs. These funds are categorized within Level 3.

F-113

Certain loans and advances are measured at fair value using discounted cash flow models taking into account certain factors including counterparties’ credit ratings, pledged collateral and market interest rates, which include significant unobservable inputs, and are categorized within Level 3.

Some equity and debt instruments in this category are hybrid instruments which have both equity and debt features. These include preferred stocks which are measured at fair value using the Monte Carlo Simulation valuation model, if they are indexed to the market prices in a stock exchange. The valuation model uses the historical volatility of the listed stocks as an input, which are not observable in the market, resulting in these instruments being categorized within Level 3. Other types of preferred stocks and othernon-hybrid equity instruments are evaluated using valuation techniques for unlisted stocks, which are normally used for private equity investments. The Group calculates the fair values of these instruments based on the market approach using market multiples or others in which significant unobservable inputs are used. These instruments are categorized within Level 3.

Investment securities at fair value through other comprehensive income

Debt instruments are measured at fair value using a quoted market price and categorized within Level 1 if they are traded in an active market. Debt instruments are categorized within Level 2 if they are measured at fair value using a price quoted by a third party, such as a pricing service or broker, or by reference to the current fair value of another bond that is substantially the same based on inputs such as prices obtained from brokers, observable interest rates and spreads.

As for equity instruments, listed stocks are measured at fair value based on the market price at a stock exchange and categorized within Level 1 if they are traded in an active market. Unlisted common and preferred stocks in this category are measured at fair value based on the market approach using market multiples or others in which significant unobservable inputs are used. These instruments are categorized within Level 3.

F-114

Significant Unobservable Inputs

The following tables present quantitative information about significant unobservable inputs used in fair value measurement for Level 3 financial assets and liabilities at March 31, 2020 and 2019. The Group has changed the presentation in “Significant Unobservable Inputs” to reflect the risk management from March 31, 2020. The tables below show the range of inputs by financial instrument, while the range of inputs for each financial instrument had been previously presented by asset and liability separately.

	At March 31, 2020
	Assets		Liabilities			Valuation technique(s)(1)	Significant unobservable inputs(1)	Range of inputs(1)
	(In millions)
Derivative financial instruments:
Interest rate derivatives	¥	1,148	¥	3,863		Option model	Interest rate to interest rate correlation	9%-100%
Currency derivatives		11,667		31,236		Option model	Interest rate to interest rate correlation	26%-98%
							Quanto correlation	8%-52%
							Foreign exchange volatility	7%-26%
Equity derivatives		24,516		42,246		Option model	Equity to equity correlation	32%-96%
							Quanto correlation	(39)%-(4)%
							Equity volatility	12%-113%
							Foreign exchange volatility	9%-14%
Credit derivatives		683		1,426		CDO pricing model	Additional withdrawal ratio	47%
						Credit Default model	Quanto correlation	15%-90%
Financial assets at fair value through profit or loss:
Debt instruments		562,823		—		Monte Carlo Simulation	Equity volatility	25%-42%
						Option model	Interest rate to interest rate correlation	80%-99%
							Foreign exchange volatility	12%-28%
						DCF model	Probability of default rate	0%-39%
							Loss given default rate	5%-100%
						Net asset value(2)	—	—
Equity instruments		21,116		—		See note (3) below	—	—
Investment securities at fair value through other comprehensive income:
Equity instruments		407,390		—		Market multiples	Price/Earnings multiple	10.4x-35.4x
							Price/Book value multiple	0.2x-2.1x
							EV/EBITDA multiple	4.7x-16.3x
							Liquidity discount	20%
						See note (3) below	—	—
Others(4)		—		(51,015	)	Option model	Equity to equity correlation	31%-96%
							Interest rate to interest rate correlation	9%-100%
							Quanto correlation	(39)%-67%
							Equity volatility	12%-74%
							Foreign exchange volatility	7%-28%
						Credit Default model	Quanto correlation	15%-90%

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	At March 31, 2019
	Assets		Liabilities		Valuation technique(s)(1)	Significant unobservable inputs(1)	Range of inputs(1)
	(In millions)
Derivative financial instruments(5):
Interest rate derivatives	¥	1,343	¥	5,182	Option model	Interest rate to interest rate correlation	11%-100%
						Quanto correlation	52%-57%
						Foreign exchange volatility	8%-20%
Currency derivatives		12,973		34,447	Option model	Interest rate to interest rate correlation	22%-97%
						Quanto correlation	11%-52%
						Foreign exchange volatility	6%-59%
Equity derivatives		17,589		30,027	Option model	Equity to equity correlation	34%-98%
						Quanto correlation	(40)%-0%
						Equity volatility	14%-81%
						Foreign exchange volatility	8%-10%
Credit derivatives		5,549		554	CDO pricing model	Additional withdrawal ratio	47%
					Credit Default model	Quanto correlation	15%-90%
Financial assets at fair value through profit or loss(5):
Debt instruments		578,080		—	Monte Carlo Simulation	Equity volatility	10%-42%
					Option model	Foreign exchange volatility	5%-42%
					DCF model	Probability of default rate	0%-41%
						Loss given default rate	20%-100%
					Net asset value(2)	—	—
Equity instruments		18,711		—	Market multiples	Price/Earnings multiple	7.5x-13.4x
						EV/EBITDA multiple	4.8x
						Liquidity discount	0%-20%
					See note (3) below	—	—
Investment securities at fair value through other comprehensive income:
Equity instruments		412,347		—	Market multiples	Price/Earnings multiple	7.9x-31.3x
						Price/Book value multiple	0.2x-2.3x
						EV/EBITDA multiple	6.3x-14.4x
						Liquidity discount	20%
					See note (3) below	—	—
Others(4)(5)	—		(4,998)		Option model	Equity to equity correlation	34%-98%
						Interest rate to interest rate correlation	11%-100%
						Quanto correlation	(40)%-59%
						Equity volatility	14%-71%
						Foreign exchange volatility	5%-59%
					Credit Default model	Quanto correlation	15%-90%

(1) Valuation techniques and unobservable inputs for insignificant Level 3 financial assets and liabilities are excluded.

(2) The Group has determined that the net asset value represents fair values of certain investment funds.

(3) Fair values of certain equity instruments such as unlisted stocks are estimated on the basis of an analysis of the investee’s financial position and results, risk profile, prospects and other factors. A range of key inputs is not provided in these tables as it is not practical to do so given the nature of such valuation techniques.

(4) Embedded derivatives are separately accounted for, but presented together with the host contract in the consolidated statements of financial position. In these tables, the embedded derivatives whose host contracts are carried at amortized cost are presented within others. Although the separated embedded derivatives may have a positive or a negative fair value, they have been presented in these tables as liabilities to be consistent with the host contract.

(5) Certain financial instruments including embedded derivatives were reclassified between levels of the fair value hierarchy, as described in the tables presenting the carrying amounts of financial assets and liabilities carried at fair value in “Fair Value Hierarchy.” As a result, the amounts of derivative financial instruments at March 31, 2019 decreased by ¥42,464 million, while those of financial assets at fair value through profit or loss and others at March 31, 2019 increased by ¥15,944 million and ¥4,563 million, respectively.

Correlation

Correlation represents a measure of the relationship between the movements of two variables, which is expressed as a number between plus and minus one. A positive correlation indicates that two variables move in

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the same direction while a negative correlation indicates that they move in opposite directions. Correlations could be any combination of variables such as interest rates, foreign exchange rates, CDS spread and stock price movements. Thus, both same-asset correlation and cross-asset correlation are used. Interest rate correlation between two different tenors is an example of same-asset correlations while quanto correlation which is the correlation between foreign exchange rates and another variable is an example of cross-asset correlation. These correlations are used in the valuation techniques of complex derivatives and estimated based on historical data. In general, a significant increase in the correlation in isolation would result in either a significantly higher or lower fair value measurement, depending on the terms of the instruments.

Volatility

Volatility represents a measure of how much a particular instrument, parameter or index is expected to change in value over time. The volatilities used in the valuation of some type of derivative instruments with optionality refer to the potential change in price or level of the underlying interest rates, foreign exchange rates or equity instruments. The volatilities of underlying listed stocks are used in the valuation of preferred stocks containing optionality. These volatilities are estimated based on historical data or information provided by third-party sources, together with other analytical techniques. In general, a significant increase in the volatility in isolation would result in a significantly higher fair value measurement.

Additional withdrawal ratio

Additional withdrawal ratio represents the expected additional withdrawal ratio of unfunded commitment lines in the reference portfolio (mainly revolving credit facilities for commercial paper backup) concerning the credit loss protection scheme offered to GS. The expected additional withdrawal ratio is estimated based on historical data of actual funded amounts at default for similar portfolios. In general, a significant increase in the additional withdrawal ratio in isolation would have a significant unfavorable impact (i.e., an increase in derivative liabilities or a decrease in derivative assets) on the fair value measurement.

Probability of default and loss given default rates

Probability of default rate represents the probability of default that reflects the counterparty’s credit risk while loss given default rate represents the loss expected in the event of default. Those are estimated based on historical experiences. In general, a significant increase in probability of default rate or loss given default rate in isolation would result in a significantly lower fair value measurement.

Price/Earnings, price/book value multiples

Price/Earnings (“P/E”) multiple represents the ratio of the equity value to the net income, while price/book value (“P/B”) multiple represents the ratio of the equity value to the book value. These multiples are estimated based on comparable listed companies. In general, a significant increase in the P/E multiple or P/B multiple in isolation would result in a significantly higher fair value measurement.

EV/EBITDA multiple

EV/EBITDA multiple represents the ratio of the enterprise value (“EV”) to earnings before interest, taxes, depreciation and amortization (“EBITDA”), where the EV is the aggregate value of equity and debt minus cash and cash equivalents. The multiple is estimated based on comparable listed companies. In general, a significant increase in the EV/EBITDA multiple in isolation would result in a significantly higher fair value measurement.

Liquidity discount

A liquidity discount is primarily applied in the valuation techniques for unlisted stocks to reflect the fact that these stocks are not actively traded. In general, a significant increase in the liquidity discount in isolation would result in a significantly lower fair value measurement.

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Sensitivity Analysis

The fair value of certain financial assets and liabilities are measured using valuation techniques based on inputs such as prices and rates that are not observable in the market. The following tables present the impact of the valuation sensitivity, if these inputs fluctuate to the extent deemed reasonable and the volatility of such inputs has a significant impact on the fair value. The Group has changed the presentation in “Sensitivity Analysis” to reflect the risk management from March 31, 2020. The tables below show the fair value measured using valuation techniques and valuation sensitivity by financial instrument. The fair value by financial instrument is presented as the net of asset and liability amounts, while the fair value for each financial instrument had been previously presented by asset and liability separately. The tables also show the impact on the fair value of the valuation sensitivity by financial instrument. The impact of the valuation sensitivity by financial instrument is presented as the net of asset and liability amounts, while the valuation sensitivity for each financial instrument had been previously presented by asset and liability separately.

	At March 31, 2020
	Total fair value measured using valuation techniques			Effect recorded in profit or loss				Effect recorded directly in equity
				Favorable changes		Unfavorable changes		Favorable changes		Unfavorable changes
	(In millions)
Financial instruments—net:
Derivative financial instruments—net:
Interest rate derivatives—net	¥	(2,715	)	¥	1	¥	1	¥	—	¥	—
Currency derivatives—net		(19,569	)		17		17		—		—
Equity derivatives—net		(17,730	)		493		718		—		—
Credit derivatives—net		(743	)		1,006		2,461		—		—
Financial assets at fair value through profit or loss:
Debt instruments		562,823			2,784		4,585		—		—
Equity instruments		21,116			—		—		—		—
Investment securities at fair value through other comprehensive income:
Equity instruments		407,390			—		—		8,837		8,362
Others(1)(2)—liabilities:		51,015			3,664		4,610		—		—
	At March 31, 2019
	Total fair value measured using valuation techniques			Effect recorded in profit or loss				Effect recorded directly in equity
				Favorable changes		Unfavorable changes		Favorable changes		Unfavorable changes
	(In millions)
Financial instruments—net:
Derivative financial instruments(3)—net:
Interest rate derivatives—net	¥	(3,839	)	¥	2	¥	14	¥	—	¥	—
Currency derivatives—net		(21,474	)		13		20		—		—
Equity derivatives—net		(12,438	)		541		530		—		—
Credit derivatives—net		4,995			1,976		5,872		—		—
Financial assets at fair value through profit or loss(3):
Debt instruments		578,080			4,038		11,636		—		—
Equity instruments		18,711			34		34		—		—
Investment securities at fair value through other comprehensive income:
Equity instruments		412,347			—		—		11,843		10,848
Others(1)(2)(3)—liabilities:		4,998			1,651		2,650		—		—

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(1) Embedded derivatives are separately accounted for, but presented together with the host contract in the consolidated statements of financial position. In these tables, the embedded derivatives whose host contracts are carried at amortized cost are presented within others. Although the separated embedded derivatives may have a positive or a negative fair value, they have been presented in these tables as liabilities to be consistent with the host contract.

(2) As part of risk management, the Group enters into transactions to offset the profit or loss of certain financial instruments, including embedded derivatives. Sensitivity of embedded derivatives related to these transactions is presented as derivative financial instruments or financial assets at fair value through profit or loss, according to the presentation of the financial instruments arising from these transactions.

(3) Certain financial instruments including embedded derivatives were reclassified between levels of the fair value hierarchy, as described in the tables presenting the carrying amounts of financial assets and liabilities carried at fair value in “Fair Value Hierarchy.” As a result, the amounts of derivative financial instruments—net at March 31, 2019 decreased by ¥42,464 million, while those of financial assets at fair value through profit or loss and others at March 31, 2019 increased by ¥15,944 million and ¥4,563 million, respectively.

Derivative financial instruments (including embedded derivatives)

With respect to the credit loss protection scheme offered to GS, the anticipated losses will vary significantly depending on the expected additional withdrawal ratio of unfunded commitment lines in the reference portfolio. The tables above present the estimates of the impact of changing the expected additional withdrawal ratio from an optimistic (favorable) scenario to a pessimistic (unfavorable) scenario. For the other derivative instruments, including embedded derivatives that are separately accounted for from host contracts, that use correlation or volatility in the valuation techniques, the impact resulting from using a reasonable range of those inputs is estimated where it is expected to be significant.

Financial assets at fair value through profit or loss

With respect to preferred stocks convertible into listed stocks, for which historical volatilities of related listed stocks are used in the valuation techniques, the impact resulting from using a reasonable range for the volatility is statistically estimated where it is expected to be significant. With respect to certain loans and advances, for which the probability of default and loss given default rates are used in the valuation techniques, the impact resulting from using a reasonable range of those inputs is estimated where it is expected to be significant. Certain investment funds are measured at fair value determined based on net asset value per share, which includes significant unobservable inputs. Since those funds are managed by value at risk (“VaR”) based on historical gain or loss data, the impact of the valuation sensitivity is estimated using aone-day VaR of the portfolio, based on aone-sided confidence interval of 99.0%.

Investment securities at fair value through other comprehensive income

With respect to unlisted stocks which are measured at fair value based on a market approach, the impact of changing the market multiples within a reasonable range (±10%) is estimated.

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Financial Assets and Liabilities Not Carried at Fair Value

The tables below present the carrying amounts and fair values by level within the fair value hierarchy, as described in “Financial Assets and Liabilities Carried at Fair Value—Fair Value Hierarchy,” of financial assets and liabilities not carried at fair value on the Group’s consolidated statements of financial position at March 31, 2020 and 2019.

			At March 31, 2020
			Carrying amount		Fair value
	Notes				Total		Level 1		Level 2		Level 3
	(In millions)
Financial assets:
Cash and deposits with banks		a	¥	62,471,453	¥	62,471,434	¥	61,203,541	¥	1,267,893	¥	—
Call loans and bills bought:
Call loans		a		879,948		879,631		—		879,631		—
Bills bought		a		18,308		18,349		—		18,349		—
Reverse repurchase agreements and cash collateral on securities borrowed		a		13,745,996		13,745,707		—		13,745,707		—
Investment securities:
Debt instruments at amortized cost		b		320,771		321,057		282,520		38,537		—
Loans and advances		a		94,671,818		97,428,956		—		356,570		97,072,386
Other financial assets		a		4,229,678		4,227,027		—		4,174,646		52,381
Financial liabilities:
Deposits:
Non-interest-bearing deposits, demand deposits and deposits at notice		c	¥	95,849,958	¥	95,851,474	¥	—	¥	95,851,474	¥	—
Other deposits		c		42,581,460		42,594,532		—		42,339,787		254,745
Call money and bills sold:
Call money		c		3,740,540		3,740,628		—		3,740,628		—
Bills sold		c		—		—		—		—		—
Repurchase agreements and cash collateral on securities lent		c		15,455,782		15,455,782		—		15,455,782		—
Borrowings		c		16,735,474		16,825,055		—		16,797,789		27,266
Debt securities in issue		c		10,985,048		10,777,289		—		10,395,526		381,763
Other financial liabilities		c		7,149,714		7,149,704		—		7,107,189		42,515

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			At March 31, 2019
			Carrying amount		Fair value
	Notes				Total		Level 1			Level 2		Level 3
	(In millions)
Financial assets:
Cash and deposits with banks		a	¥	57,763,441	¥	57,766,549	¥	56,716,529		¥	1,050,020	¥	—
Call loans and bills bought:
Call loans		a		2,459,098		2,459,774		—			2,459,774		—
Bills bought		a		6,647		6,645		—			6,645		—
Reverse repurchase agreements and cash collateral on securities borrowed		a		10,345,994		10,345,889		—			10,345,889		—
Investment securities:
Debt instruments at amortized cost		b		318,914		319,871		281,136			38,735		—
Loans and advances		a		90,682,938		93,451,467		—			290,997		93,160,470
Other financial assets		a		3,609,129		3,606,414		—			3,551,947		54,467
Financial liabilities:									��
Deposits:
Non-interest-bearing deposits, demand deposits and deposits at notice		c	¥	89,969,579	¥	89,970,579	¥	—		¥	89,970,579	¥	—
Other deposits		c		44,435,073		44,435,139		—			44,141,535		293,604
Call money and bills sold:
Call money		c		1,307,779		1,307,710		—			1,307,710		—
Bills sold		c		—		—		—			—		—
Repurchase agreements and cash collateral on securities lent		c		12,887,249		12,887,249		—			12,887,249		—
Borrowings		c		12,167,858		12,268,394		—			12,231,762		36,632
Debt securities in issue		c		11,171,209		11,304,119		—			10,763,489		540,630
Other financial liabilities		c		5,596,513		5,596,506		—			5,553,389		43,117

Notes:

a.	(i)	The carrying amounts of deposits with banks without maturity and loans with no specified repayment dates represent a reasonable estimate of fair value, considering the nature of these financial instruments.
	(ii)	Financial assets with a remaining maturity of six months or less: The carrying amounts represent a reasonable estimate of fair value.
	(iii)	Financial assets with a remaining maturity of more than six months: Except for impaired loans and advances, the fair values are mostly determined using discounted cash flow models taking into account certain factors including counterparties’ credit ratings, pledged collateral, and market interest rates. The fair values of impaired loans and advances are generally determined by discounting the estimated future cash flows over the time period they are expected to be recovered, and may be based on the appraisal value of underlying collateral as appropriate.
b.	The fair values of debt instruments at amortized cost are determined using quoted prices in active markets or observable inputs other than quoted prices in active markets.
c.	Note that some of the financial liabilities in this category include embedded derivatives, which are separately accounted for, but presented together with the host contract at March 31, 2020 and 2019. Certain financial instruments including embedded derivatives were reclassified between levels of the fair value hierarchy, as described in the tables presenting the carrying amounts of financial assets and liabilities carried at fair value in “Financial Assets and Liabilities Carried at Fair Value—Fair Value Hierarchy.” As a result, ¥293,604 million of other deposits, ¥12,374 million of borrowings and ¥273,763 million of debt securities in issue were reclassified from Level 2 to Level 3 at March 31, 2019.
	(i)	The carrying amounts of demand deposits and deposits without maturity represent a reasonable estimate of fair value, considering the nature of these financial instruments.
	(ii)	Financial liabilities with a remaining maturity of six months or less: The carrying amounts represent a reasonable estimate of fair value.
	(iii)	Financial liabilities with a remaining maturity of more than six months: The fair values are, in principle, based on the present values of future cash flows calculated using the refinancing rate applied to the same type of instruments for similar remaining maturities. The fair values of debt securities in issue are based on the present values of future cash flows calculated using the rate derived from yields of bonds issued by SMFG, SMBC and other subsidiaries and publicly offered subordinated bonds published by securities firms.
	(iv)	The carrying amounts and fair values of lease liabilities are not included in this table at March 31, 2020.

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44    OFFSETTING OF FINANCIAL ASSETS AND LIABILITIES

The following tables present the information about the impact of offsetting of financial assets and liabilities in the consolidated statements of financial position in accordance with the criteria described in Note 2 “Summary of Significant Accounting Policies,” as well as the impact of netting of financial instruments that are subject to enforceable master netting arrangements or similar agreements but do not qualify for the offsetting criteria at March 31, 2020 and 2019.

	At March 31, 2020
	Gross amounts of recognized financial assets and liabilities		Gross amounts offset in statements of financial position(1)			Net amounts presented in statements of financial position		Related amounts not offset in statements of financial position(2)
								Financial instruments(3)			Cash collateral			Net amounts
	(In millions)
Financial assets(4):
Reverse repurchase agreements and cash collateral on securities borrowed	¥	15,107,511	¥	(1,361,515	)	¥	13,745,996	¥	(13,585,714	)	¥	—		¥	160,282
Derivative financial instruments		7,077,165		(797,364	)		6,279,801		(3,439,440	)		(692,856	)		2,147,505
Total	¥	22,184,676	¥	(2,158,879	)	¥	20,025,797	¥	(17,025,154	)	¥	(692,856	)	¥	2,307,787
Financial liabilities(4):
Repurchase agreements and cash collateral on securities lent	¥	16,817,297	¥	(1,361,515	)	¥	15,455,782	¥	(15,451,371	)	¥	—		¥	4,411
Derivative financial instruments		6,512,645		(957,444	)		5,555,201		(3,419,951	)		(808,797	)		1,326,453
Total	¥	23,329,942	¥	(2,318,959	)	¥	21,010,983	¥	(18,871,322	)	¥	(808,797	)	¥	1,330,864
	At March 31, 2019
	Gross amounts of recognized financial assets and liabilities		Gross amounts offset in statements of financial position(1)			Net amounts presented in statements of financial position		Related amounts not offset in statements of financial position(2)
								Financial instruments(3)			Cash collateral			Net amounts
	(In millions)
Financial assets(4):
Reverse repurchase agreements and cash collateral on securities borrowed	¥	11,462,683	¥	(1,116,689	)	¥	10,345,994	¥	(10,243,455	)	¥	—		¥	102,539
Derivative financial instruments		3,881,854		(499,280	)		3,382,574		(1,798,712	)		(316,886	)		1,266,976
Total	¥	15,344,537	¥	(1,615,969	)	¥	13,728,568	¥	(12,042,167	)	¥	(316,886	)	¥	1,369,515
Financial liabilities(4):
Repurchase agreements and cash collateral on securities lent	¥	14,003,938	¥	(1,116,689	)	¥	12,887,249	¥	(12,885,505	)	¥	—		¥	1,744
Derivative financial instruments		3,643,981		(592,208	)		3,051,773		(1,803,566	)		(472,156	)		776,051
Total	¥	17,647,919	¥	(1,708,897	)	¥	15,939,022	¥	(14,689,071	)	¥	(472,156	)	¥	777,795

(1) Amounts offset for derivative financial instruments include cash collateral.

(2) The amounts of financial instruments and cash collateral have been limited to the net amounts presented in the consolidated statements of financial position so as not to include any over-collateralization.

(3) Financial instruments includenon-cash collateral at fair value.

(4) Financial assets and liabilities include amounts that are both subject to and not subject to enforceable master netting arrangements or similar agreements.

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The “Gross amounts offset in statements of financial position” column in the above tables represents the impact of offsetting of financial assets and liabilities in the consolidated statements of financial position in accordance with the offsetting criteria. The Group presents financial assets and liabilities on a net basis in the consolidated statements of financial position only if it currently has a legally enforceable right to set off the recognized amounts and intends to settle on a net basis or realize the asset and settle the liability simultaneously.

The “Related amounts not offset in statements of financial position” column comprises (1) financial assets and liabilities subject to netting arrangements, such as the International Swaps and Derivatives Association’s (“ISDA”) Master Agreement, master repurchase agreements and master securities lending agreements, which allow all the outstanding transactions with a particular counterparty to be set off only if the event of default or other predetermined events occur, and (2) cash andnon-cash collateral related to those transactions.

45 FINANCIAL RISK MANAGEMENT

The Group classifies risks into the following categories: credit risk, market risk, liquidity risk and operational risk. This note presents information about the Group’s exposure to credit risk, market risk, and liquidity risk, and its policies and processes for measuring and managing these risks.

Risk Management System

Based on the recognition of the importance of risk management, the Group-wide basic policies for risk management are determined by the Management Committee before being authorized by the board of directors in order to have top management play an active role in the risk management process.

In accordance with these basic policies for risk management, three lines of defense have been defined, and we have clarified related roles and responsibilities. Risk management systems have been established based on the characteristics of particular businesses, and measures are being put in place to strengthen and improve the effectiveness of these systems.

Furthermore, the Group is strengthening Group-wide risk management systems through the Group Chief Risk Officer (“CRO”) Committee and the Global CRO Committee.

The diagram below represents the risk management system of the Group.

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Risk Capital Management

In managing credit risk, market risk, and operational risk affecting the entire Group, the Group applies a uniform standard, risk capital based on value at risk (“VaR”), for use in monitoring and managing risks. This standard is applied while taking into account the characteristics of each risk and of the businesses of Group companies. Specific risk capital measures include setting upper limits for risk exposure based on Group-wide and business unit risk appetite and Group-wide management constitution. Each business unit operates business operation within that limit. Through these precautions, the Group practices management that maintains an appropriate balance between risks and returns based on a comprehensive perspective and secures sufficient financial soundness.

Credit Risk

Credit risk is the risk of incurring losses from decline or loss of the value of an asset (includingoff-balance sheet items) that is caused by a credit event including but not limited to the deterioration of financial condition of a borrower. Overseas credits transactions also entail country risk, which is closely related to credit risk. Country risk is the risk of incurring losses caused by changes in political or economic conditions. Credit exposures arise primarily from lending activities such as loans and advances, acquiring investment securities, derivative transactions, andoff-balance sheet transactions such as unused portion of loan commitments.

Credit risk management system

Credit risk is the most significant risk to which the Group is exposed. The purpose of credit risk management is to keep the credit risk exposure to a permissible level relative to capital, to maintain the quality of assets and to ensure returns commensurate with risk.

At the Group, the Group CRO formulates credit risk management policies each year on the basis of Group-wide basic policies for risk management. The Credit & Investment Planning Department, responsible for the comprehensive management of credit risk, drafts and administers credit risk regulations including the Group credit policies, managesnon-performing loans (“NPLs”), and performs other aspects of credit portfolio management. Also, the Credit Risk Committee deliberates on matters related to Group-wide credit portfolios. The Group companies follow the fundamental principles established by the Group to assess and manage credit risk. Each of Group companies manages credit risk according to the nature of its business, and assesses and manages the credit risks of individual loans and credit portfolios quantitatively, using consistent standards.

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The following chart shows the credit risk management system of SMBC, the Group’s significant banking subsidiary.

At SMBC, the Credit & Investment Planning Department within the Risk Management Unit is responsible for the comprehensive management of credit risk. This department drafts and administers credit policies, the internal rating system, credit authority guidelines, and credit application guidelines, and manages NPLs, including impaired loans, and other aspects of credit portfolio management. The department also cooperates with the Corporate Risk Management Department in quantifying credit risk (risk capital and risk-weighted assets) and controls SMBC’s entire credit risk. Further, the Credit Portfolio Management Department within the Credit & Investment Planning Department strives to stabilize the credit portfolio and manage the risk through credit derivatives, loan asset sales and other instruments.

The credit departments of SMBC within each business unit conduct credit risk management for loans handled by its unit and manage portfolios of its unit. The credit limits they use are based on the baseline amounts that the Credit & Investment Planning Department establishes for each grading category, with particular attention paid to evaluating and managing customers or loans perceived to have particularly high credit risk. The Corporate Research Department engages in research on industries and analyzes the business and financial conditions of borrower enterprises to detect early signs of problems or growth potential. The Credit

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Administration Department is responsible for handling NPLs of borrowers classified as potentially bankrupt or lower, and formulates plans for workouts, including write-offs, and corporate rehabilitation. The department closely liaises with SMBC Servicer Co., Ltd., a Group company, which engages in related services to efficiently reduce the amount of NPLs, including through the sale of loans.

The Internal Audit Unit of SMBC, operating independently of the business units, audits asset quality, accuracy of grading and state of credit risk management, and reports the results directly to the board of directors and the Management Committee.

SMBC has established the Credit Risk Committee to undertake control of credit risk and to ensure the overall soundness of the loan operations.

Credit risk management methods

To effectively manage the risk involved in individual loans as well as the credit portfolio as a whole, the Group first acknowledges that every loan entails credit risk, assesses the credit risk posed by each borrower and loan using an internal rating system, and quantifies that risk for control purposes.

Credit risk evaluation

At SMBC, the Credit & Investment Planning Department manages an internal rating system for each asset control category set according to portfolio characteristics. For example, credits to commercial and industrial (“C&I”) companies, individuals for business purposes (domestic only), sovereigns, public sector entities, and financial institutions are assigned an “obligor grade,” which indicates the borrower’s creditworthiness, and/or “facility grade,” which indicates the collectability of assets taking into account the transaction conditions such as guarantee/collateral, and tenor. The business units determine an obligor grade by first assigning a financial grade using a financial strength grading model and data obtained from the obligor’s financial statements, including net worth and cash flows. The financial grade is then adjusted taking into account the actual state of the obligor’s financial position and qualitative factors to derive the obligor grade. The qualitative factors mainly include the expected future cash flows taking into account factors such as historical loss information, the appropriateness of the borrower’s business plan or operational improvement plan, the status of progress of its plan, and the overall support from financial institutions. In the event that the borrower is domiciled overseas, internal ratings for credit are made after taking into consideration the country rank, which represents an assessment of the credit quality of each country based on its political and economic situation, as well as its current account balance and external debt. Obligor grades and facility grades are reviewed once a year and as otherwise necessary, such as when there are changes in the credit situation. The Group’s subsidiaries carry out credit risk evaluations in line with SMBC.

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The table below shows the corporate obligor grading system of SMBC.

Obligor Grade		Definition	Borrower Category
Domestic (C&I), etc.	Overseas (C&I), etc.
J1	G1	Very high certainty of debt repayment	Normal Borrowers
J2	G2	High certainty of debt repayment
J3	G3	Satisfactory certainty of debt repayment
J4	G4	Debt repayment is likely, but this could change in cases of significant changes in economic trends or business environment
J5	G5	No problem with debt repayment over the short term, but not satisfactory over the mid to long term, and the situation could change in cases of significant changes in economic trends or business environment
J6	G6	Currently no problem with debt repayment, but there are unstable business and financial factors that could lead to debt repayment problems
J7	G7	Close monitoring is required due to problems in meeting loan terms and conditions, sluggish/unstable business, or financial problems	Borrowers Requiring Caution
J7R	G7R	Obligors with loans that are more than three months past due or with restructured loans within the “Borrowers Requiring Caution” category	Substandard Borrowers
J8	G8	Currently not bankrupt, but experiencing business difficulties, making insufficient progress in restructuring and highly likely to go bankrupt	Potentially Bankrupt Borrowers
J9	G9	Though not yet legally or formally bankrupt, has serious business difficulties and rehabilitation is unlikely; thus, effectively bankrupt	Effectively Bankrupt Borrowers
J10	G10	Legally or formally bankrupt	Bankrupt Borrowers

There are also grading systems for loans to individuals such as housing loans and structured finance including project finance, where the repayment source is limited to the cash flows generated by a particular business or asset. For example, the obligor grade of housing loans is determined taking into account various relevant factors such as proportion of the repayment to revenue, proportion of down payment to the value and past due information.

The Credit & Investment Planning Department of SMBC centrally manages the internal rating systems, and designs, operates, supervises and validates the grading models. It validates the grading models (including statistical validation) of main assets following the procedure manual once a year to ensure their effectiveness and suitability.

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Quantification of credit risk

At SMBC, credit risk quantification refers to the process of estimating the degree of credit risk of a portfolio or individual loan taking into account not just the obligor’s probability of default (“PD”), but also the concentration of risk in a specific customer or industry and the loss impact of fluctuations in the value of collateral, such as real estate and securities.

Specifically, the PD by grade, loss given default (“LGD”), credit quality correlation among obligors, and other parameter values are estimated using the historical data of obligors and facilities stored in a database to calculate the credit risk. Then, based on these parameters, SMBC runs a simulation of simultaneous default using the Monte Carlo Simulation to calculate SMBC’s maximum loss exposure to the estimated amount of the maximum losses that may be incurred. Based on these quantitative results, SMBC allocates risk capital.

Risk quantification is also executed for purposes such as to determine the portfolio’s risk concentration or to simulate economic movements (stress tests), and the results are used for making optimal decisions across the whole range of business operations, including formulating business plans and providing a standard against which individual credit applications are assessed.

Credit assessment

At SMBC, the credit assessment of corporate loans involves a variety of financial analyses, including cash flows, to predict an enterprise’s capability of loan repayment and its growth prospects. These quantitative measures, when combined with qualitative analyses of industrial trends, the enterprise’s research and development capabilities, the competitiveness of its products or services, and its management caliber, result in a comprehensive credit assessment. The loan application is analyzed in terms of the intended utilization of the funds and the repayment schedule. In the assessment of housing loans for individuals, SMBC employs a credit assessment model based on credit data amassed and analyzed by SMBC over many years, taking into account various relevant factors including proportion of the repayment to revenue, proportion of down payment to the value and past due information.

Credit monitoring

At SMBC, in addition to analyzing loans at the application stage, the Credit Monitoring System is utilized to reassess obligor grades, and review credit policies for each obligor so that problems can be detected at an early stage, and quick and effective action can be taken. The system includes annual monitoring that is carried out each time the financial results of the obligor enterprise are obtained, as well asad-hoc monitoring that is performed each time credit conditions change.

Credit portfolio management

Risk-taking within the scope of capital

To keep the credit risk exposure to a permissible level relative to capital, the Corporate Risk Management Department of the Company sets a credit risk capital limit for internal control purposes. Under this limit,sub-limits are set for each business unit. The Corporate Risk Management Department conducts monthly monitoring to make sure that these limits are being followed.

Controlling concentration risk

As the Group’s equity capital may be materially impaired in the event that the credit concentration risk becomes apparent, the Credit & Investment Planning Department of the Company therefore takes measures to manage concentration risks, such as introducing large exposure limits and conducting intensive loan reviews for obligors with large exposures, with an increased focus on industrial sectors with an excessive concentration of credit risk. Further, to manage country risk, SMBC’s Credit Department of the International Banking Unit has credit limit guidelines based on each country’s creditworthiness.

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Toward active portfolio management

SMBC’s Credit Portfolio Management Department makes use of credit derivatives, loan asset sales, and other instruments to proactively and flexibly manage its portfolio to stabilize credit risk.

Maximum exposure to credit risk before collateral held or other credit enhancements

The following table shows the maximum exposure to credit risk before taking into account any collateral held or other credit enhancements at March 31, 2020 and 2019.

	At March 31,
	2020		2019
	(In millions)
Credit risk exposures relating to assets on the consolidated statements of financial position:
Deposits with banks	¥	61,626,567	¥	56,700,489
Call loans and bills bought		898,256		2,465,745
Reverse repurchase agreements and cash collateral on securities borrowed		13,745,996		10,345,994
Trading assets		2,545,703		2,480,903
Derivative financial instruments		6,279,801		3,382,574
Financial assets at fair value through profit or loss		1,454,387		2,620,686
Investment securities:
Debt instruments at amortized cost		320,771		318,914
Debt instruments at FVOCI		18,054,164		13,333,221
Loans and advances		94,671,818		90,682,938
Other financial assets		4,229,678		3,609,129
Credit risk exposures relating tooff-balance sheet items(1):
Loan commitments		62,151,698		62,724,820
Financial guarantees and other credit-related contingent liabilities		9,204,996		9,409,066
Total	¥	275,183,835	¥	258,074,479

(1) Theoff-balance sheet items represent the nominal amounts of undrawn loan commitments, financial guarantees and other credit-related contingent liabilities.

Based on the table above, excluding loan commitments (refer to Note 41 “Contingency and Capital Commitments”), the majority of the total exposure to credit risk is derived from “Loans and advances.”

Collateral and other credit enhancements

The Group considers the acquisition of collateral and guarantees as a secondary repayment source to further enhance loan recovery and minimize credit risk. Based on the assessment of a borrower’s real financial condition and potential future cash flows, the Group shall analyze the borrower’s repayment ability and require sufficient collateral in the form of an asset or third-party obligation. This serves to mitigate the inherent credit risk in the exposure, by either improving recoveries in the event of a default or transferring the borrower’s obligation to guarantors. Collateral received is mainly segregated into (1) financial collateral such as cash, deposits and securities, (2) real estate collateral such as land and buildings, and (3) guarantees received from sovereigns, municipal corporations, credit guarantee corporations and other public entities, financial institutions, and other companies.

The Group’s credit risk management is mainly based on an analysis of the repayment ability from the cash flows of the borrower’s business performance, and the collateral and other credit enhancements are considered as secondary repayment sources in the Group’s business practice. At the time of the primary lending decision, the

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Group evaluates the collateral on an individual borrower basis to consider its financial effect for mitigating credit risk. There-evaluation of the collateral and other credit enhancements will be performed regularly, depending on the borrower’s creditworthiness. In case there is a significant change in the borrower’s repayment ability due to a deterioration in its creditworthiness and/or its cash flows, the Group may utilize the collateral and other credit enhancements as a source of repayment.

The following table shows the financial effect of collateral and other credit enhancements on impaired loans and advances at March 31, 2020 and 2019. The maximum collateral amounts included in the disclosure are limited to the carrying value of loans and advances where the credit exposure is over-collateralized.

	At March 31,
	2020		2019
	(In millions)
Impaired loans and advances	¥	845,329	¥	882,018
Financial effect of collateral and other credit enhancements		281,382		325,896

Concentration of risks of loans and advances with credit risk exposure

An analysis of concentrations of credit risk from loans and advances by geographical sector and industry sector at March 31, 2020 and 2019 is shown below. The concentration by geographical sector is measured based on the domicile of the borrower.

Geographical sector

	At March 31,
	2020			2019
	(In millions)
Domestic	¥	60,184,755		¥	59,856,165
Foreign:
Americas		13,866,321			12,382,463
Europe		6,552,895			5,988,133
Asia		11,010,138			9,720,884
Others		4,028,641			3,598,673
Total foreign		35,457,995			31,690,153
Gross loans and advances		95,642,750			91,546,318
Adjust: Unearned income, unamortized premiums—net and deferred loan fees—net		(264,527	)		(258,392	)
Less: Allowance for loan losses		(706,405	)		(604,988	)
Carrying amount	¥	94,671,818		¥	90,682,938

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Industry sector

	At March 31,
	2020			2019
	(In millions)
Domestic:
Manufacturing	¥	8,787,566		¥	8,522,451
Agriculture, forestry, fisheries and mining		280,233			288,099
Construction		919,043			918,617
Transportation, communications and public enterprises		5,637,560			5,596,935
Wholesale and retail		5,375,802			5,281,596
Finance and insurance		3,217,545			3,129,666
Real estate and goods rental and leasing		10,666,446			10,126,531
Services		4,452,195			4,328,173
Municipalities		839,878			866,373
Lease financing		8,380			9,030
Consumer(1)		15,691,638			16,187,195
Others		4,308,469			4,601,499
Total domestic		60,184,755			59,856,165
Foreign:
Public sector		335,071			360,875
Financial institutions		6,220,956			5,382,130
Commerce and industry		25,597,599			23,285,374
Lease financing		309,531			344,958
Others		2,994,838			2,316,816
Total foreign		35,457,995			31,690,153
Gross loans and advances		95,642,750			91,546,318
Adjust: Unearned income, unamortized premiums—net and deferred loan fees—net		(264,527	)		(258,392	)
Less: Allowance for loan losses		(706,405	)		(604,988	)
Carrying amount	¥	94,671,818		¥	90,682,938

(1) The balance in Consumer mainly consists of housing loans. The housing loan balances amounted to ¥10,913,869 million and ¥11,216,711 million at March 31, 2020 and 2019, respectively.

The following tables show a disaggregation of the structured finance loans and advances balances, where the repayment source is limited to the cash flows generated by a particular business or asset, and the balances of secured or unsecured consumer loans at March 31, 2020 and 2019. These loans and advances are included in the preceding tables.

Structured finance:

	At March 31,
	2020		2019
	(In millions)
Real estate finance	¥	2,601,130	¥	2,493,748
Project finance		4,243,862		3,978,779
Other structured finance		473,436		387,400
Total structured finance	¥	7,318,428	¥	6,859,927

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Consumer:

	At March 31,
	2020		2019
	(In millions)
Secured loans(1)	¥	11,538,195	¥	12,008,728
Unsecured loans		4,153,443		4,178,467
Total consumer	¥	15,691,638	¥	16,187,195

(1) The secured loans and advances mainly represent housing loans. The housing loan balances amounted to ¥10,913,869 million and ¥11,216,711 million at March 31, 2020 and 2019, respectively.

Credit quality analysis

The following tables set forth information about the gross carrying amount of financial assets and the exposure to credit risk on loan commitments and financial guarantee contracts by stage allocation and internal rating grades of SMBC. Refer to Note 2 “Summary of Significant Accounting Policies” for information on stage allocation. Also refer to Note 45 “Financial Risk Management” for information on obligor grading system of SMBC.

	At March 31, 2020
	12-month ECL			Lifetime ECL not credit- impaired			Lifetime ECL credit-impaired			Total
	(In millions)
Loans and advances at amortized cost:
Normal
J1-6	¥	39,631,009		¥	198,143		¥	—		¥	39,829,152
G1-6		27,437,173			522,780			—			27,959,953
Japanese government and local municipal corporations		3,091,323			—			—			3,091,323
Other(1)		22,837,826			111,801			—			22,949,627
Requiring caution
J7		—			579,539			—			579,539
G7		—			202,207			—			202,207
Other(1)		—			185,620			—			185,620
Impaired(2)		—			—			845,329			845,329
Gross loans and advances		92,997,331			1,800,090			845,329			95,642,750
Adjust: Unearned income, unamortized premiums—net and deferred loan fees—net											(264,527	)
Less: Allowance for loan losses		(203,286	)		(147,382	)		(355,737	)		(706,405	)
Carrying amount										¥	94,671,818

(1) The balance of “Other” includes housing loans, which amounted to ¥10,799,400 million and ¥21,898 million for the borrower category of Normal and Requiring Caution, respectively.

(2) “Impaired” refers to loans and advances to borrowers with obligor grades not higher than 7R.

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	At March 31, 2019
	12-month ECL			Lifetime ECL not credit- impaired			Lifetime ECL credit-impaired			Total
	(In millions)
Loans and advances at amortized cost:
Normal
J1-6	¥	38,708,431		¥	191,177		¥	—		¥	38,899,608
G1-6		24,350,586			508,277			—			24,858,863
Japanese government and local municipal corporations		3,137,657			—			—			3,137,657
Other(1)		22,876,865			75,598			—			22,952,463
Requiring caution
J7		—			460,319			—			460,319
G7		—			171,441			—			171,441
Other(1)		—			183,949			—			183,949
Impaired(2)		—			—			882,018			882,018
Gross loans and advances		89,073,539			1,590,761			882,018			91,546,318
Adjust: Unearned income, unamortized premiums—net and deferred loan fees—net											(258,392	)
Less: Allowance for loan losses		(158,094	)		(92,446	)		(354,448	)		(604,988	)
Carrying amount										¥	90,682,938

(1) The balance of “Other” includes housing loans, which amounted to ¥11,084,927 million and ¥28,018 million for the borrower category of Normal and Requiring Caution, respectively.

(2) “Impaired” refers to loans and advances to borrowers with obligor grades not higher than 7R.

Modified loans and advances that were subject to lifetime ECL measurement amounted to ¥42,420 million and ¥28,908 million for the fiscal years ended March 31, 2020 and 2019, respectively. The net modification gain or loss is not material.

	At March 31, 2020
	12-month ECL		Lifetime ECL not credit- impaired		Lifetime ECL credit- impaired		Total
	(In millions)
Loan commitments and Financial Guarantees(1):
Gross carrying amount	¥	29,711,738	¥	276,070	¥	24,820	¥	30,012,628
Allowance foroff-balance sheet items		46,118		21,423		3,713		71,254
	At March 31, 2019
	12-month ECL		Lifetime ECL not credit- impaired		Lifetime ECL credit- impaired		Total
	(In millions)
Loan commitments and Financial Guarantees(1):
Gross carrying amount	¥	28,842,267	¥	383,828	¥	13,435	¥	29,239,530
Allowance foroff-balance sheet items		36,795		18,289		5,761		60,845

(1) Loan commitments are the undrawn components of loan commitments on which ECL can be separately identified from those on the drawn components.

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Movements in ECL allowance

The following tables show reconciliations from the opening balance to the closing balance of the ECL allowance by class of financial instrument.

	12-month ECL			Lifetime ECL not credit- impaired			Lifetime ECL credit-impaired			Total
	(In millions)
Loans and advances at amortized cost(1):
Balance at April 1, 2018	¥	164,515		¥	130,701		¥	356,404		¥	651,620
Transfer to12-month ECL		832			(805	)		(27	)		—
Transfer to lifetime ECL not credit-impaired		(1,599	)		4,845			(3,246	)		—
Transfer to lifetime ECL credit-impaired		(1,966	)		(10,507	)		12,473			—
Net transfers between stages		(2,733	)		(6,467	)		9,200			—
Provision (credit) for loan losses(2)		(4,265	)		(31,744	)		158,936			122,927
Charge-offs(3)		—			—			180,254			180,254
Recoveries		—			—			11,042			11,042
Net charge-offs		—			—			169,212			169,212
Others		577			(44	)		(880	)		(347	)
Balance at March 31, 2019	¥	158,094		¥	92,446		¥	354,448		¥	604,988
Transfer to12-month ECL		880			(829	)		(51	)		—
Transfer to lifetime ECL not credit-impaired		(2,414	)		4,264			(1,850	)		—
Transfer to lifetime ECL credit-impaired		(1,650	)		(7,938	)		9,588			—
Net transfers between stages		(3,184	)		(4,503	)		7,687			—
Provision for loan losses(4)		52,085			60,724			136,669			249,478
Charge-offs(3)		—			—			153,992			153,992
Recoveries		—			—			12,413			12,413
Net charge-offs		—			—			141,579			141,579
Others		(3,709	)		(1,285	)		(1,488	)		(6,482	)
Balance at March 31, 2020	¥	203,286		¥	147,382		¥	355,737		¥	706,405

(1) “Loans and advances at amortized cost” includes allowance for undrawn components of loan commitments issued to retail customers which cannot be separately identified from that for the drawn components.

(2) The decrease of allowance of lifetime ECL not credit-impaired is primarily due to certain large borrowers’ improvement of their financial performance.

(3) Charge-offs for lifetime ECL credit-impaired are primarily related to those for consumer loans.

(4) The increase of allowance for 12-month ECL and lifetime ECL not credit-impaired for the fiscal year ended March 31, 2020 is primarily due to the incorporation of forward-looking macroeconomic information reflecting the impact of the COVID-19 economic outlook.

For the fiscal year ended March 31, 2020, the ECL reflected the current and forward-looking impact of the COVID-19 pandemic. The negative impact on the Japanese and global economy was assumed to remain throughout the fiscal year ending March 31, 2021 and the allowance for 12-month ECL and lifetime ECL not credit-impaired for the fiscal year ended March 31, 2020 increased. Furthermore, an additional ECL adjustment was made for portfolios whose credit risk was significantly affected by the decline in oil prices. For additional information, refer to Note 3 “Critical Accounting Estimates and Judgments.”

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	12-month ECL			Lifetime ECL not credit- impaired			Lifetime ECL credit-impaired			Total
	(In millions)
Loan commitments and financial guarantees(1):
Balance at April 1, 2018	¥	35,543		¥	23,311		¥	6,225		¥	65,079
Net transfers between stages		(28	)		(228	)		256			—
Provision (credit) foroff-balance sheet items		2,272			(4,794	)		(720	)		(3,242	)
Others		(992	)		—			—			(992	)
Balance at March 31, 2019	¥	36,795		¥	18,289		¥	5,761		¥	60,845
Net transfers between stages		(87	)		(173	)		260			—
Provision (credit) foroff-balance sheet items		9,461			3,307			(2,308	)		10,460
Others		(51	)		—			—			(51	)
Balance at March 31, 2020	¥	46,118		¥	21,423		¥	3,713		¥	71,254

(1) ECL allowance for loan commitments is that for the undrawn components of loan commitments, which can be separately identified from that for the drawn components.

Trading assets, financial assets at fair value through profit or loss and investment securities

The following tables show an analysis of trading assets, financial assets at fair value through profit or loss and debt instruments at amortized cost and at fair value through other comprehensive income based on the external rating system at March 31, 2020 and 2019, excluding instruments with equity features. Collateral is generally not obtained directly from the issuers.

	At March 31, 2020
	Trading assets(1)		Financial assets at fair value through profit or loss(1)		Debt instruments at amortized cost(1)(2)		Debt instruments at fair value through other comprehensive income(1)(2)
	(In millions)
AAA	¥	101,336	¥	10,005	¥	—	¥	8,104,653
AA- to AA+		2,125,095		346,039		282,379		8,236,637
A- to A+		135,445		23,981		—		763,612
Lower than A-		98,275		106,682		38,299		694,051
Unrated		7,193		559		93		26,627
Total	¥	2,467,344	¥	487,266	¥	320,771	¥	17,825,580
	At March 31, 2019
	Trading assets(1)		Financial assets at fair value through profit or loss(1)		Debt instruments at amortized cost(1)(2)		Debt instruments at fair value through other comprehensive income(1)(2)
	(In millions)
AAA	¥	242,984	¥	12,537	¥	—	¥	6,520,641
AA- to AA+		1,907,495		1,254,294		280,246		5,930,057
A- to A+		182,306		29,233		203		235,065
Lower than A-		80,851		165,108		38,387		642,091
Unrated		4,652		568		78		15,313
Total	¥	2,418,288	¥	1,461,740	¥	318,914	¥	13,343,167

(1) The amounts represent fair value for trading assets and financial assets at fair value through profit or loss, whereas they represent the gross carrying amount for debt instruments at amortized cost and at fair value through other comprehensive income.

(2) There were no debt instruments at amortized cost or debt instruments at fair value through other comprehensive income subject to lifetime ECL at March 31, 2020 and 2019.

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Credit risk from derivative financial instruments

The Group maintains control limits on derivative positions, by both amount and term. At any one time, the amount subject to credit risk is limited to the fair value of derivative financial instruments that are favorable to the Group (i.e., assets where their fair value is positive).

The Group’s credit risk from derivatives is mitigated where possible through netting agreements whereby derivative assets and liabilities with the same counterparty can be offset. Netting agreements, such as the ISDA master agreement, allow the netting of obligations arising under all of the derivative transactions that the agreement covers upon the counterparty’s default, regardless of maturity and currency, resulting in a single net claim against the counterparty. The Group’s credit risk is also mitigated by collateral arrangements through the credit support annex, resulting in collateral delivered or received regularly based on the replacement costs of derivatives.

Market Risk and Liquidity Risk

Market risk is the possibility that fluctuations in interest rates, foreign exchange rates, stock prices or other market prices will change the market value of financial products, leading to a loss. The purpose of market risk management is to keep the market risk exposure to a permissible level relative to capital.

Liquidity risk is defined as the uncertainty around the ability to meet debt obligations without incurring unacceptably large losses. An example of such risk is the possible inability to meet current and future cash flow/ collateral needs, both expected and unexpected. In such cases, the Group may be required to raise funds at less than favorable rates or be unable to raise sufficient funds for settlement. The purpose of liquidity risk management is to ensure that the Group is in a position to address its liquidity obligations through monitoring the liquidity gap between assets and liabilities, and by maintaining highly liquid supplementary funding resources.

On the basis of the Group-wide basic policies for risk management, the Group has a quantitative management process to control market and liquidity risks on a Group-wide basis by setting allowable risk limits by company. The Group at least annually reviews and identifies which companies primarily carry the market and liquidity risks within the Group. The Group sets permissible levels and upper limits of risk for each identified company in consideration of those companies’ business plans. The Group ensures that each identified company establishes a risk management system that is appropriate to the risks it faces, and hasbuilt-in transparent risk management processes which clearly separating front, middle and back office operations, and establishes a control system of mutual checks and balances.

Framework for market and liquidity risk management

The board of directors authorizes important matters relating to the management of market and liquidity risks, such as the basic policies and risk limits, which are decided by the Management Committee. The Corporate Risk Management Department, which is independent of the business units that directly handle market transactions, manages market and liquidity risks in an integrated manner. The Corporate Risk Management Department not only monitors the current risk situations but also reports regularly to the Management Committee and the board of directors.

Additionally, the Asset Liability Management (“ALM”) Committee meets on a quarterly basis to examine reports on the state of market and liquidity risk management and to discuss the Group’s ALM operation policies. Furthermore, SMBC’s ALM Committee meets on a monthly basis to examine reports on the state of observance of SMBC’s limits on market and liquidity risks, and to discuss SMBC’s ALM operations.

Under the Group’s internal audit system, internal audits are also periodically performed to verify that the risk management framework is functioning properly.

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The following chart shows the market and liquidity risk management system of SMBC.

Market risk management methods

The Group manages market risk derived from trading activities andnon-trading activities, including strategic shareholding investments and other transactions within the risk capital limit which is determined by taking into account SMFG’s shareholders’ equity and other principal indicators of the financial position. The Group also establishes an upper limit on VaR and losses within the risk capital limits.

The Group’s market risk can be divided into various factors: interest rates, foreign exchange rates, equity prices and option risks. The Group manages each of these risks by employing the VaR method as well as supplemental indicators suitable for managing each risk, such as the basis point value (“BPV”).

VaR is the largest predicted loss that is possible given a fixed confidence interval. For example, the Group’s VaR indicates the largest loss that is possible for a holding period of one day and a confidence interval of 99.0%. BPV is the amount of change in assessed value as a result of aone-basis-point (0.01%) movement in interest rates.

Value at risk

The principal Group companies’ internal VaR model makes use of historical data to prepare scenarios for market fluctuations and, by conducting simulations of gains and losses on a net position basis, the model estimates the maximum losses that may occur. The VaR calculation method the Group employs for both trading andnon-trading activities is based mainly on the following:

• the historical simulation method;

• aone-sided confidence interval of 99.0%;

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• aone-day holding period (aone-year holding period for the strategic shareholding investment portfolio); and

• an observation period of four years (ten years for the strategic shareholding investment portfolio).

This method is reviewed periodically and refined, if necessary.

The relationship between the VaR calculated by the model and the actual profit and loss data is back-tested periodically. There were no significant excess losses in the back-testing results including the trading accounts. The back-testing results are reviewed by management, which also monitors the ongoing suitability of the VaR model.

The following tables show the Group’s VaR by risk category and these figures are prepared based on the internal reporting provided to management. The Group’s material market risk exposure categories consist of interest rate risk, foreign exchange risk, equities and commodities risk and others. The section headed “VaR for Trading Activity” shows VaR for instruments entered into for trading purposes and the VaR model for the trading book includes principal consolidated subsidiaries. The section headed “VaR forNon-Trading Activity” shows VaR for instruments entered into for purposes other than trading purposes. “Strategic Shareholding Investment” in the “VaR forNon-Trading Activity” section is a portfolio that consists principally of publicly traded Japanese equities. This portfolio, like that of other financial institutions in Japan, has historically included shares of the Group’s customers.

(a) VaR for Trading Activity

	Interest rate risk		Foreign exchange risk		Equities and commodities risk		Others		Total(1)
	(In billions)
For the fiscal year ended March 31, 2020:
SMBC Consolidated
Maximum	¥	6.0	¥	9.6	¥	2.9	¥	4.7	¥	10.2
Minimum		3.7		4.0		0.0		2.6		6.2
Daily average		4.5		5.6		0.7		4.0		7.3
At March 31, 2020		5.4		8.9		0.0		2.6		6.4
SMFG Consolidated
Maximum	¥	13.7	¥	10.6	¥	9.4	¥	4.7	¥	22.4
Minimum		9.2		4.4		1.6		2.6		13.8
Daily average		10.6		6.2		3.7		4.0		16.7
At March 31, 2020		12.6		9.5		2.4		2.6		16.2
	Interest rate risk		Foreign exchange risk		Equities and commodities risk		Others		Total(1)
	(In billions)
For the fiscal year ended March 31, 2019:
SMBC Consolidated
Maximum	¥	5.7	¥	6.2	¥	3.2	¥	4.6	¥	13.5
Minimum		2.3		3.0		0.0		3.0		5.7
Daily average		4.0		4.1		0.8		3.8		7.6
At March 31, 2019		4.5		4.7		0.1		3.8		6.6
SMFG Consolidated
Maximum	¥	19.0	¥	6.9	¥	17.1	¥	4.6	¥	33.0
Minimum		8.5		3.2		1.7		3.0		14.7
Daily average		12.8		4.4		3.9		3.8		19.7
At March 31, 2019		10.5		5.1		3.9		3.8		16.4

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(1) Total for “Maximum,” “Minimum,” and “Daily average” represent the maximum, minimum and daily average of the total of the trading book. For certain subsidiaries, the Group employs the standardized method and/or the historical simulation method for the VaR calculation method.

(b) VaR forNon-Trading Activity

(i) Banking

	Interest rate risk		Foreign exchange risk		Equities and commodities risk		Others		Total(1)
	(In billions)
For the fiscal year ended March 31, 2020:
SMBC Consolidated
Maximum	¥	46.8	¥	0.0	¥	30.2	¥	0.0	¥	51.5
Minimum		32.7		0.0		10.8		0.0		35.6
Daily average		40.6		0.0		20.4		0.0		44.3
At March 31, 2020		45.4		0.0		15.4		0.0		49.6
SMFG Consolidated
Maximum	¥	47.6	¥	0.0	¥	30.2	¥	0.0	¥	52.4
Minimum		33.6		0.0		10.8		0.0		36.5
Daily average		41.5		0.0		20.4		0.0		45.1
At March 31, 2020		46.2		0.0		15.4		0.0		50.5
	Interest rate risk		Foreign exchange risk		Equities and commodities risk		Others		Total(1)
	(In billions)
For the fiscal year ended March 31, 2019:
SMBC Consolidated
Maximum	¥	37.4	¥	0.0	¥	33.7	¥	0.0	¥	48.4
Minimum		27.4		0.0		17.8		0.0		36.0
Daily average		31.1		0.0		24.3		0.0		40.4
At March 31, 2019		37.2		0.0		19.8		0.0		43.9
SMFG Consolidated
Maximum	¥	38.4	¥	0.0	¥	33.7	¥	0.0	¥	50.6
Minimum		28.4		0.0		17.8		0.0		37.0
Daily average		33.0		0.0		24.3		0.0		42.3
At March 31, 2019		38.2		0.0		19.8		0.0		44.8

(1) Total for “Maximum,” “Minimum,” and “Daily average” represent the maximum, minimum and daily average of the total of the banking book.

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(ii) Strategic Shareholding Investment

	Equities risk
	(In billions)
For the fiscal year ended March 31, 2020:
SMBC Consolidated
Maximum	¥	1,030.0
Minimum		717.4
Daily average		941.3
At March 31, 2020		808.2
SMFG Consolidated
Maximum	¥	1,180.6
Minimum		840.5
Daily average		1,092.7
At March 31, 2020		942.4
	Equities risk
	(In billions)
For the fiscal year ended March 31, 2019:
SMBC Consolidated
Maximum	¥	1,430.4
Minimum		980.0
Daily average		1,246.6
At March 31, 2019		1,006.3
SMFG Consolidated
Maximum	¥	1,622.5
Minimum		1,114.8
Daily average		1,414.6
At March 31, 2019		1,156.0

Stress tests

The market occasionally undergoes extreme fluctuations that exceed projections. Therefore, to manage market risk, it is important to run simulations of situations that may occur only once in many years, orso-called stress tests. To prepare for unexpected market swings, the Group performs stress tests on a monthly basis based on various scenarios.

The limitations of the VaR methodology include the following:

• The use of historical data as a proxy for estimating future events may underestimate the probability of extreme market movements. Past market movement is not necessarily a good indicator of future events;

• The use of a holding period assumes that all positions can be liquidated or hedged in that period of time. This assumption does not fully capture the market risk arising during periods of illiquidity, when liquidation or hedging in that period of time may not be possible;

• The use of a confidence level neither takes account of, nor makes any statement about, any losses that might occur beyond this level of confidence; and

• VaR does not capture all of the complex effects of the risk factors on the value of positions and portfolios and could underestimate potential losses.

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Additional information for the certain risks

(a) Interest rate risk

To supplement the above limitations of VaR methodologies, the Group adopts various indices to measure and monitor the sensitivity of interest rates, including delta, gamma and vega risks. The Group considers BPV as one of the most significant indices to manage interest rate risk. BPV is the amount of change in the value to the banking and trading book as a result of aone-basis-point (0.01%) movement in interest rates. The principal Group companies use BPV to monitor interest rate risk, not only on a net basis, but also by term to prevent the concentration of interest rate risk in a specific period. In addition, as previously addressed, the Group enhances the risk management methods of VaR and BPV by using them in combination with back-testing and stress tests.

Interest rate risk substantially changes depending on the method used for recognizing the expected maturity dates of demand deposits that can be withdrawn at any time, or the method used for estimating the timing of cancellation prior to maturity of time deposits and consumer housing loans. At SMBC, the maturity of demand deposits that are expected to be left with the bank for a prolonged period is regarded to be, at the longest, five years (2.5 years on average), and the cancellation prior to maturity of time deposits and consumer housing loans is estimated based on historical data.

Based on the new standards for interest rate risk in the banking book issued by the Basel Committee on Banking Supervision (“BCBS”) in April 2016, the FSA revised the related regulatory guidelines pertaining to monitoring of interest rate risks in the banking book in December 2017. The revised disclosure requirements with respect to the changes in economic value of equity (“DEVE”) in the banking book as a result of interest rate shocks have been applied from March 31, 2018.DEVE is defined as a decline in economic value as a result of an interest rate shock. It is calculated by multiplying the interest rate sensitivity (excluding credit spread) and interest rate change. The FSA implements a “materiality test” to identify banks taking excessive interest rate risks. Under the materiality test, the FSA monitors the ratio ofDEVE to Tier 1 capital based on a set of prescribed interest rate shock scenarios. The threshold applied by the FSA is 15% and the ratios for SMBC on a consolidated basis at March 31, 2020 and 2019 were 11.1% and 7.8%, respectively and those for SMFG on a consolidated basis at March 31, 2020 and 2019 were 9.6% and 6.8%, respectively.

(b) Foreign exchange risk

The principal Group companies set risk limits for each currency to manage the concentration of the foreign currency position. The foreign exchange risk is immaterial as shown above in VaR by risk category.

(c) Strategic shareholding investment risk

The Group establishes limits on allowable risk for strategic shareholding investments and monitors the observance of those limits to keep stock price fluctuation risk within acceptable parameters. The Group has been reducing its strategic shareholding investments, and the balance is within a permitted level, which is less than 100% of the Group’s Tier 1 Capital.

Liquidity risk management methods

At Group, liquidity risk is regarded as one of the major risks. The Group’s liquidity risk management is based on a framework consisting of setting Risk Appetite Measures and establishing contingency plans.

The Risk Appetite Measures are measures for selecting the types and levels of risk that the Group is willing to take on or tolerate. As the level of liquidity risk is evaluated based on cash flow and balance sheet conditions, Risk Appetite Measures have been set for both of these areas. These measures include the Liquidity Coverage Ratio, a liquidity regulation, as well as a measure of the periods for which it will be possible to maintain funding levels even under stress due to deposit outflows or other factors, and the ratio which shows how much the stable funding covers the funding for loans and other assets.

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The tolerated levels of risk are set based on account funding status, cash management planning, economic environments and other factors, and measures are monitored on a daily or monthly basis in order to limit reliance on short-term funding and appropriately manage liquidity.

As a framework to complement the Risk Appetite Measures, upper limits are set in place on both a Group company basis and an individual branch bases with regard to funding gaps, which is defined as a maturity mismatch between the source of funds and use of funds.

Furthermore, contingency plans are established in preparation for emergency situations. These plans contain information on chains of command and lines of reporting as well as detailed action plans depending on the existing situation (i.e., normal, concerned, or crisis). Meanwhile, SMBC carries out quantitative management of alert indications based on early warning indicators established to assist the bank in promptly and systematically detecting liquidity risks.

Maturity analysis of financial liabilities at March 31, 2020 and 2019

The following tables show a maturity analysis of the contractual undiscounted cash flows for financial liabilities at March 31, 2020 and 2019. The amount of interest on debt instruments is not included in the maturity tables below due to its insignificance.

	At March 31, 2020
	On demand		Not later than three months		Later than three months and not later than one year		Later than one year and not later than three years		Later than three years and not later than five years		Later than five years		Total
	(In millions)
Non-derivative financial instruments:
Deposits	¥	90,576,919	¥	31,586,693	¥	11,729,113	¥	3,460,144	¥	504,408	¥	579,182	¥	138,436,459
Call money and bills sold		8,282		3,690,507		41,751		—		—		—		3,740,540
Repurchase agreements and cash collateral on securities lent		354,639		15,090,564		10,579		—		—		—		15,455,782
Trading liabilities		2,018,484		—		—		—		—		—		2,018,484
Borrowings		188,553		5,350,849		4,865,354		2,527,554		1,923,192		1,872,774		16,728,276
Debt securities in issue		—		1,821,902		1,226,153		2,241,586		1,916,987		3,512,194		10,718,822
Lease payable		—		18,890		59,829		107,638		68,788		145,722		400,867
Other financial liabilities		2,655,310		4,487,488		3,997		537		—		2,919		7,150,251
Off balance sheet items:
Loan commitments		62,151,698		—		—		—		—		—		62,151,698
Financial guarantee contracts		9,204,996		—		—		—		—		—		9,204,996
Totalnon-derivative financial instruments	¥	167,158,881	¥	62,046,893	¥	17,936,776	¥	8,337,459	¥	4,413,375	¥	6,112,791	¥	266,006,175
Derivative financial instruments	¥	5,555,201	¥	—	¥	—	¥	—	¥	—	¥	—	¥	5,555,201

F-142

	At March 31, 2019
	On demand		Not later than three months		Later than three months and not later than one year		Later than one year and not later than three years		Later than three years and not later than five years		Later than five years		Total
	(In millions)
Non-derivative financial instruments:
Deposits	¥	86,004,575	¥	30,361,892	¥	13,281,352	¥	3,488,163	¥	605,331	¥	662,673	¥	134,403,986
Call money and bills sold		—		1,276,943		30,836		—		—		—		1,307,779
Repurchase agreements and cash collateral on securities lent		146,936		12,740,313		—		—		—		—		12,887,249
Trading liabilities		1,998,694		—		—		—		—		—		1,998,694
Borrowings		210,667		523,079		7,972,114		721,554		666,649		2,041,699		12,135,762
Debt securities in issue		—		2,206,942		1,320,643		2,472,492		1,885,833		3,301,299		11,187,209
Lease payable		—		2,220		6,258		12,024		7,368		5,322		33,192
Other financial liabilities		2,461,381		3,128,040		4,474		—		—		2,618		5,596,513
Off balance sheet items:
Loan commitments		62,724,820		—		—		—		—		—		62,724,820
Financial guarantee contracts		9,409,066		—		—		—		—		—		9,409,066
Totalnon-derivative financial instruments	¥	162,956,139	¥	50,239,429	¥	22,615,677	¥	6,694,233	¥	3,165,181	¥	6,013,611	¥	251,684,270
Derivative financial instruments	¥	3,051,773	¥	—	¥	—	¥	—	¥	—	¥	—	¥	3,051,773

Notes:

1. Embedded derivatives which are separately accounted for, but presented together with the host contract in the consolidated statements of financial position are not included in the contractual tables above as they relate to the interest cash flow of the host contract, which are also not included in the tables above.

2. Derivative financial instruments are recorded at fair value and included in the column “On demand.”

Balance of loans and advances, and deposits at March 31, 2020 and 2019

The following table presents the balance of loans and advances, and deposits at March 31, 2020 and 2019. The balance of deposits, which was mainly composed of individual customer deposits at March 31, 2020 and 2019, exceeded the balance of loans and advances at the same time due to the stable deposit base in Japan.

	At March 31,
	2020		2019
	(In millions)
Loans and advances	¥	94,671,818	¥	90,682,938
Deposits		138,431,418		134,404,652

F-143

The following table presents a breakdown of deposits by domestic and foreign offices. Domestic inter-bank money is classified as “Call money and bills sold” and not included in “Deposits” in the consolidated statements of financial position. Over half of domestic deposits is composed of individual customer deposits.

	At March 31,
	2020		2019
	(In millions)
Domestic offices:
Non-interest-bearing demand deposits	¥	23,804,054	¥	21,376,082
Interest-bearing demand deposits		56,650,510		53,490,445
Deposits at notice		779,514		853,344
Time deposits		17,759,453		17,885,860
Negotiable certificates of deposit		4,081,741		4,962,651
Others		7,198,447		7,317,912
Total domestic offices		110,273,719		105,886,294
Foreign offices:
Non-interest-bearing demand deposits		1,503,721		1,218,145
Interest-bearing demand deposits		3,122,179		2,714,951
Deposits at notice		9,989,980		10,316,612
Time deposits		7,264,055		7,875,029
Negotiable certificates of deposit		6,098,695		6,202,836
Others		179,069		190,785
Total foreign offices		28,157,699		28,518,358
Total deposits	¥	138,431,418	¥	134,404,652

Capital Management

The Group manages its capital by taking into consideration regulatory compliance and business development.

The Group’s capital management objectives are to maintain sufficient capital resources to meet the capital adequacy requirements and to maintain a strong capital base to support the development of its business.

External regulatory capital requirement

The Group, the Company and its principal banking subsidiaries in Japan rigidly abide by the capital adequacy guidelines set by the FSA in managing its capital. Japan’s capital adequacy guidelines are based on the Basel Capital Accord, which was proposed by the BCBS for uniform application to all banks which have international operations in industrialized countries. Japan’s capital adequacy guidelines may be different from those of central banks or supervisory bodies of other countries because the FSA designed them to suit the Japanese banking environment. The Group’s banking subsidiaries outside of Japan are also subject to the local capital ratio requirements.

In December 2010, the BCBS published the new Basel III rules text to implement the Basel III framework, which sets out higher and better-quality capital, better risk coverage, the introduction of a leverage ratio as a backstop to the risk-based requirement, measures to promote thebuild-up of capital that can be drawn down in periods of stress, and the introduction of two global liquidity standards. The main measures of the minimum capital requirements in the Basel III framework began on January 1, 2013 and have been fully applied from January 1, 2019.

These capital reforms increase the minimum common equity requirement from 2% to 4.5% and require banks to hold a capital conservation buffer, which started to be phased in from January 2016 with the initial ratio

F-144

of 0.625% and reached 2.5% in January 2019, to withstand future periods of stress, bringing the total common equity requirement to 7%. The Tier 1 capital requirement was also increased from 4% to 6%, resulting in a total requirement of 8.5% when combined with the above-mentioned conservation buffer. The total capital requirement increased from 8% to 10.5% in January 2019 due to the full phasing in of the capital conservation buffer. Furthermore, a countercyclical buffer within a range of 0% to 2.5% of common equity or other fully loss-absorbing capital has been implemented according to national circumstances.

In addition to the above-mentioned minimum capital requirements and capital buffer requirements under Basel III, organizations identified by the Financial Stability Board (“FSB”) as Global Systemically Important Banks(“G-SIBs”), which includes the Group, are required to maintain an additional 1% to 2.5% of Common Equity Tier 1 capital as a percentage of risk-weighted assets, which is commonly referred to as theG-SIB capital surcharge, based on the organization’s size, interconnectedness, substitutability, complexity and cross-jurisdictional activity as determined by the FSB. The amount ofG-SIB capital surcharge that applies to the Group based on the FSB’s determination is 1%.

To reflect the Basel III framework, the FSA changed its capital adequacy guidelines. The minimum Common Equity Tier 1 capital requirement and Tier 1 capital requirement have been 4.5% and 6%, respectively since March, 2015. The capital conservation buffer, countercyclical buffer and theG-SIB capital surcharge started to be phased in from March 31, 2016 and have been fully applied from March 31, 2019 under the FSA capital adequacy guidelines.

In accordance with the changes of the FSA capital adequacy guidelines, the Group changed its classification of capital into three tiers, referred to as Common Equity Tier 1 capital, Additional Tier 1 capital and Tier 2 capital as follows:

Common Equity Tier 1 capital consists primarily of capital stock, capital surplus and retained earnings relating to common shares, andnon-controlling interests that meet the criteria for inclusion in Common Equity Tier 1 capital.

Additional Tier 1 capital consists primarily of preferred securities and perpetual subordinated bonds.

Tier 2 capital consists primarily of subordinated debt securities.

The capital adequacy guidelines permit Japanese banks to choose from the standardized approach (“SA”), the foundation Internal Ratings-Based (“IRB”) approach and the advanced IRB approach for credit risk, and the basic indicator approach (“BIA”), the standardized approach (“TSA”) and the Advanced Measurement Approach (“AMA”) for operational risk. To be eligible to adopt the foundation IRB approach or the advanced IRB approach for credit risk, and TSA or AMA for operational risk, a Japanese bank must establish advanced risk management systems and receive prior approval from the FSA.

Adopting these approved approaches, the Group has complied with all externally imposed capital requirements throughout the period.

Failure of a Japanese bank, bank holding company or other financial institution to maintain the required risk-weighted capital ratios, may result in administrative actions or sanctions imposed by the FSA.

F-145

Regulatory capital

The table below presents the Group’s total capital ratio, total capital and risk-weighted assets under Japanese GAAP at March 31, 2020 and 2019 based on the Basel III rules.

	At March 31,
	2020			2019
	(In billions, except percentages)
SMFG Consolidated:
Total risk-weighted capital ratio		18.75	%		20.76	%
Tier 1 risk-weighted capital ratio		16.63	%		18.19	%
Common Equity Tier 1 risk-weighted capital ratio		15.55	%		16.37	%
Total capital (Common Equity Tier 1 capital + Additional Tier 1 capital + Tier 2 capital)	¥	11,552.0		¥	12,240.5
Tier 1 capital (Common Equity Tier 1 capital + Additional Tier 1 capital)		10,249.9			10,727.2
Common Equity Tier 1 capital		9,581.3			9,654.5
Risk-weighted assets		61,599.1			58,942.8
The amount of minimum total capital requirements(1)		4,927.9			4,715.4

(1) The amount of minimum total capital requirements is calculated by multiplying risk-weighted assets by 8%.

46 RELATED-PARTY TRANSACTIONS

Transactions with Related Parties

The Group considers that its related parties include subsidiaries, associates, joint ventures, key management personnel and close family members of key management personnel. Any transactions between the Group and its subsidiaries meet the definition of related-party transactions. However, because these transactions are eliminated on consolidation, they are not disclosed as related-party transactions. Transactions between the Group and its related parties are conducted on substantially the same terms as third-party transactions.

The transaction amounts included in the accounts, in aggregate, by category of related party were as follows:

Transactions with associates, joint ventures and other entities

			At March 31,
			2020(1)		2019(1)
			(In millions)
Assets:
Loans and advances			¥	1,693,161	¥	1,661,149
Others				115,885		89,534
Liabilities:
Deposits			¥	208,978	¥	178,076
Others				116,015		78,540
	For the fiscal year ended March 31,
	2020(1)		2019(1)		2018
	(In millions)
Income statements:
Income (interest income, fee and commission income, and others)	¥	68,752	¥	38,713	¥	15,665
Expense (interest expense and others)		26,049		25,799		15,601

F-146

(1) On November 28, 2018, Sumitomo Mitsui Finance and Leasing Company, Limited (“SMFL”), which had been the Company’s subsidiary, became the Company’s joint venture. As a result, the transactions with SMFL and its subsidiaries were included in the line items.

Financial guarantees issued by the Group for its associates at March 31, 2020 and 2019 were ¥330,366 million and ¥338,679 million, respectively.

Loan commitments to associates and joint ventures at March 31, 2020 and 2019 were ¥848,536 million and ¥1,360,802 million, respectively.

Transactions with key management personnel and their close family members

Key management personnel are those persons having authority and responsibility for planning, directing and controlling the activities of the Group, directly or indirectly. The Group considers the members of the board of directors and corporate executive officers of SMFG to constitute key management personnel for the purpose of this disclosure required under IAS 24 “Related Party Disclosures.”

	At March 31,
	2020		2019
	(In millions)
Liabilities:
Deposits	¥	2,078	¥	1,631
Others		84		94

Compensation of Key Management Personnel

The following table presents the compensation expenses of key management personnel.

	For the fiscal year ended March 31,
	2020		2019		2018
	(In millions)
Short-term employee benefits	¥	1,206	¥	1,102	¥	1,135
Share-based compensation		316		304		295

The details of the share-based compensation plan are described in Note 39 “Share-Based Payment.”

There were no post-employment benefits, other long-term benefits and termination benefits for the fiscal years ended March 31, 2020, 2019 and 2018.

47 PRINCIPAL SUBSIDIARIES

Principal Subsidiaries

The Group’s principal subsidiaries at March 31, 2020 are shown in the list below. The Group consolidates all entities that the Group controls. The Group controls an entity when the Group is exposed, or has rights, to variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity.

F-147

Principal domestic subsidiaries

Company Name	Proportion of Ownership Interest(1)		Proportion of Voting Rights(1)		Main Business
	(%)		(%)
Sumitomo Mitsui Banking Corporation		100.0		100.0	Commercial banking
SMBC Trust Bank Ltd.		100.0		100.0	Trust banking
SMBC Guarantee Co., Ltd.		100.0		100.0	Credit guarantee
SMBC Nikko Securities Inc.		100.0		100.0	Securities
Sumitomo Mitsui Card Company, Limited		100.0		100.0	Credit card
Cedyna Financial Corporation		100.0		100.0	Credit card and consumer credit
SMBC Consumer Finance Co., Ltd.		100.0		100.0	Consumer lending
SMBC Mobit Co., Ltd.		100.0		100.0	Consumer lending
SMBC Finance Service Co., Ltd.		100.0		100.0	Collecting agent and factoring
The Japan Research Institute, Limited		100.0		100.0	System development, data processing, management consulting and economic research
Sumitomo Mitsui DS Asset Management Company, Limited		50.1		50.1	Investment advisory and investment trust management
NCore Co., Ltd.		51.0		51.0	Data processing service and consulting
SMBC Venture Capital Co., Ltd.		40.0		40.0	Venture capital
SMBC Consulting Co., Ltd.		98.3		98.3	Management consulting and information services
Japan Pension Navigator Co., Ltd.		69.7		69.7	Operational management of defined contribution pension plans

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

Principal foreign subsidiaries

Company Name	Country of Incorporation	Proportion of Ownership Interest(1)		Proposition of Voting Rights(1)		Main Business
		(%)		(%)
Sumitomo Mitsui Banking Corporation Europe Limited	U.K.		100.0		100.0	Commercial banking
Sumitomo Mitsui Banking Corporation (China) Limited	China		100.0		100.0	Commercial banking
PT Bank BTPN Tbk(2)	Indonesia		98.4		93.5	Commercial banking
SMBC Americas Holdings, Inc.	U.S.A.		100.0		100.0	Bank holding company
Manufacturers Bank	U.S.A.		100.0		100.0	Commercial banking
Banco Sumitomo Mitsui Brasileiro S.A	Brazil		100.0		100.0	Commercial banking
JSC Sumitomo Mitsui Rus Bank	Russia		100.0		100.0	Commercial banking
SMBC Bank EU AG	Germany		100.0		100.0	Commercial banking
Sumitomo Mitsui Banking Corporation Malaysia Berhad	Malaysia		100.0		100.0	Commercial banking
SMBC Leasing and Finance, Inc.	U.S.A.		100.0		100.0	Leasing
SMBC Nikko Securities America, Inc.	U.S.A.		100.0		100.0	Securities
SMBC Nikko Capital Markets Limited	U.K.		100.0		100.0	Securities
SMBC Capital Markets, Inc.	U.S.A.		100.0		100.0	Derivatives
TT International Asset Management Ltd	U.K.		100.0		100.0	Investment advisory and investment trust management

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

(2) During the fiscal year ended March 31, 2020, the Group disposed of 4.9% equity interest in PT Bank BTPN Tbk to a third party investor. The disposal was undertaken to ensure that PT Bank BTPN Tbk is compliant with the free float requirement under the Indonesia Stock Exchange’s Rule. The Group had also entered into a commercial arrangement where the economic exposure resulting from the disposal is being retained. Therefore the disposal has not resulted in a decrease in the Group’s ownership interests.

SMBC Venture Capital Co., Ltd. is accounted for as subsidiaries, despite the Group’s holdings of less than 50% of the voting rights, because the Group is able to govern the financial and operating policies of this company under a statute or an agreement.

The Group does not control some entities despite the fact that the Group holds more than 50% of their share capital, because the Group has entered into agreements with other investors to share or give those investors the power to govern the entities’ financial and operating policies over these investees.

Some of the Group’s subsidiaries may be subject to restrictions on the ability to transfer funds to the Company in the form of cash dividends or to repay loans or advances, which include capital adequacy requirements imposed by the governments and central banks, and the Companies Act restrictions relating to dividends. In addition, the Group pledges assets as collateral to secure payables under repurchase agreements, securities lending transactions and securitizations, borrowings or for cash settlements, margins on derivative transactions and certain other purposes. The details of assets pledged are described in Note 38 “Assets Pledged and Received as Collateral.”

48 STRUCTURED ENTITIES

A structured entity is an entity that has been designed so that voting or similar rights are not the dominant factor in deciding who controls the entity. It often has some or all of the following features or attributes:

• restricted activities;

• a narrow and well-defined objective;

• insufficient equity to permit the structured entity to finance its activities without subordinated financial support; or

• financing in the form of multiple contractually linked instruments to investors that create concentrations of credit or other risks (tranches).

During the normal course of business, the Group engages in numerous transactions involving structured entities. These structured entities are primarily used to provide the Group and its clients with efficient access to funds or investment opportunities, mainly through securitizations, investment funds and structured finance.

Consolidated Structured Entities

Structured entities are consolidated if they are controlled by the Group in accordance with the accounting policy as described in Note 2 “Summary of Significant Accounting Policies.”

The consolidated structured entities include asset backed commercial paper (“ABCP”) conduits which purchase financial assets such as trade accounts receivable and lease receivables by issuing commercial paper to third-party investors. The Group has contractual agreements to provide liquidity and credit enhancement facilities which can be utilized by those structured entities upon their request.

At March 31, 2020 and 2019, the consolidated ABCP conduits had total assets of ¥726,070 million and ¥728,778 million, respectively. The total notional amounts of the liquidity and credit enhancement facilities provided by the Group to the consolidated ABCP conduits at March 31, 2020 and 2019 were ¥1,275,529 million and ¥1,050,986 million, respectively, part of which was drawn at March 31, 2020.

F-149

The Group did not provide any financial or other support, without having a contractual obligation to do so, to consolidated structured entities during the fiscal years ended March 31, 2020 and 2019.

Unconsolidated Structured Entities

The following tables represent the carrying amounts of the Group’s interests in unconsolidated structured entities recognized in its consolidated statements of financial position by line item and the maximum exposure to loss from its interests at March 31, 2020 and 2019.

	At March 31, 2020
	Securitizations		Investment funds		Structured finance		Others		Total
	(In millions)
Interests in unconsolidated structured entities recognized in:
Trading assets	¥	14,112	¥	53,490	¥	—	¥	—	¥	67,602
Financial assets at fair value through profit or loss		240		628,177		128,823		—		757,240
Investment securities		25,153		25,668		—		466		51,287
Loans and advances		2,608,076		—		5,741,542		672,306		9,021,924
Total	¥	2,647,581	¥	707,335	¥	5,870,365	¥	672,772	¥	9,898,053
Maximum exposure to loss from interests in unconsolidated structured entities	¥	3,208,568	¥	708,636	¥	6,699,939	¥	812,060	¥	11,429,203
	At March 31, 2019
	Securitizations		Investment funds		Structured finance		Others		Total
	(In millions)
Interests in unconsolidated structured entities recognized in:
Trading assets	¥	16,581	¥	39,614	¥	—	¥	—	¥	56,195
Financial assets at fair value through profit or loss		8,637		871,368		144,297		—		1,024,302
Investment securities		15,108		27,002		—		473		42,583
Loans and advances		2,213,496		—		5,489,334		533,196		8,236,026
Total	¥	2,253,822	¥	937,984	¥	5,633,631	¥	533,669	¥	9,359,106
Maximum exposure to loss from interests in unconsolidated structured entities	¥	3,110,451	¥	944,487	¥	6,597,207	¥	712,798	¥	11,364,943

An interest in a structured entity refers to contractual andnon-contractual involvement that exposes the Group to variability of returns from the performance of the structured entity. Such interests include the holding of equity or debt instruments as well as the provision of loans, loan commitments and guarantees. Interest rate and currency derivatives that expose the Group mainly to market risk, or CDS that are designed to transfer risk from the Group to a structured entity are not regarded as an interest in a structured entity since they do not expose the Group to variability of returns from the performance of the structured entity. These derivatives are therefore not included in the tables above.

The maximum exposure to loss from the Group’s interests in unconsolidated structured entities represents the maximum amount of potential loss to which the Group is exposed through its involvement with unconsolidated structured entities. It is determined by the Group’s carrying amounts and the notional amounts of loan commitments and guarantees, without considering the probability of loss being incurred, or effects of collateral or other credit protection.

F-150

The Group did not provide any financial or other support, without having a contractual obligation to do so, to unconsolidated structured entities during the fiscal years ended March 31, 2020 and 2019.

Securitizations

Structured entities for this product are established to securitize third-parties’ assets which mainly consist of auto loan receivables, residential and commercial mortgage loans and trade accounts receivables. These entities purchase those assets through loans or notes issued with multiple tranches. The Group provides loans and loan commitments to these entities or holds notes issued by them, in some cases with credit loss protection through guarantees or other credit enhancements provided by the sellers.

Investment Funds

These funds are established for providing investment opportunities to investors by pooling money from them and investing mainly in equity and debt instruments based on a predetermined investment policy. The Group has invested in a number of these funds.

Structured Finance

Structured entities for this product are typically established to raise funds for the development of infrastructure, the production of natural resources, the development or acquisition of real estate properties, and the purchase of certain equipment such as vessels or aircrafts for lease transactions. The Group provides financing to these entities mainly in the form of loans, loan commitments, or notes, which are typically secured by entities’ assets or cash flows generated primarily by entities’ projects.

Others

The Group provides financing to other types of structured entities such as third-party structured entities and repackaging vehicles to facilitate its clients’ funding requirements. The Group provides loans and loan commitments to these entities.

Sponsored Unconsolidated Structured Entities with No Interest Held by the Group

The Group sponsors certain structured entities in which it has no interest. The Group is deemed to be a sponsor of a structured entity when the Group takes a leading role in determining its purpose and design, while providing operational support to ensure its continued operation.

The income received from such sponsored unconsolidated structured entities was ¥39,734 million and ¥24,478 million for the fiscal years ended March 31, 2020 and 2019, respectively. The majority of the income was management fees included in “Fee and commission income” and was from investment funds managed by SMDAM, the Group’s asset management subsidiary. The carrying amount of assets transferred to these entities, which mainly consisted of investment funds, was ¥813,442 million and ¥1,361,979 million for the fiscal years ended March 31, 2020 and 2019, respectively.

49 ACQUISITIONS

Fiscal Year Ended March 31, 2020

Daiwa SB Investments Ltd. (currently merged into Sumitomo Mitsui DS Asset Management Company, Limited)

On April 1, 2019, Sumitomo Mitsui Asset Management Company, Limited (“SMAM”), the Group’s subsidiary, merged with Daiwa SB Investments Ltd. (“DSBI”), previously the Group’s associate, to form Sumitomo Mitsui DS Asset Management Company, Limited (“SMDAM”). The Group’s equity interest in SMDAM resulting from the merger is 50.12%, and as such, SMDAM is the Group’s subsidiary. This merger was made for the purpose of establishing an asset management company that combines the strengths and expertise of SMAM and DSBI, and offers high quality investment management performance and services in order to properly address client needs.

F-151

The fair values of assets and liabilities of DSBI at the date of acquisition and the consideration paid were as follows:

	At April 1, 2019
	(In millions)
Assets:(1)
Cash and deposits with banks	¥	22,798
Intangible assets		20,078
Trading assets		14,019
All other assets		8,284
Total assets	¥	65,179
Liabilities	¥	18,038
Net assets	¥	47,141
Non-controlling interests measured at their proportionate share of the identifiable net assets and others		(23,093	)
Net assets acquired		24,048
Goodwill		17,022
Consideration	¥	41,070
Consideration:
Fair value of total consideration transferred	¥	959
Fair value of the equity interest in DSBI held before the acquisition		40,111
Total	¥	41,070
Acquisition related costs recognized as an expense in “General and administrative expenses” in the consolidated income statement	¥	9

(1) The fair value of DSBI’s assets at the date of acquisition included the outstanding balance arising from the transactions made between the Group and DSBI, which included deposits with the Group amounting to ¥21 billion.

The fair value of consideration transferred represents the fair value of the reduction of the Group’s interest in SMAM. The Group’s interest in SMAM decreased from 51.19% to 50.12% and its interest in DSBI increased from 48.96% to 50.12% substantially as a result of a stock issuance from SMDAM to the shareholders of DSBI at the date of the business combination.

The goodwill was attributable to the profitability of the acquired business and the synergies expected to arise after the acquisition. None of the goodwill recognized is expected to be deductible for income tax purposes.

The Group recognized a profit of ¥21,998 million on this step acquisition, which was included in “Other income” in the consolidated income statements.

The revenue and profit or loss relating to DSBI since the acquisition date to March 31, 2020 is immaterial to the consolidated financial statements.

F-152

Cash consideration paid and cash acquired by obtaining control of the subsidiaries

The total amount of cash consideration paid and cash acquired by obtaining control of subsidiaries during the fiscal year ended March 31, 2020 were as follows:

	For the fiscal year ended March 31, 2020
	(In millions)
Cash consideration paid	¥	(17,797	)
Cash and cash equivalents transferred as a result of the acquisitions		1,855
Cash consideration paid, net of cash and cash equivalents acquired by obtaining control of the subsidiaries	¥	(15,942	)

The amounts of assets and liabilities other than cash or cash equivalents in these subsidiaries were ¥72,642 million and ¥21,330 million, respectively.

Fiscal Year Ended March 31, 2019

PT Bank Tabungan Pensiunan Nasional Tbk

On January 30, 2019, SMBC, the Group’s wholly owned subsidiary, acquired an additional share of PT Bank Tabungan Pensiunan Nasional Tbk, previously an associate bank of SMBC in Indonesia. As a result of the acquisition, the Group increased its equity interest in PT Bank Tabungan Pensiunan Nasional Tbk from 40.58% to 98.50% and obtained control of PT Bank Tabungan Pensiunan Nasional Tbk. Subsequently, on February 1, 2019, PT Bank Tabungan Pensiunan Nasional Tbk merged with PT Bank Sumitomo Mitsui Indonesia, a consolidated subsidiary of SMBC also in Indonesia, and the merged company changed its corporate name to PT Bank BTPN Tbk. This merger was made for the purpose of operating a full-fledged commercial banking business in Indonesia and further developing its franchise to offer broader financial services to its customers.

F-153

The fair values of assets and liabilities of BTPN at the date of acquisition and the consideration paid were as follows:

	At January 30, 2019
	(In millions)
Assets:
Cash and deposits with banks	¥	149,331
Loans and advances		522,918
Intangible assets		57,803
All other assets		107,471
Total assets	¥	837,523
Liabilities:
Deposits	¥	538,529
All other liabilities		104,817
Total liabilities	¥	643,346
Net assets		194,177
Non-controlling interests measured at their proportionate share of the identifiable net assets and others		(9,494	)
Net assets acquired		184,683
Goodwill		4,707
Consideration	¥	189,390
Consideration:
Cash	¥	111,365
Fair value of the equity interest in BTPN held before the acquisition 35,902		78,025
Total	¥	189,390
Acquisition related costs recognized as an expense in “General and administrative expenses” in the consolidated income statement	¥	776

The fair value of the financial assets acquired included ¥522,918 million of loans and advances.

The gross contractual amounts receivable were ¥517,840 million, of which ¥12,404 million were expected to be uncollectible.

The goodwill was attributable to the profitability of the acquired business and the synergies expected to arise after the acquisition. None of the goodwill recognized is expected to be deductible for income tax purposes.

The Group recognized a loss of ¥25,744 million on this step acquisition, which was included in “Other expenses” in the consolidated income statements.

The revenue and profit or loss since the acquisition date to March 31, 2019 and pro forma financial information relating to PT Bank Tabungan Pensiunan Nasional Tbk are immaterial to the consolidated financial statements.

F-154

Cash consideration paid and cash acquired by obtaining control of the subsidiaries

The total amount of cash consideration paid and cash acquired by obtaining control of subsidiaries during the fiscal year ended March 31, 2019 were as follows:

	For the fiscal year ended March 31, 2019
	(In millions)
Cash consideration paid	¥	(111,365	)
Cash and cash equivalents transferred as a result of the acquisitions		149,331
Cash consideration paid, net of cash and cash equivalents acquired by obtaining control of the subsidiaries	¥	37,966

The amounts of assets and liabilities other than cash or cash equivalents in these subsidiaries were ¥688,192 million and ¥643,346 million, respectively.

Fiscal Year Ended March 31, 2018

American Railcar Leasing LLC

On June 1, 2017, the Group, through SMBC Rail Services LLC, the Company’s railcar operating leasing subsidiary, acquired all membership interests of American Railcar Leasing LLC (“ARL”), one of the leading railcar leasing companies in the United States. This acquisition was made for the purpose of expanding the Company’s railcar leasing business and services by further enhancing its fleet portfolio to appropriately meet diverse needs of clients in a wide range of industries.

The fair values of assets and liabilities of ARL at the date of acquisition and the consideration paid were as follows:

	At June 1, 2017
	(In millions)
Assets:
Property, plant and equipment	¥	304,257
All other assets		15,719
Total assets	¥	319,976
Liabilities:
Borrowings	¥	147,523
All other liabilities		1,947
Total liabilities	¥	149,470
Net assets acquired		170,506
Goodwill		—
Consideration	¥	170,506
Consideration:
Cash	¥	170,506
Total	¥	170,506
Acquisition related costs recognized as an expense in “General and administrative expenses” in the consolidated income statement	¥	1,264

The revenue and profit or loss since the acquisition date to March 31, 2018 and pro forma financial information relating to ARL are immaterial to the consolidated financial statements.

F-155

The amount of cash consideration paid relating to ARL, net of cash and cash equivalents acquired amounting to ¥9,644 million, was ¥160,862 million.

50 CURRENT ANDNON-CURRENT DISTINCTION

The following tables present an analysis of financial assets and liabilities, excluding cash and deposits with banks, trading assets and liabilities, and derivative financial instruments, by amounts recovered or settled, not more than twelve months or more than twelve months, at March 31, 2020 and 2019.

	At March 31, 2020
	Amounts recovered or settled
	Not more than twelve months		More than twelve months		Total
	(In millions)
Assets:
Call loans and bills bought	¥	854,548	¥	43,708	¥	898,256
Reverse repurchase agreements and cash collateral on securities borrowed		13,676,260		69,736		13,745,996
Financial assets at fair value through profit or loss		298,350		1,180,006		1,478,356
Investment securities:
Debt instruments at amortized cost		287,432		33,339		320,771
Debt instruments at fair value through other comprehensive income		5,578,741		12,475,423		18,054,164
Equity instruments at fair value through other comprehensive income		—		3,489,451		3,489,451
Loans and advances		32,884,236		61,787,582		94,671,818
Other financial assets		4,109,546		120,132		4,229,678
Liabilities:
Deposits	¥	133,891,776	¥	4,539,642	¥	138,431,418
Call money and bills sold		3,740,540		—		3,740,540
Repurchase agreements and cash collateral on securities lent		15,455,782		—		15,455,782
Borrowings		10,482,673		6,638,689		17,121,362
Debt securities in issue		3,009,936		7,975,112		10,985,048
Other financial liabilities		7,146,795		3,456		7,150,251

F-156

	At March 31, 2019
	Amounts recovered or settled
	Not more than twelve months		More than twelve months		Total
	(In millions)
Assets:
Call loans and bills bought	¥	2,416,538	¥	49,207	¥	2,465,745
Reverse repurchase agreements and cash collateral on securities borrowed		10,273,844		72,150		10,345,994
Financial assets at fair value through profit or loss		871,333		1,770,083		2,641,416
Investment securities:
Debt instruments at amortized cost		46,912		272,002		318,914
Debt instruments at fair value through other comprehensive income		2,381,961		10,951,260		13,333,221
Equity instruments at fair value through other comprehensive income		—		4,172,892		4,172,892
Loans and advances		31,176,468		59,506,470		90,682,938
Other financial assets		3,507,199		101,930		3,609,129
Liabilities:
Deposits	¥	129,647,380	¥	4,757,272	¥	134,404,652
Call money and bills sold		1,307,779		—		1,307,779
Repurchase agreements and cash collateral on securities lent		12,887,249		—		12,887,249
Borrowings		8,713,483		3,454,375		12,167,858
Debt securities in issue		3,521,706		7,649,503		11,171,209
Other financial liabilities		5,593,895		2,618		5,596,513

51 CONDENSED FINANCIAL INFORMATION OF REGISTRANT (SMFG)

Condensed Statements of Financial Position

	At March 31,
	2020		2019
	(In millions)
Assets:
Deposits with SMBC	¥	174,641	¥	434,005
Investments in SMBC		4,613,790		4,613,790
Loans to SMBC		7,445,175		6,258,343
Investments in other subsidiaries, associates and joint ventures		1,733,095		1,477,703
Other assets		136,040		93,112
Current tax assets		127,542		118,878
Total assets	¥	14,230,283	¥	12,995,831
Liabilities and equity:
Short-term borrowings from SMBC	¥	1,228,030	¥	1,228,030
Long-term borrowings		231,276		234,223
Debt securities in issue due to other subsidiaries		6,085		284,297
Debt securities in issue		6,013,305		4,898,140
Other liabilities		85,580		52,813
Total liabilities		7,564,276		6,697,503
Shareholders’ equity		5,985,688		5,702,082
Other equity instruments holders’ equity		680,319		596,246
Total equity		6,666,007		6,298,328
Total equity and liabilities	¥	14,230,283	¥	12,995,831

F-157

Condensed Income Statements

	For the fiscal year ended March 31,
	2020			2019			2018
	(In millions)
Income:
Interest income from SMBC	¥	165,322		¥	145,075		¥	99,100
Dividends from SMBC		637,703			325,333			223,334
Dividends from other subsidiaries, associates and joint ventures		21,726			46,473			33,668
Fees and commission income from subsidiaries		9,048			5,666			10,226
Other income		19			106,712			217
Total income		833,818			629,259			366,545
Expense:
Interest expense to SMBC		4,328			4,298			4,298
Interest expense to other subsidiaries		14,502			13,663			16,309
Interest expense		148,177			128,360			89,699
Operating and other expense		22,812			24,857			21,525
Total expense		189,819			171,178			131,831
Profit before tax		643,999			458,081			234,714
Income tax expense		(6,416	)		(28,517	)		(7,085	)
Net profit	¥	650,415		¥	486,598		¥	241,799
Profit attributable to:
Shareholders		638,051			474,723			232,077
Other equity instruments holders		12,364			11,875			9,722

F-158

Condensed Statements of Cash Flows

	For the fiscal year ended March 31,
	2020			2019			2018
	(In millions)
Operating Activities:
Profit before tax	¥	643,999		¥	458,081		¥	234,714
Income taxes paid—net		7,043			(17,440	)		35,010
Other operating activities—net		(3,023	)		(108,622	)		(3,736	)
Net cash and cash equivalents provided by operating activities		648,019			332,019			265,988
Investing Activities:
Loans provided to SMBC		(1,338,045	)		(626,746	)		(2,241,774	)
Investments in subsidiaries		(255,468	)		—			—
Proceeds from sale of investment in subsidiaries		—			184,122			—
Other investing activities—net		(16,495	)		(6,548	)		(13,833	)
Net cash and cash equivalents used in investing activities		(1,610,008	)		(449,172	)		(2,255,607	)
Financing Activities:
Proceeds from issuance of long-term borrowings		5,053			35,002			66,415
Redemption of long-term borrowings		(8,000	)		—			—
Proceeds from issuance of debt securities		1,255,939			591,744			1,525,271
Proceeds from issuance of other equity instruments		84,073			—			149,080
Redemption of debt securities		(266,700	)		—			—
Dividends paid to shareholders		(255,771	)		(245,595	)		(218,569	)
Coupons paid to other equity instruments holders		(12,364	)		(11,875	)		(9,722	)
Purchases of treasury stock and proceeds from sale of treasury stock—net		(99,605	)		(69,799	)		380
Net cash and cash equivalents provided by financing activities		702,625			299,477			1,512,855
Net increase (decrease) of cash and cash equivalents		(259,364	)		182,324			(476,764	)
Cash and cash equivalents at beginning of period		434,005			251,681			728,445
Cash and cash equivalents at end of period	¥	174,641		¥	434,005		¥	251,681

Investments in subsidiaries, associates and joint ventures

Investments in subsidiaries, associates and joint ventures are stated at cost. The Company recognizes dividend income from these companies when its right to receive payment is established.

Investments in other subsidiaries, associates and joint ventures included equity investments in SMBC Nikko Securities Inc., Sumitomo Mitsui Card Company, Limited, SMBC Consumer Finance Co., Ltd., Sumitomo Mitsui DS Asset Management Company, Limited (“SMDAM”), Sumitomo Mitsui Finance and Leasing Company, Limited (“SMFL”) and others at March 31, 2020, and SMBC Nikko Securities Inc., SMFG Card & Credit, Inc., SMBC Consumer Finance Co., Ltd., SMDAM, SMFL and others at March 31, 2019. These companies are incorporated in Japan, and the proportion of ownership interest of the Company in these companies was the same as described in Note 11 “Investments in Associates and Joint Ventures,” and Note 47 “Principal Subsidiaries.”

F-159

Long-term obligations

The Company had had perpetual subordinated bonds of ¥267 billion outstanding to its subsidiary, SMFG Preferred Capital JPY3 Limited, at March 31, 2019, which were redeemed during the fiscal year ended March 31, 2020.

The Company had subordinated long-term borrowings amounting to ¥41 billion and ¥49 billion at March 31, 2020 and 2019, respectively, and had unsubordinated long-term borrowings amounting to ¥190 billion and to ¥185 billion at March 31, 2020 and 2019, respectively. The Company also had subordinated bonds amounting to ¥969 billion and ¥954 billion, including ¥0.3 billion and ¥5 billion outstanding to its subsidiary, at March 31, 2020 and 2019, respectively, and had senior bonds amounting to ¥5,050 billion and ¥3,962 billion, including ¥6 billion and ¥12 billion outstanding to its subsidiary, at March 31, 2020 and 2019, respectively. For additional information, refer to Note 18 “Borrowings” and Note 19 “Debt Securities in Issue.”

Guarantees

The Company provided guarantee of ¥254 billion and ¥234 billion at March 31, 2020 and 2019, respectively, to the Deposit Protection Fund of the Association of German Banks with regard to the deposits of the SMBC Dusseldorf branch.

F-160